Resilience in Contract Law a Proactive/Preventive Law approach

Resilience in law is a new term. If it is used at all, it is mostly connected to administrative and ecological law (see i.e.: Ahjond et al., 2013) or used for psychological aspects loosely connected to legal issues, such as psychological help for lawyers (University of Western Australia, current students, resilience). Even the FBI – without doubt a legal institution of the US administration – provides information for people to become more resilient (Larned, Jean G., 2012). In this information brochure resilience is linked to proactivity as it suggests a “proactive use of resilience” which “allows you the ability to seek out new experiences that will enrich your life.”

 

Resilience in Contract Law a Proactive/Preventive Law approach

 I. Introduction

II. Defining Resilience in law

III. The Proactive/Preventive Law approach

A. The distinction between Preventive and Proactive law

B. Some characteristics of the Preventive/ Proactive Law approach

IV. Resilience in contract law understood from the Proactive Law perspective

 

I. Introduction

Resilience in law is a new term. If it is used at all, it is mostly connected to administrative and ecological law (see i.e.: Ahjond et al., 2013) or used for psychological aspects loosely connected to legal issues, such as psychological help for lawyers (University of Western Australia, current students, resilience). Even the FBI – without doubt a legal institution of the US administration – provides information for people to become more resilient (Larned, Jean G., 2012). In this information brochure resilience is linked to proactivity as it suggests a “proactive use of resilience” which “allows you the ability to seek out new experiences that will enrich your life.”

Those two notions, the ecologic and psychological use of the term “resilience” connect to the long accepted use of resilience. Resilience was invented first for ecological systems. It was originally introduced by Holling (1973) as a concept to help understand the capacity of ecosystems with alternative attractors to persist in the original state subject to perturbations (Folke et al. 2010).

Resilience since then has been frequently redefined and extended by heuristic, metaphorical, or normative dimensions. Meanwhile, the concept is used by various scientific disciplines as an approach to analyze ecological as well as social-ecological systems. As such, it promotes research efforts across disciplines and between science and policy (Brand, F. S.et al. 2007).

Brand et al. suggest that in this broader sense it works as a boundary object which signifies a term that facilitates communication across disciplinary borders by creating shared vocabulary although the understanding of the parties would differ regarding the precise meaning of the term in question (ibid.). The disadvantage of using the term „resilience“ as a boundary object are seen in the growing vagueness and the blurry meaning of the term. Yet the advantage remains that by bringing in a broader meaning communication is fostered in between science disciplines which is absolutely necessary to face and solve the problems i.e. in the ecological field, where it is crucial to involve also lawyers, economists and other stakeholders. Some authors suggest therefore a twofold definition of resilience: One very specific empiric/ descriptive meaning for ecological science and another meaning which is more vague and has possibly a normative content for other sciences as a boundary object (ibid.).

In the field of psychology resilience is defined as: “the process of adapting well in the face of adversity, trauma, tragedy, threats or significant sources of stress — such as family and relationship problems, serious health problems or workplace and financial stressors. It means „bouncing back“ from difficult experiences” (American Psychological Association, 2014).

A definition of the buzz-term “resilience” embracing all scientific disciplines is difficult to achieve. Brand et al. 2007 make a distinction between empirical and normative definitions of the term. For a definition in the field of legal studies a normative approach seems to be appropriate. In a metaphoric (normative) interpretation, the concept of resilience means “flexibility over the long term” and is viewed as desirable as such (Brand et al., 2007).

II. Defining Resilience in law

Still lawyers prefer definitions contained in law documents. Such a document containing a legal definition of resilience is the Presidential Policy Directive (PPD) on Critical Infrastructure Security and Resilience, 2013. Although the legal nature of Presidential Directives are viewed in diverse ways (Gaziano, Todd, 2001) and it is not easy to assess to which extend it is binding onto whom, it is yet clear that it has at least a binding force as soft law.

The cited PPD gives the following general definition on resilience: “The term „resilience“ means the ability to prepare for and adapt to changing conditions and withstand and recover rapidly from disruptions” (ibid.). It then states as an example that “resilience includes the ability to withstand and recover from deliberate attacks, accidents, or naturally occurring threats or incidents.”

Taking into account this general definition of resilience the term is no longer connected to a certain area of law but can be transferred into different fields of law, i.e. contract law. From this more abstract perspective the term “resilience” in law can be combined with the Proactive Law approach which could lead to a fruitful use of the term in this context. This combination shall be analyzed in the following.

III. The Proactive/Preventive Law Approach

The proactive understanding of the law is an approach that combines legal thinking with a number of economic and communication skills, practices and procedures that can help organizations and individuals to recognize and perceive economic opportunities in the right time or to discover possible legal problems early enough to take measures to avoid the risk to emerge. Along with the proactive understanding, the law is to be best applied preventively before things go wrong, and (in the worst case) the conflict is taken to court. It is a future-oriented approach to law.

It comprises a way of legal thinking and a set of skills, practices and procedures that help to identify opportunities in time to take advantage of them – and to spot potential problems while preventive action is still possible.

In addition to avoiding disputes, litigation and other hazards, Proactive Law seeks ways to use the law to create value, strengthen relationships and manage risk (Nordic School of Proactive Law, webside, 2014). Proactivity has existed in the legal sphere for quite some time but, compared with many other legal fields, the perspective has not been widely researched or practiced. Proactive Law has its origins in Preventive Law comprising legal and practical principles for anticipating and avoiding legal problems.

Preventive Law was “invented” in the 1950th by Prof. Louis M. Brown. Since then it developed a lot. In the 1980th the National Center for Preventive Law (NCPL) was founded and is hosted by California Western School of Law, San Diego, CA. The starting point of the idea of Preventive Law was that in University law is mostly taught from an ex post perspective, the perspective of litigation, a perspective we could call “the courtroom perspective”. Despite this fact of preparing lawyers to be able to win legal fights in courts (as the education of lawyers in the US would students to prepare to) or to become a judge (as the education in Germany would prepare) what many lawyers do has not so much to do with courts. A large amount of the working time of lawyers is spent to help their clients to make deals, arrange transactions, design legal institutions etc. (Dauer, Edward, remembering, 2007, p. 8). In Germany most lawyers become advocates and not judges. Along with the figure given by the German chamber of attorneys (BRAK) every year between 7.500-8.000 new advocates /lawyers are registered in Germany (BRAK webside).

As a consequent of these findings the conclusion can be drawn that the tasks lawyers actually do are not taught enough in Universities. This is a perception that is not only vital in the US, where preventive lawyers actually since the 1960 argued this way and where this led i.e. to the fact that nowadays beside Moot-Courts there exist also student contests about legal counseling, but it can also be seen in Germany where it was lately criticized that the design of laws (not only the design of statutes but also contracts) is not enough taught in the legal education (see i.e. Rawert, Peter, 2012, p. 58).

A. The distinction between Preventive and Proactive Law

While the Preventive Law approach is legal thinking about future legal risks. The proactive approach was created to stress the parallel of legal proactive thinking to medical thinking. (Dauer, Edward, 2007, 4 principles, p.13).

Proactive Law practice has its origins in Preventive Law. Both approaches have many similarities with preventive medicine: a branch of medical science dealing with methods (such as vaccination) of preventing the occurrence of disease. Along the same line, it can be stated that Proactive Law aims at “vaccinating” business people against the “disease” of legal trouble, disputes, and litigation. The goal is to build a protective system or a defence mechanism that makes the corporate client, its management and personnel, strong and resistant; keeps them in good legal health and “immune” to the legal risks inherent in business. (Haapio, Helena,  Introduction, p. 22).

While Preventive Law transforms the strategies of preventive medicine (fighting primary causes of an illness, then the secondary effects and last the tertiary consequences of an illness) the proactive approach goes a little further: in medical terms it wants to strengthen the awareness of the population for self-care and a healthy behavior before an illness is diagnosed, by reducing risks for illnesses.

So transformed into the legal sphere Preventive Law focuses on managing conflict and avoiding litigation, handling problems and managing risks, minimizing costs and losses and provides professional legal care while Proactive Law beyond this also focuses on balancing risks and rewards achieving desired outcomes eliminating causes of problems, shared care and team approach lawyers supporting clients self care.

B. Some characteristics of the Preventive/ Proactive Law approach

– Past versus future

Traditional legal thought is oriented to the past, but preventive/proactive thinking is oriented towards the future (Barton, Thomas, 2007, p. 36). When doing a legal risk assessment or a cost-benefit analysis, it is helpful to know what legal principles and rules apply in a given situation and what courts and regulators have done in the past.

However, from the perspective of Proactive Law this is not enough. If we want to help businesses succeed and avoid legal trouble, we need to be involved with what people have done in the past, and what they will do in the future. Proactive lawyering is not about applying legal rules to facts that happened in the past, but about applying sound legal practices to create future facts and to plan a future course of conduct (Haapio, Helena, Introduction, p. 23). Because of their promissory nature, contracts orient to the future, attempting to plan future events or exchange (Barton, Thomas, 2007, p. 36).

– Predicting human behavior

In curative law it is essential to predict what a court will do. In Preventive/Proactive Law it is essential to predict what people will do. (Dauer, Edward, 4 principles, p. 16). Here we can find many principles that are also used in alternative conflict resolution methods i.e. mediation. One thesis of this is that people bring legal claims when they sense a feeling of injury and loss. A need/expectations of people has not been met/have been disappointed, it is not necessary the one that is pursued by the claim (in court).

– Interdisciplinary approach

The proactive/preventive approach is interdisciplinary. Sociological methods are used to find out how the law is actually applied by the client/ the people to understand the law in action and not to focus solely on the law in books. An early example is i.e. Macaulay’s study from 1963 (Macaulay, S., 1963) that showed the critical importance of informal relationships in business. Based on interviews with businessmen and lawyers from 43 companies in Wisconsin, most of which were major manufacturing corporations such as S. C. Johnson, General Electric and Harley-Davidson, Macaulay generated rich stories about the ways in which contracts were, and were not, used to create exchange relationships, to adjust existing relationships, or settle disputes (Gillian K. Hadfield et al., 2013).

– Using economic methods

But also economic methods are used. In the corporate arena, legal issues and business issues become intertwined: it is indeed hard to see a boundary between law practice and the client’s business (Haapio, Helena, Introduction, p. 26). Therefore a skill that will be very useful for a proactive lawyer is economic planning skill. Proactive business lawyers work often as transactional lawyers, also known as deal lawyers. They do not just analyze legal problems or expect to be asked solely “legal questions”, but work strategically with the client. A proactive deal lawyer needs to understand what the client wants to achieve and the risk it is willing to take, and then helps to structure deals and prepare contracts so that they reflect the client’s goals, minimize risk, and work effectively both as business tools and as Proactive Law tools (Haapio, Helena, Introduction, p. 31).

– Psychological and communication skills

Psychological and communication skills are used in the communication with the client. It is about to translate legal regulations in an everyday language, so that clients can understand it. It is also about visualizing legal impact.

– Proactive/Preventive Law approach and conflict management

Conflict management is a very broad field of interest/science by itself. There is much literature about this theme in Germany very much known is the work of F. Glasl. Conflict management starts with the diagnosis of a conflict. Conflict management on a global level can be part of peace research and peace building.

Conflict management in an economic sense deals also with the distinction which method of conflict resolution is the most appropriate in a given conflict. In a white paper about the development of the court system in England it was already said in 1998: “We believe that we should want much more than an effective court system in the future. We should want an integrated civil justice system wherein the courts are a forum of last resort. … In an integrated civil justice system there is considerable scope for new technology to provide very different ways of delivering services, and indeed different services, not merely the automation of current processes. … And yet we should surely be concerned if citizens (or organizations) are not sufficiently informed to be able to know when the law might apply to them, to find out more about their legal position should they so wish, to avoid disputes where possible or resolve them using the most appropriate techniques.” (Modernising Justice, 1998).

– Proactive/Preventive Law approach is about to handle legal risks in a project risk management

Project management as such also relates to an interdisciplinary approach. In a project i.e. for the building of an airport the project management consists of economists but the lawyers have to be involved from the start, to deal with possible legal risks and to avoid them.

Risk management is also related to due diligence and legal compliance. It is about to shape future behavior in a way that potential legal risks are not to become real losses. Traditional legal thought is conceptually rooted almost exclusively in legal rules. Although it does not ignore legal rules preventive/proactive thinking also undertakes risk assessment striving for its reduction and furthermore focuses on the non legal benefits or opportunities of a client (Barton, Thomas, 2007, p. 40).

– Contract as a management tool

As the Proactive Law approach is mostly used in the economic field and contract is the core of economic transactions, contract management is in the special focus of the preventive/proactive approach. It is not only seen as legal document management (Magnusson Sjöberg, Cecilia, 2007, p. 47;  Mahler, Tobias, 2007, p. 70).

Contracts are historically ancient means of managing and regulating dyadic exchanges. (Eigen, Zev J., 2012, p. 2) Contract law evolved in parallel with liberal democratic ideals about free market exchange. In fact, since their modern formalization as legal, state-backed instruments, contractual exchange has been hailed as the foundation of both capitalism and the liberal state (ibid.).

The contract is an important tool in business relationships. Contract law, however, approaches contracts ex post, i.e. from the viewpoint of court-centered jurisprudence. Of course there is nothing wrong with the court system itself, since an effective court system has to be centralized. In court decisions, therefore, the needs and purposes of the central hierarchical legal system are at least as important as the purposes of the claimant and the defendant, since legal decisions have to be predictable.

Nevertheless, ignoring the role of contracting in business relationships is a serious defect of contract law. Contract law is taught, studied and understood through contracts that have ended up in court, looking at the arguments on which court cases were evaluated, won or lost. A contract, which from the purely-legal viewpoint is perfect, can in practice be both a bad contract and a bad tool for business cooperation. It would be a mistake to regard contracting practice solely as court practice.

Business practice and the real actors in contracting are completely forgotten because they do not fit in the court-centered approach of academic contract law. Work on designing and maintaining contractual relationships – and contract management in general – is simply not regarded as a proper subject for legal research, and particularly so when lawyers are involved in such work (Nysten-Haarala, Soili, 2006, p. 263).

A contract is understood along with the preventive/proactive approach as a way to control economic activity. However, this option, as shown by empirical studies in the USA since the 1960s, is too seldom used in practice. In the economic transaction as a whole which shall be legally controlled by the contract, often only the lawyers or the legal department of the company knows the content of the contract. But in this way possible economic advantages that could be provided by the economic control mechanism of the contract are not used. The proactive approach tries to avoid these consequences.

Looking at the actual process of contracting, one has to realize that contracting is a process that only cumulates in the finalizing phase in which the contract is actually signed and then executed. The process of contracting starts with developing trust in the future contract partner, followed by a phase in which the parties negotiate the terms of the contract and finally the matter is closed in a contract.

IV. Resilience in contract law understood from the proactive law perspective

If resilience in a normative way (and the law is normative) is “flexibility over the long term” and is viewed as desirable as such”, and if resilience is understood as „the ability to prepare for and adapt to changing conditions and withstand and recover rapidly from disruptions.” We can see clearly that the proactive law movement tries to install resilience of the contract by their efforts to make contract law more future oriented, more flexible and to handle legal risks more effective.

It seems that the methods of Proactive Law taking into account various neighboring sciences lead to a better understanding of the disruptions that may challenge the contractual obligations. Resilience of the contract to these disruptions, grounded in human behavior, communication misunderstandings or economic risks is the desired outcome which a proactive legal thinking tries to achieve. Proactive legal thinking aims to provide adaptability of a contract to changing circumstances. Along with proactive law there is (a) a system to be governed, i.e. an economic long term transaction, which follows its own economic and technical rules and (b) there is a governing system – the contract – which is designed by contract-lawyers and which is linked to the applicable contract law. Proactive Law seeks to create a (compliance-) system between the monitoring of the real economic transaction, the contractual (law-) system and also to the enforcement system of the contract that the given applicable law generates. It provides useful insights about the balance between regulatory flexibility and the step by step enforcement of a contract. Summarizing it can be said that a Proactive Law approach in contracting law is about to address potential harms before they occur. Proactive Law creates a contract system which is constantly reviewed and adjusted along the results of the assessment of the effects of the contract. It wants to strengthen the adaptive capacity of a contract.

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