Date: Mon, 28 Jul 2003 11:05:15 +1000

From: Andrew Robertson

Subject: Insurance/principles/policies

I am writing to offer a contract law perspective on the insurance/principles/policies debate.

Similar issues arise in deciding whether a term should be implied in a particular contract, and particularly in deciding whether a term is or should be implied in contracts of a particular class. In deciding those questions, the courts take into account the 'social consequences' that might flow from the implication of the term in question in contracts of the type in question (see Hughes Aircraft System International v Airservices Australia (1997) 146 ALR 1, 39-40; Lister v Romford Ice & Cold Storage Ltd [1957] AC 555, 576-9). Policy plays an overt role, as Finn J pointed out in the Hughes case. The availability of insurance was one of the factors taken into account by the Privy Council in Wong Mee Wan v Kwan Kin Travel Services [1996] 1 WLR 38, 46 in deciding that a package tour contract contained an implicit promise by the tour operator that services (including those performed by subcontractors) would be carried out with care and skill.

Judges routinely take into account the broader implications of decisions and rarely have any empirical evidence as to what those social consequences will be. 'Armchair empiricism' is therefore inevitably part of the judicial function. I agree with Jennifer Bankier that the increasing tendency of judges to make their assumptions explicit should be welcomed, because it allows us to assess and (if necessary) challenge the accuracy of the assumptions and the desirability of the social goals being pursued. One of the most striking examples of 'armchair empiricism' in recent years was Lord Brown-Wilkinson's statement in Barclays Bank plc v O'Brien [1994] 1 AC 180, 188 that: 'If the rights secured to wives by the law renders vulnerable loans granted on the security of matrimonial homes, institutions will be unwilling to accept such security, thereby reducing the flow of loan capital to business enterprises.' If judgments are influenced by assumptions such as this, surely it is far better that they are made explicit.

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