THE THEORY OF GOVERNMENT CONTRACTS
Alan W. Mewett*
In this article it is proposed to examine the problem of the juridical nature
of the government contract. Is it an ordinary contract, governed by the rules
of private contract law, or is it a concept apart and distinct from the contract
of the private law? Of the three systems which I propose to consider, namely
those of France, Britain and the United States, it is only the French which
provides a clear answer to this problem, and, for that reason, we shall consider
first the more outstanding features of the contrat administratif, deferring until
later a discussion of the common-law approach.
The
t-vo contractual concepts known to French
law are those of the
contrat de droit civil (droit privg or droit commun) and the contrat adminis-
tratif. The difference does not lie primarily in the identity of the parties,
although it is true that there are some indications that at least one of the
parties should be a member of the administration.’
It is the object of the
contract and the intent of the parties which
is the primary distinguishing
feature of the latter type of contract. If the contract does not comply with
the rules for the determination of a contrat administratif, it is a contrat de
droit civil and governed by precisely the same rules as any ordinary contract
made between private persons. The administration has no greater rights
than, and is subject to exactly the same liabilities as, a private person. It is
the contrat administratif, the contract which is for the performance of a public
service and in which the parties have intended that all rights and liabilities
should be governed by the specially applicable rules, that is of special interest
in a comparative study of government contracts.
Jurists have not always agreed that an administrative contract exists as
a separate concept apart from that of the private law contract. Duguit2 main-
tained that the essential elements of a contract were always the same, and
that if it conforms to the description of the Code Civil,3 it is a contract, and
that if it does not, then it is not a contract. This view is similar to that which
law, which will be
is held in connection with contracts
the recognition of a
examined
separate administrative contract which appeared towards the end of the first
decade of the twentieth century. Leon Blum had urged the recognition of
this in the case of the Soci~tg des Granits de Lille,4 remarking that one had
in the common
later. Duguit criticised the move towards
*Associate Professor of Law, University of Saskatchewan.
lJ~ze, Les Contrats administratifs, passim.
2Traiti du Droit Constitutionel, 3rd ed.
SArticle 1101: An agreement which binds one or more persons
or several others, to give, to do, or not to do something.
4C.E. July 31, 1912, R. 909.
towards another
No. 4]
GOVERNMENT CONTRACTS
to look to the nature of the contract as a whole and that rules which would
be applicable to some contracts were not necessarily applicable to all of them.
Duguit replied :5
LUon Blum does not understand that, in its fundamental elements, a contract has
always the same characteristics. The contract is a specific juridical concept, and
when all the elements are present, there is a contract with the same properties and
the same effects. Therefore, if certain contracts are submitted to administrative
tribunals for the adjudication of disputes, this can only be because of the objects
for which they were made; This is analogous to commercial contracts… Basically,
there is no difference between a private contract and an administrative contract.
As will appear later, disputes which arise in connection with contrats
administratifs are submitted for consideration to the tribunaux administratifs.
Commercial contracts are submitted, for the convenience of all concerned, to
specially constituted commercial courts, and the point which Duguit makes
is that no one has suggested that commercial .contracts were anything but
perfectly ordinary contracts. The reason for their being submitted to special
courts is merely that, since these contracts are, often extremely technical and
perhaps complicated by custom and commercial practice, it is felt more
convenient to have the benefit of specially trained judges and experts. In
the same way, Duguit maintained that administrative contracts are submitted
to administrative courts, not because they are in any way different in nature
from private contracts, but merely because it is more convenient to have judges
who are specialists in the field of administrative law.
It is clear that, today, the views of Duguit are not generally accepted. The
proposition which must be examined is that an administrative contract is not
the same as a private contract. Differences lie not only in the procedure
which is to be adopted in the case of dispute (for if that were the case, then
the view of Duguit would have much to be said for it), but also in the nature
of the rights and duties which arise from it. In fact, the nature of the whole
substantive law differs. The two contracts are, as concepts, totally distinct.
We must start from the basic principle that, as has already been mentioned,
the primary difference between the two types of contracts lies in the inequality
of interests which are represented in the contrat administratif. In the private
contract, each person, as a general rule, seeks only his own interest; one
party may prefer money, the other some specific object; one may have some-
thing to be done, and the other may have his services to sell. In a public
contract, the contractor also represents his own interests, for he will only
become a party to the contract if he thinks that it will be, in some way, to his
advantage. But the administration, as such, has nothing to gain or lose by
entering into such a contract. It represents, not its own interests (indeed, it is
difficult to envisage how the administration, as such, can have any interests
of its own), but the interests of the public, of society in general. Purchases
must be made, government services operated, rents collected, and many other
50p. cit. page 44.
McGILL LAW JOURNAL
[Vol. 5
things in order that society may function properly and efficiently. The contract
cannot be treated in the same way as a contract between private persons, each
of whom is interested, fundamentally, in his own profits. The contractor becomes
indirectly, a participant in the performance of some public service, which is
especially seen in the contract of concession.6 The contractor is not, however,
a public servant, for he still has his own interests to preserve, nor is he a
philanthropist who should not expect to make any profit. But the idea of a
public service introduces a concept which is absent in ordinary private law
contracts. The whole theory of the law of contrats administratifs is based on
a balancing of these conflicting interests, of which by far the more important
is that of the public. A passage from J~ze neatly sums up the way in whiclh
this balance operates :7
The contractor is obliged not only to carry out his obligations in the way that one
individual must towards another: his obligations must be interpreted as covering
all that which is clearly necessary to ensure the smooth and continued running of
the public service in which he has agreed to collaborate. On its side, the administra-
tion is obliged to compensate him in cases where any extension of the contractor’s
obligations causes him prejudicial damage, which he cannot reasonably foresee
when entering into the contract.
Although it differs from a contract of private law, it is clear that an
administrative contract is a contract in the fullest sense of the word, and
one must note that it is not necessary that there should be, as in the common
law, a single contractual concept. The administrative contract cannot be
imposed upon a person without his consent, and, with certain important
exceptions, it cannot be altered by either of the parties without the consent
of the other. In the case of the Socigtg d’Entreprises,s a company had been
operating some municipal baths under a contract of concession with a commune.
Owing to some faulty calculation, it found later that, if it could only charge
the fees which had been agreed upon as a term of the contract, it would be
running at a loss. It sought, therefore, to have the fee which it was under
contract to pay to the commune reduced. The Conseil d’Etat held that this
could not be permitted since:
It does not appear that the judge can modify the clauses of the contract, freely
accepted by the parties. In the absence of any stipulation providing for the revision
of the fee payable, the (contractor) has no grounds for demanding its reduction
from the amount fixed by the contract…
This applies to both sides of the contract (apart from the powers of the
administration acting in the interests of the public, which will be considered
later), and neither can remake a contract which has already been entered
into, any more than the administration can impose one upon a contractor in
the first place.
GA contract somewhat similar to the Government franchise.
7Lcs Contrats Adinistratils, pp. 14-15.
8C.E. January 21, 1944, R. 23.
No. 4]
GOVERNMENT CONTRACTS
In what respects, therefore, do contrats administratifs differ from contracts
of private law? All differences spring from the basic object of the administrative
contract. The administration is the guardian of the interests of the public
and every contract entered into by it, which is administrative in nature, has,
for its objects, the performance of some service in the interests of the public.9
But no contract can ever deprive the administration of the power and the duty
to take any steps which are necessary for the protection of the public interest.
Although, therefore, an administrative contract contains all the terms of the
contract, and all the rights and duties which are contractual in nature, the
terms of the contract alone are not sufficient to determine all the rights and
duties which are imposed upon the part’es. An administrative contract is, in
fact, a curious combination of contractual rights, duties imposed by law
generally upon all contractors with the administration, and regulatory powers
of the administration. From the contract, arise .the names of the parties, the
work to be done, the price to be paid, etc. From the general public law, the
contractor may find that he has assumed obligations over and above those
set out in the terms of the contract – more work may have to be done or
more supplies provided than were agreed upon. From the regulatory powers
of the administration arises its right to act in the interests of the public and,
where necessary, terminate the contract, direct the mode of performance, or
modify the contractual specifications in some way.
In the case of the Ministre de la Guerre v. Association Coop6rative des
Ouvriers Paveurs,10 the contractor had agreed to construct a sewer made out
of concrete for the Minister of War. From time to time, the Minister issued
directives to the contractor as to the nature and thickness of the concrete
which he was to use, and as to the way in which the sewer was to be built.
The contractor failed to comply with certain of these directives, and the
Conseil d’Etat held that he was liable for breach of contract, even though
the contract was silent as to these matters. This power of the administration
to direct and control the mode and operation of the performance of a contrat
administratif is part of the general public law and in no way dependent upon
some contractual term to that effect. Any person who enters into a public
contract becomes, merely through being in that position, immediately subject
to the powers of supervision of the administration. The contract is a prerequisite
to the control, but the control is in no way contractual.
The powers of the government to control in this way are inalienable and un-
conditional and the government cannot restrict them by contract.11
To find the rights and obligations which arise under a contrat administratif,
we must look elsewhere than solely at the contract itself. This contrasts with
the contract of private law, concerning which it is said that legally protected
9See supra.
1oC.E. August 15, 1927, R. 966.
11The conclusions of M. Romieu, Commissaire du Gouvernement, in 1907 R. 919.
McGILL LAW JOURNAL
[Vol. 5
agreements take the place of laws amongst those who have entered into them. 12
In administrative law, however, this maxim has no application.
In every contract involving the performance of some public service, the State
does not contract as an ordinary individual. It is not concerned to protect the
interests of individuals. It contracts on behalf of a society, of the public, for the
necessities of the public service, for the common general interest. Every time it
enters into a public contract, it does something more than does a contractor
under the Civil Code or the Commercial Code. Because it goes beyond this, one
should not apply to it the same rules as one does to an ordinary private law
contract. This is logical and this is also the law. Thus is born the idea which
is the very root of all modern administrative law, that there is, in public contracts,
a different situation from that envisaged by the titles of the Civil Code on
obligations, a situation which ought to be subject to entirely different rules.. 13
By far the greatest right which arises in connection with public contracts
which are administrative in nature, is that which comes into operation through
the administration having, as one of its functions, the guardianship of the
public interest. The administration has the sole power of determining when a
contract is properly pour le fonctionnement d’un service public. Thus, although
the contract can only be made, in the first place, with the consent of both parties,
the terms of the contract, increase,
the administration can, regardless of
diminish, or put an end to the obligations of the contractor, by its own
unilateral act. This it has power to do when such action would be in the
greatest interest of the public, and provided that any increase in the obligations
of the contractor shall not be of a substantially different nature from those
assumed in the contract. Furthermore, failure on the part of the contractor to
comply with these added directions from the administration, results in his
committing a breach of contract. Thus, in the case which is often given to
illustrate this, if the administration contracts for the supply of provisions for
an army camp, it may insist upon more than the contracted amount if this latter
proves to be insufficient, less if the amount proves to be excessive, and it may
finally stop supplies altogether, if it does not think that the public interest
would best be served by a continuance of the contract. This power of unilateral
action applies to all administrative contracts, for example, to a contract for
construction work,14 to one for the provision of supplies,15 and to a concession
for the running of a public transport system.16 This right exists in spite of
any contractual term to the contrary, where, for example, a concession is
contracted for a definite number of years and the administration terminates
it before the end of that period.
Corresponding to these rights of the administration, are remedies of the
contractor which are also extra-contractual in origin. The contractor’s chief
right against any unilateral action which has been taken by the administration
12Les conventions lgalement form~es tiennent lieu de lois a ceux qui les ont faites.
13Conclusions of M. Corneille, Comm. du Gouv. in 1918 R. 246.
14C.E. April 14, 1948, Ministre des Armies, R. 159.
15C.E. November 14, 1902, Olmer et Hibert, R 665.
16C.E. March 11, 1910, Compagnie Ginirale des Tramways, S. 1911.111.1.
No. 4]
GOVERNMENT CONTRACTS
is the right to be indemnified against any loss which he might have suffered.
In the case of the ending or the diminution of his contractual obligations,
this right to an indemnity will include not only the expenses which he has
incurred in preparing materials for the performance of the contract, but also
a sum representing any loss which might have been caused through the
termination of the contract. 17 In the case of any extension of the contractual
obligations, the indemnity will, of course, cover any added expenses. This
is only a part of the general administrative doctrine that no one individual
should suffer exceptional loss over and above that which is suffered by the
public at large, in the exercise of a public service.’ 8 This principle does not
affect the right of the administration to take unilateral action where this is
necessary, provided only that, where appropriate, the contractor is indemnified.
It has already been stated that the administration does not possess unlimited
powers of unilateral action in connection with -administrative contracts, even
if it is willing to offer the contractor ,an indemnity for his losses. There are
some acts which he is perfectly entitled to refuse to perform without becoming
liable for a breach of the contract. In every case, the administration must show
that the action is for the benefit of the public. That is the very basis of all
its powers, and unless this is present, it has no power to modify the contract
at all. In the case of Meurdrac,’9 a maire sought to revoke a concession giving
an electricity company the right to maintain lamps on the public highway,
when he was unable to show that such action was necessary in the interests
of the public, and was, in addition, under suspicion of having acted out of
malice. It was held that he was unable to do this. In the case of MorelIPO the
administration was held to be unable to reduce the price which was payable
to a contractor for goods supplied when it had already been fixed by the terms
of the contract after due deliberation. In the second place, it is to be remembered
that the right of the administration to demand extra work only arises when
there is already a contract in existence, so that this right is limited to what
is reasonable in the circumstances and having due regard to the terms of the
original contract. A contractor who has agreed to supply certain materials
is not obliged to supply others of a -totally different kind. One who has agreed
to perform certain work cannot be compelled to do work of a different kind,
or beyond a reasonable extra amount.”‘
In addition to this extension of his obligations which might confront a
contractor with the administration, over and above those which appear from
the contract itself, the contractor is also subject to certain sanctions which are
17 See C.E. August 6, 1924, Charbonneaux, R. 804. C.E. January 9, 1924, Socijt6 [a
Sequanaise fongire et immobilire R. 36.
18 Hauriou, Privis El. de Droit Administratif (11th ed.) seems to suggest that quasi-
contract is the basis for all actions for recovery against the administration. See page 336.
19C.E. January 14, 1910, R. 26.
20C.E. August 7, 1891, D. 1893.111.18.
21C.E. November 16, 1928, Ravier, R. 1193. C.E. February 8, 1899, Corre, R. 181.
McGILL LAW JOURNAL
[Vol. 5 .
to understand why the French system provides
only available to the administration and which do not conform to the provisions
of the Civil Code. If it is born in mind that it is the prime duty of the
administration to ensure the continued operation of the public services, it is not
these additional
difficult
remedies for the administration. The administration may sue for damages for
breach of contract, but this might not be sufficient to protect the interests
of the public. In any case, this remedy is not, for our purposes at present,
of great importance. There is also the practice, which has grown up in recent
years, of inserting into the contract a clause, stipulating that, in certain events
the contractor shall pay
(usually delay in the performance of the contract),
a practice
to the administration a predetermined sum by way of penalty –
which is also common in the United States.
There is no direct method in French law of specifically enforcing promises
requiring the performance of certain acts –
promises to do as opposed to
and the courts have sought to achieve the same results
promises to give –
by a method known as the astreinte. This is an order from the court to the
litigant to perform the required act, subject to a penalty fixed by the court
for every day or week or other period in which he does not obey the court.
This penalty, in theory, accrues to the other party to the suit. However, it is
perfectly clear that this penalty is not, in the last resort, recoverable by that
other party. Assuming that the defendant has been in default and that a
considerable sum has accrued to the plaintiff by way of this penalty, we can
nevertheless see that the only way for the plaintiff to recover this sum is by
way of an action in court. It is beyond question that even where the plaintiff
sues to recover the penalty, he will be awarded only his actual damages,
including, where appropriate, damages for other than mere physical loss. In
addition, he will still not have been able to enforce the promise made by
the other party, so that, in the lost resort, his only remedy is one for an
action for damages. 22 The penalty fixed by the terms of the administrative
contract is not in the nature of a mere coercive sanction (as is the astreinte),
the
but represents some reasonable atempt
administration anticipates its losses will be. It is a contractual term, upon
the case of
the fulfilment of which
Skouloukos, 23
to carry packages on behalf of the
government of one of the colonies, and a penalty of 200 francs a day was
fixed in the case of delay. The court held that the chief advantage of the
penalty clause was that the administration was saved the task of having to
prove before the tribunal the actual amount of damages which it had suffered.
22Esmein, La Jurisprudence en mati~re d’Astreintes, Revue Trim. de Droit Civil,
1903, p. 5. Brodeur, The Injunction in French Jurisprudence, 14 Tul. L. Rev. 211. See
the De Bauffrement case, D. 1878.11.125.
to arrive at a figure which
the contractor agreed
the administration can
insist. In
23C.E. June 14, 1944, R. 169.
No. 4]
GOVERNMENT CONTRACTS
Because of the power which exists for the administration to fix, in advance,
a recoverable penalty with fully coercive elements, the Conseil d’Etat has held
that the astreinte is not a sanction which can be employed against a contractor
with the administration. In the case of Le Loir,24 the court, speaking through
the Commissaire du Gouvernement, held that the astreinte was not needed and
could, therefore, not be employed where the administration already has the
power of fixing a recoverable penalty. One other feature of the contrat
administratif is thus that a penalty may be recoverable, which is only partially
set off by the fact that the contractor will not be subject to an astreinte.
The administration also has other coercive powers which are not available
to the ordinary private contractor, although they are, to a certain extent,
derived from the provisions of the Civil Code. Article 1144 of the Code
enacts that:
In the case of non-performance by one party, the other party may be authorised
to effect the execution of the contract at the expense of the party in default.
In the administrative law, this becomes what is called the nzise en regie. This
is a remedy which, in view of the others which are available, is not frequently
put into operation, but it remains as a threat at least. It is only used in the
case of minor contracts, where it provides an efficient way of carrying the
contract into effect. 25
Lastly, the administration always preserves the right to rescind the contract,
a right which needs to be examined more closely. Resiliation of the contract
has the effect of putting an end to the contract entirely. It is a unilateral act
on the part of the administration, and leaves the contractor with no remedies
at all, save for work which has already been done, either under the contract
or in a quasi-contractual action for enrichissement sans cause. It is, therefore,
a sanction which the administration can only impose in certain cases. The
right of resiliation differs from the right of the administration to terminate
the contract or modify it by unilateral action where it only exists if it is in
the interest of the public that the contract be terminated or modified. It is,
ifn such cases, always open to the contractor to show that the public interest
did not demand termination or modification of his contract. But the right of
resiliation exists independently of any public interest having to be proved.
Resiliation is a penalty imposed upon the contractor for his default in not
performing the contract in the due time or in the proper manner.
In most contracts, as a matter of practice, the contract will contain a clause
giving the administration the right to rescind the contract
in certain cir-
cumstances, and if these circumstances occur, the administration has the right
to rescind without recourse to a tribunal. But even where the contract does
not contain any term, the right to rescind still exists, but in a slightly different
form. The contractor is obliged to perform his obligations in accordance with
24C.E. January 27, 1933, S. 1933.111.132.
25See Duez, Traiti, 1254.
McGILL LAW JOURNAL
[Vol., 5
the terms of the contract and with such directions as the administration may
have given him. Where his failure to do so is serious, that is, where there
has been a substantial breach of contract –
the administra-
tion may rescind. What is une faute grave depends, of course, on the type of
contract in question.2 6 In any case, this right is an importation, with the
necessary modifications, from the Civil Code.2 7
une faute grave –
So far, we have been mainly concerned with the rights of the administration
in a contrat administratif which mainly arise because of considerations of the
nature of the public interest which it is -the duty of the administration to
protect. But these considerations also have some effect upon the peculiar rights
of the contractor. These, namely the rights of irnpr~vision and fait du prince,
present striking contracts with the rules of the civil law concerning contractual
remedies. We shall deal firstly with the concept of imprivision.2 8
In the ordinary private law contract, the terms of the contract fix the
rights and the obligations of the parties; what one has contracted to do, one
must perform, or be held liable for breach of the contract. The theory of
imprivision may be stated quite simply. Where, in the course of the perform-
ance of a contract, economic events arise which would impose upon the
contractor a financial burden which would be totally disproportionate to that
envisaged when the contract was entered into if the contract had to be per-
formed strictly according to its terms, the contractor has the right to perform
the contract and demand from the administration an indemnity for the increased
costs in carrying out his obligations. The economic events which arise must be
external to the parties to the contract, and must be of such a nature as not
to render the contract literally incapable of fulfilment. The contractor has the
right to ask the court, either to declare the contract terminated, or to fix new
conditions of its fulfilment. The best illustration of this concept is probably
the leading case of the Compagnie du Gaz de Brodeaux,29 where the company
has a concession to distribute electricity in the town of Brodeaux at a fixed fee.
During the war, the cost of coal rose to such an extent that the company was
faced with financial ruin if it had to go on distributing electricity at the
old rate. The Conseil d’Etat held that it was entitled to an indemnity to
compensate it for the increased costs of the raw materials from the administra-
tion under the doctrine of irnprhvision.
The economic events which arise in the course of the performance of the
contract must be quite exceptional and beyond the contemplation of the parties
when they made the contract, 30 so that an ordinary price variation would not
20De Laubadre, Traiti, 800.
27Article 1184: A resolutory condition
where one of the two parties does not perform his obligations …
2SPequignot, Thorie Ginirale des Contrats Administratifs, p. 502. De Laubadfre,
is implied
in all synallagmatic contracts,
op. cit. p. 454. Duez, op. cit. p. 572.
20C.E. March 24, 1916, S. 1916.111.17.
30C.E. December 3, 1928, Fromasol. in R.D.P. (1921) p. 64.
No. 4]
GOVERNMENT CONTRACTS
be ground for invoking the doctrine, whereas the outbreak of war or the
devaluation of currency might. In the second place, the events must be
extraneous to the two parties. If it is the fault of the contractor, he is neverthe-
less bound by the contract, whilst if it is the fault of the administration, it
might be covered by the doctrine of fait du prince, which we are about Ito
consider. Lastly, the events must give rise to a grossly disproportionate financial
inequality in the terms of the contract. Mere loss of expected profits will
not suffice.31 Naturally, the determination of whether all three of these requisites
are present is a question of fact in each case, but we are rather more interested
in the nature of the concept than in its practical application.
The theory of imprivision primarily gives to the contractor a right which
his civil law counterpart does not have. It gives him the right to be compensated
for having to perform the contract according to its strict letter, and this is,
indeed, a marked feature of administrative contracts. But, in addition, it is
a right which the administration may also utilise, so as to give it the right
to rescind the contract altogether.3 2 Certainly, in view of the other remedies
which are available, it is not often that the administration will have to rely
on the doctrine of imprdvision, since, whenever that would apply, it would
have the right to rescind on the grounds of public interest. Enactments of
1935 and 193733 affirm the right of the administration
to rescind on the
ground of imprdvision, but these do no more than reiterate the already
established jurisprudence of the Conseil d’Etat.
The overriding effect of the notion of imprivision appears from the decision
of Hospices de Vienne3 4 In that case, the sum fixed by the contract was
expressed to be “not subject to revision” for any reason, and there were
to be “no rights of that nature” whatsoever. The Conseil d’Etat held, never-
theless, that the contractor was not prevented from asking for compensation
under the doctrine of impr~vision, when the increase in the price of the
materials to be used was so large that neither party could have contemplated
it when the contract was entered into. One must remember that the primary
object of a contrat administratif is the ‘performance of a public service of some
description, and that the contractor becomes, to some extent, a participant in
this service. At the same time, it is one of the cardinal rules of French
administrative law that no one individual should suffer damage in the course of
the operation of some public service over and above that which is suffered
by the public at large. The doctrine of imprivision arises through the necessity
of ensuring the continued operation of these public services. The contractor
is obliged to continue the performance of the contract, but his own interests
are protected as far as possible by the award of an indemnity.
3’C.E. August 8, 1924, Compagnie de Gaz de Brive, R. 817.
32C.E. Fromasol, ubi supra, note 31. C.E. 1923, Compagnie Ginirale des Automobiles
Postales, S. 1923.111.56. or to demand that the contractor accept a reduced fee.
33D~cret-loi, October 23, 1935 and d&ret-loi, August 25, 1937.
a4C.E. March 10, 1948, R. 124.
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[Vol. 5
The concept of fait du prince may also operate to give the contractor, in
certain circumstances, a right to an indemnity which the private law contractor
does not have. Fait du prince, unlike imprvision, is an act of one of the parties,
namely the administration, which increases the obligations of the contractor
and which were not foreseen when the contract was entered into. Furthermore,
whereas impr~vision must result in a complete and disproportionate change
of financial circumstances, the fait du prince need only result in an increase
of any sort in the obligations of the contractor. On the other hand, once the
impr6vision has been proved, the contractor has an absolute right to an
indemnity, but in the case of a fait du prince, the right to an indemnity only
arises in certain cases. It is thus of great importance to distinguish the two
different concepts 3 5
The fait du prince is essentially an act of the administration, either the same
branch as that which is the contracting party, or a different branch. The
concept revolves around the problem of what happens when, in the course of
the performance of a contract, the government issues a decree or order which
has the effect of increasing the obligations of the contractor. In the common
law, which will be examined later, the rule is that there can be no liability
for a legislative act, and this is true, in essence, under the French system.
For example, where there is a contract specifying that work will be completed
for a certain sum, and in the course of the contract, a law is passed which
raises the minimum standard of wages so that the contractor does not make
his expected profits, he cannot demand an indemnity from the administration. 36
The contractor is in no different position from any other employer. The
situation is different, however, where the general law which has been passed
has such an effect as give rise to a total financial upheaval, for there, the
contractor may rely on the doctrine of impr~vision to recover an indemnity.37
Fait du prince only applies where the regulation which has been issued
is such as to have special repercussions on the contractor, for in such a case,
it is assumed that the parties intended to contract on the basis of the existing
law, and the new regulation increases the obligations of the contractor specific-
ally in his capacity as a government contractor. An indemnity will only be
allowed by the courts, if the contractor can show that his position is different
from the ordinary private contractor. Thus, in the case of Bardy,3 8 the plaintiff
was a supplier of illumination in the town of Bergerac at a fixed fee, and
during the course of the operation of the contract, the town passed an
ordinance levying a duty on all oil, coke and gas which was used in the town.
This resulted in an exceptional increase in the costs of the contractor’s obliga-
tions, and it was held that he was entitled to an indemnity. Similarly, where
3’Duez, op. cit. p. 570. De Laubadire, op. cit. p. 450.
30C.E. March 4, 1927, Mercier, R. 292.
37C.E. February 14, 1936, Socijtj aux. des services” mun. S. 1936.111.82.
38C.E. December 29, 1905, R. 1019.
No. 4]
GOVERNMENT CONTRACTS
a company was under contract to carry passengers and mail from France
to Corsica at a fixed rate, and the administration imposed a tax on all such
the
freight. This had the effect of greatly decreasing
contractor hoped to make.39 Thus, in the case of the fait du prince, the
underlying principle that no one individual should suffer exceptional loss in
the performance of a public service is clearly to be seen. The contract by no
means contains all the rights and obligations of the parties, which differs
substantively from the corresponding rules of the civil law.
the profit which
In sharp distinction to the French law, however, the common law has, or
so it is said, no separate theory of government contracts. Since Dicey’s violent
to regard
attack upon the droit administratif, there has been a tendency
administrative law, as it is understood in England and the United States, as
being a part of that law which is concerned with remedial devices. The
law has been taken to be as much
substantive content of administrative
of the ordinary private law as are the rules relating to the formation of
contracts or the liability in tort. But this is no longer the case. In the first
place, the distinction between substantive law and the law of procedure is
largely illusory, for there is no law of procedure which does not have its
repercussions on the rights and duties of the individual, and regulates his
actions. In the second place, there has been a great amount of legislation,
in some way or another places the
particularly
administration, as regards its rights and sometimes as regards its obligations,
in a position which differs from that of the individual.
in recent years, which
that differences
lie
in
the
the parties or of
the contracts.
the
the objects of
formation of
In the law of contract, in particular, the problem is to determine whether
the juridical concept of the contract is one and the same, regardless of the
is
identity of
contract. Special
clear
law
formalities may be necessary. The position of agents differ. The
of quasi-contract differs. In these and other aspects which will be considered
shortly, a contract made with the administration may differ from one which
is made between two private individuals. But this does not mean that, of
necessity, an agreement which is subject to these special rules ceases to
come within the juridical concept of the contract. As a preparatory step, in the
attempt to discover the juridical nature of a government contract, it is proposed
to examine two or three of the unique features which are only to be found
in these contracts in the common law.
It
In the United States, one of the most important features of the law of
government contracts is the principle of renegotiation. In spite of the require-
ments as to publicity, tenders and competitive bidding, it was found that there
was considerable difficulty, especially in time of war, in preventing contractors
from gaining excessive profits from contracts made with the government. In
the time of shortage, or when the government is committed to a national
39C.E. March 20, 1904, Compagnie Marseillaise de Navigation, R. 429.
McGILL LAW JOURNAL
[Vol. 5
time of the first world war, but there finally emerged
defense program entailing a certain and necessary expenditure of public money,
the contractor is placed in an extremely advantageous bargaining position.
During the second world war, certain agencies were given the power to inspect
the books and records of war contractors, and price adjustment boards were
established to secure voluntary adjustments in the contracted price, and even
to secure a refund if it was found that the profits which were being made
or which had been made, were excessive.40 The history of this device extends
back to the
the
Renegotiation Act of 1951. 4 1 This Act established a Board, which has since
established Regional Boards, with the function of supervising the renegotiation
of certain contracts. The Act of 1951 was finally made applicable to all receipts
and accruals up to December 31, 1956. There is every reason to suppose that
the principle of renegotiation will be a part of the law of government contracts
in the United States for some time to come. It is still in force for accruals up
to that date, and the renegotiation clauses of the Act are frequently inserted
as a standard term in contracts (especially military contracts) made after
that date.
Contracts
to which the Act applies are only those made with certain
specified agencies, including most, but not all, administrative agencies. Even
with contracts made with the specified agencies, there are some exceptions
to the applicability of the Act. Some exceptions are mandatory, such as
contracts made with foreign governments, and some are permissive, such as,
for example, contracts to be performed outside the United States. For those
that are specified in the Act, it is enacted that each contract must contain
provisions for :42
(1) The elimination of any excessive profits through renegotiation,
(2) The repayment of any excessive profits already made or the withholding
by the United States of any sum otherwise due,
Provisions of a similar nature to be inserted in any subcontract made by
the contractor.
(3)
The procedure adopted by the Board is that :43
Every contractor is required to file an annual report with respect to his receipts
or accruals from re-negotiable prime contracts and sub-contracts during the fiscal
year … If the Board and the contractor are unable to agree upon the amount
of excessive profits, if any, to be refunded by the contractor for such fiscal year,
the Board
issues and enters an order determining the amount. The order is
reviewable in the Tax Court of the United States.
There are many detailed provisions in the Act, but we are more interested
in its effect upon the nature of such contracts.
4OExecutive Order, April 10, 1942, No. 9127.
4150 U.S.C. 1211 et sqq.
42Renegotiation Act, (1951), Section 104.
43From the United States Government Organisation Manuel, 1956-57, Washington,
sub nom. Renegotiation Board.
No. 4]
GOVERNMENT CONTRACTS
The clause providing for the submission of the contract to the Renegotiation
Board is, it appears, in the nature of a standard clause to which the contractor
must agree, or not contract at all. It becomes, in effect, a term of all such
contracts that the contractor agrees not to make any excessive profits from
contracts of this variety made with the United States. Where the contractor
and the Board can come to some agreement as to the amount which should be
repaid or withheld, there is no juridical difficulty, since any contract may be
modified by the mutual consent of the two parties. But over and above this,
there is the power of the Board to fix, by unilateral action, an amount, any
profits in excess of which the contractor must refund or forego. Furthermore,
if the contractor does not contest this decision within 90 days after the
receipt of such notice in the Tax Court,44 the decision of the Board is final.
But whether there is an appeal or not, this procedure of the unilateral deter-
mination of an excessive profit has considerable affect upon the theory behind
government contracts in the United States.
It is quite true, of course, that there is some contractual justification for it.
There are what might prove to be two inconsistent clauses in the contract.
First, the contractor agrees to provide the government with certain materials
or to furnish certain services, and the government agrees to pay him at a
fixed rate. Second, the contractor agrees not to make any excessive profits.
to be
This latter clause has the effect of declaring that the consideration
paid by the government must not only be sufficient but that it cannot be more
than reasonable, and that any amount in excess of what is reasonable is not
recoverable. The renegotiation clause becomes a term which gives one of the
parties the right to remake the contract without the consent of the other, and
places the contractor in an extremely subordinate position. If such a clause
could be considered as rendering a private promise merely illusory, it is
unlikely that the courts would uphold a contract of this nature entered into
between private persons. 45
and the reasonableness
One of the fundamental principles of the common-law contract is that its
terms must be certain or capable of being ascertained. Here, it is a question
of reasonableness –
is to be determined not by an
independent third person but by one of the parties to the contract himself.
It is difficult to conceive that such an ambiguous term would be upheld at
common law, especially in view of the fact that it is only at the expense of an
express and certain term that it has any meaning at all. One does not criticise
its value or its necessity, but there is, in the renegotiable contract, a new
to the
form of agreement. There is a valid submission by the contractor
unilateral decisions of the administration. There is unquestionably an element
present which differentiates such an agreement from the common-law contract.
44Renegotiation Act, Section 108.
45Velie Motor Car Co. v. Kopmeier Motor Co. (1912) 194 F. 324. Williston, Contracts
(revised edition) 43.
McGILL LAW JOURNAL
[Vol. 5
It is, perhaps, a contract, but can we still rely on our single concept of
the contract to cover both these types of agreement?
There is another problem in the matter of government contracts which
has recently been settled, in some measure, by an Act of Congress. It has long
been the practice to insert into contracts made with the United States
government, a clause, the wording of which varies slightly from time to
time, but the effect of which was the same. A typical clause of this nature
might provide:
All disputes concerning questions of fact arising under this contract shall be
decided by the contracting officer, subject to a written appeal by the contractor
within 30 days to the Head of the Department concerned or his duly authorised
representative, whose decision shall be final and conclusive upon the parties thereto.
The decision of the United States v. Wunderlich4″ was the most recent
important case in which this clause has been presented for a ruling before
the Supreme Court.
There, the respondents had agreed to build a dam for the United States,
and the contract contained a clause similar, in all essential details, to the one
set out above. Disputes arose, and the department head decided that the
facts were against the respondent. He appealed from this decision to the
Court of Claims, which found, as a matter of fact, that the decision of
this department head was “arbitrary, capricious and grossly erroneous”. The
Court reversed the administrative decision, finding that the facts should have
been decided for the respondent. From this decision the United States appealed
to the Supreme Court, which reversed the decision of the Court below, although
it did not purport to disagree with that Court’s findings on the nature of the
decision of the administrative officer. The Court said:
This Court has consistently upheld the finality of the department head’s decision
unless it was founded upon fraud, alleged and proved. So fraud is, in essence,
the exception… The decision of the department head, absent fraudulent conduct,
must stand under the plain meaning of the contract.
This decision must now be taken to have overruled the earlier case of Needles
v. United States,47 in which Whitaker J., in answer to the argument that
the clause should be upheld except where fraud was shown, remarked:
Whether or not these actions constitute a breach is not for the contracting officer
to decide. Jurisdiction of such controversies is conferred on this court by Congress.
Section 145 of the Juridical Code gives an aggrieved contractor the right to sue
the
for breach of his contract. This right cannot be
administrative agency with which he deals.
taken from him by
So, whether
erroneous is immaterial. We are not bound by it, whether it was or not.
the decision of the contracting officer was arbitrary or grossly
40342 U.S. 98, (1951).
47101 Ct. Cl. 535, p. 624 (1944).
No. 4]
GOVERNMENT CONTRACTS
However, the considerable dissatisfaction which the decision of United States
v. Wunderlich” engendered gave rise to the passing of an Act in 1954,
which provided :48
[No such provision] shall be pleaded
in any suit now filed or to be filed as
limiting judicial review of any such decision to cases where fraud by such official …
is alleged. Provided, however, that such decision shall be final and conclusive
unless the same is fraudulent or capricious or arbitrary or so grossly erroneous
as necessarily to imply bad faith or is not supported by substantial evidence.
This enactment clearly reduces the law to a position half-way between the
views of Whitaker J. in Needles v. United States49 and the views of the
Supreme Court in the Wunderlich case. It, in effect, restores the decision of
the Court of Claims in the latter case in all future cases of a similar nature.
Whether or not this is a sound rule of law is open to question. At present, it
is sufficient to note that it is extremely doubtful if such a clause would be
upheld in an ordinary private contract. Even arbitration agreements, in which,
a decision on the facts is submitted to an independent third person, are
jealously supervised by the courts.50 There are cases which even go so far
as to state that an agreement which attempts to make the decision of an
arbitrator final and conclusive without appeal to the courts is void as being
against public policy. 5’ It is assumed that the courts would be even more
hesitant to uphold an agreement in a private contract which sought to make
the decision of one of the parties final and conclusive. This is yet another
indication that the attitude of the courts differs in the case of government
contracts from the case of private contracts.
In England, the advent of the welfare state has created problems of a
somewhat different nature, which are also reflected in the United States. One
point which we may discuss briefly is that which arises in connection with
the practice of compulsory contracts, known generally in the United States
as condemnation. A compulsory contract means that a person is forced to buy,
or sell, or perform some services under contract whether he wishes to or not,
and we may say, at the outset, that these are not contracts in any sense ofi
the term. One of the best known examples is the compulsory acquisition of
land, 52 whereby some public authority can acquire the land of a private person
for compensation, however unwilling he may be to dispose of it. Other examples
are to be found in the compulsory purchase of stock held in nationalised
industries, in the compulsory sale of milk and other produce
to central
marketing agencies for redistribution. It is clear that in all compulsory con-
48Public law, No. 354 of 1954.
4 9 Supra.
50Williston, Contracts (1931), 1725. Cheshire & Fifoot, Contracts (1952)
pp. 282
et sqq.
51Czarikow v. Roth, Schmidt & Co., [1922] 2 K.B. 478. Re Wynn’s Will’s Trust,
[1952] 1 All E.R. 341.
52Town and Country Planning Act, (1947)
10 & 11 Geo. VI, c. 49.
McGILL LAW JOURNAL
[Vol. 5
tracts, the fundamental element of all contracts, namely the consent of the
contracting party, is absent. Compulsory purchases are rather in the nature
of appropriations for public use. The payment of a sort of consideration in no
way affects its juridical nature; it still remains a unilateral act of appropriation,
however reasonably carried out. We may thus dispense with any further
consideration of this phenomenon, since we are only concerned with public
contracts properly so called.
Reference has already been made to the practice of
inserting standard
clauses into government contracts, and, although, of course, this is not a
feature which is peculiar to them, it will be of benefit to consider their content
in more detail.
In the United States, one of the most common clauses –
apart from the
“finality” clause which we have already considered, and which has, to a
certain extent, been mitigated by Congress –
is the termination clause,
variations of which are also found in government contracts in England. A
typical clause of this nature would provide that:
The ‘[appropriate department head] shall have power to determine the contract
at any time, by giving the contractor written notice.
This’is a provision which must strike one as being remarkably similar to
the inherent power of the French administration to terminate the contract
at any time, where the interests of the public demand. Furthermore, and again
the result is similar to what the French achieve as a matter of law, there
will be provisions which will ensure an indemnity for the contractor
if such
termination results in damage for him. 53
The changes clause is also common to both countries, and one may take
as an example, the standard clause in a War Department contract of the United
States, which provides:
Where the supplies to be furnished are to be specifically manufactured in accord-
ance with drawings and specifications, the contracting officer may, at any time,
by a written order… make changes in the drawings or specifications. Changes
as to shipment and packing of all supplies may also be made as above provided.
If such changes cause an increase or decrease
in the amount due under this
contract or in the time required for its performance, an equitable adjustment
shall be made and the contract shall be modified in writing accordingly… Nothing
provided
in this article shall excuse the contractor from proceeding with the
contract as changed.
There are,
inserted, which have been discussed under the topics of formalities.
in ‘addition, certain clauses which are required by law
to be
What is so remarkable is that these clauses, together with others which
might provide for inspection, the use of approved materials, and many others
of a similar nature, have the effect of achieving for the government in the
common-law system what, under the French system, is already accorded by
the law to the administration in a contrat administratif. These clauses are all
5For the French law, see supra.
No. 4]
GO VERNMENT CONTRACTS
methods in which the government, as one of the contracting parties, manages
to protect the public interest, within the terms of the contract. Unfortunately,
it does not appear that the courts are willing to recognise the purpose behind
standard clauses of this type. In the private standard contract, both sides are,
basically, solely interested in protecting their own interests, and the fact that
one side is the dictating party is partly balanced by the strategy of the courts
in construing the contract against that party.34 If one ignores the fact that the
government is not, as such, an interested party, but is the protector of the
much more important welfare of the public as a whole, the indications to
the effect that government contracts are to be construed against the govern-
ment55 are somewhat easier to understand. No difference is discernible between
the attitude of the courts in this respect and that where they are solely concerned
with private persons. 56 To construe the contract against the dictating party
is a means to place the parties, to the best of the capabilities of the courts,
in the
upon a more equal footing. This is neither possible, nor desirable,
case of public contracts. It is true that there are rather vague references in
certain English cases to the effect that a public body is limited to the amount
which it can spend, and that where it has contracted to perform a duty, the
to a reasonable
obligation should not be absolute, but should be
performance of that obligation, having regard to the public character of the
contracting party,5 7 in cases where a private contractor would be held to the
strict letter of the agreement. But the American cases are quite uncompromising
in treating the government, within the framework of the terms of the contract,
as being in the same position as a private person.
limited
The administration is, however, not a private person. It has powers and
duties which are not accorded to private persons, powers which are necessary
for the government of the country. These powers and duties require discretion.
The question which has not-been answered, or even properly raised, in common-
law, administration law, and, more particularly, in the field of government
contracts, is where this discretion ends, and the administration should properly
54Wallis v. Pratt, [1911] A.C. 394. Andrews v. Singer, [1934] 1 K.B. 17. Compare
L’Estrange v. Graucob [1934] 2 K.B. 394. Compare also, Prausnitz, Standardisation
of Commercial Contracts; Friedman, Law and Social Change in Contemporary Britain,
chapter three.
55This is particularly true of judicial opinion in the United States. Brand v. Chicago
In Re Construction Materials Corp.,
Housing Authority, 120 F. 2d. 786,
18 F. Supp. 509 (1937). Carstens Packing Co. v. United States, 62 F. Supp. 524 (1946).
in which it is suggested
Compare Kemp v. United States, 38 F. Supp. 568 (1941)
that the contractor with the government should be held to more strict requirements
than is the case in private contracts, owing to the regulatory nature of these contracts.
56United States v. Utah, etc. Stage Co., 199 U.S. 414 (1905). Hollerbach v. United
(1941).
States, 233 U.S. 165 (1913). And see the cases cited in the previous note.
5KKent v. East Suffolk Catchment Board [1941] A.C. 74. See also, Smith v. River
Douglas Catchment Board [1949] 2 K.B. 500. Ranson & Luck v. Surbiton Boroug1
Council [1949] Ch. 180.
McGILL LAW JOURNAL
[Vol. 5
be said to be in the position of a private person. All the devices which have
hitherto been discussed –
the finality clauses, the termination clauses, construing
a contract against the government, treating the administration as a private per-
son, or the relaxation of the strict contractual obligations –
are merely some-
what confused means of attempting to blend the more obvious contractual con-
cepts with the more obvious discretionary powers of the administration. The
results are these. It is impossible to maintain that the government contract is
exactly the same as the private contract with the government as one of the
parties, whilst at the same time admitting that the presence of extraneous dis-
cretionary powers may override established rules of the common-law contract.
On the other hand, it is perfectly clear that the contractual elements are so strong
that it cannot be denied that the government contract is some type of contract.
That these discretionary powers must be superior to the contract appears
from the case of Ransom and Luck v. Surbiton Borough Council5″ in which
a local authority had certain powers accorded to it under -a Town and Country
Planning Act. It entered into an agreement, by which, in effect, the local
authority agreed not to exercise these powers. The Court of Appeal held that,
in the absence of authority to do so, a local authority could not contract out of
discretionary powers which have been accorded to it, although in the actual
case, the Court found that as a fact the agreement was not a contract. Lord
Greene, M. R., said :5
Is it likely that Parliament… without express words to that effect, would do
anything so unusual, so explosive, as to enable a planning authority to do that
which all the principles laid down and observed by the courts and the legislature
in regard to statutory duties of this kind forbid, namely, to tie its hands and
contract out of them?
In other words the opinion of the Court was what the contract is subordinate
to administrative discretion of this nature. The point to be considered is how
far this principle extends. Is it confined to the exercise of statutory duties
or does it cover all administrative. powers?
In France, the contract is unquestionably subordinate to the powers which
are possessed by the administration. This is to say that, whether or not the
contract contains clauses which give the administration powers which are not
usually found in the ordinary private law contract, certain powers are still
vested in it by virtue of its duty to safeguard the public interest. Where public
interest is not an element of a contract – where, for example, the contract
the contract is an ordinary
contains no clauses exorbitantes de droit privW –
the administration divests itself of all its
private law contract in which
administrative characteristics, and is reduced to the same position as a privatd
person. But most public contracts –
and this is particularly true of contracts
of the central administration, with which we are mainly concerned –
are
those in which the element of public interest cannot be ignored. These contrats
58[1949] Ch. 180.
59Id. p. 195.
No. 4]
GOVERNMENT CONTRACTS
administratifs involve a juridical concept which is a combination of contract
and discretion. They are indeed contracts, but there are many rights and
duties which arise not from the contract but from general public law.
The common-law contract, however, is not a suitable concept for such an
approach. If one starts from the principle that there is only one juridical
concept of the contract, there is no machinery whereby the courts can give the
government contract any different construction, or hold that it gives rise to
any conceptually different rights or obligations, from an ordinary private
contract. The result is that the administration, in order to protect the interests
the
of the public, must resort
existing framework of the common law, it is possible that the courts could
recognise the duty of the administration to safeguard the interests of the
public by some application of the doctrine of public policy. This was attempted
in the case of Ransom and Luck v. Surbiton Btirough Council60 and in The
Amphitrite case.61 But public policy is a disabling concept and not an enabling
concept.6 2 It may be utilised to declare certain contracts or certain terms
void, but it cannot be used to permit the administration to take any unilateral
action for which it has not contracted.
to standard terms and conditions. Within
It will be of some benefit here to consider the different attitudes which
exist towards the administration in France and the common law systems. In
France, one of the basic principles of the droit administratif is that no one
individual should suffer any loss or damage over and above that which is
suffered by the public as a whole, through any act of the administration. In
spite of the existence of the powers of the administration to take certain
in any contrat administratif, the rights of the individual
unilateral action
remain protected for one does not start, even unconsciously, with the concept.
of the non-suability of the administration. It is quite true that, for all administra-
tive matters, disputes will have to be submitted to the tribunaux administratifs,
but, as will be shown in the chapter on procedure, a tribunal administratif
tribunal. The French
cannot be equated to a common-law administrative
tribunal is the check which guarantees for the individual his protection against
arbitrary unilateral action on the part of the administration. Furthermore, it
ensures that adjustments are made, by providing compensatory indemnities,
when the acts of the administration, although unilateral, are not arbitrary. The
plaintiff’s recovery is designed to adjust his losses so that he does not suffer
exceptional damages. It is to such a court that all disputes arising from
contrats adinnistratifs are submitted. This court is not obliged to treat the
administration as an ordinary private contractor, but may take notice of both
6OSupra, note 58.
61[1921] 3 K.B. 500.
62Friedman, Legal Theory, (2nd. ed.) p. 297. Contra, Lloyd,Public Policy, 154, in
which he supports the case of Lorenzen v. Lydden (1942) 2 K.B. 202. But, for criticisms
of that case, see Wolff, Private International Law, (2nd. ed.) p. 528. And Mann, in
5 Mod. L.R. 262.
McGILL LAW JOURNAL
[Vol. 5 –
the contractual and the discretionary elements of the contract. The whole
purpose of the tremendous administrative structure has been to protect the
private individual from abuses of the administrative process.
While, basically, there is no machinery in the common law for this approach,
there are certain points which should be noticed. We have already referred to
Ransom and Luck v. Surbiton Borough Council63 for the suggestion that the
administration cannot contract out of the exercise of a power given to it by
the legislature. Contracts of service with the Crown are said to be subject to
an implied term that the Crown shall have power to dismiss at will, even
where the employment is for a definite period of time. 64 This is a term which
is said to be implied on the ground of public policy, but it may, apparently,
be excluded by an express provision which renders the term incapable of
implication. From the judgment of Esher M.R. in Dunn v. McDonald,65 it
appears that a contractual time limit is not sufficient to do this, and that a time
limit does not necessarily produce tenure. Where, however, tenure is assured
as may be done by a contractual term that the plaintiff shall
by the contract –
the Crown no longer has
only be dismissed during a period “for cause” –
the power to dismiss at will. It is, to say the least, a peculiar implied term
which overrules a provision as to period of employment on the nebulous
distinction between “term” and “tenure”, but it is an even more peculiaf
provision of public policy which can be contracted out of by one of the parties.
The case of Rederiaktiebolaget Amphitrite v. The King6 has been subject
to ‘much criticism, 7 and it is difficult to see that this decision was’properly
based on the fact that there was no contract because any possible contract
would be void on the ground that the Crown cannot bind its future executive
action, rather than on the fact that there was no agreement which could be
called a contract. 8 But, apart from these considerations, there is much to be
said for the view of Rowlatt J., that there is a rule of law which forbids the
Crown from being bound by a ,contract which fetters its future executive
action. However unsatisfactory the case may be for the lack of authority cited
in its support, the method of reading in implied terms, which, by all the rules
of contract law, could not be read in, is no more satisfactory.69 This is seer
03[1949] Ch. 180.
4Dunn v. Regina [1896] 1 Q.B. 116. Denning v. Secretary of State for India, 37,
T.L.R. 138 (1920).
65[1897] 1 Q.B. 555.
66[1921] 3 K.B. 500.
0lNotably by Holdsworth in 45 L.Q.R. 166.
OBThis is the view taken, amongst others, by Denning, J., as he then was, in
Robertson v. Minister of Pensions, [1929] 1 KB. 227, p. 231.
GOThe disputed rule as to the fact that a Crown contract is void unless there are
adequate appropriations from Parliament has been examined in Chapter One, supra.
It was submitted that appropriations go to remedy -and not to the validity of the
contract. The question of reading in such an implied term or condition does not,
therefore, arise.
No. 4]
GOVERNMENT CONTRACTS
from the case of Reilly v. Regen, 70 in which the petitioner had been appointed
under a Canadian statute which provided that the appointments should be for
the office was
a fixed period of five years. Before that time had expired,
terminated and the petitioner dismissed. He claimed for breach of contract. The
claim failed since the contract was discharged by operation of law,71 the office
to which the petitioner had been appointed having been abolished by statute.
Lord Atkin, however, adverted to the problem of implied conditions giving the
Crown the right to determine the employment at will. In the course of his
opinion he said:
If the terms of the appointment definitely prescribe a term and expressly provide
for a power to determine “for cause”, it appears necessarily to follow that any
implication of a power to dismiss at pleasure is excluded.
If the power to dismiss is included on the ground of public policy, this latter
being of the jus cogitum, it would follow that it is not competent for th
Crown to contract out of its provisions, and a term giving this power would
have to be implied regardless of any express conditions. One is left either
with the result that it is never possible for the Crown to bind itself to tenure
in any case, or with the result that this is a unique form of public policy
and that the rules of private contract law cannot be applied to public contracts
of service, if not to all public contracts.
Now, occasionally, there are also to be seen allusions to what appears
to be similar notions in certain United States cases. In The West River Bridge
Co. v. Dix,72 the plaintiffs were the owners of a bridge which had been held
under charter from the State of Vermont. The charter was treated as a
contract between the State and the company, but the bridge was compulsorily
acquired to be used as a part of a public road. The Supreme Court held that
the contract was subject to the right of eminent domain existing in the State.
there inheres necessarily
No state, it is declared, shall pass a law impairing the obligations of contract;
yet, with this concession constantly yielded, it cannot be justly disputed that
the right and
in every political sovereign community
the duty of guarding its own existence, and of promoting and protecting the
interests and the welfare of the community at large . . . This power, denominated
the eminent domain of the State, is, as its name imports, paramount to all private
rights vested under the government and these last are, by necessary implication,
held in subordination to this power and must yield in every instance to its proper
. there enter considerations which arise not
exercise
out of the literal terms of the contract itself .
in
subordination to them, and must yield to their control, as conditions inherent and
paramount wherever a necessity for their execution shall occur. Such a condition
impair the
is
in the fullest extent,
the contract affected by it, but recognizes
claiming only the fulfillment of an inseparable and essential condition. 73
the right of eminent domain. This right does not operate
. Every contract is made
its obligation
to
.
.
. Into all contracts
.
.
.
70[1934] A.C. 176.
71Hence, of course, there was no breach.
726 How. 507 (1848).
73Id. pp. 531-533.
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The same view is taken in the case of the Contributors to the Pennsylvania
Hospital v. Philadelphia74 and the cases there cited.75 The right of eminent
domain of the State to secure the welfare of that State where necessity
demands, and the corresponding right of the Federal Government, is a right
which must be taken into consideration in any examination of the theory
of public contracts. Similarly, the overriding police powers of the States, while
not, of themselves, contractual in nature, may have such effects upon contracts
made with a government that they too cannot be ignored.7 6
One may, therefore, well ask if it is possible to say that in the common law,
contracts made by the government are but the same, juridically, as private
contracts, save that one of the parties is a public corporation or other body.
From what has already been said, it is suggested that when questions arise
as to the rights and obligations in government contracts, it is apparent that
there are considerations which do not arise solely from that contract. The
discretionary powers of the administration and its ‘rights
to take certain
unilateral action appear from time to time in the form of the right of eminent
domain, police power, the incapacity of the Crown to be bound by certain
contracts, the inability to contract out of certain powers which have been
accorded to the administration by statute. This would seem to be the rationale
of the opinion expressed in the case of Ransom and Luck v. Surbiton Borough
Council77 by Goddard L.C.J., to the effect that a local authority could not
contract out of the exercise of its powers under the Town and Country
Planning Acts. In the case of Stone v. Mississippi”s the State had granted a
charter to the plaintiff to operate a lottery but, a year later, had adopted an
article in its constitution which forbade the authorisation of lotteries, acting
under its police powers to protect the health and morals of the citizens of
the State. In holding that the charter was annulled by the new clause in thd
constitution, the Supreme Court, through Waite J., said:
The question is, therefore, directly presented whether, in view of these facts, the
Legislature of a State can, by the charter of a lottery company, defeat the will
of the people, authoritatively expressed, in relation to the further continuance of
such business in their midst. We think it cannot. No legislature can bargain away
the public health or the public morals. The people themselves cannot do it, much
less their servants. The supervision of both these subjects of governmental power
is continuing in its nature, and they are to be dealt with as the special exigencies
of the moment may require. Government
is organised with a view to their
preservation, and cannot divest itself of the power
them. For
this purpose,
the discretion
cannot be parted with any more than the power itself.79
the largest legislative discretion
is allowed, and
to provide for
74245 U.S. 20 (1917).
75See also, Mitchell, Limitations on the Contractual Liabilities of Public Authorities,
13 Mod. L.R. 318.
70Freund, Police Powers (1904) 555 et sqq. Tiedeman, Limitations of Police Powers,
(1886), pp. 515 et sqq. Mitchell, Contracts of Public Authorities, pp. 87 et sqq.
77[19491 Ch. 180.
78101 U.S. 814, p. 819 (1879).
79For a similar statement in English law, see Birkdale District Electricity Supply
Co. v. Southport Corporation [1926] A.C. p. 364, per Lord Birkenhead.
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GOVERNMENT CONTRACTS
In both the United States and England, the courts have recognized that
there is a power to declare certain contracts or clauses and conditions of
contracts void on the ground that they are inconsistent with the nature of
the powers of the government.8 0 Here, we can see a realisation that contract
and discretion are not capable of being separated in the manner in which the
American courts, in particular, have stated that they are. The administration
does not cease to act in a public capacity when it enters into a contract with
a private person. 8 ‘ In this respect, there is little difference in principle between
the law in the common-law system and the law in France, although there is a
great difference in the degree to which these principles are extended. This is
not surprising when it is recognised that the common law has introduced
these public law principles into the framework of private law. There is no
difficulty involved in the common-law courts invocation of the nebulous prin-
ciples of public policy to do this, although, as has been suggested above, it is
doubtful whether these principles have been correctly applied.
The fundamental difference between the French law and the common law
in respect to government contracts lies not in the powers of the courts to declare
certain contracts to be void, but in the powers and the rights, extraneous to
the contract, of the administration to take positive action unilaterally. The
right of the French administration to insist upon the performance of an
obligation for which the contractor has not contracted for expressly has,
as yet, no counterpart in the common law. By a process of historical growth,
French law has given the administration the powers which have been described,
after a careful balancing of the interests of the public against the interests of
the contractor himself. It cannot be doubted that, in the common law, if the
contract did not, by its terms, enable the administration to call for extra work
or materials if it was thought to be necessary, the contractor would not bd
bound to comply with this request. No public policy consideration could be
invoked against him and there would be no consideration of what would be
in the best interests of the public. However, it is to be noticed that where the
courts have invoked the doctrine of public policy, the results are far more
detrimental to the contractor. It is in these very cases in which the contractor
is left with no remedy at all, since the contract or the offending term is declared
void. But it will be well to bear in mind the observation of Lord Moulton iri
the case of the Attorney-General v. De Keyser’s Royal Hotels 2 in which hd
said:
SOThe question of whether justice does not demand that a contractor whose contract
has been declared void on the ground of public policy should not be entitled to some
sort of indemnity or compensation, must also be answered.
81Compare the application of the rules as to police powers, eminent domain, contracts
of service with the Crown, etc.
82[1920] A.C. 508.
246
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the good of the nation should be
It is equitable
distributed over the whole nation and should not be allowed to fall on particular
individuals,
that the burdens borne for
an observation which is remarkably reminiscent of the French view of the
whole of the law relating to administrative remedies.
The conclusion which is to be drawn from this theoretical discussion is that,
at common law, whilst government contracts are contracts in the fullest sense
of the word, there are too many peculiar features to these contracts to make
a complete assimilation between them and the ordinary contract between
private persons. The character of the government as a party to such contracts
results in different contractual incidents. Confusion will inevitably arise if the
features of government contracts are explained and applied according to the
principles and terminology of private law.
