University of Otago Law Festschrifts
Last Updated: 31 May 2019
8 A SHORT HISTORY OF “LAW AND ECONOMICS”
IN NEW ZEALAND IN THE 1990s
In 1996, John Smillie published “Formalism, Fairness and Efficiency: Civil Adjudication in New Zealand”.1 It was a cogent defence of formalism, a method of legal analysis then somewhat under attack from the “fairness” rubric, most forcefully identified in New Zealand with Sir Robin, later Lord, Cooke. John was somewhat more attracted by Sir Ivor Richardson’s desire for a “more rational and objective justification for legal change”,2 but ultimately found Sir Ivor’s law and economics analysis unconvincing, somewhat circular and, ironically, providing nothing more satisfactory than the benefits long since provided by formalism. These four or so pages in this article led me to think about Sir Ivor’s writing about law and economics in New Zealand. To describe law and economics in New Zealand in the 1990s as a movement would be to somewhat overstate the case. Yet it clearly engendered a considerable amount of interest in the legal profession in the 1990s.
Sir Ivor, who died at the end of 2014, was President of the Court of Appeal from 1996 to 2002. He was front and centre of law and economics scholarship in New Zealand. There is also a certain similarity in background between John and Sir Ivor, although the best part of a generation separates them. Both were educated in long-established state boys’ secondary schools in South Island provincial cities (Southland and Timaru Boys’ High Schools respectively), both studied undergraduate law at South Island Universities (Otago and Canterbury), both studied post-graduate law in the United States (Yale and Michigan) and both practised law in Invercargill! John has been a significant person in my own academic life, first as a teacher and then as a colleague and friend. I teach and research tax – Sir Ivor’s jurisprudence and his influence on the administration of taxation in New Zealand have made him hugely important to all of us in the community of tax academics in New Zealand and abroad.
* Associate Professor, Faculty of Law,
University of Otago.
1 John Smillie “Formalism, Fairness and Efficiency: Civil Adjudication in New Zealand” 
NZ Law Review
2 At 269.
2. A TIME-LINE OF LAW AND ECONOMICS IN NEW ZEALAND IN THE 1990S
The following summary does not purport to be comprehensive and, unsurprisingly with something of this sort, there is no precise date when “Law and Economics” became a matter of interest in the New Zealand legal community. What is apparent is that while it elicited a fair amount of interest among practising lawyers, it gained little interest in the Law Faculties, either as a subject for teaching or as a matter of research.
In December 1990, “Economics and the Law: The Application of Economics in Legal Practice” was the subject of a New Zealand Law Society seminar in Wellington and Auckland. A long paper written by Professor Grant Hammond, then Dean of the Auckland Law Faculty and later a Judge of the Court of Appeal and President of the Law Commission, formed the basis of the material for the seminar. Appended to it was an article by Frank Easterbrook that had previously been published in the 1989 Legal Education Review.3 Supplementary papers formed the basis of presentations at the seminars and these were provided by Kerrin Vautier, an economist, Jim Farmer QC and Sir Ivor Richardson. It is a reasonable assumption that all four spoke at the seminars. In 1993, one of the sessions at the Law Society Triennial Conference held in Wellington was entitled “Lawyers and Economic Consequences”.4 The keynote speaker in the session was Professor Michael Trebilcock, the Director of the Law and Economics Programme at the University of Toronto and an important figure in law and economics scholarship. Trebilcock was also a Canterbury graduate (a decade or so after Sir Ivor) who had gone via South Australia to Canada. He is recognised as a significant figure in the intellectual history of law and economics in the last quarter of the twentieth century.5 His attendance at the 1993 Law Conference and his choice as a speaker indicates both an enthusiasm amongst the conference organisers and presumably some belief that a number of attendees would be interested. Given the nature and content of Trebilcock’s scholarship, it also indicates the type of law and economics scholarship and insight that had some resonance in New Zealand. Two years later, Trebilcock returned to New Zealand to be the keynote speaker at an “Economics and the Law” Seminar presented by the New Zealand Law Society in association
3 Frank Easterbrook “The Inevitability of
Law and Economics”  LegEdRev 2; (1989) 1 Legal Educ Rev
4 Michael Trebilcock “Lawyers and Economic Consequences” (paper presented to New Zealand
Law Conference, The Law and Politics, March 1993) vol 1 at 325. There was also commentary by Sir Ivor (vol 1 at 351) and Stephen Franks, a practicing lawyer (vol 2 at 124).
with the Law and Economics Association of New Zealand (“LEANZ”).6 According to LEANZ, it traced its origins to a seminar presentation by Sir Ivor on law and economics hosted by the Law Commission in 1993. The inaugural meeting was held April 1994. The committee included people with current and future outstanding careers.7 The 1995 seminar began with a mock presentation of economic evidence that might have been presented in the famous straying cricket ball case, Miller v Jackson.8 Justice Ellis presided, Terence Arnold9 and Jim Farmer QC were the lay members of the Court and expert economic evidence was provided by Allan Bollard, later Governor of the Reserve Bank, and John Yeabsley, the then Director of the New Zealand Institute of Economic Research. Pre-reading for attendees was an article on the Coase Theorem. The theme for the following day was “an economic approach to the law – how it applies in practice” led by Professor Trebilcock with expert commentary by Professor Philip Williams of the Melbourne Business School. Specifically, property rights, tort and contract law were considered and there were concluding remarks from the Chair, Sir Ivor in Wellington and Justice Grant Hammond in Auckland.
At the 1996 Triennial New Zealand Law Conference there were no papers on law and economics, but that year the Victoria University of Wellington Law Review had an issue devoted solely to the topic. The leading article was by another significant figure from the North American academy, Professor Susan Rose-Ackerman10 and there were contributions by New Zealand practitioners and academics from both law and economics on competition law, torts and the draft takeovers code.11 That year leading international scholars Richard Epstein and Greg Crespi published articles in the New Zealand Law Journal12 and the Otago Law Review13 respectively. It is not clear to me whether Professor Epstein visited New Zealand that year although he certainly did later when he presented seminars for LEANZ. Professor Crespi spent the first semester of 1996 at the Law Faculty of the University of Otago. In 1997, Sir Ivor addressed the inaugural
6 New Zealand Law Society and Law and Economics Association of New Zealand Economics
and the Law (NZLS, Wellington, 1995).
8 Miller v Jackson
 EWCA Civ 6;  QB 966.
9 Later a Judge of the Supreme Court, who succeeded Sir Ivor as patron of LEANZ.
10 Now Henry R Luce Professor of Law and Political Science at Yale.
11 (1996) 26 VUWLR: there were papers from
academics (Mark Berry at 17, Bob Dugan at 39), practitioners (James Palmer at
71) and economists
(Conrad Blyth and Basil Sharp at 91 and George Barker at
12 Richard Epstein “Do Judges Need to Know any Economics?”  NZLJ 235.
13 Greg Crespi “Filling a Gap in New Zealand Legal Education: The Economic Analysis of Law”  OtaLawRw 8; (1996) 8 Otago LR 589.
Law and Economics course at Victoria University.14 The existence of this course is particularly interesting in light of Professor Crespi’s article of the previous year. He posited two possible explanations for the dearth of law and economics courses at New Zealand Universities. First, he suggested that New Zealand Law Faculties “may feel they are financially unable” to hire suitably qualified teachers. Secondly, he suggested there might have been “‘political’ resistance” within the faculties and elsewhere in the Universities, largely because of a “widespread perception” among New Zealand legal academics that law and economics was associated with the so-called Chicago School with its over-emphasis on the efficiency advantages of markets and under-emphasis on their distributional shortcomings.15
Sir Ivor’s writing continued. In 1999, he contributed to a book published in Australia entitled The Second Wave of Law and Economics. He and Justice Michael Kirby, then of the High Court of Australia, published papers under the heading “Judicial Perspectives”.16 In 1998, Sir Ivor published the first of two long papers in the New Zealand Business Law Quarterly. The 1998 paper was the text of an address that Sir Ivor had been scheduled to give at a LEANZ function in Auckland in February of that year but which had to be cancelled because of a power crisis in Auckland.17 The second, published in 2002, was the paper delivered by Sir Ivor at the 2001 Triennial New Zealand Law Conference.18 He spoke on law and economics at that conference, but it was a long way from the days of the 1993 conference where law and economics was a significant session. In 2002, when the Victoria University Law Review published “Essays in Honour of Sir Ivor Richardson” no articles were overtly about law and economics.19 LEANZ continues, with seminars and publications, but there continues to be little writing on the topic in the New Zealand context,20 it is not a subject taught in the Law Faculties and there appear to be none of the seminars and workshops of the mid 1990s outside LEANZ’ own programme. What is clear from the above sketchy
14 Ivor Richardson “Inaugural
Address” (1997) Newsletter of the Law and Economics Association of New
15 Crespi, above n 13, at 593 and 594.
16 Megan Richardson and Gillian Hadfield (eds)
The Second Wave of Law and Economics (Federation Press, Leichhardt,
1999); the co-editor of the book was Sir Ivor’s daughter then an Associate
Professor in the Law
Faculty at the University of
17 Ivor Richardson “Law and Economics” (1998) 4 NZBLQ 64.
18 Ivor Richardson “Law and Economics
– and Why New Zealand Needs it” (2002) 8 NZBLQ
19 (2002) 33 VUWLR.
20 One notable exception is Jason Varuhas The Economic Analysis of the Law in New Zealand (New Zealand Institute for the Study of Competition and Regulation Inc, Wellington, 2005).
narrative is that Sir Ivor was front and centre of law and economics in that period, speaking and writing frequently.
3. SIR IVOR AND LAW AND ECONOMICS
During the 1980s, Sir Ivor published a number of reflections on the role of the appellate judge and especially on the role of judges as lawmakers.21 In these he was clear about the value of “order, certainty and stability” so that people are able to know on an a priori basis what the law expects of them. He was equally clear that in most cases the result in a particular case was obvious and inevitable from the application of existing legal rules. However, he spent some time in these articles considering how a judge ought to tackle those cases where the answer was not so obvious. In both the common law and in statutory interpretation a judge was obliged to “reflect what he perceives to be the needs of society.”22 In the application of existing common law rules to new situations, the result depended on “what analogies are used”.23 Similarly in resolving statutory ambiguity there might be alternatives available to a judge involving some choice. Sir Ivor believed that a judge ought to have a “framework of reference against which to probe and test the economic, social and political questions involved.” But as the decade unfolded he became more concerned about how intuitive such a process was. That process was, he reflected, particularly difficult when the issue to be decided was one on which society is deeply divided,24 and this difficulty was amplified in a “pluralistic and changing society.”25
In the thirteenth Wilfred Fullagar Lecture delivered at Monash University in 1985 and entitled “Judges as Lawmakers in the 1990s”, he identified two matters that were important in his on-going analysis. First, he continued to wonder about the capacity of judges to assess and reflect society’s values, especially in a “pluralistic and changing society”. Secondly, in making those decisions, what sort of material ought judges use.26 He illustrated the issue with reference to the development of the “modern law of negligence”. It appeared to him that measured by public responses, changes to the law of negligence had been well received. However,
21 Ivor Richardson “The Role of the
Appellate Judge”  OtaLawRw 1; (1981) 5 Otago LR 1; Ivor Richardson “Judges as Law
Markers in the 1990s”  MonashULawRw 4; (1986) 12 Mon LR 35 (the Thirteenth Wilfred Fullagar
Memorial Lecture); Ivor Richardson “Changing Needs for Judicial
Decision-making” (1991) 1 JJA 61.
22 Richardson “The Role of the Appellate Judge”, above n 21, at 8.
23 At 6.
24 At 9.
25 Richardson “Judges as Law Markers in the 1990s”, above n 21, at 39.
26 At 39.
it would be “useful” to have an analysis of the “costs to society” of “shifting the economic burden of careless advice and omissions on the part of employees of local bodies on to the ratepayers”. While the retreat from Anns apparent in Heymann and Peabody27 suggested a perception that the law had been moving “too fast”, it would be preferable if such changes were measured against evidence of the incidence of costs. This example pointed to the need for care “in reaching conclusions as to social policy and the public interest on the information and arguments furnished by the parties to the litigation.” In that paper he began to reflect that counsel in New Zealand seemed “reluctant to explore wider social and economic concerns”.28 One can see in the development of these ideas a growing interest in thinking about the consequences of changes in the law in a less intuitive way and in a manner more consistent with available evidence. In 1986, Sir Ivor was appointed Chair of the Royal Commission on Social Policy. The ill-fated Commission was set up by the Government to undertake a nationwide inquiry designed to assist in setting social policy goals. The Commission conducted numerous consultation meetings, commissioned a major attitudinal survey and collected a significant amount of data.29 The Report, five volumes and 4,000 pages, was released in April 1988.30 It would seem plausible to suggest that the involvement with this must have had some influence on Sir Ivor’s thinking in light of the methodology used by the Commission and the “snapshot” of New Zealand society taken in the April Report. His extra-judicial writing in the 1990s began to discuss the “law-making” role of judges in the context of the significant changes that occurred in New Zealand society in the second half of the 1980s. A 1991 paper was entitled “Changing Needs for Judicial Decision-making”.31 In terms of Sir Ivor’s growing interest in law and economics, there are two important points that were made in this paper. First, he commented on the significant changes that had occurred in New Zealand in the preceding seven years:32
the last six or seven years have been extraordinary for all New Zealanders in all kinds of ways. There have been so many changes: changes in institutions, changes in processes, above all changes in attitudes, in the
27 Anns v Merton Borough Council  UKHL 4; 
AC 728; Shire of Sutherland v Heyman  HCA 41; (1989) 59 ALJR 564; Peabody
Donation Fund v Sir Lindsay Parkinson & Co Ltd  AC
28 Richardson “Judges as Law Markers in the 1990s”, above n 21.
29 On Sir Ivor’s reflections on the Royal
Commission, see Ivor Richardson “Commissions of Inquiry”  OtaLawRw 3; (1989) 7
Otago LR 1 at 9; on the context of the Commission and its Report see Jo Barnes
and Paul Harris “Still Kicking? The Royal Commission on
Social Policy, 20
Years On” (2011) 37 Social Policy Journal of New Zealand
30 Ivor Richardson and others The April Report (Royal Commission on Social Policy, 1988).
31 Richardson “Changing Needs for Judicial Decision-making”, above n 21, at 61.
32 At 63.
way of looking at events, at the economy and at society. We are a very different society from what we were 10 years ago. What we have hardly begun to do is explore the philosophical approaches underpinning branches of the law to bring legal thinking into line with changed economic, social, political and administrative thought in this country.
He reflected on the ramifications of this change in the application of the law. For example, was it appropriate for courts to review the statutory powers of the Housing Corporation when the Corporation had become a “minor player” in the provision of social housing and when there were specific officers and procedures, such as the Ombudsman, to which recourse could be made. Did the expansion of duties in negligence reflect a “paternalistic attitude” increasingly at odds with a society in which individual responsibility had assumed more significance? Was “unjust enrichment” anything more “than an attempt to allow judges to reallocate economic resources under the guise of fairness?” These examples were given to explain why the values and principles underpinning legal rules needed continual reassessment and modification and occasional replacement to reflect “contemporary thinking”.33
The second ramification of this social change and the required re-evaluation of legal rules was the manner in which such re-evaluation ought to take place. Judicial decisions have “economic, social or administrative implications”. Economic resources are scarce and where resources are scarce, there are trade-offs involved. In Sir Ivor’s view there was “much to be said for identifying the economic and social considerations underlying legal principles and thus opening them up to scrutiny.” In the future there would need to be an increasing emphasis on “rigorous analysis” of the economic, social and administrative costs of the decisions that judges are “asked to reach.” He noted that at the current time Court of Appeal judges were “rarely referred ... to any economics and law analysis” of the potential effects on behaviour in cost-benefit terms of imposing duties of care in negligence. Such evaluations were “intuitive” and generally not overtly articulated.34 It is not difficult to see the appeal of law and economics to a person thinking in these terms. It is also not difficult to consider that these are the reflections of someone aware of law and economics scholarship.
For the rest of the 1990s, Sir Ivor was strongly associated with many of the law and economics activities in New Zealand described above. He spoke and wrote consistently through the decade and his own thinking and exploration of the topic expanded.
33 At 64.
34 At 65.
Law and economics is a very easy phrase to use, and it is easy to use it pejoratively or to see within it a silver bullet for finding the answers to legal questions. As is always the case, neither is wholly valid. It is also not surprising that many, in describing “law and economics”, have developed various taxonomies. Expressions such as “old and new”, “three stages” and first and second waves have variously been used to organise the themes and ideas of law and economics. Sir Ivor used the expressions “old” and “new”: old indicating areas of the law where economic analysis had been long used and was to some degree embedded in the underlying rules. These areas of the law included competition law, valuation and some tax rules. One might say these were matters where the law was overtly about regulating economic activity. The “new” wave purported to analyse other areas of the law that were not so obviously overtly about economic activity, such as contract and tort.35 Some theorists considered it was possible to use economic tools, such as cost/benefit analysis, to analyse all areas of the law. George Priest, Professor of Law and Economics at Yale, has identified three “stages” within law and economics.36 The first stage is identified with the late 1950s work of Aaron Director and Ronald Coase. Their work reflected a “deep” belief in the superiority of markets and the consequences of court interferences in markets. Its major field of study was competition or anti-trust law. The importance of the work lay in the scientific method employed, but Priest concludes that there was a strong political element in their work as they set out to convince that governmental interference in the economy ought to be rolled back. The second stage identified by Priest began with the 1972 publication of Posner’s Economic Analysis of the Law. He suggests that Posner’s work generally had three significant effects for law and economics. First, the scope was expanded well beyond anti-trust law and economic regulation, the concerns of what Sir Ivor (and others) described as “old’ law and economics, to all areas of the law and the legal system itself. Secondly, this very fact attracted the attention of serious scholars in all fields. Even those who rejected Posnerian law and economics claims were forced to confront them. Thirdly, he suggests that Posner (and others such as Calabresi) shifted attention to a functionalist analysis of legal rules and institutions and away from the formalist, categorical analysis of legal problems. It was once lawyers (in the broadest sense) recognised that those who propounded views about the efficiency of the law were “not promoting economic efficiency as a dominant value” in the way that Director and Coase had done, that antipathy to law and economics declined dramatically. The third stage as described by Priest is one associated with Michael Trebilcock,
35 Ivor Richardson “Lawyers and Economic
Consequences: The Law and Economics. Commentary on paper by Professor Michael
(paper presented to New Zealand Law Society Conference 1993)
vol 1 at 351-353.
36 Priest, above n 5.
who, we have already seen, was a significant contributor to education on the topic in New Zealand.
The hallmark of Trebilcock’s work was that he did not “relentlessly promote .... market versus government solutions to economic problems.”37 In this respect, he is unlike Director and Coase. But like them, he set out to determine the actual effects of legal policy (through empirical observation and testing) and to then define those legal rules that were most likely to generate “socially beneficial effects”. His concerns were thus broader than finding economically efficient, or even beneficial, effects. This version of law and economics is neither normative nor politically focused. It has several strands. It seeks to understand how markets operate and how they are affected by law; it looks at actual legal rules and institutions and how they affect behaviour; and finally it considers how to design law and legal institutions to “enhance the welfare of society.”38
At the end of the 1990s, Sir Ivor contributed a chapter in the “Judicial Responses” section of a book edited by Megan Richardson and Gillian Hadfield entitled The Second Wave of Law and Economics.39 Megan Richardson set out to give an explanation of the term “second wave” in her introductory chapter, “The Second Wave in Context”. Her analysis collapses the first two stages identified by Priest into one and it describes the first as being the wave exemplified by the work of Coase and Posner and identified with the “Chicago School” of economic analysis. The so-called “second wave” encompassed a greater variety of ways of thinking about the economic underpinnings and effects of legal rules. It was “more self reflective and critical” and placed much emphasis on empirical analysis.40 It is not difficult to see that this has much in common with the characteristics that Priest identifies with the “Trebilcock way”, third stage. In the New Zealand context, this is consistent with the claims made for law and economics by Sir Ivor.
A number of themes are apparent in Sir Ivor’s writing on this topic and not surprisingly, over the course of a decade or so, the emphasis changed as his thinking evolved. He rarely engaged directly with law and economics sceptics but
38 At 166.
39 Richardson and Hadfield, above n 16. See also chapters in the same volume by Michael Kirby “Law and Economics in the Courts: Is There Hope?” 114 and Ivor Richardson “Law, Economics and Decision-making” 129 (Megan Richardson, then Associate Professor and now Professor at the Law School Melbourne University, is Sir Ivor’s daughter).
40 Richardson “The Second Wave in Context”, above n 16, 2 at 3–4. See also Hadfield “The Second Wave of Law and Economics: Learning to Surf”, above n 16, 50 at 53–59. Michael Trebilcock also contributed an essay to the volume “The Value and Limits of Law and Economics”, above n 16, 12.
he did acknowledge their concerns.41 As described above, his extra-judicial writing on law and economics had its roots in his prior, more general contemplation of the role of the appellate judge and the role of the judge as lawmaker. The context of rapid economic change and the growing recognition of the pluralistic nature of New Zealand society in the 1980s and 1990s were significant in the development of his thinking. In the great majority of cases that came for determination, the legal principles were settled, their application obvious and there was no need or scope for any sort of analysis beyond the application of the law to the instant dispute. However, whenever there is legal change, it is necessary to explore the underpinning of the rules. In a period of rapid social change, it was essential to reassess “the philosophical approaches underpinning various branches of the law to bring legal thinking into line with changing economic, social, political and administrative thought”.42 While the major responsibility for such an enterprise rests with Parliament and statutory law reform bodies, “in a proportion of cases judges have a law making role”. In those situations “fairness has an instinctive appeal” but that cannot be an “absolute”. In this lawmaking role, judges are in fact engaged in the allocation and re-allocation of resources. Judges must therefore derive all the assistance they can from an economic analysis of the consequences of those resource allocations. Herein lay the appeal of the Trebilcock approach.
As early as 1993, Sir Ivor identified the limitation of the normative strand of law and economics especially in the claims of either Pareto or Kaldor-Hicks concepts of efficiency. Sir Ivor endorsed Trebilcock’s concerns about the dangers of a one-value view of the world. Tunnel vision is self-defeating, regardless of the appeal of what vision is in the tunnel. Excessive focus on maximising the value of social resources without thought to redistribution would be an “impoverished view of the world”.43 This is a more nuanced view of the value of insights of economics and the need to consider economic consequences of legal rules and institutions. Economic consequences ought to be an important part of the choices that are made, but they cannot and should not be the be-all and end-all. But Trebilcock’s further contribution is that such evaluations ought to be done with data, not intuition. As Sir Ivor wrote “without adequate data and the consideration of a range of views there is a risk that an impressionistic economic analysis will add little to existing intuitive assessments of public interest considerations.” He recognised
41 See for example the discussion about Sir
Anthony Mason’s views in Richardson, above n 35, at 354; Michael Kirby
the law and economics critics, referring specifically to
Australia’s most eminent sceptic, Sir Anthony Mason, and to John
work: Kirby, above n 39, at
42 Richardson, above n 35, at 355.
43 At 352.
that there is a difficulty here in that individual litigants, concerned to resolve their dispute, will be reluctant to go to the expense of cost/benefit analyses.44 This of course is the very criticism made by John Smillie. But for Sir Ivor, it seems that the changing nature of New Zealand society led him to be particularly concerned about the continued use of impressionistic and intuitive assessments made in a different time. Beyond that however, there is a fundamental concern in play here. Appellate judges are simultaneously fulfilling two functions that are in tension or, as Stanley Fish would say, they are doing two law “jobs”.45 First, they decide the instant case before them. Secondly, they develop rules that apply to the world at large. Common law reasoning is designed to resolve this tension. His writing also reflects what has been described as his “cautious approach to judging” that “formed a counterpoint to Cooke P’s more liberal tendencies”.46
Sir Ivor’s final major publication on law and economics was a 2002 article entitled “Law and Economics - and Why New Zealand Needs It”.47 It covered many of the themes that had been developed in earlier papers but it also engaged in some empirical analysis of its own. In several previous papers, Sir Ivor had applied the insights of economic thinking to various Court of Appeal decisions. Two that he wrote about often were Fleming v Securities Commission48 and DHL International (NZ) Ltd v Richmond Limited.49 In Fleming, the plaintiff claimed that the securities market regulator and newspaper proprietors owed duties to investors to ensure that advertisements for offers of securities to the public were compliant with the Securities Act 1978. Had the Court of Appeal imposed such a duty of care on newspaper proprietors, every newspaper that carried such advertisements would have been obliged to put in place measures to ensure that all were compliant. A likely effect would have been an increase in the cost of advertisements or in the case of small, community-based newspapers, their potential closure. Sir Ivor “felt that creating a duty of care simply did not justify these costs.”50
44 At 357. See also the report of an interview with Sir Ivor in 1998 in Peter Spiller New Zealand Court of Appeal 1958 – 1996: A History (Thomson Brookers, Wellington, 2002) at 139.
45 Michael Robertson “The Elegiac and
Manichean Jurisprudence of John Smillie” ch 5 of this
46 Spiller, above n 44, at 142.
47 Richardson, above n 18.
48 Fleming v Securities Commission  2 NZLR 514 (CA).
49 DHL International (NZ) Ltd v Richmond Limited  NZLR 230 (CA).
50 Richardson, above n 18, at 160; Fleming was also discussed in Richardson, above n 14; Richardson, above n 17; and Richardson, above n 39.
In DHL,51 one party, Richmond, used DHL’s couriering service to deliver a package without disclosing to DHL that the package contained a bearer bill of lading. Richmond had indicated on the package that the contents had no commercial value and that insurance was not required. The bill of lading was used by a thief to obtain valuable goods in Italy and ultimately Richmond sued DHL for the value of the goods. The standard form of contract excluded all liability in “any event” for any consequential or indirect loss. The High Court refused to give effect to the exclusion clause. Exclusion clauses raise suspicion on the basis of presumed inequality of bargaining power. However, the Court of Appeal considered that in the instant case there was no justification for refusing to give effect to it. It was part of what was bargained and paid for. Commercial parties would be aware that in a low cost courier contract with an exclusion clause they were electing to bear the risk themselves. This is a clear case of reasoning based on economic reasoning, but of course it is based on intuitive reasoning. Sir Ivor also discussed in this article a third case where the court did have available some empirical evidence to draw on and that was Williams v Aucutt, a case about a testator’s family protection obligation.52 While Sir Ivor’s stated preference was for empirical evidence, and he was frustrated by the lack of it,53 he continued to use intuitive economic reasoning, which others might perhaps label the application of common sense.
At this point in this final paper he summed up his views on the value of law and economics. Some critics, he said, thought the concerns of law and economics should be taken account of only by the Legislature. His response to that returned to a theme that had been apparent in his writing all along:54
Judges do and must at times, in a principled way, make law. It is too late to put an end to judicial law-making and too late to return to pretending that it does not exist. And if judges are going to make law, then they should take all relevant matters into account. They are rightly expected to consider fundamental human rights, New Zealand’s international obligations and general notions of public policy. Why should they be blind to economic efficiency?
Parliament had recently demonstrated an interest in “efficiency” in the development of legislation. Examples abounded: Public Finance Act 1989, State-
51 DHL International (NZ) Ltd v Richmond Limited  NZLR 230 (CA). This case was referred to in the same papers that discussed Fleming.
52 Williams v Aucutt  NZCA 289;  2 NZLR 479;
the empirical evidence was the “particularly helpful survey” in
Nicola Peart “Awards for Children Under the Family
(1995) 1 BFLJ 224 .
53 Spiller, above n 44, at 139, n 280 where the author refers to an interview with Sir Ivor.
54 Richardson, above n 18, at 166.
Owned Enterprises Act 1986, Fiscal Responsibility Act 1994. The court could not ignore Parliament’s “unmistakable emphasis on efficiency”. Sir Ivor’s summation of his “thesis” was this:55
[e]conomics is relevant whenever a court is reviewing existing legal principles or is considering alternative legal rules. And it may be relevant in the exercise of discretionary power. Obviously, no judge can or should always privilege efficiency over other values. The justice of compensating those who find themselves drinking decomposed snails may outweigh the costs associated with imposing a duty of care on ginger beer manufacturers. And precedent may, and Parliamentary intention, when interpreting statutes, must, trump efficiency. But efficiency should at least be taken into account.
What he wanted in this process was for there to be available to judges some empirical data on which to base these evaluations rather than relying on “untested intuitions when making predictions about human behaviour.”
While the ability of judges to consult experts and conduct cost benefit analyses is more limited than Parliament’s, they should “as far as possible” rely on empirical evidence rather than intuitive assumptions about human behaviour. This of course is where John Smillie concludes that Sir Ivor’s analysis runs out. There is no methodology or principle that enables the court to get such evidence on a routine basis. Additionally, it would place an economic burden on parties to the dispute, which ironically would be inefficient in itself, if such evidence were not needed to resolve the instant dispute. John Smillie’s retort at this point is to keep to formalism. Sir Ivor’s implicit answer is to take refuge in the kind of intuitive analysis we can see in Fleming and DHL. It may of course be that these two answers are not substantially different, for surely the judges of the past, who established the precedent rules that formalism relies upon, most likely used implicit or explicit assumptions about economic effects in deciding cases before them.
In this final significant work on the topic Sir Ivor did engage in some “modest” empirical work of his own. First, he conducted an analysis of the outcomes of cases where there had been discretionary relief under s 9 of the Contractual Remedies Act 1979. His analysis revealed to him a level of concerning unpredictability and a lack of clarity about the aim of relief under s 9. No economic analysis of potential consequences of decisions under the Act had ever been presented to the Courts. The result was a level of uncertainty that was unacceptable and that had economic implications because all parties to contracts want/need to know on an a priori
55 At 166.
basis what liability risks they were assuming by entering into the contract. The law prior to the Act had been imperfect, but “it was more predictable and thus fairer and more efficient than s 9 as regards cancellation for breach of contract.”56 That sentence would not have sounded out of place in John Smillie’s writing on similar topics.57
The other piece of “modest” empirical work in the 2002 paper was a survey of the legal reception of law and economics in New Zealand. An “unscientific” survey of law review articles published in 1999 revealed a “mere 4.8%” were on law and economics or included substantial economic analysis. The major New Zealand texts on contract and tort only hinted at economic concerns – one footnote and one page respectively.58 By 2002, no Law Schools were offering law and economics papers.59 This brings us back to the comments made by Greg Crespi in his 1996 Otago Law Review article.60 It will be recalled that he concluded there were two probable reasons for this lack of interest: a lack of economic training in academic lawyers and a political scepticism about law and economics engendered through its identification with “Chicago School economics”. A response to Crespi in the Otago Law Review suggested other reasons. Professor Stuart Anderson, then Dean of the Otago Law Faculty, was doubtful that students would be keen to study law and economics if they were given the opportunity and he rejected the proposition that the academy was disinterested in the topic for political reasons. Anderson considered that it was matters of culture that made law and economics an uncompelling option in New Zealand compared with the United States. New Zealand law students were almost exclusively under-graduate, American law schools were independent of the profession and American law schools drew their students from 50 state jurisdictions and thus necessarily taught law in a way that was not jurisdiction specific. On all these counts, New Zealand was a significantly different environment. But on a broader level, Anderson suggested that New Zealand law schools had remained “broadly faithful to the Benthamite distinction between law as it is and law as it should be.” The thrust of legal education in New Zealand remained “predominantly descriptive, leavened by the sorts of analysis” that would be acceptable to an appellate Court. The content of
57 John Smillie “Certainty and Civil Obligation”  OtaLawRw 4; (2000) 9 Otago LR 633.
58 Burrows, Finn and Todd Law of Contract
in New Zealand (Butterworths, Wellington, 2001) and Todd and others The
Law of Torts in New Zealand (3rd ed, Brookers,
Wellington, 2001); see also the dismissive comments about the use of economic
analysis in John Farrar and Mark Russell
Company and Securities Law in New
Zealand (Butterworths, Wellington, 1985) at
59 Richardson, above n 18, at 158–159.
60 Crespi, above n 13.
teaching and research was “doctrinal and professionally oriented because that is how New Zealand’s legal culture has been.”61
The conclusion to this brief history brings us back to Sir Ivor’s analysis and John’s critique of it. One of John’s principal concerns is the sheer impracticality of obtaining empirical evidence. The deeper concern goes to the fundamental question of what is going on in an instant dispute and that of course reflects the Benthamite distinction described by Anderson. Steeped in and respectful of common law reasoning, law and economic analysis of the scientific, empirical sort is anathema to John. Sir Ivor, faced with the reality of resolving instant disputes with wider ramifications and in a rapidly changing society, finds in law and economics a principled basis for decision making. It served his conservative instincts well. Unusually he had also been involved in policy development, as Chair of the Royal Commission on Social Policy and also as Chair of the Organisation Review of the Inland Revenue Department in 1994. Law and economics served to marry at least two of the strands of his career while his extra-judicial writing gave him the opportunity to explore his academic instincts and yet another strand in his remarkable career.
In 2016, law and economics is largely forgotten in the academy in New Zealand. It is perhaps a more moot point how far legal education remains “doctrinal and professionally oriented”. Thinking about that is, perhaps, a project for another day. LEANZ continues to run a robust series of seminars. They are, however, almost exclusively focused on regulatory law. Whether there is any continuing resonance of law and economics in the Courts is also a matter for another day. John and Sir Ivor were each in their own ways significant figures in the law in New Zealand in the 1990s. It would have been interesting to see how Sir Ivor would have responded to John’s critique, but it appears he never did. He perhaps too, saw difficulties with how the empirical evidence he needed could be garnered and presented to the Court. It would have been equally interesting if John had returned to Sir Ivor’s work on economics and the law. He perhaps might have seen in Sir Ivor’s more intuitive economic reasoning some reflection of his own analysis and of the common law of the past. But then again, he might not.
61 Stuart Anderson “Comment: Putting Professor Crespi’s Question in Context”  OtaLawRw 9; (1996) 8 Otago LR 599 at 601.