E LAW - MURDOCH UNIVERSITY ELECTRONIC JOURNAL OF LAW
ISSN 1321-8247
Volume 5 Number 2 (June 1998)
Copyright E Law and/or authors
File: andrews521.txt
ftp://cleo.murdoch.edu.au/pub/elaw/issues/v5n2/andrews521.txt
http://www.murdoch.edu.au/elaw/issues/v5n2/andrews521.html
________________________________________________________________________

Wormes in the entrayles: the corporate citizen in law?

Neil Andrews*
Lecturer in law, University of Canberra

Contents

   * Paradise Lost?
   * Certainty? Company law?
   * Paradise regained?
   * Theorised prejudice: indeterminacy in theories of company law
        o Porcine Positivism
        o Speluncean darkness? Natural law
             + Theories waiting for a fact, or a fire? Law and economics
        o Reified abstractions, omnibus concepts and metaphors masquerading
          as facts? Realism
        o A long strange trip? Critical legal studies
             + The Frankfurt school
             + American critical legal studies
             + European critical legal studies
             + Conceptual inflation and disorder? Teubner and autopoiesis
             + Muggletonian Marxism: EP Thompson and the loss of the
               commons
             + The profitability of considering indeterminacy in corporate
               legal theory
   * Appendix
   * The billiard player's guide to indeterminacy in company law
   * An indeterminate taxonomy of legal indeterminacy
        o The failure of language
        o The failure of reasoning
             + The absence of the syllogism
             + Dialectical reasoning
             + Paradox
             + Antinomy
             + The death of law
        o Unpredictable events and inexplicable chains of causation
             + An absolutely unpredictable event
             + Interference produced by two or more causal chains
             + Complexity, non-linear or chaos theory
             + Modelling indeterminacy in company law
   * NOTES




          This, then, is the essence of commercial law - the accommodation
          of principles, rules, practices and documents fashioned by the
          world of business: the facilitation, rather than the obstruction,
          of commercial development. It is part of the genius of the common
          law that despite the ritual and formalism of its earlier life it
          has proved able to respond to the challenges of industrial
          growth. Goode RM, Commercial Law (Harmondsworth: Penguin Books,
          1982) 984.

  1. Good citizens obey the law. The best have integrity and are truthful
     and honest. They do not ask how far they can go. If the law is
     uncertain and there are rewards for the controllers of corporate
     capital viewing the law as Holme's 'bad man' what are the consequences
     for these 'great and enduring values' particularly if the corporate
     form 'makes' its own law? In spite of claims to certainty company law
     has many symptoms of indeterminacy. This is widely ignored. Yet
     indeterminacy has significant consequences for the role of law in
     regulating capital in companies. Responsiveness to changes in
     commercial practices may be desirable. The reproduction and transfer
     of capital in previously disapproved of ways, empowerment of the legal
     profession and lack of control by the state may be questionable.
     Indeterminacy has been considered in legal theory but has a bad name
     and is an often avoided issue. In this context writers in
     neo-classical economics and law, such as Posner, are considered as
     well as the American realists, such as Karl Llewellyn, who preceded
     them. Their views are contrasted with those of the Frankfurt school,
     such as Neumann, and contemporary theorists, such as Teubner. In spite
     of the varying positions these legal theorists start from there are
     common features in their description of company law including a focus
     on explaining change in legal doctrine which, implicitly or
     explicitly, suggests that company law is indeterminate. There is also
     wide agreement that changes in the reproduction and exchange of
     corporate capital drive changes in legal doctrine and, consequently,
     regulation by law rather than the reverse. They disagree with what the
     forces driving change are, how law responds to them, what are the
     consequences for the use of law to regulate companies and whether the
     changes are good or bad. An Appendix suggests a typology of
     indeterminacy is proposed based partly on language, ways of reasoning
     and partly on scientific analogies to construct the shape of
     indeterminacy in company law.

     Paradise Lost?

  2. Oliver Wendell Holmes, like Satan in Paradise Lost, remains the most
     memorable character in the story of Anglo-American law. One hundred
     years ago, on the 8th of last month, as an Associate Justice of the
     Supreme Judicial Court of the State of Massachussets, Holmes
     introduced another serpent into the garden of American law. It was
     released amongst the lawyers of Massachusetts, law students and their
     parents at the inauguration of a new hall at Boston University Law
     School. In his speech, 'The Path of the Law,' he invited his
     listeners, interested to know where the limits of the law are, to
     consider the law from the point of view of a 'bad man'. This will
     clarify for them the difference between law and morality and ethics.

          You can see very plainly that a bad man has as much reason as a
          good one for wishing to avoid an encounter with the public force,
          and therefore you can see the practical importance of the
          distinction between morality and law. A man who cares nothing for
          an ethical rule which is believed and practised by his neighbors
          is likely nevertheless to care a good deal to avoid being made to
          pay money, and will want to keep out of jail if he can. ...

          If you want to know the law and nothing else, you must look at it
          as a bad man, who cares only for the material consequences which
          such knowledge enables him to predict, not as a good one, who
          finds his reasons for conduct, whether inside the law or out-side
          of it, in the vaguer sanctions of conscience. ...

          What constitutes the law? You will find some text writers telling
          you that it is something different from what is decided by the
          courts of Massachusetts or England, that it is a system of
          reason, that it is a deduction from principles of ethics or
          admitted axioms or what not which may or may not coincide with
          the decisions. But if we take the view of our friend the bad man
          we shall find that he does not care two straws for the axioms or
          deductions, but that he does want to know what the Massachusetts
          or English courts are likely to do in fact. I am much of his
          mind. The prophecies of what the courts will do in fact, and
          nothing more pretentious, are what I mean by the law.[1]

  3. Onara O'Neill has recently provided a catalogue of virtues in her
     argument that there is a link across what is generally seen as the
     dichotomy between abstract principles of justice and the
     'particularities of virtuous lives' making both just institutions and
     virtuous lives interelated. These virtues can be found in
     institutions, such as companies. They are the best form of citizen and
     act differently from Holme's bad man.

          the virtues of justice include justice itself, as well as varied
          forms of fairness, of toleration and respect for others, of
          fidelity and probity, and of truthfulness and honesty.[2]

  4. Holmes went on to speculate that that it might be desirable if 'every
     word of moral significance could be banished from the law altogether.'
     This would be 'a law with no duties, rights, or wrongs; no conception
     of good or bad faith, of reasonable or unreasonable conduct; and no
     notion of justice or injustice.'[3]

  5. Unlike the Critical Legal Scholars of almost a century later Holmes
     was not advised to leave the academy for inducing cynicism and
     despondency amongst law students. He was not attacked by a number of
     judges for introducing students to concepts which would make them
     unfit for legal practice. Four years later he was appointed as an
     associate justice of the Supreme Court of the United States where he
     sat for the next three decades. On his ninety-second birthday
     President Franklin Roosevelt called at his house. The same President
     stood in the rain by his graveside when he was buried at Arlington
     National Cemetery. Hollywood held him up to American youth as an
     exemplar in the film, the 'Magnificent Yankee'.[4]

  6. In 1880 Holmes had introduced his first snake into the Eden of
     formalist law in the lectures he gave on the common law at the
     most-Bostonian Lowell Institute. This was most appropriate. The
     Lowells, like Adam and Eve, talked only to God. From these addresses
     developed his book The Common Law. It opened with the words:

          The life of the law has not been logic: it has been experience.
          The felt necessities of the time, the prevalent moral and
          political theories, intuitions of public policy, avowed or
          unconscious, even the prejudices which judges share with their
          fellow-men, have had a good deal more to do than the syllogism in
          determining the rules by which men should be governed. The law
          embodies the story of a nation's development through many
          centuries, and it cannot be dealt with as if it contained only
          the axioms and corollaries of a book of mathematics. In order to
          know what it is, we must know what it has been, and what it tends
          to become. We must alternately consult history and existing
          theories of legislation. But the most difficult labor will be to
          understand the combination of the two into new products at every
          stage. The substance of the law at any given time pretty nearly
          corresponds, so far as it goes, with what is then understood to
          be convenient; but its form and machinery, and the degree to
          which it is able to work out desired results, depend very much
          upon its past.[5]

  7. This was a theme to which he returned in 1898: 'certainty generally is
     an illusion, and repose is not the destiny of man.'[6]

  8. This was a criticism of the mechanical approach to law which dominated
     positivist jurisprudence in the United States, particularly that of
     Christopher Columbus Langdell.[7] Joseph Beale, who taught conflicts
     of law at Harvard, represented the most exaggerated form of this
     reductionist approach to law. He claimed that underpinning both
     statute and common law were essential and timeless principles which
     determined the resulting legal system. This meant that the law was
     'not a mere collection of arbitrary rules, but a body of scientific
     principle'. It followed that 'Purity of doctrine may be lost through
     wrong decisions of courts, thus warping legal principle by bad
     precedent; but wrong decisions are after all uncommon, and the law is
     not seriously affected by them.'[8]
     Again, instead of being ostracised, in January 1882 Holmes was made
     Weld Professor of Law, a chair which had been established for him at
     Harvard Law School. In December 1882 he was appointed to the
     Massachusetts' Supreme Court.

  9. The third serpent Holmes introduced into the formalist garden from the
     bench. He rejected laissez-faire economic canons as basic principles
     of common and constitutional law. Legal formalism had accepted, as a
     scientifically based, classical economic statements. It held:

          any law or artificial obstacle that hinders two persons from
          trading who would otherwise trade, not only interferes with a
          sacred right, but destroys an inevitable gain that would
          otherwise accrue to two persons alike.[9]

 10. These principles were elevated by Herbert Spencer into an evolutionary
     principle of social natural selection. The economically fit who
     successfully used their economic power to negotiate deals to the
     detriment of the economically weak represented the survival of the
     fitness.[10] Holmes accepted this conventional wisdom about economic
     regulation[11] but his dissenting opinion in Lochner v New York[12]
     reveals the different conclusions he drew for law on the economic
     revolution wrought by railways, telegraphs, and large manufacturing
     corporations in American society. He, unlike most other judges,
     accepted that courts should relax the restrictions which laissez faire
     economics had induced in the law and permit legislative experiments
     particularly those restricting the rights of ownership and giving
     workers protection. He accepted the right of legislatures,
     representing the popular will, to curb economic forces however
     misguided that popular will may be.

          This case is decided upon an economic theory which a large part
          of the country does not entertain. If it were a question whether
          I agreed with that theory, I should desire to study it further
          and long before making up my mind. But I do not conceive that to
          be my duty, because I strongly believe that my agreement or
          disagreement has nothing to do with the right of a majority to
          embody their opinions in law. It is settled by various decisions
          of this court that state constitutions and state laws may
          regulate life in many ways which we as legislators might think as
          injudicious or if you like as tyrannical as this, and which
          equally with this interfere with the liberty to contract. Sunday
          laws and usury laws are ancient examples. A more modern one is
          the prohibition of lotteries. The liberty of the citizen to do as
          he likes so long as he does not interfere with the liberty of
          others to do the same, which has been a shibboleth for some
          well-known writers, is interfered with by school laws, by the
          Post Office, by every state or municipal institution which takes
          his money for purposes thought desirable, whether he likes it or
          not. The Fourteenth Amendment does not enact Mr. Herbert
          Spencer's Social Statics. ...
            Some of these laws embody convictions or prejudices which
          judges are likely to share. Some may not. But a constitution is
          not intended to embody a particular economic theory, whether of
          paternalism and the organic relation of the citizen to the State
          or of laissez faire.[13]

 11. By the time Holmes died in 1935 the 'nightmare' school of American
     jurisprudence was well established in the increasing influence of
     Realists.[14] They had already dragged American law within the
     penumbra of the shadow of the valley of indeterminacy. The decade
     before his death marked the beginning of the 'Age of Anxiety' or 'the
     jurisprudence of despair'.[15] This, of course, was not apparent at
     the time. It was a perspective which developed with the
     reinterpretation of Holme's work as representing ethical relativism in
     the 1940s.[16] It later became clearer to some that in 1920 Cardozo,
     who was to join Holmes on the Supreme Court in 1932, had produced 'a
     legal version of hardcore pornography'[17] in his statements:

          I own that there is a good deal of a mystery to me how judges, of
          all persons in the world, should put their faith in dicta ...

          I sought for certainty. I was oppressed and disheartened when I
          found that the quest for it was futile ... As the years have gone
          by, and as I have reflected more and more on the nature of the
          judicial process, I have become reconciled to the uncertainty,
          because I have grown to see it as inevitable.[18]

 12. Holmes remained more enigmatic than the Realists who later used his
     name. Like Milton, with his Satan, Holmes encourages us to believe
     that he is not only the super-villain but the not-so-secret superhero
     of the story.[19] While he described law in terms of prediction he
     encouraged the study of legal doctrine.[20] Dismissive of an approach
     to law based on logic or mathematics he still saw law as a
     science.[21] And, as noted, while he refused to use the beliefs of
     classical economics as legal principles he did not reject them as a
     basis on which a properly informed legislature may choose to frame
     laws. Holmes was a person of his times and class. His ideas of law are
     the application to law of the realist and pragmatic philosophy of
     Peirce and James.[22] They were shared in part by Pound[23] and
     Dewey.[24] Satan, in Milton's story, shared with humanity his
     knowledge of good and evil. Holmes introduced lawyers again to doubt
     and uncertainty which he did not appear to share.

 13. This paper considers the issues raised by Holmes in the context of
     company law in regulating actions of corporate controllers. These
     issues are the indeterminacy of law and that the limits of that
     indeterminacy found in considering the law as a bad person might, when
     actions might attract regulatory penalties. To Holme's 'bad man' we
     could add 'economic person'. Unlike the immoral 'bad man' these amoral
     controllers of companies are motivated to take actions which maximise
     their profits and minimise their risks.

     Certainty? Company law?

 14. Common lawyers have always ascribed certainty as a requirement for
     commercial and corporate law. Lord Mansfield observed:

          Certainty is one great object of all legal determinations, and
          particularly to be wished for in that branch of the law which
          concerns corporations, because such questions are often agitated
          with a heat and spirit not to be satisfied by the best reasons or
          the soundest discretion, and only to be checked by the authority
          of rules and precedents, deliberately settled upon former
          occasions.[25]

 15. Yet comparing these statements with the actual law frequently reveals
     inconsistency. The law seems to be indeterminate. To describe law as
     indeterminate is to suggest that legal rules or principles will not
     cause a particular result, that there is always 'an element of
     variation or uncertainty, choice or discretion' present when they are
     used to 'determine' issues, that their predictive power is not
     certain[26] or that they will not lead to one answer.[27] The Appendix
     sets out an indeterminate taxonomy of indeterminacy in company law.
     Specific examples in company law are not hard to come by. That part of
     company law dealing with directors, fiduciary duties, has often been
     described in absolute terms but they are an elusive concept.[28] Sir
     Anthony Mason observes of the family to which these duties belong that
     '[t]he fiduciary relationship is a concept in search of a
     principle'.[29] Perhaps Lord Mansfield was lying in the public
     interest and did not want directors of companies, looking at the law
     as bad people, to know how malleable and fragile the law was an
     instrument protecting shareholders capital.

 16. Indeterminacy is not a new phenomenon in law. This is supported by
     those who claim that it is banal to say that the legal system is
     indeterminate. It may be a common feature in all legal systems.
     Indigenous Australian legal systems show a 'potential multivocality of
     meaning'.[30] The maxims of Roman law required its judges to be
     'subject to a rule of indeterminacy' and do justice by a process of
     differentiation.[31] That differentiation apparently involved
     recognising the form, and ignoring the substance, of a number of
     dodges and rackets which can be reduced to a few categories,
     recognisable by contemporary corporate legal advisers.[32] This was
     overlooked in the medieval reception of Roman law. At first it was
     thought that legal judgment would now lead to absolute truth. The
     lawyer would became a mechanical conductor of certainty from the texts
     to the courtroom.[33] Disillusionment, or enlightenment, quickly set
     in. 1460 and 1630, in parallel processes in both the civil and common
     law, the inherent uncertainty of legal interpretation was widely
     recognised in the fracture and impurity of legal reasoning.[34] There
     was no ratio or mens to be recovered because the law always spoke,
     each act of interpretation determined de novo and de jure the source
     of its authority.[35]

 17. Indeterminacy has a patchy feel as the taxonomy in the Appendix shows.
     It seems lesser or greater in different areas and its qualities also
     vary. It appears to have varying sources. It may flow from the
     complexities of the corporate form which is stretched over a many
     forms of business firms.[36] It may arise from general features of
     legal rules and the ambiguity of language in communicating
     information, gaps between the substantive rules, in gaps between
     procedure and substantive rules[37] and frequent failure to invoke
     them or in between conflicts between different rules.

 18. The American Realists, inspired by Holmes, renewed interest in
     indeterminacy. The Critical Legal Studies movement took it up again.
     Both Realism and the CLS have faded amidst claims that pointing out
     that law is indeterminate is hackneyed scholarship.[38] It may be but
     this feature of law is more generally repressed or ignored than
     accepted as an ever present element. Duxbury has expressed
     exasperation with indeterminacy as an absurd interest. He claims most
     cases are easy cases and the application of doctrine is a foregone
     conclusion. He also believes that it is obvious that everyone, except
     for the most recalcitrant formalist, will agree that there are hard
     cases where the law's application will develop discretionary
     features.[39]

 19. While indeterminacy seems to be as much avoided in company law as in
     other areas it appears to be growing rather than abating. It is skated
     over to dissect the detail of a common law doctrine or statutory
     provisions.[40] Yet the mysterious complexity of the corporate form is
     recognised[41] as well as the uncertainty of the application of legal
     rules. Their compounded effect is rarely mentioned. Concern with
     indeterminacy is not facile if the financial technology used in
     corporate structures is outstripping the law's ability to regulate it.
     It is not facile if legal doctrine has 'deep fault lines' that run
     through the easy cases as well, if the complexity of the area which
     law is regulating makes any policy underlying the law incoherent, and,
     if the subject of regulation is a large part of the community's wealth
     and considerable economic and political power.

 20. Indeterminacy in company law has substantial effects. In particular
     situations it means that the application of rules and their
     enforcement by the state involves negotiation or mediation. If legal
     rules do not bind the state cannot regulate the flow of information
     about, and the change in control of, the corporate leviathans it
     purportedly governs in the public interest. If they do not bind they
     require those involved in companies to use other means to protect
     their interests. It enhances the power of the legal profession.[42]
     Indeterminacy has one further significant effect. If rules do not make
     fast they permit the incremental creep of changes in the social,
     economic and political interests in companies. A corollary of the
     uncertainty of the legal rules, in the common law system, is that
     there is a legal answer to every question asking 'what is the law
     concerning this matter?'. This interaction ultimately produces a
     change in the application of legal rules if not in the form in which
     they are stated.[43] It can mask considerable change behind
     continuity.

     Paradise regained?

 21. A number of legal writers reduce law's role in the regulation of
     companies to almost vanishing point. Economic forces, standing outside
     the field of law itself, are seen as significantly reducing the role
     of the state, the law, and the legal profession in corporate
     regulation. Other writers have sought to depict the state and the
     legal system as having greater significance in corporate law and
     regulation. Some explanations of law's part are complementary and some
     are conflicting.

 22. Benson argues, on the basis of western European legal experience, that
     domestic commercial law lags behind commercial practice as commerce
     has always had an international aspect. In his model the legal
     regulation of corporate capital is seen as being particularly prone to
     changes in commercial practices in other jurisdictions.[44]

 23. There are other ways in which company law in domestic regimes is
     affected by international practices. The debate in the United States
     about whether the competition between states for company laws which
     would attract corporations to incorporate within them was a 'race to
     the bottom' or 'a race to the top' is unresolved. There is also no
     conclusion over whether or not it produced more efficient use of
     corporate capital. It provides a model to see how the increasing
     deregulation of national economies permits companies to consider the
     attractions of other jurisdictions. A market model of corporate
     capital and its regulation might indicate that states and their law
     are relinquishing control over corporate transactions within them. The
     deregulation of national economies has created a market environment in
     which states feel constrained to create arrangements which are
     attractive to those people who have the power to make the decision to
     invest.[45] With a multinational company it may not matter what
     regulatory regime any state has as its economic activities are
     'delocalised', that is they do not necessarily take place in any space
     regulated by any domestic law.[46]

 24. While this might lead jurisdictions to create different laws other
     factors encourage a convergence. Lawyers, particularly United States
     corporate lawyers, are influential in suggesting a need for a
     particular corporate law regime to business interests. The legal
     profession is the inventor and manipulator of information about law
     and its interface with financial technology which manages legal
     relations in respect of corporate capital. It has accelerated the
     production of increasingly sophisticated information and sought to
     develop new markets for it.[47] Dezalay, for example, shows how
     lawyers promoted the concept of a market for corporate capital in
     Europe.[48] They then offered their services to government to advise
     on policies for increasing the competition for, and therefore, the
     efficiency of, this capital. They then counselled on the drafting of
     the legislation. In a further twist their status, as experts on the
     regulation of capital markets, gave them a veto over proposed laws.
     Without their approval the laws could not be legitimised to the
     commercial community.[49] Then, for fees, they guided their clients
     through the maze of rules the 'state' had constructed showing them how
     to integrate them in their plans to increase the reproduction of
     capital.[50] Dezalay contends that what these lawyers argued for were
     not 'growth strategies' which represent actual 'needs'.[51]

 25. Other explanations which do not rely on international aspects of
     international commercial practice also exist. Some emphasise economic
     forces as being more significantly than others in their consideration
     of change in company law. A number of legal theories which deal with
     change in law are considered in the next part. They mix the 'felt
     necessities of the time, the prevalent moral and political theories,
     intuitions of public policy, avowed or unconscious, [and] the
     prejudices which judges share with their fellow-men' in varying ways
     to describe change in law. It is in this change in law that
     indeterminacy plays a significant role as it required to permit change
     to occur. And change is important.

 26. Goode observed.[52]
     This passes as a basic policy of practicing lawyers. Justice Kirby, in
     1995, quoted Lord Wilberforce with approval in recognising the
     complete makeover which companies had undergone and the need for the
     law to change accordingly:

          The thought I want to leave you with is that we lawyers need to
          reorient our thinking in this whole field, in the interest of
          capitalism surviving as a system combining modernity and obvious
          justice - through recognition of the completely changed nature of
          the function of limited companies - recognition, one must admit,
          of the considerable abuses to which the system, and the
          superstructure which lawyers have put on it has given rise ... I
          want the climate of our thinking to change.[53]

 27. Yet what are the consequences of such advice when capitalism is
     represented by companies and their controllers who, think of the law
     as 'bad person' or, at least, 'economic person'? Should there be an
     'accommodation of principles, rules, practices and documents fashioned
     by the world of business' or a 'facilitation, rather than the
     obstruction, of commercial development'?

     'Wormes in the entrayles'

 28. In company law there are many examples of practices being denounced as
     fraudulent, deceitful, destructive of commercial values and business
     confidence and then becoming the established practice. This applies to
     the corporate form itself. The corporation was widely regarded as a
     danger to the state and an undesirable practice. Hobbes saw companies
     as a form of intestinal parasite.[54] After the repeal of the Bubble
     Act there was a considerable debate over whether forming a joint stock
     company was an offence at common law.[55] Limited liability,[56]
     managerial control, financial assistance in the acquisition of shares,
     hostile takeovers and share buybacks are other examples. Institutional
     investors presently pivot, while we decide whether they are good or
     bad. Floating charges are a little different. They were denounced by
     the Loreburn Committee as a device for fraud after they came into
     frequent use. It felt unable to recommend that they be made illegal as
     they were so widely used.[57] Company law, from this viewpoint,
     represents the accumulated imaginings of bad people. It suggests a
     different ending to that of Milton's 'Paradise Regained.'

     Theorised prejudice: indeterminacy in theories of company law [58]

 29. Writing on common law company law frequently assumes the essential
     positivist view of law that has been the dominate philosophical school
     in European law for the past two hundred years: the law is presented
     as conflict-free and built upon relatively uniform foundation of
     values.[59] This is odd because the writer generally raises a policy
     or interpretative difficulty in the law but ignores this unifying
     theme with the other articles in the journal in which it is published.
     Both in negotiating commercial arrangements and in litigation
     practitioners are confronted by uncertain legal principles.[60] Legal
     doctrine is still underwritten by the basic principle that there is
     only one right answer. So it is impossible to express indeterminacy to
     this extent in doctrinal argument. It would undermine the dominant
     legal ideology which is so pervasive that it represents
     point-of-viewlessness.[61]

 30. Indeterminacy in law has had a bad name. It challenges the foundations
     of liberal ideology in the idea of the rule of law rather than the
     rule of people. This ideology is more consistent with the legal
     formalism of the nineteenth and early twentieth centuries. Judicial
     decision making was

          a scientific, deductive process by which preexisting legal
          materials subsume particular legal cases under their domain, thus
          allowing judges to infer the antecedently existing right answer
          to the case at bar.[62]

 31. The most recent school to revive it, the Critical Legal Scholars,
     produced outrage and charges of nihilism and were encouraged to leave
     law schools to contain the plague they were incubating.[63] This is a
     widely shared reaction. Goodrich suggests that why such an old issue
     in western law was so controversial is that 'terminus', the root for
     indeterminacy, has the sense of boundary and these writers had crossed
     it.[64] Similar observations in law and economics were subject to less
     criticism and by different writers.[65]

 32. Others have welcomed indeterminacy as a beginning to the establishment
     of a new legal rationality. Teubner observes that Wiethölder has
     written about a new 'proceduralization' of law, de Sousa Santos sees
     the chance for legal pluralism and that Preuss has seen the law
     developing as the 'institution of societal self mediation.'[66] Laduer
     has sought to establish an 'ecology' of law to describe the change
     from a society constituted by individuals for one dominated by
     organizations.[67]

 33. Looking at the role which various theoretical schools have given to
     indeterminacy in company law it is apparent that new ways of thinking
     are co-existing with old ways of thinking. There are 'complex patterns
     of ideas', 'slow and hesitant' tendencies, and 'a coevolutions and
     coexistence of competing systems.'[68]

 34. What is striking about most of the theories is that they focus on the
     consequences of the uncertainty for judges required to determine
     disputes. They rarely consider what the consequences are for
     individuals affected by the uncertainty or the lawyers advising
     them.[69] In those circumstances it would appear that the legal rules
     are negotiated between the parties in a contractual form of private
     law making and that the weaker of the parties in any bargaining is
     forced to accept a statement of the legal rules less favourable to
     them.

 35. The discussion which follows deals only in a limited way with the two
     most significant recent writers in common law legal theory, Hart and
     Dworkin. Hart represents a refined and developed form of positivism.
     Dworkin has generated a renewed form of the common laws' declaratory
     theory which has a strong resemblance to Hayek's model of the common
     law. Neither Hart nor Dworkin have written specifically about company
     law and little about commercial law. There theories are at a high
     level of generality difficult to apply to the particulars of company
     law. Both in the course of their development appear to have been more
     willing to concede that there is uncertainty in the law.

     Porcine Positivism [70]

 36. Implicitly or explicitly nineteenth century legal positivists, in
     emphasising judge made law, recognised the indeterminacy of the law.
     Bentham was anxious to reveal that judges made law. Austin promoted
     judges to the role of delegates of the sovereign. In federated states
     with Constitutions there was no 'sovereign' in the Austinian sense but
     judges who were arbiters of the Constitution could be seen to take the
     place of such sovereigns.[71]

 37. The law, in HLA Hart's description, had 'a wide core of certainty' and
     a small 'surrounding penumbra of doubt.'[72] Judges used the law to
     decide whether a case fell within the core or the penumbra.[73] If it
     fell within the penumbra they had a narrow discretion to use a power
     similar to the legislature to make law but this discretion is outside
     his model of the law[74] and its basic concept of the rule.[75] Hart
     sketched an inadequate account of rule scepticism in order to demolish
     it as corroding objectivity in legal interpretation the status of
     legal rules.[76] Fuller, however, showed how uncertain the boundary
     between the core and the penumbra was.[77] Hart drew on Wittgenstein's
     observation in respect of the 'family resemblances' of legal rules to
     demonstrate the choice the judge has. It has been argued that Hart
     failed to recognise the 'overlapping consensus' to be found in the
     interpretative community of law over when it is appropriate to
     interpret rules having regard to both the plain meaning and the
     purpose of the rule but that the judge will still be left with a
     choice.[78] The later Hart showed appreciation of this phenomenon as
     it was taken up in legal theory.[79] He also came to give context
     greater significance in determining meaning and the application of
     rules.[80] The indeterminacy of positivism as a theory has increased
     with George's proclamation that 'the legal positivist is mainly
     concerned to produce a rich and accurate description of law and legal
     systems as they function in human societies.'[81]

     Speluncean darkness? Natural law [82]

 38. By the 1930s natural law theory enjoyed a revival. Fuller criticised
     positivism for ignoring law 'in its ethical context.'[83] It was
     partly the speed of economic change which drove Fuller to abandon
     positivism for morality and ethics as a sufficiently cohesive social
     glue.[84] Morality and law are interdependent and a court 'is not an
     inert mirror reflecting current mores but an active participant in the
     enterprise of articulating the implications of shared purposes.' In
     this task judges should not ignore that statutes are also enacted
     reflecting principles which they should respect in interpretations
     which respected their purpose.[85]

 39. Dworkin's theory of law, unlike Fuller's, concentrates on the law
     making role of the common law judge.[86] He focuses on rights,
     asserting that a central part of the law's function is to protect
     individuals from excesses of state power. As in the common law's
     declaratory theory, and other theories, these rights are based on
     principles which pre-exist the law.[87] Legislative law is based on
     policy rather than principle and court's, exercising self-restraint,
     should avoid using policies.[88] Dworkin's use of principles owes much
     to models of the law generated as a reaction to Realism.[89] He
     portrays the popular positivist version of law as a book of rules
     which underlie the rule of law.[90] He insists that the common law is
     more accurately moral rights and duties which are vested in citizens
     and which the state and other citizens must respect. He describes this
     conception as based on principles rather than rules and 'more
     ambitious than the rule book conception' as it captures, and enforces,
     moral rights.[91] He accepts that these principles may be in conflict.
     This conflict is resolved by the weighing of the competing principles
     with one then being given priority. By taking moral rights into the
     law he would appear to be accepting a high degree of indeterminacy but
     he resists this.[92] He justifies what the judge does in holding
     people liable for violating the rights of others as it falls within
     the law already.[93] His statement that even hard cases have only one
     right answer has been the subject of considerable controversy. It
     echoes Rawl's contentions about the rational use of ethics.[94] Hart
     said most lawyers would ignore it and 'settle for a good night's
     sleep.'[95] Dissent in appellate courts evidences the difficulty of
     maintaining his position[96] but Dworkin defends it with very eloquent
     reasoning.[97] He has come to describe it using the metaphor of the
     chain novel in which the judge must get the best fit the previous
     chapters. The moral and other issues Hart had covered by discretion
     are concealed behind this reasoning which masks what others have
     considered to be indeterminacy. But as Bell reminds us Dworkin's
     description of legal reasoning points to the essential continuity in
     judicial methods in both hard and easy cases. The judge has a
     responsibility to make the system coherent.[98] But in the end is the
     law a chain novel in which judges are writing successive chapters?
     DeMott considered this metaphor in the context of the Delaware
     chancery court's decisions in management buy-outs and preferred the
     parable: a factual narrative used to illustrate principles to caution
     and instruct the reader.[99] Parables are also often very short
     stories.

     Theories waiting for a fact, or a fire? Law and economics [100]

 40. Two origins have been suggested for contemporary law and economics.
     One is Realism.[101] Holmes said in his 1898 address at Boston Law
     School: 'For the rational study of law the black-letter man may be the
     man of the present, but the man of the future is the man of statistics
     and the master of economics.'[102] In the 1920s and 1930s
     institutionalist economics was most closely associated with the
     Realist movement in law. Clark used social control as an economic
     phenomenon to explain the regulation of business.[103] In this model
     economics fed off legal institutions regulating activities. Llewellyn
     observed:

          it may be queried whether any sane public regulation of economic
          activity in the public interest - whatever that may be - is not
          largely accidental. The way of growth seems to be along whatever
          balance results from the pull and prodding of this and the other
          private interest.[104]

 41. He also wrote: 'legal institutions fix and guarantee the
     presuppositions on which the economic order rests.'[105] More radical
     Realists argued that the role of lawyers in legal institutions was to
     perform, or resist, the frauds required to support the controllers of
     corporate fortunes.[106]

 42. The other origin is the organic view of law promoted by Hayek,
     although its significance has become more pronounced as law and
     economics move into the post-Chicago, non-Posnerian mode[107]. Hayek
     had an elevated view of the common law arguing that it was based on no
     conscious design but the adjustment of the mutual expectations of
     individuals which had taken place in an extended evolutionary
     development.[108] Even if this were true of the common law it need not
     necessarily apply to statutory interpretation.[109] Hayek was not the
     first to exaggerate the certainty and restraints which the law imposes
     on everyone including the judges. Hoyt appreciated the conservatism of
     the common law under which 'vested rights of property will not be
     confiscated by the operation of the legal system to any appreciable
     extent, and the fundamental bases of economic relationships will not
     be unnecessarily jolted.[110] Hayek does not acknowledge the problem
     which follows from the abandonment of the logic of the syllogism which
     was used by Pound and others to criticise the Realist description of
     the law: it does not provide for equal justice.[111] Hayek also
     promoted the neo-classical concept of the market which dominated the
     first generation of law and economics.[112] The lawyers of this first
     wave were seeking new form of positivist law.[113] From this point of
     view it could be seen as a reaction to Realism. This is particularly
     so where the market was seen to be a source of ethical behaviour. So
     Stigler argued that transactions in the market were voluntary and
     therefore must benefit one party and not injure the other. As the
     transactions in the market are repetitive 'deceit and non-fulfilment
     of promises' are rendered unprofitable.[114] Demetsz argued that the
     market imposed 'a predetermined moral framework within which to work,
     for it implies that the good society limits the use of legal
     sanctions, expands the opportunity for choice by individuals, and,
     therefore, places the responsibility for behaving ethically on its
     citizens.'[115]

 43. The most influential school of law and economics, associated with the
     University of Chicago, argued that any indeterminacy in law should be
     resolved by decisions which would promote free markets and efficient
     use of resources. They treated rights as 'price signals' which would
     assign scarce resources to the most efficient users: '[i]n the
     economic approach to law, legal rights are designed, in part to
     overcome the conditions under which markets will fail..[116] The most
     highly developed theory was Posner's concept of wealth maximisation.
     It has earnt Posner the reputation for being the new Holmes:

          their shared tough-minded antisentimentalism, the bleak Mathusian
          wisdom that there is no free lunch and that well-intentioned
          efforts to redistribute wealth are usually self-defeating, the
          ultimate grounding of law - and indeed all social life - in the
          brute facts of self-preference, territorial defence, revenge
          instincts, and the struggle for survival.[117]

 44. Posner argues that this wealth maximisation made common law more
     efficient than statute law as it promoted this principle. The judge,
     and particularly the appellate judge, is unaware of which of the
     parties is the better person. The rules for judicial compensation and
     the exclusion of conflicting interest make the judge more impartial.
     The judge comes to perform the role of the invisible hand in other
     markets by viewing the parties as representatives of the activities
     concerned. The requirements for standing make the parties motivated to
     obtain the best possible rule for themselves as buyers and sellers
     seek the best price.[118]

 45. Economic principles do not provide lawyers with a determinate answer
     to legal questions.[119] There are varying standards of 'efficiency'
     within economics itself which economists shift between.[120] Economic
     values do not collapse into the 'rightness reasons' lawyers use in
     legal reasoning.[121] Law and economics has generally ignored the
     principles and practices by which judges decide cases and make
     law[122] including the political dimensions of any adjudication.[123]
     Posner's theory that the law has as its primary rule wealth
     maximisation faces difficulties in engendering certainty into the law.
     The distinction between this standard and the economist's standard of
     Pareto efficiency is often blurred.[124] More damaging is the
     criticism of Coase on whose work Posner relied to develop his concept
     of wealth maximisation. Coase has described Posner's concept as
     meaningless.[125]

 46. The idea that judge made law in particular is predictable, a
     problematical issue, underlay Posner's view of company structure.[126]
     He described the company as a method of solving problems caused by
     interest rates and the uncertainties of partnership when raising
     substantial amounts of capital.[127] It is a standard form of contract
     which resolves these issues at a very low cost by codifying reasonable
     expectations and avoiding costly drafting.[128] In viewing the company
     in contractual terms Posner represented the conventional law and
     economics view of the company as a nexus of contracts of resource
     holders which considered participation in corporate governance
     entirely as an analysis of transaction costs[129] although Berle and
     Means had noticed the use of contractual arguments to justify
     managerial appropriation of corporate property.[130] There was no
     consensus about Posner's model.[131] A perspective which it lost was
     the concept of the corporate interest as the criterion for resolving
     disputes among the resource holders.[132] Posner's premises for
     certainty in the law have changed in the course of his writings from
     the positivism based on the normative force of economic principles to
     acceptance of Dworkin's analogy of the chain novel.[133] It now is
     based on Rorty's neo-pragmatism as economic efficiency can be argued
     in the 'local' areas of law to produce desirable outcomes.[134]

 47. Two theoretical articles by Ronald Coase became the basis for claims
     for normative rules in company law. The first was his 1937 paper on
     the nature of the firm in which he argued that firms were a way of
     making complex market transactions more efficient. The minimized, but
     did not eliminate, 'the costs of exchange transactions on the open
     market.'[135]

 48. The other significant article by Coase was his 'The Problem of Social
     Cost'.[136] It was used as the basis for Manne's argument, important
     for corporate regulation, that there is an efficient market in the
     competition for corporate capital.[137] It is based on an economic
     analysis which places the market for corporate control in a pivotal
     position in corporate regulation. In an application of Coases' theorem
     Manne argued that the market in corporate control aligned directors'
     and shareholders' interests.[138] That theorem states that where
     transaction costs do not exist resources flow to their highest valued
     use. With corporate capital it predicts that another company, which
     can obtain greater value from the same assets, will buy the less
     efficient company's shareholders out.[139] If directors do not use the
     capital in the most efficient way the company will be taken over by
     those who will use that capital more efficiently.[140] Directors must,
     therefore, promote shareholder welfare by obtaining the best possible
     return on the capital invested in order to retain control.[141] Adam
     Smith, himself, appears reluctant to accept that there could be an
     efficient market in corporate capital.[142] But by the end of 1980s
     there was a wide-spread acceptance in American legal writing of
     Manne's efficient capital market hypothesis. Other writers have
     followed him with other arguments justifying a market analogy for
     takeovers. Shareholders are the residual rights holders or risk
     bearers and this motivates them to prevent the directors
     shirking,[143] that investment is only likely to be forthcoming on
     terms that the firm will maximise profits for the benefit of the
     shareholders.[144]

 49. There was dissent from these propositions in arguments that the
     sharemarket is a mirror of the corporate economy rather than the
     corporate economy being a mirror of the sharemarket. In this model
     'cause and effect run from the economy to the stock market, never the
     reverse'. There are others who maintain that the market does not even
     mirror the economy.[145] Some writers concede that market failure is
     more widespread than is generally recognised.[146] There has been
     disagreement over how far free market principles should go.
     Easterbrook and Fischel have argued that there should be no regulation
     of takeovers and the incumbent directors should remain passive.[147]
     If there is any inefficient use of capital the benefit of it should go
     to the bidder rather than the shareholders of the target as this will
     promote takeovers.[148] This has led to a 'family quibble' as a number
     of writers have accepted these views while others have rejected the
     idea that management must remain passive.[149] Others have adopted an
     inconsistent compromise that hostile acquisitions should not be
     discouraged while auction markets should be encouraged.[150] There was
     scepticism about claims for efficiency and synergy following
     takeovers.[151]

 50. This conflict about the market in takeovers and its regulatory effect
     has not been resolved.[152] Johnson, observing the critical effects of
     this discussion for legal regulation 1988, called for the
     re-examination of the basic issue of the overall economic utility of
     takeovers. He hoped that this would achieve widespread agreement which
     would end the controversy about the conduct of managers of takeover
     targets.[153] Eight years later the controversy continues.[154]

 51. Many have now joined Posner in his jettisoning of a positivism based
     on neoclassical economic principles for a neo-pragmatism that
     recognises that the law is indeterminate.[155] There is growing
     interest again in institutional economics and transactional analysis
     in which an attempt is made to fill in the black boxes of neoclassical
     economics.[156] There is greater willingness to admit that law and
     economics did not bring greater certainty to law and that '[m]ost law
     and economics questions are still open and likely remain so for a long
     time.'[157] At the same time the reasoning behind neoclassical law and
     economics is blamed for the impoverishment of the ethics of
     contemporary western society as it ignores justice and morality in
     favour of considering the price.[158]

     Reified abstractions, omnibus concepts and metaphors masquerading as
     facts? Realism [159]

 52. Growing out of the realist and pragmatic philosophy of Peirce and
     James from the beginning the American movement sought to explain law
     as a sociological phenomenon.[160] Realism in law came to mean
     something different from what it did in philosophy and was also not
     just an American phenomenon.[161] In this they were heavily influenced
     by Pound[162] and Holmes.[163] As we have seen Holmes saw that there
     was a need for legislation to reflect the wishes of those who
     controlled the supreme power in society. In constitutional decisions
     judges should defer to that power. As he stated in Southern Pacific Co
     v Jensen[164] the common law is not 'a brooding presence in the sky'.
     Common law judges make law and policy:

          Ours is not a closed system of existing precedent. The law is not
          such a formal system at all. ... Courts must make law. Indeed
          courts are major policy makers in our system of government. We
          must be wary of petrifying the common law into a rigid system,
          utterly behind the times and totally at odds with the progress of
          science and social change.[165]

 53. Again the radicalism of this statement is tempered by his observations
     that change to law should be quick but not too quick and that any
     power in the judge is exercised 'interstitially.'[166] Cardozo also
     accepted, perhaps more hesitantly than Holmes, the need for judges to
     make law in the absence of legislation or precedent. The judge 'must
     then fashion law for the litigants before them.'[167]

 54. As a school realism was marked by the belief 'that there was more to
     the study of law than the study of a system of rules; that for most
     purposes legal doctrine should be seen in the context of the totality
     of the social processes.'[168] The Realists parted from Pound in
     distrusting what courts said. Pound criticised their conception 'of
     legal principles as incapable of interdependence and logical
     connection' which emphasised the uncertainty of the law and
     misrepresented the high degree of certainty in the law. One area of
     settled principles and fixed certainty was commercial law.[169] They
     sought to describe what courts do and the role of legal rules in the
     court's decision making[170] and, as part of this, they produced a
     vast range of literature on 'legal 'helpful devices'' such as the
     company.[171] Some focused on power relations in the company and
     issues of how they could be legitimised.[172] Berle and Means are an
     example. They argued that the separation of power and control in the
     company resulted in the question of the property rights of the
     shareholder not being a legal one: 'An answer to this question cannot
     be found in the law itself. It must be sought in the economic and
     social background of the law.'[173] Like other writers from an
     institutional perspective they found that firms were irresponsible and
     not serving the interests of the economy.[174]

 55. We now see Realism through the filter of its reinterpretation which
     exaggerated it into simplistic statements that neither morality nor
     legal rules influenced legal policies or decisions producing a highly
     indeterminate legal system.[175] Hart labelled Realism as 'the
     nightmare school' of American jurisprudence[176] as it introduced the
     'Age of Anxiety' or 'the jurisprudence of despair'.[177] There were a
     variety of views about indeterminacy.[178] Frank, with Cardozo partly
     agreeing[179] thought that the psychological processes behind the
     giving of judgment were important.[180] Frank attributed the myth of
     legal certainty to a childish fear of indeterminacy. His view of
     companies was that judges had turned them into metaphysical concepts
     which had an independent existence apart from the rules which applied
     to them. That imagined existence was then used to resolve issues in a
     process of 'transcendental nonsense' without reference to proper
     policies involving 'political or ethical value judgments'.[181]

 56. Llewellyn sought to reclaim the certainty for law which his own
     analysis had undermined.[182] He argued against claims that the
     judicial process is not predictable.[183] He identified fourteen
     'major steadying factors' in appellate courts including 'legal
     doctrine' and 'known doctrinal techniques'.[184] He makes a number of
     mixed observations about doctrine. In appellate litigation, where the
     case has been properly run and is worth appealing there are likely to
     be more than one doctrinal answer.[185] He observed that a court will
     need to be persuaded that both justice and decency require the rule,
     and the result, argued for. This means the manner in which facts are
     presented is critical.[186] Doctrine is applied using accepted
     techniques but the leeways for their use are broad.[187] Even when
     legal doctrine is exhausted legal materials are still used in finding
     an answer.[188] Finally he observes that it is easier to predict the
     result then the reasons for it.[189] The other steadying factors he
     identified[190] point towards what Fish has now developed into a
     concept of lawyers as interpretative communities.[191]

 57. Indeterminacy had a purpose for Llewellyn. It was necessary if justice
     was to be generalised as legal rules and if justice was to be done to
     individuals. This is a constant tension, but not necessarily a
     conflict, in the law.[192] He also saw that one of the virtues of law
     was that it was a brake on commercial changes as it was removed from
     business. In choosing late, however, law was able to make a better
     guess about the developments it did take up.[193] In this way change
     was incremental and improving.[194] Llewellyn's views are revealed in
     a practical way in his drafting of the Uniform Commercial Code. Two
     competing schools of thought had emerged in the common law world about
     the status of equity in commerce: that equitable principles have no
     place in the world of commerce where people were free to act for their
     'own self-advancement and self-protection' or that they had a place as
     a 'system of commodity exchange ... is possible only on the basis of
     far-reaching personal confidence in the trust and loyalties of
     others.'[195] Llewellyn considered that this added to certainty in the
     law while promoting justice to the individual as a result of his study
     of the legal processes of the Cheyenne.[196] This recognition of the
     values of the 'commercial community' in shaping the law suggests that
     corporate law will come to represent the values of that commercial
     community. This appears to be the conclusion that Llewellyn reached
     earlier when he observed that corporate law was largely the outcome of
     undirected private interests in economic life and that little
     corporate practice was produced by the law itself.[197]

 58. The implication for company law from Llewellyn's realism is that there
     should be general standards in the law which embody, amongst other
     concepts, ethical principles. The content of them would be established
     by referring to the standards and practices of the corporate
     community. But which part of that community is not clear. The
     concentration on what courts did, as opposed to what they ought do,
     removes moral content from the law.[198]

 59. Realism in corporate law also dissolved the company, like law and
     economics, into a series of legal relationships between individuals.
     At the same time there was a concern with corporate governance and an
     attempt to analyse it in terms of power as a private system of
     government. This was the approach which Berle and Means had
     suggested.[199] It has provided a richer understanding of power in the
     company but has flattened the economic aspects of the company into one
     dimension which ignores the social effects of such economic
     enterprises.[200] Many prominent Realists participated in the
     regulation of companies with the creation of administrative agencies
     in Rooseveldt's New Deal. Berle's and Means' book was influential in
     the approach to regulating companies.[201] Of all their theoretical
     baggage it was only their rejection of laissez faire economics, on
     which this insight into economic power was based, which survived their
     journeys to Washington.[202] The result described by Hovenkamp,
     misleadingly, was that 'by the end of the New Deal little was left of
     the classical corporation ... The invisible hand of the market had
     been struck down by the very visible hand of the state.'[203]

 60. Realism's later movements came to focus on legal process in terms of
     formulation of the law and its administration in a way which sought to
     remove it from politics and re-emphasis judicial objectivity.[204]
     Realism can be seen in the recent work of Eisenberg who has drawn on
     similar concepts to Llewellyn in developing a model of the common
     law.[205] Realism now has a dated feeling. Any certainty it gave by
     interdisciplinary studies are shown to be false, which Grant Gilmore
     had long maintained. His sceptical philosophy was a forerunner of the
     turn to postmodernism.[206] It tends to concentrate on the physical
     world and sensory perceptions. Postmodernism and deconstruction have
     reasserted the force and power of metaphysical concepts and
     intellectual fictions in legal doctrine.[207]

     A long strange trip? Critical legal studies [208]

     The Frankfurt school

 61. Critical studies in law, as in other fields have derived from Marxism
     and its idea of the critique of society. Both in common law and
     European legal theory it is particularly associated with the Frankfurt
     School which developed a critical theory of Marxism itself. This
     theory rejected the idea of positivism in the social sciences,
     particularly the idea that they could be value free. It rejected the
     immutable materialism of Stalinism and emphasised Marx's use of the
     Hegelian concept of consciousness as a moulder of the world.[209]

 62. Neumann, one of the better known members, drew on both Marx and Weber
     in his analysis of the role of law in what he described as 'the
     competitive society'.[210] This was entrepreneurial capitalism in
     which capitalists interacted freely with each other and in which the
     security, calculability and predictability of the law and the
     non-intervention of the state in private affairs was of value in its
     own right. He developed his theory further from his experience of the
     turmoil of the Weimar republic and the rise of the National Socialists
     as well as the phenomenon which he described as 'corporate society',
     the monopolist power of the German corporate cartels.[211] In this new
     economic arrangement these formerly desirable qualities implicitly
     favoured the interests of large corporations at the expense of
     individuals. The rule of law emphasised formal , and not substantive
     equality. Companies could use their power to bargain with citizens and
     then resist government intervention in what they would seek to
     characterise as private transactions.[212] The generalisation of law,
     which had an equalising effect, in this period

          has a disguising function. In a class society and in a
          competitive economic system, a general law conceals the
          realities. By the postulate that the state may rule only through
          general laws, the competitive economic system is invested with
          the dignity of a moral value.[213]

 63. In this phase there is also a tendency to abandon the idea that 'the
     legal norms are exactly determined ... that they are as rational and
     formal as possible, so that the judge has as little discretion as
     possible.' This leads to 'recourse to legal standards of conduct such
     as good faith, good morals, reasonableness, or public policy.'[214]

 64. In his analysis, the common law, with its system of precedent was
     different from the systematically codified law of Germany. The same
     processes could be seen in the commercial law in both systems but in
     respect of the poor and the 'lower bourgeoisie' the common law was, in
     his view, 'irrational to a large extent.' [215] A view which it is not
     entirely justified.[216]

     American critical legal studies

 65. In the common law world critical legal studies in the United States
     has been the best known. It borrowed from, and built on, Realism, the
     Frankfurt School and more recent European Marxist theorists including
     Sartre and Gramsci.[217] By the late 1980s it had turned towards
     deconstruction and ethics[218] as well as forms of pragmatism which
     has also, ironically, attracted Holmes and Posner.[219] In Europe the
     development of the critique has continued with the French writers
     associated with postmodernism and also in an autopeosis model of law
     based on the sociology of Luhmann.

 66. Kennedy sought to situate legal indeterminacy in a structuralist
     framework, with resonances of Neumann, that rules support
     individualism and standards support altruistic views. In all
     situations the judge can use an individualist or altruistic argument
     as these are opposed and competing concepts that flow into the deep
     cultural structure of the law and which will support either outcome.
     Their elements are defined in the difference between them which means
     that they are dependent on each other but they also deny each others
     existence.[220]

 67. Indeterminacy, for Unger, also has echoes of Neumann. It results from
     an attempt to maintain the ideal of the rule and the liberal form of
     individualism and private property and rights from the nineteenth
     century in a society where there is now an overlay of the welfare
     state which has been absorbed by the law as policies and goals which
     are achieved through the exercise of discretion. Ironically, the
     liberal form he describes is itself a previous compromise in which the
     state granted the elite greater power over natural resources and
     labour in exchange for accepting the state's right to tax and make
     war. The way forward, he claims, is for the expropriated resources and
     labour to be reappropriated in ways which will transform people and
     liberty.[221] He envisaged a communitarian form of life, representing
     the sympathy of people for each other, underlying the ethics and
     politics of communities.[222] This could rescue individual freedom
     'from the demise of the rule of law' and bring it 'into harmony with
     the reassertion of communitarian concerns.'[223]

 68. One of the contradictions which Unger noted in contract law is
     relevant to dealings between shareholders and directors. Contract law
     seeks to restrain the power of a person to exploit another in terms of
     requirements of good faith, unconscionability, and in the United
     States at least, economic duress. He observes, in respect of economic
     duress, that inequality is endless. The purpose of competition is said
     to be for the competent and well informed to prevail. The problem for
     the law is to operate the doctrine without destroying the whole
     edifice through remaking the market.[224] He points to the dualism of
     contract law in respect of fiduciary duties.[225] He shows by
     reference to a long term contract and an informal joint venture
     agreement how capricious the legal classification can be.[226] Unless
     these are exposed liberal ideology legitimates the oppression and this
     state of the law.[227] The paradox for CLS is that any improvement may
     further legitimise this condition. There has been only limited
     analysis of company law by CLS writers.[228]

 69. Some CLS scholars argued that legal rules produced irreconcilable
     ideological struggles and cannot contain consistent line for judges to
     interpret.[229] A number of CLS writers seek to place this ideological
     conflict more firmly in a Marxist framework.[230] CLS divided into two
     broad positions on the issue of indeterminacy in law: a radical one
     that legal structure is in the eye of the beholder and that law does
     not have an objective structure,[231] and, a moderate one that
     concedes that law does have an objective structure but that structure
     can be drastically changed over time by lawyers who try to extend the
     scope of doctrines which are present only at the margins of the
     law.[232] It has been used to model corporate litigation in Delaware
     and answer the counter-intuitive statistics that the courts find
     regularly for shareholders.[233]

     European critical legal studies

 70. Critical theory is not restricted to North America and Germany and
     indeterminacy is seen as not just a feature of the common law. British
     and Scandinavian writers have also critiqued the law in this way. A
     number of English lawyers have adopted a critical approach to company
     law.[234]

 71. Wilhelmsson, writing in the Scandinavian tradition, has, like Unger,
     observed that contradictions within legal doctrine and policy can be
     vertical or horizontal, that is they may exist at different levels of
     legal regulation or they may exist in legal elements at the same
     level. Given the number of systems which converge in the area of
     company law conflict would appear to be inevitable and to occur in the
     way Wilhelmsson has noted. Also, like Unger's attempt to construct
     from the suppressed rules a 'deviationist doctrine, he has also sought
     to recover a more coherent doctrine from existing legal
     materials.[235]

     Conceptual inflation and disorder? Teubner and autopoiesis

 72. The most influential legal theorist with an interest in company law is
     Teubner who has also been influenced by critical theory. He argues
     that the problem with the American CLS critique is that it is not
     radical enough.[236] This, as noted in the Appendix in the context of
     paradox, is because for law to be law the paradox of self-reference is
     involved.[237] He does not seek to offer an explanation for the
     resulting indeterminacy but suggests that we should seek to identify
     how indeterminacy arises in law in other ways. He uses systems theory
     based on Luhmann's theory of social autopoiesis to describe these
     other sources of indeterminacy. This has been described as law's
     answer to the postmodern crisis in knowledge[238] but it also bears a
     number of resemblances to Kelsen's pure theory of law.[239]

 73. Autopoiesis is a form of homoeostasis found in cybernetics.[240]
     Teubner at first claimed to use it as a metaphor but he appears to now
     regard it as having a greater explanatory power.[241] Teubner notes
     that in society conflict occurs between autopoietic social systems
     including politics, economics, family, religion, science and culture.
     In law these occur as an internal conflict between these separate
     legal fields. This is often because legislatures and courts attempt a
     compromises between competing policies in making law. The conflict is
     exacerbated by the legal process in that frequently specialised legal
     experts identify with the corresponding autopoietic social system as
     much as the law.[242]

 74. His model can be best explained in the context of change in the law.
     The autopoietic system in law

          transposes the evolutionary functions to within the system
          itself, to internalize the mechanisms for variation, selection
          and retention. This process of internalization shifts the dynamic
          of evolution from the environment into the legal system itself,
          and subordinates it to the logic of legal autopoiesis.[243]

 75. Consequently change in law is not the sum total of social evolution
     which impinges on it and social norms cannot be directly transplanted
     to law. In this way the evolution of legal values can come to diverge
     from the evolution of values in society as law determines the
     preconditions of every change within itself.[244]

 76. Law, however, continues to regulate social actions through what
     Teubner describes as 'information' and 'interference'.[245] Law
     produces knowledge within its systems which produces its 'autonomous
     reality' without substantial contact with non-legal systems.[246] This
     has resonances of Hart's secondary rules of recognition.[247] It is,
     at the same time, connected to these other systems by 'mechanisms of
     interference', or what Luhmann calls 'structural couplings',[248]
     which operate between systems. While this sounds paradoxical what
     Teubner means is that 'law regulates society by regulating
     itself'[249] or 'the [legal] system can deal only with its internal
     construct of the environment.'[250] In the area of economics it is not
     the economic system's construct of itself that law uses but a
     construct the legal system has made. This is why Teubner rejects as
     legal concepts a number of concepts developed in economic analysis
     alone.[251] Luhmann points out that the economic system depends on
     codes of property and money but that the economic and legal
     consequences are completely different and depend on the codes of their
     own separate systems.[252]

 77. This leads to Teubner's analysis of the issue which Weber and Neumann
     grappled with, the proliferation of discretion in the law and the
     weakening of legal doctrine which Neumann associated with corporatist
     or monopolist capitalism, as the result of 'second-order autopeoisis'.
     He shows how the system of law, as it is responsive to its changing
     environment including the systems of company law, reduces its internal
     consistency. This is to be seen in the one-off approach to decision
     making and the fragmentation of the territories of legal doctrine
     which have destroyed the ideal of doctrinal unity throughout law and
     the increasing interaction between autonomous systems of science,
     technology, economics and communication.[253] This has led Luhmann to
     warn against weighing existing systems with problems they cannot
     solve.[254]

 78. Teubner, in applying his theory to the company in law, notes that:
     '[a]utopoietic theory suggests that law plays a modest role in the
     dynamics of the processes of evolution of industrial organisation.' He
     sees the process of the development of the company as a blind
     evolution involving 'the uncoordinated interplay of the mechanisms of
     variation, selection, and stabilization.' In this process the main
     role of law has been responsive and to stabilise organisational forms
     and corporate governance which have grown through these other
     mechanisms.[255] However, using autopoiesis, to analyse the company
     itself he claims that it emerges as 'an organized and a spontaneous
     domain' which insists on the fundamental distinction between contract
     and organisation in which contract is seen in the context of the
     environment of the organisation. The company emerges as 'independent,
     autonomous system of action, reproducing itself not through
     contractual transactions, but through the recursive linkage of
     decisions.'[256] In this situation the interests of capital, labour,
     management and the state are not sovereign in the organisation. There
     are no rights in ownership of resources or the control of those
     resources they are all within the power of the 'corporate actor.'[257]
     Teubner's analysis extends further in the corporate group where he
     sees the re-entry of the market form within the corporate structure in
     relations between companies in the group which can be constantly
     adjusted to get the most efficient mix.[258]

 79. Autopoiesis enjoys a poor reputation in law which is only partly
     deserved. Zolo has described it as a 'pathological syndrome' of
     'conceptual inflation and disorder' for which he prescribed
     'linguistic therapy for the whole autopoietic lexicon'.[259] Like all
     metaphors it is unverifiable using scientific methodology.[260]
     Ironically it presents the same problem as law. It is an extended
     tautology. As autopoiesis is a system it is explicable in terms of
     itself so that it is true by definition.[261] Autopoiesis, in the end,
     is an explanation and an extended simile, the generality of which
     finally reaches particulars which defy it. Luhmann claimed that the
     simplifications of the general theory may need modification when
     applied in particular instances such as law.[262] To some extent, in
     another paradox, it does that with the level of its generality. Like
     many abstract theories of law it is difficult to apply to particular
     aspects of doctrine. However, unlike many abstract generalisations it
     does allow for the detail and the contradictions which arise from the
     'static' within systems.

     Muggletonian Marxism: EP Thompson and the loss of the commons

 80. Teubner's model resonates at a number of levels with Thompson's
     detailed description of changes to common property in eighteenth
     century England. Thompson's saw that in this period 'law ? property'.
     Law did legitimise the actions of the powerful but it was also used by
     others to generate competing versions of law to legitimise their
     opposition to the transformation which was happening to common
     property. The tools which he used in that analysis are significant
     because they provide lawyers with metaphors to analyse the competition
     over the ownership and control of the capital of the company.

 81. Thompson provides an example of how no single hypothesis can explain
     the transformation of property rights by capitalism. The details
     contradict any unifying explanation as the static in Teubner's model
     predicts that different organisms will respond differently to the same
     information. It was an erratic process. Some local communities
     resisted the removal of their rights and acted on the belief that they
     continued to hold them. Legal decisions sometime went against the
     trend. Both processes preserved common rights in particular places
     well into the nineteenth century until they faded as irrational
     anachronisms as the economic and political system of which they had
     been part receded even further into the past. The lack of a uniform
     trend is clearer in the context of Thompson's account if we add to it
     an account of how lawyers, if not the law, was encouraging the
     ownership of common property in London through joint stock companies
     in this same period.[263]

     'Habitus'

 82. Thompson noted that all parties to disputes about common property and
     use rights could seek to assert customs in justification of positions
     which favoured themselves. Thompson notes that agrarian customs were
     never facts but 'ambiances'. These customs took place in 'a context of
     sociological norms and tolerances' and could, Thompson argued, be
     understood with Bordieu's concept of 'habitus':

          [A] lived environment comprised of practices, inherited
          expectations, rules which both determined the limits to usages
          and disclosed possibilities, norms and sanctions both of law and
          neighbour pressures.[264]

 83. In this habitus 'all parties strove to maximise their own
     advantages'.[265] The community of company 'stakeholders' is far
     removed from that the village and there are problems of communication
     and participation in any analogy. Using the concept of 'a lived
     environment' both as a metaphor for conflict within the company and
     conflict in the community debating corporate governance more generally
     may illuminate why conflicts of opinion often appear so difficult to
     resolve in the sense of deciding which is the 'correct' or 'right'
     position. Many parties to corporate disputes or the corporate
     governance debate may be able to put legitimate but conflicting
     positions through careful choice of arguments.

     'Custom'

 84. 'Custom' operates in the community, far removed from the 'habitus' of
     the English common, which debates corporate governance or a company's
     affairs. What was called 'custom' in previous centuries is now
     included in the word 'culture.'[266] The twentieth century is not the
     first time that there has been a complex interaction between law and
     popular culture.[267] They did become disconnected in the nineteenth
     century when collectors of folklore 'separating survivals from their
     context, lost awareness of custom as ambience and mentalité. Before
     this time custom was praised as both 'old' and 'good'. He also notes
     that custom had 'close affinities' with the common law. He recognises
     that customs were not necessarily old but that in the eighteenth
     century it 'was the rhetoric of legitimation for almost any usage,
     practice or demanded right.' It was:

          So far from having the steady permanence suggested by the word
          'tradition', custom was a field of change and of contest, an
          arena in which opposing interests made conflicting claims.[268]

 85. Thompson claims that it is a 'clumpish' term which invites being taken
     apart. It was often a careful selection of things which would defend
     their present interests.[269] It was also 'common sense' or 'praxis'
     as Gramsci noted in observing the two consciousnesses of 'a person in
     the mass'. The 'popular morality' of folklore and the 'official
     morality':

          For Gramsci also insisted that this philosophy was not simply the
          appropriation of an individual but was derived from shared
          experiences in labour and in social relations, and is 'implicit
          in his activity and which in reality unites him with all his
          fellow-workers in the practical transformation of the real
          world.'[270]

 86. These two theoretical realities can be seen as deriving from two
     aspects of the same reality, the necessary conformity with the status
     quo and the common sense derived from the shared experience with
     fellow workers which exposes the first to ironic criticism.[271]

 87. The administration of company law is also imbued with custom although
     the communities involved have significant differences with Thompson
     investigated.[272] Again this suggests that the reality of
     relationships in the company is something apart from law but is based
     on shared experiences. The shared experiences of shareholders may be
     few, those of the directors many. As well the shadow of daily practice
     in the particular company transforms these relationships.

 88. Thompson's conclusions suggests that the conflict was between rival
     legal orders or, possibly, conflict between competing interpretations
     in the one legal order. He concluded that the law 'is an arena of
     conflict within which alternative social visions contended, bargained
     and survived.'[273]

 89. This produced an indeterminacy in the law. In both the inability of
     Whig grandees and the rural rich to get the decisions they wanted in
     the courts and the successful resistance of forest residents and
     country people to what they believed to be a violation of their rights
     Thompson found that law was imbricated throughout the society. It was
     in the relations of the ruling class within itself, with the state and
     with other classes.[274] He claims that the Whigs and the Hanoverian
     kings based their claim to power on the law and could not retain their
     legitimacy if they repudiated it.[275] He saw this as applying to the
     civil law as well as the criminal.[276] He relied on Weber's view, now
     disputed, that law can create a legitimate social order.[277]
     Nevertheless confidence in the legal regulatory regime is still a
     familiar assertion in company law and securities regulation. Thompson
     argued that the law could be found in the beliefs, practices and
     relations of the yeomanry and minor gentry.[278] It could also be
     found in the society of the poor.[279]

 90. Thompson's achievement, in recovering the forgotten legal history of
     the rural poor, is a telling illustration of the fragmentation and
     discontinuity of legal knowledge. Once recovered it contradicts any
     deterministic view of social and legal change.[280] It also reveals
     the schizoid character of law. The developments in law in the
     eighteenth century were not all hostile to collectively owned
     property. The collective rights destroyed were those based on
     tradition. New forms based on contract, particularly in companies,
     were nurtured by the law and grew in this period.

 91. Thompson argued that what was needed was a 'post-Marxist' analysis.

          A historical materialism which would view society as an organic
          whole, overcome academic procedures of division and isolation,
          and recapture the unitary spirit of human resistance to
          exploitation and oppression.[281]

 92. This suggests that in struggles between shareholders and company
     managers that the law will be found in a number of places in those
     relationships. As Foucault indicates the law may be constituted by the
     interplay between information and administration.[282] The company can
     be a locality in which Rorty suggests that people may still take
     pragmatic actions with meaning.[283]

     The profitability of considering indeterminacy in corporate legal
     theory

 93. Legal theories are often devised at a level of abstraction that makes
     it difficult to apply them in any coherent way to particular
     situations. Theories relating to indeterminacy in company law are no
     different. Indeterminacy haunts the legal mind. Hart and Dworkin seek
     to marginalise or eliminate the nightmare from law. Others, such as
     the writers in law and economics seek to subvert it to their own
     purposes and use it to extend the empire of wealth maximisation. What
     could be more consistent with the duties of directors of companies?
     Some Realists, like their descendants the Critical Legal Scholars,
     shocked by using it to break the icons of the law. Others, like
     Llewellyn and Unger, saw that indeterminacy was a not a completely
     undesirable quality. It permits the plates of justice as an
     abstraction and justice to the individual to slip against each other
     without too many jolts to the body politic. It permits people with a
     vision of justice to construct a different and more 'just' version of
     the law. Neumann's observations remind that legal rules represent
     choice and that the abandonment of a general abstraction for the
     particular may benefit those more able to exploit the opportunity.
     Teubner's autopoiesis provides a way to conceive of order in what
     appears to be chaotic periods of change. It gives to law, and those
     seeking its protection, the dignity of independence. There is no
     complete isolation of law from other systems. It will interpret the
     data for itself but where conflict exists between systems outside of
     itself it is capable of reproducing that conflict within itself. It
     may, through its own static, create competing principles within
     itself. It is, as observed by Neumann, capable of generating rules to
     accommodate the one-off deal. As an organic model it mirrors the
     concept of 'habitus' used by Thompson to describe the contest about
     common property and common use rights he witnessed in eighteenth
     century England.

 94. Indeterminacy in corporate law can be viewed through the complementary
     organic models of communities, and the interaction of law with other
     social structures in those communities, which Teubner and Thompson
     have created. Both recognise that law has a degree of autonomy. It is
     influenced by changes in the rest of society but it organises them in
     accordance with its arrangement of information. The conflicts within
     the other systems may be imported in this interaction. Their models
     also reveal the influence of law on other social institutions.
     Thompson found that law was embedded in all types of relationships and
     phenomenon. Teubner's claim for law appears to be more modest. It
     follows from his theory that if law interacts with other systems and
     is affected by them that interaction takes place in the other
     direction. However, Teubner observes that law's influence over the
     corporate form may not be great. Teubner's model is more abstract and
     generalised than Thompson's. Yet his 'static' plays a similar role to
     the details which Thompson observed. Thompson shows how the conflict
     with other systems, or habitus, such as the agrarian economy, invoked
     principles from law as parties contested the assertions to rights made
     by others. Thompson's account suggests that law may play a larger role
     in the shaping of the institutions of capital, such as the company,
     than Teubner allows. This can be seen in the role of the lawyers in
     the rise of the joint stock company based on trust and partnership and
     in potential breach of the Bubble Act.[284]

 95. Both provide models for dispute and resort to law within the company.
     Thompson uses habitus and custom and reason in which parties in
     conflict over the allocation of capital can be seen involved in an
     arena of conflict. Teubner presents as conflict between autopoietic
     social systems. Indeterminacy in law can be seen as representing
     patterns of social relationships under stress in the competition for
     capital. At the same time law is changed by the conflict generated in
     itself over what contemporary values it should take up and display.
     This may explain why the law relating to directors' duties appears to
     be acutely indeterminate. Thompson shows that the conflict between
     parties does not end with the same side always winning.

 96. Conflict between habitus or autopoietic social system are introduced
     into the habitus or autopoietic system of law. A number of corporate
     transactions produce conflicts over property of great value in which
     considerable pressure is placed on parties and their lawyers to push
     the meaning of language beyond its limits. In this conflict there are
     no simple syllogisms to supply the right answer. Parties and lawyers
     are confronted with definitions with reversible meanings through their
     self-reference and paired arguments for and against particular
     transactions. Underlying these is the tension between the black letter
     law and the spirit of the law to which all parties and their lawyers
     can also resort. In complex transactions with conflict between
     individuals, and over the law, unexpected events can lead to the
     transaction taking place, contingencies coinciding in the course of
     that transaction and events magnified by other incidents can occur in
     unexpected ways. Corporate transactions often invert relationships,
     processes and legal rules which add to the possibility of the conflict
     producing arguments with results manifesting bounded instability and
     the unexpected and unintended interaction of legal rules producing
     effects analogous to strange attractors.

 97. The lacuna revealed in the law by these conflicts can be filled by
     rules which would represent the most efficient use of capital,
     although what that use is, and how it is to be measured can also be
     the subject of dispute between interested parties. Legislatures and
     judges may seek to make rules which use standards of fairness and
     reasonableness. They assist in resolving tension within law between
     justice as an abstract principle and justice in the individual case.
     They, as Llewellyn observes, enable judges and lawyers to find the law
     immanent in the corporate community. This move from rules to standards
     has the potential, in the movements within capitalism, to favour the
     powerful as Neumann recognised. This is significant if the other
     insight of the Realists is also remembered that the company is only
     the cluster of legal rules with no other separate existence. Within
     fiduciary law the rules applying to trustees restricted the right of
     directors to deal with company property in a self-interested way. The
     movement to a standard based on reasonableness and accepted standards
     of corporate management give directors greater freedom to deal with
     those assets in ways which are advantageous to themselves and
     disadvantageous to their shareholders.

 98. Yet as Thompson, and the Critical Legal Scholars, find if there is
     resistance within the habitus to the claims made by the more powerful
     law is capable of generating a different version of doctrine to deny
     those claims as well as support them. The contradictions between
     statements of legal rules and the competing policies underlying them
     present the opportunity for various arguments to be generated to
     support these varying views. There can be a directors' statement of
     legal doctrine and a shareholders' statement of legal doctrine.
     Thompson discovered in eighteenth century England that the powerful
     were constrained by the law which the courts administered. When the
     courts did find against the powerful the effect was to further
     legitimise the law as it was seen to be justifying its own rhetoric of
     justice and fairness. Branson also concluded from his survey of
     corporate law in the courts of Delaware two centuries later that the
     law enables the courts to find for both the shareholders and directors
     in ways which both legitimises the their role in resolving company
     disputes and, in another paradox, provide a steady stream of decisions
     to better guide lawyers in advising directors on what the courts might
     do.

     Appendix

     The billiard player's guide to indeterminacy in company law

          As capitalism (or 'the market') made over human nature and human
          need, so political economy and its revolutionary antagonist came
          to suppose that this economic man was for all time. We stand at
          the end of a century when this must now be called in doubt. We
          shall not ever return to pre-capitalist human nature, yet a
          reminder of its alternative needs, expectations and codes may
          renew our sense of our nature's range of possibilities. EP
          Thompson, Customs in Common (Harmondsworth: Penguin, 1993) 15.

 99. Milton Friedman argues that we will make excellent predictions about
     billiards if we assume that an expert billiard player plays 'as if'
     she knew the:

          complicated mathematical formulas that would give the optimum
          directions of travel, could estimate accurately by eye the
          angles, etc, describing the location of the balls, could make
          lightening calculations from the formulas, and could then make
          the balls travel in the directions indicated by the formulas. Our
          confidence in this hypothesis is not based on the belief that
          billiard players, even expert ones, can or do go through the
          process described; it derives rather from the belief that, unless
          in some way or other they were capable of reaching essentially
          the same result, they would not in fact be expert billiard
          players.[285]

100. He makes this argument to justify the reasonableness of his assumption
     that firms behave as if they were seeking to maximise their profits.

101. Using Friedman for a purpose he never intended this suggests that we
     make excellent predictions about indeterminacy in corporate law if we
     assume that the expert corporate lawyer advising, or judging, 'the man
     who cares nothing for an ethical rule which is believed and practised
     by his neighbors' but who nevertheless cares 'a good deal to avoid
     being made to pay money, and ... to keep out of jail ... ' knows the
     principles of law and where they weaken into indeterminacy.

     An indeterminate taxonomy of legal indeterminacy

102. To know the shape of uncertainty and to trace the outlines of
     indeterminacy is to begin to understand both its effects and uses.
     This is significant in corporate law where legal standards often have
     little impact on corporate governance.[286]

103. A non-exhaustive, and overlapping, taxonomy[287] of metaphors for
     indeterminacy in law could look like:

       i. The failure of language
      ii. The failure of reasoning
            a. The absence of the syllogism
            b. Dialectical reasoning
            c. Paradox
            d. Antinomy
            e. The death of law
     iii. Unpredictable events and inexplicable chains of causation
            a. An absolutely unpredictable event
            b. Interference produced by two or more causal chains
            c. Complexity, linear or chaos theory

     The failure of language

104. Some lawyers look for certainty in language.[288] Legal rules are
     stated in words which, to use Hart's metaphor, create a penumbra
     between situations in which the rule will operate and situations where
     it will not.[289] There seems to be wide agreement this leads to a
     partial indeterminacy in legal rules[290] but conflict over whether or
     not that indeterminacy is radical.[291] Words require interpretation.
     It is ironic that there is no agreement over the core meaning of
     hermeneutics, which signifies interpretation.[292] Hart, the most
     influential of recent legal positivists, observed that the open
     texture of legal language meant that one interpretation was not
     compelled.[293]

105. Using analytical techniques based on concepts of interpretative
     communities, deconstruction and semiotics a number of writers have
     concluded that the language of the law is indeterminate although there
     are varying equivocations about the consequences of their
     conclusions.[294] It is claimed, and denied, that meaning depends on
     context.[295] There are disputes over the consequences of the meaning
     of words changing over time.[296] There are claims that the law is
     radically indeterminate and that any metaphor which suggests that
     there is a core meaning where a rule will apply is incorrect.[297]
     Schauer, in his criticism of radical indeterminacy, impliedly admits
     that the proponents of a more moderate indeterminacy have a point. He
     writes that 'lawyers might be seen as pathologists professionally
     preoccupied with disease rather than health.' He argues that the
     weight that language is expected to bear is added to by an expectation
     that courts will play a significant role in resolving a dispute which
     has become sufficiently acute to be litigated. The parties focus on
     the weaknesses in the language and thus focus attention on the
     failings of words rather than their invisible successes.[298]
     Endicott's recently examined various claims to radical indeterminacy
     on the basis of language. He concludes that most turn out to be claims
     to indeterminacy on the basis that other influences apart from
     language lead to the words being applied in a manner different to that
     which might be thought.[299]

106. The Privy Council recently acknowledged, unintentionally, the
     significance of language in company law in observing that the company
     consists of nothing more than 'the applicable rules.'[300] Language
     fails at the core of company law in describing the legal person of the
     company. It can mean the legal fiction which is the body corporate in
     a parallel concept to the state as a body politic. It can mean the
     enterprise itself as a pool or resources. It can mean the association
     between the natural persons involved in it.[301] Both Schauer's and
     Endicott's defence of determinacy in the law indicates that the
     language of the law cannot always bear the weight of conflict and that
     those conflicts may be driven by influences external to the law.

     The failure of reasoning

     The absence of the syllogism

107. There is an assumption in legal reasoning that for a theory or
     doctrinal statement to be accepted it should reflect sufficient
     reasons to produce a certain outcome.[302] However there is only one
     form of reasoning which achieves this outcome and that is deduction
     from shared premises, which is not a feature of legal reasoning.[303]
     Law uses other forms of reasoning which must produce uncertain
     outcomes.[304] Again this marks the core of corporate law. There is no
     agreement on the premises in company law as there is no agreement on
     what the company is.[305] It can be, amongst other things: a 'goal
     orientated social system', a 'relation of bureaucratic domination', a
     'governance structure',[306] an 'enterprise'[307] or a 'nexus of
     contracts'. This determination of the 'essence' determines how the law
     constructs the company for its present purposes.[308]

     Dialectical reasoning

108. A feature of legal argument is that an argument may be met by a
     counter-argument which reverses the first argument. A person may argue
     that a rule should apply. The opponent may argue that a standard
     should apply. Dialectical logic in the Hegelian sense, and as borrowed
     by Marx, sees contradictions as fruitful collisions which may yield a
     higher truth in the synthesis of the two arguments.[309] These
     conflicting arguments, it is said, merely indicate that the law is
     dialectic but not that it is indeterminate.[310] Law may be dialectic
     if the conflict was limited as in the example but conflict over the
     application of a legal rule is rarely so precise and generally
     involves a cluster of possible conflicting rules. Often the conflict
     is between principles generated from different models of the company.
     Mannolini argues, for example, one reason why the case law on
     directors' duties is unsatisfactory. He contends that conflict within
     the company has to be seen as 'a natural and predictable result of
     disparate economic interests.' The contractual model of the company he
     uses generates market-based arguments. However the courts frequently
     apply opposing trust-based concepts. He perceives that this produces
     what he calls 'procedural dysfunction' in adjudicating
     'economically-driven' disputes.[311]

     Paradox

109. Paradox is 'just any conclusion that at first sounds absurd but that
     has an argument to sustain it'[312] Paradox is a familiar feature of
     law as it occurs in any definition containing a self-reference. The
     best known paradox are the self-amendment cases where sovereign
     parliaments have taken action to limit their sovereignty.[313] Paradox
     is present in the circular meaning of 'company' in the phrase 'the
     best interests of the company as a whole.'[314]

110. Teubner argues that self-reference is a basic paradox at the heart of
     law. He sees it as revitalising our understanding of indeterminacy in
     law. The law can only be determinate if the law says it is, that is if
     it is based in some super-norm. But this super-norm is the subject of
     the definition of law itself so the paradox of self-reference
     enters.[315] The law seeks to suppress this but in doing so it
     conceals that contradictory statements of doctrine can be both right
     and wrong. It does this by denying that there is a form of reasoning
     which invents reasons why one statement in a particular context is
     right and the other is wrong. Teubner sees the work of law as
     accepting this paradox. It reflects the reality of a world which is
     itself paradoxical. The result is that it would be even more
     paradoxical to seek to locate, construct or explain these
     paradoxes.[316] He uses the increasing employment of balancing tests
     in legal doctrine, general clauses in contracts and sociological and
     economic legal theories to demonstrate that the law recognises its
     paradoxical nature.[317] He seeks to 'deparadox' the circular
     reference to the company by showing that the legal person, the
     enterprise and the association of shareholders are also clearly
     identified spheres of action which are not identical and which only
     overlap in the company. He names this centre of collective action the
     'collectivity' which can be seen working through the corporate organs.
     The corporate organs and not the association of members determine the
     extent of the collectivity.[318] This leads to an assertion that:

          none of the resource providers, neither the factor of capital,
          nor that of labor, nor that of management, nor indeed the factor
          of state control, has any natural claim to 'sovereignty over the
          association.'[319]

     Antinomy

111. Antinomy is a form of paradox which produces a self-contradiction by
     accepted ways of reasoning, that is, a contradiction between two
     assertions for each of which there seem to be adequate grounds.[320]
     One of the features of the common law are the number of rules which
     have matched pairs of equal standing which point to opposite
     results.[321] Karl Llewellyn listed over 70 conflicting paired rules
     for interpreting statutes[322] and a similar number for interpreting
     precedents.[323]

112. It has also been claimed that law, with its adversarial processes,
     merely shows the features of competition and that antinomian reasoning
     is a feature of this.[324] Again any conflict is unlikely to be just
     about one rule. But the prevalence of the paired rules and arguments
     shows that it is systematic in law and goes beyond the opportunism of
     adversarial argument in individual cases. It is deeply entrenched in
     the legal system and any legal rules for companies need to be made
     with it in mind.

     The death of law

113. Antinomy has another nuance which derives from John Bunyan and the
     Muggletonians who developed the antinomian oppositions between
     Legality and the Gospel of Forgiveness, the Moral Law and the Gospel
     of Love. A 'very judicious man' Legality, tempted Christian to go to
     his house where he would have perished except for Evangelist who
     rescued him. Evangelist explained that 'Legality' was a cheat and that
     'by the works of the Law no man living can be rid of his burden.'[325]


114. Goodrich takes up this point in dealing with a particular antinomy
     which is ever present in law:

          The etymological root of determinacy is terminus, connoting both
          boundary and conclusion or end. The question becomes what is it
          that ends in the law? What is it that ends with the law? With
          this law? A question of the intellectual history of jurisprudence
          and of doctrine that takes the analyst deep into the unconscious
          structures of law.

115. He argues that the pre-modern view of law recognised that the law had
     an origin and purpose outside of itself in justice, equity and reason
     from which it could not be separated as the maxims of Roman law
     showed.[326] This was imported in a limited way into, but is now
     suppressed by, the common law with the adoption of ratio from Roman
     law with all its ambiguities of 'cause', 'purpose', 'rationale',
     'process', 'faculty', 'sense' and 'intention.'[327] This separation of
     the law from its origin and purpose is described by Goodrich, from the
     meaning of 'terminus' as a 'conclusion', as 'the death of law'.
     Goodrich argues that this death represents a more profound
     indeterminacy[328] which occurred in the actions of positivists to rid
     the law of indeterminacy. In doing so they cut law off from these
     causes and purposes by seeking to ground it in 'the brute fact of a
     system of norms' which cut it off from justice and judgment.[329]
     Lawyers become technicians and law becomes no more than what lawyers
     do and its origins and purposes are 'crippled' by 'a series of
     pragmatic, actuarial and disciplinary administrative practices.' These
     represent 'the hyper-inflation of legal practices and
     regulation.'[330]

116. Goodrich's analyses present the administrators of company law with a
     considerable problem. Many parts of company law have little to do with
     morality.[331] This is exacerbated in the revolutionary change in
     financial capitalism which Mandel has described. Truth, honesty and
     integrity are great and enduring values[332] but they only have
     meaning in a context. If contexts are undergoing rapid transformations
     they will produce varying answers and disagreement about the
     interpretation of standards. Endicott dismisses indeterminacy where it
     is the result of deconstructive techniques as merely 'exposing the law
     to debate but not to argument.'[333] But this is too cursory and quick
     a rejection. It is arguable that western law and the common law, with
     its adversarial techniques, in particular, have used deconstructive
     techniques for centuries if not millenia.[334] Goodrich has re-exposed
     an ever present tension in the law which is embodied in the concept of
     justice[335] and which Aristotle observed in his Politics.[336]
     Justice also requires that like be treated alike. This tension is made
     worse by the passing of time and changes in social, economic and
     political structures. Awareness of this can be seen underlying
     arguments whether rules are better than standards which appeared in
     Australian corporate law as the 'fuzzy law' debate of the early 1990s
     particularly in respect of related party transactions.[337]

     Unpredictable events and inexplicable chains of causation

117. Comparison of legal concepts with phenomenon in other forms of
     knowledge can use likenesses in two ways: as a metaphor for the legal
     concept which is substituted for it in the same context, and, as
     metonymy in which the other phenomenon is used to enable us to see the
     legal concept in a different context.[338] Likening law to science has
     been influential in legal thought and the borrowed concept of 'the
     doctrine of certainty' appears to have set the common lawyers in the
     seventeenth century on their quest for certainty in the law.[339]
     Gierke's view of the company was based on a nineteenth century
     understanding of an organism although he was conscious of its
     limitations.[340] Holmes, Pound and Dewey and many of the Realists
     sought to use social science to find the predictability which was
     missing in legal doctrine.[341] Some legal writers still consciously
     adopt a scientific methodology in studying law as Clark does with his
     evolutionary model of the four stages of capitalism.[342] Such
     comparisons are, however, problematic. Evolutionary theory in science
     is a cultural construct but it is applied to physical organisms. To
     apply it to metaphysical constructs such as law or the company which
     have no physical existence conceals assumptions and lacks empirical
     evidence.[343] Finally lawyers are generally bad at science.[344]

     An absolutely unpredictable event

118. Indeterminacy in physics provides metaphors for modelling law. This
     first form occurs in quantum physics. There is no chain of events. The
     quantum jump of a photon 'is supposed to be an absolutely
     unpredictable event which is controlled neither by causal laws nor by
     the coincidence of causal laws but by probabilistic laws alone.'[345]
     The photons show a statistical regularity which permits statistical
     predictions to be made about their aggregate behaviour but the
     individual photon is not 'casually determined.' [346]

119. No event company law deals with will be causeless in this sense but it
     may be unpredictable. It provides a metaphor for the new case which
     throws up an issue which has not previously been determined.[347] In
     such a case there may be some consistency, compatibility, congruence
     or even intuition about the 'aggregate behaviour' of the law which
     gives some sense to the overall trend of the law even if it has no
     predictive power in particular cases.

     Interference produced by two or more causal chains

120. A second form of indeterminacy in physics occurs when two or more
     independent 'causal chains ... happen, accidentally, to interfere at
     the same time and place and combine in bringing about the chance
     event.' [348] Each of the chains of events may be subject to causal
     explanation but the coincidental timing of the two events may not be.
     This analysis assumes that such systems are the sum of their parts, as
     one or more linear equation for each of which there is one outcome.
     The result requires the simple addition of each of the outcomes.[349]

121. This is a common phenomenon in law. Sampford uses an analogy of chains
     in describing legal relations in his social mêlée model of law. One of
     his examples can be easily changed into an example from company
     law.[350] Company law is frequently administered at the junction of
     events where one event has intersected with others. Corporate
     insolvency often leads to inquiries which reveal unrelated breaches of
     directors' duties.

     Complexity, non-linear or chaos theory

122. Non-linear theory, the best known of which is complexity or chaos
     theory, has impinged on this last form of analysis. It is based on the
     observation in sciences and mathematics that there are phenomenon and
     expressions in which apparently insignificant changes in starting
     conditions make it impossible to predict how the phenomenon or
     calculation will develop. A single cause can lead to a huge range of
     effects.[351] They show synergy in the sense that they are more than
     the sum of their parts.[352] They have other features. One is bounded
     instability and is distinguished from stability and instability. It is
     not possible in the vicinity of the border to make clear cut
     distinctions between starting combinations which produce stability and
     those which produce instability. Small variations will produce
     stability and instability. The geometrical shapes of the border, which
     repeat a similar pattern but at no measurable scale, are called
     fractals. By altering the starting conditions it is possible to
     manipulate the process to produce a general pattern but not to produce
     a particular result.[353]

123. The principles which produce some of these patterns are being
     unravelled. There is feedback within systems. This feedback includes
     strange attractors, sets of points to which movement in the system are
     drawn, which are complex and oscillate.[354] These produce unstable
     behaviour but within bounds.[355] There are dissipative systems. These
     use positive feedback to amplify fluctuations in their environment to
     disrupt existing systems of behaviour, the variety within the system
     is structured by correlations between its parts so that it is
     self-organised, a small change may suddenly turn the system from one
     kind of behaviour to another and can evolve suddenly, unexpectedly and
     can become increasingly more complex. A small change in such a system
     may not have a small effect.[356]

124. Chaos theory has implications for other scientific metaphors which
     have been used to explain law. Evolution, as noted, has been used to
     explain both the mechanism and direction of development in law. Its
     use as a filter, or a trial or error mechanism, rather than the idea
     that evolution is 'goal orientated' has been more a more successful
     and accurate metaphor.[357] Sampford, in his model of law as a mêlée,
     defines mêlée as:

          a fluid, constantly changing set of interactions in a complex
          struggle between a large number of groups and institutions.[358]

125. The law is a microsystem of this larger system.[359] His theory of
     law, in particular that it is marked by indirect achievements, would
     appear to parallel chaos theory, a disorder with limits. This is not
     an analysis he applies.[360] He rejects other theories of law for
     looking for systems at all in a disordered society.[361] Chaos theory
     is now being applied to the social sciences,[362] to law[363] and to
     management, including corporate management[364] but not without some
     conflict about the appropriateness of its application. It has not been
     proven that any system involving humans is non-linear but it is
     unlikely that unpolluted data would be ever acquired to do this.[365]

126. Chaos theory indicates that the law and the corporate organisations it
     regulates are all the result of historical contingencies. The rules
     stated in legal doctrine will interact with each other and the chance
     events of their invocation to further develop doctrine.[366] These
     rules also represent the end of a path from the interaction of
     previous chance events. The organisations they regulate are also the
     process of a similar development. Other forms of the business firm,
     apart from the company, have existed. Some are extinct and could not
     be further developed without retracing evolutionary steps or reviving
     them. The existing ones may not be the best possible ones. They are
     merely the survivors from particular historic periods.[367]

127. Legal rules can be seen as attractors, and conflict between rules, can
     be likened to strange attractors. The recognition that small
     variations in starting conditions can affect whether an action lies in
     or outside the border of a legal rule reflects the rule versus
     standard debate. The common law implicitly recognises this with its
     drift to a standard of reasonableness which can be seen as a standard
     'poised on the boundary between order and chaos.'[368] Chaos theory
     offers a new insight into why legal reasoning pays attention to small
     details. It offers a similar view of models of law reform. Results of
     law reform in company law have often been unexpected. It was thought,
     for example, that only the largest undertakings would seek limited
     liability under the Companies Act 1856 (Eng).[369] It can be seen in
     the reasoning and interpretative systems use in law. It is rare for
     the meaning of a legal rule and its application to be considered in
     isolation from other legal rules. The common law, with its system of
     precedent, always involves the consideration of the puzzle of the two
     conflicting rules, which also contain each other, for determining the
     ratio of previous decisions.[370] Generally a cluster of rules from
     further clusters of statutes and cases will be interpreted
     together.[371] This is familiar from Dworkin's hard cases where there
     are conflicting rules which could be applied. These rules may generate
     a result which after the event is subject to doctrinal explanation and
     clarification, even if it could not have been predicted and justified
     in advance. [372]

128. Chaos theory has wider implications. Rock has examined the development
     of law on management buyouts in Delaware. He proposes a model in which
     the decisions of the courts of Delaware are a source of norms for
     company directors. He distinguishes norms from laws. Norms are the
     internalised rules for behaviour which are important for individuals
     to have a feeling of self-worth. He argues that the smallness of the
     corporate directors and legal communities in New York and Wilmington,
     Delaware with its own newspapers and court system provides a means by
     which the norms are created by feedback through lawyers from the
     courts to the directors. He notes that the Delaware courts concern
     themselves with 'mushy' statements of fiduciary duties which are like
     morality tales rather than with the enunciation of principles.[373]
     What Rock observes need not be a one way process. It is possible that
     the open ended standards used in fiduciary law means that the courts
     will be influenced by information about what are accepted as
     reasonable practices in the corporate community. The Delaware courts
     are like the Wall Street Journal just another, even if more official,
     source of such information.

129. Chaos theory provides other insights. A transaction which in one
     context is not justiciable becomes so. It suggests the way in which
     legal doctrine moves over time.[374] The dispute in legal theory over
     whether discretion is also law can be seen as a discussion over
     interrelated phenomenon. It suggests that the layers of connectivity
     between power and knowledge in the corporate form may contain similar
     patterns but may produce different effects. In companies where control
     is widely dispersed small changes may make considerable difference to
     that control, as well as the reverse.[375] It offers some explanations
     for the stockmarket which has defeated any attempts to develop regular
     programs to predict the price movement of a company shares.[376] It
     has been used to justify Hayek's argument against the regulation of
     economic activity because it shows that long term planning will not
     work and that all institutions involved in something as complex as the
     economy need to be flexible and adaptive.[377]

130. To suggest that the law is undetermined by analogy to chaos theory
     invites the response that it may be so complexly determined that no
     predictions can be reliably made at this time. But, with further
     progress in legal studies, its determined nature will become clear in
     the same way as non-linear theory now shows there are patterns in
     physics and mathematics.[378] If law's special feature is its binding
     power and the requirement that we act in conformity with it and, if we
     fail to, that we are held accountable under it there are problems with
     this response. For it to be so complexly determined that it fails to
     bind and fails to make accountable produces, at this time, the same
     appearance as indeterminacy.

     Modelling indeterminacy in company law

131. The limits placed on reasoning in law by limitations of language, the
     absence of the syllogism, an over-abundance of paradox produced by
     self-referring definitions and the tension between the spirit of the
     law and the letter of the law produce particular problems in company
     law. Legal principles are stretched tight over varying forms of
     companies which have their own uncertainties of language, paradoxes
     and competing merits. Added to this are the numerous ways in which
     transactions bring the intangible law in contact with the metaphysical
     corporate form. These one-off events, coincidental chains of
     causations, bounded instabilities, strange attractors, recurring
     fractals and contingent synergies provide new metaphors for the
     infinite ways in which legal rules can interact with the preferred
     form for the raising of capital for enterprise and profit. It is
     difficult to conclude that there is just one way to deal with
     uncertainty in the regulation of the corporate form.


NOTES


[1] Holmes OW, 'The Path of the Law in Oliver Wendell Homes, Collected
Legal Papers (New York: Harcourt, Brace, 1920)

[2] O'Neill O, Towards Justice and Virtue: A Constructive Account of
Practical Reasoning (Cambridge: Cambridge University Press, 1996) 187.
Other virtues she identifies are also relevant in the context of the
company. The 'executive virtues' could apply both to corporate decision
making and the actions of individual executives. These virtues include:
'self-respect, self-control and decisiveness; courage and endurance, as
well as numerous contempor