The current financial crisis magnifies the intense economic interconnections between individuals, corporations and states as well as the dramatic limits to market exchanges and corporate practices. Seeking to build selectively on the advantages of contracts and organisations, networks mirror these failures. As they escape neat legal classification into either contract or corporation, networks have recently been subject to legal puzzlement, in Networks – Legal issues of multilateral co-operation (edited by M Amstutz and G Teuber, 2009), in Contractual networks, inter-firm cooperation and economic growth (edited by F Cafaggi, 2011), in Linked contracts (edited by I Samoy and M Loos, 2012) and in the book under review. In this book, first published in German in 2004 and now translated into English, Teubner sets himself the task of investigating how the law should respond to the reality of networks, especially to protect the social expectations that networks generate between network members.
The book limits its investigation to contractual business co-operation, excluding networks understood loosely as social relationships, address books, technical networks etc. It suggests a legal approach to conceptualising the contradictions that networks are riddled with while maintaining the benefits of flexibility and innovation that networks bring to business partners. To this effect, Teubner uses sociological jurisprudence and system theory. Three types of networks are used throughout the book as sources of supporting evidence: franchising, just-in-time systems and, in a cursory manner, virtual business.
Introduced thoroughly by Collins, the book is structured into six straightforward chapters. After explaining how networks are understood in social sciences in chapter 1, chapter 2 dismisses the legal analyses developed elsewhere to frame them. Chapter 3 then suggests an alternative legal reasoning based on “connected contracts”, a German notion originating in financial credit and now consecrated in the German civil code. The last three chapters apply the notion of connected contracts to the legal issues arising in three different relationships: chapter 4 deals with the relationships between contractual partners, chapter 5 with the relationships between network members who are not contractually related and chapter 6 with the relationships between a network and the outside world. These last three chapters follow a similar pattern: the first section illustrates the issues arising from judicial decisions, the second section explains the contradictions networks attempt to deal with, and the remainder of the chapter dismisses competing theories and applies Teubner's solution to selected legal issues arising in these relationships.
This book makes three contributions to the field. First, it clarifies the specificities of networks. Faced with contradictions between cooperation and competition, individual and collective interests, market and hierarchy, networks are primarily contracts for which further legal framing is needed. Teubner extends the German concept of connected contracts to networks on the basis of their structural and functional equivalences. Connected contracts are understood as “a range of independent contracts that create an economic unity, notwithstanding their separate nature” (p. 147). Teubner then suggests three distinctive features of networks: 1) mutual referencing between contracts, 2) a network purpose (understood as a “substantive relationship with connected contracts' common project”), and 3) an intensive factual co-operation (p. 158). Networks where these conditions are met exhibit a generalised reciprocity, “a shorthand formula used to identify the normative content of connected contracts”, more especially the generalisation of bilateral obligations within the contract (p. 74). Networks need to be distinguished from corporations as the “common purpose of the network will be given recognition equal to that afforded to the individual purposes of members of the network” (p. 145). Yet this clear distinction between contracts and corporations becomes muddled, especially when company law and derivate actions are used by analogy on mostly realistic grounds. Furthermore, the distinction between corporation and association is not clearly explained. The legal construct of networks is presented as a “dual constitution as a contract and as an association” (pp. 156–160), but the term “association” is never explained.
Secondly, the last three chapters apply this concept of connected contracts to legal issues arising in networks. Between contractual partners, networks create special duties of loyalty in relation to the behaviour they owe to the whole network (e.g. confidentiality or non discrimination), outside of contractual obligations. Judges can allocate risks according to what the network's purpose requires. Between non-contractually connected network members, networks make also horizontal duties of loyalty arise so that the integrity of each member is protected from mutual impairment. However, network members should only enforce these horizontal duties if the network centre fails to take the appropriate measures against free riders. For third parties external to the network, the risk of organised irresponsibility among network members needs to be addressed. A collective, yet subsidiary, liability may be found against networks members if and to the extent to which they have been involved in a specific activity causing harm to third parties.
Thirdly, these solutions are supported by the crosscutting endeavour of the book: to inform the autonomous logic that the law needs to develop as a response to the inherent contradictions between individual and collective interests or between competition and cooperation in networks thanks to the insights offered by social sciences. As neatly summarised by Collins, “the law needs to support stable network expectations by articulating and reconciling through a systematic vision these paradoxical demands” (p. 31). This translates into the following reasoning. The context makes obligations arise without network members' consent provided that a certain level of formalisation of social relationships, a legal interconnection between the different elements, demonstrates that the parties have adhered to the spontaneous development of their relationships. The law comes in to “support stable expectations by giving them symbolic re-statement in cases where concrete network behaviour contradicts them” (p. 103) and to offer corrections when breaches to network obligations are sufficient to endanger the network's purpose. Therefore Teubner uses the law to achieve an institutionalisation of the network's reality: it does not make contradictions disappear but offers a frame in which judges can decide how best to sustain the network's overall purpose.
This book brings together various aspects of Teubner's previous works on law, networks and hybridity, a list of which is provided by Collins (p.2 fn 2). However, the book is constructed as a standalone opus: most of the ideas, such as legal irritants, have been used here in a straightforward manner. Yet the formal technique of re-entry, which lies at the heart of the priority of a contractual analysis over an organisational one, remains complicated (especially pp. 212–13), while probably encapsulating the idea that, in any institutionalised form (contract or organisation), features excluded in the first place as belonging to the opposite institution (respectively organisation or contract) will “return through the back door” (p. 115) and hence create tensions.
This integration of Teubner's works into one volume should have made it a reference for network literature. Yet this ambition is curtailed by the primarily German readership for which the manuscript was originally intended. Doubt has been expressed regarding its concrete application in a common law system (Y. Goh, “Review” (2011) Sing JLS 588). Brownsword clearly favours the English idea of contextualised reasonable expectations over Teubner's approach (“Review” (2012) 75(3) MLR 455). Collins, however, provides an illuminating introduction easing the reader through German peculiarities (e.g. the exclusion clauses in just-in-time contracts). He indicates those parts of Teubner's analysis, which may find fertile soil in England (e.g. the conditions for internal network liability) and those which would stumble on obstacles, especially due to differing legal methods. Collins comments further on this. In exposing the intricacies of networks, the book highlights the fact that contract law does not function in the same way in England and Germany. Beyond basic commonalities reached over the last few years, the systems still struggle with their own structural difficulties, such as the limits between torts and contractual liability or the role of consent and reliance in contracts.
However three fruitful challenges that Teubner offers to non-German readers should not be overlooked. First, the potentialities of a legal framework encapsulating the tensions between individual and collective interests in networks need development beyond the technical issue of the proper legal basis in business-to-business networks. Networks of financial agreements, technical networks (such as former state monopolies) and public-private networks may provide useful case studies. Being also characterised by tensions between cooperation and competition, these networks need to allocate risks and responsibilities and balance flexibility with stability of expectations. Teubner quickly excludes public-private networks here and even more definitively in “Coincidentia Oppositorum: Hybrid Network beyond Contract and Organisation” (in M. Amstutz and G. Teubner (eds.) Networks – Legal issues of multilateral co-operation, (Oxford, 2009), spec pp. 28–30) despite Collins' illustration of networks issues with a train derailment case. Similarly, the potential colliding of laws from different legal systems in transnational networks is not mentioned even though many franchising contracts have international dimensions. To be fair, Teubner reformulates his analysis of networks in subsequent works (“‘And if I by Beelzebub cast out Devils, …’: An Essay on the Diabolics of Network Failure” 2009 (vol 10:4) German LJ 115) but seems to focus on conceptualisation rather than technical developments.
A second challenge would consist of integrating if and how European directives on consumer protection and product liability (only touched upon in pp. 199–200, 238) have impacted on network contradictions more closely and of investigating empirically if and how networks have reacted to these legal changes (formal changes, (de)centralisation, adaptations in standard relationships etc.). This would helpfully map the ways in which law and social reality interplay and thus feed into Teubner's system theory. Differences in sensibilities towards legal reforms across legal systems might help re-assess the national relationships between legislators, judiciaries, legal professions and practices in tackling social problems. This calls for deeper European harmonisation but also warns that reaching similar results across Europe may depend on tailored domestic strategies.
A third challenge may involve a further exploration of generalised reciprocity, Teubner's justification for institutionalisation and a balance between flexibility and the stabilisation of expectations arising from networks. Yet the neatness of generalised reciprocity may hide the fact that each network member may present conflicting strategies (e.g. social, economic, long-term and short-term). Teubner's justification may also need further development to explain the idea that expectations in networks require protection organised by the law, and more especially case law. First, generalised reciprocity may explain in its own right, without recourse to the law, why and how the network could police itself. For instance, network members may decide to share the load of the harm caused by one member fairly among the remaining members in order to maintain the network's purpose. Secondly, a typology may need to be developed for these cases where systemic trust must be restored through material acts, and those where the law will need to reinforce network expectations. Thirdly, generalised reciprocity does not justify the idea that judges would be the best source of solutions while legal reforms may actually be required to safeguard effectively systemic trust. Arguing that any legal reform will always fail because actors will develop counteracting strategies may underplay the influence of joint interests among the network members on applying high legal standards of behaviour to improve their reputation and branding. In all these cases, the interplay between generalised reciprocity and legal solutions may need to be fine-tuned so that insights into upholding productive tensions in networks and institutionalized expectations may be fruitfully debated across legal systems.
Overall this book calls for further challenging investigation. While English contract lawyers will benefit most from Collins' introduction, other scholars will find in this book a framework for seeking how to articulate productive contradictions in networks such as competition and cooperation or collective and individual interests without neutralising them. Teubner's emphasis on generalised reciprocity should bring food for thought to any attempt to reconstruct systemic trust in the current economic climate. It would be a pity if Teubner's ideas were discounted on the sole ground that they encapsulate mere German reasoning peculiarities not worth serious consideration for further development.
