Modular argumentation for modelling legal doctrines of performance relief

1.Introduction

The freedom of contract making leads us to believe that a contract is signed only if it benefits both contract parties. However, no contract could contain clauses for every eventuality since contract parties simply could not foresee all possible events in a dynamic world, or simply decide not to raise them during negotiations, as their expected utilities are considered of low value. Subsequently, parties have incentive to repudiate when they suffer losses because of such events, with arguments that sound like ‘I did not promise to perform under these changed circumstances’.

Commerce is not possible without the commitment of contract parties to their signed contracts, which would be undermined if it was possible for a party to enjoy the fruits of the contract from the performance of the other party without having to perform his own promise. Thus contract dispute resolution is indispensable in any commercial world. E-commerce demands online arbitration because dispute resolution in courts is costly if not impossible, especially when parties to online contracts are separated geographically. Online arbitration mechanisms would hence be of great importance for a take-off of e-commerce.

To understand how online arbitration mechanisms could be designed, we need to understand how courts resolve contract disputes because real-world contract dispute resolution must be guided by laws, even if such disputes may be resolved by bodies other than the court of laws. Consider a famous court case below (Farnsworth, Young, and Sanger 2001; Freitel 2004).

Contract disputes, in an abstract sense, could be viewed as argumentation about contract interpretation whereby contract parties present arguments for or against a particular interpretation they wish to advance or reject, respectively. This paper, an extension of Dung, Thang, and Hung (2009), presents a contract dispute resolution formalism following a modern view that the court would resolve a contract dispute by enforcing a hypothetical contract (also called complete intended contract) that reasonably represents the mutual intention of contract parties at the time of contract making. The court assumes that both parties are rational in order to equate their mutual intention with the intention of rational persons in the position with all their background (or contextual) knowledge. Because an actual contract is often viewed as representing the clearest mutual intention of contract parties, a hypothetical contract does not rewrite explicit contractual terms, instead adds implied terms representing the shared, but unexpressed intention of contract parties. To ascertain this intention objectively, the court generally applies well-established legal principles, guidelines and rules. Thus a dispute resolution is modelled here by a two-level modular argumentation (Dung and Thang 2008, 2009) process: at the object level, factors of the case are established from argumentation modules representing the contract context while at the meta-level, argumentation modules representing such legal principles and rules combine these factors to complete the actual contract with implied terms.

We establish the appropriateness of the above formalism by applying it to common laws. Having a case-by-case basis, however common laws generally evolve by distilling from a particular case the legal principle on which it is decided, and that legal principle is then generally applied to similar dispute contexts (Samuel 2000). Legal doctrines in common laws could be viewed as a widely accepted interpretations of the principles, guidelines and rules for dispute resolution. In this paper, we will formally model legal doctrines for resolving disputes on performance relief (i.e. where a contract has been signed but one party asks to rescind the contract) in Restatement Second of Contracts, especially the doctrines of impossibility and frustration of purpose. These two doctrines provide, on one hand, arguments for rescission on the grounds that an unexpected event after the contract making has made the performance of the contract literally impossible, or destroyed the principal goal of a party in entering into the contract; and on the other hand, arguments against rescission on grounds that parties bearing the risk of the event by explicit or implied terms in the complete intended contract cannot withdraw from the contract when the risk materialises. For illustration, consider the hypothetical e-commerce disputes below.

The doctrine of impossibility is one of the most important doctrines of contract laws. On the one hand, by defining an extremely narrow gap for a non-performance of a contractual promise not to be deemed as a contract breach, the doctrine makes it ‘almost impossible’ or ‘practically impossible’ for contract parties to break their contractual promises. On the other hand, by discharging contracts in truly impossible situations, the doctrine avoids causing extra distress to contract parties in a situation beyond their capacity to handle, and hence supports the view that commerce is to increase the wealth of a society. In our related paper (Dung and Thang 2009), we have modelled the doctrine of mutual mistake, which provides arguments for rescission on grounds that a mistake concerning an existing fact made by both parties at the time of contract making nullifies what parties intended to agree on; and arguments against rescission on the grounds of risk allocation of this type of mistake. The fact that our formalism can naturally model several complicated legal doctrines shows our initial success towards a simple yet general argument-based formalism for contract dispute resolution. For each doctrine, we need to refine the semantics of contract by defining what kinds of implied terms the doctrine imports, and formulate the above two-level argumentation process to compute the semantics. Since each doctrine has its own peculiarities, moreover can be made or unmade by courts, we cannot make a definite claim as to the completeness of the presented formalism. Instead, we can only establish its appropriateness by its successive application to relevant doctrines. The more natural this application is, the more appropriate the formalism is.

To our best knowledge, there has not been sufficient work focusing on contract interpretation. Exceptions are the formalism of Yoshino (1995, 1998) using meta-level rules in first-order logic to deduce contractual obligations, and the rule-based system of Gardner (1987) supporting decision makers, both in the offer-and-acceptance area of contract. In general, these formalisms do not model possible outcomes of contract dispute resolution since they are silent on important aspects, for example, how contexts are structured or how to represent risk attitudes of contract parties. We do not know any existing work capable of capturing any of the above legal doctrines.

Much work has been done to study formal argumentation for many aspects of law (Gordon 1994; Prakken and Sartor 1996; Bench-Capon and Sartor 2003; García and Simari 2004; Atkinson and Bench-Capon 2005; Bench Capon, Atkinson, and Chorley 2005; Prakken 2006; Gordon, Prakken and Walton 2007; Gaertner and Toni 2008; Dung and Thang 2009; Rahwan and Simari 2009). A special focus has been on reasoning with cases, whose main task is to construct a legal theory from past cases that produces the desired legal outcome and to persuade the judge on its validity (McCarty 1995; Bench-Capon and Sartor 2003). Berman and Hafner (1993) argued that disputants build arguments for or against such a legal theory from factors of the case but justify them by appealing to the value their acceptance would advance. Prakken (2002) illustrated a method for expressing such values in the system of Prakken and Sartor (1998). Sartor (2002) modelled reasoning with cases as dialectical theory construction via a set of operators directed by teleology. Abstract argumentation (Dung 1995) has been extended for case-based reasoning in Bench-Capon and Sartor (2003), Atkinson and Bench-Capon (2005), Bench-Capon et al. (2005), and Bench-Capon and Modgil (2009). There, a judge, seen as a theory constructor, decides on competitive theories, taking into account the preference over the social values they advance. Attention has been made to analyse how a judge considers a case factor as relevant (Roth and Verheij 2004) via argumentation. Systems capable of reasoning with cases include among others TAXMAN (McCarty 1995), HYPO (Ashley 1991; Bruninghaus 2003) and CABERET (Rissland and Skalak 1991). If one views contract dispute resolution as an instance of reasoning with cases, legal doctrines can be considered as guidelines and principles to make the interpretation of contracts less dependent on a judge's own preference and personality. Since legal doctrines have often been thoroughly examined, the social values they bring about are convincing and accountable. For instance, as repeatedly described in many legal sources (e.g. Freitel 2004; Lewison 2004), the doctrines for performance relief help in restoring the business efficacy of contracts. Thus, to articulate the values desired by the society, a judge is expected to argue ‘deductively’ with existing doctrines, but can argue ‘inductively’ with precedents to make new doctrines. Modelling a judge doing the latter task is beyond the scope of this paper.

Although abstract argumentation provides a natural platform for understanding many legal procedures, it does not provide a programming environment in which the arguments for such procedures could be constructed automatically. To address this issue, an instance of abstract argumentation called assumption-based argumentation (ABA), where the arguments are deductive proofs based on assumptions (Dung, Kowalski, and Toni 2006) could be used. Modular argumentation (Dung and Thang 2008, 2009) extends ABA to allow different modules of argumentation to be built separately and assembled together by different semantics. Thus one can mingle module references to achieve the effect of (possibly nested) modal operators of modal logics. However, in comparison with modal logics, modular argumentation has advantages, among others, of being directly executable and being easy to understand. For example, to represent professional knowledge that a party should have known, but may not have known at the time of contract making, modal logics would require a number of different modal operators with a doubtful necessity, making the semantics of the system difficult to understand. The presented formalism uses modular argumentation both as a programming and reasoning environment.

The contexts of contract consisting of different knowledge bases about beliefs and expertise of contract parties as well as about common social, legal domains at the time of contract making or performance need to be built. This is done during legal proceedings by exchanges of arguments between the parties and the judge. The acceptance of the exchanged arguments are based on permissible evidences, permissible common domain knowledge and social norms. While there is a significant body of research on protocols for such exchanges (Dung 1993; Gordon 1994; Prakken and Sartor 1996; Bench-Capon et al. 2005; Prakken 2006; Gordon et al. 2007), evidential reasoning in AI is less well studied (Bench-Capon and Prakken 2008). Poole (2001) has illustrated how a scenario-based approach can be modelled as adductive reasoning in his Theorist system. Bex et al. (2003) argues for the relevance of argumentation schemes, and the combination of argumentation schemes with scenario-based approach in (Bex et al. 2007). Argumentation schemes can be seen as semi-formal defeasible rules (Verheij 2003). An argumentation scheme is associated with a number of critical questions identifying attacks against arguments based on it. For example, an argumentation scheme for evidential reasoning ‘If a witness says that P then P’ has a critical question ‘is the witness sincere?’. Argumentation schemes are rooted in informal argumentation ((Walton 1996). Argumentation schemes can be represented in a nomonotonic logic like in (Verheij 2003), or ABA like in ((Dung et al. 2009), or abstract argumentation framework like in (Atkinson and Bench-Capon 2008).

The paper is structured as follows. In Section 2, modular argumentation and contract representation are recalled. We model the legal doctrines of impossibility and frustration of purpose in Section 3. Section 4 applies modular argumentation to represent these legal doctrines. We conclude in Section 5.

2.Backgrounds

3.An argument-based formalism for contract dispute resolution

Contracts are often specified only partially. A contract dispute arises when contract parties have conflicting views about the meaning of their contract, or its effect on their legal rights and obligations. The resolution of a contract dispute is governed by how the contract should be interpreted, thus in an abstract sense could be viewed as argumentation about contract interpretation whereby contract parties present arguments for or against a particular interpretation they wish to advance or reject, respectively.

A cornerstone principle for the court to resolve a contract dispute is to enforce a contract interpretation, called the hypothetical or complete intended contract, that reasonably represents the mutual intention of contract parties at the time they signed the contract. The court assumes that both parties are rational in order to equate their mutual intention with the intention of rational persons in the position with all their background (or contextual) knowledge.22 Because an actual contract is often viewed as representing the clearest mutual intention of contract parties, a hypothetical contract does not rewrite explicit contractual terms, instead adds implied terms representing the shared, but unexpressed intention of contract parties. To ascertain this kind of mutual intention objectively, the court generally applies well-established legal principles, guidelines and rules. Thus a dispute resolution can be modelled by a two-level modular argumentation process: at the object level, factors of the case are established from argumentation modules representing the contract context, while at the meta-level, argumentation modules representing legal principles and rules combine these factors to complete the actual contract with implied terms.

We establish the appropriateness of the above formalism by applying it to common law as that is the kind of law most studied in the literature. Common law has a case-by-case basis. As the vast and increasing number of cases lead to many conflicting decisions and an increased uncertainty in the law, Restatements (First and Second) of Contracts have been proposed to ‘restate’ clearly and precisely the principles and rules of common law (Steven and Melvin 2007) to make the interpretation of cases much easier and less arbitrary. Legal doctrines could be viewed as a widely accepted interpretation of the principles, guidelines and rules for dispute resolution. They present the way common law generally proceeds by distilling from a particular case the legal principle on which it is decided, and that legal principle is then generally applied to similar dispute contexts (Samuel 2000). In the remainder of this section, we will capture several legal doctrines in Restatement Second within the above formalism.

The doctrine that a failure to perform a considered promise constitutes a breach of contract insists on the literal performance of contracts in spite of the fact that events happening after contract signing make the contract onerous for one party. This doctrine is based on a legal principle that one of the main purposes of the contract as a legal and commercial institution is to allocate the risks of such events (Freitel 2004). However, this principle is not absolute in that contract parties could have a mutual, but unexpressed intention that a basic assumption for the formation of the contract is the non-occurrence of such events; so the occurrence of such events puts an end to the contract. Doctrines for performance relief allow the court to ascertain this unexpressed intention, and thus can be seen as providing a class of exceptions to the above doctrine of contract breach. The Restatement Second states:

4.Modelling legal doctrines by modular argumentation

5.Conclusions and future work

In this paper, we presented an argument-based formalism of contract dispute resolution following a modern view that the court would resolve a contract dispute by enforcing an interpretation of contract that reasonably represents the mutual intention of contract parties. We established the appropriateness of the formalism by applying it to resolve disputes over performance relief with the doctrines of impossibility and frustration of purpose. The formalism is represented by modular argumentation frameworks (Dung and Thang 2008, 2009), a reasoning and programming environment for dispute resolution based on ABA. Our experimented system called MOdular Argumentation for DIspute ReSOlution (MoDiSo) consists of two doctrines modelled in this paper and the doctrine of mutual mistake modelled in our related paper (Dung and Thang 2008, 2009).

In practice, the construction of context is done during legal proceedings by exchanges of arguments between the parties and the judge. The acceptance of the exchanged arguments are based on permissible evidences, permissible common domain knowledge and social norms. Protocols for such exchanges could be inspired by a huge body of research on this topic in the literature (Dung 1993; Gordon 1994; Prakken and Sartor 1996; Bench-Capon et al. 2005; Prakken 2006; Goron et al. 2007). We believe that for practical system of dispute resolution, procedures for contract dispute resolution along these lines play an essential role.