Econlib

The Library

Other Sites

 Front Page arrow Titles (by Subject) arrow Spontaneous Order & Oil Contracts - Literature of Liberty, Summer 1982, vol. 5, No. 2

Return to Title Page for Literature of Liberty, Summer 1982, vol. 5, No. 2

Search this Title:

Also in the Library:

Subject Area: Political Theory

Spontaneous Order & Oil Contracts - Leonard P. Liggio, Literature of Liberty, Summer 1982, vol. 5, No. 2 [1982]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Spontaneous Order & Oil Contracts

Leon E. Trakman

  • Professor of Law, Dalhousie University, Halifax, Canada

“Nonperformance in Oil Contracts.” Oil & Gas Tax Quarterly 29 (June 1981): 716–750.

International crude oil contracts of sale are a self-regulating device by which businessmen spontaneously order their own market needs without the need of bureaucratic legal regulation. In fact, laws of nonperformance acquire their foundation from business usages which have freely evolved.

Trakman studies the methods used by inside legal counsel employed by multinational oil companies to regulate the purchase and sale of crude oil across national boundaries. The study is based on interview and questionnaire studies and seeks to assess the interrrelationship between commercial and legal methods of dealing with nonperformance of multinational crude oil sales. First, Prof. Trakman analyzes written contracts for the sale of crude oil to establish how these affect nonperformance obligations in multinational oil sales. Next, he evaluates how related performance difficulties are resolved through intercorporate settlements between multinational crude oil sellers and their international oil buyers. Finally, he considers the utility of adjudication and arbitration as alternative means of resolving disputes over performance.

The investigation suggests that multinational oil companies usually use their own internalized methods of regulating nonperformance through their own contracts and agreements of sale. In particular, their own inside legal counsel has devised sophisticated instruments to govern business duties. They have incorporated both business and legal controls over performance into such agreements of sale, and they have interpreted these agreements in a predetermined economic-legal context of their own choosing. Thus, nonperformance clauses have been developed in the light of both legal and trade environments, not through the premature recourse to external adjudicative processes. So long as multinational oil companies have been able to regulate such obligations by their own means, rules of law have subsisted as nonmandatory instruments of control in the oil industry.

The author concludes that nonperformance risks are usually dealt with very adequately by the oil parties themselves and should therefore be left principally within their domain as a matter of business and legal sense. Where a legal tribunal is charged with jurisdiction to regulate disputes over performance, that body should establish the most economic and fair allocation of nonperformance risks in the light of commercial realities, not legal suppositions.