Occasionally, Contract Law principles infiltrate into constitutional discourse. Two recent Supreme Court decisions illustrate the point, one from Ireland, the other from the US. Each relates to an issue of major political controversy and constitutional contention; and, in each, contractual reasoning is at the heart of a significant aspect of the judgments.

In the Irish case of Pringle v Government of Ireland [2012] IESC 47 (19 October 2012) (noted here), the Supreme Court upheld the High Court’s decision to refer to the Court of Justice of the European Union various questions of EU law relating to the Treaty establishing the European Stability Mechanism (the ESM Treaty). In considering whether the ESM Treaty abrogated Irish sovereignty (in Articles 5, 6 and 28 of the Constitution) sufficiently to require an amendment to Article 29 of the Constitution to permit its ratification, Clarke J picked up on Hederman J’s dictum in Crotty v An Taoiseach [1987] IR 713, [1987] IESC 4 (9 April 1987):

The State’s organs cannot contract to exercise in a particular procedure their policy-making roles or in any way to fetter powers bestowed unfettered by the Constitution.

As a consequence, he analysed the sovereignty issue in contractual language:

8.3 … in international relations, as in very many other areas of public and private life, freedom to act will often, as a matter of practicality, involve freedom to make commitments which will, to a greater or lesser extent, limit ones freedom of action in the future. Persons are free to enter into lawful contracts. However by so doing the person concerned may restrict their ability to enter into other contracts in the future. It is inherent in certain types of decision that the decision in question will have a reach into the future to a greater or lesser extent. It seems to me to follow that the mere fact that decisions taken now can have such a reach cannot mean, on any proper analysis, that the relevant decision is necessarily taken to amount to an impermissible restriction on freedom to act in the future. If it were to be otherwise, parties, both in the private, public and international spheres would, in truth, be deprived of a significant freedom of action.

8.4 That is not to say that certain decisions may not be so far reaching and so diminishing of the freedom to act in the future that they can be said to amount to a denial of the very freedom exercised in making the decision in the first place. A person might commit to a contract of employment for (say) five years. In so doing it seems to me that such a person is exercising freedom of contract. To say that such a person has lost the freedom to deal with their services in whatever way they wished (within the law) would, in my view, be a mischaracterisation. Any contract of employment will, to some extent, restrict the right of the employee for some period into the future.

8.5 On the other hand a contract which amounted to little more than indentured servitude or slavery might well legitimately be characterised as one which, although agreed to, would nonetheless entirely negate the very freedom to contract for one’s services exercised in making the contract in the first place.

8.6 Without pushing the analogy too far, it seems to me that there are parallels in the international sphere. …

8.7 However there may be circumstances where the commitment entered into does, in truth, amount not to an exercise in sovereignty which has, as a necessary consequence, a narrowing of the freedom to act in the future but rather amounts to such a significant narrowing of future policy options so that it can be properly be said that there has been a transfer or pooling of sovereignty. This will be particularly so where those future policies by which the contracting parties are bound are as yet undecided and are to be determined in the future by others or by collective bodies.

8.8 The real question on the issue of loss of sovereignty seems to me to turn on the nature of the commitments entered into and the extent to which those commitments can truly be said to involve an abdication of the powers conferred by the Constitution, an alienation to others of such powers or the subordination of those powers to the interests of others.

Against that background, Clarke J characterised accession to the ESM Treaty as an exercise in sovereignty rather than an abdication or transference of sovereignty. In Germany, the reasoning of the Bundesverfassungsgericht on a comparable contemporary constitutional challenge is strikingly similar in its analysis of the democratic exercise of sovereignty, but it forgoes the contractual analogy. In other words, Clarke J in Pringle held that the ratification of the ESM Treaty was in the nature of a valid contract, rather than a coerced one.

(Update (27 and 28 November 2012): In Case C-370/12 Pringle v Ireland [2012] ECR-I nyr, [2012] EUECJ C-370/12 (27 November 2012), in answer to the questions sent by the Irish courts, the CJEU held that the ESM Treaty was compatible with EU law. There is an excellent assessment of the decision by Dr Roderic O’Gorman (DCU) on the Human Rights in Ireland blog).

In the US case of National Federation of Independent Business v Sebelius 567 US ___ (2012) (the US Supreme Court’s ‘Obamacare’ decision), the decision on the Medicad expansion of the Patient Protection and Affordable Care Act was all about contracts after all! The validity of that part of the Act which provided that the States had to extend their Medicaid programs or lose all their Medicaid funding turned on the Taxing and Spending Clause (Article I, Section 8, Clause 1) to the US Constitution, which Roberts CJ characterised as “much in the nature of a contract”:

… the legitimacy of Congress’s exercise of the spending power “rests on whether the State voluntarily and knowingly accepts the terms of the ‘contract'” …

That insight has led this Court to … scrutinize Spending Clause legislation to ensure that Congress is not using financial inducements to exert a “power akin to undue influence.” Steward Machine Co v Davis 301 US 548, 590 (1937). Congress may use its spending power to create incentives for States to act in accordance with federal policies. But when “pressure turns into compulsion,” ibid., the legislation runs contrary to our system of federalism. …

Permitting the Federal Government to force the States to implement a federal program would threaten the political accountability key to our federal system. … when the State has no choice, the Federal Government can achieve its objectives without accountability. … in Steward Machine … [we] acknowledged the danger that the Federal Government might employ its taxing power to exert a “power akin to undue influence” upon the States … In rejecting the argument that the federal law was a “weapon[ ] of coercion, destroying or impairing the autonomy of the states,” the Court noted that there was no reason to suppose that the State in that case acted other than through “her unfettered will.”

… [In this case, where the Medicaid] conditions take the form of threats to terminate other significant independent grants, the conditions are properly viewed as a means of pressuring the States to accept policy changes. … the financial “inducement” Congress has chosen is much more than “relatively mild encouragement” — it is a gun to the head. … The threatened loss of over 10 percent of a State’s overall budget, in contrast, is economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion.

Scalia J also adopted a similar contractual analysis in striking down this aspect of the Act:

When federal legislation gives the States a real choice whether to accept or decline a federal aid package, the federal-state relationship is in the nature of a contractual relationship. … And just as a contract is voidable if coerced, “[t]he legitimacy of Congress’ power to legislate under the spending power … rests on whether the State voluntarily and knowingly accepts the terms of the ‘contract.’ ” … If a federal spending program coerces participation the States have not “exercise[d] their choice”—let alone made an “informed choice.” … Congress effectively engages in this impermissible compulsion when state participation in a federal spending program is coerced, so that the States’ choice whether to enact or administer a federal regulatory program is rendered illusory.

In other words, Roberts CJ and Scalia J analysed a sovereignty issue in contractual language, and held that the Medicaid expansion was in the nature of a coerced contract, rather than a valid one.

For all that this contractual analysis may or may not be uncomfortable or even downright bad in a constitutional context (see, generally, James F Blumstein “Enforcing Limits on the Affordable Care Act’s Mandated Medicaid Expansion: The Coercion Principle and the Clear Notice Rule” (2011-2012) Cato Supreme Court Review 67 (pdf)), it is striking that in two of this year’s leading constitutional cases, the Courts adopted such a contractual approach.