The Hobbit Contract, Part 5

After the first four parts of our ongoing series about the contract in The Hobbit movie we’re finally entering the home stretch.  Today we’ll take a look at a group of clauses dealing with disputes arising under the contract.  This is an important part of many contracts.  If you’re going to the trouble of creating a formal legal agreement, then you might as well contemplate what might happen if the deal goes bad.

I. Mandatory Binding Arbitration

Somewhat anachronistically, the contract contains an arbitration clause:

Disputes arising between the Contract Parties shall be heard and judged by an arbitrator of the Company’s choosing

I say “somewhat anachronistically” because although arbitration has a long history in the common law—going back at least as far as 1609—it was for centuries frowned upon by the courts.  One early case, Vynior’s Case, held that mandatory arbitration clauses (i.e. requiring a party to a contract to submit to arbitration) were revocable.  In other words, parties could submit to arbitration but only by ongoing, mutual agreement.  It was not until the 1800s that mandatory arbitration really became acceptable in either England or the US.  See, e.g., Burchell v. Marsh, 58 U.S. 344 (1854).

The other issue is that the clause allows the Company to choose the arbitrator.  This is highly unusual and may actually invalidate the arbitration clause.  In order  to comport with due process, a mandatory arbitration agreement must, among other things, provide a neutral, impartial decision maker.  Typically this is done by allowing the parties to jointly select an arbitrator or to have an impartial third party (such as an arbitration agency) select one.

II. Choice of Language

The next part of the arbitration paragraph is a rarity for an American lawyer:

… and all pleas shall be pleaded, shrewed [sic], defended, answered, debated and judged in the Dwarvish Tongue

Obviously this is a significant disadvantage for Bilbo, as he evidently cannot read (and presumably cannot speak) Dwarvish.  Choice of language clauses like this one are much more common in international contracts than in contracts between parties in the United States.  They are also much more common in contracts that contain arbitration agreements rather than forum selection clauses (e.g. “any disputes arising under this contract will be heard in the courts of Capital City, State X”) because in most many countries the courts only deal in one official language, making a choice of language clause redundant.  But when the case will go to arbitration, the chosen arbitrator could potentially speak multiple languages.

However, the most common reason for a choice of language clause is when the contract itself is translated into multiple languages for the benefit of the parties.  In that case it is common for the contract to specify that one version is the “authoritative” version

III. The (Non-Existent) Choice of Law Clause

The one thing that leaps out at me about this contract is that it doesn’t contain a choice of law clause.  Such a clause allows the parties to specify what jurisdiction’s law will govern the contract.  This is particularly useful when multiple jurisdictions may potentially apply.  The area of the law that deals with figuring out which court has jurisdiction and which law applies is known as conflict of laws.  Conflict of laws is a complex subject.  Typically it is a stand-alone course in law school.  So we won’t go into too much detail here, but suffice to say that arguably both the law of the Shire and the law of the Dwarven Kingdom could conceivably apply to this contract.  Some of the factors that a court might consider include:

  • The parties are a Hobbit of the Shire and a group of Dwarves.
  • The contract was signed in the Shire.
  • The contract concerns services to be performed in the Dwarven Kingdom.
  • The most likely source of the breach of the contract occurs in the Dwarven Kingdom.

Since the applicable law is debatable, this is precisely the kind of case in which a choice of law clause makes sense, so its absence is notable.

IV. Attorneys’ Fees

Finally, the contract includes a clause regarding attorneys’ fees*:

In the event of a dispute arising in relation to the terms of this agreement, the non-prevailing party shall reimburse the prevailing party for all reasonable fees and costs resulting therefrom.

This clause is notable because it tells us something about the (actual, non-fictional) writer of the contract.  They were very likely either been an American or at least were copying from an American contract.  In essentially every other Western country, the default rule is that the losing side pays (or at least contributes to) the winning side’s costs.  This is commonly called the English Rule, in contrast to the American Rule in which each side bears its own costs by default.  There’s nothing unusual about a clause like this in an American contract; in fact, they are pretty common.  But I think it would be unusual elsewhere.

* The precise spelling of “attorneys’ fees” is a matter of some dispute.  See Communities for Equity v. Michigan High School Athletic Assoc., 2008 WL 906031, n.1 (W.D. Mich. 2008).

We’ve probably only got one or two more posts about the contract to go.  If any of our readers have questions about the contract (maybe you bought a copy or read about it elsewhere) please let us know before we wrap up the series and we’ll try to include it.

28 Responses to The Hobbit Contract, Part 5

  1. Having all pleas, etc. in the Dwarvish language is even more advantageous to the Dwarves than it seems: in Tolkien’s Middle Earth, Dwarven is a secret language, so it is impossible for non-Dwarves to be fluent enough to enter their own pleas.

    • Biblo’s solution to this is simple – get a Dwarf lawyer or translator to help him!

      • Which brings still more money into the Dwarven realms — an ideal situation! (For the Dwarves, that is.)

      • Elrond seems rather familiar with Dwarvish. The Company consults with him regarding the instructions associated with the map.

        A question for the next segment… how does the “four corners” rule (with or without the integration clause) interact with the possibility that some of the contract can only be read by moonlight of the appropriate phase?

    • Are we sure that the runes actually *do* write out Dwarvish words, though? It’s quite possible that they were a phonetic representation of Westron or Sindarin (the most commonly-used “public” tongues) using the Dwarvish rune-letters, since Dwarves almost never inscribed their language where strangers could find it.

      • “Dwarves almost never inscribed their language where strangers could find it.”
        You mean they might hide the Dwarvish with moon letters, and entrust the document itself only to the line of Thror? Both Gandalf and Thorin ask Elrond to read it without asking if it was in Dwarvish or not, so they must have assumed he could read it, whichever language it was in.

      • Actually, both the regular and moon-letter inscriptions shown in the book use Cirth runes in semi-phonetic English (with a spelling mistake).

      • @James Pollock

        Tolkien seems to have gone so far as to assert that Dwarves don’t even write Dwarvish on their own tombs. So the language is probably too secret for the map, which, after all, exists so that people that don’t know about the secret entrance can be made aware of it.

  2. As I recall (from an article whch is sadly no longer online), Daniel Reeve (who also drew the maps used in The Hobbit and LotR) was told to write out the contract, then to make it longer including these bits from the script, and then to make it longer again. That would be the RL explanation…
    Also, I have no recollection of there being a court system explicitly referenced in the books, and while there are localised systems of government, it may well be that arbitration is the main method for resolution of civil disputes in some areas of Middle Earth. Punishment for crimes seems to be a role of the executive after the end of the First Age, much like it was prior to the formal development of the courts in England.

    • Actually, the “court” system of Middle-Earth appears to be a bit more primitive, using the old system of “the King (or local lord) decides disputes largely according to whim and practical policy”. i.e., the notion of an independent judiciary doesn’t seem to have arrived in Middle-Earth. See, for instance, the banishments handed out by Theoden while Grima has him enspelled.
      Under such a system, an arbitrator would be a significant improvement when one is attempting to prevail against the king. However, the king is holding on to his authority by retaining the right right to select the arbitrator. Bilbo might succeed in getting this clause thrown out, but it’s hardly an improvement if, instead of presenting his case to the possibly-biased arbitrator, he has to present it to the king directly. A dispute between sovereigns is solved by mustering the armies.

  3. As John says above, Dwarvish is a secret language; I think of all non-Dwarves that only Eol the Dark Elf is mentioned as having learned it. I wouldn’t be surprised if (in-universe) this was put in the contract quite intentionally.

    Also, considering that this contract is between two different kingdoms, involving one head of state (Thorin King Under the Mountain) as party, and the courts of the other country (Arnor) being completely nonexistent unless you count the Assizes of the Shire (I’m not sure of their exact royal warrant, but I don’t think Thorin would trust them)… I think it’s quite magnanimous of Thorin to appoint an arbiter instead of insisting on judging the case personally in his own royal courts. ;)

    • “As John says above, Dwarvish is a secret language; I think of all non-Dwarves that only Eol the Dark Elf is mentioned as having learned it. ”

      “Elrond knew all about runes of all kinds.” (pg 61) (He proceeds to read the moon letters on Thror’s map.)

      • Elrond knew the dwarf runes, but not the dwarf language, much like the way people can know the Greek alphabet without being able to read a word of Greek, pretty common in the sciences.

      • James Pollock

        “‘What do they say?’ asked Gandalf and Thorin together” … “‘Stand by the grey stone when the thrush knocks.’ read Elrond, ‘and the setting sun with the last light of Durin’s Day will shine upon the key-hole'” (pg 62)

        Sounds like Elrond can read it just fine (he earlier read the description of the escape tunnel which was not written in moon letters, as well) (pg 62)

        He also discovered the moon letters on the map, which neither Gandalf nor Thorin did (though Thorin gets a pass, as he hasn’t had it long enough to have had the right moon; Gandalf gets no such pass, because he’s had the map for years.)

      • Dwarves normally write in the local human language, but using runes. Elrond would be able to read anything so written, even if he didn’t know dwarvish.

        A related legal point, the dwarves keep their own names strictly secret, not even inscribing them on their tombstones. Thus, all of the names they signed with were actually aliases. Would this have any effect on the validity of the contract?

      • A secret message intended solely for a dwarven audience, to guide the heir of Thror to the secret escape tunnel… and they’d write that in a foreign language? Seems to me, if you’re going to go to all the trouble of hiding the message with moon letters, you’d get more security out of writing it in the Dwarven language, too.

  4. For the Dwarves, the possibility of a choice of jurisdiction would probably never come up — I’m pretty sure that as far as they’re concerned, the Shire doesn’t have a government worthy of the name. Both the Thain and the Mayor of Michel Delving hold mostly ceremonial titles, and the Shire’s villages (to say nothing of its prominent families!) appear to be autonomous from any central authority. The only Shire-wide government service of any sort during peacetime would be the post office.

    • Not so. When Bilbo returns from his journey, he has several years of legal wrangling to regain his own possessions because he was somewhat arbitrarily considered dead.
      Seeing as how Bilbo had a magic ring of invisibility AND a newfound talent for asset repossession, he could have easily re-acquired his own possessions rather easily and directly, if there WASN’T some kind of force inhibiting him from doing so.

      • It seems more likely he didn’t want to get into long, extralegal disputes with his neighbors though the presence of courts does seem confirmed by this.

      • From the wiki entry on the Shire, which lines up with my memory of The Hobbit and The Lord of the Rings (especially its prologue, where most of this matter is treated):

        “The Hobbits of the Shire generally obeyed the Rules, that is, the ancient laws of the North Kingdom, and there was no real need to enforce them; all Hobbits voluntarily obeyed them as they were both ancient and just. Hobbits had lawyers, but these dealt mostly with wills and such matters; there is no record of a formal court system, still less of criminal prosecutions or punishments.”

      • It’s worth noting that Tolkien implies that there has not been a murder of one of the little folk since Déagol. Hobbits are extremely law-abiding.

  5. We must also remember the social standpoint. Assuming that Shire is a more-or-less early-medieval Germanic society, there are two ways to enforce your rights:
    * Taking the custodianship of the property back by open use of force. (Stealing would be dishonourable.) This is clearly frowned upon by the Hobbit society.
    * Starting a lawsuit. This is much more fun for everyone.

    In medieval and early modern societies, having lawsuits was not only deadly serious, it was also a form of entertainment. For everyone who is not party to the suit, it is very entertaining to gather to the ting and watch the proceedings. For the parties themselves, the suit, especially if the disagreement is minor, is a diversion from daily chores, and the costs are quite small.

    • “Taking the custodianship of the property back by open use of force. (Stealing would be dishonourable.)”

      Taking possession of your own goods is by definition not stealing.

      There are rules about repossession (including forbidding disturbance of the peace and a prohibition on breaking to make repossession) which exist largely to prevent outbreaks of violence from erupting over disputes around possession. Given a ring of invisibility and a newfound level of stealth, it’s likely Bilbo could repossess his goods quite easily without breaking any of the modern rules (I don’t know how different the common-law rules are from the modern statutory rules.)

      • Katrina Sotomayor

        Bilbo seemed to understand the need to keep his ring secret. Therefore, using it to take his possessions back seems to not be a good idea, especially if the person would visit him and possibly see the repossessed item. It opens more questions. Seeing as he had the two chests of treasure, it was probably just easiest to buy his stuff back and keep the ring a secret.

  6. “Bilbo seemed to understand the need to keep his ring secret.”
    You mean, after he lets the Dwarves, the Men, AND the Elves know about it? (Plus Frodo knows about it, and Gandalf). It’s Gandalf who urges Bilbo (and later Frodo, of course) to keep it hidden… 60 years later.

    • Katrina Sotomayor

      BUt he didn’t tell the rest of the hobbits, did he? He uses it to hide from the Sackville-Baggins, but not to do things that would raise questions, at least not until the start of the next books. Besides buying back his own stuff was actually probably the easiest way. The furniture would have looked a little weird floating back to Bag End.

  7. Stephen Rynerson

    With regard to choice of law, I’m very puzzled by the lack of reference to lex loci contractus. That was certainly the general rule for contract cases in common law jurisdictions prior to the mid-20th Century. Here, Thorin seeks out Bilbo in the Shire and the contract is entered into in the Shire. Setting aside the question of what the partisan arbitrator might do, Shire law should apply. (I would agree that this would be a substantially more difficult question under the modern principles of Section 188 of the Restatement (Second) of Conflict of Laws, since the vast majority of the contracted work would be performed outside of the Shire and most possible breaches that were within the contemplation of the parties at the time of contracting would have also been anticipated to occur outside of the Shire.)

    • To be fair, I did note that “Some of the factors that a court might consider include: … The contract was signed in the Shire.” But I’ll admit I did not know that the earlier common law rule was such a bright-line rule. In that case the lack of a choice of law clause really leaps out. Thank you for pointing it out.

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