Contract-law-problem-question-summary-2016.pdf

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Contract law problem question summary 2016 Contract Law (University of Oxford)

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A Brief Overview

1. CREATION OF A CONTRACT o 4 elements  Ofer and acceptance  Intenion to create legal relaions (ICLR)  Consideraion o Problems with creaion of contract  Is there a LACK OF CERTAINTY?  PRIVITY: Are the players atemping to give RIGHTS TO THIRD PARTIES? 2. TERMS OF THE CONTRACT o EXPRESS TERMS  IDENTIFYING TERMS OF THE CONTRACT  TERMS TO INCLUDE AS PART OF CONTRACT: o Are the things said or done TERMS or MERE REPRESENTATIONS? o Successfully INCORPORATED into the contract?  TERMS TO REMOVE FROM THE CONTRACT: o UCTA 1977 o CRA 2015 o Common law  INTERPRETATION of the term o IMPLIED TERMS  Implied in fact  Implied at law 3. VITIATING FACTORS o Mistake o Misrepresentaion o Duress o Undue inluence o Unconscionability o Frustraion and Force Majeure

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OUTLINE for formation 

OFFERS Has an ofer been made?  Adverisements  Displays for goods for sale in a shop  Tenders  Aucions o Terminaion of ofer ACCEPTANCE – contenious areas o Postal rule o Electronic communicaion o Acceptance by silence o Batle of the forms CONSIDERATION o Past consideraion not good consideraion o Consideraion moves from promisor (privity problem) o Legally suicient consideraion  Performance of an exising duty  Statutory duty  Contractual duty to a third party  VARIATIONS: Increasing vs decreasing pacts o Doctrine of P.E.  When does it apply?  Exising debts?  How does it operate?  3 elements in High Trees  What are its EFFECTS?  Suspensory or exincive? INTENTION TO CREATE LEGAL RELATIONS o Domesic/social context o Commercial context o ‘in-between’ contexts o

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Ofer and Acceptance Ofers Deiniion: An ofer is an expression of willingness to contract on speciied terms, made with the intenion that it is to become binding as soon as it is accepted by the person to whom it is addressed (Treitel) General OBJECTIVE TEST: Does a person in the posiion of B (having the knowledge of the relevant circumstances which B had), acing reasonably, would understand that A was making a proposal to which he intended to be bound in the event of an unequivocal acceptance: Crest Nicholson v. Akaria [2010]  Evidence of the objecive nature of the test – Maple Leaf Macro Volaility Master Fund v Rouvroy [2009] CA - in this case, the fact that BOTH paries subjecively did not intend the creaion of a contract was not material  Objecive principle:

o

Gives efect to REASONABLE interpretaion of the language and not fanciful or unrealisic interpretaions - eg Thake v Maurice [1986] HC (It was lunacy for claimant to rely on doctor’s assurance that the vasectomy was “irreversible” to be read as “irreversible by God or man”. That it was reasonable to know that “medicine is not an exact science” and that the doctor’s reassurance was “mere therapeuic comfort”)

o

It must be possible to work out what the apparent intent of A was - Rales v Wichelhaus (1864), the paries agreed a sale of bales of coton, to be delivered from Bombay on the Peerless, two Peerless, ambiguous, no contract

o

It must not be B’s fault that A appeared to agree to something that he did not actually intend to - Scriven Brothers [1913] HC (aucion, misleading display of bale and hay, no contract)

Difereniaing between Ofers and Invitaions to Treat (ITT) (ie has an ofer been made) 1. Goods on display and adverisements GENERAL RULE: The display of goods for sale (Fisher v Bell [1961] – CA, sale of a lick knife policeman contented this contravened some Act, where goods display with a price label, such a display is treated as an ITT. Ofer is made by customer when presents item at the ill. Acceptance occurs when

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cashier takes payment) and adverisements (Partridge v Critenden [1968] HC, where adverisement of bird in newspaper WITH PRICE, therefore doesn’t breach protecion of wildlife act) consitute ITT

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EXCEPTION: Rule can be displaced if, applying the objecive test above, there is an intenion to be bound by the terms: o

E.g. Adverisements: Carlill v Carbolic Smoke Ball where the intenion was evinced by the fact that the advert said that 1000 pounds had been deposited with the bank, indicaing the seriousness of their willingness to pay the money

o

Chity (2012) notes that courts are less willing to hold that it was an ofer in bilateral contracts, since this sort of adverisement is intended to lead to further bargaining

2. Tenders NOTE about deiniion -> SEALED BIDS vs Aucions – the former is a tender since it generally allows only ONE bid to be made (so sealed bids = tenders)

GENERAL rule: consitutes only ITT: Spencer v Harding [1870]  EXCEPTION: Displaced if appears objecively that maker of the statement intended to make an ofer o



E.g. Sealed bid context: a legal obligaion to award the contract to the bidder with the highest bid

COMPLICATION #1: In LIMITED CIRCUMSTANCES, a collateral ofer to consider bids properly submited might be created: Blackpool Aero Club v Blackpool B. C (tenderer successfully sued aucioner for not considering bid as tender submited tender by hand 1 hour before the deadline and the council’s janitor failed to clear the leter box the next day. That tender was struck out) o

Obligaions upon the invitor that were minimum standards of fair dealing: 1. The invitor must ‘consider’ each valid tender 2. The invitor must ignore invalid tenders eg Fairclough Building v Port Talbot BC (1992) CA held that invitor had not acted wrongly when refusing to consider a tender because a member of the tender commitee was married to a director of the relevant tendering company 3. The invitor must not award the contract ahead of the deadline for submission of tenders

o

NOTE reasons given for creaion of the collateral ofer:

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

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Tender addressed to a small number of interested paries

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Procedure was “clear, orderly and familiar”

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Outcome consistent with the “assumpions of commercial paries”

COMPLICATION #2: A referenial bid will generally be invalid (because of pracice problem – of what if more than one party makes a referenial bid): Harvela Investments v Royal Trust Co of Canada [1986] o

o

Lord Templeman, in rejecing the atempt to make a referenial bid, gave two main reasons: 

First, the reason the other bidder had not made a referenial bid was that the invitaion to bid, on an objecive view, did not indicate that such a bid was permissible. The terms of the invitaion expressly or impliedly prohibit a referenial bid.



Second, an impasse would emerge if more than one respondent made a referenial bid (unless where there are only two bidders, the referenial bid is capped).

BUT Lord Templeman added that an aucion through referenial bids could only be conducted by (i) making express provision in the invitaion for the purpose and (ii) require each bidder to specify a maximum sum he was prepared to bid

3. Aucions 

Aucions with a reserve price: inviing bids to be made consitutes an invitaion to treat.

o



The bidders are the ones making ofers, and the ofer is accepted by the aucioneer bringing down his hammer (Briish Car Aucions v Wright [1972] (therefore aucioneers not guilty of ofering to sell the car since only ITT) and Sale of Goods Act 1979, s57(2)). The aucioneer acts as agent for a vendor, so when the hammer is brought down, a contract is made between the highest bidder and the vendor.

Aucions without a reserve price: Barry v Davies [2001] (held valid ofer and aucioneer must accept)

o

A COLLATERAL CONTRACT: 

the aucioneer makes an ofer to sell the goods to the highest bidder

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o



this ofer is accepted as soon as the highest bid is made



contractual obligaion is thus created

BUT case gives no guidance given as to when exactly the ofer was made by the aucioneer: TWO POSSIBILITIES 

made when the aucion is adverised; or



made when the aucioneer actually puts up the goods for sale at the aucion.

4. Other transacions GENERALLY, refer back to the objecive intent of both paries 

Timetables/Transportaion: TWO (or more?) possibiliies o

Timetable consitutes an ofer

o

Passenger makes the ofer by booking the journey



Unilateral ofer for reward (e.g. pls ind my dear pet Rover) – generally an ofer

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Automated machines: ofer made by sign/noice near or at the machine: Thornton v Shoe Lane Parking [1971] o

Lord Denning MR suggested that that ‘the ofer was contained in the noice at the entrance giving the charges for garaging’. It is only when the customer is ‘commited beyond recall’ by puing the money into the slot that he demonstrates an unequivocal intent to accept.

Terminaion of Ofers

1. Express terminaion by oferor 

General rule: a withdrawal must generally be communicated to the oferee before the later accepts it in order to validly withdraw the ofer

o

NOTE that communicaion of withdrawal must ACTUALLY (IN FACT) be communicated (i.e. there is no corresponding postal rule for withdrawal of ofer) to the ofere: Byrne & Co v. Van Tienhoven Co [1880] (held withdrawal of ofer by postal rule invalid)

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

o

BUT communicaion of withdrawal could be done through a 3 rd party: Dickinson v Dodds (1876) (3rd party informed oferee that ofer is revoked as it was already sold to someone else. Held to be a suicient terminaion of ofer, even though a period of acceptance had been sipulated)

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o

Lindley J’s judgment seems to suggest that withdrawal need not actually be communicated by the oferor himself

Note that the court was silent on whether the reliability of the 3rd party is a crucial element



On the facts of this case, the 3rd party was a reliable source of informaion (P’s own housing agent)

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Per Treitel: revocaion allowed if oferee knows from reliable source -> This imposes a burden on the oferee to determine if the 3 rd party source is reliable

ALSO NOTE a promise to keep an ofer open for a certain amount of ime may NOT be a contract unless there is consideraion or it is made through deed: Dickinson v Dodds (1876) 

Held to be a suicient terminaion of ofer, even though a period of acceptance had been sipulated. For a period of acceptance to be binding, oferee needs to hold a binding opion, supported by deed or consideraion

2. Express terminaion by oferee 

A rejecion of the ofer will terminate the ofer o

Note that a COUNTER-OFFER is both an ofer, and a rejecion of the iniial ofer (e.g. Hyde v Wrench)

3. Other methods of terminaion 

Ofer made outside bilateral context

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o

Revocaion of an ofer taken to be communicated when It is read in the ordinary course of business - The Brimnes [1975]) (withdrawal by telex to C’s oice DURING OFFICE HOURS suicient for withdrawal of ofer, regardless if C read it or not) 

o

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

Seem to suggest the quesion is if the oferee had DISCOVERED or had REASONABLE OPPORTUNITY TO DISCOVER that the ofer is no longer open to acceptance by him

Ofer made to public – valid withdrawal if reasonable steps are taken (American case of Shuey v US (1875) (where published proclamaion for reward for fugiive revoked by a published proclamaion held to be a revocaion, since it can be revoked by the same means it was published)

By the passage of ime

o

If the ofer is expressed to last only for a set period, it will terminate upon the expiraion of this period - Grant v Bragg [2009] (Lord Neuberger, RATIO of the decision. That because D said “not ready to transfer” was viewed as a rejecion and not an enquiry on the terms of the ofer)

o

If the duraion of the ofer is not speciied, it will terminate ater a reasonable ime has passed - Ramsgate v Monteiore [1866] (Ofer to buy shares. 6 months passed and price of shares fell. D never revoked the contract but C then wanted to buy. Held that there was no more ofer as 6 months was reasonable ime. But also possible to argue that it was because the price of shares fell) 

Buckley J in Manchester Diocesan Council for Educaion v Commercial and General Investments Ltd [1969] suggested that the beter raionale for lapse for ofer opened for only a reasonable ime was (i) oferee’s silence or inacivity impliedly indicates rejecion of the ofer and this analysis should be preferred over (ii) the ofer at its incepion is restricted to a reasonable period and that it will lapse thereater or (iii) the ofer has been impliedly withdrawn by the oferor



But Andrews suggests that (ii) should be the default posiion with (i) able to supplant (ii) if applicable

Death (?)

o

Suggested by Mellish LJ in Dickinson v Dodds that the death of either party should terminate the ofer

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

BUT Chity (2012) suggests that death should only terminate an ofer if the ofer provides for this to happen so that it would be inappropriate for a contract to be formed between paries other than the original oferor and oferee. (e.g. personal atributes are vital, for instance in a contract for a paining)

Acceptance GENERALLY, acceptance of an ofer takes place (and thus a contract is formed) if  Acceptance communicated to oferor: Entores v. Miles [1955] (Acceptance by telex in this case held to be a successful acceptance, Denning LJ disinguished between INSTANANEOUS modes of telex and telephone and those of slow communicaion like mail) o

Excepions:



Postal rule APPRORIATELY applies (see below) - eg Henthorn v Fraser [1892] CA (postal rule implied to be used based on the facts as the paries lived in diferent towns, an acceptance by post must have been within their contemplaion, although the ofer was not made by post)



Unilateral contract by oferer – Carlill v Carbolic Smoke Ball

 by oferee or his authorised agent (and not 3P): Powell v Lee [1908] (Acceptance made by unauthorised agent for headmaster job held not to be acceptance)

 in a reasonable mode of acceptance – if there is a prescripion, oferee must respond precisely in accordance with that prescripion: Manchester Diocesan v Commercial [1970]

o

But might not apply if (i) the oferor has waived the need for compliance, or (ii) the form of the acceptance is NOT mandatory and deviaion makes no pracical diference, because the way you responded is no worse than the prescribed form (as was the case in Manchester Diocesan v Commercial [1970] where it was held there was acceptance and hence a contract as it was not sipulated that only acceptance in that mode shall be binding acceptance)

 with knowledge of the ofer: Gibbons v Proctor (1891) (Policeman could claim reward though when he gave the relevant informaion he did not know about the ofer but he knew about the ofer by the ime the informaion reached the relevant party)

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o

NOTE acceptance by conduct does not need to be moivated by the ofer/reward for contract: Williams v Carwardine [1833] (Facts: dying woman gave info to increase chance of going to heaven, which also enitled her to a reward (that she knew of). Court held that there was valid acceptance)

Hence, cross-ofers indicate a bare coincidence of minds but NOT a binding contract: Tinn & Hofmann [1873]

Acceptance for unilateral contracts

Acceptance can be by performance, no need explicit communicaion to oferor - Carlill v Carbolic Smoke Ball Contenious area: can oferor revoke ofer once oferee starts performance?  Denning LJ in Errington v Errington & Woods [1952] oferor cannot retract unilateral contract the moment the oferee entered on performance of the contract (RATIO of the case) (Father’s promise to son and daughter in law that if they pay of the mortgage the house will be theirs. THIS WAS NOT EVEN A COMMERIAL TRANSACTION, but could be because the son did actually start paying the mortgage)

 Endorsed by Longmore LJ in Soulsbury v Soulsbury [2007] (CA)

 Criicism -> this might seem a bit too generous, overly favours the oferee

 Cf Luxor (Eastbourne) Ltd v Cooper [1941] - Might not be the case if risk taking is in the nature of the work. A prospecive seller could change his mind and revoke his ofer to sell even though estate agent had found a prospecive buyer. Lord Russell emphasised this inherent “risk” in the job of the estate agent and that the estate agent would have factored in this risk  However, the beter view is suggested by Gof LJ in a DICTA in Daulia v Four Millbank Nominees [1978] -> oferor not bound unil FULL PERFORMANCE of contract + qualiicaion that oferor cannot prevent the condiion from being saisied

Rules on Counter-ofers:

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o

Counter-ofer is NOT valid acceptance: Hyde v Wrench 

o

NB->!! Note efect of counter-ofer: exinguishes the previous ofer.

BUT an enquiry into the terms of the original is not a counter-ofer: 

Stevenson, Jacques v McLean (1880) where Lush J disinguished between a mere inquiry and a counter ofer (which the plainif argued for). Held that “Please wire whether you would accept forty for delivery over two months, or if not, longest limit you would give.” was a mere inquiry



Cf Grant v Bragg [2009] (Lord Neuberger, RATIO of the decision. That because D said “not ready to transfer” was viewed as a rejecion and not an enquiry on the terms of the ofer)

Contenious areas 1. Postal rule

How does the postal rule work? 

Acceptance takes place upon posing of the leter of acceptance, even if the leter is delayed or never received: Household Fire Insurance Co v Grant (1879) (which establishes the postal rule contract made by post held to be binding and C could sue acceptor D) o

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

BUT not if the leter does not reach its desinaion due to the oferee’s fault: Toulson J acknowledged that point DICTUM approving Chity on Contracts in LJ Korbeis v. Transgrain [2005] that if incorrectly addressed or improperly stamped, postal rule doesn’t apply

Revocaion by a quicker method: OBITER by Neuberger J in Kinch v Bullard [1999] is that revocaion is efecive + Lindley J in Byrne v Van Tienhoven (1880) (where he held no postal rule for revocaion, communicaion not efecive unil its communicated – suggests so) o

Speedier” cancellaion will be efecive provided it is received before the leter is delivered. The purpose of the postal rule is to protect the oferee, so it should not be used here to work to his detriment

o

Favoured by Hudson and Burrows

Posted rejecion overtaken by speedier acceptance

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o

Andrews suggests that it will be a valid acceptance – claims postal rule only for VALID ACCEPTANCE and not to REJECTIONS

When does the postal rule apply? 

Generally applies when appropriate – eg Henthorn v Fraser [1892] CA (postal rule implied to be used based on the facts as the paries lived in diferent towns, an acceptance by post must have been within their contemplaion, although the ofer was not made by post)



Oferor can EXPRESSLY or IMPLIEDLY disapply postal rule by (for example) clearly requiring actual successful communicaion: o

Expressly ruled out Holwell Securiies Ltd v Hughes [1974] (Oferor required opion to be exercised by “noice in wriing to the intending vendor” Russell LJ read “noice” to mean that oferor had expressly required himself to know of it. Held postal rule cannot apply, no acceptance and hence no contract)

o

Impliedly ruled out Lawton LJ’s DICTA in Holwell Securiies Ltd v Hughes [1974] “[the postal rule] probably does not operate if its applicaion would produce manifest inconvenience and absurdity”



Lawton LJ goes on to airm examples cited by Lord Bramwell in Briish & American Telegraph Co. v. Colson (1871) (i) absurd if stock broker holding shares should fail to sell in a falling market because owner posted the order by leter and never reached him (ii) absurd that young man who proposed by leter to gf, gf replied by leter acceping his proposal but the leter never reached him is bound to marry the girl.



Andrews suggests this implied rule would be applied if there is a deadline set for acceptance

Acceptor’s second thoughts - Can the oferee call and tell the oferor to ignore the posted leter?

o

There are three theories:

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

First theory no retracion -> Chity, is that the postal rule applies to these facts because there has been an act of posing. Revocaion allows the oferee to hedge his bets at the oferor’s expense: he can post the acceptance if the ofer appears a good one at the ime and retract it if the market turns against him before the acceptance has reached the oferor 



Second theory -> acceptor’s revocaion is efecive. We should allow the acceptor to retract by a speedier mode. Supported by dicta by Neuberger J in Kinch v Bullard [1999] that the “speedier” cancellaion will be efecive provided it is received before the leter is delivered. The purpose of the postal rule is to protect the oferee, so it should not be used here to work to his detriment. 



This is supported by South African (A to Z Bazaars (Pty) Ltd v Minister of Agriculture (1974)) and NZ (Wenckheim v Arndt (1874)) decisions

Favoured by Hudson and Burrows

Third theory Treitel -> Although retracion will normally be permited, it should be disallowed if the acceptor is abusing the postal rule. For example, someone posts a leter of acceptance at 11am and telephones at 11.05am to say ignore his leter because the market has just plummeted.

2. Other forms of Electronic Communicaion 

Contract is only formed when acceptance reaches the oferor, and contract is formed at the place where oferor receives said acceptance: Entores Ltd v Miles East Corporaion [1955] (Acceptance by telex in this case held to be a successful acceptance, Denning LJ disinguished between INSTANANEOUS modes of telex and telephone and those of slow communicaion like mail) o

Above case dealing with a telex machine

o

Acceptance of a non-postal nature (telex, fax, email etc.) operates from the moment it is received by the oferor in the oferor’s working environment provided the acceptance has been received during normal working hours, and is capable of being read (i.e. in the inbox) - Brinkibon v Stahag Stahl [1983] HL for BUSINESS CONTEXT where acceptance by telex to oferor’s oice during NORMAL WORKING HOURS was held to be suicient – can be taken by implicaion to men fax, email, etc ie WAS THE INFORMATION BE AVAILABLE TO BE READ). 

If the communicaion is received outside of normal working hours, the rule is that the acceptance occurs upon the recommencement on the next working day of the oferor’s normal working hours (can be inferred from Mondial Shipping v Astarte Shipping (“The Pamela”) [1995] (Gatehouse J)

3. Silence

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

In a bilateral contract, the GENERAL RULE is that silence will generally not consitute a valid acceptance (because mistaken inferences can be drawn from silence): Felthouse v Bindley [1862] (discussion of buying horse, if I don’t hear from you over the weekend I will consider it mine, held not be an acceptance) o

BUT see dicta from Lord Steyn in Vitol SA v Norelf Ltd [1996]: “while the general principle is that there can be no acceptance of an ofer by silence, our law does in excepional cases recognise acceptance of an ofer by silence.” 

Silence by party iniiaing solid proposal for a deal: Where X starts negoiaions, and where there has been a long period of silence in response to a counter-ofer by Y: e.g. Rust v Abbey Life Assurance Co Ltd (D proposed to meet and met insurance agent for C. D handed over cheque in C’s favour without formally commiing to the policy. 7 months later, D wanted her money back and claimed there was no contract due to her silence. Held there was a contract, possibly because (i) D approached C and (ii) D handed money over to C) 

o



Held there was a contract possibly because o

D started negoiaions with C  her conduct led to the ofer being made, less of an ‘unwanted contract’ forced on her

o

long duraion: silence for 7 months indicated that she had accepted the property bond allocated to her

o

D handed cheque over to C (albeit without formally commiing to the policy)



Conduct can consitute acceptance: Nissan UK Ltd v Nissan Motor [1994] (the paries were negoiaing over the terms on which Nissan Motor should deliver cars to Nissan UK. CA held that Nissan Motor had accepted Nissan UK’s ofer by beginning to deliver cars)



$ Note that even if paries appear to be content with the status quo, this does not translate into a binding agreement: Allied Marine Transport v Vale do Rio Doce [1985] (Facts: Many years of inacivity by a party to an arbitraion reference, but held that this did not unequivocally indicate implied assent to the other party’s implied ofer to abandon the arbitraion clause)

*BUT if Y tells X “unless you hear from me to the contrary by a speciied ime, you should assume that I have accepted the ofer”, Y can be bound: dictum in Re Selectmove

In a unilateral contract, the requirement that acceptance of the ofer be communicated can be waived (impliedly): Carlill v Carbolic Smoke Ball (since allowed for acceptance by performance, no need explicit performance)

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4. Batle of the Forms 

The GENERAL RULE is the “last shot” approach - the party proposing its terms last wins the batle (i.e. both paries contract on his terms): Butler Machine Tool Co v Ex-Cell-O Corp [1979] (CA), approved in Tekdata Intercommunicaions v Amphenol Ltd (2009) (CA)) o

$ NOTE Lord Denning’s dissening broad brush approach in Butler (which is not good law) 

o

Lord Denning MR (dissening in Butler) disinguished (i) the issue of contact formaion from (ii) the content of the contract. First, we have to work out whether there was a contract. A contract would be formed if the paries were agreed on ‘all material points’: the fact that they might disagree on smaller points did not mater. The next stage is to work out what the terms of the contract would be. Lord Denning stated that the terms would someimes be those of the party who made the last ofer, someimes those of the party who made the irst, and in yet other cases, a reasonable compromise between the two. If diferences are irreconcilable, then the conlicing terms may have to be scrapped and replaced by a reasonable implicaion. In order to decide between these opions, ‘the documents have to be considered as a whole’ 

Advantages -> easier to ind that a contract exists and has the advantage that broad equity can be inserted into the discovery of contractual terms



Disadvantage -> ignores the responsive analysis of the ofer and acceptance process. This orthodox approach is rooted in freedom of contract, which may be infringed upon if the court seeks to impose a compromise soluion



Disadvantage -> uncertainty

BUT CA accepted could be displaced if the documents passing between the paries and their other conduct indicated that the common intenion was that some other terms were intended to prevail: Tekdata v. Amphenol (2009) CA 

However, the judges emphasised that it will ‘always be diicult to displace the tradiional analysis’, with Longmore LJ requiring a ‘clear course of dealing between the paries’ to do so, ie EMPHASISED the BENEFITS OF COMMERCIAL CLARITY In adhering to the established analysis 

o

This is a direct repudiaion to Lord Denning MR’s (dissent) alternaive method in Butler

ALSO NOTE that if both sides make it clear that they are not willing to contract on each other’s standard terms, the court can hold that neither party’s terms governed: e.g. Ghsp v Ab Electronic Ltd [2010] (where Burton J held that the mere fact that a

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party does so does not necessarily mean that he has avoided those standard terms applying. For example, if he says this but then unilaterally starts carrying out the contract, then he may be taken to have accepted the other side’s terms by virtue of his conduct. Though in this case it was held that party’s conduct of carrying out the contract and signing on the form acceping other sides’ terms was not viewed as staring to carry out the contract on the other side’s terms) in which case, other standard terms might apply (e.g. Sales of Goods Act 1979 applied to the paries’ contract in this case) 5. Efect of a “subject to contract” clause GENERAL rule: when work is done on a ‘subject to contract’ basis, it is unlikely that the party carrying out the work will be able to bring a resituionary claim in order to recover the reasonable value of work done: Regalian Properies plc v London Docklands Development Corp [1995] (held that by the deliberate use of the words ‘subject to contract’ in their usual sense, each party had accepted that if no contract was concluded any resultant loss should lie where it fell) 

Courts can ind “subject to contract” clause is implied - CA in Grant v Bragg [2009] acknowledged that a clear requirement that an oral/emailed consensus should be inalised in wriing is suicient to imply that the paries’ dealings are ‘subject to contract’. Lord Neuberger interpreted the statement ‘I understand that Russell would deinitely require your signature to the [drat contract]’ as making it clear that there was to be no contract unil there had been a formal signing of the drat.



BUT courts may ind that an implied contract has arisen on the basis of paries’ conduct: RTS Flexible Systems v Molkerei [2010] (where D insisted that because “SUBJECT TO CONTRACT” had sill been included, there was no contract, as CEO had yet to formally sign the contract though work for installaion of the machinery had already begun) 

o

This was in spite of a ‘subject to contract’ clause. Note that a contractual framework governed this case (based on terms that were negoiated by the paries but not signed), rather than resituionary principles. Reasons (i) signiicant performance (ii) all essenial loose ends were ied up by the paries)

Note however, that an implied waiver of ‘subject to contract’ will be rare, and was only found on the ‘clear evidence’s of two things: Lord Clarke in RTS 

All points of dispute have been resolved during the negoiaions



Paries coninued with performance over a period of ime and did so without coninuing to insist that the work is being done on a ‘subject to contract sipulaion’

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Intenion to Create Legal Relaions Intent to create legal relaions is judged OBJECTIVELY  Eg Carlill v. Carbolic Smoke Ball [1893] (where declaraion that 1000 pounds had been ‘deposited in the Alliance Bank’ seen as a token of its serious intent)

 Eg West Bromwich Albion Football Club v El-Saty (2006) (where CA held WBA no intenion to create legal relaions with doctor since WBA physiotherapist in referring player to D did so as a health professional and not “instrucing D for reward”. Therefore objecively speaking, no contract between WBA and D since no intenion to create legal relaions on the part of WBA) There are certain REBUTTABLE PRESUMPTIONS: 1. Domesic/Social context GENERAL PRESUMPTION of NO ICLR: Balfour v Balfour [1919] (decision approved by Lady Hale in Granaino v Radmacher [2011]), where the wife sued her husband over his promise to pay her money every month during their enforced but ostensibly amicable separaion, CA held that there was no contract. o

Thus Balfour negaives promises between spouses even where consideraion is present, only if the promise is made while the marriage is harmonious

o

Majority in Granaino v Radmacher [2011] held Balfour principle (ie harmonious or not) would apply in ante or post nupial arrangements and not draw a disincion between them

Presumpion extends to SOCIAL CONTEXTS: Wilson v Burnet (2007) CA (Casual conversaion about sharing of bingo winnings held not to be enforceable) 

EXAMPLE OF PRESUMPTION:

o

If the promise is made while the marriage is harmonious, there is unlikely to be intenion to create legal relaions between husband and wife: Balfour v Balfour

o

This presumpion extends to other family relaions e.g. ‘father and son and daughter and mother’: Jones v Padavaton [1969] (Daughter and mother context. M told D to relocate to England in 1962. M gives a license to D to support her. M atempts to evict D, sues for repossession. Held no binding contract for licence, so mother could kick daughter out)

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



Only Danckwerts LJ supports familial presumpion in Balfour case



Other judges (Fenton-Atkinson and Salmon LJJ) examined the paricular facts (eg contractual licence ended followed by the eluxion of a reasonable period of ime which the daughter was expected to complete her legal studies) rather than resoring to mechanical presumpions

REBUTTING THE PRESUMPTION (factors to consider):

o

One party has fulilled side of agreement and is seeking to enforce: Merrit v. Merrit [1970] (where wife paid of mortgage, presumpion of no ICLR in domesic context rebuted ie there was a contract)

o

Or, where both sides have performed the alleged contract: G Percy Trentham v Archital Luxfer [1992] (oral agreements in the social context for subcontract construcion of work, work done and payment made – held to be a contract, presumpion rebuted)

o

Where promise was made between acrimonious paries (and hence dealing at arm’s length): Merrit v. Merrit (marriage had broken down wife insisted that he write down his promise that the wife would become solely enitled to the matrimonial home if she paid of the remaining mortgage instalments. CA issued a declaraion that the property should be transferred from their joint names into the wife’s sole name)



A commercial arrangement made between family members – could instead be at the borderline (see below)

2. Commercial context GENERAL RULE: Express agreement in commercial contexts  heavy presumpion of ICLR  Eg Barbudev v Eurocom Cable Management Bulgaria Eood [2012] CA (Side leter between commercial paries proceedsed from the presumpion there was ICLR)

 Eg Edwards v Skyways (1964) CA (shows presumpion that commercial contracts are legally enforceable)

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o

if alleging implied agreement, burden is on party seeking existence of contract to show ICLR: Baird Texile Holdings v Marks & Spencer (where held M&S no intenion to create legal relaions as no long term agreement, Spencer had burden to show there was ICLR but couldn’t show it) 



Mance LJ: this case shows that the “commercial” presumpion of enforceability cannot apply unless the court can irst idenify an “explicit” or “apparent” promise

o

Even if terms not yet inalised, objecive analysis of conduct may imply ICLR: RTS Flexible Systems [2010] (D insisted that because “SUBJECT TO CONTRACT” had sill been included, there was no contract, as CEO had yet to formally sign the contract though work for installaion of the machinery had already begun) held that the paries conduct can indicate a joint intenion to disapply the ‘subject to contract’ bar + ICLR

o

In quasi social/commercial exchanges, burden is on person seeking contract to show ICLR: Sadler v Reynolds [2005] HC (alleged contract was between a journalist and a businessman who were friends. The journalist wanted to ghost-write the autobiography of the businessman, who had had a ‘rags to riches’ life, involving more than one spell in prison)

REBUTTING the presumpion: o

express agreement staing no ICLR rebuts the presumpion: Rose & Frank v JR Crompton [1924] HL (where express agreement saying no ICLR but merely as an honourable pledge held not to be a contract)

o

refusal to enter into an express agreement seems to rebut the presumpion: Baird Texile Holdings v Marks & Spencer (where court held M&S no intenion to create legal relaions as no long term agreement)

o

Leter of comfort - Kleinwort Benson v Malaysian Mining [1989] where leter writen “it is our policy to ensure that of business of [X, the subsidiary company] is at all imes in a posiion to meet its liability to you under the [loan facility] arrangement”. Comforted by this, C lent money to X. X went insolvent and C later sued. Held leter was not an intenion to create legal relaions



Leter was couched in the present tense (though this phrase was not explicitly said by the court) and thus did not consitute a promise that it would coninue to ensure that this was so



This was also read in light that the parent company refused to give C a standard guarantee, seen as further evidence that the leter was not intended to create a legal obligaion

3. Borderline cases – Commercial like Contracts in a Social Seing

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 BURDEN is on the person claiming that a contract existed to establish an intenion to create legal relaions, albeit that the onus is less heavy than in the purely social context o

Sadler v Reynolds [2005] HC (alleged contract was between a journalist and a businessman who were friends. The journalist wanted to ghost-write the autobiography of the businessman, who had had a ‘rags to riches’ life, involving more than one spell in prison) 

Slade QC suggested that the agreement fell ‘somewhere between an obviously commercial transacion and a social exchange.’ The onus was on the journalist to prove that there was an intenion to create legal relaions, ‘albeit that the onus was a less heavy one than that which would be required to establish such an intent in the context of a purely social relaionship.’



Slade QC held that it was up to the journalist to prove that it was binding

 An intenion to form legal relaions can be found where it is not a mere social arrangement, and looks suiciently commercial in nature

o

Eg Parker v. Clark [1960] HC - Ds had asked Ps (young couple) if Ps would agree to come and live with Ds and support Ds in a property. Ps and Ds agreed in return for support, when Ds died, Ps would be enitled to a speciied porion (1/3) of their joint ulimate estate. Ps also acted in reliance by selling their home and lending proceeds to daughter.



o

Devlin J held that there was intenion to create legal relaions. Damages given for the loss of the promised share of estate

Eg Modahl v. Briish Athleic [2001] - CA decided that there can be a contract (yes contract in this case) between a sportswoman and her governing body even if it has never been formally acknowledged. Although there was no exchange of ofer and acceptance the contract arose from repeated invitaions to Modahl to run on behalf of the sports body. There was also an intent to create legal relaions on these facts. Although not a fully-ledged commercial relaionship, the facts concerned an ‘arm’s length’ relaionship between a sportswoman and her ‘ruling bodies’



Emphasis placed by courts on claimant's conduct in joining a club, in compeing at naional and internaional level on the basis stated in the rules and in submiing herself to both in- and out-of-compeiion doping tests is that she became party to a contract with the defendant subject to the relevant terms of the rules.

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

Possible to read evidence of more in tune with commercial context that modern sporing scene, which, whatever the labels of amateurism, has aspects afecing substanially the career, livelihood and prosperity of paricipants

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Consideraion DEFINITION: An act or forbearance of one party [the promise], or the promise thereof is the price for which the promise of the other [the promisor] is bought, and the promise thus given is enforceable Consideraion is OBJECTIVELY construed - The promisee need not consciously or subjecively realise that he was providing consideraion; it is suicient, that judged objecively, this was the efect of what the promisee did: Pits v Jones [2007] CA (There was good consideraion notwithstanding the fact that the appellants did not consciously realise that by signing the documents they were subjecing themselves to a detriment and were giving consideraion for the respondent’s undertaking, court emphasised that sill consideraion even if it was unconscious) 

!!! NB: Condiional git vs Request (which will be the consideraion for X’s promise) o

Condiional git ->If X promises to pay Y £100 if Y is unlucky enough to break Y’s leg, X is not asking Y to break Y’s leg, and so it is likely that this sort of promise would be interpreted merely as an ofer of a git subject to a condiion 

o

Request -> X asking something from Y 



NOT CONSIDERATION

YES CONSIDERATION

The court may IMPLY a request where that was a reasonable way of understanding what was said. However, this is highly fact speciic: o

Combe v Combe [1951]: a forbearance to sue by the wife was NOT an implied request from the husband (the husband’s solicitor wrote to his wife’s solicitor, in the course of divorce proceedings and stated that the husband had agreed to pay her an allowance of £100 per annum. In reliance on this, his ex-wife did not apply to the courts for an order for maintenance, but the husband failed to make any of the promised payments and the ex-wife sued)



CA held that the husband’s promise was not supported by consideraion and was thus unenforceable (since no request was implied). There was no request by the husband, express or implied, that the wife should so forebear from applying for a maintenance order



o

Possibly, as Aiyah suggests, because the wife earned more than the husband

Alliance Bank v Broom: court IMPLIED A REQUEST that bank will not enforce payment since bank demanded security in circumstances where it would otherwise demand payment, though made no promise not to enforce payment since bank is in all probability much more likely to insitute proceedings than the wife in Combe



Therefore since request implied, held to be consideraion

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Rules on Consideraion 1. Consideraion must move from the promisee (though not necessarily to the promisor) 

The promisee rather than a third party must provide the consideraion: Tweddle v Atkinson [1861] HC (where agreement by groom father to pay groom if bride’s father also paid held not to be enforceable as groom (C) did not provide consideraion)



Consideraion saisied when promisee agrees to confer beneit on third party at request of promisor: Bolton v Madden (giving away of votes to 3rd party at request of promisor held to be consideraion for enforcement of the promise)

2. Consideraion must be legally suicient Nominal consideraion which is economically inadequate (candy wrappers) is suicient to form a contract. Per Lord Somerville, contracing paries can sipulate for whatever consideraion he chooses: Chappel & Co v Nestle [1959]



o

For Lord Reid, N beneited from the extra sales of chocolate and publicity that the ofer generated, so the requirement to send in chocolate wrappers was a valuable part of the bargain for N: ‘It is a perfectly good contract if a person accepts an ofer to supply goods if he (a) does something of value to the supplier and (b) pays money: the consideraion is (a) plus (b).

o

What divided the majority and minority was the fact that N probably threw the wrappers away on receipt. For Viscount Simmonds (dissent) this meant that the wrappers were no part of the consideraion but were just a qualifying condiion to enable someone to purchase the record for 1s 6d. The majority disagreed and held that a contracing party can sipulate for whatever consideraion he chooses, as long as it was of some legal value.

Law does not recognise moive of paries. The inherent ‘value’ (material/economic) of consideraion is contested, but favours a wide approach. o

White v Bluet – Son argued he refrained from complaining about father’s property, allowing dismissal of promissory note. No consideraion.

o

Cf. Hamer v Sidway (US) – Nephew promised money if he refrained from smoking/drinking alcohol. Restricion of freedom consituted consideraion. Posiively received by English lawyers

Past consideraion is not good consideraion

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Consideraion that is made ater the conclusion of the contract is not good consideraion and does not form part of the contract 



Examples: o

Eastwood v Kenyon (1840) HC (where previous unrequested educaion of ward not viewed as consideraion as it was past consideraion)

o

*Roscorla v Thomas (1842) HC (oral warranty about quality of horse ater it was bought not enforceable, since money as consideraion for the horse was in the past)

o

Re McArdle [1951] CA (redecorated house, then made agreement to be paid for the house. Held decoraion of house not consideraion since it was made before the contract)

EXCEPTION in Pao On v Lau Yiu Long [1980] PC – where if prior act done but was requested, the act done before the giving of a promise would suice as consideraion ie C’s antecedent promise made at the request of D was held to be consideraion o

3 requirements (Lord Scarman): (1) Act was performed on request (2) Understood or implied between paries that party would be paid for doing act and (3) promise of payment must be legally enforceable

IMPORTANT NOTE: It could be possible to construe a warranty given ater the handing over of the good as part of one overall transacion; on this view, the oral warranty in Rosc orla would have been a term of the contract since the horse was not past consideraion.

Performance of an exising duty Public/Statutory  GENERAL RULE: Performance of a pre-exising public duty will not count as good consideraion: Collins v Godefroy (1831) (remuneraion for witness under a subpoena, ime spent giving evidence not viewed as consideraion)  EXCEPTION: Where promisee does more than public duty, this amounts to good consideraion o

Eg Ward v Byham (Agreement to make child happy CA held that the father’s undertaking to pay was enforceable. The bare promise by the mother to care for the child did not involve consideraion because it added nothing to the statutory obligaion placed upon mothers in the 1948 Act. The second undertaking (conferment of happiness) did, however, supply something extra beyond the bare statutory minimum. There is thus requested detriment

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o

Eg Glasbrook Bros Ltd v Glamorgan CC [1925] HL, where police camping outside D’s house to protect him from a coal strike was viewed as “beyond” the police’s usual services, therefore viewed as consideraion) 

Glasbrook Bros Ltd v Glamorgan CC [1925] HL airmed and applied in Leeds United v Chief Constable [2013] where CA held no consideraion as maintaining law and order and prevening crime, though for the beneit of the football club and its supporters, was within the scope of police’s duty

Contractual obligaion to other party  Not good consideraion to do or promise to do what you are already contractually bound to the other contracing party to do - eg Robinson v Lane [2010], deposit was already due to vendor, not viewed by the court as consideraion Contractual obligaion to third party  GENERAL RULE: Performance of contractual duty owed to a third party does consitute consideraion for promise given by another party: Shadwell v Shadwell [1860] o

EXAMPLES: 

Shadwell v Shadwell [1860] (where uncle’s promise to give money per year to nephew ater nephew’s contract to get married was held to be enforceable, as nephew’s performance of a contractual duty to third party (ie marriage to bridge) was viewed as consideraion) 



*BUT note that on diferent facts, the leter could be construed instead as a CONDITIONAL git. On the facts, it was held that the uncle intended to induce the marriage (an implied request)

The Eurymedon [1974] PC: performance of their contractual duty to unload the goods (where the contractual duty was owed to a third party) was good consideraion for the shipper’s ofer not to sue them for any damage done (court did this through establishing A-C contract)

Variaions of contracts A. Increasing Pacts WHAT IS IT: a promise to pay more for goods and services that the promisor is already contractually enitled to receive 

GENERAL rule is that not good consideraion to do what you are already contracted to do: Silk v Myrick (1809) (Lord Ellenborough decided that in cases where an individual was bound to do a duty under an exising contract, that duty could not be considered valid consideraion for a new contract)

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

EXCEPTION in Williams v Rofey Bros [1990] (The carpenter got into inancial diiculies. Main contractor told them that he would pay them extra if they coninued to perform. The carpenters did some more work but the main contractor refused to pay the full sum. The carpenters stopped work before compleion and sued, claiming the balance of the extra sum promised. Main contractor argued that there was no consideraion for the promise to pay extra. CA upheld the claim, holding that there was consideraion for the addiional promise as coninuance of work viewed as a PRACTICAL BENEFIT) o

If the promisee gives a PRACTICAL BENEFIT to the promisor, this can be suicient consideraion

o

WHAT is this pracical beneit? 

Russell LJ (less radical view): formalized payment system which gave Ds greater control over the order of P’s performance 



Glidewell and Purchase LJ (broader, and more radical at that ime): In genuine negoiaions, the pracical beneit derived by the promisor from performance of the promisee’s contractual obligaions should be regarded as good consideraion. 



Viewed this as pracical beneit in this case as “‘what had hitherto been a haphazard method of payment by a more formalised scheme involving the payment of a speciied sum on compleion of each lat’”

But said this was because of English law now having sophisicated doctrine of duress

*Mindy (2012) opines that such pracical beneit could include an “increased chance of performance already due” as well as “consequenial beneits”

B. Decreasing Pacts GENERAL RULE: Part payment of a debt is not good consideraion for a promise to discharge the enire debt: Foakes v Beer [1884] HL (debt, in this case agreement to pay less was held to be unenforceable as there was no consideraion on part of D) o

This is so even (ie not good consideraion) where the creditor accepts part payment in setlement of D’s account: Ferguson v Davies [1997] (can be read from this case, though in this case, the cashing of 150 quid that was paid by debtor in hope that it would be “in full and inal setlement” was not viewed as binding as creditor wrote a leter to debtor indicaing intenion to coninue to sue for the remaining sum. The 150 quid cashed in was viewed as a formal, unqualiied admission of liability, nothing more. This case no objecively reasonable grounds for dispute as an “unqualiied admission of liability”)

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

o

But CA let open the possibility that if objecively reasonable grounds for dispute, part payment might be a inal discharge

A reading of Foakes v Beer [1884] seems to suggest that this decreasing pact promise might be enforceable if: 

A. Creditor obtains some “pracical beneit” eg being paid early 

Payment by cheque as opposed to cash does not consitute fresh consideraion: D & C Builders v Rees (part payment by cheque - the plainif company had done building work for Rees. Rees did not pay despite repeated requests for payment, leaving the company in dire inancial straits. Rees ofered a cheque for a smaller sum in full setlement and the company had no choice but to accept it on that basis, but later brought an acion for the balance) o

o

o



Ie issuing of a cheque when cash was required was NOT fresh consideraion



It made no diference that the debtor ofered a cheque instead of cash, as in making out a cheque rather than paying in cash the debtor is not doing anything which is inancially onerous

NOTE -> but CA’s emphasis on commercial beneit in this case suggest that if contract sipulated cheque and D made part payment by cash, cash could be seen as consideraion as no need to wait for cheque to clear + all the hassle



B. Creditor makes promise by deed



C. 3rd party intervenion eg Hirachand v Temple [1911] (where father of debtor told creditor that if father paid, creditor would not go ater debtor. Father paid, held debtor could no longer go ater debtor)

$NOTE: The ‘pracical beneit’ doctrine in Rofey is NOT to be extended to the Foakes line of cases: Re Selectmove (payment of income tax arrears by instalments) 



CA held that the rule in Foakes v Beer applied: the purported setlement was not binding, being unsupported by consideraion ie the decreasing pact was not efecive.

Gibson LJ in CA -> Any extension of law must be made by UKSC or Parliament, cannot simply apply Rofey (pracical beneit doctrine) in the Foakes line of cases as this would be destroying the Foakes principle

The doctrine of P.E. might apply in excepional and NARROW circumstances: Collier v P&MJ Wright (Holdings) Ltd [2007] (establishes that rule in Foakes v Beer applies to joint debtors as

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well (though promissory estoppel might come to the rescue), acceptance of part payment not consideraion for any release of that joint debtor from the balance of the debt) o

Per Arden LJ OBITER 



The defence of promissory estoppel might be given to the debtor where the creditor



(1) voluntarily agrees to accept payment of part of a debt in discharge of the enire debt and



(2) receives that part payment (i.e. ACTUAL performance) from the debtor may ind that the right to the balance of the debt has been exinguished by operaion of the doctrine of estoppel, and



(3) where withdrawal of the promise would be inequitable

Supports Denning J’s “brilliant dicta”-> But this doesn’t mean Promissory estoppel now has the support of the CA



Arden LJ relies on Lord Denning MR in D&C Builders v Rees CA where Lord Denning MR airms the analysis of Denning J in High Trees (NO SHIT) -> this implies that promissory estoppel already had the support of the CA in D&C Builders v Rees

o

But a careful reading of D&C Builders v Rees suggest that while Lord Denning MR approves High Trees, Winn LJ disapproves of it (ie airms Foakes v Beer and says nothing of Lord Denning MR’s promissory estoppel) and Danckwerts LJ is equivocal where Danckwerts LJ starts by saying he agrees with Lord Denning MR’s judgment but then goes on to airm Foakes v Beer and elaborate on how Foakes v Beer was correctly applied to this case -> hard to say Danckwerts indeed supported Lord Denning MR

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o

Therefore D&C Builders v Rees CA at best provides equivocal support for Denning J’s dicta in High Trees

o

This shakes up Arden LJ’s analysis in Collier v Wright as applying in the CA’s decision in D&C Builders v Rees as unequivocal



Mummery LJ though did not contradict Arden LJ on promissory estoppel, did not give a certain or unequivocal answer, all he said “There is a real prospect of success on the promissory estoppel issue”



Longmore LJ creates suicient doubt that he supports Arden LJ’s High Trees analysis in Collier v Wright where he says “There might, however, be much to be said on the other side”

Per Longmore LJ OBITER:



o

o

Argued for a more stringent test:



Promise to give up the claim must be clearly established



The promise must haven to give up his right on a permanent basis



Must be inequitable for the creditor to go back on his promise

Arden LJ v Longmore LJ -> Longmore LJ’s judgment which requires STRONG evidence of the agreement to give up the claim, and the need to establish that the creditor has agreed to give up the right PERMANENTLY

Promissory Estoppel? WHAT: Promissory estoppel is an equitable doctrine which enforces a promise made with the intenion to be bound, notwithstanding the absence of consideraion

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

WHEN is this used? o

A presently owes B a debt. B promises to A to take part payment in saisfacion of the whole debt: See obiter of Arden LJ in Collier v P&MJ Wright (Holdings) Ltd

o

B promises to A to vary the future terms of the contract, without consideraion: see Denning J OBITER in High Trees (Obiter that could not claim full rent from 1940 onwards in which acted on promise, though council only wanted and successfully claimed rent from 1945 onwards)

GENERAL RULE: There are three elements for the equitable remedy of promissory estoppel: Denning J OBITER in High Trees, airmed OBITER by Denning LJ in D&C Builders v Rees and airmed OBITER by Arden LJ in Collier v P&MJ Wright (Holdings) Ltd 

#1: A clear and unambiguous promise or representaion that the creditor will not insist on his legal rights o

TEST: equivalent test of certainty as is required for contractual obligaions: Baird Texiles v Marks & Spencer (no long term agreement, no contract, Mance LJ: this case shows that the “commercial” presumpion of enforceability cannot apply unless the court can irst idenify an “explicit” or “apparent” promise) 



NB: Since promise relates to EXISTING legal rights, the doctrine of promissory estoppel can only be used for the VARIATION of contracts

#2: That the promisee has relied on o

NOTE that this does not require detrimental performance 



Example in Collier v P&MJ Wright (Holdings) Ltd, where Arden LJ payment of the one-third share in full as he was already obliged to do suiced as reliance



Many cases seem to require that debtor “acted diferently” or “alters his posiion”, but this is not uncontroversial. Tenant in High Trees did nothing acive in reliance, but merely ‘conducted his afairs on the basis that he would only have to pay rent at the lower rate” (eg did not ind accommodaion at lower rent)



Perhaps, a beter view is that this limb is fulilled if the promisee has altered his posiion to the extent that it would be inequitable to allow the promisor to go back on the promise made

#3: And where withdrawing the promise would be inequitable, unconscionable or unfair to do so

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o

Example: NOT inequitable for creditors to claim the balance of the debt in D&C Builders v Rees because the debtor’s wife had coerced them into setling for less than the full amount of the debt

Clariicaion 1: Suspensory or Exincive Importance: if PE exinguishes the promisor’s rights, the promisor would not be able to go back to pre-variaion terms, unless there is renegoiaion of contractual terms. If, however, it is merely suspensory, it seems that a noice from the promisor is suicient to restart the pre-promise obligaions of the promisee. 



Part suspensory (for future obligaions): o

Hughes v Metropolitan Railway : landlord’s right to enforce repairing covenant could be resurrected by giving reasonable noice

o

Tool Metal Manufacturing v Tungsten Electric : serving of a counterclaim is suicient noice to restart obligaion to pay

Part exincive (for past obligaions): o

High Trees: no direct argument about compensaion for past periods, but generally, no possibility for retrospecive noice (as this would undermine inequitable conduct requirement)

o

Collier v P&M J Wright (Holdings) Ltd : on Arden LJ’s analysis, a successful use of P.E. would exinguish the creditor’s right to the balance of the debt

Clariicaion 2: Sword or Shield General rule in Combe v Combe: PE can only be used as a shield (i.e. prevents a party from insising on his strict legal rights) o

ALSO can be used by a party seeking to enforce a claim based upon a recognised cause of acion to defeat the defence or counter-claim of the other party (e.g. if the landlord in High Trees seizes tenant’s property to recover rent: the tenant acion for conversion  landlord reply that he has right to seize  tenant uses defence of promissory estoppel)



Estoppel CANNOT create a new cause of acion : Combe v Combe



CONTENTIOUS: Possible that estoppel can be used by a party seeking to enforce a claim to prove one element of a recognised cause of acion 1: Robertson v Ministry of Pensions2

1 Signiicance? Perhaps PQ states that A promises B ater formaion of contract that “I promise that even though this contract does not expressly menion C, he will be considered as the intended beneiciary of this contract”, then A will be estopped from claiming that C does not have a third party right. 2 Facts: P wanted to claim pension, had to prove causaion between disability and war service. Estoppel prevented MoD from denying causal connecion.

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Clariicaion 3: Who can rely on the doctrine of Promissory Estoppel



An ASSIGNEE of a tenant or of a landlord could take the beneit of, and would be bound by, a promissory estoppel which had arisen between his predecessor and the landlord or tenant: Brikom Investments v Carr3 o

i.e., it is not just the promisee who can make use of the doctrine of promissory estoppel

3 B was the owner of some blocks of lats let at a rack rent. It ofered long leases of these lats to the tenants. It gave the people who took the long leases an assurance that it would meet the cost of repairing the roofs of the lats even though the leases required the tenants to contribute to the cost (the promise). B later went back on that assurance and sought contribuions to the cost of the repairs in accordance with the terms of the leases. One of the defendants was an original tenant while the other two were assignees. All refused to pay the contribuions sought. Held: that the assignees could also rely on the doctrine of PE

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Certainty STARTING POINT: If the paries clearly intend to create a legal obligaion, the court will try to give it legal efect and only hold it to be void for uncertainty if it is legally or pracically impossible to give the agreement any sensible content: Scammell v Dicker [2005] CA where held consent order though theoreically possible could be void for uncertainty, mere diiculies in interpretaion or execuion were not suicient, given that the court is always on hand to assist in working out or clarifying orders) 

1) Does the agreement in quesion fall under one of the types of negoiaion agreements at (v)? If yes, what is the general rule? Or, is it to do with a phrase/term which seems insuiciently clear?



2) Considering the negoiaion agreements at (v), are the courts likely to ind (excepionally) that a contract was validly created? These excepions will occur if the courts think that there is suicient objecivity  factors listed at secion (iii) below are persuasive, but it is oten beter to look at speciic excepions within each of the categories in (v) itself



3) Are there any other issues to consider? E.g. a ‘subject to contract provision’  see (iv)



4) What would the efect of a inding of a lack of certainty be?  see (ii)

Efects of a lack of certainty 

Invalidates the whole contract - e.g. May & Butcher v The King HL (1929) Agreement to agree on price from ime to ime held to be invalid



Invalidates part of the contract (while rest of contract remains valid) - e.g. Didymi Corp v Atlanic Lines (1988) where insuicient certainty on calculaions of damages in relaion to machinery held not to invalidate the clause of the efect, though ulimately held the clause suiciently valid. Could be due to (i) the contract had already lasted a signiicant period of ime before the issue arose (ii) the word “equitable” has meaning within that paricular commercial context (eiciency of a chartered vessel’s sailing performance o



Suggest that if the vague part had indeed by invalid, the rest of the contract would sill be valid

Enitles the court to withhold speciic performance

1. Types of Negoiaion agreements (v) SUMMARY: 

English law generally does not recognise as valid an agreement to negoiate in good faith or reasonably the terms of the main contract: Walford v Miles [1992] o

HL in Walford held that an agreement to use “BEST” (or we could extrapolate it to include REASONABLE) endeavours (even if supported by consideraion) to reach an agreement is uncertain and void (acknowledged as binding authority by Aikens LJ in

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Barbudev v Eurocom Cable Management [2012]) as it is inherently inconsistent with the posiions of the negoiaing paries (Lord Ackner in Walford).





AND English law generally does not recognise an obligaion to use ‘reasonable best endeavours’ to reach agreement on the main contract: Litle v Courage (1995) Millet LJ (though in this case held can have reasonable best endeavours to obtain planning permission as its suiciently precise) o



Eg Queensland Electricity Generaing Board v New Hope Collieries (1989) PC where negoiaion agreement with bolted on agreement with criteria/procedure for resolving the dispute held to be valid

BUT POSSIBLY an ancillary negoiaion clause requiring the paries to negoiate aspects of the transacion in good faith/reasonably COULD BE valid: dictum from Longmore LJ DICTA in Petromec Inc. etc v Petroleo Brasileiro SA (2005) o



Can also be inferred from Lord Ackner’s judgment in Walford that “reasonable endeavours” etc to get a planning permission or export licence would be allowed as it is suiciently precise, because geing the planning permission could be seen as part of the original contract (impliedly requiring someone to obtain 3 rd party consent)

BUT an agreement to use best endeavours in an ancillary agreement (e.g. to obtain planning permission or an export licence) is valid: Litle v Courage (1995) o



However, an agreement to negoiate only with the other party for a speciied period (and not a reasonable period) eg not to negoiate with other paries would be valid (Lord Ackner in Walford, arguably the raio in the decision inferred from “made no speciic provision for the period it was to last” that why it failed)

Longmore LJ DICTA noted that the Walford case is conined to negoiaions concerning the main contract -> therefore could possibly apply to ancillary negoiaion

BUT a ‘lock out agreement’ for a ixed period is valid: Pit v PHH Asset Management [1994] ie not to negoiate with other paries for a ixed period of ime, 2 weeks agreement or two weeks was upheld by the CA o

But CA emphasised in the absence of such a precise duraion, courts would NOT imply a term that the lock out agreement would endure only for as long as would be reasonable ie lock out clause would not work if precise duraion not stated

A. Agreements to agree

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



GENERAL RULE: Paries unable to agree on crucial maters means that no contract is formed: May and Butcher v The King (1929) (‘price to be agreed’, paries unable to agree, no contract) o

General rule airmed in Willis Management v Cable [2005] CA, although it was acknowledged in Scammell v Dicker [2005] that the legal status of an agreement to agree ‘cannot be simply stated’ (i.e. court acknowledged that excepions to the general rule could exist)

o

BUT courts are willing to make excepions (see below) where an objecive yardsick exists (i.e. they can make an educated guess as to the missing term based on ime, past pracice, some other criteria etc), and where the paries objecively have intent to be contractually bound

o

McKendrick: best approach is to consider whether paries intended to be bound by agreement. Emphasis on this aspect can be seen in Hillas v Arcos [1932] (where term unclear on the incorporaion of more imber, Terms of opion unclear "whatever the condiions are, buyers shall obtain the goods on condiions and at prices which show to them a reducion of 5 per cent on the FOB value of the oicial price list at any ime ruling during 1931" of “fair speciicaion” – HL held opion was valid, possibly due to previous dealings which served as evidence that paries intended to be bound)

EXCEPTIONS o

EXCEPTION (see 1): Where the paries clearly intend the agreement to legally bind them and have acted upon it for a long duraion: Foley v Classique Coaches Ltd CA [1934] (Facts: agreement to buy petrol exclusively at “a price to be agreed paries from ime to ime”. Disinguished from May: (i) paries intended to be binding (stamped document, acted upon by paries for 3 years, a condiion of sale of petrol staion) (ii) criteria to determine unsolved maters (arbitraion clause to resolve any disputes, including price, and arbitrator could determine a reasonable price based on 3 years of past dealings)

o

EXCEPTION (see 5): Where the agreement contains a PROCEDURE/CRITERIA for determining the unresolved maters: Queensland Electricity Generaing Board v New Hope Collieries (1989) PC where held bolted on agreement on procedure/criteria for determining unresolved mater held to be valid

o

Could be due to: 

(i) the negoiaion clause applied to a renewal of a commercial contract, which had already run for 5 years



(ii) there was a comprehensive arbitraion clause, and hence a safety net

B. Agreements to negoiate

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

GENERAL RULE: agreement to negoiate void for uncertainty: Walford v Miles [1992] (oral agreement to negoiate with one another, one party later sold it to 3 rd party. No breach as no contract, two arguments submited, one that the lock out clause was valid and second even if not there was a duty to negoiate in good faith and thus not talk to 3 rd paries)



POSSIBLE EXCEPTION: Courtney & Fairbairn v Tolaini Bros [1975] disinguished if there is machinery/criteria laid down in the agreement (see point 5 above) o

Coleman J in Cable & Wireless plc v IBM UK [2002] where held agreement to mediate valid as no basis that paries did not intend that mediaion agreement to be a binding agreement

o

Cf. Sulamerica Cia v Enesa SA [2012]: mediaion clause void for uncertainty, as no preliminary machinery to select mediator nor indicaion of mediaion process which would be applied

C. Negoiaions in good faith 

GENERAL RULE is that an implied term to negoiate in good faith will be rejected for (1) lack of certainty and (2) because duty is “inherently repugnant” to adversarial posiion of paries: Walford v Miles [1992] (agreement to negoiate in good faith, two arguments submited, one that the lock out clause was valid and second even if not there was a duty to negoiate in good faith and thus not talk to 3rd paries) per Lord Ackner



EXCEPTIONS to the principle in Walford? Strict applicaion unwarranted where duty can be pracical or workable, per Lord Steyn (extrajudicially, 1997) o

Petromec Inc v Petroleo Brasileiro SA (2005) per dicta of Longmore LJ: Walford could be disinguished since it contained an express term to negoiate  to declare it unenforceable would defeat the paries’ reasonable expectaions

o

Didymi Corporaion v Atlanic Lines (1988) CA (Adjustments should be “agreed” according to what is equitable was held to be valid) – Held that ‘equitable’ was a clear enough criterion to permit objecive assessment of the disputed hire payment 



Therefore can be disinguished from Walford that Walford’s good faith was not speciic enough while Didymi’s use of the word “equitable” was speciic enough for good faith to apply

BUT where it is pracically impossible for the court to ill in all the gaps (in this case, too many terms had not been negoiated), an obligaion to negoiate in good faith will be deemed invalid: Barbudev v Eurocom (agreement to agree, essenial terms remained uncertain) per Aikens LJ

D. Agreement to use reasonable/best endeavours 

GENERAL RULE is that an agreement to use reasonable/best endeavours is too uncertain to be enforced – Walford v Miles [1992] HL Lord Ackner (that in ighing of the challenge concerning the raio that agreement to negoiate in good faith is like agreement to use best

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endeavours which is enforceable, held that agreement to use best endeavours is not sustainable ie cannot be enforced) o



This is disinguished from the decision in Litle v Courage (1995) Millet LJ where allowed reasonable/best endeavours to get planning permission in that Litle was an ANCILLARY agreement, Walford when fending of challenge to raio that agreement to negoiate in good faith is like agreement to use best endeavours deals with the main agreement (which was being liigated in Walford, albeit it was agreement to negoiate)

Courts can uphold ‘reasonable endeavours’ clause if there are criteria with which to judge: o

Queensland Electricity (1989) PC (reasonable endeavours to resolve dispute) (yes reliable objecive criteria) 

o



(i) the negoiaion clause applied to a renewal of a commercial contract, which had already run for 5 years



(ii) there was a comprehensive arbitraion clause, and hence a safety net



(iii) arbitrator could reach an objecive determinaion based on admitedly broad factors

cf. Phillips Petroleum v Enron (1999) (held that an obligaion to use reasonable endeavours to agree the date for supply of case was invalid ) (no reliable objecive criteria) 



Could to due to

Could be explained by the CA emphasised there was no sensible commercial support for fetering the oferor’s bargaining power this way, could be seen as policy consideraions

Courts can and will use the context to judge what is required of a party to fulil a ‘best endeavours’ obligaion: e.g. Jet2.com Ltd v. Blackpool Airport Ltd [2012] CA (F: airport was contractually commited to use “best endeavours” to promote low cost airline. Dispute – did this commitment suiciently clear and did it have the efect that Blackpool airport should be accommodaing to the extent of outside of normal open hours? H: best endeavours includes opening doors later in the evening_ o

Held this “best endeavours” agreement was enforceable, which will include airport acceping arrivals and departures from this aircrat outside opening hours 

Can be evidence that courts will try their best to hold a contract valid

E. Ancillary agreements to setled agreement 

An ancillary agreement to use reasonable or best endeavours to obtain a vital (normally oicial) permission are valid, if they are suiciently clear and restricted: Millet LJ in Litle v

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Courage (1995) + can be inferred from Lord Ackner’s judgment in Walford that “reasonable endeavours” etc to get a planning permission or export licence would be allowed as it is suiciently precise, because geing the planning permission could be seen as part of the original contract (impliedly requiring someone to obtain 3 rd party consent) o

Vos J in “Chealsea Barracks” CPC Group Ltd v Qatari Diar Real Estate (2010) suggested that (i) an obligaion to use “all reasonable endeavours” does not require the obligor to sacriice his commercial interest. (ii) Conirmed there is a gradated diference between “all reasonable but commercially prudent endeavours” and “best endeavour” obligaions ie they are not equivalent. 



Caveat -> this is only a HIGH COURT case

An ancillary agreement which expressly imposes a duty of ‘utmost good faith’ on the paries o

During PERFORMANCE (and NOT a duty to negoiate in utmost good faith) is valid (if there is reliable and objecive criteria): Berkeley Community Villages Ltd v Pullen (2007) HC 

Morgan J held that once a contract has been formed, the law will recognise as valid a clause which expressly imposes a duty of “utmost good faith” on the paries during performance. The noion of ‘good faith’ is not uncertain if it is linked to a PERFORMANCE obligaion as disinct from a NEGOTIATION obligaion (which is uncertain). If good faith is linked to performance, it will impose a posiive duty to take acion consistent with the achievement of the contract’s main purpose.



Decision in Berkeley Community Villages v Pullen endorsed by Vos J in High Court “Chelsea Baracks” case CPC Group Ltd v Qatari Diar Real Estate

o

to NEGOTIATE in good faith (where the main contract clearly exists) may be decided by the courts in the future to be valid: Longmore LJ (dicta) in Petromec Inc v Petroleo Brasileiro SA (2005) who drew a disincion between Walford for main contract negoiate in good faith (invalid) and ancillary agreement to negoiate in good faith (valid)

o

When might this apply? It is suggested that it might apply when the paries have employed criteria which are clear enough to permit the courts to determine the mater themselves, without guessing at a fair result (reliable and objecive criteria): emphasis on such criteria Didymi Corp v Atlanic Lines (1988) CA (Adjustments should be “agreed” according to what is equitable was held to be valid) – Held that ‘equitable’ was a clear enough criterion to permit objecive assessment of the disputed hire payment 

Therefore can be disinguished from Walford that Walford’s good faith was not speciic enough while Didymi’s use of the word “equitable” was speciic enough for good faith to apply

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F. Lock out agreements 

Lock-out agreements are valid, provided that the period is speciied; applicaion in Pit v PHH Asset Management [1994] CA (lock out agreement not to negoiate with 3rd paries for 2 weeks held to be valid)

2. Factors that might persuade the court the contract is suiciently certain (iii) I.

Part performance by at least one party: RTS Flexible Systems v Molkerei [2010] (where D insisted that because “SUBJECT TO CONTRACT” had sill been included, there was no contract, as CEO had yet to formally sign the contract though work for installaion of the machinery had already begun)

II. Previous dealings between paries: Hillas & Co v Arcos [1932] (looking at the past 1930 contract) (where there was a contract with opion incorporate to purchase more imber. Terms of opion unclear "whatever the condiions are, buyers shall obtain the goods on condiions and at prices which show to them a reducion of 5 per cent on the FOB value of the oicial price list at any ime ruling during 1931" of “fair speciicaion”. C tried to exercise the opion but D claimed it was cancelled. HL held that opion was a valid contract even though unclear due to existence of prior contract) III. Standard types of agreement: Hillas & Co v Arcos [1932](looking at custom of the imber trade) o

Cf. unusual or novel agreements: Scammell & Nephew Ltd v Ouston [1941] HL (Held that the phrase ‘on hire purchase terms’ is insuiciently certain, hence no contract. NB: hire purchase contracts sill fairly novel at the ime, hence there is no commercially accepted ‘usual terms’)

IV. Long term contracts (contracts that impose obligaions far into the future will oten be afected by condiions that change from ime to ime, and hence a certain level of uncertainty is allowed): Durham Tees Valley Airport v Bmibaby [2010] (Bmibaby agreed to ‘operate’ two aircrat from the airport for ten years”. The contract did not set out expressly the minimum number of lights – held to be valid as cannot know in advance how many lights it had to operate in order to fulil its contract obligaions) V. Machinery/criteria laid down in the agreement: Cable & Wireless v IBM [2002] Coleman J where held agreement to mediate (seen as a form of ADR) valid as no basis that paries did not intend that mediaion agreement to be a binding agreement Applicaion of Uncertain terms in a contract (albeit not an agreement to agree, negoiate) 

Even if a term is prima facie uncertain, and the court will strive to do so where (i) it is clear that paries intended to be bound by the agreement and where (ii) an ‘objecive yardsick’ which is clear enough exists, o

Unresolved maters can be resolved with reference to past dealings:

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

o

Phrase ‘fair speciicaion’ suiciently certain in Hillas v Arcos [1932] (Facts: clause contained an opion to purchase goods “of fair speciicaion”. Held: that the meaning of “of fair speciicaion” could be determined from past dealings (the earlier 1930 agreement)

Court accepts that there exists some contracts where a large degree of discreion is to be accorded to a party – court may sill be able to ind that the party had breached/not performed its end of the contract 

The phrase ‘2 based aircrat operaion’ deemed suiciently certain in Durham Tees Valley Airport v Bmibaby [2010] (Bmibaby agreed to ‘operate’ two aircrat from the airport for ten years”. The contract did not set out expressly the minimum number of lights – held to be valid as cannot know in advance how many lights it had to operate in order to fulil its contract obligaions)

3. Any other issues to consider eg “Subject to Contract” clause (iv) 

Even if a contract is not formally concluded, one may come into existence anyway o

Despite ‘subject to contract’ provision and lack of joint signature, two factors override: (1) signiicant performance/conduct and (2) clear that paries have setled points of negoiaion: RTS Flexible Systems v Molkereiu [2010]

o

if the paries clearly intend to create a legal obligaion, the court will try to give it legal efect, and only hold it to be void for uncertainty if it is legally or pracically impossible to give the agreement any sensible content 

Some ‘obvious illustraions’ of contracts void for uncertainty: prices or imes of delivery in contracts for the sale of goods, imes for loading or discharging in a contract of sea carriage – Lord Wright OBITER in Hillas v Arcos [1932]

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Privity GENERALLY RULE: Third party cannot take advantage of contract even if made for his beneit, due to lack of consideraion: Tweddle v Atkinson [1861] HC (where agreement by groom father to pay groom if bride’s father also paid held not to be enforceable as groom (C) did not provide consideraion)  Extended to exempion clause by HL in Scrutons v Midland Silicones [1962], (which was an exempion clause case)

o

In this case, the HL applied the Dunlop Pneumaic Tyre Co Ltd v Selfridge reasoning the stevedores were not paries to the contract

APPROACH 

Does C have a right under statute? (apply the s1 test etc) o

o

If no, could C have a right under common law? 

Where proprietary interest has shited between B and C (before the breach as in St Marins, or an assignment of rights as in Darlington)  damages in respect of C’s loss



A more general failure to saisfy the s1 test4  see speciic performance

If yes, could C sill have a beter right under common law? 

Express words evincing an intent to create a trust: see trusts of a promise



Contract concerns C trying to take advantage of an exclusion clause: see establishing an A-C contract

Contracts (Right of Third Paries) Act 1999 1. Does the contract fall within the Act – s1 A. Did A and B intend for C to be able to enforce the contract 

Limb 1 (s. 1(1)(a)) – A and B expressly state that T should have a right of acion against A OR



Limb 2:

4 E.g. a contract where C not expressly ideniied in the contract “ I will give you my company if you give away 10% of its proceeds” (a poor example, but can’t think of anything beter, and also this contract might be hit for certainty issues. Not to menion that the person who created this company is a bit of an idiot)

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

o

(s. 1(1)(b)): Contract between A and B “purports to confer a beneit” on C which gives rise to a rebutable presumpion that they intend C to have right to enforce term.

o

Further (s. 1(2)): paries cannot have not intended C to be able to enforce the contract.

Two-step test (for LIMB 2) adopted by Coleman J in Nisshin Shipping Co v Cleaves (2004) and approved by CA in Laemthong Internaional Lines v Abdullah [2005]: o

1. Does the clause purport to grant a beneit to T? 

“Purport to grant a beneit” 

LC in discussing White v Jones (negligent solicitor) suggests that where there is an express or implied promise to use reasonable care, there is no intent to confer a beneit on the third party.



Burrows (1996) argues test is saisied where contract is designed to beneit third party directly



Prudenial Assurance v Ayres [2007]: depends on the TRUE CONSTRUCTION of the term in this case, it was held that the contract intended to confer a beneit on a third party, even though the natural meaning of the words did not intend so.



o

Deed saying “… any recovery by the Landlord against the Tenant or any previous tenant under the Lease for any such default shall be limited to assets of the Partnership” would be read as meaning “… any recovery by the Landlord or any previous tenant under the Lease against the Tenant for any such default shall be limited to assets of the Partnership”.

o

AND NOTE: no requirement that the beneit on the third party be the predominant purpose or intent behind the term, or that the third party be the only person beneited by it

Dolphin Mariime & Aviaion Services v Forening [2009]: (where A promised to pay either B or B’s agent. B’s agent hoped A will pay B’s agent so he doesn’t have to go to B to ask for his commission. A paid B. B never paid B’s agent the commission. B’s agent sued A but failed. Held B’s agent’s beneit under the contract was NOT DIRECT. Therefore B’s agent not under s1(1)(b) as it was excluded by s1(2) o

Language used by the paries showed that one of the purposes of their bargain (rather than its incidental efects if performed) was to beneit the third party

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

Rebuing the presumpion (that C has right to enforce) 



o

Nisshin v Cleaves [2003] HC: presumpion is not rebuted where contract is neutral as to whether C should be able to enforce the term (ie clause could be read as either graning or not graning the beneit to the third party) o

Supported by Burrows (1996) that the presumpion is a ‘strong one’ which will not normally be rebuted unless there is an express term in the contract inconsistent with T having such rights

o

Decision approved by the CA in Laemthong Internaional Lines v Abdullah [2005])

Laemthong Internaional Lines Co Ltd v Abdullah Mohammed Fahem & Co: mere fact that there is a chain of contracts between A, B, and C will not necessarily mean that the presumpion is rebuted 5  to ind out what this means

2. If yes, this will apply unless paries, upon construcion of the clause, do not intend that the term should be enforceable by a third party

B. Is C expressly ideniied in the contract 

s1(3): The third party must be expressly ideniied in the contract by name, as a member of a class or as answering a paricular descripion but need not be in existence when the contract is entered into o

STRICT requirement, implicaion or construcion will not succeed if no express ideniicaion: Avraamides v Colwill [2006] CA Waller LJ (where held s1(3) use of word “express” meant really must expressly name, cannot allow a process of construcion or implicaion)

C. Is C’s right to enforcement subject to any other relevant terms of the contract 

s. 1(4): C’s right to enforcement is subject to any other terms of the contract



Remedies in s. 1(5): T may, as appropriate, claim any remedy as if he was a party to the contract such as debt, speciic performance, damages, etc.



C can rely on exclusion clauses in A-B contract: s. 1(6)

2. Is variaion allowed (if applicable) – s2 

A or B cannot vary the contract if it gives T a right under s1 if:

5 A chain of contracts between A, B and C would prima facie suggest that C has a direct contractual right (and hence a remedy for breach) with B, and hence should not presumed to have the right to enforce a term in the A-B contract.

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o

s. 2(1)(a): T has communicated assent to term; OR

o

s. 2(1)(b): Promisor aware that T has relied on term; OR

o

s. 2(1)(c): Promisor reasonable expected to foresee that T would rely on term, and that there is actual reliance (NB: need not be detrimental)



s. 2(2): “Assent” can be by words or conduct, and must be received by the promisor to be efecive



s. 2(3): A and B may insert an express “ouster clause” to retain the power to vary/exinguish T’s rights.

3. Does the promisor have any defences – s3 

s. 3(2) – T’s right of acion is subject to the same rights of defence that A would enjoy if A had instead been sued by B



BETTER OFF THAN B: o



s. 3(3) – For A to rely on this defence, it must be available to him from the contract (ie A has that defence if B brought acion against him) + express term of the contract allows A to use the defence if C brought the claim

**WORSE OFF THAN B: o

s. 7(2) UCTA 1977 – A third party cannot use s. 2(2) UCTA 1977 to strike down the exclusion clause.

4. Double Liability 

s5 - If B has already brought a claim against A in respect for C’s loss or the expense to B in making good to C, court will reduce C’s award “such extent as it thinks appropriate to take account of the sum recovered by the promisee” o

The provision does not bar a second acion by T should B fail

5. Limitaion of acion s7 Contracts (Rights of Third Paries) Act 1999 + s5 Limitaion Act 1980 -> 6 years from date of breacg s8 Limitaion Act 1980 -> 12 years for deed

Common Law (Possible rights that might exist) s7(1) Contracts (Rights of Third Paries) Act 1999 -> Act does not afect any right or remedy of a third party that is available outside the Act, and hence these judge made principles coninue to be developed and apply Damages wrt C’s loss

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

IMPORTANCE: The third party would oten have no rights of enforcement under the act Possibly no intenion to allow C to enforce contract, e.g. where the existence of C is not known, or not expressly ideniied in contract by name or as a member of class.



Generally, B can obtain compensaion from A only for B's personal loss and not for C’s loss : Woodar v Wimpey [1980] HL (Lord Wilberforce (majority) OBITER, since case decided that there was no breach)



An excepion (ie where B can sue A for C’s loss) exists where three elements are made out Lord Diplock in The Albazero [1977] (where B chartered ship from its owner A, ship sank but B transferred oil ownership to C. C sufered loss under contract but failed to sue A within limitaion ime. B sued A for breach of contract but failed in HL as couldn’t establish the following condiions which will allow B to sue A for C’s loss) o

This was airmed by Lord Millet in Alfred McAlpine Construcion Ltd v Panatown Ltd (2000) as the only true excepion to the rule that B can only recover damages in respect of his own loss

1.

There is a commercial contract concerning goods

2.

A and B contemplate that the proprietary interests in the goods may be transferred by B ater the contract has been entered but before the breach occurs, and

3.

A and B intend that B should be able to recover damages for C. o

The Albazero principle extended to the building context by St Marins v McAlpine [1994] HL 

But most probably The Albazero extended to all cases as: 

Lord Browne Wilkinson -> for the extension was that the logic behind the excepion applies equally outside the shipping context, it is likely that it will apply to all contracts



Lord Griiths -> suggesing that B had sufered a loss and so was recovering for B’s loss, on the basis that B did not get what he bargained for o

o

Though this view was impliedly rejected in Alfred v Panatown [2001] HL by Lord Clyde and Jauncey that B can only claim nominal damages for C’s loss if presence of A-C contract, because it was C and not B that had sufered the loss

Darlington v Wiltshier [1995] (Land was always owned by C, so there was no transfer of the property from B to C) CA extends the Albazero principle to where C always owned the goods, and hence there is no transfer of the proprietary interests from B to C

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o

Cf BUT where C has a direct contractual right against A (covering approximately the same ground), B will usually be able to recover only nominal damages from A: Alfred v Panatown [2001] HL (F: B and C were part of the same family of companies, but B chose to sue on the A-B contract because (i) A/B contract contained set of strict obligaions, but A/C contract merely imposed a duty of care  a diference in quantum of damages (ii) only A/B contract subject to arbitraion clause. This seems to show that the Panatown excepion (to the Albazero excepion) applies, even though the terms of the A/B and A/C contract are materially diferent)

Speciic performance 

B can enforce a posiive obligaion for speciic performance to fulil the contractual obligaion: Beswick v Beswick [1968] HL (deceased transferred his business to the defendant, who promised the deceased to pay 5 pounds per week to the deceased’s wife for the rest of her life. The defendant did not fulil his promise) o

BUT note: equitable remedy, completely at the discreion of the court + its for periodic payments, though Andrews suggests speciic performance might be available on the facts of Beswick even if it’s a lump sum

Trusts of a promise 

Trust of a promise will exist (i.e. B holds contractual rights against A on trust for C) if but only if trust has been expressly created: Re Schebsman [1944] (only an express trust of a promise will be recognised. Here, 3rd party cannot sue as there was no express trust created) o

In the past, there will be an equitable remedy that there was an implied trust between B and T with B as the trustee and T as the beneiciary 

o

Therefore B must sue on T’s behalf

But ater Re Schebsman there must be (i) express language and (ii) A and B must intend to give T the right

Establishing an A-C contract (Exclusion Clauses) 

IMPORTANCE: probably most useful when C wants to rely on an exclusion clause in the A-B contract



Carriage of goods context: allows C to take beneit of exclusion clause in A-B contract if condiions met (Scrutons v Midland Silicones [1962] HL per Lord Reid (where limitaion on liability for third party stevedores damaging goods not excluded even though there was an exclusion clause for the stevedroves as the stevedroves were not paries to the contract) o

1 – Limitaion of liability clause is intended to protect C  evinced most strongly by an express intenion that the contract/clause was made/included for C’s beneit

o

2 – B is also contracing as agent for C

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

o

3 – C grants B this authority

o

4 – Diiculies of consideraion moving away from C are overcome  soluion provided by Eurymedon

The Eurymedon [1975] PC (Shipper made unilateral contract ie exempion clause to stevedroves to limit liability but was received by the carrier on behalf of the stevedroves. Held stevedroves 3rd party can rely on the exempion clause): Combined efect of A-B contract was that A made unilateral contract with anyone who unloaded goods (ie C) – an AC contract was formed by C’s conduct in unloading the goods  PC analysed there was a “side contract” between in favour of T (ie the Himalayan clause) with B merely as an agent thus creaing privity of contract between A and T

 Therefore since there is a contract between A and T, no conlict with Scrutons v Midland Silicones as Scrutons only prevents non-paries from beneiing from this exclusion clause (but court viewed there was a A-C contract in Eurymedon)

 This airms the Himalayan clause ie decision in Adler v Dickson (“The Himalaya”) [1955] (Exempion clause put in by company to exclude liability “in respect of any ... injury whatsoever of or to the person of any passenger”, P injured, sued captain of ship which was a third party since it was the shipping company and P that were paries to the contract. Though held P can sue ie exempion clause doesn’t work) where cannot exempt liability for 3rd paries unless (i) injured party assents expressly or by necessary implicaion to the exempion or (ii) unless one party contracts as agents for another as in - The Eurymedon [1975] (though not menioned in Adler v Dickson) 

Applicaion of the The Eurymedon outside the Carriage of Goods context to shipping o

Borkan General Trading Ltd v Monsoon Shipping [2003] CA -> yes tug hire

o

The New York Star” [1981] -> yes warehouse men

o

Cf “The Starsin” (1975) where a carrier of goods (as in ship and not stevedroves) is not protected by a “Himalayan clause clause” airmed in The Eurymedon because of a mariime convenion (Hague-Visby Rules)

o

Cf “The Mahkutai” (1996) where a Himalayan clause would not work for an exclusive jurisdicion clause (binding both paries to a nominated forum)

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Terms

Express statement

Mere representaion

Misrepresentaion?

Term

Incorporated

Construcion: applies to facts

Non-consumer contract + Exclusion clause  does UCTA apply

Consumer contract + Unfair term  does CRA apply?

Not-incorporated (END)

Construcion: does not apply to facts WHY:

Contra proferentum

Liability for negligence

NOTE -> There is talk about Lord Hofmann’s overarching theory of “construcion”, possible to suggest that they are all interlinked  Eg Lord Hofmann in Belize [2009] PC -> objecive process of construing writen contracts can be used to idenify the terms which are missing but necessary to give the contract proper commercial efect (ie implied terms)

 This means use same objecive process for both interpretaion and implicaion

 Cf Majority (Lord Neuberger, Hodge, Sumpion and Clarke) in Marks & Spencer v BNP Paribas (2015) made clear that implicaion of terms is separate exercise from interpretaion of writen contracts

 Endorsed Sir Bingham MR in Phillips Electronique CA that:

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o

Interpretaion to resolve “ambiguiies or reconcile apparent inconsistencies, to atribute the true meaning of the language in which paries themselves have expressed in the contract”

o

Implicaion is “interpolaion of terms to deal with mater which the paries themselves made no provision”

o

Therefore implicaion should be used less (ie held to a higher standard) since implicaion is so “potenially intrusive”

Express terms 1. Term v mere misrepresentaion It is only a term if judged objecively, it is intended to be a term and ‘can only be deduced from the totality of the evidence” (Lord Moulton in Heilbut v Buckleton [1913] –ulimate test is INTENTION, OBJECTIVELY ASCERTAINED, also illustrated by Leggat J in Yam Seng Pte Ltd v Internaional Trade Corp (2013)) -

Timing of statement - “the longer the interval, the greater the presumpion must be that the paries did not intend the statement to have contractual efect in relaion to a subsequent deal” - Lightman J stated in Inntrepreneur v East Crown [2000]

-

Importance of the statement - The more important the statement is to contracing paries, the more likely it is to be considered a term - Bannerman v White [1861] where buyer asked if hops was treated with sulphur and said would not buy them if hops treated with sulphur as cannot make beer. Seller assured buyer hops not treated with sulphur. Held statement that hops not treated with sulphur was a TERM and not a MISREPRESENTATION as C had communicated the importance of the term and relied on the seller’s statement

-

Relaive experise of the paries – generally if expert to amateur, term, if amateur to amateur, likely mere misrepresentaion - eg Esso v Mardon [1976] (inaccurate statement of petrol staion’s output but Esso had greater relaive experise compared to Mardon) held its only a mere representaion though diferent relaive experise

-

Representaion of current facts vs future facts - representaion of current fact is much more likely to be considered terms than a statement of future fact or future forecast - eg Esso v Mardon [1976] where it was a forecast, therefore swayed towards a mere representaion

-

External veriicaion - If the defendant encouraged the claimant to rely on his assurance without seeking external veriicaion of its accuracy, this will readily persuade the court that the statement was a term of the contract – eg Ecay v Godfrey [1947] (Boat claimed to be in good condiion when actually was in appalling condiion) held to be a representaion as seller asked buyer is he was geing a survey done of the ship

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2. Has it been incorporated? A. Incorporaion by Signature 

Party who signs a contract is generally bound by the terms of the contract; AND this is true regardless of whether the party signing it has read it or understood the legal efect: L'Estrange v F Graucob Ltd [1934]



THREE excepions: o

Non est factum: a party may be able to deny that the document which he has signed is his deed if he is unable, through no fault of his own, to understand the document without explanaion (restricted to e.g. illness or mental incapacity)

o

Inducement to sign by fraud or misrepresentaion

o

Signed document does not purport to have contractual efect - Grogan v Robin Meredith Plant Hire [1996] (signing of a imesheet in this case was not viewed as a reasonable man expecing to contain relevant contractual informaion, as a imesheet is an administraive document)

B. Incorporaion by Noice 

There can be incorporaion of terms on the basis of o

o

(i) a prior course of dealing between the paries: Hollier v Rambler Motors [1972] CA (Oral dealings, someimes signed claim form excluding liability. This ime didn’t. Held in this case not incorporated, as not suicient cause of dealing) 

if the paries have always contracted on the same terms in the past, the terms can be incorporated based on a course of dealing and do not have to be have to be expressly menioned



The course of conduct must be consistent and regular

(ii) usual condiions in a paricular business: 

Briish Crane Hire v Ipswich Plant Hire [1973] CA (didn’t sign form, usual exclusion. Held to be incorporated based usual pracice): C’s standard writen terms widely used in the industry, and both paries knew well that the condiions are habitually imposed by the supplier of the machines  standard terms incorporated



Scheps v Fine Art Logisic Ltd [2007] HC : DISTINGUISHED – Storage of art work, email for storage, never say artwork taken into D custody pursuant to their terms and condiions – therefore not incorporated as C had no knowledge and not given D’s standard terms and condiions 

Could also be because C was a private customer

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

WHERE incorporaion cannot be determined on the above basis, the courts will look for three requirements to be saisied o

Noice must be given at or before the ime of contracing: Thornton v Show Parking Ltd [1971] CA (Exclusion clause found inside the carpark) -> contract concluded at the moment of entry so noice too late to be efecive

o

Terms must have been contained or referred to in a document that was intended to have contractual efect: Chapelton v Barry [1940] (exclusion clause on back of receipt for deckchairs), an exclusion clause was inefecive ater CA held the icket on which it was printed not to be a contractual document. The reasonable person would not expect to ind contractual terms contained in mere receipts of this kind.

o

OBJECTIVE TEST: *Reasonable steps must have been taken to bring the terms to the atenion of the other party





Terms - Denning LJ in J Spurling Ltd v Bradshaw [1956] with his “red hand rule” -> “the more unreasonable a clause is, the greater the noice which must be given of it. Some clauses…need to be printed in red ink on the face of the document with a red hand poining to it before the noice could be held to be signiicant”



Exclusion clauses - Interfoto v Sileto [1989] transparency company with a clause of 5 pounds per transparency per day for a course of 14 days – total cost of 3.7k for 47 transparencies for a month, held the holding fee was inefecive as Dillion LJ said this was a “paricularly onerous or unusual” term and must have special noice. Ulimately paid 3.5 quid per week per transparency – not incorporated

The more onerous or unusual the term, the greater the steps must be taken 

Interfoto v Sileto [1989]: ONEROUS  photographic transparencies late return 5 pounds a day



AEG (UK) Ltd v Logic Resource Ltd [1996]: ONEROUS -> where C sought to recover the cost of shipping defecive goods to be ixed based on clause “the purchaser shall return the defecive parts at his own expense to the supplier immediately upon request by the later



O’Brien v MGN Ltd [2001] CA: NOT ONEROUS  Scratch card no burden imposed on C, simply deprived C of proit which he has done litle for

C. Parol Evidence rule 

GENERAL RULE: Where the paries have reduced their contract to wriing, it is not permissible to adduce other external evidence to add to, vary, or contradict the writen instrument

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o

Implied terms are not excluded where an enire agreement statement is silent on their inclusion/exclusion - Axa v Campbell Marin [2011]

3. Does it apply to the facts, if properly construed A. Contra proferentum 

If a party wants to exclude his liability under a contract, he must use clear and explicit words o

Eg William Hare v Shepherd [2010] (exclusion of liability clause drated based on 1986 Act, when Enterprise Act 2002 came out not updated. Therefore inconsistent drating, read against the dratsman, ICS Chartbrook principles of interpretaion would not come to the rescue, especially since the clause was drated in a way that would work)

o

Eg John Lee & Son (Grantham) Ltd v Railway Execuive [1949] – where “loss, damage… however caused (whether by act or neglect of the company or their servant or not) which but for the tenancy hereby created … would not have arisen” lessor held not to be protected by the exclusion clause as “but for the tenancy” restricted clause to liabiliies arising from relaionship between landlord and tenant

B. Exclusion of liability for negligence 



Three guidelines as to when an exclusion clause purporing to exclude negligence liability would have that efect: Canada Steamship v The King (where negligent ire, Clause 7 “the lessee (CSL) shall not have any claim … for… damages… to … goods… being…in the said shed” did not exclude negligence liability in clear terms and Clause 17 “the lessee shall at all imes indemnify… the lessor from and against all claims… by whomsoever made … in any manner based upon, occasioned by or atributatble to the execuion of these presents, or any acion taken or things done … by virtue hereof, or the exercise in any manner of rights arising hereunder” as ambiguous and had to be construed against the Crown) 1.

If the clause contains language which expressly exempts the person in whose favour it is made (hereater called "the proferens") from the consequence of negligence, efect must be given to that provision

2.

If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence. If a doubt arises at this point, it must be resolved against the proferens

3.

If the words used are wide enough for the above purpose, the court must then consider whether "the head of damage may be based on some ground other than that of negligence". If the proferens could be liable on some other basis as well as negligence (e.g. strictly liable AND in negligence), the clause will be interpreted so as not to exclude liability for negligence

$ Courts have tended to reach illogical conclusions and to insist that clear words must be used to exclude liability in negligence even where there is no other sort of liability potenially covered by the clause e.g. Hollier v Rambler [1972] where C someimes had to sign form containing exclusion clause someimes not when repairing car. This ime never signed and

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car was damaged. Held no incorporaion of the term - OBITER Customer's cars are driven by staf at owners' risk” was not so plain that it could exclude liability for negligence. Also exempion clause was not incorporated into oral dealings 

CURRENTLY post UCTA, Canada Steamship principles are used as guidelines, and are not a litmus test: HIH Casualty and General Insurance Ltd v Chase Manhatan Bank [2003] HL o

Cf Geys v Societe General (2012) where Lord Hope applied Canada Steamship principles, in respect of an employer’s atempt to restrict liability for wrongful terminaion

C. Exclusion for fundamental breach 

In Photo Producion v Securicor [1980] (“under no circumstances be responsible for any injurious act or default by any employee… unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of [Securicor]” – no doctrine of fundamental breach and that the words of the exclusion clause were clear and on their true construcion covered deliberate acts as well as negligence so as to relieve the defendants from responsibility for their breach of the implied duty to operate with due regard to the safety of the premises) o

HL held that there is no rule of law that liability for fundamental breach can never be excluded.

o

Instead it is a quesion of interpretaion, the more serious the breach, the clearer the words needed to exclude it, but if suiciently clear words are used, the courts will give efect to the clause 

Lord Wilberforce - “the doctrine of “fundamental breach” in spite of its imperfecions and doubful parentage has served a useful purpose”, no longer needed die to UCTA 1977

D. Limitaion Clauses Limitaion clauses are not interpreted as restricively as exclusion clauses: Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] Lord Fraser where limited liability to 1000 quid for “any loss or damage of whatever nature arising out of or connected with the provision of, or purported provision of, or failure in provision, held to be a valid. Seems to suggest lower standard for limitaion clause than exclusion clause) held that limitaion clauses are not interpreted as restricively as exclusion clauses. Such clauses will be read contra proferentem and must be clearly expressed, but they should not be judged by the specially exacing standards which are applied to exclusion clauses. 

WHY: Lord Fraser ‘no such high degree of improbability that [C] would agree to a limitaion of the liability of the proferens.’

E. Fraud 

The common law bars the use of an exclusion clause to exclude liability for fraud: HIH v Chase Manhatan [2003] where “shall have no liability of any nature to the insurers for any

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informaion provided by any other paries” held this can exclude liability for negligent misrepresentaion but not fraud. o

Can exclude liability for another’s fraud but not your own fraud

4. Is the exclusion clauses valid (if applicable) A. UCTA 1977 – non-consumer contracts I. Does it fall within UCTA 1977 s3(1) + s3(3) -> Only applies to “writen standard terms of business” between “non-consumers paries” o

-

Whether the contractual terms count as the defendant’s “writen standard terms of business” is a mater of fact and degree - the greater the degree of negoiaion and variaion, the less likely they are to count as such – eg Briish Fermentaion Products v Compare Reavell (1999) where a contract for the supply of machinery between two commercial paries was made subject to the “Insituion of Mechanical Engineers Model Form of Contract General Condiions Form C” did not fall within s3 UCTA since they were not CR’s standard terms, because CR did not invariably or habitually use the model form

Business liability s1(3) -> in the ‘course of a business’, or ‘from the occupaion of premises used for business purposes of the occupier’  Sch 1 -> Insurance contracts + Sale of Land doesn’t fall within UCTA 1977

-

Variaions of exempion clauses s13(1)  hence, provisions that do not expressly atempt to exclude liability can sill fall under the scope of the act.

o



“(a) making the liability or its enforcement subject to restricive or onerous condiions;



(b) excluding or restricing any right or remedy in respect of the liability, or subjecing a person to any prejudice in consequence of his pursuing any such right or remedy;



(c) excluding or restricing rules of evidence or procedure;”

This has been interpreted extremely broadly: e.g. Stewart Gill v Horaio Myer [1992], S contracted to supply a conveyor system to H. H withheld payment because it alleged defects in the work, so S sued for payment, relying on a term in the contract which provided that ‘The Customer shall not be enitled to withhold any payment for any reason whatsoever.’ 

Held: within the scope of UCTA as it fell under (b) above, since it excluded a right or remedy which the Customer would otherwise have had

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

Also held that a term in the contract which prevented a payment or credit from being set of against the price claimed was unreasonable.

II. Is the exclusion reasonable? s3(2) -> Requires the term to be reasonable within s11(1) UCTA -

Reasonable within s11(1) UCTA

o

Can a part that is unreasonable be severed?



No -> Stewart Gill v Horaio Myer [1992] case as precluding severance of unreasonable words in a clause ‘The Customer shall not be enitled to withhold any payment for any reason whatsoever.’





Ie if clause unreasonable, the clause is not valid – court cannot take the reasonable meaning of it and apply it while severing the unreasonable part

Yes -> CA in Waford Electronics (2001) held that the following composite clause was severable and that each sentence should be considered as a separate exclusion clause 

Neither [Sanderson] nor [Waford] shall be liable to the other for any claims for indirect or consequenial losses whether arising from negligence or otherwise. In no event shall [Sanderson's] liability under the Contract exceed the price paid by [Waford] to [Sanderson] for the Equipment connected with any claim.”  Hints that if composite clause is severable, might be able to sever the unreasonable part

o

s11(1) not intended to be an exhausive list - Lord Griiths in Smith v Eric S Bush [1990]



Can use s11(2) + Sched 2 for more indicators - Stuart-Smith LJ in Stewart Gill v Horaio Myer [1992] “the consideraions set out [in Sched 2] are normally regarded as being of general applicaion to the quesion of reasonableness”

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 the strength of the bargaining posiions of the paries relaive to each other…  whether the customer received an inducement to agree to the term, or in acceping it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;  whether the customer knew or ought reasonably to have known of the existence and extent of the term…  where the term excludes or restricts any relevant liability if some condiion is not complied with, whether it was reasonable at the ime of the contract to expect that compliance with that condiion would be pracicable;  whether the goods were manufactured, processed or adapted to the special order of the customer. o

Case law upholding terms 

Eg Waford Electronic Ltd v Sanderson CGL Ltd [2001] – where clause restricing liability for loss to a maximum of the contract price paid and excluding liability for indirect or consequenial loss held to be reasonable 

7.3 [10.6] Neither [Sanderson] nor [Waford] shall be liable to the other for any claims for indirect or consequenial losses whether arising from negligence or otherwise. In no event shall [Sanderson's] liability under the Contract exceed the price paid by [Waford] to [Sanderson] for the Equipment connected with any claim.”



Chadwick LJ at [54]-[55] “where experienced businessmen… best judge of the commercial fairness” and that the court should interfere – suggest that decision was because it was a dealing between commercial paries

o



This approach was endorsed in later cases by Rix LJ at [40] at Regus (UK) Ltd v Epcot Soluions Ltd [2008], though did not cite Chadwick LJ’s words

Eg Monarch Airlines v Luton Airport [1998], the STANDARD TERMS clause excluding the airport’s negligence liability for damage to aircrat caused by any act, omission, neglect or default for damage to planes on take-of was held to be reasonable, principally because the airline knew about the clause and accepted it without complaint, its meaning was clear and both paries had made their insurance arrangements on the basis that the airport was not liable for negligent damage

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o o

It was a contract between COMMERCIAL PARTIES

Case law invalidaing terms 

Eg George Mitchell v Finney Lock Seeds [1983] (farmer bought seeds for 201 quid, negligently supplied seed of inferior quality resuling in crop failed. Loss was 61k quid. Relied on exclusion clause contained in its STANDARD TERMS which limited its liability to replacement of the seeds or refund of the price paid), the clause limiing the seed merchants’ liability for crop failure was held to be unreasonable and inefecive, even though some factors pointed in the defendant’s favour. For example, the seed was very cheap relaive to the magnitude of the damages claimed, the clause did not exclude liability altogether, and the farmers knew about the clause, which was clearly worded  But other factors ipped the balance





First, the paries were not of equal bargaining strength and there had been no negoiaion about the clause



Second, the clause was standard in the industry but, crucially, seed merchants generally rarely invoked it.



Thirdly, the defendants had ofered to negoiate the farmers’ claims without enforcing the limitaion. This was seen as a tacit acknowledgement in the trade, and by the defendants, that it was an unreasonable provision

Eg St Albans City & District Council v Internaional Computers [1996] (D supplied sotware to C to compile tax database, error caused overesimaion of populaion by 3% and thus could not recover as much money as expected. Loss was over 1mil, D sought to rely on exclusion clause limiing liability to 100k) – held D could not rely on exclusion clause. Factors poining to the why: 

D’s company had great economic size (ie great bargaining power)



D had product liability insurance



Few companies in which C could purchase the sotware from and all the companies had the same exclusion clause in their contracts



The authority’s inancial shorfall would otherwise be borne by the local populaion (reduced services or higher tax)

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B. CRA 2015 – consumer contracts I. Is the CRA 2015 applicable + legal consequences s61(1) -> “This Part applies to a contract between a trader and a consumer.” s68(1) (Requirement for clear language) -> “A trader must ensure that a writen term of a consumer contract, or a consumer noice in wriing, is transparent” -

“A consumer noice is transparent for the purposes of subsecion (1) if it is expressed in plain and intelligible language and it is legible” – s68(2)

s62(4) ->“A term is unfair if, contrary to the requirement of good faith, it causes a signiicant imbalance in the paries’ rights and obligaions under the contract to the detriment of the consumer.” -

s62(1) (Legal efect of a inding of unfairness) -> “An unfair term of a consumer contract is not binding on the consumer”

 1. Good faith

o

Lord Bingham in Director General of Fair Trading v First Naional Bank plc [2002]



o

“The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pifalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject mater of the contract, weak bargaining posiion...

Lord Steyn in Director General of Fair Trading v First Naional Bank plc [2002]



“Good faith imports… the noion of open and fair dealing… Any purely procedural or even predominantly procedural interpretaion of the requirement of good faith must be rejected”

 2. Signiicant imbalance

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o

Lord Bingham in Director General of Fair Trading v First Naional Bank plc [2002]



o

Lord Steyn in Director General of Fair Trading v First Naional Bank plc [2002]



-

“The requirement of signiicant imbalance is met if a term is so weighted in favour of the supplier as to ilt the paries' rights and obligaions under the contract signiicantly in his favour… This involves looking at the contract as a whole. But the imbalance must be to the detriment of the consumer...”

“It has been pointed out… that the test “of a signiicant imbalance of the obligaions obviously directs atenion to the substanive unfairness of the contract”... It is however, also right to say that there is a large area of overlap between the concepts of good faith and signiicant imbalance.”

Case law – parking charges - ParkingEye Ltd v Beavis [2015] (2 hours stay, beyond that 85 quid, UTCCR 1999)

o

Held Parking charge not unfair. Imbalance did not arise “contrary to the requirement of good faith”, because ParkingEye had a legiimate interest in imposing a liability on B in excess of the damages recoverable at common law. A reasonable motorist would have agreed to the term imposing the £85 charge in a negoiaion. The terms were brief, simple and prominently proclaimed



Lord Toulson (dissening) -> Clause was unfair because it made no allowance for circumstances, no allowance for grace eg 1 min v 56 min sill pay 85 quid



Therefore if applied test, Parkeye cannot be said that customer would actually say its reasonable to pay 85 quid for 1 min overime



Albeit Lord Toulson sill endorsed the test used by the majority, just disagreed on the facts

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-

-

Other factors to be taken into account

o

Part 1 of Sched 2 “contains an indicaive and non-exhausive list of terms of consumer contracts that may be regarded as unfair”

o

s62(5) -> whether unfair or not, take into account (i) nature of subject mater and (ii) all the circumstances exising

Applies to both standard or individually negoiated contract

II. Is it excluded from the assessment of fairness s64(1) -> Courts cannot examine if the term is fair or not if term if (a) main subject mater or (b) appropriateness of price -

But must be transparent and prominent – s64(2)  Transparent if expressed in plain and intelligible language and (in the case of a writen term) is legible – s64(3)

 Prominent if brought to the consumer’s atenion in such a way that an average consumer would be aware of the term – s64(4)

o

“Average consumer” means a consumer who is reasonably well-informed, observant and circumspect – s64(5)

Applicaion in cases under UTCCR 1999 -

Director General of Fair Trading v First Naional Bank plc [2002] SC (OVERRODE STATUTORY DEFAULT RULES TO MAKE C PAY A HIGHER RATE OF INTEREST THAN THE DEFAULT) o

Held: Core terms that are excluded should be read restricively - This demanding contractual rate of interest was subject to the unfairness test of the 1999 Regulaions, but the arrangement was held not to be unfair though s3(2) 1999 Regulaions should be read 

Ie court can intervene even though cannot look at appropriateness of price as appropriateness of price should be read restricively to not include higher rates of interest to allow court to intervene in this case

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o

-

Lord Steyn at [34] "the adequacy of the price of remuneraion" must be given a restricive interpretaion

Cf Oice of Fair Trading v Abbey Naional plc [2009] SC (Banks levied charges for unauthorised overdrats on personal current account customers) o

Held: SC held that the charges were part of the price or remuneraion for the services provided by the banks to customers, hence they were “core terms” within regulaion 6(2) of the UTCCR 1999. This meant that they could not be assessed for fairness by reference to their adequacy as payment for the services provided in exchange. o



Shows a less restricive approach to “core terms” being applied

This was resolved under old UTCCR 1999, where it said “adequacy of the price or remuneraion” while now its “appropriateness of the price” but the topic of the inquiry ie PRICE has not changed, unlikely this decision would be reopened under CRA



Though no reason to expect CRA 2015 to be any diferent

Implied terms 1. Terms implied in fact 

Terms in fact can only be implied when o

Terms can only be implied where STRICTLY NECESSARY (per Lord Steyn in Equitable Life Assurance Society v Hyman [2002]). The necessity test, per PC in Atorney General of Belize v Belize Telecom, is used as a means of determining what the proposed term, in the process of objecive contractual construcion, is supposed to mean

o

Albeit would not be applied if there are conlicing objecives: 

Eg Phillips Electronique Grand Publique SA v BSB Ltd [1995] CA (prior to Belize) where the court refused to impute an implied term in favour of C that D in proposing to merge with rival would kill of C’s business because of CONFLICTING OBJECTIVES eg in this case broadcasing company and satellite television receivers



Eg Ali v Chrisian Salvesen [1997] where CA held no implicaion in the context of a collecive agreement governing employment relaions because of the “potenially conlicing objecives” between the employer and employee

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

Two possible tests: o

Business eiciency test (test endorsed by Lord Neuberger with Sumpion and Hodge agreeing in Marks & Spencer v BNP Paribas (2015)) -> The Moorcock [1889] which mean a term would be implied into the contract if the contract would not work without it from the point of view of the paries’ respecive commercial posiions 

“Business eicacy” worked – eg Silverman v Imperial London Hotels Ltd (1927) that a couch in a hotel which C had permission from the manager to sleep on would be free from bedbugs



“Business eicacy” failed – eg Easton v Hitchcock (1912) where no implied term that former employees not to ip of husband that would render the private detecive work’s useless

o

Oicious bystander test (test endorsed by Lord Neuberger with Sumpion and Hodge agreeing in Marks & Spencer v BNP Paribas (2015)) -> Shirlaw v Southern Foundries (1926) Mackinnon LJ, which established the “oicious bystander test”: where a term is “so obvious [to the paries] that it goes without saying”

o

But relaionship between the 2 tests is UNCLEAR  Lord Neuberger in Marks & Spencer v BNP Paribas (2015) stated they are alternaives, though tend to be established jointly in most situaions

 Andrews suggests that following Phillips Electronique Grand Publique SA v Briish Sky Broadcasing Ltd (1995) the oicious bystander test trumps the business eicacy (The Moorcock) test -> as where a putaive term which is supported by business eicacy is not supported by oicious bystander, the courts will refuse to recognise the term implied by fact

 Criicism -> or it is possible that both the tests need to be fulilled

 Lord Hofman in Belize seems to suggest that “business eicacy” and “oicious bystander” test merely ways of answering the underlying quesion of what the contract, when read against the relevant background would be reasonably understood to have meant

 Though A. Phang suggests that the 2 tests should be complimentary -> oicious bystander as a pracical mode in which business eicacy is implemented 

Belize v Belize Telecom [2009] PC

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o

Lord Hofmann in Belize v Belize Telecom [2009] PC held that for WRITTEN CONTRACTS, when deciding when to imply a term, the court has to consider -

Test: is what the instrument, read as a whole against the relevant background, would reasonably be understood to mean.

-

Held in Belize, that there was an implied term that once relevant shareholding ceased to exist ie lost its “golden share” in the stocks, the directors appointed by reason of the shareholding should vacate their oice

-

Agreeing with Lord Hofman that implicaion is an exercise of interpretaion, Arden LJ in Stena Line Ltd v Merchant Navy Raings Pension Fund [2011] -> where “implicaion of terms is, in essence, an exercise in interpretaion”, went on to say that these principles of interpretaion are the “unifying factor” behind the structure of law o

-

But Arden LJ in that case refused to apply Belize as she said the Belize formula was “not wholly clear”

Cf Marks & Spencer v BNP Paribas [2015]where Lord Neuberger, Sumpion and Hodge rejected Lord Hofmann in Belize as “characterisically inspired discussion rather than authoritaive guidance on the law of implied terms” -> said Singapore CA in Jong Peng v Phua Kiah Mai [2012] was correct in refusing to follow the reasoning in Belize at least in so far as “it suggest[ed] that the tradiional ‘business eicacy’ and ‘oicious bystander’ tests are not central to the implicaion of terms” 

o

Lord Neuberger necessarily viewed Belize as altering the tradiional approach (otherwise his comments would be meaningless, he would just take the Lord Clarke + Lord Carnwath way by saying Belize never altered the tradiional meaning)

Lord Clarke – agreed with his view in Mediterranean v Seamar [2009] where he was in CA and said Lord Hofmann’s analysis is not in any way resiling from the principle that it must be necessary to imply the proposed term. It is never suicient that it should be reasonable o Ie Lord Clarke said “another way of puing the test of necessity is to ask whether it is necessary to do so in order to make the contract work” o Lord Carnwath agreed with Lord Clarke that Belize had never watered down the test of necessity, though didn’t cite Mediterranean v Seamar [2009]

Principles

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 Suggest that all cases of detailed drating (and not just leases) no implied terms since judges emphasised how detailed the drating is - Marks & Spencer v BNP Paribas (2015) (held no implied terms for lease) -

Supported by Leggat J in Yam Seng Pte Ltd v Internaional Trade Corp Ltd (2013) where said it will not be an uphill struggle if the drating was “skeletal”

 Court must exercise extreme cauion (ie less likely implied term) for detailed contract represents “a closely negoiated compromise between…conlicing objecives” - Phillips Electronique v Briish Sky Broadcasing Ltd (1995) (not merging with rival such that C’s equipment would be useless not an implied term) CA -

Endorsed by SC in Marks & Spencer v BNP Paribas (2015)

2. Terms implied by law 

A term implied in law applies to all contracts of a paricular “type” unless they are excluded by the terms of the contract.



Unlike the previous category, these are based on policy consideraions (and not founded on intenions of paries) 





E.g. Liverpool City Council v Irwin: a term should be implied at law into leases of council blocks of lats that landlord covenanted to take reasonable care o

Fairness reasons: because council is best placed to undertake responsibility for common parts

o

Note, however, that reasonableness is not the guiding principle – it remains only where it is “necessary”

E.g. $ Scally v Southern Health & Social Services Board, where a term was implied about taking reasonable steps to bring an advantageous right under the contract to his atenion o

Fairness reasons: protect employees with valuable rights, albeit rights that they could not be expected to know unless brought to their atenion by their employer

o

NB: Crossley v Faithful & Gould Ltd emphasises that there is no general implied obligaion on employers to take care of employee’s inancial well-being

Eg Mahmud v Bank of Credit & Commerce Internaional [1998] where former employees of corrupt bank sued bank because of its corrupt status had negaively afected their prospects of inding a job. Held yes implied term of mutual trust and conidence

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

Cf Shell UK Ltd v Lostack Garage Ltd [1976] where no implied term in solus agreement that Shell not discriminate abnormally against the defendant in favour of the defendant’s compeitor so as to render the defendant’s sales economically unviable



Cf Crossley v Faithful & Gould Holdings Ltd [2004] CA where employee resigned, backdated resignaion for tax reasons on advice of employer but then deprived of enitlement to beneits under employer’s insurance scheme. No implied terms as it would be unfair and unreasonable to impose such a general duty on the employer + conlict of duies with the employer in waning to take care of its interest o

Ie no duty to provide more detailed pension advice

Interpretaion of terms Tradiionally, judges approached the task of interpretaion by focusing on the meaning of the language used in the contractual document, without considering the background to the contract or any other ‘external’ maters (Lovell v Wall [1911] Cozens-Hardy MR “without reference to anything which has previously passed between the paries to it”) Lord Hofmann set out principles for interpreing writen contractual terms in ICS v West Bromwich [1998]: 1. Purpose of the contract (as it inluences what a reasonable person would have understood it to have meant)

 The meaning of the document is what the paries using those words against the relevant background would reasonably have been understood to mean

o

And not solely look at the meaning of the words

 Can take into account:

a. The whole contract – eg Schuler v Wickman, Wood v Sureterm where CA said very important when construing the document is concerned with warranies – need to look at the whole contract

b. Background informaion + absolutely anything that would be understood as relevant by the reasonable man

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 But following Re Sigma Finance Corp [2009] (where paries not involved in the drating of relevant terms for the security, held cannot use the “background” material since paries were not present when terms drated), need to show that the background informaion is accessible to the paries

 But court not allowed to look at pre-negoiaions (pre-negoion can be looked at only for reciicaion) (i) subjecive intent (ii) negoiaion material and (iii) post-formaion conduct - Lord Hofmann in Chartbrook v Persimmon [2009], where “pre-contractual negotaions will be drenched in subjecivity” and will be “very much in dispute”

2. Business commercial sense

-

Where the investors had assigned absolutely to CS all third party claims except “any claim (whether sounding in recession for undue inluence or otherwise) that you have against the… building society” was read as:

 “any claim sounding in rescission (whether for undue inluence or otherwise) “

 Ie under this interpretaion, the investors assigned all the claims to ICS except the claim to rescission

 Airmed Lord Diplock in Antaios Compania Neviera SA v Salen Rederierna AB [1985] where if a conclusion louts business common sense, “it must yield to business common sense” 1. Does it fall within Correcive Interpretaion? Applied when it’s ambiguous or just plain going against commercial business sense o

Going against business commercial sense: 

Eg Chartbrook v Persimmon [2009] – going against commercial business sense  Held the ARP was to be interpreted the way in that would make commercial sense (in line with the common pracice of the market at that ime) and not

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based on “ordinary rules of syntax” which would have made no commercial sense as that would have resulted in a deicit ie a negaive payment 

Eg Litman v Aspen Oil (Broking) Ltd (2005) (another example of correcive interpretaive) where CA held that terminaion date … must be “noice given by Landlord” would make no sense. So held it to be “noice given by the Tenant o

Albeit, ICS referred to, but only to the extent in which background informaion was to be disregarded 

Therefore, this is not a direct airmaion of ICS’s business common sense

LIMITS to Chartbrook following Arden LJ in Scoish Widows Fund v BGC Internaional (Arden LJ applied Chartbrook + ICS principles, probably thinks its right but set limits to it) [2012]: a. Must be clear that the paries have made a mistake and what the mistake is b. It must be clear what the paries intended to agree c. The mistake must be one of language or syntax o

Ambiguous (ie 2 possible meanings, favour the one that makes business commercial sense) 

Rainy Sky v Kookmin (Chartbrook, IC S was not in dispute, paries accepted that they applied) [2011] SC Quesion of recovery of “all such sums” whether it referred to the sums in Paragraph 2 or the “pre-delivery instalments” in the irst line of Paragraph 3, so that the guarantee covered insolvency  Held to be the one that was consistence with business common sense o



Per Lord Clarke “if there are two possible construcions, the court is enitled to prefer the construcion which is consistent with business common sense and to reject the other”

Pink Floyd Music Ltd v EMI Records Ltd (Paries accepted ICS, Chartbrook. These were not in contenion) [2010] where the CA interpreted the clause that established that individual songs could not be sold without the arist permission also applied to online material even though not explicit -> applied to online material because it made business common sense

2. Evidence to refute goes against commercial business sense ie that the paries actually intended this and the courts shouldn’t intervene 1. If the contract is simple, no clear error of drating (Lord Hodge) and no clear soluion (Lord Hodge) – Eg Arnold v Briton [2015] SC where interpretaion consistent with business common sense not given due to the clear natural meaning of the language of lease payment for services of 90 quid + 10% increase per year even though ater a number of years, the total cost would exceed the cost of the services

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o

Ie in this case it was just too CLEAR and SIMPLE, unlike Rainy Sky v Kookmin where there was ambiguity to the sums and Chartbrook where it was a complicated formula

o

Also possible that Chartbrook’s formula was going against CLEAR MARKET PRACTICE while no clear market pracice for Arnold

 Chartbrook was viewed as correct (especially by Lord Neuberger which endorsed Lord Hofmann in Chartbrook as staring point of analysis), but Lord Neuberger added that commercial common sense cannot undervalue the importance of the language

o

Seems to suggest simplicity of the contract is evidence that the paries intended the clear meaning of the words

2. Just unambiguous language – Eg Procter and Gamble v Svenska Cellulosa (ICS Chartbrook wasn’t cited, just Rainy Sky which accepted ICS Chartbrook) [2012] where there was a noion reading “pound/euro exchange rate 1.49164” was not held to be an expression of a ixed rate of exchange, purpose of including the noion was to explain the rate of conversion for the purpose of a budget

 There was no way such unambiguous language could be stretched to be viewed as a ixed rate of exchange

 Therefore submission on authority of Rainy Sky v Kookmin just wouldn’t cut, since it was not possible that the language was even ambiguous in the irst place

3. Contract makes commercial sense as a whole - Eg Wood v Sureterm Direct Ltd (ICS Chartbrook not cited, but Arnold v Briton cited which approved Rainy Sky which approved ICS Chartbrook) [2015] CA where reversing HC decision held that ambiguous indemnity (which was narrow) should not be interpreted in favour of business common sense to have a wider scope (which is the standard pracice). Instead gave efect to indemnity (scope is narrow, but unlimited ime to sue) not being restricted to ime limit as read indemnity in the wider context of relevant warranies (scope broad but subject to a 2 year period) that in this case expired

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 Ie the reason why the indemnity was so narrow was because of the presence of the broad warrenies that was subject to a 2 year period -> therefore paries did not intend the indemniies to be broad even though broad indemniies was the standard pracice therefore interpreted indemniies narrowly



Clarke LJ warned that court shouldn’t be too ready to use “business common sense” as someimes what is thought to be lacking in business common sense “may be a product of a compromise which was the only means of reaching agreement” – ie the missing clause was against common sense, but Clarke LJ said that court shouldn’t be too fast to hold that

 In this case it involved reading the narrow indemniies in the wider context of the broad but subject to 2 year ime limit warrenies Reciicaion Common mistake RATIONALE: By a mistake in verbal expression, the terms of the writen instrument do not relect paries’ true agreement ie as to the RECORDING of the contract, so reciicaion is necessary to give efect to the paries’ intenions. -

Eg Craddock Bros v Hunt [1923] where reciicaion allowed as part of the plot bought by C was subsequently mistakenly excluded from C’s writen contract and included in H’s

-

Cf Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] where C and D proceeded on the assumpion that “horsebeans” were “feveroles” when in fact they were not – reciicaion refused as this was a mistake and not an error as to the recording

REQUIREMENTS: Daventry v Daventry [2011] Etherton LJ: (1) the paries had a common coninuing intenion, whether or not amouning to an agreement, in respect of a paricular mater in the instrument to be reciied;

(2) which existed at the ime of execuion of the instrument sought to be reciied;

(3) such common coninuing intenion to be established objecively, that is to say by reference to what an objecive observer would have thought the intenions of the paries to be; and

(4) by mistake (common to both paries, being the belief that the document accurately records the transacion), the instrument did not relect that common intenion. Note -> Concluded prior agreement not necessary - Joscelyne v Nissen [1970] where court ordered reciicaion to put agreement for daughter to pay household bills and weekly pension to father into

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writen contract for father to transfer hire business to daughter-> held no need for a concluded contract antecedent to the agreement, enough there was (i) a “COMMON CONTINUING INTENTION” as regards to a paricular provision in the agreement (the payment of household expenses) and (ii) “CONVINCING PROOF” that the writen instrument did not represent the common intenion

The Chartbrook controversy Lord Hofmann (OBITER – as was decided on interpretaion, not reciicaion) in Chartbrook v Persimmon[2009] suggested that the quesion is whether an objecive reasonable observer would have thought the paries shared a common coninuing intenion that the writen instrument mean something other than it did. -

Old approach -> Reciicaion used when 2 paries subjecively agreed on one thing but the writen contract said another

 Eg Denning LJ in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] where you can look at “their outward acts” to ascertain their subjecive intenion but need to show the 2 paries subjecively agreed

-

Chartbrook approach -> now not necessary to show 2 paries subjecively agreed to the same terms, just whether an objecive reasonable observer would have thought the paries shared a common coninuing intenion that the writen document meant something other than it did

-

Hypothesis on which reciicaion issue was being considered: the reasonable person reading the prior documents would conclude that “super overage” was not payable – so objecively construed the pre-contractual agreement did not provide for “super overage”, but the inal writen contract provided for “super overage”

o

Persimmon (the developer) which never intended to pay the “super overage” was right ater the pre-contractual status (of not paying the super overage – objecively construed) but wrong about the writen contract (since the writen contract provided for super overage)

o

Chartbrook (the owner) which always intended that Persimmon pay the super overage was wrong about the pre-contractual status (of not paying the super overage – objecively construed) but right about the writen contract (since the writen contract provided for super overage)

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o

But both were wrong in believing the writen contract conformed with the pre-contractual consensus -> therefore Permission would be enitled to common mistake reciicaion

 Criicism by Toulson LJ in Daventry v Daventry [2011] CA -> Agrees with Professor McLaughlan’s criicism in seeing why reciicaion should be allowed for Persimmon since Chartbrook was wrong that Persimmon intended to pay the super-overage but never misled Persimmon into believing so, so why should we let Permission have a way out here

 As in the past, under old reciicaion subjecive intent, Permission wouldn’t have a way out as both of them never had the subjecive consensus during the pre-negoiaions

 Criicism by Davies in “Recifying the Course of Reciicaion” (2012) -> argues that the approach in Daventry v Daventry [2011] where they applied Lord Hofman OBITER in Chartbrook is unsaisfactory, one ought to look at the subjecive intenions of the paries allowing a clear disincion between reciicaion for common and unilateral mistake  Davies criicises this decision in that Chartbrook OBITER blurs the boundaries between unilateral mistake (objecively viewed whether wilfully blind or reckless) (one party mistaken) and common mistake (both paries mistaken) (but now if objecively viewed, can be resolved through common mistake reciicaion)since in Chartbrook only one party was mistaken -> since Daventry could be resolved through unilateral mistake a well: in that DDC was misled by DDH’s representaive, impute representaive conduct to DDH, therefore DDC enitled to unilateral mistake  Supports Sir Kim Lewison’s lecture that if “it aint broke, don’t ix it” regarding common mistake reciicaion In Daventry v Daventry [2011] CA (Negoiaions between DDC and DDH, Mr Roebok for DDH misled DDC while lied to DDH board, DDC had a negligent solicitor Mr Bruno, didn’t understand the ambiguous term) -

Held common mistake reciicaion should be allowed as based on an objecively reasonable observer, there was a common coninuing intenion that the deicit should be shared but this was not relected in the contract

-

All members of CA agreed that court should follow Chartbrook in this case and held a reciicaion but did not accept that Lord Hofman in Chartbrook was NECESSARILY correct:

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 Majority Toulson LJ + Lord Neuberger (not without hesitaion) -> key issue in applying Chartbrook was “whether on a fair view there was a renegoiaion or a mistake” ie if renegoiaion, points against common mistake reciicaion since this is evidence that there is no more common coninuing intenion. But in this case, the inserion of the clause was not an atempt at renegoiaion, viewed yes common coninuing intenion, so apply Chartbrook and recify o

Majority view-> gives weight to the reprehensible conduct of Mr Roebok for DDH that he misled DDC and lied to the board of DDH, in holding that DDC and DDH had a common coninuing intenion  Toulson LJ seem to express doubts about whether Chartbrook was really correct  Suggested on the facts, could have granted reciicaion based on unilateral mistake by C for which D could be blamed for (because of the knowledge and conduct of its negoiator) ie wilfully blind to an obvious fact

 Etherton LJ (dissening ie no reciicaion should be granted) -> an objecive reasonable observer would think that there was no common coninuing intenion when one party proposed the clause and this was accepted by the other party o

Minority view -> But this seems to give weight to the negligent solicitor (Mr Bruno for DDC) that didn’t check the clause properly and thus a reasonable person would view the other party accepted the term, therefore no common coninuing intenion, reciicaion should not be allowed  Andrews supports this view, although doesn’t explicitly say he supports Etherton LJ

Unilateral mistake Reciicaion may be ordered if (i) one party is “aware” that the other party is mistaken about the content or meaning of the writen terms in the contract and (ii) fails to point this out A party will be “aware” of the other’s mistake if: (1) he had actual knowledge, or -

Eg Templiss Properies Ltd v Hyams [1999] where lease for gym described inclusive of business rent when one party knew it was agreed that rent was exclusive of business rent  Reciicaion ordered on the grounds that H knew that the drat did not relect what was agreed but did not say anything

(2) was wilfully blind to an obvious fact; or (3) he wilfully or recklessly failed, contrary to the noion of reasonableness and honesty, to inquire whether there had in fact been a mistake.

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-

Eg Commission v Cooper [1995] (feigning interest in negoiaion so as to exercise a “put opion”) CA held that suspicion and ‘turning a blind eye’ were suicient

-

Cf George Wimpey UK Ltd v VI Components Ltd [2005] where no reciicaion ordered though recognised from the start W would pay an “overage payment” if sale prices of the lats exceeded an agreed base igure. W proposed to V a formula for calculaion of the overage. V’s surveyor faxed over reined formula and V’s directors agreed to it. W became aware of the omission ater the contract was concluded  No reciicaion as V had no knowledge of W’s mistake and W failed to provide convincing evidence that V shut its eyes to the obvious

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Misrepresentaion Term -> Representaion -> Mere pufs/opinion/non-disclosure Most severe -----------------------------------------------> Least severe Term in main contract/ collateral warrenty -> Remedies: Damages on the expectaion measure Misrepresentaion -> Remedies: Rescission, Tort of fraud, Misrepresentaion Act 1967 Mere pufs/opinion/non-disclosure -> Remedies: None

IT MUST BE A REPRESENTATION FOR THIS FLOWCHART

1. Is it a misrepresentaion of fact? GENERALLY, an acionable misrepresentaion requires an unambiguous, false, statement of (generally) fact which is addressed to the party misled, and which induces the party to enter into the contract. It is contenious as to whether the misrepresentaion needs to be ‘material’ STATEMENT: can be a writen or oral communicaion, AND ALSO through conduct (e.g. Spice Girls Ltd v Aprilia World Service BV). ADDRESSED TO THE PARTY: o

Directly to the party misled OR

o

Made to a third party with the intenion that the third party pass on the informaion to C

a. Term v mere misrepresentaion It is only a term if judged objecively, it is intended to be a term and ‘can only be deduced from the totality of the evidence” (Lord Moulton in Heilbut v Buckleton [1913] –ulimate test is INTENTION, OBJECTIVELY ASCERTAINED, also illustrated by Leggat J in Yam Seng Pte Ltd v Internaional Trade Corp (2013)) -

Timing of statement - “the longer the interval, the greater the presumpion must be that the paries did not intend the statement to have contractual efect in relaion to a subsequent deal” - Lightman J stated in Inntrepreneur v East Crown [2000]

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Importance of the statement - The more important the statement is to contracing paries, the more likely it is to be considered a term - Bannerman v White [1861] where buyer asked if hops was treated with sulphur and said would not buy them if hops treated with sulphur as cannot make beer. Seller assured buyer hops not treated with sulphur. Held statement that hops not treated with sulphur was a TERM and not a MISREPRESENTATION as C had communicated the importance of the term and relied on the seller’s statement

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-

Relaive experise of the paries – generally if expert to amateur, term, if amateur to amateur, likely mere misrepresentaion - eg Esso v Mardon [1976] (inaccurate statement of petrol staion’s output but Esso had greater relaive experise compared to Mardon) held its a term due to diferent relaive experise  Cf Dick Bentley Producions v Harold Smith (Motors) (1965) – CA held a car dealer’s statement that a car had covered 20k miles since a new engine had been ited was a contractual warrenty

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Representaion of current facts vs future facts - representaion of current fact is much more likely to be considered terms than a statement of future fact or future forecast - eg Esso v Mardon [1976] where it was a forecast, therefore swayed towards a mere representaion

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External veriicaion - If the defendant encouraged the claimant to rely on his assurance without seeking external veriicaion of its accuracy, this will readily persuade the court that the statement was a term of the contract – eg Ecay v Godfrey [1947] (Boat claimed to be in good condiion when actually was in appalling condiion) held to be a representaion as seller asked buyer is he was geing a survey done of the ship

b. Misrepresentaion v mere puf Misrepresentaion (vs “mere pufs”) if judged OBJECTIVELY, statement was intended to be taken seriously: -

Eg Carlill v Carbolic Smoke Ball £1000 in the bank evidenced seriousness

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Cf Dimmock v Hallett (1866) - “ferile and improvable land” held to be a mere puf

c. Misrepresentaion of fact v mere opinions -

Special knowledge or experise over the other party, court tends to treat opinions as representaions  Eg Bisset v. Wilkinson [1927] (W purchased land from B to be used for sheep farming. During negoiaions, B esimated it would ‘carry two thousand sheep’) held to be an opinion and not a representaion W knew that the land had never before been used for sheep farming + vendor not an expert (LACK OF EXPERIENCE)  Also price of land dropped so there was a suspicion that W just wanted a way out from a bad bargain  Eg Smith v Land and House Property Co (1884) (vendor sold freehold with a “most desirable tenant” though vendor knew that tenant had been slow to pay rent) – held it was a misrepresentaion though strictly an opinion as the OPINION in this case would be viewed as a MATERIAL FACT due to vendor knowing the informaion while buyer doesn’t  Eg Brown v Raphael [1958] (solicitor made opinion on trust fund held honestly on a fact “believed to have no agreeable estate” to vendor though no reasonable grounds for believing so. Relied upon, held as representaion due to solicitor being in a stronger

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posiion) – held to be a misrepresentaion though solicitor held the opinion HONESTLY due to the stronger posiion -

Can have misrep for intenions:  Eg Edington v Fitzmaurice (1885) where promoter said investments used to expand business but actually just wanted to pay of exising debts, held to be a misrep. Per Bowen LJ “ a misrepresentaion as to the state of a man’s mind is, therefore, a misstatement of fact”)

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Can have misrep for a statement of future intenions:  Eg Spice Girls v Aprilia [2002] (where C, the Spice Girls sued D a motorbike company which had agreed to sponsor C for adverisement. But one member had expressed intenion to leave the group prior to the signing. D claimed it was induced to enter into the contract by misrepresentaion. Held misrepresentaion by conduct as the Spice Girls had goten all 5 members for the commercial photoshoot + supply of logos images and designs contained all 5 members) – held to be misrepresentaion as a statement of future intenions might IMPLICITLY contain a statement of fact as to the present

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Can have a misrep as to law:  Eg Pankhania v Hackney [2004] (C entered contract believing the licensee could be terminated only on giving 3 months’ noice when actually not based on misrep) - Held this mistake of law counted as a misrepresentaion

d. Misrepresentaion v non-disclosure General rule -> no duty to disclose – Erle CJ in Robbins v Jones (1863) “fraud apart, there is no law against leing a tumble-down house”, Lord Hofman in BCCI SA v Ali [2002] -

Eg Sykes v Rose [2004], the vendor answered ‘no’ to the quesion ‘is there any other informaion that you think the buyer may have a right to know’ without disclosing that a gruesome murder had been commited in the house several years before. This was held not to amount to a misrepresentaion, since the vendor honestly believed that the buyer had no right to be told.  Cf Seem to suggest could have been avoided if the informaion quesion read “is there any informaion that the buyer would LIKE to know” instead of “had the RIGHT to know”

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Silence by itself cannot found a claim in misrepresentaion -> but an express statement may impliedly represent something

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 Eg Lord Chelmsford in Oakes v Turquand (1867) -> where gives an example if said everything in prospectus is literally true but if omit some material fact from the prospectus, can be viewed as a misrepresentaion

 Eg Nots v. Butler [1886] (a purchaser of land was told by the vendor’s solicitor that he was not aware of any restricive covenants. This statement was literally true, but only because the solicitor had omited to read any of the relevant itle documents that would have disclosed the covenants) as therefore amounted to a misrepresentaion that he had checked properly for restricive covenants, made on behalf of the vendor.

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Can have misrepresentaion by truth later falsiied - Lord Wright in CA With v. O’Flanagan [1936] (vendor of a medical pracice told the potenial purchaser in January that the pracice was worth £2000 a year. This was true at the ime but thereater the vendor became ill so the income of the pracice had fallen dramaically by the ime the contract for sale was entered into in May. CA held that the vendor should have disclosed the change in circumstances and the contract was set aside) held that a representaion made as a mater of inducement to enter into a contract is to be treated as a coninuing representaion (Lord Wright MR), thus the representaion must be true ill the contract is made.  Lord Wright’s coninuing representaion analysis in With v. O’Flanagan was endorsed by Lord Reed in SC Cramaso LLP v Ogilvie-Grant [2014] and the coninuing representaion analysis ie requiring the representaion to be kept up to date  Also possible to use good faith analysis like by Romer LJ and Clauson J (and also supported by Lord Wright MR) that representor becomes liable if he disovers the change but fails to correct the earlier statement

 This good faith analysis is supported by Lewison J in Foodco UK v Henry Boot Developments (2010) where “there is no duty to keep the counter party constantly updated … the duty is to communicate a change of circumstances which the representor knows has falsiied a previous representaion where the falsity exists at the date when the contract is concluded -

Can have acive misrepresentaion by a half-truth – Curis v Chemical Cleaning and Dyeing Co (1951) where exclusion clause where D told C that only excluded loss due to damage to beads and sequins when in fact the exclusion clause covered all damage, held this half-truth was an acive misrepresentaion

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Can have acive misrepresentaion by conduct – Spice Girls v Aprilia (2002) (where C, the Spice Girls sued D a motorbike company which had agreed to sponsor C for adverisement. But one member had expressed intenion to leave the group prior to the signing. D claimed it was induced to enter into the contract by misrepresentaion. Held misrepresentaion by conduct as

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the Spice Girls had goten all 5 members for the commercial photoshoot + supply of logos images and designs contained all 5 members)

Excepion -> Contracts ‘uberrimae idei’ (of utmost good faith) can be voided by one party if the other party has not disclosed material maters known to him -

Eg Insurance contracts - Lord Mansield CJ in Carter v Boehm (1766) “ the special facts … lie most commonly in the knowledge of the insured only”

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Eg Partnership agreements - Parker LJ in Conlon v. Simms [2008] in negoiaing such an agreement a party owes a duty to the other negoiaing paries to “disclose all material facts of which he has knowledge and of which the other negoiaing paries may not be aware”

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NOTE -> damages are available for fraudulent non-disclosure in cases of contracts uberrimae idei, whereas for non-fradulent non-disclosure C’s only remedy is rescission: Conlon v Simms

2. Fraud or no fraud (if fraud take A route, if no fraud take B route) It is fraud if a false representaion has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly. Mere negligence is insuicient for fraud. – HL in Derry v Peek (1889) 3. Causal connecion of representaion to inducement (ie C’s reliance on the false statement)

3A. Non-fraudulent Need “but for” causaion that the misrepresentaion induced C to enter into the contract - JEB Fasteners v Marks Bloom [1983] (an example of no but for as C did not rely on the accounts and thus no casual connecion) -

Though the misrepresentaion need not be the sole or main inducement to enter into the contract – Stephenson LJ in JEB Fasteners v Marks Bloom [1983] (“as long as the misrepresentaion plays a real and substanial part, though not by itself a decisive part”)  Eg Edgington v Fitzmaurice (1885) CA that C induced by mistaken beliefs of his own + D false statements. Held C can sill claim  Approved by Lord Hofman in Standard Chartered Bank v Pakistan Corporaion (Nos. 2 and 4) [2003]

Sill might count as reliance even if C had the CHANCE to ind out the truth of the mater (and thus might be able to rescind) - Redgrave v. Hurd [1881] (Solicitor purchased partnership into irm, ofered but didn’t check account, turns out proit less. Counted as reliance and allowed to rescind as held failure to check account REINFORCED rather than negated that reliance)

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But may not apply where the opportunity to discover the truth lies in the contract - Peekay v. ANZ [2006] (NON-FRAUDULENT, representee signed but did not read, contract document described the bonds accurately – held no rescission allowed)

NB -> Materiality of misrepresentaion (DISAGREEMENT) 1. Materiality as evidence to infer reliance (BETTER VIEW -> it subsumed under the “but for” test, but for my material statement, I wouldn’t have entered the contract)  Eg Sir Morrit V-C in Spice Girls v Aprilia [2002]: a. A materiality can be suicient to establish reliance, provided the representee alleges he did rely

b. But materiality is not decisive, because other factors might be adduced by the representor to counter the inference of fact 2. Materiality as a separate requirement to establish reliance  Eg Smith v Chadwick [1884] where majority of Selbourne LC, Lords Blackburn and Watson seemed to separate the requirements of (i) materiality and (ii) inducement, requiring C to show that the ambiguous statement (material) was interpreted by him in the false meaning (inducement). C couldn’t show he interpreted it in the false way. C failed)  Cf McKendrick says whether the statement must be “material” is NOT a separate requirement 3B. Special rule for fraudulence (use only if standard of 3. cannot be atained) Seems to be a more generous standard (ie can be established with less reliance or possible simply just CONTRIBUTION) for fraudulent cases as fraudulent misrepresentaion made the representee “persevere in a decision already made” – per Morrit LJ in CA Barton v County Natwest (1999)  Decision explained that way by Clarke J in Raifeisen ZentralBank v Royal Bank of Scotland (2010) -

Representee could have found out truth of the mater can nonetheless rescind - Gordon v Selico (1986) (FRAUDULENT, cover up dry rot. Held can rescind)

4. Remedies 4A. Non-fraudulent 4A1. Rescission (returning paries to the pre-contractual posiion ie what if the misrepresentaion had not been made rather than if the misrepresentaion had been true) -

It is voidable, but takes efect “ab iniio”

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“The normal remedy for misrepresentaion is rescission” - Salt v Stratstone Specialist Ltd [2015] Longmore LJ at [24] Bars to rescission: -

Airmaion - a contract cannot be rescinded if the misrepresentee does something unequivocal, intending to airm the contract ater discovering the truth - Street v Coombes [2005] (though such inference is not to be taken lightly, in this case purchaser’s acions in trying to keep the business going ater having discovered its true disastrous inancial posiion did not amount to an intenion to airm the contract)

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Lapse of ime - if the misrepresentee delays too long before rescinding, this will bar the claim  What if ater long ime, misrepresentee discovers truth, can rescind?  Yes can rescind o

Mellor J in Clough v North Western Railway [1871] (but this was a FRAUD case) as long as he acts promptly as soon as it does “but we cannot see any principle, and are not aware of any authority for saying that the mere fact that one who is a party to the fraud has issued a writ and commenced an acion before the rescission is such a change of posiion as would preclude the defrauded party from exercising his elecion to rescind.’

 No cannot rescind o

CA Leaf v. Internaional Galleries [1950] (L bought a paining from IG in reliance on the innocent representaion that it had been painted by Constable. L only discovered the truth ive years later when he tried to sell the paining and atempted to rescind immediately. The CA held it was too late to do so – he had not acted within a reasonable ime) 

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Cf CA in Salt v Stratstone Specialist Ltd [2015] doubted Leaf ie lapse of ime, of itself, could not be a bar to rescission as following the passage of s.1 of the 1967 Act it is doubful whether it is sill good law that a representor should be in no worse posiion than if the representaion had become a term of the contract

Impossibility of restoring the status quo - impossibility bars rescission – Hunt v Silk (1804) (where resituion refused for rent as C had been occupying the land. Makes no sense to return the rent)  The courts might be prepared to be more lexible in inding ways round the fact that resituion in integrum (ie restoraion to the original posiion) is literally impossible:

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 Eg Lord Browne-Wilkinson OBITER in Smith v Scrimgeour [1997] that rescission was more lexible than this: Since in such a case other, idenical shares can be purchased on the market, the defrauded purchaser can ofer substanial resituio in integrum which is normally suicient (this is only obiter as CA rejected claim on rescission in this case and Smith did not appeal on this)  Longmore LJ in Salt v Stratstone Specialist Ltd [2015] at [22] “neither depreciaion nor intermitent enjoyment should be regarded as reasons for saying that rescission is impossible” (just because car was used and thus no longer brand new is not a grounds for impossibility of rescission. Court should just rescind + maybe add some resituion) -

Third party rights - Once a third party has gained an interest in property that was the subject of the contract, rescission is barred. Though third party must have acquired his interest in good faith, for value and without noice of the defect in the iniial contract  Eg Car v Caldwell [1965] B fraudulent contract A’s Ferrari, B ran of. A used best endeavours to cooperate with police and went to rescind contract. B then sold Ferrari to C. Held A could rescind contract as had taken all steps possible to demonstrate he no longer wished to be bound by the contract – C had no interest at ime A went to rescind contract. If B had sold the Ferrari to C before A tried to rescind contract, A would be barred from rescinding contract).

4A2. Damages under Misrepresentaion Act 1967 s2(1) Misrepresentaion Act 1967 – Misrepresentor will be liable IN DAMAGES as if fraud occurred unless (i) proves that he had reasonable ground to believe and (ii) did believe up to the ime the contract was made the facts represented were true -

s2(1) reverses the burden of proof onto representor – can make the diference in cases like Howard Marine v Ogden [1978] where CA split 2-1 in favour of misrep possibly because of s2(1). Likely that if no s2(1) would have gone the other way  ie shows the forensic importance of this point

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C must miigate loss, even for deceit – Lord Browne-Wilkinson in Smith New Court

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“Lost opportuniies” damages are also available (since they are available for deceit)  But as Balcombe LJ said in Royscot Trust v Rogerson – must remember that though “lost opportuniies” are available that it is the torious and not the contractual measure that applies in s2(1) Misrep Act, therefore aim to put C in as good a posiion as if the representaion was not made, and not the posiion if the representaion was true  Therefore logical that C must miigate loss under s2(1) as s2(1) has the icion of fraud and tort of deceit

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Law Reform (Contributory Negligence) Act 1945 Act applies provided that s2(1) liability subsists alongside common law negligence – Sir Nicholls V-C in Gran Gelato v Richlif Group [1992]

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 Though Sir Nicholls V-C noted that failure to check the accuracy of representaion is not an example of contributory negligence -

NB -> Controversy if really can claim damages like for fraud ie CAN CLAIM NO MATTER HOW REMOTE SO LONG THERES DIRECTNESS  Yes can claim damages as if fraud - Royscot Trust v. Rogerson [1991], CA held that the measure of damages under s2(1) is the same as for the tort of deceit. Therefore, the claimant is enitled to recover all the losses which it sufered as a result of entering into the agreements with the dealer and the customer, even if those losses were unforeseeable (LOSSES ARE RECOVERABLE INDEPENDENT OF THE REMOTENESS PRINCIPLE)  Cf Doubing decision in Royscot Trust v. Rogerson [1991] - Lord Steyn (and possibly Lord Brown-Wilkinson) in Smith New Court where ater referring to Hooley (1991) (where he argues that this decision should not be taken enirely at face value. The CA probably suspected fraud on the part of the defendant, and so would have been more willing to apply the fraud measure on the facts of Royscot itself. But in many cases, the s2(1) defendant is not a fraudster, so in general the icion of fraud derived from Royscot is diicult to jusify) he said “I express no concluded view on the correctness of the Royscot case” ie expressing doubt on this point o

Lord Steyn -> jusiied the generous measures awarded against actual fraudsters on MORAL GROUNDS. This makes it diicult to jusify the icion of fraud in s 2(1) since it treats a morally innocent person as if he were guilty of fraud

s2(2) Misrepresentaion Act 1967 – allows for court to award damages IN LIEU of rescission -

Controversy – What is the relaionship between s2(1) and s2(2)  s2(2) to give the court discreion to award damages  Controversy - Can use s2(2) if rescission barred under s2(1)? I. Rescission barred, sill can use s2(2) (Common sense approach)

o

Eg Jacob J OBITER in Thomas Witer v. TPB [1996] (having decided that rescission of the contract of sale of a business was barred (because it was no longer possible to restore the business in the pre-contract state), Jacob J decided (obiter) that the discreion to award damages was sill available, despite rescission being barred, for reasons of fairness to the representee)

II. Rescission barred, cannot use s2(2) (Statutory interpretaion approach)

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o

Eg HC Zanzibar v. Briish Aerospace [2000] where the Jack QC J. decided that, since rescission was barred, he had no discreion to award damages in lieu: the Act states that damages under s2(2) are an alternaive to an order for rescission, meaning that rescission had to be available in the irst place. 

***Supported by CA in Salt v Stratstone Specialist Ltd [2015] where Longmore LJ at [17], the words “in lieu of rescission” in respect of damages awarded under s.2(2) of the Misrepresentaion Act 1967 (1967 Act) required that rescission was available. If that was not possible, either in law or because the contract as been airmed, then damages should not be awarded under that sub-secion

 s2(1) DAMAGES from having entered into the CONTRACT, while s 2(2) DAMAGES caused by the PROPERTY not being what it was represented to be – Hofman LJ in William Sindall v Cambridgeshire [1994] OBITER as (no acionable misrep so OBITER. Hofman LJ that if rescind contract, Cambridge CC would lose 6 mil, all for a sewer that only cost 18k. Therefore saw s2(2) as a way out of rescission where just pay the 18k in damages and uphold the contract) because a. s2(3) contemplates that damages under s2(2) may be less than damages under s 2(1) and should be taken into account when assessing damages under the later subsecion. This only makes sense if the measure of damages may be diferent. b. The Law Reform Commitee Report which led to the Act makes it clear that s 2(2) was enacted because it was thought that it might be a hardship to the representor to be deprived of the whole beneit of the bargain on account of a minor misrepresentaion. It could not have intended the damages in lieu to be assessed on a principle which would invariably have the same efect. s2(2) was intended to give the court a power to eliminate this anomaly by upholding the contract and compensaing the plainif for the loss he has sufered on account of the property not having been what it was represented to be o

Suggest s2(2) applied when misrep related to something of relaively minor importance (foul sewer that could be rerouted for 18k, compared to the land cost which was in the millions) instead of using the blunt approach of rescission for the land

5A2. Exclusion of misrepresentaion s3 Misrepresentaion Act 1967 -> any exclusion of liability does not have efect unless it saisies the requirement of reasonable under s11(1) UCTA 1977 -

If exclusion clause wide enough to include excluding fraud, will by virtue of common law rule not include fraud but would leave intact the non-fraudulent element of the clause subject to reasonability - Gloster J used this analysis in Six Coninents Hotels (2006) and rejected Jacob J in

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Thomas Witer v TBP Industries Ltd [1996] where if exclusion clause wide enough to include fraud, then clause is bound to fail in its enirety unless the non-fraudulent component can be severed from the fraudulent (and invalid) one

Controversy -> does s3 only apply to UCTA 1977 contracts ie can exclude free of UCTA for contracts not covered by UCTA? -

In favour that s3 only applies to UCTA 1977 contracts (ie can exclude free of UCTA for contracts not covered by UCTA)

 Eg Trident v First Flight [2009] (The court decided that the boundaries of UCTA (ie s3 ONLY APPLIES TO CONTRACTS THAT FALL WITHIN UCTA) should apply equally to s3 Misrepresentaion Act to relect the policy of Parliament to exclude internaional supply contracts from this type of statutory control and to avoid creaing an anomaly between clauses excluding liability for misrepresentaion and for breach of contract)  Ie can be limited to just internaional supply contracts since now UCTA 1977 doesn’t include consumer contracts, which simply goes against at least one of the purposes of Misrep Act to protect consumers  Eg Clarke J in Raifeisen Zentralbank v The Royal Bank of Scotland [2010] – that s3 only applies when UCTA applies - where he draws a disincion between commercial paries and individual person “it is obviously advantageous that commercial paries of equal bargaining power should be able to agree what responsibility they are taking towards each other without having to saisfy the reasonableness test”  Eg Chadwick LJ in E A Grimstead v McGarrigan (1999) where he gives 2 reasons why courts should not refuse to give efect to an acknowledgement of non-reliance in a commercial contract between EXPERIENCED paries of EQUAL BARGAINING POWER (ie that unreasonabless should not apply) -> showing that UCTA shouldn’t even come in, therefore s3 should only apply to non-UCTA cases a. Commercial certainty b. Reasonable to assume that the price paid relects the commercial risk which each party is willing to accept  This analysis is supported, albeit not explicitly referring to E A Grimstead v McGarrigan, by Gloster J in Springwell Navigaion v JP Morgan Chase Bank [2008] at [605]  Anaysis supported, albeit not explicitly referring to E A Grimstead v McGarrigan, by Lewison J in Foodco UK v Henry Boot Developments Limited (2010) that should be reasonable if:

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a. No inequality of bargaining power b. Paries both legally represented c. “the clause expressly permited reliance on any [speciic] reply given by D’s solicitors to C’s solictors” I. Was the representaion fraudulent? If yes, inefecive – you cannot exclude liability for fraud, as a mater of public policy. If no: II. Has the exclusion clause been incorporated into the contract? III. Can the clause, as a mater of drating, actually have the efect of excluding liability for misrepresentaion? x ‘Enire agreement’ clause – AXA v Campbell Marin (where even less clear enire agreement clause of “this Agreement shall supersede any prior promises, agreements, representaions …”. Held clause did not exclude liability for misrep as “supersede” was not clear enough to exclude liability – Burnton LJ “save in such contexts, and paricularly where the word “representaions” takes its place alongside other words expressive of contractual obligaion, talk of the paries' contract superseding such prior agreement will not by itself absolve a party of misrepresentaion where its ingredients can be proved”) where said “enire agreement clause” merely prevents claimant assering collateral contractual terms - therefore cannot exclude misrepresentaion for the purpose of s3  Straighforward wording that says ‘liability for misrepresentaion is excluded’ - conirmed by Aikens LJ in Springwell Navigaion Corporaion v JP Morgan [2010]  Clauses where the paries acknowledge either (a) ‘that no representaions were made’, or (b) that they ‘did not rely on any representaions’. Such clauses are efecive at common law, giving rise to a form of estoppel, so de facto operate as an exclusion of liability - conirmed by Aikens LJ in Springwell Navigaion Corporaion v JP Morgan [2010]

 “Mere opinions given without responsibility/non-veriicaion” clause that a party has not assumed any responsibility for any representaions made – conirmed by Aikens LJ in Springwell Navigaion Corporaion v JP Morgan [2010] + Newey J in Avrora Fine Arts Investment Ltd v Chrisie, Manson & Woods (2012) though it is acknowledged this principle is on a conceptual or principled knife edge IV. If yes, the term is subject to a statutory test of reasonableness under s11(1) UCTA 1977 (reasonable in regard to all the circumstances) Test of reasonability

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Eg Lloyd v Browning [2013] CA where clause excluding liability for all representaion except writen ones “no statement made by the seller or his agent has induced him to enter except writen statements” was held to not be unreasonable as: 1. This was not an ABSOLUTE exclusion, sill can rely on writen representaions -> simply deining which statement can be relied on and which cannot 2. Parity of means – CA stressed that each side had legal advisors when it entered into the contract

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Eg Etherton LJ in CA Cleaver v Schyde Investment Ltd [2011]: Not unreasonable to RESTRICT a purchaser’s right to:  Rescind the contract in the event of the vendor's misrepresentaion to cases of fraud or recklessness  Or where the property difers substanially in quanity, quality or tenure from what the purchaser had been led to expect, and to conine the purchaser to damages in all other cases

4A3. Alleging the existence of a collateral warrenty (and hence sue for damages) A statement that is not part of the main contract can instead from a SEPARATE COLLATERAL CONTRACT: e.g. City & Westminster Properies Ltd v Mudd  Oral promise that the tenant could sleep on the premise was construed as a collateral contract  Consideraion by tenant was ‘entering into the lease which he would not otherwise have done’. Misrepresentaion remedies (Tort of deceit, Misrepresentaion Act 1967) only gives damages to the torious level -

“Lost opportuniies” damages are available.  But as Balcombe LJ said in Royscot Trust v Rogerson – must remember that though “lost opportuniies” are available that it is the torious and not the contractual measure that applies in s2(1) Misrep Act, therefore aim to put C in as good a posiion as if the representaion was not made, and not the posiion if the representaion was true

-

But does not allowed for EXPECTATION MEASURE ie what would have happened if the representaion was true

Therefore, possible to get EXPECTATION MEASURE only by (i) saying oral statement was a term of the main contract or (ii) saying oral statement gave rise to a collateral warranty

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-

This circumvents PAROL EVIDENCE RULE (eg if main contract writen but oral statement, cannot add oral statement to main contract but can give rise to a collateral warranty)

1. Quesion of whether oral statement would give rise to a collateral warranty It is only a term if judged objecively, it is intended to be a term and ‘can only be deduced from the totality of the evidence” (Lord Moulton in Heilbut v Buckleton [1913] –ulimate test is INTENTION, OBJECTIVELY ASCERTAINED, also illustrated by Leggat J in Yam Seng Pte Ltd v Internaional Trade Corp (2013)) -

Timing of statement - “the longer the interval, the greater the presumpion must be that the paries did not intend the statement to have contractual efect in relaion to a subsequent deal” - Lightman J stated in Inntrepreneur v East Crown [2000]

-

Importance of the statement - The more important the statement is to contracing paries, the more likely it is to be considered a term - Bannerman v White [1861] where buyer asked if hops was treated with sulphur and said would not buy them if hops treated with sulphur as cannot make beer. Seller assured buyer hops not treated with sulphur. Held statement that hops not treated with sulphur was a TERM and not a MISREPRESENTATION as C had communicated the importance of the term and relied on the seller’s statement

-

Relaive experise of the paries – generally if expert to amateur, term, if amateur to amateur, likely mere misrepresentaion - eg Esso v Mardon [1976] (inaccurate statement of petrol staion’s output but Esso had greater relaive experise compared to Mardon) held its only a mere representaion though diferent relaive experise  Cf Dick Bentley Producions v Harold Smith (Motors) (1965) – CA held a car dealer’s statement that a car had covered 20k miles since a new engine had been ited was a contractual warrenty

-

Representaion of current facts vs future facts - representaion of current fact is much more likely to be considered terms than a statement of future fact or future forecast - eg Esso v Mardon [1976] where it was a forecast, therefore swayed towards a mere representaion

-

External veriicaion - If the defendant encouraged the claimant to rely on his assurance without seeking external veriicaion of its accuracy, this will readily persuade the court that the statement was a term of the contract – eg Ecay v Godfrey [1947] (Boat claimed to be in good condiion when actually was in appalling condiion) held to be a representaion as seller asked buyer is he was geing a survey done of the ship

2. Is a collateral warranty excluded Burnton LJ in AXA v Campbell Marin [2011] where enire agreement clause” merely prevents claimant assering collateral contractual terms, and not exclude misrepresentaion

4B. Fraudulent – tort of deceit

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The representee can recover for all losses caused directly by, and which he would not have incurred but for, the deceit, even if they were not reasonably foreseeable (i.e. there is no remoteness test) Naionwide v Dunlop [2009] where could recover loss for drop in credit raing due to adverse publicity, which in turned caused withdrawal of retail deposits and loss of further mortgage business – C could recover ALL the loss, also CA in Doyle v Olby [1969] where test for remoteness of damage is not reasonable foreseeability but directness, supported by HL in Smith New Court v Scrimgeour Vickersu (damages could be reclaimed for a drop in share price, even though the reason for the fall in price was an unrelated fraud) -

“Lost opportuniies” damages are also available.  But as Balcombe LJ said in Royscot Trust v Rogerson – must remember that though “lost opportuniies” are available that it is the torious and not the contractual measure that applies in s2(1) Misrep Act, therefore aim to put C in as good a posiion as if the representaion was not made, and not the posiion if the representaion was true

-

But fraud does not allow for EXPECTATION MEASURE, only lost opportuniies  Expectaion measure - The claimant is put into the posiion he would have been in if the representaion had been true (expectaion measure).  The expectaion measure is not used unless the representor did promise that the representaion would be true

-

Someimes hard to disinguish between “lost opportuniies” and expectaion measure  Eg CA East v Maurer [1991] (E purchased one of M’s two saloons on the assurance M would stop working at his other saloon at the same town. Because of that had unexpected compeiion from M) that the proits which the claimant lost the opportunity to make on an alternaive hairdressing business are recoverable (though not the proits which the claimant thought he would make on the hairdressing business actually purchased)  Ie here “lost opportuniies” damages awarded. But this seems to come uncomfortably close to expectaions measure as C awarded on the expectaion that she would make money on an alternaive hair saloon (though expectaion measure not allowed as D did not promise the representaion to be true)  Controversial decision though East v Maurer seems to be supported by later cases o

Clef Aquitaine SARL v Laporte Materials (2001) where CA awarded damages for the loss atributable to a bad set of terms (the extra proit which would have been gained if D had not fraudulently distorted the negoiaions concerning the alleged lowest UK supply prices) ie this endorses East v Maurer [1991] “lost opportuniies” approach

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o

Cf Marks(1992) is criical of the reasoning in East v Maurer arguing that the decision ‘may well overcompensate the plainif by considering as certain that which was merely possible’

 4 Eng Ltd v Harper (2008) – C successfully claimed for loss of the chance to purchase T (at 80% x potenial proit) – shows lost opportuniies apply to “loss of chance”  Parabola Investment v Browallia Cal Ltd [2011] – consistent with East v Maurer, that “lost opportuniies” seemed to be allowed for under tort of deceit, held if not invest in D then could invest in stocks and shares, court accepted that argument, no rule that hypotheical proits must be SPECIFIC ie didn’t have to show which stock to buy, an alternaive transacion

No defence of contributory negligence under Law Reform (Contributory Negligence) Act 1945 – HL Standard Chartered v Pakistan Naional [2003] -

C must miigate loss, even for deceit – Lord Browne-Wilkinson in Smith New Court

5B. Exclusion of misrepresentaion No exclusion for misrepresentaion allowed for fraud - Government of Zanzibar [2000] -

If exclusion clause wide enough to include excluding fraud, will by virtue of common law rule not include fraud but would leave intact the non-fraudulent element of the clause subject to reasonability - Gloster J used this analysis in Six Coninents Hotels (2006) and rejected Jacob J in Thomas Witer v TBP Industries Ltd [1996] where if exclusion clause wide enough to include fraud, then clause is bound to fail in its enirety unless the non-fraudulent component can be severed from the fraudulent (and invalid) one

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Mistake Unilateral mistake A. Mistake as to the terms 1. Mistake must be as to the terms (any background informaion is not relevant) – Smith v Hughes (No mistake in this case as no mistake to the terms of the contract, D only knew there was a mistake because of the background informaion that the oats were for the race horses and thus needed to be old oats)  No duty for seller to sound out buyer’s mistake, as seller neither said nor did anything to contribute to his decepion – Cockburn J 2. Must be shown that one party knew or should have known of the other’s mistake  Eg Hartog v. Colin [1939] (mistakenly ofered hair skins for price per pound rather than per piece. Hair skins usually sold at per piece, C ought to have known there was a mistake), the claim was rejected on the ground that the claimant could not reasonably have suppose that that ofer contained the oferor’s real intenion – he was ‘snapping up’ an ofer that contained an obvious error. Accordingly, it was not reasonable for the claimant to rely on the defendant’s apparent intent. By looking at the actual intenions of the paries, it is clear that the terms of the acceptance do not coincide with the terms of the ofer due to the oferor’s mistake) – yes mistake, contract was void as to the terms as ought to know o

Ie if other party knew or ought to have known (based on objecive principles), it is a mistake as to the terms

 Eg Centrovincial Estates v Merchant Investors Assurance [1983] – No mistake as to the terms as 65k quid ofer for rent instead of 126k quid, held no mistake as D did not know and objecively could not have known about the error  When a mistake is triggered by one party’s fault (e.g. if the ofer is confusing), that party will be taken to have known of the other party’s mistake - Scriven v Hindley (aucion bidding confusing, thought buying something else and C had contributed to the mistake – held C known about D’s mistake)

B. Mistake as to the idenity of the other party Criicisms of the disincions drawn: 1. Mistakes of atributes (where a crook fraudulently asserts he is creditworthy – eg King's Norton Metal Co Ltd v Edridge, Merret & Co Ltd (1897)) v Mistakes of idenity (where a crook fraudulently asserts he is someone else known to be creditworthy – eg Cundy v

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Lindsay (1878)) (Cundy had to pay the linen manufacturers Lindsay & Co for the 250 dozen cambric handkerchiefs the crook acquired from Lindsay by fraudulently represening he was the respectable business irm of Blenkiro – DISTANCE DEALINGS, NOT FACE TO FACE)

 Criicised by Lord Nicholls (minority) in Shogun

 Criicised in Lewis v Averay -> no accepted disincion between a mistake as to idenity, and a mistake as to an atribute:

2. Face to face transacions (Phillips v Brooks + Lewis v Averay yes contract C wins) v non-face to face transacion (Cundy v Lindsay no contract A wins)

 Criicised by Lord Nicholls (minority) in Shogun -> thought soluion was to adopt the Phillips v Brooks + Lewis v Averay yes contract C wins for all circumstances

o

Whereas majority in Shogun was in favour that Cundy should be followed – thereby entrenching this disincion

 Criicised by Lord Milllet (minority) in Shogun I. Mistake as to the ATTRIBUTES Where a crook fraudulently asserts he is creditworthy – eg King's Norton Metal Co Ltd v Edridge, Merret & Co Ltd (1897) (There the crook ordered some brass rivet wire from a metal manufacturer. On his wriing paper he represented he was in business in a big way, running a large factory and having several depots and agencies. The manufacturer, King's Norton, supplied the goods sought but was not paid. King's Norton was unable to recover the goods or their value from the third party to whom the crook subsequently sold them) – ie yes contract in this case, itle passes, C wins VOIDABLE

-

This was a mistaken atribute case as the crook’s company did not actually exist so cannot contract with it

-

NB -> acknowledged that in Lewis v Averay - no accepted disincion between a mistake as to idenity, and a mistake as to an atribute, and Shogun airmed decision in Lewis v Averay, but

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argued that Shogun did not airm Lewis v Averay on this point (but rather on face to face presumpion of voidable, C wins) II. Mistake as to the IDENTITY NB -> whole conlict only for ORAL CONTRACTS therefore this has no applicaion to writen contracts – Browne-Wilkinson V-C in Hector v Lyons (1989) RATIO “in my judgment the principle enunciated has no applicaion to a case such as the present where there is a contract and wholly in wriing. There the idenity of the vendor and purchaser is established by the names of the paries included in the writen contract” ie paries to the contract are those ideniied by the writen document  Supported by the majority decision in Shogun where it was a writen contract, held no contract with hire purchase (A) and fraudster (B) due to the forgery o

Also supported by Lord Hobhouse in Shogun who bases his analysis on the parol evidence rule

Guidelines (1) Face to face vs not face to face NB -> there is contenion as to what consitutes a ‘face to face’ transacion - OBITER in Shogun Finance, it seems that it will include agreements made by telephone, and cases where there is a writen agreement which is merely peripheral to the dealings between paries

a. Face to face transacions

 There is a strong presumpion in face to face transacions that A intended to contract with the person in front of him (therefore yes contract, voidable, C wins) - Shogun Finance v Hudson (Majority of HL)

 CA Lewis v Averay [1972] (LEADING CASE ON FACE TO FACE) (a crook represented orally FACE TO FACE that he was a well-known actor) – CA UNANIMOUSLY held yes contract, voidable, C wins because of FACE TO FACE transacion o

Lewis v Averay was approved by the majority in Shogun

o

Lord Denning MR reasoning + DICTA - all mistake as to idenity renders an apparent contract voidable (ie C wins), not void – therefore C wins

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

This approach taken by Lord Denning MR was criicised by majority (Lord Hobhouse in paricular) in Shogun Finance v Hudson

b. Non face to face transacions

 Not face to face, no presumpion that A intended to contract with rouge (therefore no contract, void, A wins) - Shogun Finance v Hudson (Majority of HL – held contract was between Shogun (A) (Hire purchase guy – used form, no face to face contact) and Mr Patel but since Mr Patel’s signature was a forgery, no contract - consumer credit agreement)

o

Cf Lord Nicholls (minority) – says Cundy v Lindsay (no contract, void, A wins, not face to face) should be rejected in favour of later cases ie Phillips v Brooks (Rogue face to face told jeweller that he was John Bullough, jeweller heard of John Bullough, jeweller gave evidence only intended to contract with Bullough) where held yes contract, voidable so C wins as:

a. Loss more appropriate to be borne by A since A parted with goods without proper checks

b. A intended to sell it to anyone who has money, not the speciic person menioned ie doesn’t mater if its Sir John Bullock or Duke of Wellington so long have money

c. Shouldn’t depend on the precise manner of how the crook sold himself ie FACE TO FACE v crook pretending to be creditworthy v crook pretending to be someone else who is credit worthy (2) the GENERAL NATURE of the transacion -

E.g. in Shogun Finance, the transacion was a consumer credit agreement where most of the money would not be received upfront – hence the idenity of the customer was crucial

-

In Ingram v Litle [1961], two examples were given, OBITER:  An imposter of a famous arist cannot accept the ofer – the nature of the contract makes it obvious that idenity is of vital importance

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 Conversely, an imposter of a customer can accept the ofer – the shopkeeper is normally ready to sell goods for cash to the world at large (3) Where the person the rogue is impersonaing ACTUALLY EXISTS -

The presumpion is that the ofer is not addressed to the rogue. However, this is not a decisive factor- Sellers LJ in Ingram v Litle [1961]

C. Non est factum Requirements: 1. The party signing the document must have made a fundamental mistake as to its character or efect AND 2. The party making the mistake must not have done so as a result of his own negligence (e.g. signing a document in blank and leaving it up to another party to ill in the details of what you are agreeing to). In pracice, this requirement means that the party must show some reason why they completely misunderstood the character of the transacion, such as illness, or a defecive educaion. It is not enough to show that you were too busy/lazy to read the document  Eg HL Saunders v Anglia Building Society [1970] (Lord Wilberforce – lady being unable to read document because no reading glasses not an excuse) Common mistake Orthodox view is there is common mistake. However, others think ‘no’ - that there is no room for a separate ‘doctrine of mistake’. 

This ‘construcion’/’implied terms’ approach argues that the efect of common mistake is ascertained by construing and interpreing the contract, implying terms in the normal way and that ‘voidness will only be the appropriate soluion if this is what the contract says should happen. -

Ie no common mistake doctrine, can be resolved enirely by interpretaions/implied terms  Supported by Toulson J in Great Peace “the efect of a mistake must depend on the proper construcion of the contract”, though CA came to the same conclusion through the doctrine of mistake approach  Supported by Hofman LJ in William Sindall v Cambridgeshire CC (1994) where he commented that such allocaion of risk can come about by rules of general law applicable to contract such as “caveat emptor”

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CA in Great Peace v Tsavliris [2002] set out the condiions necessary for the applicaion of common mistake at law: 1. Both paries must mistakenly believe that a state of afairs exists

 Does not mater whether this mistake is one of fact or law - Brennan v Bolt Burdon (where common mistake as to the law allowed)

2.

There must be no warranty by either party that the state of afairs exist (ie risk not borne by one party)

3. The next quesion is whether the falsity of the assumpion has made it impossible to perform the contract.

4. Neither party must be at fault

-

Two possible tests for fault (ie what fault is):

a. McRae v Commonwealth [1951] consists of two requirements: (i) that the party seeking to rely on common mistake held a mistaken belief which it was unreasonable for him to hold, and (ii) that he deliberately caused the other party to hold the same belief. It is not necessary that the former knows that his belief is incorrect.

b. CA in Great Peace (drawing on the test laid down in the context of frustraion in Hobson v Patenden (1903)) held that a party cannot rely on common mistake if ‘the nonexistence of the state of afairs’ is ‘atributable to the fault of either party’.

-

O’Sullivan -> McRae test is to be preferred. The Great Peace test sufers from a few problems.  It is unclear why one party should be barred from relying on common mistake by the fault of the other party.

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 Second, the Great Peace test allows a claimant to rely on common mistake even if it is his negligent misrepresentaion that has caused the other party to labour under the mistake in quesion (because the misrepresentaion only caused the mistaken belief, not the nonexistence of the state of afairs)

Common mistake as to EXISTENCE of subject mater If common mistake for goods that have perished at the ime contract was made, no contract – s6 Sale of Goods Act 1979

Common mistake as to QUALITY of the subject mater Approach #1 – Contractual interpretaion Generally, if the seller made no representaions and gave no warranty as to the quality of goods, then this is good evidence that paries intended the contract to be valid, EVEN IF the buyer’s assumpions about quality turn out to be false BUT if the correct contractual interpretaion is that the contract was enirely dependent on the mistaken assumpion, then there will be no valid contract if that assumpion is false - Griith v Brymer (the Coronaion liigaion, contract to rent a room void ab iniio)

Approach #2 – Common mistake (CONTENTIOUS whether it actually exist!) Two possible tests – confusion as to which test is the correct one Lord Atkin in Bell v. Lever Bros [1932] (company gave directors large severance payments but later found can just sack them) held that mistake as to quality of the thing contracted for will not afect assent unless it is the mistake of both paries and is as to the existence of some quality which makes the thing without the quality essenially diferent from the thing as it was believed to be. In this case compensaion agreement mistaken as to the status of the original service agreement NOT essenially diferent to consitute a mistake as to the quality of the subject mater  A sound horse is not ‘essenially diferent’ from an unsound horse  A picture by an old master is not ‘essenially diferent’ from a modern copy  Unfurnished dwelling house not “essenially diferent” from one that is uninhabitable -

Though Lord Atkin’s test of “essenial diference” in Bell v. Lever Bros was criicised by CA in Great Peace v Tsavliris [2003] as being based on weak authority - though sill seen as applying Bell, as their decision sill can be explained via the Lord Atkin’s Bell essenial diference test

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CA in Great Peace v Tsavliris [2003] (CA rejected common mistake argument as mistaken distance between ships not fundamental enough, because if no closer ship, D would sill have goten C to perform the contract) - the common mistake would only be serious enough to render the contract void if ‘it transpires that one or both of the paries have agreed to do something which it is IMPOSSIBLE to perform’ – therefore held not common mistake as not impossible for ship to arrive even though far away -

Criicism of the test: 1. It is unclear how the CA can simply dismiss part of the raio of the HL decision in Bell and replace it with a new test 2. Overly wide test IE CONTRACT WOULDN’T BE IMPOSSIBLE EVEN IF OTHER SHIP WAS ON THE OTHER SIDE OF THE WORLD. Therefore it is unclear whether a mistake as to quality can ever render a contract void: the test of the CA suggests not, but its applicaion of the test might suggest otherwise  Against the impossibility test: o

Sedley J in Brennan v Bolt Burdon [2005] DICTA at [59] – [61] says impossibility might be a bit too strict 

o

Albeit Maurice Kay LJ in Brennan v Bolt Burdon [2005] applied the test literally

Graves v Graves (2007) (the agreement was to provide accommodaion to Mrs Graves through a shorthold tenancy under which 90 per cent of the rent would be paid for by the local authority) shows that impossibility is too stern a test as - it was plainly not impossible for Mrs Graves to perform the shorthold tenancy agreement by paying rent

Remedy for common mistake Orthodox view is contract is void But Denning LJ in CA Solle v. Butcher [1950] held that rescission is available if the paries were under a common misapprehension either as to facts or as to their relaive and respecive rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault (Denning LJ - VOIDABLE in equity) -

Denning LJ in Solle pointed to HL decision in Cooper v Phibbs (1867) as support for rescission being available for shared mistake in equity

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Cf CA in Great Peace purported to overrule (THOUGH SIMPLY DIDN’T FOLLOW) Solle v Butcher on the basis that it is impossible to reconcile with Bell v Lever Bros (ie that Bell didn’t

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speak about rescission being available as an equitable remedy, so how can Solle v Butcher a CA decision allow rescission as a remedy).  Denning LJ in Solle pointed to HL decision in Cooper v Phibbs (1867) as support for rescission being available for shared mistake in equity  Even if Cooper v Phibbs indeed had been support for rescission in common law, CA noted that Lord Atkin DICTA in HL Bell v Lever Bros reclassiied it as VOID and NOT VOIDABLE – therefore Cooper v Phibbs took place in circumstances where the common law would have ruled the contract void for mistake which Denning LJ in Solle concluded it did not amount to those circumstances (Denning LJ in Solle said VOIDABLE in equity) o

Criicism (Andrews) -> Lord Atkin’s DICTA in Bell v Lever Bros is a fragile basis to conclude that HL jeisoned the equitable doctrine of rescission for common mistake

 CA also held that Solle was objecionable on policy grounds because it seemed to give relief merely on the ground that a party had entered into an extremely bad bargain

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Frustraion 1. Was there frustraion? The test is set out in Davis Contractors v Fareham UDC: frustraion occurs where a contractual obligaion has become incapable of being performed a. There must be a radical change in the signiicance of the obligaion b. The contract must not already distribute the risk of an event occurring (through express OR implied term) c. The occurrence must not be caused by either party a. Was there a RADICAL CHANGE in the obligaion i. Impossibility 



Destrucion of subject mater of contract – where the physical subject mater of the proposed performance is destroyed without any default by the paries o

Taylor v Caldwell (1863) (destrucion of music hall by ire, no one at fault – contract frustrated)

o

Appleby v Myers (1867) (C agreed and completed erecing machinery on D’s premises, but both destroyed by ire – contract frustrated)

Personal service contracts – may be frustrated if one party is unable to perform through death, illness, or incapacity o

BUT note ‘personal services’ can be construed somewhat broadly: in $ Atwal v Rocester a contract with a builder to carry out work on a house was considered a personal service (therefore frustrated) where 

The family knew him



Had built up a relaionship of trust with him



Obtained his services for substanially less than the market rate

ii. Illegality 

Illegality: concerns contracts which have become illegal AFTER formaion (a mater of public policy) o

Fibrosa SA v Fairbairn Lawson Combe Barbour (contract to sell machinery to buyers in Poland frustrated when Poland was occupied by Germany in WWII –illegal to trade with enemy in imes of war)

iii. Frustraion of purpose

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The analysis in Sullivan is that there will only be a radical change where there is a joint assumpion of purpose by BOTH paries. This general rule is evinced in the following sub-categories. 

**Non-occurrence of an event: NOTE that a brief discussion of the two below cases is vital. o

o

o

Krell v Henry (hire of room was solely for purpose of BOTH C AND D of watching the coronaion of King Edward VII): yes frustrated 

NOTE that it is not enough that one party’s moives or assumpions are disappointed, or even that the other knows of the former’s moives



NOTE special facts: (1) C adverised that he was selling a view of the royal procession (based on the special locaion of his room) rather than simply leing out the room (2) C was not in the business of leing out his room normally



HENCE it is likely that Krell is limited to its special facts



Cf Vaughan Williams LJ the Epsom Derby/cab driver fact patern discussed in Krell: even if the hirer of the taxi made an assumpion that the Derby was running, and the taxi driver knows of this assumpion, it is not enough to bring the contract to an end

Disinguish Herne Bay Steamboat Co. v Huton (hire of watercrat during coronaion of Edward VII for purpose of inspecing warships – the purpose was D’s alone, C lent it not for the coronaion but simply as ordinary hire): no frustraion 

See also Vaughan Williams LJ the Epsom Derby/cab driver fact patern discussed in Krell: even if the hirer of the taxi made an assumpion that the Derby was running, and the taxi driver knows of this assumpion, it is not enough to bring the contract to an end



Andrews argues that result might be diferent if adverised as “vessel available for hire during King’s review of the leet



See also the sample quesion at htp://global.oup.com/uk/orc/law/contract/osullivan6e/resources/guidance/ ch15/

Professor Treitel: 

In frustraion, the courts have applied the more rigorous test of asking whether ANY part of the contractual purpose could sill be achieved.



In Krell, the purpose of watching the coronaion was ‘as much for the lessor as the hirer’ given its special facts



Whereas in Herne Bay sill could take passengers to see the dock



Hence, doctrine of frustraion applies in Krell but not in Herne Bay

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



Hence it follows that generally, the forced alteraion of manner of performance/impossibility of performance by ONE PARTY = NO frustraion o

E.g. The Mary Nour (D unable to fulil contractual obligaion of providing cement since his supplier decided not to supply to him)

o

E.g. Outbreak of war - Tsakiroglou v Noblee Thorl (War between Britain and Egypt blocked Suez canal, causing delays in the performance of contract – no frustraion)

Hence the fact that a contract has become more diicult or expensive to perform by ONE PARTY does not consitute frustraion o

E.g. Davis Contractors v Fareham UDC  Facts: Contract to build 78 houses. 8 months to 22 months and 94K to 114K, which was not unforeseeable in post-war period. Builder completed work but argued that contract was frustrated (so he could claim more money via resituion). 

Held: No frustraion – changes were not drasic enough to saisfy the doctrine.

o

See to the same efect, The Eugenia (per Lord Denning MR): “The fact that it has become more onerous or more expensive for one party than he thought is not suicient to bring about a frustraion…it must be posiively unjust to hold the paries bound.”

o

ALSO, courts tend to hold that increased expense will never frustrate a contract: Tsakroglou v Noblee Thorl GmbH (transport of peanuts, Suez canal closed, sill could transport in ime but increased expenditure to go around Cape of Good Hope. Held not frustrated though increased expenditure) 

BUT Lord Reid reserved his posiion in respect of extreme increases in expense

iv. Delay?? 

A delay or temporary interrupion (which undoubtedly afects BOTH paries) could frustrate the contract depending, partly, on the length of the interrupion compared with the length of the contract o

Chity (2008): “the delay must be so abnormal, in its cause, its efects, or its expected duraion, so that it falls outside what the paries could reasonably contemplate at the ime of contracing.”

o

Delay suicient to frustrate: 

Eg Metropolitan Water Board v Dick,Kerr&Co (1918) -> where contract for construcion of reservoir that was to be completed in 6 years delayed due to government order to stop work and seal contract plant by warime government – held frustraion even though there was words “however

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occasioned” that though the words were literally wide enough to cover the situaion, did not actually cover this drasic “event” o

Delay insuicient to frustrate: 

Eg Davies Contractors Ltd v Fareham Urban District Council (1956) -> building contract expected to last 8 months in fact took 22 months not held to be frustrated + must look at increase of price from 94k to 114k also as failing



Eg “The Sea Angel” (2007) -> salvage vessel hired for 20 days prevented to leave the port unil payment made for polluion caused, took 3 months to get out – held not frustrated as this delay fell within scope and duraion of the risk borne by the charterer

b. Was the risk distributed? Foreseeability 

**Efect of foreseeability (somewhat contenious): o

General Rule: If an event is foreseeable, it is LIKELY (but not necessary) that the event is NOT a frustraing event. 

o

E.g. per Rix LJ in The Sea Angel: ‘even events which are not merely foreseen but made the subject of express contractual provision may lead to frustraion…[if it] goes beyond the risk assumed under the contract and to render performance radically diferent from that contracted for.’

Deiniion of foreseeability by Treitel (2011), used in Chity and approved by Rix LJ in The Sea Angel: “foreseeability will support the inference of risk-assumpion only where the supervening event is on which any person of ordinary intelligence would regard as likely to occur” (as opposed to a mere possibility, see footnote) 6. This view is supported in: 

*The Sea Angel: “the less that an event, in its type and its impact, is foreseeable, the more likely it is to be a factor which, depending on other factors in the case, may lead to frustraion” (per Rix LJ at [127]) 

Note thus, that foreseeability is but one of many factors to consider.

Applicaion to cases o

A foreseeable event, though not actually foreseen, can thus preclude frustraion.

o

An event ACTUALLY foreseen makes it LIKELY that the risk is impliedly or explicitly borne by the party.

6 Note that, the diference between this test and the test in Wagon Mound (where something is ‘foreseeable’ even if it remains ‘no more than a possibility’)

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

E.g. The Sea Angel : contract NOT frustrated 

Foreseeable that ship would be detained due to polluion issues, also common that charter agrees to pay unil redelivery o



Cf. Tatem v Gamboa [1939]: contract frustrated 

Foreseeable that ship would be seized



But both paries contract was entered on the basis that this event would not occur, since purpose of charter was to evacuate civilian during Spanish Civil War



Can be disinguished from The Sea Angel in that here, BOTH paries proceeded on the ASSUMPTION that ship will not be seized, though of course foreseeable that ship seized since it’s a war o

o

Ie risk on charterer – no frustraion

Ie risk not allocated – yes frustraion

Even if paries actually discuss what to do but fail to reach a consensus, court can determine how risk should be allocated or whether doctrine frustraion should apply (if no fault by paries, suiciently serious event)

c. Was the occurrence caused by one the paries Self-induced frustraion 

Frustraion should be an extraneous change of circumstances or events, and not due to the act of a party: The Super Servant Two o

Hence, a party who has been at fault (i.e. negligent) will generally not be enitled to invoke the doctrine of frustraion - eg The Super Servant Two (overcommiing himself to contracts, no frustraion) 



$ O’Sullivan suggests that negligence should prevent frustraion and Andrews prefers an implied term that a person will take reasonable steps to ensure that she can perform her contract.

Choice or elecion to prefer own interests or those of another customer does not consitute frustraion: o

Mariime Naional Fish v Ocean Trawlers (see also, Super Servant Two) 

Facts: MNF chartered trawler from OT. MNF had 5 trawlers – 3 own, 1 from OT, and 1 other, but could only secure 3 licenses. It chose not to secure a license for the OT ship but argued the contract was frustrated because it could not legally ish with the trawler.

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

o

Held (PC): No frustraion – the inability to ish had come about because of its own decision not to license the OT trawler.

The Super Servant Two 

Facts: D contracted to transport C’s rig using ONE OF their barges (SS1/SS2). D also entered into similar contracts with other paries. Intent was to use SS1 for other contracts and SS2 for C’s contract. However, SS2 sank. D refused to use SS1 for the job so C sued for breach of contract.



Held: Contract was not frustrated. D could sill have performed contract despite sinking of SS2 as contract allowed for either SS1 or SS2 to be used, but chose not to (following Mariime Naional Fish). 





NOTE, IF DIFFERENT SET OF FACTS: per Bingham LJ, that if the contract had speciied SS2 with no alternaive, then assuming no negligence, the contract would have been frustrated.

Commentary: Some commentators (Beatson, Burrows, and Cartwright (2010)) argue that the decision is wrong because it leads to pracical diiculies that make it overly harsh on D, who must breach one of their contracts. However, both O’Sullivan and Andrews argue otherwise. The contract speciically awarded a choice between the two ships – the contract placed the risk on the D in these circumstances

Further, a failure to make the contract capable of performance (if within one’s power to do so) does not consitute frustraion: Melli Bank Plc v Holbug Ltd (facility agreement of Iranian bank not frustrated despite sancions against Iran, since customer could apply for licence from Treasury to allow facility to coninue to operate)

2. Legal efects of frustraion Common law 

On frustraion, the contract was automaically brought to an end.



Paries were released from obligaions that would have fallen due ater occurrence of frustraing event, but not those that should have been performed before



o

Ie accrued obligaions to pay remain enforceable

o

Common law posiion now reciied by s1(2) Law Reform (Frustrated Contracts) Act 1943

You could only recover the value of the beneit that you had transferred if other party had performed none of the obligaions.

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o

Fibrosa v Fairbairn (1943) – Money paid prior to the frustraion of the contract was recoverable upon a total failure of consideraion (complete absence of performance)

o

Common law posiion now reciied by s1(3) Law Reform (Frustrated Contracts) Act 1943

Law Reform (Frustrated Contracts) Act 1943 

S. 1(2): Qualiied loss apporionment - Party can reclaim money paid before frustraing event, even if there has been some parial performance o

Prima facie - If you paid money before frustraing event occur, you get money back subject to allowance for expenses incurred by other party for purpose of performing his side of deal.

o

Prima facie - If you owe money due before ime of discharge, you do not have to pay it back, but other party can recover expenses already incurred.

o

KEY ISSUE: How much of the expenses already incurred should be recovered?

o

Gamerco v ICM (C contracted with agency organising Guns N Roses to promote concert; venue declared unsafe): 

Onus of proof is on recipient to show that he should be allowed to recover or retain moneys because of expenses incurred



Court has a broad discreion to determine how much to award in the circumstances (C let to bear 37.5k of the wasted expenses and D 50k) – rejected rigid approaches of (i) to split payee’s reliance on an equal basis between him and the payor or (ii) to allow the payee to always to retain the money to the extent of the reliance): 

o



Shows court’s discreion is completely unfetered, no ixed rules nor even rules of thumb

If courts can sever part of the contract that already performed prior to frustraion, will do so, so only unperformed part is frustrated – s2(4)

S. 1(3): Award of resituionary valuaion of the beneit – e.g. use of goods or services, we go through a 3 stage approach: o

(1) Idenify that there has been a beneit to one party referable to conduct in relaion to the contract by the other party

o

(2) Evaluate the beneit (place a value on it) (MAXIMUM sum that can be paid)

o

(3) Court will determine what is a “just sum”, which is potenially reduced 

If the party who beneited incurred expenses

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





In light of the circumstances giving rise to frustraion of contract



…more?

How does one idenify the beneit in quesion? Gof J BP Exploraion v Hunt (No 2) o

The approach is not to look at the service itself, but the end-product of the service

o

Where there is no end-product (e.g. giving advice), we place a value on the service itself

o

The value to the other party is what counts

KEY PROBLEM: Wording of s. 1(3), limbs (a) and (b) suggests that the expenses prior to frustraing event should be taken into account in stage 3 (when valuing just sum to adjust the value of the just sum) and not stage 1/2 (where valuing beneit) o

However, Gof J suggested this was not the case:

a. We can value the beneit by taking into account the expenses already incurred (stage 1/2) and then determine just sum (stage 3 – no expenses s1(3) (a)(b) in this case) 

That the fundamental principle of 1943 Act is the prevenion of unjust enrichment of either party at the other’s expenses – that’s why take into account the BENEFIT one side received rather than the COST to the other side

b. We value the beneit therefore at the ime the frustraing event occurred, and not at the ime the beneit was iniially received. o



This approach has been criicised by a number of commentators (Virgo; McKendrick; Andrews) as misleading given the WORDING of the Act “before the ime of discharge”. 

See also Treitel, who argues that the valuable beneit should be the value before the frustraing event, as opposed to at the ime of the event



Burrows criicism: 

(i) Gof J that beneit under s1(3) ideniied as end product of the services rather than the services themselves – goes against s1(3) which says beneit obtained PRIOR to the frustraing event “before the ime of discharge”



(ii) Gof J that s1(3)(b) as meaning there is no valuable beneit if building under construcion destroyed by a ire – but s1(3)(b) should be a discreionary mater

How does one decide what sum is ‘just’?

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

o

Per Gof J in Hunt: guiding principle is to prevent “the unjust enrichment of the defendant at the claimant’s expense.”

o

CA conceded that trial judge had broad discreion to determine what is just (looking at limbs a and b)

s. 2(5): The statue does not apply to all contracts. It excludes contracts to charter aries, insurance contracts, or those relaing to speciic goods (s. 7 Sale of Goods Act)

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Undue Inluence 1. Undue inluence i. Actual undue inluence (Type 1 undue inluence) Just show actual undue inluence - BCCI v Aboody [1990] (A, who was enirely subservient to her husband, executed an all monies charge to secure her husband’s business. She had been receiving advice from an independent solicitor about the implicaions of signing the charge when her husband burst into the room, interruping the solicitor and shouing at his wife to sign (this is what makes it an actual inluence case) -

Actual undue inluence not conined to sexual relaionship – relaionship of nephew and elderly aunt - Drew v Daniel [2005] CA (Nephew did not actually bully elderly aunt – instead used forcefully personality to persuade her – since she disliked confrontaion –redness around eyes, D very upset)

ii Presumed undue inluence (Type 2 undue inluence) For Type 2 undue inluence - Royal Bank of Scotland v Etridge (No 2) per Lord Nicholls: 1. That the complainant reposed trust and conidence in the other party, or the other party acquired ascendancy over the complainant  There must have existed between the paries, on the facts, a relaionship of “trust and conidence, reliance, dependence or vulnerability on the one hand and ascendancy, dominaion or control on the other” (Etridge (above), per Lord Nicholls at para. [11])  Two possible routes:

A. Where there was a special relaionship of trust between the paries (solicitor-client, trustee-beneiciary, etc. – but not including husband and wife) (Type 2A) o

Solicitor client 

o

Doctor paient 

o

No need to act as C’s solicitor, just happens to be a solicitor would clear this hurdle - Markham v Karsten [2007] HC (Middle age solicitor, man inancial diiculies – she lent him over 1 mil, relaionship broke down, she got him to sign a security over London property – man claimed undue inluence for security – but judge held that because woman was a solicitor, that is enough to clear the irst hurdle)

Mitchell v Homfray (1881) -> Woman made large git to doctor, held relaionship automaically suicient

Spiritual adviser and novice: 

Allcard v Skinner (1887) -> Wealthy woman joined convent – bound herself to observe the rules of the order which seem designed for

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undue inluence, poverty, seclusion and obedience – transferred large amounts then let to another order -> held that this was a relaionship of undue inluence, automaic cleared irst hurdle o

NOT husband and wife – Etridge Lord Nicholls

B. Where there is to be shown on the facts to be a suicient relaionship of trust and conidence between the paries (Type 2B) o

Eg Re Craig [1970] 2 All ER 390 (elderly widower and housekeeper middle aged woman – made git totally 30k about 75% to net estate – judge held this was the kind of relaionship that cleared the irst hurdle) 

o

Judge held that widower was at housekeepers mercy

Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 -> secretary of man, babysiing, visiing family – man asked secretary to unlimited charge over her lat, she agreed. Pleaded undue inluence 

CA held that presumpion of undue inluence arouse her – relaionship one in which imposed trust



Shows the extreme nature needed

2. Suspicious transacion that ‘calls for an explanaion’, unless presumpion rebuted  There will then be presumed to have been undue inluence operaing unless the husband can give some other saisfactory explanaion for why the wife agreed to sign – Lord Nicholls in Royal Bank of Scotland plc v Etridge (No 2) “On proof of these two maters the stage is set for the court to infer that, in the absence of a saisfactory explanaion, the transacion can only have been procured by undue inluence… So the evidenial burden then shits to him.”  Adopted test of Allcard v Skinner (1885) – where test is whether or not the transacion is explicable by the relaionship between the paries  Eg mortgage taken for beneit of only one party (eg for business) would call for an explanaion

 Eg Smith v Cooper [2010] EWCA Civ 722 (relaionship with new male friend and mortgaged her house -> this called for explanaion

 Cf Turkey v Awadh [2005] EWCA Civ 382 (young woman and husband, father helped them out by paying of mortgage for an interest in the house)

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o

CA decided that his transacion was explicable on the ordinary moives that people act – not undue inluence

 Cf Evans v Lloyd [2013] EWHC 1725 (Ch) donor living with non-relaives made git of farmland as acts of graitude and friendship –> held to be explicable, second hurdle not surmounted (keep beneits within farming community and not relaives)  Rebut - Most common way independent legal advice - Inche Noriah v Shaik Allie Bin Amar [1929] AC 127 – presumpion rebuted by showing “that the git was made ater the nature and efect of the transacion had been fully explained to the donor by some independent and qualiied person so completely as to saisfy the court that the donor was acing independently of any inluence of the donee and with the full appreciaion of what he was doing.”

 Cf Goodchild v Bradbury [2006] - the elderly donor spent a few minutes alone with a solicitor but this was held to be insuicient to ensure that there was no operaive undue inluence

o

Shows how diicult the presumpion is to rebut

 Cf Smith v Cooper [2010] EWCA Civ 722 (mentally fragile, transfer 50% interest in home to new partner, did see a solicitor for 5mins but partner used the same solicitor) – therefore held that use of same solicitor not enough to rebut the presumpion

o

Shows how diicult the presumpion is to rebut

 Cf Re Brocklehurst’s Estate [1978] (Brocklehurst was helped in his old age by Roberts. Their relaionship was not on equal terms (only come in by the backdoor, called Sir Phillips never Phillip) -> no undue inluence

o

No need legal advice if party acted independently (like this case)

2. No airmaion

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-

Allcard v Skinner (nun and novice) -> delayed too long before seeking remedy, court held that delay was airmaion

-

Samuel v Wadlow [2007] EWCA Civ 155 (Pop star seal tried to set aside management contract) -> 15 years ater management ater agreement + 11 years ater setlement agreement, held to be airmaion so failed undue inluence

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Duress Duress to person -

So long duress CONTRIBUTED suicient, no need BUT FOR (majority) - Barton v Armstrong [1976] (A made death threats against B to persuade B to buy out A’s shareholding in the company, but B wished to do this anyway because he thought that this was commercially desirable. So B executed a deed purchasing A’s shares, but later regreted the transacion and sought to undo the transacion. A argued that B would have executed the deed even if there had been no threats; his threats were not a ‘but for’ cause)

Economic duress 1. Illegiimate threat 

Can be a threat to breach – eg B&S Contracts v Victor Green[1984] (threat to cancel the book exhibiion unless paid extra seen as an illegiimate threat)



Can be a threat to induce breach – eg The Universal Seninel [1983] (threats to coninue to blacking of the ship by threatening to induce tugmen to break their contracts)



Can be a threat to use forgery and false evidence to block a scheme of arrangement proposed by the liquidators – Borelli v Ting [2010] PC



Cf Must afect economic interest and not just reputaion - R v AG for England and Wales [2003] PC – where threat to demote SAS oicial back to ordinary unit if didn’t sign conideniality agreement not illegiimate threat since doesn’t afect his economic interest rather than reputaion or self esteem

Need bad faith for illegiimate threat? 

Yes (suggests so)

 Eg Atlas Express Ltd v Kako [1989] -> basket weaving, got mixed up prices with big company, said wouldn’t deliver basket unless double rates, sent driver that won’t collect unless signed new contract – conduct suggest bad faith, thus illegiimate threat

 Eg DSND Subsea v ASA [2000] (North Sea oil dispute) -> Dyson J said no duress as “jusiied reasonable behaviour” acing “bona ide” in a contractual situaion – suggest need bad faith for illegiimate threat Lawful threats – a threat not to contract? 

Not ruled it out but would require excepional circumstances

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o

o

CTN v Gallagher [1994] (G sold cigaretes to CTN. CTN relied heavily on credit from G, but G had no contractual obligaion to sell to CTN, nor to give such credit. G sold a consignment of cigaretes to CTN but it was delivered to the wrong warehouse and stolen. G demanded the price of the stolen cigaretes from CTN and said that it would not grant any more discreionary credit unless CTN paid. CTN reluctantly agreed, but later reclaimed the price, on the ground that G’s threat not to sell to it on credit in the future amounted to economic duress) 

Held: CA not economic duress



DISTINGUISHING -> at ime the threats were made, cigarete company was in GOOD FAITH (emphasised by Steyn LJ) – only bad faith during the ime of liigaion – maybe might be an illegiimate threat if made in bad faith



Note -> The CA stopped short of saying that a threat not to contract can never amount to economic duress, but merely declined to extend the category to the case itself

Progress Bulk Carriers Ltd v Tube City IMS L.L.C . [2012] 

Facts: Bad faith, D was threatening to do something to do something enitled to do, but in the context of having breached the contract ie resolving the repudiatory breach



Held: Cooke J allowed economic duress



DISTINGUISHING -> lawful claim made in the context of other party’s an unlawful breach – might be diferent if enirely lawful claim

2. Factual causaion (subjecive) 3. Would a reasonable person have succumbed to a threat (objecive) No reasonable alternaive -

Because consequence serious and immediate o

-

Eg B&S Contracts v Victor Green [1984] (book fair, worker strike, threaten to cancel unless pay extra) -> held no reasonable alternaive, reasonable person would have succumbed

Alternaive will not nullify pressure created by D’s threats

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o

Eg Adam Opel v Mitras Automoive [2007] (tell 6 months in advance changed, supplier. Supplier stopped producing unless paid addiional sum) -> held no reasonable alternaive, C legiimate concern to ensure security of supply

Yes reasonable alternaive -

Eg Pao On v Lau Yiu Long [1980] (P contracted to sell share to D. P realised deal disadvantage with them, persuaded to replace deal with threats to breach. Iniially agreed but regreted) -> where reasonable person would not have succumbed due to contract being speciically enforceable

4. Defence of Airmaion -

The Atlanic Baron [1979] HC -> agreement to build ship but raised price, no economic duress as purchaser paid the higher price for years, viewed as an airmaion  But this doesn’t mean passage of ime is an airmaion - eg Borrelli v Ting (2010) where airmaion did not apply even though 3 years had elapsed

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Breach of Contract Special Case -> Enire obligaions rule I. Enire obligaions? Whether enire obligaion or not depends on the CONSTRUCTION of the contract (ie looking at the circumstances of the contract) -

Re Hall & Barker, per Sir George Jessel: “If a shoemaker agrees to make a pair of shoes, he cannot ofer you one shoe and ask you to pay half the price.”  $ Cuter v Powell (1795) 6 Term R 320 o

Facts: Ship sailing from Kingston to Liverpool. D, ship master, made contract with C, second mate: if C did duty as second mate for the voyage, master would pay 30 guineas once they reached Liverpool. C died prior to reaching city.

o

Held: Obligaion to work to Liverpool was a ‘condiion precedent’ that was an enire obligaion.

 *Sumpter v Hedges [1898] 1 QB 673

-

o

Facts: C was a builder and made contracts with D to build 2 houses and stables on D’s land for £565. C did half of the work valued at £333. He then ran out of money and walked away, abandoning the work (thereby breaching contract). D inished the work at his own expense; in so doing, he used some of the materials C let on the land. C sued for his price.

o

Held: C allowed money for value of materials let on land, but no recovery for the building or the service provided, which had ‘acceded to the land.’

NB -> accepted the parial performance, he cannot rely on the enire obligaions rule to resist paying for it (only where the party has a choice in the mater) – eg Munroe v But (1858) (where can contrast furniture and building works like in Sumpter v Hedges. Furniture can reject so if accept furniture then must pay for it. But it’s very diferent for building works, mere possession does not raise any inference)

II. Substanial performance? If obligaion is inished but inished badly, the doctrine of substanial performance triggers an obligaion to pay the price, but reduced due to the defects -

Eg Hoenig v Isaacs (1952) (interior decorator contract completed works with minor defects could be resolved for 55 quid, when total cost of work was 750 quid): substanial performance

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 Explanaion of these cases are on the grounds of degree (contract performed with minor defects) and nature of obligaion (able to determine the value of substanial performance by itemising the defected items) -

Cf. Bolton v Mahadeva (domesic water system completely installed, but emited fumes did not heat adequately): work was so defecive that it did not amount to any performance whatsoever.  Test: Sachs LJ explained that it was the general inefeciveness of it for its primary purposes that lead him to that conclusion

1. Is it a breach?

Condiion Innominate Term

Breach always gives innocent party opion to terminate contract Innocent party can always claim damages and might also be able to terminate contract if the efect of breach is serious enough 

**Hongkong Fir Shipping v Kisen Kaisha [1962] 2 QB 26 (Case is well known for creaing a new category of intermediate terms- need 4 months repair for 24 months charter not serious enough to cancel) o

o

o

Warranty

Facts: 

Shipping charter case. D hired a ship from C for 24 months. Term promised that ship was seaworthy. In fact, the ship wasn’t seaworthy and needed signiicant repairs that would take 4 months, leaving only 20 months to run on the charter.



D terminated the contract – where they enitled to do so? D argued that the term as to seaworthiness was a condiion (which gives them automaic enitlement to terminate).

Held: 

Not enitled to terminate.



Innominate term + the breach wasn’t serious enough that did not substanially deprive from the whole beneit.

Reasoning: Breach of a seaworthiness term can encompass a vast range of condiions (from a trivial insigniicant defect to a major defect – it would be grossly unjust if, for a BROAD term such as ‘SEAWORTHINESS”, one could terminate the contract for the most minor of breaches). Unsaisfactory if we have a dual system. Third possibility of the innominate term: it means you can’t tell if you’re allowed to terminate unless you have a very serious breach (which will determine the range of opions).

Breach never gives innocent party opion to terminate contract; he can only claim

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damages Disinguishing between Condiions and Innominate Terms The Sealower: A term will be held to be a condiion in one of the 4 circumstances (Waller LJ adoping Chity on Contracts 13-040): 1. Expressly provided so by statute 

Sale of Goods Act 1979 – ss. 12-15 o

12(5A): Seller has right to goods

o

13(1A): Goods conform to descripion 

Arcos v EA Ronaasen (sold by DESCRIPTION - thin imber planks not meeing descripion, despite being suitable for purpose): 

Goods did not meet descripion, which consituted a descripion.



Trivial breach (buyers could sill use them), but contract could be terminated.

o

14(6): Goods are of saisfactory quality

o

15(3): Goods correspond with sample

o

15A – a buyer is conined to damages and cannot reject the goods if (i) the breach is so “slight” that it would be (ii) “unreasonable” to reject the goods and (iii) contract neither expressly on or implied precludes this condiion s15A(2) 

Sched 1 Para 15 Consumer Rights Act 2015 extends this to consumer contracts

2. Categorised as a result of previous judicial decision 

Eg The Mihalis Angelosu (ship hire with standard clause about expected date of readiness – one day late, held can cancel contract as it was a breach of a condiion): o

Earlier precedent had designated term as a condiion, which was needed for certainty – ime sipulaions are important.

o

Summary: Charterers were enitled to terminate the charter since the clause was a condiion, even though they iniially wanted to do so for inancial reasons and wanted to terminate on grounds of force majeure (there was no ore to be delivered because of a war) 

Note that the clause was a condiion, and charterers could terminate the charter, despite the fact that there was no loss to the defendant

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3. If it is so designated in contract or if consequences of its breach are provided for expressly in contract 

If paries actually spell out that if breach other party can terminate, held can terminate Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009]



BUT the mere use of the word condiion is unlikely to be CONCLUSIVE, paricularly where the rest of the terms and surrounding circumstances point away from this interpretaion: Schuler AG v Wickman Machine Tool o

Facts: C makes contract with D to allow selling goods in the UK. Clause 7b states “condiion” in contract requires visits each week. Second clause 11(a)(i) allows terminaion for a material breach. D fails to make requisite number of visits breached Clause 7b but in a trivial way. Sought to use Clause 7b to terminate, bypassing Clause 11(a)(i)

o

Held: 

o

Dicta: ‘The more unreasonable the result, the more unlikely it is that the paries can have intended it and if they do intend It the more necessary it is that they shall make that intenion abundantly clear’ 

o



No material breach. On the facts, the word “condiion” was not used in the technical sense. Quesion of interpretaion of contract as a whole – ON THE FACTS, (i) contract was badly drated and (ii) there was inconsistencies between clauses 7 and 11.

Eg Rice v Great Yarmouth BC (2000) illustraion how careful drating is required to achieve an unobstructed right to terminate -> held “breach of ANY of [Rice’s] obligaions” to allow for terminaion, “any” not read as “any at all” otherwise too draconian, would ly in the face of commercial sense, instead “any” read as “any repudiatory breach” so breach not jusiied as cumulaively not serious enough

DISTINGUISHING: note that the use of the word ‘condiion’ in a WELL DRAFTED CONTRACT should be interpreted in its technical sense – a breach of the clause should give rise to the right to terminate

NB: Where the contract indicates that “ime is of the essence,” it suggests that ime sipulaion is condiion which allows for terminaion - Union Eagle v Golden Achievement (purchaser submited cheque 10 min. ater 5 PM deadline with ime clause; PC held breach available) o

Court can infer that ime is of the essence - eg Hare v Nicholl [1966] 1 All ER 285 -> opion to purchase share (luctuaing value), held deadline is a condiion

4. Nature of contract/subject mater means that by necessary implicaion, paries intended that party would be discharged if term was not fully and precisely complied with. (other commercial contexts)

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

Eg As a mater of general construcion of the contract term viewed as condiion, even though contract has not explicitly sipulated this – eg The Aktor (2008) where sale of ship agreed 10% in SG bank, 100% payment to Greek bank. Paid 10% to SG Bank, Clarke J held it was a condiion that 100% payment should be made to Greek bank



Eg Aerial Adverising Co v Batchelors Peas Ltd (Manchester) [1938] (Adverising lying, clearance from Batchelors on what the route will be on a day to day basis, ly on Armisice Day) -> that term can be a condiion, breach was serious enough in this case



Cf The Hansa Nord (held it was a innominate term) o

FACTS: 

o

HELD: 

o

contract for sale of pellets with ‘good condiion’ term. Some damaged on arrival, but were sill good for use. Market price of pellets had fallen since date of contract (which was the innocent party’s moive in terminaing the contract). Buyers bought it back from third party for substanially reduced price.

innominate term – this was a trivial breach.

Reasoning: 

express ‘good condiion’ term could be breached in an array of diferent ways  innominate term 

o

per Roskill LJ: In principle, contracts are made to be performed and not to be avoided according to the whims of market luctuaion… where there are two possible construcions…court should prefer the construcion which will ensure performance



Note the ulterior reason for terminaing the contract for breach (though there was litle or no loss) BUT generally English law does not examine the moivaions of the party seeking to exercise a right to terminate



NB: this concerned an express good condiion term, not an implied statutory term (SoGA)

Diferent from Arcos v Ronaasen which was a Sale of Goods Act case sale by descripion, this case was an EXPRESS PROMISE 

The term in issue in the case was an EXPRESS promise of good condiion, not the Sale of Goods Act implied term as to the quality of goods. That implied term is a condiion, but the CA held that it had not been breached on the facts.

When does a breach of innominate term jusify terminaion

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



Only a very serious breach will enitle terminaion: Hong Kong Fir (4 months delay out 2 years held not serious enough) o

Serious breach = consequences of the breach which must ‘deprive the innocent party of substanially the whole beneit which it was intended that he should obtain from the contract’.

o

*Note FACTS of Hong Kong Fir Ship needed signiicant repairs and had an incompetent crew



BUT repairs not going to take more than 4 months out of a 2 year contract AND charterers did not pay hire for any repair period  charterer’s expectaions from the contract sill achievable.

Eg Aerial Adverising v Batchelors Peas (contract to adverise; plane on Armisice Day): – MINOR breach was in a manner that had MAJOR commercial consequences o

o





Facts: 

Batchelor’s paid their goods to be adverised by aerial banner



But the pilot mis-imed his light, and adverised during a Remembrance day 2-minute silence



Batchelor’s paid for good publicity …



… but got very bad publicity instead

Held: Innominate term – CONSEQUENCES of breach suiciently serious – enitled to treat the contract as discharged  WHY: expectaions were completely dashed.

Note that many small breaches can lead to terminaion if the combined efect of the breaches on the innocent party is suiciently serious: Alan Auld Associates v Rick Pollard Associates (repeated late payments for monthly invoices were’ substanial, persistent and cynical’ and were done with no regard for the defendant’s repeated complaints)

2. Was the repudiaion communicated? Repudiaion involves an actual breach of contract grave enough that it “goes to the root of the contract” – “The Nanfri” [1979] HL 1. Renunciaion by Words or Conduct 

Where one party, expressly or by implicaion, states he will not perform outstanding obligaions or will no longer perform them.



If A purports to cancel a contract (because they erroneously believed they are enitled to do so because of serious breach by B), it may amount to a repudiaion itself.

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

Safety valve excepions to prevent exploitaion of other’s good faith steps – if X noncompliance with contract presented in good faith, Y cannot terminate the contract if: o

It was reasonable for Y to have referred the mater to a neutral party - Woodar Investment Development v Wimpey Construcion) (where resiled from deal on mistaken contractual right – held Y shouldn’t have terminated because it was not an absolute refusal to performance – there was ime to resolve the problem and hence reasonable to refer mater to neutral party) 

o



Lord Wilberforce said that if bona ide relies on express terminaion clause, not repudiaion

Y should have corrected X’s obvious error – Eminence Property Developments Ltd v Heaney [2010] (Premature noice for terminaion of a contract for purchase of lats, held not jusiied to breach ie not repudiatory breach as (i) obvious that purchaser had made a clerical error, (ii) not in purchaser’s commercial interest to pull out, (iii) if alerted to this error, purchaser would have readily put right the error and stayed faithful to the contract)

$ There is also the possibility to renounce a contract by implicaion, but this is not lightly inferred: o

Test in General Billposing Co v Atkinson: “Do acts and conduct of party evince an intenion to no longer be bound by the contract?” (intenion of the party, judged objecively eg Reardon Smith where charter contract before the ship was inished. Ship was described with a reference number, when ship built bore a diferent number. Charterers wanted out, tried to use Arcos Ltd v E. A. Ronaasen & Son that sold by descripion) -> HL rejected argument, this was not a sale of good by descripion, the reference number was merely a label)

o

NOTE that the test is strict – conduct must be clear and give the impression that the contractor is renouncing all (or all important) obligaions in the contract

2. Impossibility Created by One Party 

Contrast from frustraion, which deals inter alia with external events which make performance impossible



Eg Lovelock v Franklyn (contract to assign 7-year leasehold interest; lease assigned to third party): No obligaion to wait unil contractual period has elapsed. Terminaion of contract available immediately.

3. Anicipatory Breach 

Occurs when one party repudiates the contract before performance begins o

The breach is the repudiaion itself.

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o



Authority: Hochster v De La Tour (accompaniment on overseas tour): Anicipatory repudiaion allows innocent party to terminate the contract immediately and bring an acion for damages, even if performance is due at a later ime

The Golden Victory [2007] UKHL 12 (shows the problem of calculaing damages) o

Facts: Ship chartered for seven years, staring 1998. In 2001, the charterers repudiated the contract, with 4 years let. Charter contained a “war clause” allowing ending contract if war breaks out in Gulf. Invasion of Iraq occurred in 2003. Ship owners argued for 4 years worth of damages; charterers argued for 2.

o

Held (3-2): Damages for 2 years. We do not place the claimant in a beter posiion that he would already be in. The court will not speculate if we have access to knowledge.

o

Commentary: 2 very strong dissents. They argue that while there is the objecive of not puing C into a beter posiion, it is not overriding. Commercial paries need certainty; they need to know that measure of damages is judged at date the contract is terminated (this posiion has been altered). Pracical problem of majority decision – it gives an incenive to the party to delay setlement. 

Ie Lord Bingham (dissent) -> in favour of 4 years, because of commercial certainty + majority view gives the charter an incenive to delay payment, and hopefully something extraneous happens

3. Innocent party’s opion Faced with a repudiaion, the innocent party has the opion to either accept the repudiaion (terminaion of contract and sue for damages) or airm contract and sue for damages a. Reject repudiaion/Airm contract 

Unil the innocent party makes his/her elecion, the contract remains in existence.



Once they decide to keep the contract alive, the choice is irrevocable and therefore the courts will insist that the manner of refusing repudiaion is clear and unequivocal  QUESTION OF FACT o

o

E.g. See Yukong Line of Korea v Rendsburg Investments Corpn of Liberia 

C chartered ship to D. D sent telex saying they are unable to perform and C sent a telex, strongly encouraging them to reconsider and honour obligaions.



Held that this was NOT an airmaion of contract

Cf. Re Simoco Digital UK:

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



Contract to purchase sotware, but argued that other party repudiated and it elected to terminate.



Ater alleged repudiaion, however, C paid further instalment of £15 000 towards purchase price – inconsistent. C therefore airmed the contract (and rejected the repudiaion).

The EFFECT of rejecing repudiaion: o

o

o

Howard v Pickford Tool Co: “An unaccepted repudiaion is a thing writ in water.” 

A repudiaion, if ejected, is as if it never existed.



If you are an innocent party that keeps the contract alive, you can’t turn around, resurrect the repudiaion, and then bring contract to an end.



the contract is kept alive and the party regrets the decision, they can then breach the contract themselves (but then pay damages).

By elecing to keep the contract, the repudiaing party may invoke an express right to terminate lawfully - *The Simona (1989) (ie having rejected repudiaion, the contract survived intact, with right of cancellaion unafected) 

Facts: Shipping contract. Owner gave charterers opion to cancel the contract if the vessel was not ready to load on or before the Jul 9. On Jul 2, owners requested an extension of this date. The charterers on receiving the request, promptly purported to cancel the contract (this was a repudiaion). The owners didn’t accept the repudiaion; instead, they opted to keep the contract alive. However, they were not ready to load by Jul 9. They were late: charterer has the express provision to cancel the contract lawfully and walk away.



Held: Repudiaion was writ in water. Too late to resurrect it and cancellaion was valid.

2 excepions exist: 

Hasham v Zenab (contract for sale of land): an innocent party who knows of other party’s intenion not to perform may persuade court to give a decree of speciic performance before date



The Simona: “B is estopped from contending that he, B, is enitled to exercise that right or that he, A, has remained bound by that obligaion.” 



Re: period where innocent party decides what to do. If innocent party decides to repudiate, it would be intolerable if previous repudiaing party changes its mind and said innocent party is in breach

Does the innocent party have an unfetered right to airm the contract or are there limitaions on the right of elecion?

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

White and Carter Ltd v McGregor o

Facts: Contract between adverising company (C) and garage (D) which reached end of term. Manager of garage renewed it, but did not have authority to do so – D contacted C and repudiated contract. However, C rejected repudiaion and kept performance (because of special clause allowing acceleraion of price).

o

Held (3-2): C enitled to reject repudiaion and claim the price. Duty to miigate is about law of damages, but was not relevant because of rejecion.

o

Lord Reid suggested there were 2 situaions where innocent party does not have unfetered right to keep contract alive: 

(1) No legiimate interest: 

Innocent party is not free to reject the contract where it has no “legiimate interest” (inancial or otherwise” on keeping contract alive.



Eg The Puerto Buitrago [1976] (where owners insisted repairs of 2 mil cosing 4 imes as much as value of ship with and without repair though charters admited liability for 400k) CA held that though charters contractually allowed to refuse delivery unil repairs, held “no legiimate interest” following Lord Reid in White v McGregor, and thus White v McGregor held not to apply o



Cf Reichman v Beveridge (2006) -> landlord enitled to make periodic demands for rent accruing during the residue of a business tenancy o

o

Ie no legiimate interest

Ie yes legiimate interest

Cf The Aquafaith [2012] Cooke J [49] -> no legiimate interest if damages are an adequate remedy and maintain contract “wholly unreasonable", "extremely unreasonable" or "perverse 

(2) In pracical terms, the breaching party’s cooperaion might be essenial for coninued performance.

b. Accept repudiaion/Discharge contract 

The Santa Clara: Acceptance of repudiaion must be clear and unequivocal, but need not be by express words. Though generally, acceptance must be communicated to the other party, excepionally, repudiaion can be done by clear and unequivocal non-performance. o

Facts: internaional sale of propane, buyer sent telex to repudiate contract, seller did absolutely nothing with regard to contract, no acknowledge of receipt of telex. Sold cargo. Then sought damages.

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



o

Held: failure to perform future obligaions was suiciently unequivocal – seller could claim damages

o

Note -> recognised in The Santa Clara that in most cases, ‘doing nothing’ will be too equivocal to count as an elecion to terminate the contract, as it is consistent with a decision not to exercise the right to treat the contract as repudiated.

The EFFECT of acceping the repudiaion and terminaing the contract does not undo the contract (as in rescission), but rather, discharges the primary obligaions (to perform/pay price) and replaced by secondary obligaions (payment of damages, duty to miigate): per Lord Diplock in Photo Producion v Securicor o

Hence, the exclusion clause in that contract coninued ater terminaion (same for liquidated damages and arbitraion rights)

o

Also, rights that have already accrued at the date of the repudiatory breach survive.

Generally, repudiaion discharges the whole contract (all outstanding primary obligaions). o



Excepionally, a contract may have severable obligaions as in sale of goods by instalments: Friends Provident Life & Pensions v Sirius Internaional Insurance (stated that this approach is unusual and doubted its applicaion to insurance contracts)

The Kanchenjunga: Elecion to repudiate contract is irrevocable. o

Limited only in cases where (1) an estoppel arises or (2) there is a complete waiver of the breach.

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Remedies Outline 1. LOSS: Has C sufered any loss 2. ACTIONABLE: Is the loss an acionable type of loss? 3. CAUSATION: did breach cause C's loss? 4. FORESEEABILITY: was the loss reasonably foreseeable? 5. MITIGATION: has C miigated the loss? 6. CONTRIBUTION: did C's fault contribute to the loss?

1. LOSS: Has C sufered any loss 

GENERAL RULE: C can only recover for his own loss: Alfred McAlpine Construcion v Panatown o

But remember that only NET LOSS is recoverable (subtract any payments which are required from expected proit)

A. Expectaion Measure 

Brings C back to posiion had the contract been performed - Robinson v Harman (1848) 1 Exch. 850, 855 per Parke B: “The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situaion with respect to damages, as if the contract had been performed.” o

GENERAL RULE: Damages based on idea that D would perform obligaions under the contract but not done anything more than legally obliged to do: Lavarack v Woods of Colchester (wrongfully dismissed C not enitled to damages represening the bonus that he might have received – assessed at minimum standard) 

($) EXCEPTION: does not hold true in a case where D is under an obligaion do something but has a discreion as to how to do it: Durham Tees Valley Airport Ltd v Bmibaby [2010] 

Facts: D was under obligaion to ly two or more aircrat for 10 years, but was given discreion as to how to perform it (not providing number of lights)



Held: Court should ask how the contract would have been performed had it not been breached – must be assumed that D would act in good faith and not acted un-commercially, hence level of performance assumed may exceed the minimum level.



Disinguishing: in Lavarack, there was no obligaion by D to provide a bonus while this case has obligaion but a discreion atached



Controversy? Toulson LJ in Bmibaby chose the above approach over the ‘minimum obligaions’ approach since on the facts, it was diicult to determine the minimum level of obligaions. It is thus possible the excepion in Bmibaby will only apply when the court cannot work out in advance the minimum level of performance.

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I. Diference (“Diminuion”) in value measure 

The diference between (i) the value of what was actually provided/performed and (ii) the value of what should have been provided/performed if the contract had been properly performed.



This is the prima facie rule (e.g. used in Sale of Goods Act) and should be used where (a) subsitute performance can readily be obtained in the market; and (b) the claimant’s reason for contracing is basically commercial – to make proit



Comparing contract and tort – eg car bought for 5k warranted to have done 50000miles. But car in fact did 100000miles so actual value is 4k. If car only did 500000miles value us 12k

o

Contract (GAINS IF THE CONTRACT HAD BEEN PERFORMED) -> Y can obtain the dimuniion measure ie the value of the car if it had complied with the warranty -> 12k-4k=8k

o

Tort -> Y can obtain the diference between the price paid and the actual value -> 5k4k=1k

o

Bad bargain -> if warranted value less than agreed price (bad bargain), diminuion damages is zero so only receive nominal damages – but can recover 5k-4k=1k for tort which was commited independently from the breach of contract

II. Cost of cure measure 

GENERALLY, where the cost of cure exceeds the diminuion in value, C can opt for the cost of cure measure.



BUT C cannot recover the cost of cure if it is unreasonable for him to do so

o

Eg *Ruxley Electronics & Construcions Ltd v Forsyth (Facts: C contracted with D to build swimming pool. Agreed that pool would have depth of 7 t. 6 in. However, pool built only had depth of 6 t. 6 inches. Held: Damages awarded totalling £2500 (referred to as a “loss of amenity”). Cost of cure measure rejected on ground that it was “wholly disproporionate” to diminuion of value – cost of cure was 8.5 imes in this case. (per Lord Musill)) 

Per Lord Musill in Ruxley Electronics, an important factor in deciding whether it is unreasonable is whether the cost of cure is ‘wholly disproporionate’ to the diminuion in value

o

Eg Tito v Waddell (No 2) [1977] -> where cost of cure to replant island ater mining was enormous, cost of cure not granted

o

If C does not intend to have the consequences of breach reciied, it is extremely likely to be unreasonable for C to claim the cost of cure: $ Tito v Waddell (No 2) (agreement between islanders with mining company to allow mining company to

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mine while islanders move out, mining company covenanted that when mining expediion over will replant the island with food bearing trees. Didn’t replant island) and Ruxley 

INTENTION: BUT the fact that C does intend to have the breach reciied is not a suicient condiion for cost of cure damages: Ruxley [1996] (intenion is thus less important ater Ruxley) 

Cf. Radford v De Froberville [1977] where cost of cure was awarded where trial judge was saisied that C would pay for construcion of wall, where land worth the same whether wall was built or not

***Do you think Lord Musill’s ‘consumer surplus’ raionale is more likely to lead to recovery than Lord Lloyd’s ‘contracts for pleasurable amenity’ (distress / disappointment, like a ruined holiday “disappointment damages”) approach?  Lord Musill’s approach has a broader impact since it would be applicable in any case in which a consumer puts a higher value on performance than market value  Lord Lloyd’s narrower approach links the claim for loss of amenity damages to the line of cases “when the object of the contract is to aford pleasure” (the most recent case being Farley v Skinner (purchase of property near Gatwick)). If Lord Musill’s approach is used, then a middling award of damages between a cost of cure and diference in value would be awarded in more scenarios, whereas following Lord Lloyd’s approach, it is possible that such claims will be limited by the object of the contract.

B. Reliance measure 

WHAT IS IT: The reliance measure is essenially the tort measure – puing the claimant in the posiion he would have been in if the contract had not been made (the “pre-contract” posiion). It is unusual in a contract case – ater all, the claimant will generally have made a proitable contract and thus stand to gain more from the expectaion measure than the reliance measure.



WHEN might the claimant be inclined to claim, and a court to award, the reliance measure? o



When diicult to show what would have happened if contract performed 

Eg McRae v Commonwealth Disposals Commission (1950) (right to sell a wreck that doesn’t exist, C not asking for proit to have made since the wreck didn’t exist, hard to tell how much proit to make, therefore wanted their wasted expenditure)



Eg Anglia TV v Reed [1972] (breach of contract, actor pulled out, producion had to be cancelled) -> reliance measure as no way to tell how the TV show would have done

Can the claimant seek the reliance measure in a “bad bargain” case?

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o

No – if the D can prove that expectaion measure would give C less than the reliance measure - C & P Haulage v Middleton (licence to occupy garage. Licenced garage incurred expenditure to do up garage but not fully recovered by contract -> held cannot claim for reliance ie cannot cover losses that would have been lost anyway even if the contract had been performed)

o

Therefore way out of reliance measure is for D to prove that C’s expectaion was nil Hutchison LJ in CCC Films v Impact Quadrant Films [1985]

C. “Resituionary” Measure / Disgorgement 

Negoiaing damages o

Wrotham Park Estate v Parkside [1974]

o

Facts: Landowner in past sold of land to purchaser, covenanted not to develop house the land bought. Breach covenant, built 14 houses, but no adverse efect on value on C’s remaining land. C sought injuncion but failed because houses were already built

o

Held: Damages awarded in lieu of injuncion, 5% of D’s proits (measured by D’s gain and not C’s loss – suggest resituionary approach)

o

Damages are awarded for the LOSS OF THE OPPORTUNTIY TO BARGAIN 

Andrews -> beter view this sum is compensatory (and not resituionary as in 5% of proits) -> designed to remedy loss of an bargaining opportunity 



Disgorgement o

AG v Blake [2001]

o

Facts: Double agent, breach of contract, published secrets

o

Held: Damages as resiiionary/disgorgement

o

BLAKE IS SEEN AS A UNIQUE CASE, AS IT HASN’T PRODUCED A WHOLE PROGENY OF LITIGATION 



Supported by Lord Hobhouse (and Nicholls) in Blake saying that Wrotham was compensatory – P lost sum “which he could have exacted from the defendant as the price of his consent to the development”

Should be conined to employment for secret service cases

Disgorgement or negoiaing damages o

Posiion -> Vercoe v Rutland Fund Management Ltd [2010] HC Sales J - that usually get negoiaing damages ie Wrotham Park and not Blake

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

o

Blake only for state secrets, naional security – Sales J emphasised the nonnegoiable nature of the contractual rights in Blake and non-commercial context of Blake

Where Blake applied 

Esso v Niad [2001] -> commercial dispute about price of petrol, deliberate breach but not excepional since it’s in the commercial sphere - but held it was excepional enough for Blake as defendant had breached the contract deliberately, the amount of inancial loss caused by the breach was diicult to ascertain, and the obligaion breached was ‘fundamental’ to the agreement 

o

But this was a pre-trial decision as to a strike out claims – not the inal decision of the merits at the trial

Where Blake not applied 

The Sine Nomine [2002] 1 Lloyd’s Rep 805 -> charter party, but held not excepional enough to use Blake



Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323 

Facts: D had contract with C to publish C’s work. Breach, published more than allowed. C wanted damages accorded to Blake ie 100% of the proits, not content with Wrotham Park “lost opportunity to bargain”



Held: Not excepional enough ie Wrotham lost opportunity to bargain damages only awarded because: o

This was not as special or sensiive as naional security as in Blake

o

Blake’s proits derived from breach of employment contract, not present in this case

o

No direct analogy to Blake which was a iduciary

2. Acionable loss Financial loss is recoverable Non – Financial loss 

GENERAL RULE: Damages for distress, inconvenience or disappointment are not recoverable on a breach of contract - Addis v Gramophone Co Ltd [1909] (no addiional damages for humiliaing means of dismissal)



** EXCEPTIONS (1) & (2): Wats v Morrow (airmed at [16] of Farley v Skinner Lord Steyn)

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

o

(1) “Where the very object of a contract is to provide pleasure, relaxaion, peace of mind or freedom from molestaion.”

o

(2) “For physical inconvenience and discomfort caused by the breach and mental sufering directly related to that inconvenience.”

Wats v Morrow [1996] o

Facts: C, husband and wife, bought house on reliance of report by D surveyor, who failed to menion various defects. C had to have extensive repairs done. Cannot get cost of cure because surveyor did not promise house was free of defects but instead promised that will take reasonable care. Obvious remedy is diference in value. But also claimed 8k for distress and inconvenience because broke up their relaionship

o

Held: Damages available for £750 for physical inconvenience and mental distress from living away from house during repairs.

o

Raio, per Bingham LJ: Damages cannot be awarded for distress except in two cases: 

(1) Where the very object of the contract is to provide pleasure, relaxaion, etc



(2) For physical inconvenience and discomfort caused by breach and mental sufering directly related to the inconvenience.

(1) Object of the contract and Consumer surplus 

EXTENSION of the Wats v Morrow [1996] in Farley v Skinner [2001]: o

Facts: C wanted to purchase property near Gatwick for peace and quiet to spend reirement. He employed D, a surveyor, and expressly asked him to report on whether aircrat noise would be a problem. In breach of contract, surveyor suggested that unlikely the property would be noisy.

o

Held: Although the price C paid relected aircrat noise problem, HL conirmed award of £10 000 for discomfort accrued.

o

*Reasoning:



Lord Scot – (radical approach): endorsed consumer surplus (Lord Musill’s ‘consumer surplus’ in Ruxley)



Lord Steyn – broadening of the excepion in Wats v Morrow. Not just contracts where the sole/primary purpose is on pleasure, but it was suicient that that factor was merely an important object of the contract (i.e. unnecessary to show that this was the sole or dominant object)

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





Eg Holiday companies (Milner v Carnival plc [2010] EWCA Civ 389), Wedding photograph (Farley v Skinner at [52] to [69]) - Farley v Skinner Lord Steyn at [24]

Note -> diference between consumer surplus and contracts where important object is pleasure is consumer surplus involves consequenial loss while pleasure contract involves denying C the beneit of a promised performance

PROBLEMS? o

Note that it may not be easy to ascertain whether this requirement has been saisied on the facts of any given case  e.g. at [42] of Farley, there appears to be a disincion between an ‘ordinary surveyor’s contract’ (which did not fall into that category), and the contract in Farley, which did.

o

DISTINGUISHING: The plainif in Farley speciically asked the surveyor to invesigate noise levels from the aircrat, thus going beyond what was usually expected of a typical surveyor.

(2) Distress caused by an unwelcome sensory experience 

Unclear ater Farley v Skinner: o

In favour of physical and not physical inconvenience 

Lord Scot (dictum) considered that distress by an unwelcome sensory experience should be the relevant test (broader than Wats) – he criicised what he considered to be an arbitrary disincion between physical and non-physical inconvenience.



Lord Clyde criicised the use of the word ‘physical’

o

BUT other Lords followed the Wats test without altering it, and hence Lord Scot’s test is likely to be mere obiter dicta, and NOT the raio of this case

o

It is thus submited that the current state of the law is that the courts will take a BROAD VIEW of the meaning of “physical inconvenience” 

Broad view since NOISE is viewed as unwelcome sensory experience and its non-physical



Hamilton Jones v David & Snape [2003] HC where mental distress consequent on losing custody of children because solicitors negligently failed to renew “agency noiicaions” of the risk of children taken out of England – awarded 20k mental distress damages for breach of contract

NOTE: That both approaches oten cover the same ground, but per Farley (and common sense) you CANNOT recover twice for the same situaion.

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NOTE 2: Other non-inancial losses, following Farley, are not recoverable. (e.g. no recovery for mere disappointment for breach of contract, or for distress, or even for damage to reputaion, unless inancial loss has resulted from the above)7 NOTE 3: Similarly, the breach ITSELF is NOT a loss for which damages can be recovered. This approach was suggested in the three-party context in Panatown, but the courts are reluctant to apply it outside this context, since it faces signiicant diiculies (e.g. diiculty in valuing how much the breach itself is worth in Rolls-Royce Power Engineering plc v Ricardo Consuling Engineers Ltd)

Loss of a Chance “Speculaive Loss” Damages for loss of a chance are permissible, provided that the loss is real or substanial and not merely speculaive: Chaplin v Hicks [1911] o

Facts: C was a inalist in actress compeiion. D was to determine winner, but breached contract with C by not arranging convenient appointment, depriving her of a chance to win

o

Held: Damages can be recovered, despite diiculty in calculaion

See also Allied Maples Group v Simmons and Simmons [1995] o

Facts: property transacion. D should have warned of risk of liability, but D didn’t menion it. C got hit by liabiliies. Don’t know what the outcome of the hypotheical outcome would have been

o

HELD: Damages will only be awarded for loss of a chance where the acion of a third party that would have determined whether C would have made a gain if contract was properly performed and must not to too speculaive (damages awarded in this case)

3. Causaion 

Test is that in Galoo v Bright Grahame Murray [1994] – breach must be cause of loss (and does not merely give him the opportunity to sustain the loss), determined by the applicaion of the court’s “common sense.” o

FACTS: Auditors negligently failed to spot that company they were audiing was insolvent, went bust later with greater liability

o

HELD: Court held auditors negligence provided the occasion for later losses but not caused – probably meant that there was factual causaion but no legal causaion, loss involved independent decision by directors to coninue to trade -> it’s all about common sense

7 There is a key normaive debate as to whether this separaion is defensible. See p. 395 O’Sullivan

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o



Commentary: Sullivan opines that this test is uncertain and a test of causaion should require both factual and legal causaion

There can be a novus actus interveniens that breaks the chain of causaion. o

Act of a third party 

o o

The courts will use a number of factors to determine liability: likelihood of the intervening act happening (Monarch Steamship [1949] where delay due to fault, during delay war broke out held not novus since D should have foreseen possibility of war breaking out during delay), how reasonable the intervening act was, whether C had a duty to prevent the act occuring etc.

Act of the claimant 

The courts look to the reasonableness of C’s conduct; but generally reluctant to ind him, having sufered loss from the breach, as the main cause.



The act of a claimant may be so unreasonable that it breaks the chain of causaion: Lambert v Lewis [1981] (Towing hitch caused accident, relied on warranty to sue. Held novus as farmer aware the locking mechanism on towing hitch faulty but sill coninued to use it)



If there is no novus actus, there may be a reducion in contributory negligence

4. Remoteness of damage In outline:  The orthodox approach is outlined in Hadley v Baxendale  However, the second limb has been reconsidered in HL case The Achilleas. BUT two approaches – one using the orthodox “reasonably foreseeable type of loss” in Hadley and one using an “implied assumpion of responsibility” (Lord Hofman)  A possible way to reconcile the cases is highlighted in CA case of Jones Grimes Partnership Ltd v Gubbins  DEGREE OF FORESEEABILITY – deals with what courts are likely to think is a type of harm that is “reasonably foreseeable” o Heron II and Parsons



Original test: C can only recover loss if in reasonable contemplaion of paries at the ime the contract was entered into: Hadley v Baxendale (1854) 9 Ex Ch 341; 156 ER 145 o

Facts: C’s mill stopped because of broken crank-shat. C engaged D’s services to transport the shat to someone to make a new one, using old one as a patern. At ime of contract, D was not told that mill could not funcion without the new shat. In breach of contract, D failed to deliver on ime. C sued for loss of proit sufered.

o

Held: C’s claim failed. No foreseeability of the losses that would occur as common for millers to have a spare millshop

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o



Reasoning, per Alderson B – Two Limbs Test, must use either for remoteness of damage 

(1) Ordinary loss - C will recover loss that would usually be caused by the breach – ie ordinary course of things



(2) Special losses – only recoverable if probable to D at ime contract made – TYPE OF LOSS that may reasonably have/should have been in contemplaion of paries at the ime of contracing

Victoria Laundry v Newman (1949) o

Facts: D agreed to supply boiler to D, a major purchase which D knew was required for immediate use in C’s business. D supplied it 5 months late. C sought damages for both ordinary loss of proits and proits from excepionally lucraive contracts it could have obtained

o

Held: C only enitled to recover ordinary proits on contracts with customers, and not from ‘paricularly lucraive dyeing contracts’ which was held to be a diferent type of loss not falling within limb 1 of Hadley v Baxendale

o

Raio: An excepionally high level of proit considered diferent TYPE of loss

o

Qualiicaion 1: Parsons v Utley Ingham (1978) (CA)

o



Facts: C was a pig farmer. Bought bulk food storage hoppers from D who installed them on farm. They installed them improperly and therefore, the food became mouldy. C’s pigs died from E. coli and C sued D for damages.



Held: Property loss is not too remote. Both paries should have contemplated illness sufered by livestock as a “serious possibility.” Damages awarded to C.



Raio: Death of pigs considered within more severe loss than foreseeable sick pig – therefore within remoteness of damage if only EXTENT unforeseeable

Qualiicaion 2: Wellesley Partners LLP v. Withers LLP (2015) CA 

Facts: Error supposed to withdraw half capital ater 42 months but ended up drating as allowing withdrawing half the capital before 41 months. Person did that. Sued for damages for proits for opening up a US oice, which it would have done with the capital had it not been withdrawn



Held: CA held contractual remoteness test in this case saisied because the claim for loss of proits in being able to expand its foreign business was for a type of generic gain contemplated at the ime of the defendant’s work for its client, 18 namely proit from foreign expansion of the claimant’s business. In

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this case, applying the contractual remoteness test, the lost business opportunity was contemplated by the paries as `a serious possibility’ or `not unlikely’ 





Signiicance -> that missed business opportunity will be too remote (Victoria Laundry v Newman) like in only if it was so unusually more proitable than the ordinary run of economic opportuniies that it must be categorised as an enirely diferent type of risk

The Heron II (1969) o

Facts: Charter party. Ship deviated from Iraq, where D to unload C’s sugar. D was unaware of intent to sell the sugar at that locaion and ship arrived late. Upon arrival, price had fallen.

o

Held: Damages awarded for the diference in value of the sugar.

o

Raio: Fell within limb 1 Hadley v Baxendale 

Per Lord Reid: required “very substanial degree of probability”/event was “not unlikely” (the most approved formulaion)



Other formulaions included “serious possibility/real danger” (Lords Pearce and Upjohn) or “liable to result” (Lord Hodson)



NB – Remoteness test in contract narrower than in tort. Higher degree of probability required for loss to be “within reasonable contemplaion of paries.”

HL evaluated the Hadley test in The Achilleas (Transield Shipping v Mercator) o

Facts: Charterer of ship obliged to return it to owners by 2 May. By April, market rates had more than doubled and owners arranged new charter with T, promising delivery no later than 8 May. Ship delayed and ship not returned unil 11 May. By this ime, market rates plummeted; had to renegoiate the contract. Owner sued for diference in daily rate for the re-negoiated charter ($1.3 M). Charterer argued on the damages at the market rate at the period which the ship was delayed ($158 000)

o

Held: C’s liabiliies was limited to damages for period of delay (9 days - $158 000), based on diference between the lower charter rate and prevailing market rate.

o

Remoteness Test (minority approach, Lord Rodger and Baroness Hale agreeing): 

Decision based on irst limb of Hadley v Baxendale. The extremely volaile market condiions produced an outcome that was not in the “ordinary course” of events that were reasonably foreseeable



McKendrick - Problemaic in the sense that the “type” of foreseeable loss is very narrow: loss which was sufered was that of proit which could have been foreseen, but extent was quite wide

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o

Scope of Duty Test (majority approach, Lord Hofmann – using the formulaion in Banque Bruxelles/SAAMCO, joined by Lord Hope + [Lord Walker]) 



Quesions whether the loss is of a “kind”/”type” for which D had ASSUMED RESPONSIBILITY for 

Held that the charters only assumed responsibility for the 9-day delay but not the follow-on charter, with reasoning based on an “understanding in the shipping market”



NB – explanaion of Victoria Laundries: proits were a “diferent and higher form of risk” than general risk of loss for which they did not undertake responsibility



Cf. Highly doubted by Baroness Hale – argued that “assumpion of responsibility” approach in tort leads to uncertainty and should not be imported into contract law



McKendrick: Test diicult to apply in cases where there is no clear market understanding

The posiion ater Transield - Hamblen J in “The Sylvia” (2010)  Test for remoteness was one of requiring that loss should be contemplated as a “serious possibility” - The Heron II [1969] HL

1. Orthodox approach (Hadley v Baxendale) remains the general test of remoteness in majority of cases

 Lord Walker remark in Transield + later cases eg Supershield v Siemens Toulson LJ at [37] that orthodox approach is the general rule unless special circumstances

 Hadley v Baxendale

o

Limb 1: Ordinary loss - C will recover loss that would usually be caused by the breach – ie ordinary course of things



Yes ordinary loss



The Heron II (1969) -> Charter party. Ship deviated from Iraq, where D to unload C’s sugar. D was unaware of intent to sell the

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sugar at that locaion and ship arrived late. Upon arrival, price had fallen



o

No not ordinary loss



Hadley v Baxendale -> since usual for millers to have a spare millshop



Balfour Beaty Construcion v Scoish Power (1994) -> D supplier of electricity not liable for losses caused by interrupion in low of electricity in building site where cement being used to construct pillars – resulted in having to redo some of the construcion work



Transield Shipping v Mercator (minority approach) -> extremely volaile market condiions produced an outcome that was not in the “ordinary course” of events that were reasonably foreseeable

Limb 2: Special losses – only recoverable if probable to D at ime contract made – TYPE OF LOSS that may reasonably have/should have been in contemplaion of paries at the ime of contracing



Eg Jackson v Royal Bank of Scotland (2005)



Facts: Import doggie biscuit, bank let slip in breach of contract that C marked up. Therefore C lost business and now client buy directly



Held: Can claim as let known the importance of conideniality at ime contract was made

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2. For unusual cases (Transield type of cases) – context surrounding circumstances or general understanding in the relevant market make it necessary speciically to consider whether there has been an assumpion of responsibility – Toulson LJ in Supershield v Siemens (Assumed responsibility for sprinkler system, inconsequenial that blocked drains are not foreseeable)

 But need to resort to 2. conined to “relaively rare cases where the applicaion of the general test leads or may lead to an unquaniiable, unpredictable, uncontrollable or disproporionate liability … or where liability would be contrary to market understanding and expectaion” - Hamblen J in “The Sylvia” (2010)

 But must be the same type of damages, excepionally proitable contracts are not considered the same type of damages - Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949]

o

Cf Wellesley Partners LLP v. Withers LLP (2015) CA



Facts: Error supposed to withdraw half capital ater 42 months but ended up drating as allowing withdrawing half the capital before 41 months. Person did that. Sued for damages for proits for opening up a US oice, which it would have done with the capital had it not been withdrawn



Held: CA held contractual remoteness test in this case saisied because the claim for loss of proits in being able to expand its foreign business was for a type of generic gain contemplated at the ime of the defendant’s work for its client, 18 namely proit from foreign expansion of the claimant’s business. In this case, applying the contractual remoteness test, the lost business opportunity was contemplated by the paries as `a serious possibility’ or `not unlikely’



Signiicance -> that missed business opportunity will be too remote only if it was so unusually more proitable than the ordinary run of economic opportuniies that it must be categorised as an enirely diferent type of risk

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o

Cf Parsons (Livestock) Ltd v Utley Ingham & Co Ltd [1978]



No need to contemplate the extent/scale of the loss

5. Miigaion of Loss 



C has the responsibility to take reasonable steps to minimise loss caused by D’s breach – the duty to miigate o

Miigaion is a factor the court will take into consideraion. Afects the size of the remedy that is ordered by the court.

o

The burden of proof is on D to show that C failed to take reasonable steps to minimise loss - Lombard North Central plc v Automobile World (UK) Ltd (2010) CA

3 sub-rules in miigaion: o

1 – C cannot recover damages for loss that could be avoided by taking reasonable steps (Briish Wesinghouse Electric v Underground Electric Railways [1912] “plainif the duty of taking all reasonable steps to miigate the loss consequent on the breach, and debars him from claiming in respect of any part of the damage which is due to his neglect to take such steps.”)

o

2 – C can recover for any expenses he incurs in making reasonable eforts to reduce loss, even if eforts unsuccessful - Esso Petroleum v Mardon [1976] CA 

o

Facts: Defendant entered into the second tenancy agreement, for by that act he was acing reasonably in an efort to miigate the loss to himself and to the plainifs, and accordingly the loss sustained ater that date was atributable to the original misstatement and was recoverable as damages from the plainifs

3 – If C has avoided the loss likely to result from D’s breach, he cannot recover for what he has avoided sufering 

BUT this is only if the avoided loss/beneit was ‘part of a coninuous transacion of which D’s fault was the incepion’ 

Eg Hussey v Eels [1990] (Misrepresentaion not coninuous transacion) o

Facts: Purchased property, relied on misrepresentaion. Got planning permission to demolish property + enact 2 dwelling. Sold and got huge proit. Tried to claim the misrepresentaion of 17k

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o





Held: CA held that selling at proit was a collateral beneit due to the beneit, therefore doesn’t ofset the 17k loss from the misrep ie can claim for the 17k misrep

Eg Lavarack v Woods of Colchester [1967] o

Facts: Sacked in breach of contract, got another job that was so much beter

o

Held: Salary goes to reducing damages in breach of contract, but opportunity to buy shares in new employer no need to be factored in for reducion of damages

Requirement of reasonability: o

o

C may, however, have to, in certain circumstances, consider an ofer of subsitute performance (ie accept the late delivery of the ship) by the party in breach: The Solholt [1983] 

Facts: Sale of ship, delivery 31st Aug. Breach contract delivered ship late. C cancelled contract. But market risen ie contract was a good deal to D



Held: can’t get damages as should have miigated loss and accepted the late delivery of ship and not repudiate the contract

Reasonable acts of miigaion 



o

Banco de Portugal v Waterlow & Sons (1932) 

Facts: Breach of contract allowing thousands of new notes to fall to criminals who put them in circulaion. C had to buy up the notes and cancel the issue because these measures were commensurate with the perilous situaion created by breach



Held: Such loss was recoverable even though not foreseeable at contract’s commencement

Holden Ltd v Bostock (1902) 

Facts: Sugar with contaminated by arsenic. C had to spend adverising expenditure to reassure customers that the danger of arsenic poisoning had been countered



Held: This expense had been reasonably incurred in miigaion, so could be recovered

No reasonable acts of miigaion 

“The Borag” (1981)

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

Facts: Excessive interest charges incurred on loan taken to inance lease of ship detained in breach of contract not a reasonable act of miigaion – award of 113k, but wanted to claim interest on bank loans of 100k as well



Held: 100k interest was not claimable

6. Contributory Negligence 

Where C’s fault has contributed to loss sufered, damages may be reduced in contributory negligence – s. 1 of Law Reform (Contributory Negligence) Act 1945



Three disinguishing situaions stated by Hobhouse J in Vesta v Butcher o

1 – Where D’s liability arises from other contractual provision not dependent on D’s negligence. 



Barclays Bank v Fairclough Building [1995] noted that Contributory Negligence Act does not apply in contract, where there is strict liability

o

2 – Where D’s liability arises from contractual obligaion expressed in terms of taking care (but not corresponding to common law duty to take care)

o

3 – Where D’s liability in contract is CONCURRENT as liability in tort of negligence

** The courts in Vesta v Butcher suggested that contributory negligence only available in 3. o

Where breach of contract is strict liability breach, no possibility of strict liability. Only where there is a breach of contractual obligaion to reasonable care (giving rise to concurrent liability in tort), there is a contributory negligence defence

7. Liquidated damages clauses How does an LD clause operate 

A clause will only be classiied as a liquidated damages/penalty clause if the sum is to be payable in the event of a BREACH: Eg Alder v Moore [1961] where though penalty, it was a primary obligaion to reimburse underwriters if event proved false (ie player joined another club) – therefore it’s a primary obligaion, will be enforced like a debt o



BUT NOTE may sill be caught under the CRA 2015

Addiionally, the clause must create a new liability – it must impose a duty on the other party to pay a sum where previously he was under no obligaion to do so. o

If the clause merely accelerates an exising liability, then it will not be a LD clause: Protector Loan Co v Grice (1880) (debtor fails to pay any of the instalments on their due dates then whole balance will become immediately due payable, no LD)

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

If LD clause undercompensates, will sill be upheld – Cellulose Acetate Silk Co v Widnes Foundary [1933]

o



Facts: LD for 600 quid when actual loss was almost 6k quid was upheld ie cannot try to claim for the 6k actual loss due to the 600 quid LD clause

CONTROVERSIAL - Can LD bad bargain argue it’s a penalty? (where that party is undercompensated…i.e. he entered a bad bargain) o

POSSIBLY YES: 

Wall v Rederiakiebolaget Luggude (1915) (LD 1.1k, actual loss 3k. Held LD not intended as limitaion clause but penalty, invalid LD clause)

o

DOUBTED by Lord Atkin in Cellulose Acetate Silk Co v Widnes Foundary [1933]

o

MODERN POSITION? Commentary by Andrews -> odd that a party can invoke a penalty doctrine when it was he who inserted it

The leading test 



The test in Dunlop Pneumaic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] was recently considered in Cavendish v El Makdessi [2015] (Lord Neuberger and Sumpion) o

The penalty rule should not be abolished, nor should it be extended

o

However, the concepts of ‘deterrence’ and “genuine pre-esimate of loss” (in Dunlop) are unhelpful.

o

The real quesion when a contractual provision is challenged as a penalty is whether it is penal, not whether it is a pre-esimate of loss at [31] Cavendish v El Makdessi [2015]

Rather, the true test -> whether the impugned provision is a secondary obligaion which imposes a detriment on the contract-breaker OUT OF ALL PROPORTION to any LEGITIMATE INTEREST of the innocent party in the enforcement of the primary obligaion – [32] Cavendish v El Makdessi [2015] o

o

Lord Mance: 

First step: consider whether any (and if so what) legiimate business interest is served and protected by the clause



Secondly, whether the provision made for that interest is extravagant, exorbitant or unconscionable

Lord Hodge:

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

o



A clause ixing a level of damages payable on breach will be a penalty if there is an extravagant disproporion between the sipulated sum and the highest level of damages that could possibly arise from the breach

Comment -> therefore test is now on LEGITIMATE INTEREST to enforce LD and not on whether it’s a genuine pre-esimate

On applicaion to the facts: o

Cavendish v El Makdessi [2015] 

Facts: Adverising, selling shares in company. Contract provided that payment in instalments calculated to proits of group. Clause promised not to compete otherwise 1. Lose right to receive remaining instalment of purchase price (looked to be 40 mil). Breach of compeiion clause. Both advised by City law irms. CA unanimously said it’s a penalty – that losing right to 40 mil was triggered if breach of non-compeiion clause was trivial or massive, no noion of proporionality. SC held not a penalty



(1) Cavendish had a legiimate interest in observance of restricive covenants, in order to protect goodwill of the Group generally



(2) Provision was not extravagant, exorbitant or unconscionable: 

Clause 5.1 (note that it did NOT represent the esimated loss atributable to the breach (cf. if the Dunlop test were applied) o

Court considered that the court could not access the precise value of that obligaion or determine how much less Cavendish would have paid for the business without the beneit of the restricive covenants, and hence the paries were in the best posiion to relect the value in the agreement.

o

Another factor was that the court opined that Clause 5.6 could not be rendered invalid without rewriing the contract

. 

Clause 5.6, note ALSO that it did NOT represent the esimated loss atributable to the breach (cf. if the Dunlop test were applied) o

o

Rather, it relected the reduced consideraion which Cavendish would have been prepared to pay for the acquisiion of the business on the hypothesis that they could not count on the loyalty of Mr Makdessi

ParkingEye v Bevis [2015] 

FACTS: irst 2 hours free, 85 quid for more than 2 hours. C overstayed for 1 hour. Argued 1. Penalty clause and 2. Unfair term

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

HELD: SC held this was not a penalty (neither was it an unfair term, Lord Toulson dissening on this point, that same penalty whether overstayed by one minute or 1 hour)



Using Lord Mance’s steps: 

(1) What was the legiimate business interest: (i) the management of the eicient use of parking space in the interests of the retail outlets and their users by deterring long-stay or commuter traic, and (ii) the generaion of income in order to run the scheme



(2) Was the provision extravagantly disproporionate: No – (i) legiimate interest in overcharging motorists, which EXTENDED BEYOND THE RECOVERY OF ANY LOSS (ii) pracice around UK + clear wording of noices suggests it was neither extravagant nor unconscionable (iii) the charge gives income and proits

Other Speciic Rules 

Whether or not the clause is a penalty clause is to be judged at the ime that the contract is made, not the ime that it is breached, in light of the circumstances exising at that earlier ime: Dunlop v New Garage [1915]



If the paries use the phrases ‘penalty’ or ‘liquidated damages’, this is relevant but not conclusive - Dunlop v New Garage [1915]



Penalty clause comes in MANY FORMS: The relevant contractual remedy typically sipulates payment of money, but it equally applies to obligaions to transfer assets, or clauses where one party forfeits a deposit following its’ own breach of contract: Cavendish v El Makdessi



Penalty is an OBJECTIVE test – Jackson J in Alfred McAlpine (2005) “does not turn upon the genuineness or honesty of the party or paries who made the pre-esimate”



Breach need to be triggered by an obligaion owed by the payor to the payee – Export Credits v Universal Oil Products (1983) (Primary obligaion owed by OUP to Bank but guaranteed by ECGD, held no breach as no primary obligaion owed by bank to ECGD)



It will not be a genuine pre-esimate if the breach provided for consists only in not paying a sum of money, and the sum sipulated is a sum greater than the sum which ought to have been paid (e.g. if the clause reads ‘if X fails to pay me the contract price of £500 when Y inishes building the house for X, X shall have to pay Y £1m, it will be a penalty clause)

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Speciic Remedies Debt (Award for an agreed sum) 

A claimant cannot claim the sum if the enire obligaions rule applies (Sumpter v Hedges)8 o

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As a result of the harshness of the rule, the court will be reluctant to construe an obligaion as enire (Ministry of Sound v World Online) and will prefer to use the doctrine of substanial performance to allow for recover of the debt, paricularly if defendant stops the sum from becoming due e.g. by prevening the work from being completed (Hoenig v Isaacs)

What happens when C coninues to perform ater D has repudiated the contract, then claims the sum ater compleing the performance? o

White & Carter v McGregor (garbage bin adverisements) suggested that C could claim the full price – there was no miigaion requirement for an acion of the agreed price

o

Nonetheless, there were two qualiicaions that could afect the ability to recover the debt: 

(1) Cooperaion qualiicaion – the rule does not apply where the innocent party is dependent upon the co-operaion of the party in breach in order to coninue performance 9*

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(2) Legiimate interest qualiicaion – where there is no legiimate interest (inancial or otherwise) in performance 

Innocent party is not free to reject the contract where it has no “legiimate interest” (inancial or otherwise” on keeping contract alive. o

Eg The Puerto Buitrago [1976] (where owners insisted repairs of 2 mil cosing 4 imes as much as value of ship with and without repair though charters admited liability for 400k) CA held that though charters contractually allowed to refuse delivery unil repairs, held “no legiimate interest” following Lord Reid in White v McGregor, and thus White v McGregor held not to apply 

o

Ie no legiimate interest

Cf Reichman v Beveridge (2006) -> landlord enitled to make periodic demands for rent accruing during the residue of a business tenancy

8 On this view, C is not enitled to the sum unless he has performed some or all of his obligaions under the contract. 9 Note the BROAD noion of cooperaion: per Megarry J in Hounslow LBC v Twickenham Garden Developments Ltd it seems that the innocent party can neither require the acive NOR THE PASSIBE cooperaion of the party in breach.

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Ie yes legiimate interest

Cf The Aquafaith [2012] Cooke J [49] -> no legiimate interest if damages are an adequate remedy and maintain contract “wholly unreasonable", "extremely unreasonable" or "perverse

Speciic Performance Test for Speciic Performance 

Speciic performance can be granted to achieve a “just result” (Beswick v Beswick – where damages would only be nominal) and where damages are “not an adequate remedy” (Tito v Wardell)

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The modern test has also be formulated by Treitel (2011) that the “availability of speciic performance depends on the appropriateness of that remedy in the circumstances of each case.”

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It has been said that the court in Co-operaive Insurance Society v Argyll Stores [1997] has acted to restrict the use of speciic performance, where Lord Hofman focused mainly on the harm of speciic performance to D’s interests.

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o

Term in the contract that supermarket would remain “open” to keep it open was imprecise and lengthy term

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Court also expressed reicence at remaining open

Note: it is the primary remedy where the contract relates to a unique subject mater (e.g. land, works of art) – things not subsitutable on the market o

Even where normally common goods are in scarce supply e.g. oil during oil crisis: Sky Petroleum Ltd v VIP Petroleum Ltd

Bars to Speciic Performance 

Speciic performance will not be granted if constant supervision (i.e. if there are indeinite number of disputes which may arise, and thus the court is required to give indeinite set of rulings) by the court is required. (Cooperaive Insurance Society v Argyll Stores) 

Facts: Argyll (anchor tenant), decided to close down a supermarket in breach of contract. This acion breached a clause in the lease requiring Argyll to keep the premises open, so the claimant landlord sought speciic performance to keep D’s store’s open

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Held: HL refused to award speciic performance

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Raio: problem of constant supervision and police the order for 20 years (Lord Hofmann emphasising this point)

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Almost all cases D do obey court orders

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Even if supervision required, doesn’t have to involve full judicial machinery eg supervision done by an oicer of the court

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Even if judicial ime and expenses were involved, its merited in the name of jusice

Hence, orders to carry on aciviies  BAR TO SPECIFIC PERFORMANCE. Order to achieve results  NOT A BAR.

o

The more PRECISE the obligaion, the less likely disputes will arise over whether or not it has been breached.

Contracts for personal services are also inappropriate, as enforcement of the contract would in essence compel a person to ‘slavery’. However, EXCEPTION to this rule have been recognised – Hill v CA Parsons [1972] 

Facts: Union pressure, actually about injuncion not speciic performance. Employer D, agreed with Union that require employees to join the Union. C didn’t want to join the Union but wanted to carry on working. D sacked C in breach of contract. Ater sacked, legislaion came in force that would make made his sacking unlawful

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Held: Gave injuncion that as like speciic performance

Extreme hardship to the defendant will also be considered: Patel v Ali (EXCEPTIONAL CIRCUMSTANCES REQUIRED o

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o

o

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Burrows argues this is not a valid reason as:

Facts: Ds JT to house, contract to sell house. Man went bankrupt and imprisoned. Let woman in sole ownership of house, leg amputated while pregnant. House not conveyed, sought speciic performance but denied as would inlict severe hardship – pointed out damages would be an adequate remedy

C must come with clean hands and it will not be awarded where the conduct has been paricularly bad - Shell UK v Lostock Garages [1976] o

Facts: Agreement for sale of petrol at ixed price from Shell, Lostock obliged to buy only from Shell. Shell supplied petrol to L’s compeitors at a lower price

o

Held: no implied term in fact or law to refrain from supplying to compeitors, but Shell’s discriminatory pricing policy was considered unfair, and a basis for refusing the order to go through with the contract

Injuncions

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An injuncion restrains the acion of a party who may be in breach of a negaive contract or negaive sipulaion (obligaion not to do something) o

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See for example Araci v Fallon [2011] 

Facts: Promised would only ride D’s horse at Derby, dispute, announced will ride a rival’s horse. CA granted injuncion

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Held: Injuncion C for riding for any rivals (restrain negaive bit), but didn’t compel C to ride D’s to ride the horse (which would be a posiive obligaion)

Courts will not grant an injuncion if it would indirectly compel D to perform a contract in circumstances where speciic performance would have been refused. o

See for example in the context of contracts for personal services – Warren v Mendy [1989] (non-compete clause in contract): compulsion would be tantamount to requiring the defendant to coninue performance

o

Cf. Warner Brothers Pictures Inc v Nelson (prohibitory injuncion allowed – 3 years to perform exclusively for Warner Bros only limited to “working in ilm or on stage”. Disapproved in Warren v Mendy: commented that the judge’s view that D may have found gainful employment elsewhere was “Extraordinary unrealisic”

Resituionary remedies Return for Total Failure of Basis  Here A transfer money to B under a contract in exchange for something, and B fails to perform, there has been a “total failure of basis” and thus the law allows you to recover the transferred money. 

In most cases, this remedy is the same as receiving damages, but can be atracive where there is a bad bargain (as expectaion damages mean reduced recovery) o

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E.g. Bought car for £10,000 but is only worth £4,000. Expectaion damages only result in £4,000 – it would be beter to reclaim £10,000 (original paid price)

There are two requirements to establish resituion on this ground: o

o

1. The contract must be terminated, void, or unenforceable. 

Terminaion may be through repudiatory breach, frustraion of a contract, or it being rendered void ab iniio

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Claim for the return of an advance payment without needing to worry about claiming damages may be advantages (for the reasons speciied above).

2. The failure of basis must be total

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Eg The Fibrosa (1942) 

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Facts: Frustrated contract, English supposed to deliver machinery to Polish port – held need to return the money as Polish company did not receive any of the consideraion ie the machines since it had not yet been delivered)

Stocznia Gdanska v Latvian Shipping : “Total failure” means that D must not have performed any of his obligaions under the contract. 

For supply of goods, failure to deliver is a total failure (despite ime spent to manufacture goods)

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Parial performance of an obligaion to manufacture and deliver goods does not count as total failure.

However, the courts have managed at imes to circumvent the rule in Stocznia Gdanska: 

Rowland v Divall (stolen car but allowed C to use it): Court may construe the contract to allow them to say that no obligaions were performed

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Goss v Chilcot: Court may apporion the beneit into diferent bits of performance (division of contract into smaller contracts) o

Facts: lent money on mortgage, paid 2 installment paid on interest, but no money paid on principle sum

o

Held: Lord Gof said can apporion consideraion for principle sum and that of the interest. Therefore, for principle sum, there was a TOTAL failure of consideraion

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