QLTS Exam Preparation Study Materials - Contract Law (MCT and OSCE)

These QLTS Exam Preparation Study Materials cover contract law and are useful for the MCT and OSCE parts of the exam. These notes were prepared by a student who studied for the QLTS exam.

What is a contract?

‘An agreement giving rise to obligations which are enforced or recognised by law’ Treital
‘Contracts are legally enforceable agreements which represent a vehicle for planned exchanges’ Poole
‘Contracts are what contract law applies to..’ Chen-Wishart

What distinguishes Contract from Tort?

Both are part of the Law of Obligations

Tortious obligations IMPOSED by law

Contractual obligations:-

VOLUNTARILY entered into
BY AGREEMENT between individuals
Allows forward planning
Establishes responsibilities
Sets standards
Allocates risk

Formation of a contract

Agreement
ICLR and Capacity
Consideration

Privity of Contract

Terms implied by common law and statute

Exemption & limitation clauses

Vitiating factors

Duress
Misrepresentation
Mistake

Discharge and Frustration

Remedies of a contract

Definition: “Expression of willingness to contract on specified terms made with the intention that it is to become legally binding as soon as it is accepted by the person to whom it is addressed.” (Treital)
Person making the offer = Offeror
Person to whom offer is made = Offeree
Offer must :

(1) Be addressed to the offeree (i.e. only offeree can accept)

(2) Be clear and certain - Storer v Man CC /Gibson v Man CC

(3) Show intention to enter into a legal relationship (objectively determined) Smith v Hughes

Offers can be made:

In writing As long as the offer is

clear and certain

Orally

showing the Offeror’s

By conduct intention to be bound

An offer remains open until it is either:

Rejected by the Offeree
Revoked by the Offeror
Lapsed (past it’s deadline)

INVITATIONS TO TREAT are NOT OFFERS i) Displays of goods

Shop windows - Fisher v Bell
Supermarkets - Royal Pharmaceutical Soc v Boots ii) Advertisements
Newspapers / TV - Partridge v Crittendon

BUT may be an offer if:-

Advertiser(Offeror) is the manufacturer Grainger v Gough

Offer is ‘UNILATERAL’ – Carlill v Carbolic Smokeball Co.
a specific type of offer that requires performance of an act as acceptance

TERMINATION OF AN OFFER: i) REJECTION

Refusing an offer OR

Accepting an offer on new terms = a counter offer Hyde v Wrench
In above situations: Original offer no longer exists.

ii) REVOCATION (taking back the offer)

Offeror can revoke any time before acceptance Payne v Cave
Revocation must be communicated Byrne v Van Tienhoven
A unilateral offer must be revoked before the act of acceptance is completely performed. If this is unfair on Offeree, revocation will not be allowed.

iii) LAPSE (finishes/ends)

Offer will lapse :-

On expiry of its deadline
After a reasonable time (up to court)
On death of offeror

Has there been an acceptance?

Court takes objective view
Intention of parties irrelevant
The ‘reasonable man’ test Smith v Hughes

Requirements for valid acceptance

Must be

unqualified(i.e. ‘yes’ not ‘maybe’) Hyde v Wrench AND
made by offeree (not someone who has merely overheard) AND
made in response to the offerR v Clarke AND
communicated – by Offeree OR authorised 3rd party AND
by prescribed mode set out in Offer (if any) e.g. in writing

Exceptions to the requirement of communication of acceptance

Unilateral offers – acceptance by performance of act Carlill v Carbolic Smoke Ball Co.
Where offeror is at fault (e.g. fax machine out of paper) Entores v Miles
The Postal Rule Adams v Lindsell

Acceptance valid moment it is posted

Offeror unable to revoke - bound when acceptance posted

Byrne v Van Tienhoven

Instantaneous communication (telephone/fax/email)

Rules of acceptance

The ‘receipt rule’ – acceptance must be received to be valid

Entores v Miles

A machine e.g. fax machine can ‘receive’ the acceptance

The Brimnes

If received IN office hours – deemed to be read

If received OUTSIDE office hours – deemed to be read next working day

Prescribed mode of acceptance

If Offeror has prescribed mode of acceptance in offer must be:

- ‘explicitly mandatory’ e.g. “and in no other way”

If it is not then

- an ‘equally efficacious’ mode of acceptance will be valid

Tinn v Hoffman & Co.

Intention to Create Legal Relations (ICLR)

A contract must show common intention of the parties to enter into legal obligations,

Rose and Frank Co. v Crompton Bros.

Presumption of ICLR in commercial agreements

Bowerman v Association of British Travel Agents Ltd

Presumption that there is no ICLR in social/domestic situations

Married couples – Balfour v Balfour

Parent and child – Jones v Padavatton

Both presumptions are rebuttable

Intention to Create Legal Relations (ICLR)

Capacity – Minors

With some exceptions, a contract between a minor (under 18) and an adult is not binding on the minor unless, after attaining the age of 18, the minor ratifies the contract

Capacity - Mental impairment

Mental Capacity Act 2005

A person will lack capacity if ‘unable to make a decision for himself in relation to the matter’ at the time the contract is made – irrelevant if impairment is permanent of temporary

Definitions of consideration

‘some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or

responsibility given, suffered, or undertaken by the other’ Currie v Misa

‘an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable’ Dunlop v Selfridge

The Rules of ‘Good Consideration’

Consideration must not be past
Consideration must move from the promisee 3. Consideration must be sufficient not adequate

NOTE:

Performance of an existing obligation is not good consideration
Part payment of a debt is not good consideration

Consideration must not be past

Consideration must be provided IN RETURN for a promise i.e. after the promise is made.
Any act that occurs BEFORE a promise is not good consideration for that promise Eastwood v Kenyon

Exception Pao On v Lau Yiu Long

Where act was carried out:

At the request of the promisor
In expectation of payment i.e. commercial situation
Contract enforceable otherwise i.e. not illegal
Consideration must move from the Promisee

A claimant can only claim on a contract if he has given consideration to the contract Tweddle v Atkinson

Note:The Contract (Rights of Third Parties) Act 1999

Consideration must be sufficient not adequate Sufficient in the eyes of the law i.e. some value

Chapell & Co. v Nestle

Consideration must be sufficient – Variation promises

Performance of more than an existing obligation IS good consideration for promise of extra ££ Hartley v Ponsonby
Performance of an existing obligation is NOT good consideration for promise of extra ££ Stilk v Myrick

Exception : Williams v Roffey

A has existing contract with B
B reasonably doubts that A will complete contract
B promises to pay A extra ££ to complete
B obtains a ‘practical benefit’ from A completing
A has not used fraud or duress to extract promise from B

NOTE: See duress later on

Consideration must be sufficient:

Part payment of a debt is not good consideration Foakes v Beer

Exceptions

Rule in Pinnel’s Case

Part payment:-

With a different thing than money ORMust be with • In a different place to the one agreed ORcreditor’s

agreement

Earlier than the time payment was due

Part payment by a 3rd party (someone other than debtor) Welby v Drake
Promissory Estoppel Central London Property v High Trees
Clear and unequivocal promise to suspend contractual rights
Change of position by promisee in reliance on the promise
Change of position need not be detrimental
Must be inequitable for promisor to go back on the promise
PE must be used as a shield not a sword (defence only)

Effect of the estoppel?

Generally suspensory - rights resumed on ‘reasonable notice’
Past periodic payments i.e. rent, are extinguished

Doctrine of Privity

i) A burden cannot be imposed on a third party
ii) A third party to a contract cannot take a benefit from it Tweddle v Atkinson

Law Revision Committee 1937

‘where a contract by its express terms purports to confer a benefit on a third party it shall be enforceable by the third party in his own name subject to any defences…’

Main exceptions to Doctrine of Privity

Agency Scruttons v Midland Sillicones

For an agency contract to exist it must be clear from the document that:

(a) The principal was intended to be party to the contract

(b) The agent was acting as agent for the principal

(d) The principal has provided consideration to the other contracting party

Agency : Scruttons v Midland Sillicones

AGENT

Contract

PRINCIPAL

Agency : The Eurymedon

AGENT

Exemption clause names Defendant

Defendant PRINCIPAL

Collateral contracts : Shanklin Pier v Detel

Judicial Exceptions

3.1 Contracts where third parties enjoyment is the main purpose

i.e. restaurants / holidays

Jackson v Horizon Holidays

3.2 Where the product of the contract is known by both parties to be for the benefit of the third party, A will be treated as having entered into the contract for the benefit of C and… “is entitled to recover ....the actual loss sustained by those for whose benefit the contract is entered into.”

St Martin’s Property Corporation v McAlpine

Note: Where 3rd party has a direct claim they must rely on that

Statute Contract (Rights of 3rd Parties) Act 1999

A 3rd party CAN benefit from contract if

i) the contract expressly provides so s.1(1)(a)

ii) the term purports to confer a benefit on him s.1(1)(b) as long as the act has not been expressly excluded s.1(2)

Note: all the exceptions still apply - S.7(1)

Terms are contractual promises that:-

define the rights and liabilities of parties
are inserted in contract by various means
are categorised into levels of importance What are not terms?
Mere puff – adverts Dimmock v Hallet
Mere representation – Kleinwort Benson v Malaysia Mining
Where do terms come from?
Express

pre-contractual statements made during negotiations ii. agreed terms written into the contract

Implied Terms

Implied at common law by the courts ii. Implied by statute

Terms implied by common law:

…in law ( where necessary to make contract work) Liverpool City Council v Irwin

…. in fact - ‘business efficacy’ - where clear from facts that parties would have intended to put the term into the contract had they thought about it)

A.G.of Belize v Belize Telecom Ltd

Terms implied by statute

Sale of Goods Act 1979 (“SGA ’79”)

Supply of Goods and Services Act 1982 (“SGSA ’82”)

Consumer Rights Act (2015) (CRA ’15) NOTE:

Business to Business contracts: SGA ‘79 and SGSA ‘82

Business to Consumer contracts: CRA ‘15

Sale of Goods Act 1979 – Business to Business (B-B) Contracts only

s14 Quality or fitness for purpose (most important term)

S.14(2) – where seller sells goods in course of a business, -implied term that are of satisfactory quality.

S.14(2A) - ‘satisfactory quality’ = standards a reasonable person would regard as satisfactory taking into account any description of the goods /price/other relevant circumstances

S.14(2B) – quality of goods includes state & condition including:

Fitness for all the purposes for which goods of the kind in question are commonly supplied
Appearance and finish
Freedom from minor defects
Safety and
Durability

Other Sale of Goods Act 1979 terms

s12 Title - nemo dat qui non habet Rowland v Divall The seller must own the goods they are selling
s13 Description Beale v Taylor

The goods must correspond with their description

s15 Sample Godley v Perry

The goods must correspond with the sample shown

Breach of SGA ‘79 implied terms = strict liability (no fault liability)

Supply of Goods & Services Act 1982 – B-B Contracts Only

s13 – with reasonable care and skill (most important term)

Breach of s 13 SGA ’82 = negligence (fault based liability)

s14 – contract must be completed in reasonable time

S15 – customer must pay reasonable consideration

Consumer Rights Act 2015 – Business to Consumer (B-C) only

A "consumer“ is an individual who is not acting for business purposes.

The Act consolidates and amends various existing laws e.g.

the Sale of Goods Act 1979 and

the Supply of Goods and Services Act 1982

the Unfair Contract Terms Act 1977

And replaces others

UTCC Regs 1999

Consumer Rights Act 2015 - Overview

Implied terms

Quality (Section 9);

Fit for Purpose (Section 10)

Match Description(Section 11)

Match Sample(Section 13)

Match Model (Section 14) THIS IS NEW!!

Right to Transfer Possession (Hire)(Section 17)

Free From Encumbrance (Non-hire)(Section 17)

Implied Terms Recap

B – C

Consumer Rights Act 201

Sale of Goods Contract: S9: Goods to be of satisfactory quality

S10: Goods to be fit for a particular purpose

S11: Goods to be as described

S13: Goods to match a sample S17: Trader to have the right to supply the goods

Supply of Services Contract:

S49: Reasonable care and skill

B-to-B: Sale of Goods Act 1979

S 12 - Title

S 13(1) – Description

S14(2) – Satisfactory quality S 14(3) – Fitness for particular

purpose

S 15 – By sample

B-to-B: Supply of Goods & Services Act 1982

S 13 – ‘reasonable care and skill’

‘Breach of Contract’ means breach of a term of contract

Generally the remedies for breach of a term of a contract depend on the classification of the term breached

NOTE: The CRA ‘15 does not classify its implied terms. It provides a specific remedy for breach of each individual term.

3 classifications of terms

Conditions – most important

Warranties – less important

Innominate term – neither condition nor warranty

What is a Condition , a Warranty or an Innominate term? i) Condition “goes to the root of the contract”

Poussard v Spiers

Breach of condition : Innocent party has ‘right of election’ choice

May affirm (continue the contract) AND claim damages for loss occasioned by breach

May terminate and claim damages immediately ii) Warranty – less important

Breach of warranty : Innocent party cannot terminate

May only sue for damages

What is a Condition , a Warranty or an Innominate term??

iii) Innominate term ( a term that has not been classified in the contract itself and may or may not be a condition /warranty depending on the facts of the case

Court looks to ‘consequences of the breach’

‘…many [terms] cannot be categorised as being conditions or warranties… all that can be predicted is that some breaches will and others will not … deprive the [innocent] party of substantially the whole benefit’

per Diplock LJ Hong Kong Fir v Kawasaki

S 15A SGA ’79

Where BUSINESS TO BUSINESS (B2B) contract

Such SLIGHT breaches of s.13, 14 or 15 so that REJECTION of goods UNREASONABLE

Breach MAY be treated as breach of WARRANTY

CRA 2015 implied terms

The CRA does not classify terms at all. Each term implied by the CRA 2015 has a corresponding remedy also in the CRA 2015 (see table on next slide)

B – C Contracts CRA Remedies

Sale of goods contract

s20 - 22 The short-term right to reject - this right must be exercised within 30 days. The 30 days runs from the day after purchase of the goods (s22(3)(a))

The right to repair or replacement (s23).

The right to a price reduction or the final right to reject (s24).

Note: consumers can alternatively seek common law or equitable remedies for these breaches, except that they may only treat the contract as at an end by exercising the CRA rights.

Supply of services contract

Ss 54 and 55 CRA 2015 - the right to ask for repeat performance.

Ss 54 and 56 CRA 2015 - if repeat performance is impossible or not done in a reasonable time without inconvenience, the right to a reduction in price .

A term ‘which excludes or modifies an obligation, whether primary … [or] … general secondary …, that would otherwise arise under the contract by implication of law’ Photo Productions v Securicor

3 Controls on Exemption Clauses

Incorporation
Common Law
Construction
Statutory Regulation
Incorporation

Bound by Signature – L’Estrange v Graucob Exceptions:

Misrepresentation Curtis v Chemical Cleaning Where clause misrepresented to customer

Not contractual document Chapelton v Barry Where document does not have contractual effect

Bound where Reasonable Notice provided Parker v

S.E.R’way

Reference Thompson v L.M.S.R’way

Clause must be accessible at time of contracting

Incorporation cont...

Reasonable Notice cont...

Timing - Olley v Marlborough Ct Hotel

Where clause pointed out before or at time of contracting

Onerous clause - Interfoto v Stilletto

If clause onerous, greater notice provided

Nature of document - Chapelton v Barry

Where clause in document that has contractual effect

Bound by Course of dealing – Hollier v Ramblers Must be consistent (same terms every time) and regular

Construction

CONSTRUCTION means INTERPRETATION

On its natural and ordinary meaning does the clause cover the breach, whether fundamental or otherwise?

George Mitchell v Finney Lock Seeds [1983]

Rules of Construction

i) Contra proferentem Houghton v Trafalgar Insurance Co. Ltd

Any ambiguity will be construed against the ‘Proferens’

Unfair Contract Terms Act 1977

Only applies to Business to Business Contracts s.13 defines exemption clause :-

a) Making liability subject to restrictive or onerous conditions

b) Excluding or restricting any right or remedy

c) Excluding or restricting rules of evidence or procedure

Applies to exemption clauses excluding liability of a Business s.1(3)

“Liability arising from things done in the course of business” Main sections :

s.2 Negligence liability •s.3 Contractual liability

s.6 Liability for breach of implied terms •s.11 & Sch.2

Reasonableness test

s.2 – Liability for Negligence Negligence defined in s1(1)

“Breach of any express or implied contract term to take reasonable care or exercise reasonable skill”

Note: breach of s.13 SGSA ’82 is therefore negligence

s. 2.1 - no exclusion of liability for death / personal injury resulting from negligence

s 2.2 - can exclude liability for other loss or damage resulting from negligence IF clause passes reasonableness test in s.11 & Sch.2 Reasonableness Test s.11 & Sch.2

s11(1) – Is the exemption clause…

“a fair and reasonable one to have been included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”

s11(2)) - Non-exhaustive list of ‘guidelines for court’ in Sch 2 s 11(4) - Where clause is a Limitation Clause:

(a) - What resources are available to the proferens?

(b) - Could proferens have insured?

s 11(5) - Proferens must prove clause is reasonable

Schedule 2 Guidelines

(a) Strength of the bargaining positions

(b) Had injured party received an inducement

(d) Was it reasonable to expect compliance?

(e) Were goods produced to special order?

Consumer Rights Act 2015

Scope of the Act – business to consumer contracts only

Section 31 – a term is not binding if it attempt to restrict liability under following implied terms in the Act:

Section 17 – right to supply the goods

Section 9 – goods of satisfactory quality

Section 10 – goods to be fit for a particular purpose

Section 11 – goods to be as described

Section 13 – goods to match sample

Consumer Rights Act 2015

Excluding liability when providing services

Section 57(1)

An exemption clause is not binding to the extent that it would exclude the trader’s liability arising under Section 49 (service to be performed with reasonable care and skill).

However, if the clause purports to limit the trader’s liability for breach of Section 49 then it may be effective if:

It does not limit liability for death or personal injury caused by breach of duty of skill and care;

It does not cap liability below the purchase price; and It passes the fairness test under the Act.

VITIATING factor

Contract entered into under duress is voidable (but not void) and can be set aside by court

Duress of the person Barton v Armstrong

Duress to goods

The Siboen and the Sibotre

Economic Duress – Recent doctrine

The Siboen & The Sibotre

Economic Duress

Definition: DSND Subsea v Petroleum Geo Ltd

“There must be PRESSURE, resulting in

(a) LACK OF PRACTICAL CHOICE for the victim,

(b) which is ILLEGITIMATE, and

Economic Duress

(a) Lack of practical choice for the victim,

“whether the victim had any realistic practical alternative but to submit” Dyson J, Carillion Construction Ltd v Felix(UK) Ltd

(b) Illegitimate pressure

Threatened breach of contract? Atlas Express v Kafco

Threat made in good or bad faith? CTN v Gallagher

Did the victim protest? The Atlantic Baron

Did the victim affirm the contract? B&S Contracts v Victor Green

Victim would not have agreed to contract without duress?

VITITAING factor

Misrepresentation = Untrue statement of fact before contract made

Effect of misrepresentation = Contract is ‘voidable’ Remedy: depends on type of misrepresentation:

Damages : but NOT available for innocent misrepresentation and

Rescission: Equitable remedy – ALL types of misrepresentation and

Indemnity: ALL types of misrepresentation

For a misrepresentation to be actionable it must be all of following:-
i) unambiguous McInerny v Lloyds Bank ii) false Avon Insurance v Swire Fraser Plc iii) statement of fact or law-
Not silence Keates v Earl of Cadogan
Not intention Beattie v Ebury

Not opinion Bisset v Wilkinson iv) addressed to the party misled

v) material and induces the contract : see next slide vi) causes loss – as with all claims, there must be a loss

Materiality

The statement is about something that a reasonable man in the innocent party’s position would think was relevant to the contract Pan Atlantic v Pine Top Insurance

Inducement

If the statement is material then the court will presume the innocent party was induced

If the statement is not material then the innocent party must prove they were induced

Note: If the innocent party investigates the statement then they may lose their claim

Categories of Misrepresenation

Fraudulent misrepresentation

Common law – Definition in Case: Derry v Peek Misrepresntation made:

knowing it was untrue OR
without belief in its truth OR
reckless as to its truth Remedies:

Damages: ALL losses flowing from contract, do not need to be forseeable BUT must not be too remote

+ indemnity & rescission at Court’s discretion (equitable)

Categories of Misrepresenation

Negligent misrepresentation

Statutory : s.2(1) Misrepresenation Act ’67

Misrepresentor will be liable unless he can prove that he had

“reasonable grounds to believe and did believe... that the facts represented were true”

Remedies: This claim known as ‘the fiction of fraud’

Damages: ALL losses flowing from the misrepresentation, do not need to be forseeable BUT must not be too remote

+ indemnity & rescission at Court’s discretion (equitable)

indemnity & s.2(2) damages in lieu of Rescission

Categories of Misrepresenation

Innocent misrepresentation

Statutory : s.2(1) Misrepresenation Act ’67

Where Misrepresentor can prove that he had “reasonable grounds to believe and did believe... that the facts represented were true” Remedies:

Only indemnity & rescission at Court’s discretion (equitable)

indemnity & s.2(2) damages in lieu of Rescission No damages for innocent misrepresentation

Bars to rescission

Right to rescind may be lost where:-

Third Party Rights Phillips v Brooks
Affirmation Long v Lloyd
Lapse of time Leaf v International Galleries
Impossibility Clarke v Dickson

Remember:

Rescission is equitable – up to court’s discretion

Court will do what is ‘practically just’ Erlanger v New Sombrero

Excluding liability for misrepresentation

S.3 MA 1967
Cannot exclude liability for a misrep
Unless reasonable to do so under S.11 & Schedule 2. UCTA 1977

Cremdean Properties v Nash (1977)

VITIATING factor

Mistake renders contract void ab initio (from beginning)
Note: Mistaken facts must exist BEFORE contract made
Amalgamated Investment v John Walker & Sons Ltd

Types of mistake

Common Mistake

both parties are mistaken about same thing

a) As to the existence of the subject matter of contract

Res extincta Couturier v Hastie / S.6 Sale of Goods Act 1979

b) As to ownership of subject matter of contract

Res sua

c) As to a fundamental fact or quality Bell v Lever

Mutual Mistake

both parties mistaken about different things

Raffles v Wichelhaus

“…where an objective appraisal of the facts reveals no agreement has been reached as to the terms of the contract”

Unilateral Mistake

only one party mistaken

As to offeror’s intention Hartog v Colin & Shields

As to nature of document signed Thoroughgoods Case

As to identity See next slides

Unilateral mistake as to identity

2 types of situation recognised by court:

Face to Face - Presumptions?

Seller is dealing with person in front of them

Seller concerned with attributes not identity • Contract NOT void for mistake as to identity

Distance Selling – Presumptions?

Seller is dealing with the person the buyer says they are

Identity is crucial to formation of contract

Contract IS void for mistake

Unilateral mistake as to identity

Must be mistake as to identity not attributes

Followed presumption? Situation Case

No Mistake as to Identity Face to face Lewis v Avery

No Mistake as to Identity Face to face Philips v Brooks

Mistake as to Identity Face to face Ingrams v Little

Mistake as to Identity Distance Sale Shogun Finance v Hudson

Mistake as to Identity Distance Sale Cundy v Lindsay

No Mistake as to Identity Distance Sale Kings Norton v Edridge

Discharge by agreement

How discharge a contract by agreement?

i) Discharge by new contract

a) Where neither party has performed any obligations

A mutual waiver of performance is consideration

The Hannah Blumenthal [1983] HL

b) Where contract partially performed:

Can discharge with ‘accord & satisfaction’ - Pinnel’s Case

NB: Deed – exception to requirement of consideration

Discharge by agreement

ii) Discharge by condition precedent or subsequent

(term in contract)

Contract depends upon existence of pre-defined condition

Head v Tattersall

Discharge by performance
Entire obligations rule

Complete performance is required i.e. Entire contracts Cutter v Powell

Entire obligations rule may be avoided through:-
Partial performance ii. Substantial Performance iii. Divisible Contracts
A frustrating event must be:

i) Supervening - after contract formed but before completely performed

ii) Unforeseeable - Amalgamated Investment v John Walker iii) Not the fault of either party -The Eugenia

Effect: performance of contract becomes

Impossible,
Illegal or
radically different Davis Contractors v Fareham UDC

By operation of law all future obligations discharged

Types of Frustrating even recognised by court to date i) Impossibillity

Destruction - of thing contracted for or thing required for contract
Unavailability of thing - Requisitioned / Delay
Unavailability of person – illness / death ii) Supervening Illegality performance of contract has become illegal

iii) Frustration of Purpose / Non-occurrence of event

The ‘Coronation Cases’ – king’s illness prevented coronation iv) Government Intervention

Government order banning sales of wood

No frustration where:-

i) Contract has become more difficult/costly to perform ii) Event being pleaded as frustration was self-induced iii) Event being pleaded as frustration was foreseeable

Consequences of Frustration

All future obligations discharged
By operation of law
From date of frustrating event

The doctrine is “not lightly to be invoked” The Nema

Law Reform (Frustrated Contracts) Act 1943

Act applies unless excluded (s 2(3) LRFCA ’43)

s 1(2) Money paid before frustrating event is recoverable AND Money payable before frustrating event not payable s 1(2) Expenses - recoverable but limited to money paid/payable s 1(3) ‘Valuable benefit’ – end product – “just sum” awarded

If Remedies pre-determined in clause in contract, is it:

A valid Liquidated Damages clause (contract breaker must pay) OR

A Penalty clause – clause is invalid and parties go to court

Test for penalty clause: Cavendish Square v El Makdessi [2015] UKSC

Is the clause a Primary or Secondary obligation? If primary it will not engage the penalty rule.

A clause is primary if it is part of the primary obligations in commercial context of the contract i.e. furthers the commercial objective of the contract

A clause will be secondary if triggered by breach of contract to compensate.

If secondary, the clause will not be a penalty if it:

protects a legitimate business interest (in commercial context) and / or

imposes a detriment proportionate to protect the legitimate interest

If clause is struck out as penalty or no pre-determined damages clause

Claimant claims Unliquidated Damages

Damages assessed by court
Compensation NOT punishment

Robinson v Harman, The Golden Victory

3 alternative types of compensation

Expectation

Claimant can choose between

Reliance reliance and expectation

Restitution

Expectation Damages

Aim: Innocent party to be ‘placed in the same situation… as if the contract had been performed’ Robinson v Harman

3 alternative measures:

Difference in value
Cost of cure
Loss of amenity (where difference in value / cost of cure = 0)

Ruxley Electronics v Forsyth

Farley v Skinner

Expectation Damages Cont...

Where claim involving defective works (e.g. where a building is not built to the contract specification), usual measure = cost of cure Birse Construction Ltd. v Eastern Telegraph Co. Ltd

Other ancillary types of expectation loss:

For mental distress - Jarvis v Swan Tours / Farley v Skinner

For loss of chance - Chaplin v Hicks

For loss of reputation - Malik v BCCI

For another’s loss - See earlier - Privity

Reliance Damages

Puts claimant in position as if had not contracted.

Claimant must claim reliance if expectation too speculative

Expenses incurred before contract made are available

Anglia TV v Reed

Restitution AG v Blake

Account of profits – available where:-

‘exceptional’ circumstances
damages inadequate
claimant has a ‘legitimate interest in preventing the defendant’s profit-making activity’

Generally unsuccessful claim. Court views breach for further profit as ‘efficient breach’. If loss to innocent party can be quantified, then unlikely to succeed in restitution.

Limitations to Damages

Causation

Must be a causal link between breach and loss

Galoo v Ltd v Bright Grahame Murray - ‘an effective cause’

Novus actus interveniens? Lambert v Lewis

Remoteness - The loss must have been:-

in the reasonable contemplation of the parties ii. at the time of contracting iii. as 'not unlikely’ to occur

The rule in Hadley v Baxendale - now Heron II / The Achilleas Limitations to Damages

Mitigation

No obligation to mitigate BUT

Losses resulting from failure to mitigate - not recoverable

Reasonable steps required

British Westinghouse v Underground Electric Ry

Contributory Negligence

Only available where defendant has been negligent and there is a claim in tort as well as contract for same act

Equitable Remedies

Specific Performance

Cooperative Insurance Society Ltd v Argyll Stores

Injunction

Evening Standard v Henderson [1987]

Rescission
Rectification