contract Law (first term)

Terms in this set (207)

Damages for negligent misrepresentation:
- Hedley Byrne case - in the obiter statement it suggested that it certain circumstances damages may be recoverable in tort for negligent misstatement causing financial loss
- With this claim there is no requirement to establish the existence of a contract between the misrepresentor and the misrepresented e.g. in Hedley Byrne there was no contract between Heller and Hedley but Heller's negligent misstatement led HB to enter into a contract with a third party on behalf of easipower and as a result HB lost money - the C for this would have to establish the D's negligence. The remoteness test is the tort test of reasonable forseeability
- There are also statutory damages claim for NM:
- This is found in s2(1) MA 1967
- The advantages of this....
- There is the reversal of the burden of proof, under this statute the C has to prove an actionable misrep and the D is deemed negligent, the D then bears the burden of showing that he had reasonable ground for believing and did believe up to the contract was made
- Howard Marine & Dredging Co Ltd v Ogden & Sons Ltd: During negotiations to hire out barges the owners' representative misrepresented their carrying capacity. He relied on the Lloyd's register but this was incorrect. The correct info was on file at the owner's head office. Tha majority held that the owners were liable to pay damages under s2(1) as they had not demonstrated that they had reasonable grounds to believe what they said about the carrying capacity. It was unreasonable not to refer to the shipping documents at the company's head office
Lever bros appointed Mr Bell and Mr Snelling (the two defendants) as Chairman and Vice Chairman to run a subsidiary company called Niger. Under the contract of employment the appointments were to run 5 years. However, due to poor performance of the Niger company, Lever bros decided to merge Niger with another subsidiary and make the defendants redundant. Lever bros drew up a contract providing for substantial payments to each if they agreed to terminate their employment. The defendants accepted the offer and received the payments. However, it later transpired that the two defendants had committed serious breaches of duty which would have entitled Lever bros to end their employment without notice and without compensation. Lever bros brought an action based on mistake in that they entered the agreement thinking they were under a legal obligation to pay compensation.

The House of Lords held that this was only a mistake as to quality and did not render the contract essentially different from that which it was believed to be. The action therefore failed.
- Nevertheless there is dicta in this case suggesting that a contract may be void if the mistake as to quality is sufficiently fundamental, Lord Atkin commenting
- "a mistake as to quality will affect assent if it as to the existence of some quality which makes the thing without quality essentially different from the thing it was believed to be
- With this case Lord Thankerton stated that common mistake must relate to something which both parties must necessarily adopted in their minds as an essential element of the subject matter"
A ship, The Cape Providence, suffered structural damage in the South Indian Ocean. The defendants offered a salvage service which was accepted by the ship owners. The defendants made inquiries as to the nearest salvage ship and were informed that The Great Peace was 35 miles away. They then entered a contract with Great Peace Shipping (GPS) to engage The Great Peace to do the salvage work. In fact The Great Peace was 410 miles away at the time. When the defendants learnt of the actual distance they searched for a closer ship as they believed the Cape Providence was close to sinking and needed to rescue the crew. They found a closer ship and tried cancelled the contract GPS. The contract expressly held that the Cs were subject to paying a cancellation fee of five days hire, the Ds refused to pay that fee and the Cs brought a contractual action to recover it. However, GPS refused to cancel the contract and brought an action for breach. The defendants sought to argue that the contract was void for mistake at common law, alternatively that it was voidable for mistake in equity.

The Court of Appeal held that both claims failed. Equity does not provide relief from mistakes where the common law does not provide relief. At common law the mistake did not render the contract essentially different from that which it was believed to be. The CA held that the common mistake did not fall within the narrow doctrine recognised at common law so as to render the contract void; and that there is no doctrine of equitable common mistake.
(i) is the clause ambigious? If so the ambiguity will be construed against the party relying on the clause:
- Houghton V Trafalger Insurance Co Ltd: car insurance policy reference to "excess load" was ambigious and therefore construed against the insurers to mean excess weight rather than too many passengers. It followed that the insurance policy remained enforceable
(ii) is there any inconsistent undertaking which may prevent reliance on the clause?
If an exemption clause is inconsistent with another term of the contract or with the oral undertaking given before or at the time of contracting, the exemption clause will be overridden
(iii) limitation clauses are construed more favourably than total exclusion clauses which deny all liability
- For example, a limitation clause will cover negligence liability if the clause is "clear and unambiguous"
(iv) is the wording of the clause wide enough to cover a fundamental or serious breach of contract: if the breach is fundamental i.e. affecting the very purpose and substance of the contract, then very clear words will be required for the clues to cover it. However, it is common for exemption clauses to be generously drafted
- Photo production Ltd v Securicor Transport Ltd:
- This was a contract involving provision of security services for a factory contained a wide exemption clause exempting the security provider from loss, The security's firms employee started a fire on the premises and the factory owner suffered significant loss. The HL held that as a matter of construction, on its natural and ordinary meaning the clause in the contract did cover such a deliberate act
(iv) if there is negligence liability on the facts, it is necessary to determine whether the clause covers this negligence liability or whether the clause is limited to providing a defence to the strict contractual liability only:
- If there is negligence liability on the facts then the clause must be construed as converging that negligence liability.
- If there is both negligence and strict contractual liability on the facts then the clause will cover BOTH negligence and strict contractual liability only if the clause expressly purports to cover the negligence in Monarch Airlines Ltd v London Luton Airport Ltd: One of M's aircraft was damaged by loose paving blocks at L's airport. M brought an action for damages in negligence and for breach of statutory duty. L sought to rely on its standard terms of use which excluded liability for damage to aircraft caused by any act, omission, neglect or default. It was argued by M that the clause did not cover negligence by L and that it did not satisfy the test of reasonableness set out in the Unfair Contract Terms Act 1977.
Held, giving judgment for L, that the words "neglect or default" were wide enough to cover negligent acts by L. The clause did satisfy the test of reasonableness. It had been generally accepted in the market, its meaning was clear and both parties could make insurance arrangements on the basis of the clause.
- If such express language of negligence is not used then the clause will be construed so that it covered the strict contractual liability and it cannot operate as a defence to liability in negligence
- White v John Warwick & Co Ltd: both strict contractual liability and negligence involved in hiring a tricycle with a defective saddle and the CA held that the exclusion clause had to be construed as covering only the strict contractual liability and not the negligence
-The first relates to the situation where a contracting party seeks to exclude liability for his own negligence
-One must highlight that the UTCA contains severe restrictions on the ability of a contracting party to exclude liability for its own negligence
- To give effect to this the courts have evolved three specific rules of construction which find there origin in the speech of Lord Morton in Canada Steamship Lines Ltd v The King( in this case the Cs goods were stored in a shed leased from the crown (d). They were destroyed in the fire by the Ds negligence, the D had a clause. The Privy Council held that the exclusion clause did not limit liability for the Ds negligence because the D could realistically have been strictly liable for damages of the goods (e.g. by breach of its statutory obligation to keep the shed in repair). The clause did not indemnify the lessor for the consequences of the lessor's own negligence):
-The first rule is that if a clause contains language which expressly exempts the party relying on the exclusion clause from the consequences of his own negligence then (subject to UCTA) effect must be given to the clause, this rule can be fulfilled by using a synonym of the word negligence
-The first rule stands alone, however the second and the third rule constitute a double hurdle which must be overcome by a clause which fails to satisfy the first rule
-The second rule is whether the words are wide enough, in their ordinary meaning, to cover negligence on the part of the party relying on the exclusion clause
-The third rule is that the court must consider whether the exclusion clause may cover some kind of liability other than negligence, however, if there is such a liability, the clause will generally be confined in its application to that alternative source of liability and will be held not to extend to negligently inflicted loss
- In the CA case The Raphael [1982] it was held that where the alternative source is 'fantiful or remote' it would not prevent the exclusion clause covering liability in negligence
- A party cannot rely on an exclusion clause, if the effect which he has misrepresented to the other party
- Curtis v Chemical and Dyeing Co Ltd [1951]: The C took a white satin dress to the D's shop for cleaning. She was asked to sign a receipt, the receipt was that the D would not accept responsibility for certain specified risks including damage to beads and sequins with which the dress was trimmed. The form in fact contained a clause excluding all liability for any damage howsoever caused.The D returned the dress with an unexplained stain. The CA held that the D's could not rely on the above clause because it was not incorporated as a term of the contract owing to the shop assistant's misrepresentation. The assistant had misrepresented the effect of the clause and therefore could not rely on the clause in the form even though the claimant had signed it.
- Construing limitation clauses: George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd: The D's were seed merchants and the C's were farmers who ordered Dutch winter white cabbage seeds. The D supplied the wrong kind of seed so that the crop which did not grow properly had to be ploughed as worthless. The damages for the breach of the contract were around £61,000. By conditions in the sale of the contract the D's argued that they had limited their liability to replacement or refund of the seeds worth. It was held by the HL that as a matter of construction the relevant condition did not so limit their liability, but that it was not fair or reasonable to allow the D's to rely on that condition applying the then relevant statutory provision. The Court of Appeal held that the clause was unreasonable as the buyer would not have been aware of the fault whereas the seller would.
1. Does the liability which it is sought to exclude or limit involve a breach of any implied obligation relating to goods in the sale and supply of goods legislation?
Is the contract a contract for the sale of goods or for work and materials and is the term a breach of sections 13, 14 or 15 of the SGA 1979 relating to goods obligations, if no consider the application of s3 of UTCA
- if yes, is the contract a contract for the sale of goods for the supply of work and materials (s 7 UTCA applies to attempts to exclude implied obligations concerning the goods in a work and materials contract
- Is the clause being relied upon as against a person "dealing as consumer" within s 12 UTCA?
- Can the company deal as a consumer within the UTCA?
-A company will deal as a consumer if both (a) the contract is not an integral part of the company's business
(b) the contract is not entered not with sufficient regularity
- This definition came from the case of R & B Customs Brokers: The C company was as a business a shipping broker and freight forwarding agent. It bought a car from the D finance company under a conditional sales agreement. This was to be a "company car" and to be driven by the managing director. The roof leaked and it was not in dispute that there was a breach of at least the implied condition under s 14(3) of the SGA that the car should be fit for purpose. There was a clause in the contract excluding that liability. The CA held that while the exclusion clause would have passed the reasonableness test s6(2) of the UTCA 1977, not s6(3) applied. This was because the C company in buying the car was dealing as a consumer. Applying s6(2) the exclusion was automatically invalid.
Factors favouring the unreasonableness of the clause:
- An inbalance in the parties' bargaining positions of the favour of the party seeking to rely on the clause. In the case of an exemption clause in a consumer contract the courts have a clear idea that they are expected to protect consumers, weighing the balance in favour of a conclusion to unreasonableness. Smith V Eric Bush is a rare example of an exemption clause used agains a consumer receiving attention in the higher courts. Lack of bargaining power, lack of consumer voice and the cost of individual insurance cover that would fall on the consumer were all factors favouring the conclusion that the disclaimer was unreasonable in this context
- A party's negligence may weight in the balance against the reasonableness of a clause designed to protect that e.g. suppliers in George Mitchell v Finney Lock Seeds had been negligent in supplying incorrect seed
- If the insurance cover could more easily and cost effective ly have been secured by the party in breach such as with smith and bush insurance was available to valuers and they could have speed the cost across all customers.In the commercial context the reasonableness of say a supplier taking out insurance cover in relation to the fitness of product it supplies may depend on what that party knows of the intended uses for those products
- If the clause is ignored in practice that may be evidence that it is regarded as unreasonable e.g. George Mitchell
- Where a clause provides that there will be no liability unless a condition is complied with (i) it will fall for assessment under the UTCA due to the s13(1) extended definition and (ii) the question is whether is it reasonable and practicable to expect compliance with the condition or imposed: R. W. Green Ltd v Cade Brother Farms: clause required rejection, claim or complaint within three days of the arrival of the potato seed. However, the defect that occurred would not be discoverable by inspecting the seed. It followed that this clause was unreasonable and could not be relied upon as a ground for denying liability
- It could be said the this Act introduces into English law a limited third party right of action to enforce a term of a contract made between two other parties or alternatively that it carves out further (substantial) exception to the privity of contract
- The Act is based on the Law Commission Report 1996
- (a) the right to enforce remedies for breach of contract that would have been available had the third party been a contracting party
- (b) the right to enforce an exemption clause as if the third path was party to the contract
- However, it must be noted that "there will remain may contracts where a third party stands to benefit and yet will not have a right of enforceability", this means that the old rule of privity of contract and its exceptions still remains entact
- There is still great complexity as the old law and the new act must coexist
- Four situations appear to be visible
- (1) This is where the third party has a right under the Act but not at common law, in such a case the act will override case law
- (2) Where the party has not claim under the Act but does have a claim apart from the act thus, at common law, the third party's right will continue to be governed by that alternative provision
- (3) Where the party has a right under the Act and under common law, the third party in the case can choose which right to assert
- (4) Where the third party has not claim under the Act or under common law, the third party can only bring forward a claim if it can persuade the court that it ought to introduce a new exception to the doctrine of privity of contract
- The Act cannot have a freezing effect on common law
- The scope of the third party right of action created by the act is determined by the intention of the contracting parties themselves. The third party is given a right of action in 2 circumstances
- The FIRST situation where a third party is given the right to enforce a contract is where the S1(1)(A)"contract expressly provides that he may"
- However, it must be noted that s1(2) means that s1(b) "does not apply if on proper construction of the contract it appears that the parties did not intended the term to be enforceable by the third party"
- The SECOND situation is the case where the contracting parties do not make their intneition express and the contract term "purports to confer a benefit on the third party AND there must be nothing in the contract which indicates that the parties did NOT intent that the term should be enforceable by the third party" S1(1)(B) AND S1(2)
- Legislation: Subject to the provisions of this Act, a person who is not a party to a contract (a "third party") may in his own right enforce a term of the contract if—
(a)the contract expressly provides that he may, or
(b)subject to subsection (2), the term purports to confer a benefit on him.
(2)Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
- In order for a term to "purport to confer a benefit" on the third party, one of the purposes of the parties' bargain must have been to benefit the third party
- Dolphin & Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans Forening, The Swedish Club [2009]:
- A contract between U and the club C with which that vessel was registered, provided for C to pay sums recovered to D, a recovery agent for those underwriters, who would pass these sums on to U. When C paid the sums direct to U, U had refused to pay D for any commission and D therefore sought to enforce the provision in the contract with C, arguing that the contract "purported to confer a benefit". However, the court held that the contract was concerned with how payment was to be made to U and D not a beneficiary of the agreement, albeit it was more convenient for D to receive the sums of that it could deduct its commission before passing on the balance
- Section 4 of the 1999 Act preserves the right of the promisee to enforce any term of the contract. Suppose that A and B enter into a contract under which in return for some act to be performed by B, A agrees to pay £50 to C. A failure by A to pay £50 to C will constitute a breach of contract between A and B
- This means that the promisee retains its rights to due on the contract even though it is enforceable by the third party. The third party's right is additional to and does not replace the promisee's rights
(1) to bring an action for damages for breach of contract, the difficulty here is that B does not appear to have suffered any loss as a result of A's breach and so his damages are likely to be nominal
- Thus, generally it will not be possible for the promisee to recover substantial damages for the loss suffered by a third party because a party is limited to recovering for losses it has suffered and the promisee's loss may be purely nominal
- There are two exemptions:
- Where, for reasons of convienicne a contract is made by one party for the benefit of a group of people, that person can recover substantial damages for the losses suffered by all members of that group
- Jackson v Horizon Holidays Ltd: this was where a family holiday was booked by a a husband on behalf of his wife and children where the holiday failed to meet contractual promises. The husband was able to recover for his won loss and that of his wife and children, although they were not parties to the contract
- Woodar Investment Development Ltd v Wimpey Construction UK Ltd: Wimpey had contracted to purchase development land from Woodar. The purchase price was £850,000 and £150,o00 was payable to the third party. The property market fell and it was argued that Wimpey had wrongfully repudiated the contract. The HL held that there had been no breach of contract and therefore did not decide whether woodar could recover for the third party's loss in addition to their own. The HL held that there was no substantial recovery in such circumstances. Lord Wilberforce recognised the contracts "calling for special treatment" i.e. "party convenience" contracts where substantial damages could be recovered
- This follows where the new building owner or person suffering loss has a direct right of action against the contractor , the original developer cannot rely on the narrow ground to argue that it can also recover substantial damages, it is instead limited to recovering substantial nominal loss
- In the following case it was laid down that the exception does not apply where a third party has its own contractual right against the promisor
- Alfred McAlpine Construction Ltd v Panatown Ltd (HL): McAlpine had been employed by Panatwon to construct an office building on land belonging to UIPL, an associate company of panatwon, defects arose with the building and panatown sought damages. M claimed that P suffered no loss as a result of its breaches of contract because panatown neither owned the land or occupied the building. It should be noted that these companies were in the same group of companies and the contract was made with Panatown to avoid VAT. HL refused the recovery but the decision was based on the fact that McAlpine had entered into a separate duty of care deed directly with UIPL, giving UIPL remedies for defective work and that deed had to prevail
- Principle: HL held that normally the narrow ground in st martins enabled a party in the position of panatown to recover substantial damages. Where a contract between a builder and an employer was for the construction of a building the land of a third party who would own that building, the employer could seek substantial damages from the builder for defects where the third party had no direct remedy against that builder. The third party here had its own contractual right against the promisor (the deed)
-When the common purpose for which the contract was entered into can no longer be carried out because of some supervening event the contract may be frustrated
-This was the case in Krell v Henry: in this case a contract to hire rooms advertised as rooms to see the coronation procession of Edward VII was frustrated when the coronation was postponed because of the king's illness. The CA held that the viewing of the procession as the "foundation of the contract" for BOTH parties. The principle of this is that a contract may be frustrated if the common purpose of BOTH parties has been destroyed by the event. It is not enough that the purpose of ONE party is destroyed.
- This can be contrasted with that of Herne Bay Steam Boat Co v Hutton: in this case, the D wanted to hire the C's vessel for two days, the first day was to take out a party to view the royal naval review at Spithead and the second day was of similar purposes. The naval review was cancelled because of the king's illness, although the fleet remained at Spithead. The D argued that he did not require the vessel and refused to pay the agreed balance. The C sued for the money and the CA allowed him the £110 in damages
The difference between these two cases is that the Krell the "foundation of the contract" as the viewing of the coronation. However, the contract in Krell was an extremely unusual one. The rooms were hired out for the day, excluding the night, and the only purpose for BOTH of the parties had in entering into such an unusual contract was to hire the rooms for the purpose of viewing the coronation. With Herne the D could still see the fleet, and, the D's motive in entering the contract to see the naval review, it could not be said that is was the "common foundation of the purpose"
The Super Servant Two': The Ds agreed to transport the C's oil rig using at their option either super servant one or super servant two. Prior to the time of perforce of the contract the D's decided to allocate super servant one to the performance of other concluded contracts. Unfortunately, after the contract had been concluded but before the time fixed for performance, super servant two sinked so the contract was evtually perfumed by another, more expensive method of transportation. The Cs brought an actions against the Ds alleging that they were in breach of their contract in failing to transport the rig in the agreed manner. The Ds denied liability on two grounds, the first was that the contract had been frustrated by the sinking of SS2. The CA held that this did not frustrate the contract as it was the choice of the Ds to allocate SS1 to the performance of other contracts - this was held to be self induced frustration. However, the D's had a second defence which was that they were entitled to terminate performance of the contract without incurring any liability under the terms of a force majeure clause contained in the contract. One of these was "perils or dangers and accidents of the sea". This clause gave to the Ds an effective defence to the C's claim for damages
Given the narrow confines within which frustration currently operates, SS2 demonstrates that a contracting party who wishes to be released from his obligations to perform in a wider range of circumstances must bargain for the inclusion of a force majeure, hardship or intervener clause in the contract
- What about the position of obligations which had arisen prior to frustration, expenses incurred and any performance conferred
-One needs to look at claims where money paid prior to the frustration of the contract was recoverable upon a total failure of consideration. A total failure of consideration arises where a party seeking recovery has got no part of what he has bargained for
-Such as one may look at the case of Fibrosa, the appellants sought to recover the £1000 they had paid to the respondents in signing the contract. The HL held that the consideration of the payment had wholly failed because the machines had not been delivered to the appellants and that they were entitled to the recovery of their prepayment
- However, there are two principal defects of this, firstly that the payer could only recover the money paid upon a total failure of consideration; where the failure was only partial he could not recover. The second is that the payee could not set off against the money to be repaid any expenditure which he had incurred in the performance of the contract
- This position has been rectified by the enactment of section 1(2) of the Law Reform (Frustrated Contracts) Act 1943, the first is that moneys paid prior to the frustrating event are recoverable. The second is that sums payable prior to the time of discharge cease to be payable. The third is that the payee may be entitled to set off against the sums so paid expenses which he has incurred before the time of discharge, in, or for the purpose of, the performance of the contract. S1(2) meets the two deficiencies of the common law in that the right to recover money is not confined to a total failure of consideration and the payee can set off against the sums repayable any reliance expenditure which he has incurred in the performance of the contract
- P oil company had agreed to explore for oil and develop D's oil concession in Libya. With this agreement BP undertook to transfer certain contributions in cash and oil and when the oil came on stream the profits would be shared. P sound considerable sums drilling for oil and found it. However, the Libyan government then expropriated BP's half of the concession, two years later Hunt's share was exproportionated, BP held that the contract was frustrated. P sought under a "just sum" s.1(3) for the benefit it had conferred on D prior to frustration. It was held that contract had been frustrated and the Act applied. The principle here is that the decision is of greatest significance for what is is said in the judgement about the purpose of the Act and calculation of a just sum under s.1(3). The court considered the setting of damages where the plaintiff had delayed in notifying the defendant of the claim. Interest is awarded not as a punishment but to compensate a claimant for having been deprived of the money which was due to him, though: "The basic principle, is, however, that interest will be awarded from the date of loss."
are (a) receipt by the defendant of a benefit (b) at the plaintiff's expense, (c) in such circumstances that would be unjust to allow the defendant to retain the benefit."
In a claim for unjust enrichment, the formulation of the requirements of the cause of action are: (a) receipt by the defendant of a benefit (b) at the plaintiff's expense, (c) in such circumstances that would be unjust to allow the defendant to retain the benefit.
- The Suez canal became a 'dangerous zone' as The Eugenia, carrying iron and steel, sailed towards it on the way to India from Odessa (but starting in Genoa). The charterers, in breach of a 'general war clause' in the contract saying dangerous zones should be avoided, sailed into Port Said, thinking they could make it through the canal in time. The alternative was to sail around the Cape of Good Hope, which would have taken a long time. The ship was impounded as the canal was closed. The charterers then abandoned the contract and claimed it was frustrated. The claimant owners of the iron and steel claimed it was breach of contract. Lord Denning MR held that there was no frustration of the contract. First, that the charterers could not rely on any self-induced frustration (sailing into the canal) as a ground for arguing the contract was frustrated. If they had not tried the Suez canal, they would have had to sail round the Cape, but this would not have rendered the contract radically different. He said if the contract says something, 'the contract must govern. There is no frustration.' But if the contract says nothing, onerous or more expensive is not enough, 'It must be positively unjust to hold the parties bound. It is often difficult to draw the line. But it must be done, and it is the courts to do it as a matter of law: see Tsakiroglou.' He said that the material factors were that the difference in time was 108 days from Genoa via the Suez and 138 days via the Cape. The goods would not be adversely affected. The only trouble was it took longer. He firmly rejected, however, that frustration can only apply where the event is unforeseen or