<TOPIC 13> REMEDIES: DAMAGES

Case Name

Facts

Judgment

Rationale

1. Expectation interest

The following cases fall into this category but are not included: Ruxley Electronics and Construction Ltd v Forsyth

Robsinson v Harman (1848)

P sought damages for breach of a contract to grant a lease. The premises were worth considerably more than the agreed rent. P sought to recover both of his reliance loss (£20) and loss of bargain (did not mention how much).

P won In addition to the reliance loss (£20), P was entitled to a further £200 for his loss of bargain (i.e. expectation loss). The judgment did not mention how the damages was calculated, but inferred from Park B’s classic formulation, P did not end up in a better situation than he would have been in had the contract been performed.

Classic formulation by Park B: “The rule of 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 situation, with respect to damages, as if the contract had been performed.”

This formulation, however, failed to distinguish between methods chosen by the court for fulfilling the performance interest: diminulation of value / cost of cure.

Sunrock Aircraft Corp v Sandinavian Airlines Systems (2007)

P leased two aircraft to D. Upon the end of the lease, D returned the aircraft unrepaired to P. P sold the two aircraft. Then, P sued D for breach of contract, which provided that D should have repaired the aircraft before returning them.

P won (but only awarded nominal damages)

Normally, the damages in this case would have been the cost of repair. However, since P sold the two aircraft at a price which reflected the fact that there had been no diminution in the value of the aircraft, P was held to have suffered no loss. Therefore only nominal damages was awarded.

Alfred McAlpine Construction Ltd v Panatown Ltd (2001)

McAlpine, a construction company, contracted with Panatown for a construction carried out on land owned by X (Panatown’s sister company). Panatown terminated the contract on the ground of McAlpine’s failure in performance, which resulted in defective work that required substantial repairing cost. Panatown sought damages against McAlpine on two grounds:

1. It is entitled to recover damages in respect of a loss sustained by a 3rd party, namely X

2. It suffered a loss of bargain which entitled it to recover substantial damages, although the loss was not financial

Panatown not entitle to recover damages (by a 3­2 majority)

Panatown was not entitled to recover susbtantial damages on either ground On the first ground (“narrow ground”), it was held unanimous that because there

was already a DoC deed between McAlpine and X, there was no justification for Panatown to recover damages on behalf of X when X had its own cause of action against McAlpine. Otherwise it might introduce new problems such as double liability.

On the second ground (“broader ground”), there was an even split of decision with the fifth judge (Lord Clyde) favoring Panatown’s argument in principle but not on the facts.

Lord Clye: “...where A contracts with B to pay a sum of money to C and B fails to do so. The loss to A is in the necessity to find other funds to pay to C and provided that he is going to pay C, or indeed has done so, he should be able to recover the sum by way of damages for breach of contract form B.”

However, in the present case because there was already a deliberate course adopted by Panatown such that X would have its own right of action against McAlpine in case of breach, Lord Clyde thus did not consider this case an exception to the general rule of privity.

Anglia Television v Reed [1972] 1 QB 60 C & P Haulage v Middleton [1983] 1 WLR 1461

D, an actor, contracted with P to play a leading role in a TV show. D later repudiated the contract; P had to abandon the production because he could not get a substitute. P sued for reliance loss which accounted for expenditure incurred both before and after the contract was signed.

P won Since P elected to claim their reliance loss instead of loss of profits, P would be entitled to recover both pre­contractual and post­contractual costs as long as the cost was reasonably in the contemplation of the parties as likely to be wasted if the contract was broken. Namely, wasted expenditure can be recovered when it is wasted by reason of D’s breach of contract.

P was held to have the right to elect either reliance or expectation loss. However, in another Australian case (Commonwealth of Australia [1991]), it was suggested that P has no such right to elect ­ reliance loss could ONLY be recovered in cases where there was either no profit, or it was too speculative to assess the profit.

Double recovery would be prohibited.

3. The restitution interest

Planché v Colburn (1831) 8 Bing 14

The plaintiff agreed to write a book for D. The agreed contract price was £100 to be payable on completion.

P commenced writing and had completed a great deal of it when D cancelled the series. D refused to pay the plaintiff.

P brought an action to enforce payment.

P won (recover £ 50 on a quantum meruit basis)

If a party to a contract is prevented form completing the contract by the other he or she may either sue for compensation for the breach of contract or claim payment for the amount of work that he or she has already done.

4. Non­pecuniary loss

Farley v Skinner [2002] 2 AC 732

P asked D, a surveyor, to inspect the house and in particular to investigate whether the property would be affected by aircraft noise. D stated that it was unlikely that the property suffered greatly from aircraft noise. In fact the house was markedly by aircraft noise. P sought damages from D because his use and enjoyment of the property was impaired by the aircraft noise.

P won (award of 10,000 pounds)

Lord Scott: if P had known about the aircraft noise he would not have bought the property. P could either claim for being deprived of the contractual benefit, or he could claim as having consequential loss on breach of contract.

Surveyors will not ordinarily be liable when a house is defective and it causes distress.

5. The date of assessment of damages

Golden Strait Corp v Nippon Yusen Kubishika Kaisha

In 1998, GSC, shipowner, chartered an oil tanker, The Golden Victory, to NYKK until 2005. Either party could cancel the charterparty if war broke out between certain countries including

HL held that NYKK was liable for no

The majority held that because the outbreak of war occurred before the damages fell to assessed, they could be taken into account. The victim should be placed in the position as if the contract were performed. The court should not ignore facts that were available.

(“The Golden Victory”) [2007] 2 AC 353

the USA, UK and Iraq. In 2001, NYKK repudiated the contract and the owner accepted the repudiation. America had started the Iraq War, in March 2003. This was just the event that would have allowed Nippon to cancel the charter, if stayed with it. The arbitrator held that the outbreak of war had created a limit on the payable damages. NYKK was liable for no damages after 21 March 2003.

damages after 21 March 2003.

However, Lord Bingham, dissenting, would have held that damages should be assessed on the date of the breach. That should have meant Golden got damages for four years left on the charterparty. He emphasised the importance of certainty and predictability in English commercial law and said this decision would hurt it.

6. Damages for the loss of a chance

Chaplin v Hicks [1911] 2 KB 786

D advertised on a newspaper inviting applicants from female readers for work in the theatre. 10 applicants were to be short­listed in each of the five areas by readers of the newspaper. D would then select 12 from the shortlist of 50. P came top of her area, but was not given a reasonable opportunity of presenting herself for the final selection by D.

P won and was awarded damages.

The loss of a right to belong to a limited class of competitors is of pecuniary value for which damages can be awarded.

Semana Bachicha v Poon Shiu Man [2000] 2 HKLRD 833

P was a foreign domestic helper. She took up a two­year contract of employment, living and working in D’s residence. She was forced to leave her employment after six months because the employer, disregarding her legal rights, worked her like a slave. D accused the plaintiff of theft. Because of this accusation the Immigration Department refused the plaintiffs application to seek alternative employment. P was vindicated by the judge who found the defendants accusation unfounded.

P won and got damages.

The dismissed employee would be, as she was, awarded damages for loss of employment opportunities and for the hurt to her feelings by the employers false accusation (that she was a thief).

Durham Tees Valley Airport Ltd v bmibaby Ltd [2010] EWCA Civ 485

D agreed to have two aircraft operating at the airport. The contract duration was defined as ten years from the establishment of the operation of the aircraft. In return for basing the aircraft there, P provided substantial funding to the airline. The contract was very specific on a number of points, but it did not specify a criteria to measure the airline’s manner of performance e.g. the number of flights or the number of passengers the airline had to take from the airport. D withdrew from the airport in 2006 after incurring substantial losses. P brought a claim against the airline for loss of income.

P lost at the first instance and then won in the appeal.

The Court of Appeal held that the contract was not too uncertain to be deemed unenforceable. The contract contained sufficient terms to determine the airline’s measure of performance. It was unnecessary to imply a question as to how many flights the airline should have made from the airport. In examining whether a breach of contract had occurred, the question the court had to ask was whether the airline had in a real and genuine sense been flying their aircraft from the airport. The Court of Appeal held that the level of damages should be the money the airport would have received had the airline remained at the airport for a further eight years, as the contract stipulated. The court made a number of assumptions including the fact that the airline would have performed the contract in its own interest.

7. Remoteness

Hadley v Baxendale (1854) 9 Exch 341

The claimants owned a mill. A crankshaft, which was essential for the operation of the mill, broke and needed to be replaced using the original as a template. The claimants engaged the defendants, a firm of careers, to transport the broken part to engineers in Greenwich where a replacement would be made but the defendants failed to do this within the time frame specified thus delaying the arrival of the new part and causing the mill to stand inoperative. The claimants sought damages to compensate for the losses sustained whilst the mill was idle.

D won The Loss was too remote and should not be recoverable. It would have been an entirely different position if the defendants had been made aware that the mill would be inoperable without the part but they were not aware that this was the only crankshaft that the claimant possessed. The judgement gave rise to the Hadley foreseeability test: First Limb: Loss arising naturally from the breach of contract (so implicitly within the foresight of the parties). This requires no special or expert knowledge as it is loss that arises in the ordinary course of things. Second Limb: Loss which was reasonably within the contemplation of both parties at the time the contract was formed. This covers loss that is not ‘in the ordinary course of things’. i.e. abnormal loss, hence special knowledge or awareness is required.

Victoria Laundry (Windsor) v Newman Industries [1949] 2 KB 528

The claimants ran a laundry business. The purchased a boiler from the defendants that was due for delivery in July. The boiler sustained some damage and had to be repaired which delayed delivery until November. The claimants had made the defendants aware that they needed the boiler to expand their business and that they wanted it for immediate use. They claimed damages to represent the loss of ordinary profits that would have been made from their additional business if the boiler had arrived as greed and also for the loss of government contracts that they had intended to secure once the boiler arrived.

P won P won for the loss of additional profit but lost for the loss of revenue from the government contracts. The defendants were aware that the claimants aimed to increase their business by acquiring another boiler, thus the loss of the additional income was ‘reasonably foreseeable’ consequence of breach, whereas there was nothing to suggest that the defendants were aware of the claimants’ plans concerning government contracts so this was not recoverable. Victoria Laundry provides an example of the operation of the second limb of Hadley test and sets the standard of remoteness as ‘reasonable foreseeability’.

Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350

The claimant chartered The Heron II to transport a cargo of sugar on a journey that should have taken 20 days but actually, due to a deviation from the route by the defendant, took 29 days during which the price of sugar fell significantly. The late arrival put the defendant in beach of contract so the claimant sought damages to cover the difference in the price he received for the sugar and the higher price that he would have received had the boat arrived on time. The claimant had not told the defendant that he intended to sell the sugar at the destination but the defendant was aware that he was carrying sugar and that destination was a popular trading place for sugar.

P won The House of Lords held that, although the claimant had not told the defendant that he intended to sell the sugar as soon as the boat arrived, the defendant’s knowledge that he was carrying sugar and his awareness that the destination was a popular trading place for sugar was sufficient to make it so probable that it must have been within his contemplation at the time the contract was made. the House of Lords criticised the reference to ‘reasonable foresight’ in Victoria Laundry, as this is a term that is more appropriate in tort, with Lord Reid stating: “I use the words ‘not unlikely” as denoting a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable.”

Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791

The defendants sold a pig­food hopper to the plaintiffs. It was defective. The nuts in it went mouldy. 254 pigs died as a result of eating mouldy nuts. At the time of the contract it was found, as a fact, that the parties could not have foreseen serious illness arising as a result of the consumption of mouldy nuts.

P won Principle: where parties contemplate the type of consequence which may follow a breach of contract, they will be liable for specific damage of that type, even where the specific damage was not foreseeable. While P could not recover for his loss of profit on the pigs, it would have been in the contemplation of the parties that there was a real possibility of harm coming to the pigs if their food was made unfit by reason of the condition of the hopper. The fact that they could not foresee the extent of the harm was immaterial and P could

recover the cost of his pigs.

Chen v Lord Energy Ltd [2002] 1 HKLRD 495

Lord Energy Ltd contracted to purchase from Chen a property. The sale did not proceed due to a breach of contract by Chen. The Court of Appeal held that Vs, the vendors, were in breach of a sale and purchase agreement and that P, the purchaser, was entitled to specific performance. Vs were granted a stay of the order of specific performance, pending their application for leave to appeal to the Court of Final Appeal. The appeal to the Court of Final Appeal was dismissed and subsequently, Vs assigned the property to P. At issue was how was the loss which P suffered as a result of the stay, to be assessed. P contended that as it might have resold the property after assignment, the loss was the decline in market value from when the stay was ordered to when the property was assigned.

P won (1) The approach to be adopted in assessing such loss was analogous to that which was adopted in the case of a claim for damages based on a breach of contract. The normal measure of damages to a purchaser as a result of a delay by a vendor to perform the contract was the loss of rental due to loss of use of the property, but this was displaced where other losses came within the reasonable contemplation of the parties or where it was possible to impute knowledge of special circumstances to the vendor. Here, it was necessary to decide: (a) whether the possibility of a resale by P was within the reasonable contemplation of the parties; and (b) if it was not, whether the knowledge that P was liable to resell after assignment could be imputed to Vs. It was only if the answers to (a) and (b) were in the negative, that it was necessary for P to show that Vs had actual knowledge of his intention to resell (2) The correct date for deciding what the parties reasonably contemplated was the date when the stay was ordered. On that date, on the evidence, it was within the reasonable contemplation of the parties that P might resell the property. It could also be said from the evidence that the knowledge that P might resell could be imputed to Vs (3) The demarcation between the two limbs of the rule in Hadley v Baxendale was sometimes blurred. This was particularly the case where knowledge of a certain matter was imputed to the defaulting party. This was a case where there might be an overlap between the first and second limb of the rule and it was unnecessary to categorise it as falling strictly within either limb of the rule.

Transfield Shipping Inc v Mercator Shipping Inc (“The Achilleas”) [2009] 1 AC 61

D chartered a ship from P and promised to return it back no later than a set date. P contracted with another customer X at a good rate to let the ship after D would return it. D failed to return the ship on time. When the ship was returned, the market rate dropped sharply and X would only take the ship at a much less rate. P sued D for the difference between the price it originally contracted with X and the amount it would actually get from X. D agreed that it’s liable for returning the ship late, but argued that it would pay an extra amount reflecting the market rate for daily hire during the delay. P won Arbitration and CA, D appealed to HL.

D won The arbitrators applied the first rule set in Hadley v Baxendale 156 E.R. 145 that the loss resulted “naturally, i.e. according to the usual course of things, from such breach of contract itself” ­ the parties should have realised such probability when they had signed the contract that such loss was “not unlikely” to result from a breach of contract. HL held that the arbitrators had applied too crude a test. D only needed to pay extra for the overrun period at the prevailing market rate. Reasonable parties would not enter into a contract like this on the basis that the defaulting party would be liable for any loss, however large, occasioned by a delay in redelivery in circumstances where it had no knowledge of, or control over. The common intention of reasonable parties to a charterparty of this sort would not have been that, in the event of a relatively short delay in redelivery, an extraordinary loss, measured over the whole term of the renewed fixture, was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within the defaulting party's contemplation. See also Victoria Laundry (Windsor) v Newman Industries [1949] 2

K.B. 528.

8. Causation

South Australia Asset Management Corp v Montague Ltd [1997] AC 191

D, a valuer, negligently advised P, his client bank, that property which it proposed to take as security for a loan was worth much more than its actual market value. P sued not only for losses attributable to the deficient security but also for further losses attributable to a fall in the property market.

D won D was liable only for losses related to the deficient security. The valuer was not liable for any loss suffered by the lender as a result of a fall in the market, since such a loss was not a foreseeable consequence of the valuer's negligence in providing inaccurate information. The valuer’s liability was excluded on the ground that it was outside the scope of the liability which the parties would reasonably have considered that the valuer was undertaking.

9. Mitigation

British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673

D supplied P with turbines which were deficient. P accepted and used the turbines but reserved their right to claim damages. Later P replaced the turbines with others which were more efficient than those supplied by the defendants would have been, even if they had complied with the contract. The plaintiffs claimed to recover the cost of the substitute turbines as damages.

D won Any loss sustained by P had to be balanced against any gain to them arising directly out of the steps they had taken to lessen the consequences of the breach. Although P had not been bound to buy the new machines, having done so the consequential gain in profits and saved expenses had to be brought into account. The savings exceeded the cost of the machines and so P could recover nothing. The famous principle of measuring damages was set in this case: “The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all REASONABLE steps to mitigate 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.”

Wayfoong Credit Ltd v Cheung Wai Wah Samuel [1990] 1 HKC 367

D entered into a hire purchase agreement with P in respect of a van. D paid the first instalments and defaulted on the contract. P repossessed the van and sold it to a third party at a much cheaper price, asserting that this was the best price it could possibly get. P sued for the balance due under the contract and costs pursuant to the Rules of the Supreme Court O 84A r 3.

P won with damages deducted for insufficient mitigation of loss

P had disposed of the van by offering it for sale to car dealers included in its own list of those with whom it did business and no others. P had not explored the possibility of car auctions or of advertisement. P had therefore not taken sufficient steps to mitigate its loss. The court adopted the formula that applied by the Commissioner of Inland Revenue to calculate depreciation plus a further 20% deduction to take account of the fact of a forced sale. The difference between the sum calculated and the sum actually obtained would be deducted from P’s claim (for P did not take sufficient steps to mitigate its loss) and P would be permitted to recover the sum remaining outstanding after that deduction.

Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452

The plaintiff bank had engaged the defendant printers to print bank notes. The defendant delivered a large number of notes to a criminal who later put them into circulation. The plaintiff found out and theywithdrew the issue of particular notes and exchanged all of

P won If the party is placed in a difficult sitaution by reason of the breach of a duty owed to him, as long as he acted reasonably in the adoption of remedial measures, he will not be held disentitled to recover the cost of such measures merely because the breaching party can suggest another measure that would be less burdensome to him.

them. Defendant seeks to argue they are not liable for the loss caused by exchanging

Payzu v Saunders [1919] 2 KB 581

The defendant contracted to sell crepe de chine to the plaintiffs. They agreed delivery within 9 month and payment within 1 month upon delivery. When plaintiff failed to pay the first instalment on time, defendant refused to deliver any more. Defendant agreed to deliver goods if plaintiff paid cash when ordering. Refusing the offer, plaintiff sued for repudiation. The market value of crepe rose up. Plaintiff seeks to recover the price difference

D Won What is reasonable for a person to do in mitigation of his damages is a question of fact and depends on particular circumstances

if a person is wrongly dismissed while he provides personal service, it is reasonable for him to reject the offer from the old employer

In this case, it’s unreasonable for plaintiff to reject the new offer as both parties can accuse the other of unworthy of commercial value, so it’s not just the defendant treated the plaintiff badly.

Sotiros Shipping Inc v Sameiet Solholt (The Solholt) [1983] 1 Lloyd’s Rep 605

The buyer of a ship lawfully terminated a contract on the ground that the sellers were late in tendering delivery of the vessel. The market price for the vessel had risen from 5 million to 5.5 million. Seller later sold it for 5.8 million. Buyer claimed for damages of the cost of cure

D Won The court held that buyer should have offered to buy the vessel for 5 million rather than claiming 500,0000 in damages.

The buyer was not acting reasonably in mitigate the loss by claiming damages. This judgment is criticised for rendering the right to reject illusory, entitle the seller

to the difference in market price and actually benefit the breaching party

10. Contributory negligence

Barclays Bank plc v Fairclough Building Ltd [1995] QB 214

The defendant was in breach of a contract to clean roofs containing asbestos as he failed to execute the work in an workmanlike manner. The defendant argued that the plaintiff was guilty of contributory negligence as he failed to supervise the work.

P Won Contributory negligence was not a defence to a claim for damages based on a breach of a strict contractual obligation, even when the defendant might have also had a parallel liability in tort

when the defendant is clearly liable under a strict contractual duty, his position will not be improved by demonstrating he was in addition negligent

<TOPIC 14> REMEDIES: MONEY REMEDIES OTHER THAN DAMAGES AND SPECIFIC RELIEF

Case Name

Facts

Judgment

Rationale

1. Account of profits

Attorney­General v Blake [2001] 1 AC 268

The defendant wrote his autobiography containing information which he contracted not to divulge. Plaintiff, suffering no loss, sued him for breach of contract and claimed for damages. CA only awarded plaintiff nominal damages. HL granted plaintiff restitutionary damages

P Won

where the normal remedies for breach of contract provided inadequate compensation, the court could grant the discretionary remedy of requiring the defendant to account to the plaintiff for the benefits received from the breach of contract even where the breach did not interfere with a property interest of the claimant

Damages are compensatory generally. However, financial loss can not be the only criteria. Sometimes, the just response to the breach is that the wrongdoer should not be permitted to retain any profit from the breach.

if confidential information is divulged in breach of contract, an account of profits may be ordered in respect of the equitable wrong.

The court will regard to subject matter, purpose of the breaching provision, the circumstances and the consequence of the breach. The general guide is whether the plaintiff had a legitimate interest in preventing the defendant;s profit­making activity and hence, in depriving him of his profit

Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA 323

Defendant breached a settlement agreement relating to masters of titles and licences of the music of plaintiff’s. Injunction was granted to prevent defendant from breaching. But a claim for damages and an account of profits was dismissed.

D Won

Blake has three distinct features: (1) the context of Blake’s employment in the security was dependent on secret information( 2) The diliberate and repeated breaches and Blake could command considerable sums for his publication (3) the contractual undertaking was akin to a fiduciary obligation where an account of profits is a common remedy.

(1) and (3) are missing in this case, even (2) exists, but is in a commercial context where detailed assessment is required.

Deliberate breaches of contract occur frequently in the commercial world. Something more is needed to make the circumstances exceptional enough to justify ordering an account of profits, particularly when another remedy is available.

Devenish Nutrition Ltd v Sanofi­Aventis SA [2008] EWCA 1086

P bought animal foods mixed with vitamins to produce foodstuffs sold to cusmters. P sought damages or a restitutionary award in a sum equal to the "overcharge" or amount of the respondents' wrongful net profit but failed. (P claimed the amount by which the prices it was charged for vitamins exceeded the price that would lawfully have been charged if there had been no cartels.) P appealed but was dismissed.

Appeal failed, D won.

Availability of an Account of Profits 1. Available only when other contractual remedies are inadequate(“it depends on

whether damages alone would be sufficient remedy in the eyes of law for the wrong occurred”)

2. P must have legitimate interest in preventing D to obtain such interests 3. Court have regard to “all circumstances of the case”. In deciding if P has a legitimate

interest, no one factor is conclusive or essential in all cases.

WWF­World Wide Fund for Nature v World Wrestling Federation Entertainment Ltd [2008] 1 ALL ER 74.

Dispute between Word Wide Fund(P) and World Wrestling Federation(D) for the use of the initial WWF. Compromise agreement restricting use by World Wrestling Federation was breached, WWF later sued for an account for profits.

D won. Althoughan account of profits, and Wrotham Park damages were distinct remedies, it was not necessarily helpful to discuss them in terms of “gain­based” and “compensatory” remedies. The true position was that (para 59) (Chadwick LJ): 1. the court makes an award of damages on the Wrotham Park basis when it is a just response to circumstances in which the compensation which is the claimant’s due cannot be measured (or cannot be measured solely) by reference to identifiable financial loss. 2. There are exceptional cases in which the just response to circumstances in which the compensation which is the claimant’s due cannot be measured by reference to identifiable financial loss is an order which deprives the wrongdoer of all the fruits of his wrong.

3. The circumstances in which an award of damages on the Wrotham Park basis may be an appropriate response, and those in which the appropriate response is an account of profits, may differ in degree. But the underlying feature, in both cases, is that the court recognises the need to compensate the claimant in circumstances where he cannot demonstrate identifiable financial loss. 4. To label an award of damages on the Wrotham Park basis as a “compensatory” remedy and an order for an account of profits as a “gains­based” remedy does not assist an understanding of the principles on which the court acts. The two remedies should each be seen as a flexible response to the need to compensate the claimant for the wrong which has been done to him.”

2. Exemplary awards

Kuddus v Chief Constable of Leicestershire [2002] 2 AC 122

Police (D), forged P's signature on a withdrawal of a complain of theft. P sued for punitive damage. CA refused such claim on the ground that punitive damage should only be available to cause of action that had been recognised before 1964. Abuse of power of public servant was never a case before 1964. P appealed. ­ Appealed allowed.

P won. 1. Punitive/exemplary damages: punish the defendant for the breach of contract. Only recoverable in exceptional circumstances : focusing on the bad conduct of the defendant regarded as"contumelious" 2. Three categories of Punitive damage. 1) The oppressive, arbitrary or unconstitutional action by the servants of the government. 2) The defendant's conduct has been calculated by him to benefit himself which may well exceed the compensation payable to the plaintiff. 3) Exemplary damages are expressly authorized by statute 3. A jury should be directed that if, but only if, the sum which they have in mind to award as compensation (which may be a sum aggravated by the way in which the defendant has behaved to the plaintiff) is inadequate to punish him for his outrageous conduct, to mark their disapproval of such conduct and to deter him from repeating it, then it can award some larger sum. [the punitive damage]

3. Agreed damages clauses and penalities

Dunlop Pneumatic Tyre Ltd v New Garage and Motor Co Ltd [1915] AC 79

P sold Tyre to D, a dealer, at a discount price. P signed with D a contract saying D cannot sell the tyre at a price lower than the marked price sold by P. D breached such term. The contract also stated in the case of breach, D shall pay P $5 for each tyre sold to others. D contested that is a penalty clause that should not be enforced.

P won. A single sum to be paid in the case of breach is presumed to be a penalty only. It is NOT a Penalty when: 1) There is breach of a number of stipulations of varying importance, and 2) the damage is the same in kind for every possible breach and is incapable of being precisely ascertained, 3) the stipulated sum, provided it be a fair pre­estimate of the probable damage and not

unconscionable.

Phillips Hong Kong Ltd v Attorney­General of Hong Kong [1993] 1 HKLR 269

P contract with D, HK Gov, to construct highway. In the contract, there is a sum stipulated to be paid by P in the case of delay. There was a delay. P contested that the sum is a penalty as it exceeds the actual loss of HK Gov.

D won. According to the Law Reform Committee, the court also accepted, that whether a sum is penalty depends on whether the sum is a genuine estimation of the loss at the time of contract. Even if the innocent party derive a benefit out of the sum, the sum is still not a penalty.

Re Mandarin Container [2004] 3 HKLRD 554

P loaned a big sum to D for commercial use. In the contract, there is a 2% increase in interest rate stipulated in the case of default payment. D defaulted, paid for the additional 2% for months. D then sued P for the 2%, claiming the 2% increase is a penalty.

P won. The stipulated sum/rate should not be easily treated as penalty, especially when both parties have similar bargaining power. Court made reference to English case saying 1% rate increase is Okay and Singapore case saying 11.25% rate increase is Not Okay. Court concludes that since there is great risk in defaulting big loan, 2% is not excessive. Also, "the purpose of the 2% increase is not to deter default" is also an important factor. It is: To deter = To penalize.

4. Deposits and part payments

Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573

­ Vendors sought to forfeit a non­returnable deposit of 25% of pruchase pirce as purchaser failed to pay the balance as per contract. ­ Time being the essence of the contract ­ Purchaser paid the balance with interest a week later but vendor refused.

D won ­ the payment of a reasonable amount forfeited on non­completion is not unlawful. ­ However, for this case, the market standard is only 10% of contract price. ­ And Vendor ( planitff) cannot establish any specific reasons for requiring 25% ­ Court ruled that being a penalty and would not entertain ­ Court granted relief, Plaintiff cannot retain the deposit, but can claim loss suffered.

Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234

­ Plaintiff claimed to refund a 35% of purchase price deposit forfeited by Defendants due to Plaintiff through a breach of contract by Defendant and not paying the balance

P / D won ­ There is no breach of contract. Plaintiff had wrongfully terminated the contract, hence Defendant is entitled to forfeit the payment ­ if the amount of an agreed deposit matched or was less than the conventional amount ( i.e. 10% in HK), forfeiture would not attract judicial scrutiny. However, if it exceeds the conventional amount, forfeiture was only permitted if it is justified, and in this case, special circumstances is justified. ­ However, since the deposit was $40.25M (35% of purchase price) and Defendant only proved a damages of $33M. Defendant had to repay the $7M to plaintiff to avoid over­compensated.

5. Specific performance

See also: Beswick v Beswick (Topic 21)

Societe des ­ Defendant contract to sell machinery to Plaintiff D won ­ the fact that buyers have to wait between nine to twelve months for a replacement

Industries Metallurgiques SA v The Bronx Engineering Co Ltd [1975] 1 Lloyd’s Rep 465

­ Defendant could only deliver 9 months after the scheduled date ­ Due to market circumstances, Defendant breached the contract and ready to sell the machines to others. ­ Plaintiff applied for specific performance. ­ Defendant breach of contract is assumed.

(as in no specific performance granted)

delivery does not of itself establish that the goods were unique ­ the machines was readily obtainable in the market upon placing an order ­ damages were a sufficient remedy ­ Plaintiff was not entitled to a decree of specific performance

Tito v Waddell (No 2) [1977] Ch 106

­ Claiming the Crown owed a fiduciary duty to the Plaintiff ( islanders) ­ Claiming specific performance of the obligation to replant the land ­ Claiming for a declaration that the government was bound to prescribe the tress to be planted

P won (as in no specific performance granted)

­ The replant claim was binding by application of the doctrine of pure benefit and burden, but limited to doing only what was reasonably practicable. ­ although specific performance would lie to enforce the replanting obligation, it would not be decreed since all relevant landowners were not before the court ­ Plaintiffs were limited to compensation in damages which would be nominal since they had failed to prove that their loss was the cost of replanting as opposed to diminution in the value of the land.

Hill v Parsons [1972] Ch 305

­ Personal Service Contract/ Employment Contract ­ Defendant (employer) breached the contract by invalid notice of termination ­ Plaintiff should be given a 6 months notice rather than 1 month notice ­Plaintiff worked for Defendant for 35 years.

P won ­ the court did not require the employee to give an undertaking that he will not present himself for work ­ the cause of the dismissal was the intervention of a trade union and the relationship between the employer and employee appeared to remain a strong one ­ The termination is invalid and employment was still subsisting. ­ Damages were not an adequate remedy ­ no absolute bar to a court granting an injunction to restrain the termination of an employment relationship, at least where the party seeking the injunction is an employee.

CH Giles & Co v Morris [1972] 1 WLR 307

­ Personal Service Contract ­ Defendant ppealed against the order requiring the procuring by the Defendant of the entering into by a company which Defendant controlled.

D lost ­ Appeal dismissed ­ An agreement will be specifically enforced if only a small part of it requires personal services ­ there is a distinction between an order to perform a contract for services and an order to procure the execution of such a contract. ­ The desirability of specific performance as a whole contract might outweigh the disadvantages of specifically enforcing the obligation to perform personal services. ­ The facts show the contract was specifically enforceable.

Price v Strange [1978] Ch 337

D agreed to grant a sublease of a maisonette to P provided P carried out certain works to the interior and exterior of the maisonette. After Price had completed the interior works, D repudiated the agreement and prevented P from completing the works to the exterior. P had the works to the exterior completed at her own expense. P sued for SP of the agreement. D pleaded that

P won The Fry proposition regarding mutuality is held wrong. The court will not compel a defendant to perform his obligations specifically if it cannot ensure that any unperformed obligations of the plaintiff will be specifically performed, unless damages are not adequate.

SP could not be granted because the remedy was not mutual at the data of the contract.

Patel v Ali [1984] Ch 283

D and a third party entered into a contract to sell D’s home to P. The deal was not completed on time. P applied summary judgment and sought SP 3 yrs latter. During which D suffered considerable misfortune. In these circumstances D asked court to refuse SP and leave P for damages.

P won Undue hardship applies. Court held that only in extraordinary and persuasive circumstances can hardship supply an excuse for resisting performance of a contract for the sale of immovable property. (McKendrick combination of hardship to D and P’s delay)

Co­operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

D closed the supermarket in the shopping center because it was losing money. P feared that the close down would affect other shops in the center and sought SP to compel D to carry on business according to the agreement.

D won A SP order would not be granted to require D to run a business. There was possibility of wasteful litigation over compliance. (constant

supervision) It was oppressive to D to have to run a business under threat of contempt. Not in public interest to require sb. to carry business at loss when other

alternatives or remedy are available

6. Injunctions

Warren v Mendy [1989] 1 WLR 853

A boxer (Benn) entered into an exclusive management contract with P. He subsequently became disillusioned with P’s management and asked D to act as his manager. P sought injunction against D restraining him from inducing a breach by Benn of the contract.

D won. Injunction was not granted. It was well established that an injunction to restrain a breach of contract for personal services should not be granted where the effect was to decree performance of those personal services. This also applied to a situation where a servant would be compelled to perform personal services for a third party. Compulsion was a question of fact to be decided in individual circumstances.

Beacon College Ltd v Yiu Man Hau [2001] 3 HKLRD 558

P was a private school offering tutorial lessons to students. Ds were teachers formerly employed by P. After they resigned, P obtained territory­wide interim injunctions to restrain D from undertaking business or activity which compete P’s. D argued the injunction compelled them to either remain idle or to perform their contracts with P, tantamount to SP.

P won The interim injunctions were not unjust and inequitable. an employer could seek an injunction to enforce a negative covenant restraining its employee from competing with him, so long as the the employee was not driven either to poverty or to performance of the contract.

Ds have many reasonable alternatives, e.g. teach in the government. The interim injunctions were appropriately territory­wide. P enjoyed a territory

reputation from advertising.

<TOPIC 15> COMMON MISTAKE

Case Name

Facts

Judgment

Rationale

1. The development of the law

Bell v Lever Brothers

P fired D and agreed to pay compensation. After paying D, P discovered that they could have dismissed D for breach of his duties as a director. P sued D for return of money on basis of common mistake.

D won. Assumption that contract was not terminable turned out to be false, but this did not affect the validity of the contract. Where both parties enter into a contract under a false and fundamental assumption then as a general rule the contract is valid.

Test for Common Mistake: ‘Fundamental’ mistake Mistakes on quality of subject matter of contract not sufficient to void contract.

Solle v Butcher (1950)

Landlord and tenant wrongly thought that house let was outside the Rent Act limits, whereas in fact it was within. Tenant, P, sued for overpaid rent. Landlord, D, claimed rescission on ground of common mistake and innocent misrepresentation.

D won. Though this mistake was not one which would operate to make the tenancy void at common law, it was nevertheless voidable in equity.

In equity, a contract may be voidable (not void, thus leaving room for the protection of third party rights) where the mistake is one related to the attributes rather than the essence of the subject matter.

The grant of equitable remedies (rescission, in this case) is discretionary and in exercising this discretion the courts will take the effect of mistake into account upon grounds wider than the grounds recognised by the common law.

Great Peace Ship suffered serious damage. D provided salvage services, and called on P to help. D then realized that P was farther away than previously thought, cancelled contract, and refused to pay fee. P sued.

P won Where parties have entered into a contract which is impossible to perform at time of agreement, contract is void for common mistake. However, here the contract was not void for common mistake. The fact that vessels were further apart did not mean that it was impossible to perform the contract. Test for Common Mistake: 1. Must be a common assumption as to the existence of a state of affairs 2. There must be no warranty by either party that that state of affairs exists 3. The non­existence of the state of affairs must not be attributable to the fault of either party 4. The non­existence of the state of affairs must render performance of the contract impossible 5. State of Affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.

Couturier v Hastie (1856)

There was a contract for sale of a cargo of corn thought to be in transit. Unknown to both parties the corn had fermented and was lawfully sold by master of ship. Buyer argued that since the cargo of corn was not in existence, he was not bound to pay price. Seller argued that construction of contract stipulated that contract was for sale of an ascertained cargo which purchaser bought on an adventure, and took upon himself all risks from shipment.

Buyer won. Where unknown to both parties the specific subject matter of the agreement is in fact non­existence then the contract is void for common mistake. Held that: It was a contract to buy specific goods, which in fact did not exist. The buyer did not have to pay for the corn. The contract was void.

McRae v Commonwealth Disposals Commissions (1951) Australia

D sold P the right to salvage a tanker lying on a specified reef. P fitted out salvage expedition at considerable expense. Turns out there was no such tanker or reef. P claimed damages against D for restitution. D argued that the contract was void ab initio (Courturier v Hastie).

P won. Held that a party could not rely on mutual mistake where the mistake consists of a belief which is held without any reasonable ground, and deliberately induced by him in the mind of the other party. In this case, D cannot rely on any mistake to avoid contract because the mistake was induced by the fault of its own servants, who asserted existence of tanker recklessly and w/o reasonable

ground. No absolute rule that contract for sale of a res extincta is necessarily void. If true construction of contract is that both parties assumed the subject­matter existed, and neither of them undertook in contract the risk that this might not be so, then the contract is void.

Chee Kin Keong v Digilandmall.com Pte Ltd (2005) Singapore

P made large order of mispriced ($66 instead of $3500) printers off of D’s website. D realized mistake, removed listing from website, and informed purchasers that it would not honor orders. P knew that D made a mistake with pArgyll ricing prior to their order.

D won. Actual knowledge of the other party’s mistake about the terms renders the contract void at common law; constructive notice (person presumed to have knowledge of something) renders it voidable in equity. Rejects narrow Great Peace approach generally: ‘Equity is dynamic. A great attribute, thus an advantage, of equity, is its flexibility to achieve the ends of justice.’

2. Common mistake and the contractual allocation of risk

Also: McRae Great Peace

William Sindall plc v Cambridgeshire CC (1994)

P agreed to buy land from D. Before sale was completed, P made inquiries of D regarding rights of easement and other public rights affecting the land. D replied that, so far as it was aware, there were no rights of easement or public rights affecting the property. Sale was completed, and P discovered sewers on the property and claimed D made a misrepresentation. Value of land had halved since then, so P wanted to declare the contract rescinded.

D won. Under mistake, it was the buyer who is liable for the risks of there being easements unknown to the seller. No grounds for rescission, either for misrepresentation or mistake. However, if there were misrepresentation (negligent or not), court would have used discretion under sec 2(2) of Misrepresentation Act to award P damages. This would help block attempts to use innocent misrepresentation as a pretext to get out of a bad bargain. Court sets out guidelines for such hypothetical situation: In applying sec 2(2), one has to consider the nature of the misrepresentation (damage vs. actual value of contract), loss that would be caused by misrepresentation if contract were upheld (loss suffered, not damages recoverable), and loss suffered by representor by recission. If gross disparity, then award damages rather than rescission.

3. Approaches to common mistake

Also: Great Peace

Associated Japanese Bank (International) Ltd v Credit du Nord (1989)

Rogue pretended to sell to and lease back from P certain machines that did not exist. D guaranteed the rogue’s obligations under the transaction. Rogue went bankrupt, P sued on guarantee.

D won. The contract was void ab initio at common law. There was an implied condition precedent that the machines existed. As this condition was not satisfied, contract was void for this reason. An alternative argument under common mistake also succeeded: 1) Common mistake on existence of machines. 2) The subject matter of the guarantee was essentially different from what it was reasonably believed to be b/c of mistake. The existence of the machines made it more likely that the debtor would be able to service the debt to either P or D. Thus, non­existence of the machines were of fundamental importance. Case confirms existence of mistake in common law.

4. Categories of common mistake

Also: Couturier v Hastie Bell Great Peace

Sherwood v Walker USA case. D won The majority of Supreme Court agreed that the mistake went to the whole substance of the

66 Mich 568 (1887) P agreed to buy a cow from D for $80. Both parties believed the cow to be barren (unable to breed), but it turned out to be a breeding cow (the value of a breeding cow soared to $900). D refused to deliver the cow based on this common mistake, P sued.

(contract void)

contract. The court stressed the difference in the price of the cow, which makes the mistake so fundamental that it went BEYOND a mere mistake as to quality. The mistake affected the very CHARACTER of the animal for all time.

Nicholson & Venn v Smith­Marriott (1947)

P paid £787 to buy a Carolean relic (a set of linen), which later turned out to be a Georgian relic, which was only worth £105. Such mistake was common to both parties. P sued.

P won (breach of sale contract)

Ratio (breach of contract) The mistaken quality is an implied term of the contract (a sale by description within s.13

of the Sale of Goods Act), since the linen did not correspond with the description, there had been a breach of contract

A later case (Harlingdon & Leinster Enterprises Ltd [1990]) suggested that the breaching term must be a description within the contemplation of the parties that the buyer would rely on the description upon entering the sale contract.

Obiter (voidability of the contract due to common mistake) P was not intending to buy a set of linen, but rather a Carolean relic. And Georgian relic is

an “essentially different” thing from a Carolean relic (Bell’s test). Therefore the contract would have been void as well.

However, in Solle, Lord Denning disagreed that the contract in this case was void. This illustrates the uncertainty of voidability in mistakes as to quality.

5. The post­Great Peace cases

Also: Digilandmall.com

Apvodedo NV v Collins (2008)

C had been led to believe that the Ritz hotel was about to come up for sale by (X) and entered into a contract with P to fund him the down­payment. X turned out to be a fraud

A clause of the agreement provided that if L had not received the necessary documentation by a specified date, then C would be liable to repay the £1 million to P.

The applicant (P) applied for summary judgment against the defendant businessman (C) as representative of a property investment and development company (L) for money owing to it under a contract.

P lost (summary judgment not applicable)

It was not within the purview of the court, hearing a case on an application for summary judgment, to determine complex questions of law and fact arising out of the construction of a contractual clause contained in an exclusivity agreement;

the case necessitated a trial whereby all the evidence and all the arguments could be aired and judicially considered

Brennan v Bolt Burden (2005)

P agreed to compromise the claim for damages for personal injury because the court held that the claim was served outside the limitation period

P later successfully appealed and the judgment overruled. D applied to stay the proceedings because there was a binding contract. P alleged

D won Mistake of law is capable of rendering a contract void but that there would not be a mistake if the law were merely in doubt and on the facts the parties could have discovered that the case was being appealed, so on entering into a compromise agreement, both accepted the risk that their view of the law might turn out to be mistaken

A shift in law cannot be allowed to undo a compromise of litigation entered into the knowledge of both how the law stood and of the fact that it might not remain so

that the contract for compromise agreement was void for a common mistake of law

It was a question of construction as to whether a mistake rendered the contract void and in any event, it was doubtful that a mistake of law would be capable of passing the applicable test in Great Peace (whether the mistake rendered the agreed performance impossible)

*there would still be an intelligible basis for the agreement if the parties appreciated that the law was what it is now known to be.

Kyle Bay Ltd v Underwriters (2007)

A night club destroyed by fire and P entered into compromise agreement with D on basis of a mistake as to the payable sum under the insurance policy. P was paid ⅓ less than the would have been entitled to recover.

Question on the validity of the compromise agreement

D won Mistake not sufficient to render the contract void since the settlement compromise remained capable of performance at all times and the subject matter was not rendered ‘essentially and radically different’ by the mistake

In context of a compromise agreement, the ‘essentiall difference’ rather than ‘impossibility’ test seems to be preferable.

Graves v Graves (2007)

An ex­husband had agreed to let his wife (D) live as a tenant in his house on the basis that 90% of the rent will be paid through housing benefit.

Turned out D was not entitled to such benefit, question was whether the tenancy contract was void

Contract void but adjustment was made

90% of the rent would be covered by housing benefit would make the agreement different in kind from the originally contemplated so that the implied condition that the tenancy contract would end if the housing benefit was not payable should imply.

Impossibility test not satisfied but essential difference was, which suggests that the tests may not be equated in some contexts.

Mistake would make the contract void, but the court need to make sure that wife could not recover her deposit and rent paid, so need to make adjustment on parties’ position.

6. Common mistake and other docrtine (frustion and unilateral mistake)

Amalgamated Investment & Property Co v John Walker & Sons (1977)

P agreed to purchase some commercial property belonging to D on common mistake that the Department of the Environment had included the property in a list of buildings proposed to be designated as being of special architectural or historical interest.

The property was listed on the day after the signing of contract, which made the property worth a lot less than contract price

P sought to set aside the contract on basis of mistake or frustration.

P lost Not the case where common mistake would apply because the mistake had to exist at the date to the contract, the property was not listed at the date of the contract

Rejecting also the frustration argument (apply Davis Contractors v Farecham UDC)that performance of the contract following the listing was not radically different from the performance contemplated by the parties, it was merely economically disadvantageous. The risk of a property becoming listed was an inherent risk which was to be borne by the purchaser.

<TOPIC 16> MISREPRESENTATION

Case Name Facts Judgment Rationale

1. Promises and silence are not misrepresentations

Keates v Earl of Cadogan (1851)

A landlord who was letting his house did not tell the tenant that it was in a ruinous condition

D won This failure to disclose material information was held not to be a misrepresentation

2. What is a misrepresentation?

Edgington v Fitzmaurice (1885)

P was a shareholder who received a circular issued by the directors of a company requesting loans of a large amount with interest in order to grow their business. However, the money was in fact to be used to pay off the company’s debt, not to grow the business. P, who had taken debentures, claimed repayment of his money on the ground that it had been obtained from him by misrepresentation.

P won 1) Th untrue statement as to future intention was a misrepresentation of fact. 2) There will be a reliance where the misrepresentation was not the only inducement for P to enter into the contract.

Bisset v Wilkinson [1927] AC

P purchased two pieces of land from D for the purpose of sheep farming. During negotiations D said that he believed that it would be suitable for 2000 sheep. P therefore bought the land in that belief. Both parties knew that D had not carried on sheep farming on the land. The land would not, in fact, hold 2000 sheep.

D won 1) In ordinary circumstances, any statement made by an owner who has been occupying his own farm as to its carrying capacity would be regarded as a statement of fact. This, however, is not such a case. In these circumstances, D were not justified in regarding anything said by P as to the carrying capacity as being anything more than an expression of his opinion on the subject. 2) Therefore, a statement of opinion cannot give rise to an actionable misrepresentation. In the absence of fraud, P had no basis on which to rescind the contract.

Spice Girls v Aprilla World Service [2002]

D (a manufacturer) contracted with P (promoter of a band) to sponsor a concert tour.The group had appeared in promotional material before D entered into the contract. This contract was based on the representation (made at the promotional photo­call) that all five members of the band, each with their distinctive image, would continue working together. One of them left the band after the agreement was entered. P sued to seek payment of various fees pursuant to the contract. D counterclaimed for misrepresentation of P. Trail judge favoured D, and P appealed.

D won, appeal dismissed.

There had been misrepresentation by conduct, since the participation of all five band members in the commercial had induced D into entering the contract, and the band membership was not about to change. P could not discharge the burden imposed by the statute (equivalent to HKMO s3(1)) of showing that it reasonably believed the representation to be true, regardless of the effect that the group was unaware that any member had declared an intention to leave before the minimum term of a tour sponsorship agreement expired.

Dimmock v Hallett (1866)

During negotiations for the sale of land, the land was described as ‘fertile and improvable’.

D won This statement had insufficient substance to be classed as a representation as it is a mere sales puff or talk.

3. The requirement of inducement

Redgrave v Hurd (1881)

P (a solicitor), advertised for a partner D to join the business and buy the accompanying house. P said in an interview with D that the practice brought in £300 pa, when it was only £200 pa. P showed D summaries that came to a £200 pa average income and said that the rest of the £300 figure was borne out by other papers in the office that he could check (in fact they showed no business). D did not inspect the papers, until he realised the truth just before completion of the agreement. He had signed the contract but he refused to go through. P sued for specific performance and D counterclaimed for rescission based on fraudulent misrepresentation.

P won There will be reliance even if the party to whom the representation is made is given an opportunity to verify its truth but chooses not to do so. There is no duty of verification. The misrepresentation will still be considered to be an inducement.

4. Remedies for misrepresentation

See: Hedley Bryne v Heller MO

5. Rescission

TSB Bank plc v Camfield [1995]

P had constructive notice of a misrepresentation by D which had induced his wife to charge the matrimonial home so that a loan could be made to his business. D had innocently misrepresented to his wife that her total liability was limited to GBP 15k when in fact, it was unlimited. D appealed against the decision granting P possession of her house and judgment for GBP 15k.

D won, allowing the appeal.

1) The wife was entitled to have the whole transaction set aside as against her husband. Terms should not be imposed on the wife as a condition of her obtaining equitable relief. While it might be just to grant the bank security for GBP 15k, there was no authority to suggest that a mortgagee could be entitled partially to enforce a charge against the wife. In any event the wife had nothing to return to the bank as shed had received nothing from the bank. 2) The wife’s right to set aside the transaction is an “all or nothing” process, though not invariably.

De Molestina v Ponton [2002]

A man X died and left a business empire based in Ecuador with principal business in bananas. Disputes arose amongst his family after his death. Several agreements were entered into which were intended to resolve all of the outstanding both the disputes between X’s widow and second wife and his children as well as the disputes between X’s children

D won. Applications dismissed.

The general principle was that a misrepresentee was permitted to rescind the whole of a contract but not part of it. The principle that there could not be partial rescission was part of the wider requirement that there could not be rescission unless there could be restitutio in integrum. Further, the requirement was the conceptual consequence of the basic nature of the remedy of rescission which was to discharge all the parties from the bargain into which the misrepresentor had induced them to enter. The court had no power to create a new

themselves. There were six children, of whom five were still alive as was their mother, X’s first wife. Proceedings were subsequently brought by the first Ps, who were two of X’s daughters, to rescind some of the agreements and for damages on the grounds that they were induced to enter into the agreements by the fraud of their brother, D1. D1 did not dispute that if the representations were made they were true or that he believed them to be true; his case was based on his denial that he had made the representations alleged at all.

bargain for the parties. Rescission would not be withheld where substantial restitution was possible, but that remedy was not fettered by some overriding equitable test as to whether the consequences would work unfairly to the misrepresentor. The scope of the equitable discretion in a rescission claim was confined to adjustments to achieve substantial restitution to accommodate events that had occurred after the contract had come into force and did not extend to the general reconstruction of the bargain to achieve an objectively overall fair result. In the instant case, although there were serious legal and factual obstacles to be overcome by the claimants if they were to establish that they were entitled to rescind the share distribution agreements, none of the issues that arose could be conclusively determined prior to a full trial.

Halpern v Halpern [2007]

D appealed against a decision on an application for summary judgment and against a decision that rescission was not available as a remedy for duress if substantial restitution could not be given. P claimed to enforce a compromise of nheritance alleged to have been reached with D.

D won, appeal allowed in part.

1) It was not possible to answer the question whether a party could avoid a contract procured by duress in circumstances where he could not give counter­restitution until the facts had been found. 2) The principle that court can set aside the contract in such a way that justice can be achieved applied whenever rescission was sought, including for duress, even though restitutio in itegrum was not strictly possible. 3) For ‘practical justice’, the primary objective may not always be to restore both parties to their previous positions.

6. Fraudulent misrepresentation

Derry v Peek (1889) D were directors of a company, which was authorised by statute to run tramways by animal power, or with the consent of the Board of Trade, by steam power. The prospectus issued by the company indicated that steam power would be used, but the Board of Trade refused its consent. P had obtained shares in the company, acting in reliance upon the representation in the prospectus.

D won 1) The case concerned the tort of deceit. In the absence of any evidence that D believed the statement in the prospectus to be untrue, they had not committed the tort of deceit. 2) Definition of “fradulent”: fraud is proved when it is shown that a false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, carelss whether it be true or false. Although the second and third shall be treated as distinct cases, the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. Therefore, to prevent a false statement being fraudulent, there must always be an honest belief in its truth.

Thomas Witter v TBP Industries Ltd [1996]

D, a conglomerate, negotiated the sale of a carpet company to P. In the course of so doing D negligently misrepresented that there was a special one off expense of GBP 120k in accounts produced, and that those accounts spread the bi­annual expense of producing pattern books over two years instead of immediately writing it off. The sale contract included a provision stating that P acknowledged it had not been induced to enter into the agreement by any representation or

P won (1) the representation and warranty clause did not have the purported effect of excluding liability or remedies for misrepresentation as a clause intended to exclude liability for a misrepresentation which had become a warranty of the agreement was ineffective. Even if that was not so, the clause would have been ineffective as attempting to exclude all forms of misrepresentation including fraudulent misrepresentation. (2) the limitation clause only applied to breaches of the agreement or claims on warranties in the contract, not misrepresentations inducing P to enter into the contract. Rescission was not available, as, on the facts, the parties could not be restored to their pre­contract

warranty, and a contractual limitation clause that D was not liable for a breach of the agreement unless written notice was given. When P sued for negligent misrepresentation, D sought to rely on those two contractual provisions.

positions. (3) Reckless does not, of itself, establish fraud, unless it is blatant disregard for the truth and is therefore sufficiently serious to be dishonest. (4) Loss of the right to rescind would not remove this power to award damages.

Smith New Court Securities v Scrimgeour Vicker (Asset Management) Ltd [1997] AC

P had bought shares in a public company X at an inflated price in reliance on false representations made by a broker for D. A fraud involving X caused the value of the shares to slump and P sold the shares at a substantial loss. The trial judge awarded damages being the difference between the price paid by P and the true value of the shares had all facts about X been known at the time of purchase. CA substituted a lower award on the basis that P's loss upon selling the shares was not foreseeable and should be assessed according to the circumstances and the date they bought the shares. Both appealed.

P won P is entitled to consequential losses. The test of remoteness in deceit is that P may recover for all the direct loss in curred as a result of the fraudulent inducement, regardless of foreseeability. P were to be put in the position that they would have been in had misrepresentation not occurred, and thus D was liable for all losses directly flowing from the fraudulently induced transaction even if they were not foreseeable.

East v Maurer [1991] D ran two hairdressing salons in neighbouring areas. P purchased one of the salons. During negotiations, D had falsely represented that he personally would not be working at his other salon. P failed to make a profit, and discovered that D was working full time at his salon. P was unable to sell the salon for 3 years. At trial P was awarded damages of GBP 33k, including GBP 15k for loss of profits during the period in which P owned the business. D appealed against the award for loss of profits.

D won, while allow the appeal only in part.

(1) P had failed to earn expected profits from the business and was entitled to the loss of expected profits, but the judge had erred in assessing damages on the basis that D's statement amounted to a warranty that the business would have remained at the same level. (2) Damages for deceit should compensate the plaintiff for all losses suffered, including loss of profits that could reasonably have been anticipated.

7. Non­fraudulent misrepresentation at general law

See: Hedley Bryne v Heller

Esso Petroleum v Mardon [1976]

During the negotiations of the franchise of a petrol station, a representative of P stated that the station would sell 200k gallons of fuel annually based on its proximity to a busy road. D contracted on the basis of this statement. The local authority then insisted that the pumps and entrance to the petrol station were moved such that the station would be accessible only from side streets and unseen by passing trade. As a result, actual sales were around 85k gallons. D lost all his money in the enterprise. P claimed for back rent.

D won The failure to disclose the change in circumstances amounted to negligent misrepresentation under the Hedley Byrne principle (special relationship is needed). Denning: If a man who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another, with the intention of inducing him to enter a contract with him, he is under a duty to use reasonable care to see that the representation is correct. If he negligently gives unsound advice or misleading info or expresses an erroneous opinion, and thereby induces the other side into a contract with him, he is liable.

8. Non­fraudulent misrepresentation under MO

Howard Marine and Dredging Co Ltd v Ogden & Sons (Excavations) Ltd [1978]

P quoted D a price for the hire of two sea­going barges, and told D the cubic capacity of the barges. Subsequently P told D that the carrying capacity of each barge was about 1800 tonnes. P gave this figure because that was the weight given in Lloyd’s Register. In fact the carrying capacity was correctly stated in the shipping documents as 1055 tonnes. d hired the barges. they subsequently refused to pay the hire charges when they became aware of the reduced carrying capacity and claimed damages because of P’s misrepresentation.

D won 1) Burden of proof shift onto D under MO 2) There was insufficient evidence to sustain an argument that there was honest belief in misrepresentation. 3) P did not have an objectively reasonable ground to disregard the figure in the ships documents and rely on the Lloyd’s Register figure.

Royscott Trust Ltd v Rogerson [1991]

D1 bought a car from D2. The car was bought on hire­purchase through P, a finance company. D1 and D2 represented to P that D1 had paid a 20% deposit of GBP 1.6k and so the total purchase price was GBP 8k, when in fact D1 had paid a deposit of GBP 1.2k and the total purchase price was GBP 7.6k. As a result P paid D2 GBP 6.4k, when it would have only been prepared to pay GBP 4.8k. D1 sold the car to X who obtained good title.

P won P was able to recover GBP 3.6k being the difference between the amount paid by it to D2 and the amount received from D1 before he defaulted on the payments. The measure of damages under MO s2(1) was the measure of damages for fraudulent misrepresentation. Therefore, P was able to recover from D2 any loss which flowed directly from D’s misrepresentation.

William Sindall plc v Cambridgeshire CC [1994]

D sold land for housing to P for GBP 5 million. In reply to a pre­contractual enquiry as to whether D was aware of any undisclosed easements affecting the land, D had answered “not so far as the vendor is aware”. In fact there were sewer pipes under the land.

D won There was no actionable misrepresentation. If there had been, the measure of damages under MO s2(2) would be the difference between the actual value of the subject­matter at the time of the contract and the misrepresented value of the subject­matter.

9. Excluding liability for misrepresentation

See: MO s 4

Overbrook Estates v Glencombe Properties Ltd [1974]

P instructed auctioneers to sell a property. The particulars of sale stated that “neither the auctioneer nor any person in the employment of the auctioneer has any authority to make or give any representation or warranty”. D, who were the highest bidders at the auction alleged that three days before auction, they asked the auctioneer questions to which inaccurate answers were given which amounted to misrepresentations.

P won 1) A limitation on the apparent authority of an auctioneer is not an exclusion clause. 2) Even if there were misrepresentations, the question was not whether the clause was reasonable under MO s3. s3 was irrelevant because the clause was a limitation on the apparent authority of auctioneers, not an exclusion clause. D knew or ought to have known that nothing told them by the auctioneer could bind P.

10. Misrepresentation and liability in contract

See: MO s 2

<TOPIC 17A> DURESS TO THE PERSON AND TO GOODS

Case Name

Facts

Judgment

Rationale

1. Duress to the person

Barton v Armstrong [1976] AC 104

Armstrong was the chairman and held the largest sharing holding in Landmark Corporation Ltd. Barton was the managing director and also had a substantial shareholding in. There were two other directors Bovil and Cottrel. There had been a long history of ill will between the parties and a struggle over who should have controlling power with Armstrong being the most aggressive. The other directors in the company were also unhappy with Armstrong and wanted him to be removed for abusing certain privileges and they disagreed with the way he ran the company believing him to be putting the company at risk of insolvency. However, Armstrong refused to resign. The three managed to take control of subsidiary companies and removed all credit facilities from Landmark Corp. When Armstrong discovered the credit had been removed he made a number of death threats to Barton to pressure him into signing an agreement which contained various elements including the purchase by Barton of Armstrong's shares in the company at a substantial over value. Barton agreed to this partly due to the threats but also due to the fact that it would mean that Armstrong would no longer have controlling interest and he believed he would be able to turn the company around without Armstrong's dealings. However, the company became insolvent shortly after and Barton sought to have the contract set aside.

P won. The contract could be set aside.

The Privy Council advised that Mr Barton could avoid the contract for being under duress, and it did not matter that he may have agreed to the deal any way. Lord Cross, Lord Kilbrandon and Sir Garfield Barwick held that physical duress does not need to be the main reason, it must merely be one reason for entering an agreement. Lord Cross said the same rule should apply for duress as in misrepresentation, ‘that if Armstrong’s threats were ‘a’ reason for Barton’s executing the deed he is entitled to relief even though he might well have entered into the contract if Armstrong had uttered no threats to induce him to do so…’

Tam Lup Wai Franky v Vong Shi Ming Nicholas [2002] 4 HKC 135

In this action, the plaintiff is suing the defendant on an agreement in writing, dated 29 December 2000, signed by both parties by which the defendant agreed to pay the plaintiff the sum of $1,527,690 by instalments. The defendant says that he signed the

D won. The essence of D's case is that what P was making were illegitimate and unfounded accusations of impropriety amounting to fraud for which he would instigate both civil and criminal investigations, not only against the defendant himself but against his wife and their friend. Those matters set in train fears that he would be exposed to the media

Agreement under duress and that, accordingly, it is voidable at his suit and that it should be set aside.

publicity which he had suffered as a result of his previous criminal prosecution and that this would also draw in not only his wife but also her distinguished family as well as a totally innocent individual. It is the weight of those factors against a background of a pressured situation extending over 12 hours which, in effect, left him with no practical choice but to submit to a highly artificial agreement when one considers its terms against the reality of the situation.

2. Duress to goods

Astley v Reynolds (1731)

The plaintiff had pledged goods for 20 pounds, and when he offered to redeem them, the pawnbroker refused to surrender them unless he was paid 10 pounds for interest.

The plaintiff was entitled to recover back all that had been unlawfully demanded and taken.

This, say the court, "is a payment by compulsion: the plaintiff might have such an immediate want of his goods that an action of trover would not do his business: where the rule volenti non fit injuria is applied, it must be when the party had his freedom of exercising his will, which this man had not: we must take it he paid the money relying on his legal remedy to get it back again."

Skeate v Beale (1841)

P claimed that sum 1 was owed by D and seized some of D's property. D agreed to pay the sum 2 immediately and the remainder later. When he failed to pay later P brought an action in which D replied saying that only sum 2 was due and that he had been pressured into agreeing to the remaining money due to the seizure of his goods.

Duress to goods will not suffice to render a contract voidable.

The court held that D was not entitled to set aside the transaction for duress even though the seizure of the goods was unlawful. At the same time as this case was another case, Astley v Reynolds , which stated that it was possible to claim that a payment made in order to release goods was paid under duress. The difference between the cases seems to be that in Skeate sum 2 was paid as consideration for the promise to pay the sum 1 whereas in Astley there was no consideration. The distinction between the cases is weak and Skeate is no longer good law, as was made clear by Lord Goff in Dimskal Shipping v International Transport Workers' Federation. If it can be said that 'illegitimate pressure' was applied to the victim by withholding their goods, and that this was 'a' cause of the contract, the contract is voidable on the basis of duress.

Dimskal Shipping Co SA v International Transport Workers’ Federation (The Evia Luck) [1992] 2 AC 152

The ITWF threatened strike action unless certain demands were met. The cost of strike action would be astronomical for Dimskal and therefore they agreed to the demands. They later sought to have the agreement set aside as being procured by duress. There was clearly present a coercion of the will and absence of choice the main question for the court was the legitimacy of the

English law applied and the threat was therefore unlawful and illegitimate.

Lord Goff: Economic pressure can amount to economic duress, provided the pressure is illegitimate. It is not a good test to ask whether P has been “coerced” (see Atiyah). Under English law “blacking” (refusing to allow docking) is illegitimate. If an action is legitimised by statute, then it cannot be illegitimate. The illegitimate pressure must be a “significant cause” of D’s act e.g. agreeing to new contract.

pressure. At the time of the threatened strike the Evia Luck was in Sweden. The court had to determine whether English law applied or Swedish law applied to the threatened strike action as under Swedish law the threatened strike would be lawful so there would be no illegitimate pressure applied, however, under English law the strike would be unlawful and the threat would be regarded as illegitimate.

<TOPIC 17B> ECONOMIC DURESS

Case Name

Facts

Judgment

Rationale

1. Development of the doctrine

North Ocean Shipping Co Ltd v Hyundai Construction Co (The Atlantic Baron) [1979]

D agreed to build a ship for the claimants for a certain price specified in US dollars. After entering the contract the US dollar was devalued by 10%. D threatened not to complete unless the claimants paid an additional 10% on the contractually agreed price. P had a valuable charter lined up so agreed to pay the additional sums and did pay them without protest. 8 months after delivery of the ship P brought an action to recover the additional sums paid.

The contract was voidable for duress, however, since P had left it so long in bringing the claim P had affirmed the contract and lost their right to rescind.

Mocatta J noted ‘the best known case’ of Maskell v Horner, and also Skeate v Beale, where Lord Denman CJ said an agreement was not void because it was made under duress of goods, but noted that older cases do not deal with what happens when the threat is to breach a contract. He decided that there was such a thing as economic duress, a threat to break a contract is one form and if it led to a contract for valuable consideration ‘I think that contract is a voidable one which can be avoided and the excess money paid under it recovered.’ The agreement here was caused by ‘economic duress’. However, because of the delay in bringing the case to court economic duress could not be found in this case: 'the action and inaction of the owners can only be regarded as an affirmation of the variation.'

Pao On v Lau Yiu Long [1980] AC 614

P had threatened not to complete the main contract for the purchase of shares unless subsidiary agreements were met including a guarantee and an indemnity. D was anxious to complete the main contract as there had been a public announcement of the acquisition of shares and did not want to undermine public confidence in the company and the consequent affect on share prices. D could have sued for specific performance of the agreement but this would have delayed matters and damaged the company's reputation. D had taken legal advice on

P won. Test for Duress: It is material to enquire Whether the person alleged to have been coerced did or did not protest; Whether, at the time he was allegedly coerced into making the contract, the

coerced party had an alternative course open to him (such as an adequate legal remedy);

Whether he was independently advised; and Whether after entering the contract he took steps to avoid it.

In the present case the defendant did not protest at the time. He also could have enforced the contract of sale through specific performance and thus had another avenue of redress

all these matters before agreeing to the guarantee and indemnity. P then sought to enforce the guarantee and D sought to have the agreement set aside for economic duress.

available to him. He had taken legal advice and took no steps to avoid the agreement prior to the claimant seeking to enforce the guarantee. Therefore no economic duress could be established. It was simply commercial pressure far short of duress.

Universe Tankships of Monrovia v International Transport Workers’ Federation (The Universe Sentinel) [1983] 1 AC 366

The International Transport Workers' Federation black listed a Universe Tankship Inc ship in the context of a trade dispute. To secure the release of the ship, Universe Tankships Inc paid $6,480 into ITWF’s welfare fund. ITWF admitted this was an agreement procured by duress, but it argued its actions were protected by immunity from tort in Trade Union and Labour Relations Act 1974 s 13.

P won. Lord Diplock: duress is not about not knowing what you are contracting for, but ‘his apparent consent was induced by pressure exercised on him by that other party which the law does not regard as legitimate, with the consequence that the consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind.’ It was not appropriate to say the conduct was commercial pressure ‘wherever one party to a commercial transaction is in a stronger bargaining position than the other party’ should give rise to a right of redress. Lord Scarman: duress not only renders a contract voidable but is also a tort if it causes damage or loss (referring to Barton v Armstrong and Pao On v Lau Yiu Long). It comes from (1) pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressure exerted. The ‘lack of any practicable choice but to submit’ should be proved for (1) and here, for (2) the question was whether it was a trade dispute. The majority held the payment was unconnected with terms and conditions of employment and therefore not a trade dispute within s 29(1). Hence the act was duress.

B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984]

A contractor (P) who had undertaken to erect stands for an exhibition at Olympia told his client (D), less than a week before the exhibition was due to open, that the contract would be cancelled unless the client paid an additional sum to meet claims which were being made against the contractor by his workforce. The consequence of not having the stands erected in time would have been disastrous for the client in that it would have gravely damaged his reputation and might have exposed him to heavy claims for damages from exhibitors to whom space on the stands had been let.

Client was entitled to recover the money.

In these circumstances it was held that the payment had been made under duress and that the client was entitled to recover it back. The Court of Appeal held that the threat of a breach of contract unless the complainant paid the extra sum was “thoroughly unreasonable behaviour” and therefore illegitimate.

CTN Cash and Carry Ltd v Gallher [1994]

CTN Cash and Carry Ltd had a dispute with Gallaher Ltd about whether CTN should pay for some cigarettes that were delivered to the wrong warehouse and got stolen before Gallaher Ltd could pick them up again and take them to another warehouse. Gallaher believed that CTN was liable, because the risk of any had already

Gallher won. An important feature of the case is that it was lawful for the defendants to insist that they would no longer grant credit to the plaintiffs. The defendants’ demand for payment of the invoice, coupled with the threat to withdraw credit, was neither a breach of contract nor a tort. One factor which the court took into account in arriving at this conclusion is the fact that the defendants bona fide thought that the goods were at the risk of the plaintiffs at

passed, and threatened to withdraw CTN’s credit facility for future dealings. They were entitled to do this for any reason. CTN paid. Later it was determined that the risk of the lost cigarettes was not on CTN and they sued for repayment.

the time they were stolen and that the plaintiffs owed the defendants the sum in question. The defendants exerted commercial pressure on the plaintiffs in order to obtain payment of a sum which they bona fide considered due to them. This factor was considered to be critically important. Moreover, in considering whether a threat of lawful action is morally or socially unacceptable and therefore illegitimate, the courts consider whether the threat is used to back a demand that is unreasonable.

R v Attorney­General for England and Wales [2003]

After the Gulf War, an SAS soldier of the Bravo Two Zero partrol was told to sign a confidentiality agreement or be demoted. He signed. Then he returned to New Zealand. He got a publishing contract for his memoirs, about material in the Gulf War.

The New Zealand Court of Appeal denied an injunction, but allowed an account of profits and an assessment of damages for breach of contract. R appealed to the Privy Council, contending the contract was under duress when he signed, given the threat of demotion.

The solider failed.

The Privy Council advised that the contract was not avoidable for duress. The MOD were justified in introducing the confidentiality agreement. Lord Hoffman said there was no illegitimate pressure, so no duress. That first element is ‘pressure amounting to compulsion of the will of the victim and the second was the illegitimacy of the pressure’.

“Generally speaking, the threat of any form of unlawful action will be regarded as illegitimate. On the other hand, the fact that the threat is lawful does not necessarily make the pressure legitimate.."

2. What is illegitimate pressure?

See also: CTN Cash and Carry Ltd v Gallher

DSDN Subsea Ltd v Petroleum Geo­Services ASA [2000]

The factual background to this case is concerned the development of a Floating Production Storage and Off­Take vessel ("FPSO") in the Banff sector of the North Sea. PGS Offshore Technology AS ("PGS") contracted with DSND Subsea Limited ("DSND") to provide subsea work required to hook up the FPSO to an underwater wellhead. The agreement was formalised in a number of documents. The first of these was the heads of agreement. There was no dispute about the terms of this agreement. Subsequently, the parties entered into a further document, the Memorandum of Understanding ("MOU"). PGS later alleged inter alia that this agreement was entered into as a result of economic duress. DSND had refused to continue work on the FPSO until PGS had agreed to provide i) assurances as to their insurance cover and an indemnity, and ii) a reimbursable basis of

PSG lost the case.

There was no allegation of duress by PGS at the time the MOU was entered into. Indeed, the allegation of duress was only raised after the proceedings had been commenced on a different basis. In addition, rather than complain about the tactics employed by DSND, PGS representatives went to dinner with their DSND counterparts. The judge was also swayed by the fact that the negotiated terms of the MOU contained "give and take on both sides" albeit that DSND finally achieved a better result than PGS. It was also clear that PGS considered DSND’s concerns over insurance and indemnity as genuine given the risks involved in the project. As a result, he found that PGS had not entered into the contract under duress, even though the suspension of work by DSND was in breach of contract. Dyson J stated that this was "reasonable behaviour by a contractor acting bona fide in a very difficult situation".

payment. PGS were under severe financial pressure from their employer and were at risk of substantial damages for delay. PGS agreed to these terms. They claimed later that they had done so under duress.

Dyson J then went on to consider whether, assuming that duress had been established, PGS had affirmed the MOU by its subsequent conduct. The Judge confirmed that a contract entered into under duress is only voidable not void. As a result, the party who has the right to avoid the contract loses that right by affirming the contract. A contract may be affirmed expressly or alternatively impliedly by acquiescence. On this the Judge stated "..it will provide evidence of acquiescence if the victim fails to take any steps to set aside the transaction within a reasonable time after he is freed from the undue influence." Therefore once a party becomes aware of his right to avoid the contract due to economic duress, he is obliged to act promptly if he wishes to be escape the contract on that basis. In DSND Subsea PGS had gone further than mere acquiescence, they had actually relied upon the terms of the MOU to take issue with DSND. This, Dyson J concluded, was a clear affirmation of the contract by PGS.

Estinah v Golden Hand Indonesian Employment Agency [2001] 4 HKC 607

P was an Indonesian domestic helper who lodged a claim in the Small Claims Tribunal against the defendant agency for the sum of 9633 dollars representing the difference between the amount P had paid to the agency to assist her to obtain a job for her in Hong Kong and the amount that D could charge legally. D had made clear that without the additional payments, they would not process the papers necessary for P to continue in employment in Hong Kong.

P won. While there had been no physical threats to P, it was clear that both elements of economic duress: illegitimate pressure and coercion of the will were present. The judge held that "for there to be economic duress, the pressure applied does not have to be in the manner of an express threat or coercion. Pressure for this purpose could take many forms. If the victim is left with no practical choice but to submit because of the course of action of the other party, this would suffice”.

Atlas Express v Kafco [1989]

Kafco, a small company dealing in basketware, had secured a large contract from Woolworths and had obtained a large quantity of goods to fulfill it. They entered into a contract with Atlas, national road carrier, to distribute the goods to Woolworth's shops. Before entering into the contract, Atlas's manager inspected the cartons used by Kafco and, estimating a minimum load of 400 cartons, quoted a price 1.10 pound per carton (440 pounds in total). In fact, the first load contained only 200 cartons which the manager said was not viable unless Kafco agreed to pay a minimum of 440 pounds per load. It was essential to Kafco's commericial survival that they should be able to meet delivery dates. It would have been difficult, if not impossible, to find alternative carriers to do so. Kafco agreed to the new terms but later refused to pay at the new rate.

Kafco won. It was held that Kafco was not bound by the new terms: economic duress had vitiated the new agreement and in any case there was no consideration for it. Tucker J found that the defendant's apparent consent to the agreement was induced by pressure which was illegitimate and he found that it was not approbated.

Tung Wing Steel Co Wimpey is a civil engineering contractor. In 1982, it was awarded a T won. W has T was wholly within its rights to refuse to sell any more rods as the only arrangement

Ltd v George Wimpey International Ltd [1985] HKEC 164

contract by MTRC to build a project. W entered into a written agreement with Tung for the supply of steel. After supplying slightly over 2,000 tons of rods to W at the prices fixed by the written agreement, T wrote to W stating, in effect, that it was no longer prepared to sell steel rods at the old prices. W protested at being asked to pay this higher price. Nonetheless, W did enter into a fresh written agreement dated the 20th December 1983. There was a provision for 45 days' credit in the agreement in writing dated 20th December 1983. W has taken advantage of that 45 day credit period by accepting the 747.357 tons invoiced under the written agreement dated 20th December 1983, but withholding payment of the sum of HK$325,287.20.

failed to justify withholding the sum of HK$325,287.20 in respect of the price of the steel bars sold to it by T.

between it and W was in the nature of a standing offer and there had never been any agreement to supply all of W's requirements for the contract. The evidence made it perfectly clear that T operated in a highly competitive market for the supply of steel rods in Hong Kong. Far from enjoying a monopoly, W failed to make the slightest effort to find an alternative source of supply after receiving T's letter. There was no evidence on how long it might have taken MTRC to approve an alternative supplier. It might well be that MTRC could have approved an alternative supplier in as short a period as one day even.

Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439

P was a long­standing client of D. In 1981, the Plaintiff obtained 100% finance from D to purchase the Property at $180 million. The Property was mortgaged to D and charged with a $300 million banking facility. Later, the property market slumped and P had difficulty in repaying the Defendant. In 1983, P entered into a restructuring agreement with 5 creditor banks, with D being the lead bank. In 1985, The Bank of America, one of the creditor banks wanted to get out of the restructuring agreement. As a result, D bought BA’s debt at 36% of the original debt. In 1986, the restructuring agreement was extended. From as early as 1985, P noticed that for the non­property part of its debt, D had overcharged by some $30 million. On 12 March 1987, the Bank denied such overcharge despite internal reports showing there had indeed been overcharge. Further, it demanded P to sell the Property otherwise it would make demand on all loans, sell the Property and liquidate the company. P succumbed to D and agreed to the sale of the Property. D further required the P to sign a Power of Attorney appointing D as its agent to sell the Property. The Property was sold to Bethlehem Management Limited at $180 million. The Plaintiff only found it out by accident some 6 years later that Bethlehem was a company owned by the Ho family, a close associate of the Bank and the sale was done in haste.

P won. There are 3 requirements for economic duress: first, the illegitimate pressure amounting to compulsion was applied; second, the illegitimate pressure so applied was a significant cause of the victim’s actions and third, the illegitimate pressure applied did not give the innocent party any real choice. On the facts of the case, the court found that there was illegitimate pressure exerted. The principal pressure was that D insisted P owed it $30 million overcharge and threatened if D did not agree to the sale within 24 hours, D would make demand on all loans including the overcharge and would liquidate P. This principal pressure was coupled with two subsidiary threats being that D would add on to the total debt of P the extra $12 million written­off debt of BA and liquate the home of Arjan, who was one of the major shareholders of the Plaintiff company. For the second requirement, the fact that P resisted for a long time and P would not have agreed to the sell but for the illegitimate pressure showed that the pressure applied was a significant cause. For the third requirement, given the controlled position of P and the deadline for 24 hours, there was nothing the P could do but to surrender. D also blocked all other alternatives so that P had no choice but to agree to the sale.

3. Did the See also:

illegitimate pressure cause the victim to act as he or she did?

Dimskal Shipping Co SA v International Transport Workers’ Federation (The Evia Luck)

Huyton SA v Peter Cremer GmhH

Issues arose out of a consignment of wheat delivered by Cremer to Huy. Under the terms of their contractual agreement, H was required to pay C on presentation of documents in a particular form. H accepted delivery of the goods but H's bank refused to make payment on the basis that the documents were not in the approved form. C contended that H had impliedly waived all rights to reject the documents by acceptance of the cargo. H argued that the failure to present documents in the proper form was a repudiatory breach. C threatened to seek judgment for payment or to seek recovery of the cargo. An arbitrator was appointed, but the parties reached agreement that H would pay against the documents on the basis that a correct presentation would be deemed to be the first presentation, provided that C gave up its claims to demurrage and guarantee expenses. C accepted those terms, but latterly claimed not to be bound by them on grounds of economic duress and the absence of any consideration for its undertakings.

Huyton lost. To demonstrate economic duress, C would be required to show that there had been illegitimate pressure which constituted a significant cause inducing the other party to act as it had done. On the facts, C could not demonstrate such illegitimate pressure on the basis that the contracts provided for payment against the documents in any event. Even if there had been illegitimate pressure, C had not demonstrated that it was that pressure which had induced it to enter into the agreement. It would have to be shown that C would not have entered into the agreement "but for" the pressure applied by H which was not a contention which had been made out on these facts.

4. Would a reasonable person in the position of the victim have acted in the same way?

See: North Ocean Shipping Co Ltd v Hyundai Construction

Co (The Atlantic Baron) B & S Contracts and Design Ltd v Victor Green

Publications Ltd

5. The relationship between the three types of duress

See: Huyton SA v Peter Cremer GmhH

<TOPIC 18> UNDUE INFLUENCE

Case Name

Facts

Judgment

Rationale

1. Actual undue influence

Williams v Bayley (1866) LR 1 HL

A son forged his father's signature on promissory notes and gave them to their bankers. At a meeting of all the parties at the bank, one of the bankers said to the father: "If the bills are yours we are all right; if they are not, we have only one course to pursue; we cannot be parties to compounding a felony." The bank's solicitor said it was a serious matter and the father's own solicitor added, "a case of transportation for life." After further discussion as to the son's financial liability the bank's solicitor said that they could only look to the father. The father then agreed to make an equitable mortgage to the bank in consideration of the return of the promissory notes.

The father succeeded in an action for cancellation of the agreement.

It was held by Lord Westbury that the security given for the debt of the son by the father under such circumstances, was not the security of a man who acted with that freedom and power of deliberation that must be considered as necessary to validate a contract to give security for the debt of another.

UCB Corporate Services Ltd v Williams [2003]

The Williams family ran a garage business as a partnership with the benefit of a franchise from Toyota. The Williams approached the bank for a loan which asked for security by way of a charge on the three showrooms in addition to a charge on each of the partners' homes. The defendant, Mrs Williams, was the wife of one of the sons. She had signed the charge without having been told the full extent of the liability. The signature was executed in the presence of all the other partners and witnessed by a solicitor of the partnership. The charge secured all debts present and future of the partnership and provided for joint and several liability of all the partners. The business was unable to repay the loan and became bankrupt. UCB sought to enforce the charge and Mrs. Williams raised undue influence and misrepresentation in her defence. The trial judge held that undue influence and misrepresentation were established. However, he held that Mrs. Williams would have signed the charge in any event had she known the full facts and also that UCB were not fixed with constructive notice as a solicitor had witnessed the signature therefore they could assume Mrs. Williams had been advised accordingly. Mrs Williams appealed to the Court of Appeal.

Mrs. Williams won.

For both undue influence and misrepresentation there is no requirement to establish that a person would not have entered the contract but for the influence or misrepresentation. It was sufficient for undue influence, that an equitable wrong has been committed. The fact that the signature was witnessed by a solicitor does not necessarily mean that they would have advised her. The role of a solicitor will depend upon what they had been instructed to do. If there were no instructions to advise Mrs Williams they would not be expected to do so and it was wrong of UCB to assume this had taken place. They were under a duty to check if she had in fact been advised.

2. “Presumed” undue influence

Allcard v Skinner (1877)

In 1867 an unmarried women aged 27 sought a clergyman as a professor. The following year she became an associate of the sisterhood of which he was spiritual director and in 1871 she was admitted as a full member, taking vows a poverty, chastity and obedience. Without independent advice, she made gifts of money and stock to the mother superior on behalf of the sisterhood. She left the sisterhood in 1879 and in 1884 claimed the return of the stock. Proceedings to recover the stock were commenced in 1885.

P’s claim for the money failed. However, undue influence was recognized.

It was held by the Court of Appeal that although the P’s gifts were voidable because of the undue influence brought to bear upon the P through the training she had received, she was not entitled to recover the money due to the delay. The lapse of time operated as a bar. In any case she would only have been able to recover as much of the gift as remained in the defendant’s hands after some of it had been spent in accordance with her wishes.

Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773

The case concerned eight conjoined appeals. Each appeal arose out of a transaction in which a wife charged her interest in her home in favour of a bank as security for her husband's business debts. Seven of the claims involved an allegation of undue influence by the husband for which the bank should be held responsible. The House of Lords took the opportunity to set out the principles to be applied in cases of alleged undue influence.

In some cases the wife had a successful defense, whereas in others the defense was not established.

1. Establishment of the undue influence The House of Lords held that it was always up to the party alleging undue influence to prove it. In some cases, however, evidential presumptions will be applied, so that the burden will shift to the other party to disprove the presumption of undue influence. An evidential presumption of influence will arise in relation to certain recognized relationships­i.e. solicitor and client, doctor and patient, parent and child, religious leader and follower. In relation to such relationships the presumption is irrebuttable. In relation to other relationships, such as husband and wife, evidence that the relationship was one of "trust and confidence" will be needed. If this is established, it will be presumed that one party exercised influence over the other. Wherever there was a relationship in which influence was proved or presumed, then, if the transaction is one that required some explanation, (e.g. a sale of property at an undervalue), undue influence will be presumed. It will be up to the party presumed to have used the undue influence to prove that this was not the case. 2. The issue related to bank Where a wife became the surety for the debts of a company whose shares were held by her and her husband, and she had a nominal, minority or equal shareholding with him, the bank was put on inquiry even where she was a director or secretary of the company. The effect of a party being put on inquiry was that it should take reasonable steps to satisfy itself that the practical implications of a proposed transaction had been brought home to the relevant person in a meaningful way, so that person should enter into the transaction with her eyes wide open so far as its basic elements were concerned.

Li Sau Ying v Bank of China (Hong Kong) Ltd [2004] 7

The appellant granted a mortgage over a flat she owned to a bank as security for the indebtedness to the bank of a company in which she had no interest. The company was controlled by a Mr.

The appeal was dismissed by CFA.

Appellant and Mr. Li's relationship did not fall within the categories where undue influence was presumed as a matter of law. In cases outside those categories, the parties should concentrate on whether the evidence justified the inference that, on a balance of

HKCFAR 579 Ip and the appellant had granted the mortgage at the suggestion of a friend of hers, a Mr. Li, who was an associate of Mr. Ip. The appellant claimed to be entitled to rescind the mortgage contract on the ground that she had been procured to enter into it by misrepresentations made by Mr. Li or by the undue influence of Mr. Li over her. The bank, it was alleged, had actual or constructive notice of these improprieties. The judge at first instance held that there was undue influence exerted on the appellant. The bank appealed to the Hong Kong Court of Appeal which unanimously allowed the appeal. CA held that there was no undue influence. appealed to the Court of Final Appeal.

probabilities, the impugned transaction was procured by undue influence.

Whatever the degree of trust and confidence that by 1995 appellant retained in Mr. Li, the shift from the 1994 mortgages to the 1995 mortgage did not represent an unconscionable abuse by Mr. Li of that trust and confidence. In advising appellant to enter into the 1996 mortgage in place of the 1995 mortgage, Mr. Li had not unconscionably abused the trust and confidence appellant had in him, on any objective comparison with her position under those two mortgages.

Hammond v Osborn [2002] EWCA Civ 885

A 74 year old man who was in poor health wrote four cheques totaling 297,000 to the defendant who had assumed the role of caring for him. This sum was about 91% of his total liquid assets (i.e. not property assets). A further effect of the gifts of money was that he became liable for capital gains tax amounting to almost 50,000. On his death his family sought to recover the money. The D conceded that there was a relationship of trust and confidence and that the gift was so large as to trigger the second criteria that the gift was to the manifest disadvantage of the party or, put otherwise, not reasonably accounted for by ordinary motives.

The P won. The trial judge held that the presumption had been rebutted as it was made after full, free and informed thought. The Court of Appeal held that it had not been rebutted. The old man had not received any legal advice and his attention was not drawn to the proportion of his total assets that he had given away. There was nothing sinister or wrong with what the defendant had done but that is not necessary for undue influence. Thus the gift of money had to be returned.

Re Lai Yin Shan, ex parte Hong Kong and Shanghai Banking Corp Ltd [2002] 3 HKLRD 500

B, a bank, brought bankruptcy proceedings against W, on the basis of two personal guarantees she had given in respect of a debt owed by a company (the company). W and her husband, H, were directors and shareholders of the company and W was also its secretary. W claimed in an affirmation that she had signed the documents due to H's misrepresentation of their effect and she was unaware that they were personal guarantees. W said she signed them because she trusted H. She was simply a nominal director and the company's business was conducted solely by H. W also said she had no contact with B and this was supported by H's evidence. The Judge held that W had established undue influence by H, but that B had not been put on inquiry because W had a substantial shareholding of 30% and was an "active director" of the company. The Judge therefore made the bankruptcy order. W appealed.

The CA held the appeal and set aside the bankruptcy order.

Where it was proved that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs coupled with a transaction which called for explanation, it would normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof that there had been undue influence. The Judge's finding of undue influence was correct. W’s evidence threw open the question of the extent of her beneficial interest. Further, her 30% of the shareholding was less than half of H’s, yet the guarantees were for the whole amount of the company's debts. The company documents did not demonstrate an active participation, but merely showed her appointment as a director and secretary and her shareholding.

3. Remedies

O’Sullivan v Management Agency & Music Ltd [1985]

P sought to set aside for undue influence a number of management, sole agency, recording and publishing agreements and transfers of copyright. D argued that the appropriate remedy, namely restitutio in integrum, was inapplicable in the circumstances because the agreements had all been performed and the parties had irrevocably altered their positions, and that therefore P was limited to obtaining damages instead of reconveyance of the copyrights and delivery up of the master tapes.

P won. The Court of Appeal held that P was not barred from having the contracts set aside by the fact that restitutio in integrum was impossible because the contracts had been performed. A contract entered into by a person in breach of a fiduciary relationship could be set aside in equity even though it was impossible to place the parties in the precise position in which they had been before, provided the court could achieve what was practically just between the parties by obliging the wrongdoer to give up his profits and advantages, while at the same time compensating him for any work he had actually performed under the contract.

Cheese v Thomas [1994]

The 88 years old P paid 43,000 pounds to D, his great nephew, to finance the purchase of a house in which P was to live. D borrowed 40,000 from a building society to make up the purchase price of 83,000 and the house, which it was agreed was to belong to D on P's death, was conveyed into D's name and P moved in. P discovered that D had allowed the mortgage payments to fall into arrears and decided to withdraw. He claimed repayment of the 43,000. The house was sold for 55,000 and 17,000 was left after redemption. The judge held that the transaction should be set aside because of D's undue influence, and that the loss brought about by the fall in the value of the house should be shared between the parties in proportions of the purchase. D appealed against the decision that the transaction was affected by undue influence. P appealed against the decision that he should share a proportion of the loss.

Appeals were dismissed.

The Court of Appeal held that justice required that each party should be returned as near to his original position as was possible and that D should not be required to shoulder all whole of the loss brought about by the fall in the market value. Accordingly, each party should get back a proportionate share of the net proceeds of the house and the judge had correctly decided that the proceeds of sale should be divided between the parties in the proportions of 43:40. The appeals would therefore be dismissed.

Mahoney v Purnell [1996]

P, Mahoney, operated a hotel business in partnership with P, his son­in­law. P wanted o run the hotel on his own. M was reluctant to sell his shares even though his financial position was precarious, but eventually he and P agreed a price of 200,000, calculated on the basis of an assessment of the company's assets and liabilities. The money was to be paid over ten years. The agreements were executed in March 1988. P later sold the hotelin 1989 for 3.275 million and M commenced proceedings based on undue influence. Before trial of the action, the company went into liquidation and the payments due to M under the agreements ceased, with some 80,000 pounds outstanding. M's claims of undue influence against P succeeded and the question arose as

P finally obtained appropriate remedy.

The Court of Appeal held that since the company was liquidation, the court was entitled in those circumstances to award compensation in equity to M equal to the March 1988 value of what he had surrendered under the agreements, with appropriate credit being given for what he had received under them. M was accordingly entitled to the sum of 202,131 pounds in compensation from P.

to the appropriate equitable remedy in circumstances where the parties could not be restored to their form position.

4. Basis of the doctrine

R v Attorney­General for England and Wales [2003] UKPC

Former member of SAS Bravo Two Zero patrol asked to sign confidentiality agreement so that he would return to unit.

P lost (1) the nature of the contract was not an unfair exploitation of the relationship relied on by R. Anyone wishing to serve or continue serving in the SAS could reasonably have been required to sign the contract. (2) unable to obtain legal advice irrelevant to the finding (3) consideration had been provided (to return to his old unit)

National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC

D had long­standing relationship with P, the bank. D overdraft from the bank account and was unable to service the loan. lower court held that contract should be set aside because of undue influence because D’s manager C had acted negligently in advising P on the overdraft.

P won (1) The court below had confused the question of whether the transaction was commercially disadvantageous to D with whether it was unfair between him and P. (2) P did not have a responsibility to save D from the consequences of embarking upon an unwise project. Its sole responsibility was not to take unfair advantage of the relationship between C and D. (3) it was normal banking practice to insist on money being used for the purpose for which it was borrowed. Neither the imposition of such a condition, or N's insistence on its observance, were unfair.

Pesticcio v Huet [2004] EWCA

Deed of gift of a house to P by her mentally disadvantaged brother was set aside on the basis of undue influence of the relationship between them

P lost (1) the law of undue influence was not concerned with dishonest or wrongful acts but with the presumed influence arising from a relationship of trust and confidence which should not disadvantage the victim if the transaction was not satisfactorily explained by ordinary motives (2) It was the nature of the continuing relationship between the parties, rather than any specific act on the part of the recipient, that was relevant when considering undue influence. (3) The participation of a solicitor would not rebut the presumption of undue influence

Hewett v First Plus Financial Group plc [2010]

A husband's deliberate failure to disclose to his wife that he was having an affair when he was requesting that she agree to grant a mortgage over the matrimonial home in order to secure his debts amounted to undue influence.

P won (1) H's concealment of his affair from W did amount to undue influence sufficient to vitiate the mortgage transaction as between them. (2) A finding of undue influence did not depend upon a conclusion that the victim made no decision of her own, or that her will and intention was completely overborne. (3) A conscious exercise of will could nonetheless be vitiated by undue influence (4) 2 quesitons; The first question was whether W reposed a sufficient degree of trust and confidence in H to give rise to an obligation of candour and fairness The second question was whether H's affair was something which his obligation of fairness and candour towards W required him to disclose in connection with his request that she charge her interest in their home as security for his debts.

<TOPIC 19A> UNCONSCIONABILITY IN EQUITY

Case Name

Facts

Judgment

Rationale

1. The old authorities

Earl of Aylesford v Morris (1873)

P entitled to large property in the event of surviving his father. P was largely indebted. The creditor recommended P to apply to money­lender. Money lender lent the money with an interest rate of 60 per cent. P had no professional assistance in these matters, and no application was made to his father or to the solicitors of the father

P won Creditor’s action restrained because of unconscionable bargain. It was certain that the debtor, until his reversionary interest fell into possession, would never have any means of his own to make payment.

Fry v Lane (1888) P worked as a plumber and laundryman, earning very little. They sold their reversion of their uncle’s estate to D under the advice of an inexperienced who also acted for D. Interest was worth much more than the amount it was sold for.

P won Where the purchase is made from a poor and ignorant man at a considerable undervalue, the vendor having noindependant advice, the transaction can be set aside

Creswell v Potter [1978]

Ms Cresswell divorced from her husband and then contracted to convey him her interest in Slate Hall in return for release from mortgage liability. She later successfully argued that she should get half of the profit of made from the house because he had exploited her weaknesses so much as to vitiate her consent to the contract, and she was vulnerable to this because she was the modern equivalent to a "poor and ignorant" person

P won Fry v Lane test: (1) ‘poor and ignorant’>> ‘member of the lower income group’ and ‘less hghly educated’. (2) whether the sale was at a considerable undervalue (3) whether there was any independent advice

The Medina (1876) The D boat wrecked after a crash with a rock, P answered a distress signal but refused to take refugees unless master of D paid 4000. Master agreed but later refused to pay. P bring an action.

Payment reduced.

The Court of Appeal held that the £4000 was excessive, and so only £1800 would be awarded. it was ‘very large in comparison with the services rendered’ leading ‘to the conclusion that there may have been some unfair dealing’. The ‘captain of the Medina was bound to accept any terms which were pressed upon him by the Timor.

2. The modern English approach

Lloyds Bank Ltd v Bundy [1975]

P bank breached fiduciary care in procuring additional charge over D’s asset, D did not take independent advice. D had a long standing relationship with the Bank

D won A special relationship existed between the defendant and H (on behalf of the bank) and the bank was in breach of its duty of fiduciary care in procuring the additional charge which would be set aside for undue influence, the defendant having without any benefit to

himself signed away his sole remaining asset without taking independent advice. Lord Denning, M.R. English law gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or for grossly inadequate consideration, when this bargaining power is grievously impaired because of his own needs or desires, ignorance or infirmity, coupled with undue influence brought to bear by the other party

National Westminster Bank plc v Morgan [1985] AC 68

D charged the house to the bank in return for a loan. Bank manager seek signature from D’s wife, who reluctantly signed it. Wife argue undue influence

P won Iin "undue influence" cases the mere relationship of parties was not sufficient to raise the presumption without more, that the transaction itself had been wrongful in that it constituted a taking of advantage of the person involved

Boustaany v Pigott (1995)

A new lease between P and D which was said to be unconscionable bargain.

D won P must have taken advantage of P before, during and after the interview with K(the solicitor) and with full knowledge before the new lease was settled that her conduct was unconscionable.

3. The Australian approach

Commercial Bank of Australia Ltd v Amadio (1983)

D guaranteed his son’s indebtedness to P. D seek defence of unconscionable after his son’t business failed and bank sought to enforce the guarantee

D won It was unconscionable on basis that: (1) D spoke and understood little English (2) D did not seek independent advice, nor seeking of such advice suggested by the bank (3) the bank was aware of the son’s precarious financial position (4) bank failed to advise D to limit on their liability

3. The Hong Kong authorities

Semana Bachicha v Poon Shiu Man [2000] 2 HKLRD

P foreign domestic helper took up an oppressive and exploitative work regime with D. There was a settlement agreement before trial that was unconscionable bargain

P won Setting aside the agreement on basis of unconscionability: D knew the circumstances under which P left her job and that P was labouring

under a mistake that she had incurred a net liability Neither party was legally represented when the agreement was signed. P was a person with an economic and social disadvantage, and with a marked

inequality of bargaining power, when compared with her employer. D took advantage of P's ignorance to secure for himself an oppressive bargain by

unconscionable means.

Lo Wo v Cheung Chan Ka Joseph [2001] 3 HKC

P’s half­share in the land in question substantially undervalued due to D’s misrepresentation made about the usage of the land.

P won Agreement set aside on grounds of unconscionability (1) P were at serious disadvantage and give rise to the opportunity to D to take unconscionable advantage. Here Ps were in disadgantage as to understand, negotiate and

agree a contract for sale of property in HK. Lack of assitance and independent advice. (2) terms of bargain were oppressive. Undervalue of the assets was at a serious disadvantage by a morally culpable exploiter (3) conduct of D was culpable. D was aware of the disadvantage and the conduct was designed to take advantage of this through misrep.

Ming Shiu Chung v Ming Shiu Sum [2006] HKLRD

Ming a private company chairman was a father of seven and Ming Shiu Sum, one of his sons was managing director. Ming composed a document where he indicated 1000 shares each will be allocated to 7 children upon his death. Ming Siu Sum was allocated an additional 10,000 shares. He showed his father’s signature and his on the document. Other six compalined that the father did not know what he was signing.

P lost Father’s signature was binding as no evidence of vitiating factors which would invalid the signatures In considering unconscionability: relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, eg a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink.

<TOPIC 19B> UNCONSCIONABLE CONTRACTS ORDINANCE (CAP 458)

Case Name

Facts

Judgment

Rationale

Shum Kit Ching v Caesar Beauty Centre Ltd [2003] 3 HKLRD

P signed up for gold card VIP with D and entered into a contract (treatment package) with D. The terms of the contract was not explained and it was printed in a way that make ppl hard to read. P claimed all the money she ahd paid.

P lost (1) The Court had jurisdiction under s.5 to refuse to enforce the whole or any part of a consumer contract, or limit its application or revise or alter any unconscionable part, if it found that any part of the contract was unconscionable. (2)Under s.5 and for an unconscionable bargain at common law, for the contract to be unconscionable, D had to have knowledge of P's weakness and had to have knowingly taken advantage of such weakness. (3) D did not have any knowledge of P's weaknesses, and had overlooked some important factors. But P did not have the proper opportunity to read and comprehend the terms of the contract under s.6(1)(c). (4) It would not, however, be just to set aside or refuse to enforce the whole of the contract. The treatment package had been clearly explained to P and she had freely accepted it. The contract would be enforced without the clause.

Hing Seng Credit Card v Tsang Nga Lee [2000] 3 HKLRD

Whether provisions in the credit card agreements was enforceable (provided that they may be unconscionable under UCO)

P won In this case, the relevant matters in s.6 were: the relative strengths of the bargaining positions of the parties; whether Ds could have acquired the identical service from a person other than Ps; and whether Ds were able to understand the provisions. Taking, inter alia, these matters into account, the provisions were unconscionable: (a) Ps were in a much stronger bargaining position than Ds and were able to use

standard form agreements that were drafted without consulting the consumer and with Ps' interests in mind. (b) There was a lack of choice in acquiring identical services, which added to the unequal bargaining position between the parties. (c) Ds were not a position to understand the provisions. There was no control over the language and the size of the font used. Further, such provisions were not drawn to the attention of consumers or explained to them in language that they would understand. (d) The provisions were extremely wide and extended to all costs and expenses even those unreasonably incurred. (e) the interest rate charged by Ps were extortionate

<TOPIC 20> ILLEGALITY

Case Name

Facts

Judgment

Rationale

1. The Hong Kong authorities

Hing Seng Credit Card v Tsang Nga Lee [2000] 3 HKLRD

See above see above see above

2. Contrary to public policy

Pearce v Brooks (1866)

P supplied coach for D, a prostitute to use by her as part of her display to attract men. P claim for the hire of the coach.

P lost P could not cover because prostitution is illegal. any person who contributes to the performance of an illegal act by supplying a thing with the knowledge that it is going to be used for that purpose, cannot recover the price of the thing so supplied.

The Ki Hing Lau v The Shun Loong Lee Firm (1910)

The subject matter of the action was based upon an illegal consideration, namely that the goods or part of them were supplied to the defendants for the purposes of their brothel to the knowledge of the plaintiffs.

P lost A plaintiff cannot recover the price of goods sold and delivered, whatever their nature may be, to an immoral institution, if at the time when he supplied the goods he knew the nature of the institution.

Wong Leung Wing v American Express International Inc

N/A N/A N/A

[1992] HKCU

Sit Kam Tai v Gammon Iron Gate Co Ltd [2010] HKCU

N/A N/A N/A

3. Contracts in restraint of trade

Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC

A manufacturer of guns and ammunition for purposes of war covenanted with a company to which his patents and business had been transferred that he would not for 25 years engage except on behalf of the company either directly or indirectly in the business of a manufacturer of guns or ammunition

P lost Having regard to the nature of the business and the limited number of the customers (namely the Governments of this and other countries),the covenant though unrestricted as to space was not wider than was necessary for the protection of the company, nor injurious to the public interests of this country; that it was therefore valid and might be enforced by injunction.

Esso Petroleum v Harper’s Garage (Stourport) Ltd [1968] AC

Defendant company carried on two garage businesses at M and C with filling stations. Each was tied to the plaintiff oil company. Solus agreement was entered between them and the period of restraint on M garage was 4 1/2 years but on C garage was 21 years.

Partially enforced

The doctrine of restraint of trade applied to both but that the shorter period was reasonable, so that that tie was valid, but the other was not and was invalid, even though there was no evidence why they entered into such long period of agreement.

Hummingbird Music Ltd v Acconci [2010] 1 HKLRD

D renewed agreement with P, was their worldwide exclusive agent and manager from 2006 to 2010. D argued agreement was in restraint of trade because it restricted D’s from working for any other manager and copyright of their works belong to P under agreement

` A contract was not regarded in law as being in restraint of trade simply because it tied the parties during the continuance of the contract. The law had always favoured free trade and the doctrine of restraint of trade as it applied to contracts was a corollary of that: there was a distinction between contracts which were, in effect, in furtherance of trade and those which were in restraint of trade The agreement was merely regulating normal commercial relations between the parties and therefore were free of the doctrine.

Ho Wing­cheong v Margot [1991] 1 HKLR

P signed employment agreement with D which required D not seek employment with any other firms engaged in the stock­broking business in HK for at least 3 years after terminating the employment

D won (1) Provisions in a contract of employment restricting fields of employment after the employee has left the employer operate in restraint of trade and are unenforceable unless the employer can show that at the time the contract was made the restrictions were reasonably required for the protection of the legitimate interests of the parties and the public. (2) Protection against competition from a former employee is not a legitimate interest. The only legitimate interest of the employer is the protection of his confidential information. (3) In Hong Kong in 1985 the plaintiffs did not need a restriction of 3 years to achieve their legitimate objects. 1 year would have been ample to break the connection of Mr. Margot with the plaintiffs' clients

"for a sufficient period to let the next man obtain the connection"

Buchanan v Janesville Ltd [1981] HKLR

P, a hair stylist agreed with D (located in Central) not to work in Hong Kong as a hairdresser or in any capacity connected with hairdressing in competition with D for a period of one year. P left and worked for another firm in TST. D obtained a restraining order.

P won To make a covenant in restraint of trade reasonable as between the parties it must be: (a) reasonable in point of time; (b) reasonable as to the geographical area of its operation; and (c) reasonable in respect of the type of work he is not permitted to engage. This particular covenant though reasonable as to time, was too wide in respect of geographical area and much too wide in the ambit of restraint imposed on the employee in respect of her activities

Mason v Provident Clothing & Supply Co Ltd [1913] AC

D agreed with P, a clothing and supply company, that he would not within 3 years after the termination of the employment to be in the employ of any other person or firm carrying on or engaged in a business the same or similar to that of D within 25 miles of Middlesex, London.

D Won Even if the agreement was not too vague as regards the area of restriction to be enforced by injunction, the restriction was wider than was reasonably necessary for the plaintiffs' protection.

A Schroeder Music Publishing Co Ltd v Macaulay [1974]

P a music writer and D a publisher entered into a standard from exclusive service contract. The full world copyright was assigned to D in return for a fixed percentage of any royalties received. D could terminate or assign the benefit of the agreement whereas P could do neither. No obligation upon D to publish or promote any composition of P.

P won In determining the enforceability of a contract in restraint of trade the court will consider the fairness of the bargain having regard to whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured by the promisor. The standard form agreement could not be justified as moulded under the pressures of negotiation, competition and public opinion; the plaintiff had no bargaining power as against the defendants; restrictions appeared unnecessary and capable of oppressive enforcement.

4. Statutory illegality

St John Shipping Corp v Joseph Rank Ltd [1957]

Merchant Shipping (Safety and Load Line Conventions) Act 1932: A British load line ship shall not be so loaded as to submerge the load line indicating or purporting to indicate the maximum depth to which the ship is entitled to be loaded. This applies to load line ships not registered in the United Kingdom while they are within any port in the United Kingdom. P’s ship was overloaded. D withheld a sum equivalent to the freight on overall additional cargo carried by the ship by which it was found to be overloaded and contended that P was not entitled to recover any part of it as they had

P won 1. The infringement of a statute in the performance of a contract which was legal when made did not render the contract illegal unless the contract, as performed, was one which the statute meant to prohibit, which was not the case here. 2. In order to succeed in their claim for freight the plaintiffs need do no more than show that they had delivered the goods to the defendants in the same good order and condition in which they had received them, and it was not necessary for them to disclose that they had committed an illegality in the course of the voyage. 3. The principle that a right was unenforceable if it directly resulted from the crime of the person asserting it did not apply in the present case, for the plaintiffs' right to freight from the defendants was not a right which was brought into existence by their crime. Their hands are still clean.

performed the charter in an illegal manner.

Archbolds (Freightage) Ltd v S Spanglett Ltd [1961]

P employed D, who were furniture manufacturers, to carry whisky from Leeds to London. D used a van which was unknown to P and had no A licence. The whisky was stolen owing to the negligence of D's driver. P's claim for damages was met by a plea that the contract was illegal because the van had no A licence.

P won Where a contract is on the face of it legal and is not forbidden by statute, but must in fact produce illegality by reason of a circumstance known to one party only, it will not be held illegal so as to debar the innocent party from obtaining relief. Assuming that the contract was for carriage in that particular van, the contract was neither expressly nor by implication forbidden by the Road and Rail Traffic Act 1933, and was not on the face of it illegal and could be relied on by the plaintiffs as they did not know that it could only be performed by contravening the Act.

Yip Alice v Wong Shun (No 2) [2003] 2 HKC

P had been in occupation of government land for many years and operated a restaurant on the land. D was employed to manage the restaurant in return for a monthly sum. P brought a claim for arrears of payment, D set up P's illegal occupation of the land in defence.

P won. The occupation of government land probably did not become illegal until a notice was served and not compiled with. Even if the occupation was illegal there was no indication that the relevant statutory rule should affect the civil rights of the parties whose dealings involved the occupation of the land. Public policy may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds.

5. Consequences of illegality

Oom v Bruce (1810) An insurance was made for goods sent from London to Russia after the hostilities by Russia against UK but before people in London knew it. The goods were confiscated. Assured sued.

Partly refunded.

The insurance policy was void in its inception, but the agent of the assured was entitled to a return of the premium paid under ignorance of the fact of such hostilities. Since P had no knowledge about the hostilities when they effected the insurance, no fault was imputable to them for entering into the contract, and thus they could recover the premium.

Parkinson v College of Ambulance Ltd [1925]

D, the secretary of a charity, fraudulently represented to P that he or the charity was in a position to undertake that P would receive a knighthood if P made a large donation to the funds of the charity, and undertook that the title would be conferred if the donation was made. P relied upon those representations and in the belief that the secretary was authorized by the charity to give the undertaking, made a large donation to the funds of the charity. P did not receive the knighthood.

D won If a contract which is illegal as being contrary to public policy has any element of turpitude in it the parties to the contract are in pari delicto (equal faults), and if one of the parties to the contract has been defrauded, no action for damages can be maintained by the party defrauded, even though the contract is not of a criminal nature. A contract for the purchase of a title is an improper and illegal contract, as being against public policy. As P knew that he was entering into an improper and illegal contract he could not recover back the money he had paid from the charity, nor recover damages from the charity or its secretary, nor claim to repudiate the contract.

Taylor v Bowers (1876)

P agreed to make over all his stock­in­trade to X in order to prevent P's creditors getting hold of the goods. Fictitious bills of exchange were given by X. D was a creditor and was aware of what was done

P won The fraudulent purpose was not carried out. P was not relying on the illegal transaction, but was entitled to repudiate it, and recover his goods from X, and D had no better title than X, as he knew how X had become possessed of the goods.

between P and X. Some months afterwards X executed a bill of sale of the goods to D, for the alleged purpose of securing the debt due from P to D, but P was no party to the bill of sale, nor did he sanction or know of it. P brought an action against D for the detention.

Bowmakers Ltd v Barnet Instruments Ltd [1945]

D hired some machine tools from P under a hire purchase agreement. The agreement did not comply with statutory requirements. D missed payments due under the agreement and P sought to recover the machines. D argued that the P's illegality in failing to comply with the statutory requirements barred their recovery.

P won P did not plead the illegal agreement in making their claim. It was based on their ownership of the machine and therefore they did not need to rely on their illegality to found the claim. No claim founded on an illegal contract will be enforced by the court, but as a general rule a man's right to possession of his own chattels will be enforced against one who, without any claim of right, is detaining them, or has converted them to his own use, even though it may appear from the pleadings, or in the course of the trial, that the chattels in question came into the defendant's possession by reason of an illegal contract between himself and the plaintiff, provided that the plaintiff does not seek, and is not forced, either to found his claim on the illegal contract, or to plead its illegality in order to support his claim. An exception to this general rule arises in cases in which the goods claimed are of such a kind that it is unlawful to deal in them at all.

<TOPIC 21> THIRD PARTIES

Case Name

Facts

Judgment

Rationale

1. Contractual benefits and privity

Tweddle v Atkinson (1861)

Groom’s father and bride’s father agreed to pay groom 200 pounds respectively. Bride’s father died and his executor refused to pay. Groom sued.

D won. Groom was not a party to the contract nor did he provide consideration to his father’s promise. No stranger to the consideration could take advantage of a contract, even if the contract was made for his benefit. No legal entitlement was conferred on third parties to an agreement. Third parties to a contract did not derive any rights from that agreement nor were they subject to any burdens imposed by it.

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC

P was a tyre maker and agreed with X, one of its dealers, not to sell tyres under its recommended price, and to have the same undertaking from buyers, otherwise 5 pounds for each tyre sold would be paid by defaulters in liquidated damages to P. D bought tyres from X and sold them under P’s set price. P was not a party to the contract between X and D.

D won. 1. The doctrine of privity requires that only a party to a contract can sue on it. 2. The doctrine of consideration requires a person with whom a contract not under seal is made is only able to enforce it if there is consideration from the promisee to the promisor. 3. The doctrine of agency requires that the principal not named in the contract can only be sued if the promisee was contracted as an agent.

2. Privity and

contractual burdens

Lumley v Gye (1853) P signed an exclusive service contract with a singer. D knew the contract and induced the singer to perform for his theatre by a higher payment. P sued D for inducement of breech of contract.

P won. If a party maliciously interferes in a contract performance, he is liable in damages for that interference.

Morris v C W Martin & Sons [1966]

P sent her coat to X for cleaning. X reached an agreement with P to subcontract the cleaning work to D. The coat was stolen by an ex­employee of D.

P won. The owner of goods may sue a sub­bailee directly for any loss or damage occurring through the fault or theft of the sub­bailee's servants.

K H Enterprises v Pioneer Container [1994] 2 AC

A ship sank in its Taipei­HK voyage and all goods on it were lost. Cargo owner wanted to sue ship owner, but ship owner claimed that it had subcontracted the Taipei­HK voyage to a sub­bailee, and the sub­contract between it and the sub­bailee included an exclusive jurisdiction clause which set that all disputes should only be governed by Taiwan law in which the cargo owner’s claim was time­barred. Cargo owner argued that itself was not a party to the contract which included the jurisdiction clause and therefore should not be bound to it.

D (ship owner) won.

1. Although there was no contract or attornment between P and D, D by voluntarily taking possession of P’s goods in the circumstances assumed an obligation to take due care of them and are liable to P for their failure to do so. 2. However, P in this case had expressly consented to the sub­bailment of their goods to another carrier on any terms. The incorporation of the exclusive jurisdiction clause in the sub­bailment would be in accordance with the reasonable commercial expectations of those who engage in this type of trade. 3. Since P had deliberately and advisedly allowed the time limit to expire in Taiwan, the appeal was dismissed.

Swiss Bank Corp v Lloyd’s Bank Ltd [1979]

P lent money to X for them to buy securities. It was a condition of the loan that it must be spent on acquiring the specified securities and that repayment of the loan should be made from the sale of these securities. X granted a charge over the securities to D, who was unaware of the condition, without the necessary consent from P. P claimed an injunction to prevent D acting contrary to the original contractual obligations.

D won. In the absence of actual knowledge of the contractual obligation in favor of P, D could not be restrained by injunction. "Constructive" notice was not enough.

3. Trusts of contractual promises

Re Schebsman [1944] Schebsman was the employee of a company. On his retirement, the company agreed to pay him a sum in instalments over six years, and if he died within that period, certain sums were to be paid to his widow. S died in two years, shortly after having been declared bankrupt. The trustee in bankruptcy claimed that the payments to his widow were made on the basis of a trust, and therefore should from part of his estate and go to pay off his creditors.

Widow won. The contract between S and the company was simply that payments should be made directly to his widow. S would have had no rights over them. It was a contract between S and the company, not a trust. Mrs S had no right to enforce this contract, but equally the trustee in bankruptcy had no claim. Since the company was willing to pay the widow, she won.

4. Assignment of choses in action

Zhang Qiyun v Shun Shing Construction & Engineering Co Ltd [2010] 2 HKLRD

NEGATIVE JUDICIAL TREATMENT. D, as contractor, contracted with X, as project manager, to build a school. The Agreement provided that X "shall not assign this Agreement or any interest therein without the written consent of D". D terminated the Agreement on the ground of X's unsatisfactory performance. X was subsequently wound up by the Court and this was converted into a creditor's voluntary liquidation. X's liquidators issued a writ against D claiming the balance due under the Agreement as damages and then assigned X's cause of action to P. The issue was whether, in the absence of consent by D, the assignment was effective at law and so P had locus standi to continue the proceedings.

Action struck out.

1. Under s.199(2)(a) of the Companies Ordinance, a liquidator in a winding­up by the court had the statutory power to sell a bare right of action, and that transaction could not be challenged on the ground of champerty. Pursuant to s.251(1)(b) of the Ordinance, this statutory power also applied to the creditor's voluntary winding­up here. 2. However, the purported assignment to P, being contrary to the Non­Assignment Clause, was not effective at law. First, if rights arising under a contract were declared by the contract to be incapable of assignment, a purported assignment would be invalid as against the debtor. The legitimate commercial purpose of such a clause was to ensure that the original rights of one party under the contract (eg the right to future performance and the right to the benefits accrued under the contract) would not become vested in two separate people or other third parties. Second, it made no difference that X was in liquidation. Thus, P had no locus standi and the action would be struck out. 3. Even if the assignment had been effective, as an assignee of a contract, P had both the benefit of, and was bound by, the arbitration clause and the proceedings would have been stayed. So P could not resist arbitration by arguing that he was not a party to the original contract.

5. Collateral contracts, himalaya, exclusion and exclusive jurisdiction clauses

Shanklin Pier v Detel Products [1951]

P, the owners of a pier, required his contractors to use D's paint. A contract was entered into between the contractors and D. D warranted expressly to P that the paint would have a life of from seven to ten years. The paint proved not to be up to warranty and P were put to extra expense.

P won. A warranty between P and D may be supported by the consideration that P should cause X to enter into a contract with D. P were entitled to recover against D damages for breach of the express warranties alleged, notwithstanding that the main contract of sale was between D and X, and not between D and P.

Scruttons v Midland Silicones Ltd [1962] AC

A drum of chemicals was shipped under a bill of lading which contained a paramount clause limiting the carrier's liability to USD 500 for any package by reference to the United States Carriage of Goods by Sea Act 1936. The drum was damaged by the negligence of stevedores employed by the carrier and damage exceeding USD 500 resulted to the chemicals. The consignee sued the stevedores.

P won. Only a person who is a party to a contract can rely on it. Therefore a stevedore who is not a party to the contract of carriage between shipper and carrier cannot rely on an exemption clause in that contract where neither shipper nor carrier contracted as agent for the stevedore.

The Eurymedon P held a bill of lading, one clause of which provided wide D won. Where the initial parties to a contract exempt third parties from liability those third

[1975] AC exemption from liability for the carrier of the goods and any independent contractor involved in their carriage. The goods were damaged by D who were stevedores engaged as independent contractors by the carriers.

parties may attract the benefits of an exemption clause by performance of the contract. The performance of services by D created a full contract. That performance was sufficient consideration although something that the carrier was already bound to do, because by D's performance, P obtained the benefit of a directly enforceable obligation.

The Mahkutai [1996] AC

Cargo owners, P, claimed against shipowners, D, for breach of contract and duty and for negligence in and about the carriage of plywood from Indonesia to China on board D's vessel, as plywood in one of the holds had been damaged by sea water. P got a writ from Hong Kong court which caused D's vessel to be arrested in Hong Kong but agreed to release the vessel upon D providing security by a bank's letter of undertaking. D applied to stay P's action on the basis that P were bound by the terms of an exclusive jurisdiction clause in the bill of lading which X (which had chartered the vessel from D) had issued to P in Indonesia upon receipt of the goods.

P won. 1. Since, as a matter of construction, the Himalaya clause did not provide for the application of the exclusive jurisdiction clause to the carrier's servants, agents and subcontractors, D could not take advantage of the exclusive jurisdiction clause. 2. In contrast to The Pioneer Container, the present case was not concerned with a question of enforceability of a term in a sub­bailment by the sub­bailee against the head bailor, but with the question whether a subcontractor was entitled to take the benefit of a term in the head contract. The former situation depended on the scope of the authority of the intermediate bailor to act on behalf of the head bailor in agreeing on his behalf to the relevant term in the sub­bailment; whereas the latter depended on the scope of the agreement between the head contractor and the subcontractor, entered into by the intermediate contractor as agent for the subcontractor, under which the benefit of a term in the head contract might be made available by the head contractor to the subcontractor.

London Drugs v Kuehne and Negel International Ltd (1993)

CANADIAN CASE. D was storing a transformer owned by P. The contract included a limitation of liability clause which limited liability for damage to the transformer to $40. Two employees were moving the transformer with a forklift and negligently dropped it. P sued the two employees on the basis that they owed a separate duty of care and could not seek protection under the contract.

D won. Employees are able to gain protection where: 1. the limitation of liability clause must, either expressly or impliedly, extend its benefit to the employee(s) seeking to rely on it; and 2. the employee(s) seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff when the loss occurred.

6. Using remedies to overcome privity problems ­ Specific remedies

Beswick v Beswick [1968] AC

P’s husband assigned his business to D in consideration of the nephew employing him for the rest of his life and then paying a weekly annuity to P. Since the latter term was for the benefit of someone not party to the contract, D did not believe it was enforceable and so did not perform it, making only one payment of the agreed weekly amount of 5 pounds. D argued that as P was not a party to the contract, she was not able to enforce it due to the doctrine of privity of contract.

Specific performance granted.

Third parties were not allowed to sue to enforce benefits under a contract. However, HL held that P in her capacity as her deceased husband’s administratrix (i.e. as the person representing someone's estate who dies without a will) could enforce P’s promise to pay D an annuity. P was entitled to specific performance of the contract.

7. Using remedies to overcome privity problems ­ Damages (identifying the plaintiff’s loss)

See also: Alfred McAlpine Construction Ltd v Panatown Ltd

(Topic 13)

Jackson v Horizon Holidays [1975]

P booked a four­week holiday in a hotel, everything to be "of the highest standard." The brochure issued by D described the hotel as enjoying all the facilities of a mini­golf course, excellent restaurant, swimming pool, beauty and hairdressing salons. None of these materialised.

P won. P could sue on the contract not only for his own loss and disappointment, but also for that of his family. Although P was not a trustee for the others (who definitely could sue), he had entered into the contract partly for their benefit.

Woodar Investment Development Ltd v Wimpey [1980]

P contracted to sell some land to D, for 850,000, on the understanding that another 150,000 would be paid to a third party on completion. D terminated the contract alleging they were allowed to do so, by provision of the contract, where statutory authority had started a compulsory purchase (in fact they were allowed to do so only if a compulsory purchase begun after the date of the contract). P sued for the full 1,000,000 for repudiatory breach, D pointed out that P would have no claim on the 150,000 for the sake of privity, and the beneficiary of this money would have no claim as there was no contract in place to support it.

D won. A party who took action relying, albeit erroneously, simply on the terms of the contract and not manifesting by his conduct an ulterior intention to abandon it was not to be treated as repudiating it. The evidence of D’s conduct was insufficient to support a case for repudiation. Per curiam. If vendors made a contract that a sum of money was to be paid to a third party they could not, without showing that they had themselves suffered loss or were agents or trustees for the third party, sue for damages for non payment of that sum. If P in this case did have a good claim for breach of contract, however, they could claim damages on behalf of the beneficiary.

Linden Gardens Trust Ltd v Lenesta Sludge Disposals [1994] 1 AC

The lessees of a building entered into a standard form JCT contract with D (contractors) to remove asbestos from the building. Clause 17(1) of the Standard Form Building Contracts 1963 provided the employer shall not, without written consent of the contractor, assign his contract. The lessees assigned their interests in the property, their legal rights, benefits of contracts, etc., to P in actions which had begun in respect of poor work.

D won. 1. A true construction of clause 17(1) prohibited assignment without consent and that since a party to such a contract might have a genuine commercial interest in ensuring that contractual relations with the party he selected were preserved, there was no reason for holding the contractual prohibition on assignment as being contrary to public policy. Accordingly, the purported assignments of contractual rights were ineffective to vest any such rights in the assignee 2. Goods expected to be passed through several hands might give a right to the third parties to sue the original seller for defects.

Darlington BC v Wiltshier Northern Ltd [1995]

X entered into building contract with D, a construction company, for the benefit of P. Pursuant to a collateral agreement entered into with P, X assigned to P all rights and causes of action against D to which X was entitled under its contract with D. P brought an action against D for breach of the contract.

P won. Since both parties were aware that the building contracts were entered into for the benefit of P and it was foreseeable that damage caused by a breach of the contracts would cause loss to P, P, as assignee, could claim substantial damages for loss caused by D's breaches of the contracts, and the damages should be assessed on the normal basis as if P had been the employer under the contracts.

Offer­Hoar v Larkstore X asked D to prepare a report on the geographical condition of a P won. The remedy in damages for breach of contract was not limited to the loss that could be

Ltd [2006] land. D in the report said the land was satisfactory for the purpose of residential development. X then send the land to P. While the construction was in progress, landslip happened and P was sued by others who suffered loss from the landslip. X then assigned to P its rights and benefits under the report and the right to sue D. D argued that the only losses that P was entitled to claim by virtue of the assignment of the cause of action were the losses that X could itself have recovered from D at the time of the assignment and that, as the assignment of the cause of action took place after X had parted with the site to P and the substantial damage occurred before the assignment of the cause of action to P, X and therefore P had no right to claim and recover substantial damages for loss resulting from the landslip.

proved at the date when the breach occurred and the cause of action first arose, so that, subject to issues of causation, remoteness, quantum and limitation of action, there was a remedy against the party in breach for loss which occurred after the cause of action had accrued. The assignment was a delayed consequence of the earlier sale of the site and completed that transaction. P was seeking to recover no more than the loss which X, the assignor, would have suffered and been entitled to recover if it had not sold the site. The rule that an assignee could not recover more than the assignor was not designed to allow a party to escape liability for his breach, but to ensure that he did not have to meet a bigger liability than he would have been under to the assignor. Therefore, since there was no express prohibition against assignment and no implied prohibition from any special circumstances, P was entitled to claim substantial damages from D for the loss suffered in consequence of the landslip.

Rolls­Royce Power Engineering plc v Ricardo Consulting Ltd [2004]

P wanted to intervene as “undisclosed principal” on a contract made between X which was one of its subsidiaries, and D.

D won. X did not enter into the contract as agent for P as undisclosed principal. D had entered the contract on the clear understanding that it was dealing solely with X, since this was not an ordinary commercial contract, but one in respect of which it was inconceivable that the particular identities of the respective contracting parties was not of the greatest significance to the other. Thus no duty of care was owed by D to P, since D had no reason to suppose that X was acting other than on its own behalf and for its own benefit. More importantly, P had deliberately concealed from D the true nature of its interest and involvement in the project.