INTRODUCTION TO ENGLISH CONTRACT LAW:

Nadine Tilbury Bielefeld University 2006

RECAP

Introduction Offer and Acceptance Intention Consideration Capacity Privity Representations Terms Exclusion clauses

NEXT

Misrepresentations Mistake Duress / undue influence Illegal and void contracts Discharge Remedies

VOID AND VOIDABLE CONTRACTS VITIATING FACTORS

VOID AND VOIDABLE CONTRACTS VITIATING FACTORS

Misrepresentation Mistake Duress Undue influence Illegality Can invalidate otherwise valid contract Void never valid in the first place Voidable can be avoided or continued or can replace terms with better ones.

MISREPRESENTATION

A representation is a statement made by one party to the other, before or at the time of making the contract, with regard to some existing fact or to some past event, which is material to the contract A misrepresentation is an untrue statement of fact, made by one party to another party to a contract, either before or at the time of making the contract, with the intention that the person to whom the statement is made shall act upon such misrepresentation, and he does so act.Cheshire and Fifoot: Law of Contract

MISREPRESENTATION contStatement of material fact, which is false not opinion Bisset v Wilkinson 1927 not future intention although a statement of future intention can contain a representation of an existing fact - Edginton v Fitzmaurice 1885 not trade puffs made by one party to another party - not by a third party (except an agent) Peyman v Lanjani1985 before formation, not afterwards Roscaria v Thomas 1842 intended to induce a party into the contract (but not to form part of it) and did induce a party to enter into the contract

INDUCEMENTThe representation must

Be known to the other party Not already be known as false by the other party Be believed or relied upon

Misrepresentation (cont)

Plaintiff must have suffered damage from the misrepresentation. can result from conduct not just oral or in writing Spice Girls Ltd v Aprilia World Service BV 2000 If intended to be binding, then more likely to be a breach of warranty or condition rather than just a misrepresentation Couchman v Hill 1947 Important to distinguish between Representation, Warranty or Condition.

CLASSES OF MISREPRESENTATION

Fraudulent Negligent Innocent 1967 Misrepresentation Act Motive

FRAUDULENT MISREPRESENTATION

specific tort of deceit False statement made knowingly or deliberately or without belief in truth or recklessly without caring whether it was true or not. Derry v Peak 1889 s67 Companies Act 1985 Defence honest belief Recklessness is only evidence of fraud not proof, unless it amounts to a flagrant disregard for the truth and so is also dishonest Thomas Witter Ltd v TBP Industries Ltd 1996

REMEDIES FOR FRAUDULENT MISREPRESENTATION

Affirm contract or disaffirm and refuse any further performance and use as defence to breach of contract Rescission in equity with or without claim for damages Action in tort for damages for deceit Prosecute or notify police damages - including consequential loss the defendant is bound to make reparation for all the damage flowing from the fraudulent inducement Lord Denning Doyle v Olby (Ironmongers) Ltd 1969 Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd 1996

NEGLIGENT MISREPRESENTATIONNegligent misstatement causing a financial loss Hedley Byrne v Heller & Partners 1964.

Duty of care includes words particular type of knowledge Proximity Defendant aware claimant relying on advice

INNOCENT MISREPRESENTATION

Remedies s2(1) and 2(2) Misrepresentation Act 1967. damages or rescission in equity or repudiate and refuse to perform further or affirm Discretionary right to damages. Damages is instead of not as well as rescission so if no right to rescind, then no right to damages either. Measure of damages is uncertain Innocent misrepresentation can be incorporated as a term.

STATUTORY CONTROL

Misrepresentations Act 1967 s2(1) if, as a result of a misrepresentation, a person has suffered loss and if the person making the misrepresentation would have been liable for damages had it been made fraudulently, then, even though it was not made fraudulently, he is liable for damages unless s/he can show s/he had reasonable grounds to believe in the statement.

Misrepresentation Act 1967

Burden of proof Common law or statute Special relationship Negligence Reasonable grounds for believing statement was true

RemediesSue in tort for damages under Hedley Byrne and Heller where = special relationship Sue for damages under s2(1) Misrepresentation Act 1967 Howard Marine Dredging v Ogden Rescission discretionary Common law = tort based on foreseeable loss (and includes consequential loss.) Damages can be reduced for contributory negligence

Misrepresentation (cont)

S3 Misrepresentation Act re exemption clauses Trade Descriptions Act 1968 criminal offences. Property Misdescriptions Act 1991 exaggerated descriptions

NON DISCLOSURE

No basic common law duty to reveal information not requested Fletcher v Krell 1873 Silence - Hands v Simpson, Fawcett & Co 1928 Contracts Uberimmae fides (where the utmost good faith is required) Locker and Wool v Western Australian Insurance Co 1936 Contracts involving fiduciary relationships solicitor/client, agent/principal Insurance, sale of land contracts and company prospectuses Where part truth is falsehood True statement becomes false during the negotiation and the other side is not informed. With v OFlanagan 1936

EQUITY AND MISREPRESENTATION

no man ought to be able to take advantage of his own false statements Redgrave v Hurd 1881 Right to rescind may be lost if:

Restitutio in integrum is not possible ( ie parties cannot be restored to original positions) contract is affirmed excessive delay a third party has gained rights in the property under s2(2) the court feels damages is the more appropriate remedy

RECAP

Some REPRESENTATIONS become TERMS and are incorporated into the contract. Others are not. Of these, only a falsely stated or inaccurate representation is actionable. MISREPRESENTATIONS can be FRAUDULENT, NEGLIGENT, INNOCENT A TERM can be EXPRESS, IMPLIED, IMPUTED A TERM can amount to a CONDITION, WARRANTY or INNOMINATE depending on its importance to the contract REMEDIES available for breach will depend on the type of the misrepresentation or term

MISTAKES COMMON, MUTUAL AND UNILATERAL

MISTAKES COMMON, MUTUAL AND UNILATERAL

General rule mistake does not affect validity of contract. Must be a mistake of fact not law. If the mistake is operative ie it is why the contract was made or is so fundamental to the contract, then the common law applies and the contract is void ab initio. Equity

COMMON MISTAKESame mistake made by both parties If operative/crucial then contract void Existence of subject matter (res extincta) Ownership of subject matter (res sua) Quality of bargain(contract) NOT operative so contract continues but can be set aside in equity. Bell v Lever Bros 1932

MUTUAL MISTAKE

Both parties making a different mistake. Parties are at cross purposes therefore no consensus ad idem Common intention Contradictory promises Ambiguity Mistake is not operative if one party only mistakes the contract quality and performance is possible

UNILATERAL MISTAKEOnly one party is mistaken and other is taking advantage of it Mistake over terms contract operative and void if

Party genuinely mistaken over a material detail and would not have contracted Other party should have known Mistaken party not at fault

Mistaken identity contract operative and void if

Mistaken party intended to contract with someone else must prove that other person exists Mistake was material to formation of contract Mistake was known to other party

eg Boulton v Jones 1857

Mistaken identity face-to-face

Party deemed to intend to contract with person present what ever identity they have assumed Phillips v Brooks 1919 Cundy v Lindsay & Co 1878

NON EST FACTUM

written agreements only LEstrange v Graucob 1934 Foster v Mackinnon 1869 Saunders v Anglia Building Society 1970

MISTAKE AND EQUITY

If mistake is operative/crucial then common law applies not equity If mistake is NOT operative/crucial then equity can provide remedies eg Rescission where unconscionable to allow party to take advantage Refusal of specific performance where unfair to expect performance or other party knew of mistake and took advantage of it eg Webster v Cecil 1861 Rectification of a document where complete and certain agreement reached which remained unchanged to the time of writing - Mistake common to both parties - innocent misrepresentation

DURESS and UNDUE INFLUENCE

Unfair or improper pressure Originally, common law recognised a narrow principle of duress Equity then broadened into undue influence. Effect of duress or undue influence = contract voidable

DURESS

intimidation that was sufficiently real and threatening to vitiate consent Cumming v Ince 1847 threats of violence Barton v Armstrong 1975 Welch v Cheeseman 1973 domestic violence Threats to carry out lawful acts are not duress Williams v Bayley 1886 Must be both an unlawful act and one amounting to compulsion vitiating free will The Siboen and the Sibotre 1976 threats to property rather than to person can amount to duress

ECONOMIC DURESS

Pao On v Lau Yiu Long 1980 whether the person alleged to have been coerced did or did not protest did or did not have an alternative course open to him . Was independently advised took steps to avoid it Atlas Express Ltd v Kafco (Importers and Distributors) Ltd 1989. Duress requires coercion of the will so as to vitiate consent and mere commercial pressure is not sufficient.

Doctrine extended to cover submission to improper pressure by Trade Unions Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universal Sentinel) 1983 However difference between unfair pressure and legitimate pressure = not clear Dimskal Sipping Co SA v ITWF (The Evia Luck) 1991 Claim may be possible even if threat is one of lawful action Alec Lobb (Ganges) Ltd v Total Oil G B Ltd 1983 Can prove economic duress yet still be denied a remedy North Ocean Co Ltd v Hyundai Construction Ltd (The Atlantic Baron) 1978

UNDUE INFLUENCE

Unfair pressure not covered by duress Equity therefore any remedy is discretionary Question of degree therefore no definition

Bank of Credit and Commerce International SA v Aboody 1990 court distinguished between two classes: actual undue influence traditional class where parties have no special relationship and party claiming undue influence must prove it. Williams v Bayley 1866. presumed undue influence traditional class where a special relationship of confidence and trust exists. Some relationships give automatic rise to presumption eg fiduciary / children and parents / doctors and patients / trustees and beneficiaries / spiritual leaders and followers.

Husband and wife cases Full knowledge of nature and effect and claimant had independent, impartial advice before entering into contract. HL 2001 Royal Bank of Scotland plc v Etridge (No.2) considered earlier case (Nat West v Morgan) 1985 and discarded label of manifestly disadvantageous that earlier court had decided was the key to setting aside a contract. Preferred test of whether transaction called for an explanation and used earlier principle (Allcard v Skinner 1887) is a transaction such as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary men act? Lord Denning (Lloyds Bank v Bundy 1975) suggested single test based on inequality of bargaining power Doctrine may apply where cant use Non es Factum Avon Finance v Bridges 1985

EFFECT OF UNDUE INFLUENCE ON THIRD PARTIES

Lack of privity of contract so the actions of the wrongdoer will have no effect on the contract. Barclays Bank v OBrien 1993 doctrine of notice. Authoritative guidance regarding undue influence, misrepresentation or other legal wrong by a third party.

ILLEGALITY

Generally courts will not enforce contracts whose purpose is illegal or injurious to society in the widest sense. Contracts Contracts Contracts Contracts declared void by statute void at common law declared illegal by statute illegal at common law

VOID BY STATUTE

Contacts of wager Gaming Act 1845. Consumer Credit Act 1974 extortionate money lending contracts. Restrictive trade practices increasingly governed by legislation eg Arts 81, 82 EU Treaty controlling anti-competitive practices.

VOID AT COMMON LAW

Contracts excluding the jurisdiction of the court Contracts undermining the institution of marriage Contracts to relinquish parental responsibility Contracts in restraint of trade

CONSEQUENCES IF CONTRACT DECLARED VOIDDifference common law / statute Common law can sever blue pencil test Statute depends what statute says. If says nothing, then common law rules apply.

ILLEGAL BY STATUTE

illegally formed legally formed but illegally performed Shaw v Groom 1970 test is whether illegality affects the core of the contract

ILLEGAL AT COMMON LAWinjurious to society must be contrary to public policy Contracts to commit criminal offences Beresford v Royal Insurance Co. Ltd 1937), torts, frauds, benefit from crimes of another, interfere with justice, contracts aimed at corruption in public life Parkinson, promoting sexual immorality Pearce v Brooks 1866)

CONSEQUENCES IF CONTRACT DECLARED ILLEGALDifference - illegal when formed or performed Formed illegal from start Ex turpi causa non oritur action - no right of action arises from a base cause Some exceptions Illegal as performed if both at fault then same as illegally formed. If only one at fault then other might be able to recover

DISCHARGE OF A CONTRACTDischarge point at which contract is ended Performance Agreement Frustration Breach of contract

DISCHARGE BY PERFORMANCE

Contract not discharged until all of the obligations have been performed. Generally a failure to perform an obligation allows the other party to claim a remedy. Entire contracts Divisible contracts Part performance substantially performed breach of warranty not condition Bolton v Mahadeva 1972 Quantum meruit - as much as he has earned Time reasonable time / time of the essence Tender - attempted performance of a contract that depends on the other to collaborate Startup v MacDonald 1843 and Sale of Goods Act 1979

DISCHARGE BY AGREEMENTEnter a contract by agreement exit by agreement Waiver each waives their rights under the contract Accord and Satisfaction replaces Agreement and Consideration

DISCHARGE BY FRUSTRATION

Traditional rule complete performance required regardless of the reasons for failing to perform. Unfair when intervening factor was not in the control of the party. Doctrine of Frustration Consequences 3 types of factors:impossibility subsequent illegality radical change so that contract becomes essentially different Krell v Henry 1903 and Herne Bay Steam Boat Co v Hutton

Doctrine does not apply where: frustration self induced could have been avoided could have been foreseen where contract is merely more onerous or less beneficial Consequences can be held accountable for obligations up to the point of frustration. Loss lies where it falls Could be v harsh so.

LAW REFORM (FRUSTRATED CONTRACTS) ACT 1943

Recovery of monies paid in advance recovery for partial performance - payment for valuable benefit obtained Gamerco SA v ICM Fair Warning (Agency) Ltd 1995 in calculating awards under this Act there was no indication in the [Act], the authorities or relevant literature that the court is obliged to incline towards total retention or equal division. Its task is to do justice in a situation which the parties had neither contemplated nor provided for, and to mitigate the possible harshness of allowing loss to lie where it falls. Act can be excluded by express provision in contract. Act does not apply to certain contracts such as insurance, carriage of goods by sea and some contracts for the sale of specific goods which are frustrated by the goods perishing.

DISCHARGE BY BREACH OF CONTRACT

Breach occurs where one party fails to fulfil or indicates that they do not intend to fulfil their obligations under the contract. Breach of a term condition / warranty Anticipatory breach / repudiation Repudiation entitles innocent party to sue at once or treat contract as continuing and wait until time for performance arrives Avery v Bowders 1855

REMEDIESLimitation Act 1980 - 6 year time limit from date on which plaintiff could first have brought an action 3 years for personal injury arising out of breach of contract 12 years where contract was a deed Most common remedy for breach of contract = damages where party suffers a loss OR can claim Quantum Meruit Equitable remedies eg injunctions, specific performance Common law - damages automatically awarded Equity remedies discretionary

TYPES OF DAMAGESGeneral Special Nominal Contemptuous Exemplary (NOT in contract only tort) Unliquidated Liquidated Penalties

DAMAGES

Contract damages are to put the victim of the breach, so far as is possible, and so far as the law allows into the position he would have been in if the contract had not been broken Robinson v Harman 1848 Measure of damages = value of the performance to the claimant not the cost of it to the defendant Token damages Two tests: one to decide the type of loss based on causation and remoteness The other to establish the amount recoverable in respect of the actual loss.

CAUSATION AND REMOTENESS OF DAMAGE

Is there a causal link between defendants breach and the actual damage or loss suffered by the claimant? Is the damage of a type that is not too remote a consequence of the defendants breach? Question of fact in each case Test is one of common sense whether the breach was the cause of the loss or simply the occasion Loss may arise from more than one cause

REMOTENESSDamages should be for losses such as may fairly and reasonably be considered as arising either naturally ie according to the usual course of things, or such as may be reasonably supposed to have been in the contemplation of both parties at the time they made the contract Hadley v Baxendale 1854

2 types of recoverable loss: A natural consequence of the breach measured objectively A loss, which if not a natural consequence, the parties knew was possible measured subjectively. Rule modified approx 100 years later in Victoria Laundry Ltd v Newman Industries Ltd 1949

Indemnifying any loss = too harsh Recoverable loss should be measured against foreseeability Foresight depends on knowledge of parties when contracting Knowledge: imputed (ie common knowledge) or actual. Or can be implied from what a reasonable man might have had in mind. Implied knowledge should include what is POSSIBLE to have foreseen rather than what must have been foreseen. Contrast Kemp v Intasun Holidays 1987

BASES OF ASSESSMENT

Loss of a bargain puts parties in position as if the contract had been properly performed. Failure to deliver or failure to accept difference in price obtained or expended to acquire or get rid of stock. Loss of profit Loss of a chance Reliance loss recovery of expenses necessarily incurred in advance of the contract being performed. Anglia Television v Reed 1971. Restitution simple repayment of any price already paid. Damages can be assessed by amount of benefit gained by wrongdoer Attorney General v Blake HL 2000

DUTY TO MITIGATE

Claimant supposed to take all reasonable steps to mitigate loss In anticipatory breach, claimant need not terminate at once to mitigate loss, can wait until actual breach.

MENTAL DISTRESS

Traditionally, claims for mental distress, injury to reputation etc = tort. However stigma compensation cases (Malik v BCCI 1998) sufficient if a major or important object of the contract is to give pleasure, relaxation or peace of mind Farley v Skinner (No 2) HL 2001 Holiday cases loss of enjoyment and inconvenience caused by double booking Cook v Spanish Holidays 1960 total failure to match description given Jarvis v Swan Tours 1973 the provision of comfort, pleasure and peace of mind was a central feature of the contract Jackson v Horizon Holidays 1975

EQUITABLE REMEDIES

Specific performance Injunctions Rescission Rectification of a document

SPECIFIC PERFORMANCE

Usually restricted to cases where subject matter of contract is unique and cannot be replaced (land, art, ships) impossible to assess damages injured party is left without adequate remedy No grant if excessive delay in seeking remedy unclean hands undue hardship to defendant

INJUNCTIONS

Mandatory and prohibitory Reasonable restraint of trade clauses Breach of confidence Performance of contracts of personal service Lumley v Wagner 1852 and Warner Bros v Nelson 1937

RESCISSION - RECTIFICATIONRESCISSION Seeks to return the parties to their exact precontract position if possible - Restitutio in integrum Contract must not have been affirmed by party claiming ie must not have done anything to put contract into effect No delay in seeking remedy no third party adversely affected etc. RECTIFICATION OF A DOCUMENT When the written document contradicts the actual agreement made by the parties. Webster v Cecil 1861

THE END!

Introduction Offer and Acceptance Intention Consideration Capacity Privity Representations Terms Exclusion clauses Misrepresentations Mistake Duress / undue influence Illegal and void contracts Discharge Remedies