Agreed Remedies Flashcards
What is the law on termination clauses?
Bunge Corp v Tradax - the parties have a great deal of autonomy in deciding what is important to them.
Lombard North v Butterwell - even seemingly trivial terms can give rise to a right to breach if intended.
How can termination clauses be constructed?
- Defining a clause as a ‘condition’.
2. Allowing termination for breach of a term.
What is the starting point for agreed remedies?
Freedom of contract - parties want the results of breach to be predictable.
i.e. an SPA might attach liability if there is litigation ongoing against the acquired company, nobody wants this!
Parties may not want to be subject to the law’s default rules for remedying breach.
It can both help parties avoid awkward situations i.e. Arcos v Ronaasen/Union Eagle and put them in them…
What are Liquidated Damages Clauses?
A payment stipulated on breach which ‘represents a genuine pre-estimate of the actual loss likely to be caused by the breach’
Elphinstone v Monkland - simply labelling a clause as liquidated damages is not conclusive.
*The penalty clause is the evil twin of the liquidated damages clause.
What was Sumption and Neubergers’ test in Makdessi?
A penalty is;
‘A secondary obligation imposing a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.’
This can apply to withholding of payments (deposits) as well as penalties.
What was Mance’s Test in Makdessi?
Consider what legitimate interest is protected by the clause. With this in mind, is the clause extravagant, exorbitant or unconscionable?
What was Hodge’s Test in Makdessi?
‘Whether the sum is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract.’
What was found in ParkingEye?
The penalty rule was activated, however,
The clause was not a penalty as it served the legitimate interest of conserving space.
What is the History of the Penalty Rule?
Former governing case was Dunlop Pneumatic Tyre - a clause was a penalty if it was extravagant and unconscionable.
Echoes of this still exist in the decisions of Mance and Hodge.
The leading Makdessi decision uses a legitimate business interest test, and this was already being introduced by the courts;
Phillips Hong Kong - Privy Council - Lord Woolf - in commercial scenarios it can be difficult to accurately pre-estimate loss and so the court should take a ‘hands off’ approach as long as the clause is not obviously extravagant/unconscionable.
Lordsvale Finance v Bank of Zambia - a clause may not be penal if it has a reasonable commercial justification behind it.
What are four justifications of the Penalty Rule?
- Preventing over-compensation - Photo Production v Securicor.
- Preventing punishment - English private law should not allow parties to punish eachother for non-performance.
- Prevention of indirect specific performance - specific performance is an equitable court remedy and parties should not be able to coerce each-other into performing.
- Prevention of unfairness - Collins - the courts have a duty to protect against unconscionable bargains.
How can parties avoid penalties?
Alder v Moore - penalties only apply to breach, so stipulating payment on events other than breach can avoid the scope of the rule.
Makdessi - price adjustment clauses are permissible.
Discounts for prompt payment can work in the same way as penalties.
What is a deposit?
A sum of money paid upfront and forfeited on breach i.e. the 10% deposit forfeited in Union Eagle.
Not a bank deposit/term deposit/letter of deposit.
How has the law on deposits developed?
Dojap was the leading case - a deposit is valid if it is reasonable as earnest money - so 25% of £3mn was excessive.
Makdessi now governs deposits.
Posner states that deposits aren’t as often litigated as damages clauses - there may be less optimism bias.
What is an exemption clause?
A clause barring a suit for breach, or limiting liability for breach.
Apple/student fintech project example.
Exemption clauses are common in standard form contracts.
Which statutes govern exemption clauses?
CRA 2015 took the consumer aspects of UCTA and UTCCR and put them in one place.
UCTA governs commercial exemption clauses.
Liability for areas such as satisfactory quality of goods and negligence must be reasonable or they will be unenforceable.
