Chapter 4 Discharge of Contract, Remedies, Limitation of Actions Flashcards
Discharge of Contract
In what ways can a contract be discharged?
Discharge by performance
Discharge by agreement
Discharge by frustration
Discharge in consequence of repudiatory breach
Discharge of Contract
Discharge by performance
When both parties have performed their contractual obligations. This means contract has come to an end and neither parties have obligations.
Discharge of Contract
Part Performance
Case: Re Moore and Co v Landauer and Co (1921)
Case: Cutter v Powell (1795)
Generally there is a requirement that parties fully perform what they are contracted to do. Part performance will not usually be enough.
Case: Re Moore and Co v Landauer and Co (1921)
Buyer bought a consignment of fruit to be packed in cases of 30 tins. They delivered correct amount, but it was packed in cases of 24 tins.
Held: buyer was allowed to reject the entire consignment.
Case: Cutter v Powell (1795)
Sailor agreed to sail ship from Jamaica to Liverpool. He was to be paid 30 Guineas on arrival, but he died at sea.
Held: widow was not entitled to payment for work done. He was obliged to have completed the whole voyage.
(Nowadays his widow would be entitled to a proportion of that payment)
Discharge by Performance
Minute Deviations
Case: Reardon Smith v Hansen - Tangen (1976)
Case: Peter Darlington and Partners v Gosho Ltd (1964)
Where there only has been a minor deviation.
Case: Reardon Smith v Hansen - Tangen (1976)
Contract related to the building of a ship and mentioned that it had to be built in ‘yard 354’. All specifications were met, but it was built elsewhere. Defendants rejected delivery.
Held: defendants couldn’t reject ship, as ‘yard 354’ was not a term in the contract.
Case: Peter Darlington and Partners v Gosho Ltd (1964)
Seller was to supply a quantity of canary seed on a ‘pure basis’. 98% was pure and considered to be the highest standard in the marker.
Held: seller completed their obligation.
SOGA 1979 also states that if the implied term results in damage that is so slight it is unreasonable for buyer to reject goods. It will be seen only as a breach of a warranty, so court will only allow damages.
What if the failure to fully perform the contract is not the fault of the defaulting party?
This is not enough to discharge the contract, unless it has become physically or legally impossible to complete the contract, making it become radically different.
What if the failure to fully perform the contract is not the fault of the defaulting party?
Exceptions
Divisible Contracts
Prevention to complete performance by another party
Agreement to accept partial performance
Doctrine of substantial performance
What if the failure to fully perform the contract is not the fault of the defaulting party?
Exceptions
Divisible Contracts
Payment in stages, where each stage will be seen as a separate contract, which will raise an obligation to pay. Example, someone who is paid weekly. They can refuse to work the following weeks, even if they have been paid for the first week.
What if the failure to fully perform the contract is not the fault of the defaulting party?
Exceptions
Prevention of complete performance by another party
Quantum Meruit
If one party prevents the other from performing, the other party will be entitled to claim for work done: Quantum Meruit.
Case: Planche v Colburn (1831)
Publisher commissioned a writer to write a book for £100. He wrote part of it, but then publisher cancelled the contract.
Held: The writer recovered £50 for the work done on a Quantum Meruit basis.
What if the failure to fully perform the contract is not the fault of the defaulting party?
Exceptions
Agreement to accept partial peformance
If a purchaser agrees to accept a lesser amount, he is obliged to pay them.
What if the failure to fully perform the contract is not the fault of the defaulting party?
Exceptions
Doctrine of substantial performance
Case: Hoening v Isaacs (1952)
Case: Bolton v Mahadeva (1972)
If substantial work was performed, party will be entitled to payment of the work that was done, minus the minor outstanding part.
Case: Hoening v Isaacs (1952)
Claimant agreed to decorate defendants flat, fir a bookcase and a wardrobe for £750. On completion defendant paid £400, but complained about faulty work and refused to pay the rest.
Held: work was substantially completed, so claimant was entitled to the remaining £350, less the cost of the remedy for the defects, which was about £50.
Case: Bolton v Mahadeva (1972)
Contractor agreed to install central heating for £560, but it didn’t heat house adequately and emitted fumes. It would cost £174 to remedy the defects. He claimed the price, minus the £174.
Held: Court of Appeal rejected substantial performance had been done, as the price to remedy it was proportionally much larger than above.
Time in relation to performance
Case: Charles Rickards v Oppenheim (1950)
Failure to complete the contract on time allows the party to terminate the contract, unless it can be shown that time is of fundamental importance.
Time is of essence:
- if expressly stated in the contract that time is of essence;
- if the subject matter or circumstances of the contract mean that time is presumed to be of essence, and parties haven’t stated otherwise.
It is generally presumed that in commercial contracts time is of essence.
In contracts relating to the sale of land, time is not considered to be of essence.
Case: Charles Rickards v Oppenheim (1950)
Contract to build Rolls Royce chassis within 7 months. Period expired, and purchaser agreed to wait another 3 months. They remained undelivered then, and purchaser told them they expected delivery within 4 weeks. They delivered 3 months later.
Held: purchaser was not obliged to accept delivery.
Application (or appropriation) of debts
Under statute, if a debt is not paid within 6 years, creditor no longer has the right to claim the debt.
Discharge by agreement
3 ways it can occur
Three ways this may occur:
- specific provision in contract
- bilateral discharge
- unilateral discharge
Discharge by agreement
Specific provision in contract
Parties can mutually agree that a contract terminates at the expiration of a fixed time.
Contracts for the hire of goods, leasing of premises, or fixed terms employment contracts.
Discharge by agreement
Bilateral discharge
If neither part has performed obligations under the contract, discharge by agreement creates no difficulties. Each side cancels the other side’s obligations.
If there was consideration for any part performed it needs to be paid.
Discharge by agreement
Unilateral discharge
By novation
Case: Re Charge Card Services (1986)
If only one party performed their obligations, the other party may agree to substitute original contract with a new one.
New contract is called novation.
Discharge will only be binding if the party being released provides some additional consideration in return for the release.
Case: Re Charge Card Services (1986)
Garage agreed to accept payment for petrol by charge card. This discharged the customer’s obligation to pay by cash, when charge card firm became insolvent, the customer didn’t have to pay again.
Discharge by agreement
Unilateral discharge
By deed
If a deed is used to unilaterally discharge a contract, no consideration is required.
Condition subsequent
Case: Bland v Sparkes (1999)
Parties agree that if a specific event occurs, the contract will come to an end.
An example, a manufacturer offering a refund, if a goods have a fault within a specific given time.
Case: Bland v Sparkes (1999)
Bland has been a swimmer and was hired by the Amateur Swimming Association to promote its award scheme. ASA could terminate the contract of Bland was convicted of any serious offence.
They later discovered that Bland had accepted bribes and secret commissions.
Held: Court of Appeal held that Bland’s conduct entitled ASA to terminate the contract.
Discharge by frustration
Case: Paradine v Jane (1647)
Case: Taylor v Caldwell (1863)
Until the development of the frustration doctrine, the contract needed to be fulfilled even if it became impossible.
Case: Paradine v Jane (1647)
Lessee was evicted during civil war.
Held: was still liable to pay rent, even after being evicted.
This was too harsh, so the doctrine of frustration emerged with case Taylor v Caldwell (1863)
Case: Taylor v Caldwell (1863)
Music Hall hired a series of concerts, but burned down before the first performance.
This frustrated the contract and hirer had no obligation to pay charges.
Circumstances in which a contract can be frustrated
Subsequent impossibility
Subsequent illegality
Non-occurrence of future event
Intervening enforced delay subsequently changes the commercial nature of the contract
Contracts of a personal nature
Performance rendered radically different
Self-induced frustration
Discharge by frustration
Subsequent impossibility
Case: Taylor v Caldwell (1863)
The subject matter of the contract was destroyed.
Case: Taylor v Caldwell (1863)
Music Hall hired a series of concerts, but burned down before the first performance.
This frustrated the contract and hirer had no obligation to pay charges.
Discharge by frustration
Non-occurrence of future event
Case: Krell v Henry (1903)
If it depends on a future event that doesn’t occur.
Case: Krell v Henry (1903)
Contract for a room hire overlooking the coronation route of Edward VII. The King became ill and the coronation was postponed.
Contract was held as frustrated.
Discharge by frustration
Intervening enforced delay subsequently changes the commercial nature of the contract
Case: Metropolitan Water Board v Dick Kerr and Co (1918)
There have been a number of cases where the powers by the government in time of war or emergency have lead to frustrated contracts.
Case: Metropolitan Water Board v Dick Kerr and Co (1918)
Contractors agreed to build a reservoir in 1914. In 1916, under emergency, wartime powers, the government ordered them to stop work and sell the plant.
It could have been restarted after the war, but it was held to be sufficiently serious to frustrate the contract.
Discharge by frustration
Contracts of a personal nature
If contract for personal services by an individual is imprisoned, dies or becomes so ill they cannot perform, the contract will be frustrated.
Discharge by frustration
Performance rendered radically different
Case: Tsakiroglou v Noblee (1962)
David Contractors v Fareham UDC (1956) —> force majeure
If the circumstances become so radically different that it changes performance, it becomes a different contract.
Case: Tsakiroglou v Noblee (1962)
The sellers agreed to take a cargo fo ground nuts from Port Sudan to Hamburg, with intention of using the Suez Canal. It was closed, so they needed to take a different route around the Cape of Good Hope, which made the journey much longer.
Held: the closure of the Suez Canal frustrated the contract, as it made it far more expensive to carry it out.
David Contractors v Fareham UDC (1956)
David was contracted to build 78 houses for the local authority. It was to take month for £94,000. Labour shortages delayed the work, so it took 22 months and it cost the builders £21,000 more. Defendant was willing to pay contract price, despite the delay, but it didn’t cover the claimant’s costs, so they tried to get it discharged in the grounds of frustration, as the labour shortages made the contract fundamentally different.
Held: the events didn’t make the contract radically different from what was expected, and delays are usually expected in building contracts. It made performance more burdensome, but not different, so it couldn’t be discharged by frustration.
Force majeure clause: if this had been included in contact, they could have covered labour shortages, and it would terminate contractual obligations, if a specified event occurs.
Self-induced frustration
Case: Maritime National Fish v Ocean Trawlers (1935)
Contract will not be frustrated by any supervening event which is the fault of one of the parties.
Case: Maritime National Fish v Ocean Trawlers (1935)
St. Cuthbert, a ship, was chartered for 1 year from owners. Both were aware that this ship needed a special license from the Canadian government, before it could be legally operated. Owners had 5 ships, but were only granted 3 licenses, which they used for 3 other ships. They claimed the charter of the ship was frustrated, due to the fact that the Canadian government didn’t grant any further licenses.
Held: the owners decided not to use one of their available licenses for this ship, so they breached contract and it was not frustrated.
Effects of frustration
Case: Fibrosa v Fairbairn (1943)
Frustration automatically ends the contract. It becomes void from the point of the intervening event.
Sums paid will be recoverable. and any sums not yet paid will not be payable.
Case: Fibrosa v Fairbairn (1943)
In 1939, an English company agreed to manufacture machinery for a Polish company for £4,800. Buyer paid £1,000 deposit. War broke out and Poland was occupied by the German army, which made the contract illegal (trading with the enemy). It was frustrated.
Held: Polish buyer could recover the £1,000.
The Law Reform of 1943 later lessened the harshness that this had caused on the seller, as it was not their fault the contract couldn’t be performed.
The Law Reform (frustrated contracts) Act 1943
When a contract was void, monies would be recoverable and not further payments would be due, with exception:
- if party incurred expenses in attempting to perform, court may allow for these to be recovered
- if party obtained benefit other than payment in money, court may order a payment that refers to it.
This Act doesn’t apply to insurance contracts or to contracts to carriage of goods at sea. Or to contracts that stipulate what is to happen if frustration occurs.
Discharge by breach
Refusal to perform
Failure to perform
When will a breach discharge a contract?
Case: Hochster v De La Tour (1853)
If breach is sufficiently serious the innocent party can:
- discharge the contract: contract will come to an end, and neither party will have further obligations. Action for breach must be immediate, and claim for damages, or for work done in quantum meruit
- affirm the contract and claim damages
Case: Hochster v De La Tour (1853)
In April, Claimant agreed to employ the defendant as a courier on a European tour, from the 1st of June.
Defendant repudiated in May.
Held: claimant was entitled to commence proceedings immediately.
Discharge by breach
Affirming the contract
Case: Avery v Bowden (1855)
Innocent party is taking a risk if they decide to affirm the contract )keep it alive) and seek performance in due date. If innocent party does then not perform, they will be liable for breach, despite the other party’s breach.
If performance becomes impossible, it may be discharged by frustration.
Case: Avery v Bowden (1855)
Ship arrived in Odessa for a cargo of wheat, but defendant told master that cargo was not available.
Master didn’t rescind, and remained there hoping that cargo would be found. Crimean war broke before the loading date.
Held: Crimean war meant that contract was discharged by frustration.
If master of the ship had accepted the breach, he could have recovered damages.
if there was breach, but not sufficient to discharge the contract. Parties must proceed with performance, but innocent party can claim damages.
When is breach sufficiently serious to discharge the contract?
- if a party has repudiated the contract
- if a party has breached a condition of the contract
- if a party has breached an innominate term of the contract and there have been serious consequences, to the root of the contract.
A repudiatory breach
Case: Daikia Utilities Services v Celtech International (2008)
A party has expressly or impliedly renounced the contract.
Refusal to perform must be clear and unambiguous, so that it amounts to repudiatory breach.
Case: Daikia Utilities Services v Celtech International (2008)
In 1995, Daikia entered a contract to provide energy for 15 years, payable by instalments. They could terminate if there was a material breach.
Celtech were late paying 3 instalments in 2003. They advised Daikia they were experiencing financial difficulties and placing it into administration. When they failed even further and asked for a different payment scheme, as they were facing insolvency. Daikia sent termination notice, Celtech paid the arrears.
Held: contract was not discharged. Celtech breached , but it didn’t amount to refusal to perform. They never said they wouldn’t pay.
Note that Celtech breached, but by serving a Termination Notice Daikia affirmed the contract, and pursued payment.
Victims of repudiatory contract are entitled to repudiate their contractual obligations. Innocent party must give notice of their intention to repudiate. It may also be implied by conduct.
A repudiatory breach
Case: Vitol SA v Norelf (1996)
Victims of anticipatory breach are entitled to repudiate their contractual obligations, only if the other party has already indicated they have repudiated.
Innocent party must give notice of the intention to repudiate. This may indicated by conduct or commercial practice.
Case: Vitol SA v Norelf (1996)
The buyer of a cargo wrongly repudiated contract due to fear of delivery delay. He informed of repudiation by telex. Seller took no further action to perform contract, therefore didn’t send the bill of lading either.
Held: absence of bill of lading should have been strong indication that the seller had intentions to repudiate.
A repudiatory breach
Consequences if innocent party decides to wait for performance
Case: White and Carter v McGregor (1962)
Case: Clea Shipping Corporation v Bulk Oil International (1984)
- Innocent party may have no duty to mitigate the loss before the date when the other party’s obligations become due. Innocent party needs to mitigate the loss, but they will only be able to do so when they are aware of repudiation or until performance not delivered, whichever comes first.
Case: White and Carter v McGregor (1962)
McGregor owned a garage. His sales manager, persuaded by White and Carter to advertise for 3 years using advertising plates displayed in council litter bins. McG didn’t want the advertising, didn’t authorise it, and wrote to W the same to cancel. They refused to accept repudiation, even though no performance had started. They proceeded to create the plates for the advertising.
Held: W performed, so was allowed to claim full sum owed. They chose not to accept repudiation, no duty to mitigate arose.
However, Law Lords stated future claims may not be successful if the innocent party had no legitimate interest in keeping the contract alive, other than claim damages.
Case: Clea Shipping Corporation v Bulk Oil International (1984)
Charterers of ship wrongly repudiated the contract before the charter was due to commence. Owner if the ship, ready to use the remainder if the charter period, took no steps to find another hirer.
Held: Owners should have mitigated their loss by seeking another charterer.
A repudiatory breach
Consequences if innocent party decides to wait for performance
Contract remains alive for the benefit of both parties.
Innocent party is not discharged from duties, until that party repudiates the contract. If the innocent party then fails to perform, innocent party can be liable for breach.
A repudiatory breach
Consequences if innocent party decides to wait for performance
Case: Avery v Bowden (1855)
If contract is frustrated before the performance date, innocent party loses any rights to sue for breach.
Case: Avery v Bowden (1855)
Ship arrived in Odessa for a cargo of wheat, but defendant told master that cargo was not available.
Master didn’t rescind, and remained there hoping that cargo would be found. Crimean war broke before the loading date.
Held: Crimean war meant that contract was discharged by frustration.
If master of the ship had accepted the breach, he could have recovered damages.
Breach of a condition
Case: Poussard v Spiers (1876)
Case: Bettini v Gye (1876)
This means breach went to the very root of the contract, and is now unlikely to be achieved.
Case: Poussard v Spiers (1876)
Madame Poussard, a lead singer in an opera, breached contract when she was too ill to appear on the opening night. The only suitable substitute wanted to be contracted for the whole run, not just the opening night.
Held: manager could treat the contract with Madame Poussard as discharged. Appearing in the opening night was an important term of the contract, as the opera would only run for as long as it was successful.
Case: Bettini v Gye (1876)
Lead singer was incapacitated during rehearsals, but was fit to appear on the opening night.
Held: not a breach of condition, merely a breach of warranty. Failing to appear in rehearsal didn’t go to the root of the contract.
Manager couldn’t treat the contract as discharged, but could claim damages for the costs of hiring a rehearsal venue.
Breach of a warranty
Breaching party breached a less significant term, which is only peripheral to the central purpose of the contract.
Breach of a warranty doesn’t make the contract unworkable.
Breach of an innominate term
Case Hong Kong Fir (1962)
Breach of a term that is not possible to determine by looking at the words used, if it is a condition or a warranty.
The core of the contract needs to be considered.
Case Hong Kong Fir (1962)
Claimant chartered a ship from defendant for 2 years. It was a term of the contract that the ship would be seaworthy.
Held: Court established this was an innominate term. Ship required a lot of work and the staff who repaired it was incompetent. But court established this wasn’t a serious enough breach to terminate the contract, because they weren’t substantially deprived of the whole benefit of the charter
Remedies
Term describing the rights of persons suffering the loss from breaches of contract.
Common Law Remedies
Damages
It is money and it’s the leading common law remedy, whenever there is a breach of contract. The intention is to compensate the injured party, not to punish the party in breach, but also not to allow injured party to make a profit.
In order for damages to be allowed the following formula needs to be me:
Loss + Causation + Remoteness + Mitigation = Damages
Common Law Remedies
Loss
Claimant can only claim damages if they have suffered loss. It will be the amount that will put them in the same position they would be if the contract had been performed.
Common Law Remedies
Loss
Loss of expectation
Most frequent way to calculate damages. It will be amount that puts the claimant in the position they would be if the contract had been performed.
Common Law Remedies
Loss
How to calculate expectation loss?
Case: WL Thompson v Robinson (1955)
Case: Charter v Sullivan (1957)
Case: Lazenby Garages v Wright (1976)
Questions to be asked:
1. Is there a value or market value?
2. Does the contract fall with the Sale of Goods Act 1979?
3. What if there is no available market price?
The loss will then have to be quantified in a less precise way.
Case: WL Thompson v Robinson (1955)
Buyers were in breach when they refused to accept delivery of car. Dealers had to then sell the car at manufacturer’s price. At the time there was little demand for this car and therefore unlikely for another buyer to be found. Buyers agreed they were in breach, but there was no difference between market value and the price lost.
Held: Court established seller was owed £61, which is the profit they would have made.
Case: Charter v Sullivan (1957)
Similar case, but the car was in such demand, sellers admitted they would be able to sell.
Because of the ability to sell, they were only awareded nominal damages.
Case: Lazenby Garages v Wright (1976)
Car was unique and made for the buyer, therefore unlikely for another buyer to be found.
In this case there was an estimate of the value of the goods.
Common Law Remedies
Loss
Loss of expectation
Case: Golden Strait Corporation v Nippon (2007)
Case: Golden Strait Corporation v Nippon (2007)
Golden Strait chartered a tanker to Nippon for 7 years in 1998. There was a clause entitling either party to terminate contract in case there was a war between 2 or more countries which included the USA, UK and Iraq. Inn 2001 Nippon repudiated. Golden Strait claimed damages. Nippon argued they would have been entitled to terminate in 2003 when Gulf War broke.
Held: House of Lords held that damages should be allowed to put injured party where they would have been if there had been no breach.
The date would be from breach, but there may have been another date to be considered.
Loss
Reliance Loss
Case: Anglia Television v Reed (1972)
There are cases where it is hard to calculate the position the claimant would have been, had the contract been performed correctly. In this case the court may award damages calculated to compensate any expenses or loss.
Case: Anglia Television v Reed (1972)
TV company was making a film and signed Reed as an actor. He pulled out at a fairly late stage, and the film was not made. As the profits ona film are difficult to predict, Anglia sought to claim back the money they spent, including the preparatory stages where before Reed was signed, as it was spent in reliance to Reed.
Held: the court held it as reasonable, as long as it met the remoteness rules. Anglia could recover all the costs before and after the contract with Reed.
Loss
Miscellaneous grounds for damages
Less quantifiable damages, such as personal injury. There are some arbitrary rules that allow the courts to compensate non-financial losses, such as physical pain and suffering, mental distress, injured feelings, loss of reputation.
Stigma Damages
Case Malik v Bank of Credit and Commerce (1998)
Case: Johnson v Unisys (2001)
Awarded where party seeks damages for the stigma they endure, their reputation having been damaged.
Case Malik v Bank of Credit and Commerce (1998)
Defendant bank went into liquidation due to dishonest and corrupt dealings. Claimant was an ex-employee and was awarded damages for the loss he incurred caused by difficulty in finding new employment, because of the mis-deeds of the employer, there was a breach of duty and confidence.
Case: Johnson v Unisys (2001)
Claimant suffered nervous breakdown after being dismissed and not being able to find a new job. He was awarded £12,000 as statutory damages for unfair dismissal. Claimant also wanted £400,000 as loss of earnings, on the grounds that the dismissal was a breach of duty of trust and confidence.
Held: Duty and confidence didn’t relate to termination of contract. Damages were already covered by the statutory scheme.
Stigma Damages
Case: Eastwood and Anor v Magnox v Cornwall County Council (2004)
Case: Aerial Advertising v Bachelors Peas (1998)
Case: Eastwood and Anor v Magnox v Cornwall County Council (2004)
2 employees claimed they were unfairly dismissed, due to deliberately being demotivated and undermined by employer, causing them psychiatric illness.
Held: employees had the right to sue for breach from behaviours before dismissal.
Case: Aerial Advertising v Bachelors Peas (1998)
Claimant contracted aerial company to advertise their product by flying an aircraft with a banner over a number of locations.
Claimant flew aircraft over Salford during the 2 minutes silences on Remembrance Day.
People were outraged and banned the product, claimant could sue for damages to their reputation,
Losses for distress
Case: Heywood v Wellers (1975)
Case: Farley v Skinner (2001)
Provided that the contract is to provide ‘pleasure or piece of mind or freedom from stress’.
Case: Heywood v Wellers (1975)
Claimant contracted with defendant solicitor to obtain an injunction to prevent ex-boyfriend from harassing her. Due to negligence, solicitor failed and she continued to be molested.
She was awarded damages for distress.
Case: Farley v Skinner (2001)
Claimant specifically requested defendant surveyor to advise whether the property he was interested in was badly affected by aircraft noise from Gatwick Airport.
Held: Claimant was entitled to £10,000 since the surveyor’s report was inaccurate.
Losses for distress
Case: Jarvis v Swan Tours (1973)
Case: Ruxley v Electronics and Construction v Forsyth (1995)
Courts will be mindful when it comes to cases of ‘softer human feelings’, specially if damages would be hard to calculate.
Case: Jarvis v Swan Tours (1973)
claimant stated they had the ‘holiday from hell’, as promises in brochure never materialised.
Court of Appeal allowed increased damages.
Case: Ruxley v Electronics and Construction v Forsyth (1995)
Garden swimming pool built to a high standard, but it was just 0.5m shallower at its maximum than contractually specified.
Aggrieved party seeked ‘cost for cure’ damages, which would be the cost of ripping off the existing one and rebuilding another, cost of £22,000.
Held: unnecessary since experts argued it was safe to use in its current configuration. Damages would be disproportionate and unfair, but agreed to award £2,500 for loss of ‘amenity’.
Causation
Case: County Ltd v Girozentrale Securities (1996)
Loss + Causation + Remoteness + Mitigation = Damages
This means person will only be liable for their own breach of contract.
Case: County Ltd v Girozentrale Securities (1996)
Claimant’s bank agreed to issue 26 million shares in a publicly quoted company.
Defendants were stockbrokers who were engaged by the claimant to apporach potential investors in the shares. Brokers breached a term in the contract, which made claimants remain with 4.5 million shares in their hands, the price fell and it represented a loss of nearly £7m.
Held: there had been a succession of events that lead to the loss, the defendant’s breach was just 1 of them.
However court, held that brokers’ breach was effective cause of loss. The breach need not be the only cause.
Remoteness of Damage
Case: Hadley v Baxendale (1854)
Loss + Causation + Remoteness + Mitigation = Damages
Claimant is not entitled to compensation for all the losses arising from the breach, as they may be endless
Case: Hadley v Baxendale (1854)
A mill owner contracted a carrier to deliver a broken windmill shaft to an engineer. Delivery was delayed and the mill was out of action for longer than necessary.
Held: mill owner recovered damages, but didn’t received compensation for loss of profits, because he couldn’t show the carrier knew the mill would stand idle.
Remoteness of Damage
2 Rules for remoteness
Case: Victoria Laundry v Newman Industries (1949)
Case: The Heron II (1969)
- Damage must arise naturally according to the usual course of events from the breach.
- The loss must be reasonably be supposed to have been within the contemplation of the parties at the time of contract.
Case: Victoria Laundry v Newman Industries (1949)
Laundry firm ordered a new boiler, it arrived late. Boiler was meant to be used for a highly profitable government contract, but supplier didn’t know that.
Held: laundry was compensated for regular loss of profit, which should have been foreseen by supplier, but not for the contract they knew nothing about.
Case: The Heron II (1969)
Ship owner was late delivering a cargo of sugar to Basra. Price had fallen when it arrived.
Held: loss of profits was recoverable, as ship owner should have been aware that goods required quick resell and that prices fluctuate.
Remoteness of Damage
Case: Transfeld shipping v Mercator Shipping (2008)
Case: Balfour Beatty v Scottish Power (1994)
Case: Transfeld shipping v Mercator Shipping (2008)
Transfeld chartered ship from Mercator and should have returned it on the 4th of May 2004.
New charterers agreed to still take the ship, despite the delay, but at a lower price.
Mercator claimed damages from Transfeld
Held: House of Lords declared Transfeld was liable for the 3 days loss, the remaining loss was too remote
Case: Balfour Beatty v Scottish Power (1994)
Balfourd were building a stretch of motorway near Edinburgh and needed constant supply to make concrete. Defendants agreed to set up a temporary supply to the concrete plant. Supply failed, so bridge couldn’t be finished and had to be rebuilt later. Balfour wanted the cost of having had to rebuild the bridge.
Held: House of Lords held that damage was too remote, as Scottish Power couldn’t predict the extent of what the building entailed.
Mitigation of Loss
Loss + Causation + Remoteness + Mitigation = Damages
Claimant must mitigate their losses, that is, injured party must take steps to keep their loss to a minimum.
Non compensatory damages (exemplary and aggravated damages)
Case: Attorney v Blake (2000)
Damages may be awarded to prevent defendant from profiting from their own breach.
Case: Attorney v Blake (2000)
former member of the intelligent services published a book and breached an obligation in his contract of service.
Held: Court deprived him from the profits of his publication.
Liquidated damages and penalty clauses
Case: Bridge v Campbell (1962)
When parties quantify in advance payable damages for various headings of breach. Usually building contracts.
This prevents expensive legal actions and helps managing disputes,
Liquidated damages clauses - if you exceed your parking time allowance, there may be a term for you to pay £10 to supermarket, for instance.
They are legitimate as long as they are genuine estimates of losses under those headings. That ism pre estimating the losses in specific circumstances.
Penalty clauses -courts will not allow these clauses to be used as punishments or deterrents. But if they are aimed to penalise and force punitive damages, these will be deemed void.
Case: Bridge v Campbell (1962)
Bridge took a vehicle in HP, paid £105 deposit and one instalment of £10. He could not keep the payments, so he returned the car in good condition. A clause in the contract made him at least 2 thirds, and the finance company chased him for it under a clause ‘by way of agreed compensation for depreciation’.
Held: clause was deemed void as a penalty.
Liquidated damages and penalty clauses
Case: Jeancharm v Barnet Football Club (2003)
Case: Tullet Prebon Group v Ghaleb El Hajjali (2008)
Case: Dunlop v New Garage (1915)
Case: Jeancharm v Barnet Football Club (2003)
Jeancharm agreed to supply Barnet FC with football kits. There was 5% interest charge for every week they paid late and Jeancharm would pay 20p penalty per garment per day of late delivery. Jeancharm was late for delivery and Barnet FC refused to pay.
Held: Jeancharm was awarded £5,000
The Court of Appeal established that the real late payment charge would be 260% per year, which was unreasonable, Because it was deemed as a penalty, it was void.
Case: Tullet Prebon Group v Ghaleb El Hajjali (2008)
El Hajjali was a specialist broker employed by Tullet, but he took legal advice first. Contracted stated that if he failed to take up the job he would be liable for liquidated damages up to 50% of his net annual salary. Solicitor pointed this out to El Hajjali before he signed the contract, but he took the job and later said he wasn’t interested. Tullet couldn’t find a suitable replacement, so they claimed liquidated damages, whist El Hajjali claimed it was a penalty clause.
Held: El Hajjali caused Tullet to suffer loss, and Tullet had taken steps to mitigate damages. It was then held that the liquidated damages were not a penalty clause. They also had equal bargaining power, as El Hajjali had legal advice.
Case: Dunlop v New Garage (1915)
Defendants agreed to damages of £5 of each tyre sold below Dunlop’s listed price.
Held: genuine liquidated damages to legitimately protect Dunlop’s interest and to discourage undercutting prices.
Debt Recovery
Late Payment of Commercial Debts Act 1998
Case: Sempra Metals v Inland Revenue (2007)
When one party performs their part of the contract and payment is not made, debt is incurred.
Late Payment of Commercial Debts Act 1998
Introduced statutory right for businesses to charge interest on late payment of commercial debts.
There are EU Directives that indicate the same.
Business are however encouraged to agree their own contractual terms providing interest to be payable if bills are late.
Interest must be ‘reasonable’.
Payment is classes as late if the following expired:
- agreed credit period
- credit period in the trade or common practice by course of dealing between the parties
- statutory period of 30 days from delivery of the invoice of the goods or service.
Case: Sempra Metals v Inland Revenue (2007)
Damages for the loss of the use of money as a result of late payment (lost opportunity)
Equitable Remedies
Claims on a quantum meruit basis
Case: Craven-Ellis v Canons (1936)
Case: Gilbert and Partners v Knight (1968)
Remedy for when a contract was part-performed, because innocent party was prevented from completing the contract by defaulting party’s contract.
It’s a payment for compensation.
Claimant may be awarded payment for work done on a proportional basis.
Case: Craven-Ellis v Canons (1936)
Claimant recovered remuneration for work as managing director, when it transpired that his appointment was void.
Price cannot be altered, even if extra work was done.
Case: Gilbert and Partners v Knight (1968)
Knight employed a firm of surveyors to supervise building work for £30. They did more than was required, so charged for £30 plus £105 for the additional work.
Held: original contract had the price fixed.
Equitable Remedies
Specific performance
Case: Cohen v Roche (1927)
Equitable remedy granted instead of damages, where damages aren’t adequate.
Specific performance will not be granted if damages provide adequate compensation.
Case: Cohen v Roche (1927)
Claimant contract to purchase Hepplewhite furniture, but seller later refused to sell.
Held: court didn’t order specific performance to deliver, on the basis that though the furniture was rare, it was not unique. So damages would be sufficient.
Contracts of the sale of land are seen as unique (each land being so), therefore specific performance is usually granted.
Equitable Remedies
Limitations on grant of specific performance
Case: Co-Operative Insurance v Argyll Stores (1997)
Case: Mallins v Freeman (1937)
Court will ensure specific performance can be enforced before granting it.
It will never be granted to or against a minor.
Case: Co-Operative Insurance v Argyll Stores (1997)
Tenant was obliged to keep shop open till the end of 2014. Business was trading at a loss and tenant had to close it. He acknowledged damages, but landlord wanted specific performance.
Held: the court refused to award specific performance.
Case: Mallins v Freeman (1937)
A bidder bought property in an auction, but thought he was bidding for an entirely different one.
Held: court refused specific performance, as it would be too harsh, but seller could pursue damages.
Equitable Remedies
Injunctions
Case: Warner Brothers v Nelson (1937)
Case: Hill v CA Parsons (1972)
Injunctions are used to obtain compliance with clauses of a negative or restrictive nature (whereas specific performance enforces positive side of contract)
Case: Warner Brothers v Nelson (1937)
Actress contracted to work for them and no one else during her contract.
Held: company was granted an injunction restraining her from breaking the clause.
It will not be used as an indirect way force full performance. The case above was just to prevent her from working for someone else, but was not to force her to work for them. Not could it be used to prevent her to take other jobs that weren’t acting.
Case: Hill v CA Parsons (1972)
Claimant was dismissed with inadequate notice.
Held: court granted an injunction restraining the company from dismissing him until adequate notice had been given.
Equitable Remedies
Injunctions - personal services
Case: Page One Records v Britton (1968)
Courts place limits on granting injunctions to personal services.
Case: Page One Records v Britton (1968)
Defendants were a pop group called the Troggs. One of the plaintiffs was their manager and they agreed not to employ anyone else for that job. They then wanted to terminate the agreement, and the plaintiffs sought an injunction to stop them from taking another manager.
Held: it was refused, because without a manager they would be unable to work.
Equitable Remedies
Injunctions - attempting to achieve specific performance
Case: Warren v Mendy (1989)
Courts watch out for the use of injunctions to achieve specific performance ‘by the back door’.
Case: Warren v Mendy (1989)
Boxer’s contract with manager gave him exclusive rights to manage the boxer for 3 years. He lost confidence in him and asked Mendy for advice on his career. Warren sought for an injunction against Mendy.
Held: Court of Appeal declined on the grounds that it would indirectly compel performance of the contract and it would leave him with no other means to earn a living.
Equitable Remedies
Rescission
Case: Leaf v International Galleries (1950)
It’s not a remedy for breach, it’s an equitable right to end the contract, where there has been duress, misrepresentation, undie influence. It will render the contract void.
Even innocent misrepresentation will suffice.
Parties must be restored to their original positions.
It must be exercised promptly otherwise the right will be lost.
If plaintiff affirms the contract, the right to rescission will be lost.
Case: Leaf v International Galleries (1950)
Picture wrongly believed by both parties to be a Constable was sold in 1944. Only discovered in 1949.
Held: this was innocent misrepresentation, but rescission not allowed due to the lapse of 5 years.
Equitable Remedies
Limitation of actions
Limitation Act 1980
After a certain amount of time, the court will not allow actions for breach of contact.
Limitation Act 1980
establishes the periods that must take place:
- Simple contract actions - 6 years from the date cause of action was accrued
- Contracts by deed - 12 years from the date cause of action was accrued
- Actions to recover land - 12 years from the date cause of action was accrued
Cause of action was accrued when breach occurred, not the date when damage was suffered.
Equitable Remedies
Limitation of actions
Latent Damage Act 1986
Case: Applegate v Moss (1972)
Case: Lynn v Bamber (1930)
The Latent Damage Act 1986 provides that if the damage is latent (undiscoverable) it will be a 6 year period, or 3 years from the date plaintiff discovers the damage.
In the case of infants, it only begins to rung when they reach 18.
In the case of fraud or mistake, it will start when it is discovered or when it should have been discovered.
Case: Applegate v Moss (1972)
Builder was hired to build a house in a specific type of foundation. Work was done badly and it was only discovered 6 years later that the house was unsafe. Limitation period had passed, but the court held there had been concealment and allowed claimant to proceed.
Case: Lynn v Bamber (1930)
Plum trees sold in 1921 were represented to be of a particular type. When they matured in 1928 it was discovered they were of an inferior type.
Held: action could still be sought.
