Pre-Contractual Liability Flashcards
William Lacey (Hounslow) v Davis (1957)
Barry J
If builder is invited to tender for certain work, there is no implication that he will be paid for the (sometimes considerable) work involved in arriving at his price
He undertakes it as a gamble, and its cost is part of overhead expense of his buines
E Farnsworth, “Precontractual Liability and Preliminary Agreemennts: Fair Dealing and Failed Negotiations” (1987)
Courts have traditionally accorded parties freedom to negotiate w/out risk of PCL
As general rule, party to PC negotiations can break them off w/out libaility at any time for any reason
CL’s “aleatory view”, a party that enters negotiations in hope of gain that will result fro ultimate agreemnt bears risk of whatever loss results if the other party breaks off negotiations
Rests on concern that limiting freedom of negotiation might discourage party from entering them
Crossco no4 Unlimited v Jolan (2012)
For the law in general to provide scope for claims in respect of unsuccessful negotiations would be likely to inhibit the efficiient pursuit of commerical neotiations, which is a necessary part of proper entrepeneurial activity
Economic argument based on idea that lefal rules chnage people’s actions, so we should engineer legal ruels that incentivise economic efficiency
Why have PCL?
Sometimes it is efficent for C to udnertake work ebfore contract is concluded
Might make it quicker to get product out on com[letion, or help define what the project is going to be.
Since it is efficient for these things to happen, would expect parties to have collateral contract for C to do this work and D to bear some of the risk.
Don’t need legal rules there, parties can form collateral contract
Walford v Miles (1992)
Lord Ackner
Reason why agreememt to negotiate is unenforceable is because it lacks necessary certainty.
How can court objectively decide of proper reason existed fro termination of negotiations.
“Good faith”? Inconsistent w adversarial position of negotiating parties.
Schwartz and Scott “Precontractual Liability and Preliminary Agreements (2007)
Parties make a preliminary agreement bc they cannot write a complete contract at the outset.
Profitable project may take many forms, and which form will work is unknown at the start
Parties invest in interm as this accelerates realisation of returns
Also, investment clariies what type of project could succeed
Prelimiary agreements are thus commonly exploratory
It is efficient for contract law to protect the promisee’s reliance interest if his promisor deviated from an agreed investment sequence
A reliance recovery will encourage parties to make preliminary agreements and will deter some strategic behaviour
O Ben-Shahar and J Pottow “On the Stickiness of Default Rules””
“unfamiliar terms may…raise suspicions and scare away potential counterparties.”
R Scott ‘A Theory of Self-Enforcing Indefinite Agreements’ (2003)
Commercial parties may deliberately opt for incomplete agreements as they prefer to trust that notions of reciprocal fairness will provide a sufficient incentive for performance.
What is current position of PCL in UK law?
Soetimes use UE like in Cobbe, sometimes collateral contract, sometimes estoppel
Not always clear on what basis the court makes the award
Countrywide Communications v ICL Pathway (2000)
Nicholas Strauss QC
impossible to formulate clear general principle governing the different factual situatiosn which have arisen let alone those which could easily arise in other cases.
In absence of duty of GF, this is unsurprising
Difficulty caused by categorising as UE for D what is really a loss unfarily sustained b C
Much to be said for broad pricniple enabling either to be recompensed, but none is clearly established in EL
Court may impose obligaiton to pay for benefits resulting from services performed in course of a contract whether the negotiations were expressly made subject ot contract or not
Walfor v Miles (1992), Limits to contractual claims
Lord Ackner
Duty to negotiate in GF is as unworkable in practice as it is inherently inconsistent w the position of a negotiating party.
WHile negotiations are in existnece either party is entitled to withdraw, any time any reason
Can be thus no obligaiton to continue to negotiate until there is a “proper reason” tow thdraw
Accordingly, bare agreemtn to engotate has no legal content
May & Butcher v R
Lord Buckmaster
pricnipel of contract law that an agreement between 2 parties to enter into an agreement in whcih some crtical part of the contract amtter is left undetermined is not contract at all
Perfeclty possible for 2 people to contract that they will sign a documetn that contains all the relevant terms, but not to agree that they will in future agree on a matter that is vital to the arrangement and has not yet been determined
Finding a Principal Contract
SGA 1979, s8:
(1) The price in a COS may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties.
(2) Where the price is not determined as mentioned in ss(1) the buyer must pay a reasonable price.
(3) What is a reasonable price is a question of fact dependent on the circumstances of each particular case.
Way v Latilla (1937)
Shared understanding that C’s services were to eb paid for was given effect to through implied contractula term for reasonable remuneration
Lord Atkin: there existed between the aprties a contract of employment under whcih C agreed to work for D in circumstnaces that clearly indicate the work was not to be gratuitous
C was entitled to a reasonable remuneration on the implied contract to pay him quantum meruit
RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH (2010) SC
agreed stipulation that parties’ agreement should not become effective until each party has executed and exchanged a counterpart did not prevent contract arising without those
Lord Clarke
circumstances pont to fact that there was a binding agreement
Agreemtn to vary contract was reached w/out suggestion that this was subject to contract
Clear inference = parites agreed tow aive subject ot contract clause
Reasonable honest businessman would have concluded the parties intended work be carried out for agreed price on agreed term, w/out necessity for formal written contract, which had been overtaken by events
Brewer Street v Barclays
“subject to contract” negotiations for grant of lease
C agreed to make alterations for procepective tenant, who agrees to pay for them - negotiations fail and alteration give no benefit to C
Somercell L says D is contractually liable as resul of promise to pay
Denning LJ prefers resitutionary analysis as any contractual laibility was condicitonal on grant of lease and not ocntractual laibility can be imposed
“the parties themselves did not envisage the situations which has emerged adn did not provide for it: and we do not knwo what they would have provided had they envisaged it”
Cobbe v Yeoman’s Row
Lord Scott in personam remedy (a)
Unjust enrichment
“Since the planning permission was obtained at the expense of [C] it is very easy to conclude that [D] has been enriched at his expense and, in the circumstances that I need not again rehearse, unjustly enriched.”
Cobbe v Yeoman’s Row
Lord Scott in personam remedy (b)
quantum meruit
C did not intend to provide hsi services gratuitously, nor did D understand the contrary.
D knew he provided services i xpectation of becoming purchaser, so no fee was agreed
In event expected contract no materialise, quantum meruit = CL remedy to which C = entitled
amount would represent extend of the UE for wheich D should be accountable to C
Cobbe v Yeoman’s Row
Lord Scott in personam remedy (c)
Consideration which has wholly failed
Where agreement is reached under which an indvidaual provides money inservices in return for legl but unenfoceable promise that promisor then refuses to carry out, C would be entitled to restitutionary remedy
The consideration for which money was paid and services rendered would have wholly failed
Benouard v Compass Group (2010)
Beatson J
Where the parties have not reached an agreement, but one has rendered services, a non-contractual restitutionary obligation may arise
No clear general pricniple has been identified to govern the different factual situations which have arised as to whether or not a restitutionary claim can successfully be made for work done in anticipation of a contract which deos not materialise
Beatson J
Relevant factors for recovery
(i) Has D received immediate financial gain or saving of expense? or requested C to rpovdei services/accepted them knowing C did not intend to give them for free? (e.g. British Steel Corp v Cleveland Bridge)
(ii) Has D behaved unconscionably in declining to pay for the benefit received?
Beatson J
Relevant factors against recovery
(i) Did C take the risk that he would only be reimbursed for the expenditure if there was a concluded contract? Should the risk, in all circumstances, fall on C?
(ii) Were C’s costs incuurred for purpose of putting C in position to obtain and then perform the contract (MSM COnsulting v Republic of Tanzania)
Countrywide Communications Ltd v ICL Pathway Ltd (2000)
The Enrichment Question
Nicholas Strauss QC
Difficulty caused by categorising as UE for D what is really loss unfairly sustained by C
See e.g. Brewer Street, no benefit to D as result of C carrying out work on own land
CPS v Eastenders Group (2015)
Does receiver have claim against CPS as he cannot be paid out of companies’ assets as agreed?
Lord Toulson
CPS fulfilled its obligatiosns by snuring the order appointing hm conformed w the terms of the underlying agreemtn between them.
But the receiver is entitled to recover his proper remunderation and expenses bc te work was done and expenses incurred at the request of CPS and there has been failure of basis on whcih he was asked and agreed to do so
Benedetti v Sawiris (2014)
Where market value of C’s servces is different to their value to D, what is extent of D’s enrichment?
To protect D’s freedom, he can show he would have paid less or even nothing for those services.
C cannot show that D would have paid more however
But note, if there is no wiider market for the services, and C and D agreed a [price fo rthose serices, that price may determine the extent of D’s enrichment as it provides the only evidence of the obkective value of the services
Lloyd v Dugdale (2002)
If D promises to grant lease to C, then C, if reasonably relying on that promise by undertaking preparatory work, may have a claim in proprietary estoppel
Thorner v Major (2009)
Lord Walker
“scholarly consensus” that PE is based on 3 main elements
a representation/assurance made to C
Reliance by C
Detriment to C in consequence of reliance
Walton v Walton
Sometimes promises were made without intention to create legal obligation (necessary to create binding obligations)
Several reasons why law might be reluctant to assume there was intention
In this case, the promises was subject to unspoken and ill-defined qualifications.
When D first made promise to say, dodnt know what might happen, may become inappropriate for C to get farm, but con must be performed come what may.
Hence, C, has always accpeted what the promise could not have been intended to be a contract
But none of this reasoning applies to equitable estoppel, because it does not loo frwoard and guess what might happen, looks backwards from momnet the prmise falls to be performed adn asks whether it would be unconscionable for promsie to not be kept
Thorner v Major, Lord Walker at [56]
To establish PE, assurance must be clear enough.
What = enough, depends on context
Hoff in Walton put it well: “The promise must be unambiguous and must appear to have been intended to be taken seriously. Taken in its context, it must have been a promise which one might reasonably expect to be relied upon by the person to whom it was made.”
Cobbe v Yeoman’s Rom (2008) Lord Scott at [14]
Estoppel bars the object of it from asserting some facts or some mixture of fact and law that stands in way of some right claimed by person entitled to benefit of estoppel
The E becomes PE if the right is proprietary, usually over land, but in principle available to chattels or CIAs too
But see Thorner v Major, successful PE claim based on D’s promise that C will acquir right
Lord N in Thorner [96-97]
Domestic/commercial distinction?
Analysis of law in Cobbe was against very different facts
Relationship was commercial, and C was experienced businessman
Circumstances = parties could well have been expected to enter contract, but chose not to
Here, relationship = familal and personal, and neither had commercial experience, or had even contemplated entering formal contract re farm
Achom v Lalic (2014)
Newey J
“the Courts must beware of accepting proprietary estoppel claims too readily in commercial contexts.”;
Crossco No 4 v Unltd Jolan (2012)
Re domestic vs commercial context
Arden LJ
For law in general to provide scope for claim re unsuccessful negotiations that do not result in enforceable contracts would liklely inhibit the efficient pursuit of commercial engotiation, which is part of proper entrepeneurial activity
So really the same quote as before, jsut remember it in this context too lol
Sutcliffe v Lloyd (2007)
Wilson LJ
Rejects D’s suggesion that PE can only arise where C believes D made legally binding promise
Equity intervenes to make promise unable to be revoked, not at time made but significantly later, namely in event that promisee acted to his detriment in relance and promisor sought unconscionably to withdraw from promise
Equity does not require promisor to mis-state the law
Cobbe v Yeoman’s Row
Re: promise capable of being reasonably understood by C as intended by D to be capable of being relied on by C
No agreement whether the lad was to be transferred to C or, e.g., to a company set up by C
No agreeent as to mechanism by which D would get security for overage position
Lord Walker, “the matter which were not agreed (or even under negotiation) were far from trivial”
Thorner, Lord N at [93]
“there was total uncertainty as to the nature or terms of any benefit (property interest, contractual right, or money) and, if a property interest, as to the nature of that interest (freehold, leasehold or charge) to be accorded to [C].”
Kinane v Mackie-Conteh (2005)
D’s company needs mone to set up letter of credit so can buy rice from overseas supplier
C willing to lend but needs security, D seds signed letter agreeing to give C charge over D’s home - C provides money
No contract as letter was not signed by both C and D
But C acted in reliance on D’s promise and would suffer detriment if D were wholly free to renege
CA confirms that D is under duty to grant C the promised charge
Thorner v Major, Lord Waler at [61]
Need in PE for the assurance to C to relate to property owned by D
That = one of the main distinguishing features between the two EE varieties (prom and prop)
Former must be based on pre-exisitng legal relationship
Latter need not be based on exisitn legal relationship but must relate to identified prop owned or about to be owned by D
It is this that has enabled PE to develop as a sword, not just a shield
See Denning in Crabb v Arun
Crabb v Arun (1976) Lord Denning
relied on his own judgment in Moorgate v Twitchings (1976), shortly to be overturned by HL, to support idea that the effect of estopel on true owner of prop may be that “his own title to the property, be it land or goods, has been held to be limited or extinguished, and new rights and interests have been created therein.”
Moorgate v Twitchings, Lord Dennign
Referred to principle (now @ s21(1) SGA) that where S sells A’s G to B, w/out A’s auth, A may by his conduct be precluded from denying S’s auth to sell
Eastern Distributors v Goldring (1957), Devlin J
Compare to Dinning in Moorgate
Says that such a case in fact involves S’s exercise of ostensible authority, so that B acquires a “real title and noe merely a metaphorical title by estoppel”
Compare Waltons Stores (Interstate) v Maher (1988) HCA
EE allowed to assist C (prospective tenant) where D fails to proceed w a planned lease of C’s land
Brennan J:
Unless the cases of PE are attributed to a different equity from that which explains PromE, the enforcement of promises to create new prop rights cannot be reconciled w limitation on enforcement of other promises.
If it is unconscionable for an owner of prop to fail to fulfil non-con promises that he will convey an interest in prop to another, is there any reason in pricniple why it is not unconscionable for person to fail to fulfil a non-con promise to confer non-prop legal right?
does not accord w pricniple to hold that equity, in seeking to avoid detriment occasioned by unconscionable conduct, can give relief in some cases but not others
Salvation Army Trustee Co Ltd v West Yorkshire MCC (1981)
proprietary estoppel claim permitted where D attempts to renege on promise to buy C’s land
Baird Textile Holdings Ltd v Marks & Spencer plc [2001]
C’s belief that its contract would be renewed arose solely from the long-standing nature of its arrangement with D and D had made no promise to acquire a particular quantity of garments from C, or to do so at a particular price
Western Fish Products Ltd v Penwith District Council (1981) CA
C’s development of own land cannot support PE claim
But note that: (i) C acted in reliance on belief that planning permission would be granted, now clear that a promise by planning authority cannot give rise to private law liability (R v East Sussex, ex p Reprotech (2003))
and (ii) C in any case did not rely on the assurance as its chairman in any case had an “absolute conviction” that it could use the land as it wished
Combe v Combe (1951) CA
Note that
(i) it was still open for C to apply to court for maintenance, and the court could make any order it regarded as just, so its not clear that C’s reliance caused any detriment
(ii) promises of maintenance were generally understood as providing basis for an application for a consent order was not an act of reasonable reliance on D’s promise
(iii) C’s delay meant that C was claiming 6 years of maintenance payments, so it may in any case not have been unconscionable for D to refuse to pay the whole sum: see per Denning LJ
Lord Walker in Cobbe at [92]:
Broad concept of unconscionability playing useful role in refining the doctrine
as an objective value judgment on behaviour… unconscionability plays very important part in doctrine of EE, in uifiying and cofirming the other elements
If the other elements appear to be present but the result does not shock the conscience of the court, the analysis needs to be looked at again
