Elements in a Contract XXIX – Voidable Contracts

A contract is voidable when the terms of the contract continue to exist but the innocent party or the aggrieved party has a choice of either following through with the contract or otherwise. As a general rule contracts involving minors are voidable.

In Corpe v Overton (1833) a minor paid a certain amount of money towards a partnership that was to be formed in the future. He subsequently repudiated the contract and the court held that he was entitled to get his money back i.e. he was under no obligation to continue with the contract.

In Steinberg v Scala (Leeds) Ltd (1923) however, a minor paid some money towards acquiring some shares. She later made another payment and then decided to withdraw the payment and requested for the subsequent payment to be returned. The court rejected her request on the grounds that she received something in return for the sum that she had paid i.e. the shares.

Both the plaintiffs in Corpe v Overton (1833) and Steinberg v Scala (Leeds) Ltd (1923) at the time they entered into the contract were unaware of how things would pan out in the future. In the former however the plaintiff did not receive anything in return for the monies he had paid while in the latter the plaintiff did receive something in return for what she had paid.

When one of the parties in a contract has entered into a contract but suffers from a mental disability, is intoxicated, is illiterate or has little knowledge of the language the contract is in, the contract is voidable provided that the other party is aware of the condition of the party he or she is contracting with. If the other party is not aware than the general rule is that the parties would be bound by the terms of the contract.

In Thompson v London, Midland and Scottish Railway (1930), the plaintiff purchased a ticket from the railway company and thereafter boarded a train. On the ticket, which was obtained at the time of the purchase there was a clause (an exclusion clause) that stated that the Railway Co. will not be liable for any personal injury incurred during travel. The plaintiff was unable to read the clause because she was illiterate. The plaintiff was injured during her journey and brought an action against the Railway Co. who relied on the exclusion clause to escape liability. It was held that the clause was a valid term of the contract and the fact that the plaintiff could not read did not make a difference.

In L’Estrange v Graucob (1934) the plaintiff purchased a vending machine and signed a contract with the defendant company without reading the fine print on it which contained an exclusion clause. The vending machine proved defective and the plaintiff brought an action against the defendant company. It was held that regardless of the fact that the plaintiff had not read the fine print in the contract, as long as the party signs the contract then it will be deemed that the party has read the terms in the contract and is thereby bound by the said terms.

In Hart v O’Connor (1985) (Privy Council) a buyer entered into a contract with the seller for the sale of some land. At the time he entered into the contract the buyer was unaware that the seller suffered from a mental disability. The seller later tried to repudiate the contract but the court held that there was a valid contract in place.

In most instances and circumstances especially in contracts of sale and purchase the condition of the parties will become apparent at the time of negotiations for example if someone is drunk it would be fairly obvious and likewise if a person suffers from a mental illness it would be fairly apparent and therefore the rule that the contract is only voidable if one party is aware of the other party’s condition is one that is reasonable.

Admittedly the decision in Thompson v London, Midland and Scottish Railway (1930) may be deemed to be slightly unjust but it is an exception and it is difficult to make laws to cover all possibilities or eventualities. In most instances there is always going to be some exception that the law doesn’t cater for.

The rule also exists to prevent a plaintiff or a defendant from feigning that he or she lacked the capacity to enter into a contract. Say for example when a party to a contract has sufficient understanding of the language to comprehend the terms in the contract but later in an attempt to set aside the contract says that he or she does not understand the language.

In Barclays Bank v Schwartz (1995) the defendant tried to escape liability by arguing that he lacked the capacity to enter into contracts which left him owing £0.5 million by claiming that he did not have sufficient language skills to enter into the contracts. The court held that, if he had sufficient skills to realize he is entering into a contract then he is liable.

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Elements in a Contract XXVIII – Privity of contract

The privity rule applies to third parties in a contract. Third parties in a contract are defined as persons who have not provided any consideration but stand to derive some benefit from the contract. In Beswick v Beswick (1968) the plaintiff’s husband sold a business to his nephew with the stipulation that an annual income be made to him and upon his death to his wife. The nephew failed to make the stipulated payments, following his uncle’s death, as agreed, and the plaintiff sued. Under normal circumstances the plaintiff would not be able to sue because she was not a privy to the contract but because she was also the executor of the deceased’s estate, she was able to bring the matter before the courts.

The Law Commission Report 1996 – Privity of Contract, highlighted some of the difficulties caused by the rule especially in insurance contracts and other contracts that sought to confer rights on third parties like construction contracts and in such instances the aggrieved party had to commence an action in tort as opposed to suing for a breach of contract to obtain a remedy.

Subsequently the Contracts (Rights of Third Parties Act) 1999 was enacted and it diminished the application or the scope of the privity rule. Section 1 (1) – Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if –

(a) the contract expressly provides that he may, or

(b) subject to subsection (2), the term purports to confer a benefit on him

Section 1 (2) – Subsection (1) (b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

It is however worth knowing the privity rule because a lot of the cases in contract law were decided prior to 1999 and at a time when the privity rule was very much alive. The basis of the rule is straightforward enough i.e. one cannot hope to obtain some form of benefit under a contract unless one has provided some form of consideration, which sometimes left parties who intended to confer benefits on their next of kin for example spouse or their children, out on a limb.

The Contracts (Rights of Third Parties Act) 1999 has however remedied any shortcomings that may result from strict application of the privity rule and it paves the way for more equitable outcomes.

In Tweddle v. Atkinson (1861) the parents of the bride and groom agreed to pay a certain sum of money to the groom upon his marriage to the bride. The bride’s father died before the payment could be made and the groom brought a claim against his estate. The court ruled that because consideration did not move from him, he was unable to claim i.e. he was a third party to the contract and therefore he was not entitled to claim.

In Scruttons Ltd v Midland Silicones Ltd (1962) the carriers (a shipping company) and the plaintiffs entered into a contract to transport drums of chemicals. The contract contained an exclusion clause which limited liability for any damage incurred to the amount of £179 per drum. While the stevedores were loading the drums onto the ship one of the drums incurred damage in excess of £179 and the plaintiffs sued for the full extent of the damage. The defendants (the stevedores) claimed that the damage should only be limited to £179 but the court found in favor of the plaintiff. Applying the privity rule it was held that the defendants could not limit their liability to the amount stated in the contract because they were not privy to the contract.

Despite the application of the rule prior to the enactment of the Contracts (Rights of Third Parties Act) 1999, the courts have displayed a willingness, depending on the facts of the case, to depart from the rule.

In Jackson v Horizon Holidays (1975) the plaintiff booked a holiday with his family aboard based on what had been advertised. When they arrived at their holiday destination they found that the living accommodations were nothing like the advertisement and the conditions were unsatisfactory. As a result, the plaintiff sued for compensation not only for himself but also for his wife and family. It was held that the plaintiff was not only entitled to recover for the disappointment that he’d suffered but he was also able to recover for the disappointed incurred by his wife and children, despite the fact that the wife and children were not privy to the contract.

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Elements in a Contract XXVII – Rescission

Rescission is an equitable remedy that is available for misrepresentation. The effect of misrepresentation is that the contract becomes voidable i.e. the contract continues to exist until the innocent or aggrieved party chooses to set it aside as opposed to a contract that is void where it is no longer possible to comply with the terms of the contract.

It is available for all three categories of misrepresentation and its intent is to put the parties back in the same position they were in before the contract was made.

In Car and Universal Finance Co Ltd v Caldwell (1965) the defendant sold a car to a buyer who purchased it with a nominal sum, a cheque and left behind his own car as security. Once the buyer had taken possession of the car, the defendant attempted to cash the cheque and the cheque bounced. The defendant immediately notified the police and the other relevant authorities but by that time the buyer had disappeared with the car. The buyer later sold the car to a car dealer who in turn sold it to a third party who bought it in good faith. The Court of Appeal held that the contract had been rescinded as soon as the defendant had contacted the police and the other relevant authorities. The moment he did that the car had returned to him.

It is worth comparing the decision in Car and Universal Finance Co Ltd v Caldwell (1965) with the decision in Lewis v Avery (1971) – the plaintiff sold his car to the buyer who used a false name and purchased the car with a cheque. The cheque later bounced but in the meantime the buyer had sold the car to a third party. The plaintiff brought an action in court to have the contract rescinded but the court refused. To allow the contract to be rescinded would be unfair to the purchaser who had bought the car in good in faith. Rescission is an equitable mechanism and therefore the courts will try and be as just and as fair as possible when awarding it.

There are however certain instances or circumstances where the parties cannot be put back to their original positions or their precontractual positions and in these instances or circumstances the innocent or aggrieved party may no longer be able to rescind the contract.

In Vigers v Pike (1848) which concerned the sale of a mine, the court ruled that rescission would not be possible because by the time the matter was brought before the court, the mine had been exhausted.

In Long v Lloyd (1958) the plaintiff advertised a lorry for sale and in his advertisement he stated that the lorry was in excellent condition. The defendant who’d read the advertisement contacted the plaintiff stating his intention to purchase the lorry. Before the sale was concluded the defendant test drove the lorry and found that there were numerous faults with it.

The defendant conveyed his concerns to the plaintiff who offered to pay for half the repairs and the defendant accepted. Once the sale was concluded the lorry broke down completely and the defendant wished to rescind the contract. The plaintiff sued. The court held that by accepting the plaintiff’s offer to make payments for half the repairs the defendant had waived his right to rescind the contract.

In Leaf v International Galleries (1950) the parties entered into a contract to sell and purchase a painting done by a prominent artist, John Constable, and at the time of sale both parties believed the painting to be indeed the work of the artist. 5 years down the track when the purchaser tried to resell the painting it was discovered that the painting was not a Constable and as soon as the buyer realized his mistake he tried to rescind the contract.

The courts held that the contract cannot be rescinded because it was up to the purchaser to take all the necessary measures to ensure that the painting was indeed what it was made out to be or to do so within a reasonable time. 5 years was just too long a period and the contract could not be rescinded because of a lapse of time.

The court further added that rescission is an equitable remedy and therefore it is at the discretion of the courts to either award it or otherwise.

In Zanzibar v British Aerospace (Lancaster House) Ltd (2000) the Zanzibar government purchased a jet from British Aerospace and failed to make the necessary payments. British Aerospace repossessed the jet and resold it. Several years later the Zanzibar government made a claim to have the contract rescinded because of representations made during the negotiations. The court refused. The lapse of time had caused the right of rescission to be lost.

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Elements in a Contract – XXVI – Injunctions

The second type of equitable remedy that the courts will award is an injunction and it is basically an order to stop a person or a company from doing something. While the earlier remedy of specify performance compels a party to act, injunctions do the exact opposite.

Let’s say for example that Jack and Jill are neighbors. Jack happens to be a bit of a handyman and his favorite hobby or pastime is to make improvements to his house. So, whenever he has a day off, especially Sundays, he drills holes in his walls. The sound drives Jill, his next-door neighbor, who works six days a week at the local hospital, insane. Unable to tolerate the noise any longer, she approaches the court for an order to stop Jack from drilling holes in his walls on Sundays. Such an order is called an injunction.

Likewise let’s say that Lakeside Mining Corporation has acquired a certain property and based on geological studies the property it has acquired is rich in minerals. Lakeside then makes it public that it intends to mine in the area and kicks off its mining operation by bringing in heavy machinery and the other equipment needed to facilitate the mining process.

The ensuing ruckus, caused by the trucks and the other heavy machinery, and the pollution that results from large tires and steel tracks churning up clouds of dust, causes a great deal of discomfort to the other residents in the area and the angry residents form a group and approach the court for an order to stop the mining prior to Lakeside Mining Corporation starting any work. Like in the earlier example the order that the residents would seek is an injunction.

Therefore, there are two types of injunctions: –

i) Mandatory injunction: – normally taken out once work has commenced or started like in the example of Jack and Jill given above and

ii) Prohibitory injunctions: – Normally taken out before the act has been started as in the example of Lakeside Mining Corporation.

In Lumley v Wagner (1852) the plaintiff had obtained the services of an opera singer who he had employed to sing at his theater. The employment contract stipulated that the singer, while she is employed by the plaintiff, could not perform at another theater. Subsequently, the owner of another theater approached the singer and offered her more money to sing in his theater. The defendant (singer) agreed and the plaintiff sought an injunction against the defendant to stop her from moving until such time as she had completed her contract. The court granted the plaintiff an injunction.

In Warner Bros v Nelson (1937) the defendant was employed by the plaintiff and as part of her contract she was not allowed to act for another company or take up employment with another company for 2 years. The defendant tried to take up employment with another company during the 2 year period and the plaintiffs successfully obtained an injunction against the defendant that prohibited her from doing so.

In Page One Records v Britton (1968) however, a pop group, the Troggs, had a five-year contract with their manager. There was a misunderstanding and the group wanted to replace him. The manager sought an injunction against the Troggs to stop them from doing so. The courts refused to grant an injunction on the grounds that it would compel the pop group to continue to employ their manager even when it had become clear that they no longer wished or desired to do so.

Because an injunction is an equitable remedy it is normally at the discretion of the courts – as per the maxim “equity varies with the length of the Lord Chancellor’s foot”. In Wrotham Park Estate Co Ltd v Parkside Homes Ltd (1974) the defendant built houses on his land in breach of a restrictive covenant (an agreement that requires the buyer to abstain from doing something). One of his neighbors sought to obtain an injunction to have the houses demolished but the courts refused because houses were scare and to allow the order would be a needless waste of resources.

In Warren v Mendy (1989) a boxer had an exclusive contract with his manager but during the term of the contract the boxer lost confidence in his manager and sought advice elsewhere. His manager sought an order (injunction) to stop the boxer from obtaining advice elsewhere and the court refused.

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Elements in a Contract XXV – Specific Performance

In addition to common law remedies for breaches of contract there are also remedies that are provided by equity and they come into play when common law remedies fail to deliver a just outcome. As per the norm equitable remedies are governed by equitable principles or the rules of equity and for breaches of contract the types of equitable remedies that the courts will allow are as follows: –

i) Specific performance and

ii) Injunctions

Specific Performance

Specific performance simply means that the courts will compel a party to a contract to perform their duties and obligations under the contract.

In Nutbrown v Thornton (1805) the plaintiff entered into a contract with the defendants to purchase some machines. Subsequently the defendant refused to deliver the machines and because the defendant was the sole vendor for that type of machines, the plaintiff brought an action against the defendants and sought specific performance as a remedy. The court granted specific performance and compelled the defendants to perform their duties as stipulated by the contract.

The above however would not have been the case if the machines were available elsewhere. In Cohen v Roche (1927) the plaintiff a furniture shop owner entered into a contract with the defendants to purchase a certain type of chairs. The defendants subsequently failed to deliver the chairs and the plaintiff sued for breach of contract and requested for the remedy of specific performance. The court did not grant specific performance despite there being a breach of contract because the chairs could be purchased elsewhere.

In order for specific performance to be granted the party requesting for specific performance must have acted fairly or equitably. In Walter v Morgan (1861) the defendant had acquired some land and the plaintiff compelled the defendant to sign a lease allowing the plaintiff to mine on the land. The defendant once he’d discovered the true value of the land refused to allow the plaintiff to mine and the plaintiff brought an action against the defendant requesting for specific performance to be granted. The court refused. Specific performance is an equitable remedy and the equitable maxim that he who comes to equity must come with clean hands applies.

In Lamare v Dixon (1873) the defendant sought to rent some cellars from the plaintiff and when he went to make an inspection of the cellars he discovered that the cellars were damp and requested that the plaintiff make the cellars dry before the defendant used the cellars. The plaintiff agreed to do so but subsequently failed to carry out his promise and the defendant refused to continue with the arrangement. The plaintiff sought an action for breach of contract and requested that the defendant be compelled to take possession of the cellars. The court rejected his claim. The plaintiff had acted unfairly himself and therefore he could not compel the defendant to continue with the contract. In other words, he wasn’t entitled to an equitable remedy because he hadn’t acted equitably himself.

Specific performance is normally granted when damages are nominal or are not sufficient to cover the breach. In Beswick v Beswick (1968) the plaintiff’s husband sold a business to his nephew with the stipulation that an annual income be made to him and upon his death to his wife. The nephew failed to make the stipulated payments, following his uncle’s death, as agreed and the plaintiff sued. It was held that that the aunty despite not being privy to the contact was able to sue because she was also the executor of her husband’s estate and the courts via the remedy of specific performance compelled the nephew to pay the stipulated annual payments. If they’d awarded damages instead of specific performance, the damages would be nominal and the plaintiff would most likely lose out.

Specific performance because of its equitable nature will not be granted if it would cause undue hardship to one of the parties. In Patel v Ali (1984) the defendant had agreed to sell her house to the plaintiff. Four years had lapsed since the parties entered into the agreement and in that time the defendant’s husband had gone bankrupt and the defendant had become disable due to an illness. The plaintiff requested for specific performance to compel the defendant to sell her house but the courts refused on the grounds that compelling the defendant to follow through with the conditions or stipulations in the agreement would cause undue hardship to the defendant.

Certain types of contracts would not be granted the remedy of specific performance especially in circumstances where to do so would require the continuous performance of a duty. In Ryan v Mutual Tontine Association (1893) where the lease on a flat required that a porter be in constant attendance, the courts refused to grant the remedy of specific performance because to do so would require that a porter be in attendance at all times, for the duration of the lease.

The decision in Ryan v Mutual Tontine Association (1893) however has to be compared with the decision in Posner v Scott-Lewis (1987) where the plaintiffs, who rented a luxury flat, sought to enforce their landlord’s undertaking that there would be a porter handy. The courts granted specific performance on the grounds that there was no continuous duty imposed.

In Co-Op Insurance v Argyll Stores (1997) the plaintiffs, developers of shopping centers, had granted the defendants a 35-year lease to operate a supermarket with the stipulation that the supermarket should not be closed for more than four months in the entire 35-year period because the customers from the supermarket generated income for the other smaller retailers in the shopping center.

15 years into the lease, the defendants realizing that they were running at a loss sought to vacate the supermarket. The plaintiffs offered to allow the defendants to rent the premises at a lower rate but the defendants refused. The plaintiffs brought an action in court seeking to compel the defendants to do so. Their claim was rejected by the House of Lords because under normal circumstances the courts would not compel a party to carry on with business. In addition to that despite the offer to rent the premises to the defendants at a lower rate it was difficult to estimate the defendants turn-over or profits in the next 20 years.

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Elements in a Contact XXIV – Restitution

Restitution occurs when a party to a contract has not performed his or her part and instead of claiming damages the other party may want to just claim the money they’ve paid. For example, let’s say that a dancer was contracted to perform at an event and the organizers had paid her an advance in order to secure her performance.

She was not the main act but rather the supporting act and on the day of the event, for some reason or other, the dancer did not turn up. Despite the fact that the dancer has breached her contractual duties or obligations, the organizers may simply want to claim the advance that they’d paid back. Restitution simply means returning to the owner what is rightfully theirs.

Restitution is awarded when there has been a total failure of consideration. In Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour (1943) a company in England entered into a contract with a company in Poland to supply machines. The buyer agreed to make partial payment prior to delivery on the understanding that the full amount would be settled once the machines were delivered. Subsequently Germany invaded Poland and the machines could not be delivered. It was held that the contract had come to an end because it was no longer possible to fulfill the terms in the contract and the purchasers were able to claim the advance that they had paid because the contract could not be fulfilled.

In Kleinwort Benson Ltd v Lincoln City Council (1999) a bank had paid a local council for certain financial transactions which at the time of making the payments, the bank was under the impression that such payments were legal. It later turned out that the payments were illegal and the court ruled that the payments should be returned to the bank. The bank had made a mistake and therefore was entitled to claim what was rightfully theirs.

When there is a partial failure of consideration however, the plaintiff is not entitled to recover the monies he or she has paid unless it falls within the ambit of the Law Reform (Frustrated Contracts) Act 1943. S1 – Where a contract governed by English law has become impossible of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further performance of the contract, the following provisions of this section shall, subject to the provisions of section two of this Act, have effect in relation thereto.

S2 – All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged (in this Act referred to as “the time of discharge”) shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be so payable:

Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.

In Hunt v Silk (1804) a tenant and a landlord contracted for a lease to be executed within 10 days with the condition that the landlord was to make necessary repairs to the premises. The tenant was allowed to take possession immediately after he’d paid £10. The landlord failed to make the stipulated repairs or execute the lease, as agreed, within 10 days and after waiting a few more days the tenant left the premises. The tenant brought an action to claim the £10 he’d paid but his claim was unsuccessful. It was held that if the party had received any benefit from the contract i.e. in this case he’d lived on the premises for slightly more than 10 days then failure (consideration) was not total.

In Ferguson Associates v M. Sohl (1992) builders were contracted to make certain renovations to the defendants’ premises. Midway during the renovations there was a dispute between the parties and the builders walked off. The defendants then employed another company to complete the work and it also came to light that the builders had overcharged the defendants. The builders brought an action for the rest of the contractual price and the defendants counter claimed for the sum they’d overpaid. The Court of Appeal held that the contract was no longer enforceable and the builders were entitled to a nominal sum (£1) and that the defendants were entitled to the sum they’d overpaid.

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Elements in a Contract XXIII – Remedies -Damages III – Causation & Remoteness II

In Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd. (1949) the plaintiffs contracted to purchase a boiler from the defendants for use in their existing laundry business with the intention of expanding their business. The plaintiffs were also vying for a lucrative government contract and if they were successful in obtaining the contract, their weekly income would increase manifold. The defendants were aware of the nature of the plaintiffs’ business but were not aware of the fact that the plaintiffs were eyeing a government contract.

The boiler was damaged just prior to delivery and there was a substantial delay in repairing the boiler and as a result the plaintiffs not only lost income resulting from their normal business but also lost the valuable government contract that they were after. The plaintiffs sued.

The court held that the plaintiffs were able to recover for the loss that they incurred for their normal business because such loss was within the contemplation of the parties at the time they entered into the contract but could not recover for the loss of the government contract because the defendants were unaware that the plaintiffs were vying for a government contract.

In The Heron (II) (1969) the plaintiffs chartered a ship to deliver a cargo of sugar to Basrah. The cargo was to arrive in 20 days but because the defendants had strayed from the normal route that ships normally took, there was a delay and the ship arrived 9 days late.

During that time, the price of sugar in Basrah fell significantly and the plaintiffs sued for the difference between the price they would have got had the ship arrived on time and the price that they actually got. The defendants argued that the damage was too remote and that it was not within their contemplation at the time the parties entered into the contract.

The court held that it would have been within the contemplation of the defendants that the plaintiffs intended to sell the sugar as soon as it arrived in Basrah. Sugar is a commodity and its market price fluctuates almost daily. The defendants must have known that even the slightest delay could have reduced the plaintiffs’ profit margin significantly and therefore the defendants were liable for the difference.

In Parsons v Uttley Ingham (1978) the plaintiffs purchased a food storage bin from the defendants. Due to the defendants’ negligence, the ventilator hatch was left shut and as a result the nuts that were stored in the bin became moldy. The nuts were fed to the pigs and the pigs became ill. Many died as a result and the plaintiffs sued for damages. The defendants argued that the damage was too remote and that they did not contemplate the type or degree of illness that the pigs were stricken with.

The House of Lords held that it was sufficient that the defendants could contemplate that there was a serious possibility that the pigs would contract some form or type of illness as a result of their negligence and therefore the defendants were liable.

In Transfield Shipping v Mercator Shipping (The Achilleas) (2008) the defendants chartered a vessel from the plaintiffs and returned the vessel 9 days later than expected. The plaintiffs in the meantime entered into negotiations to charter out the vessel to another party for a stipulated price.

During the 9 day delay the market price for chartered vessels overall, had fallen and the plaintiffs had to renegotiate the contract at a new rate which was lower than the original rate that they had discussed. The plaintiffs sued for the difference.

The plaintiffs argued that they should be compensated for each day of the new charter while the defendants argued that they were only liable for the 9 additional days that they had the vessel.

The House of Lords held that the defendants were liable only for the 9 additional days. The defendants could not have contemplated the damage that was incurred as a result of the follow-on contract and that the loss of profit for the next charter was not within the scope of the second limb in Hadley v Baxendale (1854).

The general rule in the shipping industry is that liability is restricted to the difference between the day the charterers were due to return the vessel and the period that they had overrun. To do otherwise would create uncertainty in the market.

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Elements in a Contract – Frustration

If for some reason, once a contract has come into existence, the parties in the contract are unable to fulfill their obligations then the contract comes to an end as a result of frustration. It is impossible to compile an exhaustive list of circumstances that will result in a contract coming to an end because of frustration and nothing illustrates the matter more eloquently than case law.

In Taylor v Caldwell (1863), the plaintiffs (claimants) went to great lengths to organize a concert and spent quite a large sum of money in getting the concert hall organized. A week prior to the concert, there was a fire and the concert hall was burnt to the ground. The plaintiffs sued the owners of the hall for a breach of contract. It was held that the contract came to an end due to the fault of neither party i.e. frustration.

In Knight v Ashton Edridge & Co (1901), a contact was entered into for the sale and purchase of cotton seeds. The ship carrying the consignment left from Alexandria but sank while it was en-route to the destination. They buyer sued the plaintiff for breach of contract but the courts held that the contract came to an end because of unavoidable circumstances and it was no longer possible to fulfill the terms of the contract.

In Krell v Henry (1903) the plaintiff hired his flat out to the defendant so that he could view the coronation procession from his flat window. The defendant paid a deposit but did not pay the full amount that was due because the coronation procession was subsequently cancelled. The plaintiff sued for the outstanding amount but the court held that the defendant was not liable because the object of the contract could no longer be satisfied or fulfilled.

In Herne Bay Steam Boat v Hutton (1903) the plaintiff rented out his steamship and later made arrangements to ferry passengers to watch the naval review during the coronation of King Edward VII. The coronation was later cancelled and the defendant refused the use of the ship. The plaintiff sued for the outstanding amount but was unsuccessful because the courts deemed that the contract had been frustrated.

In Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour (1943) a company in England entered into a contract with a company in Poland to supply machines. The buyer agreed to make partial payment prior to delivery on the understanding that the full amount would be settled once the machines were delivered. Subsequently Germany invaded Poland and the machines could not be delivered. It was held that the contract had come to an end because it was no longer possible to fulfill the terms in the contract.

In Condor v Baron Knights (1966) the plaintiff, a drummer, was employed by the defendants to play in their band. The plaintiff subsequently suffered a mental breakdown that made it impossible for him to continue. The defendants dismissed him and the plaintiff brought an action for wrongful dismissal. It was held that the subsequent change to the plaintiff’s health rendered the contract impossible to fulfill and hence the plaintiff was unsuccessful.

In Maritime National Fish Ltd v Ocean Trawlers Ltd (1935) (Privy Council) however, the charterers of a ship were running five ships that required licenses to operate them and the charterers had been granted three licenses. The charterers later claimed that the contract was frustrated by the government’s refusal to make available more licenses and sought to end the contact. The owners of the ship sued and it was held that the charterers had been granted three licenses and that they only needed one to operate the ship. Therefore, the contract had not been frustrated.

Likewise, in Davis Contractors v Fareham UDC (1956) the defendants agreed to purchase a certain number of houses from Davis Contractors. Under the terms of the contract the houses were to be completed by a certain time. Subsequently there was a shortage of materials and manpower and the houses took longer to complete than anticipated and the cost of the houses also increased. The defendants agreed to take hold of the houses but refused to pay the additional costs. The plaintiffs (Davis Contractors) sued. It was held that the contract had not been frustrated. It is not hardship or economic difficulties that leads to a contract being frustrated but rather a change in circumstances, so significant that, if the contact were to be performed it would be substantially different to what was contracted.

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Elements in a Contract XXII – Remedies -Damages II – Causation & Remoteness I

In deciding whether the plaintiff is entitled to damages for a breach of contract the court will take into account two factors:-

i) Causation

ii) Remoteness

Causation

It order for the plaintiff to be awarded damages the defendant must have caused the damage. The damage must be actual and tangible as opposed to something that could or may have caused damage. It however need not be the sole factor that caused the damage.

When looking into causation the courts will look into the chain of causation or the sequence of events that led to the damage and in order for the plaintiff to be awarded damages there must not be a break in the chain of causation i.e. the damage must be a direct consequence of the defendants actions.

In Monarch Steamship Co Ltd v Karlshamns Oljefabriker (1949) the defendants’ ship was chartered to carry soya beans from Manchuria to Sweden. The defendants in the contract had agreed to provide a seaworthy vessel but the ship developed problems and there was a delay due to repairs in Egypt. Once the repairs were completed the ship set sail to Sweden but by then the Second World War had started and the Royal Navy ordered the ship to sail to Glasgow instead.

The plaintiffs organized for the cargo to be shipped from Glasgow to Sweden and brought an action against the defendants. The defendants argued that that the ensuing war had broken the chain of causation but the court ruled otherwise. It was not the war that caused the delay but the ship’s un-seaworthiness and that it (the un-seaworthiness) was the dominant cause for the delay.

It is worth comparing the decision in Monarch Steamship Co Ltd v Karlshamns Oljefabriker (1949) with that in Quinn v Birch Bros (builders) Ltd (1966). The plaintiff, in the latter case, was an independent subcontractor who undertook plastering work for the defendants. The defendants had a contractual obligation to supply the equipment that was necessary for the subcontractor to carry out his work efficiently but failed to do so.

As a result the plaintiff found a folded trestle and stood on it to complete his work. The trestle gave way and the plaintiff was injured in the accident that followed. The plaintiff sued.

The court held that it wasn’t the defendants’ breach of contract that caused the accident but rather the plaintiff’s decision to use unsound equipment.

The use of an item that was not in the terms of the contract or the plaintiff’s choice to use an item that would not be otherwise used in the manner that it was had broken the chain of causation and the defendant was therefore not liable.

Remoteness

Once it is established that the defendant did indeed cause the plaintiff damage by breaching a term of the contract, the courts will look into the aspect of remoteness.

The rules with regards to remoteness in contract cases were given in the leading case of Hadley v Baxendale (1854). The plaintiffs, mill owners, commissioned carriers to ferry a crankshaft for repair. The mill could only be operated with the crankshaft in place and until such time that the crankshaft was replaced, the mill would remain ideal. The carriers agreed to return the crankshaft within a stipulated time but because of their negligence the crankshaft was returned to the plaintiffs a week later than expected. The plaintiff sued for the loss of profits incurred between the agreed time of delivery and the actual time of delivery. It was held that in order for damages to be awarded for a breach of contract:-

i) It must be damage arising from a breach of the terms of the contract that may be considered reasonable and

ii) the damage should be in the contemplation of both parties to the contract, at the time the contract was entered into, as a likely result of a breach.

Because the defendants were unlikely to contemplate the result of the breach as the mill not being able to operate i.e. the second of the above two limbs, they were not liable.

The fact that a crankshaft would cause a mill to come to standstill was not something that would be within the contemplation of the defendants and under normal circumstances it would be fair to say that the plaintiffs, considering the importance of the crankshaft, would have had a spare or would have made arrangements to acquire a temporary crankshaft until theirs was returned.

Copyright © 2017 by Dyarne Ward

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Elements in a Contract XXI – Remedies – Damages I

Remedies for a breach of contract are divided into common law and equitable remedies. Common law remedies are divided into:-

i) Damages

ii) Restitution

Damages

In Robinson v Harman (1848) it was held that where a party sustains 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.

In order to be awarded damages the aggrieved party must satisfy the three following conditions: –

i) The party has suffered some type of loss as a result of the breach.

ii) The loss is recognized as a loss that gives rise to compensation.

iii) The loss must not be too remote or must be directly foreseeable see The Wagon Mound (1)

Loss can be divided into financial loss or pecuniary loss and non-financial or non-pecuniary loss as in instances where the defendant suffers from a mental illness for example in the case of Condor v Baron Knights (1966) where the plaintiff suffered from a mental illness as a result of long hours of practice.

In Addis v Gramophone Co Ltd (1909) the plaintiff was employed by the defendant company in Kolkata. He was subsequently wrongfully dismissed and as a result went through a great deal of mental anguish from being shunned or avoided by the British Community in Kolkata. He brought an action against the plaintiff for loss of earnings (income) and for mental distress. The court held that the plaintiff was entitled to be compensated for the loss of earnings but he was not entitled to be compensated for mental distress.

The decision in Addis v Gramophone Co Ltd (1909) has to be looked at in light of the earlier case of Hobbs v London and South Western Railway Co (1875). The plaintiffs boarded a train that failed to deliver them to the correct destination and they sued as a result. It was held that in addition to the plaintiffs being able to recover for breach of contract, they were also able to recover for the physical inconvenience of having to walk to their destination.

Part of the problem with regards to mental illnesses or mental distress is the difficulty in determining the monetary equivalent of mental illnesses or mental distress and there is no way to estimate or calculate damage resulting from mental illnesses or distress or translate it into monetary terms.

In Bailey v Bullock (1950) the plaintiff was forced to live temporarily in a smaller house because the defendant firm had failed to recover his house. The court held that the plaintiff should be compensated for the discomfort he’d incurred by living in a smaller home.

In Diesen v Samson (1971) the defendant was a photographer who was hired to take photos of the plaintiff’s wedding but for some reason or other the defendant failed to turn up. The distressed plaintiff sued and the court awarded her damages for not being able to have any wedding photographs.

In Jarvis v Swans Tours Ltd (1973) the plaintiff had paid for a holiday aboard and had based his decision on what had been printed on a travel brochure. The plaintiff however, after he had arrived at the destination, realized that the holiday was nothing like what had been advertised in the brochure and he sued. The Court of Appeal held that the defendant was not only entitled to be compensated for the monies he had paid but was also entitled to be awarded some form of damages for the disappointment that he had suffered.

In Jackson v Horizon Holidays (1975) the plaintiff booked a holiday with his family aboard based on what had been advertised. When they arrived at their holiday destination, they found that the living accommodations were nothing like the advertisement and the conditions were unsatisfactory. As a result, the plaintiff sued for compensation not only for himself but also for his wife and family. It was held that the plaintiff was not only entitled to recover for the disappointment that he’d suffered but was also able to recover for the disappointed incurred by his wife and children.

In Heywood v Wellers (1976) the plaintiff was being stalked by a former lover and she approached the defendants, a solicitors firm to take out an injunction against her stalker. The defendants negligently failed to take out the injunction and as a result the harassment continued and the plaintiff suffered much distress. The court held that the plaintiff was entitled to be compensated for the distress that she had suffered and was accordingly awarded damages.

In Ruxley Electronics and Construction Ltd v Forsyth (1995) the plaintiff employed the defendant to construct a swimming pool that was deep enough to allow the plaintiff to dive – a hobby that gave him a great deal of pleasure. The defendant did construct the pool but not to the specifications that were stipulated or the depth that was required and the plaintiff sued on the grounds that he would not feel save diving. The court awarded the plaintiff damages for the loss of pleasure. The swimming pool was no doubt constructed to allow the plaintiff some time to enjoy the things that he cherished and the fact that he could no longer feel safe doing so gave rise to damages.

In Perry v Sidney Phillips and Son (1982) the plaintiff employed a surveyor to inspect a house prior to purchase and was assured that the house was in good order. Upon purchase the plaintiff discovered that the house was in need of repair and many of the basic amenities that one would take for granted weren’t working or functioning properly. The court held that in addition to recovering for the lower value of the house the plaintiff was also entitled to damages for the physical discomfort that he’d suffered by being forced to live in a faulty house.

Similarly, in Farley v Skinner (2001) the plaintiff employed a surveyor to inspect the land where he was about to construct a home to allow him to enjoy the pleasures of the countryside after his retirement, with regards to noise caused by air traffic because the land was close to Gatwick. The surveyor upon inspection assured him that he would be able to retire in peace and quiet. The plaintiff had his home constructed and when he moved in he realized that the noise resulting from the air traffic was unbearable and he sued. The plaintiff was awarded damages for distress that resulted from aircraft noise because he had specifically employed the surveyor to assess the impact of aircraft noise.

Copyright © 2017 by Dyarne Ward

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