Law Notes

(Contract)

Offer and acceptance

There are five basic requirements that need to be satisfied in order to makea contract:

● An agreement between the parties (which is usually shown by the factthat one has made an offer and the other has accepted it).

● An intention to be legally bound by that agreement (often called intentto create legal relations).

● Certainty as to the terms of the agreement.

● Capacity to contract.

● Consideration provided by each of the parties – put simply, this means that there must be some kind of exchange between the parties. If I say I will give you my car, and you simply agree to have it, I have voluntarilymade you a promise (often called a gratuitous promise), which you cannot enforce in law if I change my mind. If, however, I promise to hand over my car and you promise to pay me a sum of money in return,we have each provided consideration. In addition, in some cases, the parties must comply with certain formalities. Remember that, with a few exceptions, it is not necessary for a contract tobe in writing – a contract is an agreement, not a piece of paper. In this part of the book we will consider these different requirements for the creation of a contract.For a contract to exist, usually one party must have made an offer, and the other musthave accepted it. Once acceptance takes effect, a contract will usually be binding onboth parties.

Unilateral and bilateral contracts

Most contracts are bilateral. This means that each party takes on an obligation, usually by promising the other something. By contrast, a unilateral contract arises where only one party assumes an obligation under the contract.

Offer

The person making an offer is called the offeror, and the person to whom the offer is made is called the offeree. A communication will be treated as an offer if it indicates the terms on which the offeror is prepared to make a contract, and gives a clear indication that the offeror intends to be bound by those terms if they are accepted by the offeree. An offer may be express or implied.

Offers to the public at largeIn most cases, an offer will be made to a specified person, though offers can be addressed to a group of people, or even to the general public. A contract arising from an offer to the public at large, like that in Carlill v Carbolic Smoke Ball Co (1893), is usually a unilateral contract.

Invitations to treatSome kinds of transaction involve a preliminary stage in which one party invites the other to make an offer. This stage is called an invitation to treat. Confusion can sometimes arise when what would appear, in the everyday sense of the word, to be an offer is held by the law to be only an invitation to treat. This issue arises particularly in the following areas.

AdvertisementsAdvertisements for unilateral contracts are usually treated as offers. Advertisements for a bilateral contract are generally considered invitations to treat.

ShoppingPrice-marked goods displayed on the shelves or in the windows of shops are generally regarded as invitations to treat, rather than offers to sell goods at that price:Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd(1953).

Timetables and tickets for transportThe legal position here is rather unclear; no single reliable rule has emerged, and it seemsthat the exact point at which a contract is made depends in each case on the particularfacts.

How long does an offer last?An offer may cease to exist under any of the following circumstances.

Specified timeWhere an offeror states that an offer will remain open for a specific length of time, itlapses when that time is up.

Reasonable length of timeWhere the offeror has not specified how long the offer will remain open, it will lapse aftera reasonable length of time has passed.

Failure of a preconditionSome offers are made subject to certain conditions, and if such conditions are not inplace, the offer may lapse.

RejectionAn offer lapses when the offeree rejects it.

Counter-offerA counter-offer terminates the original offer: Hyde v Wrench (1840).

Requests for informationA request for information about an offer (such as whether delivery could be earlier thansuggested) does not amount to a counter offer, so the original offer remains open.

Death of the offerorThe position is not entirely clear, but it appears that if the offeree knows that the offerorhas died, the offer will lapse; if the offeree is unaware of the offeror’s death, it probablywill not.

Death of the offereeThere is no English case on this point, but it seems probable that the offer lapses and cannotbe accepted after the offeree’s death by the offeree’s representatives.

Withdrawal of offerThe withdrawal of an offer is sometimes described as the revocation of an offer. The oldcase of Payne v Cave (1789) establishes the principle that an offer may be withdrawn atany time up until it is accepted. A number of rules apply in relation to the withdrawal ofoffers.

Withdrawal must be communicatedIt is not enough for offerors simply to change their mind about an offer; they must notifythe offeree that it is being revoked: Byrne v Van Tienhoven (1880). The revocation ofan offer does not have to be communicated by the offeror; the communication can bemade by some other reliable source: Dickinson v Dodds (1876).

Withdrawal of an offer to enter into a unilateral contractThere are a number of special rules that apply in relation to the revocation of an offer toenter into a unilateral contract. An offer to enter into such a contract cannot be revokedonce the offeree has commenced performance: Errington v Errington (1952).AcceptanceAcceptance of an offer means unconditional agreement to all the terms of that offer.Merely remaining silent cannot amount to an acceptance, unless it is absolutely clear thatacceptance was intended: Felthouse v Bindley (1862).

Acceptance of an offer to enter into a unilateral contractUnilateral contracts are usually accepted by conduct. There is no acceptance until therelevant act has been completely performed.

Acceptance must be unconditionalAn acceptance must accept the precise terms of an offer.

Negotiation and the ‘battle of the forms’Where parties carry on a long process of negotiation, it may be difficult to pinpointexactly when an offer has been made and accepted. In such cases the courts will look atthe whole course of negotiations to decide whether the parties have in fact reachedagreement at all and, if so, when. This process can be particularly difficult where the so called‘battle of the forms’ arises. The general rule in such cases is that the ‘last shot’ winsthe battle. Each new form issued is treated as a counter-offer, so that when one party performsits obligation under the contract (by delivering goods, for example), that actionwill be seen as acceptance by conduct of the offer in the last form.

Specified methods of acceptanceIf an offeror states that his or her offer must be accepted in a particular way, then onlyacceptance by that method or an equally effective one will be binding. Where a specifiedmethod of acceptance has been included for the offeree’s own benefit, however, theofferee is not obliged to accept in that way.

Acceptance must be communicatedAn acceptance does not usually take effect until it is communicated to the offeror.Exceptions to the communication ruleThere are some circumstances in which an acceptance may take effect without beingcommunicated to the offeror.

Terms of the offerAn offer may state or imply that acceptance need not be communicated to the offeror.

Conduct of the offerorAn offeror who fails to receive an acceptance through their own fault may be preventedfrom claiming that the non-communication means they should not be bound by thecontract.

The postal rule

The general rule for acceptances by post is that they take effect when they are posted,rather than when they are communicated: Adams v Lindsell (1818). The traditional title‘postal rule’ has become slightly misleading because the rule does not only apply to thepost but could also potentially apply to certain other non-instantaneous modes of communication.

There are certain exceptions to the postal rule:● offers requiring communication of acceptance;● instant methods of communication;● misdirected acceptance.

Ignorance of the offerIt is generally thought that a person cannot accept an offer of which they are unaware,because in order to create a binding contract, the parties must reach agreement. If theirwishes merely happen to coincide, that may be very convenient for both, but it does notconstitute a contract and cannot legally bind them.

Time of the formation of the contractNormally, a contract is formed when an effective acceptance has been communicated toThe offeree.

Certainty

● the legal requirement that the terms of the agreementmust be certain in order for there to be a bindingContract;

● an agreement can be sufficiently certain if it lays downhow the terms can be clarified;● clear terms can be implied by statute;● terms can be clarified by the common law; and● minor uncertain terms can simply be deleted.

In order to be a binding contract, an agreement must be certain – that is, it should notbe unduly vague, or obviously incomplete. The courts will usually look to see if there isany way to make an apparently vague or incomplete agreement more certain.

Provision for clarificationContracts may leave certain details vague, but contain provisions stating how they are tobe clarified.

Terms implied by statuteIn some cases, statutes provide that certain terms should be read into contracts of particulartypes, even though those terms have not actually been agreed between the parties.

Previous course of dealingWhere two parties have had dealings in the past, their previous agreements may be usedto clarify uncertain terms in a contract.

ReasonablenessSometimes the courts will clarify vague terms by relying on the principle of reasonableness.

CustomApparent vagueness can be resolved by custom.

The ‘officious bystander’A term may be implied by applying the ‘officious bystander’ test, under which the courtasks whether someone observing the making of a contract would have believed that aparticular term was part of the contract.

Removing minor uncertain termsIn extreme cases, a minor term may be not only vague but also meaningless. Providingit is sufficiently unimportant, it can be struck out, allowing the courts to enforce the restof the contract

Intention to create legalRelations

● there is only a legally binding contract if both partiesintend to create legal relations;● there is a rebuttable presumption that parties do notintend to create legal relations when they enter into adomestic or social agreement; and● there is a rebuttable presumption that parties dointend to create legal relations when they enter intoa commercial agreement.

An agreement will only be legally binding if the parties intend it to be so. The courtsassess the parties’ intentions objectively. As far as intent to be legally bound is concerned,contracts can be divided into domestic and social agreements on the one hand and commercialtransactions on the other. Where an agreement falls into the domestic and socialcategory, there is a rebuttable presumption that the parties do not intend to create legalrelations. The reverse applies in commercial agreements, where it is presumed that theparties do intend such agreements to be legally binding..

Social and domestic agreements

Agreements between husband and wifeWhere a husband and wife who are living together as one household make an agreement,courts will assume that they do not intend to be legally bound, unless there isevidence to the contrary: Balfour v Balfour (1919).

Agreements between parent and childAgreements of a domestic nature between parents and children are also presumed notto be intended to be binding, though again the presumption can be rebutted: Jones vPadavatton (1969).

Social agreementsThe presumption that an agreement is not intended to be legally binding is also appliedto social relationships between people who are not related.

Commercial agreementsThere is a strong presumption in commercial agreements that the parties intend to belegally bound, and, unless there is very clear contrary evidence, this presumption will notbe rebutted.

Exceptions to the commercial agreements presumptionThere are three main situations where this presumption will be rebutted.

‘Mere puffs’Where an offer is extremely vague, or clearly not intended to be taken seriously, the lawwill not give its acceptance contractual effect.

Honour clausesIn Rose & Frank Co v Crompton Bros (1923) Scrutton LJ commented: ‘I can see noreason why, even in business matters, the parties should not intend to rely on eachother’s good faith and honour, and to exclude all idea of settling disputes by an outsideintervention . . .’

Agreement ‘subject to contract’Use of these words on an agreement is usually (though not always) taken to mean thatthe parties do not intend to be legally bound until formal contracts are exchanged.

AmbiguityWhere the words of a business agreement are ambiguous, the courts will favour the interpretationwhich suggests that the parties did intend to create legal relations, and thereforefind that there is a contract.

Collective bargaining agreementsIn English law, collective bargaining agreements are not intended to be legally binding

Capacity● minors;

● people suffering from a mental incapacity; and

● corporations.

There are some categories of people whose power to make contracts is limited by law.The main categories are minors, and people considered incapable of contracting becauseof mental disorders or drunkenness. The contracting capacity of a corporation dependson what type of corporation it is.

MinorsThe basic common law rule is that contracts do not bind minors (children under 18 yearsold). There are, however, some types of contract which are binding on minors, or whichare merely voidable.

Contracts binding on a minorThe only contracts which are binding on a minor are contracts for the supply of necessaries.‘Necessaries’ are interpreted as including not just the supply of necessary goodsand services, but also contracts of service for the minor’s benefit.

Contracts for necessary goods and servicesUnder the Sale of Goods Act 1979 s. 3(2) ‘necessaries’ means ‘goods suitable to thecondition in life of the minor or other person concerned and to his actual requirementsat the time of sale and delivery’. This effectively means that a minor will be bound bymost consumer contracts, but usually not by commercial ones.The Sale of Goods Act also provides that if necessaries are sold to a minor, but before

receiving the goods the minor decides that they are no longer wanted, there is no obligationto accept and pay for them. Nor is a minor bound by a contract which containsoppressive or exceptionally onerous terms.Where there is a binding contract for necessaries, the minor is only bound to pay areasonable price for them, which need not be the contract price.

Contracts of service for the minor’s benefitMinors are also bound by contracts of service, providing these are on the whole beneficialto them. In practice, this generally means contracts of employment under which aminor gains some training, experience or instruction for an occupation.

Contracts voidable at common lawApart from contracts for necessaries which bind the minor, the general rule at commonlaw is that a minor’s contracts are voidable. In other words, these contracts are notbinding on the minor, but bind the other party. Thus, these contracts are valid when theyare made, but can be terminated by a minor at any time before becoming 18 or withina reasonable time afterwards. This category covers contracts which involve a long-terminterest in property such as land, shares or partnerships. If such a contract is terminatedbefore any money is paid or obligations created, the position will be as if the contracthad never been made in the first place, but problems can arise where obligations areincurred or money is paid, and then the minor terminates the contract. The law isunclear, but it seems likely that a minor would be liable to pay any debts arising beforesuch a contract is terminated. Where a minor has already paid money under a contract,and then terminates it, whether that money can be recovered will depend on whetherthe minor got anything in return for it.

Remedies against minorsClearly, the rules on minors and contracts have the potential to create injustice – forexample, where an adult is unaware that the other party to a contract is a minor.Consequently, the equitable remedy of restitution, which is used to make anyone whohas been unjustly enriched give back their profit, has been applied to minors. If a minorfraudulently obtains goods and then keeps them, an order for restitution can be made tomake the minor give them back to the claimant.In practice, this equitable remedy has become less important in the light of the powergranted by s. 3 of the Minors’ Contracts Act 1987. Under this Act, where an adult hasentered into an unenforceable contract with a minor, or a contract which the minor hasterminated, the courts may give any property acquired by the minor under the contractback to the adult, provided it is ‘just and equitable’ to do so.The equitable remedy of specific performance can never be used against a minor, norcan it be used by a minor, because the remedy requires mutuality between the parties.If an adult realises that they are making a contract with a minor they may ask for aguarantee from another adult.

Minors and tortMinors can usually be liable under tort law so long as they are old enough to know thenature of what they are doing, but this rule cannot be used as an indirect way of enforcinga contract which would otherwise not be binding on a minor.

Very young childrenWith very young children, the courts may take the view that they lack the mental capacityto enter a contract, so that the rules on mental incapacity would apply.

Mental incapacityThis category covers people suffering from mental disability and those who are drunkwhen the contract is made. In general, contracts made with someone in either statewill be valid, unless, at the time when the contract is made, that person is incapable ofunderstanding the nature of the transaction and the other party knows this. In suchcircumstances, the contract is voidable: the party suffering from mental disability ordrunkenness can choose whether or not to terminate it.Where one party is incapable, through drunkenness or mental disability, of understandingthe nature of the transaction, but the other party does not realise this, thecourts will ignore the incapacity.

CorporationsA corporation is a legal entity, usually in fact a group of people, which is treated by thelaw as having a separate identity from the person or persons who constitute it. Thereare four main types of corporation: registered companies; corporations established bystatute; chartered corporation and limited liability partnerships. Each has a different levelof contracting ability.

Registered companiesUnder the Companies Act 1989, a company can be liable for a contract made outside itsstated activities in the memorandum of association if the other party has acted in goodfaith.

Statutory corporationsThe statute creating each corporation will specify the purposes for which that corporationmay make contracts, and any contract entered into which is outside those powerscan be declared ultra vires and therefore void.

Chartered corporationsThese are corporations set up by Royal Charter. They have the same contractual capacityas an adult human being of full capacity, and can enter into any kind of contract.

Limited liability partnershipsLimited liability partnerships benefit from ‘unlimited capacity’, so that they do not raiseany problems of capacity in the context of contract law.

Formalities

● made by deed;

● written; or

● evidenced in writing.The general rule of contract law is that an agreement does not have to take a specificwritten form in order to be deemed a binding contract. There are, however, some typesof contract which currently require certain formalities to be followed to make themenforceable. They fall into three groups: those which must be made by deed, thosewhich must be in writing and those which have to be evidenced in writing.

Contracts which must be made by deed

Under the Law of Property Act 1925, a contract for a lease of three years or more mustbe made by deed.

Contracts which must be in writingSome statutes lay down that certain types of contract must be in writing. Most contractsfor the sale or disposition of an interest in land made since 27 September 1989 mustbe made in writing under the Law of Property (Miscellaneous Provisions) Act 1989. Thedocument must be signed by each party or their representatives.

Contracts which must be evidenced in writingContracts of guarantee (where one party guarantees the obligation of another, such as aparent guaranteeing a daughter’s bank overdraft) are required by the Statute of Frauds1677 to be ‘evidenced in writing’. Contracts for the sale or disposition of an interest inland made before 27 September 1989 are still covered by the old law prior to the Law ofProperty (Miscellaneous Provisions) Act 1989, and only have to be evidenced in writing.The European Electronic Commerce Directive lays down some specific formalities thatwill need to be followed in order to make binding contracts over the internet. Part II ofthe Electronic Communications Act 2000 makes provision for the legal recognition ofelectronic signatures.

Consideration● need not benefit the promisor;

● must not be past;

● must be sufficient;

● must be of economic value;

● can be a promise not to sue; and

● can occasionally exist through the performance of anexisting duty.

An agreement is not usually binding unless it is supported by consideration. This meansthat each party must give something in return for what is gained from the other party.

What is consideration?Consideration may be a thing or a service. It is usually described as being somethingwhich represents either some benefit to the person making a promise (the promisor) orsome detriment to the person to whom the promise is made (the promisee), or both.

Promisor and promiseeIn most contracts, two promises will be exchanged, so each party is both a promisor anda promisee.

Consideration need not benefit the promisorConsideration need not benefit the promisor – so there can be consideration where thepromisee suffers some detriment at the promisor’s request, but this gives no particularbenefit to the promisor.

‘Executory’ and ‘executed’ considerationExecutory consideration is where something is to be done in the future after the contracthas been formed. Executed consideration is where at the time of the formation of the

contract the consideration has already been performed. Executed consideration usuallyoccurs in unilateral contracts.

Consideration must not be pastLawyers often say that consideration must not be past, but this is slightly confusingbecause the emphasis is not really about the time that the consideration was given, butrather about whether the consideration was given in exchange for the other party’s consideration.Consideration must be given in return for the promise or act of the otherparty: Roscorla v Thomas (1842).

There are two exceptions to the rule that past consideration is no consideration. Thefirst is where the past consideration was provided at the promisor’s request, and it wasunderstood that payment would be made: Lampleigh v Brathwait (1615). The secondexception to the rule on past consideration is the bill of exchange under s. 27 of the Billsof Exchange Act 1882.

Consideration must be sufficientConsideration must be sufficient but need not be adequate; the courts will not inquireinto the adequacy of consideration, so long as there is some: Thomas v Thomas (1842).

Consideration must be of economic valueConsideration must have some physical value, rather than just an emotional or sentimentalone: White v Bluett (1853).

Consideration can be a promise not to sueIf one party has a possible civil claim against the other, a promise not to enforce thatclaim is good consideration for a promise given in return: Alliance Bank Ltd v Broom(1864).

Contracts (Rights of Third Parties) Act 1999Following the Contracts (Rights of Third Parties) Act 1999, a term in a contract is sometimesenforceable by a third party. It is not necessary for consideration to have been givenby the third party.

Performance of an existing dutyWhere a promisee already owes the promisor a legal duty, then in theory performing thatduty should not in itself be consideration. Existing duties can be divided into three maincategories: public duties; contractual duties to the promisor; and contractual duties to athird party.

Existing public dutyWhere a promisee is under a public duty, but does something which goes beyond whatthey are bound to do under that duty, that extra act can amount to consideration:Glasbrook Brothers v Glamorgan County Council (1925).

Existing contractual duty to the promisorIn the past, the rule was that performance of an existing contractual duty owed to apromisor was not consideration: Stilk v Myrick (1809). In the light of the Court of Appealcase of Williams v Roffey (1990), a distinction now has to be drawn between contractualduties to supply goods or services and contractual duties to pay debts.

Contractual duties to supply goods or services

As a result of Williams v Roffey, the law now seems to be that if one party’s promise toperform an existing contractual duty to supply goods or services confers an additionalpractical benefit on the other party, then, providing that no duress is involved, it will besufficient consideration to make a promise given in return binding, even though in legalterms they are only agreeing to carry out their existing contractual duty.

Contractual duties to pay debtsSpecial rules apply to contractual duties regarding debts. Where someone owes anothermoney and cannot pay the full amount, they will sometimes offer to pay a smaller sum,on condition that the creditor promises to accept it as full settlement for the debt – inother words, agrees not to sue later for the full amount. Even if such an agreement ismade, it is only binding if the debtor provides some consideration for it by adding someextra element: Pinnel’s Case (1602).

Exceptions to the rule in Pinnel’s CaseThe rule in Pinnel’s Case does not apply if there is a genuine dispute about whether thedebt is actually owed, or about the amount owed (Cooper v Parker (1885)). The rule inPinnel’s Case does not apply to unliquidated damages. Composition agreements arebinding. A creditor who accepts part-payment from a third party, in full settlement of thedebtor’s liability, cannot then sue for the outstanding amount. Promissory estoppel alsoconstitutes an exception to the rule in Pinnel’s Case.

Existing contractual duty to a third partyIn some cases, two parties make a contract to provide a benefit to someone who is nota party to the contract, known as a third party. If one of them (X) makes a further promiseto that third party, to provide the benefit they have already contracted to provide, thatfurther promise can be good consideration for a promise made by the third party inreturn – even though nothing more than the contractual duty is being promised by X:Scotson v Pegg (1861).

Waiver and promissory estoppelWaiver and promissory estoppel are both ways of making some kinds of promise bindingeven where there is no consideration. Promissory estoppel is a somewhat newer doctrinethan waiver. It was developed by Lord Denning in Central London Property Trust Ltdv High Trees House Ltd (1947). The precise extent of the doctrine of promissory estoppelis still unclear. What is clear is that the following conditions must be fulfilled before thedoctrine can be applied.

● A pre-existing contractual relationship.

● A promise.

● Reliance.

● Inequitable to enforce strict legal rights.

● Future rights not destroyed.

● No new rights created.

Agreement by deedThere is one other way in which a promise can be made binding without consideration:

it can be put into a document called a deed.

THE CONTENTS OFA CONTRACT

Terms of the contract

● terms implied in fact;

● terms implied in law;

● terms implied by custom; and

● terms implied by trade usage.

● conditions;

● warranties; and

● innominate terms.

The terms of a contract describe the duties and obligations that each party assumesunder their agreement. As well as the contractual terms laid down by the parties themselves,called express terms, the courts may find that a contract contains implied terms.

EXPRESS TERMSExpress terms can be divided up into oral statements and written statements.

Oral statementsA representation is a statement which may have encouraged one party to make thecontract but is not itself part of that contract, while a term is a promise or undertakingthat is part of the contract. Whether a statement is a representation or a term is largelya question of the parties’ intentions. If the parties have indicated that a particular statementis a term of their contract, the court will carry out that intention. In other cases, thefollowing guidelines may be used.

Importance of the statementA statement is likely to be seen as a term if the injured party has made the other partyaware that had it not been for that statement, they would not have entered into the contract:Bannerman v White (1861).

Special knowledge and skillWhere a statement is made by someone who has expert knowledge or skill that is relevantto the subject in hand, the courts will be more willing to deem that statement aterm than if the same words were used by an amateur with no special expertise on thematter. This principle is illustrated by two cases involving the sale of cars: Dick BentleyProductions Ltd v Harold Smith (Motors) Ltd (1965) and Oscar Chess v Williams(1957).

Timing of the statementIn general, the more time that elapses between the statement being made and the contractbeing concluded, the less likely the courts will be to regard the statement as a term,though the cases show that this can only be an approximate guideline.

Agreements in writingWhere the parties put their eventual contract in writing, any statement that appears inthe written contract will usually be regarded as a term. A statement made before the writtencontract but not included in it is likely to be regarded as a representation: Duffy vNewcastle United Football Co Ltd (2000).

Strength of the inducementThe more emphatically a statement is made, the more likely the courts will be to regardit as a term.

Written termsWritten terms can be incorporated into a contract in three ways: by signature, by reasonablenotice and by a previous course of dealing.

The parol evidence ruleUnder this rule, where there is a written contract, extrinsic (parol) evidence cannotchange the express terms laid down in that document. Certain exceptions exist to theparol evidence rule.

RectificationWhere a document is intended to record a previous oral agreement but fails to do thataccurately, evidence of the oral agreement will be admitted.

Partially written agreementsWhere there is a written document, but the parties clearly intended it to be qualified byother written or oral statements, the parol evidence rule is again displaced: Couchmanv Hill (1947).

Implied termsThe parol evidence rule only applies where a party seeks to use extrinsic evidence to alterthe express terms of a contract. Where a contract is of a type that is usually subject toterms implied by law, parol evidence may be given to support, or to rebut, the usualimplication (see p. 134 above).

Operation of the contractThe parol evidence rule does not apply to extrinsic evidence which shows that the writtencontract was intended to come into operation, or to cease to operate, in the eventof a particular circumstance.

Evidence about the partiesExtrinsic evidence can be used to show the capacities in which the parties were actingwhen they made their contract.

Proving customWhere it is suggested that a term should be read in the light of local or trade custom,evidence of that custom is admissible to add to or explain a written agreement, thoughnot to contradict it.

Collateral contractsIf one party says something to the effect that ‘I will sign this document if you will assure

me that it means . . .’ the courts may find that two contracts have been created: thewritten agreement, and a collateral contract based on the oral statement.

Construction of express termsThe courts sometimes have to determine the meaning of a contractual term. In doingthis, the judges try to discover what the parties appeared to intend the contract to mean.The task of ascertaining the intention of the parties has to be approached objectively. Thestarting point is the contractual document itself. Where possible, the words of the contractwill be given their natural and ordinary meaning. But Lord Hoffmann has warnedagainst taking this rule too far.

Because of the parol evidence rule (discussed on p. 125), the courts have traditionallybeen limited to looking at the contract itself, and could not look at extrinsic evidence todetermine the intention of the parties. Exceptions existed allowing such evidence to beconsidered where the terms were technical, ambiguous or absurd. Lord Wilberforce suggestedin Prenn v Simmonds (1971) that in such situations extrinsic evidence would beadmissible to show the background knowledge of the parties at the time of making thecontract, so as to find out the purpose of the contract. The circumstances surroundingthe making of the contract was described as the ‘matrix of fact’. The law continues,however, to exclude the pre-contractual negotiations from the admissible backgroundinformation.

Certain rules of construction have been formulated by the courts. Previously, theserules were applied rather rigidly. But Lord Hoffmann has advanced a more flexibleapproach, where these rules are treated simply as guidance to assist the judges to reacha reasonable interpretation of the parties’ intentions.

IMPLIED TERMSImplied terms may be divided into four groups: terms implied in fact; terms implied inlaw; terms implied by custom; and terms implied by trade usage.

Terms implied in factThese are terms which are not laid down in the contract, but which it is assumed bothparties would have intended to include if they had thought about it. In order to decidewhat the intention of the parties was, the courts have developed two overlapping tests:the officious bystander test (Shirlaw v Southern Foundries (1926)) and the business efficacytest (The Moorcock (1889)). Both tests are subjective: they ask what the parties inthe case would have agreed, and not what a reasonable person in their position wouldhave agreed.

Terms implied in lawThese are terms which the law dictates must be present in certain types of contract – insome cases, regardless of whether or not the parties want them: Liverpool City Councilv Irwin (1977).

Terms implied by customTerms can be implied into a contract if there is evidence that under local custom theywould normally be there.

Terms implied by trade usageWhere a term would routinely be part of a contract made by parties involved in a particulartrade or business, such a term may be implied by the courts.

Entire agreement clausesSome contracts contain entire agreement clauses which state that the written contractcontains the entire agreement. The aim of such clauses is to prevent one party from arguinglater that an earlier written or oral statement is also part of the contractual agreement.

THE RELATIVE IMPORTANCE OF CONTRACTUAL TERMSThere are three types of contractual term: conditions, warranties, and innominate terms.

ConditionsA term which is clearly an important one will usually be regarded by the courts as acondition. Where a condition is breached, the innocent party is entitled to regard thecontract as repudiated, and so need not render any further performance, and can alsosue for damages.

WarrantiesThe word warranty usually describes a contractual term which can be broken withouthighly important consequences. If a warranty is breached the innocent party can sue fordamages, but is not entitled to terminate the contract.

Innominate termsInnominate terms can be broken with either important or trivial consequences, dependingon the nature of the breach. If the effects of the breach are serious, the term will actas a condition; if they are minor, it acts as a warranty: Hong Kong Fir Shipping Co Ltdv Kawasaki Ltd (1962).

Unfair contract terms

● the common law; and

● statute, particularly the Unfair Contract Terms Act 1977Sometimes, contract terms are considered to be so unfair to one of the contractingparties that the legislature or the courts have been prepared to intervene to prevent aninjustice.

EXEMPTION CLAUSESIn some cases, one party to a contract may seek to avoid incurring liability for certainbreaches of the contract, or may specify that their liability for such a breach will be limited,usually to a certain amount in damages. This is called a limitation clause. A clausewhich seeks to exclude all liability for certain breaches is called an exclusion clause. Theterm ‘exemption clause’ is commonly used to cover both limitation and exclusionclauses, and we have used it in that sense here.

Common law controlsThe courts have found two ways to regulate exclusion clauses: first, they may questionwhether a clause has actually been incorporated into the contract; and, secondly, theymay question whether the words used in the clause can be construed as covering thealleged breach.

IncorporationThere are three ways in which written exemption clauses may be incorporated into a

contract: by signature; by reasonable notice; and by a previous course of dealing.

Incorporation by signatureIf a document is signed at the time of making the contract, its contents become terms ofthat contract, regardless of whether they have been read or understood. This principle isknown as the rule in L’Estrange v Graucob (1934). The rule does not apply where thereis any misrepresentation as to the nature of the document signed: Curtis v ChemicalCleaning & Dyeing Co (1951).

Incorporation by reasonable noticeIf separate written terms are presented at the time a contract is made, those terms onlybecome part of the contract if it can be said that the recipient had reasonable notice ofthem: Parker v South Eastern Railway (1877). In deciding whether reasonable stepshave been taken, the courts will look at when the notice was given, what form it took,and how serious and unusual the effect of the exemption clause is.● Time of notice As a rule, an exemption clause is only incorporated into the contract ifnotice is given before or at the time of contracting: Thornton v Shoe Lane Parking(1971).● Form of notice In general, notice of an exemption clause will only be consideredreasonable if it is given in a document which a reasonable person would expect tocontain contractual terms: Chapelton v Barry UDC (1940). A document will beconsidered to be contractual if the party to whom it is given knows it is intended tohave this effect, or if the circumstances in which it was delivered provide reasonablenotice of the fact that it contains conditions.● Effect of the clause Modern cases have stressed that the more unusual or onerous aparticular term is, the greater the degree of notice required to incorporate it: InterfotoPicture Library v Stiletto Visual Programmes Ltd (1988).

Incorporation by a previous course of dealingIf two parties have previously made a series of contracts between them, and those contractscontained an exemption clause, that clause may also apply to a subsequent transaction,even if the usual steps to incorporate the clause have not been taken: Spurling vBradshaw (1956).

Interpreting exemption clausesIf it is established that an exemption clause has been incorporated into a contract, thecourts will then check to see whether the clause actually covers the breach that hasoccurred. In doing so, they apply what is called the contra proferentem rule, which essentiallymeans that where the words of an exemption clause are ambiguous, they will beinterpreted in the way least favourable to the party relying on them. Technically, thecontra proferentem rule applies to all exemption clauses, but the courts tend to apply itless rigorously to those which merely limit liability, rather than exclude it completely.

Special applications of the contra proferentem ruleThe contra proferentem rule is applied particularly strictly where a party relies on anexemption clause to protect them from liability for negligence. Many clauses purportingto exempt a party from liability for negligence are inoperative under the Unfair ContractTerms Act 1977 (UCTA), and even where it remains possible to exclude liability for negligence,extremely clear words must be used for this purpose. Where a clause expresslyrefers to negligence, or uses a term that means the same, it will be effective. Clauses writtenin general terms, without express reference to negligence, will only allow the party

concerned to avoid liability for negligence if the clause could not be interpreted as referringto any other kind of liability.

Other common law controlsThere are a number of other common law limitations on the effectiveness of exemptionclauses.

MisrepresentationWhere the party putting forward an exemption clause misrepresents its effect, the clausewill not be binding on the other party: Curtis v Chemical Cleaning & Dyeing Co Ltd(1951).

Inconsistent oral promiseAn exclusion clause can be made wholly or partly ineffective by an oral promise, given ator before the time of the contract, that conflicts with it: Mendelssohn v Normand Ltd(1970).

Third partiesAs a result of the doctrine of privity, under the common law third parties cannot beprotected by an exemption clause in that contract, even if the clause is stated to applyto them: Scruttons Ltd v Midland Silicones Ltd (1962). They may, however, get thebenefit of an exemption clause by relying on the Contracts (Rights of Third Parties) Act1999.

Statutory controlsThe most important limitations on exemption clauses are statutory, and most are containedin UCTA.

Unfair Contract Terms Act 1977This Act controls the use of clauses excluding or limiting liability for breach of contract,particularly where one of the parties is a consumer.

Dealing as a consumerMany of the provisions of UCTA apply only where one of the contracting parties wasdealing as a consumer. Section 12 explains that a party is ‘dealing as a consumer’ wherethey are not making the contract in the course of a business, and do not suggest thatthey are doing so, and the other party does act in the course of a business: R & BCustoms Brokers Co Ltd v United Dominions Trust Ltd (1988).

The main provisions of UCTAUCTA uses two methods of controlling exemption clauses: declaring them ineffective,and making them subject to reasonableness. The following are the more importantprovisions of UCTA:

● Liability for negligence (s. 2) Liability for death or personal injury resulting from negligencecannot be excluded or limited – clauses purporting to do so will simply beineffective (s. 2(1)). Responsibility for negligence which causes some harm short ofdeath or personal injury can only be limited or excluded where it is reasonable to doso (s. 2(2)). Both these provisions apply, regardless of whether one party is dealing asa consumer.

● Non-performance (s. 3) In a consumer contract, or when dealing on one party’sstandard business terms, a contract term cannot exclude or restrict liability fornon-performance or for performance which is substantially different from what was

agreed, unless it is reasonable to do so (s. 3).

● Indemnity clauses (s. 4) Indemnity clauses in consumer contracts are only valid if theyare reasonable.

● ‘Guarantees’ of consumer goods (s. 5) Exemptions in consumer guarantees areineffective.

● Implied terms in sale and hire-purchase contracts (s. 6) The implied condition that theseller has the right to sell the goods in s. 12 of the Sale of Goods Act 1979 can neverbe excluded. Other terms implied by ss. 13–15 of the Sale of Goods Act cannot beexcluded if one party deals as a consumer. Where neither of the parties is dealing as aconsumer the exclusion clause will be subject to a requirement of reasonableness.● Implied terms in miscellaneous contracts (s. 7) For certain contracts which are not contractsfor the sale of goods or hire-purchase contracts, such as building contracts, s. 7of UCTA contains similar controls as those contained in s. 6.● Misrepresentation (s. 8) Contractual terms in any type of contract, which seek toexempt a contracting party from liability for misrepresentation are subject to a test ofreasonableness.

The meaning of ‘reasonableness’The onus of proving that a term is reasonable is always on the party seeking to benefitfrom the term (s. 11(5)). Under s. 11(1) the court should ask itself whether the term inquestion is ‘a fair and reasonable one to be included having regard to the circumstanceswhich were, or ought reasonably to have been, known to or in the contemplation of theparties when the contract was made’. Section 11(2) refers to Schedule 2 of UCTA, whichlays down a number of issues that the court may consider when deciding whether a termis reasonable for the purposes of ss. 6 and 7.

UNFAIR TERMSThe Unfair Terms in Consumer Contracts Regulations 1999 render ineffective certainunfair terms in contracts between sellers or suppliers and consumers (reg. 4(1)). TheRegulations apply to contract terms that have not been individually negotiated, or, underreg. 5(3), to parts of a contract which have not been individually negotiated. Underreg. 6(2), where terms are in plain, intelligible language the assessment of fairness shallnot relate to:● core contractual terms; or● the adequacy of the price or remuneration for goods or services provided.

Defining an ‘unfair term’Under reg. 5(1):A contractual term which has not been individually negotiated shall be regarded as unfair if, contraryto the requirement of good faith, it causes a significant imbalance in the parties’ rights andobligations arising under the contract, to the detriment of the consumer.

In addition, reg. 6 states thatthe unfairness of a contractual term shall be assessed, taking into account the nature of thegoods or services for which the contract was concluded and by referring, at the time of conclusionof the contract, to all the circumstances attending the conclusion of the contract and to allthe other terms of the contract or of another contract on which it is dependent. Schedule 2 contains

an indicative list of terms which may be regarded as unfair.

Effect of the 1999 RegulationsUnder the 1999 Regulations, unfair contract terms are not binding on the consumer. Therest of the contract remains perfectly valid provided that it is capable of continuing inexistence without the unfair term.

VITIATING FACTORS

MisrepresentationThe courts will find a misrepresentation if one party:● made an untrue statement;

● it was a statement of fact; and

● it induced the innocent party to enter into the contract.

The courts recognise four types of misrepresentation:● fraudulent misrepresentation;

● negligent misrepresentation at common law;

● negligent misrepresentation under statute; and

● innocent misrepresentation.Where there has been a misrepresentation the contract isvoidable and the innocent party may have a right todamages.

What is a misrepresentation?A misrepresentation is an untrue statement of fact by one party which has induced theother to enter into the contract. For a misrepresentation to be actionable, it has to fulfilthree requirements: there must be an untrue statement; it must be a statement of fact,not mere opinion; and it must have induced the innocent party to enter the contract.

An untrue statementAn untrue statement of fact must have been made by the other contracting party (or bytheir agent acting within the scope of their authority), or the other contracting partymust have known of the untrue statement. Silence does not usually amount to a misrepresentation.There are, however, five types of situation where the law imposes a dutyto disclose information. To remain silent about a material fact in any of these circumstancescan therefore amount to a misrepresentation.

Contracts requiring utmost good faithWhere a contract requires utmost good faith, such as a contract for insurance, failure to

disclose a matter regarding which utmost good faith is required allows the innocent partyto rescind the contract, though damages are not available.

Subsequent falsityA misrepresentation may occur where a statement was true when it was made, butowing to a change of circumstances has become incorrect by the time it is acted upon.Keeping silent about the change can amount to a misrepresentation: With v O’Flanagan(1936).

Partial revelationIf one party makes a statement which is itself true, but which misrepresents the wholesituation because of what is left unsaid, the statement may amount to a misrepresentation:Dimmock v Hallett (1866).

Fiduciary relationshipSometimes it is the existing relationship between the parties, rather than the type of contractconcerned, which gives rise to a duty to disclose important facts about a contract.

Voluntary assumption of responsibilityOne contracting party can occasionally incur liability for remaining silent when he or shehas accepted responsibility for the other party.

A statement of factThe statement must be one of fact; merely delivering an opinion will not create an actionablemisrepresentation: Bisset v Wilkinson (1927). There are some cases in which whatlooks like a statement of opinion will be considered by the courts to be a statement offact. An example is where one party falsely states their opinion: Edgington v Fitzmaurice(1885). Mere ‘sales talk’ used to recommend a product to a potential customer will notamount to a statement of existing fact.

InducementThe misrepresentation will only be actionable under contract law if it is at least one of thereasons for which the claimant entered into the contract: Redgrave v Hurd (1881).

Constructive knowledgeIn some situations, a party to a contract may not have actual knowledge of a misrepresentationbut for public policy reasons they will be treated as if they did have thatknowledge, known as constructive knowledge.

Types of misrepresentationThere are four types of misrepresentation:

Fraudulent misrepresentationA party makes a fraudulent misrepresentation if they make a false statement and, at thetime of making it, do not believe it to be true: Derry v Peek (1889).

Negligent misrepresentation at common lawNegligent misrepresentation at common law was established by the House of Lords inHedley Byrne v Heller & Partners (1964). The House of Lords stated, obiter, that therecould be liability for negligent misrepresentation on the normal principles of tort, wherethere was a ‘special relationship’ between the parties.

Misrepresentation under statuteSection 2(1) of the Misrepresentation Act 1967 provides that where one party enters into

a contract as a result of a misrepresentation by the other, the innocent party can claimdamages, unless the other party can prove that at the time the contract was made, theybelieved the statement to be true, and had reasonable grounds for that belief.

Innocent misrepresentationWhere one party has entered into a contract because of the other’s false statement, theother party can avoid liability for damages by proving that at the time the contract wasmade, they believed the statement to be true, and had reasonable grounds for that belief– according to s. 2(1) of the Misrepresentation Act 1967.

Remedies for misrepresentationThe effect of a misrepresentation is generally to make a contract voidable, rather thanvoid, so the contract continues to exist unless and until the innocent party chooses tohave it set aside by means of rescission.

RescissionRescission is an equitable remedy, which sets the contract aside and puts the parties backin the position they were in before the contract was made. It is available for all four typesof misrepresentation.

Indemnity paymentThe courts can order a payment of money known as an indemnity. This payment isdesigned to put the parties back into their former positions.

Bars to rescissionThere are some circumstances in which it is unreasonable or impossible to put the contractingparties back into their pre-contractual position, and in these cases the injuredparty may lose the right to rescission. The three circumstances in which this may occurare where there is some practical reason why the parties cannot be restored to their originalposition, where a third party has gained rights under the contract, and where theinnocent party affirms the contract.

DamagesWhere a party is induced to enter a contract by misrepresentation, they have a right todamages for any loss, unless the misrepresentation is innocent, where an award ofdamages is at the judge’s discretion (see below). Damages for misrepresentation arecalculated using the tort measure, rather than the contract measure.

Remoteness of damagesThe courts will make a more generous award of damages where there has been fraudulentmisrepresentation and misrepresentation under s. 2(1) of the Misrepresentation Act1967 than for common law negligent and innocent misrepresentations.

MistakeWhere one party (or both) is mistaken about some aspectof the contract, there will sometimes be no valid contract.In law there are two types of mistake:

● common mistake, where both parties make the samemistake; and

● cross-purposes mistake, where each party has a differentview of the contractual situation.In order to have an impact on the contract, the mistakemust:

● precede the contract; and

● induce the contract.Where the mistake relates to a written document there aretwo special remedies:

● non est factum; and

● rectification.

General principlesThere are two types of mistake, common mistake and cross-purposes mistake. Thefollowing general rules apply to both:

Objective principleWhen deciding whether or not there has been a mistake sufficient to make the contractvoid, the courts will look at the facts objectively: Smith v Hughes (1871).

The mistake must precede the contractIn order to make a contract void, a mistake must be made before the contract is completed:Amalgamated Investment & Property Co v John Walker & Sons (1977).

Mistake must induce the contractA mistake can only negate consent if it induced the mistaken party to enter into thecontract.

Mistake of fact or lawIn the past, only a mistake of fact could affect the validity of a contract; a mistake of lawwas not sufficient. The House of Lords abolished this distinction in 1998 in KleinwortBenson Ltd v Lincoln City Council (1999).

Common mistakeIn this situation, both parties make the same mistake. A contract will not be void forcommon mistake if the mistake is due to the fault of one of the parties. In addition, ifthe contract allocates the risk of the mistake occurring on one of the parties then thedoctrine of mistake will not apply. Only if the contract is silent on the point is there scopefor invoking mistake: McRae v Commonwealth Disposals Commission (1951).

Fundamental mistakeA shared mistake will only render a contract void if it amounts to a fundamental mistake.A mistake is fundamental if it renders the performance of the contract essentially and radicallydifferent from what the parties had supposed it to be: Bell v Lever Brothers (1932).There are two specific situations where the courts will find a fundamental mistake: wherethe parties have made a mistake about the existence of the subject matter, and wherethey have made a mistake as to title (Cooper v Phibbs (1867)). In exceptional circumstancesa mistake as to quality may also be sufficient: Nicholson and Venn v Smith-

Marriott (1947).

Abolition of common mistake in equityUntil 2002, it had been thought that, alongside the common law rules on common mistake,there existed separate rules in equity, which could intervene to soften the approachtaken in common law. In a recent case, Great Peace Shipping Ltd v Tsavliris Salvage(International) Ltd (2002), the Court of Appeal dramatically held that there were noseparate rules in equity on common mistake.

Cross-purposes mistakeCross-purposes mistake occurs where each party has a different view of the situation. Twotypes of cross-purposes mistake are possible:

● mutual mistakes, where each party makes a mistake but they are different mistakes;and

● unilateral mistakes, where only one party is mistaken. The other either knows of themistake or ought to know of it.Where this type of mistake occurs, the parties have not reached an agreement, and thecontract is not formed. It is rare for a cross-purposes mistake to make a contract void atcommon law. The courts will simply decide whether a reasonable onlooker would haveunderstood the contract to mean what one party thought it meant, or what the otherparty thought it meant. Occasionally, even viewed objectively it will be impossible to finda contract. There are three situations where a cross-purposes mistake can make a contractvoid:

● the mistake was negligently induced by the other party;

● the parties are at such cross-purposes that a reasonable observer would not be able tosay what they had agreed; and

● one party knew of the other’s mistake (a unilateral mistake) regarding their identity orthe terms of the contract, and the mistake was fundamental. A unilateral mistakeabout the quality of the subject matter of the contract is not sufficient.

Unilateral mistake over the terms of the contractWhere one party is mistaken as to the terms of the contract and the other knows this,the contract will be void, regardless of whether the term is fundamental: Hartog v Colinand Shields (1939).

Unilateral mistake involving mistaken identityUnilateral mistake is frequently relied upon where there is a mistake as to the identity ofone of the contracting parties. A genuine mistake of this nature, where the identity of theother party is of fundamental importance, will render the contract void. The law draws afine distinction between where a person intended to contract with someone else (themistake renders the contract void), and a mistake which is merely as to a person’sattributes rather than as to their identity. A mistake as to a person’s attributes, such asthinking that they are creditworthy when they are not, can leave the contract intact. Theleading case on the subject is Shogun Finance v Hudson (2003).

Face-to-face principleUnder the face-to-face principle, where there has been face-to-face contact between thecontracting parties, there is a strong presumption that each party intends to contractwith the other person present. The vendor’s intention is treated as being to sell to the

person present, and identified by sight and hearing and the only mistake was a mistakeas to attributes.

Interpreting a written contractWhen a person is clearly identified as a party on the face of a written agreement, otherevidence cannot be adduced to assert that the agreement was, in fact, with someoneelse. An exception, where the courts will look beyond the written agreement, is wherethe fraudster has used a ‘simple alias’ to disguise his or her identity, rather than pretendingto be an existing person. In the former situation, there may be a contract with thefraudster.

Mistakes relating to documentsWhere a mistake relates to a written document there are two special remedies: non estfactum and rectification.

Non est factumWhere a person signs a document believing it to be something totally different fromwhat it actually is, the common law remedy of non est factum (Latin for ‘this is not mydeed’) may make the contract void. In order to do this, the person seeking the remedymust prove three things: that the signature was induced by a trick or fraud; that theymade a fundamental mistake as to the nature of the document; and that they were notcareless in signing it.

RectificationWhere part of a written document is alleged not to reflect accurately the intention ofthe parties, the equitable remedy of rectification may in certain circumstances allowthe written document to be altered so that it coincides with the true agreement of theparties. The remedy of rectification only applies where the contract has been put downin writing. The parties must have been in complete agreement on the terms of theircontract but by an error wrote them down wrongly: Rose v Pim (1953).

Illegality

Contracts may be illegal either:● at the time of their formation; or● because of the way they have been performed.

A contract is illegal where its formation, purpose orperformance involves the commission of a legal wrong.

The violation may be of either:● a statutory rule;● the common law; or● the public interest.

Under common law the general principle is that an illegalcontract is void and unenforceable, but certain exceptionsto this have been developed by the courts. Where thecontract is illegal because of a statute, the impact of thisillegality will depend on the terms of the statute.

IntroductionAn agreement may be unenforceable because it is illegal. Contracts may be illegal at thetime of their formation or because of the way they have been performed.

Illegal at time of formationContracts may be illegal when entered into because they cannot be performed in accordancewith their terms without the commission of an illegal act.

Illegal mode of performanceA contract may be perfectly legal when it is made, but may be carried out in an illegalmanner.

Illegality and remotenessA person may enter into a contract with the intention of using it to achieve an illegalpurpose, but, if that illegal purpose is remote from the contract itself, the contract willnot be tainted by that illegality and will still be valid.

Violation of legal rules and public policyA contract is illegal when it violates a legal rule. In addition, a contract is regarded asbeing illegal where it involves conduct which the law disapproves of as contrary to theinterests of the public, even though that conduct is not actually unlawful.

The contract violates a legal ruleThe contract may constitute a crime or a tort. The violation may be of a statutory rule orof common law.

Breach of common lawThere are a number of factors which may make a contract illegal at common law, themost important being where there is a contract to commit a crime or a tort. Of particularinterest in practice are contracts in restraint of trade.

Breach of legislationSome types of contract are expressly declared void by statute, most noteably contractsin restraint of trade.

The contract is against public policyPublic policy is notoriously difficult to define, but essentially it assumes that there aresome interests which are shared by most of society, which promote the smooth runningof the type of society we have, and which should therefore be protected. There are arange of contracts which are considered to be illegal because they are against the interestsof public policy. The main categories of contract are:

● Contracts promoting sexual immorality.

● Contracts prejudicial to the status of marriage.

● Contracts prejudicial to public safety.

● Contracts prejudicial to the administration of justice.

● Contracts to oust the jurisdiction of the courts.

● Contracts tending to encourage corruption in public life.

The effect of an illegal contractThe effect of an illegal contract will depend on whether it is illegal because of either astatute or the common law. Where the contract is illegal because of a statute, in somecases the statute provides for the consequences of any illegality. Under common law thegeneral principle is that an illegal contract is void and unenforceable. The precise effectsof an illegal contract depend on whether the contract is illegal at the time of its formationor is illegal owing to the way in which it is performed.

Contracts illegal at time of formationIn this case the contract is treated as if it was never made, so the illegal contract is unenforceableby either party. There are two main exceptions to the general principle that thecontract is unenforceable. The first is that a person will be able to recover their propertyif they can rely on some other cause of action which does not involve the illegal contract,for example, by relying on an independent tort. The second exception applies where oneparty is more at fault than the other.

Contracts illegal as performedWe have seen that a contract, perfectly lawful when made, may be carried out in anillegal manner. It will be possible to enforce the illegal contract if the illegal act wasmerely incidental to the performance of the contract. Where the contract is merelyillegal because of the way it has been performed, it is possible for either both or only oneof the parties to intend illegal performance. It is customary to distinguish between thesituation where the legally objectionable features were known to both parties and wherethey were known to only one of them. If both parties are aware that its performance isillegal, the consequences for this type of contract are the same as for a contract thatis illegal at the time of its formation: neither party can enforce it. When one party didnot know of the illegal performance of the contract by the other party, the innocentparty can enforce it.

SeveranceIn some cases, it is possible to divide the illegal part of a contract from the rest, andenforce the provisions which are not affected by the illegality – this is called severance.

Duress and undue influence

A contract is voidable where it has been obtained byduress or undue influence. Duress exists where illegitimatepressure was exerted on a contracting party which inducedthat party to enter the contract. The courts will find undueinfluence where one party uses their influence over theother to persuade them to make a contract. There are twotypes of undue influence:

● actual and

● presumed.

Where a court finds that a contract was made as a resultof undue influence, it may set it aside or modify its termsso as to mitigate the disadvantage.Where one party is forced to consent by threats or undue pressure by the other, that consentshould be invalid. The law has developed two doctrines to deal with this issue: the

common law of duress, and the equitable one of undue influence. Both render a contractvoidable.

Duress

Five conditions need to be satisfied in order for there to be a finding of duress:

1 Pressure was exerted on the contracting party.

2 This pressure was illegitimate.

3 The pressure induced the claimant to enter the contract.

4 The claimant had no real choice but to enter the contract.

5 The claimant protested at the time or shortly after the contract was made.Each of these conditions will be considered in turn.

Pressure exerted on the contracting partyPressure must have been exerted on the innocent contracting party, which amounted toa compulsion of the will. To constitute economic duress, economic pressure must go agreat deal further than the ordinary pressure of the market.

Pressure exerted was illegitimateIllegitimate pressure must have been exerted on the other contracting party. A threat todo an unlawful act (which includes breaking a contract) will always be illegitimate, but athreat to do a lawful act will only be illegitimate if the threat is unreasonable, which willdepend on the circumstances: Atlas Express Ltd v Kafco (Importers and Distributors)Ltd (1989).

Pressure induced the claimant to enter the contractDuress must be one of the reasons for entering (or modifying) a contract, but it does nothave to be the only or even the main reason.

Claimant had no real choice but to enter the contractEconomic duress will be present where there is compulsion of the will to the extent thatthe party under threat has no practical alternative but to comply.

Claimant protested at the time or shortly after the contract was madeIn The Atlantic Baron (1979) it was because the claimant waited eight months after theship was delivered that the claim for duress was unsuccessful.

Undue influenceUndue influence is an equitable doctrine, which applies where one party uses theirinfluence over the other to persuade them to make a contract. The leading case on thesubject is the House of Lords’ judgment of Royal Bank of Scotland v Etridge (No 2)(2001). There are two types of undue influence: actual and presumed.

Actual undue influenceThis arises where the claimant can prove that they entered the transaction as a result ofundue influence from the other party.

Presumed undue influenceIn certain circumstances an evidentiary presumption will be applied that shifts the burdenof proof from the claimant to the defendant, so that it is up to the defendant to disprovethe existence of undue influence. Undue influence may be presumed where there is apre-existing relationship of confidence between the two parties to a contract, as a resultof which one places trust in the other, and the contract between them is manifestly disadvantageousto the party who places trust in the other. Such a relationship may arise intwo ways. First, it may fall into one of several categories in which a relationship of trustis automatically presumed to exist. Secondly, a relationship of trust may be establishedon the facts.

A manifestly disadvantageous transactionWhere a party seeks to rely on the existence of presumed undue influence, the transactionmust be manifestly disadvantageous. There is manifest disadvantage where atransaction looks suspiciously unfavourable to one party, and requires explanation.

Undue influence and third partiesIn Barclays Bank v O’Brien (1993) the undue influence was alleged to have been exertedby the husband and not the bank. The rights of a contracting party are affected by theimpropriety of the third party if they knew of it or are deemed to have such knowledge(known as constructive knowledge).

Placed ‘on inquiry’A party will have constructive knowledge of undue influence by a third party if it hadbeen placed ‘on inquiry’ that a third party may have committed some impropriety toinduce the contract, and it has failed to take action to avoid having constructive knowledgeof this impropriety. Following Royal Bank of Scotland v Etridge (No 2) (2001), abank will be put on inquiry in every case where the relationship between the surety andthe debtor is non-commercial.

Avoiding constructive noticeA contracting party will avoid having constructive notice by taking reasonable steps tosatisfy itself that the other party’s agreement had been freely given. In order to avoid constructivenotice of undue influence, a bank has to take reasonable steps to satisfy itselfthat the relevant party had been informed, in a meaningful way, of the practical implicationsof the proposed transaction.

Independent legal adviceIn order to avoid having constructive notice of undue influence, the bank can rely onwritten confirmation from a solicitor that they have given the contracting party (usuallythe wife) appropriate advice.

RemediesThe existence of undue influence renders the contract voidable.

THE RIGHTS AND LIABILITIESOF THIRD PARTIES

Third partiesA third party to a contract has an interest in the contract,without actually being a party to it. Under the traditionalprivity rule third parties could not sue or be sued under a

contract. A large number of exceptions to the privity rulehave been developed and arise under:

● statute, most significantly the Contracts (Rights ofThird Parties) Act 1999;

● the common law; and

● equity.The privity rule

There has been a long-established privity rule that only the parties to a contract couldincur rights and obligations under it: Tweddle v Atkinson (1861). A number of exceptionshave developed to the privity rule. The range of third party rights can arise understatute, common law or equity, and will now be considered.

Statutory rights

Contracts (Rights of Third Parties) Act 1999The Contracts (Rights of Third Parties) Act 1999 enables third parties to enforce contractualterms in two situations.

● the contract expressly provides that they may do so; or

● the contract purports to confer a benefit upon them, unless the parties did not intendit to be enforceable.

Identifying the third partyUnder either limb it is not necessary for the third party to be specifically named: it is sufficientfor him or her to be ‘expressly identified in the contract by name, as a member ofa class or as answering a particular description’ (s. 1(3)).

Consent to variationsSection 2 of the 1999 Act states that, unless the contract provides otherwise, the partiesto the contract may not rescind the contract, or vary it so as to extinguish or alter thethird party’s rights, without his or her consent if the third party has either:

● communicated to the promisor their assent to the relevant term;

● relied on the term and the promisor knows of that reliance; or

● relied on the term and the promisor can reasonably be expected to have foreseen thatreliance.

EnforcementThird parties have the same remedies as would be available to them if they were contractingparties.

DefencesIn an action by the third party, the promisor is able to rely on any defence arising out ofthe contract which would have been available to him or her had the claim been by thepromisee (s. 3).

Excluding the Act

The contracting parties can state in the contract that the provisions of the 1999 Actshould not apply.

InsuranceLegislation provides that insurance policies can be for the benefit of third parties.

Covenants relating to landUnder s. 56(1) of the Law of Property Act 1925, privity of contract does not apply torestrictive covenants (which are agreements not to do something) relating to land, providingthey are registered in the land register.

Bills of exchangeUnder the Bills of Exchange Act 1882, a third party can sue on a bill of exchange, themost common form of which is a cheque.

Common law exceptionsAgencyAn agent is viewed by the law as the intermediary of the principal, rather than a trueparty to the contract. There are three circumstances in which a person will be treated asbeing the principal’s agent: where there is express authority; where there is impliedauthority; and where there is apparent authority.Where an agent is covered by any of the three types of authority, the principal will bebound by any contract made that falls within that authority, as they are treated as havingprivity of contract. Where an agent makes a contract which lies outside the authoritygranted by the principal, or where the agent in fact has no authority at all, the principalmay nevertheless choose to ratify the contract, so long as the agent was purporting toact on the principal’s behalf at the time the contract was made, and the principal had thecapacity to make the contract at that time.

Undisclosed principalsIn some cases, an agent may act for a principal without disclosing the principal’s identity,or even the fact that there is a principal. English law nevertheless holds that it is the principalwith whom the contract is made, so that it is effectively possible to make a contractwith someone without even knowing that they exist.

Warranty of authorityIf an individual purports to make a contract on behalf of someone else the courts can findthat the purported agent has contracted that they do have authority.

AssignmentIt is possible to assign the benefit (but not the burden) of a contract without the permissionof the other party.

NegotiabilityCertain types of contractual benefit may be assigned merely by being put into a writtendocument and given to another party; the original owner of the benefit need not benotified. The written document is called a negotiable instrument, and the most commonexamples are banknotes and cheques.

NovationTo transfer both burdens and benefits of a contract, a novation is required.

Damages on behalf of another

Despite the privity rule, in Jackson v Horizon Holidays Ltd (1975), Lord Denningawarded the plaintiff damages not only for his own loss but also for the loss of his family,because he had entered the contract for their benefit as well.

Collateral contractsWhere one party makes contracts with two others, the courts will sometimes use thedevice of ‘finding’ a collateral contract between the two others to evade the privity rule.An example of this is Shanklin Pier Ltd v Detel Products Ltd (1951).

Exceptions in equityConstructive trustA contracting party can specify that the benefit of the contract is held by him or her intrust for a third party, in which case that third party will have enforceable rights to thebenefit.

Restrictive covenantsAs well as avoiding the rules on privity of contract under statute, restrictive covenantsconcerning land avoid those rules in equity, following the case of Tulk v Moxhay (1848).

DISCHARGE AND REMEDIES

There are four ways in which a contract can be brought toan end: performance, frustration, breach and agreement.This chapter discusses each of these in turn.

● The general rule is that performance must exactlymatch the requirements laid down in the contract,and this is known as entire performance. In practice,contracts requiring entire performance are theexception rather than the rule.

● If after a contract is made, something happens,through no fault of the parties, to make its performanceimpossible, the contract is said to be frustrated.

● A contract is said to be breached when one partyperforms defectively, differently from the agreement, ornot at all (actual breach), or indicates in advance thatthey will not be performing as agreed (anticipatorybreach).

● In some cases the parties will simply agree to terminatea contract, so that one or both parties are released fromtheir obligations.

There are four ways in which a contract can come to an end: performance, frustration,breach and agreement.

PERFORMANCE

The most obvious way in which a contract is discharged is by both parties performing

their obligations under it.

The entire performance ruleThe general rule is that performance must exactly match the requirements laid down inthe contract, and this is known as entire performance. If the first party fails to performentirely, the other need pay nothing at all, even if the shortfall in performance actuallycauses no hardship.

Mitigation of the entire performance ruleThere are several ways in which the harshness of the entire performance rule is mitigated:

Substantial performanceEstablished in Boone v Eyre (1779) by Lord Mansfield, this doctrine allows a party whohas performed with only minor defects to claim the price of the work done, less anymoney the other party will have to spend to put the defects right. The doctrine cannotbe used where the claimant has breached a condition of the contract.

Severable contractsA contract is said to be severable where payment becomes due at various stages ofperformance, rather than in one lump sum when performance is complete. Whether acontract is entire or severable is a question of construction.

Voluntary acceptance of partial performanceIn some cases, while a contract may not originally have been intended to be severable,one party may later agree to accept and pay for part performance from the other.

Prevention of performance by other partyWhere one party performs part of the agreed obligation, and is then prevented fromcompleting the rest by some fault of the other party, a quantum meruit can be used toclaim the cost of the work done. In most of these cases, the innocent party can alternativelyclaim damages for breach of contract. Where one party cannot perform withoutthe other’s cooperation, rejection of an offer to perform will release the party tenderingperformance from any further obligation.

Breach of terms concerning timeLate performance will always amount to a breach of contract, giving rise to a right todamages. It will only give rise to a right to terminate the contract if the delay constitutesa substantial failure to perform, or if the time of performance is treated as being ‘of theessence’.

Vicarious performanceThe general rule is that a contracting party cannot object to vicarious performance unlessit prejudices their interests. If the service contracted for is one which relies on the skill orjudgement of one party, the other can insist on personal performance.

FRUSTRATION

If after a contract is made, something happens, through no fault of the parties, to makeits performance impossible, the contract is said to be frustrated, and the obligationsunder it come to an end.

Time of frustrating eventA frustrating event which occurs before the contract is made gives rise to the issue of

mistake rather than to an issue of frustration.

What will amount to frustration?Events that will frustrate a contract fall into three broad categories: events which makeperformance or further performance impossible; those which make it illegal; and thosewhich make it pointless.

ImpossibleA contract may become impossible to perform in any of the following ways:

● Destruction or unavailability of something essential for the contract’s performance.

● Death of either party.

● Unavailability of a party.

● Method of performance impossible.

IllegalIf, after a contract is formed, a change in the law makes its performance illegal, the contractwill be frustrated.

PointlessA contract can be frustrated where a supervening event makes performance of a contractcompletely pointless, though still technically possible: Krell v Henry (1903).

What will not amount to frustration?A particular event will not frustrate a contract if: the contract makes provision for such anevent; the event merely renders the contract more onerous; it was foreseen or foreseeable;or it was due to the fault of one of the parties.

Legal consequences of frustrationOnce a court holds that a contract is frustrated, it is automatically terminated from thepoint at which the frustrating event occurred and the contract is described as being discharged.Obligations which would have arisen from that point on no longer exist, butthe contract is not treated as though it never existed, so acts done before the frustratingevent may have legal consequences.

The common lawThe common law traditionally took the view that any loss resulting from the frustrationshould lie where it fell. Advance payments would be recoverable if there had been a totalfailure of consideration: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour(1943).

The Law Reform (Frustrated Contracts) Act 1943This Act alters the legal consequences once the contract is held to have been frustratedunder the rules of the common law. It draws a distinction between obligations to paymoney and other types of obligation that existed prior to the frustration.

Obligations to pay moneySection 1(2) of the Act entitles a person to recover money paid under a contract prior tothe frustrating event, and removes any obligation to pay money that existed prior to thefrustrating event.

Obligations other than to pay moneyUnder s. 1(3), if, before the frustrating event, one party obtains a valuable benefit (otherthan money) because of something done by the other in performance of the contract,the party receiving the benefit can be ordered to pay a just sum in return for it.

BREACH

A contract is said to be breached when one party performs defectively, differently fromthe agreement, or not at all (actual breach), or indicates in advance that they will not beperforming as agreed (anticipatory breach). Where an anticipatory breach occurs, theother party can sue for breach straight away; it is not necessary to wait until performancefalls due.

Lawful excuseIn some cases, an extraneous event which is not sufficiently serious to frustrate a contractwill nevertheless provide an excuse for non-performance.

Effect of breachAny breach of contract will entitle the innocent party to sue for damages, but not everybreach allows the wronged party to choose to discharge the contract (in contrast withfrustration, where the discharge is automatic). If the contract is not discharged, it will stillneed to be performed. There are three main circumstances in which the innocent partymay choose to discharge.

RepudiationThis is where one party makes it clear that they no longer intend to be bound by the contract,either during its performance, or before performance is due (in practice it is usuallythe latter, and therefore an anticipatory breach).

Breach of a conditionBreach of a condition allows the innocent party to terminate the contract; breaches ofwarranty do not justify termination, although they may give rise to an award of damages.

Serious breach of an innominate termWhere the relevant term is classified by the courts as innominate, it will be one which canbe breached in both serious and trivial ways; and whether the innocent party is entitledto terminate or not will depend on how serious the results of the breach are. If the resultsare so serious as to undermine the very foundation of the contract, the innocent partywill have the right to terminate.

Choice to affirm or dischargeEven when one of these three types of breach occurs, the contract is not automaticallydischarged; the innocent party can usually choose whether or not to terminate.

AGREEMENTIn some cases the parties will simply agree to terminate a contract, so that one orboth parties are released from their obligations. A distinction is generally made betweenbilateral discharge, in which both parties receive a benefit from the discharge, andunilateral, where the change is made for the benefit of one party only.In general, an agreed discharge will be binding if it contains the same ‘ingredients’that make a contract binding when it is formed; and the two which tend to present mostproblems are formality and consideration.Novation

Novation is the name given to a specific type of discharge by agreement. It arises wherethere are two contracts, and the same person is a debtor under one contract and a creditorunder the other; the first two contracts are discharged and a new one is created.

Condition subsequentSometimes contracting parties will agree at the start that, if a certain event occurs, thecontract will come to an end.

RemediesWhen a contract is breached, there are three differenttypes of remedy that can be available to the innocentparty: common law remedies, equitable remedies andremedies agreed between the parties.

● Common law remedies are usually damagescompensating a financial loss and aim to put innocentparties in the position they would have been in if thecontract had been performed. Limits are imposed onthese damages under the rules on causation, remotenessand the requirement to mitigate one’s loss. In calculatingthe damages the courts can either focus on the loss ofexpectation or, less frequently, on what is known as the‘reliance loss’. When calculating the damages, the courtshave traditionally not taken into account any profit theparty in breach has made by breaking the contract.

● Equitable remedies are available at the discretion of thecourt when the common law remedies are inadequateto compensate the claimant. These remedies arespecific performance (compelling someone to performtheir obligations under a contract) and an injunction(normally ordering a defendant not to do something).

● Agreed remedies are sometimes provided for in thecontract itself.

The remedies available to the innocent party in the event of a breach of contract can bedivided into three categories: common law remedies, equitable remedies and remediesagreed by the parties.

COMMON LAW REMEDIESAll common law remedies are available as of right if a contract is breached.

DamagesAn award of damages is the usual remedy for a breach of contract. It is an award ofmoney that aims to compensate the innocent party for the financial losses they have sufferedas a result of the breach. The general rule is that innocent parties are entitled tosuch damages as will put them in the position they would have been in if the contracthad been performed. When a contract is breached, a party may suffer pecuniary loss ornon-pecuniary loss.

Pecuniary lossDamages aim to compensate the innocent party for their financial losses that result fromnot receiving the performance bargained for.

Non-pecuniary lossDamages for non-pecuniary losses are generally not recoverable in contract. Thus, damagesfor mental distress are not awarded in commercial contracts: Addis v GramophoneCo Ltd (1909). Recent cases have developed the principle that, in a limited number ofsituations, injury to feelings (generally called mental distress) and loss of amenity willbe compensated. Such compensation is available where the contract’s whole purposewas the provision of pleasure, relaxation and peace of mind (Jarvis v Swans Tours Ltd(1973)); where a major object of the contract was to provide pleasure, relaxation andpeace of mind (Farley v Skinner (No 2) (2001)); and if the mental suffering is related tophysical inconvenience and discomfort caused by the breach of the contract.

Limitations on awards of damagesThe general rule is that innocent parties are entitled to such damages as will put them inthe position they would have been in if the contract had been performed, but there arethree limitations, which will be considered under the headings of causation, remotenessand mitigation.

CausationA person will only be liable for losses caused by their breach of contract. The defendant’sbreach need not be the sole cause of the claimant’s losses, but it must be an effectivecause of their loss.

RemotenessThere are some losses which clearly result from the defendant’s breach of contract, butare considered too remote from the breach for it to be fair to expect the defendant tocompensate the claimant for them. The rules concerning remoteness were originally laiddown in Hadley v Baxendale (1854). The court laid down two situations where thedefendant should be liable for loss caused by a breach of contract:

1 Loss which would arise naturally, ‘according to the usual course of things’, from theirbreach.

2 Loss ‘as may reasonably be supposed to have been in the contemplation of the partiesat the time when they made the contract, as the probable result of the breach of it’.The approach in Hadley v Baxendale was reaffirmed in Victoria Laundry (Windsor) Ltdv Newman Industries Ltd (1949) and then discussed again by the House of Lords in TheHeron II (1969).

MitigationClaimants are under a duty to mitigate their loss, and cannot recover damages for losseswhich could have been avoided by taking reasonable steps.

Calculating lossThere are two main ways in which the losses of a claimant in a contract action can becalculated: the loss of expectation, and the reliance loss.

Loss of expectationWhere loss of expectation is the basis for calculating damages, the courts aim to putclaimants in the position they would have been in if the contract had been performed.Thus, the parties would have expected a certain result from the performance of thecontract and the damages will compensate for the loss of this expectation.

Reliance lossWhere reliance loss is the basis for calculating damages, the damages seek to putclaimants in the position they were in before the contract was made. The damages willtherefore compensate for the actual wasted expenditure and other losses incurredbecause of the contract which has been breached.

Choosing between the expectation and reliance principlesAs a rule, a claimant can choose whether to base a claim on loss of expectation or onreliance. In practice, loss of expectation is the usual basis for calculating contract damages.

There are two main restrictions on the claimant’s choice between the expectationand the reliance principles. These are the bad bargain rule and the speculative damagesrule.

● Bad bargain rule: if the claimant would have made a loss from the contract, then he orshe will only be entitled to nominal damages, and will not be entitled to claim theirexpenses on the basis of reliance loss.

● Expectation losses are ‘too speculative’: the reliance basis for calculating damages mustbe used where it is virtually impossible to calculate what profit the claimant wouldhave made if the contract had been performed correctly.

Quantifying the expectation lossContract damages based on expectation loss are essentially seeking to compensate thedifference in value between the promised performance and the actual performance.

The market price ruleWhere a contract has been breached, the law assumes that the wronged party will immediatelymitigate their loss by buying similar goods which they had contracted for fromanother source or selling the goods which they had contracted to sell to another source.The buyer’s damages will therefore be assessed by subtracting the contract price fromthe market price at the time of breach. The market price rule will not be used as themeasure of loss either where there is no available market or where, in the circumstances,the non-breaching party is not expected to avail itself of the market to mitigate its loss.

Cost of cureCost of cure damages will only be awarded where this would be reasonable. They willnot be awarded where they would be out of all proportion to the consequences of thebreach and there is a risk of unjust enrichment if the claimant is awarded cost of curedamages but then does not use the money to remedy the breach: Ruxley Electronicsand Construction Ltd v Forsyth (1995).

Loss of opportunity damagesThe loss of an opportunity is recoverable in damages if the lost chance is quantifiable inmonetary terms and there was a substantial chance that the opportunity might havecome to fruition. Otherwise, the loss of opportunity will be treated as too speculative.

TaxWhere a claimant’s claim includes money on which they would have had to pay incometax if it were earned by performing the contract, the amount of tax payable can bededucted from the damages.

Profit made by the defendantWhen calculating damages, the courts have traditionally not taken into account anyprofit the party in breach has made by breaking the contract, only the loss caused to theinnocent party. In the most recent cases, the courts now appear to be willing to compensatefor a loss of profit in exceptional cases. In deciding whether to compensate fora loss of profit, the courts have drawn a distinction between where defendants areordered to hand over part of their profits, and where they are ordered to hand over alltheir profit (Attorney General v Blake (2000)). The court will now sometimes order theformer, but only in very exceptional circumstances order the latter.

Action for an agreed sumWhere a contract specifies a price to be paid for performance, and payment has not beenmade, the party who has performed can claim the money owed by means of an actionfor the agreed sum. This is a claim for a debt and not a claim for damages. The claimantis not seeking compensation, but simply enforcement of the defendant’s promise to pay.

RestitutionRestitution is the remedy available when there has been unjust enrichment. Where moneyhas been paid under a contract, or purported contract, and performance has not beenreceived in return, or has not been adequate, the payer may want to claim the moneyback, rather than claiming damages. Traditionally, contract remedies and restitution donot overlap. In practice, restitution will therefore be available if there is no contract. Theremay be no contract for one of the following reasons:

● a contract has not been made (e.g. because of a lack of agreement, uncertainty or theabsence of consideration);

● the contract has been discharged; or

● the contract was void (e.g. because of illegality).

Quantum meruitWhere work has been done or goods supplied but no payment has been received andcannot be obtained under a contract, an action is available, called a quantum meruit,under which claimants can claim a reasonable price for their performance.

EQUITABLE REMEDIESEquitable remedies are provided at the discretion of the court.

Specific performanceAn order of specific performance is a court order compelling someone to perform theirobligations under a contract. Specific performance is only granted where damages alonewould be an inadequate remedy. A court will not order specific performance to caseswhere it could cause a party great hardship or unfairness. Specific performance will be

refused where a contract has been obtained by unfair means.

Contracts unsuitable for specific performanceSome types of contract are, by their nature, unlikely to be the subject of an order forspecific performance. The two main types are contracts requiring personal services andcontracts which involve continuous duties. Specific performance will not be applied to acontract which is vague as to the performance required, nor to a promise which is onlysupported by nominal consideration or contained in a deed. It is not used where a contractallows the party concerned to terminate it. Specific performance will not usually beordered against a defendant if it could not have been ordered against the claimant, hadthey been the one in breach, because of the principle of mutuality.

InjunctionAn injunction normally orders the defendant not to do a particular thing.

REMEDIES AGREED BY THE PARTIESMany contracts specify the kinds of breach which will justify termination, and/or thedamages to be paid by each party in the event of certain types of breach. There are twotypes of contract clauses concerning damages: liquidated damages clauses and penaltyclauses.

Liquidated damagesLiquidated damages is the term used where a contract specifies the amount of damagesto be paid in the event of breach, and this amount represents a genuine attempt to workout what the loss would be in the event of such a breach.

Penalty clausesIf a contract states that a particular sum is to be paid on breach of the contract, and thatsum is not a genuine pre-estimate of the loss that would be suffered in the event ofbreach, but is designed instead to threaten to penalise a party in breach, this is a penaltyclause. Where the damages laid down in a contract amount to a penalty clause, theclause will be found to be invalid and the award of damages will be determined by theordinary principles of contract law instead: Dunlop Pneumatic Tyre Co Ltd v NewGarage & Motor Co Ltd (1915).

EXTINCTION OF REMEDIESWhere one party has a right of action for breach of contract, this right may be extinguishedby agreement between the parties, either by a release under seal or by accordand satisfaction. Such a right can also be extinguished by the passage of time, under theLimitation Act 1980.

Tort LawNegligence

Negligence has three main elements:

● A duty of care;

● Breach of the duty;

● Damage caused by the breach.

DUTY OF CARE

Duty of care is a legal concept which dictates whether one party can be liable to another in negligence. The test for a duty of care has varied over the years, but the current main test comes from Caparo v Dickman (1990):

● Is the damage reasonably foreseeable?

● was there a relationship of proximity between claimant and defendant?

● Is it just and reasonable to impose a duty of care?

The test has been modified for cases which involve:

● Economic loss;

● Psychiatric injury;

● Omissions;

● acts of third parties;

● Special groups.

Duties of care: economic loss

Cases involving pure economic loss use a duty of care test developed in Hedley Byrne vHeller (1963), which requires:

● A ‘special relationship’ between the parties;

● A voluntary assumption of responsibility by the defendant;

● Reliance on that advice;

● that it was reasonable to rely on the advice.

Recent cases have allowed liability without reliance, in limited situations.

Problems with the law on economic loss

● Too few/too many restrictions;

● overlap with contract law;

● Lack of clarity.

Duties of care: psychiatric injury

The initial duty of care test for psychiatric injury cases contains two elements:

● Is there a recognised psychiatric injury?

● Was the claimant:

● physically injured as well as psychiatrically (a primary victim)?

● in danger of physical injury (also a primary victim)?

● a witness to the incident in some way while not themselves in physical danger (called a secondary victim)?

The first two types of claimant can claim under the normal rules of negligence. For secondary victims, three further tests apply:

● Do they have a recognised psychiatric illness, caused by a sudden shock?

● Are they within a class of people that the law allows to claim compensation for psychiatric injury as a secondary victim?

● What was their proximity to the shocking event?

Problems with the law on psychiatric injury:● The position of rescuers;

● The ‘closeness of relationship’ rules;

● The proximity requirements;

● The ‘sudden shock’ requirement.

Duties of care: omissions

Negligence generally imposes liability for things people do, not things they fail to do, butthere are some situations where a defendant may be liable for an omission to act:

● Where the defendant has a high degree of control over the claimant;

● Where the defendant has assumed responsibility for the claimant in some way;

● Where the defendant creates a dangerous situation, and fails to deal with it.

Duties of care: acts of third parties

Negligence usually imposes liability only on the person who causes damage, but there are five situations where someone may be liable for damage done by another:

● Vicarious liability;

● Where there is a relationship of proximity between claimant and defendant;

● Where there is a relationship of proximity between the defendant and the party causing damage;

● Where the defendant negligently creates a source of danger;

● Where the defendant knew/had reason to know a third party was creating a risk on their property.

Duties of care: special groups

A number of special groups have become subject to special rules on when they will owea duty of care in negligence, although the Caparo test is still the basis of liability. They are:● the police;● other emergency services;● the armed forces;● local authorities and public bodies.The European Court of Human Rights cases of Osman v UK (1998) and Z v UK (2001)have suggested that there may have to be some restrictions on the way the courts treatspecial groups.

BREACH OF A DUTY OF CARE

A defendant will be in breach of their duty of care if their behaviour falls below thestandard of behaviour reasonably to be expected in someone doing what they are doing.The test is objective, and is known as the standard of reasonableness; it requires thedefendant to take reasonable precautions, not to eliminate every possible risk.In deciding on the standard to be expected, the courts weigh up a number of factors:

● special characteristics of the defendant;

● special characteristics of the claimant;

● the size of the risk;

● how far it was practical to prevent the risk;

● common practice in the relevant field;● how obvious the risk is;

● any potential benefits to society from the activity that caused the risk.

DAMAGE

The defendant will only be liable if the negligence causes damage. The usual types ofdamage are:

● personal injury;

● damage to property;

● economic loss.

In a series of cases, the courts have decided that the birth of a baby, even if unwanted,is not damage.

CAUSATION

The claimant must prove that the defendant’s negligence caused the damage. The ruleson causation apply to all torts which require proof of damage.The basic test is the ‘but for’ test: would the damage have happened if the defendanthad not been negligent?

More complex rules apply in cases where:

● the damage has more than one cause;

● the negligence causes ‘loss of a chance’;

● there are multiple tortfeasors;

● there is an intervening event after the negligence which contributes to the damage.

REMOTENESS OF DAMAGE

The claimant must also prove that the defendant’s negligence is not too remote from thedamage: a legal, rather than factual, test.The remoteness test in negligence is reasonable foreseeability; was the kind ofdamage suffered reasonably foreseeable at the time the duty was breached?So long as the type of damage is reasonably foreseeable, it does not matter that it ismore serious than the defendant could have foreseen.

Proving negligence

The claimant has the burden of proof except where:● the defendant has a criminal conviction based on the same facts;● the principle res ipsa loquitur applies.

DEFENCES

The main defences are:

● Contributory negligence, which applies when the claimant is partly to blame for thedamage, or its extent.

● Volenti, which applies when the claimant has consented to what was done by the

defendant.

● Illegality, which applies where the claimant’s case is connected with their own criminalact.

● Statutory authority, which applies where a statute entitles the defendant to somethingwhich would normally be a tort.

These defences apply to most other torts as well as negligence.Defences which do not apply to negligence are:

● necessity;

● mistake;

● inevitable accident.

TIME LIMITS

Negligence claims (other than personal injury) must be brought within six years fromdamage occurring, or three years from when the claimant knew/ought to have knownof it.Personal injury claims must be brought within three years of the damage, or of theclaimant knowing they might have a claim. The courts have discretion to extend thislimit.

CRITICISMS OF NEGLIGENCE LAW

Problems with the law on negligence arise in each one of its aims:

● compensating victims of harm;

● marking fault;

● deterring carelessness;

● spreading the costs of harm caused by carelessness;

● fulfilling these tasks quickly and fairly.

Employers’ liability

Common law rules impose a duty on employers to take reasonable care of their employees’safety. The duty is only owed to staff, not independent contractors.

The employer must take reasonable steps to ensure:

● A competent staff;

● Adequate equipment;

● A safe place of work;

● A safe system of working.

The duty can apply to:

● Physical harm;

● psychiatric harm, if:

● Reasonably foreseeable and caused by workplace stress;

● caused by a sudden shock, and the employee was in physical danger (but not if theemployee only witnessed another in danger);

● Economic loss (but only in exceptional cases).N AVIGATORPOWERED BY

Scope of the duty

The duty is to take reasonable care, not to eliminate all possible risks. It is owed to eachindividual, so special characteristics of the individual must be taken into account.

Delegating the duty

Employers can delegate performance of the duty (for example to a manager), but notliability for it.

Defences

The available defences are:

● Contributory negligence

● Volent

Occupiers’ liability

Occupiers of land owe a duty to people who come onto the land, under two Acts:

● The Occupiers’ Liability Act 1957 covers their duty to visitors

● The Occupiers’ Liability Act 1984 covers their duty to trespassers.

An occupier is the person who controls the land or premises, and need not be the owner.The key question is whether a person exercises a sufficient degree of control to allow orprevent others entering.

The Acts apply to land, buildings and any fixed or movable structure.

Liability to visitorsA visitor is someone with express or implied permission to enter. People using rightsof way, or the right to roam under the Countryside and Rights of Way Act 2000 are notvisitors.

The 1957 Act:

● imposes a duty to ‘take such care as in all the circumstances of the case is reasonableto see that the visitor will be reasonably safe’;

● requires occupiers to be prepared for children to be less careful than adults;

● entitles occupiers to expect that people entering for work purposes will be aware ofany risks that normally arise from their work;

● provides that occupiers are not liable for risks caused by independent contractors, if itwas reasonable to entrust the work to them, and reasonable steps were taken to checktheir competence and the work done;

● provides that people entering under a contractual right are in the same position asothers, unless the contract provides for a higher standard than the statutory duty.

Defences under the 1957 Act:

● Contributory negligence

● Volenti

● Use of warnings

● Exclusion of the duty of care (subject to the Unfair Contract Terms Act 1977).

Damages can be claimed for personal injury or damage to property, but not economicloss.

Liability to trespassers

The 1984 Act imposes a duty to take such care as is reasonable in the circumstances tosee that trespassers do not suffer injury on the premises ‘by reason of any danger due tothe state of the premises or to things done or omitted to be done on them’. In practicethis is very similar to the duty owed to visitors.

However, the duty only applies where:

● the occupier knows about or has reason to believe a danger exists;

● the occupier knows or has reason to believe that the trespasser is or may come withinthe vicinity of the danger; and

● the risk is one which the occupier can reasonably be expected to offer protection from,considering all the circumstances.

A trespasser is anyone who goes onto land without permission, where the occupierobjects to, or does not know of, their presence there.

Defences under the 1984 Act:

● Contributory negligence

● Volenti

● Use of warnings.

It is unclear whether the duty can be excluded.Damages can only be claimed for personal injury, not damage to property.

Product liability

There are three main ways to claim compensation for defective products:

● Breach of contract

● Negligence

● The Consumer Protection Act 1987.

Product liability in contract

The buyer of a defective product can sue the seller for breach of contract; this protectionis strengthened by the terms implied into contracts by the Sale of Goods Acts.

● Only the buyer and third parties given the benefit of the contract can sue.

● Only the seller can be sued.

● All types of product are covered.

● Claims can be made for any type of defect, not just dangerous ones.

● The claimant must prove breach of a contractual term but need not prove fault.Contract law includes a range of defences, detailed in contract law texts.

Evaluating product liability in contract

Key issues are:

● wide range of defects covered;

● no need to prove fault;

● limits on who can sue.

Product liability in tort

● Producers of defective products owe a duty of care in negligence to the buyers andusers of the products.

● Anyone injured or caused loss may sue.

● Anyone involved in the supply chain from manufacturer to seller can be sued.

● All types of product are covered.

● Claims can only be made for defects which cause injury or property damage, notdefects which only affect performance or quality.

● The claimant must prove the defendant’s failure to take reasonable care caused thedanger.

The usual defences to negligence apply.

Evaluating product liability in negligenceKey issues are:

● the types of defect covered;

● the need to prove fault;

● whether decisions are suitable for the courts.

Product liability under the Consumer Protection Act

The Act imposes strict liability for defective products which are dangerous.

● Anyone who suffers injury or property damage can sue.

● The ‘producer’ of the product can be sued, as can suppliers if they cannot identify theproducer, and retailers of own brand goods.

● Most types of product are covered, but not buildings.

● The claimant must prove that the safety of the product is ‘not such as persons generallyare entitled to expect’; fault need not be proved.

Defences under the Act are:

● contributory negligence;

● compliance with the law;

● product not supplied;

● non-commercial supply;

● defects arising later;

● development risks;

● component products not defective.Cases are subject to special limitation period of:

● ten years from the time the defendant began supplying the product; and

● three years from the time the defect, damage, or defendant’s identity was known; or

● three years from the date of knowledge in latent damage cases.

Product liability

Evaluating the Act

Key issues are:

● Is liability really strict?

● Should liability be strict?

● Use of the development risks defence.

Other remedies for defective products

● The Consumer Credit Act 1974

● Safety regulations under the Consumer Protection Act 1987.

Breach of statutory duty

Many statutes impose duties, but this does not always mean that failure to perform theduty gives rise to a right to sue in tort.

Scope of the tort

To decide whether a right to sue exists, the courts look at the wording of the statute, andat other factors which can indicate Parliament’s intention to create a cause of action.

Who the statute is intended to benefitTortious liability only arises where an act is designed to create individual rights againstthe party which has the duty, not where the intention is a general public benefit.

Availability of alternative remedies

Where an alternative way to penalise breach of the duty exists, there is a presumptionthat no right to sue in tort exists.

Degree of detail

The more detailed and specific the provisions creating the duty are, the more likely that

the courts will find there is civil liability for its breach.

Background to the legislation

The courts look at the background to determine what Parliament’s intention was whencreating the legislation.

The type of harm

Where a statute protects against a type of harm not covered by tort law, it is unlikely tocreate a right to claim in tort.

Elements of the tort

If there is civil liability, the courts look at the wording of the statute to determine whatthe duty is, and whether it has been breached.The claimant can only recover for damage of the kind the statute was designed toprevent.

Defences

Volenti and contributory negligence apply as defences.

DeceitThe action for deceit compensates for loss caused by deliberate false representations.

Elements of the tort

A false representation

A representation may be written, spoken or in the form of conduct. Silence is not usuallysufficient, but may be if it takes the form of half-truths or deliberate concealment, orwhere there is a statutory duty to reveal information.

A representation of fact

The representation must concern fact, not opinion; the exceptions are where a defendantfalsely suggests they hold an opinion, or have grounds for doing so. Promises orstatements of intention do not suffice, unless they suggest that a situation does or willexist.

Knowledge or recklessness

The defendant must know the statement is false, or be indifferent as to whether it is true.An honest belief in an untrue statement cannot give rise to liability.

Intention for the claimant to act

The statement need not be made to the claimant, but the defendant must make it withthe intent that the claimant or a group of which they are a part should act on it. If a statementis ambiguous, the defendant is only liable if they intended the claimant to act on

an untrue meaning.

Acting on the representation

The claimant must have been influenced to act by the representation, but it need not bethe only reason. The fact that a claimant could have avoided damage by making checksdoes not prevent liability.

Damage to the claimant

Damages can be claimed for financial loss, property damage, personal injury and mentaldistress. The defendant is liable for all damage which flows directly from the claimant’sreliance on the false representation.

Calculating damages

The claimant can claim the cost of being put back in the position they would have beenin had the deceit not happened. This includes the cost of any damage which is a directresult of the deceit. The claimant must mitigate their loss from the time they becomeaware of the deceit.

DefamationDefamation is committed by publishing a statement which lowers the reputation of theperson referred to.

Elements of defamation

There are two types:

● libel applies to statements in permanent form;

● slander to statements in temporary or transitory form.

The claimant must prove:

● the statement complained of was defamatory;

● the statement referred to the claimant;

● the statement was published.

Defamatory statements

● A statement will be defamatory if it ‘tends to lower the person in the estimation ofright-thinking members of society’, or exposes the person to ‘hatred, contempt orridicule’.

● This can include indirect criticisms (innuendoes).

● Changes over time can mean that a statement which was once defamatory would notbe now.The statement must refer to the claimant

● The claimant need not be named; the statement will be taken to refer to them if a reasonableperson would think it did.

● Traditionally defendants could be liable even if they did not mean to refer to theclaimant, but the Human Rights Act may now prevent this.

● It is not possible to defame a class of people, unless it is so small that the statementcould be taken to refer to every individual member.

Proof of damage

● In libel, there is no need to prove damage.

● In slander, damage must be proved, except for claims that the claimant:

● has committed an imprisonable offence;

● has certain contagious diseases;

● is female and ‘not chaste’;

● is unfit for their trade, profession or business.

Parties to a defamation action

● The maker of the statement, and, if printed, the owners, distributors and printers ofthe publication can be sued.

● Only living people can sue; there is no claim for defamation of someone who is dead.

● Companies and organisations can sue, but not democratically elected bodies or politicalparties.

Defences

In addition to the general defence of consent, there are six defences specific to defamation(plus apology, which can reduce the damages ordered).

Justification

Applies when the defendant can prove the statement is substantially true.Under s. 5 of the Defamation Act 1996, where there is more than one allegation aboutthe claimant, the defendant need not prove them all true, so long as those they cannotprove do not materially injure the claimant’s reputation, in the light of the truth of theothers.

Fair comment

Applies where the defendant can prove the statement was fair comment on a matter ofpublic interest.

● Any facts on which the comment is based must be true.

● The statement must be comment not fact.

● The comment must be made without malice.

Absolute privilege

Applies to statements made:

● in Parliament by a member, or in parliamentary reports;

● by one officer of state to another;

● by one spouse to another;

● in the course of judical proceedings;

● in fair, accurate and contemporaneous court reports.

Qualified privilege

Qualified privilege arises by statute, and under common law. In both cases statementsmust be made without malice.Statutory qualified privilege applies to statements made in a list of circumstancesdetailed in Sch. I to the Defamation Act 1996, which are in two classes:

● Statements privileged without explanation or contradiction include:

● reports of courts, legislatures, and government inquiries;

● reports published by governments, legislatures and international organisations.

● Statements privileged subject to explanation and contradiction include:

● general meetings of UK public companies;

● public sittings of tribunals and statutory committees;

● decisions by associations involved in the arts, sciences, religion, charity, trade,industry and sport;● proceedings of public meetings.Qualified privilege under common law arises where one party has a legal, social or moralduty to communicate information to another, and that party has a duty to receive it,including:

● where necessary to protect an interest;

● communications between officers of a company;

● information given to the police about crime.

Qualified privilege has been adapted to give better protection to the media, through theReynolds defence. This protects serious, responsible coverage of subjects of public interest,and has given rise to the newer ‘neutral reportage’ defence.

Offer of amends

The offer of amends procedure under the Defamation Act 1996 allows a defence wherethe defendant offers an apology and damages. If not accepted, and the client wins, damageswill be reduced.

Innocent disseminationProtects printers and distributors, where they have no reason to believe material publishedwas defamatory.

Apology

Though not a true defence, apology can reduce the damages if a claimant wins.

Procedural issues

● Defamation cases are usually tried by juries.

● No legal aid is available.

● The Defamation Act 1996 creates a summary procedure designed to keep costs down.

Remedies

Damages may be compensatory, or, in exceptional cases, exemplary. Juries decide damages,but the Court of Appeal can decrease or increase them.Injunctions may be given to prevent initial publication, or prevent repetition. TheHuman Rights Act puts restrictions on the use of injunctions to prevent initial publication.

Time limits

The limitation period is one year, but the courts have discretion to extend this.

Issues in defamation

Key issues are:

● the distinction between libel and slander;

● remedies;

● access;

● restrictions on press freedom.

Privacy

There is no specific tort of privacy in English law, but the law of confidentiality has developed

to protect privacy.

Background to privacy protection

The traditional tort of breach of confidence protects against the disclosure of confidentialinformation. It applies where:● the information is private;● the defendant is under an obligation of confidence;● the defendant makes unauthorised use of the information.Outside these rules, there was traditionally no specific protection for personal privacy.

The current law

Since 2001, the courts have developed the law of confidentiality, creating a new type ofclaim, sometimes called ‘misuse of private information’.It uses a two-stage test:

● Did the claimant have a reasonable expectation of privacy?

● Is that right more important than another’s right to freedom of expression?

There is a reasonable expectation of privacy where information was obviously private ordisclosure would give substantial offence to someone in the claimant’s position.

Defences

There are three defences to a traditional breach of confidence action, which are also likelyto apply to misuse of personal information:

● Consent

● Information in the public domain

● Public interest.

Remedies

There are three potential remedies for breach of confidence/misuse of public informationactions:

● Injunctions

● Damages

● Account of profits.

NuisanceNuisance protects the rights to use and enjoy land, against interference from others.There are three types:

● Private

● Public

● Statutory (not dealt with by this book).

PRIVATE NUISANCE

Elements of the tort

Claimants must prove:

● interference with their enjoyment of land;

● that the interference was unreasonable;

● damage caused by the interference.

Interference

● must be indirect;

● will usually be a continuing situation rather than a one-off incident;

● must interfere with use of the land, not merely ‘things of delight’ such as views;

● can result from naturally occurring hazards, if the defendant is aware of them and failsto take reasonable precautions.

Unreasonableness

In judging unreasonableness, the courts balance all the circumstances, and particularly:

● Abnormal sensitivity

● Locality

● Duration

● Malice.

Damage

● Need not be physical damage; inconvenience or discomfort can be enough.

● The claimant must prove the interference caused the damage.

Nuisance and fault

● Where the claimant is seeking an injunction, strict liability applies.

● Where the remedy sought is damages, the fault element is less clear, but reasonableforeseeability appears to be necessary.

Who can be sued?

● The person who creates the nuisance.

● The occupier of the land.

● The owner of the land, if:

● they knew the nuisance existed when they bought the land; or

● the land is let but they have the right to enter and repair;

● they have authorised the nuisance.

Who can sue?

Traditionally only someone with rights in the land affected could sue, but the HumanRights Act 1998 may change this.

Defences

Contributory negligence may apply, but the key defences are:

● Statutory authority

● Alternative statutory remedies

● Prescription

● Coming to the nuisance.Neither public benefit nor use of reasonable care and skill provide a defence.

Remedies

● Injunction is the main remedy, and may be complete or partial.

● Damages can be recovered for damage to the land, enjoyment of it, or injury to theclaimant.

● Abatement allows the claimant to take steps to end the nuisance.

Problems with private nuisance

Key issues are:

● Types of damage covered

● Requirement for rights in land.

Nuisance and human rights

The Human Rights Act 1998 is increasingly being used to deal with problems that traditionallywould fall within nuisance. So far it has tended to uphold the interests of societyover those of individuals.

PUBLIC NUISANCE

● Public nuisance is a crime, but also creates a cause of action in tort.

● It applies where a nuisance ‘materially affects the reasonable comfort and convenience’of a class of people.● Claimants must prove they have suffered special damage, other than that suffered bythe affected group.The general tort defences apply; prescription does not.Injunctions and/or damages may be claimed.

The rule in Rylands v Fletcher

The tort in Rylands v Fletcher dates from the Industrual Revolution, and was intendedto provide redress for damage caused by increasing industrialisation.

Who can sue?

Claimants must prove:

● The defendant controls the land from which the problem has come.

● The defendant has brought or accumulated something in the course of some ‘unnaturaluse’ of the land.

● The thing brought or accumulated is ‘dangerous’.

● The dangerous thing has escaped.

● Damage has been caused by the escape.It appears that claimants must have an interest in the land affected by the escape.CA SENAVIGATORPOWERED BYThe mental element

Traditionally Rylands was considered to impose strict liability, but:

● Defences effectively introduced an element of fault-based liability.

● The requirement for non-natural use allowed the courts to make policy decisions.

● The case of Cambridge Water (see above) established that a defendant could only beliable for reasonably foreseeable types of damage.

Defences

Available defences are:

● Volenti

● Contributory negligence

● Statutory authority

● Common benefit

● Default of the claimant

● Act of a stranger

● Act of God.

TrespassThere are three types of trespass:

● To the person;

● To goods;

● To land.

They protect claimants against interference with their body, their property and their land,respectively.

All three are actionable per se; no damage need be caused.

They each require a direct and physical act.

TRESPASS TO THE PERSON

There are three types of trespass to the person:

● Assault

● Battery

● False imprisonment.

Assault

Assault is defined as an act which causes the claimant reasonably to apprehend thatimmediate physical violence will be used on them.

● Words may be sufficient.

● It must be possible for the defendant to use immediate physical violence, but theyneed not actually use it.

Battery

Battery is the intentional and direct application of force to another person.

● Any direct physical contact can amount to force.

● The defendant must intend to apply force.

● The normal contact of everyday life is not a battery.

False imprisonment

False imprisonment is depriving the claimant of freedom of movement, without a lawfuljustification for doing so.

● Imprisonment covers any total restriction on freedom of movement, outside or in.

● There must be no reasonable means of escape.

● The claimant need not know their movement is restricted.

● Imposition of a reasonable condition for leaving is not imprisonment.

● The cause must be a deliberate act.

● The imprisonment must be unlawful.

The mental element

● Assault and battery require intention.

● False imprisonment is a tort of strict liability.

Defences

The defences which may apply are:

● Volenti, or consent

● Self-defence

● Contributory negligence

● Statutory authority

● Inevitable accident

● Ejection of a trespasser

● Parental authority.

The role of trespass to the person

The tort has become less significant in practical terms, and now mainly arises in connectionwith actions for false imprisonment against the police.

Other protections from physical harm

The tort in Wilkinson v Downton

This applies where the defendant ‘willingly does an act calculated to cause physical harm’and harm is caused.

● Threats and false statements are sufficient for ‘an act’.

● Only personal injury (including psychiatric) is covered.

● The mental element is intention, defined as:

● where the defendant knew that injury was the likely result of their act;

● where injury was so likely that the defendant could not reasonably claim they didnot mean it to happen;

● where the defendant was reckless as to whether psychiatric harm was caused.

The Protection from Harassment Act 1997

Creates a cause of action where the defendant pursues a course of conduct whichamounts to harassment of the claimant.

The harassment must take place on at least two occasions.

TRESPASS TO GOODS

Torts concerning interference with goods are covered by the Torts (Interference withGoods) Act 1977.

Elements of the tort

Trespass to goods is defined as a wrongful physical interference with goods that are inthe possession of someone else.

● Any unauthorised, direct touching can be interference.

● Goods covers any physical object or chattel.

● The person in possession can sue; they need not be the owner.

● The required mental element is currently unclear.

Defences

Available defences are:

● Statutory authority

● Necessity

● Volenti

● Jus tertii.

Conversion

Conversion is committed by interfering with goods in a way that is inconsistent with therights of the owner.

● Destroying, selling and keeping can all amount to interference inconsistent with therights of the owner.

● Length of time is relevant to interference if inconsistent with the owner’s rights.

● There must be an act, not an omission.

● The claimant must be in possession of the goods.

● The claimant need not be the owner.

● The act of interference must be intentional, but the defendant need not intend it tobe inconsistent with the owner’s rights.Defences

● Jus tertii and consent are defences.

● Contributory negligence is not.Remedies

Claimants can recover the item plus special damages, or its market value plus specialdamages.

TRESPASS TO LAND

Trespass to land is unjustifiable interference with land in the immediate and exclusivepossession of another.

● Land includes the soil, things under it, buildings fixed to the surface, and the airspaceneeded for normal use.

● The defendant must be in possession, but need not own the land.

● Interference must be direct and physical, including:

● entering land;

● abuse of right of entry;

● remaining on land after permission expires;

● placing things on land.

● Making reasonable use of the highway is not trespass.Trespass is a continuing tort, and can give rise to a series of actions while it goes on.Where entry is permitted by statute or common law, committing an unlawful act whilethere can make the original entry a trespass (trespass ab initio).

The mental elementMost trespasses are intentional, but accidental trespass can create liability.

Defences

Available defences are:

● Licence

● Justification by law

● Jus tertii

● Necessity.

Remedies

As well as damages/injunctions, specific remedies are:

● Re-entry

● Action for recovery of land

● Mesne profits

● Distress damage feasant.

Liability for animals

Liability for damage caused by animals can arise under common law, and also under theAnimals Act 1971.

Liability under common law

The torts most likely to be committed in connection with animals are:

● Negligence

● Nuisance

● Trespass to the person.

The Animals Act 1971

The Act divides animals into two groups:

● Dangerous

● Non-dangerous.

In both cases, liability is strict.

Dangerous animals

Dangerous species are defined in s. 6(2) as species not commonly domesticated in

Britain, which when fully grown:

● are likely to cause severe damage unless restrained; or

● if they do cause damage, it is likely to be severe.

The classification applies to whole species, not individual animals.Section 2(1) provides that keepers of such animals are liable for any damage caused,unless they have a defence.

The keeper is:

● the owner; or

● the person in possession of the animal; or

● the head of the household where a child owns or has possession of the animal.

Non-dangerous animals

This covers all other species.Section 2(2) provides that the keeper of a non-dangerous animal is liable for damageit does if:

● The damage is of a kind which the animal was likely to cause if unrestrained, or whichwas likely to be severe if the animal caused it.

● The likelihood of the damage happening or being severe was due to characteristics notnormally found in that species, or only found at particular times and circumstances.

● Those characteristics were known to the keeper, the keeper’s employee or a child intheir household who was a keeper of the animal.

Defences

Section 5(1) and (2) of the Act provides that a keeper is not liable for damage:

● which is wholly the victim’s fault;

● of which the victim voluntarily assumed the risk;

● which is caused by a trespass to the premises, provided that

● the animal was not kept there for protection; or● if kept there for protection, it was reasonable to do so.

Trespassing livestock

The Act also imposes liability for livestock which stray onto another’s land and causedamage to property or land. Liability is strict and covers the cost of keeping the livestockuntil they can be returned.

Defences

Applicable defences are:

● the defences under s. 5(1) and (2) of the Act (subject to there being no duty to fenceoff land);

● contributory negligence;

● under s. 5(5), that the livestock strayed from the highway when it was reasonable tobe there.

Landowners can keep trespassing livestock until damage is paid for, and may sell themafter 14 days if the owner cannot be found, or no offer of payment is made.

Animals on the highway

The Act provides that liability is covered by the ordinary rules of negligence.

Special liability for dogs

Under s. 3, keepers are liable when a dog kills or injures livestock, unless:

● They are covered by a s. 5(1) or (2) defence, or contributory negligence.

● The livestock have strayed onto land occupied by the dog owner.

● The dog’s presence was authorised by the land occupier.Under s. 9(3), it is lawful to kill a dog which is worrying or about to worry livestock, orhas been doing so and the owner is not known.

Remoteness of damage

The claimant must prove the animals caused the damage. The test of remoteness isthought to be the direct consequence test.

Joint and several liability

Types of liability

To deal with cases involving more than one tortfeasor, the law has developed three differentforms of liability:

● Independent liability

● Several liability

● Joint liability.

Independent liability

● Arises where the victim is caused damage by two completely separate torts.

● Each tortfeasor is liable only for the damage they caused.

Several liability

● Arises where two or more tortfeasors act independently, but the combined effect oftheir acts is damage to the claimant.

● Each tortfeasor is liable for all of the damage, but the claimant cannot recover twice.

Joint liability

● Arises where the same wrongful act is committed by two or more people actingtogether, or where one person/organisation is vicariously liable for another.

● The claimant can sue all or any of them, but can only recover the full amount once.

Successive actions

Under the Civil Liability (Contribution) Act 1978, where there is joint or several liability,a claimant who sues one tortfeasor but cannot enforce the judgment can bring a later

Action against another of the tortfeasors.

Settling out of court with one tortfeasor also ends claims against the others.

Release of a joint tortfeasor

If a claimant releases one tortfeasor from liability, this releases the other(s) too.

Contribution

Where liability is joint or several and one or more tortfeasors are not sued, the CivilLiability (Contribution) Act 1978 allows those who are sued to recover a contributionfrom them.

The courts decide the contribution on the basis of what is just and reasonable, regardingeach party’s responsibility for the damage.

Vicarious liabilityVicarious liability is a form of joint liability, which arises where there is a relationshipbetween the tortfeasor and another that justifies making the other liable for the tortfeasor’sacts.

In most cases, vicarious liability arises when a tort is committed in connection with thetortfeasor’s work, with the employer vicariously liable for an employee’s actions.

The courts use a two-stage test to judge whether vicarious liability should apply:

● Was the tortfeasor an employee of the defendant?

● Was the tort committed in the course of their employment?

Who is an employee?

The courts distinguish between employees and ‘independent contractors’, but modernworking practices mean it is not always easy to tell which group a person falls into.

Tests used by the courts include:

● who had control over the work;

● the terms of the contract;

● whether the tortfeasor is ‘in business on his own account’.

However, no single test is decisive.

Problematic situations include:

● Agency workers

● Loans of employees.

In the course of employment

Employers are only liable where the tort was committed during the course of employment.

● A wrongful act authorised by the employer, or an unauthorised way of doing anauthorised act will be in the course of employment.

● The employer need not have permitted the act.

● Employers can be liable for prohibited acts, if the prohibition applies to the way thejob is done rather than the job itself.

● Employers can be liable for criminal acts, if they are so closely connected to the jobthat it is fair to impose liability.

● Employers are not liable for acts done by employees which have nothing to do withtheir work, even if in work time.

Employer’s indemnityAn employer sued for an employee’s tort can sue the employee in turn, but this rarelyhappens in practice.

Independent contractorsEmployers are not vicariously liable for the torts of independent contractors, but can bejointly liable with them if:

● the employer owes a non-delegable duty to the claimant; and

● the contractor’s act puts them in breach of that duty.Employers may also be liable where a duty is delegable, but they have not taken reasonablesteps to ensure the contractor is competent.

Reasons why vicarious liability is imposed

● Control of employees

● Benefits to employers

● Resources

● Preventing negligent recruitment

● Promotion of care.

Remedies in tort

The main general remedies in tort are:

● Damages

● Injunctions.

DAMAGES

Damages may be compensatory or non-compensatory.

Compensatory damages

Compensatory damages are designed to put the claimant in the position they wouldhave been in if the tort was not committed. They comprise:

● general damages, which are presumed to result from the tort;

● special damages, which do not arise naturally from the tort.

Calculating compensatory damages

● Pecuniary damages compensate for financial losses.

● Non-pecuniary damages compensate for other losses, such as pain and suffering.

● Pecuniary damages are easier to calculate, but there may still be difficulties workingout how much would put the claimant back in the pre-tort position.

● The courts take steps to avoid over-compensation.

● The claimant is expected to take reasonable steps to mitigate their loss.

Compensation for personal injury

Personal injury damages are pecuniary and non-pecuniary.

Pecuniary damages

● Pre-trial expenses

● Expenses incurred by another

● Pre-trial loss of earnings

● Future losses.

Non-pecuniary damages

● The primary injury

● Pain and suffering

● Loss of amenity.

Alternative ways of paying damagesMost damages are in the form of a one-off payment after trial, but this can cause problemsfor claimants. There are three alternatives:

● Interim awards are made before trial where liability is admitted, and only the amountof damages is in dispute.

● Periodical payments are a series of regular payments for the whole of the claimant’slife, useful in cases where lifelong care is needed.

● Provisional damages can be awarded where the claimant’s condition may worsenafter trial.

Set-offs

Damages are designed to compensate for loss, not make the claimant richer, so othermoney paid as a result of the injury may be deducted from damages, including:

● tax;

● payments by an employer;

● social security benefits.Disability pensions, insurance pay-outs and charitable payments are not deducted.Benefits provided by the tortfeasor cannot be compensated.

Fatal accidents

● If a victim of tort dies, their estate inherits their claim.

● The Fatal Accidents Act 1976 creates two further claims for dependents:

● for the bereavement;

● for financial losses.

Non-compensatory damages

There are four types:

● Contemptuous damages, used when the claimant’s rights are infringed but the courtfeels the action should not have been brought.

● Nominal damages, used where a tort is committed but no damage is caused.

● Aggravated damages, used where the court wishes to show disapproval of the defendant’sconduct.

● Exemplary damages, used in three categories of case:

● where statute authorises them;

● where the defendant has deliberately committed a tort in order to make a profit;

● where there has been oppressive or unconstitutional action by government employees.

Problems with damages

Key issues are:

● lump sums;

● degrees of fault;● rules on loss of amenity;● damages for bereavement;● the role of exemplary damages.

INJUNCTIONS

An injunction is an order from the court.

● Prohibitory injunctions order the defendant not to do something.

● Mandatory injunctions order the defendant to do something.Injunctions are issued at the court’s discretion, not as of right.Interlocutory (or interim) injunctions are given before a case is tried. They should onlybe given in cases where there is a serious question to try, and damages are likely to beinadequate if the claimant wins.The courts can order damages instead of an injunction.