English Contract Law

’Gbenga Bamodu

Professor of Common Law

British University in Egypt

Dar Al Nahda Al Arabia

32 Abdel-Khalek Tharwat Street
Cairo

© ’Gbenga Bamodu 2018

‫ب‬
 About the author
’Gbenga Bamodu is Professor of Common Law at the British
University in Egypt. He is also the author of An Introduction to
English Tort Law. He has taught law previously at the University of
Wales, Aberystwyth (UK) and the University of Essex, Colchester
(UK); he has also been a visiting lecturer or academic at other
institutions including the University of Paris X, Nanterre (France),
the University of Tampere (Finland) and the Nigerian Institute of
Advanced Legal Studies (Nigeria). He has acted in the past as
external examiner of dissertations for King’s College University of
London and the University of East London (UK).

’Gbenga’s research interest is primarily in the field of international

trade law and commercial law including international commercial
litigation and dispute resolution. He has an internationally
recognised track record as a researcher with extensive
publications in scholarly works and international journals. He has
produced pioneering work on harmonisation of law in Africa and
on electronic commerce law in Nigeria and his papers are
frequently cited by scholars from all parts of the world. International
recognition of his work include: citation of his article before the
Supreme Court of the United States in the case of Kiobel v Royal
Dutch Co; use of his work by the United Nations Commission on
Trade and Development (UNCTAD) in training materials for
government officials and policy makers; citation of his work in a
Research Document produced for the European Union;
referencing of his work by organisations including the United
Nations Commission on International Trade Law (UNCITRAL) and
the International Monetary Fund.

’Gbenga has acted as a consultant for both private organisations

and state entities including the African Export-Import Bank (Cairo),
the Government of the Lagos State of Nigeria, the National
Information & Technology Development Agency (Nigeria), and as
consultant for counsel in litigation on issues of major commercial
and constitutional significance. He is a consultant for Phillipsons
Consultancy and has extensive experience on structured/trade
finance and has worked on several multimillion dollar transactions
including PPP finance projects, syndicated term loan facilities and
other secured credit facilities. He also has arbitration experience
and successfully represented a client in a London Maritime
Arbitrators Association (LMAA) arbitration.

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 Preface

This book is inspired by my experience of teaching the

classes on the Law of Contract to students on the joint
Egyptian and English law degrees at the British University in
Egypt. One of the challenges faced whilst teaching English
law at a university in Egypt is the difficulty of procuring
English textbooks. One way of combatting this particular
challenge was to provide extensive lecture notes to the
students and this book is based on an adaptation of those
lecture notes. Effort has been made to write the book in
language generally accessible to students studying English
law whilst their own first language is not English. There is
also the added consideration that the studies are in a legal
system, the common law, with significant differences in both
substantive law and judicial approaches from the civil law
system which is predominant in Egyptian private law.
Students interested in further deepening their knowledge and
understanding are encouraged to further consult standard
English textbooks and classic reference works on English
Contract law.

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To the memories of my late father
Phillip Olayinka and late mother
Elizabeth Olayinka Bamodu

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Table of Contents
Part 1: The Contract and its Formation .............................. 1
Chapter One: Definition and Fundamentals of a Contract .. 3
1.1 Introduction ............................................................ 4
1.1.1 What is a contract?.......................................... 4
1.1.2 Formalities....................................................... 4
1.1.3 Specialty contracts - contracts made by deed . 5
1.1.4 Simple contracts ................................................. 7
1.1.5 Electronic contracts ............................................ 7
1.2 The Law of Contract in the Law of Obligations ...... 9
1.3 The Role of ‘Objectivity’ in Determining if a Contract
has been Formed ................................................... 10
1.4 The Classical Model of English Contract Law ...... 13
Chapter Two: Intention to Create Legal Relations ............ 17
2.1 Introduction .......................................................... 18
2.2 ‘Presumptions’ ..................................................... 18
2.2.1 Domestic or social agreements ..................... 19
2.2.2 Commercial or business agreements ............ 21
Chapter Three: Offer ......................................................... 23
3.1 Introduction .......................................................... 23
3.2 What is an ‘Offer’? ............................................... 25
3.3 Can there be a Contract without an Offer? .......... 26
3.4 Offer Distinguished from other Negotiating
Communications .................................................... 28
3.4.1 Offer distinguished from mere inquiry............ 28
3.4.2 Offer distinguished from ‘invitation to treat’ ... 29
3.5 Offer in Auction Sales .......................................... 31
3.6 Offer and Sales by Tender ................................... 33
3.7 Termination of Offer ............................................. 34
Chapter Four: Acceptance ................................................ 37

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 4.1 Introduction .......................................................... 38
4.2 What is an ‘Acceptance’?..................................... 38
4.2.1 Mere silence does not constitute acceptance 39
4.2.2 Acceptance by conduct ................................. 40
4.2.3 Acceptance ‘subject to contract’ and ‘provisional
agreements’ .................................................. 41
4.2.4 Acceptance distinguished from counter-offer:
the ‘mirror-image’ rule ................................... 42
4.2.5 ‘The battle of the forms’ ................................. 43
4.2.6 Mere request for information or clarification is
not a counter-offer ......................................... 44
4.3 Acceptance Must Be Communicated ................... 45
4.3.1 Prescribed method of acceptance ................. 45
4.3.2 The ‘postal rule’ ............................................. 46
4.3.3 Instantaneous means of communication: telex &
telefax (telefacsimile) messages ................... 48
4.3.4 Electronic mail and Internet contracts ........... 49
4.4 The Relationship Between Acceptance and the
Revocation of an Offer ........................................... 50
4.4.1 General relationship ...................................... 51
4.4.2 Acceptance and Revocation in Unilateral
Contracts ....................................................... 51
Chapter Five: Certainty of Terms ...................................... 55
5.1 Introduction .......................................................... 56
5.2 The General Rule ................................................ 57
Chapter Six: Consideration ............................................... 61
6.1 Introduction .......................................................... 62
6.1.1 Some circumstances when a contract can be
enforced without consideration by a contract
party .............................................................. 63
6.1.2 Some Definitions of Consideration ................ 64
6.1.3 Consideration – Some Distinctions................ 65

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 6.2 What is ‘Good’ Consideration? ............................ 67
6.2.1 Emotional ties without economic value not
enough . ........................................................ 67
6.2.2 Consideration as ‘something of value’ – value
may be little/trifling!........................................ 68
6.2.3 Types of ‘consideration’ not regarded as
‘sufficient’ ...................................................... 69
6.3 Consideration and Estoppel ................................. 77
6.3.1 The Concept and Origin of ‘Estoppel’ ............ 77
6.3.2 Promissory Estoppel – The ‘High Trees case’
79
Chapter Seven: Privity of Contract .................................... 83
7.1 Introduction .......................................................... 84
7.2 The General Rule of Privity of Contract ............... 84
7.3 The Contracts (Rights of Third Parties) Act 1999 86
Chapter Eight: Capacity .................................................... 89
8.1 Introduction .......................................................... 90
8.2 Minors .................................................................. 90
8.2.1 Contracts for ‘necessaries’ ............................ 91
8.2.2 Contracts for the minor’s benefit ................... 93
8.2.3 Voidable contracts ......................................... 94
8.3 Mental Incapacity, Drunkenness and Illiteracy ..... 95
8.4 Corporations ........................................................ 97
Part 2: The Contents of the Contract ................................ 99
Chapter Nine: Terms of the Contract .............................. 101
9.1 What are ‘Terms’ of a Contract? ........................ 102
9.2 Express Terms and Implied Terms .................... 104
9.2.1 Express terms ................................................. 104
9.2.2 Implied terms ............................................... 106
9.3 Incorporated Terms ........................................... 107
9.4 Effect of Breach of Contract Term ..................... 110

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Chapter 10: Exclusion and Limitation of Liability ............. 111
10.1 Exclusion Clauses: What and Why? ............... 112
10.2 Necessity for Regulation or Control of the Use of
Exclusion Clauses? ........................................ 112
10.3 Regulation or Control of Exclusion Clauses Under
the Common Law ........................................... 114
10.3.1 Incorporation ............................................ 114
10.3.2 Interpretation or Construction................... 115
10.3.3 Clauses Excluding Liability for Negligence
118
10.4 Statutory Control or Regulation of Exclusion
Clauses: Unfair Contract Terms Act 1977 ...... 119
10.4.1 General Considerations ................................ 120
10.4.2 Exclusion of liability for breach of contract
generally .................................................... 120
10.4.3 Exclusion of liability for breach of implied terms
in sale of goods (and hire purchase) contracts
…. .............................................................. 123
10.4.4 Exclusion of liability for negligence .......... 124
10.5 Statutory Control or Regulation of Exclusion
Clauses: The Consumer Rights Act 2015 ....... 125
10.5.1 General considerations ............................ 125
10.5.2 Exclusion of liability for breach of implied terms
in contracts for the supply of goods ........... 126
10.5.3 Exclusion of liability for breach of implied terms
in contracts for the supply of digital content
……. .......................................................... 126
10.5.4 Exclusion of liability for breach of implied terms
in contracts for the supply of services........ 127
10.5.5 Exclusion of liability for negligence .......... 128
Chapter 11: Unfair Terms in Consumer Contracts .......... 129
11.1 Background .................................................... 130

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 11.2 Scope, Application and Effect of Part 2 of the
Consumer Rights Act ...................................... 131
11.2.1 When is a contract term unfair? .................... 132
11.2.2 Limitation on subjection of terms to
assessment for unfairness ......................... 137
11.2.3 ‘Mandatory provisions’ and ‘applicable law’
139
11.2.4 Effect of presence of an unfair term ......... 140
11.2.5 Enforcement of unfair term provisions of the
CRA 140
Part 3: Potentially Vitiating Factors ................................. 141
Chapter Twelve: Mistake ................................................ 143
12.1 Mistake at Common Law - Introduction .......... 144
12.2 Mistake Affecting Agreement .......................... 145
12.2.1 Cross-purposes ............................................ 145
12.2.2 Unilateral mistake ......................................... 146
12.2.3 Mistake as to the identity of a party .......... 146
12.3 ‘Common’ Mistake or ‘Mutual’ Mistake ........... 152
12.3.1 Mistake as to the existence of the subject-
matter of the contract ................................ 155
12.3.2 Mistake as to a quality of the subject-matter ..
……………………………………………… 157
12.3.3 Mistake as to title or ownership ................ 158
12.4 Common Mistake and Equity .......................... 158
12.5 Mistake and Rectification ................................ 160
Chapter 13: Misrepresentation ........................................ 161
13.1 What is ‘Misrepresentation’?........................... 162
13.1.1 Silence .......................................................... 162
13.1.2 Conduct.................................................... 163
13.1.3 Half-truth .................................................. 163
13.1.4 Changed circumstances ............................... 164

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 13.1.5 Commendatory statements ........................... 164
13.1.6 Opinion ......................................................... 165
13.1.7 Intention ................................................... 166
13.1.8 Statement of law ...................................... 166
13.1.9 Addressed to the misrepresentee ............ 167
13.2 Inducement and Materiality ............................ 167
13.3 Types of Misrepresentation ............................ 172
13.3.1 Fraudulent misrepresentation ....................... 172
13.3.2 Negligent misrepresentation (‘misstatement’)
at common law .......................................... 173
13.3.3 Misrepresentation under the Misrepresentation
Act 1967 .................................................... 174
13.3.4 Innocent misrepresentation ...................... 175
13.4 Remedies for Misrepresentation ..................... 176
13.4.1 Rescission................................................ 176
13.4.2 Damages.................................................. 181
Chapter 14: Duress and Undue Influence ....................... 191
14.1 Introduction ..................................................... 192
14.2 Duress ............................................................ 193
14.2.1 Duress to the person ................................ 193
14.2.2 Duress to goods ....................................... 194
14.2.3 Economic duress ..................................... 195
14.3 Undue Influence .................................................. 201
14.3.1 Definition and Effect ................................. 201
14.3.2 Classification ............................................ 202
14.3.3 Undue influence and third party rights .......... 208
Chapter 15: Illegality ....................................................... 211
15.1 Introduction ..................................................... 212
15.2 Illegality Affecting the Formation of a Contract 214
15.3 Illegality Affecting Performance ...................... 216

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 15.4 Illegality at Common Law ............................... 217
15.4.1 Agreements to commit a crime or tort ...... 218
15.4.2 Agreements contrary to public policy ....... 219
15.5 Effect of Illegality ................................................. 222
Part 4: Termination, Discharge and Remedies ............... 223
Chapter 16: Termination and Discharge ......................... 225
16.1 Introduction ..................................................... 226
16.2 Discharge by Performance ............................. 227
16.3 Discharge by Agreement ................................ 230
16.4 Discharge by Breach ...................................... 231
16.5 Discharge by Frustration of the Contract ........ 232
16.5.1 Examples of frustrating events ................. 233
16.5.2 The legal effect of frustration.................... 234
16.5.3 Force Majeure .......................................... 236
Chapter 17: Remedies .................................................... 237
17.1 Introduction ..................................................... 238
17.2 Damages ........................................................ 239
17.2.1 The aim and the measure of damages .... 240
17.2.2 Damages for non-pecuniary loss ............. 241
17.2.3 Relevant date for assessment of damages
243
17.2.4 Mitigation of loss ...................................... 243
17.2.5 Remoteness of loss and damages ........... 244
17.2.6 Agreed (or ‘liquidated’) damages ............. 244
17.3 Specific Performance ..................................... 245
17.4 Injunction ........................................................ 246
17.5 Damages in Lieu of Specific Performance or
Injunction ........................................................ 246
Glossary of Terms ....................................................... 247
Index ........................................................................... 256

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 Table of Cases
Adams v Lindsell (1818) 1 B & Ald 681, 106 ER 250, [1818] EWHC KB
J59 ………………………………………………………………………….. 46
Addis v Gramophone Co Ltd [1909] AC 488, [1909] UKHL 1 ………... 241
Ailsa Craig Fishing Co Ltd v Malvern Fishing co Ltd & Securicor
(Scotland) Ltd [1983] 1 WLR 964, [1981] UKHL 12 …………………… 116
Alexander v Rayson [1936] 2 KB 169 ………………………………….. 218
Alfred McAlpine Construction Limited v Panatown Limited [2001] AC 518,
[2000] UKHL 43 ………………………………………………………….. 239
Allcard v Skinner (1887) 36 Ch D 145 …………………………….. 202, 206
Allen v Pink (1838) 4 M & W 140 ………………………………………... 105
Allen v Rescous (1676) 2 Lev 174 ……………………………………… 218
Allianz Insurance Company - Egypt v Aigaion Insurance Company SA
[2008] EWCA Civ 1455, [2008] 2 CLC 1013 ……………………………... 8
Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltd
[1977] 1 WLR 164 ………………………………………………………... 145
Andre and Cie SA v ETS Michel Blanc & Fils [1979] 2 Lloyd's LR 427 167
Andrews Brothers (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17
……………………………………………………………………………... 116
Anglia Television Ltd v Reed [1972] 1 QB 60 ………………………….. 240
Apple Corps Ltd v Apple Computer Inc [2004] EWHC 768 (Ch) ……… 49
Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd [2016] EWHC 2509
(TCC) ……………………………………………………………………….. 38
Armhouse Lee Ltd v Chappell and Another (1996) The Times, 7 August
……………………………………………………………………………… 220
Árpád Kásler and Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt (C-
26/13) [2014] 2 All ER (Comm) 443 (CJEU) …………………………… 137
Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 65 98
Ashmore, Benson, Pease and Co v A V Dawson Ltd [1973] 1 WLR 828
……………………………………………………………………………… 217
Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989]
1 WLR 255 ………………………………………………………….. 144, 159
Atlantic Baron, The; see North Ocean Shipping Co Ltd v Hyundai
Construction Co Ltd
Attorney General of Belize & Ors v Belize Telecom Ltd & Anor (Belize)
[2009] UKPC 10, [2009] WLR 1988 …………………………………….. 107
Attwood v Small & Ors 7 ER 684, [1838] UKHL J60 ………………….. 170
Avery v Bowden (1856) 5 E & B 714) …………………………………… 232
AXA Sun Life Services Plc v Campbell Martin Ltd & Ors [2011] EWCA
Civ 133, [2011] 2 Lloyd's Rep 1 …………………………………………. 121
Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa
(Catalunyacaixa) (2013) Case C-415/11 etc (CJEU) …………………. 135

Baird Textile Holdings Ltd v Marks & Spencer Plc [2001] EWCA Civ 274,
[2001] CLC 999 ……………………………………………………………. 82
Balfour v Balfour [1919] 2 KB 571 ………………………………………... 19

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Bank of Credit and Commerce International SA v Aboody (1988) [1990]
1 QB 923 …………………………………………………………….. 203, 204
Barclays Bank plc v O'Brien and another (AP) [1994] 1 AC 180, [1993]
UKHL 6 ………………………………………………………… 203, 206, 207
Barclays Bank plc v Schwartz (1995) The Times 3rd August 1995 ….. 96
Barry v Davies (t/a Heathcote Ball & Co); see also Heathcote Ball & Co
(Commercial Auctions) Ltd v Barry ………………………………………. 32
Barton v Armstrong [1976] AC 104 ……………………………………... 193
Bell & Anor v Lever Brothers & Ors [1932] AC 161, [1931] UKHL 2
………………………………………………………….. 144, 152-4, 157-159
Benyon v Nettleford (1850) 3 Mac & G 94, (1850) 20 LJ Ch 186 ……. 220
Beresford v Royal Exchange Assurance [1938] AC 586 ……………... 219
Beswick v Beswick [1968] AC 58, [1967] UKHL 2 ……………………… 85
Bibby Financial Services and Anor v Magson and Others [2011] EWHC
2495 ………………………………………………………………………….. 6
Bigos v Bousted [1951] 1 All ER 92 …………………………………….. 219
Bissett v Wilkinson [1927] AC 177 ……………………………………… 165
Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990]
WLR 1195, [1990] EWCA Civ 13 ………………………………………… 33
Bolton v Mahadeva [1972] WLR 1009, [1972] EWCA Civ 5 ………….. 229
Boulton v Jones (1857) 2 H and N 564, (1857) 157 ER 232 …….. 38, 150
BP Refinery (Westernport) Proprietary Limited v Shire of Hastings
(Victoria) (1977) 180 CLR 266, [1977] UKPC 13 ……………………… 107
Bradbury v Morgan [1862] 158 ER 877 ………………………………….. 36
Branca v Cobarro [1947] KB 854 ………………………………………… 42
Brennan v Bolt Burdon & Ors [2004] EWCA Civ 1017, [2005] QB 303 145
Brimnes, The; see Tenax Steamship Co v Owners of the Motor Vessel
Brimnes
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH
[1983] 2 AC 34 ……………………………………………………………... 48
British Bank for Foreign Trade Ltd v Novinex Ltd [1949] 1 KB 623 …... 56
British Broadcasting Corporation v Harpercollins Publishers Ltd & Anor
[2010] EWHC 2424 (Ch), [2011] EMLR 6 ……………………………….. 84
British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] QB 303
……………………………………………………………………………… 107
British Fermentation Products Ltd v Compare Reavell Ltd [1999] BLR
352, [1999] EWHC Technology 227 ……………………………………. 121
British Road Services Limited v Arthur Crutchley & Co Limited [1968] 1
All ER 811 ……………………………………………………………... 43, 44
British Westinghouse Electric and Manufacturing Co v Underground
Electric Railways Co of London [1912] AC 673, [1912] UKHL 617 ….. 243
Brogden v Metropolitan Railway Company (1877) 2 App Cas 666 …... 40
Bruner v Moore [1904] 1 Ch 305 …………………………………………. 46
Bryen & Langley Ltd v Boston [2005] EWCA Civ 973, [2005] BLR 508
……………………………………………………………………………… 136
Bunge Corporation (New York) v Tradax Export SA (Panama) [1981]
WLR 711, [1981] UKHL 11 ……………………………………………… 229
Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007]
EWCA Civ 622 …………………………………………………………… 102

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Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 WLR
401, [1977] EWCA Civ 9 …………………………………………. 16, 27, 44
Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 … 34, 46, 51

Canada Steamship Lines v The King [1952] AC 192, [1952] UKPC 1 118
Candler v Crane, Christmas & Co [1951] 2 KB 164 …………………… 186
Caparo Industries plc v Dickman [1990] 2 AC 605, [1990] UKHL 2 …. 173
Car & Universal Finance Company Ltd v Caldwell [1965] 1 QB 525,
[1963] EWCA Civ 4 …………………………………………… 148, 177, 179
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, [1892] EWCA Civ 1
……………………………………………………. 14, 25, 38, 41, 51, 65, 165
Carmichael & Anor v National Power Plc [1999] 1 WLR 2042, [1999]
UKHL 47 ………………………………………………………………….. 104
Cavendish Square Holding BV v Talal El Makdessi (Rev 3) {joined appeal
with ParkingEye Ltd v Beavis} [2015] UKSC 67, [2016] AC 1172
…………………………………………………………… ….. 129, 133-4, 245
Central London Property Trust Ltd v High Trees House Ltd [1947] KB
130, [1946] EWHC KB 1 ……………………………………………… 79, 80
Centrovincial Estates plc v Merchant Investors Investors Assurance Ltd
[1983] Com LR 158 ………………………………………………….. 12, 146
Chandler v Webster [1904] 1 KB 493 …………………………….. 234, 235
Chapelton v Barry UDC [1940] 1 KB 532 ………………………… 109, 115
Chappell & co v Nestlé [1960] AC 87 ……………………………………. 68
Chapple v Anne Cooper (1834) 153 ER 105 ……………………………. 92
Chartbrook Ltd v Persimmon Homes Ltd & Ors [2009] UKHL 38, [2009]
1 AC 1101 ………………………………………………………………… 160
Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd
(1991) 56 Build LR 115 ………………………………………………….. 121
Chwee Kin Keong v Digilandmall.com Pte Ltd [2004] SLR (R) 594
{Singapore} ………………………………………………………………… 50
CIBC Mortgages plc v Pitt [1994] 1 AC 200, [1993] UKHL 7 .. 204, 206-7
Clarke v Dickson (1858) 27 LJQB 223 …………………………………. 178
Clarke v Earl of Dunraven [1897] AC 59 ………………………………… 16
Claxton Engineering Services Ltd v TXM Olaj-Es Gazkutato KFT [2010]
EWHC 2567 (Comm), [2011] 1 Lloyd's Rep 252 ……………………….. 41
Clements v London and North Western Railway Company [1894] 2 QB
482 ………………………………………………………………………….. 93
Clough v London and North Western Ry Co (1871) LR 7 Exch 26 ….. 180
Collins v Godefroy (1831) 1 B & Ad 950 ………………………………… 71
Combe v Combe [1951] 2 KB 215 ……………………………………….. 81
Commercial Banking Co of Sydney v R H Brown & Co [1972] 2 Lloyd’s
Rep 360 …………………………………………………………………… 167
Cooper v Phibbs (1867) LR 2 HL 149, [1867] UKHL 1 ………….. 152, 158
Co-operative Insurance Society v Argyll Stores (Holdings) Ltd [1997]
UKHL 17; [1998] AC 1 …………………………………………………….. 10
Cope v Rowlands (1836) 2 M & W 149 …………………………… 214, 215
Couchman v Hill [1947] KB 554 ………………………………………… 103
Courtney & Fairburn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297 59
Couturier & Ors v Hastie & Anor 10 ER 1065, [1856] UKHL J3 C …... 156

xvii
Cowan v O’Connor (1888) 20 QBD 640 …………………………………. 46
Cowern v Nield [1912) 2 KB 419 …………………………………………. 94
CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714, [1993]
EWCA Civ 19 ……………………………………………………….. 199, 200
Cundy v Lindsay & Co (1877–78) LR 3 App Cas 459 ………………… 151
Currie v Misa (1875) LR 10 Ex 153 ………………………………………. 64
Curtis v Chemical Cleaning and Dyeing Company [1951] 1 KB 805
………………………………………………………………….. 105, 110, 114
Curtis v Curtis [2011] EWCA Civ 1602 …………………………………. 206
Cutter v Powell 101 ER 573, [1795] EWHC KB J13 ………………….. 227

D & C Builders v Rees [1966] 2 QB 617 ………………………………… 80

Dadourian Group International Inc v Simms & Ors [2009] EWCA Civ 169,
[2009] 1 Lloyd's Rep 601 …………………………………………... 168, 171
Daulia v Four Millbank Nominees Ltd [1978] Ch 231 ………………….. 52
Davies v AIB Group (UK) Plc [2012] EWHC 2178 (Ch); [2012] 2 P & CR
19 ………………………………………………………………………….. 201
Davis Contractors v Fareham Urban DC [1956] AC 696, [1956] UKHL 3
……………………………………………………………………………… 234
Day Morris Associates v Voyce & Anor [2003] EWCA Civ 189 …... 41, 45
De Francesco v Barnum (1889) 45 Ch D 430 …………………………... 93
De Wutz v Hendricks (1824) 2 Bing 314 ……………………………….. 222
Derry v Peek (1889) LR 14 App Cas 337, (1889) 5 TLR 625, [1889] UKHL
1 ………………………………………………………………... 172, 186, 188
Dhanani v Crasnianski [2011] All ER (Comm) 799 …………………….. 12
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR
623 ………………………………………………………………………… 104
Dickinson v Dodds (1876) 2 Ch D 463 ……………………………… 34, 51
Dimmock v Hallett (1866) LR 2 Ch App 21 ………………………. 163, 164
Dimskal Shipping v International Transport Workers Federation [1992] 2
AC 152 ……………………………………………………………………. 194
Director General of Fair Trading v First National Bank [2001] UKHL 52,
[2002] AC 481 ………………………………………………. 132-5, 138, 140
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, [1969] EWCA Civ 2
…………………………………………………………………... 182-184, 187
Doyle v White City Stadium [1935] 1KB 110 ……………………………. 94
DSND Subsea Ltd v Petroleum Geo Services Asa [2000] BLR 530, [2000]
EWHC 185 (TCC) ………………………………………………………... 199
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847,
[1915] UKHL 1 …………………………………………………… 65, 85, 245
Dunmore v Alexander (1830) 9 Shaw 190 …………………………….. 47

East v Maurer [1991] 1 WLR 461, [1990] EWCA Civ 6 …………. 181, 183
Eastwood v Kenyon (1840) 11 Ad & El 438; 113 ER 482 ………… 67, 70
Ecay v Godfrey (1947) 80 Ll LR 286 ……………………………………. 103
Eccles v Bryant (1948) Ch 93 …………………………………………….. 42
Edgington v Fitzmaurice (1885) 29 Ch D 459 ……………………. 166, 168
Edmonds v Lawson & Anor [2000] QB 501, [2000] EWCA Civ 69 …… 21
Edwards v Skyways Ltd [1964] 1 WLR 349 …………………………….. 21

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Entores v Miles Far East Corporation [1955] 2 QB 327, [1955] EWCA Civ
3 ………………………………………………………………………… 45, 48
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 ….. 179
Errington v Errington & Woods [1952] 1 KB 290 ……………………….. 52
Esso Petroleum Ltd v Commissioners of Customs & Excise [1976] 1 WLR
1, [1975] UKHL 4 …………………………………………………………... 22
Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269,
[1967] UKHL 1 ……………………………………………………………. 221
Esso Petroleum Company Ltd v Mardon [1976] QB 801, [1976] EWCA
Civ 4 ……………………………………………………………………….. 165
Eurymedon, The; see The New Zealand Shipping Company Limited v AM
Satterthwaite & Company Limited
Evia Luck, The; see Dimskal Shipping v International Transport Workers
Federation

Farley v Skinner [2002] 2 AC 732, [2001] UKHL 49 …………………... 241

Fawcett v Smethurst (1914) 84 LJKB 473 ………………………………. 92
Fawcett v Star Car Sales Ltd [1960] NZLR 406 (New Zealand) …….. 144
Felthouse v Bindley [1862] EWHC CP J35 ……………………………… 40
Fibrosa case, The; see Fibrosa Spolka Akcyjna v Fairbairn Lawson
Combe Barbour Ltd
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943]
AC 32, [1942] UKHL 4 ……………………………………………… 233, 235
Fisher v Bell [1961] 1 QB 394 …………………………………………….. 29
Foakes v Beer (1883-84) LR 9 App Cas 605, [1884] UKHL 1 …… 76, 230
Foley v Classique Coaches Ltd (1943) 2 KB 1 …………………………. 59
Francis v Cockrell [1861-1873] All ER Rep Ext 1785 …………………. 106

G Scammell and Nephew Ltd v HC&JG Ouston [1941] 1 AC 251 .. 57, 58

Gallie v Lee; see Saunders v Anglia Building Society [1971 AC 1004
Galloway v Galloway (1914) 30 TLR 531 ……………………………… 156
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd (1983) 2 AC
803, [1982] EWCA Civ 5 ………………………………………………… 122
Gibbons v Proctor (1891) 64 LT 594, 55 JP 616 ……………………….. 39
Gibson v Manchester City Council [1979] 1 WLR 294, [1979] UKHL 6
………………………………………………………………………… 16, 26-8
Gibson v Proctor, see Gibbons v Proctor
Glassbrook Bros Ltd v Glamorgan CC [1925] AC 270 ………………… 72
Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd & Anor
[2012] EWCA Civ 265, [2012] 1 WLR 3674 ……………………………… 8
Golden Strait Corporation v Nippon Yusen Kubishka Kaisha [2007] UKHL
12, [2007] 2 AC 353 ………………………………………………… 239, 243
Golden Victory, The; see Golden Strait Corporation v Nippon Yusen
Kubishka Kaisha
Gordon v Selico (1986) 11 HLR 219 ……………………………………. 163
Gosling v Anderson [1972] EGD 709 …………………………….. 174, 188
G Percy Trentham Ltd v Archital Luxfer [1993] 1 Lloyd’s Rep 25 …….. 28
Great Northern Railway Co v Witham (1873) LR 9 CP 16 …………….. 52

xix
Great Peace Shipping Ltd v Tsavliris (International) Ltd [2002] EWCA Civ
1407, [2003] QB 679 …………………………………. 152-5, 157, 159, 160
Grist v Bailey [1967] 1 Ch 532 …………………………………………... 159

Hadley v Baxendale (1854) 9 Exch 341 ………………………………... 244

Hamer v Sidway (1891) 27 NE 256 (NYCA) ……………………………. 68
Hanna Blumenthal, The; see Paal Wilson and Co v Partenreederei
Hannah Blumenthal
Harbutts Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447
………………………………………………………………………... 117, 118
Harriette N, The; see Statoil ASA v Louis Dreyfus Energy Services LP
Harris v Nickerson (1873) LR 8 QB 286 …………………………………. 31
Hart v O’Connor & ors [1985] 3 WLR 214, [1985] UKPC 17 . 96, 133, 193
Hartog v Collins and Shields [1939] 3 All ER 566 ………………… 13, 146
Harvela Investments Ltd v Royal Trust Co of Canada [1986] 1 AC 207 33
Harvey v Facey [1893] AC 552 …………………………………………… 28
Harvey v Johnson (1848) 6 CB 305 ……………………………………… 41
Heathcote Ball & Co (Commercial Auctions) Ltd v Barry [2000] 1 WLR
1962, [2000] EWCA Civ 235 ……………………………………………… 32
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, [1963]
UKHL 4 …………………………………………….. 173, 174, 175, 186, 188
Henthorn v Fraser [1892] 2 Ch 27 ……………………………………….. 46
Herne Bay Steam Boat v Hutton [1903] 2 KB 683 …………………….. 233
High Trees case, The; see Central London Pty Ltd v High Trees House
Ltd
Hochster v De La Tour (1853) 2 E & B 678, 118 ER 922, [1853] EWHC
QB J72 ……………………………………………………………………. 232
Hoenig v Isaacs [1952] 1 TLR 1360, [1952] EWCA Civ 6 ……………. 228
Hollier v Rambler Motors (AMC) [1972] 2 QB 71, [1971] EWCA Civ 12
……………………………………………………………………………… 110
Holwell Securities Ltd v Hughes [1974] 1 WLR 155 ……………………. 47
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2
QB 26 ………………………………………………………………... 110, 197
Hooper & Anor v Oates [2013] EWCA Civ 91, [2014] Ch 287 ……….. 243
Horsfall v Thomas (1862) 1 H & C 90 …………………………………... 169
Houghton v Trafalgar Insurance Co [1954] 1 QB 247 ………………… 115
Household Fire and Carriage Accident Insurance Co (Limited) v Grant
(1879) 4 Ex D 216 …………………………………………………………. 47
Howatson v Webb [1907] 1 Ch 537 …………………………………….. 105
Hughes v Metropolitan Rly Co (1877) 2 App Cas 439 ………… 78, 80, 81
Huyton SA v Peter Cremer Gmbh & Co [1999] 1 Lloyds Rep 620, [1998]
EWHC 1208 (Comm) ……………………………………………………. 198
Hyde v Wrench 49 ER 132, [1840] EWHC Ch J90 ………………… 35, 43

Ingram v Little [1961] QB 31, [1960] EWCA Civ 1 …………. 144, 148, 150
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB
433 …………………………………………………………………... 109, 115
Introductions Ltd v National Provincial Bank Ltd [1970] Ch 199 ……… 98

xx
Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 WLR 896, [1997] UKHL 28 ……………………………………. 104
Ion, The; see Nippon Yusen Kaisha v Pacifica Navegacion SA
Irbenskiy Proliv, The; see Mitsubishi Corporation v Eastwind Transport
Ltd & Ors

J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR
1078 …………………………………………………………………... 21, 116
J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyd's Rep 1 ………………. 234
J Spurling Ltd v Bradshaw [1956] 1 WLR 461, [1956] EWCA Civ 3
………………………………………………………………….. 109, 110, 115
Jackson v The Union Marine Insurance Co Ltd (1874) LR 10 CP 125 236
Jacobs v Batavia & General Plantations Trust Ltd [1924] 1 Ch 287 … 104
Jarvis v Swans Tours Ltd [1973] QB 233, [1972] EWCA Civ 8 ………. 241
JEB Fasteners v Marks Bloom & Co [1983] 1 All ER 583 ……………. 169
Johnson v Agnew [1980] AC 367 ……………………………………….. 243
Jones v Padavatton [1969] 1 WLR 328 ………………………………….. 19
Jones v Vernon Pools Ltd [1938] 2 All ER 626 …………………………. 22
Jones v Waite (1839) 5 Bing NC 341 ……………………………………. 73
Joscelyne v Nissen [1970] 2 QB 86 …………………………………….. 160

Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 …………………….. 118

Keates v Earl of Cadogan (1851) 138 ER 234 ………………………… 163
KG Bominflot Bunkergesellschaft fur Mineraloele mbH & Co v Petroplus
Marketing AG [2010] EWCA Civ 1145, [2011] 1 Lloyd's Rep 442 …… 116
King's Norton Metal Co Ltd v Edridge Merritt & Co Ltd (1897) 14 TLR 98
……………………………………………………………………………… 149
Kleinwort Benson Ltd v Lincoln City Council & ors [1999] 2 AC 349, [1998]
UKHL 38 …………………………………………………………….. 145, 167
Kleinwort Benson Ltd v Malaysia Mining Berhad [1989] 1 WLR 379 ... 162
Kline & French Laboratories Ltd v Long [1989] 1 WLR 1 …………….. 184
Krell v Henry [1903] 2 KB 740 …………………………………………… 233
Kum v Wah Tat Bank [1971] 1 Lloyds Rep 439 ……………………….. 107

L’Estrange v F Graucob Ltd [1934] 2 KB 394 ……………….. 96, 105, 114

Lampleigh v Braithwait (1615) Hobart 105, 80 ER 255, [1615] EWHC KB
J17 ………………………………………………………………………….. 70
Leaf v International Galleries [1950] 2 KB 86 ………………………….. 180
Lee v Ashers Baking Company Ltd & Ors [2018] UKSC 49 ………….. 212
Les Laboratoires Servier & Anor v Apotex Inc & Ors (Rev 1) [2014] UKSC
55, [2015] 1 AC 430 ……………………………………………………… 212
Levy v Yates (1838) 8 A & E 129 ………………………………………... 216
Lewis v Averay [1972] 1 QB 198, [1971] EWCA Civ 4 ……. 148, 149, 179
Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555 …………. 107
LJ Korbetis v Transgrain Shipping BV [2005] EWHC 1345 (QB) … 47, 49
Lloyds Bank v Bundy [1975] QB 326, [1974] EWCA Civ 8 …………… 206
Long v Lloyd [1958] 1 WLR 753 ………………………………………… 177
Lovell and Christmas Ltd v Wall (1911) 104 LT 85 ……………………. 160
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 ………………………. 52

xxi
Maclaine v Gatty [1921] 1 AC 376 ……………………………………….. 78
Macleod v Kerr (1965) SC 253, (1965) SLT 358 ………………………. 177
MacLeod v MacLeod [2008] UKPC 64, [2010] AC 298 ……………….. 221
Magee v Pennine Insurance Co [1969] 2 QB 507 …………………….. 159
Mahmoud and Ispahani, Re (1921) 2 KB 716 …………………………. 215
Manchester Diocesan Council for Education v Commercial & General
Investments Ltd [1970] 1 WLR 241 ………………………………………. 45
Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524, [1935]
UKPC 1 …………………………………………………………………… 234
Marks and Spencer plc v BNP Paribas Securities Services Trust
Company (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 ……………… 107
Marsden v Barclays Bank plc [2016] EWHC 1601 (QB), [2016] 2 Lloyd’s
Rep 420 …………………………………………………………………… 199
Maskell v Horner [1915] 3 KB 106 ……………………………………… 194
May & Butcher Ltd v The King [1934] 2 KB 17, [1929] UKHL 2 ………. 58
McConnel v Wright [1903] 1 Ch 546 ……………………………………. 181
McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125, [1964] UKHL 4
……………………………………………………………………………… 110
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377,
[1951] HCA 79 (Australia) ……………………………………………….. 156
Mercini Lady, The; see KG Bominflot Bunkergesellschaft fur Mineraloele
mbH & Co v Petroplus Marketing AG
Merritt v Merritt [1970] 1 WLR 1211 ……………………………………… 20
Mitsubishi Corporation v Eastwind Transport Ltd & Ors [2004] EWHC
2924 (Comm), [2005] 1 Lloyd’s Rep 383 ………………………………. 118
Mohammed v Alaga & Co (A Firm) [2000] 1 WLR 1815, [1999] EWCA
Civ 3037 …………………………………………………………………... 217
Mondial Shipping v Astarte Shipping [1995] CLC 1011 ……………….. 49

Nash v Inman [1908] 2 KB 1 ……………………………………………… 92

National Westminster Bank Plc v Morgan [1985] AC 686, [1985] UKHL 2
Nicolene Ltd v Simmonds [1953] 1 QB 543 ……………………… 206, 208
Nippon Yusen Kaisha v Pacifica Navegacion SA [1980] 2 Lloyd’s Rep
245 ………………………………………………………………………….. 82
Nocton v Lord Ashburton [1914] AC 932 ………………………………. 186
Nordenfelt v Maxim Nordenfelt Guns [1894] AC 535 …………………. 221
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB
705 ……………………………………………………………………. 74, 195

O’Brien v MGN Ltd [2001] EWCA Civ 1279, [2002] CLC 33 ………….. 25
Occidental Worldwide Investment Corporation v Skibs [1976] 1 Lloyd’s
Rep 293 …………………………………………………………………… 194
Office of Fair Trading v Abbey National [2009] UKSC 6, [2010] 1 AC 696
………………………………………………………………………... 137, 138
Olley v Marlborough Court Ltd [1949] 1 KB 532 …………………. 109, 114
Oscar Chess Ltd v Williams [1957] 1 WLR 370 ……………………….. 103

Paal Wilson and Co v Partenreederei Hannah Blumenthal [1983] 1 AC

854 ………………………………………………………………………….. 12

xxii
Pankhania v The London Borough of Hackney & Anor [2002] EWHC
2441 …………………………………………………………………. 166, 167
Pao On and others v Lau Yiu Long and another [1980] AC 614, [1979]
UKPC 17 …………………………………………………………. 71, 73, 197
Paradine v Jane (1647) Aleyn 26, 82 ER 897, [1647] EWHC KB J5 ... 232
Parker v South Eastern Rly Co (1877) 2 CPD 416 ………... 108, 109, 114
ParkingEye Ltd v Beavis {joined appeal with Cavendish Square Holding
BV v Talal El Makdessi (Rev 3)} [2015] UKSC 67, [2016] AC 1172
……………………………………………………………….. 129, 133-4, 245
Parkingeye Ltd v Somerfield Stores Ltd [2012] EWCA Civ 1338, [2013] 1
QB 840 ……………………………………………………………………. 217
Partridge v Crittenden [1968] 1 WLR 1204 ……………………………… 29
Patel v Mirza [2016] UKSC 42, [2017] AC 467 …………………... 150, 212
Payne v Cave (1789) 3 TR 148 …………………………………………... 31
Pearce v Brooks (1866) LR 1 Ex 213 …………………………………… 220
Peekay Intermark Ltd and another v Australia and New Zealand Banking
Group Ltd [2006] EWCA Civ 386 ……………………………………….. 164
Persimmon Homes Ltd v Ove Arup & Partners Ltd & Anor [2017] EWCA
Civ 373 [52], [2017] BLR 417 ……………………………………… 115, 116
Peters v Fleming (1840) 6 M & W 42, 151 ER 314 …………………….. 92
Peyman v Lanjani [1958] Ch 457 ……………………………………….. 178
Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1
QB 401 ……………………………………………………………………… 29
Phillips v Brooks Ltd [1919] 2 KB 243 …………………………………... 148
Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827, [1980]
UKHL 2 ……………………………………………………………… 119, 120
Pickford Ltd v Celestica Ltd [2003] EWCA Civ 1741 ………………. 25, 41
Pinnel’s Case (1602) 5 Co Rep 117a ………………………………. 76, 230
Pinnock Bros v Lewis & Peat Ltd [1923] 1 KB 690 ……………………. 118
Pitt v PHH Asset Management Ltd [1994] 1WLR 327 …………………. 69
Post Chaser, The; see Société Italo-Belge Pour le Commerce et
l'Industrie SA v Palm and Vegetable Oils (Malaysia) SDN BHD
Pretty Pictures Sarl v Quixote Films Ltd [2003] EWHC 311 ……………. 8
Printing and Numerical Registering Co v Sampson (1875) 19 Eq 462 10
Proform Sports Management Ltd v Proactive Sports Management Ltd &
Anor [2006] EWHC 2903 (Ch), [2007] 1 All ER 52 .……………………. 94
Progress Bulk Carriers Ltd v Tube City IMS LLC [2012] EWHC 273
(Comm) ……………………………………………………………… 197, 200

R & B Customs Brokers Company Ltd v United Dominions Trust Ltd

[1988] 1 WLR 321, [1987] EWCA Civ 3 ………………………………… 131
R v Barnard (1837) 7 C & P 784 ………………………………………… 163
R v Clarke (1927) 40 CLR 227 …………………………………………… 39
R v Her Majesty's Attorney-General for England and Wales [2003] UKPC
22, [2003] EMLR 24 ……………………………………………………… 198
Radford v De Froberville [1977] 1 WLR 1262 ………………………….. 243
Radmacher v Granatino [2010] UKSC 42, [2011] 1 AC 534 …….. 20, 221
Raffles v Wichelhaus & Anor (1864) 2 H & C 906, 159 ER 375, [1864]
EWHC Exch J19 …………………………………………………………. 145

xxiii
Raineri v Miles [1981] AC 1050 …………………………………………. 229
Rann v Hughes (1778) 4 Bro PC 27, 7 TR 350 (Note), 2 ER 18, 101 ER
1013, LI MS Misc. 130 f.74 ………………………………………………… 6
Re Casey’s Patents [1892] 1 Ch 104 ……………………………………. 70
Re Jon Beauforte (London) Ltd [1953] Ch 131 …………………………. 98
Re McArdle [1951] Ch 669 ….…………………………………………….. 69
Re Selectmove Ltd [1995] 1 WLR 474, [1993] EWCA Civ 8
…………………………………………………………………. 40, 76, 77 231
Redgrave v Hurd (1881) 20 Ch D 1 …………………………. 170, 171, 177
Regazzoni v KC Sethia [1958] AC 301 ………………………………… 221
Resolute Maritime Inc v Nippon Kaiji Kyokai & ors [1983] 1 Lloyds Rep
431 ………………………………………………………………………… 175
Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA
Civ 443 ……………………………………………………………………… 42
Robinson v Harman (1848) 1 Ex 850 …………………………………... 240
Roscorla v Thomas (1842) 3 QB 234 ……………………………………. 69
Rose & Frank Co v J R Crompton Bros [1925] AC 445 ……………….. 22
Routledge v Grant (1828) 4 Bing 653 ……………………………………. 35
Routledge v Mckay [1954] 1 WLR 615 …………………………………. 103
Royal Bank of Scotland plc v Etridge (AP) (‘No. 2’) [2001] UKHL 44,
[2002] 2 AC 773 …………………………………………….. 201-4, 206, 208
Royscot Trust Ltd v Rogerson & Anor [1991] 2 QB 297, [1991] EWCA Civ
12 ………………………………………………………………………….. 189
RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Co KG [2010]
UKSC 14 …………………………………………………………………… 10
Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344, [1995]
UKHL 8 ……………………………………………………………… 241, 242
Ryder v Wombwell (1868) LR 4 Exch 32 ………………………………... 92

Satanita, The; see Clarke v Earl of Dunraven

Saunders v Anglia Building Society [1971 AC 1004 ………………….. 105
Scammell v Ouston; see G Scammell and Nephew Ltd v HC&JG Ouston
Scott v Coulson [1903] 2 Ch 249 ……………………………………….. 155
Scriven Brothers & Co v Hindley & Co [1913] 3 KB 564 …………. 13, 146
Shadwell v Shadwell (1860) 9 CBNS 159; 142 ER 62 …………….. 66, 73
Shirlaw v Southern Foundries Ltd [1939] 2 KB 206 …………………… 107
Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919
……………………………………………………………………….. 148-151
Siboen & The Sibotre, The; see Occidental Worldwide Investment
Corporation v Skibs
Simpkins v Pays [1955] 1 WLR 975 ….………………………………….. 20
Skeate v Beale (1840) 11 Ad & E 983 ………………………………….. 194
Skopas, The; see Resolute Maritime Inc v Nippon Kaiji Kyokai & ors
Smith New Court Ltd v Scrimgeour Vickers (Asset Management) Ltd
[1997] AC 254, [1996] UKHL 3 ………………………………. 183, 185, 189
Smith v Chadwick (1884) 9 App Cas 187 ………………………………. 170
Smith v Hughes (1871) LR 6 QB 597 ……………………………… 11, 146
Smith v Land & House Property Corp (1884) LR 28 ChD 7 ………….. 165

xxiv
Société Italo-Belge Pour le Commerce et l'Industrie SA v Palm and
Vegetable Oils (Malaysia) SDN BHD [1982] 1 All ER 19 ……………… 80
Solle v Butcher [1950] 1 KB 671 ………………………………………… 159
South Australia Asset Management Corporation v York Montague Ltd
[1997] AC 191, [1996] UKHL 10 ………………………………………… 186
Spencer v Harding (1870) LR 5 CP 561…………………………………. 33
Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15 ……. 163
St Albans City & DC v International Computers Ltd [1996] 4 All ER 481
……………………………………………………………………………… 121
St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 … 217
Statoil ASA v Louis Dreyfus Energy Services LP [2008] EWHC 2257
(Comm), [2009] 1 All ER (Comm) 1035 …………………………………. 13
Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452 ………………………… 95
Stevenson, Jacques & Co v McLean (1880) 5 QBD 346 ……………… 44
Stilk v Myrick (1809) 6 Esp 129, 170 ER 1168, (1809) 2 Camp 318
………………………………………………………………… 73, 74, 76, 230
Storer v Manchester City Council [1979] 1 WLR 1403 ………………… 27
Strickland v Turner (1852) 7 Exch 208 …………………………………. 155
Suisse Atlantique Societe d'Armament SA v NV Rotterdamsche Kolen
Centrale [1967] 1 AC 361 ……………………………………………….. 117
Sumpter v Hedges [1898] 1 QB 673 ……………………………………. 229
Super Servant Two, The; see J Lauritzen AS v Wijsmuller BV
Sykes & Anor v Taylor-Rose & Anor [2004] EWCA 299 ……………… 163

Taylor & Anor v Caldwell & Anor 3 B & S 826, 122 ER 309, [1863] EWHC
QB J1 ………………………………………………………………... 232, 233
Taylor v Allon [1966] 1 QB 304 ………………………………………. 41, 45
Taylor v Laird (1856) 56 LJ Ex 239 ….………………………………. 25, 26
Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209,
[2010] 1 Lloyd's Rep 357 ……………………………………………… 28, 44
Tenax Steamship Co v Owners of the Motor Vessel Brimnes [1975] QB
929 ………………………………………………………………………….. 49
The New Zealand Shipping Company Limited v AM Satterthwaite &
Company Limited [1975] AC 154, [1974] UKPC 4 ……………………… 73
The Office of Fair Trading v Ashbourne Management Services Ltd & Ors
[2011] EWHC 1237 (Ch) ………………………………………………… 138
Thomas v BPE Solicitors [2010] EWHC 306 ……………………….. 49, 50
Thomas v Thomas (1842) 2 QB 851 …………………………………….. 66
Thompson v London, Midland & Scottish Rly Co [1930] 1 KB 41 …… 109
Thorner v Major & others [2009] UKHL 18 …………………………….. 106
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, [1970] EWCA Civ 2
…………………………………………………………………………... 7, 109
Timeload Ltd v British Telecommunications plc [1995] EMLR 459 ….. 121
Tinn v Hoffman [1873] 29 LT 271 ………………………………………… 42
Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1
WLR 761 …………………………………………………………………… 81
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 …………... 234
Tweddle v Atkinson (1861) B & S 393, 121 ER 762, [1861] EWHC QB
J57 ……………………………………………………………………… 67, 85

xxv
UK Housing Alliance (North West) Ltd v Francis [2010] EWCA Civ 117,
[2010] 3 All ER 519 ………………………………………………………. 132
United City Merchants (Investments) Ltd v Royal Bank of Canada [1983]
1 AC 168 ………………………………………………………………….. 222
United Scientific Holdings Ltd v Burnley BC [1978] AC 904 ………….. 229
Universe Sentinel, The; see Universe Tankships Inc of Monrovia v
International Transport Workers’ Federation
Universe Tankships Inc of Monrovia v International Transport Workers’
Federation [1983] 1 AC 366, [1981] UKHL 9 …………………….. 195, 198

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528

……………………………………………………………………………… 244

Wallis, Son & Wells v Pratt & Haynes [1911] AC 394, ………………... 116
Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 (Australia)
………………………………………………………………………………. 82
Ward v Byham [1956] 1 WLR 496 …………………………………… 72, 76
Waugh v Morris (1873) LR 8 QB 202 …………………………………… 216
West & Anor v Ian Finlay Associates (a firm) [2014] EWCA Civ 316 .. 136
West Sussex Properties Ltd v Chichester District Council [2000] EWCA
Civ 205 ……………………………………………………………………. 159
White v Bluett (1853) 23 LJ Ex 36 …………………………………… 67, 69
White v John Warwick & Co [1953] 1 WLR 1285, [1953] EWCA Civ 2
………………………………………………………………………... 119, 124
White v Jones [1995] 2 AC 207 …………………………………………. 173
Whittington v Seale-Hayne (1900) 82 LT 49 …………………………... 180
Williams v Carwardine (1833) 5 Car & P 566, 172 ER 1101, [1833] EWHC
KB J44 ……………………………………………………………………… 39
Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1991] 1 QB 1,
[1989] EWCA Civ 5 ………………………………………… 75-77, 195, 230
Williams v Williams [1957] 1 WLR 148 ……………………………… 73, 76
Wilson Smithett & Cope Ltd v Terruzzi [1976] QB 703 ……………….. 222
With v O’Flanagan [1936] Ch 575 ………………………………………. 164
WN Hillas & Co Ltd v Arcos Ltd [1932] 147 LT 503, [1932] UKHL 2 57-59

Xenos v Wickham (1866) LR 2 HL 296 …………………………………… 6

Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720
(TCC); [2010] 1 CLC 491 ………………………………………………... 121

xxvi
 Legislation and Legislative Instruments
United Kingdom Legislation

Companies Act 1989 ……………………………………………………………….. 98

Companies Act 2006 ………………………………………………………….. 6, 8, 98
Consumer Rights Act 2015 .. 60, 106, 119, 125-128, 130-140, 156, 158, 186, 192
Contracts (Rights of Third Parties) Act 1999 ……………………………….. 86, 239
Family Law Reform Act 1969 ………………………………………………………. 90
Infants Relief Act 1874 …………………………………………………………. 90, 91
Law of Property (Miscellaneous Provisions) Act 1989 …………………………… 5
Law of Property Act 1925 ………………………………………………………. 5, 229
Law Reform (Contributory Negligence) Act 1945 ………………………………. 171
Mental Capacity Act 2005 ……………………………………………………… 95, 96
Mental Health Act 1983 ………………………………………………………… 95, 96
Minors’ Contracts Act 1987 ……………………………………………………. 91, 95
Misrepresentation Act 1967 ……………………………………... 174, 175, 188, 190
Occupiers’ Liability Act 1957 ……………………………………………………... 124
Sale of Goods Act 1979 …………… 31, 60, 91-3, 95, 96, 106, 110, 123, 147, 243
Senior Courts Act 1981 …………………………………………………………… 246
Supply of Goods and Services Act 1982 ………………………………………….. 60
Unfair Contract Terms Act 1977………………………….... 119, 121, 127, 132, 194

European Union Instruments

Directive on Electronic Commerce (2000/31/EC on certain legal aspects of

information society services, in particular electronic commerce, in the Internal
Market) ………………………………………………………………………………… 8
Directive on Unfair Terms in Consumer Contracts (Directive 93/13/EEC)
………………………………………………………………………………. 130, 132-5

International Legislative Instruments

United Nations Convention on the Use of Electronic Communications in

International Contracts 2005 ………………………………………………………… 8
UNCITRAL Model Law on Electronic Commerce (1996) ………………………… 8

Other Instruments

Note on the Execution of a Document using an Electronic Signature (The Law

Society, UK, 2016) …………………………………………………………………… 8
Restatement (Second) of the Law of Contracts (American Law Institute, 1981) 4
Working Paper No 81 – Minors’ Contracts (Law Commission, England, 1982) 92

xxvii
xxviii
 Part 1: The Contract and its Formation

1. Definition and Fundamentals of a Contract

2. Intention to Create Legal Relations
3. Offer
4. Acceptance
5. Certainty of Agreements
6. Consideration
7. Capacity
8. Privity of Contract and the Rights of Third parties

1
2
 Chapter One:
Definition and
Fundamentals of a
Contract

Think About!

1. What does the law consider to be a ‘contract’?

2. How would you distinguish between a ‘contract’ and an ‘agreement’?

3. To what extent is it important that a contract should be in writing?

(a) Consider for example, the scenario that occurred in the following news item:
http://www.telegraph.co.uk/news/2017/09/18/woman-collapses-court-judge-rules-
against-bid-half-ex-boyfriends/

(b) How practical would it be for a contract between Carrefour Supermarket and a
shopper who goes in to buy groceries to have to be in writing compulsorily?

4. Why should the law be concerned to assist in enforcing a contract or to provide a

remedy in the event of the breach of a contract?

5. Consider the role of contracts in the socio-economic development of a country.

3
1.1 Introduction

1.1.1 What is a contract?

A useful definition of a contract may be borrowed from

American jurisprudence:

A contract is a promise or a set of promises for the

breach of which the law gives a remedy, or the
performance of which the law in some way recognizes
as a duty.
{American Law Institute, Restatement (Second) of the Law of
Contracts § 1}

The law of contract concerns agreements which have the

potential or possibility of being enforced by the law or for
which the law can provide a remedy if the agreement is not
kept.

Although a contract generally involves an agreement, it is not

every agreement that is a contract at law. Only an agreement
that the law, especially the courts, can be concerned with
would generally amount to a contract in our technical sense.

1.1.2 Formalities

As an agreement, a contract may be made in writing, orally

or even implied from the conduct of the parties involved. In
respect of sale of goods contracts, section 4 of the Sale of
Goods Act 1979 provides that ‘a contract of sale may be
made in writing (either with or without seal), or by word of
mouth, or partly in writing and partly by word of mouth, or
may be implied from the conduct of the parties.’

While many contracts are indeed written or reduced to

writing, the vast majority of everyday contracts are in fact not
in writing. In a few cases some types of contract are required
by law to be in writing and, in some cases, a special form or
format is required for an agreement to have a legally valid

4
effect. In relation to form and formalities, one standard
distinction made in English law is between a ‘specialty’
contract and a ‘simple’ contract.

A specialty contract (also sometimes called a ‘formal’ or

‘special’ contract) is a contract that must follow and adhere
to a particular form in order to be legally enforceable, i.e., it
must follow some formalities required by law. The standard
example is a contract made by ‘deed’. In some situations, the
law requires that a particular type of agreement has to be
made or ‘executed’ in the form of a deed before it can be
enforced at law. This is so under the Law of Property Act
1925 in respect of contracts concerning the sale of houses
and some other types of dealing in ‘real property’, including
leases for terms exceeding three years. Other contracts may
also be made by deed even though there is no strict
requirement for them to be by deed.

1.1.3 Specialty contracts - contracts made by

deed

Traditionally, a contract made by deed is a contract that was

signed, sealed and delivered. It was required to be in writing
on paper or parchment, accompanied historically by a wax
seal and physically delivered by the person making the deed
to another person – the latter usually the beneficiary of the
rights conferred under the deed. Later, the requirement for a
wax seal was relaxed and a red adhesive wafer seal became
acceptable and frequently used; it also became acceptable
to indicate sealing, for example, by use of words such as
‘Seal’ or ‘locus sigilli’ (meaning ‘place of the seal’) or the
abbreviation ‘L.S.’ for that Latin phrase.

The requirements for the execution of a deed validly were

simplified under the Law of Property (Miscellaneous
Provisions) Act 1989 following recommendations to do away
with the requirements of sealing and delivery and to make
signing and attestation sufficient requirements.

5
In summary, the requirements for an individual to validly
execute an ‘instrument’ (basically, a formal legal document)
as a deed are that: it must be clear on the face of the
instrument that its maker intended it to be a deed - as in
Bibby Financial Services and Anor v Magson and Others
[2011] EWHC 2495 (QB) where a document in issue was
‘signed as a deed’; the signature of the maker is witnessed
and attested by one or two witnesses (depending on whether
the maker signs it himself or directs someone to sign it on his
behalf); and, the instrument is ‘delivered as a deed’ e.g.
handing over or any other act by which the maker shows he
intends the document to be binding on him; see e.g. Xenos
v Wickham (1866) LR 2 HL 296, 312, per Blackburn J. In
addition, restrictions on the substances on which a deed can
be written are removed and a person may sign a deed by
making a mark on the instrument.

For a company to execute an instrument as a deed, it must

comply with the same basic requirements as for an
individual, though additional provisions on the manner of
executing documents by a company under the Companies
Act 2006 are also relevant.

Executing a document as a deed has some advantages in

English contract law. A major example is that a deed can
allow one person to enforce a promise made by another
person even where the first person has not provided any
‘consideration’ (a reciprocal benefit) to the party who made
the promise. The use of a deed is one of the circumstances
where a bare promise or gift (‘nudum pactum’) may be
enforceable contrary to the general requirement for
consideration in English contract law. {See further Rann v
Hughes (1778) 4 Bro PC 27, 7 TR 350 (Note), 2 ER 18, 101
ER 1013, LI MS Misc. 130 f.74.}

6
1.1.4 Simple contracts

Very simply, a simple contract is a contract which is not made

by deed. It may be in writing, made orally, or even implied by
conduct. Only in some particular instances is there a legal
requirement that a contract must be made in writing (e.g.
consumer credit agreements, guarantee contracts, some
shipping contracts), otherwise most contracts do not have to
be in writing.

Many everyday contracts are made without writing even if a

receipt might be issued to evidence payment. A simple
contract to purchase a coffee, to ride on a bus or train, to buy
books or stationery and several other examples of common
transactions are rarely in writing. In the case of a contract to
ride on a bus or train, nothing may be said at all and such a
contract would, in addition to not being in writing, not even
be made orally; rather, it would be made by conduct.
Similarly, if a driver enters a car park in which he only needs
to make payment for his stay through a payment machine or
in which he is permitted entry by an automated barrier, the
contract involved would only be made by conduct; see e.g.
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, [1970]
EWCA Civ 2.

1.1.5 Electronic contracts

In the contemporary information age, contracts are now

frequently concluded through various information technology
resources including emails and website operations. The law
has adapted to accommodate these contracts and initial
concerns that such contracts might not be valid because of
pre-existing traditional legal requirements have largely
disappeared.

With regard to simple contracts that are not required to be in

writing in any event, there really is no conceptual reason why
they cannot be concluded by exchange of electronic mails or
by interaction on an interactive website. Such contracts are

7
now common-place and there are now several examples of
recognition of their validity by the courts; see e.g. Allianz
Insurance Company - Egypt v Aigaion Insurance
Company SA [2008] EWCA Civ 1455, [2008] 2 CLC 1013;
Golden Ocean Group Ltd v Salgaocar Mining Industries
PVT Ltd & Anor [2012] EWCA Civ 265, [2012] 1 WLR 3674;
Pretty Pictures Sarl v Quixote Films Ltd [2003] EWHC 311
(QB).

It is now also widely recognised that even contracts that are

required to be in writing can be concluded by email and
through web-click contracts and other information technology
means. Additionally, even deeds can now be executed
electronically as reflected for example in a Law Society note
of 2016 titled Note on the Execution of a Document using an
Electronic Signature.

National and international legislative instruments have

responded to the challenge of whether an electronic contract
can be in ‘writing’ by adopting a concept referred to as
‘functional equivalence’. This concept requires that a
document (or contract) is not to be denied legal validity
simply because it is in electronic form; see e.g. section 1114
Companies Act 2006; Article 9(1) EU’s Directive on
Electronic Commerce (2000/31/EC); Articles 8 & 9 of the UN
Convention on the Use of Electronic Communications in
International Contracts 2005; Articles 5 & 6 UNCITRAL
Model Law on E-commerce.

The case of Golden Ocean Group Ltd v Salgaocar Mining

Industries PVT Ltd & Anor (above) provides an example of
judicial recognition that an important commercial document
required to be in or evidenced by writing can be made validly
in electronic form.

8
1.2 The Law of Contract in the Law of
Obligations

The law of contract is one element of a wider area of law

referred to as ‘the law of obligations’.

The law of obligations relates to rights and responsibilities

arising in a civil or private context. It relates to responsibilities
for which, if they are breached, only civil remedies are
available generally to compensate the party whose right or
interest has been affected. The party whose interest the law
of obligations seeks to protect is normally a private party
such as an individual or natural person or a private legal
entity such as a company.

Apart from contract, the other aspects of the law of

obligations are the law of tort and the law relating to
restitution and unjust enrichment. The aim of the law of tort
is to provide compensation (or other remedy) to a party
whose interest or right is deemed to be unjustly affected by
the action or omission of another. An important element to
note is that the protection of a party’s interest or right is not
dependent on the existence of any agreement between that
party and the other party who might have infringed that right
or interest.

The law of restitution is predicated on the idea that one

person should not enjoy unjust enrichment at the expense of
another. The aim is to prevent one party from retaining a gain
or benefit that he has received unjustly at the expense of
another: thus, under restitution the first party can be required
to restore or return the gain or benefit to the disadvantaged
party. An interesting point is that the law of restitution is often
invoked when parties’ attempts to make a valid contract have
failed.

As an element of the law of obligations, the law of contract is

different from the other two in that, generally, obligations are
voluntarily undertaken by the parties themselves, rather than
being imposed on them. The voluntary assumption of

9
obligations creates an ‘expectation’ that the obligations will
be performed, and the law of contract is mainly concerned to
protect (or to provide a remedy for non-fulfilment of) such
expectation. In Co-operative Insurance Society v Argyll
Stores (Holdings) Ltd [1997] UKHL 17; [1998] AC 1, Lord
Hoffman said: ‘the purpose of the law of contract is not to
punish wrongdoing but to satisfy the expectations of the party
entitled to performance.’

The law of contract is based on the idea that a legal

agreement which is entered into voluntarily should be
observed and, thus, the law is ready to assist in enforcing
such an agreement or providing a remedy when it is
breached. According to a well-known Latin maxim: pacta
sunt servanda i.e. ‘agreements must be kept’; this was
reflected in a statement on freedom of contract by Jessel MR
in the old case of Printing and Numerical Registering Co
v Sampson (1875) 19 Eq 462 when he said: ‘… contracts
when entered into freely and voluntarily shall be held sacred
and shall be enforced by Courts of justice.’

1.3 The Role of ‘Objectivity’ in Determining

if a Contract has been Formed

When parties are negotiating a contract, each usually makes

some statements or engages in some conduct. In interpreting
the statement or conduct of a party apparently entering into
contract, English law generally takes the view that what
matters is how a reasonable person will understand the
statement or conduct of the party - not necessarily what the
party himself might have meant or had in mind. In the matter
of determining the interpretative approach to statements
made by contracting parties, ‘objectivity’ generally prevails
over ‘subjectivity’.

In RTS Flexible Systems Ltd v Molkerei Alois Muller

Gmbh & Co KG [2010] UKSC 14 at [45], Lord Clarke said:

10
 ‘The general principles are not in doubt. Whether there
is a binding contract between the parties and, if so,
upon what terms depends upon what they have agreed.
It depends not upon their subjective state of mind, but
upon a consideration of what was communicated
between them by words or conduct, and whether that
leads objectively to a conclusion that they intended to
create legal relations and had agreed upon all the terms
which they regarded or the law requires as essential for
the formation of legally binding relations. Even if certain
terms of economic or other significance to the parties
have not been finalised, an objective appraisal of their
words and conduct may lead to the conclusion that they
did not intend agreement of such terms to be a pre-
condition to a concluded and legally binding
agreement.’

In Smith v Hughes (1871) LR 6 QB 597 Blackburn J said:

‘If, whatever a man’s real intentions may be, he so

conducts himself that a reasonable man would believe
that he was assenting to the terms proposed by the
other party, and upon that belief enters into the contract
with him, the man thus conducting himself would be
equally bound as if he had intended to agree to the
other party’s terms.’

Smith v Hughes
S offered to sell oats to H; S did not mention
whether the oats were old or new; H thought they
were old oats; when H found out that they were
new, he refused to accept and pay for the oats; S
sued for the price of the oats; the court established
that a seller does not have a legal obligation to
inform a buyer that the latter is under a mistake –
as long as the seller did not cause the mistake.

11
Similarly, in Centrovincial Estates plc v Merchant
Investors Investors Assurance Ltd [1983] Com LR 158,
Slade LJ said:

‘It is a well-established principle of the English law of

contract that an offer falls to be interpreted not
subjectively by reference to what has actually passed
through the mind of the offeror, but objectively, by
reference to the interpretation which a reasonable man
in the shoes of the offeree would place on the offer.’

Centrovincial Estates v Merchant Investors etc

The then current rent of a property was £68,000; the
landlord offered to renew the tenancy for £65,000;
the tenant accepted; the landlord refused and said
they had meant to offer the renewal at £126,000! The
court said, if there was no evidence that the tenant
knew that the landlord had made a mistake, the
landlord should not be allowed to escape the deal for
a new tenancy at £65,000.

In the case of commercial transactions, i.e., where the parties

are business persons or entities, Teare J noted in Dhanani
v Crasnianski [2011] All ER (Comm) 799 that: ‘The yardstick
has been described as the reasonable expectations of
sensible businessmen.’ In Paal Wilson and Co v
Partenreederei Hannah Blumenthal (The Hanna
Blumenthal) [1983] 1 AC 854 under a contract for the sale
of a ship, the parties agreed that a dispute would be settled
by reference to arbitration; after a dispute, the buyers
commenced arbitration but there was a delay of some 6
years in which nothing happened concerning the arbitration;
later, the buyers tried to fix a date for arbitration but the
sellers argued that the parties had abandoned arbitration
because of inactivity. It was held that the agreement to go to

12
arbitration could only have been abandoned if, (a) the parties
had expressly agreed to the abandonment, or (b) as a result
of the inactivity, one party had significantly altered its
position, i.e., had acted detrimentally in reliance on the
inactivity; the reliance would be evidence of that party’s
acceptance of an offer by the other to abandon the
agreement.

Note that in The Hanna Blumenthal, as there was no

reliance there was no evidence that the sellers had accepted
an offer by the buyers to abandon arbitration; hence, the
‘objectivity’ principle is not really displaced.

While the objectivity principle generally prevails, there are

certain instances when there is a role for ‘subjectivity’. This
is particularly so in circumstances where an offeree is aware
that the offeror has made a mistake in respect of the terms
that the offeror actually intended to propose. In such a
situation, if the offeree purports to quickly ‘snap up’ an offer
that he knows involves a mistake on the part of the offeror of
what the latter intended to propose, the courts might refuse
to uphold the offeree’s ‘acceptance’ of the offer; Scriven
Brothers v Hindley [1913] 3 KB 564, Hartog v Collins and
Shields [1939] 3 All ER 566, Statoil ASA v Louis Dreyfus
Energy Services LP (The ‘Harriette N’) [2008] EWHC 2257
(Comm), [2009] 1 All ER (Comm) 1035.

1.4 The Classical Model of English Contract

Law

For an agreement to be enforceable as a contract in English

law, it must meet the general model of contract law that has
been established since the 19th century.

According to the classical model, an agreement must meet

or exhibit certain conditions or characteristics for it to be a
legally valid and enforceable contract. Generally, the
existence of a legally valid and binding contract is seen as
based on the existence of certain elements, including:

13
  Intention to Create Legal relations
 An ‘Offer’ matched by an unqualified
‘Acceptance’
 The presence of ‘Consideration’
 ‘Privity’ between the parties
 Certainty of the terms of the contract i.e.
generally, no vagueness in an important
respect

Another factor that may arise for consideration is the capacity

of the parties to contract, i.e., that each party is legally
capable of making a contract.

It is interesting to use the famous case of Carlill v Carbolic

Smoke Ball Co [1893] 1 QB 256, [1892] EWCA Civ 1 to
consider the workings of the classical model and to examine
the way that elements of the model were relevant in that
case.

Carlill v Carbolic Smoke Ball Co [1893]

The defendants issued newspaper advertisements

promising to pay £100 to anyone who contracted influenza
(or a related disease) after using their smoke ball as
prescribed; they deposited £1000 with a bank – ‘shewing
[their] sincerity in the matter’; the claimant bought and used
the smoke ball as directed but still contracted influenza; the
claimant sought payment of the promised £100 but the
defendants refused to pay; held:

intention to create legal relations

- that there was no doubt that the language used indicated
that a binding promise was being made; the statement that
£1000 was deposited with a bank showed that the advert was
not a mere ‘puff’;

offer
- that the advertisement was an offer made to the whole
world, i.e., to anybody who performed the conditions of the
advert, and that anybody who did so thus accepted; the offer

14
was thus a unilateral offer, i.e. one where a promise is made
to pay money in exchange for an act;

acceptance
- that although as a general rule acceptance must be
communicated, in this kind of offer, the offeror shows by his
language and from the nature of the transaction that he does
not require notice of the acceptance apart from notice of
performance – which is necessary only in order to claim the
reward;

consideration
- that the defendants received a benefit in that the use of the
smoke ball would promote their sale – and this was sufficient
to constitute consideration; that also, the inconvenience
suffered by the person using the smoke ball at the request
of the defendants was also enough (‘sufficient’) to constitute
consideration;

privity
- that the advertisements did not amount to a contract made
with the whole world, but an offer made to the whole world;
the offer in this instance is also different from ‘an invitation
to treat’; that a contract is made with only that portion of the
public that performs the conditions of the offer;

certainty/vagueness
- that the language of the advert was vague and uncertain in
some respects - especially in terms of how long after using
the smoke ball the person should have contracted influenza
in order to be able to claim; that it was for the defendants to
show what the concerned term meant;

- that even construing the offer most strictly against its maker
(the defendants), it was unlikely to mean a guarantee
against influenza for life;

- that whether the correct interpretation is that protection

lasts for the duration of the epidemic, during the use of the
smoke ball, or extends to a reasonable time afterwards need

15
not be decided – since the present case was caught by all
three in any event.

In concluding this section, it is useful to note that there have

been instances where some judges have suggested that an
agreement which does not adhere strictly to the classical
model may still be a contract at law; see e.g. Butler Machine
Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 WLR
401, [1977] EWCA Civ 9; see also Clarke v Earl of
Dunraven (‘The Satanita’) [1897] AC 59. On the whole,
however, English law still generally follows the
traditional/classical model; see e.g. Gibson v Manchester
City Council [1979] 1 WLR 294, [1979] UKHL 6. We shall be
considering this point further when we look individually at
some of the elements of the classical model – particularly
acceptance.

16
 Chapter Two:
Intention to Create
Legal Relations

Think About!

1. What do you think are good reasons why an agreement should be considered
as one enforceable by law?

2. Should domestic or social agreements be treated as enforceable by law?

3. Mr. Birkenhead is a billionaire; he was about to marry Miss Fortune; before

the marriage the parties agreed verbally that if they were to divorce, Mr.
Birkenhead would pay Miss Fortune only £10m (ten million pounds).

Is this agreement enforceable?

4. Two weeks after Mr. and Mrs. Humpty got married, they signed an agreement
that if they were to divorce or separate, Mrs. Humpty would keep the
matrimonial home in which they resided and two of the couple’s three cars.

Is the agreement enforceable?

17
2.1 Introduction

As we have learned earlier, although a contract generally

involves an agreement, it is not every agreement that is a
contract at law. Only an agreement that the law, especially
the courts, can be concerned with would generally amount to
a contract in the technical legal sense.

English law uses the concept of ‘intention to create legal

relations’ for determining if a particular agreement is one that
the law should be concerned with, or one that the courts
should enforce or whether the courts should be ready to
provide a remedy in the event of a breach of the agreement.

2.2 ‘Presumptions’

In determining whether an agreement is intended to create

legal relations, i.e., to have legal consequences, English law
employs some ‘presumptions’ – essentially assumptions.

These presumptions distinguish primarily between

agreements made in a domestic or social context on the one
hand and agreements made in a commercial (or business)
context on the other. Generally, agreements made in a social
or domestic context can be seen in many cases to be based
on social or family relations; where they are based on purely
social or family interactions it does seem reasonable to
assume that the parties do not have an intention to involve
the law. For example, a husband agrees to take his wife to
dinner or to buy her a piece of jewellery; a group of friends
agree to go to the cinema together; or, a son agrees to wash
his mother’s car.

On the other hand, agreements made in pursuant of

business relations or activities can be seen, reasonably, as
intended to be serious and are supposed, reasonably, to be
intended to have legal consequences.

18
Importantly, the presumptions that English law uses in the
different contexts (domestic or social and business or
commercial) are ‘rebuttable’; this means that they can be
‘contradicted’, i.e., proof may be shown that the parties have
a different intention from the relevant presumption.

2.2.1 Domestic or social agreements

In general, agreements made in a domestic or social context

are presumed not to be intended to create legal relations, i.e.,
they are presumed as not intended to have legal
consequences.

In Balfour v Balfour [1919] 2 KB 571, a husband agreed to

pay his wife £30 per month; the wife agreed not to ask for
more maintenance; it was held that this was a domestic
agreement and it was not enforceable.

In Jones v Padavatton [1969] 1 WLR 328, a mother agreed

to buy a house for her daughter to live in; later, the mother
tried to evict the daughter from the house; the Court of
Appeal held by 2-1 majority that the agreement was not
intended to have legal effect; the judge who ‘dissented’ held
that the agreement was intended to have legal effect but that
the mother was still entitled to evict the daughter.

The disagreement among the judges in Jones v Padavatton

already shows us an indication that in some cases the mere
fact that an agreement was made in a social or family context
may not be strong enough to regard the agreement as not
being one that the parties intended to have legal
consequences.

Importantly, the presumption that an agreement made in a

social or domestic context is not intended to have legal
consequences is ‘rebuttable’. This means that evidence may
be introduced in a particular case to overcome the
assumption and to prove that a domestic or social agreement
is indeed intended to have legal consequences and to be

19
enforceable at law; see e.g. Simpkins v Pays [1955] 1 WLR
975.

In Merritt v Merritt [1970] 1 WLR 1211 a husband agreed to

pay his wife £40 per month; the wife was to pay the mortgage
on their house from the money; the husband also agreed
that, later, he would transfer the house to the wife; held: the
agreement was intended to create legal relations. Lord
Denning MR said:

‘… domestic arrangements are ordinarily not intended

to create legal relations. It is altogether different when
the parties are not living in amity but are separated, or
about to separate. They then bargain keenly. They do
not rely on honourable undertakings. They want
everything cut and dried. It may safely be presumed
that they intend to create legal relations.’

The interesting case of Radmacher v Granatino [2010]

UKSC 42, [2011] 1 AC 534, dealt with a ‘nuptial agreement’,
i.e. an agreement made by a couple to address how marital
assets are to be dealt with especially in the event of a
divorce. In the case, a divorcing couple had an ante-nuptial
(or ‘pre-nuptial’) agreement, in effect, ‘that neither party was
to derive any interest in or benefit from the property of the
other during the marriage or on its termination.’

The United Kingdom’s Supreme Court held by 8-1 majority

that:
- ‘… it is the Court, and not any prior agreement
between the parties, that will determine the
appropriate ancillary relief when a marriage comes to
an end’
- ‘the old rule that agreements providing for future
separation are contrary to public policy is obsolete and
should be swept away’
- if parties who have made an agreement, whether
ante-nuptial or post-nuptial, decide to live apart, there
is no reason why they should not be entitled to enforce
their agreement;

20
 - ‘The value of a contract is that the court will enforce
it. But in ancillary relief proceedings the court is not
bound to give effect to nuptial agreements, and is
bound to have regard to them, whether or not they are
contracts.’

The court also held by 7-2 majority that the question whether
nuptial agreements (ante or post) are contracts, does not
arise in this case and does not really matter; and, ‘obiter’, that
ante-nuptial agreements are legally enforceable contracts.
Two judges said that they would not express a view on the
question whether nuptial agreements (pre or post) are
contracts.

Notably, one judge (Lady Hale, later President of the UK

Supreme Court) disagreed with aspects of the majority
decision and especially the view, (obiter), that ante-nuptial
agreements are legally enforceable contracts.

2.2.2 Commercial or business agreements

As for agreements made in a commercial or business

context, it is generally presumed that they are intended to
create legal relations and to be enforceable at law; see for a
relatively recent example Edmonds v Lawson & Anor
[2000] QB 501, [2000] EWCA Civ 69.

In Edwards v Skyways Ltd [1964] 1 WLR 349 a company

promised to make ‘ex gratia’ payments to employees made
redundant; the company later refused to pay E; it was held
that the use of the words ‘ex gratia’ did not prevent the
agreement from being an agreement intended to be
enforceable by law.

Also, in J Evans etc v Andrea Merzario Ltd [1976] 1 WLR

1078 the representative of a shipping company verbally
suggested to the shipper that cargo should be carried in
containers; he also assured the shipper that the containers
would be carried below deck; it was held that the assurance

21
that cargo would be carried below deck must be taken to
have intended legal consequences.

Although, it is possible to ‘rebut’ the presumption that

commercial or business agreements are intended to have
legal effect, this is not normally easy to do. The attitude of
the courts is that, although it is possible to introduce evidence
to prove that a business or commercial agreement is not
intended to have legal consequences, such evidence must
be ‘clear’.

In Esso Petroleum Ltd v Commissioners of Customs &

Excise [1976] 1 WLR 1, [1975] UKHL 4, petrol garages gave
away a souvenir coin for every four gallons of fuel sold;
Customs & Excise wanted to charge them tax on the coins;
they claimed that the coins were being sold; held (Court of
Appeal): that the coins were not being sold. Interestingly in
the context of the current discussion on intention to create
legal relations, three judges said, obiter, that there was
intention to create legal relations in respect of the coins; the
two other judges said, obiter, that there was no intention to
create legal relations in respect of the coins

In Rose & Frank Co v J R Crompton Bros [1925] AC 445,

company A appointed company B as sole US agents; the
agreement said that the arrangement was not subject to legal
jurisdiction but that the parties pledged honourably to fulfil it;
it was held that there was no legally binding contract.

In Jones v Vernon Pools Ltd [1938] 2 All ER 626, J said he

sent pools coupons to VPL; VPL said they did not receive
any coupon; on the pools coupons, it stated that sending
coupon in should not give rise to legal relationship; but to be
binding in ‘honour’ only; it was held that legal action could not
be brought in respect of the coupons.

22
 Chapter Three:
Offer

Think About!

1. Is it possible to have a contract without an offer?

2. On 25 September, Tyson Bikes Ltd sent an email to Bedford Cycles Ltd saying:
‘We would like to buy 100 Raleigh bicycles advertised in your latest catalogue;
please advise us of the lowest price for 100 bicycles to be delivered by 6th
October.’ Bedford Cycles Ltd replied same day: ‘Our lowest price for 100 Raleigh
bicycles is £10,000.’ Tyson Bikes Ltd also wrote back the same day and said:
‘Please proceed with delivery of 100 bikes to our warehouse by 6th October.’

Bedford cycles Ltd never delivered any bicycles. Can Tyson Bikes Ltd sue them for
breach of contract?

23
3.1 Introduction

As we learned earlier a contract is an agreement that is

legally enforceable. We have also learned that under the
traditional classical model, for an agreement to be a legally
enforceable contract, it must have certain elements
including, intention to create legal relations, offer,
acceptance, consideration among others. Having previously
studied intention to create legal relations, we now turn to the
part of the contract that is the ‘agreement’.

An ‘agreement’ normally consists of an ‘offer’, and a

matching ‘acceptance’:

Agreement = Offer + Acceptance

An agreement is a ‘meeting of the minds’ (‘consensus ad

idem’); in contract law, this is denoted by the idea that an
offer made by one party will lead to an agreement when it is
met by an acceptance of essentially the exact terms of the
offer.

We will eventually explore the relationship between

acceptance and offer in reaching agreement. In the
meantime, we focus on the ‘offer’ itself to try and ascertain
what exactly it is and what conduct or communication would
amount to an offer. We will also distinguish an offer from
other conduct or communication in business or contract
negotiations that are different from an offer.

24
3.2 What is an ‘Offer’?

An offer is a statement or proposal made by one party to

establish the terms on which that person will enter into a
contract. The important element is that the statement or
proposal involves an intention by that party to enter into a
contractual relationship, if and when the other party duly
accepts the statement or proposal; see e.g. Taylor v Laird
(1856) 56 LJ Ex 239.

In one sense, an offer is said to be a ‘final’ statement of the

terms on which a person will enter into a contract. However,
we have to be careful with the use of the word ‘final’ since,
after all, people modify offers and may make a series of
offers before possibly making a ‘final offer’. The fact that a
subsequent offer is said to be a ‘final’ offer does not mean
that the previous ones were not ‘offers’ and it is in fact
possible that an earlier offer is the one considered to be
accepted eventually; see e.g. Pickford Ltd v Celestica Ltd
[2003] EWCA Civ 1741.

The key point to be established is that the person making a

statement or proposal is ready to enter into an agreement on
the terms of the statement or proposal – as it stands, i.e.,
without modification. In other words, one party says to
another: ‘if you accept these terms as they are now, we have
a contract’.

Another way to express the idea that the person putting

forward a proposal is ready to enter into a contract on the
terms of the proposal is to say that the proposal is a ‘definite’
proposal. This is better than to say it is a ‘final’ statement or
proposal. It is ‘definite’ in the sense that it connotes that the
person putting forward the proposal is certain about it and of
their readiness to enter into a contract on those terms.

Note:
(1) an offer can be made to an individual or to the whole
world; Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256;
see also O’Brien v MGN Ltd [2001] EWCA Civ 1279, [2002]

25
CLC 33; (2) an offer can be made in writing, orally or by
conduct; (3) for an offer to have effect, the person to whom it
is proposed must be aware of it; Taylor v Laird (above).

3.3 Can there be a Contract without an

Offer?

At first, this might seem like an odd question. It seems

straightforward that a contract should involve an offer and an
acceptance.

We will see shortly in following sections that there are

business scenarios in which parties might act or might have
acted as though they are involved in a contract, yet we
cannot find what amounts to an offer as understood in
contract law.

There are some business interactions that have some

similarity or relationship to an offer but that will not in law
amount to an offer. This is going to require us to distinguish
between a proper ‘offer’, on the one hand, and interactions
short of being an offer like inquiries, mere negotiations,
‘invitations to treat’ and so on, on the other.

For the present, our query relates to where the parties have
been engaging with one another, perhaps even performing
obligations to one another, yet we cannot identify an offer in
their communications or interactions. Can they have a legally
enforceable contract?

In Gibson v Manchester City Council [1979] 1 WLR 294,

MCC wrote to G explaining that they may be prepared to sell
the property he occupied to him for £2180; G completed and
returned the relevant form but left the space for the price
blank; he asked for the possibility of a price reduction; MCC
replied that the price could not be changed; G said: ‘carry on
with the purchase as per my application’; MCC later refused
to sell the house to G; held: there was no contract as MCC’s
letter was not an offer and thus not capable of acceptance.

26
Compare Gibson v Manchester City Council with:

Storer v Manchester City Council [1979] 1 WLR 1403

MCC sent to S an ‘Agreement for Sale’ and letter saying: ‘If
you will sign the Agreement and return it, I will send you the
Agreement signed on behalf of the council in exchange’; S
signed the ‘Agreement for Sale’ and returned it; held: there
was a contract. Lord Denning said:

‘In contracts you do not look into the actual intent in a

man's mind. You look to what he said and did. A
contract is formed when there is, to all outward
appearances, a contract. A man cannot get out of a
contract by saying 'I did not intend to contract' if by his
words he has done so...’

Compare also

Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England)

Ltd [1979] 1 WLR 401, [1977] EWCA Civ 9
BM sent to ExC an offer to sell machinery for £75,535; BM
included their ‘standard terms’ with a clause that the price
could increase by up to 20%; ExC placed an order but sent
their own ‘standard terms’ to BM; ExC’s standard terms did
not include any clause for price increase; ExC asked BM to
acknowledge ExC’s standard terms which BM did; held:
there was a contract on ExC’s standard terms, i.e., a contract
with no clause to vary the price. Lord Denning MR said:

‘In many of these cases our traditional analysis of offer,

counter-offer, rejection, acceptance and so forth is out
of date. ... The better way is to look at all the documents
passing between the parties — and glean from them, or
from the conduct of the parties, whether they have
reached agreement on all material points — even
though there may be differences between the forms
and conditions printed on the back of them.’

27
Note: although Lord Denning suggested that maybe in some
cases, there is no need to look for ‘offer’ and ‘acceptance’,
and also that other senior judges think there may be
circumstances when this approach may be acceptable, the
position of English law remains that there must normally be
an offer and an acceptance before a contract can be formed
validly; see Gibson v Manchester City Council (above); G
Percy Trentham Ltd v Archital Luxfer [1993] 1 Lloyd’s Rep
25; Tekdata Interconnections Ltd v Amphenol Ltd [2009]
EWCA Civ 1209, [2010] 1 Lloyd's Rep 357.

3.4 Offer Distinguished from other

Negotiating Communications

It is important to distinguish between an offer on one hand

and some communications during negotiations which do not
have the capacity at law to lead to the conclusion of a
contract on the other.

It is important to be aware that some communications during

negotiations do not meet the requirement to be ‘definite’ for
them to be regarded as an ‘offer’; and if a communication is
short of an offer, there will be no offer to accept and, in most
such cases, there will be no contract.

3.4.1 Offer distinguished from mere inquiry

An inquiry, request for information, or request for price is not

an offer – since it does not follow that the mere request or
enquiry signifies an intention to be bound. Similarly, an
answer to the inquiry or request does not also necessarily
signify an intention to be bound.

In Harvey v Facey [1893] AC 552, H sent a telegram to F

asking: ‘Will you sell us Bumper Hall Pen? Telegraph lowest
cash price-answer paid’; F replied by telegram: ‘Lowest price
for Bumper Hall Pen 900£’; H replied: ‘We agree to buy

28
Bumper Hall Pen for the sum of [900£] asked by you’; held
(Privy Council): there was no contract; H’s first telegram only
asked two questions - whether F was willing to sell, and what
would be lowest price; F’s reply only answered the question
about the price; mere statement of the price at which F was
willing to sell did not mean that F promised to sell.

3.4.2 Offer distinguished from ‘invitation to treat’

An invitation to treat is a general expression of willingness to

enter into a contract; it is not definitive; it is to be seen as an
invitation to another person to consider entering into a
contract. For example, therefore, advertisements are
generally seen as invitations to treat and not as offers.

In Partridge v Crittenden [1968] 1 WLR 1204, the appellant

placed an advertisement in a periodical: ‘Bramblefinch
cocks, Bramblefinch hens 25s each’; he was charged with
unlawfully offering a wild bird for sale; held (QB): the
advertisement was only an invitation to treat; it was not an
offer for sale; thus, the appellant could not be guilty of the
offence.

In Fisher v Bell [1961] 1 QB 394 a shopkeeper who

displayed a flick-knife in a shop window with the tag “Ejector
knife – 4s” was charged with the offence of “offering” a knife
for sale; held (QB): no offence had been committed; a mere
display of goods in a shop window with a price tag is not an
offer for sale, but an invitation to treat.

In similar vein, it was held in Pharmaceutical Society of

Great Britain v Boots Cash Chemists [1953] 1 QB 401 that
the display of goods in a self-service store is not an offer.

In today’s electronic age and the era of e-commerce, a

relatively new way of concluding contracts is by transactions
on or through a website where e-merchants now advertise
and sell a variety of merchandise. Ordinarily, the rule that an
advertisement is merely an invitation to treat and not an offer

29
also applies in respect of ‘web-click’ contracts concluded
over a merchant’s website. Thus, displays and
advertisements of products on a website would ordinarily be
treated as invitations to treat rather than offers. This means
that, ordinarily, where a purchaser on a website makes an
order by selecting desired items through clicks and
‘proceeds’ (mimicking taking items) to the ‘checkout’, the
purchaser is not responding to an offer but to an invitation to
treat; thus it is the purchaser who makes the offer even when
clicking links with such words as ‘buy’ or ‘place order’ or ‘I
accept’.

In spite of the above depiction of the legal nature of website

advertisements in the context of e-commerce contracts,
caution is still required on the part of merchants operating
websites to ensure that the language used in placing
advertisements does not make those advertisements cross
over from being invitations to treat to being offers. Two well
known cases may be used to demonstrate the significance
and potential consequences of making or not making sure
that a website advertisement is an invitation to treat and not
an offer.

‘In one case in the UK, a company (Argos) advertised

television sets on its website mistakenly for £2.99
instead of £299. It was reported that orders to the tune
of £1 million were very quickly placed for television sets
including several (1,700) by one lawyer - astutely or
discreditably? It is not entirely clear how the case was
ultimately resolved; it seems that no legal proceedings
were brought especially with Argos arguing that those
who made the orders must have realised that the
quoted price was a mistake and also that they
themselves had reserved the right to accept orders
placed with them and, accordingly, no contract could be
made until they accepted any such orders. In another
example, this time from the USA, a company (buy.com)
advertised a Hitachi VDU monitor for sale at $165 on its
website. The price should have been $588! 7000 orders
were received but only 143 were in stock. The company

30
 initially insisted it would only honour the first 143 orders
but it had to settle the subsequent class action for
$575,000 with legal bills totaling up to $1m! So e-
merchants beware or caveat e-merchant!’
{’Gbenga Bamodu, ‘Information Communications Technology and
E-Commerce: Challenges and Opportunities for the Nigerian Legal
System and Judiciary’ (2004) Journal of Information Law and
Technology
https://warwick.ac.uk/fac/soc/law/elj/jilt/2004_2/bamodu/#a5}

3.5 Offer in Auction Sales

An auction sale is different from a regular sale; at an

auction, there may be a number of bidders making
bids to buy the item being auctioned or put up for
sale. We need to carefully consider when exactly a
contract is reached during an auction process.

First, an advertisement that an auction will be held is

not in itself an offer. In Harris v Nickerson (1873)
LR 8 QB 286, the defendant advertised in London
that an auction will be held in Suffolk over three days
including some furniture; the claimant travelled to
Suffolk; on the third day of the auction, the furniture
was withdrawn; the claimant sued for loss of time
and expenses; held (QB): there was no contract; the
advertisement was a mere declaration of intention.

At an ‘ordinary’ auction, the auctioneer’s request for

bids is only an invitation to treat; each bid is then an
offer; a contract is formed only when the auctioneer
knocks down the hammer to signify that a particular
bid is accepted (or when he signifies the same thing
in another customary manner); see section 57(2) of
the Sale of Goods Act 1979. In Payne v Cave (1789)
3 TR 148 – C was the highest bidder for a worm-tub
and a pewter worm at an auction, but he withdrew
his bid before the auctioneer knocked down the
hammer; held: there was no contract.

31
In an auction ‘without reserve’, the contract for the
sale and purchase of the item being auctioned is also
only made when the auctioneer knocks down the
hammer for a particular bidder. In this case,
however, the courts have held that there is a second
contract, a collateral contract, that the auctioneer
would sell to the highest bidder. The advertisement
of an auction ‘without reserve’ is an offer; that offer
is accepted by the person who makes the highest
bid; if the auctioneer refuses to sell to the highest
bidder, although there is no main contract of sale, the
auctioneer would be in breach of the collateral
contract.

The case of Heathcote Ball & Co (Commercial

Auctions) Ltd v Barry {also called Barry v Davies
(t/a Heathcote Ball & Co)} [2000] 1 WLR 1962,
[2000] EWCA Civ 235, involved an auction of two
engine analysers ‘without reserve’; the claimant
made the only bid but the auctioneer withdrew the
items because the bid was too low; held: there is a
collateral contract to sell to the highest bidder -
distinct from the actual sale, which would only be
concluded on the fall of the hammer.

Note:

(a) the contract of sale in an auction is between the

[highest] bidder and the owner of the goods; not
between the [highest] bidder and the auctioneer;

(b) however, the collateral contract in a ‘without

reserve’ auction is between the [highest] bidder and
the auctioneer.

32
3.6 Offer and Sales by Tender

An invitation to submit tenders is only an invitation to

negotiate; it is not an offer. Rather, each tender that
is submitted is normally an offer which is open to
acceptance by the party who invited tenders. In
Spencer v Harding (1870) LR 5 CP 561 the
defendant published a circular ‘to offer … for sale by
tender’ the stock in trade of a business; held: this did
not amount to a contractual offer to sell to the highest
bidder but an attempt to find out whether an offer
could be obtained; an invitation to gather tenders.

Exceptionally, an invitation to tender may amount to

an offer. In Harvela Investments Ltd v Royal Trust
Co of Canada [1986] 1 AC 207 the defendants sent
telex messages to two parties requesting them to
submit tenders to buy shares; they also said that
they (i.e. defendants) bound themselves to accept
the highest offer; held (HL): that the defendants’
telex amounted to a unilateral offer, a contractual
offer to sell to the highest bidder.

An invitation to tender may also amount to an offer

at least to consider a tender submitted. In
Blackpool and Fylde Aero Club Ltd v Blackpool
Borough Council [1990] WLR 1195, [1990] EWCA
Civ 13, a council invited tenders to operate pleasure
flights from the local airport; the claimant’s bid was
submitted by the deadline but the defendant
mistakenly thought it had arrived late and refused to
consider it; held: the defendant was in breach of
contract; although the defendant was not obliged to
accept any of the tenders, the invitation to tender
was an offer to at least consider any properly
submitted tender; that the offer was accepted by any
person who submitted a tender correctly, thereby
creating a unilateral contract.

33
3.7 Termination of Offer

An offer may be terminated in a number of ways including:

 Withdrawal
 Rejection
 Lapse of Time
 Upon the Occurrence of a Specific Event
 Death of the Offeror or Offeree

Termination of offer by withdrawal: in general, an offer may

be withdrawn at any time before acceptance.

For an offer to be validly terminated by withdrawal, notice of

the withdrawal must actually reach the offeree; and before
acceptance. The ‘postal rule’ does not apply to withdrawal or
revocation of an offer; we will study ‘the postal rule’ later. In
Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD
344 the defendants posted a letter of offer (from Cardiff to
New York) on 1 October; the claimant received the letter on
11 October and immediately accepted by telegram; the
defendant also posted a withdrawal - on 8 October; but it did
not reach the claimant until 20 October; held: a binding
contract was made on 11 October; revocation is not effective
until it is communicated - in this case, on 20 October.

Although a notice of withdrawal must actually reach the

offeree, it may be communicated by a third party. In
Dickinson v Dodds (1876) 2 Ch D 463, on Wednesday, the
defendant offered to sell his house to the claimant; he
promised to leave the offer ‘over’ till 9AM on Friday; the
claimant was told by another person on Thursday that the
defendant was planning to sell the house to someone else;
the claimant left a formal acceptance for the defendant the
same day but the defendant did not see it; at 7AM on Friday,
the claimant handed an ‘acceptance’ to the defendant but the
house had been sold by then; held: there was no contract as
the offer had been withdrawn; there is no reason to say that
there must be an express and actual withdrawal of the offer.

34
Note: if an offeree wants an offeror to keep an offer open for
some time, the offeree must give something in return for the
offeror’s promise to keep the offer open; otherwise, the
offeror will be free to cancel the offer; this is called ‘buying
the option’; see e.g. Routledge v Grant (1828) 4 Bing 653.

Termination of offer by Rejection: if an offeree rejects an

offer, the offer is terminated; if the offeree changes his mind
and later wishes to accept the offer that he had rejected, the
offeror is not bound to agree.

Also, if an offeree does not accept the exact terms of the offer
but proposes a change to the terms, that would be seen as a
‘counter-offer’ and as a rejection of the original offer; again,
if the offeree changes his mind and later wishes to accept the
offer that he had rejected, the offeror is not bound to agree.
In Hyde v Wrench 49 ER 132, [1840] EWHC Ch J90, the
defendant offered to sell his farm to the claimant for £1000;
the claimant replied by offering to buy it for £950 which the
defendant refused; later, the claimant sent a letter of
‘acceptance’ to buy the farm for the original £1000 but the
defendant refused to sell; held: there was no contract; the
initial response was a counter-offer, and had put an end to
the offer.

Termination of offer by lapse of time: if an offeree does not

accept an offer within a reasonable time or within a time
stipulated by the offeror, the offer will terminate due to lapse
of time.

Termination of an offer upon the occurrence of a specific

event: if an offeror stipulates that the offeree must accept an
offer by the time a certain event happens, the offer will be
terminated if it is not accepted by the time the event happens;
e.g. ‘this offer must be accepted before the next new moon’;
if the offer is not accepted by the next new moon, it will
terminate at that time.

35
Termination of an offer by the death of the offeror or offeree:
if the offeror dies before the offer is accepted, then the offer
will normally terminate – especially if the offeree becomes
aware of the death before accepting the offer. This is
particularly true of offers involving personal performance by
the offeror; e.g. a musician who offers to perform at an event
dies before the date of the event. In some exceptional cases,
an offer may be binding on the estate of a dead offeror; see
further Bradbury v Morgan [1862] 158 ER 877.

If the offeree dies, again the offer terminates; it will be

similarly exceptional for the estate of a deceased offeree to
be able to accept an offer made to the offeree who had died.

36
 Chapter Four:
Acceptance

Think About!

1. Can there be a contract if an offeree tries to accept an offer but suggests that some
changes should be made to the offer?

2. On 25 September, Tyson Bikes Ltd sent an email to Bedford Cycles Ltd saying: ‘We
hereby offer to buy 100 Raleigh bicycles advertised in your latest catalogue at £100
each.’ Before Bedford Cycles had time to reply by email, their computer network
went down and was not repaired until five days later. In the evening of the same day
(25 September), Bedford Cycles Ltd sent a fax to Tyson Bikes Ltd and accepted the
offer to buy the bicycles. By this time the office of Tyson Bikes Ltd was closed for the
day; on the morning of the next day, the cleaner of Tyson Bikes Ltd’s offices
accidentally threw away the acceptance fax among other rubbish; therefore, Tyson
bikes Ltd never saw the fax of acceptance. Tyson Bikes Ltd bought bicycles from
another supplier.

Bedford Cycles Ltd is insisting that Tyson Bikes Ltd must pay for the bicycles that
they had agreed to sell to them.

37
4.1 Introduction

We have learned that a contract is an agreement that is

regarded as having legal consequences. We also learned
that an ‘agreement’ normally consists of an ‘offer’, and a
matching ‘acceptance’; Agreement = Offer + Acceptance.
After examining offer in the last chapter, we now focus on
‘acceptance’ and explore the relationship between
acceptance and offer in reaching agreement.

4.2 What is an ‘Acceptance’?

Acceptance is usually described as a final and unqualified

expression of assent to the terms of an offer. It must be both
final and unqualified.

Acceptance can be made in writing, orally or by conduct.

Indeed, as we have learned, even a contract as a whole may
be made in writing, orally or by conduct. We should recall that
in English law, only a few types of contract are legally
required to be made in writing while some, fewer still, are also
required to be made by ‘deed’ (‘specialty contracts’).

Importantly, acceptance of an offer by the person to whom

the offer is made (‘offeree’) must be communicated to the
person who made the offer (‘offeror’). The acceptance must
be an expression of assent and not merely, for example, a
mere acknowledgment or an expression of gratitude;
Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd [2016]
EWHC 2509 (TCC).

Generally, only a person to whom an offer is made, i.e., only

the offeree, can accept an offer; Boulton v Jones (1857) 2
H and N 564, (1857) 157 ER 232. On the other hand, as we
saw in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256,
an offer can of course be made to the whole world, in which
case anyone can accept such an offer by complying with its
terms. We will consider this point further when we discuss
‘unilateral contracts’ below.

38
Importantly, where a person performs an action which meets
the terms required under an offer but the person was not
aware of the offer at a relevant time, or did not take it into
account, it is not certain that such ignorant compliance will
be sufficient to constitute acceptance. In the English case of
Gibbons v Proctor (also known as Gibson v Proctor)
(1891) 64 LT 594, 55 JP 616, a reward was offered for
supplying information, leading to the arrest of a criminal, to a
police superintendent; a police officer gave information to a
colleague to pass on; he was not aware of the reward at the
time but became aware before the information was passed
to the superintendent; held: the police officer could claim the
reward.

A point worth noting in relation to the decision in Gibbons v

Proctor is that where the person claiming a reward in such
a circumstance was indeed aware of the offer, the fact that
they complied with the terms of the offer for a different motive
would not ordinarily prevent them from being seen as having
accepted the offer; Williams v Carwardine (1833) 5 Car &
P 566, 172 ER 1101, [1833] EWHC KB J44.

Gibbons v Proctor may be contrasted with the Australian

case of R v Clarke (1927) 40 CLR 227 where a reward was
offered for information leading to the arrest of a murderer; C
initially covered up for the murderer but later supplied the
information when he was on trial himself for being an
accessory; he gave the information in order to clear himself
and it was not clear whether he was thinking of the reward at
the time; held he could not claim the reward.

4.2.1 Mere silence does not constitute

acceptance

The requirement that the acceptance of an offer must be

communicated helps to place in context the rule in English
law that silence will not constitute acceptance. Thus, a
mental assent to an offer will not be sufficient to amount to
acceptance if it is not communicated to the offeror. In

39
Felthouse v Bindley [1862] EWHC CP J35, the claimant
negotiated to buy a horse from his nephew; he wrote to the
nephew: ‘if I hear no more about him, I consider the horse
mine at £30 15s.’; the nephew did not reply but told the
auctioneer that was conducting the sale for him not to sell the
horse, as it was already sold; by mistake, the
defendant/auctioneer sold the horse to someone else and
the claimant sued the auctioneer for ‘conversion’; he had to
prove that the horse was already his at the time of its sale by
the auctioneer; held: that there was no contract between the
nephew and the uncle; the horse had not been sold to the
claimant; although the nephew intended in his own mind that
the claimant should have the horse, he had not
communicated his intention and had not done anything to
bind himself; the claimant’s offer stood as an open offer
which the claimant himself might have retracted at any time.

Note: it is possible that the courts might recognise

acceptance by silence where the offeree himself suggests
that his silence could be taken as acceptance; this is
suggested by obiter dictum in Re Selectmove Ltd [1995] 1
WLR 474, [1993] EWCA Civ 8.

4.2.2 Acceptance by conduct

In some cases, even though an offeree has not spoken or

written to express acceptance of an offer, the courts may find
that he did indicate acceptance of the offer by his conduct. In
Brogden v Metropolitan Railway Company (1877) 2 App
Cas 666, B had supplied M with coal for many years though
no formal agreement was signed; B suggested a written
contract and M sent terms of agreement to B; B inserted the
name of an arbitrator, signed & returned the agreement; M’s
manager put the agreement in his desk where it stayed for
two years; M ordered and received coal on the basis of
arrangements in the documents; when a dispute arose, B
denied that there was a contract; held: inserting the
arbitrator’s name by B amounted to a counter-offer; that
acceptance (of the counter-offer) by conduct could be

40
inferred from the parties’ behaviour and that a valid contract
was completed either when M first ordered coal following
receipt of the agreement or, at latest, when B supplied the
first lot of coal thereafter.

Similarly, in Pickford Ltd v Celestica Ltd [2003] EWCA Civ

1741 the offeror sent an offer to the offeree but the latter
made a counter-offer; the offeror went on to perform
obligations under the agreement being negotiated; held:
performance of the obligations by the offeror amounted to an
acceptance of the counter offer; see also Claxton
Engineering Services Ltd v TXM Olaj-Es Gazkutato KFT
[2010] EWHC 2567 (Comm), [2011] 1 Lloyd's Rep 252.
Additionally, according to Harvey v Johnson (1848) 6 CB
305, an offer to buy goods can be accepted by supplying the
goods.

The principle that the acceptance of an offer may be inferred

from an offeree’s conduct can also be placed against the
background that it is possible under English law for an offeror
to waive the requirement that acceptance should be
communicated; see Taylor v Allon [1966] 1 QB 304 and Day
Morris Associates v Voyce & Anor [2003] EWCA Civ 189
and of course Carlill v Carbolic Smoke Ball Co.
Nevertheless, the courts will only allow an inference of
acceptance by conduct if it is clear that the conduct of the
offeree was with the intention, ascertained objectively, to
accept the offer; Taylor v Allon (above).

4.2.3 Acceptance ‘subject to contract’ and

‘provisional agreements’

This tends to happen in relation to the sale of houses, but it

can also happen in other commercial contexts. It usually
means that although the parties have reached an agreement,
they want to wait until a written or even ‘formal’ contract is
signed by both parties before the agreement is binding. If the
language used is careful enough an agreement expressed to

41
be subject to contract will not itself be legally binding
normally.

In Eccles v Bryant (1948) Ch 93, the seller of a house

agreed to sell the house to the claimant ‘subject to contract’;
he later changed his mind and said he was selling to
someone else; held: the agreement was not binding until the
contract was signed by both parties and exchanged.

If the language used to seek to delay when an agreement is

to take legal effect is not careful enough, the result may be
that the parties had actually entered into a legally binding
agreement. For example, an agreement described as a
‘provisional agreement’ may actually be legally binding, if the
court is satisfied that the language used indicated that the
parties wanted to be bound immediately. In Branca v
Cobarro [1947] KB 854, one party forwarded ‘a provisional
agreement until a fully legalised agreement drawn up by a
solicitor …’; held: a binding contract had been reached.
Additionally, an agreement that is subject to a proper signed
document may be regarded as having become binding if one
party is considered to have accepted the offer in the
agreement by subsequent conduct; Reveille Independent
LLC v Anotech International (UK) Ltd [2016] EWCA Civ
443.

4.2.4 Acceptance distinguished from counter-

offer: the ‘mirror-image’ rule

First, acceptance or even a purported acceptance is a

response to an offer. Accordingly, where two parties each
make an offer on exactly the same terms to one another by
coincidence, neither of the offers is an acceptance; rather
they are known as cross-offers. In the absence of anything
more than the two offers, i.e. unless one of the two offers is
accepted, there will be no contract; Tinn v Hoffman [1873]
29 LT 271.

42
For an acceptance to be valid it must be an unqualified
expression of assent. This means that it must accept the
precise terms of the offer. If a so-called ‘acceptance’ makes
a change to the terms of the offer, it will not be a valid
acceptance; rather, it would be a counter-offer. Unless, the
counter-offer itself is accepted, i.e., then in turn matched by
an acceptance, there will be no contract. This is reflected in
a case that we came across earlier: Hyde v Wrench 49 ER
132, [1840] EWHC Ch J90.

Hyde v Wrench
Defendant offered to sell his farm to claimant for £1000;
claimant replied by offering to buy it for £950; defendant
refused; later, claimant sent a letter of ‘acceptance’ to
buy the farm for the original £1000; the defendant
refused to sell; held: there was no contract; the initial
response was a counter-offer and had put an end to the
offer.

4.2.5 ‘The battle of the forms’

This refers to a situation that arises because many

businesses prefer to use their own ‘standard forms’ or
‘standard terms’ when they enter into a contract.

In some circumstances, each of the parties negotiating a

contract suggests that their own standard form should be
used for the contract. The result may be that there is no
contract at all; this is because if the two forms differ, then the
suggestion of each party’s form would mean there is no
acceptance but an offer and a counter-offer and so on; see
e.g. British Road Services Limited v Arthur Crutchley &
Co Limited [1968] 1 All ER 811.

In some cases, a contract may come into existence on the

standard terms of the party who puts their standard terms in

43
last; this is sometimes called ‘the last shot’ rule; see e.g.
Tekdata Interconnections Ltd v Amphenol Ltd [2009]
EWCA Civ 1209, [2010] 1 Lloyd's Rep 357; British Road
Services Limited v Arthur Crutchley & Co Limited
(above).

In some other cases, however, one party may agree to the

other’s standard form without realising it! In Butler Machine
Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 WLR
401, [1977] EWCA Civ 9, the sellers of a machine suggested
to the buyers that the contract should be on the sellers’ form;
the sellers’ form contained a clause that the price of the
machine could increase by the time it was delivered; the
buyers placed the order but attached their own form; the
buyers asked the seller to sign and acknowledge the buyers’
form; the buyers’ form did not include a clause to increase
the price of the machine; the sellers signed the buyers’ form:
held there was a contract; on the buyers’ terms; without price
increase.

4.2.6 Mere request for information or

clarification is not a counter-offer

If an offeree simply requests information or clarification after

receiving an offer, that would not be a counter-offer; the
offeree would still be able to accept the offer within the time
allowed. In Stevenson, Jacques & Co v McLean (1880) 5
QBD 346, the defendants offered to sell iron to the claimants
at lowest price of 40s per ton and to keep the offer open till
Monday; on Monday morning, the claimants sent a telegram:
‘please wire whether you would accept 40 for delivery over
two months …’; the defendants did not reply but later the
same day the claimants sent a telegram accepting the
defendants’ offer; but the defendants had already sold the
iron to a third party; held (Lush J): that the claimants’ first
telegram was merely an inquiry and not a counter-offer; it
was an inquiry that should have been answered and not
treated as a rejection; that the defendants’ attempted
revocation of the offer, after selling the iron to a third party,

44
was ineffective because it only came to the claimants’ notice
after the claimant had already accepted the offer; and that,
accordingly, the claimants were entitled to damages for
breach of contract.

4.3 Acceptance Must Be Communicated

Generally, acceptance must be communicated by the offeree

to the offeror. One exception is ‘unilateral contracts’ where
acceptance takes the form of performing an action – as we
saw in Carlill v Carbolic Smoke Ball Company. We have
already seen that acceptance may occur as a result of the
conduct of the offeree which means that it does not
necessarily have to be written or expressed orally. For this
reason, it is indeed possible for an offeror to waive the need
for communication of acceptance; Day Morris Associates v
Voyce & Anor [2003] EWCA Civ 189; Taylor v Allon [1966]
1 QB 304.

In relation to the requirement for communication of

acceptance, the general rule is that acceptance is only
effective when it is brought to the attention of the offeror. In
Entores v Miles Far East Corporation [1955] 2 QB 327,
[1955] EWCA Civ 3, Lord Denning said that if an oral
statement of acceptance is drowned out by an aircraft flying
overhead, the offeree must repeat the acceptance; if the
telephone line goes dead during a phone conversation in
which an acceptance was being made, the offeree must
repeat the acceptance.

4.3.1 Prescribed method of acceptance

If the offeror prescribes a method for acceptance, as a

general rule the offeree must comply with the prescribed
method; otherwise there will be no contract. If the method
prescribed by the offeror is not mandatory, any other method
of acceptance that is no less advantageous to the offeror
may be sufficient. In Manchester Diocesan Council for
45
Education v Commercial & General Investments Ltd
[1970] 1 WLR 241 it was held that the posting of an
acceptance of a tender to the defendants’ surveyors’ address
was sufficient even though the tender form stated that such
acceptance would be posted to the address given in the
tender.

4.3.2 The ‘postal rule’

If the post is the agreed method or a proper method of

communicating acceptance, the acceptance is complete
when the letter of acceptance is duly posted! This rule known
as the ‘postal rule’, which applies mainly now in respect of
acceptance by letter (post), was also applied in relation to
acceptance by telegram; Bruner v Moore [1904] 1 Ch 305;
Cowan v O’Connor (1888) 20 QBD 640; Byrne & Co v
Leon Van Tienhoven and Co (1880) 5 CPD.

In Henthorn v Fraser [1892] 2 Ch 27 Lord Herschell said:

‘Where the circumstances are such that it must have

been within the contemplation of the parties that,
according to ordinary usages of mankind, the post
might be used as a means of communicating the
acceptance of an offer, the acceptance is complete as
soon as it is posted.’

In Adams v Lindsell (1818) 1 B & Ald 681, 106 ER 250,

[1818] EWHC KB J59, the defendants wrote to the claimants
on 2nd September offering to sell some wool; they expected
an answer by 7th September; the claimants received the
offer on 5th September and posted their acceptance the
same day; on 8th September, the defendants sold the wool
to a 3rd party; the claimants’ acceptance reached the
defendants on 9th September; held: the defendants were
liable to the claimants for breach of contract; that a contract
had come into existence on 5th September when the
claimants posted their acceptance.

46
The postal rule can appear to be quite drastic. For example,
if the post is the proper method for communicating
acceptance, the acceptance is valid and the contract is made
when the letter of acceptance is posted – even if the letter
never arrives. It seems even that an attempt by a person who
had validly posted an acceptance to revoke it via instant
means, such as the telephone, before it reaches its
destination will not be successful; cf. Scottish case of
Dunmore v Alexander (1830) 9 Shaw 190.

In Household Fire and Carriage Accident Insurance Co

(Limited) v Grant (1879) 4 Ex D 216 the defendant applied
for shares in the claimant company; the claimant allotted the
shares to the defendant and posted the letter of notice to him;
the defendant never received the letter. It was held by the
majority of the court (Thesiger & Baggally LJJ) that there was
a valid contract; acceptance was complete when the letter of
allotment was posted, and it was irrelevant that it was never
received by the defendant. In a dissenting judgment,
Bramwell LJ said that there is no reason to the rule and that
it is arbitrary.

It should be noted that even where the post is the proper

method of communicating acceptance, the rule will be
displaced if the letter of acceptance is not duly posted – for
example, if it is not addressed correctly and is sent to the
wrong address; see e.g. LJ Korbetis v Transgrain
Shipping BV [2005] EWHC 1345 (QB).

It is also possible to avoid the postal rule by insisting that the

letter of acceptance must in fact reach the offeror. In Holwell
Securities Ltd v Hughes [1974] 1 WLR 155 the defendants
granted an option to the claimants to purchase some
property; the option was ‘exercisable by notice in writing …
within six months’. Within the time, the claimants wrote to
give notice that they wanted to exercise the option but the
letter never reached the defendants; held (Russell LJ): that
the language used should be taken to expressly assert that
the ordinary/normal rule requiring actual communication was
to apply; the language was not consistent with the postal rule.

47
Lawton LJ, concurring, said that the postal rule does not
apply in all cases where both parties expect the post to be
used for acceptance; that the postal rule does not apply,
when the express terms of the offer specify that acceptance
must reach the offeror; that the postal rule probably does not
apply if its application would produce manifest inconvenience
and absurdity.

4.3.3 Instantaneous means of communication:

telex & telefax (telefacsimile) messages

The postal rule does not apply in relation to traditional

instantaneous means of telecommunications like the telefax.
In relation to these, acceptance is communicated when it is
‘received’ by the offeror. This is sometimes referred to as
either the ‘receipt rule’ or the ‘communication rule’.

In Entores v Miles Far East Corporation [1955] 2 QB 327

an English company received an acceptance sent by telex
from a Dutch company; it was held that the contract was
made in England since the telex of acceptance was received
in England. Similarly, in Brinkibon Ltd v Stahag Stahl und
Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 a
telex of acceptance was sent from London to Vienna and it
was held that the contract was made in Vienna where the
acceptance was received.

A number of natural questions arise in relation to the

communication of acceptance by instantaneous
communication methods: what if the acceptance was not
seen or ‘received’ immediately, for example, it arrives out of
office hours? Or what if there is an error or default at the
recipient’s end? Or what if the machine is operated by 3rd
parties etc? In Brinkibon Ltd v Stahag Stahl etc Lord
Wilberforce said (obiter): ‘No universal rule can cover all such
cases; they must be resolved by reference to the intentions
of the parties, by sound business practice and in some cases
by a judgment where the risk should lie ….’ Compare also,

48
Apple Corps Ltd v Apple Computer Inc [2004] EWHC 768
(Ch).

If a fax of acceptance is sent to the wrong address, in which

case it would not be ‘received’ by the intended recipient
offeror, there will not be communication of acceptance; LJ
Korbetis v Transgrain Shipping BV [2005] EWHC 1345
(QB). A telex notice sent and delivered during office hours
would be regarded as ‘received’ when it was sent and
delivered even if it is not seen by the recipient until the next
day; Tenax Steamship Co v Owners of the Motor Vessel
Brimnes (The Brimnes) [1975] QB 929, [1974] EWCA Civ
15. Conversely in Mondial Shipping v Astarte Shipping
[1995] CLC 1011 a telex notice that arrived outside office
hours was not regarded as ‘received’ until the opening of
business the next working day.

4.3.4 Electronic mail and Internet contracts

With the advent of electronic contracting on information

communications technology platforms, an interesting issue in
contract law has been about the rule to apply to the
communication of acceptance in respect of contracts made
on such platforms. For example, when an offeree sends an
email to accept an offer, is the acceptance communicated
and effective when the email is sent or is it effective when it
is received at the offeror’s end. In other words, does the
postal rule apply to communication of acceptance by email
as with letters or is it the receipt rule that applies as with
telexes and telefaxes?

There are arguments for both sides of the debate, i.e., in

favour of either of the postal rule or the receipt rule. It is
important to bear in mind that the postal rule is a particular
common law peculiarity; as Blair J noted in Thomas v BPE
Solicitors [2010] EWHC 306 at [86]: ‘The "postal rule" is an
anomalous exception to the general rule, which is limited to
its particular circumstances’. Further, even in English law the
postal rule can be and is often easily circumvented. While

49
there is no definitive answer as yet on the issue it seems that
it would make more sense if a version of the receipt rule
prevails in the long run; see further generally Thomas v BPE
Solicitors (above).

Web-click contracts, where a contract is made on a

merchant’s website, can be even more complicated in terms
of legal analysis. In this case, a question that even precedes
that of when acceptance is communicated is that of who is in
fact making an acceptance. In other words, who is the offeror
in a website contract and who is the offeree making an
acceptance?

The trend of both commercial practice and the law is

effectively to treat the consumer (purchaser) as the offeror
and the merchant as the offeree who has to accept the
consumer’s offer for there to be a contract. The trend of the
law is also to require the merchant to acknowledge an order
(effectively, ‘offer’) made by the consumer. Again, this works
in favour of the recognition of the receipt rule for the
communication of acceptance in respect such contracts; see
also the Singapore case of Chwee Kin Keong v
Digilandmall.com Pte Ltd [2004] SLR (R) 594.

4.4 The Relationship Between Acceptance

and the Revocation of an Offer

Consider

Abdel challenged Saood to walk from Cairo to Alexandria.

Abdel promised that if Saood walks all the way from Cairo to
Alexandria, Abdel will pay Saood 100,000 LE. On Sunday,
Saood started walking from Cairo to Alexandria; by Friday
morning, he was only 20 kilometres from reaching Alexandria;
then Abdel telephoned Saood and said: ‘Look, I am
withdrawing my promise to pay you 100,000 LE if you walk
from Cairo to Alexandria; so, don’t bother to do the walk or to
complete it’!

50
4.4.1 General relationship

We have learned that an agreement consists of an offer and

a matching acceptance. We have also learned that,
generally, both an offer and an acceptance must be
communicated.

Further, we learned that one of the ways in which an offer

can be terminated is by revocation or withdrawal of the offer.
An offeror can withdraw his offer – as long as he does so
before the offeree communicates his acceptance. As long as
the offer is withdrawn before acceptance, the offeror will not
be bound in contract by a subsequent purported acceptance;
Dickinson v Dodds (1876) 2 Ch D 463. If on the other hand,
the acceptance is communicated in fact or by law before an
attempted revocation or withdrawal, the situation would be
treated that a contract has come into existence; Byrne v Van
Tienhoven (1880) 5 CPD 344.

4.4.2 Acceptance and Revocation in Unilateral

Contracts

Although we noted that acceptance must generally be

communicated, we learned that there is an exception in the
case of unilateral contracts. In unilateral contracts,
acceptance is done by performing the act or task required by
the offer.

As we saw from the case of Carlill v Carbolic Smoke Ball

Co, the offeree making an acceptance by performing the
action required in the offer does not even have to notify the
offeror that s/he has begun performing the required action.

In this section, we focus on when an offeror can withdraw the

offer in instances of unilateral contracts and we ask the
question: when can an offer be revoked in a unilateral
contract - especially considering a situation where the offeree
had already started the act of acceptance?

51
The traditional legal position starts with the premise that
there must be full performance of the action required under
the offer before the acceptance is complete.

According to Brett J in Great Northern Railway Co v

Witham (1873) LR 9 CP 16, 19: if A offers B £100 to walk to
York, A could revoke at any time before B reached York. In
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, an estate
agent was engaged by a principal to find buyers for 2
cinemas; the agent did find prospective buyers; but the
principal refused to sell to the buyers; it was held that the
agent was not entitled to the commission of £10,000.

Implication of term not to prevent performance:

The courts have held that in a unilateral contract, there is an

implied term that the offeror should not do anything that
prevents the offeree from completing the act of acceptance.
In Errington v Errington & Woods [1952] 1 KB 290, a father
bought a house in his own name; the house was for his son
and daughter in law; the father paid the deposit for the house;
he then promised his son and daughter in law that if the
couple kept up repayments on the house, the house would
be transferred to them; the couple began the repayments
(though without promising so to the father); when the father
died, his personal representatives tried to revoke the
agreement; it was held that the father’s promise was a
unilateral offer which could not be revoked once the couple
started the repayments.

In Daulia v Four Millbank Nominees Ltd [1978] Ch 231, the

claimant wished to purchase some property; he was told by
the defendants to show up the next day with a banker’s draft
for the deposit and a signed/engrossed contract; that if he
met those requirements, the defendants would exchange
contracts; the claimant did as was required but the
defendants refused to exchange contracts - because they
had found a buyer for a higher price; it was held that this was
a unilateral offer and the claimant had fully performed or
satisfied the condition.

52
Note: Goff LJ said that while an offeror in a unilateral contract
is entitled to require full performance, that must be subject to
the important qualification that there must be an implied
obligation that the offeror will not prevent the performance by
the offeree and this obligation arises as soon as the offeree
starts to perform.

53
54
 Chapter Five:
Certainty of Terms

Think About!

1. Doska Car Manufacturers Ltd agreed to supply 20 units of their new model Turbo GT
Racer cars to Karsher El Ltd every three months; the parties said that the price to be paid
for the cars will be agreed whenever a delivery is due.

Is there a valid contract between the parties?

2. The manager of Al Aratabi Restaurant of El Sherouk telephoned El Batal Stores of

Madinaty and asked El Batal to supply 20 boxes of bottled water. No price was mentioned
in the telephone conversation; El Batal supplied the water.

(a) Is there a contract between the parties at all?

(b) If there is a contract what price is Al Aratabi supposed to pay for the water?

55
5.1 Introduction

We have learned that an agreement consists of an offer and

a matching acceptance. The agreement is the back-bone of
the contract (in addition to other elements including intention
to create legal relations) and, accordingly, the fact of
agreement has to be clear. In addition, what the parties have
agreed also generally have to be clear.

What the parties have agreed, that is the respective rights

and obligations under the contract as well as other relevant
provisions, are the terms of the contract. This chapter
focuses on the requirement in English law that the terms of
the contract have to be certain – otherwise the courts might
find the (supposed) contract to be not binding and
unenforceable.

We must remember that courts do not make agreements for

the parties; rather, the parties themselves make their own
agreement. Accordingly, the courts require that the parties’
agreement must be expressed in a manner that is sufficiently
certain. On the other hand, the courts are generally reluctant
to hold that there is no contract - simply because there is
some uncertainty. This is reflected in a statement of the trial
judge approved by Cohen LJ (with agreement of the two
other members of the Court of Appeal) in British Bank for
Foreign Trade Ltd v Novinex Ltd [1949] 1 KB 623, 630 that:

‘The principle to be deduced from the cases is that if

there is an essential term which has yet to be agreed
and there is no express or implied provision for its
solution, the result in point of law is that there is no
binding contract. In seeing whether there is an implied
provision for its solution, however, there is a difference
between an arrangement which is wholly executory on
both sides, and one which has been executed on one
side or the other. In the ordinary way, if there is an
arrangement to supply goods at a price 'to be agreed,'
or to perform services on terms 'to be agreed,' then
although, while the matter is still executory, there may

56
 be no binding contract, nevertheless, if it is executed on
one side, that is if the one does his part without having
come to an agreement as to the price or the terms, then
the law will say that there is necessarily implied, from
the conduct of the parties, a contract that, in default of
agreement, a reasonable sum is to be paid.’

5.2 The General Rule

As expressed, for example, by Viscount Maugham in G

Scammell and Nephew Ltd v HC&JG Ouston [1941] 1 AC
251, the general rule is that the parties must express
themselves in such a manner that their meaning can be
determined with a reasonable degree of certainty – otherwise
consensus ad idem (i.e. ‘meeting of the minds’) would be a
matter of mere conjecture, though the general rule applies
somewhat differently in different cases.

As reflected in Viscount Maugham’s statement, the

application of the general rule depends on the peculiar
situations of any particular case. For example, in WN Hillas
& Co Ltd v Arcos Ltd [1932] 147 LT 503, [1932] UKHL 2,
Lord Wright noted that: ‘In big forward contracts for future
goods over a period, in general it is impossible to specify in
advance all the details of a complicated performance’.

In the application of the general rule, the courts do not insist

on absolute certainty. Instead, ‘a reasonable degree of
certainty’ is required. However, the requirement of ‘a
reasonable degree of certainty’ could result in apparent
inconsistency – though the facts and decisions of each
particular case have to be considered carefully to appreciate
the context of the decision.

57
Examples

May & Butcher Ltd v The King [1934] 2 KB 17, [1929] UKHL
2
The defendants (essentially the British government)
contracted to sell tentage to the claimants; the price and date
of payment were to be agreed upon from time to time; it was
held that there was no contract because of the lack of
agreement on price and date of payment. Note: see further
the speeches of Lords Buckmaster & Dunedin.

Scammell etc v Ouston (above)

The respondents agreed to buy a new lorry from the
appellants; an old lorry was to be traded in and the balance
of the purchase price was to be paid ‘on hire-purchase’; the
terms of the hire-purchase were never finalised; the
appellants subsequently refused to go ahead with the
arrangement; held: bearing in mind the uncertainty about
what the parties meant by ‘hire-purchase terms’, which 5
judges and counsel were not even able to agree upon, it was
impossible to conclude that a binding contract had been
established between the parties

Compare

Hillas etc v Arcos Ltd (above)

In May 1930, the claimants agreed to buy from the
defendants: ‘22,000 standards of softwood goods of fair
specification’; the agreement stated further, that the
claimants had an ‘option of entering into a contract with the
sellers for the purchase of 100,000 standards for delivery
during 1931’; the claimants tried to rely on the option but the
defendants had already sold out to a 3rd party; the
defendants argued that the option clause was too uncertain
and could not be enforced; held: that the option was binding;
that at the least, the words ‘of softwood goods’ must
inevitably be implied in addition to ‘100,000 standards’; and,
that indeed the words ‘of softwood goods of fair specification’
must necessarily be implied after ‘100,000 standards’.

58
Reluctance to hold that there is no contract:

The last case (Hillas etc v Arcos Ltd) may be cited as an

example that, where possible, the courts will not allow the
mere presence of some uncertainty to hold that there is no
contract. As the courts are reluctant to hold that there is no
contract, they may find ways to hold that an agreement or
clause is not so vague to render the contract invalid; see e.g.
Foley v Classique Coaches Ltd (1943) 2 KB 1. For
example, the courts can use custom or trade usage, to
determine the meaning of a particular phrase.

The courts can also cut out a vague or uncertain clause that
is meaningless and not material; for example, in Nicolene
Ltd v Simmonds [1953] 1 QB 543 the claimant’s statement,
in his acceptance, ‘I assume that … the usual conditions of
acceptance apply’, when there were no ‘usual conditions’,
was held to be meaningless and severable, with the rest of
the agreement remaining valid.

Agreements to negotiate: in general, the courts will treat an

agreement which does not settle issues but leaves them to
be negotiated at some point in the future as not binding.

Courtney & Fairburn Ltd v Tolaini Bros (Hotels) Ltd

[1975] 1 WLR 297
C agreed to find and introduce a financier for a site that T
wanted to develop; in return, T would engage C for
construction work (on 3 projects); C wrote that if financial
arrangements were reached with the financiers (to be
introduced), C would instruct his quantity surveyor to
negotiate fair and reasonable contract sums for the
intended construction work; C introduced a financier and
instructed his surveyor to enter into negotiations for the
construction work; the negotiations broke down; C sued T
and argued that there was an enforceable contract to
engage C as builders/constructors; held: there was no
binding contract; there was no agreement on the price, or
on any method by which the price was to be calculated;

59
 the agreement was only an agreement to ‘negotiate’ fair
and reasonable contract sums; it might have been
different, if they had left the price, to be determined by a
third party, e.g., an arbitrator.

In relation to sale of goods and supply contracts, there are

statutory provisions dealing with circumstances where an
agreement does not make a provision for the price. The tenor
of these provisions is that the purchaser would be required
to pay a reasonable price. For example, section 8 of the Sale
of Goods Act 1979 provides that: the price in a sale contract
may be fixed by the contract, or left to be fixed in a manner
agreed, or determined by course of dealing; but if the price is
not determined in the ways mentioned, the buyer must pay a
reasonable price; and, what is a ‘reasonable price’ is a
question of fact. See also section 15 of the Supply of Goods
and Services Act 1982 and, for consumer contracts, see
section 51 of the Consumer Rights Act 2015.

It is important to note that these provisions will only apply

where the contract is totally silent about the price; OR where
there is a mechanism for fixing the price which is not
dependent upon the parties’ (future) agreement; see also
again May & Butcher Ltd v The King (above).

60
 Chapter Six:
Consideration

Think About!

1. In March, Eggshells engaged Windowbulls to fit windows (at a total cost of £50,000)
on a block of flats that Eggshells were in the course of developing. Eggshells already
had contracts with various tenants by which they had promised the tenants that the
flats would be ready by October. In late August, Windowbulls informed Eggshells that
the flats would not be ready for October because they (Windowbulls) had initially
under-priced the work and unless they had assurance of an extra £20,000 they could
not carry on fitting the windows. Eggshells immediately paid Windowbulls an extra
£10,000 and promised to pay the remaining £10,000 if the work was completed on
time. Windowbulls managed to complete the work on time but Eggshells is now
refusing to pay the remaining £10,000. Eggshells are also thinking of claiming back
the extra £10,000 that they already paid to Windowbulls.

2. Youssef is studying law in London and is in his second year. His uncle learned that
in Youssef’s first year, he did not observe the Ramadan discipline because of ‘London
life’; his uncle promised that if he observes Ramadan in his second year in London, the
uncle will pay him £5,000.

Youssef was very disciplined and faithfully observed the Ramadan but his uncle has
now refused to pay him the money.

Youssef plans to sue his uncle.

61
6.1 Introduction

We have learned that for an agreement to amount to a legally

enforceable contract in English law, it must have a number
of classically required elements. We have already studied
some of these, i.e., intention to create legal relations, offer
and acceptance.

In this chapter we are going to study another important

element that is ordinarily required for there to be a valid and
legally enforceable contract in English law; and that is
‘Consideration’.

The word ‘consideration’ in this context is used in a peculiar

manner different from the standard usage of the word in the
general English language. In contract law, the word
‘consideration’ is used in a technical sense to refer to the
mutual benefits that the parties to a contract give to and take
from each other. We will be examining some definitions of
consideration and considering what kind of things amount to
consideration that meets the requirements of English law.

It is useful to note at the onset that a party who wishes to

enforce a contractual promise must show that they provided
consideration. Ordinarily, ‘consideration’ provided by a third
party (i.e. a person who is not a party to the contract) is not
good enough to allow a party to the contract, who had not
themselves provided consideration, to enforce the contract.
This is often represented by the principle that ‘consideration
must move from the promisee’ and is closely related to the
doctrine of privity of contract which we will consider
separately in the next chapter.

On the other hand, it is also helpful to highlight a few

exceptional situations when a contract or an agreement may
be enforced by the courts even when a contract party
seeking to enforce the contract or agreement cannot show
that they provided consideration.

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6.1.1 Some circumstances when a contract can
be enforced without consideration by a
contract party

Contracts made by Deed:

This is the prime example of an agreement that can be

enforced at law even in the absence of consideration. A
contract made by deed is one that is required by law to
comply with a particular form. Historically, this meant that the
contract had to be ‘signed, sealed and delivered’, as we saw
when we discussed deeds in the context of formalities in
chapter one. Presently, in view of statutory modifications to
the requirements, it is sufficient that an agreement or contract
indicates that it is executed as a ‘deed’ in addition to being
signed (and attested) and ‘delivered’.

What gives a contract made by deed the effect that it is

legally enforceable is the fact that the contract is made in the
required form as a deed. Historically, a ‘deed’ was,
considered as a more solemn form of contract than ‘simple
contracts’; remember that simple contracts do not even have
to be in writing as they can be made orally or even implied
from the parties’ conduct.

In view of the solemn manner in which a deed is seen,

promises made in a deed are sometimes referred to as
‘covenants’. A deed is used for example in the sale of houses
and in leases of both ‘real’ (land) property and some types of
‘personal’ (non-land) property such as ships – and it is
common to see some of the promises made in deeds for
such agreements referred to as covenants.

Promissory Estoppel:

This is a doctrine that will be discussed in further detail later

in this chapter during our ‘consideration’ of ‘Consideration’. It
is a doctrine that says, in effect, that in some circumstances
a person who made a promise will not be allowed not to keep

63
that promise simply because the promisee did not provide
consideration – if the promisee has relied on the promise ‘to
his detriment’.

Re-negotiation of a contract and ‘practical advantage or

benefit’:

Again, this is an issue that will be discussed in further detail

later in this chapter; it is a legal principle that says that, in
some circumstances, a person who has agreed to perform a
contract at a given price may be able to legally claim
additional money if it was promised to him by the other party
– even though the promisee has not provided consideration
for the promise of the additional money.

6.1.2 Some Definitions of Consideration

Even in the context of the English law of contract,

‘consideration’ may be defined from different perspectives.

One approach to the definition of consideration may be

referred to as the ‘benefit-detriment’ approach. In essence,
this approach sees consideration as a ‘benefit’ to the
promisee and at the same time a detriment to the promisor.
This means that the promisee is seen as gaining something
while the promisor is seen as losing or giving up something.

In Currie v Misa (1875) LR 10 Ex 153, 162 Lush J said:

‘A valuable consideration, in the sense of the law, may

consist either in some right, interest, profit, or benefit
accruing to one party, or some forbearance, detriment,
loss, or responsibility, given, suffered, or undertaken by
the other ….’

A similar but slightly different way to approach understanding

consideration is to perceive it as the price for which one party
buys the other party’s promise. For either party to be able to

64
enforce the contract they must pay a price (or give
something) in return for the other party’s promise or
obligation.

In Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] AC

847, 855 Lord Dunedin said:

‘An act or forbearance of one party, or the promise

thereof, is the price for which the promise of the other
is bought, and the promise thus given for value is
enforceable.’

We see, therefore, that in contract law consideration

generally refers to giving ‘something for something’ before a
simple contract can be legally enforceable. Where the
situation is that of ‘giving something for nothing’ or ‘giving
nothing for something’ the agreement is ordinarily not likely
to be legally enforceable.

6.1.3 Consideration – Some Distinctions

Executory and Executed Consideration

When the promise or obligation that amounts to

consideration has been performed fully, the consideration is
referred to as ‘executed consideration’. When the promise or
obligation that amounts to consideration is yet to be
performed or is still being performed and not yet concluded,
the consideration is said to be ‘executory’.

In Carlill v Carbolic Smoke Ball Co (which we have come

across earlier) for example, while the claimant bought and
was still using the smoke ball and before she caught
influenza, her consideration was executory; but after she had
bought and used the smoke ball and then contracted
influenza, her consideration became executed – and she
then became entitled to claim the money that was promised
in return.

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Consideration distinguished from ‘Motive’ for a contract

The reason in a person’s mind for making an agreement

does not of itself amount to consideration; it is not a good
enough basis under the law to make the contract
enforceable.

In Thomas v Thomas (1842) 2 QB 851, the deceased

husband of the claimant widow said she should be allowed
to live in their house for the rest of her life but made no
provision for this in his will. The defendant/executor made an
agreement allowing the widow to stay in the house because
he wanted to comply with deceased’s intentions; the
agreement also required the widow to pay £1 towards annual
ground rent; the defendant/executor later tried to evict the
widow; held: motive is not the same thing as consideration;
the motive of the defendant (pious respect for the deceased’s
wishes) formed no part of the consideration; however there
was consideration in terms of the claimant/widow’s promise
to pay £1 towards the annual ground rent.

Compare:

Shadwell v Shadwell (1860) 9 CBNS 159; 142 ER 62

When the claimant got engaged, his uncle promised to pay
him £150 per year during the uncle’s life and until the
claimant’s annual salary as a barrister reached 600 guineas;
there were still some arrears on the payment left upon the
uncle’s death and the claimant sued the executors for
payment; it was held that the uncle’s promise was supported
by consideration and therefore binding and enforceable; that,
though a marriage is in one sense a benefit, going ahead to
marry his fiancée was a loss to the claimant as he may have
made a material change in his position and incurred
pecuniary liabilities; that the marriage was also a benefit to
the uncle derived from the claimant in terms of the uncle’s
interest in the settlement of his nephew.

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Compare also:

Eastwood v Kenyon (1840) 11 Ad & El 438; 113 ER 482

The guardian of a lady borrowed £140 to spend on her
education and improving her prospects; when she came of
age she promised to repay the loan; when she married, her
husband also promised to repay the loan; the guardian sued
the husband for the loan; held: the husband’s promise was
unenforceable as there was no consideration for it (i.e. ‘past
consideration’ is no consideration); that a bare promise
(nudum pactum) not supported by consideration is not
enforceable; that perhaps the husband had a moral duty to
repay the loan but that moral duty could not be converted into
a legal obligation in the absence of consideration. (Note
especially: moral duty, gratuitous promise & ‘past
consideration’)

6.2 What is ‘Good’ Consideration?

In English contract law, good consideration means

something that is of value in the eyes of the law. This means
what the law itself, essentially based on the decisions of the
courts and judges, considers to be of good enough or
‘sufficient’ value for another person’s promise to be legally
binding.

6.2.1 Emotional ties without economic value not

enough

Natural love or affection alone is not sufficient to be accepted

as consideration; see e.g. per Crompton J in Tweddle v
Atkinson (1861) B & S 393, 121 ER 762, [1861] EWHC QB
J57. Similarly, a promise not to pester or bore one’s parents
is not regarded as good consideration. In White v Bluett
(1853) 23 LJ Ex 36 B gave his father a promissory note for
money the father had lent to him; when the father died, his
executors sued B on the promissory note; B argued that the

67
father had promised to excuse B from paying the promissory
note if B would stop complaining about the father’s
distribution of his property among his children. It was held
that B had not provided any consideration for the father’s
promise; that B had no right to complain about his father’s
distribution of the property; that, accordingly, B’s stopping to
complain was not good consideration.

Compare the American case of Hamer v Sidway (1891) 27

NE 256 (NYCA) where an uncle promised to pay his nephew
$5000 if the nephew would refrain from ‘drinking liquor, using
tobacco, swearing and playing cards or billiards for money’
until he turned 21; the nephew complied but the
defendant/executor refused to pay; held: the nephew was
entitled to enforce the promise as he had provided
consideration by restricting his lawful freedom of action. {NB
as this is an American case, it is given only for comparison
and does not represent English law.}

6.2.2 Consideration as ‘something of value’ –

value may be little/trifling!

In the first place, we should remember that it is what the law

considers as of ‘sufficient’ value that matters. On occasion,
the courts have accepted some things as being of value
enough to be consideration even though such things in
themselves are not worth much or are maybe even in
themselves worthless; this depends on particular
circumstances though.

In Chappell & co v Nestlé [1960] AC 87, N offered

gramophone records for sale in return for 1s 6d and 3
wrappers of chocolate bars; it was held that the wrappers,
though of trivial economic value or even worthless in
themselves, were nevertheless part of the consideration.
{Note: it is to be borne in mind that this was in the context of
enforcing an intellectual property right that was based on the
price for which items, gramophone records, were to be sold.}

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Similarly, in Pitt v PHH Asset Management Ltd [1994]
1WLR 327 promises by a potential house buyer who was
about to be ‘gazumped’ not to sue for an injunction, not to
induce the other potential buyer to reduce her bid, and to
exchange contracts within two weeks, in return for an estate
agent’s agreement to sell to him – were held to be good
consideration.

We learn from the foregoing, therefore, that consideration

must be something of ‘sufficient’ value in the eyes of the law.
However, consideration does not have to be ‘adequate’;
there is a mnemonic saying: ‘consideration must be sufficient
but need not be adequate’. We then have to bear in mind that
some types of consideration are regarded as not sufficient in
the eyes of the law; remember White v Bluett that we
considered earlier.

6.2.3 Types of ‘consideration’ not regarded as

‘sufficient’

(a) ‘Past’ Consideration:

This refers to an act that has already been carried out or a

promise that has already been made by one party; such is
not good consideration for a promise made by the other party
afterwards. A useful place to start understanding this legal
principle is to look at two well known cases as examples.

In Roscorla v Thomas (1842) 3 QB 234 the defendant sold

a horse to the claimant; after the sale, the claimant warranted
that the horse was ‘sound and free from any vice’ – which
turned out to be untrue. It was held that the warranty that the
horse was sound and so on was not enforceable because it
was made after the sale and that the sale was now ‘past’
consideration for the promise concerning the soundness of
the horse.

On a similar note, in Re McArdle [1951] Ch 669, a widow

was left the family home in the husband’s will; the house was

69
to pass to the couple’s five children on the widow’s death;
during the widow’s life, one child and his wife lived in the
house with the mother; the wife of the child paid for
improvements to the house; the other four children signed a
document promising to pay the wife of the child £488 “in
consideration of carrying out … improvements to the
property”; the other four children refused to pay the £488
when the widow died. It was held that though the wording of
the document suggested that payment was to be for future
work, the facts showed that the payment was to be for
something that had already been done; that it was therefore
‘past’ consideration and the promise of the other four children
to pay the £488 was not enforceable.

Remember also the case of Eastwood v Kenyon that we

came across earlier.

There are, however, exceptions to the rule that ‘past’

consideration is no consideration. The first relates to an act
carried out before a subsequent promise but at the request
of the promisor.

In Lampleigh v Braithwait (1615) Hobart 105, 80 ER 255,

[1615] EWHC KB J17, B had been convicted of killing X; B
asked L to obtain the King’s pardon for him; L went to
considerable trouble and expense and secured the pardon;
after the pardon was obtained, B promised to pay L £100 but
later refused to pay; held: that B’s promise was enforceable
because the action of L, although performed before B’s
promise, was at B’s request.

On a similar note, in Re Casey’s Patents [1892] 1 Ch 104,

the defendants owned some patents which the claimant
managed for them; the defendants promised in writing to give
the claimant 1/3 interest in the patents in consideration of the
claimant’s services as the manager; later, the defendants
argued that their promise was not binding as it was supported
only by past consideration. It was held that the promise was
enforceable in that the claimant’s services were performed at

70
the defendants’ request and it was intended that the services
were to be paid for.

Note: this case introduced a further pre-condition to the

exception i.e. that, additionally to the act being done at the
promisor’s request, it must have been the parties’
contemplation that the promisee’s action was to be
remunerated/paid for in some way. Furthermore, in Pao on
& ors v Lau Yiu Long & anor [1980] AC 614, [1979] UKPC
17, Lord Scarman said the following:

“the mere existence or recital of a prior request is not

sufficient in itself to convert what is prima facie past
consideration into sufficient consideration in law”;

and also

“An act done before the giving of a promise to make a

payment or to confer some other benefit can sometimes
be consideration for the promise. The act must have
been done at the promisor’s request: the parties must
have understood that the act was to be remunerated
either by a payment or the conferment of a benefit: and
payment, or the conferment of the benefit, must have
been legally enforceable had it been promised in
advance.”

Note: these seem to introduce a further element that the

promised payment or benefit subsequently promised must
have been also legally enforceable if it had been given in
advance.

(b) Performance of a duty imposed by law

The performance of a legal duty by a person who was

already under such a duty will not normally be regarded as
good or sufficient consideration. In Collins v Godefroy
(1831) 1 B & Ad 950 a witness who was required under
subpoena to attend court and give evidence was promised 6

71
guineas by the defendant for doing so and the defendant
refused to pay. It was held that as he was already under a
legal duty to give the evidence, doing so was not good
consideration for the promise to pay him.

On the other hand, if the person under a duty is required to

do more than he had a duty to do, that could be good
consideration. In Glassbrook Bros Ltd v Glamorgan CC
[1925] AC 270 the owners of a mine asked for police
presence during a strike; Police said that the then current
regular checks were enough; the owners insisted on officers
being stationed at the mine and agreed to pay extra cost of
£2,200; they later refused to pay. It was held that anything
beyond what the Police honestly and reasonably thought
necessary was an extra service and amounted to good
consideration for the promise to pay.

In Ward v Byham [1956] 1 WLR 496 the father of an

‘illegitimate’* child promised to pay the mother £1 per week if
the child would be well looked after and happy, and be
allowed to decide for herself whether to live with the mother;
the father later stopped the payments and the mother sued
held: (majority Morris & Parker LJJ); that the promise was
enforceable; that although the mother was already under a
statutory duty to look after the child, the two extra promises
were beyond the statutory duty and she had, thus, given
consideration. {*It is unfortunate that any child should be
described as ‘illegitimate’!}

A particularly interesting and noteworthy aspect of the case

of Ward v Byham is that while the third appellate judge
(Denning LJ) agreed with the conclusion of the majority that
the father’s promise was enforceable, he reached the
conclusion by a different reasoning. As we will see a little
later on, the line of reasoning adopted by Denning LJ in his
minority concurring judgment was to prove significant many
years later.

In his judgment concurring with the majority in Ward v

Byham on different grounds, Denning LJ held that even if the

72
woman was doing what she was already bound to do, there
was sufficient consideration for the promise; that a promise
to perform an existing duty, or the performance of it, should
be regarded as good consideration because it is a benefit to
the person to whom it is given. He took a similar approach in
Williams v Williams [1957] 1 WLR 148 where he said that a
promise to perform an existing duty is sufficient as
consideration for a promise from the other party so long as
there is nothing in the transaction that is contrary to public
policy.

(c) Performance of an existing contractual duty

When an existing contractual duty is owed to a third party, its

performance can be regarded as good consideration for the
promise of a new promisor; e.g. Shadwell v Shadwell
(above). Traditionally a promise (as opposed to actual
performance) of such a duty owed to a third party is not
regarded as good consideration; Jones v Waite (1839) 5
Bing NC 341. Two more recent cases now indicate that a
promise to perform an existing duty owed to a 3rd party, or
its performance, could be good consideration; Pao On v Lau
Yiu Long [1980] AC 614; The New Zealand Shipping
Company Limited v AM Satterthwaite & Company
Limited (‘The Eurymedon’) [1975] AC 154, [1974] UKPC 4.

When an existing contractual duty is owed to the promisor

himself, the traditional position is that such an existing
contractual duty owed to a promisor is not good
consideration for a subsequent promise of the promisor or for
an agreement to change the terms of an/the existing
contract.

In Stilk v Myrick (1809) 6 Esp 129; (1809) 2 Camp 318 the

claimant was part of an 11-man crew who agreed to sail a
vessel to the Baltick and back to London; two crew members
deserted in Cronstadt, Russia; the captain promised to divide
the wages of the two deserters between the remaining 9 if
they sailed the vessel back to London; the captain refused to

73
pay. The two separate reports of the case give different
reasons as the basis for the court’s decision.

According to Espinasse’s Report it was held that the claimant

could not recover because of a just and proper policy
identified in the earlier case of Harris v Watson; that is, that
a sailor who was promised extra wages in a moment of
danger to the ship was not entitled to claim it. Thus,
Espinasse’s report is seen as concluding that the decision in
Stilk v Myrick was based on policy grounds.

On the other hand, according to Campbell’s Report, it was

held that although Harris v Watson was rightly decided, it is
doubtful whether the ground of public policy on which the
judge proceeded was the ground on which it was decided;
that in Stilk, the agreement was void for lack of consideration
as there was no consideration for the promise to pay extra to
the sailors who remained with the ship; that before leaving
London, the sailors had undertaken to do all that they could
under the emergencies of the voyage; they had sold all their
services till the voyage should be completed; that, therefore,
without looking at the policy of the agreement, it was void for
want of consideration and the claimant could only recover the
original contract rate, i.e., not including the promised extra
wages.

Note: Campbell’s report had a better reputation than

Espinasse’s; e.g. it was followed by Mocatta J in North
Ocean Shipping Co Ltd v Hyundai Construction Co Ltd
(‘The Atlantic Baron’) [1979] QB 705 to hold that a
promisee who does more than he was contractually required
to could enforce a promise of extra payment.

Almost two hundred years after the decision in Stilk v

Myrick, a significant development in the law on changes to
existing contractual provisions occurred. Remember that the
traditional understanding had always been that an existing
contractual duty is not good enough consideration for an
agreement to modify the contract or for an additional benefit,

74
unless the promisee himself provides consideration e.g. for
doing more than his contractual duty.

In the new development, the courts introduced a new

concept – ‘practical benefit’. In Williams v Roffey Brothers
& Nicholls (Contractors) Ltd [1991] 1 QB 1, [1989] EWCA
Civ 5, the defendants agreed to refurbish a block of 27 flats
for X; the contract contained a clause making the defendants
liable to pay X for late completion; the defendants sub-
contracted carpentry work to the claimant for £20,000 but no
formal procedure for payments was agreed; ultimately
payments were made as the work progressed; the claimant
carried out some of the work (but had not finished) and was
paid £16,200; the claimant fell into financial difficulties; he
had charged too low for the work but also had not supervised
his workmen properly; the defendants called a meeting and
agreed to pay the claimant £10,300 at £575 per flat (because
they wanted to avoid having to pay X for late completion); the
claimant completed 8 further flats; but the defendants made
only one further payment of £1,500; the defendant stopped
work and sued. It was held that although the claimant was
doing no more than he was already legally obliged to do, as
the defendants had obtained a ‘practical benefit’ from the
claimant’s subsequent promise to complete the work, the
promise to pay the claimant the extra money was
enforceable --- in the absence of economic duress.

The case of Williams v Roffey Bros thus makes it easier for

a contract party to rely on his existing contractual duty as the
basis (or ‘consideration’) for seeking to enforce a
modification of contract (or fresh promise from the other
contract party) - if he can show that the performance of his
existing contractual obligation led to a ‘practical benefit’ for
the other party.

Question: what was the ‘practical benefit’ in Williams v

Roffey Bros etc?
 Defendants avoiding incurring late completion
charges to X?

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  Defendants’ desire to retain claimant and not to find
another sub-contractor? (Russell LJ)
 Replacement of haphazard payment method with
more formalised system? (Russell LJ)

Note: in Williams v Roffey Bros, the judges said that they

did not doubt the correctness of Stilk v Myrick - that a
gratuitous promise pure and simple (a contract/promise not
made by deed) must still be supported by consideration; but
Russell LJ did say that a rigid approach to consideration as
in Stilk is neither necessary nor desirable in present times.

Question: do you remember Denning LJ’s minority decision

in Ward v Byham and the decision in Williams v Williams?
Is there any similarity between Denning LJ’s approach and
that of the decision in Williams v Roffey Bros?

(d) Part payment of an antecedent debt

The general rule is that a promise to accept part payment of

a debt in full settlement is not regarded as supported by
consideration and is not enforceable; Pinnel’s Case (1602)
5 Co Rep 117a; Foakes v Beer (1884) 9 App Cas 605,
[1884] UKHL 1

This general rule is not changed despite the decision in

Williams v Roffey Bros; see Re Selectmove [1995] 1 WLR
474.

Note: on the other hand, as an exception to this general rule,

 earlier payment
 payment at different place,
 change of mode of payment;
all may constitute good consideration for payment of lesser
sum to discharge a larger debt; Pinnel’s Case (above) –
‘accord and satisfaction’.

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6.3 Consideration and Estoppel

We have learned that consideration is one of the classically

required elements for an agreement to be a legally
enforceable contract. We also learned that consideration
must be sufficient in law though it does not have to be of the
same or of adequate value as the corresponding promise.

As we also saw earlier certain types of supposed

‘consideration’ (e.g. past consideration, existing duties etc.)
will not normally be regarded as sufficient consideration –
apart from in recognised exceptional situations. We noted
that a significant development occurred with the case of
Williams v Roffey Bros etc where the courts established
that a person who has not given (express) consideration for
the promise of another party (especially in the context of
contract re-negotiation) may be able to enforce the promise
if the other party had gained some practical benefit.

It is important to remember that Williams v Roffey Bros etc

does not directly abolish the rule that consideration is
generally required for a contractual promise to be
enforceable. Further, also that according to the case of Re
Selectmove [1995] 1 WLR 474, the decision in Williams v
Roffey Bros does not extend to part payment of a debt
which, without more, will not discharge the whole debt.

In this section, we turn to one exceptional principle under

which the courts may enforce a promise made by one party
to another party even though the other party had not given
any consideration for the promise. The principle is known as
– promissory estoppel.

6.3.1 The Concept and Origin of ‘Estoppel’

Underlying the idea of estoppel is that in some

circumstances, it is not fair to allow one party not to keep to
the terms of a representation or promise that she or he had

77
made to another when that other party had relied on the
representation or promise and acted upon it.

The concept of estoppel originated in equity thus references

are sometimes made to it as an ‘equitable doctrine’ or as
‘equitable estoppel’. The origin is often traced to Hughes v
Metropolitan Rly Co (1877) 2 App Cas 439:

A landlord gave the tenant 6 months’ notice to do some

repairs or else the lease would be forfeited; the parties
began negotiations for the sale of the lease; however,
the negotiations broke down after the 6 months’
deadline for repair work; the landlord claimed that the
lease was forfeited. It was held that the landlord’s
conduct amounted to an implied promise to the tenant
that he would not enforce the forfeiture at the end of the
deadline; that in not doing the repairs, the tenant had
been relying on the landlord’s implied promise not to
enforce the forfeiture; that the notice period started
again, from the date that the negotiations broke down.

A helpful statement of estoppel generally was provided by

Lord Birkinhead in Maclaine v Gatty [1921] 1 AC 376, 386:

‘Where A has by his words or conduct justified B in

believing that a certain state of facts exists, and B has
acted upon such belief to his prejudice, A is not
permitted to affirm against B that a different state of
facts existed at the time.’

Note Lord Birkinhead’s statement is a general statement

of estoppel. There are in fact different types of estoppel,
including estoppel by representation, proprietary estoppel
and, promissory estoppel. Our focus in this section and in
relation to contracts and the requirement of consideration
is – promissory estoppel.

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6.3.2 Promissory Estoppel – The ‘High Trees
case’

The case of Central London Property Trust Ltd v High

Trees House Ltd [1947] KB 130, [1946] EWHC KB 1 -
{aka the ‘High Trees case’} is generally regarded as the
foundation of the doctrine of promissory estoppel in
contract law.

The High Trees case

The claimant let a block of flats to the defendants for
£2,500 per annum; the defendants intended to sublet
the flats but because of WW2 it was difficult to find
tenants; the claimant agreed to reduce the rent to
£1,250; however, by the beginning of 1945, the flats
were fully let again; the claimant demanded the original
rent of £2,500 from the last 2 quarters of 1945; the
defendants refused; held (Denning J): that the
reduction of the rent was a temporary expedient while
the flats were not fully let; that, therefore, the reduction
applied only until when the flats were fully let again, and
ceased to apply from then; the claimant was, therefore,
entitled to demand the full rent from 1945.

Note: The significance of the High Trees decision is that

the claimant would not have been allowed to claim the full
rent for the period that the flats were not fully let - even
though the defendant had not provided consideration for
the claimant’s promise/agreement to reduce the rent. In
addition, it was the first case when ‘estoppel’ was applied
to a promise, i.e., a promise as to future conduct rather
than a representation on an existing state of facts.

Elements of promissory estoppel:

In order to rely on the doctrine of promissory estoppel, a

number of elements have to be established. The first is a
promise or representation: there must have been a clear and
unequivocal promise or representation by one party not to

79
(fully) enforce their existing legal rights; silence or inaction is
not sufficient, but Hughes v Metropolitan Rly (earlier)
suggests that the promise or representation may be by
conduct.

The second element is reliance: the promise or

representation must have been relied upon by the promisee,
i.e., it must have influenced his conduct. Some cases
suggest that the reliance must also have been ‘detrimental’,
i.e., to the promisee’s disadvantage. For promissory estoppel
at least, the promisee only needs to have altered his position,
i.e., acted upon the promise; detrimental reliance is not
essential.

Consider whether there was any detriment to the defendant

in the High Trees case; see also the following statement of
Goff J in Société Italo-Belge Pour le Commerce et
l'Industrie SA v Palm and Vegetable Oils (Malaysia) SDN
BHD (‘The Post Chaser’) [1982] 1 All ER 19:

‘… it is not necessary to show detriment, indeed the

representee may have benefited from the
representation, and yet it may be inequitable, at least
without reasonable notice, for the representor to
enforce his legal rights.’

Notice two elements in that quote from Goff J: ‘inequitable’

and ‘without reasonable notice’. First, it is easier to establish
‘inequity’ if reliance was detrimental - but not necessary; The
Post Chaser (above). Second, it is not always inequitable to
go back on a promise not to enforce strict legal rights. In D &
C Builders v Rees [1966] 2 QB 617, a small firm was owed
£482 by Mr. & Mrs. Rees; the Rees offered a cheque of £300
in full settlement, knowing that the firm was in financial
trouble; the firm accepted the £300 - but later sued for the
promise. It was held that payment of the lesser sum was not
good consideration to discharge the full debt; that it was not
inequitable for the builders to go back on their promise to
accept the lesser sum as there was no true ‘accord’, in that
they had been held to ransom.

80
In relation to the part on ‘without reasonable notice’ in Goff
J’s statement, the key point is that, quite significantly,
promissory estoppel only suspends the legal rights and does
not, per se, extinguish them; in Hughes v Metropolitan Rly
(earlier), the notice period started to run once again after the
negotiations had broken down; see also Tool Metal
Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955]
1 WLR 761.

Promissory Estoppel – ‘A shield not a sword’

As a general rule, promissory estoppel can normally only be

raised or used as a defence and not as the basis of a fresh
action, i.e., there must be a separate cause of action at least.
In Combe v Combe [1951] 2 KB 215, C agreed to pay his
ex-wife £100 per annum maintenance tax free; the ex-wife
did not give consideration for the agreement; the ex-wife
sued for arrears 6 years later; the ex-wife won at first
instance and the trial judge said that C’s promise was clear,
intended to be binding and was acted upon by the ex. The
Court of Appeal held that the ex-wife could not rely on the
doctrine of promissory estoppel - as the doctrine does not
give rise to a cause of action; it can only be used as a
defence. Denning LJ said:

‘promissory estoppel does not create new causes of

action where none existed before; it only prevents a
party from insisting upon his strict legal rights when it
would be unjust to allow him to enforce them, having
regard to the dealings which have taken place between
the parties’.

Whilst adopting a phrase coined by counsel Birkett LJ

said: ‘“Estoppel” can only be used as a shield and not as
a sword’.

It is to be noted that the idea of promissory estoppel as only

a ‘shield not sword’ is attended by some controversy.
Proprietary estoppel can be used as a cause of action; thus
Birkett LJ’s statement, that ‘estoppel’ can only be used as a

81
shield and not a sword was described as a misleading
aphorism since it is not true of all types of estoppel; Baird
Textile Holdings Ltd v Marks & Spencer Plc [2001] EWCA
Civ 274, [2001] CLC 999.

Note: even a claimant may be able to plead promissory

estoppel e.g. as an answer to a defence by a defendant;
Nippon Yusen Kaisha v Pacifica Navegacion SA (‘The
Ion’) [1980] 2 Lloyd’s Rep 245. In Australia, promissory
estoppel has been used effectively as a ‘sword’; Walton
Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

82
 Chapter Seven:
Privity of Contract

Think About!

1. What is meant by ‘a third party to a contract’?

2. Aaliyah’s father, Mahmoud Mahmoud, is a world-renowned doctor. A five-year

old boy was brought to his clinic with severe injuries after an accident; it was
thought that he was not likely to survive. The boy’s father, Mr. Tyson Markus,
pleaded passionately with Dr. Mahmoud to do everything to save the boy’s life. Mr.
Markus then made a promise to Dr. Mahmoud that if Dr. Mahmoud could save the
little boy’s life, he (Mr. Markus) would pay $100,000 (US Dollars) to Aaliyah
towards the cost of her going to study in a university in the United States. Dr.
Mahmoud did all that he could to save the boy’s life and he was restored to good
health. Mr. Markus is now refusing to pay the promised money to Aaliyah.

Can Aaliyah sue Mr. Markus successfully for the money?

83
7.1 Introduction

In the previous chapter we noted that a person who wishes

to enforce a promise or agreement in a simple contract must
show that they themselves provided consideration. As was
noted, this is represented in the principle that consideration
must move from the promisee.

On a wider note, for a long time English law held to a general

principle that only the parties to a simple contract can enforce
the contract. This principle is in the context of the doctrine of
‘privity of contract’. According to this doctrine a stranger to a
contract or a third party, i.e., a person who is not a party to a
contract, is not entitled to enforce the contract; s/he is not
privy to the contract.

The doctrine caused hardship in some circumstances,

particularly where a contract is made for the benefit of a
person who is not a party to the contract; such a person
would ordinarily remain helplessly unable to enforce the
contract. Naturally, a need arose to address extreme cases
and potential injustice and judicial concern was expressed in
a number of cases about the difficulties of the privity rule.
Eventually, and relatively recently in fact, statutory reform
was introduced to mitigate some of the effects of the privity
rule.

7.2 The General Rule of Privity of Contract

First, it stands to reason that a person who is not a party to a

contract should not be made liable for obligations under the
contract; see e.g. British Broadcasting Corporation v
Harpercollins Publishers Ltd & Anor [2010] EWHC 2424
(Ch), [2011] EMLR 6. Even an ‘exceptional’ case like a
contract of guarantee would involve the guarantor
undertaking an obligation personally, though it may be in
respect of another person’s obligations under a separate
agreement.

84
The key aspect of the doctrine of privity is that a person who
is not a party to a contract cannot enforce the contract – even
where the actual parties to the contract had in mind that the
contract was for the benefit of that person. The common law
principle that a third party or stranger to a contract cannot
enforce the contract was established in the 19th century.

In Tweddle v Atkinson (1861) B & S 393, 121 ER 762,

[1861] EWHC QB J57, the two fathers in law of a couple
getting married made an agreement that each one of them
would pay some moneys to the groom. It was held that the
groom could not enforce the agreement; Wightman J said it
had been established ‘that no stranger to the consideration
can take advantage of a contract, although made for his
benefit’; Crompton and Blackburn JJ said that a party
seeking to enforce a contract must show that consideration
moved from them.

The principle declared in Tweddle v Atkinson was followed

in the 20th century in cases such as Dunlop Pneumatic Tyre
Co Ltd v Selfridge & Co Ltd [1915] AC 847, [1915] UKHL 1
and Beswick v Beswick [1968] AC 58, [1967] UKHL 2. The
latter case gives an indication of potential injustice that may
result from the privity rule. In that case PB sold his business
to his nephew in return for the nephew’s promise to make
some payments to PB for the rest of his life and after his
death to his wife, the claimant; after PB’s death, the nephew
refused to make the payments. It was held that the claimant
could not enforce the agreement in her personal capacity
even as PB’s widow; the saving grace was that she was also
executrix of PB’s estate and could enforce the agreement
only in that capacity. Lord Denning took the view in the Court
of Appeal (as he did in other cases) that a third party could
sue to enforce a contract to which they were not a party, but
this view was rejected in the House of Lords.

85
7.3 The Contracts (Rights of Third Parties)
Act 1999

The potential injustice that may arise from the privity rule led
to calls for reform of the doctrine of privity of contract.
Eventually, reforms were introduced by statute under the
Contracts (Rights of Third Parties) Act 1999.

Although, it may be possible to invoke some common law

principles and equitable doctrines (such as agency and trust
among others) as exceptions to the privity rule, the provisions
of the Contracts (Rights of Third Parties) Act 1999 are the
most relevant for avoiding the privity rule in relation to simple
contracts and, accordingly, this section concentrates on the
key aspects of that enactment.

It is now provided under section 1 of the Contracts (Rights of

Third Parties) Act 1999 (‘the 1999 Act’) that a third party to a
contract can enforce a term of the contract in his own name
in two separate circumstances:

(a) where the contract expressly provides that the third party
may enforce the term; section 1(1) (a); or
(b) where the term purports to confer a benefit on the third
party, section 1(1)(b) – unless it appears that the parties
did not intend that the term purporting to confer a benefit
on the third party should be enforceable by him; section
1(2).

The 1999 Act requires that the third party must be identified
in the contract either by name or as a member of a particular
class or as a person answering a particular description –
though he need not be in existence when the contract was
made; section 1(3). The Act makes available to the third
party any contractual remedy that would have been
available to him if he had been a party to the contract;
section 1(5). It also preserves the right of the third party to
take advantage of any exception to the privity rule that is
available to him apart from the Act (e.g. at common law),
sections 4 and 7. Further, section 2 of the 1999 Act restricts

86
the ability of the parties to the contract to rescind or vary the
contract in a way to extinguish or alter the third party’s
entitlement under a term that he has a right to enforce in
accordance with the Act.

The 1999 Act also provides some protection for the promisor
party to a contract under which a third party has a right to
enforce a term in accordance with the Act. The third party
may raise by way of defence, set off or even counterclaim
any matter that would have been similarly available to him
against the promise under the contract; section 2.

87
88
 Chapter Eight:
Capacity

Think About!

1. Rita is sixteen years old. She went into Najeem Computer Stores and asked to buy a
laptop; she said she needed it for her school work. The price of the computer she chose
was £1,500. She told Mr. Najeem, the owner of the store, that she only had £1,000 with
her; she persuaded him to let her take away the computer and that she will return in
four days’ time to pay the balance. She has now refused to pay the balance of £500.

Can Mr. Najeem succeed in an action to recover the £500?

2. Nikos is seventeen years old. He went into Elegance Tailored Suits which was owned
and run by Mr. Laidback. He told Mr. Laidback that as he has recently started studying
for a law degree in the university, he needed five tailor-made suits. Mr. Laidback took
his measurements and made the suits; he sent his assistant, Nasir, to deliver the suits
to Nikos. Nikos took delivery of the suits from Nasir and told him that he would be
sending payment to Mr. Laidback later. He never paid any money for the suits.

Can Mr. Laidback succeed in action against Nikos for the suits?

89
8.1 Introduction

A contract is seen generally as an agreement that represents

a meeting of the minds of the parties involved - ‘consensus
ad idem’. Implicit in this perception is that the minds (the
parties) involved are capable of making the decisions
required to reach agreement with knowledge and awareness
of the potential general legal ramifications of the agreement.

With the diversity of the population in society, there will be

persons who may not truly be capable of understanding the
true ramifications of an agreement that is intended to have
legal effect; a clear example will be very young children;
another example would be people with some form of mental
impairment. In addition, the law recognises that, apart from
human beings, some non-human entities such as
corporations should be categorised as persons for legal
purposes. Such entities are generally entitled by law to enter
into contracts in their own names but, historically, such
entitlement was limited by terms under which the entity was
set up and acquired ‘legal personality.’

The foregoing considerations have made it necessary for the

law to have rules for the protection of people that may be
involved in a contract where a question may arise as to
whether at least one party’s involvement in the contract truly
represents the will of a capable mind. In the following
sections we examine some circumstances where the law
addresses the question of the capacity of a (supposed)
contract party to enter into the contract.

8.2 Minors

Prior to 1969, a person under the age of 21 was regarded in

English law as an ‘infant’; see e.g. the now repealed Infants
Relief Act 1874. The Family Law Reform Act 1969 replaced
the term ‘infant’ with ‘minor’ and provided that a person shall
attain full age at the age of 18 instead of 21; accordingly, a
minor in English law is a person under the age of 18.

90
In relation to contracts involving a minor, English common
law starts from the position that a contract with a minor is not
binding on the minor. The old Infants Relief Act 1874
provided that, apart from contracts for ‘necessaries’,
contracts with infants ‘shall be absolutely void’. That Act has
now been repealed by the Minors’ Contracts Act 1987 and
the common law rules continue to apply. In addition, section
3(1) of the Sale of Goods Act 1979 (‘SGA‘) provides that:
‘Capacity to buy and sell is regulated by the general law
concerning capacity to contract and to transfer and acquire
property.’

At common law, the general rule is that a contract with a

minor is not binding on the minor though it may possibly be
enforceable by the minor. Thus, a contract cannot ordinarily
be enforced against the minor. The law however provides for
some circumstances when a contract with a minor may be
binding on and enforceable against the minor; this also
includes situations where a contract may be binding on a
minor until and unless the minor repudiates the contract
before or within a reasonable time after s/he attains the age
of majority.

8.2.1 Contracts for ‘necessaries’

While a contract with a minor is not ordinarily binding, both

the common law and statutory provisions make exceptions
for contracts that relate to ‘necessaries’. Section 3(3) SGA
defines necessaries in relation to goods as goods suitable to
the condition in life of the minor and to his actual
requirements at the time of the sale and delivery. In essence,
this provision codifies the common law rules but only in
relation to goods; the common law has a similar position in
relation to necessaries but covering both goods and services.

Section 3(2) SGA provides that where necessary goods are

sold and delivered to a minor, he must pay a reasonable
price for them. This follows what is reflected in judicial
decisions at common law. The common law follows a two-

91
stage approach for determining whether goods (or services)
are necessaries.

First, whether the goods (or services) in question are capable

of being necessaries is a matter or question of law. This has
been explained as meaning ‘whether there are any grounds
on which they might be said to be needed to maintain the
minor in his status or condition’; (The Law Commission,
Working Paper No 81 – Minors’ Contracts). Second, in
determining whether goods (or services) are necessaries in
a particular case, the courts will take into account the status
in life of the particular minor; thus an item which may be
considered as a necessary for a minor with a wealthy
background may not be considered a necessary for a minor
with a humbler background; see e.g. per Alderson B in
Chapple v Anne Cooper (1834) 153 ER 105 – a case in
which it was held that a widow who was a minor was liable
for the expenses related to her husband’s funeral, which was
considered to be a necessary service.

Another factor that the courts will also take into account is
whether the minor’s needs in relation to goods were already
adequately supplied before the contract in question. Further,
even a contract for necessaries is likely to be unenforceable
against a minor if its terms are harsh or onerous; Fawcett v
Smethurst (1914) 84 LJKB 473.

In Ryder v Wombwell (1868) LR 4 Exch 32, the court held

that some particular jewellery (solitaires) and an antique
goblet could not be necessaries even for a minor young man
with a large income though it could be an issue to be left to a
jury in some circumstances. In Peters v Fleming (1840) 6 M
& W 42, 151 ER 314, an undergraduate minor who had a rich
father (a member of Parliament) bought rings, pins and a
watch chain; the court held that these were necessaries
commensurate with the minor’s status in life and he had to
pay for them. On the other hand, in Nash v Inman [1908] 2
KB 1, a Savile Row tailor supplied clothes (including 11 fancy
waistcoats) to an undergraduate with a father ‘of good
position’ who gave evidence that his son ‘was amply supplied

92
with proper clothes according to his position’; it was held that
even though the goods were suitable for the minor’s status
in life, they were not necessaries as he was already
adequately supplied; the tailor’s action for the price thus
failed.

Note that in view of section 3(2) SGA the goods in a contract

for necessary goods must not only have been sold but must
also have been delivered; thus the rules on necessaries in
respect of goods would seem to apply only in relation to
executed (rather than executory) contracts.

8.2.2 Contracts for the minor’s benefit

A contract with a minor may be enforceable against the minor

if the contract is considered to be for the benefit of the minor.
This is more likely to be relevant in relation to contracts to
provide a service such as education, training,
apprenticeship, employment and things of a similar or
analogous nature that are considered to be, on the whole,
beneficial to the minor.

In Clements v London and North Western Railway

Company [1894] 2 QB 482, a minor who was employed as
a railway porter joined the employers’ insurance scheme and
gave up his statutory protection in respect of personal injury;
it was held that overall the rights gained by the minor under
the insurance scheme were more than those he gave up and,
accordingly, the contract was for his benefit and binding.

In De Francesco v Barnum (1889) 45 Ch D 430, on the

other hand, where a 14-year-old girl was engaged as an
apprentice stage dancer but the trainer did not oblige himself
to employ her and, among other things, she was not allowed
to undertake paid engagements or to get married during the
period of apprenticeship, the contract was held not to be for
the minor’s benefit and therefore not binding on her. More
generally, in any event, even a contract that is for a minor’s

93
benefit is not necessarily automatically binding on the minor;
see e.g. Cowern v Nield [1912) 2 KB 419.

The courts have shown inclination to treat some contracts,

which are not typical employment or training contracts but
are in a sense similar or analogous to them, as beneficial to
a minor and thus enforceable; see e.g. Doyle v White City
Stadium [1935] 1KB 110. Nevertheless, they still draw a line
in relation to contracts which, though they may be beneficial
to a minor, fall outside the scope of what they consider to be
analogous to employment, apprenticeship, or training
contracts and such like; these are voidable. In Proform
Sports Management Ltd v Proactive Sports Management
Ltd & Anor [2006] EWHC 2903 (Ch), [2007] 1 All ER 542,
an agreement in which a company was appointed by the then
15-year-old budding footballer, Wayne Rooney, as executive
agent and for personal representation in respect of his work
as a footballer was treated as voidable because it was not
analogous to a contract of employment, training and such
like; his then contract as a footballer with Everton Football
Club on the other hand was considered as falling within
employment and analogous contracts.

8.2.3 Voidable contracts

Apart from contracts for necessaries and contracts

enforceable on the basis of being for the benefit of a minor,
other contracts with a minor are generally voidable at the
behest of the minor; see e.g. Proform Sports Management
Ltd v Proactive Sports Management Ltd & Anor. More
particularly, the common law also specifically treats contracts
with a minor which involve a long-term interest, such as in
property, shares and partnerships, as voidable on the part of
the minor.

A contract which is voidable against the minor can be

terminated by the minor at any time while he remains a minor
and within a reasonable time of the minor attaining the age
of majority. A contract which is voidable against a minor

94
nevertheless generally remains enforceable against the
other party of due capacity.

The law provides remedy in some circumstances for a

person who has entered into a contract which is voidable at
the instance of a minor. Under section 3(1) of the Minors’
Contracts Act 1987 the court may, if it considers it just and
equitable, order a minor to return to the other party any
property (or property representing it) acquired by the minor
under the contract. It is also possible for a party to pursue the
remedy of restitution to seek to prevent a minor from being
unjustly enriched at the expense of that party under the
voidable contract.

Apart from the remedies that may be pursued against a minor

discussed in the preceding paragraph, a minor who seeks to
recover payments made under an avoided contract would
have to show that there has been a total failure of
consideration; see Steinberg v Scala (Leeds) Ltd [1923] 2
Ch 452. In addition, the courts would generally not grant an
order of specific performance in favour of either party in a
contract between a minor and another party.

8.3 Mental Incapacity, Drunkenness and

Illiteracy

The common law developed principles relating to the validity

of contracts entered into with persons suffering a mental
impairment or affected by drunkenness or by illiteracy. The
law has also been impacted in some respects by provisions
under statutes such as the Sale of Goods Act 1979, the
Mental Health Act 1983 and the Mental Capacity Act 2005.

At common law, a contract entered into with a mentally

impaired person is not automatically invalid. This is
especially so if the other party was not aware of the mental
impairment of the counterpart; see Hart v O’Connor & ors
[1985] 3 WLR 214, [1985] UKPC 17. Such a contract will be
voidable, however, if the mentally impaired person was not

95
capable of understanding the transaction at the time it was
made and the other party was aware of that incapacity.

It is not enough that a contract made with a mentally impaired

person is unfair in that it is more favourable to one party;
when the mentally impaired person is ‘ostensibly sane’, the
other party (who is not mentally impaired) must have been
involved in ‘unconscionable dealing’ or ‘equitable fraud’; Hart
v O’Connor & ors (above).

As with minors, section 3(2) of the Sale of Goods Act 1979

also applies to contracts with mentally impaired persons.
Under that provision, a mentally impaired person must pay a
reasonable price for necessaries sold and delivered to him.

In addition to the foregoing, a person may be certified insane

by virtue of statutory provisions under the Mental Health Act
1983 and the Mental Capacity Act 2005. In such a case, for
the protection of the person’s interest, their property would
fall under the control of the court and purported dispositions
of such property would not be binding on the person.

The treatment of contracts with drunken persons is largely

similar to the treatment of contracts with the mentally
impaired. Again, such a contract is not automatically invalid
and is only voidable where the drunk person was at the time
of making the contract incapable of understanding the nature
of the transaction and the other party was aware of such
incapacity. A drunk person is similarly obliged to pay a
reasonable price for necessaries sold and delivered to him.

A contract with an illiterate person is not necessarily invalid

as a result of that person’s illiteracy; it is not enough either
that the person was not sufficiently familiar with the English
language at the time of the making of the contract; see
Barclays Bank plc v Schwartz (1995) The Times 3rd August
1995. In addition, a person who signs a contract is bound by
that contract even though they did not read it unless they can
successfully raise the defence of non est factum; L’Estrange

96
v F Graucob Ltd [1934] 2 KB 394; we will consider this
further in chapter 9.

8.4 Corporations

A corporation is an association of persons which is itself

treated as a separate person. Entities having legal corporate
status are regarded as having legal personality separate
from the persons who constitute them – who may themselves
be natural or other legal persons or a mixture of such
persons.

There are different types of corporations in the English legal

system. The main types with legal personality are chartered
corporations, statutory corporations and registered
companies.

Chartered corporations are created by Royal Charter and

would usually have the same powers to enter into contractual
transactions as an adult human being of full contractual
capacity. Statutory corporations are created by statute and
the statute will usually set out the purposes and contractual
powers of the corporation; a contract which is outside the
limits of those purposes may be declared void under the
doctrine of ultra vires which is discussed further below in
relation to registered companies.

Registered companies are usually created under the

provisions of extant companies’ legislation; they may be
private companies whose shares are open to ownership by
only a few private people or public companies whose shares
are open to ownership by the general public.

The law on the capacity of registered companies to enter into

contracts had been complicated with potentially prejudicial
effects to the other parties to such contracts by the common
law doctrine of ultra vires. In summary, the ultra vires doctrine
is that a contract entered into by a company, but which is not
within what is authorised by the company’s memorandum

97
and articles of association is void; it cannot be enforced by
the other party and that other party is deemed to have
knowledge of what is in the company’s memorandum and
articles of association; see Ashbury Railway Carriage and
Iron Co Ltd v Riche (1875) LR 7 HL 65.

The ultra vires doctrine and the way it is framed, especially

including deemed knowledge of the relevant contents of a
company’s memorandum and articles of association,
naturally led to some prejudicial effects on third parties
dealing with companies; see e.g. Re Jon Beauforte
(London) Ltd [1953] Ch 131 and Introductions Ltd v
National Provincial Bank Ltd [1970] Ch 199.

In relation to contracts between a third party and a registered

company, the ultra vires doctrine has now been effectively
abolished in England under companies’ legislation since
1989, though it is still relevant for internal purposes as
between the management and ownership of the company.
Presently, the effect of the provisions of the Companies Act
1989 and Companies Act 2006 is that a contract between a
company and a third party is invariably likely to be valid and
enforceable and not subject to the ultra vires doctrine.

98
 Part 2: The Contents of the Contract

9. Terms of the Contract

10. Exclusion and Limitation of Liability
11. Unfair Terms in Consumer Contracts

99
100
 Chapter Nine:
Terms of the
Contract

Think About!

1. David took his car to El Batal Motors because it had developed a fault in that water was
leaking from its radiator. El Batal Motors charged David £500 to fix the radiator. When
David collected the car three days later, he drove straight to his house which was about
15 kilometres from EL Batal Motors’ garage. However, shortly before David got home, he
noticed that there was steam coming through the bonnet. When he got home he inspected
the car and realised that the radiator was still leaking.

(a) Can David sue El Batal Motors for breach of contract?

(b) If so, what term of the contract has El Batal Motors breached?

2. Yasmin ordered a laptop from online store mujia.com; she paid £1000. When the laptop
arrived, its screen was broken and it did not power up!

(a) Can Jasmine sue mujia.com for breach of contract?

(b) If, so what term of the contract has mujia.com broken?
(c) Where can the terms of the contract be found?

101
9.1 What are ‘Terms’ of a Contract?

The terms of a contract provide and define the obligations

that each party to the contract assumes as well as the rights
and benefits that each is entitled to.

Failure to perform a contractual term or obligation results in

a breach of contract. When there is a breach of contract, an
‘innocent party’ is usually entitled to some remedy; such
remedy may be (a) ‘specific performance’, (b) money
compensation in the form of ‘damages’, or (c) in some cases
having the entire contract terminated prospectively from the
time of the breach - also called ‘repudiation’, and (d) in some
cases, having the entire contract terminated or cancelled
retrospectively, i.e., from its very beginning which is
sometimes called ‘rescission’ of the contract ab initio.

Note that terms of a contract are to be distinguished from

representations or misrepresentations and some other pre-
contractual or non-contractual statements, e.g., sales pitch
or patter or sales ‘puff’. This is of significance because
whether a statement is a contract term or not may affect the
type of remedy and the amount of damages that may be
available to the ‘innocent party’.

Terms form part of the contract and are usually contractual

obligations, i.e., obligations (or promises) which the parties
are expected to fulfil under the contract or requirements that
they agree to be binding.

Generally, the courts follow an objective approach to

determine the parties’ intention as to whether a statement is
a contract term; see e.g. Business Environment Bow Lane
Ltd v Deanwater Estates Ltd [2007] EWCA Civ 622. The
courts tend to follow some principles and guidelines (though
these are not absolutely conclusive) for determining the
parties’ intention. These include the following examples.

Verification: if one party asks another to verify the truth of a

statement, the statement is not likely to be a contract term. It

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is also helpful here to distinguish between a statement of fact
(representation) and a promise to keep an obligation. In Ecay
v Godfrey (1947) 80 Ll LR 286, the seller of a boat (G) said
the boat was in good condition but advised the buyer to have
it surveyed; held: the statement that the boat was in good
condition was not a term but only a representation.

Importance: if it is clear that the statement was so important

to the person to whom it is made that without it they would
not have entered into the contract, the statement is likely to
be treated as a contract term. In Couchman v Hill [1947] KB
554, a buyer at an auction asked for assurance (otherwise
he would not bid) that a heifer was ‘unserved’, because he
wanted it to be serviced by his own bull. Both the seller and
the auctioneer gave the assurance. It was held that the
statement that the heifer was ‘unserved’ was a term of the
contract, even though the printed conditions of the auction
stated that no warranty was given.

Time between a statement and the contract: the longer the

stretch of time between when the statement was made and
when the contract was agreed, the less likely for the
statement to be a term. In Routledge v Mckay [1954] 1 WLR
615, the claimant wanted to buy a motorcycle on part
exchange; the defendant seller said it was a 1942 model as
stated in the registration documents; the claimant went away
to think about it and came back to buy the motorcycle a week
later; the written agreement said that when the money is paid
‘the transaction is closed’; the motorcycle was in fact a 1936
model, that had been modified by another person. It was held
that the defendant’s statement about the model was not a
term, it was a representation; neither of the two parties was
an expert, and there was a time delay between when the
statement was made and when the contract was agreed.

Special knowledge: if the maker of the statement has special

knowledge of some material fact, the statement is likely to be
a term; if the parties have equal knowledge or if the parties
to whom the statement is made has greater knowledge, then
the statement is not likely to be a term. In Oscar Chess Ltd

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v Williams [1957] 1 WLR 370 a private seller trading a car in
said it was a ‘1948 Morris 10’; he was relying on the log book
but the car was in fact a 1939 model; held: the statement was
a misrepresentation. On the other hand, in Dick Bentley
Productions Ltd v Harold Smith (Motors) Ltd [1965] 1
WLR 623, a car dealer who was asked to find a ‘well vetted’
Bentley said it had done 20,000 miles since an engine refit;
it had in fact done nearly 100,000 miles; the statement was
held to be a term.

9.2 Express Terms and Implied Terms

9.2.1 Express terms

Express terms are the terms that the parties themselves

agree specifically – whether in writing, orally or even possibly
by conduct. In each case the duty of the court is to ascertain
what the parties actually agreed. In the case of oral contracts,
it may be one party’s word against another and which of them
the court believes; in some cases, the courts may possibly
accept the evidence of a witness or witnesses; see further
e.g. Thorner v Major & others [2009] UKHL 18 especially
at [82-83] per Lord Neuberger.

In the case of written contracts, as a general rule the courts

tend to take what is reduced into writing as the parties’
agreement; see further Thorner v Major & others (above);
Carmichael & Anor v National Power Plc [1999] 1 WLR
2042, 2048-2051, [1999] UKHL 47, per Lord Hoffmann;
Investors Compensation Scheme Ltd v West Bromwich
Building Society [1998] 1 WLR 896 at 913, [1997] UKHL
28, per Lord Hoffmann.

The courts tend to follow what is called the ‘parol evidence’

rule; this is to the effect that evidence outside what is written
down as the contract (‘extrinsic evidence’) cannot be allowed
to depart from or to contradict that which is written down; see
e.g. Jacobs v Batavia & General Plantations Trust Ltd
[1924] 1 Ch 287.
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The parol evidence rule is not an absolute rule, however, and
the courts can allow extrinsic evidence (including oral or
‘parol’ evidence) to contradict written terms in some
circumstances including:

 when the written document is not intended to contain

the whole agreement; see e.g. Allen v Pink (1838) 4
M & W 140;
 to prove a term(s) or custom that must be implied into
the agreement;
 to show that the contract is invalid because of
misrepresentation, fraud or non est factum (literally,
‘not my deed’);
 to show that the document should be rectified;
 to show that the contract is yet to come into force or
has ceased to operate;
 to prove the existence of a collateral contract.

Note that generally, when a person has signed a document

they are bound by the document even if they did not read the
document; see L’Estrange v F Graucob Ltd [1934] 2 KB
394. There are few exceptions to this rule, such as where the
signature has been procured by fraud or misrepresentation;
see e.g. Curtis v Chemical Cleaning and Dyeing Co [1951]
1 KB 805.

Additionally, in specific and exceptional circumstances, the

courts may allow a plea of non est factum when the person
who signed the document had, without fault on their part and
owing to a temporary or permanent inability, a
radical/fundamental/substantial misunderstanding of what
the document actually was; see Saunders v Anglia
Building Society [1971 AC 1004 (aka Gallie v Lee);
Howatson v Webb [1907] 1 Ch 537.

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9.2.2 Implied terms

Implied terms are terms that the parties themselves did not
specifically agree upon but which the courts will imply into
the contract either as a result of statutory provisions,
principles of the common law, or applicable custom.

Major examples of terms implied by statute are to be found

in the Sale of Goods Act 1979 in respect of sale of goods
contracts. They include implied terms that: the seller must
have the right ‘title’ {s.12}; that if goods are sold by
description they must correspond to the description {s.13};
that the goods must be of satisfactory quality {s.14(2)}; that
the goods must be fit for a particular purpose made known
by the buyer to the seller in certain circumstances {s.14(3)}.
Now, similar and further examples can be found in respect of
sales to consumers in sections 9-11, 17, 20 and 23 of the
Consumer Rights Act 2015.

In the old case of Francis v Cockrell [1861-1873] All ER Rep

Ext 1785, Kelly CB said:

‘when one man engages with another to supply him

with a particular article or thing to be applied to a certain
use and purpose in consideration of a pecuniary
payment, he enters into an implied contract that the
article or thing shall be reasonably fit for the purpose for
which it is to be used and to which it is to be applied.
That I hold to be a general proposition of law applicable
to all contracts of this nature and character. It is indeed,
subject to a qualification or exception …; but that
qualification extends only to the case of some defect
which is unseen and unknown and undiscoverable, not
only unknown to the contracting party, but
undiscoverable by the exercise of any reasonable skill
and diligence or by any ordinary and reasonable means
of inquiry and examination.’

Terms may also be implied as a result of a custom

recognised and accepted by people of a particular trade

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(except when inconsistent with express terms); see e.g. Kum
v Wah Tat Bank [1971] 1 Lloyds Rep 439; British Crane
Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] QB
303.

Further, terms may also be implied at common law, for

example, to give effect to a perceived unstated intention of
the parties (‘implied in fact’) e.g. to give ‘business efficacy’ to
a contract; see e.g. Shirlaw v Southern Foundries Ltd
[1939] 2 KB 206; The Moorcock (1889) 14 PD 64. Terms
may also be implied at common law as a general incidence
of some types of relationships; see e.g. Lister v Romford
Ice & Cold Storage Co Ltd [1957] AC 555; see also Marks
and Spencer plc v BNP Paribas Securities Services Trust
Company (Jersey) Ltd [2015] UKSC 72, [2016] AC 742; BP
Refinery (Westernport) Proprietary Limited v Shire of
Hastings (Victoria) (1977) 180 CLR 266, [1977] UKPC 13;
Attorney General of Belize & Ors v Belize Telecom Ltd &
Anor (Belize) [2009] UKPC 10, [2009] WLR 1988.

9.3 Incorporated Terms

Sometimes, the parties to a contract make reference to some

provisions written or contained in another place or another
document other than the (written) contract itself. In modern
times, people making purchases on a website will find that
terms and conditions of use of the website and/or of
purchase are contained in a different web page which they
can access usually via a web link.

The primary issue arising here is whether the parties can

make the provisions contained elsewhere to be effective and
legal parts of their contract through the reference or link. In
other words, can the provisions that are contained in a place
or document other than the main contract be successfully
and lawfully incorporated into the contract?

Of particular significance is that disputes about whether a

provision is incorporated into a contract often concern the

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use of clauses by which one party seeks to limit or exclude
liability for apparently breaching the contract. These
‘limitation’ or ‘exclusion’ clauses are discussed in further
depth when we go on to consider issues of fairness.

The courts are willing to determine that provisions contained

elsewhere are incorporated into the contract in some
circumstances – if certain conditions are met. Generally, the
conditions revolve around the requirement that prompt and
adequate notice of the provisions to be incorporated were
given to the party that is intended to be held bound by them;
see Parker v South Eastern Rly Co (1877) 2 CPD 416.
Moreover, if the provisions are intended to impose
particularly stringent or onerous terms on that party, the
requirement of notice is even stronger than normal –
especially if that party is a consumer.

In Parker v South Eastern Railway Co (above), P’s bag

(worth £24) left with SERC was lost or stolen; the receipt
given to P said in front: “[See Back]” - after a notice about
closing of offices; on the back of the receipt there was a
notice that SERC would not be responsible for any package
worth more than £10; the same ‘condition’ was also in the
cloakroom; the trial judge (Pollock, B) held that P was entitled
to claim, because the jury found that P had not read the
notice and was not under a duty to make himself aware of it.
The Divisional Court upheld the judgment by 2-1 and, on
appeal to the Court of Appeal, held (CA by 2-1 majority): that
a retrial would be ordered to determine if SERC had given P
reasonable notice; that the question to put to the jury was,
whether what the company did was reasonably sufficient to
give P notice of ‘the condition’. Mellish LJ set out three
guiding principles or ‘questions’:

 that if a person did not see or know of writing on the

ticket, he is not bound by its ‘conditions’;
 that if he knew there was writing and that it contained
‘conditions’, he is bound;
 that if he knew there was writing but did not know or
believe that it contained ‘conditions’, he would be

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 bound if the manner in which he was given the ticket
was found to be reasonable notice.

Expanding on the requirement for reasonable notice, a

number of principles emerge.

First: notice of the provision(s) to be incorporated must be

given at or before the time that the contract is actually
concluded, i.e., before the contract is made; see Olley v
Marlborough Court Ltd [1949] 1 KB 532; Thornton v Shoe
Lane Parking Ltd [1971] 2 QB 163, [1970] EWCA Civ 2.

Second: the provisions intended to be incorporated must

themselves be contained in a document that would normally
be expected to contain contract terms, or provided in a
manner normally intended to have contractual effect; see e.g.
Chapelton v Barry UDC [1940] 1 KB 532.

Third: the party seeking to rely on the provision sought to be

incorporated must have taken reasonable steps to bring the
provisions to the attention of the other party; cf. Parker v
South Eastern Rly Co (above) and Thompson v London,
Midland & Scottish Rly Co [1930] 1 KB 41:

 ‘reasonable steps’ – a matter of fact

 the more unusual or onerous the provision sought to
be incorporated, the greater the degree of effort
required to amount to reasonable notice; see e.g.
Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd [1989] QB 433; see also J Spurling
Ltd v Bradshaw [1956] 1 WLR 461, [1956] EWCA Civ
3 and Lord Denning’s figurative reference to red ink
and a pointing red hand: ‘the more unreasonable a
clause is, the greater the notice which must be given
of it. some clauses I have seen would need to be
printed in red ink on the face of the document with a
red hand pointing to it before the notice could be held
to be sufficient.’

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Fourth: a provision may be regarded as incorporated into a
contract as a result of a previous course of dealing between
the parties, though possibly less likely when the party
intended to be bound is a consumer; see J Spurling Ltd v
Bradshaw (above); McCutcheon v David MacBrayne Ltd
[1964] 1 WLR 125, [1964] UKHL 4; Hollier v Rambler
Motors (AMC) [1972] 2 QB 71, [1971] EWCA Civ 12.

Note: if the purported incorporation of a term is procured by

fraud, the courts are likely to reject the attempted
incorporation; Curtis v Chemical Cleaning etc (above).

9.4 Effect of Breach of Contract Term

 If the term broken is classified as a ‘condition’, the

innocent party can terminate the contract and claim
damages. – though he may choose to only claim
damages. In this particular sense, a condition is a
contract term that is treated either by law or by the
parties’ choice as a very important term, i.e., an
essential term going to the root of the contract, with
the result that if it is broken the breach could lead to
the termination of the contract; see e.g. section 11(3)
of the Sale of Goods Act 1979 (‘SGA’).
 If the term broken is classified as a ‘warranty’, the
innocent party can only claim damages; he cannot
terminate the contract. In this particular sense, a
warranty is a term that is not regarded as going to the
root of the contract, or one that is seen as collateral to
the main purpose of the contract; see e.g. the
definition of warranty in section 61 SGA.
 If the term broken is an ‘innominate’ or ‘intermediate’
term, whether the innocent party can only claim
damages or also terminate the contract depends on
whether the actual consequence of the breach is
‘trifling’ or serious; see Hong Kong Fir Shipping Co
Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.

We will explore breach of contract in further detail later.

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 Chapter 10:
Exclusion and
Limitation of Liability

Think About!

1. David bought a car from El Batal Motors. The sale agreement contained a clause that
no condition or warranty that the car is roadworthy is implied; the car was in good
condition when David saw it; but when it was delivered it was like a ‘shell’ as it was
without cylinder heads, with burnt out engines and it was in fact towed to David’s house.

Can David sue El Batal Motors for breach of contract?

2. Securenil Ltd entered into a contract to provide night patrol security service for a
premises owned by Naivete Ltd; a clause in the contract said that Securenil Ltd would not
be responsible under any circumstances ‘for any injurious act or default’ by any of their
employees. An employee of Securenil Ltd started a fire which destroyed the premises,
resulting in losses of £500,000. Securenil Ltd is trying to rely on the exclusion clause.

Do you think Naivete Ltd will succeed if they sue Securenil Ltd?

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10.1 Exclusion Clauses: What and Why?

Sometimes, a party to a contract seeks to use a clause of the

contract to exclude his liability for what ordinarily appears to
be a breach of contract, or to limit the extent of his liability
(e.g. restrict the amount of compensation due to the other
party) for a breach of contract. Such clauses are often
referred to generically as exclusion clauses or exemption
clauses. Additionally, some contract clauses seek to limit the
time that a party has for bringing an action alleging a breach
of contract; these clauses may be referred to as time
limitation clauses.

Depending on perspective, exclusion clauses may be viewed

positively or negatively.

Viewed positively, exclusion clauses may be seen as:

 defining the obligations of the party in whose favour
they exist;
 letting each party know the extent of obligation under
the contract;
 enabling each party to realise the risks under the
contract and to undertake necessary insurance.

Viewed negatively, exclusion clauses may be seen as

enabling one party to escape or minimise liability for failure
to perform or conform to a standard that would have been
required.

10.2 Necessity for Regulation or Control of

the Use of Exclusion Clauses?

Ordinarily, the parties to a contract are free to make their own

contract owing to the fundamental principle of freedom of
contract. Strictly, there is no overarching requirement in
English law that a contract should be fair; thus, ordinarily,

112
contract parties would be seen as free to include exclusion
clauses in their contracts.

Nevertheless, certain considerations raise concerns that

would seem to support the control or regulation of the use of
exclusion clauses:

 Standard form contracts (adhesion contracts):

exclusion clauses are often included by one party in a
pre-drafted contract (or among standard terms) which
the other party cannot modify; this is more so when
one party is in a stronger bargaining position.
 Sometimes, the other party does not have real choice
- as potential alternative contract counterparts are
often using similar exclusion clauses in their pre-
drafted contracts or standard terms.
 Sometimes, the other party may not even realise that
an exclusion clause exists (e.g. small print); or even if
aware of its existence, may not be aware of its true
meaning and effect (e.g. legal jargon, complex
provisions etc.); this is more likely if that other party is
a consumer.
 A real possibility exists that an exclusion clause will
lead to an unsupportable imbalance of the rights and
responsibilities of the respective parties, or to an
unfair distribution of risks (‘substantive unfairness’);
for example, it may result in taking away important
rights ordinarily due to one party such as that party’s
ability to obtain any or adequate compensation or
remedy when supplied with defective products or
performance.

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10.3 Regulation or Control of Exclusion
Clauses Under the Common Law

Common law regulation of exclusion clauses is generally

from two perspectives: (a) to query whether the exclusion
clause is part of (or incorporated into) the contract, i.e., ‘the
incorporation approach’; (b) to query whether the terms or
provisions of the exclusion clause are sufficient to protect the
party relying on it in respect of the breach that has occurred,
i.e., ‘the interpretation or construction approach’.

10.3.1 Incorporation

The discussion on ‘incorporated terms’ in the previous

chapter on the terms of the contract generally is also
applicable here.

As a matter of overview:

 If the exclusion clause is in a written contract, the

general rule is that a person who signs a written
contract is bound by it even if he has not read it –
except for cases of misrepresentation or fraud;
L’Estrange v Graucob [1934] 2 KB 394; Curtis v
Chemical Cleaning & Dyeing Co [1951] 1 KB 805.
 The key requirement is that reasonable notice has
been given to the other party – especially if the
exclusion clause is in a document or place other than
the contract itself (e.g. a separate document on terms
& conditions, a train timetable, a wall, a hotel room
etc.); Parker v South Eastern Railway Co (1877) 2
CPD 416.
 The notice must be given at the time, or before, the
contract is concluded; Olley v Marlborough Court
Ltd [1949] 1 KB 532.

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  The term must be in a document or place where
contract terms would be ordinarily expected;
Chapelton v Barry UDC [1940] 1 KB 532.
 Reasonable steps must be taken to bring the clause
to the attention of the other party; Interfoto Picture
Library Ltd v Stiletto Visual Programmes Ltd
[1989] QB 433 and J Spurling Ltd v Bradshaw
[1956] 1 WLR 461.

Note: it is important to bear in mind that the fact that a clause

might have been properly incorporated into the contract or
brought to the other party’s attention does not of itself mean
that the term might still not operate to the disadvantage of
that party.

10.3.2 Interpretation or Construction

Under the interpretation or construction approach, the courts

are essentially seeking to determine if the exclusion clause
has been drafted sufficiently well or widely enough that by its
terms it does exclude or limit the liability of the party seeking
to rely on it.

Generally, the courts supposedly follow an approach of strict

construction of the terms of exclusion clauses often called
the contra proferentem rule. In essence, the courts would
construe the terms of an exclusion clause more strictly
against (contra) the party trying to rely on it (proferens) –
especially if the clause is ambiguous. According to Jackson
LJ in Persimmon Homes Ltd v Ove Arup & Partners Ltd
& Anor [2017] EWCA Civ 373 [52], [2017] BLR 417: ‘The
contra proferentem rule requires any ambiguity in an
exemption clause to be resolved against the party who put
the clause forward and relies upon it.’

In Houghton v Trafalgar Insurance Co [1954] 1 QB 247, a

motor insurance policy excluded liability if the car was
carrying excessive ‘load’; a 5 seater car was carrying 6

115
people at the time of an accident; held (CA): that ‘load’ should
be given a narrow interpretation, i.e., referring to goods and
not people. See also J Evans & Son (Portsmouth) Ltd v
Andrea Merzario Ltd [1976] 1 WLR 1078.

A natural response was for the lawyers to try and draft

exclusion clauses in broader terms; however, the courts were
sometimes still able to hold a purportedly widely drafted
exclusion clause inapplicable, depending on the facts. In
Andrews Brothers (Bournemouth) Ltd v Singer & Co Ltd
[1934] 1 KB 17, the contract was for the sale of ‘new singer
cars’; one car was not new; a clause said ‘all conditions,
warranties and liabilities, implied by statute, common law or
otherwise, are excluded’; held (CA): that the clause did not
exclude liability for breach of express terms. See also Wallis,
Son & Wells v Pratt & Haynes [1911] AC 394; KG
Bominflot Bunkergesellschaft fur Mineraloele mbH & Co
v Petroplus Marketing AG (The Mercini Lady) [2010]
EWCA Civ 1145, [2011] 1 Lloyd's Rep 442.

Nevertheless, and despite the contra proferentem rule, a well

drafted exclusion clause can help the proferens escape
liability even in circumstances where he has clearly
committed a breach of contract or has been negligent; see
e.g. Mitsubishi Corporation v Eastwind Transport Ltd &
Ors (‘The Irbenskiy Proliv’) [2004] EWHC 2924 (Comm),
[2005] 1 Lloyd’s Rep 383.

There is also a consideration that there is apparent softening

of the contra proferentem approach generally and possibly
more so in relation to limitation (as opposed to total
exclusion) clauses; see e.g. Ailsa Craig Fishing Co Ltd v
Malvern Fishing co Ltd & Securicor (Scotland) Ltd [1983]
1 WLR 964, [1981] UKHL 12 (especially per Lord
Wilberforce). Certainly, the courts take the view that the
contra proferentem rule has a limited role in relation to
‘commercial contracts, negotiated between parties of equal
bargaining power’, Persimmon Homes Ltd v Ove Arup &
Partners Ltd & Anor (above); but of course parties are not

116
necessarily of equal bargaining power in every commercial
contract.

Importantly, it has now been established that even when the

term breached is an important, essential or fundamental
term, a sufficiently well drafted exclusion clause can still
enable the proferens to escape liability. The courts have now
displaced an approach (‘substantive doctrine’) that had been
adopted by some judges under which they held that there
was a “rule of law” which meant that an exclusion clause will
not be applied where the breach of contract is of a
fundamental nature or concerning a fundamental term. It has
now been held that there is no such “rule of law”; rather, it is
always a matter of interpretation or construction whether the
exclusion clause is wide enough to protect the proferens in
respect of the breach, even if the breach concerns a
fundamental term.

In Photo Productions Ltd v Securicor Transport Ltd

[1980] AC 827, [1980] UKHL 2, Securicor contracted to
provide night patrol service for a premises; a clause in the
contract said that Securicor would not be responsible under
any circumstances ‘for any injurious act or default’ by any of
their employees; an employee of Securicor started a fire
which destroyed the premises, resulting in losses of
£615,000; Securicor relied on the exclusion clause. The
House of Lords held that Securicor could rely on the
exclusion clause; that the earlier case of Harbutts Plasticine
(below) wrongly applied the previous case of Suisse
Atlantique (below) and must be overruled; that the words of
exclusion clauses: ‘have to be approached with the aid of
cardinal rules of construction that they must be read contra
proferentem and that in order to escape from the
consequences of one’s own wrongdoing …, clear words are
necessary’; that since the passage of the Unfair Contract
Terms Act 1977, the concerns about injustice are now dealt
with by that Act.

See also: Suisse Atlantique Societe d'Armament SA v NV

Rotterdamsche Kolen Centrale [1967] 1 AC 361; compare

117
with Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 and
Harbutts Plasticine Ltd v Wayne Tank and Pump Co Ltd
[1970] 1 QB 447.

 Nevertheless, where an exclusion clause seeks to

protect against a very serious breach, it is still possible
that as a matter of construction it will not be allowed
to stand - unless very clear words are used See
Karsales etc v Wallis (above); Pinnock Bros v
Lewis & Peat Ltd [1923] 1 KB 690.
 However, the House of Lords warned that a strained
construction should not be given to the words of
exclusion clauses; Photo Productions Ltd v
Securicor Transport Ltd (above).

10.3.3 Clauses Excluding Liability for

Negligence

The courts have developed three tests for deciding whether

a contract clause can validly exclude liability for negligence.
The first is a stand-alone test while the latter two are related;
see Canada Steamship Lines v The King [1952] AC 192,
[1952] UKPC 1.
 If the clause expressly excludes liability for negligence
(either by express mention or through synonyms),
then negligence liability can possibly be excluded
 If there is no express exclusion of negligence, the
court must consider whether the words used are wide
enough in their ordinary meaning to cover negligence,
(e.g. exclusion of liability for ‘any act or omission
whatsoever’); any doubt on the matter is to be
resolved contra proferentem.
 The court must then consider whether the exclusion
clause may cover some kind of liability other than
negligence. If so, the clause will be confined to that

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 other type of liability but will not be regarded as
extending to the negligence liability.

See also White v John Warwick & Co [1953] 1 WLR 1285,

[1953] EWCA Civ 2.

10.4 Statutory Control or Regulation of

Exclusion Clauses: Unfair Contract
Terms Act 1977

Primarily owing to the realisation of the necessity to protect

consumers against some contract provisions which tended
to affect their rights negatively, statutory controls have been
introduced within English law per se to control the use of
exclusion clauses.

Generally, a consumer is: in a weaker bargaining position as

against a business supplier; often required to enter into
contract on terms dictated by the business supplier; unlikely
to be able to dictate the terms of contract; unlikely to be able
to obtain a modification of the contract; prone to be unaware
of exclusion clauses in a contract; prone to be lacking in
understanding of the real effect of exclusion clauses.

Even in some business to business transactions, there are

some limited circumstances when it is felt that one business
party should not be allowed to rely on an exclusion clause
against the other – at least without any restriction on the
ability to do so.

The major statutory controls concerning exclusion clauses in

English law were first introduced through the Unfair Contract
Terms Act 1977 (‘UCTA’). The statutory controls of exclusion
clauses in respect of consumer contracts are now contained
in the Consumer Rights Act 2015; these are considered
separately. Despite its title, the UCTA is not actually
concerned with ‘unfairness’ or ‘unfair contract terms’

119
generally; rather it is concerned with potential unfairness
arising specifically from the use of exclusion clauses.

10.4.1 General Considerations

Generally, the provisions of the UCTA apply in respect of

‘business liability’. Section 1(3) of the Act states that the
provisions of the Act apply only to liability for breach of
obligations or duties arising (a) from things done by a person
in the course of business (whether his own business or
another’s); or (b) from the occupation of premises used for
business purposes of the occupier. There is however an
exception for the controls in section 6 of the Act which apply
in respect of any contract of sale of goods or hire purchase
agreement; see also s.6(4). Section 14 defines ‘business’ to
include ‘a profession and the activities of any government
department or local or public authority’.

The Act employs two main methods of control of exclusion

clauses. First, some exclusion clauses are made of no effect
at all. Second, some other exclusion clauses can only be
relied on if they satisfy a test of ‘reasonableness’.

10.4.2 Exclusion of liability for breach of

contract generally

Section 3 of the Act addresses a situation where one party

deals on the other party’s written standard terms of business.
Under this provision, the other party cannot use a contract
term to exclude or restrict liability for a breach of contract by
him, or claim to be entitled to render a contractual
performance substantially different from what was
reasonably expected of him, or claim to be entitled to render
non-performance at all of the whole or any part of his
contractual obligation - except in so far as the contract term
that he is trying to rely upon satisfies the requirement of
reasonableness.

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In relation to ‘deals … on the other party’s written standard
terms of business’, which is not statutorily defined, issues of
interpretation arising include:
 ‘deals’ - ‘makes a deal’ (irrespective of negotiations
about the standard terms, except leading to significant
changes); see St Albans City & DC v International
Computers Ltd [1996] 4 All ER 481, 491; Yuanda
(UK) Co Ltd v WW Gear Construction Ltd [2010]
EWHC 720 (TCC); [2010] 1 CLC 491;
 ‘standard terms’ - terms considered as such by the
party relying on them and habitually used by him,
though consideration may be affected by whether he
deals on other terms or makes modifications etc.; see
Chester Grosvenor Hotel Co Ltd v Alfred McAlpine
Management Ltd (1991) 56 Build LR 115, 131;
 ‘written’: compare a contract which is partly written
and partly oral?
 ‘other’s’ – compare terms drawn up by or on behalf of
the party relying on them and terms used by him but
having been drawn up as model forms or general
terms and conditions by a third party (organisation);
see e.g. British Fermentation Products Ltd v
Compare Reavell Ltd [1999] BLR 352, [1999] EWHC
Technology 227.

Note that the restrictions under section 3 UCTA on the use

of exclusion clauses may apply to: (i) circumstances when
there has been a breach of contract, {section 3(2)(a)}; and,
(ii) circumstances where there may not have been a breach
of contract as such but, rather, a substantially different
performance or no performance at all, {section 3(2)(b)}; see
e.g. AXA Sun Life Services Plc v Campbell Martin Ltd &
Ors [2011] EWCA Civ 133, [2011] 2 Lloyd's Rep 1; Timeload
Ltd v British Telecommunications plc [1995] EMLR 459.

Note that in the circumstances covered by section 3 UCTA,

exclusion clauses are not banned outright; rather they are

121
subjected to a ‘test of reasonableness’. They can be relied
upon if they pass the test.

Section 11(1) UCTA states that ‘the requirement of

reasonableness … is that the term shall have been a fair and
reasonable one to be included having regard to the
circumstances which were, or ought reasonably to have
been, known to or in the contemplation of the parties when
the contract was made.’

In addition, section 11(2) provides that when determining

whether a contract term satisfies the requirement of
reasonableness, regard shall be had in particular to the
matters specified in Schedule 2 to the UCTA. Those matters
are any of the following (as relevant)

 the strength of the bargaining positions of the parties

relative to each other …
 whether the customer received an inducement to
agree to the term
 whether the customer knew or ought reasonably to
have known of the existence and the extent of the
term …
 where the term excludes or restricts any relevant
liability if some condition was not complied with,
whether it was reasonable at the time of the contract
to expect that compliance with that condition would be
practicable
 whether the goods were manufactured, processed or
adapted to the special order of the customer.

For an early example of the application of the requirement

of reasonableness, see George Mitchell (Chesterhall)
Ltd v Finney Lock Seeds Ltd (1983) 2 AC 803, [1982]
EWCA Civ 5.

122
10.4.3 Exclusion of liability for breach of
implied terms in sale of goods (and
hire purchase) contracts

Under the Sale of Goods Act 1979 (‘SGA’) some terms are
statutorily implied into sale of goods contracts. They include
implied terms that: the seller must have the right ‘title’ {s.12};
that if goods are sold by description they must correspond to
the description {s.13}; that the goods must be of satisfactory
quality {s.14(2)}; that the goods must be fit for a particular
purpose made known by the buyer to the seller in certain
circumstances {s.14(3)}; goods sold by sample must
correspond with the sample {s.15}.

The UCTA controls attempts by sellers to exclude liability for

breaching these implied terms. There are two forms of
control: (a) some purported exclusions are completely
ineffective, i.e., prohibited; and, (b) others can only be relied
upon if they satisfy the test of reasonableness.

 By section 6(1) UCTA, liability for breaching the

implied terms as to title (section 12 SGA) cannot be
excluded; it does not even matter whether or not the
buyer is a consumer.
 By section 6(1A), liability for breaching the implied
terms in sections 13-15 SGA can be excluded but only
in so far as the exclusion satisfies the test of
reasonableness.

Note that the controls in section 6 UCTA on attempts to

exclude liability for breach of the SGA implied terms, apply in
respect of any sale of goods (or HP) agreement; not only in
respect of ‘business liability’. In other words, they apply to
both private and business sellers.

Note also that the controls on attempts to exclude liability for

breaching the SGA implied terms do not apply in respect of
‘international supply contracts’; see sections 26 & 27 UCTA.

123
10.4.4 Exclusion of liability for negligence

The UCTA also controls attempts by a (‘business’) person to

exclude liability for his own negligence. There are two forms
of control: (a) some purported exclusions are completely
ineffective, i.e., prohibited; (b) others can only be relied upon
if they satisfy the test of reasonableness.

First, a person cannot at all exclude or restrict liability for his

own negligence which resulted in death or personal injury;
section 2(1) UCTA. ‘Personal injury’ includes any disease
and any impairment of physical or mental condition; section
14. In the case of other loss or damage, a person cannot
exclude liability for his negligence except in so far as the
exclusion satisfies the requirement of reasonableness.

Note
 The controls on exclusion of liability for negligence
only apply in respect of ‘business liability’; section 1(3)
UCTA.
 The provisions of section 2 UCTA apply not only in
respect of contracts but also in respect of non-
contractual notices as well.
 Negligence is defined in section 1(1): essentially,
breach of (a) obligation arising from express or implied
terms of a contract to take reasonable care and skill
in contract performance; (b) any common law duty to
take reasonable care or exercise reasonable skill (but
not any stricter duty); (c) the common duty of care
imposed by the Occupiers’ Liability Act 1957 etc.

See also White v John Warwick & Co [1953] 1 WLR 1285,

[1953] EWCA Civ 2.

124
10.5 Statutory Control or Regulation of
Exclusion Clauses: The Consumer
Rights Act 2015

The Consumer Rights Act 2015 (‘CRA’) consolidates in one

legislation various consumer protection provisions that had
been scattered in a number of previous legislation. In relation
to the control of exclusion clauses, the Unfair Contract Terms
Act 1977 has been variously amended to remove the
statutory controls on exclusion clauses in relation to
contracts between a trader and a consumer so that these are
now addressed by the CRA.

10.5.1 General considerations

The CRA renders ineffective - attempts to exclude or restrict

a trader’s liability in relation to contracts between a trader and
a consumer in some circumstances. This is in the context of
the use of exclusion clauses that relate to the contracts
covered in Part 1 of the Act. In particular, they relate to a
contract between a trader and a consumer for the trader to
supply goods, digital content, or services; section 1 CRA.

Under section 2(2) CRA: ‘Trader’ means a person acting for

purposes relating to that person’s trade, business, craft or
profession, whether acting personally or through another
person acting in the trader’s name or on the trader’s behalf.
Section 2(7) CRA provides that: ‘Business’ includes the
activities of any government department or local or public
authority.

Under section 2(3) CRA: ‘Consumer’ means an individual

acting for purposes that are wholly or mainly outside that
individual’s trade, business, craft or profession. However,
generally, a person is not a consumer in relation to second
hand goods sold at public auction which individuals can
attend in person; section 2(5) CRA.

125
 Section 2(4) CRA provides to the effect that a trader who
claims that an individual was not acting for purposes
wholly or mainly outside the individual’s trade, business,
craft or profession must prove it.

10.5.2 Exclusion of liability for breach of

implied terms in contracts for the
supply of goods

In respect of a contract under which a trader agrees to supply

goods to a consumer, section 31 provides that a contract
term is not binding on a consumer to the extent that it seeks
to exclude or restrict liability for breach:

 of the terms implied under sections 9-17 CRA

(satisfactory quality, fitness for purpose etc.);
 of the trader’s obligation concerning delivery (section
28);
 of the trader’s obligation concerning passing of risk
(section 29).

A contract term is also not binding to the extent that it would

make a consumer right under the implied terms or its
enforcement subject to restrictive or onerous conditions. It is
provided additionally that excluding or restricting a liability
also includes preventing an obligation or duty arising or
limiting its extent. On the other hand, a written agreement to
submit present or future disputes to arbitration is not
regarded as excluding or limiting liability.

10.5.3 Exclusion of liability for breach of

implied terms in contracts for the
supply of digital content

Under the provisions of section 47 CRA, a contract term is

not binding on a consumer to the extent that it seeks to
126
exclude or restrict liability for breach of the terms implied
under sections 34-37 & 41 CRA (satisfactory quality, fitness
for purpose etc.). It is further provided that a contract term is
not binding to the extent that it would make a consumer right
under the implied terms or its enforcement subject to
restrictive or onerous conditions. Also, excluding or
restricting a liability also includes preventing an obligation or
duty arising or limiting its extent. On the other hand, a written
agreement to submit present or future disputes to arbitration
is not regarded as excluding or limiting liability.

10.5.4 Exclusion of liability for breach of

implied terms in contracts for the
supply of services

Under the provisions of section 57 CRA, a contract term is

not binding on a consumer to the extent that it seeks to
exclude the trader’s liability for breach of the term implied
under section 49 CRA (‘reasonable care and skill’) and of the
implied term under section 50 CRA (‘information about trader
or service to be binding’).

It is further provided that a contract term is not binding on a

consumer to the extent that it seeks to restrict the trader’s
liability arising under sections 49 & 50 and, where they apply,
under the provisions of sections 51 and 52 - if it would
prevent the consumer in an appropriate case from recovering
the price paid or the value of any other consideration. Section
51 is to the effect that if a contract to supply services does
not fix a price or other consideration, the contract is to be
treated as including a term that the consumer must pay a
reasonable price for the service, and no more’. Section 52 is
to the effect that if the contract does not fix the time for the
service to be performed, ‘the contract is to be treated as
including a term that the trader must perform the service
within a reasonable time’.

127
10.5.5 Exclusion of liability for negligence

Controls on an attempt by a trader to exclude or restrict

negligence liability in a contract with a consumer are dealt
with under the provisions relating to unfair terms in consumer
contracts contained in Part 2 of the CRA.

According to section 65(1), a trader cannot use a contract

term or a consumer notice to exclude or restrict liability for
death or personal injury resulting from negligence. Further,
according to section 65(2), a person is not to be taken to have
voluntarily accepted any risk merely because the person
agreed to or knew about a consumer contract term or notice
that purports to exclude or restrict liability for negligence.

128
 Chapter 11:
Unfair Terms in
Consumer
Contracts

Think About!
1. John drove his car into a car park operated by Parkato Ltd. There was a notice outside
the car park that payment is to be made at a machine and that the ticket from the
machine is to be displayed on the dashboard of the car. The notice also said that the cost
of parking is £2.00 per hour. Finally, the notice said that if a car is parked for longer than
the time paid for, there will be a charge of £150 for overstaying. This notice was also
repeated in big print on the machine at which payment for parking is to be made and
can be seen before the payment is made.

Is this term enforceable against John if he overstays the time he paid for?

2. David drove his car into a car park operated by Parkboys Ltd. There was a notice
outside the car park that payment is to be made at a machine and that the ticket from
the machine is to be displayed on the dashboard of the car. The notice also said that any
car can only be parked at the car park for no more than two hours. The notice also said
that if a car is parked for more than two hours, the owner will have to pay a fee of £200.
This notice was also repeated in big print on the machine at which payment for parking
is to be made and can be seen before the payment is made.

Is this term enforceable against David if he leaves his car in the car park for two and a
half hours?

3. Read ParkingEye Ltd v Beavis [2015] UKSC 67, [2016] AC 1172.

129
11.1 Background

The control of ‘unfair terms’ in a contract between a trader

and a consumer is now addressed in English law by the
provisions of Part 2 of the Consumer Rights Act 2015
(‘CRA’).

In summary, the provisions of Part 2 CRA make an unfair

term in a consumer contract not binding on the consumer.
Section 62(1) provides that an unfair term of a consumer
contract is not binding on the consumer, and section 62(2)
provides that an unfair consumer notice is not binding on the
consumer. On the other hand, these provisions do not
prevent the consumer from relying on the term or notice if the
consumer chooses to do so; section 62(3).

The provisions of Part 2 CRA represent the current

implementation of the EU’s Directive on Unfair Terms in
Consumer Contracts (Directive 93/13/EEC; also called
Unfair Contract Terms Directive) of 5 April 1993. The
Directive was previously implemented by now repealed
subsidiary legislation:

 Unfair Terms in Consumer Contracts Regulations

1994; and
 Unfair Terms in Consumer Contracts Regulations
1999

In the past there was overlap and potential for conflict

between the then consumer protection provisions of the
Unfair Contract Terms Act 1977 (‘UCTA’) and the provisions
of the previous Regulations. Presently, consumer protection
provisions have been taken out of UCTA and incorporated
into the CRA. As the CRA’s provisions relating to unfair terms
have their origin in the Unfair Contract Terms Directive,
interpretations of the Directive by the Court of Justice of the
European Union (‘CJEU’) can affect the way the relevant
provisions of the CRA are interpreted and applied by the UK
courts.

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11.2 Scope, Application and Effect of Part 2
of the Consumer Rights Act

The provisions of Part 2 of the CRA apply to a contract

between a trader and a consumer (‘consumer contract’); see
sections 61(1) & (3). However, contracts of employment and
apprenticeship are excluded; section 61(2).

The provisions of Part 2 also apply to a notice (‘consumer

notice’) to the extent that it relates to rights or obligations as
between a trader and a consumer, or purports to exclude or
restrict a trader’s liability to a consumer; section 61(4) & (7).

According to section 61(8), ‘notice’ includes an

announcement, whether or not in writing, and any other
communication or purported communication. It does not
matter whether the notice is expressed to apply to a
consumer, as long as it is reasonable to assume it is intended
to be seen or heard by a consumer; section 61(6). On the
other hand, however, consumer notice does not include a
notice relating to rights, obligations or liabilities as between
an employer and an employee; section 61(5).

According to section 76(2) CRA the words ‘trader’ and

‘consumer’ have the same meaning in Part 2 as they have in
Part 1 of the Act. ‘Trader’ is defined as ‘a person acting for
purposes relating to that person’s trade, business, craft or
profession, whether acting personally or through another
person acting in the trader’s name or on the trader’s behalf’;
section 2(2) CRA. For the purposes of the CRA, the word
‘Business’ ‘includes the activities of any government
department or local or public authority’; section 2(7) CRA.

‘Consumer’ is defined as ‘an individual acting for purposes

that are wholly or mainly outside that individual’s trade,
business, craft or profession’; section 2(3) CRA. The
definition of a consumer indicates that the consumer has to
be a natural person. Compare this with UCTA where even a
corporate body can ‘deal as a consumer’; R & B Customs

131
Brokers Company Ltd v United Dominions Trust Ltd
[1988] 1 WLR 321, [1987] EWCA Civ 3.

The CRA excludes a person buying second hand goods at

public auction from the definition of ‘consumer’. Section 2(5)
CRA provides that a person is not a consumer in relation to
a sales contract if the goods are second hand goods sold at
public auction, and individuals have the opportunity of
attending the sale in person.

In relation to the burden of proving whether a person is a

consumer or not, section 2(4) CRA provides that: ‘A trader
claiming that an individual was not acting for purposes wholly
or mainly outside the individual’s trade, business, craft or
profession must prove it’.

11.2.1 When is a contract term unfair?

By section 62(4), a term is unfair if contrary to the

requirement of good faith, it causes a significant imbalance
in the parties’ rights and obligations under the contract to the
detriment of the consumer.

Technically, ‘good faith’, ‘significant imbalance’ and

‘detriment’ are three independent tests. In relation to the
previous regulations, however, the courts have observed that
there is overlap between the requirements concerning ‘good
faith’ and ‘significant imbalance’ in particular; see Director
General of Fair Trading v First National Bank [2001]
UKHL 52, [2002] AC 481.

As in the UTCCRs of 1994 and 1999, the Directive contains

a further requirement for a term to be regarded as unfair, i.e.,
that it has not been individually negotiated; see also, UK
Housing Alliance (North West) Ltd v Francis [2010]
EWCA Civ 117, [2010] 3 All ER 519.

The element that for a term to be held unfair, it should not

have been individually negotiated is not required under the

132
CRA. The CRA is therefore more generous than the Directive
in favour of consumers in this respect in that even a term that
has been individually negotiated can be unfair. Similar
considerations apply to consumer notice; section 62(6).

As with the other requirements, the requirement of ‘good

faith’ has been addressed in some of the relevant judgments
concerning the previous Regulations. In Director General of
Fair Trading v First National Bank (above), Lord Bingham
related it to ‘fair and open dealing’: the supplier should not
take advantage of the ‘consumer's necessity, indigence, lack
of experience, unfamiliarity with the subject matter of the
contract, weak bargaining position {etc.}’. Additionally, there
should be ‘no concealed pitfalls or traps’, and prominence
should be given to disadvantageous terms. The court
considered that good faith looks to good standards of
commercial morality and practice.

In the same case, Lord Steyn indicated that the requirement

of ‘good faith’ concerns both ‘procedural’ and ‘substantive’
unfairness. Procedural unfairness relates to the manner in
which the contract was entered into or formed. Substantive
unfairness relates to the contents of the contract, i.e., the
weight of the rights and obligations of the respective parties
– sometimes called ‘contractual imbalance’; see e.g. Hart v
O’Connor & ors [1985] 3 WLR 214, [1985] UKPC 17.

Note that in ParkingEye Ltd v Beavis [2015] UKSC 67,

[2016] AC 1172, it was held (in the Court of Appeal, i.e.,
before the final Supreme Court decision) that the fact that
notice of a parking charge imposed on drivers who
overstayed the allowed time was displayed prominently
meant that the requirement of good faith was not broken;
[2015] EWCA Civ 402, [2015] WLR(D) 190.

Further help on deciphering ‘good faith’ can be found in the

Directive itself. One of the Recitals {16} to the Directive
contains a provision to the effect: ‘the assessment … of the
unfair character of terms … must be supplemented by a
means of making an overall evaluation of the different

133
interests involved; … this constitutes the requirement of good
faith’.

Schedule 2 of the 1994 version of the UTCCR (which was

not retained in the 1999 version or in the CRA) contained
provisions setting out matters to be taken into account in a
consideration of ‘good faith’. These matters are still relevant
even under the CRA because they remain part of the Recitals
{16} of the Directive, (the ‘dominant text’ according to Lord
Steyn in Director General of Fair Trading v First National
Bank).

Thus, regard is to be had to:

 (a) the strength of the bargaining positions of the

parties;
 (b) whether the consumer had an inducement to agree
to the term;
 (c) whether the goods or services were sold or
supplied to the special order of the consumer, and
 (d) the extent to which the seller or supplier has dealt
fairly and equitably with the consumer."

Another important phrase that raises questions as regarding

interpretation is ‘significant imbalance’. In Director General
of Fair Trading v First National Bank, Lord Bingham said
the requirement on ‘significant imbalance’ is met when ‘a
term is so weighted in favour of the supplier as to tilt the
parties' rights and obligations under the contract significantly
in his favour’; see also ParkingEye Ltd v Beavis (above).

The phrase ‘significant imbalance’ is generally seen as

focusing on ‘substantive unfairness’. Nevertheless, there is
still potential overlap with ‘good faith’, (‘large overlap’
according to Lord Steyn). On the matter of interpretation,
consider for example, if it is possible for a term to cause
significant imbalance and yet not be contrary to the
requirement of good faith (and thus not ‘unfair’)?

134
Although the requirements of ‘good faith’ and ‘significant
imbalance’ are independent requirements (e.g. Lord Steyn in
Director General of Fair Trading v First National Bank),
there is an interrelationship between the two. Specifically, the
significant imbalance must be contrary to good faith.

In addition, there is potential overlap between ‘good faith’ and

‘significant imbalance’; (‘large overlap’ – Lord Steyn). Good
faith relates to both procedural unfairness and substantive
unfairness while significant imbalance relates mainly to
substantive unfairness.

To decide if imbalance is contrary to good faith involves

considering if the supplier (trader) could have reasonably
assumed the consumer would have agreed to the term if it
was negotiated; Aziz v Caixa d’Estalvis de Catalunya,
Tarragona i Manresa (Catalunyacaixa) (2013) Case C-
415/11 etc (CJEU).

The UK courts have also commented on the word ‘detriment’.

In Director General of Fair Trading v First National Bank,
Lord Bingham observed that the imbalance must be to the
detriment of the consumer; and that the Directive did not
seek to concern itself with detriment to the seller/supplier
(now, trader). Lord Steyn said that the requirement ‘serves to
make clear that the Directive is aimed at significant
imbalance against the consumer’; otherwise it may not add
much.

Section 62(5) CRA contains a further provision on general

considerations in assessing whether a term is unfair: ‘…the
unfairness of a contractual term shall be assessed, taking
into account the nature of the goods or services for which the
contract was concluded and by referring, at the time of
conclusion of the contract, to all the circumstances attending
the conclusion of the contract and to all the other terms of the
contract or of another contract on which it is dependent.’

Other general considerations that may affect a decision

whether a term is unfair include the following. If a term is

135
suggested by the consumer or his professional
representatives, the term is less likely to be held unfair,
Bryen & Langley Ltd v Boston [2005] EWCA Civ 973,
[2005] BLR 508. On the other hand, if a term is suggested by
the trader, it is more likely to be held unfair; a trader would
have to prove that a term is fair, e.g., that it was brought to
the attention of and explained to the consumer. If the
consumer has substantial business experience, a term is
less likely to be held unfair; West & Anor v Ian Finlay
Associates (a firm) [2014] EWCA Civ 316.

In addition, the court must consider if a term of a consumer

contract is fair even if none of the parties raises or indicates
an intention to raise the issue, if the court has sufficient legal
and factual material; section 71(2) & (3). Further, the unfair
term provisions also apply to a term in a secondary contract
seeking to reduce the rights or remedies or to increase the
obligations of the consumer under a main contract even if the
parties are different, and even if the secondary contract is not
a consumer contract; section 72.

Part 1 of Schedule 2 of the CRA contains an indicative and

non-exhaustive list of terms which may be regarded as
unfair’; e.g.

 excluding or limiting the legal liability of a seller or

supplier in the event of the death of a consumer or
personal injury …
 inappropriately excluding or limiting the legal rights of
the consumer vis-à-vis the seller or supplier or another
party in the event of total or partial non-performance
or inadequate performance …
 seeking to oblige the consumer to fulfil all of his
obligations where the trader does not perform his
 requiring any consumer who fails to fulfil his obligation
to pay a disproportionately high sum in compensation
 seeking to enable the trader to terminate a contract of
indeterminate duration without reasonable notice;
 excluding or hindering the consumer’s right to take
legal action or exercise any other legal remedy,

136
 particularly by requiring the consumer to take disputes
exclusively to arbitration not covered by legal
provisions …
 etc.

11.2.2 Limitation on subjection of terms to

assessment for unfairness

‘Core Terms’

Section 64(1) CRA provides that a term of a consumer

contract may not be assessed for fairness, to the extent that
it specifies the main subject matter of the contract, or the
assessment is of the appropriateness of the price by
comparison with the goods or digital content or services
supplied.

These types of term are often referred to as ‘core terms’ –

especially in relation to the old Regulations. ‘Core terms’ are
excluded from assessment for unfairness only if, they are
‘transparent’ and ‘prominent’; section 64(2). In theory, a
consumer is likely to be aware of and not caught by surprise
in respect of ‘core terms’.

In Office of Fair Trading v Abbey National, ‘core terms’

were described as being: ‘that part of the bargain that will be
the focus of the consumer’s attention when entering into a
contract’. Also, in Árpád Kásler and Hajnalka Káslerné
Rábai v OTP Jelzálogbank Zrt (C-26/13) [2014] 2 All ER
(Comm) 443 the CJEU held that the exclusion of core terms
relates to … terms that lay down essential obligations of the
contract and, therefore, characterise it, but not to ancillary
terms.

Note: section 64 does not apply to a term in the indicative

and non-exhaustive list of Part 1 of Schedule 2; section
64(6).

137
Case law under the previous Regulations suggests that
section 64 CRA does not exclude ‘core terms’ from
assessment as to fairness altogether. Rather a term shall not
be assessed as to fairness in relation to the definition of the
main subject or adequacy of the price; The Office of Fair
Trading v Ashbourne Management Services Ltd & Ors
[2011] EWHC 1237 (Ch). In Office of Fair Trading v Abbey
National [2009] UKSC 6, [2010] 1 AC 696, the Supreme
Court held that banks’ charges for unauthorised overdraft are
not subject to assessment on adequacy (regarded as
‘appropriateness’) of price or remuneration; (‘any monetary
price or consideration payable under the contract’).

In the earlier case of Director General of Fair Trading v

First National Bank, the then House of Lords indicated (that
UTCCR provisions on ‘core terms’ should be given a
restrictive interpretation; (see especially per Lord Steyn). It
was held in that case that a provision* imposing interest
charges on the debt of a borrower beyond court judgment on
the debt and interest due by that judgment date, related to
eventualities of default and not to adequacy
(‘appropriateness’) of price/remuneration; thus it could be
assessed for fairness (and was held to be fair in the
circumstances of the case). In Office of Fair Trading v
Abbey National, the Supreme Court distinguished the
Director General of Fair Trading v First National Bank
case on the basis that it concerned ‘default’ provisions.

{*Interest to continue to accrue at the contractual rate until

payment ‘after as well as before any judgment (such
obligation to be independent of and not to merge with the
judgment)’}.

According to section 64(2) CRA, for a core term to be

excluded from assessment it also has to be transparent and
prominent. According to section 64(3) a term is ‘transparent’
if it is expressed in plain and intelligible language and (in the
case of a written term) is legible. In Office of Fair Trading v
Abbey National Lord Mance in the Supreme Court
considered ‘plain and intelligible language’ as stressing the

138
‘need for transparency’. In the same case at the lower level,
the Court of Appeal supported the trial judge’s statement that
the ‘standard to be achieved was whether the contractual
terms put forward by the seller or supplier are sufficiently
clear to enable the typical consumer to have a proper
understanding of them for sensible and practical purposes’.

The Court of Appeal further supported the trial judge’s

conclusions that ‘whether terms are in plain intelligible
language was to be considered from the point of view of the
average consumer who is reasonably well informed and
reasonably observant and circumspect’; and ‘that non-
contractual material made available to the customer before
or at the time the contract was made could and should be
taken into account in deciding whether the contractual
language was plain and intelligible.’

According to section 64(4), a term is ‘prominent’ if it is

brought to the consumer’s attention in such a way that an
average consumer would be aware of the term. An ‘average
consumer’ is defined as a consumer who is reasonably well-
informed, observant and circumspect; section 64(5).

11.2.3 ‘Mandatory provisions’ and

‘applicable law’

Apart from core terms, some other contract terms are also
excluded from assessment for unfairness. Section 73 CRA
provides that the unfair terms provisions of the CRA do not
apply to mandatory statutory or regulatory provisions, or
provisions or principles of an international convention to
which the United Kingdom or the EU is a party - if no other
arrangements have been established between the parties.

By section 74, the unfair term provisions of the CRA still

apply even if the parties have chosen the law of a country
other than an EEA country, when the contract has a close
connection to the UK. If there is no choice of applicable law,
or if the law of an EEA country has been chosen, then the

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provisions of Regulation (EC) No. 593/2008 (‘Rome I
Regulation’) apply.

11.2.4 Effect of presence of an unfair term

An unfair term or notice is not binding on the consumer;

section 62(1) & (2) CRA. However, the contract continues,
so far as practicable, to have effect in every other respect;
section 67.

11.2.5 Enforcement of unfair term provisions

of the CRA

In the first place, an individual consumer can seek to enforce

the unfair term provisions of the CRA – typically as part of a
contractual dispute with a trader. This type of enforcement
could arise in the course of a court action (ex casu, per Lord
Steyn in Director General of Fair Trading v First National
Bank).

On the other hand, there is also provision for enforcement

action by the Competition and Markets Authority and ‘other
regulators’; section 70(1) and Schedule 3. In relation to the
previous Regulations this type of enforcement action was
described in Director General of Fair Trading v First
National Bank as pre-emptive or collective challenges by
appropriate bodies. This type of enforcement is particularly
important especially as it includes the power to seek
injunctions which could mean that business could be
prohibited from using certain types of clauses from the onset
rather than when there is use leading to subsequent litigation
with (a) consumer(s).

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 Part 3: Potentially Vitiating Factors

12. Mistake
13. Misrepresentation
14. Duress and Undue Influence
15. Illegality

141
142
 Chapter Twelve:
Mistake

Think About!

1. What are the differences between a void contract, a voidable contract and an
unenforceable contract?

2. Citypads Estates Ltd let a flat to Rafik Johnson for one year at a rent of £1,000
per month. It was agreed that the lease could be renewed by notice to be given
about three months before the end of the first year and that the rent would then
be reviewed. After 9 months, Citypads Estates Ltd sent an email to Rafik and
offered to renew the lease for another year at a rent of £950. Rafik replied and
accepted immediately by email. Citypads Estates Ltd then replied that they had
meant to say that the new rent would be £1,150.

Is there an enforceable agreement for a new lease?

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12.1 Mistake at Common Law - Introduction

Mistake is one of a number of factors which may mean that

a supposed contract is invalid or unenforceable. Factors that
may undermine the validity or enforceability of a contract are
often referred to as vitiating factors. After considering
mistake in this chapter, we will study other potentially vitiating
factors including misrepresentation, duress and undue
influence in subsequent chapters.

At common law, there are different types of mistake that can

affect a contract. The appellations for different types of
mistake are not always used consistently but they include
unilateral mistake, common mistake and mutual mistake. A
significant distinction is between where only one party is
mistaken and where both parties (assuming a bi-partite
contract) are mistaken.

There are situations where a mistake has no effect on the

validity and enforceability of a contract. On the other hand,
there are circumstances when a mistake could be regarded
as having prevented an agreement being reached genuinely
in the first place, if it is considered that there was no meeting
of the minds, i.e., no consensus ad idem. In some other
circumstances mistake could render voidable, and potentially
lead to the setting aside of, what is otherwise a validly
concluded contract. In some other circumstances, mistake
could render an agreement that is an ‘apparent contract’
void. The language ‘apparent contract’ in this context is
borrowed from Steyn J (as he then was) in Associated
Japanese Bank (International) Ltd v Crédit du Nord SA
[1989] 1 WLR 255; compare: ‘a void contract is a "paradox”;
in truth there is no contract at all’ per Gresson P in Fawcett
v Star Car Sales Ltd [1960] NZLR 406, 412, cited by Pearce
LJ in Ingram v Little [1961] QB 31, [1960] EWCA Civ 1.

When a mistake has an effect such as to prevent the coming

into existence of a contract or to render what is apparently a
contract void or voidable, it is sometimes referred to as
‘operative’ mistake. In Bell & Anor v Lever Brothers & Ors

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[1932] AC 161, [1931] UKHL 2, Lord Atkin said: ‘If mistake
operates at all it operates so as to negative or in some cases
to nullify consent.’

It should also be noted that for a mistake to have the effect

of rendering a contract void or voidable, it must have been
present at the time of the making of the contract; see e.g.
Amalgamated Investment and Property Co Ltd v John
Walker & Sons Ltd [1977] 1 WLR 164. Additionally, it is also
now considered that a mistake of law (and not only a mistake
of fact) can vitiate a contract; Kleinwort Benson Ltd v
Lincoln City Council [1999] 2 AC 349, [1998] UKHL 38
(joined appeals); Brennan v Bolt Burdon & Ors [2004]
EWCA Civ 1017, [2005] QB 303.

12.2 Mistake Affecting Agreement

The focus in this part is on the types of mistake that may

‘negative’ consent. These are those that may have the effect
that the parties have not truly reached agreement, i.e., that
the parties are not ad idem – there is no meeting of the
minds.

12.2.1 Cross-purposes

The expression ‘cross-purposes’ is being used here to refer

to a situation where both parties to a contract have a different
perception or understanding of a particular fundamental
matter. It may be that each party has a different mistaken
perception of a situation - they are mistaken in different
respects - or that they simply have irreconcilable perceptions
in the face of two or more possibilities.

In Raffles v Wichelhaus & Anor (1864) 2 H & C 906, 159

ER 375, [1864] EWHC Exch J19, the contract was for the
sale of cotton shipped from India on a vessel called
‘Peerless’; in fact there were two vessels with the same name
sailing from India with cotton at different times. The buyer
145
understood the vessel to be the ‘Peerless’ which sailed in
October while the seller intended the ‘Peerless’ which sailed
in December. The court gave judgment for the buyer who had
refused to take delivery of the cargo that arrived ‘ex Peerless
from Bombay’ which sailed in December.

In light of the decision above, even in the absence of analysis

of mistake in the case, it does seem that a mistake where the
parties are at cross-purposes would almost invariably mean
that they would not have truly reached an agreement in the
first place - with the result that the intended contract never
comes into existence; see also Scriven Brothers & Co v
Hindley & Co [1913] 3 KB 564.

12.2.2 Unilateral mistake

It is helpful to remember that the objectivity principle prevails

in the formation of a contract and that what a person says will
be assessed on the basis of how a reasonable person will
understand it. The consequence in this respect is that where
only one person is mistaken, and the other party had not
conducted himself in a way to lead a reasonable person into
the mistake, the contract may not be set aside; see Smith v
Hughes (1871) LR 6 QB 597, Centrovincial Estates plc v
Merchant Investors Investors Assurance Ltd [1983] Com
LR 158. If, however, one party is aware that the other party
is mistaken in relation to the terms of agreement being
negotiated and sought to take advantage of it, the apparent
contract is likely to be declared invalid; Hartog v Colin &
Shields [1939] 3 All ER 566.

12.2.3 Mistake as to the identity of a party

In most everyday contracts the identity of the other party that

one party is dealing with is irrelevant; a book-seller, a
newspaper vendor or shop-owner generally sells to whoever
seeks to buy the relevant product. There are, however,
circumstances when the identity of the party that another

146
party believes they are dealing with matters. In such a case
a contract may not even come into existence or an apparent
contract affected by a mistake as to the identity of the other
party may be nullified or unenforceable, i.e., an apparent
contract may be void ab initio or voidable.

Another significant element in relation to mistake as to a

party’s identity is that historical case law in this particular
area shows the potential prejudicial effect that holding a
contract affected by mistake to be void may have on a third
party. Where an item that was the subject of a contract that
appeared valid has been transferred by one of the parties to
a third party but it is subsequently held that the first contract
was void, the result may be that the third party has no title to
the item. This may be so even though the third party may
have acted entirely in good faith. In addition, cases of
mistake as to identity tend to involve fraud or
misrepresentation by the person whose true identity is in
question.

The consequential effect that a person who takes an item

from a person who acquired it under a contract that is held
void for mistake will have no title to the item comes as a result
of the rule that a person cannot transfer a title that they do
not have. This rule is often represented by the Latin maxim
nemo dat quod non habet and, for example, section 21 of the
SGA provides that where goods are sold by a person who is
not their owner the buyer acquires no better title to the goods
than the seller had. The third party may only be able to
escape the prejudicial consequence if they can bring
themselves within one of the exceptions to the nemo dat rule;
see e.g. sections 22 to 25 of the SGA.

For a mistake as to the identity of a party to affect the validity

and enforceability of a contract, the identity of the party
concerned must be a relevant factor in the mind of the other
party. In other words, the other party must have envisaged
dealing with a specific person and not merely with a person
having particular attributes. In addition, recent case law
suggests that the attitude of the courts may differ in relation

147
to a contract entered into in writing as opposed to a contract
entered into in face to face transactions.

In respect of face to face transactions, the starting position is

that the law takes it that the one party envisages dealing with
the other party in front of them. Thus, ordinarily, even if one
of the parties is mistaken as to the true identity of the other
this does not necessarily prevent a contract from coming into
existence and, moreover, the contract is not thereby void for
mistake.

The consideration whether a contract has been validly

entered into rests on whether the intention of the party
mistaken, objectively ascertained, is to enter into an
agreement with the person in front of him – no matter that
that person may be using an alias. It is generally presumed
that this is the case with the conclusion that a contract would
have been validly made; Shogun Finance Ltd v Hudson
[2003] UKHL 62, [2004] 1 AC 919; Phillips v Brooks Ltd
[1919] 2 KB 243. A contract regarded as validly entered into
may be voidable, however, if the party whose identity was
mistaken had misrepresented his identity; see Phillips v
Brooks Ltd (above) and Lewis v Averay [1972] 1 QB 198,
[1971] EWCA Civ 4. Such a contract may be rescinded if the
other party takes timely action to do so; Car & Universal
Finance Company Ltd v Caldwell [1965] 1 QB 525, [1963]
EWCA Civ 4.

In Shogun Finance, Lord Walker compared the approach in

respect of the situation under consideration to that of
objectivity in relation to offer and acceptance, and noted:
‘The objective nature of the enquiry tends to narrow, perhaps
close to vanishing-point, the difference … between the
person for whom the offer or acceptance is intended and the
person to whom it is directed.’

The case of Ingram v Little [1961] QB 31, [1960] EWCA Civ

1 marks a departure from the standard approach; it was
concluded on a 2-1 majority that the sellers in the case had
not intended to deal with the rogue buyer in front of them but

148
the reputable person whom he pretended to be - as the
latter’s identity was significant to them and they wanted to
deal with that particular identity. It may be argued that some
of the factual circumstances make the decision
understandable, at least to an extent, but it is important to
note that doubt has been cast on the accuracy of the majority
decision in that case in the more recent Shogun Finance as
well as in Lewis v Averay.

In relation to mistake as to identity in situations where a

contract is concluded in writing, the Shogun Finance case
confirms the importance of the intention of the mistaken party
as to who they wanted to contract with. In a sense, the case
calls for even greater attention on the role of the intention of
the mistaken party in such cases. An important distinction
was drawn about the application of the intention test in
respect of contracts by written correspondence and face to
face contracts.

Whereas in face to face contracts the application of the test

is on the basis that there is a presumption, which is not easily
rebutted, that the mistaken party intends to deal with the
person in front of him, in the case of written contracts the test
is based on construction or interpretation of the document
that purports to be the contract. What emerges from the case
law on mistake as to identity in respect of written contracts is
as outlined below.

If the party whose identity is in issue has falsely represented

who they were in the communication but not as another
identifiable person, and the mistaken party is essentially only
relying on the written communication with the other party as
to that party’s identity, the courts will likely hold that the
mistaken party intended to contract with that party.

In King's Norton Metal Co Ltd v Edridge Merritt & Co Ltd

(1897) 14 TLR 98, a crook called Wallis printed headed
paper in the name ‘Hallam & Co’, which he represented as a
large business enterprise, and ordered goods from an
unwitting seller; the contract was held to be valid. As pointed

149
out by Pearce LJ in Ingram v Little, the case demonstrates
that the ‘mere fact that the offeror is dealing with a person
bearing an alias or false attributes does not create a mistake
which will prevent the formation of a contract.’ Relying on the
same case similarly, Lord Millett said in Shogun Finance
that: ‘A person is free to adopt whatever name suits his fancy,
and may validly contract under an alias. Even if he has
assumed a false name for the sole purpose of deceiving the
counterparty, there is a contract so long, at least, as there is
no real person of that name ….’

On the other hand, the old case of Boulton v Jones (1857)

2 H and N 564 had established that where a party involved
in a transaction conducted in writing was aware that the other
party intended to deal with a third party, there will be no
contract between the parties to the transaction. Part of the
consideration was that the personality of the particular party
that the other party wanted to deal with was important to
them. In the case itself, one party wanted to deal with
someone they had dealt with previously and against whom
they could raise a set-off. The example was also given of
where a party wants someone to write a book or paint a
picture or to ‘do any work of personal skill.’

Thus, progressing on the line of reasoning in Boulton v

Jones, where the construction of the written communication
between the parties or the supposed contract document
leads to the conclusion that the mistaken party intended to
deal with a person of a particular identity distinct from a
pretender, the courts are likely to hold the apparent contract
invalid. This was the approach taken by the majority in
Shogun Finance.

In Shogun Finance the parties named in documents for a

car hire-purchase agreement were the finance company and
a Mr Durlabh Patel, and the company ran a credit check on
him. However, the person who presented himself as Mr
Durlabh Patel was a crook and impostor. The House of Lords
held by 3-2 majority that the purported hire-purchase
agreement was a nullity and there was no contract. The

150
unfortunate third party to whom the crook later sold the car
acquired no title to it and the finance company could recover
(the financial value of) the car from him. The two dissenting
judges preferred to hold that there was a contract except that
it was voidable.

In Cundy v Lindsay & Co (1877–78) LR 3 App Cas 459,

Lindsay supplied linen handkerchiefs following a written
order that purported to come from a company called
Blenkiron Ltd which was a real company that Lindsay knew
to be reputable. In fact, the order had been sent in by a fraud
called Blenkarn who used an address on the same street as
Blenkiron Ltd and sold the linen to the innocent Cundy. The
House of Lords held that there was no contract between
Lindsay and the crook which meant that Cundy acquired no
title to the linen from the crook.

In Shogun Finance, the dissenting judgments of Lords

Niicholls and Millett suggested that there should be no
difference in the legal approach whether the mistake as to
identity occurs in a face to face transaction or in written
communication. Lord Nicholls said that the starting point
presumption which should work in all cases is that: ‘A person
is presumed to intend to contract with the person with whom
he is actually dealing, whatever be the mode of
communication.’

Whilst the majority in Shogun Finance held that the

approach in relation to written transactions is different from
that in face to face transactions, they did not decide what
approach is to be applied to transactions concluded by other
means such as telephone, video-telephone video-link etc.
Lord Walker suggested that the presumption in face to face
transactions might apply in respect of an oral contract made
on the telephone where the parties are identified by hearing
but not by sight. He also pointed out, however, that the
negotiations in Shogun Finance itself were not conducted
exclusively in writing but involved a dealer and the use of fax
and telephone communications.

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12.3 ‘Common’ Mistake or ‘Mutual’ Mistake

Where both parties to a contract are under the same

misapprehension on a matter of a fundamental nature at the
time of making the contract, this will be an operative mistake.
The courts refer to this type of mistake as ‘mutual mistake’ or
‘common mistake’. Both expressions were used
interchangeably in Bell v Lever Bros (above), and also in
Cooper v Phibbs (1867) LR 2 HL 149, [1867] UKHL 1.

In Great Peace Shipping Ltd v Tsavliris (International)

Ltd [2002] EWCA Civ 1407, [2003] QB 679 Lord Phillips MR
said that where parties are at cross purposes such that there
is no agreement, there is a ‘mutual mistake’! This statement
arguably adds to the confusion of terminology in the law on
mistake. Nevertheless, speaking for the Court of Appeal,
Lord Phillips also said that the court shall describe a common
mistaken assumption of fact which renders the performance
of the contract different from what was contemplated as
common mistake; he acknowledged that it is often
alternatively referred to as mutual mistake.

An interesting aside is that the development of the principles

concerning common mistake at common law followed a
parallel, comparative or analogous path to that of the
development of the doctrine of frustration. We shall be
considering the doctrine of frustration separately later in this
book.

The element that the mistaken assumption to be regarded as

common mistake in contract law has to be fundamental is
expressed in various ways but largely to the same purpose
and effect. As alluded to already, in Great Peace Shipping
Ltd v Tsavliris (International) Ltd Lord Phillips treated as
common mistake: ‘a common mistaken assumption of fact
which renders the service that will be provided if the contract
is performed in accordance with its terms something different
from the performance that the parties contemplated’.

152
In Bell v Lever Bros (above) Lord Warrington, borrowing
from first instance in the case and other case law, considered
the issue in terms of ‘whether the erroneous assumption on
the part of both parties … was of such a fundamental
character as to constitute an underlying assumption without
which the parties would not have made the contract they in
fact made ….’ Lord Atkin proceeded on an approach
involving the implication of a term, an approach which was
doubted in Great Peace, and accepted two of three
formulations from Scrutton LJ in the Court of Appeal: that the
mistaken assumption was (a) in the contemplation of both
parties fundamental to the continued validity of the contract;
or (b) a foundation essential to its existence. Lord Thankerton
considered that what appeared from previous case law was:
‘that the matter as to which the mistake existed was an
essential and integral element of the subject matter of the
contract or it was an inevitable inference from the nature of
the contract that all the parties so regarded it.’

A contract that is affected by common mistake is void ab

initio. The common law principle relating to common mistake
was authoritatively established in Bell v Lever Bros; Lever
Brothers employed Bell and Snelling to run a company.
During the course of that employment, Bell and Snelling
entered into a private business transaction with another
company. Later on, Lever Brothers wanted to terminate the
employments of Bell and Snelling for their own beneficial
business reasons and so they agreed to pay Bell and
Snelling generous sums for the termination. At the time of the
termination agreement none of the parties realised that Lever
Brothers could have actually dismissed Bell and Snelling
because of the private transaction they had made with
another company; in other words, the parties had a common
mistaken assumption at the time of the termination
agreement.

At first instance and in the Court of Appeal all the judges took
the view that the termination agreement was affected by
common mistake and void because they considered the
parties’ common mistaken assumption to be fundamental. In

153
the House of Lords, there was no disagreement among the
law lords on the principles concerning common mistake –
that a contract entered into by the parties following a
common mistaken assumption on a matter fundamental to
the contract is void. As noted by Lord Phillips in Great Peace
Shipping Ltd v Tsavliris (International) Ltd in relation to
both the judgments at first instance and in the Court of
Appeal as well as the speeches in the House of Lords, ‘while
there was judicial dissent as to the result, there was general
agreement as to the principles of law that were applicable.’

Lords Atkin and Thankerton held that, on the facts, the

mistake of the parties about the effect of Bell and Snelling’s
private transaction was not fundamental in relation to the
termination agreement; that latter agreement was therefore
enforceable. Lord Blanesburgh agreed with Lords Atkin and
Thankerton on that point, although his main reason for
upholding the termination agreement was that Lever
Brothers had not pleaded the issue of common mistake
which had been raised too late and at a time that would have
been unfair to Bell and Snelling. Lord Warrington, with the
agreement of Viscount Hailsham, took the view that, on the
facts, the mistaken assumption about the private transaction
was fundamental – in similar vein to the trial judge and the
Court of Appeal.

The key strength of Bell v Lever Bros is the unanimity of the

court on the principles concerning common mistake. On the
other hand, the case demonstrates that perception of the
facts, especially whether a particular matter is fundamental
or not, opens the door to uncertainty and potential
controversy. In Great Peace Shipping Ltd v Tsavliris
(International) Ltd (above), Lord Phillips said that ‘an
allegation that a contract is void for common mistake will
often raise important issues of construction.’

The application of the basic principle relating to common

mistake may thus be affected by the different types of
circumstances in which it may be alleged that a mistaken
assumption is fundamental. In addition, case law provides

154
examples of categories of mistaken assumptions that are not
regarded as fundamental – even if common to both parties.
Further, in circumstances where the parties have made
provisions concerning responsibility on the matter in respect
of which a mistake is alleged, there may be no room for the
operation of mistake; this is such where one party is taken to
have warranted the correctness of the matter on which it
turns out that there was a mistake. It is helpful to consider
some examples of the different situations in which claims for
common mistake arise.

12.3.1 Mistake as to the existence of the

subject-matter of the contract

Where parties enter into a contract whilst both being

unaware, at the time, that the subject-matter of the contract
had been destroyed, the contract will be void for mistake.
This is sometimes referred to by the Latin phrase res
extincta.

A mistake about the existence of the subject-matter can

occur in different situations. One example is where a contract
of annuity was taken out on the life of a person without the
parties realising that the person had died - the contract was
void; see Strickland v Turner (1852) 7 Exch 208. The
somewhat similar case of Scott v Coulson [1903] 2 Ch 249
involved a policy of insurance taken out on a person who was
already dead; the policy was set aside but it has been
suggested that the policy was not automatically void unlike
the annuity in Strickland v Turner; see e.g. per Lord Phillips
in Great Peace.

Another example of a mistake as to subject-matter that has

been pointed out is where a man and a woman got married,
with both being under the mistaken assumption that the
man’s wife was dead; they later entered into a separation
agreement. The separation agreement was void as it was
entered into under the mistaken assumption that the man

155
and woman were truly married; Galloway v Galloway (1914)
30 TLR 531.

In reality a situation where there is an issue about the

existence of the subject-matter of a contract will mostly arise
in relation to contracts for the sale of goods or other items.
Primarily, this will relate to situations where the goods or
items had perished or had already been sold prior to the
(apparent) contract in focus.

In Couturier & Ors v Hastie & Anor 10 ER 1065, [1856]

UKHL J3 C, the parties entered into a contract for the sale
and purchase of a cargo of corn without realising that the
corn had already been unloaded and sold about three weeks
earlier. The House of Lords held to the effect that there had
been no valid sale in that ‘what the parties contemplated ...
was that there was an existing something to be sold and
bought’, no such thing existing in the circumstances.

It should be pointed out that in Couturier v Hastie (above),

the court did not really indicate that the decision was based
on principles relating to common mistake. Nevertheless,
after that decision was given, the Sale of Goods Act has
provided since 1893 in its section 6 that: ‘Where there is a
contract for the sale of specific goods, and the goods without
the knowledge of the seller have perished at the time when
the contract is made, the contract is void.’

The Australian case of McRae v Commonwealth Disposals

Commission (1951) 84 CLR 377, [1951] HCA 79
meandered peripherally near whether a contract for an item
that never existed could be held to be void. In the context of
the particular case, it was held that the seller in a contract for
an item (the wreck of a tanker) that never existed had actually
made a promise that the item existed. The point whether the
contract would have been void in the absence of such a
promise was not really considered or decided.

156
12.3.2 Mistake as to a quality of the subject-
matter

This type of mistake relates to a situation where the parties

to the contract are under a mistaken assumption that the
subject-matter of the contract has a particular quality which it
in fact lacks.

Simplistically, a contract which merely lacks a quality which

the parties thought it had is not void for that reason and can
be enforced by one of the parties. In Great Peace Shipping
Ltd v Tsavliris (International) Ltd (above), the claimant
agreed to hire a vessel to the defendant to escort and stand
by another stricken vessel for the purpose of saving life. At
the time of making the contract, the parties thought that the
vessel being hired was 35 miles (a few hours) away from the
stricken vessel whereas it was in fact 410 miles (up to 39
hours) away. The Court of Appeal held that this was only a
mistake as to quality and that the agreement was valid and
enforceable.

It is not entirely clear if a mistake that only relates to a quality

of the subject-matter can in any circumstance render a
contract void. It is true that in Bell v Lever Bros, Lord Atkin
indicated that mistake as to the quality of a thing contracted
for will not affect assent unless it is ‘is as to the existence of
some quality which makes the thing without the quality
essentially different from the thing as it was believed to be.’
Notably, however, in Great Peace the Court of Appeal
concluded, as Lord Phillips stated, that ‘the two authorities to
which Lord Atkin referred provided an insubstantial basis for
his formulation of the test of common mistake in relation to
the quality of the subject matter of a contract.’

More widely, this aspect of the common law on mistake is

complicated by the fact that it may not necessarily be easy to
distinguish between a mistake that only relates to an aspect
of quality of the subject-matter and a mistake on a matter that
is fundamental to the contract and its performance – the latter
which would certainly render the apparent contract void. It

157
was this very matter that led to the divergence of conclusion
in the House of Lords, despite agreement on the law, in Bell
v Lever Bros.

12.3.3 Mistake as to title or ownership

This type of mistake is sometimes referred to as res sua

(basically meaning ‘his thing’). It typically occurs where
someone (seller) contracts to sell an item to another (buyer)
whilst both parties did not realise that the item already
belonged to the buyer. In Cooper v Phibbs (1867) LR 2 HL
149, [1867] UKHL 1 a contract in which a fishery was sold to
a person who in fact was essentially its owner (having a life
interest in it on the basis of a trust and a series of events)
was held not to be binding. In Bell v Lever Bros, Lord Atkin
said that the intended transfer of ownership in Cooper v
Phibbs was impossible.

Cooper v Phibbs foreshadowed a significant technical point

which will be taken up further in the next section. In holding
that the agreement in the case should not be upheld, Lord
Cranworth said it was ‘not in equity binding … but ought to
be set aside’ on prescribed terms. Lord Westbury said that
there can be no doubt about the role of a court of equity and
that ‘if parties contract under a mutual mistake and
misapprehension as to their relative and respective rights,
the result is, that that agreement is liable to be set aside as
having proceeded upon a common mistake.’

12.4 Common Mistake and Equity

As we saw above in Cooper v Phibbs, there had at points

been a suggestion or even acceptance that a contract
affected by common mistake can be set aside in equity. The
technical consequence is that the contract concerned was
not regarded as void ab initio but only voidable and thus
essentially valid until it is rescinded or set aside.

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In Solle v Butcher [1950] 1 KB 671 Denning LJ (as he then
was) said that: ‘A contract is also liable in equity to be set
aside if the parties were under a common misapprehension
either as to facts or as to their relative and respective rights,
provided that the misapprehension was fundamental and
that the party seeking to set it aside was not himself at fault.’
As Lord Denning MR, he reiterated the proposition and
repeated the statement above in Magee v Pennine
Insurance Co [1969] 2 QB 507 - a matter which was also
remarked upon by Lord Phillips in Great Peace. Solle v
Butcher was followed in West Sussex Properties Ltd v
Chichester District Council [2000] EWCA Civ 205 and
Grist v Bailey [1967] 1 Ch 532; its proposition was also
accepted by Steyn J (as he then was) in Associated
Japanese Bank (International) Ltd v Crédit du Nord SA.

On the other hand, where what is apparently a contract is

regarded as affected by common mistake, the position of the
common law was that the apparent contract was void ab
initio. This is the position that the majority of the House of
Lords maintained in Bell v Lever Bros. In Magee v Pennine
Insurance Co, Lord Denning MR was well aware of the
House of Lords’ decision in Bell v Lever Bros but, at the
least, considered that a separate jurisdiction existed in equity
to treat a contract affected by common mistake as merely
voidable.

It is possible that Lord Denning considered Bell v Lever

Bros to have been decided wrongly on the point that a
contract affected by mistake is void at common law. In
Magee v Pennine Insurance Co, referring to Bell v Lever
Bros, he said: ‘I do not propose today to go through the
speeches in that case. They have given enough trouble to
commentators already. I would say simply this: A common
mistake, even on a most fundamental matter, does not make
a contract void at law: but it makes it voidable in equity.’

The difficulty in seeking to reconcile Bell v Lever Bros and

cases like Solle v Butcher and Magee v Pennine
Insurance Co is that the test for determining whether a

159
contract is affected by common mistake in the two situations
(one at common law and the other in equity) is the same. The
resulting incongruity is that a contract that is already void at
common law would be held to be merely voidable in equity.

It has now been held by the House of Lords in Great Peace

that there is no separate jurisdiction to hold a contract
affected by common mistake as voidable in equity and that
such a contract is simply void as at common law. It is notable
though that even in Great Peace the Court of Appeal
accepted that an equitable jurisdiction that allows the court
to rescind a contract affected by mistake upon terms gives
the court greater flexibility and that ‘there is scope for
legislation to give greater flexibility to our law of mistake than
the common law allows.’ The question arises whether it was
desirable for the Court of Appeal not to pursue a
jurisprudence which allows the flexibility they saw as
desirable rather than simply seemingly suggesting legislative
reform.

12.5 Mistake and Rectification

Another remedy in equity that may be relevant where a

contract is affected by a mistake is rectification. Typically, this
may be available in a situation where the language used in
expressing a contractual provision does not reflect the true
intentions of the parties. In that sense, such a mistake will be
common to both parties but will not necessarily lead to the
vitiation of the contract; it is different from the nominate
common mistake.

In a proper case such a mistake as under consideration in

this section may be remedied by rectification. Importantly,
rectification is a discretionary remedy and the court will not
allow it to be used merely to avoid a bad bargain or simply to
modify the parties’ agreement. See further: Chartbrook Ltd
v Persimmon Homes Ltd & Ors [2009] UKHL 38, [2009] 1
AC 1101; Joscelyne v Nissen [1970] 2 QB 86; Lovell and
Christmas Ltd v Wall (1911) 104 LT 85.

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 Chapter 13:
Misrepresentation

Think About!

1. What effect could a false or misleading statement made by one party to another during
contract negotiations have on the contract?

2. Mansour and Amira his wife negotiated to buy a house from Mr. and Mrs. Khaled-James.
During the negotiations Mr. and Mrs. Khaled-James had to provide answers to several
questions. One of the questions was: ‘Is there any information which you think the buyer
may have a right to know?’ Mr. and Mrs. Khaled-James answered ‘No’ to this question.
There had been a murder at the house previously which Mr. and Mrs. Khaled-James knew
about but they did not mention this. Mansour and Amira found out about the murder
after they had bought the house and moved in; they were very unhappy and felt they
could not stay in the house.

Can Mansour and Amira sue Mr. and Mrs. Khaled-James and, if so, what remedy might
they be able to get?

161
13.1 What is ‘Misrepresentation’?

Misrepresentation is another one of the factors which may

mean that a contract is unenforceable. Misrepresentation
may render a contract voidable and thus potentially liable to
rescission as opposed to factors that may render an apparent
contract void.

In the present context, a ‘representation’ is a statement that

a certain state of things exists. Ordinarily, a representation
that is not true is a ‘misrepresentation’. Specifically, the
concern here is with ‘misrepresentation’ that can lead to a
successful action at law, sometimes called ‘actionable
misrepresentation’. In this context, a ‘misrepresentation’ is a
false statement of fact (though possibly sometimes also of
law or even exceptionally of opinion) made by one party to
another and which is intended to and does induce the other
party to enter into the contract. As a statement of fact,
misrepresentation concerns a statement made before or at
the time of making the contract and about a matter that is an
existing or past fact at the time.

Note that a (mis)representation is not a contractual promise

or obligation. In Kleinwort Benson Ltd v Malaysia Mining
Berhad [1989] 1 WLR 379, the following statement was
made by MM to KB (who was lending money to MM’s
subsidiary): “it is our policy to ensure that the business of
{subsidiary} is at all times in a position to meet its liabilities to
you ….” It was held that this was only a statement of fact
about MM’s then policy; it was not a promise by MM to pay
when the subsidiary defaulted on the loan.

13.1.1 Silence

Ordinarily, as a misrepresentation involves a ‘statement’,

silence or merely keeping quiet or failing to disclose
information would not amount to misrepresentation. Apart
from some specific contracts (e.g. contracts of ‘utmost good
faith’ or uberrimae fidei such as insurance contracts, or

162
fiduciary relationships), there is no duty to disclose
information. In Keates v Earl of Cadogan (1851) 138 ER
234 where a landlord knew that the tenant wanted the
property for immediate habitation but did not disclose that the
property was uninhabitable, it was held that there was no
misrepresentation. Similarly, in Sykes & Anor v Taylor-
Rose & Anor [2004] EWCA 299 the sellers of a house
answered "no" to the question: "Is there any information
which you think the buyer may have a right to know?". The
sellers did not disclose that there had been a murder at the
house previously; it was held that there was no
misrepresentation.

13.1.2 Conduct

A person’s conduct on the other hand may amount to

misrepresentation. In Gordon v Selico (1986) 11 HLR 219
an independent contractor simply covered up dry rot by
painting over them; this amounted to a knowing
misrepresentation that the property did not have dry rot. In
Spice Girls Ltd v Aprilia World Service BV [2002] EWCA
Civ 15 a pop group entered into a promotion agreement as 5
when one had given the rest notice of intention to quit the
group. It was held that the group had made a
misrepresentation by conduct. Compare also the old criminal
case of R v Barnard (1837) 7 C & P 784 where a person
wore an Oxford University gown to appear to be a
‘gentleman’ and was thus able to obtain credit; held: doing
so amounted to a false pretence.

13.1.3 Half-truth

Additionally, a statement that is a ‘half-truth’ may amount to

misrepresentation. In Dimmock v Hallett (1866) LR 2 Ch
App 21, a vendor said that two farms were fully let but did not
disclose that the tenants had given notice to quit; held: this
amounted to a misrepresentation.

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13.1.4 Changed circumstances

Also, if a statement that was true when it was made (e.g.

during negotiations) later becomes false - before the contract
is made - because of changed circumstances, then the
maker of the statement is obliged to bring the change to the
attention of the other party. In With v O’Flanagan [1936] Ch
575, a doctor selling his practice said in January that takings
were £2000; in May, takings were £5 as the doctor had fallen
ill; it was held that the buyer could rescind the purchase; the
representation continued till when the contract was made.

Note that a person making a correction of a

misrepresentation must make sure that the correction was
actually brought to the misrepresentee’s notice and before
reliance on the misrepresentation. Compare Peekay
Intermark Ltd and another v Australia and New Zealand
Banking Group Ltd [2006] EWCA Civ 386 – a bank involved
in the sale of an (emerging market) investment product
misrepresented the sovereign default provisions to the buyer
over telephone; the sale document however reflected correct
provisions; the Court of Appeal held that the buyer was not
induced by the misrepresentation over the phone but by his
own assumption that the product corresponded with what he
was told over the phone.

13.1.5 Commendatory statements

Ordinarily, vague statements, commendatory ‘sales puffs’

and the like would not be treated as statements of fact and
thus would not give rise to misrepresentation. Consider
statements like: ‘you’ll never regret buying from us’; ‘these
goods are top quality’; ‘the Premier League is the best in the
world’; ‘our food is delicious’; ‘our detergent washes whiter’
etc. These are generally vague and subjective statements
and usually not meant to be more than commendatory.

In Dimmock v Hallett (above), a statement that a particular

land was ‘fertile and improveable’ was not regarded as

164
amounting to a (mis)representation. However, the more
specific that a statement is (and if with further related
promises) the more likely that it is not merely commendatory;
compare Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
where a company promised to pay a sum of money to
anyone who used their smoke ball and yet caught influenza
and said that they had deposited money in a bank for that
purpose. Also, consider what if the ‘delicious food’ is actually
clearly badly cooked, inedible and perhaps even poisonous
(i.e. objectively not delicious)?

13.1.6 Opinion

Ordinarily, a statement of opinion (if unfounded) would not

amount to misrepresentation since it is not a statement of
fact; in Bissett v Wilkinson [1927] AC 177 a statement by
the seller of a farm that in his judgment the farm could carry
2000 sheep was regarded as merely a statement of an
opinion held honestly by the vendor. However, if one party
has ‘special knowledge or skill’ or more information than the
other, it may be held that he warranted that his opinion was
made having exercised care and skill; thus, if inaccurate, it
could amount to misrepresentation.

In Esso Petroleum Company Ltd v Mardon [1976] QB 801,

[1976] EWCA Civ 4, Esso as seller of a petroleum station told
the buyer/franchisee that throughput would be 200,000
gallons per year but they knew that planning permission
dictated that the station would be built with its back to the
main road and access would only be from a side street;
throughput was actually only 78,000; held: Esso were liable
for misrepresentation. Similarly, in Smith v Land & House
Property Corp (1884) LR 28 ChD 7 a seller’s statement that
the sitting tenant was ‘a most desirable tenant’ was held to
be a misrepresentation when the tenant had actually been
irregular with the rent.

Consider also what if the opinion was not held honestly?

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13.1.7 Intention

Ordinarily, a statement of intention would not amount to

misrepresentation if the intention is not carried out – since it
is not a statement of fact. However, if the representor did not
actually have the intention represented, or had a different
intention, that could be treated as a misrepresentation.

In Edgington v Fitzmaurice (1885) 29 Ch D 459, a

company’s loan prospectus stated that the money raised
would be used to improve buildings and expand business; in
fact, it was intended to pay off existing loans. It was held that
the statement was a fraudulent misrepresentation; a
misrepresentation as to intention is a misstatement of fact.
Bowen LJ said that ‘the state of a man’s mind is as much a
fact as the state of his digestion.’

13.1.8 Statement of law

Traditionally, it had often been considered that a statement

of law could not amount to a misrepresentation even if not
true. The courts seem to have now clearly moved to the
conclusion that in some circumstances a false statement of
law can amount to misrepresentation. What emerges from
the cases seems to be that: a statement as to general law or
a statement of law in abstract cannot amount to
misrepresentation; but a statement as to how the law applies
to a particular or specific situation can amount to a
misrepresentation – particularly if the situation concerns
facts within the knowledge of the representor and not the
representee; the impression being that the representor
suggests that s/he had reasons for their expression of the
law as applicable.

In Pankhania v The London Borough of Hackney & Anor

[2002] EWHC 2441, the purchasers of a property were
induced (inter alia) by a representation that the then current
occupiers were contractual licensees whose occupation
could be terminated with 3 months’ notice; in fact, the

166
occupiers were protected tenants under legislation. It was
held that the misrepresentation was actionable.

The judge in Pankhania relied strongly on Kleinwort

Benson Ltd v Lincoln City Council & ors [1999] 2 AC 349
in which the House of Lords had held that an old rule that
money paid after a mistake of law was not recoverable could
no longer be maintained; and that money paid under a
mistake of law can be recovered just as with money paid
under a mistake of fact. The judge also noted that the Court
of Appeal held in the older case of Andre and Cie SA v ETS
Michel Blanc & Fils [1979] 2 Lloyd's LR 427 that a
representation as to foreign law was a representation of fact.

13.1.9 Addressed to the misrepresentee

Finally, the statement must have been addressed to the party

misled. Obviously, the statement could be made directly by
the representor to the representee. It could also be made to
a third party with the intention that it would be passed on to
the representee; see Commercial Banking Co of Sydney
v R H Brown & Co [1972] 2 Lloyd’s Rep 360 where a
statement made to the claimant’s bank to be passed on to
claimant was actionable when it gave false information about
the financial position of claimant’s customer.

13.2 Inducement and Materiality

Generally, the misrepresentation must be a factor which

induced the other party to enter into the contract.
Traditionally, it was considered that the misrepresentation
must be material, i.e., in effect, such as would affect the
decision of a reasonable person on whether or not to make
the contract on the terms presented. It seems that presently,
whether a misrepresentation is material tends to be
amalgamated with the enquiry into whether it induced the
contract.

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In Dadourian Group International Inc v Simms & Ors
[2009] EWCA Civ 169, [2009] 1 Lloyd's Rep 601, Warren J
at first instance made the following summary which was
quoted with approval by the Court of Appeal:

‘(1) it is a question of fact whether a representee has

been induced to enter into a transaction by a material
misrepresentation intended by the representor to be
relied upon by the representee; (2) if the
misrepresentation is of such a nature that it would be
likely to play a part in the decision of a reasonable
person to enter into a transaction it will be presumed
that it did so unless the representor satisfies the court
to the contrary (see Morritt LJ in Barton v County
NatWest Limited [1999] Lloyd's Rep Banking 408 at
421, paragraph 58); (3) the misrepresentation does not
have to be the sole inducement for the representee to
be able to rely on it: it is enough if the misrepresentation
plays a real and substantial part, albeit not a decisive
part, in inducing the representee to act; (4) the
presumption of inducement is rebutted by the
representor showing that the misrepresentation did not
play a real and substantial part in the representee's
decision to enter into the transaction; the representor
does not have to go so far as to show that the
misrepresentation played no part at all; and (5) the
issue is to be decided by the court on a balance of
probabilities on the whole of the evidence before it.’

The misrepresentation must be an inducement but does not

need to be the only inducement. In Edgington v
Fitzmaurice (above), the claimant was induced to buy bonds
in a company, partly because of a false statement (as to the
loan’s purpose) in the prospectus and partly because he
believed wrongly that bond holders would have security first
charge over the company’s property; held: there was an
actionable misrepresentation. It is enough ‘if the
misrepresentation plays a real and substantial part, albeit not
a decisive part, in inducing the representee ….’ (Warren J in
Dadourian).

168
Ordinarily, the claimant must prove that he was in fact
induced by the misrepresentation – that it was a real and
substantial part in his decision, even if it was not decisive. In
particular, if the misrepresentation is such as would not have
induced a reasonable person, the claimant must prove that
he was in fact induced. Quare: does the misrepresentation
then still need to be ‘material’?

If the representation is such as would have induced a

reasonable person, the court will presume that it induced the
claimant. However, this presumption can be rebutted by the
misrepresentor who must show that the misrepresentation
did not play a real and substantial part in the claimant’s
decision; he does not have to go so far as to prove that the
misrepresentation played no part at all in the claimant’s
decision. Quare: does that presume that if the
misrepresentation would have induced a reasonable person,
it must have been ‘material’?

In any event, there are some circumstances when courts are

not likely to find that there has been an inducement.

 If the alleged misrepresentee was not even aware of

the misrepresentation; Horsfall v Thomas (1862) 1 H
& C 90 - the seller of a gun concealed a defect with a
metal plug; the buyer did not even inspect the gun;
held: the buyer did not rely on what was a
misrepresentation by conduct.
 If the misrepresentee knew (before making the
contract) that the statement was untrue; {compare
JEB Fasteners v Marks Bloom & Co [1983] 1 All ER
583 – the claimants wanted to buy a company; the
defendant accountants prepared the accounts; the
claimants had reservations about the accounts; they
still bought the company as they wanted to acquire the
services of its two directors; held: the accountants’
misrepresentation did not form a ‘real and substantial
part’ of the claimants’ decision to buy the company.
 If the misrepresentee did not allow the
misrepresentation to influence him, even though he

169
 was aware of it; Smith v Chadwick (1884) 9 App Cas
187 - a prospectus included a false statement that a
Mr Grieve was on the Board of Directors; the claimant
admitted that this statement did not influence him
when he bought shares; held: there would be no relief
for misrepresentation.
 If the misrepresentee relied on his own judgment,
assessment or independent advice; Attwood v Small
& Ors 7 ER 684, [1838] UKHL J60 - A as seller of an
estate of a mine (etc.) greatly exaggerated the earning
capacity of the estate; the buyers had their own
directors and agents examine the accounts; held: that
the contract could not be rescinded, in part ‘because
the purchasers did not rely on A's statements, but
tested their accuracy, and after having knowledge, or
the means of knowledge, declared that they were
satisfied of their correctness.’

Contrast the situations above with circumstances where the

misrepresentee simply had some opportunity to discover the
truth but did not pursue the opportunity. As the person did
not carry out any investigation, it is possible for the courts to
conclude that he did rely on the misrepresentation and thus
was induced by it. In this sense, his position may even be
better than that of someone who investigated the statement
as in Attwood v Small & Ors (above).

In Redgrave v Hurd (1881) 20 Ch D 1, the claimant

negotiated to sell his solicitor’s practice to the defendant; he
told the defendant that the practice brought in £300 per year;
he produced summaries which indicated business of (about)
£200 per year and another bundle of papers supposedly of
other business making up the (about) £100; the other bundle
actually showed virtually no business but the defendant did
not examine it; held: while fraud was not sufficiently pleaded,
the defendant (counterclaimant) could rescind the contract
on the basis of innocent misrepresentation. Jessel MR noted:

‘If a man is induced to enter into a contract by a false

representation it is not a sufficient answer to him to say,

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 "If you had used due diligence you would have found
out that the statement was untrue. You had the means
afforded you of discovering its falsity, and did not
choose to avail yourself of them. …
. . . when a person makes a material representation to
another to induce him to enter into a contract, and the
other enters into that contract, it is not sufficient to say
that the party to whom the representation is made does
not prove that he entered into the contract, relying upon
the representation. ………….’

Note that Redgrave v Hurd involved a claim for rescission

and not damages; assuming damages were recoverable at
all, the amount might be affected by the Law Reform
(Contributory Negligence) Act 1945.

Note also that if a misrepresentation is made fraudulently, it

would be difficult for the misrepresentor to argue that it was
not an inducement. In Dadourian Group International Inc
v Simms & Ors (above), the Court of Appeal was of the view
that Warren J had correctly ‘directed himself that there is in
law a rebuttable presumption that if a fraudulent
misrepresentation is made it is intended to be relied upon.’

The Court of Appeal also said in terms that ‘once it is

established … that a representation was made, and was
made dishonestly, and was intended to be relied upon …
there is no realistic scope for contending that the …
representation was not sufficiently material as to give rise to
the presumption.’

171
13.3 Types of Misrepresentation

The significance of classifying misrepresentation into types

lies in the fact that the remedy that may be available may
depend on the category of the misrepresentation. There are
four types of misrepresentation: three are recognised under
the common law while a fourth type is introduced by statute.

13.3.1 Fraudulent misrepresentation

The first type of misrepresentation is fraudulent

misrepresentation. This also constitutes the tort of deceit. In
Derry v Peek (1889) LR 14 App Cas 337, (1889) 5 TLR 625,
[1889] UKHL 1, Lord Herschell said:

‘…in order to sustain an action of deceit, there must be

proof of fraud, and nothing short of that will suffice.
Secondly, fraud is proved when it is shewn that a false
representation has been made (1) knowingly, or (2)
without belief in its truth, or (3) recklessly, careless
whether it be true or false. …. Thirdly, if fraud be
proved, the motive of the person guilty of it is
immaterial. It matters not that there was no intention to
cheat or injure the person to whom the statement was
made.’

Derry v Peek

A statute incorporating a company said that carriages

might be moved by steam power with the consent of the
Board of Trade; the Prospectus issued by the directors
said that the company had statutory right to use steam
power; claimant bought shares relying on the statement;
the B of T did not approve the use of steam power; held:
that the directors were not liable in the tort of deceit
because they had made the statement in the Prospectus
with honest belief in its truth.

172
13.3.2 Negligent misrepresentation
(‘misstatement’) at common law

The second type of misrepresentation is negligent

misrepresentation (‘misstatement’) at common law. In
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC
465, [1963] UKHL 4, the House of Lords confirmed that a
person who makes a false statement may be liable in some
situations for negligent misstatement even in the absence of
a pre-existing contractual or fiduciary relationship between
the claimant and the maker of the statement. The situations
would involve some ‘special relationship’ between the parties
and (voluntary) assumption of responsibility by the maker of
the statement. For example, Lord Devlin said:

‘the categories of special relationships which may give

rise to take care in word as well as in deed are not
limited to contractual relationships or relationships of
fiduciary duty, but include also relationships which ...
are 'equivalent to contract', that is, where there is an
assumption of responsibility in circumstances in which,
but for the absence of consideration, there would be a
contract.’

See also per Lord Mustill in White v Jones [1995] 2 AC 207;

and Caparo Industries plc v Dickman [1990] 2 AC 605,
[1990] UKHL 2.

Note that in an action for negligent misrepresentation at

common law, the burden of proving negligence is on the
claimant (misrepresentee).

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13.3.3 Misrepresentation under the
Misrepresentation Act 1967

The third type of misrepresentation is misrepresentation

under the Misrepresentation Act 1967. This must be
distinguished from negligent misrepresentation at common
law. Section 2(1) of the Misrepresentation Act 1967 states:

Where a person has entered into a contract after a

misrepresentation has been made to him by another
party thereto and as a result thereof he has suffered
loss, then, if the person making the misrepresentation
would be liable to damages in respect thereof had the
misrepresentation been made fraudulently, that person
shall be so liable notwithstanding that the
misrepresentation was not made fraudulently, unless
he proves that he had reasonable ground to believe and
did believe up to the time the contract was made the
facts represented were true.

In essence: if one contracting party makes a

misrepresentation to another, the misrepresentor is liable in
damages unless he can prove that he had reasonable
grounds to believe and did believe up to the time that the
contract was made that the statement was true.

Note that under section 2(1) of the Misrepresentation Act

1967, the burden is placed on the misrepresentor to prove
that he had reasonable grounds to and did believe the truth
of his statement. Contrast negligent misrepresentation at
common law where the claimant has to prove negligence.

Note also that under the provision, there is no need to prove

a ‘special relationship’ as under Hedley Byrne negligent
misrepresentation. However, under section 2(1), the
representor and the representee must have subsequently
entered into a contract. If the misrepresentation was made
by an agent of the representor, it is the representor that is
liable under section 2(1) and not the agent; Gosling v
Anderson [1972] EGD 709. However, the agent may

174
potentially be separately liable at common law for fraudulent
misrepresentation or negligent misrepresentation under
Hedley Byrne; see also Resolute Maritime Inc v Nippon
Kaiji Kyokai & ors (The Skopas) [1983] 1 Lloyds Rep 431.

13.3.4 Innocent misrepresentation

The fourth type of misrepresentation is innocent

misrepresentation which also arises under the common law.
It refers to a misrepresentation that is neither fraudulent nor
negligent. If we take into account section 2(1) of the
Misrepresentation Act 1967, innocent misrepresentation may
now be described as a non-fraudulent false statement which
the maker had reasonable grounds to believe and did believe
to be true.

There is a historical element to the significance of innocent

misrepresentation. In the past, misrepresentation that did not
amount to fraudulent misrepresentation was regarded as
innocent misrepresentation. Now it is clear that a distinction
can be drawn between a non-fraudulent misrepresentation
that involves negligence and a non-fraudulent
misrepresentation that does not involve negligence
(sometimes called ‘wholly innocent misrepresentation’).

Historically, innocent misrepresentation only gave an

entitlement to rescission and not to damages. Now, under
section 2 of the Misrepresentation Act 1967, damages may
be awarded in lieu of innocent rescission but only at the
discretion of the court and not as of right.

175
13.4 Remedies for Misrepresentation

A contract that has been induced by a misrepresentation is

voidable; it is not void from the beginning. Being voidable
means that the misrepresentee has an option to rescind the
contract or keep it alive (i.e. to ‘affirm’ the contract).
Accordingly, an important remedy for misrepresentation is
rescission of the contract. A possible alternative remedy for
misrepresentation is a claim for damages.

13.4.1 Rescission

Rescission means cancellation or annulment of the contract.

When a contract is rescinded, it means the contract is
annulled or cancelled ab initio, i.e., that the contract is set
aside and treated as if it never came into existence. It is said
that the contract is set aside for all purposes, i.e., both
retrospectively and prospectively.

This type of rescission is referred to as rescission ab initio to

distinguish it from repudiation of the contract. Repudiation
means termination of the contract thenceforth, i.e., from the
date/time of termination (thus, only prospectively).
Repudiation recognises that the contract was in existence
(subsisting) up to the point of its termination from which point
the parties’ remaining obligations under the contract cease
to be binding. Repudiation is also sometimes referred to,
somewhat confusingly, as rescission; but some of the
confusion is reduced by referring to repudiation as rescission
for breach.

So, we are concerned presently only with rescission ab initio

as a possible remedy for misrepresentation. Rescission is
actually a possible remedy for all types of misrepresentation.
The party seeking to rescind a contract must give notice to
the other party: for example, by giving oral or written notice
to the other party; by seeking a court order for rescission; by
restoring what he obtained under the contract; or by raising

176
rescission as a defence to an action against him on the
contract (e.g. Redgrave v Hurd).

If the misrepresentor cannot be found so that the

misrepresentee cannot give him notice directly, it may be
sufficient to give the notice in another manner that the courts
consider sufficient. In Car & Universal Finance Co Ltd v
Caldwell [1965] 1 QB 525, [1963] EWCA Civ 4, C sold a car
to N who paid by cheque; N’s cheque ‘bounced’; C could not
find N to give him notice of rescission; C immediately notified
the Police and the Automobile Association; N later sold the
car to dealers who sold it on to another person. It was held
that C could recover the car as his notices to the Police and
the AA were sufficient to rescind his sale to N – which meant
N had no title in the car to pass on to others. {But contrast
Macleod v Kerr (1965) SC 253, (1965) SLT 358.}

13.4.1.1 ‘Bars’ to rescision

There are, however, some circumstances when the courts

will not award the remedy of rescission. Those
circumstances which are called ‘bars to rescission’ are:

Affirmation
 Where the party seeking to rescind has affirmed the
contract (‘affirmation’), expressly or by conduct, after
discovering the misrepresentation; Long v Lloyd
[1958] 1 WLR 753 – the claimant bought a lorry
described as in ‘exceptional condition’; the seller also
said the lorry was capable of 40mph and did 11 miles
to the gallon; on a trial run, the claimant noticed
defects (defective oil seal, non-functioning dynamo);
the seller offered to pay half the cost of fixing the
dynamo; on a later journey the lorry broke down; in a
claim for rescission (damages for innocent
misrepresentation not then being available). It was
held that by accepting half the cost of repairs and
certainly by sending the lorry on another journey, the
claimant had affirmed the contract.

177
 o However, it seems that a party may not be
taken to have affirmed a contract unless he
was aware that he had a right to rescind;
Peyman v Lanjani [1958] Ch 457 - P
purchased property from L; L had a defective
title (L, who was scruffy and spoke no English,
had let M impersonate him to enable L acquire
the lease property/restaurant); when defective
title came to light, first solicitor (acting for both
parties) advised P to continue and P took
possession; P took advice from another
solicitor and decided to rescind; held: P had not
lost the right to rescind by taking possession
since he was not aware of the right; however,
in some circumstances, it may be inequitable
to allow a person who had given apparent
affirmation to rescind, irrespective of his
knowledge of his right.

Restitutio in integrum
 Where the parties cannot be restored to their original
positions. In other words, for rescission to be allowed,
it must be possible to restore the parties to their pre-
contractual positions; this is known as restitutio in
integrum; see e.g. Clarke v Dickson (1858) 27 LJQB
223 - in 1853, the claimant bought shares from the
directors of a business (treated as a partnership)
having been induced by misrepresentations; the
business was later converted into a limited liability
company and investments were converted into
company shares; the business went into financial
difficulty and the claimant discovered the
misrepresentation and sought to rescind. It was held
that rescission was not possible as the parties could
not be restored to their original positions; the claimant
could not restore the shares in the same state as
when he took them.
o Historically, the courts have said restoration
must be total (rescission ‘in toto’; e.g. Clarke v
Dickson) and that partial restoration is not

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 enough; however, following the intervention of
equity, it would seem that substantial even if
not precise restitution will be enough, e.g.
compensating for use of property to be
restored; see e.g. Erlanger v New Sombrero
Phosphate Co (1878) 3 App Cas 1218 - the
claimants who bought and worked a mine later
discovered misrepresentation; held: they were
entitled to rescission and to return the mine as
long as they accounted for the profits they
made from working the mine (and also for
deteriorations).
o Note also possible overlap between affirmation
(especially by conduct, i.e., action on the
subject matter of the contract e.g. making
modifications etc.) and the lack of possibility of
restitution.

Supervening third party rights

 Rescission may not be allowed where there have
been supervening third party rights. The right to
rescind may be lost if a third party has legally acquired
a right to the property in question (e.g. buying in good
faith and for value); this is so if the acquisition
occurred before the misrepresentor gives notice of
rescission; see e.g. Lewis v Averay [1972] 1 QB 198,
[1971] EWCA Civ 04 - a fraudster pretending to be a
popular actor (Robert Greene) bought a car from L
and paid by cheque, taking car and documents away;
the cheque bounced; meanwhile the fraudster now
pretending to be L sold the car to A, an innocent third
party; L sought to recover the car from A. It was held
that as L’s contract with the fraudster was only
voidable and not void (mistake as to creditworthiness
and not as to identity), A had acquired good title to the
car. {Contrast Car & Universal Finance v Caldwell
(above) where notice of rescission had been given
before the third party acquired the car.}

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Lapse of Time
 The right to rescind may also be lost as a result of
lapse of time.
o In the case of innocent misrepresentation, the
time taken into account is from when the
contract was made; Leaf v International
Galleries [1950] 2 KB 86 – a painting sold as a
Constable was discovered five years later not
to be one; held: as it was a case of innocent
misrepresentation, five years was too long to
allow rescission.
o In the case of fraudulent misrepresentation, the
time taken into account is from when the fraud
was discovered – except if a third party has
acquired the item after the misrepresentor
discovered the fraud without promptly
rescinding; Clough v London and North
Western Ry Co (1871) LR 7 Exch 26; but what
if an innocent third party has acquired the item
before the misrepresentee discovered the
fraud?
o The case of negligent misrepresentation is not
clear. One argument is that in such a case, the
right to rescind should only be lost if the lapse
of time amounted to an affirmation of the
contract.

13.4.1.2 Rescission, damages and indemnity

Note that when a contract is rescinded for misrepresentation,

the misrepresentee cannot also claim damages since the
contract is treated essentially as if it did not exist (i.e. it is set
aside for all purposes). However, the courts may award the
misrepresentee an indemnity to cover payments made and
liabilities incurred as obligations under the contract. In
Whittington v Seale-Hayne (1900) 82 LT 49 the claimants,
poultry breeders, took a lease and relied on the defendant’s
statement (through their agent) that the premises were in
good sanitary condition; the claimants were obliged under

180
the lease to carry out repair works that might be required by
the local authority; the premises were not in good sanitary
condition and the local authority required the claimants to
renew the drains; the claimants’ poultry also died. It was held
that the claimants were entitled to an indemnity for the
repairs carried out (to avoid unjust enrichment to the
defendants), but they were not entitled to recover for the lost
stock or lost profit as those were issues of damages ‘pure
and simple’.

13.4.2 Damages

Generally, damages cannot be recovered for

misrepresentation as a matter of contract. The
misrepresentation must have been included as a term of the
contract for contractual damages to be available. On the
other hand, damages may be recoverable for
misrepresentation as such in some circumstances.

13.4.2.1 Damages for fraudulent misrepresentation

A claim for damages for fraudulent misrepresentation is

essentially a claim for compensation for the tort of deceit.
Damages for deceit are assessed on a basis which would
compensate the claimant for all the loss he has suffered, so
far as money can do it; see e.g. per Beldam LJ in East v
Maurer [1991] 1 WLR 461, [1990] EWCA Civ 6.

The object of damages in these circumstances is to restore

the claimant to the position he would have been in if there
had been no misrepresentation; that is, to compensate him
for the amount by which he is out of pocket as a result of
entering into the contract. In McConnel v Wright [1903] 1
Ch 546, the claimant subscribed for shares in SE Co Ltd; he
relied on a prospectus which said the company had acquired
large shareholdings in some companies including L & G
Corpn; in fact, that particular holding was not acquired until
10 days after he applied for shares. It was held that damages

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were to be awarded on the tortious measure [price paid
minus actual value] and not the contractual measure
[represented value less actual value]. Lord Collins MR said:

‘It is not an action for breach of contract, and, therefore,

no damages in respect of prospective gains which the
person contracting was entitled by his contract to
expect to come in, but it is an action of tort - it is an
action for a wrong done whereby the plaintiff was
tricked out of certain money in his pocket, and,
therefore, prima facie, the highest limit of his damages
is the whole extent of his loss, and that loss is measured
by the money which was in his pocket and is now in the
pocket of the company.’

However, in respect of the question of remoteness of

damages, it has been held that the claimant can recover for
all the direct loss incurred as a result of the misrepresentation
(and not rendered too remote by the claimant’s own conduct)
- irrespective of whether the loss was foreseeable or not by
the defendant. In Doyle v Olby (Ironmongers) Ltd [1969] 2
QB 158, [1969] EWCA Civ 2, Lord Denning said that Lord
Collins (above) had expressed himself in too rigid terms and
that he seemed to have overlooked consequential damages.
Lord Denning said:

‘On principle the distinction seems to be this: in

contract, the defendant has made a promise and
broken it. The object of damages is to put the plaintiff in
as good a position, as far as money can do it, as if the
promise had been performed. In fraud, the defendant
has been guilty of a deliberate wrong by inducing the
plaintiff to act to his detriment. The object of damages
is to compensate the plaintiff for all the loss he has
suffered, so far, again, as money can do it. In contract,
the damages are limited to what may reasonably be
supposed to have been in the contemplation of the
parties. In fraud, they are not so limited. The defendant
is bound to make reparation for all the actual damages
directly flowing from the fraudulent inducement. … All

182
 such damages can be recovered: and it does not lie in
the mouth of the fraudulent person to say that they
could not reasonably have been foreseen.’

Doyle v Olby (Ironmongers) Ltd

D bought a business from O Ltd following a number of

fraudulent misrepresentations (e.g. that business was ‘all
over the counter’ when half the business came through
a travelling salesman); D incurred debt in trying to
maintain the business but the business was a failure and
eventually sold at a loss; trial judge awarded £1500 for
deceit based on two and a half times the cost of
employing a part time travelling salesman at £600pa; CA
increased award to £5500 – damages being assessed ‘in
round figures’ ‘at large much as a jury would do.’

The principle expressed in Doyle v Olby (Ironmongers) Ltd

was confirmed by the House of Lords in Smith New Court
Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997]
AC 254, [1996] UKHL 3, Lord Browne-Wilkinson said that:
‘the following principles apply in assessing the damages
payable where the plaintiff has been induced by a fraudulent
misrepresentation to buy property:

1. The defendant is bound to make reparation for all

the damage directly flowing from the transaction;
2. Although such damage need not have been
foreseeable, it must have been directly caused by the
transaction;
3. In assessing such damage, the plaintiff is entitled to
recover by way of damages the full price paid by him,
but he must give credit for any benefits which he has
received as a result of the transaction;
4. As a general rule, the benefits received by him
include the market value of the property acquired as

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 at the date of acquisition; but such general rule is not
to be inflexibly applied where to do so would prevent
him obtaining full compensation for the wrong
suffered;
5. Although the circumstances in which the general
rule should not apply cannot be comprehensively
stated, it will normally not apply where either (a) the
misrepresentation has continued to operate after the
date of the acquisition of the asset so as to induce the
plaintiff to retain the asset or (b) the circumstances of
the case are such that the plaintiff is, by reason of the
fraud, locked into the property.
6. In addition, the plaintiff is entitled to recover
consequential losses caused by the transaction;
7. The plaintiff must take all reasonable steps to
mitigate his loss once he has discovered the fraud.’

It has even been held that in cases of fraudulent

misrepresentation the claimant may also be entitled to claim
for loss of profits; East v Maurer (above) – applying Doyle v
Olby (Ironmongers) Ltd. In East v Maurer the claimants
bought a hairdressing salon following a fraudulent
misrepresentation by the seller (not to compete etc.); they
invested considerable sums and energy trying to make the
salon successful; eventually they managed to sell the salon
at a loss; the Court of Appeal held, (approving Doyle v Olby
etc.), that damages could be awarded for: (i) the difference
between the price paid for buying the business and the price
realised for the resale; (ii) fees and expenses incurred in
buying and selling the business; (iii) trading losses incurred
during the period the claimant ran the business; (iv) loss of
profits for the period in which the claimant ran the business
[reduced by CA to £10000 from trial judge’s £15,000] (again
calculated ‘in the round’ as a ‘jury assessment’); (v) [trial
court – general damages (small amount) for disappointment
and inconvenience].

NB Doyle v Olby etc. was also applied in Kline & French

Laboratories Ltd v Long [1989] 1 WLR 1.

184
 Smith New Court Ltd v Scrimgeour Vickers (Asset
Management) Ltd

S paid 82.25p for 28m shares in F Ltd; S would have paid

78p per share but for misrepresentation that there were other
bidders; as a result of a separate fraud on F Ltd, the value
of the shares were even lower than thought (‘the shares
were already pregnant with disaster’); S sold the shares at a
loss realising only 30-40p per share; they claimed damages;
trial judge awarded £10.7m, difference between 82.25p and
44p per share, as difference between the purchase price
paid and the real price on the date of sale (including the then
undiscovered fraud); CA reduced award to about £1.2m,
difference between 82.25p and 78p per share, as the
difference between the purchase price paid and the market
price on the date of sale; HL held that the damages
recoverable amounted to £11.3m, ‘being the difference
between the contract price and the amount actually realised
by S on the resale of the shares’; however, that as there was
no appeal by S against the trial judge's assessment of the
damages at £10.7m, ‘Smith's claim must be limited to that
latter amount’.

185
13.4.2.2 Damages for negligent misrepresentation
at common law

Originally, damages were only recoverable at common law

for misrepresentation if it was made fraudulently or if a
fiduciary relationship existed between the parties; see e.g.
Nocton v Lord Ashburton [1914] AC 932; Candler v
Crane, Christmas & Co [1951] 2 KB 164, but compare Lord
Denning’s dissenting judgment (with the majority of the court
who claimed to rely on Derry v Peek).

In Hedley Byrne & Co Ltd v Heller & Partners Ltd (above),

the House of Lords confirmed that damages are recoverable
for negligent misrepresentation in certain circumstances
even in the absence of a pre-existing contractual or fiduciary
relationship.

As negligent misrepresentation is a tort, the object of

damages is also to put the claimant in the position he would
have been in if the tort had not been committed. In essence,
the measure of damages is the same as for fraudulent
misrepresentation i.e. the amount by which the claimant is
out of pocket as a result of reliance on the misrepresentation.

On the other hand, the remoteness test is one of reasonable

foreseeability, i.e., the claimant can only recover damages
for losses which were reasonably foreseeable by the
defendant misrepresentor as the consequence of the
misrepresentation.

In South Australia Asset Management Corporation v

York Montague Ltd [1997] AC 191, [1996] UKHL 10, the
claimants lent money to another which was secured by a
property that had been negligently over-valued by the
defendants; the claimants had to sell the property at a loss
subsequently; the issue was whether damages were to be
based on the lender’s entire loss [including fall in market
value] (the difference between the amount they did lend,
including reasonable interest, and the amount they got back
after the sale) on the one hand, and the difference between

186
what they actually lost and what they would have lost if they
had lent a lesser amount following correct valuation on the
other hand; HL held, damages are to be based on the
difference between the (negligent) valuation and the correct
value at the time of the valuation. Lord Hoffman said:

‘Rules which make the wrongdoer liable for all the

consequences of his wrongful conduct are exceptional
and need to be justified by some special policy.
Normally the law limits liability to those consequences
which are attributable to that which made the act
wrongful. In the case of liability in negligence for
providing inaccurate information, this would mean
liability for the consequences of the information being
inaccurate. …

The principle that a person providing information upon

which another will rely in choosing a course of action is
responsible only for the consequences of the
information being wrong is not without exceptions …
but fraud is commonly thought to be one. [cites Doyle v
Olby (Ironmongers) Ltd] …

Such an exception, by which the whole risk of loss

which would not have been suffered if the plaintiff had
not been fraudulently induced to enter into the
transaction is transferred to the defendant, would be
justifiable both as a deterrent against fraud and on the
ground that damages for fraud are frequently a
restitutionary remedy.’

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13.4.2.3 Damages for misrepresentation under
section 2(1) of the Misrepresentation Act
1967

Damages may also be claimed under the Misrepresentation

Act 1967 for misrepresentation. In many ways, this provision
is actually the best option for a person seeking damages for
misrepresentation.
 First, as we will see shortly, damages are awarded on
the same bases as for fraudulent misrepresentation;
but the claimant does not even need to prove fraud!
Remember that Derry v Peek set a high bar for
establishing fraud.
 Second, the claimant does not need to prove that a
‘special relationship’ exists between the parties as
with a claim in negligent misrepresentation following
Hedley Byrne; see e.g. Gosling v Anderson
(above).
 Third, in the case of negligent misrepresentation, it is
the claimant who must prove negligence; whereas
under the Act, it is the defendant who must prove that
he had reason to believe and did believe that his
statement was true.

Thus, for practical and tactical purposes, section 2(1) of the

Misrepresentation Act 1967 is the most desirable heading to
claim damages for misrepresentation – at least as the law
stands presently.

As section 2(1) uses a ‘fiction of fraud’, the measure of

damages is the same as for fraudulent misrepresentation
and deceit; i.e., the amount by which the claimant is out of
pocket as a result of reliance on the misrepresentation.

The rule on remoteness of damages is also the same as for

fraudulent misrepresentation; i.e., damages are recoverable
for all direct loss incurred as a result of the
misrepresentation.

188
The current position on the calculation of damages under
section 2(1) is derived from the Court of Appeal’s decision in
Royscot Trust Ltd v Rogerson & Anor [1991] 2 QB 297,
[1991] EWCA Civ 12. In that case, RTL entered into a hire-
purchase agreement with R, having been induced by
misrepresentation made by 2nd defts, MHL; MHL said the
price for a car being sold to R was £8,000 and that R had
paid a 20% deposit of £1,600; in fact, the price of the car was
£7,600 and R had paid a 15% deposit of £1,200; RTL would
not have entered into the contract if they knew the truth
because their policy was to lend only after a 20% deposit; R
defaulted and even sold the car. The Court of Appeal held
that RTL was entitled to recover from MHL all the losses they
suffered as a result of entering into the agreement even if
those losses were unforeseeable – provided they were not
otherwise too remote; that the wording of section 2(1) is clear
that a person making an innocent misrepresentation is to be
held liable in damages as if the representation had been
made fraudulently.

Note that the case of Royscot Trust Ltd v Rogerson &

Anor is a subject of some controversy. In Smith New Court
Ltd v Scrimgeour Vickers (Asset Management) Ltd
(above), Lords Steyn and Browne-Wilkinson said that they
expressed no [concluded] views on the correctness of the
decision in Royscot.

Note also that in some circumstances it may still be

necessary to bring a common law action for
misrepresentation if it is not possible to claim under the Act:
e.g. misrepresentation had not become a term of the
contract; or, the action is against an agent and not the
principal.

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13.4.2.4 Damages in lieu of rescission under s.2(2)
Misrepresentation Act 1967

Damages may be awarded for misrepresentation under

section 2(2) of the Misrepresentation Act 1967 when it is
claimed that the contract has been or ought to be rescinded
but the court is of the opinion that it is equitable to treat the
contract as subsisting and award damages instead.

Damages under this heading are awarded instead (in lieu) of

rescission; thus, a person cannot both rescind and obtain
damages. A restitutionary claim to prevent unjust enrichment
may be possible, however.

Strictly, damages are not claimed under section 2(2) but are
awarded by the court. Moreover, damages are awarded
under the section only as a matter of the court’s discretion
and not as of right. The question of the measure of damages
under the provision is not entirely clear.

Note that this is the only circumstance when damages (as

opposed to an indemnity) may be obtained in respect of
innocent misrepresentation. The normal remedy for innocent
misrepresentation is rescission.

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 Chapter 14:
Duress and Undue
Influence

Think About!

1. If a person feels compelled to enter into a contract because they were threatened or
pressured by the other party, does this mean that the will of the person who was
threatened or pressured was ‘coerced’?

2. Sally and James jointly owned their home. James ran a business selling fishing tackle.
James also liked to deal in company shares – buying and reselling them. James asked Sally
to allow him to borrow some money from Wivenhoe Bank to invest in his fishing tackle
business; the loan would be secured on the home that they owned together; she was
reluctant but he persisted for several months until she relented when he said some of the
money would be spent to buy a timeshare holiday home in Spain. Pratt, a manager with
Wivenhoe Bank (who was also a family friend to Sally and James), visited their home with
the loan documents; both Sally and James signed the documents while they all shared a
half bottle of sherry. Sally did not read the documents. James spent most of the money
investing in shares but unsuccessfully. Wivenhoe Bank now seeks to repossess the home
of James and Sally.

What can Sally do?

191
14.1 Introduction

On a basic view, a contract is an agreement entered into by

the parties voluntarily. This supposes that the consent of
each party has been given freely.

On a traditional laissez-faire (or ‘freedom of contract’) view,

in so far as consent is freely given, it is up to the parties to
agree whatever contract terms that they see fit. For example,
in English contract law, consideration does not need to be
adequate as long as it is ‘sufficient’ in the eyes of the law –
‘sufficiency’ being at a fairly low threshold.

Despite the concept of ‘freedom of contract’, the common law

contains principles and rules that are intended to address
matters of unfairness in contracts. We have already seen
examples of statutory intervention on matters of unfairness
when we discussed the Unfair Contract Terms Act 1977
(‘UCTA’) and the Consumer Rights Act 2015 (‘CRA’) as well
as common law controls on exclusion clauses. Here,
however, we will be focusing on common law rules
addressing matters of unfairness in contracts beyond merely
controlling the use of exclusion clauses.

Unfairness in contracts can be classified broadly into two

categories:

 Procedural unfairness i.e. unfairness in the manner in

which a contract was made; and,
 Substantive unfairness also called ‘contractual
imbalance’, i.e., unfairness in respect of the content of
the contract where terms of the contract are
significantly more favourable to one party than the
other (compare for example the concept of ‘significant
imbalance’ under the CRA 2015); ‘imbalance’ may be
in terms of relative weight of duties or burdens on
respective parties; it may also conceivably be in terms
of ‘inequality of consideration’; (but note that under the
CRA, the fairness of a term is not to be assessed in
respect of adequacy of price or remuneration).

192
Note that procedural unfairness and substantive unfairness
sometimes overlap and, in particular, an extreme contractual
imbalance may raise the presumption that the contract was
reached through procedural unfairness such as undue
influence or some other unlawful pressure; see e.g. Hart v
O’Connor & ors [1985] 3 WLR 214, [1985] UKPC 17.

Two important doctrines through which English law

addresses matters of unfairness are (a) Duress and (b)
Undue Influence and these are the focus topics of this
chapter.

14.2 Duress

In this context, ‘duress’ refers to a circumstance where a

person has entered into a contract or agreed to contract
terms as a result of some violence, threat of violence or other
illegitimate pressure.

At common law, duress renders a contract voidable, that is,

the contract can be set aside at the instance of the ‘victim’.
An alternative remedy could be in restitution e.g. for ‘money
had and received’. Presently, three forms of duress can be
outlined.

14.2.1 Duress to the person

This was always recognised at common law and was, at one

time, the only form of duress for which the courts were readily
willing to set aside a contract.

Duress to the person consists of actual or threatened

unlawful physical violence to a contract party or members of
his family; or in the form of constraint of those persons.

The threat of violence does not have to be the sole factor that
induced the ‘victim’ to make the contract; it is enough that it
was a factor. In the Privy Council case of Barton v
193
Armstrong [1976] AC 104, B agreed to buy shares from A
partly because A made death threats against B and partly
because B himself thought the deal was beneficial. It was
held that the agreement would be set aside and it was
sufficient that the death threats amounted to just one factor
that influenced B to make the contract. {Note that technically
the contract was voidable though the court said ‘void’.}

14.2.2 Duress to goods

On the basis of the old case of Skeate v Beale (1840) 11 Ad

& E 983 it would initially appear that duress to goods will not
vitiate a contract. In that case a tenant owed money; the
landlord seized the tenant’s property and threatened to sell
them unless the tenant made an agreement for repayment;
the tenant agreed but later sought to set the agreement
aside. It was held that duress to goods was not sufficient to
render the contract voidable.

More recent cases have suggested that the courts are now
likely to accept that duress to goods can vitiate a contract. In
Occidental Worldwide Investment Corporation v Skibs
(The Siboen & The Sibotre) [1976] 1 Lloyd’s Rep 293, Kerr
J said (obiter) that if a person is coerced into a contract by
the threat of having his house burned down or a picture
slashed he did not think the law would uphold the agreement.
Further, in Dimskal Shipping v International Transport
Workers Federation (The Evia Luck) [1992] 2 AC 152 Lord
Goff said that the restriction of duress to only duress to the
person had been ‘discarded’.

In addition, duress to goods has been recognised as a basis

for a successful claim in restitution (as opposed to contract);
see Maskell v Horner [1915] 3 KB 106 where an unlawful
‘toll fee’ that had been obtained with a threat to sell the
claimant’s stock was recoverable in restitution.

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14.2.3 Economic duress

The courts have now recognised that a contract entered into

by a party under economic duress is voidable at the instance
of that party. This is a relatively recent development and the
development of the law has been incremental; even in one
case that might have been considered from an economic
duress view the issue was not raised; see Williams v Roffey
Brothers & Nicholls (Contractors) Ltd [1991] QB 1, [1989]
EWCA Civ 5.

Economic duress arises where a person’s consent to a

contract or particular contract terms was induced by
commercial pressure of a kind which the law does not regard
as legitimate. It is obviously not every type of commercial
pressure that will be regarded as illegitimate.

The possibility of a successful claim for economic duress was

first recognised in The Siboen & The Sibotre (above); Kerr
J said that economic duress would arise if, as a result of
commercial pressure, there had been a coercion or
compulsion of a party’s will such as to deprive that party of a
choice or intention to act differently; however, mere
commercial pressure is not enough to amount to economic
duress. Subsequently, in North Ocean Shipping v Hyundai
Construction (The Atlantic Baron) [1979] QB 705, it was
held expressly by Mocatta J that a threat to break a contract
could amount to economic duress (though the voidable
agreement in the case itself had been affirmed).

In Universe Tankships Inc of Monrovia v International

Transport Workers’ Federation, (‘The Universe Sentinel’)
[1983] 1 AC 366, [1981] UKHL 9, despite disagreeing on the
application of applicable principles to the facts before them,
all the members of the court were agreed that the doctrine of
economic duress was being (or had been) developed and
established at common law. Most of the law lords seemed to
take the position that the basis of an action for economic
duress was that (a) pressure must have been exerted on the
will of the complaining party to obtain his {apparent} consent;

195
and (b) that the pressure must have been of a type that the
law does not consider legitimate.

Lord Diplock said that the rationale for the development of

the common law doctrine of duress was not that the party
seeking to set aside a contract or recover money on that
basis did not know the nature of the terms he was agreeing
to or the purpose of the money demanded. He said that
rather the rationale ‘is that his apparent consent was induced
by pressure exercised upon him by that other party which the
law does not regard as legitimate ….’

Lord Cross phrased the issue in the form of a question to the

effect: whether a money demand made by the defendant on
the claimant was a ‘legitimate’ demand in the sense that
although compliance with it was enforced by pressure that
amounted to duress the claimant is, nevertheless, not
entitled to recover the money. Note that this manner of
phrasing makes more obvious the necessity of asking: what
type of pressure is ‘illegitimate’ or what type of pressure is to
be considered as ‘amounting to duress’!

Lord Scarman said that authorities ‘reveal two elements in

the wrong of duress’: (a) pressure amounting to compulsion
of the will of the ‘victim’; and (b) the illegitimacy of the
pressure exerted. He said there must be pressure with the
practical effect of compulsion or absence of choice; that
compulsion is variously described as the coercion or vitiation
of consent; that the classic duress case is however not one
of lack of will to submit but rather intentional submission due
to lack of practical choice.

Lord Scarman said further that the absence of choice can be

proved in different ways e.g. protest or intention to go to
court; but that these are only evidential matters which do not
go to ‘the essence of duress’; that even if the ‘victim’ kept
silent, it does not assist the ‘bully’ if the lack of choice is
proved.

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Lord Scarman then said that in the particular matter before
the court the real issue was as to the second element of
duress, i.e., ‘that the pressure must be one of a kind which
the law does not regard as legitimate.’ He said that in
determining what is legitimate, two matters may have to be
considered: (a) the nature of the pressure (which will
sometimes be decisive); and/or (b) ‘the nature of the demand
which the pressure is applied to support.’ He then said further
that duress can exist even if the threat is one of lawful action;
that this depends on the nature of the demand. He cited the
example of blackmail which can be a threat to do something
lawful, e.g., reporting a crime to the police. He thus
concluded that in many cases, what has to be justified is not
the threat but the demand.

To summarise, the early cases recognising economic duress

identified its elements as consisting of (a) pressure
amounting to the coercion or compulsion of the will of the
claimant and (b) the illegitimacy of the pressure. It was also
taken that such pressure had the effect to vitiate the consent
of the claimant. In the Privy Council case of Pao On and
others v Lau Yiu Long and another (Hong Kong) [1980]
AC 614, [1979] UKPC 17, Lord Scarman said: ‘Duress,
whatever form it takes, is a coercion of the will so as to vitiate
consent. … in a contractual situation commercial pressure
is not enough. There must be present some factor which
could in law be regarded as a coercion of his will so as to
vitiate his consent.’

On the other hand, it can be argued that even if a person is

coerced to enter into a contract by economic duress the
person still consents nevertheless, albeit that the consent is
because of the coercion. Some argue that the person is not
deprived of ‘all choice’ but merely presented with ‘a choice
between evils’ (see examples cited by Lord Goff in The Evia
Luck). This is sometimes referred to as ‘deflection’ of the will
instead of ‘coercion’; see e.g. per Cooke J in Progress Bulk
Carriers Ltd v Tube City IMS LLC [2012] EWHC 273
(Comm).

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Notice however that Lord Scarman seems to partly address
this point in The Universe Sentinel when he alluded to
‘intentional submission arising from the realisation that there
is no other practical choice’; he also said that the key issue
in that particular case was as to the legitimacy of the
pressure exerted and that in determining legitimacy either or
both of the nature of the pressure and the nature of the
demand may have to be considered. {Arguably, Lord Diplock
too.}

The criticism levelled at the element that coercion vitiates

consent was acknowledged by Lord Goff in The Evia Luck;
he also said that he himself doubted whether it was helpful
to speak of the claimant’s will as having been coerced. For
his own part, Lord Goff said in respect of economic duress:
‘… it is now accepted that economic pressure may be
sufficient to amount to duress for this purpose, provided at
least that the economic pressure may be characterised as
illegitimate and has constituted a significant cause inducing
the plaintiff to enter into the relevant contract ….’

Notice that Lord Goff suggested that the economic pressure

should be a significant factor; compare threat/violence as
merely a factor in cases of duress to the person!

The pulling back from the ‘coercion of the will dimension’ was
also reflected heavily by Mance J (as he then was) in Huyton
SA v Peter Cremer Gmbh & Co [1999] 1 Lloyds Rep 620,
[1998] EWHC 1208 (Comm). He stressed the difference
between threats to the person or violence which he said are
mala fide (bad faith) acts by definition on the one hand and
commercial pressure which may not necessarily involve bad
faith on the other hand. Nevertheless the compulsion or
coercion of the will’ line of presentation still surfaced in a later
Privy Council case, R v Her Majesty's Attorney-General for
England and Wales [2003] UKPC 22, [2003] EMLR 24.

In short, an outline of the modern approach to actionable

economic duress can be taken from Dyson J’s summary in

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e.g. DSND Subsea Ltd v Petroleum Geo Services Asa
[2000] BLR 530, [2000] EWHC 185 (TCC):

 There must be pressure, (a) whose practical effect is

that there is compulsion on, or a lack of practical
choice for, the ‘victim’, (b) which is illegitimate, and (c)
which is a significant cause inducing the claimant to
enter into the contract.
 In determining whether there has been illegitimate
pressure, the court takes into account a range of
factors. These include:
o whether there has been an actual or
threatened breach of contract;
o whether the person allegedly exerting the
pressure has acted in good or bad faith;
o whether the ‘victim’ had any realistic practical
alternative but to submit to the pressure;
o whether the ‘victim’ protested at the time and
whether he affirmed and sought to rely on the
contract.
 These are all relevant factors.
 Illegitimate pressure must be distinguished from the
rough and tumble of the pressures of normal
commercial bargaining.

In addition, the following principles can also be distilled from

case law.

Pressure through a threat to do an act that is itself lawful:

A threat to do an act which is itself lawful and which is not
used for an unlawful purpose (like, e.g., blackmail) will not
generally lead to economic duress; for example, a threat not
to deal with a person in the future (as opposed to a threat to
break a contract), CTN Cash and Carry Ltd v Gallaher Ltd
[1994] 4 All ER 714, [1993] EWCA Civ 19 {a threat not to
provide future credit was not economic duress}; Marsden v
Barclays Bank plc [2016] EWHC 1601 (QB), [2016] 2
Lloyd’s Rep 420 {requirement to sign a settlement agreement
when advancing a large new loan to a defaulting borrower
was not duress}.

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Exceptionally, pressure through an act that is itself lawful can
amount to economic duress; it seems that for this ‘the courts
are willing to apply a standard of impropriety rather than
technical unlawfulness’; Progress Bulk Carriers Ltd v Tube
City IMS LLC. See also per Steyn LJ in CTN Cash and
Carry Ltd v Gallaher Ltd: ‘the critical enquiry is not whether
the conduct is lawful but whether it is morally or socially
unacceptable.’

Pressure through a threat to do an act that is unlawful:

This would normally be regarded as amounting to economic
duress. Examples would include: threat/breach of contract;
threat/commission of a tort (but note that economic duress is
not itself a tort); threat/commission of a crime.

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14.3 Undue Influence

The doctrine of undue influence as a way of addressing

contractual unfairness developed in equity because of the
originally narrow scope of the doctrine of duress at common
law. In Royal Bank of Scotland plc v Etridge (AP) (‘No. 2’)
[2001] UKHL 44, [2002] 2 AC 773, Lord Nicholls said that the
‘objective is to ensure that the influence of one person over
another is not abused.’ See also per Norris J in Davies v AIB
Group (UK) Plc [2012] EWHC 2178 (Ch); [2012] 2 P & CR
19.

14.3.1 Definition and Effect

‘Undue influence’ is not easy to define precisely! In Etridge

(‘No. 2’), Lord Nicholls said the law will not permit a
transaction to stand if one party’s intention to enter into it was
secured by ‘an exercise of improper or “undue” influence,
and hence unacceptable, whenever the consent thus
procured ought not fairly to be treated as the expression of a
person's free will. It is impossible to be more precise or
definitive. The circumstances in which one person acquires
influence over another, and the manner in which influence
may be exercised, vary too widely to permit of any more
specific criterion.’

The role of undue influence can be considered from either or

both of two perspectives: (a) concern that the decision-
making of the complainant might have been affected; or (b)
concern that the person with the influence might have
abused or taken unfair advantage of that position of
influence.

Another important dimension has been the legal position of

some third parties who, usually along with the person in a
position of influence, are the beneficiaries of the transaction
which the vulnerable person is complaining about. An
example of important socio-economic interest that has led to
a considerable amount of litigation is a situation where a wife

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(or cohabitee) agrees to a husband’s (or partner’s) request
to grant security over the family home in favour of a bank in
respect of the husband’s (or partner’s) business.

In any event, the effect of a contract being affected by undue

influence is that it is voidable and thus can be set aside at
the instance of the party influenced.

14.3.2 Classification

Traditionally, a distinction has usually been drawn between

cases of ‘actual undue influence’ and those of ‘presumed
undue influence’; this distinction was, in terms, reflected in
the judgment of Cotton LJ in Allcard v Skinner (1887) 36 Ch
D 145.

‘Actual undue influence’ refers to circumstances where it is

in fact proved that the complainant’s agreement to the
transaction was actually obtained by undue influence; the
transaction is the result of influence expressly used for the
purpose (Allcard v Skinner). There is actually potential
overlap of this situation with duress – especially since the
expansion of that doctrine. Further, actual undue influence is
actually considered as ‘a species of fraud’ and the vulnerable
party is entitled to have the transaction set aside as of right;
see e.g. Lord Browne-Wilkinson in CIBC Mortgages plc v
Pitt [1994] 1 AC 200, [1993] UKHL 7; in Allcard v Skinner,
Cotton LJ said such cases depend ‘on the principle that no
one shall be allowed to retain any benefit arising from his own
fraud or wrongful act.’

‘Presumed undue influence’ refers to circumstances where,

due to the existence of a certain type of relationship between
the parties coupled with ‘something which calls for an
explanation’, in relation to the transaction, the law itself
presumes that there has been undue influence. Note that in
Etridge (‘No. 2’) Lord Nicholls employed the expressions
‘something which calls for an explanation’ and ‘a transaction
which calls for explanation’ instead of what used to be called

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‘manifest disadvantage’. The use of the expressions is to
indicate a (potential) necessity for an inquiry whether the
transaction can be explained on the basis of the relationship
between the parties.

The key point for now is that to raise a presumption of undue

influence, there is a requirement that there is ‘something
which calls for an explanation’ or that the ‘transaction calls
for explanation’; but this is only to raise the presumption; not
necessarily to sustain the case.

In the case of actual undue influence there is no requirement

to prove that the transaction involved a ‘manifest
disadvantage’ or something which calls for explanation. As
seen earlier, the courts say that the vulnerable party is
entitled to have the transaction set aside as of right.

Moreover, it has been clarified that disadvantage is not per

se an ingredient of undue influence; it only relates to the
evidential burden of undue influence and the shift of that
burden from the claimant to the defendant. Further in some
cases the claimant does not even need to prove a
relationship of trust and confidence; rather, the law already
makes another presumption that certain relationships are by
law relationships of trust and confidence; examples include:
parent-child, guardian-ward, trustee-beneficiary, solicitor-
client, and doctor-patient. Note that it does not include
husband-wife or banker-client ordinarily; see further
especially per Lord Nicholls in Etridge (‘No. 2’).

In Barclays Bank plc v O'Brien and another (AP) [1994] 1

AC 180, [1993] UKHL 6, the House of Lords employed the
traditional dichotomy between actual undue influence and
presumed undue influence. Lord Browne-Wilkinson quoted
with approval the following classification adopted by the
Court of Appeal in Bank of Credit and Commerce
International SA v Aboody (1988) [1990] 1 QB 923 at 953:

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 ‘Class 1: actual undue influence. In these cases it is
necessary for the claimant to prove affirmatively that
the wrongdoer exerted undue influence on the
complainant to enter into the particular transaction
which is impugned.
Class 2: presumed undue influence. In these cases the
complainant only has to show, in the first instance, that
there was a relationship of trust and confidence
between the complainant and the wrongdoer of such a
nature that it is fair to presume that the wrongdoer
abused that relationship in procuring the complainant to
enter into the impugned transaction …….. Such a
confidential relationship can be established in two
ways, viz:
Class 2A. Certain relationships (for example solicitor
and client, medical advisor and patient) as a matter of
law raise the presumption that undue influence has
been exercised.
Class 2B. Even if there is no relationship falling within
class 2A, if the complainant proves the de facto
existence of a relationship under which the complainant
generally reposed trust and confidence in the
wrongdoer, the existence of such relationship raises the
presumption of undue influence. ….’

Note that in Aboody the Court of Appeal assumed wrongly

that ‘manifest disadvantage’ is essential to all types of undue
influence; it was overruled on this part in CIBC Mortgages
plc v Pitt (above) which held that ‘manifest advantage’ is not
necessary for actual undue influence. In Aboody the Court
of Appeal had been purportedly following National
Westminster Bank Plc v Morgan [1985] AC 686, [1985]
UKHL 2, especially per Lord Scarman; CIBC Mortgages plc
v Pitt and other cases now say that National Westminster
Bank Plc v Morgan was confined to ‘presumed undue
influence’ cases).

In Etridge (‘No. 2’) Lord Nicholls said that the labelling of

presumed undue influence and actual undue influence ‘can
be a little confusing’. Similarly, he said that the label manifest

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disadvantage had been ‘causing difficulty’. He clarified the
types of undue influence in terms of the evidentiary
requirements, including the presumptions attending some of
them; he then suggested that the label ‘manifest
disadvantage’ should be discarded with focus being on
whether there is something about the transaction which calls
for explanation.

Taking these foregoing cases (and others) into account we

can make a summary of principles concerning undue
influence as follows:

Actual Undue Influence (‘Class 1’):

 the vulnerable party does not have to prove a
relationship of trust or confidence;
 there must be proof that undue influence had been
exerted on the vulnerable party;
 if there is such proof, the vulnerable party is entitled to
set the transaction aside as of right;
 there is no need to prove that there is something about
the transaction which calls for explanation.

In CIBC Mortgages plc v Pitt a husband pressured his wife

to remortgage the family home; the documents of the
contract were signed jointly; the documents stated that the
transaction was a remortgage and to buy a holiday home; the
husband actually spent the proceeds on buying, pledging
and buying more shares; the shares market collapsed; the
bank sought to repossess the home. It was held that as it was
a case of actual undue influence the wife did not have to
prove manifest disadvantage; so, she could set aside the
transaction against the husband {but not against the bank
who had no notice of the undue influence}.

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Presumed Undue Influence involving legally recognised
relationships of trust and confidence (‘Class 2A’):

Examples: parent/child, guardian/ward, trustee/beneficiary,

solicitor/client, and doctor/patient:

 the law presumes irrebuttably that the relationship is

one involving reposing trust or confidence;
 there is no need for the vulnerable party to prove that
such a relationship existed;
 there should be something about the transaction
which calls for explanation;
 the burden then shifts to the person seeking to keep
the contract alive, to prove that there was no undue
influence, i.e., to rebut the presumption of undue
influence (note: not the irrebuttable presumption of
relationship of trust/confidence);
 the presumption of undue influence can be rebutted
by proving that the vulnerable party entered into the
transaction freely, e.g., they were fully aware of the
risks and/or took legal advice.

Related case-law
Curtis v Curtis [2011] EWCA Civ 1602 - undue influence
arose in the context of relationship of spiritual adviser to a
disciple; see also Allcard v Skinner(above);
Barclays Bank plc v O'Brien and another (AP) - that the
relationship of a husband and wife does not as a matter of
law raise a presumption of undue influence within Class 2A;
Etridge (‘No. 2’) - that husband and wife is not one of the
relationships where there is irrebutable presumption of a
relationship of trust/confidence;
National Westminster Bank Plc v Morgan (above) -
confirms that the relationship of husband and wife does not
‘give rise to the presumption of undue influence’; decided that
the normal relationship of banker-customer does not give rise
to the presumption of undue influence; explains that Lloyds
Bank v Bundy [1975] QB 326, [1974] EWCA Civ 8 involved
a relationship that went beyond normal banker-customer

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relationship and that is why a presumption of undue influence
was found in a banker-customer situation in that case.

Presumed Undue Influence requiring proof of a relationship

of trust and confidence (‘Class 2B’):

 The vulnerable party must prove that the relationship

in fact involved her reposing trust and confidence in
the party who exerted influence on her
o the courts note that the most likely situation
where this can be established is husband and
wife relationships;
 there should be something about the transaction
which calls for explanation;
 the burden then shifts to the person seeking to keep
the contract alive, to prove that there was no undue
influence; to rebut the presumption of undue
influence;
 the presumption of undue influence can be rebutted
by proving that the vulnerable party entered into the
transaction freely, e.g., they were fully aware of the
risks and/or took legal advice.

Related case-law
Barclays Bank plc v O'Brien and another (AP) - that the
relationship of husband and wife does not as a matter of law
raise a presumption of undue influence within class 2A; that
the relationship of husband and wife can, with factual proof
that it involves reposition of trust and confidence, fall into
undue influence within class 2B.

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14.3.3 Undue influence and third party rights

Note that the issue under this heading has arisen mainly
because of the spate of cases where a wife had agreed to
the granting of security over the family home to a third party
(bank/lender) in relation to the husband’s business.
Accordingly, the principles established by the courts reflect
the circumstances and the types of factual situations in which
the law developed. Nevertheless, the courts have not been
wholly unmindful of wider implications.

Some of the key principles in this area may be summarised

as follows {see Etridge (‘No. 2’), especially per Lord
Nicholls}:

 In situations where a wife is asked to guarantee the

husband’s debt to a bank, the bank should ‘take
reasonable steps to satisfy itself that the wife has had
brought home to her, in a meaningful way, the
practical implications of the proposed transaction.’
 Banks are ‘put on inquiry’ in every case where the
relationship between the surety and the debtor is non-
commercial.’
o {‘put on inquiry’ does not per se mean that the
bank should make enquiries; in effect it refers
to circumstances when banks should take
steps to make sure that the surety/guarantor
(typically the wife in this situation) is fully aware
of their risks, or advised to take legal advice}
 On the steps that a bank should take:
o provided that a suitable alternative is available,
banks do not have to insist on a private meeting
to explain risks/liability to the wife and or
urge/demand her to take independent legal
advice;
o the bank can choose to rely on confirmation
from a solicitor that the wife has been advised
independently;
o the bank should let the wife know that it is her
choice as to which solicitor; and that the

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 purpose of seeking the confirmation is that she
should not be able to dispute the validity of the
transaction;
o the bank must provide the solicitor with the
financial information he needs;
o if the bank suspects that the wife has been
misled or is not acting freely, it must notify her
solicitor.

 ‘If the bank or other creditor does not take these steps,
it is deemed to have notice of any claim the guarantor
may have that the transaction was procured by undue
influence or misrepresentation on the part of the
debtor.’
 Ordinarily, ‘deficiencies in the advice given are a
matter between the wife and her solicitor. The bank is
entitled to proceed on the assumption that a solicitor
advising the wife has done his job properly.’

In addition to the foregoing, the court also set down

guidelines on how solicitors should act in these situations
covering, among other things, the content of the legal advice
and the independence of the solicitor - especially when
acting for more than one of the parties.

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210
 Chapter 15:
Illegality

Think About!

1. ‘Ex turpi causa non oritur actio’ – from a base cause, no action can arise.

2. A person places an order through the website of a bakery whose proprietor is known
to be a homosexual. The order was for a cake which was to have the inscription:
‘Homosexuality is a sin’. Payment was made on the website and the customer received
an acknowledgement which said: ‘Your order has been accepted and delivery will be in
12 days.’ The baker later refused to bake the cake.

Consider whether the transaction is affected by illegality.

3. Miss Jones is the daughter of a billionaire; she was about to marry Mr. Peabody; before
the marriage, the parties signed an agreement that if they were to divorce or separate,
Miss Jones would not have to pay Mr. Peabody anything.

Should this kind of agreement be allowed or not allowed by the law?

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15.1 Introduction

Generally, a contract is said to be ‘illegal’ when it involves or

is affected by a legal wrong in its purpose or in the way it is
formed or in the way it is performed. Again, on a general
level, an ‘illegal’ contract will usually be void or unenforceable
or both. It is thus common that actions in contract law in
which illegality is raised often involve an attempt by one party
to escape performing or being held bound by an obligation
under the apparent contract.

On the other hand, there are circumstances when a refusal

to perform a contractual obligation may be unlawful whereas
the contract itself is lawful. This is more likely to occur where
the refusal to perform is alleged to be in violation of legal
rules against discrimination. Importantly, whether the refusal
is unlawful depends on whether it does indeed amount to the
type of discrimination that the law seeks to prohibit. In the
well-publicised recent case of Lee v Ashers Baking
Company Ltd & Ors [2018] UKSC 49, the refusal of a
company run by a Christian couple to bake a cake with the
slogan ‘support gay marriage’ was held not to violate
statutory rules prohibiting discrimination on the grounds of
sexual orientation.

Although an agreement which is affected by illegality is

usually void or unenforceable, there are circumstances
where the courts have held that some obligations under a
contract which is touched by illegality in some way are
nevertheless enforceable; see e.g. Patel v Mirza [2016]
UKSC 42, [2017] AC 467; Les Laboratoires Servier & Anor
v Apotex Inc & Ors (Rev 1) [2014] UKSC 55, [2015] 1 AC
430. This of course means that such a contract was not
regarded as void ab initio – discounting cases where a
restitutionary remedy may be available in respect of an
apparent contract that is void.

If one party was not involved in or aware of illegality in the

intent or conduct of the other in relation to a contract that is
not held to be void ab initio, that first party is more likely to

212
be able to enforce an obligation under the contract. Even this
does not wholly rule out the possibility that a party whose
own action is tainted in some way by illegality may be able to
enforce an obligation under the contract in some
circumstances. It is also possible that a contract was entirely
legal at the time that it was entered into, but a subsequent
legal development makes the whole contract itself or an
aspect of it illegal.

In light of the considerations outlined in the paragraphs

immediately above, in the discussion of contracts that are in
some way touched by an element of illegality, this work
largely uses the phrase ‘contract affected by illegality’ instead
of ‘illegal contract’; cf. also per Glanville Williams, the ‘term
‘illegal contract’ is sanctioned by usage … but it is not a very
satisfactory expression’; (1942) 8(1) Cambridge Law Journal
51.

A contract may be affected by illegality in different ways. In

the first place, an agreement that is intended to be a contract
may be altogether prohibited by law or entered into in a
prohibited manner; such law may be statutory or arising from
common law. Second, a contract that is entered into validly
may be affected by illegality in its performance. The illegality
that affects the performance of a contract may either be
intrinsic to the contract, its performance, or to the conduct of
a party to the contract.

In addition, that a contract is affected by illegality may be as

a result of deliberate choices by one or both parties in a
calculated manner. On the other hand, it may also be as a
result of ignorance or even innocent conduct, particularly
where the illegality is of a technical nature as, for example,
an infringement of regulatory rules. That a contract is
affected by illegality may also simply be that the transaction
or activity involved is regarded as contrary to public policy.

The fact that there are various circumstances in which a

contract may be affected by illegality makes it inevitable to
discuss illegality by categorisation. On the other hand, such

213
categorisation is neither easy nor universally consistent. In
this book, illegality will be considered from three main
dimensions two of which may arise under either statute or at
common law: illegality affecting the formation of the contract;
illegality affecting performance; and, illegality at common
law.

15.2 Illegality Affecting the Formation of a

Contract

It is elementary but useful to point out that the standard rules

of contract law relating to the valid formation of a contract do
not relate to issues of illegality. Thus, the fact that an
agreement may be unenforceable as a contract due to lack
of consideration does not make the intended contract illegal.
Similarly, the fact that a contract that was legally required to
be concluded in writing was made orally does not per se
result in illegality as such. Those situations are to be
distinguished from situations where the conclusion of certain
types of contract, or contracts for certain purposes, are
prohibited by law.

An apparent contract which was entered into with the

purpose from the onset of committing a legal wrong will
invariably be regarded as void ab initio and of course
unenforceable. An obvious example would be a contract
where one person hires another to commit a murder. On the
other hand, illegality affecting the valid formation of a contract
may simply be because the law (typically a provision in a
statute) prohibits the formation of a contract unless some
specific legal requirements – other than basic contract
formation rules – are complied with.

In Cope v Rowlands (1836) 2 M & W 149, it was held that a

stock-broker who was not duly licensed as required by law
could not maintain an action for commission against the
defendant for whom he had acted as an agent in dealing in
shares. Parke B said it was settled ‘that where the contract
which the plaintiff seeks to enforce, be it express or implied,

214
is expressly or by implication forbidden by the common or
statute law, no court will lend its assistance to give it effect.’
He said further that it was also clear that a contract is void if
it is prohibited by statute even if the statute only imposes a
penalty; that the sole question is whether the statute meant
to prohibit the contract. He concluded that the provision in
question in the case must be taken ‘to imply a prohibition of
all unadmitted persons to act as brokers, and consequently
to prohibit, by necessary inference, all contracts which such
persons make for compensation to themselves for so acting.’

In Re Mahmoud and Ispahani (1921) 2 KB 716, a wartime

statutory order required both the seller and purchaser of
linseed to hold licences; the seller under the concerned
agreement had a licence and asked the buyer if the latter too
had a licence; the buyer replied that he did; the buyer’s
answer turned out to be false; the seller resold the linseed at
a lower price and claimed the difference from the defendant
buyer. It was held that the seller could not succeed in the
action because the supposed contract was illegal.

As noted by Parke B in Cope v Rowlands, where the issue

is that the formation of a contract is affected by illegality
owing to a statute, the real question is whether the statute
meant to prohibit the contract. Significantly, even where a
statute imposes a requirement relating to the formation of a
contract, it is possible that non-compliance with or violation
of the requirement may not necessarily render a contract void
or even unenforceable; see e.g. Hughes & Ors v Asset
Managers Plc [1995] 3 All ER 669, [1994] EWCA Civ 14.

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15.3 Illegality Affecting Performance

If the performance of an agreement would necessarily

involve the commission of a legal wrong, the agreement is
likely to be held to be unenforceable at least. In a potentially
confusing way, such an agreement is sometimes described
as void – on the basis that ‘illegal contracts’ are generally
regarded as void. For example, in Waugh v Morris (1873)
LR 8 QB 202, Blackburn J made the broad statement: 'where
a contract is to do a thing which cannot be performed without
a violation of the law it is void, whether the parties knew the
law or not.'

On the other hand, an exception was recognised in the same

case, with logical consistency to Blackburn J’s statement,
that even where the parties contemplated performing the
contract in a way that is illegal but it is actually possible to
perform the contract in a lawful way, the contract may be
enforceable.

In Levy v Yates (1838) 8 A & E 129, a statutory rule required

that a royal licence be obtained before a theatrical
performance could be held within 20 miles of the cities of
‘London and Westminster or Edinburgh’; incidentally other
provisions stated that a person who allowed certain
performances without a ‘legal settlement’ in the venue or
without authorisation ‘shall be deemed to be a rogue and
vagabond’! It was held that an agreement for a performance
when a licence had not been (and could not be legally)
obtained was unenforceable. Lord Denman CJ said that no
action could be maintained on the agreement; Patteson J
said the agreement was to do an act which must have been
illegal; and, Coleridge J said it was an agreement to do an
act that was unlawful at the time and could not be afterwards
rendered lawful.

As noted earlier, the case of Waugh v Morris recognised an

exception for situations where the contract can be performed
in an alternative and lawful manner. In addition to that, as
with illegality affecting formation, where the illegality affecting

216
performance arises from statutory provisions, there are yet
circumstances in which the agreement affected may be
enforceable as a valid contract. This is more so where the
party seeking to enforce the contract or a provision in it was
not a party to or aware of an illegality attributable to the other
party; see e.g. St John Shipping Corporation v Joseph
Rank Ltd [1957] 1 QB 267.

An agreement has also been held enforceable even when

the party seeking to enforce it had been involved in a breach
of civil law (not criminal law) to the knowledge of the other;
and, in the particular circumstance, it was intended that the
contract would be carried out in a lawful manner and, also, to
treat the contract as unenforceable would have resulted in an
unjust windfall to the other party; see Parkingeye Ltd v
Somerfield Stores Ltd [2012] EWCA Civ 1338, [2013] 1 QB
840.

In another case, while the court took the view that public
policy prevented allowing the claimant to recover for services
provided to the defendant, who had committed an illegality of
which the claimant was not aware, the court allowed an
amendment of pleadings to make a claim on a quantum
meruit basis for related but not unlawful services;
Mohammed v Alaga & Co (A Firm) [2000] 1 WLR 1815,
[1999] EWCA Civ 3037; compare with Ashmore, Benson,
Pease and Co v A V Dawson Ltd [1973] 1 WLR 828, where
the other party who also participated in the act rendering
performance illegal was held not entitled to relief.

15.4 Illegality at Common Law

Historically, some types of apparent contracts have long

been regarded as unenforceable (or void) at common law on
grounds of illegality. Such contracts typically include those
involving the commission of a crime or tort or involving some
moral wrong or agreements that are contrary to public policy.
A few examples of situations where a contract may be
regarded as illegal at common law may be considered.

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15.4.1 Agreements to commit a crime or tort

As the purpose of an agreement to commit a crime or tort is

to commit a legal wrong, it follows that the agreement is
fundamentally tainted with illegality; such agreements are
usually regarded as illegal and, at common law, void. In
Allen v Rescous (1676) 2 Lev 174, an action to recover
money from a defendant who did not perform an agreement
he had made to beat up a third party failed; it was held that
the action did not lie as the consideration was an unlawful
act.

Another example is an agreement to defraud tax or revenue

authorities. This would include an agreement whose normal
performance itself is legal but is used or operated in a way to
mislead or deceive the authorities to an illegal effect. Such is
the case with Alexander v Rayson [1936] 2 KB 169 the
agreement itself was a lease but the rent of £1200 was
expressed in a split manner as £450 for rent and £750 for
other services; the reason was to make the rent appear lower
to the local assessment committee. It was held that the
agreement was illegal; the Court of Appeal said:

‘It often happens that an agreement which in itself is not

unlawful is made with the intention of one or both
parties to make use of the subject matter for an unlawful
purpose. ... In such a case any party to the agreement
who had the unlawful intention is precluded from suing
upon it.’

An interesting point from the Court of Appeal’s statement

above is that the result in a situation like that is that where
both parties are involved in the wrongdoing and one person
cannot sue the other, that other may end up in a beneficial
position – if indirectly. An old Latin maxim goes – in pari
delicto potior est conditio defendentis et possidentis; i.e.,
where both parties are equally in the wrong the position of
the defendant and party in possession is stronger.

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Other examples include an agreement to disguise a currency
purchase transaction as a loan in violation of exchange
control statutory provisions, Bigos v Bousted [1951] 1 All
ER 92; and, an agreement requiring payment as a result of
committing an illegal act, e.g. for payment to the beneficiary
of a person who committed suicide when suicide was illegal,
Beresford v Royal Exchange Assurance [1938] AC 586.

15.4.2 Agreements contrary to public policy

It is technically conceivable to bring nearly all contracts that

the courts consider should be illegal under the umbrella of
public policy. For example, it could be said that a contract to
commit a crime or tort is held to be illegal because public
policy precludes enforcing or supporting such a contract.

Generally, on the other hand, there are some types of

situations where the courts’ refusal or reluctance to enforce
contractual obligations are particularly expressed or
regarded as based on the idea that they are contrary to public
policy. Though examples from case law may be broadly
categorised, some of the cases can actually be placed in
more than one slot of the categorisation.

(a) Agreements prejudicial to the administration of justice

A contract falling under this categorisation is likely to be void.

Examples would include: a contract that is, in bad faith,
encouraging litigation (‘champerty’), a contract to subvert a
prosecution or judicial proceedings, and a contract to give
false evidence in court.

A contract to oust the jurisdiction of the courts is also

regarded as contrary to public policy. In the past an
agreement by which parties to a contract agree to refer
disputes to arbitration was treated with suspicion in the spirit
of jealously guarding the jurisdiction of the court. Arbitration
is now widely accepted as a valid alternative dispute
resolution mechanism with considerable amount of freedom

219
from interference from the courts; indeed, arbitration requires
and now generally enjoys the support of the courts in some
important respects, including the enforcement of an
arbitration award.

(b) Agreements contrary to good morals

In spite of generalisations that an agreement contrary to

‘good morals’ or ‘public morals’ is void or unenforceable at
common law, the extant judicial decisions seem to be on
attitudes relating to sexual morality. Some of them concern
matters relating to the so-called ‘oldest profession in the
world’, i.e., prostitution. In Pearce v Brooks (1866) LR 1 Ex
213, an action for payment in reliance on forfeiture provisions
in an agreement under which a prostitute hired a carriage
(‘brougham’) for use relating to her profession was
unsuccessful.

With changing attitudes in favour of greater personal

decisions on sexual matters in some societies, some of the
older judicial decisions might be suspect and susceptible to
being decided differently; compare Benyon v Nettleford
(1850) 3 Mac & G 94, (1850) 20 LJ Ch 186, (a promise for
accepting to become a mistress was unenforceable) with the
Court of Appeal decision in Armhouse Lee Ltd v Chappell
and Another (1996) The Times, 7 August (an agreement for
advertising sex lines and sex dating in a magazine was
neither illegal nor contrary to public policy).

(c) Agreements prejudicial to marriage and family life

An agreement that has a prejudicial effect on the institution

of marriage is likely to be regarded as contrary to public
policy and void for illegality. Examples from case law include
an agreement preventing a person from marrying and
charging for procuring a marriage. Once again, old case law
may be impacted by more contemporary attitudes and the
illegality of an agreement charging for procuring a marriage

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may be ripe for review in an age where dating agencies now
proliferate and arranged marriages are common in some
communities.

One important area where there has been significant

development relates to an agreement by a marrying or
married couple to provide for what happens in the event that
they separate or divorce. Such an agreement may be
entered into before the couple get married, i.e. ‘ante-nuptial’
or ‘pre-nuptial’ agreement; or, after they had been married,
i.e. ‘post-nuptial’ agreement.

Post-nuptial agreements were accepted as enforceable in

the Privy Council case of MacLeod v MacLeod [2008] UKPC
64, [2010] AC 298. While ante-nuptial agreements have not
yet been formally declared to be enforceable, the view
(obiter) of the Supreme Court by a considerable majority in
Radmacher v Granatino [2010] UKSC 42, [2011] 1 AC 534
was essentially that as with post-nuptial agreements, ante-
nuptial agreements should be enforceable.

Although the direction of movement in English law is for the

enforceability of both ante-nuptial and post-nuptial
agreement, in each case such an agreement will not be
allowed to oust the jurisdiction of the court – especially in
relation to financial orders or ‘ancillary relief’ as they were
called.

(d) Other agreements that may contravene public policy

A range of agreements in various other circumstances may

be regarded by the courts as being contrary to public policy.
Examples include: an agreement in restraint of trade or
employment, Nordenfelt v Maxim Nordenfelt Guns [1894]
AC 535, Esso Petroleum Co Ltd v Harper's Garage
(Stourport) Ltd [1968] AC 269, [1967] UKHL 1; an
agreement that violates prohibitive provisions of an
applicable international legal instrument or the (criminal) law
of a friendly foreign country, Regazzoni v KC Sethia [1958]

221
AC 301, Wilson Smithett & Cope Ltd v Terruzzi [1976] QB
703, United City Merchants (Investments) Ltd v Royal
Bank of Canada [1983] 1 AC 168; or, indeed an agreement
to procure the overthrow of the government of a friendly
foreign country, De Wutz v Hendricks (1824) 2 Bing 314.

15.5 Effect of Illegality

As we have seen in the course of the discussion in this

chapter, the possible outcomes when an agreement is
affected by illegality are that valid are that it results:

(a) in a void and unenforceable contract; or

(b) in an unenforceable contract or unenforceable
obligations; or
(c) in a nevertheless valid contract under which
obligations are enforceable.

Some of the considerations determinative of the eventual

outcome were also considered in the discussion of various
case law on the different circumstances in which a contract
may be affected by illegality.

In summary, an apparent contract that is infused with

fundamental illegality during its formation will be void, such
as an agreement whose purpose is illegal. An agreement that
violates legal rules due to failure to comply with a statutory
or other legal requirement may be void if the intention of the
law is to prohibit such an agreement. Some agreements
which contravene public policy will be unenforceable even
though they may otherwise be valid contracts. Where only
one party is involved in illegal conduct or taint, the other party
may be able to enforce the agreement; and, a contract to
address the eventuality of separation and divorce is not
necessarily unenforceable.

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Part 4: Termination, Discharge and Remedies

16. Termination and Discharge

17. Remedies

223
224
 Chapter 16:
Termination and
Discharge

Think About!

1. What are the ways by which a contract may be terminated?

2. The well-known musician Maharni was due to give an open-air concert performance
at Sunrise University on October 27th. Madinat Events Ltd secured the rights to sell
drinks at the performance. In September, they entered into a contract with Shorouk
Drinks Retailers to buy the drinks that they (Madinat Events Ltd) would sell at the
concert. On 25th October, it was announced that the concert had been cancelled because
the University authorities were warned that there might be a security incident.

Can Shorouk Drinks Retailers recover the price of the drinks from Madinat events Ltd?

225
16.1 Introduction

Generally, a contract aims for each of the parties involved to

perform their respective obligations under the contract. Each
party to a contract generally provides consideration in return
for the fulfilment or performance by the other party (or other
parties) of their obligations.

Where everything runs properly, a contract would be

expected to come to an end when each party has fulfilled
their obligations. In such a case, the contract would simply
come to an end by ‘performance’. Where a party has
performed their obligations, they can be said to have
‘executed’ their obligations and their consideration then
becomes ‘executed’.

Another way in which a party’s performance of their

obligations may be expressed is that the party has
‘discharged’ their obligations. Where none of the parties have
any further obligation to perform under a contract, the
contract is said to be ‘discharged’.

It is important to note, however, that the word ‘discharge’ may

be used in a different way, to refer to when a person has
become free from having to perform obligations under the
contract. In this respect, a person may become free from
performing obligations under the contract which they had not
yet performed. In that case, the word ‘discharge’ is used in
the different sense that the party is ‘discharged’ from further
performance of such obligations.

Apart from termination by performance, there are other ways

in which a contract can be terminated; for example, we have
already seen a number of potentially vitiating factors which
may lead to a contract being set aside. We learned that a
contract affected by any of mistake, misrepresentation,
duress or undue influence is voidable and can be set aside
at the instance of one party.

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In this chapter our focus will be on the main grounds for the
termination and discharge of a contract including
performance and breach.

16.2 Discharge by Performance

Although we have studied many contract cases in which

something has gone wrong or where one party is suing
another, the vast majority of every day contracts do not
actually cause problems at all. In fact, the most common way
that a contract is discharged or brought to an end is through
performance, i.e., when all the parties to the contract have
fully performed their respective obligations.

In many instances, the making of a contract and the

performance of the parties’ obligations happen very close
together. An example is when a person buying a sandwich
or burger pays the price when the item is handed over. It is
possible, however, that one party’s claim to have completed
the performance due from them under the contract is
disputed by another. In this respect, English law has rules
relating to when performance is to be taken to have been
completed and that a party has completed the performance
due from them.

The first thing to bear in mind is that English law operates

what is often referred to as the ‘entire performance rule’. This
rule is to the effect that each party’s performance of a
contract must be entire and complete; each party’s
performance must keep to the requirements and terms of the
contract fully. If one party’s performance of the contract falls
short of what is required, the other party may not have to
perform their part of the contract. If Ali contracts to supply
one hundred oranges to Jasmine, Jasmine can refuse to pay
for all the oranges if the delivery by Ali is only made up of
ninety-nine oranges.

In Cutter v Powell 101 ER 573, [1795] EWHC KB J13, C

was the widow of TC; TC was a seaman who had agreed to

227
sail on a voyage from Jamaica to Liverpool that was meant
for 10 weeks; he died after 7 weeks; his wife, C, sued for the
30 guineas that TC had agreed to and been promised for the
voyage; held: C’s claim could not succeed since the terms of
the contract required TC to complete the voyage to Liverpool.

In reality though, most contracts do not really by their

language strictly require entire performance. This is reflected
in Hoenig v Isaacs [1952] 1 TLR 1360, [1952] EWCA Civ 6,
where Lord Denning said of the particular case that ‘the first
question is whether, on the true construction of the contract,
entire performance was a condition precedent to payment.’

Lord Denning said further:

‘When a contract provides for a specific sum to be paid

on completion of specified work, the Courts lean
against a construction of the contract which would
deprive the contractor of any payment at all simply
because there are some defects or omissions. The
promise to complete the work is therefore construed as
a term of the contract, but not as a condition. It is not
every breach of that term which absolves the employer
from his promise to pay the price, but only a breach
which goes to the root of the contract, such as an
abandonment of the work when it is only half done.
Unless the breach does go to the root of the matter, the
employer cannot resist payment of the price. He must
pay it and bring a cross-claim for the defects and
omissions, or alternatively set them up in diminution of
the price. …
It is, of course, always open to the parties by express
words to make entire performance a condition
precedent.’

More generally, the courts have ways of mitigating the entire

performance rule. One approach for achieving this is by
acknowledging and allowing a claim for substantial
performance. In Hoenig v Isaacs (above) H agreed to
decorate a flat for I for the price of £750; I paid £400 upfront;

228
when H finished, I refused to pay the £350 balance; he
claimed that H’s work was defective. It was held that while
the workmanship was defective, the cost of doing corrections
was only £56; H was entitled to payment less only that
amount. {Contrast with Bolton v Mahadeva [1972] WLR
1009, [1972] EWCA Civ 5.}

The courts may also engage in mitigating the entire

performance rule where a performance or stages of
performance is/are severable; similarly, the court may use
the approach where, even if a contract is not severable, one
party chooses to accept a performance that is really
incomplete; in such a case the court may allow the party who
did not complete his performance to claim on the basis of
quantum meruit i.e. ‘as much as he has deserved’; compare
e.g. Sumpter v Hedges [1898] 1 QB 673.

Finally, the principle of equity that time is not of the essence

of a contract other than in exceptional cases is now ‘fused’
with the common law through section 41 of the Law of
Property Act 1925. Accordingly, failure to perform a contract
on time may not prevent the ‘late’ party from being able to
claim under the contract unless ‘time is of the essence of the
contract’. The circumstances in which time would be of the
essence of the contract include: the parties stipulate that it is
so; the nature of the subject matter of the contract indicates
that time should be of the essence; one party gives notice to
the other about unreasonable delay. See further Raineri v
Miles [1981] AC 1050; Bunge Corporation (New York) v
Tradax Export SA (Panama) [1981] WLR 711, [1981] UKHL
11; United Scientific Holdings Ltd v Burnley BC [1978] AC
904.

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16.3 Discharge by Agreement

It is possible for parties to a contract to agree to bring their

contract to an end before it is due to end or before all
obligations under the contract have been performed. An
agreement to end a contract before all of its obligations have
been performed could be one to release each party mutually
from their obligations under the contract. On the other hand,
it could be an agreement under which only one party is being
released from obligations, for example, when the other party
(or parties) have already performed their own obligations.

An agreement to end a contract prematurely itself requires

consideration (unless it is made by deed) if it is to be
enforceable at law. It is after all an agreement and, generally,
an agreement requires consideration to be enforceable.

A party who is being released or discharged from further

obligations under a contract generally needs to show that
they gave something in return from being so released. This
is especially important where only one party is being
released from further performance. Where each party is
being released from obligations under a contract, it is
straightforward to find consideration present for the mutual
release since, in effect, everyone is giving something up or
making a forbearance.

More broadly, discharge of contract by agreement is

comparable to variation of a contract. Generally speaking,
the variation of a contract requires consideration for it to be
enforceable; Stilk v Myrick 170 ER 1168, [1809] EWHC KB
J58. Since Williams v Roffey Brothers & Nicholls
(Contractors) Ltd [1991] 1 QB 1, [1989] EWCA Civ 5, the
‘consideration’ for the variation of a contract may be in the
form of a ‘practical benefit’.

Despite Williams v Roffey Brothers, an agreement for part

payment in full settlement of an existing or antecedent debt
is not generally regarded as good consideration: Pinnel’s
Case (1602) 5 Co Rep 117; Foakes v Beer (1883-84) LR 9

230
App Cas 605, [1884] UKHL 1; Re Selectmove Ltd [1995]
WLR 474, [1993] EWCA Civ 8.

Something more than part payment has to be present; things

which may be accepted in addition to part payment as good
consideration for discharging a debt include earlier payment,
payment at a different place, and change of the mode of
payment. This kind of agreement is often referred to by the
technical expression ‘accord and satisfaction’.

16.4 Discharge by Breach

In some circumstances, the breach of a contract can lead to

the termination of the contract and the discharge of the
parties from further performance of outstanding obligations.
This can happen where one party breaches a term of the
contract that is classified as a condition or an innominate
term the breach of which results in serious consequences.
We already saw this when in the discussion on the
classification of contract terms earlier.

Where one party commits a breach of a condition (or of an

innominate term resulting in serious consequences), the
other (‘innocent’) party can choose to terminate the contract.
In essence, the ‘innocent’ party regards the party in breach
as having ‘repudiated’ the contract, i.e., the ‘innocent’ party
chooses to treat the breach as amounting to ‘repudiation’ of
the contract.

In the event of such a breach, the ‘innocent’ party has a

choice or the option of an ‘election’. As we have already
noted, he could elect to treat the contract as repudiated. On
the other hand, he can choose to keep the contract alive (i.e.
to ‘affirm’ the contract) by not treating it as repudiated; in that
case, he might seek to claim only damages for the breach.

In some cases, a party breaches the contract even before a

particular performance is due, for example by giving notice
that he will not perform; this is known as anticipatory breach.

231
Again, the innocent party has the choice of an election. He
could accept the anticipatory breach of a condition (or of an
innominate term with serious consequences) and treat it as
a repudiation (‘anticipatory repudiation’ of the contract). In
such a case, the innocent party can sue immediately;
Hochster v De La Tour (1853) 2 E & B 678, 118 ER 922,
[1853] EWHC QB J72.

On the other hand, the innocent party could choose to reject

the anticipatory repudiation, insist that the other party should
perform his obligation when due, and wait till the expected
date of performance. The second option poses risks for the
‘innocent party’ in the event that the first party then has a
legitimate excuse not to perform on the due date; see e.g.
Avery v Bowden (1856) 5 E & B 714); or that the ‘innocent’
party himself commits a breach of contract.

16.5 Discharge by Frustration of the Contract

Frustration relates to a situation where a contract that has

been validly entered into becomes impossible to perform (or
radically different from what was contemplated by the
parties) due to an event that is not the fault of any of the
parties to the contract.

At one point, English law regarded contractual obligations as

absolute and the parties could not be excused from
performance on the basis of a supervening event; see e.g.
Paradine v Jane (1647) Aleyn 26, 82 ER 897, [1647] EWHC
KB J5.

The English courts later began to accept that a contract could

be brought to an end by an event which made it impossible
to perform. The genesis of this recognition is often traced to
the case of Taylor & Anor v Caldwell & Anor 3 B & S 826,
122 ER 309, [1863] EWHC QB J1: the contract was for the
hire of a music hall; six days before the first concert, the hall
was burnt down; the claimant who had hired the music hall
sued for damages. It was held that as performance of the

232
contract had become impossible, it had been frustrated; the
contract was subject to an ‘implied condition’ that the hall
would continue to exist.

It is now accepted that some types of events can lead to the

consequence that a contract is to be treated as having been
frustrated. These include the examples below.

16.5.1 Examples of frustrating events

Destruction of the subject-matter of the contract: an example

of this is the case of Taylor v Caldwell above.

Failure to occur of an event central to the contract (or failure

of the commercial purpose of the contract): see e.g. Krell v
Henry [1903] 2 KB 740 – the defendant hired a flat for the
purpose of viewing King Edward VII’s coronation procession;
he paid £25 deposit out of the £75 agreed price; the
coronation was cancelled when the king fell ill; the claimant’s
claim for the balance failed because the contract was held to
have been frustrated.

Note: if the contract is not deprived of its whole commercial

purpose, it will not be regarded as frustrated; Herne Bay
Steam Boat v Hutton [1903] 2 KB 683 – a contract for the
hire of a boat to watch the naval review that was supposed
to be part of King Edward VII’s coronation celebration and for
a day cruise was not frustrated when the coronation was
cancelled; the day cruise was still possible.

Supervening illegality, i.e. when the contract subsequently

becomes illegal to perform: see e.g. Fibrosa Spolka
Akcyjna v Fairbairn Lawson Combe Barbour Ltd (‘The
Fibrosa case’) [1943] AC 32, [1942] UKHL 4 – an English
company contracted to supply machinery to Poland for a
Polish company; subsequently war broke out between Britain
and Germany; the port was occupied by Germany and
Poland was declared enemy territory; this made it illegal for

233
British companies to trade with Poland; held: the contract had
been frustrated.

Note:

The courts will not regard a contract as frustrated simply

because it had become more difficult or more expensive to
perform (if the commercial purpose had not been defeated);
see e.g. Tsakiroglou & Co Ltd v Noblee Thorl GmbH
[1962] AC 93 - the contract was to ship groundnuts from Port
Sudan to Hamburg; the ship was expected to pass through
the Suez Canal; the canal became closed; held: the contract
was not frustrated as the ship could travel via the Cape of
Good Hope even though this was four times longer and much
more expensive. See also Davis Contractors v Fareham
Urban DC [1956] AC 696, [1956] UKHL 3.

The courts will also not regard a contract as frustrated if what

is claimed as frustration is ‘self-induced frustration’; see e.g.
J Lauritzen AS v Wijsmuller BV (‘The Super Servant
Two’) [1990] 1 Lloyd's Rep 1 - the contract was not frustrated
when the defendant who had been contracted to transport a
rig chose one of its two vessels which sank; it was their
choice to use the vessel which sank or the other one. See
also Maritime National Fish Ltd v Ocean Trawlers Ltd
[1935] AC 524, [1935] UKPC 1.

16.5.2 The legal effect of frustration

First, when a contract is frustrated each of the parties is

released from their future obligations under the contract. In
addition, the common law took the approach that if a contract
is frustrated ‘any loss lies were it falls’.

The result of these principles was that an obligation that had

not yet arisen under the contract before the frustrating event
did not have to be performed. On the other hand, an
obligation that had arisen must be fulfilled. In Chandler v
Webster [1904] 1 KB 493 one party hired a room to watch

234
the coronation procession; the £141 price was due in full but
he paid £100 with the balance to follow; when the procession
was cancelled, it was held that he could not recover the £100
and must pay the balance as it was already due before the
frustrating event.

In view of the potential injustice of the approach in Chandler

v Webster, the case was later overruled and another
principle was established that if a contract is frustrated
money that was paid by a party before the frustrating event
could be recovered if there was a ‘total failure of
consideration’, i.e., where one party got nothing in return for
the consideration that they had given. This change came in
The Fibrosa case; the Polish company had made an
advance payment of £1000 for the machinery that was to be
shipped and the court held that this could be recovered due
to a total failure of consideration.

Where a contract has already been frustrated, English law

now has statutory provisions to deal with the effects of the
frustration. The Law Reform (Frustrated Contracts) Act 1943
was enacted to further address the potential unjust effects of
the common law even after The Fibrosa case; the effect of
the Act’s provisions are as follows.

Section 1(2):
Where money had been paid before frustration: money paid
before frustration is recoverable, though the court may allow
the party to whom the money was paid to retain some of it for
expenses.

Money payable: money payable before frustration ceases to

be payable.

Section 1(3):

Valuable benefit: a party who has received a valuable benefit

other than money, before the discharge by frustration has an
obligation to pay for the benefit.

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16.5.3 Force Majeure

Parties to a contract can avoid can avoid the effects of the

doctrine of frustration by making special provisions in their
contract through the inclusion of what is known as a force
majeure clause. Just as the parties can provide for the
performance of their contract, they can equally make
provisions for what happens in the event of difficulties
affecting the performance; see e.g. Jackson v The Union
Marine Insurance Co Ltd (1874) LR 10 CP 125.

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 Chapter 17:
Remedies

Think About!

Hagar is starting out as a fashion designer. She has just produced her first collection and
is organising a fashion show to promote the collection. She has hired Al Rehab Grand Hall
as the venue for the event and for this she paid £30,000. She also entered into a contract
with Shorouk Drinks Retailers to supply drinks to the event at a cost of £10,000. She
engaged the well-known entertainer and comedian, Hany, to be the host of the evening.
Under the contract with Hany, it was agreed that Hany will be coming along with his
business partner DJ Khaled to provide music at the event as they are well-known to work
together.

One day before Hagar’s planned fashion show, advertisements were being made on radio
and television that Hany and DJ Khaled would be the host and DJ at a party being
organised by Kalemaz Football Club to celebrate winning the continental football
championship. The venue of that party is a city 200 miles away from where Hagar’s
fashion show was to be held. Hagar tried desperately to contact both Hany and DJ Khaled
but could not reach them until late in the evening of the day before her fashion show.
When she eventually reached them, both Hany and DJ Khaled confirmed that they would
not be able to be at Hagar’s fashion show. Hagar felt that she had no choice but to cancel
her fashion show.

If Hagar sues Hany and DJ Khaled in contract and wins the case, how will the damages
due to her be assessed?

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17.1 Introduction

As we learned in our study of termination and discharge,

generally a contract aims for each of the parties involved to
perform their respective obligations under the contract.

Sometimes a party to a contract fails to perform their

obligations under the contract at all; or fails to perform the
obligations fully; or fails to perform the obligations adequately
or properly. Such failure to perform a contractual obligation
will usually amount to a breach of contract.

Where there is a breach of contract by one party, the result

is often that the other party to the contract does not receive
a benefit that they expected under the contract or does not
receive the full benefit.

A contract party who has not received the (full) benefit they
expected under a contract because of a breach of the
contract by another party may be entitled to a remedy. The
remedy may be either to compensate them for a loss they
have suffered as a result of the breach of contract or to
address their expectation under the contract.

In this chapter, we undertake an overview of the remedies

that may be available to a party who claims that their
expectation under a contract has not been met or to have
suffered loss due to a breach of contract by another party to
the contract. Our focus here is on remedies for breach of
contract; we have already addressed repudiation earlier on.

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17.2 Damages

In this respect, the word ‘damages’ refers to compensation

in the form of money – ‘monetary compensation’. In this
context the word is always in the plural – ‘damages’.

On the other hand, the word ‘damage’ (usually in the

singular) tends to be used to refer to the loss or injury that a
person has suffered. The word ‘damage’ in this context is not
only used to refer to the loss that a person has suffered due
to a breach of contract; it may also be used to refer to loss
suffered as a result of a breach of an obligation by another
party under a different branch of the law, e.g., in tort as in the
tort of negligence for example.

In English contract law, damages are awarded mainly to

compensate the claimant for the loss that he suffers due to
the defendant’s breach of contract. Damages are not
awarded to punish the defendant, and English law does not
generally award punitive damages for breach of contract.

As damages for breach of contract are generally meant to be

compensatory, the claimant (‘innocent party’) must have in
fact suffered loss following the other party’s breach of
contract. If the claimant does not suffer any loss as a result
of the breach, the court may not award any damages; see
e.g. Golden Strait Corporation v Nippon Yusen Kubishka
Kaisha (‘The Golden Victory’) [2007] UKHL 12, [2007] 2 AC
353.

In addition, damages are generally awarded to a contract

party for the loss suffered by that party - not for losses that
another party has suffered; see e.g. Alfred McAlpine
Construction Limited v Panatown Limited [2001] AC 518,
[2000] UKHL 43. Note, however, that in accordance with the
Contracts (Rights of Third Parties) Act 1999, a person that is
not a party to a contract may yet enforce a term of that
contract if the contract provides that s/he may enforce it or if
the contract is made for his/her benefit.

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17.2.1 The aim and the measure of damages

Primarily, the aim of an award of damages for breach of

contract is to put the claimant in the position they would have
been in if the other party had performed the contract as was
expected. According to Parke B in Robinson v Harman
(1848) 1 Ex 850, 855:

‘the rule of the common law is, that where a party

sustains loss by reason of a breach of contract, he is,
so far as money can do it to be placed in the same
situation, with respect to damages, as if the contract
had been performed.’

In this sense, it is said that an award of damages protects the

expectation interest of the claimant. When damages are
awarded to protect the claimant’s expectation interest, the
damages are said to be based on the expectation measure.

A claimant may in some cases seek an award of damages

on a different measure from the expectation measure. There
are principally two other types of measure apart from the
expectation measure.

The first other type of measure that can be used for damages
is often referred to as the reliance measure. The aim of an
award of damages on this measure is to protect a claimant’s
reliance interest. The essence of damages on this measure
is to compensate the claimant for a loss s/he may have
suffered as a result of acting in reliance on the defendant’s
promise, e.g., incurring expenses in anticipation of the
fulfilment of the contract by the other party. The point is about
putting the claimant back to the position they were in before
the contract was made; thus, at least, they would not be
worse off; see e.g. Anglia Television Ltd v Reed [1972] 1
QB 60.

The second other type of measure that can be used for

damages is often referred to as the restitution measure. The
aim of an award of damages on this measure is to protect the

240
claimant’s restitution interest. The essence of damages on
this measure is to restore to the claimant a benefit or gain
that the defendant may have received at the claimant’s
expense arising from the defendant’s breach of contract.
Damages on this measure are more concerned to prevent
the defendant from receiving an unjust enrichment at the
claimant’s expense than to compensate the claimant. Strictly
speaking, a claim on this basis is not a claim in ‘contract law’
but in the law of restitution (one of the arms of the law of
obligations as we learned earlier on).

Generally, damages awarded on the expectation measure

would be beneficial to the claimant – especially if they had
made a good bargain. In some cases, damages based on
the reliance measure may be more favourable, especially if
the claimant had made a bad bargain.

17.2.2 Damages for non-pecuniary loss

Damages for breach of contract are mainly awarded to

address losses suffered by the claimant in financial terms.
Unlike tort, contract damages are not normally meant for
non-pecuniary loss or injury; see e.g. Addis v Gramophone
Co Ltd [1909] AC 488, [1909] UKHL 1.

On the other hand, damages even in contract law may go

beyond simply compensating for financial or pecuniary loss
in some cases. One example is if the whole point of the
contract was to provide some form of pleasure, enjoyment or
amenity which the breach of contract denied to the claimant.
In such a case damages may go beyond simply reimbursing
the claimant for money lost; the claimant may not even really
have ‘lost’ money as such; see further: Jarvis v Swans
Tours Ltd [1973] QB 233, [1972] EWCA Civ 8; Ruxley
Electronics & Construction Ltd v Forsyth [1996] AC 344,
[1995] UKHL 8; Farley v Skinner [2002] 2 AC 732, [2001]
UKHL 49.

241
Even when a claimant is to be compensated to protect the
expectation interest, there is yet a question of how this is to
be realised. One possible way is to award the claimant an
amount based on what they expected to receive under the
contract less what they actually received. Another is way is
to award the claimant an amount to put them in the position
they would have been in if the contract had been fully
performed. In many cases, the result would be the same.
There are some cases where there would be a significant
difference between these two approaches. One such
example is Ruxley Electronics & Construction Ltd v
Forsyth [1996] AC 344, [1995] UKHL 8:

R agreed to build a swimming pool for F; the swimming

pool was supposed to have a maximum depth of seven
feet and six inches; but R only built the pool to
maximum six feet deep; F could still use it for diving;
this means that the loss of value between what F
expected and what F received was zero; but the cost of
rebuilding the pool as F wanted was £21,560; the trial
court held that F should be compensated only in the
amount of £2,500 for ‘loss of amenity’; the Court of
Appeal held that F should receive the £21,560 as the
‘cost of cure’. The House of Lords reversed the Court
of Appeal and restored the trial judge’s award of only
£2,500 for ‘loss of amenity’; the court held that it was
not reasonable to award damages on a ‘cost of cure’
basis in this case because that cost was out of
proportion when weighed against any benefit that F
might receive if he rebuilt the pool; {F was even ordered
to pay the costs of the appeals in the Court of Appeal
and the House of Lords!}.

242
17.2.3 Relevant date for assessment of
damages

Generally, damages are assessed based on the date that the

breach of contract occurred; see e.g. sections 50(3) and
51(3) of the Sale of Goods Act 1979 and Johnson v Agnew
[1980] AC 367. In many case this would be straightforward;
in some cases, for example where there is no market readily
available for the subject of the contract, the court may base
the award of damages on a different time; see e.g. Hooper
& Anor v Oates [2013] EWCA Civ 91, [2014] Ch 287; see
also Golden Strait Corporation v Nippon Yusen Kubishka
Kaisha (‘The Golden Victory’) [2007] 2 AC 353, [2007] UKHL
12.

17.2.4 Mitigation of loss

A related issue to whether the courts will be flexible about the

date for assessing damages concerns ‘mitigation of loss’.
Generally, the claimant has a duty to take reasonable steps
to mitigate his loss in the event of a breach of contract by the
defendant; see e.g. British Westinghouse Electric and
Manufacturing Co v Underground Electric Railways Co
of London [1912] AC 673, [1912] UKHL 617.

The expectation that the claimant should mitigate his loss is

regarded as a ‘duty’ only in the sense that the claimant will
not be able to recover for losses that could have been
prevented if he had taken reasonable steps to mitigate; it
does not mean that the claimant actually incurs a liability for
not taking steps to mitigate.

If the claimant is not reasonably able to mitigate his loss

immediately, the date for assessment of damages may be
postponed till such time as he is reasonably able to do so;
see e.g. Radford v De Froberville [1977] 1 WLR 1262.

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17.2.5 Remoteness of loss and damages

An important final point about damages as a remedy for

breach of contract relates to the issue of ‘remoteness’. The
issue here is that although a party in breach of contract
should be liable for the breach, it would not be fair to make
them liable for all losses that can be traced or connected to
the breach of contract.

The rule on remoteness is that a defendant should only be

liable for losses which were reasonably within the
contemplation of the parties at the time the contract was
made; Hadley v Baxendale (1854) 9 Exch 341; Victoria
Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2
KB 528.

17.2.6 Agreed (or ‘liquidated’) damages

The foregoing discussion of damages so far is based on the

most common situation where damages that may be due for
a breach of contract had not been agreed beforehand by the
parties to the contract. It is indeed possible for the parties to
a contract to agree ahead of a breach of contract an amount
that would be due as damages for that breach of contract;
this is known as liquidated damages.

Even where the parties have a ‘liquidated damages clause’

in their contract, there are still some circumstances when this
may be ignored by the courts. In the past, a distinction was
drawn between a clause that is a genuine pre-estimate of the
loss that would result for breach of contract on the one hand
and a clause which sets an amount out of proportion (usually
much higher) to the loss that would follow the breach.

A clause that was seen as a genuine pre-estimate of the loss

following a breach would normally be upheld as a liquidated
damages clause. A clause that deliberately sets an amount
much higher than the expected loss with the aim in essence
to punish the defendant or to hold him in terrorem was

244
regarded as a penalty. A clause that was seen by the courts
as a penalty would be struck out by the courts and only the
amount of loss that the claimant suffered would be allowed;
see Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
[1915] AC 847, [1915] UKHL 1.

The law on when a contract clause setting damages would

be regarded as a penalty was recently revised by the UK
Supreme Court in Cavendish Square Holding BV v Talal
El Makdessi (Rev 3) and ParkingEye Ltd v Beavis [2015]
UKSC 67, [2016] AC 1172. The court said that the issue is
whether an agreed damages clause is ‘penal’ and that it
would be such if it ‘is a secondary obligation which imposes
a detriment on the contract-breaker out of all proportion to
any legitimate interest of the innocent party in the
enforcement of the primary obligation.’

17.3 Specific Performance

In some cases of breach of contract, a claimant may seek an

order of the court to compel the defendant to actually perform
the contract. Generally, this would be the case where
damages would not be an adequate remedy for the claimant.

Specific performance is often referred to as an equitable

remedy because it developed in equity – unlike damages
which is a common law remedy. In addition, whereas
damages are available to the claimant as of right if s/he
suffers loss as a result of the defendant’s breach of contract,
specific performance is only available at the discretion of the
court. It is normally used to enforce a positive obligation, i.e.,
an obligation to do something.

Specific performance is a remedy in personam; this means

that it is addressed to a person (‘to the conscience of a
person’) and not as such to property even though it may be
to direct the person to do something in relation to property,
e.g., to make a conveyance of property. It may be ordered

245
against a person present within the jurisdiction even in
respect of property located outside the jurisdiction.

Generally, the courts will grant specific performance if they

consider it as an appropriate remedy in the circumstances of
a particular case. The courts may refuse to grant specific
performance in some instances, e.g. where:

 damages are an adequate remedy;

 performance is impossible;
 the contract is a contract of personal service;
 the claimant’s conduct is not deserving of specific
performance;
 a grant would cause severe hardship to the defendant.

17.4 Injunction

Like specific performance an injunction is an equitable

remedy. It is also, similarly to specific performance, a
discretionary remedy. It is used generally to enforce a
negative obligation, i.e., an obligation not to do something.

17.5 Damages in Lieu of Specific

Performance or Injunction

Under section 50 of the Senior Courts Act 1981 the High

Court may award damages instead of an injunction or
specific performance.

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 Glossary of Terms

Accord and an agreement between two parties to

Satisfaction bring to an end liabilities under a
previous agreement;
Actionable Something that can lead to legal
action; something that can give
another person a right to sue in court
Actual having actual physical custody of a
Possession thing (or access, use and control e.g.
as to a house or flat)
Agreement occurs mostly in contracts for the sale
‘subject to of houses; it usually means that
contract’ although the parties have reached an
agreement, they want to wait until a
written contract is signed by both
parties before the agreement is
binding
Ante-nuptial (or an agreement made by a couple
pre-nuptial) before they get married
agreement
Anticipatory a breach of contract that occurs before
breach the performance of the relevant
obligation is due
Assent to agree to something; to approve; to
accept
Auction a method of selling an item(s) by
asking people to bid for
the item(s), and usually selling the
item(s) to the highest bidder
Breach to break something; in contract law, to
break an agreement, or not to perform
an obligation
Breach of failure to comply with the terms of a
contract contract; failure to keep a contract
promise or obligation

247
Claimant a person who is making a claim; a
person who is suing another person in
court
Condition a term of the contract that is regarded
by the law or by the parties as very
important or ‘essential’; if a term of the
contract that is regarded as a
condition is broken by one party, the
other party has the option to terminate
the whole contract; s/he may even be
able to also claim damages; s/he may
of course choose not to terminate the
contract and only claim damages, or
even not to make any claim at all

Consensus ad ‘meeting of the minds’; an expression

idem used to reflect that parties have
agreed or reached agreement
Consideration the mutual benefits that the parties to
a contract give to and take from each
other
Constructive having control or custody (in a
Possession technical/legal sense) by having an
instrument that allows access, use
and control of the thing; e.g. a person
who has the keys to a car parked in a
car park; or a person who has the legal
documents to a house or to shares in
a company
Contract made by a contract that is required to follow a
‘Deed’ particular formality for it to be valid; the
formality is that it should be made by
deed; in the past, this meant it should
be ‘signed, sealed and delivered’;
nowadays, it just has to indicate that it
is signed as a deed; a contract that is
made by deed is enforceable and can
be enforced even without
consideration

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Contract under another name for a contract made by
‘seal’ deed
Counter-offer a proposal made by an offeree which
is not an acceptance of the offer but is
in itself another offer
Damage (mostly the ‘injury’ or loss or harm that a victim
singular) of tort suffers
Damages (always money compensation awarded by a
plural) court to a person who wins in a
lawsuit; the lawsuit may not even be
for tort but, for example, for a breach
of contract
Defendant a person who is defending something;
a person who has been sued and who
is defending a legal action
Definite in the context of offer, it means
something that the person suggesting
it is sure about
Definite proposal a proposal that the person making it is
ready to follow through with if the
person to whom it is made accepts it
Detriment disadvantage; loss; harm; injury
Equitable a doctrine or principle of law that
Doctrine originated in historical equity as
opposed to historical common law
Equitable an early form of estoppel developed in
Estoppel equity; basically, where one party has
by his word or conduct led another to
believe that a given state of facts
exists, and the other party acted on
that basis, the first party will not be
allowed to claim that the state of facts
is actually different
Equity (1) in business and finance, it can refer
to shares in a company; (2) in general
ordinary speech, it represents ideas of
fairness, impartiality and justice; (3) in
English law and common law systems,
it is one of the sources of law;
historically, it is a counterpart to the

249
 common law that developed to assist
in obtaining justice where the common
law was not seen as achieving justice;
it exists alongside historical common
law together as the body of law
developed by the courts and judges
Estoppel a general name for a number of legal
doctrines that essentially prevent a
person from not keeping to a claim or
promise that s/he had made
Executed a promise or obligation that amounts
Consideration to consideration when it has been
performed fully
Executory a promise or obligation that amounts
Consideration to consideration but which is yet to be
performed or is still being performed
and not yet concluded
Express terms terms that are made by the parties
themselves; they may be the result of
negotiations between the parties; they
may also be made by one party and
then agreed to by the other party or
parties
Ex turpi causa means that no cause of action can
non oritur actio arise out of a base cause
Implied terms terms that the parties themselves did
not include in the contract but which
the law for one reason or another
‘implies’ into and includes in the
contract; they may come from
statutory provisions, custom or
regarded by the courts as needing to
be included in the contract, e.g. to
make the contract work (‘business
efficacy’)
Incorporated provisions intended to be terms but
terms which are contained in another place
or in another document different from
the main contract

250
Infringe to violate; to interfere with; in contract
law, it usually relates to violation of
another person’s right under a
contract
Innominate or a contract term that is not classified as
Intermediate term either a condition or warranty from the
beginning; if a term that is an
innominate term is broken by one
party, the legal consequence would
depend on the real effect of the
breach; if the real effect of the breach
is serious, the other party can choose
to terminate the contract; if the real
effect of the breach is not serious, the
other party cannot terminate the
contract but may only be able to claim
damages
In pari delicto means where both parties are equally
potior est conditio in the wrong the position of the
defendentis et defendant and party in possession is
possidentis stronger
In personam means addressed to a person or to the
conscience of a person
Invitation to treat an invitation to another person to
consider entering into a contract; an
invitation to another person(s) for
them to make offer(s) to the person
making the invitation
Irrebuttable in English law, this means a
Presumption presumption that the law will not allow
a person to dispute to prove to be
wrong
Maintenance in family law, this sometimes refers to
money that one spouse has to pay (or
has agreed to pay) to the other; it can
also be used in other senses e.g.
money paid for the bringing up of a
child
Nemo dat quod Literally, this means no one can give
non habet what they do not have; in law, it means

251
 that a person who does not have good
title to a thing cannot generally
transfer title to another person
Non est factum literally, this means ‘not my deed’; it is
a defence allowed sometimes when a
person who signed a document had,
without fault, a fundamental or
substantial misunderstanding of what
the document actually was
Objectivity considering something or situation
with a neutral approach and not from
one individual person’s point of view;
in law it usually means from the point
of view of a ‘reasonable person’
Obligation a responsibility or duty; it can be a
legal duty imposed by law; in contract
law, it is normally an agreed
commitment – but can also be
imposed by law sometimes
Offeree a person to whom an offer is made
Offeror a person who makes an offer
Ownership generally means to have the highest
level or amount of legal rights over a
thing that can be owned
Pacta sunt Latin maxim meaning an agreement
servanda ought to be kept
Parol evidence this is a rule in the interpretation of
rule contracts; it means that if a contract is
in writing, then normally evidence of
things said, e.g. before the contract
was written down, would not be
allowed; the word ‘parol’ in this sense
means ‘oral’ or ‘verbal’
Past an act that has already been carried
Consideration out or a promise that has already been
made by one party; it is not normally
regarded as good consideration for a
promise made by the other party
afterwards

252
Possession the situation of having physical
custody or right to physical custody or
control of a thing
Post-nuptial an agreement made by a couple after
agreement they have got married
Presumption an idea assumed to be correct either
because of its probability to be correct
or because of past experience
Promissory a form of estoppel developed in
estoppel contract law in the context of the
requirement of consideration;
basically, in some situations, where
one party has made a promise to
another, and the other party relies on
that promise, the first party cannot
claim that he is not bound by the
promise – simply because the second
party did not give consideration
Property (1) another word for ‘ownership’; or
(2) legal rights that a person can have
over a thing; it may be ‘full’ rights e.g.
ownership as with somebody who
owns a house; it may be less than full
rights e.g. as with someone who only
has a lease on a house (or someone
who has a ‘security’ over a borrower’s
thing e.g. house or car); or (3) an item
or a thing that someone can own
Proposal a plan or suggestion made to another
person for them to consider, especially
to consider whether to agree to it
Proposition a statement or suggestion that
expresses an idea or concept; it may
be correct or not correct
Provisional This is supposed to be a temporary
agreement agreement until a proper contract is
later drawn up it may however lead to
a contract that is binding immediately
Quantum meruit means as much as is deserved

253
Rebut to provide evidence or an argument to
prove something not to be true
Rebuttable a presumption that the law will allow a
Presumption party to prove to be wrong
Remedy to correct something that is wrong; in
law, to give compensation to a person
who has suffered a legal wrong or to
seek to prevent (further) legal wrong
being done; the actual compensation
or legal prescription for compensation
Remedy to correct something that is wrong; in
contract law, to give compensation to
a victim of breach of contract, or to
assist a contract party to prevent a
breach of the contract
Resile to turn away from
Restitution to restore something to its proper
owner or to the person entitled to it; a
doctrine of law to prevent unjust
enrichment
Right to the right of a person who may or may
Possession not be in actual possession but who
has the legal entitlement to actual or
constructive possession
Simple contract a contract that does not need to be
made in writing; a contract that does
not require any special formalities; in
English law, a simple contract usually
requires ‘consideration’ for it to be
enforceable
Subjectivity considering something from the point
of view of a particular Person
Sufficient a type of consideration that the courts
Consideration regard as of good enough value to
make a promise or contract
enforceable; it can also be called
‘good consideration’
Res extincta basically means that the thing or
matter has ceased to exist
Res sua basically means his or her own thing

254
Restitutio in to restore something or a situation to
integrum its original position
Tender in contract law, this refers to a
proposal submitted by one person to
supply goods to (or to perform some
work for) another person; it is very
common in relation to proposals by
companies to carry out some work for
a government department
Terms of a provisions of a contract that represent
contract the rights, obligations and promises of
the parties under the contract; they
may be written, made orally or by
conduct; they may be generated by
the parties themselves or by law
The ‘Mirror- this is an important rule in the common
Image’ Rule law of contracts that means that the
offeree must accept an offer on its
exact terms; if an offeree suggests a
change to the terms of an offer, the
suggestion would be a counter-offer
and not an acceptance
Warranty in relation to classification of the terms
of a contract, warranty refers to a
contract term that is not regarded as
important as a condition; if one party
breaks a term of the contract that is
only a warranty, the other party cannot
terminate the whole contract; s/he can
only claim damages; the word
warranty has other meanings in law
and can actually mean an important
promise in some senses!

255
 Index

Note: words in bold are included in the Glossary

acceptance
communication of ……………………………….. 45-50
conduct, by ……………………………………….. 40-41
electronic mail and internet contracts ……………… 49
final and unqualified …………………………………. 38
instantaneous communications ………………... 48-49
mirror-image rule ……………………………… 42-44
postal rule ……………………………………. 34, 46-48
silence ……………………………………………. 39-40
unilateral contracts and …………………...... 45, 51-53
adequacy, consideration and price ………… 69, 77, 138, 192
advertisements ………………………………….. 14, 15, 29-32
affirmation of contract …………….… 176-180, 195, 199, 231
agreement
commercial or business ………………………… 21-22
domestic or social ……………………………….. 19-21
intended to create legal relations ………………. 18-22
nuptial ………………………………………. 20, 21, 221
anticipatory breach ….……………………………... 231, 232
assent ……...………………………………….. 38, 39, 43, 157
auction
offer and, …………………………………………. 31-32
collateral contract ……………………………………. 32
bargaining position or power …. 113, 116-7, 119, 122, 133-4
battle of the forms ……………………………………….. 43-44
breach of contract
anticipatory ……………………………………. 231-232
discharge by…………………………………… 231-232
exclusion of liability for ……………. 112-118, 120-123
capacity
corporations ……………………………………… 97-98
drunkenness …………………………………………. 96
mental incapacity ……..…………………………. 95-96
minors …………………………………………….. 90-95
necessaries, contracts for ………………………. 92-97
voidable contracts ……………………………….. 94-96

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certainty of terms ……………………………………. 14, 55-60
champerty ………………………………………………….. 219
condition ………………………………….. 110, 116, 231-233
consideration
benefit and detriment ……………………………….. 64
distinguished from motive ………………………. 66-67
estoppel and ……………………………………... 77-82
executory and executed …………………………….. 65
existing contractual duty………………………… 73-76
forbearance and promise …………………………… 65
past ……………………………………………….. 69-71
practical advantage or benefit ……………… 64, 75-76
something of value ………………………………. 68-69
consumer contract ………………………… 119, 120, 129-140
contra proferentem rule ……………………………… 115-118
contract
definition ……………………………………………….. 4
electronic ……………………………………………. 7-8
simple ………………………………………………….. 7
specialty ………………………………………… 5-8, 38
core terms, unfairness and …………………………... 137-139
counter-offer ………………………..………….. 27, 35, 40-44
damage …………………………………………. 124, 183, 239
damages …. 102, 110, 171, 174, 175, 180-190, 231 239-246
deceit, fraudulent misrepresentation and tort of..….. 172, 181
deed …………...……………………. 5-8, 38, 63, 76, 105, 230
discharge
accord and satisfaction ………………………. 76, 80
agreement, by ………………………………… 229-231
frustration, by …………………………………. 232-234
legal effect of ………………………………….. 234-235
obligations, and ……...…………………………….. 226
performance, and …………………………….. 227-229
duress and economic duress ……………………. 75,193-200
economic duress …………………………………. 75, 195-200
exclusion clauses
at common law, control of…………………….. 112-119
breach of fundamental term, and ……………. 117-118
consumer contracts, and …………………….. 125-128
limitation of liability, and ……………………... 108, 112

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 negligence liability, and ………………… 118-
119, 124
standard terms, and ………………………….. 120-124
statutory control of ……………………………. 119-128
test of reasonableness and ………………….. 122-124
force majeure ………………………………………………. 236
formalities ……………………………………………….. 4-8, 63
freedom of contract ……………………………… 10, 112, 192
frustration
frustrating events, examples of ……………… 233-234
performance impossible or radically different …… 232
self-induced ………………………………………… 234
fundamental term, breach of ………………………… 117-118
good faith …………………………………... 132-135, 147, 179
illegality
affecting performance ………………………... 216-217
at common law ………………………………... 217-221
effect of ……………………………………………… 222
formation of contract, and ……………………. 214-215
‘illegal contract’ or contract affected by illegality 212-3
public policy, and ……………………………... 219-221
supervening ………………………………………… 233
information age ……………………………………………….. 7
information, request for …………………………………. 28-29
information technology …………………………………….. 7, 8
injunction …………………………………………. 69, 140, 246
innominate (or intermediate) terms …..……… 110, 231, 232
intention to create legal relations ……... 14, 18-22, 24, 56, 62
interpretation 12, 15, 114, 115-118, 121, 130, 134, 138, 149
invitation to treat …………………………………… 15, 29-31
jurisdiction ………………………. 22, 159, 160, 219, 221, 246
justice, agreements prejudicial to the administration of … 219
knowledge, of memorandum and articles of association … 98
limitation of liability, see exclusion clauses
liquidated damages ………………………………………... 244
marriage
agreements prejudicial to ……………………. 220, 221
benefit or loss and consideration ………………. 66, 67
nuptial agreements ……………………….. 20, 21, 221
mental incapacity ………………………………………... 95-96

258
minors …………………………………………………….. 90-95
misrepresentation
damages, and ……………………………...… 181-184
distinguished from term …………………………… 102
inducement and materiality ………………….. 167-171
indemnity ……………………………………… 180-181
rescission, and ………………………………... 176-180
types of ………………………………………… 172-175
what is …………………………………………. 162-167
mistake
affecting formation of contract ………………. 145-151
at common law ………………………………... 144-158
common, equity and ………………………….. 158-160
common or mutual ……………………………. 152-158
cross-purposes ……………………………….. 145-146
existence of subject-matter, as to …………… 155-156
identity of a party, as to ………………………. 146-151
ownership, as to ……………………………………. 158
quality of subject-matter, as to ………………. 157-158
unilateral ……………………………………………. 146
mitigation of loss …………………………………………… 243
nemo dat quod non habet ………………………………. 147
non est factum ……..…………………………………. 96, 105
objectivity ………….………………………... 10-13, 146, 148
offer
agreement, and ……………………………………… 24
auction sales, and …………………………………… 31
definite or final statement …………………………… 25
distinguished from enquiry ……………………… 26-29
distinguished from invitation to treat …………… 29-31
revocation and withdrawal of …………………… 34-35
sales by tender, and ………………………………… 33
termination of …………………………………….. 34-36
unilateral offer or contract …….. 15, 33, 38, 45, 51-53
option, buying the ……………………………………………. 35
pacta sunt servanda …………………………….………… 10
parol evidence rule …………………………………. 104, 105
pre-contractual statement ………………………..…. 102, 178
privity
Contracts (Rights of Third Parties) Act 1999 and 86-7

259
 doctrine ………………………………… 15, 62, 84, 85
promissory estoppel ……………………………… 63, 77-82
public policy ………………………… 20, 73, 74, 213, 217-222
quantum meruit …………..…………………………. 217, 229
remedies
damages ………………………………………. 239-246
injunction …………………………………………… 246
specific performance …………………………. 245-246
remoteness of damages ……………. 182, 186, 188, 189, 244
repudiation
anticipatory …………………………………………. 232
breach of contract, and ……………..……….. 102, 176
breach of condition, for ……………………………. 231
res extincta ………………………………………………… 155
res sua ……………………………………………………… 158
restitutio in integrum …………………………………….. 178
significant imbalance …………………….. 132, 134, 135, 192
specific performance ……………………..... 95, 102, 245-246
standard form contract ……………………………. 43, 44, 113
subjectivity ………….………………………………….. 10, 13
tender, offer and sales by …………..……………………… 33
termination
offer, of ……………………………………………. 34-36
rescission, and ………………………………... 176-177
discharge, and …………………………... 225-236, 238
terms
certainty of ….……………………………………. 56-60
condition …………………………… 110, 116, 231-233
express ……………………………… 48, 104, 107, 116
implied ………………… 106, 107, 123, 124, 126, 127
innominate …………………………….…110, 231, 232
warranty …………………………………. 103, 110, 251
uberrimae fidei ……………………………………………... 162
ultra vires, doctrine ………………………………………. 97-98
undue influence …………………………… 144, 193, 201-209
unfair terms in consumer contracts …………………. 129-140
voidable contracts ... 94-96, 144, 145, 147, 148, 151,
158-160, 162, 176, 179, 193-195, 202
utmost good faith …………………………………………... 162
warranty ………………………………………….. 69, 103, 110

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To God be the glory

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