Contract law exam 2020 –

Section A few
Advise Ravi

Ravi situation comes under exemption clauses, which basically is ways in which companies can try
and limit their liability, this can be if they are entered into contracts in various ways. Although the
main issue with exemption clauses is whether your customers have successfully entered into a
contract. Exemption clauses can be regulated through common law and legislation. In order to
establish the fact that Ravi wants to ensure that he faces no liability whatsoever in such
circumstances, the specific exemption clause of notice needs to be identified and in relation to the
consumer rights act 2015 and the unfair contract term 1977.

Under the common law, exemption clauses can be in incorporated by either express assent,
signature, tickets, notices or a course of dealing. In Ravi case you want to place a notice it can come
in the form of a sign or display notices, etc however the notice can only be validly incorporated if it
has been brought to the attention of the person entering into the contract. “Where the reference is
in a document which would not be expected to contain terms of the contract, the court will examine
whether the party knew there was writing that contained conditions or, if they did not, whether
enough had been done to bring the reference to the term to their attention.”1 In the english case of
Parker v south eastern railway Co, Mr parker deposited a bag worth £24 In a railway cloakroom,
which he paid for and received a ticket which had the words “see back” on it, the back of the ticket
stated that they would not be responsible for deposits exceeding £10 in value if it was lost or stolen.
Although Mr parker admitted that he knew there was writing on the ticket he denied that he had
read either it or the notice. He said that he imagined that the ticket was a receipt for the bag. The
court held that if the plaintiff knew that there was writing and also knew that it was the other party’s
intention that these constituted terms of the contract he would be held bound.2 The key principle of
this case is that the plaintiff knew that there was writing at the back so if he read it and knew what it
stated then he would be held bound but he thought that it would be a receipt for the bag so hence
didn’t look at the receipt, therefore this can be applied to Ravi as one of his suggestions was to place
this on the back of the tickets when the customers paid for the deposits of the item.

This can further be supported by the case study of olley v Marlborough court Hotel ltd 1949, where
olley was a guest in the defendants hotel, he went into one of the rooms and there was a notice
which stated the proprietors would not be responsible for any items lost of stolen, unless handed to
them for safe keeping. Olley t=left the room and deposited her key on the board in reception
someone then took the key and stole her belongings. She was successful and recovered the cost of
the stolen items, the court then held that the exclusion clause had not been successfully
incorporated into the contract because It was concluded at the reception, as the guests would not
see the notice until after they had been accepted as guests as it was behind the hotel room door
which means it could not form part of the contract between hotel and guest.3 This therefore proves
the fact that the notice must be visible and all customers should be strictly aware about Ravi
business policies on liability, if he was to place a notice board in his restaurant it would (1) have to
be somewhere, where it Is visible and (2) easy to read, therefore big. So that customers cant miss it
Therefore Ravi suggested idea of displaying a small sign with the above said phrase behind an
ornamental fish tank of the rear end of the main bar isn’t a competent idea, as the customers should
be able to read it where it is bold and noticeable for example on the door of the cloakroom or above
the door or even inside the cloakrooms, where it can be easily read. displaying it on t-shirts worn by

1
Gillian Black, woolman on contract, 5th edition, (2014), page 99
2
Parker v South Eastern Railway Co (1877) 2 C.P.D. 416, per Mellis
3
Olley v Marlborough court ltd (1949) 1 K.B. 532
staff is not ideal as it wont look very professional. So this isn’t a competent idea either. Also, I would
advise Ravi to re word the notice to make it more appropriate without it sounding condescending.

Although even if Ravi thinks that a term has been validly incorporated under the common law, it
may be deemed unfair or unreasonable or void under the legislation, such as the consumer rights
act 2015 S62 (5) the requirements for notices to be fair, this can be determined by taking into
account the nature of the subject matter of the contract and to all circumstances existing when the
term was agreed and to all of the other terms of the contract or of any other contract on which it
depends. Furthermore another piece of legislation which you should be aware of is the unfair
contract terms act 1977 it does not cover all unfair contract terms, only clauses which exclude or
restrict liability…examples of exclusion clauses include a term which states for example a window
cleaner will not be liable for failure to perform, or alternatively for any damage caused by
performance or a provision that states that he will be only liable for damage caused up to the value
of £100 is a limitation or restriction clause, or in your case you want to display a notice that states
you would not be liable for any items that are lost . Under the 1977 act, some exclusions and
restriction clauses are declared void; others are a subject to a “fair and reasonable” test before they
can be given effect.4

In conclusion, my advice to Ravi would be that you should place the sign on the door of your
cloakroom so when your customers go to use it they can read the sign on the door providing that
they cant miss it and that it can be read clearly and provided that the writing is in bold, furthermore,
implement staff to tell customers verbally about the business policies on liability of their belongings
making them aware of this. This will therefore minimise your liability, proven you’ve taken extra
precautions. Furthermore under the consumer rights act 2015 and make sure the requirements for
unfair contract terms and notices are to be fair, in order to further reduce liability.

4
Gillian Black, woolman on contract, 5th edition, (2014), page 125
Section B

Q3. Discuss the distinction between a liquidated damages clause and a penalty
clause, using appropriate authority to support your answer.

Liquidated damages and a penalty clause are a means of compensation for a breach of a contract.
Liquidated damages occurs when the contract sets out the cost of the damages if the party decides
to breach the contract. It will not be imposed if its intention is to punish the party, rather than
compensating this is then a penal or penalty clause. An appropriate authority of liquidated damages
can be related to the case of Makdessi v Cavendish Square holdings 2015, in which the defendant
agreed to sell his stake to the claimant paid in instalments and that he would not compete with old
business but if he did then he would owe no more instalments and the claimant would buy the
remaining shares. The defendant breached the contract and it was held in court that the clauses in
this case were not penalties and that were therefore enforceable by the claimant. On the other
hand Penalty clauses set out in contracts put an obligation on the party in order to provide
compensation if the party decides to breach the contract the supreme court put forward a new test
for penalty clauses , which focuses on the legitimate interests of the parties and is significantly more
flexible than the previous test. It considers whether the remedy for the breach of contract if out of
proportion to the innocent party’s legitimate interest in enforcing the counterpartys obligations
under the contract. This rule applies to breaches of primary obligations which is basically a condition
that is imposed upon a party which states that it is a requirement that the party performs the
condition since it is the main part within the contract. For example in the case of Holyoake v Candy,
in which various clauses as they were deemed not to be penalty clauses as they were not triggered
by a breach of contract. In addition an appropriate authority of penalty clause can be related to the
cases of Dunlop Pneumatic Tyre Company v New Garage & Motor co 1915 AC 79, in which the
claimant manufactured and supplied goods to the respondents who were dealer and under
agreement of the claimant which stated that they were prohibited from selling their list price, in
which they then sold an item under their list price. So Dunlop bought a claim of a breach of their
contract. He court then held in favour of the claimant on the basis it was a damages clause, but the
court of appeal reversed this decision and said it was a penalty clause.

In conclusion, penalty clauses put the other party in fear of breaching the contract, as compared to
liquidated damages which pre-estimate what the damage may be.

Q4. Discuss the judicial remedies available in relation to a breach of contract. Use
appropriate authority to support your answer.

There are many judicial remedies available for breach of contract such as action for a payment of
debt, specific implement, damages, doctrines, due diligence and remedies that are provided in the
contract which can either be penalty clauses and liquidated damages clause.

Specific implement is one of the judicial remedies available for breach of contract, it is where the
innocent party applies to court to force breaching party to fulfil obligation. An appropriate authority
of specific implement can be related to the case of Retail investments ltd v the royal bank of
scotland plc (1996) where the tenants had undertaken to take, use and occupy the leased premises
for bank offices. And keep them open at business hours throughout the lease. The inner house
awarded the landlord specific implement to allow the landlord to enforce the house which were
specified in the lease, which was sufficiently certain to enforce as they had complied to the
obligation for nearly 20 years before the dispute arose. In addition courts can also refuse the
remedy, this can be applied to the case of And inhabitant of the book had obtained against the
magistrates to prevent them to do one of particular piece of ground dedicated to the public uses of
the burgh. While the process was in dependence the magistrate proceed with the building and
completed before interdict was granted, the building was for public purposes. The complainer then
brought an action for declarator pf the public right, and decree against Magistrate building
magistrates offered to convey to the community a piece of ground in every way suitable for public
purposes in lieu of that now occupied by buildings. it was held that this was a reasonable offer and
that respect of the interest of the pursuer was one of the community, the court was entitled to
refuse the remedy asked as the removal of the building was demanded.

Damages is one of the judicial remedies and it happens if a party has breached the contract, the
general principles of damages is that the innocent party is entitled to compensation that will put him
in the position he would have been but for the breach. The appropriate authority for this remedy
can be related to the case of Hadley v Baxendale 1854, where a miller broke crank shaft of his mill so
he needed a new one, can only replace is by using the old one as a pattern. Old one is sent off to use
as a model. The carrier of the crank shaft delays so mill has to be shut for weeks and therefore no
working mill. To recover losses millowner sues the carrier. The court then ruled that the millowner
gained some damaged as the delay caused loss of business however the carrier wasn’t necessarily
required to know that the mill needed toe part to function fully, so not all losses were recovered.
Furthermore the type of loss also plays a factor in damages, as it is generally economic but does
cover disappointment for example in the case of Diesen v Sampson (1971) where Mrs D engaged S, a
professional photographer to take her photographs for her wedding, she paid a deposit for which
she was given a receipt. S failed in breach of his contract to appear at the wedding or at the
reception as a result Mrs D had no photographs for her wedding and claimed damages for the
resulting injury to her feelings. The court held that damages could be completely awarded.

Another judicial remedy is doctrines, however for this to be successful it must be shown that there
is a direct link of causation between the breach and the loss. For example the breach caused the loss
is n effective causation. The appropriate authority for doctrine can be seen in the case of A/B
karlshamns Oljefabriker v monarch steamship Co Ltd 1949 S.C (HL) which involves the lease charter
of a ship. It had a term that the ship should be commanded seaworthy at all times, there is also a
clause in the contract that if the ship was commandeered by the British during the voyage then that
would not be a breach of the contract due to war. The ship was to carry X from China to Sweden but
the ship was not sea worthy at tne start and was detained in Columbo in Sri Lanka for repairs. Then
detained again in versailles and commandeered by the British charter, the British admiralty
prohibited the ship from continuing, in which Karlshamns then claimed for breach of contract. The
court then held that the effective cause of the delay was the unseaworthiness of the vessel. In view
of the international conditions at the material time, they should have foreseen that the war may
break out causing the loss or diversion of the ship. War had not broken out and Karlshamns could
recover the cost of chartering the neutral ships. Furthermore a unsuccessful claim may be due to the
remoteness i.e the defender can not be liable for loss which is too remote, this can be seen in the
case Blafour Betty construction (Scotland) ltd v scottish power plc 1994 SC (HL) 20, comstruction of
M8 extension – when it was being extended necessary to build aqueduct to carry a canal. Balfour
was the construction and Scottish power was to supply uninterrupted electricity to them. There was
a power cut which placed them in breach of the contract, the problem was that Balfour was laying
concrete baseof the aqueduct which had yo be waterproof and laid in continuous flow. Power went
hlafway through and they had to re start and it cost them £2000 which they never regained as it was
a special loss as it was not within reasonable contemplation at time contract was formed i.e Scottish
power wasn’t aware that this issue would arise.