Answer TWO questions, ONE from PART A and ONE from PART B.

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1 UNIVERSITY OF EAST ANGLIA School of Law Main Series UG Examination CONTRACT LAW GRADUATE DIPLOMA LAW-5024B Time allowed: 2 hours Answer TWO questions, ONE from PART A and ONE from PART B. Notes are not permitted in this examination. All necessary statutory materials are provided to you as an appendix at the end of this paper. Do not turn over until you are told to do so by the Invigilator. LAW-5024B Module Contact: Dr. Gareth Spark, LAW Copyright of the University of East Anglia Version 1

2 Page 2 PART A QUESTION ONE Alison and Bill have been friends and neighbours for many years. Bill recently lost his job and has been struggling to continue to pay his mortgage; Alison, on the other hand, was recently promoted and is thinking about buying a new, bigger house. Although he is happy for his friend, Bill is a little jealous of Alison s success and is worried about losing his best friend if she moves house. When Alison takes Bill out for a nice meal to celebrate her promotion, he informs her of his sacking and tells her how scared he is of losing her. Alison reacts angrily and the two have an argument. The next day, Alison knocks on Bill s door to apologise. He accepts her apology but says that their friendship will never be the same if she moves away, flaunting success and abandoning him. Stunned, Alison starts to cry. Bill comforts her and says that it does not really matter, anyway, as he will soon lose his house and have to move away from Alison, in any event, unless someone gives him enough money to pay off his mortgage. Don t worry, he says; we will still send a Christmas card to each other and maybe speak on the phone every now and then. The next week, Alison offers to give Bill 20,000 to pay off the remainder of Bill s mortgage. Bill has recently secured a new job, which pays the same as his old one, but he immediately accepts Alison s offer without telling her about his new job. When she discovers that Bill has a new job, Alison demands a return of the 20,000, claiming that he unfairly influenced her into giving the money. Bill refuses. Advise the parties. LAW-5024B Version 1

3 Page 3 QUESTION TWO Claire is planning a birthday party for her child. When searching the internet, she comes across the website of a company called Delightful Parties Ltd. She browses the site and adds to her online basket all of the food, drink, and decorations for the party. When Claire clicks the Checkout Now button on the website, she is automatically redirected to a page which clearly states, at the top, in large bold font, All contracts with Delightful Parties Ltd., whether made online or in one of our shops, are made subject to our standard terms and conditions, which are set out below. Claire begins to read the terms, but, due to a fault with her tablet, she cannot scroll down the screen and therefore does not read all of the terms. She nonetheless clicks the button to confirm that she has read all of the standard terms and conditions and proceeds to place her order. When the items arrive, Claire is surprised to discover that some of the items are different from those she ordered. Written on the face of the invoice, which was sent with the items, is the following: Substitutions made, in accordance with our standard terms and conditions. Included with the delivery is a copy of the standard terms and conditions, which Claire reads. Three terms in particular catch her eye: (1) Delightful Parties Ltd. reserves the right to substitute any product for a reasonably similar alternative, whilst retaining the right to charge for the more expensive of the items, regardless of which of them is actually delivered. (2) Delightful Parties Ltd. accepts no liability for any personal injury caused by any defective products or services sold by us, howsoever the injury is caused. (3) Delightful Parties Ltd. accepts no liability for any property or economic damage caused by any defective products or services sold by us. All of these terms were displayed on the company s website at all times and would have been visible had Claire s tablet been working properly. TURN OVER LAW-5024B Version 1

4 Page 4 Claire has been charged for the higher priced item in respect of each substitution. The items arrived on a Saturday morning, and Delightful Parties Ltd. is only open Monday to Friday. As the party is due to take place the next day, before Delightful Parties Ltd. will open again, Claire goes ahead with the party as planned. Unfortunately, the party poppers Claire ordered have been negligently manufactured by Delightful Parties Ltd., and they explode when Claire is unpacking them, causing small burns to her hands and setting fire to the paper decorations she has hung. On Monday, Claire rings Delightful Parties Ltd. and demands some form of compensation. Delightful Parties Ltd. denies any liability. Advise Claire. (i) Would it have made any difference if the standard terms and conditions had not displayed properly because of a fault with the website? (ii) Would it have made any difference if Claire had ordered from Delightful Parties Ltd. on several previous occasions? QUESTION THREE (A) Erica wishes to redecorate her home. She makes a contract with Felicia, a professional interior design specialist. The contract states that the price for the design work is 3,000, the price for purchasing all of the agreed furniture and materials is 10,000, and the price for wallpapering all of the walls and painting all of the ceilings is 5,000. Under the contract, Felicia is required to complete the design by 1 st June, to have purchased all of the agreed-upon materials by the 14 th June, to have started the work by the 1 st July, and to have completed the work by 1 st August. The contract also requires Erica to pay for the design work upon approving it, to pay for the materials when Felicia informs her in writing that she has purchased all of the materials, and to pay for the decorating work upon completion. LAW-5024B Version 1

5 Page 5 Felicia submits several designs to Erica on 27 th May. That day, Erica picks her favourite, approves it, and pays Felicia 3,000. On 12 th June, Felicia informs Erica in writing that she has purchased all of the necessary materials. She also rings Erica and states that she will not be able to commence the decorating work until 7 th July and that, whilst she would hope still to complete it on time, this is very unlikely. Erica tells Felicia that she still wants the decorating work to be completed but that she will not pay for the materials until Felicia has started that work. Felicia reminds Erica that Erica is obliged to pay for the materials immediately, as Felicia has informed her in writing that they have been purchased. Erica again refuses to pay. Felicia states that, in that case, she will cancel the whole contract. Erica therefore demands a return of the 3,000 she paid for the design, upon returning all of the designs to Felicia. Advise the parties. (i) Would it have made any difference if, when Felicia informed Erica that she would not be able to commence the decorating work on time, Erica had stated that she wanted to cancel that part of the contract immediately? TURN OVER LAW-5024B Version 1

6 Page 6 PART B QUESTION FOUR There are few more vexed areas of contract law than that of a mistake as to the identity of a contracting party. The case law is difficult to reconcile. Judges and jurists disagree as to the effect of a mistake of identity upon the formation of a contract. This disagreement extends beyond discordance as to the operative principles to the very existence of the doctrine. C. MacMillan, Rogues, Swindlers and Cheats: The Development of Mistake of Identity in English Contract Law (2005) 64 CLJ 711, 711. With reference to relevant decided cases, critically analyse the above statement and the area of law to which it relates. QUESTION FIVE [Counsel] relied on the decision of this court in Williams v. Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1 for the proposition that a promise to perform an existing obligation can amount to good consideration provided that there are practical benefits to the promisee [He] submitted that, although Glidewell LJ in terms confined his remarks to a case where B is to do the work for or supply goods or services to A, the same principle must apply where B s obligation is to pay A, which suggests that Foakes v. Beer, 9 App.Cas. 605 might need reconsideration. I see the force of the argument, but the difficulty that I feel with it is that, if the principle of Williams v. Roffey Bros. is to be extended to an obligation to make payment, it would in effect leave the principle in Foakes v. Beer without any application. When a creditor and a debtor who are at arm s length reach agreement on the payment of the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical benefit to himself in so doing. In the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter expressly considered in Foakes v. Beer yet held not to constitute good consideration in law. Foakes v. Beer was not even referred to in Williams v. Roffey Bros. & LAW-5024B Version 1

7 Page 7 Nicholls, and it is in my judgment impossible, consistently with the doctrine of precedent, for this court to extend the principle of Williams s case to any circumstances governed by the principle of Foakes v. Beer. In re Selectmove Ltd. [1995] 1 WLR 474, 481-2, per Peter Gibson, LJ. With reference to relevant decided cases, critically analyse the above statement and the area of law to which it relates. QUESTION SIX [O]ne of the most fundamental principles on which contractual liabilities and rights are based [is] what an objective reasonable observer would believe was the effect of what the parties to the contract, or alleged contract, communicated to each other by words and actions, as assessed in their context: see e.g. Smith v Hughes (1871) LR 6 QB 597, 607. VTB Capital plc. v. Nutritek International Corporation [2013] UKSC 5, at [140], per Lord Neuberger PSC. With reference to relevant decided cases, critically analyse the above statement and the area of law to which it relates. END OF PAPER LAW-5024B Version 1

8 Page 8 Appendix: Statutory Materials MISREPRESENTATION ACT 1967 Section 2: Damages for misrepresentation (1) 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. (2) Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party. LAW-5024B Version 1

9 Page 9 UNFAIR CONTRACT TERMS ACT 1977 Section 1: Scope of Part I. (1) For the purposes of this Part of this Act, negligence means the breach (a) of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract; (b) of any common law duty to take reasonable care or exercise reasonable skill (but not any stricter duty); (c) of the common duty of care imposed by the Occupiers Liability Act 1957 or the Occupiers Liability Act (Northern Ireland) (2) This Part of this Act is subject to Part III; and in relation to contracts, the operation of sections 2, 3 and 7 is subject to the exceptions made by Schedule 1. (3) In the case of both contract and tort, sections 2 to 7 apply (except where the contrary is stated in section 6(4)) only to business liability, that is liability for breach of obligations or duties arising (a) from things done or to be done by a person in the course of a business (whether his own business or another s); or (b) from the occupation of premises used for business purposes of the occupier; and references to liability are to be read accordingly but liability of an occupier of premises for breach of an obligation or duty towards a person obtaining access to the premises for recreational or educational purposes, being liability for loss or damage suffered by reason of the dangerous state of the premises, is not a business liability of the occupier unless granting that person such access for the purposes concerned falls within the business purposes of the occupier. (4) In relation to any breach of duty or obligation, it is, immaterial for any purpose of this Part of this Act whether the breach was inadvertent or intentional, or whether liability for it arises directly or vicariously. LAW-5024B Version 1

10 Page 10 Section 2: Negligence liability. (1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence. (2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness. (3) Where a contract term or notice purports to exclude or restrict liability for negligence a person s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk. (4) This section does not apply to (a) a term in a consumer contract, or (b) a notice to the extent that it is a consumer notice, (but see the provision made about such contracts and notices in sections 62 and 65 of the Consumer Rights Act 2015). Section 3: Liability arising in contract. (1) This section applies as between contracting parties where one of them deals on the other s written standard terms of business. (2) As against that party, the other cannot by reference to any contract term (a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or (b) claim to be entitled (i) to render a contractual performance substantially different from that which was reasonably expected of him, or (ii) in respect of the whole or any part of his contractual obligation, to render no performance at all, except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness. (3) This section does not apply to a term in a consumer contract (but see the provision made about such contracts in section 62 of the Consumer Rights Act 2015). LAW-5024B Version 1

11 Page 11 Section 11: The reasonableness test. (1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act (Northern Ireland) 1967 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. (2) In determining for the purposes of section 6 or 7 above whether a contract term satisfies the requirement of reasonableness, regard shall be had in particular to the matters specified in Schedule 2 to this Act; but this subsection does not prevent the court or arbitrator from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract. (3) In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen. (4) Where by reference to a contract term or notice a person seeks to restrict liability to a specified sum of money, and the question arises (under this or any other Act) whether the term or notice satisfies the requirement of reasonableness, regard shall be had in particular (but without prejudice to subsection (2) above in the case of contract terms) to (a) the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and (b) how far it was open to him to cover himself by insurance. (5) It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does. SCHEDULE 1: SCOPE OF SECTIONS 2, 3 AND 71. Sections 2 and 3 of this Act do not extend to (a) any contract of insurance (including a contract to pay an annuity on human life); (b) any contract so far as it relates to the creation or transfer of an interest in land, or to the termination of such an interest, whether by extinction, merger, surrender, forfeiture or otherwise; LAW-5024B Version 1

12 Page 12 (c) any contract so far as it relates to the creation or transfer of a right or interest in any patent, trade mark, copyright or design right, registered design, technical or commercial information or other intellectual property, or relates to the termination of any such right or interest; (d) any contract so far as it relates (i) to the formation or dissolution of a company (which means any body corporate or unincorporated association and includes a partnership), or (ii) to its constitution or the rights or obligations of its corporators or members; (e) any contract so far as it relates to the creation or transfer of securities or of any right or interest in securities. SCHEDULE 2: GUIDELINES FOR APPLICATION OF REASONABLENESS TEST The matters to which regard is to be had in particular for the purposes of sections 6(1A), 7(1A) and (4), 20 and 21 are any of the following which appear to be relevant (a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer s requirements could have been met; (b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having a similar term; (c) whether the customer knew or ought reasonably to have known of the existence and the extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); (d) 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; (e) whether the goods were manufactured, processed or adapted to the special order of the customer. LAW-5024B Version 1

13 Page 13 CONSUMER RIGHTS ACT 2015 Section 2: Key definitions (1) These definitions apply in this Part (as well as the definitions in section 59). (2) 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. (3) Consumer means an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession. PART 2 UNFAIR TERMS What contracts and notices are covered by this Part? Section 61: Contracts and notices covered by this Part (1) This Part applies to a contract between a trader and a consumer. (2) This does not include a contract of employment or apprenticeship. (3) A contract to which this Part applies is referred to in this Part as a consumer contract. (4) This Part applies to a notice to the extent that it (a) relates to rights or obligations as between a trader and a consumer, or (b) purports to exclude or restrict a trader s liability to a consumer. (5) This does not include a notice relating to rights, obligations or liabilities as between an employer and an employee. (6) It does not matter for the purposes of subsection (4) 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. (7) A notice to which this Part applies is referred to in this Part as a consumer notice. (8) In this section notice includes an announcement, whether or not in writing, and any other communication or purported communication. What are the general rules about fairness of contract terms and notices? Section 62: Requirement for contract terms and notices to be fair LAW-5024B Version 1

14 Page 14 (1) An unfair term of a consumer contract is not binding on the consumer. (2) An unfair consumer notice is not binding on the consumer. (3) This does not prevent the consumer from relying on the term or notice if the consumer chooses to do so. (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. (5) Whether a term is fair is to be determined (a) taking into account the nature of the subject matter of the contract, and (b) by reference to all the 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. (6) A notice is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations to the detriment of the consumer. (7) Whether a notice is fair is to be determined (a) taking into account the nature of the subject matter of the notice, and (b) by reference to all the circumstances existing when the rights or obligations to which it relates arose and to the terms of any contract on which it depends. (8) This section does not affect the operation of (a) section 31 (exclusion of liability: goods contracts), (b) section 47 (exclusion of liability: digital content contracts), (c) section 57 (exclusion of liability: services contracts), or (d) section 65 (exclusion of negligence liability). Section 63: Contract terms which may or must be regarded as unfair (1) Part 1 of Schedule 2 contains an indicative and non-exhaustive list of terms of consumer contracts that may be regarded as unfair for the purposes of this Part. (2) Part 1 of Schedule 2 is subject to Part 2 of that Schedule; but a term listed in Part 2 of that Schedule may nevertheless be assessed for fairness under section 62 unless section 64 or 73 applies to it. (3) The Secretary of State may by order made by statutory instrument amend Schedule 2 so as to add, modify or remove an entry in Part 1 or Part 2 of that Schedule. (4) An order under subsection (3) may contain transitional or transitory provision or savings. LAW-5024B Version 1

15 Page 15 (5) No order may be made under subsection (3) unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament. (6) A term of a consumer contract must be regarded as unfair if it has the effect that the consumer bears the burden of proof with respect to compliance by a distance supplier or an intermediary with an obligation under any enactment or rule implementing the Distance Marketing Directive. (7) In subsection (6) the Distance Marketing Directive means Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC; distance supplier means (a) a supplier under a distance contract within the meaning of the Financial Services (Distance Marketing) Regulations 2004 (SI 2004/2095), or (b) a supplier of unsolicited financial services within the meaning of regulation 15 of those regulations; enactment includes an enactment contained in subordinate legislation within the meaning of the Interpretation Act 1978; intermediary has the same meaning as in the Financial Services (Distance Marketing) Regulations 2004; rule means a rule made by the Financial Conduct Authority or the Prudential Regulation Authority under the Financial Services and Markets Act 2000 or by a designated professional body within the meaning of section 326(2) of that Act. Section 64: Exclusion from assessment of fairness (1) A term of a consumer contract may not be assessed for fairness under section 62 to the extent that (a) it specifies the main subject matter of the contract, or (b) the assessment is of the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it. (2) Subsection (1) excludes a term from an assessment under section 62 only if it is transparent and prominent. LAW-5024B Version 1

16 Page 16 (3) A term is transparent for the purposes of this Part if it is expressed in plain and intelligible language and (in the case of a written term) is legible. (4) A term is prominent for the purposes of this section if it is brought to the consumer s attention in such a way that an average consumer would be aware of the term. (5) In subsection (4) average consumer means a consumer who is reasonably wellinformed, observant and circumspect. (6) This section does not apply to a term of a contract listed in Part 1 of Schedule 2. Section 65: Bar on exclusion or restriction of negligence liability (1) A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence. (2) Where a term of a consumer contract, or a consumer notice, purports to exclude or restrict a trader s liability for negligence, a person is not to be taken to have voluntarily accepted any risk merely because the person agreed to or knew about the term or notice. (3) In this section personal injury includes any disease and any impairment of physical or mental condition. (4) In this section negligence means the breach of (a) any obligation to take reasonable care or exercise reasonable skill in the performance of a contract where the obligation arises from an express or implied term of the contract, (b) a common law duty to take reasonable care or exercise reasonable skill, (c) the common duty of care imposed by the Occupiers Liability Act 1957 or the Occupiers Liability Act (Northern Ireland) 1957, or (d) the duty of reasonable care imposed by section 2(1) of the Occupiers Liability (Scotland) Act (5) It is immaterial for the purposes of subsection (4) (a) whether a breach of duty or obligation was inadvertent or intentional, or (b) whether liability for it arises directly or vicariously. (6) This section is subject to section 66 (which makes provision about the scope of this section). Section 66: Scope of section 65 (1) Section 65 does not apply to LAW-5024B Version 1

17 Page 17 (a) any contract so far as it is a contract of insurance, including a contract to pay an annuity on human life, or (b) any contract so far as it relates to the creation or transfer of an interest in land. (2) Section 65 does not affect the validity of any discharge or indemnity given by a person in consideration of the receipt by that person of compensation in settlement of any claim the person has. (3) Section 65 does not (a) apply to liability which is excluded or discharged as mentioned in section 4(2)(a) (exception to liability to pay damages to relatives) of the Damages (Scotland) Act 2011, or (b) affect the operation of section 5 (discharge of liability to pay damages: exception for mesothelioma) of that Act. (4) Section 65 does not apply to the liability of an occupier of premises to a person who obtains access to the premises for recreational purposes if (a) the person suffers loss or damage because of the dangerous state of the premises, and (b) allowing the person access for those purposes is not within the purposes of the occupier s trade, business, craft or profession. Section 67: Effect of an unfair term on the rest of a contract Where a term of a consumer contract is not binding on the consumer as a result of this Part, the contract continues, so far as practicable, to have effect in every other respect. Section 68: Requirement for transparency (1) A trader must ensure that a written term of a consumer contract, or a consumer notice in writing, is transparent. (2) A consumer notice is transparent for the purposes of subsection (1) if it is expressed in plain and intelligible language and it is legible. Section 69: Contract terms that may have different meanings (1) If a term in a consumer contract, or a consumer notice, could have different meanings, the meaning that is most favourable to the consumer is to prevail. (2) Subsection (1) does not apply to the construction of a term or a notice in proceedings on LAW-5024B Version 1

18 Page 18 an application for an injunction or interdict under paragraph 3 of Schedule 3. How are the general rules enforced? Section 70: Enforcement of the law on unfair contract terms (1) Schedule 3 confers functions on the Competition and Markets Authority and other regulators in relation to the enforcement of this Part. (2) For provision about the investigatory powers that are available to those regulators for the purposes of that Schedule, see Schedule 5. Supplementary provisions Section 71: Duty of court to consider fairness of term (1) Subsection (2) applies to proceedings before a court which relate to a term of a consumer contract. (2) The court must consider whether the term is fair even if none of the parties to the proceedings has raised that issue or indicated that it intends to raise it. (3) But subsection (2) does not apply unless the court considers that it has before it sufficient legal and factual material to enable it to consider the fairness of the term. Section 72: Application of rules to secondary contracts (1) This section applies if a term of a contract ( the secondary contract ) reduces the rights or remedies or increases the obligations of a person under another contract ( the main contract ). (2) The term is subject to the provisions of this Part that would apply to the term if it were in the main contract. (3) It does not matter for the purposes of this section (a) whether the parties to the secondary contract are the same as the parties to the main contract, or (b) whether the secondary contract is a consumer contract. (4) This section does not apply if the secondary contract is a settlement of a claim arising under the main contract. LAW-5024B Version 1

19 Page 19 Section 73: Disapplication of rules to mandatory terms and notices (1) This Part does not apply to a term of a contract, or to a notice, to the extent that it reflects (a) mandatory statutory or regulatory provisions, or (b) the provisions or principles of an international convention to which the United Kingdom or the EU is a party. (2) In subsection (1) mandatory statutory or regulatory provisions includes rules which, according to law, apply between the parties on the basis that no other arrangements have been established. 74: Section Contracts applying law of non-eea State (1) If (a) the law of a country or territory other than an EEA State is chosen by the parties to be applicable to a consumer contract, but (b) the consumer contract has a close connection with the United Kingdom, this Part applies despite that choice. (2) For cases where the law applicable has not been chosen or the law of an EEA State is chosen, see Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations. Section 75: Changes to other legislation Schedule 4 (amendments consequential on this Part) has effect. Section 76: Interpretation of Part 2 (1) In this Part consumer contract has the meaning given by section 61(3); consumer notice has the meaning given by section 61(7); transparent is to be construed in accordance with sections 64(3) and 68(2). (2) The following have the same meanings in this Part as they have in Part 1 trader (see section 2(2)); consumer (see section 2(3)); LAW-5024B Version 1

20 Page 20 goods (see section 2(8)); digital content (see section 2(9)). (3) Section 2(4) (trader who claims an individual is not a consumer must prove it) applies in relation to this Part as it applies in relation to Part 1. LAW-5024B Version 1

21 QUESTION ONE Alison and Bill have been friends and neighbours for many years. Bill recently lost his job and has been struggling to continue to pay his mortgage; Alison, on the other hand, was recently promoted and is thinking about buying a new, bigger house. Although he is happy for his friend, Bill is a little jealous of Alison s success and is worried about losing his best friend if she moves house. When Alison takes Bill out for a nice meal to celebrate her promotion, he informs her of his sacking and tells her how scared he is of losing her. Alison reacts angrily and the two have an argument. The next day, Alison knocks on Bill s door to apologise. He accepts her apology but says that their friendship will never be the same if she moves away, flaunting success and abandoning him. Stunned, Alison starts to cry. Bill comforts her and says that it does not really matter, anyway, as he will soon lose his house and have to move away from Alison, in any event, unless someone gives him enough money to pay off his mortgage. Don t worry, he says; we will still send a Christmas card to each other and maybe speak on the phone every now and then. The next week, Alison offers to give Bill 20,000 to pay off the remainder of Bill s mortgage. Bill has recently secured a new job, which pays the same as his old one, but he immediately accepts Alison s offer without telling her about his new job. When she discovers that Bill has a new job, Alison demands a return of the 20,000. Bill refuses. Advise the parties. This question is concerned with undue influence. There is no suggestion that B has (i) placed A under any pressure which could amount to duress or (ii) made a misrepresentation. It is important to note that, although the transaction between A/B is a gift, UI still applies, in the same way it would apply to a contract between the parties. Moreover, as the gifts have been executed, the fact that we have no contract is not sufficient to allow A to demand return of the money. Of course, if A had merely promised to pay, the fact that we have no contract would be relevant to explaining why B could not enforce her promise.

22 As such, it would not be helpful to analyse the rules of formation of contracts in depth to explain that there is no contract. For the sake of completeness, you could briefly explain that we have a gift, not a contract, here, and perhaps explain (again, briefly) the difference between a contract and a gift. However, first, this is not necessary. Second, if you do so, you must make it clear that you know this does not affect the application of UI. Third, to conclude that the fact that we have no contract allows C to demand return of the money would be wrong. Remember that there are two evidential routes to proof of UI. The classic statement of this division comes from the case of Allcard v. Skinner (1887) LR 36 ChD 145, CA (esp. at 171, per Cotton LJ). The terminology has perhaps become a little confused, but, traditionally, the split has been said to be between actual and presumed undue influence. Whilst some have suggested that this terminology is not helpful, we adopted it (but you do not have to have used it in order to have answered this question, as long as you made it clear that you understand the distinction), because I believe that it is a useful shorthand, so long as we remember that there is only one doctrine of undue influence. We do not have two different types of UI, in the sense of C proving something different when he proves actual UI from that which he proves when he proves presumed UI. We have merely two different evidential routes to proof of the same thing. See, e.g., RBS v. Etridge (No. 2) [2001] UKHL 44; [2002] 2 AC 773, 797, per Lord Nicholls. Proof of presumed UI (PUI) has three main elements (see, e.g., RBS v. Etridge (No.2) [2001] UKHL 44; [2002] 2 AC 773: First, a close personal relationship between C and D, w/c generally predisposed to do as he believes D wishes in relation to the area w/which the transaction is concerned Second, a transaction which is not readily explicable by the ordinary ( normal, acceptable ) motives of people in such a relationship

23 o Upon proof of these two elements, it is presumed that the impugned contract was secured by UI Third, UI is presumed unless D can rebut the presumption by disproving UI o This requires D to prove that C freely decided to enter into the contract, rather than that he did so because of his feelings for D, w/out properly considering whether to enter into the contract or not Proof of actual UI (AUI) has four elements (see BCCI v. Aboody [1990] 1 QB 923, CA) D has the capacity to influence C D exercised influence over C This exercise of influence was undue (unconscionable, unacceptable, wrongful) The exercise of influence caused C to enter into the contract It is perfectly possible for C to be able to prove UI by both routes. The main differences between the two, the main reasons why C might seek to prove UI via one route rather than the other, are as follows: First, unlike AUI, PUI requires proof of more than a mere relationship of influence o It requires proof of an especially close relationship, in which C is generally predisposed to do as he believes D wishes o If such a relationship exists, D has influence over C (sufficient to satisfy AUI) o However, the mere fact of a relationship of influence does not necessarily mean that C is predisposed to do as D wishes Second, PUI requires proof that the transaction is not readily explicable by the nature of the relationship between the parties o This is not specifically required in AUI, but it will, of course, be relevant to whether C can prove that he entered into the impugned contract because of an undue exercise of influence by D However, if C can prove the necessary relationship of special influence and a transaction which calls for an explanation, then he need not prove any undue exercise of influence or causation of his decision to contract These things are presumed

24 The reason for this is that, by proving the close personal relationship, C proves that he is particularly vulnerable, and by proving an inexplicable transaction, he raises a strong suspicion that D has not properly ensured that C s vulnerability did not cause him to contract w/d. Actual Undue Influence Remember: UI developed in EQ at a time when CL s conception of duress was extremely narrow, requiring threatened violence to the person. Therefore, it naturally developed to cover situations in which D applied to C overt pressure which, although not amounting to threatened violence to the person, was nonetheless unacceptable, wrongful, illegitimate. This is the evidential route to proof now known as AUI. Williams v. Bayley (1866) 1 HL 200 C s son gave a promissory note to D, a bank, on which he had forged C s signature When the bank discovered the forgery, it threatened to prosecute C s son unless C met the debt C agreed, mortgaging his house to do so However, he later sought to have the agreement set aside HL held that he was so entitled to do so, because the agreement had been secured by the undue pressure exerted by D Whilst this would still amount to a case of AUI today, it would probably now be covered by economic duress Actual illegitimate threat which caused C to enter into the contract. (See also, Mutual Finance Ltd. v. John Wetton & Sons Ltd. [ KB 389, discussed by McKendrick (Contract Law: Text, Cases and Materials (OUP, 6 th edn., 2014), pages )

25 Indeed, some have argued that, as duress is now wide enough to cover any form of illegitimate threat, AUI is no longer needed. However, I believe that UI is still potentially wider than duress, even ignoring the evidential presumption of UI. For, it is submitted that there is no need for an undue exercise of influence to amount to an application of illegitimate pressure, which is necessary for duress and which requires at least an implicit threat. E.g., in BCCI v. Aboody [1990] 1 QB 923, CA, part of what made D s conduct undue was the fact that he withheld from C certain information related to the risks of the transactions (although he had no legal duty to disclose that information): see p Although D also engaged in conduct which could probably have amounted to the application of illegitimate pressure, the mere non-disclosure surely could not have done so, but it was nonetheless sufficient to ensure the exercise of influence was undue. The Elements of Actual Undue Influence The classic statement of the elements of AUI comes from the Aboody case. [Note: Aboody is a three-party case, in which C alleged that D s exercise of UI caused her to enter into a contract w/a third party, X. We will consider below what additional requirements C must establish in order to set the impugned contract aside as against X, where X is not guilty of UI. However, for now, it is important to recognise that, so far as establishing UI is concerned, precisely the same principles apply to the standard two-party cases and to the three-party cases under consideration.] BCCI v. Aboody [1990] 1 QB 923, CA D and C were husband and wife Both were directors of a family company, but C played no active role in running the company The business was in debt to X, a bank

26 This debt was secured by 3 charges over the family house, which was registered solely in the name of C The company went bust and X sought to enforce the charges C claimed that at least one of the charges had been brought about by D s exercise of UI CA disagreed, identifying four conditions that had to be satisfied before there could be UI o The capacity in D to influence C o An exercise of that influence o That the exercise of influence was undue o That the undue exercise of influence caused C to enter into the impugned transaction [Note: CA also stated that the transaction must be manifestly disadvantageous to C. We will come across this concept more below, when discussing PUI. However, it is now absolutely clear that manifest disadvantage is not required for proof of AUI, because HL in CIBC v. Pitt [1994] 1 AC 200, expressly overruled Aboody on this matter (whilst not casting any doubt on the other four elements). The decision in Aboody was based upon the lack of manifest disadvantage and the lack of proof of causation, so the decision in Pitt would not change the outcome of the case.] The Capacity to Influence This is merely a question of fact in any particular case C must prove that D had the ability to influence C s decisions. This must come from something intrinsic to the parties relationship. However, beyond that, it does not matter from where the influence comes. o It could, e.g., come from trust placed in D by C. o It could come from C s affection for D. The capacity need not amount to an irresistible influence. Nor, as we will see, must it rise to the level required for the presumption of undue influence Proof that C was generally predisposed to do as D wished

27 On the facts of Aboody, C established this, because D ran the business w/out any active involvement from C She merely signed any documents he asked her to sign The Exercise of Influence Again, this is merely a Q of fact C must prove that D did something to cause the influence to be operative At this stage, there is no need whatsoever for C to prove anything wrongful in the exercise of influence. This comes into play at the next stage Proof that the exercise of influence was undue On the facts of Aboody, this was proved by C simply showing that D had asked her to sign the documents. The Exercise of Influence Was Undue What this means is that the exercise of the influence must, in some way, be unacceptable (unconscionable, wrongful, illegitimate). For this to be established, it is not enough that the transaction can provide no benefit to C and provides a great gain to the one exercising the influence, because we are concerned w/procedural, rather than substantive, unfairness. [See duress lecture notes.] For example, if a father guarantees his son s bank loan, he will often take no financial benefit from this, but this does not itself mean that the son s exercise of influence was undue. In Aboody, this element was established by proof that D withheld relevant information (concerning the state of the business) from C.

28 Note: It was irrelevant that the non-disclosure had not been practised with any malice or desire to injure C The non-disclosure was itself sufficient to render the exercise of influence undue, because C deserved, when putting up her interest in the home as security for the loan, full information regarding the state of the business, so that she could make a fully informed and free decision Therefore, we can see that bad or good motive is not conclusive in establishing the undue nature of the exercise of influence (although, it can, of course, be relevant). For example, if I desire to make you millions of pounds by a high-risk investment of your money, but conceal the fact that you might lose your money, this will likely be unconscionable. The Undue Exercise of Influence Caused C to Enter into the Contract This is the causation requirement Did the undue exercise of influence cause C to enter into the contract? In Aboody, CA seemed to apply a but for test Would C have entered into the impugned transaction but for the undue exercise of influence? On the evidence, it was found that she would have done, so C was not entitled to relief ([1990] 1 QB 923, 971). However, in UCB v. Williams [2002] EWCA Civ 555, CA cast doubt upon this area of the law, suggesting that, in Aboody, but for causation was treated, not as the causation element, but as an additional element to be proved before relief was available. 1 1 This was arguably due to the fact that C was seeking relief against X, when D was responsible for the UI. I.e., the court perhaps treated but for causation as an additional element to entitle C to relief as against X and was not suggesting it is required when C is seeking relief directly against D, the person responsible for the UI.

29 For, CA in Aboody stated that 2 actual undue influence on the part of [the defendant was] proved, ([1990] 1 QB 923, 970), despite holding that C was not entitled to relief because she had not proved but for causation. It is submitted that it would be absurd for CA in Aboody to have held this, but there is no doubt that CA in UCB v. Williams was entitled to interpret the case in this way. As such, it is not entirely clear what standard of causation is required. Nonetheless, it seems that the but for standard is generally accepted, w/many judges and commentators ignoring the confusion highlighted by the UCB case. I tend to think that, given the protective nature of UI, the a factor standard suggested as appropriate by CA in the UCB case should be adopted. Application to Facts Through their friendship, B clearly has the capacity to influence A. B has surely exercised this influence, by stating that he will lose his house unless someone gives him sufficient to pay off the mortgage. The exercise of influence would surely seem to be undue: o B uses emotional blackmail and does not inform A that he now has a new job o For this latter part, consider the analogy w/bcci v. Aboody (above): failure to disclose that which one had no legal duty to disclose can nonetheless be relevant to establishing that the exercise if influence was undue. There seems to be no other reason for A to make this transaction, so causation (whether on a but for or a factor standard seems to be satisfied. PUI You could also consider the application of PUi to this scenario. 2 Subject to the manifest disadvantage point, which has been overruled by HL in CIBC v. Pitt [1994] 1 AC 200: see above.

30 First, the relationship seems to be a close one. We would need more information, but it seems possible that A is generally predisposed to do as B wishes. See, e.g., Etridge. The next question would be whether the transaction calls for an explanation (Etridge). It probably does. Can B rebut the presumption? It seems unlikely that he can prove A freely made the decision after full and informed thought.

31 QUESTION TWO Claire is planning a birthday party her child. When searching the internet, she comes across the website of a company called Delightful Parties Ltd. She browses the site and adds to her online basket all of the food, drink, and decorations for the party. When Claire clicks the Checkout Now button on the website, she is automatically redirected to a page which clearly states, at the top, in large bold font, All contracts with Delightful Parties Ltd., whether made online or in one of our shops, are made subject to our standard terms and conditions, which are set out below. Claire begins to read the terms, but, due to a fault with her tablet, she cannot scroll down the screen and therefore does not read all of the terms. She nonetheless clicks the button to confirm that she had read all of the standard terms and condition and proceeds to place her order. When the items arrive, Claire is surprised to discover that some of the items are different from those she ordered. Written on the face of the invoice, which was sent with the items, is the following: Substitutions made, in accordance with out standard terms and conditions. Included with the delivery is a copy of the standard terms and conditions, which Claire reads. Three terms in particular catch her eye: (1) Delightful Parties Ltd. reserves the right to substitute any product for a reasonably similar alternative, whilst retaining the right to charge for the more expensive of the items, regardless of which of them is actually delivered. (2) Delightful Parties Ltd. accepts no liability for any person injury caused by any defective products or services sold by us, howsoever the injury is caused. (3) Delightful Parties Ltd. accepts no liability for any property or economic damage caused by any defective products or services sold by us. Claire has been charged for the higher priced item in respect of each substitution. The items arrived on a Saturday morning, and Delightful Parties Ltd. is only open Monday to Friday. As the party is due to take place the next day, before Delightful Parties Ltd. will open again, Claire goes ahead with the party as planned. Unfortunately, the party poppers Claire ordered have been negligently manufactured by Delightful Parties Ltd., and they explode when Claire is unpacking them, causing small burns to her hands and setting fire to the paper decorations she has hung.