Note to Candidates and Tutors:

Transcription

1 UNIT 2 LEVEL 6 CONTRACT LAW SUGGESTED ANSWERS JANUARY 2010 Note to Candidates and Tutors: The purpose of the suggested answers is to provide students and tutors with guidance as to the key points students should have included in their answers to the January 2010 examinations. The suggested answers do not for all questions set out all the points which students may have included in their responses to the questions. Students will have received credit, where applicable, for other points not addressed by the suggested answers. Students and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners reports which provide feedback on student performance in the examination. SECTION A Question 1 Candidates are asked to explain the meaning of promissory estoppel and to analyse the factors that the court should take into account when considering whether a party should be made subject to the doctrine. When explaining the meaning of promissory estoppel they should begin by explaining the meaning of estoppel. It is rule of evidence preventing a person denying a statement he has made previously. It is not a cause of action. They should go on to explain the meaning of promissory in this context. It is an unambiguous promise or representation made by A to B that is intended to alter their existing legal relationship, in reliance upon which, B alters his position. Better answers will provide an explanation of the background to the doctrine and the reason for its development. They would, for example, discuss the rule in Pinnel s Case (1602) and its potential harshness. They would explain the doctrine of promissory estoppel in response: see Central London Property Trust v High Trees House Ltd [1947]. They would discuss subsequent developments beyond a response to the rules governing part-payment of debt. Candidates are asked to analyse the factors that the court should take into account when considering whether a party should be made subject to the doctrine of promissory estoppel. Those factors include whether there was an existing contractual relationship between the parties, whether there has been a promise or representation by one party to the other that his strict legal rights would not be insisted on and whether that promise or representation was sufficiently certain. The court should also consider whether there had been reliance or detriment to the promisee. Page 1 of 11

2 The court should consider whether the promisee was prevented from going back on his representation at once. In appropriate circumstances the court should also consider the effect of the doctrine: does it act to suspend legal rights or does it to extinguish them. That is, may the promisor return to his original position and, if so, the circumstances in which that is possible. Better answers will contain a detailed analysis of relevant case law, in which these criteria have been considered by the courts; they will consider the circumstances in which the doctrine extinguishes rights and those in which it merely suspends. Question 2(a) Candidates are asked to analyse a statement by Professor T. A. Downes and assess his justification for that statement. The analysis would have identified the following: offer and acceptance are not an essential requirement of valid contract; they are a means of analysing whether there is an agreement. Better answers might conclude that that the existence of a contract depends, as a matter of law, upon agreement. Therefore offer and acceptance are important evidentially, rather than as a matter of law, to whether a valid contract exists. The law of offer and acceptance is therefore based upon a small number of principles that go toward the demonstration of the existence of agreement. When assessing whether Professor Downes was justified in his statement candidates should consider accepted definitions of contract: (eg) Anson Principles of the Law of Contract, Treitel The Law of Contract etc. Those definitions turn upon the existence of agreement and not upon the existence of offer and acceptance. Better answers will discuss cases in which there is recognition (either implied or express) by the senior judiciary of the limits of offer and acceptance, see (eg) The Satanita (1897), Butler Machine Tools v Ex-Cell-O Corporation, (England) Ltd [1979], Gibson v Manchester City Council [1979], Trentam v Archital Luxfer [1993] etc. Better answers will reflect an understanding of judicial attitudes to this issue changing through time. Question 2(b) Candidates are asked to identify and explain the small number of general principles that govern offer and acceptance and examine their practical application by the courts, using decided cases to illustrate their answer. They should distinguish between the fact of offer and acceptance and the communication of offer and acceptance. In relation to offers, they should have considered accepted definitions: an offer is a statement of terms upon which a person is prepared to be bound. Page 2 of 11

3 Better answers will note the element of conditionality in an offer. In relation to acceptances candidates should have considered accepted definitions/requirements of valid acceptance: it must be a mirror image of the offer. Better answers will consider the limits of what may amount to a valid acceptance: (eg) Tinn v Hofmann (1873): exact cross offers are not sufficient; where there is an element of conditionality in the acceptance; the effect of counter offer etc. Candidates should also consider the rules governing communication. To be valid both offer and acceptance must be communicated. Acceptance is, however, subject to exceptions (eg) postal rules; where offeror waives right etc. Better answers will provide an analysis of these principles and their purpose. They provide objective evidence of agreement. They are based upon the reasonable expectations of honest men (per Steyn L J Trentam v Archital Luxfer [1993]). Better answers will provide clear knowledge and understanding of relevant cases: (eg) Carlill v Carbolic Smoke Ball Co [1893], Felthouse v Bindley (1862), Hyde v Wrench (1840). A total of 25 marks are available for question 2. Question 3 Candidates are asked to analyse the court s use of rebuttable presumptions in the context of intention to create legal relations. Candidates should define/explain the meaning of presumption and the meaning of rebuttable. They should identify the contexts in which decisions on this matter are likely to occur: (a) social and domestic relationships and (b) commercial relationships. Candidates should explain the presumption in social and domestic situations: there is no intention to create legal relations: see Balfour v Balfour [1919] etc. They should explain and analyse how the presumption in Balfour may be rebutted by showing indicators of true intention. For example by dealing at arm s length, by money changing hands, by suffering detriment or the risk of detriment. They should explain and analyse cases such as Merritt v Merritt [1970], Jones v Padavatton [1969], Parker v Clarke [1960], and Simpkins v Pays [1955] etc. Candidates should analyse the use of presumption in commercial situations. They should state the presumption in commercial situations: there is a presumption that the parties intend to create legal relations. It applies even where the undertaking is seemingly gratuitous: see Edwards v Skyways [1969], Esso v Commissioners of Customs Excise [1975]. It is a rebuttable presumption. Those who wish to challenge the presumption must carry the evidential burden. Candidates should explain and analyse how the presumption may be rebutted by express, contrary intention: see (eg) Jones v Vernon s Pools [1938], Rose & Frank v Crompton Bros [1923]; letters of comfort: Kleinwort Benson v Malaysian Mining Corp [1989] etc. Page 3 of 11

4 Better answers would note the practical implications of the court s method of proceeding: those who wish to challenge the presumption carry the evidential burden. Better answers will consider factors underpinning the position taken by the courts: public policy (see (eg) Robinson v HM Customs & Excise [2000]), the practical problems with determining intention in disputes, and the search for objective criteria for judging such matters. A total of 25 marks are available for question 3. Question 4(a) Candidates are asked to explain the policy that was developed by the common law in relation to contracts in restraint of trade. They should first define or explain the meaning of restraint of trade in this context. A restraint of trade agreement is one in which a party undertakes to suffer some restriction in the conduct of his business, trade or profession. Candidates should then explain the modern common law position on such agreements. They are prima facie void as contrary to public policy: see Nordenfelt v Maxim Nordenfelt [1894]. Lord Macnaughton stated in Nordenfelt that both the public and the individual have an interest in every person carrying out his trade freely. The reasons for the policy are, principally, regarded as being that the court is reluctant to endorse any agreement in which a party gives up the right to earn a living; such agreements are considered to work against the public interest. They deprive the community of a party s skill and expertise. They reduce competition within trades and professions. Question 4(b) In part (b) candidates are required to analyse the circumstances in which the court may be prepared to enforce covenants in restraint of trade. They should explain that a person seeking to enforce a restraint of trade agreement must demonstrate that it falls within exceptions set out in by Lord Macnaughton in Nordenfelt v Nordenfelt. That is, that the restraint is (a) reasonable as between the parties and (b) reasonable with regard to the public interest. Candidates should analyse decided cases, post Nordenfelt, in which the criteria (area, duration and activity) for assessing reasonableness between the parties was considered and developed. They should analyse the requirement that a person seeking to enforce such an agreement must demonstrate that what they seek to protect is an interest worthy of protection (eg) goodwill, trade secrets etc. Page 4 of 11

5 The court will not enforce mere contracts in gross: see (e.g.) Vancouver Malt & Sake Brewing v Vancouver Breweries (1934). Better answers will demonstrate both a knowledge of the facts of decided cases and an understanding of the principles employed and developed by the court. SECTION B Question 1 Candidates are asked to advise Sam on any claim he may have against Walter and Lane for breach of implied term of the contract. That advice is to include advice on any damages he might recover if his claim is successful. When advising on liability candidates should, first, identify the contract as one for the supply of services. It therefore falls to be considered under the Supply of Goods and Services Act They should then state the law that is relevant to the problem: S13 of the 1982 Act implies a term that the service is to be carried out with reasonable skill and care. Credit is to be given to those who employ the common law business efficacy test or officious bystander test. Candidates should consider the criteria for judging whether reasonable skill and care were employed. It is an objective test. The service must be provided with the care and skill of a reasonably competent member of the supplier s trade or profession. Candidates should apply the law to the facts of the problem and advise Sam accordingly. When advising on damages candidates should explain the purpose of damages in contract, how they are assessed, and what Sam must demonstrate to the court in order to obtain substantial damages for breach of contract. Damages are monetary compensation that is intended to place the successful claimant in the position he would have been had the contract been performed without breach: Robinson v Harman (1848) When explaining how damages are assessed candidates should deal, briefly, with the measure of damages: cost of cure or diminution in value, personal inconvenience, loss of enjoyment etc. They should explain what Sam must demonstrate in order to obtain substantial damages. They should explain that damages are generally available for breach of contract. However, in order to recover damages that reflect his loss (ie substantial damages) he must show that the breach caused his loss, that the loss suffered was not too remote in law, and that he has done what is reasonable to mitigate his loss. Candidates should apply the law on damages to the facts and advise Sam accordingly. Using the rule in Hadley v Baxendale (1854) they should consider whether the damage suffered was too remote. That is, whether the kind of loss suffered either arose naturally from such a breach or should have reasonable been within the contemplation of both parties. They should consider whether Sam has attempted to mitigate his loss. He has had work carried out to make good the Page 5 of 11

6 defects in question and so avoided further damage to the house. He has, however, arguably gone beyond mitigating his loss. The house is better than it would have been. He cannot claim for such a benefit from Walter and Lane. Any improvement in his situation resulting from his attempt to mitigate his loss are to be deducted from damages awarded: see British Westinghouse v Underground Electric Railways Co of London [1912]. Better answers will demonstrate good knowledge and understanding of decided cases, the relevant rules of law, and their practical implications for Sam. Better answers will give a reasoned opinion on the amount Sam is likely to recover. Question 2 Question 2(a) Candidates are asked to explain and analyse what Carlo must demonstrate in order to establish that ICE is in breach of contract. They should identify the contract as a sale of goods contract. It therefore falls to be considered under the Sale of Goods Act Section 14 (2) Sale of Goods Act 1979 implies a term that, where the seller supplies goods in the course of business, the goods are of satisfactory quality. Section 14 (3) of the 1979 Act implies a term that, where the seller sells in the course of business, and the buyer expressly or by implication makes known the purpose for which the goods will be used, there is an implied term that the goods are reasonably fit for that purpose. Candidates should then establish whether these implied terms were breached. Better answers will consider and apply the criteria for judging breach of s14 (2). Set out in section 14 (2) (A): what would reasonable person expect, taking into account description, price etc; S14 (2)(B): quality includes fitness for purpose, safety, durability etc. Question 2 (b) Candidates were asked to advise Carlo on the common law as it relates to clauses 27, 65, and 83 of his contract with ICE and how it may affect his possible claim against ICE, and (c) on how statute might affect the validity of the clauses in question. Candidates should identify clauses 27, 65, and 83 as exclusion or limitation clauses. They should state the common law on incorporation. The clause must be incorporated before or at the time of entering into the contract: see Olley v Marlborough Court Hotel [1949] etc. In the case of signed documents, candidates are bound, whether they have read the document or not: L Estrange v Graucob (1934). However, Diana s explanation of the content of the document may amount to an overriding oral representation. In that case Diana s spoken words override the written terms of the contract: Curtis v Chemical Cleaning Co Ltd [1951]. Diana s oral representation therefore binds ICE. Page 6 of 11

7 If the attempts to exclude or limit liability in clauses 27, 65, and 83 are ineffective Carlo should be able to recover damages. Question 2(c) Candidates are asked to advise Carlo on how statute may affect the validity of clauses 27, 65, and 83 of his contract with ICE and how this may impact upon his possible claim against ICE. Candidates should identify the Unfair Contract Terms Act 1977 as the relevant statute. They should identify the following sections as relevant to the problem: Section 3: Carlo is dealing on ICE s standard terms, which attempts to exclude or limit its liability by the use of clauses 27, 65, and 83. The clauses may, then, exclude or limit liability only in so far as it is reasonable. S6 (2): the breach is of section 14 of the Sale of Goods Act Attempts to exclude or limit liability are subject to the test of reasonableness. Section 11 sets out the test for reasonableness. Section 13 provides guidance on what may constitute an exclusion or limitation clause. Schedule 2 of the 1977 Act sets out the criteria for assessing reasonableness. Candidates should apply the law to the facts. They should advise Carlo on the effect the Act may have on the action he may bring against ICE. They should advise on whether the clauses are reasonable with regard to the criteria in s11 and Schedule 2. For example, there would seem to be considerable inequality of bargaining power between the parties, Carlo received no inducement to enter into the agreement, ICE appears to have made liability subject to an unreasonable condition: see (eg) Stag Line v Tyne Ship Repair Group [1984]. Question 3 3(a) Candidates are asked to advise Iftikhar if Kerry s assurances amounted to representations or terms of the contract. They should identify and explain the tests for determining whether statements made before a contract is entered into are mere representations or terms of the contract. They are: (i) importance attached to the statement by parties (ii) passage of time between the statement and point of contract (iii) relative expertise of the parties. They should identify the representations made by Kerry and assess whether they were mere representations (and so not actionable in contract) or whether they had become terms of the contract (and so actionable). They should apply the legal tests to facts of the problem. Kerry has (apparently) greater expertise than Iftikhar and so it is likely that his representation will be regarded as a term of the contract: see Dick Bentley Productions v Harold Smith Motors Ltd [1965]. The specification was important to Iftikhar. The issue, then, is whether Iftikhar communicated this to Kerry: see (eg) Bannerman v White (1861). Page 7 of 11

8 Kerry s representations as to the qualities of The Little Giant may therefore amount to terms of the contract. Where the vessel does not comply (eg she does not have a deep keel) there is a breach of contact. Better answers will identify all issues accurately and demonstrate knowledge of the rules of law that govern the area, as well as familiarity with relevant case law. They will provide reasoned advice to Iftikhar on possible or likely legal outcomes. 3(b) Candidates are asked to advise Iftikhar of any action he might bring against Kerry in misrepresentation. Such advice should contain a definition of misrepresentation. It is a false statement of fact, made by one party of the contract, to the other party of the contract, with a view to inducing the other party to enter into the contract, and which does induce that party to enter into the contract. Candidates should apply this definition to the facts and advise on the extent to which the facts meet that definition. Particular issues that should be addressed include the fact that Iftikhar was invited to survey the boat and refused. This does not prejudice his action in misrepresentation: see Redgrave v Hurd (1881). He may have lost his cause of action had he done so: see Attwood v Small (1838), where, because the plaintiff relied on his own engineers, he could not claim reliance on the statement and consequently inducement to enter into the contact. Candidates should explain the different kinds of misrepresentation and analyse the mental states each requires: fraudulent misrepresentation: see Derry v Peek (1889); innocent misrepresentation: the person making the representation is without blame (ie is neither fraudulent nor negligent); negligent (under the Misrepresentation Act 1967): carelessness, making statement without reasonable grounds for making the statement. Candidates should apply the law to the facts and provide advice on bringing an action in misrepresentation. Better answers will identify all issues accurately and demonstrate knowledge of the rules of law that govern the area, as well as familiarity with relevant case law and statute. They will provide reasoned advice to Iftikhar on possible or likely legal outcomes. 3 (c) Question 3(c) requires candidates to analyse the advantages and disadvantages of an action in misrepresentation, when compared with an action for breach of contract, and to advise Iftikhar on the most appropriate cause of action for his case. Such an analysis should consider tactical issues in arguing the case as well as the availability and nature of remedies in misrepresentation and in breach of contract. Tactical Matters Page 8 of 11

9 In actions for breach of contract the burden of proof is on the claimant: he who asserts must prove. That is also the case in innocent and fraudulent misrepresentation: the burden is on the claimant. Actions for fraudulent misrepresentation also have the disadvantage that the standard of proof is high: see Le Lievre v Gould [1893] per Lord Esher. Actions in negligent misrepresentation under the Misrepresentation Act 1967 carry a tactical advantage. The claimant need only prove misrepresentation; the defendant must then prove that he had proper grounds for the statement. That is, effectively that he was not negligent: see Howard Marine v Ogden [1978]. Remedies In actions for breach of contract damages are intended to carry the claimant forward and place him in the position he would have been had there not been a breach of contract. This may be advantageous to the claimant. On the other hand, the rules of remoteness of damage in contract are somewhat restrictive. The loss suffered must have been within the reasonable contemplation of the parties, based upon the two limbs of the rule in Hadley v Baxendale (1854). In misrepresentation the measure of damages is tortious: they are intended to carry the claimant back to the position he would have been in had the tort not been committed. Remedies in misrepresentation are: damages on the tortious measure plus rescission for fraudulent and negligent misrepresentation (or damages in lieu of rescission). In innocent misrepresentation the remedy is rescission or damages in lieu of rescission. The rules of remoteness in negligent misrepresentation are based on the action in fraud and so on the tort of deceit. They are: all losses flowing directly from the misrepresentation: Royscott Trust v Rogerson [1991], Naughton v O Callaghan [1990]. Better answers will mention judicial unease at this state of affairs. Candidates should advise Iftikhar accordingly. Better answers will demonstrate knowledge and understanding of the law governing these actions and their remedies together with a practical understanding of the implications for the parties. Page 9 of 11

10 Question 4 Candidates are asked to advise Malcolm on whether he can recover the money that he believes is owed to him by Doris, Alison, and Gary. Doris The issue here is whether Doris is under a legal obligation to pay him the 500 that she promised. Candidates should explain the meaning of consideration : it is the price for which the promise of the other is bought. They should explain the need for consideration in simple contracts. They should then diagnose the consideration issue on the facts: it may be a case of past consideration. Doris s promise comes after Malcolm s performance. Candidates should state and explain the rule against past consideration: past consideration is no consideration: see Roscorla v Thomas (1842), re McArdle [1951]. They should state and explain the exception: where there is an implied promise to pay: see re Casey s Patents [1892], Lampleigh v Braithwaite (1615). Credit is to be given to candidates who consider intention to create legal relations. The relationship between Doris and Malcolm may be described as social. If it is there is a rebuttable presumption that there is no intention to create legal relations. Malcolm may, however, seek to rebut the presumption by showing that he has provided consideration/suffered a detriment. Better answers will identify all issues accurately and demonstrate knowledge of the rules of law that govern the area, as well as familiarity with relevant case law. They will provide reasoned advice to Malcolm on possible or likely legal outcomes. Alison The issue here is the likelihood of Malcolm succeeding in an action to recover the 4,500 he believes Alison still owes him. Candidates should, first, identify the issue as part-payment of debt. They should state and explain the rule in Pinnel s Case (1602): part- payment of a debt is not satisfaction for the whole debt even if the creditor accepts the part-payment. The creditor may still recover the balance of the debt. Candidates should explain the reason for the rule: there is no consideration for the second promise (the creditor s promise to accept a lesser sum). They should identify and explain the relevant exception to the rule in Pinnel s Case: provision of some other consideration by the debtor, at the request of the creditor, will prevent the creditor from recovering the balance: see Pinnel s Case. Candidates should then apply the law to the facts of the problem. Alison has offered part-payment of the debt together with other consideration in the form of a necklace. Page 10 of 11

11 Malcolm s concern is that the value of the necklace is 1/10 th of the outstanding debt. The court will look to form not value: consideration need not be adequate. Alison will not fail on that point. The issue, however, is: is this sufficient consideration for valid part payment? The additional consideration was provided at the instance of Alison, not Malcolm, so Alison s argument may fail. If that is the case, Malcolm may recover the balance of money owing. Better answers will identify all issues accurately and demonstrate knowledge of the rules of law that govern the area, as well as familiarity with relevant case law. They will provide reasoned advice to Malcolm on possible or likely legal outcomes. Gary The issue here is: what is the effect of accepting payment by a third party. Joan has sent Malcolm a cheque that represents only a fraction of the debt owed by her son, stating that it is in full payment of Gary s debt. What are the legal implications of (a) Malcolm cashing Joan s cheque and (b) Malcolm not cashing Joan s cheque? In order to advise Malcolm on this, candidates should identify the issue as being part-payment of debt. Garry s case therefore falls to be considered under the rule in Pinnels Case: part payment does not discharge the whole debt. There is, however, an exception to the rule: where there is part-payment of a debt by a 3 rd party that is expressed to be in discharge of the whole debt of the debtor: see Hirachand Punamchand v Temple [1911]. To take the money of the 3 rd party and then proceed against the original debtor is regarded as a fraud on the 3 rd party. The creditor is therefore not able to proceed. Candidates should apply the law to the facts of the problem and advise Malcolm. If Malcolm cashes Joan s cheque he falls under the rule in Hirachand Punamchand v Temple and will not be able to pursue Garry for the balance. If Malcolm does not cash Joan s cheque (or assent in any other way) the rule in Pinnel s Case applies and Malcolm can pursue Gary for the whole balance of what is owed. Better answers will identify all issues accurately and demonstrate knowledge of the rules of law that govern the area, as well as familiarity with relevant case law. They will provide reasoned advice to Malcolm on possible or likely legal outcomes. Page 11 of 11