COMPARATIVE CONTRACT LAW
PART II: THE LAW OF CONTRACT
(CONTINUED) - THE ENGLISH
COMMON LAW
COMPARATIVE LAW
LLM
KILAW
SPRING 2013
1
DR MYRA WILLIAMSON
OVERVIEW
This is the final slideshow on contract in the the English common law
In this slideshow we will briefly touch on a few final issues before bring this part
of comparative contract law to a close
We can’t cover the entire body of contract law but we should mention some
important points before moving on
Issues we will touch upon here include:
1.
Interpretation of contracts – general principles
2.
Implied terms
3.
Good faith
4.
Setting the contract aside
1.
2.
3.
4.
5.
Mistake
Misrepresentation
Unconscionability
Frustration and force majeure
(Duress, undue influence and lack of capacity have already been discussed
in an earlier slideshow)
1. INTERPRETATION OF CONTRACTS
GENERAL PRINCIPLES
INTERPRETATION OF
CONTRACTS I
•
How will courts interpret a contract? What approach will they
take?
•
From “Literalism” to “contextualism”
•
In the past, the courts took a “literal” approach, meaning that
they tried to find the meaning of the contract within the 4
corners of the contract
•
Some people argued this was unrealistic: courts shouldn’t
separate the contract from the context in which it was made
•
There was a change in around 1971 – courts moved from a
literalist to a contextualist approach:
•
Prenn v Simmonds [1971] 1 WLR 1381 – House of Lords said
that the contract, to be understood, had to be placed in tis
context
INTERPRETATION OF
CONTRACTS II
The principles of interpretation of contracts were clearly stated by Lord
Hoffmann in Investors Compensation Scheme v West Bromich Building
Society:
1.
Interpretation is the ascertainment of meaning which the document
would convey to a reasonable person having all the background
knowledge that would have been available to the parties
2.
This includes anything that would have affected the way in which
the language of the document would have been understood by a
reasonable man – this is sometimes called the ‘matrix of fact’
3.
The law excludes from this background the previous negotiations
of the parties
4.
The meaning is not a matter of dictionaries. Words should be given
their ‘natural and ordinary meaning’ - but the law does not require
judges to give words a meaning that the parties could not have had
INTERPRETATION OF
CONTRACTS III
The future:
There are 3 options:
1.
Return to the traditional, literalist past
2.
Continue with Lord Hoffmann’s principles (pre-contractual negotiations and
conduct subsequent to the making of the contract are inadmissible)
3.
Law should continue to evolve – courts should continue to expand the range of
materials to which they have regard when interpreting contracts
1.
Arts 5-102 Principles of European Contract Law state that when interpreting
contracts, regard shall be had to:
1.
2.
3.
4.
5.
6.
7.
The circumstances in which the contract was concluded, including the preliminary
negotiations
The conduct of the parties, even subsequent to the conclusion of the contract
The nature and purpose of the contract
The interpretation that has already been given to similar clauses
The meaning commonly given to terms in this area
Usages
Good faith and fair dealing
To read more about the Principles of European Contract Law see
http://en.wikipedia.org/wiki/Principles_of_European_Contract_Law
2. IMPLIED TERMS
IMPLIED TERMS
•
We should note that sometimes terms are implied into a contract
•
A number of important terms are in contracts not because they were
agreed upon by the parties but because the courts have implied
them into the contract
•
Sources of implied terms:
• Statute
• Custom
• Courts
Statute: e.g. the Sale of Goods Act 1979 implies some terms into
consumer contracts, mainly for the protection of consumers
Custom: where a custom is certain, reasonable and notorious
Courts also imply terms but this is a source of controversy. If it does, it
uses the justification that it is giving effect to the presumed intention of
the parties
3. GOOD FAITH
GOOD FAITH I
There is no general doctrine of ‘good faith’ in English contract law
However, the Unfair Terms in Consumer Contracts Regulations 1999
introduced a requirement of good faith in relation to consumer
contracts
When these regulations were introduced, there was excitement that
perhaps it would lead to wider recognition of the doctrine – this has so
far not happened
In this area, English law stands out from many other legal systems
Some say that the difference is one of form not substance – that just
because there is no requirement of good faith doesn’t mean that the
rules encourage parties to act in ‘bad faith
There are some signs of change in both judicial and academic attitudes
to the doctrine of good faith so English courts may recognise it in the
future
GOOD FAITH II
What is good faith?
It has its conceptual roots in the civil law legal systems
In the UK, the ‘good faith’ element in consumer contracts seeks
to promote fair and open dealing, to prevent unfair surprise;
terms should be reasonably transparent and should not operate
to defeat the reasonable expectations of the consumer
The HL has said that in consumer contracts, the doctrine of
‘good faith’ means the idea of ‘fair and open dealing’ but the
House of Lords has stated that there is no general requirement
(beyond consumer contracts) for parties to negotiate in good
faith
Although, by contracts, civil law systems recognise this
doctrine, there is no one common understanding of what it
means
GOOD FAITH III
The leading UK case is the House of Lords’ decision in Walford v Miles
[1992] 2 AC 128 where the HL held that the defendant was under no
obligation to conduct the pre-contractual negotiations in good faith
Why doesn’t English contract law recognise this requirement?
1.
It cuts against the individualist ethic of English contract law
2.
Good faith is a loose cannon in commercial contracts (there is
endless uncertainty about which morality would be applicable) –
it’s a vague idea & would introduce uncertainty
3.
It would call for difficult inquiries into a contractor’s state of mind
4.
It impinges on the autonomy of the contracting parties – its
inconsistent with the principle of ‘freedom of contract’
5.
Contracting contexts are not all alike –e.g. the commodities market
where trading is intrinsically competitive and where opportunistic
behaviour is expected
Note: even if ‘good faith’ were introduced, what would it mean? The EU
Member States have no common conception of what ‘good faith’ means
4. SETTING THE
CONTRACT ASIDE
SETTING THE CONTRACT
ASIDE
Earlier we looked at how a contract can be discharged – we
looked at breach
But there are other ways in which a contract can be brought
to an end:
1.
2.
3.
4.
Mistake
Misrepresentation
Unconscionability
Frustration and force majeure
MISTAKE
•
The law must strike a balance between the need for certainty and the
desire to protect a party who discovers he has entered into a
contract radically different in nature from the one he intended to
enter
•
The effect of a mistake may be to prevent the formation of a contract
because the parties are at cross-purposes
•
There may be a ‘common mistake’ made by both parties – e.g..
Where the mistake relates to existence or the identity of the subject
matter, then the mistake may be sufficient to set the contract aside
•
A mistake may be made when recording the agreement, rather than
when making it – in such a case the court may be able to rectify the
document
•
A party may not be able to understand the document that he has
signed – if he can show that there was a real or substantial
difference between the document he signed and the document that
he thought he was signing
MISREPRESENTATION
• When one party is induced to enter a contract as a result
of a false statement of fact made to him by the defendant
or by a third party
• To succeed the claimant must show that a
misrepresentation (an unambiguous false statement of
fact) was made to him, which induced him to enter into the
contract
• Sometimes a failure to disclose information may give rise
to a claim for misrepresentation
• A claimant who has been induced to enter a contract by a
misrepresentation is, in principle, entitled to set aside
(‘rescind’) the contract
UNCONSCIONABILITY
•
Unconscionability” is a term used in the English common law – it’s a defence to the
enforcement of a contract on the grounds that the contract contains terms that are
“unconscionable”
•
It means that the terms are grossly unfair to one party – it has to have been that way
at the time of formation of the contract (subsequent events are not usually relevant)
•
The court could decide to ‘set aside’ the contract if it finds that one party took
advantage of its superior bargaining position to obtain terms that are
unconscionable
•
If a court finds “unconscionability” it could decide to set aside just those terms or it
could set aside the whole contract – it has quite a bit of discretion
•
All common law countries have this doctrine in their case law although the exact
formulation may differ and the leading cases will be different
•
When might such a finding occur?
•
•
•
When boilerplate clauses are inserted and one party might not have read or
understood them
When one party has clearly taken advantage of the other (e.g. a bank against an
elderly couple who speak little English)
Where one party has a serious disadvantage vis-à-vis the other
FRUSTRATION AND
FORCE MAJEURE
•
A contract can be set aside under the doctrine of “frustration”
•
That is when unforeseen events render contractual obligations
impossible OR unforeseen events occur that radically change what
the parties agreed to
•
Leading UK case: Taylor v Caldwell 1893: the parties had agreed to
the lease of a music hall; after the contract had been made but
before the date of performance, the music hall burnt down; the court
held that the contract was now impossible to perform
•
Some contracts include a term to cover this – they might state that
both parties will be freed from liability if an extraordinary even
occurs that is beyond the control of the parties (e.g.. War, riot, Act of
God such as volcanic eruption, earthquake etc.)
•
The force majeure clause will not bring the contract to end
necessarily – it just suspends non-performance for the duration of
the force majeure
FORCE MAJEURE
CLAUSE - EXAMPLE
Clause 19. Force Majeure
A party is not liable for failure to perform the party's obligations if
such failure is as a result of Acts of God (including fire, flood,
earthquake, storm, hurricane or other natural disaster), war,
invasion, act of foreign enemies, hostilities (regardless of whether
war is declared), civil war, rebellion, revolution, insurrection,
military or usurped power or confiscation, terrorist activities,
nationalisation, government sanction, blockage, embargo, labor
dispute, strike, lockout or interruption or failure of electricity or
telephone service. No party is entitled to terminate this Agreement
under Clause 17 (Termination) in such circumstances.
CONCLUSION
We have spend the last few weeks discussing the general principles of contract law in
the common law legal systems, particularly in the English common law
We have looked at the elements needed to have a contract
We have looked at performance, breach and remedies
We have looked at interpretation of the contract
We have looked at ways in which a contract might be set aside
There are some other areas that we have not touched on – contract law is
understandably a huge (and hugely important) area of law
Although the rules will differ between each common law country (and the leading
cases will be different), the basic ideas and doctrines will be the same
The courts have tended to look to one another – i.e.. compare what is happening in
other common law countries – when developing the common law in their own
jurisdiction
A comparative law approach to contract law could take various approaches:
It could compare these rules within common law jurisdictions, or it could compare the
common law generally with the civil law generally, or it could compare one country
with another (egg UK and Kuwait)
We will try (at the end of this unit on comparative contract law) to compare the UK with
Kuwait