LW265 Contract Law Exam May/June 2014 Marking Scheme
Question 1
The focus of this question is on the doctrine of frustration. Candidates should explain that the
doctrine of frustration operates where, after the formation of the contract events occur, through no
fault of the parties, which makes performance of the contract impossible, illegal or radically
different from the agreed contract. Candidates may note that the doctrine is residual and may only
apply if the parties have not provided for the potentially frustrating events in e.g. force majeure
clauses.
Candidates should explain that the doctrine of frustration operates where, after the formation of the
contract events occur, through no fault of the parties, which makes performance of the contract
impossible, illegal or radically different from the agreed contract. Candidates should note the
beginnings of the doctrine in Taylor v Caldwell (1863) and discuss its growth following this and
discuss the courts’ attempts to ‘draw the line’. For example, contracts can be frustrated through
personal incapacity - Robinson v Davison (1871); Condor v Barron Knights (1966); and
government intervention/supervening illegality – Fibrosa; National Carriers Ltd v Panalpina Ltd
(1981). The furthest the doctrine grew to involved non-occurrence of an event and candidates
could contrast the decision in Krell v Henry (1903) with Herne Bay Steam Boat Co v Hutton (1903)
which could be argued clearly supports Lord Denning’s statement that it is a ‘difficult line to draw’.
Arguably Krell represents the furthest development of the doctrine. Candidates should note that
the contract is automatically terminated at the time of the frustrating event.
Those situations where the doctrine does not apply should be considered. For example, if the
parties were at fault – Maritime National Fish v Ocean Trawlers (1935); Super Servant Two (1990);
The Eugenia. Alternatively if the contract has simply become more onerous/expensive as per Lord
Denning’s statement – Tsakiroglou v Noblee Thorl (1962); Davis Contractors Ltd v Fareham UDC
(1956); Thames Valley Power Ltd v Total Gas & Power Ltd (2006). Similarly if the event was
foreseeable the contract will not be frustrated – CTI Group plc v Transclear SA (The Mary Nour)
(2008); Edwinton Commercial Corporation v Tsavliris Russ Ltd (The Sea Angel) (2007).
Candidates should consider the role of the Law Reform (Frustrated Contracts) Act 1943 in dealing
with the consequences of frustration, noting that advance payments made before the supervening
event are recoverable and that money payable before the frustrating event, but not yet paid,
ceases to be payable with the proviso that an award of expenses can be made up to a limit of the
sums paid or payable under the contract before the frustrating event. Relevant case law may be
cited – Gamerco SA v ICM/Fair Warning Ltd (1995). S1(3) may also be considered in that if a
party has obtained a valuable benefit under the contract before the supervening event, the court
may order him to pay a fair sum for it – BP Exploration Co Ltd v Hunt (1982). Better answers may
contrast this position with the previous common law situation.
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Question 2
a. Duress and undue influence both deal with the situation where the contract has been made in
unacceptable circumstances. The common law doctrine of duress assists a party who claims they
have entered into a contract as a result of threats to the person; to goods and threats to financial
interests (economic duress). Duress to person should be explained and relevant case law cited
(Barton v Armstrong; Antonio v Antonio). Candidates should then discuss the expansion of the
doctrine to assist a party who claims that they have entered into a contract as a result of threats to
goods (The Sibeon and The Sibotre). Further expansion came with the recognition of a threat to a
party’s financial interests with the doctrine of economic duress. Candidates should identify the
criteria for this doctrine to operate including an illegitimate threat/pressure that constitutes a
significant cause inducing the party to enter the contract (such as a threatened breach of contract);
a lack of reasonable alternative and the need to protest at the time or shortly after. Relevant case
law should be used – Atlas Express Ltd v Kafco Ltd; The Atlantic Baron; The Universe Sentinel;
Pao On; B & S Contracts and Designs. Better answers may link to developments in the doctrine of
consideration (Williams v Roffey) placing more emphasis on the doctrine of duress. More recent
case law may be used including Borelli v Ting; Kolmar Group AG v Traxpo Enterprises Pvt Ltd.
Consideration should be given to the issue of lawful act duress - CTN Cash and Carry Ltd v
Gallagher Ltd (1994); R v AG of England and Wales (2003). Duress makes a contract voidable
and the contract can be set aside by rescission. Candidates may consider those situations where
the law does not assist, for example, the loss of the remedy of rescission through lapse of time;
affirmation and third party rights.
b. The equitable doctrine of undue influence assists a party who has entered into a contract in
unacceptable circumstances. The doctrine applies to certain situations where improper pressure
(not sufficient to amount to duress) is put on one party to the contract. Focus is on the relationship
between the parties and the possibility of influence undermining decision-making. The focus of this
question is the husband, wife and the bank situation i.e. in surety transactions. Case law prior to
RBS v Etridge should be discussed - Actual undue influence should be considered with relevant
case law (BCCI v Aboody (1989); UCB Corporate Services v Williams (2002, post Etridge)). A
party is also assisted through presumed undue influence cases, both those where there is a
protected relationship (Bainbrigge v Brown (1881);Radliffe v Price (1902); Wright v Carter (1903);
Allcard v Skinner (1887)) and those where the relationship of trust and confidence can be
established on the facts (Lloyds Bank v Bundy; Goldsworthy v Brickell; Leeder v Stevens (2005);
National Westminster Bank v Morgan (1985); Credit Lyonnais Bank Nederland NV v Burch (1997)).
Candidates should consider in detail the RBS v Etridge ruling and whether the reformulation of the
principles applying to surety transactions has clarified the law e.g. that the transaction should be
one that calls for an explanation (though presumption can be rebutted) and the steps the bank
should take once it has been ‘put on inquiry’ including the importance of meaningful, independent
advice (& see Hammond v Osborn (2002)). Overall it would appear that Etridge has clarified the
law in these transactions as whilst the wife cannot be completely protected from undue influence
and its consequences, she will at least have received appropriate advice. The lender is entitled to
rely on the fact that the wife has been properly advised unless it is aware or ought to be aware that
this is not the case. If the advice is deficient the wife will have a claim against the solicitor but the
HL gave clear guidance as to the nature of the advice and the circumstances in which it should be
given.
(Candidates may discuss implications of undue influence - makes a contract voidable and
rescission is available if court finds undue influence. Candidates may consider those situations
where the law does not assist, for example, the loss of the remedy of rescission through lapse of
time Leaf v International Galleries (1950); affirmation Long v Lloyd (1958) and third party rights
Crystal Palace Football Club Ltd v Dowie (2000).)
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Question 3
a. This question requires a discussion of the common law and statutory controls on exemption
clauses and should evaluate any distinctions drawn by the courts & statute between businessconsumer / business-business contracts:
Common law: An exemption clause may be incorporated by signature (L’Estrange v Gracoub;
Curtis v Chemical Dry Cleaning). With other documents and notices, there needs to be reasonably
sufficient notice before or at the time of the contract (Olley v Marlborough Court Hotel (1949);
Thornton v Shoe Lane Parking (1971); Parker v SE Railway). The type of document needs
consideration (Chapleton v Barry UDC 1940); whether the clause has been incorporated through
reference (Thomson v LMS Railways); and if the clause is a particularly onerous/unsual one
(Interfoto Picture Library Ltd v Stiletto (1988)). Better candidates may discuss Denning’s obiter on
the ‘red hand rule’. A clause may also be incorporated through previous dealing (Spurling v
Bradshaw (1956) and candidates may note that the courts appear less likely to find a consistent
course of dealing where one party is a consumer (Hollier v Rambler Motors (1972). Candidates
should consider issues of construction, including the contra proferentem rule (which they may
argue tends to favour the consumer particularly in standard form contracts e.g. Houghton v
Trafalgar Insurance Co Ltd (1954); and liability for negligence (the Canada Steamship rule which
states that to exclude liability for negligence the clause would need to expressly use the word
negligence or a synonym) . Candidates should relate these incorporation issues to discuss the
controls laid down by the common law. Candidates may critique the law in relation to the rules
regarding signature and online purchases consumer-business, noting that the Electronic
Communications Act 2003 includes electronic signature and considering whether clicking on
‘Accept’ button amounts to signature, perhaps noting that the Law Commission thinks it does but
students may want to consider the fact that more likely that customer has not read the T’s and C’s
and the implications of this.
Statute: The provisions of the Unfair Contract Terms Act 1977 should be considered and
evaluated as to the level of control this gives the courts over exemption clauses in businessconsumer, business-business contracts. UCTA provisions include exclusion from liability in
negligence for death and personal injury/other loss or damage (s2); breach (s3) and sale of goods
(s6). Candidates should recognise that some clauses are automatically invalid (giving significant
control over their use); whilst others are subject to a test of reasonableness. Candidates should
discuss the differences between the two types of contracts in relation to implied terms from the
Sale of Goods Act 1979 –s6 & s7 UCTA state that as against a consumer a party cannot exclude
liability for breaches of ss13-15 SGA (fitness for purpose, satisfactory quality, correspondence with
description, sample) and as against a non-consumer only as far as satisfies the reasonableness
test. The reasonableness test requires discussion, in particular including s.11 and Schedule 2 e.g.
relative strength of the bargaining positions of the parties and relevant case law should be cited
(George Mitchell v Finney Lock Seeds). Candidates should also consider the Unfair Terms in
Consumer Contracts Regulations 1999 which they should note only apply to consumer contracts
(noting the definition of consumer in Reg 3(1) as ‘any natural person who is acting for purposes
which are outside his business, trade or profession’). Candidates may discuss the understanding
of the concept of ‘good faith’; not ‘individually negotiated’ and the fairness test and the ‘grey list’ in
Schedule 2 of terms which may be regarded as unfair.
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b. Students should briefly discuss the background to the draft Consumer Rights Bill 2013 and the
joint Law Commissions’ report e.g. that the legislation is confusing e.g. ‘deals as a consumer’
UCTA and that UCTA and UTCCR often overlap. Candidates should focus on the Bill in relation to
exemption clauses (weaker candidates may discuss the Bill as a whole e.g. enhancement of
protection in relation to digital material and services). Candidates should discuss the retention of
UTCCR main subject matter/price exemption from scrutiny (put in the spotlight following the 2009
Supreme Court decision in Office of Fair Trading v Abbey National plc where the Supreme Court
reversed the High Court and Court of Appeal decisions and found that charges for unauthorised
overdrafts fell within the Regulation 6(2) exemption and therefore could not be assessed for
fairness). They should note that the s67 of the Bill states that the price/subject matter exemption
will only apply if terms are ‘transparent and prominent’. Candidates may argue that the Bill clarifies
‘consumer’ (removing UCTA’s ‘deals as a consumer’). Better candidates may make argue that the
Bill may enhance protection for consumers in relation to negotiated terms. The current position is
that UCTA applies to all consumer contracts, negotiated or non-negotiated, whereas under UTCCR
negotiated terms are exempt, although these are narrowly defined under s5 and it is for the seller
to show that the term was individually negotiated rather than pre-formulated. S65(5) of the draft
Bill is in line with the Law Commissions’ advice and does not distinguish between negotiated and
non-negotiated terms, stating that in assessing the fairness of a term the nature of the subject
matter of the contract; the circumstances in which the term was agreed; and the other terms of the
contract or on which it depends will be taken into account. Candidates may discuss additions to
the ‘grey list’ of potentially unfair terms. Candidates should conclude by evaluating whether the Bill
is likely to enhance and clarify consumer protection in this area.
Question 4
Candidates should explain the doctrine of privity – only a party to a contract can enforce rights or
have duties enforced against him under a contract, noting that the controversial element which has
been subjected to much criticism is that a stranger to a contract cannot enforce a provision which
was intended for his benefit. Relevant case law should be used including Tweddle v Atkinson
(1861); Dunlop v Selfridge (1915). Circumventions were found – Beswick v Beswick (1968). The
rationale of the doctrine should be considered in that the law must draw a line at some point to set
the limits to the range of liability to third parties; the classical law approach to two party bargains;
and the argument that a burden of a contract should not be placed on a third party. Candidates
should discuss the common law exceptions to the doctrine – candidates may consider some of the
following: statutory exceptions; assignment of contractual rights; agency; issues regarding
exemption clauses - Scruttons Ltd v Midland Silicones Ltd (1962); New Zealand Shipping Co Ltd v
Sattherwaite (1974); enforcement of the contract for the benefit of a third party - Jackson v Horizon
Holidays Ltd (1975); Woodar Investment Development Ltd v Wimpey Construction UK Ltd (1980);
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1993); collateral contracts – Shanklin
Pier v Detel Products Ltd (1951); trusts; restrictive covenants. Candidates may take the view that
with so many exceptions the doctrine is of little relevance.
Better candidates may consider the criticisms of the doctrine (Law Revision Committee 1937; Law
Commission Report 1996; judicial criticism and the fact that English law was not in line with
European/US law) and the arguments for reform put forward by the Law Commission – intentions
of the contracting parties thwarted; injustice to the third party; even if promise can obtain a remedy
for the third party s/he may not wish to/be able to; development of non-comprehensive reforms;
complexity, artificiality and uncertainty.
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The Contracts (Rights of Third Parties) Act 1999 should be considered, noting that it fundamentally
changes the position in relation to conferring benefits, whilst not affecting the existing common law
exceptions, nor altering the rule in relation to burdens being imposed on a third party. The Act
enables a third party to enforce a term of a contract in his own right if the contract expressly
provides that s/he may or the term purports to confer a benefit on him/her. Answers may note that
this will not apply if it appears the parties did not intend the term to be enforceable by the third
party. Case law may be considered Nisshin Shipping Co v Cleaves & Co Ltd (2003). Candidates
may note the issues with regard to varying or cancelling an agreement. In conclusion candidates
should evaluate the impact of the Act and consider whether it is an improvement to the law.
Benefits may include the fact that many of the cases would now be dealt with under the Act; the
courts are able to enforce rights without strained devices; and the relatively low level of case law
may suggest the Act has brought clarity. However, criticisms by writers such as Stevens suggest
that reform was unnecessary and that the reform has not brought about clarity & better candidates
may note that the Act is often excluded in commercial contracts.
Question 5
This question relates to the topic of consideration.
Definition of consideration: Currie v Misa; Dunlop v Selfridge.
Explanation of good consideration: executed and executory consideration.
Gorgeous Gardens Ltd. v Castle Build Ltd.- This agreement involves an analysis of sufficiency
of consideration. Gorgeous Gardens Ltd. and Castle Build Ltd. have an initial contract with
consideration, the issue in this question is whether Gorgeous Gardens Ltd. can claim the additional
payment of £8,000 from Castle Build Ltd. The general rule of consideration is that although
consideration need not be adequate (Chappell v Nestle) it must be sufficient. It must have some
value in the eyes of the law, White v Bluett. Consideration is required to support a promise to alter
an existing contract. Traditionally simply performing an existing contractual duty was not
recognised a good consideration because there was no fresh benefit or detriment to support the
new alteration promise. Stilk v Myrick (1809): a claim brought by a sailor based on a captain’s
promise to share deserting sailors’ wages, failed as no consideration had been provided in
performing the existing contractual duty. However, if the promise does, or promises to do more
than his contractual duty, the court may consider that he has provided consideration, Hartley v
Ponsonby (1857). On this basis, it would seem Gorgeous Gardens Ltd. are simply performing their
existing contractual duty and so would not recover the additional payment. However, in the context
of an alteration promise to pay more, Williams v Roffey Bros & Nicholls Contractors Ltd (1990) held
that consideration would exist where there was a practical benefit to the promisor. A key issue
appears to be that there is no duress. Whilst the case has been cited in Adam Opel Gmbh v Mitra
Automotive (UK) Ltd (2008), it is not without its critics, for example, Colman J in South Caribbean
Trading v Trafalgar Beheer BV (2004).
Applying the law to the facts, it appears that there is no duress and so if the court could find a
practical benefit to the promisor, then Castle Build Ltd. would be required to pay the additional
£8,000. The practical benefit potentially being, avoiding the penalty clause and the need to find
new contractors.
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Police v New Start Trust - The issue with the police also relates to sufficiency of consideration,
however on this occasion the concern is with regard to performance of a public duty. In essence,
merely carrying out a public duty as imposed by the law is not sufficient consideration, Collins v
Godefroy (1831). However, if a party does more that s/he was already bound to do and exceeds
her/his duty, there may be sufficient consideration, Glasbrook Bros v Glamorgan CC (1925); Ward
v Byham (1956) – whereby a mother did more than her statutory duty by keeping her child ‘well
and happy’. In Harris v Sheffield United Football Club Ltd (1988) provision of officers to attend
regularly inside a club’s grounds constituted the provision of “special police services” and had to be
paid for. Note: s.25 (1) Police Act 1996 which allows claims for special police services. In this
scenario, it seems that New Start Trust would be required to pay the police.
James & Zoe v Elaine Smith-Discuss sufficiency of consideration. Consideration usually stated to
be of economic value but courts generally do not judge adequacy of consideration i.e. whether
there has been a fair bargain or exchange (Chappell v Nestle, 1960). Question here is whether
keeping the potential buyers ‘happy’ amounts to adequate consideration for the £50. Likely to be
seen as intangible and therefore unlikely to satisfy the sufficiency requirement. Discuss intention
to create legal relations. ‘Contracts’ of a social or family nature not usually enforced (Jones v
Padavatton, 1969, Balfour v Balfour, 1919). Unlikely the promise of the £50 would be enforceable.
String quartet v New Start Trust-This issue is concerned with past consideration, Roscorla v
Thomas (1842); Re McArdle; Eastwood v Kenyon. If a promise is made after an act has been
done and independent of it, it is called past consideration is not consideration in the eyes of the
law. However, an act performed before the promise can sometimes be good consideration Pao On
v Lau Yiu Long (1980). Firstly the act must be done at the promisor’s request, Lampleigh v
Braithwaite (1615); secondly the parties must have understood that the act was to be remunerated
either by a payment or the conferment of some other benefit, Re Casey’s Patents (1892); and
finally the payment must have been legally enforceable. Applying the law to the facts, the act was
done at the promisor’s request in that New Start Trust asked the string quartet to perform. The
difficult issue is whether both parties understood that the act was to be remunerated, as there is no
mention of this. It may be argued therefore that this exception does not apply and New Start Trust
would not be required to make this payment. Candidates may discuss whether the promissory
estoppel could apply here (High Trees) – suspensory, inequitable to go back on promise, reliance
(purchase of the instruments?, shield not sword (Combe v Combe) – so even if other elements
established, unlikely the string quartet could use.
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Question 6
This question requires a discussion of the law on misrepresentation. The law requires a false
statement of existing or past fact be made by a party to the contract or his agent before, or at the
time of the contract which induces the other party to enter the contract.
With regard to the statement about profit, it seems to be a false statement of fact, but as Colin has
said he is not sure about the seasonal fluctuation and that Annie should ask her accountant,
however candidates may consider that this is statement of opinion Bisset v Wilkinson 1927, .
However if the statement maker is in a better position to know the truth, the false statement may
constitute a misrepresentation Smith v Land and House Property Corp (1884), Esso Petroleum Co
Ltd v Mardon (1976))..
Whilst silence will generally not amount to misrepresentation (Turner v Green (1895)), candidates
should consider statements which become untrue (With v O’Flanagan; Spice Girls v Aprilia World
Service). Application – the statement regarding the booking of Bradley and Andrea may amount to
a misrepresentation, though candidates may discuss whether this induced Annie to enter into the
contract.
With regard to the salsa club, this is likely to be considered as a statement of opinion as the hotel
has not been used in this capacity before (Bisset v Wilkinson).
With regard to Colin’s future plans, candidates should consider that generally statements of
intention are not actionable misrepresentations, unless the statement maker never held that
intention – Edgington v Fitzmaurice (1885), Crystal Palace FC v Dowie (2007). Application – we
are not sure from the facts if Colin intended to open up a hotel nearby at the time of making the
statement to Annie so it is difficult to say whether this would amount to an actionable intention.
Candidates should discuss the term in the contract purporting to exclude any liability for
misrepresentation and note that s3 Misrepresentation Act 1967 (as amended) provides that terms
excluding liability for misrepresentation shall not be valid unless they fulfil the requirements of the
reasonableness test set out in UCTA 1977 and it would be for Colin to show that the term does
satisfy that test.
Consideration should be given to the types of misrepresentation and the remedies available.
Fraudulent misrepresentation should be defined – Derry v Peek (1889). Better answers will
explain that the measure of damages would be for all losses which can be shown to be the
consequence of the false statement – Doyle v Olby (Ironmongers) Ltd (1969); Smith and New
Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd (1996). Better answers may
include the opportunity cost in relation to the hotel in Worthington-on-sea which Annie did not
purchase (East v Maurer (1991)). Mention should be made of negligent misstatement in tort
(Hedley Byrne v Heller). The advantages of using the Misrepresentation Act 1967 should be
considered in that it reverses the burden of proof (Howard Marine v Ogden) and it seems that in an
action under the Act, damages (s2(1) will be assessed in the same way as for fraudulent
misrepresentation – Royscot Trust Ltd v Rogerson (1991).
Note that s2(2) of the
Misrepresentation Act 1967 confers a general power on the court to grant damages in lieu of
rescission in cases of non-fraudulent misrepresentation. Mention should be made of innocent
misrepresentation.
The remedy of rescission should be considered and the limits to it for example, the loss of the
remedy of rescission through lapse of time – Annie has had “Faultless Towers” for 1 year Leaf v
International Galleries (1950); affirmation Long v Lloyd (1958) and third party rights Crystal Palace
Football Club Ltd v Dowie (2000).
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Question 7
This question focuses on the doctrine of mistake. Candidates may give a general introduction on
the different categories of mistake – common (& sub-categories res sua / res extincta, quality),
mutual and unilateral, but should not spend too long on this as the focus should be on application
of the relevant law to the facts of the question.
a. common mistake – both parties make the same mistake i.e. thinking that the shoes are the
Wizard of Oz shoes. Candidates should note that to be operative (resulting in the contract being
void ab initio the mistake must be fundamental. Generally a mistake as to quality is not sufficiently
fundamental to make a contract void Bell v Lever Bros, 1932, note Lord Atkin – a mistake as to
quality ‘will not affect assent unless it is the mistake of both parties, and is as to the existence of
some quality which makes the thing without the quality essentially different from the thing as it was
believed to be’. Leaf v International Galleries, 1950 similar on the facts – still a painting of a
cathedral (application here – still a pair of red shoes). However, note obiter statement in Nicholson
and Venn v Smith-Mariott, 1947 – possibility of operative mistake on quality & note US case
Sherwood v Walker, 1887. Overall, unlikely to be void for mistake. Candidates may also mention
intention to create legal relations (Jane is an old acquaintance from university).
b. mutual mistake – parties at cross-purposes (Tamplin v James, 1879, Scriven Bros & Co v
Hindley, 1913). Courts will apply an objective test and only if not meaning can be given to the
agreement will the contract be void for mutual mistake. Raffles v Wichelhaus, 1864 relevant on the
facts. Here could the court objectively work out which ship goods to be transported on? Unlikely &
therefore likely to be void for mistake. Candidates may note no mutual mistake in equity after
Great Peace Shipping disapproved Solle v Butcher (Denning), maxim ‘equity follows the law’.
c. unilateral mistake – this part of the question requires discussion of the mistaken identity (fraud)
cases leading up to Shogun Finance Ltd v Hudson, 2003 & the effect on an innocent third party. Is
the contract void ab initio (resulting in hardship for the innocent third party) or merely voidable for
fraud (with the usual bars to rescission including third party acquiring rights. The identity /
attributes distinctions should be discussed Cundy v Lindsay, 1878, Phillips v Brooks, 1919, Ingram
v Little, 1961 (& criticisms of) and Lewis v Averay, 1973. Key question is whether the rogue
obtained good title to the car which he was able to pass on to the innocent third party before the
contract was avoided. Does Shogun v Hudson clarify the position in this scenario? Unlikely as
Shogun focused on agreements concluded in writing (not the case here). Likely position here is
that Helen intended to contract with the person in front of her and that the contract not void for
mistake but merely voidable for fraud – mistake as to creditworthiness. Candidates may note that
this is often viewed by commentators as an unsatisfactory area of the law.
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Question 8
a. A general question on the remedies available for breach of contract. Damages are the most
commonly sought remedy. The purpose of damages will be to put Nina in the position she would
have been in if the contract had been performed. Damages are generally compensatory (although
note AG v Blake). If there was no loss, only nominal damages would be given. Causation should
be discussed – County Ltd v Girozentrale Securities (1996). Better answers may consider the
measure of damages, in particular expectation loss (difference in value), also mentioning cost of
cure and consumer surplus; as well as reliance loss. Remoteness of damages requires
consideration – how far should the liability of Quikbuild extend. The test in Hadley v Baxendale
(1854) should be considered – losses arising naturally or those in the contemplation of the parties.
Relevant case law should be cited – Victoria Laundry (Windsor) Ltd v Newman Industries Ltd
(1949); The Heron II (1969); Parsons Ltd v Uttley Ingham Ltd (1978); Balfour Beattie Construction
v Scottish Power plc (1994). Better answers may consider Transfield Shipping Inc v Mercator
Shipping Inc The Achilleas (2008) – Lord Hoffman’s comments regarding assumption of
responsibility. Application – likely that the loss of normal profits may not be too remote and that
Nina can claim for the loss of profits for the cancelled weddings i.e. £5,000. Regarding the
bookings she feels sure she would have got following on from the weddings it may be that will be
not meet the second test of Hadley v Baxendale i.e. not be reasonably supposed to have been in
the contemplation of the parties as the time they made the contract, as a probable result of the
breach Victoria Laundry (Windsor) Ltd v Newman Industries Ltd (1949) . Another limit on recovery
is mitigation – the claimant must take reasonable steps to mitigate the loss: Payzu v Saunders;
Brace v Calder; Lagden v O’Connor (2003). The court would consider if Nina could have taken
reasonable steps to mitigate the loss by employing another firm to finish the building work –
unlikely in the circumstances.
Regarding the yoga break – this deals with claims for mental distress. The traditional view should
be considered – Addis v Gramophone (1909). Exceptionally it is possible to claim for mental
distress, as outlined in Watts v Morrow (1991), if an object of the contract is pleasure, relaxation,
peace of mind – Jarvis v Swan Tours Ltd (1973); Farley v Skinner (2001); Hamilton-Jones v David
& Snape (2003); or if the distress is directly related to physical inconvenience – Perry v Sidney
Phillips & Son (1982). Application – it would appear that this it may be possible to claim for mental
distress in this scenario Jarvis v Swan Tours Ltd as an object of the contract was certainly for
relaxation, Nina wants to ‘de-stress’. May be possible to claim for Bella if we view Nina as ‘host’
Jackson v Horizon Holidays (1975).
Finally the supply of the fruit and vegetables - Specific performance is an order to the defendant
to do what he has undertaken to do. It is an equitable remedy. The courts will consider whether
damages would be an adequate remedy; whether the order would require constant supervision
(Co-op Insurance Society Ltd v Argyll Stores Ltd (1997); if substantial hardship would be caused
(Patel v Ali (1984)). As this is a contract which would require supervision i.e. to ensure that “Fab N
Fresh” supplied the fruit and veg weekly, it is unlikely the court would grant specific performance.
b. This raises the issue of liquidated damages and penalty clauses. Liquidated damages clauses
involve the parties including a term in the contract as to the sum to be paid in the event of breach
(Dunlop v Selfridge). If it represents a genuine pre-estimate of the loss, it will be enforced even if
the loss is greater or smaller. A penalty clause is a sum that acts as a threat to the other party to
perform (Interfoto). Better answers will consider recent case law including Lordsvale Finance Plc v
Bank of Zambia (1996); United International Picture v Cine Bes Filmcilik; Murray v Leisureplay plc;
Azimut-Benetti SpA v Darrell Marcus Healey (2010). Application – as the liquidated damages
amount will total £2,500 it is likely that the courts will view this as liquidated damages i.e. a genuine
estimate pre-estimate of loss rather than a penalty even though the sum is much less than what
Nina now feels she has lost i.e. £5,000.
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