CONTRACT LAW - ENGLISH LAW PERSPECTIVE Sung-Hwan Choi, Of Counsel Norton Rose Fulbright (Asia) LLP, Singapore

CONTENTS Formation of a Contract Promissory Estoppel Rights of Third Parties Terms, Warranties and Innominate Terms Misrepresentation Discharge of Contract Remedies for Breach of Contract

Formation of a Contract Offer Acceptance Consideration Certainty of terms Intention to Create Legal Relations

Formation: Offer Treitel in The Law of Contract “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed” Contrast with an “invitation to treat” (ie not an offer) one party may indicate that they would like the other party to make an offer See Fisher v Bell [1961] 1 QB 394

Formation: Acceptance Offer must be accepted to constitute an agreement 2 requirements: the assent must coincide exactly with the terms of the offer and the assent must be communicated

Certainty of Terms Terms of a contract must be certain to be legally enforceable Scammell v Ouston [1941] 1 All ER 14 "In order to constitute a valid contract, the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that, unless this can be done, it will be impossible to hold that the contracting parties had the same intention."

Formation: Intention to Create Legal Relations English law, in order that an agreement is legally binding between the parties, there must be an intention to be legally bound. Difference between domestic and commercial agreements: Balfour v Balfour – presumption that there is no intention to be legally bound Commercial – presumption that there is intention to be legally bound, unless agreement expressly provides otherwise

Formation: Consideration Traditional view in Currie v Misa (1875) LR 10 Exch 153 “A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other” Ie – the price paid for the right to enforce the contractual obligation

Formation: Consideration Consideration need not be adequate, but must be sufficient Nestle v Chappell Past consideration Ie consideration that each party gives to each other must be contemporaneous Roscorla v Thomas Consideration must move from the promisee Ie consideration must not be provided from a 3rd party  but note the Contracts (Rights of Third Parties) Act 1999

Rights of 3rd Parties Generally - rule of “privity of contract” under which a person can only enforce a contract if he is a party to it The position is modified by Contracts (Rights of Third Parties) Act 1999

Rights of 3rd Parties Section 1(1): Subject to the provisions of this Act, a person who is not a party to a contact (a “third party”) may in his own right enforce a term of the contract if- (a) the contract expressly provides that he may; or (b) subject to subsection (2) below, the term purports to confer a benefit on him. Section1(2): Subsection 1(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party

Promissory Estoppel Equitable doctrine Lord Denning in Combe v Combe "where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported by consideration".

Terms of a Contract 3 types of terms: Conditions, Warranties and Innominate Terms Vary in terms of how important the terms are and the remedies arising from breach of such terms

Terms: Conditions vs Warranties If a condition is breached, the remedies are (i) damages for any loss suffered and (ii) the injured party may end its obligations under the contract If a warranty is breached, the only remedy is damages for any loss suffered See Wickman Machine Tool Sales Ltd. v L. Schuler A.G.

Terms: Innominate Terms Somewhere in between conditions and warranties  remedy available for breach of innominate terms depends on seriousness of the breach Generally: If breach is serious, the injured party may treat their obligations under the contract as at an end and may claim damages If breach is minor, the injured party may only claim damages See Hong Kong Fir Shipping v Kawasaki Kisen Kaisha

Exemption Clauses and Unfair Terms in Consumer Contracts Exemption clauses take two main forms: Exclusion clauses, which seek to absolve a party for some or all liability arising from breach of a contract See Houghton v Trafalgar Insurance Limitation clauses, which accept liability for a breach, but then limit the amount of damages payable to a certain sum.

Misrepresentation Definition: Misrepresentation consists of a false statement of fact made by one party to the other, before or at the time of making the contract, which is one of the causes which induces the contract Misrepresentation may be fraudulent, negligent or innocent

Misrepresentation Governed by the Misrepresentation Act 1967 Remedies: Rescission – equitable remedy and subject to the usual equitable bars Damages – s 2(2) Misrepresentation Act 1967, the court has the discretion to award damages in lieu of rescission (usually if rescission will cause undue hardship)

Misrepresentation Overview Fraudulent Rescission Damages Negligent misrepresentation under statute Negligent misrepresentation at common law Innocent Damages – discretionary under s2(2) Misrepresentation Act 1967.

Discharge of Contract Where a contract is fully discharged, the parties will be freed of their obligations 4 ways to discharge a contract: Performance – Both parties completely perform their obligations under the contract Agreement – Both parties agree to treat the contract as discharged Breach Frustration

Discharge: Breach Generally, all types of breaches would entitle the injured party to sue for damages But only 2 types of breaches would permit the discharge of a contract: Repudiation of the contract Breach is of a major/fundamental nature

Breach: Repudiation Express or implied, arising from words or conduct which indicate that one party is not going to perform the obligations under the contract If repudiation takes place before the date due for performance of the contract, it is an anticipatory breach  NB that the victim of an anticipatory breach may wait for the due date for performance, and then sue if no performance is forthcoming OR the victim may sue at once, treating the contract as discharged by the anticipatory breach (see Hochster v De la Tour)

Breach: Major/fundamental nature As a general rule, where one of the parties is in breach of a major term of the contract (a condition), or in breach of an innominate term where the effects are serious, the innocent party can treat such behaviour as entitling him to treat himself as discharged from the contract

Discharge: Effect of Breach If injured party has the right to treat the contract as discharged, he has 2 options, either: Elect to affirm the contract (keeping the contract alive) Accept the breach and consider himself discharged  operates prospectively and not retrospectively

Discharge: Frustration Note “force majeure” clauses  if none is present in the contract, courts will consider the rules of frustration (ie rules of subsequent impossibility) Some examples: Denny, Mott & Dickinson v James Fraser – supervening illegality Robinson v Davison – illness Limitation: A mere bad bargain/economic hardship is not frustration (see Davis Contractors v Fareham UDC) Effect of Frustration: brings contract to an end

Discharge: Frustration Also note Law Reform (Frustrated Contracts) Act 1943 Section 1 (2) provides that all sums paid shall be recoverable, and all sums due cease to be due. Section 1 (3) provides that where any party has obtained a valuable benefit, by reason of anything done by the other party in or for the performance of the contract, the court has a discretion to award a sum which is just in all the circumstances of the case, not exceeding the value of the valuable benefit.

Remedies for Breach of Contract Damages Equitable remedies such as an order of specific performance or an injunction

Remedies: Damages General basis for calculation: to put the innocent party in the position he would have been in had the contract been performed Damages will usually be assessed as at the time of the breach. To recover damages for a loss, not only must the breach cause the loss, but the loss must not be too REMOTE Hadley v Baxendale Qualification to recovery of damages: Injured party must take reasonable steps to mitigate the loss

Remedies: Equity Specific performance Injunction Beswick v Beswick - specific performance would only be awarded where damages were not a ‘just or appropriate’ remedy Injunction Remedy enables a court to prevent a party to a contract committing a breach of that contract

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