COMPARATIVE CONTRACT LAW PART II: THE LAW OF CONTRACT (CONTINUED) - THE ENGLISH COMMON LAW COMPARATIVE LAW LLM KILAW SPRING 2013 DR MYRA WILLIAMSON 1

OVERVIEW This is the last slideshow on the English common law We are now completing our overview of the law of contract in the common law (esp UK) After we complete this, we will take a look at one particular problem in contract law (Boilerplate clauses) then we will look at one particular area of contract law (consumer law) and finally, we will draw some comparisons We will end the Comparative Contract Law part of the course with an analysis of the similarities and differences between the common law and the civil law (generally) and between UK law and Kuwaiti law (in particular) This slideshow looks at performance, breach and remedies

PERFORMANCE

PERFORMANCE: GENERAL RULE The general rule is that performance of a contract must be precise and exact. That means: a party performing an obligation under the contract must perform that obligation exactly within the timeframe set by the contract and exactly to the standard required by the contract. 4

GENERAL RULE CONTINUED… If there is the slightest deviation from the terms of the contract, the party not in default will be entitled to say that the contract has not been performed and will be entitled to sue for damages. Authority: Re Moore [1921] 5

RE MOORE [1921] Facts: D agreed to buy from P 3000 tins of canned fruit from Australia, to be packed in cases containing 30 tins. When it arrived, much of the shipment was packed in cases containing 24 tins. D was entitled to reject the whole consignment Only if the deviation is “microscopic” will the contract be taken to have been correctly performed 6

PARTIAL PERFORMANCE Since the performance of a contractual obligation must be precise and exact, where one party’s performance is made conditional on complete and entire performance, the general rule is that the other can recover nothing for partial performance In other words, you can’t perform part of the contract and expect to be paid Authority: Cutter v Powell

PARTIAL PERFORMANCE CONT’D… CUTTER V POWELL 1795 Facts: A seaman was engaged to act as a second mate on a voyage from Jamaica to Liverpool. He was to be paid 30 guineas, almost 4 times the going rate, in a single payment upon completion of the voyage Nineteen days out from Liverpool, when voyage nearly completed, he died His widow sued to recover a portion of the agreed sum Held: complete performance of the contract was a condition of payment The seaman’s contract was seen as an entire contract so partial performance was equal to no performance 8

PARTIAL PERFORMANCE CONT’D… Because of the draconian effects of construing a contract as “entire”, the courts are reluctant to make a finding that the obligation is “entire” So, there is a doctrine called “substantial performance” which means that where the contract is substantially performed, the injured party (ie the victim of the breach) still has an obligation to pay 9

SUBSTANTIAL PERFORMANCE If the actual performance falls not far short of the required performance, and if the cost of remedying the defect is not too great, the Court will find that the contract has been substantially performed. Authority: Dakin v Lee

DAKIN V LEE 1916 Facts: D were builders; had contracted to make certain repairs to L’s premises for £1,500 They carried out a substantial part of the contract but failed to perform it in 3 unimportant respects (which could have been rectified at a cost of £80). D lost in arbitration On appeal, it was held that the contract had been substantially performed (the fact that the work was done badly did not mean that it had not been performed at all). D: was able to recover, less a reduction for the breach 11

BREACH OF CONTRACT & REMEDIES

BREACH OF CONTRACT Breach of contract is one possible outcome of entering into a contract The broader context here is the various ways in which a contract can be discharged. Let’s look at the options… A contract can be discharged in 5 ways: 1. By agreement 2. By performance 3. By breach 4. By impossibility or frustration 5. By operation of law 13

TERMS TO KNOW “Breach of contract” = a breach of legal duty; failure to do something in a contract; breaking the conditions of a contract “Discharge of contract” = Termination of the contractual relationship When a contract is “discharged” the duties and obligations of each party are released, fulfilled etc 14

DISCHARGE OF CONTRACT A contract can be discharged in 5 ways: 1. By agreement – they both agree to release each other from their obligations 2. By performance – each party fulfills their obligations so that nothing remains to be done 3. By breach – we will look mainly at this one 4. By impossibility or frustration –the contract cannot be performed any more (see pp Barker) By operation of law – statute of limitations – 6 year time limit to sue 15

BREACH OF CONTRACT – OVERVIEW If one or two parties to a contract breaks an obligation, that party then has an obligation to pay damages (see below re “Remedies”) A breach of a term means that the innocent party can regard itself as absolved or discharged from further performance of the contract A breach does not automatically terminate the innocent party’s obligation The innocent party has a choice: to treat the contract as still continuing or regard itself as discharged by reason of the repudiation of the contract by the other party “repudiation” = refusal to honour a contract 16

BREACH OF CONTRACT – OVERVIEW CONT’D… Breach of contract can happen in 3 ways: 1.A party repudiates (or renounces) his liability under the contract before performance 2. A party disables itself from performing his promise under the contract; or 3.A party fails to perform his obligations under the contract In all 3 situations, the contracting party has repudiated its contractual obligations Lets look at 1, 2 and 3 in more detail… 17

1. A PARTY REPUDIATES (OR RENOUNCES) HIS LIABILITY UNDER THE CONTRACT BEFORE PERFORMANCE What does this mean? It means that a party to the contract shows (by words or conduct) that they are not going to perform the contract If the party shows a clear intention not to perform the contract, and they do this before the time for performance has arrived, this is called anticipatory breach of contract The anticipatory breach allows the innocent party to choose to be discharged and sue at once for damages or to wait until performance and then sue Authority: Horchester v De La Tour (1853) 18

HORCHESTER V DE LA TOUR (1853) Landmark English case on anticipatory breach Facts: On 12 April, D engaged H to be a courier for a European tour to commence on 1 June But on 11 May, D informed H that he was no longer required On 22 May, H began legal action against D D argued that as the date for the tour had not arrived, H had a duty to stay ready and willing to perform the contract Held: H did not have to wait until the day when performance was due ; he could sue immediately Rule: if a contract is repudiated before the date of performance, damages may be claimed immediately. 19

1. A PARTY REPUDIATES (OR RENOUNCES) HIS LIABILITY UNDER THE CONTRACT BEFORE PERFORMANCE CONT’D… But note: if the innocent party treats the contract as still continuing, waiting until the time for performance arrives, the party in default can take advantage of any circumstances that may occur This happened in Avery v Bowden (1855) This was a case where one party repudiated before performance BUT the innocent party carried on, hoping for performance – it ended up badly for the innocent party… 20

Q. WHERE IS ODESSA? A. IN UKRAINE 21

AVERY V BOWDEN (1855) Facts: B chartered A’s ship at Odessa B agreed to load the ship with a cargo of wheat within 45 days Before the 45 days were up, B told A that he had no cargo and told A to leave the port A refused & stayed on – hoping that B would change his mind In the meantime, the Crimean war (between England and Russia) broke out so the contract became legally impossible to fulfill A sued B Held: if B’s conduct amounted to anticipatory breach, then A had chosen to keep the contract alive by keeping the ship in port waiting for cargo. The contract was kept alive until it was discharged by frustration at the outbreak of war 22

2. A PARTY DISABLES ITSELF FROM PERFORMING HIS PROMISE UNDER THE CONTRACT The rule: if, by the act or default of one party, further performance of the contract is made impossible (although that party has not actually renounced their intention to fulfil it) the innocent party will be discharged Eg – if a person promises to assign all interest in a lease to another person within 7 years, but sometime during that period he assigns it someone else, then they have disabled themselves from fulfilling their promise (Lovelock v Franklyn) 23

3. A PARTY FAILS TO PERFORM HIS OBLIGATIONS UNDER THE CONTRACT Failure of performance – of whole or of part of the contract – is the most common ground for the discharge of a party by breach There are several elements to be satisfied – we will not look at them all One condition: the term that has been broken must have been important to the contract Ie “it must go to the root of the contract” or :it must affect the very substance of the contract” 24

EFFECTS… When a contract has been discharged, it means that an innocent party is thereby released from all future obligations which still remain to be performed It also means that they do not have to accept, or pay for, any further performance by the other party 25

REMEDIES

On breach of contract, the following remedies are generally available: a) refusal of further performance b) An action for damages – we’ll look at this one c) An action on a quantum meruit* d) An action for specific performance e) An action for an injunction f) Rescission 27

DAMAGES Objective of damages = to compensate the injured party for the loss caused by the breach of contract ie. to put the injured party in the same position that they would have been in, had the contract been performed in its entirety General rule: a party can claim only for the loss suffered as a result of the breach 28

CAUSATION To establish a right to damages, the injured party must show that the breach of contract was the cause of the loss There are few rules laid down in this area The court will use its “common sense” to determine whether the breach of contract caused the loss that is being claimed 29

REMOTENESS OF DAMAGES Even if you can show causation, not all losses resulting from a breach of contract are able to be claimed - sometimes the damage is too remote “remote” = distant The general rules about remoteness were laid out in the famous case of Hadley v Baxendale (1854) 30

A CRANKSHAFT… Hadley v Baxendale (1854) 31

HADLEY V BAXENDALE (1854) Facts: A miller (Hadley) sent a broken crankshaft, by a carrier (Baxendale), to an engineer to have it copied and for a new one to be made The miller told the carrier (Baxendale) “that the article to be carried was the broken shaft of a mill and that H was the owner of the mill” The miller did not tell the carrier that in the meantime the mill would not be able to work and would stay idle The carrier delayed delivery of the crankshaft As a result the mill was idle for longer than necessary H sued B for lost profits due to the mill remaining idle 32

HADLEY V BAXENDALE (1854) CONT’D… Held: The carrier (B) was not liable for the loss of profits during the period of the delay Why not? Because he could not have foreseen the loss that would result The special circumstances (that the mill would be idle whilst the crankshaft was being copied) were not communicated to the defendant 33

DAMAGES - REMOTENESS The court in Hadley v Baxendale put forward these two principles: Generally, the plaintiff will be entitled to : 1.Such damages as may fairly and reasonably be considered as arising naturally from the breach of contract; or 2.Such damages as may reasonably be supposed to have been in the contemplation of both parties at the time when they made the contract 34

SUMMARY OF REMOTENESS There are two branches to the rule but the general principle is this: You can only recover the loss that actually results from the breach as was, at the time of the contract, reasonably foreseeable as liable to result from the breach 35

MITIGATION OF DAMAGES Rule: the party who suffers damage as a result of a breach of contract must do all they can to mitigate (which means minimise) loss eg – if rooms in a hotel are cancelled (breach of contract) the hotel must try to let the rooms to someone else 36

TYPES OF DAMAGES There are many types of damages including: General damages – money/compensation awarded by a judge – amount is at the court’s discretion Nominal damages – where a breach has occurred but no damage has resulted eg $1 to show that the plaintiff won his case Note that exemplary damages (damages which aim to punish) have no place in contract law 37

OTHER REMEDIES At common law, the most common remedy for breach of contract is damages However, on some occassions, an order for ‘specific performance’ will be made An order for ‘specific performance’ means an order from the court that the parties must do what they contracted to do This is quite rare in the common law – it is far more common in civil law systems Why? Perhaps it is because of the fundamentally different view of the contract in civil v common law systems (see this week’s reading)