INTRODUCTION

Summary of main points

1. (1) A ‘misrepresentation’ is an inaccurate statement of fact which induces the other party to enter into the contract.

2. (2) The two remedies applicable to misrepresentations are damages and the mutual dismantling of the parties' benefits received under the contract (known as ‘rescission ab initio’).

3. (3) Damages are available as of right only if (a) the misrepresentation is fraudulent (the tort of deceit, 9.12), or (b) the misrepresentation is negligent at common law (the tort of negligent misstatement, 9.15), or (c) the representor is liable under section 2(1) of the Misrepresentation Act 1967, a statutory tort (9.14). These heads of liability will be explained more fully below. For a convenient summary of the development of this topic, see Rix J's remarks in Avon Insurance plc v. Swire Fraser Ltd (2000).

4. (4) Currently, the 1967 Act's ‘tort’ is the representee's favoured source of compensation because the damages awarded are equivalent to those available under (3)(a) above, and because, once the claimant shows that the statement is false, the burden of proof rests on the representor to show he had reasonable grounds for making the statement.

5. (5) Even if the misrepresentation is not culpable in any of these ways, the court has a discretion to award damages instead of allowing the contract to be rescinded (section 2(2) of the 1967 Act, cited at 9.21). However, this discretion does not apply if the statement was fraudulent.

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INTRODUCTION

Summary of main points

1. (1) The ‘intent to create legal relations’ doctrine is additional to the doctrine of consideration (see chapter 5). Therefore, in the absence of a deed (5.03), if a person wishes to sue on a promise, he must overcome two hurdles: first, he must show that the promise was made in circumstances satisfying the notion of a bargain (the element of ‘consideration’). Secondly, he must show that the promise was made and received in circumstances consistent with an ‘intent to create legal relations’.

2. (2) In the commercial sphere, there is a strong presumption that such an ‘intent’ goes without saying: there is, in other words, a strong presumption that a commercial agreement is intended to create legal relations, although this can be rebutted explicitly or, perhaps, if the context indicates that the parties did not in fact intend to create legally enforceable rights. In particular, parties to a commercial agreement can explicitly exclude legal relations, notably by use of the formula ‘subject to contract’ (6.06).

3. (3) But even a commercial arrangement will be presumed to give rise to a contract only if there is a clear commitment, an ‘apparent promise’. A ‘letter of comfort’ (that is, a parent company's vague indication of its current policy to satisfy its subsidiary's debts) does not disclose such a promise; nor will an open-ended and non-committal pattern of dealings between merchants disclose a hard-edged commitment to maintain legal relations.

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INTRODUCTION

Summary of main points

1. (1) The long-standing illegality doctrine (the defence known as ex turpi causa non actio oritur: 20.03) has been applied to prevent a wrongdoer or wholly unmeritorious party from obtaining relief in the civil law. The courts (with the Law Commission's encouragement) have moved away from a mechanistic approach to this doctrine (for example, Gray v. Thames Trains Ltd (2009) and the Stone & Rolls case (2009)). They now consider whether denial of civil relief will be consistent with the policy underlying the relevant head of illegality or public policy (20.02 to 20.05).

2. (2) Agreements are illegal, and hence unenforceable, if they involve an undertaking to commit a crime. An agreement is also illegal if the parties jointly and deliberately undertake to commit a legal wrong, such as a tort or breach of trust (20.06).

3. (3) Prima facie, if statute (a) expressly or (b) by ‘necessary implication’ prohibits a transaction, neither party can enforce it, not even a party who is unaware of the relevant prohibition (Re Mahmoud and Ispahani (1921): 20.07). However, as for (a), a party intended to be protected by the statutory invalidity might be able to sue on the transaction (Nash v. Halifax Building Society (1979): 20.08); and, as for (b), in the absence of an express prohibition, the court will be reluctant to find an implied prohibition of a type of transaction if contractual invalidity within that context will operate harshly on a category of innocent parties (Hughes v. Asset Managers plc (1995): 20.08). Nor will the court find an implied prohibition of a type of transaction if the contract does not directly fall within the scope of the relevant statutory prohibition (St John Shipping Corporation v. Joseph Rank Ltd (1957): 20.09).

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This list does not include jurists who have not yet retired from their judicial or academic posts.

Lord Ackner

Desmond Ackner, 1920–2006. His father was a Jewish dentist from Vienna who settled in London. Desmond Ackner attended Highgate School and Clare College, Cambridge (where he later became an Honorary Fellow). Bencher of the Middle Temple. He began with Economics at Clare, but changed to Law. Called to the Bar in 1945, becoming a QC in 1961, he became a celebrated and successful advocate in the 1960s in several fields (described by Sir Michael Kerr, As Far as I Remember (2002), 320–1, as an ‘all-rounder’) (Lord Ackner, even in his eighties, was still an impressive after-dinner speaker). Appointed a High Court judge, 1971; sat in the Commercial Court from 1973; Court of Appeal, 1980; House of Lords, 1986. His judgment on reliance loss in C & P Haulage v. Middleton (1983, CA) (18.26) is important (coincidentally, Sir Michael Hutchison, also an alumnus of Clare College, refined this doctrine in CCC Films v. Impact Quadrant Ltd (1985): burden of proof in this context: 18.26). But Lord Ackner's most important contribution is Walford v. Miles (1992), where he gave the leading speech (‘lock out’ agreements valid, if fixed in time; and invalidity of an agreement to bargain in good faith: 2.07 to 2.10). His daughter, Claudia Ackner, is (as was her father) a judge and a Bencher of the Middle Temple.

INTRODUCTION

Summary of main points

1. (1) At common law (that is, under the judicial law established prior to the change introduced by the Contracts (Rights of Third Parties) Act 1999) (see the summary at (3) below), a third party cannot enforce a contract intended by the parties to be for her benefit. And so at common law, a non-party, T, cannot sue A directly if A promises B that A will pay £1,000 to T, in return for a counter-promise by B to do something. It is different if B assigns this debt to Z, because Z can then sue A. But assignment can only occur after the formation of the contract between A and B. Assignment is examined in chapter 8.

2. (2) The Law Commission successfully recommended a legislative system of third party rights: the Contracts (Rights of Third Parties) Act 1999.

3. (3) The 1999 Act enables a third party to acquire a direct right of action (or the right to benefit from an exclusion clause) either by explicit language (A and B state clearly that ‘T can sue A directly’) or by implication (A and B agree that A will ‘confer a benefit’ on T, for example, that A will pay a sum to T); this will normally entitle T to sue A for this amount, even though the right of action was not spelt out; but A might succeed in countering this inference.

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INTRODUCTION

Summary of main points

1. (1) The holder of certain contractual rights (the promisee and assignor, B) can transfer the right to a third party (the assignee, C) without the promisor's (A's) consent. Thus, where A owes B a debt or other chose in action, the right-holder, B, can assign the benefit of this right to C.

2. (2) In the case of a statutory assignment, the assignment by B to C must be in writing, and B or C must notify A of the assignment.

3. (3) Such notice is also desirable in the case of equitable assignments.

4. (4) Certain rights are intrinsically incapable of being assigned because they are personal to the A/B relationship.

5. (5) A can preclude an assignment by inserting a prohibitory clause in his contract with B.

M. Smith, The Law of Assignment (Oxford, 2007)

EFFECTS OF ASSIGNMENT

Assignment has four effects (here, A is the promisor, B is the promisee, and C is the assignee):

1. (1) A, once notified, is obliged to pay C.

2. (2) To enforce the obligation created by the assignment in C's favour, C can sue A directly, without joining B as a party to the claim. This is true of statutory assignment (8.04) and of equitable assignment (8.05) of equitable choses in action. In the case of equitable assignment of a legal chose in action, such as a debt, the assignee must join the assignor as party to the claim (although there might be exceptions, where such joinder becomes unnecessary or it has been waived).

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INTRODUCTION

This chapter concerns remedies awarded by the court (on application by an aggrieved party) for breach of contract. The next chapter will concern agreed remedies: payments of liquidated damages for breach, and forfeiture of deposits.

The array of remedies for breach. The five main judicial remedies for breach of contract are as follows:

1. (1) The action for debt. This is in practice the most common remedy of all. Michael Zander notes that county court debt actions increased during the period 2004–7 to the 2 million level, having been approximately 1.8 million during the years 1999–2003. As for contract doctrine, the main controversy (18.05 ff) arising from debt claims concerns whether a party who has yet to complete performance can legitimately fulfil that task and earn the right to sue the other party for the agreed sum, even though the latter had earlier attempted to call off the job (an unaccepted repudiation, also known as an attempted anticipatory breach).

2. (2) Damages. This is the common law claim for compensation; most textbooks devote most attention to this technically complex remedy. The main aim of compensatory damages is to place the promisee in the position he would have been in if the contract had been properly performed, the so-called ‘expectation’ or ‘loss of bargain’ measure (18.25). A subsidiary type of damages is to restore the claimant monetarily to the position he enjoyed before the contract was breached, the so-called ‘reliance loss’ measure (18.25, 18.26). Common to both of these measures of damages are the requirements that the loss should be:

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CLASSIFICATION OF TERMS: A GUIDE TO DISCUSSION IN OTHER PARTS OF THIS WORK

Summary of main points

The main types of contractual terms are summarised in the next paragraph, and that summary will enable cross-references to be made to discussion elsewhere in this book. The remainder of this chapter (12.03 ff below) will then be devoted to various ‘ancillary clauses’ commonly used in commercial documents.

Terms in general

A. Burrows and E. Peel (eds.), Contract Terms (Oxford, 2007)

K. Wedderburn, ‘Collateral Contracts’ [1959] CLJ 58

See also chapter 13 on implied terms; and chapter 15 on exclusion clauses.

Specific clauses

N. Andrews, Contracts and English Dispute Resolution (Tokyo, 2010), chapters 21 and 22, for a succinct introduction to arbitration and mediation (including clauses providing for these forms of dispute resolution)

K. P. Berger, ‘Law and Practice of Escalation Clauses’ (2006) 22 Arbitration International 1–17

A. Briggs, Agreements on Jurisdiction and Choice of Law (Oxford, 2008)

L. Gulliver, ‘Retention of Title Clauses: A Question of Balance’, in A. Burrows and E. Peel (eds.), Contract Terms (Oxford, 2007), chapter 14

D. Joseph, Jurisdiction and Arbitration Agreements and Their Enforcement (London, 2005)

S. Nesbitt and H. Quinlan, ‘The Status and Operation of Unilateral or Optional Arbitration Clauses’ (2006) 22 Arbitration International 133

INTRODUCTION

Summary of main points

1. (1) The parties can agree upon ‘liquidated damages’, that is, an amount of compensation payable in the event of breach of the contract, or one of its terms; or they can agree that a sum should be paid in advance as a deposit to induce a party to perform (see (7) below). These are the two main topics discussed in this chapter.

2. (2) The ‘penalty doctrine’ invalidates a liquidated damages clause which stipulates that the party in breach shall pay a sum that is ‘extravagant and unconscionable’ in comparison with the greatest loss that could be contemplated at the time the contract was formed as likely to be suffered by breach of the relevant substantive term.

3. (3) But the penalty doctrine only applies to sums payable upon breach and not where the sum is payable in other circumstances.

4. (4) The courts have recently adopted the criterion whether a clause was intended to deter the other party from breaching the contract; but it will be submitted that this test is unnecessary and unhelpful; the better test is that stated at (2) above, the substantive criterion of an ‘extravagant and unconscionable’ mismatch between the amount stipulated as payable upon breach and the greatest loss which might be contemplated at the time the contract was formed.

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