LW 56-806-01 (21) C.P.E. (POST-GRADUATE DIPLOMA IN ENGLISH & HONG KONG LAW) !

EAR I" (2002#0$)

C%&'()*' T+'%(,)- .+/0',%&0

1. Alan Pitchpond is a landscape gardener with his own TV series. He has recently invented a self-propelling lawnmower. It cuts grass and disposes of the cuttings automatically. At this stage, there is only one machine in existence and harlie Hammoc!, the winner of the "ardener of the #ear $%%% competition, is !een to ac&uire it in his effort to retain the title. harlie's main rival (asil )lowers is also !een to o*tain the lawnmower to help him win his first "ardener of the #ear title. +n ,onday, Alan places an advertisement in the "arden "a-ette./+riginal model, self propelling lawnmower, one only 01,%%% or nearest offer2. 3ater that day, harlie telephones Alan and says. /the lawnmower for sale, I'll ta!e it for 04,1%%2. Alan replies /I cannot accept less than 05,%%%, *ut I am an admirer of your wor!, so I will not sell it to anyone else *efore 6aturday. 3et me !now if you want it2. harlie is delighted to hear that Alan is a fan of his wor! and says /that is !ind of you, I will send you a copy of my new *oo! 7 reating Pri-e 8inning "ardens'.2 +n 8ednesday, harlie telephones Alan and leaves a message on his answering machine saying /I accept your offer2. 9nfortunately, the answering machine does not have a tape in it and the message is not recorded. 3ater that day, Alan sells the lawnmower to (asil )lowers for 05:1%. +n Thursday, harlie is at the "reendale "arden show and he meets (asil's wife, ;osemary, who tells him that (asil is very excited at having ac&uired the only selfpropelling lawnmower in existence. As soon as he gets home, he posts a letter to Alan confirming the message he had left on the answering machine. +n the same day, Alan writes to harlie withdrawing the offer. <a= <*= Advise harlie 8ould your advice differ in any way if harlie had e-mailed the confirmation of the answering machine message rather than posting a letter>

1.

OUTLINE ANSWER O11ER )&2 ACCEPTANCE

<a=

This &uestion is concerned with whether there is an agreement with Alan to purchase the lawnmower. In deciding this, the courts will normally apply an o*?ective @

approach GI3SON 4 MANCHESTER CIT! COUNCIL and the technical rules of offer and acceptance will *e applied. To achieve a good answer, it is *est to adopt a chronological approach to the factsfirst find the offer and then the acceptance. It may *e that the facts will not *e clear cut, so it is &uite legitimate to say 7if this statement is an offer, the following conse&uences flowA. (ut if it is an invitation to treat, then the following conse&uences will followA. The advertisement in the newspaper Is this statement an offer or an invitation to treat> +n the facts, it is li!ely that this will *e interpreted as an invitation to treat for the following reasons. <@= The courts normally regard an advertisement as an invitation to treat on the grounds that if the advertisement is an offer, and li!e here, the advertiser has only one item to sell, this would mean that if a num*er of people respond accepting the offer, the advertiser is going to *e in *reach to all *ut one of them as he has only one item for sale. Therefore, to avoid this conclusion, and also to give the owner discretion as to which party he is going to sell to the court will normally infer the intention of the advertisement is to invite people to ma!e offers to *uy B hence, the advertisement is an invitation to treat. PARTRIDGE 4 CRITTENDEN The fact that the advertisement says 01%%% or nearest offer again o*?ectively indicates ,i!e's intention that he wants mem*ers of the pu*lic to respond *y ma!ing offers to him. The facts are therefore different from CARLILL 4 CAR3LIC SMOKE 3ALL COMPAN! where on the facts of the case, the wording of the advertisement was an offer.

<$=

harlie telephones Alan This seems to *e an offer. An offer exists when it is clear that one party regards negotiations as at an end and intends o*?ectively to commit himself to an agreement. This is the case here. harlie does not wish to negotiate further *ut is ma!ing it clear that he wants to enter an agreement to purchase the lawnmower for 041%%. Thus it is an offer. Alan's reply Alan's reply is not an acceptance. He is introducing a new condition that the price should *e 05%%%. It is therefore li!ely to *e construed as a counter offer as ,& H!DE 4 WRENCH. This has the legal effect of destroying the original offer. If this is the case, then all that legally exists is Alan's offer to sell the lawnmower to harlie for 05%%%. It could *e argued that all Alan is doing is supplying information to harlie i.e. if he decides to sell, then he will not ta!e less than 05%%%. STE5ENSON 4 M*CLEAN. $

However, 7let me have a reply *y 6aturday' suggests that it is more li!ely to *e an offer. Alan's statement Is the promise to !eep the offer open until 6aturday legally *inding on Alan> B no this is not *inding on the offeror unless the offeree has provided consideration for it. ROUTLEDGE 4 GRANT. The fact the harlie states that he will let Alan have a copy of his *oo! is not consideration. The suggestion comes after Alan's promise and therefore, it seems to *e past consideration ROSCORLA 4 THOMAS. The exception to the past consideration rule does not apply, as there is no suggestion that when Alan made the promise, he expected to *e paid RE CASE!60 PATENTS harlie's telephone call harlie appears to *e attempting to accept Alan's offer at 05%%%. However, to *e a valid acceptance it must *e communicated to the offeror ENTORES 4 MILES 1AR EAST CORPORATION. This is not the case here. There is a possi*le exception if the offeror has not learned of the acceptance through his own default see 3RINKI3ON and on the facts, perhaps some *lame can *e attri*uted to Alan for failing to ensure that the machine had a tape in it. Alan sells to (asil for 05:1% learly this means there is a contract *etween Alan and (asil. However, the fact that Alan has sold to (asil does not destroy the offer to harlie. The revocation must *e communicated to the offeree in order to *e effective. 3!RNE 4 5AN TIENHO5EN harlie's meeting with ;osemary Coes this destroy the offer to harlie> It is sufficient if the offeree learns of the revocation of the offer from a relia*le source DICKINSON 4 DODDS. If it should have *een clear to harlie that ;osemary was tal!ing a*out the lawnmower that harlie wanted to *uy, then he now !nows that Alan no longer wants to sell it to him and he cannot accept. This means that there is no contract *etween Alan and harlie. harlie posts the letter to Alan harlie attempts to accept *y post. As we have seen, he cannot do this if he !nows that the lawnmower has *een sold elsewhere. It appears that he does !now, *y his haste in rushing home to write the letter. However, if he does not !now, then he can invo!e the postal rule which states that acceptance ta!es place when the letter is validly posted even if not received ADAMS 4 LINDSELL. If this is the case, then Alan's letter of revocation only ta!es effect when received and this is too late to revo!e the offer 3!RNE 4 5AN TIENHO5EN The postal rule does not apply where it is made clear that the letter of acceptance must actually *e received *efore there is a contract HOLWELL SECURITIES 4 HUGHES or where it would *e unreasona*le to reply *y post B .UENERDUANE 4 COLE B do any of these restrictions apply here> It would not *e reasona*le to reply

*y post if the letter is posted at a time when there is no chance of it meeting the 6aturday deadline. If harlie has an email address or fax num*er for Alan, would it have *een *etter to use these methods> Also, is Alan's statement let me have a reply *y 6aturday similar to the case of HOLWELL SECURITES 4 HUGHES in that it as!s for notice in writing> In that case, the offeror was ma!ing it clear that he must actually receive the reply *efore the contract existed. If the postal rule does not apply, then there is no contract *ecause harlie learns of Alan's revocation *efore Alan learns of harlie's acceptance. +D 396I+D +n the facts, there seems to *e an offer *y Alan to sell the lawnmower for 05%%%. If harlie reads Alan's letter of revocation, there can only *e a contract if harlie has accepted *efore then. The only time this can have occurred is on Thursday when harlie posted his letter of acceptance. If the postal rule applies, acceptance would ta!e place as soon as the letter is posted. There are two points to ma!e in relation to this. <@= If harlie !new that the offer had *een withdrawn after his meeting with ;osemary, then it would *e too late for him to accept when he posted the letter. DICKINSON 4 DODDS Coes the postal rule apply> +r *y as!ing for a reply *y 6aturday, is Alan indicating that there is to *e no contract until he has received a reply, thus excluding the postal rule. HOLWELL SECURITIES 4 HUGHES

<$=

(7)

if harlie had emailed the information instead of posting it to Alan, it is suggested that the position would *e the same as for telex. This would mean that the acceptance would *e effective when it was received *y the offeror <3RINKI3ON 4 STAHAG STAHOL=. This view was accepted in HONG KONG SUSANTO-WING SUN 4 !UNG CHI HARDWARE.

LW 56-806-01 (21) C.P.E. (POST-GRADUATE DIPLOMA IN ENGLISH & HONG KONG LAW) !EAR I" (2002#0$)

C%&'()*' T+'%(,)- .+/0',%&0

$.<a= Eli-a*eth, a successful artist, contracts with Tony, a *uilder, to construct an extension to her house. Eli-a*eth proposes to use the extension as a studio for her wor!. It is agreed that the wor! will *e completed *y ,ay $%%% and that the price will *e 0@$,%%%. (oth parties realise that this figure is slightly *elow the true commercial rate for the ?o* and this is to reflect the fact that Eli-a*eth is an old family friend of Tony's and she has painted portraits of Tony's family free of charge in the past. The electrical wor! in the extension is to *e completed *y Fohn who has a separate contract with Eli-a*eth. Tony commences *uilding the foundations for the extension and discovers that the ground is especially hard due to the presence of a layer of roc!. This will involve the hire of extra digging e&uipment and means the ?o* will ta!e longer than anticipated. Tony contracts Eli-a*eth to explain the situation and, as she has arranged to hold an exhi*ition of art in the studio in Fune $%%%, she is anxious to have the *uilding wor! completed on time. onse&uently, she agrees to pay Tony an extra 04,%%% to finish on time. Additionally, Fohn, the electrician, promises Tony an extra 01%% if he will finish on time *ecause Fohn needs to finish wor! for Eli-a*eth in ,ay as he is due to go on a G month holiday to Australia in Fune. Tony completes the wor! on time *ut Eli-a*eth will only pay the original 0@$,%%% and Fohn will not pay the 01%%. Advise Tony. <*= ,ilo, the owner of "reendale Post +ffice is anxious a*out the decline of the small rural post office and decides to expand his *usiness *y *uilding a gift shop and tea room to attract tourists. He *orrows 01%,%%% from "oggins (an! to ma!e the improvements. The money is to *e repaid at 0@%,%%% per year over five years plus interest at the (an!'s varia*le rate. The improvements go well and the tea room and gift shop are operating successfully. ,ilo repays the first instalment of the loan. However, ,ilo then *ecomes ill and the tea room and the gift shop are closed for prolonged periods. This downturn in *usiness means that ,ilo is una*le to pay the next loan instalment when it falls due. ,ilo's difficulties are so great that it is possi*le that his *usiness may have to close completely. He advises "oggins (an! of this and the (an! agrees to postpone the payment of the next 0@%,%%% for one year and to relin&uish their claim to interest on that payment.

However, G months later, the financial security of "oggins (an! is threatened when one of their Cirectors is involved in a ma?or fraud scandal and the (an! advises ,ilo that he must pay the missed payment of 0@%,%%% at once together with interest. Advise ,ilo.

2.

O+'-,&/ A&08/( CONSIDERATION

())

The central issue here is sufficiency of consideration in relation to the performance of existing contractual duties. 8e are as!ed to advise Tony as to whether he can enforce promises made to him *y Eli-a*eth and Fohn to ma!e payments of money. This involves a discussion of consideration - define consideration and then examine the individual agreements. Tony and Eli-a*eth The agreement to do the wor! for 0@$,%%% is an enforcea*le agreementH consideration is executory on *oth sides. The fact that the agreed price is *elow the commercial rate is irrelevant for two reasons. <@= onsideration need not *e ade&uate happell v Destle <$= The portraits of Tony's family could only amount to past consideration B ;e ,cArdle and this would not *e sufficient. There is no suggestion that the exceptions would *e relevant here. 8ith regard to the further agreement to pay 04%%% extra in return for Tony's promise to complete the wor! on time, is there consideration to support this promise> If Tony is only doing what he is contractually *ound to do, then the consideration may *e said to *e insufficient STILK 4 M!RICK. HARTLE! 4 PONSON3! pro*a*ly would not apply here despite Tony's difficulties with the hard ground. If STILK 4 M!RICI applies, then Tony would not *e a*le to recover the extra payment. However, the case of WILLIAMS 4 RO11E! must *e examined. If Eli-a*eth has promised a further sum in order that the contract may *e performed on time and she o*tains a practical *enefit as a result of giving the promise, then the performance of the existing contractual duties on Tony's part may amount to sufficient consideration. This would *e su*?ect to the re&uirement that the promise was not given as a result of economic duress or fraud. In this scenario, Eli-a*eth does o*tain a practical *enefit in that she has her studio finished in time for the exhi*ition. an this *e reconciled with STILK 4 M!RICK> - The outcome of that case was ?ustified on the *asis that parties to a contract should not *e permitted to threaten *reach in order to secure an extra payment. +*taining payments in this way is now addressed *y the concept of economic duress and the courts appear more willing to uphold a genuine commercial renegotiation as long as economic duress is a*sent.

The answer should explain the nature of economic duress and in particular address whether any illegitimate pressure was applied to Eli-a*eth and if so, did she have any reasona*le practical alternative *ut to agree> ATLAS E9PRESS 4 KA1CO Here it does not appear that Tony exerted any improper pressure upon Eli-a*eth to induce her to ma!e the new promise. Thus, the promise of Eli-a*eth may *e enforcea*le *y Tony. Tony v Fohn. Fohn promised to pay 01%% to Tony. Is there consideration provided *y Tony doing what he was *ound to do in his contract with Eli-a*eth <a third party as far as Fohn is concerned=> The cases suggest that this is sufficient consideration PAO ON 4 LAU !UI LONG: THE EUR!MEDON. It is not li!ely that this would *e an agreement which the law would hesitate to enforce and Fohn does *enefit. It is li!ely that the promise to pay Tony 01%% will *e enforcea*le. (7) The original contract is for the 01%,%%% to *e repaid at 0@%,%%% over 1 years plus interest. The (an! then promises to postpone the payment of the next 0@%,%%% for one year and to give up the interest on this sum. 6ix months later it now wishes to go *ac! on this promise. an the (an! do so> ,ilo should *e advised that the rules concerning offer, acceptance and consideration should *e complied with in relation to a variation of an existing contract in much the same way as for esta*lishing a contract in the first place. The first &uestion here is whether ,ilo provides consideration for the (an!'s promise to defer payment of 0@%,%%% and give up their right to interest. Applying the rule in Pinnel's case the answer is clearly 2no2. This decision which was approved of *y the House of 3ords in 1OAKES 4 3EER esta*lishes that it is not good consideration in return for the discharge of a de*t to agree to pay part of the de*t. The facts here are similar to 1OAKES 4 3EER agreeing to pay 0@%,%%% less interest is not good consideration when the greater sum of 0@%,%%% ;-+0 interest is owed. In the a*sence of ,ilo agreeing to do something different from what was contracted for such as paying a lesser sum at an earlier date there is no consideration as in doing less than he had contracted to do ,ilo is not suffering any detriment. ould WILLIAMS 4 RO11E! 3ROS *e applied to this decision> Applying the rule in that case a promise to perform an existing duty <or in this case lesser duty= can *e consideration if there is a *enefit to the promisor even if no detriment is suffered *y the promisee. It could *e argued here whilst ,ilo suffers no detriment in paying less than he should "oggins (an! receive a *enefit B the certainty of receiving their money when if they had pressed for their strict contractual rights ,ilo might have *ecome *an!rupt and they would have received nothing. This argument seems very logical 3UT is it not the law. In ;e SELECTMO5E the ourt of Appeal agreed with the logic of the argument *ut reluctantly could not apply WILLIAMS 4 RO11E! 3ROS as it was a ourt of Appeal case involving paying

more for the provision of services and the rule that part payment of a de*t is not good consideration was decided in a House of 3ords case 1OAKES 4 3EER. 9nder the system of precedent the ourt of Appeal in WILLIAMS 4 RO11E! 3ROS had no choice *ut to follow the House of 3ords decision. Alternatively could ,ilo raise the principle of promissory estoppel as a defence> ould ,ilo argue applying the decision in the HIGH TREES case that "oggins made a promise to him it would not insist on its strict contractual rights and it is therefore estopped from going *ac! on this promise. There are two difficulties for ,ilo to overcome. <@= Is it e&uita*le for the *an! to go *ac! on its promise> ,ilo would argue no. 9nli!e D & C 3UILDERS 4 REES he put no great pressure on the (an! to accept the lesser sum. He merely told them he had a financial pro*lem and the (an!, who at the time were under no financial pressure <compare the ;ees case=, voluntarily agreed to delay payment and waive their right to the interest . The (an! would argue the contrary. They made the promise when they were financially secure *ut given the fact their financial position has changed and they are now under extreme financial pressure of their own it is only fair that they *e allowed to go *ac! on the promise. There are arguments *oth ways on this B one could not predict the outcome with any confidence. <$= an promissory estoppel have a permanent effect> There is a real difficulty here. 1OAKES 4 3EER a House of 3ords decision says the creditor is always entitled to his money. Promissory estoppel says that if it is ine&uita*le to go *ac! on the promise and the promise was meant to have a permanent effect the creditor is not entitled to the money owedJ The matter needs to *e resolved *y the House of 3ords *ut the current situation is that the only way to reconcile the decisions is *y saying that promissory estoppel merely has a suspensory effect and *y giving reasona*le notice the promissor can go *ac! on his promise and demand full payment. This is the view of Professor Treitel. If this view is ta!en irrespective of the outcome of @ a*ove re the e&uita*le point, "oggins (an! *y giving reasona*le notice to ,ilo could claim the *alance owed to them ie 0@%,%%% together with the interest. <Dote they could not claim this sum immediately.= General Comment The law is in a very unsatisfactory state and needs a House of 3ords decision to clarify it. It seems illogical to have one rule for a promise to pay more for K

the same services <normally this will *e a *inding new contract and can *e set aside on the grounds of duress WILLIAMS 4 RO11E!= and to have a different rule when an agreement is made to ta!e a lesser payment <no new contract *ecause of the a*sence of consideration 1OAKES 4 3EER and very limited help from the principle of promissory estoppel.= Professor Treitel suggests that one solution to the pro*lem is to a*olish the need for consideration when an agreement is made to vary an existing contract and let the principle of economic duress decide which new agreements will *e *inding. urrently however the law is as follows. L agrees to do wor! for # for 0@%,%%%. <@= # then promises to pay 0@@,%%% for this wor!. If # gets a *enefit there is a new contract for the extra 0@,%%%. The issue is then whether the new contract for the extra 0@,%%% can *e made voida*le on the grounds of duress. <$= L and # agree that # need only pay 0M,%%% for the wor!. Applying 1OAKES 4 3EER # is giving L no consideration *y paying less. There is therefore no new contract at 0M,%%% thus economic duress is not relevant. #'s only defence is the very limited one of promissory estoppel. <;emem*er promissory estoppel is a limited exception to the rule that a promise needs consideration to *e *inding.=

LW 56-806-01 (21) C.P.E. (POST-GRADUATE DIPLOMA IN ENGLISH & HONG KONG LAW) !EAR I" (2002#0$)

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4.<a= Acme 3imited, runs a de*t recovery *usiness. It purchases software from (yte 3imited which is designed to !eep accurate records of de*ts owing to Acme 3imited. Cue to a fault in the software the records of a num*er of de*ts are deleted causing Acme 3imited a loss of 01%,%%%. 8hen Acme 3imited demands this sum from (yte 3imited, (yte states it will only pay Acme 3imited 0@%,%%%. (yte 3imited ?ustifies this *y referring Acme to a term in (yteNs onditions of 6ale which Acme signed *ut never read which states /In the unli!ely event of any defective software *eing supplied lia*ility is limited to a maximum of 0@%,%%%2. Advise Acme 3imited as to the legal effect of this clause. <*= Fohn, a !eep-fit enthusiast ta!es out a one year mem*ership with Hot (odies )itness entre. In the mem*ership agreement which Fohn signed are the following terms. <i= <ii= 8e are not lia*le for any loss or damage sustained *y our mem*ers whilst on the premises. 8e reserve the right to change the opening times of the entre at any time.

Fohn in?ured his *ac! *ecause of poor advice given to him *y a Hot (odies fitness instructor and had a 0@,%%% watch stolen *ecause the door of the loc!er in which he left it was faulty. Hot (odies have also ?ust announced they are reducing opening times *y $ hours per day. Advise Fohn who wishes to !now <i= can he receive compensation for the losses he has suffered <ii= the legal effect of the term allowing Hot (odies to reduce opening hours. $. O+'-,&/ A&08/( In any &uestion involving unfair termsOexclusion clauses the correct approach is as follows. @= $= 4= )irst apply the *%<<%& -)8 to see if the clause is part of the contract. Then apply the *%<<%& -)8 to see if the wording protects the party relying on the clause B construction. If answer to @ and $ is yes then consider the application of statutory controls. 9nfair ontract Terms Act @M:: 9nfair Terms in onsumer ontracts ;egulations @MMM.

@%

<a=

It seems li!ely that the law limiting the lia*ility of (yte to 0@%,%%% is a term of the contract. 8e are told that Acme 0,=&/2 (yte's onditions of 6ale. The general rule is that if a party signs a contractual document he is *ound *y what he signs and it is no defence he did not read it L6ESTRANGE 4 GRAUCO3. <An interesting argument that might come *efore the courts one day is whether the INTER1OTO 4 STILETTO decision that a particularly harsh clause should *e /highlighted2 *efore it can *ecome part of the contract could apply to signed documents as well as unsigned ones. 6ome writers thin! it might.= Coes the wording protect (yte *earing in mind the contra proferentem ;ule that any am*iguities are construed against (yte HOUGHTON 4 TRA1ALGAR INSURANCE> It would seem that the fault in the software would mean there is a *reach of 6@5 6ale of "oods Act @M:M B goods <this would include software= must *e of satisfactory &uality. It would seem the clause would cover this. There is no o*vious am*iguity and courts should give words their /natural, plain meaning.2 In any event a court will loo! more favoura*ly at limitations than total exclusions of lia*ility <Ailsa raig v ,alvern=. The next step is to consider the statutory controls. The 9T ;E"93ATI+D6 @MMM can *e dismissed as irrelevant for the simple reason the transaction is *usiness to *usiness and the regulations only apply to *usiness B consumer transactions. 8hat of 9 TA @M::> In limiting Acme's remedies to 0@%,%%% (yte is in effect excluding 6@5 6"A. Thus 6G 9 TA would apply and the clause would *e su*?ect to the reasona*leness test discussed in section @@ of the @M:: Act and 6chedule $. <Even applying the narrow view of acting in the course of a *usiness in R & 3 CUSTOMS 3ROKERS 4 UDT Acme would *e acting in the course of its *usiness in *uying the software B clearly the software is integral to the *usiness. Therefore Acme would not *e a consumer under 6@$ 9 TA. This would mean the clause is not void.= In determining /reasona*le2 courts must ?udge a clause as at the time the contract was made P6@@<@=Q. ;elevant factors would *e B has (yte got superior *argaining power, and the insurance situation. Again, a limitation demand is li!ely to *e loo!ed on more favoura*ly than a total exclusion.

@@

If *oth parties have insurance cover against this loss the courts are more li!ely to let the loss lie where it falls *ut if for example (yte could have o*tained cheap insurance cover against this loss *ut Acme could not <MITCHELL 4 1INNE! LOCK SEEDS= or the amount of insurance protection (yte has is way a*ove the amount of the limitation clause <ST AL3ANS 4 ICL 0@%%,%%% limitation when I 3 had 0$% million insurance cover held unreasona*le=. )or a recent example of a case which considered the reasona*leness test in the context of software see WAT1ORD ELECTRONICS 4 SANDERSON P$%%@Q @ All E; < +,,= GMG B where the fact that *oth parties were experienced *usinessmen of e&ual *argaining power was an important factor in the court deciding the clause was reasona*le. <*= Again the clause here would *e incorporated into the contract as Fohn has signed the agreement. In relation to clause <i= the next issue would *e whether the clause covers negligence. <Hot (odies provide a service and there is an implied term of reasona*le care and s!ill in the contract. +n the facts here there appears to *e negligence on their part and therefore they are in *reach of this implied term.= The word /negligence2 is not used and in some cases the court have used this omission to conclude the clause does not cover negligence see HOLLIER 4 RAM3LER MOTORS and EE CALEDONIAN 4 OR3IT 5AL5E. However the courot might ta!e the view that even though applying the contra proferentem rule any am*iguities are considered against Hot (odies the clause is meant to cover negligence as here there is nothing else Hot (odies can *e lia*le for so to give the clause some meaning it must *e meant to cover negligence ALDERSLADE 4 HENDON LAUNDR!. 8hat of 9 TA @M::> 6$ would apply here. Any attempt to exclude lia*ility for negligence causing personal in?ury is void, thus the clause will not protect Hot (odies in relation to Fohn's *ad *ac! P6.$<@=Q. In relation to loss of property caused *y negligence the clause will *e su*?ect to the reasona*leness test P6.$<$=Q. The lac! of *argaining power and the fact that the clause is so wide /not lia*le for any loss or damage2 <see SO5EREIGN 1INANCE 4 SIL5ER CREST B the wider the clause the more li!ely it is to *e unreasona*le= would suggest the clause here is li!ely to *e unreasona*le. <64 9 TA also covers this clause and the result would *e the same=.

@$

Fohn is also a consumer and therefore unli!e <a= the 9T ;E"93ATI+D6 would also apply. It is very li!ely such a clause would *e unfair under the ;egulations. 6ee 6chedule $ @<a= and <*= which gives examples of clauses in consumer contracts that are li!ely to *e declared unreasona*le. In relation to clause <ii=, this is where the 9T *ecome important. ;E"93ATI+D6

Cespite attempts in 64 and 6@4 of 9 TA @M:: to *ring a wide range of clauses within the Act B 9 TA is restricted in that only applies to clauses which are *asically exclusion or limitation clauses. The clause in *<ii= does not come into this category. It is a clause giving Hot (odies the right to vary a term in the contract. The importance of 9T ;E"93ATI+D6 is that it applies to all terms in a *usiness consumer contract other than core terms <these are su*?ect matter and the original price=. If this term has not *een /individually negotiated2 <ie Fohn had no a*ility to influence whether the term went in the contract= and loo!ing at the contract as a whole there is a /significant im*alance2 in the consumer's rights <this means the contract is not on the whole for his *enefit= and the term is /contrary to re&uirement of good faith2 the clause will *e deemed to *e unfair <;egulation 1=. It is li!ely that a clause such as this would *e declared to *e unfair. In the 6chedule $ list of clauses li!ely to *e unfair a num*er apply to situations where a *usiness reserves the right to unilaterally change its terms without any ade&uate reason and without giving the consumer the chance to cancel the contract if he does not li!e the term. )or example, 6chedule $ @<?= says a clause is li!ely to *e unfair if it ena*les /the supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract2 and even more relevant to the facts @<!= says it is li!ely to *e unfair if it ena*les /A. The supplier to alter unilaterally without a valid reason any characteristics of the product or service to *e provided2. This would cover the situation here and unless the rest of the contract is in the consumer's favour <see D-G O1 1AIR TRADING 4 1IRST NATIONAL 3ANK $%%@ H3= the clause will *e unfair. N3 ;emem*er under 9 TA @M:: if it applies a clause which is su*?ect to the reasona*leness test is presumed unreasona*le B there is no such presumption under the 9T ;E"93ATI+D6 B the consumer or +ffice of )air Trading must prove that the clause is unfair.

@4

LW 56-806-01 (21) C.P.E. (POST-GRADUATE DIPLOMA IN ENGLISH & HONG KONG LAW) !EAR I" (2002#0$)

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1RUSTRATION 5. <a= A agrees to *uild a garage in the drive ad?oining (Ns house. The price is 01%%% of which 01%% is to *e paid in advance, and the wor! is to *e completed within a month. A receives 041% from ( and spends 05%% on materials. 8hen he has completed only a small part of the wor!, A falls off a ladder and *rea!s his leg. He has to stay off wor! for three months. In the meantime ( is una*le to o*tain anyone else to complete the wor!. The I Hotel agrees to let a room to T for the purpose of cele*rating TNs wedding. T agrees to pay 01%% for the room and 0$%%% for the dinner for the guests. He pays 0@%%% on the signing of the agreement. Two days *efore the wedding TNs fiancRe is *adly in?ured in a motor accident caused *y TNs negligent driving. T has to postpone the wedding and wishes to cancel the arrangements for the wedding reception. Advise T.

<*=

>. <a=

O+'-,&/ A&08/( The &uestion here is whether the contract has *een frustrated *ecause of A's accident. If time is of the essence and the wor! had to *e completed within a month then an event has occurred after the contract is made ma!ing this impossi*le. <Even if time is not of the essence then the wor! would have to *e completed within a reasona*le time, again it is li!ely that A's accident ma!es this impossi*le=. However the event must not have *een self-induced. If the accident was caused *y A's negligence it is uncertain if this would amount to self-induced frustration. In the ?OSEPH CONSTANTINE case it was suggested that some types of carelessness eg the careless prima donna who catches cold might not amount to self-induced frustration THE HANNAH 3LUMENTAL and also THE DAN KING. 8hile in personal incapacity cases the law is still uncertain B all one can say is that the more A is to *lame for the accident the more li!ely it is to *e regarded as self-induced frustration. If there is found to *e frustration and there is nothing in the contract stating how the loss is to *e apportioned the 3aw ;eform <)rustrated ontracts= Act @M54 would apply. 9nder 6@<$= ( would *e allowed to a refund of his 0@1% *ut the ourt could order that A could !eep a sum it thin!s ?ust for the expenses A has incurred in performing the contract. The maximum A can claim under this is the amount /paid or

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paya*le2 *efore the frustrating event occurred. Here 01%% was the sum paya*le and this figure represents the ceiling A can claim under 6@<$=. 9nder @<4= A can claim for the valua*le *enefit he has conferred on ( *efore the contract is frustrated. 8e are told A has only completed a small part of the wor! so it could *e argued that no real *enefit has *een conferred on (. If a *enefit has *een conferred the sum awarded will *e small as . <@= not much of the garage appears to have *een *uiltH <$= in wor!ing out compensation the ourt will ta!e account of anything awarded under @<$=H <4= ( cannot find anyone else to complete the wor!. N3 In deciding if there is a *enefit 3ord "off in 3P 4 H+&' held that you focus on events after the frustration occurs B in which case is a partially *uilt garage, a *enefit to ( or a nuisance> However on the *asis it will cost ( less to have the wor! finished off it will *e a *enefit unless it is impossi*le to get anyone to finish it B which seems unli!ely <was "off correct in his conclusion that one focuses on events after the *reach in deciding if 6ection @<4= applies> @ <4= actually states it applies if a V( was received *efore the event and thus the literal wording is at odds with "off's view=. However 6@<4= does state that, in assessing the /?ust sum2 to *e awarded, the court should ta!e account of the /effect2 of the frustrating event. If there is no frustration then A is in *reach of contract and ( could treat the contract as discharged if time is of the essence and claim the extra amount a*ove 01,%%% it is now going to cost him to *uild the garage <*= T would argue that on the authority of K(/-- 4 H/&(@ the agreement has *ecome fundamentally different *ecause the foundation of the contract the wedding no longer exists. Fust as in K(/-- 4 H/&(@ a contract to watch the coronation procession was fundamentally different from a contract for the hire of a room so T will argue that a contract for a wedding reception is fundamentally different from a contract for a meal for friends and there is therefore frustration of the contract. It would strengthen T's case if the contract actually specified it was a wedding reception <see AMALGAMATED IN5ESTMENTS 4 ?OHN WALKER= andOor if the hotel are providing lots of things normally associated with a wedding eg wedding decorations in the room, wedding ca!e etc. The same arguments in @<a= apply as to whether there is a self-induced frustration *ecause of T's negligent driving. If there is frustration again if the contract is silent on what is to happen on this event the 3aw ;eform <)rustrated ontract= Act @M54 applies. 9nder 6@<$= T would *e entitled to recover the 0@,%%% paid *ut I Hotel could retain whatever figure the court thin!s ?ust *y way of expenses out of this sum. N3 ;efer to the G)</(*% case which too! a very wide view of what the court should ta!e into account in deciding what is the /?ust sum2 to award under 6@<$= eg if T has incurred considera*le losses *ecause of the cancellation this could *e ta!en into account resulting in I Hotel having to return mostOall of the money despite the fact they may have incurred expenditure under the contract. ;emem*er also 6@<$= only applies in relation to wasted expenditure thus if I Hotel have *een a*le to free-e food *ought for T's wedding and this can *e used in fulfilment of some other contract 6@<$= would *e inapplica*le in relation to the cost of this food. +n the facts 6@<4= is inapplica*le as T received no valua*le *enefit.

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Again if there is no frustration T would *e in *reach of contract and I Hotel would *e entitled to receive its loss of profit su*?ect to the re&uirement that it must mitigate its loss *y finding another reception for this day <*ut see WA,'/ & C)('/( 4 M*G(/=%(=. As the cancellation occurs a very short time *efore the date of the reception it seems unli!ely I would *e a*le to find a su*stitute and therefore could claim its full loss of profit from T. N3 ;emem*er that as frustration ma!es the contract void it is often used as a defence when a party is sued for *reach of contract as if it applies the party is discharged from fulfilling its o*ligations post the event

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LW 56-806-01 (21) C.P.E. (POST-GRADUATE DIPLOMA IN ENGLISH & HONG KONG LAW) !EAR I" (2002#0$)

C%&'()*' T+'%(,)- .+/0',%&0

1.<a= lean 3imited wins a contract to clean 6) 3imited's factory windows. The contract is to last for two years and there are a total of @%% windows to clean. Advise lean 3imited in /)*A of the following situations. <i= +n two consecutive wee!s lean 3imited failed to clean three top-floor windows. 6) 3imited has informed lean 3imited that it is terminating the contract *ecause of lean 3imited's failure to comply with clause 4 of the contract. lause 4 states. /It is a condition of this contract that all windows must *e cleaned each wee!2. <ii= +ne month *efore lean 3imited was due to start wor! under the contract 6) 3imited contacted lean 3imited and informed it that it no longer wanted to go ahead with the agreement. lean 3imited is outraged as it was the first contract it had won on the industrial estate where 6) 3imited's factory is situated, and it had hoped, *y esta*lishing a presence on the estate, it would *e a*le to gain further contracts from other *usinesses situated there. lean 3imited therefore informs 6) 3imited /DoJ 8e are stic!ing to the agreement and will clean your windows2.

<*=

Advise "erry, a *uilder, in relation to his lia*ility for the following losses that have *een incurred *ecause of his *reach of contract. He is six months late in completing an extension to the Iing Hotel. The extension will increase the num*er of *edrooms *y @% <the hotel has currently 5% *edrooms=. Cue to this delay the Iing Hotel are claiming. <i= <ii= 0@$,%%% B the profit that would have *een earned if the rooms had *een ready on timeH 01%,%%% B a ma?or American film company had agreed to pay five times the normal room rates if it could have exclusive use of all 1% hotel rooms. However when it discovered that , *ecause of the delay, there were only 5% rooms availa*le it elected to go elsewhereH compensation for loss of their *usiness reputation.

<iii=

5. <a=

O+'-,&/ A&08/( <i= The issue here is whether 6) is entitled to end the contract *ecause of lean's *reach of lause 4. @:

It is unli!ely the court would ta!e this view. The courts are reluctant to allow a party to end a contract for a minorOtrivial *reach. Fudges much prefer the /wait and see2 approach adopted in the HONG KONG 1IR SHIPPING CO case. 9nder this approach rather than classify the term in advance as *eing a condition <this word means in its strict legal sense a term which allows a party to end the contract if *ro!en= or a warranty <a term which if *ro!en only entitles the innocent party to damages= the court prefers to classify the term as INNOMINATE <neither a condition or warranty= and only if the *reach is a serious one can the contract *e ended. ;elevant cases to *e used here are SCHULLER 4 WICKMAN MACHINE TOOL SALES B where the House of 3ords stated that the word condition had not yet ac&uired a precise legal meaning and ?ust *ecause a clause was referred to as a condition did not mean it would *e interpreted as having its /legal2 meaning of a term allowing the contract to *e ended if the term was *ro!en. ,ore recently there is the of A case of RICE 4 GREAT !ARMOUTH 3OROUGH COUNCIL <Fune $%%%= where the court refused to construe a clause in a garden maintenance contract that /the contractor shall provide the service in a proper s!ilful and wor!manli!e manner2 as one allowing the other party to end the contract even if the *reach was only a trivial one. "iven the fact here that the *reach appears to *e a fairly minor one <which damages can compensate for=, the clause does not expressly state a *reach of it allows the contract to *e ended, and there is no evidence produced that in the window cleaning industry such clauses are intended to *e construed as a condition <in the strict legal sense= it is li!ely that clause 4 will *e interpreted as innominate and the *reach *eing minor, will not ?ustify 6) ending the contract. Therefore if 63 does end the contract 6) will *e in *reach to lean and could *e sued *y lean for loss of profit on the two year contract. <The RICE case is especially instructive in relation to the courts' preference in interpreting terms as innominate. The court refused to apply literally a general clause at the end of the contract that said any *reach of any o*ligation would allow the ouncil to end the contract. 6uch an interpretation was said to *e contrary to commonsense. Therefore if in future a draftsman wants to give his client the right to end the contract for any *reach of a clause the clause itself should specifically ma!e this clear.= <ii= 6), in announcing it does not want lean to go ahead with the contract, is clearly committing a repudiatory *reach <an intention not to continue with the contract=. The *reach is also !nown as an anticipatory *reach in that 6) have committed it *efore the date fixed for performance. learly lean is entitled to end the contract *ut can it elect to continue with the contract which is the preferred option> The normal rule is that this choice is availa*le and it was applied *y the House of 3ords in WHITE AND CARTER 4 M*GREGOR where in similar

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circumstances the local authority was held entitled to refuse to end the contract when informed the garage did not want their advertisements displayed on litter *ins. They could go ahead, display the ads, and then claim their full payment. This decision has caused unease *ecause it goes against the principle of mitigation of loss under which an innocent party must do all that is reasona*le to !eep this loss to a minimum. 9nder this principle one would have expected the local authority to attempt to find another advertiser and only recover damages if they received less from the new advertiser. Therefore to date the approach adopted *y the courts has *een not to apply WHITE AND CARTER if. <@= The innocent party cannot carry out his o*ligations under the contract without the co-operation of the guilty party. HOUNSLOW LONDON 3OROUGH COUNCIL 4 TWICKENHAM GARDEN DE5ELOPMENTS. This would *e the case here B to perform the contract lean needs 6)'s co-operation in allowing it onto 6)'s premises so that the windows can *e cleaned. (y refusing access 6) can prevent lean carrying out its part of the contract and leave it no alternative other than to end the contract and sue for damages. In which case lean must attempt to mitigate its loss *y finding another contract in place of the one with 6). Camages would *e an ade&uate remedy CLEA SHIPPING 4 3ULK OIL B see also ATTICA SEA CARRIERS case. It was said *y 3ord ;eid in WHITE AND CARTER the principle in that case would not apply if the innocent party had no /legitimate interest2 in continuing with the contract. This has *een interpreted as meaning WHITE AND CARTER will not apply if ending the contract and claiming damages would *e a perfectly ade&uate remedy for the innocent party. Camages for loss of profit and the loss of the chance of further contracts would seem a perfectly good remedy here. However even if this argument were to fail on the grounds that the loss of the chance of further contracts is too speculative for any compensation to *e recovered lean would still fail on the first point regarding co-operation. <*= <i= This loss is recovera*le. It is not too remote. It comes within the first *ranch of HADLE! 4 3A9ENDALE it is loss that arises /naturally2 from the *reach. It is o*vious that if the wor! is not completed on time Iing Hotel will *e deprived of the normal profit they would have made if they had had the extra @% *edrooms. This is more pro*lematical. The issue here is how would the court classify the /exceptional2 loss of profit if this fact was un!nown to "erry when the contract was made.

<$=

<ii=

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+ne argument would *e that it is analogous to 5ICTORIA LAUNDR! 4 NEWMAN. In that case while normal loss of profit was recovera*le under the first *ranch of HADLE! 4 3A9ENDALE the exceptional loss of profit was classified as falling under the second *ranch /!nowledge of special circumstances2 category. As the engineers had no !nowledge at the time of the contract was made of the fact that if the *oiler was not delivered on time the laundry would lose their very lucrative contract with the ,inistry of 6upply it was held to *e too remote. 6imilarly here if "erry is unaware when ma!ing the contract of the fact regarding paying 1 times the normal rates for exclusive use of all 1% rooms this loss would *e too remote. An alternative argument could *e *ased on PARSONS 4 UTTLE! INGHAM su*se&uently applied in 3ROWN 4 KMR SER5ICES. 9nder this approach B ta!ing from tort the principle of HUGHES 4 LORD AD5OCATE if a particular loss is a serious possi*ility that fact that its extent is more severe than could have *een anticipated is irrelevant. Applying this B if the loss of profit from the availa*ility on time of the @% extra *edrooms is not too remote the fact that this loss is greater than would normally have *een anticipated *ecause of the American connection is not relevant and the full loss of profit can *e recovered. learly everything depends on how the ?udge will classify this loss B if he classifies it as a separate type of loss from the ordinary *usiness profits as the ?udge did in the 5ICTORIA LAUNDR! case it will *e too remote if "erry had no !nowledge of this special American agreement when he made his contract with Iing Hotel. There is however no easy outcome to the &uestion B as long as you put forward the different arguments that could *e used and emphasise that everything depends on how the ?udge categorises the loss no more could *e expected of youJ <iii= The general rule is that damages cannot *e given in contract for loss of reputation ADDIS 4 GRAMOPHONE CO. The courts do not want contract cases to *e used as indirect routes for what are really defamation claims. However, if the *reach of contract affects a person's or a *usiness's reputation and it can *e proved that as a result financial loss which is not too remote has resulted this loss can *e recovered MALIK AND MAHMOOD 4 3CCI <House of 3ords=. Thus in a *usiness context a *utcher who has sold defective meat and suffered loss of sales after his prosecution for *reach of food safety legislation was reported in the newspapers was a*le to sue the person who supplied him the meat for his loss of profits COINTAT 4 M!HAM. Again a manufacturer who was supplied with defective components *y a supplier thus resulting in the manufacturer supplying faulty goods to retailers was a*le to recover for loss of repeat orders from these retailers. GKN CENTRA9 GEARS 4 MAT3RO.

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Therefore while Iing Hotel cannot ma!e a general claim for loss of reputation if they can produce evidence that *ecause of the delay *y "erry they have lost the profits claimed in <i= and in <ii= or they have lost future *usiness from regular guests, they can recover compensation, provided these losses are not too remote.

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