2011sem1 lecture notes
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UNIVERSITY OF PORTSMOUTH
BUSINESS SCHOOL
HELEN BURTON
BUSINESS LAW (U13859)
LECTURE NOTES
2011
2
Business Law Programme 2011
WEEK STARTING
LECTURES SEMINARS
1 26th Sept
Introduction to the unit The English legal system
What is law?
2 3rd Oct
Domestic legislation and European law
The English legal system,
classification and sources of law
3 10th Oct
Case law and judicial precedent
Legislation and statutory interpretation
4 17th Oct
Introduction to contract law
Contract formation
Case law and judicial precedent
5 24th Oct
Contractual terms
Contract formation
6 31st Oct
Controls on exemption clauses and unfair terms
Contractual terms
7 7th Nov
Discharge of contracts and remedies for breach
of contract
Controls on exemption clauses and unfair
terms
8 14th Nov
Introduction to the law of torts and negligence
Discharge of contracts and remedies for
breach of contract
9 21st Nov
Defences and remedies in the tort of negligence
and vicarious liability
Negligence
10 28th Nov
Analysis of an employment contract
Defences and remedies in the tort of negligence and vicarious liability
11 5th Dec
Dismissal and redundancy
Analysis of an employment contract
ASSESSMENT DUE IN BY 1.00PM FRIDAY 31ST JANUARY 2012
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CONTENT OF THIS LECTURE
• Introduction to the unit
• What is law?
• Classification and Sources of Law
• Overview of the Courts System
WHY STUDY LAW?
It affects everyone - we should all know a little about the legal system of the country in which we live and work. How are laws made? What is the role of judges? How much influence does Europe have over us?
Consumer protection - understand your rights when you enter into contracts and what you can do if you are not happy with the service or goods you have purchased.
Identify problem situations when you get into the business world - depending on where you end up working, you will come across legal problems in a variety of situations
LECTURE ONE
Introduction to the Unit
Classification and Sources of Law
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UNIT CONTENT
This semester the course is made up of four different components: English Legal System, Contract law, the law of Negligence and Employment Law.
English legal system
• The different sources of English Law.
• The main source of English Law – legislation - how it is created.
• How legislation is used by the courts. Different rules of interpretation are used and this can affect the outcome of a case.
• Outline structure of the English court system.
• The doctrine of judicial precedent.
Contract
• Formation of contract – what needs to be present in order for an agreement to be legally binding?
• What is in a contract? – Some terms are more important than others. This can lead to different remedies if the contract is breached; additional terms can be implied into certain contracts even if the parties never agreed to them!
• Exemption clauses – to what extent can a business exclude its liability for loss or damage?
• Discharge and remedies – when are contractual obligations brought to an end and what remedies are available for non-performance or incomplete performance of a contract?
Tort of Negligence
• A tort is a civil obligation not covered by the law of contract or property.
• There are different types - negligence being the most important tort.
• What must be proved in a claim of negligence?
• Vicarious liability (when is an employer liable for the acts of its employees?).
• Defences and remedies.
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Employment Law
• It is important to be able to distinguish between an employee and someone who is self employed - how do the courts make this distinction?
• Different types of dismissal and redundancy.
TEACHING PROGRAMME
This semester this will be delivered in part via 3 booklets:
• Outline lecture notes (you need to supplement these with your own notes; spaces have been left for you to do so).
• Seminar materials.
• Handbook.
Lectures only give an overview of the topic.
You need to read beyond lecture notes!
Preparation for seminars
Seminars are the most important part of the course and you should prepare for them properly.
• Read the pages of the textbook indicated on the seminar sheet before the seminar.
• Identify what words you will need to understand in order to answer the questions on the seminar sheet.
• Prepare answers to the questions on the seminar sheets.
• After the class, engage in some further reading as maybe listed on your seminar sheets.
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The core text
• The core texts - aimed at business students who have to study law as part of their course. Details of both these books are in the Handbook on the page entitled READING
• On-line resources accompany the core texts. You may find them useful. They are available at : http://www.pearsoned.co.uk/highereducation/mylawchamber
• BUT you do need to read a bit more widely once you’ve grasped the basic principles.
• Further information on various aspects of the course will be available on Victory during the semester in the ‘Resources’ section.
WHAT IS LAW?
A set of rules that is enforced and/or recognised by the courts, administrative bodies or other organs of state.
What is different about English Law?
• Slow evolution has led to an untidy system
• Judges have limited powers to make law
• When making a decision judges have to follow the decision that has gone before – doctrine of judicial precedent
• Adversarial
DIVIDING UP OUR LAWS IN TO CATEGORIES
Sub-divisions of law: Public/Private
Public Law – covers laws that relate to powers possessed by State bodies over citizens and businesses and includes: • Human Rights – concerns rights that individuals can hold against the State. eg the right to
life and liberty.
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• Administrative Law – laws that permit individuals to hold the State to account for its public duties. eg the limits of the powers of public authorities.
• Criminal Law – laws which govern behaviour which the Government wishes to prohibit or regulate. Eg murder, stealing
Private Law - concerns relationships between individuals. • Family Law – law governing relationships between spouses, children etc.
• Company Law – deals with relationships between companies or between companies and individuals.
• Probate – the law that deals with the estates of dead people. ie wills.
• Property Law – the law of ownership – subdivided into real property (land), personal property or chattel (e.g. cars), and intellectual property (copyright, patents, designs).
Why bother dividing laws in to these 2 categories?
There is an important practical distinction between public law and private law. Private Law matters - seen as matters for individuals themselves to regulate without interference from the State (the State simply provides the mechanism for deciding the issues and enforcing the decision). This means the parties are encouraged to come to their own solution. Public Law matters - seen as issues relating to the interest of the State and general public, and as such are to be protected and prosecuted by the State. This means that if a crime is committed the State can prosecute regardless of the feelings of the victim. An alternative way of categorising laws Sub-divisions of law: Criminal/Civil
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It is important to understand there are different rules, standards and procedures depending on whether a law is criminal or civil.
Criminal Law
Criminal law’s primary purpose is to punish those who break laws designed to protect society.
How to talk the talk
Today most cases (trials) are brought in the name of the Crown (our head of state, the Queen) and will appear in the law reports in that form.
For example if I was prosecuted for murdering my boyfriend, the case against me would be referred to as R v Burton
This is pronounced in one of the following ways:
• the Crown against Burton; or
• the Queen (King) against Burton or
• Regina (Rex) against Burton.
Criminal prosecutions take place in the Magistrates’/Crown Court.
The person bringing the prosecution is called the prosecutor. The prosecution is brought against a defendant – the criminal.
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Civil Law
The primary purpose of the civil law is provide rules by which individual can govern their own relationships. For example in divorce the husband and wife are free to reach their own agreement to decide how their possessions are to be divided when they separate.
Civil cases are brought to assert a claimant’s (someone who has suffered a loss or injury caused by someone else) right to compensation (usually money damages) from the person who has injured them (called the defendant) – eg customer eats contaminated food at a restaurant which gives the customer food poisoning, the customer is the claimant and can sue the restaurant for breach of contract under our laws of contract to win compensation for their injury.
How to talk the talk
Civil cases (trials) are written in like this - Burton v Tasty Pizza Restaurant Ltd (pronounced Burton and Tasty Pizza Restaurant).
Burton is the claimant; Tasty Pizza Restaurant Ltd the defendant
WHERE DOES LAW COME FROM?
THE SOURCES OF ENGLISH LAW
• Legislation
• Case law
• European Union Law
• European Convention of Human Rights Law
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Legislation and case law are created within the UK and are sometimes referred to as domestic law.
Legislation
Primary legislation = Acts of Parliament
e.g. The Sale of Goods Act 1979
Secondary legislation (or delegated legislation) can take the form of regulations, rules or orders, or bye-laws.
e.g. The Unfair Terms in Consumer Contracts Regulations 1999
We will look at how legislation is made in next week’s lecture.
Case law
Case-law is developed by judges. It could be judicial interpretation of other legal material (e.g. legislation) or law developed solely by the judges. Judge-made law is called the common law. More on this in lecture 3
European Union Law
The UK joined the European Union (formerly known as the European Economic Community) in 1973. In order to join, the UK had to pass the European Communities Act 1972 under which the UK agreed to apply EU law in UK courts.
The 1972 Act stated that in the event of any conflict between EU law and UK law, the EU law would take precedence.
The main impact of European Union law is in the areas of trade, industry, employment and the provision of financial services.
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European Convention on Human Rights Law
The European Convention on Human Rights was incorporated into English law by Human Rights Act 1998.
The European Convention on Human Rights has nothing to do with the European Union. It is an agreement between signatory states to uphold and respect certain human rights such as the right to liberty, freedom of expression, the right to family life and the right to a fair trial.
THE COURTS SYSTEM
The UK has a system of courts that forms a hierarchy. This means that the decisions of the higher courts are binding on the courts below and the higher courts can overrule the lower courts.
The court in which a case starts out is called the court of first instance. Different cases start out in different courts. For example a criminal case will be deal with by the criminal courts whereas a civil case will be dealt with by a civil court.
Criminal Courts
Different types of criminal offences are heard by different courts. Minor offences (such as traffic offences) are called summary offences. More serious offences (such as murder) are called indictable offences.
Criminal cases are brought by a prosecutor (usually the Crown) against the defendant.
Magistrates’ Courts
• Exclusive jurisdiction over summary only cases (e.g. minor motoring offences).
• Heard by a panel of lay magistrates, aided by clerk, or a District Judge of the Magistrates’ Court.
• Limited powers of sentence but can send cases to Crown Court for sentencing.
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Crown Court
• Exclusive jurisdiction over indictable offences (serious crimes e.g. murder or rape).
• These cases are heard by a jury (12 persons). They deliver a verdict (guilty, or not guilty).
• Judge directs jury on legal issues but the jury decides questions of fact.
• Hears appeals from Magistrates’ Court on verdict and sentence.
Civil Courts
Magistrates’ Courts
Limited civil jurisdiction (e.g. non-payment of council tax), and hears family matters (when known as Family Proceedings Court) such as non contentious divorces and maintenance disputes.
County Courts - exclusively civil jurisdiction. The county court hears civil cases that are too serious for the Magistrates Court. They are usually more complicated or involve more money.
The High Court
This hears the remaining civil cases. It is expensive so it usually only hears the most complex costly and specialist cases.
The High Court is divided into three divisions.
Family – divorce, adoption, wills
Chancery – finance and property, tax, bankruptcy
Queen’s Bench – contract and tort matters which cannot be heard in the County Courts.
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Appeal Courts For Both Criminal + Civil Cases
Court of Appeal
• The Court of Appeal has 2 divisions (Criminal Division and Civil Division).
• Generally, the Court of Appeal sits in courts of three judges.
Supreme Court
• Highest court in the UK
• Came into operation on 1st October 2009
• Same function as old House of Lords
• Currently has 12 Justices (only 1 female) who all bar 1 were previously the Law Lords in the House of Lords
House of Lords (UP TO 1ST OCTOBER 2009)
• It was the highest court in the UK.
• There were 12 Law Lords.
• Generally, the House of Lords sat in courts of five judges (although this number increased particularly with important or high profile cases).
Other Courts
• European Court of Justice - the court of the European Union.
• European Court of Human Rights - the judicial body that decides cases relating to the European Convention on Human Rights.
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CONTENT OF THIS LECTURE
• Legislation
• How it’s made
• How it’s used : Statutory interpretation
• Impact of European law
• European Convention on Human Rights & the Human Rights Act 1998
LEGISLATION
“Legislation” is the term used to describe law made by Parliament. It is divided into primary legislation and secondary legislation. These two types of legislation are created in different ways.
PRIMARY LEGISLATION
• Primary legislation consists of Acts of Parliament e.g. The Sale of Goods Act 1979.
• Acts of Parliament begin life as a ‘Bill’.
• Most Bills are government sponsored (public bills) but Bills can be proposed by individual back bench MPs (private members’ bills) or by certain groups of people e.g. public corporations (private bills).
• The Bill must go to Parliament for approval.
For more information about the structure of Parliament check out the Resources page on Victory.
LECTURE TWO
Domestic Legislation and European Law
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How a Bill becomes a Law
Parliamentary Counsel draft the Bill, which is a proposal for a piece of legislation.
First Reading – title of the Bill is read to the House of Commons.
Second Reading – the general principles of the Bill are debated in the House of Commons. The Bill might be amended and members vote on whether the legislation should proceed.
Committee Stage – detailed examination by a committee of the House of Commons – further amendments might be made.
Report Stage – the committee reports back to the House and proposed amendments are debated and voted on.
Third Reading – the Bill is presented to the House of Commons for the last time. There might be a short debate and the House votes on whether to accept or reject the legislation.
House of Lords – first reading, second reading, committee stage, third reading.
The Bill then goes back to the House of Commons for the MPs to consider the Lord’s amendments.
The Bill is then put forward for Royal Assent.
NB – Bills can be started in either the House of Commons or the House of Lords.
What if the House of Lords refuse to pass a Bill that has passed the Commons?
At one time legislation could not be passed without the agreement of both Houses of Parliament. However, following the Parliament Acts of 1911 and 1949, special procedures are available to allow legislative proposals which were introduced in the House of Commons to be put forward for Royal Assent without the approval of the House of Lords after a one year delay (or one month for “money Bills”).
In recent years these procedures have been used to pass a number of high profile statutes e.g. the Hunting Act 2004 and the Sexual Offences (Amendment) Act 2000.
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Can you think of some arguments for and against the Parliament Acts procedures?
SECONDARY LEGISLATION
What is delegated legislation?
Acts of Parliament lay down a basic framework of the law in a particular area. Delegated legislation is legislation which sets out the detailed rules relating to that law (i.e. it puts the flesh on the bones).
There are 3 main types of delegated legislation:
• Statutory instruments – made by Government Ministers and their departments.
• Bye-laws – made by local authorities, public and nationalised bodies (although they must be approved by Central Government).
• Orders in Council – made by the Government in times of emergency and then signed by the Monarch.
What are the benefits of delegated legislation?
What are the problems associated with the use of delegated legislation?
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STATUTORY INTERPRETATION
This is how legislation is used by judges in trials. Certain rules of interpretation are relied on by judges when they are called upon to interpret the meaning of words in statutes. As you will see, the different rules of interpretation can give rise to startlingly different decisions.
The Literal rule
This rule states that words should be given their natural and ordinary meaning.
The problem is that this rule can give rise to some absurd decisions.
Fitzpatrick v Sterling Housing Association Ltd.
The Golden Rule
This allows the judges to avoid ridiculous consequences of the Literal Rule. This rule allows judges to give the words in the statute their ordinary, literal meaning except where that would lead to absurdity (in that case they can give words a different meaning which would lead to a more sensible conclusion).
R v National Insurance Commissioner ex parte Connor
The Mischief Rule
This rule allows the court to take into account the “mischief” that the particular legislation was intended to address.
Four questions need to be asked to apply this rule.
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• What was the common law before the Act? • What was the ‘defect or mischief’ for which the common law did not provide? • What remedy did Parliament intend to provide? • What was the true reason for that remedy?
Royal College of Nursing v DHSS
HUMAN RIGHTS ACT 1998
This is an extremely important statute which came into force in October 2000. It makes the European Convention on Human Rights binding in the UK.
For more information about the introduction of the Human Rights Act 1998 check out the ‘Resources’ page on Victory.
The European Convention on Human Rights & the Human Rights Act 1998
The Convention was signed in 1950 before the EU was even created and came into force in 1953 under the auspices of the Council of Europe. There are now over 40 signatories to the Convention and such states are required to uphold certain fundamental civil rights.
Before the implementation of the Human Rights Act 1998 (in October 2000), the Convention could not be directly enforced in UK courts. This meant that anyone who wanted to challenge a breach of their human rights had to take their case to the European Court of Human Rights in Strasbourg.
Now, there is a specific obligation on UK public authorities to act in a way that is compatible with the Convention (section 6 of the Human Rights Act 1998) and any breach of this obligation can be challenged in UK courts.
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NB - public authorities include central government departments, the NHS, local authorities, courts, and police forces.
The two key provisions of the Human Rights Act 1998 are section 2 and section 3.
Section 2 – when considering any issue which is connected with human rights, the courts must take into account case law of the European Court of Human Rights.
Section 3 – domestic courts must, “as far as it is possible to do so”, interpret domestic legislation so that it is compatible with the rights set out in the Convention. If the court finds that this is not the case, it may issue a declaration of incompatibility (section 4) to the relevant Government Minister who may (but is not obliged to) ask Parliament to amend the legislation.
Section 3 of the Human Rights Act requires judges to read all legislation ‘so far as possible’ so it is compatible with the European Convention on Human Rights.
If this is not possible, courts can issue a declaration of incompatibility (section 4 of the Human Rights Act). Such a declaration indicates the need to ensure compatibility, but the legislation remains in force.
EUROPEAN COMMUNITY LAW
Traditionally English law was not influenced by external legal rules or legal forces. However, this changed following the UK’s entry to the European Economic Community (now the European Union) in 1973.
The European Community was created in the 1950s by a series of treaties most importantly the Treaty of Rome, which created the European Economic Community (EEC). Its goal was to create a Common Market in Europe. The first members were Belgium, France, Germany, Italy, Luxembourg and the Netherlands. The UK joined the EEC in 1973.
In order to join the EEC, the UK had to pass the European Communities Act 1972 under which the UK agreed to apply EU law in UK courts. But, the 1972 Act went even further: in the event of any conflict between EU law and UK law, EU law would take precedence.
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For more information about the structure of the EC check out the ‘Resources’ page on Victory.
European Legislation
The Treaty of Rome was signed in 1957 and contains over 300 Articles. These articles are said to make up the primary legislation of the EU. They contain prohibitions on, for example, sex discrimination, free movement of goods, and competition rules.
The secondary legislation of the EU is contained in decisions, directives and regulations created by the Council of Ministers.
Impact of European Law on Domestic Law
By virtue of Section 3 of the European Communities Act 1972, English courts must take account of the provisions of the EC Treaty and decisions of the European Court of Justice and it is clear that the impact of EC law has reduced Parliamentary sovereignty.
Factortame Ltd v Secretary of State for Transport (No 2) (1991)
WARNING! The European Community and the European Convention on Human Rights are two entirely and completely separate things.
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CONTENT OF THIS LECTURE
• Doctrine of judicial precedent
• Reading and understanding cases
• Identifying the ratio of a case
• Other relevant terminology
STARE DECISIS – BINDING PRECEDENT
When making a decision in a case (trial) of who should win and who should lose, judges are bound by the law of binding judicial precedent (also known as the doctrine of stare decisis).
When a court makes a decision in a case then any courts which are of equal or lower status must follow that decision if a subsequent case before them is similar to it.
Higher courts may follow decisions of lower courts but, if they do not wish to follow the decision of the lower court, the higher court is said to overrule the decision of the lower court.
Therefore, in order to decide whether a decision is binding, certain questions must be asked:
• which court made the earlier decision?
• where does that court sit in terms of the hierarchy of the court structure?
• do the facts of the new case fall within the scope of the principle of law that was laid down in the earlier case or is the case totally new?
LECTURE THREE
Case Law and Judicial Precedent (Stare Decisis)
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Supreme Court
This came in to being on 1st October 2009. It is housed in Middlesex Guildhall opposite the Houses of Parliament. It replaces the House of Lords as the highest appeal court in the UK. The judges are known as Justices of the Supreme Court and are appointed by the Queen on the recommendation of the Prime Minister. All bar 1 of the current 12 were previously the 12 Law Lords in the House of Lords.
It operates as the House of Lords did previously.
House of Lords
Until 1966 the House of Lords was bound by its own decisions, but in 1966 a Practice Statement was issued by the House of Lords which stated:
“Their Lordships regard the use of precedent as an indispensable foundation upon which to decide what is the law and its application to individual cases. It provides at least some degree of certainty upon which individuals can rely in the conduct of their affairs, as well as a basis for orderly development of legal rules.
Their Lordships nevertheless recognise that too rigid adherence to precedent may lead to injustice in a particular case and also unduly restrict the proper development of the law. They propose therefore to modify their present practice and, while treating former decisions of this House as normally binding, to depart from a previous decision when it appears right to do so.
In this connection they will bear in mind the danger of disturbing retrospectively the basis on which contracts, settlements of property and fiscal arrangements have been entered into and also the especial need for certainty as to the criminal law.
This announcement is not intended to affect the use of precedent elsewhere than in this House.”
The effect of this statement is that unlike other courts the House of Lords is not bound to follow its own decisions in all cases but it usually does. Why do you think that is?
Example of use of the 1966 Practice Statement
R v G (2003) where the House overruled its previous decision in R v Caldwell (1981). In Caldwell, it was held that in determining the meaning of recklessness in a criminal damage case, it did not matter whether or not the accused knew what he or she was doing was dangerous. The decision was heavily criticised so the House of Lords accepted this criticism in R v G and held that a person would only be guilty of this offence if he or she had the capacity to appreciate the risks of harm that their actions may cause.
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Court of Appeal
The Court of Appeal is bound by its own previous decisions on the same facts, and bound by earlier House of Lords’ decisions. However, the Court of Appeal is not bound to follow its own previous decisions:
• if there are 2 conflicting CA decisions;
• if the previous CA decision has been overruled by the HL;
• if the previous CA decision was made per incuriam (with lack of care - without considering a relevant case or statute);
• where the European Court of Justice had given an interpretation of EC law which was contrary to the earlier decision of the CA; or
• where statute has changed the law.
And the Court of Appeal may choose not to follow its own decisions where:
• the previous CA decision is in conflict with a later Privy Council decision; or
• the previous CA decision is in conflict with a decision of the European Court of Human Right or a European Convention right.
Decisions of the Court of Appeal are binding on all lower courts.
Divisional Courts
Divisional Courts’ decisions are binding upon later Divisional Courts (subject to Court of Appeal exceptions).
They are bound by the decisions of the House of Lords and the Court of Appeal.
Their decisions are binding on the courts from which they hear appeals.
High Court
They are bound by decisions of the House of Lords and the Court of Appeal.
High Courts usually follow previous High Court decisions but they do not have to.
Their decisions are binding on the Crown Court, County Courts and Magistrates’ Courts.
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Magistrates’ and County Courts
The decisions of the County Courts and Magistrates’ Court are not binding on any court.
They are bound by decisions of higher courts.
What are the advantages of our system of binding judicial precedent?
What are the disadvantages of binding judicial precedent?
PERSUASIVE AUTHORITY
Note that some decisions do not have to be followed in subsequent cases, but might provide a useful reference point for judges in subsequent cases. Such decisions are known as persuasive (rather than binding) authorities.
• Obiter dicta (see below).
• Decisions of courts in other Commonwealth countries.
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RATIO DECIDENDI
Having identified the circumstances in which courts are bound to follow previous judgments, how do they know which parts of that earlier decision do they have to follow?
When deciding the outcome of a particular case, the judges deliver their decision (known as a judgment) and explain their reasons for deciding the case in that way.
The ratio of a case could be described as the reason(s) for a decision. It refers to the relevant (or material) facts and the relevant legal principles. It is this element (the ratio) that is relevant to judges in subsequent cases. Those judges must decide whether the ratio of a previous case should be applied to determine the outcome of the new case.
Warning – judges never say ‘This is the ratio of the case’ – ratios are only distilled by later judges.
Demonstrating how to find a ratio
In case 1 a man driving a Ford Escort ran over an old lady who was lawfully using the zebra crossing. The car was speeding, and the man was not looking where he was going. The old lady was injured. The weather conditions were excellent. The man was found guilty of reckless driving.
In case 2 a woman driving a BMW ran over an old man who was crossing the road. The car was speeding, and the driver was not looking where she was going. The old man is injured. The weather conditions were excellent.
To find out whether case 2 has to follow the decision in case 1, we need to determine what the ratio of case 1 is. To do this we need to find the MATERIAL FACTS.
MATERIAL FACTS are those facts which are crucial to the determination of the case
Look at the facts from case 1, cross out those facts which are not MATERIAL FACTS
a) A Ford Escort is being driven.
b) By a man.
c) The car was speeding.
d) The driver was not looking where he was going.
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e) The car runs over a pedestrian.
f) The pedestrian was an old lady.
g) The pedestrian was on a zebra crossing when she was hit.
h) The pedestrian was injured.
i) The weather conditions were excellent.
Once you have identified the material facts you should be able to identify the ratio for case 1.
Identify the material facts in case 2:
Is there any difference in material facts between the two cases? If yes, then case 2 may be distinguished.
If you are the judge in case 2 and wish to follow case 1 then you will have to reframe the ratio from case 1. Further refinement may be possible in later cases.
DISTINGUISHING AND OTHER JUDICIAL TECHNIQUES
Distinguishing – finding some difference in material facts between the current case and an earlier case. Earlier case need not be followed.
Narrowing – judges may reduce the scope of the ratio of an earlier case.
Expanding – judges may expand the application of an earlier case by making the ratio more abstract.
Apply – to follow an earlier case.
OBITER DICTA
We have already noted that obiter dicta may be persuasive authorities. Such statements might be used by barristers in later cases to try to persuade the judge of particular point, or they might be referred to by the judges themselves.
Obiter dicta means things said by the way.
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Examples
• Where the judge makes a hypothetical pronouncement (e.g. “If the facts were different then my decision would be …”).
• The judge might say what he would do if he was not bound by stare decisis.
• Because the judge was dissenting on this point.
• The judge is making a general comment on the area of law
READING AND UNDERSTANDING CASES
Law Reports and Citation
Law reports are a collection of cases.
They may be specialised (e.g. Environmental Law Reports) or general reports (e.g. Weekly Law Reports (WLR) or All England Law Reports (ALL ER)
Modern law reporting started with the Incorporated Council of Law Reporting in 1865 which has following features. All cases:
• are known by a name (e.g. Donoghue v Stevenson); and
• have a citation – e.g. (2000) 2 ALL ER 456 or [2000] 2 ALL ER 456.
Where ( ) are used, the year inside the brackets indicates the year the case was decided. Where [ ] are used, the year inside the brackets indicates the year in which the case was reported.
How do you find a case by reference to its citation?
[2000] 2 ALL ER 456
This citation tells you to look at the All England Law Reports from the year 2000 ([2000] 2 ALL ER 456).
This series is obviously divided into more than one volume because there is a number before the name of the law reports (2 ALL ER). This means that you should look for volume 2 in the series of All England Law Reports from 2000.
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The particular case that you are looking for will be at page 456 (the last number in the citation – [2000] 2 ALL ER 456) of the 2nd volume of the series of All England Law Reports from 2000.
Neutral citation system - Campbell v Mirror Group Newspaper [2002] EWCA Civ 1373 (indicates court where the case was heard. The number relates not to page number but docket number). The citation is neutral because it doesn’t refer to a specific series of law reports.
The main features of a case report
• Indication of the Court which heard the case.
• Indication of the judges who heard the case.
• Hearing and judgment dates.
• Keywords.
• Headnote – written by the court reporter, not part of the case.
o Summary of key facts.
o Summary of decision (appears under HELD): if something of importance said in judgment will be indicated by Per, or per curiam. Also notes any dissenting judgments.
• List of cases referred to judgment (and in the case of ICLR reports in arguments).
• ICLR (except WLR) summary of counsel’s argument.
• Judges opinions.
• At end of case – summary of who won case
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CONTENT OF THIS LECTURE
• What is a contract?
• How is it formed
• Offer v invitation to treat.
• Consideration.
WHAT IS A CONTRACT?
A contract is a legally binding agreement between two or more parties.
The law will enforce an agreement provided the following are satisfied:
• there has been an agreement (offer and acceptance);
• this agreement is backed by consideration;
• the parties intend to create legal relations;
• any formalities required to complete the contract have been complied with;
• the parties have the legal capacity to enter the contract; and
• the contract is not for an illegal or immoral purpose.
In this lecture we will concentrate on the first two requirements- agreement and consideration. Students are expected to read up on the other bullet points above
LECTURE FOUR
Introduction to Contract Law
Contract Formation
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HAS THERE BEEN AN AGREEMENT?
For a contract to come into existence one person, the offeror must make an offer that is accepted by the other person, the offeree.
Offer + Acceptance = Agreement.
What is an offer?
An offer is a promise to be bound on particular terms – therefore it must be capable of being accepted.
An offer may take the form of a statement (either oral or written), or it could be made by conduct that is capable of acceptance.
An offer can be made to one particular person, a group of people, or to the world at large (see unilateral offer below).
Bilateral v unilateral offers
Most offers tend to be bilateral (i.e. consisting of two promises - each made in exchange for the other).
Example: I promise to give you £20 and you promise to wash my car (two promises).
However, offers can be unilateral (i.e. one party makes a promise in return for the performance of a particular act by another party).
Example: I promise to pay £50 to anyone who finds my lost dog (here, there is only one promise).
Unilateral offers are sometimes referred to as “if” offers and are generally made to groups of people or the world at large (see Carlill v Carbolic Smoke Ball Co (1893) below).
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Statements that are not offers
Offers should not be confused with statements that are simply made in order to supply information in response to a query.
Harvey v Facey [1893]
But compare it with the decision in
Bigg v Boyd Gibbons (1971)
Offers also need to be distinguished from statements/conduct that are incapable of being accepted, but which might induce another to make an offer.
These are known as invitations to treat.
Invitations to treat
These are statements made to others by way of an invitation to them to make an offer. Such statements are not offers and cannot be accepted as such.
Displays of goods in shop windows
Fisher v Bell (1961)
Goods on shelves in a self-service shop
Pharmaceutical Society of Great Britain v Boots (1953)
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Advertisements (e.g. in magazines or newspapers)
Partridge v Crittenden (1968)
HOWEVER – note the position regarding advertisements that amount to unilateral offers
Carlill v Carbolic Smoke Ball Co (1893)
Do offers have an expiry date?
An offer can be terminated, or brought to an end, in various ways.
Rejecting an offer and making a counter offer
An offer is terminated if it is rejected. It is also terminated if the offeree tries to vary the terms of the original offer e.g. by offering less money of trying to change the subject matter of the contract (this is known as a counter offer).
Hyde v Wrench (1840)
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But a statement requesting further information will not constitute a counter-offer.
Stevenson v McLean (1880)
Expiry of specified time period
An offer is terminated if the offeror set a specified period during which the offer would remain open and it is not accepted within that period.
Expiry of reasonable time period
Even if a particular time period is not stated, an offer will not remain open indefinitely; it will lapse after a reasonable time.
Ramsgate Victoria Hotel v Montefiore (1866)
Withdrawal of offer, provided it was communicated by offeror
An offeror may withdraw his offer provided he communicates notice of such revocation to the offeree.
Routledge v Grant (1828)
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Revocation must be received by the offeree prior to acceptance
In order for the revocation to be effective, notice of withdrawal must be received before the offeree has accepted the offer
Byrne v Van Tienhoven (1880)
Withdrawal of unilateral offers
There are special rules regarding the withdrawal of unilateral offers.
The offeror cannot withdraw his offer if a person has begun to do something on the strength of that offer.
Errington v Errington & Woods (1952)
Also, since the nature of a unilateral offer means that the offeror cannot guarantee that he’s communicated notice of the withdrawal to everyone who saw the offer, he must simply take reasonable steps to give such notice and should ensure that he communicates notice of the revocation in the same form as he communicated the original offer.
Death of offeror (relevant only in contracts for personal services)
If the offeror dies and the offer involved personal services, the offer terminates on his death. If the offer involved non-personal services, it might survive if it can be performed by the offeror’s personal representatives.
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What in contract law is acceptance?
An acceptance must be the ‘mirror image’ of the offer (it must not be a counter-offer).
The acceptance must also be firm (i.e. unconditional) and must be communicated to the offeror (otherwise how will he know that a contract has been formed!).
Acceptance may be communicated in writing, verbally, or by conduct.
Using the post to accept an offer (the postal rules)
When an acceptance is sent through the post, or via some other non-instantaneous form of communication (e.g. telegram), the courts treat the acceptance as being communicated to the offeror when the acceptance was sent/posted by the offeree and not when it was received by the offeror (provided that it is reasonable to use the post and the letter was properly stamped and addressed).
Adams v Lindsell (1818)
The postal rule can be avoided if the offeror specifies that acceptance must be drawn to his attention or that he won’t be bound until he actually receives the acceptance or he could specify some other means of communication of the acceptance.
Holwell Securities v Hughes (1974)
For instantaneous methods of communication, the normal rule applies: acceptance is communicated on receipt.
Brinkibon Ltd v Stahag Stahl (1983)
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What about making a contract through exchanging emails?
The Electronic Commerce (EC Directive) Regulations 2002 state that electronic orders/acknowledgements of orders “are deemed to be received when the parties to whom they are addressed are able to access them”
Consideration
What is consideration?
In Currie v Misa (1875), consideration was defined as ‘something that constitutes a benefit to one party or a detriment to another.’
The House of Lords in Dunlop v Selfridge (1915) approved Sir Frederick Pollock’s definition of consideration.
“An act of forbearance or the promise thereof is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”
Today two types of consideration are recognised in the law of contract
• Executory – a promise to perform an act at some future date.
• Executed – a promise which only becomes enforceable when the offeree actually performs the required act.
NB - The promisor is the person who makes the promise, the promisee is the person to whom the promise is made.
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A number of rules should help you remember how courts determine whether consideration is present in particular scenarios.
1. Past consideration is not good consideration
If valuable benefit has already been given, before the contract is entered into, then this is not valid consideration and there will be no contract.
Re McArdle (1951)
2. Performance must be legal
A promise to pay for an illegal act is not enforceable.
3. Performance must be possible
A promise to perform an impossible act is clearly unenforceable.
4. Consideration must be sufficient (but need not be adequate)
Courts will not intervene to ensure that the parties make a good bargain, but the consideration must have some value (sufficiency).
Thomas v Thomas (1842)
Chappell v Nestle (1959)
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5. Performing an existing duty
Performance of an existing duty does not constitute valid consideration for a new contract.
Collins v Godefroy (1831)
But what if the promisor does more than his duty?
Harris v Sheffield United FC (1987)
Williams v Roffey Bros (1990)
Intention to create legal relations
Parties are presumed to have intended to create legal relations when entering into commercial contracts, but this presumption may be rebutted by clear words to the contrary.
Jones v Vernons Pools (1938)
Note that the position is reversed for agreements made in a social/domestic context.
Capacity
Persons under the age of 18 are only capable of entering legally binding contracts for necessaries (Sales of Goods Act 1979, S.3 (2)). This has been held to include food, shelter, ordinary (and not fancy clothing), and even the cost of a funeral for a spouse.
Mentally disabled persons of full age are able to enter any legal contract even if they did not understand it, although the courts will treat the contract as void and of no effect if the other party to the contract was aware of their mental condition.
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Formalities
Most contracts can be agreed in any form (written, oral, or inferred from conduct). However, there are a limited number of contracts that need to take a certain form in order for them to be enforceable by the courts.
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CONTENT OF THIS LECTURE
• Terms and representations
• Types of terms
• Implied terms
When a contract is being formed many statements are made. Some of these statements become part of a legally binding contract as terms. Others are not considered to be part of the contract and are mere representations.
TERMS
Terms have been described as the duties and obligations that each party assumes under the agreement.
There are 2 main types of terms: express (those agreed by the parties) and implied (those which form part of the contract even if they were not agreed by the parties).
REPRESENTATIONS
Some pre-contractual statements which are made as part of the negotiation process, and which might have encouraged the other party to enter into the contract, may have legal status as representations.
Terms are part of a contract and may be enforced; they are promises that the parties have contracted to undertake. Representations are not part of a contract but legal remedies may be available if they turn out to be untrue.
If a term is untrue then innocent party has an action for breach of contract. If a representation is untrue then innocent party has an action for misrepresentation.
LECTURE FIVE
Contents of a Contract
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HOW TO DIFFERENTIATE BETWEEN A TERM AND REPRESENTATION
It can be difficult to differentiate between a term and a representation. However, the courts have developed certain tests to guide them when making the decision.
• Importance of the statement – where one party has indicated that the statement is of such major importance they would not have entered into the agreement without it; it will constitute a term.
Bannerman v White (1861)
• Strength of statement – the more definitive the statement, the more likely it is to be a term, see Schawel v Reade [1913] 2 IR 81 where it was held that the seller’s statement “…the horse is perfectly sound. If there was anything the matter wrong I would tell you” was a term.
• Ability of statement maker to verify truth of statement and/or ability of person to whom the statement is made to verify the truth (i.e. relative knowledge and skill of the parties).
Dick Bentley v Harold Smith (1965)
compared with
Oscar Chess v Williams (1957)
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• Timing – statements made just before the conclusion of a contract are more likely to be terms; statements made some time before completion are likely to be representations.
Routledge v McKay (1954)
• Agreements reduced to writing – if a statement is not included in the final contractual document, then it is likely to be representation.
Routledge v McKay (1954)
TYPES OF TERMS
There are 2 main types of terms: express and implied.
EXPRESS TERMS
Express terms are those agreed between the parties.
IMPLIED TERMS
These are terms which are deemed to form part of the contract even though they may not have been specifically stated or agreed (or even thought of) by the parties. They can be implied by statute or common law (the courts) or by local custom.
Terms implied by statute
E.g. the Sale of Goods Act 1979 implies certain terms into contracts for the sale of goods
(goods includes cars, clothes, food, computers etc).
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• section 12(1) – implied term that the seller owns the property he is selling.
• section 13 – implied term that the goods sold correspond to any description given.
• section 14 – implied terms that the goods sold are of satisfactory quality and will be fit for purpose (applies only to sales where the sellers sells in the course of a business).
• section 15 – implied term that where goods are sold by sample, the bulk of the goods will correspond with the sample.
The Sale and Supply of Services Act 1982 implies similar terms into contracts for the supply of services.
Terms implied by the courts
Where the term is necessary to give business efficacy to the contract
Sometimes the courts will imply terms into a contract in order to give business efficacy to the contract. To do this, the courts rely on the ‘officious bystander’ test – if the term is so obvious that when asked if it was included the parties would have said, “Oh, of course” (Mackinnon LJ in Shirlaw v Southern Foundaries (1939)) it will be implied.
The Moorcock (1889)
Note, however, that the courts will not rewrite contracts.
Where the term is necessary in contracts of a certain type
These are terms implied by the court where they believe it is necessary in a certain type of contract.
Irwin v Liverpool City Council [1977] AC 239
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Terms implied by custom
Certain terms are implied into contracts by custom but such terms will not be implied where they conflict with an express term of the contract.
Smith v Wilson (1832) ‘1000 rabbit skins meant 1200’
CLASSIFICATION OF TERMS
Not all terms whether express or implied are of equal importance. There are 3 classifications of terms.
• Conditions
• Warranties
• Innominate terms
Conditions are the important obligations which go to root of contract. Breach of a condition entitles the innocent party to a variety of remedies terminate the contract, refuse to perform their part of it, carry on with the contract and ignore the breach and claim damages.
The terms implied by Sections 12(1), 13, 14 and 15 of the Sale of Goods Act 1979 are 99% of the time treated as conditions.
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Warranties are the minor obligations which are not vital to the overall contract. Breach of a warranty only entitles the innocent party to the remedy of claiming damages. There is no right to terminate the contract, the contract must continue.
Innominate terms
Some terms are incapable of being classified either as a condition or as a warranty because there can be serious and trivial breaches of the particular term. The remedy for these innominate terms depends upon the seriousness of the breach. Serious breach permits termination of the contract; minor breach only gives rise to damages.
To determine whether the breach is sufficiently serious, the courts consider whether the “innocent” party has been deprived of substantially the whole benefit of the contract. If so, he will be entitled to terminate the contract; if not, he will only be entitled to damages.
Hong Kong Fir Shipping v Kawasaki (1962)
Cehave NV v Bremer (The Hansa Nord) (1976)
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CONTENT OF THIS LECTURE
• Exclusion clauses and limitation clauses
• Judicial (or common law) controls on exclusion clauses
• Statutory controls on exclusion clauses
EXCLUSION AND LIMITATION CLAUSES
An exclusion clause seeks to prevent a party from claiming compensation for any loss or damage caused by the other party.
“Apples Ltd does not accept liability for any loss or injury suffered by Bananas Ltd as a result of the provision of defective goods by Apples Ltd or for any failure by Apples Ltd to
perform its contractual or other legal duties.”
A limitation clause seeks to restrict or limit the extent to which one party can seek compensation for loss or damage caused by the other party.
“Apples Ltd’s total liability arising out of this contract shall be limited to £1,000 in aggregate.”
A party’s liability may be limited financially or by reference to certain types of loss/damage.
LECTURE SIX
Statutory Controls on Exemption Clauses and Unfair Terms
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The term exemption clause is sometimes used as a global term incorporating both exclusion and limitation clauses.
Why are exemption clauses useful tools for businesses?
Why is it necessary to control the use of exemption clauses?
CONTROLS ON EXEMPTION CLAUSES
Both the courts and Parliament have created controls on these clauses:-
• Judicial controls
o Incorporation
o Construction
• Statutory controls
o Unfair Contract Terms Act 1977 (UCTA)
o Unfair Terms in Consumer Contracts Regulations 1999
When deciding whether an exemption clause is valid, three questions should be asked.
1. Has the exemption clause been incorporated into the contract?
2. Does the exemption clause effectively cover the breach?
3. Is the exemption clause fair and valid under the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999?
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JUDICIAL CONTROLS
Has the exemption clause been incorporated into the contract?
i) To be effective, an exemption clause must be a term of the contract and so cannot be incorporated after the contract is made. Notice of the clause must be given before or at the time the contract is made.
Olley v Marlborough Court Hotel (1949)
ii) The document purporting to incorporate the exemption clause must be contractual in nature.
Chapelton v Barry UDC (1940)
iii) The party wanting to add the exemption clause to the contract must do all that is reasonably necessary to bring it to the attention of the other party before the contract is made - ie not bury it in the small print.
Thompson v LMS Railways (1930)
iv) The more onerous the exemption clause the greater the degree of notice that is required.
Thornton v Shoe Lane Parking Ltd (1971)
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Interfoto Picture Library Ltd v Stiletto Programmes Ltd (1988)
v) Where a party signs a contract containing an exemption clause, he is bound by the clause whether he reads the document before signing or not.
L’Estrange v Graucob (1934)
But not if there is evidence of fraud or misrepresentation by the party seeking to enforce the exemption clause.
Curtis v Chemical Cleaning and Dyeing Co (1951)
vi) Sometimes exemption clauses will be incorporated into contracts on the basis of a consistent previous course of dealings - where the parties have had a consistent previous course of dealings, the courts may be willing to imply the same terms into a subsequent contract even if it was not included on that particular occasion.
Spurling v Bradshaw (1956)
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Does the exemption clause effectively cover the breach?
a) The next question to ask is whether the clause actually covers the loss/damage that the party is trying to exclude/limit? The main rule used by the courts to help them determine this issue is the Contra Proferentem Rule ie do the words in the exemption clause cover the fault that has occurred?
b) This rule states that the courts should interpret any ambiguity in an exclusion clause against the party seeking to rely upon it.
Andrews v Singer (1934)
Is the exemption clause fair and valid under the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999?
Even if a clause satisfies the various judicial tests (i.e. it has been incorporated into the contract and the wording of the clause covers the particular loss/damage), it might still be rendered unenforceable by virtue of the Unfair Contract Terms Act 1977 and/or the Unfair Terms in Consumer Contracts Regulations 1999.
Unfair Contract Terms Act 1977 (UCTA)
Applies only where the party relying upon the exclusion clause is acting in the course of business (section 1(3)), and includes attempts to exclude liability as an occupier of business premises which are not contractual terms i.e. notices (S.1(3)(b)).
Depending on the nature of the term that is being excluded or limited, UCTA may apply to business to business contracts and business and consumer contracts. However, as you might expect, the greatest protection is afforded to those dealing as consumers.
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The key provisions of UCTA are highlighted below.
Section 2(1) – liability for death or personal injury caused by negligence cannot be excluded or limited; any term which attempts to do so is rendered void.
Section 2(2) – liability for loss/damage (other than death or personal injury) caused by negligence can only be excluded/limited to the extent that the term is reasonable.
Section 3 – where a party deals on the other party’s standard terms or the party deals as a consumer, liability for breach of contract can only be excluded or limited if the term satisfies the reasonableness requirement.
Section 6(1) – the term implied by section 12 of the Sale of Goods Act 1979 (title) cannot be excluded.
Section 6(2) – the terms implied by sections 13, 14, and 15 of the Sale of Goods Act 1979 (conformance with description, satisfactory quality, and conformance with sample) cannot be excluded or limited against a person dealing as a consumer.
Section 6(3) - the terms implied by sections 13, 14, and 15 of the Sale of Goods Act 1979 (conformance with description, satisfactory quality, and conformance with sample) can only be excluded or limited against a business if the term satisfies the reasonableness requirement.
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How is reasonableness assessed?
The key provision is section 11 and in some instances schedule 2 as well.
Section 11(1) provides guidance as to what is “reasonable” in the context of contractual terms.
“In relation to a contract term, the requirement of reasonableness...... is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when
the contract was made”
Section 11(3) provides guidance as to what is “reasonableness” in the context of notices.
“In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it,
having regard to all the circumstances prevailing when the liability arose or (but for the notice) would have arisen.”
When considering reasonableness in relation to S.6(3) the courts also refer to the guidelines in Schedule 2 of UCTA.
• The bargaining powers of the parties – was one in a stronger position than the other?
• Was the customer given an unfair inducement to accept the exclusion clause?
• Prior knowledge – should the customer have been aware of the exclusion clause?
• Special requirement – were the goods made or adapted to meet the customer’s specific requirements?
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The Unfair Contract Terms Regulations 1999
These Regulations implement the EC Directive on Consumer Protection. They provide that consumers will not be bound by unfair terms including exemption clauses.
They apply only to contracts between businesses and consumers.
These Regulations do not apply to terms relating to price or to core terms of contracts. They only apply to terms which have not been individually negotiated (i.e. standard terms).
A term is unfair if:
• it is contrary to the principle of good faith; and
• it causes a significant imbalance in the rights and obligations of the parties to the detriment of the consumer.
If an exemption clause is found to be unfair the contract continues without it.
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CONTENT OF THIS LECTURE
• How a contract comes to an end
• Remedies for breach of contract
DISCHARGE OF CONTRACT
When a contract is discharged, the parties are relieved of their contractual obligations. A contract may be discharged in four main ways.
1. Agreement.
2. Performance.
3. Frustration.
4. Breach.
1. Agreement
Since a contract is formed by agreement it makes sense that it may be ended by agreement. In the original agreement there may be a term that sets out the circumstances in which the agreement will come to an end.
• Contract for fixed term.
• Term allowing notice.
• Term which brings contract to end if certain events happen.
If there is no such term in the contract, the parties may agree to bring the contract to an end provided that the agreement is supported by consideration.
LECTURE SEVEN
Discharge of Contract
Remedies for Breach of Contract
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2. Performance
This is the most common method of discharging obligations under a contract and takes place when both parties have performed their contractual obligations. Generally, complete and exact performance is required before the contract will be discharged.
Cutter v Powell (1756)
However, part performance may be permissible in certain circumstances.
• Divisible contract (e.g. building contract).
• Partial performance has been accepted by the other party.
• Performance has been prevented by the other party.
• The contract is capable of being fulfilled by substantial performance.
Hoenig v Isaacs (1952)
3. Frustration
Frustration is something which occurs after the contract was made, but which makes the contract impossible to perform or makes performance fundamentally different to that contemplated by the parties at the time the contract was concluded.
Frustration discharges both parties from their liabilities under the contract.
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Circumstances giving rise to frustration
• Destruction of subject matter of the contract
Taylor v Caldwell (1863)
• Government interference or supervening illegality prevents performance
Morgan v Manser (1947)
• A particular event, which was the sole reason for the contract does not actually ever take place.
Krell v Henry (1903)
• The death or illness of one of the parties.
Condor v The Barron Knights (1966)
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Limitations to the doctrine of frustration
• An alternative method of performance is still possible.
• The supervening event must not be self-induced. If it is, then it is a breach.
Maritime National Fish Ltd v Ocean Trawlers Ltd (1935)
• If the supervening event is provided for in the contract, the court will accept the provisions made and will not apply the doctrine of frustration - note the effect of force majeure clauses which are agreed “up front” by the parties and provide for what should happen if a particular event takes place or certain circumstances arise.
• If the event was, or should have been, foreseen by one party, that party cannot rely on frustration.
• Performance simply becoming more difficult or costly is not frustration.
Davis Contractors Ltd v Fareham UDC (1956)
Effects of frustration
The effects of frustration are governed by the Law Reform (Frustrated Contracts) Act 1943.
a) Any money paid is recoverable (Section 1(2)).
b) Any money payable ceases to be payable (Section 1(2)).
c) A court may allow the parties to recover any expenses that have been paid (Section 1(2)).
d) A party who has gained a valuable benefit from the contract before the frustrating event may be required to pay for the benefit on a quantum meruit basis (Section 1(3)).
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4. Breach of Contract
Breach of contract occurs when one party fails to comply with its contractual obligations.
• Fails to perform its contractual obligations.
• Performs its contractual obligations defectively.
• States that it will not perform its obligations.
Any breach of contract entitles the innocent party to sue for damages, regardless of the severity of the breach.
Furthermore, one party may be discharged from his obligations under the contract because of breach by the other. However, this is not an automatic right and only arises where there has been a breach of a condition (also known as a primary obligation i.e. a major term going to the heart of the contract) or where the other party has repudiated (ended) the contract before performance is due or fully compete.
Note that there are two different kinds of breach: actual and anticipatory.
Actual breach
The breach might occur by reason of:
• non-performance; or
• defective performance
Anticipatory breach
The breach occurs when one party indicates in advance (i.e. before the performance date) that they will not be able to perform the obligation. The breach might be express or implied.
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Remedies for breach of contract
The main remedies for breach of contract are listed below.
• Damages.
• Specific Performance.
• Injunction.
Damages (compensation)
They aim to put the innocent party in the position he would have been had the contract been fully performed (‘expectation damages’).
Not all losses are recoverable, only those that satisfy the remoteness of damages test created in
Hadley v Baxendale (1854)
Victoria Laundry Ltd v Newham Industries Ltd (1949)
Koufos v Czarnikow Ltd (The Heron II) (1969)
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Today damages are only payable for:-
• Loss/damage arising naturally as a natural consequence of the breach OR
• Loss/damage which both parties would reasonably have contemplated when the contract was made as a probable result of any breach.
The claimant is under a duty to mitigate his loss i.e. to take reasonable steps to reduce it. He must take reasonable steps to minimise his losses, and not deliberately increase the loss unreasonably.
However, the claimant is only required to take reasonable steps to mitigate his loss; he need not go beyond what a reasonable person in business would be expected to do.
Liquidated damages
The parties may agree in the contract itself what is to be paid in the event of a breach. This type of term will stand if it is a genuine pre-estimate of likely loss. If not, it may be regarded as a penalty. The court will then assess compensation itself in the usual way.
What is a penalty?
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915).
If the sum payable is “extravagant and unconscionable” by comparison with the greatest loss which might be caused by the breach, it is likely to be viewed as a penalty.
If the breach consists of non-payment of money and the amount payable under the clause exceeds the amount recoverable for the breach then the clause will be a penalty.
There is a presumption of penalty if the contract provides for the same amount to be payable as damages in the event of several different types of breach regardless of the severity of the breach.
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NB – just because the parties themselves have called the clause a penalty does not make it so.
Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd (1933, AC)
Specific Performance
The court may order the defendant to perform his part of the contract in accordance with its terms. This is known as specific performance. The order is subject to the court’s discretion and is subject to the restrictions listed below.
• It will only be awarded where damages would be an inadequate remedy.
• It will not be granted if the courts cannot supervise enforcement.
• It will not be granted where the claimant acted improperly (because it is an equitable remedy).
Injunction
An injunction is a court order. It may take two forms – a court order that stops a person doing something is called a ‘prohibitory injunction’ and an order that requires him to do something is called a ‘mandatory injunction’.
Warner Bros Inc v Nelson (1937)
Page One Records Ltd v Britton (1968)
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LIMITATION OF ACTIONS
The Limitation Act 1980 imposes limitation periods in respect of certain contracts. Claims cannot be brought after the relevant limitation period has expired.
Section 5 – the action must be started within 6 years from the date of the breach if it relates to a simple contract (i.e. one not made by Deed).
Section 8 - the action must be started within 12 years from the date of the breach if it relates to a contract made by Deed.
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CONTENT OF THIS LECTURE
• Introduction to tort law
• Negligence
THE NATURE OF TORT
"The province of tort is to allocate responsibility for injurious conduct".
Lord Denning
Definition
A tort is often defined as a civil wrong which is not a breach of contract.
A tort is a breach of duty fixed by law (either common law or statutory law), committed against an individual (including companies), which gives rise to an action for damages.
Generally, a tort involves the defendant doing something (act), or not doing something (omission), which causes harm or loss or damage to the claimant. A tort also involves an element of fault on the part of the defendant.
Tort law gives rights to individuals (either natural people like us or legal entities like companies).
We enforce these rights using the civil, rather than criminal, court system and we do not need to point to a contract in order to enforce our rights. This can be useful when there is no direct contract link between us (the claimant) and the person who actually caused the liability. We cannot sue them for breach of contract (there is no contract) but we still want to hold someone liable for the loss/injury that we have suffered.
LECTURE EIGHT
The Tort of Negligence
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Example
A manufacturing company purchases some equipment for its machinery from a wholesaler. The company’s contract is with the wholesaler.
Imagine that the equipment is defective and the defect is caused by the manufacturer’s negligence. The defective equipment causes the company’s equipment to set fire and its warehouse burns down.
Imagine that the wholesaler subsequently becomes insolvent so there is no point in the company bringing an action against it even if it has breached the contract by supplying defective goods. What can the company do?
The company did not contract directly with the manufacturer so can’t sue for breach of contract. The company cannot take advantage of the contract between the manufacturer and the wholesaler either because the rules of privity of contract say that only those who are a party to the contract can sue on it. However, since the damage was caused by the manufacturer’s negligence, the company can sue the manufacturer in tort and, if it is successful, it can recover damages.
How and why does tort liability arise?
Tortuous liability arises when one party breaches a legal duty that is owed to another party. That legal duty might arise under the common law i.e. a duty created by the judges in case law or under statute i.e. a duty set down in legislation. If the duty has been breached and loss has been suffered, there will be a claim for damages.
Tort and Contract
• Both contract and tort law fall under the umbrella of private law.
• Both contract and tort law also seek to compensate the innocent party, rather than punish the wrongdoer. However, the way that they do that is different.
• In tort law, the aim is to compensate the innocent party for wrongful interference with his rights i.e. damages aim to put him in the position he was in before his rights were interfered with.
• However, damages in contract law aim to compensate the innocent party for the fact that his expectations have not been fulfilled i.e. the other party has not performed in
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accordance with their agreement. Therefore, damages in contract law aim to put the innocent party in the position he would have been in had the contract been performed correctly i.e. as if his expectations had been fulfilled.
• In tort, duties are fixed by law rather than by agreement as they are in contract law.
• In contract law, the only people who are entitled to sue in the event of a breach of contract are the people who were actually a party to the agreement. It doesn’t matter if someone else has suffered loss, only the parties can sue under a contract. This is not the case in tort law where rights are fixed by law and any person can sue any other person for wrongful interference of those rights.
It is also worth noting that a party might well breach its contractual obligations and cause liability under tort law at the same time. For example, this would be the case where a party breached his contractual promise to take reasonable care in manufacturing goods and also incurred liability in negligence for breaching the general duty of care owed to anyone who used those goods.
There are many different torts recognised in law including negligence.
ESSENTIALS OF NEGLIGENCE
1. Defendant owes the claimant a duty to take reasonable care; and
2. Defendant is in breach of this duty by being negligent; and
3. Breach of this duty has caused damage to the claimant (and the damage is not too remote).
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1. Defendant owes the claimant a duty to take reasonable care
How do you establish a duty of care?
The fundamental test is that of reasonable foresight according to the ‘neighbour principle’ of Lord Atkin in
Donoghue v Stevenson (1932)
If the claimant is not a foreseeable victim/beyond the area of reasonable foreseeability there is no duty of care.
Today the courts apply a three part test (see Caparo Industries v Dickman [1990] 1 All ER 568) to see if a duty of care is owed to the claimant by the defendant:-
• Foreseeability of harm.
• Sufficient proximity between defendant and claimant.
• Just, fair and reasonable to impose such a duty.
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2. Defendant is in breach of this duty of care by being negligent
The duty is only broken if the defendant has failed to take REASONABLE CARE (ie has been negligent)
To assess whether the defendant has taken reasonable care the court look at:
1. Magnitude of risk
2. Likelihood of injury – Bolton v Stone [1951], and
3. Seriousness of injury – Paris v Stephney BC [1951]
4. Importance of object to be attained or the usefulness of wrongdoer’s actions – Watt v Hertfordshire CC [1954]
5. Practicality of precautions, cost of making sure no harm would be caused – Latimer v AEC [1952]
6. State of medical or scientific knowledge at the time of the incident – Roe v Minister of Health [1954]
7. Common practices – see Bolam v Friern Barnet HMC [1957], will be ignored if in the opinion of the court the common practice itself is negligent, see Bolitho v Hackney HA [1998] AC 232
The courts weigh up factors 1+ 2 + 3 against factors 4 + 5 + 6
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CAUSATION
Liability arises only if it can be proved on the balance of probabilities that ‘but for’ the BREACH there would have been no injuries.
Barnett v Chelsea & Kensington HMB [1969]
Chain of causation can be broken by novus actus interveniens.
McKew v Holland [1969]
3. Claimant suffered loss or injury as a result of the breach of the duty of care by the defendant
There will be no liability if the damage is too remote (damage not reasonably foreseeable).
Wagon Mound (No1) (1961)
But note the “thin skull rule” which provides an exception to the principle established in Wagon Mound. If the type of injury was foreseeable, but not the seriousness of injury to that particular victim, the defendant will nonetheless be liable for the damage.
Smith v Leech Brain (1962)
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The Tort of Negligent Misstatement
The tort of negligent misstatement is part of the wider tort of negligence.
A person might suffer loss or damage by relying and/or acting upon negligently prepared advice or information. The tort of negligent misstatement operates to provide a right of action for such people so that they can be compensated for the losses they have incurred by relying on the advice or information.
For a claimant to succeed in an action for negligent misstatement, it must be established that the defendant:
• owed a duty to take reasonable care;
AND
• acted in breach of that duty;
AND
• this resulted in the loss suffered by the claimant.
In Hedley Byrne v Heller [1963] an advertising agency was given a reference from a client’s bank which said that the client was credit worthy.
The House of Lords held that there was a duty of care not to make a statement carelessly (the reference) which causes economic loss to another.
To prevent unlimited claims, in order for a duty of care to be established it is not enough that an adviser can reasonably foresee that negligence could result in a claimant suffering financial loss. It is necessary for the adviser and recipient to be in a 'special relationship'. This is to prevent someone being liable for an acceptably large group of potential claimants for an indeterminate period eg potential investors in a privatisation.
The criteria for deciding whether a duty of care arises were tightened by the case of Caparo Industries v Dickman.
Did the defendant……….
• reasonably anticipate how advice would be used?
• know the destination of the advice?
• could D have reasonably anticipated that claimant would act upon the advice without seeking further clarification/independent advice?
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Caparo Industries plc v Dickman [1990]
The claimant was a company which owned shares in another company called Fidelity plc. The defendant was a firm of accountants.
The accountants prepared accounts for Fidelity plc. The accountants negligently stated in the accounts that Fidelity plc had profits of £1.3 Million when in fact it had made a loss.
Claimant relied on accounts and increased its shareholding in Fidelity plc. In fact, it later took over the company completely before discovering that the company was in fact worth far less than it had been led to believe.
The House of Lords held: no duty of care existed between the accountants and the claimant. House of Lords was influenced by the fact that the purpose of the accounts was to help shareholders decide how to vote at the AGM, not to aid their decision as to whether or not to increase their investment in the company.
What can you claim in damages if you are the victim of a negligent misstatement?
Economic loss – “loss independent of physical injury to person or property”
Pure economic loss not recoverable
Weller & Co v Foot and Mouth Disease Research Institute [1965]
Consequential economic loss is recoverable
Spartan Steel and Alloys v Martin [1972]
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CONTENT OF THIS LECTURE
• Vicarious liability.
• Defences in tort.
• Remedies in tort.
VICARIOUS LIABILTY
Vicarious liability is where one person is made liable for a tort committed by another person.
An employer is vicariously liable for the tortuous acts of his employees committed during the employees’ course of employment.
However, a company is not usually vicariously liable for the acts of independent contractors.
Who is an employee?
Historically, any person who was under the control of another was found to be a servant (employee).
However, this test was found to be inadequate and today the courts look at all the circumstances surrounding a particular case to ascertain whether or not a person is an employee. Giving someone the label of employee is not sufficient. Equally, calling someone a contractor does not avoid vicarious liability; the courts look at the reality of the situation.
Ready Mixed Concrete v Minister of Pensions (1968)
Essentially, provided that the activity which led to the tort was sufficiently closely connected with the employee’s contractual employment duties, the employer will be vicariously liable. It does not matter that the employee was disobeying orders or acting negligently.
Century Insurance v The NIRTB (1949)
LECTURE NINE
Negligence - Defences and Remedies
Vicarious Liability
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Note that there must be some connection between the actions of the employee and his job.
Beard v London Omnibus Co (1900)
Note the impact of public policy in determining the extent of proximity when assessing vicarious liability.
Lister v Hesley Hall (2001)
DEFENCES
Volenti non fit injuria
This is also known as consent. The defence is available if:
• the claimant knew of the risk; and
• he freely consented to it.
ICI v Shatwell (1964)
This defence is rarely available to employers, as employees are often under pressure to do dangerous work
Smith v Baker (1891)
The defence is not available if the claimant was injured while rescuing someone from a situation that was created by the negligence of the defendant. In such circumstances, the claimant is not deemed to have consented to the risk because ‘danger invites rescue’.
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Sylvester v Chapman (1935)
Contributory negligence
This is a partial defence, which reduces the amount of compensation that is payable to the claimant on the basis that the claimant failed to take reasonable care with respect to his or her own safety.
Sayers v Harlow UDC (1958)
Stone v Taffe (1974)
Illegality
When a person is injured while he is participating in an unlawful activity, and the injury is directly related to that illegality, this provides an absolute defence (Ashton v Turner [1980] 3 All ER 870) - 2 burglars A + B having committed a robbery got in to their get away car driven by C. Due to C’s negligent driving B was injured. B attempted to sue C for negligence. Held B could not sue C as NO duty of care arises in the commission of a crime.
REMEDIES IN TORT
The remedies for tortuous claims are damages and/or injunction - see earlier notes.
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Contents of this lecture
Who is an employee?
Why does it matter?
The employment contract
Who is an employee?
A business may have both its own employees working for it under a contract of service (eg university lecturers, supermarket staff) and independent contractors (self employed) working for the business under a contract for services (eg consultants).
A worker who works for another may do so either as an employee or as an independent contractor
EG an hourly paid bricklayer working full time for a local authority will be an employee, whereas if your employ a bricklayer to build a garage for you for £6000,he will be self employed.
Text books often refer to someone who is self employed as an independent contractor. The terms mean the same
It can be difficult to make the distinction between an independent contractor and an employee. In practice this distinction depends on many factors
Aids to assist making the distinction come from both Parliament in the form of statutory guidance and common law (the judiciary):-
LECTURE TEN
Analysis of an Employment Contract
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Statutory Aids The Employment Rights Act 1996 S.230 (1) defines an employee as “an individual who has entered into or works under a service contract or apprenticeship” This isn’t very helpful – how is a service contract or apprenticeship defined in the statute? Does the definition help? A contract of employment is one of personal service, thus if the individual working can delegate his task or substitute a replacement then the essential element of personal service is missing. Judicial Aids The courts look at the reality of the situation and may ignore titles or labels given to the worker. Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National
Insurance 1968
A lorry driver was held NOT to be an employee but rather an independent contractor because on occasion he could substitute another driver to do his work provided he obtained the consent of the company which used his services.
Stafford Sentinel Newspapers v Porter 2004 In contrast to Ready Mixed the court here held a limited rather than a general power of delegation may not be inconsistent with an employee status. Over time the courts have devised tests to help make the distinction but no one single test is conclusive. These tests tend to be vague and sometimes difficult to apply in marginal cases. The Control test If there is evidence to show the employer had control not only of what work was done but also how, when and where the work was done may indicate an employee/employer arrangement. If this control cannot be established then the worker may be an independent contractor. As technology and industry have developed specialised skilled workers are often not under the direct control of their employers due to their unique skills (eg in the medical profession where hospital managers are unable to control their surgeons to a great extent).
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The Integration test Is there evidence to show the worker is part and parcel of the business? Is his work an integral part of the business? If so then the worker may well be an employee. If not then he may be an independent contractor. What is meant by “an integral part of the business”? This phrase can be hard to define This test runs in to problems if businesses contract out their services eg councils + refuse collection or school meals - should rubbish collectors be considered to be employed by the council or the company which is contracted by the council to collect the rubbish?
Lee V Chung (1990) The Multiple or Economic Reality test As no one test has been found to fit all cases and categorically determine the status of a worker under this test all the facts of the case are considered including:-
• whether the worker was working on his own account • did the worker agree to provide his own work and skill in return for a wage or other
payment? A worker who can send a substitute to do his work is most unlikely to be an employee
• did the worker agree, expressly or impliedly that he will be under the control of the person paying for his work?
• Are the rest of the terms of the arrangement consistent with a contract of employment?
Carmichael V National Power (1999) Whilst this test gives flexibility to the courts it does increase uncertainty as it allows judges to subjectively weigh evidence. What about home workers, casual workers and agency workers – what status do they have?
Franks V Reuters (2003)
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Motorola V Davidson and Melville Craig (2001)
Airfix Footwear Ltd V Cope (1978)
Nethermere of St Neots v Gardiner & Taverna (1984)
Why does it matter if someone is not an employee?
1. Liability in tort – vicarious liability.
2. Income tax and National Insurance – employees pay income tax under schedule E whereas the self employed are taxed under Schedule D. This allows the self employed to set off business expenses against income tax and to pay their income tax in arrears. Employees pay Class 1 National Insurance contributions. The self employed pay their own under Class 2. Employers hiring anyone who is self employed are relieved of the administrative burden of deducting income tax and National Insurance as it is the responsibility of the self employed to pay these.
3. Many statutory employment rights are reserved solely for employees – eg unfair dismissal, maternity rights, and redundancy rights.
4. Health and safety issues – the duty owed to employees is theoretically stronger than that owed to the self employed.
5. Several EC Directives only offer protection to employees EG Directive 77/187 on the transfer of Undertakings and Directive 80/9876 on the rights of employees when an employer becomes insolvent.
6. Implied terms – there are rights and duties implied by statute in to contracts of service eg copyright and patents.
7. In bankruptcy an employee has preferential rights as a creditor for the payment of outstanding salary and redundancy payments up to a ceiling. An independent contractor will be treated as a non-preferential creditor if their employer is liquidated.
8. Statutory sick pay - there are differences between the levels for an employee and an independent contractor.
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The Employment Contract This does not have to be in writing. The Employment Rights Act 1996 S.1 obliges an employer to provide an employee with a written statement of the key terms of the employee’s contract within two months of starting work. What are these key terms? Failure to provide this statement does not invalidate the contract. The statement is merely intended to provide an employee with sufficient written evidence of some of the conditions under which they are employed to enable them to enforce their statutory rights. Sources of the terms of the employment contract The terms of the contract will not generally be found in one written document since they may be both express and implied and may be traced from more than one source. What are the express terms? These can be written or verbal or both Any implied terms? These may come from a number of sources:-
• Custom & practice • Works & staff rules • Collective agreements • Statutes • Common law rights and duties of both the employer and employee
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Contents of this lecture:-
• Termination by notice
• Dismissal
• Redundancy
Termination by notice When an employment contract is terminated by the correct amount of notice there is NO breach of contract unless the contents of the notice (eg the notice period) are themselves in breach (eg how the notice is given or the length of notice) To validly terminate a contract of employment by notice these rules must be followed:-
1. The period of notice given must not be less than the statutory minimum, whatever the contract may specify.
2. Notice may only be given without specific reason for doing so unless the contract
requires otherwise
3. If the contract states that notice may only be given in specific circumstances then generally it may NOT be given for any other reason
Although there may be no breach of contract, termination by notice or non renewal of a contract ending by effluxion of time may qualify as ‘dismissal’ under legislation. The employee may be entitled to compensation for unfair dismissal What is the minimum statutory period of notice? See S.86 The Employment Rights Act 1996. Dismissal Dismissal is a word used to describe termination of an employment contract by the employer. It can be used to cover several different situations:- ♦ Wrongful dismissal ♦ Summary dismissal ♦ Constructive dismissal ♦ Unfair dismissal
LECTURE ELEVEN
Dismissal and Redundancy
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All bar unfair dismissal are common law issues involving contractual rights. Summary or Instant dismissal This is where the employer dismisses an employee without notice contrary to any notice provisions in the contract of employment. An employer may do so if an employee has committed a serious breach of conduct (gross misconduct) and incur no liability for such action. If an employer has insufficient justification for such action the employer is liable for breach of contract and the employee may claim the remedy of wrongful dismissal
Pepper V Webb (1969)
Wilson V Racher (1974)
Wrongful dismissal If an employer:-
dismisses an employee without notice, or
the notice given is too short, or
disciplinary procedures were not followed by the employer the employee may be able to claim for breach of contract and damages for wrongful dismissal. As the action taken is for breach of contract the courts will usually only award damages amounting to the sum that would have been earned if proper notice had been given. The wronged party is expected to mitigate his loss by say seeking other employment
Samuel V London Borough of Lewisham (2001) A dismissal will not be wrongful if it is justified – when is it justified?
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Constructive dismissal If an employer unilaterally imposes a change in one or more of the essential terms of the employment contract and the employee resigns as a result. The employer is liable for breach of contract in the form of a claim for constructive dismissal by the employee. Examples of breaches of contract that have led to claims of constructive dismissal ♦ Reduction in pay ♦ Complete change in the nature of the job ♦ Failure to follow prescribed disciplinary procedures ♦ Failure to provide suitable working environment
Western Excavating (ECC) Ltd V Sharp (1978)
Unfair dismissal This statutory right was introduced in 1971. Today the law is set out in the Employment Rights Act 1996 which sets out in detail what are fair reasons and what are automatically unfair reasons for dismissal and stipulations to prevent the dismissal being handled unfairly. It can and frequently does occur without there being any breach of the employment contract. Claims are heard not in the courts but in Employment Tribunals. It occurs if an employee is dismissed from his job and the employer does not have a valid reason for the dismissal or has acted unreasonably. Eligibility to claim is set out in the Employment Rights Act 1996 1. One year’s continuous employment (note there are exceptions to this requirement see
S.99). 2. An employee must prove there has been a dismissal and it was not for one of the five fair circumstances set out in the Act or if it was the employer did not handle the dismissal fairly (S.98)
Boychuk V Symons Holdings (1977)
Parsons V McLoughlin (1981)
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It is generally a mistake to sleep with your employer’s spouse!
Whitlow V Alkanet Construction (1987) Remedies for unfair dismissal Under the Employment Rights Act 1996 the following may be ordered:-
Reinstatement - rarely ordered
Re-engagement - rarely ordered
Compensation (including a basic award, compensatory award and an additional award) Redundancy A redundant employee may have the right to make one or both of these claims against his employer: –
a redundancy payment
unfair dismissal What is redundancy? An employer may reduce the size of his workforce making some employees surplus to requirements. – these workers may have a statutory right to a redundancy payment from their employer due to the loss of their jobs Should an employer be found not to have used good industrial practice when selecting for redundancy he may also face a claim for unfair dismissal from those employees. If an employer is found to have acted unfairly he may have to reinstate these employees or pay them a compensatory award.
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Who can claim for a redundancy payment? A redundant employee must be able to satisfy the following:-
Two year’s continuous service
Have the relevant employee status (ie don’t work outside the UK)
Been constructively or actively dismissed – see Employment Rights Act 1996 S.136 (including the death of the employer)
Redundancy has caused the dismissal – see Employment Rights Act 1996 S.139 Remedies for redundancy The statutory formula for calculating a redundancy payment is based on the age of the employee, the length of service with the employer and the employee’s week’s pay (currently the maximum is £310 but an employer can voluntarily pay more) Unfair dismissal arising from redundancy Under the Employment Rights Act 1996 S.98 a redundant employee may have an additional claim against the ex-employer for unfair dismissal. If successful he will be entitled to compensation) The employer will have to prove he acted reasonably and without bias when making his redundancy selection. This includes giving proper warnings to the relevant employees, adequate consultations and proof of attempts to find alternative employment A tribunal will take in to account the size and resources of the employer