contract law Cases

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Law Case File: Contract Law

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Transfield Shipping Inc v Mercator Shipping Inc (“The Achilleas”) [2008] UKHL 48

Remoteness of damage

Ship-owners let a ship on a time charter, to end no later than 2 May 2004. In April2004 market rates on the charter had more than doubled. The owners therefore arranged a new charter with a third party, promising delivery of the ship no later than 8th May. The ship was not returned by the charterers until 11 May. By this time market rates had again fallen, and the third party took the ship at a rate reduced by $8,000 per day. The owners claimed damages from the charterers at the rate of $8,000 per day for the whole six month contract with the third party. The defendant charterers argued that this damage was too remote and that they were only responsible for damages during the period of delay (9 days).

The House of Lords held that there is more to remoteness than just a factual issue of probability or likelihood, and that it is also a question of what the parties had in mind. As the charterers had no knowledge of the third party contract, they could not have had the sort of loss sued for in mind. They were only liable for the damages during the 9 days delay.


Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10

Explanation of terms – “officious bystander” and “business efficacy” tests

In this case, Lord Hoffman in the Privy Council gave an explanation, and an easy-to-use reformulation, of the ‘officious bystander' and ‘necessary to give business efficacy' tests. He stated that these tests are:
“...not... to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?” (at [21)


Barry v Davies (Trading as HEathcote Ball & Co) [2000] 1 WLR 1962

Offer and Acceptance – Auction sales without reserve – collateral contract

A seller put up two engine analysers for sale by auction, with no reserve. The price of the machines would have been £14,521 each if they had been new. The claimant was a bidder at the auction. He bid £200 for each machine, and was the highest bidder. The auctioneer refused to sell the machines to the claimant for such a low price, despite the ‘no reserve' sale. The claimant brought an action against the auctioneer for breach of contract.

It was held by the Court of Appeal that there was a collateral contract between the auctioneer and the highest bidder. The offer was made by the auctioneer to sell to the highest bidder, and this was accepted when the bid was made.


Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15

Misrepresentation – representation made by conduct

The claimants, the Spice Girls, entered into a contract with the defendant motorcycle manufacturer under which the defendant agreed to sponsor the Spice Girls' tour in return for promotional work. The contract was signed on 6 May 1998. Geri Halliwell left the band on 27 May that year. The defendant discovered that Halliwell informed the other members of the group of her decision to leave prior to the signing of the contract. The defendants claimed they had been induced to enter the contract by a misrepresentation. The claimants denied misrepresentation.

It was held by the Court of Appeal that the Spice Girls had made a misrepresentation by conduct in that all of the members participated in a commercial photo shoot, at considerable cost to the defendants, at a time when they knew that one member was to leave. They also engaged in other conduct, such as the supply of logos, images and designs, which included the five Spice Girls, which also amounted to misrepresentation.


Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1

Consideration – performance of existing obligations

The defendant building contractors entered into a contract with the plaintiff carpenter. The plaintiff was to carry out work in 27 flats. The price was £20,000. The plaintiff fell into financial difficulties, partly because the contract price was too low. The defendants were subject to a ‘penalty clause' under the main contract on the flats. The defendants therefore agreed to pay the plaintiff an extra £575 per flat. The defendant failed to pay the extra money.

The question for the Court of Appeal was whether the plaintiff's performance of its existing contractual duty to complete the work on the flats could amount to sufficient consideration for the promise of the additional payment.

The Court of Appeal held that consideration was present in the form of ‘practical benefits' which would be obtained by the defendants, in the form of their avoidance of the penalty clause.

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