Alan had a contract with asl
In our scenario, we are requested to advise Alan, Barbara and Charles (the plaintiffs) as to their legal remedies against Allthings Supplied Ltd (ASL) following the formation of separate contracts by them with the latter. Since, we are faced with different set of facts and issues we shall consider the legal remedies of the plaintiffs individually.
Alan had a contract with ASL under which the latter was under an obligation to supply and install an oven in Alan's restaurant by 1st November 2008, in time for the grand opening. However, ASL failed to perform their obligations by delivering the oven late which caused the Alan not to open until 5th November 2008. On these facts it seems prima facie that ASL are in breach of contract. The consequence for Alan would be that Alan can claim damages for breach of contract.
In Alan's contract with ASL, time was fixed as to performance of the contract; that is the oven should be made available for use for the grand opening. As a general rule under common law, time of performance is a condition as established in Comp Sucre et Denree v C Czarinikow Ltd. As a result, Alan is entitled to terminate the contract; however Alan did not elect to do so as he failed to notify ASL of his repudiation of the contract. Alan's silence affirmed the contract and this is irrevocable.
Alan can however claim for the damages for losses incurred following late delivery by ASL. The purpose of awarding damages in contract is to put the plaintiff in the position he would have been had the contract been performed according to its terms. This is subject to the doctrine of remoteness of damage which attempts to limit liability within acceptable bounds.
The first heading under which Alan can claim damages is reliance loss; this would allow Alan to recover losses involved in foregoing the opportunity to enter other contracts. Since, we are unaware of the existence of other building supplier who could have performed the contract in a more timely fashion, this will not be argued. Notwithstanding that Alan can claim his out of pocket expenditure incurred in the course of performance of the contract. In McRae v Commonwealth Disposals Commission, reliance loss was awarded due to the extremely speculative transaction.
In the case of Alan it is debatable whether the transaction is extremely speculative in nature that it cannot be quantified. In Anglia TV v Reed, it was held that damages could be recovered in respect of pre-contractual expenditure. This is limited by the fact that the expenditure must have been within the reasonable contemplation of the parties to be wasted if the contract was broken.
Under a claim for reliance loss, Alan may be entitled to recover the £15,000 spent on advertising. It is submitted that it must have been within the contemplation of both Alan and ASL that the money spent on advertising will be wasted if the contract is not performed satisfactorily.
A second heading under which Alan can attempt to recover damages is expectation loss. The purpose of expectation loss is to compensate the innocent party for what he expected to gain from the contract. In our scenario, Alan was looking forward to the grand opening of his restaurant and consequently realise a profit from the advance bookings and the wedding party. Since the loss has already been suffered by Alan, the aim of damage would be to remedy the loss suffered. Alan is entitled to insist on his right under the contract. This can be witnessed in Radford v de Froberville, whereby the full cost of cure was awarded though a lesser sum of would have fulfilled the purpose of the contract. The idea being that the innocent party is entitled to get what he contracted for. A more lenient approach has been adopted by the House of Lords in Ruxley Electronics and Construction Ltd v Forsyth, whereby the cost of cure was denied as it was out of proportion to the benefit that would have been obtained under a full performance of the contract.
It is arguable that in Alan's case, the loss of profit is speculative since it is not unlikely that some customers may cancel their bookings which would cause Alan's profit to decrease. Court can sometime award expectation loss even when it is speculative and difficult to assess as in Chaplin v Hicks. On a more abstract note, damages have been awarded for loss of opportunity following late delivery in Simpson v London and North Western Railway Co (1876). Loss of potential profit was speculative but not completely impossible to assess.
In Alan's case, he loss £7000 on advanced bookings and £8000 prospective profit from a wedding party. Whether Alan will be entitled to claim both losses will be subject to the court applying the doctrine of remoteness of damage from Hadley v Baxendale. Accordingly only losses arising either naturally or in the contemplation of both parties as the probable result of breach of contract can be recovered by way of damages.
In Alan's case, ASL must have contemplated that a breach of contract by them would give rise to losses by Alan. The losses contemplated would be what is reasonably expected to be the daily intake of such a restaurant. This will have to take into account factors such as whether Alan is a famous chef and so on. The figure reached may not necessarily agree with that actually reached on the basis of the advanced bookings (£7000), but the former figure will be used when awarding damages. As to the losses suffered from the wedding party, they are unusual losses and following the decision in Victoria Laundry (Windsor) Ltd v Neuman Industries, such losses will only be recoverable if the party in breach has notice of the special circumstances. Accordingly, Alan will recover damages for the losses arising from the wedding party if ASL had notice of the special circumstances.
ASL may bring forward the fact that Alan failed to mitigate his losses, this does not involve Alan undertaking extraordinary steps to mitigate but merely taking such reasonable steps as required. In Payzu v Saunders, the court held that a plaintiff is not allowed to sustain an unnecessary loss. In Alan's case, he could have mitigated his losses by making use of the oven he had available. It will be up to the court to decide whether it was reasonable to do so, and if the court find out it was, the amount of damages awarded will reduced by the amount he could have mitigated.
A further defence to Alan's claim is the doctrine of frustration which operates to discharge the contract. As in Taylor v Caldwell, impossibility of performance may frustrate the contract as nearly all the routes were flooded. It may prove tricky to argue by ASL as on the fact this does not mean that all the access routes were flooded which may prevent the doctrine of frustration from operating. Furthermore, court are quite reluctant to apply frustration due to its drastic result; bring the contract to an end irrespective of the parties wishes.
Having reviewed the different aspect of the case, it is submitted that Alan may claim for damages for the advertising cost and the daily loss in profit caused by the delay. However, the profit for the wedding party will only be recoverable if ASL had notice of the latter being held at Alan's restaurant. However, if Alan's decision not to use his existing oven is unreasonable he may have the amount of damages awarded reduced. As far as frustration is concerned, it is not submitted to be a major issue though it may be argued by ASL.
In Barbara's case, she had a contract with ASL to build a special shower unit. However due to the negligence of a workman, Barbara slips and breaks her knee when entering the shower. Furthermore, Barbara cannot use her bathroom until the repairs are completed. ASL claim they are not liable by pointing to a clause in the contract which states ‘ASL are not liable for any damages or injuries howsoever caused'. These clauses known as exemption clauses enable the parties to a contract to escape legal liability or limit its scope. In Barbara's case, the clause is an exemption clause whereby ASL are attempting to exclude their liability.
The exclusion clause will be operative only if the following requirements have been satisfied:
Incorporated into the contract
Covers the breach
Operation not limited statute
In Barbara's case, the exclusion clause is to be found within the contract. As such, nothing is said in the scenario as to whether Barbara had signed the contract or been given reasonable notice as to the clause. We can therefore presume that the most likely mode left of incorporating the clause into the contract would be by a course of dealing.
In McCutcheon v David MacBrayne, the term was not incorporated because it was not signed but more importantly past practice was itself inconsistent in this case. In Hollier v Rambler Motors (AMC) Ltd, one dealing a year was held to be insufficient to constitute a course of dealing. Thus what is required to constitute a course of dealing is a series of transaction that are both ‘consistent' and ‘regular'. In Henry Kendall v Williams Lillico, three or four transactions per month over a three year period was held to amount as such.
In Barbara's case, having previously dealt with ASL to supply and fit a kitchen and bedroom wardrobes would not suffice to amount to a course of dealing. Thus the exclusion clause ASL is seeking to rely on has not been incorporated and is thus ineffective. If however the court decides that the exclusion clause has been incorporated by a course of dealing or otherwise, we need consequently to consider whether it actually covers the breach in issue.
In construing the clause, the court will adopt a narrow approach to the latter and in the event the clause is ambiguous, the court will adopt the meaning least favourable to the party seeking to rely on it as evidenced in Beck & Co v Szymanowski & Co . In Barbara's case the exclusion is submitted to be very broad and ambiguous; the court will interpret it in the least favourable way towards ASL.
The Canadian case Canada Steamship Lines v The King, since applied by the House of Lords in Smith v South Wales Switchgear Ltd, held that exclusion clause would only cover negligence liability where it was the sole liability covered by the wording. Furthermore, in Rutter v Palmer although word ‘negligence' was never used in the exemption clause, it was the only liability the party could seek to exclude and was thus operative in that instance. If the party is seeking to exclude negligence specifically and there are numerous head of claims, he must do expressly as stated by Scrutton LJ in Hollier v Rambler Motors (AMC) Ltd
ASL exclusion clause mention nothing as to negligence and contract as the one entered into by Barbara, negligence is not the only claim which may arise. Therefore, liability for negligence is not excluded by the clause. Even though it could have been expressly stated to cover negligence liability for personal injury, its effectiveness would have been rebutted by s2 Unfair Contract Terms Act 1977 which precludes any such exemption clauses.
Since the exclusion clause is ineffective, Barbara can bring a claim for breach of a statutory implied term namely s13 Supply of Goods and Services Act 1982 whereby the supplier is required to exercise reasonable care and skill when providing a service. Barbara would need to establish fault that is negligence by ASL. In addition, Barbara can claim damages for loss of amenity suffered, as her bathroom could not be used for two weeks while the repairs were being carried out.
Charles had a contract with ASL to build a ‘SuperBeckham Garage II) but when it was half erected they both discovered that it was an earlier model known as ‘SuperBeckham Garage I). ASL decided to terminate the contract and are now seeking payment for the work they have already completed. It appears that we have both issues of misrepresentation and mistake.
In order to be an actionable misrepresentation, the statement must be an unambiguous statement of present fact which is false and induces the other party to enter into a contract. As held in Economides v Commercial Union Assurance Co, a statement of opinion is not sufficient. However, in Esso v Mardon, although it was a statement of opinion, it was an informed opinion as the appellant were in a better position to know the fact.
In Charles case, ASL may have made a statement of opinion to them as being ‘the specialists' when it comes to designing and building garages. However, ASL were in a position to know the facts and were therefore an informed opinion. Furthermore, the director knew the statement was false as ASL have never designed garages.
The statement must have induced Charles to enter into the contract. In Redgrave v Hurd, it was held that there was no duty to check the facts of the statement but if reliance is placed on own expert rather than on seller's statement as in Attwood v Small, cannot rescind the contract on the basis of misrepresentation as never relied on seller's statement.
Charles did rely on the director's statement to enter into the contract and there no duty upon Charles to carry out independent checks on the veracity of the statement. Consequently we do have an actionable misrepresentation. The remedies available to Charles will depend on the nature of the misrepresentation.
One remedy available to all type of misrepresentation is rescission; the contract is set aside ‘ab initio'. Since no bars to rescission seems to apply in this case, Charles can rescind the contract.
Furthermore, damages can be awarded as a fraudulent representation was made to Charles; the director made it knowingly without belief in its truth as defined in Derry v Peek. The quantum of damages is such that the defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement per Lord Denning in Doyle v Olby Ironmongers which was futher expanded in Smith New Court Securities Ltd v Citibank NA. But to establish fraud is difficult, a more reasonable claim would be for negligent misrepresentation whereby damages can be claimed under s2(1) Misrepresentation Act 1967. Charles will only need to establish that the statement induced him to enter into the contract, the burden of proof will then upon ASL to establish that they believed that the statement was true until the contract was entered into.
Both Charles and ASL were acting under a mistake as to the quality of the garage being built.
Initially it was not possible to terminate a contract by reason of quality mistake as held in Bell v Lever Brothers Ltd. It was stated obiter that quality mistake would only suffice to terminate a contract only in cases where both parties are acting under a mistake and without the quality make it essentially different. As seen in Nicholson and Venn v Smith- Marriott, the quality possessed by the linen was of significant importance but this may not always be the case as held in Leaf v International Galleries
In our case, the quality the garage possessed was of significant importance when entering into the contract with ASL. This is evidenced by the fact that Charles insisted that the garage should be the latest model known as the ‘SuperBeckham Garage II). This would allow Charles to terminate the contract.
As to paying ASL, partial performance of an entire obligation cannot entitle the latter to payment for his part performance as held in Cutter v Powell. Furthermore, the doctrine of substantial performance would most likely be inapplicable as there has been a total failure of consideration; Charles never got the ‘SuperBeckham Garage II', the only reason he entered into the contract with ASL.
Beatson J, Anson's Law of Contract, (28th Edition, Oxford University Press, 2002)
McEndrick Ewan, Contract Law Text, Cases and Materials, (2nd Edition, Oxford University Press, 2005)
Poole Jill, Casebook on Contract Law, (7th Edition, Oxford University Press, 2005)
Treitel G.H, The Law of Contract, (11th Edition, Oxford University Press, 2003)