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Claim for Loss of Profit

Info: 2905 words (12 pages) Law Essay
Published: 6th Aug 2019

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Jurisdiction(s): UK Law

The summarisation explores many different issues. Firstly whether Paver can claim for his loss of profit will depend on whether he can be estopped. Secondly, whether Charles can rescind the contract due to a misrepresentation made. Also if Charles has a right to terminate the contract due to breach of contract depends upon whether clause 7 can be relied upon, and similarly whether he can then claim damages depends upon whether clause 8 is found to be fair under Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999. Finally Charles right to reject the tiles will be subject the The Sale of Goods Act 1979.

Promissery Estoppel

Under contract Paver has a right to claim money for not being able to complete the work, however if Paver claims £10,000 from Charles for loss of profit he may not succeed due to Law on Promissory estoppel established in the Central London Property trust Ltd V. High Tree House Ltd. (1974) [1] case. In this case Lord Denning held estoppel to be ‘a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made and which was in fact so acted on’ [2] . Therefore Promissory estoppel arises when A promises B that he would not enforce his legal rights and B acted and relied upon it without giving any consideration, equity would not allow A to go back on his promise to B.

Arguably Paver promised to give up his right to claim for the £10,000 for loss of profit during negotiations. In order for Paver to be estoped form going back on this promise it must satisfy three criteria’s. Firstly that one of the parties has a legal or contractual right, in this case Paver had the right to claim the money if he didn’t do the work. The second element states that, either expressly or impliedly, he promises that he will not enforce that right; although Paver did not state he would give up this right it is argued he implied it by telling Charles not to worry as he would bring in extra men to complete the work on time. Finally whether or not the promise changed his position in reliance of the promisor, often this means that the promise suffers detriment as in as in Ajayi V. Briscoe (1964) [3] . It also includes where the promise alters his position as a result of relying on that promise even though he suffers no detriment. In Alan Co. Ltd V El Nasr & Import Co. (1972) [4] , Lord Denning held that detriment is not an essential element of promissory estoppel. Here, although Charles suffered no detriment, it is clear he changed his position by way of a compromise made between himself and Paver. Had Paver not have made that promise, Charles would not have entered the contract.

In that case it would be inequitable for Paver to renege on his earlier promise and to not claim the 10k if he didn’t finish the work, he would therefore be estopped from doing so. It needs to be highlighted that promissory estoppel however is limited and can only be used as a defence and not as a cause of action. In Combe V. Combe 1951 [5] , the court held that promissory estoppel does not create a cause of action. It is a rule of evidence that prevents the promissor from denying the truth of statement which the promisee had relied. Therefore Charles can use it in defence of any claims made by Paver but not as a cause of action against him.

Misrepresentation Act 1967

As noted before Paver stated the Charles did not have to worry about the “time delay” exclusion clause and if weather affected his ability to complete the work on time he would bring in extra men from other jobs to speed up the work.

The Misrepresentation Act 1967 provides remedies in circumstances where by a statement of fact, which was used to influence the other parties decision, and was relied upon by the misrepresentee is found to be untrue. In order to establish whether or not Pavers statement was a misrepresentation, two conditions must be satisfied, it must be a false statement of fact made prior to the contract and it must induce the other party into the contract. From the evidence of the case it is clear that Charles was persuaded into the contract as a result of the statement, as he only accepted the compromise from the reassurance of Paver. Nonetheless Paver believed that he did have these extra men when negotiating with Charles, only to later find that these men were not available and just presumed he could find more. However, he did not make Charles aware of this before he signed the contract; there is a general rule that silence does not amount to misrepresentation laid out by the House of Lords in Hamilton v Allied Domecq Plc 2007 [6] . However their have been fundamental exceptions to this rule; In With v O’Flanagan, Lord Wright said that: ‘if a statement has been made which is true at the time, but which during the course of negotiations becomes untrue, then the person who knows that it has become untrue is under an obligation to disclose to the other the change of circumstances.’ [7] Therefore Paver was under a duty to tell Charles that he no longer had the men available to him when he became aware of it.

Charles can claim under section 2 (1) of the Misrepresentation Act 1967, which offers a legislative source for a claim in non-fraudulent misrepresentation. This section advocates the person making the misrepresentation will be liable in damages unless he proves he had reasonable grounds to believe and did believe that the facts represented were true. This would require Paver to prove he believed he could get in extra men and complete the work on time. Paver is said to have assumed wholly that he would have men on hand to complete the work on time, and if he can prove this it will not be regarded as negligent misrepresentation. However it is possible to prove innocent misrepresentations, this occurs when a false statement made which the person honestly believed to be true. The remedy available here would be rescission with an indemnity, or damages in lieu of rescission under the courts discretion in s2(2) Misrepresentation Act 1967. It is most likely however that rescission would be granted in this situation.

Misrepresentaion Act 1967 s, 3

However, Paver has attempted to exclude liability for misrepresentation in clause 5 of the Paving Associations Terms and Conditions 2008. Any term of a contract which excludes liability for misrepresentation or restricts the remedy available is subject to the test of reasonableness this was laid out in section 3 of the Misrepresentation Act 1967, as amended by s8 of UCTA 1977.

Essentially the act covers straightforward exclusion of liability that explicitly states a misstatentment. Arguably the clause stated prevents there being a representation at all, and therefore does not exclude or restrict liability and does not fall within the Misrepresentation Act s,3. However it has been argued that the act can also cover broader circumstances whereby the clause states to deny reliance on “any” statement made [8] , therefore it is possible clause 5 will be within the scope of s, 3 of the act and will also be subject to the reasonable test laid out in the UCTAct 1977. Section 11(1) provides 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.” Guidelines to the reasonable test are outlined in Schedule two of UCTA 1977. Clause 5 states that the documents signed form the entire agreement, and the customer agrees that he has not relied on any warranty or representation. It appears to exclude liability for any previous negotiations or representations. This is debatably unreasonable; given that he was aware of the importance of the statement in alleviating Charles’ worries about delay and procuring his assent to the agreement, Paver ought to have been familiar with and contemplated the conflict with Clause 5. Having done so, he would have assumed that he would not be able to rely on such a clause in these circumstances. In finding that clause 5 is unreasonable would alleviate the constraint over Charles being granted rescission for Misrepresentation.

Unfair Contract Terms Act 1977 / Unfair Terms in Consumer Contracts Regulations 1999

Paver is in breach of contract by not completeing the work on time, set out in the contract, however due to exclusion clauses contained within the act, Charles has no cause of action, unless statutory controls over these exclusion clauses find them unfair or unreasonable and Paver loses the protection of these exclusion clauses. As a consumer under UCTA s,12 Charles can challenge either of the relevant clauses on the grounds that they are unfair.

Clause 7

Paver has agreed to complete the work by the 15th June, this clause excludes all liability for the delay in completing the work. Shedule 2 in UCTA lays out guidelines in deciding whether a clause is reasonable, paragraph (c) state that the customer is aware of the extent of the term. Had Paver incorporated a clause restricting liability for time delay due to bad weather this could have been seen to be reasonable. However the potential use to which the clause might be put would appear unreasonable. This was similar to the case of Stewart Gill Ltd v Horatio Myer and Co 1992 [9] whereby the term as a whole was evaluated and not just the part which was relied upon in this instance. This is also in line with the contra preferentum rule, whereby the person responsible for including the clause in the contract has the opportunity to make the wording clear and so should be the one to lose out if there is any ambiguity. As a result I would expect clause 7 to be found unreasonable and Paver could not rely on it to exclude him from having to complete the work on time, and failing to do so whould be breach of contract. This is a breach of condition as the statement goes to the root of the contract, it was fundamental that the contract had been carried out on time. A breach of condition gives rise to both termination of the contract and the right to damages. However Paver has excluded liability for damages in clause 8.

Clause 8

As a result of Paver not completing the work Charles will have to rearrange the wedding reception and this will cost Charles and extra £25,000. Whether or not Charles can claim damages will depend upon whether it is found fair and reasonable to incorporate clause 8 into the contract as the clause excludes all liability of Paver for any consequential losses suffered by Charles. In UCCTR a term is ‘unfair’ under reg.5 if ‘contrary to the requirements of good faith, it causes a significant imbalance in the party’s rights and obligations arising under the contract, to the detriment of the consumer’. Arguably the clause would be found unfair under these regulations as it excludes any rights of charles to redeem damages if he suffers a detriment, such as that of having to move the wedding.


In making an award for damages the court has to considor both the remoteness and the measure of damages. The court established the principle that where one party is in breach of contract, the other should receive damages which can reasonably be considered to arise naturally from the breach of contract itself or which may reasonably be assumed to have been within the contemplation of the parties at the time they made the contract as being the probable result of a breach [10] . The cost of moving the wedding is not likely to be seen as a “natural consequence” of the tiles not being laid in time. However under the second limb of the rule, the party in breach can only be held liable for abnormal consequences where he has actual knowledge that the abnormal as illustrated by the case Victoria Laundry v Newman Industries, whereby loss of future possible profits were not recoverable the defendant did not know of these contracts at the time of making the contract. In contrast Charles had made it very clear to Paver during negotiations the precise reason for needing the work to be completed on time and it importance, therefore Paver knew at the time of the contract the likely result if the contract was not performed on time. When measuring the amount of damages available charles is likely to on the ‘reliance loss’ basis and thereby recover expenses incurred in anticipation of performance and wasted as a result of the breach.

Damages for disappointment

Charles has also claimed he will sue for damages for the disappointment of not being able to hold the wedding reception at home, as a general rule damages are not available for injury to feelings or reputation or mental distress as outline in Addis v Jacobs Ltd, whereby he was not awarded damages for a harsh and humiliating dismissal from employment. Although in some case law damages have been recoverable for such reasons, such as in Jarvis v Swans Tours 1972 [11] and Farley v Skinner 2002 [12] , in these instances the purpose of the contract was to provide entertainment or pleasure and relaxation, reward of damages has been restricted to these circumstances. In contract this was not the purpose of Paver and Charles contract to provide such entertainment, the purpose was to provide a large stone patio. In conclusion Charles will not be awarded damages for disappointment suffered.

Sale of Goods Act 1979

The contract states that the work is going to be done using “pure blue” slate, however the slates provided appeared to be blue and orange. The sale of Goods Act 1979 implies certain terms into contracts that fall within it. S. 15 (2) provides where sale is done by sample ‘(a) that the bulk will correspond with the sample in quality; (c) that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample.’

Seein as in the sample the slate was only shown to be blue it did not correspond to the bulk, furthermore Paver should of made it clear to Charles that such natural variation could include many slate being orange and blue at the time of making the contract, if it was not evident though examing the sample alone. A breach of an implied term through the SGA would give right to Charles to reject the slate. However it must be noted that the slate although bought and placed on Charles drive when the work was meant to commence (25th May) yet was not rejected by Charles until 15th June. section 35 (4) of the SGA 1979 (as amended by Sale and supply of Goods Act 1994, ss 2 and 3) provided that ‘the buyer is deemed to have accepted goods after a lapse of reasonable time’ “reasonable time” is then defined in s.35 (5) by ‘whether the buyer has had reasonable opportunity of examining the goods’. The tiles had been on Charles drive for a month, it would be reasonable to assume that he had plenty of time to examine and reject the goods during this month had they not been satisfactory. As a result it is unlikely that Charles will be able to reject the goods on these grounds and may be liable to pay Paver for them.


Having applied the law to the relevant facts, I would advise that a Claim by Paver for £10,000 would be estopped. Furthermore Charles may rescind the contract, and/or claim termination and damages for breach of contract by showing that Paver can not rely on the Exclusion clauses of the contract; however these damages will not extend to cover disappointment incurred. Finally Charles has lost the right to reject the slate tiles from Paver.

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