Graduate Diploma in Law (GDL) Contract Law Syllabus

How can an apparently incomplete or vague contract still be saved by the courts?

By reference to: a stated mechanism for resolving the matter; previous course of dealing or trade custom; a 'reasonableness' standard (e.g. reasonable price under s8 Sale of Goods Act 1979); or by severing a meaningless clause (Nicolene v Simmonds).

What is the distinction between a term and a representation?

A term is a promise forming part of the contract; its breach gives a contractual remedy. A representation is a pre-contractual statement inducing the contract but not part of it; its falsity gives a remedy in misrepresentation, not breach of contract.

What four factors do courts weigh in deciding whether a statement is a term or a mere representation?

(1) Importance attached to the statement (Bannerman v White); (2) timing/lapse before contracting (Routledge v McKay); (3) whether reduced to writing; (4) relative skill/knowledge of the parties (Oscar Chess v Williams vs Dick Bentley v Harold Smith).

What are the three sources/types of implied terms in a contract?

(1) Terms implied by statute (e.g. Consumer Rights Act 2015; Sale of Goods Act 1979); (2) terms implied by custom or trade usage; (3) terms implied by the courts — either 'in fact' (to give business efficacy) or 'in law' (as a standard incident of a type of contract).

State the two tests for implying a term 'in fact'.

(1) The 'business efficacy' test — the term is necessary to make the contract work (The Moorcock (1889)); and (2) the 'officious bystander' test — the term is so obvious that both parties would have said 'of course' if asked (Shirlaw v Southern Foundries).

Under the Consumer Rights Act 2015, what key terms are implied into consumer contracts for goods?

Goods must be (s9) of satisfactory quality, (s10) fit for a particular purpose made known, and (s11) as described. For services, they must be performed with reasonable care and skill (s49) and, absent agreement, for a reasonable price (s51) and within a reasonable time (s52).

What are the three classifications of contractual terms and the remedy each attracts?

(1) Condition — a major/important term; breach allows termination AND damages. (2) Warranty — a minor term; breach allows damages only. (3) Innominate term — remedy depends on the seriousness of the consequences of the breach.

What is an innominate (intermediate) term and which case established the approach?

A term not classified in advance as condition or warranty; the remedy depends on whether the breach deprives the innocent party of 'substantially the whole benefit' of the contract. If so, termination is available; if not, damages only (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha (1962)).

Contrast The Mihalis Angelos / Bunge v Tradax with Hong Kong Fir on the classification of time clauses.

Where certainty is commercially important (especially time clauses in mercantile contracts), courts may treat a term as a condition so any breach justifies termination (The Mihalis Angelos; Bunge Corp v Tradax (1981)), preferring predictability over the consequences-based Hong Kong Fir approach.

What are the two requirements for an exemption clause to be effective at common law?

(1) Incorporation into the contract (by signature, reasonable notice, or course of dealing); and (2) the clause, properly construed, covers the breach that occurred. It must then survive statutory controls (UCTA 1977 / Consumer Rights Act 2015).

How can an exemption clause be incorporated into a contract? Give the three main routes.

(1) By signature — bound even if unread (L'Estrange v Graucob), absent misrepresentation (Curtis v Chemical Cleaning); (2) by reasonable notice given before or at the time of contracting (Olley v Marlborough Court; Thornton v Shoe Lane Parking); (3) by a consistent course of dealing (Spurling v Bradshaw).

What is the contra proferentem rule in construing exemption clauses?

Any ambiguity in an exemption or limitation clause is construed against (contra) the party seeking to rely on it (the proferens) — Houghton v Trafalgar Insurance. Clear words are needed to exclude liability for negligence (Canada Steamship rules).

How does the Unfair Contract Terms Act 1977 control exclusion of liability for negligence?

Liability for death or personal injury caused by negligence cannot be excluded or restricted at all (s2(1)). Liability for other loss/damage caused by negligence can be excluded only so far as the term satisfies the requirement of reasonableness (s2(2)).

What is the 'requirement of reasonableness' test under UCTA 1977?

The term must have been a fair and reasonable one to include given what the parties knew or ought to have known when contracting (s11). Guidelines in Schedule 2 include relative bargaining strength, inducements, the customer's knowledge of the term, and availability of insurance.

How does the Consumer Rights Act 2015 deal with unfair terms in consumer contracts?

A term is unfair if, contrary to good faith, it causes a significant imbalance in the parties' rights to the consumer's detriment (s62); unfair terms are not binding. Terms excluding liability for the statutory rights in goods/services cannot be excluded. The 'core terms' exemption applies only if terms are transparent and prominent (s64).

Define an actionable misrepresentation.

An unambiguous false statement of existing or past fact (or law) made by one party to the other, which induces the other to enter the contract. It must generally not be mere opinion (Bisset v Wilkinson), sales puff, or a statement of future intention (unless intention misstated — Edgington v Fitzmaurice).

Name the three types of misrepresentation and the state of mind for each.

(1) Fraudulent — a false statement made knowingly, without belief in its truth, or recklessly (Derry v Peek). (2) Negligent — made carelessly, without reasonable grounds for belief (s2(1) Misrepresentation Act 1967 / Hedley Byrne). (3) Innocent — made with reasonable grounds for belief in its truth.

What remedies are available for misrepresentation?

Rescission is available for all types (subject to bars). Damages: for fraudulent — tort of deceit (all directly flowing loss, Doyle v Olby); for negligent under s2(1) — measured on the deceit/fraud basis (Royscot v Rogerson); for innocent — damages in lieu of rescission at the court's discretion under s2(2).

List the four bars to rescission for misrepresentation.

(1) Affirmation of the contract by the representee; (2) lapse of time (Leaf v International Galleries); (3) restitution being impossible (substantial restoration of parties cannot be achieved); (4) third-party rights acquired in good faith for value.

Distinguish common, mutual, and unilateral mistake.

Common mistake: both parties share the same mistaken belief (e.g. as to the existence of the subject matter). Mutual mistake: parties are at cross-purposes, each mistaken about the other's intention. Unilateral mistake: only one party is mistaken and the other knows (or ought to know) of it.

When does a common mistake render a contract void? Give the categories.

(1) Res extincta — subject matter does not exist (Couturier v Hastie); (2) res sua — buyer already owns the subject matter (Cooper v Phibbs); (3) mistake as to quality only if it makes the subject 'essentially and radically different' (Bell v Lever Bros; Great Peace Shipping v Tsavliris (2002), which abolished equitable common mistake).

Explain unilateral mistake as to identity and the face-to-face presumption.

Where parties contract face-to-face, there is a strong presumption the mistaken party intended to deal with the person in front of them, so the contract is voidable (not void) for fraud — a good-faith third party can gain title (Phillips v Brooks; Lewis v Averay; Shogun Finance v Hudson). Identity must be material to the contract (Cundy v Lindsay for written/distance dealings).

Distinguish duress and undue influence.

Duress is illegitimate pressure (to the person, to goods, or economic) that coerces consent at common law, rendering the contract voidable. Undue influence is an equitable doctrine concerning the improper use of a relationship of trust/influence to obtain agreement, also rendering the contract voidable.

State the requirements for economic duress.

(1) Illegitimate pressure (e.g. a threat to breach contract); (2) which is a significant cause inducing the claimant to contract; and (3) the claimant had no realistic practical alternative but to submit (Universe Tankships v ITWF (The Universe Sentinel); Pao On v Lau Yiu Long; Atlas Express v Kafco).

Distinguish actual and presumed undue influence (Royal Bank of Scotland v Etridge (No 2)).

Actual undue influence (Class 1): claimant proves improper pressure was actually exerted. Presumed undue influence (Class 2): a relationship of trust and confidence plus a transaction calling for explanation raises a presumption, which the defendant must rebut (e.g. by showing independent advice). Class 2A relationships are irrebuttably presumed to be ones of trust (e.g. doctor/patient, solicitor/client — not husband/wife).

What is the general effect of an illegal contract, and what does ex turpi causa mean?

A contract that is illegal in its formation or performance, or contrary to public policy, is generally void and unenforceable. 'Ex turpi causa non oritur actio' means no action arises from a base/illegal cause — the court will not assist a claimant relying on their own illegality (modern approach: Patel v Mirza (2016) range-of-factors test).

Give examples of contracts void or unenforceable on public policy grounds.

Contracts to commit a crime or tort/fraud; contracts prejudicial to the administration of justice or to public safety; contracts promoting sexual immorality; and contracts in restraint of trade (void unless reasonable between the parties and in the public interest — Nordenfelt v Maxim Nordenfelt).

What is the test for the validity of a restraint of trade clause?

A restraint is prima facie void but enforceable if: (1) it protects a legitimate proprietary interest (trade secrets, customer connection, goodwill); (2) it is reasonable between the parties in scope, area and duration; and (3) it is not contrary to the public interest (Nordenfelt; Mason v Provident Clothing).

What is the entire obligations rule on discharge by performance, and its exceptions?

Performance must be complete and precise to discharge an entire obligation (Cutter v Powell; Re Moore & Landauer). Exceptions allowing partial recovery: (1) substantial performance (Hoenig v Isaacs); (2) severable/divisible obligations; (3) acceptance of partial performance by the other party (Sumpter v Hedges contrast); (4) wrongful prevention of completion by the other party.

Distinguish actual breach from anticipatory breach, and the innocent party's options on anticipatory breach.

Actual breach: failure to perform when performance is due. Anticipatory breach: a party indicates, before performance is due, that they will not perform. The innocent party may (a) accept the breach, terminate immediately and sue (Hochster v De La Tour), or (b) affirm and keep the contract alive, awaiting the performance date (White & Carter v McGregor).

Define frustration and its effect on a contract.

Frustration occurs where, after formation, an unforeseen event beyond the parties' control makes performance impossible, illegal, or radically different from what was undertaken (Davis Contractors v Fareham UDC). It automatically discharges the contract from the date of the frustrating event (it is not voidable).

Give examples of frustrating events and the limits on the doctrine.

Examples: impossibility (destruction of subject matter — Taylor v Caldwell), supervening illegality, and non-occurrence of the contract's sole purpose (Krell v Henry — but not Herne Bay Steam Boat v Hutton). Limits: frustration does not apply to mere increased expense/difficulty, self-induced frustration (Maritime National Fish), or events provided for in the contract.

How does the Law Reform (Frustrated Contracts) Act 1943 adjust the parties' positions after frustration?

s1(2): money paid before frustration is recoverable and sums payable cease to be payable, but the court may allow the payee to retain/recover expenses incurred. s1(3): a party who has received a valuable non-monetary benefit before frustration may have to pay a just sum for it.

State the compensatory aim of contract damages (the expectation measure).

Damages aim to put the claimant in the position they would have been in had the contract been properly performed (Robinson v Harman (1848)) — the 'expectation' or 'loss of bargain' measure. The alternative reliance measure compensates wasted expenditure.

State the two-limb remoteness rule in Hadley v Baxendale (1854).

Damages are recoverable for losses that: (1) arise naturally, in the ordinary course of things, from the breach (objective/normal losses); or (2) may reasonably be supposed to have been in the contemplation of both parties at the time of contracting as the probable result of breach (special losses, requiring knowledge of special circumstances — Victoria Laundry v Newman).

What is the claimant's duty to mitigate loss?

The claimant cannot recover for losses they could have reasonably avoided; they must take reasonable steps to mitigate (British Westinghouse v Underground Electric). They need not take unreasonable steps, and can recover the costs of reasonable mitigation even if it fails.

How are damages assessed where defective/incomplete performance is given — cost of cure vs diminution in value?

Damages are usually the cost of curing the defect, but where that cost is wholly disproportionate to the benefit and the breach does not destroy the contract's purpose, the court awards diminution in value (or loss of amenity) instead (Ruxley Electronics v Forsyth (1996) — the swimming pool case).

Distinguish a liquidated damages clause from a penalty clause.

A liquidated damages clause is a genuine pre-estimate of loss and is enforceable. A penalty clause is designed to deter breach (in terrorem) and is unenforceable. Modern test (Cavendish v Makdessi (2015)): a clause is penal if it imposes a detriment out of all proportion to any legitimate interest of the innocent party in performance.

When will the court award specific performance of a contract?

Specific performance is a discretionary equitable order compelling performance, granted where damages are inadequate (e.g. sale of land, unique goods). It is refused where damages suffice, for contracts of personal service, where it requires constant supervision, for want of mutuality, or where the claimant has acted inequitably (clean hands).

What is an injunction in contract, and the limits on using it to enforce a contract of personal service?

An injunction is an equitable order restraining a breach of a negative undertaking. It will not be granted to indirectly compel performance of a personal service contract if doing so leaves the defendant with no realistic alternative but to perform or starve (Page One Records v Britton), though it may enforce a genuine negative restraint (Warner Bros v Nelson).

State the doctrine of privity of contract.

Only a party to a contract can sue or be sued on it; a third party cannot acquire rights or have obligations imposed under a contract to which they are not a party (Tweddle v Atkinson; Dunlop v Selfridge), even if the contract was made for their benefit, subject to statutory and common-law exceptions.

How does the Contracts (Rights of Third Parties) Act 1999 allow a third party to enforce a contract term?

A third party may enforce a term if (s1(1)(a)) the contract expressly provides they may, or (s1(1)(b)) the term purports to confer a benefit on them (unless, on proper construction, the parties did not intend it to be enforceable by the third party). The third party must be expressly identified by name, class, or description (s1(3)).

Name common-law and equitable exceptions to privity that operate alongside the 1999 Act.

Agency, assignment of contractual rights, trusts of a promise, collateral contracts, the rule in Dunlop Pneumatic Tyre v Selfridge exceptions, restrictive covenants running with land (Tulk v Moxhay), and the Jackson v Horizon Holidays / Linden Gardens line allowing recovery of a third party's loss in limited cases.