Contract Law: Remedies for Breach and Penalty Clauses, Exams of Contract Law

Download Contract Law: Remedies for Breach and Penalty Clauses and more Exams Contract Law in PDF only on Docsity! In January 2015, Professor Dim signed a contract with Cambridge Academic Press (CAP) to write a book on contract law in their prestigious Masterclass series. Dim was to be paid £20,000 and CAP had an option to employ Dim to write a companion book on property law for a £25,000 fee. Over the next year Dim spent £5,000 on books and travel to libraries while working on his new book. In January 2016 in breach of contract CAP terminate the contract with Dim because CAP had recently contracted with Professor Genius to write a contract law book in the Masterclass series. CAP invited Dim to publish his contract book for a fee of £100 in a new series aimed at school students. The Head of the School of Law had promised Dim that he would receive a special payment of £10,000 if his book was published in the Masterclass series. Dim writes to CAP telling them he feels humiliated by the way he has been treated and pointing to a clause in their contract which he had inserted before the parties signed and which CAP overlooked: If the contract is terminated by the publishers in breach of contract, they shall pay to the author a penalty of £10,000. Advise Dim as to what remedies he is entitled to in respect of CAP’s breach of contract. A breach of contract is when one of the parties breaks a promise or agreement. So, a breach of contract happens when one party doesn't keep their end of the deal or doesn't do what they agreed to do according to the terms of the contract. There are a few remedies for breach of contract available to the wronged party: Specific performance is used when monetary damages are insufficient to compensate for a broken contract. Specific performance is a discretionary remedy, so it may not be given if damages would be enough, if the terms of the contract are unclear, if the action was brought too late, or if there was fraud. Suit for specific performance is when one party wants to force the other to do exactly what they agreed to do in the contract. When this option is chosen, the party that broke the contract is taken to court, and the plaintiff asks the court to force the defendant to either follow the contract terms that haven't been followed or stop doing something that the contract says they can't do. However, there are certain rules to have specific performance:  The claimant's conduct must be beyond question. This is based on the saying that "he who comes to justice with dirty hands will not be heard." Specific performance won't be given if the person asking for it lied to the defendant to get him to sign the contract and then didn't keep his end of the deal.  The order will be denied if the party asking for it broke the contract in an unfair way. When a contract was won through unfair means, the court may refuse to make the other party follow the contract. There is no need for the unfairness to be a reason why the contract should be thrown out.  A court won't order someone to do something if doing so would cause the defendant a lot of trouble. This also includes situations where the benefit to the claimant would be much smaller than the cost to the defendant: Tito v Waddell (No 2) (1977).  If the defendant can't do what the court says, the court won't order specific performance. So, a court won't make an order for the defendant to sell land he doesn't own, even if he has agreed to do so.  There must also be a way for both sides to get better. At the request of one party, courts will sometimes refuse to order specific performance of a contract if they couldn't do so at the request of the other party. So, if one party promised to do personal services, the court won't agree to his request for specific performance on the part of the other party because specific performance would not be ordered against him: Britton v. Page One Records (1968). In this case, the band called The Troggs hired the first plaintiff to be their manager. Stamp J said that since the band couldn't get an order for specific performance for the plaintiff to fulfill his management contract, the manager couldn't get an order that forced the defendants to keep him as their manager. This "lack of a mutuality of the right of enforcement" made it impossible for the plaintiff to get an interim injunction that would have stopped the band from hiring someone else as their manager.  Courts won't issue an order for specific performance for some types of contracts. The most important of these are contracts for personal services (or employment), in which one party agrees to help another. An order for specific performance cannot be made for contracts involving personal service performance. Even though there is no specific rule against it, courts are very hesitant to order specific enforcement of an employment contract. Therefore, Dim is not entitled to specific performance. In the contract, there was a liquidated damage clause (penalty clause) which states that ‘if the contract is terminated by the publishers in breach of contract, they shall pay to the author a penalty of £10,000’. Since the claimant must show his loss, it is simpler if the contract can simply stipulate a sum that the defendant will pay in the event of violation and the claimant can sue for that money. Any such mechanism can be abused if the amounts exceed the loss. Dunlop Pneumatic Tires v New Garage and Motor (1915) confirmed that a "liquidated damages" clause is enforceable if the figure is a genuine pre-estimate of the damage and not unconscionable. The Supreme Court's decisions in Parking Eye Limited v. Beavis [2015] UKSC 67 and Cavendish Square Holdings BV v. Talal El Makdessi [2015] UKSC 67 show how to tell if a clause is a valid "liquidated damages" clause or a "penalty." Since these two cases were about the same legal question, they were heard at the same time. In the Cavendish appeal, the Supreme Court found that a specified damages clause requiring the innocent party to pay more than compensation might safeguard their legitimate interests. Supreme Court reinstated penalty rule. The Court confirmed that the penalty rule applies to clauses requiring payments and those requiring parties to surrender assets at undervalue. A clause that mandates payment or other obligation upon an occurrence other than the payor's violation of contract is not subject to "penalty jurisdiction". Contracts have "penalty provisions" for dated damages. Penalties violate contract law. The statute nullifies a "penal" clause. So, a judge may interpret a contract provision differently from the parties (as a matter of law). Bridge v Campbell Discount (1962). Butterworth vs. Lombard North Central (1987). Penalty clauses are less significant because other (unobjectionable) methods can achieve the same goals. McKendrick (22.6 "Evading the penalty clause requirement") outlines three ways. 1. Accelerated liability clauses are penalty clause-free. 2. While the penalty clause rule only applies to breaches of contract, parties may legitimately state that an amount should be payable for a non-violation. 3. The affected party can terminate and sue if the parties agree a term is important. In this case Dim cannot seek liquidated damages as the contractual description as a penalty is irrelevant. The innominate terms is abusive. In the case of Hong Kong Fir Shipping, the innominate term approach was set up. The innominate term approach doesn't classify the terms themselves as conditions or warranties. Instead, it looks at the effect of the breach and asks if the innocent party lost almost all of the benefits of the contract. Only if the party who didn't do anything wrong lost a lot of the benefits can they say that the contract is over. Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962]. 2 QB 26, Defendants chartered a ship for two years. The ship had to be seaworthy during the rental time. The engine crew was incompetent and caused ship engine issues. The ship was out of service for 5 and 15 weeks. The defendants terminated the contract for this breach. Seaworthiness was Dim was to be paid £20,000 and CAP had an option to employ Dim to write a companion book on property law for a £25,000 fee. Over the next year Dim spent £5,000 on books and travel to libraries while working on his new book. In January 2016 in breach of contract CAP terminate the contract with Dim because CAP had recently contracted with Professor Genius to write a contract law book in the Masterclass series. CAP invited Dim to publish his contract book for a fee of £100 in a new series aimed at school students. The Head of the School of Law had promised Dim that he would receive a special payment of £10,000 if his book was published in the Masterclass series. Dim writes to CAP telling them he feels humiliated by the way he has been treated and pointing to a clause in