Understanding Contract Law: Williams v Roffey and Frustration of Contracts, Lecture notes of Contract Law

Download Understanding Contract Law: Williams v Roffey and Frustration of Contracts and more Lecture notes Contract Law in PDF only on Docsity! Page 1 of 11 CHIEF EXAMINER COMMENTS WITH SUGGESTED ANSWERS JUNE 2018 LEVEL 3 UNIT 2 CONTRACT LAW Note to Candidates and Learning Centre Tutors: The purpose of the suggested answers is to provide candidates and learning centre tutors with guidance as to the key points candidates should have included in their answers to the June 2018 examinations. The suggested answers set out a response that a good (merit/distinction) candidate would have provided. The suggested answers do not for all questions set out all the points which candidates may have included in their responses to the questions. Candidates will have received credit, where applicable, for other points not addressed by the suggested answers. Candidates and learning centre tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners’ comments contained within this report which provide feedback on candidate performance in the examination. CHIEF EXAMINER COMMENTS The paper appears to have performed well in that there was an exceptionally wide range of responses. In Section A, a very significant proportion of candidates achieved high marks, while the number of candidates scoring low marks in this section, was less than usual. In Section B, the overall level of performance was marginally lower than usual. There were a few individual sub-questions that a majority of candidates struggled with: in scenario 1, the rule in Williams v Roffey (1991) and its application (Question 1(b) and (c)); in scenario 2, the application of principles relating to unilateral contracts (Question 1(b)); and the actual application of principles relating to the Postal Page 2 of 11 Rule (Question 2(c)); in scenario 3, the classification of the ‘seaworthiness’ term and its application (Question 1(b) to (d)) – though there were some excellent answers too; and the interpretation of question 2(b) – only a few candidates were able to correctly answer this. However, overall, I consider that each of the three scenarios had an appropriate balance between difficulties of sub-question. CANDIDATE PERFORMANCE FOR EACH QUESTION Performance of candidates was very wide ranging, and across the spectrum, quite good. As usual, candidates are reminded to take note of the number of marks allocated to the questions when deciding how much to write; and are especially reminded that where a question requires an explanation, then more detail is required, and, where appropriate, case names or statutory authority should be cited. It is disappointing when candidates miss out on passing or on higher grades because they have failed to cite case names or statutory authority. In Section B, candidates were often able to state a rule in an early part of the question, but then unwilling to apply it in detail in later parts of the question. For example, many candidates identified the conditions for the application of the Postal Rule in Scenario 2, Question 2(a), but then assumed its application in Question 2(c), rather than explaining what, on the facts, made the rule applicable. SECTION A Overall comment: many of the questions in this section posed little difficulty and all of them were generally answered well. Q1 Generally answered well. Some candidates could have defined an offer more fully. Q2 Generally answered well. Good candidates noted that the privity rule applied to both suing and being sued. Q3 Generally answered well. Q4 Generally answered well. Q5 Generally answered well. Q6 Generally answered well. A breach of condition may give the innocent party the right to terminate the contract for breach. Note that termination (or some appropriate synonym) is not the same as ‘rescission’. Q7 Generally answered well; but a clear example of where long explanations did not glean extra marks. Page 5 of 11 Question 5 Relevant factors in determining whether a statement is intended to be a term of the parties’ contract include:  the importance of the statement;  whether the statement was reduced to writing;  the passage of time between the making of the statement and the contract;  any special knowledge of the maker of the statement;  whether the maker of the statement suggested to the recipient that they should verify its truth. Question 6 A condition is an important term which is central to the main purpose of the contract - Poussard v Spiers & Pond (1876). The innocent party may claim damages for breach of condition, and a breach of condition also entitles the innocent party to treat the contract as terminated. Question 7 Misrepresentation may be fraudulent, negligent (within the meaning of section 2(1) of the Misrepresentation Act 1967) or innocent. Question 8 A contract may be discharged by:  performance;  agreement;  breach;  frustration. Question 9 Remedies which may be available to a consumer for breach by a trader of a contract to provide services with reasonable care and skill include: repeat performance; a price reduction; and damages for breach of contract. Question 10 A degree of specific performance is an order of the court requiring a party to perform an obligation under a contract. Page 6 of 11 SECTION B Scenario 1 Question 1(a) Performance of an existing contractual duty is not normally good consideration for a promise of extra payment - Stilk v Myrick (1809). (b) Under the principle in Williams v Roffey (1991), where parties have entered into a contract for goods or services and there is doubt as to whether one party will be able to perform their obligations, and the other party promises extra payment if they do perform and obtains a practical benefit from that performance, then, in the absence of fraud or duress, the practical benefit is a sufficient consideration for the promise of extra payment. (c) David must have provided consideration for Fiona’s promise of extra payment before he will be able to enforce it. David has not undertaken any obligation above that which he is already contractually obliged to perform, and so, prima facie, he has not provided any consideration. However, the principle from Williams v Roffey (1991) may apply: the contract between the parties is for goods and services; Fiona has made a promise of extra payment; as a result of the promise, she has obtained the practical benefit of having the work completed in time for her re-opening. Fiona’s promise was not obtained by fraud or duress, and so the practical benefit to her is, therefore, a sufficient consideration for the promise of extra payment. As a result, the promise is enforceable and David can recover the additional £2,000 from Fiona. Question 2(a) The general rule is that past consideration (i.e. where a promise is made after the alleged consideration for it was given) is not good consideration; for example, as in Re McArdle (1951). However, an act or promise in the past may be good consideration for a later promise where three conditions are satisfied:  the act or promise is done or given at the request of the promisor;  it must have been understood by the parties that payment would be made;  the payment would have been legally recoverable had it been promised in advance; such as in Lampleigh v Brathwaite (1615) or Re Casey’s Patents (1892). (b) The consideration for Fiona’s promise - the making and putting up of the shop sign - precedes the promise and, at first sight, may be regarded as a past Page 7 of 11 consideration. However, the act was carried out at Fiona’s, the promisor’s, request, and the payment would have been legally recoverable if promised in advance. The promise will therefore be enforceable if the parties’ (implicit) understanding was that the work would be paid for. Given that David has spent a whole day carrying out the work of his trade, and the sum of £500 promised is not insignificant, or in the nature of a gratuity, it is likely that the parties understood that the work was to be paid for, rather than provided gratuitously. David can therefore enforce the promise of payment of £500. Question 3(a) Silence may amount to misrepresentation where:  a half-truth is told;  where a statement which was initially true becomes false before the contract is entered;  where the contract is one of the utmost good faith;  where the contract is made between parties in a fiduciary relationship;  where it is a misleading omission within the Consumer Protection from Unfair Trading Regulations 2008. (b) David’s statement is a statement of fact. However, it does not tell the whole truth, as it conveys the impression that he does not know of anything that indicates that he will not continue to have five employees who are qualified carpenters. It is likely that the statement is, therefore, a ‘half-truth’, e.g. as in Nottingham Patent Brick and Tile Co. v Butler (1866). The statement appears to have induced Ajmal into contracting with him. The statement is, therefore, likely to be a misrepresentation. Question 4(a) Rescission of a contract involves the setting aside of the contract ‘ab initio’ (i.e. from the beginning), and restoring the contracting parties to the positions they were in before the contract was entered. (b) Rescission of a contract for misrepresentation may be barred (lost):  by affirmation;  by lapse of time (‘laches’);  where substantial restoration of the parties to their pre-contractual position is impossible;  where rights in the subject matter of the contract have been acquired by an innocent third party. (c) David has now performed three-quarters of the work under the contract. It will not now be possible to restore the parties to their pre-contractual positions as the work cannot be undone or returned, so the contract cannot now be rescinded. Page 10 of 11 1(c) There is a breach of clause 2 as a result of the broken rudder. However, the breach is minor in relation to the contract as a whole, as it only deprives Grainshift of a single week of a six month charter. So the breach is not sufficiently serious to give Grainshift the right to terminate the contract. (d) There are further breaches of clause 2 as a result of the engine failure and ensuing delays. They deprive Grainshift of a substantial part of the benefit of the contract, as the ship will be out of service for most of the remainder of the charter. It is now arguably sufficiently serious to give Grainshift the right to terminate the contract. Question 2(a) Frustration may be defined as an event which is the fault of neither party which renders the contract impossible or illegal to perform, or undermines its commercial purpose, e.g. Davis Contractors v Fareham UDC (1956). (b) An event which would otherwise frustrate a contract will not do so if:  it is provided for in the contract;  it is sufficiently foreseeable, such that the parties can be taken to have assumed the risk of its occurrence;  it is self-induced - i.e. arising from the fault or neglect of one of the parties. (c) The destruction of the subject matter of the contract is capable of being a frustrating event, such as in Taylor v Caldwell (1863), and the sinking of the Aqualine makes the contract impossible to perform. However, whilst this may otherwise have frustrated the charter, the charter will not be frustrated, as the event is due to the act or default of Aquaships in failing to cover the open holds on the ship’s deck. Aquaships will instead be in breach of contract in failing to provide what they were contracted to provide. Question 3(a) Frustration of the contract brings the contract to an end. Its effect at common law is to discharge parties from future performance of the contract. Grainshift is therefore discharged from its liability to pay the further sum of £40,000. Rodent Shipping is discharged from further liability to provide the Water Rat. (b) Under section 1(2) of the Law Reform (Frustrated Contracts) Act 1943, payments made before frustration are recoverable (or sums payable cease to be payable), subject to the discretion of the court to allow the payee to retain sums paid or recover sums payable up to the amount of expenses incurred for the purposes of performance of the contract. On the facts, Grainshift has paid £50,000 falling due before the frustrating event, and Rodent Shipping has Page 11 of 11 incurred expenses of £10,000 in preparation. As a result, Rodent Shipping, as payee, can retain up to £10,000 of the £50,000 paid, depending on how the discretion of the court is exercised. Under the principle from Gamerco SA v ICM (1995), the discretion is a broad one, to mitigate the harshness of allowing the loss to lie where it falls.