Documenti di Didattica
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BUSINESS SCHOOL
BUSINESS LAW
(U13859)
LECTURE NOTES
2011
HELEN BURTON
helen.burton@port.ac.uk
LECTURES
SEMINARS
Introductiontotheunit
TheEnglishlegalsystem
Whatislaw?
2
3rdOct
DomesticlegislationandEuropeanlaw
TheEnglishlegalsystem,
classificationandsourcesoflaw
3
10thOct
4
17thOct
5
24thOct
Caselawandjudicialprecedent
Legislationandstatutoryinterpretation
Introductiontocontractlaw
Contractformation
Caselawandjudicialprecedent
Contractualterms
Contractformation
6
31stOct
7
7thNov
Controlsonexemptionclausesandunfairterms
Contractualterms
Dischargeofcontractsandremediesforbreach
ofcontract
Controlsonexemptionclausesandunfair
terms
14thNov Introductiontothelawoftortsandnegligence
21stNov Defencesandremediesinthetortofnegligence
andvicariousliability
Dischargeofcontractsandremediesfor
breachofcontract
Negligence
10
28thNov
Analysisofanemploymentcontract
Defencesandremediesinthetortof
negligenceandvicariousliability
Dismissalandredundancy
Analysisofanemploymentcontract
11
5thDec
ASSESSMENTDUEINBY1.00PMFRIDAY31STJANUARY2012
2
LECTURE ONE
Introduction to the Unit
Classification and Sources of Law
What is law?
Consumer protection - understand your rights when you enter into contracts and what you
can do if you are not happy with the service or goods you have purchased.
Identify problem situations when you get into the business world - depending on where
you end up working, you will come across legal problems in a variety of situations
UNIT CONTENT
This semester the course is made up of four different components: English Legal System,
Contract law, the law of Negligence and Employment Law.
How legislation is used by the courts. Different rules of interpretation are used and
this can affect the outcome of a case.
Contract
What is in a contract? Some terms are more important than others. This can lead to
different remedies if the contract is breached; additional terms can be implied into
certain contracts even if the parties never agreed to them!
Exemption clauses to what extent can a business exclude its liability for loss or
damage?
Discharge and remedies when are contractual obligations brought to an end and
what remedies are available for non-performance or incomplete performance of a
contract?
Tort of Negligence
There are different types - negligence being the most important tort.
Vicarious liability (when is an employer liable for the acts of its employees?).
Employment Law
TEACHING PROGRAMME
This semester this will be delivered in part via 3 booklets:
Outline lecture notes (you need to supplement these with your own notes; spaces have
been left for you to do so).
Seminar materials.
Handbook.
Read the pages of the textbook indicated on the seminar sheet before the seminar.
Identify what words you will need to understand in order to answer the questions on
the seminar sheet.
After the class, engage in some further reading as maybe listed on your seminar
sheets.
The core texts - aimed at business students who have to study law as part of their
course. Details of both these books are in the Handbook on the page entitled
READING
On-line resources accompany the core texts. You may find them useful. They are
available at : http://www.pearsoned.co.uk/highereducation/mylawchamber
BUT you do need to read a bit more widely once youve grasped the basic principles.
WHAT IS LAW?
A set of rules that is enforced and/or recognised by the courts, administrative bodies or other
organs of state.
When making a decision judges have to follow the decision that has gone before
doctrine of judicial precedent
Adversarial
Human Rights concerns rights that individuals can hold against the State. eg the right to
life and liberty.
6
Administrative Law laws that permit individuals to hold the State to account for its
public duties. eg the limits of the powers of public authorities.
Criminal Law laws which govern behaviour which the Government wishes to prohibit
or regulate. Eg murder, stealing
Company Law deals with relationships between companies or between companies and
individuals.
Probate the law that deals with the estates of dead people. ie wills.
Property Law the law of ownership subdivided into real property (land), personal
property or chattel (e.g. cars), and intellectual property (copyright, patents, designs).
Private Law matters - seen as matters for individuals themselves to regulate without
interference from the State (the State simply provides the mechanism for deciding the issues
and enforcing the decision). This means the parties are encouraged to come to their own
solution.
Public Law matters - seen as issues relating to the interest of the State and general public,
and as such are to be protected and prosecuted by the State. This means that if a crime is
committed the State can prosecute regardless of the feelings of the victim.
An alternative way of categorising laws
Sub-divisions of law: Criminal/Civil
It is important to understand there are different rules, standards and procedures depending on
whether a law is criminal or civil.
Criminal Law
Criminal laws primary purpose is to punish those who break laws designed to protect
society.
How to talk the talk
Today most cases (trials) are brought in the name of the Crown (our head of state, the Queen)
and will appear in the law reports in that form.
For example if I was prosecuted for murdering my boyfriend, the case against me would be
referred to as R v Burton
This is pronounced in one of the following ways:
Civil Law
The primary purpose of the civil law is provide rules by which individual can govern their
own relationships. For example in divorce the husband and wife are free to reach their own
agreement to decide how their possessions are to be divided when they separate.
Civil cases are brought to assert a claimants (someone who has suffered a loss or injury
caused by someone else) right to compensation (usually money damages) from the person
who has injured them (called the defendant) eg customer eats contaminated food at a
restaurant which gives the customer food poisoning, the customer is the claimant and can sue
the restaurant for breach of contract under our laws of contract to win compensation for their
injury.
How to talk the talk
Civil cases (trials) are written in like this - Burton v Tasty Pizza Restaurant Ltd
(pronounced Burton and Tasty Pizza Restaurant).
Burton is the claimant; Tasty Pizza Restaurant Ltd the defendant
Legislation
Case law
Legislation and case law are created within the UK and are sometimes referred to as domestic
law.
Legislation
Primary legislation = Acts of Parliament
e.g. The Sale of Goods Act 1979
Secondary legislation (or delegated legislation) can take the form of regulations, rules or
orders, or bye-laws.
e.g. The Unfair Terms in Consumer Contracts Regulations 1999
Case law
Case-law is developed by judges. It could be judicial interpretation of other legal material
(e.g. legislation) or law developed solely by the judges. Judge-made law is called the
common law. More on this in lecture 3
The UK joined the European Union (formerly known as the European Economic
Community) in 1973. In order to join, the UK had to pass the European Communities Act
1972 under which the UK agreed to apply EU law in UK courts.
The 1972 Act stated that in the event of any conflict between EU law and UK law, the EU
law would take precedence.
The main impact of European Union law is in the areas of trade, industry, employment and
the provision of financial services.
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The European Convention on Human Rights was incorporated into English law by Human
Rights Act 1998.
The European Convention on Human Rights has nothing to do with the European Union. It is
an agreement between signatory states to uphold and respect certain human rights such as the
right to liberty, freedom of expression, the right to family life and the right to a fair trial.
The court in which a case starts out is called the court of first instance. Different cases start
out in different courts. For example a criminal case will be deal with by the criminal courts
whereas a civil case will be dealt with by a civil court.
Criminal Courts
Different types of criminal offences are heard by different courts. Minor offences (such as
traffic offences) are called summary offences. More serious offences (such as murder) are
called indictable offences.
Criminal cases are brought by a prosecutor (usually the Crown) against the defendant.
Magistrates Courts
Exclusive jurisdiction over summary only cases (e.g. minor motoring offences).
Limited powers of sentence but can send cases to Crown Court for sentencing.
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Crown Court
Exclusive jurisdiction over indictable offences (serious crimes e.g. murder or rape).
These cases are heard by a jury (12 persons). They deliver a verdict (guilty, or not
guilty).
Judge directs jury on legal issues but the jury decides questions of fact.
Civil Courts
Magistrates Courts
Limited civil jurisdiction (e.g. non-payment of council tax), and hears family matters (when
known as Family Proceedings Court) such as non contentious divorces and maintenance
disputes.
County Courts - exclusively civil jurisdiction. The county court hears civil cases that are too
serious for the Magistrates Court. They are usually more complicated or involve more
money.
12
The Court of Appeal has 2 divisions (Criminal Division and Civil Division).
Supreme Court
Currently has 12 Justices (only 1 female) who all bar 1 were previously the Law Lords in
the House of Lords
Generally, the House of Lords sat in courts of five judges (although this number increased
particularly with important or high profile cases).
Other Courts
European Court of Human Rights - the judicial body that decides cases relating to
the European Convention on Human Rights.
13
LECTURE TWO
Legislation
European Convention on Human Rights & the Human Rights Act 1998
LEGISLATION
Legislation is the term used to describe law made by Parliament. It is divided into
primary legislation and secondary legislation. These two types of legislation are created in
different ways.
PRIMARY LEGISLATION
Primary legislation consists of Acts of Parliament e.g. The Sale of Goods Act 1979.
Most Bills are government sponsored (public bills) but Bills can be proposed by
individual back bench MPs (private members bills) or by certain groups of people
e.g. public corporations (private bills).
For more information about the structure of Parliament check out the Resources
page on Victory.
14
Second Reading the general principles of the Bill are debated in the House of Commons.
The Bill might be amended and members vote on whether the legislation should proceed.
Report Stage the committee reports back to the House and proposed amendments are
debated and voted on.
Third Reading the Bill is presented to the House of Commons for the last time. There
might be a short debate and the House votes on whether to accept or reject the legislation.
House of Lords first reading, second reading, committee stage, third reading.
The Bill then goes back to the House of Commons for the MPs to consider the Lords
amendments.
The Bill is then put forward for Royal Assent.
NB Bills can be started in either the House of Commons or the House of Lords.
What if the House of Lords refuse to pass a Bill that has passed the Commons?
At one time legislation could not be passed without the agreement of both Houses of
Parliament. However, following the Parliament Acts of 1911 and 1949, special procedures
are available to allow legislative proposals which were introduced in the House of Commons
to be put forward for Royal Assent without the approval of the House of Lords after a one
year delay (or one month for money Bills).
In recent years these procedures have been used to pass a number of high profile statutes e.g.
the Hunting Act 2004 and the Sexual Offences (Amendment) Act 2000.
15
Can you think of some arguments for and against the Parliament Acts procedures?
SECONDARY LEGISLATION
What is delegated legislation?
Acts of Parliament lay down a basic framework of the law in a particular area. Delegated
legislation is legislation which sets out the detailed rules relating to that law (i.e. it puts the
flesh on the bones).
There are 3 main types of delegated legislation:
Bye-laws made by local authorities, public and nationalised bodies (although they
must be approved by Central Government).
Orders in Council made by the Government in times of emergency and then signed
by the Monarch.
What are the problems associated with the use of delegated legislation?
16
STATUTORY INTERPRETATION
This is how legislation is used by judges in trials. Certain rules of interpretation are relied on
by judges when they are called upon to interpret the meaning of words in statutes. As you
will see, the different rules of interpretation can give rise to startlingly different decisions.
For more information about the introduction of the Human Rights Act 1998 check out the
Resources page on Victory.
The European Convention on Human Rights & the Human Rights Act 1998
The Convention was signed in 1950 before the EU was even created and came into force in
1953 under the auspices of the Council of Europe. There are now over 40 signatories to the
Convention and such states are required to uphold certain fundamental civil rights.
Before the implementation of the Human Rights Act 1998 (in October 2000), the Convention
could not be directly enforced in UK courts. This meant that anyone who wanted to challenge
a breach of their human rights had to take their case to the European Court of Human
Rights in Strasbourg.
Now, there is a specific obligation on UK public authorities to act in a way that is compatible
with the Convention (section 6 of the Human Rights Act 1998) and any breach of this
obligation can be challenged in UK courts.
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NB - public authorities include central government departments, the NHS, local authorities,
courts, and police forces.
The two key provisions of the Human Rights Act 1998 are section 2 and section 3.
Section 2 when considering any issue which is connected with human rights, the courts
must take into account case law of the European Court of Human Rights.
Section 3 domestic courts must, as far as it is possible to do so, interpret domestic
legislation so that it is compatible with the rights set out in the Convention. If the court finds
that this is not the case, it may issue a declaration of incompatibility (section 4) to the
relevant Government Minister who may (but is not obliged to) ask Parliament to amend the
legislation.
Section 3 of the Human Rights Act requires judges to read all legislation so far as possible
so it is compatible with the European Convention on Human Rights.
If this is not possible, courts can issue a declaration of incompatibility (section 4 of the
Human Rights Act). Such a declaration indicates the need to ensure compatibility, but the
legislation remains in force.
The European Community was created in the 1950s by a series of treaties most importantly
the Treaty of Rome, which created the European Economic Community (EEC). Its goal was
to create a Common Market in Europe. The first members were Belgium, France, Germany,
Italy, Luxembourg and the Netherlands. The UK joined the EEC in 1973.
In order to join the EEC, the UK had to pass the European Communities Act 1972 under
which the UK agreed to apply EU law in UK courts. But, the 1972 Act went even further: in
the event of any conflict between EU law and UK law, EU law would take precedence.
19
For more information about the structure of the EC check out the Resources page on Victory.
European Legislation
The Treaty of Rome was signed in 1957 and contains over 300 Articles. These articles are
said to make up the primary legislation of the EU. They contain prohibitions on, for example,
sex discrimination, free movement of goods, and competition rules.
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LECTURE THREE
When a court makes a decision in a case then any courts which are of equal or lower status
must follow that decision if a subsequent case before them is similar to it.
Higher courts may follow decisions of lower courts but, if they do not wish to follow the
decision of the lower court, the higher court is said to overrule the decision of the lower
court.
Therefore, in order to decide whether a decision is binding, certain questions must be asked:
where does that court sit in terms of the hierarchy of the court structure?
do the facts of the new case fall within the scope of the principle of law that was laid
down in the earlier case or is the case totally new?
21
Supreme Court
This came in to being on 1st October 2009. It is housed in Middlesex Guildhall opposite the
Houses of Parliament. It replaces the House of Lords as the highest appeal court in the UK.
The judges are known as Justices of the Supreme Court and are appointed by the Queen on
the recommendation of the Prime Minister. All bar 1 of the current 12 were previously the
12 Law Lords in the House of Lords.
It operates as the House of Lords did previously.
House of Lords
Until 1966 the House of Lords was bound by its own decisions, but in 1966 a Practice
Statement was issued by the House of Lords which stated:
Their Lordships regard the use of precedent as an indispensable foundation upon which to
decide what is the law and its application to individual cases. It provides at least some degree
of certainty upon which individuals can rely in the conduct of their affairs, as well as a basis
for orderly development of legal rules.
Their Lordships nevertheless recognise that too rigid adherence to precedent may lead to
injustice in a particular case and also unduly restrict the proper development of the law.
They propose therefore to modify their present practice and, while treating former decisions
of this House as normally binding, to depart from a previous decision when it appears right to
do so.
In this connection they will bear in mind the danger of disturbing retrospectively the basis on
which contracts, settlements of property and fiscal arrangements have been entered into and
also the especial need for certainty as to the criminal law.
This announcement is not intended to affect the use of precedent elsewhere than in this
House.
The effect of this statement is that unlike other courts the House of Lords is not bound to
follow its own decisions in all cases but it usually does. Why do you think that is?
22
Court of Appeal
The Court of Appeal is bound by its own previous decisions on the same facts, and bound by
earlier House of Lords decisions. However, the Court of Appeal is not bound to follow its
own previous decisions:
if the previous CA decision was made per incuriam (with lack of care - without
considering a relevant case or statute);
where the European Court of Justice had given an interpretation of EC law which was
contrary to the earlier decision of the CA; or
And the Court of Appeal may choose not to follow its own decisions where:
Divisional Courts
Divisional Courts decisions are binding upon later Divisional Courts (subject to Court of
Appeal exceptions).
They are bound by the decisions of the House of Lords and the Court of Appeal.
Their decisions are binding on the courts from which they hear appeals.
High Court
They are bound by decisions of the House of Lords and the Court of Appeal.
High Courts usually follow previous High Court decisions but they do not have to.
Their decisions are binding on the Crown Court, County Courts and Magistrates Courts.
23
PERSUASIVE AUTHORITY
Note that some decisions do not have to be followed in subsequent cases, but might provide a
useful reference point for judges in subsequent cases. Such decisions are known as
persuasive (rather than binding) authorities.
24
RATIO DECIDENDI
Having identified the circumstances in which courts are bound to follow previous judgments,
how do they know which parts of that earlier decision do they have to follow?
When deciding the outcome of a particular case, the judges deliver their decision (known as a
judgment) and explain their reasons for deciding the case in that way.
The ratio of a case could be described as the reason(s) for a decision. It refers to the relevant
(or material) facts and the relevant legal principles. It is this element (the ratio) that is
relevant to judges in subsequent cases. Those judges must decide whether the ratio of a
previous case should be applied to determine the outcome of the new case.
Warning judges never say This is the ratio of the case ratios are only distilled by
later judges.
MATERIAL FACTS are those facts which are crucial to the determination of the case
Look at the facts from case 1, cross out those facts which are not MATERIAL FACTS
a) A Ford Escort is being driven.
b) By a man.
c) The car was speeding.
d) The driver was not looking where he was going.
25
Once you have identified the material facts you should be able to identify the ratio for case 1.
Identify the material facts in case 2:
Is there any difference in material facts between the two cases? If yes, then case 2 may be
distinguished.
If you are the judge in case 2 and wish to follow case 1 then you will have to reframe the
ratio from case 1. Further refinement may be possible in later cases.
Narrowing judges may reduce the scope of the ratio of an earlier case.
Expanding judges may expand the application of an earlier case by making the ratio more
abstract.
OBITER DICTA
We have already noted that obiter dicta may be persuasive authorities. Such statements might
be used by barristers in later cases to try to persuade the judge of particular point, or they
might be referred to by the judges themselves.
Obiter dicta means things said by the way.
26
Examples
Where the judge makes a hypothetical pronouncement (e.g. If the facts were
different then my decision would be ).
The judge might say what he would do if he was not bound by stare decisis.
Where ( ) are used, the year inside the brackets indicates the year the case was decided.
Where [ ] are used, the year inside the brackets indicates the year in which the case was
reported.
27
The particular case that you are looking for will be at page 456 (the last number in the
citation [2000] 2 ALL ER 456) of the 2nd volume of the series of All England Law Reports
from 2000.
Neutral citation system - Campbell v Mirror Group Newspaper [2002] EWCA Civ 1373
(indicates court where the case was heard. The number relates not to page number but docket
number). The citation is neutral because it doesnt refer to a specific series of law reports.
Keywords.
List of cases referred to judgment (and in the case of ICLR reports in arguments).
Judges opinions.
28
LECTURE FOUR
What is a contract?
How is it formed
Consideration.
WHAT IS A CONTRACT?
A contract is a legally binding agreement between two or more parties.
The law will enforce an agreement provided the following are satisfied:
any formalities required to complete the contract have been complied with;
the parties have the legal capacity to enter the contract; and
In this lecture we will concentrate on the first two requirements- agreement and
consideration. Students are expected to read up on the other bullet points above
29
What is an offer?
An offer may take the form of a statement (either oral or written), or it could be made by
conduct that is capable of acceptance.
An offer can be made to one particular person, a group of people, or to the world at large (see
unilateral offer below).
However, offers can be unilateral (i.e. one party makes a promise in return for the
performance of a particular act by another party).
Example: I promise to pay 50 to anyone who finds my lost dog (here, there is only
one promise).
Unilateral offers are sometimes referred to as if offers and are generally made to groups of
people or the world at large (see Carlill v Carbolic Smoke Ball Co (1893) below).
30
Offers also need to be distinguished from statements/conduct that are incapable of being
accepted, but which might induce another to make an offer.
These are known as invitations to treat.
Invitations to treat
These are statements made to others by way of an invitation to them to make an offer. Such
statements are not offers and cannot be accepted as such.
31
HOWEVER note the position regarding advertisements that amount to unilateral offers
An offer is terminated if it is rejected. It is also terminated if the offeree tries to vary the
terms of the original offer e.g. by offering less money of trying to change the subject matter
of the contract (this is known as a counter offer).
32
33
Also, since the nature of a unilateral offer means that the offeror cannot guarantee that hes
communicated notice of the withdrawal to everyone who saw the offer, he must simply take
reasonable steps to give such notice and should ensure that he communicates notice of the
revocation in the same form as he communicated the original offer.
34
The postal rule can be avoided if the offeror specifies that acceptance must be drawn to his
attention or that he wont be bound until he actually receives the acceptance or he could
specify some other means of communication of the acceptance.
35
The Electronic Commerce (EC Directive) Regulations 2002 state that electronic
orders/acknowledgements of orders are deemed to be received when the parties to whom
they are addressed are able to access them
Consideration
What is consideration?
In Currie v Misa (1875), consideration was defined as something that constitutes a benefit to
one party or a detriment to another.
The House of Lords in Dunlop v Selfridge (1915) approved Sir Frederick Pollocks
definition of consideration.
An act of forbearance or the promise thereof is the price for which the promise of the other
is bought, and the promise thus given for value is enforceable.
Executed a promise which only becomes enforceable when the offeree actually
performs the required act.
NB - The promisor is the person who makes the promise, the promisee is the person to
whom the promise is made.
36
A number of rules should help you remember how courts determine whether consideration is
present in particular scenarios.
1.
If valuable benefit has already been given, before the contract is entered into, then this is not
valid consideration and there will be no contract.
Re McArdle (1951)
2.
3.
4.
Courts will not intervene to ensure that the parties make a good bargain, but the consideration
must have some value (sufficiency).
37
5.
Performance of an existing duty does not constitute valid consideration for a new contract.
Note that the position is reversed for agreements made in a social/domestic context.
Capacity
Persons under the age of 18 are only capable of entering legally binding contracts for
necessaries (Sales of Goods Act 1979, S.3 (2)). This has been held to include food, shelter,
ordinary (and not fancy clothing), and even the cost of a funeral for a spouse.
Mentally disabled persons of full age are able to enter any legal contract even if they did not
understand it, although the courts will treat the contract as void and of no effect if the other
party to the contract was aware of their mental condition.
38
Formalities
Most contracts can be agreed in any form (written, oral, or inferred from conduct). However,
there are a limited number of contracts that need to take a certain form in order for them to be
enforceable by the courts.
39
LECTURE FIVE
Contents of a Contract
Types of terms
Implied terms
When a contract is being formed many statements are made. Some of these statements
become part of a legally binding contract as terms. Others are not considered to be part of the
contract and are mere representations.
TERMS
Terms have been described as the duties and obligations that each party assumes under the
agreement.
There are 2 main types of terms: express (those agreed by the parties) and implied (those
which form part of the contract even if they were not agreed by the parties).
REPRESENTATIONS
Some pre-contractual statements which are made as part of the negotiation process, and
which might have encouraged the other party to enter into the contract, may have legal status
as representations.
Terms are part of a contract and may be enforced; they are promises that the parties have
contracted to undertake. Representations are not part of a contract but legal remedies may be
available if they turn out to be untrue.
If a term is untrue then innocent party has an action for breach of contract. If a
representation is untrue then innocent party has an action for misrepresentation.
40
Importance of the statement where one party has indicated that the statement is of
such major importance they would not have entered into the agreement without it; it
will constitute a term.
Strength of statement the more definitive the statement, the more likely it is to be a
term, see Schawel v Reade [1913] 2 IR 81 where it was held that the sellers
statement the horse is perfectly sound. If there was anything the matter wrong I
would tell you was a term.
compared with
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Timing statements made just before the conclusion of a contract are more likely to
be terms; statements made some time before completion are likely to be
representations.
TYPES OF TERMS
There are 2 main types of terms: express and implied.
EXPRESS TERMS
Express terms are those agreed between the parties.
IMPLIED TERMS
These are terms which are deemed to form part of the contract even though they may not
have been specifically stated or agreed (or even thought of) by the parties. They can be
implied by statute or common law (the courts) or by local custom.
section 12(1) implied term that the seller owns the property he is selling.
section 13 implied term that the goods sold correspond to any description given.
section 14 implied terms that the goods sold are of satisfactory quality and will be
fit for purpose (applies only to sales where the sellers sells in the course of a
business).
section 15 implied term that where goods are sold by sample, the bulk of the goods
will correspond with the sample.
The Sale and Supply of Services Act 1982 implies similar terms into contracts for the supply
of services.
43
CLASSIFICATION OF TERMS
Not all terms whether express or implied are of equal importance. There are 3 classifications
of terms.
Conditions
Warranties
Innominate terms
44
Warranties are the minor obligations which are not vital to the overall contract. Breach of a
warranty only entitles the innocent party to the remedy of claiming damages. There is no
right to terminate the contract, the contract must continue.
Innominate terms
Some terms are incapable of being classified either as a condition or as a warranty because
there can be serious and trivial breaches of the particular term. The remedy for these
innominate terms depends upon the seriousness of the breach. Serious breach permits
termination of the contract; minor breach only gives rise to damages.
To determine whether the breach is sufficiently serious, the courts consider whether the
innocent party has been deprived of substantially the whole benefit of the contract. If
so, he will be entitled to terminate the contract; if not, he will only be entitled to damages.
45
LECTURE SIX
Apples Ltd does not accept liability for any loss or injury suffered by Bananas Ltd as a
result of the provision of defective goods by Apples Ltd or for any failure by Apples Ltd to
perform its contractual or other legal duties.
A limitation clause seeks to restrict or limit the extent to which one party can seek
compensation for loss or damage caused by the other party.
Apples Ltds total liability arising out of this contract shall be limited to 1,000 in
aggregate.
46
The term exemption clause is sometimes used as a global term incorporating both exclusion
and limitation clauses.
Judicial controls
o
Incorporation
Construction
Statutory controls
o
When deciding whether an exemption clause is valid, three questions should be asked.
1. Has the exemption clause been incorporated into the contract?
3. Is the exemption clause fair and valid under the Unfair Contract Terms Act 1977 and
47
JUDICIAL CONTROLS
Has the exemption clause been incorporated into the contract?
i)
ii)
iii)
The party wanting to add the exemption clause to the contract must do all that is
reasonably necessary to bring it to the attention of the other party before the contract is made
- ie not bury it in the small print.
iv)
The more onerous the exemption clause the greater the degree of notice that is
required.
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v)
vi)
49
The next question to ask is whether the clause actually covers the loss/damage that the
party is trying to exclude/limit? The main rule used by the courts to help them
determine this issue is the Contra Proferentem Rule ie do the words in the
exemption clause cover the fault that has occurred?
b)
This rule states that the courts should interpret any ambiguity in an exclusion
clause against the party seeking to rely upon it.
Is the exemption clause fair and valid under the Unfair Contract Terms Act 1977 and the
Unfair Terms in Consumer Contracts Regulations 1999?
Even if a clause satisfies the various judicial tests (i.e. it has been incorporated into the
contract and the wording of the clause covers the particular loss/damage), it might still be
rendered unenforceable by virtue of the Unfair Contract Terms Act 1977 and/or the Unfair
Terms in Consumer Contracts Regulations 1999.
50
Section 2(2) liability for loss/damage (other than death or personal injury) caused by
negligence can only be excluded/limited to the extent that the term is reasonable.
Section 3 where a party deals on the other partys standard terms or the party deals as a
consumer, liability for breach of contract can only be excluded or limited if the term satisfies
the reasonableness requirement.
Section 6(1) the term implied by section 12 of the Sale of Goods Act 1979 (title) cannot be
excluded.
Section 6(2) the terms implied by sections 13, 14, and 15 of the Sale of Goods Act 1979
(conformance with description, satisfactory quality, and conformance with sample) cannot be
excluded or limited against a person dealing as a consumer.
Section 6(3) - the terms implied by sections 13, 14, and 15 of the Sale of Goods Act 1979
(conformance with description, satisfactory quality, and conformance with sample) can only
be excluded or limited against a business if the term satisfies the reasonableness
requirement.
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In relation to a contract term, the requirement of reasonableness...... is 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
When considering reasonableness in relation to S.6(3) the courts also refer to the guidelines
in Schedule 2 of UCTA.
The bargaining powers of the parties was one in a stronger position than the other?
Was the customer given an unfair inducement to accept the exclusion clause?
Prior knowledge should the customer have been aware of the exclusion clause?
Special requirement were the goods made or adapted to meet the customers
specific requirements?
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These Regulations do not apply to terms relating to price or to core terms of contracts. They
only apply to terms which have not been individually negotiated (i.e. standard terms).
A term is unfair if:
it causes a significant imbalance in the rights and obligations of the parties to the
detriment of the consumer.
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LECTURE SEVEN
Discharge of Contract
Remedies for Breach of Contract
DISCHARGE OF CONTRACT
When a contract is discharged, the parties are relieved of their contractual obligations. A
contract may be discharged in four main ways.
1. Agreement.
2. Performance.
3. Frustration.
4. Breach.
1.
Agreement
Since a contract is formed by agreement it makes sense that it may be ended by agreement. In
the original agreement there may be a term that sets out the circumstances in which the
agreement will come to an end.
If there is no such term in the contract, the parties may agree to bring the contract to an end
provided that the agreement is supported by consideration.
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2.
Performance
This is the most common method of discharging obligations under a contract and takes place
when both parties have performed their contractual obligations. Generally, complete and
exact performance is required before the contract will be discharged.
3.
Frustration
Frustration is something which occurs after the contract was made, but which makes the
contract impossible to perform or makes performance fundamentally different to that
contemplated by the parties at the time the contract was concluded.
Frustration discharges both parties from their liabilities under the contract.
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A particular event, which was the sole reason for the contract does not actually ever
take place.
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If the supervening event is provided for in the contract, the court will accept the
provisions made and will not apply the doctrine of frustration - note the effect of
force majeure clauses which are agreed up front by the parties and provide for
what should happen if a particular event takes place or certain circumstances arise.
If the event was, or should have been, foreseen by one party, that party cannot rely on
frustration.
Effects of frustration
The effects of frustration are governed by the Law Reform (Frustrated Contracts) Act
1943.
a) Any money paid is recoverable (Section 1(2)).
b) Any money payable ceases to be payable (Section 1(2)).
c) A court may allow the parties to recover any expenses that have been paid (Section
1(2)).
d) A party who has gained a valuable benefit from the contract before the frustrating
event may be required to pay for the benefit on a quantum meruit basis (Section 1(3)).
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4.
Breach of Contract
Breach of contract occurs when one party fails to comply with its contractual obligations.
Any breach of contract entitles the innocent party to sue for damages, regardless of the
severity of the breach.
Furthermore, one party may be discharged from his obligations under the contract because of
breach by the other. However, this is not an automatic right and only arises where there has
been a breach of a condition (also known as a primary obligation i.e. a major term going to
the heart of the contract) or where the other party has repudiated (ended) the contract before
performance is due or fully compete.
Note that there are two different kinds of breach: actual and anticipatory.
Actual breach
The breach might occur by reason of:
non-performance; or
defective performance
Anticipatory breach
The breach occurs when one party indicates in advance (i.e. before the performance date) that
they will not be able to perform the obligation. The breach might be express or implied.
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Damages.
Specific Performance.
Injunction.
Damages (compensation)
They aim to put the innocent party in the position he would have been had the contract been
fully performed (expectation damages).
Not all losses are recoverable, only those that satisfy the remoteness of damages test created
in
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Loss/damage which both parties would reasonably have contemplated when the
contract was made as a probable result of any breach.
The claimant is under a duty to mitigate his loss i.e. to take reasonable steps to reduce it. He
must take reasonable steps to minimise his losses, and not deliberately increase the loss
unreasonably.
However, the claimant is only required to take reasonable steps to mitigate his loss; he need
not go beyond what a reasonable person in business would be expected to do.
Liquidated damages
The parties may agree in the contract itself what is to be paid in the event of a breach. This
type of term will stand if it is a genuine pre-estimate of likely loss. If not, it may be regarded
as a penalty. The court will then assess compensation itself in the usual way.
What is a penalty?
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915).
If the sum payable is extravagant and unconscionable by comparison with the greatest loss
which might be caused by the breach, it is likely to be viewed as a penalty.
If the breach consists of non-payment of money and the amount payable under the clause
exceeds the amount recoverable for the breach then the clause will be a penalty.
There is a presumption of penalty if the contract provides for the same amount to be payable
as damages in the event of several different types of breach regardless of the severity of the
breach.
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NB just because the parties themselves have called the clause a penalty does not make it so.
Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd (1933, AC)
Specific Performance
The court may order the defendant to perform his part of the contract in accordance with its
terms. This is known as specific performance. The order is subject to the courts discretion
and is subject to the restrictions listed below.
It will not be granted where the claimant acted improperly (because it is an equitable
remedy).
Injunction
An injunction is a court order. It may take two forms a court order that stops a person doing
something is called a prohibitory injunction and an order that requires him to do something
is called a mandatory injunction.
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LIMITATION OF ACTIONS
The Limitation Act 1980 imposes limitation periods in respect of certain contracts. Claims
cannot be brought after the relevant limitation period has expired.
Section 5 the action must be started within 6 years from the date of the breach if it relates to
a simple contract (i.e. one not made by Deed).
Section 8 - the action must be started within 12 years from the date of the breach if it relates
to a contract made by Deed.
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LECTURE EIGHT
Negligence
A tort is a breach of duty fixed by law (either common law or statutory law), committed
against an individual (including companies), which gives rise to an action for damages.
Generally, a tort involves the defendant doing something (act), or not doing something
(omission), which causes harm or loss or damage to the claimant. A tort also involves an
element of fault on the part of the defendant.
Tort law gives rights to individuals (either natural people like us or legal entities like
companies).
We enforce these rights using the civil, rather than criminal, court system and we do not need
to point to a contract in order to enforce our rights. This can be useful when there is no direct
contract link between us (the claimant) and the person who actually caused the liability. We
cannot sue them for breach of contract (there is no contract) but we still want to hold
someone liable for the loss/injury that we have suffered.
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Example
A manufacturing company purchases some equipment for its machinery from a wholesaler.
The companys contract is with the wholesaler.
Imagine that the equipment is defective and the defect is caused by the manufacturers
negligence. The defective equipment causes the companys equipment to set fire and its
warehouse burns down.
Imagine that the wholesaler subsequently becomes insolvent so there is no point in the
company bringing an action against it even if it has breached the contract by supplying
defective goods. What can the company do?
The company did not contract directly with the manufacturer so cant sue for breach of
contract. The company cannot take advantage of the contract between the manufacturer and
the wholesaler either because the rules of privity of contract say that only those who are a
party to the contract can sue on it. However, since the damage was caused by the
manufacturers negligence, the company can sue the manufacturer in tort and, if it is
successful, it can recover damages.
Both contract and tort law fall under the umbrella of private law.
Both contract and tort law also seek to compensate the innocent party, rather than
punish the wrongdoer. However, the way that they do that is different.
In tort law, the aim is to compensate the innocent party for wrongful interference with
his rights i.e. damages aim to put him in the position he was in before his rights were
interfered with.
However, damages in contract law aim to compensate the innocent party for the fact
that his expectations have not been fulfilled i.e. the other party has not performed in
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accordance with their agreement. Therefore, damages in contract law aim to put the
innocent party in the position he would have been in had the contract been performed
correctly i.e. as if his expectations had been fulfilled.
In tort, duties are fixed by law rather than by agreement as they are in contract law.
In contract law, the only people who are entitled to sue in the event of a breach of
contract are the people who were actually a party to the agreement. It doesnt matter if
someone else has suffered loss, only the parties can sue under a contract. This is not
the case in tort law where rights are fixed by law and any person can sue any other
person for wrongful interference of those rights.
It is also worth noting that a party might well breach its contractual obligations and cause
liability under tort law at the same time. For example, this would be the case where a party
breached his contractual promise to take reasonable care in manufacturing goods and also
incurred liability in negligence for breaching the general duty of care owed to anyone who
used those goods.
ESSENTIALS OF NEGLIGENCE
1.
2.
3.
Breach of this duty has caused damage to the claimant (and the damage is
not too remote).
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1.
If the claimant is not a foreseeable victim/beyond the area of reasonable foreseeability there
is no duty of care.
Today the courts apply a three part test (see Caparo Industries v Dickman [1990] 1 All ER
568) to see if a duty of care is owed to the claimant by the defendant:
Foreseeability of harm.
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2.
To assess whether the defendant has taken reasonable care the court look at:
1. Magnitude of risk
6. State of medical or scientific knowledge at the time of the incident Roe v Minister
of Health [1954]
7. Common practices see Bolam v Friern Barnet HMC [1957], will be ignored if in
the opinion of the court the common practice itself is negligent, see Bolitho v
Hackney HA [1998] AC 232
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CAUSATION
Liability arises only if it can be proved on the balance of probabilities that but for the
BREACH there would have been no injuries.
3.
Claimant suffered loss or injury as a result of the breach of the duty of care by the
defendant
There will be no liability if the damage is too remote (damage not reasonably foreseeable).
But note the thin skull rule which provides an exception to the principle established in
Wagon Mound. If the type of injury was foreseeable, but not the seriousness of injury to that
particular victim, the defendant will nonetheless be liable for the damage.
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In Hedley Byrne v Heller [1963] an advertising agency was given a reference from a clients
bank which said that the client was credit worthy.
The House of Lords held that there was a duty of care not to make a statement carelessly (the
reference) which causes economic loss to another.
To prevent unlimited claims, in order for a duty of care to be established it is not enough that
an adviser can reasonably foresee that negligence could result in a claimant suffering
financial loss. It is necessary for the adviser and recipient to be in a 'special relationship'.
This is to prevent someone being liable for an acceptably large group of potential claimants
for an indeterminate period eg potential investors in a privatisation.
The criteria for deciding whether a duty of care arises were tightened by the case of Caparo
Industries v Dickman.
Did the defendant.
could D have reasonably anticipated that claimant would act upon the advice without
seeking further clarification/independent advice?
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The accountants prepared accounts for Fidelity plc. The accountants negligently stated in the
accounts that Fidelity plc had profits of 1.3 Million when in fact it had made a loss.
Claimant relied on accounts and increased its shareholding in Fidelity plc. In fact, it later took
over the company completely before discovering that the company was in fact worth far less
than it had been led to believe.
The House of Lords held: no duty of care existed between the accountants and the claimant.
House of Lords was influenced by the fact that the purpose of the accounts was to help
shareholders decide how to vote at the AGM, not to aid their decision as to whether or not to
increase their investment in the company.
What can you claim in damages if you are the victim of a negligent misstatement?
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LECTURE NINE
Vicarious liability.
Defences in tort.
Remedies in tort.
VICARIOUS LIABILTY
Vicarious liability is where one person is made liable for a tort committed by another person.
An employer is vicariously liable for the tortuous acts of his employees committed during the
employees course of employment.
However, a company is not usually vicariously liable for the acts of independent contractors.
Who is an employee?
Historically, any person who was under the control of another was found to be a servant
(employee).
However, this test was found to be inadequate and today the courts look at all the
circumstances surrounding a particular case to ascertain whether or not a person is an
employee. Giving someone the label of employee is not sufficient. Equally, calling someone
a contractor does not avoid vicarious liability; the courts look at the reality of the situation.
Essentially, provided that the activity which led to the tort was sufficiently closely connected
with the employees contractual employment duties, the employer will be vicariously liable.
It does not matter that the employee was disobeying orders or acting negligently.
Note that there must be some connection between the actions of the employee and his job.
Note the impact of public policy in determining the extent of proximity when assessing
vicarious liability.
DEFENCES
Volenti non fit injuria
This is also known as consent. The defence is available if:
This defence is rarely available to employers, as employees are often under pressure to do
dangerous work
The defence is not available if the claimant was injured while rescuing someone from
a situation that was created by the negligence of the defendant. In such circumstances,
the claimant is not deemed to have consented to the risk because danger invites
rescue.
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Illegality
When a person is injured while he is participating in an unlawful activity, and the injury is
directly related to that illegality, this provides an absolute defence (Ashton v Turner [1980] 3
All ER 870) - 2 burglars A + B having committed a robbery got in to their get away car
driven by C. Due to Cs negligent driving B was injured. B attempted to sue C for
negligence. Held B could not sue C as NO duty of care arises in the commission of a crime.
REMEDIES IN TORT
The remedies for tortuous claims are damages and/or injunction - see earlier notes.
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LECTURE TEN
Who is an employee?
A business may have both its own employees working for it under a contract of service (eg
university lecturers, supermarket staff) and independent contractors (self employed)
working for the business under a contract for services (eg consultants).
EG an hourly paid bricklayer working full time for a local authority will be an employee,
whereas if your employ a bricklayer to build a garage for you for 6000,he will be self
employed.
Text books often refer to someone who is self employed as an independent contractor. The
terms mean the same
Aids to assist making the distinction come from both Parliament in the form of statutory
guidance and common law (the judiciary):-
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Statutory Aids
The Employment Rights Act 1996 S.230 (1) defines an employee as
an individual who has entered into or works under a service contract or apprenticeship
This isnt very helpful how is a service contract or apprenticeship defined in the statute?
Does the definition help?
A contract of employment is one of personal service, thus if the individual working can
delegate his task or substitute a replacement then the essential element of personal service is
missing.
Judicial Aids
The courts look at the reality of the situation and may ignore titles or labels given to the
worker.
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National
Insurance 1968
A lorry driver was held NOT to be an employee but rather an independent contractor because
on occasion he could substitute another driver to do his work provided he obtained the
consent of the company which used his services.
Over time the courts have devised tests to help make the distinction but no one single test is
conclusive. These tests tend to be vague and sometimes difficult to apply in marginal cases.
The Control test
If there is evidence to show the employer had control not only of what work was done but
also how, when and where the work was done may indicate an employee/employer
arrangement.
If this control cannot be established then the worker may be an independent contractor.
As technology and industry have developed specialised skilled workers are often not under
the direct control of their employers due to their unique skills (eg in the medical profession
where hospital managers are unable to control their surgeons to a great extent).
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What about home workers, casual workers and agency workers what status do they have?
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2. Income tax and National Insurance employees pay income tax under schedule E
whereas the self employed are taxed under Schedule D. This allows the self
employed to set off business expenses against income tax and to pay their income tax
in arrears. Employees pay Class 1 National Insurance contributions. The self
employed pay their own under Class 2. Employers hiring anyone who is self
employed are relieved of the administrative burden of deducting income tax and
National Insurance as it is the responsibility of the self employed to pay these.
3. Many statutory employment rights are reserved solely for employees eg unfair
4. Health and safety issues the duty owed to employees is theoretically stronger than
6. Implied terms there are rights and duties implied by statute in to contracts of service
8. Statutory sick pay - there are differences between the levels for an employee and an
independent contractor.
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LECTURE ELEVEN
requires otherwise
3. If the contract states that notice may only be given in specific circumstances then
All bar unfair dismissal are common law issues involving contractual rights.
Wrongful dismissal
If an employer:dismisses an employee without notice, or
the notice given is too short, or
disciplinary procedures were not followed by the employer
the employee may be able to claim for breach of contract and damages for wrongful
dismissal.
As the action taken is for breach of contract the courts will usually only award damages
amounting to the sum that would have been earned if proper notice had been given. The
wronged party is expected to mitigate his loss by say seeking other employment
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Constructive dismissal
If an employer unilaterally imposes a change in one or more of the essential terms of the
employment contract and the employee resigns as a result.
The employer is liable for breach of contract in the form of a claim for constructive dismissal
by the employee.
Examples of breaches of contract that have led to claims of constructive dismissal
Reduction in pay
Complete change in the nature of the job
Failure to follow prescribed disciplinary procedures
Failure to provide suitable working environment
Unfair dismissal
This statutory right was introduced in 1971. Today the law is set out in the Employment
Rights Act 1996 which sets out in detail what are fair reasons and what are automatically
unfair reasons for dismissal and stipulations to prevent the dismissal being handled unfairly.
It can and frequently does occur without there being any breach of the employment contract.
Claims are heard not in the courts but in Employment Tribunals.
It occurs if an employee is dismissed from his job and the employer does not have a
valid reason for the dismissal or has acted unreasonably.
Eligibility to claim is set out in the Employment Rights Act 1996
1.
One years continuous employment (note there are exceptions to this requirement see
S.99).
2.
An employee must prove there has been a dismissal and it was not for one of the five
fair circumstances set out in the Act or if it was the employer did not handle the
dismissal fairly (S.98)
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Redundancy
A redundant employee may have the right to make one or both of these claims against his
employer:
a redundancy payment
unfair dismissal
What is redundancy?
An employer may reduce the size of his workforce making some employees surplus to
requirements. these workers may have a statutory right to a redundancy payment from their
employer due to the loss of their jobs
Should an employer be found not to have used good industrial practice when selecting for
redundancy he may also face a claim for unfair dismissal from those employees.
If an employer is found to have acted unfairly he may have to reinstate these employees or
pay them a compensatory award.
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