Name: Essien, Liz-Silva Dominic

Matric Number: 18CB024663

Course: BLD 418
Date: 23rd January, 2022
TOPIC: UPDATE YOUR CASES TO THE LAST TOPIC TAUGHT IN
CLASS
CONSIDERATION
Chapple v Nestle (1959)
Nestle were running a special offer whereby members of the public
could obtain a music record by sending off three wrappers from Nestle’s
chocolate bars plus some money. The copyright to the records was
owned by Chapple, who claimed that there had been breaches of their
copyright. The case turned round whether the three wrappers were part
of the consideration. It was held that they were, even though they were
then thrown away when received.
Williams v Roffey (1990)
Roffey had a contract to refurbish a block of flats and had sub-
contracted the carpentry work to Williams. After the work had begun, it
became apparent that Williams had underestimated the cost of the work
and was in financial difficulties. Roffey, concerned that the work would
not be completed on time and that as a result they would fall foul of a
penalty clause in their main contract with the owner, agreed to pay
Williams an extra payment per flat. Williams completed the work on
more flats but did not receive full payment. He stopped work and
brought an action for damages. In the Court of Appeal, Roffey
argued that Williams was only doing what he was contractually bound to
do and so had not provided consideration.
It was held that where a party to an existing contract later agrees to pay
an extra “bonus” in order to ensure that the other party performs
his obligations under the contract, then that agreement is binding if the
party agreeing to pay the bonus has thereby obtained some new practical
advantage or avoided a disadvantage. In the present case there were
benefits to Roffey including (a) making sure Williams continued his
work, (b) avoiding payment under a damages clause of the main contract
if Williams was late, and (c) avoiding the expense and trouble of getting
someone else. Therefore, Williams was entitled to payment.

PAST CONSIDERATION
Re McArdle [1951] Ch 669
Past consideration is no consideration.
Facts
William McArdle left a house to his five children in equal shares,
subject to a life interest for his widow. The wife of one of these sons,
Mrs Marjorie McArdle, carried out improvements to the house
amounting to £488. She also bore the cost of these repairs. After the
repairs had been carried out, she got all the five children of McArdle to
sign a document in which they promised to repay Mrs McArdle the £488
out of the estate when it was eventually distributed. After the testator’s
widow died, Mrs McArdle asked for payment. However, the other four
sons refused to pay her. She tried to enforce her interest in the property
in court.
Issues
Ms McArdle argued that the document was an equitable assignment of a
portion of each of the five sons’ interest in the property amounting to
£488 out of the testator’s estate. However, the other sons argued that the
promise was merely a gift, as Mrs McArdle had provided no
consideration for it. As she was a mere volunteer, the equitable maxim
‘Equity will not assist a volunteer’ applied and, therefore, the promise to
pay could not be enforced. 
Decision/Outcome
The Court of Appeal held that the transaction had not been completed
and was imperfect. Therefore, it was only a promise to pay and not a
gift. Mrs McArdle had already performed the work before she asked for
payment. Her consideration was in the past. Past consideration is not
good consideration. Therefore, the agreement was unenforceable.  
 Roscorla v Thomas.
 The plaintiff that is was a sound house, free from vise. The house was in
fact a vicious horse. The plaintiff sued the defendant for breach of the
promise. It was held that the action will Fail.
If the promise had been given at the time of sale, it would have been
supported by consideration, but since it was given after the sale had
taken place, the consideration which the plaintiff furnished was past and
had furnished no new consideration for the defendant’s promise.
PROMISSORY ESTOPPEL
Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761 House of
Lords

Tungsten had been infringing a patent right held by TMM. When TMM
heard of this they waived all infringements in return for Tungsten paying
10% Royalty and also 30% 'compensation' if sales exceeded 50KG in
any month. These sums were excessive but Tungsten agreed to pay them
otherwise they would be faced with a claim for infringing the copyright.
Tungsten struggled to make payments. They got into arrears during the
war times and an agreement was reached to waive the 'compensation'
payments during the war years.
Held:

TMM could not enforce the compensation payments during the war
years but could enforce them on termination of the war. TMM were
estopped from going back on their promise to waive the payments in
equity. Generally promissory estoppel will merely suspend legal rights
rather than extinguish them. However, where periodic payments are
involved and a promise has been made to reduce the payments because
of pressing circumstances which are not likely to persist, promissory
estoppel can be used to extinguish legal rights.
Hughes v Metropolitan Railway (1876-77) LR 2 App Cas 439 House
of Lords

A landlord gave a tenant 6 months notice to carry out repairs failure to

do so would result in forfeiture of the lease. The landlord and tenant then
entered into negotiations for the tenant to purchase the freehold of the
property. It was thought by both parties that a conveyance of the
property would take place. The tenant had not carried out the repairs as
they believed they would be purchasing the freehold and the repairs
required by the landlord were not essential to his use of the property. At
the last minute negotiations broke down and the Landlord gave the
tenant notice to quit for failure to carry out the repairs.

Held:

The time limit imposed for carrying out the repairs was suspended
during the negotiations.

Lord Cairns CJ:-

"It is the first principle upon which all Courts of Equity proceed, that if
parties who have entered into definite and distinct terms involving
certain legal results - certain penalties or legal forfeiture - afterwards by
their own act or with their own consent enter upon a course of
negotiation which has the effect of leading one of the parties to suppose
that the strict rights arising under the contract will not be enforced, or
will be kept in suspense, or held in abeyance, the person who otherwise
might have enforced those rights will not be allowed to enforce them
where it would be inequitable having regard to the dealings which have
thus taken place between the parties."

 INTENTION TO CREATE LEGAL RELATIONS

Rose and Frank Co v JR Crompton and Bros Ltd, [1925] AC 445
Intention to create legal relations in the formation of contracts.
Facts
An American company and English company entered into a sole agency
agreement in 1913 for the sale of paper goods in the USA. The written
agreement contained a clause stipulating that it was not a formal nor
legal agreement, and an “honourable pledge” between business partners.
Subsequently, the American company placed orders for paper which
were accepted by the British company. Before the orders were fulfilled,
the British company terminated the agency agreement and refused to
send the goods, claiming that the 1913 agreement was not legally
binding and that, consequently, the orders did not create legal
obligations.
Issues
The questions arose as to (1) whether the sole agency agreement of 1913
constituted a legally binding contract, and (2) whether the orders
constituted enforceable contracts of sale.
Decision/Outcome
Firstly, as to the 1913 agreement, the Court gave overriding weight to
the provision in the agreement that expressly provides that it is to be
solely an “honourable pledge”, as demonstrating that the parties did not
intend the arrangement as a legally-binding contract. The Court
explained that the argument that clauses restricting the legal
enforceability of a contract apply solely when the document is otherwise
unquestionably of legal force. In this case, the document and
circumstances did not intend to create any legal interest, and the clause
expressly precluding the agreement’s legal enforceability applies.
Secondly, the Court held that the fact that the arrangement does not
constitute a legal contract does not preclude the orders and acceptances
from constituting legally-binding contracts. The lack of enforceability of
an express legal arrangement under an agency agreement does not
preclude the legal transactions. The orders constituted mutual offers and
acceptances with each transaction having ordinary legal significance.
Simpkins v Pays [1955] 1 WLR 975
Intention to create legal relations in the formation of contracts in a
domestic context.
Facts
Ms. Simpkins was a paying boarder at Ms. Pays house, who lived with
her granddaughter. Ms. Simpkins habitually entered into newspaper
competitions. Concerning one weekly Sunday newspaper competition,
the three agreed that Ms. Simpkins would fill in a weekly coupon, with
each person making three forecasts, yet submitting them in Ms. Pays
name, and divide the prize in the event of winning. A forecast made by
Ms. Pays’ granddaughter in one of the coupons submitted won a prize of
£750 under Ms. Pays name. Ms. Pays refused to distribute the prize and
Ms. Simpkins claimed for one-third of the prize under their agreement.
Issues
The question arose as to whether there was an intention to create legal
relations in the informal arrangement between the Parties so as to
constitute a legal agreement to distribute the shares.
Decision/Outcome
The Court held that, irrespective of the familial relations and the
informal context, there was mutuality in the arrangement between the
Parties, by which they agreed to the manner of the submission of the
forecast in Ms. Pays name on a weekly basis and that, if there was a
success, all three persons would share the prize money equally. Despite
the domestic context, the filling out of the coupon by Ms. Simpkins was
not a voluntary service to Ms. Pays but rather pursuant to an agreement
by which each Party had shares in the result, thus showing an intention
to create legal relations. The Court held that the mutual arrangement, no
matter how informal, constituted a legally-binding agreement to divide
the shares in thirds.
TERMS OF A CONTRACT
The parole evidence rule
Henderson v Arthur [1907] 1 KB 10
Considers the ‘parole evidence rule’ and determines that a written
agreement supersedes earlier additional oral agreements between parties.
Facts
The claimant, Henderson, was a seller who agreed to give a lease of a
theatre to the defendant, Arthur, as a tenant. Per the agreement, the
defendant promised to make rent payments within a specified timeframe,
however prior to the agreement’s signing, the parties had verbally agreed
that the claimant would accept debts as rent payments. The claimant
subsequently attempted to bring an action against the defendant,
contending he had failed to make the required rent payments, whilst the
defendant retorted that the claimant had originally stated he would
accept debts and was now reneging on this.
Issue
Whether the parties’ earlier oral agreement was binding, despite the
contents of their later written agreement.
Decision/Outcome
The Court of Appeal found for the claimant, viewing that the written
contract superseded all other agreements, and invalidated any differing
prior agreements between the parties. Moreover, the Court viewed that
the circumstances in which they ought reasonably consider extrinsic
evidence when interpreting a contract was limited and as the defendant
could have included the contents of the oral agreement in the written
agreement, but failed to do so, they could not then attempt to rely upon
the oral agreement at a later date. Further, the Court viewed that it was
necessary to presume that the final written agreement between parties is
the exclusive and finalized version for the sake of legal certainty and
respect for the principle of sanctity of contract.
J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1
WLR 1078
Oral promise overrode existing written contract conditions
Facts
The plaintiffs imported machines from Italy to England. The defendants
were their forwarding agents. In terms of the contractual arrangements
between the parties, the defendants had complete freedom regarding the
transport of the goods to England. The defendants proposed a change in
the method of transportation and gave the plaintiff an oral assurance that
the machines would be shipped in containers carried under deck. No
written provision was made for this change. One of the machines was
packed on deck (rather than under deck) and was lost at sea.
Issues
The plaintiff sought damages. The defendants denied liability. At first
instance, it was held that the oral assurance was not a legally binding
warranty which could operate collaterally to the contract.
Decision/Outcome
The Court of Appeal held that the oral assurance to ship future goods
under deck constituted an enforceable contractual promise. This oral
promise overrode the standard contract conditions because the promise
was made in order to induce the plaintiffs to agree to the goods being
carried in containers. Furthermore, the defendants were unable to rely on
any exemptions in the written contractual terms. The Court referred to
numerous authorities in which oral promises had been held binding
despite the existence of written exempting conditions (e.g. Mendelssohn
v Normand [1970] 1 QB 177). Therefore, because the defendants had
promised to ensure that the goods would be shipped in containers which
were stored under deck and this promise was broken by shipping the
goods in containers on deck, they were liable for the loss. The plaintiff’s
appeal was accordingly allowed.
Is there reliance on the statement, or importance placed on the
statement?
Bannerman v White (1861) 10 CB NS 844
Affirms that where a representee expressly informs a representor of the
significance of their representation to the contract, the representation is
likely to be viewed as amounting to a contractually binding term.
Facts
The claimant, Bannerman, formed a contract with the defendant, White,
regarding the purchase of hops, intending to use them to produce beer.
The claimant specifically enquired as to whether the hops had received a
sulphur treatment as it is only possible to make usable beer from hops
that have not received this treatment. Furthermore, the claimant
expressly stated that he would be unwilling to buy the hops if they had
been treated. The defendant assured the claimant that the hops were
untreated, however in fact the hops had received sulphur treatment and
were subsequently useless to the claimant; thus Bannerman brought an
action against White for damages, contending that the statement
regarding treatment ought be viewed as a contractual term which White
had thus breached.
Issue
Whether the defendant’s assurance regarding whether the hops had
received a Sulphur treatment constituted a representation or a
contractually enforceable term.
Decision/Outcome
The Court found for the claimant, viewing that the matter of whether the
hops had received Sulphur treatment was indeed a contractual term
rather than a mere representation. The Court placed particular emphasis
on the fact that the claimant had communicated the significance and
consequence of the treatment to the defendant, meaning they were
reasonably aware of its importance and that the claimant was only
contracting on these grounds.
Is there any specialist skill or knowledge from one party?
Oscar Chess v Williams [1957] 1 WLR 370
The steps to be taken in identifying a warranty
Facts
The defendants sold a Morris car to the claimants, who were motor
traders, for £290. The defendants provided a copy of the vehicles first
registration indicating that the car was first registered in 1948. Some
eight months later the claimants became aware that the car had actually
been registered in 1939 and was therefore only worth £175. The
defendant honestly believed that the car was a 1948 model. The
claimants claimed damages for breach of contract.
Issues
The issue in this context was whether the statements given by the
defendants constituted a warranty as to the age of the car.
Decision/Outcome
The Court of Appeal found that the defendants’ comments did not
constitute a warranty. More importantly, the court set out a number of
considerations that should be made when assessing whether a statement
is a warranty.
(1) Where an assumption is fundamental to a contract, it does not mean
that it is a term of the contract.
(2) The term warranty means a binding promise as well as a subsidiary,
non-essential, term of a contract.
(3) A warranty must be distinguished from an innocent
misrepresentation.
(4) Whether a warranty is intended must, judged objectively, be based
on the parties’ words and behaviour.
(5) Where one party makes a statement, which should be within his own
knowledge, but not the knowledge of the other, it is easy to infer a
warranty. If the party states that it is not within his knowledge and is
information passed from another, a warranty is less easily inferred.
(6) An oral representation repeated in writing suggests a warranty, but
the issue is not conclusive. Neither is the fact that it is not stated in
writing.
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1
WLR 623
Established that a representation from an experience party to an
inexperienced party is likely to be interpreted as a contractual term
rather than a representation.
Facts
The claimant, Dick Bentley, was aware of the defendant, Harold
Smith’s, reputation as an expert in prestige cars and requested that the
defendant keep an eye out for a well vetted and kept Bentley car, as he
wished to purchase one. When the defendant obtained a Bentley, he
informed the claimant and recommended it to him, stating that the
vehicle had been previously owned by a German man who had replaced
some of the car’s original parts and had only driven approximately
20,000 miles on the car since the replacements, meaning the car was in
good shape. The claimant subsequently purchased the vehicle, however
faults soon developed. As per warranty, the defendant made some
repairs, yet with the development of more faults it became apparent that
the car had in fact travelled many more miles than originally believed
since the replacement of parts. The claimant thus brought an action
against the defendant for breach of contract and seeking damages. In
response, the defendant asserted he had made an innocent
misrepresentation.
Issue
Whether the defendant’s statement as to the quality of the vehicle could
be deemed a term of contract given his expertise as a prestige car dealer.
Held
The Court found for the claimant, viewing the statement as a contractual
term. They determined that as the defendant had greater expertise, as a
car dealer, the claimant was reasonably entitled to rely upon a
representation from them regarding the subject of their expertise. 
How long was the lapse of time between the statement being made
and the formation of the contract?
Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611
Affirmed that pre-agreement representations are not binding or
influential where a written agreement contains an ‘entire agreement’
clause.
Facts
The parties to a lease of a pub entered into a rental agreement, promising
to rent the property so long as the new tenant continued to acquire its
beer from the suppliers used by the prior tenants. Moreover, a clause in
the agreement stipulated that ‘this agreement… constitute[d] the entire
agreement’. Once the tenant completed the requirements of the lease,
they began stocking beer from other suppliers and so the landlord
attempted to seek an injunction against the new tenant for breach of
promise. The tenant retorted that the landlord had suggested that the
purchaser requirement was flexible and further that the passing of time
meant this right had deteriorated and the landlord could no longer seek
to reasonably rely upon it.
Issue
Whether an unclearly worded clause in an original agreement could
operate to prevent a defendant from establishing a collateral damages
agreement with another party.
Decision/Outcome
The Court found for the landlord claimant, emphasizing that whilst the
tenant may be displeased with the circumstances at hand, they had no
reasonable grounds for complaint. Whilst there may be occurrences in
which a party to an earlier contract who had made a representation may
be required to fulfill such a promise, however this ought be
distinguished from circumstances in which an earlier promise may be
operated to estop a party from fulfilling a subsequent contractual
promise. Thus, an agreement does not suffice as evidence of the
suggestion of a collateral warranty submission.
Heilbut, Symons and Co. v Buckleton [1913] AC 30
Emphasised the role of intent where one party makes a promise to
another where one party may opt to rely upon that information in
choosing to contract.
Facts
The defendants, Heilbut et al, were merchants during the rubber trade
boom of the 1910’s who claimed to underwrite shares in a rubber trading
corporation (‘Filisola Rubber and Produce Estates Ltd’). The claimant,
Buckleton, contacted this corporation to enquire about shares
purchasing, to which a manager at Hilbut et al responded positively,
insinuating the creation of a new rubber company, which persuaded
Buckleton to make a sizable purchase for shares in the organization. The
subsequently formed rubber production company proved to have far
fewer available resources than anticipated and thus suffered greatly in its
initial performance, causing Buckleton to sue for breach of warranty as
the company’s original representation had implicated far greater
resources.
Issue
Whether the defendant’s agent’s remarks as to the new rubber
company’s resource pool could be considered a simple representation or
a binding contractual promise.
Decision / Outcome
At first instance, the Court contended that Heilbut et al had made an
innocent misrepresentation, however, upon appeal it was determined that
no fraudulent misrepresentation had occurred as the defending party had
not been ‘reckless’ as to the truth of the statement regarding their
resources pool and further there was no clear intent that their remarks
regarding their resources should amount to a binding contractual
promise to act in parallel to their written agreement.
Terms implied by custom
Hutton v Warren (1836) 1 M & W 466
Whether custom could become an implied term of a lease where the
lease is silent
Facts
Hutton was the tenant farmer of land owned by Warren. Warren gave
Hutton notice to quit and insisted he continue to cultivate the land
throughout the notice period. Hutton continued to farm the land during
the last year of the tenancy expending his own labour and purchasing
seed and manure for use on the land. On quitting the farm, Hutton
sought a reasonable payment for the labour and expenditure bestowed on
the farm, and Warren refused to pay.
Issues
Hutton contended it was customary upon the expiry of farming tenancies
that the landlord should pay the out-going tenant farmer a reasonable
sum for the cost of tillage, sowing and cultivating. He argued he had
bestowed considerable labour and expense during the last year of the
tenancy and on termination of the lease, he was prevented from enjoying
the crops arising from his labour and, therefore, sought recompense as
calculated by an independent land valuer. Warren argued the original
lease contained no such term regarding any provision for an out-going
tenant and if the lease was silent, there was no obligation to pay. Warren
disputed there was any such custom in place and, even if there was, it
had not been incorporated into the contract because the lease was silent
on the matter.
Decision/Outcome
Hutton was successful in his claim. The custom was by implication
imported into the lease. Where a commercial contract is silent, extrinsic
evidence of customary practice and usage is admissible and can be
incorporated into the agreement. It was, therefore, an implied term of the
lease that Hutton should recover a fair and reasonable price for the seeds
and labour he bestowed on the land.
British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975]
QB 303
Oral contract for hire of a crane; whether normal trade conditions
incorporated into contract
Facts
Ipswich Plant Hire (IPH) arranged by telephone to hire a crane from
British Crane Hire Corporation (BCHC). The crane was duly delivered,
and subsequently BCHC sent their conditions of hire to IPH. The
conditions included a clause stipulating that IPH would be responsible
for, and indemnify BCHC for, any costs arising out of the use of the
crane. IPH did not sign or return the form to BCHC and when the crane
sank into the marshes, they refused to indemnify BCHC for the cost of
recovering it.
Issues
IPH contended the clause requiring them to indemnify BCHC had not
been successfully incorporated into the contract because the conditions
of hire had not been supplied until after the contract had been formed.
They argued the contract was formed orally over the telephone and
BCHC could not, therefore, seek to incorporate terms into the agreement
after the crane had been delivered. IPH also relied on their failure to sign
and return the form as evidence that these additional terms had not been
agreed. BCHC argued IPH had hired cranes from them on previous
occasions and were aware of their conditions of hire and, as such, these
conditions were effectively incorporated into the contract. They also
contended such conditions were the industry norm and, therefore, it was
not incumbent upon them to draw special attention to the clause.
Decision/Outcome
BCHC were successful and the clause was deemed to be incorporated
into the contract. Where parties are of equal commercial bargaining
power, the conditions usually contained within industry contracts would
be successfully incorporated based on the common understanding of the
parties. BCHC could, therefore, recover the costs of recovering the
crane.
Terms implied by law
Liverpool City Council v Irwin [1977] AC 239
Landlord and tenant; whether implied obligation on landlord to repair
common parts
Facts
The Irwins were council tenants of a flat in a high rise building owned
by Liverpool City Council (LCC). They withheld their rent in protest
regarding conditions in the common parts and in their maisonette. The
conditions included defective lifts, unlit staircases and an overflowing
water cistern. LCC sought possession, and the Irwins counterclaimed for
breach of duty to maintain the common parts of the building.
Issues
LCC denied the existence of a duty because there was no formal written
tenancy agreement in place containing a term regarding a duty to
maintain the common parts. As there was only a document detailing the
obligations of the tenants under the agreement, LCC contended there
were no obligations incumbent upon them in relation to the common
parts. The Irwins argued that where a tenancy agreement is silent as to
the maintenance of the common parts of a multi storey tower block,
there is an implied term that the landlord should maintain them. The
tenants argued the contract would be wholly unreasonable without such
a term and, therefore, the duty should be implied into the tenancy
agreement.
Decision / Outcome
The tenancy agreement was held to be incomplete because it only
contained unilateral obligations of the tenants. Where a demise is silent
as to the maintenance of the common parts, there is an implied term that
the landlord should take reasonable steps to keep the common parts in a
state of repair. The council had discharged their duty in this case,
however, because they had taken reasonable steps to maintain the
common parts, and it was incessant vandalism despite LCC’s
considerable efforts, which caused the poor conditions of the common
parts.
Spring v Guardian Assurance plc [1994] UKHL 7
Employer in breach of duty of care by negligently providing defamatory
reference
Facts
The plaintiff was dismissed from his job as a company sales
representative for the first defendant. Upon seeking employment with
another company, he received an unfavourable reference from the first
defendant and the new employer refused to appoint him. At trial, the
judge held that the defendants had been under a duty of care to the
plaintiff and the reference given had been a negligent misstatement.
Issues
The Court of Appeal rejected the plaintiff’s case in negligence on the
basis that untrue statements in references are within the preserve of the
tort of defamation and that the tort of negligence should not intrude. In
the House of Lords, the plaintiff argued that the law of negligence ought
to develop over time. Lord Keith of Kinkel observed that the key
question was whether a defamatory reference invokes liability in
negligence to the subject of the reference if it is compiled without
reasonable care.
Decision/Outcome
The House of Lords allowed the plaintiff’s appeal. An employer who
provides a reference in respect of an employee to a prospective new
employer owes a duty of care to the employee in respect of preparation
of the reference. If the employer breaches this duty then they are liable
in damages for the economic loss suffered by the employee as a result.
Lord Woolf noted that it was necessary to extend the law of negligence
in this way because the law of defamation does not provide an adequate
remedy in circumstances where damage is caused to an employee by a
reference which, due to negligence is, inaccurate. This is because the
law of defamation requires the establish of malice and not simply
negligence.
Terms implied by fact
Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10
Whether term regarding director’s vacating office could be implied into
company articles
Facts
The Belize government established a company to take over the country’s
telecommunications services. The articles of association provided the
holder of the ‘special’ share who also owned 37.5% of the share capital,
could appoint directors. Belize Telecom (BT) purchased the ‘special’
share, the requisite share capital and appointed directors. BT then went
into financial difficulties and ceased to hold the 37.5% share. The
articles made no provision for the removal of these appointed directors,
and the attorney-general sought a declaration that a term should be
implied into the articles that such appointed directors should vacate
office.
Issues
BT argued that since the articles were silent as to the removal of the
appointed directors, they were irremovable, unless they chose to resign.
BT contended the court had no power to introduce new terms into the
articles of association. The attorney general argued it would be absurd if
there was no means of removing such appointed directors and, where a
director is appointed by virtue of a specific shareholding, it should be an
implied term that when there is no longer such a shareholding in
existence, that director should resign.
Decision/Outcome
The term was successfully implied into the contract. When considering
whether terms are implied, the court cannot imply terms simply to make
a contract more reasonable or more efficient. The court should consider
the construction of the agreement as a whole, and discern what the
contract as a whole means. If the agreement is silent as to a particular
provision, it can be implied only if the court finds the parties must have
intended it to be incorporated.
The ‘officious bystander’ test
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206
Whether implied term of contract that director not be removed during
fixed term
Facts
Shirlaw was appointed managing director of Southern Foundries (SF)
for a fixed term of ten years. SF was taken over by another company
who altered the pre-existing articles of association empowering two
directors and a secretary to remove a director, irrespective of the terms
of his contract. Shirlaw was sacked prior to the expiration of the fixed
term, and he brought a claim to recover damages for breach of contract.
Issues
The company contended they were empowered to amend their articles of
association under s10 Companies Act 1929. The new articles had been
appropriately adopted, and the new procedures correctly followed.
Given the statutory right to alter articles, it would be inappropriate for a
court to interfere with the company’s right to do so. Shirlaw argued his
employment contract was for a fixed term of 10 years, and the articles
could not amend that contract. He argued there was an implied term of
the contract that the company would not amend its articles in a way
which would be detrimental to him.
Decision / Outcome
Shirlaw successfully recovered damages for breach of contract. It was an
implied term of his employment contract that he would not be removed
from his role during the fixed ten year period. The company could not be
prevented from altering its articles of association, but it may be liable in
damages if it amends the articles so as to prejudice a contract validly
made prior to the amendments.
The ‘business efficacy’ test
The Moorcock (1889) 14 PD 64
Ship damaged at defendant’s jetty; whether implied term to take
reasonable care
Facts
Ship-owners contracted with the defendant wharfingers to discharge a
ship at their jetty. The jetty extended into the River Thames where the
ship must necessarily ground at low water. The river-bed adjacent to the
jetty was not vested in the wharfingers, and they had no control over it.
They had taken no steps to determine whether the space was safe for the
ship and, on grounding, she suffered damage because of the uneven
nature of the river-bed next to the jetty. The ship-owners claimed for
breach of contract.
Issues
The wharfingers contended there was no term of the contract stating they
were under a duty to ascertain the state of the river-bed. There was no
implied warranty that the space was a safe place for the ship, and nor
had there been any representation that the condition of the river-bed had
been checked. There was no evidence of a lack of reasonable care and
the wharfingers had no way of foreseeing the risk of damage to the ship.
The ship-owners argued it must have been an implied term of the
contract that the river-bed was safe, because the jetty could not be used
at all without the vessel grounding at low water. The wharfingers must
be held to have warranted they had taken reasonable care to ascertain the
river-bed was safe for the ship to lie on.
Decision/Outcome
The ship owners were successful in their claim. The whole purpose of
the contract was to use the jetty and the jetty could not be used without
the vessel grounding. The wharfingers must, therefore, be deemed to
have impliedly warranted they had taken reasonable steps to ensure the
vessel could safely ground without suffering damage.
SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC
2916 (TCC)
Meaning and application of “due diligence” in construction disputes
Facts
The legal relationship in this case was between SABIC and a company
owned by Punj Lloyd Ltd – namely, Simon Carves Ltd. The latter had
been contracted by SABIC in 2006 to develop a plant which could
produce 400 kilotonnes of low density polyethylene per annum.
However, in 2011 Simon Carves went into administration. The problems
had started much before then, as in November 2008 SABIC decided to
end its relationship with Simon Carves, due to a cited poor progress with
the works on the plant. This caused disagreements as to how the legal
relationship would be resolved (in terms of what was owned, by whom
and to whom). The key term which was disputed in the case was “due
diligence” and namely whether Simon Carves had carried out its works
on the plant with due diligence.
Issues
The issue in this case was the proper interpretation of the term “due
diligence” in this context. SABIC asserted that this had to be assessed in
relation to the defendant’s contractual obligations, and that the failure to
request time extensions meant that the subsequent failure to profess
appropriately with the plant, amounted to a lack of due diligence. The
defendants on the other hand argued that both the contractual
requirements and the realistic date of completion must be taken into
account when considering “due diligence”.
Held
The judge, citing Ampurius Nu Homes Holdings v Telford
Homes [2012] Ch 1820 (Ch) among others, Stuart-Smith J held that due
diligence must be assessed by reference to the aims of the contract so
that for instance a greater pace of work may be required to meet the due
diligence standard if the contract imposed specific deadlines which
could not otherwise be met.
Innominate terms
Hong Kong Fir Shipping Ltd v Kisen Kaisha Ltd (1962) EWCA Civ
7
Construction of contractual terms as ‘conditions’ and repudiatory breach
of contract.
Facts
Ship owners let the vessel, Hongkong fir, to charterers for a period of 24
months. Clause 1 of the contract obliged the owners to deliver a
“seaworthy” vessel and Clause 3 further obliged them to maintain the
vessel’s seaworthiness and good condition. Upon initial delivery, the
vessel’s machinery was described to be in ‘reasonably good condition,’
yet required constant maintenance due to its age. The vessel owner’s
chief engineer was inefficient and incompetent, and the vessel suffered
numerous breakdowns and delays. The charterer’s repudiated the
contract, alleging a breach of the obligations to deliver and maintain a
seaworthy vessel.
Issues
The questions arose as to (1) whether the seaworthiness obligation
constituted a ‘condition’ of contract, the breach of which entitles the
party to repudiate; and (2) whether the breach caused delays of a
sufficient degree so as to entitle the charterer to treat the contract as
repudiated.
Decision/Outcome
Firstly, the Court held that in order to construe whether a contractual
clause constitutes a condition precedent, the breach of which permits
repudiation, or an innominate term, the breach of which permits
damages, depends on a holistic assessment of the contract’s surrounding
circumstances in determining the intention of the parties in their
treatment of the clause. On the facts, the Court held that the
seaworthiness and maintenance clause was not viewed as so
fundamental so as to amount to a condition of the contract, but rather
constitutes a term allowing damages. Secondly, the Court held that an
innocent party cannot treat the contract as repudiated due to delays,
however significant, if the breach falls short of a frustration of the
contract rendering performance impossible. On the facts, the delays,
albeit serious and repeated, did not amount to a frustration of contract
that entitled repudiation of the contract, but merely a breach allowing for
damages.
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https://www.lawteacher.net/cases/re-mcardle.php
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SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd - 2013
(lawteacher.net)
Hong Kong Fir Shipping Ltd v Kisen Kaisha - 1962 (lawteacher.net)