anson’s

law of contract
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 anson’s
law of contract
29th Edition

sir jack beatson

dcl, lld, fba
A Justice of the High Court, Queen’s Bench Division
sometime Rouse Ball Professor of English Law, University of Cambridge

andrew burrows
bcl, ma, llm (harvard) fba, qc (hon)
Norton Rose Professor of Commercial Law, University of Oxford

john cartwright
bcl, ma
Professor of the Law of Contract, University of Oxford
Professor of Anglo-American Private Law, University of Leiden

1
 3
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 preface
I have been responsible for the last two editions of Anson’s Law of Contract. For a variety
of reasons I believe that the time has come for others to take over the predominant role.
I am delighted that Andrew Burrows and John Cartwright, who have made significant
contributions to the subject in other books and in articles, accepted my invitation to do
so. The allocation of initial responsibility for the preparation of the different chapters and
the way material is presented in those chapters reflects those contributions. I have not
undertaken the initial drafting of any chapter: my role has been as general editor rather
than author. But enough of the former text remains and we have each read, commented
on and discussed all the draft chapters so that the final result is a collaborative work or
at least a joint enterprise in the sense that term is used in the criminal law.
JB

The courts and the legislature have been active in the eight years since the last edition
of this book in 2002. On this occasion nearly all the significant changes to the law
of contract have been by the courts. We have sought to produce the sort of book we
believe Sir William Anson would have produced had he been writing at the beginning
of the twenty-first century rather than in the last quarter of the nineteenth century.
He intended his book to be a clear statement of the basic principles ‘which govern the
contractual obligation from its beginning to its end’, illustrating ‘general rules by the
most recent or striking decisions’, and doing so ‘in such a way as might best induce
the student to refer to cases, and to acquire the habit of going to original authorities
instead of taking rules on trust’.1 We have tried not to lose sight of these aims.
The complexity of modern statutes and modern judgments when compared to
the lean elegance of many nineteenth century statutes and judgments means that, as
was observed in the Preface to the 28th edition, the task of producing an intelligible
statement of the basic principles of the law of contract is a challenging one. Although
we have made a number of structural changes, they do not affect the overall shape and
approach of the book. We have also retained the brief references introduced in the
last edition to the approach of other European systems where it is directly germane
to English law, and to European principles and international conventions where these
are thought to put the problems faced by English law into perspective.
As to the structure of the book, there are now separate chapters on form, and on
consideration and promissory estoppel. There is a new section on the contents of the
contract, with chapters on the terms of the contract and on exemption clauses and
unfair terms. The chapter on mistake now comes before that on misrepresentation
and non-disclosure, as it happens where Sir William Anson had placed it, and has
also been reorganised to reflect types of mistake. Its content has changed to reflect
the affirmation by the House of Lords in Shogun Finance Ltd v Hudson that a contract
may be void for mistake of identity and, perhaps the most striking development, the

1 Preface to Sixth Edition, (1891).

vi preface

rejection of the doctrine of equitable mistake by the Court of Appeal in Great Peace
Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace. That rejection may
yet prove as controversial as Denning LJ’s judgment in Solle v Butcher which created
the doctrine sixty years ago. The treatment of remedies for misrepresentation has
also been rearranged. The section of the book containing the chapter on third parties
has been placed after the section on remedies. This is to enable the discussion of the
particular remedial problems concerning third parties to come after the discussion of
the basic principles governing specific and compensatory relief.
Apart from Shogun Finance v Hudson and The Great Peace, the notable cases since
the last edition include the first decisions on the Contracts (Rights of Third Parties) Act
1999, such as Nisshin Shipping Co Ltd v Cleaves & Co Ltd and Leamthong International
Lines Co Ltd v Artis, The Laemthong Glory (No 2), and a number of significant decisions
on construction of terms and implied terms, including those of the House of Lords in
Chartbrook Ltd v Persimmon Homes Ltd and the Privy Council in Attorney General
of Belize v Belize Telecom Ltd. Other particularly important decisions include that
of the Supreme Court in Office of Fair Trading v Abbey National plc (applicability of
Unfair Terms in Consumer Contracts Regulations 1999 to bank charges); those of the
House of Lords in Actionstrength Ltd v International Glass Engineering SpA (form),
Standard Chartered Bank v Pakistan National Shipping Co (contributory negligence
not a defence to deceit), HIH Casualty and General Insurance Ltd v Chase Manhattan
Bank (exclusion of liability for fraudulent misrepresentation), Transfield Shipping Inc
v Mercator Shipping Inc, The Achilleas (remoteness), and Golden Strait Corp v Nippon
Yusen Kubishika Kaisha, The Golden Victory (date of assessment of damages); and those
of the Court of Appeal in Collier v P & MJ Wright (Holdings) Ltd (promissory estoppel)
and Experience Hendrix LLC v PPX Enterprises Inc (restitutionary damages).
As to legislation, additional remedies have been introduced by the Sale and Supply of
Goods to Consumers Regulations 2002. The Mental Capacity Act 2005 has established
a new framework for decision-making on behalf of those who lack mental capacity,
and the Gambling Act 2005 has repealed section 18 of the Gaming Act 1845 so that a
gaming contract is no longer in itself illegal. While important, these last two statutes
do not concern areas which are central to modern undergraduate contract courses.
The repeal of section 18 of the Gaming Act 1845 has enabled us to prune the
chapter on illegality. Some other chapters, have, however, grown, in particular those
on mistake and misrepresentation as a result of the restructuring, but also those on
terms, exemption clauses and unfair terms, and restitutionary awards. Overall the
book is slightly longer: there are 724 pages whereas there were 699 in the 28th edition.
We are grateful to friends, colleagues and students for assistance, and Andrew
Burrows would like to thank his secretary, Lyn Hambridge. Charlotte Beatson is
grateful to Andrew Burrows and John Cartwright for taking on virtually all the work,
and they in turn are grateful for the forbearance and tolerance of their families. It is a
pleasure to thank our publishers for their courteous and patient assistance.
The law is stated as at 1 March 2010, but it has been possible to include some material
since that date.
JB, AB, JC
30 June 2010
 outline contents
1 introduction 1

part 1 formation of contract

2 the agreement 29
3 form 75
4 consideration and promissory estoppel 91

part 2 contents of the contract

5 the terms of the contract 133
6 exemption clauses and unfair terms 171

part 3 factors tending to defeat

contractual liability
7 incapacity 219
8 mistake 249
9 misrepresentation and non-disclosure 299
10 duress, undue influence, and unconscionable
bargains 349
11 illegality 379

part 4 performance and discharge

12 performance 441
13 discharge by agreement 459
14 discharge by frustration 473
15 discharge by breach 507
16 discharge by operation of law 527

part 5 remedies for breach of contract

17 damages 533
18 specific remedies 573
viii outline contents

19 restitutionary awards 587

20 limitation of actions 605

part 6 limits of the contractual obligation

21 third parties 613
22 assignment 661

part 7 agency
23 creation of agency 687
24 effect of agency 701
25 termination of agent’s authority 717

Index 725
 detailed contents
Preface v
Table of Statutes xxv
Table of Statutory Instruments xxxiii
Table of European Community Legislation xxxv
Table of International and Other National Legislation and Restatements xxxvi
Table of Cases xxxvii
Some Abbreviations Used in Reference xciii

1 introduction 1
1. The Nature and Function of Contract 1
(a) Promise or Agreement 1
(b) Functions of Contract 2
(c) Freedom of Contract 4
(d) Sanctity of Contracts 7
(e) The Interest Protected by Contract 8
2. The History of Contractual Obligations in English Law 9
(a) The Early Actions 10
(b) Assumpsit 13
(c) Subsequent Developments 16
3. European and International Influences 19
4. The Content of Contract Law 21
(a) A Law of Contract or of Contracts 21
(b) Effect of Vitiating Factors 21
5. Contract as Part of the Law of Obligations 23
(a) Concurrence of Claims in Contract and Tort 23
(b) Contract and Unjust Enrichment 24
6. Contract and Property 25

part 1 formation of contract

2 the agreement 29
1. Establishing an Agreement 29
(a) Offer and Acceptance 29
(b) The Test of Intention 32
x detailed contents

2. The Offer 33
(a) Offers and Invitations to Treat 33
(b) General Offers 37
(c) Communication of the Offer 39
3. The Acceptance 40
(a) Offer and Acceptance Must Correspond 40
(b) Communication of the Acceptance 43
(c) Acceptor Must Have Knowledge of Offer 51
(d) Prescribed Mode of Acceptance 51
(e) Revocation of the Acceptance 52
4. Termination of the Offer 53
(a) Revocation of the Offer 53
(b) Rejection of the Offer 58
(c) Lapse of the Offer 59
(d) Effect of Death 60
5. Uncertain and Incomplete Agreements 61
(a) Certainty of Terms 61
(b) Incomplete Agreement 66
6. Intention to Create Legal Relations 70
(a) Social Engagements 70
(b) Family Arrangements 71
(c) Determining Intention 71

3 form 75
1. Formal Requirements 75
2. Contracts by Deed 76
(a) How a Contract by Deed is Made 76
(b) When it is Essential to Contract by Deed 78
3. Contracts for Which Writing is Required 78
(a) Statutory Requirements of Writing 78
(b) Contracts of Guarantee 80
(c) Contracts for the Sale or Other Disposition of Land 84
(d) Electronic Contracts 90

4 consideration and promissory estoppel 91

1. Consideration 91
(a) Consideration Defined 91
 detailed contents xi

(b) Necessity for Consideration 93

(c) Executory and Executed Consideration 95
(d) Past Consideration 95
(e) Consideration Must Move from the Promisee 98
(f) Consideration Need Not be Adequate 99
(g) Consideration Must be Real 101
(h) Performance of, or Promise to Perform, an Existing Duty 104
(i) Discharge of a Debt 111
(j) Letters of Credit 115
2. Promissory Estoppel 116
(a) Emergence of Promissory Estoppel 117
(b) Scope of Promissory Estoppel 119
(c) Two Other Types of Estoppel 126
3. Appraisal of Consideration and Promissory Estoppel 129

part 2 contents of the contract

5 the terms of the contract 133
1. Terms, Collateral Warranties and Representations 133
(a) Terms and Representations 133
(b) Collateral Warranties 136
(c) Extrinsic Evidence 138
2. Conditions, Warranties and Intermediate Terms 139
(a) Introduction 139
(b) Conditions 140
(c) Warranties 143
(d) Evaluation of the Ab Initio Classification of Terms 144
(e) Intermediate Terms 145
(f) Distinguishing Intermediate Terms and Conditions 146
(g) Loss of the Right of Discharge 149
3. Implied Terms 151
(a) Terms Implied by the Courts and by Statute 151
(b) Terms Implied by the Courts 152
(c) Terms Implied by Statute 159
4. Construction of Terms 166
(a) The Contextual Approach 166
(b) Particular Rules of Construction 169
xii detailed contents

6 exemption clauses and unfair terms 171

1. Standard Forms of Contract 171
2. Incorporation 173
(a) Signature 173
(b) Notice 173
(c) Course of Dealing 177
3. Construction of Exemption Clauses 177
(a) Strict Interpretation 178
(b) The ‘Contra Proferentem’ Rule 179
(c) Exclusion of Liability for Negligence 180
(d) Limitation Clauses 182
(e) ‘Fundamental’ Terms and ‘Fundamental Breach’ 183
4. Other Common Law Rules Controlling Exemption Clauses 190
(a) Express Undertakings 190
(b) Misrepresentation or Fraud 191
(c) Reasonableness at Common Law? 192
5. Statutory Control of Exemption Clauses and Unfair Terms 192
(a) Unfair Contract Terms Act 1977 192
(b) Unfair Terms in Consumer Contracts Regulations 1999 206
(c) Other Legislative Controls on Exemption Clauses and Unfair Terms 216

part 3 factors tending to defeat

contractual liability
7 incapacity 219
1. Grounds of Contractual Incapacity 219
2. The Crown and Public Authorities 220
(a) The Crown 220
(b) Public Authorities 224
3. Corporations and Unincorporated Associations 228
(a) Corporations 228
(b) Unincorporated Associations 231
4. Minors 232
(a) Common Law: Introduction 233
(b) Contracts for Necessaries 233
(c) Voidable Contracts 237
(d) Other Contracts: Unenforceable Unless Ratified 238
 detailed contents xiii

(e) The Nature of the Liability of Minors 239

(f) Liability of Minors in Tort 241
(g) Liability of Minors in Unjust Enrichment 242
(h) Restitution in Favour of Minors 245
(i) Third Parties 246
5. Persons Lacking Mentally Capacity and Drunken Persons 246

8 mistake 249
1. Introduction 249
2. Categorizing Mistakes 251
3. Mistakes about the Terms of the Contract 252
(a) ‘Subjective’ and ‘Objective’ Agreement in the Formation of a Contract 252
(b) The ‘Objective Test’ 253
(c) Mistake in Relation to a Written Document 258
(d) Equitable Remedies for Mistakes about the Terms 266
4. Mistakes about the Identity of the Person with Whom the
Contract is Made 268
(a) An Offer can be Accepted only by the Person to whom it is Addressed 269
(b) The General Rule: Need for an Identifiable Third Person 271
(c) The Exception: No Third Party in Existence 272
(d) Written Contracts 273
(e) Transactions Concluded in the Parties’ Presence 274
(f) The Current State of the Law; Critique 275
5. Mistakes of Fact or Law about the Subject-Matter of the Contract or
the Surrounding Circumstances 276
(a) Unilateral Mistakes of Fact or Law 277
(b) Common Mistakes of Fact or Law 278

9 misrepresentation and non-disclosure 299

1. Introduction 299
2. Misrepresentation 300
(a) Puffs, Representations, and Terms 300
(b) Requirements of Liability 301
(c) Remedies for Misrepresentation: an Overview 307
(d) ‘Fraudulent’, ‘Negligent’ and ‘Innocent’ Misrepresentations 309
(e) Rescission of the Contract 311
(f) Damages for Fraudulent Misrepresentation: the Tort of Deceit 320
xiv detailed contents

(g) Damages for Negligent Misrepresentation: the Tort of Negligence or

Section 2(1) Misrepresentation Act 1967 323
(h) Exclusion and Limitation of Liability 328
3. Duties of Disclosure 332
(a) No General Duty to Disclose 332
(b) Particular Duties of Disclosure 333
(c) Duties of Disclosure Giving Rise to Rescission 334
(d) Contracts Between Those in a Fiduciary Relationship 340
(e) Liability in Tort for Non-Disclosure 342
(f) Statutory Duties of Disclosure 343
(g) The Future 345

10 duress, undue influence, and unconscionable

bargains 349
1. Introduction 349
2. Duress 350
(a) Nature of Duress 350
(b) Unlawful Pressure 352
(c) Duress Distinguished from Legitimate Renegotiation 355
(d) Threats of Lawful Action 356
(e) Rescission 358
3. Undue Influence 359
(a) Nature of Undue Influence 359
(b) Actual Undue Influence 360
(c) Presumed Undue Influence 361
(d) Rescission 367
(e) Undue Influence by a Third Party to the Contract 369
4. Unconscionable Bargains 372
5. Inequality of Bargaining Power? 375

11 illegality 379
1. Introduction 379
2. Statutory Illegality 380
(a) Express Prohibition: Contract Illegal 380
(b) Implied Prohibition: Contract Illegal 380
(c) Illegal Performance 381
(d) Statute Only Imposes a Penalty 382
 detailed contents xv

(e) Void Contracts 383

(f) Contract Unenforceable by One Party 383
(g) Contract Not Void or Unenforceable 383
3. Illegality at Common Law 384
(a) Agreements to Commit a Crime or Civil Wrong, or to
Perpetrate a Fraud 385
(b) Agreements which Injure the State in its Relations with Other States 386
(c) Agreements which Tend to Injure Good Government 388
(d) Agreements which Tend to Pervert the Course of Justice 388
(e) Agreements which Tend to Abuse the Legal Process 390
(f) Agreements which are Contrary to Good Morals 393
(g) Agreements which Affect the Freedom or Security of Marriage or
the Due Discharge of Parental Duty 394
(h) Agreements which Oust the Jurisdiction of the Courts 395
(i) Agreements in Restraint of Trade 396
4. Common Law and Statutory Control of Anti-Competitive Agreements 396
(a) Introduction 396
(b) Restraint of Trade Defined 397
(c) The Modern Law 398
(d) Reasonableness in the Interests of the Parties 400
(e) Reasonableness in the Interests of the Public 402
(f) Covenants Between Employer and Employee 402
(g) Sale of the Goodwill of a Business 406
(h) Cartel Agreements 406
(i) Exclusive Dealing Agreements 410
(j) Trade Unions 415
(k) Monopolies 415
5. The Effect of Illegality 415
(a) The Fundamental Principle of Policy 415
(b) The Intention of the Parties and Enforceability of the Contract 417
(c) Contracts Unlawful ‘per se’ 421
(d) Benefit from Illegal Contracts 422
(e) Recovery of Money Paid or Property Transferred 423
(f) Collateral Transactions 432
6. Severance 432
(a) Introduction 432
(b) Public Policy 433
(c) Requirements 435
(d) Effect of Severance 437
xvi detailed contents

part 4 performance and discharge

12 performance 441
1. Performance Must be Precise and Exact 441
(a) Standards of Contractual Duty 441
(b) Deviation From Contractual Terms 441
2. Time of Performance 442
(a) Stipulations as to Time at Common Law 442
(b) Stipulations as to Time in Equity 442
(c) Law of Property Act 1925, section 41 443
(d) Mercantile Contracts 444
3. Place of Performance 444
4. Order of Performance 445
5. Payment 445
(a) Introduction 445
(b) Interbank Transfers 446
(c) Payment by Negotiable Instrument or Documentary Credit 447
(d) Payment by Credit or Charge Card 447
6. Vicarious Performance 447
7. Alternative Modes of Performance 448
(a) Contract Option 448
(b) Performance Option 449
8. Right of Party in Breach to Cure Bad or Incomplete Performance 449
9. Tender 450
(a) Tender of Acts 450
(b) Tender of Payment 450
(c) Early Tender 451
10. Partial Performance 451
(a) Entire and Divisible Obligations 451
(b) Doctrine of ‘Substantial Performance’ 454
(c) Acceptance of Partial Performance by Innocent Party 456
(d) Incontrovertible Benefit 457

13 discharge by agreement 459

1. Introduction 459
(a) Consideration Applies to Discharge 459
(b) Contracts Evidenced by Writing 460
 detailed contents xvii

2. Forms of Discharge by Agreement 460

(a) Release 460
(b) Accord and Satisfaction 460
(c) Rescission 462
(d) Variation 464
(e) Waiver 466
(f) Provisions for Discharge Contained in the Contract Itself 470

14 discharge by frustration 473

1. Introduction 473
2. Emergence of the Doctrine 474
3. Instances of Frustration 477
(a) Destruction of Subject-Matter of Contract 477
(b) Non-Occurrence of a Particular Event 477
(c) Death, or Incapacity for Personal Service 478
(d) Requisitioning of Ships and Interferences with Charterparties 479
(e) Sale and Carriage of Goods 481
(f) Building Contracts 482
(g) Change in the Law 483
(h) Performance of Only One Party Affected 484
4. The Theoretical Basis of Frustration 484
(a) Implied Term 484
(b) ‘Just and Reasonable Result’ 486
(c) Foundation of the Contract 486
(d) Radical Change in the Obligation 487
5. Incidence of Risk 489
(a) Express Provision 490
(b) Foreseen Events 490
(c) Prevention of Performance in Manner Intended by One Party 491
(d) Delay 491
(e) Inflation 492
6. Self-Induced Frustration 493
(a) Choosing Between Different Contracts 494
(b) Negligent Acts 495
7. Leases and Contracts for the Sale of Land 496
8. Effects of Frustration 498
(a) Common Law 498
(b) Law Reform (Frustrated Contracts) Act 1943 500
xviii detailed contents

15 discharge by breach 507

1. Discharge at Option of the Injured Party 507
(a) Effect of Unaccepted Repudiation 508
(b) Failure of Performance 509
(c) Affirmation of Contract 510
(d) Effect of Election to Accept Breach 510
(e) No or Bad Reason for Claiming to be Discharged 511
(f) Consumer Sale and Supply Contracts: Interaction with
Other Remedies 512
2. Forms of Breach which Justify Discharge 512
(a) Renunciation 512
(b) Impossibility Created by One Party 517
(c) Failure of Performance 519
3. Consequences of Discharge 524
(a) Release from Future Obligations 524
(b) Contract not Rescinded Ab Initio 524
(c) Accrued Obligations Remain 524
(d) Restitutionary Claims 525
4. Loss of the Right of Discharge 526

16 discharge by operation of law 527

1. Merger 527
(a) Acceptance of Higher Security 527
(b) Rights Vesting in Same Person 527
2. Discharge by Judgment of a Court 528
(a) Effect of Bringing Action 528
(b) Effect of Judgment for Claimant 528
(c) Effect of Judgment for Defendant 528
3. Alteration or Cancellation of a Written Instrument 529
(a) Rule as to Alteration 529
(b) Bills of Exchange 530
(c) Cancellation and Loss 530
4. Bankruptcy 530

part 5 remedies for breach of contract

17 damages 533
1. Damages and Other Remedies for Breach of Contract 533
 detailed contents xix

2. Compensatory Nature of Damages 534

(a) Compensation for Loss 534
(b) Damages are not Punitive 534
(c) Difficulty of Assessment no Bar 535
(d) The Date for Assessment 535
(e) Compensation for Inconvenience or Mental Distress 536
(f) Loss of Reputation 538
3. Basis of Assessment of Damages 539
(a) The ‘Performance’ or ‘Expectation’ Measure 539
(b) The Reliance Measure 542
4. Causation 543
5. Remoteness 543
(a) The Basic Two-Branched Rule 544
(b) The Impact of The Achilleas 547
(c) Should there be a Difference Between the Tests of Remoteness in
Contract and Tort? 549
(d) Type of Damage 550
(e) Damage Arising in the Usual Course of Things 551
(f) Damage Reasonably Supposed to be in the Contemplation
of the Parties 553
6. Mitigation 555
(a) Acting Reasonably 555
(b) Compensating Advantages may Reduce Damages 556
7. Assessment of Damages in Contracts for the Sale of Goods 557
(a) Non-Delivery 557
(b) Late Delivery 557
(c) Non-Acceptance 558
(d) Breach of Warranty 559
8. Claimant’s Contributory Negligence 561
(a) No Apportionment at Common Law 561
(b) Law Reform (Contributory Negligence) Act 1945 562
9. The Tax Element in Damages 563
10. Interest 564
11. Agreed Damages Clauses 565
(a) Liquidated Damages and Penalties 565
(b) Rules of Construction 566
(c) Necessity for Breach 569
(d) Amounts Recoverable 570
xx detailed contents

18 specific remedies 573

1. Actions for the Agreed Sum 573
2. Specific Performance 575
(a) Adequacy of Damages 575
(b) Want of Mutuality 577
(c) Contracts of Personal Service 578
(d) Uncertainty 579
(e) Constant Supervision by the Court 579
(f) Conduct and Hardship 580
(g) Miscellaneous 580
3. Injunctions 581
(a) Prohibitory Injunctions 581
(b) Mandatory Injunctions 584
4. Equitable Damages 584

19 restitutionary awards 587

1. The Recovery of Money Paid 588
(a) Recovery by the Innocent Party 588
(b) Recovery by the Party in Breach 591
2. Restitution in Respect of Services or Goods 594
(a) Introduction 594
(b) Restitutionary Claims by the Innocent Party 594
(c) Quantum Meruit Compared with Damages 595
(d) Restitutionary Claims by the Party in Breach 596
3. An Account of Profits or Damages Measured by Benefit to
Contract-Breaker 597
(a) Introduction 597
(b) Attorney-General v Blake 598
(c) Developments Since Attorney-General v Blake 600

20 limitation of actions 605

1. Limitation Act 1980 605
(a) The General Rule 605
(b) Persons Under a Disability 606
(c) Effect of Fraud, Concealment, and Mistake 606
(d) Acknowledgement and Part Payment 607
(e) Statute Bars Remedy Not Right 608
 detailed contents xxi

2. Bars to Equitable Relief: Laches 608

(a) The Statute Applied by Analogy 608
(b) Laches 609

part 6 limits of the contractual obligation

21 third parties 613
1. Introduction 613
2. The Acquisition of Contractual Rights by Third Parties 614
(a) The Development of the Common Law Rule 614
(b) Remedies of the Promisee 616
(c) Rationale and Appraisal of the Common Law Rule 621
(d) The Contracts (Rights of Th ird Parties) Act 1999 624
(e) Agency, Assignment, Transfer on Death and Bankruptcy 635
(f) Trusts of Contractual Rights 635
(g) Statutory Exceptions to Privity in Relation to Contracts of Insurance 640
(h) Miscellaneous Statutory Exceptions to Privity 641
(i) Contracts Concerning Land 642
(j) Contracts Giving Rise to Tortious Duties of Care to Third Parties 643
(k) Third Parties Taking the Benefit of Exemption Clauses 645
(l) Further Development of the Common Law 651
3. The Imposition of Contractual Liabilities upon Third Parties 652
(a) Introduction 652
(b) Covenants Concerning Land 652
(c) Contracts Concerning Chattels 653
(d) Exemption Clauses Binding Third Parties 657
(e) The Contracts (Rights of Th ird Parties) Act 1999 659

22 assignment 661
1. Assignment 661
(a) No Assignment at Common Law 661
(b) Assignment in Equity: the Historical Background 662
(c) Assignment under the Law of Property Act 1925 663
(d) Equitable Assignment 665
(e) Assignee Takes ‘Subject to Equities’ 669
(f) Priorities 671
(g) Rights not Assignable 672
(h) Liabilities Cannot be Assigned 675
xxii detailed contents

2. Vicarious Performance 675

3. Novation 676
4. Negotiable Instruments 677
(a) Types of Negotiable Instrument 677
(b) Assignability and Negotiability 680
(c) Limitation of Negotiability 682
5. Assignment by Operation of Law 682
(a) The Effect of Death 682
(b) Bankruptcy 683
(c) Carriage of Goods by Sea Act 1992 684
(d) Land 684

part 7 agency
23 creation of agency 687
1. Modes of Creation 687
(a) Actual Authority 688
(b) Ratification 688
(c) Ostensible Authority 691
(d) Usual Authority? 694
(e) Agency of Necessity 694
2. Different Kinds of Agents 696
(a) Auctioneers 696
(b) Factors 697
(c) Brokers 698
(d) Estate Agents 698
(e) Solicitors 698
(f) Commercial Agents 698

24 effect of agency 701

1. The Relations Between the Principal and Agent 701
(a) Duties of the Agent 701
(b) Rights of the Agent 705
2. The Relations Between the Principal and Third Parties 707
(a) The General Position 707
(b) Undisclosed Principal 708
(c) Misrepresentation by the Agent 710
(d) Settlement with the Agent 711
 detailed contents xxiii

3. The Relations Between the Agent and Third Parties 712

(a) Personal Liability of the Agent 713
(b) ‘Agent’ Acting as Principal 715
(c) Undisclosed Principal 715
(d) Unauthorized Acts of the Agent 716

25 termination of agent’s authority 717

1. Modes of Termination 717
(a) Act of the Parties 717
(b) Operation of Law 718
2. Irrevocable Authority 720
(a) Authority Coupled With an Interest 720
(b) Powers of Attorney 721
(c) Agent’s Personal Liability or Loss 722
(d) Commercial Agents 723

Index 725
This page intentionally left blank
 table of statutes
1677 1880
Statute of Frauds . . . 15, 37, 75, 79–82, 85, 87, 89, Employers’ Liability Act . . . 235
93, 468 1882
s 4 . . . 80, 82–84 Bills of Exchange Act . . . 18, 79, 157, 679
Sunday Observance Act . . . 419 s 3(1) . . . 79
1704 s 8(1) . . . 682
Promissory Notes Act . . . 679 s 17 . . . 714
1774 (2) . . . 79
s 19(2) . . . 678
Fires Prevention (Metropolis) Act s 22 . . . 235
s 83 . . . 641 ss 25, 26 . . . 714
Life Assurance Act s 27(2) . . . 97, 681
s 1 . . . 383 s 29(1) . . . 680
1845 (3) . . . 682
Gaming Act s 30(2) . . . 432, 681
s 18 . . . 383 s 31(5) . . . 714
s 35(1), (2) . . . 682
1855
s 38(2) . . . 680
Bills of Lading Act . . . 648 s 61 . . . 528
1856 s 62 . . . 462
Mercantile Law Amendment Act s 64 . . . 530
s 3 . . . 82 ss 65, 68 . . . 695
1858 s 69 . . . 530
s 83(1) . . . 679
Lord Cairns’ Act . . . 584
Bills of Sale Act (1878) Amendment Act
1867
s 9 . . . 383
Banking Companies’ (Shares) Act . . . 722
Married Women’s Property Act
Leeman’s Act . . . 722 s 11 . . . 634, 641
Policies of Assurance Act . . . 663 1889
s 1 . . . 663
Factors Act . . . 697
1870 s 1(1) . . . 697
Apportionment Act . . . 452, 574 s 2 . . . 697
s 2 . . . 525, 574 1890
s 7 . . . 574
Directors Liability Act . . . 321, 325,
1871 326, 343
Trade Union Act Partnership Act
s 3 . . . 415 ss 5, 8 . . . 693
1872 s 9 . . . 525
Indian Contract Act . . . 18 s 17(3) . . . 463
s 20 . . . 289 s 26 . . . 472
1873 ss 28–30 . . . 337
s 36 . . . 238
Judicature Act . . . 290, 291, 349, 663 (1)–(3) . . . 693
s 24(1), (2) . . . 309
s 25(6) . . . 663 1890
(7) . . . 443 Lunacy Act . . . 246
(11) . . . 291, 309, 311 1893
1874 Sale of Goods Act . . . 18, 144
Infants Relief Act . . . 238, 239, 243 s 2 . . . 234
s 1 . . . 240, 246 s 4 . . . 79, 464, 467
s 2 . . . 239 s 12 . . . 159
1878 s 13 . . . 159, 288
ss 14, 15 . . . 159
Bills of Sale Act . . . 684 s 55 . . . 203, 205
s 8 . . . 383
xxvi table of statutes

1906 1932
Marine Insurance Act . . . 335, 346 Merchant Shipping (Safety and Loadline
s 4(1) . . . 383 Conventions) Act . . . 382
s 14(2) . . . 641 1933
s 18 . . . 335, 346 Pharmacy and Poisons Act
s 20(3), (4) . . . 302 s 18(1) . . . 35
s 22 . . . 79, 383
s 26(3) . . . 619 1934
ss 33–41 . . . 140 Betting and Lotteries Act . . . 426
s 50(2) . . . 663 s 13(1) . . . 426
s 86 . . . 691 1939
Prevention of Corruption Act . . . 703 Limitation Act
1913 s 26(b) . . . 607
Mental Deficiency Act . . . 246 Trading with the Enemy Act . . . 386
1914 1943
Deeds of Arrangement Act . . . 114 Law Reform (Frustrated Contracts) Act . . . 18, 297,
1916 452, 500–506
s 1(2) . . . 500, 504, 590
Prevention of Corruption Act . . . 703 (3) . . . 501, 502, 504
1920 (b) . . . 503, 504
Seeds Act (4) . . . 501
s 1(1) . . . 381 s 2(3) . . . 500
1925 (5)(a)–(c) . . . 504
Law of Property Act . . . 78, 84, 1945
663–65 Law Reform (Contributory Negligence)
s 1(6) . . . 237 Act . . . 562
s 40 . . . 710 1947
(1) . . . 82, 84, 87, 89 Crown Proceedings Act . . . 220
s 41 . . . 443 s 2(1)(a) . . . 222
s 47(1) . . . 641 (b) . . . 223
s 49(2) . . . 592 s 11 . . . 222
s 52 . . . 78 s 21 . . . 220
s 53
(1) . . . 666, 688 Exchange Control Act . . . 422, 425
(2) . . . 88 1948
s 54 . . . 78, 688 Companies Act . . . 438
s 56 . . . 643 s 43 . . . 325
(1) . . . 642, 643 Monopolies and Restrictive Practices (Inquiry
s 69 . . . 698 and Control) Act . . . 415
s 78(1) . . . 642
1954
s 84(7) . . . 100
s 136 . . . 669, 681 Currency and Bank Notes Act . . . 451
(1) . . . 663, 666 s 1 . . . 679
s 137(3) . . . 672 Law Reform (Enforcement of Contracts)
ss 141, 142 . . . 642 Act . . . 75, 79
s 146 . . . 470 1956
s 174 . . . 373 Copyright Act
s 185 . . . 528 s 8 . . . 93
s 205(1)
Restrictive Trade Practices Act . . . 408
(xx) . . . 642
(xxi) . . . 100 1957
1927 Cheques Act . . . 678
s 3 . . . 445
Landlord and Tenant Act
s 18 . . . 540 Occupiers’ Liability Act . . . 197
s 3(1) . . . 657
1930
1959
Third Parties (Rights against Insurers) Act . . .
640, 641 Mental Health Act . . . 246
 table of statutes xxvii

1960 1971
Betting and Gaming Act . . . 420 Carriage of Goods by Sea Act . . . 183, 216, 649
Corporate Bodies’ Contracts Act . . . 231 s 3 . . . 441
1961 Sched . . . 189, 646
Carriage by Air Act . . . 216 Coinage Act . . . 451
Restriction of Offensive Weapons Act Powers of Attorney Act
s 1 . . . 34 s 1 . . . 688
(1) . . . 721
Suicide Act . . . 422 s 4 . . . 721
1962 s 5(1)–(5) . . . 719, 721
Transport Act . . . 35 (6)–(7) . . . 721
1963 s 6 . . . 721
s 7 . . . 682
Stock Transfer Act . . . 663
(1) . . . 713
1965
Unsolicited Goods and Services Act . . . 50
Carriage of Goods by Road Act . . . 216 s 1 . . . 31
Hire-Purchase Act 1964 1972
s 27 . . . 270
Defective Premises Act
Matrimonial Causes Act s 6(3) . . . 216
s 23(1) . . . 436
European Communities Act
1966 s 2 . . . 408
Statute Law Revision Act . . . 722 s 9 . . . 230
1967 Land Charges Act
Criminal Law Act . . . 389, 390 s 2(5) . . . 653
s 5 . . . 389 s 4(6) . . . 653
s 13 . . . 390 s 17(1) . . . 100
s 14 . . . 390 Local Government Act . . . 100
(2) . . . 391 s 135 . . . 224, 227
Misrepresentation Act . . . 18, 310, 319, 323, s 137 . . . 224
328–30, 711 1973
s 1(a) . . . 318, 320 Fair Trading Act . . . 5
(b) . . . 319
Hallmarking Act . . . 346
s 2(1) . . . 136, 302, 307, 308, 310, 314, 319, 321,
s 11 . . . 346
323, 325–29, 343, 606, 711, 715
(2) . . . 307, 210, 311, 312, 313, 317, 319, Matrimonial Causes Act
320, 367 s 34 . . . 396, 436
(3) . . . 319 Supply of Goods (Implied Terms) Act . . . 147, 198,
s 3 . . . 203, 216, 310, 329, 330, 331 203, 376
1968 s 8 . . . 165
(1)(b) . . . 144
Medicines Act . . . 346
(2), (3) . . . 144
s 85(2) . . . 346
s 9 . . . 165
s 95(4)(a) . . . 346
s 10 . . . 164, 441
s 96 . . . 346
s 11 . . . 165
Theft Act s 11A . . . 147
s 21(1) . . . 358
1974
s 23 . . . 390
Consumer Credit Act . . . 5, 211, 346, 376
Trade Descriptions Act
s 40 . . . 383
s 35 . . . 383
s 55 . . . 346
1969 s 60 . . . 76, 79, 346
Family Law Reform Act s 64 . . . 76, 79
s 1 . . . 232 ss 67, 68 . . . 76
1970 s 76 . . . 470
Law Reform (Miscellaneous Provisions) Act ss 86B, 86D, 86E, 87, 88,
s 1 . . . 106, 394 98 . . . 470
s 2 . . . 394 s 100 . . . 570
s 105(1) . . . 82
xxviii table of statutes

ss 137–40 . . . 376 (3A) . . . 199, 201

ss 140A–140D . . . 216, 377 (4) . . . 193, 194, 199, 201
s 173(1) . . . 216 s 8 . . . 216
Solicitors Act (1) . . . 329
s 37 . . . 640 s 9 . . . 185
s 59 . . . 390 s 11 . . . 194, 213
1975 (1) . . . 201, 208, 229, 330
(2) . . . 193, 201
Ministers of the Crown Act . . . 220 (3) . . . 201
Sex Discrimination Act . . . 35 (4) . . . 202, 204
s 6(1)(c) . . . 5 (5) . . . 202
s 65(1)(c) . . . 5 s 12 . . . 161, 208
s 77 . . . 383 (1)(a), (b) . . . 195
Supply Powers Act . . . 220 (c) . . . 195
1976 (1A) . . . 195
(2)(a) . . . 196
Energy Act . . . 346
(2)(b) . . . 195
s 15 . . . 346
(3) . . . 196
Race Relations Act . . . 35 s 13 . . . 196, 197
s 4(1)(c) . . . 5 s 14 . . . 195
s 17 . . . 5 (3) . . . 197
ss 20, 21 . . . 5 s 26 . . . 160, 194, 329
s 56 . . . 5, 578 Sched 1
s 72 . . . 383 para 1(a) . . . 193
Restrictive Trade Practices Act . . . 5, 408 (b)–(d) . . . 194
1977 para 2 . . . 193
Patents Act (c) . . . 188
ss 30, 32 . . . 663 paras 3, 4 . . . 194
Sched 2 . . . 194, 201, 203, 204, 208, 213
Rent Act . . . 5, 426
s 70(1) . . . 100 1978
s 125 . . . 426 Civil Liability (Contribution) Act . . . 18
Torts (Interference with Goods) Act Consumer Safety Act . . . 376
s 3(2)(a) . . . 354 1979
(3)(b) . . . 354 Estate Agents Act . . . 698
s 6(3) . . . 589 s 18 . . . 76
s 12 . . . 695
Sale of Goods Act . . . 19, 43, 138, 139, 147, 150,
Unfair Contract Terms Act . . . 5, 159, 171, 172, 159, 161, 195, 197, 203, 241, 506, 512, 521, 551
177–79, 182, 185, 192–208, 210, 212, 213, 214, s 3 . . . 234, 235, 239, 240, 248
216, 329, 330, 331, 635 (1)–(3) . . . 234
s 1(1) . . . 193 s 4 . . . 467
(3) . . . 195, 331 s 5(2) . . . 506
s 2 . . . 180, 193, 197–99, 331, 332, 646 s 6 . . . 283
(1) . . . 175, 193, 194, 197, 201 s 7 . . . 477, 504, 505
(2) . . . 190, 193, 194, 197, 201, 208, 635 s 8 . . . 63
(3) . . . 197 (1) . . . 62
s 3 . . . 156, 190, 193, 199, 208, 377 (2) . . . 63, 594
(2) . . . 194, 199, 201 s 10(1) . . . 442, 444
(a) . . . 200 (2) . . . 444
(b) . . . 193, 196, 200, 210, 449 s 11(1) . . . 149
. . . (i) . . . 200 (3), (4) . . . 150
. . . (ii) . . . 200, 470 s 12 . . . 5, 148, 155, 159, 160, 187, 194, 198, 441
s 4 . . . 193, 196, 198, 201 (1) . . . 589
s 5 . . . 193, 197, 201 (2) . . . 144
s 6 . . . 159, 187, 193–95, 198, 199, 203, 208 (3) . . . 160
(1) . . . 160, 193, 194, 198, 201 (4), (5) . . . 144, 160
(2), (3) . . . 193, 194, 198, 201 (5A) . . . 144, 159
s 7 . . . 193, 195, 198, 199, 203, 208 s 13 . . . 5, 155, 160, 187, 194, 198, 456, 512
(2), (3) . . . 193, 199, 201 (1A) . . . 160
 table of statutes xxix

s 14 . . . 5, 155, 161, 164, 187, 194, 198, 339, 441, s 17 . . . 608

456, 512 s 28 . . . 606
(2) . . . 161, 164, 165 (2) . . . 606
(2A) . . . 161, 163 s 29(5), (7) . . . 607
(2B) . . . 161, 162, 164 s 30 . . . 607
(2C) . . . 161, 163 s 32 . . . 607
(2D–2F) . . . 163 (1)(a) . . . 328, 606
(3) . . . 163, 164, 165 (2) . . . 607
(6) . . . 161, 163 s 33 . . . 605
s 15 . . . 5, 155, 165, 187, 194, 198, 456, 512 s 36(1) . . . 608
s 15A . . . 140, 147, 456, 521 (2) . . . 609
(1) . . . 453 s 38(2) . . . 606
s 18 . . . 25, 505 1981
s 20 . . . 505 Senior Courts Act (formerly Supreme
(4) . . . 505 Court Act)
s 23 . . . 22, 316 s 35A . . . 564
s 28 . . . 445, 520 s 36(4) . . . 106
s 29(1)–(3) . . . 444 s 49 . . . 291, 309, 311, 460, 463, 584
(5) . . . 444, 450 (2) . . . 621
s 30(1) . . . 456 s 50 . . . 584
(2A) . . . 453, 456
s 30A . . . 140 1982
s 31 . . . 522 Civil Jurisdiction and Judgments Act
s 31(2) . . . 150, 450 s 34 . . . 529
s 35 . . . 150, 315 Sched 1, art 17 . . . 396
(2), (4), (5) . . . 150 Forfeiture Act . . . 422
s 35A(1) . . . 150 s 4 . . . 386
s 37 . . . 450, 559 Insurance Companies Act . . . 376
s 39(1)(c) . . . 25
Supply of Goods and Services Act . . . 19, 43, 165,
s 48(3) . . . 25, 444, 559
198, 376
(4) . . . 25
s 1(2)(d) . . . 2
Part 5A . . . 512
s 2 . . . 5, 165, 441
ss 48A–48D . . . 577
s 3 . . . 5, 165
s 48E . . . 577
s 4 . . . 5, 165, 441
(2) . . . 577
s 5 . . . 5, 165
s 48F . . . 577
s 5A . . . 147, 521
s 49(1), (2) . . . 573
s 7 . . . 5, 165, 441
s 50 . . . 557
s 8 . . . 5, 165
(3) . . . 540, 557–59
s 9 . . . 5, 165, 441
s 51 . . . 557
s 10 . . . 5, 165
(3) . . . 540, 557
s 10A . . . 147, 521
s 52 . . . 505, 576
Part 1B . . . 512
s 53 . . . 559, 560
s 13 . . . 5, 155, 165, 441
(3) . . . 540, 558
s 14 . . . 5, 165
s 55 . . . 159
s 15 . . . 5, 165
(1) . . . 283
(1) . . . 63, 594
s 57(2) . . . 36
s 58(4) . . . 36 1983
s 61(1) . . . 143, 144, 150, 505 Currency Act . . . 451
1980 Mental Health Act . . . 246
Housing Act . . . 5 1984
Limitation Act . . . 605–608, 635 County Courts Act
s 3(2) . . . 608 s 1(2) . . . 528
ss 5, 6 . . . 605 s 35 . . . 528
s 8 . . . 605 s 69 . . . 564
s 11 . . . 605 1985
s 11A(3) . . . 608 Companies Act . . . 230
ss 12–14 . . . 605 s 36C(1) . . . 690
ss 14A, 14B . . . 606
xxx table of statutes

Enduring Powers of Attorney Act . . . 722 s 145 . . . 70

Housing Act . . . 5 s 148(7) . . . 638, 640
s 125(4A) . . . 346 s 149 . . . 70, 175
Landlord and Tenant Act . . . 5 ss 151–53 . . . 640
s 4 . . . 76 ss 158–9 . . . 696
1986 1989
Agricultural Holdings Act Children Act
s 12 . . . 100 s 2 . . . 395
Sched 2, para 1(1) . . . 100 Companies Act . . . 230
Financial Services Act . . . 344 s 141 . . . 640
s 47 . . . 346 Electricity Act
s 132 . . . 383, 418 s 3(2) . . . 6
Gas Act s 16 . . . 6
s 9(2) . . . 6 s 18(4) . . . 6
s 10 . . . 6 Law of Property (Miscellaneous Provisions)
Housing and Planning Act . . . 346 Act . . . 18, 77, 82, 84, 85, 87, 89,
s 125(4A) . . . 346 710, 713
Part I . . . 165
Insolvency Act . . . 530, 683 s 1 . . . 76, 77, 83, 721
s 44 . . . 683 (1)(b), (c) . . . 77
s 238 . . . 100 (2)(a) . . . 77
s 260(2) . . . 114 (3)(a), (b) . . . 77
ss 264–74 . . . 683 (4) . . . 77
s 283 . . . 718 (9), (10) . . . 77
(1) . . . 683 s 2 . . . 68, 83–89, 460, 464
s 284 . . . 718 (1) . . . 22, 79, 84, 86, 87
s 287 . . . 683 (2) . . . 86
s 307 . . . 683, 718 (3) . . . 86, 709
s 311(4) . . . 683 (4) . . . 86, 265
s 315 . . . 683, 718 (5) . . . 84, 88
s 323 . . . 683 (b), (c) . . . 84
s 339 . . . 385 (6) . . . 84
s 340 . . . 114, 385
ss 341, 342 . . . 114 1990
s 344 . . . 684 Courts and Legal Services Act . . . 390, 392
s 436 . . . 683, 718 s 58 . . . 391
1987 Human Fertilisation and Embryology Act
Consumer Protection Act . . . 376 s 36 . . . 395
Part I . . . 608 1991
s 7 . . . 216 Property Misdescription Act
s 10 . . . 216 s 1 . . . 326
s 20(1) . . . 35 Water Industry Act
s 41(4), (7) . . . 216 s 2(3)(b) . . . 6
Landlord and Tenant Act . . . 5 s 37 . . . 6
Minors’ Contracts Act . . . 18, 232, 238, 245 1992
s 2 . . . 246 Carriage of Goods by Sea Act . . . 619, 625, 684
s 3 . . . 245 s 2 . . . 648
s 4(1) . . . 239, 240, 246 (1) . . . 625
1988 (a) . . . 684
Copyright, Designs and Patents Act (5) . . . 684
ss 90, 94 . . . 663 s3
s 170 . . . 93 (1)(a) . . . 684
Sched 1, para 21 . . . 93 (3) . . . 684
Housing Act . . . 5 Cheques Act . . . 677, 682
Local Government Act . . . 227 Social Security Administration Act
s 17 . . . 227 s 187 . . . 674
Road Traffic Act . . . 640 Timeshare Act . . . 19, 76
 table of statutes xxxi

Trade Union and Labour Relations s 62 . . . 393

(Consolidation) Act . . . 232 Housing Act . . . 5
s 10(1)(a), (b) . . . 232 Trusts of Land and Appointment of Trustees Act
s 11 . . . 415 Sched 1, paras 1, 2 . . . 237
s 12(2) . . . 232
s 62(7) . . . 72 1997
s 122 . . . 407 Local Government (Contracts) Act . . . 224
s 127 . . . 232 ss 2, 5 . . . 225
s 128 . . . 407 1998
s 152 . . . 223 Competition Act . . . 5, 396, 408, 409, 414, 415
s 179 . . . 70 s 2 . . . 409, 410, 414
s 236 . . . 578 s 3(1)(d) . . . 409
s 245 . . . 72, 223 ss 6, 9 . . . 409
s 273 . . . 223 s 18 . . . 410
1993 s 45 . . . 415
Railways Act . . . 35 Sched 4 . . . 409
1994 Human Rights Act . . . 20, 226
Law of Property (Miscellaneous Provisions) Late Payment of Commercial Debts (Interest)
Act . . . 18 Act . . . 564
Sale and Supply of Goods Act . . . 18, 147, 150, 159, s 1(3) . . . 565
315, 456 s 2(1) . . . 564
s 1(1) . . . 161 s 4(5) . . . 565
s 7 . . . 159 ss 5, 7–10 . . . 565
Trade Marks Act National Minimum Wage Act
s 106(1) . . . 194 ss 34, 35, 54 . . . 625
Sched 4, para 1 . . . 194 1999
1995 Access to Justice Act . . . 390, 392
Disability Discrimination Act ss 27, 28 . . . 392
ss 4, 4B . . . 5 Contracts (Rights of Third Parties) Act . . . 18, 98,
s 17(A)(2)(c) . . . 5 613, 614, 624–33, 635, 636, 639–41, 643, 645,
s 19 . . . 5 646, 648, 650, 651, 659
Landlord and Tenant (Covenants) Act s 1 . . . 625, 632
s 3 . . . 642 (1)(a) . . . 625, 626
(b) . . . 625–29, 631, 640, 644
Merchant Shipping Act . . . 216 (2) . . . 625–28, 631
s 38 . . . 452 (3) . . . 625, 626, 648
s 224(1) . . . 695, 696 (4) . . . 624, 632, 659
1996 (5) . . . 631
Arbitration Act . . . 395 (6) . . . 624, 646
s 9(4)–(5) . . . 395 s 2 . . . 613, 639, 641
s 12 . . . 395 (1)(a)–(c) . . . 634
s 41 . . . 494 (2)(a), (b) . . . 634
(3) . . . 462 (3)(a), (b) . . . 634
(6) . . . 31 (4)(a), (b) . . . 635
s 69 . . . 396 (5) . . . 635
(1) . . . 395, 396 s 3 . . . 613, 640, 641
(2), (3) . . . 395 (2), (3) . . . 633
ss 70, 71 . . . 395 (4) . . . 631, 633
s 85 . . . 396 (5) . . . 633
s 87(1) . . . 396 s 4 . . . 624, 632
Employment Rights Act . . . 223 s 5 . . . 632
ss 1, 2, 4–6 . . . 76 (a) . . . 632
s 64 . . . 479 s 6(1) . . . 625, 641
s 86 . . . 471 (2) . . . 624
ss 114, 115 . . . 578 (3) . . . 624, 625
ss 191, 192 . . . 223 (4) . . . 624
Family Law Act (5) . . . 625, 641, 646
Pt IV . . . 393 (6), (7) . . . 625
xxxii table of statutes

s 7(1) . . . 613, 624 2004

(2) . . . 635 Civil Partnership Act . . . 393
(3) . . . 635 Housing Act
s 8 . . . 624, 630 Part 5 . . . 333, 339
Local Government Act . . . 227 ss 166–168 . . . 339
s 3(1) . . . 227 2005
s 18 . . . 227
Gambling Act . . . 103, 383
2000 s 335 . . . 384
Electronic Communications Act (1), (2) . . . 383
s 7 . . . 90 Mental Capacity Act . . . 234, 246, 248, 722
s 8 . . . 90 s 1(2) . . . 246
(1) . . . 90 s 2(1) . . . 246
Financial Services and Markets Act . . . 5, 84, 343, s 7 . . . 248
344, 346, 376, 418 s 9 . . . 688, 719, 722
s 2(1)(a) . . . 344 ss 10–14 . . . 719, 722
ss 3–6 . . . 344 Serious Organised Crime and Police Act . . . 389
ss 26, 27 . . . 383
ss 80–82 . . . 344 2006
s 90 . . . 325, 326, 341 Companies Act . . . 228, 229, 230, 231
(1) . . . 344 ss 8, 17 . . . 229
ss 138–140, 150 . . . 344 s 28(1) . . . 229
Part XVI . . . 19 s 31(1) . . . 229
ss 382, 397 . . . 310 s 33 . . . 32
Sched 8 . . . 344 s 39 . . . 230, 231
Sched 10 . . . 344 s 39(1) . . . 230, 692
para 1 . . . 326 s 40(1) . . . 230, 231
Sched 17 . . . 19 (2) . . . 231
Limited Liability Partnerships Act 2000 . . . 228 (b) . . . 230
s 1(3) . . . 231 . . . (i) . . . 230
s 6 . . . 231, 232 ss 41, 43 . . . 231
s44 . . . 77, 231
Powers of Criminal Courts (Sentencing) Act s 51(1) . . . 690, 714
s 130 . . . 310, 326 s 83 . . . 714
2002 s 544 . . . 663
Adoption and Children Act 2002 . . . 395 s 874 . . . 383
Enterprise Act . . . 5, 409, 415 Consumer Credit Act . . . 470
Part 6 . . . 408 ss 19–21 . . . 376, 377
ss 188, 190 . . . 409 s 26 . . . 383
Part 8 . . . 215 s 59 . . . 19
ss 214–219, 224–227 . . . 215 Fraud Act
Land Registration Act s 2 . . . 310
ss 28, 29 . . . 653 2010
2003 Bribery Act . . . 703
Income Tax (Earnings and Pensions) Act Third Parties (Rights Against Insurers) Act . . . 641
ss 401–403 . . . 563
 table of statutory instruments
1983 1996
Consumer Credit (Agreements) Regulations SI Utility Contracts Regulations SI 1996 No
1983 No 1553 . . . 79, 346 2911 . . . 227
Passenger Car Fuel Consumption Order SI 1983 1997
No 1486 Timeshare Regulations SI 1997 No 1081 . . . 76
r 14 . . . 346 1998
1990 Civil Procedure Rules SI 1998 No 3132
Law of Property (Miscellaneous Provisions) Act r 7.2A . . . 232
1989 (Commencement) Order SI 1990 No PD7, para 5A.3 . . . 232
1175 . . . 77 r 19.2 . . . 639
1991 r 19.6(1) . . . 232
Public Works Contracts Regulations SI 1991 No r 37.2 . . . 451
2060 . . . 227 1999
Public Supply Contracts Regulations SI 1991 No Unfair Terms in Consumer Contracts Regulations
2679 . . . 227 SI 1999 No 2083 . . . 5, 19, 20, 159, 171, 172, 178,
1992 192, 194, 201, 206, 207–216, 329, 332, 376, 377,
Package Travel, Package Holidays and Package 464, 566, 592, 635
Tours Regulations SI 1992 No 1942 . . . 19, 28 reg 3 . . . 195
(1) . . . 195, 207, 208
Package Travel, Package Holidays and Package reg 5 . . . 207
Tours Regulations SI 1992 No 3288 . . . 153, 326, (1) . . . 208, 209
346, 618 (5) . . . 208
reg 2 . . . 642 reg 6 . . . 205
regs 7–8 . . . 346 (1) . . . 208, 209
reg 12 . . . 200 (2) . . . 210, 211, 214, 215
reg 15 . . . 153, 216, 642 (b) . . . 100, 211
Utility Supply and Works Contracts Regulations reg 7 . . . 170, 214
SI 1992 No 3279 . . . 227 (1) . . . 205
1993 reg 8
Commercial Agents (Council Directive) (1), (2) . . . 215
Regulations 1993 SI 1993 No 3053 . . . 698, 699, reg 10 . . . 208
717, 723, 724 (1) . . . 215
regs 6–12 . . . 705 reg 12 . . . 208, 215
regs 14–15 . . . 717, 723 Sched 2 . . . 208, 209, 213
reg 17 . . . 717, 723 para 1(a) . . . 180
(1), (6) . . . 723 (b) . . . 449
(8) . . . 719 (c) . . . 209, 449
reg 18(a) . . . 723 (d) . . . 592
(e) . . . 209, 570
Public Services Contracts Regulations SI 1993 No
(f), (g) . . . 209, 470
3228 . . . 227
(h) . . . 449
1994 (j), (k) . . . 209
Unfair Terms in Consumer Contracts Regulations (l) . . . 449
SI 1994 No 3159 . . . 19, 207, 208, 211, (m) . . . 209
212, 336 (n) . . . 332
Sched 1, para (a) . . . 207 The Competition Act 1998 (Application for
Sched 2 . . . 208 Designation of Professional Rules) Regulations
1995 SI 1999 No 2546 . . . 409
Conditional Fees Agreements Order SI 1995 No 2000
1674 Conditional Fees Agreements Order SI 2000
reg 2 . . . 392 No 823
xxxiv table of statutory instruments

reg 3 . . . 391 Railways (Convention on International

Consumer Protection (Distance Selling) Carriage by Rail) Regulations SI 2005
Regulations SI 2000 No 2334 . . . 50, 344, 346 No 2092 . . . 216
regs 7, 8 . . . 344 Regulatory Reform (Execution of Deeds and
regs 10–12 . . . 345 Documents) Order SI 2005 No 1906 . . . 713
reg 24 . . . 31 2006
reg 25 . . . 216 Public Contracts Regulations SI 2006
2001 No 5 . . . 19, 227
Competition Act 1998 (Public Transport reg 32 . . . 228
Ticketing Schemes Block Exemption) Order SI reg 47(8), (9) . . . 228
2001 No 319 . . . 414 Transfer of Undertakings (Protection of
Limited Liability Partnerships Regulations SI 2001 Employment) Regulations SI 2006 No
No 1090 246 . . . 674
reg 4, Sched 2 . . . 231 reg 4(1) . . . 448
2002 Utilities Contracts Regulations SI 2006 No 6 . . . 19,
Late Payment of Commercial Debts (Interest) Act 227, 228
1998 (Commencement No 5) Order 2002 No reg 33 . . . 228
1673 . . . 564 reg 45(6), (7) . . . 228
Late Payment of Commercial Debts (Rate of 2007
Interest) (No. 3) Order SI 2002 No 1675 . . . 565 Home Information Pack (No 2) Regulations SI
Sale and Supply of Goods to Consumers 2007 No 1667
Regulations SI 2002 No 3045 . . . 19, 159, 163, reg 8 . . . 339
512, 577 reg 9 . . . 333, 339
reg 15 . . . 197 2008
2003 Business Protection from Misleading Marketing
Disability Discrimination Act 1995 (Amendment) Regulations SI 2008 No 1276
Regulations SI 2003 No 1673 . . . 5 reg 29 . . . 383
2004 Cancellation of Contracts made in a Consumer’s
Competition Act 1998 and Other Enactments Home or Place of Work etc Regulations SI 2008
(Amendment) Regulations SI 2004 No No 1816 . . . 76
1261 . . . 408, 414 Consumer Protection from Unfair Trading
Consumer Credit (Agreements) (Amendment) Regulations SI 2008 No 1277 . . . 300, 351, 376,
Regulations SI 2004 No 1482 . . . 346 377
regs 3, 5 . . . 310
Consumer Credit (Disclosure of Information) reg 7(3) . . . 377
Regulations SI 2004 No 1481 . . . 346 reg 29 . . . 351, 377, 383
Financial Services (Distance Marketing) 2010
Regulations SI 2004 No 2095 . . . 344
Home Information Pack Suspension Order SI
2005 2010 No 1455 . . . 333, 339
Conditional Fees Agreements (Revocation)
Regulations SI 2005 No 2305 . . . 392
 table of european
community legislation
Directive 68/151/EEC First Company Law Art 6 . . . 20
Directive OJ 1968 L 65/7 Protocol 1, Art 1 . . . 20
Art 9 . . . 230
Directive 86/653/EEC on Self-employed Regulation 17/62 First Regulation implementing
Commercial Agents OJ 1986 L 382/17 . . . 724 Articles 81 and 82
Directive 90/314/EC on Package Travel, Package Art 3 . . . 409
Holidays and Package Tours OJ 1990 L Art 15(2)(a) . . . 409
158/59 . . . 326, 642 Regulation 2659/2000 on Application of Article
Directive 93/13/EEC on Unfair Terms in 81(3) of the Treaty to Categories of Research
Consumer Contracts, OJ 1993 L 95/29 . . . 19, and Development Agreements . . . 414
206, 207, 208, 213, 332 Regulation 44/2001 on Jurisdiction and the
Preamble Recognition and Enforcement of Judgments in
Recital 16 . . . 208, 212, 213 Civil and Commercial Matters
Recital 19 . . . 207 art 23 . . . 396
Art 4(1) . . . 207 Regulation 1400/2002 on the Application of
Directive 99/44/EC on Consumer Goods and Article 81(3) of the Treaty to Categories
Associated Guarantees OJ 1999 L 171/12 . . . of Vertical Agreements and Concerted
19, 512 Practices in the Motor Vehicle
Directive 97/7/EC on the Protection of Sector . . . 414
Consumers in Relation to Distance Contracts Regulation 1/2003 on the Implementation of the
OJ 1997 L 144/19 . . . 344 Rules on Competition Laid Down in Articles
Directive 2000/31/EC on Electronic Commerce, 81 and 82 of the Treaty . . . 408, 414
OJ 2000 L 178/1 . . . 90 Regulation 358/2003 on the Application of
Directive 2002/65/EC on Distance Marketing Article 81(3) of the Treaty to Certain
of Consumer Financial Services OJ 2002 L Categories of Agreements, Decisions and
271/16 . . . 344 Concerted Practices in the Insurance
Directive 2004/17/EC on the Procurement Sector . . . 414
Procedures of Entities Operating in the Water, Regulation 772/2004 on the Application of Article
Energy, Transport and Postal Services Sectors 81(3) of the Treaty to Categories of Technology
OJ 2004 L 134/1 . . . 19, 227 Transfer Agreements . . . 414
Directive 2004/18/EC on the Coordination of Regulation 1008/2008 on Common Rules for the
Procedures for the Award of Public Works Operation of Air Services in the Community
Contracts, Public Supply Contracts and Public art 15 . . . 409
Service Contracts OJ 2004 L 134/114 . . . 19, 227 Regulation 487/2009 on the Application of Article
Directive 2005/29/EC on Unfair Commercial 81(3) of the Treaty to Certain Categories of
Practices . . . 300, 351, 377 Agreements and Concerted Practices in the Air
Transport Sector . . . 414
EC Treaty . . . 408
Art 81 (ex Art 85) . . . 396, 408, 409, 410, 414 Treaty of Lisbon . . . 396, 408
(1) . . . 409, 414 Treaty on European Union . . . 408
(2) . . . 409 art 1 . . . 408
(3) . . . 409, 414 art 101 . . . 396, 408, 409, 410, 414
Art 82 (ex Art 86) . . . 396, 408, 410 (2) . . . 409
European Convention for the Protection of (3) . . . 409, 414
Human Rights . . . 20 art 102 . . . 396, 408, 410
 table of international and
other national legislation
and restatements
British Columbia Insurance Act . . . 638 § 29 . . . 52
§ 31 . . . 31
Civil Code of Lower Canada . . . 181 § 33(2) . . . 61
§ 37 . . . 58
§ 39 . . . 59
French Civil Code § 42 . . . 58
Arts 1149–1151 . . . 544 § 45 . . . 54
§ 48 . . . 60
German BGB § 51 . . . 46, 51
§ 146 . . . 58 § 56 . . . 45
§ 242 . . . 213 § 57 . . . 43
§ 65 . . . 44
§ 67 . . . 47
Hague/Visby Rules . . . 186, 649 § 68 . . . 47, 52
Art III § 72 . . . 50
para 5 . . . 189 § 90 . . . 124
para 6 . . . 183, 189 § 176(2) . . . 356
Art IV § 224 . . . 141
para 5 . . . 183 § 237 . . . 450
Art IV bis § 253 . . . 575
para 2 . . . 646 § 266 . . . 60
§ 302 . . . 627
Italian Civil Code § 311 . . . 634
Art 1336(1) . . . 37
Unidroit Principles for International Commercial
Netherlands Civil Code Contracts . . . 20
Art 6.233 . . . 213 Uniform Commercial Code (USA)
§ 2–207 . . . 42
New Zealand Contracts (Privity) Act 1982 § 2–209(1) . . . 111
s 5 . . . 634 § 2–302 . . . 374
Uniform Laws on International Sales Act
Sched 2, Art 7(2) . . . 42
New Zealand Illegal Contracts Act 1970 . . . 417
UN (Vienna) Convention on Contracts for the
International Sale of Goods . . . 20, 42
Ontario Mercantile Law Amendment Act RSO Art 14(2) . . . 37
1990 Art 16(1) . . . 57
s 16 . . . 113 (2)(b) . . . 54
Art 18(2) . . . 48
Restatement of the Law of Contracts (1932) Art 19 . . . 42
(USA) Art 19(3) . . . 42
§ 133(1) . . . 627 Art 21(2) . . . 48
§ 147 . . . 627 Art 23 . . . 44
Restatement of the Law of Contracts (2d) (1981) Art 24 . . . 48, 57
(USA) . . . 21 Art 25 . . . 146
§ 1...2 Art 29(1) . . . 113
§ 21B . . . 71 Art 31 . . . 444
§ 23 . . . 39 Art 48 . . . 450
§ 25 . . . 56 Art 55 . . . 63
 table of cases
(Pages on which the facts of a case are given are printed in bold type)
A v Hayden (No 2) (1984) 56 ALR 82 Adams v Richardson & Starling Ltd [1969] 1 WLR
(Australia) . . . 221 1645 . . . 179
AB Corp v CD Company, The Sine Nomine Adamson v Jarvis (1827) 4 Bing 66; 130 ER
[2002] 1 Lloyd’s Rep 805 . . . 603 693 . . . 707
ACF Chemiefarma NV v Commission (Cases 41, Adamson v NSW Rugby League Ltd (1991) 103
44 and 45/69) [1970] ECR 661 . . . 409 ALR 319 (Australia) . . . 408
AG Securities v Vaughan [1990] 1 AC 417 . . . 139 Addis v Gramophone Co Ltd [1909] AC
AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 488 . . . 534, 535, 538, 539
265 . . . 177, 193, 203 Adelfamar SA v Silos E Mangimi Martini SpA,
AKT Reidar v Arcos [1927] 1 KB 352 . . . 571 The Adelfa [1988] 2 Lloyd’s Rep 466 . . . 481,
AMB Generali Holding AG v SEB Trygg Liv 491, 493
Holding AB [2005] EWCA Civ 1237; [2006] 1 Adler v Dickson [1955] 1 QB 158 . . . 645, 646
WLR 2276 . . . 693, 716 Admiralty Commissioners v SS Amerika [1917]
AMB Imballaggii Plastici SRL v Pacflex Ltd [1999] AC 38 . . . 617
2 All ER (Comm) 249 . . . 699 Adolf Warski, The [1976] 1 Lloyd’s Rep 107; aff ’d
AMEV-UDC Finance Ltd v Austin (1986) 162 [1976] 2 Lloyd’s Rep 241 . . . 396
CLR 344 (Australia) . . . 571 Advanced Technology Structures Ltd v Cray
A/S Awilco of Oslo v Fulvia SpA di Navigazione Valley Products Ltd [1993] BCLC 723 . . . 673
of Cagliari, The Chikuma [1981] 1 WLR Aegnoussiotis Shipping Corp of Monrovia v A/S
314 . . . 144, 446 Kristian Jebsens Rederi of Bergen [1977] 1
Aaron’s Reefs Ltd v Twiss [1896] AC 273 . . . 343 Lloyd’s Rep 268 . . . 515
Abbott v Middleton (1858) 7 HLC 68; 11 ER Affréteurs Réunis Société Anonyme, Les v
28 . . . 166 Leopold Walford (London) Ltd [1919] AC
Aberfoyle Plantations Ltd v Cheng [1960] AC 801 . . . 159, 636, 637, 639
115 . . . 142 Afovos Shipping Co SA v R Pagnan & Filii [1983]
Abraham v Herbert Reiach Ltd [1922] 1 KB 1 WLR 195 . . . 444, 472
477 . . . 540 Agip SpA v Nav Alta Italia SpA [1984] 1 Lloyd’s
Abu Dhabi National Tanker Co v Product Star Rep 353 . . . 262–65
Shipping Co Ltd (No 2) [1993] 1 Lloyd’s Rep Ahlström Osakeyhtio v Commission (Joined
397 . . . 6 Cases C–89, 104, 114, 116, 117, 125–129/85)
Ackroyd & Sons v Hasan [1960] 2 QB 144 . . . 705 [1993] ECR I–1307 . . . 409
Acrow Ltd v Rex Chainbelt Inc [1971] 1 WLR Ailion v Spiekermann [1976] Ch 158 . . .
1676 . . . 655 426, 434
Actionstrength Ltd v International Glass Aiolos, The [1983] 2 Lloyd’s Rep 25 . . . 666
Engineering SpA [2003] UKHL 17; [2003] 2 Ailsa Craig Fishing Co Ltd v Malvern Fishing Co
AC 541 . . . 83, 88 Ltd & Securicor (Scotland) Ltd [1983] 1 WLR
Adam v Newbigging (1888) 13 App Cas 964 . . . 180, 182, 183
308 . . . 313, 316 Aires Tanker Corp v Total Transport Ltd, The
Adam Opel GmbH v Mitras Automotive (UK) Ltd Aires [1977] 1 WLR 185 . . . 453
[2007] EWHC 3481 (QB) . . . 110, 355 Ajayi v RT Briscoe (Nigeria) Ltd [1964] 1 WLR
Adamastos Shipping Co Ltd v Anglo-Saxon 1326 . . . 120, 122, 123
Petroleum Co Ltd [1959] AC 133 . . . 62 Akiens v Saloman (1992) 65 P & CR 364 . . . 69
Adams v British Airways plc [1995] IRLR Aktion Maritime Corp of Liberia v S Kasmas &
577 . . . 138 Brothers Ltd [1987] 1 Lloyd’s Rep 283 . . . 513
Adams v Lindsell (1818) 1 B & Ald 681; 106 ER Al-Kandari v JR Brown & Co [1988] QB
250 . . . 46 665 . . . 342, 343
Adams v London Improved Motor Coach Al Nakib Investments Ltd v Longcroft [1990] 1
Builders Ltd [1921] 1 KB 495 . . . 107 WLR 1390 . . . 305
xxxviii table of cases

Alampi v Swartz (1963) 38 DLR (2d) 300 Allied Dunbar (Frank Weisenger) Ltd v Weisinger
(Canada) . . . 254 [1988] IRLR 60 . . . 401
Alan Estates Ltd v WG Stores Ltd [1982] Ch Allied Irish Bank plc v Byrne [1995] 2 FLR
511 . . . 78 325 . . . 368
Alan (WJ) & Co Ltd v El Nasr Export & Import Allied Maples Group v Simmons & Simmons
Co Ltd [1972] 2 QB 189 . . . 121, 447, [1995] 1 WLR 1602 . . . 66, 535
465, 469 Allied Marine Transport Ltd v Vale do Rio Doce
Alaskan Trader, The, see Clea Shipping Corp v Navegacao SA [1983] 2 Lloyd’s Rep 411; [1985]
Bulk Oil International Ltd 1 WLR 925 . . . 31, 44, 49
Alati v Kruger (1955) 94 CLR 216 Alpenstow Ltd v Regalian Properties Ltd [1985] 1
(Australia) . . . 311, 316 WLR 721 . . . 68
Albazero, The [1977] AC 774 . . . 619, 671 Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981]
Albert v Motor Insurers’ Bureau [1972] AC 1 Lloyd’s Rep 122; [1981] QB 290 . . . 152, 706
301 . . . 640 Amalgamated Investment & Property Co Ltd
Alcatel Austria AG v Bundesministerium für v Texas Commerce International Bank Ltd
Wissenschaft und Verkehr (C–81/98) [1999] [1982] QB 84 . . . 126, 127
ECR I-7671 . . . 228 Amalgamated Investment & Property Co Ltd
Alder v Moore [1961] 2 QB 57 . . . 569, 570 v Walker (John) & Sons Ltd [1977] 1 WLR
Alderslade v Hendon Laundry Ltd [1945] KB 164 . . . 277, 281, 288, 497
189 . . . 180, 181 Amar Singh v Kulubya [1964] AC 142 . . . 428
Aldrich v Norwich Union Life Assurance Co Ltd Amec Developments Ltd v Jury’s Hotel
[1999] 2 All ER (Comm) 707 . . . 346 Management (UK) Ltd (2000) 82 P & CR
Alessio v Jovica (1974) 42 DLR (3d) 242 286 . . . 601
(Canada) . . . 288 American Cyanamid Co v Ethicon Ltd [1975] AC
Alev, The, see Vantage Navigation Corp v Suhail & 396 . . . 581
Saud Bahwan Building Materials Llc Amiri Flight Authority v BAE Systems plc [2003]
Alexander v Railway Executive [1951] 2 KB EWCA Civ 1447; [2004] 1 All ER (Comm)
882 . . . 184, 190 385 . . . 194
Alexander v Rayson [1936] 1 KB 169 . . . 385, Amministrazione della Finanze dello Stato v San
418, 429 Giorgio (Case 199/82) [1983] ECR
3595 . . . 214
Alghussein Establishment v Eton College [1988] 1
WLR 587 . . . 471 Amoco Australia Pty Ltd v Rocca Bros Motor
Engineering Cp Pty Ltd [1975] AC 561 . . . 412
Ali v Christian Salvesen Food Services Ltd [1997]
ICR 25 . . . 155, 156 Amsprop Trading Ltd v Harris Distribution Ltd
[1997] 1 WLR 1025 . . . 643
Ali SS Corp v Shipyard Trogir [1999] 1 WLR
314 . . . 152 Amstrad v Seagate Technology Inc (1997) BLR
34 . . . 563
Alison (J Gordon) Ltd v Wallsend Shipway &
Engineering Co Ltd (1927) 43 TLR 323 . . . 178 Anangel Atlas Comp Nav SA v Ishikawajima-
Harima Heavy Industries Co Ltd (No 2) [1990]
Alkok v Grymek (1966) 56 DLR (2d) 393 2 Lloyd’s Rep 526 . . . 109, 465
(Canada) . . . 523
Anathanasia Cominos, The [1990] 1 Lloyd’s Rep
Allam & Co Ltd v Europa Poster Service Ltd 277 . . . 441
[1968] 1 WLR 639 . . . 704
Anderson v Pacific Fire & Marine Insurance Co
Allan (JM) (Merchandising) Ltd v Cloke [1963] 2 (1872) LR 7 CP 65 . . . 302
QB 340 . . . 420
Anderson Ltd v Daniel [1924] 1 KB 138 . . . 380,
Allcard v Skinner (1887) 36 Ch D 145 . . . 359, 360, 381, 419
363, 365, 368
André et Cie SA v Ets Michel Blanc & Fils
Allen v F O’Hearn & Co [1937] AC 213 . . . 619 [1977] 2 Lloyd’s Rep 166; [1979] 2 Lloyd’s Rep
Allen v Rescous (1677) 2 Lev 174; 83 ER 427 . . . 304, 326
505 . . . 385 André et Cie SA v Marine Transocean Ltd [1981]
Allen v Robles [1969] 1 WLR 1193 . . . 315 2 Lloyd’s Rep 29 . . . 31
Alliance Bank Ltd v Broom (1864) 2 Dr & Sm Andrews v Hopkinson [1957] 1 QB 229 . . . 138
289 . . . 92, 103 Andrews v Mockford [1896] 1 QB 372 . . . 305
Allied Carpets Group Plc v MacFarlane [2002] Andrews v Parker [1973] Qd R 93
EWHC 1155; [2002] PNLR 38 . . . 667 (Australia) . . . 393
 table of cases xxxix

Andrews v Ramsay & Co [1903] 2 KB 635 . . . Aratra Potato Co Ltd v Taylor Joynson Garrett (a
702, 703 firm) [1995] 4 All ER 695 . . . 22, 390, 392, 419,
Andrews Bros Ltd v Singer & Co Ltd [1934] 1 KB 422, 428
17 . . . 178 Archbolds (Freightage) Ltd v Spanglett Ltd [1961]
Aneco Reinsurance Underwriting Ltd v Johnson 1 QB 374 . . . 381, 382, 419, 422
& Higgins Ltd [2001] UKHL 51; [2002] 1 Archer v Brown [1985] QB 401 . . . 308, 310,
Lloyd’s Rep 157 . . . 324 323, 550
Angel v Duke (1875) LR 10 QB 174 . . . 85 Archer v Cutler [1980] 1 NZLR 386 (New
Angel v Jay [1911] 1 KB 666 . . . 319 Zealand) . . . 247
Angelic Star, The [1988] 1 Lloyd’s Rep 122 . . . 567 Archer v Hudson (1844) 7 Beav 551; 49 ER
Anglesey (Marquis of), Re [1901] 2 Ch 1180 . . . 363, 366
548 . . . 564 Arcos Ltd v Ronaasen (EA) & Son Ltd [1933] AC
Anglia Commercial Properties v North East Essex 470 . . . 145, 147, 442
Building Co (1983) 266 EG 1096 . . . 144 Argy Trading Development Co Ltd v Lapid
Anglia Television Ltd v Reed [1972] 1 QB Developments Ltd [1977] 1 WLR 444 . . .
60 . . . 542 123, 124
Anglo-African Merchants Ltd v Bayley [1970] 1 Arkwright v Newbold (1880) 17 Ch D 301 . . .
QB 311 . . . 158, 704 305, 342
Anglo Continental Holidays Ltd v Typaldos Lines Armagas Ltd v Mundogas SA [1986] 1 AC
(London) Ltd [1967] 2 Lloyd’s Rep 61 . . . 200 717 . . . 692, 711
Anglo Petroleum Ltd v TFB (Mortgages) Ltd Armhouse Lee Ltd v Chappell, The Times, 7 Aug
[2007] EWCA Civ 456; [2007] BCC 407 . . . 1996 . . . 393
418, 421 Armitage v Nurse [1998] Ch 241 . . . 181, 191
Anglo-Russian Merchant Traders Ltd v John Batt Armstrong v Jackson [1917] 2 KB 822 . . . 315, 316,
& Co (London) Ltd, Re [1917] 2 KB 341, 703
679 . . . 143 Armstrong v Stokes (1872) LR 7 QB 598 . . . 712
Angus v Clifford [1891] 2 Ch 449 . . . 321 Armstrong v Strain [1951] 1 TLR 856; [1952] 1
Angus v Skully 44 NE 674 (1900) (USA) . . . 503 KB 232 . . . 711
Annangel Glory Comp Nav SA v M Golodetz, Arnold, Re (1880) 14 Ch D 270 . . . 339
Middle East Marketing Corp Ltd [1988] 1 Arrale v Costain Civil Engineering Ltd [1976] 1
Lloyd’s Rep 45 . . . 668 Lloyd’s Rep 98 . . . 101, 375
Anon (1477) YB Pasch 17 Edw IV, f 1, pl 2 . . . 43 Artistic Upholstery Ltd v Art Forma (Furniture)
Ansett Transport Industries (Operations) Pty Ltd [1999] 4 All ER 277 . . . 232
Ltd v Commonwealth (1977) 139 CLR 54 Asamera Oil Corp v Sea Oil Corp [1979] 1 SCR
(Australia) . . . 221, 222 633 (Canada) . . . 575
Antaios Cia Naviera SA v Salen Rederierna AB Asfar & Co v Blundell [1896] 1 QB 123 . . . 284
[1985] AC 191 . . . 166 Ashbury Railway Carriage & Iron Co v Riche
Antaios, The [1981] 2 Lloyd’s Rep 284 . . . 556 (1875) LR 7 HL 653 . . . 229, 690
Antons Trawling Co Ltd v Smith [2003] 2 NZLR Ashby v Tolhurst [1937] 2 KB 242 . . . 180
23 . . . 111 Ashdown v Samuel Williams & Sons Ltd [1957] 1
Appleby v Myers (1867) LR 2 CP 651 . . . 453, 477, QB 409 . . . 175
498, 499, 503 Ashington Piggeries Ltd v Christopher Hill Ltd
Applegate v Moss [1971] 1 QB 406 . . . 607 [1972] AC 441 . . . 161, 164, 550
Appleson v Littlewood Ltd [1939] 1 All ER Ashmore v Corporation of Lloyds (No 2) [1992] 2
464 . . . 71 Lloyd’s Rep 620 . . . 153, 155, 157
Appleton v Binks (1804) 5 East 148; 102 ER Ashmore, Benson, Pease & Co Ltd v AV Dawson
1025 . . . 713 Ltd [1973] 1 WLR 828 . . . 382, 419
Apthorp v Neville & Co (1907) 23 TLR 575 . . . 425 Askey v Golden Wine Co Ltd [1948] 2 All ER
Arab Bank Ltd v Barclays Bank [1954] AC 35 . . . 421
495 . . . 483 Assicurazioni Generali SpA v Arab Insurance
Arab Bank plc v John D Wood Commercial Ltd Group [2002] EWCA Civ 1642; [2003] 1 All ER
[2000] 1 WLR 857 . . . 556 (Comm) 140 . . . 305
Arab Monetary Fund v Hashim [1993] 1 Lloyd’s Associated British Ports v Ferryways NV [2009]
Rep 543 . . . 702 EWCA Civ 189; [2009] 1 Lloyd’s Rep 595 . . . 68
xl table of cases

Associated Japanese Bank (International) Ltd v Attorney-General for Guyana v Nobrega [1969] 3
Crédit du Nord SA [1989] 1 WLR 255 . . . 151, All ER 1064 . . . 223
250, 251, 277, 280, 281–83, 287–89, Attorney-General for Hong Kong v Reid [1994] 1
291–93, 295 AC 324 . . . 703
Associated Portland Cement Manufacturers Ltd Attorney-General of Belize v Belize Telecom Ltd
v Teigland Shipping A/S [1975] 1 Lloyd’s Rep [2009] UKPC 10; [2009] 1 WLR 1988 . . .
581 . . . 581 153, 154
Astley v Austrust Ltd (1999) 197 CLR 1 Attorney-General of Commonwealth of Australia
(Australia) . . . 562 v Adelaide Steamship Co Ltd [1913] AC
Astley v Reynolds (1731) 2 Str 915; 93 ER 781 . . . 399, 402, 407
939 . . . 352, 354 Attorney-General of Hong Kong v Humphreys
Astley Industrial Trust Ltd v Grimley [1963] 1 Estates (Queens Gardens) Ltd [1987] 1 AC
WLR 584 . . . 188 114 . . . 68, 119, 127, 222
Astley Industrial Trust Ltd v Miller [1968] 2 All Attorney-General of New Zealand v Ortiz [1982]
ER 36 . . . 697 QB 349; [1984] AC 1 . . . 387
Asty Maritime Co Ltd & Panagiotis Stravelakis v Attwood v Lamont [1920] 3 KB 571 . . . 399, 434,
Rocco Guiseppe & Figli, SNC, The Astyanax 435, 436
[1985] 2 Lloyd’s Rep 109 . . . 708 Attwood v Small (1838) 6 Cl & Fin 232; 7 ER
Aswan Engineering Establishment Co v Lupine 684 . . . 305
Ltd [1987] 1 WLR 1 . . . 164 Australia Estates Pt Ltd v Cairns CC [2005] QCA
Atkinson v Denby (1861) 6 H & N 778; 158 ER 328 . . . 297
321; (1862) 7 H & N 934; 158 ER 749 . . . 427 Avery v Bowden (1855) 5 E & B 714; 119 ER 647;
Atlantic Estates plc v Ezekiel [1991] 2 EGLR (1856) 6 E & B 953; 119 ER 1119 . . . 515
202 . . . 301 Avon Insurance plc v Swire Fraser Ltd [2000] 1
Atlantic Lines & Navigation Co Inc v Hallam Ltd All ER (Comm) 573 . . . 301, 327
[1983] 1 Lloyd’s Rep 188 . . . 317, 318 Avraamides v Colwill [2006] EWCA Civ 1533;
Atlantic Lines & Navigation Co Ltd v Didymi [2007] BLR 76 . . . 630
Corp, The Didymi [1984] 1 Lloyd’s Rep Awwad v Geraghty & Co [2001] QB 570 . . . 392
583 . . . 449 Aylesford (Earl of) v Morris (1873) LR 8 Ch App
Atlantic Marine Transport Corp v Coscol 484 . . . 372, 373
Petroleum Corp [1991] 1 Lloyd’s Rep Ayr Harbour Trustees v Oswald (1883) 8 App Cas
246 . . . 263 623 . . . 225
Atlantic Shipping & Trading Co Ltd v Louis Azov Shipping Co Ltd v Baltic Shipping Co
Dreyfus & Co [1922] 2 AC 250 . . . 183, 395 (No 3) [1999] 2 Lloyd’s Rep 159 . . . 123, 125
Atlantic Underwriting Agencies Ltd v Cia di
Assicurazione di Milano SpA [1979] 2 Lloyd’s
Rep 240 . . . 717 B & B Viennese Fashions v Losane [1952] 1 All
ER 909 . . . 419
Atlas Express Ltd v Kafco (Importers &
Distributors) Ltd [1989] QB 833 . . . 353, 354 B & S Contracts & Design Ltd v Victor Green
Publications Ltd [1984] ICR 419 . . .
Attica Sea Carriers Corp v Ferrostaal Poseidon 353, 355
Bulk Reederei GmbH, The Puerto Buitrago
[1976] 1 Lloyd’s Rep 250 . . . 153, 509, 575 BCCI v Aboody [1990] 1 QB 923 . . . 361
Attorney-General v Blake [1998] Ch 439; [2001] BCCI SA v Ali [2001] UKHL 8; [2001] 1 AC
1 AC 268 . . . 9, 25, 224, 597, 598, 599, 600, 601, 251 . . . 103, 166, 172, 178, 338, 460
602, 603 BHP Petroleum Ltd v British Steel plc [2000] 2
Attorney-General v Great Eastern Ry (1880) 5 Lloyd’s Rep 277 . . . 183
App Cas 473 . . . 229 BICC plc v Burndy Corporation [1985] Ch
Attorney-General v Great Southern & Western Ry 232 . . . 593
of Ireland [1925] AC 754 . . . 221 BP Exploration Co (Libya) Ltd v Hunt (No 2)
Attorney-General v Guardian Newspapers Ltd [1979] 1 WLR 783; aff ’d [1981] 1 WLR 232;
(No 2) [1990] 1 AC 109 . . . 389 [1983] 2 AC 352 . . . 498, 500, 501, 502, 503,
504, 587
Attorney-General v R [2003] UKPC 22; [2003]
EMLR 24 . . . 356, 359, 364, 366, 367 BS & N Ltd v Micado Shipping Ltd (Malta) [2001]
1 Lloyd’s Rep 341 . . . 148
Attorney-General for Ceylon v Silva [1953] AC
461 . . . 224, 692 Babcock v Lawson (1880) 5 QBD 284 . . . 316
 table of cases xli

Backhouse v Backhouse [1978] 1 WLR 243 . . . 363, Bank of Boston Connecticut v European Grain &
374, 375 Shipping Ltd [1989] AC 1056 . . . 524, 670
Bacon v Cooper (Metals) Ltd [1982] 1 All ER Bank of Nova Scotia v Hellenic Mutual War
397 . . . 556 Risks Association (Bermuda) Ltd [1988] 1
Badische Co Ltd, Re [1921] 2 Ch 331 . . . 491, 505 Lloyd’s Rep 514; [1990] 1 QB 818; [1992] 1 AC
Bagueley v Hawley (1867) LR 2 CP 625 . . . 160 233 . . . 140, 334, 562
Bailey v Bullock [1950] 2 All ER 1167 . . . 536 Bank of Nova Scotia v MacLellan (1977) 78 DLR
(3d) 1 (Canada) . . . 102
Bailey v Thurstan & Co Ltd [1903] 1 KB
137 . . . 718 Bank of Scotland v Bennett [1997] 1 FLR
801 . . . 361, 371
Baily v De Crespigny (1869) LR 4 QB 180 . . . 483
Bankers Trust Co v PT Jakarta International
Bainbridge v Firmstone (1838) 8 A & E 743; 112 Hotels & Development [1999] 1 Lloyd’s Rep
ER 1019 . . . 99 910 . . . 581
Bainbrigge v Browne (1881) 18 Ch D 188 . . . 363, Bannerman v White (1861) 10 CBNS 844; 142 ER
369, 371 685 . . . 134, 135
Baird Textile Holdings Ltd v Marks & Spencer Banning v Wright [1972] 1 WLR 972 . . . 123
plc [2001] EWCA Civ 274; [2002] 1 All ER
(Comm) 737 . . . 63, 117, 124, 125, 126, 128 Banque Financière de la Cité SA v Westgate
Insurance Co Ltd [1991] 2 AC 249 . . .
Bairstow Eves London Central Ltd v Smith [2004] 333, 346
EWHC 263; [2004] 2 EGLR 25 . . . 211
Banque Keyser Ullman SA v Skandia (UK)
Baker v Black Sea & Baltic General Insurance Co Insurance Co Ltd [1990] 1 QB 665; [1991] 2
[1998] 1 WLR 974 . . . 153 AC 249 . . . 332, 334, 335, 342, 343
Baker v Hedgecock (1888) 39 Ch D 520 . . . 404 Barbados Trust Co Ltd v Bank of Zambia [2007]
Baker v Townsend (1817) 7 Taunt 422; 129 ER EWCA Civ 148; [2007] 1 Lloyd’s Rep 494 . . . 672
169 . . . 389 Barber v NWS Bank plc [1996] 1 WLR 641 . . . 148,
Baldry v Marshall [1925] 1 KB 260 . . . 178 160, 589
Balfour v Balfour [1919] 2 KB 571 . . . 70, 71, Barclays Bank plc v Boulter [1999] 1 WLR
72, 129 1919 . . . 371
Balfour Beatty Civil Engineering v Docklands Barclays Bank plc v Caplan [1998] 1 FLR
Light Railway [1996] CLC 1435 . . . 214 532 . . . 312, 368
Ball v National & Grindlays Bank Ltd [1973] Ch Barclays Bank plc v Coleman [2001] QB
127 . . . 92 20 . . . 366
Ballett v Mingay [1943] KB 281 . . . 241, 242 Barclays Bank plc v Fairclough Building Ltd
Balmoral Group Ltd v Borealis (UK) Ltd [2006] [1995] QB 214 . . . 562
EWHC 1900 (Comm); [2006] 2 Lloyd’s Rep Barclays Bank plc v O’Brien [1994] 1 AC
629 . . . 203, 204, 205 180 . . . 312, 338, 361, 363, 364, 370–72, 393
Baltic Shipping Co v Dillon (1993) 176 CLR 344 Barker v Stickney [1919] 1 KB 121 . . . 654
(Australia) . . . 452, 456, 457, 590 Barnstaple Boat Co Ltd v Jones [2007] EWCA Civ
Banbury v Bank of Montreal [1918] AC 626 . . . 343 727; [2008] 1 All ER 1124 . . . 606
Banco de Portugal v Waterlow & Sons Ltd [1932] Baroness Wenlock v River Dee Co (1883) 36 Ch D
AC 452 . . . 543, 553, 556, 617 675n . . . 228
Banco Exterior Internacionale SA v Thomas Barr v Gibson (1838) 3 M & W 390; 150 ER
[1997] 1 WLR 221 . . . 370, 372 1196 . . . 285
Banco Santander SA v Bayfern Ltd [2000] 1 All Barratt v Gough-Thomas [1951] Ch 242 . . . 707
ER (Comm) 776 . . . 670 Barrow v Arnaud (1846) 8 QB 604 . . . 557
Bangladesh Export Import Co Ltd v Sucden Kerry Barrow, Lane & Ballard Ltd v Phillip Phillips & Co
SA [1995] 2 Lloyd’s Rep 1 . . . 490 [1929] 1 KB 574 . . . 283
Banister, Re (1879) 12 Ch D 131 . . . 339 Barry v Davies [2001] 1 WLR 1962 . . . 37
Bank für Gemeinwirtschaft v City of London Bartlett v Sydney Marcus Ltd [1965] 1 WLR
Garages Ltd [1971] 1 WLR 149 . . . 418, 681 1013 . . . 162
Bank Line Ltd v Capel (A) & Co [1919] AC Barton v Armstrong [1976] AC 104 . . . 305,
435 . . . 480, 484, 490–93 350–52, 354
Bank of Australasia v Palmer [1897] AC Barton v County Natwest Ltd [1999] Lloyd’s Rep
540 . . . 138 Bank 408 . . . 305
xlii table of cases

Barton v Fitzgerald (1812) 15 East 529; 104 ER Bell v Lever Bros Ltd [1931] 1 KB 337; [1932] AC
944 . . . 169 161 . . . 250, 251, 256, 277, 278, 279, 280, 282, 283,
Basma v Weekes [1950] AC 441 . . . 710 286–93, 295–97, 299, 319, 332, 334, 337, 341
Bates (Thomas) & Son Ltd v Wyndham’s Lingerie Bell & Co v Antwerp, London & Brazil Line
Ltd [1981] 1 WLR 505 . . . 263, 264, 265 [1891] 1 QB 103 . . . 445
Batis, The [1990] 1 Lloyd’s Rep 345 . . . 594, 595 Bell Houses Ltd v City Wail Properties Ltd [1966]
Battley v Faulkner (1820) 3 B & Ald 288; 106 ER 1 QB 207; [1966] 2 QB 656 . . . 230
668 . . . 605 Bellshill & Mossend Co-operative Society v
Baumwoll Manufacturer Von Carl Scheibler v Dalziel Co-operative Society [1960] AC
Furness [1893] AC 8 . . . 654 832 . . . 407
Bawejem Ltd v MC Fabrications Ltd [1999] 1 All Belshaw v Bush (1851) 11 CB 191; 138 ER
ER (Comm) 377 . . . 672 444 . . . 448
Baxter v Burfield (1746) 2 Str 1266; 93 ER Belvoir Finance Co Ltd v Stapleton [1971] 1 QB
1172 . . . 683 210 . . . 428, 429
Baxter v Connelly (1820) 1 J & W 576; 37 ER Bence Graphics Ltd v Fasson UK Ltd [1998] QB
487 . . . 581 87 . . . 558, 560
Beach v Reed Corrugated Cases Ltd [1956] 1 Beningfield v Baxter (1886) 12 App Cas
WLR 807 . . . 563 167 . . . 363
Beale v Kyte [1907] 1 Ch 564 . . . 609 Bennett v Bennett [1952] 1 KB 249 . . . 433, 434,
436, 438
Beale v Taylor [1967] 1 WLR 1193 . . . 135, 136
Bensaude & Co v Thames & Mersey Marine
Beaman v ARTS Ltd [1949] 1 KB 550 . . . 606 Insurance Co [1897] 1 QB 29; [1897] AC
Beard, Re [1908] 1 Ch 383 . . . 388 609 . . . 492
Beattie v Lord Ebury (1872) LR 7 Ch App Bentsen v Taylor, Sons & Co [1893] 2 QB
777 . . . 304 274 . . . 509
Beauchamp (Earl) v Winn (1873) LR 6 HL Benyon v Nettlefold (1850) 3 Mac & G 94; 42 ER
223 . . . 294 196 . . . 393
Beauforte (Jon) (London) Ltd, Re [1953] Ch Beoco Ltd v Alfa Laval Co Ltd [1995] QB
131 . . . 229, 230 137 . . . 561
Beaumont v Reeve (1846) 8 QB 483 . . . 393 Beresford v Royal Insurance Co Ltd [1938] AC
Becher (Kurt A) GmbH & Co KG v Roplak 586 . . . 422
Enterprises SA, The World Navigator [1991] 2 Berkshire, The [1974] 1 Lloyd’s Rep
Lloyd’s Rep 23 . . . 441 185 . . . 190
Bechuanaland Exploration Co Ltd v London Berners v Fleming [1925] Ch 264 . . . 515
Trading Bank Ltd [1898] 2 QB 658 . . . 679 Berry v Berry [1929] 2 KB 316 . . . 463, 464
Beckham v Drake (1849) 2 HLC 579; 9 ER Besseler Waechter Glover & Co v South Derwent
1213 . . . 555, 683, 718 Coal Co [1938] 1 KB 408 . . . 465, 467
Bedford Insurance Co Ltd v Instituto de Beswick v Beswick [1966] Ch 538; [1968] AC
Ressaguros do Brasil [1985] QB 966 . . . 691 58 . . . 576, 581, 614, 615, 616–20, 622, 623, 626,
Beech v Ford (1848) 7 Hare 208; 68 ER 627, 642, 643
85 . . . 460 Betterbee v Davis (1811) 3 Camp 70; 170 ER
Beer v Bowden [1981] 1 WLR 522 . . . 64 1309 . . . 451
Beesly v Hallwood Estates Ltd [1961] Ch Bettini v Gye (1876) 1 QBD 183 . . . 143, 144
105 . . . 56, 78 Biggar v Rock Life Assurance Co Ltd [1902] 1 KB
Begbie v Phosphate Sewage Co Ltd (1876) 1 QBD 516 . . . 710
679 . . . 385 Biggin v Minton [1977] 1 WLR 701 . . . 585
Behn v Burness (1862) 1 B & S 877; 121 ER 939; Biggin & Co Ltd v Permanite Ltd [1951] 1 KB
(1863) 3 B & S 751; 122 ER 281 . . . 133, 141, 422 . . . 546, 560
147, 150
Bigos v Bousted [1951] 1 All ER 92 . . . 385, 425
Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1 . . . 443
Bilke v Havelock (1813) 3 Camp 374; 170 ER
Belgische Radio en Televisie v SVSABAM (Case 1415 . . . 105
127/73) [1974] 1 ECR 51 . . . 408
Binder v Alachouzos [1972] 2 QB 151 . . . 104
Bell v Browne (Peter) & Co [1990] 2 QB
495 . . . 605 Bingham v Bingham (1748) 1 Ves Sen 126; 27 ER
934 . . . 294
 table of cases xliii

Binstead v Buck (1776) 2 W Bl 1117; 96 ER Bondina v Rollaway Shower Blinds Ltd [1986] 1
660 . . . 696 WLR 517 . . . 714
Birch v Paramount Estates Ltd (1956) 167 EG Bone v Eckless (1869) 5 H & N 925; 157 ER
396 . . . 135, 136 1450 . . . 428
Birkdale District Electric Supply Co v Southport Bonsor v Musicians’ Union [1956] AC 104 . . . 232
Corp [1926] AC 355 . . . 225 Boomer v Muir 24 P 2d 570 (1933) . . . 595
Birkmyr v Darnell (1704) 1 Salk 27; 91 Boone v Eyre (1779) 1 H Bl 273; 126 ER
ER 27 . . . 80 160 . . . 140, 455
Birmingham & District Land Co v L & NW Ry Boot v Boot [1996] 2 FCR 713 . . . 605
(1888) 40 Ch D 268 . . . 117, 122, 468 Boots v Christopher (E) & Co [1952] 1 KB
Bishop v Bonham [1988] 1 WLR 742 . . . 180 89 . . . 706
Bishop & Baxter v Anglo-Eastern Trading Co & Borrowman, Phillips & Co v Free & Hollins
Industrial Ltd [1944] KB 12 . . . 62 (1878) 4 QBD 500 . . . 450
Bissett v Wilkinson [1927] AC 177 . . . 302 Borvigilant, The [2002] EWHC 1759 (Admlty);
Bize v Dickason (1786) 1 Term R 286; 99 ER [2002] 2 Lloyd’s Rep 631 . . . 691
1097 . . . 608 Borthwick (Thomas) (Glasgow) Ltd v Faure
Black v Smallwood (1966) 117 CLR 52 Fairclough Ltd [1968] 1 Lloyd’s Rep 16 . . . 474
(Australia) . . . 714 Boston Deep Sea Fishing & Ice Co v Ansell (1888)
Blackburn Bobbin Co Ltd v Allen (TW) & Sons 39 Ch D 339 . . . 511, 574, 702
Ltd [1918] 2 KB 467 . . . 491, 505 Boston Deep Sea Fishing & Ice Co Ltd v Farnham
Blackburn, Low & Co v Vigors (1886) 17 QBD [1957] 1 WLR 1051 . . . 690
553; (1887) 12 App Cas 531 . . . 334, 710 Bottomley v Forbes (1838) 5 Bing (NC) 121; 132
Blackpool & Fylde Aero Club Ltd v Blackpool BC ER 1051 . . . 158
[1990] 1 WLR 1195 . . . 36, 37, 227, 535 Boulton v Jones (1857) 2 H & N 564; 157 ER 232;
Blades v Free (1829) 9 B & C 167; 109 ER (1857) 6 WR 107 . . . 269, 709
63 . . . 719 Bourne v Colodense Ltd [1985] ICR 291 . . . 391
Blake v Concannon (1870) 4 Ir Rep CL 320 . . . 237 Bourne v Mason (1699) 1 Ventr 6; 86 ER 5 . . . 614
Blay v Pollard & Morris [1930] 1 KB 628 . . . 259 Boustany v Piggott (1993) 69 P & CR 298 . . . 373
Bligh v Brent (1836) 2 Y & C Ex 268; 160 ER Bouygues Offshore v Owner of the M/T Tigr
397 . . . 85 Ultisol Transport Contractors Ltd [1996] 2
Bliss v SE Thames RHA [1987] ICR 700 . . . 508, Lloyd’s Rep 153 . . . 316
536 Bovis International Inc v The Circle Limited
Blomley v Ryan (1956) 99 CLR 362 Partnership (1995) 49 Con LR 12 . . . 619
(Australia) . . . 247 Bowden, Re [1936] Ch 71 . . . 662
Bloom v American Swiss Watch Co 1915 AD 100 Bowerman v ABTA [1995] 145 NLJR 1815 . . . 34,
(South Africa) . . . 51 38
Bloomer v Spittle (1872) LR 13 Eq 427 . . . 266 Bowes v Shand (1877) 2 App Cas 455 . . . 145, 147,
Bloxsome v Williams (1824) 3 B & C 232; 107 ER 183
720 . . . 418, 419 Bowles v Round (1800) 5 Ves 508; 31 ER
Blue Haven Enterprises Ltd v Dulcie Ermine Tully 707 . . . 339
[2006] UKPC 17 . . . 127 Bowmakers Ltd v Barnet Instruments Ltd [1945]
Board v Hoey (1948) 65 TLR 43 . . . 80 KB 65 . . . 429, 430, 431
Boardman v Phipps [1967] 2 AC 46 . . . 599 Bowman v Secular Society Ltd [1917] AC
Boddington v Lawton [1994] ICR 478 . . . 83, 399 406 . . . 418
Bold v Brough, Nicholson & Hall Ltd [1964] 1 Boyo v Lambeth LBC [1994] ICR 727 . . . 508, 509
WLR 201 . . . 563 Brace v Calder [1895] 2 QB 253 . . . 555, 556
Bolt & Nut Co (Tipton) Ltd v Rowlands, Nicholls Bradburn v GW Ry (1874) LR 10 Ex 1 . . . 556
& Co Ltd [1964] 2 QB 10 . . . 447 Bradbury v Morgan (1862) 1 H & C 249; 158 ER
Bolton v Madden (1873) LR 9 QB 55 . . . 91, 99 877 . . . 60
Bolton v Mahadeva [1972] 1 WLR 1009 . . . 453, Bradford and Bingley plc v Rashid [2006] UKHL
455, 457, 596 37; [2006] 1 WLR 2066 . . . 607
Bolton Partners v Lambert (1888) 41 Ch D Bradford Third Equitable Benefit Building Society
295 . . . 689, 691 v Borders [1941] 2 All ER 205 . . . 320, 321, 342
xliv table of cases

Bradley v Eagle Star Insurance Co Ltd [1989] AC Bristol & West BS v Mothew [1998] 1 Ch 1 . . . 305,
957 . . . 640 324, 340, 701
Bradley Egg Farm Ltd v Clifford [1943] 2 All ER Britain v Rossiter (1882) 11 QBD 123 . . . 87
378 . . . 232 Britannia Building Society v Pugh [1997] 2 FLR
Bradley West Solicitors Nominee Co Ltd v Keenan 7 . . . 371
[1994] 2 NZLR 111 . . . 261 British Airways Board v Taylor [1976] 1 WLR
Bramhill v Edwards [2004] EWCA Civ 403; 13 . . . 71, 303
[2004] 2 Lloyd’s Rep 653 . . . 162, 163 British Bank for Foreign Trade Ltd v Novinex
Branca v Cobarro [1947] KB 854 . . . 69 [1949] 1 KB 623 . . . 63
Branchett v Beaney [1992] 3 All ER 910 . . . 536 British Bank for Foreign Trade Ltd v Russian
Brandt v Liverpool Brazil & River Plate Commercial & Industrial Bank (1921) 38 TLR
Navigation Co Ltd [1924] 1 KB 575 . . . 648 65 . . . 493
Brandt (HO) & Co Ltd v Morris (HN) & Co Ltd British Bank of the Middle East v Sun Life
[1917] 2 KB 784 . . . 713 Assurance Co of Canada (UK) Ltd [1983] 2
Brandt’s Sons & Co v Dunlop Rubber Co Ltd Lloyd’s Rep 9 . . . 692
[1905] AC 454 . . . 666, 667 British & Beningtons Ltd v NW Cachar Tea Co
Brasserie du Pêcheur v Germany (Case C–43/93) Ltd [1923] AC 48 . . . 464, 465, 511
[1996] ECR I–1029 . . . 214 British & Commonwealth Holdings plc v Quadrex
Braymist Ltd v Wise Finance Co Ltd [2002] Holdings Inc [1989] 1 QB 842 . . . 442, 443
EWCA Civ 127; [2002] Ch 273 . . . 690, 714 British Cash & Parcel Conveyors Ltd v Lamson
Bremer Handelsgesellschaft mbH v C Mackprang Stores Service Co Ltd [1908] 1 KB
Jr (No 2) [1979] 1 Lloyd’s Rep 221 . . . 483, 495 1006 . . . 391
Bremer Handelsgesellschaft mbH v Continental British Columbia etc Saw-Mill Co Ltd v Nettleship
Grain Co [1983] 1 Lloyd’s Rep 169 . . . 495 (1868) LR 3 CP 499 . . . 552, 554
Bremer Handelsgesellschaft mbH v Vanden British Crane Hire Corp Ltd v Ipswich Plant Hire
Avenne-Izegem PVBA [1977] 1 Lloyd’s Rep Ltd [1975] QB 303 . . . 177
133; [1978] 2 Lloyd’s Rep 109 . . . 119, 148, 472, British Electrical & Associated Industries
483, 495 (Cardiff) Ltd v Patley Pressings Ltd [1953] 1
Bremer Handelsgesellschaft mbH v Westzucker WLR 280 . . . 62
GmbH (No 3) [1989] 1 Lloyd’s Rep 198 . . . 483 British Energy Power & Energy Trading Ltd v
Bremer Vulkan v South India Shipping Co [1981] Credit Suisse [2007] EWHC 1428 (Comm);
AC 909 . . . 518 [2007] 2 Lloyd’s Rep 427 . . . 672
Brennan v Bolt Burdon [2004] EWCA Civ 1017; British Fermentation Products Ltd v Compare
[2005] QB 303 . . . 277, 305 Reavell Ltd (1999) 66 Con LR 1 . . . 199
Brewer Street Investments Ltd v Barclays Woollen British Homophone Ltd v Kunz (1932) 152 LT
Co Ltd [1954] 1 QB 428 . . . 89, 125 589 . . . 277
Bridge v Campbell Discount Co Ltd [1962] AC British Motor Trade Association v Salvadori
600 . . . 570 [1949] Ch 556 . . . 656
Bridge v Deacons [1984] 1 AC 705 . . . 400, 405 British Movietonews Ltd v London & District
Cinemas Ltd [1951] 1 KB 190; [1952] AC
Bridgeman v Green (1757) Wilmot 58; 97 ER 166 . . . 486
22 . . . 369
British Nylon Spinners Ltd v ICI Ltd [1953] Ch
Bridger v Savage (1884) 15 QBD 363 . . . 428 37 . . . 387
Briess v Woolley [1954] AC 333 . . . 321 British Road Services v Arthur Crutchley Ltd
Brigden v American Express Bank Ltd [2000] [1968] 1 All ER 811 . . . 41
IRLR 94 . . . 200, 201 British Russian Gazette & Trade Outlook Ltd
Briggs v Oates [1991] 1 All ER 407 . . . 403 v Associated Newspapers Ltd [1933] 2 KB
Brikom Investments Ltd v Carr [1979] QB 616 . . . 461
467 . . . 101, 121, 123 British Steel Corporation v Cleveland Bridge &
Brine & Davies’ Contract, Re [1935] Ch 388 . . . 339 Engineering Co Ltd [1984] 1 All ER 504 . . .
Brinkibon Ltd v Stahag Stahl und 64, 68
Stahlwarenhandelsgesellschaft mbH [1983] 2 British Telecommunications plc v Sun Life
AC 34 . . . 46, 47, 48, 49, 57 Assurance Society plc [1996] Ch 69 . . . 445
Bristol & West BS v Henning [1985] 1 WLR British Telecommunications plc v Ticehurst
778 . . . 312 [1992] ICR 383 . . . 453, 596
 table of cases xlv

British Transport Commission v Gourley [1956] Buckley v Tutty (1971) 46 ALJR 23

AC 185 . . . 563, 564 (Australia) . . . 407
British Waggon Co Ltd v Lea & Co (1880) 5 QBD Buckpitt v Oates [1968] 1 All ER 1145 . . . 70, 72
149 . . . 448 Budgett & Co v Binnington & Co [1891] 1 QB
British Waterways Board v Norman (1993) 26 35 . . . 481
HLR 232 . . . 392 Bukton v Tounesende, The Humber Ferry Case
British Westinghouse Electric Co Ltd v (1348) . . . 13
Underground Electric Rys Co of London Ltd Bulk Oil v Sun International [1984] 1 Lloyd’s Rep
[1912] AC 673 . . . 555, 556 531 . . . 551
Britton v Turner 6 NH 481; 26 Am Dec 713 Bull v Pitney-Bowes Ltd [1967] 1 WLR 273 . . . 406
(1834) (USA) . . . 457 Bullivant (Roger) Ltd v Ellis [1987] ICR 464 . . . 403
Britvic Soft Drinks Ltd v Messer UK Ltd [2002] 1 Bunge Corp v Tradax Export SA [1981] 1 WLR
Lloyd’s Rep 20; [2002] EWCA Civ 548; [2002] 711 . . . 144, 147, 148, 149, 444, 540
2 All ER (Comm) 321; [2002] 2 Lloyd’s Rep
368 . . . 162, 163, 204, 566 Bunge GmbH v Landbouwbelang GA [1980] 1
Lloyd’s Rep 458 . . . 149
Brocklehurst, Re [1978] Ch 14 . . . 367
Burgess v Cox [1951] Ch 383 . . . 470
Brogden v Metropolitan Ry Co (1877) 2 App Cas
666 . . . 40, 41, 43 Burke (Raymond) Motors Ltd v The Mersey
Docks & Harbour Co [1986] 1 Lloyd’s Rep
Brokaw v Seatrain UK Ltd [1971] 2 QB 476 . . . 387 155 . . . 648
Bromley v Smith [1909] 2 KB 235 . . . 404 Burnard v Haggis (1863) 14 CBNS 45; 143 ER
Bronester v Priddle [1961] 1 WLR 1294 . . . 152 360; (1863) 32 LJ CP 189 . . . 241, 242
Brook v Hook (1871) LR 6 Ex 89 . . . 690 Burnett v Westminster Bank [1966] 1 QB
Broom v Davis (1794) 7 East 480n; 103 ER 742 . . . 174, 176
186 . . . 455 Burrow v Scammell (1881) 19 Ch D 175 . . . 266
Broome v Cassell & Co Ltd [1972] AC 1027 . . . 534 Burrows v Rhodes [1899] 1 QB 816 . . . 421
Browlie v Campbell (1880) 5 App Cas 925 . . . 342 Burton v FX Music Ltd [1999] EMLR 826 . . . 639
Brown v Gould [1972] Ch 53 . . . 63 Bush v Canfield 2 Conn 485 (1818) (USA) . . . 587
Brown v KMR Services Ltd [1995] 4 All ER Bushwell Properties Ltd v Vortex Properties Ltd
598 . . . 550 [1976] 1 WLR 591 . . . 61
Brown v Knowsley BC [1986] IRLR 102 . . . 143, Business Appliance Specialists Ltd v Nationwide
470, 471 Credit Corp Ltd [1988] RTR 332 . . . 162
Brown v London Corp (1862) 13 CBNS 828; 143 Business Computers Ltd v Anglo-African Leasing
ER 327 . . . 483 Ltd [1977] 1 WLR 578 . . . 670
Brown v Raphael [1958] Ch 636 . . . 303 Business Seating (Renovations) Ltd v Broad
Brown v Royal Insurance Co (1859) 1 E & E 853; [1989] ICR 729 . . . 435
120 ER 1131 . . . 449 Bute (Marquis of) v Thompson (1844) 13 M &W
Brown & Gracie Ltd v FW Green & Co (Pty) Ltd 487; 153 ER 202 . . . 289
[1960] 1 Lloyd’s Rep 289 . . . 41 Butler Machine Tool Co Ltd v Ex-cell-o
Brown (BS) & Son Ltd v Craiks Ltd [1970] 1 WLR Corporation (England) Ltd [1979] 1 WLR
752 . . . 162 401 . . . 41, 42
Brown Jenkinson & Co Ltd v Percy Dalton Butlin’s Settlement, Re [1976] Ch 251 . . . 264
(London) Ltd [1957] 2 QB 621 . . . 321, 385, 386 Butterworth v Kingsway Motors [1954] 1 WLR
Browning v Morris (1778) 2 Cowp 790; 98 ER 1286 . . . 589
1364 . . . 426 Button v Thompson (1869) LR 4 CP 330 . . . 453
Bruce v Warwick (1815) 6 Taunt 118; 128 ER Butwick v Grant [1924] 2 KB 483 . . . 712
978 . . . 240 Buxton v Rust (1872) LR 7 Ex 279 . . . 83
Bruner v Moore [1904] 1 Ch 305 . . . 46, 467 Byrne & Co v Leon Van Tienhoven & Co (1880) 5
Brunsden v Humphrey (1884) 14 QBD 141 . . . 528 CPD 344 . . . 57
Bryen and Langley Ltd v Boston [2005] EWCA
Civ 973 . . . 208 C (A Minor) v Hackney LBC [1996] 1 WLR
Buckinghamshire (Earl of) v Drury (1760) 2 Eden 789 . . . 529
60; 28 ER 818 . . . 243 C & P Haulage v Middleton [1983] 1 WLR
Buckle v Knoop (1867) LR 2 Exch 125 . . . 158 1461 . . . 542
xlvi table of cases

CB & Europay v Commission (Cases T–39 and Carlisle & Cumberland Banking Co v Bragg
T–40/92) [1994] ECR II–49 . . . 409 [1911] 1 KB 489 . . . 261
CCC (London) Films Ltd v Impact Quadrant Carlyle Finance Ltd v Pallas Industrial Finance
Films Ltd [1985] QB 16 . . . 542 Ltd [1999] All ER (Comm) 659 . . . 52
CIBC Mortgages Ltd v Pitt [1994] 1 AC Carmichael v Carmichael’s Executrix 1920 SC
200 . . . 361, 371 (HL) 195 . . . 633
CTI Group Inc v Transclear SA, The Mary Nour Carne v Debono [1988] 1 WLR 1107 . . . 445
[2008] EWCA Civ 856; [2008] 2 Lloyd’s Rep Carnegie v Waugh (1823) 1 LJ (OS) 89 . . . 614
526 . . . 491, 505 Carnell v Harrison [1916] 1 Ch 328 . . . 238
CTN Cash & Carry Ltd v Gallaher Ltd [1994] 4 Carney v Herbert [1985] 1 AC 301 . . . 436
All ER 714 . . . 355, 356, 374
Carr-Glyn v Frearsons [1997] 2 All ER 614 . . . 644
Calebar Properties Ltd v Sticher [1984] 1 WLR
287 . . . 445, 536, 618 Carter v Boehm (1766) 3 Burr 1905; 97 ER
1162 . . . 334, 347
Caledonia Ltd v Orbit Valve Co Europe [1994] 1
WLR 221; [1994] 1 WLR 1515 . . . 180, 181 Carter (J) (Fine Worsteds) Ltd v Hanson Haulage
(Leeds) Ltd [1965] 2 QB 495 . . . 180
Callisher v Bischoffsheim (1870) LR 5 QB
449 . . . 104, 355 Cartwright v Cartwright (1853) 3 De GM & G
982; 43 ER 385 . . . 394
Cambro Contractors Ltd v John Kennelly Sales
Ltd, The Times, 14 Apr 1994 . . . 262 Cartwright v Hoogstoel (1911) 105 LT 628 . . . 58
Camdex International Ltd v Bank of Zambia Casey’s Patents, Re, Stewart v Casey [1892] 1 Ch
[1996] 3 All ER 431; [1998] QB 104 . . . 96
22 . . . 391, 673 Caton v Caton (1865) LR 1 Ch App 137; aff ’d
Camellia Tanker Ltd v International (1867) LR 2 HL 167 . . . 87
Transport Workers Federation [1976] Cator v Croydon Canal Co (1841) 4 Y & C Ex
ICR 274 . . . 355 593 . . . 662
Cammell Laird & Co Ltd v Manganese Bronze & Catt v Tourle (1869) LR 4 Ch App 654 . . . 581
Brass Co Ltd [1934] AC 402 . . . 164 Cattley v Pollard [2006] EWHC 3130 (Ch); [2007]
Campanari v Woodburn (1854) 15 CB 400; 139 Ch 353 . . . 608
ER 480 . . . 718 Cave v Robinson Jarvis & Rolf [2002] UKHL 18;
Campbell Mostyn (Provisions) Ltd v Barnett [2003] 1 AC 384 . . . 606, 607
Trading Co [1954] 1 Lloyd’s Rep 65 . . . 558 Cebora SNC v SIP (International Products) Ltd
Canada Steamship Lines Ltd v The King [1952] [1976] 1 Lloyd’s Rep 271 . . . 679
AC 292 . . . 180, 181 Cehave NV v Bremer HandelsgesellschaftmbH
Cannan v Bryce (1819) 3 B & Ald 179; 106 ER [1976] QB 44 . . . 145, 147, 161, 520, 521
628 . . . 432 Cellulose Acetate Silk Co Ltd v Widnes Foundry
Cannon v Hartley [1949] Ch 213 . . . 100 (1925) Ltd [1933] AC 20 . . . 566, 570
Cantiare San Roco SA v Clyde Shipbuilding & Celtic King, The [1894] P 175 . . . 655, 656
Engineering Co Ltd [1924] AC 226 . . . 499 Cementhandelaren v Commission (Case 8/72)
Caparo Industries plc v Dickman [1990] 2 AC [1972] ECR 977 . . . 409
605 . . . 644 Central London Property Trust Ltd v High Trees
Capital & Counties Bank Ltd v Rhodes [1903] 1 House Ltd [1947] KB 130 . . . 117, 118–23, 126,
Ch 631 . . . 528 355
Captain Gregos, The, see Comp Portorafti Comm Central Ry Co of Venezuela v Kisch (1867) LR 2
SA v Ultramar Panama Inc, The Captain HL 99 . . . 306
Gregos (No 2) Centrovincial Estates plc v Merchant Investors
Car & Universal Finance Co Ltd v Caldwell [1961] Assurance Co Ltd [1983] Com LR 158 . . . 32,
1 QB 525 . . . 22, 311, 312, 316 253, 256
Carapanayoti & Co Ltd v ET Green Ltd [1959] 1 Chai Sau Yin v Liew Kwee Sam [1962] AC
QB 131 . . . 481 304 . . . 380, 421
Care SS Corp v Latin American SS Corp [1983] Champanhac & Co Ltd v Waller & Co Ltd [1948]
QB 1005 . . . 665 2 All ER 724 . . . 187
Carlill v Carbolic Smoke Ball Co Ltd [1892] 2 QB Chancery Lane Developments Ltd v Wade’s
484; [1893] 1 QB 256 . . . 34, 38, 44, 45, 46, 71, Department Stores Ltd (1986) 53 P & CR
95, 125 306 . . . 443
Carlish v Salt [1906] 1 Ch 335 . . . 339 Chandler v Webster [1904] 1 KB 493 . . . 477, 499
 table of cases xlvii

Chandler Bros Ltd v Boswell [1936] 3 All ER Chester Grosvenor Hotel Co Ltd v Alfred
179 . . . 491, 595 McAlpine Management Ltd (1991) 56 Build LR
Chaney v Maclow [1929] 1 Ch 461 . . . 697 115 . . . 199
Channel Island Ferries Ltd v Cenargo Navigation Chesterfield (Earl of) v Janssen (1751) 2 Ves Sen
Ltd [1994] 2 Lloyd’s Rep 160 . . . 541 125; 28 ER 82 . . . 373
Channel Island Ferries Ltd v Sealink UK Ltd Chesterman’s Trusts, Re [1923] 2 Ch 466 . . . 493
[1988] 1 Lloyd’s Rep 323 . . . 474 Chevalier Roze, The [1983] 2 Lloyd’s Rep
Chanter v Hopkins (1838) 4 M & W 399 . . . 183 438 . . . 621
Chapelton v Barry UDC [1940] 1 KB 532 . . . Chief Constable of North Wales Police v Evans
35, 175 [1982] 1 WLR 1155 . . . 578
Chaplin v Hicks [1911] 2 KB 786 . . . 535 Chikuma, The, see A/S Awilco of Oslo v
Chaplin v Leslie Frewin (Publishers) Ltd [1966] FulviaSpA di Navigazione of Cagliari
Ch 71 . . . 236, 237, 245 Chillingworth v Esche [1924] 1 Ch 97 . . . 68, 69
Chapman v Smith [1907] 2 Ch 97 . . . 713 China National Foreign Trade Transportation
Chapman (JA) & Co Ltd v Kadirga Denizcilik Ve Corp v Evologia Shipping Co SA of Panama
Ticaret [1998] Lloyd’s Rep IR 377 . . . 158 [1979] 1 WLR 1018 . . . 470, 509
Chappell v Times Newspapers Ltd [1975] 1 WLR China-Pacific SA v Food Corp of India [1982] AC
482 . . . 578 939 . . . 695, 696
Chappell & Co Ltd v Nestlé Co Ltd [1960] AC China Shipbuilding Corp v Nippon Yusen
87 . . . 92, 93, 99, 100 Kabukishi Kaisha [2000] 1 Lloyd’s Rep
367 . . . 186
Chaproniere v Mason (1905) 21 TLR 633 . . . 163
Chinery v Viall (1860) 5 H & H 288; 157 ER
Charge Card Services, Re [1989] Ch 497 . . . 35, 1192 . . . 574
447
Chippenham Golf Club (Trustees of the) v North
Chartbrook Ltd v Persimmon Homes Ltd [2009] Wiltshire DC (1991) 64 P & CR 527 . . . 85
UKHL 38; [2009] 1 AC 1101 . . . 167, 258, 262,
263 Choko Star, The [1990] 1 Lloyd’s Rep 516 . . . 695
Charter v Sullivan [1957] 2 QB 117 . . . 559 Christie Owen & Davies Ltd v Rapacioli [1974]
QB 781 . . . 705
Chartered Bank v British India Steam Navigation
Co [1909] AC 369 . . . 189 Churchill & Sim v Goddard [1937] 1 KB 92 . . . 681
Charterhouse Credit Co Ltd v Tolly [1963] 2 QB Churchward v The Queen (1865) LR 1 QB
638 . . . 187 173 . . . 220
Chase Manhattan Equities Ltd v Goodman [1991] Chwee Kin Keong v Digilandmall.com Pte Ltd
BCLC 897 . . . 384 [2005] 1 SLR 502 . . . 257, 267, 296
Chater v Mortgage Agency Services Number Two Cie Commerciale Sucres et Denrées v Czarnikow
Ltd [2003] EWCA Civ 490; [2004] 1 P & CR (C) Ltd [1990] 1 WLR 1337 . . . 147, 149, 442,
4 . . . 371 444
Chatterton v Maclean [1951] 1 All ER Cine Bes Filmcilik ve Yapimcilik v United
561 . . . 525 International Pictures [2003] EWCA Civ
1669 . . . 568
Chaudhry v Prabhakar [1989] 1 WLR
29 . . . 702 Circle Freight Int Ltd v Medeast Gulf Exports Ltd
[1988] 2 Lloyd’s Rep 427 . . . 177
Cheall v Association of Professional Executive
Clerical & Computer Staff [1983] 2 AC Circuit Systems Ltd v Zuken-Redac (UK) Ltd
180 . . . 471 [1997] 1 WLR 721 . . . 673
Cheese v Thomas [1994] 1 WLR 129 . . . 312, 317, Citibank NF v Brown Shipley & Co Ltd [1991] 2
364, 367 All ER 690 . . . 272, 274
Chelmsford Auctions Ltd v Poole [1973] QB Citizen’s Bank of Louisiana v First National Bank
542 . . . 697 of New Orleans (1873) LR 6 HL 352 . . . 118
Chemco Leasing SpA v Rediffusion Ltd [1987] 1 City & Westminster Properties (1934) Ltd v Mudd
FTLR 201 . . . 60, 67 [1959] Ch 129 . . . 136
Cherry v Anderson (1876) IR 10 CL 204 . . . 697 City of New Orleans v Firemen’s Charitable
Association 9 So 486 (1891) (USA) . . . 599
Cheshire Banking Co, Re (Duff ’s Executor’s Case)
(1886) 32 Ch D 301 . . . 61 Clarion Ltd v National Provident Institution
[2000] 1 WLR 1888 . . . 153, 267, 288, 332
Chess (Oscar) Ltd v Williams [1957] 1 WLR
370 . . . 73, 135, 287 Clark v Woor [1965] 1 WLR 650 . . . 607
xlviii table of cases

Clark Boyce v Mouat [1992] 2 NZLR 559; [1994] Coastal International Trading Ltd v Maroil AG
1 AC 428 . . . 562, 701, 703 [1988] 1 Lloyd’s Rep 92 . . . 557, 560
Clarke v Cobley (1789) 2 Cox 173; 30 ER Cobbe v Yeoman’s Row Management Ltd [2008]
80 . . . 244 UKHL 55, [2008] 1 WLR 1752 . . . 69, 88, 89,
Clarke v Dickson (1858) EB & E 148; 120 ER 127, 128
463 . . . 316 Cobbett v Brock (1855) 20 Beav 524 . . . 371
Clarke v Earl of Dunraven, The Satanita [1897] Codelfa Construction Pty Ltd v State Rail
AC 59 . . . 30, 31, 32, 70 Authority of New South Wales (1981–82)
Clarke v Newland [1991] 1 All ER 397 . . . 400 149 CLR 337 (Australia) . . . 151, 152
Clarke v Price (1819) 2 Wils Ch 157; 37 ER Cohen v Roche [1927] 1 KB 169 . . . 576
270 . . . 656 Colchester BC v Smith [1992] Ch 421 . . . 103
Clarke v West Ham Corp [1909] 2 KB 858 . . . 6 Cole v Gibson (1750) 1 Ves Sen 503; 27 ER
Clarkson Booker Ltd v Andjel [1964] 2 QB 1169 . . . 394
775 . . . 709 Coleman Engineering v North American Airlines
Clay v Yates (1856) 1 H& N 73; 156 ER 420 P 2d 713 (1966) (USA) . . . 503
1123 . . . 385, 419 Coles v Trecothick (1804) 9 Ves Jun 234; 32 ER
Clay’s Policy of Assurance [1937] 2 All ER 592 . . . 100
548 . . . 638 Collen v Wright (1857) 8 E & B 647; 120 ER
Clayton & Waller Ltd v Oliver [1930] AC 241 . . . 716
209 . . . 539 Colley v Overseas Exporters [1921] 3 KB
Clea Shipping Corp v Bulk Oil International 302 . . . 519
Ltd, The Alaskan Trader [1984] 1 All ER Collier v Wright (Holdings) Ltd [2007] EWCA
129 . . . 575 Civ 1329; [2008] 1 WLR 643 . . . 110, 112, 114,
Cleaver v Mutual Reserve Fund Life Association 118, 119, 123, 465
[1892] 1 QB 147 . . . 422 Collin v Duke of Westminster [1985] 1 QB
Clef Aquitaine SARL v Laporte Ltd [2001] QB 581 . . . 462
488 . . . 323, 606 Collins, Re [1925] Ch 556 . . . 684
Clegg v Olle Andersson [2003] EWCA Civ 320; Collins v Associated Greyhound Racecourses Ltd
[2003] 1 All ER (Comm) 721 . . . 150, 162 [1930] 1 Ch 1 . . . 709
Clements v London & North Western Railway Collins v Blantern (1767) 2 Wilson 341; 95 ER
Company [1894] 2 QB 482 . . . 234 847 . . . 423
Cleveland Petroleum Co Ltd v Dartstone Ltd Collins v Godefroy (1831) 1 B & Ad 950; 109 ER
[1969] 1 WLR 116 . . . 412 1040 . . . 105, 106
Clifford (Frank W) Ltd v Garth [1956] 1 WLR Collins v Howell-Jones (1980) 259 EG
570 . . . 437 331 . . . 331
Clifford (Lord) v Watts (1870) LR 5 CP 577 . . . 102, Colonial Bank v European Grain & Shipping Ltd,
289 The Dominique [1989] AC 1056 . . . 453
Clippens Oil Co Ltd v Edinburgh & District Coloniale Import-Export v Loumidis & Sons
Water Trustees [1907] AC 291 . . . 556 [1978] 2 Lloyd’s Rep 560 . . . 143
Clipsham v Vertue (1843) 5 QB 265 . . . 140 Combe v Combe [1951] 2 KB 215 . . . 92, 121,
Clore v Theatrical Properties Ltd [1936] 3 All ER 123, 124
483 . . . 656 Commercial Bank of Australia Ltd v Amadio
Clough v London & NW Ry (1871) LR 7 Ex (1983) 151 CLR 447 (Australia) . . . 374
26 . . . 311, 315 Commercial Banking Co of Sydney Ltd v
Clubb v Hutson (1865) 18 CBNS 414; 144 ER RH Brown & Co [1972] 2 Lloyd’s Rep 360
506 . . . 389 (Australia) . . . 305
Clydebank Engineering & Shipbuilding Co Ltd v Commercial Credit Services v Knowles [1978] 6
Don Jose Ramos Yzquierdo y Castaneda [1905] Current Law 64 . . . 77
AC 6 . . . 567 Commercial Plastics Ltd v Vincent [1965] 1 QB
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd 623 . . . 403
(1991) 24 NSWLR 1 (Australia) . . . 66 Commission v Austria (C-212/02) . . . 228
Coastal (Bermuda) Petroleum Ltd v VTT Commission for New Towns v Cooper
Vulcab Petroleum (No 2) [1994] 2 Lloyd’s Rep (Great Britain) Ltd [1995] Ch 259 . . . 85,
629 . . . 555 258, 265
 table of cases xlix

Commissioners for Her Majesty’s Revenue and Cooke v Routledge [1998] NILR 174 . . . 386
Customs v Benchdollar Ltd [2009] EWHC Coomber, Re [1911] 1 Ch 723 . . . 363
1310 (Ch); [2010] 1 All ER 174 . . . 128 Coope v Rideout [1921] 1 Ch 291 . . . 68
Commissioners of Crown Lands v Page [1960] 2 Cooper v National Provincial Bank [1946] KB
QB 274 . . . 221, 222 1 . . . 338
Commissioners of Customs & Excise v Diners Cooper v Phibbs (1867) LR 2 HL 149 . . . 286, 290,
Club Ltd [1988] 2 All ER 1016; aff ’d [1989] 1 291, 294, 304
WLR 1196 . . . 447, 676
Co-operative Bank v Tipper [1996] 4 All ER
Commonwealth of Australia v Amann Aviation 366 . . . 529
Pty Ltd (1991) 66 ALJR 123 . . . 542
Co-operative Insurance Society Ltd v Argyll
Commonwealth of Australia v Verwayen (1990) Stores (Holdings) Ltd [1996] 3 WLR 27; [1998]
170 CLR 394 (Australia) . . . 126, 468 1 AC 1 . . . 534, 575, 576, 579, 580
Comp Portorafti Comm SA v Ultramar Panama Cope v Rowlands (1836) 2 M & W 149; 150 ER
Inc [1990] 1 Lloyd’s Rep 310 . . . 186 707 . . . 382, 383
Comp Portorafti Comm SA v Ultramar Panama Coral Leisure Group Ltd v Barnett [1981] ICR
Inc, The Captain Gregos (No 2) [1990] 2 503 . . . 393, 419
Lloyd’s Rep 395 . . . 658
Corby v Morrison [1980] IRLR 218 . . . 385, 418
Compania Colombiana de Seguros v Pacific
Steam Navigation Co [1965] 1 QB 101 . . . 673 Corin v Patton (1990) 169 CLR 540
(Australia) . . . 669
Compania Naviera General SA v Kerametal Ltd
[1983] 1 Lloyd’s Rep 372 . . . 498, 504 Cork & Bandon Ry v Cazenove (1847) 10 QB
935 . . . 237
Compania Naviera Maropan S/A v Bowaters
Lloyd Pulp & Paper Mills Ltd [1955] 2 QB Cornelius v Banque Franco-Serbe [1942] 1 KB
68 . . . 543 29 . . . 483
Conlon v Simms [2006] EWHC 401 (Ch); [2006] Cornish v Midland Bank plc [1985] 3 All ER
2 All ER 1024; aff ’d [2006] EWCA Civ1749; 513 . . . 324
[2008] 1 WLR 484 . . . 337, 342 Cornwall v Henson [1900] 2 Ch 298 . . . 523
Conquer v Boot [1928] 2 KB 336 . . . 528 Cort v Ambergate etc Railway Company (1851)
Con-Stan Industries of Australia Pty Ltd v 17 QB 127 . . . 516
Norwich Insurance (Australia) Ltd [1981] Cory v Thames Ironworks & SS Co (1868) LR 3
2 NSWLR 879; (1985–86) 160 CLR 226 QB 181 . . . 552
(Australia) . . . 157 Cory (William) & Son Ltd v IRC [1965] AC
Constantine v Imperial Hotels Ltd [1944] AC 1088 . . . 142
693 . . . 5 Cory (William) & Son Ltd v London Corp [1951]
Constantine (Joseph) SS Line Ltd v Imperial 1 KB 8; [1951] 2 KB 476 . . . 225, 490
Smelting Corporation Ltd [1942] AC Cosgrove v Horsfall (1945) 62 TLR 140 . . . 646
154 . . . 277, 473, 476, 484, 486, 490, 495, 496, Cottee v Douglas Seaton (Used Cars) Ltd [1972] 1
498 WLR 1408 . . . 301
Consten & Grundig v Commission of the Couchman v Hill [1947] KB 554 . . . 136, 191
European Communities (Cases 56/64 and
Couldery v Bartrum (1881) 19 Ch D 394 . . . 113
58/64) [1966] ECR 299 . . . 414
Coulls v Bagot’s Executor & Trustee Co Ltd (1967)
Continental Grain Export Corp v STM Grain Ltd
119 CLR 460; [1967] ALR 385 (Australia) . . . 99,
[1979] 2 Lloyd’s Rep 460 . . . 470
615, 620
Conway v Wade [1909] AC 506 . . . 355
Coulter v Chief of Dorset Police [2003] EWHC
Cooden Engineering Co Ltd v Stanford [1953] 1 3391 (Ch); [2004] 1 WLR 1425 . . . 667
QB 86 . . . 570
Coulthart v Clementson (1870) 5 QBD 42 . . . 60,
Cook v Deeks [1916] AC 554 . . . 702 61
Cook v Lister (1863) 13 CBNS 543; 143 ER Council of Civil Service Unions v Minister for the
215 . . . 115 Civil Service [1985] 1 AC 374 . . . 223, 226
Cook v Swinfen [1967] 1 WLR 457 . . . 537 Countrywide Communications Ltd v ICL
Cook v Wright (1861) 1 B & S 559; 121 ER Pathway [2000] CLC 324 . . . 64
822 . . . 103 County Ltd v Girozentrale Securities [1996] 3 All
Cooke v Clayworth (1811) 18 Ves 12; 34 ER ER 834 . . . 561
222 . . . 247 Coupland v Arabian Gulf Petroleum Co [1983] 1
Cooke v Eshelby (1887) 12 App Cas 271 . . . 709 WLR 1136 . . . 24
l table of cases

Courage Ltd v Crehan (Case C–453/99) [2002] Crossley v Faithful & Gould Holdings Ltd [2004]
QB 507 . . . 409, 416 EWCA Civ 293; [2004] 4 All ER 447 . . . 155
Court Line Ltd v Akt Gøtaverken [1984] 1 Lloyd’s Crouch v Crédit Foncier of England (1873) LR 8
Rep 283 . . . 664 QB 374 . . . 669
Courtney & Fairbairn Ltd v Tolaini Bros (Hotels) Cugden Rutile (No 2) Ltd v Chalk [1975] AC
Ltd [1975] 1 WLR 297 . . . 65 520 . . . 220
Coutts & Co v Browne-Lecky [1947] KB Cullinane v British ‘Rema’ Manufacturing Co Ltd
104 . . . 246 [1954] 1 QB 292 . . . 542, 561
Couturier v Hastie (1852) 8 Exch 40; 155 ER 1250; Cunard SS Co Ltd v Buerger [1927] AC 1 . . . 188
(1853) 9 Exch 102; 156 ER 43; (1856) 5 HLC Cundy v Lindsay (1878) 3 App Cas 459 . . . 22, 250,
673; 10 ER 1065 . . . 22, 284, 285, 695, 705 270, 272, 276, 290, 291
Coventry City Council v J Hepworth & Sons Ltd Cunliffe-Owen v Teather & Greenwood [1967] 1
(1982) 46 P & CR 170 . . . 443 WLR 1421 . . . 157, 158
Cowan v Milbourn (1867) LR 2 Ex 230 . . . 418 Cunningham v Fonblanque (1833) 6 C & P 44;
Cowan v O’Connor (1888) 20 QBD 640 . . . 47 172 ER 1139 . . . 158
Coward v Motor Insurers’ Bureau [1963] 1 QB Cunningham v Harrison [1973] QB 454 . . . 617
259 . . . 70, 129 Curlewis v Birkbeck (1863) 3 F & F 894; 176 ER
Cowern v Nield [1912] 2 KB 419 . . . 236, 242 406 . . . 712
Cox v Bankside Members Agency Ltd [1995] 2 Currie v Misa (1875) LR 10 Ex 153 . . . 91, 92, 668
Lloyd’s Rep 437 . . . 640 Curtis v Chemical Cleaning & Dyeing Co [1951]
Crabb v Arun DC [1976] Ch 179 . . . 117, 124, 126, 1 KB 805 . . . 173, 191
127, 128 Cutler v McPhail [1962] 2 QB 292 . . . 460
Craddock Bros v Hunt [1923] 2 Ch 136 . . . 262, Cutsforth v Mansfield Inns Ltd [1986] 1 WLR
263 558 . . . 408, 414
Craig, Re [1971] Ch 95 . . . 364, 366 Cutter v Powell (1795) 6 Term R 320 . . . 452, 453,
Crane v Hegemann-Harris Co Inc [1939] 1 All ER 503, 520
662; [1939] 4 All ER 68 . . . 263 Customs and Excise Commissioners v Barclays
Crédit Lyonnais v PT Barnard & Associates Ltd Bank plc [2006] UKHL 28; [2007] 1 AC
[1976] 1 Lloyd’s Rep 557 . . . 259 181 . . . 24
Crédit Lyonnais Bank Nederland NV v Burch Czarnikow v Roth Schmidt [1922] 2 KB
[1997] 1 All ER 144 . . . 364, 366, 370–72, 374 478 . . . 395
Crédit Suisse v Allerdale BC [1997] QB 306 . . . 224
Crédit Suisse v Waltham Forest LBC [1997] QB D & C Builders Ltd v Rees [1966] 2 QB 617 . . . 112,
362 . . . 224 120, 355
Crédit Suisse Asset Management Ltd v Armstrong D & F Estates v Church Commissioners for
[1996] ICR 882 . . . 584 England [1989] AC 177 . . . 644
Crediton Gas Co v Crediton UDC [1928] 1 Ch D’Silva v Lister House Development Ltd [1971]
447 . . . 472 Ch 17 . . . 78
Crehan v Courage (No 1) [1999] Eur L Rep DSND Subsea Ltd v Petroleum Geo Services ASA
834 . . . 436 [2000] BLR 530 . . . 355
Crehan v Inntrepreneur Pub Co (CPC) [2006] Daewoo Heavy Industries Ltd v Klipriver
UKHL 38; [2007] 1 AC 333 . . . 408 Shipping Ltd, The Kapitan Petko Voivoda
Cremdean Properties Ltd v Nash (1977) 244 EG [2003] 2 Lloyd’s Rep 1 . . . 188
547 . . . 330, 331 Dagenham (Thames) Dock Co, ex parte Hulse, Re
Crescendo Management Pty Ltd v Westpac (1873) LR 8 Ch App 1022 . . . 593
Banking Corp (1998) 19 NSWLR 40 Dahl v Nelson, Donkin & Co (1881) 6 App Cas
(Australia) . . . 354 38 . . . 485
Cresswell v Potter [1978] 1 WLR 255n . . . 373, 374 Dakin v Oxley (1864) 15 CB(NS) 646; 143 ER
Cricklewood Property & Investment Trust Ltd 938 . . . 453
v Leighton’s Investment Trust [1945] AC Dakin (H) & Co Ltd v Lee [1916] 1 KB 566 . . . 455
221 . . . 483, 496, 497 Dale v Copping (1610) 1 Bulst 39 . . . 236
Crippen, Re the Estate of [1911] P 108 . . . 422 Dalkia Utilities Services plc v Celtech
Crofter Hand Woven Harris Tweed Co Ltd v International Ltd [2006] EWHC 63 (Comm);
Veitch [1942] AC 435 . . . 358 [2006] 1 Lloyd’s Rep 599 . . . 166, 523
 table of cases li

Damon Comp Nav SA v Hapag-Lloyd De Geus v Bosch (Case 13/61) [1962] ECR
International SA [1985] 1 WLR 435 . . . 69, 574 45 . . . 408
Danziger v Thompson [1944] KB 654 . . . 708 De Hoghton v Money (1866) LR 2 Ch App
Daraydon Holdings Ltd v Solland International 164 . . . 673
Ltd [2004] EWHC 622 (Ch); [2005] Ch De la Bere v Pearson [1908] 1 KB 280 . . . 92, 100
119 . . . 703 De Lasala v De Lasala [1980] AC 546 . . . 396
Darlington BC v Wiltshier Northern Ltd [1995] 1 De Lassalle v Guildford [1901] 2 KB 215 . . . 136
WLR 68 . . . 619, 622, 623, 638, 651, 671 de Marney, Re [1943] Ch 126 . . . 684
Darlington Futures Ltd v Delco Australia Pty Ltd De Mattos v Gibson (1858) 4 De G & J 276; 45 ER
(1986) 161 CLR 500 (Australia) . . . 183 108; (1859) 4 De G & J 288 . . . 653, 654–56
Daulia Ltd v Four Millbank Nominees Ltd [1978] De Molestina v Ponton [2002] 1 Lloyd’s Rep
Ch 231 . . . 55 271 . . . 312
David Securities Pty Ltd v Commonwealth Bank De Wütz v Hendricks (1824) 2 Bing 314; 130 ER
of Australia (1992) 175 CLR 353 . . . 590 326 . . . 387
Davidson v Cooper (1844) 13 M & W 343; 153 ER Dean v Ainley [1987] 1 WLR 1729 . . . 541
142 . . . 529
Dearle v Hall (1823) 3 Russ 1; 38 ER 475 . . . 667, 672
Davidson v Gwynne (1810) 12 East 381; 104 ER
149 . . . 140 Debenham v Mellon (1680) 6 App Cas 24 . . . 688
Davies v Benyon-Harris (1931) 47 TLR 424 . . . 237 Debtors (Nos 4449 and 4450 of 1998), Re [1999] 1
All ER (Comm) 149 . . . 66
Davies v Collins [1945] 1 All ER 247 . . . 190, 676
Decro-Wall SA v Practitioners in Marketing Ltd
Davies v London & Provincial Marine Insurance [1971] 1 WLR 361 . . . 148
Co (1878) 8 Ch D 469 . . . 302, 322, 332
Deepak Fertilisers and Petrochemicals Corp v ICI
Davies v Swan Motor Co (Swansea) Ltd [1949] 2 Chemicals & Polymers Ltd [1999] 1 Lloyd’s Rep
KB 291 . . . 562 387 . . . 139, 329
Davies (A) & Co (Shopfitters) v William Old Defries v Milne [1913] 1 Ch 98 . . . 673
(1969) 67 LGR 395 . . . 41
Deglman v Guaranty Trust Co of Canada [1954] 3
Davis v Johnson [1979] AC 264 . . . 393 DLR 785 (Canada) . . . 89
Davis (Chas) (Metal Brokers) Ltd v Gilyott & Delavel v Clare (1652) Latch 156; 82 ER
Scott Ltd [1975] 2 Lloyd’s Rep 422 . . . 41 323 . . . 240
Davis (Clifford) Management Ltd v WEA Records Delimitis v Henninger Bräu AG (Case C–234/89)
Ltd [1975] 1 WLR 61 . . . 375, 402 [1991] ECR I–935 . . . 409
Davis & Co, Re (1888) 22 QBD 193 . . . 684 Dellafiora v Lester [1962] 1 WLR 1208 . . . 705
Davis & Co (Wines) Ltd v Alfa-Minerva (EMI) Denmark Productions Ltd v Boscobel
Ltd [1974] 2 Lloyd’s Rep 27 . . . 319 Productions Ltd [1969] 1 QB 699 . . . 493, 508
Davis Contractors Ltd v Fareham UDC [1956] AC Dennant v Skinner [1948] 2 KB 164 . . . 268
696 . . . 482, 485, 486, 487, 488, 490
Denne v Light (1857) 8 De GM & G 774; 44 ER
Davitt v Titcumb [1990] 1 Ch 110 . . . 422 588 . . . 580
Dawnay, Day & Co Ltd v de Braconier d’Alphen Denny v Hancock (1870) LR 6 Ch App 1 . . . 266
[1998] ICR 1068 . . . 403
Denny, Gasquet & Metcalfe v Conklin [1913] 3
Dawson v GN & City Ry [1905] 1 KB 260 . . . KB 177 . . . 665
671, 673
Denny, Mott & Dickson Ltd v Fraser (James B) &
Dawsons Ltd v Bonnin [1922] 2 AC 413 . . . Co Ltd [1944] AC 265 . . . 483, 485, 486,
143, 336 488, 498
Day Morris Associates v Voyce [2003] EWCA Civ Denton v Great Northern Railway Co (1856) 5 E
189; [2003] 2 P & CR DG2 . . . 40 & B 860; 119 ER 701 . . . 35
De Bernardy v Harding (1853) 8 Ex Ch 822; 155 Deposit Protection Board v Dalia [1994] 2 AC
ER 1586 . . . 595 367 . . . 664, 667
De Bussche v Alt (1878) 8 Ch D 286 . . . 704 Derry v Peek (1990) 14 App Cas 337 . . . 320, 321
De Cesare v Deluxe Motors Pty Ltd (1996) 67 Devis (W) & Co v Atkins [1977] AC 931 . . . 511
SALR 28 (Australia) . . . 541
Dexters Ltd v Schenker & Co (1932) 14 Ll LR
De Cicco v Schweizer 221 NY 431 (1917) 586 . . . 116
(USA) . . . 107
Diamond v Campbell-Jones [1961] Ch 22 . . .
De Francesco v Barnum (1890) 45 Ch D 551, 563
430 . . . 235, 236, 578
lii table of cases

Diamond v Graham [1968] 1 WLR 1061 . . . 681 Doyle v White City Stadium Ltd [1935] 1 KB
Dick v US 82 Fed Supp 326 (1949) (USA) . . . 52 110 . . . 236, 240
Dick Bentley Productions Ltd v Harold Smith Drake v Mitchell (1803) 3 East 251; 102 ER
(Motors) Ltd [1965] 1 WLR 623 . . . 135 594 . . . 527
Dickinson v Dodds (1876) 2 Ch D 463 . . . 44, 56, Drakeford v Piercy (1866) 7 B & S 515 . . . 712
58, 59, 60 Dresser UK Ltd v Falcongate Freight Management
Dickinson v Jones Alexander [1993] 2 FLR Ltd [1992] 1 QB 502 . . . 650
521 . . . 537 563 Drew v Nunn (1879) 4 QBD 661 . . . 693, 719
Didymi Corp v Atlantic Lines and Navigation Co Drive Yourself Hire Co (London) Ltd v Strutt
Ltd [1988] 2 Lloyd’s Rep 108 . . . 63 [1954] 1 QB 250 . . . 622, 642
The Didymi, see Atlantic Lines & Navigation Co Driver v Broad [1893] 1 QB 744 . . . 85
Ltd v Didymi Corp Drughorn (Fred) Ltd v Rederiaktiebolaget
Dies v British & International Mining & Finance Transatlantic [1919] AC 203 . . . 708
Co Ltd [1939] 1 KB 724 . . . 574, 591 Duffen v Frabo SpA [2000] 1 Lloyd’s Rep
Diesen v Sampson 1971 SLT (Sh Ct) 49 . . . 537 180 . . . 525
Diestal v Stevenson [1906] 2 KB 345 . . . 571 Duff ’s Executor’s Case, see Cheshire
Dietz v Lennig Chemicals Ltd [1969] 1 AC Banking Co, Re
170 . . . 302 Dunbar Bank plc v Nadeem [1998] 3 All ER
Dillingham Construction Pty Ltd v Downs [1972] 876 . . . 367
2 NSWR 49 (Australia) . . . 342 Dunkirk Colliery Co v Lever (1878) 9 Ch D
Dillwyn v Llewelyn (1862) 4 DF & J 517; 45 ER 20 . . . 555
1285 . . . 127 Dunlop v Higgins (1848) 1 HLC 381; 9 ER
Dimmock v Hallett (1866) LR 2 Ch App 21 . . . 805 . . . 46
301, 303 Dunlop v Lambert (1839) 6 Cl & F 600 . . .
Dimond v Lovell [2002] 1 AC 384 . . . 556 619, 671
Dimskal Shipping Co SA v International Dunlop Pneumatic Tyre Co Ltd v New Garage &
Transport Workers Federation, The Evia Luck Motor Co Ltd [1915] AC 79 . . . 566, 567,
[1992] 2 AC 152 . . . 350, 351, 353, 357 568, 569
Director-General of Fair Trading v First National Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co
Bank plc [2001] UKHL 52; [2002] 1 AC Ltd [1915] AC 847 . . . 92, 98, 130, 615, 636
481 . . . 208, 210–14, 347 Dunmore (Countess of) v Alexander (1830) 9 S
Director of Public Prosecutions v Ray [1974] AC 190 (Scotland) . . . 52
370 . . . 304 Dunn v MacDonald [1897] 1 QB 555 . . . 224
Dodd v Churton [1897] 1 QB 562 . . . 142 Dunn v The Queen [1896] 1 QB 116 . . . 223
Dodd Properties (Kent) v Canterbury City Dunton v Dunton (1892) 18 VLR 114
Council [1980] AC 174 . . . 535 (Australia) . . . 102
Doherty v Allman (1878) 3 App Cas 709 . . . 581 Durell v Pritchard (1865) LR 1 Ch App 244 . . . 584
Dolphin Maritime & Aviation Services Ltd v Durham Brothers v Robertson [1898] 1 QB
Sveriges Angfartygs Assurans Forening [2009] 765 . . . 664, 666
EWHC 716 (Comm); [2009] 2 Lloyd’s Rep Durham Fancy Goods Ltd v Michael Jackson
123 . . . 631 Fancy Goods Ltd [1968] 2 QB 839 . . . 124
Dominique, The, see Colonial Bank v European Durham Tees Valley Airport Ltd v Bmibaby Ltd
Grain & Shipping Ltd [2009] EWHC 852 (Ch); [2009] 2 Lloyd’s Rep
Donaldson v Donaldson (1854) Kay 711 . . . 662 246 . . . 63
Donnelly v Joyce [1974] QB 454 . . . 617 Dutton v Poole (1672) 2 Lev 210; 83 ER 523 . . . 614
Donoghue v Stevenson [1932] AC 562 . . . 643 Duval (Charles) & Co Ltd v Gans [1904] 2 KB
Donohue v Armco Inc [2001] UKHL 64; [2002] 1 685 . . . 444
Lloyd’s Rep 425 . . . 396 Dyster v Randall & Sons [1926] Ch 932 . . . 709
Doward, Dickson & Co v Williams & Co (1890) 6
TLR 316 . . . 720 EIC Services Ltd v Phipps [2003] EWHC 1507
Dowty Boulton Paul Ltd v Wolverhampton Corp (Ch); [2003] 1 WLR 2360 . . . 295
[1971] 1 WLR 204 . . . 225 Earle v Peale (1711) 1 Salk 386; 91 ER 336 . . . 235
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB Earle (G & T) Ltd v Hemsworth RDC (1928) 44
158 . . . 322, 323 TLR 758 . . . 665
 table of cases liii

East v Maurer [1991] 1 WLR 461 . . . 323 Eldon (Lord) v Hedley Brothers [1935] 2 KB
East Ham Corp v Bernard Sunley & Sons Ltd 1 . . . 157
[1966] AC 406 . . . 540 Eleftheria, The [1970] P 54 . . . 396
Eastham v Leigh, London & Provincial Properties Elias v George Saheley & Co (Barbados) Ltd
Ltd [1971] Ch 871 . . . 142 [1983] 1 AC 646 . . . 82
Eastham v Newcastle United Football Club Ltd Eliason v Henshaw (1819) 4 Wheaton 225
[1964] Ch 413 . . . 401, 407 (USA) . . . 51, 52
Eastgate, Re [1905] 1 KB 465 . . . 311 Elkington v Amery [1936] 2 All ER 86 . . . 239
Easton v Hitchcock [1912] 1 KB 535 . . . 152 Ellen v Topp (1851) 6 Exch 424; 155 ER 609 . . . 519
Eastwood v Kenyon (1840) 11 A & E 438; 113 ER Ellenborough, Re [1903] 1 Ch 697 . . . 668
482 . . . 94, 96, 101 Elliott v Bax-Ironside [1925] 2 KB 301 . . . 714
Eastwood v Magnox Electric plc [2004] UKHL 35; Ellis v Chief Adjudication Officer [1998] 1 FLR
[2005] 1 AC 503 . . . 539 184 . . . 93
Eccles v Bryant & Pollock [1948] Ch 93 . . . 68 Ellis v Torrington [1920] 1 KB 399 . . . 673
Ecclesiastical Commissioners for England’s Ellis Tylin Ltd v Co-operative Retail Services Ltd
Conveyance, Re [1936] Ch 430 . . . 643 [1999] Build LR 205 . . . 472
Economides v Commercial Union Assurance Co Elpis Maritime Co Ltd v Marti Chartering Co Inc,
plc [1998] QB 587 . . . 302, 335, 346 The Maria D [1992] 1 AC 21 . . . 83, 713
Edelstein v Schuler & Co [1902] 2 KB 144 . . . 679 Else (1982) Ltd v Parkland Holdings Ltd [1994] 1
Edgington v Fitzmaurice (1885) 29 Ch D BCLC 130 . . . 570, 592
459 . . . 304, 305 Elvin & Powell Ltd v Plummer Roddis Ltd (1933)
Edler v Auerbach [1950] 1 KB 359 . . . 418 50 TLR 158 . . . 695
Edmonds v Lawson [2000] QB 501 . . . 33, 92 Embiricos v Reid (Sydney) & Co [1914] 3 KB
Edmunds v Bushell & Jones (1865) LR 1 QB 45 . . . 481
97 . . . 694 Emery’s Investment Trusts, Re [1959] Ch
Edmunds v Merchant Despatch Co (1883) Mass 410 . . . 387
283 . . . 274 Emmerson’s Case (1866) LR 1 Ch App 433 . . . 286
Edwards, ex parte Chalmers, Re (1873) LR 8 Ch Empresa Exportadora De Azucar v Industria
App 289 . . . 530 Azucarera Nacional SA [1983] 2 Lloyd’s Rep
Edwards v Carter [1893] AC 360 . . . 238 171 . . . 387
Edwards v Newland & Co [1950] 2 KB Enderby Town FC Ltd v The Football Association
534 . . . 448 Ltd [1971] Ch 591 . . . 384
Edwards v Skyways Ltd [1964] 1 WLR 349 . . . Energy Progress, The, see Orient Overseas
71, 72 Management & Finance Ltd v File Shipping
Edwards v Worboys [1984] 1 AC 724 . . . 404, 405 Co Ltd
Edwinton Commercial Corp v Tsavliris Russ England v Davidson (1840) 11 A & E 856; 113 ER
(Worldwide Salvage & Towage) Ltd, The Sea 640 . . . 105
Angel [2007] EWCA Civ 547; [2007] 2 Lloyd’s Englebach’s Estate, Re [1924] 2 Ch 348 . . . 638
Rep 517 . . . 480, 487–89, 491 English v Dedham Vale Properties Ltd [1978] 1
Egg Stores (Stamford Hill) Ltd v Leibovici [1977] WLR 93 . . . 341, 702
ICR 260 . . . 479 English Hop Growers v Dering [1928] 2 KB
Egyptian Intl Foreign Trade Co v Soplex 174 . . . 406, 569
Wholesale Supplies Ltd, The Raffaella [1985] 2 Entores v Miles Far East Corporation [1955] 2 QB
Lloyd’s Rep 36 . . . 692 327 . . . 44, 46, 47, 49
Ehrman v Bartholomew [1898] 1 Ch 671 . . . 582 Epps v Rothnie [1945] KB 562 . . . 708
El Ajou v Dollar Land Holdings plc [1994] 2 All Equitable Life Assurance Society v Hyman [2002]
ER 685 . . . 710 1 AC 408 . . . 152, 153
Elbe Maru, The [1978] 1 Lloyd’s Rep 206 . . . 621 Erlanger v New Sombrero Phosphate Co (1878) 3
Elbinger Aktiengesellschaft v Armstrong (1874) App Cas 1218 . . . 316, 341
LR 9 QB 473 . . . 558 Errington v Errington [1952] 1 KB 290 . . . 54, 55,
Elder v Kelly [1919] 2 KB 179 . . . 428 60
Elder, Dempster & Co Ltd v Paterson, Zochonis & Erskine v Adeane (1873) 8 Ch App 756 . . . 136
Co Ltd [1923] 1 KB 436; [1924] AC 522 . . . Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC
646, 658 260 . . . 386, 483
liv table of cases

Eshelby v Federated European Bank Ltd [1932] 1 Fairline Shipping Corp v Adamson [1975] QB
KB 423 . . . 455 180 . . . 50
Esso Petroleum Co Ltd v Commissioners of Falck v Williams [1900] AC 176 . . . 254
Customs and Excise [1976] 1 WLR 1 . . . 34, 72 Falcke v Gray (1859) 4 Drew 651; 62 ER
Esso Petroleum Co Ltd v Harper’s Garage 250 . . . 576
(Stourport) Ltd [1968] AC 269 . . . 397, 399, 401, Falcke v Scottish Imperial Insurance Co (1886) 34
402, 407, 410, 411, 412, 413 Ch D 234 . . . 17, 696
Esso Petroleum Co Ltd v Kingswood Motors Famosa SS Co Ltd v Armada Bulk Carriers Ltd
(Addlestone) Ltd [1974] QB 142 . . . 656 [1994] 1 Lloyd’s Rep 633 . . . 556
Esso Petroleum Co Ltd v Mardon [1976] QB Fanti and The Padre Island, The [1991] 2 AC
801 . . . 135, 136, 137, 304, 308, 310, 324, 327 1 . . . 640
Esso Petroleum Co Ltd v Niad, 22 Nov 2001, Far Eastern Shipping Co Public Ltd v Scales
unreported . . . 600, 602, 603 Trading Ltd [2001] 1 All ER (Comm)
Ets George et Paul Levy v Adderley Nav Co 319 . . . 312
Panama SA [1980] 2 Lloyd’s Rep 67 . . . 263, 264 Faraday v Tamworth Union (1916) 86 LJ Ch
Eugenia, The, see Ocean Tramp Tankers Corp v 436 . . . 263
V/O Sovfracht Faramus v Film Artistes’ Association [1964] AC
Euro Diam Ltd v Bathurst [1990] QB 1 . . . 417 925 . . . 415
Euro London Appointments Ltd v Claessens Farley v Skinner [2001] UKHL 49; [2002] 2 AC
International Ltd [2006] EWCA Civ 385; 732 . . . 536, 537, 538, 542
[2006] 2 Lloyd’s Rep 436 . . . 568, 569 Farmer v Russell (1798) 1 B & P 296; 126 ER
European Asian Bank v Punjab & Sind Bank 913 . . . 428
[1982] 2 Lloyd’s Rep 356 . . . 621 Farnham v Atkins (1670) 1 Sid 446; 82 ER
European Gateway, The [1987] QB 206 . . . 529 1208 . . . 240
Europemballage & Continental Can Co Inc Farnworth Finance Facilities v Attryde [1970] 1
vEC Commission (Case 6/72) [1973] 1 ECR WLR 1053 . . . 187
215 . . . 410 Farquharson v Pearl Assurance Co Ltd [1937] 3
Eurymedon, The, see New Zealand Shipping Co All ER 124 . . . 451
Ltd v A M Satterthwaite & Co Ltd Farquharson Bros v King & Co [1902] AC
Evans (J) & Son (Portsmouth) Ltd v Andrea 325 . . . 692
Merzario Ltd [1976] 1 WLR 1078 . . . 135, 138, 191 Farr (AE) Ltd v Admiralty [1953] 1 WLR
Evans (Joseph) & Co Ltd v Heathcote [1918] 1 KB 965 . . . 180
418 . . . 399, 407 Farrant v The Woodroffe School [1998] 2 ICR
Evans Marshall & Co Ltd v Bertola SA [1973] 1 184 . . . 514
WLR 349 . . . 581 Farrell v Alexander [1977] AC 59 . . . 426
Evening Standard Ltd v Henderson [1987] ICR Farrow Mortgage Services Pty Ltd v Slade (1996)
588 . . . 584 38 NSWLR 636 (Australia) . . . 529
Eves v Eves [1975] 1 WLR 1338 . . . 73, 393 Faruqi v English Real Estates Ltd [1979] 1 WLR
Evia Luck, The, see Dimskal Shipping Co SA v 963 . . . 339
International Transport Workers Federation Fawcett v Smethurst (1914) 84 LJ KB 473 . . .
Exall v Partridge (1799) 8 TR 308 . . . 695 236, 241
Experience Hendrix LLC v PPX Enterprises Fawcett v Star Car Sales Ltd [1960] NZLR
Inc [2003] EWCA Civ 323; [2003] 1 All ER 406 . . . 274
(Comm) 830 . . . 601, 602, 603 Fearon v Earl of Aylesford (1884) 14 QBD
Export Credits Guarantee Department v Universal 792 . . . 519
Oil Products Co [1983] 1 WLR 399 . . . 569 Federal Commerce & Navigation Co Ltd v
Exxonmobil Sales and Supply Corp v Texaco Ltd Molena Alpha Inc [1979] AC 757 . . .
[2003] EWHC 1964 (Comm); [2004] 1 All ER 514, 521
(Comm) 435 . . . 159 Federated Homes Ltd v Mill Lodge Properties Ltd
Eyles v Ellis (1827) 4 Bing 112; 130 ER 710 . . . 445 [1980] 1 WLR 594 . . . 642
Fehmarn, The [1958] 1 WLR 159 . . . 396
F, Re [1990] 2 AC 1 . . . 695 Feldarol Foundry plc v Hermes Leasing (London)
Faccenda Chicken Ltd v Fowler [1987] Ch Ltd [2004] EWCA Civ 747 . . . 195
117 . . . 400, 403
 table of cases lv

Felthouse v Bindley (1862) 11 CBNS 869; (1863) 7 Fisher v Bridges (1854) 3 E & B 642; 118 ER
LT 835 . . . 49, 50 1283 . . . 432
Fender v St John-Mildmay [1938] AC 1 . . . 394 Fisher v Brooker [2009] UKHL 41; [2009] 1 WLR
Fennell v Ridler (1826) 5 B & C 406; 108 ER 1764 . . . 609
151 . . . 418 Fisher & Co v Apollinaris Co (1875) LR 10 Ch
Fenwick v Macdonald, Fraser & Co Ltd (1904) 6F App 297 . . . 389
850 (Scotland) . . . 36 Fitch v Snedaker (1868) 38 NY 248 . . . 51
Fercometal SARL v Mediterranean Shipping Co Fitch v Sutton (1804) 5 East 230; 102 ER
SA, The Simona [1989] AC 788 . . . 509, 516 1058 . . . 114
Ferguson v Davis [1997] 1 All ER 315 . . . 112, 461 Fitzgerald v Dressler (1859) 7 CBNS 374; 141 ER
Ferguson (DO) v Sohl (1992) 62 BLR 92 . . . 590 861 . . . 81
Ferris v Weaven [1952] 2 All ER 233 . . . 73 Fitzroy v Cave [1905] 2 KB 364 . . . 662
Ferryways NV v Associated British Ports, The Five Steel Barges, The (1890) 15 PD 142 . . . 696
Humber Way [2008] EWHC 225 (Comm); Flamar Interocean Ltd v Denmore Ltd [1990] 1
[2008] 2 All ER (Comm) 504 . . . 708 Lloyd’s Rep 434 . . . 197, 199, 201
Fibrosa Spolka Akcyjna v Fairbairn Lawson Flavell, Re (1883) 25 Ch D 89 . . . 637
Combe Barbour Ltd [1942] 1 KB 12; [1943] AC Fleet v Murton (1871) LR 7 QB 126 . . .
32 . . . 483, 499, 500, 501, 589, 590 713, 714
Fiddelaar v Commission (Case 44/59) [1960] ECR Fleming v Beeves [1994] 1 NZLR 385 . . . 71, 72
535 . . . 213 Fletcher v Fletcher (1844) 4 Hare 67; 67 ER
Field v Filton [1988] 1 NZLR 482 . . . 626 564 . . . 636, 637
Fielding & Platt Ltd v Najjar [1969] 1 WLR Fletcher v Tayleur (1855) 17 CB 21; 139 ER
357 . . . 387, 418 973 . . . 551
Filby v Hounsell [1896] 2 Ch 737 . . . 69 Fletcher Challenge Energy Ltd v Electricity
Finagrain SA Geneva v P Kruse Hamburg [1976] Corporation of New Zealand Ltd [2002] 2
2 Lloyd’s Rep 508 . . . 444, 469 NZLR 433 . . . 63
Financings Ltd v Baldock [1963] 1 QB 887 . . . 60, Flight v Bolland (1828) 4 Russ 298; 38 ER
570 817 . . . 233
Financings Ltd v Stimson [1962] 1 WLR Flight v Booth (1834) 1 Bing NC 370; 131 ER
1184 . . . 281 1160 . . . 339
Finch v Brook (1834) 1 Bing NC 253; 131 ER Foakes v Beer (1884) 9 App Cas 605 . . . 109, 112,
1114 . . . 451 114, 118
Finelvet AG v Vinava Shipping Co Ltd [1983] 1 Foley v Classique Coaches Ltd [1934] 2 KB
WLR 1469 . . . 481 1 . . . 61, 64
Finkielkraut v Monohan [1949] 2 All ER Foran v Wight (1989) 168 CLR 385
234 . . . 443 (Australia) . . . 509
Finlan v Eyton Morris Winfield [2007] EWHC Ford v Beech (1848) 11 QB 852 . . . 169, 460
914 (Ch); [2007] 4 All ER 143 . . . 667 Ford Motor Co v Armstrong (1915) 31 TLR
Finlay (James) & Co Ltd v NV Kwik Hoo Tong 267 . . . 568
HM [1929] 1 KB 400 . . . 555 Ford Motor Co Ltd v AUEFW [1969] 1 WLR
First Energy (UK) Ltd v Hungarian Int’l Bank Ltd 339 . . . 70
[1993] 2 Lloyd’s Rep 194 . . . 692 Forman & Co Pty Ltd v Ship Liddesdale [1900]
First National Bank plc v Thompson [1996] Ch AC 190 . . . 39, 456, 691
231 . . . 126 Format International Security Printers Ltd v
First National Reinsurance Co Ltd v Greenfield Mosden [1975] 1 Lloyd’s Rep 37 . . . 713
[1921] 2 KB 260 . . . 609 Formby v Formby (1910) 102 LT 116 . . . 707
First National Securities Ltd v Jones [1978] Ch Forsikringsaktieselskapet Vesta v Butcher [1989]
109 . . . 77 AC 852 . . . 562
First Sport Ltd v Barclays Bank plc [1993] 1 WLR Forslind v Becheley Crundall 1922 SC (HL)
1229 . . . 692 173 . . . 513
Firstpost Homes Ltd v Johnson [1995] 1 WLR Forster v Baker [1910] 2 KB 636 . . . 664
1567 . . . 85 Forster v Outred & Co [1982] 1 WLR 86 . . . 605
Firth v Staines [1897] 2 QB 70 . . . 690 Forster v Silvermere Gold & Equestrian Centre
Fisher v Bell [1961] 1 QB 394 . . . 34 (1981) 125 Sol J 397 . . . 620, 622
lvi table of cases

Fortescue v Barnett (1834) 3 My & K 36; 40 ER Fyffes Group Ltd v Reefer Express Lines Pty Ltd
14; (1943) 59 LQR 58; [1959] CLJ 99 . . . 668 [1996] 2 Lloyd’s Rep 171 . . . 552
Fosbroke-Hobbes v Airwork Ltd [1937] 1 All ER Fyffes Group Ltd v Templeman [2000] 2 Lloyd’s
108 . . . 657 Rep 643 . . . 703
Foster, Re [1938] 3 All ER 357 . . . 643
Foster v Dawber (1851) 6 Exch 839; 155 ER GKN Centrax Gears Ltd v Matbro Ltd [1976] 2
785 . . . 459 Lloyd’s Rep 555 . . . 555
Foster v Driscoll [1929] 1 KB 470 . . . 387 GN Ry v Swaffield (1874) LR 9 Ex 132 . . . 696
Foster v Mackinnon (1869) LR 4 CP 704 . . . 260 GN Ry v Witham (1873) LR 9 CP 16 . . . 30, 36, 53,
Foster & Sons Ltd v Suggett (1918) 35 TLR 54, 59
87 . . . 404 Galbraith v Mitchenall Estates Ltd [1965] 2 QB
Foster’s Policy, Re [1966] 1 WLR 222 . . . 638 473 . . . 593
Fowler v Fowler (1859) 4 De G & J 250; 45 ER Gallagher v British Road Services Ltd [1970] 2
97 . . . 263 Lloyd’s Rep 440 . . . 191
Fowler v Midland Electricity Corporation for Galliard Homes Ltd v J Jarvis & Sons plc (1999)
Power Distribution Ltd [1917] 1 Ch 71 Com LR 219 . . . 68
656 . . . 444 Gallie v Lee [1969] 2 Ch 17; sub nom Saunders v
Fox, Walker & Co, Re (1880) 15 Ch D 400 . . . 565 Anglia BS [1971] AC 1004 . . . 259,
Fraser v Equitorial Shipping Co Ltd [1979] 1 260, 273
Lloyd’s Rep 103 . . . 713 Galloway v Galloway (1914) 30 TLR 531 . . . 289
Fraser River Pile & Dredge Ltd v Can-Dive Galoo Ltd v Bright Grahame Murray [1994] 1
Services Ltd [2000] 1 Lloyd’s Rep 199 . . . 645, WLR 1360 . . . 543
650 Gamerco SA v ICM/Fair Warning (Agency) Ltd
Freeman v Taylor (1831) 8 Bing 124; 131 ER [1995] 1 WLR 1226 . . . 281, 473, 501, 502
348 . . . 140 Garcia v National Australia Bank Ltd (1998) 194
Freeman & Lockyer v Buckhurst Park Properties CLR 395 (Australia) . . . 374
(Mangal) Ltd [1964] 2 QB 480 . . . 688, 692 Garden Cottage Foods Ltd v Milk Marketing
Freeth v Burr (1874) LR 9 CP 208 . . . 513 Board [1984] AC 130 . . . 410
French & Co Ltd v Leeston Shipping Co Ltd Gardner v Moore [1984] 1 AC 548 . . . 422
[1922] 1 AC 451 . . . 706 Garnham, Harris & Elton Ltd v Alfred W Ellis
Friend v Young [1897] 2 Ch 421 . . . 719 (Transport) Ltd [1967] 1 WLR 940 . . . 190
Friends Provident Life Office v Hillier Parker Garrard v Frankel (1862) 30 Beav 445; 54 ER
[1997] QB 85 . . . 427 961 . . . 266, 290
Frisby v BBC [1967] Ch 932 . . . 136 Gartside v Sheffield, Young & Ellis [1983] NZLR
Frost v Aylesbury Dairy Co Ltd [1905] 1 KB 37 . . . 644
608 . . . 163 Gator Shipping Corp v Trans-Asiatic Oil Ltd SA
Frost v Knight (1872) LR 7 Ex 111 . . . 515 [1978] 2 Lloyd’s Rep 357 . . . 509, 575
Fry, Re [1946] 312 . . . 669 Gas Light & Coke Co v Turner (1839) 5 Bing NC
666; 132 ER 1257 . . . 429
Fry v Lane (1888) 40 Ch D 312 . . . 369, 373
Gath v Lees (1865) 3 H & C 558; 159 ER
Fryer (Nigel) Joinery Services Ltd v Ian Firth 650 . . . 449
Hardware Ltd [2008] 2 Lloyd’s Rep
108 . . . 699 Gay Choon Ing v Loh Sze Ti Terence Peter [2009]
SGCA 3, [2009] 2 SLR 332 (Singapore) . . . 130
Fuji Finance Inc v Aetna Life Insurance Co Ltd
[1997] Ch 173 . . . 381 Gaussen v Morton (1830) 10 B & C 731; 109 ER
622 . . . 720
Fulham Football Club Ltd v Cabra Estates plc
[1994] 1 BCLC 363 . . . 388 Geier v Kujawa, Weston & Warne Bros
(Transport) Ltd [1970] 1 Lloyd’s Rep 364 . . . 175
Full Metal Jacket Ltd v Gowlain Building Group
Ltd [2005] EWCA Civ 1809 . . . 168 Geismar v Sun Alliance & London Insurance Ltd
[1978] QB 383 . . . 386, 422
Fullwood v Fullwood (1878) 9 Ch D 176 . . . 608
General Billposting Co Ltd v Atkinson [1909] AC
Furness, Withy & Co Ltd v Hall Ltd (1909) 25 118 . . . 403, 519, 584
TLR 233 . . . 528
General Reinsurance Corp v
Furness Withy (Australia) Pty Ltd v Metal Forsakringsaktiebolaget Fennia Patria [1983]
Distributors (UK) Ltd [1990] 1 Lloyd’s Rep QB 856 . . . 158
236 . . . 33
 table of cases lvii

General Trading Company (Holdings) Ltd v Global Container Lines Ltd v State Black Sea SS
Richmond Corp Ltd [2008] EWHC 1479 Co [1999] 1 Lloyd’s Rep 127 . . . 69
(Comm); [2008] 2 Lloyd’s Rep 475 . . . 568, 569 Global Tankers Inc v Amercoat Europa NV [1975]
Genys v Matthews [1966] 1 WLR 758 . . . 646 1 Lloyd’s Rep 666 . . . 41
George Wimpey UK Ltd v VI Construction Ltd Gluckstein v Barnes [1900] AC 240 . . . 341
[2005] EWCA Civ 77; [2005] BLR Gnapp (Eric) Ltd v Petroleum Board [1949] 1 All
135 . . . 264 ER 980 . . . 356
German v Yates (1915) 32 TLR 52 . . . 669 Goddard v O’Brien (1882) 9 QBD 37 . . . 112
Getreide-Import-Gesellschaft v Contimar SA Godden v Merthyr Tydfil Housing Association
Compania Commercial y Maritima [1953] 1 (1997) 74 P & CR D1 . . . 88
WLR 793 . . . 47 Godley v Perry [1960] 1 WLR 9 . . . 165
Gibaud v Great Eastern Railway [1921] 2 KB Goff v Gauthier (1991) 62 P & CR 388 . . . 304,
426 . . . 189 306, 331
Gibbon v Mitchell [1990] 1 WLR 1304 . . . 290 Goldcorp Exchange Ltd, Re [1995] 1 AC 74 . . . 701
Gibbons v Proctor (1891) 64 LT 594, 55 JP Golden Bay Realty v Orchard Investment [1991] 1
616 . . . 39, 51 WLR 981 . . . 569
Gibson v Carruthers (1841) 8 M & W 321; 151 ER Golden Strait Corp v Nippon Yusen Kubishika
1061 . . . 683 Kaisha, The Golden Victory [2007] UKHL 12;
Gibson v Manchester City Council [1979] 1 WLR [2007] 2 AC 353 . . . 535, 536
294 . . . 30, 34, 39, 41, 42 Goldsoll v Goldman [1915] 1 Ch 292 . . . 435, 437
Gilchester Properties Ltd v Gomm [1948] 1 All Goldsworthy v Brickell [1987] Ch 378 . . . 121, 364,
ER 493 . . . 309 365, 366, 369
Giles, Re [1971] Ch 544 . . . 422 Gonin, Re [1979] Ch 16 . . . 87
Giles v Thompson [1993] 3 All ER 321; [1994] 1 Good v Cheesman (1831) 2 B & Ad 328; 109 ER
AC 142 . . . 390, 391 1165 . . . 114, 461
Giles (CH) & Co Ltd v Morris [1972] 1 WLR Goodchild, Re [1997] 1 WLR 1216 . . . 72
307 . . . 579
Goode v Harrison (1821) 5 B & Ald 147; 106 ER
Gill v El Vino [1983] QB 425 . . . 5, 35 1147 . . . 238
Gill & Duffus SA v Berger & Co [1984] AC Goodinson v Goodinson [1954] 2 QB 118 . . .
382 . . . 519 436, 438
Gillatt v Sky Television Ltd [2000] 1 All ER Goodman v Chase (1818) 1 B & Ald 297; 106 ER
(Comm) 46 . . . 63, 65 110 . . . 81
Gillespie Bros & Co v Cheney Eggar & Co [1896] Goodson v Ellisson (1827) 3 Russ 583 . . . 662
2 QB 59 . . . 138, 139
Goodwin v Robarts (1875) LR 10 Ex 337; aff ’d
Gillespie Bros & Co Ltd v Roy Bowles Transport (1875) 1 App Cas 476 . . . 679, 680
Ltd [1973] QB 400 . . . 177, 180, 192, 204
Gordon v Gordon (1821) 3 Swan 400; 36 ER
Gillett v Holt [2001] Ch 210 . . . 89, 127 910 . . . 338
Gillick v W Norfolk & Wisbech Area Health Gordon v Selico Co Ltd [1985] 2 EGLR 79 . . . 301
Authority [1986] 1 AC 112 . . . 236, 239
Gordon v Street [1899] 2 QB 641 . . . 249, 273
Ginsberg v Parker [1988] IRLR 483 . . . 435
Gore v Van der Lann [1967] 2 QB 31 . . . 621
Girardy v Richardson (1793) 1 Esp 13; 170 ER
265 . . . 393 Goring, The [1988] AC 831 . . . 696
Giumelli v Giumelli (1999) 196 CLR 101 . . . 126 Gorse v Durham CC [1971] 1 WLR 775 . . . 514
Glaholm v Hays (1841) 2 M & G 257; 133 ER Gosling v Anderson (1972) 223 EG 1743 . . . 711
743 . . . 141 Goss v Chilcott [1996] AC 788 . . . 529, 590
Glasbrook Brothers Ltd v Glamorgan County Goss v Lord Nugent (1833) 5 B & Ad 58; 110 ER
Council [1925] AC 270 . . . 105 713 . . . 464, 467
Glebe Island Terminals Pty Ltd v Continental Gould v Gould [1970] 1 QB 275 . . . 70
Seagram Pty Ltd [1994] 1 Lloyd’s Rep 213 Goulden v Wilson Barca [2000] 1 WLR
(Australia) . . . 186, 182 167 . . . 105
Gleeson v J Wippell & Co Ltd [1977] 1 WLR Goulston Discount Co v Harman (1962) 106 SJ
510 . . . 529 369 . . . 570
Glegg v Bromley [1912] 3 KB 474 . . . 668, 673 Graham v Johnson (1869) LR 8 Eq 36 . . . 670
Glessing v Green [1975] 1 WLR 863 . . . 78 Grainger & Son v Gough [1896] AC 325 . . . 34
lviii table of cases

Grains & Fourrages SA v Huyton [1997] 1 Lloyd’s Gross v Lewis Hillman Ltd [1970] Ch 445 . . . 305
Rep 628 . . . 289 Grosvenor v Sherratt (1860) 28 Beav 659; 54 ER
Gran Gelato Ltd v Richcliff (Group) Ltd [1992] 520 . . . 364
Ch 560 . . . 324, 328, 715 Group Josi Re v Walbrook Insurance Co Ltd
Grant v Australian Knitting Mills Ltd [1936] AC [1996] 1 WLR 1152 . . . 383
85 . . . 160, 164 Grover & Grover v Matthews [1910] 2 KB
Granville Oil and Chemicals Ltd v Davies Turner 401 . . . 691
and Co Ltd [2003] EWCA Civ 570; [2003] 1 All Guardian Ocean Cargos Ltd v Banco de Brasil SA
ER (Comm) 819 . . . 203 [1991] 2 Lloyd’s Rep 68 . . . 139
Graves v Legg (1854) 9 Exch 709; 156 ER Guild & Co v Conrad [1894] 2 QB 885 . . . 80
304 . . . 150 Guinness Mahon & Co Ltd v Kensington &
Gray v Barr [1971] 2 QB 554 . . . 386 Chelsea RBC [1999] QB 215 . . . 228
Gray v Southouse [1949] 2 All ER 1019 . . . 426 Guinness plc v Saunders [1990] 2 AC 663 . . . 702,
Gray v Thames Trains Ltd [2009] UKHL 33; 703
[2009] 1 AC 1339 . . . 417 Gunton v Richmond LBC [1980] ICR 755 . . . 508,
Greasley v Cooke [1980] 1 WLR 1306 . . . 88, 127 509
Great Peace Shipping Ltd v Tsavliris Salvage Gurtner v Circuit [1968] 2 QB 587 . . . 616, 640
(International) Ltd, The Great Peace [2001] All Guthing v Lynn (1831) 2 B & Ad 232; 109 ER
ER (D) 152 (Nov); [2002] EWCA Civ 1407; 1130 . . . 70
[2003] QB 679 . . . 251, 267, 277, 278, 279, 280, Gyllenhammer & Partners International Ltd v
281, 282, 283, 285, 288, 289, 290, 291, 293, 295, Sour Brodogradevna Industrija [1989] 2 Lloyd’s
296, 297 Rep 403 . . . 143, 471
Great Western Ry v Oxford, Worcester &
Wolverhampton Ry (1853) 3 De GM & G 341; HIH Casualty & General Insurance Ltd v Chase
43 ER 133 . . . 609 Manhattan Bank [2003] UKHL 6; [2003] 1
Great Western Ry v Redmayne (1866) LR 1 CP All ER (Comm) 349; [2003] 2 Lloyd’s Rep
329 . . . 557 61 . . . 181, 191, 325, 328, 330, 342
Greater Nottingham Co-operative Society v Habib Bank Ltd v Central Bank of Sudan [2006]
Cementation Piling & Foundations Ltd [1989] EWHC 1767 (Comm); [2007] 1 All ER
QB 1 . . . 23 (Comm) 53 . . . 607
Green v Portsmouth Stadium Ltd [1953] 2 QB Hadley v Baxendale (1854) 9 Exch 341; 156 ER
190 . . . 426 145 . . . 544, 545, 546, 548, 549, 551, 552, 554,
Green v Rozen [1955] 1 WLR 741 . . . 461 560, 564
Green v Russell [1959] 2 QB 226 . . . 626, 628, 637, Hadley v Kemp [1999] 2 EMLR 589 . . . 70, 101
638, 643 Hadley & Co Ltd v Hadley [1898] 2 Ch 680 . . . 447
Green (RW) Ltd v Cade Bros Farms [1978] 1 Haigh v Brooks (1839) 10 A & E 309; 113 ER
Lloyd’s Rep 602 . . . 196, 205, 206 119; sub nom Brooks v Haigh (1840) 10 A & E
Greenhalgh v Mallard [1943] 2 All ER 234 . . . 654 323 . . . 100, 169
Greer v Downs Supply Co [1927] 2 KB 28 . . . 709 Hain SS Co Ltd v Tate & Lyle Ltd (1936) 41 Com
Gregory v Ford [1951] 1 All ER 121 . . . 421 Cas 350; [1936] 2 All ER 597 . . . 188, 457, 469,
Gregory v Wallace [1998] IRLR 387 . . . 470 509, 596
Greig v Insole [1978] 1 WLR 302 . . . 407, 408 Halifax Mortgage Services Ltd v Stepsky [1996]
Ch 207 . . . 372
Grey v IRC [1960] AC 1 . . . 667
Hall v Ashurst (1833) 1 C & M 714; 149 ER
Griffin, Re [1899] 1 Ch 408 . . . 669 586 . . . 713
Griffith v Brymer (1903) 19 TLR 434 . . . 277, 289, Hall v Benson (1836) 7 C & P 711; 143 ER
477 311 . . . 158
Griffith v Tower Publishing Co Ltd [1897] 1 Ch Hall v Cazenove (1804) 4 East 477; 102 ER
21 . . . 448 913 . . . 102
Grissell v Bristowe (1868) LR 3 CP 112; rev’d Hall v NE Ry (1875) LR 10 QB 437 . . . 647
(1868) LR 4 CP 36 . . . 158
Hall v Victorian Football League [1982] VR 64
Grist v Bailey [1967] Ch 532 . . . 287, 291, 292, 293, (Australia) . . . 407
294
Hall v Woolston Hall Leisure Ltd [2001] 1 WLR
Grogan v Robin Meredith Plant Hire [1996] CLC 225 . . . 419
1127 . . . 173
 table of cases lix

Hall & Barker, Re (1878) 9 Ch D 538 . . . 452 Hargreaves Transport Ltd v Lynch [1969] 1 WLR
Hall (R & H) Ltd v WH Pim (Junior) & CoLtd 215 . . . 143
(1927) 33 Com Cas 324; (1928) 139 LT Harley & Co v Nagata (1917) 23 Com Cas
50 . . . 546, 557 121 . . . 157
Halpern v Halpern (Nos 1 and 2) [2007] EWCA Harling v Eddy [1951] 2 KB 739 . . . 175, 589
Civ 291; [2008] QB 195 . . . 358 Harlingdon & Leinster Enterprises Ltd v
Hambro v Burnand & others [1904] 2 KB Christopher Hull Fine Art Ltd [1990] 1 All ER
10 . . . 707 737; [1991] 1 QB 564 . . . 135, 161, 197, 287
Hamel-Smith v Pycroft & Jetsave Ltd, 5 Harmer v Armstrong [1934] Ch 65 . . . 713
February1987 . . . 128 Harnett v Yielding (1805) 2 Sch & Lef 549 . . . 575
Hamer v Sharp (1874) LR 19 Eq 108 . . . 698 Harper v Ashton’s Circus Pty Ltd [1972] 2
Hamer v Sidway 27 NE 256 (1891) (USA) . . . 102 NSWLR 395 (Australia) . . . 562
Hamilton, Re (1921) 124 LT 737 . . . 667 Harper & Co v Vigers [1909] 2 KB 549 . . . 715
Hamilton v Allied Domecq plc [2007] UKHL 33; Harrington v Victoria Graving Dock Co (1878) 3
2007 SC(HL) 142 . . . 343 QBD 549 . . . 702
Hamilton v Bennett (1930) 94 JPN 136 . . . 240 Harris v Fawcett (1873) LR 8 Ch App 866 . . . 61
Hamilton Jones v David & Snape [2003] EWHC Harris v Harris [1989] NZ Conv C 190, 406 (New
3147 (Ch); [2004] 1 All ER 657 . . . 537 Zealand) . . . 124
Hammond v Messenger (1838) 9 Sim 327; 59 ER Harris v Nickerson (1873) LR 8 QB 286 . . . 36
383 . . . 663 Harris v Pepperell (1867) LR 5 Eq 1 . . . 266
Hammond & Co v Bussey (1887) 20 QBD Harris v Watson (1791) Peake 102; 170 ER
79 . . . 560 94 . . . 108
Hampstead & Suburban Properties Ltd v Harris v Wyre Forest DC [1990] AC 831 . . . 196
Diomedous [1969] 1 Ch 248 . . . 581 Harris Ltd v Continental Express Ltd [1961] 1
Hampton v Glamorgan CC [1917] AC 13 . . . 652 Lloyd’s Rep 251 . . . 180
Hamzeh Malas & Sons v British Imex Industries Harris’ Case, see Imperial Land Co of Marseilles,
Ltd [1958] 2 QB 127 . . . 116 Re
Hancock v Brazier (Anerley) Ltd [1966] 1 WLR Harrison & Jones Ltd v Bunten & Lancaster Ltd
1317 . . . 154 [1953] 1 QB 646 . . . 287
Hancock Shipping Co Ltd v Deacon & Trysail Harse v Pearl Life Assurance Co [1904] 1 KB
(Private) Ltd [1991] 2 Lloyd’s Rep 550 . . . 197 558 . . . 383, 421, 427
Handley v Marston (1962) 106 SJ 327 . . . 188 Hart v Alexander (1837) 2 M & W 484; 150 ER
Handley Page Ltd v Commissioners of Customs& 848 . . . 463
Excise [1970] 2 Lloyd’s Rep 459 . . . 580 Hart v AR Marshall & Sons (Bulwell) Ltd [1977] 1
Hangkam Kwingtong Woo v Liu Lan Fong [1951] WLR 1067 . . . 479
AC 707 . . . 718 Hart v Mills (1846) 15 M & W 85; 153 ER
Harburg India Rubber Comb Co v Martin [1902] 771 . . . 95
1 KB 778 . . . 82 Hart v O’Connor [1985] AC 1000 . . . 247,
Harbutt’s ‘Plasticine’ Ltd v Wayne Tank & Pump 372, 374
Co Ltd [1970] 1 QB 447 . . . 185, 509, 541, 556 Hartley v Hymans [1920] 3 KB 475 . . . 444
Hardie & Lane Ltd v Chilton [1928] 2 KB Hartley v Ponsonby (1857) 7 E & B 872; 119 ER
306 . . . 356 1471 . . . 108
Harding v Harding (1886) 17 QBD 442 . . . 669 Hartog v Colin & Shields [1939] 3 All ER
Hardman v Booth (1863) 1 H & C 803; 158 ER 566 . . . 256, 257, 258, 333
1107 . . . 274 Harvela Investments Ltd v Royal Trust of Canada
Hardwick Game Farm v Suffolk Agricultural (CI) Ltd [1986] AC 207 . . . 35, 37, 55
Poultry Producers’ Assn [1966] 1 WLR 287; Harvey v Facey [1893] AC 552 . . . 33
aff ’d [1969] 2 AC 31 . . . 145 Harvey v Johnston (1848) 6 CB 295; 136 ER
Hardy v Motor Insurers’ Bureau [1964] 2 QB 1265 . . . 45
745 . . . 386, 640 Harvy v Gibbons (1675) 2 Lev 161; 83 ER
Hare v Horton (1833) 5 B & Ad 715; 110 ER 499 . . . 102
954 . . . 170 Harwood (Trading as RSBS Group) v Smith, The
Hare v Nicoll [1966] 2 QB 130 . . . 443, 444 Times, 8 Dec 1997 . . . 705
lx table of cases

Haryanto (Yani) v ED & F Man (Sugar) Ltd [1986] Henthorn v Fraser [1892] 2 Ch 27 . . . 46, 57
2 Lloyd’s Rep 44 . . . 139 Hepburn v Tomlinson (A) (Hauliers) Ltd [1966]
Hasan v Willson [1977] 1 Lloyd’s Rep 431 . . . 681 AC 451 . . . 619
Haseldine v CA Daw & Son Ltd [1941] 2 KB Hermann v Charlesworth [1905] 2 KB 123 . . . 394,
343 . . . 657 425
Haseldine v Hosken [1933] 1 KB 822 . . . 386 Hermosa, The [1980] 1 Lloyd’s Rep 638; [1982] 1
Hasham v Zenab [1960] AC 316 . . . 577, 608 Lloyd’s Rep 570 . . . 489, 513
Haslemere Estates Ltd v Baker [1982] 1 WLR Herne Bay Steamboat Co v Hutton [1903] 2 KB
1109 . . . 142 683 . . . 478
Hawksley v Outram [1892] 3 Ch 359 . . . 470 Heskell v Continental Express [1950] 1 All ER
1033 . . . 552
Hayes v James & Charles Dodd [1990] 2 All ER
815 . . . 536, 537 Heyman v Darwins Ltd [1942] AC 356 . . . 508,
510, 512, 521, 524, 525, 595
Haystead v Commissioner of Taxation [1926] AC
155 . . . 529 Heywood v Wellers [1976] QB
446 . . . 537, 554
Hayward v Giffard (1838) 4 M & W 194; 150 ER
1399 . . . 391 Hibernian Bank Ltd v Gysin & Hanson [1939] 1
KB 483 . . . 682
Haywood v Brunswick Permanent Benefit
Building Socy (1876) 3 Ch D 694 . . . 656 Hichens, Harrison Woolston & Co v Jackson &
Sons [1943] AC 266 . . . 713, 715
Hazel v Hammersmith & Fulham LBC [1992] 2
AC 1 . . . 224 Hickman v Haynes (1875) LR 10 CP 598 . . . 467,
468
Head v Tattersall (1871) LR 7 Ex 7 . . . 69, 143,
Higgins (W) Ltd v Northampton Corp [1927] 1
470, 471
Ch 128 . . . 263
Heald v Kenworthy (1855) 10 Exch 739; 156 ER
Hill v Archbold [1968] 1 QB 686 . . . 390, 391
638 . . . 712
Hill v Parsons (CA) & Co Ltd [1972] Ch
Heald v O’Connor [1971] 1 WLR 497 . . . 432
305 . . . 508, 578, 581
Heath v Tang [1993] 1 WLR 1421 . . . 683
Hill v Van Erp (1997) 142 ALR 687
Heaven & Kesterton Ltd v Et Francois Albiac & (Australia) . . . 644
Cie [1956] 2 Lloyd’s Rep 316 . . . 555
Hill v William Hill (Park Lane) Ltd [1949] AC
Hebb’s Case (1867) LR 4 Eq 9 . . . 47 530 . . . 103
Hector v Lyons (1988) 58 P & CR 156 . . . 273 Hillas v Arcos (1932) 147 LT 503 . . . 61, 62, 63,
Hedley Byrne & Co Ltd v Heller & Partners Ltd 65, 66
[1964] AC 465 . . . 24, 100, 136, 310, 321, 323, Hillingdon Estates Co v Stonefield Estates Ltd
324, 327, 330, 342, 343, 716 [1952] Ch 627 . . . 497
Heilbut Symons & Co v Buckleton [1913] AC Hindley & Co Ltd v General Fibre Co Ltd [1940]
30 . . . 73, 134, 135, 136, 137, 309 2 KB 517 . . . 421
Heisler v Anglo-Dal Ltd [1954] 1 WLR Hines v Birbeck College (No 2) [1992] Ch
1273 . . . 511 33 . . . 529
Helbert Wagg & Co Ltd’s Claim, Re [1956] Ch Hinton v Sparkes (1868) LR 3 CP 161 . . . 574
323 . . . 387 Hippisley v Knee Bros [1905] 1 KB 1 . . . 702
Helps v Clayton (1864) 17 CBNS 553 . . . 236 Hirachand Punamchand v Temple [1911] 2 KB
Helstan Securities Ltd v Hertfordshire CC [1978] 330 . . . 115, 448
3 All ER 262 . . . 672 Hirji Mulji v Cheong Yue SS Co Ltd [1926] AC
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 497 . . . 485, 486, 498
549 . . . 688 Hirshfeld v LB & SC Ry (1876) 2 QBD 1 . . . 304
Henderson v Merrett Syndicates Ltd [1995] 2 AC Hiscox v Outhwaite (No 3) [1991] 2 Lloyd’s Rep
145 . . . 24, 324, 340, 441, 534, 563, 605, 644, 650, 524; [1992] 1 AC 562 . . . 123, 128
704, 705, 715
Hispanica de Petroleos SA v Vencedora Oceanica
Henderson v Stevenson (1875) LR 2 HL Sc App SA, The Kapetan Markos NL (No 2) [1987] 2
470 . . . 175 Lloyd’s Rep 321 . . . 658
Hendry v Chartsearch Ltd [1998] CLR 1382 . . . 672 Hissett v Reading Roofing Co Ltd [1969] 1 WLR
Henkel v Pape (1870) LR 6 Ex 7 . . . 32, 254 1757 . . . 527
Hennessy v Craigmyle & Co Ltd [1986] ICR Hitchcock v Giddings (1817) 4 Price 135; 146 ER
461 . . . 355 418 . . . 284
 table of cases lxi

Hivac Ltd v Park Royal Scientific Instruments Ltd Hood v West End Motor Car Packing Co Ltd
[1946] Ch 169 . . . 582 [1917] 2 KB 38 . . . 335
Hobbs v L & SW Ry (1875) LR 10 QB 111 . . . 536 Hooper v Sherman, 30 November 1994 (CA) . . . 85
Hochster v De la Tour (1853) 2 E & B 678; 118 ER Hop and Malt Exchange and Warehouse Co, Re
922 . . . 514, 515 (1866) LR 1 Eq 483 . . . 314
Hockley v Goldstein (1922) 90 LK JB 111 . . . 665 Hope (John D) & Co v Glendinning [1911] AC
Hodges v Smith (1599) Cro Eliz 623; 78 ER 419 . . . 707
864 . . . 460 Hopkins v Tanqueray (1854) 15 CB 130; 139 ER
Hodges v Webb [1920] 2 Ch 70 . . . 355 369 . . . 134
Hodgson v Anderson (1825) 3 B & C 842; 107 ER Horcal v Garland [1984] IRLR 288 . . . 289
945 . . . 722 Horkulak v Cantor Fitzgerald International [2004]
Hoenig v Isaacs [1952] 2 All ER 176 . . . 452, 454, EWCA Civ 1287; [2005] ICR 402 . . . 540
455 Horlock v Beal [1916] 1 AC 486 . . . 479
Holbeck Hall Hotel Ltd v Scarborough BC (1998) Horne v Midland Railway Company (1873) LR 8
57 Con LR 113; [2000] 2 WLR 1396 . . . 497 CP 131 . . . 552, 553, 554
Holden (Richard) Ltd v Bostock & Co Ltd (1902) Horrocks v Forray [1976] 1 WLR 230 . . . 73
18 TLR 317 . . . 556, 561 Horry v Tate & Lyle Refineries Ltd [1982] 2
Hollier v Rambler Motors (AMC) Ltd [1972] 2 Lloyd’s Rep 416 . . . 304, 342, 364, 376
QB 71 . . . 177, 181, 182 Horsfall v Thomas (1862) 1 H & C 90; 158 ER
Hollingworth v Southern Ferries Ltd [1977] 2 813 . . . 306
Lloyd’s Rep 70 . . . 173 Hospital Products Ltd v United States Surgical
Hollins v J Davy Ltd [1963] 1 QB 844 . . . 190 Corp (1984) 156 CLR 41 (Australia) . . . 340, 597
Hollman v Pullin (1884) 1 Cab & El 254 . . . 714 Houghton Main Colliery Co Ltd, Re [1959] 1
Holman v Johnson (1775) 1 Cowp 341; 98 ER WLR 1219 . . . 563
1120 . . . 387, 416, 431 Hounslow London BC v Twickenham Garden
Holman Construction Ltd v Delta Timber Co Ltd Developments Ltd [1971] Ch 233 . . . 574
[1972] NZLR 1081 . . . 56 House of Spring Gardens Ltd v Waite [1991] 1 QB
Holmes, Re (1885) 29 Ch D 786 . . . 672 241 . . . 529
Holmes v Bell (1841) 3 M & G 213; 133 ER Housecroft v Burnett [1986] 1 All ER 332 . . . 617
1120 . . . 527 Household Fire & Carriage Accident Insurance
Holmes v Blogg (1818) 8 Taunt 508; 129 ER Co Ltd v Grant (1879) 4 Ex D 216 . . . 46, 47, 52
481 . . . 238 Howard v Chapman (1831) 4 C & P 508; 172 ER
Holroyd v Marshall (1862) 10 HL Cas 191 . . . 576 803 . . . 712
Holt v Heatherfield Trust Ltd [1942] 2 KB Howard v Odhams Press Ltd [1938] 1 KB 1 . . . 389
1 . . . 665, 669 Howard v Pickford Tool Co Ltd [1951] 1 KB
Holwell Securities Ltd v Hughes [1974] 1 WLR 417 . . . 509
155 . . . 48 Howard v Shirlstar Container Transport Ltd
Homburg Houtimport BV v Agrosin Private Ltd, [1990] 2 All ER 366; [1990] 1 WLR 1292 . . .
The Starsin [2003] UKHL 12; [2004] 1 AC 379, 417
715 . . . 166, 169, 256, 649 Howard Marine & Dredging Co Ltd v A Ogden &
Home Counties Dairies Ltd v Skilton [1970] 1 Sons (Excavations) Ltd [1978] QB 574 . . . 135,
WLR 526 . . . 404, 405 203, 324, 325, 327, 330
Home Insurance Co Ltd v Administratia Howatson v Webb [1907] 1 Ch 537; aff ’d [1908] 1
Asigurarilor [1983] 2 Lloyd’s Rep 674 . . . 71 Ch 1 . . . 259
Homsy v Murphy (1997) 73 P & CR 26 . . . 550 Howe v Smith (1884) 27 Ch D 89 . . . 574, 592
Honck v Muller (1881) 7 QBD 92 . . . 522 Howell v Coupland (1876) 1 QBD 258 . . . 495,
Hondly v M’Laine (1834) 10 Bing 482 . . . 63 505, 506
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Howell v Young (1826) 5 B & C 259; 108 ER
Kaisha Ltd [1962] 2 QB 26 . . . 145, 146, 97 . . . 605
489, 521 Hoyle, Re [1893] 1 Ch 84 . . . 83
Hongkong & Shanghai Banking Corporation v Lo Huddersfield Banking Co Ltd v Henry Lister &
Lee Shi [1928] AC 181 . . . 529 Son Ltd [1895] 2 Ch 273 . . . 291
Hood v Anchor Line (Henderson Bros) Ltd Hudson v Robinson (1816) 4 M & S 475; 105 ER
[1918] AC 837 . . . 174 910 . . . 589
lxii table of cases

Hudson (Howard F) Pty Ltd v Ronayne (1972) Ideal Films Ltd v Richards [1927] 1 KB 374 . . . 232
126 CLR 449 (Australia) . . . 405 Imperial Land Co of Marseilles, Re (Harris’ Case)
Hughes v Asset Managers plc [1995] 3 All ER (1872) LR 7 Ch App 587 . . . 46, 48
669 . . . 382 Imperial Loan Co v Stone [1892] 1 QB
Hughes v Clewley, The Siben (No 2) [1996] 1 599 . . . 247
Lloyd’s Rep 35 . . . 421, 422 Imperial Tobacco Pension Trust v Imperial
Hughes v DHSS [1985] AC 776 . . . 222, 226 Tobacco [1991] IRLR 66 . . . 153
Hughes v Greenwich LBC [1994] 1 AC 170 . . . 153 Inche Noriah v Shaik Allie Bin Omar [1929] AC
Hughes v Kingston upon Hull CC [1999] QB 127 . . . 367
1193 . . . 380 Independent Broadcasting Authority v EMI
Hughes v Liverpool Victoria Legal Friendly Electronics Ltd (1980) 14 BLR 1 . . . 134
Society [1916] 2 KB 482 . . . 427 India Ministry of Finance, Government of v
Hughes v Metropolitan Railway Co (1877) 2 App Taylor [1955] AC 491 . . . 387
Cas 439 . . . 117, 118, 119, 120, 121 India, President of v La Pintada Co Nav [1985]
Hughes (Thomas) v Kingston upon Hull CC AC 104 . . . 564
[1999] 2 All ER 49; [1999] QB 1193 . . . 392 India, President of v Lips Maritime Corp, The Lips
Huguenin v Baseley (1807) 14 Ves Jun 273; 33 ER [1988] AC 395 . . . 564
526 . . . 363, 366 India, Republic of v India Steamship Co Ltd
Hull & Co Ltd v Pearlberg [1956] 1 WLR [1993] AC 410 . . . 529
244 . . . 563 India, Republic of v India Steamship Co Ltd, The
Humble v Hunter (1848) 12 QB 310 . . . 708 Indian Grace (No 2) [1997] 2 WLR 538; [1998]
Humber Ferry Case, see Bukton v Tounesende AC 878 . . . 128, 529
Humble v Mitchell (1839) 11 A & E 205; 113 ER Inglis v John Buttery & Co (1878) 3 App Cas
392 . . . 85 552 . . . 138
Humphreys v Polak [1901] 2 KB 385 . . . 395 Ingram v Little [1961] 1 QB 31 . . . 251, 268, 274,
275
Hunt v Severs [1994] AC 350 . . . 617
Initial Services Ltd v Putterill [1968] 1 QB
Hunt v Silk (1804) 5 East 449; 102 ER 1142 . . . 588
396 . . . 389
Hunt & Winterbotham (West of England) Ltd v
Inland Revenue Commissioners v Hambrook
BRS Parcels Ltd [1962] 1 QB 617 . . . 186
[1956] 2 QB 641 . . . 223
Hunt (Charles) Ltd v Palmer [1931] Ch 287 . . . 339
Interfoto Picture Library Ltd v Stiletto Visual
Hurst v Bryk [2002] 1 AC 185 . . . 520, 525 Programmes Ltd [1989] QB 433 . . . 176, 214
Hurstanger Ltd v Wilson [2007] EWCA Civ 299; International Fina Services AG v Katrina Shipping
[2007] 2 All ER (Comm) 1037 . . . 702 Ltd [1995] 2 Lloyd’s Rep 344 . . . 166
Hussey v Eels [1990] 2 QB 227 . . . 556 International Sea Tankers Inc v Hemisphere
Hussey v Horne Payne (1879) 4 App Cas 311 . . . 67 Shipping Co Ltd [1982] 1 Lloyd’s Rep 128;
Hutton v Warren (1836) 1 M & W 466; 150 ER [1983] 1 Lloyd’s Rep 400 . . . 480, 481
517 . . . 138, 157 International Sponge Importers v Watt [1911] AC
Huyton SA v Peter Cremer GmbH & Co [1999] 279 . . . 712
1 Lloyd’s Rep 620 . . . 103, 110, 111, 120, 351, Internet Broadcasting Corp Ltd v MAR LLC
353, 354 [2009] EWHC 844 (Ch); [2009] 2 Lloyd’s Rep
Hyde v Wrench (1840) 3 Beav 334; 49 ER 295 . . . 186
132 . . . 40, 58 Intertradex SA v Lesieur Tourteaux SARL [1978]
Hyland v JH Barker (North West) Ltd [1985] ICR 2 Lloyd’s Rep 509 . . . 495
861 . . . 433 Investors Compensation Scheme Ltd v West
Hyman v Hyman [1929] AC 601 . . . 396 Bromwich BS [1998] 1 WLR 896 . . . 153, 154,
Hyundai Heavy Industries Co Ltd v 166, 167, 168, 169, 178, 258, 661, 665
Papadopoulous [1980] 1 WLR 1129 . . . 525, Ionides v Pender (1874) LR 9 QB 531 . . . 335
574, 591 Irani v Southampton & SW Hampshire HA [1985]
Hyundai Ship Building & Heavy Industries Co ICR 590 . . . 578
Ltd v Pournaras [1978] 2 Lloyd’s Rep 502 . . . 593 Irish Shell Ltd v Elm Motors Ltd [1982] ILRM 519
(Ireland) . . . 412
ICI v Commission (Case 48/69) [1972] ECR Iron Trades Mutual Insurance Co Ltd v JK
557 . . . 409 Buckenham Ltd [1990] 1 All ER 808 . . . 606
 table of cases lxiii

Irvani v Irvani [2000] 1 Lloyd’s Rep 412 . . . Jennings v Rundall (1799) 8 Term R 335 . . . 241
247, 373 Jennings & Chapman Ltd v Woodman, Matthews
Irvine & Co v Watson & Sons (1880) 5 QBD & Co [1952] 2 TLR 409 . . . 64
414 . . . 711, 712 Jervis v Harris [1996] Ch 195 . . . 569
Isberg v Bowden (1853) 8 Exch 852; 155 ER Jetley v Hill (1884) Cab & El 239 . . . 693
1599 . . . 709 Jewson Ltd v Boyhan [2003] EWCA Civ 1030;
Islamic Republic of Iran Shipping Lines v Ierax SS [2004] 1 Lloyd’s Rep 505 . . . 162, 163
Co of Panama [1991] 1 Lloyd’s Rep 81 . . . 550 Jobson v Johnson [1989] 1 All ER 621; [1989] 1
Islamic Republic of Iran Shipping Lines v Zannis WLR 1026 . . . 569, 593
Cia Naviera SA, The Tzelepi [1991] 2 Lloyd’s Joel v Law Union & Crown Insurance Co [1908] 2
Rep 265 . . . 707 KB 863 . . . 334, 335, 336
Islington LBC v Uckac [2006] EWCA Civ 340; Johnson v Agnew [1980] AC 367 . . . 524, 535,
[2006] 1 WLR 1303 . . . 295 557, 585
Italy v Commission (Case 41/83) [1985] ECR Johnson v Clarke [1908] 1 Ch 303 . . . 158
873 . . . 409
Johnson v Davies [1999] Ch 117 . . . 114
Ive v Chester (1619) Cro Jac 560 . . . 240
Johnson v Gore Wood & Co [2002] 2 AC 1 . . . 125,
130, 536, 537
J, Re [1909] 1 Ch 574 . . . 239 Johnson v Pye (1665) 1 Sid 258 . . . 241
JEB Fasteners v Marks, Bloom Co [1983] 1 All ER Johnson v Unisys Ltd [1999] 1 All ER 854; [2000]
583 . . . 306 2 WLR 1076; [2001] UKHL 13; [2003] 1 AC
JSC Zestafoni G Nikoladze Ferralloy Plant v Ronly 518 . . . 155, 535, 539
Holdings Ltd [2004] EWHC 245 (Comm); Johnson & Bloy (Holdings) Ltd v Wolstenholme
[2004] 2 Lloyd’s Rep 335 . . . 46 Rink plc [1989] 1 FSR 135 . . . 403
Jackson v Horizon Holidays Ltd [1975] 1 WLR Johnson (E) & Co (Barbados) Ltd v NSR Ltd
1468 . . . 537, 614, 617, 618, 642 [1997] AC 400 . . . 497
Jackson v Royal Bank of Scotland plc [2005] Johnson Matthey & Co Ltd v Constantine
UKHL 3; [2005] 1 WLR 377 . . . 546, 547 Terminals Ltd [1976] 2 Lloyd’s Rep
Jackson v Union Marine Insurance Co Ltd (1874) 215 . . . 658
LR 10 CP 125 . . . 282, 473, 476, 480, 488–90, Johnston v Boyes [1899] 2 Ch 73 . . . 36
492, 521
Johnstone v Bloomsbury HA [1992] 1 QB
Jackson v Watson [1909] 2 KB 193 . . . 617 333 . . . 153, 197
Jacob & Youngs Inc v Kent 129 NE 889 (1921) Jones, ex parte Jones, Re (1881) 18 Ch D
(USA) . . . 455 109 . . . 244
Jacobs v Batavia & General Plantations Trust Jones v Canavan [1972] 2 NSWLR 236
[1924] 1 Ch 287 . . . 138 (Australia) . . . 158
Jaques v Lloyd D George & Partners [1968] 1 Jones v Daniel [1894] 2 Ch 332 . . . 41
WLR 625 . . . 61, 191, 705
Jones v Herxheimer [1950] 2 KB 106 . . . 540
Jaggard v Sawyer [1995] 1 WLR 269 . . . 585, 598
Jones v Humphreys [1902] 1 KB 10 . . . 664
Jaijbhay v Cassim 1939 AD 537 (South
Africa) . . . 429 Jones v Jones [1999] 1 WLR 1739 . . . 609
Jameson v Central Electricity Generating Board Jones v Padavatton [1969] 1 WLR 328 . . . 71, 72
[1998] QB 323 . . . 461 Jones v Sherwood Computer Services plc [1992] 1
Jarvis v Swans Tours Ltd [1973] QB 233 . . . 537 WLR 277 . . . 395
Jefferys v Fairs (1876) 4 Ch D 448 . . . 289 Jones v Vernons’ Pools [1938] 2 All ER 626 . . . 71
Jeancharm Ltd v Barnet Football Club Ltd [2003] Jones v Victoria Dock Co (1877) 2 QBD
EWCA Civ 58; (2003) 92 Con LR 26 . . . 567 314 . . . 83
Jenkin v Pharmaceutical Society [1921] 1 Ch Jorden v Money (1854) 5 HLC 185; 10 ER
392 . . . 228 868 . . . 118
Jenkins v Lombard North Central plc [1984] 1 Joscelyne v Nissen [1970] 2 QB 86 . . . 263, 264
WLR 307 . . . 35 Joseph v Lyons (1884) 15 QBD 280 . . . 655
Jenkins v Tucker (1788) 1 Hy Bl 90; 126 ER Joyce v Rigolli [2004] EWCA Civ 79; [2004] 1 P &
55 . . . 40 CR DG22 . . . 85
Jennings v Rice [2002] EWCA Civ 159; [2003] 1 Junior Books Co Ltd v Veitchi Co Ltd [1983] 1 AC
FCR 501 . . . 127 520 . . . 629, 644
lxiv table of cases

K, Re [1985] Ch 85 . . . 422 Kemp v Baerselman [1906] 2 KB 604 . . . 674

KH Enterprise v Pioneer Container [1994] 2 AC Kemp v Intasun Holidays Ltd [1987] 2 FTLR
324 . . . 615, 623, 658 234 . . . 550, 554
KPMG v Network Rail Infrastructure Ltd [2007] Kemp v Neptune Concrete (1989) 57 P & CR
EWCA Civ 363; [2008] 1 P & CR 1 . . . 262 369 . . . 263, 265
Kahler v Midland Bank [1952] AC 24 . . . 704 Kempson v Ashbee (1874) LR 10 Ch App
Kaines (UK) Ltd v Osterreichische 15 . . . 371
Warenhandelsgesellschaft etc [1993] 2 Lloyd’s Kendall v Hamilton (1879) 4 App Cas 504 . . . 510,
Rep 1 . . . 555, 557 528
Kammins Ballrooms Co Ltd v Zenith Investments Kendall v Morgan, The Times, 2 Dec 1980 . . . 648
(Torquay) Ltd [1971] AC 850 . . . 470, 510 Kendall (Henry) & Sons v William Lillico & Sons
Kamouh v Associated Electrical Industries Ltd [1969] 2 AC 31 . . . 164, 177, 178, 550
International Ltd [1980] QB 199 . . . 607 Kennedy v Broun (1863) 13 CBNS 677 . . . 96
Kanchenjunga, The, see Motor Oil Hellas Kennedy v Panama, New Zealand, and Australian
(Corinth) Refineries SA v Shipping Corp of Royal Mail Co Ltd (1867) LR 2 QB 580 . . .
India 286, 309
Kanhaya Lal v National Bank of India (1913) 29 Kennedy v Thomassen [1929] 1 Ch 426 . . . 45
TLR 314 . . . 354 Kenny & Good Pty Ltd v MGICA (1992) Ltd
Kapetan Markos NL, The, see Hispanica de (1999) 163 ALR 611; (1999) 199 CLR 413
Petroleos SA v Vencedora Oceanica SA (No 2) (Australia) . . . 325
Karangahape Road International Village Ltd v Kenya Railways v Antares Co Pte Ltd [1987] 1
Holloway [1989] 1 NZLR 83 . . . 626 Lloyd’s Rep 424 . . . 185, 186, 189
Karflex Ltd v Poole [1933] 2 KB 251 . . . 589 Kenyon v Darwen Manufacturing Co Ltd [1936] 2
Karin Vatis, The, see Vagres Comp Maritima SAv KB 193 . . . 433
Nissho-Iwai America Corp Kenyon, Son & Craven Ltd v Baxter Hoare & Co
Karsales (Harrow) Ltd v Wallis [1956] 1 WLR Ltd [1971] 1 WLR 519 . . . 185, 190
936 . . . 187, 188 Kepong Prospecting Ltd v Schmidt [1968] AC
Kavanagh, Re [1949] 2 All ER 264; aff ’d [1950] 1 810 . . . 615
All ER 39n . . . 683 Kerchiss v Colora Printing Inks Ltd [1960] RPC
Kazakhstan Wool Processors (Europe) Ltd v 235 . . . 405
Nederlansche Credietverzekering Maatschappij Kettle v Dunster & Wakefield (1927) 43 TLR
NV [2000] 1 All ER (Comm) 708 . . . 143 770 . . . 714
Kearley v Thomson (1890) 24 QBD 742 . . . Khophraror v Woolwich Building Society [1996]
424, 428 4 All ER 119 . . . 545
Kearney v Whitehaven Colliery Co [1893] 1 QB Kilmun, The, see Shell Co of Australia Ltd v Nat
700 . . . 433 Shipping Bagging Services Ltd
Keate v Temple (1797) 1 B & P 158; 126 ER Kinane v Mackie-Conteh [2005] EWCA Civ 45;
834 . . . 80 [2005] 2 P & CR DG3 . . . 88
Keates v Lord Cadogan (1851) 10 CB 591; 138 ER Kinch v Bullard [1999] 1 WLR 423 . . . 52
234 . . . 301 King, ex parte Unity Joint-Stock Mutual Banking
Keay v Fenwick (1876) 1 CPD 745 . . . 704 Association, Re (1858) 3 De G & J 63; 44 ER
Keen v Commerzbank AG [2006] EWCA Civ 1192 . . . 244
1536; [2007] ICR 623 . . . 195 King v Victor Parsons & Co [1973] 1 WLR
Keighley, Maxsted & Co v Durant [1901] AC 29 . . . 607
240 . . . 689, 708 King v Victoria Insurance Co Ltd [1896] AC
Keir v Leeman (1844) 6 QB 308; aff ’d (1846) 9 QB 250 . . . 665
371 . . . 389 King (Don) Productions Inc v Warren [2000] Ch
Kekewich v Manning (1851) 1 De F M & G 176; 291 . . . 672, 674
[1959] CLJ 99 . . . 668 King’s Motors (Oxford) Ltd v Lax [1970] 1 WLR
Kelly v Cooper [1993] AC 205 . . . 158, 340, 341, 426 . . . 63
701, 702, 703 King’s Norton Metal Co Ltd v Edridge, Merrett &
Kelner v Baxter (1866) LR 2 CP 174 . . . 690, 714 Co Ltd (1897) 14 TLR 98 . . . 271, 273
Kemble v Farren (1829) 6 Bing 141; 130 ER Kingsley v Sterling Industrial Securities Ltd
1234 . . . 567, 568 [1967] 2 QB 747 . . . 428
 table of cases lxv

Kingston v Ambrian Investment Co Ltd [1975] 1 L (an infant), Re [1971] 3 All ER 743 . . . 224
WLR 161 . . . 78 L’Estrange v F Graucob Ltd [1934] 2 KB
Kingston v Preston (1773) 2 Doug 689; 99 ER 394 . . . 173
437 . . . 520 L’Office Cherifien des Phosphates v Yamashita-
Kiriri Cotton Co Ltd v Dewani [1960] AC Shinnihon Steamship Co Ltd [1994] 1 AC
192 . . . 426, 427 486 . . . 494
Kirkham v Marter (1819) 2 B & Ald 613; 106 ER La Banque Jacques-Cartier v La Banque d’Epargne
490 . . . 80 de Montreal (1887) 13 App Cas 111 . . . 691
Kirklees MBC v Yorkshire Woollen District Lac Minerals Ltd v International Corona
Transport Co (1978) 77 LGR 448 . . . 472 Resources Ltd [1989] 2 SCR 574
Kitchen Design & Advance Ltd v Lea Valley Water (Canada) . . . 341
Co [1989] 2 Lloyd’s Rep 221 . . . 461 Lacey (William) (Hounslow) Ltd v Davis [1957] 1
Kleinwort Benson v South Tyneside MBC [1994] WLR 932 . . . 32, 64
4 All ER 972 . . . 606 Laconia, The [1977] AC 850 . . . 593
Kleinwort Benson Ltd v Glasgow City Council Laemthong International Lines Company Ltd
[1999] 1 AC 153 . . . 23 v Artis, The Laemthong Glory (No 2) [2005]
Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC EWCA Civ 519; [2005] 1 Lloyd’s Rep
349 . . . 83, 89, 228, 238, 250, 277, 304, 427, 607 688 . . . 630
Kleinwort Benson Ltd v Malaysia Mining Corp Lagden v O’Connor [2003] UKHL 64; [2004] 1
Bdh [1988] 1 WLR 799; [1989] 1 WLR AC 1067 . . . 556
379 . . . 67, 68, 72 Lagunas Nitrate Co v Lagunas Syndicate [1899] 2
Kleinwort Sons & Co v Ungarische Baumwolle Ch 392 . . . 316, 341
Industrie Aktiengesellschaft [1939] 2 KB Laidlaw v Organ 15 US (2 Wheat) 178
678 . . . 387 (1817) . . . 333
Knight Sugar Co Ltd v Alberta Ry & IrrigationCo Laing Management Ltd v Aegon Insurance Co
[1938] 1 All ER 266 . . . 527 (UK) Ltd (1998) 86 Build LR 70 . . . 471
Knott v Bolton (1995) 45 Con LR 127 . . . 537 Lake v Bayliss [1974] 1 WLR 1073 . . . 597
Kodeeswaran v Attorney-General of Ceylon Lake v Simmons [1927] AC 487 . . . 249, 274
[1970] AC 1111 . . . 223 Lakeman v Mountstephen (1874) LR 7 HL
Kodros Shipping Corp of Monrovia v Empresa 17 . . . 80, 81
Cubana de Fletes [1983] 1 AC 736 . . . 481 Laker Airways Ltd v Department of Trade [1977]
Koompahtoo Local Aboriginal Land Council v QB 643 . . . 222, 224
Sanpine Pty Ltd [2007] HCA 61; (2007) 241 Lamare v Dixon (1873) LR 6 HL 414 . . . 308
ALR 88 . . . 145 Lambert v Lewis [1982] AC 225 . . . 136, 137, 161,
Korbetis v Transgrain Shipping BV [2005] EWHC 303, 561
1345 (QB) . . . 47 Lampert’s Case (1612) 10 Co Rep 46b; 77 ER
Kores Manufacturing Co Ltd v Kolok 994 . . . 662
Manufacturing Co Ltd [1959] Ch 108 . . . 407 Lampleigh v Brathwait (1615) Hob 105; 80 ER
Koufos v C Czarnikow Ltd, The Heron II [1969] 1 255 . . . 96
AC 350 . . . 545, 546, 547, 548, 549, 550, 552, 555 Lamport & Holt Lines Ltd v Coubro & Scrutton
Kpoharor v Woolwich BS [1996] 4 All ER 119 . . . 539 (M & I) Ltd [1982] 2 Lloyd’s Rep 42 . . . 180
Krell v Henry [1903] 2 KB 740 . . . 277, 289, 473, Lancashire CC v Municipal Mutual Insurance Ltd
477, 478 [1997] QB 743 . . . 386
Kuddus v Chief Constable of Leicestershire Lancashire Loans Ltd v Black [1934] 1 KB
Constabulary [2001] UKHL 29; [2002] 2 AC 380 . . . 370, 371
122 . . . 323, 534 Lancaster v Walsh (1838) 4 M & W 16; 150 ER
Kuenigl v Donnersmarck [1955] 1 QB 515 . . . 386, 1324 . . . 38
433, 434, 436 Landfast (Anglia) Ltd v Cameron Taylor One Ltd
Kumar v Life Insurance Corp of India [1974] 1 [2008] EWHC 343 (TCC); (2008) 117 Con LR
Lloyd’s Rep 147 . . . 336 53 . . . 671
Kwei Tek Chao v British Traders & Shippers Ltd Lane v O’Brien Homes Ltd [2004] EWHC 303
[1954] 2 QB 459 . . . 588 (QB) . . . 600, 601
Kyprianou v Cyprus Textiles Ltd [1958] 2 Lloyd’s Langton v Hughes (1813) 1 M & S 593, 105 ER
Rep 60 . . . 518 222 . . . 380
lxvi table of cases

Lansat Shipping co Ltd v Glencore Grain BV, The Lehmann v McArthur [1868] LR 3 Ch App
Paragon [2009] EWHC 551 (Comm); [2009] 1 496 . . . 609
Lloyd’s Rep 659 . . . 565 Leigh & Sillavan Ltd v Aliakmon SS Co Ltd [1985]
Lansing Linde Ltd v Kerr [1991] 1 WLR QB 350; [1986] AC 785 . . . 649
251 . . . 403 Lemenda v African Middle East Petroleum Ltd
Lark v Outhwaite [1991] 2 Lloyd’s Rep 132 . . . 40, [1988] QB 448 . . . 387
51 Lemprière v Lange (1879) 12 Ch D 657 . . . 244
Larking v Great Western (Nepean) Gravel Ltd Leng (Sir WC) & Co Ltd v Andrews [1909] 1 Ch
(1940) 64 CLR 221 (Australia) . . . 606 763 . . . 235, 403
Larocque v Beauchemin [1897] AC 358 . . . 446 Lens v Devonshire Club, The Times, 4 Dec 1914 . . . 70
Larrinaga & Co Ltd v Société Franco-Americaine Leonard (Cyril) & Co v Simo Securities Trust
des Phosphates de Medulla, Paris (1922) 28 [1972] 1 WLR 80 . . . 511
Com Cas 1; (1923) 39 TLR 316 . . . 478, 489, 491 Leroux v Brown (1852) 12 CB 801 . . . 82
Lasky v Economic Stores 5 NE 2d 305 (1946) . . . 35 Leslie (R) Ltd v Sheill [1914] 3 KB 607 . . . 241, 242,
Laurence v Lexcourt Holdings Ltd [1978] 1 WLR 243, 244
1128 . . . 293, 304, 306 Leslie Shipping Co v Welstead [1921] 3 KB
Laurent v Sale & Co [1963] 1 WLR 829 . . . 673 420 . . . 525, 574
Lauritzen (J) AS v Wijsmuller BV, The Super Letts v IRC [1957] 1 WLR 201 . . . 669
Servant Two [1989] 1 Lloyd’s Rep 148; [1990] Lever (Finance) Ltd v Westminster Corp [1971] 1
1 Lloyd’s Rep 1 . . . 449, 473, 493, 494, 495, 496, QB 222 . . . 225, 226
498
Levey & Co v Goldberg [1922] 1 KB 688 . . . 466,
LauritzenCool AB v Lady Navigation Ltd [2005] 468
EWCA Civ 579; [2005] 1 WLR 3686 . . . 583
Levison v Patent Steam Carpet Cleaning Co Ltd
Lavarack v Woods of Colchester Ltd [1967] 1 QB [1978] QB 69 . . . 173, 180, 186, 192
278 . . . 540, 556
Levita’s Case (1867) LR 3 Ch App 36 . . . 44
Lavery v Pursell (1888) 39 Ch D 508 . . . 580
Levy v Yates (1838) 8 A & E 129; 112 ER
Law v Local Board of Redditch [1892] 1 QB 785 . . . 385
127 . . . 568
Lewis v Averay [1972] 1 QB 198 . . . 249, 251, 268,
Law v Robert Roberts & Co [1964] IR 292 . . . 698 271, 273, 275
Law Debenture Trust Corp v Ural Caspian Lewis v Clay (1897) 67 LJQB 224 . . . 260
Oil Corp Ltd [1993] 1 WLR 138; [1995] Ch
152 . . . 655, 656 Lewis v Samuel (1846) 8 QB 685 . . . 707
Lazard Bros & Co Ltd v Fairfield Properties Co Lewis & Hall v McBurney [1970] CLY 372 . . . 429
(Mayfair) Ltd (1977) 121 Sol J 793 . . . 609 Lewis (John) Properties plc v Viscount Chelsea
Lazenby Garages Ltd v Wright [1976] 1 WLR [1993] 2 EGLR 77 . . . 496
459 . . . 558 Leyland Daf Ltd v Automotive Products plc
Leaf v International Galleries [1950] 2 KB [1994] 1 BCLC 245 . . . 356, 357
86 . . . 287, 315, 319 Lia Oil SA v ERG Petroli SpA [2007] EWHC 505
Leask v Scott (1877) 2 QBD 376; (1943) 59 LQR (Comm); [2007] 2 Lloyd’s Rep 509 . . . 607
208 . . . 668 Libyan Arab Foreign Bank Co v Bankers Trust Co
Leather Cloth Co v Hieronimus (1875) LR 10 QB [1989] 1 QB 728 . . . 387, 445, 449, 451, 483
140 . . . 467 Lickbarrow v Mason (1794) 5 TR 683 . . . 115
Ledingham v Bermejo Estancia Co Ltd [1947] 1 Light v Ty Europe Ltd [2003] EWCA Civ 1238;
All ER 749 . . . 123 [2004] 1 Lloyd’s Rep 693 . . . 699
Lee v Muggeridge (1813) 5 Taunt 36; 128 ER Lilley v Rankin (1887) 56 LJQB 248 . . . 432
599 . . . 94 Lind (Peter) & Co v Mersey Docks & Harbour
Lee v Walker (1872) LR 7 CP 121 . . . 702 Board [1972] 2 Lloyd’s Rep 234 . . . 42
Lee (John) & Son (Grantham) Ltd v Railway Linden Gardens Trust Ltd v Lenesta Sludge
Executive [1949] 2 All ER 581 . . . 179, 192 Disposals Ltd (1992) 57 BLR 57; [1994] 1 AC
Lee (Paula) Ltd v Robert Zehil & Co Ltd [1983] 2 85 . . . 618, 619, 671, 672, 675
All ER 390 . . . 540 Lindsay Petroleum Co v Hurd (1874) LR 5 PC
Leeman v Stocks [1951] Ch 941 . . . 82 221 . . . 302, 609
Legione v Hateley (1983) 152 CLR 406 Linggi Plantations Ltd v Jagatheesan (1972) 1 MLJ
(Australia) . . . 593 89 . . . 592
 table of cases lxvii

Linz v Electric Wire Co of Palestine [1948] AC London & North Western Ry v Neilson [1922] 2
371 . . . 89 AC 263 . . . 188
Lion Laboratories Ltd v Evans [1985] 1 QB London & Northern Estates Co v Schlesinger
526 . . . 389 [1916] 1 KB 20 . . . 497
Lion Nathan Ltd v C-C Bottlers Ltd [1996] 1 WLR London & South of England BS v Stone [1983] 1
1438 . . . 540 WLR 1242 . . . 555
Lipkin Gorman v Karpnale Ltd [1991] 2 AC London Assurance Co v Mansel (1879) 11 Ch D
548 . . . 23, 99, 219, 242, 457, 502, 590 363 . . . 336
Lister v Romford Ice & Cold Storage Co Ltd London Borough of Newham v Khatun [2004]
[1957] AC 555 . . . 155, 156, 441 EWCA Civ 55; [2005] QB 37 . . . 207
Little v Courage (1995) P & CR 469 . . . 65 London Borough of Redbridge v Robinson
Littlewoods Organisation Ltd v Harris [1977] 1 Rentals (1969) 211 EG 1125 . . . 267
WLR 1472 . . . 404, 404 London CC v Allen [1914] 3 KB 642 . . .
Littman v Aspen Oil (Broking) Ltd [2005] EWCA 653, 654
Civ 1579, [2006] 2 P & CR 2 . . . 166, 262, 265 London, Chatham & Dover Railway Co v South
Liverpool Bank v Walker (1859) 4 De G & J 24; 45 Eastern Railway Co [1893] AC 429 . . . 564
ER 10 . . . 714 London Drugs Ltd v Kuehene & Nagel
Liverpool City Council v Irwin [1977] AC International Ltd [1992] 3 SCR 299
239 . . . 6, 151–53, 155, 156 (Canada) . . . 616, 622, 623, 645, 648, 650, 651
Liversidge v Broadbent (1859) 4 H & London General Omnibus Co Ltd v Holloway
N 603 . . . 676 [1912] 2 KB 72 . . . 338
Livesey v Jenkins [1985] AC 424 . . . 338, 345 London Joint Stock Bank v Simmons [1892] AC
Lloyd v Banks (1868) LR 3 Ch App 488 . . . 672 201 . . . 679, 681
Lloyd v Grace, Smith & Co [1912] AC 716 . . . 710 London Freehold and Leasehold Property Co v
Lord Suffield [1897] 2 Ch 608 . . . 78
Lloyd v Stanbury [1971] 1 WLR 535 . . . 542
London Weekend Television Ltd v Paris & Griffith
Lloyd Royal Belge v Stathatos (1917) 34 TLR (1969) 113 SJ 222 . . . 264
70 . . . 481
Long v Lloyd [1958] 1 WLR 753 . . . 314, 315
Lloyd’s v Harper (1880) 16 Ch D 290 . . . 618, 619,
636, 637 Lonsdale v Howard & Hallam Ltd [2007] UKHL
32; [2007] 1 WLR 2055 . . . 723
Lloyds Bank Ltd, Re [1931] 1 Ch 289 . . . 363
Lord Strathcona Steamship Co Ltd v Dominion
Lloyds Bank Ltd v Bundy [1975] QB 326 . . . 352, Coal Co Ltd [1925] P 143; [1926] AC
356, 364, 375 108 . . . 489, 581, 653, 654–56
Lloyds Bank plc v Waterhouse (1991) 10 Tr LR Lordsvale Finance plc v Bank of Zambia [1996]
161; [1993] 2 FLR 97 . . . 254, 261 QB 752 . . . 567
Lobb v Vasey Housing Auxiliary (War Widows Lorentzen v White Shipping Co Ltd (1943) 74 Ll
Guild) [1963] VR 239 (Australia) . . . 501 LR 161 . . . 654
Lobb (Alec) (Garages) Ltd v Total Oil Great Lound v Grimwade (1888) 39 Ch D 605 . . . 433
Britain Ltd [1983] 1 WLR 87; [1985] 1 WLR
173 . . . 351, 353, 354, 373–75, 402, 412 Louth v Diprose (1992) 175 CLR 621
(Australia) . . . 374
Lock International plc v Beswick [1989] 1 WLR
1268 . . . 403 Lovell & Christmas v Beauchamp [1894] AC
607 . . . 238
Locker & Woolf Ltd v West Australian Insurance
Co Ltd [1936] 1 KB 408 . . . 336 Lovell & Christmas v Wall (1911) 104 LT
85 . . . 166
Lodder v Slowey (1900) 20 NZLR 321; [1904] AC
442 . . . 595 Lovelock v Franklyn (1846) 8 QB 371 . . . 517
Logicrose Ltd v Southend United Football Club Lowe v Peers (1768) 4 Burr 2225; 98 ER
[1988] 1 WLR 1256 . . . 702 160 . . . 394
Lokumal (K) & Sons (London) Ltd v Lotte Lucan (Earl of), Re (1890) 45 Ch D 470 . . . 669
Shipping Co Pte Ltd [1985] 2 Lloyd’s Rep Lucas v Moncrieff (1905) 21 TLR 683 . . . 683
28 . . . 128 Lucas (T) & Co Ltd v Mitchell [1974] Ch
Lombard North Central plc v Butterworth [1987] 129 . . . 434, 436
QB 527 . . . 523, 570 Ludgater v Love (1881) 44 LT 694 . . . 710
Lombard Tricity Finance Ltd v Paton [1989] 1 All Luganda v Service Hotels Ltd [1969] 2 Ch
ER 916 . . . 464 209 . . . 584
lxviii table of cases

Luk Leamington Ltd v Whitnash plc [2002] 1 McCann (John) & Co v Pow [1974] 1 WLR
Lloyd’s Rep 6 . . . 263 1643 . . . 704
Lumley v Gye (1853) 3 E & B 216; 118 ER McCausland v Duncan Lawrie Ltd [1997] 1 WLR
749 . . . 25, 654 38 . . . 85, 460, 464
Lumley v Wagner (1852) 1 De GM & G 604; 42 McClaren v Home Office [1989] ICR 550; [1990]
ER 687 . . . 581, 582, 655 ICR 824 . . . 72, 223, 578
Lummus Co Ltd v East African Harbours Corp McClelland v Northern Ireland General Health
[1978] 1 Lloyd’s Rep 317 (Kenya) . . . 648 Service Board [1957] 1 WLR 594 . . . 152
Lunn Poly Ltd v Liverpool and Lancashire Macclesfield Corp v Great Central Ry [1911] 2 KB
Properties Ltd [2006] EWCA Civ 430; [2006] 2 528 . . . 696
EGLR 29 . . . 601 McCullagh v Lane Fox & Partners Ltd (1996) 49
Luxmoore May v Messenger May Baverstock Con LR 124 . . . 330, 715
[1990] 1 WLR 1009 . . . 702 McCutcheon v David Macbrayne Ltd [1964] 1
Luxor (Eastbourne) Ltd v Cooper [1941] AC WLR 125 . . . 33, 175, 177
108 . . . 55, 151, 153, 518, 705, 706 McDonald v Dennys Lascelles Ltd (1933) 48 CLR
Lymington Marine Ltd v Macnamara [2007] 457 (Australia) . . . 525, 574, 591
EWCA Civ 151; [2007] 2 All ER (Comm) Macedo v Stroud [1922] AC 330 . . . 78
285 . . . 152 McEllistrim v Ballymacelligott Co-operative
Lynch v DPP of Northern Ireland [1975] AC Agriculture & Dairy Society Ltd [1919] AC
653 . . . 351 548 . . . 401, 407
Lynch v Thorne [1956] 1 WLR 303 . . . 154 McEvoy v Belfast Banking Co Ltd [1935] AC
Lyndale Fashion Manufacturers v Rich [1973] 1 24 . . . 99
WLR 73 . . . 563 McFarlane v EE Caledonia (No 2) [1995] 1 WLR
Lynde v Anglo-Italian Hemp Spinning Co [1896] 366 . . . 391
1 Ch 178 . . . 371 McGrath v Shaw (1987) 57 P & CR 452 . . . 139
Lynn v Bruce (1794) 2 H Bl 317; 126 ER McGruther v Pitcher [1904] 2 Ch 306 . . . 656
571 . . . 461 MacKay v Dick (1881) 6 App Cas 251 . . . 142, 518
Lyus v Prowsa [1982] 1 WLR 1044 . . . 643 Mackenzie v Coulson (1869) LR 8 Eq 368 . . . 263
McKenzie v Royal Bank of Canada [1934] AC
M v Home Office [1994] 1 AC 377 . . . 214, 220 468 . . . 316
M & J Polymers Ltd v Imerys Minerals Ltd [2008] McLaughlin v Duffill [2008] EWCA Civ 1627;
EWHC 344 (Comm); [2008] 1 Lloyd’s Rep [2010] 1 Ch 1 . . . 688
541 . . . 568, 570 Maclean v Dunn & Watkins (1828) 6 LJ (OS) CP
M & S Drapers v Reynolds [1957] 1 WLR 9 . . . 405 184 . . . 574
MCI WorldCom v Primus Telecommunications McLeish v Amoo-Gottfried & Co, The Times, 13
Inc [2003] EWHC 2182 (Comm); [2004] 1 All Oct 1995 . . . 537
ER (Comm) 138 . . . 714 MacLeod v MacLeod [2008] UKPC 64; [2009] 1
McAlpine (Alfred) Capital Projects Ltd v Tilebox All ER 851 . . . 73
Ltd [2005] EWHC 281 (TCC); [2005] BLR Macklin v Dowsett [2004] EWCA Civ 904; [2004]
271 . . . 566 2 EGLR 75 . . . 364
McAlpine (Alfred) Construction Ltd v Panatown McManus v Cooke (1887) 35 Ch D 681 . . . 87
Ltd [2001] 1 AC 518 . . . 541, 618, 619, 632, 651,
671 McManus v Fortescue [1907] 2 KB 1 . . . 697
McAndrew v Chapple (1866) LR 1 CP 643 . . . 140, McMaster University v Wilchar Construction Ltd
521 (1971) 22 DLR (3d) 9; aff ’d (1973) 69 DLR (3d)
410 (Canada) . . . 257
Macara (James) Ltd v Barclay [1945] 1 KB
148 . . . 592 McRae v Commonwealth Disposals Commission
(1951) 84 CLR 377 (Australia) . . . 282, 284, 285,
McArdle, Re [1951] Ch 669 . . . 96, 668 542
McCall v Australian Meat Co (1870) 19 WR 188 Maddison v Alderson (1883) 8 App Cas 467 . . . 82,
(Australia) . . . 718 87, 118
McCallum v Hicks [1950] 2 KB 271 . . . 706 Madras, The [1898] P 90 . . . 453
McCamley v Cammell Laird Shipbuilders Ltd Magee v Pennine Insurance Co Ltd [1969] 2 QB
[1990] 1 WLR 963 . . . 638 507 . . . 291, 292, 294
 table of cases lxix

Maggs v Marsh [2006] EWCA Civ 1058; [2006] Mardorf Peach & Co Ltd v Attica Sea Carriers
BLR 395 . . . 169 Corp of Liberia [1977] AC 850 . . . 147, 446, 451
Maharaj v Chand [1986] AC 898 . . . 123 Marene Knitting Mills Pty Ltd v Greater Pacific
Mahesan (TH) s/o Thambiah v Malaysia General Insurance Ltd [1976] 2 Lloyd’s Rep
Government Officers’ Co-operative Housing 631 . . . 336
Society Ltd [1979] AC 374 . . . 703 Margaret Mitchell, The (1858) Jur NS 1193; 166
Mahkutai, The [1996] AC 650 . . . 623, 645, 646, ER 1174 . . . 718
648, 650 Marginson v Blackburn BC [1939] 2 KB
Mahmoud & Ispahani, Re [1921] 2 KB 716 . . . 426 . . . 529
380, 421 Maria D, The, see Elpis Maritime Co Ltd v Marti
Mahoney v Purnell [1996] 3 All ER 61 . . . 317, 368 Chartering Co Inc
Malik v BCCI SA [1998] 1 AC 20 . . . 155, 156, 346, Maritime National Fish Ltd v Ocean Trawlers Ltd
350, 534, 535, 538, 539 [1934] 1 DLR 621; [1934] 4 DLR 288; [1935]
Malins v Freeman (1837) 2 Keen 25; 48 ER AC 524 . . . 491, 493, 494
537 . . . 266, 580 Markham v Paget [1908] 1 Ch 697 . . . 86
Mallalieu v Hodgson (1851) 16 QB 689 . . . 385 Marleasing SA v La Commercial (Case C–106/
Mallozzi v Carapelli SpA [1976] 1 Lloyd’s Rep 89) [1992] 1 CMLR 305 . . . 212
407 . . . 65 Marles v Philip Trant & Sons Ltd [1954] 1 QB
Malmesbury v Malmesbury (1862) 31 Beav 29 . . . 381, 422
407 . . . 265 Marlow v Pitfeild (1719) 1 Peere Wms 558; 24 ER
Mamidoil-Jetoil Greek Petroleum Co SA v Okta 516 . . . 235
Crude Oil Refinery AD [2001] 2 Lloyd’s Rep Marshall v Harland & Wolff Ltd [1972] 1 WLR
76 . . . 63 899 . . . 479
Manby v Scott (1659) 1 Sid 109; 82 ER 1000 . . . 241 Marshall v NM Financial Management Ltd [1995]
Manchester Diocesan Council for Education v 1 WLR 1461 . . . 436
Commercial & General Investments Ltd [1970] Martell v Consett Iron Co Ltd [1955] Ch
1 WLR 241 . . . 45, 52, 60 363 . . . 391
Manchester Trust v Furness [1895] 2 QB Marten v Whale [1917] 2 KB 480 . . . 69
539 . . . 655, 693 Martin v Nutkin (1724) 2 Peere Wms 266; 24 ER
Mangles v Dixon (1852) 3 HLC 702 . . . 669 724 . . . 581
Manifest Shipping Co Ltd v Uni-Polaris Martin v Perry & Daw [1931] 2 KB 310 . . . 705
Insurance Co Ltd [2001] UKHL 1; [2003] 1 AC Martin-Baker Aircraft Co Ltd v Canada Flight
469 . . . 334, 335, 347 Equipment Ltd [1955] 2 QB 556 . . . 472, 718
Manilla, The, see Procter & Gamble Philippine Mascall v Mascall (1984) 50 P & CR 119 . . . 669
Manufacturing Corp v Peter Cremer GmbH Mash & Murrell v Joseph I Emmanuel [1962] 1
& Co WLR 16 . . . 161
Mannai Investment Co Ltd v Eagle Star Life Maskell v Horner [1915] 3 KB 106 . . . 352, 354
Assurance Co Ltd [1997] AC 749 . . . 256, Mason v Burningham [1949] 2 KB 545 . . . 590
471, 472
Mason v Clarke [1955] AC 778 . . . 418
Maple Flock Co Ltd v Universal Furniture
Products (Wembley) Ltd [1934] 1 KB Mason v Provident Clothing & Supply Co Ltd
148 . . . 522 [1913] AC 724 . . . 399, 404, 434
Marathon Electrical Mfg Corp v Mashreqbank Master v Miller (1791) 4 Term Rep 320; 100 ER
PSC [1997] CLC 1090 . . . 665 1042 . . . 529, 661, 663
Marbe v George Edwards (Daley’s Theatre) Ltd Mathew v TM Sutton Ltd [1994] 1 WLR
[1928] 1 KB 269 . . . 539 1453 . . . 565
Marc Rich & Co AG v Bishop Rock Marine Co Mathias v Yetts (1882) 46 LT 497 . . . 305
Ltd, The Nicholas H [1996] AC 211 . . . 23, Matsoukis v Priestman & Co [1915] 1 KB 681 . . . 474
647, 650 Matthews v Baxter (1873) LR 8 Ex 132 . . . 247, 248
Marchant v Morton, Down & Co [1901] 2 KB Matthews v Smallwood [1910] 1 Ch 777 . . . 510
829 . . . 663, 671 Matthey v Curling [1922] 2 AC 180 . . . 497
Marchington v Vernon (1787) 1 Bos & P May v Lane (1894) 64 LJ QB 236 . . . 673
101n . . . 614
May v Platt [1900] 1 Ch 616 . . . 265, 266, 267
lxx table of cases

May & Butcher v R [1934] 2 KB 17n . . . 63 Miles v New Zealand Alford Estate Co (1886) 32
Mears v Safecar Securities Ltd [1983] QB 54 . . . 7, Ch D 266 . . . 103
151, 155 Miles v Wakefield MBC [1987] AC 539 . . . 453,
Meca-Medina v Commission (Case 519/04) 454, 456, 457, 596
[2006] I ECR 6991 . . . 409 Miles v Watson [1953] NZLR 958 . . . 429
Mediterranean Salvage & Towage v Seamar Millar’s Karri & Jarrah Co v Weddel (1909) 100
Trading and Commerce [2009] EWCA Civ LT 128 . . . 522, 523
531 . . . 153 Miller v Cannon Hill Estates Ltd [1931] 2 KB
Mendelssohn v Normand Ltd [1970] 1 QB 113 . . . 135, 136, 154
177 . . . 175, 191, 331 Miller v Karlinski (1945) 62 TLR 85 . . . 385,
Mercantile Agency Co Ltd v Flitwick Chalybeate 420, 433
Co (1897) 14 TLR 90 . . . 138 Miller Paving Ltd v B Gottardo Construction Ltd
Mercantile Bank of Sydney v Taylor [1893] AC (2007) 285 DLR (4th) 568 (CA Ontario) . . . 296
317 . . . 138 Miller’s Agreement, Re [1947] Ch 615 . . . 643
Mercantile Credit Co Ltd v Hamblin [1965] 2 QB Mills v Fowkes (1830) 5 Bing NC 455; 132 ER
242 . . . 261 1174 . . . 608
Mercantile International Group plc v Chuan Soon Mills v Haywood (1877) 6 Ch D 196 . . . 609
Huat Industrial Group Ltd [2002] EWCA Civ Milner v Carnival plc [2010] EWCA Civ
288; [2002] 1 All ER (Comm) 788 . . . 699 389 . . . 537
Mercantile Union Guarantee Corporation v Ball Milroy v Lord (1862) 4 De GF & J 264; 45 ER
[1937] 2 KB 498 . . . 236 1185 . . . 668, 669
Merchants’ & Manufacturers’ Insurance Co v Milward v Earl of Thanet (1801) 5 Ves 720n . . . 609
Hunt [1941] 1 KB 295 . . . 334
Mineral Water Bottle Exchange & Trade
Mercury Energy Ltd v Electricity Corp of New Protection Socy v Booth (1887) 36 Ch D
Zealand Ltd [1994] 1 WLR 521 . . . 220, 227 465 . . . 407
Meridian Global Funds Management Asia Ltd v Ministry of Defence v Wheeler [1998] 1 WLR
Securities Commission [1995] 2 AC 500 . . . 637 . . . 535
418, 710
Ministry of Sound (Ireland) Ltd v World Online
Merritt v Merritt [1970] 1 WLR 1121 . . . 73 Ltd [2003] EWHC 2178 (Ch); [2003] 2 All ER
Mersey Steel & Iron Co v Naylor, Benzon & Co (Comm) 823 . . . 573, 574
(1884) 9 App Cas 434 . . . 513, 521 Mirams, Re [1891] 1 QB 594 . . . 384, 388
Messageries Imperiales v Baines (1863) 7 LT Mitchell v Homfray (1881) 8 QBD 587 . . . 363, 368
763 . . . 655
Mitchell (George) (Chesterhall) Ltd v Finney
Metcalfe v Britannia Iron Works Co (1877) 2 Lock Seeds Ltd [1983] QB 284; [1983] 2 AC
QBD 423 . . . 452 803 . . . 182, 185, 187, 203, 204, 205, 206
Metro Meat Ltd v Fares Rural Co Pty Ltd [1985] 2 Mitsubishi Heavy Industries Ltd v Gulf Bank KSC
Lloyd’s Rep 13 . . . 518 [1997] 1 Lloyd’s Rep 343 . . . 513
Metrolands Investments Ltd v JH Dewhurst Ltd Mitsui Babcock Energy Ltd v John Brown
[1986] 3 All ER 659 . . . 443 Engineering Ltd (1996) 51 Con LR 129 . . . 67
Metropolitan Electric Supply Co Ltd v Ginder Moat Financial Services v Wilkinson [2005]
[1901] 2 Ch 799 . . . 581, 582 EWCA Civ 1253 . . . 82
Metropolitan Water Board v Dick, Kerr & Co Ltd Mogul Steamship Co v McGregor, Gow & Co
[1918] AC 119 . . . 482, 490, 492 [1892] AC 25 . . . 358, 384
Michael v Hart & Co [1902] 1 KB 482 . . . 515 Mohamed v Alaga & Co [1999] 3 All ER 699;
Micklefield v SAC Technology Ltd [1990] 1 WLR [2000] 1 WLR 1815 . . . 22, 380, 392
1002 . . . 194 Molton v Camroux (1848) 2 Exch 487; (1849) 4
Midland Bank Ltd v Seymour [1955] 2 Lloyd’s Exch 17; 154 ER 1107 . . . 247
Rep 147 . . . 116 Momm v Barclays Bank International Ltd [1977]
Midland Bank Trust Co Ltd v Green [1980] Ch QB 79 . . . 446
590 . . . 529 Monarch Airlines Ltd v London Luton Airport
Midland Bank Trust Co Ltd v Hett, Stubbs & [1998] 1 Lloyd’s Rep 403 . . . 205
Kemp [1979] Ch 384 . . . 24, 534, 605, 606 Monarch Steamship Co Ltd v Karlshamns
Mihalis Angelos, The [1971] 1 QB 164 . . . 144, 147, Oljefabriker (A/B) [1949] AC 196 . . . 543, 551
511, 516 Monnickendam v Leanse (1923) 39 TLR 445 . . . 83
 table of cases lxxi

Mont (JA) (UK) Ltd v Mills [1993] IRLR Moult v Halliday [1898] 1 QB 125 . . . 158
173 . . . 404, 406, 435 Moundreas (George) & Co SA v Navimpex
Montagu v Forwood [1893] 2 QB 350 . . . 709 Centrala Navala [1985] 2 Lloyd’s Rep 515 . . . 706
Montefiore v Menday Motor Components Co Mount v Oldham Corporation [1973] QB
[1918] 2 KB 241 . . . 388 309 . . . 157, 573
Montreal Gas Co v Vasey [1900] AC 595 . . . 61 Mountford v Scott [1975] Ch 258 . . . 56, 101, 580
Monvia Motorship Corp v Keppel Shipyard Moxon v Payne (1873) LR 8 Ch App 881 . . . 369
(Private) Ltd [1983] 1 Lloyd’s Rep 356 Mullens v Miller (1882) 22 Ch D 194 . . . 698
(PC) . . . 41 Multiplex Constructions UK Ltd v Cleveland
More OG Romsdal Flykesbatar AS v The Bridge UK Ltd [2006] EWHC 1341 (TCC);
Demise Charterers of the Ship Jutenheim, The (2007) 107 Con LR 1 . . . 65
Jutenheim [2004] EWHC 671 (Comm); [2005] Munro v Butt (1858) 8 E & B 735; 120 ER
1 Lloyd’s Rep 181 . . . 593 275 . . . 453, 456
Moorcock, The (1889) 14 PD 64 . . . 152 Munro (Robert A) & Co Ltd v Meyer [1930] 2 KB
Moore & Co and Landauer & Co, Re [1921] 2 KB 312 . . . 187, 522
519 . . . 441, 442 Munt v Beasley [2006] EWCA Civ 370; [2006] All
Moran v University College Salford (No 2), The ER (D) 29 (Apr) . . . 263
Times, 23 November 1993 . . . 32 Murad v Al-Saraj [2005] EWCA Civ 959; [2005]
Moresk Cleaners Ltd v Hicks [1966] 2 Lloyd’s Rep WTLR 1573 . . . 323, 342
338 . . . 448 Murphy v Brentwood DC [1991] 1 AC 398 . . . 644
Morgan v Ashcroft [1938] 1 KB 49 . . . 279 Murphy v Young & Co’s Brewery plc [1997] 1
Morgan v Griffith (1871) LR 6 Ex 70 . . . 136 Lloyd’s Rep 236 . . . 391
Morgan v Manser [1948] 1 KB 184 . . . 479 Murray v Leisureplay plc [2005] EWCA Civ 963;
Morgan v Palmer (1842) 2 B & C 729; 107 ER [2005] IRLR 946 . . . 568
554 . . . 106 Museprime Properties Ltd v Adhill Properties Ltd
Moriarty v Regent’s Garage & Engineering Co (1991) 61 P & CR 111 . . . 306, 331
[1921] 1 KB 423 . . . 574 Muskham Finance Ltd v Howard [1963] 1 QB
Morley v Loughnan [1893] 1 Ch 736 . . . 360 904 . . . 259
Morris v Baron & Co [1918] AC 1 . . . 460, 461, Mutual Finance Co Ltd v John Wetton & Sons Ltd
463, 465 [1937] 2 KB 389 . . . 352, 357, 359
Morris v CW Martin & Sons Ltd [1966] 1 QB Mylchrist Builders Ltd v G Buck [2008] EWHC
716 . . . 657 2172; [2008] BLR 611 . . . 208
Morris v Tarrant [1971] 2 QB 143 . . . 73, 123
Morris (Herbert) Ltd v Saxelby [1916] 1 AC NCB v NUM [1986] ICR 736 . . . 70
688 . . . 399, 400, 401, 403 Nagle v Feilden [1966] 2 QB 633 . . . 384, 408
Morrison Steamship Co Ltd v The Crown (1924) Napier v National Business Agency Ltd [1951] 2
20 Ll LR 283 . . . 55 All ER 264 . . . 385, 433
Mortimer v Bailey [2004] EWCA Civ 1514; [2005] Napier (Lord) & Ettrick v RF Kershaw Ltd (No 2)
2 P & CR 9 . . . 584 [1999] 1 WLR 756 . . . 166
Mortimer v Beckett [1920] 1 Ch 571 . . . 582 Nash v Inman [1908] 2 KB 1 . . . 234, 235, 239
Mortlock v Buller (1804) Ves 292; 32 ER Nash v Stevenson Transport Ltd [1936] 2 KB
857 . . . 580 128 . . . 420
Moschi v Lep Air Services Ltd [1973] AC Natal Land & Colonization Co Ltd v Pauline
331 . . . 507, 510 Colliery & Development Syndicate Ltd [1904]
Moseley v Virgin (1796) 3 Ves 184; 30 ER AC 120 . . . 690
959 . . . 579 National Benefit Assurance Co Ltd, Re [1931] 1
Mossop v Mossop [1988] 2 FLR 173; [1989] Fam Ch 46 . . . 425
77 . . . 394 National Carriers Ltd v Panalpina (Northern) Ltd
Motis Exports Ltd v Dampskibsselskabet AF 1912 [1981] AC 675 . . . 484, 487, 488, 489,
Akt [2000] 1 Lloyd’s Rep 211 . . . 189 496, 497
Motor Oil Hellas (Corinth) Refineries SA v National Commercial Bank (Jamaica) Ltd v Hew
Shipping Corp of India, The Kanchenjunga [2003] UKPC 51 . . . 359
[1990] 1 Lloyd’s Rep 391 . . . 315, 450, 468, 469, National Oilwell (UK) Ltd v Davy Offshore Ltd
470, 508 [1993] 2 Lloyd’s Rep 582 . . . 690, 691
lxxii table of cases

National Provincial Bank v Glanusk [1913] 3 KB Newns v British Airways (1992) 21 IRLR
335 . . . 338 575 . . . 674
National Westminster Bank plc v Beaton (1997) Newry & Enniskillen Ry v Coombe (1849) 3 Exch
30 HLR 99 . . . 372 565; 154 ER 970 . . . 237
National Westminster Bank plc v Morgan [1983] News Group Newspapers Ltd v SOGAT 1982
3 All ER 85; [1985] AC 686 . . . 7, 297, 350, 359, [1986] ICR 716 . . . 232
364–66, 376 Newsholme Bros v Road Transport etc Insurance
Naughton v O’Callaghan [1990] 3 All ER Co Ltd [1929] 2 KB 365 . . . 710
191 . . . 326 Newton Woodhouse v Trevor Toys Ltd, 20 Dec
Needler Financial Services Ltd v Taber [2002] 3 1991, CA . . . 595
All ER 501 . . . 556 Newtons of Wembley Ltd v Williams [1965] 1QB
Neilson v Poole (1969) 20 P & CR 909 . . . 85 560 . . . 311
Nelson v Dahl (1879) 12 Ch D 568 . . . 157 Niblett v Confectioners’ Materials Co Ltd [1921] 3
Nelson v Nelson (1995) 132 ALR 133 KB 387 . . . 160
(Australia) . . . 382, 384, 428, 429, 431 Nicholas H, The, see Marc Rich & Co AG v Bishop
Nema, The, see Pioneer Shipping Ltd v BTP Rock Marine Co Ltd
Tioxide Nicholl v Ryder [2000] EMLR 632 . . . 368
Neptune Orient Lines Ltd v JCV (UK) Ltd [1983] Nicholson & Venn v Smith Marriott (1947) 177
2 Lloyd’s Rep 438 . . . 197 LT 189 . . . 160, 288
Nevanas & Co v Walker [1914] 1 Ch 413 . . . 434 Nickoll v Ashton Edridge & Co [1901] 2 KB
Neville v Kelly (1862) 12 CBNS 740 . . . 51, 105 126 . . . 481
Neville v London Express Newspaper Ltd [1919] Nicolene Ltd v Simmonds [1953] 1 QB 543 . . . 62
AC 368 . . . 391 Nile Co for the Export of Agricultural Crops,
Neville v Wilson [1997] Ch 144 . . . 667 Thev H & JM Bennett (Commodities) Ltd
New Brunswick and Canada Railway Co v [1986] 1 Lloyd’s Rep 555 . . . 491
Conybeare (1862) 9 HLC 711 . . . 306 Nippon Yusen Kaisha v Pacifica Navigacion SA
New Hart Builders Ltd v Brindley [1975] Ch [1980] 2 Lloyd’s Rep 245 . . . 122
342 . . . 48, 464 Nisbet & Potts’ Contract, Re [1905] 1 Ch 391;
New South Wales v Bardolph (1934) 52 CLR 455 [1906] 1 Ch 386 . . . 653
(Australia) . . . 221 Nisshin Shipping Co Ltd v Cleaves & Co Ltd
New South Wales v The Commonwealth (No 1) [2003] EWHC 2602; [2004] 1 Lloyd’s Rep
(1932) 46 CLR 155 (Australia) . . . 221 38 . . . 629, 630, 636, 639
New Testament Church of God v Stewart [2007] Nittan UK Ltd v Solent Steel Fabrication Ltd
EWCA Civ 1004; [2008] ICR 282 . . . 72 [1981] 1 Lloyds Rep 633 . . . 166
New Zealand Shipping Co v Société des Ateliers et Noble v Ward (1867) LR 2 Ex 135 . . . 464
Chantiers [1919] AC 1 . . . 471 Nocton v Lord Ashburton [1914] AC 932 . . . 323,
New Zealand Shipping Co Ltd v A M 340, 359
Satterthwaite & Co Ltd, The Eurymedon [1975] Nokes v Doncaster Amalgamated Collieries Ltd
AC 154 . . . 30, 38, 94, 106, 107, 125, 615, 648, [1940] AC 1014 . . . 448, 674
649, 650 Norberg v Wynrib (1992) 92 DLR (4th) 449
Newbigging v Adam (1886) 34 Ch D 582; sub (Canada) . . . 340
nom Adam v Newbigging (1888) 13 App Cas Nordenfelt v Maxim Nordenfelt Guns &
308 . . . 313 Ammunition Co Ltd [1894] AC 535 . . . 397,
Newborne v Sensolid (Great Britain) Ltd [1954] 1 398, 401, 405, 406, 581
QB 45 . . . 271, 714 Norglen Ltd v Reeds Rains Prudential Ltd [1999]
Newcomb v De Roos (1859) 2 E & E 271; 121 ER 2 AC 1 . . . 391, 673
103 . . . 45 Norman v Federal Commissioner of Taxation
Newen, Re [1903] 1 Ch 812 . . . 704 (1963) 109 CLR 9 (Australia) . . . 668
Newfoundland Government v Newfoundland Ry Norreys v Zeffert [1939] 2 All ER 187 . . . 358
(1888) 13 App Cas 199 . . . 670 North Central Wagon Finance Co Ltd v Brailsford
Newland v Simons & Willer (Hairdressers) Ltd [1962] 1 WLR 1288 . . . 383
[1981] ICR 521 . . . 418 North Ocean Shipping Co Ltd v Hyundai
Newman v Gatti (1907) 24 TLR 18 . . . 136 Construction Co Ltd [1979] QB 705 . . . 108,
350–53, 355, 358, 465
 table of cases lxxiii

North Sea Energy Holdings NV v Petroleum Oakacre Ltd v Claire Cleaners (Holdings) Ltd
Authority of Thailand [1999] 1 Lloyd’s Rep [1982] Ch 197 . . . 585
483 . . . 518 Oakdown Ltd v Berstein & Co (a firm) (1985) 49
North & South Trust Co v Berkeley [1971] 1 WLR P & CR 282 . . . 443
470 . . . 158, 704 Oakes v Turquand (1867) LR 2 HL 325 . . . 316
North West Water Ltd v Binnie & Partners [1990] Oasis Merchandising Services Ltd, Re [1998] Ch
3 All ER 547 . . . 529 170 . . . 673
North Western Ry Co v M’Michael (1850) 5 Exch Occidental Worldwide Investment Corp v Skibs
114; 155 ER 49; sub nom London & North A/S Avanti [1976] 1 Lloyd’s Rep 293 . . . 351–53
Western Ry v M’Michael (1850) 5 Exch 855; Ocean Chemical Transport Inc v Exnor Craggs
155 ER 374 . . . 237 Ltd [2000] 1 Lloyd’s Rep 446 . . . 176
North Western Salt Co Ltd v Electrolytic Alkali Ocean Marine Navigation Ltd v Koch Carbon Inc,
Co Ltd [1914] AC 461 . . . 399, 406, 407 The Dynamic [2003] EWHC 1936 (Comm);
Northern Progress, The [1996] 2 Lloyd’s Rep [2003] 2 Lloyd’s Rep 693 . . . 575
321 . . . 177 Ocean Tramp Tankers Corp v V/O Sovfracht, The
Northwest Holt Group Administration Ltd v Eugenia [1964] 2 QB 226 . . . 481, 488, 489, 491,
Harrison [1985] ICR 668 . . . 508 493, 494
Northumberland & Durham District Banking Co, Offer-Hoar v Larkstore Ltd [2006] EWCA Civ
Re (1858) 28 LJ Ch 50 . . . 306 1079; [2006] 1 WLR 2926 . . . 671
Norweb plc v Dixon [1995] 1 WLR 637 . . . 6 Office Angels Ltd v Rainer-Thomas & O’Connor
Norwegian American Cruises A/S v Paul Mundy [1991] IRLR 214 . . . 403, 404
Ltd [1988] 2 Lloyd’s Rep 343 . . . 128 Office of Fair Trading v Abbey National plc [2008]
Norwest Beef Industries Ltd v P & O Steam EWHC 875 (Comm); [2008] 2 All ER (Comm)
Navigation Co (1987) 8 NSWLR 568 . . . 139 625; [2009] EWCA Civ 116; [2009] UKSC 6;
Norwich City Council v Harvey [1989] 1 WLR [2009] 3 WLR 1215 . . . 211, 215, 569
828 . . . 647, 649 Offord v Davies (1862) 12 CBNS 748; 142 ER
Norwich & Peterborough BS v Steed (No 2) 1336 . . . 53, 54, 56, 59
[1993] Ch 116 . . . 259 Ofulue v Bossert [2009] UKHL 16; [2009] 1 AC
Notcutt v Universal Equipment Co (London) Ltd 990 . . . 607
[1986] 1 WLR 641 . . . 479, 486, 498 Ogdens Ltd v Nelson [1905] AC 109 . . . 518
Nottingham BS v Eurodynamics plc [1993] FSR Oilfields Asphalts v Grovedale Coolstores (1994)
468; [1995] FSR 605 . . . 513, 584 Ltd [1998] 3 NZLR 479 . . . 284
Nottingham Patent Brick Co v Butler (1887) 16 Oleificio Zucchi SpA v Northern Sales Ltd [1965]
QBD 778 . . . 301, 339 2 Lloyd’s Rep 496 . . . 324
Nottingham University v Fishel [2000] ICR Oliver v Davis [1949] 2 KB 727 . . . 98
1462 . . . 340, 341 Olley v Marlborough Court Ltd [1949] 1 KB
Nova (Jersey) Knit Ltd v Kammgarn Spinnerei 532 . . . 173, 175
[1977] 1 WLR 713 . . . 679 Olsson v Dyson (1969) 120 CLR 365
Nutting v Baldwin [1995] 1 WLR 201 . . . (Australia) . . . 669
569, 593 Olympia Sanna Shipping Co SA v Shinwa Kaiun
Kaisha [1985] 2 Lloyd’s Rep 364 . . . 263
O’Brien v MGN Ltd [2001] EWCA Civ 1279; Omnium D’Enterprises v Sutherland [1919] 1 KB
[2002] CLC 33 . . . 177 618 . . . 517
O’Dea v All States Leasing System Pty Ltd (1983) On Demand Information plc v Michael Gerson
152 CLR 359 (Australia) . . . 567 (Finance) plc [2000] 4 All ER 734 . . . 593
O’Neil v Armstrong [1895] 2 QB 418 . . . 518 Oom v Bruce (1810) 12 East 225 . . . 427
O’Rorke v Bolingbroke (1877) 2 App Cas Orient Overseas Management & Finance Ltd v
814 . . . 373 File Shipping Co Ltd, The Energy Progress
O’Sullivan v Management Agency & Music Ltd [1993] 1 Lloyd’s Rep 355 . . . 706
[1985] 1 QB 428 . . . 312, 317, 364, 367 Orion Insurance Co plc v Sphere Drake Insurance
OT Africa Line Ltd v Vickers plc [1996] 1 Lloyd’s plc [1992] 1 Lloyd’s Rep 239 . . . 72
Rep 700 . . . 32, 253, 256, 266 Oro Chief, The [1983] 2 Lloyd’s Rep 509 . . . 576
O/Y Wasa SS Co v Newspaper Pulp & Wood Osborne v Amalgamated Society of Railway
Exports (1949) 82 Ll LR 936 . . . 708 Servants [1910] AC 87 . . . 388
lxxiv table of cases

Oswald Hickson Collier & Co v Carter-Ruck Palmco Shipping Inc v Continental Ore Corp
[1984] 1 AC 720 . . . 405 [1970] 2 Lloyd’s Rep 21 . . . 481
Oughtred v IRC [1960] AC 206 . . . 667 Palmer v Temple (1839) 9 A & E 508; 112 ER
Overbrooke Estates Ltd v Glencombe Properties 1304 . . . 528
Ltd [1974] 1 WLR 1335 . . . 207, 331, 332 Pan Atlantic Insurance Co Ltd v Pine Top
Overseas Medical Supplies Ltd v Orient Transport Insurance Co Ltd [1993] 1 Lloyd’s Rep 496;
Services Ltd [1999] 2 Lloyd’s Rep 272 . . . 204 [1995] 1 AC 501 . . . 335, 336
Overseas Tankship (UK) v Morts Dock & Pan Ocean Shipping Co Ltd v Creditcorp Ltd
Engineering Co, The Wagon Mound [1961] AC [1994] 1 WLR 161 . . . 24, 670, 675
388 . . . 324, 327, 546, 549 Panchaud Frères SA v Etablissements General
Overseas Transport Co v MineralImportExport Grain Co [1970] 1 Lloyd’s Rep 53 . . . 510, 511
[1972] 1 Lloyd’s Rep 201 . . . 183 Pankhania v Hackney London Borough Council
Overstone Ltd v Shipway [1962] 1 WLR [2002] EWHC 2441 (Ch); [2002] All ER (D) 22
117 . . . 528, 573 (Aug) . . . 277, 305
Owen v Tate [1976] 1 QB 402 . . . 448 Panoutsos v Raymond Hadley Corporation of
New York [1917] 2 KB 473 . . . 467, 468
P (Minors) (Wardship: Surrogacy), Re [1987] 2 Pao On v Lau Yiu Long [1980] AC 614 . . . 97, 107,
FLR 421 . . . 395 108, 110, 350, 351, 352, 353, 354, 376
P v P [1957] NZLR 854 . . . 120, 123 Paradine v Jane (1647) Aleyn 26; Style 47; 82 ER
897 . . . 474, 475
P & O Nedlloyd BV v Arab Metals Co, The UB
Tiger [2006] EWCA Civ 1717; [2007] 1 WLR Paragon Finance plc v Nash [2001] EWCA Civ
2288 . . . 608, 609 1466; [2002] 1 WLR 685 . . . 152, 200
PCW Syndicates v PCW Reinsurers [1996] 1 Paris v Machnik (1972) 32 DLR (3d) 723
WLR 1136 . . . 335, 346 (Canada) . . . 374
PJ Pipe & Valve Co Ltd v Audco India Ltd [2005] Parker v Clark [1960] 1 WLR 286 . . . 72, 83
EWHC 1904 (QB); [2006] Eu LR 368 . . . 699 Parker v M’Kenna (1874) LR 10 Ch App 96 . . . 702
Paal Wilson & Co A/S v Partenreederei Hannah Parker v South Eastern Ry (1877) 2 CPD
Blumenthal [1981] 2 Lloyd’s Rep 438; [1983] 1 416 . . . 173, 174, 176, 192
AC 854 . . . 21, 33, 253, 462, 487, 491–94 Parker (Harry) Ltd v Mason [1940] 2 KB
Pacific and General Insurance Co Ltd v Hazell 590 . . . 425, 428
[1997] BCC 400 . . . 718, 722 Parkin, Re [1892] 3 Ch 510 . . . 581
Pacific Associates v Baxter [1990] 1 QB Parkinson v College of Ambulance Ltd [1925] 2
933 . . . 647, 649 KB 1 . . . 388, 423
Pacific Colocotronis [1981] 2 Lloyd’s Rep Parkinson (Sir Lindsay) & Co Ltd v
40 . . . 168 Commissioners of Works [1949] 2 KB
Pacific Phosphates Co Ltd v Empire Transport 632 . . . 594
(1920) 4 Ll LR 189 . . . 484 Parks, Re (1957) 8 DLR (2d) 155 (Canada) . . . 719
Pacol Ltd v Trade Lines Ltd [1982] 1 Lloyd’s Rep Parks v Esso Petroleum Ltd [2000] Eu LR
456 . . . 124 25 . . . 699
Page v Combined Shipping & Trading Co Ltd Parsons v BNM Laboratories Ltd [1964] 1 QB
[1997] 3 All ER 656 . . . 723 95 . . . 563
Page One Records Ltd v Britton [1968] 1 WLR Parsons Bros Ltd v Shea (1965) 53 DLR (2d) 86
157 . . . 583 (Canada) . . . 503
Paget v Marshall (1884) 28 Ch D 255 . . . 2 Parsons (H) (Livestock) Ltd v Uttley Ingham &
66, 291 Co Ltd [1978] QB 791 . . . 549, 550
Pagnan & Fratelli v Corsiba Industrial Partenreederei MS Karen Oltmann v Scarsdale
Agropacuaria [1970] 1 WLR 1306 . . . 558 Shipping Co Ltd [1976] 2 Lloyd’s Rep
Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s 708 . . . 168
Rep 601 . . . 691 Partridge v Crittenden [1968] 1 WLR 1204 . . . 34
Pagnan SpA v Tradax Ocean Transportation SA Pascoe v Turner [1979] 1 WLR 431 . . . 88, 127
[1987] 1 All ER 81; [1987] 3 All ER 565 . . . 441 Patel v Ali [1984] Ch 283 . . . 580
Pain, Re [1919] 1 Ch 38 . . . 665 Patel v Hooper & Jackson [1999] 1 WLR
Palaniappa Chettiar v Arunasalam Chettiar 1792 . . . 541
[1962] AC 294 . . . 428 Patrick, Re [1891] 1 Ch 82 . . . 669
 table of cases lxxv

Patrick v Russo-British Grain Export Co Ltd Perpetual Executor & Trustees Assoc v Wright
[1972] 2 KB 535 . . . 554 (1917) 23 CLR 185 (Australia) . . . 424
Pattinson v Luckley (1875) LR 10 Ex 330 . . . 529 Perry v Barnett (1885) 15 QBD 388 . . . 722
Paul v Constance [1977] 1 WLR 527 . . . 393 Perry v Phillips (Sidney) & Son [1982] 1 WLR
Pauling’s Settlement Trusts, Re [1964] Ch 1297 . . . 536
303 . . . 369 Perry v Suffields Ltd [1916] 2 Ch 187 . . . 67
Pavey & Matthews Pty Ltd v Paul (1986–87) 162 Perry (Howard E) v British Railways Board [1980]
CLR 221 (Australia) . . . 89, 422 1 WLR 1375 . . . 577, 580
Payne v Barnet LBC (1998) 30 HLR 295 . . . 346 Perrylease Ltd v Imecar AG [1988] 1 WLR
Payne v Cave (1789) 3 Term R 148; 100 ER 463 . . . 139
502 . . . 36 Pesticcio v Huet [2004] EWCA Civ 372 . . . 359
Payne v Lord Leconfield (1881) 51 LJ QB Petelin v Cullen (1975) 132 CLR 355
642 . . . 697 (Australia) . . . 261
Paynter v Williams (1833) 1 C & M 810; 149 ER Peter Pan Manufacturing Corp v Corsets
626 . . . 594 Silhouette Ltd [1964] 1 WLR 96 . . . 597
Payzu Ltd v Saunders [1919] 2 KB 581 . . . 555 Peters v Fleming (1840) 6 M & W 42; 151 ER
Pearce v Brain [1929] 2 KB 310 . . . 245 314 . . . 234
Pearce v Brooks (1866) LR 1 Ex 213 . . . 393, 418 Peters v General Accident & Life Assurance
Pearce v University of Aston (No 2) [1991] 2 All Corporation Ltd [1937] 4 All ER 628 . . . 674
ER 469 . . . 578 Petrofina (Great Britain) Ltd v Martin [1966] Ch
Pearse v Green (1819) 1 Jac & W 135; 37 ER 146 . . . 397, 410
327 . . . 701 Petromec Inc v Petroleo Brasileiro SA Petrobas
Pearson (S) & Son Ltd v Dublin Corp [1907] AC [2005] EWCA Civ 891; [2006] 1 Lloyd’s Rep
351 . . . 181, 191, 328, 329, 710 121 . . . 66, 474
Peek v Gurney (1873) LR 6 HL 377 . . . 305, 342 Petrotrade Inc v Smith [2000] 1 Lloyd’s Rep
486 . . . 703
Peekay Intermark Ltd v Australia and New
Zealand Banking Group Ltd [2006] EWCA Civ Petrotrade Inc v Stinnes Handel GmbH [1995] 1
386; [2006] 2 Lloyd’s Rep 511 . . . 329 Lloyd’s Rep 142 . . . 141, 147, 149
Pegase, The [1981] 1 Lloyd’s Rep 175 . . . 545 Pettitt v Pettitt [1970] AC 777 . . . 72
Pell Frischmann Engineering Ltd v Bow Valley Pettman v Keble (1850) 9 CB 701; 137 ER
Iran Ltd [2009] UKPC 45; [2010] BLR 73 . . . 601 1067 . . . 707
Penelope, The [1982] P 180 . . . 481 Peyman v Lanjani [1985] Ch 457 . . . 315, 470, 508,
510
Peninsula Business Services Ltd v Sweeney [2004]
IRLR 49 . . . 200 Peytoe’s Case (1612) 9 Co Rep 79b; 77 ER
847 . . . 461
Penn v Bristol & West BS [1997] 1 WLR
1356 . . . 716 Pfeiffer (E) Weinkellerei-Weineinkauf GmbH
& Co v Arbuthnot Factors Ltd [1988] 1 WLR
Pennington v Waine [2002] EWCA Civ 227; 150 . . . 668, 672
[2002] 1 WLR 2075 . . . 668
Pharmaceutical Society of Great Britain v Boots
Pennsylvania Shipping Co v Compagnie Cash Chemists (Southern) Ltd [1952] 2 QB
Nationale de Navigation [1936] 2 All ER 795; [1953] 1 QB 401 . . . 34
1167 . . . 320
Pharmaceutical Society of Great Britain v Dickson
Pepper v Webb [1969] 1 WLR 514 . . . 513 [1970] AC 403 . . . 402, 408
Percival Ltd v LCC Asylums etc Committee Phelps v Spon-Smith & Co [2001] BPIR
(1918) 87 LJKB 677 . . . 36, 53 326 . . . 667
Percy v Board of National Mission of the Church Phillips v Alhambra Palace Co Ltd [1901] 1 QB
of Scotland [2005] UKHL 73; [2006] 2 AC 59 . . . 478
28 . . . 72
Phillips v Bateman (1812) 16 East 356; 104 ER
Pereira Fernandes SA v Mehta [2006] EWHC 813 1124 . . . 614
(Ch); [2006] 1 WLR 1543 . . . 90
Phillips v Brooks Ltd [1919] 2 KB 243 . . . 249, 274,
Performing Right Society Ltd v London Theatre of 316
Varieties Ltd [1924] AC 1 . . . 666
Phillips v Butler [1945] Ch 358 . . . 83
Perishables Transport Co v N Spyropoulos
(London) Ltd [1964] 2 Lloyd’s Rep 379 . . . Phillips v Foxall (1872) LR 7 QB 666 . . . 338
713, 715 Phillips v Ward [1956] 1 WLR 491 . . . 541
lxxvi table of cases

Phillips Electronique Grand Publique SA v BSB Pontypridd Union v Drew [1927] 1 KB

Ltd [1995] EMLR 472 . . . 151, 153 214 . . . 240
Phillips-Higgins v Harper [1954] 1 QB 411 . . . 607 Pordage v Cole (1669) 1 Wms Saund 319; 85 ER
Phillips Hong Kong Ltd v A-G of Hong Kong 449 . . . 520
(1993) 61 BLR 41 . . . 566, 569, 570 Port Caledonia, The [1903] P 184 . . . 357
Phillips Products Ltd v Hyland (Note) [1987] 1 Port Jackson Stevedoring Pty Ltd v Salmond &
WLR 659 . . . 197, 203 Spraggon (Australia) Pty Ltd [1981] 1 WLR
Phillips’ Trusts, Re [1903] 1 Ch 183 . . . 672 138 . . . 648
Phipps v Boardman [1967] 2 AC 46 . . . 702 Port Line Ltd v Ben Line Steamers Ltd [1958] 2
Phipps v Orthodox Unit Trusts Ltd [1958] 1 QB QB 146 . . . 480, 654, 655, 656
314 . . . 563 Port Sudan Cotton Co v Govindaswamy Chettiar
Phoenix General Insurance Co of Greece SA & Sons [1977] 2 Lloyd’s Rep 5 . . . 30, 46
v Halvanon Insurance Co Ltd [1988] 1 QB Porter v Freudenberg [1915] 1 KB 857 . . . 386
216 . . . 418 Porter (William) & Co Ltd, Re [1937] 2 All ER
Phonogram Ltd v Lane [1982] QB 938 . . . 714 361 . . . 465
Photo Production Ltd v Securicor Transport Ltd Portman Building Society v Dusangh [2000] 2 All
[1978] 1 WLR 856; [1980] AC 827 . . . 7, 179, ER (Comm) 221 . . . 374
185, 186, 188, 192, 192, 193, 507, 509, 510, 521 Portuguese Consolidated Copper Mines, Re
Pickering v Busk (1812) 15 East 38; 104 ER (1890) 45 Ch D 16 . . . 691
758 . . . 697 Poseidon Freight Forwarding Co Ltd v Davies
Pickering v Ilfracombe Railway Co (1868) LR 3 Turner Southern Ltd [1996] 2 Lloyd’s Rep
CP 235 . . . 433 388 . . . 175
Pigot’s (Henry) Case (1614) 11 Co Rep 26b; 77 ER Posner v Scott-Lewis [1987] Ch 25 . . . 579
1177 . . . 433, 529 Postlethwaite v Freeland (1880) 5 App Cas
Pilkington v Wood [1953] Ch 770 . . . 556 599 . . . 444
Pillans v Van Mierop (1765) 3 Burr 1663; 97 ER Poteliakhoff v Teakle [1938] 2 KB 816 . . . 103
1035 . . . 91, 93 Potter v Duffield (1874) LR 18 Eq 4 . . . 82
Pinnel’s Case (1602) 5 Co Rep 117a; 77 ER Potts v Bell (1800) 8 Term R 548; 101 ER
237 . . . 111, 113, 114, 116, 120, 461 1540 . . . 386
Pinnock Brothers v Lewis and Peat Ltd [1923] 1 Poussard v Spiers (1876) 1 QBD 410 . . . 143
KB 690 . . . 187 Powdrill v Watson [1995] 2 All ER 65 . . . 683
Pinto Leite & Nephews, Re [1929] 1 Ch 221 . . . 670 Powell v Braun [1954] 1 WLR 401 . . . 63
Pioneer Shipping Ltd v BTP Tioxide, The Nema Powell v Brent LBC [1988] ICR 176 . . . 578
[1982] AC 724 . . . 166, 481, 487, 489, 492, 506 Powell v Lee (1908) 99 LT 284 . . . 44
Pirelli General Cable Works Ltd v Oscar Faber & Powell v Powell [1900] 1 Ch 243 . . . 366
Partners [1983] 2 AC 1 . . . 605
Prager v Blatspiel, Stamp & Heacock Ltd [1924] 1
Pitt v PHH Asset Management Ltd [1994] 1 WLR KB 566 . . . 695
327 . . . 56, 66, 85
Prenn v Simmonds [1971] 1 WLR 1381 . . . 138,
Pitts v Hunt [1991] 1 QB 24 . . . 417 166, 167
Pitts v Jones [2007] EWCA Civ 1301; [2008] QB Presentaciones Musicales SA v Secunda [1994] Ch
706 . . . 80 271 . . . 691
Planché v Colburn (1831) 8 Bing 14; 131 ER President of the Methodist Conference v Parfitt
305 . . . 594 [1984] QB 368 . . . 72
Plevins v Downing (1876) 1 CPD 220 . . . 466 Price v Easton (1833) 4 B & Ad 433; 110 ER
Plowman & Son Ltd v Ash [1964] 1 WLR 518 . . . 614, 615, 616
568 . . . 404 Price v Moulton (1851) 10 CB 561; 138 ER
Polhill v Walter (1832) 3 B & Ad 114; 110 ER 222 . . . 527
43 . . . 716 Price v Strange [1978] Ch 337 . . . 578
Polish SS Co v AJ Williams Fuels (Overseas Prickett v Badger (1856) 1 CBNS 296; 104 ER
Sales) Ltd, The Suwalki [1989] 1 Lloyd’s Rep 123 . . . 595
511 . . . 692
Priest v Last [1903] 2 KB 148 . . . 163
Pollock v Stables (1848) 12 QB 765 . . . 688
Primavera v Allied Dunbar Assurnace Plc [2002]
Pollway Ltd v Abdullah [1974] 1 WLR 493 . . . 681 EWCA Civ 1327; [2003] PNLR 12 . . . 556
 table of cases lxxvii

Prince of Wales etc Association v Palmer (1858) Quenerduaine v Cole (1883) 32 WR 185 . . . 60
25 Beav 605; 53 ER 768 . . . 422 Quinn v Burch Bros (Builders) Ltd [1966] 2 QB
Pringle of Scotland v Continental Express [1962] 370 . . . 543, 561
2 Lloyd’s Rep 80 . . . 189 Quinn v Williams Furniture Ltd [1981] ICR
Printers & Finishers Ltd v Holloway [1965] 1 328 . . . 5, 35
WLR 1 . . . 403
Printing & Numerical Registering Co v Sampson R v BBC, ex parte Lavelle [1983] 1 WLR 23 . . . 578
(1875) LR 19 Eq 462 . . . 16, 384 R v Bullock [1955] 1 WLR 1 . . . 430
Pritchard v Merchants’ & Tradesmen’s Life R v Charles [1977] AC 177 . . . 301
Assurance Society (1858) 3 CB (NS) 622; 140
ER 885 . . . 281 R v Chester & North Wales Legal Aid Office,
ex parte Queensferry Ltd [1998] 2 BCLC
Procter & Gamble Philippine Manufacturing 436 . . . 672
Corp v Peter Cremer GmbH & Co, The Manilla
[1988] 3 All ER 843 . . . 457 R v Chief National Insurance Commissioner
[1981] QB 758 . . . 386, 422
Produce Brokers Co Ltd v Olympia Oil & Cake Co
Ltd [1916] 2 KB 296; [1916] 1 AC 314 . . . 6, 158 R v Civil Service Appeal Board, ex parte Bruce
[1988] ICR 649; aff ’d [1989] ICR 171 . . . 72, 223
Proforce Recruit Ltd v The Rugby Group Ltd
[2006] EWCA Civ 69 . . . 168 R v Clarke (1927) 40 CLR 227 (Australia) . . . 51
Protector Loan Co v Grice (1880) 5 QBD R v Disciplinary Committee of the Jockey Club, ex
529 . . . 567 parte Aga Khan [1993] 1 WLR 909 . . . 408
Provident Financial Group plc v Hayward [1989] R v East Berkshire HA, ex parte Walsh [1985] QB
3 All ER 298 . . . 584 152 . . . 578
Prudential Assurance Co Ltd v Ayres [2007] R v Enfield LBC, ex parte TF Unwin (Roydon) Ltd
EWHC 775 (Ch); [2007] 3 All ER 946; [2008] (1989) 46 Build LR 1 . . . 227
EWCA Civ 52; [2008] 1 All ER 1266 . . . 629 R v Gilmartin [1983] QB 953 . . . 301, 303
Prudential Assurance Co Ltd v Newman R v Grimes [1968] 3 All ER 179 . . . 389
Industries Ltd (No 2) [1981] Ch 257; [1982] Ch R v Harvey (1980) 72 Cr App R 139 . . . 358
204 . . . 232 R v Islington LBC, ex parte Building Employers
Public Works Commissioners v Hills [1906] AC Confederation [1989] IRLR 383 . . . 227
368 . . . 592 R v Lambie [1982] AC 449 . . . 301
Puerto Buitrago, The, see Attica Sea Carriers Corp R v Lewisham LBC, ex parte Shell UK Ltd [1988]
v Ferrostaal Poseidon Bulk ReedereiGmbH 1 All ER 938 . . . 227, 356
Pulley v Public Trustee [1956] NZLR 771 . . . 669 R v Lomas (1913) 9 Cr App Rep 220 . . . 430
Punjab National Bank v De Boinville [1992] 1 R v Lord Chancellor, ex parte Hibbert & Saunders
WLR 1138 . . . 713 [1993] COD 326 . . . 227
Purnell v Roche [1927] 2 Ch 142 . . . 606 R v Lord Chancellor’s Department, ex parte
Pust v Dowie (1865) 5 B & S 33; 122 ER 745 . . . 150 Nangle [1991] ICR 743 . . . 72, 223
Putsman v Taylor [1927] 1 KB 637 . . . 433–36 R v North and East Devon Health Authority, ex p
Pye v BG Transport Service [1966] 2 Lloyd’s Rep Coughlan [2001] QB 213 . . . 226
300 . . . 387 R v Oldham MBC [1993] 1 FLR 645 . . . 233
Pye v British Automobile Commercial Syndicate R v Panayiotou [1973] 1 WLR 1032 . . . 389
Ltd [1906] 1 KB 425 . . . 569 R v Pembrokeshire CC, ex parte Coker [1999] 4
Pym v Campbell (1856) 6 E & B 370; 119 ER All ER 107 . . . 100
903 . . . 69, 138, 142 R v Secretary of State for the Home Department,
Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] ex parte Benwell [1985] QB 554 . . . 223
2 QB 402 . . . 658 R v Secretary of State for Transport, ex parte
Pyxis Special Shipping Co Ltd v Dritsas & Kaglis Factortame Ltd (Case C–48/93) [1996] ECR
Bros Ltd [1978] 2 Lloyd’s Rep 380 . . . 709 I–1029 . . . 214
R v Sunair Holidays Ltd [1973] 1 WLR 1105 . . . 303
Quadramain Pty Ltd v Sevastopol Investments Pty R v Walsall MBC, ex parte Yapp [1994] ICR
Ltd (1976) 133 CLR 390 (Australia) . . . 412 528 . . . 226
Queensland Electricity Generating Board v New R & B Customs Brokers Co Ltd v United
Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep Dominions Trust Ltd [1988] 1 WLR 321 . . . 163,
205 . . . 64, 66, 472 195, 205
lxxviii table of cases

RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd Rederiaktiebolaget Amphitrite v The King [1921]
[2007] SGCA 39; [2007] 4 SLR 413 . . . 145 3 KB 500 . . . 221, 222
R (Reprotech (Pebsham) Ltd) v East Sussex CC Redgrave v Hurd (1881) 20 Ch D 1 . . . 306, 311,
[2002] UKHL 8; [2003] 1 WLR 348 . . . 226 315
Rabin v Gerson Berger Association Ltd [1986] 1 Redmond v Dainton [1920] 2 KB 256 . . . 497
WLR 526 . . . 138 Reed v Kilburn Co-op (1875) LR 10 QBD
Radford v de Froberville [1977] 1 WLR 264 . . . 448
1262 . . . 540, 541, 617 Reed v Madon [1989] Ch 408 . . . 537
Radmacher v Granatino [2009] EWCA Civ 649; Reed (Dennis) Ltd v Goody [1950] 2 KB
[2009] 2 FCR 645 . . . 73 277 . . . 705
Raffaella, The, see Egyptian Intl Foreign Trade Co Rees v De Bernardy [1896] 2 Ch 437 . . . 390
v Soplex Wholesale Supplies Ltd Rees v Warwick (1818) 2 B & Ald 113; 106 ER
Raffles v Wichelhaus (1864) 2 H & C 906; 159 ER 308 . . . 43
375 . . . 254 Reeve v Berridge (1888) 20 QBD 523 . . . 339
Raflatac Ltd v Eade [1999] 1 Lloyd’s Rep 506 . . . 562 Reeves v Butcher [1891] 2 QB 509 . . . 605
Raiffeisen Zentralbank v Five Star Trading LLC Regal (Hastings) Ltd v Gulliver [1967] 2 AC
[2001] EWCA Civ 68; [2001] QB 825 . . . 664, 134n . . . 702
666
Regalian Properties plc v London Dockland
Rainbow v Howkins [1904] 2 KB 322 . . . 697 Development Corp [1995] 1 WLR 212 . . . 64, 69
Rainbow Estates v Tokenhold Ltd [1999] Ch Regazzoni v KC Sethia (1944) Ltd [1958] AC
64 . . . 579, 580 301 . . . 387
Raineri v Miles [1981] AC 1050 . . . 443 Regier v Campbell-Stuart [1939] Ch 766 . . . 341
Ralli Brothers v Compania Naviera Sota y Aznar Regus (UK) Ltd v Epcot Solutions Ltd [2008]
[1920] 2 KB 287 . . . 387 EWCA Civ 361; [2009] 1 All ER (Comm)
Ramlal v Chaitlal [2003] UKPC 12; [2004] 1 P & 586 . . . 201, 203, 204, 206
CR 1 . . . 443 Reichman v Beveridge [2006] EWCA Civ 1659;
Ramsden v Dyson (1866) 1 HL 129 . . . 127 [2007] 1 P & CR 20 . . . 509, 575
Ramsgate Victoria Hotel Co v Montefiore (1866) Reid v Rush & Tomkins Group plc [1990] 1 WLR
LR 1 Ex 109 . . . 60 212 . . . 155
Rann v Hughes (1778) 7 TR 350n; 101 ER 1014; Reigate v Union Manufacturing Co
(1778) 4 Brown PC 27 . . . 79, 93 (Ramsbottom) Ltd [1918] 1 KB 592 . . . 152, 153
Rasbora Ltd v JCL Marine Ltd [1977] 1 Lloyd’s Reilly v R [1934] AC 176 . . . 223, 483
Rep 645 . . . 203 Renard Constructions (ME) Pty Ltd v Minister for
Rattrays Wholesale Ltd v Meredyth Young & Public Works (1992) 26 NSWLR 234 . . . 595
A’Court Ltd [1997] 2 NZLR 363 . . . 626 Republic of Serbia v Imagesat International NV
Ravenseft Properties Ltd’s Application, Re [1978] [2009] EWHC 2853 (Comm) . . . 128
QB 52 . . . 412 Resolute Maritime Inc v Nippon Kaiji Kyokai
Rawlinson v Ames [1925] Ch 96 . . . 87 [1983] 1 WLR 857 . . . 325, 326, 715
Rayfield v Hands [1960] Ch 1 . . . 32 Reuss v Picksley (1866) LR 1 Ex 342 . . . 83
Rayner (JH) (Mincing Lane) Ltd v Department of Reuter v Sala (1879) 4 CPD 239 . . . 444
Trade and Industry [1989] Ch 72; [1990] 2 AC Reynell v Sprye (1852) 1 De GM & G 660 . . . 305,
413 . . . 32, 615, 708 427
Read v Anderson (1884) 13 QBD 779 . . . 722, 723 Reynolds v Atherton (1921) 125 LT 690; (1922)
Read v Croydon Corp [1938] 4 All ER 631 . . . 6 127 LT 189 . . . 61
Reading v Attorney-General [1951] AC Reynolds v Kinsey 1959 (4) SA 50 (South
507 . . . 340, 597 Africa) . . . 421
Reardon Smith Line Ltd v Ministry of Agriculture, Rhodes, Re (1890) 44 Ch D 94 . . . 40, 239, 248
Fisheries & Food [1963] AC 691 . . . 449 Rhodes v Forwood (1876) 1 App Cas 256 . . . 518,
Reardon Smith Line Ltd v Yngvar Hansen-Tangen 706, 718
[1976] 1 WLR 989 . . . 145, 147, 161, 166 Rhodian River Shipping SA v Halla Maritime
Reckitt v Burnett, Pembroke & Slater Ltd [1929] Corporation [1984] 1 Lloyd’s Rep 373 . . . 694
AC 176 . . . 707 Rhone v Stephen [1994] 2 AC 130 . . . 675
Record v Bell [1991] 1 WLR 853 . . . 85, 86, 576 Rialto, The [1891] P 175 . . . 357
 table of cases lxxix

Rice v Great Yarmouth BC (2001) 3 LGLR Rogers v Hosegood [1900] 2 Ch 388 . . . 653
4 . . . 523 Rogers v Parish (Scarborough) Ltd [1987] QB
Richardson v Mellish (1824) 2 Bing 229; 130 ER 933 . . . 162
294 . . . 384 Rogers v Snow (1573) Dalison 94 . . . 54
Richardson, Spence & Co v Rowntree [1894] AC Rolfe v Gregory (1865) 4 De GJ & S 576 . . . 315
217 . . . 174, 175 Rolled Steel Products (Holdings) Ltd v BSC
Richco v AC Toepfer [1991] 1 Lloyd’s Rep [1986] 1 Ch 246 . . . 230
136 . . . 570 Rolls-Royce Power Engineering plc v Ricardo
Richmond Gate & Property Co, Re [1965] 1 WLR Consulting Engineers Ltd [2003] EWHC 2871;
335 . . . 705 [2004] 2 All ER (Comm) 129 . . . 708
Rickards (Charles) Ltd v Oppenhaim [1950] 1 KB Rom Securities Ltd v Rogers (Holdings) Ltd
616 . . . 467, 468, 469 (1967) 205 EG 427 . . . 497
Ridge v Baldwin [1964] AC 40 . . . 578 Romer & Haslam, Re [1893] 2 QB 286 . . . 447
Ridgway v Hungerford Market Co (1835) 3 A & E Ronbar Enterprises Ltd v Green [1954] 1 WLR
171; 111 ER 378 . . . 511 815 . . . 435
Rigby v Connol (1880) 14 Ch D 482 . . . 578 Ronex Properties Ltd v John Laing Construction
Riordan v War Office [1959] 1 WLR 1046 . . . 223 Ltd [1982] 3 WLR 875 . . . 608
Ritchie v Atkinson (1808) 10 East 295; 103 ER Rookes v Barnard [1964] AC 1129 . . . 323, 350,
787 . . . 453 351, 355, 534
Ritchie (J & H) Ltd v Lloyd Ltd [2007] UKHL 9; Roscorla v Thomas (1842) 3 QB 234 . . . 96
[2007] 1 WLR 670 . . . 150 Rose, Re [1952] Ch 499 . . . 669
River Wear Commissioners v Adamson (1877) 2 Rose & Frank Co v J R Crompton & Bros Ltd
App Cas 743 . . . 166 [1923] 2 KB 261; [1925] AC 445 . . . 70, 71
Riverlate Properties Ltd v Paul [1975] Ch Rose (Frederick E) (London) Ltd v William H
133 . . . 250, 264, 265, 267 Pim Jnr & Co Ltd [1953] 2 QB 450 . . . 264, 287
Road Transport & General Insurance Co v Adams Ross v Caunters [1980] Ch 287 . . . 644
[1955] CLY 2455 . . . 421 Rosseel NV v Oriental Commercial & Shipping
Robb v Hammersmith & Fulham LBC [1991] Co (UK) Ltd [1991] 2 Lloyd’s Rep 625 . . . 139
IRLR 72 . . . 578 Rossiter v Miller (1878) 3 App Cas 1124 . . . 69, 82
Roberts, Re [1905] 1 Ch 704 . . . 304 Routh v Jones [1947] 1 All ER 179 . . . 436
Roberts v Gray [1913] 1 KB 520 . . . 240 Routledge v Grant (1828) 4 Bing 653; 130 ER
Roberts v Roberts [1986] 1 WLR 437 . . . 388 920 . . . 56
Roberts & Co Ltd v Leicestershire CC [1961] Ch Routledge v McKay [1954] 1 WLR 615 . . . 135
555 . . . 264 Rover International Ltd v Cannon Film Sales Ltd
Robertson v Minister of Pensions [1949] 1 KB (No 3) [1989] 1 WLR 912 . . . 89, 231, 574, 589,
227 . . . 124, 221, 224 590, 591
Robinson, Re (1884) 27 Ch D 160 . . . 674 Rowland v Divall [1923] 2 KB 500 . . . 160, 589
Robinson v Davison (1871) LR 6 Ex 269 . . . 478 Roxborough v Rothmans of Pall Mall Ltd (2001)
Robinson v Golden Chips (Wholesale) Ltd [1971] 208 CLR 516 . . . 589
NZLR 257 . . . 412 Roxburghe v Cox (1881) 17 Ch D 520 . . . 671
Robinson v Harman (1848) 1 Exch 850; 154 ER Royal Bank of Scotland v Etridge (No 2) [2001]
363 . . . 539 UKHL 44; [2002] 2 AC 773 . . . 337, 338, 349,
Robinson v Mollett (1875) LR 7 HL 802 . . . 158 359, 360, 361, 362, 363, 364, 365, 366, 370, 371,
Robophone Facilities Ltd v Blank [1966] 1 WLR 372, 374
1428 . . . 44, 571 Royal Boskalis Westminster NV v Mountain
Robson & Sharpe v Drummond (1831) 2 B & Ad [1999] QB 674 . . . 357
303; 109 ER 1156 . . . 675 Royal British Bank v Turquand (1856) 6 E & B
Roche v Sherrington [1982] 1 WLR 599 . . . 364 327; 119 ER 886 . . . 231
Rock Refrigeration Ltd v Jones [1997] 1 All ER Royal Exchange Assurance v Hope [1928] Ch
1 . . . 403, 519, 584 179 . . . 638
Rockingham County v Luten Bridge Co 36 F 2d Royal Norwegian Government v Constant &
301 (1929) (USA) . . . 575 Constant and Calcutta Marine Engineering Co
Rodocanachi v Milburn (1886) 18 QBD 67 . . . 552 Ltd [1960] 2 Lloyd’s Rep 431 . . . 608
lxxx table of cases

Royscott Trust Ltd v Rogerson [1991] 2 QB St Martins Property Corporation Ltd v Sir Robert
297 . . . 326, 327 McAlpine Ltd (1992) 57 BLR 57; [1994] AC
Rozanes v Bowen (1928) 32 Ll LR 98 . . . 336 85 . . . 618, 619
Rumball v Metropolitan Bank (1877) 2 QBD St Paul Fire & Marine Insurance Co Ltd v
194 . . . 679 McConnell Dowell Constructors Ltd [1996] 1
RTS Flexible Systems Ltd v Molerei Alois Muller All ER 96 . . . 335
GmbH & Co GL [2010] UKSC 14; [2010] 1 Salford, Mayor of v Lever [1891] 1 QB 168 . . . 703
WLR 753 . . . 64 Salton v New Beeston Cycle Co [1900] 1 Ch
Rusholme & Bolton, etc Ltd v SG Read & Co 43 . . . 718
[1955] 1 WLR 146 . . . 713 Salvage Association v CAP Financial Services Ltd
Russell v Duke of Norfolk [1949] 1 All ER [1995] FSR 654 . . . 194, 199, 204
109 . . . 153 Samuels v Davis [1943] 1 KB 526 . . . 441
Rust v Abbey Life Assurance Co Ltd [1978] 1 Sang Lee Investment Co v Wing Kwai Investment
Lloyd’s Rep 386; aff ’d [1979] 2 Lloyd’s Rep Co (1983) 127 Sol Jo 410 . . . 580
334 . . . 45, 342 Sanko Steamship Co Ltd v Eacom Timber Sales
Rutherford v Acton-Adams [1915] AC Ltd [1987] 1 Lloyd’s Rep 487 . . . 517
866 . . . 339 Santa Carina, The [1977] 1 Lloyd’s Rep 478 . . . 713
Rutter v Palmer [1922] 2 KB 87 . . . 180 Sapwell v Bass [1910] 2 KB 486 . . . 535
Ruttle Plant Ltd v Secretary of State for the Sard v Rhodes (1836) 1 M & W 153; 150 ER
Environment and Rural Affairs [2007] 385 . . . 447
EWHC 2870 (TCC); [2008] 2 All ER (Comm) Satanita, The, see Clarke v Earl of Dunraven
264 . . . 672
Saunders v Anglia BS [1971] AC 1004 . . . 259, 260,
Ruttle Plant Ltd v Secretary of State for the 261
Environment, Food and Rural Affairs (No 2)
[2008] EWHC 730 (TCC); [2009] 1 All ER Saunders v Edwards [1987] 1 WLR 1116 . . . 417,
(Comm) 73 . . . 565 422
Ruxley Electronics & Constructions Ltd v Forsyth Savage v Uwechia [1961] 1 WLR 455 . . . 96
[1996] 1 AC 344 . . . 455, 537, 540, 541 Sayer v Wagstaff (1844) 5 Beav 415; 49 ER
Ryan v Mutual Tontine Westminster Chambers 639 . . . 447
Association [1893] 1 Ch 116 . . . 575, 579, 580 Scally v Southern Health and Social Services
Ryan v Sams (1848) 12 QB 460 . . . 693 Board [1992] 1 AC 294 . . . 151, 155, 156
Ryder v Wombwell (1868) LR 3 Ex 90; aff ’d (1869) Scammell v Dicker [2001] 1 WLR 631 . . . 53
LR 4 Ex 32 . . . 234 Scammell v Dicker [2005] EWCA Civ 405; [2005]
3 All ER 838 . . . 62
S, Re [1996] 1 WLR 235 . . . 422 Scammell (G) & Nephews Ltd v Ouston [1941]
AC 251 . . . 62
Sachs v Miklos [1948] 2 KB 23 . . . 695
Scandinavian Trading Co A/B v Zodiac Petroleum
Sadler v Imperial Life Assurance Co of Canada SA [1981] 1 Lloyd’s Rep 81 . . . 511
Ltd [1988] IRLR 388 . . . 403
Scandinavian Trading Tanker Co AB v Flota
Sagal v Atelier Bunz GmbH [2009] EWCA Civ Petrola Ecuatoriana, The Scaptrade [1981] 2
700; [2009] 2 Lloyd’s Rep 303 . . . 699 Lloyd’s Rep 425; [1983] QB 549; aff ’d [1983] 2
Sagar v H Ridehalgh & Son Ltd [1931] 1 Ch AC 694 . . . 119, 121, 444, 583, 593
310 . . . 157 Scarf v Jardine (1882) 7 App Cas 345 . . . 311, 693,
Said v Butt [1920] 3 KB 497 . . . 35, 249, 272, 709 709
Sainsbury (HR & S) Ltd v Street [1972] 1 WLR Scarfe v Morgan (1838) 4 M & W 270; 150 ER
834 . . . 495, 506 1430 . . . 428
St Albans City & DC v International Computers Schawel v Reade [1913] 2 Ir R 64 . . . 134, 135
Ltd [1995] FSR 686; aff ’d [1966] 4 All ER Schebsman, Re [1944] Ch 83 . . . 620, 637
481 . . . 163, 199, 203–205, 619
Scheggia v Gradwell [1963] 1 WLR 1049 . . . 705
St Enoch SS Co Ltd v Phosphate Mining Co
[1916] 2 KB 624 . . . 452 Schenkers Ltd v Overland Shoes Ltd [1998] 1
Lloyd’s Rep 498 . . . 196, 203, 206
St John Shipping Corporation v Joseph Rank Ltd
[1957] 1 QB 267 . . . 380, 382, 417, 422, 428, 431 Schering Agrochemicals Ltd v Reisbel NV SA
(1992) . . . 561, 562
Saint Lines v Richardsons Westgarth & Co [1940]
2 KB 99 . . . 551 Schmaling v Tomlinson (1815) 6 Taunt 147; 128
ER 989 . . . 652
 table of cases lxxxi

Schmaltz v Avery (1851) 16 QB 655 . . . 715 Seatrade Gronigen BV v Geest Industries Ltd
Schneider v Foster (1857) 2 H & N 4; 157 ER [1996] 2 Lloyd’s Rep 375 . . . 713
2 . . . 449 Seddon v NE Salt Co Ltd [1905] 1 Ch 326 . . . 319
Schneider v Heath (1813) 3 Camp 505; 170 ER Sefton v Tophams Ltd [1965] Ch 1140 . . . 656
1462 . . . 301 Selangor United Rubber Estates Ltd v Cradock
Scholey v Central Ry Co of Venezuela (1867) LR 9 (No 3) [1968] 1 WLR 1555 . . . 418
Eq 266 . . . 314 Selectmove Ltd, Re [1995] 1 WLR 474 . . . 50, 110,
Schostall v Johnson (1919) 36 TLR 75 . . . 718 112, 465
Schroeder (A) Music Publishing Co Ltd v Selot’s Trusts, Re [1902] 1 Ch 488 . . . 387
Macaulay [1974] 1 All ER 174; aff ’d [1974] 1 Selvanayagam v University of West Indies [1983]
WLR 1308 . . . 374, 398, 399, 402, 412, 413, 414 1 WLR 585 . . . 556
Schuldenfrei v Hilton (IT) [1999] STC 821 . . . 33, Sempra Metals Ltd v IRC [2007] UKHL 34; [2008]
50 1 AC 561 . . . 564
Schuler (LG) AG v Wickman Machine Tool Sales Seven Seas Properties v Al Essa [1988] 1 WLR
Ltd [1972] 1 WLR 840; [1974] AC 235 . . . 140, 1272 . . . 553
142, 148, 168 Seven Seas Properties v Al Essa (No 2) [1993] 1
Scorer v Seymour Jones [1966] 1 WLR WLR 1083 . . . 553, 554
1419 . . . 434 Seymour v Bridge (1885) 14 QBD 460 . . . 722
Scotson v Pegg (1861) 6 H & N 295; 158 ER Shadwell v Shadwell (1860) 9 CBNS 159; 142 ER
121 . . . 106, 107 62 . . . 93, 106, 107
Scott v Avery (1855) 5 HLC 811; 10 ER Shah v Karanjia [1993] 4 All ER 792 . . . 391
1121 . . . 395
Shah v Shah [2001] EWCA Civ 527; [2002] QB
Scott v Brown, Doering, McNab & Co [1892] 2 35 . . . 77
QB 724 . . . 385
Shamia v Joory [1958] 1 QB 448 . . . 676, 704
Scott v Couslon [1903] 2 Ch 249 . . . 289
Shanklin Pier Ltd v Detel Products Ltd [1951] 2
Scott v Lifford (1808) 1 Camp 246; 170 ER KB 854 . . . 137
945 . . . 681
Shanshal v Al Kishtaini [2001] EWCA Civ 264;
Scott v Pattison [1923] 2 KB 723 . . . 422 [2001] 2 All ER (Comm) 601 . . . 20
Scott v Rayment (1868) LR 7 Eq 112 . . . 578 Sharman v Brandt (1871) LR 6 QB 720 . . . 715
Scott v Sebright (1886) 12 PD 21 . . . 352 Sharneyford Supplies Ltd v Edge [1986] Ch 128;
Scott (Donald H) & Co Ltd v Barclays Bank Ltd [1987] Ch 305 . . . 326
[1923] 2 KB 1 . . . 116 Sharp v Harrison [1922] 1 Ch 502 . . . 584
Scott (James) & Sons Ltd v Del Sel 1922 SC Shaw v Groom [1970] 2 QB 504 . . . 381, 383
592 . . . 485
Shaw v Shaw [1954] 2 QB 429 . . . 394, 418
Scottish Navigation Co v Souter [1917] 1 KB
222 . . . 481 Shaw v Shaw [1965] 1 WLR 937 . . . 423
Scottish Special Housing Assoc v Wimpey Shayler v Woolf [1946] Ch 320 . . . 674
Construction UK Ltd [1986] 1 All ER Shearson Lehman Hutton Inc v MacLaine Watson
956 . . . 180 & Co Ltd [1989] 2 Lloyd’s Rep 570 . . . 158, 176,
Scriven Bros & Co v Hindley & Co [1913] 3 KB 199, 200, 201
564 . . . 255 Shearson Lehman Hutton Inc v MacLaine Watson
Scruttons v Midland Silicones Ltd [1962] AC & Co Ltd (No 2) [1988] 1 WLR 16 . . . 692
446 . . . 614, 615, 622, 623, 643, 645, 646, 647, Sheffield v Conrad (1987) 22 Con LR 108 . . . 511
648, 649, 658 Sheikh Brothers Ltd v Ochsner [1957] AC
Scully (UK) Ltd v Lee [1998] IRLR 259 . . . 404 136 . . . 289
Sea Calm Shipping Co SA v Chantiers Navals de Sheldon v RHM Outhwaite (Underwriting
L’Esteral [1986] 2 Lloyd’s Rep 294 . . . 510 Agencies) Ltd [1996] AC 102 . . . 607
Sea Steamship Co Ltd v Price, Walker & Co Ltd Shell Chemicals UK Ltd v P & O Roadtanks Ltd
(1903) 8 Com Cas 292 . . . 158 [1995] 1 Lloyd’s Rep 297 . . . 180, 181
Seacarriers A/S v Aoteraroa International Ltd Shell Co of Australia Ltd v Nat Shipping Bagging
[1985] 2 Lloyd’s Rep 419 . . . 34 Services Ltd, The Kilmun [1988] 2 Lloyd’s Rep
Sealace SS Co Ltd v Oceanvoice Ltd [1991] 1 1 . . . 691
Lloyd’s Rep 120 . . . 541 Shell UK Ltd v Lostock Garages Ltd [1976] 1
Seaton v Heath [1899] 1 QB 782 . . . 337 WLR 1187 . . . 151, 153, 155, 401, 580
lxxxii table of cases

Shelley v Paddock [1979] QB 120; [1980] QB Singh v Beggs (1995) 71 P & CR 120 . . . 84
348 . . . 323, 420, 421, 425 Sirius International Insurance Corp v Oriental
Shenton v Smith [1895] AC 229 . . . 223 Insurance Corp [1999] 1 All ER (Comm)
Shepherd (FC) & Co Ltd v Jerrom [1987] 1 QB 699 . . . 303
301 . . . 479, 485, 498 Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2
Shepherd Homes Ltd v Sandham [1971] Ch AC 199 . . . 707, 708
340 . . . 584, 609 Skeate v Beale (1841) 11 A & E 983; 113 ER
Shepton v Dogge (Nos 1 and 2) (1442) . . . 13 688 . . . 352
Sherwood v Walker 33 NW 919 (1887) Skinner v Trustee of Reed [1967] Ch 1194 . . . 697
(USA) . . . 288 Skipskredittforeningen v Emperor Navigation
Shiloh Spinners Ltd v Harding [1973] AC [1998] 1 Lloyd’s Rep 66 . . . 196, 202, 330
691 . . . 579, 592, 593 Skipton BS v Clayton (1993) 66 P & CR 233 . . . 312
Shindler v Northern Raincoat Co Ltd [1960] 1 Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1
WLR 1038 . . . 555 WLR 576 . . . 577, 581
Shine v General Guarantee Corp [1988] 1 All ER Slade v Metrodent Ltd [1953] 2 QB 112 . . . 236
911 . . . 162 Slade’s Case (1602) 4 Co Rep 91a; 76 ER
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 1072 . . . 15, 16, 97
KB 206 . . . 152 Slater v Hoyle & Smith Ltd [1920] 2 KB 11 . . . 558,
Shogun Finance Ltd v Hudson [2001] EWCA Civ 560
1000; [2002] QB 834; [2003] UKHL 62; [2004] Slater & Slater v Finning Ltd [1997] AC 473 . . . 164
1 AC 919 . . . 250, 251, 268–71, 273, 274–76, 316 Smart v Sandars (1848) 5 CB 895; 136 ER
Shore v Wilson (1842) 9 CL & F 355; 8 ER 1132 . . . 720, 721
450 . . . 138, 166 Smeaton Hanscomb & Co Ltd v Sasson I Setty,
Short v M’Carthy (1820) 3 B & Ald 626; 106 ER Son & Co [1953] 1 WLR 1468 . . . 183, 187
789 . . . 605 Smith v Bush (Eric S) [1990] AC 831 . . . 196, 197,
Shove v Downs Surgical plc [1984] ICR 582 . . . 563 201, 203–205, 305, 441, 715
Shuey v United States 92 US 73 (1875) . . . 57 Smith v Butler [1900] 1 QB 694 . . . 69, 142
Siboen, The [1976] 1 Lloyd’s Rep 293 . . . 597 Smith v Chadwick (1882) 20 Ch D 27; (1884) 9
Sibree v Tripp (1846) 15 M & W 23; 153 ER App Cas 187 . . . 305, 306, 320, 329
745 . . . 447 Smith v Charlick Ltd (1923) 34 CLR 38
Sign-o-Lite Plastics Ltd v Metropolitan Life (Australia) . . . 356
Insurance Co (1990) 73 DLR (4th) 541 . . . 694 Smith v Coffin (1795) 2 H Bl 444; 126 ER
Sim v Rotherham MBC [1987] Ch 216 . . . 455 641 . . . 683
Simkins v Pays [1955] 1 WLR 975 . . . 73 Smith v Ferrand (1827) 7 B & C 191; 108 ER
Simon Container Machinery Ltd v Emba 632 . . . 711
Machinery AB [1998] 2 Lloyd’s Rep 429 . . . 109 Smith v Hughes (1871) LR 6 QB 597 . . . 250, 253,
Simona, The, see Fercometal SARL v 255, 256, 257, 277, 278, 287, 291, 306, 332
Mediterranean Shipping Co SA Smith v Kay (1859) 7 HLC 750; 11 ER 299 . . . 360,
Simper v Coombs [1948] 1 All ER 306 . . . 497 364
Simpson v Crippin (1872) LR 8 QB 14 . . . 522 Smith v Land & House Property Corporation
Simpson v London & North Western Railway Co (1884) 28 Ch D 7 . . . 303
(1876) 1 QBD 274 . . . 535, 553, 554 Smith v Morgan [1971] 1 WLR 803 . . . 63
Sinclair v British Telecommunications plc [2000] Smith v South Wales Switchgear Co Ltd [1978] 1
2 All ER 461 . . . 670 WLR 165 . . . 180, 181
Sinclair v Brougham [1914] AC 398 . . . 17, 230 Smith v Taylor [1966] 2 Lloyd’s Rep 231 . . . 175
Sinclair’s Life Policy, Re [1938] Ch 799 . . . 620, 637, Smith v Wheatcroft (1878) 9 Ch D 223 . . . 249
638, 643 Smith New Court Securities Ltd v Citibank NA
Sindall (William) plc v Cambridgeshire CC [1994] [1997] AC 254 . . . 316, 322, 323, 324, 328
1 WLR 1016 . . . 277, 281, 291, 292, 293, 318, Smith & Service and Nelson & Sons, Re (1890) 25
319, 327, 339, 487 QBD 545 . . . 580
Singer Co (UK) Ltd v Tees & Hartlepool Port Smith & Snipes Hall Farm Ltd v River Douglas
Authority [1988] 2 Lloyd’s Rep 164 . . . 203, Catchment Board [1949] 2 KB 500 . . . 642
204, 658 Smith (WH) & Son v Clinton (1908) 25 TLR
Singh v Ali [1960] AC 167 . . . 424, 428 34 . . . 386
 table of cases lxxxiii

Smithson v Hamilton [2007] EWHC 2900 (Ch); Southcomb v Bishop of Exeter (1847) 6 Hare 213;
[2008] 1 WLR 1453 . . . 295 67 ER 1145 . . . 609
Smout v Ilbery (1842) 10 M & W 1; 152 ER Southern Foundries (1936) Ltd v Shirlaw [1940]
357 . . . 719 AC 701 . . . 518
Snelling v John Snelling Ltd [1973] QB 87 . . . 614, Southern Water Authority v Carey [1985] 2 All
616, 621 ER 1077 . . . 636, 637, 648, 649
Snook v Davidson (1809) 2 Camp 218; 170 ER Southwell v Bowditch (1876) 1 CPD 374 . . . 714
1134 . . . 707 Sovfracht (v/o) v Van Udens Scheepvaart en
Société Commerciale de Reassurance v ERAS Argentuur Maatschappij (NV Gebr) [1943] AC
International Ltd [1992] 1 Lloyd’s Rep 203 . . . 421, 718
570 . . . 447, 606 Sowler v Potter [1940] 1 KB 271 . . . 249, 273
Société Franco Tunisienne D’Armement v Spain, Government of v North of England SS Co
Sidermar SpA [1961] 2 QB 278 . . . 481 Ltd (1938) 54 TLR 852, 61 Ll L Rep 44 . . . 352
Société Italo-Belge pour le Commerce et Spector v Ageda [1973] Ch 30 . . . 432
l’Industrie v Palm & Vegetable Oils (Malaysia) Spectra International plc v Hayesoak Ltd [1997] 1
Sdn Bdh [1982] 1 All ER 19 . . . 119, 121 Lloyd’s Rep 153 . . . 658
Société de Vente de Ciments et Béton v Kerpen & Spellman v Spellman [1961] 1 WLR 921 . . . 73, 672
Kerpen (Case 319/82) [1983] ECR
4173 . . . 409 Spenborough UDC’s Agreement, Re [1968] Ch
139 . . . 472, 472
Society of Lloyd’s v Wilkinson (No 2) (1997) 6 Re
LR 214 . . . 317 Spence v Crawford [1939] 3 All ER 271 . . . 317
Soleimany v Soleimany [1999] QB 785 . . . 387 Spencer v Harding (1870) LR 5 CP 561 . . . 36
Solle v Butcher [1950] 1 KB 671 . . . 33, 249–51, Spencer’s Case (1583) 5 Co Rep 16a; 77 ER
266, 267, 273, 280, 283, 287, 290–97, 304 72 . . . 642
Soltykoff, ex parte Margrett, Re [1891] 1 QB Spice Girls Ltd v Aprilia World Service BV [2000]
413 . . . 235 EMLR 478; [2002] EWCA Civ 15; [2002]
EMLR 27 . . . 301
Somerville v National Coal Board 1963 SLT 334
(Scotland) . . . 61 Spiro v Glencrown Properties Ltd [1991] Ch
537 . . . 84
Sonat Offshore SA v Amerada Hess Development
Ltd [1988] 1 Lloyd’s Rep 145 . . . 180 Spiro v Lintern [1973] 1 WLR 1002 . . . 125
Sonicare International Ltd v East Anglia Freight Spooner v Sandilands (1842) 1 Y & C Ch 390; 62
Terminal Ltd [1997] 2 Lloyd’s Rep 48 . . . 658 ER 939 . . . 720
Sorrell v Finch [1977] AC 728 . . . 698 Sport International Bussum BV v Inter-Footwear
Ltd [1984] 1 WLR 776 . . . 593
Sotiros Shipping Inc v Sameiet Solholt [1983] 1
Lloyd’s Rep 605 . . . 555, 556 Springer v Great Western Ry [1921] 1 KB
257 . . . 695
Soulsbury v Soulsbury [2007] EWCA Civ 969;
[2008] Fam 1 . . . 30, 55 Spurling (J) Ltd v Bradshaw [1956] 1 WLR
461 . . . 176, 177, 183
South African Territories Ltd v Wallington [1898]
AC 309 . . . 575 Stabilad Ltd v Stephens & Carter Ltd (No 2)
[1999] 2 All ER (Comm) 651 . . . 61, 102
South Australia Asset Management Corp v York
Montague Ltd [1997] AC 191 . . . 324, 327, 543, Stach (Ian) Ltd v Baker Bosley Ltd [1958] 2 QB
548, 557 130 . . . 147
South Caribbean Trading Ltd v Trafigura Beheer Staffordshire Area Health Authority v South Staffs
BV [2004] EWHC 2676 (Comm); [2005] 1 Waterworks Co [1978] 1 WLR 1387 . . . 472, 492
Lloyd’s Rep 128 . . . 110 Stag Line Ltd v Foscolo, Mango & Co Ltd [1932]
South West Water Services Ltd v International AC 328 . . . 188
Computers Ltd [1999] BLR 420 . . . 330 Standard Chartered Bank v Pakistan Shipping Co
South Western General Property Co v Marton (Nos 2 and 4) [2002] UKHL 43; [2003] 1 AC
[1982] 263 EG 1090 . . . 301 959 . . . 306, 322, 714
South Western Mineral Water Co Ltd v Ashmore Standard Chartered Bank v Pakistan National
[1967] 1 WLR 1110 . . . 438 Shipping Corp (No 4) [2001] EWCA Civ 55;
[2001] 1 All ER (Comm) 822 . . . 322
Southampton Container Terminals Ltd v
Schiffahrtsgesellschaft Hansa Australia MBH Stanley v Jones (1831) 7 Bing 369; 131 ER
& Co, The Maersk Colombo [2001] EWCA Civ 143 . . . 390
717; [2001] 2 Lloyd’s Rep 275 . . . 541 Stapleton-Bretherton, Re [1941] Ch 482 . . . 620
lxxxiv table of cases

Starkey v Bank of England [1903] AC 114 . . . 716 Stirling v Maitland (1864) 5 B & S 840; 122 ER
Starside Properties Ltd v Mustapha [1974] 1 WLR 1043 . . . 518
816 . . . 593 Stockloser v Johnson [1954] 1 QB 476 . . . 592, 593
Starsin, The [2001] 1 Lloyd’s Rep 437 . . . 621 Stocks v Dobson (1853) 4 De GM & G 15; 43 ER
Startup v Macdonald (1843) 6 M & G 593; 134 ER 411 . . . 667
1029 . . . 450 Stocks v Wilson [1913] 2 KB 235 . . . 244, 245
State Railway Authority of New South Wales Stocznia Gdanska SA v Latvian SS Co [1996] 2
v Heath Outdoor Pty Ltd (1986) 7 NSWLR Lloyd’s Rep 132; [1998] 1 WLR 574 . . . 509, 574,
170 . . . 139 589, 590, 591
State Trading Corp of India Ltd v M Golodetz Ltd Stocznia Gdynia SA v Gearbulk Holdings Ltd
[1989] 2 Lloyd’s Rep 277 . . . 146, 508, 509, 524 [2009] EWCA Civ 75; [2010] QB 27 . . . 523, 524
Statek Corp v Alford [2008] EWHC 32 (Ch); Stoddart v Union Trust [1912] 1 KB 181 . . . 670
[2010] BCC 266 . . . 608 Stokes v Whicher [1920] 1 Ch 411 . . . 82
Statoil ASA v Louis Dreyfus Energy Services LP Stolt Loyalty, The [1993] 2 Lloyd’s Rep 281 . . . 119
[2008] EWHC 2257 (Comm); [2008] 2 Lloyd’s Stone v Reliance Mutual Insurance Society [1972]
Rep 685 . . . 278 1 Lloyd’s Rep 463 . . . 710
Stead v Dawber (1839) 10 A & E 57; 113 ER Stone & Rolls Ltd v Moore Stephens [2009]
22 . . . 466, 467 UKHL 39; [2009] 1 AC 1391 . . . 416, 431, 710
Steadman v Steadman [1976] AC 536 . . . 87 Strathlorne SS Co Ltd v Hugh Baird & Sons Ltd
Steedman v Drinkle [1916] 1 AC 275 . . . 443, 593 1916 SC (HL) 134 . . . 158
Steeds v Steeds (1889) 22 QBD 537 . . . 461 Strauss v Francis (1866) LR 1 QB 379 . . . 698
Steele v Hoe (1849) 14 QB 431 . . . 169 Strickland v Turner (1852) 7 Exch 208; 155 ER
Steele v Tardiani (1946) 72 CLR 386 919 . . . 284
(Australia) . . . 457 Stromdale & Ball Ltd v Burden [1952] Ch
Stein v Blake [1996] AC 243 . . . 683 223 . . . 643
Stein Forbes & Co Ltd v County Tailoring &Co Strongman (1945) Ltd v Sincock [1955] 2 QB
Ltd (1916) 86 LJKB 448 . . . 573 525 . . . 421
Steinberg v Scala (Leeds) Ltd [1923] 2 Ch Strutt v Whitnell [1975] 1 WLR 870 . . . 555
452 . . . 237, 238 Stubbs v Holywell Railway Co (1867) LR 2 Ex
Stena Nautica (No 2), The [1982] 2 Lloyd’s Rep 311 . . . 478, 683
336 . . . 576 Studholme v South Western Gas Board [1954] 1
Stenhouse Australia Ltd v Phillips [1974] AC WLR 313 . . . 483
391 . . . 403 Suart v Haigh (1893) 9 TLR 488 (HL) . . . 716
Stern v McArthur (1988) 165 CLR 489 Sudbrook Trading Estate Ltd v Eggleton [1983] 1
(Australia) . . . 593 AC 444 . . . 65, 577
Steven v Bromley & Son [1919] 2 KB 722 . . . 31, Suffell v Bank of England (1882) 9 QBD
594 555 . . . 530
Stevenson v Rogers [1999] QB 1028 . . . 161, 195 Suisse Atlantique Société d’Armement Maritime
Stevenson v United Road Transport Union [1977] SA v NV Rotterdamsche Kolen Centrale [1967]
ICR 893 . . . 578 1 AC 361 . . . 184, 185–188, 189, 192, 469, 509,
Stevenson (Hugh) & Sons Ltd v Aktiengesellschaft 510, 521
für Cartonnagen-Industrie [1918] AC Suleyman Stalskiy, The [1976] 2 Lloyd’s Rep 609
239 . . . 718 (Canada) . . . 648
Stevenson, Jacques & Co v McLean (1880) 5 QBD Sullivan v Constable (1932) 48 TLR 369 . . . 31
346 . . . 40, 46, 57, 58 Summers v Solomon (1857) 7 E & B 879; 119 ER
Stewart v Reavell’s Garage [1952] 2 QB 545 . . . 676 1474 . . . 693
Stewart Gill v Horatio Myer & Co [1992] 1 QB Sumnall v Statt (1984) 49 P & CR 367 . . . 497
600 . . . 196, 201, 206, 330 Sumner, Permain & Co Ltd v Webb & Co Ltd
Stickney v Keeble [1915] AC 386 . . . 443 [1922] 1 KB 55 . . . 164
Stikeman v Dawson (1847) De G & Sm 90; 63 ER Sumpter v Hedges [1898] 1 QB 673 . . . 453, 454,
984 . . . 241 456, 457, 589, 596
Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168; 6 Super Servant Two, The, see Lauritzen (J) AS v
Esp 129; 170 ER 851 . . . 17, 108, 110, 465 Wijsmuller BV
 table of cases lxxxv

Supershield Ltd v Siemens Building Technologies Tai Hing Cotton Mills Ltd v Liu Chong Hing
FE Ltd [2010] EWCA Civ 7 . . . 548 Bank Ltd [1986] AC 80 . . . 23
Suriya & Douglas v Midlands Bank [1999] 1 All Tailby v Official Receiver (1888) 13 App Cas
ER (Comm) 612 . . . 332 523 . . . 668
Surrendra Overseas Ltd v Government of Sri Talbot v Berkshire CC [1994] QB 290 . . . 529
Lanka [1977] 1 WLR 565 . . . 607 Talbot v Von Boris [1911] 1 KB 854 . . . 371, 372
Surrey Breakdown Ltd v Knight [1999] RTR Tallerman & Co Pty Ltd v Nathan’s Merchandise
84 . . . 695 (Vic) Pty Ltd (1954) 91 CLR 288
Surrey CC v Bredero Homes Ltd [1993] 1 WLR (Australia) . . . 467
1361 . . . 597, 598, 602, 603 Tamplin v James (1880) 15 Ch D 215 . . . 250, 256,
Sutro (L) & Co and Heilbut Symons & Co, Re 266
[1917] 2 KB 348 . . . 442 Tamplin (FA) Steamship Co Ltd v Anglo-Mexican
Sutton v Sutton [1984] Ch 184 . . . 87, 396, 578 Petroleum Products Co Ltd [1916] 2 AC
Sutton & Co v Grey [1894] 1 QB 285 . . . 81 397 . . . 476, 479, 480, 484, 485, 487, 492
Suwalki, The, see Polish SS Co v A J WilliamsFuels Tamvaco v Simpson (1866) LR 1 CP 363 . . . 352
(Overseas Sales) Ltd Tan Wing Chuen v Bank of Credit and Commerce
Swain v The Law Society [1983] 1 AC 598 . . . 622, Hong Kong Ltd [1996] 2 BCLC 69 . . . 170
637, 638, 640 Tancred v Delagoa Bay & East Africa Ry (1889) 23
Swain v West (Butchers) Ltd [1936] 1 All ER QBD 239 . . . 664
224 . . . 341 Tankexpress A/S v Compagnie Financière Belge
Swan, The [1968] 1 Lloyd’s Rep 5 . . . 713 des Petroles SA [1949] AC 76 . . . 467
Sweet & Maxwell Ltd v Universal News Services Tanner v Tanner [1975] 1 WLR 1346 . . . 73, 127,
Ltd [1964] 2 QB 699 . . . 513 393
Swift v Mackean [1942] 1 KB 375 . . . 497 Tappenden v Randall (1801) 2 B & P 467; 126 ER
Swindle v Harrison [1997] 4 All ER 705 . . . 324 1388 . . . 424
Swiss Bank Corp v Lloyd’s Bank Ltd [1979] Ch Target Holdings Ltd v Priestley (1999) 79 P &CR
548; rev’d [1982] AC 584 . . . 655 305 . . . 84
Sybron Corp v Rochem Ltd [1984] Ch 112 . . . 341 Tatam v Haslar (1889) 23 QBD 345 . . . 682
Sydenham & Co Ltd v Enichem Elastometers Ltd Tate v Williamson (1866) LR 2 Ch App 55 . . . 361,
[1989] 1 EGLR 257 . . . 123 364, 367
Sykes (F & G) (Wessex) Ltd v Fine Fare Ltd [1967] Tatem (WJ) Ltd v Gamboa [1939] 1 KB
1 Lloyd’s Rep 53 . . . 64 132 . . . 487, 491
Sylvia Shipping Co Ltd v Progress Bulk Carriers Tattersall v Drysdale [1935] 2 KB 174 . . . 640
Ltd [2010] EWHC 542 . . . 549 Tay Salmon Fisheries Co Ltd v Speedie 1929 SC
Syros Shipping Co SA v Elaghill Trading Co 593 (Scotland) . . . 497
Ltd [1980] 2 Lloyd’s Rep 390; [1981] 3 All ER Taylor v Allon [1966] 1 QB 304 . . . 51
189 . . . 123, 124, 465 Taylor v Bhail [1996] CLC 377 . . . 419
Systems Reliability Holdings plc v Smith [1990] Taylor v Bowers (1876) 1 QBD 291 . . . 424
IRLR 377 . . . 403 Taylor v Caldwell (1863) 3 B & S 826; 122 ER
Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd 309 . . . 474, 475, 477
[1959] AC 576 . . . 186, 189, 190 Taylor v Chester (1869) LR 4 QB 309 . . . 429, 430
Taylor v Hepworths Ltd [1977] 1 WLR 659 . . . 541
TC Industrial Plant Pty Ltd v Robert’s Taylor v Johnson (1983) 151 CLR 422
(Queensland) Pty Ltd [1964] ALR 1083 (Australia) . . . 267
(Australia) . . . 561 Taylor v Laird (1856) 25 LJ Ex 329; (1856) 1 H &
TCB Ltd v Gray [1986] Ch 621 . . . 77 N 266; 156 ER 1203 . . . 39, 95, 525, 574
TSB Bank plc v Camfield [1995] 1 WLR Taylor v Motability Finance Ltd [2004] EWHC
430 . . . 311, 312, 313 2619 (QB) . . . 595
Tabcorp Holdings Ltd v Bowen Investments Pty Taylor v Oakes Roncoroni & Co (1922) 127 LT
Ltd [2009] HCA 8 . . . 541 267 . . . 511
Tadcaster Tower Brewery Co v Wilson [1897] 1 Taylor v Webb [1937] 2 KB 283 . . . 519
Ch 705 . . . 443 Taylors Fashions Ltd v Liverpool Victoria Trustee
Taddy v Sterious & Co [1904] 1 Ch 354 . . . 656 Co Ltd [1982] QB 133 . . . 127
lxxxvi table of cases

Teacher v Calder (1899) 1 F 39 . . . 597 Thoresen Car Ferries Ltd v Weymouth Portland
Teheran-Europe Co Ltd v ST Belton (Tractors) BC [1977] 2 Lloyd’s Rep 614 . . . 9, 94, 105
Ltd [1968] 2 QB 545 . . . 714 Thorley (J) Ltd v Orchis Steamship Co Ltd [1907]
Temple Legal Protection Ltd v QBE Insurance 1 KB 660 . . . 188
(Europe) Ltd [2009] EWCA Civ 453; [2009] 1 Thorman v Dowgate Steamship Co Ltd [1910] 1
CLC 553 . . . 717, 721, 722 KB 410 . . . 170
Tenant v Elliott (1797) 1 B & P 3; 126 ER Thorne v Motor Trade Association [1937] AC
744 . . . 428 797 . . . 357, 358
Tenax SS Co Ltd v The Brimnes (Owners) [1975] Thorne v Silverleaf [1994] 1 BCLC 637 . . . 422
1 QB 929 . . . 57, 451 Thorner v Major [2009] UKHL 18; [2009] 1 WLR
Tennant Radiant Heat Ltd v Warrington 776 . . . 88, 127
Development Corp [1988] 1 EGLR Thornett & Fehr v Beer & Son [1919] 1 KB
41 . . . 562 486 . . . 163
Terrell v Colonial Secretary [1953] 2 QB Thornett & Fehr and Yuills Ltd, Re [1921] 1 KB
482 . . . 223 219 . . . 540
Test Claimants in the Franked Investment Group Thornton v Kempster (1814) 5 Taunt 786; 128 ER
Litigation v Commissioners of the Inland 901 . . . 254
Revenue [2010] EWCA Civ 103; [2010] BTC Thornton v Shoe Lane Parking Ltd [1971] 2 QB
265 . . . 607 163 . . . 35, 173, 176
Texaco Ltd v Mulberry Filling Station Ltd [1972] 1 Thornton Springer v NEM Insurance Co Ltd
WLR 814 . . . 398, 402, 413, 581 [2000] 2 All ER 489 . . . 123, 125
Thackwell v Barclays Bank plc [1986] 1 All ER Thoroughgood’s Case (1582) 2 Co Rep 9a; 76 ER
676 . . . 417 408 . . . 258
Thai Trading Co v Taylor [1998] QB 781 . . . 384, Thrasyvoulou v Secretary of State for the
392 Environment [1990] 2 AC 273 . . . 529
Thake v Maurice [1986] QB 644 . . . 136, 441 Three Rivers DC v Bank of England [1996] QB
Thames Valley Power Ltd v Total Gas & Power Ltd 292 . . . 666
[2005] EWHC 2208 (Comm); [2006] 1 Lloyd’s Tiedemann & Ledermann Frères, Re [1899] 2 QB
Rep 441 . . . 474 66 . . . 690
Tharros Shipping Co Ltd v Bias Shipping Ltd (No Tilley v Thomas (1867) LR 3 Ch App 61 . . . 443
3) [1997] 1 Lloyd’s Rep 246 . . . 391
Tillmanns & Co v SS Knutsford Ltd [1908] 2 KB
Thavorn v Bank of Credit & Commerce 385; aff ’d [1908] AC 406 . . . 6, 170
International SA [1985] 1 Lloyd’s Rep
259 . . . 242, 244 Timeload Ltd v British Telecommunications plc
(1995) 3 EMLR 459 . . . 156, 200, 346,
Thirkell v Cambi [1919] 2 KB 590 . . . 83 350, 377
Thoday v Thoday [1964] P 181 . . . 528 Timmins v Moreland Street Property Ltd [1958]
Thomas, Re [1894] 1 QB 742 . . . 428 Ch 110 . . . 82, 86
Thomas v Brown (1876) 1 QBD 714 . . . 83 Timothy v Simpson (1834) 6 C & P 499; 172 ER
Thomas v Harris [1947] 1 All ER 444 . . . 667 1337 . . . 5, 34, 35
Thomas v Thomas (1842) 2 QB 851 . . . 91, 101 Tinline v White Cross Insurance Co Ltd [1921] 3
Thomas v University of Bradford [1987] AC KB 327 . . . 386
795 . . . 578 Tinn v Hoffman & Co (1873) 29 LT 271 . . . 39,
Thomas Witter Ltd v TBP Industries Ltd [1996] 2 51, 52
All ER 573 . . . 138, 139, 318, 321, 330 Tinsley v Milligan [1994] 1 AC 340 . . . 385,
Thompson v ASDA-MFI Group plc [1988] Ch 393, 416, 417, 422, 424, 425, 428, 429,
241 . . . 142, 449, 471 430, 431
Thompson v LM & S Railway Co [1931] 1 KB Tito v Waddell (No 2) [1977] Ch 106 . . . 527, 540,
41 . . . 174, 175 541, 576, 579, 580, 597, 609, 675
Thompson v T Lohan (Plant Hire) Ltd [1987] 1 Tiverton Estates Ltd v Wearwell Ltd [1975] Ch
WLR 649 . . . 180, 196, 197, 198 146 . . . 68, 83
Thompson (WL) Ltd v Robinson (Gunmakers) Todd v Robinson (1825) 1 Ry & M 217; 171 ER
Ltd [1955] Ch 177 . . . 558 999 . . . 693
Thomson v James (1855) 18 D 1 (Scotland) . . . 57 Toepfer v Lenersan-Poortman NV [1980] 1
Thomson v Weems (1884) 9 App Cas 671 . . . 336 Lloyd’s Rep 143 . . . 149
 table of cases lxxxvii

Toepfer (Alfred C) International GmbH v Itex Trentham (G Percy) Ltd v Archital Luxfer Ltd
Itagram Export SA [1993] 1 Lloyd’s Rep [1993] 1 Lloyd’s Rep 25 . . . 42, 64
360 . . . 513 Trepca Mines Ltd (No 2), Re [1963] Ch
Tolhurst v Associated Portland Cement 199 . . . 390, 673
Manufacturers (1900) Ltd [1903] AC Tribe v Tribe [1996] Ch 107 . . . 424, 425, 430
414 . . . 674, 675 Trident General Insurance Co Ltd v McNiece Bros
Tomlinson v Gill (1756) Amb 330; 27 ER 221 . . . 636 Pty Ltd (1988) 165 CLR 107 (Australia) . . . 615,
Tommey v Finextra (1962) 106 SJ 1012 . . . 285 622, 623, 628, 638
Tool Metal Manufacturing Co Ltd v Tungsten Trident Turboprop (Dublin) Ltd v First Flight
Electric Co Ltd [1955] 1 WLR 761 . . . 119, 120, Couriers Ltd [2009] EWCA Civ 290; [2010] QB
121, 122 86 . . . 194, 329
Tootal Clothing Ltd v Guinea Properties Ltd Triffit Nurseries & Others v Salads Etc Ltd [2000]
(1991) 64 P & CR 452 . . . 22, 85, 87 2 Lloyd’s Rep 74 . . . 718
Toprak Mahsulleri Ofisi v Finagrain Compagnie Triggs v Staines UDC [1969] 1 Ch 10 . . . 436
Commerciale Agricole et Financière [1979] 2 Trollope & Colls Ltd v Atomic Power
Lloyd’s Rep 98 . . . 387 Construction Ltd [1963] 1 WLR 333 . . . 58, 68
Tor Line AB v Alltrans Group of Canada Ltd Trollope & Colls Ltd v NW Metropolitan Regional
[1984] 1 WLR 48 . . . 179 Hospital Board [1973] 1 WLR 601 . . . 153
Torkington v Magee [1902] 2 KB 427; rev’d [1903] Troop v Gibson (1986) 277 EG 1134 . . . 128
1 KB 644 . . . 661, 663, 665, 673 Trytel, Re [1952] 2 TLR 32 . . . 684
Torquay Hotel Co Ltd v Cousins [1969] 2 Ch Tsakiroglou & Co Ltd v Noblee Thorl GmbH
106 . . . 655 [1962] AC 93 . . . 481, 482, 487, 488, 490–92
Torrance v Bolton (1872) LR 8 Ch App 118 . . . 267, Tudor Grange Holdings Ltd v Citibank NA [1992]
292 Ch 53 . . . 196
Torvald Klaveness A/S v Arni Maritime Corp Tudor Marine Ltd v Tradax Export SA [1976] 2
[1994] 1 WLR 1465 . . . 149 Lloyd’s Rep 134 . . . 713
Total Gas Marketing Ltd v Arco British Ltd [1998] Tufton v Sperni [1952] 2 TLR 516 . . . 361, 364
2 Lloyd’s Rep 209 . . . 143, 490
Tulk v Moxhay (1848) 2 Ph 774; 41 ER
Town Investments Ltd v Department of the 1143 . . . 642, 653, 654
Environment [1978] AC 359 . . . 195
Tungsten Electric Co Ltd v Tool Metal
Townson v Tickell (1819) 3 B & Ald 31; 106 ER Manufacturing Co Ltd (1950) 69 RPC
575 . . . 31 108 . . . 120, 123
Tracomin SA v Anton C Nielsen [1984] 2 Lloyd’s Turcan, Re (1888) 40 Ch D 5 . . . 672
Rep 195 . . . 51
Turkey v Awadh [2005] EWCA Civ 382; [2005] 2
Tradax International SA v Goldschmidt [1977] 2 P & CR 29 . . . 366
Lloyd’s Rep 604 . . . 147
Turnbull (Peter) & Co Pty Ltd v Mundus Trading
Trade Indemnity Co Ltd v Workington Harbour Co (Australasia) Pty Ltd (1954) 90 CLR 2325
& Dock Board [1937] AC 1 . . . 337 (Australia) . . . 509
Trade & Transport Inc v Iino Kaiun Kaisha Ltd Turner v Commonwealth & British Minerals Ltd
[1973] 1 WLR 210 . . . 521 [2000] IRLR 114 . . . 404
Traill v Baring (1864) 4 De GJ & S 318 . . . 302, 345 Turner v Goldsmith (1876) 1 App Cas 256; [1891]
Trans-Trust SPRL v Danubian Trading Co Ltd 1 QB 544 . . . 706, 718
[1952] 2 QB 297 . . . 116, 142 Turner v Green [1895] Ch 205 . . . 338
Transag Haulage Ltd v Leyland DAF Finance plc Turner v Reeve (1901) 17 TLR 592 . . . 705
[1994] 2 BCLC 88 . . . 593
Turtle Offshore, A SA v Superior Trading Inc
Transfield Shipping Inc v Mercator Shipping Inc, [2008] EWHC 3034 (Admlty); [2009] 1 Lloyd’s
The Achilleas [2008] UKHL 48; [2009] 1 AC Rep 177 . . . 186
61 . . . 547, 548, 549, 554
Tweddle v Atkinson (1861) 1 B & S 393; 121 ER
Transworld Oil Ltd v North Bay SS Corp [1987] 2 762 . . . 98, 614, 615, 622
Lloyd’s Rep 173 . . . 550
21st Century Logistic Solutions Ltd v Madysen
Travers (Joseph) & Sons Ltd v Cooper [1915] 1 Ltd [2004] EWHC 231 (QB); [2004] 2 Lloyd’s
KB 73 . . . 180 Rep 92 . . . 385
Trendtex Trading Corp v Crédit Suisse [1980] 1 Twopenny v Young (1824) 3 B & C 208; 107 ER
QB 629; [1982] AC 679 . . . 391, 673 711 . . . 527
lxxxviii table of cases

Tzelepi, The, see Islamic Republic of Iran Shipping Universal Corporation v Five Ways Properties Ltd
Lines v Zannis Cia Naviera SA [1979] 1 All ER 552 . . . 592
Universal Thermosensors Ltd v Hibben [1992] 1
UCB Bank plc v Hepherd Winstanley and Pugh WLR 840 . . . 403
[1999] Lloyd’s Rep PN 963 . . . 562 Universe Tankships Inc of Monrovia v
UCB Corporate Services Ltd v Thomason [2005] International Transport Workers Federation,
EWCA Civ 225; [2005] 1 All ER (Comm) The Universe Sentinel [1983] 1 AC 366 . . . 350,
601 . . . 318 351, 352, 353, 357
UGS Finance Ltd v National Mortgage Bank of University of Nottingham v Eyett (No 1) [1999] 2
Greece [1964] 1 Lloyd’s Rep 446 . . . 184 All ER 437 . . . 156
UR Power Gmbh v Kuok Oils and Grains Pte Ltd Universo Insurance Co of Milan v Merchant’s
[2009] EWHC 1940 (Comm); [2009] 2 Lloyd’s Marine Insurance Co Ltd [1897] 2 QB 93 . . . 158
Rep 495 . . . 142 Upfill v Wright [1911] 1 KB 506 . . . 393
USA v Motor Trucks Ltd [1924] AC 196 . . . 262, Upton-on-Severn RDC v Powell [1942] 1 All ER
263 220 . . . 32, 33, 269
Unchained Growth III plc v Granby Village Urquhart, Lindsay & Co Ltd v Eastern Bank Ltd
(Manchester) Management Co Ltd [2000] 1 [1922] 1 KB 318 . . . 116
WLR 739 . . . 194
Union Eagle Ltd v Golden Achievement Ltd Vacwell Engineering Co Ltd v BDH Chemicals
[1997] 2 WLR 341; [1997] AC 514 . . . 442, 444, Ltd [1971] 1 QB 88 . . . 562
470, 521, 523, 566, 593 Vadasz v Pioneer Concrete (SA) Pty Ltd (1955)
Union of India v NV Reederij Amsterdam [1962] 184 CLR 102 (Australia) . . . 312
2 Lloyd’s Rep 233 . . . 441 Vagres Comp Maritima SA v Nissho-Iwai
Union Steamships v Barnes (1956) 5 DLR (2d) America Corp, The Karin Vatis, [1988] 2
535 (Canada) . . . 175 Lloyd’s Rep 330 . . . 519
Unique Mariner (No 2), The [1979] 1 Lloyd’s Rep Van den Hurk v R Martens & Co Ltd [1920] 1 KB
37 . . . 518 850 . . . 557
United Australia Ltd v Barclays Bank Ltd [1941] Vanbergen v St Edmund’s Properties Ltd [1933] 2
AC 1 . . . 469 KB 223 . . . 113
United Bank of Kuwait Ltd v Hammoud [1988] 1 Vancouver Malt & Sake Brewing Co Ltd v
WLR 1051 . . . 693 Vancouver Breweries Ltd [1934] AC 181 . . . 406
United Bank of Kuwait plc v Sahib [1995] 2 WLR Vandepitte v Preferred Accident Insurance Corp
94 [1997] Ch 107 . . . 22, 84, 87 of New York [1933] AC 70 . . . 615, 636, 637, 638
United Brands Co v EC Commission (Case 27/76) Vandervell v IRC [1967] 2 AC 291 . . . 667
[1978] 1 ECR 207 . . . 410 Vantage Navigation Corp v Suhail & Saud Bahwan
United Dominions Trust (Commercial) Ltd v Building Materials Llc, The Alev [1989] 1
Eagle Aircraft Services Ltd [1968] 1 WLR Lloyd’s Rep 138 . . . 108, 110, 130, 352, 354, 355
74 . . . 142 Varley v Whipp [1900] 1 QB 513 . . . 161
United Dominions Trust (Jamaica) Ltd v Shoucair Vaswani v Italian Motors (Sales & Services) Ltd
[1969] 1 AC 340 . . . 464 [1996] 1 WLR 270 . . . 514
United Dominions Trust Ltd v Western [1976] QB Vaughan v Vaughan [1953] 1 QB 762 . . . 70, 72, 73
513 . . . 261
Vaughan (Alf) v Royscot Trust Ltd [1999] 1 All
United Railways of the Havana and Regla ER (Comm) 856 . . . 357, 593
Warehouses Ltd, Re [1960] Ch 52; sub nom
Tomkinson v First Pennsylvania Banking & Vedatech Corp v Crystal Decisions (UK) Ltd
Trust Co [1961] AC 1007 . . . 676 [2002] EWHC 818 (Ch) . . . 705
United Scientific Holdings Ltd v Burnley BC Veitch v Sinclair [1975] 1 NZLR 264 . . . 100
[1978] AC 904 . . . 148, 349, 442, 443, Verband der Sachversicherer v Commission (Case
444, 520 45/85) [1987] ECR 405 . . . 409
Universal Bulk Carriers Ltd v André et Cie SA Vic Mill Ltd, Re [1913] 1 Ch 465 . . . 559
[2000] 1 Lloyd’s Rep 459; [2001] EWCA Civ Victoria Laundry (Windsor) Ltd v Newman
588 . . . 149 Industries Ltd [1949] 2 KB 528 . . . 544, 545, 546,
Universal Cargo Carriers Corporation v Citati 550, 551, 554
[1957] 2 QB 401; [1957] 1 WLR 979; [1958] 2 Victorian Daylesford Syndicate Ltd v Dott [1905]
QB 254 . . . 512, 513, 517, 518 2 Ch 624 . . . 383
 table of cases lxxxix

Vigers v Cook [1919] 2 KB 475 . . . 453, 455 Walters v Morgan (1861) 3 De GF & J 718; 45 ER
Vincent v Premo Enterprises Ltd [1969] 2 QB 1056 . . . 301, 580
609 . . . 78 Walton v Mascall (1844) 13 M & W 452; 153 ER
Vine v National Dock Labour Board [1956] 1 QB 188 . . . 451
658 . . . 508 Waltons Stores (Interstate) Ltd v Maher
Vitol SA v Esso Australia Ltd [1989] 2 Lloyd’s Rep (1986) 5 NSWLR 407; (1988) 164 CLR 387
451 . . . 119 (Australia) . . . 121, 124, 125, 126
Vitol SA v Norelf Ltd [1996] AC 800 . . . 50, 508 Ward v Byham [1956] 1 WLR 496 . . . 92, 102, 105
Voaden v Champion, The Baltic Surveyor [2002] Ward v Cannock Chase DC [1985] 3 All ER
EWCA Civ 89; [2002] 1 Lloyd’s Rep 623 . . . 556 537 . . . 540
Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Warehousing & Forwarding Co of East Africa Ltd
Ch 284 . . . 67 v Jafferali & Sons Ltd [1964] AC 1 . . . 689
Vosper Thornycroft Ltd v Ministry of Defence Warlow v Harrison (1858) 1 E & E 309; 120 ER
[1976] 1 Lloyd’s Rep 58 . . . 64 920 . . . 36, 37, 125
Voyle v Hughes (1854) 2 Sm & G 18; 65 ER Warman v Southern Counties Car Finance Corp
283 . . . 669 Ltd [1949] 2 KB 576 . . . 589
Warner Bros Pictures Inc v Nelson [1937] 1 KB
WWF-World Fund for Nature v World Wrestling 209 . . . 582, 583
Federation Entertainment Inc [2007] EWCA Warner Bros Records Inc v Rollgreen Ltd [1976]
Civ 286; [2008] 1 WLR 445 . . . 600 QB 430 . . . 663, 666
Wade v Simeon (1846) 2 CB 548; 135 ER Warren v Mendy [1989] 1 WLR 853 . . . 583, 584
1061 . . . 103 Warren & Co v Agdeshman (1922) 38 TLR
Wadsworth v Lydall [1981] 1 WLR 598 . . . 564 588 . . . 706
Wagon Mound, The, see Overseas Tankship (UK) Warwickshire CC v Johnson [1993] 1 All ER
v Morts Dock & Engineering Co Wait, Re 299 . . . 35
[1927] 1 Ch 606 . . . 505, 506 Waters v Monarch Fire & Life Assurance Co
Waites v Jones (1835) 1 Bing NC 646; 131 ER (1856) 5 E & B 870; 119 ER 705 . . . 619
1270 . . . 433 Wates Ltd v GLC (1987) 25 Build LR 1 . . . 493
Wale, Re [1956] 1 WLR 1346 . . . 669 Watford Borough Council v Watford Rural Parish
Wales v Wadham [1977] 1 WLR 199 . . . 302, 345 (1987) 86 LGR 524 . . . 472, 472
Walford v Miles [1992] 2 AC 128 . . . 65, 66, 66, Watford Electronics Ltd v Sanderson CFL Ltd
212, 347, 474 [2001] EWCA Civ 317; [2001] 1 All ER
Walker v Boyle [1982] 1 WLR 495 . . . 204, 330, (Comm) 696 . . . 203, 206, 329
331, 339 Wathen v Sandys (1811) 2 Camp 640; 170 ER
Walker v Copp Clark Publishing Co Ltd (1962) 33 1279 . . . 105
DLR (2d) 338 (Canada) . . . 82 Wathes (Western) Ltd v Austins (Menswear) Ltd
Walker v Perkins (1764) 1 W Bl 517; 96 ER [1976] 1 Lloyd’s Rep 14 . . . 185
299 . . . 393 Watkin v Watson-Smith, The Times, 3 July
Walker v Rostron (1842) 9 M & W 411 . . . 676 1986 . . . 374
Walker v Standard Chartered Bank plc [1992] Watkins v Rymill (1883) 10 QBD 178 . . . 175
BCLC 535 . . . 525 Watkins’ (or Wykes’) Case (1425) . . . 13
Wall v Rederiaktiebolaget Luggude [1915] 3 KB Watkins & Sons Inc v Carrig 21 A 2d 591 (1941)
66 . . . 565, 571 (USA) . . . 355
Wallersteiner v Moir (No 2) [1975] QB 373 . . . Watson, Re (1886) 18 QBD 116 . . . 719
390, 565 Watson v Davies [1931] 1 Ch 455 . . . 689
Wallis v Russell [1902] 2 Ir Rep 585 . . . 163 Watson v Prager [1991] 1 WLR 726 . . . 403
Wallis v Smith (1882) 20 Ch D 243 . . . 570 Watteau v Fenwick [1893] 1 QB 346 . . . 694
Wallis, Son & Wells v Pratt & Haynes [1910] 2 KB Watts v Morrow [1991] 1 WLR 1421 . . . 536, 537,
1003; [1911] AC 394 . . . 160, 178, 521 541
Walrond v Walrond (1858) 28 LJ Ch 97 . . . 433 Watts v Spence [1976] Ch 165 . . . 326
Walter v Everard [1891] 2 QB 369 . . . 235, 240 Watts, Watts & Co v Mitsui [1917] AC
Walter v James (1871) LR 6 Ex 124 . . . 448 227 . . . 571
Walter & Sullivan Ltd v J Murphy & Sons Ltd Waugh v HB Clifford & Sons Ltd [1982] Ch
[1955] 1 QB 584 . . . 666 374 . . . 698
xc table of cases

Waugh v Morris (1873) LR 8 QB 202 . . . 420 Whelpdale’s Case (1605) 5 Co Rep 119a; 77 ER
Wauton v Coppard [1899] 1 Ch 92 . . . 304 239 . . . 350
Way v Latilla [1937] 3 All ER 759 . . . 64, 705 Whincup v Hughes (1871) LR 6 CP 78 . . . 588
Webb, Re [1941] Ch 225 . . . 638 White v Bijou Mansions Ltd [1937] Ch 610;
Webb v Chief Constable of Merseyside Police [1938] Ch 351 . . . 643
[2000] QB 427 . . . 430 White v Blackmore [1972] 2 QB 651 . . .
Webb v Hughes (1870) LR 10 Eq 281 . . . 443 175, 180
Webster v Cecil (1861) 30 Beav 62; 54 ER White v Bluett (1853) 23 LJ Ex 36 . . . 102
812 . . . 266, 290, 580 White v British Empire etc Assurance Co (1868)
Webster v Higgin [1948] 2 All ER 127 . . . 190 LR 7 Eq 394 . . . 422
Weddell v JA Pearce & Major [1988] Ch 26 . . . 666 White v Garden (1851) 10 CBNS 919 . . . 358
Weeks v Tybald (1605) Noy 11; 74 ER 982 . . . 70 White v Jones [1995] 2 AC 207 . . . 24, 615, 616,
629, 644
Weg Motors Ltd v Hales [1961] Ch 176 . . . 152
White v Lincoln (1803) 8 Ves Jun 363; 32 ER
Welby v Drake (1825) 1 C & P 557; 171 ER 395 . . . 701
1315 . . . 115
White v Warwick (John) & Co Ltd [1953] 1 WLR
Weld-Blundell v Stephens [1920] AC 956 . . . 543 1285 . . . 180
Weldon v GRE Linked Life Assurance [2000] 2 All White v White (1872) LR 15 Eq 247 . . . 265
ER (Comm) 914 . . . 153
White v White [2001] UKHL 99; [2001] 1 WLR
Wells v Foster (1841) 8 M & W 149; 151 ER 481 . . . 640
987 . . . 388
White Arrow Express Ltd v Lamey’s Distribution
Wells (Merstham) Ltd v Buckland Sand & Silica Ltd (1995) 15 Tr LR 69 . . . 541, 590, 599
Co Ltd [1965] 2 QB 170 . . . 137
White & Carter (Councils) Ltd v McGregor
Welsh Development Agency v Export Finance Co [1962] AC 413 . . . 508, 509, 519, 574, 575
Ltd [1992] BCLC 148 . . . 689, 707, 708, 709
Whitehall Court Ltd v Ettlinger [1920] 1 KB
Wenkheim v Arndt (1873) 1 JR 73 (NZ) . . . 52 680 . . . 497
Wertheim v Chicoutimi Pulp Co Ltd [1911] AC Whiteley Ltd v Hilt [1918] 2 KB 808 . . . 576
301 . . . 558
Whitlock v Brew (1968) 118 CLR 445
West of England Shipowners Mutual Insurance (Australia) . . . 62
Association v Crystal Ltd [1996] 1 Lloyd’s Rep
370 . . . 395 Whittaker v Campbell [1984] QB 318 . . . 271, 280
West London Commercial Bank v Kitson (1884) Whittington v Seale-Hayne (1900) 82 LT
13 QBD 360 . . . 304 49 . . . 313, 314
West Sussex Properties Ltd v Chichester DC Whitwood Chemical Co v Hardman [1891] 2 Ch
[2000] NPC 74 . . . 290, 292, 294 416 . . . 582
West Yorkshire Darracq Agency Ltd v Coleridge Whitworth Street Estates (Manchester) Ltd
[1911] 2 KB 326 . . . 114 v James Miller & Partners Ltd [1970] AC
583 . . . 168, 169
Westacre Investments Ltd v Jugoimport SPDR Ltd
[1999] QB 740; aff ’d [2000] QB 288 . . . 387 Wholesale Distributors Ltd v Gibbons Holdings
Ltd [2007] NZSC 37 . . . 168
Westdeutsche Landesbank Girozentrale v
Islington LBC [1994] 4 All ER 890; [1994] 1 Wibau Maschinenfabrik Hartman SA v
WLR 938; aff ’d [1996] AC 669 . . . 17, 22, 24, 89, Mackinnon Mackenzie & Co [1989] 2 Lloyd’s
219, 228, 230, 231, 565, 590 Rep 494 . . . 188
Western Fish Products Ltd v Penwith DC [1981] 2 Wigan v Edwards (1973) 1 ALR 497
All ER 204 . . . 128, 226 (Australia) . . . 104, 108
Westerton, Re [1919] 2 Ch 104 . . . 665, 672 Wigan v English and Scottish Law Life Assurance
Association [1909] 1 Ch 291 . . . 92, 97
Westminster CC v Duke of Westminster [1991] 4
All ER 136 . . . 95, 100 Wild v Civil Aviation Authority, 25 Sept 1987
(CA) . . . 139
Westminster (Duke of) v Guild [1985] QB
688 . . . 153 Wild v Simpson [1919] 2 KB 544 . . . 390
Westpac Banking Corp v Cockerill (1998) 152 Wilkie v London Passenger Transport Board
ALR 267 (Australia) . . . 357 [1947] 1 All ER 258 . . . 31, 35
Wheeler v Quality Deep Ltd [2004] EWCA Civ Williams v Atlantic Assurance Co [1933] 1 KB
1085; [2005] ICR 265 . . . 419 81 . . . 664, 666
 table of cases xci

Williams v Baltic Insurance Association of Wiltshire v Marshall (1866) 14 LT (NS) 396 . . . 247
London Ltd [1924] 2 KB 282 . . . 638 Wiluszynski v Tower Hamlets LBC [1989] ICR
Williams v Bayley (1886) LR 1 HL 200 . . . 352 493 . . . 453, 454, 455, 456, 596
Williams v Carwardine (1833) 4 B & Ad 621; 110 Windhill Local Board of Health v Vint (1890) 45
ER 590 . . . 38, 51 Ch D 351 . . . 389
Williams v Fanshaw Porter & Hazelhurst [2004] Windle, Re [1975] 1 WLR 1628 . . . 73
EWCA Civ 157; [2004] 1 WLR 3185 . . . 606 Winkfield, The [1902] P 42 . . . 619
Williams v Greatrex [1957] 1 WLR 31 . . . 609 Winn v Bull (1877) 7 Ch D 29 . . . 68
Williams v Millington (1788) 1 H Bl 81; 126 ER Winstone v Linn (1823) 1 B & C 460; 107 ER
49 . . . 707 171 . . . 519
Williams v Moor (1843) 11 M & W 256; 152 ER Winter Garden Theatre (London) Ltd v
798 . . . 235 Millennium Productions Ltd [1948] AC
Williams v Natural Life Health Foods Ltd [1998] 1 173 . . . 472
WLR 830 . . . 24, 715 Winterbottom v Wright (1842) 10 M & W 109;
Williams v North China Insurance Co (1876) 1 152 ER 402 . . . 17
CPD 757 . . . 691 With v O’Flanagan [1936] Ch 575 . . . 302
Williams v Roffey Bros & Nicholls (Contractors) Withers v Reynolds (1831) 2 B & Ad 882; 109 ER
Ltd [1991] 1 QB 1 . . . 92, 105, 108, 109, 110, 1370 . . . 514
111, 112, 355, 455, 465 Wong Mee Wan v Kwan Kin Travel Services Ltd
Williams v Williams [1957] 1 WLR 148 . . . 105, [1996] 1 WLR 38 . . . 153, 155
106, 111 Wood v Roberts (1818) 2 Stark 417; 171 ER
Williams Bros v ET Agius Ltd [1914] AC 691 . . . 114
510 . . . 557, 558 Wood v Scarth (1855) 2 K & J 33; 69 ER 682;
Williams Construction Ltd v Blackman [1995] 1 (1858) 1 F & F 293; 175 ER 733 . . . 266, 290
WLR 102 . . . 220 Wood Preservation Ltd v Prior [1969] 1 WLR
Willis v Baldwin (1780) 2 Doug KB 450; 99 ER 1077 . . . 142
287 . . . 385 Woodar Investment Development Ltd v Wimpey
Wilmot v Alton [1897] 1 QB 17 . . . 684 Construction (UK) Ltd [1980] 1 WLR
Wilson v Carnley [1908] 1 KB 729 . . . 394 277 . . . 512, 514, 615, 617, 618, 620,
Wilson v Darling Island Stevedoring & Lighterage 622, 623
Co Ltd (1956) 95 CLR 43 (Australia) . . . 638, 646 Woodhouse AC Israel Cocoa Ltd SA v Nigerian
Wilson v First County Trust Ltd (No 2) [2003] Produce Marketing Co Ltd [1972] AC
UKHL 40; [2004] 1 AC 816 . . . 20 741 . . . 94, 119, 126
Wilson v Keating (1859) 27 Beav 121; 54 ER Woolcott v Sun Alliance & London Insurance Ltd
47 . . . 445 [1978] 1 WLR 493 . . . 336
Wilson v Lancs & Yorks Ry (1861) 9 CBNS 632; Woolmer v Delmer Price Ltd [1955] 1 QB
142 ER 248 . . . 552 291 . . . 186
Wilson v Maynard Shipbuilding Consultants AG Woolwich BS v IRC [1993] AC 70 . . . 103, 214
Ltd [1978] QB 665 . . . 169 Workers Trust & Merchant Bank Ltd v Dojap
Wilson v Northampton & Banbury Ry Co (1874) Investments Ltd [1993] AC 573 . . . 592, 593
9 Ch App 279 . . . 579 World Navigator, The, see Becher (Kurt A) GmbH
Wilson v Rickett, Cockrell & Co Ltd [1954] 1 QB & Co KG v Roplak Enterprises SA
598 . . . 162 Wormell v RHM Agriculture (East) Ltd [1987] 1
Wilson v Tumman (1843) 6 M & G 236; 134 ER WLR 1091 . . . 197
879 . . . 689 Wouters v Algemene Raad van de Nederlandse
Wilson v United Counties Bank [1920] AC Orde van Advocaten (Case 309/99) [2002] I
102 . . . 683 ECR 1577 . . . 409
Wilson v Wallani (1880) 5 Ex D 155 . . . 665 Wren (Jonathan) & Co Ltd v Microdec plc (1999)
Wilson Smithett & Cape (Sugar) Ltd v Bangladesh 65 Con LR 157 . . . 137
Sugar Industries Ltd [1986] 1 Lloyd’s Rep Wright v Carter [1980] 1 Ch 27 . . . 363
378 . . . 68 Wright v Castle (1817) 3 Mer 12; 36 ER 5 . . . 698
Wilson, Smithett & Cope Ltd v Terruzzi [1976] Wright & Co Ltd v Maunder [1962] NZLR
QB 683 . . . 380 355 . . . 31
xcii table of cases

Wroth v Tyler [1974] Ch 30 . . . 550, 585 Yonge v Toynbee [1910] 1 KB 215 . . . 716,
Wrotham Park Estate Co v Parkside Homes Ltd 719, 720
[1974] 1 WLR 798 . . . 581, 584, 597, 598, 600, York Corporation v Henry Leetham & Sons
601, 602, 603 [1924] 1 Ch 557 . . . 225
Wuchter v Fitzgerald 163 P 819 (1917) York Glass Co Ltd v Jubb (1925) 134
(USA) . . . 596 LT 36 . . . 247
Wyatt v Hertford (Marquis of) (1802) 3 East 147; Yorkshire Bank plc v Tinsley [2004] EWCA Civ
102 ER 553 . . . 711 816; [2004] 1 WLR 2380 . . . 368, 370
Wyatt v Kreglinger & Fernau [1933] 1 KB Yorkshire Water Services Ltd v Sun Alliance &
793 . . . 399, 405 London Insurance plc [1997] 2 Lloyd’s Rep
Wykes’ Case, see Watkins’ (or Wykes’) Case 21 . . . 153
Wyvern Developments Ltd, Re [1974] 1 WLR Youell v Bland Welch & Co Ltd [1990] 2 Lloyd’s
1097 . . . 120, 124 Rep 423 . . . 119, 121
Young v Kitchin (1878) 3 Ex D 127 . . . 670
Xenos v Danube, etc, Ry (1863) 13 CBNS 824; 143 Young v Purdy [1997] PNLR 130 . . . 543
ER 325 . . . 515 Young v Robson Rhodes [1998] 3 All ER
Xenos v Wickham (1867) LR 2 HL 296 . . . 78 524 . . . 583
Young v Timmins (1831) 1 Cr & J 331; 148 ER
Yamashita-Shinnihon SS Co Ltd v L’Office 1446 . . . 402
Cherifien des Phosphates [1994] AC 486 . . . 31 Young & Marten v McManus Childs Ltd [1969] 1
Yandle & Sons v Sutton [1922] 2 Ch 199 . . . 339 AC 454 . . . 153
Yasuda Fire & Marine Insurance Co of Europe Youngmin v Heath [1974] 1 WLR 135 . . . 497
Ltd v Orion Marine Insurance Underwriting Yukong Line Ltd of Korea v Rendsburg
Agency Ltd [1995] QB 174 . . . 525 Investments Corp of Liberia [1996] 2 Lloyd’s
Yates v Freckleton (1781) 2 Doug KB 623; 99 ER Rep 604 . . . 509
394 . . . 698
Yaxley v Gotts [2000] Ch 162 . . . 88, 89 Zamet v Hyman [1961] 1 WLR 1442 . . . 363, 366
Yeoman Credit Ltd v Apps [1962] 2 QB 508 . . . 187 Zanzibar, Government of v British Aerospace
Yeoman Credit Ltd v Latter [1961] 1 WLR (Lancaster House) Ltd [2001] 1 WLR
828 . . . 80 2333 . . . 139, 318, 330
Yeoman Credit Ltd v Ogders [1962] 1 WLR Zeiss (Carl) Stiftung v Rayner & Keeler Ltd (No 2)
215 . . . 138 [1967] 1 AC 853 . . . 529
Yetton v Eastwoods Froy Ltd [1967] 1 WLR Zockoll Group Ltd v Mercury Communications
104 . . . 556 Ltd [1998] FSR 354 . . . 584
Yeung Kai Yung v Hong Kong & Shanghai Zurich General Accident & Liability Insurance Co
Banking Corp [1981] AC 787 . . . 712 Ltd v Morrison [1942] 2 KB 53 . . . 336
 some abbreviations used
in reference
The Table of Cases contains the English Report references for cases reported in the
Nominate Reports

Reports (except the Law Reports, 1865–date: see below, p xcvi)

A&E Adolphus & Ellis QB 1834–1840
ALJR Australian Law Journal Reports Australia 1927–date
Aleyn Aleyn KB 1646–1648
All ER All England Reports All 1936–date
ALR Australian Law Reports Australia 1973–date
Amb Ambler Ch 1737–1783
Anst Anstruther Exch 1792–1797
Atk Atkyns Ch 1736–1754
B & Ad Barnewall & Adolphus KB 1830–1834
B & Ald Barnewall & Alderson KB 1817–1822
B&C Barnewall & Cresswell KB 1822–1830
B&P Bosanquet & Puller CP 1796–1804
B&S Best & Smith QB 1861–1869
BCLC Butterworths Company Law Cases All 1983–date
Beav Beavan Rolls Court 1838–1866
Bing Bingham CP 1822–1834
Bing NC Bingham, New Cases CP 1834–1840
BLR Building Law Reports All 1976–date
Brown, PC Brown, Parliamentary Cases HL 1701–1800
Bulst Bulstrode KB 1609–1626
Burr Burrow KB 1756–1772
C&J Crompton & Jervis Exch 1830–1832
C&K Carrington & Kirwan Nisi Prius 1843–1850
C&M Crompton & Meeson Exch 1832–1834
C&P Carrington & Payne Nisi Prius 1823–1841
CB Common Bench CP 1845–1856
CBNS Common Bench, New Series CP 1856–1865
CLC CCH Commercial Law Cases All 1994–date
CLR Commonwealth Law Reports Australia 1903–date
CLYB Current Law Year Book All 1947–date
CM & R Crompton, Meeson & Roscoe Exch 1834–1836
Cab & El Cababé & Ellis QB 1882–1885
Camp Campbell Nisi Prius 1807–1816
Carth Carthew KB 1687–1700
Cl & Fin Clark & Finnelly HL 1831–1846
xciv some abbreviations used in reference

Co Rep Coke KB 1572–1616

Colles, PC Colles HL 1697–1713
Com Cas Commercial Cases All 1895–1941
Con.LR Construction Law Reports All 1985–date
Cowp Cowper KB 1774–1778
Cox Cox’s Equity Ch 1783–1796
Cr & Ph Craig & Phillips Ch 1840–1841
Cro Eliz Croke, of the reign of Elizabeth CP, QB 1582–1603
Cro Jac Croke, of the reign of James CP, KB 1603–1625
Dalison Dalison CP 1546–1574
DLR Dominion Law Reports Canada 1912–date
De G & J De Gex & Jones Ch 1857–1859
De G & Sm De Gex & Smale Ch 1846–1852
De GF & J De Gex, Fisher & Jones Ch 1859–1862
De GJ & S De Gex, Jones & Smith Ch 1862–1865
De GM & G De Gex, Macnaghten & Gordon Ch 1851–1857
Doug KB Douglas KB 1778–1781
Dr & Sm Drewry & Smale V-C 1860–1865
Drew Drewry V-C 1852–1859
E&B Ellis & Blackburn QB 1852–1858
E&E Ellis & Ellis QB 1858–1861
EB & E Ellis, Blackburn & Ellis QB 1858
EMLR Entertainment & Media Law Reports All 1993–date
ECR European Court Reports EEC and EU 1954–date
East East’s Term Reports KB 1800–1812
Eden Eden Ch 1757–1766
Esp Espinasse Nisi Prius 1856–1857
EG Estates Gazette All 1858–date
EGLR Estates Gazette Law Reports All 1975–date
Exch Exchequer Reports Exch 1862–1865
FLR Family Law Reports All 1980–date
F&F Foster & Finlason Nisi Prius 1856–1867
H&C Hurlstone & Coltman Exch 1862–1866
H&N Hurlstone & Norman Exch 1856–1862
H Bl Henry Blackstone CP, Exch 1788–1796
HLC House of Lords Cases HL 1847–1866
Hare Hare V-C 1841–1853
Hob Hobart KB 1603–1625
ICR Industrial Cases Reports All 1972–date
IRLR Industrial Relations Law Reports All 1972–date
Ir Rep Irish Reports Ireland 1838–date
Ir CL Irish Reports, Common Law Ir QB 1866–1878
J&H Johnson & Hemming V-C 1859–1862
J&W Jacob & Walker Ch 1819–1821
 some abbreviations used in reference xcv

JP Justice of the Peace and Local All 1837–date

Government Review
John Johnson V-C 1858–1860
K&J Kay & Johnson V-C 1854–1858
Keen Keen Rolls Court 1836–1838
Keilwey Keilwey KB, CP 1496–1531
LGR Local Government Reports All 1903–date
LJ CP Law Journal, Common Pleas CP
LJ Ch Law Journal, Chancery Ch
LJ Ex Law Journal, Exchequer Exch 1832–1949
LJ QB Law Journal, Queen’ s Bench QB
LT Law Times Reports All 1859–1947
Ld. Raym Lord Raymond KB, CP 1694–1732
Lev Levinz KB, CP 1660–1697
Ll LR Lloyd’ s List Law Reports All 1919–1950
Lloyd’ s Rep Lloyd’s (List) Law Reports All 1951–date
M&G Manning & Granger CP 1840–1844
M&S Maule & Selwyn KB 1813–1817
M&W Meeson & Welsby Exch 1836–1847
Madd Maddock V-C 1815–1821
Mer Merivale Ch 1815–1817
Mod Modern Reports All 1669–1755
My & K Mylne & Keen Ch 1832–1835
NZLR New Zealand Law Reports NZ 1883–date
Nev & M Nevile & Manning KB 1832–1836
Noy Noy KB 1559–1649
P & CR Property, Planning and Compensation All 1950–date
Reports
Peake Peake Nisi Prius 1790–1812
Peere Wms Peere Williams Ch 1695–1735
Ph Phillips Ch 1841–1849
QB Queen’ s Bench Reports QB 1841–1852
RPC Reports of Patent Cases Pat Cas 1884–date
Russ Russell Ch 1823–1829
SC Session Cases Scotland 1906–date
Salk Salkeld All 1689–1712
Sid Siderfin All 1657–1670
Sim Simons V-C 1826–1849
Sm & G Smale & Giffard V-C 1852–1857
St Tr State Trials — 1163–1820
Stra Strange All 1716–1749
Swan Swanston Ch 1818–1819
TLR Times Law Reports All 1884–1952
Taunt Taunton CP 1807–1819
xcvi some abbreviations used in reference

Term R Term Reports KB 1785–1800

Ventr Ventris All 1668–1691
Ves Jun Vesey Junior Ch 1789–1817
Ves Sen Vesey Senior Ch 1746–1755
W Bl William Blackstone KB 1746–1779
WR Weekly Reporter All 1853–1906
Wilmot Wilmot All 1757–1770
Wils Wilson KB, CP 1742–1774
Y & C Ch Younge & Collyer (Chancery) V-C 1841–1843
Y&J Younge & Jervis Exch 1826–1830
YB Year Books (with regnal year)

}
Law Reports, 1865–date
LR CP Common Pleas
LR Ch App Chancery Appeals
LR Eq Equity Cases
LR Ex Exchequer 1865–1875
LR HL House of Lords, English and Irish Appeals
LR PC Privy Council Appeals
LR QB Queen’s Bench
LR Sc App Scottish Appeals

CPD
Ex D
Common Pleas Division
Exchequer Division } 1875–1880

}
App Cas Appeals Cases
Ch D Chancery Division
PD Probate Division 1875–1890
QBD Queen’s Bench Division

}
AC Appeal Cases
Ch Chancery Division 1891–date
KB or QB King’s (Queen’s) Bench Division

P Probate Division 1891–1971

Fam Family Division 1972–date
WLR Weekly Law Reports 1953–date

Neutral Citations (to reports available on the internet)

EWCA Civ England & Wales Court of Appeal, Civil 2000–date
UKHL United Kingdom, House of Lords 1996–2009
UKPC United Kingdom, Privy Council 2001–date
UKSC United Kingdom, Supreme Court 2009–date
 some abbreviations used in reference xcvii

Periodicals
ALJ Australian Law Journal
CLJ Cambridge Law Journal
CLY Current Law Yearbook
Can Bar Rev Canadian Bar Review
Const LJ Construction Law Journal
Conv (NS) Conveyancer and Property Lawyer (New Series)
Harv LR Harvard Law Review
JALT Journal of the Association of Law Teachers
JBL Journal of Business Law
JCL Journal of Contract Law
LMCLQ Lloyd’s Maritime and Commercial Law Quarterly
LQR Law Quarterly Review
LS Legal Studies
MLR Modern Law Review
OJLS Oxford Journal of Legal Studies
RLR Restitution Law Review
SALJ South African Law Journal
SJ Solicitors’ Journal

Other abbreviations
CISG United Nations (Vienna) Convention on Contracts for the
International Sale of Goods
CP Consultation Paper
CPR Civil Procedure Rules
ECJ European Court of Justice
FSA Financial Services Authority
TEU Treaty on European Union
WP Working Paper
This page intentionally left blank
 1
INTRODUCTION
The principles of the English law of contract are almost entirely the creation of the
English Courts, and the legislature has, until recently, played a relatively small part
in their development. They are also, for the most part, a development of the last 200
years; for contract law is the child of commerce, and has grown with the growth of
Britain from a mainly agricultural into a mainly commercial and industrial nation.
In Blackstone’s Commentaries on the Laws of England, which were first published in
1756, it is significant of the comparative unimportance of the subject that he devoted
380 pages to the law of real property, and only 28 to contract. The industrial revolution,
however, brought about a fundamental change in the structure of the British economy.
Land was no longer the primary source of wealth. Mills, mines, and factories sprang
up and raw materials were converted by process of manufacture into products for sale
in the markets of the world. The capital required for these enterprises was beyond the
capacity of most private individuals and it was raised by public subscriptions for shares
in joint stock companies or by loans from banks and other financial institutions. The
growth of international trade further led to the creation of international commodity,
shipping, insurance, and money markets, many of which were centred on London. All
of these commercial developments depended and still do depend for their successful
operation upon contract.
This introductory chapter considers briefly: first, the nature and function of contract;
secondly, the history of contractual obligations in English law; thirdly, the content of
the contract law as set out in this book which is concerned with the ‘general principles’
of contract rather than the detailed rules applicable to different types of contracts;
fourthly, the location of contract as part of the law of obligations and its relation to
other parts of the law of obligations, tort and restitution of an unjust enrichment, and
to property law.

1. the nature and function of contract

(a) promise or agreement
The law of contract may be provisionally described as that branch of the law which
determines the circumstances in which a promise shall be legally binding on the
 introduction

person making it. Section 1 of the American Law Institute’s Restatement Second of the
Law of Contracts1 gives the following definition:
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or
the performance of which the law in some way recognizes as a duty.

This definition is broadly acceptable, provided that it is realized that, in law, a promise
may be constituted by an assurance that a thing has been or is (for example, that the
engine of a car has been recently overhauled or is now in good mechanical condition)
as well as that a thing will be, and provided that it is also appreciated that most, but
not all, contracts take the form of an agreement by which each party agrees to accept
the promise or promises of the other in return for the promise or promises made by
itself.2

(b) functions of contract

The above definition is, however, very much a lawyer’s definition and gives little
indication of the nature of contract, and still less of its function. Most readers of this
book will have some general notion of what a contract is. Indeed, they will enter into
a contract very frequently, in some cases almost every day, for example, a contract of
carriage (travel by bus or train), or a contract for the sale of goods (the purchase of
groceries), or for the supply of services (a haircut), or one involving both sale and the
supply of services (having a meal at a restaurant). But the law which will be found in
the following pages of this book is law which is derived, for the most part, not from
such simple consumer transactions, but from commercial transactions between
businesspeople and companies. Commercial transactions involve the exchange of land,
goods, or services for money. This exchange is not immediate, as in a supermarket,
but is to take place in the future. Contract has an important function of securing
that the expectations created by a promise of future performance are fulfi lled, or that
compensation will be paid for its breach.
Take the example of the construction of an office building. The developer must first
purchase the site, and this will often be done with money borrowed from a bank, the
developer promising to repay the loan with interest at some future date. It must then
engage an architect to design the building, a quantity surveyor to draw up bills of
quantities, and a solicitor to do the legal work connected with the development. The
building work will be put out to tender and the successful tenderer will be awarded the
contract as main contractor. In its turn, the main contractor will often subcontract parts
of the work to other contractors. It may be that the developer will put the office space
on the market while the building is still under construction and would-be occupants
will agree to take a tenancy once it is completed. All of these relationships will depend

1See below, p 21, n 100.

2Agreement is unnecessary for the enforcement of a promise in a deed (below, p 31) and is perhaps not an
altogether appropriate description of a unilateral contract, on which see below, pp 30, 38, 54. A promise in a
deed is sometimes characterized not as contract (because of the lack of requirement of agreement) but as a
unilateral act, binding by virtue of the formality. In this book, however, it is included in the general defini-
tion of contract, being a promise binding in law; see also Supply of Goods and Services Act 1982, s 1(2)(d).
 introduction 3

on the promise of the participating parties that they will carry out their obligations
in the future, whether these consist in the payment of money, or otherwise, and that
they will be legally bound to their promised performance. No doubt, as a normal rule,
each participant will duly fulfi l its promise without the need for any intervention,
or threatened intervention, by the law.3 But, in the last resort, the recipient of the
promise (‘the promisee’) will rely upon the law to reinforce by appropriate sanctions
the promise of performance given. By entering into a contract, the promisee is able to
have recourse to those sanctions.
Another important function of contract is a constitutive one: to facilitate forward
planning of the transaction and to make provision for future contingencies.4 The more
complex the transaction the greater will be the need for such planning and the more
detailed the provisions that are likely to be made. First, and most obviously, contract
will normally establish the value of the exchange, that is, how much is to be paid for
the land, goods, or services to be provided. In the above example, the developer will
need to measure the likely cost of the development against anticipated revenue. While
this may to a considerable extent be a matter of estimate, the developer will seek, so
far as is practicable, to establish by contract the value of the items that go to make up
that cost, for instance, the interest to be paid for the loan and the price to be paid to
the main contractor.
Secondly, contract will establish what are the respective responsibilities of the
parties and the standard of performance to be expected of them. The building contract
will incorporate the specifications for the work, sorting out what is to be done, the
nature and quality of the materials to be used, and the date for completion of the
work. It will provide for stage payments to be made by the developer. The respective
responsibilities of the developer, architect, contractor, and sub-contractors will also be
established by contract.
Thirdly, contract enables the economic risks involved in the transaction to be
allocated in advance between the parties. The building contract may provide, for
example, for an increase in the price in the event of an increase in the cost of labour or
materials to the contractor, and who is to bear the risk of strikes, bad weather, or fire.
The party affected by the risk may then be able to cover it by insurance.
Finally, contract may provide for what is to happen if things go wrong. Suppose
that the contractor fails to remedy defects when required to do so by the architect.
Or suppose that the developer fails to pay for work which is certified to have been
done. The contract can provide for payment in advance, 5 and can determine whether
the party not in default is entitled to terminate the contract and on what terms.6 The
contract may also provide for payment by the contractor of a specified sum by way of
‘liquidated damages’ 7 in the event of delay in completion beyond the date fi xed.
Contract is, in effect, the instrument by which the separate and conflicting interests
of the participants can be reconciled and brought to a common goal.8 The importance
accorded by English law to the planning function is shown by its preference for rules

3 Macaulay (1963) 28 American Sociological Review 55. 4 Ibid. 5 See below, pp 574, 591.
6 See below, pp 139–40. 7 See below, p 565. 8 See Gurvitch, Sociology of Law (1947).
 introduction

that provide certainty, particularly in commercial contracts where speed and certainty
have been said to be of paramount importance.9

(c) freedom of contract

The significance of the role played by contract in any economic system can scarcely be
denied. The issue is the extent to which the law does, or should, assume that parties
enjoy freedom of economic decision when entering into contracts. The concept of
freedom of contract has two meanings. The first is the freedom of a party to choose to
enter into a contract on whatever terms it may consider advantageous to its interests, or
to choose not to. Contractual obligation is thereby attributed to the will of the parties.
This was one of the cornerstones of nineteenth-century laissez-faire economics.10
Adam Smith in his Wealth of Nations, published in 1776, offered the first systematic
account of economic affairs, championing the cause of freedom of trade against the
economic protectionism current at that time, and freedom of contract was taken up as
an ideal into classical economic theory.
When, therefore, in 1861, Sir Henry Maine wrote his Ancient Law, he postulated
that the movement of progressive societies had hitherto been a movement from status
(with its entrenched protection of privilege by legal and social restrictions) to contract.
He considered this movement to be not only desirable, but inevitable. ‘Imperative law’,
he said,11 ‘has abandoned the largest part of the field which it once occupied, and has
left men to settle rules of conduct for themselves with a liberty never allowed to them
till recently.’
But freedom of contract also referred to the idea that as a general rule there should
be no liability without consent embodied in a valid contract. This second and negative
aspect of freedom of contract was influential in narrowing the scope of those parts of
the law of obligations which deal with liability imposed by law: tort and restitution of
an unjust enrichment.12
Today the position is seen in a different light. Freedom of contract is generally
regarded as a reasonable social ideal only to the extent that equality of bargaining power
between contracting parties can be assumed, and no injury is done to the economic
interests of the community at large. In the more complicated social and industrial
conditions of modern society it has ceased to have much idealistic attraction except,
perhaps, to the proponents of a completely free market economy, who have advanced
it in recent years in a modern and sophisticated way, some using the tools of micro-
economic analysis.13 But whatever its status may be as an ideal, the concept of freedom
of contract has suffered severe inroads as the result of developments in modern social
life and policy.

9
See below, pp 33, 61, 144, 149, 566.
10See Friedmann, Law in a Changing Society (1959) ch 4; Gilmore, The Death of Contract (1977); Atiyah,
The Rise and Fall of Freedom of Contract (1979); Cornish and Clark, Law and Society in England, 1750–1950
(1989) 201–3, 226. 11 Ancient Law (1930) ch ix, p 322.
12 Below, p 17.
13 Posner, Economic Analysis of Law (7th edn, 2007) ch 4; Cooter and Ulen, Law and Economics (5th edn,
2007) ch 6. Fried, in Contract as Promise (1981), provides a non-economic approach.
 introduction 5

(i) Statutory restrictions

In the first place, statute law today interferes at numerous points with inroads into the
freedom of the parties to make what contract they like. The relations between employers
and employees, for example, have been regulated by statutes designed to ensure that
employees are properly protected against redundancy and unfair dismissal, and that
they know their terms of service. The public has been protected against economic
pressure by such measures as the Rent Acts,14 the Unfair Contract Terms Act 1977,15
the Unfair Terms in Consumer Contracts Regulations 1999,16 the Consumer Credit
Act 1974,17 and other similar enactments. These legislative provisions will override any
contrary terms which the parties may make for themselves. Freedom of contract is also
affected by statutorily imposed ‘implied terms’ which set the ‘default’ rule, although
in certain circumstances this can be varied by the parties.18 Further, both national19
and European Community20 legislation has been enacted to promote competition in
industry and to safeguard the interests of consumers, and the Financial Services and
Markets Act 2000 contains provisions to safeguard the interests of investors.
There are also wide-ranging statutory restrictions on discrimination on the grounds
of sex, race, and disability in the provision of goods, facilities, and services, and in
the selection of employees and in the terms upon which they employed.21 These are a
significant departure from the general freedom at common law to refuse to contract.22
Although they primarily give rise to compensation orders, these statutory provisions
can exceptionally lead to specific relief.23 The prohibition on discrimination in the
provision of goods, facilities, and services applies where the provision is made to the
public or a section of the public.24

(ii) Standard form contracts: contracts of adhesion

Most contracts entered into by ordinary people are not in fact the result of individual
negotiation. An employee’s contract of employment, for example, will often be deter-
mined by a collective agreement made between trade unions and employers. Standard
form contracts are also frequently used, even between businesses. These will lay down
the terms on which the supplier is prepared to do business, or embody or incorporate

14 In particular the Rent Act 1977 (providing security of tenure and rent control for private residential
lettings, as amended by the Housing Acts 1988 and 1996), the Housing Acts 1980 and 1985 (public sector ten-
ants) and the Landlord and Tenant Acts 1985 and 1987 (landlords’ duties of information and implied terms
as to condition of premises and repair, and tenants’ right to buy). 15 Below, p 192.
16 SI 1999 No 2083, below, p 206.
17 Below, p 216 (as amended by the Consumer Credit Act 2006).
18 eg Sale of Goods Act 1979, ss 12–15, below, p 159; Supply of Goods and Services Act 1982, ss 2–5, 7–10,
13–15 .
19 Fair Trading Act 1973 (now repealed); Restrictive Trade Practices Act 1976 (now repealed); Competition
Act 1998, Enterprise Act 2002; below, p 408.
20 Below, pp 408–10. Since 1 December 2009, the European Union has replaced the European Community
under the Treaty of Lisbon.
21 Race Relations Act 1976, ss 4(1)(c), 17, 20–1; Sex Discrimination Act 1975, s 6(1)(c); Disability
Discrimination Act 1995, ss 4, 4B, 19 (amended by SI 2003 No 1673).
22 Timothy v Simpson (1834) 6 C & P 499. Cf Constantine v Imperial Hotels Ltd [1944] AC 693.
23 Race Relations Act 1976, s 56; Sex Discrimination Act 1975, s 65(1)(c); Disability Discrimination Act
1995, s 17A(2)(c). 24 Gill v El Vino [1983] QB 425; Quinn v Williams Furniture Ltd [1981] ICR 328.
 introduction

by reference the terms of a trade association. The freedom of the parties to negotiate is
limited by such standard form contracts. Although a party, often a consumer, is free to
decide not to deal with a particular retailer and to negotiate prices, delivery dates and so
on, in many areas similar terms will be offered by other retailers so that the individual
has either to accept the terms laid down in their totality, or go without. Since, however,
it is not feasible to go without many such goods or services, the individual is effectively
compelled to adhere to those terms. In certain types of standard form contracts, however,
for example those for the charter of ships, the standard form is often extensively modified
or supplemented by other terms appropriate to the particular charterparty.

(iii) ‘Compulsory’ transactions

In the case of utilities such as water or electricity, which are in effect necessities of modern
life, but the supplier is a monopoly or near monopoly, there may be a legal compulsion
to supply, at least, domestic consumers. Under the legislation regulating such utilities,
including electricity and gas where it is now possible to choose an alternative supplier,
there is a duty to supply those who wish to be supplied,25 there are certain prohibitions
on undue preference and undue discrimination,26 and a statutory regulator is given
power to control prices and other terms of supply. This may be the modern equivalent
of the common law duty on common innkeepers and common carriers to serve all
comers on a reasonable basis,27 probably because of their monopoly or near monopoly
position. These common law doctrines have not, however, been developed and the field
has been left to the anti-discrimination legislation, and legislation for the control of
monopolies and restrictive trade practices, and for regulating utilities. Where there is
a statutory obligation to supply and no or little power to negotiate about the incidents
of the relationship, the Courts may regard its compulsory nature as incompatible with
its being contractual.28

(iv) Implied terms and the standard of ‘reasonableness’

Finally, the negative aspect of freedom of contract, that there should be no liability
without consent embodied in a valid contract, sits uneasily with the practice of
implication of terms into the contract, and the use of the standard of ‘reasonableness’
as a way of dealing with gaps in the contractual language.29 Terms are implied not only
under statute, but also at common law. Although the basis of such implication is said
to be ‘necessity’30 or in the case of custom ‘presumed consent’,31 in many cases this is

25Gas Act 1986, s 10 (substituted by Gas Act 1995); Electricity Act 1989, s 16 (substituted by Utilities Act
2000). See also Water Industry Act 1991, s 37.
26 Gas Act 1986, s 9(2) (substituted by Gas Act 1995); Water Industry Act 1991, ss 2(3)(b) (substituted by
Water Act 2003); see also Telecommunications Act 1984, ss 3, 8(1)(d) and Electricity Act 1989, ss 3(2) and
18(4) (now repealed).
27 Clarke v West Ham Corp [1909] 2 KB 858, 879–82. Note that almost all carriers contract out of their
common law liability.
28 Norweb plc v Dixon [1995] 1 WLR 637; Read v Croydon Corp [1938] 4 All ER 631.
29 eg Tillmanns & Co v SS Knutsford Ltd [1908] AC 406; Abu Dhabi National Tanker Co v Product Star
Shipping Co Ltd (No 2) [1993] 1 Lloyd’s Rep 397, 404.
30 Liverpool City Council v Irwin [1977] AC 239, 254. See below, p 156.
31 Produce Brokers Co Ltd v Olympia Oil & Cake Co Ltd [1916] 1 AC 314, 324. See below, p 157.
 introduction 7

rather artificial, and in truth in many standard transactions the implied terms are the
legal incidents of the transaction,32 from which the parties are, subject to statute, often
free to deviate although in practice many parties will simply be bound by those implied
terms without seeking to negotiate otherwise. Freedom of contract is also difficult to
reconcile with the adoption of the ‘objective theory’ which provides, in essence, that a
person (A), whose conduct is such that the other party reasonably believes that A has
assented to the terms of a contract, will be bound no matter what A’s real intention is.33
This rule can lead to the imposition of non-consensual obligations, since what creates
the obligation is not consent in fact but acting as if consent is being given.

(v) Summary
In many areas of contract, freedom of contract in the classical sense is manifestly
lacking. But English law and English judges still to a great extent proceed on the
assumption that the parties are free to choose whether or not they will enter into a
contract and on what terms. The formulation of the test for implied terms has been
noted, and, as recently as 1980, in the House of Lords, Lord Diplock observed:34 ‘A
basic principle of the common law of contract . . . is that the parties are free to determine
for themselves what primary obligations they will accept’. It may be objected that the
general principles of contract law therefore present an inadequate, if not distorted,
picture of modern economic life. This may be so, but it is nevertheless the fact that the
law does still rest on the assumption of freedom of choice, and where a relationship is
entered into in which there is no choice, a Court may hold that it is not contractual.35

(d) sanctity of contracts

Closely associated with the concept of freedom of contract is yet another principle, that
of the sanctity of contracts.36 Businesspeople in particular are concerned to ensure
that the parties to a contract keep to their bargain and that as few avenues as possible
should be afforded for escape from contractual obligations. In general, English law
is reluctant to admit excuses for non-performance. But the Draconian requirements
of commercial convenience have to be reconciled with the moral qualifications
introduced by the need to discourage the grosser forms of unfair dealing. Thus the
common law, and even more so equity, the influence of which has been more apparent
in recent times, have admitted defences based on fraud, misrepresentation, mistake,
duress (including economic duress), and undue influence, and endeavoured to curb
the economic exploitation (in particular) of employees by the doctrine of restraint
of trade. Although there is no general principle of ‘inequality of bargaining power’,37
Courts take account of this in interpreting the contract and applying these doctrines.
Additionally, statutory protection overrides unfair terms in certain types of contracts,
for instance those made between consumers and businesses, and employees and

32 Mears v Safecar Securities Ltd [1983] QB 54, 78.

33 Below, pp 32, 253. 34 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 848.
35 Above, p 6.
36 See Hughes Parry, The Sanctity of Contracts in English Law (1959), and below, pp 16–17.
37 National Westminster Bank plc v Morgan [1985] AC 686, below, p 375.
 introduction

employers. It should not be imagined, however, that contractual obligations can be

repudiated by one party merely because that party was in the weaker bargaining
position. In the ‘rough and tumble’ of commercial relationships, various types
of pressure are frequently brought to bear and terms may be imposed which are,
objectively, harsh; but the contract will still bind.
Further, the law will not permit a person of full age and understanding who failed to
read the contract or to appreciate its full import and effect to escape from the contract. It
will not rewrite a contract for the parties or imply additional provisions merely because
it would be reasonable so to do. And it will, in general, give effect to a written contract
in accordance with its recorded terms, and not admit evidence to show that one party
intended them to be construed in a different way from that which they actually express.
In certain situations, however, the law will pronounce that the parties are relieved
from performance of their obligations by reason of a change of circumstances
occurring after the contract was made. But this principle—that of ‘frustration of the
contract’38—is very limited in scope, and will not apply, for example, merely because
a subsequent event changes the financial equilibrium of the transaction and forces a
party who expected to make a profit from the transaction into a position of loss. The
event must be of such a serious and fundamental character that to enforce the contract
in the changed circumstances would be to enforce a radically different contract from
the one which the parties made.

(e) the interest protected by contract

The entering into of a contract creates an interest in each party that the contract will
be performed.39 The obligation may be strict, for example a seller’s undertaking that it
has good title to the goods sold, or it may be qualified, for example to use reasonable
care, as is the case in many aspects of contracts for services by professionals such as
lawyers or surveyors. If one party fails, in whole or in part, to perform the obligations
undertaken in the contract, the other party, whose economic, physical, and, in some
cases, psychological interests will be affected, will be entitled to redress. But what form
will that redress take?
Where the breach of contract consists of a failure to pay money, whether for goods
bought and delivered or for services rendered, the redress for breach will often take the
form of (direct) specific enforcement of the contract by an action (in debt) for the sum
due.40 Where the breach consists of the failure to render a non-monetary performance, for
example, a seller’s failure to deliver goods to a buyer, in some cases the injured party will
also be entitled to (direct) specific performance of the other party’s obligation. Normally,
however, the redress will not take the form of specific performance of the contract, but
will consist of monetary compensation.41 How is that compensation to be assessed?
The object of compensatory damages in contract is to put the injured party, from
the position it is now in after the breach, into the same position as it would have been
38See below, Chapter 14.
39See Fuller and Perdue (1936–37) 46 Yale LJ 52, 573; Atiyah (1978) 94 LQR 193; Taylor (1982) 45 MLR
139; Burrows (1983) 99 LQR 217; Friedmann (1995) 111 LQR 628; Coote [1997] CLJ 537.
40 Below, p 573. Cf p 534. 41 Below, p 539.
 introduction 9

had the contract been duly performed. The injured party is entitled to protection of its
interest in the performance of the contract. Suppose, for example,42 a port authority by
contract promises a car ferry operator that it will allow it to use the port facilities for
car ferry operations during the coming year, but in breach of that contract repudiates
the contract almost immediately after it is made. The wasted expenses sustained by
the ferry operator may be no more than (say) the trifling expense of having prepared
draft timetables of ship movements for the contract period. But it will nevertheless be
entitled additionally to be compensated in damages for the profit which it would have
made on the car ferry operations during the year in question. Compensation assessed
on this basis is, in effect, a substitute for the performance of the other party’s obligation,
whether by the payment of a debt that has accrued due43 or by the rendering of other
forms of performance.44 This protection of the ‘expectation’ or ‘performance’, interest
(these two terms are synonymous) is not peculiar to the English law of contract. It is a
consequence of contract in all developed legal systems. Even if the contract is wholly
executory, that is to say, nothing has been done by either party under it at the time of
its breach, damages for lost performance will be recoverable.45
It has sometimes been suggested that, as an alternative to the expectation or
performance interest, compensation in contract protects the claimant’s ‘reliance’ and
‘restitution’ interests.46 This is misleading. While reliance damages can be awarded for
breach of contract, they are best viewed as an alternative way of protecting the claimant’s
expectation interest and are not protecting a separate reliance interest.47 Again,
restitution of money paid or the value of services rendered can be awarded where a
contract has been discharged for breach or frustration or where a contract is ineffective
as well as in situations far removed from a contractual context. But that restitution is for
the independent cause of action of unjust enrichment at the claimant’s expense and is
not a remedy for breach of contract.48 Certainly it is true that restitutionary damages or
an account of profits can now be awarded, as an alternative to compensatory damages,
for breach of contract to remove some or all of the profits made by the contract-breaker.
But that is an unusual and relatively rare remedy which has only been fully recognized
recently since the decision of the House of Lords in Attorney-General v Blake.49

2. the history of contractual

obligations in english law
The modern law of contract contains much which can properly be explained (if at all)
only in the light of its history. Hence, even in a book which aims only at stating the
principles of the modern law, it is desirable to give some account of how that law came

42 See Thoresen Car Ferries Ltd v Weymouth Portland BC [1972] 2 Lloyd’s Rep 614.
43 Below, p 573. 44 Below, p 575.
45 But see the criticisms of Atiyah (1978) 94 LQR 193, and in The Rise and Fall of Freedom of Contract
(1979). 46 Fuller and Perdue (1936–37) 46 Yale LJ 52, 573.
47 See below, p 542 48 See below, p 587
49 [2001] 1 AC 268. See below, pp 598–9.
 introduction

to take the form which has just been indicated in outline. We shall see that it has not
been by any process of analysis and elucidation of the essential nature of a contract that
the law has been moulded. Indeed, the very idea of enforcing promises or agreements
as such, which seems most natural to us, may not be an early one in the history of any
legal system. We shall find the key to the story by examining the conditions which
the Courts have attached at different stages to the actions which they were willing to
admit for the enforcement of the kind of rights which we now regard as contractual.
The story can here be given only in the barest outline,50 and it should be understood
that there are some points in it which remain obscure or controversial.

(a) the early actions

(i) ‘Wager of law’
Actions in what we call contract and tort were at first within the jurisdiction of local and
manorial courts. The action would commonly end in a general denial of liability, upon
which the defendant would ‘wage his law’, that is undertake to come at the next court
day and swear to this denial in the presence of neighbours (their number specified by
the Court) who would then swear to their belief in this oath. If on the day all the oaths
were made correctly, the defendant won. The efficacy of this depended partly on the
fear of damnation for perjury, and partly upon standing among the neighbours (the
city of London, for example, which lived by the credit of its citizens, set particular store
by this mode of proof). This social sanction would be lost as lawsuits were diverted
from the local setting into royal courts in Westminster.

(ii) Trespass
In the field of tort, for which the very rough medieval equivalent is ‘trespass’, a case
would come to a royal court only if there was some royal interest, normally a ‘breach
of the king’s peace’. That allegation had two other effects. It precluded the defendant
from answering by wager of law and required the case to go to a jury. And as between
the main royal courts, it gave jurisdiction to the King’s Bench concurrently with the
Common Pleas. The allegation itself became increasingly fictionalized in the early
fourteenth century; and around the middle of the century the Chancery began to make
writs of trespass returnable into royal courts with no mention of the king’s peace. This
was the effective beginning of ‘actions on the case’; and logically plaintiffs should not
have been able to sue in the King’s Bench, and defendants should have been permitted
to wage their law. But on both points logic was overruled. All actions of trespass and
case could go to either of the royal courts, and all went to jury trial; and this was a
cause of developments to which we shall come, by which remedies in contract came to
be sought by actions in tort.

50 For fuller treatment, see Atiyah, The Rise and Fall of Freedom of Contract (1979); Baker, Introduction
to English Legal History (4th edn, 2002) 317–61; Baker and Milsom, Sources of English Legal History (1986)
209–96, 358–505, hereafter ‘Baker and Milsom’; Cornish and Clark, Law and Society in England, 1750–1950
(1989) 197–226; Milsom, Historical Foundations of the Common Law (2nd edn, 1981) 243–360; Simpson, A
History of the Common Law of Contract (1975); Stoljar, A History of Contract at Common Law (1975).
 introduction 11

In the field of contract, jurisdiction as between local and royal courts came to depend
upon the amount at stake. From a beginning in the thirteenth century, originally
concerned only with the recovery of debts, a general jurisdictional barrier developed
at 40 shillings, then a sum so large that very few transactions of ordinary people
would reach it. But the amount was never altered, so that a period of rapid inflation
in the sixteenth century brought transactions of falling real value to Westminster,
and therefore to the modes of proof in use there. In particular, since there had been
no equivalent of the king’s peace to affect proof as well as jurisdiction, wager of law
was often available; but those who swore to the defendant would be not neighbours
but persons hired in Westminster. In the old contract actions, therefore, the focus
of attention for lawyers and litigants was not some substantive law of contract but
modes of proof.

(iii) Covenant
The word ‘covenant’ (conventio, agreement) is the nearest medieval equivalent to our
‘contract’. But even in local courts an action for money due under a contract would
be called not covenant but debt (or detinue if the action was for a specific chattel lent
or bought, for example), so that actions called covenant mainly concern breaches of
agreement for services like building or for sales or leases of land. The primary claim
was for performance, and in royal courts the action was begun by a writ, known (from
its opening word) as a praecipe writ,51 ordering the defendant to keep the agreement;
but judgments ceased to order specific performance and damages were awarded
instead. Some think that the plaintiff would have to have done his part of the bargain,
but we are not informed about the early requirements; and in the royal courts the
question was suppressed by a new requirement about proof. Early in the fourteenth
century it became settled that the plaintiff was not entitled to an answer unless he
could produce a document under the defendant’s seal (in illiterate times the equivalent
of a signature) setting out the terms of the agreement. Soon after this the action of
covenant fell out of use, not because of this requirement but because the kind of sealed
document to which we are about to turn proved more effective. But covenant retained
a negative importance: parties might contract for the building of a house, for example,
not thinking of royal courts or sealing wax, and find the natural remedy barred.

(iv) Debt
Any claim for a fi xed sum of money or a fi xed quantity of fungible goods would in
the royal court be made by the praecipe writ of debt. At first even a claim for specific
goods would be made by the same writ, so that one who borrowed money and a book
was seen to owe the book in the same way that the money was owed; but the separation
of detinue need not be discussed here. In royal as in local courts, the defendant could
normally answer by wager of law; and one lending a large sum or selling goods for a
large price might take precautions, and this led to a separation between two principal
uses to which the single writ of debt might be put.

51 Baker, Introduction to English Legal History (4th edn, 2002) 57–9.

 introduction

(a) Debt on an obligation. The simplest precaution for, say, a lender was to require
the borrower to execute a document under seal, a bond. This was evidence not of a
promise to pay but of indebtedness itself, and it was conclusive. The defendant could
not deny that the debt was owed, though he could deny that the deed was his (non
est factum).52 But that was a risky issue to take: it went to a jury, who would compare
seals etc; and if they found against the defendant he would go to prison. At law the
defendant could not even say that payment had been made; and though he eventually
got equitable protection from the Chancery in this situation, that was only after a long
struggle between the competing goods of general certainty and individual justice.
But bonds were put to wider uses than ensuring that a lender or a seller would get
the money that was due. One hiring a builder to build a house, for example, would take
from him a bond by which the builder would acknowledge that he owed the customer
an essentially penal sum, which bond would be void if conditions (written sometimes
on the back of the bond, sometimes in a separate indenture) were satisfied; and those
conditions specified the site, dimensions, materials, completion date, etc. of the house.
If the customer sued it would be on the bond for the penalty, and the builder could of
course plead that he had satisfied the conditions. Conversely, the builder would take
a bond from the customer, commonly for double the agreed price, to be void if the
agreed price was duly paid. Such conditional bonds became the principal vehicle for
large transactions; and they continued to be so until the Chancery began to relieve
against penalties and until assumpsit53 provided a simpler mechanism.
(b) Debt on a covenant. A sealed document was never required in debt as it was in
covenant. The lender could always sue for the repayment of the money lent, the seller
for the price, and the builder or other provider of services for the agreed payment. But
normally this was only possible when the plaintiff had done his part of the bargain,
when the defendant had had his quid pro quo. And the medieval word ‘contract’ did
not have its modern meaning: it meant precisely the obligation ‘contracted’ by a debtor
who had received his quid pro quo. But much of the reality is hidden by the defendant’s
usual denial by wager of law—not a denial of any specific facts but just that he owed.
And the availability of wager had a further consequence. Only the debtor himself
could swear that he did not owe: even if the debt had been publicly incurred it might
have been privately paid. So the executor of a dead debtor could not wage law, and it
was held by a perverse logic that the executor could not be sued. But that applied only
to debt on a contract: the executor could be sued if the plaintiff had a bond which
would any way exclude wager.
The combined effect of these actions may be described in terms of an agreement to
build a house. Well-advised parties would set it up by conditional bonds, so that the
party alleged to be in breach would be sued in debt for the penalty and could plead that
the conditions had been satisfied. If the agreement was informally made, the builder
who had built could sue in debt for the price (normally answerable by wager of law).
But the customer could not bring covenant if the builder did not build, because he had
no document under seal; and probably he could not even bring debt to recover any
52 For the defence of non est factum in the modern law, see below, p 259.
53 Below, pp 13 ff.
 introduction 13

money he had paid. This inequity played its part in the rise of assumpsit, where the
writ asserted that the defendant had ‘undertaken’ (assumpsit) to do something; but it
is important not to suppose that from the beginning lawyers saw that assumpsit was to
become a general contractual remedy.

(b) assumpsit
(i) Misfeasance
Among the tort actions which came to royal courts when the need to allege a breach of
the king’s peace was dropped were some in which there was a contractual background
to the wrong. In 1348 a ferry-man was sued: he had undertaken to ferry a horse across
the Humber, but so mismanaged it that the horse was drowned.54 Its owner sued in
tort, and the defendant (knowing there was no sealed document) argued that the
proper action would be covenant. The action was held to be rightly brought in tort: the
plaintiff complained of the killing of his horse, not the failure to transport it; and such
claims for ‘misfeasance’ regularly succeeded.

(ii) Nonfeasance
There was more difficulty if the defendant had made an undertaking but done nothing
in the matter at all: this was clearly ‘covenant’ rather than ‘trespass’. Many attempts to
get ‘trespass’ remedies were made, mostly in situations in which performance of the
praecipe order in covenant would be impossible (eg the date by which the house was to
be built has passed) or would be no sufficient remedy (eg timbers have rotted because
the roof was not mended as promised). These would have been arguments for not suing
in covenant even if the builder or roof-mender had made their promises under seal;
and this may have been among the reasons why customers set up their agreements
by conditional bonds in which the penalty would cover any consequential damage
as well as the value of the performance. And one must remember that all these early
attempts to use assumpsit for a nonfeasance were by plaintiffs who had omitted the
proper formalities. Perhaps they were caught out by the only transaction of a lifetime
large enough to come to a royal court. But their hard cases seemed to a judge in 1425
to threaten bad law: ‘if this action’ (against one who had not built a mill as promised)
‘should be maintained . . . then a man would have an action of trespass for every broken
covenant in the world’.55
He was to be proved a prophet: but his logic was hard to overcome and we cannot
be sure how and when it happened. A stage seems to be marked by a case of 1442 in
which the defendant agreed to sell and convey land to the plaintiff from whom she took
money. But she actually conveyed to a third party; and the plaintiff sued in tort for a
deceit.56 The agreement was made in London about land outside. If the land had been
inside the city, the action would have been brought in city courts under the custom
of London by which (a) actions in covenant did not require a document under seal,

54 Bukton v Tounesende, The Humber Ferry Case (1348), translated in Baker and Milsom, above, n 50, 358.
55 Watkins’ (or Wykes’) Case (1425) translated in Baker and Milsom, above, n 50, 380, 383 (Martin J).
56 Shepton v Dogge (Nos 1 and 2) (1442), translated in Baker and Milsom, above, n 50, 390–5.
 introduction

(b) the normal remedy in covenant was an order for performance, and (c) one who
had put it out of his power to perform would be sued in deceit and imprisoned until
he made fine with the city and repaid the money to his claimant. In London therefore
the plaintiff ’s action would not have been a dodge to get round the absence of a sealed
document but the natural remedy, essentially in rescission. In Westminster the logic
got the plaintiff a remedy: but the Court could not order imprisonment (and therefore
repayment of the money) but only damages.
This looked like enforcement rather than rescission, and the king’s courts were left
with a distinction without a real difference: the disappointed buyer who had paid for
the land could get damages if his seller had conveyed to a third party, but not otherwise.
Many approaches were tried; and around 1500 it begins to appear that nonfeasance was
becoming remediable, at first only when the claimant had actually paid or there was
some other detrimental reliance (and at any period one who has suffered no damage
would normally prefer to hire somebody else rather than sue). Mutual promises do not
become actionable until later in the century, by equally obscure stages; and the underlying
illogicality is increasingly masked by elaborate and unreal allegations of deceit.

(iii) Assumpsit for money

From the use of assumpsit in lieu of covenant (where the absence of a sealed document
might leave a plaintiff entirely without remedy) we turn to its use in lieu of debt (where
the plaintiff always had a remedy, but might be faced by wager of law). But again one
must not think that the end was aimed at from the beginning. The beginning is early
in the sixteenth century in cases involving not money but fungible goods: a brewer
contracts to buy malt or barley, and when it is not delivered has either to buy at a much
higher price or to let his brewery go off stream.57 The substantial claim goes not to the
goods themselves but to the damage flowing from reliance upon the promise to deliver
them; and this may be reflected in the language of deceit. When money is involved the
reliance claim seems first to have appeared in situations involving third parties. Seller
sells to Buyer in reliance upon the promise of a third party to pay if Buyer does not. It
is Buyer who got the quid pro quo and contracted the debt; and any liability of the third
party must be on the basis of reliance.58
One must not assume that the first use of the same logic as between two parties
was intended as a conscious circumvention of debt. Debtor owes Creditor, and when
pressed promises to pay the amount at a specified future date. Relying upon this
promise, Creditor makes other bargains with third parties. When Debtor does not pay
Creditor, Creditor cannot pay the third parties; and, particularly if he is a merchant,
this failure so damages his own credit that he is ruined. This consequential damage is
the gist of this action, not the original debt, which is not in principle even claimed. But
jurors would include the amount of the debt in their assessment of damages; and such
actions soon came to be used to recover debts but exclude wager of law.
Since debt was in the exclusive jurisdiction of the Common Pleas, it was the King’s
Bench that led in this development and an unseemly difference of practice arose. On

57 For example, see the cases in Baker and Milsom, above, n 50, 406 and 411.
58 Such cases are cited in argument in Baker and Milsom, above, n 50, 414–15.
 introduction 15

the general issue of ‘Non assumpsit’, where the defendant denied the undertaking, the
Common Pleas would direct the jury that if they were to find for the plaintiff they must
find both that the defendant was indebitatus (indebted) and that he made an express
promise to pay the debt, the King’s Bench that they need find only the indebtedness
(because every debtor could be presumed to promise to pay: every contract executory
imports in itself an assumpsit). But since the issue would be tried at nisi prius,59 the
judge actually directing the jury might not come from the Court in which the action
had been begun. It seems clear that in Slade’s Case the judges at nisi prius made a
conscious effort to have the matter resolved. The jury was induced to bring in a special
verdict that the debt was owed but that there was no subsequent promise to pay it. This
was reported to the King’s Bench, in which the action had been started; and instead
of giving judgment that Court referred it to the Court of Exchequer Chamber, not
really a Court but an informal conference of all the judges. That body was unable to
agree; the King’s Bench gave judgment for the plaintiff in accordance with their own
practice; and this result was unwillingly accepted by the Common Pleas.60
Various consequences followed. Since the indebitatus assumpsit action was formally
for reliance damage and not the debt, it now had to be made clear that the debt itself
was recoverable as well as any damage, that the actions were alternative, and that the
one barred the other. And since formally the reliance damage flowed entirely from the
promise to pay the debt, there was no logical need to specify how the debt had arisen;
and so a defendant in the indebitatus action might not know the actual case he was to
answer. The Courts therefore required minimum particulars to be given; and a series
of ‘common counts’ developed stating that the debt was for goods sold and delivered,
for work and materials, and so on. More importantly Slade’s Case marked the effective
end of wager of law; and it was necessary to make explicit the important consequence
that executors could now be sued for simple contract debts. Nor was the ending of wager
unmixedly beneficial: it turned out that jury trial could be manipulated by fraudulent
plaintiffs; and in 1677 the Statute of Frauds provided that in certain situations action
could be brought only if there was some written evidence signed by the defendant.
With the important exception of agreements supported by sealed documents, in
which covenant or debt still could and had to be brought, all contract litigation after
Slade’s Case was brought in assumpsit; and it was from this that the modern law of
contract developed. It is indeed a general law of contract rather than a law about
particular contracts as in Rome.61 But its beginnings in tort, which remained obvious in
the persistent language of deceit until the nineteenth century, inhibited the development
of a satisfactory theoretical structure. Instead we have the ‘doctrine’ of consideration.62
There has been much speculation about its ‘origin’, on the basis that it must have developed

59 Baker, Introduction to English Legal History (4th edn, 2002) 20–2. 60 1602 4 Co Rep 91a.
61 In Roman law, a promise or agreement was given legal recognition and enforcement as a contract
only if it fell within one of a number of particular types for which an action was provided (such as sale, hire,
partnership, mandate, loan of a fungible, loan for use, or a unilateral promise made and accepted in a formal
oral exchange between the parties): Nicholas, Introduction to Roman Law (1975) 165–7. Modern European
civil law systems retain the Roman law legacy of a strong doctrine of particular contracts which have special
regulation in their Codes but have also, unlike ancient Roman law, added a general law of contract: see, eg,
Bell, Boyron and Whittaker, Principles of French Law (2nd edn, 2008) 297–8.
62 For consideration in the modern law, see below, Chapter 4.
 introduction

from some earlier phenomenon. Consideration as detriment to the claimant looks much
like the damage he suffered when the case was put in terms of deceit or reliance, and this
provides some explanation of the uselessness of past consideration and of the rule that
consideration must move from the claimant. Consideration as benefit to the defendant
looks much like the quid pro quo of debt; and it must be remembered that after Slade’s
Case the debt and therefore the quid pro quo was the only issue in indebitatus. Other
origins have been suggested, such as the canonist idea of causa which indeed played
some part in the Chancery. But the reality seems to be that sixteenth century pleadings
used the word to mean the reason for which the promise was given, and judges then and
later decided which of these were a sufficient basis for legal action. If so, consideration is
not so much a ‘doctrine’ as a considerable body of the substantive rules of contract.

(c) subsequent developments

There has been much later development, too detailed and perhaps too little explored
by historians, to consider in this summary. Lord Mansfield in the eighteenth century
and Lord Denning in the twentieth sought to rationalize consideration, but the
substantive changes needed were too obtrusive. The English promissory estoppel,63
for example, is a pale shadow of the American, perhaps because the lesser weight
given in the USA to deeds left more obvious injustice when gratuitous promises were
relied on. And the American reliance basis for remedy, essentially as alternative to
consideration, is a reminder of the mongrel nature of the common law of contract.
The law started with covenant (or contract) as something essentially different from
trespass (or tort). That difference was the continuing obstacle in the rise of assumpsit;
and its overcoming introduced continuing confusion. It was nineteenth century
judges and writers, including Anson, who sought to restore contract law as a thing in
itself: rules mostly about the formation of binding agreements, with ancillary rules
about the damages recoverable for breach.64 The impulse may have been partly juristic,
partly due to commercial demands for certainty and for more sophisticated rules to
deal adequately with the expansion of trade and commerce that resulted from the
industrial revolution. Consideration (or a deed) is then represented as something
like offer and acceptance: one of the requirements for formation. But it sprang from
a law about tort, about damage suffered by the claimant at the end of the story rather
than about the beginning of a binding relationship between the parties. Like many
mongrels the result may not be elegant; but it is strong.

(i) The nineteenth century

We have noted that the concepts of freedom of contract and sanctity of contract were at
their strongest during the nineteenth century. In 1875 Sir George Jessel MR stated:65
if there is one thing which more than another public policy requires it is that men of full age
and competent understanding shall have the utmost liberty of contracting, and that their

63 Below, p 116. 64 See Simpson (1975) 91 LQR 247.

65 Printing & Numerical Registering Co v Sampson (1875) LR 19 Eq 462, 465.
 introduction 17

contracts when entered into freely and voluntarily shall be held sacred and shall be enforced
by Courts of justice.

This was said to have led to the reduction of supervision over the contractual terms
to a bare minimum66 and the deprivation of the tools available for such control of
much of their effectiveness. The doctrine of consideration acquired a predominantly
formal meaning, although it was on occasion used to invalidate unfair agreements.67
A substantial part of the law of contract was attributed to the parties’ agreement, and
the role of equity, with its discretionary remedies, and its ability to avoid common law
rules, was less central.
At the same time, non-contractual liability was kept within narrow boundaries. As
regards liability to make restitution of an unjust enrichment (then known as quasi-
contract), Bowen LJ’s famous statement that ‘[l]iabilities are not to be forced upon people
behind their backs’68 was profoundly influential. Indeed, Lord Sumner and Sir William
Holdsworth argued that all such claims were founded upon an implied contract.69
If there could not be a contract, there could not be an implied contract; there was no
independent non-contractual claim. Tort liability was restricted by what was later called
the ‘privity of contract’ fallacy, that duties which originated in a contract were confined
to the parties.70 It was also mainly concerned with the protection of proprietary interests
and with providing a remedy for certain categories of physical injury. Although a number
of economic torts were developed, notably deceit, injurious falsehood, inducement
of breach of contract, and conspiracy, they required wilful misconduct. There was no
liability for pure economic loss which was inflicted negligently.

(ii) The twentieth century

In the modern period there is evidence of the reshaping of contract law accompanied
by an expansion of non-contractual obligations in tort, in particular for negligent
misrepresentation causing purely economic loss, and in respect of restitution of
unjust enrichment. There has been a dilution of formal requirements and increased
regard is given to considerations of substantive fairness. The erosion of the doctrine of
consideration in the context of contract re-negotiation, and its replacement by rules of
equitable estoppel71 and economic duress is perhaps the most prominent example, but
there are others, including an approach to discharge of contract, whether by breach
or frustration, that gives greater emphasis to the consequences of an event than to
the, often fictional, intentions of the parties.72 The evolution of new doctrines and
approaches has been gradual, and there have been exceptions and inconsistencies. For
instance, when, in 1976, economic duress was first recognized as a factor vitiating
contract, its theoretical basis was said to be ‘coercion of the will’, ie absence of consent.
But this was rejected in less than a decade,73 whereas in the case of frustration, first

66 Atiyah, The Rise and Fall of Freedom of Contract (1979). But cf Simpson (1979) 46 U Chi L Rev 533;
Barton (1987) 103 LQR 118. 67 Stilk v Myrick (1809) 2 Camp 317; 6 Esp 129, below, pp 108–11.
68 Falcke v Scottish Imperial Insurance Co (1886) 34 Ch 234, 248.
69 Sinclair v Brougham [1914] AC 398, 452 (overruled by Westdeutsche Landesbank Girozentrale v
Islington London Borough Council [1996] AC 669); Holdsworth (1939) 55 LQR 37. Cf Lord Wright (1938) 6
CLJ 305, 312 ff. 70 Winterbottom v Wright (1842) 10 M & W 109.
71 Below, p 116. 72 Below, pp 487–8, 521–2. 73 Below, p 351.
 introduction

recognized in 1863, it took almost a hundred years for the Courts to turn away from
regarding implied contract as the basis of that doctrine.74

(iii) Legislation
The last hundred years have also seen a rapid growth in the importance of statute
law. There were great codifying Acts of the nineteenth century for particular types of
contract, such as the Bills of Exchange Act 1882 and the Sale of Goods Act 1893. We
have noted the considerable, and increasing, amount of regulatory legislation, which
is designed to protect certain classes of the community or to implement government
policy. There are also a number of reforming statutes such as the Law Reform
(Frustrated Contracts) Act 1943, the Misrepresentation Act 1967, the Civil Liability
(Contribution) Act 1978, the Minors Contracts Act 1987, and the Contracts (Rights
of Third Parties) Act 1999 which have been passed to remedy defects or to make good
particular deficiencies in the common law.

(iv) Codification
In 1872, the Indian Contract Act was enacted, which codified (with some variations)
the general English law of contract for use in the Indian sub-continent. But English
law remained, and still remains, predominantly judge-made law. In 1965, the Law
Commission of England and Wales and the Scottish Law Commission announced
their intention to codify the English and Scots law of contract.75 The code as originally
envisaged was to be a uniform body of law applying throughout England and
Scotland, and it was to embody amendments to the existing law of both countries.
Subsequently, however, the Scottish Law Commission withdrew from this enterprise.
In 1973, therefore, the Law Commission decided to suspend its work on a contract
code.76 Since then it has examined particular areas of the law of contract, and has
either recommended reform, such as in the case of minors’ contracts, implied terms as
to quality in the sale of goods, formalities and covenants of title in the sale of land,77
contributory negligence as a defence in contract,78 contracts for the benefit of third
parties,79 unfair contract terms80 and consumer remedies for faulty goods,81 or has
concluded that no legislation is necessary, as in the case of the parol evidence rule82
and illegal contracts.83 It is now reviewing insurance contract law.84 It seems, however,
unlikely that the project of codification will be revived.

74 Below, pp 486–7. 75 Diamond (1968) 31 MLR 361.

76 The draft as it stood when the project was abandoned has since been published: McGregor, The Contract
Code Drawn Up on Behalf of the Law Commission (1993).
77 Law Com No 79 (1977); Law Com No 134 (1984); Law Com No 160 (1987); Law Com No 164 (1987);
Law Com No 199 (1991), implemented respectively by the Civil Liability (Contribution) Act 1978, Minors
Contracts Act 1987, the Sale and Supply of Goods Act 1994, and the Law of Property (Miscellaneous
Provisions) Acts 1989 and 1994. 78 Law Com No 219 (1993), rejected by the Government.
79 Law Com No 219 (1993), on which see below, pp 562–3 and Law Com No 242 (1996) implemented by
the Contracts (Rights of Th ird Parties) Act 1999, on which see below, p 624.
80 Law Com No 292 (2005). 81 Law Com No 317 (2009).
82 Law Com No 154 (1986), below, p 138. 83 Law Com No 320 (2010).
84 Law Com No 319, Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation (2009),
part of a wider review of consumer and business insurance law: Law Com No 316, Annual Report 2008–09,
paras 4.1–4.7.
 introduction 19

(v) Extra-judicial controls on contract

The law of contract as presented in this book is that applied by the English courts. It
comprises common law and legislation. However, it is important to realize that, in
practice, there are controls on contracts other than through the courts. Arbitration is
the most obvious example albeit that, if English law applies to the dispute, arbitrators
will be seeking to apply the law of contract as presented in this book in the same way
as a judge would do. The Office of Fair Trading has an important role in, for example,
controlling unfair terms not only by occasionally bringing actions in the courts but
also, and much more commonly, by informally negotiating with businesses and seeking
undertakings from them.85 There is also, for example, the Financial Ombudsman who
has wide powers to make awards, enforceable in the courts, without being bound to
apply the strict rules of contract law.86 Finally one should bear in mind the increasing
encouragement to parties to mediate because it is seen as a relatively inexpensive and
quick way of resolving disputes without going to court.87

3. european and international influences

The English law of contract is beginning to be exposed to the influence of the European
Union and the predominantly civilian systems of its Members because of the perceived
importance of its harmonization in the development of the single market. To date the
most significant initiatives affecting contract law have been the Directives on Unfair
Terms in Consumer Contracts88 and Consumer Sales,89 and those which seek to ensure
that there is no discrimination in tendering procedures for major contracts for public
works, supplies, and services.90
There is also a movement to develop common principles of European contract
law.91 Those who favour this argue that there are many benefits to be derived from a
formulation of principles of contract law within Europe. These include the facilitation
of cross-border trade, the strengthening of the European single market, the provision

85 See below, pp 207, 205.

86 See Financial Services and Markets Act 2000, Part XVI and Sch 17 and Consumer Credit Act 2006,
s 59. For discussion, see Smith, Atiyah’s Introduction to the Law of Contract (6th edn, 2005) 250–1, 330–1.
87 Courts now commonly stay proceedings to allow for mediation and there may be cost penalties for a
party that refuses to go to mediation.
88 Council Directive 93/13/EEC (OJ L 95, 21 April 1993, p 29), implemented by the Unfair Terms in
Consumer Contracts Regulations 1994 (SI No 3159), now the 1999 Regulations (SI 1999 No 2083), below,
p 206.
89 Directive 99/44/EC (OJ L 171, 7 July 1999, p 12), implemented by the Sale and Supply of Goods to
Consumers Regulations 2002 (SI 2002 No 3045), amending the Sale of Goods Act 1979 and the Supply of Goods
and Services Act 1982; below, pp 512, 577. See also the Package Travel, Package Holidays and Package Tours
Regulations 1992 (SI 1992 No 3288), below, pp 200, 216, 326, 346, 618, 642 and the Timeshare Act 1992.
90 For the current provisions, see Directive 2004/17/EC, implemented by the Utilities Contracts
Regulations 2006 (SI 2006 No 6) and Directive 2004/18/EC, implemented by the Public Contracts
Regulations 2006 (SI 2006 No 5).
91 See Lando and Beale, Principles of European Contract Law Parts 1 & II (2000); Lando, Clive, Prüm and
Zimmermann, The Principles of European Contract Law Part III (2003); Kötz, European Contract Law (trans
Weir) (1997).
 introduction

of an infrastructure for European Union laws governing contract and of guidelines for
national courts and legislatures, and the construction of a bridge between common law
and civil law systems. Following the publication of the Principles of European Contract
Law Parts I and II by the (independent) Commission of European Contract Law,92 the
European Commission produced an Action Plan designed to increase the coherence
of the EC acquis (existing law) in the area of contract law, to promote the elaboration of
EU-wide general contract terms, and to examine whether there should be an ‘optional
instrument’ which contracting parties could choose as their governing terms.93 This
movement towards the drafting of a new instrument to give effect to these aspirations,
called the ‘Common Frame of Reference’, has gained significant momentum in recent
years and two significant documents have been published: the ‘Acquis Principles’ in
2007, drawing together a set of general principles derived from the existing European
contract law (such as Directives on consumer contracts)94 and the ‘Draft Common
Frame of Reference’ in 2009, which contains principles, definitions and model rules
not only for the general law of contract but also for certain particular types of contract
and other areas of private law such as tort and unjust enrichment.95
Furthermore, the provisions of the European Convention for the Protection of
Human Rights, in particular the right to a fair trial under Article 6 and to the protec-
tion of property under Article 1 of the First Protocol to the Convention also have an
impact on English contract law as a result of the Human Rights Act 1998.96
There are, moreover, wider international initiatives, such as the Unidroit Principles
for International Commercial Contracts, the United Nations (Vienna) Convention
on Contracts for the International Sale of Goods (the ‘CISG’), and growing numbers
of international standard form contracts. Renewed consideration is being given to
the ratification by the United Kingdom of the CISG97 which has not yet been ratified
because of a perception by some that English contract law is more sophisticated, and
fear that uncertainty would result from the broadly formulated provisions of the
Convention.98
While this book is concerned with English law, the approach of other European
systems is mentioned where, as in the case of the use by the Unfair Terms in Consumer
Contracts Regulations of the civilian concept of good faith, these are now directly
92 Above, n 91. For the origin, composition and sponsorship of the Commission see Lando and Beale,
Principles of European Contract Law Parts 1 & II, xi–xvi.
93 Communication from the Commission to the European Parliament and the Council: a more coher-
ent European contract law; an action plan: COM(2003) 68 fi nal (12.2.2003) (OJ 2003/C63/01), following
Communication from the Commission to the Council and the European Parliament on European Contract
Law COM(2001) 398 fi nal (11.07.2001). The idea of a new European Contract Code (see Resolution of the
European Parliament 26 June 1989, OJ 1989 C 158/400; COM(2001) 398 final (11.07.2001), paras 61–9) is now
seen as at most a very distant project.
94 Research Group on the Existing EC Private Law (Acquis Group), Principles of the Existing EC Contract
Law (Acquis Principles), Contract I: Precontractual Obligations, Conclusion of Contract, Unfair Terms.
95 Study Group on a European Civil Code and Research Group on EC Private Law (Acquis Group),
Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR).
The provisions of the DCFR on the general law of contract are based on the Principles of European Contract
Law (above, n 91).
96 Wilson v First County Trust Ltd (No 2) [2003] UKHL 40, [2004] 1 AC 816; Shanshal v Al Kishtaini [2001]
EWCA Civ 264, [2001] 2 All ER (Comm) 601. 97 Moss (2005–2006) JL & Com 483.
98 Hobhouse (1990) 106 LQR 530. Cf Steyn, in Birks (ed), The Frontiers of Liability (vol II) 11.
 introduction 21

germane to English law.99 There are also brief references to European principles and
international conventions, as well as to other approaches and developments in common
law countries, including the American Law Institute’s Restatement Second of the Law
of Contracts,100 where these might be helpful in giving a comparative perspective to
problems faced by English law.

4. the content of contract law

(a) a law of contract or of contracts
The increasingly complex social and commercial relationships of the twentieth century
have produced a situation where it is no longer safe to assume that there is a law of contract
rather than of contracts. Particular principles and rules of law are applicable, sometimes as
the result of statutory definition, say, to contracts of sale of goods, insurance, the carriage
of goods by sea, contracts of employment and consumer contracts, which are peculiar to
those contracts. In the past, a number of commercial contexts, such as shipping, insurance,
and construction, have been particularly influential in the development of contract law.
Some have suggested that they have been disproportionately influential. Whatever the
influence of particular contexts, however, apart from statutory intervention the ideology
of the common law of contract remains that of a single body of general principles of
contract law which apply, with or without modification, across the range of such contracts.
It is those general principles of contract law that this book seeks to expound.
The contract law contained in this book follows, for the most part, the subject-matter
established by Sir William Anson in the seventh edition of his Principles of the English
Law of Contract and of Agency in its Relation to Contract. It deals with the Formation of
Contract, Performance and Discharge, Remedies for Breach of Contract, the Limits of
the Contractual Obligation, and Agency. It also deals with those factors which tend to
vitiate a contract, such as incapacity, misrepresentation, duress and undue influence,
mistake, and illegality. A word must be said about these.

(b) effect of vitiating factors

Not all the factors that vitiate a contract are uniform in effect. Some of them may render
a contract void or illegal, others voidable, while others still may make the contract
unenforceable at the suit of one or other of the parties. These terms (void, illegal,
voidable, and unenforceable) therefore denote different degrees of ineffectiveness, and
they are in constant use in the law of contract. They are, however, not infrequently used
with insufficient precision,101 and even the same term may have a different meaning in
different situations.

99Below, p 213.
100The Restatement is not a binding legislative text, but a very influential and ‘acute interpretation of
American case law’: Winfield (1929) 11 J Comp Leg 179, 189 (on the first edition).
101 See Turpin (1955) 72 SALJ 58; Honoré (1958) 75 SALJ 32.
 introduction

(i) Void contracts

In the case of a void contract, for example, the basic position is that such a contract is
simply one which the law holds to be no contract at all, a nullity from the beginning.
The parties would be in the same position as they would have been had the contract
never been made. No property would pass under such a contract; so, for example,
a third party who purchased goods which had been the subject of a void contract
would acquire no title to the goods and have to deliver them up to the true owner.102
Conversely, money paid in pursuance of a void contract could be recovered from
the person to whom it had been paid.103 This indeed is the meaning of ‘void’ where a
contract is said to be void for mistake. In other cases, however, a void contract may not
be so completely without legal effect. A contract for the sale of an interest in land ‘can
only be made in writing’104 so that one that is not in writing is not merely unenforceable
but void,105 but, if it is executed, it appears that property will nevertheless pass.106

(ii) Illegal contracts

Again, an illegal contract is commonly said to be ‘void’, but the effects of illegality may
vary considerably according to the degree of moral turpitude involved, the culpability of
the parties, and whether or not the contract itself is rendered illegal.107 In this case, the
invalidity is imposed by the law, and it is not at the discretion of the contracting parties.

(iii) Voidable contracts

A voidable contract, however, is a contract which one of the parties has the option to
rescind or affirm. If the choice is to affirm the contract, or if the right to rescind is not
exercised within a reasonable time so that the position of the parties has, in the meantime,
become altered, the option to rescind may be lost and the party who had it will be bound
by the contract; otherwise that party is entitled to repudiate its liability. Nevertheless, the
contract is not a nullity from the beginning. Until it is rescinded, it is valid and binding.
A third party, therefore, who in good faith purchases goods which have been the subject
of a voidable contract without notice of the prior defect acquires a good title to the goods
and cannot be compelled to surrender them to their former owner.108

(iv) Unenforceable contracts

An unenforceable contract is one which is good in substance, though, by reason of some
technical defect, one or both of the parties cannot be sued on it. The difference between
what is voidable and what is unenforceable is mainly a difference between substance
and procedure. A contract may be good, but incapable of enforcement because it is not

102 Cundy v Lindsay (1878) 3 App Cas 459; below, p 270.

103 Couturier v Hastie (1856) 5 HLC 673; below, p 284; Westdeutsche Landesbank Girozentrale v Islington
London Borough Council [1996] AC 669, below, p 590.
104 Law of Property (Miscellaneous Provisions) Act 1989, s 2(1), below, p 84.
105 Harpum, Bridge and Dixon, Megarry & Wade’s Law of Real Property (7th edn, 2008) 618. See also
United Bank of Kuwait plc v Sahib [1997] Ch 107, 122 (Chadwick J) and in the Court of Appeal at 136 (Peter
Gibson LJ). 106 Tootal Clothing Ltd v Guinea Properties Ltd (1991) 64 P & CR 452, 455, below, p 87.
107 Aratra Potato Co Ltd v Taylor Johnson Garrett [1995] 4 All ER 695, 708–10; Mohamed v Alaga [2000] 1
WLR 1815. See further below, Chapter 11.
108 Sale of Goods Act 1979, s 23; Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525, below, p 311.
 introduction 23

evidenced by writing as required by statute.109 But, in some cases, the defect is curable:
the subsequent execution of a written memorandum may satisfy the requirements of
the law and render the contract enforceable, but it is never at any time in the power
of either party to avoid the transaction. The contract itself is unimpeachable, but it
cannot be directly enforced in Court.

5. contract as part of the law of

obligations
The law of obligations has traditionally been divided into contractual obligations, which
are voluntarily undertaken and owed to a specific person or persons, and obligations in
tort which are primarily based on the wrongful infliction of harm to certain protected
interests, primarily imposed by the law, and typically owed to a wider class of persons.110
Recently it has been accepted that there is a third category, restitutionary obligations,
primarily based on the unjust enrichment of the defendant at the claimant’s expense,111
such as where the claimant has mistakenly paid the defendant money or discharged
the defendant’s debt. Contractual liability, reflecting the constitutive function of
contract,112 is generally for failing to make things better (by not rendering the expected
performance), liability in tort is generally for action (as opposed to omission) making
things worse, and liability in unjust enrichment is generally for unjustly receiving
the benefit of the claimant’s money or work. It accordingly follows that it is a defence
to a claim for restitution of an unjust enrichment that the defendant has changed its
position, for example by incurring expenditure in reliance on a payment received from
the claimant, so as to make it inequitable to order that the money be repaid.113
Although this tripartite division is a useful starting point, as the summary of the
history of contract above indicates, it is a rationalization of a less tidy common law.
The recent expansion of all these types of obligation also increases the occasions in
which the different categories will overlap and it has been argued that the division
made between duties which are voluntarily assumed and duties which are imposed
by law is an oversimplification.114 Moreover, care must be taken not to reverse the
contractual allocation of risks by non-contractual actions.115

(a) concurrence of claims in contract and tort

Although the Court may decline to find a duty in tort where the parties are in a
contractual relationship,116 or may hold that a term of a contract has excluded or

109 Below, p 80 (contract of guarantee).

110 Winfield, Province of the Law of Tort (1931) 380; Cane, The Anatomy of Tort Law (1997).
111 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; Kleinwort Benson Ltd v Glasgow City Council [1999] 1
AC 153. See Burrows, The Law of Restitution (3rd edn, 2010). 112 Above, p 3.
113 Lipkin Gorman v Karpnale Ltd, above, n 111, 579–80.
114 Atiyah (1978) 94 LQR 193, 223. Cf Burrows (1983) 99 LQR 217.
115 eg Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] AC 211, and see below, p 650.
116 Tai Hing Cotton Mill v Liu Chong Hing Bank [1986] AC 80, 107; Greater Nottingham Co-operative
Society v Cementation Piling and Foundations Ltd [1989] QB 1.
 introduction

limited what would otherwise be a tortious duty, pre-contractual events, such as

misrepresentation, may give rise to an action in tort.117 Additionally, it is clear that in
many cases, exemplified by negligent failure by professionals, such as solicitors and
surveyors, to carry out their undertakings to their clients, a defendant may be liable to
the same claimant in both contract and in tort.118 Indeed the fact that tort liability in
these contexts may be grounded in an ‘assumption of responsibility’,119 means that a
negligent breach of contract may often give rise to claims in both contract and tort.120
Where this is so, the claimant ‘can advance his claim, as he wishes, either in contract
or in tort, and no doubt he will . . . advance the claim on the basis which is most
advantageous to him.’121 The practical differences between contract and tort include,
for example, the measure of recovery,122 the period of limitation,123 the relevance of
the claimant’s contributory fault (it is generally irrelevant in contract but relevant in
tort),124 and assignability, since only a contractual claim can generally be assigned.

(b) contract and unjust enrichment

Historically, the effect of the implied term theory was that contract was thought in
effect to have swallowed up restitution of an unjust enrichment. While it is now clear
that the two are independent of each other and that ‘implied contract’ is a fictional
explanation for restitution,125 it is in the context of money having been paid and
services having been rendered under ineffective contracts and contracts discharged by
breach or by frustration that many restitutionary claims are made.126 Sometimes it can
be difficult to distinguish the enforcement of a contract or promise from the restitution
of an unjust enrichment, as where one person has ‘freely accepted’ or ‘acquiesced’ in
services rendered by the other.127 Where there is a contract and it makes provision
for repayment or recompense, there will be no claim for restitution of an unjust
enrichment.128 Where, however, it does not, a claim may lie, and, for example, in the
case of a contract discharged for breach, the innocent party’s restitutionary claim may
be greater than the contractual claim for damages.129 We shall also see that a remedy
for restitution of an unjust enrichment may be available in respect of work done by one
party during pre-contractual negotiations which do not ripen into a contract.130
The restitution of an unjust enrichment, independent from contract, is significantly
different from restitutionary damages, or an account of profits, given as a remedy for

117 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, below, p 323.
118 Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1979] Ch 384; Henderson v Merrett Syndicates
Ltd [1995] 2 AC 145. Cf Williams v National Life Health Foods [1998] 1 WLR 830.
119 Cf Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181.
120 White v Jones [1995] 2 AC 207, below, p 629, on which see Weir (1995) 111 LQR 357.
121 Coupland v Arabian Gulf Oil Co [1983] 1 WLR 1136, 1153 (Robert Goff LJ). See also Lord Goff ’s speech
in the leading case of Henderson v Merrett Syndicates [1995] 2 AC 145, 193–4.
122 Below, pp 307 and 549 (remoteness of damage).
123 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 185. 124 Below, p 561.
125 Westdeutsche Landesbank Girozentrale v Islington London BC [1996] AC 669.
126 Below, pp 231, 239, 500, 587–96.
127 See Beatson, The Use and Abuse of Unjust Enrichment (1991) ch 2.
128 Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161.
129 Below, p 595. 130 Below, pp 42–3, 64.
 introduction 25

breach of contract. The basis of such a restitutionary remedy is the contract and not an
independent cause of action in unjust enrichment. Traditionally, such a restitutionary
remedy, while available for civil wrongs, such as breach of fiduciary duty and some
torts, was not available for breach of contract. But that was departed from by the House
of Lords in Attorney-General v Blake131 in which it was accepted that, in exceptional
circumstances, an account of profits can be awarded for breach of contract.

6. contract and property

The law of obligations must be distinguished from the law of property which essentially
governs the acquisition and content of the rights persons have in things, which may be
land or moveables. In a wider sense, the law of property deals with all assets, including
intangibles such as a debt, shares in a company, a beneficiary’s right under a trust, or
a patent.132 Whereas a person’s property right in a thing is generally valid against the
whole world, the rights under the law of obligations, including contract, are personal
and valid only against a specific person or persons. Property rights may be protected
by the law of tort, as where the use and enjoyment of land is protected by the torts of
trespass and nuisance. Property rights may be transferred by contract, as where A
sells goods to B, and the property passes under section 18 of the Sale of Goods Act
1979, but they may also be transferred in other ways, for example by delivery with
the requisite intention, as where a gift is made. As we have seen, property can pass
under voidable and unenforceable contracts as well as valid ones, but not normally
under void contracts.133 Where property has so passed (whether under the contract or
by delivery), B may in turn resell the goods and pass the property in them to C, even
though B may not have paid A, or may have committed some other breach of contract,
but an unpaid seller in possession of goods has the power to dispose of them in certain
cases.134 Where property has not passed to B, B is only able to confer a contractual
right to the goods upon C. The position of a person who only has a contractual right to
a thing is less secure than that of a person who has a property right since contractual
rights may generally only be enforced against the other party to the contract (in our
example, B) whereas property rights are generally enforceable against all persons. C
would therefore only be able to enforce a contractual right against B, and not against
A, or anyone who acquires the goods from A. There is, however, a tendency to reduce
the discrepancy between the two and in certain circumstances contractual rights will
be protected against third parties.135

131 [2001] 1 AC 268. See below, pp 597–603.

132 Lawson and Rudden, The Law of Property (3rd edn, 2003) ch 2. 133
Above, p 22.
134 See Sale of Goods Act 1979, ss 39(1)(c), 48(3)–(4).
135 eg Lumley v Gye (1853) 3 E and B 216, below, p 654.
This page intentionally left blank
 PART 
FORMATION OF
CONTRACT
2 The Agreement 29
3 Form 75
4 Consideration And Promissory Estoppel 91
This page intentionally left blank
 2
THE AGREEMENT
A contract consists of an actionable promise or promises. Every such promise involves
at least two parties, a promisor and a promisee, and an outward expression of common
intention and of expectation as to the declaration or assurance contained in the
promise.
It has been previously pointed out1 that this outward expression of a common
intention and of expectation normally takes the form of an agreement. In most cases,
therefore, it will be necessary to ascertain at the outset whether or not an agreement
has been concluded.
In this chapter we consider the establishing of an agreement by offer and acceptance;
uncertain and incomplete agreements; and the intention to create legal relations.

1. establishing an agreement
The fact that an agreement has been reached will sometimes be self-evident, since,
although as a general rule English law has no requirements of writing or other form,2 the
agreement will be set out in a document signed or initialled by both parties. But where
there is no such document, it may be more difficult to discover whether the parties have
agreed. The alleged agreement may, in whole or in part, have been concluded by word of
mouth or by conduct. Difficulties of proof will then arise and the resultant questions of
fact will have to be determined by the trial judge from the evidence given by the parties
and their witnesses. We are not, however, here concerned with difficulties of proof, but
rather with those problems that occur even where there is no dispute as to what the
parties said or did. Such problems are not infrequent in practice, especially when the
fact of agreement has to be elicited from correspondence, or from an exchange of other
types of communication such as telex messages, fax, or e-mail.

(a) offer and acceptance

To determine whether an agreement has actually been concluded, it is normally
necessary to inquire whether in the negotiations which have taken place between
the parties there has been a definite offer by one party, and an equally defi nite
acceptance of that offer by the other. For most contracts are reducible by analysis to

1 See above, p 2. 2 On such requirements, see below, Chapter 3.

30 formation of contract

the acceptance of an offer. If, for instance, A and B have agreed that A shall purchase
from B a car for £10,000, we can trace the process to a moment at which B must have
said to A, in effect, ‘Will you give me £10,000 for my car?’, and A has replied, ‘I will’;
or at which A has said to B, ‘Will you let me have the car for £10,000?’, and B has
said, ‘I will’. There are, however, cases to which this analysis does not readily apply.
These include the signature of a prepared document, the acceptance by two parties of
terms suggested by a third, and multiparty agreements.3 Where, however, a contract
is alleged to have been made by an exchange of correspondence between the parties in
which the successive communications other than the first are in reply to one another,
the Court should look at the correspondence to see whether there is an offer by one
party and an acceptance by the other party.4 It would be a mistake to think that all
contracts can thus be analysed into the form of offer and acceptance. The analysis
is, however, a working method which, more often than not, enables us, in a doubtful
case, to ascertain whether a contract has in truth been concluded, and as such may
usefully be retained.

(i) Offer and acceptance in unilateral and bilateral contracts

The process of ‘offer and acceptance’ may take place in one of two main ways:
(1) In the offer of a promise for an act:5 as when a person offers a reward for the
doing of a certain thing, which being done that person is bound to make good
the promise to the doer.
Illustration: A, who has lost her dog, offers by advertisement a reward of £25 to
anyone who will bring the dog safely home; a promise is offered in return for an
act; and when B, knowing of the reward, brings the dog safely home, the act is
done and A is bound to pay the reward.
(2) In the offer of a promise for a promise: in which case, when the offer is accepted
by the giving of the promise, the contract consists of an outstanding obligation
on both sides.
Illustration: C offers to pay D a certain sum of money if D will promise to dig C’s
garden for him within a certain time. When D makes the promise asked for, he
accepts the promise offered, and both parties are bound, the one to do the work,
the other to allow the first to do it and to pay for it.
It will be observed that case (1) differs from (2) in an important respect. In (1),
it is performance on one side which makes obligatory the promise of the other; the
outstanding obligation is all on one side. In consequence, such a contract is termed
‘unilateral’ 6 as only one person is bound. In (2), however, each party is obliged to some
act or forbearance which, at the time of entering into the contract, is future; there is an
outstanding obligation on each side. This is known as a ‘bilateral’ contract, and each

3 Clarke v Earl of Dunraven, The Satanita [1897] AC 59, below, pp 31–32.

4 Gibson v Manchester City Council [1979] 1 WLR 294, 297 (Lord Diplock). Cf Port Sudan Cotton Co v
Govindaswamy Chettiar & Sons [1977] 2 Lloyd’s Rep 5. 5 Or forbearance. See also below, p 102.
6 GN Ry v Witham (1873) LR 9 CP 16, 19; New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd
[1975] AC 154, 167–8, 171, 177; Soulsbury v Soulsbury [2007] EWCA Civ 969, [2008] Fam 1.
 the agreement 31

party is both a promisor and a promisee. It is reasonable to presume in cases of doubt

that a bilateral, rather than a unilateral contract has been concluded. Thus if G says
to H: ‘If you will let me have that table you are making, when it is finished, I will give
you £25 for it’, and H replies ‘All right’, there is a bilateral contract and H is bound to
deliver the table.7

(ii) Promises in deeds

In one exceptional situation, however, it is clear that a contract can come into existence
without any need for an ‘offer and acceptance’. This is the case of a promise in a deed.
For example, if a wealthy person, by a document executed as a deed, promises to pay
a college £100,000 in order to establish a scholarship, the promise is binding without
any need for an acceptance or even knowledge of the promise by the person to whom
the promise is made.8

(iii) Inferences from conduct

The description which has been given of the possible forms of offer and acceptance
shows that conduct may take the place of written or spoken words either in the offer
or in the acceptance.9 An agreement may also be inferred from conduct alone; the
intention of the parties is a matter of inference from their conduct, and the inference
is more or less easily drawn according to the circumstances of the case.10 In day-to-
day contracts such inferences are frequent. For example, a person who boards a bus or
who hires a taxi thereby undertakes to pay the fare to his destination even though he
makes no express promise to do so.11 Again, a person who puts a coin in an automatic
machine thereby enters into a contract with the supplier although no words have been
exchanged on either side.
Sometimes the inference from conduct is not so clear, because the contract has
assumed a less simple form. If more than two parties are involved, it may not be
particularly helpful to look for a definite offer and acceptance. In Clarke v Earl of
Dunraven, The Satanita:12

7 Restatement of the Law of Contracts (2d) para 31.

8 Although he cannot be compelled to accept the benefit: Townson v Tickel (1819) 3 B & Ald 31. On deeds,
see generally below, Chapter 3.
9 Save in the most exceptional circumstances an offer or acceptance cannot be inferred from inactivity.
On acceptance by silence, see below, pp 49–50. It has been stated that, where neither party to an arbitration
has taken any steps in the proceedings for a very long time, an offer to abandon the arbitration can be
inferred: Andre et Compagnie SA v Marine Transocean Ltd [1981] 2 Lloyd’s Rep 29, 31; Paal Wilson & Co
A/S v Partenreederei Hannah Blumenthal [1981] 2 Lloyd’s Rep 438, 439; [1983] 1 AC 854, 865, 885, 914, 916,
924. It should be noted that in this context a contract to arbitrate disputes between the parties exists and the
question is whether that contract has been modified. However, even in this context inactivity on its own,
without some overt act, is almost always likely to be insufficient: Allied Marine Transport Ltd v Vale do Rio
Doce Navegacao SA [1983] 2 Lloyd’s Rep 411, 417; [1985] 1 WLR 925, 937; Yamashita-Shinnihon SS Co Ltd
v l’Office Cherifien des Phosphates [1994] AC 486. The Arbitration Act 1996, s 41(6) confers on arbitrators
a power to dismiss a claim for want of prosecution. In the case of ‘inertia selling’ statute has intervened,
and the despatch of goods without any prior request may constitute a gift rather than an offer: Consumer
Protection (Distance Selling) Regulations 2000 (SI 2000 No 2334) reg 24.
10 Cited with approval in Wright & Co Ltd v Maunder [1962] NZLR 355, 358.
11 See Wilkie v London Passenger Transport Board [1947] 1 All ER 258. See also Steven v Bromley & Son
[1919] 2 KB 722; Sullivan v Constable (1932) 48 TLR 369. 12 [1897] AC 59.
32 formation of contract

The owner of a yacht, the Satanita, entered it in a yacht club regatta. The rules of the regatta
bound competitors to make good any damage caused by fouling. While coming up into
position for the start of a race, the Satanita fouled and sank the Valkyrie, which had also
been entered by its owner under the same rules.

Although the immediate relationship of each owner was not with the other, but with
the secretary of the yacht club, it was held that a contract existed between them, and
that the owner of the Valkyrie could recover damages. Lord Herschell said:13
The effect of their entering for the race, and undertaking to be bound by these rules to the
knowledge of each other, is sufficient, where those rules indicate a liability on the part of the
one to the other, to create a contractual obligation to discharge that liability.

Similar principles mean that in the case of a company or other corporate entity there
will, for certain purposes, be a contract both between the entity and its members and
between each of the members themselves.14

(b) the test of intention

In common with most European legal systems,15 the test of a person’s intention is
not a subjective, but an objective one; that is to say, the intention which the law will
attribute to a person is always that which that person’s conduct bears when reasonably
construed by a person in the position of the offeree, and not necessarily that which was
present in the offeror’s own mind. Thus a person may be held to have made an offer
although not appreciating that one was being made16 or not realizing that the terms
of the offer embodied a mistake, as where a rent of £65,000 was mistakenly proposed
by a landlord instead of £126,000.17 If a person’s words or conduct, when reasonably
construed, amount to an offer or to an offer on particular terms, that person will be held
to have made that offer provided that the offeree neither knew nor could reasonably
have known of the misunderstanding at the time the offer was accepted. The same
objective approach applies to an acceptance. Although the approach is objective, the
intentions of the parties are not entirely irrelevant so that a contract cannot be formed

13 Ibid, 63.
14 Rayfield v Hands [1960] Ch 1 (company); Companies Act 2006, s 33; JH Rayner (Mincing Lane) Ltd v
Department of Trade and Industry [1989] Ch 72, 190; [1990] 2 AC 413, 515 (international organization whose
members were states).
15 An exception is French law: see Lando and Beale, Principles of European Contract Law (2000) 145–6.
16 Upton-on-Severn RDC v Powell [1942] 1 All ER 220. But there the liability (to pay for the provision of
fire-fighting services) is probably (see William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932, 938) best
regarded as non-contractual restitution for the value of the services rendered rather than being contractual
because neither party believed it was entering into a contract: the fire brigade rendering the services (the
‘offeree’) believed it was under a duty to provide the service without charge. Cf Henkel v Pape (1870) LR 6
Ex 7.
17 Centrovincial Estates plc v Merchant Investors Assurance Co Ltd [1983] Com LR 158. See also Moran v
University College Salford (No 2), The Times, 23 November 1993 (mistaken unconditional offer of university
place); OT Africa Line Ltd v Vickers plc [1996] 1 Lloyd’s Rep 700 (payment of £150,000 mistakenly offered
instead of $150,000). See also below, pp 256–258.
 the agreement 33

which is in accordance with the intention of neither party.18 It has been stated that ‘the
judicial task is not to discover the actual intentions of each party; it is to decide what
each was reasonably entitled to conclude from the attitude of the other’.19

2. the offer
An offer is an intimation, by words or conduct, of a willingness to enter into a legally
binding contract, and which in its terms expressly or impliedly indicates that it is to
become binding on the offeror as soon as it has been accepted by an act, forbearance,
or return promise on the part of the person to whom it is addressed.

(a) offers and invitations to treat

It is sometimes difficult to distinguish statements of intention which cannot, and are
not intended to, result in any binding obligation from offers which admit of acceptance,
and so become binding promises. A person advertises goods for sale in a newspaper,
or announces that they will be sold by tender or by auction; a shopkeeper displays
goods in a shop window at a certain price; or a bus company advertises that it will
carry passengers from A to Z and will reach Z and other intermediate stops at certain
times. In such cases it may be asked whether the statement or act made is an offer
capable of acceptance or merely an invitation to make offers, and do business; one
that contemplates that further negotiations will take place. A statement or act of this
nature, if it is not intended to be binding, is known as an ‘invitation to treat’.
As the classification of any particular act or statement as being either an offer or
an invitation to treat depends on intention to be bound rather than upon any a priori
principle of law, it is not easy to reconcile all the cases or their reasoning. Where the
intention is unclear, the Court will take account of the surrounding circumstances
and consequences of holding an act or statement to be an offer as well as what is in
fact said.
A statement of fact made merely to supply information cannot be treated as an offer,
and accepted, so as to create a valid contract. In Harvey v Facey:20
A telegraphed to B ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price, answer
paid’. B replied by telegram, ‘Lowest price for Bumper Hall Pen £900’. A telegraphed, ‘We

18 Cf Upton-on-Severn RDC v Powell [1942] 1 All ER 220, above, n 16; Solle v Butcher [1950] 1 KB 671, 691;
Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd [1990] 1 Lloyd’s Rep 236, 243; Williston on
Contracts (4th edn, 1991) para 6.58. On the merits and demerits of this ‘detached objectivity’, see Howarth
(1984) 100 LQR 265; Vorster (1987) 104 LQR 274.
19 Gloag on Contract (2nd edn, 1929) 7; approved by Lord Reid in McCutcheon v David Macbrayne Ltd
[1964] 1 WLR 125, 128. See also Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854,
924 (Lord Brightman); ibid, 914 (Lord Brandon) and cf ibid, 916 (Lord Diplock); Edmonds v Lawson [2000]
QB 501. See generally Spencer [1973] CLJ 104, 106–13; Cartwright, Unequal Bargaining (1991) 5–24.
20 [1893] AC 552. See also Schuldenfrei v Hilton (IT) [1999] STC 821, 831, 833.
34 formation of contract

agree to buy Bumper Hall Pen for £900 asked by you’. Bumper Hall Pen was a plot of land,
and A claimed that this exchange of telegrams constituted a valid offer and acceptance.

The Judicial Committee of the Privy Council pointed out that the first telegram of A
asked two questions, (1) as to the willingness of B to sell, and (2) as to the lowest price;
and that the word ‘telegraph’ was addressed to the second question only. It was held
that no contract had been made, that B in stating the lowest price for the property was
not making an offer but supplying information, that the third telegram set out above
was an offer by A—not the less so because he called it an acceptance—and that this
offer had never been accepted by B.
In Gibson v Manchester City Council:21
The defendant city council adopted a policy of selling council houses to its tenants. The
claimant, on a printed form supplied by the council, applied for details of the price of the
council house he was renting and mortgage terms. The defendant replied, ‘The corporation
may be prepared to sell the house to you at the purchase price of . . . £2,180.’22 The claimant
thereupon completed and sent off the application form to purchase the house.

The House of Lords held that there was no contract because the defendant’s letter was
not an offer to sell (that is, although this terminology was not used, it was merely an
invitation to treat). The words italicized were fatal to regarding the letter as an offer.

(i) Advertisements and displays of goods for sale

Generally speaking advertisements in newspapers or periodicals that the advertiser
has goods for sale are not offers.23 Neither are catalogues or price lists.24 Again, a
display of goods marked at a certain price by a shopkeeper in a shop window25 does
not bind the shopkeeper to sell at that price or to sell at all. The display is merely
an invitation to treat; it is for the customer to offer to buy the goods, and, subject
to antidiscrimination legislation,26 the shopkeeper may choose either to accept or to
refuse the offer. One reason given for this conclusion is that otherwise the advertiser,
catalogue publisher, and shopkeeper would be obliged to sell to every person who
accepted such an ‘offer’, even where supplies had run out. In the case of displays on
shelves in a self-service shop, which are also generally invitations to treat, it is said that
if the display were an offer, once an article was selected and placed in the receptacle,
the customer would have no right to change his mind.27 Another reason given is that if

21 [1979] 1 WLR 294. 22 Author’s emphasis.

23 Partridge v Crittenden [1968] 1 WLR 1204 (advertisement of ‘Bramblefi nch cocks and hens’ for sale).
The position is the same in Germany but not in France: Lando and Beale, Principles of European Contract
Law (2000) 162. Cf advertisements of a unilateral contract, which are offers: Carlill v Carbolic Smoke Ball
Co Ltd [1893] 2 QB 49, below, p 38; Bowerman v ABTA [1995] 145 NLJR 1815; the ‘reward’ cases, below, p 51.
24 Grainger & Son v Gough [1896] AC 325 (bookseller’s catalogue with prices); Seacarriers A/S v Aoteraroa
International Ltd [1985] 2 Lloyd’s Rep 419 (quotation of freight rates).
25 Timothy v Simpson (1834) 6 C & P 499 (below, n 29); Fisher v Bell [1961] 1 QB 394 (on which, see now,
Restriction of Offensive Weapons Act 1961, s 1); Esso Petroleum Ltd v Commissioners of Customs and Excise
[1976] 1 WLR 1 (indication of price at which petrol to be sold at attended service station not an offer).
26 Above, p 5, n 21.
27 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 aff ’d
[1953] 1 QB 401. See Unger (1953) 16 MLR 369 for criticism and note (i) the context, whether the display
 the agreement 35

a display was an offer a shopkeeper might be forced to contract with his worst enemy:
a ‘shop is a place for bargains, not for compulsory sales’28 but this is less convincing
in the light of modern regulation of trading practices, for example the prohibition of
sex and racial discrimination 29 and the statutory protection of consumers.30 Where
the display clearly states that the goods will be sold to a person who pays the required
price it is, however, likely to be held to be an offer. For example, a notice stating ‘We
will beat any TV HiFi and Video price by £20 on the spot’ was held to be ‘a continuing
offer’ and the shop manager was criminally liable for a misleading indication as to the
price at which goods may be available. 31

(ii) Transactions by machine

Different considerations apply where the transaction is effected through a machine32
as where the display is on a vending machine or where, as in many self-service petrol
stations, the product purchased cannot easily be retrieved from the buyer’s property.
In such cases the display is likely to be an offer. In Re Charge Card Services33 an open
offer to sell at pump prices was held to have been accepted by a motorist putting petrol
in the tank.

(iii) Carriage of persons

There is a diversity in the cases on the status of acts or statements about the carriage
of persons. A statement in a railway timetable that a certain train will run at a certain
time has been said to be an offer capable of acceptance by a passenger who goes to the
station to buy a ticket,34 although regulations35 in effect provide that no contractual
liability is to arise.

(iv) Tenders
An announcement inviting tenders is not normally an offer; unless accompanied by
words indicating that the highest or the lowest tender will be accepted,36 it is a mere

constituted an unlawful ‘sale’ of drugs unsupervised by a registered pharmacist under the Pharmacy and
Poisons Act 1933, s 18(1), and (ii) in the USA it has been held that there is no acceptance until the goods are
presented at the checkout: Lasky v Economic Stores 5 NE 2d 305 (1946).
28 Winfield (1939) 55 LQR 499, 518. See Said v Butt [1920] 3 KB 497 (theatre manager refused entry to
critic who had got someone else to buy a ticket for him to a fi rst night performance).
29 Sex Discrimination Act 1975; Race Relations Act 1976, above, p 5, n 21. See also Quinn v Williams
Furniture [1981] ICR 328; Gill v El Vino [1983] QB 425. Cf Timothy v Simpson (1834) 6 C & P 499 (a person
who went into a shop asked to pay 7/6d although item was marked at 5/11d and shop assistant said ‘don’t let
him have it, he’s only a Jew. Turn him out’). 30 Below, n 31.
31 Warwickshire CC v Johnson [1993] 1 All ER 299, 302; see also Consumer Protection Act 1987 s 20(1);
Jenkins v Lombard North Central plc [1984] 1 WLR 307.
32 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, 169 (machine controlling entry to car park).
33 [1989] Ch 497, 512. See also Chapelton v Barry UDC [1940] 1 KB 532 (display of deckchairs for hire an
offer). On non-self service petrol sales, see above, n 25.
34 Denton v Great Northern Railway Co (1856) 5 E & B 860 (Lord Campbell CJ and Wightman J; Crompton J
dissenting). See also Wilkie v LPTB [1947] 1 All ER 258 (contract formed when passenger boarded bus, ie
running the bus constituted the offer).
35 Made by the Railways Board and the independent railways contractors under the Transport Act
1962 and the Railways Act 1993. In the context of bus services, see Public Passenger Vehicles Act 1981 and
regulations made under it. 36 Harvela Investments Ltd v Royal Trust of Canada (CI) Ltd [1986] AC 207.
36 formation of contract

attempt to ascertain whether an acceptable offer can be obtained.37 In a case where

there is no offer to contract with the highest or lowest bidder, if the invitation to tender
prescribes a clear, orderly, and familiar procedure, it may be an offer to consider all
conforming tenders. Thus, where, a local authority’s staff failed to clear a letterbox and
the authority did not consider a tender submitted before the deadline, it was held liable
for breach of contract.38 In the case of tenders for major contracts for public works,
supplies, and services the freedom to decide which tender to accept has been limited
by European Union law.39

(v) Auctions
Where goods are put up for sale by auction upon an advertised condition that the sale
shall be ‘without reserve’ the auctioneer thereby indicates to prospective buyers that
the bid of the highest bona fide bidder will be accepted, and that the goods will not at
any stage be withdrawn, for example, on the ground that the reserve price has not yet
been reached. An auctioneer who does so withdraw the goods is said to be liable for
breach of contract with such a bidder. In Warlow v Harrison:40
An auctioneer advertised a brown mare for sale by auction ‘without reserve’. The owner’s
name was not disclosed. The claimant bid 60 guineas; the owner bid 61 guineas, and
the auctioneer knocked down the mare to him. The claimant sought damages from the
auctioneer as being the highest bona fide bidder.

A majority of the Court of Exchequer Chamber considered that the auctioneer was
liable on a contract that the auction sale was to be ‘without reserve’.41 The judgments
have, however, been criticized as inconsistent with other principles.
First, it is clear that a bid at an auction is only an offer which can be retracted at any
time before the fall of the hammer.42 This rule is now to be found in the Sale of Goods
Act 1979, s 57(2) of. No contract for the sale of the goods in the auction, therefore,
comes into existence until a bid is accepted by the auctioneer.
Secondly, an advertisement that an auction of certain articles will take place on
a certain day does not bind the auctioneer to sell the goods, nor does it make the
auctioneer liable upon a contract to indemnify persons who have incurred expense in
order to attend the sale.43 Such an advertisement is an invitation to treat.
So, where goods are advertised for sale without reserve, until the auctioneer accepts
by the fall of the hammer, no contract of sale is concluded with the buyer. If, therefore,
the auctioneer withdraws the goods prematurely, refusing to knock them down to the

37 Spencer v Harding (1870) LR 5 CP 561. Contrast GN Ry v Witham (1873) LR 9 CP 16; Percival Ltd v LCC
Asylums etc Committee (1918) 87 LJ KB 677.
38 Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 WLR 1195. See below, p 535 on the remedy
for breach of this obligation. 39 See below, p 224.
40 (1858–59) 1 E & E 295, 309; Johnston v Boyes [1899] 2 Ch 73. Contrast Fenwick v Macdonald, Fraser &
Co Ltd (1904) 6 F 850 (Scotland). By the Sale of Goods Act 1979, s 58(4) the seller is now precluded without
notification from the bidding himself or employing anyone to bid for him, and any sale contravening this
rule may be treated as fraudulent by the buyer.
41 The minority held that the auctioneer would be liable for breach of warranty of authority: see below,
p 716. In fact, a new trial was ordered but never took place. 42 Payne v Cave (1789) 3 Term R 148.
43 Harris v Nickerson (1873) LR 8 QB 286.
 the agreement 37

highest bidder, there can be no possible action on any contract of sale because none
has yet come into existence. The Court in Warlow v Harrison stated that the claimant
was not suing upon the contract of sale (which would at that time have been required
by the Statute of Frauds to be evidenced in writing),44 but upon a different, collateral,
contract with the auctioneer. When the auctioneer put up the mare for sale ‘without
reserve’ he contracted that this would be so, that this contract was made with the
highest bona fide bidder, and it was broken upon a bid being made by or on behalf of
the owner.45
Several objections have been taken to this analysis.46 If an advertisement that an
auction sale will be held is merely an invitation to treat, how can it be said that a
stipulation contained in it that the sale will be ‘without reserve’ amounts to an offer?
Secondly, if a bid may be retracted, or outbid, at any time before it is accepted, how can
it be said that it is certain who is the highest bidder? Thirdly, what is the consideration
for the promise, since the promisee is not bound to purchase, but may withdraw the
bid at any time?
However, while there is a certain artificiality in treating the bidder as having
provided consideration by bidding, ie by exposure to the risk that the bid would be
accepted by the auctioneer, this unilateral contract analysis47 accords with the modern
approach to similar situations.48 It has been applied, effectively ending the controversy
over Warlow v Harrison, in Barry v Davies:49
Customs and Excise put up for sale by auction two new engine analyser machines. Each
could be obtained from the manufacturers for £14,521 but they were being sold without a
reserve price. After the auctioneer failed to obtain bids of £5,000 and £3,000, the claimant
bid £200 for each machine. The auctioneer refused to accept these bids and withdrew the
machines from the auction. The claimant brought an action against the auctioneer for
breach of contract on the basis that he was the highest bidder and that, at an auction without
reserve, the auctioneer had been bound to sell to him.

The Court of Appeal, applying the majority’s view in Warlow v Harrison, held that the
holding of an auction without reserve is an offer by the auctioneer to sell to the highest
bidder so that the auctioneer was indeed contractually bound to sell to the claimant
(who was entitled to damages of £27,600).

(b) general offers

An offer need not be made to an ascertained person,50 but no contract can arise until
it has been accepted by an ascertained person.

44 See below, p 79. 45 (1858) 1 E & E 309, 317.

46 See Slade (1952) 68 LQR 238; Gower (1952) 68 LQR 456; Slade (1953) 69 LQR 21; Cox (1982) 132 NLJ
719. 47 Above, p 30.
48 See, on tenders, Harvela Investments Ltd v Royal Trust of Canada (CI) Ltd [1986] AC 207; Blackpool and
Fylde Aero Club Ltd v Blackpool BC [1990] 1 WLR 25. 49 [2000] 1 WLR 1962.
50 A proposal not addressed to one or more specific persons is presumptively merely an invitation to
treat under the Convention on the International Sale of Goods (CISG) art 14(2) but presumptively an offer
under the Italian Civil Code, art 1336(1) and by judicial decision in French law: Nicholas, The French Law of
Contract (2nd edn, 1992) 63–4.
38 formation of contract

This proposition is best understood by an illustration:

An insurance company offers a reward to any person who finds and returns a valuable
diamond brooch insured by them. X who knows of the offer, finds and returns the brooch.
She is entitled to claim the reward.51

An offer, by way of advertisement, of a reward for the rendering of certain services,

addressed to the public at large, prima facie creates a power of acceptance in every
person to whom it is made or becomes known. But a contractual obligation to pay the
reward only comes into existence when an individual person performs the stipulated
services, and not before.52 A general offer may be susceptible of acceptance either by
only one person or by a number of persons.
In some cases, such as the offer of a reward for information or the return of a lost
possession, the offer is exhausted when once accepted. The offeror clearly does not
intend to pay many times over for the same thing. So, where a reward is offered for
information and the information asked for reaches the offeror from several sources,
it has been held that the person who gave the earliest information is entitled to the
reward.53
In other cases the nature of the act asked for by the offeror and the circumstances
in which the offer is made mean that it remains open for acceptance by any number
of persons, such acceptance being signified by performance of its terms. In Carlill v
Carbolic Smoke Ball Co:54

The defendant offered by advertisement to pay £100 to any one ‘who contracts the
increasing epidemic influenza colds, or any disease caused by taking cold, aft er having
used the ball three times daily for two weeks, according to the printed directions’. It was
added that £1,000 was deposited with the Alliance Bank ‘showing our sincerity in the
matter’. Mrs Carlill used the Smoke Ball as required by the directions; she aft erwards
suffered from influenza and sued the company for the promised reward.

The defendant was held liable. It was urged that a notification of acceptance should
have been made to it but the Court held that this was one of the class of cases in which,
as in the case of a reward offered for information or for the recovery of lost property,
there need be no acceptance of the offer other than performance of the condition.55
The further argument that the alleged offer was merely an advertisement or puff which
no reasonable person would take to be serious was rejected because the statement that
£1,000 had been deposited to meet demands was regarded as evidence of the sincerity
of the offer. The advertisement was an offer which was capable of being accepted by a
number of persons, and which had been accepted by Mrs Carlill when she performed
the stipulated conditions.

51 For the position where X does not know of the offer, see below, p 51.
52 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154, 168. See also Williams v
Carwardine (1833) 4 B & Ad 621, below, p 51. 53 Lancaster v Walsh (1838) 4 M & W 16.
54 [1893] 1 QB 256. See also Bowerman v ABTA [1995] 145 NLJR 1815. 55 Below, pp 45–46.
 the agreement 39

(c) communication of the offer

In general an offer is effective when, and not until, it is communicated to the offeree. It
follows that there can in general be no acceptance in ignorance of an offer, and, despite
one somewhat unsatisfactory contrary decision,56 this seems correct in principle.

(i) Cross-offers
The necessity for the communication of the offer, and for its consequent acceptance,
appears to be the reason why two identical cross-offers do not ordinarily make a
contract. Two manifestations of a willingness to make the same bargain do not
constitute a contract unless one is made with reference to the other.57 In Tinn v
Hoffman & Co:58
On 28 November 1871, H wrote to T offering to sell him 800 tons of iron at 69s per ton,
together with a further quantity at the same price. On the same day, T wrote to H offering to
buy 800 tons at 69s, together with a further quantity at a lower price. The letters crossed in the
post. T contended that there was, at all events, a good contract for 800 tons at 69s per ton.

A majority of the Court of Exchequer Chamber expressed the opinion that H would
not be bound as a result of the simultaneous offers, each being made in ignorance of
the other.

(ii) Offer by rendering services must be communicated

Although conduct, such as the rendering of services can constitute an offer, where that
offer is not communicated to the party to whom it is intended to be made there is no
opportunity of rejection and no presumption of acceptance. Thus, if A does work for B
without the request or knowledge of B, A can only sue in contract for the value of the
work where there is evidence of a recognition or acceptance of the work by B. This is
clearly illustrated by Taylor v Laird:59
T was engaged to command L’s ship and to conduct certain explorers on an expedition up
the River Niger. He threw up his command in the course of the expedition, but helped to
work the vessel home, though without the knowledge of the defendant. He then claimed to
be remunerated for the services thus rendered.

It was held that he could not recover. L never had the option of accepting or refusing
the services while they were being rendered; and he repudiated them when he became
aware of them. T’s offer, being uncommunicated, did not admit of acceptance and
could not give him any contractual rights against L. Pollock CB said:60

56 Gibbons v Proctor (1891) 64 LT 594, 55 JP 616. For criticism and contrary authority, see below, p 51.
57 If one is made with reference to the other, there is no reason why a contract should not be held to exist,
even though it is expressed to be an ‘offer’ and not an acceptance: but see Gibson v Manchester City Council
[1979] 1 WLR 294.
58 (1873) 29 LT 271, 275, 277, 278, 279; Restatement of the Law of Contracts (2d) para 23.
59 (1856) 25 LJ Ex 329. See also Forman & Co Pty Ltd v Ship Liddesdale [1900] AC 190.
60 Ibid, 332.
40 formation of contract

Suppose I clean your property without your knowledge, have I a claim on you for payment?
How can you help it? One cleans another’s shoes; what can the other do but put them on? Is
that evidence of a contract to pay for the cleaning?

In certain circumstances, for instance where the services rendered are necessary
services,61 it may be that there is a liability to make restitution of an unjust enrichment
but such liability is not contractual.

3. the acceptance
If a contract is to be made, the offeree must accept the offer. Acceptance of an offer is
the expression, by words or conduct,62 of assent to the terms of the offer in the manner
prescribed or indicated by the offeror.

(a) offer and acceptance must correspond

The intention of the offeree to accept must be expressed without leaving room for doubt
as to the fact of acceptance, or as to the coincidence of the terms of the acceptance
with those of the offer. These requirements may be summed up in the general rule,
sometimes called the ‘mirror image’ rule, that the acceptance must be absolute, and
must correspond with the terms of the offer.
In determining whether or not an acceptance is conclusive, an alleged acceptance
must be distinguished from (i) a counter-offer and rejection; (ii) an acceptance with
some variation or addition of terms; or (iii) an acceptance which is equivocal, or which
is qualified by reference to the subsequent arrangement of terms.

(i) Counter-offer and rejection

A counter-offer amounts to a rejection of the offer, and so operates to bring it to an
end. In Hyde v Wrench,63 for example:
W offered to sell a farm to H for £1,000. H said that he would give £950. W refused, and H
then said he would give £1,000, and, when W declined to adhere to his original offer, H tried
to obtain specific performance of the alleged contract.

The Court held that an offer to buy at £950 in response to an offer to sell for £1,000 was
a refusal followed by a counter-offer, and that no contract had come into existence. But
making express what would otherwise be implied64 or inquiring whether the offeror
will modify his terms does not necessarily amount to a counter-offer. So in Stevenson,

61 Jenkins v Tucker (1788) 1 Hy Bl 90 (burial of the dead); Re Rhodes (1890) 44 Ch D 94 (restitution in

respect of the maintenance of a mentally incapable person recognized in principle but no recovery on facts
because there was no intention to charge for the services).
62 Brogden v Metropolitan Railway Co (1877) 2 App Cas 666, below, pp 43–44; Day Morris Associates v
Voyce [2003] EWCA Civ 189, [2003] 2 P & CR DG2. See also above, pp 31–32. 63 (1840) 3 Beav 334.
64 Lark v Outhwaite [1991] 2 Lloyd’s Rep 132, 139.
 the agreement 41

Jacques & Co v McLean,65 the offeree could still accept an offer of a certain quantity of
iron ‘at 40s. nett cash per ton’, even though he had telegraphed to the offeror requesting
information as to possible terms of credit. It was held that this was not a counter-
offer, but was ‘a mere inquiry, which should have been answered and not treated as a
rejection of the offer’.66

(ii) Change of terms

A purported acceptance of an offer may introduce terms at variance with or not comprised
in the offer. Although, exceptionally in such a situation the response may be regarded
as an acceptance with an offer to enter a further contract,67 generally, in such cases no
contract is made, for the offeree in effect rejects the offer and makes a counter-offer.68
In the case of Jones v Daniel:69
A offered £1,450 for a property belonging to B. In accepting the offer B enclosed with the
letter of acceptance a contract for the signature of A. Th is document contained various terms
as to payment of deposit, date of completion, and requirement of title which had never been
suggested in the offer.

The Court held that there was no contract; B had not accepted A’s offer but made a
counter-offer of his own, which was never accepted by A.

(iii) ‘Battle of the forms’

In modern commercial practice, a particular problem has arisen which is that of the
‘battle of the forms’. A firm may, for example, offer to buy goods from another on a
form which contains or refers to its standard conditions of trade. The seller ‘accepts’ the
offer by a confirmation on a form which contains or refers to its (the seller’s) standard
conditions of trade. These may differ materially from those of the buyer. It may then
deliver the goods. Two questions typically arise; is there a contract and, if there is, do
the buyer’s or the seller’s conditions prevail?
One possible solution to this problem is by what might be called the ‘first shot’
approach. Under this the seller-offeree, by purporting to accept the buyer-offeror’s
offer, is said to have waived its own conditions of trade, so that the contract is
concluded subject to the buyer’s conditions.70 In Butler Machine Tool Co Ltd v
Ex-cell-o Corporation (England) Ltd,71 however, a majority of the Court of Appeal
(Lawton and Bridge LJJ) applied the ‘mirror image’ rule and stated that the seller’s
confirmation amounts to a counter-offer. This is capable of acceptance by the buyer.

65 (1880) 5 QBD 346. See also Brown & Gracie Ltd v FW Green & Co (Pty) Ltd [1960] 1 Lloyd’s Rep 289,
297; Gibson v Manchester City Council [1979] 1 WLR 294, 302. 66 Ibid, 350.
67 Monvia Motorship Corp v Keppel Shipyard (Private) Ltd [1983] 1 Lloyd’s Rep 356 (PC).
68 The position is similar in many European systems; see Lando and Beale, Principles of European
Contract Law (2000) 179.
69 [1894] 2 Ch 332. See also Brogden v Metropolitan Ry Co (1877) 2 App Cas 666, below, pp 43–44. Cf Global
Tankers Inc v Amercoat Europa NV [1975] 1 Lloyd’s Rep 666, 671.
70 See also Chas Davis (Metal Brokers) Ltd v Gilyott & Scott Ltd [1975] 2 Lloyd’s Rep 422, 425 (Donaldson J).
71 [1979] 1 WLR 401, 406, 407; Rawlings (1979) 42 MLR 715. See also British Road Services v Arthur
Crutchley Ltd [1968] 1 All ER 811; A Davies & Co (Shopfitters) v William Old (1969) 67 LGR 395; Tekdata
Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209, [2010] 1 Lloyd’s Rep 357.
42 formation of contract

The buyer may indicate that it accepts the counter-offer made to it by some act or
performance; eg the receipt and acceptance of the goods or by, for instance, the
return of an ‘acknowledgement’ form containing the seller’s conditions. This can be
called the ‘last shot’ approach. In our example such an acceptance would conclude
a contract subject to the seller’s conditions, since it was the seller who fired the ‘last
shot’ in the battle of the forms.
The difficulty is, however, that the operation of the ‘last shot’ approach depends
upon chance and can be arbitrary. Furthermore, unless and until the counter-offer is
accepted, there is no contract, even though both buyer and seller may firmly believe that
a contract has been made.72 Where they have acted on that basis and the transaction is
executed, it may be possible to treat a matter not finalized in negotiations as inessential73
but this is not always so. The position, especially in relation to executory transactions,
is not satisfactory. The ‘first shot’ approach, however, can also be arbitrary.
It is suggested that, in these circumstances, the following solution, which reflects
business practice74 and international conventions and which only represents a minor
departure from the ‘mirror image’ rule should be adopted. If an offeror receives a
reply to an offer which purports to be an acceptance but which contains additional
or different terms which do not materially alter the terms of the offer, and does not
promptly object to the offeree about the discrepancy, the terms of the contract consist
of the terms of the offer subject to the modifications contained in the acceptance.75
In effect this simply puts the burden on the offeror to object to such additional or
different terms;76 the requirement that they do not materially alter the terms of the
offer substantially preserves the requirement of objective agreement. Under the
Convention on the International Sale of Goods most non-trivial variations are likely
to be regarded as ‘material’.77 Article 19(3) provides that alterations relating, among
other things, to the price, quantity, and quality of the goods, place and time of delivery,
extent of one party’s liability to the other, or to the settlement of disputes are material
alterations.
In cases where there is no contract even though services have been rendered or
goods delivered, the rendering of services or delivery of goods may give rise to a
restitutionary non-contractual obligation in unjust enrichment to pay a reasonable
sum.78 But in such cases, while restitution may protect the performer by the award

72 Ibid, 406.
73 G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 (facts compared to ‘battle of the
forms’). 74 Beale and Dugdale (1975) 2 BJLS 45, 49–51.
75 See the Uniform Laws on International Sales Act 1967, Sched 2, art 7(2); CISG art 19; von Mehren
(1990) 38 Am J Comp Law 265. Th is is also close to Lord Denning MR’s approach in Butler Machine Tool Co
Ltd v Ex-cell-o Corp (England) Ltd [1979] 1 WLR 401 (but cf the House of Lords’ disapproval of his approach
to formation in Gibson v Manchester City Council [1979] 1 WLR 294, 297, 302). Cf the broader approach of
the United States’ Uniform Commercial Code para 2–207 which applies even where a variation is material
but which has been said (Farnsworth, Contracts, 2nd edn (1990), p 172) to raise as many questions as it
answers. 76 See below, pp 49–50 on acceptance by silence.
77 See Nicholas (1988) 105 LQR 201, 217; Scot Law Com No 144 (1993) para 4.19. Cf Schlectriem,
Commentary on the CISG (1998) 140–1.
78 Peter Lind & Co v Mersey Docks & Harbour Board [1972] 2 Lloyd’s Rep 234. For the conditions of such
liability, see below, pp 64, 68.
 the agreement 43

of the reasonable value of the performance rendered, a recipient, who may have
had certain requirements as to the time of performance or its quality may be
unprotected. This is because, in the absence of a contract, the party rendering the
services or delivering the goods will not be liable in damages for delay or for defective
performance.79 However, the better view is that this can be satisfactorily dealt
with, within the non-contractual law of unjust enrichment, as going to the relevant
enrichment of the recipient.80

(iv) Equivocal or qualified acceptance

The acceptance must assent unequivocally and without qualification to the terms of
the offer. For example, the reply ‘Your order is receiving our attention’ is too indefinite
to amount to an acceptance.81 The acceptance may also be qualified by reference to
the preparation of a more formal contract or by reference to terms which have still to
be negotiated. In such a case the agreement is incomplete82 and there is no binding
contract.

(b) communication of the acceptance

(i) Mental assent insufficient
Acceptance means, in general, communicated acceptance, which must be something
more than a mere mental assent. A tacit formation of intention is insufficient.
In an old case in the Year Books83 it was argued that where the produce of a field was
offered to a man at a certain price if he was pleased with it on inspection, the contract
was made and the property passed when he had seen and approved of the subject of
the sale. But Brian CJ said:
It seems to me the plea is not good without showing that he had certified the other of his
pleasure; for it is trite learning that the thought of man is not triable, for the devil himself
knows not the thought of man; but if you had agreed that if the bargain pleased then you
should have signified it to such an one, then I grant you need not have done more, for it is
matter of fact.

Lord Blackburn approved this decision in Brogden v Metropolitan Railway Co:84

B (a supplier of coal) altered a draft coal supply agreement sent to him by M and returned
it signed and marked ‘approved’. M’s agent put it in a drawer. The parties appear to have
ordered and supplied coal upon the terms stated but, a dispute having arisen, B contended
that he was not bound by the agreement.

79 McKendrick (1988) 8 OJLS 197, 212–13; Ball (1983) 99 LQR 572. A contract will also have implied terms
as to quality, description, and title: see below, pp 159–165 (Sale of Goods Act 1979 and the Supply of Goods
and Services Act 1982).
80 So, for example, goods delivered late to the defendant may not be as valuable to him as goods delivered
on time and this will be reflected in measuring the defendant’s enrichment: see Burrows, The Law of
Restitution (2nd edn, 2002) 376.
81 Rees v Warwick (1818) 2 B & Ald 113; Restatement of the Law of Contracts (2d) para 57.
82 See below, pp 66–67. 83 Anon (1477) YB Pasch. 17 Edw IV, f 1, pl 2.
84 (1877) 2 App Cas 666.
44 formation of contract

It was held that there was a contract between the parties. This had not, however, come
into existence at the time M’s agent acquiesced in the offer by putting the letter in his
drawer but later, either when coal was ordered by M or supplied by B.

(ii) Communication to the offeror

Even if there is some overt act or speech to give evidence of the intention to accept,
English law stipulates, in addition, that acceptance is normally not complete unless
and until it is communicated to the offeror. In the words of Lindley LJ: ‘Unquestionably,
as a general proposition, when an offer is made, it is necessary in order to make a
binding contract, not only that it should be accepted, but that acceptance should be
notified’.85 Thus, if an offer is made by telephone, and in the middle of the reply the
line goes dead, so that the offeror does not hear the words of acceptance, there is no
contract.86 Again, if a person shouts to another across a river or courtyard, but the
offeror does not hear the reply because it is drowned by an aircraft flying overhead,
there is no contract at that moment and the offeree must repeat the acceptance in order
that it might be effective.

(iii) Communication other than by offeree

The justification for the rule requiring communication is that the offeror is entitled
to know whether a binding contract has been concluded by acceptance. In principle,
therefore, there would seem to be no reason (other than one of certainty) why a
contract should not come into existence if the offeror is made aware or is informed
that the offer has been accepted even though the acceptance is not communicated to
the offeror by the offeree.87 Powell v Lee,88 however, appears to hold that it is necessary
that the acceptance be communicated by the offeree or by his duly authorized
agent.
The managers of a school resolved to appoint the claimant to the headmastership of a
school. One of the managers, acting in his individual capacity, informed the claimant of
what had occurred. He received no other communication and subsequently the resolution
was rescinded.

It was held that there was no concluded contract. It was said: ‘the mere fact that the
[whole body of] managers did not authorize such a communication, which is the usual
course to be adopted, implied that they meant to reserve the power to reconsider the
decision at which they had arrived’.89 In the absence of facts giving rise to such an
implication, however, communication by a third party should, it is submitted, suffice.

85 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, 262. See also Robophone Facilities Ltd v Blank [1966]
1 WLR 1428; Allied Marine Transport Ltd v Vale do Rio Doce Navegacao [1985] 1 WLR 925, 937; CISG art 23.
Cf below, p 51 (no need for communication where offer stipulates a prescribed mode of acceptance).
86 Entores v Miles Far East Corporation [1955] 2 QB 327, 332 (Denning LJ); Winfield (1939) 55 LQR 499,
514; Restatement of the Law of Contracts (2d) para 65. But cf below, p 46–49, for the different rule which
applies to acceptance by post or telegram.
87 Levita’s Case (1867) LR 3 Ch App 36. See also Dickinson v Dodds (1876) 2 Ch D 463, below, p 58 (third-
party notification of revocation of offer effective). 88 (1908) 99 LT 284.
89 Ibid, 286 (Channell J).
 the agreement 45

The general rule that acceptance must be communicated before it can take effect is
subject to a number of exceptions, to which we now turn.

(iv) Waiver of communication

The general rule that an acceptance of an offer made ought to be notified to the offeror
is for the benefit of the offeror, who may expressly or impliedly waive the requirement
of notification and agree that an uncommunicated acceptance will suffice. Thus
acceptance may in certain circumstances be held to have been made even though it has
not yet come to the notice of the offeror. In such a case two things are necessary. There
must be an express or implied intimation from the offeror that a particular mode of
acceptance will suffice. And there must be some overt act or conduct on the part of the
offeree which is evidence of an intention to accept, and which conforms to the mode of
acceptance indicated by the offeror.
In Carlill v Carbolic Smoke Ball Co,90 previously discussed, it will be remembered
that the manufacturers of the smoke balls advertised inviting performance of a
condition, and it was sufficient for the purposes of binding them that Mrs Carlill had
performed the condition without communicating to them the acceptance of the offer.
Bowen LJ stated:91
The person who makes the offer may dispense with notice to himself if he thinks it desirable
to do so, and I suppose there can be no doubt that where a person in an offer made by him
to another person, expressly or impliedly intimates a particular method of acceptance as
sufficient to make the bargain binding, it is only necessary for the other person to whom
such offer is made to follow the indicated mode of acceptance; and if the person making
the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the
proposal without communicating acceptance of it to himself, performance of the condition
is a sufficient acceptance without notification.
The nature and terms of the offer need to be considered carefully to ascertain
whether they entitle the offeree to dispense with notice of acceptance. If A tells B by
letter that he will receive and pay for certain goods if B will send them to him, such an
offer may be accepted by sending the goods.92

(v) Promise for an act

In the case of general offers and other offers which indicate performance as a mode of
acceptance so as to create a unilateral contract, as in Carlill v Carbolic Smoke Ball Co,
it is performance, not notice of acceptance, that is contemplated. An offer of reward
for the supply of information, or for the return of a lost dog, does not contemplate
an intimation of acceptance from every person who, on becoming aware of the offer,

90 [1893] 1 QB 256, above, p 38.

91 Ibid, 269. Lindley LJ, ibid, 262, said such cases were either an exception to the rule or ones in which
acceptance need not precede the performance. See also Manchester Diocesan Council for Education v
Commercial & General Investments Ltd [1970] 1 WLR 241, 245.
92 Harvey v Johnston (1848) 6 CB 295, 304; Newcomb v De Roos (1859) 2 E & E 271. Cf Kennedy v Thomassen
[1929] 1 Ch 426; Restatement of the Law of Contracts (2d) para 56. But cf Rust v Abbey Life Assurance Co Ltd
[1978] 1 Lloyd’s Rep 386, 392 (offer to invest in property bond accepted by allocation of units; no need to
send policy to offeror).
46 formation of contract

decides to ascertain the information or to search for the dog.93 Indeed the offeree may
already have the information or have found the dog, and can do no more than send it
on to the offeror. The question as to whether it is the commencement of performance,
or its completion, that constitutes the acceptance of an offer of a unilateral contract is
discussed below in the context of revocation of the offer.94

(vi) Acceptance by post or telegram

A distinction is drawn between acceptance by instantaneous methods such as telex,
telephone, fax, and probably e-mail,95 and acceptance by non-instantaneous methods
such as post or telegram. Instantaneous methods, where the acceptor will generally
know that his communication has not arrived at once and can try again, are subject
to the general requirement that acceptance must be communicated to the offeror.96
Where, however, it is reasonable for the offeree to notify acceptance by post or
telegram,97 the acceptance is completed when the letter is posted98 or the telegram
handed in.99 The offeror is bound from that time although the acceptance has not been
delivered and may never be delivered.
The postal acceptance rule was laid down in Adams v Lindsell:100
On 2 September 1817, L wrote offering to sell to A a certain quantity of wool, and added
‘receiving your answer in course of post’. If the letter containing this offer had been properly
directed, an answer might have been received by the 7th; but it was misdirected and did not
reach A until the 5th so that their acceptance, posted the same day, was not received by L
until the 9th. On the 8th, however, that is before the acceptance had arrived, L sold the wool
to another. A sued for breach of contract.

It was argued on behalf of L that there was no contract between the parties until the
letter of acceptance was actually received. The Court replied:101
If that were so, no contract could ever be completed by post. For if [L] were not bound by
their offer when accepted by [A] until the answer was received, then [A] ought not to be
bound till they had received the notification that [L] had received their answer and assented
to it. And so it might go on ad infinitum.

93Carlill v Carbolic Smoke Ball Co, above, n 54, 270. 94 Below, p 54–55.
95For the view that the same rule should be applied to e-mails as for telex and fax, see Hill (2001) 17 JCL
151; Nolan in Burrows and Peel (eds), Contract Formation and Parties (2010) ch 4.
96 Entores v Miles Far East Corp [1955] 2 QB 327 (telex); Brinkibon Ltd v Stahag Stahl und
Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 (telex); JSC Zestafoni G Nikoladze Ferralloy Plant v Ronly
Holdings Ltd [2004] EWHC 245 (Comm), [2004] 2 Lloyd’s Rep 335 (fax).
97 Henthorn v Fraser [1892] 2 Ch 27, 33.
98 Dunlop v Higgins (1848) 1 HLC 381; Re Imperial Land Co of Marseilles (Harris’ Case) (1872) LR 7 Ch
App 587; Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216; Henthorn v
Fraser [1892] 2 Ch 27; Port Sudan Cotton Co v Govindaswamy Chettiar & Sons [1977] 2 Lloyd’s Rep 5.
99 Stevenson, Jacques & Co v McLean (1880) 5 QBD 346; Bruner v Moore [1904] 1 Ch 305, 316.
100 (1818) 1 B & Ald 681.
101 Ibid, 683. The ratio decidendi of the case is complicated by the assertion that the delay was caused by
the defendants’ negligence in misdirecting their offer. It would seem that the effect of such delay is to extend
the permissible period within which the offer may be accepted (see below, p 59) unless the offeree knows or
has reason to know of the delay: Restatement of the Law of Contracts (2d) para 51.
 the agreement 47

The logic of this passage is questionable, but it was undoubtedly necessary for the
Court to establish some definite rule as to the time of a postal acceptance.
One of the more obvious consequences of the postal acceptance rule is that the
offeror must bear the risk of the letter of acceptance being delayed or lost. In Household
Fire and Carriage Accident Insurance Co Ltd v Grant:102

The defendant offered to buy shares in the claimant company. The claimant sent a letter of
acceptance to the defendant but it was lost in the post and never arrived. The liquidator of
the company sued the defendant for the money owing for the shares.

The Court of Appeal held that, as an acceptance by post is valid when sent, there was a
contract under which the defendant was bound to pay for the shares.
Where, however, the delay or loss is due to the fault of the offeree, as in the case
of an acceptance which is improperly addressed or insufficiently stamped, it would
seem that it only takes effect if and when it is received by the offeror, provided that
this occurs within the time within which a regular acceptance would have been
received.103

(vii) Place of contracting

Whether the postal acceptance rule applies also determines where a contract is made.
If the means of communication is by letter or telegram, the contract is complete when
the letter is posted or the telegram is handed in,104 and it is there that the contract is
made. In other cases the general rule that the contract is made when and where the
acceptance is received applies.105

(viii) Rationale of postal rule

Various attempts have been made to justify the postal acceptance rule analytically.106
One line of reasoning attempts to eliminate any difficulties as to consensus by treating
the post office as the agent of the offeror not only for delivering the offer, but for
receiving the notification of its acceptance;107 yet the post office is clearly not an agent
to whom acceptance is or could be communicated. Another is based on the fact that
posting the acceptance puts it irretrievably out of the offeree’s control. The same can,
however, be said of communication by telex which is not completed until receipt108
so this does not explain why posting exceptionally constitutes an acceptance without
notification.

102 (1879) 4 Ex D 216.

103 Korbetis v Transgrain Shipping BV [2005] EWHC 1345 (QB). See also Getreide-Import-Gesellschaft
v Contimar SA Compania Commercial y Maritima [1953] 1 WLR 793; Restatement of the Law of Contracts
(2d) paras 67–8. 104 Cowan v O’Connor (1888) 20 QBD 640.
105 Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 approving
Entores v Miles Far East Corp [1955] 2 QB 327, where an offer by telex from Holland to London was held to
constitute a contract made in England.
106 Winfield (1939) 55 LQR 499; Nussbaum (1936) 36 Col L Rev 920.
107 Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216, 221; Hebb’s Case
(1867) LR 4 Eq 9, 12. 108 Entores v Miles Far East Corp [1955] 2 QB 327.
48 formation of contract

The better explanation would seem to be that the rule is based, not on logic, but
on commercial convenience.109 If hardship is caused, as it obviously may be, by the
delay or loss of a letter of acceptance, some rule is necessary, and the rule at which the
Courts have arrived is probably as satisfactory as any other would be.110
First, it is always open to the offeror to secure protection by requiring actual
notification of the acceptance.111 The nature of the offer or the circumstances in which
it was made may indicate that notification is required and Courts may be willing to
displace what has been termed an ‘artificial concept of communication’.112 Secondly,
the rule is a pragmatic way of limiting the power to revoke an offer before acceptance,113
even where the offeror has promised not to.114 It also prevents the offeree from being able
to nullify the acceptance while it is in transit and thus from speculating by watching
the market and deciding whether to send an overtaking rejection.115 Further, in the
event of delay or loss of the letter of acceptance, it is the offeror who is more likely to be
the first to enquire why no reply has been received to the offer, rather than the offeree
to enquire whether the acceptance has been received.
The rule has, however, been criticized.116 The number of different modes of
communication now available117 has been said to give rise to an increasing number of
problems of demarcation and it is argued that the law would be much more coherent if
there were only one rule for all means of communication. It has also been said that the
law should not, as the postal acceptance rule does, favour the offeree because, while
the offeror is in ignorance as to the actions of the offeree, the offeree has full knowledge
of what the position is. The offeree knows that the acceptance has been posted and
knows or ought to know that mail is not infrequently delayed.118 Nevertheless, the
ability of the offeror to control the method of acceptance, the offeror’s ability to revoke
even a ‘firm’ offer before acceptance119 and the desirability of preventing speculation
by the offeree are, it is suggested, good reasons for the rule. It is significant that the

109 Re Imperial Land Co of Marseilles (Harris’ Case) (1872) LR 7 Ch App 587, 594; Brinkibon Ltd v Stahag
Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34, 41, 48.
110 Winfield (1939) 55 LQR 499, 506. Th ree principal systems seem to be in operation in other countries:
(i) information: when the offeror is actually informed of the acceptance; (ii) expedition: when the offeree
despatches the letter of acceptance; and (iii) reception: when the acceptance is received at its destination,
whether the offeror is actually informed or not. See Evans (1966) 15 ICLQ 553. Under CISG arts 18(2), 24 and
21(2) the acceptance becomes effective at the moment the indication of assent is delivered at the address of
the offeror; if the letter is lost, there is no contract, but if it is delayed, there is normally a contract, unless the
offeror has promptly informed the offeree that he considers his offer as having lapsed.
111 Holwell Securities Ltd v Hughes [1974] 1 WLR 155.
112 Ibid, 157, 158, 161; New Hart Builders Ltd v Brindley [1975] Ch 342 (rule displaced where contracts
required ‘notice to . . .’ or ‘to notify’).
113 Re Imperial Land Co of Marseilles (Harris’ Case) (1872) LR 7 Ch App 587, 594.
114 Below, p 56. Nussbaum (1936) 36 Col L Rev 920, 922–7. The Scottish Law Commission, which rejects
the rule (Scot Law Com No 144 (1993) paras 4.4–4.7), does not consider this.
115 Below, p 52–53. See also Farnsworth, Contracts (2nd edn, 1990) 183.
116 eg by Gardner (1992) 12 OJLS 170; Scot Law Com No 144 (1993) paras 4.4–4.7.
117 Apart from telex, fax, e-mail and the various types of electronic document interchange, there are also
couriers, private messenger delivery, and document exchange services.
118 Scot Law Com Memorandum No 36 [1977] para 48, quoted in Scot Law Com No 144 (1993) para 4.5.
119 Below, p 56.
 the agreement 49

Scottish Law Commission’s proposal to abolish it was made together with a proposal
to prohibit the offeror from revoking a ‘firm’ offer.120
The rule may in any event not be as anomalous as it appears when compared only
with the rules governing instantaneous modes of communication. In a previous
edition of this work, it was argued that the principles governing postal acceptance
were merely examples of a wider principle that where the offeror either expressly or
impliedly indicates the mode of acceptance and this, as a means of communication,
proves to be nugatory or insufficient, he does so at his own risk.121 Suppose that A
sends an offer to B by messenger across a lake with a request that B, if she accepts, will
at a certain hour communicate her acceptance by firing a gun or lighting a fire. Why,
it was asked, should B suffer if a storm renders the gun inaudible or a fog obscures
the light of the fire? Although, as we have seen,122 this ‘risk’ approach does not apply
where instantaneous communication is concerned, it is suggested that it has validity
in cases where there is bound to be a substantial interval between the time when the
acceptance is sent and the time when it is received.123

(ix) Acceptance by silence

In principle, it is difficult to see how the silence or inaction of an offeree who fails to reply
to an offer can operate as an acceptance, for there will have been no communication
of the acceptance to the offeror. Even if the offeror has waived124 communication by
indicating that acceptance by silence will suffice, it is clear that the offeror cannot
confront the offeree with the alternative of either refusing the offer or being subjected
to a contractual obligation by reason of the failure to reply. Although a form or time of
acceptance may be prescribed, an offeror cannot prescribe the form or time of refusal
so as to impose a contract on the other party if the other party does not refuse in
some particular way or within some particular time.125 In Felthouse v Bindley, for
example:126
F offered by letter to buy his nephew’s horse for £30 15s, adding, ‘If I hear no more about
him I shall consider the horse mine at £30 15s’. No answer was returned to this letter, but the
nephew told B, an auctioneer, to keep the horse out of a sale of his farm stock, as he intended
to reserve it for his uncle F. B sold the horse by mistake, and F sued him for conversion of
his property.

The Court held that as the nephew had never signified to F his acceptance of the offer
before the auction sale took place, there was no bargain to pass the property in the
horse to F, and therefore he had no right to complain of the sale. Willes J said:127 ‘It

120 Prevention of speculation by the offeree, who unlike the offeror has full knowledge, does not appear
to have been considered by the Scottish Law Commission: Scot Law Com No 144 (1993) paras 4.4–4.7. See
also paras 3.10–3.14. 121 Anson (20th edn, 1952) 36.
122 Entores v Miles Far East Corporation [1955] 2 QB 327; Brinkibon Ltd v Stahag Stahl und
Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34, above, p 44.
123 Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34, 48.
124 See above, p 45. 125 Pollock, Principles of Contract (13th edn, 1950) 22.
126 (1862) 11 CBNS 869, aff ’d (1863) 7 LT 835. See also Allied Marine Transport Ltd v Vale do Rio Doce
Navegacao SA [1985] 1 WLR 925, 937. See further Miller (1972) 35 MLR 489. 127 Ibid, 875.
50 formation of contract

is clear that the uncle had no right to impose upon the nephew a sale of his horse
for £30 15s unless he chose to comply with the condition of writing to repudiate the
offer’.
In more modern times this same principle may be illustrated by the practice of
sending out unsolicited goods. A publisher may, for example, without previous order,
send a book to a prospective customer with a letter saying, in effect, ‘If you do not
return the book by a certain day, I shall presume that you have bought it’. It is clear that
he cannot by these means impose a contract on the unwilling recipient. But persons
with no knowledge of the law may well be misled into thinking that they are bound
to pay for the book, and the subsequent letters which they receive may frequently be
designed to foster this misapprehension. As a result, in 1971, the legislature enacted
the Unsolicited Goods and Services Act whereby the recipients of unsolicited goods
may, in certain circumstances, treat them as if they were an unconditional gift
to themselves, and suppliers may be guilty of a criminal offence if they demand or
threaten legal proceedings for payment.128
On the other hand, circumstances can arise where acceptance could more
legitimately be presumed from silence. Previous dealings between the parties may
have been conducted on the basis, for example, that orders for goods have been
fulfi lled by the seller without any notification of acceptance other than the despatch
of the goods, and the offeror has thereby been led to believe that the practice will
continue.129 It is even arguable by analogy with the cases we have noted on waiver
by the offeror of the need for communication of acceptance, that, if the offeror
stipulates that acceptance may be constituted by silence or inaction, an unequivocal
manifestation of an intention to accept on the part of the offeree (or, possibly,
detrimental reliance on the offer by the offeree),130 should bind the offeror. Th is,
however, would run counter to the decision in Felthouse v Bindley, where, it will be
noted, the nephew made known his intention to accept his uncle’s offer. No doubt, in
many cases, silence is ambiguous131 and therefore cannot constitute an acceptance.
But if, as in Felthouse v Bindley itself, the necessary intention to accept could be
proved, there seems to be no convincing reason why a contract should not come into
existence, particularly where the offeree has relied on the terms of the offer and it is
the offeror who now denies that there is a contract. More recent dicta support this.
Thus, it has been stated:132
[W]here the offeree himself indicates that an offer is to be taken as accepted if he does not
indicate to the contrary by an ascertainable time, he is undertaking to speak if he does not
want an agreement to be concluded. I see no reason in principle why that should not be an
exceptional circumstance such that the offer can be accepted by silence.

128 The Unsolicited Goods and Services Act 1971 has been amended, and partly replaced, by the Consumer
Protection (Distance Selling) Regulations 2000 (SI 2000 No 2334).
129 Restatement of the Law of Contracts (2d) para 72.
130 Cf Fairline Shipping Corp v Adamson [1975] QB 180; Schuldenfrei v Hilton (IT) [1999] STC 821, 831,
833. See also, below, p 116 (equitable estoppel). 131 Above, pp 31–32.
132 Re Selectmove Ltd [1995] 1 WLR 474, 478 (Peter Gibson LJ). See also Vitol SA v Norelf Ltd [1996] AC
800, 812.
 the agreement 51

(c) acceptor must have knowledge of offer

If A offers a promise for an act and B does the act in ignorance of the offer, can B claim
performance of the offer on becoming aware of its existence? As illustrated by the case
of cross-offers,133 the answer appears to be that, if B has not heard of the offer before
doing the act, it cannot be accepted.134 In Gibbons v Proctor,135 however, a Divisional
Court held that a police officer was entitled to claim a reward, offered by handbills, for
information given to a superintendent of police, although it seems the officer did not
know of the handbills before giving the information. The decision, as reported, is an
unsatisfactory one, for the facts of the case are by no means clear. Accordingly, it cannot
be considered as of compelling authority, and a New York case, Fitch v Snedaker,136 is
sometimes cited to the contrary. It was there laid down that a reward cannot be claimed
by one who did not know that it had been offered. The latter decision seems correct in
principle. A person who does an act for which a reward has been offered in ignorance
of the offer cannot say either that there was a consensus of wills with the offeror, or that
the act was done in return for or in reliance on the promise offered. If, however, the
acceptor knows of the offer, but is inspired to performance by a motive other than that
of claiming the reward, such a motive is immaterial. So in Williams v Carwardine137
where the claimant, with knowledge of the reward, supplied information leading to
the conviction of an assailant for murder, but only did this ‘to ease her conscience, and
in hopes of forgiveness hereafter’, she was held entitled to claim the £20 offered. Her
acceptance could be referred to the offer.

(d) prescribed mode of acceptance

If the terms or the circumstances of the offer do no more than suggest a mode of
acceptance, it seems that the offeree would not be bound to this mode so long as the
mode used was one which did not cause delay, and which brought the acceptance
to the knowledge of the offeror. A departure from the usual or suggested method of
communication would probably throw upon the offeree the risk that the acceptance
would be delayed, but, subject to this, an offer delivered by hand could be accepted
by post, or an offer made by post could be accepted by telegram or telex. Is, however,
an offeror who expressly prescribes the method of communication free to treat any
departure from this method as a nullity? In the American case, Eliason v Henshaw:138
E offered to buy flour from H, requesting that an answer should be sent to him at Harper’s
Ferry by the wagon which brought the offer. H sent a letter of acceptance by mail to

133 See Tinn v Hoff man & Co (1873) 29 LT 271, above, p 39.
134 Taylor v Allon [1966] 1 QB 304, 311; Tracomin SA v Anton C Nielsen [1984] 2 Lloyd’s Rep 195, 203.
135 (1891) 64 LT 594, 55 JP 616. Cf Neville v Kelly (1862) 12 CBNS 740. See Hudson (1968) 84 LQR 503.
136 (1868) 38 NY 248. See also Bloom v American Swiss Watch Co 1915 AD 100 (South Africa); R v Clarke
(1927) 40 CLR 227 (Australia); Restatement of the Law of Contracts (2d) para 51 and Comment a.
137 (1833) 4 B & Ad 621; the fact of her knowledge is disclosed by the report in (1833) 5 C & P 566; Lark v
Outhwaite [1991] 2 Lloyd’s Rep 132, 140. Cf R v Clarke (1927) 40 CLR 227. See Mitchell and Phillips (2002)
22 OJLS 115.
138 (1819) 4 Wheaton 225.
52 formation of contract

Georgetown, thinking that this would reach E more speedily. He was wrong, and the letter
arrived after the time that the reply might have been expected.

The Supreme Court of the United States held that E was entitled to refuse to
purchase:139
It is an undeniable principle of the law of contracts, that an offer of a bargain by one person to
another, imposes no obligation upon the former, until it is accepted by the latter, according
to the terms in which the offer was made. Any qualification of, or departure from, those
terms, invalidates the offer, unless the same be agreed to by the person who made it.

The same rule applies in English law: an offeror, who by the terms of the offer insists
upon its acceptance in a particular manner, is entitled to say that he is not bound
unless acceptance is effected or communicated in that precise way.140 Nevertheless,
if the stipulation as to the mode of acceptance is inserted at the instance of and for
the protection or benefit of the offeror, the offeror may by conduct or otherwise
waive strict compliance with it, provided that the offeree is not adversely affected.141
Moreover, unless as a matter of construction that prescribed mode of acceptance is
mandatory, another mode of acceptance which is no less advantageous to the offeror
will suffice.142

(e) revocation of the acceptance

Since the general rule is that acceptance is not complete until it has been communicated
to the offeror, it follows that an acceptance can be revoked at any time before this occurs,
provided, of course, that the revocation itself is communicated before the acceptance
arrives. But what is the position in relation to postal acceptances? Since the acceptance
is complete as soon as the letter of acceptance is posted, a telephone call or telegram
revoking the acceptance would be inoperative, though it reached the offeror before the
letter. This, it is argued, is both the logical and fair conclusion; otherwise the offeree
could blow both hot and cold, having the benefit of certainty in the postal acceptance,
and the opportunity to revoke it if the offer turned out suddenly to be disadvantageous.
On the other hand, it is contended that such a revocation can in no way prejudice the
offeror, who could not know of the acceptance until it arrived, by which time he would
already be aware of the revocation. There is no direct English authority on this point143
but it is probably the better view that the offeree cannot so revoke.144 If, for example,

139 Ibid, 228 (Washington J).

140 Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970] 1 WLR
241, 246. 141 Ibid; Carlyle Finance Ltd v Pallas Industrial Finance Ltd [1999] All ER (Comm) 659.
142 Tinn v Hoff man & Co (1873) 29 LT 271, 274, 278; Manchester Diocesan Council for Education v
Commercial & General Investments Ltd [1970] 1 WLR 241, 246; Restatement of the Law of Contracts (2d)
paras 29, 68; Winfield (1939) 55 LQR 499, 516.
143 In Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216, Bramwell LJ at
255 was of the opinion that the revocation would be effective. See also Dick v US 82 Fed Supp 326 (1949);
Ellison Kahn (1955) 72 SALJ 246, 257; Hudson (1966) 82 LQR 169.
144 In Countess of Dunmore v Alexander (1830) 9 S 190 (Scotland), Lord Craigie (dissenting) held that
an offeree could not revoke her acceptance, but the majority of the Court treated the case as one of the
revocation of an offer. See also Wenkheim v Arndt (1873) 1 JR 73 (NZ); Kinch v Bullard [1999] 1 WLR 423.
 the agreement 53

shares are offered on a fluctuating market, it would seem unfair if the offeree could
bind the offeror by a postal acceptance when the shares advanced in price, but send off
a revocation if the market fell. There is no reason why an offeree who chooses to accept
by post should have an opportunity of changing his mind which would not have been
available if the contract had been made face-to-face.
This solution should not, however, be operated to the detriment of the offeror. If the
offeror acts on the purported revocation, eg by selling the shares which are the subject-
matter of the offer, the offeree would not be permitted once again to change his mind and
rely on the postal acceptance rule in order to claim damages for breach of contract.

4. termination of the offer

Once the acceptance has been communicated to the offeror, it cannot be recalled or
undone. But until an offer is accepted, it creates no legal rights, and it may be terminated
at any time. Termination of the offer may come about in a number of ways: it may be
revoked before acceptance, or the offeree may reject the offer. Also, an offer may lapse
by the passage of time or be determined by the death of the offeror or offeree.

(a) revocation of the offer

The law relating to the revocation of an offer may be summed up in two rules: (1) an
offer may be revoked at any time before acceptance; and (2) an offer is made irrevocable
by acceptance.

(i) Revocable before acceptance

The first of these rules may be illustrated by the case of Offord v Davies:145
D made a written offer to O that, if he would discount bills for another firm, D would guarantee
the payment of such bills to the extent of £600 during a period of twelve calendar months.
Some bills were discounted by O, and duly paid, but before the twelve months had expired
D, the guarantor, revoked his offer and notified O that he would guarantee no more bills. O
continued to discount bills, some of which were not paid, and then sued D on the guarantee.

It was held that the revocation was a good defence to the action. The alleged guarantee
was an offer, for a period of 12 months, of promises for acts, of guarantees for discounts.
Each discount turned the offer into a promise, pro tanto, but the entire offer could at any
time be revoked except as regards discounts made before notice of revocation.

(ii) Irrevocable after acceptance

The rule that an offer is made irrevocable by acceptance is illustrated by Great Northern
Railway Co v Witham,146 which, like that in Offord v Davies, involved a continuing
relationship:

145 (1862) 12 CBNS 748; Scammell v Dicker [2001] 1 WLR 631.

146 (1873) LR 9 CP 16. Contrast Percival Ltd v LCC Asylums etc Committee (1918) 87 LJKB 677.
54 formation of contract

The GNR company advertised for tenders for the supply of such iron articles as it might
require between 1 November 1871, and 31 October 1872. W sent in a tender to supply the
articles required on certain terms and in such quantities as the company ‘might order from
time to time’, and his tender was accepted by the company. Orders were given and executed
for some time on the terms of the tender but finally W was given an order which he refused
to execute. The company sued him for breach of contract in that he had failed to perform
this order.

It is important to note the exact relationship of the parties. The company by advertisement
invited all dealers in iron to make tenders, that is, to state the terms of the offers which
they were prepared to make. W’s tender stated the terms of an offer which might be
accepted at any time, or any number of times, in the ensuing 12 months. The acceptance
of the tender did not in itself make a contract; it was merely an intimation by the company
that it regarded W’s tender as a standing offer, which on its part it would be willing to
accept as and when it required the articles to be supplied. Each fresh order constituted
an acceptance of this standing offer. If W wished to revoke his offer he could have done
so, but only as to the future; in the meantime he was bound to perform any order already
made. The Court therefore held that he was liable for breach of contract.

(iii) Unilateral contracts

Some difficulty is experienced in the case of ‘unilateral’ contracts, where an act is
done in return for a promise.147 If one person promises a certain sum to another on
performance by that other of a stipulated act, at what point in time is the acceptance
of the offer complete? The traditional answer to this question is that the acceptance is
complete only when the act has been completely performed. It therefore follows that
up to this time the offeror is at liberty to revoke the offer. If, for example, a firm of
breakfast food manufacturers were to offer to pay £100 to any person who consumed
one hundredweight of their breakfast food within the next three months, they would
be able to revoke their offer after two months had elapsed—to the detriment of those
who had almost completed their part of the bargain, and with profit to themselves. Or
to use a judicial example,148 if one man offers another £100 if he will go to York, he can
revoke when the other is half-way there.
In order to avoid such an inequitable result,149 Sir Frederick Pollock argued that a
distinction should be drawn between the acceptance of the offer and the performance
of the stipulated act: the acceptance is complete once the offeree has unequivocally
commenced performance (so that the offeror cannot effectively revoke the offer after
this time), but the offeror is not bound to pay the £100 until the act has been completely
performed.150 This view has some judicial support. In Errington v Errington,151 where

147 See above, p 30.

148 Rogers v Snow (1573) Dalison 94; GN Ry v Witham (1873) LR 9 CP 16, 19.
149 It has been contended that there is no injustice, since the offeree is not bound to go to York and may
give up at any time. The offeror, it is argued, ought to have a similar right to give up his side of the transaction:
Wormser (1916) 26 Yale LJ 136. Th is reasoning is not attractive.
150 Pollock, Principles of Contract (13th edn, 1950) 19; see also Offord v Davies (1862) 12 CBNS 748,
753; Law Revision Committee, Sixth Interim Report (Cmd 5449 1937) para 39; Restatement of the Law of
Contracts (2d) para 45; CISG art 16(2)(b). 151 [1952] 1 KB 290.
 the agreement 55

a father promised his son and daughter-in-law that a house in which they were living
should belong to them as soon as they had paid off the instalments of a mortgage
on the premises, and they commenced to pay them to his knowledge, Denning LJ
considered that this promise could not be revoked:152
The father’s promise was a unilateral contractual promise of the house in return for their
act of paying the instalments. It could not be revoked by him once the couple entered
on performance of the act, but it would cease to bind him if they left it incomplete and
unperformed.

On this view, the offeror is unable to revoke his offer; but his duty to perform his
obligation is conditional upon performance of the stipulated act by the offeree.
Denning LJ’s statement was approved by the Court of Appeal in Soulsbury v
Soulsbury:153
The deceased former husband of the claimant promised her that she would receive £100,000
on his death if she did not enforce an order for periodical payments in her favour against
him or seek any other order for ancillary relief against him. The question was whether that
constituted a binding contract that could be enforced by the claimant against the estate of
the deceased.

It was held that there was a binding contract. Although most discussion in the case
focused on dismissing policy objections to enforcing this contract (eg that it ousted the
jurisdiction of the Courts), Longmore LJ, with whom Smith LJ agreed, pointed out that
the facts involved a unilateral contract. Citing Denning LJ in Errington v Errington,
Longmore LJ said that there could be no revocation once the claimant had refrained
from suing for maintenance and that this was a stronger case than Errington because
here the claimant, on the deceased’s death, had completed all possible performance of
the act required for enforcement of the deceased’s promise.
To overcome the objection that the consideration for the promise (ie, what the offeror
has bargained for) is the completion rather than the starting of the performance, one
might argue that there is a subsidiary unilateral contract under which the offeror
promises not to revoke the offer of the main unilateral contract once the offeree has
started to perform.
It may well be, of course, that the nature of the offer itself, or the circumstances
under which it was made, indicate that it was never intended to be irrevocable
by the offeror.154 But otherwise it is submitted that English law will not deny the
offeree a remedy if the offer is revoked after the performance requested has been
commenced.

152 Ibid, 295. See also Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch 231, 239; Harvela Investments
Ltd v Royal Trust of Canada (CI) Ltd [1986] AC 207 (submitting bid in response to invitation to tender). For a
slightly different view, see Morrison Steamship Co Ltd v The Crown (1924) 20 Ll L R 283, 297: Viscount Cave
LC doubted whether a conditional offer was converted into a contract by commencement of performance
but went on to suggest, ‘when work is done and expense incurred on the faith of a conditional promise, the
promisor comes under an obligation not to revoke his promise, and if he does so he may be sued for damages
or on a quantum meruit’. On that view, it would appear that the claimant could not insist on completing
performance and claiming the promised sum. 153 [2007] EWCA Civ 969, [2008] Fam 1.
154 Luxor (Eastbourne) Ltd v Cooper [1941] AC 108.
56 formation of contract

(iv) ‘Firm’ offers

It will be noted that in Offord v Davies, discussed above, the mere fact that the defendants
promised to guarantee payment for 12 months did not preclude them from revoking
before that period had elapsed.155 It is a rule of English law that a promise to keep an
offer open needs consideration to make it binding. The offeree in such a case is said to
‘purchase an option’; that is, the offeror, in consideration usually of a money payment,
sometimes nominal,156 makes a separate contract not to revoke the offer during a
stated period. The position is similar where the offeree expressly or impliedly promises
to do or refrain from doing something in exchange for the offeror’s promise not to
revoke the offer. For example, the offeree may promise not to negotiate with anyone
else for a fi xed period.157 Again, a builder tendering for a construction contract may
have invited quotations for a fi xed period (ie firm offers) from electricity or carpentry
subcontractors and expressly or impliedly promised to use the figures contained in
those offers in its tender. In these cases the offeror by its promise precludes itself from
exercising its right to revoke the offer; but where it receives no consideration for keeping
the offer open, it says in effect, ‘You may accept within such and such a time, but this
limitation is entirely for my benefit, and I make no binding promise not to revoke my
offer in the meantime’. The Law Revision Committee recommended reform of the law
on firm offers so that ‘an agreement to keep an offer open for a definite period of time
or until the occurrence of some specified event shall not be unenforceable by reason of
the absence of consideration’.158 This has not been implemented.159
A firm offer may, moreover, also become irrevocable where the transaction can
be characterized as a unilateral contract and the offeree has relied on the offer by
embarking on performance of the specified act.160 We shall see that in its present
state of development English law does not recognize a general principle based on the
protection of reliance.161 Unless a unilateral contract can be found or the action in
reliance has been requested by the offeror and amounts to consideration, an offeree
who relies on a firm offer will not be protected by the law of contract. Similarly there
is unlikely to be a remedy in tort for revoking an offer that has been relied on162
but, where the offeree’s action in reliance consists in the rendering of services or the
delivery of goods, unless the offeree can be said to have taken the risk that the offer
might be withdrawn, as may well be the case in the context of tendering, the offeror
may be obliged by the law of unjust enrichment to pay a reasonable sum in respect of
the services or goods.163

155 Above, p 53. See also Dickinson v Dodds (1876) 2 Ch D 463, below, p 58; Routledge v Grant (1828) 4
Bing 653. 156 Mountford v Scott [1975] Ch 258. See further, below, pp 99–101.
157 Pitt v PHH Asset Management Ltd [1994] 1 WLR 327, 332, below, p 66 although this is probably better
explained as a unilateral contract.
158 Sixth Interim Report (Cmd 5449, 1937) para 38. CISG art 16(2) provides that an offer indicating that
it is irrevocable or one that has been relied on by the offeree cannot be revoked.
159 An offer in a deed is an exception to the general law on fi rm offers: Beesly v Hallwood Estates Ltd [1961]
Ch 105; Restatement of the Law of Contracts (2d) para 25, Comment c. 160 Above, pp 54–55.
161 See below, p 123 ff (the limits of equitable estoppel).
162 Holman Construction Ltd v Delta Timber Co Ltd [1972] NZLR 1081 (negligent pre-contractual
statement). 163 Above, pp 42–43.
 the agreement 57

(v) Revocation must be communicated

Revocation, as distinguished from lapse, if it is to be operative, must be communicated.
In the case of acceptance we have seen that, in certain circumstances, it is not necessary
that the acceptance should have actually come to the notice of the offeror; the posting
of a letter, the doing of an act, may constitute an acceptance and make a contract. A
revocation of an offer cannot, however, be communicated in the same way, by the
posting of a letter of revocation, or by the sale to A of an article offered to B to purchase
but must be brought to the notice of the offeree. The law on this subject was settled by
Byrne & Co v Leon Van Tienhoven & Co:164
VT, writing from Cardiff on 1 October, made an offer to B in New York asking for a reply by
cable. B received the letter on the 11th, and at once accepted in the manner requested. In the
meantime, however, VT had, on 8 October, posted a letter revoking the offer. This letter did
not reach B until the 20th.

Lindley J held, first, that a revocation was inoperative until communicated, and
secondly, that the revocation of an offer was not communicated by the mere posting
of a letter; therefore B’s acceptance on 11 October could not be affected by the fact that
VT’s letter of revocation was already on its way. He pointed out the inconvenience
which would result from any other conclusion:165
If [VT’s] contention were to prevail no person who had received an offer by post and had
accepted it would know his position until he had waited such a time as to be quite sure that a
letter withdrawing the offer had not been posted before his acceptance of it. It appears to me
that both legal principles, and practical convenience require that a person who has accepted
an offer not known to him to have been revoked, shall be in a position safely to act upon the
footing that the offer and acceptance constitute a contract binding on both parties.

It has been stated that a revocation must be ‘brought to the mind’ of the offeree166 but it
is submitted that where it arrives at its address it will be effective when it would, in the
ordinary course of business, have come to the offeree’s attention.167 Where the offeree
refrains from opening a letter or neglects to pay attention to the telex or fax machine168
it should, therefore, be effective on arrival. The requirement that a revocation be
communicated means that, in law, an offeror may be bound by an agreement which
it does not believe itself to have made; but, again, if one of the two parties must suffer,
there would seem no good reason why it should be the offeree rather than the offeror.

164 (1880) 5 CPD 344. See also Thomson v James (1855) 18 D 1 (Scotland); Stevenson v McLean (1880) 5
QBD 346; Henthorn v Fraser [1892] 2 Ch 27. But in Shuey v United States 92 US 73 (1875), where a reward was
offered in a newspaper, it was held that this offer could be ‘withdrawn through the same channel by which it
was made’, even though the revocation did not come to the notice of the offeree.
165 Ibid, 348.
166 Henthorn v Fraser [1892] 2 Ch 27, 32 (Lord Herschell). See also ibid, 37 (Kay LJ) (‘actual knowledge’,
‘actually received’).
167 Tenax SS Co Ltd v The Brimnes (Owners) [1975] 1 QB 929, 945, 966, 969 (revocation by telex). See also
CISG arts 16(1) and 24 (revocation effective if it ‘reaches’ the offeree’s place of business or mailing address
before he has dispatched an acceptance).
168 Ibid. But not where it arrives after or near the close of a working day and is not seen on that day; ibid,
970; Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34, 42.
58 formation of contract

The case of Dickinson v Dodds169 establishes that an offeree who knows that an offer
has been withdrawn cannot accept it even if the communication has not come from
the offeror:
On 10 June 1874, Dodds made a written offer to Dickinson to sell certain premises for £800,
and stating that this offer would remain open until 9 a.m. on 12 June. On the 11th, however,
he sold the property to a third person without notice to Dickinson. Dickinson had in fact
been informed of the sale, though not by anyone acting under the authority of Dodds.
Nevertheless before 9 a.m. on the 12th he purported to accept Dodds’ offer. He then brought
an action for specific performance of the contract.

The Court of Appeal held that there was no contract. James LJ, after stating that a
promise to keep the offer open could not be binding, and that at any moment before a
completed acceptance of the offer one party was as free as the other, went on to say:170
[I]n this case, beyond all question, the plaintiff knew that Dodds was no longer minded to
sell the property to him as plainly and clearly as if Dodds had told him in so many words, ‘I
withdraw the offer’.

Is it then the case that information of the offeror’s intention to revoke, from whatever
source it reaches the offeree, is good notice of revocation? The inconvenience might be
grave. Suppose a company receives an offer of a consignment of goods from a distant
correspondent, with liberty to reserve an answer for some days. In the meantime an
unauthorized person tells the offeree-company that the offeror has sold or promised the
goods to another. What is the offeree to do? The informant may be right, and then, if
the offeree accepts, the acceptance may be worthless. Or the informant may be a gossip
or mischief-maker and if, because of what the offeree has been told, it refrains from
accepting it may lose a bargain. The answer might be that it is open to an offeror, who has
revoked an offer without direct communication to the offeree, to show that the offeree
knew, from a trustworthy source, that the offer had been withdrawn.171 The Court would
have to decide every such case on the facts presented, but the onus would be upon the
offeror to establish that the information ought reasonably to have been believed.

(b) rejection of the offer

An offer will be held to have terminated once it has been rejected by the offeree.172 The
rejection need not be express, provided that the offeror is justified in inferring that the
offeree does not intend to accept the offer.173 It would seem, therefore, that a rejection
would not operate so as to destroy the power of acceptance until it comes to the notice
of the offeror:

169 (1876) 2 Ch D 463. 170 Ibid, 472; see also 474 (Mellish LJ).
171 Cartwright v Hoogstoel (1911) 105 LT 628; Restatement of the Law of Contracts (2d) para 42.
172 Hyde v Wrench (1840) 3 Beav 334 (counter-offer, constituting a rejection, terminates the offer); Trollope
& Colls Ltd v Atomic Power Constructions Ltd [1963] 1 WLR 333, 337 (counter-offer ‘kills’ the original offer).
Cf Stevenson, Jacques & Co v McLean (1880) 5 QBD 346. See above, pp 40–41.
173 Restatement of the Law of Contracts (2d) para 37. The position is similar in many European systems,
see, eg Germany, BGB para 146; Lando and Beale, Principles of European Contract Law (2000) 168.
 the agreement 59

Suppose that A makes an offer to B by letter. Immediately on receiving the letter B writes
a letter rejecting the offer. Before the rejection arrives, B changes her mind and telephones
her acceptance.

There would be a contract between A and B.174 It should not be supposed, however,
that an uncommunicated rejection would always be without effect. It would, in certain
circumstances, preclude the operation of the rule that a letter of acceptance is complete
when posted:
Suppose that C Ltd makes an offer to D. Immediately on receiving the offer D writes a
letter rejecting the offer. Before the rejection arrives, D changes his mind and posts a letter
accepting the offer.

Although there is no English authority on this point, it would not seem possible for D
to claim that the normal rule as to postal acceptance applied. The letter of acceptance
would only create an obligation if received by the offeror before the rejection.175

(c) lapse of the offer

An offer may be considered to have lapsed owing to the passing of time.

(i) Offer for a fi xed time

The parties may expressly fi x a time within which an offer is to remain open. Where
the offeror prescribes a specific time limit for acceptance, the offer is conditional upon
acceptance within that time.176 For example, ‘This offer to be left open until Friday,
9 a.m. 12 June’, allows the offeree to accept the offer, if unrevoked, at any time up to the
hour named, after which the offer would lapse.177 Similarly, an offer to supply goods
of a certain sort at a certain price for a year from the present date,178 or an offer to
guarantee the payment of any bills of exchange discounted for a third party for a year
from the present date,179 are offers which may be revoked at any time, except as regards
orders already given or bills already discounted, and which will, in any event, lapse at
the end of a year from the date of offer.

(ii) No fi xed time

In most cases, the offeror will not specify any particular time and it is left to the
Court, in the event of litigation, to say what is a reasonable time within which an offer
may be accepted. We have already seen that an offer is accepted when acceptance is
made in a manner prescribed or indicated by the offeror.180 If the circumstances of
the offer suggest that a reply is required urgently, the offer will be considered to have
lapsed if the offeree does not quickly decide whether to accept, or chooses a means

174 Winfield (1939) 55 LQR 499, 513; Restatement of the Law of Contracts (2d) para 39.
175 Restatement of the Law of Contracts (2d) para 39.
176 The offeror could nevertheless waive this condition, and treat the late acceptance as valid, provided he
did not thereby adversely affect the offeree.
177 Dickinson v Dodds (1876) 2 Ch D 463, above, p 58. 178 GN Ry v Witham (1873) LR 9 CP 16.
179 Offord v Davies (1862) 12 CBNS 748. 180 Above, p 51–52.
60 formation of contract

of communication which will delay the notification of the acceptance.181 In other

cases, the effluxion of a reasonable time will terminate the offer. An instance of this is
provided by Ramsgate Victoria Hotel Co v Montefiore:182
The defendant, M, offered by letter dated 8 June to purchase shares in the claimant company.
No answer was received by him until 23 November, when he was informed that shares were
allotted to him. He refused to accept them.

It was held that M’s offer had lapsed by reason of the delay of the company in notifying
its acceptance, and that he was not bound to accept the shares.

(iii) Express or implied condition

The terms of the offer may expressly indicate that its continuance is conditional
upon the existence of circumstances other than time; and a condition of this nature
may also be implied. For example, where the contract requires for its performance
the existence of a particular thing, and before acceptance the thing is destroyed or
substantially damaged, the offer is terminated unless the offeror has assumed the risk
of such mischance.183 Thus, in Financings Ltd v Stimson:184
S signed an ‘agreement’ whereby he undertook to buy a car on hire-purchase terms from F
company. The agreement contained a clause which stated that it was to become binding only
upon acceptance by signature on F’s behalf. Before F signed, the car was stolen by thieves. It
was subsequently recovered in a damaged condition.

It was clear that the ‘agreement’ was in fact only an offer by S since it contemplated
acceptance by F. The Court of Appeal held that S’s offer was only capable of acceptance
if the car remained in substantially the same condition as it was when the offer was
made. Since this was not the case, the offer had lapsed and there was no binding
contract.

(d) effect of death

In principle, an offeree cannot accept after being informed of the death of the offeror.185
An acceptance communicated to the offeror’s personal representatives will not bind
them, unless the offer is one which could not have been revoked by the offeror during
his lifetime.186 Where the offeree accepts in ignorance of the offeror’s death the position
is less clear. One view is that the offer is terminated automatically and that knowledge
is irrelevant.187 The alternative, and it is submitted better, view188 is that an offeree who

181 Quenerduaine v Cole (1883) 32 WR 185.

182 (1866) LR 1 Ex 109. See also Manchester Diocesan Council for Education v Commercial & General
Investments Ltd [1970] 1 WLR 241, 247–9; Chemco Leasing SpA v Rediff usion Ltd [1987] 1 FTLR 201.
183 Restatement of the Law of Contracts (2d) para 266. 184 [1962] 1 WLR 1184.
185 Coulthart v Clementson (1870) 5 QBD 42.
186 Errington v Errington [1952] 1 KB 290, 295. Even in this case, death may terminate the offer where it is
dependent on the personality of the offeror.
187 Dickinson v Dodds (1876) 2 Ch D 463, 475; Restatement of the Law of Contracts (2d) para 48.
188 Bradbury v Morgan (1862) 1 H & C 249, often said to support this, was in fact a case where a contract
had been concluded before death.
 the agreement 61

does not know of the offeror’s death should be entitled to accept the offer, unless the
offer on its true construction indicates the contrary,189 eg where the offer is personal
to the offeror.
It would seem that an offer is determined by the death of the offeree;190 his personal
representatives could not accept the offer on behalf of the offeree’s estate.

5. uncertain and incomplete agreements

Although the parties may have reached agreement in the sense that the requirements
of offer and acceptance have been complied with, there may be no contract because
the terms of the agreement are uncertain or because the agreement is qualified by
reference to the need for a future agreement between them. For ‘unless all the material
terms of the contract are agreed there is no binding obligation. An agreement to agree
in future is not a contract; nor is there a contract if a material term is neither settled
nor implied by law and the document contains no machinery for ascertaining it’.191
The terms of a contract must provide a basis for determining the existence
of a breach and for giving an appropriate remedy.192 Nevertheless, as we shall see,
although there are differences of approach in the cases, the law is generally anxious
to uphold the contract wherever possible lest it should be criticized as the destroyer of
bargains.193 In addition, where uncertainty or incompleteness prevent an agreement
from constituting a contract the factual situation may give rise to liability in tort, for
instance for misrepresentation,194 or in the law of unjust enrichment in respect of
benefits received.195

(a) certainty of terms

The law requires the parties to make their own contract; it will not construct a contract
for them out of terms which are indefinite or unsettled. A vague or uncertain promise
does not accordingly give rise to an enforceable contract. Thus:
C agreed to sell land to D. The agreement provided that the price was to be paid by instalments
and that on each payment ‘a proportionate part’ of the land was to be conveyed. It was held
that, since the part to be conveyed on each occasion could not be identified, the agreement
as a whole was uncertain and unenforceable.196

189 Harris v Fawcett (1873) LR 8 Ch App 866, 869; Coulthart v Clementson (1870) 5 QBD 42, 46.
190 Re Cheshire Banking Co (Duff ’s Executor’s Case) (1886) 32 Ch D 301; Reynolds v Atherton (1921) 125 LT
690, 695, but see (1922) 127 LT 189, 191; Somerville v National Coal Board 1963 SLT 334 (Scotland).
191 Foley v Classique Coaches Ltd [1934] 2 KB 1, 13 (Maugham LJ).
192 Restatement of the Law of Contracts (2d) para 33(2). See also Lando and Beale, Principles of European
Contract Law (2000) 146, art 2:103.
193 Hillas v Arcos (1932) 147 LT 503, 512 (Lord Tomlin). 194 Below, pp 65 and 320–325.
195 Below, pp 64, 68.
196 Bushwell Properties Ltd v Vortex Properties Ltd [1976] 1 WLR 591. See also Montreal Gas Co v Vasey
[1900] AC 595; Jacques v Lloyd D George & Partners [1968] 1 WLR 625; Stabilad Ltd v Stephens & Carter Ltd
(No 2) [1999] 2 All ER (Comm) 651 (performance left to discretion of promisor).
62 formation of contract

Similarly when a van was to be bought on the understanding that part of the price
should be paid on ‘hire-purchase’ terms,197 and when woollen goods were to be bought
‘subject to war clause’,198 there was no contract in either case, for ‘hire-purchase’ terms,
and ‘war clauses’ may take many forms, and it is for the parties, and not for the Court,
to define them.
On the other hand, in many transactions, particularly those for future performance
over a period, the parties may neither be able nor desire to specify all matters. A
transaction which at first sight seems to leave some essential term of the bargain
undetermined may, by implication, if not expressly, provide some method of
determination other than a future agreement between the parties. In that event, since
it is a maxim of the law that that is certain which can be made certain, there will be a
good contract.199 In every case the function of the Court is to put a fair construction
on what the parties have said and done, though the task is often a difficult one. As Lord
Wright stated:200
Business men often record the most important agreements in crude and summary fashion;
modes of expression sufficient and clear to them in the course of their business may appear
to those unfamiliar with the business far from complete or precise. It is accordingly the duty
of the Court to construe such documents fairly and broadly, without being too astute or
subtle in finding defects; but, on the contrary, the Court should seek to apply the old maxim
of English law, verba ita sunt intelligenda ut res magis valeat quam pereat.201

The line between discovering the agreement of the parties and imposing an agreement
on the basis of what the Court considers the parties ought to have intended can be fine.
The Court must be satisfied that the parties have in fact concluded a contract, and not
merely expressed willingness to contract in the future. It may have regard to what has
been said and done, the context in which it was said or done, the relative importance of
the unsettled matter, and whether the parties have provided machinery for settling it.
If the contract contains an indefinite, but subsidiary provision, the Courts have felt
at liberty to strike it out as being without significance, and to give effect to the rest of
the contract without the meaningless term.202

(i) Previous transactions; trade custom

In Hillas & Co v Arcos Ltd 203 the terms were ascertained from previous transactions
between the same parties and the custom of the particular trade:
In 1930, H agreed to buy from A a quantity of Russian soft wood timber ‘of fair specification’.
The contract contained a clause giving to H an option to purchase further timber in 1931,

197 G Scammell & Nephews Ltd v Ouston [1941] AC 251.

198 Bishop & Baxter v Anglo-Eastern Trading Co and Industrial Ltd [1944] KB 12; British Electrical and
Associated Industries (Cardiff ) Ltd v Patley Pressings Ltd [1953] 1 WLR 280.
199 Id certum est quod certum reddi potest. See Scammell v Dicker [2005] EWCA Civ 405, [2005] 3 All
ER 838 distinguishing Scammell v Ouston [1941] AC 251. See generally Fridman (1960) 76 LQR 521; Samek
(1970) 47 Can Bar Rev 203. 200 Hillas & Co v Arcos Ltd (1932) 147 LT 503, 514.
201 ‘Words are to be interpreted so as to give effect to the subject matter rather than to defeat it.’
202 Nicolene Ltd v Simmonds [1953] 1 QB 543. See also Adamastos Shipping Co Ltd v Anglo-Saxon
Petroleum Co Ltd [1959] AC 133; Whitlock v Brew (1968) 118 CLR 445 (Australia).
203 (1932) 147 LT 503.
 the agreement 63

but the option gave no particulars as to the kind or size or quality of the timber, nor of the
manner of shipment. When H sought to exercise the option, A pleaded that the clause was
too indeterminate and uncertain to indicate an unequivocal intention to be bound, and that
it was merely an agreement to negotiate a future agreement.

The House of Lords held that, in the light of the previous dealings between the parties,
there was a sufficient intention to be bound: the terms left uncertain in the option
could be ascertained by reference to those contained in the original contract and from
the normal practice of the timber trade.204

(ii) The standard of reasonableness

Alternatively, where the intention to buy and to sell is clear, incidents of the transaction
may be determined by the standard of reasonableness, or by rules of law. Thus, in
Hillas v Arcos the phrase ‘of fair specification’ was held to mean timber distributed
over kinds, qualities, and sizes in fair proportions having regard to the season’s
output, a matter which, if the parties failed to agree, could be ascertained by the Court
determining what was reasonable.205 Similar principles apply to standards provided
in the agreement such as ‘market value’206 ‘open market value’,207 and that hire shall
be ‘equitably decreased’. 208 In the case of price, in transactions for the sale of goods or
the supply of services the matter is now governed by statute. By the Sale of Goods Act
1979, s 8:209
(1) The price in a contract of sale may be fi xed by the contract, or may be left to be fi xed
in a manner agreed by the contract, or may be determined by the course of dealing
between the parties.
(2) Where the price is not determined as mentioned in subsection (1) above the buyer
must pay a reasonable price.

In such cases, the Court will allow an action to recover a reasonable sum for what
the goods or services are worth.210
It has been held that s 8(2) provides for silence as to the price, and will not apply where
an agreement states that the parties will subsequently agree the price to be paid.211

204 On the terms implied by trade custom see further, below, pp 157–159.
205 (1932) 147 LT 503, 512, 513, 516. See also Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil
Refinery AD [2001] 2 Lloyd’s Rep 76, 91 (reasonable fees for services). Cf Baird Textile Holdings Ltd v Marks
& Spencer plc [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737 (no long-term contract to be supplied
with garments because of lack of certainty consequent on there being no objective criteria by which the
Court could assess what would be reasonable for the purchaser to acquire either as to quantity or price). See
similarly Durham Tees Valley Airport Ltd v Bmibaby Ltd [2009] EWHC 852 (Ch), [2009] 2 Lloyd’s Rep 246
(long-term obligation to fly two planes from an airport held to be too uncertain).
206 Brown v Gould [1972] Ch 53. 207 Gillatt v Sky Television Ltd [2000] 1 All ER (Comm) 46.
208 Didymi Corp v Atlantic Lines and Navigation Co Ltd [1988] 2 Lloyd’s Rep 108.
209 See also Supply of Goods and Services Act 1982, s 15(1). Cf CISG art 55 (‘current trade price’).
210 British Bank for Foreign Trade Ltd v Novinex [1949] 1 KB 623; Powell v Braun [1954] 1 WLR 401
(executed transactions); Hondly v M’Laine (1834) 10 Bing 482 (executory transaction).
211 May & Butcher v R [1934] 2 KB 17n; King’s Motors (Oxford) Ltd v Lax [1970] 1 WLR 426; Smith v
Morgan [1971] 1 WLR 803. For forceful criticism of May & Butcher v R, see Fletcher Challenge Energy Ltd v
Electricity Corp of New Zealand Ltd [2002] 2 NZLR 433, 466–7.
64 formation of contract

(iii) Executed transactions

The Court will also have regard to what has been done by the parties. Where a
transaction has been wholly or partially performed it will be:
difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact
that the transaction is executed makes it easier to imply a term resolving any uncertainty,
or, alternatively, it may make it possible to treat a matter not finalised in negotiations as
inessential.212

In the case of executed transactions, the basis of liability is not, however, always
contractual. In some cases the objective test of intention213 may mean that a contract
comes into existence as a result of the performance and liability can be characterized
as consensual.214 In others, however, as noted in the context of ‘the battle of the
forms’,215 no contractual analysis is possible and, where it is held that there is liability,
it is imposed by the Court in the form of an obligation in the law of unjust enrichment
to pay a reasonable sum for the work done or the goods received.216 In determining
whether to give a restitutionary remedy, considerations of ‘risk’ and ‘fault’ in relation
to the reason the transaction fails to come to fruition as a contract are taken into
account so that a person who is held to have taken the risk of the transaction failing
or to have been responsible for this will not be entitled to recompense for the services
rendered.217

(iv) Machinery for ascertainment

A contract will not fail for uncertainty even though a material term is to be agreed in
future if the contract itself provides machinery for ascertaining it. So, for example,
if the contract provides that the parties are to agree a price or quantities for delivery,
but also contains an arbitration clause which covers a failure to agree the price or the
quantities, the Courts will imply that, in default of agreement, a reasonable price is to
be paid, such price to be determined by arbitration.218 Moreover, in the case of a lease,
if premises are let to a tenant for (say) a term of 10 years at a fi xed rent for the first five
years, but at a rent ‘to be agreed’ thereafter, the Court will itself determine by inquiry
what is a reasonable rent for the premises should the parties fail to agree.219 Unless the

212 G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25, 27 (Steyn LJ). See also F & G Sykes
(Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53, 57–8; Foley v Classique Coaches Ltd [1934] 2 KB 1.
213 Above, p 32.
214 Foley v Classique Coaches Ltd [1934] 2 KB 1; Way v Latilla [1937] 3 All ER 759. But cf ibid, 764–5; RTS
Flexible Systems Ltd v Molerei Alois Muller GmbH & Co KG [2010] UKSC 14, [2010] 1 WLR 753 at [45]–[56].
215 Above, p 42–43.
216 British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, 511 in the context of
goods delivered under a letter of intent, below, p 68. Birks, An Introduction to the Law of Restitution (1985)
271–2 explains Way v Latilla [1937] 3 All ER 759 in this way and see ibid, 764–5. Cf Dietrich [2001] LS 153.
217 Jennings & Chapman Ltd v Woodman, Matthews & Co [1952] 2 TLR 409; William Lacey (Hounslow)
Ltd v Davis [1957] 1 WLR 932; Regalian Properties plc v London Dockland Development Corp [1995] 1 WLR
212; Countrywide Communications Ltd v ICL Pathway [2000] CLC 324.
218 Foley v Classique Coaches Ltd [1934] 2 KB 1; F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1
Lloyd’s Rep 53; Vosper Thornycroft Ltd v Ministry of Defence [1976] 1 Lloyd’s Rep 58; Queensland Electricity
Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205, 210.
219 Beer v Bowden [1981] 1 WLR 522.
 the agreement 65

machinery is held to be an essential part of the agreement,220 the Court will similarly
intervene if, for any reason, its operation is stultified, for example, by the refusal of one
of the parties to appoint a valuer or an arbitrator.221

(v) Agreements to negotiate and not to negotiate

The position of agreements to negotiate and agreements not to negotiate was considered
by the House of Lords in Walford v Miles:222
On 17 March M agreed that, provided that W’s bank confirmed that W had the necessary
financial resources to purchase M’s photographic processing business for £2 million, they
would ‘break off any negotiations with any third party and would not consider any other
alternative and would not accept a better offer but would deal exclusively with W, with a view
to concluding the deal as soon as possible after April 6’. M continued to keep in touch with
another interested party and on 27 March withdrew from the negotiations with W. M later sold
the business to the third party. W sued for breach of contract and for misrepresentation.

It was found that M had represented that they were not in negotiation with the other
interested party and W were awarded tortious damages for misrepresentation.223 The
contractual claims, however, failed.
It was held that an agreement to negotiate (a ‘lock-in’ agreement) is like an agreement
to agree and is unenforceable ‘simply because it lacks the necessary certainty’.224 Two
reasons have been given in the cases for this conclusion. First, in Walford v Miles, Lord
Ackner asked how the Court is to police such an agreement and questioned whether it is
possible to tell whether it has been breached:225 ‘How can a court be expected to decide
whether, subjectively, a proper reason existed for the termination of negotiations?’. The
position of parties in negotiations was stated to be adversarial and to entitle them to
pursue their own interests so long as they avoided making misrepresentations and, if
they so wished, to withdraw from the negotiations at any time and for any reason. It
was said not to be possible to cure this uncertainty by asking whether the negotiations
have been conducted ‘in good faith’ because a duty to negotiate in good faith ‘is as
unworkable in practice as it is inherently inconsistent with the position of a negotiating
party’. Secondly, it has been said that ‘no court could estimate the damages because no
one can tell whether the negotiations would be successful or would fall through: or if
successful, what the result would be’.226

220 As in Gillatt v Sky Television Ltd [2000] 1 All ER (Comm) 46.

221 Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444. 222 [1992] 2 AC 128.
223 These amounted to £700 and were in respect of the expenses of the negotiation and the preparation of
the contract documents: [1992] 2 AC 128, 135. On damages for misrepresentation, see below, pp 320–325.
224 [1992] 2 AC 128, 138. See also Courtney & Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297;
Mallozzi v Carapelli SpA [1976] 1 Lloyd’s Rep 407. Cf Hillas v Arcos (1932) 147 LT 503, 515 (Lord Wright).
225 [1992] 2 AC 128, 138. As Millett LJ explained in Little v Courage (1995) P & CR 469, 475, Lord Ackner’s
reference to an agreement to use ‘best endeavours’ being different and sufficiently certain must be read as
referring to best or reasonable endeavours to achieve a result other than the conclusion of a contract with the
other party. There is no real difference between an agreement to negotiate in good faith and an agreement
to use best or reasonable endeavours to agree. For a decision that an obligation to use best or reasonable
endeavours to negotiate is too uncertain, see Multiplex Constructions UK Ltd v Cleveland Bridge UK Ltd
[2006] EWHC 1341 (TCC), (2007) 107 Con LR 1.
226 Courtney & Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297, 301 (Lord Denning MR).
66 formation of contract

There are, however, difficulties with those reasons and with this aspect of the decision
in Walford v Miles.227 First, it is unlikely to give effect to the reasonable expectations of
business people which it is an important object of the law of contract to facilitate.228 It
appears to require a higher degree of certainty and less willingness to use the standard
of reasonableness to resolve ambiguity than some of the cases considered above.
Secondly, it is not the case that it is a fundamental attribute of a negotiation that the
parties should have absolute freedom to walk away from it for any reason or no reason
at all. Thirdly, the objection that it would not be possible to assess damages is also
open to question. As will be seen, in other contexts in which the transaction contains
a large amount of chance, it has been possible to assess damages and the Court has not
held that there is no contract.229 It is unfortunate that Lord Wright’s dictum in Hillas v
Arcos,230 which recognized a contract to negotiate, has now been rejected by the House
of Lords.
An agreement not to negotiate with any third party, a ‘lock-out’ agreement, has
been held not to be enforceable where, as in Walford v Miles, it does not specify a time
limit for its duration apparently on the ground that it would impose indirectly a duty
to negotiate in good faith which, for the reasons given above, could not be a contract.231
But it was accepted in Walford v Miles that such an agreement is sufficiently certain if
it is limited to a fi xed period.232 The distinction between these two types of ‘lock-out’
agreement is difficult to justify. It is submitted that neither indirectly imposes a duty
to negotiate in good faith, since the obligation is a negative one and that it should have
been possible to resolve the uncertainty of there being no fi xed period by applying the
standard of a reasonable period.233

(b) incomplete agreement

The parties may agree on certain points, but nevertheless leave other points unresolved.
The question then arises whether or not their agreement is complete. Difficulties
of interpretation most frequently arise where a contract has to be made out of a

227 For persuasive criticism of Walford v Miles, see Neill (1992) 108 LQR 405; Berg (2003) 119 LQR 357; Peel
in Burrows and Peel (eds), Contract Formation and Parties (2010) ch 3. In Petromec Inc v Petroleo Brasileiro
SA Petrobas [2005] EWCA Civ 891, [2006] 1 Lloyd’s Rep 161 at [121] Longmore LJ suggested in obiter dicta
that it would be a strong thing to declare unenforceable an express clause to negotiate in good faith. Note
also that in Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205,
209–10 (PC) an obligation to make reasonable endeavours to agree was implied; and in Re Debtors (Nos 4449
and 4450 of 1998) [1999] 1 All ER (Comm) 149, 157–8 an obligation to negotiate in good faith was imposed
on Lloyds as it was performing functions in the public interest.
228 FP (1932) 48 LQR 141; Davenport (1991) 107 LQR 366; Lord Steyn (1997) 113 LQR 433.
229 Allied Maples Group v Simmons & Simmons [1995] 1 WLR 1602, 1620 and below, p 535.
230 (1932) 147 LT 503, 515. A majority of the New South Wales Court of Appeal has rejected the view that
every promise to negotiate in good faith is unenforceable: Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
(1991) 24 NSWLR 1, 26. In the USA the majority view gives contractual effect to an agreement to negotiate:
Farnsworth (1987) 87 Colum L Rev 217, 265–7. 231 Walford v Miles [1992] 2 AC 128, 140.
232 For an example, see Pitt v PHH Asset Management Ltd [1994] 1 WLR 327.
233 Neill (1992) 108 LQR 405, 413. Bingham LJ, dissenting in the Court of Appeal, was of this view: (1990)
62 P & CR 410. The agreement provided a standard in stating that the transaction was to be concluded as
soon as possible after 6 April: [1990] 1 EGLR 212.
 the agreement 67

correspondence involving lengthy negotiations. The parties discuss terms, approach,

and recede from an agreement; proposals are made and met by the suggestion of fresh
terms; finally there is a difference, and one of the parties asserts that a contract has been
made, and the other that matters have never gone beyond the discussion of terms. Where
such a correspondence appears to result, at any moment of its course, in an agreement,
it is necessary to ask whether this agreement amounts to a completed agreement, or
whether there are other terms of the intended contract, beyond and besides those
expressed in the agreement, which are still in a state of negotiation only, and without
the settlement of which the parties have no idea of concluding any contract.234 Where,
however, the correspondence shows that the parties have definitely come to terms, even
though certain material points may still be left open, a subsequent revival of negotiations
cannot, except with the consent of both parties, affect the contract so made.235

(i) Effect of reference to further agreement

The classic statement of the issues involved in cases where the agreement is couched
in general terms, but reference is made to a contract in which the intentions of the
parties may be more precisely stated, is to be found in the judgment of Parker J in Von
Hatzfeldt-Wildenburg v Alexander:236
If the documents or letters relied on as constituting a contract contemplate the execution of
a further contract between the parties, it is a question of construction whether the execution
of the further contract is a condition or term of the bargain or whether it is a mere expression
of the desire of the parties as to the manner in which the transaction already agreed to will
in fact go through. In the former case there is no enforceable contract either because the
condition is unfulfi lled or because the law does not recognize a contract to enter into a
contract. In the latter case there is a binding contract and the reference to the more formal
document may be ignored.

(ii) Letters of intent

Difficulties frequently arise where parties in negotiations reach ‘points of agreement’
or have a ‘memorandum of understanding’ or exchange ‘letters of intent’ or ‘letters
of comfort’, but nevertheless contemplate that a formal document is later to be
drawn up.237 In such situations the question whether or not a binding contract has
been concluded is a matter of interpretation for the Court. While such a letter can
have contractual effect where it contains an express promise as to future conduct,238
the Court may be unwilling to imply such a promise from a statement of present
fact because the language is often vague or equivocal or because the surrounding

234 Hussey v Horne Payne (1879) 4 App Cas 311.

235 Perry v Suffields Ltd [1916] 2 Ch 187; Mitsui Babcock Energy Ltd v John Brown Engineering Ltd (1996)
51 Con LR 129, 167, 175, 179.
236 [1912] 1 Ch 284, 288.
237 See, generally, Mouzat and Furmston [2008] CLJ 37; Furmston (2009) JCL 95; Furmston in Burrows
and Peel (eds), Contract Formation and Parties (2010) ch 2.
238 Chemco Leasing SpA v Rediff usion [1987] 1 FTLR 201 (comfort letter an offer but lapsed before
acceptance). See also Staughton J’s judgment quoted in Kleinwort Benson Ltd v Malaysia Mining Corp Bdh
[1988] 1 WLR 799, 805–6.
68 formation of contract

circumstances, including previous negotiations, indicate that all that is assumed is a

moral responsibility.239
The position may be even further complicated by the fact that the parties often act on
their informal agreement pending the execution of a formal contract. Where a formal
contract is eventually concluded, the Court may be prepared to imply a term that, although
the informal agreement is not legally binding, the formal contract is to have retrospective
effect. It will, in consequence, apply to work done and services rendered before it was
made.240 Where no formal contract is concluded, work done or goods delivered under
a letter of intent which is not legally binding may give rise to an obligation in the law of
unjust enrichment to pay a reasonable sum for the work or the goods.241

(iii) Agreement ‘subject to contract’

The initial agreement for the sale or lease of land is usually entered into ‘subject to
contract’ or ‘subject to formal contract’. Such an agreement gives rise to no contractual
liability.242 Thus in Winn v Bull:243
A written agreement was drawn up whereby the defendant agreed to take a lease of a house
for a definite period and at a fi xed rent, but ‘subject to the preparation and approval of a
formal contract’.

It was held there was no contract. Jessel MR explained:244

It comes, therefore, to this, that where you have a proposal or agreement made in writing
expressed to be subject to a formal contract being prepared, it means what it says; it is subject
to and is dependent upon a formal contract being prepared.

The insertion of the words ‘subject to contract’ renders the agreement nugatory
in fact, and this is so notwithstanding that a deposit may have been paid.245 As a
normal rule, a binding contract for the sale of land will come into existence only
when a formal ‘exchange of contracts’ contained in writing signed by or on behalf
of each party 246 has taken place.247 Up to this time either party is free to renegotiate

239 Kleinwort Benson Ltd v Malaysia Mining Corp Bdh [1989] 1 WLR 379, 388, 391, 393 (letter of comfort
not legally binding because it expressed the present policy of the company rather than containing a promise);
Associated British Ports v Ferryways NV [2009] EWCA Civ 189, [2009] 1 Lloyd’s Rep 595 at [24] per Maurice
Kay LJ: ‘I regard a letter of comfort, properly so called, as one that does not give rise to contractual liability’.
Cf Wilson Smithett & Cape (Sugar) Ltd v Bangladesh Sugar Industries Ltd [1986] 1 Lloyd’s Rep 378 (letter of
intent for the supply of sugar specifying amount, price, and shipping details held to be an acceptance).
240 Trollope & Colls Ltd v Atomic Power Construction Ltd [1963] 1 WLR 333. See Ball (1983) 99 LQR 572.
241 British Steel Corp v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504. See above, p 64.
242 See Law Com No 65, ‘Subject to Contract’ Agreements (1975) and Law Com No 164, Formalities for
Contracts for Sale etc of Land (1987) paras 1.4, 4.15.
243 (1877) 7 Ch D 29. See also Galliard Homes Ltd v J Jarvis & Sons plc (1999) 71 Con LR 219, 235–6, 243.
244 Ibid, 32.
245 Coope v Ridout [1921] 1 Ch 291; Chillingworth v Esche [1924] 1 Ch 97; Eccles v Bryant and Pollock
[1948] Ch 93; Tiverton Estates Ltd v Wearwell Ltd [1975] Ch 146.
246 Law of Property (Miscellaneous Provisions) Act 1989, s 2, on which see below, p 84.
247 Cf Alpenstow Ltd v Regalian Properties Ltd [1985] 1 WLR 721 (an agreement ‘subject to contract’
drawn up by a lawyer after five months of negotiation containing detailed and mandatory provisions of
the approval, amendment, and exchange of contracts was very exceptionally held binding). In A-G of Hong
Kong v Humphreys Estates (Queens Gardens) Ltd [1987] 1 AC 114, 127–8, the possibility (said to be unlikely)
 the agreement 69

the price, or even to withdraw entirely from the transaction and to do so because
of movements in the value of property. The express use of the words ‘subject to
contract’ has also been held to preclude a claim in the law of restitution for expenses
incurred in respect of the intended contract; the use of those words was said to
mean that the parties had in effect expressly agreed that there should be no legal
obligation by either party to the other unless and until a formal contract had been
entered into.248 But in other cases, restitutionary remedies for the return of money
paid 249 or for the value of work done under anticipated contracts concerning land
have been granted.250
On the other hand, an agreement for the sale or lease of land will be binding if the
terms of the further formal contract are in existence and known to the parties, and not
merely in contemplation. For example:
An offer was made to buy land, and ‘if offer accepted, to pay deposit and sign contract on the
auction particulars’; this was accepted, ‘subject to contract as agreed’. The acceptance clearly
embodied the terms of the contract mentioned in the offer, and constituted a complete
contract.251

Further, it has been held that if the parties use the phrase ‘a provisional agreement’,
they then agree to be bound from the beginning, even though they stipulate that a
formal document is to be drawn up later on.252

(iv) Contracts subject to condition

There are situations which at first sight appear to be cases of incomplete agreement,
but really turn out to be cases where there is an immediate binding contract, although
some of the parties’ rights and obligations may be dependent upon the happening of
a particular event.253 For example, the agreement may contain such a term as ‘subject
to the purchaser’s solicitors approving the title’. Until this approval is given, the
contract need not be implemented, although neither party is free to withdraw from
it unilaterally. Alternatively, the contract may be fully operative at once, but upon
the happening of a particular event it is thereby discharged.254 The insertion of such
conditions produces a quite different effect from a reservation like ‘subject to contract’
which prevents the formation of any contract at all. They are dealt with in Chapter 5,
The Terms of the Contract.255

of the parties being estopped from refusing to proceed was accepted. See also Akiens v Saloman (1992) 65 P
& CR 364, 370.
248 Regalian Properties plc v London Dockland Development Corp [1995] 1 WLR 212, 225.
249 Chillingworth v Esche [1924] 1 Ch 97 (restitution of deposit).
250 Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1752 (quantum meruit
for value of work done in obtaining planning permission in respect of an anticipated contract/agreement
‘subject to contract’).
251 Filby v Hounsell [1896] 2 Ch 737; Rossiter v Miller (1878) 3 App Cas 1124.
252 Branca v Cobarro [1947] KB 854. See also Damon Comp Nav SA v Hapag-Lloyd International SA [1985]
1 WLR 434, 443, 452; Global Container Lines Ltd v State Black Sea SS Co [1999] 1 Lloyd’s Rep 127, 156.
253 Smith v Butler [1900] 1 QB 694; Marten v Whale [1917] 2 KB 480. Cf Pym v Campbell (1856) 6 E & B
370, below, p 142. 254 Head v Tattersall (1871) LR 7 Ex 7, below, p 143.
255 Below, pp 141–143.
70 formation of contract

6. intention to create legal relations

Although a separate requirement of intention to create legal relations did not exist until
the nineteenth century,256 it is now established that an agreement will not constitute
a binding contract unless it is one which can reasonably be regarded as having been
made in contemplation of legal consequences. A mere statement of intention made in
the course of conversation will not constitute a binding promise, though acted upon by
the party to whom it was made,257 and even negotiated agreements do not necessarily
give rise to legal obligations. For example, a collective agreement between employers
and trade unions is conclusively presumed not to have been intended by the parties to
be legally enforceable unless it is in writing and contains a provision stating that the
parties intend it to be a legally enforceable contract.258

(a) social engagements

Sometimes it is clear from the nature of the agreement that there was no intention to
enter into a binding contract. A prime example is a social engagement. This is not always
because such engagements are not reducible to a money value, for they often may be. The
acceptance of an invitation to dinner or to play in a cricket match,259 of an offer to share
the cost of petrol used on a journey,260 or to take part in a golf club’s competition261 or
between friends relating to musical performances by them262 form agreements in which
the promisee may incur expense in reliance on the promise. The damages resulting from
breach might be ascertainable, but the Courts would hold that, if no legal consequences
could reasonably have been contemplated by the parties, no action will lie.
In Balfour v Balfour, Atkin LJ stated:263
It is necessary to remember that there are agreements between parties which do not result
in contracts within the meaning of that term in our law. The ordinary example is where
two parties agree to take a walk together, or where there is an offer and an acceptance of
hospitality. Nobody would suggest in ordinary circumstances that those agreements result
in what we know as a contract.

256 Simpson (1975) 91 LQR 247, 263–5; Hedley (1985) 5 OJLS 391.
257 Weeks v Tybald (1605) Noy 11; Guthing v Lynn (1831) 2 B & Ad 232. But these cases appear to turn on
uncertainty and vagueness rather than lack of intent. There is a close link between uncertainty and lack of
intention to contract.
258 Trade Union and Labour Relations (Consolidation) Act 1992, s 179, see NCB v NUM [1986] ICR 736.
The position at common law was similar: Ford Motor Co Ltd v AUEFW [1969] 1 WLR 339. See Hepple [1970]
CLJ 122.
259 See Atkin LJ in Balfour v Balfour, below, n 263.
260 Coward v Motor Insurers’ Bureau [1963] 1 QB 259; Buckpitt v Oates [1968] 1 All ER 1145. But see now
Road Traffic Act 1988, ss 145, 149.
261 Lens v Devonshire Club, The Times, 4 December 1914 (Scrutton J), referred to in Rose and Frank Co
v JR Crompton & Bros Ltd [1923] 2 KB 261, 288. Cf Clarke v Earl of Dunraven [1897] AC 59, above, pp 31–32
(contract between competitors in yacht club regatta). 262 Hadley v Kemp [1999] EMLR 589, 623.
263 [1919] 2 KB 571, 578. See also Vaughan v Vaughan [1953] 1 QB 762, 765; Gould v Gould [1970] 1
QB 275.
 the agreement 71

(b) family arrangements

Family arrangements are another category of agreement in which there may be no
intention to create legal relations. In Balfour v Balfour:
A husband was employed in a government post in Ceylon. He returned with his wife to
England on leave, but she was unable to go back to Ceylon with him for medical reasons. He
consequently promised orally to make her an allowance of £30 a month until she rejoined
him. He failed to make this payment and she sued him.

The Court of Appeal held that, although it was not impossible for a husband and wife
to enter into a contract for maintenance, in this case they never intended to make a
bargain which could be enforced in law. While that decision has been criticized,264
agreements between spouses and between parents and children265 are, as we shall
see, presumed not to be enforceable contracts. Thus, it has been said that a parent’s
promise to pay a child an allowance while at university ordinarily creates only a moral
obligation.266

(c) determining intention

The test of an intention to create legal relations is an objective one. It may be that the
promisor never anticipated that the promise would give rise to any legal obligation,
but if a reasonable person would consider there was an intention so to contract, then
the promisor will be bound.267 It has therefore been contended that the common law
does not require any positive intention to create a legal obligation as an element of
contract, and that ‘a deliberate promise seriously made is enforced irrespective of the
promisor’s views regarding his legal liability’.268 This view commands considerable
respect, but it is submitted that there are difficulties in the way of its acceptance.
In the first place, the parties to a business transaction may deliberately state that
they do not intend to enter into any legal obligation, and the Court will then treat their
promises as binding in honour only. Thus in Appleson v Littlewood Ltd,269 it was held
that a competitor who claimed to have sent in a successful coupon in a football pool,
of which one of the conditions was that the conduct of the pools and everything done
in connection therewith was not to be ‘attended by or give rise to any legal relationship
whatsoever’, could have no claim which a Court would enforce. As regards a ‘minister’
and his church, there is no longer any presumption of there being no intention to
create legal relations but the circumstances may indicate that there was no such

264 Below, p 72. 265 Jones v Padavatton [1969] 1 WLR 328.

266 Fleming v Beeves [1994] 1 NZLR 385, 389 (New Zealand).
267 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, above, p 38; British Airways Board v Taylor [1976] 1
WLR 13. See above, p 32.
268 1 Williston, Contracts, para 21; Hepple [1970] CLJ 122; Hedley (1985) 5 OJLS 391; Restatement of the
Law of Contracts (2d) para 21B.
269 [1939] 1 All ER 464. See also Rose and Frank Co v Crompton & Bros Ltd [1925] AC 445; Jones v Vernons’
Pools [1938] 2 All ER 626. Cf Edwards v Skyways Ltd [1964] 1 WLR 349 (‘ex gratia’ payment); Home Insurance
Co Ltd v Administratia Asigurarilor [1983] 2 Lloyd’s Rep 674, 677 (agreement to be ‘interpreted as an
honourable engagement’).
72 formation of contract

intention.270 Moreover, until recently the Crown and civil servants were held not to
be in a contractual relationship because the Civil Service Pay and Conditions Code’s
statement that ‘a civil servant does not have a contract of employment enforceable in
the courts’ meant that the Crown did not have the requisite intention to contract.271
What was said when the agreement was made, 272 and the vagueness of the language
used 273 may be held to be inconsistent with an intent to contract. Where the agreement
is made in a commercial context, however, the onus on a party who asserts that an
agreement was made without the intent is a heavy one.274
Secondly, where the agreement falls into that class of cases where legal contracts are
not normally made, exemplified by social engagements or family arrangements, it will
be presumed that no intent to create an enforceable contract is present, even though
there may have been an exchange of mutual promises and a ‘consideration’ moving
from the promisee.275 On the other hand, this presumption may be rebutted upon
proof of the true intention of the parties, which is to be inferred from the language
they use and the circumstances in which they use it. Thus in Parker v Clark:276
The defendants, an elderly couple, agreed with the claimants, who were 20 years younger, that
if the latter would sell their cottage and come to live with the defendants, sharing household
expenses, the male defendant would leave them a portion of his estate in his will. The claimants
sold their cottage and moved in with the defendants. Difficulties developed between the two
couples, and the defendants repudiated the agreement by requiring the claimants to find
somewhere else to live. The claimants sought damages for breach of contract.

It was argued that the agreement amounted to no more than a family arrangement
of the type considered in Balfour v Balfour, but Devlin J held that the circumstances
indicated that the parties intended to affect their legal relations and that the defendants
were therefore liable. Indeed Balfour v Balfour has been said to be an extreme example
of this presumption,277 which has also been said to be of limited assistance in family
cases,278 and there are several cases in which it has been held that a husband’s promise
to his wife, from whom he was about to separate, that she could have the matrimonial

270 Percy v Board of National Mission of the Church of Scotland [2005] UKHL 73, [2006] 2 AC 28; New
Testament Church of God v Stewart [2007] EWCA Civ 1004, [2008] ICR 282 (in both of which, an intention
to create legal relations was found). Cf President of the Methodist Conference v Parfitt [1984] QB 368 (no
intention to create legal relations, so that minister not in contractual relationship, because of spiritual nature
of functions).
271 R v Civil Service Appeal Board, ex p Bruce [1988] ICR 649, [1989] ICR 171; McLaren v Home Office
[1990] ICR 84; R. v Lord Chancellor’s Department, ex p Nangle [1991] ICR 743; Trade Union and Labour
Relations (Consolidation) Act 1992, ss 62(7) and 245.
272 Orion Insurance Co plc v Sphere Drake Insurance plc [1992] 1 Lloyd’s Rep 239.
273 Vaughan v Vaughan [1953] 1 QB 762, 765; Kleinwort Benson Ltd v Malaysia Mining Corp Bdh [1988] 1
WLR 799; [1989] 1 WLR 379, above, pp 67–68.
274 Edwards v Skyways Ltd [1964] 1 WLR 349, 355; Esso Petroleum Co Ltd v Commissioners of Customs and
Excise [1976] 1 WLR 1 (World Cup coins given to purchasers of petrol held to be given under a contractual
obligation—because of an intention to create legal relations—and not as a gift); Orion Insurance Co plc v
Sphere Drake Insurance plc [1992] 1 Lloyd’s Rep 239, 263, 292.
275 Balfour v Balfour [1919] 2 KB 571, 578; Buckpitt v Oates [1968] 1 All ER 1145; Jones v Padavatton [1969]
1 WLR 328. 276 [1960] 1 WLR 286. Cf Re Goodchild [1997] 1 WLR 1216.
277 Pettitt v Pettitt [1970] AC 777, 806, 816.
278 Fleming v Beeves [1994] 1 NZLR 383, 389 (New Zealand).
 the agreement 73

home, was enforceable as a contract.279 Again, an informal family arrangement, to

share the winnings of a football pool entry,280 was similarly enforceable since the
necessary intention was present.
Thirdly, it has been clearly established that the distinction between a warranty,
which is a term of a contract, and a ‘mere representation’ depends upon whether the
parties intended the statement to have contractual effect.281 It would be somewhat
curious if contractual intention could be dispensed with in proving the existence of a
contract, but not in proving the terms of which it is necessarily composed.
The conclusion is that an intention to create legal relations is essential to the
formation of a contract in English law.

279 Ferris v Weaven [1952] 2 All ER 233; Merritt v Merritt [1970] 1 WLR 1121; Eves v Eves [1975] 1 WLR
1338 (cohabitation); Re Windle [1975] 1 WLR 1628; Tanner v Tanner [1975] 1 WLR 1346 (cohabitation). Cf
Vaughan v Vaughan [1953] 1 QB 762; Spellman v Spellman [1961] 1 WLR 921; Morris v Tarrant [1971] 2 QB
143; Horrocks v Forray [1976] 1 WLR 230 (cohabitation). See generally Freeman in Halson (ed), Exploring the
Boundaries of Contract (1996) 68. Traditionally, pre-nuptial and post-nuptial agreements have been void on
grounds of public policy irrespective of an intention to create legal relations: for discussion and criticism, see
MacLeod v MacLeod [2008] UKPC 64, [2009] 1 All ER 851; Radmacher v Granatino [2009] EWCA Civ 649,
[2009] 2 FCR 645. See below, pp 84–89 (requirements of form). 280 Simkins v Pays [1955] 1 WLR 975.
281 Heilbut Symons & Co v Buckleton [1913] AC 30, 51; Oscar Chess Ltd v Williams [1957] 1 WLR 370, 374.
See below, pp 134–135.
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 3
FORM

1. formal requirements
English law recognizes only two kinds of contract, the contract made by deed, and
the simple contract. A contract made by deed derives its validity neither from the fact
of the agreement nor because it is an exchange but solely from the form in which it is
expressed.
A simple contract as a general rule need not be made in any special form, but requires
the presence of consideration which, we shall see, broadly means that something must
be given in exchange for a promise. The paradigm of the simple contract is thus a
bargain but we shall see that the requirement of consideration can be satisfied by
nominal consideration, such as a peppercorn. In such cases it has been argued that
consideration is really no more than a requirement of form. In some simple contracts,
statute imposes (in addition to the requirement of consideration) the necessity of some
kind of form, such as writing, either as a condition of their existence or as a requisite
of proving the contract.
In this chapter, we shall therefore examine (1) contracts by deed and (2) (simple)
contracts for which writing is required.
Historically, formal requirements played a large role in the English law of contract
because the Statute of Frauds 1677 provided that many important and widely used
types of contract, in particular contracts for the sale or disposition of an interest
in land and, until 1954, contracts for the sale of goods of over £10 in value, were
unenforceable unless supported by a note or memorandum in writing.1
The significance of formal requirements has now diminished, save in sales of
land, guarantees, and a limited number of other types of contract, notably to
protect parties (such as tenants, consumers, borrowers, and employees) who are in
the weaker bargaining position. Nevertheless, although it has been stated that the
advantages of requirements of formality are purely negative in nature and consist
in the avoidance of various evils, 2 it should not be forgotten that formality serves
a number of useful functions.3 First, there is the historically important evidential

1 Th is requirement was repealed by the Law Reform (Enforcement of Contracts) Act 1954.
2 Jhering, Geist des Roemischen Rechts, 480–2.
3 Law Com No 164, Formalities for Contracts for Sale etc of Land (1987) paras 1.4, 2.3–2.11.
 formation of contract

function.4 A requirement such as writing facilitates and renders certain the

existence of a transaction and its terms as well as identifying the intention of the
parties. The particularly significant issues of authenticity and integrity which arise
in the case of contracts made by e-mail can, for example, be addressed by a suitable
formal requirement for such transactions.5 Secondly, there is the paternalistic and
cautionary function of helping to ensure that a party deliberately considers whether
to contract and to prevent people accidentally binding themselves on impulse or
because of improper pressure. For instance, classes of contractors considered to be
weaker, such as tenants, employees, borrowers, and consumers, may be protected by
requiring a written agreement and clear language.6 In some such cases (for example,
consumer credit and timeshare agreements) there may also be a statutory ‘cooling
off ’ period.7 Th is is a paternalistic qualification to the substantive requirement of
agreement rather than a formal requirement, but the requirement that notice must
be given to the protected person of the right to cancel8 is a requirement of form. The
corollary of the evidential and cautionary functions is that formal requirements
allow parties to bind themselves with certainty and to know to what they are binding
themselves.
As against these useful functions, if the form is complex, it can be inconvenient,
mysterious, and inaccessible to ordinary people. Formal requirements may also
affront social and commercial attitudes to promises (‘my word is my bond’) since
requiring, for instance, a deed or writing implies mistrust. The result of either or both
of these may be that the required form is not used, whether deliberately or by accident,
and thus the requirement can have the effect of reducing rather than promoting the
security of transactions.
Formal requirements thus prevent impulsiveness, coercion, inadequate evidence,
and manufactured evidence, but they may undermine security of transactions
if either their complexity or social or commercial morality mean they are not
observed.

2. contracts by deed
(a) how a contract by deed is made
At common law it was often said that a contract by deed was executed by being ‘signed,
sealed and delivered’. The position is now largely governed by section 1 of the Law of

4 Ibid, para 2.5. See also Holdsworth, A History of English Law (7th edn, 1956) 380, 388–90; Simpson, A
History of the Common Law of Contract (1975), ch XIII. 5 Below, p 90.
6 Writing: Consumer Credit Act 1974, s 60. Notice of specified terms: Landlord and Tenant Act 1985, s 4;
Estate Agents Act 1979, s 18; Employment Rights Act 1996, ss 1–2, 4–6; Timeshare Regulations 1997 (SI 1997
No 1081).
7 eg Consumer Credit Act 1974, ss 67–8; Cancellation of Contracts made in a Consumer’s Home or Place
of Work etc Regulations 2008 (SI 2008 No 1816); Timeshare Act 1992.
8 eg Consumer Credit Act 1974, s 64.
 form 77

Property (Miscellaneous Provisions) Act 1989.9 To be a deed an instrument must make

it ‘clear on its face that it is intended to be a deed by the person making it, or as the case
may be, by the parties to it (whether by describing itself as a deed or expressing itself
to be executed or signed as a deed or otherwise)’.10 The 1989 Act does not, however,
lay down any prescribed manner of making it clear because to do so ‘would invalidate
what would otherwise be perfectly acceptable deeds merely for failure to include one
vital word’.11

(i) Signature and attestation

In the case of deeds executed by an individual the requirement of sealing has been
abolished.12 The instrument must either be signed by the person making it in the
presence of an attesting witness or, where it is not signed by that person, perhaps
because of some physical incapacity, it must be signed at the direction and in the
presence of that person and in the presence of two attesting witnesses.13 In the case
of a company incorporated under the Companies Acts either its common seal must
be affi xed or the instrument must be signed by two directors or one director and the
company secretary and expressed to be executed by the company.14 The requirement
of sealing still applies to corporations sole and corporations incorporated under
other statutes or by royal charter.15 In modern times, seals are often very much a
legal fiction, being merely an adhesive wafer attached to the document or even a
printed circle containing the letters ‘LS’ (locus sigilli).16 Even a document bearing no
indication of a seal at all will suffice, provided that there is evidence (eg attestation)
that it was intended to be executed as a deed.17 Failure to have a signature witnessed
and attested or, where this is still required, to have the document sealed, will not
be fatal if the signatory is estopped from denying its validity because another has
detrimentally relied on it.18

(ii) Delivery
The 1989 Act preserves the requirement of ‘delivery’19 which, in this context does not
signify handing over to the other party, but means an act done or word said so as to

9 Implementing Law Com No 163, Deeds and Escrows (1987). Section 1 applies to all deeds, and not just
those relating to land, made on or after 31 July 1990; SI 1990 No 1175.
10 Law of Property (Miscellaneous Provisions) Act 1989, s 1(2)(a). For the similar rule for companies, see
Companies Act 2006, s 46(1).
11 Hansard 1988/89 503 HL Deb 599 (The Lord Chancellor, Second Reading Debate).
12 Law of Property (Miscellaneous Provisions) Act 1989, s 1(1)(b).
13 Ibid, s 1(3)(a). ‘Signature’ includes making one’s mark: ibid, s 1(4).
14 Companies Act 2006, s 44.
15 Law of Property (Miscellaneous Provisions) Act 1989, s 1(9)–(10).
16 First National Securities Ltd v Jones [1978] Ch 109.
17 Ibid; Commercial Credit Services v Knowles [1978] 6 CL 64. Cf TCB Ltd v Gray [1986] Ch 621.
18 TCB Ltd v Gray [1986] Ch 621; Law Com No 163, Deeds and Escrows (1987) para 2.15; Shah v Shah
[2001] EWCA Civ 527, [2002] QB 35 (estoppel in relation to the Law of Property (Miscellaneous Provisions)
Act 1989, s 1).
19 s 1(3)(b). Authority by a party making a deed to an agent to deliver it need not be given by deed: ibid,
s 1(1)(c).
 formation of contract

make it clear that the person making the deed regards it as binding. Thus, a deed may
be ‘delivered’ even though it is retained in the custody of the grantor.20

(iii) Escrow
A deed may be delivered subject to a condition; it then does not take effect until the
condition is performed. For example, on a sale of land the vendor does not normally
intend the deed to operate until the purchase price has been paid and (where
appropriate) the deed has been executed by the purchaser. In such a case, it is termed
an escrow, but if the condition is fulfi lled within a time which is reasonable in all the
circumstances,21 it becomes operative as from the date of its delivery.22 At one time
an escrow could not be handed to one who was a party to it, or else it took effect at
once, on the ground that such handing over in fact outweighed oral conditions. But
nowadays the intention of the parties prevails if they clearly mean the deed to be
delivered conditionally. 23

(b) when it is essential to contract by deed

Statute sometimes makes it necessary to use an instrument in the form of a deed if the
transaction is to be valid. For example, the conveyance of a legal estate in land must
normally be made by deed in accordance with the provisions of the Law of Property
Act 1925.24
Common law requires a deed only in the case of a gratuitous promise, or contract
in which there is no consideration for the promise made on one side and accepted on
the other. Thus, one of the most common uses today of a deed (outside conveyances of
land) is that of a promise to make a payment to a charity.

3. contracts for which writing is required

(a) statutory requirements of writing
We have now dealt with the contract which is valid by reason of its form alone, and
we pass to the simple contract. Although there is a popular belief that only contracts
in writing are enforceable, this belief is completely illusory and forms no part of the
English common law. A simple contract depends for its validity upon the presence of
consideration and is in general valid whether in writing or oral.
In certain exceptional cases, however, the law requires writing, sometimes as a
condition of the validity of the contract itself, but sometimes only as evidence without

20 Xenos v Wickham (1867) LR 2 HL 296; Macedo v Stroud [1922] AC 330; Vincent v Premo Enterprises Ltd
[1969] 2 QB 609; D’Silva v Lister House Development Ltd [1971] Ch 17.
21 Beesly v Hallwood Estates Ltd [1961] Ch 105; Kingston v Ambrian Investment Co Ltd [1975] 1 WLR 161.
Cf Glessing v Green [1975] 1 WLR 863. 22 Alan Estates Ltd v WG Stores Ltd [1982] Ch 511.
23 London Freehold and Leasehold Property Co v Lord Suffield [1897] 2 Ch 608, 621: Glessing v Green
[1975] 1 WLR 863. 24 ss 52, 54.
 form 79

which it cannot be enforced. It should be borne in mind that consideration is as

necessary in these contracts as in those in which no writing is required: ‘If contracts
be merely written and not specialties, they are parol, and a consideration must be
proved’.25 The following are examples of contracts which must, by statute, be made in
writing:

(1) The Bills of Exchange Act 188226 requires that a bill of exchange or promissory
note and the acceptance of a bill of exchange must be in writing.
(2) Contracts of marine insurance are void unless made in writing in the form of a
policy.27
(3) A consumer credit agreement, eg a hire-purchase or loan agreement, must be in
writing and be signed by the hirer or debtor and by or on behalf of the owner or
creditor. It must also be made in a certain form and contain certain information
including prominent notices advising the hirer or debtor of the protection and
remedies, including the right to cancel, available under the Act and the annual
percentage rate of charge.28
(4) A contract for the sale or other disposition of land must be in writing.29 This is
considered in detail below.30

Certain other contracts are not required by statute to be made in writing, but merely
to be evidenced by writing before they can be enforced in legal proceedings. Until 1954
the most frequent examples of such contracts were provided by those specified in the
Statute of Frauds 1677, which rendered various contracts unenforceable unless they
were supported by a note or memorandum in writing. The object of these statutory
requirements was ‘for prevention of many fraudulent practices which are commonly
endeavoured to be upheld by perjury and subornation of perjury’.31 But almost from
its inception, this requirement that a contract be evidenced by writing exhibited a
tendency to encourage, rather than to prevent, dishonest dealing. The attempts of
the judges consequently to circumvent the Statute of Frauds, and the niceties of legal
learning which resulted, rendered its operation both arbitrary and artificial. By the
Law Reform (Enforcement of Contracts) Act 1954,32 most of its provisions, together
with their re-enacting statutes,33 were repealed. But one important type of contract is
still governed by the Statute of Frauds, namely a contract of guarantee. This will now
be considered in detail.

25 Rann v Hughes (1778) 7 Term R 350n. 26 ss 3(1), 17(2).

27 Marine Insurance Act 1906, s 22.
28 Consumer Credit Act 1974, ss 60, 64; Consumer Credit (Agreements) Regulations 1983 (SI 1983 No
1553). 29 Law of Property (Miscellaneous Provisions) Act 1989, s 2(1).
30 Below, p 84. 31 Statutes of the Realm, vol V, p 840.
32 See the Sixth Interim Report of the Law Revision Committee (Cmd 5449, 1937), and the First Report of
the Law Reform Committee (Cmd 8809, 1953).
33 Sale of Goods Act 1893, s 4 (writing required for contracts for the sale of goods of over £10 in value).
 formation of contract

(b) contracts of guarantee

Section 4 of the Statute of Frauds 1677 provides:

No action shall be brought . . . whereby to charge the defendant upon any special promise
to answer for the debt, default, or miscarriage of another person . . . unless the agreement
upon which such action shall be brought or some memorandum or note thereof shall be in
writing, and signed by the party to be charged therewith or some other person thereunto by
him lawfully authorized.

A promise ‘to answer for the debt, default or miscarriage or another person’ is a
contract of guarantee or suretyship. It can usually be reduced to this form: ‘Deal with
X, and if X does not meet his obligations, I will be answerable’.

(i) Guarantee distinguished from contract of indemnity

A guarantee must be distinguished from a contract of indemnity, which is not subject
to any statutory requirement of writing. In a contract of guarantee there must always
be three parties in contemplation: a principal debtor (whose liability may be actual or
prospective), a creditor, and a promisor (the guarantor) who promises to discharge the
debtor’s liability if the debtor should fail to do so. The guarantor’s liability is therefore
secondary to that of the principal debtor. In a contract of indemnity, however, the
promisor is primarily liable, either alone or jointly with the principal debtor, and
undertakes to discharge the liability in any event whether or not the principal debtor
makes default.34
In a contract of guarantee there must, in fact, be an expectation that another person
will perform the obligation which the promisor has undertaken. If the promisor
is primarily liable the promise is not within the Statute of Frauds, and need not be
in writing.35 The question whether the undertaking is primary or secondary is
determined, not merely from the particular words of the promise, but from the general
circumstances of the transaction.36 In the result, the borderline is often very artificial
and the subject ‘has raised many hair-splitting distinctions of exactly that kind which
brings the law into hatred, ridicule and contempt by the public’.37

(ii) Nature of liability guaranteed

The liability guaranteed may arise out of tort as well as out of contract.38 It may also
be prospective at the time the promise is made, as, for example, in consideration of
a future advance of money; or it may be past, provided some new consideration is
given. 39 Yet there must be a principal debtor at some time; if not, there is no contract of
guarantee, and the promise though not in writing will nevertheless be actionable. This
is illustrated by Lakeman v Mountstephen:40

34 Guild & Co v Conrad [1894] 2 QB 885, 896; Pitts v Jones [2007] EWCA Civ 1301, [2008] QB 706.
35 Birkmyr v Darnell (1704) 1 Salk 27, 28. 36 Keate v Temple (1797) 1 B & P 158.
37 Yeoman Credit Ltd v Latter [1961] 1 WLR 828, 892 (Harman LJ).
38 Kirkham v Marter (1819) 2 B & Ald 613. 39 Board v Hoey (1948) 65 TLR 43.
40 (1874) LR 7 HL 17.
 form 81

M stated that he would construct certain drains provided that L, the Chairman of a local
Board of Health or the Board, would become responsible for payment. L responded, ‘Go on,
[M], and do the work, and I will see you paid’. The Board repudiated liability on the ground
that it had never entered into any agreement with L. When sued, L pleaded that his statement
was a promise to be answerable for the debt of another within the Statute of Frauds and, not
being in writing, was unenforceable.

The House of Lords held that M was entitled to succeed. The Board had incurred no
liability which could be guaranteed, and there could be no contract of guarantee
unless there was a principal debtor. L’s words, when properly construed, indicated that
he would therefore be liable, not as guarantor, but as sole debtor, by reason of his oral
promise to M.

(iii) A continuing liability

The promise must also not effect a release of the original debtor, whose liability must
be a continuing liability. If there is an existing debt for which a third party is liable to
the promisee, and if the promisor undertakes to be answerable for it, still there is no
guarantee if the terms of the agreement are such as to extinguish the original liability.
If A says to B, ‘Give C Ltd a receipt in full for its debt to you, and I will pay the amount’,
this promise would not fall within the Statute of Frauds; for there is no suretyship, but
a substitution of one debtor for another.41

(iv) Exceptions
In two exceptional situations a contract of guarantee has been held to fall outside
the Statute of Frauds, even though it is a promise to answer for the debt, default, or
miscarriage of another.
The first is where the guarantee is merely incidental to a larger contract and not
the sole object of the parties to the transaction. So in Sutton & Co v Grey,42 where the
defendants entered into an oral agreement with a stockbroker to introduce business to
him on the terms that they were to receive half the commissions earned and to pay half
the losses in the event of a client introduced by them failing to pay, it was held that their
promise to answer for the debt of such a client did not fall within the Statute of Frauds.
It was incidental to a wider transaction and did not have to be evidenced in writing.
Secondly, where the main purpose of the guarantor is to acquire or retain property,
and the guarantee is given to relieve the property from some charge or incumbrance in
favour of a third party, it is not within the Statute of Frauds. Thus if A buys goods from
B which are subject to a lien in favour of C, and in order to discharge the lien A promises
C to pay B’s debt if B does not do so, this promise need not be evidenced in writing.43
But the interest to be acquired or retained must be substantial and proprietary. An oral
promise by a shareholder in a company to guarantee the company’s debts in order to
prevent an execution being levied on its assets does not come within this exception.

41 Goodman v Chase (1818) 1 B & Ald 297. 42 [1894] 1 QB 285.

43 Fitzgerald v Dressler (1859) 7 CBNS 374.
 formation of contract

The interest of a shareholder in the company’s assets is purely personal, and is not a
proprietary interest.44

(v) Criticism of the scope of the Statute of Frauds

These legal niceties on the scope of the requirement of writing for ‘guarantees’
have nothing to commend them. The administration of justice is not a game. It is a
matter for regret that, if special protection is to be afforded by the law to guarantors,
it is not embodied in a statute requiring the terms of all contracts of guarantee or
indemnity to be set out in a written document,45 instead of perpetuating subtle
distinctions.

(vi) The form required

Until the enactment of the Law Reform (Miscellaneous) Provisions Act 1989 the
form required was substantially the same for both contracts of guarantee and
contracts for the disposition of an interest in land. The provisions of the Statute of
Frauds 1677, which still govern guarantees, were substantially re-enacted as regards
sales of land by section 40(1) of the Law of Property Act 1925. Many of the decisions
under section 40(1) concerning contracts for the sale of land remain applicable to
guarantees.
Under section 4 of the Statute of Frauds, a guarantee does not have to be signed by
both parties, but only by the party to be charged or that person’s agent.46 The signature
need not be an actual subscription of the party’s name as it may be a mark; nor need
it be in writing as it may be printed or stamped; nor need it be placed at the end of the
document as it may be at the beginning or in the middle.47
The parties and the subject-matter of the contract must appear in the note or
memorandum. Where the parties are not named they must be so described as to be
identified with ease and certainty.48 All the material terms of the guarantee must
be accurately set out in the memorandum, but by section 3 of the Mercantile Law
Amendment Act 1856, the consideration need not be stated.
The note or memorandum of a guarantee may consist of various letters and papers,
but they must be connected and complete.49

(vii) The effect of non-compliance

The effect of a failure to comply with the provisions of the Statute of Frauds is simply
that the contract is not void, or voidable, but it cannot be enforced against a party who
has not signed a note or memorandum because it is incapable of proof.50 No action can

44 Harburg India Rubber Comb Co v Martin [1902] 1 KB 778.

45 As in the case of certain contracts of guarantee and indemnity given in relation to regulated consumer
credit agreements: Consumer Credit Act 1974, s 105(1). 46 Above, p 80.
47 Leeman v Stocks [1951] Ch 941. See also Walker v Copp Clark Publishing Co Ltd (1962) 33 DLR (2d) 338,
344 (Canada). 48 Rossiter v Miller (1878) 3 App Cas 1124. Cf Potter v Duffield (1874) LR 18 Eq 4.
49 Stokes v Whicher [1920] 1 Ch 411, 418; Elias v George Saheley & Co (Barbados) Ltd [1983] 1 AC 646. Cf
Timmins v Moreland Street Property Ltd [1958] Ch 110; Moat Financial Services v Wilkinson [2005] EWCA
Civ 1253. 50 Leroux v Brown (1852) 12 CB 801; Maddison v Alderson (1883) 8 App Cas 467, 474.
 form 83

be brought until the omission is made good. But, provided the note or memorandum
acknowledges the existence of the contract,51 and is signed by the party to be charged
or his agent, 52 it may be made at any time before the commencement of the action,53
and it does not matter that it was never intended to serve as a note or memorandum
but was prepared for some entirely different purpose.54
The law on claims for restitution of money paid under unenforceable contracts is
unclear. Presumably money can be recovered if the payor can establish that there has
been a total failure of consideration.55 But whether the standard ground for restitution
of mistake of law (in a situation where the payor can establish that it paid the money
mistakenly believing that it could enforce the contract against the payee) applies
to money paid under an unenforceable, as opposed to a void, contract is open to
debate.56

(viii) No evasion by estoppel

It has been held that estoppel, founded on the guarantor’s promise and without any
additional encouragement or assurance, cannot be invoked as a means of avoiding
section 4 of the Statute of Frauds. In Actionstrength Ltd v International Glass
Engineering SpA:57

An employer in a building project was alleged to have orally promised a sub-contractor to

guarantee payments owing to the sub-contractor by the head-contractor in return for the
sub-contractor not withdrawing its labour. When the sub-contractor sought to enforce the
guarantee, the employer argued that it was unenforceable under section 4 of the Statute
of Frauds because it was not supported by a written note or memorandum. In answer to
this, the sub-contractor sought to rely on estoppel constituted by its reliance on the oral
promise.

The House of Lords held that estoppel could not here succeed because to allow it to do
so would entirely undermine section 4. It would contradict section 4 for relied-upon
oral guarantees to be routinely enforceable by means of estoppel.

51 Buxton v Rust (1872) LR 7 Ex 279 (notwithstanding announcement of intention to repudiate contract).

See also Reuss v Picksley (1866) LR 1 Ex 342; Parker v Clark [1960] 1 WLR 286 (written offer containing
all material terms suffices though contract concluded by subsequent oral acceptance). Cf Thirkell v Cambi
[1919] 2 KB 590 (writing denying agreement or a material term insufficient); Tiverton Estates Ltd v Wearwell
Ltd [1975] Ch 146 (agreement ‘subject to contract’ insufficient).
52 Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21, 28.
53 Re Hoyle [1893] 1 Ch 84; Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21.
54 Jones v Victoria Dock Co (1877) 2 QBD 314 (entry in company’s minute book); Phillips v Butler [1945]
Ch 358 (receipt for deposit).
55 Cf Thomas v Brown (1876) 1 QBD 714; Monnickendam v Leanse (1923) 39 TLR 445.
56 In the leading case on mistake of law, Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349, the contract
in question was void not unenforceable. For a prior case suggesting that money cannot be recovered under
an unenforceable contract, see Boddington v Lawton [1994] ICR 478 (Nicholls LJ).
57 [2003] UKHL 17, [2003] 2 AC 541. Cf n 18, above (estoppel in relation to the Law of Property
(Miscellaneous Provisions) Act 1989, s 1); pp 88–89 below (estoppel in relation to the Law of Property
(Miscellaneous Provisions) Act 1989, s 2).
 formation of contract

(c) contracts for the sale or other disposition of land

(i) Scope of the 1989 Act
The most important class of contracts subject to requirements of form are contracts
relating to land. The Law Commission considered and rejected the abolition of all
formal requirements for such contracts, primarily because of the need for certainty,
but also for protective, paternalistic reasons; time to reflect and, if necessary to
seek legal advice ‘is especially important in the case of contracts dealing with land
because they often involve acceptance of a complexity of rights and duties’.58 Indeed
the Commission’s recommendations, substantially enacted by the Law of Property
(Miscellaneous Provisions) Act 1989 (the ‘1989 Act’), are in important respects more
rigorous than what had hitherto been required. 59 By section 2(1) of the 1989 Act,
contracts for the sale or other disposition of an interest in land:

can only be made in writing and only by incorporating all the terms which the parties have
expressly agreed in one document or, where contracts are exchanged, in each.

The section applies to a ‘disposition’60 of an interest in land, and ‘interest in land’ is

defined as ‘any estate, interest or charge in or over land or over the proceeds of sale
of land’.61 Thus, the section applies to a lease, a mortgage, a release, and a disclaimer.
It applies where neither party has any proprietary interest in the relevant property.62
Contracts for the grant of a lease for a period not exceeding three years,63 those made
in the course of a public auction, and those regulated by the Financial Services and
Markets Act 2000 (for instance unit trusts investing in land) are excluded.64
An example of the increased rigour is provided by the position of equitable mortgages
by deposit of title deeds. These were previously valid without any writing, but have
now been held to be subject to section 2 of the 1989 Act and void if they do not comply
with it, because the basis of such equitable mortgage is contract.65 An option granted
by the vendor of land is also a ‘contract’ within section 266 but the subsequent exercise

58 Law Com No 164, Formalities for the Sale etc of Land (1987) paras 2.7–2.9. For other advantages of
formality, see above, pp 75–76.
59 Contracts made before the 1989 Act came into force on 27 September 1989 had to comply with Law of
Property Act 1925, s 40(1) which substantially re-enacted the relevant portion of the Statute of Frauds, s 4.
The principles were therefore substantially the same as those for guarantees. For fuller discussion of s 40(1)
and the doctrine of part performance, see the 26th edition of this book.
60 It has the same meaning as in the Law of Property Act 1925: Law of Property (Miscellaneous Provisions)
Act 1989, s 2(6). 61 Law of Property (Miscellaneous Provisions) Act 1989, s 2(6).
62 Singh v Beggs (1995) 71 P & CR 120.
63 Contracts to grant leases not exceeding three years need no formality (Law of Property (Miscellaneous
Provisions) Act 1989, s 2(5)) because the grant of such a lease itself needs no formality if it takes effect in
possession, but contracts to assign such leases are subject to section 2: see Law Com No 164 (1987) para
4.10.
64 Law of Property (Miscellaneous Provisions) Act 1989, s 2(5)(b), (c). See Law Com No 164, paras
4.11–4.12.
65 United Bank of Kuwait v Sahib [1997] Ch 107, rejecting the argument that such deposits are equitable
charges rather than agreements to mortgage. But cf Target Holdings Ltd v Priestley (1999) 79 P & CR 305
(writing not needed for agreement which disposed of a mortgage).
66 Spiro v Glencrown Properties Ltd [1991] Ch 537; Law Com No 164, para 4.3.
 form 85

of that option is a unilateral act and not within the section: ‘It would destroy the very
purpose of the option if the purchaser had to obtain the vendor’s countersignature
to the notice by which it was exercised’.67 A ‘lock-out’ agreement, where the owner
of property agrees with a prospective purchaser not to consider any other offers for
property for a fi xed period, is, however, not subject to section 2 because its negative
nature—the vendor cannot sell to a third party but is not committed to a sale to the
prospective purchaser—means that there is no disposition of an interest in land.68
Again, contracts which are preliminary to the acquisition of such an interest, or
such as deal with a remote and inappreciable interest, would appear to be outside the
section.69
In one respect the 1989 Act probably requires a greater degree of formality than
the Law Commission recommended. It appears that it is no longer possible to have an
enforceable contract by written offer and acceptance in correspondence; there must
either be a single document incorporating all the terms agreed and signed by the parties
or each party must sign a document incorporating the terms in the expectation that
the other has also executed or will execute a corresponding document incorporating
the same terms.70
Separate supplementary or collateral agreements to contracts relating to land are
not within section 2. For instance, a contract to grant a lease, whereby the prospective
tenant agreed to carry out certain work on the premises in exchange for payment has
been held to be outside it.71 The line between the contract relating to land and the
supplementary or collateral one is, however, not always easy to draw particularly where,
as commonly occurs, the contract has been duly signed and is awaiting exchange but
a further term is orally agreed immediately prior to exchange. In Record v Bell, for
instance:72

The vendor of property had not received a copy of the entries from the Land Registry by
the day before the contract, which had been drawn up, was to be exchanged. He agreed
with the purchaser, who was concerned about undisclosed entries, to warrant his title if the
purchaser exchanged contracts and this oral agreement was confirmed by letters. Contracts
were exchanged and the title was as warranted but the purchaser, whose financial position

67 Ibid, 541 (Hoff mann J). See also Trustees of the Chippenham Golf Club v North Wiltshire DC (1991) 64
P & CR 527, 530.
68 Pitt v PHH Asset Management Ltd [1994] 1 WLR 327, above, p 66.
69 eg Angel v Duke (1875) LR 10 QB 174 (agreement to repair house for prospective tenant); Bligh v
Brent (1836) 2 Y & C 268; Humble v Mitchell (1839) 11 A & E 205 (agreement to transfer shares in company
possessed of land). Cf Driver v Broad [1893] 1 QB 744 (contract to sell debentures of company possessed of
land is subject to the statute). These decisions concerned the Statute of Frauds.
70 Commission for New Towns v Cooper (Great Britain) Ltd [1995] Ch 259; Firstpost Homes Ltd v Johnson
[1995] 1 WLR 1567. NB clause 1(1) of the Draft Bill attached to the Report differs from section 2 and see Law
Com No 164, para 4.15. But cf Hooper v Sherman, 30 November 1994 (CA), which did not refer to the Act’s
difference from the Law Commission’s Draft Bill and relied on para 4.15.
71 Tootal Clothing Ltd v Guinea Properties Ltd (1991) 64 P & CR 452, 455–6 (Scott LJ); Wilde (1993) 109
LQR 191; Record v Bell [1991] 1 WLR 853. For boundary agreements, see Neilson v Poole (1969) 20 P & CR
909; Joyce v Rigolli [2004] EWCA Civ 79, [2004] 1 P & CR DG22.
72 [1991] 1 WLR 853; Smith (1992) 108 LQR 217; Harpum [1991] CLJ 399. Cf McCausland v Duncan Lawrie
Ltd [1997] 1 WLR 38 (a variation of material term had to comply with s 2).
 formation of contract

had deteriorated, refused to complete and relied inter alia on non-compliance with section
2 of the 1989 Act, since all the terms were not in either the contracts exchanged or the
exchange of letters.

Although the purchaser seemed to be thinking in terms of amending the main contract
rather than a separate contract, the agreement was held to be a collateral contract and
outside the section:
[i]t would be unfortunate if common transactions of this nature should nevertheless cause
the contracts to be avoided. It may, of course, lead to a greater use of the concept of collateral
warranties than has hitherto been necessary.73

(ii) The form required

Under section 2(1) of the 1989 Act, contracts for the disposition of an interest in land
must now be made in writing and not merely evidenced in writing. Furthermore,
section 2(3) of the 1989 Act requires all the parties to a contract for the sale or
disposition of an interest in land or their agents to sign the document incorporating
the terms.74 The parties must all be identified by their signature and all the express
terms must be incorporated in the document. Section 2 does not require the inclusion
of implied terms, such as a landlord’s covenant of quiet enjoyment,75 and, if the
parties have reached agreement but fail to record all the terms in writing or record
one or more of them wrongly, the Court may order the written document to be
rectified.76 Where the written agreement is so rectified, the order does not necessarily
have retrospective effect; ‘the contract shall come into being . . . at such time as may
be specified in the order’.77 Where contracts are exchanged each document must
contain the express terms and be signed by the parties.78 The incorporation of the
express terms in the document can occur either by their being set out or by reference
to some other document or documents. Formerly, implied reference in the signed
document sufficed.79 Although it is not clear from the wording of section 2(2) of
the 1989 Act, which differs from the Law Commission’s Draft Bill, whether such
reference will suffice, the Commission was content for the established rules as to
joinder to apply,80 and it appears that section 2(2) was intended to allow reference
to more than one document.81 Where the document has not been incorporated, it
may, as we have seen, nevertheless be effective if it is a separate supplementary or
collateral agreement.

73 Ibid, at p 862. Th is was anticipated by the Law Commission, Law Com No 164, para 5.7. On collateral
warranties, see below, p 136.
74 For the position where the contract is made by an agent on behalf of an unnamed or undisclosed
principal, see below, pp 709–710. 75 Markham v Paget [1908] 1 Ch 697.
76 On rectification see below, pp 262–265.
77 Law of Property (Miscellaneous Provisions) Act 1989, s 2(4). See Law Com No 164, para 5.6.
78 1989 Act, s 2(1), above, p 84.
79 Law of Property Act 1925, s 40(1); Timmins v Moreland Street Property Ltd [1958] Ch 110.
80 Law Com No 164, para 4.6.
81 Hansard 503 HL Deb. 1988/89 col 610 (Lord Mackay of Clashfern LC).
 form 87

(iii) The effect of non-compliance

The fundamental change effected by the 1989 Act was that, whereas the form required
under the earlier legislation was merely evidentiary and did not go to the existence of
the contract, the form required by section 2 of the 1989 Act does. That is, the failure to
comply with the requirements as to form renders the contract void (ie a nullity) rather
than unenforceable.82 This follows from the wording in section 2(1) that the disposition
of an interest in land ‘can only be made in writing and only by incorporating all the
[express] terms’.
Thus, whereas a guarantee may be enforceable by having a note or memorandum of
the agreement, which could be oral, signed at a later date, an oral agreement subject
to section 2 of the 1989 Act cannot be subsequently validated in this way. The Law
Commission stated that a regime, such as those under the Statute of Frauds 1677 and
the Law of Property Act 1925, section 40(1), which ‘allows oral contracts to be binding
but unenforceable and which may later become enforceable, but sometimes only
against one party, is indefensibly confusing’.83
At the heart of the Law Commission’s recommendations was the view that the
equitable doctrine of part performance should ‘no longer have a role to play in contracts
concerning land’.84 Under this doctrine, the Courts, in certain cases, allowed an
unenforceable oral contract concerning land to be proved by oral evidence, when the
party seeking to enforce the contract had done acts in performance of its obligations
under it, provided that the performance was referable to some contract,85 the acts
were performed by the person seeking to enforce the contract,86 and the contract was
one which, if properly evidenced, would have been specifically enforceable.87 This
requirement meant the doctrine had no application to contracts of guarantee which
equity would not specifically enforce.
Under the new law, although the doctrine of part performance can no longer apply
as such, the Commission considered that the parties to an agreement that does not
comply with the statutory requirements would not simply be left without a remedy.88
The use of collateral contracts and the remedy of rectification have been mentioned
above.89 It should also be noted that where the void contract has been performed, for
example by the execution of a valid lease or the completion of a conveyance, a property
right will have been created and the parties may not need to rely on the void contract.90
Hence the statement that:91

82 United Bank of Kuwait v Sahib [1997] Ch 107, 122, 136; Law Com No 164, para 6.4.
83 Law Com No 164, para 4.2. 84 Ibid, para 4.13.
85 Rawlinson v Ames [1925] Ch 96; Steadman v Steadman [1976] AC 536 (mere payment of a sum of money
could amount to a sufficient act of part performance, but differing views were expressed as to whether the
acts performed must be referable to some contract concerning land: ibid, 542, 547, 554, 562, 568–70, on which
see Re Gonin [1979] Ch 16; Sutton v Sutton [1984] Ch 184). Cf Maddison v Alderson (1883) 8 App Cas 467.
86 Caton v Caton (1865) LR 1 Ch App 137, 148, aff ’d (1867) LR 2 HL 167.
87 Britain v Rossiter (1882) 11 QBD 123; McManus v Cooke (1887) 35 Ch D 681, 697.
88 Law Com No 164, paras 5.1–5.2. 89 Above, p 86, n 73; p 86, n 76.
90 Tootal Clothing Ltd v Guinea Properties Ltd (1991) 64 P & CR 452.
91 Ibid at 455 (Scott LJ); Wilde (1993) 109 LQR 191.
 formation of contract

[S]ection 2 is of relevance only to executory contracts. It has no relevance to contracts which

have been completed. If parties choose to complete an oral land contract or a land contract
that does not in some respect or other comply with section 2, they are at liberty to do so.
Once they have done so, it becomes irrelevant that the contract they have completed may not
have been in accordance with section 2.

But the primary tool the Law Commission anticipated would be used, instead of
‘part performance’, to enable justice to be achieved between the particular parties is
the equitable doctrine of proprietary estoppel. Furthermore, although not mentioned
by the Law Commission in its Report, its draft Bill excluded from the formalities
required by the Act ‘implied, resulting and constructive trusts’. This exclusion (which
is also found in relation to trusts of land)92 is embodied in section 2(5) of the 1989
Act.

(iv) Proprietary estoppel and constructive trusts

Under the doctrine of proprietary estoppel, a party to a transaction who detrimentally
relies on the belief (encouraged or acquiesced in by the other party) that he has or will
acquire rights in the property of the other will be protected by equity.93 Thus, the Law
Commission pointed to a case in which acquiescence in improvements to a property
was held to justify the conveyance of the fee simple94 and another in which non-
contractual assurances that a housekeeper could remain in a house were protected by
equitable relief.95
Closely akin to proprietary estoppel is a constructive trust based on a common
understanding or arrangement relied on by a claimant.96 Given the explicit exclusion
of constructive trusts in section 2(5) of the 1989 Act, it is not surprising that the Courts
have sometimes based their decision to give effect to the informal creation of an interest
in land by finding a constructive trust rather than by invoking proprietary estoppel.97
But although the view has been expressed that proprietary estoppel, as opposed to
a constructive trust, may unacceptably subvert the policy of section 2,98 the better
view, in line with the Law Commission’s intentions, is that, even where there is no
finding of a constructive trust, proprietary estoppel can be applied to avoid the formal
requirements of section 2.99
It is apparent that both proprietary estoppel and constructive trusts may provide
what in many cases was hitherto provided by the doctrine of part performance: a
remedy in a situation in which a party has acted on the void contract. Indeed, there are
significant overlaps. Proprietary estoppel, constructive trusts, and part performance

92 Law of Property Act 1925, s 53(2). 93 Below, pp 127–128.

94 Pascoe v Turner [1979] 1 WLR 431. 95 Greasley v Cooke [1980] 1 WLR 1306.
96 Yaxley v Gotts [2000] Ch 162.
97 Ibid; Kinane v Mackie-Conteh [2005] EWCA Civ 45, [2005] 2 P & CR DG3.
98 Godden v Merthyr Tydfil Housing Association (1997) 74 P & CR D1 (Simon Brown LJ); Kinane v Mackie-
Conteh [2005] EWCA Civ 45 (Neuberger LJ, who relied, by analogy, on the guarantee case of Actionstrength
Ltd v International Glass Engineering SpA [2003] UKHL 17, [2003] 2 AC 541; see above p 83); Cobbe v
Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1952 at [29] (Lord Scott); Thorner v Major
[2009] UKHL 18, [2009] 1 WLR 776 at [96] (Lord Neuberger).
99 Kinane v Mackie-Conteh [2005] EWCA Civ 45 (Arden LJ).
 form 89

can be seen as manifestations of the equitable principle that a person may not rely on
strict legal rights where to do so is unconscionable.100 It has been suggested101 that
the uncertainties of the Statute of Frauds and section 40(1) of the Law of Property
Act 1925 stemmed from the tendency of the judges to prevent technical and
unmeritorious circumvention of obligations by relying on noncompliance with the
statutory requirements. The indications are of a similar approach to the 1989 Act with
its new uncertainties. The Law Commission’s recognition that it would be necessary
to rely on estoppel and collateral contracts ‘to do justice between parties in individual
otherwise hard cases’,102 in which the strict application of the statutory requirement
would result in injustice, accepted this substantial qualification to its stated aim of
increasing certainty.

(v) Restitution of unjust enrichment

The parties to an agreement that does not comply with section 2 may also be entitled
to a restitutionary remedy. In principle a purchaser of land who has paid a deposit
to the vendor under such an agreement, ie a void contract, may recover it either for
total failure of consideration103 (except where the purchaser has received part of the
benefit bargained for in the contract, for example by entering into possession)104 or for
mistake of law.105
Where services are rendered under an agreement concerning land which does not
comply with the requirements of section 2 in the belief that there was a valid contract,
the party conferring the services may be able to recover their reasonable value.106
Thus, for example, restitution should be awarded in respect of alterations to property
effected by a lessor or vendor at the request of prospective tenants or purchasers in
the belief that there was a valid contract.107 In principle, restitution should also be
awarded in respect of services rendered by the prospective purchaser or lessee, for
example improvements to the property and other services rendered at the request of or
with the acceptance of the owner of property. As this would be limited to the executed
part of the transaction, it would not seem to undermine the policy of section 2, just
as restitution in respect of services rendered under contracts unenforceable for non-
compliance with the Statute of Frauds and similar provisions has not been held to
undermine the policy of those provisions.108

100 Yaxley v Gotts [2000] Ch 162, 176–7, 180, 181, 188, 193; Gillett v Holt [2001] Ch 210, 225.
101 Above, p 82. 102 Law Com No 164, para 5.7. See also ibid, paras 5.2, 5.4, 5.8.
103 See Rover International Ltd v Cannon Film Sales Ltd (No 3) [1989] 1 WLR 912, 925, 938; Westdeutsche
Landesbank Girozentrale v Islington LBC [1996] AC 669.
104 Linz v Electric Wire Co of Palestine [1948] AC 371, 377. On what count as such benefits, see below,
p 589. Note that the requirement that the failure of consideration be total has been put into question, see
below, p 590. 105 Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349 (mistake of law).
106 Rover International Ltd v Cannon Film Sales Ltd (No 3) [1989] 1 WLR 912, 926–8; Cobbe v Yeoman’s
Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1752.
107 By analogy with Brewer Street Investments Ltd v Barclays Woollen Co Ltd [1954] 1 QB 428, above,
pp 64, 68 (anticipated contract which failed to materialize).
108 Deglman v Guaranty Trust Co of Canada [1954] 3 DLR 785 (Canada); Pavey & Matthews Pty Ltd v Paul
(1986–87) 162 CLR 221 (Australia).
 formation of contract

(d) electronic contracts

Questions arise in relation to whether the formal requirements of, for example,
‘writing’ or a ‘signature’ are satisfied where contracts are made electronically.
It would appear that where contracts are made by e-mail or by trading on a website,
any requirement of writing will normally be satisfied.109 Provided it satisfies the
standard common law test of authenticity,110 it would also appear that the requirement
of a signature can be satisfied by, for example, a digital signature111 or by typing a name
into an electronic document.112
The EC Directive on Electronic Commerce requires member states to ensure that
their legal systems allow contracts to be concluded by electronic means and that such
contracts are not deprived of legal effectiveness on account of their being made by
electronic means.113 There are exceptions to this, in particular contracts creating or
transferring rights in real estate (except for rental rights), and contracts of guarantee
granted by persons acting outside their trade or business. The Law Commission
advised the Government that, with the exception of marine insurance, it would not be
necessary to amend statutory requirements of form to enable the use of most current
forms of electronic communications in commercial transactions.114 In line with this,
relatively little use has been made of section 8 of the Electronic Communications Act
2000 which, inter alia, empowers the appropriate Minister to modify any enactment
for the purpose of authorizing or facilitating the use of electronic communications
for the doing of anything which is required to be evidenced in writing or signed or
delivered as a deed or witnessed.115

109 Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch), [2006] 1 WLR 1543.
110 Under s 7 of the Electronic Communications Act 2000, an ‘electronic signature’ is admissible in
evidence. But that in itself does not mean that it is effective as a signature.
111 See eg the Judicial Studies Board’s Digital Signature Guidelines (2000) on public or dual-key
cryptography as a method of authenticating electronic communications.
112 Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch), [2006] 1 WLR 1543. The decision in this case
was that the automatic insertion of the name of the person from whom an e-mail has been sent does not
constitute a signature. 113 EC Directive 2000/31, OJ L178/1 17 July 2000.
114 Law Commission’s Advice to Government Electronic Commerce: Formal Requirements in Commercial
Transactions (December 2001). 115 s 8(1).
 4
CONSIDERATION AND
PROMISSORY ESTOPPEL
1. consideration

(a) consideration defined

Consideration is a universal requisite of contracts not made by deed. A promise is not
accordingly of itself enforceable in English law. Consideration is the doctrine designed
to establish which promises should be legally enforceable.1 What, then, is it? In Currie v
Misa2 Lush J stated:

A valuable consideration, in the sense of the law, may consist in some right, interest, profit,
or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility
given, suffered, or undertaken by the other.

This brings out the idea of reciprocity as the distinguishing mark; it is the gratuitous
promise that is unenforceable in English law.
We shall, however, see that consideration reflects a variety of policies and serves a
number of functions.3 First, enforceability may depend on the content of the promise
or the circumstances in which it was made.4 Thus, promises to do what one is already
obliged to do, particularly where a contract has been renegotiated, have, as we shall
see, caused difficulties. Secondly, consideration has been said to identify which
promises the parties intend to be legally enforceable. They may so intend either where
there is a substantive bargain, or where they have put the transaction into the form
of an exchange, for instance by providing that the promisee should pay a nominal
price to the promisor. It thus serves an evidential and formal function.5 Thirdly,
consideration is sometimes seen as a requirement which ensures that a promisor has
deliberately decided to contract and prevents parties accidentally binding themselves
on impulse.6

1 See Atiyah, Essays on Contract (1986) ch 8; Treitel (1976) 50 ALJ 439.

2 (1875) LR 10 Ex 153, 162. See also Thomas v Thomas (1842) 2 QB 851, 859; Bolton v Madden (1873) LR
9 QB 55, 56. 3 Llewellyn (1941) 41 Col L Rev 777, 778, 863; Simpson (1975) 9 LQR 247, 263.
4 Below, pp 104–111, 355–356 (pre-existing duties and duress).
5 Fuller (1941) 41 Col L Rev 799; Cohen (1933) 46 Harv L Rev 553, 582–3; below, pp 129–130.
6 Pillans v Van Mierop (1765) 3 Burr 1663, 1670 (Wilmot J).
92 formation of contract

(i) Benefit or detriment

It will be seen from the definition in Currie v Misa that consideration consists either in
some benefit to the promisor or some detriment to the promisee; but there is considerable
controversy as to the relative importance of these two factors. It is universally conceded
that detriment to the promisee in return for the promise is a good consideration, since
detriment is, as Sir Frederick Pollock has succinctly stated, ‘the price for which the
promise of the other is bought’.7 Yet the element of benefit cannot be entirely disregarded,
since there are some cases in which a promise has been held not to be gratuitous on the
ground that it secured some benefit to the promisor, though without any real detriment
to the promisee. So, for example, there was a contract between a pupil barrister and the
chambers whose offer of pupillage she had accepted. Even though no detriment was
suffered by her, because she did not undertake to perform any work or services for any
member of the chambers, the benefit to the chambers in having a pool of pupil barristers
who would compete for recruitment as members of the chambers sufficed.8

(ii) Given in return for the promise

The consideration must necessarily be given in return for the promise, and it is usually,
although not invariably,9 given at the request of the promisor. The promisee must,
therefore, prove either an exchange of promises (eg a promise to supply goods in return
for a promise to pay for them) or some act or forbearance on the part of the promisee
in return for the promise made. A benefit conferred or a detriment suffered otherwise
than in return for the promise of the other party cannot constitute consideration.10 In
particular, there will be no consideration merely because there is detrimental action by
the promisee in reliance on the promise, but not in return for it. Thus, in Combe v Combe,11
where a husband, upon divorce, promised his wife a permanent allowance of £100 a year,
the Court of Appeal refused to hold that a consequent forbearance on the part of the wife
to apply for maintenance amounted to consideration. The husband had not requested her
to forbear, and her action could not be said to have been in return for his promise to pay.

(iii) Consideration and condition

Consideration must also be distinguished from the fulfilment of a condition. If A
says to B, ‘I will give you £500 if you break your leg’, there is no contract, but simply a

7 Principles of Contract (13th edn, 1950) 133 (and earlier editions), approved in Dunlop Tyre Co Ltd v
Selfridge Ltd [1915] AC 847, 855, and by the Sixth Interim Report of the Law Revision Committee, Statute
of Frauds and the Doctrine of Consideration (Cmd 5449, 1937) 12. Cf Atiyah, Essays on Contract (1986) 183
(consideration is a ‘reason for the recognition of an obligation’).
8 Edmonds v Lawson [2000] QB 501. See also Alliance Bank Ltd v Broom (1864) 2 Dr & Sm 289, below,
p 103; De la Bere v Pearson [1908] 1 KB 280, below, p 100, n 47; Ward v Byham [1956] 1 WLR 496, 498,
below, p 105; Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87, below, p 93; Williams v Roffey Bros & Nicholls
(Contractors) Ltd [1991] 1 QB 1, 15–16, below, p 109.
9 Goodhart (1951) 67 LQR 456 effectively demonstrates that a request is not essential to a binding
obligation provided that the consideration is referable to the promise. Cf Smith (1953) 69 LQR 99. See also
Ball v National and Grindlays Bank Ltd [1973] Ch 127.
10 Wigan v English and Scottish Law Life Assurance Association [1909] 1 Ch 291.
11 [1951] 2 KB 215; see below, pp 123–124.
 consideration and promissory estoppel 93

gratuitous promise subject to a condition.12 Where the condition consists of the

performance of some act by the promisee, the position may be more doubtful. If C says
to D, ‘You can have my flat if you move in and look after me’, there may still be only
a conditional gift, unless performance of the stipulation is regarded by the parties as
the price to be paid for the promise.13 This issue was discussed in Chappell & Co Ltd v
Nestlé Co Ltd:14

C were the owners of the copyright of a tune called ‘Rockin’ Shoes’ and N were manufacturers
of chocolate. N offered to the public records of this tune in return for 1s/6d and the wrappers
from three bars of their chocolate. Under the statutory provisions then in force15 any person had
an automatic right to use a copyright tune for a record, provided he paid a certain percentage
of the ‘ordinary retail selling price’ of the record to the copyright owner. C contended that N
could not rely on the statute, since it contemplated a price consisting of money alone, whereas
in this case the consideration for the record included three chocolate wrappers.

In finding for C, the House of Lords, by a bare majority, held that the wrappers formed
part of the selling price (consideration) for the record. The object of selling the record
was to increase the sales of chocolate and the stipulated evidence of such sales formed
part of the consideration. The acquisition of the wrappers was not simply a condition
limiting the class of persons qualified to purchase records.

(b) necessity for consideration

Consideration is necessary for the formation of every simple contract; a promise
(unless in a deed) made without consideration is not actionable as a contract16 in
English law.
As we have seen, from the very beginning of the action of assumpsit, a claimant
who could not produce a sealed instrument had to show that he had contributed to the
bargain by furnishing a valuable consideration of some kind.17 In 1756, however, Lord
Mansfield became Chief Justice of the King’s Bench, and the doctrine of consideration
was attacked by him in two fundamental respects. In the first place, he asserted that
consideration was only one of several modes of supplying evidence of the promisor’s
intention to be bound; and that if the terms of a contract were reduced to writing
by reason of commercial custom, or in obedience to statutory requirement, such
evidence dispensed with the need for consideration.18 In Rann v Hughes, however,
Lord Mansfield’s proposal was overruled. Skynner CB stated:19

12 Shadwell v Shadwell (1860) 9 CBNS 159, 177 (Byles J).

13 Ellis v Chief Adjudication Officer [1998] 1 FLR 184 (no intent to contract and condition not
performed). 14 [1960] AC 87.
15 Copyright Act 1956, s 8. The statutory licence to record was abolished by the Copyright, Designs and
Patents Act 1988, s 170 and Sched 1, para 21.
16 But see Denning (1952) 15 MLR 1, and below, pp 117–119.
17 Above, pp 13–16.
18 Pillans v Van Mierop (1765) 3 Burr 1663. This is the position in Scotland: Lord Normand (1939) 55 LQR 358.
19 (1778) 7 TR 350n. It should be noted, however, that the only report of the actual decision of the House
of Lords states that the case was decided on the ground of failure to comply with the Statute of Frauds: (1778)
4 Brown PC 27.
94 formation of contract

All contracts are by the law of England divided into agreements by speciality and agreements
by parol; nor is there any such third class as some of the counsel have endeavoured to
maintain as contracts in writing. If they be merely written and not specialties, they are parol,
and a consideration must be proved.

Lord Mansfield’s second attack was to hold that the existence of a previous moral
obligation was sufficient to support an express, but gratuitous, promise.20 This looser
usage of consideration as equivalent to the civilian requirement of ‘causa’ was finally
rejected in Eastwood v Kenyon:21

E had been guardian and agent of Mrs K while she was a minor, and had incurred expenses
in the improvement of her property: he did this voluntarily and, in order to do so, was
compelled to borrow money, for which he gave a promissory note. When Mrs K came of age
she assented to the transaction and after her marriage her husband promised to pay the note.
He was sued upon this promise.

It was held that the moral obligation to fulfil such a promise was insufficient where
the consideration was wholly past. ‘Indeed’, said Lord Denman,22 ‘the doctrine would
annihilate the necessity for any consideration at all, inasmuch as the mere fact of
giving a promise creates a moral obligation to perform it’.
From that time onwards, every promise not in a deed has been subject to a general
and uniform test of actionability. In each case it is necessary to ask whether the
promisor gets any benefit or the promisee sustains any detriment, present or future,
in respect of the promise. If not, the promise is gratuitous and is not contractually
binding. The variety of policies that may be reflected in the doctrine of consideration
has been noted. In working out this doctrine to its logical results it has, no doubt,
happened from time to time that the Courts have been compelled to hold a promise
to be invalid which the parties intended to be binding, or that the slightness of the
benefit or detriment which has been held to constitute a consideration has tended to
bring the requirement into ridicule. The Courts are reluctant to describe a promise
made in a commercial context as gratuitous and it has been said that ‘a defence of lack
of consideration rarely has merit’23 and that ‘businessmen know their own business
best even when they appear to grant an indulgence’.24 The doctrine has therefore been
the subject of considerable criticism,25 but it is advisable to reserve a discussion of this
until the general rules governing the application of consideration to contracts have
been examined.

20 Lee v Muggeridge (1813) 5 Taunt 36, 46 (Sir James Mansfield CJ, who was Chief Justice of Common
Pleas). 21 (1840) 11 A & E 438.
22 Ibid, 450.
23 Thorensen Car Ferries Ltd v Weymouth Portland BC [1977] 2 Lloyd’s Rep 614, 619 (Donaldson J) 619.
24 Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741, 757–8
(Lord Hailsham LC). See also New Zealand Shipping Co Ltd v Satterthwaite [1975] AC 154, 157.
25 See the Sixth Interim Report of the Law Revision Committee (Cmd 5449, 1937).
 consideration and promissory estoppel 95

(c) executory and executed consideration

As far as the relation of the consideration to the promise in respect of time is concerned,
a consideration may be executory, a promise given for a promise; or it may be executed,
an act or forbearance given for a promise.
An executory consideration consists of a promise to do, forbear, or suffer, given in
return for a like promise. Thus mutual promises, for example, a promise to do work
in return for a promise of payment, are illustrations of executory consideration. The
fact that the promise given for a promise may be dependent upon a condition does
not affect its validity as consideration. A promises B to do a piece of work for which B
promises to pay if the workmanship is approved by a third party. The promise of B is
consideration for the promise of A.
A contract arises upon a present or executed consideration when one of the two
parties has, either in the act which constitutes an offer or in the act which constitutes
an acceptance, done all that party is bound to do under the contract, leaving an
outstanding liability on one side only. The case of an act which constitutes an offer
may be illustrated by the example of one who offers to do work or provide goods in
circumstances that show an obvious expectation that payment be made; the contract
arises when the work or goods are accepted by the person to whom they are offered,
and that person by accepting them becomes bound to pay a reasonable price. So if a
wine merchant sends to a customer a selection of wines, and the customer retains
some and returns the rest, the customer will be bound to pay for those retained,
since the tender of the wine will be at once the offer and the consideration for the
obligation.26 On the other hand, a contract for which the consideration is the act
which constitutes an acceptance is best illustrated by the case of an advertisement of
a reward for services, which becomes a binding promise when the service is rendered.
In such cases it is not the offeror, but the acceptor, who has performed at the moment
when the contract is entered into. If A makes a general offer of reward for information
and B supplies the information, A’s offer is turned into a binding promise by the act
of B, and B simultaneously concludes the contract and furnishes consideration by
performance.27

(d) past consideration

Executed consideration must be distinguished from past consideration which is a mere
sentiment of gratitude for benefits received. In the case of executed consideration,
both the promise and the act which constitutes the consideration are integral and
co-related parts of the same transaction.28 In the case of past consideration, however,
the promise is subsequent to the act and independent of it; they are not in substance
part of the same transaction. Thus if A saves B from drowning, and B later promises
A a reward, A’s action cannot be relied on as consideration for B’s promise for it is

26 Hart v Mills (1846) 15 M & W 85; Cf Taylor v Laird (1856) 1 H & N 266; above, p 39.
27 Above, p 38. See Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
28 Westminster CC v Duke of Westminster [1991] 4 All ER 136, 145.
96 formation of contract

past in point of time. Past consideration is, in effect, no consideration at all; that
is to say it confers no benefit on the promisor, and involves no detriment to the
promisee in return for the promise. It is merely an act or forbearance in time past
by which a person has benefited without incurring any legal liability. If afterwards,
whether from good feeling or interested motives, the person who has benefited
makes a promise to the person whose act or forbearance led to the benefit, and that
promise is made upon no other consideration than the past benefit, it is gratuitous
and cannot be enforced. In Roscorla v Thomas29 this principle was clearly stated:

The claimant purchased a horse from the defendant, who afterwards, in consideration of the
previous sale, warranted that the horse was sound and free from vice. It was in fact a vicious
horse.

The Court held that the sale itself created no implied warranty that the horse was not
vicious. The warranty had therefore to be regarded as independent of the sale and as
an express promise based upon a previous transaction. It fell, therefore, ‘within the
general rule that a consideration past and executed will support no other promise than
such as would be implied by law’.
The general rule is, however, subject to certain exceptions.

(i) Previous request of the promisor

A past consideration will, it has been said, support a subsequent promise, if the
consideration was given at the request of the promisor. Originally this was an
unqualified exception based on the fact that, as was said in 1615 in Lampleigh v
Brathwait:30

the promise though it follows, yet it is not naked, but couples itself with the suit before, and
the merits of the party procured by that suit, which is the difference.

In the nineteenth century, however, with the rejection of Lord Mansfield’s view that a
previous moral obligation might be good consideration,31 the scope of the exception
was restricted. By the end of the nineteenth century it was clear that a past service
performed at the request of the promisor will only amount to consideration if it was
assumed at the time that the service was ultimately to be paid for.
In Re Casey’s Patents, Stewart v Casey,32 the owners of certain patent rights promised
their manager a one-third share of the patents in consideration of his services in having
worked for them. The Court of Appeal rejected the argument that this consideration
was past. It held that the fact of the services by the manager raised an implication that
they were to be paid for; the subsequent promise to pay was then an admission of a

29 (1842) 3 QB 234. See also Eastwood v Kenyon (1840) 11 Ad & E 438, above p 94; Re McArdle [1951] Ch
669; Savage v Uwechia [1961] 1 WLR 455.
30 (1615) Hob 105, 106 (subsequent promise to pay for requested attempt to obtain pardon held
enforceable). 31 Above, p 94.
32 [1892] 1 Ch 104. See also Kennedy v Broun (1863) 13 CBNS 677, 740.
 consideration and promissory estoppel 97

bargain and fi xed the amount of the remuneration on the basis of which the services
were originally rendered.
In Pau On v Lau Yiu Long33 the Judicial Committee of the Privy Council stated the
conditions in which this exception will apply as follows:

An act done before the giving of a promise to make a payment or to confer some other
benefit can sometimes be consideration for the promise. The act must have been done
at the promisor’s request, the parties must have understood that the act was to be
remunerated either by a payment or the conferment of some other benefit, and payment,
or the conferment of a benefit, must have been legally enforceable had it been promised
in advance.

In that case the defendant had requested the claimant to promise not to sell certain
shares for a year and later promised to indemnify the claimant if the shares fell
below a certain price. The defendant contended that the consideration for the
indemnity was past but it was held that all three conditions mentioned above were
satisfied.
It is arguable, however, that this exception is an apparent rather than a real
departure from the general doctrine as to past consideration. When a request
is made which is in substance an offer of a promise upon terms to be afterwards
ascertained, and an act is done in pursuance of that request, a subsequent promise to
pay a fi xed sum or to confer some other benefit may be regarded as a part of the same
transaction, the effect of the promise being merely to render certain that which was
uncertain before.

(ii) An antecedent debt

It has sometimes been thought that the existence of an existing debt is sufficient
consideration for a subsequent promise to pay that debt.34 It should not be supposed,
however, that the existence of a debt from A to B will always be consideration for
any subsequent promise which A may make to pay that debt. There must be present
consideration in the form of a forbearance to sue by the creditor, or else, if a security
is given by the debtor, it must be communicated to the creditor and induce such a
forbearance.35

(iii) Negotiable instruments

By section 27(1) of the Bills of Exchange Act 1882, valuable consideration for a bill
may be constituted by: (a) any consideration sufficient to support a simple contract;
or (b) an antecedent debt or liability. So if A, whose account at the bank is overdrawn,
negotiates to its banker a cheque drawn by a stranger, the banker becomes a holder for

33 [1980] AC 614, 629. See below, p 107, for the facts.

34 Slade’s Case (1602) 4 Co Rep 91a, above, p 15. Note that such promises, if in writing, can have the effect
of extending the limitation period, below, p 607.
35 Wigan v English and Scottish Law Life Assurance Association [1909] 1 Ch 291.
98 formation of contract

value of the cheque, as the antecedent debt of A is consideration for the instrument.36
Th is is a genuine exception to the rule that past consideration does not count.

(e) consideration must move from the promisee

This long-standing maxim is surprisingly ambiguous and confusing.37 It has three
possible meanings.
First, it may mean nothing more than that to be enforceable a promise, not made by
deed, must be supported by consideration. If A promises B £1,000, B cannot enforce
the promise (unless made by deed) because there is no consideration for A’s promise.
Although B is a promisee, it has not provided consideration and ‘consideration must
move from the promisee’. In this sense, the maxim merely restates, and adds nothing
to, the requirement of consideration.
Secondly, it may mean that, even though the promise is supported by consideration
provided by the promisee, the consideration must move from the claimant: ie, the
person seeking to enforce the contract must itself have provided the consideration
for the promise. So if A promises B to pay C £1,000 in return for B doing work for A,
C cannot enforce the contract because the consideration has moved from B and not
from C. In this sense the maxim overlaps with, and indeed is indistinguishable from,
the doctrine of privity of contract according to which only a party to a contract can
enforce it. So in the above example, one would standardly explain the result without
referring to the consideration maxim by saying that C cannot enforce the contract
between A and B because C is not a party to it. Indeed, the early cases which are
now regarded as establishing the privity doctrine were ones in which the reasoning
used was that the claimant could not enforce the contract because it had not provided
the consideration.38 It also follows that exceptions to privity,39 in particular the
Contracts (Rights of Third Parties) Act 1999, also constitute exceptions to the need for
consideration to move from the claimant.
Th irdly, the maxim may mean that a promisee cannot enforce a promise made
to it where the consideration for the promise has been provided by someone else.
So if A promises B that in return for C doing work for A, A will pay B £1,000, B
cannot enforce the promise because, although B is the promisee, C has provided
the consideration and ‘consideration must move from the promisee’. B has suffered
no detriment (unless B impliedly undertook to procure that C would do the work)
and, although A has received the benefit, that benefit was conferred by C, and not
by B. While used in this sense the maxim has an independent force, separate from
the requirement of consideration and the doctrine of privity, the situations where it
will apply are extremely rare. So, in the example just considered, unless there is a
connection between B and C so that B may itself be providing consideration, it will be

36 But see Oliver v Davis [1949] 2 KB 727.

37 Furmston (1960) 23 MLR 373; Smith, The Law of Contract (4th edn, 2002) 94–96; Law Revision
Committee, Sixth Interim Report (1937) para 37; Law Commission, Law Com No 242 (1996) Part VI.
38 Tweddle v Atkinson (1861) 1 B & S 393; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC
847. See below, Ch 21. 39 See below Ch 21.
 consideration and promissory estoppel 99

very unusual for A to be promising to pay B for work that C does for A. More realistic
would be where B and C are joint promisees. Say, for example, A promises B and C to
pay B £1,000 if C will do certain work desired by A. If C does the work, and A refuses
to pay the £1,000 to B, can B sue A? If not, one might say that, even though B is a party
to the contract,40 because the promise is made to B and C, the reason B cannot enforce
A’s promise is because it has not provided consideration: consideration must move
from the promisee. However, while there is no clear English authority, the High Court
of Australia in Coulls v Bagot’s Executor & Trustee Co Ltd41 indicated that the joint
promisee can enforce a contract in this situation. It is submitted that that ought to be
applied in England and, if it were, it would follow that the maxim ‘consideration must
move from the promisee’ in its third independent sense would be rendered inaccurate
in relation to its most realistic possible application.

(f) consideration need not be adequate

Consideration need not be adequate but it must be of some value in the eye of the law.
The Courts will not make bargains for the parties and, if a person gets what has been
contracted for, they will not inquire whether it was an equivalent to the promise which
was given in return: ‘the adequacy of the consideration is for the parties to consider at
the time of making the agreement, not for the Court when it is sought to be enforced’.42
The most trifling detriment or benefit will suffice, and the following cases will show
that the Courts have been prepared to find a contract where the consideration was
virtually non-existent.
We have already seen that in Chappell & Co Ltd v Nestlé Co Ltd43 wrappers from
chocolate bars were held to be part of the consideration for the sale of a record. In
Bainbridge v Firmstone:44
B owned two boilers. At the request of F, B allowed F to weigh them provided he returned
them in as good a condition as they were lent. F dismantled the boilers to weigh them and
returned them in this state. B sued for breach of the agreement.

F was held liable. ‘The consideration’, said Patteson J,45 ‘is that the plaintiff, at the
defendant’s request, had consented to allow the defendant to weigh the boilers. I
suppose the defendant thought he had some benefit; at any rate, there is a detriment to
the plaintiff from his parting with the possession for even so short a time’.

40 Th is depends on what one means by a ‘party’ to a simple contract. If one defi nes a party as someone who
has provided consideration, then C would not be a party and would appear to fall foul of the privity doctrine
as well as the rule that consideration must move from the promisee.
41 (1967) 119 CLR 461. See Coote [1978] CLJ 301. Cf McEvoy v Belfast Banking Co Ltd [1935] AC 24, 43
(consideration supplied by one of two joint and several promisees).
42 Bolton v Madden (1873) LR 9 QB 55, 57 (Blackburn J).
43 [1960] AC 87, above, p 93. Cf Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 (gaming chips not
consideration, inter alia, because they were ‘worthless’: but that was in the context not of deciding whether
there was an enforceable contract but rather in deciding whether ‘value’ had been given for the purposes of
the defence of being a bona fide purchaser for value without notice.) 44 (1838) 8 A & E 743.
45 Ibid, 744.
100 formation of contract

In Haigh v Brooks,46 the consideration of a promise to pay certain bills was the
surrender of a document supposed to be a guarantee, which turned out to be of
doubtful validity. The worthlessness of the document surrendered was held to be no
defence to an action on the promise. The Court was not concerned with the adequacy
or inadequacy of the price paid or promised. ‘The plaintiffs were induced by the
defendant’s promise to part with something which they might have kept, and the
defendant obtained what he desired by means of that promise’.47
The consequence of the rule that the Court is not concerned with the adequacy of
consideration is that the requirement can be satisfied by nominal consideration. At
common law ‘a contracting party can stipulate for what consideration he chooses.
A peppercorn does not cease to be good consideration if it is established that the
promisee does not like pepper and will throw away the corn’.48 Statute, however, may
make the adequacy of consideration relevant in a particular context. Thus, property
legislation distinguishes a transaction for ‘nominal’ consideration from one for
‘valuable’ consideration,49 and the term ‘consideration’ in the Local Government Act
1972 only includes elements of commercial or monetary value.50
In the Roman law of sale, as in certain modern continental systems, the price had
to be a serious one—more than just nominal—otherwise the contract could not be
characterized as a contract of sale; and in later Roman law the doctrine of laesio
enormis was developed under which the seller of land could rescind the contract where
the price was less than half the value of the land unless the buyer was willing to come
up to the fair price.51 This doctrine of laesio enormis forms no part of the English
common law. Even where statute has intervened to protect a class of contractor, such as
consumers, it does not always require a ‘fair’ or ‘reasonable’ or ‘market’ price.52 In equity,
inadequacy of consideration is treated as relevant in deciding whether there has been
undue influence, or whether the bargain is unconscionable, so as to allow the contract
to be rescinded. 53 However, it is arguable that mere inadequacy of consideration is not
itself a ground on which the equitable remedy of specific performance of a contract
will be refused.54 Thus specific performance was ordered of an option to purchase a

46 (1839) 10 A & E 309; aff ’d sub nom Brooks v Haigh (1840) 10 A & E 323, where it was said by Maule J that
the delivery of the paper alone would suffice. See also Veitch v Sinclair [1975] 1 NZLR 264.
47 (1839) 10 A & E 309, 320 (Lord Denman CJ). See also De la Bere v Pearson [1908] 1 KB 280 (possible
benefit to newspaper in publishing letter held to be consideration for offer to give financial advice) although
liability today would probably lie in tort: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465,
527–8.
48 Chappell & Co Ltd v Nestlé Co Ltd, above, n 43, 114 (Lord Somervell). See also above, p 93.
49 Land Charges Act 1972, s 17(1); Law of Property Act 1925, ss 84(7) and 205(1)(xxi); Westminster
CC v Duke of Westminster [1991] 4 All ER 136, 146. See also Insolvency Act 1986, s 238 (transactions at
undervalue). 50 R v Pembrokeshire CC, ex p Coker [1999] 4 All ER 107.
51 Nicholas, Introduction to Roman Law (1962) 174–5. For modern French law, see Nicholas, The French
Law of Contract (2nd edn, 1992) 147 (sale at nominal price can be recharacterized as a donation deguisée),
137–41 (lésion). See also Gordley, Foundations of Private Law (2006) 364–6.
52 Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083), r 6(2)(b), on which see
below, p 206. Cf Rent Act 1977, s 70(1) (fair rent); Agricultural Holdings Act 1986, s 12, Sched 2, para 1(1)
(prudent and willing parties). 53 Below, pp 365, 374.
54 See, eg, Coles v Trecothick (1804) 9 Ves Jun 234, 246 (Lord Eldon). But specific performance will not be
ordered of a promise made under deed, and not supported by consideration, applying the maxim that ‘equity
will not assist a volunteer’: Cannon v Hartley [1949] Ch 213.
 consideration and promissory estoppel 101

house for £10,000 even though the consideration for the grant of the option was the
nominal sum of £1.55

(g) consideration must be real

Though consideration need not be adequate, it must be real. It must be ‘something
which is of some value in the eye of the law’. Thus, ‘it is no consideration to refrain
from a course of action which it was never intended to pursue’.56 This section examines
those cases where the reality of consideration has been questioned or defined.

(i) Motive and consideration

Motive must be distinguished from consideration. In Thomas v Thomas:57
A deceased husband’s executor promised to allow his widow to occupy a house the deceased
had owned in return for her promise to keep it in repair and to pay a ground rent of £1 per
annum. The executor stated that the agreement was entered into ‘in consideration of’ the
expressed desire of the deceased that his wife should have the use of the house during her
lifetime.

It was held that the desire to carry out the wishes of the deceased did not amount to
consideration: ‘Motive is not the same thing with consideration. Consideration means
something which is of some value in the eye of the law, moving from the plaintiff ’.58
In one sense, however, motive is relevant in that the consideration must be given in
return for the promise; but the motive of the promisor must be to obtain a legally
recognizable return for the obligation incurred, and not something which is of no
value in the eye of the law. So, the desire of one member of a pop group to avoid the
danger of internal dissention that might result if he had a larger income than others
in the group did not constitute consideration for his promise to make payments to the
others. 59
It has already been noted that, at the end of the eighteenth and the beginning of
the nineteenth century, the moral obligation to make a return for past benefit was an
equivalent to consideration. But past consideration is no consideration, and what the
promisor gets in such a case is the satisfaction of the motive of gratitude. The question
was settled once and for all in Eastwood v Kenyon,60 where the final blow was given
to the doctrine that consideration for a promise could consist in a motive or moral
obligation resting on the promisor.

55 Mountford v Scott [1975] Ch 258 (Brightman J). But note that, in contrast to Brightman J, the Court of
Appeal in that case regarded the option as having been exercised so that the specific performance related to
the contract of sale for £10,000 not the option contract for which the consideration was nominal.
56 Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98, 106. But an act may be consideration
even if it is not solely induced by the promise: Brikom Investments Ltd v Carr [1979] QB 467, 490.
57 (1842) 2 QB 851.
58 Ibid, 859 (Patteson J). The issue arose because the executor had argued that the widow’s case was
procedurally defective because her declaration referred only to her promise to repair and pay rent and
omitted to state part of the consideration, ie the desire of her deceased husband. The Court rejected this and
found for the widow. 59 Hadley v Kemp [1999] 2 EMLR 589, 625 (Park J).
60 (1840) 11 A & E 438; above, p 94.
102 formation of contract

(ii) Impossibility
Impossibility, either physical or legal, which exists at the time of formation of the
contract and is obvious upon the face of it, makes the consideration unreal. The
impossibility must be obvious, such as is, ‘according to the state of knowledge of the
day, so absurd that the parties could not be supposed to have so contracted’.61 Thus a
covenant in a charterparty that a ship would sail on a date which was already past at the
time the contract was executed was held to be void for unreality in the consideration
furnished.62 Again, the old case of Harvy v Gibbons,63 where a bailiff was promised
£40 in consideration of a promise made by him that he would release a debt due to his
master, is an example of legal impossibility. The Court held that the bailiff could not
sue; that the consideration furnished by him was ‘illegal’, for a servant could not release
a debt due to his master. By ‘illegal’ it is plain that the Court meant legally impossible.

(iii) Uncertainty
A promise which purports to be a consideration may be of too vague and insubstantial
a character to be enforced. Thus a promise which in terms leaves performance
exclusively in the discretion of the promisor will not be enforceable; the consideration
being illusory.64 Again, in White v Bluett:65

In proceedings by his father’s executors on a promissory note, a son alleged that the father had
promised to discharge him from liability in consideration of his promise to cease complaining,
as he had been used to do, that he had not enjoyed as many advantages as his brothers.

It was said that the son’s promise was no more than a promise ‘not to bore his father’,
and was too vague to form a consideration for the father’s promise to waive his rights
on the note although, in another case, a promise to make a child happy was stated to
be part of the consideration.66 Again, it has been held that a promise to co-operate in
the recovery from a joint debtor was sufficiently certain to form a consideration for a
forbearance.67 Other instances of uncertainty have already been given in connection
with incomplete agreements68 and it is arguable that it is better to view decisions such
as White v Bluett as turning on there being ‘no intention to create legal relations’ rather
than there being no consideration.

(iv) Forbearance to sue

There is a clear public interest in encouraging the avoidance of litigation and the
resolution of disputes by the parties provided that the settlement or compromise is
genuine, and entered into freely without the concealment of essential information,

61 Lord Clifford v Watts (1870) LR 5 CP 577, 588 (Brett J).

62 Hall v Cazenove (1804) 4 East 477. 63 (1675) 2 Lev 161.
64 Stabilad Ltd v Stephens & Carter Ltd (No 2) [1999] 2 All ER 651, 660 (Peter Gibson LJ).
65 (1853) 23 LJ Ex 36.
66 Ward v Byham [1956] 1 WLR 496; below, p 105. See also Dunton v Dunton (1892) 18 VLR 114 (Australia);
Hamer v Sidway 27 NE 256 (1891) (USA).
67 Bank of Nova Scotia v MacLellan (1977) 78 DLR (3d) 1 (Canada). 68 See above, p 66.
 consideration and promissory estoppel 103

the taking of undue advantage,69 or the exertion of illegitimate pressure.70 A

forbearance to sue, even for a short time, may be consideration for a promise,
although there is no waiver or compromise of the right of action. In Alliance Bank
Ltd v Broom:71
The defendants, Messrs Broom were asked to give security for moneys they owed to the
bank. They promised to assign the documents of title to certain goods; they failed to do so,
and the bank sued for specific performance of the promise.

The Court held that the bank was entitled to this remedy:

Although there was no promise on the part of the plaintiffs to abstain for any certain time
from suing for the debt, the effect was that the plaintiffs did, in effect, give, and the defendant
received, the benefit of some degree of forbearance; not, indeed, for any definite time, but, at
all events, some extent of forbearance . . . The circumstances necessarily involve the benefit
to the debtor of a certain amount of forbearance, which he would not have derived if he had
not made the agreement.72

The consideration in such a case clearly consists in the benefit received by the promisor
in that the promise ‘stays the hand of the creditor’.73
In order that the forbearance should be a consideration, some liability should be
shown to exist, or to be reasonably supposed to exist, by the parties. If the claim is not
only invalid, but is known by the party forbearing to be so, there is no consideration.74
It would also seem that the claim must be an honest claim and one which the promisee
bona fide intends to pursue.75 Where the claim arises out of an illegal agreement, a
forbearance to sue on that claim is not sufficient consideration.76

(v) Compromise of a dispute

The same public interest in encouraging the avoidance of litigation and the resolution
of disputes applies to a compromise of a dispute, for instance by a promise to pay
a proportion of a disputed sum claimed, again provided that it is genuine, and
entered into freely without the concealment of essential information, the taking of
undue advantage, or the exertion of illegitimate pressure.77 The difference between
forbearance and compromise is that in compromise the debtor does not admit the
claim and the creditor promises to abandon the claim. So in the case of forbearance,

69 Colchester BC v Smith [1992] Ch 421, 435. Payments made to close a transaction are irrecoverable even
if there is no consideration: Woolwich BS v IRC [1993] AC 70, 165; Law Com No 227, Restitution: Mistakes of
law and ultra vires public authority receipts and payments (1994) paras 2.25–2.38.
70 Huyton SA v Peter Cremer GmbH [1999] 1 Lloyd’s Rep 620, 629–30. On duress, see Ch 10 below.
71 (1864) 2 Dr & Sm 289. 72 Ibid, 292.
73 Cf Cook v Wright (1861) 1 B & S 559, 569. 74 Wade v Simeon (1846) 2 CB 548, 564.
75 Miles v New Zealand Alford Estate Co (1886) 32 Ch D 266, 284; Colchester BC v Smith [1992] Ch 421,
435. See also BCCI SA v Ali [2001] 1 AC 251 (equitable relief against release procured by concealment of
facts).
76 Cf Poteliakhoff v Teakle [1938] 2 KB 816; Hill v William Hill (Park Lane) Ltd [1949] AC 530; (gaming
contracts, although such contracts are no longer illegal: Gambling Act 2005, below, p 383, n 21). But cf
below, n 80. 77 Huyton v Cremer [1999] 1 Lloyd’s Rep 620, 629–30.
104 formation of contract

the offer is in effect, ‘I admit your claim but will do or promise something if you will
stay your hand’. In the case of a compromise the offer is in effect, ‘I do not admit your
claim but I will do or promise something if you will abandon it’. It has, however,
been argued that if the claim compromised is of an insubstantial character the
consideration fails. The answer is to be found in the judgment of Cockburn CJ in
Callisher v Bischoffsheim:78

Every day a compromise is effected on the ground that the party making it has a chance of
succeeding in it, and if he bona fide believes that he has a fair chance of success, he has a
reasonable ground for suing, and his forbearance to sue will constitute a good consideration.
When such a person forbears to sue he gives up what he believes to be a right of action, and
the other party gets an advantage, and, instead of being annoyed with an action, he escapes
from the vexations incident to it . . . It would be another matter if a person made a claim
which he knew to be unfounded, and, by a compromise, derived an advantage under it: in
that case his conduct would be fraudulent.

In that case, the defendant agreed to deliver to the claimant certain securities in
consideration that the claimant would cease to press a claim against the Honduras
Government. The claim was worthless, but there was no evidence that the claimant
knew this.79 It was held that there was consideration for the agreement. If, however,
one of the parties to the compromise has no case, and knows that there is no case, the
agreement to compromise will not be held binding.
As in the case of forbearance, the compromise of a claim arising out of an illegal
contract is insufficient as consideration, unless the compromise arises out of a dispute
of fact as to whether the contract is in fact illegal.80

(h)performance of, or promise to perform, an existing

duty
Where what is done, or promised, is no more than that to which the promisee is
legally bound, and if nothing is got in return for the promise but that to which
the promisor is already legally entitled, the consideration seems unreal.81 Th is may
occur where the promisee is already under an existing duty to do something and
then promises to do that thing. If you have to do an act anyway, how can it be to your
detriment to reaffi rm your obligation? If the act will be done anyway, how does it
benefit me to pay you to do it? The law draws a distinction between the performance
of, or promise to perform, a public duty, the performance of, or promise to perform,
an existing duty to a third party, and the performance of, or promise to perform, an
existing duty owed to the promisor. In the first case the conventional view is that
there is no consideration for the promise. In the second the law holds that valuable
consideration is present. In the third case it has been held that only where there

78 (1870) LR 5 QB 449, 452.

79 See also Wigan v Edwards (1973) 1 ALR 497 (Australia) (honest claim sufficient).
80 Binder v Alachouzos [1972] 2 QB 151,158 (Lord Denning MR).
81 See Davis (1937) 6 CLJ 202; Reynolds and Treitel (1965) 76 Malaya LR 1.
 consideration and promissory estoppel 105

is, in the particular circumstances, a ‘practical’ benefit to the promisee is there

consideration.

(i) Existing public duty

The conventional view is that, where the promisee is already under an existing
public duty, an express promise to perform, or performance of, that duty will not
amount to consideration.82 There will be no detriment to the promisee or benefit
to the promisor over and above their existing rights and liabilities. In Collins v
Godefroy:83

The claimant received a subpoena to appear at a civil trial as a witness on behalf of the
defendant. The defendant promised him a sum of money for his trouble. A person who
receives a subpoena is bound to attend and give evidence.

It was held that there was no consideration for the promise, the claimant being under
a public duty to attend.
Where the undertaking is to do more than that to which the promisee is legally
bound, this may be consideration, even though it is an act of the same kind as the
subject of the obligation. In Glasbrook Brothers Ltd v Glamorgan County Council,84
a police authority sued for the sum of £2,200 promised to it by a colliery company
for whose mine the authority had provided a stronger guard during a strike than
was in its opinion necessary. It was held that it was entitled to maintain an action on
the promise.85 Again, in Ward v Byham it was held that there was consideration for
a promise to pay a weekly sum to the mother of an illegitimate child if the mother
proved the child was ‘well looked after and happy’.86 Morris LJ considered the mother
had promised more than her statutory duty to maintain the child. Denning LJ’s view87
was that she was only promising to do what she was bound to do but that this sufficed
because it was a benefit to the promisor (the child’s father).
More recently Ward v Byham has been explained as an instance of the recognition
that the mother’s promise was a ‘practical’ benefit to the father which thus amounted
to consideration for his promise.88 It is possible the recognition that such ‘practical’
benefit can constitute consideration may lead to the reassessment of the general rule
but, in the context of pre-existing public duties, it is important to bear in mind that it
may be contrary to the public interest to give such recognition to a ‘practical’ benefit

82 Thorensen Car Ferries Ltd v Weymouth Portland BC [1977] 2 Lloyd’s Rep 614, 619. Earlier cases tend
to suggest that an agreement of this nature is invalid on grounds of public policy: Wathen v Sandys (1811) 2
Camp 640; Bilke v Havelock (1813) 3 Camp 374. 83 (1831) 1 B & Ad 950.
84 [1925] AC 270.
85 See also England v Davidson (1840) 11 A & E 856; Neville v Kelly (1862) 12 CBNS 740 (rewards for police
officers) and Goulden v Wilson Barca [2000] 1 WLR 167 (payment to expert witness).
86 [1956] 1 WLR 496. See also Williams v Williams [1957] 1 WLR 148 (husband’s promise to pay weekly
sum to wife who had deserted him, and thus forfeited right to maintenance, if she maintained herself and
undertook not to pledge his credit held enforceable: Hodson and Morris LJJ, but not Denning LJ, based their
decision only on the wife promising more than her legal duty).
87 Ibid, 498. See also Williams v Williams, ibid, 150.
88 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, 13 (Glidewell LJ), below, p 109. Cf
Purchas LJ at 20.
106 formation of contract

and that this should only be done where ‘there is nothing in the transaction which is
contrary to the public interest’.89 For instance, the enforcement of an agreement to
make a payment for the performance of a public duty such as the giving of evidence90
or the renewal of a licence91 might be thought to be contrary to the public interest in
ensuring impartiality in the administration of justice and probity in government and
local administration.

(ii) Existing duty owed to a third party

It is now established that consideration which consists in the performance of, or the
promise to perform, an existing contract with a third party may be a real consideration.
In these cases the promisee obtains the benefit of a direct obligation which can be
enforced.92
As far as performance of such a duty is concerned, in Shadwell v Shadwell:93
The claimant was engaged to be married to Ellen Nicholl. His uncle wrote to him stating that
he was pleased to hear of the intended marriage and that as he had promised to assist the
claimant at starting, would pay him £150 yearly during the uncle’s life or until the claimant’s
income as a Chancery barrister amounted to six hundred guineas. The claimant married
Ellen Nicholl. He never earned as much as six hundred guineas. The annuity fell into arrear;
the uncle died, and the claimant sued his executors.

A majority of the Court thought that there was a benefit to the uncle in that the marriage
was ‘an object of interest to a near relative’, and a detriment to the claimant because
‘he might have made a most material change in his position and have induced the
object of his affections to do the same, and might have incurred pecuniary liabilities
resulting in embarrassments’ if the promised income had been withheld. The majority
implicitly accepted that it was no objection to finding consideration for the uncle’s
promise that the nephew was already engaged to, and therefore under a contractual
duty to marry, Ellen Nicholl.94 Byles J dissented, holding that the claimant had done
no more than he was legally bound to do so that his marriage was no consideration for
the uncle’s promise.
In Scotson v Pegg:95
S promised to deliver to a third party X, or to his order, a cargo of coal then on board S’s ship.
X made an order in favour of P. P then made an agreement with S that if S would deliver the
coal to him, he would in return unload and discharge the coal at a fi xed rate each day from
the date when the ship was ready for discharge. When sued for breach, P pleaded that, in
delivering the coal to P, S was doing no more than he was bound under his contract with X
to do so that there was no consideration for P’s promise to unload in the manner specified.

89 Williams v Williams [1957] 1 WLR 148, 150 (Denning LJ).

90 Collins v Godefroy (1831) 1 B & Ad 590. But see now Senior Courts Act (formerly Supreme Court Act)
1981, s 36(4) (tender of expenses). 91 Morgan v Palmer (1842) 2 B & C 729, 739.
92 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154, 168.
93 (1860) 9 CBNS 159.
94 An engagement to marry is no longer a contract: Law Reform (Miscellaneous Provisions) Act 1970, s 1.
95 (1861) 6 H & N 295.
 consideration and promissory estoppel 107

The Court held that P was liable. Wilde B said:96 ‘If a person chooses to promise to
pay a sum of money in order to induce another to perform that which he has already
contracted with a third person to do, I confess I cannot see why such a promise should
not be binding’.
There are certain points about these cases which are unsatisfactory. For example,
in Shadwell v Shadwell, as Byles J pointed out, the uncle derived no personal benefit
from the marriage; the engagement was in no way induced by his promise, nor was
the claimant’s subsequent change of position in return for his undertaking. Again,
the promise to deliver to P at a fi xed rate in Scotson v Pegg may have involved duties
more onerous than the existing obligation to deliver to X or there may have been some
dispute as to P’s right to have the coals.97 Nevertheless, a majority of the Privy Council
in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd, The Eurymedon,98 took
them as establishing that actual performance of an existing duty to a third party can
be sufficient consideration, even though that performance is no additional detriment
to the promisee. In The Eurymedon the unloading by stevedores of goods from a ship
(which the stevedores were bound by a contract with a third party to do) was held to be
consideration for a promise to relieve them of the liability for damaging the goods.
The question then arises whether a distinction should be drawn between cases
where the consideration alleged is executed, ie by performance of an existing duty
to a third party, and cases where the consideration is executory, consisting of a
promise to perform. In principle a promise to perform an existing duty owed to a
third party should also constitute consideration because the person making that
promise thereby foregoes the liberty to cancel the contract with the third party by
mutual agreement and the person to whom that promise is made has the benefit of a
direct obligation.99 The Judicial Committee of the Privy Council so held in Pao On
v Lau Yiu Long:100
The claimants agreed with a company (Fu Chip) to sell certain shares in return for an
allotment to them of 4.2 million shares in Fu Chip. If all the newly allotted shares had
been immediately sold in the market, this would have depressed the value of the shares.
Accordingly the claimants undertook in their agreement with Fu Chip not to sell or transfer
for one year 60 per cent of the allotted shares. Subsequently the claimants refused to
complete the agreement unless the defendants (who were the majority shareholders in Fu
Chip) promised to indemnify them against any fall in value of the allotted shares during
the one year period. The defendants gave that indemnity. The allotted shares fell greatly in
value, and, in answer to a claim on the indemnity, the defendants pleaded that there was no
consideration for their promise to indemnify.

It was held that the consideration for the indemnity was the promise of the claimants
to perform their pre-existing contractual obligations to Fu Chip. ‘Their Lordships’,

96 Ibid, 300. 97 Ibid, 299 (Martin B). See above, p 103.

98 [1975] AC 154. See also Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495, 501, 504
(trade union’s undertaking to pay solicitor the costs of services rendered to a member did not preclude the
member from also being liable to the solicitor).
99 De Cicco v Schweizer 221 NY 431 (1917); Hamson (1938) 54 LQR 233, 237. 100 [1980] AC 614.
108 formation of contract

said Lord Scarman,101 ‘do not doubt that a promise to perform, or the performance of,
a pre-existing contractual obligation to a third party can be a valid consideration’.

(iii) Existing duty owed to the promisor

Where the promisee merely undertakes to fulfil the conditions of an existing contract
with the promisor, the perception that it is not detrimental to do what one is obliged to
do or beneficial to receive what one is entitled to receive has led to the conclusion that
there is no consideration. In this context the need to discourage improper pressure by
threatening not to perform one’s contract unless the other party offers to pay more
has been an important factor, although the pre-existing duty rule was rather a blunt
weapon for this since it invalidated non-extortive as well as extortive renegotiations.
The regulation of renegotiations was, as we shall see, left to the equitable doctrine of
promissory estoppel. Although the development of a concept of economic duress102
means that the common law now has a more direct and precise method of controlling
coercion, normally the performance of, or a promise to perform, a duty owed to the
promisor will not be consideration.103 The general position is illustrated by the old case
of Stilk v Myrick:104
In the course of a voyage from London to the Baltic and back two seamen deserted, and
the captain, being unable to replace them, promised the rest of the crew that, if they
would work the vessel home, the wages of the two deserters should be divided amongst
them.

It was held that:

There was no consideration for the ulterior pay promised to the mariners who remained
with the ship. Before they sailed from London they had undertaken to do all they could
under all emergencies of the voyage . . . The desertion of a part of the crew is to be considered
an emergency of the voyage as much as their death; and those who remain are bound by the
terms of their original contract to exert themselves to the utmost to bring the ship in safety
to her destined port.105

The decision would have been otherwise if the existing contract had been rescinded and
a new agreement substituted106 at a higher rate of pay, or if the promise had been made
to compromise a dispute,107 or if uncontemplated risks had arisen.108 Then the crew
would have provided consideration by entering into the new agreement, or forbearing

101 Ibid, 632. 102 Below, Ch 10.

103 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705, 712; Pao On v Lau Yiu
Long [1980] AC 614, 633; Vantage Nav Corp v Suhail & Saud Bahwan Building Materials Llc, The Alev [1989]
1 Lloyd’s Rep 138, 147; Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, 16, 19, 20, below,
p 109.
104 (1809) 2 Camp 317. But see the report of the same case in 6 Esp 129, and Harris v Watson (1791) Peake
102 (promise invalid by reason of public policy). See generally on the two different law reports of Stilk v
Myrick, Luther (1999) 19 LS 526.
105 (1809) 2 Camp 317, 319 (Lord Ellenborough CJ). 106 See below, p 459.
107 Wigan v Edwards (1973) 1 ALR 497; see above, p 104
108 Hartley v Ponsonby (1857) 7 E & B 872.
 consideration and promissory estoppel 109

to exercise what were or were believed to be their legal rights or by undertaking to do

more than they were contractually bound to do.
Even where the promise is only to perform the existing contractual obligation, the
performance may in fact be detrimental to a performing party whose time or money
could have been used to greater advantage elsewhere. It may also be beneficial to the
promisor because ‘a bird in the hand is worth more than a bird in the bush’109 and
because damages for breach of contract might not compensate fully.110 In Williams v
Roffey Bros & Nicholls (Contractors) Ltd:111

R & N Ltd contracted to refurbish a block of 27 flats. It sub-contracted the carpentry work
to W for an agreed price of £20,000. W completed nine of the flats but ran into financial
difficulties because the agreed price was too low and because he failed to supervise his
workforce adequately. R & N was concerned about delay because the main contract contained
a penalty clause. It offered to pay W an additional £10,300 at the rate of £575 for each flat
in which the carpentry work was completed. Eight further flats were completed but R & N
made only one further payment of £1,500. W ceased work and sued for the additional sum
promised. R & N resisted this claim on the ground that W had given no consideration for
their promise to pay the additional sum since he was promising to do no more than he was
already bound to do by his subcontract.

This defence failed. In the Court of Appeal Glidewell LJ stated:112

(i) If A has entered into a contract with B to do work for, or to supply goods or services to,
B in return for payment by B; and (ii) at some stage before A has completely performed
his obligations under the contract B has reason to doubt whether A will, or will be able to,
complete his side of the bargain; and (iii) B thereupon promises A an additional payment
in return for A’s promise to perform his contractual obligations on time; and (iv) as a result
of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B’s
promise is not given as a result of economic duress or fraud on the part of A;113 then (vi) the
benefit to B is capable of being consideration for B’s promise, so that the promise will be
legally binding.

The Court identified several ‘practical’ benefits to R & N. These were: W’s continued
performance, avoiding a penalty for delay under the main contract, avoiding the
trouble and expense of engaging others to complete the carpentry, and replacing a
haphazard method of payment by a more formalized scheme which produced more
orderly performance by W and thus enabled R & N to direct its other traders to do work
in the completed flats which otherwise would have been held up until W completed
his work.114 It is clear that it was the development of economic duress as a method of

109 Corbin on Contracts (1963) para 172. See also Foakes v Beer (1884) 9 App Cas 605, 622 (Lord
Blackburn). 110 Below, Ch 17 (limitations on damages).
111 [1991] 1 QB 1.
112 Ibid, 15–16. On ‘practical benefit’, see also Anangel Atlas Comp Nav SA v Ishikawajima-Harima Heavy
Industries Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526, 554–5; Simon Container Machinery Ltd v Emba Machinery
AB [1998] 2 Lloyd’s Rep 429, 435.
113 It is hard to see that Glidewell LJ can have been correct to include this as a requirement for establishing
consideration. Duress or misrepresentation operate to make a contract, supported by consideration,
voidable. 114 [1991] 1 QB 1, 11, 19, 20.
110 formation of contract

controlling improper pressure that enabled the Court to take a more flexible approach
to the requirement of consideration:115
Now that there is a properly developed doctrine of the avoidance of contracts on the grounds
of economic duress, there is no warrant for the court to fail to recognize the existence of
some consideration even though it may be insignificant and even though there may have
been no mutual bargain in any realistic use of that phrase.116

The recognition of ‘practical’ benefit as consideration could be a significant step

towards the overt recognition that all promises to pay more (or to accept less) for
performing, or promising to perform, a pre-existing contractual duty owed to the
promisor made without duress in a commercial context give rise to enforceable
contractual obligations. This derives support from the suggestion in a recent case,117
involving paying more for performance of a pre-existing duty to the promisor, that
Williams v Roffey cannot be reconciled with Stilk v Myrick; and that the doctrine of
consideration no longer needs to be used to protect a participant in such a variation
because that role has passed to the law of economic duress which provides a more
refined control mechanism.
Several factors, however, make it difficult to assess how radical the impact of
Williams v Roffey will prove to be. First, the principle in Stilk v Myrick, although
refined and limited, was not overruled.118 It appears from this that, where there is no
‘practical’ benefit to the promisor, the promise will be ‘gratuitous’ and unenforceable.
Secondly, on the facts of Williams v Roffey Bros, although W did not undertake to do
any work additional to that which he had originally undertaken to do, one might argue
that the institution of and adherence to the new work scheme constituted a different
performance so that, applying the traditional approach, there was consideration since
he was not obliged to perform in that way.119 Thirdly, as will be seen, in the context of
part-payment of a money debt, the Court of Appeal has, since Williams v Roffey Bros,
declined to have regard to ‘practical’ benefit.120
The notion of ‘practical’ benefit has been criticized121 as imprecise, as including the
chance of a benefit, as putting into question the adequacy of contract damages, and as

115 Ibid, 13–14, 21. See also Pao On v Lau Yiu Long [1980] AC 614, 624–35, above, p 107.
116 Vantage Navigation Corp v Suhail and Saud Bahwan Building Materials Llc, The Alev [1989] 1 Lloyd’s
Rep 138, 147 (Hobhouse J). See also Huyton SA v Peter Cremer GmbH [1999] 1 Lloyd’s Rep 620, 629–30
(Mance J).
117 Adam Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3481 (QB) at [42] (David Donaldson
QC). Cf South Caribbean Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676 (Comm), [2005] 1 Lloyd’s
Rep 128 at [108] where Colman J said, ‘But for the fact that Williams v Roffey Bros was a decision of the Court
of Appeal, I would not have followed it’. 118 [1991] 1 QB 1, 16, 19, 20.
119 It would appear that this consideration, if valid, would be found in the performance; ie the contract
was unilateral. It is more problematic to argue that there was a new bilateral contract because, although
Russell LJ (at 19) considered that ‘the terms upon which [W] was to carry out the work were varied’, Purchas
LJ (at 23) stated that there was ‘no obligation added to the contractual duties’. Glidewell LJ did not address
the point.
120 Re Selectmove Ltd [1995] 1 WLR 474, 481; Collier v Wright (Holdings) Ltd [2007] EWCA Civ 1329,
[2008] 1 WLR 643. See below, p 112.
121 Chen Wishart, in Beatson and Friedmann eds, Good Faith and Fault in Contract Law (1995) ch 5;
Coote (1990–91) 3 JCL 23. But Chen Wishart now argues, in Burrows and Peel, eds, Contract Formation
and Parties (2010) ch 5, that performance of a pre-existing duty does constitute valid consideration for
 consideration and promissory estoppel 111

undermining the strength of the obligation to perform a contract by recognizing, as

Purchas LJ did,122 that a contracting party can rely upon his own breach to establish
consideration. We shall, however, see that rigid adherence to the pre-existing duty rule
has also been criticized as invalidating many commercially desirable renegotiations
and that, before the development of economic duress, it was necessary to have recourse
to equitable promissory estoppel to protect the renegotiated transaction. Now that
adequate safeguards exist against improper pressure there would seem to be no very
convincing reason why a promise to perform, or performance of, any existing duty,
including public duties, should not be sufficient consideration provided that it is not
contrary to public policy.123
An alternative approach to the problem in Williams v Roffey, which would have
led to the same result, is to say that consideration is not needed for the variation, as
opposed to the formation, of a contract. That was the approach adopted in the United
States Uniform Commercial Code.124 It has also been put forward as an alternative to
the Roffey approach, but without ultimately making a choice between them, by the
New Zealand Court of Appeal.125

(i) discharge of a debt

The principle that the performance of an existing duty owed to the promisor is an
unreal consideration has been applied not only to the creation of a new obligation, but
also to the discharge of the existing duty. Thus if A owes B a debt of £200, and B agrees
to accept £100 in full satisfaction of the debt, B is not bound by the agreement and may
subsequently sue for the whole amount. The payment by a debtor of a smaller sum in
satisfaction of a larger is not a good discharge of a debt. Such payment is no more than
the promisee is already bound to do, and is no consideration for a promise, express or
implied, to forgo the residue of the debt.

(i) The general rule

The rule that the payment of a smaller sum in satisfaction of a larger is not a good
discharge of a debt is often known as the rule in Pinnel’s Case,126 although it was not
part of the ratio decidendi of that case.

Pinnel brought an action in debt on a bond against Cole for payment of £8 10s on 11 November
1600. Cole pleaded that, at the instance of Pinnel, he had paid him the sum of £5 2s 2d on 1
October, and that Pinnel had accepted this in full satisfaction of the debt.

a unilateral contract because actual performance, rather than a promise to perform, gives the promisor
something more than it previously had which was merely the contractual right to performance.
122 [1991] 1 QB 1, 23.
123 Williams v Williams [1957] 1 WLR 148, 150 (Denning LJ), above, p 105, n 86; Huyton SA v Peter
Cremer GmbH [1999] 1 Lloyd’s Rep 620, 629–30 (Mance J). 124 Section 2–209(1).
125 Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23.
126 (1602) 5 Co Rep 117a.
112 formation of contract

The Court of Common Pleas stated that the payment of a lesser sum on the day in
satisfaction of a greater was no satisfaction of the whole albeit that, on the facts, that
rule did not apply because the debt had been paid and accepted in advance of the due
date.
The rule was considered and reaffirmed by the House of Lords nearly three centuries
later in Foakes v Beer:127

Dr Foakes was indebted to Mrs Beer on a judgment for the sum of £2,090. Mrs Beer agreed
that if Foakes paid her £500 in cash and the balance of £1,590 in instalments she would
not take ‘any proceedings whatever’ on the judgment. Foakes paid the money exactly as
required, but Mrs Beer then claimed an additional £360 as interest on the judgment debt.
When sued, Foakes pleaded that his duty to pay interest had been discharged by the promise
not to sue.

Their Lordships differed as to whether, on its true construction, the agreement

merely gave Foakes time to pay, or was intended to cover interest as well, but they
held that, even on the latter construction, there was no consideration for the promise.
Foakes therefore remained bound to pay the additional sum. ‘It is’, said the Earl of
Selborne,128 ‘not really unreasonable or practically inconvenient that the law should
require particular solemnities to give to a gratuitous contract the force of a binding
obligation’.

(ii) Irrelevance of ‘practical benefit’

Lord Blackburn recognized that business people ‘do every day recognise and act on
the ground that prompt payment of a part of their demand may be more beneficial
to them than it would be to insist on their rights’,129 particularly where the credit of
the debtor is doubtful, but the House of Lords decided that a practical benefit of that
nature is not good consideration. In Re Selectmove Ltd130 it was said in obiter dicta
that the principle that ‘practical’ benefit may amount to consideration recognized
in Williams v Roffey Bros & Nicholls (Contractors) Ltd131 could not, consistently with
the doctrine of precedent, be extended to an obligation to make payment because ‘it
would in effect leave the principle in Foakes v Beer without any application’.

(iii) Any difference in performance suffices

If, however, there is a dispute as to the amount due132 or the thing done or given by the
promisee debtor is different from that which the recipient was entitled to demand,133
however slight the difference, it will be sufficient consideration for the promise to

127 (1884) 9 App Cas 605. 128 Ibid, 613.

129 At p 622. See also ibid, 630 (Lord Fitzgerald).
130 [1995] 1 WLR 474, 481 (Peter Gibson LJ). See Peel (1994) 110 LQR 353. See also Ferguson v Davies
[1997] 1 All ER 315. In Collier v Wright Holdings Ltd [2007] EWCA Civ 1329, [2008] 1 WLR 643 the same
point was made and was part of the ratio. 131 Above, p 109.
132 Above, pp 103–104.
133 Even a negotiable instrument (such as a cheque) for the smaller amount would at one time suffice,
provided it was accepted by the creditor in discharge of the obligation (Goddard v O’Brien (1882) 9 QBD 37),
but this is no longer the case (D & C Builders Ltd v Rees [1966] 2 QB 617).
 consideration and promissory estoppel 113

discharge. Even the performance of the identical obligation will be effective if it is to

take place at an earlier date or in a different place.
The Court in Pinnel’s Case recognized that ‘the gift of a horse, hawk or robe, etc.
in satisfaction is good’ because it ‘might be more beneficial to the plaintiff than the
money . . . or otherwise the plaintiff would not have accepted it in satisfaction’.134
Judgment was given for the claimant on a technical point of pleading;135 but the fact
that the payment and the acceptance of part of the money had taken place before
the due day would otherwise have resulted in judgment for the defendant, for the
difference in time would have constituted sufficient consideration for the promise to
discharge the debt.

(iv) Appraisal of rule

It has been argued that the rule in Pinnel’s Case is supportable on the ground that
the law should not favour a person who is excused money which he ought to pay any
more than a person who is promised money which has not been earned. On the other
hand, it is open to the criticism that it not only runs counter to ordinary commercial
practice but that, taken in conjunction with the rule that the law will not inquire into
the adequacy of consideration, it may lead to absurd results. ‘According to English
Common Law’, said Jessel MR,136 ‘a creditor may accept anything in satisfaction of
his debt except a less amount of money. He might take a horse, or a canary, or a
tomtit if he chose, and that was accord and satisfaction; but, by a most extraordinary
peculiarity of the English Common Law, he could not take 19s 6d in the pound’. There
is also now a distinction which is difficult to justify in principle between a promise to
pay more for the same services, where practical benefit is recognized, and a promise
to accept a lesser sum of money owed, where it is not.137 The rule enables a creditor to
go back on an agreement solemnly entered into and intended to affect legal relations;
and there are no strong policy considerations which would demand the application
of the doctrine of consideration to the discharge, as opposed to the formation, of
contracts.138
The Law Revision Committee, in 1937,139 recommended the abolition of the rule
in Pinnel’s Case where the promisee had carried out his side of the agreement, but
this reform has never been implemented. It would seem that the best way forward
is for the House of Lords to reconsider its decision in Foakes v Beer in the light

134 (1602) 5 Co Rep 117a. In Vanbergen v St Edmund’s Properties Ltd [1933] 2 KB 223, however, it was
stated that the new element must not have been introduced merely to oblige the debtor and without any
independent benefit to the creditor.
135 See generally Simpson, A History of the Common Law of Contract (1975)105–6.
136 Couldery v Bartrum (1881) 19 Ch D 394, 399. 137 Cf O’Sullivan [1996] CLJ 219.
138 Sir Frederick Pollock, Principles of Contract (13th edn, 1950) 150 (extension of the doctrine from
formation to discharge was illegitimate). See also Kötz, European Contract Law (1997) 68–71; CISG art 29(1)
(‘a contract may be modified or terminated by the mere agreement of the parties’).
139 Cmd 5449. In Canada, provincial statutes have now abolished the rule by providing, as the Ontario
Mercantile Law Amendment Act RSO 1990, s 16 does, that ‘Part performance of an obligation either before
or after the breach thereof, when expressly accepted by the creditor in satisfaction or rendered in pursuance
of an agreement for that purpose, though without any new consideration, shall be held to extinguish the
obligation’.
114 formation of contract

of the recognition of ‘practical’ benefit and other developments, in particular the

equitable principle of promissory estoppel in cases where the debtor’s position has
been altered in reliance on the promise.140 Before considering the equitable principle
we shall consider two common law exceptions to the rule. The fi rst is where a debtor
makes a composition with creditors; the second is where part payment of a debt is
made by a third party to the contract. It will be seen that these two exceptions are
based on reasons of policy rather than on logical evasions of the strict doctrine of
consideration.

(v) Compositions with creditors

A composition with creditors (apart from the statutory prohibition of preference by
debtors who later become bankrupt)141 is an exception to the rule, inasmuch as each
creditor undertakes to accept a lesser sum than is due in satisfaction of a greater. All
are bound, both at common law and by virtue of statute.142 As far as the common
law position is concerned, there is no difficulty as to the consideration between the
creditors inter se; it is the forbearance on the part of each of them to claim the whole
amount of their debt so that no one creditor may gain at the expense of the others.
But it is difficult to see how the debtor’s promise to pay, or the payment of, a portion
of the debt can constitute the consideration upon which the creditor renounces the
residue.143
The consideration must, then, be something other than the payment of a smaller
sum in satisfaction of a larger, and it has been suggested that it consists in the
procuring of a promise from each creditor to accept less than the full amount of
the individual debt, thereby conferring a benefit on the creditors generally.144 Th is
solution is satisfactory so far as it goes, for there is no doubt that such a consideration
would be sufficient, but it cannot apply to a case in which the debtor does not in
fact procure the creditors’ promises.145 A more acceptable reason for the existence
of this exception would seem to be that a party to such an arrangement cannot
claim the original debt because to do so would be to commit a fraud on the other
creditors.146

(vi) Part payment by third party

The second exception to the general rule, that a creditor who accepts, in full satisfaction,
part payment of a debt by a third party cannot later recover the balance from the debtor,

140 For the view that promissory estoppel outflanks the rule in Pinnel’s Case, see Collier v Wright
(Holdings) Ltd [2007] EWCA Civ 1329, [2008] 1 WLR 643, esp at [42]. See below, p 118.
141 Insolvency Act 1986, s 340. See also Deeds of Arrangement Act 1914.
142 Ibid, s 260(2). A voluntary arrangement pursuant to the statute is not a contract with the debtor:
Johnson v Davies [1999] Ch 117. 143 Fitch v Sutton (1804) 5 East 230, 232.
144 Good v Cheesman (1831) 2 B & Ad 328.
145 Cf West Yorkshire Darracq Agency Ltd v Coleridge [1911] 2 KB 326.
146 Wood v Roberts (1818) 2 Stark 417. Another reason (Corbin on Contracts (1963) para 190) is that,
subject to the statutory prohibition on preferences (Insolvency Act 1986, s 340), the debtor’s consideration
lies in giving up the opportunity of treating his creditors unequally.
 consideration and promissory estoppel 115

is also based on the need to prevent fraud on a third party. In Hirachand Punamchand
v Temple:147
A father wrote to the claimants, his son’s creditors, offering to pay part of a debt due on a
promissory note in satisfaction of the whole, and enclosing a draft for that amount. The
claimants cashed the draft, and then sued the son for the balance.

The Court of Appeal held that the creditors must be deemed to have accepted
the draft in full satisfaction, and that the son’s debt was extinguished. It approved a
dictum of Willes J in Cook v Lister:148 ‘If a stranger pays part of the debt in discharge of
the whole, the debt is gone, because it would be a fraud on the stranger to proceed’.

(j) letters of credit

The irrevocable letter of credit has often been said to be an example of an exception
to the need for consideration.149 The purpose of such letters of credit is to finance
contracts for the sale of goods between buyers and sellers in different countries,
particularly where the delay between despatch from the place of manufacture and
arrival at the destination is a considerable one. It enables short-term credit facilities to
be made available, guarantees payment to the seller, and safeguards the parties against
currency fluctuations.
There are three stages in the transaction. First, a term is inserted in the contract of
sale made between the buyer and the seller whereby the buyer undertakes to furnish
an irrevocable letter of credit in favour of the seller.150 Secondly, the buyer approaches
its own banker (usually described as the issuing banker) and instructs it to issue an
irrevocable letter of credit, giving the banker details of the transaction. This constitutes
a contract between the buyer and the banker. Thirdly, the banker advises the seller that
an irrevocable letter of credit has been opened in its favour, that is to say, the banker
gives an irrevocable undertaking to pay the seller, or to accept bills of exchange drawn
on it, provided the seller tenders the required shipping documents in compliance with
the terms of the letter of credit.151 The seller can then ship the goods in the secure
knowledge that it will be paid for them. The shipping documents represent the goods
themselves,152 and they are usually retained by the banker as security against its right
to be reimbursed by the buyer.

147 [1911] 2 KB 330. See also Welby v Drake (1825) 1 C & P 557.
148 (1863) 13 CBNS 543, 594, 595. This is not also an exception to the rule that a non-party to a contract
(here the debtor) cannot enforce it (below, Ch 21) because the transaction between the creditor and the
person who pays is best seen as an executed (complete) gift to the debtor of the discharge of the debt: see Birks
and Beatson (1976) 92 LQR 188, 193–9.
149 See generally The Uniform Customs and Practice for Documentary Credits (2007 Revision, UCP 600);
Jack, Documentary Credits (4th edn, 2009).
150 For the effect of a failure to furnish the letter of credit, see below, pp 142, 467 .
151 An irrevocable letter of credit may also be ‘confi rmed’ by a banker operating in the seller’s country
(known as the correspondent banker) who, by confirming the credit, adds to the promise of the issuing
banker its own undertaking to ensure payment.
152 Lickbarrow v Mason (1794) 5 TR 683.
116 formation of contract

The irrevocable letter of credit does not fit easily into the common law. If the
transaction is regarded simply as a contract between the buyer and its banker, the seller
is a third party to this contract and technically would be unable to sue should the banker
revoke the letter of credit or for some reason fail to make payment.153 Nevertheless,
it has been established that the banker is legally under an absolute obligation to
pay, irrespective of any dispute there may be between the buyer and seller.154 It has
therefore been argued that the irrevocable letter of credit forms an ‘exception’ to the
doctrine of privity of contract; but it seems better to regard the promise of payment
given by the banker to the seller as an autonomous undertaking, independent of any
other contract. Thus the irrevocable letter of credit is not an exception to privity of
contract but to the doctrine of consideration. It is either an irrevocable offer by the
banker to the seller (which is accepted by the seller tendering the shipping documents)
or a unilateral contract between the banker and the seller to pay on tender of the
shipping documents.155 But on either analysis the essential theoretical problem is that
the banker is bound not to revoke even before the seller has tendered the documents
and it is therefore hard to see that the tendering of the documents can constitute
the consideration. Letters of credit therefore provide an example of a promise in the
commercial sphere that, for reasons of commercial convenience, is treated as binding
despite there being no consideration.

2. promissory estoppel
In practice the most significant limit to the rule in Pinnel’s Case156 is to be found
in the equitable principle of estoppel, in this context promissory estoppel. Here we
consider the extent to which promissory estoppel operates in effect as an alternative
to consideration in the discharge or modification of existing duties and its potential to
operate in this way in the formation of contracts.
Before turning to the requirements for the establishment of a promissory estoppel,
it should be noted that it is only one form of estoppel. We saw in the last chapter
that equity may, by the principle of proprietary estoppel, provide a remedy in
respect of an agreement for the sale of land that does not comply with statutory
requirements of form. Promissory estoppel is one strand in a broader equitable
principle whereby parties to a transaction who have conducted their dealings in

153 In the Sixth Interim Report of the Law Revision Committee, 1937 (Cmnd 5449) para 45, it was pointed
out that the liquidator of a bank might be compelled to rely on the defence of privity.
154 Urquhart, Lindsay & Co Ltd v Eastern Bank Ltd [1922] 1 KB 318, 321, 322; Donald H Scott & Co Ltd v
Barclays Bank Ltd [1923] 2 KB 1, 13; Trans-Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297, 304–5;
Midland Bank Ltd v Seymour [1955] 2 Lloyd’s Rep 147, 166; Hamzeh Malas & Sons v British Imex Industries
Ltd [1958] 2 QB 127, 129.
155 Ellinger (1962) 4 Malaya LR 307. In Urquhart’s case, ibid, 321, Rowlatt J thought that the banker’s
undertaking took effect once the seller acted on it, eg by commencing performance of their contract with
the buyer. Cf Dexters Ltd v Schenker & Co (1932) 14 Ll LR 586, 588 (when letter of credit received). On
either view there appears to be no consideration (because, eg, acting on a promise does not constitute
consideration). 156 See above pp 111–112.
 consideration and promissory estoppel 117

reliance on an underlying assumption as to a present, past, or future state of affairs,

or on a promise or representation by words or conduct, will not be allowed to go back
on that assumption, promise or representation when it would be unfair or unjust
to do so.157 The Court will do what is necessary, but not more, to prevent a person
who has relied upon such an assumption, promise, or representation from suffering
injustice.158 Promissory estoppel also has similarities to the common law principle
of waiver by which the right to performance in accordance with the contract may be
lost by a party who in effect promises (albeit without consideration) not to insist on
strict adherence to the contract. Common law waiver is considered in the chapter on
Discharge by Agreement.159

(a) emergence of promissory estoppel

Promissory estoppel was invoked in Central London Property Trust Ltd v High Trees
House Ltd:160

In 1937 the claimant leased to the defendant a block of flats for a term of 99 years at a rent of
£2,500 a year. In 1940, many of the flats were empty, on account of the war, and the claimant
agreed to reduce the rent to £1,250. By 1945 the flats were again full. In September 1945 the
receiver of the claimant demanded full rent for the future and some arrears. Subsequently
he brought an action against the defendant claiming the full original rent both for the future
and also for the last two quarters of 1945.

Denning J held that the action should succeed. The parties intended the reduction of
rent to be a temporary expedient while the flats could not be fully let. This had ceased
to be the case early in 1945; therefore the full rent was payable for the last two quarters
of 1945, which was all that was actually claimed in the action. The importance of the
judgment, however, lies in Denning J’s contention that, had the claimant sued for the
full rent between 1940 and 1945, it would have been estopped by its promise from
asserting its legal right to demand payment in full. In other words, the promise to
accept less rent while wartime conditions prevailed was binding despite the absence
of consideration.
Denning J relied on the decision of the House of Lords in Hughes v Metropolitan
Railway Co:161

H served on M a notice to repair, within six months, houses held on lease from him. Failure
to comply with this notice would entitle H to forfeit the lease. The parties then negotiated for
the purchase by H of M’s lease and these negotiations continued for almost the entire period
of the notice. Shortly before the notice was due to expire, H broke off the negotiations, and,
upon expiry, brought an action for possession claiming to have forfeited the lease.

157 Below, pp 126–129. For the relationship between promissory estoppel, proprietary estoppel, and
estoppel by convention, see Baird Textiles Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274, [2002]
1 All ER (Comm) 737; below p 126. 158 Crabb v Arun DC [1976] Ch 179, 198.
159 Below, Ch 13. 160 [1947] KB 130.
161 (1877) 2 App Cas 439. See also Birmingham and District Land Co v L & NW Ry (1888) 40 Ch D 268.
Contrast the view of this case advanced by Gordon [1963] CLJ 222.
118 formation of contract

The House of Lords held that, by entering into negotiations, H impliedly promised
to suspend the notice previously given and that M had acted upon this promise by
doing nothing to repair the premises. H was not to be allowed to take advantage
of the forfeiture which occurred, and therefore the six months’ period was to run
only from the breakdown of the negotiations. Lord Cairns described the principle as
follows:162

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.

Denning J stated that the application of this principle led logically to the conclusion
that ‘a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is
binding notwithstanding the absence of consideration’.163
The correctness of Denning J’s dictum164 has, however, been the subject of
considerable controversy.165 In particular, two criticisms have been levelled against
it. First, it was argued that the concept of ‘promissory’ estoppel offends against the
rule in Jorden v Money166 in which it was held that only a representation of existing
or past fact, and not one relating to future conduct, will ground an estoppel. Estoppel
would not therefore apply, as in the High Trees case, to a promise as to the future.
The rule in Jorden v Money, however, is not an absolute one, and it is qualified by
a number of exceptions.167 One of these exceptions is that principle expressed in
Hughes v Metropolitan Railway Co, which applies where two parties stand together in
a contractual or other similar legal relationship, and one of them makes to the other
a promise to forbear from enforcing its strict legal rights. To this situation the rule in
Jorden v Money has no application.
Secondly, it was said that the dictum of Denning J is inconsistent with the decision of
the House of Lords in Foakes v Beer. But the principle upon which he relied in the High
Trees case was that of estoppel, which must be specially pleaded. A plea of estoppel was
never raised in Foakes v Beer. It has recently been boldly accepted by Arden LJ, albeit
in obiter dicta in the context of a decision merely that there was a genuine triable issue
on promissory estoppel, that High Trees outflanks Foakes v Beer. In Collier v Wright
(Holdings) Ltd168 she stated:

162 Ibid, 448. 163 [1947] KB 130, 135.

164 Being based on hypothetical facts, it is obiter dictum and not ratio decidendi.
165 As well as the articles cited below, see Cheshire and Fifoot (1947) 63 LQR 283; (1948) 64 LQR 28;
Wilson (1951) 67 LQR 330; Lord Denning (1952) 15 MLR 1; Sheridan (1952) 15 MLR 338; Bennion (1953) 16
MLR 441; Wilson [1965] CLJ 93; Thompson [1983] CLJ 257; McFarlane in Burrows and Peel (eds), Contract
Formation and Parties (2010) ch 6.
166 (1854) 5 HLC 185, and applied in Citizen’s Bank of Louisiana v First National Bank of New Orleans
(1873) LR 6 HL 352; Maddison v Alderson (1883) 8 App Cas 467, 473.
167 See Jackson (1965) 81 LQR 84, 223. 168 [2007] EWCA Civ 1329, [2008] 1 WLR 643 at [42].
 consideration and promissory estoppel 119

The facts of this case demonstrate that, if (1) a debtor offers to pay part only of the amount
he owes; (2) the creditor voluntarily accepts that offer, and (3) in reliance on the creditor’s
acceptance, the debtor pays that part of the amount he owes in full, the creditor will, by
virtue of the doctrine of promissory estoppel, be bound to accept that sum in full and fi nal
satisfaction of the whole debt. For him to resile will itself be inequitable. In addition, in these
circumstances, the promissory estoppel has the effect of extinguishing the creditor’s right
to the balance of the debt. This part of our law originated in the brilliant obiter dictum of
Denning J, as he was, in the High Trees case. To a significant degree it achieves in practical
terms the recommendation of the Law Revision Committee chaired by Lord Wright MR in
1937.

Longmore LJ, however, was more cautious. He doubted that the agreement could
be construed as a permanent surrender of the right to sue for the balance but also
stated that, if Arden LJ was correct about the effect of High Trees, it was important to
construe agreements which are said to have this effect strictly, and referred to the need
for meaningful reliance.169

(b) scope of promissory estoppel

The principle of promissory estoppel has subsequently been recognized,170 and with
this recognition has come a more precise definition of its scope.

(i) A clear promise

In the first place, the promise must be clear and unequivocal,171 although it need not
be express and may be implied from words or conduct.172 No estoppel can arise if
the language of the promise is indefinite or imprecise and silence and inaction, for
example the absence of protest about a breach, will not normally estop a party from
relying on the breach.173 Where, however, the language is clear, no question arises of
any particular knowledge by the promisor.174

(ii) Inequitable to go back on promise

Secondly, it must be inequitable for the promisor to go back on the promise and insist
on the strict legal rights under the contract. This will not be so where the promise has

169 Ibid at [45]–[47].

170 Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd (1950) 69 RPC 108 and [1955] 1 WLR
761 was the first case. As well as the cases discussed below, see Bremer Handelsgesellschaft mbH v Vanden
Avenne-Izegem [1977] 1 Lloyd’s Rep 133, 165, aff ’d [1978] 2 Lloyd’s Rep 109, 127; The Stolt Loyalty [1993] 2
Lloyd’s Rep 281. Cf Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd, 758, 762.
171 Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741, 757, 758,
761, 762, 767–8, 771; Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana [1983] QB 549 (aff ’d
[1983] 2 AC 694).
172 Hughes v Metropolitan Railway Co, above, n 000. It is unlikely to arise where the negotiations are
‘subject to contract’: Attorney-General for Hong Kong v Humphreys Estates (Queen’s Garden) [1987] 1 AC
114.
173 Société Italo-Belge pour le Commerce et l’Industrie v Palm & Vegetable Oils (Malaysia) Sdn Bdh [1982]
1 All ER 19, 25; Vitol SA v Esso Australia Ltd [1989] 2 Lloyd’s Rep 451, 460.
174 Youell v Bland Welch & Co Ltd [1990] 2 Lloyd’s Rep 423, 448–50. (Cf waiver where knowledge of all
material facts is required.)
120 formation of contract

been induced by intimidation by the promisee. This is illustrated by D & C Builders

Ltd v Rees:175

Mr and Mrs Rees owed £482 to D & C, a small building company, in respect of work done for
him. They delayed payment for several months, and then offered D & C £300, stating in effect
that if it did not accept this sum it would get nothing. As D & C was in desperate fi nancial
straits, it accepted the £300 in full settlement of the debt. It then sued for the balance.

Lord Denning MR saw the case as turning on promissory estoppel. He took the view
that it was not inequitable for D & C to go back on its promise; the settlement was not
truly voluntary as Mr and Mrs Rees had improperly taken advantage of D & C’s weak
financial situation.176 Mr and Mrs Rees were therefore liable for the balance. Although
there has been little other guidance as to the types of conduct by the promisee that
will make it not inequitable for a person to go back on such a promise, pointers can be
found in the developing doctrine of duress.177 Misrepresentation by the promisee will
also presumably rule out the application of promissory estoppel.

(iii) Alteration of position

Th irdly, it has been said that the promisee must have ‘altered his position’ in reliance
on the promise made.178 There is, however, some doubt as to what is meant by this
requirement. Normally, where it is sought to prove an estoppel, it must be shown
that the person to whom the representation is made has acted detrimentally in reliance
on it. If these ideas are regarded as fundamentally similar, then the alteration of
position which results from the promise must be such that, if the promise is revoked,
the promisee will be in a worse position than if the promise had never been made. It
is because the position of the promisee has been prejudiced that it is inequitable for
the promisor to go back on the promise. In Hughes v Metropolitan Railway Co this
requirement was clearly satisfied, since M had refrained from carrying out repairs
in reliance on the promise and had thus lost the time which it would have enjoyed
had the negotiations never taken place. On the other hand, in the High Trees case, no
evidence was adduced to show any alteration of position by the tenant company, in
the sense that it arranged, or omitted to arrange, its affairs any differently as a result
of the promise.179 It would appear that the only thing it did in reliance on the promise
was to pay part of the debt which it was contractually bound to pay. If the landlord had
gone back on its promise, and claimed the full rent between 1940 and 1945, the tenant
would have been in no worse position than if the promise had never been made. The
High Trees case cannot in consequence be regarded as completely identical to Hughes

175 [1966] 2 QB 617. See also P v P [1957] NZLR 854.

176 Cf Danckwerts and Winn LJJ at 626, 632–3, who applied the rule in Pinnel’s Case.
177 Huyton SA v Peter Cremer GmbH [1999] 1 Lloyd’s Rep 620, 629 (Mance J). See also below, ch 10.
178 Tungsten Electric Co Ltd v Tool Metal Manufacturing Co Ltd (1950) 69 RPC 108, 112, 115–16; Tool
Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761, 764, 784; Ajayi v RT Briscoe
(Nigeria) Ltd [1964] 1 WLR 1326, 1330; Re Wyvern Developments Ltd [1974] 1 WLR 1097, 1104.
179 It could be suggested that the tenant had ‘altered its position’ by relying on the informal promise and
failing to secure a formal release under seal or by refraining from seeking alternative fi nance or declaring
itself bankrupt.
 consideration and promissory estoppel 121

v Metropolitan Railway Co. In WJ Alan & Co Ltd v El Nasr Export and Import Co180
Lord Denning MR precisely said that for the High Trees principle to operate (which he
here referred to as the principle of ‘waiver’) detriment to the promisee was not needed.
All that was necessary was for the promisee to have ‘acted on the belief induced by the
other party’.181 That is, mere reliance was sufficient.
That reliance will suffice is supported by Lord Cairns’s statement of principle in
the Hughes case.182 He said that the person seeking to enforce his rights will not be
allowed to do so ‘where it would be inequitable having regard to the dealings which
have thus taken place between the parties’. It is therefore arguable that it is for the
Court to decide, on the totality of the evidence produced to it, whether the dealings
between the parties are such as to render it inequitable for the promisor to go back on
the promise. For instance, in Société Italo-Belge pour le Commerce et l’Industrie v Palm
and Vegetable Oils (Malaysia) Sdn Bdh, The Post Chaser:183
The buyers of a cargo of palm oil did not protest about the sellers’ failure to make a ‘declaration
of ship’ in writing as soon as possible after sailing and asked the sellers to pass the shipping
documents to a sub-buyer, a request that was held to be a representation that they were
prepared to accept them and a waiver of any defect in them. The sub-buyer rejected the
documents within 2 days and the buyers purported to do so as well.

It was stated that to establish inequity within Lord Cairns’s principle, ‘it is not
necessary to show detriment; indeed the representee may have benefited from the
representation, and yet it may be inequitable, at least without reasonable notice,
for the representor to enforce his legal rights’.184 It does not, however, follow that,
in every case where there is non-detrimental reliance by the promisee, it will be
inequitable for the promisor to enforce the contract. In Société Italo-Belge pour
le Commerce et l’Industrie v Palm and Vegetable Oils (Malaysia) Sdn Bdh itself,
although the sellers had actively relied on the buyers’ representation by presenting
the documents, the very short time between the representation and the rejection of
the documents meant that, in the absence of evidence that the sellers’ position had
been prejudiced, it was not inequitable for the buyers to enforce their legal right to
reject the documents.
The requirement that the promise be ‘acted upon’ means that there is, in this respect,
a further distinction from contracts supported by consideration which are enforceable
even if wholly executory.185

180 [1972] 2 QB 189, 213. But cf ibid at 221 (Stephenson LJ) for the view that, on the facts, there was
detrimental reliance. There was detrimental reliance on the facts, in, eg, the following cases: Combe v Combe
[1951] 2 KB 215, 220, 225; Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761, 799
(where, see below, the promisees continued to produce over quota); Brikom Investments Ltd v Carr [1979] QB
467, 482; Youell v Bland Welch & Co Ltd [1990] 2 Lloyd’s Rep 423, 452–4.
181 These were the words of Lord Cohen in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd
[1955] 1 WLR 761, 799 182 See above, p 118.
183 [1982] 1 All ER 19. See also Scandinavian Trading Tanker Co AB v Flota Petrola Ecuatoriana [1983] QB
549 (aff ’d [1983] 2 AC 694); Goldsworthy v Brickell [1987] Ch 378, 411. 184 Ibid, 27.
185 See Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 406 (Mason CJ and Wilson J), below,
p 124. Cf Lord Denning, who has contended extra-judicially that the repudiation of a promise solemnly
given, and intended to effect legal relations, is in itself inequitable: (1952) 15 MLR 1, 6–8.
122 formation of contract

(iv) Suspensive or extinctive?

It has been suggested that promissory estoppel only serves to suspend, and not
wholly to extinguish, the existing obligation; the promisor may, on giving due
notice, resume the right which has been waived and revert to the original terms
of the contract.186 Thus in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co
Ltd:187

In 1938 the appellant granted to the respondent a licence to import, make, use, and sell
certain hard metal alloys it had patented. The respondent was to pay royalties, and, if the
amount of material made exceeded a named quota, ‘compensation’. On the outbreak of war,
the appellant agreed to suspend its right to compensation, the parties contemplating that a
new agreement would be entered into when the war ended. In 1945, the appellant claimed to
have revoked its suspension and to be entitled to compensation from 1 June 1945. This claim
failed on the ground that the revocation was premature as no adequate notice had been given
to the respondent. In 1950, the appellant brought the present action, claiming compensation
from 1 January 1947, at which date the respondent was fully aware that the appellant was
determined to revert to the original agreement.

The House of Lords held that the appellant had effectively revoked its promise to suspend
its legal rights and that it was entitled to the compensation claimed; the equitable principle
enunciated in Hughes v Metropolitan Railway Co was applicable to the situation, but
here the promisor, on giving adequate notice to the promisee, could resume its rights
under the original agreement. As Bowen LJ had said in an earlier case:188
If persons who have contractual rights against others induce by their conduct those against
whom they have such rights to believe that such rights will either not be enforced or will be
kept in suspense or abeyance for some particular time, those persons will not be allowed
by a Court of Equity to enforce the rights until such time has elapsed, without at all events
placing the parties in the same position as they were before.

The temporary effect of the estoppel raised is, it has been argued, the characteristic of
the doctrine and the reason why it should be considered a ‘quasi-estoppel’ rather than
a true example of estoppel in equity or at common law.
It is, however, submitted that this is not a necessary limitation and that promissory
estoppel can extinguish, as well as suspend, the promisee’s obligations. For example,
it is clear that the promise will become ‘final and irrevocable if the promisee cannot
resume his position’.189 More generally, the effect of the estoppel will depend on the
terms and intent of the promise. No doubt, as a normal rule, where the contract
imposes an obligation to make periodic payments of money, such as the ‘compensation’
in the Tool Metal case, rent under a lease,190 or instalments under a hire-purchase

186 Birmingham and District Land Co v L & NW Ry (1888) 40 Ch D 268, 286; Ajayi v RT Briscoe (Nigeria)
Ltd [1964] 1 WLR 1326, 1330. See also Wilson (1951) 67 LQR 330; [1965] CLJ 93.
187 [1955] 1 WLR 761.
188 Birmingham and District Land Co v L & NW Ry (1888) 40 Ch D 268, 286.
189 Ajayi v RT Briscoe (Nigeria) Ltd [1964] 1 WLR 1326, 1330. See also Nippon Yusen Kaisha v Pacifica
Navigacion SA [1980] 2 Lloyd’s Rep 245.
190 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.
 consideration and promissory estoppel 123

agreement,191 a promise to waive part of these payments will be construed to mean

that the promisor reserves to himself the right, on giving reasonable notice, to
demand that future payments be made in full.192 But it has been assumed, although
not decided, that the right to claim the balance of past payments is foregone and is
thus extinguished,193 unless the promise is one which simply allows the promisee
to postpone payment but does not extinguish the debt.194 This assumption seems
correct. If the promise is such as unequivocally to indicate the intention of the
promisor wholly to abandon all right to payment of the money contractually due,
whether periodically or as a lump sum, there is no reason why the estoppel should not
be held to have permanent effect.195

(v) Promissory estoppel not a cause of action

It has been seen that the principle of promissory estoppel has been employed to obviate
the necessity for consideration in cases where parties are already bound contractually
one to the other and one of them promises to waive, modify, or suspend its strict
legal rights. The question therefore arises whether the principle might similarly be
employed as a supplement or alternative to consideration as a necessary element in the
formation of contracts. If it could be so employed, there would be two routes (apart
from making the promise by deed) to the legal enforceability of a promise; first the
furnishing of consideration by the promisee in the form of the incurring of detriment
or the conferral of benefit in return for the promise, and secondly, where the promise
was intended to affect legal relations and to be acted upon by the promisee, where the
promisee’s position had been altered in reliance on the promise.196 This has occurred
in some jurisdictions197 but not yet in England where it is thought illegitimate to
outflank the requirement of consideration and where the main doctrinal vehicle for
reconciling promissory estoppel and consideration has been the rule that promissory
estoppel does not create new causes of action where none existed before; it is ‘a shield
and not a sword’.198 It has been said ‘that it would be wrong to extend the doctrine
of promissory estoppel, whatever its precise limits at the present day, to the extent of
abolishing in a backhanded way the doctrine of consideration’.199 Thus in Combe v
Combe:200

191 Ajayi v RT Briscoe (Nigeria) Ltd, above, n 000. 192 Banning v Wright [1972] 1 WLR 972, 981.
193 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130; Tungsten Electric Co Ltd v
Tool Metal Manufacturing Co Ltd (1950) 69 RPC 108; P v P [1957] NZLR 854; Collier v Wright Holdings Ltd
[2007] EWCA Civ 1329, [2008] 1 WLR 643.
194 Ledingham v Bermejo Estancia Co Ltd [1947] 1 All ER 749.
195 Brikom Investments Ltd v Carr [1979] QB 467, 484–5; Sydenham & Co Ltd v Enichem Elastometers Ltd
[1989] 1 EGLR 257. See also Maharaj v Chand [1986] AC 898, 908. 196 See above, p 120.
197 Below, p 124. 198 Combe v Combe [1951] 2 KB 215, 224.
199 Brikom Investments Ltd v Carr [1979] QB 467, 486 (Roskill LJ); Argy Trading Development Corp Ltd v
Lapid Developments Ltd [1977] 1 WLR 444; Azov Shipping Co Ltd v Baltic Shipping Co (No 3) [1999] 2 Lloyd’s
Rep 159, 175; Thornton Springer v NEM Insurance Co Ltd [2000] 2 All ER 489, 516.
200 [1951] 2 KB 215. See also Morris v Tarrant [1971] 2 QB 143, 160; Argy Trading Development Co Ltd
v Lapid Developments Ltd [1977] 1 WLR 444, 457; Syros Shipping Co SA v Elaghill Trading Co Ltd [1980] 2
Lloyd’s Rep 390, 393; Hiscox v Outhwaite (No 3) [1991] 2 Lloyd’s Rep 524, 535.
124 formation of contract

A husband, upon divorce, promised his wife £100 a year as a permanent allowance. In
reliance upon this promise, the wife forbore to apply to the Courts for maintenance. The
husband failed to make the payments, and the wife sued him on the promise.

The Court of Appeal held that there was no consideration for the promise as the wife’s
forbearance had not been requested and was not in return for the promise made to her;
nor could the wife rely on promissory estoppel, for as Denning LJ put it:201
Seeing that the principle never stands alone as giving a cause of action in itself, it can never
do away with the necessity of consideration when that is an essential part of the cause of
action. The doctrine of consideration is too fi rmly fi xed to be overthrown by a side-wind. Its
ill-effects have been largely mitigated of late, but it still remains a cardinal necessity of the
formation of a contract, though not of its modification or discharge.

There are similar statements in other cases202 and, although some decisions are
difficult to reconcile with this restriction,203 the Court of Appeal in Baird Textile
Holdings Ltd v Marks & Spencer plc204 has confirmed that promissory, as opposed
to proprietary,205 estoppel cannot create a cause of action. Th is marks a distinction,
therefore, between the English approach to promissory estoppel and that taken in
some other jurisdictions.206 But it does not mean that promissory estoppel cannot
assist a claimant in establishing a cause of action independent of the promise (for
example, in tort).207 Nor does it mean that there must be a pre-existing contractual
relationship: for example, promissory estoppel has been applied to a relationship
derived from statute.208
If promissory estoppel were to be developed so as to create a cause of action, the
question would arise as to the precise ‘interest’ that the doctrine would be protecting.
Contract law has traditionally protected a promisee’s expectations of performance.
It has sometimes been suggested that, in contrast, promissory estoppel is concerned
merely to protect the promisee’s reliance. On that approach, traditional contract law
with its requirement of consideration and its protection of expectations could happily
coexist with promissory estoppel as a cause of action protecting reliance. In Waltons
Stores (Interstate) Ltd v Maher:209

M was in negotiations with W to whom he hoped to lease premises which were to be

demolished and redeveloped to W’s specifications. Solicitors had been instructed to prepare

201 [1951] 2 KB 215, 220.

202 Argy Trading Development Co Ltd v Lapid Developments Ltd [1977] 1 WLR 444, 457; Syros Shipping Co
SA v Elaghill Trading Co [1981] 3 All ER 189.
203 Re Wyvern Developments Ltd [1974] 1 WLR 1097, 1104, noted by Atiyah (1974) 38 MLR 65; Pacol Ltd v
Trade Lines Ltd, The Henrik Sif [1982] 1 Lloyd’s Rep 456, 466–8.
204 [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737.
205 See Crabb v Arun AC [1976] Ch 179, below, p 127.
206 See esp Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; (Australia).
207 See Halson [1999] LMCLQ 256.
208 Robertson v Minister of Pensions [1949] 1 KB 227 (soldier and military authorities); Durham Fancy
Goods Ltd v Michael Jackson Fancy Goods Ltd [1968] 2 QB 839 (statutory liability on director).
209 (1988) 164 CLR 387. See also Restatement of the Law of Contracts (2d) para 90 (USA); Harris v Harris
[1989] NZ Conv C 190, 406 (New Zealand). See generally Spence, Protecting Reliance (1999).
 consideration and promissory estoppel 125

formal documents and W’s solicitors told M’s solicitors that ‘we believe approval will be
forthcoming. Let you know tomorrow if any amendments not agreed to’. Later M submitted
a contract and this was sent to W ‘by way of exchange’. W did not respond for 2 months
because it was privately reconsidering the whole deal and had instructed its solicitors ‘to go
slow’. Because it believed exchange would take place shortly and because, if the timetable
for occupation specified by W was to be met, there was urgency, M started work. Two
months later, when he had demolished the old premises and was well advanced with the new
premises, W told him it intended to withdraw. M argued inter alia that W was estopped from
denying that a concluded contract existed.

The majority of the High Court of Australia held that promissory estoppel could
found a cause of action and extended to the enforcement of voluntary promises; W
was accordingly estopped. They did not believe this would abolish the doctrine of
consideration ‘in a backhanded way’ because the two protected different interests.
An estoppel remedy only seeks to effect the minimum equity needed to avoid the
detriment from reliance whereas, where a promise is supported by consideration, the
expectations of the promisee are protected even if the promise is entirely executory
and there has been no reliance on it.210
The step taken in Walton Stores has not been taken in England, in part because
of the perceived need to protect the doctrine of consideration. For example, in
Johnson v Gore Wood & Co211 Lord Goff stated that it was not possible for the test
for estoppel by convention—acting on a common assumption—to apply to promises
as opposed to existing facts because that would amount to the abandonment of the
doctrine of consideration. And in Baird Textile Holdings Ltd v Marks & Spencer plc212
the move to allowing promissory estoppel to be used as a cause of action was not
taken even though the claimants confined their claim to damages protecting their
reliance interest. However, we have seen that where negotiations have not led to the
conclusion of a contract, reliance in the form of the rendering of services or delivery
of goods by one party on assumptions created or encouraged by the other may give
rise to a restitutionary remedy for the reversal of an unjust enrichment.213 There are,
moreover, examples of reliance generating a contract through unilateral contracts
in which promises are rendered legally enforceable by virtue of the performance
of an act by the promisee (ie reliance), often where the promisor has not expressly
requested the performance of the act 214 and more recently by the recognition that
performance of an existing obligation may be a ‘practical’ benefit.215 The doctrinal
foundations thus exist for it to be held that promissory estoppel is capable itself
of creating a cause of action, notwithstanding that the promisee has provided no

210 (1988) 164 CLR 387, 406. On the remedial consequences of this difference, see below, pp 539, 542.
211 [2002] 2 AC 1, 40–1, citing Spencer Bower and Turner, The Law Relating to Estoppel by Representation
(3rd edn, 1977) 167–8. See also Colman J in Azov Shipping Co Ltd v Baltic Shipping Co [1999] 2 Lloyd’s Rep
159, 175 and Thornton Springer v NEM Insurance Co Ltd [2000] 2 All ER 489, 516.
212 [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737.
213 Above, pp 42–43, 64, 68 and Brewer St Investments Ltd v Barclays Woollen Co Ltd [1954] 1 QB 428.
214 Warlow v Harrison (1858) 1 E & E 309, above, p 36–37; Carlill v Carbolic Smoke Ball Co [1893] 1
QB 256, above, p 38; Collen v Wright (1857) 8 E & B 647; Spiro v Lintern [1973] 1 WLR 1002; New Zealand
Shipping Co Ltd v Satterthwaite & Co Ltd [1975] AC 154, 167–8. 215 Above, p 109.
126 formation of contract

consideration.216 It may be that it has not been necessary to do so in the cases that
have come before the Courts because either a restitutionary remedy could be found
or a bargain exchange could be implied. It is, however, arguable that, until this step
is taken, it will not be possible to take up the suggestion made by Lord Hailsham LC
in 1972 and reduce the sequence of cases based on promissory estoppel to a coherent
body of doctrine.217
However, it must be emphasized that the neat division suggested by some218 between,
on the one hand, contract, supported by consideration, protecting expectations and,
on the other hand, promissory estoppel protecting reliance does not appear to have
been borne out by the promissory estoppel cases. In other words, in several cases the
Court has concluded that the minimum equity needed to avoid unconscientiousness
will not be satisfied by anything short of enforcing the promise. Thus, for instance, the
effect of the estoppel in the High Trees case would have been to prevent the landlord
recovering the full rent between 1940 and 1945 and in Crabb v Arun DC219 (although
this is normally viewed as a proprietary estoppel case) the effect of the estoppel was
to grant C the right of way the council had undertaken to give him. In Waltons Stores
(Interstate) Ltd v Maher the effect of the High Court of Australia’s ruling that W was
estopped from denying that a concluded contract existed appears to have been that
M was entitled to damages in lieu of specific performance.220 In these cases it appears
that equitable relief went beyond the protection of reliance.221

(c) two other types of estoppel

Differing views have been expressed by judges as to whether one should regard
various similar types of estoppel as underpinned by a single underlying principle.
For example, in Amalgamated Investment & Property Co Ltd v Texas Commerce
International Bank Ltd Lord Denning MR spoke of different estoppels being seen ‘to
merge into one general principle shorn of limitations’.222 In contrast, Millett LJ has
said, ‘[the] attempt to demonstrate that all estoppels other than estoppel by record are
now subsumed in the single and all-embracing estoppel by representation and that
they are all governed by the same requirements has never won general acceptance’.223
In Baird Textiles Holdings Ltd v Marks & Spencer plc 224 the Court of Appeal, while
recognizing that estoppel is a flexible concept, accepted that it ‘may take different
shapes in the context of different fields’;225 and that this made it necessary to continue

216 Thompson [1983] CLJ 257; Lunner [1992] Conv 239.

217 Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741, 758.
218 See, eg, Robertson (1997) 19 Sydney LR 32.
219 [1976] Ch 179; see below p 127.
220 The trial judge’s decision to this effect was affi rmed by the New South Wales Court of Appeal (1986)
5 NSWLR 407, and the High Court of Australia (1988) 164 CLR 387. Such damages are assessed on the same
basis as damages at common law: see below, p 641.
221 Atiyah, Essays on Contract (1986) 239–40; Yorio and Thel (1991) 101 Yale LJ 111. For this debate in
the Australian courts, see Commonwealth of Australia v Verwayen (1990) 170 CLR 394; Giumelli v Giumelli
(1999) 196 CLR 101. 222 [1982] QB 84, 122.
223 First National Bank v Thomson [1996] Ch 231, 236.
224 [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737. 225 Ibid at [84] (Mance LJ).
 consideration and promissory estoppel 127

to distinguish between promissory estoppel, proprietary estoppel and estoppel by

convention.

(i) Proprietary estoppel

Proprietary estoppel arises where a person acts in reasonable reliance and to his or her
detriment on the belief that he or she has or will acquire rights in or over the property
of another in circumstances in which it is unconscionable for the property owner to
deny the rights. Thus, in Crabb v Arun DC:226

The council built a road along the boundary between its property and C’s and gave C a point
of access to the road. Later C wished to divide his land and sell off one portion. For this
purpose C needed a second point of access and, at a site meeting with officers of the council
at which he said he would need access at an additional specified point, he was assured that
that would be acceptable to the council. Later the council fenced off the boundary and
erected gates at the two agreed access points. After C sold the front plot without reserving
any right of way from the back plot, the council removed the gates at the access point for the
back plot and erected a fence, thus leaving the plot landlocked. It then asked C for £3,000 for
a right of access. C sought a declaration claiming that he had a right of way over the second
point of access.

The Court of Appeal granted the relief sought. There was no consideration for the
council’s undertaking and the formality requirements for a contract for the transfer of an
interest in land had not been satisfied. But the council, at the meeting and by its conduct
in putting up the gates, had led C to believe that he had or would be granted a right of
access at the specified point and it was inequitable for it to insist on its strict title.
Cases on proprietary estoppel have often involved improvements to specific property
in the mistaken belief that the improver has or will be given ownership with the owner
positively encouraging this detrimental reliance227 or standing by and acquiescing in
it.228 Not all cases, however, involve such improvements; in some, services were rendered
in the belief that ownership would be given.229 This form of estoppel is narrower than
promissory estoppel in requiring detrimental reliance230 and the belief that a legal

226 [1976] Ch 179, on which see Atiyah (1974) 92 LQR 174; Millett, ibid, 342.
227 Ramsden v Dyson (1866) 1 HL 129, 170; Dillwyn v Llewellyn (1862) 4 DF & J 517; Pascoe v Turner [1979]
1 WLR 431; Gillett v Holt [2001] Ch 210. Cf Blue Haven Enterprises Ltd v Dulcie Ermine Tully [2006] UKPC 17
(proprietary estoppel not established because the defendant owner did not encourage the claimant’s mistaken
belief that would be entitled to the land and hence no unconscionability). See generally Allan (1963) 79 LQR
238; Jackson (1965) 81 LQR 84, 223; Moriarty (1984) 100 LQR 376; Gardner (1999) 115 LQR 353.
228 Taylors Fashions Ltd v Liverpool Victoria Trustee Co Ltd [1982] QB 133, 151–2. See also A-G of Hong
Kong v Humphreys Estates (Queen’s Gardens) [1987] 1 AC 114, 124.
229 Tanner v Tanner [1975] 1 WLR 1346 (property management); Greasley v Cooke [1980] 1 WLR 1306
(nursing); Jennings v Rice [2002] EWCA Civ 159, [2003] 1 FCR 501 (gardening, shopping and caring); Thorner
v Major [2009] UKHL 18, [2009] 1 WLR 776 (work on a farm). Cf Cobbe v Yeoman’s Row Management Ltd
[2008] UKHL 55, [2008] 1 WLR 1752 (obtaining planning permission but proprietary estoppel held not to
be made out). For the contrast in reasoning of the House of Lords in the last two cases, see McFarlane and
Robertson (2009) 125 LQR 535.
230 Detriment is not a narrow or technical concept and need not consist of quantifiable fi nancial detriment
so long as it is something substantial: Gillett v Holt [2001] Ch 210, 232 (Robert Walker LJ).
128 formation of contract

right over property231 has or will be given but broader in not requiring an unequivocal
representation and in its ability to create new rights.232 One reason sometimes given
for allowing the creation of new rights is that the legal owner of the property would
otherwise be unjustly enriched by getting the benefit of the improved property for
nothing. This cannot, however, account for most of the cases. For instance, in Crabb
v Arun DC the council would not have been unjustly enriched in this way. And even
where there has been an unjust enrichment, the remedy for the proprietary estoppel is
not concerned to give restitution of the value of that enrichment although there may
be a separate claim in the law of restitution.233 Scarman LJ stated that he did not find
the distinction between promissory and proprietary estoppel helpful,234 but, however
tenuous the distinction between the two, they have continued to be treated separately
in the subsequent case law.235

(ii) Estoppel by convention

When the parties have acted in relation to a transaction upon a shared mistaken236
assumption (either of fact or law) then, as regards that transaction, each will be estopped
against the other from questioning the truth of the facts or of law so assumed where it would
be unjust and unconscionable to resile from that shared assumption.237 In Amalgamated
Investment & Property Co Ltd v Texas Commerce International Bank Ltd:238

AIP negotiated with the TCI bank for a loan to one of its subsidiaries to be secured inter
alia by a guarantee by AIP. TCI decided to make the loan through Portsoken, a subsidiary
company it bought for the purpose, but AIP’s guarantee related to moneys due to you, ie
to loans made by TCI. AIP got into financial difficulties and was wound up. TCI had sold
property belonging to AIP and applied $750,000 of the proceeds in payment of the outstanding
balance of the loan made through Portsoken. AIP’s liquidator sought a declaration that AIP
was under no liability for loans made by Portsoken, and that TCI had not been entitled to
apply the money in this way.

231 Western Fish Products Ltd v Penwith District Council [1981] 2 All ER 204, 217. In principle, property
should include all forms of property but the cases, while contemplating property in goods, only provide
authority for land.
232 Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737.
233 In Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1752 a quantum meruit for
the value of the services in obtaining the planning permission succeeded even though proprietary estoppel
was not made out. 234 [1976] Ch 179, 193.
235 See esp the Baird Textile case, above n 232.
236 The mistake may be of both parties or of one party acquiesced in by the other: Republic of India v India
Steamship Co Ltd, The Indian Grace (No 2) [1998] AC 878, 913.
237 Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84,
126, 130; Lokumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd [1985] 2 Lloyd’s Rep 28, 34–5 (Kerr LJ);
Hiscox v Outhwaite [1992] 1 AC 562, 575 (Lord Donaldson MR); Norwegian American Cruises A/S v Paul
Mundy Ltd [1988] 2 Lloyd’s Rep 343, 351–2 (approving Hamel-Smith v Pycroft & Jetsave Ltd, 5 February
1987, Peter Gibson J); Republic of India v India Steamship Co Ltd, The Indian Grace (No 2) [1997] 2 WLR 538,
549 (Staughton LJ) and [1998] AC 878, 913 (HL); Commissioners for Her Majesty’s Revenue and Customs v
Benchdollar Ltd [2009] EWHC 1310 (Ch), [2010] 1 All ER 174; The Republic of Serbia v Imagesat International
NV [2009] EWHC 2853 (Comm) at [67]–[71] and [80]–[82]. The estoppel applies only ‘for the period of time
and to the extent required by the equity which the estoppel has raised’: Troop v Gibson (1986) 277 EG 1134,
1144. 238 [1982] QB 84.
 consideration and promissory estoppel 129

The Court of Appeal held that the guarantee, on its true interpretation, applied
to loans by Portsoken, but also stated that even if it did not, AIP was estopped
from denying that by an estoppel by convention: both parties had assumed that the
guarantee would cover loans by Portsoken. Brandon LJ stated that while a person
‘cannot in terms found a cause of action on an estoppel, he may, as a result of being
able to rely on an estoppel, succeed on a cause of action on which, without being able
to rely on that estoppel, he would necessarily have failed’.239 In other words, had the
TCI bank been suing on the contractual guarantee, the relevant cause of action would
have been a standard contractual cause of action: estoppel by convention would have
come in not to found the cause of action but to prevent AIP applying an interpretation
of the guarantee that was contrary to both parties’ understanding and conduct.

3. appraisal of consideration and

promissory estoppel
Attempts have been made to justify the doctrine of consideration on the ground that it is
essential both to the form and the substance of a contract. Consideration, it has been argued,
is a formal necessity which serves to distinguish those promises by which the promisor
intends to be legally bound from those which are not seriously meant: ‘buyers intend
business where philanthropists may not’.240 But English law already requires an intent to
create legal relations as a distinct element of a contract. Consideration is cogent evidence
of the existence of such an intent, but it is by no means conclusive proof that it is present.241
The abolition of the doctrine would therefore simply mean that the test of contractual
intention would assume a greater significance in the law of contract. Few persons would
contend that this constituted an insuperable objection to a change in the law,242 for civil
law systems seem to exist quite happily without the need for consideration.243
Similarly, aspects of the doctrine, in particular the pre-existing duty rule, have been
justified by the need to discourage improper pressure and coercion, a function now
more directly and effectively served by the recent recognition of economic duress as a
ground for avoiding a contract.244
It has also been argued that English law has made the choice of enforcing bargains (in
the sense of exchanges) rather than promises: ‘consideration, offer and acceptance are an
indivisible trinity, facets of one identical notion which is that of bargain’.245 But this does
not explain why it is thought better to enforce bargains.246 Indeed the opposite appears to

239 [1982] QB 84, 132. See also at 122 (Lord Denning MR). Cf Eveleigh LJ at 126.
240 Smith and Thomas, A Casebook on Contract (2nd edn, 1961) 126.
241 Balfour v Balfour [1919] 2 KB 571; Coward v Motor Insurers’ Bureau [1963] 1 QB 259, above, p 70–73.
242 Cf Atiyah, Consideration in Contracts: A Fundamental Restatement (1971).
243 Lando and Beale, Principles of European Contract Law Parts I and II (2000) 140–3; cf Chloros (1968)
17 ICLQ 137; Markesinis [1978] CLJ 53. 244 Above, pp 108–111; below, ch 10.
245 Hamson (1938) 54 LQR 233, 234.
246 It has been said that non-bargain promises are economically sterile (Posner (1977) 6 J Leg Stud 411)
and that they should only be enforced if relied upon and only to the extent of the reliance (Eisenberg (1979)
47 U of Chicago LR 1, 3–7).
130 formation of contract

be the case. Desire to enforce promises has led the Courts on occasion to find a derisory
consideration and to construct a bargain where none in fact was present since there
was no real exchange. It has been stated that ‘ultimately the question of consideration
is a formality as in the use of a seal or the agreement to give a peppercorn’247 and the
recognition that a ‘practical’ benefit will make a promise enforceable248 makes it difficult
to sustain a purely bargain view of contract. Elsewhere, the absence of consideration may
enable one of the parties to ‘snap his fingers’ at a promise deliberately made, and which
the person seeking to enforce it has a legitimate interest to enforce.249 The perception that
this is incompatible with such legitimate interests led to the development of promissory
estoppel in the context of the part performance of an existing duty. This development
makes it difficult to regard bargain as the fundamental principle of contract. When
put together with common law ‘waiver’,250 it is arguable that consideration has been
effectively confined to the formation of contracts and the error in making it also regulate
the discharge of contracts251 has been substantially corrected.
It has been noted that consideration reflects a variety of policies and serves a
number of functions. The doctrine has in the past been the Swiss army knife of the law,
performing these functions252 in an ingenious but imperfect way. Professor Simpson
has described the identification and separation of these policies and functions and the
development in the last 200 years of new, more targeted doctrines.253 We now have a
doctrine of offer and acceptance, a requirement of intention to create legal relations, a
concept of economic duress, and a doctrine of privity of contract. There is considerable
force in the conclusion of the Law Revision Committee in 1937,254 which stated that in
many cases consideration was a mere technicality, irreconcilable either with business
expediency or common sense. In Johnson v Gore Wood & Co255 Lord Goff stated that
although ‘the doctrine of consideration may not be very popular nowadays . . . [it] still
exists as part of our law’. It is, however, submitted that its role should be confined to the
formation of contracts and that it should be supplemented by the principle of promissory
estoppel. Promissory estoppel will only come into play where there has been reliance,
whereas if there is consideration the expectations of the promisee are protected even if
the promise is entirely executory. Although a promissory estoppel can only be raised
where there has been reliance, where it is, as in a number of the cases discussed above,256
relief may go beyond the protection of that reliance. Although a promissory estoppel
remedy only seeks to effect the minimum equity to avoid the detriment from reliance
and unconscionable conduct, such cases are arguably explained as ones in which the
Court concluded that unconscientiousness could only be prevented by enforcing the
promise or otherwise protecting the promisee’s expectations.

247 Vantage Navigation Corp v Suhail & Saud Bahwan Building Materials Llc, The Alev [1989] 1 Lloyd’s
Rep 138, 147 (Hobhouse J). 248 Above, pp 109–111.
249 Above, p 104 (pre-existing duty cases) and, albeit in the context of a contract for the benefit of a third
party, Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 855 (Lord Dunedin).
250 Below, p 466.
251 Pollock, Principles of Contract (12th edn, 1950) 146. See also Kötz, European Contract Law (1997)
68–71. 252 Above, p 91.
253 (1975) 91 LQR 247, 263. 254 Cmd 5449.
255 [2002] 2 AC 1, 40. See also the extraordinarily wide-ranging judicial examination of consideration by
Andrew Phang Boon Leong JA in obiter dicta in Gay Choon Ing v Loh Sze Ti Terence Peter [2009] SGCA 3,
[2009] 2 SLR 332. 256 Above, p 126.
 PART 
CONTENTS OF THE
CONTRACT
5 The Terms of the Contract 133
6 Exemption Clauses and Unfair Terms 171
This page intentionally left blank
 5
THE TERMS OF
THE CONTRACT
In most cases the contract is composed of a number of contractual terms. This chapter
considers the nature and import of those terms and the form which they may take.
First, the terms of a contract will be distinguished from representations, which are
statements made by one party to the other that are not intended to be an integral part
of the agreement. Similarly, collateral warranties, which are preliminary assurances
that are contractually binding, but not as part of the principal agreement, will be
distinguished from representations that are not contractually binding. Secondly, the
importance of different types of terms will be examined by reference to the distinction
between conditions, warranties and intermediate terms. Thirdly, the implication of
terms into contracts will be explored. Finally, the chapter will look generally at the
interpretation or construction of terms.

1. terms, collateral warranties and

representations

(a) terms and representations

During the course of negotiations leading to the conclusion of a binding agreement,
one or other of the contracting parties may make a statement or give an assurance
calculated to produce in the mind of the other party a belief that facts exist which
render the proposed bargain advantageous to the interests of the other party. A Court
may later have to decide whether this statement or assurance formed part of the
contract, or whether it was merely a ‘representation’ or inducement, in the sense that
the party making it did not undertake to make it good. Although a representation
which proves to be false renders the agreement voidable at the suit of the party misled,1
and may, if made fraudulently or negligently, give rise to damages in tort, nevertheless
it cannot of itself give rise to an action for breach of contract.2 Such an action will only
lie for breach of a contractual term. The question whether a particular statement is a

1 Below, Ch 9. 2 Behn v Burness (1863) 3 B & S 751, 753.

134 contents of the contract

term of the contract or a representation is frequently one of considerable difficulty and

the basis of the distinction between the two has been criticized.3

(i) Intention to promise

The primary test is of contractual intention, that is, whether there is evidence of an
intention by one or both parties that there should be contractual liability in respect of
the accuracy of the statement.4 The question therefore is: on the totality of evidence,
must the person making the statement be taken to have warranted its accuracy, ie
promised to make it good? If the facts of the case are such as to show this intention the
Court may construe as a term of the contract a statement or assurance made anterior
to the final agreement. In Bannerman v White:5
B offered hops for sale to W. W asked if any sulphur had been used in the treatment of the
year’s growth, as brewers were refusing hops contaminated with sulphur. B said ‘No’. W said
that he would not even ask the price if sulphur had been used. They then discussed the price,
and W ultimately purchased by sample B’s entire growth. After the hops were delivered he
repudiated the contract on the ground that the hops contained sulphur. B sued for their
price. It was proved that sulphur had been used on five of B’s three hundred acres. B had used
it for the purpose of trying a new machine, and had either forgotten the matter or thought
it unimportant.

The question whether W was entitled to reject the hops turned upon whether it should be
regarded as a condition of the agreement that the hops might be rejected if sulphur had
been used. It was argued that ‘the conversation relating to the sulphur was preliminary
to entering on the contract and no part thereof’, but the jury found it was understood
and intended by the parties to be part of the contract of sale. The Court of Common Pleas
upheld this finding, and said that B’s assurance was the condition upon which the parties
contracted and the breach of it discharged W from liability to take the hops.6
That the test is one of the parties’ intentions—and that all evidence is relevant in
determining those intentions, rather than there being a decisive secondary test—was
shown in the leading case of Heilbut, Symons & Co v Buckleton:7
B telephoned HS’s agent and said ‘I understand you are bringing out a rubber company’.
The reply was ‘We are’. B asked for a prospectus, and was told there were none available. He
then asked ‘if it was all right’, and the agent replied ‘We are bringing it out’. On the faith of
this, B bought shares which turned out to be of little value. The company was not accurately
described as ‘a rubber company’, although this assurance had not been given in bad faith. B
claimed damages for breach of contract.

The House of Lords held that no breach of contract had been committed. There had
been merely a representation and no warranty. There was no intention on the part of

3 Williston (1913) 27 Harv L Rev 1; Atiyah, Essays on Contract (1986) 275.

4 Heilbut, Symons & Co v Buckleton [1913] AC 30, 51.
5 (1861) 10 CBNS 844. See also Schawel v Reade [1913] 2 Ir R 64.
6 Contrast Hopkins v Tanqueray (1854) 15 CB 130, which was probably wrongly decided..
7 [1913] AC 30. 38, 42, 49–50 (Lord Haldane LC, Lord Atkinson and Lord Moulton). See also Independent
Broadcasting Authority v EMI Electronics Ltd (1980) 14 BLR 1, 22–3, 32, 41 (HL) (in respect of a statement
made long after the contract).
 the terms of the contract 135

either or both of the parties that there should be contractual liability in respect of the
accuracy of the statement.
Heilbut, Symons & Co v Buckleton has been criticized8 and, arguably, Courts are no
longer as reluctant to find that a pre-contractual statement amounts to a term of the
contract.9
Certainly, the difficulty of ascertaining intention means that the dividing line
between the two categories of statement remains one that is not easy to draw in practice.
For example, in Oscar Chess Ltd v Williams,10 a private seller sold a car to a firm of
dealers. He told them that the car was a 1948 model, and the car logbook showed that
it had been first registered in 1948. In fact it was a 1939 model. The logbook had been
altered by some unknown person. The Court of Appeal (Morris LJ dissenting) held
that the seller’s statement was not a term of the contract, but merely a representation
not giving rise to any action for breach of contract. On the other hand, in Dick Bentley
Productions Ltd v Harold Smith (Motors) Ltd,11 a statement made by a motor dealer to
a private purchaser, based on a reading of the milometer, that it had done only 20,000
miles, whereas in fact it had done 100,000, was held to be a contractual term. The
Oscar Chess case was distinguished on the ground that the seller ‘honestly believed
on reasonable grounds that [the statement] was true’, whereas the motor dealer in the
latter case ‘who was in a position to know, or at least to find out the history of the car’,
‘stated a fact that should be within his own knowledge. He had jumped to a conclusion
and stated it as a fact’.12
In endeavouring to reach a conclusion as to the parties’ intentions, the Courts can
be said to take into account a number of factors, although none of these is in itself
decisive. First, they may have regard to the time which elapsed between the time of
making the statement and the final manifestation of agreement; if the interval is a
long one, this points to a representation.13 Secondly, they may consider the importance
of the statement in the minds of the parties; a statement which is important is likely
to be classed as a term of the contract.14 Thirdly, if the statement was followed by
the execution of a formal contract in writing, it is more likely to be regarded as a
representation where it is not incorporated in the written document.15 Finally, where
the maker of the statement is, vis-à-vis the other party, in a better position to ascertain
the accuracy of the statement or has the primary responsibility for doing this, the
Courts will tend to regard it as a contractual term.16

8 Williston (1913) 27 Harv L Rev 1; Greig (1971) 87 LQR 179, Atiyah, Essays on Contract (1986) 277–8.
9 J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078, 1081; Esso Petroleum Co
Ltd v Mardon [1976] QB 801, 817; Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd
[1978] QB 574, 590. 10 [1957] 1 WLR 370. Cf Beale v Taylor [1967] 1 WLR 1193.
11 [1965] 1 WLR 623. 12 [1965] 1 WLR 623, 628, 629.
13 Routledge v McKay [1954] 1 WLR 615; Howard Marine and Dredging Co Ltd v A Ogden & Sons
(Excavations) Ltd [1978] QB 574, 591. Cf Birch v Paramount Estates Ltd (1956) 167 EG 396.
14 Bannerman v White (1861) 10 CBNS 844. Cf Oscar Chess Ltd v Williams, above, n 11.
15 Heilbut, Symons & Co v Buckleton [1913] AC 30, 50. Cf Miller v Cannon Hill Estates Ltd [1931] 2 KB 113,
and see below, p 136 (collateral warranty).
16 Schawel v Reade, above, n 5; Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd, above, n 12.
See also Harlingdon and Leinster Enterprises Ltd v Christopher Hull Fine Art [1991] 1 QB 564, 577, 585. Cf
136 contents of the contract

(ii) The influence of wider considerations

The precise place in which the dividing line between representations and terms is
drawn may have also been affected by two other factors. The first of these was the
distorting effect of the rule that, before the decision of the House of Lords in Hedley
Byrne & Co Ltd v Heller & Partners Ltd17 in 1963, damages in tort could not be awarded
for negligent misstatement. Parties seeking to escape from this much criticized feature
of English law would often argue that a statement was a warranty.18 Although damages
for negligent misstatement have been available since Hedley Byrne, so that the purpose
of making the distinction is no longer to determine whether the maker of the statement
is liable in damages, there are still differences between damages in tort and contract.
Damages for breach of contract do not depend on establishing negligence and the
measure of damages for breach of contract differs from that for misrepresentation.19
Secondly, in the past it was generally not possible to adduce extrinsic, eg oral,
evidence to contradict or vary the terms of a written agreement.20 This ‘parol evidence’
rule meant that whatever the intention of the parties and however important the oral
statement, it could only exceptionally be held to be a term of the contract. Normally
therefore, it had to be classified as a representation21 although, as we shall now see, it
might instead be classed as a collateral warranty.

(b) collateral warranties

Where a preliminary statement or assurance is not a term of the principal agreement
the Courts may be prepared to treat it as a contract or ‘warranty’, collateral to the
principal agreement.22 In particular, in the past, this device has been used where
the principal agreement has been reduced to writing, since the parol evidence rule
generally prevented the assurance from constituting a term of that contract. Provided
the necessary contractual intention has been present, the Courts have been willing
to construe the assurance as a collateral contract or warranty conferring a right to
damages.23 Thus where tenants executed leases upon the oral assurance of the landlord
that the drains were in good order,24 or that the landlord would not enforce a covenant
against residing on the premises,25 the tenant was held entitled to enforce the assurance
as a collateral warranty. In particular, a statement was likely to found a warranty where
one party refused to enter into a contract unless the other gave it an assurance on a
certain point.26

Heilbut, Symons & Co v Buckleton [1913] AC 30; Beale v Taylor [1967] 1 WLR 1193; Thake v Maurice [1986]
QB 644 (statement that vasectomy was irreversible not a warranty).
17 [1964] AC 465, below p 323. See also Misrepresentation Act 1967, s 2(1), below, p 325.
18 Cf Heilbut, Symons & Co v Buckleton [1913] AC 30, 51 and Esso Petroleum Co Ltd v Mardon [1976] QB
801, 817. 19 Below, pp 322, 324.
20 Below, p 138. 21 For a modern example, see Lambert v Lewis [1982] AC 225, 263.
22 Wedderburn [1959] CLJ 58.
23 Morgan v Griffith (1871) LR 6 Ex 70; Newman v Gatti (1907) 24 TLR 18, 20; Miller v Cannon Hill Estates
Ltd [1931] 2 KB 113; Birch v Paramount Estates Ltd (1956) 167 EG 396; Frisby v BBC [1967] Ch 932.
24 De Lassalle v Guildford [1901] 2 KB 215.
25 City and Westminster Properties (1934) Ltd v Mudd [1959] Ch 129. See also Erskine v Adeane (1873) 8
Ch App 756 (landlord’s assurance that the game upon the land would be culled).
26 Erskine v Adeane, ibid; De Lassalle v Guildford [1901] 2 KB 215; Couchman v Hill [1947] KB 554.
 the terms of the contract 137

In 1913, Lord Moulton said of such collateral warranties that they are ‘viewed with
suspicion by the law. They must be proved strictly’, and that they ‘must from their very
nature be rare’.27 Nevertheless, since that time the Courts have showed themselves
much more willing to treat pre-contractual statements as collateral warranties, and
they are no longer rare.
In Esso Petroleum Co Ltd v Mardon,28 for example:
Esso found a site on a busy main street which it considered suitable for the erection of a
petrol fi lling station. An experienced employee estimated that the throughput of petrol at
the station would reach 200,000 gallons in the third year of operation. But the planning
authority refused permission for the forecourt and pumps to be sited on the main street
and they had to be sited at the rear of the premises where they were only accessible by side
streets. M applied for a tenancy of the fi lling station. He was interviewed by the experienced
employee, who gave him the same estimate of throughput but failed to take account of the
fact that the fi lling station was now ‘back to front’. In reliance on the estimate, M took a
3-year lease of the fi lling station. Despite his best efforts, the site proved incapable of a
throughput of more than 60,000 to 70,000 gallons. In an action by Esso for possession of
the station and monies due for petrol supplied, M counterclaimed damages for (inter alia)
breach of a collateral warranty.

The Court of Appeal rejected the argument that the estimate could not amount to
a warranty because it was a forecast or statement of opinion. It was held that the
statement as to potential throughput amounted to a collateral warranty—not in the
sense that Esso guaranteed that the throughput would reach 200,000 gallons, but a
warranty that the forecast had been prepared with reasonable care and skill. Since
Esso negligently made ‘a fatal error’ in the forecast given to M, and on which he took
the tenancy, they were liable to him in damages for breach of contract.
This device of a collateral warranty has also been employed where the principal
contract is one to which either the person giving, or the person receiving, the assurance
is not a party. In Shanklin Pier Ltd v Detel Products Ltd:29
The owners (B) of Shanklin Pier in the Isle of Wight wished to paint the pier and consulted
Detel (A), a firm of paint manufacturers. Detel told the owners that its paint was suitable
for the purpose, and, relying on this statement, the owners caused to be inserted in their
agreement with the contractors (C) who were to paint the pier a term requiring the use
of Detel’s paint. The paint proved unsuitable and the owners sued Detel for breach of
warranty.

It was held that the owners were entitled to damages. There was a collateral warranty
between the owners (B) and Detel (A), collateral to the purchase of the paint by
the contractors (C) from Detel (A), with the consideration for A’s promise as to the
suitability of the paint being B’s instruction to C to buy the paint from A. McNair J
said:30

27 Heilbut, Symons & Co v Buckleton [1913] AC 30, 47.

28 [1976] QB 801. Cf Jonathan Wren & Co Ltd v Microdec plc (1999) 65 Con LR 157 (Lord Moulton’s approach
‘applies strongly’ where it is sought to make a third party additionally liable for some performance).
29 [1951] 2 KB 854. See also Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd [1965] 2 QB 170;
Lambert v Lewis [1982] AC 225, 263. 30 [1951] 2 KB 854, 856.
138 contents of the contract

I see no reason why there may not be an enforceable warranty between A and B supported
by the consideration that B should cause C to enter into a contract with A or that B should
do some other act for the benefit of A.

This principle is particularly applicable to cases of hire-purchase where a dealer first

sells the article to a hire-purchase finance company which then lets it on hire to the
hirer. If the dealer gives a warranty, which induces the hirer to enter into the contract
of hire, this warranty is enforceable against the dealer by the hirer, even though the
actual contract of hire-purchase is not made between them.31

(c) extrinsic evidence

Where the parties put their agreement in a written document, the question arises
whether extrinsic evidence may be led to establish the existence of a term. It has often
been said that ‘it is firmly established as a rule of law that parol evidence cannot be
admitted to add to, vary or contradict a deed or other written instrument’, including
a contract.32 Although the purpose of this rule (which was more favoured in the past
than it is now)33 is to promote certainty34 and to save time in the conduct of litigation,35
it has long been the subject of a large number of exceptions which have resulted in
uncertainty. Thus, as we shall see in a later section, 36 extrinsic evidence may sometimes
be available to assist with the interpretation of a contract. But it is also admissible to
prove the existence of a collateral agreement,37 to establish implied terms38 and, more
importantly, if it is shown that the document was not intended to express the entire
agreement between the parties. 39 It is also admissible to show that the contract is not
operative40 and to impugn the validity of the contract on the grounds of illegality,
misrepresentation,41 mistake, or duress.
The width of the exceptions led the Law Commission to the view that:

although a proposition of law can be stated which can be described as the ‘parol evidence’
rule it is not a rule of law which, correctly applied, could lead to evidence being unjustly
excluded. Rather it is a proposition of law which is no more than a circular statement: when
it is proved or admitted that the parties to a contract intended that all the express terms
in their agreement should be recorded in a particular document or documents, evidence

31 Andrews v Hopkinson [1957] 1 QB 229; Yeoman Credit Ltd v Ogders [1962] 1 WLR 215.
32 Jacobs v Batavia and General Plantations Trust [1924] 1 Ch 287, 295; Bank of Australasia v Palmer
[1897] AC 540, 454; Rabin v Gerson Berger Association Ltd [1986] 1 WLR 526, 530; Adams v British Airways
plc [1995] IRLR 577, 583. 33 Law Com No 154, The Parol Evidence Rule (1986), paras 2.3–2.4.
34 Shore v Wilson (1842) 9 CL & F 355, 565–6; Inglis v John Buttery & Co (1878) 3 App Cas 552, 577;
Mercantile Agency Co Ltd v Flitwick Chalybeate Co (1897) 14 TLR 90.
35 Prenn v Simmonds [1971] 1 WLR 1381, 1384. 36 Below, pp 166–169. 37 Above, p 136.
38 Gillespie Bros & Co v Cheney Eggar & Co [1896] 2 QB 59 (term implied under the Sale of Goods Act
1979); Hutton v Warren (1836) 1 M and W 466 (custom).
39 Mercantile Bank of Sydney v Taylor [1893] AC 317, 321; Gillespie Bros & Co v Cheney, Eggar & Co, above,
n 00, 62; J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078, 1083.
40 Pym v Campbell (1856) 6 E & B 370.
41 Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573, 595.
 the terms of the contract 139

will be inadmissible (because irrelevant) if it is tendered only for the purpose of adding to,
varying, subtracting from or contradicting the express terms of that contract.42

The Law Commission concluded43 that there is no rule of law precluding the
admissibility of evidence solely because a document exists which looks like a complete
contract and that there was accordingly no need for legislation to abrogate the supposed
rule as it had provisionally recommended in its Working Paper.44 The presumption that
a document which looks like a contract is the whole contract is only a presumption,45
and, save where the document states that it contains the entire contract,46 is unlikely to
preclude the receipt of evidence of other terms not included expressly or by reference
in the document.
Although the traditional description of a parol evidence rule may have a lingering
influence,47 the Law Commission’s approach has been judicially approved48 and is also
attractive from a policy point of view. This is because, although facilitating the parties’
intentions is an important function of contract law, regarding the issue as governed
by a rule of law can have the effect of excluding much evidence of the intentions of the
parties without achieving the certainty which the ‘rule’ aimed to achieve.

2. conditions, warranties and

intermediate terms
(a) introduction
In deciding whether a contract can be terminated for breach, or whether the breach
merely triggers a right to damages, the Courts have looked at the importance of the
term broken as well as the seriousness of the consequences of the breach. This has
resulted in the distinction between conditions, warranties and intermediate terms.
On one approach, which is reflected in the Sale of Goods Act 1979,49 the term
is classified at the time the contract is made as either a condition or a warranty. If
the parties regarded the term as essential, it is classified as a condition: any breach

42 Law Com No 154 (1986), para 2.7. See generally Wedderburn [1959] CLJ 58.
43 Ibid, para 2.17. 44 Law Com WP No 76 (1976).
45 Gillespie Bros & Co v Cheney Eggar & Co [1896] 2 QB 59.
46 Such an entire agreement clause does not operate to exclude a claim for misrepresentation (although it
is commonly combined with a separate clause that does exclude misrepresentation): McGrath v Shaw (1987)
57 P & CR 452, 459–60; Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573, 595–7; Deepak Fertilisers
and Petrochemicals Corp v ICI Chemicals & Polymers Ltd [1999] 1 Lloyd’s Rep 387, 395; Government of
Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333.
47 eg Perrylease Ltd v Imecar AG [1988] 1 WLR 463; AG Securities v Vaughan [1990] 1 AC 417, 468–9,
475; Guardian Ocean Cargos Ltd v Banco de Brasil SA [1991] 2 Lloyd’s Rep 68 (but evidence admitted and
approach consistent with Law Commission’s).
48 Wild v Civil Aviation Authority (CA, 25 September 1987); Haryanto (Yani) v ED & F Man (Sugar) Ltd
[1986] 2 Lloyd’s Rep 44, 46. See also Rosseel NV v Oriental Commercial and Shipping Co (UK) Ltd [1991] 2
Lloyd’s Rep 625, 628; State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170,
192; Norwest Beef Industries Ltd v P & O Steam Navigation Co (1987) 8 NSWLR 568, 570.
49 See below, p 159.
140 contents of the contract

of a condition gives the innocent party the option of being discharged from further
performance of the contract. The innocent party can also claim damages for any loss
sustained by the fact that the contract has not been performed. If the parties did not
regard the term as essential, but as subsidiary or collateral, it is classified as a warranty;
its failure gives rise to a claim for such damages as have been sustained by the breach of
that particular term, but the innocent party is not given the option of being discharged
from further performance. The classification of a term as being either a ‘condition’ or a
‘warranty’ will therefore determine the legal remedies available to the innocent party
in the event of its breach.
Nevertheless, it is right to observe that the word ‘condition’ is sometimes used, even
in legal documents, to mean simply ‘a stipulation, a provision’, and does not carry
the meaning given to it by lawyers as a term of art.50 Moreover, in the context of non-
consumer sales, statute has restricted the right of a buyer to reject goods by reason of
certain implied conditions if the breach is so slight that it would be unreasonable to
reject them.51 The word ‘warranty’ is also employed in a variety of senses, and in many
of the earlier cases and also in insurance law52 it is not infrequently used simply to mean
a term of the contract, whether a warranty proper or a condition. Whether or not the
words ‘condition’ or ‘warranty’ are employed in their technical sense must, therefore,
depend upon the intention of the parties to be ascertained from their agreement and
from the subject-matter to which it relates.
Another approach, often seen as more modern but in fact with older roots,53 rejects
the proposition that every term of a contract can be classified as either a condition or a
warranty. On this approach there is a third category of intermediate (or ‘innominate’54)
terms. The legal consequences of the breach of such a term (ie whether or not the
innocent party is entitled to treat itself as discharged) do not follow automatically from
a prior classification of the undertaking but depend upon the nature and consequences
of the breach.

(b) conditions
(i) Promissory conditions
A condition may be defined as a promise, as to fact or as to future conduct, which
forms an essential term of the contract.55 If the fact proves untrue, or the promise is
not fulfilled, the breach may be treated as a repudiation which entitles the innocent
party to be discharged from further performance of the contract.

50 LG Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235.

51 Sale of Goods Act 1979, ss 15A; below, p 147.
52 Marine Insurance Act 1906, ss 33–41; Bank of Nova Scotia v Hellenic Mutual War Risks Association
(Bermuda) Ltd [1992] 1 AC 233.
53 eg Freeman v Taylor (1831) 8 Bing 124, 138. See also Boone v Eyre (1779) 1 H Bl 273n; Davidson v
Gwynne (1810) 12 East 381; Clipsham v Vertue (1843) 5 QB 265; McAndrew v Chapple (1866) LR 1 CP
643, 648.
54 Th is terminology was fi rst used by Smith and Thomas, A Casebook on Contract (4th edn, 1961).
55 See also below, Ch 15.
 the terms of the contract 141

An illustration of a promise as to a fact forming a condition is the case of Behn v

Burness,56 where a ship was stated in the contract of charterparty to be ‘now in the port
of Amsterdam’. The fact that the ship was not in the port at the date of the contract
discharged the charterer from performance. An example of a promise as to conduct is
provided by the case of Glaholm v Hays:57
A charterparty provided that a vessel was to go from England to Trieste and there load a
cargo: ‘the vessel to sail from England on or before the 4th day of February next’. The vessel
did not sail for some days after the 4th February, and on its arrival at Trieste the charterers
refused to load a cargo and treated the contract as repudiated.

It was held that the charterers were entitled to be discharged from the contract. The
Court of Common Pleas stated:58
Whether a particular clause in a charter-party shall be held to be a condition, upon the
nonperformance of which by the one party, the other is at liberty to abandon the contract,
and consider it at an end; or whether it amounts to an agreement only, the breach whereof is
to be recompensed by an action for damages, must depend upon the intention of the parties
to be collected, in each particular case, from the terms of the agreement itself, and from the
subject-matter to which it relates . . . [W]e think the intention of the parties to this contract
sufficiently appears to have been, to insure the ship’s sailing at the latest by the 4th February,
and that the only mode of effecting this is by holding the clause in question to have been a
condition precedent; which we consider it to have been.

The idea which underlies the use of the word ‘condition’ in Glaholm v Hays is that
the term is so vital to the operation of the contract that its fulfilment by one party is a
condition precedent to liability on the part of the other. But a condition also means an
essential undertaking in the contract which one party promises will be made good. If it
is not made good, not only will the other party be entitled to treat itself as discharged,
but also to sue for damages for breach. A condition is therefore a ‘promissory’ condition,
that is to say, the breach of it entitles the innocent party to be released from further
performance of the contract and to be compensated by damages.

(ii) Non-promissory conditions

It should be stressed, however, that the meaning of condition so far referred to is to be
contrasted with another exceptional meaning of condition where the condition is non-
promissory. A condition in this sense may be referred to as a ‘contingent’ condition.
For instance, it may be provided that a contract shall not take effect unless or until
the condition is fulfilled or that a particular duty under the contract does not become
due unless or until the fulfi lment of the condition.59 The existence or enforceability
of the contract or the particular obligation is dependent upon the fulfi lment of the
condition, but there is no guarantee or promise that it will be fulfi lled.

56 (1862) 1 B & S 877; (1863) 3 B & S 751.

57 (1841) 2 M & G 257. See also Petrotrade Inc v Stinnes Handel GmbH [1995] 1 Lloyd’s Rep 142, 149.
58 Ibid, 266, 268.
59 Restatement (2d), para 224 provides that a condition is ‘an event, not certain to occur, which must
occur, unless occurrence is excused, before performance under a contract comes due’.
142 contents of the contract

The distinction between promissory conditions and the first type of contingent
condition was illustrated by Denning LJ in Trans Trust SPRL v Danubian Trading Co
Ltd60 when considering a stipulation in a contract of sale of goods which related to the
opening by the buyer of a letter of credit61 in favour of the seller:
What is the legal position of such a stipulation? Sometimes it is a condition precedent to
the formation of a contract, that is, it is a condition which must be fulfilled before any
contract is concluded at all. In those cases the stipulation ‘subject to the opening of a credit’
is rather like a stipulation ‘subject to contract’.62 If no credit is provided, there is no contract
between the parties. In other cases, a contract is concluded and the stipulation for a credit
is a condition which is an essential term of the contract. In those cases the provision of the
credit is a condition precedent, not to the formation of a contract, but to the obligation of the
seller to deliver the goods. If the buyer fails to provide the credit, the seller can treat himself
as discharged from further performance of the contract and can sue the buyer for damages
for not providing the credit.63

The examples below show that the insertion of a contingent condition may produce
one of several effects.64
First, it may prevent the formation of any immediately binding contract, as in Pym
v Campbell 65 where the parties entered into an agreement for the sale and purchase
of part of the proceeds of an invention on the express oral understanding that it
should not bind them until a third party approved the invention. In such a situation,
either party may withdraw from the transaction at any time before the condition is
fulfi lled.
Secondly, one party may assume an immediate unilateral obligation, say, to sell or
to buy land or goods from the other, but subject to a condition. In this case, there is a
contract from the start imposing a unilateral obligation from which one party cannot
withdraw;66 but no bilateral contract of sale, binding on both parties, comes into
existence until the condition is fulfi lled.67 Many options in leases and hire-purchase
agreements are of this nature; in such cases the fulfi lment of the condition depends on
the will of the option holder.
Thirdly, the parties may enter into an immediately binding contract, the operation
of which is suspended pending fulfi lment of the condition. So, for example, an

60 [1952] 2 QB 297, 304. 61 See above, pp 115–116.

62 See above, p 68. The parallel is not an exact one, for in the case of an agreement ‘subject to contract’
there is no obligation at all, whereas in the case of a contingent condition there may be an implied obligation
to facilitate, or not to prevent, the fulfi lment of the condition: Dodd v Churton [1897] 1 QB 562; MacKay v
Dick (1881) 6 App Cas 251: Thompson v ASDA-MFI plc [1988] Ch 241.
63 The opening of a letter of credit is normally treated as falling within Denning LJ’s second category: ie
as a promissory, rather than a contingent, condition. See, eg, UR Power Gmbh v Kuok Oils and Grains Pte Ltd
[2009] EWHC 1940 (Comm), [2009] 2 Lloyd’s Rep 495 at [22] (Gross J).
64 For a more detailed account of these effects, see United Dominions Trust (Commercial) Ltd v Eagle
Aircraft Services Ltd [1968] 1 WLR 74, 82; Wood Preservation Ltd v Prior [1969] 1 WLR 1077, 1090; LG Schuler
AG v Wickman Machine Tool Sales Ltd [1972] 1 WLR 840, 850–1 (CA), [1974] AC 235 (HL).
65 (1856) 6 E & B 370. See also Aberfoyle Plantations Ltd v Cheng [1960] AC 115; William Cory & Son Ltd
v IRC [1965] AC 1088. Cf Haslemere Estates Ltd v Baker [1982] 1 WLR 1109.
66 Smith v Butler [1900] 1 QB 694.
67 United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1 WLR 74. Cf Eastham v
Leigh, London & Provincial Properties Ltd [1971] Ch 871.
 the terms of the contract 143

agreement ‘conditional on the seller securing all relevant approvals from the Secretary
of State’68 is a contract from which neither party can resile until it can be definitely
ascertained that the condition will not be fulfilled. Alternatively, while the operation
of the contract is not suspended, that of a particular obligation under it is. Thus, the
obligation of an insurer to pay does not arise until the occurrence of the loss.
In none of these situations, however, does either party render itself liable in damages
to the other in the event of non-fulfilment of the condition. Even if, as is often the case,
the Court is prepared to imply a term that one of the parties will use all reasonable
endeavours to secure fulfi lment of the condition, as, for example, where a sale of land
is conditional upon planning permission being obtained,69 or goods are sold subject
to an import or export licence,70 the fact that the condition is contingent, and not
promissory, will prevent any liability from arising if that party’s reasonable endeavours
prove unavailing. Although, however, non-fulfi lment of a contingent condition does
not give rise to a claim in damages, non-fulfi lment may, when the time has elapsed for
its performance, give either party the right to treat the contract as at an end.71
The contingent conditions we have so far considered have been non-promissory
conditions precedent; that is, until the condition has been fulfilled the contract is not
binding or the contractual duty is not due. Another sense in which the word ‘condition’
is used is that of a non-promissory condition subsequent. Here the parties agree that
the contract is to be immediately binding, but if certain facts are ascertained to exist
or upon the happening of a certain event, then either the contract is to cease to bind
or one party is to have the option to cancel the contract. In Brown v Knowsley BC72
a contract of employment provided that a temporary teacher’s appointment was to
last only as long as sufficient funds were provided either by the Manpower Services
Commission or other sponsors. It was held that the contract was terminated when
such funds ceased to be provided.

(c) warranties
Breach of a warranty, does not entitle the innocent party to treat the contract as
repudiated, but only to claim damages. A warranty has been said to be ‘an agreement
which refers to the subject matter of a contract, but, not being an essential part of the
contract either intrinsically or by agreement, is collateral to the main purpose of such
a contract’.73 The nature of a warranty is illustrated by the case of Bettini v Gye:74

68 Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209, 215, 221.
69 Hargreaves Transport Ltd v Lynch [1969] 1 WLR 215.
70 Re Anglo-Russian Merchant Traders Ltd v John Batt & Co (London) Ltd [1917] 2 KB 679; Coloniale
Import–Export v Loumidis & Sons [1978] 2 Lloyd’s Rep 560.
71 Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209, 218, 221, 226. But not so as to
discharge liabilities which had accrued unconditionally: Kazakstan Wool Processors (Europe) Ltd v
Nederlansche Credietverzekering Maatschappij NV [2000] 1 All ER (Comm) 708.
72 [1986] IRLR 102. See also Head v Tattersall (1871) LR 7 Ex 7; Gyllenhammer & Partners International
Ltd v Sour Brodogradevna Industrija [1989] 2 Lloyd’s Rep 403.
73 Dawsons Ltd v Bonnin [1922] 2 AC 413, 422 (Lord Haldane). See also Sale of Goods Act 1979, s 61(1).
74 (1876) 1 QBD 183. Cf Poussard v Spiers (1876) 1 QBD 410.
144 contents of the contract

B contracted with G, the director of the Royal Italian Opera in London, for the exclusive use
of his services as a singer in operas and concerts for a period of 3 months. B undertook, inter
alia, that he would be in London at least 6 days before the commencement of his engagement,
for rehearsals, but only arrived 2 days beforehand. G refused to go on with the contract and
was sued by B for breach.

The Court held that, having regard to the length of the contract and the nature of the
performances to be given, the rehearsal clause was not vital to the agreement. It was
not a condition but merely a warranty. Accordingly its breach did not entitle G to treat
the contract as at an end.
It is reasonable to assume that, in the particular circumstances of Bettini v Gye,
any breach of the rehearsal clause could have been compensated for by damages. But
in most cases it would be misleading to conclude that damages would be a sufficient
remedy for every breach of even a seemingly unimportant term. The consequences
of the breach of such a term might be so serious as to go to the root of the contract.
Unless, therefore, a term has been specifically designated a ‘warranty’ by statute,75 or
the parties have expressly so provided in their agreement, there are few situations76
where a Court would be likely to hold, at the present day, that the parties intended that
any breach of the term should give rise to a right to claim damages only, and so place
the term within this category.

(d) evaluation of the ab initio classification of terms

The dominant approach of the Courts in the 70 years following the enactment of the
Sale of Goods Act in 1893 was to classify terms ab initio as conditions or warranties.
The one clear and obvious advantage in this approach is that of certainty.77 At least in
commercial transactions it is important that parties (or their legal advisers) should be
able to know, immediately and unequivocally, what their rights are in the event of a
breach by the other party, and to make their decision accordingly. If the term broken is
a condition, it will be known with certainty that the breach entitles the innocent party
to terminate the contract forthwith.
This certainty is particularly important where the contract is one of a ‘string’ of
contracts under which B buys goods from A and then sells them to C who in turn sells
them to D. ‘Members of the “string” will have many ongoing contracts simultaneously
and they must be able to do business with confidence in the legal results of their
actions.’78 Certainty as to whether there is a right to terminate the contract is also
important in cases where it would be difficult for the innocent party to quantify the
loss suffered and therefore difficult for the Court to assess damages for a breach of the
contract.79

75 Sale of Goods Act 1979, ss 12(2) (4) (5) and (5A) and 61(1); Supply of Goods (Implied Terms) Act 1973,
ss 8(1)(b) (2) and (3); below, p 153.
76 But see Anglia Commercial Properties v North East Essex Building Co (1983) 266 EG 1096 (time limit
clause in building contract).
77 The Mihalis Angelos [1971] 1 QB 164, 205; A/S Awilco of Oslo v Fulvia SpA, The Chikuma [1981] 1 WLR
314, 322; Bunge Corp v Tradax Export SA [1981] 1 WLR 711, 718, 720, 725.
78 Bunge Corp v Tradax Export SA [1981] 1 WLR 711, 720 (Lord Lowry). 79 Ibid.
 the terms of the contract 145

On the other hand, the advantage of certainty has to be weighed against the need to
reach a fair and just decision in individual cases. Since any breach of condition gives
rise to a right of termination, the innocent party can refuse to perform the contract
even though the breach is trivial in nature, and even though little or no loss has been
suffered as a result. For example, it is a condition of a cif contract for the sale of goods
that the goods must be shipped within the shipment period specified in the contract.
If the goods are shipped one day later—or even earlier80—than the specified shipment
period, the buyer is entitled to treat the contract as repudiated and to reject the goods,
notwithstanding that the breach has caused no loss. A party may seek to rely on such
a trivial breach of condition to get out of a contract which has proved unprofitable,
perhaps because of changes in the market.81 It has been said that ‘in principle contracts
are made to be performed and not to be avoided according to the whims of market
fluctuation and where there is a free choice between two possible constructions . . . the
Court should tend to prefer that construction which will ensure performance, and
not encourage avoidance of contractual obligations’.82 Moreover, as noted below, in
the context of non-consumer sales, statute has restricted the right of a buyer to reject
goods by reason of certain implied conditions if the breach is so slight that it would be
unreasonable to reject them.83

(e) intermediate terms

The distinction between ‘conditions’ and ‘warranties’, which placed considerable
emphasis on ab initio classification of the quality of the term broken, that is to say,
whether it was of major or minor importance, and on initial certainty, has fallen out
of favour. A new emphasis has been given to a more flexible test which bases the right
of termination on the gravity of the consequences of the breach, a test that has its roots
in older authorities.84
In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, Diplock LJ said:85
There are, however, many contractual undertakings of a more complex character which
cannot be categorised as being ‘conditions’ or ‘warranties’ . . . Of such undertakings all
that can be predicated is that some breaches will and others will not give rise to an event
which will deprive the party not in default of substantially the whole benefit which it was
intended he should obtain from the contract; and the legal consequences of a breach of
such undertaking, unless provided for expressly in the contract, depend upon the nature

80 Bowes v Shand (1877) 2 App Cas 455. 81 Arcos Ltd v Ronaasen & Son Ltd [1933] AC 470.
82 Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44, 71 (the rejected goods were later bought by
the same buyers at a lower price and used for the same purpose). See also Reardon Smith Line Ltd v Hansen-
Tangen [1976] 1 WLR 989.
83 Sale of Goods Act 1979, s 15A, below, p 147. 84 Above, p 140, n 53.
85 [1962] 2 QB 26, 70. See also Hardwick Game Farm v Suffolk Agricultural Poultry Producers’ Assn [1966]
1 WLR 287, 341 (aff ’d [1969] 2 AC 31). See further Reynolds (1963) 79 LQR 534; Lord Devlin [1966] CLJ 192.
The flexible intermediate term approach of Hongkong Fir has recently been accepted by the High Court of
Australia and the Court of Appeal of Singapore in Koompahtoo Local Aboriginal Land Council v Sanpine Pty
Ltd [2007] HCA 61 (2007) 241 ALR 88 and RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] SGCA 39,
[2007] 4 SLR 413 respectively: see Carter (2008) 24 JCL 226.
146 contents of the contract

of the event to which the breach gives rise and do not follow automatically from a prior
classification of the undertaking, as a ‘condition’ or a ‘warranty’.

In that case,86 it was argued on behalf of the charterers of a ship that the shipowners’
obligation to provide a seaworthy vessel was a condition, any breach of which entitled
the charterers to treat themselves as discharged. The Court of Appeal rejected
this contention. The undertaking as to seaworthiness was not a condition, but an
intermediate or ‘innominate’ term. Breach of such a term would not give rise to a right
to treat the charterparty as repudiated unless the conduct of the shipowners, and the
actual or anticipated consequences of the breach, were so serious as to frustrate the
commercial purpose of the venture. The reason was thus explained by Upjohn LJ:87
Why is this apparently basic and underlying condition of seaworthiness not, in fact, treated
as a condition? It is for the simple reason that the seaworthiness clause is breached by the
slightest failure to be fitted ‘in every way’ for service . . . If a nail is missing from one of the
timbers of a wooden vessel or if proper medical supplies or two anchors are not on board at
the time of sailing, the owners are in breach of the seaworthiness stipulation. It is contrary
to common sense to suppose that in such circumstances the parties contemplated that
the charterer should at once be entitled to treat the contract as at an end for such trifling
breaches.

Where a failure of performance is not a breach of condition, but of an intermediate

term, the right of the innocent party to treat itself as discharged from further
performance will depend upon the gravity of the consequences of the breach. The
expressions used to describe the circumstances that justify discharge, are discussed
in the chapter on Discharge by Breach.88 A test frequently applied is whether the
failure of performance is such as to deprive the innocent party of substantially the
whole benefit which it was intended that it should obtain as the consideration for the
performance of its own undertakings.89 In the Hongkong Fir case, which concerned
a two-year charterparty, the ship was off hire because of unseaworthiness for all but
eight and a half weeks in the first seven months of the charter, but the charterer was
held not to be entitled to treat the contract as discharged. Accordingly, in many cases,
the innocent party may have to ‘wait and see’ how serious the consequences of the
breach turn out to be.

(f) distinguishing intermediate terms and conditions

Whether a term will be classified as a condition depends in part on the Court ‘making
what is in effect a value judgement about the commercial significance of the term in
question’.90 A term is most likely to be classified as ‘intermediate’ if, as in the Hongkong
Fir case, it is capable of being broken either in a manner that is trivial and capable of
remedy by an award of damages or in a way that is so fundamental as to undermine

86 For the facts of this case, see below, p 521. 87 [1962] 2 QB 26, 62.
88 See below, Ch 15.
89 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, 66; see also below, p 521.
Cf. CISG Art 25.
90 State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd’s Rep 277, 283 (Kerr LJ).
 the terms of the contract 147

the whole contract. However, the Courts have recognized that the greater flexibility
involves more uncertainty and have indicated that in suitable cases they will not be
reluctant to hold that an obligation has the force of a condition.91 In the modern law, it
is probably safe to say that any term of a contract will be classified as an intermediate
term, and not as a condition, unless the Court concludes that it falls within one of the
following situations:

(i) Categorization as condition by statute

The Sale of Goods Act 197992 and the Supply of Goods (Implied Terms) Act 197393
expressly define certain implied obligations in contracts of sale of goods or hire-
purchase as being ‘conditions’ or ‘warranties’. There can be no doubt that such
classification is binding. But in Cehave NV v Bremer Handelsgesellschaft mbH 94 the
Court of Appeal rejected the argument that the Sale of Goods Act created a statutory
dichotomy which divided all terms in contracts of sale of goods into conditions and
warranties and held that an express term ‘shipment to be made in good condition’ was
an intermediate term the breach of which had to be so serious as to go to the root of the
contract in order to entitle the buyer to reject the goods.
One should also note that in non-consumer cases, by reason of s 15A of the Sale of
Goods Act, if the breach of condition is so slight as to be unreasonable for the buyer to
reject the goods, then the buyer can only claim damages and cannot reject the goods.95
In effect this amounts to treating conditions as intermediate terms where the buyer is
not dealing as a consumer.

(ii) Categorization as condition by judicial decision

A particular term may have been categorized as a condition by previous judicial
decision. Examples are mainly to be found in certain familiar terms in commercial
contracts. Thus stipulations in a voyage charterparty as to the time at which the
chartered vessel is expected ready to load96 or in a time charterparty as to the date by
which hire is to be paid,97 and stipulations in a cif contract for the sale of goods as to
the time within which the goods must be shipped98 or a letter of credit opened,99 have
been held to be conditions, any delay in which entitles the other party to treat itself
as discharged. It has, however, been stated100 that a number of previous decisions on
such terms are ‘excessively technical’ and are open to re-examination by the House
of Lords.

91 Bunge Corp v Tradax Export SA [1981] 1 WLR 711; Cie Commerciale Sucres et Denrées v Czarnikow Ltd
[1990] 1 WLR 1337; Petrotrade Inc v Stinnes Handel GmbH [1995] 1 Lloyd’s Rep 142, 149.
92 See below, pp 159–165. 93 See below, p 165.
94 [1976] QB 44. See also Tradax International SA v Goldschmidt [1977] 2 Lloyd’s Rep 604.
95 Th is provision was inserted by the Sale and Supply of Goods Act 1994. The best known case where
s 15A would probably now change the result is Arcos Ltd v Ronaasen & Son [1933] AC 470. For the equivalent
provisions for contracts of hire-purchase, work and materials, and hire, see the Supply of Goods (Implied
Terms) Act 1973 s 11A, and the Supply of Goods and Services Act 1982, ss 5A and 10A.
96 The Mihalis Angelos [1971] 1 QB 164. See also Behn v Burness (1863) 3 B & S 751, above, p 141.
97 Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia [1977] AC 850.
98 Bowes v Shand (1877) 2 App Cas 455. 99 Ian Stach Ltd v Baker Bosley Ltd [1958] 2 QB 130.
100 Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 998 (Lord Wilberforce).
148 contents of the contract

(iii) Express designation in contract

The parties may have expressly provided in their contract either that a particular
term is to be a condition (in the technical sense)101 or that the consequences of its
nonperformance by one party are to be that the other party is to have the right to
treat itself as discharged. A stipulation as to the time of performance where time is
expressly stated to be ‘of the essence of the contract’ is an example of this situation.102
Again, stating that a party ‘guarantees’ to obtain approval within a specified period
has been held to indicate that the term is a condition.103

(iv) Implication from nature of contract, subject-matter, or circumstances

Finally, if the nature of the contract or the subject-matter or the circumstances of the
case lead to the conclusion that the parties must, impliedly, have intended that the
innocent party would be discharged from further performance of its obligations in the
event that a particular term was not fully and precisely complied with, that term will
be held to be a condition.104 This is more likely to be the case in single-performance
contracts and contracts requiring the performance of particular acts at specified times
and in sequence. It is less likely to be the case where the contract is for performance
over a long term105 when substantial performance may have been rendered by the
contract-breaker before breach and where the term is of a broad and loose nature. A
term is also likely to be held to be a condition where adherence to it is fundamental
to the transaction in the sense that it cannot proceed without it and where the term is
not one which admitted to different types of breach. So, for example, a stipulation in a
conditional sale agreement that the seller was at the date of the agreement the owner
of the item sold has been held to be a condition.106
In Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA107 a term in
a contract for the sale of United States soya bean meal, which required the sellers to
advise the buyers ‘without delay’ of impossibility of shipment by reason of a prohibition
of export, was held by the House of Lords to be an intermediate term, since it did not
establish any definite time limit within which the advice was to be given. But further
provisions in the same contract, which took effect upon a number of events impeding
performance and which established a time-table of fi xed periods within which the
occurrence was to be notified, an extension of time claimed, and the buyer was to have
the option of cancelling the contract, were held to be conditions. Punctual compliance
with these stipulations was required as part of a ‘complete regulatory code’.

101 Cf LG Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235.

102 United Scientific Holdings Ltd v Burnley BC [1978] AC 904, 923, 937, 944.
103 BS & N Ltd v Micado Shipping Ltd (Malta) [2001] 1 Lloyd’s Rep 341, 349–50.
104 United Scientific Holdings Ltd v Burnley BC [1978] AC 904, 937, 941, 944, 950, 958; Bremer
Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109, 133; Bunge Corp v Tradax
Export SA [1981] 1 WLR 711, 716, 717, 720, 729.
105 LG Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Decro-Wall SA v Practitioners in
Marketing Ltd [1971] 1 WLR 361.
106 Barber v NWS Bank plc [1996] 1 WLR 641. Such a condition would otherwise be implied by the Sale of
Goods Act 1979, s 12, below, p 159. 107 [1978] 2 Lloyd’s Rep 109.
 the terms of the contract 149

Again in Bunge Corporation v Tradax Export SA,108 a case which also concerned a
contract for the sale of soya bean meal:
The sellers were required, by 30 June 1975, to load the goods on board ship at a single United
States Gulf port to be nominated by them. The contract further provided that the buyers
should give to the sellers ‘at least 15 consecutive days’ notice of probable readiness of vessel(s)
and of the approximate quantity required to be loaded’. The buyers did not give that notice
until 17 June, by which time less than 15 days of the loading period remained. The sellers
declared the buyers in default and claimed damages for repudiation of the contract on the
ground that the term as to notice was a condition.

The House of Lords held that the term, though not expressly stated in the contract to
be a condition, was one by implication, so that its breach entitled the sellers to treat
themselves as discharged. Their Lordships pointed out that, in general, time was of the
essence in mercantile contracts, and in particular in this case where the sellers needed
the information to know which loading port they should nominate, so as to ensure
that the goods would be available for loading on the ship’s arrival at that port before
the end of the loading period.

(g) loss of the right of discharge

(i) Waiver and affirmation
Where one party has been guilty of a breach of condition, the other party need not
necessarily treat itself as discharged. Compliance with the condition can, if the
innocent party so wishes, be waived109 and the contract can be enforced as if it had
been omitted. Alternatively, the innocent party can elect to affirm the contract, that
is to say, with knowledge of the breach to treat the contract as still binding and to rest
content with damages, which are available as a remedy in any event.
These principles have been given statutory force in relation to contracts of sale of
goods by section 11(1) of the Sale of Goods Act 1979:
Where a contract of sale is subject to a condition to be fulfi lled by the seller, the buyer may
waive the condition, or may elect to treat the breach of the condition as a breach of warranty
and not as a ground for treating the contract as repudiated.

But they are of general application in the law of contract.

(ii) ‘Acceptance’ and substantial benefit

Affirmation is voluntary; but an innocent party may, in certain other circumstances,
lose the right to discharge the contract for breach of a condition. For example, an

108 [1981] 1 WLR 711. See also Toepfer v Lenersan-Poortman NV [1980] 1 Lloyd’s Rep 143; Bunge GmbH v
Landbouwbelang GA [1980] 1 Lloyd’s Rep 458; Commerciale Sucres et Denrées v C Czarnikow Ltd, The Naxos
[1990] 1 WLR 1337; Torvald Klaveness A/S v Arni Maritime Corp [1994] 1 WLR 1465, 1475–6 (redelivery
date of chartered ship); Petrotrade Inc v Stinnes Handel GmbH [1995] 1 Lloyd’s Rep 142. Cf Universal Bulk
Carriers Ltd v Andre et Cie SA [2001] EWCA Civ 588, [2001] 2 Lloyd’s Rep 65 (provision that laydays to be
narrowed not a condition).
109 Provided that it is exclusively for its own benefit and not for the benefit of both parties.
150 contents of the contract

innocent party who has taken a substantial benefit under the contract may sometimes
be precluded from opting to be discharged by reason of a breach of condition, and
have to sue for damages only.110 The Sale of Goods Act 1979 also provides that a buyer
cannot treat the contract as repudiated for breach of condition where the goods which
are the subject-matter of the sale have been ‘accepted’. By section 11(4) of the Act:111
where a contract of sale is not severable and the buyer has accepted the goods or part of
them, the breach of a condition to be fulfi lled by the seller can only be treated as a breach of
warranty, and not as a ground for rejecting the goods and treating the contract as repudiated,
unless there is an express or implied term of the contract to that effect.

Two points, however, require explanation. In the first place, the word ‘accept’ in the
phrase ‘and the buyer has accepted the goods’ bears a technical meaning. The buyer is
deemed to have accepted the goods when he intimates to the seller that he has accepted
them, or when the goods have been delivered and the buyer does any act in relation
to them which is inconsistent with the ownership of the seller, or when after the lapse
of a reasonable time the buyer retains the goods without intimating to the seller that
the goods have been rejected.112 There is no mention of any requirement that the buyer
should know of the breach of condition before losing the right to reject although, in the
case of an intimation of acceptance or an act inconsistent with the seller’s ownership,
‘acceptance’ will not be deemed to have taken place unless and until the buyer has had a
reasonable opportunity of examining the goods for the purpose of ascertaining whether
they are in conformity with the contract113 or the buyer has retained the goods during the
lapse of a reasonable time without intimidating to the seller that he is rejecting them.114
The availability of a reasonable opportunity of examining goods is a material factor in
determining whether a ‘reasonable’ time has elapsed.115 Where the buyer has the right to
reject goods by reason of a defect that affects all or some of them but accepts some of the
goods the right to reject the rest is not lost by that partial acceptance.116
Secondly, acceptance does not necessarily have this effect if the contract is severable,
for example, if delivery of the goods is to be made by instalments which are to be
separately paid for. In such a case the Sale of Goods Act 1979 provides that where
‘the seller makes defective deliveries in respect of one or more instalments, or the
buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a
question in each case depending on the terms of the contract and the circumstances
of the case whether the breach of contract is a repudiation of the whole contract or
whether it is a severable breach giving rise to a claim for compensation but not to a
right to treat the whole contract as repudiated’.117

110 Graves v Legg (1854) 9 Exch 709, 717; Pust v Dowie (1865) 5 B & S 33; Behn v Burness (1862) 1 B & S 877;
(1863) 3 B & S 751.
111 The terms ‘condition’ and ‘warranty’ are used in the Act in the senses given above; see Sale of Goods
Act 1979, ss 11(3), 61(1).
112 Sale of Goods Act 1979, s 35, as amended by the Sale and Supply of Goods Act 1994.
113 Sale of Goods Act 1979, s 35(2).
114 Sale of Goods Act 1979, s 35(4). See Clegg v Olle Andersson [2003] EWCA Civ 320, [2003] 1 All ER
(Comm) 721; J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9, [2007] 1 WLR 670.
115 Sale of Goods Act 1979, s 35(5). 116 Sale of Goods Act 1979, s 35A(1).
117 Sale of Goods Act 1979, s 31(2).
 the terms of the contract 151

The right of the innocent party to treat itself as discharged may thus be lost either
voluntarily or as the result of the operation of a rule of law.

3. implied terms
(a) terms implied by the courts and by statute
There may be implied into a contract terms which the parties have not themselves
inserted. In some cases, in particular contracts for the sale and supply of goods and
services, contracts of employment, and contracts between landlord and tenant, terms
are implied by statute. In the absence of statutory provision the cases in which the
Courts will imply a term into a contract are strictly limited: it is not their task to make
contracts for the parties concerned, but only to interpret the contracts already made.118
Nevertheless, in certain circumstances the Courts are prepared to imply terms into
even a written contract.
A distinction has developed between two broad categories of case where terms are
implied by the Courts. First, where it is sought to insert into a particular, sometimes
detailed, contract a term that the parties have not expressed. In such cases a strict
test is applied. The Courts do not imply terms where it would be reasonable to do so
but only where it is necessary to give business efficacy to the contract or where it is
obvious that the term was meant to have been included. Such a term is sometimes
said to be implied by fact. Here the implication of a term depends upon the intention
of the parties gleaned from the express terms of the agreement and the surrounding
circumstances.119 Secondly, there are cases in which the Court is considering a
common relationship, for example sale, carriage, landlord and tenant, employment,
or that between a regulated dominant supplier (for example a telephone or electricity
supplier) and its customer, where the parties may have left a lot unsaid. In such cases,
when the Court implies a term, it is sometimes laying down a general rule that in
all contracts of a defined type some provision is to be implied as an incident of the
particular type of contractual relationship unless the parties have expressly excluded
it, and it is somewhat artificial to attribute such terms to the intention of the parties.120
Such terms are sometimes said to be implied by law. A similar process takes place
where a term is implied by a trade custom.121

118 Phillips Electronique Grand Publique SA v BSB Ltd [1995] EMLR 472, 481 (Sir Thomas Bingham MR).
119 Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 137; Shell UK Ltd v Lostock Garages Ltd [1976] 1 WLR
1187, 1196; Associated Japanese Bank (International) v Crédit du Nord SA [1989] 1 WLR 255, 263. See also
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981–82) 149 CLR 337, 353 (Mason
J) (account should be taken of the presumed intention of the parties in deciding whether a term is to be
implied: High Court of Australia).
120 Liverpool City Council v Irwin [1977] AC 239, 253–4 and 257–8; Shell UK Ltd v Lostock Garages Ltd
[1976] 1 WLR 1187, 1196; Mears v Safecar Security Ltd [1983] QB 54, 78; Scally v Southern Health and Social
Services Board [1992] 1 AC 294, 306–7. 121 Below, p 157.
152 contents of the contract

(b) terms implied by the courts

(i) ‘Necessary for business efficacy’ and the ‘officious bystander’

Where the parties to a contract, either through forgetfulness or through bad draft ing,
fail to incorporate into the contract terms which, had they adverted to the situation,
they would certainly have inserted to complete the contract, the Courts may, in order
to give ‘business efficacy’ to the transaction, imply such terms as are necessary to effect
that result.
In The Moorcock,122 a shipowner and the owner of a jetty contracted to allow a
steamship to be discharged, loaded, and moored at the jetty. The ship was grounded
and damaged at low tide. The Court of Appeal held that the parties must have intended
to contract on the basis that the owner of the jetty had taken reasonable care to ascertain
that the riverbed was safe for the vessel at low tide and therefore a term would be
implied to that effect. For a breach of this implied term the defendants were liable.
Bowen LJ said:
Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an
express contract or express warranty, really is in all cases founded on the presumed
intention of the parties, and upon reason. The implication which the law draws from what
must obviously have been the intention of the parties, the law draws with the object of giving
efficacy to the transaction and preventing such a failure of consideration as cannot have
been within the contemplation of either side . . . In business transactions such as this, what
the law desires to effect by the implication is to give such business efficacy to the transaction
as must have been intended to all events by both parties who are business men . . . 123

The principle in The Moorcock is applied where, without the implied term, the
contract will not be workable. But the Court is also prepared to imply a term if it was
so obviously a stipulation in the agreement that it goes without saying that the parties
must have intended it to form part of their contract. This test, which often overlaps
with the business efficacy test,124 is applied by asking whether, if an officious bystander
were to suggest some express provision for a matter in the agreement, the parties would
testily suppress him with a common ‘Oh, of course!’.125 Such an implication will only
be made if the Court is satisfied that both parties would, as reasonable persons, have

122 (1889) 14 PD 64.

123 Ibid, 68. Cf Easton v Hitchcock [1912] 1 KB 535.
124 eg Ali SS Corp v Shipyard Trogir [1999] 1 WLR 314, 326 (Potter LJ); Codelfa Construction Pty Ltd v
State Railway Authority of New South Wales (1982) 149 CLR 337, 347 (High Court of Australia); Lymington
Marine Ltd v Macnamara [2007] EWCA Civ 151, [2007] 2 All ER (Comm) 285 at [37], [44].
125 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 (MacKinnon LJ). See also Reigate v
Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592, 605 (Scrutton LJ); McClelland v Northern
Ireland General Health Service Board [1957] 1 WLR 594; Weg Motors Ltd v Hales [1961] Ch 176, 192; Bronester
v Priddle [1961] 1 WLR 1294, 1304; Liverpool City Council v Irwin [1977] AC 239, 254; Alpha Trading Ltd
v Dunnshaw-Patten Ltd [1981] 1 Lloyd’s Rep 122, 128; Equitable Life Assurance Society v Hyman [2002] 1
AC 408 (implication to give effect to reasonable expectations); Paragon Finance plc v Nash [2001] EWCA
Civ 1466, [2002] 1 WLR 685 (implied term that power to set interest rates was not to be set arbitrarily);
Lymington Marina Ltd v Macnamara [2007] EWCA Civ 151, [2007] 2 All ER (Comm) 825 (implied term that
decisions would be made in good faith and not arbitrarily). See further Phang [1998] JBL 1.
 the terms of the contract 153

agreed to the term had it been suggested to them, so that the differing commercial
motives of the parties will often preclude this type of implication.126
Clearly, however, the Court will be reluctant to make such an implication where the
parties have entered into a carefully drafted written contract containing detailed terms
agreed between them127 or in a novel or particularly risky contract.128 It must be possible
to formulate the term with a sufficient degree of precision, and without over-complication
and artificiality,129 and the term to be implied must not be inconsistent with the express
terms of the contract.130 For example, where a party taking out insurance is contractually
required to provide a correctly completed direct debit mandate to the insurance company,
the company will be under an implied duty to implement the direct debit mandate.131
In any event, the term to be implied must in all the circumstances be reasonable.132
But this does not mean that a term will be implied merely because it would be reasonable
to do so,133 or because it would improve the contract134 or make its performance more
convenient.135 It must be necessary to imply such a term: ‘The touchstone is always necessity
and not merely reasonableness’.136 For example, where parties to a contract are subject to
the rules of a regulatory body there is no need to imply those rules into the contract.137
In AG of Belize v Belize Telecom Ltd138 Lord Hoffmann, giving the opinion of the
Privy Council, has offered a refreshingly straightforward reappraisal of the approach
to implying terms.139

126 Luxor (Eastbourne) Ltd v Cooper [1941] AC 108; Attica Sea Carriers Corp v Ferrostaal Poseidon
Bulk Reederei GmbH [1976] 1 Lloyd’s Rep 250; Liverpool City Council v Irwin [1977] AC 239, 266; Hughes v
Greenwich LBC [1994] 1 AC 170, 179.
127 Shell UK Ltd v Lostock Garages Ltd [1976] 1 WLR 1187, 1200. See also Yorkshire Water Services Ltd v
Sun Alliance & London Insurance plc [1997] 2 Lloyd’s Rep 21.
128 Phillips Electronique Grand Publique SA v BSB Ltd [1995] EMLR 472, 482–3 (Sir Thomas Bingham MR).
129 Ibid, 497; Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 117 (Viscount Simon LC); Ashmore v
Corporation of Lloyds (No 2) [1992] 2 Lloyd’s Rep 620, 626–9. But note that the term implied may involve a
flexible criterion such as to take ‘reasonable’ care.
130 Duke of Westminster v Guild [1985] QB 688, 700; Johnstone v Bloomsbury HA [1992] 1 QB 333, 347
(Browne-Wilkinson V-C) and 350 (Leggatt LJ), the former stating that powers created by an express term
may be qualified by an implied duty to exercise those powers reasonably: Imperial Tobacco Pension Trust v
Imperial Tobacco [1991] IRLR 66 (employer’s power to refuse consent to increases in pensions).
131 Weldon v GRE Linked Life Assurance [2000] 2 All ER Comm 914, 919–21.
132 Young & Marten v McManus Childs Ltd [1969] 1 AC 454, 465; Liverpool City Council v Irwin [1977] AC
239, 262; Wong Mee Wan v Kwan Kin Travel Services Ltd [1996] 1 WLR 38, 46–7, relying, inter alia, analogically
on the Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992 No 3288), esp reg 15.
133 Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592, 598; Liverpool City Council v
Irwin [1977] AC 239.
134 Trollope & Colls Ltd v NW Metropolitan Regional Hospital Board [1973] 1 WLR 601, 609.
135 Russell v Duke of Norfolk [1949] 1 All ER 109.
136 Liverpool City Council v Irwin [1977] AC 239, 266 (Lord Edmund-Davies). See also Baker v Black Sea &
Baltic General Insurance Co [1998] 1 WLR 974, 980 (Lord Lloyd); Equitable Life Assurance Society v Hyman
[2002] 1 AC 408, 459; Mediterranean Salvage & Towage v Seamar Trading and Commerce [2009] EWCA Civ
531 (no implied term that nominated berth was safe); Bryan and Ellinghaus (2000) 22 Syd L Rev 636, 644
(‘objective necessity’). 137 Clarion Ltd v National Provident Institution [2000] 1 WLR 1899, 1896.
138 [2009] UKPC 10, [2009] 1 WLR 1988: applied in Mediterranean Salvage & Towage v Seamar Trading
and Commerce [2009] EWCA Civ 531, [2010] 1 All ER (Comm) 1 in which Lord Clarke MR stated, at [8], ‘I
predict that [Lord Hoff mann’s] analysis will soon be as much referred to as his approach to the construction
of contracts in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896’.
139 Although the context and his reference to the traditional tests suggest that Lord Hoff mann
principally had in mind the sort of implied terms considered so far in this chapter, it may be that (even more
154 contents of the contract

The question arose as to whether the articles of association of a company impliedly prevented
from remaining in office those directors who had been appointed by, and according to the
express provisions could only be removed by, those holding specified shares in a situation
where there was no longer any holder of such shares.

It was held that there was such an implied term. Although Lord Hoff mann was dealing
with the question of whether a term should be implied into the articles of association
of a company, rather than into a contract, he was clear that the process was the same
for both and indeed for any written instrument. He stressed that the implication
of a term is an exercise in the construction of the instrument as a whole so that the
central question for the Court is whether the implication ‘would spell out in express
words what the instrument, read against the relevant background, would reasonably
be understood to mean’.140 He considered that what he had said about interpreting a
contract in Investors Compensation Scheme Ltd v West Bromwich Building Society141
applied by parity of reasoning to the implication of a term. ‘There is only one question:
is that what the instrument, read as a whole against the relevant background, would
reasonably be understood to mean?’142 It followed that the tests traditionally put
forward of, for example, business efficacy and the ‘officious bystander’ should be
viewed as merely overlapping ways in which the Courts ‘have tried to express the
central idea that the proposed implied term must spell out what the contract actually
means or in which they have explained why they did not think that it did so’.143 It was
dangerous and incorrect to detach those tests from that underlying objective. In Lord
Hoffmann’s words, ‘There are dangers in treating these alternative formulations of the
question as if they had a life of their own’.144
Although Lord Hoffmann’s statement was characteristically bold, the tests for
implied terms developed by the Courts have stood for many years and it may therefore
be premature to regard them as less helpful than a direct search for the meaning of the
contract.

(ii) Standardized terms in common relationships

In certain types of contract, terms have become standardized, and they will be implied
in all contracts of that type in the absence of any contrary intention. For example, if a
builder undertakes to build a house for a purchaser, it is an implied term of the contract
that the work will be done in a good and workmanlike manner, that the builder will
supply good and proper materials, and that the house will be reasonably fit for human
habitation when built or completed.145 Again, if a travel agent undertakes to arrange
for services, such as accommodation and excursions, to be provided by others, it is an
implied term of the contract that it would use reasonable care and skill in selecting
the service-providers: but, if the travel agent itself undertakes to supply the services,

controversially) he regarded his approach as applying to implied terms considered below under the headings
‘standardised terms in common relationships’ and ‘terms implied by custom’.
140 [2009] UKPC 10, [2009] 1 WLR 1988 at [21].
141 [1998] 1 WLR 896, 912–13. See below, pp 166–169.
142 [2009] UKPC 10, [2009] 1 WLR 1988 at [21]. 143 Ibid at [27]. 144 Ibid at [22].
145 Miller v Cannon Hill Estates Ltd [1931] 2 KB 113; Lynch v Thorne [1956] 1 WLR 303; Hancock v Brazier
(Anerley) Ltd [1966] 1 WLR 1317.
 the terms of the contract 155

it is an implied term of the contract that the services themselves will be carried out
with reasonable care and skill, even where the agent has arranged for its obligation
to be performed by others.146 Some of these standardized terms have subsequently
been codified by statute.147 Others, as will be seen, continue to emerge by a process of
common law development.
In these cases concerning a common relationship, for example sale, carriage,
landlord and tenant, or employment, the parties may have left a lot unsaid and the
process of implication is different. It involves the Court determining, in the light
of general considerations of policy, the standard incidents of the particular type of
relationship rather than constructing a hypothetical bargain. Although it has usually
been said that the criterion for this form of implication is also ‘necessity’ rather than
‘reasonableness’,148 it does appear that a broader approach is taken. The Courts will
consider how the proposed implied term will sit with existing law, the affect on the
parties to the relationship, and wider issues of fairness.149 In Dyson LJ’s words in
Crossley v Faithful & Gould Holdings Ltd, ‘[R]ather than focus on the elusive concept
of necessity, it is better to recognise that, to some extent at least, the existence and
scope of standardised implied terms raise questions of reasonableness, fairness and
the balancing of competing policy considerations’.150
While the parties can exclude or modify the standard incidents of the relationship
by express words, unless they do so they will form part of the obligation as a legal
incident of the particular kind of contractual relationship.151 Such standardized terms,
implied by law, have been said to ‘operate as default rules’.152 In these cases it has been
said153 that the problem of implication is to be solved by asking:
[H]as the law already defined the obligation or the extent of it? If so, let it be followed. If not,
look to see what would be reasonable in the general run of such cases . . . and then say what
the obligation shall be.

In such cases the contract may be partly but not wholly stated in writing and ‘in
order to complete it, in particular to give it a bilateral character, it is necessary to take

146 Wong Mee Wan v Kwan Kin Travel Services Ltd [1996] 1 WLR 38, 42 and 46–7. In the second situation
the contractor may be liable despite the absence of personal negligence.
147 eg Sale of Goods Act 1979, ss 12–15 (below, p 159); Supply of Goods and Services Act 1982, s 13.
148 Liverpool City Council v Irwin [1977] AC 239, 254 (Lord Wilberforce); Scally v Southern Health and
Social Services Board [1992] 1 AC 294, 307 (Lord Bridge); Ashmore v Corporation of Lloyd’s (No 2) [1992]
2 Lloyd’s Rep 620, 627; Ali v Christian Salvesen Food Services Ltd [1997] ICR 25. Cf Shell UK Ltd v Lostock
Garages Ltd, above, n 000, 1196 (Lord Denning MR). See also Lister v Romford Ice & Cold Storage Co Ltd
[1957] AC 555, 576 (Viscount Simonds) and 594 (Lord Tucker).
149 Peden (2001) 117 LQR 459, 467. 150 [2004] EWCA Civ 293, [2004] 4 All ER 447 at [36].
151 Mears v Safecar Security Ltd [1983] QB 54, 78.
152 Malik v Bank of Credit & Commerce International SA [1998] AC 20, 45 (Lord Steyn). See also Rakoff, in
Beatson and Friedmann (eds), Good Faith and Fault in Contract Law (1995) 191; Riley (2000) 20 OJLS 367.
153 Shell UK Ltd v Lostock Garages Ltd [1976] 1 WLR 1187, 1196 (Lord Denning MR). See also Liverpool
City Council v Irwin [1977] 1 WLR 239, 257–8 (Lord Cross); Scally v Southern Health and Social Services
Board [1992] 1 AC 294, 307. Cf Reid v Rush & Tomkins Group plc [1990] 1 WLR 212 (no such term implied
because extent of obligation raised issues of social policy which could only be resolved by the legislature);
Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 AC 518 (term not implied where statute provided limited
remedy for conduct complained of).
156 contents of the contract

account of the parties and the circumstances’, that is the nature of the contract and the
relationship established by it.154 In Liverpool City Council v Irwin:155
Tenants in a council tower block withheld rent as a protest at conditions in the building. They
alleged that the council was in breach of its duty to repair and maintain the lifts, staircases,
and rubbish chutes in the common parts of the building which it controlled. There was
no formal lease; merely a document entitled ‘conditions of tenancy’ and the conditions set
out only related to the tenants’ obligations. They contained nothing about the landlord’s
obligations.

It was held that the tenants were to have an implied easement over the common parts
for access to their premises and to the rubbish chutes and that the landlord was also
under an implied obligation to take reasonable care to maintain the common parts
in a reasonable state of repair because the contract had not placed the obligation to
maintain on the tenants individually or collectively, and the landlord retained control
of this essential means of access.
Again, in recent years an implied obligation of mutual trust and confidence has
been recognized in contracts of employment by which both employer and employee
are obliged not to conduct themselves in a manner calculated and likely to destroy
or seriously damage the relationship of confidence and trust between them.156 It has
also been suggested that an apparently unrestricted contractual power to terminate a
telephone service on a month’s notice should be interpreted as subject to an implied
term that the power to terminate should not be exercised without demonstrable reason
or cause.157
The distinction between terms implied as the incidents of a defined relationship and
those implied to give business efficacy to a particular transaction was also applied in
Scally v Southern Health and Social Services Board:158
A contract of employment contained a term giving certain employees the right to acquire
a valuable additional pension benefit if they took certain action within a certain time. The
term derived from a collective bargain negotiated by the employees’ representatives and
trade unions. The claimants, employees who had not been informed of this right, claimed
damages for, inter alia, breach of contract.

It was held that a term obliging the employer to take reasonable steps to inform its
employees of this right should be implied into the contract because this term of the
contract was not the result of individual negotiation but of a collective bargain and,
therefore, the employees could not be expected to be aware of the term unless it was
drawn to their attention. The implied obligation to inform employees accordingly did
not apply to all contracts of employment. If this is an indication that the categories of

154 Liverpool City Council v Irwin, above [1977] AC 239; Lister v Romford Ice & Cold Storage Ltd [1957]
AC 555, 579. 155 [1977] AC 239.
156 Malik v Bank of Credit & Commerce International [1998] AC 20.
157 Timeload Ltd v British Telecommunications plc (1995) 3 EMLR 459, 467 (Sir Thomas Bingham MR).
Some analogical assistance appears to have been derived from section 3 of the Unfair Contract Terms Act
1977, below, pp 199–200.
158 [1992] 1 AC 294. Cf Ali v Christian Salvesen Food Services Ltd, above, n 000; University of Nottingham
v Eyett (No 1) [1999] 2 All ER 437.
 the terms of the contract 157

defined relationships may be subdivided into smaller and more numerous categories
with terms that have a less general application, the distinction between implication of
terms in cases concerning a common relationship and implication in those concerning
a particular contract may be a fragile one.159 It has, however, been argued that it can be
maintained by having recourse to trade usage in identifying what are the defined types
of contractual relationship.160

(iii) Terms implied by custom

Another situation in which the Courts lay down a general rule that some provision
is to be implied in all contracts of a defined type unless the parties have expressly
excluded it is where a term is implied by the custom of a locality or by the usage of a
particular trade. Such a custom must be strictly proved. It must be as certain as the
written contract, notorious, recognized as legally binding, reasonable, and consistent
with the express terms of the contract.161 Furthermore, the custom must not offend
against the intention of any legislative enactment.
In Hutton v Warren,162 a term was implied by the custom of the country into an
agricultural tenancy giving the outgoing tenant the right to a reasonable allowance
for seeds and labour expended on the land even though the lease contained no express
term to this effect. Harley & Co v Nagata163 is an example of a term implied by the
usage of a particular trade. It was held that, in the case of a time charterparty, a
custom that the commission of the broker who negotiated the charterparty should
be paid out of the hire that was earned, and should not be payable at all unless hire
was in fact earned, should be imported into the brokerage contract. Again in Mount
v Oldham Corporation164 an obligation to give a term’s notice of an intention to
withdraw a child from a private school or to pay a term’s fees in lieu of notice was
implied by custom.
Certain usages of the mercantile community at large have been codified, for example,
those relating to negotiable instruments in the Bills of Exchange Act 1882.
(a) Certainty A course of conduct which is said to form a custom must be both
identifiable and uniform. It is these qualities that give the course of conduct the
required certainty. The requirement of uniformity does not require total consistency
of conduct. Thus, it has been stated that the continued adherence of 85 per cent of
the Lancashire weaving mills to a custom was sufficient to maintain it,165 although a
higher degree of uniformity may be required for the creation of a new custom.166 Once

159 See Phang [1993] JBL 242; [1994] JBL 255 and note Ashmore v Corporation of Lloyd’s (No 2) [1992] 2
Lloyd’s Rep 620, 631 (no common relationship in many thousands of contracts between Lloyd’s underwriters
and the Corporation entered into on the same terms). 160 Peden (2001) 117 LQR 459, 463.
161 Nelson v Dahl (1879) 12 Ch D 568, 575; Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421,
1438–9 (usage of the Stock Exchange). 162 (1836) 1 M & W 466.
163 (1917) 23 Com Cas 121.
164 [1973] QB 309. See also Lord Eldon v Hedley Brothers [1935] 2 KB 1.
165 Sagar v H Ridehalgh & Son Ltd [1931] 1 Ch 310.
166 Con-Stan Industries of Australia Pty Ltd v Norwich Insurance (Australia) Ltd (1985–86) 160 CLR
226 (High Court of Australia), although instances of inconsistency were ‘minute’: [1981] 2 NSWLR 879,
889–90.
158 contents of the contract

a custom has been proved in a sufficient number of cases, the Court will take judicial
notice of it without the need for further evidence.167
(b) Notoriety To be notorious a custom need not be known to all the world, nor even
to both parties to the contract.168 It must, however, be well known in the market to which
it applies and readily ascertainable by any person entering into a contract of which it will
form a part.169
(c) Recognized as legally binding The fact that a course of conduct is uniform, certain,
and notorious is not, in itself, enough to give rise to a binding custom. It must also be
shown that the course of conduct was intended to have a legally binding effect and that
compliance with it was the result of a belief in a legal obligation to do so. A custom must
therefore be distinguished from a course of conduct that is frequently, or even habitually,
followed in a particular commercial community as a matter of grace or commercial
convenience.170 The clearest way of establishing this is to show that the custom has been
‘enforced’ but this is not necessary and it is sufficient for it to be established that the
custom has been acted upon.171 Where the conduct is required by the rules of a trade or
professional association, that will be good evidence that compliance is the result of belief
in an obligation to do so.172
(d) Reasonableness Reasonableness is a question of law and, to qualify, a custom
must be ‘fair and proper and such as reasonable, honest, and fair-minded men would
adopt’.173 Although evidence of the unreasonableness of a course of conduct may be
used to show that it was not generally accepted or known and does not therefore amount
to a custom,174 where a custom has been sufficiently proved, the Courts’ tendency
to support freedom of bargaining in commercial markets means that it is unlikely
to be held to be unreasonable.175 Where the contracting parties are in a fiduciary
relationship, as in the case of an agent or a broker, a stricter approach is taken. The
variation, by a trade custom, of a fiduciary duty such as the rule that fiduciaries must
not place themselves in a position where their own interest conflicts with that of their
customer, is less likely to be held to be reasonable,176 although in some cases it may be
so held.177

167 Universo Insurance Co of Milan v Merchant’s Marine Insurance Co Ltd [1897] 2 QB 93 (judicial notice
taken of a broker’s liability for unpaid premium in the marine insurance market). See also JA Chapman & Co
Ltd v Kadirga Denizcilik Ve Ticaret [1998] Lloyd’s Rep IR 377.
168 Grissell v Bristowe (1868) LR 3 CP 112, 128, rev’d on the facts of the case (1868) LR 4 CP 36; Buckle v
Knoop (1867) LR 2 Exch 125, 129, aff ’d ibid, 333.
169 Strathlorne SS Co Ltd v Hugh Baird & Sons Ltd, 1916 SC (HL) 134, 136 (Lord Buckmaster LC).
170 General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria [1983] QB 856, 874 (Slade LJ).
171 Cunningham v Fonblanque (1833) 6 C & P 44, 49; Hall v Benson (1836) 7 C & P 711; Johnson v Clarke
[1908] 1 Ch 303, 309. Cf Sea Steamship Co Ltd v Price, Walker & Co Ltd (1903) 8 Com Cas 292, 295.
172 Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421 (Stock Exchange rules); Shearson Lehman
Hutton Inc v MacLaine Watson & Co Ltd [1989] 2 Lloyd’s Rep 570 (London Metal Exchange).
173 Produce Brokers Co Ltd v Olympia Oil and Cake Co Ltd [1916] 2 KB 296, 298.
174 Bottomley v Forbes (1838) 5 Bing (NC) 121, 128. 175 Moult v Halliday [1898] 1 QB 125, 130.
176 Robinson v Mollett (1875) LR 7 HL 802; Anglo-African Merchants Ltd. v Bayley [1970] 1 QB 311; North
and South Co v Berkeley [1971] 1 WLR 470.
177 Jones v Canavan [1972] 2 NSWLR 236; Kelly v Cooper [1993] AC 205, 214 (although this implication
may have been on the ground of business efficacy).
 the terms of the contract 159

(e) Consistency with express terms A custom or usage which would otherwise
become an implied term of the contract may be expressly or impliedly excluded by the
parties. Thus, in Les Aff réteurs Réunis Société Anonyme v Leopold Walford (London)
Ltd178 the custom that in a time charter the broker’s commission was only payable
if the hire was earned was excluded by an express provision that ‘a commission of 3
per cent on the estimated gross amount of hire is due (to the broker) on signing this
charter’, in other words, whether any hire was earned or not. In Exxonmobil Sales and
Supply Corp v Texaco Ltd179 it was held that an entire agreement clause, which included
the wording that there was no other usage or course of dealing affecting the contract,
excluded the implying of terms based upon usage or custom.

(c) terms implied by statute

(i) Sale of goods
Contracts for the sale of goods are of such everyday occurrence, and are commonly
made with so little consideration of the exact legal results which the parties would
desire to produce by it, that if their rights and obligations were to be determined only
by what they say or do when they make the contract their reasonable expectations
would often be defeated. Consequently certain conditions and warranties are implied
in a contract of sale,180 originally by common law, but since 1893 pursuant to sections
12–15 of the Sale of Goods Act 1893, now re-enacted (with amendments) in the Sale of
Goods Act 1979.181
In principle the statutorily implied terms may be negatived or varied by express
agreement, by the course of dealing between the parties, or by a binding usage.182 This
freedom of the parties is, however, made subject to the Unfair Contract Terms Act
1977 and the Unfair Terms in Consumer Contracts Regulations 1999 which contain
significant restrictions. In the context of consumer sales the statutorily implied terms
are compulsory and in other sales they can only be excluded if the Court is satisfied
that the term doing so is reasonable.183
(a) Title By section 12 of the Sale of Goods Act 1979 the following terms are
implied:
(1) a condition184 ‘on the part of the seller that in the case of a sale he has a right to
sell the goods, and in the case of an agreement to sell he will have such a right at
the time when the property is to pass’:
(2) a warranty185 that

178 [1919] AC 801, below, p 636.

179 [2003] EWHC 1964 (Comm), [2004] 1 All ER (Comm) 435.
180 See Benjamin’s Sale of Goods (7th edn, 2009). On the loss of the right to reject goods for breaches of
these provisions, see above, p 149.
181 Amended by: the Sale and Supply of Goods Act 1994, substantially implementing the Report of the
Law Commission, Sale and Supply of Goods (Law Com No 160, 1987); and the Sale and Supply of Goods to
Consumers Regulations 2002 (SI 2002 No 3045). 182 Sale of Goods Act 1979, s 55.
183 Unfair Contract Terms Act 1977, s 6, below, p 198. 184 Sale of Goods Act 1979, s 12(1), (5A).
185 Ibid, s 12(2), (5A).
160 contents of the contract

‘(a) the goods are free, and will remain free until the time when the property
is to pass, from any charge or encumbrance not disclosed or known to the
buyer before the contract is made, and
(a) the buyer will enjoy quiet possession of the goods except so far as it may be
disturbed by the owner or other person entitled to the benefit of any charge
or encumbrance so disclosed or known.’
Different and more limited warranties are implied in a contract of sale where ‘there
appears from the contract or is to be inferred from the circumstances of the contract
an intention that the seller should transfer only such title as he or a third person may
have’.186 The seller can, by an express term of the contract, indicate an intention to
pass only a limited title and such an intention may also be inferred. Where the goods
are sold by an auctioneer187 the intention of the parties to the contract may be that the
buyer should have such title only to the goods, and such right only to take possession of
them, as the seller has in fact acquired.188 But where the seller purports to sell only such
title as he or a third person may have, the warranties of freedom from encumbrances
and quiet possession are not thereby wholly excluded. The seller must disclose to the
buyer, before the contract is made, any known encumbrances, and further warrants
that neither he nor anyone claiming under him (or the third person) will disturb the
buyer’s quiet possession of the goods.189
The exclusion or restriction of liability for breach of the terms implied by section 12
is absolutely prohibited190 and they are accordingly a compulsory part of a contract for
the sale of goods.
(b) Sale by description By section 13 of the Act:
(1) In ‘a contract for the sale of goods by description’, there is an implied condition191
that ‘the goods will correspond with the description’.
(2) ‘If the sale is by sample as well as by description it is not sufficient that the bulk
of the goods corresponds with the sample if the goods do not also correspond
with the description.’
(3) ‘A sale of goods is not prevented from being a sale by description by reason only
that, being exposed for sale or hire, they are selected by the buyer.’
A sale of goods by description is a sale in which the buyer contracts in reliance on a
description, express or implied,192 even though the buyer has seen the goods193 and
may have selected the goods, eg in a self-service shop. Thus, it was held that a person
who agreed to buy a second-hand reaping machine described as ‘new the previous year
and only used to cut 50 acres’ was entitled to reject the machine on delivery when he

186 Sale of Goods Act 1979, s 12(3).

187 Niblett v Confectioners’ Materials Co Ltd [1921] 3 KB 387, 401; Rowland v Divall [1923] 2 KB 500, 505.
188 Bagueley v Hawley (1867) LR 2 CP 625, 629. 189 Sale of Goods Act 1979, s 12(4), (5).
190 Unfair Contract Terms Act 1977, s 6(1). But by s 26, UCTA 1977 does not apply to international sale
contracts. An express term concerning title will be a condition: Barber v NWS Bank plc [1996] 1 WLR 641.
191 Sale of Goods Act 1979, s 13(1A). 192 Wallis, Son & Wells v Pratt & Haynes [1911] AC 394.
193 Grant v Australian Knitting Mills Ltd [1936] AC 85, 100; Nicholson & Venn v Smith Marriott (1947)
177 LT 189.
 the terms of the contract 161

found that it was, in fact, a very old machine.194 Not all descriptive words are, however,
conditions; the words must identify the subject-matter of the contract. So, for instance,
words identifying the yard in which a ship that is being sold is to be built are not within
section 13.195
(c) Satisfactory quality Ordinarily there is no implied condition or warranty of the
quality of goods sold or of their fitness for any particular purpose: caveat emptor. But,
where goods are sold in the course of a business,196 the 1979 Act contains important
qualifications of this principle. By section 14:

(2) ‘Where the seller sells goods in the course of a business’, there is an implied
condition197 that ‘the goods supplied under the contract are of satisfactory
quality.’
(2C) There is no such condition as regards any matter making the quality of the
goods unsatisfactory ‘which is specifically drawn to the buyer’s attention
before the contract is made’; or ‘where the buyer examines the goods before
the contract is made, which that examination ought to reveal.’

Prior to the 1994 amendment the requirement was that the goods be of ‘merchantable’
quality, a criterion that was criticized198 as too open-ended, inappropriate for
consumer transactions, and as not expressly requiring reasonable durability.199 The
Law Commission had recommended that the criterion be ‘acceptable quality’200
but this was not accepted, inter alia, because of concern that a buyer might decide
reluctantly that the goods were of ‘acceptable’ quality even if, by objective standards
the quality was not ‘satisfactory’.201 The new criterion, is ‘satisfactory quality’ and is
defined in section 14 of the Sale of Goods Act 1979:202

(2A) Goods are of satisfactory quality ‘if they meet the standard that a reasonable
person would regard as satisfactory, taking account of any description of the
goods, the price (if relevant) and all the other relevant circumstances’.
(2B) The quality of goods ‘includes their state and condition and the following
(among others) are in appropriate cases aspects of the quality of
goods—(a) fitness for all the purposes for which goods of the kind in question

194 Varley v Whipp [1900] 1 QB 513.

195 Reardon Smith Line Ltd v Hansen Tangen [1976] 1 WLR 989. See also Ashington Piggeries v Christopher
Hill Ltd [1972] AC 441, 503–4; Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1991]
1 QB 564.
196 Th is is to be given a broad meaning. There is no restriction that the goods be of a type that the seller
deals in (cf Unfair Contract Terms Act 1977, s 12, below, p 195): Stevenson v Rogers [1999] QB 1028 (fisherman
selling boat). 197 Sale of Goods Act 1979, s 14(6).
198 Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44, 80 (Ormrod LJ); Law Com No 162, Sale
and Supply of Goods (1987), para 2.9 ff.
199 But see Mash & Murrell v Joseph I Emmanuel [1962] 1 WLR 16; Lambert v Lewis [1982] AC 225, 276.
200 Law Com No 162, above, n 198, paras 3.22, 3.27.
201 Hansard 237 HC Deb (1993/94), col 633. See further 139 HC Deb (1987/88) WA 705; 165 HC Deb
(1989/ 90), col 1225. 202 Inserted by the Sale and Supply of Goods Act 1994, s 1(1).
162 contents of the contract

are commonly supplied (b) appearance and finish (c) freedom from minor
defects (d) safety, and (e) durability’.
The indications are that recourse to decisions on the old law should only be had in
exceptional cases203 but, in the absence of guidance as to what ‘satisfactory quality’
means, they provide useful indications of what is likely to be required. Thus, in Rogers
v Parish (Scarborough) Ltd204 it was said that:
Starting with the purpose for which [‘goods of the kind in question’]205 are commonly
bought, one would include in respect of any passenger vehicle not merely the buyer’s purpose
in driving the car from one place to another but of doing so with the appropriate degree
of comfort, ease of handling and reliability and, one might add, of pride in the vehicle’s
outward and interior appearance. What is the appropriate degree and what relative weight is
to be attached to one characteristic of the car rather than another will depend on the market
at which the car is aimed.206

In that case, a new car had been delivered with substantial defects to its engine, gearbox,
and bodywork and attempts to rectify these defects over a six-month period had failed.
It was held that the car was not of ‘merchantable quality’ and the buyer was entitled to
reject it, even though the defects did not render it unroadworthy.
Again, apart from the factors listed in subsection 2B, the Court is likely to consider
the consequences of the defect and the ease or otherwise with which it could be
remedied. ‘In some cases, such as a high-priced quality product, the customer may
be entitled to expect that it is free from even minor defects, in other words perfect or
nearly so.’207
Second-hand goods sold as such and goods sold as ‘seconds’ or imperfect must
still measure up to a reasonable standard, even though not to the standard of a new
or perfect article.208 The price of the goods may frequently be of relevance: a buyer
who, for example, buys a cheap carpet cannot expect it to achieve the same quality of
resilience or wear as a more expensive one.209
The condition as to satisfactory quality extends to ‘the goods supplied under the
contract’ including packaging, containers and extraneous items mixed with the goods
sold. Thus, in Wilson v Rickett, Cockrell & Co Ltd210 it was held that a ton of ‘Coalite’
which contained, unknown to either party, a detonator did not meet the statutory
standard. The argument that there was nothing wrong with the ‘Coalite’ itself was

203 Rogers v Parish (Scarborough) Ltd [1987] QB 933, 942–3 (Mustill LJ). 204 [1987] QB 933.
205 The bracketed words reflect the 1994 amendments. Before those, s 14(6) referred to ‘goods of that
kind’.
206 Rogers v Parish (Scarborough) Ltd [1987] QB 933, 944.
207 Clegg v Andersson [2003] EWCA Civ 320, [2003] 1 All ER (Comm) 721 at [72] (Hale LJ) (purchase
of a yacht). For another case, subsequent to the 1994 reform, holding that goods were not of satisfactory
quality, see Britvic Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 548, [2002] 2 All ER (Comm) 321
(contaminated carbon dioxide). For cases, since the 1994 reform, holding that goods were of satisfactory
quality, see, eg, Jewson Ltd v Boyhan [2003] EWCA Civ 1030, [2004] 1 Lloyd’s Rep 505 (boilers); Bramhill v
Edwards [2004] EWCA Civ 403, [2004] 2 Lloyd’s Rep 653 (motor home).
208 Bartlett v Sydney Marcus Ltd [1965] 1 WLR 1013; Business Appliance Specialists Ltd v Nationwide
Credit Corp Ltd [1988] RTR 332; Shine v General Guarantee Corp [1988] 1 All ER 911.
209 Cf BS Brown & Son Ltd v Craiks Ltd [1970] 1 WLR 752. 210 [1954] 1 QB 598.
 the terms of the contract 163

rejected and the defendant was held liable for damage from an explosion caused when
a bucketful of the fuel containing the detonator was put on a fire.
The condition is, however, excluded if the defects are pointed out to the buyer before the
contract is made; or if, before the contract is made, the buyer examines the goods, then as
regards defects which the examination which has been made ought to have revealed.211
If the buyer deals as a consumer, the relevant circumstances mentioned in s 14(2A)
include any public statements on the specific characteristics of the goods made about
them by the seller or producer, particularly in advertising or labelling.212
(d) Fitness for purpose Section 14(3) of the 1979 Act deals with the fitness for purpose
of the goods sold:
(3) ‘Where the seller sells goods in the course of a business and the buyer, expressly
or by implication, makes known—
(a) to the seller, or
(b) where the purchase price or part of it is payable by instalments and the
goods were previously sold by a credit-broker to the seller, to that credit-
broker,
any particular purpose for which the goods are being bought, there is an
implied [condition]213 that the goods supplied under the contract are
reasonably fit for that purpose, whether or not that is a purpose for which
such goods are commonly supplied, except where the circumstances show
that the buyer does not rely, or that it is unreasonable for him to rely, on the
skill or judgment of the seller or credit-broker.’
The application of this subsection is illustrated by two cases concerning the
purchase of food. In Wallis v Russell 214 the claimant bought from a fishmonger ‘two
nice fresh crabs for tea’ and in Chaproniere v Mason215 the claimant bought a bun from
the defendant’s baker’s shop. The crabs were not fresh and the claimant suffered food
poisoning after eating the crabs; the bun contained a stone and the claimant broke a
tooth when he bit it. In the first case the claimant expressly made it known through
her agent 216 that she required the crabs for eating and relied on the fishmonger to select
fresh crabs. In the second case, in buying the bun from a baker, the claimant clearly
made it known by implication that he required it for the purpose of eating and relied

211 Sale of Goods Act 1979, s 14(2C); R & B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988]
1 WLR 321. Cf Thornett and Fehr v Beer & Son [1919] 1 KB 486 (on the previous and different wording of the
proviso to s 14(2) of the 1893 Act).
212 Sale of Goods Act 1979, s 14(2D-F), inserted by the Sale and Supply of Goods to Consumers Regulations
2002 (SI 2002 No 3045). 213 Sale of Goods Act 1979, s 14(6).
214 [1902] 2 Ir Rep 585.
215 (1905) 21 TLR 633. See also Priest v Last [1903] 2 KB 148 (hot-water bottle bursts); Frost v Aylesbury
Dairy Co Ltd [1905] 1 KB 608 (typhoid germs in milk); St Albans City & DC v International Computers Ltd
[1996] 4 All ER 481, 494 (computer disk with defective programme); Britvic Soft Drinks Ltd v Messer UK Ltd
[2002] EWCA Civ 548, [2002] 2 All ER (Comm) 321 (contaminated carbon dioxide). For cases, where there
was held to be no relevant reliance under s 14(3), see, eg, Jewson Ltd v Boyhan [2003] EWCA Civ 1030, [2004] 1
Lloyd’s Rep 505 (boilers); Bramhill v Edwards [2004] EWCA Civ 403, [2004] 2 Lloyd’s Rep 653 (motor home).
216 The purchase was made by the claimant’s granddaughter on her behalf. On agency, see below, ch 23–25.
164 contents of the contract

on the baker’s skill and judgement. Both defendants were liable in damages for breach
of this implied condition.
The reliance will usually arise by implication in a purchase by a private individual
of goods from a shop, for such a person ‘goes to the shop in the confidence that the
tradesman has selected his stock with skill and judgement’;217 and where two business
people who are equally knowledgeable are dealing with one another, it may still be that
the buyer reasonably relies on the seller’s skill or judgement.218
It is possible, however, that the reliance will be only partial. If, for example, the buyer
procures the seller to manufacture goods in accordance with the buyer’s formula or
specifications, there will be no implied condition that the formula or specifications
will produce goods which are reasonably fit for the purpose made known to the seller
by the buyer, yet the buyer may rely on the skill or judgement of the seller to ensure that
the materials to be compounded in the formula are not toxic or harmful219 or there
may be an area of expertise outside the specifications in respect of which the skill or
judgement of the seller is relied on.220
(e) Sections 14(2) and 14(3) compared The two subsections of section 14, to some
extent, overlap, for both the definition of ‘satisfactory quality’ and section 14(3) refer to
fitness for a purpose for which goods are commonly bought or supplied. A buyer who
requires the goods for some special or unusual purpose, however, can recover, if at
all, only under section 14(3). The special or unusual purpose must be made known to
the seller and the buyer must show reliance on the seller’s skill and judgement. Under
section 14(2) it is not necessary to show such reliance. Where the goods are unfit for a
special or unusual purpose, but nevertheless fit for all purposes for which such goods
are commonly supplied, they will still be of ‘satisfactory quality’ and there will be no
breach by the seller of section 14(2).
Where, however, they are only fit for some of the purposes for which such goods are
commonly supplied they will not be of ‘satisfactory quality’.221 As amended in 1994,
the subsection thus places the risk of unfitness for any of the common purposes on the
seller. It is said that the seller who knows that its goods are not fit for one or more of
the purposes for which goods of that kind are commonly supplied can protect itself by
ensuring that the description of the goods excludes any common purpose for which
they are unfit or by otherwise indicating that the goods are not fit for all their common
purposes.222 The amendment has therefore given the characterization of a purpose as
‘common’ or ‘unusual’ a new importance.

217 Grant v Australian Knitting Mills Ltd [1936] AC 85, 99 (Lord Wright).
218 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31. Cf Slater & Slater v Finning Ltd
[1997] AC 473 (no reliance because of unusual feature in buyer’s machinery).
219 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441.
220 Cammell Laird & Co Ltd v Manganese Bronze & Brass Co Ltd [1934] AC 402.
221 Sale of Goods Act 1979, s 14(2B), above, p 161.
222 See Law Com No 162, Sale and Supply of Goods (1987), para 3.36. Prior to the amendment it was not
necessary for the goods to be fit for all of their common purposes: Sumner, Permain & Co Ltd v Webb & Co
Ltd [1922] 1 KB 55; Aswan Engineering Establishment Co v Lupine Ltd [1987] 1 WLR 1, and see Henry Kendall
& Sons v William Lillico & Sons Ltd [1969] 2 AC 31, 77.
 the terms of the contract 165

(f) Sale by sample In a sale by sample there are two implied conditions. First, that
the bulk will correspond with the sample in quality. Secondly, that the goods will be
free from any defect making their quality unsatisfactory, which would not be apparent
on reasonable examination of the sample.223 The meaning of this last condition was
considered in Godley v Perry:224

A 6-year-old boy bought from a retailer in his shop a toy catapult made of brittle polystyrene
which fractured while he was using it, blinding him in one eye. He sued the retailer for
damages under section 14(2) and (3) of the Sale of Goods Act. The retailer joined the
wholesaler from whom he had bought the catapult by sample as a third party and the
wholesaler likewise joined the importer who had supplied him.

The retailer was held liable but it was argued that the wholesaler and importer were
not liable for breach of the condition as to satisfactory quality in a contract of sale
by sample because a reasonable examination of the catapult would have revealed its
fragility. Edmund Davies J said:225
Counsel . . . suggested that by holding the toy down with one’s foot and then pulling on the
elastic its safety could be tested and . . . its inherent fragility would thereby inevitably be
discovered. True, the potential customer might have done any of these. He might also, I
suppose, have tried biting the catapult, or hitting it with a hammer, or applying a lighted
match to ensure its non-inflammability, experiments which, with all respect, are but slightly
more bizarre than those suggested by counsel.

The phrase ‘reasonable examination’ was to be construed by the common-sense

standards of everyday life: ‘Not extreme ingenuity, but reasonableness, is the statutory
yardstick’. The wholesaler and importer were held liable.

(ii) Other statutory implied terms

Certain terms are implied by sections 8–11 of the Supply of Goods (Implied Terms)
Act 1973 into all contracts of hire-purchase. These implied terms resemble very closely
those implied in contracts of sale of goods, and relate similarly to title, quality, and
fitness for purpose, and correspondence with description or sample. Analogous terms
are also implied by the Supply of Goods and Services Act 1982 into contracts for the
hire of goods,226 and into contracts for work and materials in relation to the materials
supplied.227 By sections 13–15 of the Supply of Goods and Services Act 1982, in a
contract for the supply of services, there are implied terms that the supplier will carry
out the service with reasonable care and skill, that (if no time for completion is fi xed)
the supplier will carry out the service within a reasonable time, and that (if no price is
fi xed) the party contracting with the supplier will pay a reasonable charge. Finally, the
covenants for title which are implied on a disposition of property are set out in Part I
of the Law of Property (Miscellaneous Provisions) Act 1994.

223 Sale of Goods Act 1979, s 15. 224 [1960] 1 WLR 9. 225
Ibid, 15.
226 Supply of Goods and Services Act 1982, ss 7–10. 227 Ibid, ss 2–5.
166 contents of the contract

4. construction of terms
This section deals shortly with certain general principles which govern the construc-
tion of terms which have been reduced to writing. The construction of a contract is
always a matter of law for the Court to determine.

(a) the contextual approach

The professed object of the Court in construing a written contract is to discover the
mutual intention of the parties,228 the written declaration of whose minds it is. The
old approach to construction was that, subject to ambiguity229 and to some other
exceptions (for example, the meaning of technical terms, or the avoidance of manifest
absurdity230 or of a very obvious drafting mistake),231 words were to be interpreted
literally—according to their plain meaning—without reference to extrinsic evidence
of the background.232
In contrast, the modern approach, articulated by Lord Hoffmann in Investors
Compensation Scheme Ltd v West Bromwich Building Society233 is that one should
always construe a contract in its context. He said: ‘Interpretation is the ascertainment
of the meaning which the document would convey to a reasonable person having
all the background which would reasonably have been available to the parties in the
situation in which they were at the time of the contract’.234
He went on to explain that, subject to exceptions (considered below), the background
includes ‘absolutely anything [relevant] which would have affected the way in which
the language of the document would have been understood by a reasonable man’;235
that the literal meaning may be overridden, even though there is no ambiguity because
the background makes clear that ‘the parties must . . . have used the wrong words
or syntax’;236 and that ‘the law does not require judges to attribute to the parties an
intention which they plainly could not have had’.237

228 Pioneer Shipping Ltd v BTP Tioxide [1982] AC 724, 736; International Fina Services AG v Katrina
Shipping Ltd [1995] 2 Lloyd’s Rep 344, 350.
229 Shore v Wilson (1842) 9 Cl & Fin 355, 365 (Tindal CJ).
230 Abbott v Middleton (1858) 7 HLC 68, 69; River Wear Commissioners v Adamson (1877) 2 App Cas 743,
746–7 (Lord Blackburn).
231 Nittan UK Ltd v Solent Steel Fabrication Ltd [1981] 1 Lloyds Rep 633; Homburg Houtimport BV v
Agrosin Private Ltd, The Starsin [2004] 1 AC 715; Littman v Aspen Oil (Broking) Ltd [2005] EWCA Civ 1579,
[2006] 2 P & CR 2; Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm), [2006]
1 Lloyd’s Rep 599.
232 Shore v Wilson (1842) 9 Cl & Fin 355, 365; Lovell and Christmas Ltd v Wall (1911) 104 LT 85, 88
(Cozens-Hardy MR).
233 [1998] 1 WLR 896. Th is contextual approach was heralded by Lord Wilberforce’s speeches in Prenn v
Simmonds [1971] 1 WLR 1381 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989.
234 Ibid, 912.
235 Ibid. The inclusion of the word ‘relevant’ reflects the qualification made by Lord Hoff mann in Bank of
Credit & Commerce International v Ali [2001] UKHL 8, [2001] 1 AC 251 at [39]. 236 Ibid, 913.
237 Ibid. Lord Hoff mann here referred to Lord Diplock’s reference to ‘business commonsense’ in Antaios
Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201. See also Lord Napier and Ettrick v R
Kershaw Ltd (No 2) [1999] 1 WLR 756, 763 (Lord Steyn).
 the terms of the contract 167

This modern contextual approach is to be welcomed as being more likely to reflect

the parties’ intentions than the literal approach. However, it has been criticized by
some238 as giving rise to greater uncertainty and as increasing the costs of litigation
because more material has to be considered by the Courts. It can also be argued that
a contextual approach produces greater difficulties for third parties who may be
assigned the benefit of the contract and yet may be unfamiliar with the background
against which the contract was concluded.
In the Investors Compensation Scheme case:
A number of investors had been given negligent advice and had claims (in tort or for breach
of statutory duty) against their financial advisers, building societies and solicitors. A central
scheme was set up by the Securities and Investment Board to ensure compensation was paid
to the investors. To be entitled to compensation under that scheme, investors concluded a
contract of assignment with the Investors Compensation Scheme (the claimant) whereby
they assigned to the ICS their claims against their advisers, building societies and solicitors
subject to a clause excluding from the assignment ‘Any claim (whether sounding in
rescission for undue influence or otherwise)’ against a building society which would abate
sums otherwise owed to that society. In an action by the ICS against the defendant building
society, the central question was whether that clause meant that the investors had retained
(ie had not assigned) their rights to claim damages, as well as rescission, against the building
societies.

The House of Lords (Lord Lloyd dissenting) held that the right to claim rescission
had been retained but that the right to claim damages had been validly assigned. The
exclusion from assignment clause, ‘Any claim (whether sounding in rescission for
undue influence or otherwise)’ was interpreted as if it had read, ‘Any claim sounding
in rescission (whether for undue influence or otherwise)’. This construction meant
that only claims for rescission, and not for damages, against the building societies were
excluded from the assignment.
Perhaps the most controversial aspect of Lord Hoffmann’s restatement was his
exclusion from the admissible background of evidence of the previous negotiations of
the parties.239 That traditional exclusionary rule was said to rest on ‘reasons of practical
policy’.240 Despite persuasive criticism by numerous commentators,241 that exclusion
was, unfortunately and surprisingly, confirmed, after a detailed examination, by the
House of Lords in Chartbrook Ltd v Persimmon Homes Ltd.242
A dispute arose, in relation to a property development agreement, as to how much was
payable by the developers (Persimmon) to the owners of the land (Chartbrook). This turned
on the meaning of the term ‘additional residential payment’. The developers argued that, on
the true construction of the contract, they owed only £897,051. The owners argued that, on
the true construction of the contract, they were owed £4,484,862.

238 eg, Staughton LJ [1999] CLJ 303; Berg (2006) 122 LQR 354; Calnan in Burrows and Peel, eds, Contract
Terms (2007) ch 2.
239 [1998] 1 WLR 896, 913. See also Prenn v Simmonds [1971] 1 WLR 1381. Less controversially he also
excluded ‘declarations of subjective intent’. 240 Ibid.
241 McLauchlan (2000) 19 NZULR 147; McMeel (2003) 119 LQR 272; Lord Nicholls (2005) 121 LQR 577.
Cf Berg (2006) 122 LQR 354.
242 [2009] UKHL 38, [2009] 1 AC 1101. See the excellent casenote by McLauchlan (2010) 126 LQR 8.
168 contents of the contract

The owners succeeded in the lower courts but the developers’ appeal was allowed by
the House of Lords which held that the smaller sum was due. Their Lordships reached
that conclusion because, although the owners’ construction was ‘in accordance with
conventional syntax’,243 it made ‘no commercial sense’;244 and, applying the approach
in Investors Compensation Scheme, this was a case where the background made it clear
that something must have gone wrong with the language used.
Although finding for the developers, the House of Lords rejected their argument
that one should look at the pre-contractual negotiations which, the developers argued,
made it plain that the developers’ interpretation was the correct one. While accepting
that to allow such evidence did not contradict the objective theory of interpretation,245
Lord Hoffmann, giving the leading speech, reasoned that evidence of pre-contractual
negotiations was usually irrelevant; that even if relevant, its inclusion would create
greater uncertainty in deciding disputes of interpretation and would add to the cost of
advice, litigation or arbitration; that it would not be easy to distinguish aspiration from
provisional agreement; and that, overall, there was no clearly established case (and no
empirical evidence) to justify the House of Lords departing from the long-established
rule. He also pointed out that there were two legitimate ‘safety nets’—rectification246
and estoppel by convention—which would in most cases prevent injustice.247 In
contrast, he thought that the extension of the ‘private dictionary’ exception, applied in
The Karen Oltmann, 248 undermined the exclusionary rule and should be overruled.
Although not specifically mentioned by Lord Hoffmann in the Investors
Compensation Scheme case, it is also clearly established that the subsequent conduct
of the parties may not be used as an aid to interpretation of a written contract. This
has been said to be because subsequent conduct is equally referable to what the
parties intended to agree as to the meaning of what they in fact agreed249 and because
‘otherwise one might have the result that a contract meant one thing on the day it
was signed, but by reason of subsequent events meant something different a month
or a year later’.250 Neither reason seems convincing and this exclusion has again been
criticized by commentators.251 In any event, subsequent conduct may be used to show

243 Ibid at [11]. 244 Ibid at [16].

245 Ibid at [33]. Lord Hoff mann also made reference, at [40], to the argument, often made in support of the
exclusionary rule, that to allow in such evidence prejudices third parties who may, eg, take an assignment
of the contract. But he accepted that, while in theory removal of the rule would increase the risk for third
parties, the same point about prejudicing third parties can be made in respect of the admissibility of any
form of material background.
246 The House of Lords, had they not reached the conclusion they did on construction, would have
granted rectification to reach the same result: see below, pp 262–265.
247 [2009] UKHL 38, [2009] 1 AC 1101 at [47].
248 The Karen Oltmann [1976] 2 Lloyds Rep 708. What is meant by the ‘private dictionary exception’ is
that, where words are used that can have more than one meaning, evidence is admissible to show that the
parties have given their own meaning to the words. Th is exception was applied in, eg, The Pacific Colocotronis
[1981] 2 Lloyd’s Rep 40; Proforce Recruit Ltd v The Rugby Group Ltd [2006] EWCA Civ 69.
249 Schuler AG v Wickman Machine Tool Sales Ltd. [1974] AC 235, 261, 263.
250 Whitworth Street Estates (Manchester) Ltd v James Miller & Partners Ltd [1970] AC 583, 603.
251 See n 241, above. See also Full Metal Jacket Ltd v Gowlain Building Group Ltd [2005] EWCA Civ 1809,
at [15] (Arden LJ). The exclusion of such evidence has been rejected in New Zealand: Wholesale Distributors
Ltd v Gibbons Holdings Ltd [2007] NZSC 37.
 the terms of the contract 169

that a contract exists,252 that there has been a variation of its terms or an estoppel or a
waiver,253 or even to construe an oral, rather than a written, contract.254

(b) particular rules of construction

While all ‘rules’ of interpretation must now be read in the light of the modern
contextual approach set out in the Investors Compensation Scheme case,255 there are
certain ‘rules’ that can be usefully set out.
(1) Words susceptible of two meanings should be given the meaning which
will make the instrument valid rather than void or ineffective.256 Where a
guarantee was expressed to be given to the claimants ‘in consideration of your
being in advance’ to JS, it was argued that this showed a past consideration;
but the Court held that the words might mean a prospective advance, and be
equivalent to ‘in consideration of your becoming in advance’, or ‘on condition
of your being in advance’.257 So strong is this rule in favour of supporting the
document that, in suitable cases, the Court is prepared to restrict the written
words to those applicable in the agreement, supply obvious omissions, and to
transpose or even reject words and phrases if the intention of the parties is
clear.
(2) ‘An agreement ought to receive that construction which its language will admit,
which will best effectuate the intention of the parties, to be collected from the
whole of the agreement, and greater regard is to be had to the clear intent of the
parties than to any particular words which they may have used in the expression
of their intent.’258 The proper mode of construction is to take the instrument
as a whole, to ascertain the meaning of words and phrases from their general
context, and to try and give effect to every part of it.259
(3) ‘[G]reater weight should attach to terms which the particular contracting
parties have chosen to include than to pre-printed terms probably devised to
cover very many situations to which the particular contracting parties have
never addressed their minds.’260
(4) Where there is an express mention in the instrument of a certain thing, this will
tend to exclude any other thing of a similar nature: expressio unius est exclusio
alterius.261 So where a conveyance was made of an iron foundry and two houses,

252 Whitworth Street Estates (Manchester) Ltd v James Miller & Partners Ltd [1970] AC 583; Wilson v
Maynard Shipbuilding Consultants AG Ltd [1978] QB 665.
253 Above, p 116; below, p 466. 254 Maggs v Marsh [2006] EWCA Civ 1058, [2006] BLR 395.
255 In Lord Hoff mann’s words, ‘Almost all the old intellectual baggage of “legal” interpretation has been
discarded’: [1998] 1 WLR 896, 912.
256 Verba ita sunt intelligenda ut res magis valeat quam pereat: Bac Max 3.
257 Haigh v Brooks (1839) 10 A & E 309; Steele v Hoe (1849) 14 QB 431.
258 Ford v Beech (1848) 11 QB 852, 866 (Parke B).
259 Ex antecedentibus et consequentibus fit optima interpretatio: 2 Co Inst 317; Barton v Fitzgerald (1812)
15 East 529, 541.
260 Homburg Houtimport BV v Agrosin Private Ltd, The Starsin [2003] UKHL 12, [2004] 1 AC 715, at [11]
(Lord Bingham). 261 Co Litt. 210a.
170 contents of the contract

together with the fi xtures in the houses, the fi xtures in the foundry were held
not to pass even though they otherwise would have done so.262
(5) The meaning of general words may be narrowed and restrained by specific and
particular descriptions of the subject-matter to which they are to apply. Thus
in construing a charterparty, where liability to deliver cargo was excluded if
through ‘war, disturbance, or any other cause’ it was not possible to do so, it
was held that the words ‘any other cause’ were restricted to events of the same
kind as war and disturbance, and so excluded ice.263 But this rule (the so-called
ejusdem generis rule) is again only a canon of construction for the purpose of
ascertaining what may be presumed to have been the meaning and intention
of the parties to the contract. It is therefore subordinate to the parties’ real
intention and does not control it. It will have no application if the parties can
be shown to have intended a different interpretation to be given to the language
which they have used.
(6) The words of written documents are construed more forcibly against the party
putting forward the document.264 The rule is based on the principle that a party
putting forward the wording of a proposed agreement may be assumed to have
looked after its own interests, is responsible for ambiguities in its own expression,
and has no right to induce another to make a contract on the supposition that
the words mean one thing, and then to argue for a construction by which they
would mean another thing, more to its advantage.265

262 Hare v Horton (1833) 5 B & Ad 715.

263 Tillmanns v SS Knutsford [1908] 2 KB 385, aff ’d [1908] AC 406; Thorman v Dowgate Steamship Co Ltd
[1910] 1 KB 410.
264 Verba chartarum fortius accipiuntur contra proferentem: Bac Max 3; Unfair Terms in Consumer
Contracts Regulations 1999 (SI 1999 No 2083), reg 7. See below, pp 179, 214.
265 Tan Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd [1996] 2 BCLC 69, 77 (Lord
Mustill).
 6
EXEMPTION CLAUSES AND
UNFAIR TERMS
This chapter considers the common law and statutory rules, especially under the
Unfair Contract Terms Act 1977, governing exemption clauses, and the statutory
control of unfair terms (including exemption clauses) under the Unfair Terms in
Consumer Contracts Regulations 1999.1
Written contracts frequently contain clauses excluding or limiting liability. This
is particularly so in the case of ‘standard form’ documents drawn up by one of the
parties or a trade association to which one of the parties belong. At common law
there are special rules on the incorporation of exemption clauses (and other onerous
terms), special rules of construction applicable to them, and a few miscellaneous other
common law rules designed to control them. This chapter considers those common law
rules before going on to the legislative control of exemption clauses and unfair terms
The thorny issues raised by exemption clauses and third parties are not discussed in
this chapter but are dealt with instead in Chapter 21.

1. standard forms of contract

One of the most important developments for the law of contract has been the
appearance of the standard form of contract.2 The idea of an agreement freely
negotiated between the parties has given way to a uniform set of printed conditions
which can be used time and time again, and for a large number of persons, and at less
cost than an individually negotiated contract. Each time an individual travels by air,
bus or train, buys a car, takes clothes to the dry-cleaner, buys household goods, or
even, in some cases, takes the lease of a house or flat, a standard form contract, devised
by the supplier, will be provided which the individual must either accept in whole, or,
theoretically, go without. In fact, there is little alternative but to accept; the individual

1 See generally, Sales (1953) 16 MLR 318; Gower (1954) 17 MLR 155; Turpin (1956) 73 SALJ 144; Coote,
Exception Clauses (1964); Yates, Exclusion Clauses in Contracts (2nd edn, 1982); Lawson, Exclusion Clauses
and Unfair Contract Terms (9th edn, 2008); Macdonald, Exemption Clauses and Unfair Terms (2nd edn,
2006); Unfair Terms in Contracts, Law Commission Report No 292 (2005). For the limited non-statutory
control of ‘unconscionable bargains’, see below, Ch 10.
2 The standard form contract is sometimes, following the French, referred to as a contract of adhesion:
Saleilles, De la Déclaration de la Volonté (1901).
172 contents of the contract

does not negotiate, but merely adheres. In some respects, therefore, it would be more
correct to regard the relationship which arises not as one of contract at all, but as one
of status. The contracting party has the status of a consumer.
The use of standard terms and conditions is not, however, confined to contracts
made with consumers. Many contracts between business people—indeed, perhaps
the majority of such contracts—are today entered into on the basis of one person’s
standard form of agreement or on the basis of a standard form of document, such
as an order form, confirmation of order, catalogue or price list, put forward by one
party,3 or which incorporate by reference the standard terms and conditions of trade
associations.
The ordinary common law principles of the law of contract may not be capable of
providing a just solution for a transaction in which freedom of contract exists on one
side only. In particular, the party delivering the document may allocate the risks of
non-performance or defective performance to the other party. While such allocation
of risks should in principle lead to lower costs, it is only justifiable if at least some of
the cost saving is passed on and if the other party is aware of the contractual allocation
of risks. In fact the party delivering the document may seek unfair exemption from
certain common law liabilities, and thus seek to deprive the other party of the
compensation which that person might reasonably expect to receive for any loss or
injury or damage arising out of the transaction. Moreover, standard form contracts
with consumers are often contained in some printed ticket, or notice, or receipt, which
is brought to the attention of the consumer at the time the agreement is made and
which a prudent consumer would read from beginning to end. In fact, however, the
consumer normally has neither the time nor the energy to do this and, even if this
was done, it would be of little assistance for the consumer could not vary the terms in
any way. It is not until some dispute arises that the consumer realizes how few are the
rights in the contract.
Acting within the limitations imposed on them by the contractual framework
of these transactions, the Courts have nevertheless endeavoured to alleviate the
position of the recipient of the document by imposing certain requirements for the
incorporation into the contract of onerous terms, and by construing the document
wherever possible in that person’s favour. It has been said that ‘the judicial creativity,
bordering on judicial legislation’ which marked the development of these rules was
a ‘desperate remedy to be invoked only if it is necessary to remedy a widespread
injustice’.4 These rules are still important in determining the efficacy of exemption,
or other onerous, clauses. But the measure of protection which they offered against
unfair clauses is somewhat slender, and the power of the Courts to control such clauses
has been greatly increased since the enactment of the Unfair Contract Terms Act 1977
and the Unfair Terms in Consumer Contracts Regulations 1999.5

3 For the ‘battle of the forms’, see above, p 41.

4 BCCI SA v Ali [2001] UKHL 8, [2002] 1 AC 251 at [60] (Lord Hoff mann).
5 See below, pp 192–215.
 exemption clauses and unfair terms 173

2. incorporation
(a) signature
A person who signs a document which contains contractual terms is normally bound
by them even though that person has not read them and is ignorant of their precise
legal effect.6 Three exceptions are first, where the party’s signature is induced by
misrepresentation;7 secondly, where non est factum applies;8 and thirdly, where the
document signed does not purport to have contractual effect as, for example, where
the signed document was a time sheet.9

(b) notice
(i) The notice must be contemporaneous with the contract
Where there is no signature, in order that a term should become binding as part of
the contract it must be brought to the notice of the contracting party before or at the
time that the contract is made. If it is not communicated until afterwards, it will be of
no effect unless there is evidence that the parties have entered into a new contract on
a different basis.10
An illustration of the necessity for contemporaneity is provided by Olley v
Marlborough Court Ltd:11

O and her husband registered at the defendant’s hotel, paid for a week’s board and lodging
in advance, and then went up to their room. There a notice was exhibited stating: ‘The
proprietors will not hold themselves responsible for articles lost or stolen, unless handed to
the manageress for safe custody’. Owing to the negligence of the hotel staff, a thief gained
access to the room and stole some of O’s property.

The Court of Appeal held that the notice formed no part of the contract since O could
not have seen it until after the contract was made; the defendant was accordingly
liable for the loss. Similarly, a customer who parked a car in a garage and received
at the entrance a ticket from an automatic machine, was held not to be bound by the
conditions printed on the ticket; the machine caused the ticket to be issued when the
car was driven to the entrance to the garage, and the customer could not be affected by
conditions brought to his notice after this time.12

6 Parker v South Eastern Ry (1877) 2 CPD 416, 421; L’Estrange v F Graucob Ltd [1934] 2 KB 394; Levison v
Patent Steam Carpet Cleaning Co Ltd [1978] QB 69; Spencer [1973] CLJ 104.
7 Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805: see below, p 191.
8 Below, pp 259–261. 9 Grogan v Robin Meredith Plant Hire [1996] CLC 1127.
10 Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69.
11 [1949] 1 KB 532. See also Hollingworth v Southern Ferries Ltd [1977] 2 Lloyd’s Rep 70 (sailing tickets
delivered after booking made).
12 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 (only Lord Denning MR found that the contract was
concluded at that moment. Megaw LJ and Sir Gordon Willmer reserved their opinions on this point).
174 contents of the contract

(ii) Reasonably sufficient notice

In what circumstances will a party receiving a ticket, receipt, or common form document
at the time the contract is made be bound by the conditions contained in it?
Take the example of a railway or cloakroom ticket, which the person receiving it puts
into his pocket unread; three general rules have been laid down to determine whether
the traveller or depositor will be bound by the terms contained in the ticket:13
(1) A person receiving the ticket who did not see or know that there was any writing
on the ticket will not be bound by the conditions.
(2) A person who knows there was writing, and knows or believes that the writing
contained conditions, is bound by the conditions.
(3) A person who knows that there was writing on the ticket, but does not know or
believe that the writing contained conditions, will nevertheless be bound where
the delivery of the ticket, in such a manner that the writing on it could be seen,
is reasonable notice that the writing contained conditions.
It is the third of these rules which is the most frequently applied and the most
difficult in its application.
It means that a person may be bound by an exemption clause in a standard form
document, even though subjectively ignorant of its content, if the party seeking to rely
on the clause has done what was reasonably sufficient in the circumstances to bring
it to the other party’s notice. The principles were discussed in Parker v South Eastern
Railway Co:14
P deposited a bag in the defendant’s station cloakroom. He received a paper ticket which
said on its face ‘See back’ and on the back were a number of printed conditions, including a
condition excluding liability for any bag with a higher value than £10. P admitted that he knew
there was writing on the ticket but stated that he had not read it and did not know or believe
that the writing contained conditions. The bag was lost and P claimed £24 10s for its value.

The jury was directed to consider whether P had read or was aware of the special
condition upon which the bag was deposited. It answered this question in the negative
and accordingly judgment was entered for P. On appeal by the defendant, the Court
of Appeal held that the jury had been misdirected. The real question was whether the
defendant had done what was reasonably sufficient to give P notice of the condition. A
new trial was ordered.
The question whether all that was reasonably sufficient to give notice was done is
a question of fact,15 and in answering that question the Courts must look at all the
circumstances and the situation of the parties.16 Thompson v LM & S Railway Co17
represents a very liberal approach to what constitutes reasonable notice. There a

13 Parker v South Eastern Ry (1877) 2 CPD 416, 421, 423; approved in Richardson, Spence & Co v Rowntree
[1894] AC 217; Burnett v Westminster Bank [1966] 1 QB 742.
14 (1877) 2 CPD 416; Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837.
15 Parker v South Eastern Ry (1877) 2 CPD 416; Richardson, Spence & Co v Rowntree [1894] AC 217.
16 Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837, 844 (Lord Haldane).
17 [1930] 1 KB 41.
 exemption clauses and unfair terms 175

passenger travelling on an excursion ticket was injured by the alleged negligence of

the defendant railway company. It was held that a clause exempting the company from
liability,18 printed in its timetable, was sufficiently, although circuitously, incorporated
into the contract since the ticket referred to the timetables and advertisements (the
latter also referred to the timetables). But in Richardson, Spence & Co v Rowntree,19
a term limiting the liability of a steamship company to $100 in a steamship ticket
was held not to be incorporated. The ticket had been handed to the claimant folded
up, and the conditions were obliterated in part by a stamp in red ink. The jury found
that, although the claimant knew there was writing on the ticket, she did not know
the writing contained conditions, and that reasonably sufficient notice had not been
given. The House of Lords refused to upset this finding.
If the notice is otherwise sufficient, the fact that a particular claimant is under some
disability (but not constituting incapacity), for example, unable to speak English, or
blind,20 or, as in Thompson v LM & S Railway Co, illiterate,21 will be treated as irrelevant.
If there is no reference on the face of a ticket to the fact that there are conditions
printed on the back, the Courts have consistently held that such a notification is
defective.22 Strictly, of course, the issue is one of fact in each particular case but this
requirement may fairly be said to be one of law.

(iii) Exhibited notices

Printed notices containing conditions, for example, the notices exhibited at the
counter of a left-luggage office at a railway station, have been held to become part of
the contract where the ticket or receipt refers to the notice23 and probably even where
it does not, provided the notice is sufficiently prominent and can be plainly seen before
or at the time of making the contract.24 But there is also authority for the view that the
terms of the notice must be ‘brought home’ to the party affected and accepted by that
party as part of the contract.25

(iv) The notice must be in a contractual document

If the document is one which the person receiving it would scarcely expect to contain
conditions, for example, if it consisted of the sort of ticket which a reasonable person

18 The Unfair Contract Terms Act 1977, s 2(1) now prevents the exclusion or restriction of liability for
death or personal injury resulting from negligence, below, p 197.
19 [1894] AC 217. See also Union Steamships v Barnes (1956) 5 DLR (2d) 535 (Canada).
20 Cf Geier v Kujawa, Weston and Warne Bros (Transport) Ltd [1970] 1 Lloyd’s Rep 364, 368 (where the
plaintiff ’s ignorance of English was known). The term there, excluding the liability of a driver of a motor
vehicle to a passenger, would now be invalid under the Road Traffic Act 1988, s 149.
21 However, the ticket had been bought on the plaintiff ’s behalf by her niece and it was found that the
niece’s father had ascertained, before the ticket was taken, that there were conditions for excursion tickets.
22 Henderson v Stevenson (1875) LR 2 HL Sc App 470; White v Blackmore [1972] 2 QB 651, 664. See also
Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd [1996] 2 Lloyd’s Rep 388 (reference to
terms on back of faxed document but terms not communicated).
23 Watkins v Rymill (1883) 10 QBD 178.
24 Olley v Marlborough Court Ltd [1949] 1 KB 532, 549; Ashdown v Samuel Williams & Sons Ltd [1957] 1
QB 409.
25 Harling v Eddy [1951] 2 KB 739, 748; McCutcheon v David Macbrayne Ltd [1964] 1 WLR 125; Smith v
Taylor [1966] 2 Lloyd’s Rep 231; Mendelssohn v Normand Ltd [1970] 1 QB 177, 182.
176 contents of the contract

would suppose to be merely a voucher or receipt, it cannot be said that the notice given
was reasonably sufficient in the circumstances. It would be ‘quite reasonable that the
party receiving it should assume that the writing contained in it no condition, and
should put it in his pocket unread’.26
In Chapelton v Barry UDC:27
C wished to hire a deck chair on the beach. He took two from a pile belonging to the
defendant, paying 2d for each and receiving two tickets from an attendant. He set the chairs
up firmly, sat on one, and went through the canvas. C sued the defendant for personal injuries
sustained. The defendant pleaded an exemption clause printed on the back of the ticket: ‘The
council will not be liable for any accident or damage arising from the hire of the chair’. C had
glanced at the ticket but had not realized that it contained conditions.

The Court held that the defendant was not protected. A cheque-book cover28 and a
parking ticket issued by an automatic machine29 have similarly been held to be non-
contractual documents.

(v) Onerous or unusual terms

If the particular condition (whether an exemption clause or not) relied upon by one
of the parties is onerous or unusual in that class of contract, special measures may be
required fairly to bring it to the notice of the other party. It has even been said that
some clauses ‘would need to be printed in red ink on the face of the document with a
red hand pointing to it before the notice could be held to be sufficient’.30 In Interfoto
Picture Library Ltd v Stiletto Visual Programmes Ltd which, it should be noted, did not
concern an exemption clause:31
Interfoto hired 47 transparencies to Stiletto. The transparencies were despatched to Stiletto
in a bag containing a delivery note containing conditions printed in small but visible
lettering on the face of the document, including condition 2, which stated that ‘a holding
fee of £5 plus VAT per day will be charged for each transparency which is retained . . . longer
than . . . 14 days’. The daily rate per transparency was many times greater than was usual but
nothing whatever was done by Interfoto to draw Stiletto’s attention particularly to condition
2. Stiletto returned the transparencies 4 weeks later and Interfoto claimed £3,783.50.

The Court of Appeal held that the contract was made when, after the receipt of the
transparencies, Stiletto accepted them by telephone. Although, to the extent the
conditions were common form or usual terms, they were incorporated into the
contract, it was held that condition 2 had not been so incorporated.32 Bingham LJ
stated:33

26 Parker v South-Eastern Ry Co (1877) 2 CPD 416,422 (Mellish LJ). 27 [1940] 1 KB 532.

28 Burnett v Westminster Bank [1966] 1 QB 742.
29 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163.
30 J Spurling Ltd v Bradshaw [1956] 1 WLR 461, 466 (Denning LJ); Thornton v Shoe Lane Parking Ltd
[1971] 2 QB 163; Shearson Lehman Hutton Inc v MacLaine Watson & Co Ltd [1989] 2 Lloyd’s Rep 570, 612. Cf
Ocean Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s Rep 446, 454 (red hand approach doubted
for commercial contract). 31 [1989] QB 433.
32 Interfoto could only recover a holding fee assessed on the basis of a quantum meruit, here £3.50 per
transparency per week beyond the 14-day period: [1989] QB 433, 439, 445. 33 Ibid, 445.
 exemption clauses and unfair terms 177

[Stiletto] are not to be relieved of . . . liability because they did not read the condition, although
doubtless they did not; but in my judgment they are to be relieved because [Interfoto] did
not do what was necessary to draw this unreasonable and extortionate clause fairly to their
attention.

In Dillon LJ’s words:34

[I]f one condition in a set of printed conditions is particularly onerous or unusual, the party
seeking to enforce it must show that that particular condition was fairly brought to the
attention of the other party.

(c) course of dealing

An exception clause will not necessarily be incorporated into a contract by virtue of
a previous course of dealing between the same parties on similar terms.35 But such
a clause may be incorporated where each party led the other reasonably to believe
that it intended that their rights and liabilities should be ascertained by reference to
the terms of a document which had been regularly and consistently used by them in
previous transactions.36
Where the clause is a usual one in the trade, and the parties are of equal bargaining
power in the same trade, less will be required in terms of the regularity of the previous
course of dealing for it to be included in the contract.37 Indeed it may be better to
regard such a clause as incorporated not so much because of the course of dealing but
rather because of the common understanding of the parties based on the practice of
the trade to which they belong.38

3. construction of exemption clauses

Assuming that the terms of a standard form contract have been incorporated, the next
issue is the way in which the terms of the document are to be construed. The disparity
between the bargaining power of consumers and large enterprises (both private and
public) means that terms have often been imposed upon consumers which are unfair

34 Ibid, 439. See also The Northern Progress [1996] 2 Lloyd’s Rep 321; AEG (UK) Ltd v Logic Resources Ltd
[1996] CLC 265, per Hirst LJ, 273, but cf Hobhouse LJ ibid, 277 who took the view that Courts should lean
towards treating clauses as incorporated given that, if unreasonable, they can now be struck down under
the Unfair Contract Terms Act 1977; O’Brien v MGN Ltd [2001] EWCA Civ 1279, [2002] CLC 33 (rule of a
competition held to be neither onerous nor unusual).
35 Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 (no incorporation where claimant had signed a
form containing exemption clauses on three or four occasions over a five-year period). See also McCutcheon
v David MacBrayne Ltd [1964] 1 WLR 125. See generally Macdonald (1988) 8 LS 48.
36 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 (incorporation where parties had
contracted three or four times a month over a three-year period). See also J Spurling Ltd v Bradshaw [1956] 1
WLR 461, 467; Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400; Circle Freight International
Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep 427.
37 British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd [1975] QB 303 (usual term incorporated where
only two transactions months before). 38 Ibid.
178 contents of the contract

in their application and which exempt the enterprise putting forward the document,
either wholly or in part, from its just liability under the contract. This was one of the
reasons why, at common law, the Courts evolved certain canons of construction which
normally work in favour of the party seeking to establish liability and against the party
seeking to claim the benefit of the exemption. However, if the clause is appropriately
drafted so as to exclude or limit the liability in question, then the Courts must (subject
to the powers conferred on them by the Unfair Contract Terms Act 1977 and the
Unfair Terms in Consumer Contracts Regulations 1999)39 give effect to it. Moreover,
as between businesses, exemption clauses can perform a useful function. They may,
for example, anticipate future contingencies which hinder or prevent performance,
establish procedures for the making of claims and provide for the allocation of risks as
between the parties to the contract. In a business transaction, the effect of an exemption
clause may simply be to determine which of the parties is to insure against a particular
risk. Exemption clauses in business transactions are not necessarily unfair. But even in
business transactions the Courts must be satisfied that the clause, on its wording, does
have the effect contended for by the person relying on it, that is, the party seeking to
exclude or restrict its liability.
It is a topical question whether the canons of construction for exemption clauses,
developed at common law, have been, or should be, loosened not only because of the
statutory controls over unfair terms that now exist but also because of the modern
general approach to construction set out in Investors Compensation Scheme Ltd v West
Bromwich Building Society.40

(a) strict interpretation

‘If a person is under a legal liability and wishes to get rid of it, he can only do so by
using clear words.’41 The words of the exemption clause must exactly cover the liability
which it is sought to exclude. So an exemption clause in a contract excluding liability
for ‘latent defects’ will not exclude the condition as to fitness for purpose implied
by the Sale of Goods Act;42 exclusion of implied conditions and warranties will not
exclude a term which is actually expressed;43 and a clause excluding liability for breach
of warranty will not exclude liability for breach of condition.44 In Wallis, Son & Wells
v Pratt & Haynes:45
W bought seed from P & H described as ‘common English sainfoin’ subject to an exemption
clause that ‘the sellers give no warranty express or implied, as to growth, description, or any
other matters’. The seed turned out to be giant sainfoin, indistinguishable in seed, but inferior

39 See below, pp 192–215.

40 [1998] 1 WLR 896. See above, p 166. See Bank of Credit and Commerce International SA v Ali [2002] 1
AC 251 at [62] (Lord Hoff mann).
41 Alison (J Gordon) Ltd v Wallsend Shipway and Engineering Co Ltd (1927) 43 TLR 323, 324 (Scrutton LJ).
42 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31.
43 Andrews Bros Ltd v Singer & Co Ltd [1934] 1 KB 17. 44 Baldry v Marshall [1925] 1 KB 260.
45 [1911] AC 394.
 exemption clauses and unfair terms 179

in quality and of less value. W was forced to compensate those to whom it had subsequently
sold the seed, and sued to recover the money lost. P & H pleaded the exemption clause.

It was held by the House of Lords that, even though W had accepted the goods and
could therefore only sue for breach of warranty ex post facto,46 there was nevertheless
originally a breach of the condition implied by section 13 of the Sale of Goods Act,47
and this had not been successfully excluded.
Since the enactment of the Unfair Contract Terms Act 1977, there are indications
of a slightly less strict approach to construction. Thus, although ‘the reports are full of
cases in which what would appear to be very strained constructions have been placed
upon exclusion clauses’,48 mainly in consumer contracts and standard form contracts,
it has been said that:
in commercial contracts negotiated between businessmen capable of looking after their
own interests and of deciding how risks . . . can be most economically borne . . . it is wrong to
place a strained construction upon words in an exclusion clause which are clear and fairly
susceptible of one meaning.49

(b) the ‘contra proferentem’ rule

The principle whereby the words of written documents are construed more forcibly
against the party putting forward the document has been considered above.50 In the
case of exemption clauses this is the party seeking to impose the exemption. This
rule of construction is only applied where there is doubt or ambiguity in the phrases
used, and provides that such doubt or ambiguity must be resolved against the party
proffering the written document and in favour of the other party. In John Lee & Son
(Grantham) Ltd v Railway Executive:51

The lease of a railway warehouse contained a clause exempting the lessors from liability for
‘loss damage costs and expenses however caused . . . (whether by act or neglect of the company
or their servants or agents or not) which but for the tenancy hereby created . . . would not have
arisen’. Goods in the warehouse were damaged by fire owing to the alleged negligence of the
lessors in allowing a spark to escape from their railway engines. The lessors claimed that the
clause exempted them from liability.

The Court of Appeal held that, applying the contra proferentem rule, the operation of
the clause was confined by the words ‘but for the tenancy hereby created’ to liabilities
which arose only by reason of the relationship of landlord and tenant created by the
lease. Construing the clause against the lessors, they were not protected.

46 See above, p 149. 47 See above, p 160.

48 Photo Production Ltd v Securicor Transport Ltd [1980] AC 826, 851 (Lord Diplock).
49 Ibid. See also ibid, 843, below, p 185. 50 Above, p 170.
51 [1949] 2 All ER 581. See also Adams v Richardson & Starling Ltd [1969] 1 WLR 1645, 1653 (construction
of so-called ‘guarantee’); Tor Line AB v Alltrans Group of Canada Ltd [1984] 1 WLR 48, 56.
180 contents of the contract

(c) exclusion of liability for negligence

The ability of contracting parties to exclude their liability for negligence has been
substantially restricted by legislation.52 Apart from statutory restrictions, although it
is possible to exclude liability in negligence, the Courts have traditionally approached
clauses which are said to exclude such liability on the assumption that it is ‘inherently
improbable’ that the innocent party would have agreed to the exclusion of the
contract-breaker’s negligence.53 To have this effect the contractual term in question
must exclude liability for negligence clearly and unambiguously. In Rutter v Palmer,54
for example:

R left his car at P’s garage to be sold. The contract provided that ‘customers’ cars are driven
by your [P’s] servants at customers’ sole risk’. The car was taken for a trial run by one of P’s
drivers, there was a collision and the car was damaged.

It was held that the clause placed the risk of negligence on R and so his claim failed.
Similarly, such phrases as: ‘will not be liable for any damage however caused’,55 ‘will
not in any circumstances be responsible’,56 ‘arising from any cause whatsoever’57 will
ordinarily be construed to cover liability for negligence.
On the other hand, there may be some ground of liability (other than negligence)
to which the party seeking exemption is subject in respect of the loss or damage
suffered, eg a strict liability for breach of contract.58 If the alternative ground is not so
fanciful or remote that he cannot be supposed to have desired protection against it,59
the exemption clause will be construed as extending to that ground alone, even if the
words used are prima facie wide enough to cover negligence.60 In Canada Steamship
Lines Ltd v The King:61

52 Unfair Contract Terms Act 1977, s 2, below, p 197; Unfair Terms in Consumer Contracts Regulations
1999 (SI 1999 No 2083), Sched 2, para 1(a).
53 Gillespie v Bowles (Roy) Transport Ltd [1973] QB 400, 419 (Buckley LJ); Caledonia Ltd v Orbit Valve Co
Europe [1994] 1 WLR 1515, 1523 (Steyn LJ); Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165, 168
(Viscount Dilhorne) (indemnity clause).
54 [1922] 2 KB 87. See also Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69 (‘at the owner’s
risk’); Scottish Special Housing Assoc v Wimpey Construction UK Ltd [1986] 1 All ER 956 (‘at the sole risk
of the Employer’); Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649 (‘the hirer . . . alone shall be
responsible for all claims . . .’).
55 Joseph Travers & Sons Ltd v Cooper [1915] 1 KB 73; Ashby v Tolhurst [1937] 2 KB 242; White v Blackmore
[1972] 2 QB 651. Cf Bishop v Bonham [1988] 1 WLR 742.
56 Harris Ltd v Continental Express Ltd [1961] 1 Lloyd’s Rep 251; John Carter (Fine Worsteds) Ltd v Hanson
Haulage (Leeds) Ltd [1965] 2 QB 495.
57 AE Farr Ltd v Admiralty [1953] 1 WLR 965; Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd
[1982] 2 Lloyd’s Rep 42. 58 White v John Warwick & Co Ltd [1953] 1 WLR 1285.
59 Canada Steamship Lines Ltd v The King [1952] AC 292; Smith v South Wales Switchgear Co Ltd [1978] 1
WLR 165, 178; Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd [1982] 2 Lloyd’s Rep 42.
60 Alderslade v Hendon Laundry Ltd [1945] KB 189, 192; Canada Steamship Lines Ltd v The King [1952] AC
292, 208; Sonat Offshore SA v Amerada Hess Development Ltd [1988] 1 Lloyd’s Rep 145, 157; Shell Chemicals
UK Ltd v P & O Roadtanks Ltd [1995] 1 Lloyd’s Rep 297, 301. Cf Ailsa Craig Fishing Co Ltd v Malvern Fishing
Co Ltd [1983] 1 WLR 964, 970. 61 [1952] AC 292.
 exemption clauses and unfair terms 181

A lease of a freight shed provided that the lessee should ‘not have any claim against the lessor
for damage to goods’ in the shed. Owing to the negligence of the lessor’s employees, a fire
broke out and the lessee’s goods in the shed were destroyed.

The Privy Council held that a strict liability was imposed upon the lessor by the
Civil Code of Lower Canada and the exemption clause should be confined to that head
of liability. The lessor was accordingly liable for the negligent destruction of the goods.
The decision has been applied many times since, including by the House of Lords,62
and it has been said that:63
Commercial contracts are drafted by parties with access to legal advice and in the context
of established legal principles as reflected in the decisions of the courts . . . The parties to
commercial contracts must be taken to know what those principles are and to have drafted
their contract taking them into account; when the suggested result could have been easily
obtained by an appropriate use of language but the parties instead only used general
language, the result of the general principle is that the parties will not be taken to have
intended to include the consequences of a party’s negligence.

However, the House of Lords in HIH Casualty and General Insurance Ltd v Chase
Manhattan Bank64 has since indicated that the Canada Steamship principles, while
giving helpful guidance, should not be treated as a rigid code. In that case, a generally
worded clause excluding all liability of an insured to an insurer for misrepresentation
or non-disclosure of its agent was held, on its true construction, not to exclude liability
(whether for damages or rescission) for the agent’s fraudulent misrepresentation or
fraudulent non-disclosure.65 But as part of the reasoning it was held that the clause
did apply to exclude liability for negligent misrepresentation or non-disclosure even
though a rigid application of the Canada Steamship principles would have led to the
contrary result (because liability for innocent misrepresentation or non-disclosure
was a realistic possibility).
Where the head of damage in respect of which liability is sought to be imposed by
an exemption clause is one which rests on negligence and nothing else, one would
expect the clause to be construed as extending to that head of damage, because if it
were not so construed ‘it would lack subject matter’.66 However, this conclusion has
not always been reached. In Hollier v Rambler Motors (AMC) Ltd:67
H arranged by telephone to have his car repaired by RM and subsequently sent the car to
RM’s premises for this purpose. On at least two previous occasions when RM had carried out
repairs for him he had signed a form on which appeared the printed words: ‘The company is
not responsible for damage caused by fire to customer’s cars on the premises’. While on the
premises, the car was damaged by a fire caused by RM’s negligence.

62 Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165.

63 Caledonia Ltd. v Orbit Valve Co Europe [1994] 1 WLR 221, 228, 232 (Hobhouse J), approved by the
Court of Appeal [1994] 1 WLR 1515, 1521. See also Shell Chemicals UK Ltd v P & O Roadtanks Ltd [1995] 1
Lloyd’s Rep 297, 301. 64 [2003] UKHL 6, [2003] 2 Lloyd’s Rep 61.
65 As a matter of policy, an exemption clause can never exclude liability for personal fraud: S Pearson &
Son Ltd v Dublin Corp [1907] AC 351; Armitage v Nurse [1998] Ch 241.
66 Aldersdale v Hendon Laundry Ltd [1945] KB 189, 192. 67 [1972] 2 QB 71.
182 contents of the contract

The Court of Appeal held that there was no sufficient previous course of dealing to
incorporate the exemption clause into the oral contract;68 but, in any event, the language
of the clause did not exclude liability for negligence. Although the only ground of
liability on the part of RM would have been liability in negligence, the clause was not
so plain as to indicate that RM was exempting itself in respect of damage caused by fire
due to its own negligence. Rather it was a warning to customers as to the legal position
where fire was caused without the defendants’ negligence.69 H therefore succeeded in
an action against RM for breach of the contract of bailment.

(d) limitation clauses

It has been held that a less rigorous approach governs clauses that merely limit the
compensation payable but do not totally exclude liability. In Ailsa Craig Fishing Co Ltd
v Malvern Fishing Co Ltd and Securicor (Scotland) Ltd,70 a case from Scotland:
S undertook to provide continuous security cover in respect of ACF’s fishing vessel in
Aberdeen harbour but, by reason of negligence and breach of contract, the vessel fouled
the boat berthed next to her and sank. The loss of the vessel cost ACF £55,000. S’s standard
conditions of contract provided inter alia that its liability ‘whether under express or implied
terms of the contract, or at common law or in any other way’ for any loss or damage was
limited to £1,000.

The House of Lords held that, although the contra proferentem rule applied to
limitation clauses, such clauses were not to be construed by the specially exacting
standards applicable to clauses totally excluding liability and indemnity clauses.
According to Lord Fraser, this was because there was a higher degree of improbability
that a contracting party would agree to a total exclusion of liability than to a limitation
of liability particularly where, as in that case, ‘the potential losses that might be caused
by the negligence of the proferens or its servants are so great in proportion to the sums
that can reasonably be charged for the services contracted for’.71 In Lord Wilberforce’s
view, the distinction followed because limitation clauses ‘must be related to other
contractual terms, in particular to the risks to which the defending party may be
exposed, the remuneration which he receives, and possibly also the opportunity of the
other party to insure’.72
It is, however, somewhat difficult to see why such a clear distinction should be
drawn between these two types of exemption clause. In particular, it is not clear why
only limitation clauses are ‘related to other contractual terms’ and to ‘the opportunity
of the other party to insure’. There may also be practical difficulties. Take the example
of first, a clause excluding all liability, but not until three months after the delivery of

68 See above, p 177.

69 It is arguable that, since the enactment of the Unfair Contract Terms Act 1977, such a hostile
construction would not be adopted. 70 [1983] 1 WLR 964.
71 Ibid, 970 (Lord Fraser). Th is statement was approved by the House of Lords in George Mitchell
(Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, 810, 813, 817.
72 Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964, 966 (Lord Wilberforce).
 exemption clauses and unfair terms 183

goods,73 and, secondly, a clause limiting liability to £100, but from the start.74 Which
is to be construed more generously? It is submitted that ‘[t]here is no difference in
principle between words which save [contracting parties] from having to pay at all
and words which save them from paying as much as they would otherwise have had
to pay’.75 It has been suggested that the two types of clause should be characterized by
reference to the substance of their provisions rather that the particular wording used,
and that the more extreme the consequences are, in terms of excluding or modifying
the liability which would otherwise arise, the more stringent the Court’s approach
should be in requiring that the exclusion or liability be clearly and unambiguously
expressed.76

(e) ‘fundamental’ terms and ‘fundamental breach’

(i) Rule of construction not a rule of law
Previously there was considered to be a common law doctrine which seemed to offer
some escape from even the most carefully drafted exemption clauses. This was the
doctrine of the ‘breach of a fundamental term’ or of ‘fundamental breach’.77
There were, it was said, in every contract certain terms which were fundamental,
the breach of which amounted to a complete non-performance of the contract. A
fundamental term was conceived to be something more basic than a warranty or even
a condition. It formed the ‘core’ of the contract and therefore could not be affected
by any exemption clause.78 For example, ‘If a man offers to buy peas of another, and
he sends him beans, he does not perform his contract; but that is not a warranty;
there is no warranty that he should sell him peas; the contract is to sell peas, and if he
sends him anything else in their stead, it is a non-performance of it’ against which no
exemption clause could prevail.79
Closely connected was the principle that no party to a contract could exempt himself
from responsibility for a fundamental breach. Its limits were never precisely defined,
but it was said that a party could only claim the protection of an exemption clause
‘when he is carrying out his contract, not when he is deviating from it or is guilty of a
breach which goes to the root of it’.80 So, for example, if those having charge of a railway

73 Atlantic Shipping & Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250. See also ‘cesser’ clauses in
charterparties excluding the charterer’s liability for breach once a cargo is shipped and replacing it with
an alternative remedy by way of lien on the cargo: Overseas Transport Co v MineralImportExport [1972] 1
Lloyd’s Rep 201.
74 See the combined operation of the package, unit, and weight limitations of Article IV, r 5, of the Hague/
Visby Rules and the one year time bar under Article III, r 6: Carriage of Goods by Sea Act 1971.
75 Atlantic Shipping & Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250, 260 (Lord Sumner). See
also Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, 510 (High Court of Australia),
disapproving the statements in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964.
76 BHP Petroleum Ltd v British Steel plc [2000] 2 Lloyd’s Rep 277, 285.
77 See Guest (1961) 77 LQR 98; Reynolds (1963) 79 LQR 534; Lord Devlin [1966] CLJ 192; Jenkins [1969]
CLJ 251; Legh-Jones and Pickering (1970) 86 LQR 513; Baker (1970) 33 MLR 441; Weir [1970] CLJ 180; Coote
[1970] CLJ 221; Dawson (1975) 91 LQR 380; Coote (1977) 40 MLR 31.
78 Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co [1953] 1 WLR 1468, 1470.
79 Chanter v Hopkins (1838) 4 M & W 399, 404. See also Bowes v Shand (1877) 2 App Cas 455, 480.
80 J Spurling Ltd v Bradshaw [1956] 1 WLR 461, 465 (Denning LJ).
184 contents of the contract

cloakroom allowed an unauthorized person to have access to and remove luggage

of a depositor without production of the cloakroom ticket, this was a ‘fundamental
breach’ and the railway was not protected by an exemption clause excluding liability
for loss or misdelivery.81
The two principles were in some cases used interchangeably;82 and they appeared to
establish that, however extensive an exemption clause might be, it could not exclude
liability in respect of the breach of a fundamental term or of a fundamental breach.
Expressed in this way, the doctrine constituted a substantive rule of law which operated
irrespective of the intention of the parties and limited their freedom of contract.
The ‘rule of law’ approach was, however, rejected. In UGS Finance Ltd v National
Mortgage Bank of Greece 83 Pearson LJ stated:
I think there is a rule of construction that normally an exception or exclusion clause or
similar provision in a contract should be construed as not applying to a situation created by a
fundamental breach of contract. This is not an independent rule of law imposed by the court
on the parties willy-nilly in disregard of their contractual intention. On the contrary it is a
rule of construction based on the intention of the contracting parties.

This opinion was subsequently unanimously endorsed by the House of Lords in Suisse
Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale.84 In
that case:
SA chartered the Silvretta to RKC for a period of 2 years. It was agreed that, in the event
of delays in loading or unloading the vessel, RKC would pay to SA $1,000 a day by way of
demurrage.85 Lengthy delays occurred for which SA alleged RKC was responsible, but it
nevertheless allowed RKC to continue to have the use of the ship for the remainder of the
term. On conclusion of the contract, SA sued RKC for damages, claiming a sum in excess of
that stipulated for as demurrage. RKC relied on the demurrage clause as limiting its liability.

It was argued that the breaches would have entitled SA to treat the contract as
repudiated; that these breaches amounted to a fundamental breach of contract; and
that in consequence RKC could not rely upon the clause which limited their liability
to $1,000 a day. The House of Lords rejected this argument. It held that the demurrage
clause was not an exemption clause but an ‘agreed damages’ provision.86 Nevertheless,
even if it had been considered an exemption clause, their Lordships considered that
as a matter of construction it covered the breaches which had occurred. Assuming
that these breaches amounted to a fundamental breach of contract, in the sense that
SA would have been entitled to treat itself as discharged from further performance,
there was no rule of law which would prevent the application of an exemption clause
to such a breach.
Certain statements in the Suisse Atlantique case were nevertheless open to the
interpretation that in some situations a substantive doctrine of ‘fundamental

81 Alexander v Railway Executive [1951] 2 KB 882.

82 Cf Lord Upjohn in the Suisse Atlantique case [1967] 1 AC 361, 421.
83 [1964] 1 Lloyd’s Rep 446, 450. 84 [1967] 1 AC 361; noted by Treitel (1966) 29 MLR 546.
85 Demurrage is a sum agreed by the charterer to be paid to the owner as liquidated damages for delay
beyond a stipulated or reasonable time for loading or unloading. 86 See below, p 565.
 exemption clauses and unfair terms 185

breach’ still existed87 and the heresy that a ‘fundamental breach’ of contract
deprived the party in breach of the benefit of an exemption clause was not finally
laid to rest by the House of Lords until Photo Production Ltd v Securicor Transport
Ltd:88
S agreed to provide a visiting patrol service to PP’s factory at a charge of approximately
26p per visit. The contract contained an exemption clause, the most relevant part of which
stated: ‘Under no circumstances shall the company [S] be responsible for any injurious act or
default by any employee . . . unless such act or default could have been foreseen and avoided
by the exercise of due diligence on the part of the company . . . ‘. An employee of S, while on
patrol, deliberately lit a fire in the factory. The fire spread and a large part of the premises
was burned down.

The Court of Appeal held that, since S had been engaged to safeguard the factory, the
deliberate act of their employee in starting a fire was not covered by the exemption
clause. The House of Lords reversed this decision. On the true construction of the
clause in the context of the contract, in particular the limited nature of the contractual
task, the modesty of the charge, and the ability of the factory owners to insure against
fire more economically, the House concluded that the risk assumed by S was a modest
one.89 Accordingly, S had effectively modified its obligation under the contract to the
exercise of due diligence in its capacity as an employer, and there was no evidence
of any lack of due diligence on its part to foresee or prevent the fire. S was therefore
absolved from liability. Their Lordships once again affirmed their opinion that the
question whether or not an exemption clause protected a party to a contract in the
event of breach, or in the event of what would (but for the presence of the exemption
clause) have been a breach, depended upon the construction of the contract. Even
if the breach was so serious as to entitle the injured party to treat the contract as
repudiated,90 or to render further performance impossible, the other party was not
prevented from relying on the clause.
Any need for a substantive doctrine of fundamental breach has largely been
obviated by the enactment of the Unfair Contract Terms Act 1977,91 although
certain types of contract are excepted, either wholly or partly, from the operation of
that Act.92 In the Photo Production case, Lord Diplock stated93 that, if the expression
‘fundamental breach’ was to be retained, it should be confi ned to the ordinary case of
a breach of which the consequences are such as to entitle the innocent party to elect
to put an end to all primary obligations of both parties remaining unperformed.94
Similarly it may be supposed that, if the expression ‘fundamental term’ is to be
retained, it should be employed simply as an alternative method of describing a

87 [1967] 1 AC 361, 398, 427, 432. See Harbutt’s ‘Plasticine’ Ltd v Wayne Tank and Pump Co Ltd [1970] 1
QB 447 (exemption clause did not apply where further performance impossible or innocent party accepted
breach as terminating contract). See also Wathes (Western) Ltd v Austins (Menswear) Ltd [1976] 1 Lloyd’s
Rep 14; Kenyon, Son & Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 WLR 519.
88 [1980] AC 827. See also George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803;
Kenya Railways v Antares Co Pte Ltd [1987] 1 Lloyd’s Rep 424; Unfair Contract Terms Act 1977, s 9.
89 [1980] AC 827, 846, 851, 852. 90 See below, pp 520–523. 91 See below, p 192.
92 See below, pp 194–195. 93 [1980] AC 827, 849. 94 See below, pp 520–523.
186 contents of the contract

promissory condition.95 There does not now exist in English law any special rule
or rules applicable to cases of ‘fundamental breach’ where exemption clauses are
concerned. No doubt, in deciding whether an exemption clause is, on its true
construction, applicable to a particular breach, the Court may reach the conclusion
that the parties never intended the clause to apply to the breach in question because
its nature or seriousness is such as not to fall within the contemplated ambit of the
clause. The parties are less likely to be taken to have agreed that one of them shall
be excused in the case of a total non-performance or a performance which is wholly
at variance with the object of the contract as ascertained from its other terms and
the circumstances surrounding it. But there is no separate category of ‘fundamental
breaches’ against which exemption clauses cannot prevail and, if sufficiently clear,
they will do so against the most serious and deliberate breach. So, for example, the
one year time bar in the Hague-Visby Rules applies to fundamental and deliberate
breaches.96 Moreover, in Australia it has been held that an exemption clause which
stated it applied ‘whether or not loss . . . is caused by . . . fundamental breach of
contract’ prevailed against a fundamental breach.97
The view that, whereas a negligent breach could be covered by an exemption clause,
a wilful or deliberate breach necessarily fell outside its scope,98 was also firmly rejected
by the House of Lords in the Suisse Atlantique case. Lord Wilberforce said:99
Some deliberate breaches . . . may be, on construction, within an exceptions clause (for
example, a deliberate delay for one day in loading). This is not to say that ‘deliberateness’
may not be a relevant factor: depending on what the party in breach ‘deliberately’ intended
to do, it may be possible to say that the parties never contemplated that such a breach would
be excused or limited . . . but to create a special rule for deliberate acts is unnecessary and
may lead astray.

Having established that ‘fundamental breach’ is now a matter of construction,

rather than being a rule of law,100 it is appropriate to consider the construction
of exemption clauses for ‘fundamental breaches’ in certain familiar types of
contract.101

95 See Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1
AC 361, 398, 427, 432–5.
96 Kenya Railways v Antares Co Pte Ltd [1987] 1 Lloyd’s Rep 424, 429–30; Comp Portorafti Comm SA v
Ultramar Panama Inc [1990] 1 Lloyd’s Rep 310.
97 Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd [1994] 1 Lloyd’s Rep 213 (New South
Wales Court of Appeal), cf Handley JA dissenting, at 230.
98 eg Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576.
99 [1967] AC 361, 435. See also ibid, 394, 414, 415, 429; Photo Production Ltd v Securicor Transport
Ltd [1980] AC 827; Comp Portorafti Comm SA v Ultramar Panama Inc [1990] 1 Lloyd’s Rep 310; China
Shipbuilding Corp v Nippon Yusen Kabukishi Kaisha [2000] 1 Lloyd’s Rep 367, 376.
100 With the demise of the principle of ‘fundamental breach’, it can no longer be said that the defendant
carries the burden of disproving fundamental breach. Cf Woolmer v Delmer Price Ltd [1955] 1 QB 291;
Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69. Against this: Hunt & Winterbotham (West of
England) Ltd v BRS Parcels Ltd [1962] 1 QB 617; Glebe Island Terminals Pty Ltd v Continental Seagram Pty
Ltd [1994] 1 Lloyd’s Rep 213, 238 (New South Wales).
101 For other types of contract, where the courts have construed clauses covering very serious breach,
see, eg, A Turtle Offshore SA v Superior Trading Inc [2008] EWHC 3034 (Admlty), [2009] 1 Lloyd’s Rep 177;
Internet Broadcasting Corp Ltd v MAR LLC [2009] EWHC 844 (Ch), [2009] 2 Lloyd’s Rep 295.
 exemption clauses and unfair terms 187

(ii) Sale of goods

We have already seen that, in a contract of sale of goods, sections 12–15 of the Sale of
Goods Act 1979 imply certain conditions as to title, correspondence with description
and sample, fitness for purpose, and satisfactory quality.102 By virtue of section 6 of
the Unfair Contract Terms Act 1977,103 the power of a seller to exclude these implied
conditions has been abrogated, either absolutely or subject to certain qualifications,
except where the contract is one for the international sale of goods. But at common
law, the Courts have refused to apply an exemption clause covering ‘defects in quality’
to situations where there was a gross disparity between the goods described in the
contract of sale and those delivered, or where the goods were so defective that they were
completely unfit for the purpose for which they were required.104 For example, where
copra cake contained so great an admixture of castor beans as to render it dangerous
to cattle, a clause disclaiming responsibility for ‘defects’ was held inapplicable, because
what was delivered was not truly copra cake at all.105 As Lord Wilberforce pointed
out in the Suisse Atlantique case:106 ‘Since the contracting parties could hardly have
been supposed to contemplate such a misperformance, or to have provided against it
without destroying the whole contractual substratum, there is no difficulty here in
holding exemption clauses to be inapplicable’. But this is a matter of construction only
and the construction will be affected by the contractual context. So, ‘if an anxious
hostess is late in the preparation of a meal, she can perfectly well say: “Send me peas or
if you haven’t got peas, send beans; but for heaven’s sake send something”. That would
be a contract for peas, beans or anything else ejusdem generis and it is a perfectly
sensible contract to make’.107

(iii) Hire-purchase
The exclusion of terms implied in hire-purchase contracts is now subject to section
6 of the Unfair Contract Terms Act 1977.108 At common law it is governed by similar
principles to those in sales. A case of this nature arose in Karsales (Harrow) Ltd v
Wallis:109
W was shown a second-hand Buick motor-car in excellent condition and wished to buy
it on hire-purchase. His agreement with the finance company contained an exemption
clause excluding liability for breach of conditions or warranties of any description. After
the contract had been concluded, the car was towed at night to W’s premises in a deplorable
state. Many detachable parts had been removed; new parts had been replaced by old; and the

102 Above, pp 159–165.

103 See below, p 198.
104 eg Munro & Co Ltd v Meyer [1930] 2 KB 312; Champanhac & Co Ltd v Waller & Co Ltd [1948] 2 All
ER 724. Cf Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co [1953] 1 WLR 1481; George Mitchell
(Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 807.
105 Pinnock Brothers v Lewis and Peat Ltd [1923] 1 KB 690. 106 [1967] 1 AC 361, 433.
107 Lord Devlin [1966] CLJ 192, 212. On this example, see above, p 183, n 79.
108 See below, p 193.
109 [1956] 1 WLR 936. See also Yeoman Credit Ltd v Apps [1962] 2 QB 508; Charterhouse Credit Co Ltd v
Tolly [1963] 2 QB 638; Farnworth Finance Facilities v Attryde [1970] 1 WLR 1053.
188 contents of the contract

engine was now so defective that the car would not go. W refused to accept it and was sued
by K, the assignee of the finance company.

The Court of Appeal held that the exemption clause was ineffective because what was
contracted for had not been delivered: ‘a car that would not go was not a car at all’.110
On the other hand, a similar clause has been held to cover the delivery of a car which,
though unroadworthy and unsafe when hired and in a ‘lamentable condition’, did still
function as a car. These defects were covered by the clause.111

(iv) Carriage of goods

It is possible that a version of the fundamental breach rule of law lives on in respect of
‘deviation’ by a carrier. This has been left open by the House of Lords.112 Most of the
cases concern the carriage of goods by sea but the same principles apply to carriage
by land.113 The basic idea is that a carrier, who deviates without justification from the
recognized or agreed route, steps outside the ‘four corners’ of the contract and cannot
claim the benefit of a clause designed to protect only when the carrier is acting in
pursuance of its provisions.114 Put another way, if a ship contracted to carry goods
from A to B deviates from her ordinary route, the contract voyage comes to an end,
and the shipowner cannot thereafter rely upon an exemption clause in the contract
even though the loss or damage to the goods is not attributable to the deviation.115
Contracts made between businesses for the carriage of goods by ship fall, as respects
loss of or damage to the cargo, outside the Unfair Contract Terms Act 1977,116 so that
the ‘deviation cases’ continue to be of considerable importance in this context.
What is unclear is whether the non-applicability of an exemption clause where there
has been a deviation is a rule of construction based on the parties’ intentions that the
clause should not apply to a journey not contemplated by the contract; or whether
it is a rule of law that applies irrespective of the parties’ intentions or the particular
wording of the clause in question.
Where a carrier has undertaken to stow cargo below deck but carries it on deck, it
has been held to be a question of construction whether an exemption clause applies
to such unauthorized deck carriage. Hence a clause limiting liability to a specified
sum per package of cargo117 and a clause requiring all claims to be brought within one

110 [1956] 1 WLR 936, 942 (Birkett LJ). See also Parker LJ at 943.
111 Handley v Marston (1962) 106 SJ 327. See also Astley Industrial Trust Ltd v Grimley [1963] 1 WLR
584.
112 Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC
361; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.
113 London & North Western Ry v Neilson [1922] 2 AC 263 (disclaimed liability for loss of goods ‘in transit’
did not cover deviation).
114 eg Cunard SS Co Ltd v Buerger [1927] AC 1; Stag Line Ltd v Foscolo, Mango & Co Ltd [1932] AC 328;
Hain Steamship Co v Tate & Lyle (1936) 41 Com Cas 350. See Suisse Atlantique Société d’Armement Maritime
SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361, 390, 399, 411, 422, 433; Reynolds, ‘The Deviation
Problem’ (Butterworths Lectures 1990–91) 29; Dockray [2000] LMCLQ 76.
115 Joseph Thorley Ltd v Orchis Steamship Co Ltd [1907] 1 KB 660.
116 Sched 1, para 2(c); see below, pp 193–194.
117 Daewood Heavy Industries Ltd v Klipriver Shipping Ltd, The Kapitan Petko Voivoda [2003] 2 Lloyd’s
Rep 1 overruling Wibau Maschinenfabrik Hartman SA v Mackinnon Mackenzie & Co, The Chanda [1989]
 exemption clauses and unfair terms 189

year118 have both been held to apply, as a matter of construction, to unauthorized deck
carriage.
Misdelivery of the goods by the carrier may be covered by an appropriately drafted
exemption clause.119 But where the main object and intent of the contract is that
delivery should be made to a certain person or persons, the Court may be prepared
to limit the operation of the clause to the extent that it is inconsistent with that main
object and intent. In Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd:120
R despatched goods by sea from England to Singapore. The bill of lading required the goods
to be delivered ‘unto order or assigns’ and stated that ‘the responsibility of the carrier shall
be deemed to cease absolutely after the goods are discharged from the ship’. After the goods
were discharged from the ship, the carrier’s agents did not deliver them ‘unto order or
assigns’ but released the goods to the consignees without production of the bill of lading,
with the result that R was never paid for the goods.

The Privy Council held that, although the exemption, on the face of it, could hardly
have been more comprehensive, it did not permit the shipping company deliberately
to disregard its obligations as to delivery.121 To hold otherwise would defeat the main
object and intent of the contract. The carrier was therefore liable.

(v) Bailment
As Lord Hodson pointed out in the Suisse Atlantique case:122
Under a contract of carriage or bailment if the carrier or bailee uses a place other than that
agreed on for storing the goods, or otherwise exposes the goods to risks quite different from
those contemplated by the contract, he cannot rely on clauses in the contract designed to
protect him against liability within the four corners of the contract . . .

It is first, however, necessary to determine what are the ‘four corners’ of the contract.
If, for instance, a railway company contracts to keep an item in a station cloakroom
but keeps it elsewhere in the station and it is stolen or damaged, it will not be able to
rely on a clause exempting it, for instance, from liability in respect of loss or damage.
But if, on its true construction, the contract is not to keep the item necessarily in the
cloakroom, but to keep it at the station, reliance can be placed on the clause.123 Again,
it has been held that warehousemen who stored groundnuts in a warehouse otherwise
suitable but not ratproof could rely on a term of the contract excluding liability in

2 Lloyd’s Rep 494, 505. See Hague-Visby Rules, Art III, para 5, contained in the Schedule to the Carriage of
Goods by Sea Act 1971.
118 Kenya Railways v Antares Co Pte Ltd [1987] 1 Lloyd’s Rep 424 (Hague-Visby Rules, Art III, para 6).
119 Chartered Bank v British India Steam Navigation Co [1909] AC 369; Pringle of Scotland v Continental
Express [1962] 2 Lloyd’s Rep 80.
120 [1959] AC 576. See also Motis Exports Ltd v Dampskibsselskabet AF 1912 Akt [2000] 1 Lloyd’s Rep 211,
216–17.
121 In Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC
361, the decision in the Sze Hai Tong Bank case was said to be justified as having been based on construction.
But the parts of the reasoning suggesting that a deliberate breach was a fundamental breach which could not
be excluded were rejected. See above, p 186. 122 [1967] 1 AC 361, 412.
123 Gibaud v Great Eastern Railway [1921] 2 KB 426.
190 contents of the contract

the absence of ‘wilful neglect or default’ when sued in respect of damage to and
contamination of the nuts by rats.124 Although the warehousemen’s storage had been
negligent, the place where the nuts were stored was one permitted by the contract and
the risk to which they were exposed was not one which was wholly uncontemplated by
the contract. Since no wilful neglect or default had been proved, the warehousemen
were not liable.
The Courts are extremely unlikely to allow a bailee who has converted the goods to
shelter under the provisions of an exemption clause, which simply disclaimed liability
for loss or damage to the goods bailed, unless the clause specifically authorized the
bailee to do the act in question, eg to sell the goods in the event that they were not
claimed.125 A simple disclaimer of liability cannot have been intended by the parties
to permit the bailee ‘to give the goods away to some passerby, or to burn them or
throw them into the sea’.126 Similarly, if a bailee, without authority, subcontracts its
obligations to a third party, it will not be protected by an exemption clause, for example
for non-delivery, which is intended to apply only while the goods are in its possession
and control.127
On the other hand, an exemption clause, if appropriately drafted, has been held, at
common law, to cover an honest, but negligent, redelivery of the goods to the wrong
person.128
Contracts of bailment, where the bailor is a consumer or if the goods are bailed on
the bailee’s written standard terms of business, are subject to section 3 of the Unfair
Contract Terms Act 1977.129 If the goods are lost or damaged by negligence, any
exemption clause will also be subject to section 2(2) of the Act.130 In either case, the
clause will be of no effect unless it satisfies the requirement of reasonableness.

4. other common law rules controlling

exemption clauses
The operation of exemption clauses may be further limited by the application of certain
other rules of the common law.

(a) express undertakings

A collateral oral warranty may be enforced even though it runs counter to the terms
(including exemption clauses) of the principal agreement.131 There is a still more
general principle, ie that where an express undertaking is given which is inconsistent

124 Kenyon, Son & Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 WLR 519.
125 Alexander v Railway Executive [1951] 2 KB 882, 889; Garnham, Harris & Elton Ltd v Ellis (Transport)
Ltd [1967] 1 WLR 940, 946. 126 Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576, 587.
127 Garnham, Harris & Elton Ltd v Alfred W Ellis (Transport) Ltd [1967] 1 WLR 940. See also Davies v
Collins [1945] 1 All ER 247; The Berkshire [1974] 1 Lloyd’s Rep 185.
128 Hollins v J Davy Ltd [1963] 1 QB 844. 129 See below, p 199. 130 See below, p 197.
131 Above, p 136. On the overriding of an exemption clause see Webster v Higgin [1948] 2 All ER 127.
 exemption clauses and unfair terms 191

with the printed clauses of a standard form document, the latter must be rejected in so
far as they are repugnant to the express undertaking. In J Evans & Son (Portsmouth)
Ltd v Andrea Merzario Ltd:132
E, an importer of machines, arranged the carriage of the machines to England under
a contract with AM, a forwarding agent. AM orally assured E that machines shipped in
containers would be carried under deck. Nevertheless, eight containers carrying E’s
machines were subsequently loaded on deck. One container fell overboard and was a total
loss. AM denied liability, relying on an exemption clause in the contract of carriage.

It was held that AM’s oral assurance overrode the exemption clause, and that it was
liable for breach of the warranty given.
Similarly, in Mendelssohn v Normand Ltd133 M parked in N’s garage on the terms
that N would ‘accept no responsibility for any loss or damage sustained by the vehicle
its accessories or contents however caused’. M left the car unlocked because one of N’s
employee’s stated that the car must be left unlocked and that the employee would lock
it for him. It was held that the loss by theft of valuables in the car was not covered by
the exemption clause.

(b) misrepresentation or fraud

A party who misrepresents (albeit innocently) the contents or effect of a clause inserted
by it into a contract cannot rely on the clause in the face of the misrepresentation. So in
Curtis v Chemical Cleaning & Dyeing Co:134
C took a dress to the defendant company for cleaning. She signed a receipt containing a
clause exempting the defendant from all liability for damage to articles cleaned after the
defendant’s servant told her that it would not accept liability for certain specified risks,
including damage to the beads and sequins on the dress. When it was returned, the dress
was badly stained.

It was held that, as C had been induced to believe that the clause only referred to the
beads and sequins, the defendant was not entitled to rely on it in respect of damage
by staining. Denning LJ, dealing with the question of exemption clauses generally,
said:135
Any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to
mislead the other party about the existence or extent of the exemption. If it conveys a false
impression, that is enough.

It should also be noted that, for reasons of policy, an exemption clause can never
exclude liability for personal fraud.136

132 [1976] 1 WLR 1078. See also Couchman v Hill [1947] KB 544; Gallagher v British Road Services Ltd
[1970] 2 Lloyd’s Rep 440.
133 [1970] 1 QB 177.
134 [1951] 1 KB 805. See also Jacques v Lloyd D George & Partners Ltd [1968] 1 WLR 625.
135 Ibid, 808.
136 S Pearson & Son Ltd v Dublin Corp [1907] AC 351; Armitage v Nurse [1998] Ch 241; HIH Casualty and
General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyds Rep 61. See above, p 181.
192 contents of the contract

(c) reasonableness at common law?

The theory of freedom of contract presupposed that any party to a contract is free to
choose whether or not to enter into it, and regarded a party who chose to enter into a
contract which is onerous as only having itself to blame.137 But the bargaining powers
of the parties may be so unequal that one can virtually dictate terms to the other. As
long ago as 1877 in Parker v South Eastern Railway Co,138 Bramwell LJ asked what the
position would be if some unreasonable condition were inserted as, for instance, to
forfeit £1,000 if goods in a station cloakroom were not removed within 48 hours. He
thought that ‘there is an implied understanding that there is no condition unreasonable
to the knowledge of the party tendering the document and not insisting on its being
read . . .’. Lord Denning MR on numerous occasions139 maintained that an exemption
clause would not be given effect if it was unreasonable, or if it was unreasonable to
apply it in the circumstances of the case, for ‘there is the vigilance of the common law
which, while allowing freedom of contract, watches over to see that it is not abused’.140
But this approach has not been accepted as part of the common law and it is clear
that the Courts have no general power at common law to strike down a contractual
term merely because it is unreasonable or unfair.141 Such a power has, however, been
conferred by statute, notably by the Unfair Contract Terms Act 1977 and by the Unfair
Terms in Consumer Contracts Regulations 1999.

5. statutory control of exemption clauses

and unfair terms
(a) unfair contract terms act 
The purpose of the Unfair Contract Terms Act 1977142 was to limit, and, in some cases,
to take away entirely, the right to rely on exempting clauses in certain situations.

(i) Scope of the Act

The title of the Act is somewhat misleading. In the first place, it is not confined to
contract terms. The Act also extends to non-contractual notices containing provisions
exempting from liability in tort,143 although this book is concerned solely with contract

137 See above, p 4. 138 (1877) 2 CPD 416, 428.

139 eg Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400, 416; Levison v Patent Steam
Carpet Cleaning Co Ltd [1978] QB 69, 161; Photo Production Ltd v Securicor Transport Ltd [1978] 1 WLR 856,
865 (rev’d [1980] AC 827).
140 John Lee & Son (Grantham) Ltd v Railway Executive [1949] 2 All ER 581, 584.
141 Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC
361, 406; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 848.
142 See Coote (1978) 41 MLR 312; Sealy [1978] CLJ 15; Palmer and Yates [1981] CLJ 108; Adams and
Brownsword (1988) 104 LQR 94; Macdonald, in Contract Terms (eds Burrows and Peel, 2007) ch 8. The Act
derives substantially from recommendations made by the Law Commission: Law Com No 69 (1975); Scot
Law Com No 39 (1975). See generally Unfair Terms in Contracts, Law Com No 292 (2005).
143 s 2. See Deakin, Johnston and Markesinis, Markesinis and Deakin’s Tort Law (6th edn, 2007) 365–59.
 exemption clauses and unfair terms 193

terms. Secondly, the Act does not confer upon the Courts a general power to strike
down any term of a contract on the ground that the term is unfair or oppressive; it
applies to terms that ‘exclude or restrict liability’ (ie exemption clauses) and indemnity
clauses. The Act also does not, in general, purport to affect the basis of liability,144 so
that the first enquiry must normally be whether or not the person seeking to rely on
the term is in fact under any liability (or obligation), for example, in negligence or for
breach of contract. Also logically prior to the application of the Act is the question
whether the relevant term has become a term of the contract145 and, if so, whether on
its true construction it applies to the liability which it is sought to exclude or restrict.146
The tests of incorporation and construction, considered earlier in this chapter, must be
applied before considering the Act. It has been said that the existence of the statutory
controls makes it unnecessary to apply strict tests of incorporation and construction.147
But, even accepting that that is true, the application of the Act should not be considered
until it has been decided that, applying the tests of incorporation and construction,
the exclusion or limitation clause in question forms part of the contract and covers
the events that have occurred. If it is either not incorporated or does not cover those
events, then, however reasonable the clause, it will not apply.

(ii) Pattern of control

Some of the provisions of the 1977 Act overlap, so that, when applying it to a particular
situation, it is often necessary to consider whether more than one section is relevant.148
The pattern of control is also somewhat complicated. There are three broad divisions
of control: first, control over contract terms that exclude or restrict liability for
‘negligence’149 (which includes breach of a contractual duty to exercise reasonable
care and skill in the performance of a contract);150 secondly, control over contract
terms that exclude or restrict liability for breach of certain terms implied by statute
in contracts of sale of goods, hire-purchase, and in other contracts for the supply of
goods;151 thirdly, control in consumer contracts and standard form contracts over
terms that exclude or restrict liability for breach of contract.152
If the contract term is subject to the control of the Act, the control may assume
one of two forms: the restriction or exclusion of liability may be rendered absolutely
ineffective,153 or it may be effective only in so far as the term satisfies the requirement
of reasonableness.154

(iii) Excepted contracts

Certain very important contracts are wholly or partly excepted from the operation of
the Act. These include contracts of insurance,155 commercial charterparties,156 contracts

144 But see 1977 Act, ss 3(2)(b). 145 Ibid, s 11(2). See above, pp 173–177.
146 See above, pp 179–190.
147 Photo Production v Securicor Transport [1980] AC 827, 843 (Lord Wilberforce); AEG (UK) Ltd v Logic
Resources Ltd [1996] CLC 265, 277 (Hobhouse LJ). 148 eg 1977 Act, ss 2, 3 and 7.
149 Defi ned in ibid, s 1(1). 150 1997 Act, See below, p 197.
151 ss 6, 7; see below, p 198. 152 Ibid, s 3; see below, p 199.
153 Ibid, ss 2(1), 5, 6(1) (2), 7(2). 154 Ibid, ss 2(2), 3, 6(3), 7(3) (4).
155 Ibid, Sched 1, para 1(a). 156 Ibid, Sched 1, para 2.
194 contents of the contract

Unfair Contract Terms Act 1977: Pattern of Control

Types of Contract Type of Liability Liability of a Business Liability of a
Excluded/Restricted Non-business

Any contract Negligent personal Unexcludable UCTA, s 2(1) UCTA does not
injuries apply
Negligent loss or damage Reasonableness UCTA, ss UCTA does not
2(2) and 11(1) apply
Consumer or Any breach of contract Reasonableness UCTA, ss UCTA does not
Standard Form 3(2) and 11(1) apply
Contract
Sale of Goods* Breach of Sale of Unexcludable UCTA, s 6(1)
Goods Act 1979 s 12
undertakings as to title
Breach of Sale of Goods Reasonableness UCTA, ss 6(3), 11 (1)-(2)
Act 1979, ss 13–15, Schedule 2
undertakings as to
description, quality, But, as between a
fitness for purpose or business and a consumer,
sample unexcludable
UCTA, s 6(2)

*Control of terms implied into contracts of hire-purchase follows the same pattern: UCTA, s 6. The
control of terms implied into other contracts under which goods pass follows a similar pattern but only for
business liability: UCTA, s 7

between busenesses for the carriage of goods by sea,157 international supply contracts,158
contracts of employment (except in favour of an employee),159 and any contract so far as
it relates to160 the creation or transfer of an interest in land,161 any intellectual property,162
or the creation or transfer of securities.163 In some of these, however, there are specific
legislative controls on exemption clauses,164 and, in the case of consumer contracts, most
will also be subject to the Unfair Terms in Consumer Contracts Regulations 1999.165
(iv) ‘Business liability’
The 1977 Act is concerned, for the most part,166 with terms that exclude or restrict
‘business liability’, that is, ‘liability for breach of obligations or duties arising—(a)

157 Ibid, Sched 1, paras 2–3.

158 Ibid, s 26. See Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447, [2004] 1 All ER
(Comm) 385 (held not to fall within s 26); Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009]
EWCA Civ 290, [2010] QB 86 (held to fall within s 26: see also below, p 329). 159 Ibid, Sched 1, para 4.
160 See Micklefield v SAC Technology Ltd [1990] 1 WLR 1002 (share option); Unchained Growth III plc v
Granby Village (Manchester) Management Co Ltd [2000] 1 WLR 739 (maintenance charge in lease integral
to and thus ‘relates to’ interest in land). 161 1977 Act sched 1, para 1(b).
162 Ibid, sched 1, para 1(c); Trade Marks Act 1994, s 106(1) and Sched 4, para 1; Salvage Association v CAP
Financial Services Ltd [1995] FSR 654. 163 Ibid, sched 1, para 1(d).
164 Below, p 216. 165 SI 1999 No 2083, below, p 206.
166 Except the 1977 Act, s 6 (exclusion of implied terms in contracts of sale of goods and hire-purchase):
see below, p 198. But certain terms will only be implied if the seller or owner sells or hires the goods in the
course of a business: see above, p 161.
 exemption clauses and unfair terms 195

from things done or to be done by a person in the course of a business (whether his
own business or another’s), or (b) from the occupation of premises used for business
purposes of the occupier’.167 The word ‘business’ has, however, been described as ‘an
etymological chameleon’,168 and it will not always be easy to determine whether or not
there is a business liability, for example, in the case of a university or college, since it
does not appear necessary for a business that an activity be carried on with a view to
profit.169

(v) ‘Deals as consumer’

In certain provisions of the 1977 Act, a distinction is drawn between cases where the
party to a contract against whom the exemption clause is raised deals as consumer
in relation to the other party, and cases where that person deals otherwise than as
consumer. As a general rule, greater protection is afforded by the Act to a person who
deals as consumer than to one who does not. In order that a party should have dealt as
consumer, two conditions must have been satisfied.170 First, the party must not have
made the contract in the course of a business or held himself or herself out as doing so.
Secondly, the other party must have made the contract in the course of a business.
Controversially it has been decided that a company may deal as consumer.171 In R &
B Customs Brokers Co Ltd v United Dominions Trust Ltd172 it was held that a company
had dealt as consumer when it purchased a four-wheel-drive vehicle for the use of one
of its directors, on the ground that, to be in the course of a business, the transaction
must either form an integral part of the buyer’s business or, if incidental to it, be of a
type that is regularly carried on by the buyer. The firm had purchased two or three cars
in the past but this did not suffice to constitute a pattern of regular purchases.
An employee does not deal as a consumer (nor on his employer’s written standard
terms of business)173 at least in relation to terms in his contract of employment dealing
with pay and bonuses.174
If the contract is one for the supply of goods—a contract of sale or hire-purchase,175
or some other contract under which possession or ownership of goods passes (such
as hire)176 —a third condition must be satisfied provided the person against whom the
exclusion is being invoked is not an individual: the goods supplied must be of a type
ordinarily supplied for private use or consumption, eg not a steamroller.177 But on a
sale by auction or by competitive tender the buyer, who is not an individual, is not
in any circumstances to be regarded as dealing as consumer.178 The buyer who is an

167 Ibid, s 1(3). Cf the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083), reg 3,
seller or supplier need only be acting for purposes relating to its business.
168 Town Investments Ltd v Department of the Environment [1978] AC 359 383 (Lord Diplock).
169 See the partial defi nition in 1977 Act, s 14. 170 Ibid, s 12(1)(a) (b).
171 Cf the Unfair Terms in Consumer Contracts Regulations 1999 reg 3(1) by which a ‘consumer’ must
be a ‘natural person’.
172 [1988] 1 WLR 321; Feldarol Foundry plc v Hermes Leasing (London) Ltd [2004] EWCA Civ 747. But cf
Stevenson v Rogers [1999] QB 1028, above p 161, dealing with the meaning of ‘in the course of a business’ for
the purpose of implying terms under the Sale of Goods Act 1979.
173 See below, p 199. 174 Keen v Commerzbank AG [2006] EWCA Civ 1536, [2007] ICR 623.
175 1977 Act, s 6 176 Ibid, s 7. 177 Ibid, s 12(1)(c) and s 12(1A). 178 Ibid, s 12(2)(b).
196 contents of the contract

individual is also not in any circumstances to be regarded as a consumer where the

goods are second hand goods sold at public auction.179
The burden of proving that a party did not deal as consumer rests upon the party
relying on the exemption clause.180

(vi) Varieties of exemption clause

Subject to certain exceptions,181 the 1977 Act only applies to contract terms ‘excluding
or restricting’ specific types of liability; but by section 13(1) these are extended to
include terms:

(a) making the liability or its enforcement subject to restrictive or onerous conditions;
(b) excluding or restricting any right or remedy in respect of liability, or subjecting
a person to any prejudice in consequence of his pursuing any such right or remedy;
(c) excluding or restricting rules of evidence or procedure.

Section 13 also makes reference to excluding or restricting liability by terms which

exclude or restrict the relevant obligation or duty; and s 3(2)(b) refers to a term by
which a party claims to be entitled to render a substantially different performance
than reasonably expected or no performance at all.182 The intention is clearly to
embrace terms which, though they do not specifically exclude or restrict liability, have
a similar effect and thus to prevent the evasion of the policy of the Act.183 For example,
terms which require one party to make a claim within a certain time limit,184 which
take away the right to reject defective goods or to withhold payment (because of a
set-off ),185 which state that an architect’s certificate shall be ‘conclusive evidence’ that
building work has been properly carried out, or which declare that the other party
does not ‘give any warranty or undertaking, express or implied, in respect of the
goods supplied’ or accept any responsibility with respect to the accuracy of a property
valuation it supplies186—all of these are subject to control.
The difficulty, however, is to distinguish such terms from provisions which prevent
a contractual duty from arising or circumscribe its extent, or which merely allocate
the responsibilities under the contract between the parties187 or which constitute a
compromise or settlement or release or waiver of one’s rights.188A seller’s warning that
goods should not be used after a specified time and a statement that the seller of a

179 Ibid, s 12(2)(a) 180 Ibid, s 12(3). 181 eg indemnity clauses which are dealt with in s 4.
182 See below, pp 191–201.
183 Coote, Exception Clauses (1964) famously articulated the view that all exclusion clauses are best
analysed as merely defi ning the relevant duty so that there is no breach. But this extreme view has clearly
not been accepted in UCTA 1977 which for the most part assumes the validity of the traditional two-stage
‘breach and then exemption’ analysis. 184 RW Green Ltd v Cade Bros [1978] l Lloyd’s Rep 602.
185 Stewart Gill v Horatio Myer & Co [1992] 1 QB 600; Skipskredittforeningen v Emperor Navigation [1998]
1 Lloyd’s Rep 66; Schenkers Ltd v Overland Shoes Ltd [1998] 1 Lloyd’s Rep 498.
186 Smith v Eric S Bush and Harris v Wyre Forest DC [1990] AC 831.
187 Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649.
188 Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53.
 exemption clauses and unfair terms 197

painting had no expertise in paintings of that type have been held to preclude the
implication of obligations of fitness for purpose and correspondence with description
under the Sale of Goods Act 1979 and not to exclude or restrict them.189 It has been
stated that the test is one of substance190 but also that one has to ask whether ‘but for’
the clause there would be liability;191 a formal test. It is submitted that, although it
has the attraction of certainty, the latter test is too rigid and that the Courts should
determine whether a term in a contract ‘excludes or restricts’ liability by asking
whether it deprives a contracting party of the contractual performance which the
parties reasonably expected.192

(vii) Liability for negligence

Restrictions are placed by section 2 of the 1977 Act on the power of a party to a contract
to secure exemption from business liability for negligence.193 It is prohibited to exclude
or restrict liability for death or personal injury resulting from negligence by reference
to any contract term.194 In the case of other loss or damage, a party to a contract
cannot exclude or restrict liability for negligence except in so far as the term satisfies
the requirement of reasonableness.195 Where, in a contract between A and B, a term
purports to transfer from A to B responsibility for injury or damage caused to B by
A’s employees, that term has been held to fall within section 2.196 But a term requiring
B to indemnify A against injury or damage caused to third parties by A’s negligence
has been held not to fall within section 2 on the ground that it was not an ‘exclusion or
restriction’ of A’s liability to the third party victim but an arrangement by A and B as
to the responsibility for compensating the victim.197
Section 5 of the Act further prohibits absolutely the exclusion or restriction of the
negligence liability of a manufacturer or distributor of goods by means of a written
‘guarantee’, such as is often provided, for example, by manufacturers of electrical
equipment—compact disc players, razors, hair dryers, and the like.198 But the goods
must be of a type supplied for private use or consumption, and the loss or damage must

189 Wormell v RHM Agriculture (East) Ltd [1987] 1 WLR 1091 (1979 Act, s 14(3)); Harlington & Leinster
Enterprises Ltd v Christopher Hull Fine Art Ltd [1990] 1 All ER 737 (1979 Act, s 13). See above, pp 160–164,
on these implied terms.
190 Phillips Products Ltd v Hyland [1987] 1 WLR 659, 666; Johnstone v Bloomsbury Health Authority
[1992] QB 333, 346.
191 Smith v Eric S Bush [1990] AC 831, 857 (Lord Griffiths). Note that in the notice there was a non-
contractual disclaimer. 192 Macdonald [1992] LS 277. See also Law Com No 69 (1975), para 146.
193 ‘Negligence’ includes breach of a contractual or common law duty to take reasonable care or to
exercise reasonable skill and breach of the duty of care under the Occupiers’ Liability Act 1957.
194 1997 Act, s 2(1); Johnstone v Bloomsbury HA [1992] QB 333, 343, 346. 195 1977 Act, s 2(2) (3).
196 Phillips Products Ltd v Hyland [1987] 1 WLR 659; Flamar Interocean Ltd v Denmore Ltd [1990] 1
Lloyd’s Rep 434 (‘deemed servant’ clauses).
197 Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649; Hancock Shipping Co Ltd v Deacon & Trysail
(Private) Ltd [1991] 2 Lloyd’s Rep 550. See also Neptune Orient Lines Ltd v JCV (UK) Ltd [1983] 2 Lloyd’s Rep
438, 442 (promise not to sue third party).
198 The Sale and Supply of Goods to Consumers Regulations 2002, reg 15, clarifies that guarantees given
to consumers with the goods are contractually binding. It also lays down that the guarantee shall be written
in plain intelligible English and that the Office of Fair Trading (or other enforcement authority) may apply
for an injunction to enforce these requirements.
198 contents of the contract

have arisen from the goods proving defective while in consumer use, ie when a person
is using them, or has them in his or her possession for use, otherwise than exclusively
for the purposes of a business.

(viii) Indemnity clauses

By section 4 of the 1977 Act, a person who deals as consumer cannot, by any contract
term, be compelled to indemnify another in respect of the latter’s business liability for
negligence or breach of contract, except in so far as the term satisfies the requirement
of reasonableness. Thus, for example, if a car hire firm hires a car to a consumer subject
to a term that the hirer will indemnify the firm against third party claims arising out
of the hirer’s use of the car, then that indemnity is subject to the test of reasonableness.
But indemnities given by persons who do not deal as consumer are not affected by
section 4: hence neither section 4 nor, as we have seen, section 2 control provisions in
contracts which require one party (who does not deal as consumer) to indemnify the
other against the latter’s liability in negligence to third parties. 199

(ix) Sale of goods and hire-purchase

Section 6 of the 1977 Act restricts the ability of sellers of goods to exempt themselves
from liability for breach of the stipulations implied in contracts of sale by sections
12–15 of the Sale of Goods Act 1979. In the first place, it prohibits absolutely the
exclusion or restriction of liability for breach of the provisions of section 12 of the
1979 Act (stipulations as to title).200 Secondly, it prohibits absolutely the exclusion or
restriction of liability for breach of the provisions of sections 13 to 15 of the 1979 Act
(conditions as to satisfactory quality, fitness for purpose, and correspondence with
description or sample) where the buyer deals as consumer.201 If the buyer does not deal
as consumer, liability for breaches of sections 13 to 15 can be excluded or restricted,
but only in so far as the term satisfies the requirement of reasonableness.202
Section 6 of the 1977 Act further contains similar provisions which prohibit, either
absolutely or subject to the test of reasonableness, terms excluding or restricting
liability for breach of the stipulations implied by the Supply of Goods (Implied Terms)
Act 1973 in contracts of hire-purchase.203

(x) Supply contracts

Section 7 of the 1977 Act is concerned with contract terms excluding or restricting
business liability for breach of an implied obligation in a contract ‘where the possession
or ownership of goods passes under or in pursuance of the contract’ (other than a
contract of sale of goods or hire-purchase). Examples of such contracts are contracts
of hire, and contracts for work and materials, such as building and engineering
contracts. The Supply of Goods and Services Act 1982204 implies into such contracts
terms similar to those implied in contracts of sale of goods in respect of the goods’
correspondence with description or sample, or their quality or fitness for purpose.

199 Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649. 200 1977 Act, s 6(1).
201 Ibid, s 6(2). 202 1977 Act, s 6(3). 203 See above, p 165.
204 Above, p 165.
 exemption clauses and unfair terms 199

The 1977 Act absolutely prohibits the exclusion or restriction of liability for breach of
these implied terms as against a person dealing as consumer.205 As against a person
dealing otherwise than as consumer, such liability can be excluded or restricted, but
only in so far as the exempting term satisfies the requirement of reasonableness.206
Terms excluding or restricting liability for breach of implied terms as to title to or
quiet possession of the goods are also subject to the test of reasonableness in contracts
of hire207 but are prohibited absolutely in contracts for work and materials.208

(xi) Contractual liability to consumers and under standard terms of business

A more wide-ranging and general control is effected by section 3 of the 1977 Act, which
deals with contractual liability.209 This section may apply, in addition to sections 6 and
7 mentioned above, to contracts of sale and hire-purchase and supply contracts. But it
may also apply to any contract, unless it is of a type expressly excepted by the Act. Thus,
it may apply, for example, to a contract with a holiday tour operator, a contract for the
dry-cleaning of clothes or the repair of a watch, and a contract for the garaging of a car
or for the storage of furniture. The section applies as between contracting parties where
one of them deals (1) as consumer,210 or (2) on the other’s written standard terms of
business, and the liability which it is sought to exclude or restrict is a business liability.
Thus, the many contracts, not only with consumers but also between businesses, made
by reference to standard terms and conditions printed in order forms, confirmations
of order, or in catalogues or price lists are subject to section 3.
Where a standard form of agreement is used but it has been altered to fit the
circumstances of the individual transaction, the question whether section 3 applies
has been said to be one of fact and degree.211 Clearly differences as to price and date
of delivery will not prevent the section applying to the rest of the terms. The test has
been said to be one of habitual use,212 and it is submitted that terms may overall be
‘standard’ even though, for example, a single provision in a standard form has been
altered. Where the contract uses model forms drafted by a third party, such as a
professional or trade organization, it has been decided controversially that, unless the
model form is invariably or at least usually used by a party, it cannot be that party’s
‘standard’ terms of business.213
The control imposed by the section is as follows:214
As against that party,215 the other cannot by reference to any contract term—

205 1997 Act, s 7(2). 206 Ibid, s 7(3). 207 Ibid, s 7(4). 208 Ibid, s 7(3A).
209 Where there is the breach of a contractual duty of care, s 2 rather than s 3 (which is narrower) will, in
practice, be applied. 210 Above, p 195.
211 Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd (1991) 56 BLR 115, 131–3; St
Albans City & DC v International Computers Ltd [1996] 4 All ER 481, 491. Cf Flamar Interocean Ltd. v
Denmore [1990] 1 Lloyd’s Rep 434, 438; Shearson Lehman Hutton Inc v MacLaine, Watson & Co Ltd [1989] 2
Lloyd’s Rep 570, 611; Salvage Association v CAP Financial Services Ltd [1995] FSR 654.
212 Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd (1991) 56 BLR 115.
213 British Fermentation Products Ltd v Compare Reavell Ltd (1999) 66 Con LR 1.
214 1977 Act, s 3(2).
215 ie the consumer or the person dealing on the other’s written standard terms of business.
200 contents of the contract

(a) when himself in breach of contract, exclude or restrict any liability of his in respect
of the breach; or
(b) claim to be entitled—
(i) to render a contractual performance substantially different from that which
was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no
performance at all,

except in so far as . . . the contract term satisfies the requirement of reasonableness.

The wording of the first limb (a) of this provision, relating to the exclusion or restriction
of liability in respect of breach of contract, is relatively easy to interpret. But the second
limb (b) is more difficult to construe. It would appear to be the intention of (b) that it
should apply in cases where there is no breach of contract at all, but one party claims to
rely on a term of the contract which purports to entitle it either to render a contractual
performance substantially different from that which was reasonably expected at the
time of the contract or in respect of the whole or part of the contractual obligation to
render no performance at all.216
It has been held that the second limb (b) did not apply to a term permitting an
employer to dismiss an employee during the first two years of employment without
going through the contractual disciplinary procedure.217 Although expressed in
negative terms, it merely set out the employee’s entitlement and the limit of his rights.
Similarly a clause in an employment contract by which an employee forfeits its right
to earned commission once the contract has been terminated has been held to fall
outside s 3(2)(b).218
In contrast, examples of the application of the second limb (b) include the following.
A holiday tour operator agrees to provide a holiday for a consumer at a certain hotel
at a certain resort, but nevertheless reserves the right, in certain circumstances, to
accommodate the consumer at another hotel, or to switch the holiday to a different
resort, or to cancel the holiday in whole or in part.219 A telephone company reserves
the right to disconnect a telephone service without demonstrable reason or cause.220
Another possible example is a force majeure clause excusing a trader from delivering
goods to be supplied under the contract, or to suspend or cancel the contract without
any further liability on its part upon the happening of events beyond the trader’s control
such as strikes, war, civil commotion, inability to obtain supplies, etc. However, while
in the cases of the holiday tour operator and the telephone company, it is likely to be

216 Shearson Lehman Bros Inc v Maclaine, Watson & Co Ltd [1989] 2 Lloyd’s Rep 570, 612.
217 Brigden v American Express Bank Ltd [2000] IRLR 94. See also Paragon Finance plc v Nash [2002] 1
WLR 686. 218 Peninsula Business Services Ltd v Sweeney [2004] IRLR 49.
219 Anglo Continental Holidays Ltd v Typaldos Lines (London) Ltd [1967] 2 Lloyd’s Rep 61. Package holidays
are now subject to the Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992 No
3288) which (reg 12) require the organization to permit the consumer to withdraw from the contract without
penalty if it ‘is constrained’ to alter significantly an essential term.
220 Timeload Ltd v British Telecommunications plc (1995) 3 EMLR 459, 468 (Sir Thomas Bingham MR).
But cf Paragon Finance plc v Nash [2002] 1 WLR 686 at [71]–[77].
 exemption clauses and unfair terms 201

held that such provisions do not satisfy the requirement of reasonableness, it seems
unlikely that a force majeure clause in a commercial agreement would be held to be
unreasonable221 in the absence of special circumstances.222
(xii) The ‘reasonableness’ test
Except in those instances where the 1977 Act prohibits absolutely the exclusion
or restriction of liability,223 the contract terms controlled by the Act are subject to
the test of reasonableness.224 The question to be decided by the Court in all cases
where the ‘reasonableness’ test is applied in relation to a contract term is whether
the term is a fair and reasonable one to have been 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’.225 It is therefore clear that
the crucial time is the time of the making of the contract, and not the time at which
liability arises.226 The reasonableness of a contract term is therefore not affected by
the nature or seriousness of the loss or damage sustained, except to the extent that
it was or ought to have been in contemplation at the time the contract was made. It
is also clear that circumstances solely known to one party, ie the person relying on
the exemption clause, such as the experimental nature of the product supplied or the
market difficulties involved in procuring it, are to be treated as irrelevant if they were
not known, and could not reasonably have been known, to the other party at the time
the contract was made.
It has been said that ‘it is impossible to draw up an exhaustive list of factors to be
taken into account’ in assessing the reasonableness of an exemption or limitation
clause.227 In order to assist the Court in determining whether a term satisfies the
requirement of reasonableness, the Act sets out five ‘guidelines’ as to matters to be taken
into account.228 Strictly these guidelines are applicable to the test of reasonableness
only in respect of the exclusion or restriction of liability for breach of the implied
obligations as to description, sample, quality, and fitness for purpose in contracts of
sale of goods and hire-purchase,229 and supply contracts.230 But ‘the considerations
there set out are normally regarded as being of general application to the question
of reasonableness’.231 However, even where the guidelines are directly applicable,

221 Shearson Lehman Hutton Inc v MacLaine, Watson & Co Ltd [1989] 2 Lloyd’s Rep 570, 612. See also
Brigden v American Express Bank Ltd [2000] IRLR 94, 96.
222 eg in an exclusive dealing agreement (see below, p 410) where the supplier is entitled to suspend in the
event of force majeure but the purchaser is not entitled, during the suspension, to purchase supplies from
elsewhere. 223 1977 Act, ss 2(1), 5, 6(1) (2), 7(2), 7(3A).
224 Ibid, ss 2(2), 3(2), 4, 6(3), 7(3) (4). 225 Ibid, s 11(1).
226 Stewart Gill v Horatio Myer & Co [1992] 1 QB 600, 607, 608. The reasonableness of a non-contractual
notice is determined having regard to the circumstances when the liability arose or would have arisen: 1977
Act, s 11(3); Smith v Eric S Bush [1990] AC 831, 848, 857.
227 Smith v Eric S Bush [1990] 1 AC 831, 858.
228 1977 Act, s 11(2), Sched 2. 229 1977 Act, s 6(3).
230 Ibid, s 7(3). By s 7(4), and s 11(2), they also apply to the implied term as to title or quiet possession in
contracts of hire.
231 Stewart Gill v Horatio Myer & Co [1992] 1 QB 600, 608 (Stuart-Smith LJ). See also Flamar Interocean
Ltd v Denmore [1990] 1 Lloyd’s Rep 434, 438; Smith v Eric S Bush [1990] AC 831, 858 (Lord Griffiths); Regus
(UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361, [2009] 1 All ER (Comm) 361 at [20] (Rix LJ).
202 contents of the contract

they are not exhaustive; the Court is required to have regard ‘in particular’ to those
matters, but it can also take account of any other relevant circumstances. The five
guidelines are:

(a) the strength of the bargaining positions of the parties relative to each other, taking
into account (among other things) alternative means by which the customer’s
requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in accepting
it had an opportunity of entering into a similar contract with other persons, but
without having to accept a similar term;
(c) whether the customer knew or ought reasonably to have known of the existence and
extent of the term (having regard, among other things, to any custom of the trade and
any previous course of dealing between the parties);
(d) where the term excludes or restricts any relevant liability if some condition is not
complied with, whether it was reasonable at the time of the contract to expect that
compliance with that condition would be practicable;
(e) whether the goods were manufactured, processed, or adapted to the special order of
the customer.

It will be seen that these guidelines could open up quite extensive enquiries, for
instance, as to the market position at the time the contract was made. The Court should
not, however, be too ready to focus on remote possibilities or to conclude that a clause
fails the test by reference to relatively uncommon or unlikely situations.232
If a contract term seeks to restrict liability to a specified sum of money (as, for
example, in the case of a term which states that a seller’s total liability for loss or damage
arising from defects in the goods shall be limited to £20,000) and the question arises
whether the term satisfies the requirement of reasonableness, the 1977 Act requires
that regard is also to be had in particular to (1) the resources which he would expect to
be available to him for the purpose of meeting the liability should it arise, and (2) how
far it was open to him to cover himself by insurance.233
The burden of proving that a contract term satisfies the requirement of reasonableness
rests upon the person who claims that it is reasonable.234
The control of exemption and limitation clauses by a test of reasonableness means
that decisions are made on a case by case basis and turn on the type of contract and
the precise nature of the relationship between the parties. The consequence is a body
of law that is flexible. Decisions of judges at first instance as to whether a clause is
reasonable can be seen as broadly similar to exercises of structured discretion.235 It
has been stated that Courts must entertain a wide ‘range of considerations, put them
into the scales on one side or the other, and decide at the end of the day on which side

232 Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd’s Rep 66, 75–6.

233 1977 Act, s 11(4). 234 Ibid, s 11(5).
235 In the sense that there is significant scope for setting the reasons and standards (and assessing the
relative importance of confl icting reasons and standards) according to which the decision is to be made
within a broad but not unlimited statutory framework: see Galligan, Discretionary Powers (1986) 21.
 exemption clauses and unfair terms 203

the balance comes down’.236 In such circumstances there will be room for a legitimate
difference of judicial opinion as to the correct answer, and for this reason the decision
of the judge at first instance will be treated ‘with the utmost respect’ and appellate
Courts will ‘refrain from interference with it unless satisfied that it proceeded upon
some erroneous principle or was plainly and obviously wrong’.237 An example of such
an error was where the trial judge considered the reasonableness of the part of the
exemption clause that was in issue, requiring a purchaser to return defective goods
at its own expense, separately from the rest of the clause, which in effect excluded all
other warranties and conditions including those implied by the Sale of Goods Act.238
In practice the decided cases have indicated that the following factors are the most
significant. 239
(1) The relative bargaining strength of the parties.240 A clause that has been imposed
by one side is less likely to be reasonable than one that was the product of
negotiations between representative bodies, or had evolved over time as a result
of trade practice.241 The courts have tended to adopt a ‘non-interventionist’
approach where the contract has been made between commercial parties of
equal bargaining power. In the words of Tuckey LJ, with whom Hart J and
Potter LJ agreed, in Granville Oil and Chemicals Ltd v Davies Turner and Co
Ltd:242
The 1977 Act obviously plays a very important role in protecting vulnerable
consumers from the effect of draconian contract terms. But I am less enthusiastic
about its intrusion into contracts between commercial parties of equal bargaining
strength, who should generally be considered capable of being able to make contracts
of their choosing and expect to be bound by their terms.

236 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, 816.
237 Ibid, 810 (Lord Bridge). See also Phillips Products Ltd v Hyland [1987] 1 WLR 659, 669.
238 AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265. A rare example of the Court of Appeal overturning
the trial judge’s assessment of reasonableness is provided by Watford Electronics Ltd v Sanderson CFL Ltd
[2001] EWCA Civ 317, [2001] 1 All ER (Comm) 696.
239 As well as decisions on the 1977 Act, guidance is gained from those on the Misrepresentation Act
1967, s 3 (below, p 329, and Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978]
QB 574), the Sale of Goods Act 1893, s 55 (as amended by the Supply of Goods (Implied Terms) Act 1974 but
now replaced by the Unfair Contract Terms Act 1977, ss 6–7), but see Rasbora Ltd v JCL Marine Ltd [1977] 1
Lloyd’s Rep 645; George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803.
240 Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574, 594 (Lord
Denning MR); George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284, 302; Smith v Eric S
Bush [1990] 1 AC 831, 858; Singer Co (UK) Ltd v Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164, 169; St
Albans City and District Council v International Computers Ltd [1995] FSR 686, aff ’d [1996] 4 All ER 481;
Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep 629 at [407]–
[409]; Regus (UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361, [2009] 1 All ER (Comm) 586 at [40].
Guideline (a) in Sched 2 to the 1977 Act.
241 Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574, 594 (Lord
Denning MR); George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284, 302, 307, 314;
[1983] 2 AC 803, 817; Schenkers Ltd. v Overland Shoes [1998] 1 Lloyd’s Rep 498, 507. Trade practice without
negotiation is not a weighty factor.
242 [2003] EWCA Civ 570, [2003] 1 All ER (Comm) 819 at [31]. See also Watford Electronics Ltd v Sanderson
CFL Ltd [2001] EWCA Civ 317, [2001] 1 All ER (Comm) 696.
204 contents of the contract

(2) The question of how far it would have been practicable and convenient to go
elsewhere.243 Similarly, where a party seeking to rely on a clause has given the
other party the opportunity to pay more for the contractual performance without
the clause, the clause is more likely to be held to be reasonable. For instance, in
a number of standard forms governing contracts for the carriage of goods, the
liability of the carrier is limited unless the owner of the goods declares their
value and pays an increased charge.244 The size of the limit compared with other
limits in widely used standard terms may also be relevant.245
(3) The availability of insurance is an important factor, albeit by no means
decisive.246 The statutory requirement that regard is to be had to how far it was
open to the party seeking to limit liability to cover itself by insurance247 was
inserted to protect the small business, and possibly also professional persons
who might not have the resources to meet unlimited liability should it arise,
and who might not be able to obtain insurance cover against such liability. In
their case, it might well be reasonable to impose a financial limit to liability.
The provision may, however, be held to operate against larger companies with
considerable assets, or to render a ‘financial limit’ clause unreasonable where
insurance cover can in fact be obtained. Thus, it has been held that a limitation
of liability of £100,000 by a multinational company with insurance cover of £50
million was unreasonable.248 It is to be noted that the statute makes no reference
to the cost of such cover, but it has been stated that ‘the cost of insurance must
be a relevant factor when considering which of two parties should be required
to bear the risk of a loss’.249
(4) Negligence on the part of the party seeking to rely on the clause is also an
important factor. The Court will take into account whether there has been such
negligence, and, if so, whether it was reasonably practicable for the other party
to have done anything to avoid the loss.250 Excluding or limiting liability for
negligence may be reasonable provided it is reasonably practicable for the other
party to obtain the service from an alternative source, if the task is very difficult
with a high risk of failure, or where it would be impossible to obtain adequate

243 Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep 272, 277.
244 Gillespie v Roy Bowles Transport Ltd [1973] QB 400, 446. See, for example, clause 29(A) and (D) of the
British International Freight Association’s Standard Trading Conditions, 1989 edn. See also Guideline (b) in
Sched 2 to the 1977 Act; Singer Co (UK) Ltd v Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164, 170.
245 Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep 272, 277.
246 Ibid; Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC (Comm), [2006] 2 Lloyd’s Rep 629; Regus
(UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361, [2009] 1 All ER (Comm) 586 at [41]–[42].
247 1977 Act, s 11(4).
248 St Albans City & DC v International Computers Ltd [1995] FSR 686, aff ’d [1996] 4 All ER 481, 491. See
also Salvage Association v CAP Financial Services Ltd [1995] FSR 654.
249 Smith v Eric S Bush [1990] 1 AC 831, 858 (Lord Griffiths). See also ibid, 851–4; George Mitchell
(Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, 817.
250 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284, 307, 313; [1983] 2 AC 803, 817.
See also Walker v Boyle [1982] 1 WLR 495, 507; Smith v Eric S Bush [1990] 1 AC 831, 858 (non-contractual
notice); Britvic Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 548, [2002] 2 Lloyd’s Rep 368 (exclusion
clause failed to pass the reasonableness test in respect of a wholly unexpected manufacturing mishap).
 exemption clauses and unfair terms 205

insurance cover against a potential liability that would be ruinous without

insurance.251
(5) The clarity of the clause has been described as an ‘overriding’ factor; businesses
must take the consequences of the uncertainty which their ‘small print’ has
created; ‘uncertainty’ involves unfairness to the other side.252 A clause is also
less likely to be reasonable if the innocent party has not had an opportunity of
discovering the defect or damage. Thus a term in a bulk sale of seed potatoes
requiring claims to be made within three days of delivery was held not to protect
the seller when the potatoes were infected by virus, a defect not discoverable by
inspection.253
(6) The relationship between the potential or actual loss and the extent of the
limitation is taken into account. That the clause excludes liability altogether, or
limits liability to a small amount, compared to a large potential or actual loss, is
a factor which leans towards the clause being judged unreasonable.254
(7) The magnitude of the damage in relation to the contract price is also of
significance. There have been statements that where the price is small but the
damages very large this favours a finding of reasonableness.255

The operation of several of the above factors is well illustrated by George Mitchell
(Chesterhall) Ltd v Finney Lock Seeds Ltd.256 But it should be noted that the case
concerned the reasonableness test (now repealed) in section 55 of the Sale of Goods
Act 1979,257 which required the Court to consider the reasonableness of reliance upon
the term and not, as is required by the 1977 Act, whether it is reasonable to include it
in the contract. In that case:
GM, a firm of farmers, purchased from F, a seed merchant, a quantity of Dutch winter white
cabbage seeds, described as ‘Finney’s Late Dutch Special’ for £201. F negligently supplied
seeds of a very inferior variety of autumn cabbage, and as a result the crop failed. GM’s
loss was £61,513 but F relied on exemption clauses contained in its standard conditions of
sale which limited its liability to replacement of the seeds or a refund of the price paid, and
excluded any express or implied condition, statutory or otherwise.

251 Smith v Eric S Bush [1990] 1 AC 831, 858–9. See above, p 204 (s 11(4)).
252 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284, 314 (Kerr LJ); Monarch
Airlines Ltd v London Luton Airport [1998] 1 Lloyd’s Rep 403, 414. See, similarly, Unfair Terms in Consumer
Contracts Regulations 1999 (SI 1999 No 2083), regs 6 and 7(1), below, p 214. Note the overlap with the rules
of construction, above, pp 177–190.
253 RW Green v Cade Bros Farms [1978] 1 Lloyd’s Rep 602; R & B Customs Brokers Co Ltd v United
Dominions Trust Ltd [1988] 1 WLR 321.
254 St Albans City and District Council v International Computers Ltd [1995] FSR 686, aff ’d [1996] 4 All
ER 481; Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep 629 at
[413] and [424].
255 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284; [1983] 2 AC 803 (Lord
Denning MR and Lord Bridge, cf Kerr LJ). See also Smith v Eric S Bush [1990] 1 AC 831, 859–60 (non-
contractual notice). 256 [1983] 2 AC 803.
257 The test was set out in para 11 of Sched 1 to the 1979 Act.
206 contents of the contract

The House of Lords held that F could not rely on the clause. Although similar terms
were incorporated universally in the terms of trade between seed merchants and
farmers, they were never negotiated; the breach was due to negligence for which F was
responsible; and seed merchants could insure against crop failure caused by supplying
the wrong seeds without materially increasing the price of the seeds. There was also
evidence that, in practice, seed merchants always negotiated settlements of claims for
damages in excess of the price of seeds if they thought that the claims were ‘genuine’
and ‘justified’. The fact that merchants had not sought to rely on the limitation in
the past showed that it would not be reasonable to allow such reliance in this case.258
Although, under the 1977 Act, reasonableness must be determined at the time of the
contract and subsequent reliance is not relevant, 259 it is submitted that it is unlikely to
be reasonable to include a term which has never in the past been relied on in a trade,
because thought to be unreasonable, and that the absence of such reliance before the
contract under consideration was made remains relevant under the 1977 Act.

(xiii) Powers of the Court

As we have seen, the 1977 Act renders some exclusion or limitation clauses absolutely
ineffective (ie void) irrespective of the application of a reasonableness test. Where the
reasonableness test is to be applied—and even though the Act uses the words ‘except in
so far as the term satisfies the requirement of reasonableness’—the powers of the Court
are limited to declaring the term either to be effective or of no effect (ie void). It cannot
re-write the term or, for example, where the term limited liability to a particular sum,
render a ‘judgement of Solomon’ by raising that sum to an amount which it considers
reasonable in the circumstances.260 Moreover, it has been controversially held that a
single term must be declared either valid or void as a whole so that the Courts cannot
sever the reasonable from the unreasonable parts, even if the defendant is seeking to
rely on merely the (alleged) reasonable part.261

(b) unfair terms in consumer contracts

regulations 
(i) Scope of the regulations and the relationship to UCTA 1977
By EEC Council Directive 93/13,262 a term in a contract between a seller or supplier
of goods or services and a consumer which has not been individually negotiated is

258 Cf Shenkers Ltd v Overland Shoes Ltd [1998] 1 Lloyd’s Rep 498 where the fact that the clause had not
been relied on in the past was not regarded as decisive because the past conduct did not indicate that those
in the trade thought the clause was unreasonable.
259 Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600.
260 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, 816; Stewart Gill Ltd v
Horatio Myer & Co Ltd [1992] QB 600.
261 Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600. But see RW Green Ltd v Cade Bros Farms
[1978] 1 Lloyd’s Rep 602 (three-day time bar invalid, limitation of damages to contract price valid); Watford
Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001] 1 All ER (Comm) 696 (two separate terms,
albeit in a single clause); Regus (UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361, [2009] 1 All ER (Comm)
586 at [46]. 262 OJ L 95, 21 April 1993, p 29.
 exemption clauses and unfair terms 207

subjected to a requirement of ‘fairness’. The Directive was originally implemented in

the Unfair Terms in Consumer Contracts Regulations 1994263 but they were revoked
and replaced by the Unfair Terms in Consumer Contracts Regulations 1999264
which follow the language of the Directive more closely. While it is ultimately for
the Courts to decide whether any term is unfair, the Regulations are also enforced
administratively by the Office of Fair Trading which is under a duty to prevent the use
of unfair terms. The Office of Fair Trading publishes guidance as to what it considers
fair and unfair. 265
Unlike the Unfair Contract Terms Act 1977, the Unfair Terms in Consumer
Contracts Regulations 1999 are not restricted to exemption and indemnity clauses,
but subject all the ‘non-core’ terms of a contract between a seller or supplier of
goods or services and a consumer which have not been ‘individually negotiated’ to
a requirement of ‘fairness’.266 As, however, many of the terms controlled by the 1999
Regulations will in fact either be exclusion or limitation clauses, it is useful to indicate
the main differences between the two statutory regimes.
First, the Regulations apply to some contracts, notably insurance,267 excluded from the
1977 Act. Contracts for the creation or transfer of interests in land, which are excluded
from the 1977 Act, are included.268 But the Regulations do not apply to some matters
which are covered by the 1977 Act. For instance, they do not apply to non-contractual
notices and, although contracts ‘relating to employment’ are no longer expressly
excluded from their regime,269 the Commission’s view appears to be that an employment
contract is not one that can be made between a seller or supplier and a consumer.270 But
the Regulations have a broader definition of ‘seller’ and ‘supplier’ since they only require
a ‘seller’ or ‘supplier’ to be ‘acting for purposes relating to his business’271 and not, as
under the 1977 Act, ‘in the course of a business’ and with some regularity.272
Secondly, there are some differences in the range of those protected by the two
schemes. The 1977 Act is not solely concerned with the protection of consumers.
Rather, as we have seen, some provisions of the 1977 Act apply in business to business

263 SI 1994 No 3159.

264 SI 1999 No 2083. See generally, Beale in Beatson and Friedmann (eds), Good Faith and Fault in
Contract Law (1995), ch 9; Collins (1994) 14 OJLS 229; Dean (1993) 56 MLR 581; Macdonald [1994] JBL 441;
Bright (2000) 20 LS 331; Bright in Burrows and Peel, Contract Terms (2007) ch 9; Unfair Terms in Contracts,
Law Com No 292 (2005).
265 See, eg Unfair Contract Terms Guidance (OFT311) (September 2008).
266 Reg 5. They may, accordingly, catch, for instance, clauses by a principal restricting his agent’s
authority: cf Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1355, below, p 331. Apart
from exclusion and limitation clauses, according to the Office of Fair Trading, the most common categories
of unfair terms are clauses excluding from the contract anything done or said by the salesman (‘entire
agreement’ clauses), clauses hidden before the contract is made, clauses penalizing consumers, and clauses
permitting the supplier to vary its price.
267 But note the Directive states that terms which clearly and plainly defi ne or circumscribe the insured
risk and the insurer’s liability will not be assessed for fairness Directive 93/13, Art 4(1) and Recital 19, since
these restrictions are taken into account in calculating the premium paid.
268 London Borough of Newham v Khatun [2004] EWCA Civ 55, [2005] QB 37.
269 Cf para (a) of Sched 1 to the 1994 Regulations.
270 See Tonreiro and Karston in Rechtsangeichung und Nationale Privatrechte (1999) 12, on which see
Bright (2000) 20 LS 331, 335. Cf above, p 194 for the position under the 1977 Act. 271 Reg 3(1).
272 Above, pp 194–195.
208 contents of the contract

transactions.273 Furthermore, whereas under the Regulations only a natural person can
be a ‘consumer’,274 it has been held that, under section 12 of the 1977 Act, a company
may qualify.275
Thirdly, the protection afforded by the Regulations is, in some respects, less certain
than that in the 1977 Act. For example, there are no absolute bans, only factors276 and
an ‘indicative and non-exhaustive list of the terms which may be regarded as unfair’.277
A number of the terms in this list would be of no effect under the 1977 Act 278 or under
the common law.279
Fourthly, the wording of the tests of unfairness differs. Under the Regulations, a
term will be ‘unfair’ where, ‘contrary to the requirement of good faith’, it ‘causes a
significant imbalance in the parties’ rights and obligations arising under the contract,
to the detriment of the consumer’.280 It is, as yet, not clear to what extent the three
elements of this test differ from the ‘reasonableness’ test of the 1977 Act. Some of the
factors to be taken into account in the determination of ‘reasonableness’ under the
1977 Act may also be taken into account in determining ‘good faith’ and ‘fairness’
under the Directive, although not expressly referred to in the 1999 Regulations.281
The assessment of the fairness of a term is, as under the 1977 Act, to be made in the
light of the circumstances at the time the contract was concluded.282 It is likely that
in most cases the two tests will lead to very similar results. Although there have, as
yet, been very few significant judicial decisions on the meaning of fairness,283 many
of the cases the Office of Fair Trading has considered administratively, as part of the
duty to prevent the continued use of unfair terms, 284 have involved ‘fairness’ and the
plainness and intelligibility of the language and do not show a sharp difference from
the approach taken in the cases on the 1977 Act. For example, following complaints
suppliers have agreed to withdraw or amend certain types of clause. Thus clauses
excluding liability for a failure to supply have either been withdrawn or limited to
situations in which the failure is beyond the supplier’s reasonable control. Clauses
excluding delay have either been withdrawn or limited to delay for a reasonable period.

273 eg s 2(2), s 3 if dealing on other’s written standard terms of business, ss 6–7. 274 Reg 3(1).
275 Above, p 195. 276 Reg 6(1). See further, below, n 281. 277 Reg 5(5) and Sched 2.
278 For instance, for breach of implied undertakings as to fitness for use and quality in sales to consumers
(above, p 198).
279 For instance requiring a consumer in breach to pay a disproportionately high sum in compensation,
below, p 565. 280 Reg 5(1), below, p 209.
281 See the factors listed in Recital 16 to Directive 93/13 which may be referred to in interpreting the
Regulations. Cf Sched 2 to the 1994 Regulations. The factors listed there are strikingly similar to those in
Sched 2 to the 1977 Act.
282 Reg 6(1). Note that, unlike s 11(1) of the 1977 Act, above, p 201, there is no express reference to
circumstances which ‘ought to have been’ known to or in the contemplation of the parties at the time of
contracting.
283 The most important case has been Director-General of Fair Trading v First National Bank plc [2001]
UKHL 52, [2002] 1 AC 481, below, pp 210–214. This case concerned the 1994 Regulations. There have been a
number of cases dealing with the fairness, under the Regulations, of dispute resolution clauses in building
contracts: see, eg, Bryen and Langley Ltd v Boston [2005] EWCA Civ 973 (adjudication clause held not to be
unfair); Mylchrist Builders Ltd v G Buck [2008] EWHC 2172, [2008] BLR 611 (arbitration clause held to be
unfair).
284 Reg 10. Reg 12 also empowers regulatory bodies and the Consumers Association to apply for injunctive
relief against any person or body using or recommending the use of unfair terms.
 exemption clauses and unfair terms 209

Similarly, suppliers have agreed either to withdraw clauses preventing a consumer

from withholding any part of the contractual payment where the goods or services are
defective or to amend them to prohibit such withholding in the case of a minor defect
beyond a proportionate amount of the contractual sum. Suppliers have also agreed to
withdraw clauses excluding liability for damage if concerned with death or personal
injury or to limit them to damage which has not been caused negligently.285

(ii) Analysis of the test of unfairness under the Regulations

Regulation 5(1) provides that a contractual term which has not been individually
negotiated will be ‘unfair’ where:
contrary to the requirement of good faith, it causes a significant imbalance in the parties’
rights and obligations under the contract to the detriment of the consumer.

Some guidance is provided by regulation 6(1) and by the ‘indicative and non-exhaustive
list’ of terms in Schedule 2. Regulation 6(1) provides:
the unfairness of a contractual term shall be assessed, taking into account the nature of the
goods or services for which the contract was concluded and by referring, at the time of the
conclusion of the contract, to all circumstances attending the conclusion of the contract and
to all the other terms of the contract or of another contract on which it is dependent.

A term which, in isolation, might appear to be unfair, might thus not be when looked
at in the light of the contract as a whole. So while a term may create an imbalance
between the parties’ rights and obligations, it might be one that is justified as fair (or
reasonable) say in a high risk or speculative contract or where a seller is dependent on
a third party who may (because of market strength) supply only on very restrictive
terms.
Schedule 2 contains 17 categories of term, which ‘may’ be unfair. These include terms
authorizing or enabling the seller or supplier to dissolve the contract on a discretionary
basis where the same facility is not given to the consumer,286 to terminate a contract
of indeterminate duration without reasonable notice except where there are serious
grounds for doing so,287 to alter the terms of the contract unilaterally without a valid
reason which is specified in the contract,288 to determine whether goods or services
supplied are in conformity with the contract,289 and terms requiring a consumer in
breach of contract to pay ‘a disproportionately high sum in compensation’290 or to
fulfil all his obligations where the supplier does not perform his.291
The Office of Fair Trading’s guidance states that its starting point in assessing the
fairness of a term is normally to ask what would be the position of a consumer if it did
not appear in the contract. It has stated that ‘the principle of freedom of contract can
no longer be said to justify using standard terms to take away protection consumers

285 See Office of Fair Trading Bulletins on Unfair Contract Terms (which were published until February
2005) and the individual case summaries on the Consumer Regulations Website at www.oft.gov.uk/
advice_and_resources/publications/guidance/unfair-terms-consumer/ 286 Sched 2, para 1(f).
287 Sched 2, para 1(g). 288 Sched 2, para.1(j). 289 Sched 2, para 1(m). See also para 1(k).
290 Sched 2, para 1(e). Th is will normally be void as a penalty at common law: below, p 565.
291 Sched 2, para 1(c).
210 contents of the contract

would otherwise enjoy. The regulations recognize that contractual small print is in no
real sense freely agreed with consumers. Where a term changes the normal position
seen by the law as striking a fair balance it is regarded with suspicion’.292 It considers
that ‘transparency is also fundamental to fairness’ and that ‘even though a term would
be clear to a lawyer, we will probably conclude that it has the potential for unfairness
if it is likely to be unintelligible to consumers and thereby cause detriment, or if it is
misleading . . . Moreover, consumers need adequate time to read terms before becoming
bound by them, especially lengthy or complex terms, and this can also be a factor in
assessing fairness’.293
(a) Exclusion of main subject-matter and price. Regulation 6(2) contains an
important exclusion from the assessment of the fairness of a term. It provides that
terms concerning the definition of the main subject-matter of the contract or the
adequacy of the price or remuneration are to be left out of account provided they are
in plain intelligible language. In this respect there is an argument that the Regulations
are narrower than the 1977 Act because, as we have noted,294 under section 3(2)(b) of
the 1977 Act, exemption clauses shrinking the contractual obligation are subject to the
reasonableness test if they permit a contractor to perform in a way that is ‘substantially
different from that which was reasonably expected’. Under the Regulations, it is possible
that a term permitting such performance would escape the control of the ‘fairness’
test if it is in ‘plain intelligible language’. But probably the better view is that, where
the clause is clearly worded, there can be no reasonable expectation of a substantially
different performance and on that approach the 1977 Act has no wider range.
Regulation 6(2) therefore seeks to make a distinction between terms containing
the substance of the bargain and other terms. In shorthand, one can refer to this
as a distinction between the core and non-core terms.295 The Office of Fair Trading
considers that the purpose of the exemption ‘is to allow freedom of contract to prevail
in relation to terms that are genuinely central to the bargain between consumer and
supplier’ and that it sees the exemption as ‘conditional upon such terms being expressed
and presented in such a way as to ensure that they are, or at least are capable of being, at
the forefront of the consumer’s mind in deciding whether to enter the contract’.296
The House of Lords has held that a provision concerning the rate of interest to
be paid on a breach of contract neither defined the main subject of the contract nor
realistically concerned the adequacy of the price.297 To construe such a provision as
falling within regulation 6(2) would mean that almost any provision containing any
part of the bargain would be capable of falling within the reach of the regulation and
would leave ‘a gaping hole in the system’ of protection.298 Similarly it has been held that
an increase in an estate agent’s commission if the sum was not paid within ten days
of completion of the sale was not a core term within regulation 6(2) so that it could be

292 Unfair Contract Terms Guidance (OFT311) (September 2008), 10. 293 Ibid, 10–11.
294 Above, pp 199–201.
295 Director-General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481 at [12]
(Lord Bingham). 296 Unfair Contract Terms Guidance (OFT311) (September 2008) para 19.13.
297 Director-General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481 at [12],
[34], [43], [64]. 298 Ibid at [34].
 exemption clauses and unfair terms 211

struck down by an application of the unfairness test.299 In Gross J’s words, ‘Regulation
6(2) must be given a restrictive interpretation; otherwise a coach and horses could be
driven through the Regulations’.300
In contrast, the Supreme Court in Office of Fair Trading v Abbey National plc301
has held that terms levying bank charges on personal current account customers
in respect of unauthorized overdrafts fall within Regulation 6(2)(b) and (assuming
in plain, intelligible language) cannot therefore be assessed for fairness in terms of
the appropriateness of the amount of the charges.302 This was a somewhat surprising
decision because one would have expected the Supreme Court to be anxious not to
give Regulation 6(2)(b) a wide meaning so that the unfairness of the charges could be
assessed. While accepting the Supreme Court’s warning that, especially in the context
of Regulation 6(2)(b) dealing with price, the shorthand language of ‘core terms’ is
no substitute for construing the words of the Regulation directly, the way was open
to regard the overdraft charges as not part of the price for banking services because
most customers do not incur such charges. For most customers the price provided
for banking services is through the use the bank has of the customer’s money while
paying little interest for it; and charges for unauthorized overdrafts are regarded as
ancillary to that. There was no need to regard as relevant that the system of ‘free-
in-credit’ banking is subsidized from unauthorized bank charges (those charges,
apparently, amounting to 30% of a bank’s revenue stream).

(b) Significant imbalance. The basic question whether a term causes a significant
imbalance in the parties’ rights and obligations is primarily concerned with the
substantive fairness of the contract.303 For instance, a term which gives a significant
advantage to the seller or supplier without a countervailing benefit to the consumer
(such as a price reduction) might fail to satisfy this part of the test of an unfair term.
Despite this, it is submitted that, for the reasons given below,304 the test as a whole will
in practice be primarily concerned with procedural fairness, unfair surprise, and the
absence of real choice.
The meaning of ‘significant imbalance’ (under the 1994 Regulations) was considered
by the House of Lords in Director General of Fair Trading v First National Bank plc. The
case concerned the fairness of a term in a bank’s loan agreement that, should the borrower
default on his repayments, interest would continue to be payable at the contractual
rate until any judgment was satisfied. Delegated legislation provided that no statutory
interest was payable on a county court judgment given in proceedings to recover money
under an agreement regulated by the Consumer Credit Act 1974. It was argued that in
these circumstances it was unfair to allow the recovery of contractual interest because
that would expose the borrower to further liability after all the instalments the Court
ordered him to pay had been paid in full. Lord Bingham stated that:

299 Bairstow Eves London Central Ltd v Smith [2004] EWHC 263, [2004] 2 EGLR 25.
300 Ibid at [25]. 301 [2009] UKSC 6, [2009] 3 WLR 1215.
302 The Supreme Court stressed that it was consistent with its decision that the fairness of the bank
charges could still be challenged for reasons other than the appropriateness of the amount of the charges.
But it is very hard to see what room for challenge was realistically being left open.
303 [2001] UKHL 52, [2002] 1 AC 481 at [37] (Lord Steyn). 304 Below, p 214.
212 contents of the contract

the requirement of significant imbalance is met if a term is so weighted in favour of the

supplier as to tilt the parties’ rights and obligations under the contract significantly in his
favour. This may be by the granting to the supplier of a beneficial option or discretion or
power, or by the imposing on the consumer of a disadvantageous burden or risk or duty.305

The House of Lords upheld the term. It held that the essential bargain in a bank loan is
to make available funds which will be repaid with interest until full repayment. There
was nothing unbalanced or detrimental to the consumer in requiring interest to be paid
after judgment; indeed the absence of such a term would unbalance the contract to the
detriment of the lender.306 Their Lordships considered that any unfairness in exposing
the borrower to further liability after judgment was due to the fact that the judgment
did not cover the whole of the indebtedness, not from any inherent unfairness in the
contractual term.

(c) Good faith. The significant imbalance must be contrary to the requirement of
good faith. In Director General of Fair Trading v First National Bank plc Lord Bingham
stated that good faith looked to good standards of commercial morality and practice.
The House of Lords held that the requirement of ‘good faith’ sought to promote fair
and open dealing, and to prevent unfair surprise and the absence of real choice. Lord
Bingham stated that ‘openness requires that the terms should be expressed fully, clearly
and legibly, containing no concealed pitfalls or traps’,307 and the Court of Appeal in
that case stated that ‘terms must be reasonably transparent and must not operate to
defeat the reasonable expectations of the consumer’ who ‘should be put in a position
where he can make an informed choice’.308 While that case was concerned with the
1994 Regulations, the position should be the same under the 1999 Regulations.
Guidance is also provided by Recital 16 of the Preamble to the Directive.309 This states
that, in making an assessment of ‘good faith’, account should be taken of the strength
of bargaining positions of the parties, whether the consumer had an inducement to
agree to the term, and whether the goods were sold or supplied to the consumer’s
special order. These factors, which were contained in the 1994 Regulations but are not
in the 1999 Regulations, look much like some of the guidelines to the reasonableness
test in the 1977 Act.310
Recital 16 also states that the requirement of ‘good faith’ is satisfied where the seller
or supplier ‘deals fairly and equitably with the other party whose legitimate interests
he also takes into account’. The implication is that where the other party’s legitimate
interests are not taken into account, the requirement will not be satisfied. This is in
contrast to the common law position since, as Lord Ackner’s speech in Walford v
Miles311 shows, parties to a contractual negotiation are generally considered to be in
an adversarial relationship in which they are entitled to pursue their own interests so
long as they avoid making misrepresentations.

305 [2001] UKHL 52, [2002] 1 AC 481, at [17]. 306 Ibid, at [22]–[24], [38], [55]–[57].
307 Ibid. 308 [2000] QB 672, 687.
309 Marleasing SA v La Commercial (Case C-106/89) [1992] 1 CMLR 305 permits reference to be made to
the Directive and probably also to the preamble in interpreting the Regulations. 310 Above, pp 201–202.
311 [1992] 2 AC 128, 138, above, p 65.
 exemption clauses and unfair terms 213

(d) Procedural or substantive fairness? How should English law proceed to put flesh
on the bare bones of the elements of ‘good faith’ and ‘significant imbalance’, which have
been said to overlap substantially?312 There are a number of possibilities. First, although
good faith is not a concept wholly unfamiliar to English lawyers, its conceptual roots
lie in the civil law systems and reference might be made to those systems. However, their
concepts of good faith differ radically. They range from French law’s substantive use
of the concept to avoid unreasonable and onerous conditions, to the more procedural
notions of unfair surprise and absence of real choice which characterize Dutch and
German law.313 Alternatively, the statutory concept of ‘reasonableness’ in the 1977
Act might be deployed, perhaps reinforced by support from the equitable concept
of unconscionability considered in Chapter 10 below314 and the rules on penalty and
forfeiture clauses considered in Chapter 17 below.315 This gains some support from the
similarity of the guidelines in Recital 16 of the preamble to the Directive to those in the
1977 Act.316 Finally, an autonomous European Union concept of ‘good faith’ could be
developed.317 This last appears to have been the favoured approach in Director General
of Fair Trading v First National Bank plc. It was stated that one of the objectives of the
Directive was partially to harmonize the law among all member states of the European
Union and that the language used in expressing the test is clear and not reasonably
capable of differing interpretations.318
What then is this autonomous European Union concept of ‘good faith’? There is
clearly a substantive component in the test and the controlling concept of ‘significant
imbalance’ is primarily a substantive one. The fact that some clauses may cause such
a serious imbalance that they should always be treated as being contrary to good
faith,319 also has a substantive flavour. Moreover, Lord Steyn has stated that ‘any purely
procedural or even predominantly procedural interpretation of the requirement of
good faith must be rejected’.320 Lord Bingham’s statement that fair dealing requires that
a supplier should not, ‘deliberately or unconsciously take advantage of the consumer’s

312 Director-General of Fair Trading v First National Bank plc [2000] QB 672; [2001] UKHL 52, [2002] 1
AC 481 at [37] (Lord Steyn).
313 Beale, above, n 264, 243–5 cites inter alia, on French law, Ghestin, Le Contrat: Formation (2nd edn,
1988) para 608-2; on Dutch law, Storme, La bonne foi dans la formation des contrats en droit néerlandais
(1992); decision of the Hoge Raad HR 15–11–1957; Art 6.233 of the New Netherlands Civil Code; on German
law BGB para 242; Micklitz (1989) 41 Rev int droit comparé 101, 109. See also Lando and Beale, Principles of
European Contract Law Parts I and II (2000) 116–19. 314 At pp 372–377.
315 At pp 565–571. 316 Unfair Contract Terms Act 1977, s 11 and Sched. 2.
317 See MacNeil (1995) 40 Jur Rev 146, 148, citing Fiddelaar v Commission (Case 44/59) [1960] ECR 535,
547; Weatherill, EC Consumer Law and Policy (1997) 82. Cf Chitty on Contracts (30th edn, 2008) para 15-068.
See also Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference
(DCFR), Outline Edition (2009) 43–4, 76, 77, 85–7 and arts I.-1:1:102(3)(b), 103 (defi nition of ‘good faith and
fair dealing’); cf Whittaker (2009) 125 LQR 616, 640–4.
318 Director-General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481 at [17].
See also ibid at [32], [45].
319 Beale, above, n 264, 245. Some of the terms contained in the indicative list of terms which might be
regarded as unfair may fall into this category, eg excluding or limiting liability for death or personal injury,
making the seller or supplier’s duty to perform a matter for its discretion, or giving it the right to determine
whether the goods or services are in conformity with the contract or the exclusive right to interpret any term:
see Sched 2 to the 1999 Regulations. 320 [2001] UKHL 52, [2002] 1 AC 481 at [36].
214 contents of the contract

necessity, indigence, lack of experience, unfamiliarity with the subject matter of the
contract, or weak bargaining position’321 also suggests a substantive concept.
It is, however, submitted that most commentators are correct in considering the test
as a whole to be primarily concerned with procedural fairness.322 The requirement in
Regulation 6(2) that terms concerning the price and defining the main subject-matter
of the contract are left out of account (provided they are in plain intelligible language)
makes it difficult to regard the test as primarily substantive, because those terms,
particularly ‘price’, are central to substantial fairness. 323 Moreover, the absence of any
absolutely prohibited terms and the fact that ‘the indicative and non-exhaustive list of
the terms which may be regarded as unfair’ are couched in an open-textured way also
suggest that the Regulations are not primarily concerned with substantive fairness but
with the prevention of unfair surprise and the absence of real choice. So the Courts are
likely to be primarily concerned with the requirements of openness which, as stated by
Lord Bingham, are that the terms should be expressed fully, clearly, and legibly, should
contain no concealed pitfalls or traps, and should accord appropriate prominence to
terms which might operate disadvantageously to the customer.324
To this extent, the result achieved is not likely to be very different to that under
the 1977 Act in relation to terms excluding or limiting liability.325 The experience of
administrative enforcement by the Office of Fair Trading also suggests that there will
not be a sharp difference from that previously taken in English law under the 1977 Act.
In part this is because of the similarity of the problems, but in part it is because of an
understandable tendency to retreat to familiar ground when confronted by unfamiliar
concepts on which there is little guidance. In the long term, however, it is submitted
that English contract lawyers will be forced to become comparative lawyers so that they
can properly and sensitively transpose the concept of good faith into English law in
this context when putting flesh on the concept of ‘significant imbalance’. Whether this
spills over into other contractual contexts as some commentators have suggested,326
is, of course another matter, but the experience of the impact of European law in other
contexts, notably public law, 327 suggests that it might.

(iii) Plain, intelligible language

Regulation 7 requires a seller or supplier to ensure that any written term of a contract
is expressed in plain, intelligible language and, as at common law, where it is not it is
construed contra proferentem, so that the interpretation most favourable to the consumer
shall prevail. We have noted that the immunity of a term defining the main subject-matter

321 Ibid at [17]. 322 Above, n 264. Cf Smith (1994) 47 CLP 5, 8.

323 Collins (1994) 14 OJLS 229, 249.
324 Director-General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481 at [17].
325 Dean (1994) 56 MLR 581, 585. For a general view that the common law reaches similar results to those
that would be reached in civil law by the application of ‘good faith’, see Bingham LJ’s judgment in Interfoto
Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433. See also Balfour Beatty Civil Engineering
v Docklands Light Railway [1996] CLC 1435, 1442 326 Clarke (1996) 81 Svensk Jurist Tidning 145.
327 M v Home Office [1994] AC 377 (spilling over from Brasserie du Pêcheur v Germany (Case C-43/93)
and R v Secretary of State for Transport, ex p Factortame Ltd (Case C-48/93) [1996] ECR I-1029) and Woolwich
Building Society v Inland Revenue Commissioners [1993] AC 70 (spilling over inter alia from Amministrazione
della Finanze dello Stato v San Giorgio (Case 199/82) [1983] ECR 3595).
 exemption clauses and unfair terms 215

of the contract or concerning the price given by regulation 6(2) will be lost if it is not in
plain, intelligible language. At first instance in Office of Fair Trading v Abbey National
plc328 Andrew Smith J, in obiter dicta in considering whether Regulation 6(2) applied
to certain bank charges, said that the need for plain intelligible language requires ‘not
only that the actual wording of individual clauses or conditions be comprehensible to
consumers, but that the typical consumer can understand how the term affects the rights
and obligations that he and the seller and supplier have under the contract’. The Office of
Fair Trading does not consider that plain vocabulary alone meets the requirement and
also regards an illegible term or one hidden away in small print as potentially unfair.329

(iv) Effect of term being held to be unfair

An unfair term ‘shall not be binding on the consumer’.330 This means that the term is
enforceable by, but not against, the consumer. Moreover, ‘the contract shall continue
to bind the parties if it is capable of continuing in existence without the unfair term’.331
This gives the Courts a broad discretion to sever the unfair term but presumably
this will not be possible where the unfair term is a ‘core term’ which has failed the
requirement of plainness and intelligibility.

(v) Prevention of unfair terms

The Regulations give the Office of Fair Trading (hereinafter ‘OFT’) and a number of
other bodies (for example, weights and measures authorities, utility regulators, and the
Consumers’ Association) power to apply for an injunction to prevent a person using, or
recommending the use of, an unfair term in contracts concluded with consumers.332
Normally, however, cases are resolved by the OFT accepting informal undertakings
to amend the offending terms in lieu of Court proceedings. The OFT applies the same
test of fairness as a Court but looks forward rather than backwards and considers the
circumstances that are generally likely to obtain, not those attending the conclusion
of a particular contract. 333 The OFT and the qualifying bodies have wide powers to
obtain documents and information334 and the OFT is under a duty to consider any
complaint that a contract term is unfair unless the complaint is frivolous or vexatious
or one of the other qualifying bodies has stated that it will consider it.335
A similar regime is applicable more generally under Part 8 of the Enterprise Act
2002. This gives the OFT and other bodies (eg weights and measures authorities)
powers to enforce certain consumer legislation, including the 1999 Regulations.
An ‘enforcement order’336 may be made although it is envisaged that compliance
will normally be secured by negotiation337 and undertakings.338 The OFT and other
enforcers are given considerable powers to obtain documents and information.339

328 [2008] EWHC 875 (Comm), [2008] 2 All ER (Comm) 625 at [103]. His decision that the terms on bank
charges did not fall within Reg 6(2), and should therefore be assessed for fairness, was upheld by the CA but
overturned by the Supreme Court: see above, 211.
329 Unfair Contract Terms Guidance (OFT311) (September 2008) para 19.12. 330 Reg 8(1).
331 Reg 8(2). 332 Reg 12.
333 eg, Unfair Contract Terms, OFT Bulletin No 4 (December 1997) 21. 334 Reg 12.
335 Reg 10(1). 336 Enterprise Act 2002, ss 214–218.
337 Ibid, s 214. 338 Ibid, s 219. 339 Ibid, ss 224–227.
216 contents of the contract

other legislative controls on exemption clauses and

(c)
unfair terms
The exclusion or restriction of liability for misrepresentation is controlled by section
3 of the Misrepresentation Act 1967.340 This is dealt with in Chapter 9. In some other
statutes, terms, by which a party purports to contract out of statutory provisions
protecting consumers or others, are invalid. Examples of such statutes include, for
example, those dealing with consumer credit,341 product liability,342 dangerous
goods, 343 defective premises,344 package holidays,345 distance selling,346 and carriage
by land, 347 sea, 348 or air.349
As regards unfair terms apart from exemption clauses, perhaps the most important
other legislation (ie aside from the Unfair Contract Terms Act 1977 and the Unfair
Terms in Consumer Contracts Regulations 1999) is the Consumer Credit Act 1974,
ss 140A–140D. Those provisions protect against exploitation of the claimant’s need for
credit by giving the Courts a wide range of remedies to undo credit agreements where
the relationship between the creditor and the debtor is unfair to the debtor.

340 As amended by the Unfair Contract Terms Act 1977, s 8; see below, p 329.
341 Consumer Credit Act 1974, s 173(1). 342 Consumer Protection Act 1987, s 7.
343 Consumer Protection Act 1987, ss 10, 41(4) and (7). 344 Defective Premises Act 1972, s 6(3).
345 Package Travel, Package Holidays and Package Tours Regulations (SI 1992 No 3288), reg 15.
346 Consumer Protection (Distance Selling) Regulations 2000, SI 2000/2334, reg 25.
347 Carriage of Goods by Road Act 1965; Railways (Convention on International Carriage by Rail)
Regulations 2005 (SI 2005 No 2092).
348 Carriage of Goods by Sea Act 1971; Merchant Shipping Act 1995.
349 Carriage by Air Act 1961.
 PART 3
FACTORS TENDING TO
DEFEAT CONTRACTUAL
LIABILITY
7 Incapacity 219
8 Mistake 249
9 Misrepresentation and Non-Disclosure 299
10 Duress, Undue Influence, and Unconscionable Bargains 349
11 Illegality 379
This page intentionally left blank
 7
INCAPACITY
1. grounds of contractual incapacity
The law limits the capacity of certain persons to bind themselves by contract. These
persons are:
(1) the Crown and public authorities;
(2) corporations;
(3) minors;
(4) persons lacking mental capacity and drunken persons.
The consequences of contractual incapacity are not identical. In some cases the
contract is void, in others voidable, while in others it is unenforceable at the suit of one
or both parties.
The underlying policy of rules limiting contractual capacity is to protect those
under the incapacity. In the case of public authorities the policy seeks to protect the
public finances and taxpayers, and, in the case of companies, investors and creditors.
We shall see that this protective policy can inflict hardship upon those who deal
with an incapacitated person in good faith and in ignorance of the lack of capacity.
Moreover, before the recent recognition of independent restitutionary obligations,1
an incapacitated party to whom money had been paid or property transferred might
have been unjustly enriched at the expense of the other. The practical importance
of the limitations on contractual capacity has been reduced. In the case of minors
this is the result of the reduction in the age of majority from 21 to 18. In the case of
local authorities and companies there has been substantial statutory modification of
the ultra vires doctrine so as to make many contracts enforceable,2 thus enhancing
security of transactions between local authorities and companies and those who deal
with them. Moreover, the development of the law of restitution means that, even where
the contract is void or unenforceable, money paid and property transferred will, in
general, be recoverable, unless this would amount to indirect enforcement of the
contract.3

1 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, above, p 23.

2 For the principle of the common law that the public authority or company cannot act ‘beyond its powers’
(ultra vires) see below, pp 224, 228.
3 Westdeutsche Landesbank Girozentrale v Islington LBC [1994] 1 WLR 938, aff ’d [1996] AC 669, below,
pp 228, 231.
220 factors tending to defeat contractual liability

2. the crown and public authorities

At common law the Crown (acting in its own right or through the agency of others)
has unlimited capacity to enter into contracts4 although, as will be explained below,
the peculiar public nature of the Crown affects the scope of obligations undertaken
and their enforceability. Other public authorities, however, are created by statute and
their capacity to contract depends upon statutory authority, express or implied, while
also being subject to special rules of public law.

(a) the crown

(i) Application of public law
Since the passing of the Crown Proceedings Act 1947, actions by or against the
Crown or a government department in contract are, for the most part, governed by
the same rules of procedure as actions between subjects5 and the same remedies are
available, save that no injunction or order of specific performance can be made against
the Crown in ‘civil proceedings’.6 Crown contracts are subject to the procurement
procedures and remedies required by European Union law, which are considered later
in this chapter.7
Although contracts made with government departments or Crown officers are not
subject to the ultra vires doctrine,8 rules which arise from the fact that such bodies
have statutory and prerogative powers and duties of a public law nature affect contracts
made by them. In both Crown contracts and the contracts of public authorities, it is
therefore necessary to consider these public law rules as well as the common law and
statutory position.

(ii) Parliamentary funds

In Churchward v The Queen9 the Admiralty undertook to pay £18,000 a year to C for
the carriage of cross-channel mails from Dover to Calais and Ostend. Appropriation
of funds for this contract was expressly forbidden by Parliament. C sued for the
promised sum but failed on the ground that the contract provided for payment to
be ‘out of moneys to be provided by parliament’ and no such moneys were provided.
Shee J went further, stating that ‘the providing of funds by parliament is a condition

4 Wade & Forsyth, Administrative Law (10th edn, 2009) 182; Turpin, Government Contracts (1989) 19.
5 See generally Wade & Forsyth, Administrative Law (10th edn, 2009) 708–12; Arrowsmith, The Law of
Public and Utilities Procurement (2nd edn, 2005).
6 Crown Proceedings Act 1947, s 21 (the Court may instead make an order declaratory of the rights of the
parties). Although injunctive relief may be given in proceedings for judicial review (M v Home Office [1994]
1 AC 377), judicial review is not generally available for disputes concerning contracts: Mercury Energy Ltd
v Electricity Corp of New Zealand Ltd [1994] 1 WLR 521 (New Zealand); cf Williams Construction Ltd v
Blackman [1995] 1 WLR 102 (Barbados). 7 Below, pp 227–28.
8 But the powers of certain Ministers have been defi ned by statute (eg Supply Powers Act 1975; Ministers
of the Crown Act 1975) which may limit the capacity of the Crown (Cudgen Rutile (No 2) Pty Ltd v Chalk
[1975] AC 520 (Australia)) or the authority of its agents (below, p 224).
9 (1865) LR 1 QB 173, 210.
 incapacity 221

precedent to [the covenant] attaching’. On the basis of this dictum it has been said
that ‘all obligations to pay money undertaken by the Crown are subject to the implied
condition that the funds necessary to satisfy the obligation shall be appropriated by
Parliament’,10 but the better view is that the Crown is under no antecedent incapacity
in this respect. The existence of the contract does not depend upon Parliamentary
authority, and the provision of funds is simply a condition to be fulfilled before actual
payment by the Crown, a condition that is satisfied where there is a fund in existence
out of which payment can lawfully be made.11

(iii) Fettering future executive action

It is an important principle of public law that public bodies, including the Crown,
should preserve the discretionary powers granted to them by statute or the prerogative,
and not divest themselves of those powers.12 This principle may conflict, however,
with the principle of sanctity of contracts. In Rederiaktiebolaget Amphitrite v The King
Rowlatt J stated that ‘It is not competent for the Government to fetter its future executive
action, which must necessarily be determined by the needs of the community when
the question arises. It cannot by contract hamper its freedom of action in matters
which concern the welfare of the State’.13 In that case:

During the First World War the British legation in Stockholm promised the Swedish owners
of the ship Amphitrite that, if the ship sailed to England with an approved cargo, she would
not be detained. The ship was nevertheless detained and her owners brought a petition of
right against the Crown claiming damages for breach of contract.

Rowlatt J held that the guarantee was not a contract for the breach of which damages
could be sued for in a court of law; it was merely an expression of intention to act
in a particular way in a certain event, because the Crown could not fetter its future
executive action by contract.
Rowlatt J’s statement has been powerfully criticized on the ground that it is expressed
too generally.14 Three issues must be separated; first, the validity of the contract ab initio;
secondly, whether, assuming the contract is valid, the Crown is thereafter under a duty
to exercise its powers in a manner consistent with it; and thirdly, whether, assuming
there is no valid contract, the Crown is nevertheless precluded from exercising its
discretion in a particular way by an estoppel or the application of the emerging public
law principle of legitimate expectation.15

10 New South Wales v The Commonwealth (No 1) (1932) 46 CLR 155, 176 (Australia); A-G v Great Southern
and Western Ry Co of Ireland [1925] AC 754, 773.
11 New South Wales v Bardolph (1934) 52 CLR 455, 502, 514 (Australia).
12 See below, pp 225–26, and see generally Wade & Forsyth, Administrative Law (10th edn, 2009) 260 ff.
13 [1921] 3 KB 500, 503.
14 Robertson v Minister of Pensions [1949] 1 KB 227, 230 (Denning J); Ansett Transport Industries
(Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54, 74, 113–14 (Australia); A v Hayden (No 2) (1984)
56 ALR 82, 86 (Australia). But see Commissioners of Crown Lands v Page [1960] 2 QB 274, 287–8 (Lord
Evershed MR).
15 Below, p 226.
222 factors tending to defeat contractual liability

As far as the first issue is concerned, Rowlatt J acknowledged that the Crown can
bind itself by a commercial contract.16 The Amphitrite was not such a case, but the
distinction between ‘commercial’ and ‘non-commercial’ contracts has been criticized
as unworkable in practice because commercial contracts tend to conflict with
‘governmental’ obligations,17 and it is difficult to see how, for instance, procurement
contracts involving large capital expenditure are to be classified.
Where a Crown contract has been validly entered into, the Crown’s freedom to
exercise its discretionary powers (whether statutory or prerogative) will not, as a
matter of construction, be impliedly excluded by the contract. Even in the case of
commercial contracts, the Crown must be free to exercise the discretionary powers
conferred upon it for the public good. ‘No one can imagine, for example, that when
the Crown makes a contract which could not be fulfilled in time of war, it is pledging
itself not to declare war for so long as the contract lasts.’18 Thus, it has been held that
an implied covenant for quiet enjoyment in a Crown lease did not prevent the Crown
from requisitioning the premises.19 The Crown must be at liberty to detain ships, to
requisition property, or to perform other essential acts in time of war, and, although
the position of an express undertaking is less clear,20 it is submitted that ‘no contract
would be enforced in any case where some essential governmental activity would be
thereby rendered impossible or seriously impeded’.21 Furthermore, in such cases, a
party is unlikely to be able to invoke the principle of estoppel; it is generally recognized
that ‘estoppel cannot be allowed to hinder the formation of government policy’.22 Nor
can the principle of legitimate expectation be used to fetter the formation or change
of policy.23 The Crown may, however, be vicariously liable for torts committed by its
servants or agents, which will include liability for negligent misstatements, although
this does not extend to anything done under the prerogative or statutory powers.24
In practice the rule stated in The Amphitrite does not often have to be applied since
many contracts falling within its scope contain cancellation clauses which usually
make provision for compensation.25

(iv) Liability of Crown to employees

The general rule is that persons in Crown employment hold office during the pleasure
of the Crown, and at common law Crown servants can be dismissed at any time by

16 [1921] 3 KB 500, 503. An estoppel may arise to prevent both parties from refusing to proceed with such a
contract: A-G of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] AC 114, 127–8 (Hong Kong).
17 Mitchell, The Contracts of Public Authorities (1954) 62. See also Ansett Transport Industries (Operations)
Pty Ltd v Commonwealth (1977) 139 CLR 54 (113 (Aickin J).
18 Commissioners of Crown Lands v Page [1960] 2 QB 274 (292 (Devlin LJ). 19 Ibid.
20 Devlin LJ, ibid, 292 thought nothing turned on this and said that even an express covenant ‘must by
necessary implication be read to exclude those measures affecting the nation as a whole which the Crown
takes for the public good’, but Evershed MR and Ormrod LJ reserved their position. Devlin LJ’s view is
inferentially supported in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (above, n 17).
21 Mitchell, The Contracts of Public Authorities (1954) 7. Cf Holdsworth (1929) 45 LQR 166.
22 Laker Airways Ltd v Department of Trade [1977] QB 643, 709 (Roskill LJ), 728 (Lawton LJ); see also at
680–2, 707.
23 Hughes v DHSS [1985] AC 776; Wade & Forsyth, Administrative Law (10th edn, 2009) 317.
24 Crown Proceedings Act 1947, ss 2(1)(a), 11.
25 See generally Turpin (above, n 4, 243–6).
 incapacity 223

the Crown and no action lies for wrongful dismissal.26 In the older cases the reason
given for this rule was that the relationship between the Crown and its servants is not
one of contract at all, but of status.27 But more recently it has been said that ‘there is
nothing unconstitutional about civil servants being employed by the Crown pursuant
to contracts of service’.28 The modern and better view is that there can be a valid
contract of employment, although this is always determinable at the pleasure of the
Crown.29 The older cases may reflect the absence of an intention to contract on the
part of the Crown. Although it has been held that the use of language of obligation
or even of the word ‘contract’ did not suffice to indicate an intention by the Crown
to enter into a contractual relationship,30 it has been held that a civil servant had a
contract of employment, where his appointment was subject to the Civil Service Pay
and Conditions of Service Code which stated that ‘a civil servant does not have a
contract of employment enforceable in the courts but rather a letter of appointment’.
Objectively construed, the appointment created a relationship which the Crown must
have intended to constitute a contract of employment.31
Whether or not the relation is contractual, the power of the Crown to dismiss at
pleasure without payment of compensation is now limited by statute. The remedies
available for unfair dismissal now contained in the Employment Rights Act 1996
extend to Crown employees, including members of the military services.32 The Crown
is also liable in tort for breach of the duties normally owed by an employer to its
servants or agents.33
Although dismissal in breach of the terms of the appointment will not, according
to the bulk of the authorities, give rise to a cause of action at common law, it may be
susceptible to the public law remedy of judicial review where it is ultra vires, an abuse of
discretion, or where the principles of procedural fairness have not been observed.34

(v) Liability of employees to Crown

Where an intention to contract is established, it is submitted that the Crown can sue
its employees for breach of contract.35 Equitable and restitutionary remedies may

26 Shenton v Smith [1895] AC 229; Dunn v The Queen [1896] 1 QB 116; Terrell v Secretary of State for the
Colonies [1953] 2 QB 482; Riordan v War Office [1959] 1 WLR 1046; A-G for Guyana v Nobrega [1969] 3 All
ER 1064. Cf Reilly v The King [1934] AC 176, 179; Terrell v Secretary of State for the Colonies [1953] 2 QB 482,
498–9 (where the terms of an appointment defi nitely prescribe a term and expressly provide for a power to
determine ‘for cause’, the implication that the appointment is at pleasure is excluded).
27 Shenton v Smith [1895] AC 229; Inland Revenue Commissioners v Hambrook [1956] 2 QB 641.
28 R v Civil Service Appeal Board, ex p Bruce [1988] ICR 649, 660 (May LJ), aff ’d [1989] ICR 171.
29 Kodeeswaran v A-G of Ceylon [1970] AC 1111, 1123.
30 McClaren v Home Office [1989] ICR 550, rvsd on different grounds [1990] ICR 824.
31 R v Lord Chancellor’s Department, ex p Nangle [1991] ICR 743, 751–2. For general discussion of the
requirement of intention to create legal relations see above, pp 70–3.
32 Employment Rights Act 1996, ss 191, 192. See also Trade Union and Labour Relations (Consolidation)
Act 1992, ss 152, 273 (dismissal on grounds of trade union membership, activities, or non-membership).
33 Crown Proceedings Act 1947, s 2(1)(b).
34 R v Secretary of State for the Home Department, ex p Benwell [1985] QB 554; Council of Civil Service
Unions v Minister for the Civil Service [1985] AC 374. See also Walsh [1989] PL 131; Fredman and Morris
(1991) 107 LQR 298; [1991] PL 485. On estoppel and legitimate expectation, see below, p 226.
35 Even if there is no contract, the terms are nevertheless deemed to constitute a contract for the purposes
of the economic torts: Trade Union and Labour Relations (Consolidation) Act 1992, s 245.
224 factors tending to defeat contractual liability

also be available against the employees in certain circumstances, such as breach of

confidence, or where the employee has profited from a breach of duty.36

(vi) Crown agents

If a servant or agent of the Crown enters into an unauthorized contract, the Crown
will not be bound unless it has held the agent out to have authority.37 ‘The right to act
for the Crown in any particular matter must be established by reference to statute or
otherwise.’38 It is only if the act is within the agent’s ostensible authority that the Crown
may be estopped from going back on a representation which the agent has made.39
Furthermore, an agent of the Crown who contracts on behalf of the Crown cannot be
sued personally, either on the contract or for breach of warranty of authority.40

(b) public authorities

(i) Doctrine of ultra vires
Public authorities whose powers are the product of and defined by statute are subject
to the doctrine of ultra vires, which is a necessary consequence of the statutory nature
of the powers of such authorities. So, at common law the contracts of local authorities
will be void unless they relate to functions which the authority is authorized, expressly
or impliedly, to perform, or unless the acts are calculated to facilitate, or are incidental
to, the discharge of those functions.41
The purpose of the ultra vires rule is to protect the public funds entrusted to such
bodies, in the case of local authorities, by local taxpayers. But it has proved a trap for
the unwary and can inflict grave hardship on persons who deal in good faith with an
authority in ignorance of its lack of capacity. So banks which participated in housing
or recreational schemes by local authorities either as a joint venturer or a guarantor,
and other banks which entered into interest rate swaps with local authorities, could
not sue on their contracts when they were held to be ultra vires.42 The result was
uncertainty and concern that private sector companies would be reluctant to enter
into transactions with local authorities.

(ii) Statutory modification of ultra vires doctrine

The Local Government (Contracts) Act 1997 governs contracts by local authorities for
the purposes of or in connection with the discharge of any of their functions which

36 A-G v Blake [2001] 1 AC 268; below, p 598.

37 A-G for Ceylon v Silva [1953] AC 461 (Ceylon); Robertson v Minister of Pensions [1949] 1 KB 227, 232
(Denning J). 38 A-G for Ceylon v Silva, above, n 37, 479.
39 Robertson v Minister of Pensions [1949] 1 KB 227. But contrast ibid, 232, and see Re L (an infant) [1971]
3 All ER 743; Laker Airways Ltd v Department of Trade [1977] QB 643. See also below, p 226.
40 Dunn v Macdonald [1897] 1 QB 555, criticized by Wade & Forsyth, Administrative Law (10th edn,
2009) 707. Cf the position of other agents, below, pp 713, 716.
41 See, eg Hazell v Hammersmith & Fulham LBC [1992] 2 AC 1; Crédit Suisse v Allerdale BC [1997] QB 306;
Crédit Suisse v Waltham Forest LBC [1997] QB 362. But see Local Government Act 1972, ss 135, 137.
42 Hazell v Hammersmith & Fulham LBC, above, n 41; Crédit Suisse v Allerdale BC and Crédit Suisse v
Waltham Forest LBC, above, n 41.
 incapacity 225

are intended to operate for a period of at least five years. Section 2 provides that where
a local authority has issued a certificate stating that it has power to enter into the
contract and containing information about the statutory provisions conferring the
power and the purpose of the contract, the contract has effect ‘as if the local authority
had had power to enter into it (and had exercised that power properly in entering into
it)’. The purpose of the legislation is to render contracts enforceable, but it will still
be possible to challenge in judicial review proceedings or an audit of the authority’s
activities whether the authority had power to enter into a contract or exercised any
power properly in entering into a contract.43

(iii) Incompatibility with statutory purpose

Those dealing with public authorities may also encounter the rule considered above
that a public authority is not competent to fetter a statutory discretion if this would
disable it from fulfi lling the primary purpose for which it was created: ‘if a person or
public body is entrusted by the Legislature with certain powers and duties expressly
or impliedly for public purposes, those persons or bodies cannot divest themselves
of these powers and duties. They cannot enter into any contract or take any action
incompatible with the due exercise of their powers or the discharge of their duties’.44
Thus in York Corporation v Henry Leetham & Sons Ltd:45
Y entered into a covenant with HL to allow HL to use two rivers which Y maintained and
managed under statutory authority in return for an annual payment of £800 in place of the
tolls Y that was authorized to charge by the statute.

It was held that this covenant was not one which Y was competent to make because it
thereby disabled itself from exercising its statutory powers to increase tolls as necessary
in order to perform its statutory duty.
On the other hand, in Birkdale District Electric Supply Co Ltd v Southport
Corporation:46
B, the statutory undertaker for the supply of electricity in Birkdale, was sued by S on an
agreement by which B had bound itself not to charge higher prices for electricity than those
charged in the borough of Southport. It repudiated this agreement on the ground that it was
incompatible with the due discharge of its statutory duties.

The House of Lords held that the agreement was nevertheless binding upon B. It
was not wholly incompatible with the fulfi lment of the purposes of the statute which
empowered B to act as an electricity undertaking. The distinction between this
case and the York Corporation case is by no means clear but it would seem that a
public authority is only incompetent to contract where the contract in question is
clearly proved to be incompatible with the full observance of the terms and the full

43 Local Government (Contracts) Act 1997, s 5.

44 Birkdale District Electric Supply Co Ltd v Southport Corp [1926] AC 355, 364 (Lord Birkenhead). But see
Lever (Finance) Ltd v Westminster Corp [1971] 1 QB 222 (estoppel).
45 [1924] 1 Ch 557. See also Ayr Harbour Trustees v Oswald (1883) 8 App Cas 623; William Cory & Son Ltd
v London Corp [1951] 2 KB 476; Dowty Boulton Paul Ltd v Wolverhampton Corp [1971] 1 WLR 204.
46 [1926] AC 355.
226 factors tending to defeat contractual liability

attainment of the purposes for which the statutory powers have been granted. But it
possesses contractual capacity where the agreements are mere contracts restricting
the undertakers’ freedom of action in respect of the business management of their
undertaking.47

(iv) Estoppel and legitimate expectation

A public authority cannot be estopped by its previous conduct so as to hinder its
obligation to carry out its statutory powers or duties. But it has been held that an
authority may be estopped in two types of situation. First, where the authority
has delegated to its officers the power to determine particular questions, it may be
estopped by representations relating to those questions, made by an officer acting
within the scope of his ostensible authority, on which another person acts.48 Secondly,
if an authority waives a procedural requirement relating to any application made to
it for the exercise of its statutory powers, it may be estopped from relying on lack of
formality. 49
A public authority may also be under a public law duty to act consistently with an
arrangement which does not give rise to a contract or an estoppel, under the principle
of legitimate expectation. This is because a person who, as a result of the words or
conduct of a public authority, has a legitimate expectation that a benefit will be granted
or continue to be enjoyed, may be able to argue that later inconsistent action is an abuse
of power and reviewable on the ground of unfairness.50 Inconsistency is, however, not
necessarily unfair, and the Courts will not let an arrangement that has given rise to a
legitimate expectation hinder the formation of policy. For example, an authority that
has received and resolved to accept a tender from its own workforce might choose to
abandon the project or seek fresh tenders.51
It has been suggested that, although there is an analogy between a private law
estoppel and the public law concept of a legitimate expectation created by a public
authority, it is preferable now to rely on the latter, because ‘remedies against public
authorities also have to take into account the interests of the general public which the
authority exists to promote. Public law can also take into account the hierarchy of
individual rights which exist under the Human Rights Act 1998’.52

47 Ibid, 369, 370 (Lord Sumner).

48 Lever (Finance) Ltd v Westminster Corp [1971] 1 QB 222 (representation that modification to plan was
not material and so did not require further planning permission).
49 Western Fish Products Ltd v Penwith DC [1981] 2 All ER 204, 221 (Megaw LJ: ‘The extension of the
concept of estoppel beyond these two exceptions, in our judgment, would not be justified’).
50 Council for Civil Service Unions v Minister for the Civil Service [1985] AC 374, 408; R v North and East
Devon Health Authority, ex p Coughlan [2001] QB 213.
51 R v Walsall MBC, ex p Yapp [1994] ICR 528. See also Hughes v DHSS [1985] AC 776 (change in local
authority’s policy about retirement age).
52 R (Reprotech (Pebsham) Ltd) v East Sussex CC [2002] UKHL 8, [2003] 1 WLR 348 at [34] (Lord
Hoff mann, in the context of planning law. See also at [35]: ‘public law has already absorbed whatever is
useful from the moral values which underlie the private law concept of estoppel and the time has come for it
to stand upon its own two feet’).
 incapacity 227

(v) Pre-contractual procedures and refusal to contract

Although the general rule, based upon the principle of freedom of contract, is that a
person can choose with whom to contract and with whom not to contract,53 in the
case of public authorities this freedom is limited. Both legislation and the regulations
implementing European Community Directives on public sector contracts, and the
general principles governing the exercise of discretionary powers, may invalidate
refusals to contract at all or only on particular terms. Such refusals may be based on
a policy that amounts to an improper fetter on an authority’s discretion or be ‘unfair’
in the light of an individual’s legitimate expectations. For instance, a decision not to
contract with a company in part motivated by the wish to induce it to cease trading
with South Africa during the apartheid era was held to be ultra vires.54

(vi) Statutory and EU controls

Under the Local Government Act 1988, local authorities are required to exercise their
contracting functions (including invitations to tender) without reference to ‘non-
commercial matters’.55 Under the Local Government Act 1999 local authorities are
required to ‘make arrangements to secure continuous improvement in the way in
which [their] functions are exercised, having regard to a combination of economy,
efficiency and effectiveness’.56 The Act and any regulations made under it give the
government extensive powers to require local and other authorities to achieve ‘best
value’ by a programme of contracting out.57 The Secretary of State is also empowered to
provide that a specified matter cease to be a ‘non-commercial matter’ for the purposes
of section 17 of the Local Government Act 1988.
Public authorities are subject to special rules in awarding major public works, supply
and services contracts,58 which require them normally to publicize in the Official
Journal of the European Union their intention to seek offers for the contract. Standard
tendering procedures are required, non-discriminatory specifications and standards
must be used, and authorities are required either to accept the lowest price or the ‘most
economically advantageous’ tender. The Court has wide powers to remedy breaches of
these requirements, including setting aside decisions of the public authority, although

53 But there may be a requirement to conform to specified tendering requirements; Blackpool and Fylde
Aero Club v Blackpool BC [1990] 1 WLR 1195, above, p 36. See also R v Lord Chancellor, ex p Hibbit and
Saunders [1993] COD 326.
54 R v Lewisham LBC, ex p Shell UK Ltd [1988] 1 All ER 938. See also Mercury Energy Ltd v Electricity Corp
of New Zealand Ltd [1994] 1 WLR 521 (New Zealand) (reviewability of termination of contract).
55 s 17. See R v Islington LBC, ex p Building Employers Confederation [1989] IRLR 383; R v Enfield LBC, ex
p TF Unwin (Roydon) Ltd (1989) 46 BLR 1. See also Local Government Act 1972, s 135. 56 s 3(1).
57 Ibid, s 18.
58 Public Contracts Regulations 2006 (SI 2006 No 5), implementing Directive 2004/18/EC, and Utilities
Contracts Regulations 2006 (SI 2006 No 6), implementing Directive 2004/17/EC; and replacing earlier
provisions contained in Public Works Contracts Regulations 1991 (SI 1991 No 2060); Public Supply
Contracts Regulations 1991 (SI 1991 No 2679); Utility Supply and Works Contracts Regulations 1992 (SI
1992 No 3279); Public Services Contracts Regulations 1993 (SI 1993 No 3228); Utility Contracts Regulations
1996 (SI 1996 No 2911). See generally Arrowsmith, The Law of Public and Utilities Procurement (2nd edn
(2005) on the earlier regulations; 3rd edn expected December 2010).
228 factors tending to defeat contractual liability

where a contract has already been entered into the only remedy open to a disappointed
tenderer is to bring proceedings for damages within three months. However, in many
cases the public authority must give notice to tenderers after it has made its decision, but
before the contract is entered into, to allow for any relevant challenge to be made.59

(vii) Recovery of payments made under void contracts

Payments made under an ultra vires contract with a public authority, whether made to
or by the incapacitated party, are recoverable in an action for restitution of an unjust
enrichment,60 although where, as in the interest swaps cases, payments have been
made both ways, restitution is only available to a party on the basis that credit is given
for what has been received.61

3. corporations and unincorporated

associations
(a) corporations
(i) Different forms of corporation
A corporation is an artificial person recognized by law and therefore having legal
capacity. A corporation may consist of an office occupied by a single individual (a
‘corporation sole’), such as the Crown, the vicar of a parish, or the Secretary of State; or
a collection of several persons who are united into one body (a ‘corporation aggregate’),
such as the mayor and corporation of a city, a limited liability company incorporated
under the Companies Act 2006, or a limited liability partnership under the Limited
Liability Partnerships Act 2000. The key feature of every corporation is that it has legal
personality distinct from the individual(s) of whom it is formed.
A corporation can be formed only by charter from the Crown under the Royal
Prerogative, or by statute.

(ii) Doctrine of ultra vires

At common law the capacity of a corporation to enter into a contract depends upon how
the corporation was formed. A corporation created by charter from the Crown has the
same unlimited capacity to enter into contracts as a private individual.62 However, any

59 SI 2006 No 5, regs 32, 47(8) (9); SI 2006 No 6, regs 33, 45(6) (7). The 2006 regulations introduced the
requirement of a period for possible challenge following the decisions of the ECJ in Alcatel Austria AG v
Bundesministerium für Wissenschaft und Verkehr (C-81/98) [1999] ECR I-7671 and Commission v Austria
(C-212/02).
60 Westdeutsche Landesbank Girozentrale v Islington LBC [1994] 1 WLR 938, aff ’d [1996] AC 669;
Guinness Mahon & Co Ltd v Kensington & Chelsea RLBC [1999] QB 215; Kleinwort Benson Ltd v Lincoln City
Council [1999] 2 AC 349. 61 Ibid.
62 Baroness Wenlock v River Dee Co (1883) 36 Ch D 675n, 685. If it exceeds its powers, the effect is not
to avoid the contract, but to give cause for forfeiture of the charter: see Gower (1952) 68 LQR 214; Jenkin v
Pharmaceutical Society [1921] 1 Ch 392, 398. The Crown itself has unlimited contractual capacity, although
the public nature of the Crown affects the scope of obligations undertaken and their enforceability: see
above, pp 220–24.
 incapacity 229

act done by a corporation incorporated by statute outside its statutory powers is ultra
vires and void.63 Since the corporation has no existence independent of the statute
which creates the corporation or authorizes its creation, it follows that its capacity is
limited to the exercise of such powers as are actually conferred by, or may reasonably
be deduced from, the language of the statute. Thus at common law a company is bound
by the objects, listed in its constitutional documents,64 for the purposes of which it is
incorporated. The company can make no contracts inconsistent with those objects,65
and, if it does so, a contract so made is, at common law, void and unenforceable as
being ultra vires.
In Ashbury Railway Carriage and Iron Co Ltd v Riche:66
A company was incorporated with the object (set out in the memorandum of association) to
make, and sell, or to lend on hire, railway wagons and carriages and other rolling stock. The
company contracted to assign to another company a concession which it had bought for the
construction of a railway in Belgium.

The House of Lords held that the contract, being related to the actual construction of
a railway, as opposed to railway stock, was ultra vires the objects in the memorandum
and void. Even if the shareholders subsequently ratified the contract, it could not
thereby be rendered binding on the company.
The explanation given in this case for the existence of the ultra vires rule was not only
that it was a necessary consequence of statutory incorporation but also that the rule
was required to protect investors in, and creditors of, the company.67 ‘It ensured that
an investor in a gold mining company did not find himself holding shares in a fried
fish shop, and it gave those who allowed credit to a limited company some assurance
that its assets would not be dissipated in unauthorized enterprises’.68 Nevertheless, the
application of the rule not infrequently led to injustice. Persons who entered into an
ultra vires contract with a company could not enforce it. If they supplied goods to the
company or performed services under the contract, they could not obtain payment.69
If they lent money to the company, and the borrowing was ultra vires, then before
the recent recognition of independent restitutionary obligations they could not, in

63 Similarly, public authorities created by statute are subject to the ultra vires doctrine, although the
public nature of their functions gives a special dimension to the operation of that doctrine: see above,
pp 224–26.
64 Before the reforms made by the Companies Act 2006, the objects were contained in the company’s
memorandum of association. Now, however, the memorandum is a much simpler document; the principal
document within company’s ‘constitution’ is the articles of association; a company’s objects are unrestricted
unless the articles of association specifically restrict them; and provisions (such as restrictions on objects)
which are contained in the memorandum of a company which was incorporated before the coming into
force of the 2006 Act are to be treated as provisions of the company’s articles: Companies Act 2006, ss 8, 17,
28(1), 31(1).
65 Matters which are reasonably incidental to, or consequential upon, that which is authorized by the
memorandum are not ultra vires unless expressly prohibited: A-G v Great Eastern Ry Co (1880) 5 App Cas
473, 478. 66 (1875) LR 7 HL 653.
67 Ibid, 667–8 (Lord Cairns).
68 Gower, The Principles of Modern Company Law (3rd edn, 1969) 87.
69 Re Jon Beauforte (London) Ltd [1953] Ch 131.
230 factors tending to defeat contractual liability

general, recover their money.70 In theory, before entering into the contract with the
company, such persons would first scrutinize the memorandum to ascertain the
extent of the company’s powers. In practice, however, they did not do so, but were
nevertheless deemed to have ‘constructive notice’ of the contents of the memorandum
despite the fact that they had no actual knowledge of them. As a result, the doctrine
of ultra vires proved to be a trap for the unwary and from time to time inflicted grave
hardship on persons who dealt in good faith with the company in ignorance of its lack
of capacity.71

(iii) Lack of capacity distinguished from abuse of power

An ultra vires contract which is ‘beyond the capacity of the company and therefore
wholly void’72 should be distinguished from a contract made by the exercise of a
power which the company undoubtedly has but for a purpose which is unauthorized.
Transactions of the latter sort involve an abuse of power rather than a lack of capacity
and will be enforceable against the company unless the other party had notice of the
abuse of power.73

(iv) Statutory modification of ultra vires doctrine

The ultra vires doctrine was criticized by two committees on the reform of company
law,74 and in 1972, although the doctrine was not abolished, statutory protection75 was
given to those dealing with a company76 in good faith in respect of transactions decided
upon by the directors which were within the capacity of the company, although in fact
unauthorized. In 1989 the second and third requirements were removed in provisions
introduced by the Companies Act 1989, amending the Companies Act 1985. This
provision is now found in section 39 of the Companies Act 2006.
Section 39(1) of the Companies Act 2006 provides that the ‘validity of an act done
by a company shall not be called into question on the ground of lack of capacity by
reason of anything in the company’s constitution’. The effect of this section is that a
transaction entered into by a company cannot be held invalid merely because it falls
within any restriction on the objects listed in the company’s articles of association.77
With respect to ‘constructive notice’, which was discussed above, by section 40(2)(b),
a party to a transaction with a company ‘is not bound to enquire as to as to any limitation
on the powers of the board of directors to bind the company or authorise others to do so’.
In effect therefore the doctrine of constructive notice is now a dead letter.

70 eg Sinclair v Brougham [1914] AC 398. But see now Westdeutsche Landesbank Girozentrale v Islington
LBC [1996] AC 669, above, p 228, below, p 283. 71 eg Re Jon Beauforte (London) Ltd, above, n 69.
72 Th is depends solely upon the true construction of the memorandum of association (now, the articles of
association: above, n 64): Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch 246, 303, 306.
73 Ibid, 306–7. On ‘notice’, see Companies Act 2006, s 40(1) (2)(b)(i).
74 Cohen Committee (1945, Cmd 6659), para 12; Jenkins Committee (1962, Cmnd 1749), paras 35–42.
75 European Communities Act 1972, s 9, implementing Art 9 of the fi rst Directive 68/151/EEC on
Company Law, 1968 OJ L65/7.
76 The company itself could not enforce an ultra vires contract: Bell Houses Ltd v City Wall Properties Ltd
[1966] 1 QB 207 (rvsd on other grounds, [1966] 2 QB 656). See Furmston (1961) 24 MLR 715.
77 Before the Companies Act 2006, the objects were set out in the memorandum; under the 2006 Act,
however, any restrictions on the company’s objects are set out in the articles: above, n 64.
 incapacity 231

Limited liability partnerships have unlimited capacity, and so have never been
subject to the ultra vires rule.78

(v) Powers of directors

At common law similar limitations existed in respect of contracts which, though within
the powers of the company, were entered into by the directors of the company and other
officers without authority or in breach of its internal constitution.79 The Companies
Act 2006 requires directors to act in accordance with the company’s constitution (and
therefore to observe any restrictions on the company’s objects contained in the articles
of association).80 But section 40(1) protects those dealing with a company in good faith
by providing that ‘the power of the directors to bind the company, or authorise others
to do so, is deemed to be free of any limitation under the company’s constitution’.81

(vi) Form of contracts

Since the passing of the Corporate Bodies’ Contracts Act 1960 a corporation can, in
general, contract in the same manner as any natural person of full age and capacity
and is not only bound by contracts made under its corporate seal. The provisions
governing contracts made by companies registered under the Companies Acts are
contained in the Companies Act 2006.82

(vii) Restitution of benefits conferred under an ultra vires contract

Payments made to or by a company under an ultra vires contract are recoverable in
an action for restitution of an unjust enrichment,83 and a party which has done work
under such a contract will be entitled to reasonable remuneration.84 But, the provisions
of section 39 of the Companies Act 2006 mean that restitutionary obligations will be
of less significance in the context of companies.

(b) unincorporated associations

(i) Contractual capacity
An unincorporated association has no legal personality. It cannot therefore contract,
or sue or be sued in its name, unless such a course is authorized by statute or by
rules of Court. But a contract which purports to have been entered into by or with

78 Limited Liability Partnerships Act 2000, s 1(3).

79 See Royal British Bank v Turquand (1856) 6 E & B 327; Campbell (1959) 75 LQR 469; (1960) 76 LQR
115. 80 s 171.
81 See ibid, s 40(2) for the meaning of ‘deals with’ and ‘good faith’. Cf ibid, s 41 in respect of contracts
involving directors of the company. For the circumstances in which a limited liability partnership can be
bound by an unauthorized act of one of its members acting as the agent of the partnership, see Limited
Liability Partnerships Act 2000, s 6.
82 Companies Act 2006, s 43. On the execution of deeds by companies, see ibid, s 44 and Law Com CP
No 143 (1995). The provisions of the Companies Act apply also to contracts made by limited partnerships:
Limited Liability Partnerships Regulations 2001 (SI 2001 No 1090) reg 4, Sched 2.
83 Westdeutsche Landesbank Girozentrale v Islington LBC [1994] 1 WLR 938, aff ’d [1996] AC 669; Rover
International Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912.
84 Rover International Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912.
232 factors tending to defeat contractual liability

an unincorporated association is not necessarily invalid. The person or persons who

actually made the contract, for example, the secretary or committee of a club, may
be held to have contracted personally and be personally liable on the contract.85
Further, under the rules of agency, they may be held to have contracted on behalf of the
members of the association, and, in certain circumstances, a representative action86
may be brought by or against one or more of the members, including the trustees of
the funds of the association, 87 as representing the others, so as to avoid the necessity of
joining numerous persons as parties to the action.

(ii) Partnerships
A partnership can normally sue and be sued in the firm’s name,88 and contracts entered
into by one of the partners will, as a general rule, bind the firm since each partner has
authority to act for the others in the ordinary course of the partnership business.89

(iii) Trade unions

A trade union stands juridically in a somewhat anomalous position. Section 10 of the
Trade Union and Labour Relations (Consolidation) Act 199290 provides that a trade
union is not nor is it to be treated as a body corporate, yet it is capable of making
contracts,91 it is capable of suing and being sued in its own name,92 and a judgment,
order, or award made in any proceedings of any description brought against a trade
union is enforceable against any property held in trust for it to the same extent and in
the same manner as if the union were a body corporate.93 The same capacity and liability
attaches to an employers’ association which is an unincorporated association.94

4. minors
On 1 January 1970, the age of majority was lowered from 21 to 18.95 All persons under
that age are known technically as minors (or infants). On attaining their majority
they legally become adults. The rights and liabilities of minors under contracts
entered into by them during minority rest upon common law rules as altered by the
Minors Contracts Act 1987.96 The desire to protect minors on the one hand, and the

85 Bradley Egg Farm Ltd v Clifford [1943] 2 All ER 378. See also Artistic Upholstery Ltd v Art Forma
(Furniture) Ltd [1999] 4 All ER 277. 86 CPR r 19.6(1).
87 Ideal Films Ltd v Richards [1927] 1 KB 374. But see Prudential Assurance Co Ltd v Newman Industries
Ltd (No 2) [1982] Ch 204; News Group Newspapers Ltd v SOGAT 1982 [1986] ICR 716.
88 CPR r 7.2A; PD7, para 5A.3.
89 See below, p 693. For a similar application of the doctrine of agency to contracts made by a member of
a limited liability partnership (which has, however, separate corporate personality but unlimited capacity),
see Limited Liability Partnerships Act 2000, s 6.
90 It was already clear that a union is capable of being sued for breach of contract in its own name, and that
any damages would be recoverable from its funds: Bonsor v Musician’s Union [1956] AC 104.
91 1992 Act, s 10(1)(a). 92 Ibid, s 10(1)(b). 93 Ibid, s 12(2). 94 Ibid, s 127.
95 Family Law Reform Act 1969, s 1.
96 Implementing the recommendations in Law Com No 134, Minors’ Contracts (1984).
 incapacity 233

wish to safeguard the interests of traders on the other, has led to a complicated body
of law.

(a) common law: introduction

At common law, the only class of contract to which minority did not afford some sort
of defence was a contract for ‘necessaries’ in the sense to be explained below. In all
other cases, the common law treated a minor’s contracts as being either voidable at the
option of the minor, either before or after becoming an adult, or unenforceable against
him unless he ratified them after attaining majority.
Contracts in which the minor acquired an interest of a permanent or continuous
nature, such as a contract to acquire an interest in land, were binding until the minor
disclaimed them, either during minority or within a reasonable time after becoming an
adult. They were therefore voidable by the minor.97 The common law rule for contracts
which were neither contracts for necessaries nor continuous in their operation was
that they were not binding on a minor unless ratified within a reasonable time after
majority. So, for example, a promise by a minor to perform an isolated act, such as to
pay for goods supplied other than necessaries, or for work and labour done, required
an express ratification after majority before the minor would be bound. Such contracts
were also often referred to as ‘voidable’, although this is not strictly accurate since
the essence of a voidable contract is that it is binding unless rescinded, whereas these
contracts were not binding on the minor unless affirmed.
In the case of both these classes of contracts (voidable, and unenforceable unless
ratified) there was no objection to the minor enforcing them. But a minor’s position
differed from that of parties of full contractual capacity in that he or she might recover
damages for breach but not obtain specific performance of the contract.98 Specific
performance is granted at the discretion of the Court, which will not grant it where
it would not be prepared to enforce the contract at the suit of either party.99 Since the
contract could not be enforced against the minor, equity would not allow the minor to
obtain specific performance against the other party.

(b) contracts for necessaries

It has already been stated that, at common law, the only class of contract which was not
voidable at the option of a minor was a contract for ‘necessaries’.100 The meaning of the
term ‘necessaries’, however, requires further explanation. We first consider contracts
for necessary goods, and then contracts of employment or training, and then other
agreements beneficial to the minor.

97 Above, p 22. 98 Flight v Bolland (1828) 4 Russ 298. 99 Cf below, p 577–8.

100 But such a contract may be held invalid if the minor was not capable of understanding the nature
of the transaction: see R v Oldham MBC [1993] 1 FLR 645, 661–2 (Scott LJ. Th is will vary according to the
minor and the nature of the contract: ‘at what age a child is able to go to the village shop and enter into an
effective contract for the purchase of sweets, I would not wish to guess, but I am sure it would be well under
the age of 10 years’).
234 factors tending to defeat contractual liability

Part of the common law on this matter has been given statutory form by section 3 of
the Sale of Goods Act 1979.101 This provides:
(1) Capacity to buy and sell is regulated by the general law concerning capacity to contract
and to transfer and acquire property.
(2) Where necessaries are sold and delivered to a minor or to a person who by reason of
drunkenness is incompetent to contract, he must pay a reasonable price for them.
(3) In subsection (2) above ‘necessaries’ mean goods suitable to the condition in life of the
minor or other person concerned and to his actual requirements at the time of the sale
and delivery.

(i) Necessary goods

We must first consider what the word ‘necessaries’ includes. It has always been held
that a minor may be liable for the supply, not merely of the necessaries of life, but of
things suitable to his or her station in life and particular circumstances at the time.
Minors are liable for necessaries, and not merely for necessities.102 Certain things may
be obviously outside the range of possible necessaries. So in Ryder v Wombwell:103
W, a minor with an income of £500 a year, bought from R a pair of crystal, ruby, and diamond
solitaires and an antique goblet in silver gilt.

It was held that neither of these articles could be a necessary, even though W was the
son of a deceased baronet and ‘moved in the highest society’. Other things may be
of a useful character but the quality or quantity supplied may take them out of the
character of necessaries. In Nash v Inman:104
A tailor supplied a Cambridge undergraduate with clothing which included 11 fancy
waistcoats at 2 guineas each. It was proved that, although he was a minor, he had already a
sufficient supply of clothing according to his position in life.

The Court of Appeal held that the tailor had failed to prove that the clothing was suitable
to the undergraduate’s actual requirements at the time of the sale and delivery.
Necessaries also vary according to the minor’s station in life or peculiar circumstan-
ces at the time of the contract.105 The Court must take into consideration the character
of the goods supplied, the actual circumstances of the minor, and the extent to which
the minor was already supplied with them. It is necessary to emphasize the words
‘actual circumstances’, because a false impression conveyed to the person dealing with
the minor as to the station and circumstances of the minor will not affect the minor’s
liability. A shop which supplies expensive goods to a minor thinking that the minor’s

101 Re-enacting Sale of Goods Act 1893, s 2, and amended by Mental Capacity Act 2005.
102 The Law Commission did not consider that the narrowing of the category in this way was, on balance,
desirable: Law Com No 134, Minors’ Contracts (1984) paras 5.4–5.6.
103 (1868) LR 3 Ex 90, aff ’d (1869) LR 4 Ex 32.
104 [1908] 2 KB 1. The clothing was ‘of an extravagant and ridiculous style having regard to the position
of the boy’: Buckley LJ at 11.
105 Peters v Fleming (1840) 6 M & W 42.
 incapacity 235

circumstances are better than they really are, or which supplies goods of a useful class
not knowing that the minor is already sufficiently supplied, does so at its peril.106
The Sale of Goods Act 1979, section 3, also requires that the goods should be
necessary to the minor ‘at the time of the sale and delivery’. This might seem to indicate
that the seller would have to prove them to be necessary at both of these times. But,
it is probable that this is simply a reference to the action for goods sold and delivered,
which is the normal action for a seller who wishes to recover the purchase price.107 The
seller would have to prove them to be necessary at the time of their delivery alone.

(ii) Loans for necessaries

A loan of money to a minor to pay for necessaries was not recoverable at common law,
for ‘it may be borrowed for necessaries, but laid out and spent at a tavern’.108 But in
equity it was held that if a minor borrowed money to pay a debt for necessaries, and
the debt was actually paid with the money, the lender stood in the place of the person
paid and was entitled to recover the money lent.109 This rule is a branch of the equitable
doctrine of subrogation. It is not possible, however, to sue a minor on a negotiable
instrument given for the price of necessaries, even though it may have been negotiated
to a third party.110 Also, an account stated with a minor is still void although the items
in the account may consist of necessaries.111

(iii) Contracts of employment and training

A minor may enter into a contract of employment so as to earn a living or into a
contract for the purpose of obtaining instruction or education so as to qualify for
a suitable trade or profession whereby he or she may profit himself afterwards.112
Provided that they are beneficial to the minor, these contracts are binding. In Clements
v London and North Western Railway Company,113 a minor entered into a contract of
employment with a railway company, promising to accept the terms of an insurance
against accidents in lieu of his rights of action under the Employers’ Liability Act 1880.
It was held that the contract, taken as a whole, was for his benefit and that he was
bound by his promise.
On the other hand, a contract of this class which is more onerous than beneficial to
the minor will impose no liability. So in De Francesco v Barnum:114
B, aged 14 years, agreed to become De F’s apprentice in ‘the art of choreography’ for 7 years.
De F was to teach her stage dancing, and during the period of apprenticeship B was not to
take any professional engagement without the consent of De F, nor was she to marry. She was
to receive certain payments for any performances she might give, but there was no provision

106 The burden of proof is on the supplier: Nash v Inman, above, n 104, 5.
107 Below, p 239. See also Winfield (1942) 58 LQR 82, 90.
108 Earle v Peale (1711) 1 Salk 386 (except where necessaries are purchased at minor’s request).
109 Marlow v Pitfeild (1719) 1 P Wms 558.
110 Re Soltykoff, ex p Margrett [1891] 1 QB 413. Cf Bills of Exchange Act 1882, s 22.
111 Williams v Moor (1843) 11 M & W 256. 112 Co Litt 172a; Walter v Everard [1891] 2 QB 369.
113 [1894] 2 QB 482.
114 (1890) 45 Ch D 430. See also Sir WC Leng & Co Ltd v Andrews [1909] 1 Ch 763.
236 factors tending to defeat contractual liability

for any other remuneration and De F did not undertake to find her any engagements. The
effect of the deed was to place B entirely at the disposal of De F.

Fry LJ held that the contract was not beneficial to B and was unenforceable. It should,
however, be noted that even though a minor’s contract of service contains some terms
which are not for the benefit of the minor, the minor cannot necessarily repudiate it,
still less select which terms will or will not be followed. ‘The Court must look at the whole
contract, having regard to the circumstances of the case, and determine . . . whether
the contract is or is not beneficial.’115

(iv) Other beneficial contracts

The class of contracts for necessaries is not, however, limited to contracts of employment
and training. It includes numerous contracts for ‘necessaries’ other than goods, for
example, for medical attendance,116 for the preparation of a marriage settlement by a
solicitor,117 or the hire of a car to fetch a minor’s luggage from the railway station.118
Provided that these are reasonable and beneficial to the minor, the other party can
enforce them. Yet the class does not include ordinary trading contracts, such as the
hire-purchase of a motor lorry by a haulage contractor who is a minor.119 Such contracts
may be necessary to the minor’s business, and so of benefit to the minor, but they are
not binding. Thus, in Cowern v Nield,120 a contract to sell a consignment of hay by a
hay and straw dealer who was a minor was held not to be a contract for ‘necessaries’
because it was a trading contract.
The class is therefore a limited one although the limits are not easy to state. In Doyle
v White City Stadium Ltd,121 for instance:
A professional boxer, who was a minor, in consideration of his receiving a licence from
the British Boxing Board of Control, agreed to be bound by the rules of the Board in all
his professional engagements. A purse of £3,000 was withheld from him by the Board, in
accordance with its rules, on the ground that he had been disqualified in a contest for hitting
below the belt.

It was held that the agreement was binding on him despite his being a minor. The ground
of this decision was that the licence was practically essential in order to enable him to
become proficient in his profession, and when the conditions attached to the issue of
the licence were incorporated in a particular beneficial contract of employment—in
this case, an engagement to box for a heavyweight championship—both contracts
became binding on the minor, as they were both for his benefit. Also in Chaplin v
Leslie Frewin (Publishers) Ltd:122

115 Ibid, 439. See also Slade v Metrodent Ltd [1953] 2 QB 112.
116 Dale v Copping (1610) 1 Bulst 39. See also Gillick v West Norfolk and Wisbech AHA [1986] AC 112,
166–7, 183, 195 (capacity of girl under 16 to consent to medical treatment, including contraception).
117 Helps v Clayton (1864) 17 CB NS 553. 118 Fawcett v Smethurst (1914) 84 LJ KB 473.
119 Mercantile Union Guarantee Corp v Ball [1937] 2 KB 498. 120 [1912] 2 KB 419.
121 [1935] 1 KB 110.
122 [1966] Ch 71 (Lord Denning MR dissenting). The Court also held that, even if the contract had been
voidable by the minor, it could not have been rescinded because it had been executed by the transfer of the
copyright.
 incapacity 237

C, a minor who was the son of Charlie Chaplin, had been eking out a Bohemian existence
in London. In return for an advance of royalties, he assigned to LF publishers the exclusive
right to publish an autobiography of himself (entitled I Couldn’t Smoke the Grass on my
Father’s Lawn) which was to be written by ‘ghost’ writers. The completed work, so he alleged,
showed him to be ‘a depraved creature’, and he sought to repudiate the assignment.

The Court of Appeal held that he could not do so. The contract was binding on him
since it was one which enabled him to make a start as an author and thus to earn money
to keep himself and his wife. It was a beneficial contract, because, as Danckwerts LJ
put it,123 ‘The mud may cling but the profits will be secured’.
The judgments in these two cases do not set out to define the contracts which are
binding when beneficial to a minor, but they indicate a tendency to enlarge the class by
analogy with types of contract which are established as contracts for necessaries. The
contracts which the minors had made were arguably merely incidental to the carrying
on of a trade or profession and therefore of a kind which had not hitherto been believed
to be binding, even when beneficial.

(c) voidable contracts

A minor who acquires an interest in permanent property to which obligations
attach, or enters into a contract involving continuous rights and duties, benefits and
liabilities, and takes some benefit under the contract, will be bound, unless he or she
expressly disclaims the contract during the minority or within a reasonable time of
coming of age.
Examples of such contracts are the acquisition of an interest in land (such as a lease
or tenancy), and of shares in a company. Up to the time that the minor disclaims such
a contract he or she will be bound to carry out the obligations under it, provided that
these accrue before repudiation. A minor cannot renounce the liabilities until he or
she renounces the interest. So a lessee who is a minor is liable for rent until the lease is
disclaimed,124 and if a shareholder, is under a similar liability in respect of calls on the
shares until they are expressly repudiated.125

(i) Partnership
The position of a member of a partnership who is a minor differs from that of a
shareholder. It is true that partnership is a continuous relationship between the
partners, but by becoming a partner a minor does not acquire an interest in a subject

123 Ibid, 95.

124 Blake v Concannon (1870) 4 Ir Rep CL 320. By the Law of Property Act 1925, s 1(6) a minor can no
longer hold a legal estate in land; but can have an equitable interest, and so be bound in the same way: Davies
v Benyon-Harris (1931) 47 TLR 424; and a conveyance to a minor operates as a declaration of trust in his or
her favour: Trusts of Land and Appointment of Trustees Act 1996, Sched 1, paras 1, 2.
125 There is some doubt as to whether a minor is bound to pay unpaid calls which accrued due before the
repudiation, but the better opinion is that the minor is so bound, provided that he cannot plead total failure
of consideration: Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452. See also Cork & Bandon Ry Co v Cazenove
(1847) 10 QB 935; North Western Railway Co v M’Michael (1850) 5 Exch 114; Newry and Enniskillen Ry Co v
Coombe (1849) 3 Exch 565.
238 factors tending to defeat contractual liability

of a permanent nature to which obligations are attached. During the minority of a

partner, the minor is not liable for debts incurred by the partnership; but equally is not
entitled to any share of the partnership assets until the firm’s debts have been paid.126
A minor who continues to act as a partner after majority will be liable, equally with
the other partners, for the debts subsequently incurred. A minor may also be liable
for such debts if, though ceasing to act as a partner, he or she gives no adequate notice
of this withdrawal to persons dealing with the firm.127 The minor’s liability in this
case, however, merely illustrates a general rule of the law of partnership applicable
to any retired partner,128 and does not depend on any principle peculiar to the law of
minors.

(ii) Time of disclaimer

In order that a minor’s disclaimer of a permanent interest may take effect, the contract
must be repudiated during minority or within a reasonable time of the minor’s coming
of age. What is a reasonable time will depend upon the circumstances of each particular
case. In Edwards v Carter129 the House of Lords held that a minor who entered into a
marriage settlement and covenanted to bring into the settlement any property which
might come to him under his father’s will could not repudiate it nearly five years after
coming of age and one year after his father died leaving him property by will.

(iii) Effect of disclaimer

The effect of a valid disclaimer of a contract that binds until repudiated is to release the
minor from future obligations under it. A minor who has paid to the other party in the
mistaken belief that the contract is enforceable may be able to recover the payment.130
But in the absence of such a mistake the minor will not be able to recover anything
unless there has been a total failure of the consideration for which the money has
been paid. Where, for example shares have been allotted to the minor, money paid for
them will be irrecoverable whether or not a dividend has been paid or any other real
advantage received.131 The minor will have received something which had a marketable
value and which was the very consideration for which he or she had bargained.

(d) other contracts: unenforceable unless ratified

As explained above, a contract which is not for necessaries, and is not for an interest in
permanent property to which obligations attach, nor involves continuous rights and
duties, will not bind the minor at common law unless ratified by the minor within a
reasonable time after attaining majority. Until the Minors’ Contracts Act 1987 came
into force this common law rule was displaced by the Infants Relief Act 1874 which

126 Lovell and Christmas v Beauchamp [1894] AC 607.

127 Goode v Harrison (1821) 5 B & Ald 147. 128 Partnership Act 1890, s 36.
129 [1893] AC 360. See also Carnell v Harrison [1916] 1 Ch 328.
130 Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349.
131 Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452. See also Holmes v Blogg (1818) 8 Taunt 508 (premium
paid by minor for lease not recoverable).
 incapacity 239

made it impossible for a person of full age to be sued on a contract entered into during
minority, even though he or she had ratified such a contract and even though there was
some new consideration for the ratification.132 However, this did not stop the minor
enforcing the contract against the other party. The repeal of the 1874 Act means that
the common law rule as it existed prior to that legislation has again become the law.

(e) the nature of the liability of minors

Where there is an enforceable obligation against a minor, for example, for necessaries,
it remains to characterize that obligation. Two theories have been put forward.

(i) Liability in restitution

The first is that the liability arises in restitution rather than contract. The obligation is
imposed by the law because the minor has actually received the benefit of performance,
and not consensually as a result of entering a valid contract. This was the view taken by
Fletcher Moulton LJ in Nash v Inman:133
An infant, like a lunatic, is incapable of making a contract of purchase in the strict sense
of the words; but if a man satisfies the needs of the infant or lunatic by supplying to him
necessaries, the law will imply an obligation to repay him for the services so rendered, and
will enforce that obligation against the estate of the infant or lunatic. The consequence is that
the basis of the action is hardly contract. Its real foundation is an obligation which the law
imposes on the infant to make a fair payment in respect of needs satisfied.

(ii) Liability in contract

The second theory is that the liability is contractual. The minor can, it is said, enter
into a valid contract for necessaries just like any other person. ‘The plaintiff ’, said
Buckley LJ in Nash v Inman:134
when he sues the defendant for goods supplied during infancy, is suing him in contract on
the footing that the contract was such as the infant, notwithstanding infancy, could make.
The defendant, although he was an infant, had a limited capacity to contract. In order to
maintain his action the plaintiff must prove that the contract sued on is within that limited
capacity.

The problem is not academic since, unless the liability is contractual in nature, the
minor will not be liable where the contract is executory. In the case of necessary goods,
section 3 of the Sale of Goods Act 1979 indicates that the obligation is restitutionary.
It deals only with ‘necessaries sold and delivered’, and says nothing of necessaries
sold to a minor and not delivered, that is to say, of a contract of sale which is still

132 See Infants Relief Act 1874, s 2 (repealed by Minors’ Contracts Act 1987, s 4(1)) discussed in Guest,
Anson’s Law of Contract (26th edn, 1984) 184–92.
133 [1908] 2 KB 1, 8; Elkington v Amery [1936] 2 All ER 86, 88. For the application of this to contracts with
those lacking mental capacity, see Re Rhodes (1890) 44 Ch D 94, 105; Re J [1909] 1 Ch 574, 577.
134 Ibid, 12. See also Gillick v West Norfolk and Wisbech AHA [1986] AC 112, 169 (Lord Fraser: child could
enter into a ‘contract’).
240 factors tending to defeat contractual liability

executory.135 There does not seem to be a single case since the seventeenth century136
in which a minor has been held liable for the non-acceptance of necessaries or on a
contract for necessaries bargained and sold but not delivered. Since necessity is in part
determined at the time of delivery, it is in fact difficult to know whether an executory
contract is or is not one for necessaries.137 Moreover, even if the goods are delivered,
the plaintiff will not necessarily recover the contractual price but only ‘a reasonable
price for them’. This does not suggest a consensual contract.138
Contracts of employment, apprenticeship and the like, provided that they are
beneficial to the minor, have, however, always been regarded as merely one variety
of contracts for ‘necessaries’,139 and there seems to be no authority for regarding the
nature of the liability which they create as resting on a different basis from that of
contracts for the supply of necessary goods. Nevertheless in Roberts v Gray:140
G, a minor, entered into a contract by which he agreed to join R, a famous billiard player, in
a world tour as ‘professional billiardists’. R incurred certain necessary expenses as a result of
preparations for the tour, but, before the tour began, G repudiated the contract.

The Court of Appeal held that to play in company with a noted billiard player such as
R was instruction of the most valuable kind for a minor who wished to make billiard
playing his occupation, and they upheld an award of £1,500 damages for the breach.
They rejected the view that a contract for necessaries in this wider sense was not binding
on a minor while it was still executory. ‘I am unable to appreciate’, said Hamilton
LJ,141 ‘why a contract which is in itself binding, because it is a contract for necessaries
not qualified by unreasonable terms, can cease to be binding merely because it is still
executory’. This decision and that in Doyle v White City Stadium Ltd,142 considered
above, imply that when the minor is liable the nature of the liability does not differ
from that of a contracting party of full capacity; that it is, in fact, a true contractual
liability and not restitutionary.
In principle, there is much to be said for the contractual explanation. The law
governing minors’ contracts is based on the principle of ‘qualified unenforceability’;143
the minor has a limited capacity to contract, and within that limited capacity, there is
no reason to deny the contractual nature of liability. Moreover, the other party is liable
for non-delivery and other non-performance,144 and it has been argued that section
3 of the Sale of Goods Act 1979 does not exclude the possibility of liability being
contractual. This is because a contract for necessaries only binds a minor where it is
not, on balance, onerous to the minor. Thus a minor ‘will not, in any case, be bound by
a contract for necessaries for which more than a reasonable price is charged’, a position

135 Cf the wording of the Infants Relief Act 1874 (repealed by Minors’ Contracts Act 1987, s 4(1)), s 1 of
which might have suggested the contrary: ‘contracts . . . for goods supplied or to be supplied (other than
contracts for necessaries)’. See generally Winfield (1942) 58 LQR 82.
136 Ive v Chester (1619) Cro Jac 560; Delavel v Clare (1652) Latch 156.
137 Benjamin’s Sale of Goods (7th edn, 2006) para 2–032.
138 Pontypridd Union v Drew [1927] 1 KB 214, 220 (Scrutton LJ). See also Birks, An Introduction to
Restitution (1985) 436. 139 Walter v Everard [1891] 2 QB 369; above, p 235.
140 [1913] 1 KB 520. See also Hamilton v Bennett (1930) 94 JPN136. 141 Ibid, 530.
142 [1935] 1 KB 110; above, p 236. 143 Law Com No 134 (1984) para 1.12.
144 Farnham v Atkins (1669) 1 Sid 446; Bruce v Warwick (1815) 6 Taunt 118.
 incapacity 241

unaffected by the Sale of Goods Act, the provisions of which ‘are consistent with the
view that a minor may be liable on an executory contract for necessaries provided
that the terms are not onerous to him’.145 But in the present state of the authorities it is
difficult to state the nature of the minor’s liability with certainty.

(iii) Liability for voidable and unenforceable covenants

If the contract is a voidable contract not disclaimed in time, or an unenforceable
contract which has been ratified, it is clear that it may be enforced as a contract. The
real issue, however, concerns the non-contractual liability of the minor. That is, the
tortious or restitutionary liability of the minor in the case where a voidable contract
has been disclaimed or an unenforceable contract has not been ratified. On what basis
may the minor be liable? We address this below.

(f) liability of minors in tort

A minor is generally liable for torts that he or she has committed, but a breach of
contract may not be treated as a tort so as to make the minor liable. The tort must be
more than a misfeasance in the performance of a contract, and must be separate from
and independent of it, otherwise the policy of the law of contract to protect the minor
could too easily be subverted by switching to a claim in tort.
For instance, in Jennings v Rundall146 where a minor hired a mare to ride and injured
her by over-riding, it was held that he could not be made liable by framing an action
really arising out of contract as an action in tort. And in Fawcett v Smethurst,147 it was
said that a minor who hired a car to take his luggage from the station would be under
no liability in tort if he used the car to drive several miles further than the station, and
there met with an accident. Minors who obtain a loan by falsely representing their age
cannot be made to repay the amount of the loan in the form of damages for deceit,148
nor can minors who buy goods on credit be forced to pay for them by charging them
with conversion:149 ‘one cannot make an infant liable for the breach of a contract by
changing the form of action to one ex delicto.’150
But this is not to say that every tort of a minor which originates in a contract is not
actionable. If the wrongful action is of a kind not contemplated by the contract,151 the
minor may be exposed to tortious liability. So in Burnard v Haggis:152
A minor hired a mare for riding. He was given strict instructions ‘not to jump or lark with
her’. He lent her to a friend who jumped and killed her.

145 Goff and Jones, The Law of Restitution (7th edn, 2007) 637. But note the difficulty of ascertaining this
at that stage, above, p 240. 146 (1799) 8 Term Rep 335.
147 (1914) 84 LJ KB 473, although in that case the minor was, in fact, not guilty of any tort.
148 Johnson v Pye (1665) 1 Sid 258; Stikeman v Dawson (1847) De G & Sm 90; R Leslie Ltd v Sheill [1914]
3 KB 607. 149 Manby v Scott (1659) 1 Sid 109, 129.
150 Burnard v Haggis (1863) 32 LJ CP 189, 191 (Byles J, cited by Lord Sumner in R Leslie Ltd v Sheill [1914]
3 KB 607, 611).
151 Burnard v Haggis (1863) 14 CBNS 45, 53 (Willis J); Fawcett v Smethurst (1914) 84 LJ KB 473, 475
(Atkin J); R Leslie Ltd v Sheill [1914] 3 KB 607, 620 (Kennedy LJ); Ballett v Mingay [1943] KB 281, 283 (Lord
Greene MR). 152 (1863) 14 CBNS 45.
242 factors tending to defeat contractual liability

It was held that the minor was liable, for, as Willis J said:153
It appears to me that the act of riding the mare into the place where she received her death-
wound was as much a trespass, notwithstanding the hiring for another purpose, as if, without
any hiring at all, the defendant had gone into a field and taken the mare out and hunted her
and killed her. It was a bare trespass, not within the object and purpose of the hiring.

In a more modern case,154 a minor was successfully sued for the non-return of a
microphone and amplifier which he had hired and improperly parted with to a friend.
The Court of Appeal held that ‘the circumstances in which the goods passed from
his possession and ultimately disappeared were outside the purview of the contract
of bailment altogether’,155 and the minor was liable. In considering the extent of the
contract, it seems that the terms of the agreement, the presence or absence of an
express prohibition, and the nature of the subject-matter of the contract must all be
considered to be relevant, although not necessarily determining, factors.

(g) liability of minors in unjust enrichment

(i) Common law
Where, overall, a contract for necessaries is not beneficial to the minor and is not
therefore binding, the minor will nevertheless be liable to pay a reasonable price for
any necessaries supplied.156 But a claimant who seeks restitution of money paid or
benefits in kind conferred on the minor under a contract cannot simply rely on the
normal grounds for restitution of an unjust enrichment, in particular mistake and
failure of consideration. This is because the Court will take care not to grant restitution
where this would amount to indirectly enforcing the void contract, as it would be
if, for example, the minor is ordered to repay a loan. There is authority to the effect
that a minor can only be made liable in restitution if it can be shown that a wrong
quite independent of the contract has been committed,157 and that otherwise minority
affords a good defence.158 Thus in Cowen v Nield159 a hay and straw dealer who was a
minor was held entitled to retain money paid to him as the price of a consignment of
hay which he had failed to deliver in accordance with his contract. But these decisions
reflect the now discredited ‘implied contract’ theory of liability in such cases, and
should be rejected now that it has been accepted that the basis of restitutionary
liability is the unjust enrichment of the defendant, here the minor.160 There is force in
the argument that a restitutionary claim against a minor should be allowed so long as
its effect would not be to enforce the contract indirectly.161

153 Ibid, 53. 154 Ballett v Mingay [1943] KB 281. 155 Ibid, 283. 156 Above, p 234.
157 Cowern v Nield [1912] 2 KB 419.
158 R Leslie Ltd v Sheill [1914] 3 KB 607, below, p 243; Thavorn v Bank of Credit & Commerce International
SA [1985] 1 Lloyd’s Rep 259. 159 [1912] 2 KB 419.
160 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.
161 Goff and Jones, The Law of Restitution (7th edn, 2007) 642–4.
 incapacity 243

(ii) Equitable relief against a fraudulent minor

Minors who fraudulently represent themselves to be of full age and thereby induce
other persons to enter into contracts, are nevertheless not liable under the contracts
despite the fraud. Equity, however, will, in certain circumstances, intervene in order
to prevent minors from taking advantage of their own deceit. ‘Minors’, said Lord
Chancellor Hardwicke,162 ‘are not allowed to take advantage of infancy to support
a fraud’. This equitable intervention is distinct and separate from the contract. The
principle was succinctly stated by Lord Sumner in R Leslie Ltd v Sheill:163
When an infant obtained an advantage by falsely stating himself to be of full age, equity
required him to restore his ill-gotten gains, or to release the party deceived from obligations
or acts in law induced by the fraud, but scrupulously stopped short of enforcing against him
a contractual obligation, entered into while he was an infant, even by means of a fraud.

The exact extent of such equitable relief is the subject of some dispute. It is clear that
a minor who obtains property, whether consisting of goods or money or any other
security, by means of a false representation of full age, can be compelled to restore that
property to the person deceived, provided that it is identifiable and still in the minor’s
possession. It is equally clear that it is impossible to make the minor repay a loan of
money which has been borrowed by such a fraud and subsequently spent. In the words
of Lord Sumner in R Leslie Ltd v Sheill:164 ‘Restitution stops where repayment begins’.
In that case:
L were a firm of registered moneylenders, and they sued S, to whom they had made two
loans of £200 each, to recover £475, being the amount of the loans with interest. At the time
of obtaining the loans, S was a minor, but he had falsely represented to L that he was of full
age.

The Court of Appeal held that no action could be maintained for the recovery of the
money. The loan was rendered void by the Infants Relief Act 1874 then in force165 and
the minor could not be forced to repay:166
The money was paid over in order to be used as the defendant’s own and he has so used it
and, I suppose, spent it. There is no question of tracing it, no possibility of restoring the
very thing got by the fraud, nothing but compulsion through a personal judgment to pay an
equivalent sum out of his present or future resources, in a word nothing but a judgment in
debt to repay the loan. I think this would be nothing but enforcing a void contract.

Once the identity of the property has been lost because it has been dissipated, it is no
longer possible to invoke the aid of the equitable doctrine of restitution.
So much is clear; the difficulty arises when the minor has parted with the property
obtained by the fraud, but stands possessed of other money or property which represents
it. Suppose, for example, that a minor obtains certain goods by the misrepresentation,
and then sells the goods and stands possessed of the proceeds of sale. Is it possible to

162 Earl of Buckinghamshire v Drury (1760) 2 Eden 60, 71.

163 [1914] 3 KB 607, 618; Atiyah (1959) 22 MLR 273. 164 Ibid. 165 Above, p 238.
166 [1914] 3 KB 607, 619 (Lord Sumner).
244 factors tending to defeat contractual liability

claim that the money represents the goods and so ought to be restored to the person
deceived? In Stocks v Wilson:167
W, a minor, by falsely representing himself to be of full age, induced S to sell and deliver to
him certain goods for which he promised to pay £300. The goods were not necessaries. He
subsequently sold some of the goods for £30, and granted a bill of sale over the remainder as
security for the sum of £100 lent to him by a third party. These goods were later sold by him
to the grantee of the bill of sale. S claimed, by way of equitable relief, the value of the goods.

Lush J held that S was not entitled to recover the value of the goods from W as this
would be to enforce a void contract. Equity, however, had the power to prevent a
minor from retaining the benefit of what had been obtained by reason of his fraud,
and since W had obtained the sum of £130 by parting with the goods, he was liable to
account to S for this sum. This decision was criticized, but not overruled, by the Court
of Appeal in R Leslie Ltd v Sheill on the ground that Lush J had proceeded on the false
assumption that a minor who had obtained money by a false representation of full age
could be compelled to refund it. This may, perhaps, be reconciled with Stocks v Wilson
on the assumption that it is possible for the party defrauded to ‘trace’ the value of the
goods into the proceeds of their sale.168 If this is so, then the defrauded party’s right is
similar to that of a beneficiary in respect of a trust fund in the hands of a trustee.169 It
is possible to trace so long as there is an identifiable fund in existence against which the
defrauded party can enforce its claim in rem; but, once the fund has been dissipated,
it is no longer possible to obtain a judgment in personam against the infant for the
amount.
Equity will also relieve the deceived party of obligations imposed upon that
party by the minor’s fraud. Thus it has ordered the setting aside of a lease170 and the
giving up of promissory notes171 obtained by false representation of age. The Court
scrupulously refrained from enforcing the contracts, and merely restored the status
quo affected by the minor’s fraud. For example, a claim by the lessor for damages
for use and occupation of the premises was dismissed as being inconsistent with
this relief.
Where a person is induced to lend money by a false misrepresentation of age by the
minor, after the minor comes of age the lender is entitled to prove in any bankruptcy
proceedings against the minor.172 The reason seems to be that the lender has a claim,
not against the minor personally, but against the minor’s assets in competition with
the other creditors.173

167 [1913] 2 KB 235.

168 R Leslie Ltd v Sheill [1914] 3 KB 607, 618. See also Thavorn v Bank of Credit & Commerce International
SA [1985] 1 Lloyd’s Rep 259, 264; Atiyah (1959) 22 MLR 273. Stocks v Wilson may fairly be criticized, since
it appears that judgment was given in personam against the minor and without any proper inquiry as to
whether the money had been spent.
169 The representation of full age might be considered to raise an ‘equity’ in the defrauded party similar
to that possessed by a beneficiary of a fiduciary relationship.
170 Lemprière v Lange (1879) 12 Ch D 675. 171 Clarke v Cobley (1789) 2 Cox 173.
172 Re King, ex p Unity Joint Stock Mutual Banking Association (1858) 3 De G & J 63; Re Jones, ex p Jones
(1881) 18 Ch D 109, 125. 173 R Leslie Ltd v Sheill [1914] 3 KB 607, 616.
 incapacity 245

(iii) Minors’ Contracts Act 1987

In addition to rights to restitution that may arise at common law and in equity, there
is a statutory scheme allowing for restitution. Section 3 of the Minors’ Contracts Act
1987174 provides:

(1) Where—
(a) a person (‘the plaintiff ’) has after the commencement of this Act entered into a
contract with another (‘the defendant’), and
(b) the contract is unenforceable against the defendant (or he repudiates it) because
he was a minor when the contract was made,
the court may, if it is just and equitable to do so, require the defendant to transfer to
the plaintiff any property acquired by the defendant under the contract, or any property
representing it.

The provision leaves the issue of restitution to the discretion of the Court. There is no
requirement of fault or fraud. It is also only concerned with property acquired under the
contract (or property acquired in exchange for property acquired under the contract)
and not property gained in any other way. It appears that money is included within
this notion of property. The Law Commission’s policy was to extend the equitable
remedy available against a fraudulent minor to a case where the minor, though not
guilty of fraud, had failed to pay for goods obtained on credit.175 That equitable relief
extended, as in Stocks v Wilson176 and as recognized by the Law Commission, to money
which was the proceeds of the property sold to the minor and resold by him or her. But
if property delivered to a minor has been consumed or lost, there will be no remedy
under the 1987 Act. The Law Commission considered that to order the minor to pay
to the seller a sum equivalent to the purchase price or the value of the property ‘would
amount to the enforcement of the contract’ against the minor.177

(h) restitution in favour of minors

In order for the minor to recover money paid to the other party under a contract which
does not bind the minor, a ground for restitution making the enrichment unjust must be
established, ie that the money was paid by mistake, under compulsion, or that there has
been a failure of consideration. Where the ground of recovery is failure of consideration,
in the present state of the authorities it would appear that what is required is a total
failure of consideration, so that, as noted above,178 receipt by the minor of any part
of the other party’s performance will be fatal. But, as will be seen,179 the indications
are that the requirement of totality is being reconsidered, and it is submitted that the
authority of the cases requiring it in this context has been fatally undermined. Provided

174 See Law Com No 134, Minors’ Contracts (1984). 175 Ibid, para 4.21.
176 [1913] 2 KB 235, above, p 244. 177 Law Com No 134 (1984), para 4.23.
178 Above, p 238. On the recovery of property, see Pearce v Brain [1929] 2 KB 310 but cf Chaplin v Leslie
Frewin (Publishers) Ltd [1966] Ch 71, above, p 236. 179 Below, pp 590–1.
246 factors tending to defeat contractual liability

the minor can return what has been received or give recompense for it in a way that does
not amount to indirect enforcement of the contract, the minor should, in principle, be
able to recover money paid.

(i) third parties

An interesting question arises as to the effect the invalidity of a minor’s contract has
on third parties. So far, we know that although a minor may enforce a contract the
other party to the contract can only enforce it if it is a valid contract for necessaries
or if it is a voidable contract that has not been disclaimed or another (unenforceable)
contract that has been ratified. If the contract is not enforceable, what is the position
of, say, a guarantor of the minor’s obligations? Section 2 of the Minors’ Contracts Act
1987 provides:
Where—

(a) a guarantee is given in respect of an obligation of a party to a contract made after the
commencement of this Act, and
(b) the obligation is unenforceable against him (or he repudiates the contract) because he
was a minor when the contract was made,

the guarantee shall not for that reason alone be unenforceable against the guarantor.180

5. persons lacking mental capacity and

drunken persons
The Mental Capacity Act 2005 set up a new framework within which the Court or other
designated persons can take decisions on behalf of a person who lacks capacity, and for
the supervision of such a person. A person must be assumed to have capacity unless
it is established that he or she lacks capacity;181 and the lack of capacity is no longer
defined as a general disability but as the inability to make a decision in relation to a
particular matter, at a particular time, because of permanent or temporary impairment
of, or disturbance in the functioning of, the mind or brain.182 For this purpose a
person is unable to make a decision for himself if he is unable: (a) to understand the
information relevant to the decision; (b) to retain that information; (c) to use or weigh

180 Cf the position under the Infants Relief Act 1874, s 1 (repealed by Minors’ Contracts Act 1987, s 4(1):
above, p 239, n 132) which rendered loans to infants void rather than unenforceable: see Coutts & Co v Browne-
Lecky [1947] KB 104. See also Law Com No 134 (1984) para 4.15. 181 2005 Act, s 1(2).
182 Ibid, s 2(1). The law on mental (in)capacity was formerly contained in the Mental Health Act 1983,
consolidating major revision made by the Mental Health Act 1959. The language has changed over the years,
and the 2005 Act has abandoned such old terms as ‘lunatic’ or ‘person of unsound mind’ (Lunacy Act 1890),
‘mentally defective’, ‘idiot’, ‘imbecile’, or ‘feeble-minded person’ (Mental Deficiency Act 1913), and ‘mentally
disordered patient’ (1959 and 1983 Acts).
 incapacity 247

that information as part of the process of making the decision; or (d) to communicate
his decision (whether by talking, using sign language or any other means).183
The contract of a person lacking mental capacity or a drunken person is not binding
if it can be shown that at the time of making the contract he or she was incapable of
understanding the general nature of what was being done, and that the other party was
aware of this incapacity. This principle was established by Lord Esher MR in Imperial
Loan Co v Stone:184
When a person enters into a contract, and aft erwards alleges that he was so insane at the
time that he did not know what he was doing, and proves the allegation, the contract is
as binding upon him in every respect, whether it is executory or executed, as if he had
been sane when he made it, unless he can prove further that the person with whom he
contracted knew him to be so insane as not to be capable of understanding what he was
about.

Authority for the view that, even if the condition of person lacking mental capacity
was not known to the other party, the contract may be set aside if it was ‘unfair’ or
‘unconscionable’ in its terms185 was disapproved by the Judicial Committee of the
Privy Council in Hart v O’Connor.186 Lord Brightman said:187
the validity of a contract entered into by a lunatic who is ostensibly sane is to be judged by the
same standards as a contract by a person of sound mind, and is not voidable by the lunatic
or his representatives by reason of ‘unfairness’ unless such unfairness amounts to equitable
fraud which would have enabled the complaining party to avoid the contract even if he had
been sane.

Lack of mental capacity therefore operates differently from minority, where the
overriding policy is to protect the minor even if the person dealing with him or her
does not know of the minority.188 A party dealing with the person who lacks mental
capacity, by contrast, is protected if he or she did not know of the lack of capacity. The
basis on which the contract with a person lacking mental capacity, as also the contract
with a drunken person,189 is voidable is that the other party has improperly taken
advantage of the weaker person. Such forms of ‘procedural impropriety’, ‘equitable
fraud’, or ‘unconscionable bargains’ are discussed later.190
A contract made in such circumstances is voidable at the option of the incapacitated
person, who can elect either to avoid the contract or to affirm it, in which case it is
binding. Thus in Matthews v Baxter:191
B, while drunk, agreed at an auction sale to purchase from M certain houses and land.
Afterwards, when sober, B affirmed the contract and then repented of his bargain. When

183 Ibid, s 3(1).

184 [1892] 1 QB 599, 601; York Glass Co Ltd v Jubb (1925) 134 LT 36; Hart v O’Connor [1985] AC 1000. See
also Law Com No 231, Mental Incapacity (1995) paras 3.5–3.6, 3.16–3.19.
185 Molton v Camroux (1848) 2 Exch 487, 503 (aff ’d (1849) 4 Exch 17); Archer v Cutler [1980] 1 NZLR
386 (New Zealand). For similar cases in relation to drunkenness, see Cooke v Clayworth (1811) 18 Ves 12;
Wiltshire v Marshall (1866) 14 LT (NS) 396; Blomley v Ryan (1956) 99 CLR 362 (Australia).
186 [1985] AC 1000. 187 Ibid, 1027. 188 Above, p 233.
189 Or a contract with a person incapacitated by drugs: Irvani v Irvani [2000] 1 Lloyd’s Rep 412.
190 Below, pp 372–4. 191 (1873) LR 8 Ex 132.
248 factors tending to defeat contractual liability

sued on the contract, he pleaded that he was drunk at the time he made it, and to M’s
knowledge.

The Court held that although B had once an option in the matter and might have
avoided the contract, he was now bound by his affirmation of it. ‘I think’, said Martin
B192 ‘that a drunken man when he recovers his senses, might insist on the fulfilment of
his bargain, and therefore that he can ratify it, so as to bind himself to a performance of
it’. It will be seen from this case that the contract of a mentally disordered or drunken
person is voidable at the option of the incapacitated person and not completely void.
Therefore if property is transferred as the result of such a contract and subsequently
passes to a purchaser in good faith for value, it seems that the innocent purchaser
would acquire a good title.
Section 3 of the Sale of Goods Act 1979, which has already been quoted in respect
of minors’ contracts for necessaries, provides that ‘where necessaries are sold and
delivered to a person who by reason of drunkenness is incompetent to contract, he
must pay a reasonable price for them’. The Mental Capacity Act 2005 makes a similar
provision for contracts for the supply of necessary goods or services to a person who
lacks capacity to contract for the supply.193 There is little doubt that the liability under
these provisions arises in restitution194 and that an executory contract for necessaries,
if avoided by the party lacking capacity, would be unenforceable.

192 At 134.
193 2005 Act, s 7, replacing a provision for persons with mental incapacity in Sale of Goods Act 1979, s 3,
above, p 234. 194 Re Rhodes (1890) 44 Ch D 94. See also Winfield (1942) 58 LQR 82, 87.
 8
MISTAKE
1. introduction
This chapter is concerned with the circumstances in which a contract will be held to
be defective if one or both of the parties enter into it under some misapprehension
or misunderstanding but would not have done so had they known the true position.
Where one party’s misunderstanding was caused by the words or conduct of the
other party, the mistaken party will normally challenge the validity of the contract
not by asserting that he made a mistake but by basing his claim on the other party’s
misrepresentation because, as we shall see, the scope of the doctrine of mistake is
narrow and rather uncertain, but a claimant may obtain a wider range of remedies
for misrepresentation.1 There are, however, situations in which it is advantageous to a
party to seek a remedy based on his or both parties’ mistake, even where the mistake
was induced by misrepresentation, because on the facts an appropriate remedy for
misrepresentation is not available.2 Moreover, if the claimant cannot establish a
misrepresentation, he will be driven to base his claim on his own mistake.
Mistake is one of the most difficult topics in the English law of contract. The
principles have never been precisely settled, the decided cases are open to a number of
varying interpretations and the position is complicated by the fact that there have been
distinct changes in the attitude of the judges to the question of mistake during the last
150 years.3 A doctrine of mistake was first recognized in the English law of contract
in the nineteenth century, under the influence of Roman law and modern civil law
(and in particular French law).4 There was a time when, in reliance on the consensus
theory of contract and influenced by the eighteenth-century French jurist Pothier,
the Courts were more readily disposed to hold that, where there was no ‘true, full and
free’ consent, there was no valid contract.5 At the present time, however, the Courts

1 Misrepresentation is discussed in Chapter 9.

2 eg rescission of a contract which is voidable for misrepresentation is barred by lapse of time or intervening
third-party rights: below, pp 315–6; but the claimant can assert that it is void for mistake: below, p 268.
3 Cartwright, ‘The rise and fall of mistake in the English law of contract’ in Sefton-Green, Mistake, Fraud
and Duties to Inform in European Contract Law (2005) 65.
4 Simpson (1975) 91 LQR 247; Ibbetson, A Historical Introduction to the Law of Obligations (1999) ch 12;
MacMillan, Mistakes in Contract Law (2010).
5 Pothier, Traité des Obligations (1761) para 19 (discussing mistake of identity), was cited in Smith v
Wheatcroft (1878) 9 Ch D 223, 230; Gordon v Street [1899] 2 QB 641, 647; Phillips v Brooks [1919] 2 KB 243, 248;
Said v Butt [1920] 3 KB 497, 501; Lake v Simmons [1927] AC 487, 501; Sowler v Potter [1940] 1 KB 271, 274. Cf
Solle v Butcher [1950] 2 KB 671, 692 (Denning LJ); Lewis v Averay [1972] 1 QB 198, 206 (Lord Denning MR).
250 factors tending to defeat contractual liability

are very reluctant to intervene in this manner and the role of mistake is narrower than
in many European legal systems.6
The reasons for this change are first that, at common law, if a contract is entered into
under a legally operative mistake, it is void ab initio; it has no legal effect whatever.
Consequently, if the subject-matter of the contract consists of goods, no property in
the goods will pass under the contract. A third party will acquire no title to the goods
even if he takes them in good faith and for value.7 Secondly, there is a feeling that,
once the parties are ostensibly in agreement in the same terms and upon the same
subject-matter, they ought to be held to their bargain; they must rely on the terms of
the contract for protection from the effect of facts unknown to them.8 This has led to
increased reliance on the objective test under which matters are judged by the external
standard of the reasonable person.9 Limiting the circumstances in which a third party
in good faith cannot safely rely on what is objectively the apparent position promotes
the certainty and finality of transactions which has been the hallmark of the English
law of contract. Thirdly, there is a fear that parties to a contract will plead mistake to
get out of a bad bargain or to reallocate the risks and consequently undermine the
sanctity of contract.10 This is coupled with a perception, also used to justify the absence
of a general duty of disclosure, that if a person who has acquired an expertise in the
subject-matter of the contract could be deprived of the benefit of a bargain made with
an uninformed counter-party it might imperil the market system.11 By contrast, where
there is no contractual bargain to set aside, the common law recognizes a broader role
for mistake. Thus any (non-contractual) payment caused by a mistake is prima facie
recoverable.12
Nevertheless, cases will undoubtedly arise in which it would be unjust to hold the
parties strictly to their agreement. Such cases will occur quite independently of any
warranty or misrepresentation or fraud, and relief must be sought, if at all, on the
ground of mistake. The Courts have displayed a mixed response to this problem. In
1932 Lord Atkin took a strict approach, and said that it was each party’s responsibility
to check the facts which were significant for him in relation to the contract, or at least
to ask for confirmation or a warranty from the other party in relation to significant
facts.13 However, taking the lead from an important judgment of Denning LJ in 194914
the Courts, side by side with their insistence that at common law the doctrine of
mistake of facts is extremely narrow (if it exists at all), developed the use of certain
equitable remedies which are, in some ways, more satisfactory as they are discretionary

6 Lando and Beale, Principles of European Contract Law Parts I and II (2000) 235.
7 Cundy v Lindsay (1878) 3 App Cas 459, below, p 270; cf Shogun Finance Ltd v Hudson [2003] UKHL 62,
[2004] 1 AC 919, below, p 273 at [13], [35], [60], [82] (Lord Nicholls and Lord Millett (both dissenting)).
8 Bell v Lever Brothers Ltd [1932] AC 161, 224 (Lord Atkin).
9 Smith v Hughes (1871) LR 6 QB 597, below, p 257. See above, p 32.
10 eg Tamplin v James (1880) 15 Ch D 215, 221; Riverlate Properties Ltd v Paul [1975] Ch 133, 140–1;
Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 264.
11 Smith v Hughes (1871) LR 6 QB 597, 604, 606. See generally Kronman (1978) 7 JLS 1. On the absence of
a general duty of disclosure, see below, pp 299, 332.
12 Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349.
13 Bell v Lever Brothers Ltd [1932] AC 161, 224 (Lord Atkin); below, p 279.
14 Solle v Butcher [1950] 1 KB 671; below, p 290.
 mistake 251

and, further, do not render the contract void ab initio but only voidable.15 Moreover,
it appeared that, again under the influence of Lord Denning, the Courts were moving
away from the traditional approach under which a mistake made by one party about
the identity of the other party can render the contract void, and preferred to find the
contract only voidable16 with the result that, as in the position of a contract vitiated
by fraud, misrepresentation or duress, the position of third parties who take goods in
good faith is protected.
However, more recently the Court of Appeal has rejected Lord Denning’s equitable
doctrine of mistake of facts and has asserted that only the narrow common law
doctrine of mistake can be relied upon in the absence of other vitiating factors
such as misrepresentation or any statutory protection of the disadvantaged party.17
In addition, the House of Lords has (by a bare majority) reasserted the traditional
view that mistake of identity, even though it may occur relatively rarely, renders the
contract void.18 Later in this chapter we shall see these developments and changes of
underlying policy in relation to mistake in contract, and consider what has been lost in
the latest reversion by the Court of Appeal back to the narrower common law doctrine
of mistake of facts,19 and the reassertion by the House of Lords of the traditional
common law doctrine of mistake of identity.20

2. categorizing mistakes
For the purposes of understanding the law on mistake, it is possible to categorize the
cases in various different ways. Sometimes it can be helpful to distinguish between a
mistake which is made by only one of the parties (‘unilateral’) and a mistake which
is shared by both parties (which has been called ‘mutual’,21 but is nowadays generally
labelled by the Courts as a ‘common’ mistake22). Sometimes we may distinguish between
the different effects of mistakes on the formation of the contract: some mistakes ‘negative’
the parties’ consent, in the sense of preventing there being a sufficient agreement
between the parties to bring the contract into existence; other mistakes do not operate
to negative the consent but are sufficient to render the contract void by ‘nullifying’ it.23
Sometimes we may separate out the effects of mistakes under the common law (under

15 Cf Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 267–8 (Steyn J:
the state of the law with a narrow doctrine of common law mistake with potentially harsh effects on third
parties supplemented by the broader and flexible doctrine of mistake in equity in which third parties are
protected is ‘entirely sensible and satisfactory’).
16 Solle v Butcher, above, n 14, 692–3 (Denning LJ); Lewis v Averay [1972] 1 QB 198, 207 (Lord Denning
MR). See also Ingram v Little [1961] QB 31, 73–4 (Devlin LJ); Shogun Finance Ltd v Hudson [2003] UKHL 62,
[2004] 1 AC 919 at [33]–[35] and [61] (Lord Nicholls and Lord Millett, dissenting).
17 Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace [2002] EWCA Civ
1407, [2003] QB 679; below, p 295. 18 Shogun Finance Ltd v Hudson, above, n 16; below, p 273.
19 Below, pp 296–8. 20 Below, pp 275–6.
21 eg Bell v Lever Bros Ltd [1932] AC 161 and in previous editions of the present work.
22 eg Solle v Butcher [1950] 1 KB 671, 693; Associated Japanese Bank (International) Ltd v Crédit du Nord
SA [1989] 1 WLR 255, 257; The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at [32].
23 Bell v Lever Bros Ltd [1932] AC 161, 217 (Lord Atkin).
252 factors tending to defeat contractual liability

which an operative mistake renders the contract void) and in equity (which may provide
different remedies: rescission of a (voidable) contract, refusal of specific performance
even if the contract is valid at common law; rectification of the contract). In the following
sections of this chapter, however, a different categorization is adopted—according to
what the mistake is about. A party may make a mistake about the terms of the contract;
the identity of the other contracting party; or facts or law relating to the subject-matter
of the contract or to the circumstances surrounding the formation of the contract.
Examining the cases by reference to these different categories helps to understand the
approaches of the Courts to mistakes in different circumstances. However, in the course
of this examination, we shall also see the relevance of such things as whether the mistake
is unilateral or shared; the impact on the formation of the contract; and the range of
remedies at both common law and equity.

3. mistakes about the terms of the

contract
(a)‘subjective’ and ‘objective’ agreement in the
formation of a contract
This section is concerned with that form of mistake which invalidates a contract
because, although to all outward appearances the parties are agreed on the terms
of their contract, there is in fact no sufficient agreement between them and the law
therefore does not regard a contract as having come into existence. Such cases must
be distinguished from cases in which there is not even the outward semblance of
agreement because offer and acceptance never coincided in their respective terms.24
However, these different cases are closely related. It follows from the essential nature
of a contract that if there is no agreement between the parties, or, as is commonly
said, if the parties are not ad idem, there is no contract. This is only another way of
saying that offer and acceptance must correspond exactly, or no contract will ensue.
Therefore, if the offeree thinks that the terms proposed by the offeror are other than
those actually proposed, and if she accepts on that mistaken assumption, it is clear
that there is no real agreement, for the offer which she has accepted is not the offer
made by the other party.
If the test for the formation of a contract were whether the parties have both actually
agreed on the existence and terms of the contract—that is, both parties not only intend
to contract with each other but also have in their minds the same intentions as to the
terms of the contract—then any mistake by either party about the terms of the contract
would prevent the formation of the contract. That would be a subjective test for the
formation of a contract which would have the merit that a party would be bound only
to contracts which she genuinely intended to enter into. But it would also give great
scope for a party to avoid being bound by the contract by simply showing that she

24 Above, p 40.
 mistake 253

misunderstood the terms proposed by the other party, and this could have the effect
of undermining the security of contracts. English law has therefore rejected the purely
subjective test, and provides that a party may nevertheless be held to have agreed with
the other party if an agreement can reasonably be inferred from objective facts.
We have already seen in Chapter 2, The Agreement25 and Chapter 5, The Terms of
the Contract26 that, as a general rule, the intentions of the parties must be construed
objectively. However, the meaning of ‘objectivity’ varies from one situation to another.
Where the question is how to construe a written contract, the Courts normally discover
the parties’ common intentions from the document alone: the words are interpreted in
the way in which a reasonable reader of the document would have understood them.
The actual (subjective) intentions of both of the parties are in principle irrelevant to the
question of construction, although as we shall see they may be relevant to the question
of whether the document can be rectified.27 However, where the question is how to
construe the communications between parties who are negotiating a contract—the
offer, counter-offers, and acceptance—the Courts have generally rejected a test based
on ‘detached objectivity’ and the intentions of each party are interpreted from the
perspective of the reasonable person in the position of the other party.28 This is the
general ‘objective test’ which will be discussed in the following section. Issues relating
to written contracts will be considered later in this chapter.29

(b) the ‘objective test’

The general test used to ascertain the intentions of the parties was set out by Blackburn J
in Smith v Hughes:30
if one of the parties intends to make a contract on one set of terms, and the other intends to
make a contract on another set of terms, or, as it is sometimes expressed, if the parties are
not ad idem, there is no contract, unless the circumstances are such as to preclude one of
the parties from denying that he has agreed to the terms of the other . . . If, whatever a man’s
real intention may be, he so conducts himself that a reasonable man would believe that he
was assenting to the terms proposed by the other party, and that other party upon that belief
enters into the contract with him, the man thus conducting himself would be equally bound
as if he had intended to agree to the other party’s terms.

This makes clear that the fact that the parties are not in real (subjective) agreement
does not necessarily prevent the contract being formed, if one party has led the other
party reasonably to believe that he was agreeing. It is evident that in the vast majority
of cases the operation of this objective test will exclude the plea that the parties were
not in agreement. So it is clear that the cases in which mistake affects a contract must
be considered to be the rare exceptions to this general rule. Parties are bound by

25 Above, p 32. 26 Above, p 166. 27 Below, p 262.

28 Above, p 32; Spencer [1973] CLJ 104, 106–13; Vorster (1987) 104 LQR 274, criticising Howarth (1984)
100 LQR 265; Cartwright, Unequal Bargaining (1991) 5–24. 29 Below, p 258.
30 (1871) LR 6 QB 597, 607. For details of the case, see below, p 257. See also The Hannah Blumenthal [1983]
1 AC 854, 914, 915–16, 924; Centrovincial Estates plc v Merchant Investors Assurance Co Ltd [1983] Com LR
158; OT Africa Line Ltd v Vickers plc [1996] 1 Lloyd’s Rep 700.
254 factors tending to defeat contractual liability

agreements to which they have expressed a clear assent. If they exhibit all the outward
signs of agreement the law will hold that they have agreed.
Nevertheless it may happen that, although at first sight a contract appears perfectly
valid, the law regards it as void because there was no agreement even when the parties’
communications are assessed by reference to the objective test. This may occur in any
of four situations:
(1) where, despite outward appearances, there is no coincidence between the terms
of the offer and those of the acceptance because when each is tested objectively
they conflict;
(2) where there is a mistake about the promise, or terms of the contract, which is
known to the other party;
(3) where there is a mistake in relation to a written document;
(4) where there is a mistake about the identity of the person with whom the contract
is made.
We shall here consider (1) (2) and (3). Mistakes as to the identity of the other party raise
particular difficulties and are considered separately in the next section.31

(i) Offer and acceptance not coincident

It may happen that, owing to a mistake on the part of one party, an offer may be innocently
accepted in a different sense from that in which it was intended by the offeror, and the
terms in which the contract is expressed may suffer from such latent ambiguity that it
is impossible to say that the conduct of the parties points to one solution rather than
another. In such a case one party may say that she did not attach the same meaning to
the terms as the other party, and it will be impossible to say that her conduct would have
induced a reasonable person to make one deduction rather than the other. The contract
will be void because the terms of the offer and the acceptance did not coincide.32
If, for example, two things have the same name, and A makes an offer to B referring
to one of them, which offer B accepts thinking that A is referring to the other, then
provided there is nothing in the terms of the contract to identify one or other as its
subject-matter, evidence may be given to show that the mind of each party was in
fact (and subjectively) directed to a different object: that A offered one thing and B
accepted another. Where a reasonable person in each of A and B’s positions would also
have come to different conclusions about the parties’ intentions, there is a (subjective)
misunderstanding which cannot be resolved by an application of the objective test. So
in Raffles v Wichelhaus:33
W agreed to buy from R 125 bales of cotton ‘to arrive [in Liverpool] ex Peerless from Bombay’.
There were two ships called Peerless, and both sailed from Bombay, but W meant the Peerless
which sailed in October, and R the Peerless which sailed in December.

31 Below, p 268. 32 Cited with approval in Alampi v Swartz (1963) 38 DLR (2d) 300 (Canada).
33 (1864) 2 H & C 906. See Simpson, Leading Cases in the Common Law (1995) ch 6. See also Thornton v
Kempster (1814) 5 Taunt 786; Henkel v Pape (1870) LR 6 Ex 7; Falck v Williams [1900] AC 176; Lloyds Bank plc
v Waterhouse (1991) 10 Tr LR 161, 185, 191.
 mistake 255

It was held that there was no contract. There was nothing in the agreement which
would point to one or other of the vessels as being the one identified in the contract;
the offer and acceptance did not coincide.
Similarly, if A makes to B an offer which is ambiguous in its terms, or is rendered
ambiguous by the circumstances surrounding it, and B accepts the offer in a different
sense from that in which it is meant, then unless an objective construction requires
otherwise, B may effectively maintain that there is no binding contract. In Scriven Bros
& Co v Hindley & Co:34
S instructed an auctioneer to sell certain bales of hemp and tow. These bore the same
shipping mark and were described in the auction catalogue as so many bales in different
lots with no indication of the difference in their contents. H’s manager examined samples
of the hemp before the sale intending to bid for the hemp alone. At the auction, the tow was
put up for sale, and H’s buyer, believing it to be hemp, made a bid which was a reasonable
one if it had been intended for hemp, but an excessive one for tow. This bid was accepted
by the auctioneer, who did not realize the buyer’s mistake, but merely thought the bid an
extravagant one for tow. S sought to enforce the contract by suing for the price.

It was clear that offer and acceptance did not coincide. S intended to sell tow; H’s buyer,
misled by the auction catalogue, intended to buy hemp. The Court held that there was
nothing in H’s conduct which would estop it from pleading that the parties were not
in agreement as to the subject-matter of the sale—or, to put it in the language of the
objective test set out by Blackburn J in Smith v Hughes,35 H had not so conducted itself
that a reasonable man would believe that it was assenting to S’s terms. Accordingly, no
contract had come into existence, and H was not liable.
It has been said that these are not truly cases of mistake, but rather cases where there
is merely no concurrence between the terms of the offer and those of the acceptance.
This is true, but it is important to see them in the context of the application of the
objective test to override subjective misunderstandings, since the essential question is
whether the offer and acceptance, objectively construed, can be taken to match. They
also illustrate the point that proof of a mistake must be adduced before a flaw can be
found in an ostensible agreement.
It is also important to realize the limits of these decisions. Where A sues B under
an alleged contract but it is shown that there was no subjective agreement between
the parties, and A cannot establish that B has so conducted himself as to entitle A
reasonably to believe that B was agreeing to A’s intended terms, then A’s claim against
B fails. But that outcome does not necessarily establish whether B (had he so wished)
could have established that A’s conduct had led B reasonably to believe that A was
agreeing with B’s intended terms. That is, just because A fails to establish a contract
on A’s terms does not mean that B could not establish a contract on B’s terms. In
every case the question is whether the party seeking to establish a contract can do
so on the evidence of what the parties intended, and what the defendant’s conduct
had led the claimant reasonably to believe. If both parties were equally reasonable (or
unreasonable) in their different understandings of the agreed terms, then there will be

34 [1913] 3 KB 564. 35 Above, p 253.

256 factors tending to defeat contractual liability

an ambiguity which cannot be resolved, and neither can establish a contract.36 But if
the misunderstanding was a result of the fault of one party, which was not known to
the other party, it may often be the case that the latter can establish a contract on the
basis of the terms as he understood them.

(ii) Mistake about the promise, or terms, which is known to the other party
In entering into contracts people must use their own judgement or, if they cannot rely
upon their judgement, must take care that the terms of the contract secure to them
what they want. Caveat emptor is a general rule of the law of contracts. One party is not
bound to disclose to the other all material facts or circumstances which might affect
the bargain and which are known to that party alone. Even if one party knows that the
other party is contracting under a misapprehension about the facts, the general rule
is that she has no duty to disillusion the mistaken party.37 The law imposes certain
particular duties of disclosure of material facts, where it is required by the particular
type of contract (for example, a contract uberrimae fidei—‘of utmost good faith’)38 or
the relationship between the parties (for example, a fiduciary relationship).39 Active
concealment may constitute misrepresentation.40 Save in these cases, however, mere
silence will not constitute a misrepresentation and there is no duty of disclosure, and
each party must protect itself from the consequences of its own mistake.
Nevertheless a mistake about the terms of the contract is different from a mistake
about the facts or the circumstances surrounding the formation of the contract.41 The
law will not allow one party to hold the other to a contract where that party knows
that the other does not intend to agree on the same terms—for example, where A
purports to accept B’s offer knowing that B does not intend it in the sense that A claims
to be entitled to interpret it. A cannot, as it is sometimes said, ‘snap up’ B’s offer.42
Moreover, a mistake by one party of which the other ought reasonably to have known
will suffice.43 This follows from the application of the objective test set out in Smith v
Hughes.44 Blackburn J said:
If, whatever a man’s real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed by the other party, and that other
party upon that belief enters into the contract with him, the man thus conducting himself
would be equally bound as if he had intended to agree to the other party’s terms.

The italicized words show that A can hold B to A’s offer only if it was not only reasonable
for him to believe that B was agreeing with the terms of the offer as A understood them,

36 Vorster (1987) 103 LQR 274, 286. 37 Below, pp 332–3. 38 Below, p 334.
39 Below, p 340. 40 Below, p 301.
41 Smith v Hughes (1871) LR 6 QB 597, 606, 607, 610–11; Bell v Lever Brothers Ltd [1932] AC 161, 218. On
mistakes about facts and circumstances, see below, p 276 ff.
42 Tamplin v James (1880) 15 Ch D 215, 221; Hartog v Colin & Shields [1939] 3 All ER 566, 567.
43 Centrovincial Estates plc v Merchant Investors Assurance Co Ltd [1983] Com LR 158; OT Africa Line
Ltd v Vickers plc [1996] 1 Lloyd’s Rep 700, 703. See also Mannai Investment Co Ltd v Eagle Star Life Assurance
Co Ltd [1997] AC 749; Homburg Houtimport BV v Agrosin Private Ltd, The Starsin [2003] UKHL 12, [2004] 1
AC 715 at [73]–[76] (interpretation of written document by reference to the reasonable reader). Cf the test for
rectification in cases of unilateral mistake, below, p 264. 44 Above, p 253.
 mistake 257

but also only if A in fact believed it. So a party can never enforce a contract on terms
which she did not in fact herself intend at the time of the formation of the contract.
In Smith v Hughes:45
S sued H for the price of oats sold and delivered, and for damages for not accepting the
oats. S had offered to sell to H, by sample, a parcel of oats at 35s a quarter. According to H, S
described the oats as ‘good old oats’, but S denied that the word ‘old’ had been used. This offer
was rejected by H’s counter-offer of 34s a quarter, which in turn was accepted by S’s delivery
of the oats. When they were delivered, they were found to be new oats, and unsuitable for
S’s purpose.

The trial judge directed the jury to consider:

(1) whether the word ‘old’ had been used by S or H in making the contract. If so,
they were to give a verdict for H;
(2) if the word ‘old’ had not been used, whether they were of the opinion that S
believed H to believe, or to be under the impression, that he was contracting for
the purchase of old oats. If so, they were to give a verdict for H.
The jury found for H without stating on which ground they had based their verdict.
On a motion for a new trial, the majority of the Court of Queen’s Bench were of the
opinion that the second of these two directions would not sufficiently bring to the
minds of the jury the distinction between agreeing to take the oats under the belief
that they were old, and agreeing to take the oats under the belief that S contracted that
they were old.46 Hannen J said:47
If, therefore, in the present case, [S] knew that [H], in dealing with him for oats, did so on the
assumption that [S] was contracting to sell him old oats, he was aware that [H] apprehended
the contract in a different sense to that in which he meant it, and he is thereby deprived of
the right to insist that [H] shall be bound by that which was only the apparent, and not the
real bargain.

But this was not necessarily so. H might merely have been mistaken as to the age of the
oats, and not as to the plaintiff ’s promise. If such were the case, the contract would be
valid, and a verdict should have been given for S:48
In order to relieve [H], it was necessary that the jury should find not merely that [S] believed
[H] to believe that he was buying old oats, but that he believed [H] to believe that he, [S], was
contracting to sell old oats.

Accordingly, a new trial was ordered.

The same rule was applied in slightly different circumstances in Hartog v Colin &
Shields:49

45 (1871) LR 6 QB 597. 46 (1871) LR 6 QB 597, 608 (Blackburn J). 47 Ibid, 610.

48 Ibid, 611 (Hannen J); ie, a mere unilateral mistake about the facts relating to the subject-matter is
insufficient to render the contract void: below, pp 277–8.
49 [1939] 3 All ER 566, followed in McMaster University v Wilchar Construction Ltd (1971) 22 DLR (3d)
9 (Canada), aff ’d (1973) 69 DLR 3d 410; Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502
(Singapore, but drawing a different distinction: actual knowledge of the other party’s mistake about the
terms is renders the contract void at common law; constructive notice renders it voidable in equity).
258 factors tending to defeat contractual liability

C & S offered to sell to H 3,000 Argentine hare skins, but by a mistake they offered them at
so much per pound instead of so much per piece. H accepted the offer. It was shown that it
was the usual practice of the trade to charge on a per piece basis and that the written and
oral negotiations leading up to the sale had proceeded throughout on a price per piece. As
a pound contained on average three pieces the price under the agreement was roughly one-
third of what it would have been on a per piece basis. H sought to enforce the sale in the terms
of the offer, and sued for non-delivery.

Singleton J held that H could not reasonably have supposed that that offer contained
C & S’s real intention. Indeed, he held that H did in fact know that C & S were under a
mistake, and that this mistake amounted to a stipulation of the contract. The apparent
agreement (ie so much per pound) was therefore void. It was not decided whether C &
S could enforce the intended contract (ie so much per piece) but both principle and the
analogy of rectification in cases of unilateral mistake50 suggest that they should have
been able to do so.

(c) mistake in relation to a written document

We now deal with two remedies for mistakes about the terms of the contract which
are peculiar to written contracts. First, there is the common law defence of non est
factum which permits one who has signed a written document, which is essentially
different from that which he intended to sign, to plead that, notwithstanding his
signature, ‘it is not his deed’ in contemplation of law.51 The term properly applies
to a deed but is equally applicable to other written contracts. Secondly, there is the
equitable remedy of rectification of the contract, by which the Court can order
that the written contract be given effect in terms other than those of the actual
document in order to remedy the mistake of one or both parties about the terms of
the contract.
Written contracts are different because the parties have taken the step of agreeing
a text which contains the terms of the contract, and the Courts therefore look for the
agreed terms in the document itself. The interpretation of the document, although it
takes into account the context of the transaction and the person to whom the document
was addressed, is entirely objective. ‘The question is what a reasonable person having all
the background knowledge which would have been available to the parties would have
understood them to be using the language in the contract to mean.’52 In consequence,
the Courts are not easily persuaded that the parties’ apparent contract, as set out in the
document, should be held to be void or rectified.

50 Below, p 264. See also Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 (false
and misleading statements made to divert mistaken party’s attention).
51 Scriptum predictum non est factum suum. See Thoroughgood’s Case (1582) 2 Co Rep 9a; Holdsworth,
HEL viii, 50; Simpson, A History of the Common Law of Contract (1975) 98.
52 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [14]; Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912–13. On interpretation
generally, see above, p 166.
 mistake 259

(i) ‘Non est factum’

The effect of a successful plea of non est factum is that the transaction contained in the
document is not merely voidable against the person who procured its execution, but is
entirely void into whosesoever hands the document may come.
It must be emphasized that the defence of non est factum is a narrow one. Those
too lazy or too busy to read through a document before signing it cannot rely upon it.
Nor can those who sign a document containing objectionable terms or terms the legal
effect of which they are unaware. As Donovan LJ explained in Muskham Finance Ltd v
Howard:53
Much confusion and uncertainty would result in the field of contract and elsewhere if a man
were permitted to try to disown his signature simply by asserting that he did not understand
that which he had signed.

In Blay v Pollard & Morris,54 the defendant signed a document which he knew to
relate to the dissolution of a partnership of which he was a member. Unknown to him,
the document contained a term which had not been mentioned in a previous oral
agreement, and which made him liable to indemnify his fellow partner in respect of
certain partnership liabilities. It was held that he was bound by his signature.
The narrowness of non est factum is also explained by the fact that it can be invoked
against third parties:
Where a fraudster has tricked, first, the signer of the document, in order to induce the
signature, and then some third party, who is induced to rely on the signed document, which
of the two victims is the law to prefer? The authorities indicate that the answer is, almost
invariably, the latter. The signer of the document has, by signing, enabled the fraud to be
carried out, enabled the false document to go into circulation.55

(a) Essentially different transaction In order for the defence to succeed, the person
executing the document must show56 that the transaction which the document
purports to effect is essentially different in substance or in kind from the transaction
intended. At one time it was thought that the plea of non est factum would not succeed
if the mistake was as to the contents of a document, as opposed to its essential nature
or character. 57 This distinction between contents and character is not an intelligible
one, 58 for a document takes its character from its contents and in Saunders v Anglia
Building Society, 59 it was rejected by the House of Lords in favour of a more flexible
test: that there must be a ‘radical’ or ‘essential’ or ‘fundamental’ or ‘serious’ or ‘very
substantial’ difference between the document signed and that which the person signing

53 [1963] 1 QB 904, 912. 54 [1930] 1 KB 628.

55 Norwich and Peterborough BS v Steed (No 2) [1993] Ch 116, 125 (Scott LJ).
56 The burden of proof lies on the person wishing to establish the defence of non est factum: Saunders v
Anglia Building Society [1971] AC 1004, 1016, 1019, 1027, 1038; Crédit Lyonnais v PT Barnard & Associates
Ltd [1976] 1 Lloyd’s Rep 557; Norwich and Peterborough BS v Steed (No 2) [1993] Ch 116.
57 Howatson v Webb [1907] 1 Ch 537, aff ’d [1908] 1 Ch 1.
58 See Glanville Williams (1945) 61 LQR 179, 194; Gallie v Lee [1969] 2 Ch 17, 31, 41, 43; on appeal as
Saunders v Anglia Building Society [1971] AC 1004, 1017, 1022, 1025, 1039.
59 [1971] AC 1004, 1017, 1019, 1021, 1026, 1039.
260 factors tending to defeat contractual liability

intended to sign. If, for example, a person signs a guarantee for £10,000 believing it to
be a guarantee of a lesser sum, it will depend on the amount of the lesser sum and the
surrounding circumstances of the case whether or not the difference between the two
transactions is sufficient to satisfy this test. The question is one of degree.
In Saunders v Anglia Building Society60 the House of Lords held that the test had not
been satisfied:
The appellant, an elderly widow, gave the title deeds of her house to her nephew, intending
to make a gift to him of the house in order that he could borrow money on the security of
the property. It was a condition of the gift that he was to permit her to reside there for the
rest of her life. She was subsequently requested by a friend of her nephew, whom she knew
to be assisting him to obtain a loan, to sign a document. The friend told her that it was ‘to do
with the gift by deed to Wally (her nephew) for the house’. As she had broken her spectacles,
she signed the document without reading it. The document was in fact a deed conveying
the house on sale to the friend. The friend did not pay the appellant or her nephew, but
subsequently mortgaged the house to the respondents.

The plea of non est factum failed. At first sight there might seem to be an essential
difference between a gift of the house to the nephew and a sale of the house to his
friend. But, as Russell LJ pointed out in the Court of Appeal,61 the appellant intended
to transfer the house so that the transferee could raise money on it, and she knew
that her nephew and his friend were engaged jointly on this project. The ‘object of the
exercise’ might well have been achieved by means of a sale if the friend had been honest
and paid the nephew. Although their Lordships were by no means unsympathetic to
the appellant’s situation,62 they held that the document which she had executed was
not of a fundamentally different nature from the document which she believed she was
signing. The building society could therefore enforce the mortgage.
(b) Absence of negligence of party signing We must now examine two cases in which
the plea of non est factum was successful. The first is Foster v Mackinnon:63
Mackinnon, ‘a gentleman far advanced in years’, was fraudulently induced to indorse a bill of
exchange for £3,000 on the assurance that it was a guarantee of a similar nature to one which he
had previously signed. Later the bill was indorsed for value to Foster, who took it in good faith.

It was held that the defence of non est factum was available to Mackinnon, as he never
intended to make such a contract, and had been guilty of no negligence.
The second is Lewis v Clay:64
Lord William Nevill came to the defendant and asked him to witness some deeds for him. He
produced a roll of papers covered by blotting paper, in which there were cut four openings,
and explained that it was ‘a private matter’. Believing that he was witnessing Lord Nevill’s
signature, the defendant signed in the spaces indicated. It turned out that the papers were
promissory notes to the value of £11,000 made out in favour of Lewis who took them in good
faith and for value.

60 Ibid. 61 Gallie v Lee [1969] 2 Ch 17, 40–1.

62 The building society, in fact, undertook not to evict the appellant during her lifetime.
63 (1869) LR 4 CP 704. 64 (1897) 67 LJQB 224.
 mistake 261

The jury found that the defendant had signed in misplaced confidence, but without
negligence; and Lord Russell CJ held that he was not liable because ‘his mind never
went with the transaction’, but was ‘fraudulently directed into another channel by the
statement that he was merely witnessing a deed or other document’.
(c) Negligence of party signing In Saunders v Anglia Building Society65 it was held
that, even if the document signed is essentially different from that which the person
signing it intended to sign, as against a third party he will not be entitled to disown his
signature unless he proves that he exercised reasonable care. What is reasonable care
will depend on the circumstances of the case and the nature of the document being
signed. If one of two innocent parties is to suffer for the fraud of a third, the sufferer
should be the one whose negligence has contributed to the loss suffered.
As a normal rule, therefore, if a person of full understanding and capacity forbears,
or carelessly omits, to read what he signs, the defence of non est factum will not be
available.66 However, as Lord Wilberforce pointed out in Saunders’ case:67
There remains a residue of difficult cases. There are still illiterate or senile persons who
cannot read, or apprehend, a legal document; there are still persons who may be tricked into
putting their signature on a piece of paper which has legal consequences totally different
from anything they intended . . . Accepting all that has been said by learned judges as to
the necessity of confining the plea within narrow limits, to eliminate it altogether would, in
my opinion, deprive the courts of what may be, doubtless on sufficiently rare occasions, an
instrument of justice.

There is support in other jurisdictions for the view that, where no third party is
involved, negligence is irrelevant.68 But it has also been suggested that in two party
cases remedies for fraud, misrepresentation, or unilateral mistake should be used
rather than non est factum.69
(d) Documents signed in blank here a person signs a document in blank, leaving it
to another to fi ll in the terms of the contract in accordance with an oral agreement
reached between them, it would seem that he could in theory rely on the defence
of non est factum if the terms inserted render the transaction essentially different
in substance or in kind from the transaction intended. However, unless there are
exceptional circumstances present, a person who signs a document in blank accepts
responsibility for it; and he takes the risk if, through fraud or error, the document is
fi lled in in some different way.70 He cannot therefore avoid his liability as against an
innocent third party.

65 [1971] AC 1004, 1019, 1023, 1027, 1037–8. Carlisle and Cumberland Banking Co v Bragg [1911] 1 KB 489,
criticized by Anson (1912) 28 LQR 190 and Guest (1963) 79 LQR 346, was overruled.
66 Cf Stone (1972) 88 LQR 190; Spencer [1973] CLJ 104.
67 [1971] AC 1004, 1025–6. See also Petelin v Cullen (1975) 132 CLR 355 (Australia); Lloyds Bank plc v
Waterhouse [1993] 2 FLR 97.
68 Petelin v Cullen (1975) 132 CLR 355, 360; Bradley West Solicitors Nominee Co Ltd v Keenan [1994] 2
NZLR 111, 118. 69 Lloyds Bank plc v Waterhouse [1993] 2 FLR 97, 117, 122–3.
70 United Dominions Trust Ltd v Western [1976] QB 513. Cf Mercantile Credit Co Ltd v Hamblin [1965] 2
QB 242. See Allcock (1982) 45 MLR 18.
262 factors tending to defeat contractual liability

(ii) Rectification of written contracts

(a) Rectification contrasted with interpretation Rectification and interpretation
fulfil different purposes. Interpretation discovers the meaning which the law will
give to the document as written; rectification changes the document.71 However, a
party who admits that the written document does not appear by its language to reflect
his intentions may claim, first, that it should be interpreted so to give effect to those
intentions; and secondly, if such an interpretation is not possible, that the document
should be rectified to reflect his intentions. In some cases, therefore, a mistake in the
document may effectively be remedied by interpretation without the need to have
recourse to rectification.72
(b) Rectification for common mistake Where a contract has been reduced to writing,
or a deed executed, and the writing or deed, fails to express the concurrent intentions
of the parties at the time of its execution, the Court may rectify the document in
accordance with their true intent.
In Craddock Brothers v Hunt,73 for example:
A vendor agreed orally to sell to a purchaser a certain piece of property. By a mistake, the
written contract embodying this agreement included an adjoining yard which the parties
had excluded from the sale and the subsequent conveyance actually conveyed this land to
the purchaser.

The Court ordered that the conveyance should be rectified to bring it into line with the
parties’ oral agreement.
In Agip SpA v Navigazione Alta Italia SpA74 Slade LJ set out the requirements for
rectification for common mistake:
First, there must be a common intention in regard to the particular provisions of the
agreement in question, together with some outward expression of accord. Secondly, this
common intention must continue up to the time of execution of the instrument. Th irdly,
there must be clear evidence that the instrument as executed does not accurately represent
the true agreement of the parties at the time of its execution. Fourthly, it must be shown that
the instrument, if rectified as claimed, would accurately represent the true agreement of the
parties at that time.

(1) Common intention. The document which it is sought to rectify must fail to
express the common intentions and common outward accord of the parties. Such
accord cannot be shown where there is confusion as to what has been agreed75 or
where a matter is omitted from a document as a result of forgetfulness; an absence

71 The rules relating to interpretation have been discussed above, pp 166 ff.
72 eg Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 (decision based on
interpretation, so rectification not necessary); Littman v Aspen Oil (Broking) Ltd [2005] EWCA Civ 1579,
[2006] 2 P & CR 2; cf KPMG v Network Rail Infrastructure Ltd [2007] EWCA Civ 363, [2008] 1 P & CR 1
(no ground for rectification, but omission in document corrected by interpretation). See also Burrows in
Burrows and Peel, Contract Terms (2007) 77.
73 [1923] 2 Ch 136. See also USA v Motor Trucks Ltd [1924] AC 196, 200.
74 [1984] 1 Lloyd’s Rep 353, 359.
75 Cambro Contractors Ltd v John Kennelly Sales Ltd, The Times, 14 April 1994 (CA).
 mistake 263

of intention does not suffice.76 The accord need not, however, as some older cases
suggested, amount to a complete concluded contract in advance of the execution of
the written document.77 It is now clearly established that there is jurisdiction to rectify
where the parties have made a mistake in their attempt to embody in the document
their concurrent intentions in regard to a particular term which existed at the time it
was put into writing or executed.78 A concluded contract need not be shown. There
must, however, be evidence of the parties’ ‘common intention’. Until recently the cases
had suggested that this referred to a common subjective intention of the parties, and
that the ‘outward expression of accord’ was only a matter of evidence rather than a
formal requirement.79 However, Lord Hoffmann has recently said that the existence
of a common intention before the document was executed should be tested objectively
by reference to what the reasonable observer would have thought the intentions of
the parties to be.80 Unless the Court is sure of the mistake and of the existence of a
prior agreement, ‘[c]ertainty and ready enforceability would be hindered by constant
attempts to cloud the issue by reference to pre-contractual negotiations’.81 In order to
establish the intention, however, parol evidence is admissible even where the contract
is one which is required to be in writing82 or where evidence of the communications
between the parties during the negotiations would not be admissible to interpret the
written contract.83
(2) Continuing intention. The intention of the parties as expressed in the prior
accord must have continued unchanged up to the time of the execution of the written
instrument.84 If there is no clear evidence to this effect, the document (in its different
terms) would indicated that the parties had changed their intentions by the time of the
execution of the written document.
(3) Document must fail to represent the common intention. The party seeking
to have a document rectified must adduce convincing evidence that its terms do
not accurately record the common intention of the parties at the time.85 However,

76 Olympia Sanna Shipping Co SA v Shinwa Kaiun Kaisha [1985] 2 Lloyd’s Rep 364, 370; Kemp v Neptune
Concrete (1989) 57 P & CR 369, 377, 379–80.
77 Mackenzie v Coulson (1869) LR 8 Eq 368, 375; Faraday v Tamworth Union (1916) 86 LJ Ch 436, 438;
Higgins (W) Ltd v Northampton Corp [1927] 1 Ch 128, 136; USA v Motor Trucks Ltd [1924] AC 196, 200.
78 Crane v Hegemann-Harris Co Inc [1939] 1 All ER 662, 664 aff ’d [1939] 4 All ER 68; Joscelyne v Nissen
[1970] 2 QB 86, 98; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [59].
79 Agip SpA v Navigazione Alta Italia SpA, above, n 262 (the ‘true agreement’); Munt v Beasley [2006]
EWCA Civ 370, [2006] All ER (D) 29 (Apr) at [36].
80 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [60], using however the
perspective of the ‘detached’ objective observer which is appropriate in the case of written documents but
not in interpreting the communications between the parties: above, p 253. See also Smith (2007) 123 LQR
116. It is submitted that the traditional subjective test is here more appropriate, since the remedy should
allow only the actual shared intentions of the parties as to the terms of the contract to override the written
document.
81 Ets George et Paul Levy v Adderley Nav Co Panama SA [1980] 2 Lloyd’s Rep 67, 73. See also Thomas
Bates & Son v Wyndhams Ltd [1981] 1 WLR 505. Cf Atlantic Marine Transport Corp v Coscol Petroleum Corp
[1991] 1 Lloyd’s Rep 246, 250.
82 Craddock Bros v Hunt [1923] 2 Ch 136; USA v Motor Trucks Ltd [1924] AC 196.
83 Chartbrook Ltd v Persimmon Homes Ltd, above, n 80.
84 Fowler v Fowler (1859) 4 De G & J 250.
85 Joscelyne v Nissen [1970] 2 QB 86, 98; Luk Leamington Ltd v Whitnash plc [2002] 1 Lloyd’s Rep 6.
264 factors tending to defeat contractual liability

rectification is not an appropriate remedy where the mistake relates to the transaction
itself rather than to the document which purports to record it. Accordingly, there
must be a literal disparity between the terms of the agreement and the document.
Proof of an inner misapprehension is insufficient. In Frederick E Rose (London) Ltd v
William H Pim Jnr & Co Ltd:86

Rose received from its Middle East associates an order for up to five hundred tons of
‘Moroccan horsebeans described here as feveroles’. Rose did not know what feveroles were,
and asked Pim. Pim replied that they were simply horsebeans, and so Rose orally contracted
to buy from Pim a quantity of horsebeans to meet this order. A subsequent written agreement
embodied the same terms. In fact, however, feveroles were quite another type of bean, and
Rose claimed to have the written agreement rectified to read ‘feveroles’, intending to claim
damages on the agreement if so rectified.

The Court of Appeal refused rectification. Both the oral and the written contracts were
for horsebeans. There was no literal disparity between them. The only mistake was in
the minds of the parties at the time. As Denning LJ put it:87
Rectification is concerned with contracts and documents, not with intentions. In order to get
rectification it is necessary to show that the parties were in complete agreement on the terms
of their contract, but by an error wrote them down wrongly; and in this regard, in order to
ascertain the terms of their contract, you do not look into the inner minds of the parties—into
their intentions—any more than you do in the formation of any other contract.

It has, however, been held that, where the parties have expressly agreed what is the
meaning of particular words used in a written contract, the contract can be rectified
to make it clear that the words bear the meaning agreed.88
(c) Rectification for unilateral mistake The remedy of rectification was originally
granted only in cases of common mistake, to correct the erroneous expression of the
common intentions of both parties. But it has been extended to cases of unilateral
mistake, where the document fails to reflect the intention of only one of the parties
at the time of its execution.89 If, however, the mistake is unilateral, it is more difficult
to establish that the document should be rectified because rectification is a ‘drastic’
remedy 90 which deprives the non-mistaken party of the benefit of the document in the
terms which he intended and which were apparently agreed by the party who claims
that he made a mistake. The knowledge or conduct of the party who was not mistaken
must be such as to make it inequitable for that party to object to rectification.

86 [1953] 2 QB 450. See also Agip SpA v Navigazione Alta Italia SpA [1984] 1 Lloyd’s Rep 353, 359; Ets
Georges et Paul Levy v Adderley Navigation Co Panama SA [1980] 1 Lloyd’s Rep 67, 72. 87 At 461.
88 London Weekend Television Ltd v Paris & Griffith (1969) 113 SJ 222; Joscelyne v Nissen [1970] 2 QB 86,
98; Re Butlin’s Settlement [1976] Ch 251.
89 Roberts & Co Ltd v Leicestershire CC [1961] Ch 555; Riverlate Properties Ltd v Paul [1975] Ch 133, 140;
Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505.
90 Agip SpA v Navigazione Alta Italia SpA [1984] 1 Lloyd’s Rep 353, 365 (Slade LJ); George Wimpey UK
Ltd v VI Construction Ltd [2005] EWCA Civ 77, [2005] BLR 135 at [75]. Cf, however, McLaughlan (2008) 124
LQR 608 (not really ‘drastic’ at all, but a routine application of the objective principle); Cartwright, Unequal
Bargaining (1991) 53–7.
 mistake 265

The Court will not order rectification for unilateral mistake unless three
conditions are satisfied.91 First, the other party must have actual knowledge of the
mistaken party’s intentions and of the mistake.92 In this context the knowledge of
an agent will not suffice93 but a party who has wilfully shut his eyes to the obvious,
or wilfully and recklessly failed to make such inquiries as an honest and reasonable
person would have made, will be taken to have actual knowledge.94 Secondly, the
party not under a mistake must have failed to draw the mistaken party’s attention
to the mistake. Th irdly, the mistake must be such that the party not under a mistake
would derive a benefit,95 or the mistaken party would suffer a detriment,96 if the
inaccuracy in the document were to remain uncorrected. Previously there was some
authority for the view that the conduct of the party who was not mistaken had to
amount to fraud,97 or at least involve a degree of sharp practice on his part;98 but
this is not required.99 The question is whether the non-mistaken party’s conduct is
unconscionable so that he cannot insist on performance in accordance to the strict
letter of the contract.100 Nevertheless, it is clear that if a party executes a document
in ignorance that the other party is under a mistake, the remedy of rectification will
be denied.101
(d) Limits on the remedy of rectification The award of the remedy of rectification is
within the discretion of the Court. As an equitable remedy, it is barred not only by the
mistaken party waiving his claim to the remedy, but also by the equitable doctrine of
laches—that is, where the other party would be prejudiced by the delay in bringing
the claim. Rectification will also not be ordered if it would prejudice the rights of an
innocent third party.102
(e) Nature of the remedy of rectification The court order of rectification itself changes
the terms of the contract, and the parties do not need to execute a new document.103
The effect of the court order is normally retrospective to change the terms of the
document with effect from the formation of the contract.104

91 Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd, [1981] 1 WLR 505, 515–16, 520–1.
92 Riverlate Properties Ltd v Paul [1975] Ch 133, 140; Agip SpA v Navigazione Alta Italia SpA, above,
n 90, 365. 93 Kemp v Neptune Concrete (1989) 57 P & CR 369.
94 Commission for the New Towns v Cooper (GB) Ltd [1995] Ch 259.
95 Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505, 516. 96 Ibid, 521.
97 May v Platt [1900] 1 Ch 616, 623. 98 Riverlate Properties Ltd v Paul [1975] Ch 133, 140.
99 Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505.
100 Commission for the New Towns v Cooper (GB) Ltd, above, n 94, 280; Littman v Aspen Oil (Broking) Ltd
[2005] EWCA Civ 1579, [2006] 2 P & CR 2 at [18]–[26].
101 Riverlate Properties Ltd v Paul [1975] Ch 133; Agip SpA v Navigazione Alta Italia SpA [1984] 1 Lloyd’s
Rep 353, 362.
102 The right to rectification is an ‘equity’. For the nature of an equity and the circumstances in which
the right to rectify a contract relating to land will bind a purchaser of a legal or equitable interest in
the land, see Burn and Cartwright, Cheshire and Burn’s Modern Law of Real Property (17th edn, 2006)
812–14.
103 White v White (1872) LR 15 Eq 247.
104 Malmesbury v Malmesbury (1862) 31 Beav 407, 418. Cf Law of Property (Miscellaneous Provisions)
Act 1989, s 2(4) (such time as stated in Court’s order).
266 factors tending to defeat contractual liability

(d) equitable remedies for mistakes about the terms

The Courts of Equity developed their own remedies in favour of a party who had made
a mistake.105 We have already seen that equity would rectify a written document in
order to give effect to the true agreement between the parties.106 Two other remedies
are also relevant: specific performance, which may be refused whether there has been
a mistake; and rescission.

(i) Refusal of specific performance

In the case of breaches of contracts for the sale or transfer of property, the common
law remedy is damages but equity would compel the transfer of the property involved
by means of an order for specific performance. Specific performance is a discretionary
remedy107 and the Court will not order it where it would cause undue hardship in
the circumstances of the case. Mistake of a type which is insufficient to render the
contract void at law may be a ground for resisting specific performance, as it would be
harsh to enforce performance of a contract against one who has entered into it under
a mistake. Specific performance may be refused not only where the mistake is about
the facts relating to the property but also where mistake relates to the terms of the
contract itself such as the term which identifies the property that the purchaser has
agreed to buy. In Malins v Freeman108 where a purchaser bid for and bought one lot
of land at an auction in the belief that he was buying a wholly different lot, the Court
refused to order specific performance of the contract. The defendant’s mistake was
due to his own carelessness and to no fault of the claimant, but the Court was prepared
to exercise its discretion in his favour, leaving the claimant to claim damages at law.
On the other hand, in Tamplin v James,109 the defendant bid for and bought an inn
and outbuildings in the mistaken belief that the lot also included two pieces of garden
attached thereto. There was little excuse for this misapprehension as the plans of the
property to be sold were exhibited at the sale. The Court made an order for specific
performance of the agreement.

(ii) Rescission
It has sometimes been said that, where a contract is binding at law, a party who made
a mistake about the terms may be able to obtain rescission in equity;110 or that, in
cases of unilateral mistake in written contracts, equity might give the defendant the
option of accepting rectification or having the contract rescinded.111 However, such
statements must now be viewed with caution, and there appears not to be any general
equitable discretion to grant rescission for mistake about the terms of a contract which

105 See also below, p 290. 106 Above, pp 262 ff. 107 See below, p 575 ff.
108 (1837) 2 Keen 25. The Courts in such cases do not always consider explicitly whether the mistake is
about at term of the contract, or only about the facts relating to the subject-matter. See also Wood v Scarth
(1855) 2 K & J 33; Denny v Hancock (1870) LR 6 Ch App 1; Burrow v Scammell (1881) 19 Ch D 175, 182. In
Webster v Cecil (1861) 30 Beav 62 the contract would have been void at common law because the claimant
knew or ought to have known about the mistake. 109 (1880) 15 Ch D 215.
110 Solle v Butcher [1950] 1 KB 671, 692–3; OT Africa Line Ltd v Vickers plc [1996] 1 Lloyd’s Rep 700, 704.
111 Garrard v Frankel (1862) 30 Beav 445; Paget v Marshall (1884) 28 Ch D 255 Harris v Pepperell (1867)
LR 5 Eq 1; Bloomer v Spittle (1872) LR 13 Eq 427; May v Platt [1900] 1 Ch 616, 623.
 mistake 267

is valid at law. On one view, there must be fraud or misrepresentation on the part of the
other party before rescission is available.112 On another, somewhat wider, view, which
formed the basis of the decision in Solle v Butcher,113 it is sufficient if the other party is
guilty of some conduct which would render it inequitable to insist that the contract be
performed. In Torrance v Bolton:114
Property was put up for sale by auction, having been advertised as an ‘absolute freehold
reversion’. But the conditions of sale, which were read out by the auctioneer, disclosed that it
was encumbered by three mortgages. T, who was deaf, did not hear this announcement, and
bid on the assumption that he was buying something more substantial than a mere equity of
redemption. The property was knocked down to him.

The agreement was set aside. The misleading advertisement cast upon the seller the
duty of showing that T had not been misled, and it was clear from T’s conduct that he
did not know what he was buying. Although, in view of the advertisement, the case
can be seen as one of misrepresentation,115 James LJ stated that rescission was available
in any case ‘in which the Court is of the opinion that it is unconscientious for a person
to avail himself of the legal advantage which he has obtained’.116
However, the approach of Denning LJ in Solle v Butcher has been subject to criticism,
and in The Great Peace117 the Court of Appeal held that there is no equitable jurisdiction
to rescind a contract for a common mistake of fact where the mistake is not sufficient
to render the contract void at common law, on the basis that ‘the premise of equity’s
intrusion into the effects of the common law is that the common law rule in question
is seen in the particular case to work injustice, and for some reason the common law
cannot cure itself’.118 A similar argument should apply to a mistake about the terms.
The objective test applied by the common law already prevents a party who makes a
mistake about the terms of the contract from being bound where the other party knew,
or ought to have known, about the mistake.119 No further role is needed for equity.
Indeed, this appears to be the approach taken by the Court of Appeal in Riverlate
Properties Ltd v Paul.120 The Court of Appeal held that there was no power to grant
equitable relief on the grounds of mere unilateral mistake unless the party against
whom relief is sought was aware, at the time of the transaction, that the other party
was contracting under a mistake. Russell LJ stated:121
Is the lessor entitled to rescission of the lease on the mere ground that it made a serious
mistake in the draft ing of the lease which it put forward and subsequently executed, when
(a) the lessee did not share the mistake, (b) the lessee did not know that the document did not

112 May v Platt [1900] 1 Ch 616, 623; London Borough of Redbridge v Robinson Rentals (1969) 211 EG 1125;
Riverlate Properties Ltd v Paul [1975] Ch 133.
113 [1950] 1 KB 671. 114 (1872) LR Ch App 118.
115 Clarion Ltd v National Provident Institution [2000] 1 WLR 1888, 1900.
116 (1872) LR Ch App 118, 124. 117 [2002] EWCA Civ 1407, [2003] QB 679; p 295, below.
118 Ibid at [156].
119 Above, p 256. Cf the different approach in Singapore, where actual knowledge of the other party’s
mistake about the terms renders the contract void at common law; constructive notice renders it voidable in
equity: Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502; above, p 257, n 49. See also Taylor v
Johnson (1983) 151 CLR 422 (High Court of Australia). 120 [1975] Ch 133.
121 Ibid, 140–1.
268 factors tending to defeat contractual liability

give effect to the lessor’s intention, and (c) the mistake of the lessor was in no way attributable
to anything said or done by the lessee? . . . If reference be made to principles of equity, it
operates on conscience. If conscience be clear at the time of the transaction, why should
equity disrupt the transaction? If a man may be said to be fortunate in obtaining a property
at a bargain price, or on terms that make it a good bargain, because the other party unknown
to him has made a miscalculation or other mistake, some high-minded men might consider
it appropriate that he should agree to a fresh bargain to cure the miscalculation or mistake,
abandoning his good fortune. But if equity were to enforce the views of those high-minded
men, we have no doubt that it would run counter to the attitudes of much the greater part of
ordinary mankind (not least the world of commerce), and would be venturing on the field
of moral philosophy.

4.mistakes about the identity of the

person with whom the contract is made
Mistakes of this sort can occur only where A contracts with B, believing B to be C: that
is, where a party has in contemplation a definite and identifiable person with whom
he intends to contract. Further, at the time when the contract is made, one party must
regard the identity of the other party as a matter of vital importance.122 One who, for
example, accepts a bid at a public auction cannot normally allege that he is concerned
with the identity of the person who makes the bid.123
Mistake about identity has posed particular difficulties for the Courts because often
the issue of its effect on an apparent agreement arises not as between the parties to
the agreement but in determining which of two innocent people defrauded by a third
party is to bear the loss. In many of the reported cases A was induced to enter into a
contract of sale of goods by a fraudulent misrepresentation by B about his identity; but
by the time A had discovered the truth B had sold and delivered the goods to C. The
fraudulent misrepresentation would render the contract between A and B voidable,
but rescission is no longer possible once the goods have passed into the hands of an
innocent purchaser, C,124 who can therefore keep the goods and leave A to his remedy
in damages against B (if he can find him, and if B is solvent). But if A can show that
there was a mistake of identity which rendered his contract void, then B acquired no
title to the goods and so could not transfer title to C:125 C must therefore return the
goods or pay damages in the tort of conversion to A. Some of the disagreement between
the judges in the cases reflects different policies as to the incidence of loss between the
innocent parties. Many of the issues relating to mistake about identity have now been
settled by the House of Lords in Shogun Finance Ltd v Hudson126 but even there the

122 Ingram v Little [1961] 1 QB 31, 57; Lewis v Averay [1972] 1 QB 198, 209; Shogun Finance Ltd v Hudson
[2003] UKHL 62, [2004] 1 AC 919 at [48], [178], [191]. 123 Dennant v Skinner [1948] 2 KB 164.
124 Below, p 316. 125 Above, p 250.
126 [2003] UKHL 62, [2004] 1 AC 919. Strictly, the ratio relates only to contracts in writing: below, p 273,
but there was also significant discussion about the approach to be taken in the case of unwritten contracts:
below, p 275.
 mistake 269

House was divided as to the proper approach to be taken. The minority (Lord Nicholls
and Lord Millett) would have overruled many of the older cases in order to achieve the
result that a contract entered into under a mistake of identity is normally only voidable
and not void, thus protecting the innocent third-party purchaser.127 However, the
majority affirmed the existing authorities, and therefore a contract may be void for
mistake of identity. However, even under the approach approved by the majority in
Shogun, such an operative mistake will be relatively rare.

(a)an offer can be accepted only by the person

to whom it is addressed
We may start with the proposition that a person cannot constitute himself a contracting
party with one whom he knows or ought to know has no intention of contracting with
him. An offer can be accepted only by the person to whom it is addressed. In Boulton
v Jones:128
B had taken over the business of one Brocklehurst, with whom J had been used to deal. J
had a running account with Brocklehurst and was entitled to a set-off in respect of sums
owed to him by Brocklehurst. J sent an order for goods addressed to Brocklehurst, which B
supplied without informing J that the business had changed hands. When J learned that the
goods had not come from Brocklehurst, he refused to pay for them, and was sued by B for
the price.

It was held that he was not liable to pay for the goods. Pollock CB said:129
It is a rule of law, that if a person intends to contract with A, B cannot give himself any right
under it. Here the order in writing was given to Brocklehurst. Possibly Brocklehurst might
have adopted the act of [B] in supplying the goods, and maintained an action for their price.
But since [B] had chosen to sue, the only course [J] could take was to plead that there was no
contract with him.

Nevertheless it must be remembered that offer and acceptance must here, as

elsewhere, be understood in an objective sense. The test is not merely ‘Did the offeror
intend to contract with the person to whom the offer was made?’ but also ‘How would
a reasonable person in the position of the offeree have interpreted the offer?’130 So if
A makes an offer to B in mistake for C, and B, reasonably believing that the offer is
intended for him, accepts, then A is bound even though he can prove that he had made
a mistake. An extreme application of this principle can be seen in Upton-on-Severn
RDC v Powell:131
The defendant sent for the Upton fire brigade in mistake for the Pershore fire brigade, in
whose area he was, and the call was accepted in good faith by the Upton brigade.

127 Ibid at [35] and [84], approving the discussion in the 28th edn of this book, 332.
128 (1857) 2 H & N 564. Boulton had been Brocklehurst’s foreman, and from the report of this case in
(1857) 6 WR 107 it appears that Boulton knew of the existence of the set-off. It is, however, an unusual case
in that Jones’s mistake was not induced by a fraudulent misrepresentation by Boulton. 129 Ibid, 565.
130 Shogun Finance Ltd v Hudson, above, n 126 at [123]–[125] (Lord Phillips MR).
131 [1942] 1 All ER 220.
270 factors tending to defeat contractual liability

It was held that the defendant was contractually bound to pay for their services
despite his mistake and despite the fact that neither party thought they were entering
a contract; the defendant thought he was calling the brigade the services of which he
was entitled to without charge, and the fire brigade thought they were answering a call
within their area for which there would be no charge.132
But no contract will be formed if a person accepting an offer believes on reasonable
grounds that he is accepting an offer from someone other than the person by whom it
has in fact been made, and this fact is known to the offeror. In Cundy v Lindsay:133
L received an order for goods from one Blenkarn, who gave as his address ‘37 Wood Street,
Cheapside’. He imitated the signature of a respectable firm named Blenkiron & Co, who
were known by reputation to L and who carried on business at 123 Wood Street. L were thus
fraudulently induced to send the goods to Blenkarn’s address, which goods he afterwards
sold to C. L sued C for the return of the goods.

If the contract between L and Blenkarn was merely voidable for fraudulent
misrepresentation, C would be entitled to retain the goods as they had taken them
in good faith and for value. If the contract was void for mistake, Blenkarn could pass
no title to the goods to C because as between him and L there was no contract.134 The
House of Lords held that L were entitled to succeed. Lord Cairns said:135
Of him [Blenkarn] they knew nothing, and of him they never thought. With him they never
intended to deal. Their minds never, even for an instant of time rested upon him, and as
between him and them there was no consensus of mind which could lead to any agreement
or any contract whatever. As between him and them there was merely the one side to a
contract, where, in order to produce a contract, two sides would be required.

When his offer was accepted, Blenkarn knew that L thought they were entering into
a contract with Blenkiron & Co. The contract was therefore void ab initio. Again, in
Shogun Finance Ltd v Hudson136 a finance company agreed to sell a car on hire purchase
terms to a fraudster who then sold it on to the defendant. Under section 27 of the Hire-
Purchase Act 1964 a private purchaser of a motor vehicle from the debtor under a hire-
purchase agreement can acquire title to the vehicle as long as he purchases in good
faith and without notice of the hire-purchase agreement. The defendant’s claim to
title therefore turned on the validity of the hire-purchase agreement. If the agreement
was only voidable for fraud, the defendant would obtain good title. But if it was void
for mistake about the fraudster’s identity, the fraudster would not be a ‘debtor’ under
a ‘hire-purchase agreement’ and the defendant would not be protected. As proof of
identity the fraudster had produced a genuine but unlawfully-obtained driving licence
in the name of a Mr Patel, and the company had checked Mr Patel’s credit rating. It
was held by the majority of the House of Lords that the hire-purchase agreement was
void. It could have been made only between the company and Mr Patel, and this was

132 It is not clear whether the plaintiff would have been contractually liable if he had cancelled the call
before the services were rendered: it is preferable to regard the liability for the services rendered as based on
restitution (reasonable recompense for services rendered) rather than on contract. See also above, p 32, n 16.
133 (1878) 3 App Cas 459. 134 Above, p 268. 135 (1878) 3 App Cas 459, 465.
136 [2003] UKHL 62, [2004] 1 AC 919.
 mistake 271

not possible because Mr Patel knew nothing of it and had not signed the agreement.137
Accordingly the defendant did not obtain title to the car and the finance company was
entitled to it.

(b)the general rule: need for an identifiable

third person
If A’s mistake does not go to the identity of the other party, if A does intend to make
a contract with that particular person, then the fact that he would not have made it if
he had not been labouring under some mistake regarding the personality of the other
party will not prevent the formation of a contract. It is sometimes said that mistake as
to attributes, for example, as to the solvency or social position of that person or whether
that person holds a driving licence,138 is insufficient. There is, in fact, no more intrinsic
validity in the distinction between identity and attributes than that, as we shall see
later,139 between substance and qualities of the subject-matter of a contract. ‘A man’s
very name is one of his attributes. It is also the key to his identity.’140 The law does,
however, conveniently distinguish between cases where there are two individuals in
the picture (ie A contracts with B in mistake for C) and cases where there is only one (ie
A contracts with B in the belief that B is not B). Glanville Williams stated cogently:141
The conclusion is that a so-called ‘error of identity’ consists in misapprehending (the
attributes of) two or more persons. An ‘error of attributes’ consists in misapprehending (the
attributes of) a single person.

In King’s Norton Metal Co Ltd v Edridge, Merrett & Co Ltd:142

KN, a metal manufacturer, received a letter purporting to come from ‘Hallam & Co’ in
Sheffield asking for quotations for metal wire. On the letterhead was a picture of a large
factory and a list of overseas depots. KN replied, and Hallam & Co ordered the wire. In fact,
the firm of ‘Hallam & Co’ consisted solely of a fraudulent person named Wallis. The letters
had been written, and the writing paper prepared, by him. Wallis subsequently sold the wire
so obtained to the defendant. KN sued the defendant, contending that the contract with
Hallam & Co was void, and that the wire was therefore still its property.
The Court of Appeal held that KN had intended to contract with the writer of the
letter. Although it would not have done so if it had known what sort of a person the
writer was, and that he was using an alias, a contract had been made which was not
void on the ground of mistake, but only voidable for fraud. Consequently the property

137 The majority (Lord Hobhouse, Lord Philips and Lord Walker) held that since the contract was in
writing, the identity of the parties could be determined only by reference to the written document, but they
also considered that the agreement was void because the company intended to contract only with Mr Patel
and so there was no consensus. Lord Nicholls and Lord Millett dissented, considering the agreement to be
only voidable because a contract is normally entered into between the persons who in fact deal with each
other (here, the fraudster and the claimant) even if it may then be voidable for fraud.
138 Whittaker v Campbell [1984] QB 318, 329. 139 Below, p 286.
140 Lewis v Averay [1972] 1 QB 198, 206. See also the similar view of the minority in Shogun Finance Ltd v
Hudson, above, n 136 at [5], [60], [73]–[74].
141 (1945) 23 Can Bar Rev 278. Cf Wilson (1954) 17 MLR 515, and the reply by Unger (1955) 18 MLR 259.
142 (1897) 14 TLR 98. Cf Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45.
272 factors tending to defeat contractual liability

in the goods delivered had passed under it to Wallis, and an innocent purchaser from
him acquired a good title to them. AL Smith LJ put the question as follows:143
With whom, upon this evidence, which was all one way, did [KN] contract to sell the goods?
Clearly with the writer of the letters. If it could have been shown that there was a separate
entity called Hallam & Co and another entity called Wallis then the case might have come
within the decision in Cundy v Lindsay.

Therefore, in order to establish mistake as to identity, the party contracting must prove
not merely that she did not intend to contract with the person with whom the apparent
contract was concluded, but also that there was a third identifiable person with whom
there was an intention to contract.144

(c) the exception: no third party in existence

The general position must be distinguished from that where A contracts with B in the
belief that B is not B, and B knows of this error.145
Suppose that B, knowing that A will refuse to contract with him, disguises himself so as to
conceal his identity, and effects a purchase of goods from A.

It might be thought that this situation is no different from that where A contracts
with B in mistake for C, and B realizes the mistake. There is in fact a considerable
difference. In the latter situation the contract is void because B cannot accept an
offer which he knows is not intended for himself but for C. In the former, there is no
third person to whom the offer is really addressed: it is addressed to B, even though A
mistakenly believes that he is not B. B is not, therefore, prevented from accepting an
offer addressed to himself, and the contract will be valid and binding.
In certain circumstances, however, the offer made by A may expressly or impliedly
contain a stipulation that excludes B. These are the terms upon which A is prepared
to contract, and, as we have seen,146 it is not possible for an offeree to accept an offer
which he knows is made to him in different terms from those in which he purports to
accept it. B cannot, therefore, accept such an offer. For example, the offer may be made
to a limited class of persons, such as the members of a club or college, of whom B is not
one. B may know, by reason of a previous refusal, that he is a person with whom A is
unwilling to contract: a drama critic who is refused a ticket for a theatre performance
cannot conclude a contract by going to the box office in disguise, or by employing a
friend to buy a ticket for him.147

143 At 99.
144 See also Citibank NF v Brown Shipley & Co Ltd [1991] 2 All ER 690, 702 (mistake as to identity of
messenger insufficient). See generally Goodhart (1941) 57 LQR 228; Unger (1955) 18 MLR 259. Cf Wilson
(1954) 17 MLR 515.
145 Th is section relies heavily on the convincing argument of Professor Goodhart in (1941) 57 LQR 228,
241 ff. 146 Above, p 256.
147 Said v Butt [1920] 3 KB 497 (this case was primarily concerned with the question of an undisclosed
principal and not with mistake).
 mistake 273

The difficulty is to know in what circumstances such a term is to be implied into

the offer. In King’s Norton Metal Co Ltd v Edridge, Merrett & Co Ltd,148 the mistaken
claimant was unable to satisfy the Court that such an implication should be made. This
decision does not appear to have been cited in the case of Sowler v Potter149 in which
it was held that the identity of the tenant was a vital element in a tenancy contract
and that therefore any mistake with regard to her identity rendered the contract void
ab initio. But this does not constitute a sound positive test of mistake in English law.
The proper approach in such a case as Sowler v Potter would be to inquire whether a
stipulation could be implied into the offer that the offer excluded the particular person
as a tenant, and whether this stipulation was known to the offeree. The answer is clear:
no such stipulation could be implied, and the contract should not have been held to be
void. The decision in Sowler v Potter has incurred almost unanimous disapproval, and
must now be taken to have been overruled.150

(d) written contracts

In the case of a contract wholly in writing, the identity of the parties is established by
the names in the written contract. In Shogun Finance Ltd v Hudson151 the majority of
the House of Lords based their decision on the fact that the contract was in writing, and
therefore the only person who could have been a party to the hire-purchase agreement
with Shogun Finance was Mr Patel whose driving licence had been used as the basis
of the credit check. Because it was not Mr Patel who had signed the agreement, it was
void. Lord Hobhouse said:152
The agreement is a written agreement with Mr Durlabh Patel. The argument seeks to
contradict this and make it an agreement with the rogue. It is argued that other evidence is
always admissible to show who the parties to an agreement are. Thus, if the contents of the
document are, without more, insufficient unequivocally to identify the actual individual
referred to or if the identification of the party is non-specific, evidence can be given to fill
any gap. Where the person signing is also acting as the agent of another, evidence can be
adduced of that fact . . . But it is different where the party is, as here, specifically identified in
the document: oral or other extrinsic evidence is not admissible. Further, the rogue was no
one’s agent (nor did he ever purport to be). The rule that other evidence may not be adduced
to contradict the provisions of a contract contained in a written document is fundamental to
the mercantile law of this country; the bargain is the document; the certainty of the contract
depends on it.153

148 Above, p 271. 149 [1940] 1 KB 271.

150 Solle v Butcher [1950] 1 KB 671, 691; Gallie v Lee [1969] 2 Ch 17, 33, 41, 45 aff ’d [1971] AC 1004; Lewis
v Averay [1972] 1 QB 198, 206; Shogun Finance Ltd v Hudson [2001] EWCA Civ 1000, [2002] QB 834 at [34]
(Dyson LJ, approving the suggestion as to the proper approach in previous editions of this book. Sowler v
Potter was not discussed in the opinions on appeal to HL). Cf Gordon v Street [1899] 2 QB 641.
151 [2003] UKHL 62, [2004] 1 AC 919, above p 270. See also Hector v Lyons (1988) 58 P & CR 156.
152 Ibid at [94]. See also Lord Phillips at [154], [161], [178] and Lord Walker at [192].
153 For the general (wholly objective) approach to the interpretation of written contracts, and operation
of the parol evidence rule, see above, pp 166 ff, 258 ff. For support of the majority decision, see Stevens,
‘Objectivity, Mistake and the Parol Evidence Rule’ in Burrows and Peel (eds), Contract Terms (2007) ch 6.
274 factors tending to defeat contractual liability

(e) transactions concluded in the parties’ presence

Where the parties do not conclude their contract in writing, nor through
communications at a distance from one another, but deal face to face, there is a
presumption that each intended to deal with the other and not with someone else. In
Phillips v Brooks Ltd:154
A man, North, called at P’s shop and selected some pearls and a ring. He wrote out a cheque
for £3,000, saying ‘I am Sir George Bullough’ (a person of credit whose name was known to
P) and giving Sir George Bullough’s address. P, fi nding on reference to a directory that Sir
George lived at that address, allowed North to take away the ring which North then pledged
to the defendants for £350. The defendants had no notice of the fraud. P sued for the return
of the ring, alleging that he had never parted with the property in it.

Horridge J held that, although the claimant believed the person to whom he was
handing the ring was Sir George Bullough, he in fact contracted to sell and deliver it to
the person who came into his shop. His intention was ‘to sell to the person present and
identified by sight and hearing’.155 The contract, therefore, was not void on the ground
of mistake, but only voidable on the ground of fraud, and the defendants had acquired
a good title to the ring. It does not, however, follow from this decision that there can
be no operative mistake as to identity where the parties are in each other’s presence,
although there is a strong presumption against the mistake being operative.156
Two further cases illustrate the difficulty of deciding whether a contract is void for
mistake as to identity, or merely voidable for fraud. In Ingram v Little:157
Miss Elsie Ingram, Miss Hilda Ingram and Mrs Mary Ann Maud Badger advertised their
car for sale. A rogue who called himself Hutchinson visited them and offered to buy the
car. When he made as if to pay them by cheque, they refused to accept it and insisted on
payment in cash. He then gave his initials and an address, describing himself as a respectable
business man living in Caterham. One of the Ingrams then went to the local post office and
ascertained from the telephone directory that there was such a person living at that address.
They then allowed the rogue to take away the car in return for a worthless cheque and the
rogue sold the car to the defendants who took it in good faith.

The Court of Appeal held that the contract between the ladies and ‘Hutchinson’ was
void for mistake and that the vehicle was still their property. Although in a face-to-
face contract there is a presumption that the contract is not void for mistake of identity,
the circumstances (particularly the investigation of the telephone directory) indicated

154 [1919] 2 KB 243, criticized by Goodhart (1941) 57 LQR 228, 241.

155 Adopting Edmunds v Merchant Despatch Co (1883) Mass 283, 286 (Morton CJ).
156 Cf Lake v Simmons [1927] AC 487 where Viscount Haldane distinguished Phillips v Brooks and thought
that a jeweller did not enter into a contract with a customer (a woman who claimed that she was Mrs Van
de Borgh) who was physically present in the shop because he ‘thought that he was dealing with a different
person, the wife of Van der Borgh, and it was on that footing alone that he parted with the goods. He never
intended to contract with the woman in question’ (at 500). However, this was an individual approach and has
been disapproved: Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919 at [141]. Cf Citibank NA v
Brown Shipley & Co Ltd [1991] 2 All ER 690, 700. See also Hardman v Booth (1863) 1 H & C 803.
157 [1961] 1 QB 31 (Devlin LJ dissenting). Cf Fawcett v Star Car Sales Ltd [1960] NZLR 406.
 mistake 275

that it was with Hutchinson that the claimants intended to deal and not with the rogue
who was physically present before them. The presumption was therefore rebutted.
On the other hand, in Lewis v Averay:158
L, a post-graduate chemistry student, advertised his car for sale. A rogue, posing as the well-
known television actor Richard Greene, called on L and offered to buy the car. L accepted
the offer, and the rogue wrote out a cheque, signing it ‘R.A. Green’. The rogue wished to
take away the car at once, but L was not willing for him to have it until the cheque had been
cleared. At L’s request the rogue produced ‘proof’ that he was Richard Greene in the form of
a special pass of admission to Pinewood studios bearing the name ‘Richard A. Green’ and an
address, a photograph of the rogue and an official stamp. L was satisfied on seeing this pass
and allowed the rogue to have the car. The cheque was worthless and the rogue sold the car
to A, a music student, who bought it in good faith.

The Court of Appeal held that A intended to contract with the person actually present
before him. The contract was therefore merely voidable for fraud, and A in consequence
acquired the property in the car as against L.
Although Shogun Finance Ltd v Hudson159 did not involve a contract concluded
between parties who were physically present, guidance on the issue was given in two
of the majority opinions. Both Lord Phillips and Lord Walker accepted that contracts
concluded face to face raise different questions from both contracts concluded at a
distance, and written contracts; but they also agreed that the presumption in a face-to-
face transaction is that each party is presumed to have intended to deal with the person
physically present. This presumption is a ‘strong’ presumption;160 perhaps so strong
that it can be rebutted only in exceptional cases, such as physical impersonation.161

(f) the current state of the law; critique

The decision of the majority of the House of Lords in Shogun Finance Ltd v Hudson162
rested on the fact that the contract there was in writing, and the identity of the parties
to the contract was therefore to be determined by an objective interpretation of the
document itself. However, all members of the House discussed in general terms the
issues which are raised by mistakes about identity. Lord Nicholls and Lord Millett,
in the minority, proposed a radical reconsideration of the law, which would have
overruled many of the older cases and would have resulted in a rule by which a mistake
of identity would normally render a contract at most voidable, and not void. However,
the majority declined to overturn the established authorities. In contracts which are
not in writing but formed through offer and acceptance between the parties, such as
by an exchange of letters, the intentions of each party as to the person with whom he
is willing to contract is determined by an objective test of the communications, and a
party who knows (for example) that he is not the intended recipient of the offer cannot
claim to have entered into a contract by accepting the offer. An apparent contract

158 [1972] 1 QB 198. 159 Above, p 270.

160 Ibid at [170] (Lord Phillips), [187] (Lord Walker).
161 Ibid at [187] (Lord Walker, who also at [185] thought that the presumption was not rebutted in Ingram
v Little, above, n 157, which was therefore wrongly decided). 162 Above, p 270.
276 factors tending to defeat contractual liability

may therefore still, after Shogun, be void for mistake of identity, as it was in Cundy
v Lindsay.163 In principle, a contract may even be void for mistake where the parties
meet face to face, since it is still said in Shogun, following the earlier cases, that there is
a presumption that the contract is valid. But it will be very rare that this presumption
can in fact be rebutted.
The result of the decision in Shogun is, however, unsatisfactory. We have seen that
the significance of a contract being void is that it can prejudice an innocent third
party who purchases property which was delivered under the contract.164 Lord Millett
considered that, of the two ‘innocent’ parties—the original owner and the later
purchaser—the latter was the more innocent:165
Of course, someone has to bear the loss where there is fraud, but it is surely fairer that the
party who was actually swindled and who had an opportunity to uncover the fraud should
bear the loss rather than a party who entered the picture only after the swindle had been
carried out and who had none.

He went on to point out that in such cases English law is out of step with its continental
neighbours, because civilian systems such as Germany provide protection to a
purchaser who can acquire good title by purchasing property in good faith from a
non-owner.166 The approach taken in English law is to link the passing of title (and
therefore the third party’s rights) to the validity of the earlier contract.167 However (it
would be preferable if effect were given to a recommendation made by the Law Reform
Committee in 1966168 that, where goods are sold under a mistake as to the buyer’s
identity, the contract should, so far as third parties are concerned, be considered
voidable and not void. In the light of the decision in Shogun the Law Commission
included this topic in its list of possible projects for reform,169 but it has deferred a
decision on whether to undertake a review.170

mistakes of fact or law about the

5.
subject-matter of the contract or the
surrounding circumstances
This section is concerned with the situation where the parties have agreed on the terms
of the contract, and neither makes an operative mistake about the other’s identity,
but one or both of the parties have contracted in the mistaken belief that some fact

163 (1878) 3 App Cas 459; see [2003] UKHL 62, [2004] 1 AC 919 at [55], [170]. Lord Nicholls and Lord
Millett would have departed from Cundy v Lindsay: ibid at [35], [110].
164 Above, p 268. 165 Shogun, above, n 151 at [82]. Cf however Lord Walker at [181]–[182].
166 Ibid at [84]–[85].
167 For a robust defence of the English position, however, see Lord Hobhouse in Shogun, above, n 151 at
[55]. See also Stevens in Burrows and Peel (eds), Contract Terms (2007) ch 6.
168 Twelft h Report of the Law Reform Committee (Cmd 2958, 1966) 15.
169 Law Commission Ninth Programme of Law Reform, Law Com No 293 (2005), paras 1.16, 3.51–3.57.
170 Law Commission Tenth Programme of Law Reform, Law Com No 311 (2008), paras 4.2–4.4.
 mistake 277

which lies at the root of the contract is true, either a fact about the subject-matter
of the contract, or a fact relating to the circumstances surrounding the formation of
the contract which was relevant to the claimant’s decision to enter into the contract.
We shall see that it is very rare for such a mistake to satisfy the very narrow test set
down by the Courts in this area, but if it does, the mistake renders the contract void.
It is sometimes said that this form of mistake invalidates a contract by nullifying
consent.171
Until recently, for such a mistake to be operative and to invalidate a contract it had
to be one of fact and not of law.172 But it was held by the House of Lords in 1999 that
in the context of claims for the recovery of money paid under a mistake, a distinction
should no longer be made between mistakes of law and mistakes of fact.173 Similar
reasoning has now also been applied to cases of mistake in contract.174
We should note that it has been argued175 that there is a close relationship between
mistake of fact, which is concerned with misapprehensions or misunderstandings at the
time of the formation of an apparent contract, and the doctrine of frustration, which
concerns uncontemplated events occurring after that time. Both mistake and frustration
are concerned with the allocation of risk in which the construction of the contract is
central, and the Courts are conscious that both may be pleaded to get out of a bad bargain
or to reallocate the risks.176 Moreover, the two situations may appear factually similar,
as where it is an accident whether the uncontemplated event occurred before or after the
making of the contract.177 But it is important to remember that they are ‘different juristic
concepts’.178 Mistake relates to the formation of a contract and, where operative, renders
the whole contract void ab initio, whereas frustration relates to its termination and only
discharges obligations which would have been due to be performed after the time of the
frustrating event. Frustration is considered in Chapter 14.

(a) unilateral mistakes of fact or law

A unilateral mistake of fact or law is not sufficient to render the contract void.
We have already seen that the Court in Smith v Hughes179 drew a clear distinction

171 Bell v Lever Brothers Ltd [1932] AC 161, 217.

172 British Homophone Ltd v Kunz (1932) 152 LT 589.
173 Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349.
174 Brennan v Bolt Burdon [2004] EWCA Civ 1017, [2005] QB 303. Similarly, misrepresentations of law
may now be remedied on the same basis as misrepresentations of fact: Pankhania v Hackney London Borough
Council [2002] EWHC 2441 (Ch), [2002] All ER (D) 22 (Aug); below, p 304.
175 Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 264–5, 268;
William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016, 1039–40; Great Peace Shipping Ltd v Tsavliris
Salvage (International) Ltd, The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at [61], [73]–[75], [82]–[85].
See generally McKendrick, Contract Law (8th edn 2009) 235–6, 257–8; Smith (1994) 110 LQR 400, 403. Cf
Peel, Treitel’s Law of Contract (12th edn 2007) paras 19.123–19.125.
176 Amalgamated Investment & Property Co Ltd v Walker & Sons Ltd [1977] 1 WLR 164, 172. See also
above, p 250, n 10.
177 Ibid. Compare also the facts of Griffith v Brymer (1903) 19 TLR 434 (below, p 289, n 254) and Krell v
Henry [1903] 2 KB 740 (below, p 477).
178 Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154, 186.
179 (1871) LR 6 QB 597; above, p 257.
278 factors tending to defeat contractual liability

between a unilateral mistake about the terms of the contract, which may prevent
there being a contract unless the objective test can override the absence of subjective
agreement, and a unilateral mistake about the facts relating to the subject-matter of
the contract, which is irrelevant even if the other party knows about the mistake.
The mistaken party will have a remedy if the other party had given a warranty in the
contract about the subject-matter, or if the mistake was induced by the other party’s
misrepresentation.180 Blackburn J said:181

on the sale of a specific article, unless there be a warranty making it part of the bargain
that it possesses some particular quality, the purchaser must take the article he has bought
though it does not possess that quality. And I agree that even if the vendor was aware that
the purchaser thought that the article possessed that quality, and would not have entered
into the contract unless he had so thought, still the purchaser is bound, unless the vendor
was guilty of some fraud or deceit upon him, and that a mere abstinence from disabusing the
purchaser of that impression is not fraud or deceit; for, whatever may be the case in a court
of morals, there is no legal obligation on the vendor to inform the purchaser that he is under
a mistake, not induced by the act of the vendor.

It has recently been held that the correctness of the decision in Smith v Hughes, and
the analysis in it, has ‘never been doubted’.182 Nor is there a jurisdiction in equity for a
Court to set aside a contract on the basis of a unilateral mistake of fact.183

(b) common mistakes of fact or law

Where both parties make the same mistake of fact or law relating to the subject-
matter or the facts surrounding the formation of the contract, the contract may
be void. However, the Courts have developed a very narrow test for such mistakes,
emphasizing that the parties are normally expected to provide in the contract for
the allocation of the risk of unknown facts, and that a party should be entitled
to rely on the doctrine of mistake only in exceptional cases. There is a clear line
of authorities relating to common mistakes which may render a contract void at
common law. As we shall see, between 1949 and 2002 there was also a line of cases
in which the Courts had held that, even if the common mistake was not sufficient
to render the contract void at common law, it might satisfy a less strict test under
which the contract would be voidable in equity at the discretion of the Court.
However, in The Great Peace184 the Court of Appeal rejected this wider equitable
jurisdiction.

180 For misrepresentation, see Chapter 9. 181 (1871) LR 6 QB 597, 606–7.

182 Statoil ASA v Louis Dreyfus Energy Services LP [2008] EWHC 2257 (Comm), [2008] 2 Lloyd’s Rep 685
at [88] (Aikens J). See also Bell v Lever Bros [1935] AC 161, 218.
183 Ibid at [105], on the basis that, in the light of the decision in The Great Peace, below, n 184 and p 295,
that there is no equitable jurisdiction to rescind for common mistake, one cannot logically devise a rationale
for an equitable jurisdiction in the case of a unilateral mistake.
184 [2002] EWCA Civ 1407, [2003] QB 679.
 mistake 279

(i) Common mistake at common law

The leading case is Bell v Lever Brothers Ltd,185 which was decided by the House of
Lords in 1932. The facts of the case are fairly simple, but the opinions are difficult to
interpret, and this has led to a variety of theories about the scope of the doctrine of
common mistake. In 2002 the Court of Appeal sought in The Great Peace186 to give an
authoritative interpretation of the doctrine, but this latest decision can be understood
only by reference to the decision in Bell v Lever Brothers Ltd as well as other cases
which had been decided on the basis of common mistakes after 1932.
(a) Bell v Lever Brothers Ltd In this case the facts were as follows:

L entered into two agreements with B and with S. The first agreements were service contracts
by which B and S were appointed to the Board of the Niger Company, a subsidiary of L, for
a period of five years at salaries of £8,000 and £6,000 a year respectively. The second were
compensation contracts by which L, in consideration of their retiring within the service
period, later promised to pay B £30,000 and S £20,000.

While they were acting under their appointments, both B and S had secretly entered
on their own account into speculative transactions in cocoa, a course of conduct which
would have given L the right to dismiss them summarily and without compensation.
L had entered into the compensation contracts, and paid the sums promised, in
ignorance of this fact. L now sought rescission of the compensation contracts and
recovery of the money on the ground that it had been paid under a mistake of fact.
The jury found that B and S had been guilty of no fraud and that, at the time they
entered into the compensation contracts, they did not have in mind their breaches of
duty. The case must therefore be considered as one of common mistake,187 that is, one
where the parties had both contracted under the same mistaken assumption. L would
nevertheless never have entered into the contract had it known the true state of affairs,
and it therefore alleged that the contract was a nullity from the beginning. Wright J
and the Court of Appeal188 upheld this contention; but the House of Lords, by a bare
majority, held that the contract was valid and binding.
There has been considerable discussion as to what this case in fact decides. Lord
Blanesburgh, while stating that he was in accord with the other majority opinions,
based his own decision mainly on a point of pleading.189 The other two majority
members, Lord Atkin and Lord Thankerton, formulated in the course of their speeches
a number of propositions which, although directed to the same end, tend not to be
easily reconcilable one with another. The speeches therefore provide support for a
variety of conflicting interpretations of the doctrine of common mistake.

185 [1932] AC 161. Cf MacMillan (2003) 119 LQR 625. 186 Above, n 184; below, p 282 ff.
187 In Bell v Lever Brothers Ltd the term used for a shared mistake is ‘mutual’ mistake, but the more
modern term (‘common’ mistake) is used here; cf above, p 251. 188 [1931] 1 KB 557.
189 He also pointed out (at 180–1, 183, 197) that the payments made to B and S were, at any rate in part,
voluntary payments because their agreement was with the Niger Company not Lever Brothers, and so could
not be recovered as money paid under a mistake: see Morgan v Ashcroft [1938] 1 KB 49, 66, 71, 77.
280 factors tending to defeat contractual liability

First, it has been said that the case establishes that there is no doctrine of mistake,
rendering the contract void ab initio, in English law.190 In Solle v Butcher, for example,
Denning LJ said:191
The correct interpretation of [Bell v Lever Brothers Ltd], to my mind, is that, once a contract
has been made, that is to say, once the parties, whatever their inmost states of mind, have
to all outward appearances agreed with sufficient certainty in the same terms on the same
subject matter, then the contract is good unless and until it is set aside for failure of some
condition on which the existence of the contract depends, or for fraud, or on some equitable
ground. Neither party can rely on his own mistake to say that it was a nullity from the
beginning, no matter that it was a mistake which to his mind was fundamental, and no
matter that the other party knew that he was under a mistake. A fortiori, if the other party
did not know of the mistake but shared it.

Some support for this contention can be found in the speech of Lord Atkin,192 but
both he and other members of the House of Lords assume throughout that certain
types of mistake will avoid a contract, although they differ as to the circumstances
in which it will do so and it has been said that Denning LJ’s interpretation does not
do justice to the speeches of the majority.193 Nevertheless, it is clear that the effect of
the decision in Bell v Lever Brothers is to confi ne the doctrine of common mistake
within the most narrow limits; it is only in the most extreme cases that the Court will
intervene.
Secondly, it has been said that the case establishes that a contract is void at law only
if some term can be implied in both offer and acceptance which prevents the contract
from coming into operation. Lord Atkin expressly states that this is a proposition to
which few would demur,194 but cogently goes on to point out that it does not take us
very far in the inquiry how to ascertain whether the contract does contain such a
term.
An example is provided by Associated Japanese Bank (International) Ltd v Crédit
du Nord SA:195
A fraudulent party purported to sell to AJB and lease back from it certain machines which in
fact did not exist. CN guaranteed the fraudulent party’s obligations under the sale and lease-
back. When the fraudulent party was adjudged bankrupt, AJB sued on the guarantee.

It was held that as the guarantee provided that substitution of the subject of the
contract, ie the machines, could only be made with the guarantor’s consent, it was
subject to an express condition precedent that the lease related to existing machines.
Alternatively, it was stated that the contextual background and the fact that both

190 Slade (1954) 70 LQR 385; Shatwell (1955) 33 Can Bar Rev 164; Smith (1994) 110 LQR 400.
191 [1950] 1 KB 671,691, below, p 291. Bucknill and Jenkins LJJ did not mention Bell v Lever Brothers
Ltd. 192 Bell v Lever Brothers Ltd [1932] AC 161, 224.
193 Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 267 (Steyn J,
approved in The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at [92]–[93]). But cf Smith (1994) 110
LQR 400, 412–13.
194 [1932] AC 161, 225. See also Whittaker v Campbell [1984] QB 318, 327; Goldberg and Thomson [1978]
JBL 150. 195 [1989] 1 WLR 255.
 mistake 281

parties were informed that the machines existed meant that such a condition could be
implied.196
However, just as the Courts have now rejected as artificial the old view that
frustration of a contract depended on the implication of a term into the contract,197
so it is not possible to base the doctrine of common mistake on implied terms. In The
Great Peace198 the Court of Appeal said:
the theory of the implied term is as unrealistic when considering common mistake as when
considering frustration. Where a fundamental assumption upon which an agreement is
founded proves to be mistaken, it is not realistic to ask whether the parties impliedly agreed
that in those circumstances the contract would not be binding.

Thirdly, it has been suggested that the application of the doctrine of common
mistake depends upon the true construction of the contract made between the
parties.199 As a general rule, one or other of them will be considered to have assumed
the risk of the ordinary uncertainties which exist when an agreement is concluded.
Normally, because of the principle caveat emptor, the buyer is held to have taken the
risk that property sold might prove defective or might be in some way different from
that which the parties believed it to be. Alternatively, this risk will have been assumed
by the seller if there was an express or implied warranty as to quality or description
in the contract. A common misunderstanding will not therefore normally nullify the
contract.
The construction of the contract is certainly critical to any claim of mistake. It
is only where the terms of the contract, construed in the light of the nature of the
contract and of the circumstances believed to exist at the time it was made,200 show
that it was never intended to apply to the situation which in reality existed at that
time, and the risk of the relevant mistake has not been allocated to one of the parties,
that the contract can be held void.201 On the other hand, it is not sufficient to say that
the doctrine of common mistake rests on construction of the contract. If the contract
expressly or by implication allocates the risk of the unknown fact to one or other
of the parties, then there is no mistake: the contract provides for the situation. But
a test is needed for those cases where the unknown fact is not dealt with expressly
or impliedly in the contract itself, to determine whether the mistake is sufficient to
render the contract void. The Court of Appeal in The Great Peace202 said that the
doctrine of mistake:

196 Ibid, 263. See also Financings Ltd v Stimson [1962] 1 WLR 1184.
197 Below, p 485. For the link between mistake and frustration, see above, p 277.
198 [2002] EWCA Civ 1407, [2003] QB 679 at [73].
199 Atiyah (1957) 73 LQR 340; Atiyah and Bennion (1961) 24 MLR 421; McTurnan (1963) 41 Can Bar Rev 1.
200 Extrinsic evidence is admissible to assist for this purpose in the construction of the contract: Pritchard
v Merchants’ and Tradesmen’s Life Assurance Society (1858) 3 CB (NS) 622.
201 Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 268; William
Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016, 1035, 1039; The Great Peace [2002] EWCA Civ 1407,
[2003] QB 679 at [75], [82], [84]; Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd
[1977] 1 WLR 164, and below, pp 284–5 and cf Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995] 1
WLR 1226. 202 [2002] EWCA Civ 1407, [2003] QB 679 at [80].
282 factors tending to defeat contractual liability

fi lls a gap in the contract where it transpires that it is impossible of performance without the
fault of either party and the parties have not, expressly or by implication, dealt with their
rights and obligations in that eventuality.

(b) The facts and decision in The Great Peace In this case:

The defendant required urgently the use of a vessel in order to carry out salvage services
for another ship which was in distress. The defendant was told by a reputable shipping
organisation that the claimant’s vessel, The Great Peace, was in the vicinity, and contacted
the claimant’s manager in the middle of the night to ask to hire the vessel. A contract was
entered into for a minimum five-day hire, both parties believing that The Great Peace was
35 miles away from the distressed ship. The information about the location of The Great
Peace was wrong, however, and she was in fact 410 miles away. After discovering the truth,
the defendants waited two hours in order to fi nd another vessel which was closer to the
distressed ship, and then cancelled the contract and argued that they were not required to
pay the five days’ hire because the contract was void for common mistake about the location
of The Great Peace.

Toulson J and the Court of Appeal held that the contract was valid, and the defendant
was liable to pay the hire charge. They reviewed the authorities, in particularly the
decisions in Bell v Lever Brothers Ltd203 and Associated Japanese Bank (International)
Ltd v Crédit du Nord SA204 and drew on the related doctrine of frustration of a contract
in order to explain the doctrine of mistake, and to articulate it in language which is
sometimes also used in relation to frustration.205 The Court of Appeal suggested that
the following elements must be present if common mistake is to avoid a contract:206

(i) there must be a common assumption as to the existence of a state of affairs; (ii) there
must be no warranty by either party that that state of affairs exists; (iii) the non-existence
of the state of affairs must not be attributable to the fault of either party; (iv) the non-
existence of the state of affairs must render performance of the contract impossible; (v) the
state of affairs may be the existence, or a vital attribute, of the consideration to be provided
or circumstances which must subsist if performance of the contractual adventure is to be
possible.

The third element listed by the Court of Appeal (absence of fault) was not discussed in
Bell v Lever Brothers Ltd. However, in McRae v Commonwealth Disposals Commission
it was said:207
a party cannot rely on mutual208 mistake where the mistake consists of a belief which is, on
the one hand, entertained by him without any reasonable ground, and, on the other hand,
deliberately induced by him in the mind of the other party.

203 [1932] AC 161; above, p 279. 204 [1989] 1 WLR 255; above, p 280.
205 For frustration of the ‘contractual adventure’, see Jackson v Union Marine Insurance Co Ltd (1874) LR
10 CP 125; below, p 476. 206 [2002] EWCA Civ 1407, [2003] QB 679 at [76].
207 (1950) 84 CLR 377, 408 (Dixon and Fullagar JJ). 208 ie, common mistake: see above, p 251.
 mistake 283

In Associated Japanese (International) Bank Ltd v Crédit du Nord SA209 Steyn J accepted
this qualification of the positive rules regarding mistake, and this was confirmed by
the Court of Appeal in The Great Peace.210
The contract in The Great Peace was not void, because performance of the contract—
the ‘contractual adventure’—was not impossible.211 The Great Peace could still be used
for the defendant’s salvage operation, even though it would have taken longer to reach
the distressed ship and therefore would have been less useful. Moreover, the fact that
the defendants delayed before cancelling the contract showed that The Great Peace
would have been of some use to them.212
(c) Examples of situations considered by the Courts It must be stressed that relatively
few reported cases have been argued, and even fewer have succeeded, on the basis
of common mistake. We have already noted that many mistakes will be caused by
misrepresentations, and that it will often be better for a claimant to seek a remedy for
misrepresentation rather than mistake.213 The narrow test for common mistake, and
the attendant uncertainties of its application, no doubt discourage its use. However, we
can see its application by considering a number of factual situations which have been
considered by the Courts:

(1) mistake as to the existence of the subject matter of the contract;

(2) mistake as to title to property;
(3) mistake as to the quality or the substance of the thing contracted for;
(4) a false and fundamental assumption going to the root of the contract, or
impossibility of performance of the contract.

The first three are distinct types of situation; the fourth sets out more compendious
tests for the doctrine generally.
(1) Mistake as to the existence of the subject matter of the contract. If the subject-
matter of the contract is what is sometimes called a res extincta, that is, it has, at the
time of the contract, and unknown to the parties, ceased to exist, or if it has never been
in existence, then the contract may be void for common mistake.
In a contract for the sale of specific goods, for example, the non-existence of the
goods will produce a situation not contemplated by the contract and to which it cannot
apply. 214 It is also enacted in section 6 of the Sale of Goods Act 1979215 that, where there

209 [1989] 1 WLR 255, 268. The qualification was said to rest on policy and good sense rather than
principles such as estoppel or negligence. Cf also the requirement of absence of fault in the test in equity
under Solle v Butcher [1950] 1 KB 671, 693; below, p 293. 210 Above, n 206 at [78]–[79].
211 Cf Reynolds (2003) 119 LQR 177, 178 (doubting whether there was a common mistake at all: ‘the
owners of the Great Peace surely did no more than think, correctly, that the salvors had reason to believe that
the Great Peace was the nearest ship’). 212 Ibid at [165].
213 Above, p 249.
214 Bell v Lever Brothers Ltd [1932] AC 161, 217.
215 See Barrow, Lane, and Ballard Ltd v Phillip Phillips & Co [1929] 1 KB 574 (subject-matter of sale stolen
prior to it). But contrast s 55(1) of the Act which, it has been argued, enables contractual variation of this rule:
Atiyah (1957) 73 LQR 340, 348–9; The Sale of Goods (12th edn, 2010) 99–104.
284 factors tending to defeat contractual liability

is a contract for the sale of specific goods, and the goods without the knowledge of the
seller have perished at the time when the contract is made, the contract is void. As well
as physical destruction, ‘perishing’ includes cases in which the goods are so damaged
that they become for business purposes something other than the description under
which they were sold.216
The leading case is Couturier v Hastie:217
A contract was made for the sale of a cargo of corn, which the parties believed was being
shipped from Salonica to England. The corn had, in fact, before the date of sale, deteriorated
and had been unloaded at Tunis and sold. The buyer contended that, since the cargo of corn
was not in existence, he was not bound to pay the price. But the seller argued that, on the
true construction of the contract, ‘this was not a mere contract for the sale of an ascertained
cargo, but that the purchaser bought the adventure, and took upon himself all risks from the
shipment of the cargo’.

The House of Lords held that the purchaser was not liable to pay for the corn. The
contract contemplated a sale of existing goods. Neither Coleridge J, who delivered
the judgment of seven judges in the Exchequer Chamber,218 nor Lord Chancellor
Cranworth in the House of Lords, actually mentioned the word ‘mistake’, for they
considered the case purely as one of the construction of the contract; but they
intimated that the contract would be void, inasmuch as ‘it plainly imports that there
was something which was to be sold at the time of the contract, and something to be
purchased’, whereas the object of the sale had ceased to exist.219
Similarly, in Strickland v Turner,220 S bought and paid for an annuity on the life of
a man who was, unknown to both parties, already dead. He was able to recover the
purchase money as the annuity had ceased to exist at the time of sale.
In these cases it is not difficult to see that the non-existence of the subject-matter
of the contract gave rise to a total failure of consideration. If a cargo does not exist,
it cannot be delivered; if an annuity is purchased on the life of a dead person, the
purchaser gets nothing for his money. It does not matter whether the contract is valid
or void. In neither case can the seller claim to recover, or retain, the purchase money.
The consideration for the contract has totally failed. It is only when the buyer brings
an action for damages for non-delivery that the crucial question of the validity of
the contract will arise. The mere fact that the subject-matter does not exist does not
render the contract void: one party may have undertaken in the contract the risk of its
existence.221 So in McRae v Commonwealth Disposals Commission:222
The Commonwealth Disposals Commission invited tenders for the purchase of a wrecked
vessel described as ‘an oil tanker on Jourmaund Reef approximately 100 miles north of

216 Asfar & Co v Blundell [1896] 1 QB 123; Oilfields Asphalts v Grovedale Coolstores (1994) Ltd [1998] 3
NZLR 479 (account taken of contemplated use or purpose for goods).
217 (1856) 5 HLC 673. See also Atiyah (1957) 73 LQR 340.
218 (1853) 9 Exch 102, reversing the Court of Exchequer at (1852) 8 Exch 40.
219 (1856) 5 HLC 673, 681. Ibbetson, A Historical Introduction to the Law of Obligations (1999) 228 states
that the ‘reanalysis’ of this decision was ‘pivotal’ to the rooting of mistake in English law.
220 (1852) 7 Exch 208. See also Hitchcock v Giddings (1817) 4 Price 135. 221 Above, p 281.
222 (1951) 84 CLR 377, noted (1952) 15 MLR 229.
 mistake 285

Samarai’ in New Guinea. M’s tender was accepted, and he thereupon fitted out a salvage
expedition at considerable expense. In fact there was no oil tanker in the locality indicated,
nor was there even such a reef as Jourmaund Reef. M claimed damages against the
Commission for the loss sustained by him in the expedition.

The Commission, whose conduct was described by the High Court of Australia
as ‘reckless and irresponsible’, resisted the claim to damages on the ground that
the contract was void ab initio. It relied on Couturier v Hastie for the proposition
that common mistake as to the existence of the subject-matter of a contract nullifies
consent and avoids the contract. The Court did not, however, accept this argument,
considering that the question of the validity of the contract had never arisen in that
case; it was merely concerned with the failure of the consideration. If it had arisen,
the decision would have depended upon whether the contract was subject to an
implied condition precedent that the cargo existed at the time of the contract. No
such condition could, in any event, be implied in the case before the Court, for the
Commission had clearly contracted that there was a tanker in the position specified,
and they must be held liable for breach.
It has been argued that the reasoning of the High Court of Australia in McRae’s case
negatives the existence of any doctrine of common mistake; indeed, it is said that a
contract concerning subject-matter which is non-existent is always valid and binding,
unless a term can be implied to the contrary.223 It is submitted, however, that this is not
the case. The merit of the decision in McRae v Commonwealth Disposals Commission
is that it shows that invalidity is not an invariable consequence of such a contract. The
question is one of the construction of the agreement.
When properly construed, the contract may indicate that the seller assumed
responsibility for the non-existence of the subject-matter. This was so in McRae’s case,
where the seller was held to have guaranteed the existence of the tanker.224 Alternatively
the contract may indicate that the buyer took the risk that the subject-matter might
not exist and undertook to pay in any event. This was the point at issue in Couturier v
Hastie, where the House of Lords was called upon to decide whether or not the buyer
had purchased merely the expectation that the cargo would arrive, and the securities
(ie the shipping documents) against the contingency of its loss. There is therefore no
absolute rule that a contract for the sale of a res extincta is necessarily void in English
law. But if the true construction of the contract is that the parties entered into it on
the footing that the subject-matter was in existence, and neither of them undertook in
the contract the risk that this might not be so, then the contract is void for common
mistake. 225
(2) Mistake as to title to property. Where a person agrees to purchase property
which, unknown to himself and the seller, is already owned by the buyer (sometimes
called in the older cases a res sua), the contract may be void.

223 Slade (1954) 70 LQR 385. See also Smith (1994) 110 LQR 400, 402.
224 (1951) 84 CLR 377, 407. See also Barr v Gibson (1838) 3 M & W 390; Tommey v Finextra (1962) 106
SJ 1012. 225 See also The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at [77]–[80].
286 factors tending to defeat contractual liability

In Bell v Lever Brothers, Lord Atkin said:226

Corresponding to mistake as to the existence of the subject-matter is mistake as to title in
cases where, unknown to the parties, the buyer is already the owner of that which the seller
purports to sell to him. The parties intended to effectuate a transfer of ownership: such a
transfer is impossible.

So if A agrees to take from B a lease of land of which, contrary to the belief of both
parties at the time of the contract, A is already tenant for life, the contract is void at
common law.227 But this principle must not be applied too widely. Normally a seller
is taken to warrant title to the property sold; even though the parties both contract
under a mistaken belief as to the title of the seller, there is a valid contract, and the
seller may be made liable in damages. It is only where the buyer happens to purchase
his own property, and where no warranty can be implied, that the contract is a nullity
from the beginning. For both parties must necessarily have accepted in their minds as
an essential and integral element of the subject-matter of the transaction that the seller
was, and that the buyer was not, entitled to the property.228
(3) Mistake as to the quality or the substance of the thing contracted for. This has
proved to be one of the most contentious categories in the law of common mistake. In
Bell v Lever Brothers, Lord Atkin said:

Mistake as to quality . . . will not affect assent unless it is the mistake of both parties, and is
as to the existence of some quality which makes the thing without the quality essentially
different from the thing as it was believed to be.

In reliance on this statement, it has been suggested that while a mistake as to quality (or
attributes) will not avoid the contract, a mistake as to substance (or essence) will.229
Some support may be gained from Kennedy v Panama, New Zealand, and Australian
Royal Mail Co Ltd:230
K was induced to take shares in a further issue of capital by the defendant company by a
statement in the prospectus that the new capital was required to carry out a contract recently
entered into with the New Zealand government for the carriage of mails. The contract, which
the company believed to be valid, had been made with an unauthorized agent of the New
Zealand government and the government refused to ratify it. The shares fell greatly in value
and K claimed to return the shares and recover back the purchase price.

The Court of Queen’s Bench refused to allow K to do so. It held that the shares which
had been received were not, because of the difference in value, different in substance
from those which the company had contracted to deliver. Blackburn J, delivering

226 [1932] AC 161, 218.

227 Cooper v Phibbs (1867) LR 2 HL 149—a case in equity where the contract was rescinded for mistake;
but see the views of Lord Atkin in Bell v Lever Brothers at 218, and Lord Thankerton at 236, on its validity at
common law. Cf Matthews (1989) 105 LQR 599. 228 [1932] AC 161, 235, 236 (Lord Thankerton).
229 Tylor (1948) 11 MLR 257.
230 (1867) LR 2 QB 580 (a common law case), expressly approved throughout the opinions in Bell v Lever
Brothers Ltd. Cf Emmerson’s Case (1866) LR 1 Ch App 433 (company in liquidation).
 mistake 287

the judgment of the Court, referred to the Roman Digest of Civil Law231 which
distinguished substance and quality. He considered that the principle of English law
was the same as that of Roman law,232 and that, at common law, if the mistake was not
as to substance but only as to quality, there was no remedy in the absence of fraud, or
of a definite warranty. Although there was no remedy at common law, on the facts of
the case, equitable relief by way of rescission would have been available on the ground
of misrepresentation.
That a mistake as to quality will not generally avoid the contract can scarcely be
doubted. We may give some examples, both actual and hypothetical: 233
A agrees to buy from B a certain parcel of oats which both believe to be old oats. They are
in fact new oats, and unsuitable for the purpose for which A wants them. There is a valid
contract despite the mistake.234
C buys from D a picture which both believe to have been painted by Constable. Several
years later, when C tries to sell the picture, he finds that it was not painted by Constable at
all. The mistake, though ‘fundamental’, does not avoid the contract.235
E agrees to buy from F ‘100 bales of Calcutta kapok, Sree brand’. The sale is by sample,
but both parties believe that this particular brand of kapok is pure kapok, consisting of
tree cotton, whereas it in fact contains an admixture of bush cotton and is a commercially
inferior product. The contract is valid.236
G buys from H a car which both believe to be a 1948 model. It is actually a 1939 model, and
worth very much less. There is no mistake at common law.237

It is evident that there is no clear rule which states that a mistake as to the substance
of the thing contracted for will avoid the contract. The distinction between substance
and quality is at best an arbitrary one, for there is no metaphysical ‘substance’
independent of qualities.238 Moreover, ‘the principle enunciated in Bell v Lever Brothers
Ltd is markedly narrower in scope than the civilian doctrine’ and ‘it is therefore no
longer useful to invoke the civilian distinction’.239 However, where the mistake is as
to ‘an essential and integral element in the subject-matter of the bargain’240 so that
it renders the subject-matter ‘essentially and radically different from the subject

231 (1867) LR 2 QB 580, 588. Digest, 18.1.9, 10, 11. 232 Cf Lawson (1936) 52 LQR 79.
233 See also Solle v Butcher [1959] 1 KB 671 (mistake about whether structural alterations to flat rendered
it a ‘new’ dwelling and therefore not subject to rent control), Frederick E Rose (London) Ltd v William H Pim
Junior & Co Ltd [1953] 2 QB 450, above, p 264 (parties contracted to buy and sell ‘horsebeans’, in the belief
that they were the same as ‘feveroles’, an entirely different sort of bean), and Grist v Bailey [1967] Ch 532
(mistake as to whether property to be sold was occupied by secure tenant) where the mistakes were said not
to be sufficient to make the contract void at common law. However, these were decisions during the period
when the Courts applied a wider test for common mistake in equity: below, p 291 ff.
234 Smith v Hughes (1871) LR 6 QB 597; above, pp 277–8.
235 Leaf v International Galleries [1950] 2 KB 86; below, p 315; Harlingdon & Leinster Enterprises Ltd v
Christopher Hull Fine Art Ltd [1991] 1 QB 564, 576; Bell v Lever Brothers Ltd [1932] AC 161, 224.
236 Harrison & Jones Ltd v Bunten and Lancaster Ltd [1953] 1 QB 646.
237 Oscar Chess Ltd v Williams [1957] 1 WLR 370, above, p 135.
238 Glanville Williams (1945) 61 LQR 293. Cf Tylor (1948) 11 MLR 257.
239 Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 268 (Steyn J). For
a significantly wider interpretation to the notion of ‘substance’ and ‘substantial qualities’ in contemporary
French Law, see Nicholas, The French Law of Contract (2nd edn, 1992) 85–90.
240 Bell v Lever Brothers Ltd [1932] AC 161, 236 (Lord Thankerton).
288 factors tending to defeat contractual liability

matter which the parties believed to exist’241 the contract will be void. Accordingly,
the following contracts of sale have been held to be void: of a quantity of Georgian
table linen erroneously described in the particulars of sale as ‘the authentic property’
of Charles I and as bearing the arms of that unhappy monarch;242 of a breeding cow
which was mistakenly believed to be a sterile cow and sold by the pound for beef;243
and of a plot of land, zoned as building land, for which, however, due to the absence of
sewage facilities, it was impossible to obtain a building permit.244
(4) A false and fundamental assumption; impossibility of performance of the
contract. A contract may be void where the parties contract under a false and
fundamental assumption, going to the root of the contract, and which both of them
must be taken to have had in mind at the time they entered into it as the basis of their
agreement; or where performance of the contract, as both parties understood it, is
impossible. These categories are not separate and distinct from those categories of
mistake already mentioned, but rather act as more general tests, which will cover
cases of non-existence of the subject-matter, mistakes as to title, and mistakes as
to quality or substance, but will also cover other situations. The test based on a
‘fundamental assumption’ received approval in Bell v Lever Brothers Ltd,245 although
some doubts were expressed as to its value owing to the necessary vagueness of its
formulation. It was also referred to by the Court of Appeal in The Great Peace, drawing
an analogy with similar ideas in the doctrine of frustration.246 As we have seen, the
Court of Appeal in that case has suggested that the core of the doctrine of common
mistake, like the doctrine of frustration, is that the contract—or the ‘contractual
adventure’—cannot be performed: a test of impossibility of performance, although
this must be interpreted as not limited to physical impossibility but extending to
commercial impossibility: the shared purpose of the contract cannot be fulfi lled,
through no fault of the either party and where neither party has undertaken the risk
of non-performance.247
However, this test is still narrow, and will not easily be satisfied. It is certainly not
sufficient for one party to establish that the mistake was as to the effect or commercial
consequences of the contract,248 or that, had the true facts been known, that party
would never have entered into the bargain. Indeed, there may be assumptions which
may be regarded by one or both of the parties as, in one sense, ‘fundamental’ – for

241 Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 264 (Steyn J),
approved in The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at [91].
242 Nicholson and Venn v Smith Marriott (1947) 177 LT 189 (the decision was however based on an implied
condition as to description under Sale of Goods Act 1893 (now 1979), s 13).
243 Sherwood v Walker 33 NW 919 (1887) (Michigan).
244 Alessio v Jovica (1974) 42 DLR (3d) 242 (Canada). Cf Amalgamated Investment & Property Co Ltd v
John Walker & Sons Ltd [1977] 1 WLR 164.
245 [1932] AC 161, 208, 225, 236; cf [1931] 1 KB 557, 564 (Wright J: ‘the underlying assumption without
which the parties would not have made the contract they did’).
246 [2002] EWCA Civ 1407, [2003] QB 679 at [73], [76], [82]. 247 Ibid at [76]; above, p 282.
248 Clarion Ltd v National Providential Institution [2000] 1 WLR 1888, 1899.
 mistake 289

example, that a picture is the work of an old master, or that a flat is free from rent
control. Yet the contract will still bind. As Lord Thankerton pointed out:249
The phrase ‘underlying assumption by the parties’, as applied to the subject-matter of a
contract . . . can only properly relate to something which both must have necessarily accepted
in their minds as an essential and integral element of the subject-matter.

In Bell v Lever Brothers Ltd itself, this requirement was not fulfi lled. On its true
construction, the agreement to pay compensation applied notwithstanding the fact
that the contract of service had been broken:
The contract released is the identical contract in both cases, and the party paying for release
gets exactly what he bargains for. It seems immaterial that he could have got the same result
in another way, or that if he had known the true facts he would not have entered into the
bargain.250

Nor was the test satisfied in The Great Peace: because of its distant position, the vessel
was much less useful than both parties had expected. But it was not impossible still to
use it for the salvage operation.251
It is not surprising that the strictness of the test for common mistake has resulted
in a dearth of cases on the subject. In Scott v Coulson,252 however, a contract for the
assignment of a policy of life insurance was made upon the basis of an erroneous belief,
shared by both parties, that the assured was still alive. It was held that the vendor was
entitled to the return of the policy and also the moneys payable under it. Similarly the
following have been held to be void: a separation deed entered into by a husband and
wife on the erroneous assumption that their marriage was valid;253 a contract for the hire
of rooms to watch a coronation procession made in ignorance that the procession had
already been cancelled;254 a contractual licence to cut and manufacture all sisal grown
on a particular estate, in return for payment and the delivery of a monthly quantity of
sisal which the estate was not in fact capable of producing;255 and an agreement as to
the amount due under two contracts of sale entered into in the erroneous belief that
the results in the two certificates of analysis had been transposed.256

(iii) Common mistake in equity

The effect of a mistake at common law, if it operates at all, is to render the contract void
ab initio; but there are circumstances in which equity may be prepared to grant relief

249 [1932] AC 161, 235. 250 Ibid, 223 (Lord Atkin). Cf Horcal v Gatland [1984] IRLR 288.
251 [2002] EWCA Civ 1407, [2003] QB 679 at [165]. 252 [1903] 2 Ch 249.
253 Galloway v Galloway (1914) 30 TLR 531.
254 Griffith v Brymer (1903) 19 TLR 434, discussed in The Great Peace [2002] EWCA Civ 1407, [2003] QB
679 at [67]. Cf, Krell v Henry [1903] 2 KB 740 (frustration of purpose), below, p 477.
255 Sheikh Brothers Ltd v Ochsner [1957] AC 136 (Privy Council, on appeal from Kenya under s 20 Indian
Contract Act 1872 which provides: ‘Where both the parties to an agreement are under a mistake as to a
matter of fact essential to the agreement, the agreement is void’). See also Clifford v Watts (1870) LR 5 CP
577; Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 269, above, p 280
(guarantee of machine lease agreement said to be void because machines did not exist); cf Marquis of Bute v
Thompson (1844) 13 M & W 487; Jefferys v Fairs (1876) 4 Ch D 448.
256 Grains & Fourrages SA v Huyton [1997] 1 Lloyd’s Rep 628.
290 factors tending to defeat contractual liability

where the common law refuses to intervene. For example, we have already seen that
although a written contract may be valid at common law, equity may grant rectification
of the written document, or may refuse to grant specific performance of a contract that
is binding at law.257 In Chapter 9 we shall see that, although the common law allowed
rescission of a contract for misrepresentation only in the case of fraud, in equity an
innocent misrepresentation sufficed to render the contract voidable. The question
which we must address here is whether equity will allow rescission of a contract on
the basis of common mistake where the mistake is not sufficient to render the contract
void under the principles set out in Bell v Lever Brothers Ltd 258 and the other cases
discussed in the previous section. In Solle v Butcher 259 Denning LJ set out an equitable
doctrine of common mistake which expanded the range of circumstances in which
the Court, in its discretion, could set aside a contract—a doctrine which over a period
of 50 years came to be regarded as good law and ‘on occasion the passport to a just
result’.260 However, this equitable doctrine was emphatically rejected by the Court of
Appeal in The Great Peace.261
Before considering Denning LJ’s approach in Solle v Butcher, and its rejection in
The Great Peace, something must be said about the relationship between equity and
common law in the context of mistake.
(a) Equitable and common law mistake Before the Judicature Act 1873, common
law and equity were administered in separate jurisdictions. If a party applied to the
Court of Chancery for equitable relief on the ground of contractual mistake,262 the
Court had its own remedies and followed its own principles in granting or refusing
relief. 263 It did not first have to inquire whether or not the contract was void at common
law and it is therefore misleading to suggest, as did Denning LJ in Solle v Butcher,264
first, that the intervention of equity presupposed that the contract was good at law, or
secondly (and somewhat inconsistently) that if the contract was void at law, equity
would automatically have had to follow the law. The truth is that the Court of Chancery
did not trouble itself about the position at law, unless, of course, there had been actual
judgment. Even where a contract might have been void at common law,265 the Court of
Chancery decided the case on equitable principles alone.
Since 1875 the rules of common law and equity have been applied in all divisions
of the High Court of Justice, and the particular rule to be applied in the case of
contractual mistake has depended upon the nature of the relief demanded. In Cundy v

257 Above, pp 262, 266. The equitable remedies in respect of contracts are only one aspect of a much wider
equitable jurisdiction to relieve from the consequences of mistake, a jurisdiction which extends to gifts and is
less concerned with the nature of the mistake: eg mistake of law was not a bar in equity even before the general
recognition of remedies for mistakes of law (above, p 277): Gibbon v Mitchell [1990] 1 WLR 1304, 1309.
258 [1932] AC 161; above, p 279. 259 [1950] 1 KB 671; below, p 291.
260 West Sussex Properties Ltd v Chichester DC [2000] NPC 74 at para 42 (Sir Christopher Staughton).
261 [2002] EWCA Civ 1407, [2003] QB 679; below, p 295. 262 See Grunfeld (1952) 15 MLR 297.
263 See, eg, Wood v Scarth (1855) 2 K & J 33 (equity); (1858) 1 F & F 293 (law).
264 [1950] 1 KB 671, 692, 694.
265 See, eg Cooper v Phibbs (1867) LR 2 HL 149, above, p 286, n 227 (common mistake as to title) and
Webster v Cecil (1861) 30 Beav 62 and Garrard v Frankel (1862) 30 Beav 445 (mistake about the terms of the
contract).
 mistake 291

Lindsay,266 for example, the case was decided according to common law principles
because the claimant pleaded that the contract was void. In Paget v Marshall,267 on
the other hand, the claim to have the contract rescinded or rectified meant that the
case was to be determined according to equitable rules. Until Solle v Butcher there
had been no real consideration of their relationship one with the other.
In that case, however, Denning LJ put forward the opinion that equity has somehow
superseded the common law where contractual mistake is concerned.268 For instance,
he considered that Smith v Hughes269 and Cundy v Lindsay270 would nowadays be cases
where the contract would be voidable and not void. The authority for this view would
presumably be that provision in the Judicature Act 1873,271 which lays down that where
there is any conflict or variance between the rules of equity and common law with
reference to the same matter, the rules of equity are to prevail. It is doubtful, however,
whether this is a proper case for the application of this provision. The better view272 is
that the Court must first consider, if so pleaded, the question of common law mistake.
If the contract is pronounced void, no question of equitable relief will arise. If, on
the other hand, the contract is not void, the Court may then proceed to consider the
possibility of any further relief in equity which may have been asked for by the parties.
The mere fact that the contract is good at common law does not preclude equitable
relief. However, this does not yet answer the question whether, if the contract is not
void because the parties’ common mistake is not sufficient to satisfy the narrow test at
common law, it can still be held voidable in equity for that same common mistake.
(b) The equitable doctrine set out in Solle v Butcher Cases can certainly be found in
which the Courts, exercising their equitable jurisdiction, set aside contracts or other
instruments on the basis of common mistake.273 However, it is not clear that in any of
these cases the mistake would have been insufficient to satisfy the common law test for
common mistake.274 In Solle v Butcher,275 however, such cases were used by Denning
LJ as the basis of a new and general doctrine of mistake in equity.
In Solle v Butcher the parties contracted under a common mistake of fact that a flat
leased to S was a ‘new’ dwelling-house for the purpose of the Rent Restriction Acts
and so could be let at a rent of £250 per year instead of the £140 which might lawfully
be demanded. To an action by S to recover the rent overpaid, B pleaded that the lease

266 Above, p 270. 267 (1884) 28 Ch D 255.

268 [1950] 1 KB 671, 692–3, below, p 292. See also Magee v Pennine Insurance Co Ltd [1969] 2 QB 507, 514.
Elsewhere he seems to conceive of the role of equity as merely supplementary. 269 Above, p 257.
270 Above, p 270.
271 s 25(11), now the Senior Courts Act (formerly Supreme Court Act) 1981, s 49.
272 Grist v Bailey [1967] Ch 532; Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989]
1 WLR 255, 270; William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016, 1039. These cases have all,
however, now been superseded by the decision in The Great Peace, below p 295.
273 eg Cooper v Phibbs (1867) LR 2 HL 149, above, p 286 (lease); Huddersfield Banking Co Ltd v Henry
Lister & Son Ltd [1895] 2 Ch 273 (consent order).
274 See Bell v Lever Brothers Ltd [1932] AC 161, 218 (Lord Atkin: contract in Cooper v Phibbs was void);
Huddersfield Banking Co Ltd v Henry Lister & Son Ltd, above, n 273, 280–1 (Lindley LJ, discussing common
law cases with cases decided in equity).
275 [1950] 1 KB 671. For criticism, see Goodhart (1950) 66 LQR 169; Slade (1954) 70 LQR 385, 407; Atiyah
and Bennion (1961) 24 MLR 421, 440–1; Cartwright (1987) 103 LQR 594.
292 factors tending to defeat contractual liability

should be rescinded on the ground of mistake. The Court ordered the rescission of
the lease but on the terms (inter alia) that S should be permitted to elect whether to
accept the rescission or to claim a new lease at the full agreed rent of £250 per year.
The judgment of Denning LJ contains a statement of the circumstances in which the
Court will intervene:276
Let me next consider mistakes which render a contract voidable, that is, liable to be set aside
on some equitable ground. Whilst presupposing that a contract was good at law, or at any
rate not void, the court of equity would often relieve a party from the consequence of his own
mistake, so long as it could do so without injustice to third parties. The court, it was said,
had power to set aside the contract whenever it was of opinion that it was unconscientious
for the other party to avail himself of the legal advantage which he had obtained: Torrance
v Bolton per James LJ.277
The Court had, of course, to define what is considered to be unconscientious, but in this
respect equity has shown a progressive development. It is now clear that a contract will be
set aside if the mistake of the one party has been induced by a material misrepresentation of
the other, even though it was not fraudulent or fundamental; or if one party, knowing that
the other is mistaken about the terms of an offer, or the identity of the person by whom it is
made, lets him remain under his delusion and concludes a contract on the mistaken terms
instead of pointing out the mistake . . .
A contract is also liable in equity to be set aside if the parties were under a common
misapprehension either as to facts or as to their relative and respective rights, provided that
the misapprehension was fundamental, and that the party seeking to set it aside was not
himself at fault.

Four aspects of this decision relating to common mistake should be emphasized.

Denning LJ stated that the Court would grant relief if (1) the mistake was fundamental,
and (2) the party seeking rescission was not at fault. Furthermore (3) the remedy is said
to be at the discretion of the Court—and the discretion extends to the imposition of
terms for the setting aside of the contract. Finally (4) in equity the mistake makes the
contract voidable, rather than void.
(1) Fundamental mistake. It has been said that ‘equity can have regard to a wider and
perhaps unlimited category of “fundamental” mistake’.278 Despite this requirement of
‘fundamentality’, the fact that the contract in Solle v Butcher was rescinded shows
that the category of operative common mistake is broader in equity under Denning
LJ’s doctrine than at common law. Following Solle v Butcher, rescission has also
been ordered where there was a mistake as to the value of the subject-matter of the
contract.279 The difference is also shown by Magee v Pennine Insurance Co Ltd,280
where the contrast with the common law position as laid down in Bell v Lever Brothers
Ltd is highlighted by the similarity of the fact situation. Both concerned a contract
made under a mistake as to the status of an earlier contract. In Magee’s case the later

276 Ibid, 692. 277 (1872) LR 8 Ch App 118, 124, above, p 267.
278 William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016, 1042 (Evans LJ). See also Associated
Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 270.
279 Grist v Bailey [1967] Ch 532, 541, below, p 293. See also West Sussex Properties Ltd v Chichester DC
[2000] NPC 74. 280 [1969] 2 QB 507.
 mistake 293

contract was a compromise of a claim made under the earlier contract, an insurance
policy, which in fact was voidable for misrepresentation. The contract of compromise
was set aside, Winn LJ dissenting on the ground that the case was indistinguishable
from Bell v Lever Brothers Ltd.281
(2) No fault. Secondly, the party seeking to set the contract aside must not himself
have been at fault. For there to be ‘fault’ there must be some degree of blameworthiness
beyond the mere fact that the mistake has been made but there has been little guidance
as to how much. Solle v Butcher is consistent with a concept of relative fault since
although B, the lessor, was seeking to have the lease rescinded, it was S, the lessee, but
also B’s agent for letting, who formed the opinion that the flat was not rent-controlled
and advised B accordingly.282 As between the two parties it seems that B was less
responsible for the mistake.283 Grist v Bailey,284 however, suggested that there must be
some personal fault to preclude the rescission of the contract.

B contracted to sell to G a freehold house for £850, ‘subject to the existing tenancy thereof’.
The value of the house with vacant possession was £2,250. Both parties believed the house
was occupied by a protected tenant but this was not the case. The person in possession had
only a doubtful claim to be a protected tenant and subsequently left the house without
making a claim.

It was held that B was not at fault since, although a vendor should generally know who
her tenants are, this was a case of a long-standing and informal tenancy. Rescission
was ordered on the condition that B entered into a new contract at the proper vacant
possession price.285 Again in, Laurence v Lexcourt Holdings Ltd 286 the defendant’s
omission to make the searches and inquiries of the local authority which were usually
done in a lease of land did not constitute fault.
The broad definition of ‘fundamentality’ of mistake, and the narrow approach to
fault, meant that the scope of equitable relief was potentially very wide and difficult to
operate in a principled way. The approach of the Courts in cases such as Grist v Bailey
and Laurence v Lexcourt Holdings Ltd, was also open to the criticism that insufficient
attention was paid to the question of contractual allocation of risk.287 As in the case
of common law, an express or implied allocation of a particular risk should generally
preclude the rescission of the contract for mistake.

281 There is doubt as to the ground of the decision. Lord Denning MR held the compromise was valid
at law but voidable in equity. Fenton Atkinson LJ agreed with Lord Denning but also (at 517) appeared to
apply the proposition, based on Bell v Lever Brothers Ltd, that a contract is void when consensus is reached
on a particular assumption which is not true; see The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at
[139]–[140].
282 [1950] 1 KB 671, 684, 694. See also Laurence v Lexcourt Holdings Ltd [1978] 1 WLR 1128, 1137–8.
283 Denning LJ considered (at 695) that the lease was induced by an innocent misrepresentation by the
plaintiff, but did not decide the case on this ground. 284 [1967] Ch 532.
285 Ibid, 543.
286 [1978] 1 WLR 1128 where, however, the principal ground of the decision was misrepresentation.
287 William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016, 1035. See also Associated Japanese Bank
(International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 268.
294 factors tending to defeat contractual liability

(3) Setting aside in the Court’s discretion, on terms. Rescission is a discretionary

remedy, and, in the exercise of its discretion, the Court has power in equity to attach
to the rescission such terms as justice may require in order to effect restitution. This
was done in Cooper v Phibbs, 288 a case in which the House of Lords set aside a contract
on the ground of a mistake shared by both parties:
C agreed with P to take a lease of a salmon fi shery which both parties believed to be P’s
property. It was later discovered that the fishery belonged to C as tenant for life under
a family settlement. C fi led a petition asking for cancellation of the agreement and for
such further relief as ‘the nature of the case might admit of, and as to the Court might
seem fit’.

Lord Westbury said:289

if parties contract under a mutual mistake and misapprehension as to their relative and
respective rights, the result is, that that agreement is liable to be set aside as having proceeded
upon a common mistake.

But in granting rescission of the contract, the House of Lords ordered that P should
have a lien on the fishery for the money which they had spent on improving the
property in the belief that it was theirs. Without this lien C would have been unjustly
enriched by P’s mistaken expenditure.290
In Cooper v Phibbs the terms had the effect of unwinding the contract and restoring
the status quo ante but in cases decided under the doctrine set out in Solle v Butcher
this has not always been the effect of such terms. Thus, in Solle v Butcher itself, B
was permitted to rescind but S was given the option of accepting this or claiming a
new lease at the higher rent. The effect of this option, if taken up, would be to give
effect to the expectation of the parties at the time of the original lease: there was no
subversion of the bargain they thought they had made. On the other hand, in Grist
v Bailey, the terms which, as we have noted, gave the purchaser the option of a new
contract at the vacant possession price, may have operated to reverse the risks of
the original contract. Where payments have been made under an agreement later
rescinded on the ground of mistake, the person who made the payments may be
entitled to restitution of the payments, subject to any defence of change of position.
While the Court has power to impose terms to exclude the recovery of any such
payments, it is unlikely to be willing to do so where the payee cannot establish that
it has changed its position as a result of the payment so as to make it inequitable for
repayment to be ordered.291

288 (1867) LR 2 HL 149. See also Bingham v Bingham (1748) 1 Ves Sen 126; Earl Beauchamp v Winn (1873)
LR 6 HL 223. 289 Ibid, 170.
290 Cf Magee v Pennine Insurance Co Ltd [1969] 2 QB 507, above, p 292, where no terms were imposed
on the rescission of the compromise agreement even though this left the insurance company with three
years’ premiums in respect of a policy for which they were not at risk. The question then is whether the
premiums would have been recoverable as money paid for a consideration which had totally failed, below,
p 588. Cf Fletcher [1969] CLJ 181, 182.
291 West Sussex Properties Ltd v Chichester DC [2000] NPC 74, 34–5 (Morritt LJ).
 mistake 295

(4) Voidable, not void. The final point to note about Denning LJ’s approach in Solle
v Butcher is that it tended to narrow the common law doctrine of mistake,292 at the
expense of a wider doctrine in equity. At common law mistake renders the contract void
ab initio. But in equity it is only voidable. This not only gives a more nuanced remedy,
allowing the mistaken parties to affirm the contract if they so wish, and allowing the
Court to exercise more control over the remedy, but it would also protect third parties
since, as we have seen in other contexts, a voidable contract cannot be rescinded if it
would prejudice an innocent third party such as the purchaser of property which was
delivered pursuant to the contract.293

(c) Rejection of the equitable doctrine by The Great Peace. In The Great Peace294 the
Court of Appeal roundly rejected Denning LJ’s approach and held that Solle v Butcher
was not good law, 295 on the basis that it was contrary to the binding authority of Bell v
Lever Brothers Ltd,296 and was contrary to principle.
We have already seen297 that the Court explained the common law doctrine of
mistake, for which Bell v Lever Brothers Ltd is the principal authority; but that it also
emphasized that mistake was a narrow doctrine, designed for only exceptional cases.
As Lord Atkin said in Bell v Lever Brothers:298
it is of paramount importance that contracts should be observed, and that if parties honestly
comply with the essentials of the formation of contracts—ie, agree in the same terms on the
same subject-matter—they are bound, and must rely on the stipulations of the contract for
protection from the effect of facts unknown to them . . . Nothing is more dangerous than to
allow oneself liberty to construct for the parties contracts which they have not in terms made
by importing implications which would appear to make the contract more businesslike or
more just.

Before Solle v Butcher, there was no evidence in the case law of an equitable
jurisdiction to rescind a contract for a common mistake which would not render the
contract void under the common law test: Lord Atkin’s narrow test for mistake in Bell
v Lever Brothers Ltd reflected also the circumstances where equity had intervened.299
The Court of Appeal considered that the test proposed by Denning LJ in Solle v Butcher

292 Th is narrowing of the common law test was rejected in Associated Japanese Bank (International) Ltd
v Crédit du Nord SA [1989] 1 WLR 255, 266–7; The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at
[91]–[92].
293 Cf above, pp 268, 276 (mistake of identity).
294 [2002] EWCA Civ 1407, [2003] QB 679; above, p 282.
295 The Court of Appeal held that it had power to depart from its own previous decision: ibid at [160],
although this has been doubted: Midwinter (2003) 119 LQR 180; Sheehan [2003] RLR 26, 33. However, recent
cases have assumed that The Great Peace is authoritative; see, eg, EIC Services Ltd v Phipps [2003] EWHC
1507 (Ch), [2003] 1 WLR 2360 at [155]–[158], [176]; Islington LBC v Uckac [2006] EWCA Civ 340, [2006] 1
WLR 1303 at [20]; Smithson v Hamilton [2007] EWHC 2900 (Ch), [2008] 1 WLR 1453 at [118].
296 [1932] AC 161, above, p 279. 297 Above, p 282.
298 [1932] AC 161, 224, 226, quoted in The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at [48]. See
also Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255, 268 (Steyn J: ‘The
first imperative must be that the law ought to uphold rather than destroy apparent contracts’), approved in
The Great Peace at [90]–[91].
299 The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at [118].
296 factors tending to defeat contractual liability

was not only uncertain in its scope and placed too much power into the hands of the
Court to exercise its discretion,300 but also, by allowing a broader test for mistake, had
undermined the policy of the common law in setting narrow limits for the doctrine of
mistake:301
the premise of equity’s intrusion into the effects of the common law is that the common
law rule in question is seen in the particular case to work injustice, and for some reason the
common law cannot cure itself. But it is difficult to see how that can apply here. Cases of
fraud and misrepresentation, and undue influence, are all catered for under other existing
and uncontentious equitable rules. We are only concerned with the question whether relief
might be given for common mistake in circumstances wider than those stipulated in Bell v
Lever Bros Ltd. But that, surely, is a question as to where the common law should draw the
line; not whether, given the common law rule, it needs to be mitigated by application of some
other doctrine. The common law has drawn the line in Bell v Lever Bros Ltd. The effect of
Solle v Butcher is not to supplement or mitigate the common law: it is to say that Bell v Lever
Bros Ltd was wrongly decided.

(d) Critique. The decision of the Court of Appeal in The Great Peace was emphatic
and uncompromising: there is no place in the law of contract for a broader doctrine of
common mistake in equity than the limited common law doctrine; and there is no place
for a judicial discretion in remedying mistake because it would undermine the security
of contracts. However, it is not obvious that the equitable jurisdiction set out in Solle v
Butcher would in any event have been exercised in the case to rescind the contract, since
the defendants’ mistake about the location of the vessel, even though they then shared
it with the claimants, surely fell firmly within the scope of risk borne by the defendants
under the contract for the hire of the vessel—a risk allocation which would be respected
not only by the common law, as made clear by the Court in The Great Peace, but which
also could equally be protected by an appropriate application of the equitable test.302
The Court of Appeal, following the lead of Toulson J at first instance, appeared to be
using the case as a vehicle to review this difficult area of jurisprudence.303
One ought, however, to reflect on what has been lost by the rejection of the equitable
doctrine of common mistake—and it should be noted that other jurisdictions in
the common law world have adopted it and have applied the approach set out by
Denning LJ in Solle v Butcher, and some may well be much more reluctant than the
English Court of Appeal to wind back the clock in order to restore the law on mistake
as it stood before this infusion of equity. 304 The advantages which it appears that

300 Ibid at [131], [154] (uncertainty over meaning of ‘fundamental’ in equity compared with common law
test); [138] (application depends on consideration of what is ‘fair’). For the strongest criticism, see Toulson
J at fi rst instance in The Great Peace [2001] All ER (D) 152 (Nov) at [120]: ‘Bluntly, the difficulty about this
form of the doctrine [ie, giving the court a discretion to decide whether to rescind the contract] is that it puts
palm tree justice in place of party autonomy’. 301 [2002] EWCA Civ 1407, [2003] QB 679 at [156].
302 Reynolds (2003) 119 LQR 177, 178–9.
303 Cf The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 at [2].
304 See, eg, Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502 at [56] ff, esp at [77] (Singapore:
mistake about the terms, but rejecting narrow Great Peace approach generally: ‘Equity is dynamic. A great
attribute, thus an advantage, of equity, is its flexibility to achieve the ends of justice’); Miller Paving Ltd v B
 mistake 297

Denning LJ sought through the development of his doctrine in Solle v Butcher were
that a contract would be voidable for mistake (rather than void), thereby protecting
the rights of innocent third parties to property delivered pursuant to the contract;
and that the Court would have greater control over the remedy, both as to whether
rescission should be granted at all, and also as to whether it should be granted only
on terms set by the Court. Furthermore, the scope of actionable mistakes in equity
could be less restricted than under the common law doctrine. Th is doctrine therefore
moved the Courts closer towards exercising a power over the terms of the contract,
particularly in cases where the effect of the mistake was to impose hardship on one
of the parties. Th is was one of the objections raised by the Court of Appeal in The
Great Peace:305
A common factor in Solle v Butcher and the cases which have followed it can be identified.
The effect of the mistake has been to make the contract a particularly bad bargain for one
of the parties. Is there a principle of equity which justifies the court in rescinding a contract
where a common mistake has produced this result?

However, even that Court recognized that there might have been some merit in
Denning LJ’s endeavour, but considered that any intervention should be by statute,
rather than by the common law:306
We can understand why the decision in Bell v Lever Bros Ltd did not find favour with Lord
Denning MR. An equitable jurisdiction to grant rescission on terms where a common
fundamental mistake has induced a contract gives greater flexibility than a doctrine of
common law which holds the contract void in such circumstances. Just as the Law Reform
(Frustrated Contracts) Act 1943 was needed to temper the effect of the common law doctrine
of frustration, so there is scope for legislation to give greater flexibility to our law of mistake
than the common law allows.

It must be admitted that relatively few cases were decided on the basis of the
equitable doctrine of Solle v Butcher during the 50 years when it was treated as good
authority.307 There are also relatively few reported cases based on the common law
doctrine of common mistake of fact or law. No doubt this is in part because of the
expressly limited scope of the common law doctrine. But it may also be because,
although there are many cases involving common mistakes where one of the
parties seeks to avoid the contract, they result from misrepresentations made by the
other party to the contract. An innocent misrepresentation of fact or law gives rise

Gottardo Construction Ltd (2007) 285 DLR (4th) 568 at [26] (Gouge JA in CA Ontario: ‘Great Peace appears
not yet to have been adopted in Canada and, in my view, there is good reason for not doing so. The loss
of the flexibility needed to correct unjust results in widely diverse circumstances that would come from
eliminating the equitable doctrine of common mistake would, I think, be a step backward’); cf Australia
Estates Pty Ltd v Cairns CC [2005] QCA 328 at [52] (Atkinson J: Great Peace should be followed in CA
Queensland in preference to Solle v Butcher).
305 [2002] EWCA Civ 1407, [2003] QB 679 at [155].
306 Ibid at [161]. For a similar preference of the Courts to rely on statute to deal with exclusion clauses and
other unfair terms, see National Westminster Bank plc v Morgan [1985] AC 686, 708; below, p 376.
307 Ibid at [153].
298 factors tending to defeat contractual liability

to a common mistake, since the first party shares the incorrect information with
the other, and therefore makes the mistake common. As long as the remedies for
misrepresentation are sufficient for the claimant, he will in practice base his claim not
on mistake, but on the defendant’s misrepresentation. It is to the remedies available
for misrepresentation that we now turn.
 9
MISREPRESENTATION AND
NON-DISCLOSURE
1. introduction
This chapter is concerned with relief for misrepresentation and for the exceptional
cases in which there may be relief for non-disclosure. Although, as we shall see,
there is some overlap between these two vitiating factors in cases in which there has
been partial disclosure, the rationale for the intervention of the law where a false or
misleading statement is made is fundamentally different from that for imposing a duty
upon a party to disclose to the other party information about the subject-matter of the
proposed contract.
The general rule of the common law is that a person contemplating entering a
contract with another is under no duty to disclose information to that other. ‘Ordinarily
the failure to disclose a material fact which might influence the mind of a prudent
contractor does not give the right to avoid the contract.’1 The parties must look out for
their own interests and ensure that they acquire the information necessary to avoid
a bad bargain. We have already seen in Chapter 8 that the law is reluctant to allow
a party to avoid a contract on the basis of his mistake about the facts relating to the
subject-matter of the contract or its surrounding circumstances, and the reluctance to
impose duties of disclosure is in tune with this. Thus, a person who visits an antiques
shop and sees a rare George II table being sold as a nineteenth-century piece need say
nothing to the seller before buying it. The seller’s mistake does not affect the validity
of the contract, and the fact that the buyer realizes that the seller has made a mistake
does not impose upon him a duty to disclose information to correct the mistake. Nor
does the oil prospector who discovers that there is oil under a given piece of land
have to inform the land owner. There are, however, both common law and statutory
exceptions to the general rule, in particular contracts uberrimae fidei, contracts of the
‘utmost good faith’, the prime example of which are insurance contracts, in which
there is a duty to disclose and where failure to do so makes the contract voidable.
A misleading statement made during the negotiations leading to a contract,
a misrepresentation, is, however, viewed quite differently. The party making the
misrepresentation has induced the other party to enter into the contract on the
basis of false information, and this displaces the normal rule that each party takes

1 Bell v Lever Bros Ltd [1932] AC 161, 227 (Lord Atkin).

300 factors tending to defeat contractual liability

responsibility for acquiring information relevant to the bargain. The effect of a

misrepresentation, subject to certain limitations, is to render the agreement voidable
at the suit of the misled party. A person who has been induced to enter into a contract
by reason of a misrepresentation can refuse to carry out the undertaking, resist any
claim for specific performance, and, if necessary, have the contract set aside by means
of the remedy of rescission. Where the representation has been incorporated as a term
of the contract, the misled party may choose instead to claim damages for breach of
contract. The circumstances in which it will be so incorporated were dealt with in
Chapter 5. The present chapter deals with misrepresentations which have not been
incorporated as a term. In such cases the misled party will sometimes be entitled to
claim tortious damages in respect of loss sustained by reason of the misrepresentation.
If the misrepresentation was made fraudulently, damages in the tort of deceit can be
recovered. If it was made without reasonable care being taken to ascertain its truth,
the misled party may recover damages by virtue of statute, or at common law in the
tort of negligence. Where the party making the misrepresentation believed, and had
reasonable ground to believe, that the facts represented were true, although the contract
is still voidable at the suit of the misled party, tortious damages cannot be claimed
but damages may sometimes be awarded in lieu of rescission. A pre-contractual
misrepresentation therefore may give rise to a wide range of remedies: rescission of
the contract, as well as damages by statute or at common law, in contract or tort.2

2. misrepresentation
(a) puffs, representations, and terms
A misleading statement made during the negotiations leading to a contract may fall
into one of three categories. First, it may be a mere ‘puff ’, a commendatory expression
which by virtue of its vagueness or extravagance would not be expected to and does
not ground any form of liability. Secondly, the preliminary statement may be intended
by neither party to have contractual effect, but nevertheless may affect the inclination
of one party to enter into the contract. It is then known as a ‘representation’. If it proves
false, the misled party will not be entitled to claim damages for breach of contract,
for no contractual stipulation has been broken; but will be entitled to claim the
relief accorded by the law in the case of misrepresentation. Thirdly, the preliminary
statement may be a term of the contract, or constitute a warranty collateral to the
contract, if the party making the statement undertakes or guarantees that it is true.3
There is an overlap between the second and third categories because a statement that is
a misrepresentation may also become a term of the contract. In such cases there will be

2 Cf Law Commission Preliminary Advice, A private right of redress for unfair commercial practices
(2008) paras 2.36–2.40 (if private right of action were introduced for consumers under Consumer Protection
from Unfair Trading Regulations 2008 (SI 2008 No 1277), implementing Directive 2005/29/EC on Unfair
Commercial Practices, it might ‘cure the complexity’ of the existing law on misrepresentation).
3 See above, pp 133–6.
 misrepresentation and non-disclosure 301

a choice of remedy since the misled party will be entitled to claim damages for breach
of contract or relief for misrepresentation.

(b) requirements of liability

An operative misrepresentation consists in a false statement of existing or past fact or
law made by one party (the ‘representor’) before or at the time of making the contract,
which is addressed to the other party (the ‘representee’) and which induces the other
party to enter into the contract.

(i) There must be a false representation

Mere silence does not constitute a misrepresentation.4 There must be some positive
statement, or some conduct from which a statement can be implied, in order to amount
to an operative misrepresentation. With regard to conduct, ‘a nod or a wink, or a shake
of the head, or a smile’ may suffice, 5 as may a photograph.6 It has been held that the
participation by the Spice Girls in the making of a commercial to be shown in the
future constituted a representation by conduct that none of the group had an existing
declared intention to leave the group before it was shown.7 And the use of a cheque
guarantee card, credit card, or cheque implies that such use is authorized by the bank
or credit card company.8
In assessing whether a complex pre-contractual document contains a mis-
representation, it has been suggested that it is preferable to look at the matter broadly
and to assess whether overall the statements in the document are substantially correct
rather than to focus ‘more and more microscopically so as to concentrate on each
sentence, phrase or word’.9

(ii) Partial non-disclosure and active concealment

A partial non-disclosure may constitute a misrepresentation. Suppression of material
facts can render that which is stated false, as where a seller of land told a purchaser that
the land had recently been occupied at a particular rent (which was true) but omitted to
inform him that more recently he had failed to find a new tenant except at a lower rent,
which therefore created the false impression that the land still had the higher value.10
There is also authority for the view that if a person does some positive act in order to
conceal defects in the subject-matter of the contract, as where the seller of a ship takes
the vessel from the slipway into the water in order to conceal its rotten hull,11 such

4 Keates v Lord Cadogan (1851) 10 CB 591.

5 Walters v Morgan (1861) 3 De GF & J 718, 724 (Lord Campbell). See also R v Charles [1977] AC 177; R v
Lambie [1982] AC 449 (on the meaning of ‘deception’ in the criminal law).
6 Atlantic Estates plc v Ezekiel [1991] 2 EGLR 202.
7 Spice Girls Ltd v Aprilia World Service BV [2000] EMLR 478, aff ’d on this point [2002] EWCA Civ 15,
[2002] EMLR 27. 8 R v Gilmartin [1983] QB 953 (criminal offence of deception).
9 Avon Insurance plc v Swire Fraser Ltd [2000] 1 All ER (Comm) 573, 632 (Rix J).
10 Dimmock v Hallett (1866) LR 2 Ch App 21. See also Nottingham Patent Brick and Tile Co v Butler (1886)
16 QBD 778; South Western General Property Co v Marton [1982] 263 EG 1090.
11 Schneider v Heath (1813) 3 Camp 505. See also Gordon v Selico Co Ltd [1985] 2 EGLR 79, 83 (landlord’s
agents covered up dry rot in flat); Cottee v Douglas Seaton (Used Cars) Ltd [1972] 1 WLR 1408, 1417 (plastic
fi ller to cover up rust in car).
302 factors tending to defeat contractual liability

active concealment will constitute a misrepresentation. The question is whether the

person, by his words or actions, has misled the other.

(iii) Change in facts

To constitute a misrepresentation, the representation must be false; and for the
purposes of the various remedies for pre-contractual misrepresentation this means
that it must be false at the time when the representee enters into the contract in reliance
upon it. If the representor makes a representation which is true at the time when it is
made, but which subsequently becomes false, it constitutes a misrepresentation at least
where the representor knows about the change of facts which render it now false. In
such cases the Courts say either that it is treated as a continuing representation (which
is therefore a misrepresentation at the critical time, when the contract is entered into)
or that the representor is bound to disclose the change in circumstances to the other
party.12

(iv) Representations of opinion normally insufficient

A mere expression of opinion, which turns out to be unfounded, will not invalidate a
contract. There is a wide difference between the seller of property saying that it is worth
so much, and a statement that the seller gave so much for it. The first is an opinion
which the buyer may or may not choose to adopt; the second is an assertion of fact
which, if false to the knowledge of the seller, is also a fraudulent misrepresentation.13
Thus in Bisset v Wilkinson:14
W agreed to purchase from B certain land at Avondale, in the Southern Island of New Zealand,
for the purpose of sheep-farming, in reliance on B’s statement that he estimated that the land
‘would carry two thousand sheep’. B had not, and no other person had at any time, carried
out sheep-farming on the lands in question. When B claimed the balance of the purchase
price, W counter-claimed rescission of the contract on the ground of misrepresentation.

The Judicial Committee of the Privy Council held that the statement was merely of
an opinion which B honestly held and accordingly the claim for rescission failed.
Again, in Economides v Commercial Union Assurance Co plc15 a statement that the
cost of replacing the contents of a flat was £16,000, made by a 21-year-old student
with no special knowledge, was a statement of opinion. It should not be assumed,
however, that what appears to be simply a statement of opinion can never constitute
a representation of fact. In one sense it always does so, for it asserts that the opinion
is actually held. A statement of opinion which is not in fact held is therefore a
fraudulent misrepresentation. Also an opinion will usually be based upon facts; so

12 Davies v London & Provincial Marine Insurance Co (1878) 8 Ch D 469, 475 (duty to disclose known
change of facts); With v O’Flanagan [1936] Ch. 575, 582–4 (duty to disclose or continuing representation);
Dietz v Lennig Chemicals Ltd [1969] 1 AC 170 (innocent misrepresentation on basis of changed facts); Traill v
Baring (1864) 4 De GJ & S 318 (duty to communicate change of intention); cf Wales v Wadham [1977] 1 WLR
199 (where Traill v Baring was not cited). See also Misrepresentation Act 1967, s 2(1).
13 Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221, 243.
14 [1927] AC 177. See also Anderson v Pacific Fire and Marine Insurance Co (1872) LR 7 CP 65.
15 [1998] QB 587. See also Marine Insurance Act 1906, s 20(3), (4).
 misrepresentation and non-disclosure 303

the person making the representation may impliedly state that facts are known which
justify that opinion. This is especially the case where the situation is such that the
representor must know the facts much better than the other party. If it is shown that
the representor had no reasonable grounds for that opinion, or failed to investigate
the facts which gave rise to it, there may well be an actionable misrepresentation. For
example, in Smith v Land and House Property Corporation:16
L bought a hotel as an investment at auction from S, who had stated in the auction particulars
that it was let to ‘a most desirable tenant’. However, the tenant was in significant financial
difficulty and had paid his last quarter’s rent only ‘by driblets under pressure’. S claimed
specific performance of the contract, and L counter-claimed for rescission.

It was held that the statement about the tenant was a misrepresentation and L’s claim
to rescind the contract succeeded. The statement amounted at least to an assertion
that nothing had occurred in the relations between the landlords and the tenant which
could be considered to make the tenant an unsatisfactory one.

(v) Mere commendatory ‘puffs’ insufficient

Commendatory expressions, such as advertisements to the effect that a certain brand
of beer ‘refreshes the parts that other beers cannot reach’, or that a perfume will
irresistibly attract members of the opposite sex, are not treated in law as representations
of fact. A similar latitude is allowed to a person who wants to gain a purchaser, though
it must be admitted that the borderline of permissible assertion is not always easily
discernible. At a sale by auction, land was stated to be ‘fertile and improvable’; it was in
fact partly abandoned and useless. This was held to be ‘a mere flourishing description
by an auctioneer’.17 But, as we have seen, the statement in auction particulars that the
property was let to ‘a most desirable tenant’, was not a mere commendatory puff but a
representation.18

(vi) Expression of intention or prediction normally insufficient

An expression of the speaker’s intention, a promise and a prediction about the future
are not normally misrepresentations. None of these can be regarded as true or false
at the time when it is made, except in so far as a person may misrepresent the state of
his or her own mind or power to bring an event to pass.19 Thus there is a distinction
between a promise which the promisor intends to perform and one which the promisor
intends to break or knows cannot be performed. In the first case the representation is
truly one of an intention that something shall take place in future, and is binding only
if it fulfi ls the requirements of a contractual promise. In the second case there is a
misrepresentation of the representor’s existing intention: not only is a promise made
which is ultimately broken, but when it is made, the maker of the statement’s ability to

16 (1884) 28 Ch D 7. See also Brown v Raphael [1958] Ch 636; Sirius International Insurance Corp v
Oriental Insurance Corp [1999] 1 All ER (Comm) 699.
17 Dimmock v Hallett (1866) LR 2 Ch App 21, 27. See also Lambert v Lewis [1982] AC 225, 262–3.
18 Smith v Land and House Property Corp, above.
19 R v Sunair Holidays Ltd [1973] 1 WLR 1105, 1109; British Airways Board v Taylor [1976] 1 WLR 13, 17,
21, 23, 27. See also R v Gilmartin, above, n 8.
304 factors tending to defeat contractual liability

perform or state of mind is represented to be something other than it really is. Such a
misrepresentation is one of fact. Bowen LJ said:20
the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is
very difficult to prove what the state of a man’s mind at a particular time is, but if it can be
ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s
mind is, therefore, a misstatement of fact.

Thus it has been held that, if a person buys goods having at the time no means to pay
or having formed an intention not to pay for them, that person makes a fraudulent
misrepresentation.21 There may also be a misrepresentation of fact behind a negligent
misprediction. Thus a prediction by a bank manager that the granting of a loan facility
would be a formality once supported by insurance from the Export Credit Guarantee
Department has been held to contain a statement of fact as to the existing policy of the
bank.22

(vii) Representation of law

Until recently it was held that a misrepresentation of law did not render the contract
voidable by the representee.23 It was, however, often difficult to distinguish between
a representation of law and one of fact. Many statements of fact contain implicit
propositions of law and vice versa. If a dwelling-house is represented to be a ‘new’
dwelling-house for the purposes of the Rent Acts, is this a representation of fact or
of law?24 A misrepresentation that planning permission exists for the business use
of premises has been treated as a representation of fact.25 Misrepresentations as to
private rights (as distinct from the general law)26 or as to the content or effect of
documents27 have also been held to entitle the misled party to rescind the contract. A
misrepresentation of foreign law has also been treated as a representation of fact.28 And
there is no good reason why a wilful misrepresentation of law should not be treated in
the same way as a statement of opinion which is not actually held:29 misrepresentation
of law has sometimes been treated as similar to misrepresentation of opinion.30
But the law has now moved on. It was held by the House of Lords in 1999 that in the
context of claims for the recovery of money paid under a mistake, a distinction should
no longer be made between mistakes of law and mistakes of fact.31 Similar reasoning

20 Edgington v Fitzmaurice (1885) 29 Ch D 459, 483. See also Goff v Gauthier (1991) 62 P & CR 388.
21 Ex p Whittaker (1875) LR 10 Ch App 446; DPP v Ray [1974] AC 370. On cheques, and credit and cash
cards, see above, p 301, n 8.
22 Box v Midland Bank Ltd [1979] 2 Lloyd’s Rep 391, 399; [1981] 1 Lloyd’s Rep. 434. Cf Esso Petroleum Co
Ltd v Mardon [1976] QB 801. 23 Cf Beattie v Lord Ebury (1872) LR 7 Ch App 777.
24 Solle v Butcher [1950] 1 KB 671, 695. 25 Laurence v Lexcourt Holdings Ltd [1978] 1 WLR 1128.
26 Cooper v Phibbs (1867) LR 2 HL 149, above, p 294.
27 Hirshfeld v London Brighton and South Coast Railway Co (1876) 2 QBD 1; Wauton v Coppard [1899] 1
Ch 92; Re Roberts [1905] 1 Ch 704; Horry v Tate & Lyle Refineries Ltd [1982] 2 Lloyd’s Rep 416.
28 Andre & Cie SA v Ets Michel Blanc & Fils [1979] 2 Lloyd’s Rep 427.
29 West London Commercial Bank v Kitson (1884) 13 QBD 360, 362.
30 Beattie v Lord Ebury, above, n 23, 802.
31 Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349.
 misrepresentation and non-disclosure 305

has now also been applied to cases of mistake32 and misrepresentation33 in contract
and therefore in principle misrepresentations of law are now capable of remedy on the
same basis as misrepresentations of fact.

(viii) The representation must be addressed to the misled party

The representation must have been addressed by the representor (or by someone on his
behalf) to the misled party. In Peek v Gurney:34
The promoters of a company were sued by P who had purchased shares on the faith of false
statements contained in a prospectus issued by them. P was not a person to whom shares had
been allotted on the first formation of the company; he had merely purchased shares from
such allottees.

The House of Lords held that the prospectus was only addressed to the first applicants
for shares; that it could not be supposed to extend to others than these; and that on the
allotment ‘the prospectus had done its work; it was exhausted’.
A statement made directly to the misled party is clearly addressed to that party;
but will also be held to have been so addressed where the person is one to whom the
representor intended the statement to be passed on.35 If this fact is established, it is
immaterial that the misled party is merely one of a class of persons, even of the public
at large.36

(ix) The representation must induce the contract

The representation must form a material inducement to the party to whom it is
addressed, although it need only be an inducement for the party to enter into the
contract, not the sole or predominant or decisive inducement.37 Thus a person who
bought shares in a company on the faith of fraudulent statements contained in a
prospectus, but also in the erroneous belief that he would be entitled to the benefit of
a charge on the company’s assets, was able to claim that he had been materially misled
by the statements.38 Whether or not a person who has entered into a contract was
induced to do so by a particular representation is in each case a question of fact.
The burden of proving that the representation induced the contract rests upon
the misled party.39 But such inducement may be inferred. Thus it was said by Lord
Blackburn:40

32 Brennan v Bolt Burdon [2004] EWCA Civ 1017, [2005] QB 303.

33 Pankhania v Hackney London Borough Council [2002] EWHC 2441 (Ch), [2002] All ER (D) 22 (Aug).
34 (1873) LR 6 HL 377, applied in Al Nakib Investments Ltd v Longcroft [1990] 1 WLR 1390.
35 Commercial Banking Co of Sydney Ltd v RH Brown & Co [1972] 2 Lloyd’s Rep 360 (Australia); Smith v
Eric S Bush [1990] 1 AC 831 Cf Gross v Lewis Hillman Ltd [1970] Ch 445.
36 Andrews v Mockford [1896] 1 QB 372 (prospectus part of wider scheme of fraud).
37 Attwood v Small (1838) 6 Cl & Fin 232, 502; Reynell v Sprye (1852) 1 De GM & G 660, 708; Assicurazioni
Generali SpA v Arab Insurance Group [2002] EWCA Civ 1642, [2003] 1 All ER (Comm) 140 at [59], [218]. Cf
Barton v Armstrong [1976] AC 104, 119 (duress). 38 Edgington v Fitzmaurice (1885) 29 Ch D 459.
39 Arkwright v Newbold (1880) 17 Ch D 301, 324. See also Bristol & West BS v Mothew [1998] Ch 1.
40 Smith v Chadwick (1884) 9 App Cas 187, 196. See also Mathias v Yetts (1882) 46 LT 497, 502 (Jessel MR);
Barton v County Natwest Ltd [1999] Lloyd’s Rep (Bank) 408.
306 factors tending to defeat contractual liability

I think that if it is proved that the defendants with a view to induce the plaintiff to enter into
a contract made a statement to the plaintiff of such a nature as would be likely to induce a
person to enter into a contract, and if it is proved that the plaintiff did enter into the contract,
it is a fair inference of fact that he was induced to do so by the statement.

It will not be inferred that a representation induced the contract where it would not
have induced a reasonable person to contract but, in such a case, a representee who
proves that he or she was in fact so induced will be entitled to relief.41
On the other hand a person who was not actually influenced by a false representation
cannot be said to have been induced to enter a contract by it. The representation may
have been immaterial, in the sense that the representee’s judgment was never affected42
or the representee did not become aware, until after the conclusion of the contract,
that a representation had been made.43 In Horsfall v Thomas,44 for example:
T bought a cannon which had been manufactured for him by H. The cannon had a defect
which made it worthless, which H had endeavoured to conceal by inserting a metal plug into
the weak spot in the gun. T never inspected the gun and upon using it the gun burst.

It was held that, the attempted concealment having had no operation upon T’s mind or
conduct, he could not successfully set up a plea of fraud. ‘If the plug, which it was said
was put in to conceal the defect, had never been there, his position would have been
the same; for, as he did not examine the gun or form any opinion as to whether it was
sound, its condition did not affect him.’ 45

(x) Opportunities for inspection

The mere fact that the misled party has had the opportunity of investigating and
ascertaining whether the representation is true or false will not necessarily deprive
that person of the right to claim to have been deceived by it and therefore to avoid
the contract,46 although if the circumstances are suspicious and he has information
which ought to put him on inquiry he may not be able to rely on the misrepresentation
to claim a remedy.47 If, however, the representee does investigate, and consequently
relies not upon the misrepresentation but upon the accuracy of those investigations,
the action will fail, as it can no longer be said that the representation was a reason for
entering the contract.

41 Museprime Properties Ltd v Adhill Properties Ltd (1991) 61 P & CR 111, 124; cf Goff v Gauthier (1991)
62 P & CR 388, 397–8.
42 Smith v Chadwick (1884) 9 App Cas 187; JEB Fasteners v Marks, Bloom & Co [1983] 1 All ER 583.
43 Re Northumberland and Durham District Banking Co (1858) 28 LJ Ch 50.
44 (1862) 1 H & C 90. Cf Smith v Hughes (1871) LR 6 QB 597, 605. 45 Ibid, 99 (Bramwell B).
46 Central Ry Co of Venezuela v Kisch (1867) LR 2 HL 99, 120 (fraudulent misrepresentation); Redgrave v
Hurd (1881) 20 Ch D 1 (non-fraudulent misrepresentation); Laurence v Lexcourt Holdings Ltd [1978] 1 WLR
1128. Contributory negligence is a (partial) defence to a claim for damages in the tort of negligence, but not
in the tort of deceit: Standard Chartered Bank v Pakistan Shipping Co (Nos 2 and 4) [2002] UKHL 43, [2003]
1 AC 959.
47 Redgrave v Hurd, above, n 46, 23; New Brunswick and Canada Railway Co v Conybeare (1862) 9 HLC
711, 743.
 misrepresentation and non-disclosure 307

(c) remedies for misrepresentation: an overview

Once it has been established that there is an operative misrepresentation, the next step
is to identify the remedies available to the representee. The circumstances in which
the different remedies can be obtained will be explained in more detail below48 but, in
outline, they are as follows.
(i) Rescission of the contract
Misrepresentation renders the contract voidable at the instance of the misled party,
and rescission is the remedy by which the representee obtains the retrospective
avoidance of the contract. Both parties’ obligations under the contract are set aside ab
initio and the parties must normally return the benefits which they received from each
other under the contract. For example, when a contract of sale is rescinded either by
the buyer or by the seller, the buyer must return the goods and the seller must repay
the price.
The representee may also sometimes be able to obtain an ‘indemnity’ against
obligations which have been incurred in favour of third parties under the terms of
the contract which is rescinded. The Court has a discretion under section 2(2) of
the Misrepresentation Act 1967 to award damages in lieu of rescission where the
misrepresentation was made otherwise than fraudulently.

(ii) Damages in tort

If the representor committed a tort in making the misrepresentation, the
representee may sue for damages in tort. If the misrepresentation was made
fraudulently, the representor may be liable in the tort of deceit. If it was made
negligently—without reasonable care—the representor may be liable in the tort
of negligence or in a special statutory claim under section 2(1) of the Mis-
representation Act 1967. Deceit and negligence are general torts which are not
limited to pre-contractual misrepresentations. The statutory claim was devised
specially for pre-contractual misrepresentations.
Damages in tort are calculated to compensate the loss which the claimant suffers
as a result of the tort. In the context of misrepresentation, this means the amount by
which the claimant is worse off as a result of entering into the contract in reliance on
the misrepresentation. This may include consequential losses, but not the profits which
the claimant hoped to make from the contract. That would be a claim for ‘expectation’
measure damages which are available only in a claim for breach of contract.49

(iii) Remedies for breach of contract

If the misrepresentation became a term of the contract, or constituted a warranty
collateral to the contract, the claimant may have a claim for breach of contract.
Damages are calculated to put the claimant into the financial position in which he
would have been if the contract had not been broken. If the representor warranted that

48 Below, pp 311 ff.

49 An example illustrating the difference between tort and contract measure damages is set out below,
p 309.
308 factors tending to defeat contractual liability

his representation was true, this means putting claimant into the position as if it had
been true.50
If the truth of the representation was a condition of the contract, or if the fact that it is
false is a fundamental breach of contract, the representee may also be able to terminate
the contract for breach. These remedies for breach of contract are not discussed in
detail in this chapter.51

(iv) Defence to a claim under the contract

The representee may also be able to raise the misrepresentation as a defence to a claim
by the representor under the contract; for example as a defence to a claim for specific
performance of the contract, even in a case where the representee could not obtain
rescission of the contract. Specific performance is a discretionary remedy and it will
be refused where it would be inequitable for one party to insist on performance of the
contract by the other. Thus it will be refused where the party against whom it is sought
would not have entered into the contract but for the misrepresentation.52

(v) Choice between remedies

Sometimes the representee can establish a successful claim to more than one remedy.
In such a case he will make a choice between the available remedies based on the
benefit which each would give him; and sometimes he is able to obtain two remedies
simultaneously, whereas other remedies are mutually inconsistent and he must choose
between them.
For example, the representee may obtain at the same time both rescission of
the contract and damages in tort (in deceit, negligence or under section 2(1) of the
Misrepresentation Act 1967, as the case may be) because the underlying purpose of
these remedies is essentially the same: to restore the position as if the contract had
not been entered into, either by setting aside the obligations (rescission) or through a
monetary award (damages in tort). If the representee takes both remedies, the rescission
of the contract will reduce much of the tort loss since it involves each party returning
what he received from the other, but if after the rescission the representee will still
have out-of-pocket losses which fall within a possible tort claim, he is entitled to make
that claim.53 However, the representee cannot at the same time obtain rescission of the
contract and damages for breach, since the latter remedy presupposes the continuing
existence of the obligations under the contract.
The representee must choose between damages for breach of contract and damages
in tort, since their purpose is different. The measures of damages will often be
different, even where the claims arise from the same misrepresentation, and the facts
will determine which is better for the representee. Take an example:54

50 If the warranty was not that that the representation was true, but only that the representor was
exercising reasonable case in making it, the measure of damages (even in contract) is similar to damages in
the tort of negligence: Esso Petroleum Co Ltd v Mardon [1976] QB 801, 820.
51 See below, Chapter 15 (termination for breach); Chapter 17 (damages for breach of contract).
52 Lamare v Dixon (1873) LR 6 HL 414. 53 Archer v Brown [1985] QB 401, 415.
54 Cartwright, Unequal Bargaining (1991) 106.
 misrepresentation and non-disclosure 309

A sells a car to B, and makes a misrepresentation, which he also warrants to be true, about
the age of the car. The car is really 10 years old, but A says that it is 7 years old. B pays
£1,000 for the car. The market value of a 7-year-old car (with, apart from the age, the same
characteristics as this car) is £1,200; but the actual value of this 7-year-old car is £700.

If B sues in tort, he claims to be put back into the position in which he would have
been if he had not been induced by the misrepresentation to buy the car. He would
still have his £1,000. But since he has exchanged that money for a car which is worth
only £700, he has lost £300. On the other hand, if he sues for breach of contract, B
claims to be put into the position in which he would have been if the representation
were true—that is, he would have a 7-year-old car, which would be worth £1,200. So,
since the car is in fact worth only £700 his ‘loss’ is £500. On these facts, the damages
in contract are higher than the damages in tort. But this is only because the bargain
(apart from the misrepresentation) was good: if the representation had been true, B
was getting a good deal in paying only £1,000 for a car which should have been worth
£1,200. But if the bargain had been bad, and B was paying too much for the car even
if it had been only 7 years old, the contract measure would be less generous than the
tort measure.

(d) ‘fraudulent’, ‘negligent’ and ‘innocent’

misrepresentations
In the modern law misrepresentations may be categorized as fraudulent, negligent,
or innocent. This section outlines the different remedies available in these categories,
and the details of each of the remedies is given in the following sections.
(i) Categorization of misrepresentations in the older cases
It should be noted that, before 1963, the significant difference was between fraudulent
misrepresentations for which the contract could be set aside (ie ‘rescinded’)
and for which damages were available in the tort of deceit, and non-fraudulent
misrepresentations (known as ‘innocent misrepresentations’) for which only rescission
was available.55
The explanation for this lay in the distinction between common law and equity,
and the historical development of the law of tort. Whereas in equity a contract could
be rescinded for non-fraudulent misrepresentation, damages, a common law remedy,
was not available in the Court of Chancery. But while the common law courts awarded
damages for fraud in the tort of deceit, and for the breach of a contractual term, they
gave no remedy for a non-fraudulent misrepresentation which merely induced the
formation of a contract.56 The Judicature Act 1873,57 which enabled equitable remedies
to be granted in any division of the High Court, did not affect the substantive rule that
damages in addition to rescission cannot be awarded for innocent misrepresentation,

55 Heilbut Symons & Co v Buckleton [1913] AC 30, 48–9; Gilchester Properties Ltd v Gomm [1948] 1 All
ER 493.
56 Kennedy v Panama, New Zealand, and Australian Royal Mail Co Ltd (1987) LR 2 QB 580, 587.
57 1873 Act, ss 24(1) (2), and 25(11). See now the Senior Courts Act 1981 (formerly Supreme Court Act
1981), s 49.
310 factors tending to defeat contractual liability

and did little to change this situation. The important developments were the decision
of the House of Lords in 1963 in Hedley Byrne & Co Ltd v Heller & Partners Ltd,58 which
first extended the tort of negligence to cover claims for economic loss caused by reliance
upon a negligent misstatement, and the enactment of the Misrepresentation Act 1967,
which created a special remedy for negligent pre-contractual misrepresentations.
Since then, therefore, it has become usual to use the label ‘innocent’ (or, sometimes,
‘wholly innocent’) to refer to misrepresentations which are made neither fraudulently
nor negligently. But it is important to understand that judges in the cases before
1963 did not make this distinction, and therefore applied the label ‘innocent’ also to
misrepresentations which would now be classified as negligent.

(ii) The remedies available in the modern law for fraudulent, negligent and
innocent misrepresentations
At common law a fraudulent misrepresentation not only renders the contract
voidable, and therefore allows the representee to obtain rescission of the contract, but
also gives rise to an action for damages in respect of the deceit.59 If, therefore, the
misrepresentation was made fraudulently, the injured party will be entitled to choose
either to affirm the contract and recover damages in respect of any loss which may have
been suffered by reason of the fraud, or to rescind the contract and recover damages in
respect of any loss which will remain following rescission has been effected.60
A person who has been induced to enter into a contract as the result of a negligent
misrepresentation made to him by the other party to the contract is entitled to rescind
as in the case of fraud, although here the Court has a discretion under section 2(2)
of the Misrepresentation Act 1967 to refuse rescission and award damages in lieu.
The representee may also be able to claim damages in the tort of negligence or under
section 2(1) of the Misrepresentation Act 1967.61 Again, he has the choice between
affirming the contract and claiming damages in negligence or under section 2(1) for
all his loss, and rescinding the contract and claiming damages for any loss which will
remain following rescission. If the Court refuses rescission and awards damages in
lieu under section 2(2) of the 1967 Act, the representee may claim any additional losses
in negligence or under section 2(1).62
A person who has been induced to enter into a contract as the result of an innocent
misrepresentation made to him by the other party to the contract is entitled to the remedy
of rescission; but, in contrast with cases of fraudulent or negligent misrepresentation,
cannot obtain damages in addition to rescission, only an indemnity. However, the

58 [1964] AC 465, below, p 323; extended to pre-contractual misrepresentations in Esso Petroleum Co Ltd
v Mardon [1976] QB 801.
59 There are also statutory remedies in respect of certain fraudulent statements: eg Financial Services and
Markets Act 2000, s 382 (restitution order). In many circumstances a fraudulent misrepresentation will also
constitute a criminal offence: eg Consumer Protection from Unfair Trading Regulations 2008 (SI 2008 No
1277) regs 3, 5, 8; Financial Services and Markets Act 2000, s 397; Fraud Act 2006, s 2. The Court convicting
a defendant for a criminal offence may in some cases also make a compensation order: Powers of Criminal
Courts (Sentencing) Act 2000, s 130. 60 Archer v Brown [1985] QB 401.
61 For the difference between what has to be established under these claims, and the difference between
the damages awarded under them, see below, pp 325–6. 62 1967 Act, s 2(3).
 misrepresentation and non-disclosure 311

Court has a discretion under section 2(2) of the Misrepresentation Act 1967 to refuse
rescission and award damages in lieu.

(e) rescission of the contract

Rescission is, in principle, available for all classes of operative misrepresentation.63
At common law a contract was voidable for misrepresentation only if it was made
fraudulently. But there was no such limitation in equity, and the rules of equity
now prevail.64 When a person has been induced to enter into a contract by a
misrepresentation of any description, the effect on the contract is not to make it void,
but to give the misled party an option either to avoid it or, alternatively, to affirm it. A
party who is misled and elects to avoid the contract may take steps to have it set aside
by the Court, or may resist an action for specific performance or for damages brought
by the representor, and rescind by way of counterclaim.65 Rescission, however, is not
merely a judicial remedy. The misled party can rescind without seeking the assistance
of a Court,66 and any property transferred to the representor under the contract will
revest in the party who has so rescinded the contract.67

(i) Mode of rescission

As a normal rule, rescission must be communicated to the other party.68 But where
a seller of goods has a right to avoid the contract for the buyer’s misrepresentation,
it suffices if the seller, even without the buyer’s knowledge, retakes possession of the
goods.69 The Courts have even been prepared to accept that, at least in the case of a
fraudulent misrepresentation, it is sufficient for the seller to take all possible steps to
regain the goods. In Car and Universal Finance Co Ltd v Caldwell:70
C was fraudulently induced to sell a motor car to a purchaser in return for a bad cheque.
When the cheque was dishonoured, C immediately informed the police and the Automobile
Association, but the purchaser had deliberately absconded and could not be found. The
purchaser subsequently sold the car. It came into the hands of the claimant who bought it
in good faith.

63 On the similar principles governing rescission for undue influence, see below, p 367. The Law
Commission has proposed a reform of the law relating to consumer insurance contracts which would allow
the insurer to avoid the contract for the insured’s misrepresentation where it was ‘deliberate or reckless’, but
where the misrepresentation was ‘careless’ the insurer’s remedy would be compensatory, designed to put the
insurer in the same position as if the insured had exercised the required care: Law Com No 219, Consumer
Insurance Law: Pre-Contract Disclosure and Misrepresentation (2009) part 6.
64 Redgrave v Hurd (1881) 20 Ch D 1, 12–13; Supreme Court of Judicature Act 1873, s 25(11). See now
Senior Courts Act (formerly Supreme Court Act) 1981, s 49.
65 The setting up of the misrepresentation by way of defence has in some instances been treated as
equivalent to rescission: Clough v London & NW Ry (1871) LR 7 Ex 26.
66 TSB Bank Plc v Camfield [1995] 1 WLR 430, 438. Cf, however, O’Sullivan [2000] CLJ 509.
67 If the nature of the property is such that a particular formality is required to revest the title (eg land or
shares), the representor holds the legal title on constructive trust for the representee: Alati v Kruger (1955)
94 CLR 216, 224. 68 Scarfe v Jardine (1882) 7 App Cas 345, 360, 361.
69 Car and Universal Finance Co Ltd v Caldwell [1961] 1 QB 525, 554–5, 558; Re Eastgate [1905] 1 KB
465. 70 Above, n 69. Cf Newtons of Wembley Ltd v Williams [1965] 1 QB 560.
312 factors tending to defeat contractual liability

The Court of Appeal held that C had rescinded the contract even though he had
not communicated his rescission to the purchaser. The title to the car had revested
in the defendant on rescission and so the claimant had no title to the vehicle. It is
not, however, clear whether anything less than communication to the purchaser
or re-taking the goods would be sufficient to effect rescission in the case of a non-
fraudulent misrepresentation.71

(ii) No power to award partial rescission

Notwithstanding the flexibility of equity, it was held in TSB Bank plc v Camfield 72
that because, save as otherwise provided by statute, the right to rescind is that of the
representee and not of the Court, there is no power to order partial rescission. In that
case, as a result of an innocent misrepresentation, a woman charged her interest in
a house to a bank to secure the debts of her husband’s business believing that the
maximum liability under the charge was £15,000 when it was in fact unlimited.
Despite her willingness at the outset to charge the property for £15,000, the charge
was set aside in its entirety. This result has not been followed in Australia73 and was
left open by the Privy Council in an appeal from New Zealand,74 but is settled law in
England unless it is reviewed by the Supreme Court.75 The approach in the English
cases follows from the fact that (apart from the Court’s power to award damages in
lieu of rescission under section 2(2) of the Misrepresentation Act 196776) rescission for
misrepresentation is not a discretionary remedy. In this, it is in marked contrast to the
approach of equity in analogous situations. Thus, mortgagees’ claims have been upheld
only to the extent of the other party’s understanding of the amount of the mortgage.77
Again, in rescission for undue influence, the Court is concerned to achieve ‘practical
justice’ for both parties. We shall see that the party seeking rescission may be required
to pay the other reasonable remuneration for beneficial services rendered,78 and,
where the market value of property transferred has fallen, to bear a proportionate part
of the loss.79 Where the objectionable parts of a transaction can be severed without
rewriting it, setting aside is, moreover, not invariably an ‘all or nothing process’.80 The
misled party may also sometimes be able to seek rectification of the contract if (as in

71 Car and Universal Finance Co Ltd v Caldwell, above, n 69, 551–2, 555, 558–9.
72 [1995] 1 WLR 430. Th is case is in the line of cases following Barclays Bank Plc v O’Brien [1994] 1 AC 180,
in which the misrepresentation is made by a third party (here, the husband) to induce the misled party (the
wife) to enter into a contract with a bank. For third-party misrepresentations, see below, pp 369–72.
73 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102.
74 Far Eastern Shipping Co Public Ltd v Scales Trading Ltd [2001] 1 All ER (Comm) 319, 326. The New
Zealand Court of Appeal had expressed a strong preference for the flexible approach in Vadasz’s case (above,
n 73).
75 De Molestina v Ponton [2002] 1 Lloyd’s Rep 271, 288 (Colman J), on the basis that Vadasz is inconsistent
with the decision of HL in Barclays Bank Plc v O’Brien, above, n 72. See, however, Poole and Keyser (2005)
121 LQR 273. 76 Below, p 317.
77 Bristol & West BS v Henning [1985] 1 WLR 778 and Skipton BS v Clayton (1993) 66 P & CR 233. See
Ferguson (1995) 111 LQR 555.
78 O’Sullivan v Management Agency and Music Ltd [1985] 1 QB 428, below, p 367.
79 Cheese v Thomas [1994] 1 WLR 129. See also Jones and Goodhart, Specific Performance (2nd edn, 1996)
293 (purchaser’s action for specific performance with compensation).
80 Barclays Bank plc v Caplan [1998] 1 FLR 532, 546.
 misrepresentation and non-disclosure 313

TSB Bank plc v Camfield) the misrepresentation relates to a term of the contract, and if
he wishes to enforce the contract on the basis of the terms as he believed them to be.81
But if he wishes to avoid the whole transaction on the basis of the misrepresentation,
then, unless the Court exercises its power under section 2(2) of the Misrepresentation
Act 1967, he may do so.82

(iii) Indemnity alongside rescission

When a contract is rescinded, each party is entitled to be relieved of the obligations
under the contract and to recover any benefit which has been conferred upon the other
party. The object of rescission is to restore the position as it was before the contract
was entered into, and with this end in view the misled party can claim an indemnity
against any obligations which may be incurred, or which have been incurred, as a
result of the contract.
In Newbigging v Adam:83
N entered into a partnership with A and provided £10,000 of new capital. He was induced
to enter into the partnership agreement by a material non-fraudulent misrepresentation as
to the capacity of certain machinery. The business failed, and N sued for rescission of the
agreement, for recovery of his capital, and for an indemnity against all claims which might
be made against him by virtue of his having become a partner.

The Court of Appeal agreed that N was entitled to the relief for which he asked, that
the right to an indemnity must be less extensive than the right to damages, and that
the principle underlying the award of an indemnity is to restore the misled party to his
old position. But they differed in their conclusion as to how the pre-contract position
should in general be achieved. Fry LJ was inclined to hold that the misled party ‘is
entitled to an indemnity in respect of all obligations entered into under the contract
when those obligations are within the necessary or reasonable expectation of both of
the contracting parties at the time they made the contract’.84 But an award made on
this basis would not differ from damages. A narrower and more satisfactory test was
propounded by Bowen LJ when he said the misled party ‘is not to be replaced in exactly
the same position in all respects, otherwise he would be entitled to recover damages,
but he is to be replaced in his position so far as regards the rights and obligations which
have been created by the contract into which he has been induced to enter’.85 Cotton LJ
similarly said that ‘the indemnity to which he is entitled is only an indemnity against
the obligations which he has contracted under the contract which is set aside.’86
The distinction between damages and an indemnity as it works out in practice may
be illustrated by the case of Whittington v Seale-Hayne,87 where the Court adopted the
narrower principle suggested by Bowen LJ:

81 For rectification, see above, pp 262–5.

82 In TSB Bank plc v Camfield the bank conceded that it could not invoke section 2(2) directly and since
an award of damages against the husband would have been an empty remedy no Court could have formed
the view that it would be equitable to exercise its power under section 2(2).
83 (1886) 34 Ch D 582, aff ’d as Adam v Newbigging (1888) 13 App Cas 308. 84 Ibid, 596.
85 Ibid, 592–3 (emphasis added). 86 Ibid, 589. 87 (1900) 82 LT 49.
314 factors tending to defeat contractual liability

Poultry farmers had been induced to take a lease by the defendant’s non-fraudulent
misrepresentation that the premises were sanitary. This was not the case, and in consequence
of the contamination of the water supply, their manager fell ill and the poultry died. They
claimed rescission of the lease, and an indemnity to cover the value of the stock, loss of profit
on sales, loss of breeding season, medical expenses of the manager, rates, rent, and money
spent on outbuildings, etc. They had also been compelled by the local council to renew the
drains, and this item, too, was included.

It was held that the poultry farmers were entitled to have the lease rescinded, and to
recover what they had spent on rent, rates, and the renewal of the drains, since these
were expenses incurred under the covenants in the lease or arising necessarily out of
the occupation of the property, and thus ‘obligations created by the contract’. Their
claim for payment in respect of the other items of loss was not allowed, since these
were damages, there being no obligation to carry on a poultry farm on the leased
premises.
In practice, an indemnity is a useful remedy only where the misrepresentation is
wholly innocent. In cases of fraudulent or negligent misrepresentation the claimant
may claim damages on the tort measure, in addition to rescinding the contract.88
Damages will be at least as extensive as the indemnity. Thus it is generally only
where there is no claim for damages that the claimant has an interest in pursuing an
indemnity.

(iv) Limits to right to rescind

In a number of situations, the misled party may be precluded from rescinding the
contract. It is important to note, however, that the loss of the remedy of rescission will
not prevent a claim for damages in the tort of deceit or the tort of negligence or under
section 2(1) of the Misrepresentation Act 1967. The right to damages, where this exists,
is independent of the claim to rescind and still survives.
There are five limitations on the right to rescind.
(a) Affirmation If after becoming aware of the misrepresentation the representee
affirms the contract either by express words or by an act which shows an intention to
affirm it, rescission cannot be obtained. So, for example, if persons who have purchased
shares on the faith of a misrepresentation subsequently become aware of its falsity, but
act in a way which is inconsistent with rescission of the contract such as by accepting
dividends or attempting to sell the shares,89 they will not be permitted to avoid the
contract. In Long v Lloyd:90
Long was induced to purchase a lorry by Lloyd’s representation that it was in ‘exceptional’
and ‘first class’ condition. On the first journey after the sale, the dynamo broke and Long
noticed several other serious defects. Lloyd was informed of these and offered to pay half the
cost of some of the repairs. On the next long journey, the lorry broke down completely and
Long realized that it was in a deplorable condition. He claimed to rescind the contract.

88 Above, p 310.
89 Scholey v Central Ry Co of Venezuela (1867) LR 9 Eq 266; Re Hop and Malt Exchange and Warehouse
Co (1866) LR 1 Eq 483. 90 [1958] 1 WLR 753.
 misrepresentation and non-disclosure 315

The Court of Appeal held that, although the first journey did not amount to an
affirmation of the contract as it had been undertaken merely to test the truth of Lloyd’s
representation, the second journey did constitute such an affirmation since Long then
had knowledge that the representation was untrue.
It has been held that the right to rescind will not be lost by affirmation unless the
representee has knowledge both of the facts and that these give rise to the right to
rescind.91 Where there is no such knowledge, however, the conduct of the representee
may, if relied on by the representor, give rise to an estoppel precluding rescission.92 The
position thus differs from that concerning the right to reject for breach of condition
in contracts for the sale of goods which may be lost by ‘acceptance’ without such
knowledge.93 In Long v Lloyd, where there may not have been such knowledge, the
Court may have considered that rescission for misrepresentation should be barred
where the right to reject for breach of condition has been lost.94
(b) Lapse of time Lapse of time may in certain circumstances bar the right to rescind.
It may be treated as evidence of affirmation where the party misled fails to exercise
the right to rescind for a considerable time after discovering the representation to be
untrue.95 But, since knowledge is required for affirmation, mere lapse of time does not
normally have this effect.96 And where the misrepresentation was fraudulent, time does
not run against the representee until he has discovered the fraud (or, at least, should
have discovered it).97 Where the misrepresentation was not fraudulent, however, the
passage of time may operate so as to preclude rescission even though the representee
has no knowledge of the untruth of the representation. It then depends upon whether,
on the facts, the representee has failed to rescind within a ‘reasonable’ time from the
contract. In Leaf v International Galleries:98
L bought from IG a picture of Salisbury Cathedral which IG innocently represented to him
at the time of the purchase to have been painted by Constable. Five years later, when he tried
to sell it, he discovered this was not the case. He endeavoured to return the picture and
recover the price. IG refused, whereupon he brought an action claiming rescission of the
contract of sale.

The Court of Appeal held that the right to rescind had been lost. Jenkins LJ said:99
contracts such as this cannot be kept open and subject to the possibility of rescission
indefinitely . . . it behoves the purchaser either to verify or, as the case may be, to disprove
the representation within a reasonable time, or else stand or fall by it. If he is allowed to wait
five, ten, or twenty years and then reopen the bargain, there can be no fi nality at all.

91 Peyman v Lanjani [1985] Ch 457, 486–7, 494, 500.

92 Ibid, 488, 493, 501; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India [1990] 1 Lloyd’s
Rep 391, 398–9 (Lord Goff ).
93 Sale of Goods Act 1979, s 35 as amended by the Sale and Supply of Goods Act 1994, above, p 150.
94 See Leaf v International Galleries [1950] 2 KB 86, 91; Atiyah (1959) 22 MLR 76; Davies (1959) 75 LQR
32. 95 Clough v L & NW Ry (1871) LR 7 Ex 26, 35. Cf Allen v Robles [1969] 1 WLR 1193.
96 Armstrong v Jackson [1917] 2 KB 822, 830.
97 Rolfe v Gregory (1865) 4 De GJ & S 576, 579; Redgrave v Hurd (1881) 20 Ch D 1, 13.
98 [1950] 2 KB 86. 99 Ibid, 92.
316 factors tending to defeat contractual liability

(c) Rights of third parties Since the contract is not void but voidable, being valid
until rescinded, if third parties in good faith (‘bona fide’) without notice and for value
acquire rights in the subject-matter of the contract, those rights are valid against the
misled party, provided that the contract has not before that time been rescinded.100
Thus a shareholder who wishes to rescind a contract to take up shares in a company
must do so before winding-up, for once winding-up commences, the rights of the
creditors become fi xed, since they stand in the position of bona fide purchasers for
value.101 Also where goods are obtained by means of a misrepresentation, a third
party who, before rescission, acquires the goods in good faith and for value from the
fraudulent purchaser cannot be displaced by the representee.102
(d) Inability to make restitution It has been said that when a party ‘exercises his
option to rescind the contract, he must be in a state to rescind; that is, he must be
in such a situation to be able to put the parties into their original state before the
contract’.103 Each must give back what has been transferred. But the purpose of this
limitation is to prevent the unjust enrichment of the party seeking to rescind104 and
it should not be too strictly construed. Thus the mere fact that the subject-matter of
the contract may have deteriorated before the truth is discovered is not sufficient to
prevent a party making restitution and so to destroy the right to rescind a contract.105 In
Adam v Newbigging 106 rescission was granted of a partnership agreement even though
the partnership business was then ‘worse than worthless’. It has been suggested that
rescission of a contract of sale of quoted shares ought still to be possible even after the
purchaser has sold the shares, since he could purchase other identical shares and can
offer substantial restitution,107 although this idea of making restitution by handing
over an equivalent thing, rather than the actual subject-matter of the contract, has not
been developed. Nor has English law contemplated the approach taken by some legal
systems which allow the misled party, who has sold the goods, to avoid the contract
on restoring to the other party not the goods themselves, but the money which he has
obtained through the sale.
The Courts have, however, refrained from defining the scope of this equitable
remedy by any rigid rules; as a condition of rescission there must be restitution, but
at the same time the Court has full power to make all just allowances. It was said by
Lord Blackburn in Erlanger v New Sombrero Phosphate Co108 that the practice had

100 Babcock v Lawson (1880) 5 QBD 284. 101 Oakes v Turquand (1867) LR 2 HL 325.
102 Sale of Goods Act 1979, s 23; Phillips v Brooks Ltd [1919] 2 KB 243. Th is rule is the reason why misled
parties seek to argue that the original contract of sale was void for mistake, rather than only voidable for
misrepresentation: Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919, above, p 273. Cf Car and
Universal Finance Co Ltd v Caldwell (above, p 311), where the goods were acquired by the third party only
after rescission had already been effected.
103 Clarke v Dickson (1858) EB & E 148, 154 (Crompton J; see also in argument at 152: ‘you cannot both
eat your cake and return your cake’).
104 MacKenzie v Royal Bank of Canada [1934] AC 468 (Canada); Bouygues Offshore v Owner of the M/T
Tigr Ultisol Transport Contractors Ltd [1996] 2 Lloyd’s Rep 153, 159 (South Africa).
105 Armstrong v Jackson [1917] 2 KB 822, 829; Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch 392;
Alati v Kruger (1955) 94 CLR 216 (Australia). 106 (1888) 13 App Cas 308, above, p 313.
107 Smith New Court Securities Ltd v Citibank NA [1997] AC 254, 263.
108 (1878) 3 App Cas 1218, 1278.
 misrepresentation and non-disclosure 317

always been for a Court of Equity to give relief by way of rescission whenever by the
exercise of its powers it can do what is practically just by directing accounts, ordering
equitable compensation,109 and making allowances, though it cannot restore the
parties precisely to the state they were in before the contract.
How this goal of doing ‘what is practically just’ may be reached depends on the
circumstances of the case. For instance, the Court may think that justice requires
the making of some allowance for the deterioration, or the improvement, as the case
may be, of the subject-matter of the contract. Again, it may require compensation
for losses incurred by the representor110 or recompense for services rendered to the
representee.111 The Court will be more drastic in exercising its discretionary powers
in a case of fraud than in a case where no fraud is present; it will be ‘less ready to
pull a transaction to pieces where the defendant is innocent, whereas in the case of
fraud the Court will exercise its jurisdiction to the full in order, if possible, to prevent
the defendant from enjoying the benefit of his fraud at the expense of the innocent
plaintiff ’.112 But, even in a case of fraud, rescission will not be ordered where it is not
possible to achieve a broadly just result by orders for monetary adjustment to reflect
benefits and detriments which have accrued under the contract since to do so would
unjustly enrich the defrauded party.113
(e) Damages in lieu of rescission Except in cases of fraud, the Court has a discretion
to refuse to allow rescission and to award damages in lieu of this remedy. This power is
conferred by section 2(2) of the Misrepresentation Act 1967, which states:
Where a person has entered into a contract after a misrepresentation has been made to him
otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation,
to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract,
that the contract ought to be or has been rescinded, the court or arbitrator may declare the
contract subsisting and award damages in lieu of rescission, if of opinion that it would be
equitable to do so, having regard to the nature of the misrepresentation and the loss that
would be caused by it if the contract were upheld, as well as to the loss that rescission would
cause to the other party.

The reason for this provision is that rescission in some situations may be too drastic
a remedy; for example, a car might be returned to the seller because of a trifling
misrepresentation about the mileage done since the engine was last overhauled.114
Section 2(2) allows the Court to take into account the relative importance or
unimportance of the facts which have been misrepresented. It also allows the
Court to take into account the relationship of the loss caused to the representee by

109 See Mahoney v Purnell [1996] 3 All ER 61 (undue influence).

110 Spence v Crawford [1939] 3 All ER 271, 283 (Lord Thankerton) (loss to representor from sale by bank
of shares held as security conceded to be recoverable). See also Cheese v Thomas [1994] 1 WLR 129 (undue
influence).
111 Atlantic Lines & Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep 188, 202 (Mustill J) (services of
chartered ship); O’Sullivan v Management Agency and Music Ltd [1985] 1 QB 428 (undue influence).
112 Spence v Crawford [1939] 3 All ER 271, 288 (Lord Wright).
113 Society of Lloyd’s v Wilkinson (No 2) (1997) 6 Re LR 214, 222, 289, 296.
114 See the Tenth Report of the Law Reform Committee (Cmnd 1782, 1962) para 11.
318 factors tending to defeat contractual liability

the misrepresentation and the loss which would be caused to the representor if the
contract is rescinded. Where the former is significantly less than the latter it is likely
that damages in lieu of rescission will be awarded.115
(i) Unavailable where rescission barred. Is there power to award damages of this
nature where the right to rescind, though once in existence, has become barred by reason
of affirmation, lapse of time, the intervention of third-party rights, or an inability to
make restitution? The sub-section and its legislative history are ambiguous,116 but no
such power was proposed by the Law Reform Committee.117 Statements in the cases
indicate a divergence of view but it is submitted that the better view is that, while a
power to award damages although rescission is barred might be desirable, no such
power was created by the sub-section.118 Although it has been suggested that the time
for determining entitlement to rescind is the time of the Court’s order,119 the better
view is that the relevant time is the commencement of proceedings, or the time the
representee purports to rescind the contract. The reasons that preclude rescission
are often practical and have no relevance to the question whether damages should
be awarded and the Law Reform Committee’s report, which relied on the analogy of
damages in lieu of specific relief,120 supports the earlier time. The Court’s discretion,
however, appears unimpaired where the misrepresentation has subsequently been
incorporated as a term of the contract. As we shall see, a misrepresentation retains
its character as such even though it is incorporated as a contractual term,121 so that
the representee continues to enjoy a right to rescind. The Court in this case could still
refuse to allow rescission for misrepresentation and award damages in lieu.122
(ii) Measure of damages. The measure of damages to be awarded under this
subsection is the loss caused by the misrepresentation as a result of the refusal to
allow rescission of the contract, not the loss caused by entering into the contract.123
In a contract for the sale of land, for example, this would be the difference in value
between what the representee was misled into thinking was being bought and the
value of what was received. Broadly, therefore, this follows the contractual measure
of damages, rather than the tort measure.124 However, it is not a claim for damages

115 William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016, 1038 (loss to representee £18,000 to
divert a sewer; loss to representor some £6 million in return of purchase price and interest for land the value
of which had substantially fallen). 116 Atiyah and Treitel (1967) 30 MLR 369, 375–9.
117 Tenth Report (Cmnd 1782, 1962) para 27.
118 Atlantic Lines and Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep 188, 202; Government of
Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333, 2343. Cf Thomas Witter Ltd v TBP
Industries Ltd [1996] 2 All ER 573, 590, relying on a statement of the Solicitor-General on the third reading
of the Bill (741 HC Deb, col 1387, 20 February 1967) but cf the Lord Chancellor and Viscount Colville of
Culross (274 HL Deb, col 929, 17 May 1966; 277 HL Deb, col 53, 18 October 1966). See further Beale (1995)
111 LQR 385. 119 Atlantic Lines & Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep 188.
120 Tenth Report (Cmnd 1782, 1962) para 11. See also William Sindall plc v Cambridgeshire CC (above,
n 115) 1037. 121 Misrepresentation Act 1967, s 1(a); below, p 319.
122 The right of the representee to repudiate for breach of condition, if the misrepresentation has become
a condition, would not, it seems, be affected.
123 William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016. See also UCB Corporate Services Ltd v
Thomason [2005] EWCA Civ 225, [2005] 1 All ER (Comm) 601 at [37] (loss includes fi nancial loss, which
may be loss of a chance). 124 For the difference, see above, p 309.
 misrepresentation and non-disclosure 319

for breach of contract, and it has been stated that the damages under the sub-section
should never exceed what the claimant would have got had the representation been a
term. As section 2(2) was enacted because it was thought it might be a hardship to the
representor to be deprived of the whole of the benefit of the bargain on account of a
minor misrepresentation, ‘it could not possibly have been intended the damages in lieu
be assessed on a principle which would invariably have the same effect’.125 Moreover,
account is not taken of losses due to a general fall in market values after the contract
is made. Where a misrepresentation is made without reasonable ground for belief in
its truth, damages can be claimed under section 2(1) of the 1967 Act, and the measure
of these damages is that applicable in tort.126 In certain transactions there may be no
difference between the damages recoverable under section 2(1) and section 2(2); but
since consequential damage can be recovered under section 2(1)127 and account may
be taken of losses due to a general fall in the market after the contract,128 damages
under that sub-section will in many cases be more extensive than those recoverable
under section 2(2). Although awards can be made under both section 2(1) and section
2(2), it is not possible to recover damages twice over, for the Act provides that any
award under section 2(2) shall be taken into account in assessing the liability of the
representor under section 2(1).129
Where the misrepresentation is innocent, but the Court refuses rescission, the
representee is, of course, not entitled to an indemnity in addition to damages under
section 2(2). An indemnity is part of the remedy of rescission and is awarded in order
to achieve the restoration of the representee’s financial position before the contract.130
Since, however, the representee would have been entitled to an indemnity had rescission
been granted, the Court should, in assessing the damages under section 2(2), take
account of any sum recoverable as an indemnity in computing the loss which has been
suffered as a result of the refusal of rescission.

(v) Limitations removed by the 1967 Act

Before 1967 it was said that there were two further limitations on the remedy of
rescission. These were removed by the Misrepresentation Act 1967.
(a) Executed contracts In the case of innocent misrepresentation, there was authority
that there could be no rescission of a contract after it had been executed by the transfer
of property under it.131 The extent of this rule was somewhat uncertain and it was
the subject of much criticism,132 for in many cases the falsity of a misrepresentation
cannot be discovered until, for example, a lease of a house has been executed and the
tenant has moved into occupation of the premises. Section 1(b) of the Act therefore
provides that a contract is to be capable of rescission notwithstanding that it has been

125 William Sindall plc v Cambridgeshire CC, above, n 115, 1038 (Hoff mann LJ).
126 See below, p 326.
127 Davis & Co (Wines) Ltd v Afa-Minerva (EMI) Ltd [1974] 2 Lloyd’s Rep 27.
128 Below, pp 322, 324. 129 1967 Act, s 2(3). 130 Above, p 313.
131 Seddon v NE Salt Co Ltd [1905] 1 Ch 326; Angel v Jay [1911] 1 KB 666.
132 See eg Lever Bros Ltd v Bell [1931] 1 KB 557, 588 (aff ’d [1932] AC 161); Leaf v International Galleries
[1950] 2 KB 86, 90, 91, 95; Tenth Report of the Law Reform Committee (Cmnd 1782, 1962) paras 6–10.
320 factors tending to defeat contractual liability

performed. This does not affect the other bars to rescission, and the circumstances in
which a Court will exercise its discretion under section 2(2) of the 1967 Act are more
likely to be present when a contract has been executed than when it is still executory.
(b) Incorporation as term If a misrepresentation is also incorporated as a term of the
contract, it was previously believed that the right to rescind was lost: the situation was
treated simply as involving the breach of a contractual term, for ‘the representation
becomes merged in the higher contractual right’.133 This rule was criticized because
the representee would be worse off if the misrepresentation were incorporated in the
contract as a mere warranty. The representee would then have no right to rescind
the contract but only to claim damages.134 Section 1(a) of the 1967 Act now provides
that rescission is still open notwithstanding that the misrepresentation has become
a term of the contract. The present rule is: ‘once a misrepresentation, always a
misrepresentation’. The representee must choose between the remedies, however: he
cannot both rescind the contract for misrepresentation and claim damages for breach
of a contractual term, since, by rescinding it, the contract is effectively set aside for all
purposes, including the right to claim damages for the breach of it.

(f) damages for fraudulent misrepresentation:

the tort of deceit
(i) Elements of the claim in deceit
In order to succeed in a claim the tort of deceit, the representee must show that the
representor made a misrepresentation; that the representation was made fraudulently;
that the representor intended that he (or someone in his position) should act upon it;
and that he did act upon it and suffered loss by so doing.135
As with other remedies for misrepresentation, the representation may be by words
or conduct, including partial non-disclosure or active concealment which misleads
the representee, but it cannot normally be by silence.136 And the test for whether the
representee acted upon the misrepresentation is the same here as in the other remedies
where the misrepresentation must have induced the contract.137 The elements peculiar
to this remedy are the requirement of fraud, and the measure of damages.

(ii) The meaning of fraud

The meaning of fraud was laid down by the House of Lords in Derry v Peek:138
A company obtained a statutory right to run trams by animal power or, if the consent of the
Board of Trade was obtained, by steam or mechanical power. The directors believed that the

133 Pennsylvania Shipping Co v Compagnie Nationale de Navigation [1936] 2 All ER 1167, 1171.
134 For remedies for breach of warranty (contrasted with breach of a condition of the contract, or a
fundamental breach), see above, pp 139–49.
135 Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205, 211. For claims in
deceit where the representation is made by an agent of the defendant. See below, pp 710–11.
136 Above p 301. For recent cases which allow a claim in the tort of deceit for fraudulent breach of a duty
of disclosure, see below, p 342–3. 137 Smith v Chadwick (1884) 9 App Cas 187, 196; above, p 305.
138 (1990) 14 App Cas 337.
 misrepresentation and non-disclosure 321

Board would give this consent as a matter of course, as they had already submitted plans to
the Board without any objection being made. They therefore issued a prospectus saying that
the company had the right to run trams by steam or mechanical power. Peek took up shares
in the company on the faith of the representation. The Board of Trade ultimately refused its
consent, and the company was wound up.

Peek sued in tort for deceit, and to succeed in such an action fraud had to be proved.
Lord Herschell stated:139
First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short
of that will suffice. Secondly, fraud is proved when it is shewn that a false representation
has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless
whether it be true or false. Although I have treated the second and third as distinct cases, I
think the third is but an instance of the second, for one who makes a statement under such
circumstances can have no real belief in the truth of what he states.

Lord Herschell went on to point out that making a false statement through want of care
falls far short of fraud; so too does a false representation honestly believed, though on
insufficient grounds. However, evidence of the reasonableness of the belief, and of the
information available to the representor, will be relevant in the Court’s assessment of
whether the claimant has established his case that the representor did not honestly
believe his representation.140 In the present case, there were obviously reasons which
had led the directors to make the untrue statement, and they ‘honestly believed what
they stated to be a true and fair representation of the facts’.141 Peek’s action therefore
failed.
Derry v Peek thus established that a negligent misrepresentation will not amount
to deceit, however gross the negligence may be.142 Nothing short of fraud will suffice.
On the other hand, it also shows that it is not necessary to constitute fraud, that there
should be a clear knowledge that the statement made was false. What is essential is the
absence of an honest belief in its truth. Further, the motive of the person making the
representation is irrelevant. It is no justification to show that the representation was
made without criminal dishonesty, bad motive, or that there was no intention to cheat
or cause loss to another by the deception.143
The elements of the tort of deceit must be established at the moment when
the representee acts upon the representation.144 That is the moment at which the
representation must be false, and the representor must be fraudulent. A statement
which is believed to be true when made and which is subsequently discovered to be

139 Ibid, 374. 140 Ibid, 375. 141 Ibid, 376.

142 Angus v Clifford [1891] 2 Ch 449, 464; Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573,
587–8. The effect of the decision in Derry v Peek was reversed for the particular case of misrepresentations
in company prospectuses by Directors Liability Act 1890, but no general remedy in damages was created for
non-fraudulent pre-contractual misrepresentation until the development of the tort of negligence by Hedley
Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (below, p 323) and Misrepresentation Act 1967, s 2(1)
(below, p 325).
143 Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205, 211; Brown Jenkinson
& Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621. 144 Briess v Woolley [1954] AC 333, 353.
322 factors tending to defeat contractual liability

false, will be considered to be fraudulent if the mistake is not communicated to the

other person before that person acts on it.145

(iii) Measure of damages

Damages in deceit are designed to compensate the person who is deceived by the
misrepresentation, and are assessed in accordance with the tortious measure; that is,
in the context of a fraudulent pre-contractual misrepresentation, the amount by which
the claimant is worse off as a result of entering into the contract in reliance on the
misrepresentation.146 A wider liability is imposed upon an intentional wrongdoer than
a negligent or innocent one in order to deter fraud, and because ‘moral considerations
militate in favour of requiring the fraudster to bear the risk of misfortunes directly
caused by his fraud’.147 Accordingly, all actual losses directly flowing from the fraud
are recoverable even if they could not reasonably have been foreseen148 and, as
contributory negligence is not a defence to fraud, damages will not be reduced on this
ground.149 The defrauded party is, however, required to mitigate the loss once aware
of the fraud150 but where it is claimed that there has been a failure to mitigate the
burden lies on the wrongdoer to show both that the defrauded party has failed to act
reasonably and that the failure had in fact resulted in an increased loss.151
The measure of damages can be illustrated by an example loosely based on the facts
in Smith New Court Securities Ltd v Citibank NA in which the House of Lords stated
the applicable principles.152
Suppose a person has been fraudulently induced to buy shares for £24 million. They are in
fact worth £12 million at the date of the contract. If the representation had been true they
would have been worth £26 million.

The injured party will be entitled to recover the amount by which it is out of pocket
(£12 million), but not for the loss of the bargain (£14 million).153 The injured party
must give credit for any benefits received as a result of the transaction, including, as
a general rule, the market value of the property acquired. Account will not generally
be taken of a fall in the market value after the date of the contract unless, as in the
case of Smith New Court Securities Ltd, the fraudulent misrepresentation continued
to operate after that date or the misled party is unable to sell the property because of
the fraud.154 On the other hand, the misled party can undoubtedly recover in respect
of consequential damage, such as injury to the person or property, or, say, the expense
involved in moving into a house which that party has been fraudulently induced to

145 Davies v London and Provincial Marine Insurance Co (1878) 8 Ch D 469, 475.
146 Above, p 309.
147 Smith New Court Securities Ltd v Citibank NA [1997] AC 254, 279–80 (Lord Steyn).
148 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158; Smith New Court Securities Ltd v Citibank NA (above,
n 147), 267, 279.
149 Standard Chartered Bank v Pakistan National Shipping Co (Nos 2 and 4) [2002] UKHL 43, [2003] 1
AC 959. 150 Smith New Court Securities Ltd v Citibank NA (above, n 147) 266.
151 Standard Chartered Bank v Pakistan National Shipping Corp [2001] EWCA Civ 55, [2001] 1 All ER
(Comm) 822. 152 [1997] AC 254, 267 (Lord Browne Wilkinson).
153 See also the illustration of the difference between contract and tort measure damages above, p 309.
154 [1997] AC 254, 267 (Lord Browne Wilkinson).
 misrepresentation and non-disclosure 323

buy,155 or even for distress caused by the fraud.156 The party misled may also recover
in respect of opportunities foregone as a result of entering the contract. Thus, in
East v Maurer,157 the purchasers of a hair salon bought in reliance on a fraudulent
representation that the seller had no intention of regularly working at another salon
he owned in the same town recovered, inter alia, the profit they would have made if the
false representation had not been made, ie the profit they might have been expected to
make in another hairdressing business bought for a similar sum. As Sedley LJ noted in
a later case, ‘it does not follow that the proper mode of ascertaining damage in certain
cases of tort may not mimic reasoning more familiar in contract.’158
Damages in tort are calculated principally to compensate the claimant’s losses, not
to deprive the representor of any profits he has made from his fraud. In principle a
Court may award punitive or exemplary damages in any tort, including deceit, where
the defendant’s conduct was calculated by him to make a profit for himself which may
well exceed the compensation payable to the claimant.159 However, there appears to
be no case in which exemplary damages have been so awarded. Moreover, although
there are some situations in which the representee may be able to obtain restitution
of benefits made by the defendant committing the tort of deceit, such a claim is not a
claim in tort but in unjust enrichment, and may be limited, for example, to cases where
the fraud is committed concurrently with a breach of fiduciary duty.160

(g) damages for negligent misrepresentation: the tort of

negligence or section () misrepresentation act 
(i) Common law: the tort of negligence
Before the passing of the Misrepresentation Act 1967, in the absence of a fiduciary
relationship,161 there was no definitive authority for the proposition that there was
also an entitlement to claim damages. In 1963, in the case of Hedley Byrne & Co Ltd
v Heller & Partners Ltd162 the House of Lords extended liability in damages in tort
to negligent misstatement and held that a duty of care could exist where there was
an assumption of responsibility such as to create a ‘special relationship’ between the
person making the statement and the person to whom it was made. The effect of this
decision on pre-contractual statements and the law relating to misrepresentation
was not directly considered,163 nor were the tests advanced by their Lordships for
determining the existence of this special relationship uniform in their terminology.164

155 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158.

156 Shelley v Paddock [1979] QB 120, aff ’d [1980] QB 348; Archer v Brown [1985] QB 401.
157 [1991] 1 WLR 461. See also Smith New Court Securities Ltd v Citibank NA (above, n 147), 282; Clef
Aquitaine SARL v Laporte Ltd [2001] QB 488 (though transaction not loss-making, a more profitable one
would have been entered into but for defendant’s deceit).
158 Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] QB 488, 513.
159 Rookes v Barnard [1964] AC 1129, 1226; Kuddus v Chief Constable of Leicestershire Constabulary
[2001] UKHL 29, [2002] 2 AC 122. 160 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] WTLR 1573.
161 On the liability and more rigorous duties of a fiduciary, see Nocton v Lord Ashburton [1914] AC 932,
954 and below, p 340. 162 [1964] AC 465.
163 But see Lord Pearce, ibid, 539. 164 [1964] AC 465, 486, 503, 514, 528, 529.
324 factors tending to defeat contractual liability

Nevertheless, it is clear that the existence of a contract between the parties does not
exclude a parallel or concurrent duty of care in tort.165 Moreover, it has been held that
a negligent misrepresentation made by one party to the other preparatory to entering
into a contract can give rise to an action for damages in tort for negligent misstatement
if the person making it has or professes to have special knowledge or skill in respect
of the facts stated166 or if the representation, in the context in which it is made, is to
be regarded as neither casual nor unconsidered, but to be relied on.167 The burden of
proving negligence—both the duty of care and breach of that duty—rests on the party
alleging it, ie on the representee.
Again, the tort measure of damages applies, but for a negligent misstatement the
representor is liable only for the losses which he could reasonably have foreseen. The
policy which we have seen in the tort of deceit, that the fraudulent defendant should
be made to pay for all the loss which he caused through his dishonesty,168 gives way in
the tort of negligence to a policy which holds the defendant liable only for foreseeable
losses because the basis of the imposition of the duty of care is that the defendant
should, as a reasonable man, have foreseen the consequences of his actions.169 Thus the
common law draws distinctions to reflect moral differences between the fraudulent
representor and the negligent representor.170
The measure of loss in a claim in the tort of negligence will also depend upon the
scope of the duty of care undertaken by the representor. If he undertakes a general duty
to advise the representee about the transaction, his duty may extend to the consequences
generally of the representee having entered into the contract, which could include losses
which flow from fluctuations in the market in a case where, for example, the advice
induces the representee to enter into a contact to purchase property. But where the duty
is not to advise but is only to take care that specific information is correct, for example
the valuation of a property by a surveyor or information given by a solicitor to a client, it
has been held that because the duty of a valuer is to take care to ensure that information
regarding value is correct, a valuer is only liable for the foreseeable loss of the information
being wrong, so that the damages are the difference between the valuation given and
the true value of the property at the time of the breach.171 This has been criticized as
inappropriately capping the tort measure by reference to the contractual bargain172 and

165 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 186–91 (Lord Goff ).
166 Esso Petroleum Co Ltd v Mardon [1976] QB 801; Cornish v Midland Bank plc [1985] 3 All ER 513; Gran
Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560. McNair J in Oleificio Zucchi SpA v Northern Sales Ltd [1965]
2 Lloyd’s Rep 496, 519 had assumed that Hedley Byrne did not apply as between contracting parties.
167 Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574, 592, 600.
168 Above, p 322.
169 Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd, The Wagon Mound [1961] AC 388,
422–3. 170 Ibid; Smith New Court Securities Ltd v Citibank NA [1997] AC 254, 279–80.
171 South Australia Asset Management Corp v York Montague Ltd [1997] AC 191. See also Bristol &
West BS v Mothew [1998] Ch 1; Swindle v Harrison [1997] 4 All ER 705 (breach of fiduciary duty). Cf Aneco
Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2001] UKHL 51, [2002] 1 Lloyd’s Rep 157 (duty to
advise).
172 Stapleton (1997) 113 LQR 1. See also McLaughlan ibid, 421; [1997] JCL 114, cf Dugdale [1995] JBL 533;
Burrows, Remedies for Torts and Breach of Contract (3rd edn, 2004) 109–22.
 misrepresentation and non-disclosure 325

as redefining ‘duty’ in a way that prevents inquiry into the other legal issues; namely
causation, remoteness, and measure of damages.173

(ii) Misrepresentation Act 1967

Section 2(1) of the Misrepresentation Act 1967174 establishes a statutory right to
damages:
Where a person has entered into a contract after a misrepresentation has been made to him by
another party thereto and as a result thereof he has suffered loss, then, if the person making the
misrepresentation would be liable to damages in respect thereof had the misrepresentation been
made fraudulently, that person shall be so liable notwithstanding that the misrepresentation
was not made fraudulently, unless he proves that he had reasonable ground to believe and did
believe up to the time the contract was made that the facts represented were true.

The use of the words ‘reasonable ground to believe’ in the closing words of the sub-
section might suggest that the duty imposed upon the representor is equivalent to the
duty of care in negligence. In general terms, it is appropriate to classify the remedy
under section 2(1) as being for ‘negligent’ misrepresentation,175 since it does not
require proof of fraud, yet does not impose liability if the defendant is able to show
that he had reasonable ground to believe his statement (broadly speaking, that he was
not negligent).176 But there are significant differences in the scope of liability under
the section 2(1) and the tort of negligence. In Howard Marine and Dredging Co Ltd v A
Ogden & Sons (Excavations) Ltd:177
O entered into a charterparty by which it chartered from HM two barges. In the course of
negotiations leading to the contract, HM’s manager represented to O that the barges had a
payload of 1,600 tonnes. He based this figure on his recollection of a statement in Lloyd’s
Register that the deadweight capacity of the barges was 1,800 tonnes. That statement was in
fact erroneous and the German shipping documents (which the manager had seen) relating
to the barges gave the true deadweight capacity at 1,055 tonnes. O refused to pay the agreed
hire charges and HM withdrew the barges and sued for the balance due. O counterclaimed
£600,000 on the grounds of misrepresentation, being the loss which it alleged it had sustained
because of the low carrying capacity of the barges.

The Court of Appeal was divided as to whether the circumstances were such as to
impose a duty of care in negligence at common law.178 But a majority of the Court

173 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 163 ALR 611, 634–5 (Gummow J) (Australia).
174 Implementing the Tenth Report of the Law Reform Committee (Cmnd 1782, 1962) para 17. The
precedent for s 2(1) was in s 43 of the Companies Act 1948 (itself based originally on the Directors Liability
Act 1890; above, p 321, n 142). See now Financial Services and Markets Act 2000, s 90; below, p 182. On the
Misrepresentation Act, see generally Atiyah and Treitel (1967) 30 MLR 369.
175 eg HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 1 All ER
(Comm) 349 at [5] (Lord Bingham).
176 If the misrepresentation is made by an agent of the contracting party, thus rendering the contracting
party liable under s 2(1) (Resolute Maritime Inc v Nippon Kaiji Kyokai, [1983] 1 WLR 857), it may be that the
principal is liable unless both the agent can show that he had reasonable ground to believe his statement and
the principal had no means of knowledge of facts which would show the representation to be untrue.
177 [1978] QB 574.
178 Lord Denning MR and Shaw LJ. Bridge LJ expressed no concluded view on this issue.
326 factors tending to defeat contractual liability

held179 that HM was liable under section 2(1), since the sub-section goes further than
the common law, does not require a special relationship or special skill and does not
depend upon the representor being under a duty of care the extent of which may
vary according to the circumstances in which the representation is made. The statute
imposes an absolute obligation not to state facts which the representor cannot prove
it had reasonable ground to believe were true. The burden thus lies on the representor
and not, as at common law, on the representee and it may be a heavy one to discharge,
particularly since reasonable ground for belief in the truth of the statement must be
shown to exist up to the time the contract is made.
It should, however, be noted that the sub-section is narrower than the common
law because it only applies where a person has (a) entered into a contract after a
misrepresentation has been made to that person and (b) the misrepresentation is made
by another party to the contract, and not by a third party. Thus if A enters into a contract
with B as a result of a misrepresentation made to B by C, no action will lie under the
subsection unless C is B’s agent; nor will C be liable to A under this provision, though
C might be liable under a collateral warranty,180 or in tort for negligent misstatement
if a special relationship of care or reliance is shown to exist.181
Section 2(1) of the Misrepresentation Act 1967 is a general remedy for pre-
contractual misrepresentations. In addition, there are other statutes which impose
liability in damages in respect of negligent statements in particular contexts:
prospectuses and listing particulars issued in support of the public issue of company
securities,182 and misleading information in literature concerning package holidays.183
There are also certain criminal offences involving the making of false statements in
particular contexts, even if no deception (no fraud) is involved,184 although in most
such cases there will be no claim for damages by reason only of the commission of the
offence.185
The effect of section 2(1) of the 1967 Act is to confer upon the representee a right to
damages for misrepresentation in circumstances in which there would have been such
a right had the misrepresentation been fraudulent. It is now clear that the measure of
damages is the tortious measure, ie so as to put the representee in the position he would
have been in had he never entered into the contract.186 But the equation with fraud has

179 Bridge and Shaw LJJ (Lord Denning MR dissenting).

180 Above, p 136. 181 Resolute Maritime Inc v Nippon Kaiji Kyokai [1983] 1 WLR 857.
182 Financial Services and Markets Act 2000, s 90. To avoid liability, those responsible must show they
reasonably believed that the statement was true and not misleading: ibid, Sched 10, para 1. The origin of
this provision is the Directors Liability Act 1890, above, p 321, n 142, which was also the inspiration for
Misrepresentation Act 1967, s 2(1): above, n 174.
183 Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992 No 3288) implementing
Council Directive 90/314/EC.
184 Cf p 310, n 59, above (criminal liability for fraudulent misrepresentation, and power to award damages
under Powers of Criminal Courts (Sentencing) Act 2000, s 130).
185 eg Property Misdescriptions Act 1991, s 1 (estate agent or property developer making false or
misleading statements about property: claim to damages excluded by s 1(3)).
186 Sharneyford Supplies Ltd v Edge [1986] Ch 128, 149 (rvsd on different grounds [1987] Ch 305),
disapproving the earlier statement in Watts v Spence [1976] Ch 165, 178 that the contractual measure (‘loss
of bargain’) applied; André & Cie SA v Ets Michel Blanc & Fils [1977] 2 Lloyd’s Rep 166, 181; Naughton v
O’Callaghan [1990] 3 All ER 191, 196–8; Royscot Trust Ltd v Rogerson [1991] 2 QB 297, 304–5.
 misrepresentation and non-disclosure 327

given rise to certain problems. Most importantly, it appears that under the sub-section
it is the fraud measure (that is, the measure in the tort of deceit), rather than that for
negligent misstatement at common law, which applies. Th is allows the recovery of
all losses directly flowing from the misrepresentation even if not foreseeable.187 In
Royscot Trust Ltd v Rogerson:188
A finance company was induced to advance a greater sum than it would otherwise have done
by a car dealer’s misrepresentation that a 20 per cent deposit had been paid by a prospective
hire-purchaser of a car. The hire-purchaser later ceased to pay the instalments due and
dishonestly sold the car. It was held that whether or not the sale by the hire-purchaser was
foreseeable, the loss to the finance company of the unpaid instalments was recoverable from
the car dealer under section 2(1) of the 1967 Act.

The argument that as a matter of policy it was undesirable to adopt the fraud measure
for what is basically negligence liability, since fools should not be treated as if they
were rogues,189 was rejected by the Court of Appeal as incompatible with the literal
words of the statute. Indeed, it appears that this literal reading may be what was
originally intended by the legislature, because at the time when the proposal for
section 2(1) was devised the distinction between the measure of damages in deceit
and in negligence was not yet fully developed,190 and the Law Reform Committee191
did not think that it was ‘in general the function of the civil law to grade the damages
which an injured person may recover in accordance with the moral guilt of the
defendant.’
However, the law of tort has moved on, and there is now a reluctance to apply the
fraud measure for what is in essence only a negligent misrepresentation or, indeed, a
misrepresentation which may not even be negligent but where the defendant cannot
discharge the burden of proving that he had reasonable ground for his belief.192 The
point is, moreover, not beyond argument. First it was not necessary in Royscot’s case to
choose between the fraud and negligence measures. This was because the act of disposing
of the car by the hire-purchaser was held to be foreseeable so the unpaid instalments
would have been recoverable in any event. Secondly, it is already established that not all
the consequences of fraud follow in the case of liability under section 2(1) of the 1967
Act. Damages under section 2(1) may be reduced for contributory negligence where the

187 Above, pp 322 (deceit), 324 (negligence).

188 [1991] 2 QB 297. See also William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016, 1037; South
Australia Asset Management Corp v York Montague Ltd [1997] AC 191, 216.
189 cf Fairest [1967] CLJ 239, 244; Hooley (1991) 107 LQR 547, 549–51. See also Atiyah and Treitel (1967)
30 MLR 369, 373; Cartwright, Unequal Bargaining (1991) 131–2.
190 The Law Reform Committee (above, n 174) reported in 1962, after the Privy Council in The Wagon
Mound (above, n 169) had laid down the test of remoteness of damage in the tort of negligence, but before
the House of Lords in Hedley Byrne extended the tort of negligence to misrepresentations, and long before
Hedley Byrne was extended to pre-contractual misrepresentations in Esso Petroleum Co Ltd v Mardon
(above, n 166). The natural point of reference for the new statutory liability during the formulation of the
proposals was therefore the tort of deceit. See also Cartwright [1987] Conv 423.
191 Above, n 174, para 22.
192 Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd, above, n 177. Cf Avon
Insurance plc v Swire Fraser Ltd [2000] 1 All ER (Comm) 573, 633 (at the margin, ‘a misrepresentation should
not be too easily found’ if the decision in Royscot’s case has to be applied).
328 factors tending to defeat contractual liability

loss was partly the fault of the representee193 although, as has been seen,194 damages for
fraudulent misrepresentation in the tort of deceit may not be reduced for contributory
negligence. Again, the extended limitation period which applies in an action of deceit195
will not apply to liability under section 2(1) because the statutory claim is not in fact
based on the defendant’s fraud. There are, moreover, indications that the Supreme
Court would be reluctant to find that what Lord Steyn described as ‘the rather loose
wording’ of the statute ‘compels the court to treat a person who was morally innocent
as if he was guilty of fraud when it comes to the measure of damages’.196

(h) exclusion and limitation of liability

Chapter 6 contains a detailed account of the approach of the common law to the
incorporation and interpretation of exclusion and limitation clauses, and the
statutory control of such clauses. Here we consider particular issues which arise
with regard to clauses which seek to exclude or limit a contracting party’s liability
for misrepresentation—and ‘liability’ is used here in the broadest sense, including
any of the remedies for misrepresentation. Thus a clause may exclude all remedies
for misrepresentation; or may exclude or limit damages; or may exclude the right to
rescind the contract.

(i) Common law

At common law, a party to a contract is entitled, by means of an appropriately drafted
clause, to limit or exclude his liability for misrepresentation, except in cases of personal
fraud. ‘It is clear that the law, on public policy grounds, does not permit a contracting
party to exclude liability for his own fraud in inducing the making of the contract.’197 It
may, however, be possible to exclude liability for the fraud of an agent or employee, but
if it such an exclusion is possible, it must be done ‘in clear and unmistakeable terms on
the face of the contract.’198
Two common forms of clause should be noted in particular. First, a party may
seek to avoid incurring liability by providing that the other party has not relied on
any representations made during the negotiations. If there is no reliance, there can
be no remedy for misrepresentation.199 There is some uncertainty in the cases as to

193 Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560, 574. Nicholls V-C stated at 573 that ‘in short
liability under the Misrepresentation Act 1967 is essentially founded on negligence’ and see Cane (1992) 108
LQR 539, 544. 194 Above, p 322.
195 Limitation Act 1980, s 32(1)(a): in an action ‘based on the fraud of the defendant’ the limitation period
does not begin to run ‘until the plaintiff has discovered the fraud . . . or could with reasonable diligence have
discovered it’.
196 Smith New Court Securities Ltd v Citibank NA [1997] AC 254, 283. See also at 267 (Lord Browne
Wilkinson).
197 HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s
Rep 61 at [16] (Lord Bingham); see also at [76], [121]–[122]. See also S Pearson & Son Ltd v Dublin Corp [1907]
AC 351, 353, 362.
198 HIH Casualty and General Insurance Ltd v Chase Manhattan Bank, above, n 197 at [16] (Lord
Bingham); see also differing views at [76]–[82] (Lord Hoff mann), [98] (Lord Hobhouse), [122] (Lord Scott).
199 Above, p 305.
 misrepresentation and non-disclosure 329

how such a clause operates, although the best analysis may be that by agreeing to the
clause the parties have established an estoppel by convention.200 However, it is unlikely
that a Court would allow such a clause to operate to exclude personal fraud.201 Even a
successful clause of this kind will be subject to the statutory control of section 3 of the
Misrepresentation Act 1967.202
A second common clause is one which provides that a written contract constitutes
the ‘entire agreement’ between the parties. Such a clause does not, however, exclude
remedies for pre-contractual misrepresentation: it is interpreted as providing only
that the totality of the parties’ contractual obligations are to be found in the written
document and not, for example, in any collateral contract.203

(ii) Statute
The Misrepresentation Act 1967, the Unfair Contract Terms Act 1977 and the Unfair
Terms in Consumer Contracts Regulations 1999 restrict the freedom to exclude
liability for misrepresentation.
(a) Misrepresentation Act 1967 Section 3 of the 1967 Act provides:
If any contract contains a term which would exclude or restrict:

(a) any liability to which a party to a contract may be subject by reason of any
misrepresentation made by him before the contract was made; or
(b) any remedy available to another party to the contract by reason of such a
misrepresentation,

that term shall be of no effect except in so far as it satisfies the requirement of reasonableness
as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming
that the term satisfies that requirement to show that it does.204

This provision regulates clauses which seek to exclude or limit liability or any remedy
for pre-contractual misrepresentation: that is, where the misrepresentation is the gist
of the claim, such as rescission, or a claim under section 2(1) of the Misrepresentation
Act 1967. A clause which excludes or limits liability at common law for a negligent

200 Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386, [2006]
2 Lloyd’s Rep 511 at [56]–[57] (Moore-Bick LJ). Cf Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA
Civ 317, [2001] 1 All ER (Comm) 696 at [39]–[40]; Cartwright in Burrows and Peel (eds), Contract Terms
(2007) 222–225; Trukhtanov (2009) 125 LQR 648.
201 S Pearson & Son Ltd v Dublin Corporation, above, n 197, 353–4 (Lord Loreburn LC: ‘it seems clear that
no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other
party shall not rely upon them’); but cf Smith v Chadwick (1882) 20 Ch D 27, 44–5 (Jessel MR).
202 Below.
203 Deepak Fertilisers and Petrochemicals Corp v ICI Chemicals & Polymers Ltd [1999] 1 Lloyd’s Rep 387,
395.
204 Substituted by the Unfair Contract Terms Act 1977, s 8(1). See also Trident Turboprop (Dublin) Ltd v
First Flight Couriers Ltd [2009] EWCA Civ 290, [2010] QB 86 at [19] (reference to Unfair Contract Terms Act
1977 renders that Act the controlling instrument, and therefore international supply contracts are excluded
from scope of s 3 of the Misrepresentation Act by s 26 of the Unfair Contract Terms Act).
330 factors tending to defeat contractual liability

misstatement 205 is regulated by section 2 of the Unfair Contract Terms Act 1977, 206
but may also, where the misstatement is made by a party to the contract, be regulated
by section 3 of the Misrepresentation Act 1967. 206a
Under the 1967 Act the clause which seeks to exclude or limit liability or any remedy
for misrepresentation is prima facie invalid, unless the representor can show that
it was a fair and reasonable term to be included in the contract having regard to all
the circumstances which were, or ought reasonably to have been, known to or in the
contemplation of the parties when the contract was made.207 A clause purporting to
exclude liability for fraudulent misrepresentation, even if it is valid at common law
(such as a clause excluding liability for an agent’s fraud),208 will generally not be held to
be reasonable.209 Since a clause which is not proved to be reasonable is ineffective for all
purposes, and the Court has no power to rewrite it so as to limit it to such an exclusion as
would have been reasonable,210 there is a risk that an over-wide exclusion clause which
might also have covered fraud will be held ineffective, although the Courts are likely for
this reason not to interpret clauses as covering fraud unless they clearly so provide.211
The approach in the case of exclusion of liability for non-fraudulent misrepresentation
can be illustrated by Walker v Boyle.212 A seller in response to preliminary enquiries
represented to the purchaser that she was not aware of any disputes regarding the
boundaries of the property to be sold, although she should have been aware of such a
dispute. It was held that condition 17 of the National Conditions of Sale which stated
that ‘no error, mis-statement or omission in any preliminary answer concerning the
property . . . shall annul the sale’ did not satisfy the test of reasonableness required
by the 1977 Act even though it was a long-standing common-form clause.213 This
was a case where the purchaser was a private individual; but, even as between
businesses, a term excluding or restricting liability for misrepresentation may be held
unreasonable. 214
The question arises whether it is possible to avoid the application of section 3 of
the 1967 Act by means of a contract term, for example, that statements made are ‘not
to be construed as assertions of fact’, or that they are ‘statements of opinion or belief
only’. In Cremdean Properties Ltd v Nash,215 the defendants, by whom it was alleged a
misrepresentation had been made, relied on the following clause:

205 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; above, p 323. 206 Below, p 331.
206a Cf Cartwright, Misrepresentation, Mistake and Non-Disclosure (2nd edn, 2007) para 9.22.
207 Unfair Contract Terms Act 1977, s 11(1); see above, p 201. 208 Above, n 198.
209 Thomas Witter Ltd v TBP Industries [1996] 2 All ER 573, 598; South West Water Services Ltd v
International Computers Ltd [1999] BLR 420.
210 Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd’s Rep 66, 75; Stewart Gill Ltd v Horatio
Myer & Co Ltd [1992] QB 600, above, p 206.
211 Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333 2346–2347
(disapproving Thomas Witter Ltd v TBP Industries Ltd, above, n 209); HIH Casualty and General Insurance
Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s Rep 61 at [16], [68], [97].
212 [1982] 1 WLR 495. Cf McCullagh v Lane Fox & Partners (1996) 49 Con LR 124 (estate agent’s disclaimer
about size of plot reasonable).
213 It was not the product of negotiation between the representatives of those affected, on which see
above, p 203.
214 Howard Marine and Dredging Co Ltd v Ogden & Sons (Excavations) Ltd [1978] QB 574, above, p 325.
215 (1977) 244 EG 547.
 misrepresentation and non-disclosure 331

These particulars are prepared for the convenience of an intending purchaser or tenant and
although they are believed to be correct their accuracy is not guaranteed and any error,
omission or misdescription shall not annul the sale or the grounds on which compensation
may be claimed and neither do they constitute any part of an offer of a contract. Any intending
purchaser or tenant must satisfy himself by inspection or otherwise as to the correctness of
each of the statements contained in these particulars.

The Court of Appeal rejected the defendants’ argument that the effect of this clause
was to bring about a situation as if no representation at all had been made. The Court
further doubted whether, even if the defendants’ argument were correct, it would be
possible thus to defeat the application of section 3 of the 1967 Act. It would therefore
seem that, if a representation has in fact been made, a contract term which purports to
deny one or more of the conditions to be fulfi lled before a representation is effective216
will be subject to section 3, and to the test of reasonableness provided for in that
section. It should, however, be noted that in this case, the Court of Appeal left open
the question of the effect of the final part of this clause on the issue as to whether the
claimants in fact relied upon the representation, although in Walker v Boyle it was held
that a similar admonition did not negative a representation of fact which the seller
knew was likely to be relied on. 217
In Overbrooke Estates Ltd v Glencombe Properties Ltd,218 on the other hand:
An auctioneer sold property belonging to O to G, and in the course of so doing made a
misrepresentation as to local authority plans with respect to the property. G refused to
proceed with the sale because of the misrepresentation and O brought an action for specific
performance of the contract. O relied upon a term in the conditions of sale which stated that
the auctioneer had no authority to make any representation in relation to the property.

Brightman J held that section 3 of the 1967 Act did not operate to qualify the right of
a principal publicly to limit the authority of an agent and was therefore inapplicable.
Where, despite a term limiting an agent’s actual or ostensible authority, the principal
expressly authorizes the agent to make the representation in question, section 3 should
apply.219 The cases permitting the limitation of an agent’s authority concern auctioneers
and estate agents, and it is not clear whether an employer could rely on a term limiting
an employee’s actual or ostensible authority in order to avoid the operation of section
3.220
(b) Unfair Contract Terms Act 1977 Where a claim for misrepresentation is based
on the defendant’s breach of a duty of care in the tort of negligence, a clause seeking
to exclude or limit the defendant’s liability will be regulated by section 2 of the Unfair
Contract Terms Act 1977. This provides that a person cannot by reference to a contract
term or notice exclude or restrict his business221 liability for death or personal injury

216 See also p 328–9, above (operation of ‘non-reliance’ clauses at common law).
217 [1982] 1 WLR 495, 501. See also Goff v Gauthier (1991) 62 P & CR 388, 401.
218 [1974] 1 WLR 1355. Th is decision was accepted as correct by Bridge LJ in Cremdean Properties Ltd v
Nash (above, n 215) 549. See also Collins v Howell-Jones (1980) 259 EG 331.
219 Museprime Properties Ltd v Adhill Properties Ltd. (1991) 61 P & CR 111. Cf Collins v Howell-Jones
(1980) 259 EG 331, 332; but note Murdoch (1981) 97 LQR 518, 524.
220 Cf Mendelssohn v Normand Ltd [1970] 1 QB 177, above, p 191. 221 1977 Act, s 1(3).
332 factors tending to defeat contractual liability

resulting from negligence nor (except in so far as the term or notice satisfies the
requirement of reasonableness) for any other loss or damage. The operation of section
2 and other related provisions of the 1977 Act was considered in Chapter 6 above.222
(c) Unfair Terms in Consumer Contracts Regulations 1999 The Unfair Terms in
Consumer Contracts Regulations 1999,223 which apply to all unfair terms and not
only to exclusion or limitation clauses, will also affect clauses excluding or restricting
a consumer’s remedies for misrepresentation. A term limiting the seller or supplier’s
obligation to respect commitments undertaken by his agents is one of those included
in the indicative and illustrative list of terms which may be regarded as unfair224 and
it therefore appears that clauses such as that in Overbrooke Estates Ltd v Glencombe
Properties Ltd will be effective only if they satisfy the tests of good faith and absence of
a significant imbalance in the parties’ rights to the detriment of the consumer.

3. duties of disclosure
(a) no general duty to disclose
We have noted that silence does not normally amount to a misrepresentation and that
at common law there is in general no duty of disclosure of material facts before the
contract is made; and that this is consistent with the reluctance of the common law
to allow a party to avoid a contract on the basis of his own mistake.225 The examples
were given of the person who visits an antiques shop and sees a rare George II table
being sold as a nineteenth-century piece and the oil prospector who discovers that
there is probably oil under a given piece of land. Neither has to inform the other
party. Nor does a bank have to inform its customer that a more attractive rate of
interest is available in a different account.226 There is not even a duty on one party
to disclose where he realizes that the other party is making a mistake about some
relevant fact. 227 This reflects a major difference between English law and civil law
systems since in most civil law systems not only is a greater place found for mistake as
a ground of vitiation of contracts, but also a party who deliberately does not disclose
a relevant fact to the other party may be liable for fraud.228 The justification for the
common law rule is said to be the need to give people an incentive to invest in the
acquisition of skill and knowledge and consequently to allow ‘good deals’ to the more

222 Above, pp 197–8.

223 SI 1999 No 2083 implementing the Directive on Unfair Terms in Consumer Contracts 93/13/EEC, as
to which see above, pp 206 ff. 224 SI 1999 No 2083, Sched 2, para (n).
225 Above, p 299. See Bell v Lever Bros Ltd [1932] AC 161, 227 (Lord Atkin); Banque Keyser Ullmann SA
v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, 798–799, aff ’d [1991] 2 AC 249; Clarion Ltd v National
Provident Institution [2000] 1 WLR 1888, 1905.
226 Suriya & Douglas v Midland Bank [1999] 1 All ER (Comm) 612.
227 Smith v Hughes (1867) LR 6 QB 597, 603–4, 607, 610–11, above, pp 277–8; Davies v London and
Provincial Marine Insurance Co (1878) 8 Ch D 468, 474.
228 Lando and Beale, Principles of European Contract Law Parts I and II (2000) 256.
 misrepresentation and non-disclosure 333

intelligent or the hard-working.229 Even in civil law systems there is no duty to disclose
information ‘which is the product of one’s own efforts in evaluating market conditions
or ascertaining the attributes of property which enhance its value’.230 This economic
argument does not obviously apply to information which has been acquired by pure
chance or without any investment. Nor can it be conclusive where the information
is acquired by a method regarded by the law as illegitimate—for example where it is
‘insider’ information about the position of a company. There may also be situations
where it may be economically efficient to impose a duty of disclosure. In the case of
house sales, the absence of a duty of disclosure means that generally it is the intending
purchaser who commissions the survey and where several people are interested in a
property each will have to invest in the search for information, whereas if sellers were
obliged to disclose key elements concerning the state of their houses to all potential
buyers, the cost of surveying would in many cases be incurred only once.231 Less
compellingly, the rule has also been justified by the great difficulty in imposing any
sensible limits on a duty of disclosure, 232 because the information which had to be
disclosed may be unreliable or doubtful or inconclusive, and because disclosure may
expose the informer to criticism or litigation.233
As well as the exceptions to the general rule, discussed below, there may be situations
in which English law affords protection, which in a civil law system might be afforded
by a duty to disclose, by the use of implied terms, such as the implied term that goods
should be of satisfactory quality.234 Moreover, as we have seen, where A knows that
B has misunderstood the terms of an offer made by A, no contract will be formed if
A does not inform B of its true nature.235 In this section, we are concerned with the
duty to disclose facts which are relevant to the other party’s decision to enter into the
contract.

(b) particular duties of disclosure

Although there is no general duty to disclose information during the negotiations
for a contract, English law recognizes particular duties of disclosure. Two reasons
account for most situations where, at common law or in equity, or by statute, parties
negotiating a contract have been held to be subject to a duty of disclosure. The first

229 See generally Duggan, Bryan and Hanks, Contractual Non-Disclosure (1994); Kronman (1978) 7 JLS
1; Nicholas in Harris and Tallon (eds), Contract Law Today (1989); Fried, Contract as Promise (1981) 77 ff;
Trebilcock, The Limits of Freedom of Contract (1993) 106 ff.
230 Kötz, European Contract Law (1997) 201.
231 Fabre-Magnan in Beatson and Friedmann (eds), Good Faith and Fault in Contract Law (1995) 117–18.
The introduction of ‘home information packs’ under Part 5 of the Housing Act 2004 imposed certain duties
of disclosure in the marketing of residential property, although it was only optional to include a survey (a
‘home condition report)’: SI 2007 No 1667, reg 9 and home information packs have now been suspended:
SI 2010 No 1455. Below, p 339.
232 Laidlaw v Organ 15 US 178, 194 (1817).
233 Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1991] 2 AC 249, where a narrower range
of policy issues relevant to the imposition of a duty of disclosure were addressed in the leading speech by Lord
Templeman who concluded at 274 that ‘A professional should wear a halo but need not wear a hair shirt’.
234 Zimmermann and Whittaker, Good Faith in European Contract Law (2000) 194–5, above, pp 151 ff.
235 Hartog v Colin & Shields [1939] 3 All ER 566, above, p 257.
334 factors tending to defeat contractual liability

is that, in certain classes of contract, one of the parties is presumed to have means
of knowledge which are not accessible to the other, either at all or only by incurring
disproportionately high costs. The party who is presumed to have the information is
bound to disclose everything which may be supposed likely to affect the judgment of
the other party. Such contracts are often labelled contracts uberrimae fidei (contracts
‘of utmost good faith’), although in reality the label is not helpful to identify what
has to be disclosed for each of the limited classes of contract which carry duties of
disclosure. The best example of such a contract, however, is the contract of insurance,
which is also commonly identified as a contract uberrimae fidei.236 The second reason
for imposing a duty of disclosure is that, in certain situations, the relationship between
the contracting parties during the negotiations is not a pure arm’s length commercial
relationship but one of trust and confidence or one of dependence which imposes
upon the party in whom confidence is reposed a duty to make disclosure. The clearest
examples of such situations arise where there is a fiduciary relationship.
The remedies available for breach of duties of disclosure vary, and depend upon the
source of the duty to disclose. Rescission is the most generally available remedy; but
sometimes damages are available in tort or by statute.

(c) duties of disclosure giving rise to rescission

(i) Contracts of insurance
Before a contract of insurance is made, the intending assured is under an obligation to
disclose to the insurer all material information affecting the risk.237 This duty to disclose
is mutual and the insurer must also disclose all material information although disclosure
by the insurer will in practice be rare because the material circumstances are normally
known only to the intending assured.238 While the foundation of this obligation was in
the past sometimes regarded as an implied term in the contract itself,239 the weight of
modern authority is that the obligation, like the duty not to misrepresent, arises before
the contract is made and is therefore non-contractual240 and probably based on equity’s
jurisdiction to prevent impropriety which in this context works on a principle of good
faith.241 The difference may lie in different perceptions of the nature of an implied term:

236 Cf, however, Carter v Boehm (1766) 3 Burr 1905, 1910 where Lord Mansfield referred only to ‘good
faith’; ‘utmost’ good faith is a later refi nement: Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd
[2001] UKHL 1, [2003] 1 AC 469 at [44]
237 Carter v Boehm (1766) 3 Burr 1905. See generally Hasson (1969) 35 MLR 625; Clarke, Policies and
Perceptions of Insurance (1996) 80–108; Bennett [1999] LMCLQ 165.
238 Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, 770; [1991] 2 AC 249,
268, 281.
239 Blackburn, Low & Co v Vigors (1886) 17 QBD 553, 578, 583; (1887) 12 App Cas 531, 539. Cf ibid, 536,
542; Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1988] 1 Lloyd’s Rep 514,
547 (Hobhouse J).
240 Joel v Law Union and Crown Insurance Co [1908] 2 KB 863, 886; Bell v Lever Bros Ltd [1932] AC 161,
227 (Lord Atkin); Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, 777–8, aff ’d
on other grounds [1991] 2 AC 249.
241 Merchants’ and Manufacturers’ Insurance Co v Hunt [1941] 1 KB 295, 318; Manifest Shipping Co Ltd v
Uni-Polaris Insurance Co Ltd [2001] UKHL 1, [2003] 1 AC 469 at [42]–[46].
 misrepresentation and non-disclosure 335

‘it is often said that a term is implied in a contract when in truth a positive rule of law is
applied because of the category in which a particular contract falls’.242
If there has been non-disclosure by one party, whether the non-disclosure was
fraudulent, negligent or wholly innocent, the other party is entitled to avoid the
contract if it has been induced to enter into the policy on the relevant terms,243 but
breach of the duty of disclosure does not of itself give rise to a claim for damages.244
The principle of good faith also applies during the performance of an insurance
contract, but at that stage its content is different. It is a duty of honesty and does not
require the assured to reveal all facts which the insurer might have an interest in
knowing.245
(a) Marine Insurance Act 1906 The common law duty of disclosure is now codified
in section 18 of the Marine Insurance Act 1906, one of a group of sections which have
been held to apply not just to marine insurance but to all classes of insurance because
they codified the common law.246 Section 18 of the Act provides that:
(1) . . . the assured must disclose to the insurer, before the contract is concluded, every
material circumstance which is known to the assured, and the assured is deemed
to know every circumstance which, in the ordinary course of business, ought to be
known by him. If the assured fails to make such disclosure, the insurer may avoid the
contract.
(2) Every circumstance is material which would influence the judgment of a prudent
insurer in fi xing the premium, or determining whether he will take the risk.

So if the assured insures goods upon a voyage for an amount largely in excess of their
value,247 or fails to inform the insurer that they will be carried on deck, where it is
unusual for such goods to be carried,248 the contract may be avoided even though the
non-disclosure was made without any fraudulent intention.
It will be observed that under the Act the assured is, for the purpose of
communication, ‘deemed to know’ every circumstance which, in the ordinary course
of business ought to be known by him. However, if the assured is a private individual
and does not have an ‘ordinary course of business’, the duty of disclosure extends only
to material facts which are actually known to the him.249
(b) Duty to disclose ‘material’ circumstances In determining whether a fact is
material, and the degree of good faith which is required, one asks whether the fact

242 Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, 702 (Steyn J). See
generally above, p 154.
243 Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501; St Paul Fire & Marine
Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd [1996] 1 All ER 96, 112
244 Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, 801.
245 Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2001] UKHL 1, [2003] 1 AC 469 at [48], [57],
[96], [111].
246 PCW Syndicates v PCW Reinsurers [1996] 1 WLR 1136, 1140; Pan Atlantic Insurance Co Ltd v Pine Top
Insurance Co Ltd [1995] 1 AC 501, 541. 247 Ionides v Pender (1874) LR 9 QB 531.
248 Hood v West End Motor Car Packing Co Ltd [1917] 2 KB 38.
249 Joel v Law Union and Crown Insurance Co [1908] 2 KB 863, 880, 884; Economides v Commercial Union
Assurance Co plc [1998] QB 587, 601, 607.
336 factors tending to defeat contractual liability

is one that would have an effect on the mind of the prudent insurer in estimating the
risk even if it did not have a decisive effect on the acceptance of the risk or the amount
of the premium.250 Thus the fact that the assured has been so unlucky as to have had
several previous fires,251 or several previous burglaries252 is material to a fire or theft
policy, as is also the fact that the risk has been declined by another company.253 It has
even been held that, in a proposal for fire insurance, the non-disclosure of a conviction
for robbery254 or of the refusal of another insurance company to insure the proposer’s
motor vehicle255 may amount to the non-disclosure of a material fact entitling the
insurer to repudiate the policy because they affect the ‘moral hazard’, casting light on
the moral integrity of the proposer.
(c) ‘Basis of contract’ clauses In practice, however, insurance companies frequently
insert a ‘basis of the contract’ clause in the proposal form by which the proposer is
made to warrant the accuracy of the information supplied by him to the company,
with a proviso that the company may avoid the contract and forfeit the premium if
any part of the information proves untrue. The assured is thus compelled to assume
responsibility for the truth of even non-material facts,256 and of facts which he did
not know, or did not appreciate, were false. Thus where an applicant for life insurance
declared that she had not had any ‘operation’ when, in fact, she had given birth to a
child by Caesarian section, the insurance company was held to be entitled to avoid the
policy on the ground that there was a breach of a condition precedent to the company’s
liability.257 Such provisions may work injustice to the assured by conferring on insurers
a discretion to repudiate the policy on technical grounds alone. Lord Greene MR
described them as ‘particularly vicious’ and ‘mere traps’ which should be construed
strictly258 and the insurance industry’s statements of practice provide, inter alia, that
insurers should not repudiate liability on grounds of non-disclosure of a fact which the
assured could not reasonably be expected to disclose. In 1980 the Law Commission
recommended that such clauses should be ineffective259 but this was not implemented.
The recommendation has been renewed in the Law Commission’s latest Report on
Insurance Contract Law260 but in the mean time in consumer contracts such clauses
will now be subject to the fairness test in the Unfair Terms in Consumer Contracts
Regulations 1999,261 which few are likely to satisfy.

250 Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501. Cf the ‘risk presented is
different from true risk’ test: [1995] 1 AC 501, 515, 559 (Lord Templeman and Lord Lloyd dissenting) and
[1993] 1 Lloyd’s Rep 496, 505–6 (Steyn LJ).
251 Marene Knitting Mills Pty Ltd v Greater Pacific General Insurance Ltd [1976] 2 Lloyd’s Rep 631
(Australia). 252 Rozanes v Bowen (1928) 32 Ll LR 98.
253 London Assurance Co v Mansel (1879) 11 Ch D 363.
254 Woolcott v Sun Alliance and London Insurance Ltd [1978] 1 WLR 493.
255 Locker and Woolf Ltd v West Australian Insurance Co Ltd [1936] 1 KB 408.
256 Thomson v Weems (1884) 9 App Cas 671, 689; Dawsons Ltd v Bonnin [1922] 2 AC 413.
257 Kumar v Life Insurance Corp of India [1974] 1 Lloyd’s Rep 147.
258 Zurich General Accident and Liability Insurance Co Ltd v Morrison [1942] 2 KB 53, 58. See also Joel v
Law Union and Crown Insurance Co [1908] 2 KB 863, 885.
259 Law Com No 104, Non-Disclosure and Breach of Warranty (1980) paras 7.1–7.11.
260 Law Com No 319, Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation (2009)
paras 6.105–6.112. For other proposals for reform, see below.
261 SI 1999 No 2083, above, p 206.
 misrepresentation and non-disclosure 337

(d) Proposals for reform The Law Commission has recently proposed, in relation to
consumer insurance contracts, that there should no longer be a duty on a consumer
proposer to disclose matters about which no questions were asked; and that, although
the insurer should be permitted to ask general questions, in assessing the reasonableness
of the consumer’s response, the clarity and specificity of the question should be taken
into account.262

(ii) Partnership contracts

It has long been established that, once a partnership has been formed, each partner is
bound to exercise good faith in all that relates to their common business.263 However,
it has recently been settled that mutual duties of good faith and disclosure arise also
between persons who are negotiating their entry into partnership, so that each party
owes a duty to the other negotiating parties to disclose all material facts of which he
has knowledge and of which the other parties may not be aware.264

(iii) Contracts of suretyship or guarantee

A contract of suretyship (or guarantee) is one under which the surety (or guarantor)
undertakes to the creditor to pay the debt, or satisfy some other obligation of his
debtor, in the event of the debtor’s default. Such contracts are not uberrimae fidei
and therefore do not carry the same general duty of disclosure of material facts as
contracts of insurance or partnership contracts. However, the Courts regard surety
contracts as different from normal commercial contracts, and although a surety is
expected to inform himself about the risks he is undertaking in favour of the creditor,
the creditor is required to disclose to the surety any unusual feature of the contract
between the creditor and the debtor which makes it materially different in a potentially
disadvantageous respect from what the surety might naturally expect.265
Nevertheless it is not always easy in practice to draw the line between contracts of
guarantee in the strict sense of contracts to answer for the debt, default, or miscarriage
of another and contracts of insurance taking the form of contracts to indemnify
against some risk stated in the contract.266 It was pointed out by Romer LJ in Seaton v
Heath267 that many contracts may with equal propriety be called contracts of insurance
or contracts of guarantee, and that whether a contract requires uberrima fides or not
depends not upon what it is called, but upon its substantial character and how it came
to be effected. Generally, in a contract of insurance the person desiring to be insured
has means of knowledge of the risk which the insurer does not possess, and he puts
the risk before the insurer as a business transaction. In a contract of guarantee, on the

262 Law Com No 319, Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation (2009)
paras 5.27–5.40.
263 The duties of partners are, however, for the most part regulated by the provisions of the Partnership
Act 1890, ss 28–30.
264 Conlon v Simms [2006] EWHC 401 (Ch), [2006] 2 All ER 1024 at [196]–[199], aff ’d [2006] EWCA Civ
1749, [2008] 1 WLR 484 at [127] (Jonathan Parker LJ). See also Bell v Lever Bros Ltd [1932] AC 161, 227 (Lord
Atkin).
265 Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773 at [81], [186]–[188].
266 Trade Indemnity Co Ltd v Workington Harbour and Dock Board [1937] AC 1.
267 [1899] 1 QB 782, 792–3.
338 factors tending to defeat contractual liability

other hand, the creditor does not as a rule go to the surety, explain the risk, and ask the
surety to undertake it. The surety is often a friend or relation of the debtor and knows
the risk to be undertaken, or the circumstances indicate that as between the creditor
and the surety it is contemplated that the surety will ascertain what the risk is. Only in
the exceptional cases when a contract of guarantee has the characteristics which occur
normally in a contract of insurance is the former a contract uberrimae fidei.
Accordingly, it is settled that there is no duty of full disclosure where a surety
guarantees to a bank the account of one of the bank’s customers.268 On the other
hand, when an employer takes a bond from a surety for the ‘fidelity’, ie honesty, of an
employee, he must disclose to the surety any previous acts of dishonesty of the employee
within his knowledge,269 and even any subsequent acts of dishonesty which would
entitle the surety to withdraw the guarantee.270 Similarly, where the creditor is put on
inquiry that the surety may be subjected to undue influence or misrepresentation by
the principal debtor, as is the case where the relationship between the surety and the
debtor is non-commercial such as spouses or cohabitees, the creditor will be unable
to enforce the surety contract if it has not taken steps to satisfy itself that the surety
entered into the obligation freely and in knowledge of the true facts.271

(iv) Contracts of compromise and family settlements

Parties who are negotiating the compromise of a disputed claim do not generally owe
duties to disclose to each other information relating to the claim or its validity.272
However, the House of Lords has considered, but not yet decided, whether there is
a duty on one party to disclose the existence of claims which will be covered by a
compromise but of which he knows that the other party is unaware.273
One form of compromise or settlement in which it is, however, established that
there is a duty of disclosure is the contract for a family settlement, under which
members of a family compromise a dispute such as the division of property. Such a
contract requires full disclosure of all material facts within the parties’ knowledge.
Thus in Gordon v Gordon,274 a family arrangement entered into without a secret
marriage being disclosed by one side to the other was set aside under this principle.
Parties who are divorcing and make an agreement about the division of the property
which is to be embodied in a Court order are under an obligation to make a full and
frank disclosure to the Court which made the order. But, although the duty is owed
to the Court and not to the other party it has been held that a party affected by such
non-disclosure could rely on it as a ground for setting the order (and therefore the
agreement) aside.275

268 National Provincial Bank v Glanusk [1913] 3 KB 335; Cooper v National Provincial Bank [1946] KB 1.
269 London General Omnibus Co Ltd v Holloway [1912] 2 KB 72.
270 Phillips v Foxall (1872) LR 7 QB 666.
271 Barclays Bank plc v O’Brien [1994] 1 AC 180; Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44,
[2002] 2 AC 773, below, pp 370–2. 272 Turner v Green [1895] 2 Ch 205.
273 Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, [2002] 1 AC 251 at [32]–[33]
(Lord Nicholls), [69]–[70] (Lord Hoff mann). 274 (1821) 3 Swan 400.
275 Livesey v Jenkins [1985] AC 424, 439–40.
 misrepresentation and non-disclosure 339

(v) Contracts for the sale of land

Contracts for the sale of land are not contracts uberrimae fidei; no special relationship
of confidence exists between the parties. Caveat emptor is just as much the general rule
in contracts for the sale of land as it is in contracts of sale of goods. However, in certain
circumstances a vendor of land has a duty to disclose particular facts.
Under Part 5 of the Housing Act 2004 the seller of residential property with vacant
possession, or his estate agent, had to provide a ‘home information pack’ to a potential
buyer on request. Regulations made under the Act prescribed documents and information
which such a pack was required to contain, as well as information which was optional.276
However, the duty of disclosure was relatively limited, and breach of the duty was
sanctioned through penalties issued by an enforcement authority,277 and did not entitle
the buyer to rescind the contract. Home information packs were suspended in 2010.277A
However, a seller must be able to convey precisely that which he has contracted to
sell, and if the land, or the nature of the seller’s right or interest in the land, has been
misdescribed, the purchaser may be entitled to refuse to complete the sale and to the
return of the deposit if the defect is a serious one, equivalent, in fact, to a substantial
misdescription. The purchaser is entitled to resist specific performance even if there is
a stipulation in the contract which provides that errors, misstatements, or omissions
shall not annul the sale but are to be a matter of compensation only.278 If, however, the
defect is slight, and the purchaser gets substantially what was contracted for, he can be
compelled to complete the sale subject to compensation to be made by the seller.279
A seller, for example, who has contracted to sell absolute freehold property cannot
enforce the contract if his title is possessory only and not absolute280 or if the land
is subject to significant restrictive covenants of which the purchaser was not made
aware.281 Further, a seller cannot, by a condition of the contract, compel the purchaser
to accept a title which the seller knew to be a bad title, but did not disclose,282 unless
the defect is patent.283 This means that it is virtually impossible to exclude liability for
failure to disclose latent defects in the title. The consequence is that in effect a ‘duty of
disclosure’ is imposed on the seller.284

276 SI 2007 No 1667, regs 8 (required pack documents), 9 (‘authorised’, ie optional, documents). The
survey of the property (‘home condition report’) was only optional. 277 Housing Act 2004, ss 166–168.
277A SI 2010 No 1455.
278 Flight v Booth (1834) 1 Bing NC 370, 337; Re Arnold (1880) 14 Ch D 270; Walker v Boyle [1982] 1
WLR 495.
279 Rutherford v Acton-Adams [1915] AC 866, 869–70. But the purchaser may be deprived of his right to
compensation by a term of the contract, subject to the normal common law and statutory restrictions on
exclusion and limitation of liability (above, Ch 6). 280 Re Brine and Davies’ Contract [1935] Ch 388.
281 Flight v Booth (1834) 1 Bing NC 370; Charles Hunt Ltd v Palmer [1931] Ch 287.
282 Re Banister (1879) 12 Ch D 131, 146, 147; Nottingham Patent Brick and Tile Co v Butler (1887) 16 QBD
778, 786; Faruqi v English Real Estates Ltd [1979] 1 WLR 963; Walker v Boyle [1982] 1 WLR 495.
283 Bowles v Round (1800) 5 Ves Jr 508; Yandle & Sons v Sutton [1922] 2 Ch 199, 204. Where the contract is
to sell free from incumbrances it is irrelevant that the defect is patent: Harpum (1992) 108 LQR 280, 284.
284 See generally Harpum (1992) 108 LQR 280, 320–33. Faruqi v English Real Estates Ltd, above, n 282,
967; Reeve v Berridge (1888) 20 QBD 523, 528 (Fry LJ); Carlish v Salt [1906] 1 Ch 335. Cf. William Sindall
plc v Cambridgeshire CC [1994] 1 WLR 1016 (National Conditions of Sale only required vendor to disclose
incumbrances of which it had knowledge or means of knowledge). Similarly, the implied term under Sale of
Goods Act 1979, s 14, that the goods are of satisfactory quality provides an incentive for the business seller
to draw defects to the buyer’s intention.
340 factors tending to defeat contractual liability

(d) contracts between those in a fiduciary relationship

Those in a fiduciary relationship with another are under a duty to make full disclosure
of all material facts which might be considered likely to affect a transaction with
those to whom the duty is owed. This is a component of wider and rigorous equitable
obligations. While not all fiduciaries owe the same duties in all circumstances,285
they are broadly obliged to act in good faith, not to place themselves in a position
where their duty and their interest may conflict, or to act for their own benefit or the
benefit of a third person without the informed consent of those to whom the duty is
owed. 286 Breach of these duties is sometimes, rather misleadingly, called ‘equitable’ or
‘constructive’ fraud.

(i) Who is a fiduciary?

By contrast to a contractual relationship where, subject to the terms of the contract, the
parties may legitimately act for their own interests, albeit sometimes in cooperation
with the other party, the key feature of fiduciary relationships is a duty to act in the
interests of another.287 Fiduciary relationships can be divided into two categories,
those that are status-based and those that are fact-based.288 Examples of the former
include principal and agent, solicitor and client, guardian and ward, and trustee and
beneficiary.
The second category arises where, in the absence of an inherently fiduciary status,
the factual situation of the particular relationship between the parties gives rise to
a fiduciary relationship.289 The relationship of the parties may be contractual but a
contractual relationship gives rise to particular fiduciary obligations only where specific
contractual obligations have been undertaken which place one party in the position in
which equity imposes its rigorous duties on that party in addition to the contractual
obligations.290 While fiduciary duties should not be superimposed on common law
contractual duties simply to improve the nature or extent of the remedy available,291
they may arise where one party is in a position of influence over another, is in receipt
of information imparted in confidence by the other, or has undertaken to act in the
interests of another or placed himself or herself in a position where he or she is obliged
so to act.292 In such cases the fiduciary obligation is, however, circumscribed by the
contractual terms: equity cannot alter the terms of a contract validly undertaken.293

285 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 206 (Lord Browne Wilkinson).
286 Bristol and West BS v Mothew [1998] 1 Ch 1, 18. See generally Finn, Fiduciary Obligations (1977);
Hanbury & Martin, Modern Equity (18th edn, 2009) paras 21.017–21.025. Fiduciaries are also under a duty
to use care and skill: Nocton v Lord Ashburton [1914] AC 932, 954.
287 Bristol and West BS v Mothew [1998] 1 Ch 1, 18. 288 Flannigan (1989) 9 OJLS 285.
289 Reading v Attorney-General [1951] AC 507; Hospital Products Ltd v United States Surgical Corp (1984)
156 CLR 41 (High Court of Australia).
290 Nottingham University v Fishel [2000] ICR 1462, 1491 (contract of employment, not otherwise
typically fiduciary: see below, p 341). 291 Norberg v Wynrib (1992) 92 DLR (4th) 449, 481.
292 Millett (1998) 114 LQR 214.
293 Nottingham University v Fishel, above, n 290, 1491; Hospital Products Ltd v United States Surgical
Corp, above, n 289, 97. See also Kelly v Cooper [1993] AC 205.
 misrepresentation and non-disclosure 341

Examples of such fact-based fiduciary relationships may be seen in certain joint

ventures294 and employment relationships.295

(ii) Examples of duties of disclosure

The duty to disclose all material facts which might be considered likely to affect a
transaction can be illustrated by examples. Thus a broker who is employed to buy shares
for a client cannot sell his own shares to the client unless a full and accurate disclosure
of this fact is made to the client and the client’s consent is obtained.296 Again, the
promoters of a company, who stand in a fiduciary relationship with the company, are
required to make a full disclosure of their interest either to an independent board of
directors or to the intended shareholders.297 In some situations, all that equity requires
is disclosure of material facts. In others, however, where the fiduciary relationship gives
rise to a presumption of undue influence298 disclosure in itself may be insufficient, and
it must be shown that the transaction is the result of the act of a free and independent
mind.

(iii) Employment
The relationship between an employer and employee is not inherently ‘fiduciary’
but it may be the foundation for a fiduciary relationship as a result of the terms
of the particular contract or where, for example, the employee is in receipt of
confidential information. An employee is not, however, under a duty to disclose his
own misconduct. In Bell v Lever Brothers Ltd299 the respondent, Lever Brothers, had
entered into a contract with two of its employees whereby it promised to pay, and did
in fact pay, considerable sums to them in compensation for the premature termination
of their contracts of employment. This contract, however, was strictly unnecessary,
for during their employment the two men had been guilty of certain breaches of
duty which would have entitled Lever Brothers to dismiss them immediately. When
Lever Brothers discovered this fact, it claimed to avoid the contract and recover the
money paid on the ground, inter alia, that the employees were bound to disclose
to them these breaches of duty. No member of the House of Lords was prepared to
accept this contention, 300 and Lord Atkin said301 that he was aware of no authority
which placed contracts of service within the limited category of contracts uberrimae
fidei. Nevertheless, it has subsequently been held that in certain circumstances an
employee may be under a duty to report to the employer misconduct on the part of
fellow employees. 302

294 Lac Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574 (Supreme Court of Canada).
295 Nottingham University v Fishel, above, n 290.
296 Armstrong v Jackson [1917] 2 KB 822. See also Regier v Campbell-Stuart [1939] Ch 766; English v
Dedham Vale Properties Ltd [1978] 1 WLR 93, and below, p 701. For an example of contractual modification
of fiduciary duty cf Kelly v Cooper [1993] AC 205.
297 Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218; Lagunas Nitrate Co v Lagunas Syndicate
[1899] 2 Ch 392; Gluckstein v Barnes [1900] AC 240. See now Financial Services and Markets Act 2000, s 90,
below, p 344. 298 See below, p 363.
299 [1932] AC 161, above, p 279.
300 Although it was accepted by the Court of Appeal: [1931] 1 KB 337. 301 [1932] AC 161, 227.
302 Swain v West (Butchers) Ltd [1936] 1 All ER 224; Sybron Corp v Rochem Ltd [1984] Ch 112.
342 factors tending to defeat contractual liability

(iv) Special relationships

We have seen that, under the principle enunciated in Hedley Byrne & Co Ltd v Heller
& Partners Ltd,303 a special relationship, giving rise to a duty of care in the tort of
negligence, may arise between parties negotiating a contract. That duty may be more
extensive than merely to refrain from making negligent misstatements, and may impose
upon the party in whom confidence is reposed an obligation to disclose to the other
party information relevant to the contract304 or to provide an adequate explanation of
the contract into which the other party is about to enter.305 Prima facie the breach of
such a duty would give rise to an action in damages in tort only,306 and not to a claim
that the contract be rescinded. But it could be argued that, at least in some situations,
the presence of such a duty made the contract one requiring uberrima fides, so that its
breach would entitle the party to whom the duty was owed to avoid the contract.

(iv) Remedies for breach by a fiduciary of the duty of disclosure

Breach of the fiduciary’s duty to make full disclosure will entitle the innocent party
to rescind the contract or transaction, to be restored to the pre-contractual position,
and to recover any profit made by the other party as a result of the breach. In awarding
these remedies, it is well established that Equity takes a strict approach, and does not
draw a distinction between fraudulent, negligent and wholly innocent breaches of duty,
although there have been some suggestions that the liability to account for profits is
too stringent and should not be applied to the fiduciary who acted in good faith.307

(e) liability in tort for non-disclosure

It has generally been said that there is no liability in the tort of deceit for non-disclosure,
because deceit requires an active misrepresentation, or at least a partial or fragmentary
statement which misleads the representee.308 Following this approach, the Court of
Appeal has also rejected the argument that the tort of deceit applies in the case of an
intentional breach of the duty of disclosure in a contract uberrimae fidei.309 However, it
has recently been held that where there is a duty to disclose, and the failure to disclose
is fraudulent, there can be an action in deceit on the basis that ‘non-disclosure where
there is a duty to disclose is tantamount to an implied representation that there is
nothing relevant to disclose’.310 This new approach was adopted without discussion

303 [1964] AC 465, above, p 323.

304 Al-Kandari v JR Brown & Co [1988] QB 665, 674; Banque Keyser Ullman SA v Skandia (UK) Insurance
Co Ltd [1990] 1 QB 665, 790–805; aff ’d on other grounds [1991] 2 AC 249. Cf Dillingham Construction Pty Ltd
v Downs [1972] 2 NSWR 49 (Australia). See also Horry v Tate & Lyle Refineries Ltd [1982] 2 Lloyd’s Rep 416.
305 Rust v Abbey Life Assurance Co Ltd [1982] 2 Lloyd’s Rep 386, 391; aff ’d [1979] 2 Lloyd’s Rep 334.
306 Below, p 343.
307 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] WTLR 1573 at [74], [82]–[83].
308 Peek v Gurney (1873) LR 6 HL 377, 403; see also Lord Chelmsford at 390–1; Arkwright v Newbold (1881)
17 Ch D 301, 318, 320; Bradford Third Equitable Building Society v Borders [1941] 2 All ER 205. Cf, however,
Browlie v Campbell (1880) 5 App Cas 925, 950.
309 Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, 788.
310 Conlon v Simms [2006] EWCA Civ 1749, [2008] 1 WLR 484 at [130] (Jonathan Parker LJ, approving
[2006] EWHC 401 (Ch), [2006] 2 All ER 1024 Lawrence Collins J at [201]). See also HIH Casualty and General
 misrepresentation and non-disclosure 343

of the older authorities which had assumed that there is no liability for pure non-
disclosure, even where there is a duty of disclosure. But if it is confirmed, it may also
overturn the existing case-law which has held that section 2(1) of the Misrepresentation
Act 1967311 does not apply in its terms to cases of non-disclosure because it imposes
liability only where a ‘misrepresentation has been made’.312
The tort of negligence can in principle apply to non-disclosure because a claim in
negligence does not require a ‘misrepresentation’, but a breach of a duty of care.313 To
find a duty to provide information requires either some prior conduct by the defendant
evidencing his assumption of responsibility towards the claimant in relation to the
provision of information, or some pre-existing relationship between the parties giving
rise to a duty. 314 However, the Courts are careful not to use the tort of negligence to
create duties to provide information or advice which undermine the general principle
that there is no duty of disclosure between parties negotiating an ordinary commercial
contract;315 and the mere fact that there is a duty of disclosure for the purpose of the
remedy of rescission (for example, in negotiations for a contract of insurance) does not
automatically give rise to a concurrent duty of care in tort.316

(f) statutory duties of disclosure

Certain statutes impose duties of disclosure in relation to particular contracts, and
also define the remedy which will be awarded for breach of the duty.

(i) Contracts for the allotment of shares

Promoters and directors of a company have information at their disposal which
is not available to the general public, although at common law they have no duty
of disclosure akin to parties negotiating a contact of insurance,317 nor is there any
fiduciary relationship between those issuing the prospectus and the public. In an
honest prospectus, except under statute, the non-disclosure even of facts which
some intending shareholders might regard as material in influencing their judgment,
will be no ground for rescission, unless the omission makes what is stated actually
misleading.
Further protection to persons applying for shares is, however, afforded by the Financial
Services and Markets Act 2000.318 In relation to prospectuses and listing particulars
issued in support of the public issue of company securities, this imposes a general
duty of disclosure of specified information that investors and their advisers would

Insurance Ltd v Chase Manhattan Bank [2001] EWCA Civ 1250, [2001] 2 Lloyd’s Rep 483 at [48], [164], [168]
and [2003] UKHL 6, [2003] 2 Lloyd’s Rep 61 at [21], [75].
311 Above, p 325.
312 Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, 789, aff ’d on other
grounds [1991] 2 AC 249. Cf Hudson (1969) 85 LQR 524.
313 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, 511; Banbury v Bank of Montreal [1918]
AC 626, 713.
314 Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd, above, n 312, 794–5; Al-Kandari v JR
Brown & Co [1988] QB 665; Hamilton v Allied Domecq plc [2007] UKHL 33, 2007 SC(HL) 142 at [19]–[23].
315 Ibid, 798–9. 316 Ibid, 801. 317 Aaron’s Reefs Ltd v Twiss [1896] AC 273, 287.
318 There has been statutory protection for over 100 years; see the Directors Liability Act 1890.
344 factors tending to defeat contractual liability

reasonably require and reasonably expect.319 The remedy provided by the statute is the
right to compensation from those responsible to persons who have acquired securities
to which the prospectus or listing particulars apply, and have sustained loss in respect
of them as a result of the omission of information required to be included, unless those
responsible can show that up to the time of the allotment they had reasonable ground
to believe and did believe that the information was properly omitted.320
The Financial Services and Markets Act 2000 also establishes a regulatory regime
over those conducting investment business in order to protect the purchasers of the
products of the financial services industry, namely insurance policies, investments,
and advice. Detailed treatment of this area would be out of place in the present
textbook,321 but a brief summary may be given. Protection is achieved by a licensing
system and by close control of the way those licensed conduct their businesses,
including statutory ‘cooling-off ’ periods after an agreement has been made. Many
financial services practitioners, will be in a fiduciary relationship with their clients.322
The Financial Services and Markets Act 2000 replaced specific requirements in the
Financial Services Act 1986323 with a general rulemaking power324 and a duty to act
in a way that is compatible with the regulatory objectives.325 These objectives are
maintaining confidence in the market, promoting awareness of the benefits and risks
of different kinds of investments, protecting consumers by, inter alia, advice and
accurate information and reducing financial crime.326 Practitioners continue to be
obliged to subordinate their interests to those of their clients, and to make proper
provision for disclosure of interests and facts material to transactions entered into or
advice given, and the basis, method and frequency of payment by the customer and in
certain cases termination provisions.327 Private investors are given a right to damages
for contravention of regulatory rules.328

(ii) Distance selling contracts

Under the Consumer Protection (Distance Selling) Regulations 2000329 the person
who supplies goods or services to a consumer under certain types of ‘distance
contract’ is required to provide to the consumer particular information, including a
description of the main characteristics of the goods or services and the price.330 The
failure to provide the required information does not give the consumer the right to
rescind the contract or claim damages. However, the consumer has a right to cancel a
distance contract within a period of seven working days from the date of the contract
(or, in a contract for the supply of goods, from the date on which the consumer

319 Financial Services and Markets Act 2000, ss 80–82.

320 Ibid, s 90(1), Sched 10. For the similar liability for untrue or misleading statements in prospectuses
and listing particulars, see above, p 326, n 182.
321 See generally Lomnicka and Powell, Encyclopaedia of Financial Services Law.
322 Above, p 340. 323 Schedule 8. 324 ss 138–140. 325 s 2(1)(a). 326 ss 3–6.
327 See FSA Conduct of Business Sourcebook, sections 5–6.
328 Financial Services and Markets Act 2000, s 150.
329 SI 2000 No 2334, implementing Council Directive 97/7/EC. For similar provisions in relation
to contracts for the distance marketing of consumer fi nancial services, see Financial Services (Distance
Marketing) Regulations 2004 (SI 2004 No 2095), implementing Directive 2002/65/EC.
330 Regs 7, 8.
 misrepresentation and non-disclosure 345

received the goods).331 Where the supplier fails to provide the information required
by the regulations the cancellation period is extended, and the right of cancellation is
exercisable by the consumer until seven working days after the day on which supplier
provides the information or, if he fails to provide it for three months, the long-stop
cancellation period is three months and seven working days from the day on which the
contract was concluded (or the consumer received the goods).332

(g) the future

Although there is no serious move away from the general rule of non-disclosure, there
are concerns about its scope. In other words, should a more liberal approach be taken
to the exceptions? Are they too narrow? Take the case of the couple who are divorcing
and make an agreement about the division of the property. If the negotiations prior
to the agreement proceeded on the basis of the husband’s belief, based on the wife’s
conscientious and religious objections to divorce, that the wife would never remarry, is
the agreement vitiated by the failure of the wife to disclose that she had earlier become
engaged to be married? On pure common law analysis, on such facts, after considering
whether any of the common law and equitable exceptions applied, it has been held that
none did and there was no duty to disclose.333 Although, as we have seen, the common
law position has been affected by statute where the property settlement is embodied
in a Court order, it was said that this contractual aspect of the decision is not open to
criticism in any way.334 But is it right in principle that there should be no duty to disclose
in such a case? The economic arguments do not appear applicable, let alone compelling,
and it was certainly very difficult and probably impossible for the husband to acquire
the information from another source. One commentator who supports the general rule
has described the decision as ‘repugnant to an ordinary sense of fairness’.335
The position might have been different if a broader view had been taken of the
concept of ‘fiduciary’ relationship or if it had been possible to look at the statutory as
well as the common law exceptions to the rule and from them find particular analogies
or even a general principle which could provide the Courts with a broader, principled
basis for exceptions to the general rule of non-disclosure. The common law develops
by analogy from case to case and sometimes more radically by finding underlying
general principles for a whole area of the law.336. But this approach is taken only for
developments of the common law itself; statutory provisions have been regarded
as isolated irruptions into the body of the common law and have not been seen as
expressing a policy from which a principle could be synthesized.337

331 Reg 10. 332 Regs 11, 12. 333 Wales v Wadham [1977] 1 WLR 199.
334 Livesey v Jenkins [1985] AC 424, 439. But in Wales v Wadham, Traill v Baring (1864) 4 De GJ & S 318
(duty to communicate change of intention) was not cited; above, p 302.
335 Smith, Atiyah’s Introduction to the Law of Contract (6th edn 2005) 246. The decision, but not the reasoning,
may, however, be justified on the merits since the husband had not made a full disclosure of his assets.
336 Cartwright, Contract Law: an Introduction to the English Law of Contract for the Civil Lawyer (2007) 31–40
337 Nicholas in Harris and Tallon eds, Contract Law Today (1989), 178; Cartwright, above, n 336, 25–31
Cf the different approach in France, in relation in particular to duties of disclosure: Ghestin in Harris and
Tallon eds, 153–5. See also Legrand (1986) 6 OJLS 322.
346 factors tending to defeat contractual liability

We have mentioned particular statutory duties of disclosure in section 18 of the

Marine Insurance Act 1906, the Financial Services and Markets Act 2000 and the
rules made under it and the Consumer Protection (Distance Selling) Regulations 2000.
Other examples are to be found in the Consumer Credit Act 1974,338 in the labelling
and advertising provisions in the Medicines Act 1968,339 the Hallmarking Act 1973,340
and in the Housing Act 1985, 341 Energy Act 1976,342 and the Package Travel, Package
Holiday and Package Tours Regulations 1992.343 The financial services and consumer
credit statutes reflect a legislative decision that consumers buying on credit and the
purchasers of the products of the financial services industry require protection.344
Although there are many differences between the financial services and the consumer
credit regimes, they have similar disclosure and ‘cooling-off ’ provisions. Both regimes
also exercise close control over the content of advertisements. The fact that the
legislative schemes are so detailed means that it is not unreasonable to see them as self-
contained codes and that no common law duty should be superimposed on them.345
However, that part of the regimes which relates to disclosure might arguably be of
wider significance. In both contexts the relationship is one of inequality; in financial
services (and probably in consumer credit) there is also imbalance of information in
the sense that the professional has information that the client cannot acquire from
any other source—or cannot do so without incurring considerable expense. We have
noted that this imbalance is also at the root of the duty of disclosure in contracts
uberrimae fidei and the other non-statutory exceptions.
It is submitted that it is arguable that the fact that the legislature has imposed a
duty of disclosure in the specified cases can be seen, alongside the cases in which a
duty exists at common law, as an indication of the underlying rationale and principle
of such a duty. If so, such legislative duties could therefore assist a Court which is
considering the scope of the exceptions or the extension of the duty to a new fact
situation. 346 We have seen that the Marine Insurance Act 1906 is used in this way for
all types of insurance; it is either ‘directly applicable, or else indirectly because the Act
codified the common law applicable to all classes of insurance’.347 Such an approach

338 s 55; Consumer Credit (Disclosure of Information) Regulations 2004 (SI 2004 No 1481). See also s 60
of the 1974 Act and SI 1983 No 1533, amended by SI 2004 No 1482, which require credit agreements subject
to the Act to contain specific information. 339 eg ss 85(2), 95(4)(a) and 96.
340 s. 11 (disclosure of information explaining hallmarks).
341 s 125(4A), added by Housing and Planning Act 1986 (disclosure by landlord of structural defects
where secure tenant exercises right to buy landlord’s interest)
342 s 15 (disclosure of results of passenger car fuel consumption tests) and see SI 1983 No 1486, r 14.
343 SI 1992 No. 3288, rr 7–8.
344 Cf Law Com No 319, Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation (2009)
which proposes the abolition of the consumer’s duty to disclose under a consumer insurance contract;
above, p 337.
345 Aldrich v Norwich Union Life Assurance Co Ltd [1999] 2 All ER (Comm) 707 (Financial Services Act
1986, s 47); Payne v Barnet LBC (1998) 30 HLR 295 (Housing and Planning Act 1986, s 125 (4A)).
346 See Timeload Ltd v British Telecommunications plc (1995) 3 EMLR 459, 468; Malik v Bank of Credit &
Commerce International SA [1998] AC 20, 52–53 (Lord Steyn); Beatson (2001) 117 LQR 247. Cf the different
approach in Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1991] 2 AC 249, 273–4.
347 PCW Syndicates v PCW Reinsurers [1996] 1 WLR 1136, 1140 (Staughton LJ). See also Economides v
Commercial Union Assurance Co plc [1998] QB 587, 598.
 misrepresentation and non-disclosure 347

would bring English law closer to its continental neighbours.348 However, it would
not only go beyond the current position, but would also in large measure revert to
a general approach which was proposed by Lord Mansfield in 1766, but which was
later rejected as a universal proposition and limited to particular classes of contract
(notably, insurance contracts):349
The governing principle is applicable to all contracts and dealings.
Good faith forbids either party by concealing what he privately knows, to draw the other
into a bargain, from his ignorance of that fact, and his believing the contrary.
But either party may be innocently silent, as to grounds open to both, to exercise their
judgment upon.

The objection may be raised that English law does not recognize a general principle
of good faith, and so cannot use such a principle to define duties of disclosure in
contracts generally.350 However, as we have seen, the Courts and the legislature have
been able to define many particular circumstances in which duties of disclosure
arise, and it is submitted that these could serve as analogies for the definition of other
particular duties based on a general principle.

348 Study Group on a European Civil Code and Research Group on EC Private Law (Acquis Group),
Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR)
(Outline Edition) (2009), arts II.-3:101–105; II.-7:201, 205; Lando and Beale (eds) Principles of European
Contract Law Parts I and II (2000), 256; Ghestin in Harris and Tallon, above, n 337.
349 Carter v Boehm (1766) 3 Burr 1905, 1910; Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd
[2001] UKHL 1, [2003] 1 AC 469 at [42]–[45].
350 Walford v Miles [1992] 2 AC 128, 138. But cf Steyn (1997) 113 LQR 433, 439; Director-General of Fair
Trading v First National Bank plc [2002] 1 AC 481 at [17].
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 10
DURESS, UNDUE INFLUENCE,
AND UNCONSCIONABLE
BARGAINS
1. introduction
This chapter considers three vitiating factors based on the improper conduct of one
party, the vulnerability of the other, or a combination of the two. Because of their
narrow scope these were, in the past, considered to be relatively unimportant in the
law of contract, but they are of more significance in the modern law.
Duress and undue influence occur where one party to a contract has coerced the
other or exercised such domination that the other’s independence of decision was
substantially undermined. Although in some respects undue influence is the equitable
equivalent of common law duress, in equity relief was granted in cases of pressure
or coercion where the common law provided no remedy.1 Moreover, in some cases
the primary concern of equity is to protect certain relationships and it does so by a
presumption of undue influence. Since the Judicature Act 1873, it has been the duty
of the Courts to apply the common law and equitable rules concurrently, and in the
event of any conflict or variance between them, the equitable rules are to prevail. The
common law and equitable rules have, therefore, now to be treated in the light of their
combined effect.2 Duress, like misrepresentation, is primarily concerned with the
process by which the contract was made (procedural unfairness or impropriety) rather
than whether the terms of the contract are in fact harsh or unconscionable (substantive
unfairness or impropriety). Undue influence, especially in cases of overt acts of
improper pressure or coercion, is also said to be primarily concerned with procedural
unfairness, but because it also has a role in protecting the excessively vulnerable the
position is more complicated and it has significant substantive aspects.
In the limited category of cases in which the doctrine of unconscionable bargains
operates, it is necessary to show not only that the process by which the contract was
made was unfair but that there is contractual imbalance, ie the doctrine extends
to the actual substance of the contract and the fairness of its terms. The role of
unconscionability was restricted in the nineteenth century by the assumption that
parties enjoy freedom of economic decision when entering into contracts which

1 Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773 at [6]–[8], [103]. Cf Burrows
(2002) 22 OJLS 1, 6. 2 United Scientific Holdings Ltd v Burnley BC [1978] AC 904.
350 factors tending to defeat contractual liability

enables them to choose to enter into a contract on whatever terms they may consider
advantageous to their interests, or to choose not to,3 and more recently by the view
that the task of limiting such freedom so as to relieve inequality of bargaining power
is essentially a legislative task for Parliament.4 In the case of consumer contracts there
has been significant statutory intervention to protect consumers against unfair terms.5
Employment and landlord and tenant relationships are also regulated by statute so as
to protect employees and tenants from unfairness.6 As in the case of statutory duties
of disclosure,7 it is arguable that to the extent that the statutory regimes can be seen
as expressing a policy from which a principle can be derived they may be of some
analogical assistance in developing the common law.8

2. duress
(a) nature of duress
A contract which has been induced by unlawful or other illegitimate forms of pressure
or intimidation is voidable9 on the ground of duress.10 A restitutionary claim lies for
the recovery of money paid under duress, and in many cases the duress will also be
tortious and give rise to an action for damages, for example for assault, wrongful
interference with property and, in the case of economic duress, intimidation.11

(i) ‘Unlawful’ pressure and ‘illegitimate’ pressure

The modern cases generally define the sort of pressure which constitutes duress as
‘illegitimate’ pressure.12 This emphasizes that the law must distinguish between
pressures to which a contracting party is not expected to submit without having a
remedy, and other (‘legitimate’) pressures which the law does not take into account.
Some forms of pressure which constitute duress are unlawful; but others, though not
unlawful, are still illegitimate.
Unlawful pressure occurs where the coercive party threatens to do something that
is a breach of a common law or statutory duty. The act may be a crime, a tort or, subject

3 Above, p 4. 4 National Westminster Bank plc v Morgan [1985] AC 686, 708 (Lord Scarman).
5 Above, pp 206, 216. 6 Above, p 5. 7 Above, p 346.
8 Timeload Ltd v British Telecommunications plc (1995) 3 EMLR 459; Malik v BCCI SA [1998] AC 20,
52–3. See generally Beatson (2001) 117 LQR 247.
9 Coke 2 Inst 483; Whelpdale’s Case (1605) 5 Co Rep 119a; North Ocean Shipping Co Ltd v Hyundai
Construction Co Ltd [1979] QB 705; Pao On v Lau Yiu Long [1980] AC 614; Universe Tankships Inc of
Monrovia v International Transport Workers Federation, The Universe Sentinel [1983] 1 AC 366. Cf Barton v
Armstrong [1976] AC 104, 120 (declaration that the contracts ‘are void’; but this may only be describing the
contract after it has been rescinded). Cf Lanham (1966) 29 MLR 615, who contends that duress renders the
contract void.
10 Beatson, The Use and Abuse of Unjust Enrichment (1991) ch 5; Cartwright, Unequal Bargaining (1991)
ch 7; Dawson (1947) 45 Mich L Rev 253; Hale (1943) 43 Col L Rev 603; Halson (1991) 107 LQR 649; Smith
[1997] CLJ 343.
11 The Universe Sentinel, above, n 9, 385, 400; Rookes v Barnard [1964] AC 1129. The duress need not
constitute a tort: Dimskal Shipping Co SA v International Transport Workers Federation, The Evia Luck
[1992] 2 AC 152, 169. 12 The Universe Sentinel, above, n 9, 384, 401.
 duress, undue influence, and unconscionable bargains 351

to the qualifications set out below, a breach of contract. Where an unlawful act is
threatened, provided it induces the contract, in principle the contract may be set aside
by the other party. In the words of Lord Devlin, ‘[a]ll that matters to the plaintiff is that,
metaphorically speaking, a club has been used. It does not matter to the plaintiff what
the club is made of—whether it is a physical club or an economic club, a tortious club
or an otherwise illegal club’.13
The position is different where what is threatened is not an unlawful act. Ordinarily
it is not duress to threaten to do that which one has a legal right to do, for instance to
refuse to enter into a contract or to terminate a contract lawfully. But exceptionally
such a threat may constitute duress when coupled with a demand. Although such
pressure is not unlawful, it is still ‘illegitimate’.

(ii) Categorization of types of duress

Traditionally, duress has been categorized according to the form of the threat. As we
shall see, the Courts first recognized threats to the person, and only later threats to
property and finally threats of economic harm. Now that they have unified duress as
involving ‘illegitimate’ pressure one might expect that the different categories of threat
could be abandoned. However, there appear still to be differences between them, such
as in the rules of causation,14 and for the purpose of analysis it is also preferable to
consider the different types of duress separately.15

(iii) Juridical basis of duress

It used to be said that a contract could be set aside for duress only if the will of the
victim was coerced so as to vitiate his consent.16 But this was misleading, because it
was interpreted as saying not simply that the victim’s consent was defective, but that
his entry into the contract was not a voluntary act.17 The fallacy of this approach was
exposed in The Universe Sentinel.18 A person subjected to duress is fully aware of the
nature and terms of the contract which is thus entered. The victim still intends to
contract, though his freedom to choose whether to enter into the contract is vitiated.19

13 Rookes v Barnard [1964] AC 1129, 1209, discussing the tort of intimidation. Although the Consumer
Protection from Unfair Trading Regulations 2008 (SI 2008 No 1277), implementing Directive 2005/29/EC
on Unfair Commercial Practices, provides in reg 29 that an agreement shall not be void or unenforceable by
reason only of a breach of the Regulations, the use or threat of conduct which constitutes an offence under
the Regulations may constitute duress: Collins (2010) 75 MLR 89, 113–14.
14 In duress to the person, the threat need only be ‘a’ cause, and may be inferred: Barton v Armstrong
[1976] AC 104; in economic duress the threat must be a significant cause and must be proved: Huyton SA v
Peter Cremer GmbH & Co [1999] 1 Lloyds Rep 620; below, pp 353–4. 15 Below, p 352 ff.
16 Occidental Worldwide Investment Corp v Skibs A/S Avanti, The Siboen and The Sibotre [1976] 1 Lloyd’s
Rep 293, 336; North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705, 717; Pao On v Lau
Yiu Long [1980] AC 614, 635. See also Barton v Armstrong [1976] AC 104 (121; Alec Lobb (Garages) Ltd v Total
Oil Great Britain Ltd [1983] 1 WLR 87, 93. 17 Pao On v Lau Yiu Long [1980] AC 614, 636.
18 Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366. See
also Lynch v DPP of Northern Ireland [1975] AC 653, 670, 675, 680, 690–1, 695, 703, 709 (duress as a defence in
criminal law); Atiyah (1982) 98 LQR 197 (1983) 99 LQR 353; Beatson (1976) 92 LQR 496, The Use and Abuse
of Unjust Enrichment (1991) 113–17; Dimskal Shipping Co SA v International Transport Workers Federation,
The Evia Luck [1992] 2 AC 152, 165–6.
19 Cartwright, Unequal Bargaining (1991) 160–3.
352 factors tending to defeat contractual liability

‘The classic case of duress is . . . not the lack of will to submit but the victim’s intentional
submission arising from the realization that there is no other practical choice open to
him.’20 The rationale of duress is thus not lack of knowledge or consent but illegitimate
pressure which means that the victim’s apparent consent is treated in law as revocable,
unless approbated expressly or by implication after the pressure has ceased to operate
on the victim’s mind.21

(b) unlawful pressure

(i) Types of duress
(a) Duress of the person. Until 1976, despite some authority to the contrary,22 the
received view was that the only form of duress that could vitiate a contract was actual or
threatened violence to the person,23 for example threats to kill the party to the contract
or perhaps a close relative.24 How serious the action threatened must be in order to
render the contract voidable will depend upon the ability of the person threatened
to resist the pressure improperly brought to bear.25 But once it is established that the
threats contributed to the decision of the person threatened to enter into the contract,
that person is entitled to relief, even though the contract might well have been entered
into all the same if no threats had been made.26
At common law, a threat of lawful imprisonment, eg a criminal prosecution, would
not ordinarily amount to duress, but in equity a threat by one party to prosecute the
other for a criminal offence could constitute a ground on which the contract would be
set aside for undue influence,27 and today the equitable rule prevails.28
(b) Duress of goods. A contract entered into as the result of actual or threatened
violence to or the illegal seizure of goods or other property can now be set aside on
the ground of duress.29 Older authority to the contrary can possibly be explained as
the voluntary compromise of a claim,30 or as involving facts in which the degree of
coercion applied was in fact insufficient to constitute duress.31 It was in any event
inconsistent with authority granting the recovery of money paid under protest for the
release of goods from unlawful detention. 32

20 [1983] 1 AC 366, 400 (Lord Scarman). 21 Ibid, 384 (Lord Diplock).

22 Tamvaco v Simpson (1866) LR 1 CP 363; Government of Spain v North of England SS Co Ltd (1938) 54
TLR 852, 61 Ll L Rep 44.
23 Co 2 Inst 483; Co Litt 253b; 1 Roll Abr 687, pl 5, 6; Skeate v Beale (1841) 11 A & E 983.
24 Barton v Armstrong [1976] AC 104. 25 Scott v Sebright (1886) 12 PD 21, 24.
26 Barton v Armstrong [1976] AC 104, 118–9. 27 Williams v Bayley (1886) LR 1 HL 200.
28 Mutual Finance Ltd v John Wetton & Sons Ltd [1937] 2 KB 389.
29 Vantage Navigation Corp v Suhail & Saud Bahwan Building Materials Llc, The Alev [1989] 1 Lloyd’s Rep
138. See also Lloyds Bank Ltd v Bundy [1975] QB 326, 337; Occidental Worldwide Investment Corp v Skibs A/S
Avanti [1976] 1 Lloyd’s Rep 293, 335–6; North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979]
QB 705, 715; Pao On v Lau Yiu Long [1980] AC 614, 635; The Universe Sentinel [1983] 1 AC 366.
30 Occidental Worldwide Investment Corp v Skibs A/S Avanti, above, n 29; Beatson, The Use and Abuse of
Unjust Enrichment (1991) 105–6. On compromises, see above, p 103.
31 Skeate v Beale (1840) 11 A & E 983, 990.
32 Astley v Reynolds (1731) 2 Str 915; Maskell v Horner [1915] 3 KB 106.
 duress, undue influence, and unconscionable bargains 353

(c) Economic duress. It is also now established that, in certain circumstances, a

contract can be set aside for economic duress, ie the threat of such serious fi nancial
consequences as give the threatened party no practical choice but to enter into the
contract.33 So it has been held that an unlawful threat by a trade union to continue the
‘boycotting’ of a ship34 and a threat to break an existing contract35 can be a sufficient
ground to render voidable a contract, supported by consideration, entered into as
a result of its pressure. In particular, one party may threaten to break an existing
contract unless the contract is renegotiated in its favour, and the other party may
accede to this demand in order to avoid the adverse financial consequences which
would ensue from the threatened breach.36 In Atlas Express Ltd v Kafco (Importers
and Distributors) Ltd:37
K had agreed to supply basketware to a chain of retail shops and made a contract for its
delivery with A, a carrier. A had erroneously estimated that each load would contain over
400 cartons and, on this basis, had agreed a price of £1.10 per carton. The first load was for a
smaller number of cartons, and A, believing that carrying such a load at the agreed rate was
not financially viable, said that it would not perform unless K agreed to pay a minimum of
£440 a load. Because K’s commercial survival depended on the contract with the retail chain
and it could not find an alternative carrier, it agreed to A’s demand but then refused to pay.

It was held that the new terms were agreed under economic duress. In that case
there was a direct threat to repudiate the contract, but the threat may be indirect.
Thus, in B & S Contracts and Design Ltd v Victor Green Publications Ltd an indication
by a party to a contract that it was prepared to allow its workers to strike unless the
other party agreed to make a payment in addition to the contract price was held to be
a veiled threat and to constitute duress because the other party had no other practical
choice open to it but to agree to pay.38 Good faith in the sense that the contractual
difficulty is not the fault of the party seeking to renegotiate does not preclude a finding
of economic duress. 39

(ii) Causation
There must be a sufficient causal link between the duress and the contract. In cases of
duress of the person it needs only be shown that the duress was ‘a’ cause of the contract,
and the Court may be willing to infer, in the absence of evidence to the contrary, that

33 Occidental Worldwide Investment Corp v Skibs A/S Avanti, above, n 29, 336; North Ocean Shipping Co
Ltd v Hyundai Construction Co Ltd, above, n 29; Pao On v Lau Yiu Long, above, n 29, p. 635; The Universe
Sentinel, above, n 18, 383, 391, 397, 400; Alec Lobb (Garages) Ltd v Total Oil Great Britain Ltd [1983] 1 WLR
87, 93.
34 The Universe Sentinel, above, n 18; Dimskal Shipping Co SA v International Transport Workers
Federation, The Evia Luck [1992] 2 AC 152.
35 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, above, n 29; Pao On v Lau Yiu Long,
above, n 29. See also Occidental Worldwide Investment Corp v Skibs A/S Avanti, above, n 29 (threat to put
company into liquidation). Cf McKendrick in Burrows and Rodger (eds) Mapping the Law: Essays in Memory
of Peter Birks (2006) 181, 188 (threatened breach of contract is always illegitimate).
36 On the distinction between a ‘threat’ and a ‘warning’ which will not suffice, see below, p 355.
37 [1989] QB 833. 38 [1984] ICR 419, 426, 428.
39 Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep 620, 629.
354 factors tending to defeat contractual liability

the duress induced the contract.40 But in cases of economic duress, it is for the party
seeking to have the contract set aside to establish that the duress was a significant
cause of the contract.41
Not every threat to break a contract unless its terms are renegotiated will amount to
duress. It is also necessary for the threat to induce the renegotiation, and in this context
a number of factors will be taken into account. These include the availability of an
adequate alternative remedy, whether there has been a compromise or a submission to
a claim made in good faith, and whether the victim has protested or taken independent
advice. Thus, in Pao On v Lau Yiu Long,42 where one party was coerced into accepting
the renegotiation of a business transaction by a threat by the other party to break
an existing contract, but did so with legal advice and without protest, and after a
considered appraisal of the risk involved, it was held by the Privy Council that the
renegotiated agreement would not be set aside on the ground of economic duress.

(iii) Alternative remedies

A person threatened with duress of goods or a breach of contract can stand up to the
threat and, if the other party breaches the contract, sue for damages. In the context
of duress of goods the presence of an alternative remedy, such as an action in tort for
wrongful interference with goods, is not necessarily a bar to relief; the threatened
party might have had ‘such an immediate want of his goods that [such an action]
would not do’43 and in any event there is no right to recover the goods themselves as
opposed to damages in an action in tort.44
In the case of duress by threatened breach of contract, although damages and, where
available, specific relief may be adequate, there will be situations in which such remedies
do not adequately protect the victim, for example where it is imperative that there be no
interruption in performance or where, as in Atlas Express Ltd v Kafco (Importers and
Distributors) Ltd, it is not possible to obtain the contractual services from another source.
The existence and adequacy of an alternative remedy is taken into account in such cases.
There is some support for treating this as purely evidential and not conclusive, ie one of
the factors (with protest and independent advice) which the Court takes into account in
determining whether the victim was in fact coerced by the threat.45 But it is submitted
that, since the basis of the doctrine of duress is the absence of a practical alternative on the

40 Barton v Armstrong [1976] AC 104, 118–9,120. Cf the similar willingness of the Courts to infer reliance
on a misrepresentation: above, pp 305–6.
41 Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyds Rep 620, 636, 638–9. Cf Crescendo Management
Pty Ltd v Westpac Banking Corp (1998) 19 NSWLR 40, 46 (McHugh JA). Cf McKendrick in Burrows and
Rodger, above, n 35, 181, 187.
42 [1980] AC 614, above, pp 107–8. See also Alec Lobb (Garages) Ltd v Total Oil Great Britain Ltd [1983]
1 WLR 87.
43 Astley v Reynolds (1731) 2 Str 915, 916; Maskell v Horner [1915] 3 KB 106, 122. See also Kanhaya Lal v
National Bank of India (1913) 29 TLR 314. Cf Vantage Navigation Corp v Suhail & Saud Bahwan Building
Materials Llc, The Alev [1989] 1 Lloyd’s Rep 138, 146–7.
44 By the Torts (Interference with Goods) Act 1977, ss 3(2)(a), 3(3)(b) an order for delivery of the goods
may be made at the discretion of the Court.
45 Pao On v Lau Yiu Long, above, n 42, 635, 640; Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s
Rep 620, 638.
 duress, undue influence, and unconscionable bargains 355

part of the victim to submission to the threat, the better view is that the existence of an
adequate alternative remedy goes to the essence of and precludes a finding of duress.46

(c) duress distinguished from legitimate renegotiation

We noted in Chapter 4 of this book that it may well be reasonable for a party to seek to
renegotiate a contract and that one of the functions of promissory estoppel is to protect
reasonable renegotiations. Where the party seeking to renegotiate honestly believes
that in the circumstances it is entitled not to perform, we have seen that the result
will generally be a binding compromise.47 But where it does not, the development of
duress makes it important that parties who genuinely face difficulties if they complete
performance on the contract terms and wish to renegotiate know what is and what is
not permissible conduct.

(i) Was there a threat?

In Williams v Roffey Bros & Nicholls (Contractors) Ltd48 R & N, noticing their
carpentry subcontractor’s difficulties, offered an additional payment which, as we
have seen, was held binding. But surely the renegotiation would not automatically
have been vitiated by duress if it was the subcontractor who had taken the initiative.
It should not necessarily be seen as a threat to point out that without renegotiation it
will not be possible to continue performance,49 provided that this is so in fact. This
is particularly so where, as in the High Trees case, 50 changes of circumstances have
affected the risks originally undertaken.51 It must be recalled that, save for specifically
enforceable contracts, it is open to a party to a contract to be in deliberate breach of
contract in order to cut its losses commercially.52 We have seen that the good faith—
bona fides—of the person making a demand is relevant in determining whether there
is a compromise or whether the doctrine of promissory estoppel applies.53 It should
also be relevant in determining whether there is duress.54 Thus, in B & S Contracts

46 Vantage Navigation Corp v Suhail & Saud Bahwan Building Materials Llc, The Alev, above, n 43;
Hennessy v Craigmyle & Co Ltd [1986] ICR 461; DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR
530 at [131].
47 Above, p 103.
48 [1991] 1 QB 1, above, p 109. Cf Adam Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3481
(QB) (threat to stop supplies constituted duress and rendered renegotiated contract voidable).
49 See, on the difference between a ‘threat’ and a ‘warning’ in the context of economic torts, Conway v
Wade [1909] AC 506, 510; Rookes v Barnard [1964] AC 1129, 1166; Camellia Tanker Ltd SA v International
Transport Workers Federation [1976] ICR 274, 284, 296. See also Hodges v Webb [1920] 2 Ch 70; Beatson, The
Use and Abuse of Unjust Enrichment (1991) 118–20; Smith [1997] CLJ 343, 346–50.
50 [1947] KB 130, above, pp 117–8.
51 See Watkins & Sons Inc v Carrig 21 A 2d 591 (1941) (hard rock unexpectedly struck during excavations)
but cf North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705, 714; Williams v Roffey
Bros & Nicholls (Contractors) Ltd, above, n 48, 20.
52 Williams v Roffey Bros & Nicholls (Contractors) Ltd, above, n 48, 23.
53 Callisher v Bischoffsheim (1870) LR 5 QB 449, above, p 104; D & C Builders v Rees [1966] 2 QB 617,
above, p 120.
54 CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714 (lawful act duress; see below, pp 357–7).
356 factors tending to defeat contractual liability

and Design Ltd v Victor Green Publications Ltd, considered above,55 it seems that the
fact that the contractor had not made reasonable efforts to avoid a strike by its workers
before demanding an additional payment from the other party to the contract was a
factor in the conclusion that the demand was a veiled threat.

(ii) Is it commercially reasonable to renegotiate?

One way to determine what is permissible is by a test, similar to that in paragraph
176(2) of the American Restatement of Contracts 2d, which would ask whether it was
commercially reasonable to seek to renegotiate and whether the renegotiated terms
are ‘fair and equitable’. But it is difficult to see how the Courts could do this without
becoming more involved in an examination of the fairness of both the original contract
and the renegotiation than they have hitherto been.56 It is, however, equally difficult
to see any way of distinguishing permissible and impermissible conduct during
renegotiations that does not ultimately involve some monitoring of the substantive
fairness of the contract, although this should be kept to the absolute minimum by
emphasizing that duress is primarily a doctrine of procedural impropriety focusing
on conduct.

(d) threats of lawful action

(i) Ordinarily not duress
It is not ordinarily duress to threaten to do that which one has a right to do, for
instance to refuse to enter into a contract or to terminate a contract lawfully.57 In the
cut-and-thrust of business relationships various types of pressure may be brought to
bear in differing situations. Where there are shortages in goods or services the person
who wishes to acquire them has little choice. Thus a private person or undertaking is
generally permitted to refuse to deal with another at all or except on specified terms,58
and the poor person who has to agree to pay a high rent to get a roof over his head
is nevertheless bound. ‘No bargain will be upset which is the result of the ordinary
interplay of [market] forces’59 and a contracting party will not be permitted to escape
from its contractual obligations merely because it was coerced into making a contract
by fear of the financial consequences of refusing to do so.60 In CTN Cash & Carry
Ltd v Gallaher Ltd it was held that a wholesale buyer of cigarettes who, following an
honest but mistaken demand by the seller, paid a sum not due because the seller had

55 [1984] ICR 419, above, pp 353.

56 Beatson, The Use and Abuse of Unjust Enrichment (1991) 126–9, 135; Goff and Jones, The Law of
Restitution (7th edn, 2007) para 10–027.
57 Leyland DAF Ltd v Automotive Products plc [1994] 1 BCLC 245, 249–50, 257; Smith v William Charlick
Ltd (1923) 34 CLR 38, 56, 64–5 (Australia). See also A-G v R [2003] UKPC 22, [2003] EMLR 24 (threat to
return member of SAS Regiment to his former regiment if he did not sign a lifelong confidentiality agreement
was a lawful threat, and the demand supported by the threat was justified).
58 For the position of a public body see R v Lewisham LBC, ex p Shell UK Ltd [1988] 1 All ER 938 and the
statutory controls discussed above, pp 224–5, 227.
59 Lloyds Bank Ltd v Bundy [1975] QB 326, 336 (Lord Denning MR).
60 Hardie and Lane Ltd v Chilton [1928] 2 KB 306: Eric Gnapp Ltd v Petroleum Board [1949] 1 All ER 980.
 duress, undue influence, and unconscionable bargains 357

threatened, as it was entitled to do, to withdraw credit facilities from the buyer, could
not recover it on the ground of duress:61
We are being asked to extend the categories of duress of which the law will take cognisance.
That is not necessarily objectionable, but it seems to me that an extension capable of covering
the present case, involving ‘lawful act duress’ in a commercial context in pursuit of a bona
fide claim, would be a radical one with far-reaching implications. It would introduce a
substantial and undesirable element of uncertainty in the commercial bargaining process.
Moreover, it will often enable bona fide settled accounts to be reopened when parties to
commercial dealings fall out. The aim of our commercial law ought to be to encourage fair
dealing between parties. But it is a mistake for the law to set its sights too highly when the
critical inquiry is not whether the conduct is lawful but whether it is morally or socially
unacceptable.

Although this approach leaves many forms of socially objectionable conduct

unchecked, as a general rule the determination of when socially objectionable conduct
which is not in itself unlawful should be penalized is for the legislature rather than the
judiciary.

(ii) Exceptional cases: ‘illegitimate’ pressure as duress

Exceptionally a threat of lawful action may constitute duress and render a contract
voidable. It has been said that the threat, if not wrongful, must be immoral or
unconscionable.62 We have seen that a threat by one party to prosecute the other for a
criminal offence could constitute a ground on which the contract would be set aside in
equity for undue influence.63 Similarly, in the context of salvage, a refusal to rescue a
vessel in distress or those on board save on extortionate terms has led to the resulting
contract being set aside.64 Again, it is inconceivable that the Courts would give effect
to an agreement obtained by threats amounting to blackmail, although in one sense
the blackmailer may only be threatening to do some act which he is lawfully entitled
to do, such as to tell a wife of her husband’s adultery, or to appoint a receiver.65 Lord
Scarman has stated:66

61 [1994] 4 All ER 714, 719 (Steyn LJ), and see Birks, An Introduction to the Law of Restitution (1985) 177.
See also Leyland DAF Ltd v Automotive Products plc [1994] 1 BCLC 245.
62 Alf Vaughan & Co Ltd v Royscot Trust plc [1999] 1 All ER (Comm) 856, 863, following Goff and Jones,
The Law of Restitution (5th edn, 1998) 309–10 (see now 7th edn, 2007, paras 10.02, 10.27).
63 Mutual Finance Co Ltd v John Wetton & Sons Ltd [1937] 2 KB 389, above, p 352.
64 The Port Caledonia [1903] P 184 (‘£1,000 or no rope’). See also The Rialto [1891] P 175 (agreement to pay
£6,000 when proper sum was £3,000). 65 Westpac Banking Corp v Cockerill (1998) 152 ALR 267.
66 Universe Tankships Inc of Monrovia v International Transport Workers Federation, The Universe Sentinel
[1983] 1 AC 366, 401. See also Lord Diplock, ibid, 385. See further Thorne v Motor Trade Association [1937]
AC 797, 822; Dimskal Shipping Co SA v International Transport Workers Federation, The Evia Luck [1992] 2
AC 152 (where the validity of the contract is in issue in English law, the legitimacy of the threat depends also
on English law, not on the law of the place where the threat was made). Cf Royal Boskalis Westminster NV v
Mountain [1999] QB 674, 730 (Phillips LJ: ‘I have difficulty in accepting that the English court can hold that a
party has avoided [for duress of a type which is offensive to English public policy] a contract governed by and
valid under a foreign law in circumstances where the foreign law affords no right of avoidance’).
358 factors tending to defeat contractual liability

Duress can, of course, exist even if the threat is one of lawful action: whether it does so
depends upon the nature of the demand. Blackmail is often a demand supported by a threat
to do what is lawful, eg to report criminal conduct to the police.

In the typical case of blackmail, the blackmailer has no economic interest in the outcome
apart from getting what has been demanded, and it is for this reason that the threat is
regarded as illegitimate. Where the person making the threat has some economic or
other interest in the outcome apart from getting what has been demanded, the question
will be whether the demand is ‘unwarranted’ in the sense of being unrelated to any
‘legitimate’ interest of the party making the demand. It is submitted that, as in the
criminal law, a demand will not be unwarranted where the person making it believes that
there are reasonable grounds for making it and the use of the menaces is a proper means
of reinforcing the demand.67 Since in the typical case of coercion by the threat of a lawful
act concerning an existing or future contractual relationship, the threatener will have
a direct economic interest, the demand will, in the majority of cases, be ‘legitimate’.68
The tort of conspiracy to injure, which also does not involve unlawful means, provides
a useful guide. In that context the pursuit of more profit, of a larger share of the market,
price stability, and of higher wages have all been held to be legitimate purposes.69 For
these reasons, while in principle a threat to do what is lawful can constitute duress, this
form of pressure is unlikely to have much practical impact save where the relationship
between the parties is one accorded special protection by the law.70

(e) rescission
Duress renders the contract voidable, and the remedy by which the contract is avoided
is rescission. Although there are few cases which explore the details of the remedy, in
principle it should be no different from rescission for other vitiating factors such as
misrepresentation and undue influence.71 Therefore rescission can be obtained only
if restitution can be made to restore both parties to their positions as they were before
the contract;72 and will be barred by affirmation73 or, presumably, if the subject-matter
of the contract has passed into the hands of a purchaser in good faith for value and
without notice of the defect in the contract.74

67 Theft Act 1968, s 21(1); Criminal Law Revision Committee, Eighth Report (1966, Cmnd 2977); R v
Harvey (1980) 72 Cr App R 139.
68 For a possible example of an unwarranted demand, see Norreys v Zeffert [1939] 2 All ER 187.
69 Mogul Steamship Co Ltd v McGregor, Gow & Co [1892] AC 25; Thorne v Motor Trade Association [1937]
AC 797; Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435. See Carty, An Analysis of the
Economic Torts (2001) 28–32.
70 See below, pp 361 (presumed undue influence) and 373 (unconscionability) for consideration of such
relationships.
71 Halpern v Halpern (Nos 1 and 2) [2007] EWCA Civ 291, [2008] QB 195 at [70]–[76], rejecting the
argument that since a contract is voidable for duress at common law (rather than in equity) the nature of
the remedy and its limitations are different. For rescission for misrepresentation, see p 311 ff, above; for
rescission for undue influence, see p 367 ff, below. 72 Ibid.
73 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705.
74 Cf White v Garden (1851) 10 CBNS 919 (third-party rights were a bar to rescission for fraud at common
law).
 duress, undue influence, and unconscionable bargains 359

3. undue influence
We have already seen that the term ‘fraud’ was used in a sense wider and less precise
in the Court of Chancery than in the common law courts.75 It was often used in
equity in the sense of unconscientious dealing although, in the words of Lord
Haldane, a great equity lawyer, this was unfortunate.76 One such form of dealing
is commonly described as ‘undue influence’. The nature and operation of undue
influence in the modern law was considered by the House of Lords in eight appeals
heard together and reported as Royal Bank of Scotland plc v Etridge (No 2).77 The
principles are set out in the speech of Lord Nicholls with whom, although there are
some differences of expression and approach, the other members of the Appellate
Committee agreed.78

(a) nature of undue influence

The term ‘undue influence’ has sometimes been used by the Courts to describe the
equitable doctrine of coercion referred to above,79 but it also includes, and it would
perhaps be more helpful to confine it to, forms of pressure much less direct or
substantial than those already discussed. It may also arise where the parties are in a
relation of confidence or dependence which puts one of them in a position to exercise
over the other an influence which may be perfectly natural and proper in itself, but is
capable of being unfairly used.80 Courts, including the House of Lords in Etridge’s case,
have been careful not to define precisely the sort of influence which will be regarded
as ‘undue’. 81 Nevertheless, it is accepted that equity identified broadly two forms of
unacceptable conduct, which Lord Nicholls described as follows:82
The first comprises overt acts of improper pressure or coercion such as unlawful threats . . . The
second form arises out of a relationship between two persons where one has acquired over
another a measure of influence, or ascendancy, of which the ascendant person then takes
unfair advantage . . . In cases of this latter nature the influence one person has over another
provides scope for misuse without any specific overt acts of persuasion. The relationship
between two individuals may be such that, without more, one of them is disposed to agree a

75 Above, p 340. 76 Nocton v Lord Ashburton [1914] AC 932, 953.

77 [2001] UKHL 44, [2002] 2 AC 773. 78 Ibid at [3]. See also [91], [100], [192].
79 Mutual Finance Co Ltd v John Wetton & Sons Ltd [1937] 2 KB 389; Royal Bank of Scotland plc v Etridge
(No 2), above, n 77 at [7]–[8].
80 Winder (1939) 3 MLR 97. See also Cartwright, Unequal Bargaining (1991) ch 8; A-G v R [2003] UKPC
22, [2003] EMLR 24 at [21] (undue influence has concentrated on unfair exploitation of a relationship of
ascendancy or influence); National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51 at [32]–[33]. Cf
Birks and Chin in Beatson and Friedmann (eds), Good Faith and Fault in Contract Law (1995) ch 3 (undue
influence is about impaired consent, not exploitation); Chen-Wishart in Burrows and Rodger (eds) Mapping
the Law: Essays in Memory of Peter Birks (2006) 201 and [2006] CLP 231; Pesticcio v Huet [2004] EWCA Civ
372 at [20] (Mummery LJ: basis of court’s intervention is not the commission of a dishonest or wrongful act
by the defendant).
81 Royal Bank of Scotland plc v Etridge (No 2), above, n 77 at [11]; National Westminster Bank plc v Morgan
[1985] AC 686, 709; Allcard v Skinner (1887) 36 Ch D 145, 183.
82 ibid, [8]–[9]. See also at [103]–[105] (Lord Hobhouse) and [151]–[158] (Lord Scott). But Lord Clyde, at
[92] questioned the wisdom of attempting to make classifications of cases of undue influence.
360 factors tending to defeat contractual liability

course of action proposed by the other. Typically, this occurs when one person places trust
in another to look after his affairs and interests, and the latter betrays this trust by preferring
his own interests. He abuses the influence he has acquired.

The first type of case, the direct analogue of common law duress, has been called ‘actual’
undue influence. The second type of case, where the parties are in a relationship in
which duties of care and confidence are imposed on one party towards the other, has
been called ‘presumed’ undue influence.
It is often said that, in the first type of case, evidence of express influence must
be adduced by the party seeking to impeach the transaction, whereas, in the second,
undue influence is presumed in the absence of evidence to the contrary.83 While this
is true, it can be somewhat misleading, as the burden of proof of undue influence rests
upon the person who claims to have been wronged, although once the claimant has
shown that the defendant was in a position to exercise undue influence over the other,
and that the transaction between the parties calls for explanation, the burden of proof
may be discharged unless the defendant adduces sufficient evidence to the contrary.84

(b) actual undue influence

Where one party exercised such domination over the mind and will of the other
that the latter’s independence of decision was substantially undermined, and this
domination brought about the transaction, the victim will be entitled to relief on the
ground of undue influence:85
It is an equitable wrong committed by the dominant party against the other which makes it
unconscionable for the dominant party to enforce his legal rights against the other.

There is no need for any special relationship (of the type mentioned below) to exist
between the parties, although, of course, it may do so. The mere fact that domination
was exercised is sufficient; no abuse of confidence need be proved. In Smith v Kay,86
for example, a young man, only just of age, incurred liabilities to the appellant by the
contrivance of an older man who had acquired a strong influence over him, and who
professed to assist him in a career of extravagance and dissipation. It was held that
influence of this nature, though in no way ‘fiduciary’, entitled the young man to the
protection of the Court. Similarly, in Morley v Loughnan 87 executors sued to recover
£140,000 paid by the deceased to a member of the ‘Exclusive Brethren’ in whose house
he had lived for some years, and under whose religious influence he had been. Wright
J, in giving judgment for the claimants, said that it was unnecessary to decide whether
or not any special relationship existed between the deceased and the defendant, for
he ‘took possession, so to speak, of the whole life of the deceased, and the gifts were
not the result of the deceased’s own free will, but the effect of that influence and
domination’.88

83 Allcard v Skinner (1887) 36 Ch D 145, 181 (Lindley LJ).

84 Royal Bank of Scotland plc v Etridge (No 2), above, n 77 at [13]–[14]. See below, p 362.
85 Ibid at [103]. 86 (1859) 7 HLC 750. 87 [1893] 1 Ch 736. 88 Ibid, 756.
 duress, undue influence, and unconscionable bargains 361

Many older cases on this point have concerned spiritual ‘advisers’ who have used
their expert knowledge of the next world to obtain material advantages in this. In
more recent times the cases have often concerned men who have put pressure on
their wives or partners to secure business debts by mortgaging the family home.89
While heavy family pressure will not in itself suffice to constitute domination, in one
case wounding and insulting language and demeaning comparisons between what a
husband characterized as his wife’s disloyalty and his relations’ loyalty amounted to
moral blackmail and coercion.90
Actual undue influence itself suffices for relief. It is not necessary that the
transaction induced by it be not readily explicable or be manifestly disadvantageous
to the victim:91
Actual undue influence is a species of fraud. Like any other victim of fraud, a person who
has been induced by undue influence to carry out a transaction which he did not freely
and knowingly enter into is entitled to have that transaction set aside as of right . . . A man
guilty of fraud is no more entitled to argue that the transaction was beneficial to the person
defrauded than is a man who has procured a transaction by misrepresentation. The effect
of the wrongdoer’s conduct is to prevent the wronged party from bringing a free will and
properly informed mind to bear on the proposed transaction which accordingly must be set
aside in equity as a matter of justice.

It has been said, however, that in the nature of things questions of undue influence
will not usually arise where the transaction is innocuous.92

(c) presumed undue influence

Even if it cannot be proved that the claimant’s mind was a ‘mere channel through
which the will of the defendant operated’,93 relief may be given if there existed between
the parties some special relationship of confidence which the defendant has abused:
Wherever two persons stand in such a relation that, while it continues, confidence is
necessarily reposed by one, and the influence which naturally grows out of that confidence
is possessed by the other, and this confidence is abused, or the influence is exerted to obtain
an advantage at the expense of the confiding party, the person so availing himself of his
position will not be permitted to retain the advantage, although the transaction could not
have been impeached if no such confidential relation had existed.94

Prior to Etridge’s case Slade LJ95 had divided presumed undue influence into two
classes, an approach approved by the House of Lords in Barclays Bank plc v O’Brien.96

89 eg CIBC Mortgages plc v Pitt [1994] 1 AC 200.

90 Bank of Scotland v Bennett [1997] 1 FLR 801, 822–7, one of the cases on appeal to HL in Etridge’s case:
see [2002] 2 AC 773 at [312]–[315].
91 CIBC Mortgages plc v Pitt, above, n 89, 209 (Lord Browne-Wilkinson).
92 Royal Bank of Scotland plc v Etridge (No 2), above, n 77 at [12].
93 Tufton v Sperni [1952] 2 TLR 516, 530.
94 Tate v Williamson (1866) LR 2 Ch App 55, 61 (Lord Chelmsford).
95 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, 953.
96 [1994] 1 AC 180, 189–90.
362 factors tending to defeat contractual liability

The first (class 2A) was where the duties of care and confidence arose as a matter of
law by virtue of the relationship between the parties. The second (class 2B) was said to
occur where the duties arose in the special circumstances of the parties’ association
with each other, ie because on the facts of the particular case the claimant placed trust
and confidence in the other party and the transaction between the parties was one
calling for an explanation.
In Etridge’s case, however, their Lordships considered that it was only in class 2A cases
that there is a true presumption of influence, arising from the law’s ‘sternly protective
attitude towards certain types of relationship’. In such cases the claimant ‘need not
prove he actually reposed trust and confidence in the other party. It is sufficient for
him to prove the existence of the relationship’.97 However, it is important to notice
that even in such cases all that is presumed is the influence—that the defendant was
in a position to exercise influence over the claimant. It is not automatically presumed
that the influence was undue—that the defendant abused the relationship—although
this may be established on the evidence by the claimant showing that the transaction
between the parties called for explanation and no explanation is forthcoming from
the defendant.98
In class 2B cases, however, although described by generations of equity lawyers as
cases in which a presumption of undue influence arises, there is no true presumption
but only a shift in the evidential onus on a question of fact. The burden of proving
undue influence rests on the claimant, but will normally be discharged by proof that
he or she placed trust and confidence in the other party and that the transaction
between the parties is one which calls for explanation. Proof of those two facts is
prima facie evidence that the defendant abused the influence he or she acquired in
the relationship, and it is then for the defendant to counter the inference which should
otherwise be drawn. Accordingly, a claimant who succeeds does so because he or she
has established a case of undue influence.99 Analytically, the general burden of proof
remains on the claimant, but this can be discharged by establishing a sufficient prima
facie case. Despite this difference, since there is a shift in the evidential onus and since
the requirement that the transaction must be one calling for explanation is relevant
in both categories of case, the two different types of presumption are considered in
this section. In both there are two components required for the establishment of a
situation in which undue influence will be presumed. The first is the nature of the
relationship, and the second is the nature of the transaction, which must be one calling
for explanation; ie not be readily explicable by the relationship of the parties, but also,
less satisfactorily, sometimes described as one that is ‘manifestly disadvantageous’ to
the victim.

(i) The nature of the relationship

A true presumption that one party acquires influence over another who is vulnerable
is made as a matter of law in respect of certain relationships. In other situations, proof

97 [2002] 2 AC 773 at [18] (Lord Nicholls). See also ibid at [107], [161]. 98 Ibid at [104].
99 Ibid at [13]–[14].
 duress, undue influence, and unconscionable bargains 363

that on the particular facts trust and confidence has been reposed by one party in the
other is necessary.
(a) True presumption raised as a matter of law. It is not every fiduciary relationship
that as a matter of law raises a presumption of undue influence.100 It must be one of a
limited class which the Courts regard as suggesting undue influence. While it has been
stated that the relations which fall into this category cannot be listed exhaustively,101
they include those between parent (or person in loco parentis) and child,102 solicitor
and client,103 doctor and patient,104 trustee and beneficiary,105 spiritual adviser
and any person to whom that person stands in that relationship,106 and, in certain
circumstances, fiancé and fiancée.107 But the relationship of husband and wife is not
one to which this presumption applies as a matter of law.108
In Etridge’s case Lord Nicholls stated that the test is whether one party has reposed
sufficient trust and confidence in the other rather than whether the relationship belongs
to a particular type, that the principle is not confined to cases of abuse of trust and
confidence but includes cases where a vulnerable person has been exploited, and that
there is no single touchstone for determining whether the principle is applicable.109
It is submitted that this provides insufficient certainty and that it is preferable for the
law to mark out certain relationships where, ‘as a matter of policy, the law requires the
dominant party to justify the righteousness of the transaction’.110
As mentioned earlier, it is important to note that the presumption is that one party
has acquired influence over the other, it is not a presumption that the influence has
been abused. If all that has happened is that a client has left a small bequest to his
family solicitor, no inference of abuse or unfair dealing will arise.111
(b) Shift in the evidential onus as a result of the facts of the particular case Where, as
in the case of husband and wife, the presumption does not apply as a matter of law, one
of the parties may nevertheless be able to demonstrate that on the facts of the particular
case he or she placed trust and confidence in the other. In such a case, the degree of
trust may be such that (provided, as discussed below, that the transaction is one that
calls for explanation) the Court can infer, in the absence of a satisfactory explanation,
that the transaction can only have been procured by undue influence. In such cases
there is a rebuttable evidential presumption of undue influence. In the case of wives,
it has been stated that ‘this special tenderness of treatment’ is attributable to the fact
that in many cases a wife is able to demonstrate that she placed trust and confidence in
her husband in relation to her financial affairs and because ‘the sexual and emotional

100 Re Coomber [1911] 1 Ch 723.

101 Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 at [10].
102 Bainbrigge v Browne (1881) 18 Ch D 188; Archer v Hudson (1844) 7 Beav 551.
103 Wright v Carter [1980] 1 Ch 27. 104 Mitchell v Homfray (1881) 8 QBD 587.
105 Beningfield v Baxter (1886) 12 App Cas 167.
106 Huguenin v Baseley (1807) 14 Ves Jun 273; Allcard v Skinner (1887) 36 Ch D 145.
107 Re Lloyds Bank Ltd [1931] 1 Ch 289. Cf Zamet v Hyman [1961] 1 WLR 1442.
108 Barclays Bank plc v O’Brien [1994] 1 AC 180; Etridge, above, n 101. Cf Backhouse v Backhouse [1978]
1 WLR 243, 251. 109 [2002] 2 AC 773 at [10]–[11]. See also Lord Clyde at [92].
110 Ibid at [158] (Lord Scott). See also at [104] (Lord Hobhouse).
111 Ibid at [104] (Lord Hobhouse); above, p 362.
364 factors tending to defeat contractual liability

ties between the parties provide a ready weapon for undue influence: a wife’s true
wishes can easily be overborne because of her fear of destroying or damaging the
wider relationship between her and her husband if she opposes his wishes’.112 Similar
principles apply to all other cases where there is an emotional relationship between
unmarried cohabitees.113
The list of situations in which such a relationship exists on the facts of the particular
case is not a closed one. The principle applies to every case where influence is acquired
and abused, where confidence is reposed and betrayed.114 All the circumstances
have to be considered to determine whether such a relationship exists,115 and it is not
necessary to show that it is one of domination. It suffices that the party in whom trust
and confidence is reposed is in a position to exercise influence over the party who
reposes it. Thus in Tate v Williamson:116
An undergraduate, T, aged 23 years, was being pressed to pay his college debts, which
amounted to some £1,000. Being estranged from his father, he asked his great-uncle to advise
him how he should find the means to pay. The great-uncle was unable to advise in person
owing to ill health, but he deputed the defendant, his nephew, to do so. Conversations took
place between T and the defendant in which T expressed the desire to sell part of his estate,
upon which the defendant offered to buy it for £7,000. Before the sale was completed, the
defendant obtained a report from a surveyor on the property, and this valued it at £20,000.
The defendant did not disclose this fact to T, but proceeded with the purchase. Excessive
drinking led to T’s death one year later. It was held that the purchase must be set aside.
The defendant, having been asked to give advice, stood in a confidential relationship to
T, and this prevented him from becoming a purchaser of the property without the fullest
communication of all material information which he had obtained as to its value.

Similarly, in Tufton v Sperni,117 the situation was such that a confidential relationship
arose:
T and S were fellow members of a committee formed to establish a Moslem cultural centre
in London, it being understood that T would provide the funds for the centre. S induced T to
buy his (S’s) own house for the purpose at a price which grossly exceeded its market value.

112 Barclays Bank plc v O’Brien, above, n 108, 190–1, 196 (Lord Browne-Wilkinson).
113 Ibid, 198. See also Etridge [2002] 2 AC 773 at [47].
114 Smith v Kay (1859) 7 HLC 750, 779 (Lord Kingsdown).
115 Lloyds Bank Ltd v Bundy [1975] QB 326, 342.
116 (1866) LR 2 Ch App 55. See also Cheese v Thomas [1994] 1 WLR 129 (great nephew and aged great-
uncle); Grosvenor v Sherratt (1860) 28 Beav 659 (executor and young woman); Re Craig [1971] Ch 95
(secretary-companion and man of 84 years); Goldsworthy v Brickell (below, n 120 (85-year-old farmer
and farm manager); Lloyds Bank Ltd v Bundy (above, n 115 (banker and customer) but cf National
Westminster Bank plc v Morgan [1985] 1 AC 686; Horry v Tate & Lyle Refineries Ltd [1982] 2 Lloyd’s Rep
416 (employer’s insurers and injured employee); O’Sullivan v Management Agency and Music Ltd [1985] QB
428 (internationally recognized manager and unknown pop musician); A-G v R [2003] UKPC 22, [2003]
EMLR 24 at [24] (commanding officer and soldier, in context of military hierarchy and strong regimental
pride); Macklin v Dowsett [2004] EWCA Civ 904, [2004] 2 EGLR 75 (owners of property and rent-free life
tenant who granted option to surrender life tenancy). Perhaps the high watermark is Credit Lyonnais Bank
Nederland NV v Burch [1997] 1 All ER 144 (employer and employee), recognized in Etridge [2002] 2 AC
773 at [83], [86], [89] but which is perhaps better regarded (see Chen-Wishart [1997] CLJ 60) as a case of
unconscionability, on which see below, p 372.
117 [1952] 2 TLR 516. See also Roche v Sherrington [1982] 1 WLR 599.
 duress, undue influence, and unconscionable bargains 365

The Court of Appeal set the contract aside. The situation was not one which was
comprehended by the established categories, nor was there any domination of T by S;
yet, as Evershed MR pointed out:118
If a number of persons join together for the purpose of furthering some charitable or altruistic
objective, it would seem not unreasonable to conclude that in regard to all matters related
to that objective, each ‘necessarily reposes confidence’ in the others and each possesses
accordingly that ‘influence which naturally grows out of confidence’.

(ii) A transaction which is not readily explicable by the relationship and calls for
explanation
In Goldsworthy v Brickell, drawing on Lindley LJ’s classic nineteenth-century
formulation in Allcard v Skinner,119 Nourse LJ stated:
the presumption is not perfected and remains inoperative until the party who has ceded
the trust and confidence makes a gift so large, or enters a transaction so improvident, as
not to be reasonably accounted for on the ground of friendship, relationship, charity or
other ordinary motives on which ordinary men act. Although influence might have been
presumed beforehand, it is only then that it is presumed to have been undue.120

The reason for this requirement is to prevent the presumption applying to obviously
innocuous transactions between those in a relationship of trust and confidence, such
as a moderate gift as a Christmas present by a child to a parent, an agreement by a client
to pay the reasonable fees to a solicitor, or a moderate bequest to one’s doctor.121
In National Westminster Bank plc v Morgan122 Lord Scarman stated that the
transaction must be ‘manifestly disadvantageous’ to the influenced person. This
formulation has been widely criticized because its primary focus appears to be
financial, ie the adequacy of the consideration given in exchange for the money paid or
property transferred. ‘Manifest disadvantage’ can generally be shown where a person
agrees to guarantee the debts of another and is, of course, an inherent feature of gifts,
which have been the subject of many cases of undue influence.123 It would also exist
where a charge over a matrimonial home secured not only money borrowed under
the proposed transaction but also any other transaction entered into by the debtor.
But in the case of a guarantee of the debts of a business it may be more difficult to
determine whether the transaction is ‘manifestly disadvantageous’. In the sense that
the guarantor undertakes a serious financial obligation with no personal financial
return it is disadvantageous. But where the guarantor has an interest in the business,
as in the case of a shareholder or a wife where the business is the source of the family
income, it may not be.124 Moreover, the formulation does not readily allow non-
financial factors to be taken into account. Where the requisite relationship of trust

118 Ibid, 523. See also Goldsworthy v Brickell [1987] 1 Ch 378.

119 (1887) 36 Ch D 145, 185.
120 [1987] Ch 378, 401. This requirement does not apply to cases of ‘actual’ undue influence, above, p 361.
121 Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 at [24], [104], [156].
122 [1985] AC 686. 123 eg Allcard v Skinner (1887) 36 Ch D 145, below, p 368.
124 Royal Bank of Scotland plc v Etridge (No 2), above, n 121 at [28]–[29].
366 factors tending to defeat contractual liability

and confidence exists between two persons, the fact that an offer by one to buy land or
a valuable oil painting from the other is for the full or even an enhanced market price
should not necessarily prevent the transaction being presumed to be vitiated by undue
influence. The person subjected to the influence should not be presumed to wish to
sell a family home or business, or an item of particular sentimental value, even for the
full market price. A relationship and the influence resulting from it may be abused
‘even though the transaction is, on the face of it, one which, in commercial terms,
provides reasonably equal benefits for both parties’.125 In Etridge’s case it was accepted
that the label ‘manifest disadvantage’ can give rise to misunderstanding and should be
discarded. Lord Nicholls stated that the better approach was to adhere more directly
to the classic test which asks whether the transaction can be ‘reasonably accounted
for on the ground of friendship, relationship, charity or other ordinary motives’ as
well as whether it is ‘improvident’.126 The core question is whether the nature of the
transaction was such as to give rise to an inference that it was obtained by an unfair
exploitation of the relationship.127

(iii) Rebutting the presumption

Where influence is shown to exist, the presumption of its undue exercise can be
rebutted only by proof that the party reposing the confidence has been ‘placed in
such a position as will enable him to form an entirely free and unfettered judgment,
independent altogether of any sort of control’.128 The most obvious way of establishing
this is to show that the party reposing the confidence received independent legal advice
and took it. In some (possibly extreme) cases, very cogent evidence has been required
to be adduced by the defendant to prove that the significance of the advice was brought
home to the other party. In Powell v Powell:129
A settlement was executed by a young woman, under the influence of her stepmother, by
which she shared her property with the children of the stepmother’s second marriage.
She received some independent advice from a solicitor, but he was acting for some of the
other parties to the settlement as well as for the claimant. It appeared that, although he had
expressed disapproval of the transaction, he had not carried his disapproval to the point of
withdrawing his services.

It was held that the settlement should be rescinded. And in Huguenin v Baseley, where
a woman made over her property to a clergyman in whom she reposed confidence,
Lord Eldon said:130

125 National Westminster Bank plc v Morgan [1983] 3 All ER 85, 92 (Slade LJ). Although the House of
Lords disagreed ([1985] AC 686, 704), see Barclays Bank plc v Coleman [2001] QB 20, 31 (Nourse LJ).
126 [2002] 2 AC 773 at [28]–[29]. See also ibid at [104], [156].
127 A-G v R [2003] UKPC 22, [2003] EMLR 24 at [24] (lifelong confidentiality agreement signed by serving
member of SAS was one which anyone who wished to serve could reasonably have been required to sign);
Turkey v Awadh [2005] EWCA Civ 382, [2005] 2 P & CR 29 at [22]–[23].
128 Archer v Hudson (1844) 7 Beav 551, 560 (Lord Langdale MR). See also Zamet v Hyman [1961] 1 WLR
1442, 1446; Re Craig [1971] Ch 95, 105; Goldsworthy v Brickell [1987] 1 Ch 378, 408–9.
129 [1900] 1 Ch 243.
130 (1807) 14 Ves Jun 273, 300. See also Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144,
155–6 (Millett LJ: independent advice ‘is neither always necessary nor always sufficient. It is not a panacea’).
 duress, undue influence, and unconscionable bargains 367

The question is, not, whether she knew what she was doing, had done, or proposed to do, but
how the intention was produced: whether all that care and providence was placed round her,
as against those, who advised her, which, from their situation and relation with respect to
her, they were bound to exert on her behalf.

But this is not the only way of rebutting the presumption. The essential thing is to
show that the transaction was ‘the result of the free exercise of independent will’.131 If
this is established, the transaction will be upheld despite the absence of independent
advice.132 On the other hand, such advice will not necessarily rebut the presumption.
There must be a full appreciation of the facts. In Tate v Williamson, for example, the
young man, T, was referred to independent solicitors, but such fair dealing in other
respects was, said Lord Chelmsford, ‘of no consequence, when once it is established
that there was a concealment of a material fact, which the defendant was bound to
disclose’.133

(d) rescission
The right to rescind contracts and to revoke gifts made under undue influence is
similar to the right to rescind contracts induced by misrepresentation. The conditions
for and bars to rescission considered in Chapter 9 above in principle apply here.134

(i) The need for restitution

If the transaction is to be set aside, the parties must be restored to their original
positions.135 Each must give back what has been received, although here too the
flexibility of equity means that the impossibility of restoring the parties precisely
to their original position will not bar the remedy.136 The Court will grant relief
whenever, by directing accounts and making allowances, it can do what is practically
just. Moreover, since it is restitution that has to be made, not damages paid,137 when
reversing a transaction under which both parties had made a financial contribution
to the acquisition of an asset from which they were both to benefit but the value of
which has fallen, if the conduct of the party presumed to have exercised influence was
not morally reprehensible, the Court may order the loss in the value of the asset to be
borne by the parties in proportion to their contributions to the purchase price.138
Another example of equity’s flexibility where complete restitution is impossible
is provided by O’Sullivan v Management Agency and Music Ltd.139 In that case a
management agreement between an inexperienced pop musician and an internationally

131 Inche Noriah v Shaik Allie Bin Omar [1929] AC 127, 135.
132 Re Brocklehurst [1978] Ch 14; A-G v R [2003] UKPC 22, [2003] EMLR 24.
133 (1866) LR 2 Ch App 55, 65.
134 There is, however, no statutory discretion to refuse rescission for undue influence and award
damages in lieu; cf Misrepresentation Act 1967, s 2(2), above, p 317. Delay may be evidence of affi rmation or
acquiescence (below, p 368) but is not generally recognized as an independent bar to rescission.
135 Dunbar Bank plc v Nadeem [1998] 3 All ER 876 (party setting aside transaction required to restore
beneficial interest in lease). 136 Cheese v Thomas [1994] 1 WLR 129. See above, pp 316–7.
137 Ibid, 135 (Nicholls V-C). 138 Ibid. See Chen-Wishart (1994) 110 LQR 173.
139 [1985] QB 428.
368 factors tending to defeat contractual liability

known firm of managers presumed to have been entered as a result of undue influence
was set aside although the parties could not be restored to their original position, inter
alia, because the musician had since achieved considerable fame. The managers were
ordered to account for the profit they had made from the agreement, but were also
held to be entitled to reasonable remuneration for their skill and work in promoting
the musician and making a significant contribution to his success. Where taking an
account of profits will not do justice, the defendant may be ordered to pay equitable
compensation to the claimant.140

(ii) Severance
A finding of undue influence normally vitiates effective consent, so that it will
rarely be possible to sever the objectional parts of the transaction leaving the parts
uncontaminated by undue influence enforceable. But, where a person’s consent can
be regarded as having been freely given in relation to part of the transaction and it is
possible to sever that part without rewriting the contract, this will be possible.141

(iii) Affirmation of transaction

The right to rescind may be lost by affirmation, and so as soon as the undue influence is
withdrawn, the action or inaction of the party influenced may constitute evidence that
he or she intended to affirm the transaction. Thus in Mitchell v Homfray142 a jury found
as a fact that a patient who had made a gift to her physician determined to abide by her
gift after the confidential relationship of physician and patient ceased, and the Court
of Appeal held that the gift could not be impeached. Also in Allcard v Skinner:143
A was introduced by her spiritual adviser and confessor to S who was the lady superior of a
Protestant community called ‘The Sisters of the Poor’. A subsequently became a professed
member of the community and bound herself to observe rules of poverty, chastity, and
obedience. The rule of poverty bound her to relinquish all earthly possessions, and the rule
of obedience not to seek the advice of anyone outside the community without permission.
In 1872 she came into possession of certain stocks, which she transferred to S as superior
of the community; she also made a will in S’s favour. In 1879, she left the sisterhood. She
immediately revoked the will, but took no steps to retrieve the property which she had
conveyed to S until some 6 years had elapsed.

It was held that, by her inactivity after she had been freed from the spiritual influence
of S, she had acquiesced in the gift, and her claim was barred by this acquiescence.144
An affirmation will not bar the right to rescind unless there is an entire cessation
of the undue influence which had brought about the contract or gift. The necessity for

140 Mahoney v Purnell [1996] 3 All ER 61. See Heydon (1997) 113 LQR 8.
141 Barclays Bank plc v Caplan [1998] 1 FLR 532. Cf Allied Irish Bank plc v Byrne [1995] 2 FLR 325 and
the position concerning rescission for misrepresentation, above, p 312. Cf also Yorkshire Bank plc v Tinsley
[2004] EWCA Civ 816, [2004] 1 WLR 2380 (undue influence rendering mortgage voidable also extends to
replacement mortgage). 142 (1881) 8 QBD 587.
143 (1887) 36 Ch D 145.
144 See also Nicholl v Ryder [2000] EMLR 632 (acquiescence based on solicitor’s knowledge which was
imputed to defendant).
 duress, undue influence, and unconscionable bargains 369

such a complete relief of the will of the injured party from the dominant influence was
stated in Moxon v Payne:145
Frauds or impositions of the kind practised in this case cannot be condoned; the right to
property acquired by such means cannot be confirmed in this Court unless there be full
knowledge of all the facts, full knowledge of the equitable rights arising out of those facts, and
an absolute release from the undue influence by means of which the frauds were practised.

The same principle is applied where someone parts with a valuable interest under
pressure of poverty and without proper advice. Acquiescence is not presumed from
delay alone; on the contrary, ‘it has always been presumed, that the same distress, which
pressed him to enter into the contract, prevented him from coming to set it aside’.146

(iv) Rights of third parties

As transactions affected by undue influence are voidable, not void, third parties who
acquire some interest in the subject-matter of the contract in good faith without
notice and for value cannot be displaced by the person seeking rescission.147 ‘Notice’
in this context includes imputed and constructive notice.148 A transaction into which
a person has been induced to enter by the exercise of undue influence may therefore be
set aside, not only as against the person exercising the influence, but also as against a
third party having notice of the fact that the compulsion or influence was used. Money
or property transferred can be recovered from such a person, and from a person who,
even though ignorant of the undue influence, has furnished no consideration: ‘Let
the hand receiving it be ever so chaste, yet, if it comes through a polluted channel, the
obligation of restitution will follow it’.149

(e) undue influence by a third party to the contract

The principles which we have discussed so far in this chapter cover the situation where
undue influence is exercised over the claimant by the other contracting party. In such
cases it is clearly right that the influenced party should have the right to rescind the
contract against the party who was responsible for the influence. If, however, it was a
third party, rather than the other contracting party, who exercised the influence it is
less clear that the contracting party should have a right to rescind. The interference
with his freedom to decide, free of undue pressure or influence, whether to enter
into the contract, is identical in both situations. However, where the source of the
influence is a third party, the other contracting party does not deserve to have his
security of contract undermined, unless he is in some way affected by the third party’s
misconduct. However, if the party who has been unduly influenced by a third party

145 (1873) LR 8 Ch App 881, 885 (James LJ). See also Re Pauling’s Settlement Trusts [1964] Ch 303;
Goldsworthy v Brickell [1987] 1 Ch 378, 410 (uncertainty whether knowledge of the right to rescission is
needed; cf above, p 314 (affirmation of right to rescind for misrepresentation); below, p 510 (affi rmation of
right to terminate for breach)).
146 Fry v Lane (1888) 40 Ch D 312, 324 (Kay J). 147 Bainbrigge v Browne (1881) 18 Ch D 188.
148 Ibid, 197 (Fry J: ‘notice of the circumstances from which the Court infers the equity [ie, the right to
rescind for undue influence]’). 149 Bridgeman v Green (1757) Wilmot 58, 65 (Wilmot J).
370 factors tending to defeat contractual liability

cannot rescind the contract, he will be left to his remedy against the third party
personally, such as if the third party’s conduct constitutes a tort.
If the third party is acting as the other contracting party’s agent, no question arises:
the influence of the agent is attributed to the principal.150 In other circumstances in
which a third party might exercise undue influence, the third party will generally
have something to gain from the contract being concluded. In recent years, largely as a
result of the change in the nature of ownership of the family home,151 many such cases
have involved one co-owner of the property (typically, the husband) putting pressure
on the other (typically, the wife) to enter into a contract with a bank to guarantee a
business loan. Such cases are not limited to married couples,152 and are not simply a
recent phenomenon.153 But there has been a very significant rise in cases involving
guarantees relating to the family home where there were claims that one partner had
unduly influenced the other to give the guarantee,154 and we have already seen that
the law takes notice of the need to protect the weaker party within married or other
emotional relationships.155

(i) Actual and constructive notice

In Royal Bank of Scotland plc v Etridge (No 2) the House of Lords gave guidance on how
to deal with cases involving third parties. Lord Nicholls156 drew a distinction between
the ‘traditional view of equity’, under which a party who is subjected to undue influence
or other misconduct by a third party will be relieved of the bargain only if the other
party knew of the third party’s conduct; and the new principle, introduced by the House
of Lords in Barclays Bank plc v O’Brien,157 under which, in certain circumstances, a
party to a contract may lose the benefit of it if he ought to have known that the other’s
concurrence had been procured by the misconduct of a third party. That is, in an
‘O’Brien’ case—a bank guarantee where the relationship between the surety (guarantor)
and the debtor is non-commercial158—constructive notice of the third party’s influence
is sufficient; in other cases, actual notice is required. This distinction does not however
appear to be sound, because although there are cases, some of which were referred to by
Lord Nicholls, where the Courts appear to have required ‘knowledge’ of a third party’s

150 Barclays Bank Plc v O’Brien [1994] 1 AC 180, 191.

151 Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 at [34].
152 Guarantors in other relationships include employees (Credit Lyonnais Bank Nederland NV v Burch
[1997] 1 All ER 144) and friends (Banco Exterior Internacionale SA v Thomas [1997] 1 WLR 221).
153 See, eg, Lancashire Loans Ltd v Black [1934] 1 KB 380 (mother influencing daughter to sign promissory
note and execute charge over property in favour of moneylender).
154 See, eg, Barclay’s Bank plc v O’Brien [1994] 1 AC 180 185–6 (Lord Browne-Wilkinson: there had been
eleven reported cases in CA in the last eight years); Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC
773 (HL heard appeals in eight separate cases). There have been many further similar cases since Etridge’s
case. Where the guarantee is voidable, a replacement guarantee will also be voidable, at least if it is taken out
a condition of discharging the earlier guarantee: Yorkshire Bank plc v Tinsley [2004] EWCA Civ 816, [2004]
1 WLR 2380 at [19].
155 Above, pp 363–4. For a sociological analysis of the law and practice relating to surety wives and
partners, see Fehlberg, Sexually Transmitted Debt (1997). 156 [2002] 2 AC 773 at [40]–[41].
157 Above, n 150. 158 Royal Bank of Scotland plc v Etridge (No 2), above, n 151 at [87].
 duress, undue influence, and unconscionable bargains 371

wrong,159 it is not clear that the Courts in using such language had intended to limit
such ‘knowledge’ to actual knowledge of the third party’s conduct.160 It is submitted
that the better view is that a party to a contract can avoid a contract for undue influence
exercised by a third party if the other contracting party knew or ought to have known
that he was entering into the contract under that influence.

(ii) Surety cases: putting the lender ‘on inquiry’

The House of Lords in Barclays Bank plc v O’Brien161 and Royal Bank of Scotland plc v
Etridge (No 2)162 defined both the circumstances in which a lender, taking a guarantee,
is to be taken to have constructive notice of the risk that the surety is acting under
undue influence from the debtor, and the steps that the lender should take in order to
minimize the risk of having the contract set aside.
The lender will have constructive notice where it knows of facts which ‘put it on
inquiry’ that there is a risk of undue influence,163 but the lender is put on inquiry by a
combination of two factors: first, that the relationship between the third-party debtor
and the surety is non-commercial; and, secondly, that the transaction is on its face not
to the financial advantage of the wife, as where she guarantees the husband’s business
debts,164 but not where there was nothing to indicate to the lender that the transaction
was anything other than a normal advance of funds to the husband and wife for their
joint benefit.165 In the case of a family company where the wife who is a guarantor has
an interest in the business, the lender will be put on notice where the security given is
out of all proportion to the interest in the company.166

(iii) Surety cases: steps the lender should take

If the guarantor (in our scenario the wife) shows that the lender was put on inquiry
of the risk of undue influence, the burden is then upon the lender to show that it took
reasonable steps to satisfy itself that her consent was properly obtained. Normally it
will be able to do so by warning the person entering the transaction, in our example
the wife, at a meeting not attended by the principal debtor, of the amount of the

159 Cobbett v Brock (1855) 20 Beav 524, 528 (fraud and undue influence); Kempson v Ashbee (1874) LR 10
Ch App 15, 21. See also Talbot v Von Boris [1911] 1 KB 854, 863 (duress); Lynde v Anglo-Italian Hemp Spinning
Co [1896] 1 Ch 178, 183 (misrepresentation).
160 Cf Bainbrigge v Brown (1881) 18 Ch D 188, 197 (which was also cited by Lord Nicholls in Etridge’s
case). See also Lancashire Loans Ltd v Black [1934] 1 KB 380, 416–7 (which is, however, in substance an
‘O’Brien’ case, although it pre-dates O’Brien’s case by 60 years).
161 Above, n 150. 162 Above, n 151.
163 The burden of proof lies on the party claiming to have been subjected to undue influence by the third
party: Barclays Bank plc v Boulter [1999] 1 WLR 1919, 1925.
164 Royal Bank of Scotland plc v Etridge (No 2), above, n 151 at [44], [46], [109]–[113], [163]–[165]. See also
Barclays Bank plc v O’Brien, above, n 150, 196.
165 CIBC Mortgages plc v Pitt [1994] 1 AC 200, 211 (advance to enable parties to purchase shares); Chater
v Mortgage Agency Services Number Two Ltd [2003] EWCA Civ 490, [2004] 1 P & CR 4 (application for loan
by mother and son living in same house, to be secured on house owned by the mother, appeared ‘perfectly
ordinary’, and bank did not know that the money was for son’s business).
166 Bank of Scotland v Bennett [1997] 1 FLR 801 (one of the cases on appeal to HL in Royal Bank of Scotland
plc v Etridge (No 2) [2002] 2 AC 773, where it was decided on a different ground); Credit Lyonnais Bank
Nederland NV v Burch [1997] 1 All ER 144. Cf Britannia Building Society v Pugh [1997] 2 FLR 7.
372 factors tending to defeat contractual liability

existing indebtedness and of the proposed new loan, of the potential liability and of
the risks involved, and advising her to take independent legal advice.167 The lender
will not, however, have to take these steps where it has a reasonable belief that legal
advice has been given to the guarantor by a lawyer acting for her who has knowledge
of the amount of the existing indebtedness and of the proposed new loan. If so, the
lender is entitled to assume that the legal adviser has carried out its professional duty
to advise the guarantor.168 Provided the legal adviser is acting for the wife, this will be
so even where the adviser is also the debtor’s lawyer, where the legal adviser has agreed
to act as the lender’s agent on completion, or where the lender instructed the legal
adviser to explain the transaction to the guarantor and to confirm that she appeared
to understand it.169 Unless the legal adviser is acting for the lender, the lender is not
fi xed with constructive notice of what the legal adviser learns in the course of advising
the guarantor since such knowledge is not acquired in the adviser’s capacity as the
lender’s lawyer.170 Where the lender is put on inquiry, it has no duty to ask about the
guarantor’s motives.

(iv) Application of the O’Brien and Etridge principles to other vitiating factors
The principles discussed in Barclays Bank plc v O’Brien and Royal Bank of Scotland
plc v Etridge (No 2) in relation to third-party wrongdoing are not limited to claims
of undue influence, but also apply to other forms of conduct which render a contract
voidable. Many of the cases involving undue influence, including O’Brien’s case itself,
have also involved misrepresentations, and so it is clear that these decisions of the
House of Lords constitute direct authority for the avoidance of a contract as a result of
a third-party misrepresentation of which the other contracting party knows or ought
to know. In an ‘O’Brien case’—a non-commercial bank guarantee—this will extend
to the lender being put on inquiry about the risk of misrepresentation. The discussion
in Etridge’s case is also sufficiently wide to cover duress, and in principle a party to a
contract who is subjected to duress by a third party can avoid the contract if, but only
if, the other party knows or ought to know of it.171

4. unconscionable bargains
There is another class of cases in which equity also throws the burden of justifying the
fairness of a bargain on the party who claims the benefit of it. Lord Selborne describes
these cases in Earl of Aylesford v Morris172 as cases:

167 Barclays Bank plc v O’Brien, above, n 150, 196. See also Credit Lyonnais Bank Nederland NV v Burch,
above, n 166. 168 Royal Bank of Scotland plc v Etridge (No 2), above, n 151 at [56] [114], [171].
169 Ibid at [69]–[74], [115], [173]–[174]. See also Banco Exterior Internacional SA v Thomas [1997] 1 WLR
221; National Westminster Bank plc v Beaton (1997) 30 HLR 99.
170 Ibid at [77], [115], [180]. See also Halifax Mortgage Services Ltd v Stepsky [1996] Ch 207.
171 eg Royal Bank of Scotland plc v Etridge (No 2), above, n 151 at [40] (Lord Nicholls: ‘misconduct of a
third party’). For an example, see Talbot v Von Boris [1911] 1 KB 854.
172 (1873) LR 8 Ch App 484, 490. See also Hart v O’Connor [1985] AC 1000, 1024.
 duress, undue influence, and unconscionable bargains 373

which, according to the language of Lord Hardwicke,173 raise, ‘from the circumstances or
conditions of the parties contracting—weakness on one side, usury on the other, or extortion,
or advantage taken of that weakness’—a presumption of fraud. Fraud does not here mean
deceit or circumvention, it means an unconscientious use of the power arising out of these
circumstances and conditions; and when the relative position of the parties is such as prima
facie to raise this presumption, the transaction cannot stand unless the person claiming the
benefit of it is able to repel the presumption by contrary evidence, proving it to have been in
point of fact fair, just, and reasonable.

Thus although equity will not normally intervene to protect a contracting party
against the consequences of his or her own folly, some protection is offered to poor
and ignorant persons who are overreached in the absence of independent advice. Th is
ground of relief differs from undue influence in that it is concerned with ‘the nature
and circumstances of the bargain’ whereas undue influence is concerned ‘with the
prior relationship between the parties and with whether that was the motivation or
reason for which the bargain was entered into’.174
A particular case of the application of this principle was the protection given by
equity to ‘expectant heirs’, that is, to those persons who have expectations (in the
popular sense) of succeeding to property on the death of another.175 But this is just one
illustration, and the principle also applies generally to what have been called ‘catching
bargains’, that is to say, whenever the parties ‘meet under such circumstances as, in the
particular transaction, to give the stronger party dominion over the weaker’.176
In ordinary cases each party to a bargain must take care of his own interest, and it will not be
presumed that undue advantage or contrivance has been resorted to on either side; but in the
case of the ‘expectant heir’, or of persons under pressure without adequate protection, and in
the case of dealings with uneducated ignorant persons, the burden of shewing the fairness of
the transaction is thrown on the person who seeks to obtain the benefit of the contract.177

Thus in Fry v Lane178 it was held that when a purchase had been made from a poor and
ignorant man at a considerable undervalue, the vendor having had no independent
advice, equity would set aside the transaction. At common law, the nearest analogue is
to be found in the cases on salvage, mentioned above,179 in which extortionate bargains
made to rescue ships in distress have been set aside.
The cases suggest that three elements are necessary if the Court is to intervene.180
First, one party must be at a serious disadvantage to the other through, for example
poverty, ignorance or lack of advice. Secondly, this weakness must be exploited by the

173 Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125, 157.

174 Irvani v Irvani [2000] 1 Lloyd’s Rep 412, 424 (Buxton LJ).
175 By the Law of Property Act 1925, s 174, a bargain with an expectant heir, made in good faith, and
without unfair dealing, is not to be set aside merely on the ground of undervalue. But the jurisdiction of the
Court to set aside or modify unconscionable bargains is not affected.
176 Earl of Aylesford v Morris (1873) LR 8 Ch App 484, 491 (Lord Selborne LC).
177 O’Rorke v Bolingbroke (1877) 2 App Cas 814, 823 (Lord Hatherley).
178 (1888) 40 Ch D 312. See also Cresswell v Potter [1978] 1 WLR 255n; Boustany v Pigott (1993) 69 P &
CR 298. 179 Above, p 357.
180 Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1983] 1 WLR 87, 94–5 (Peter Millett QC). Th is
aspect of his judgment was not varied by the Court of Appeal: see [1985] 1 WLR 173, 182–3.
374 factors tending to defeat contractual liability

other party in some morally culpable manner; and thirdly, the resulting transaction
must be, not merely harsh or improvident, but overreaching and oppressive. The last
requirement means that, in the case of a sale by the disadvantaged party, the sale must
not merely be at an undervalue, but at a substantial undervalue which ‘shocks the
conscience of the court’.181 And the second requirement means that a gross disparity
in the price does not alone suffice, however serious the disadvantage of the weaker
party. In Hart v O’Connor182 it was held by the Judicial Committee of the Privy Council
that a contract made with a person who, although apparently of full capacity was
mentally disordered, could not be set aside as unconscionable unless the other party
was aware of the mental disorder at the time the contract was made. More recently,
in Portman Building Society v Dusangh183 the Court of Appeal held that a mortgage
entered into by the 72-year-old defendant, who had a low income, was illiterate and
whose understanding of spoken English was poor, where the purpose of the mortgage
was to raise money to assist the defendant’s son in a business, could not be set
aside because ‘the building society did not act in a morally reprehensible manner.
The transaction, although improvident, was not “overreaching and oppressive”. In
short, the conscience of the court is not shocked’.184 So, for relief to be granted, both
procedural and substantive unconscionability must be shown.
Although there have been expressions of support for a wider role for this doctrine,185
particularly by giving a broad meaning to the elements of the doctrine,186 there has
been no fundamental change. The fact that procedural unconscionability must be
present means that there will often be an overlap with the doctrines of duress and
undue influence, and some cases which would perhaps have been best regarded as
cases of unconscionability have been treated as cases of duress or undue influence.187
This is in contrast to the position in other common law jurisdictions, particularly
Australia and the USA, where a general doctrine of unconscionability has been
developed.188

181 Ibid. 182 [1985] AC 1000, 1018 (there must be ‘unconscionable dealing’).
183 [2000] 2 All ER (Comm) 221.
184 Ibid, 229 (Simon Brown LJ). The son did not exert undue influence over the father, and therefore the
principles set out in Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773, above, p 370, did not apply.
185 See, eg, A Schroeder Music Publishing Ltd v Macaulay [1974] 1 WLR 1308, 1315 (Lord Diplock), below,
p 412; Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 WLR 173. See also the cases on penalties
and forfeiture, below, pp 565–71. See Waddams (1976) 39 MLR 369; Bamforth [1995] LMCLQ 538; and for
criticism, Trebilcock (1976) 26 U of Tor LJ 359.
186 Cresswell v Potter [1978] 1 WLR 255n, 257 (Megarry J: ‘the euphemisms of the 20th century may
require the word “poor” to be replaced by “a member of the lower income group” or the like, and the word
“ignorant” by “less highly educated” ’); Backhouse v Backhouse [1978] 1 WLR 243; Watkin v Watson-Smith,
The Times, 3 July 1986 (elderly man, incapacitated in judgment and desirous of a quick sale). Cf, however,
Portman Building Society v Dusangh, above.
187 Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 (undue influence, but see Chen-
Wishart [1997] CLJ 60); CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714, 720 (Sir Donald Nicholls
V-C) (and see Carter and Tolhurst [1996] 9 JCL 220).
188 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Louth v Diprose (1992) 175 CLR
621; Garcia v National Australia Bank Ltd (1998) 194 CLR 395 (Australia); Uniform Commercial Code para
2–302 (USA); Paris v Machnik (1972) 32 DLR (3d) 723 (Canada).
 duress, undue influence, and unconscionable bargains 375

5. inequality of bargaining power?

The intervention of common law and equity in all these cases of coercion, undue
influence, and unconscionable bargains, and also in certain other cases such as unfair
salvage agreements,189 has been stated by Lord Denning MR190 to be grounded upon the
same general principle: that of ‘inequality of bargaining power’. In Lloyds Bank Ltd v
Bundy:191
B, an elderly farmer, and his only son, had been customers of the bank for many years. The son
founded a company which banked at the same bank. In 1966, B guaranteed the company’s
overdraft for £1,500 and charged his farm to the bank to secure that sum. Subsequently
the overdraft was increased and the bank sought further security. In May 1969, B, having
taken legal advice, signed a further guarantee in favour of the bank for £5,000 and a further
charge for £6,000. In December 1969, the bank manager visited B and indicated to him
that continuance of the company’s overdraft facility was dependent upon B executing in
favour of the bank a further guarantee for £11,000 and a further charge for £3,500. The bank
manager did not advise B to seek independent advice, and B signed the required guarantee
and charge without such advice.

The Court of Appeal held that this last guarantee and charge should be set aside for
undue influence, since a special relationship of confidence existed between B and the
bank in the particular circumstances of the case. But Lord Denning MR also considered
that the guarantee and charge were voidable on the larger ground of inequality of
bargaining power:192
There are cases in our books in which the courts will set aside a contract, or a transfer of
property, where the parties have not met on equal terms—when the one is so strong in
bargaining power and the other so weak—that, as a matter of common fairness, it is not
right that the strong should be allowed to push the weak to the wall.

His Lordship nevertheless pointed out that no bargain should be upset which was the
result of the ordinary interplay of economic forces, but only ‘where there has been
inequality of bargaining power, such as to merit the intervention of the court’. He went
on to state his principle in the following terms:193
English law gives relief to one who, without independent advice, enters into a contract
upon terms which are very unfair or transfers property for a consideration which is grossly
inadequate, when his bargaining power is grievously impaired by reason of his own needs
or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures
brought to bear on him by or for the benefit of the other.

When stated in these terms as a detailed test, however, such a general principle goes
too far.194 It appears to require both substantive unfairness (‘terms which are very

189 Above, p 357. 190 Lloyds Bank Ltd v Bundy [1975] QB 326, 339. 191 Ibid.
192 Ibid, 336–7. See also Clifford Davis Management Ltd v WEA Records Ltd [1975] 1 WLR 61, 64–5; Arrale
v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98, 102; Backhouse v Backhouse [1978] 1 WLR 243, 252.
Cf Alec Lobb (Garages) Ltd v Total Oil Great Britain Ltd [1985] 1 WLR 173, 181–3, 188–9.
193 Ibid, 339. 194 Cartwright, Unequal Bargaining (1991) 216–19.
376 factors tending to defeat contractual liability

unfair’) and procedural unfairness (‘undue influences or pressures’), whereas we have

seen that duress and actual undue influence require only procedural impropriety;195
and the role of substantive unfairness in ‘presumed’ undue influence is to throw onto
the stronger party an evidential burden of justifying the contract, precisely where
there is no actual evidence of undue influence or pressure.196
Moreover, Lord Denning’s principle has not been accepted by the English Courts,
which have generally regarded it as involving undue uncertainty. Indeed, on two
occasions Lord Scarman has spoken emphatically against it. In National Westminster
Bank plc v Morgan,197 he questioned the need for such a general principle on the basis,
first, that the doctrine of undue influence was adequate to deal with cases in which
remedies are required and, secondly, that the task of restricting freedom of contract
was essentially a legislative rather than a judicial task, and one that Parliament has
undertaken in legislation protecting, for example, consumers, employees, tenants, and
investors.198 And in Pao On v Lau Yiu Long,199 giving the opinion of the Privy Council,
Lord Scarman rejected the idea that English law should adopt a general rule of public
policy to the effect that contracts entered into following the unfair use of a dominant
bargaining position are void, on this occasion emphasizing that the doctrine of duress
was adequate to deal with cases which called for remedy,200 and that such a rule would
be uncertain and would undermine contractual negotiations between commercial
parties:
where businessmen are negotiating at arm’s length it is unnecessary for the achievement
of justice, and unhelpful in the development of the law, to invoke such a rule of public
policy . . . It is unnecessary because justice requires that men, who have negotiated at arm’s
length, be held to their bargains unless it can be shown that their consent was vitiated by
fraud, mistake or duress . . .
Such a rule of public policy as is now being considered would be unhelpful because it
would render the law uncertain. It would become a question of fact and degree to determine
in each case whether there had been, short of duress, an unfair use of a strong bargaining
position.

At present, therefore, a contract can be avoided only if the elements of one of the
established categories of vitiation can be shown: duress, undue influence, or the rather
limited doctrine of unconscionable bargains. Development of the law in this area
has rested on two distinct approaches. Rather than generalize a single common law
doctrine of inequality of bargaining, the Courts have preferred to develop each of

195 Above, pp 349, 361. 196 Above, p 362.

197 [1985] AC 686, 708. See also Horry v Tate & Lyle Refineries Ltd [1982] 2 Lloyd’s Rep 416, 423.
198 He cited as examples Supply of Goods (Implied Terms) Act 1973, Consumer Credit Act 1974,
Consumer Safety Act 1978, Supply of Goods and Services Act 1982 and Insurance Companies Act 1982. See
now Consumer Protection Act 1978 (repealing Consumer Safety Act 1978), Financial Services and Markets
Act 2000 (repealing Insurance Companies Act 1982), Consumer Credit Act 2006, ss 19–21 (replacing
Consumer Credit Act 1974, ss 137–140). The most general provisions are contained in the Unfair Terms in
Consumer Contracts Regulations 1999 (SI 1999 No 2083), above, p 206 ff; and Consumer Protection from
Unfair Trading Regulations 2008 (SI 2008 No 1277), below. See also above, pp 5–6.
199 [1980] AC 614, 634.
200 Pao On is one of the cases which recognized the recent expansion of the doctrine of duress to cover
economic duress: above, p 353.
 duress, undue influence, and unconscionable bargains 377

the separate doctrines, such as the significant development in the law of duress to
cover economic duress.201 In other respects, the development of protection of weaker
contracting parties has been left to statutory intervention, particularly in the field of
consumer contracts, often in response to European Directives, the most significant of
which has been the Unfair Terms in Consumer Contracts Regulations 1999.202 Of even
wider significance could be the Consumer Protection from Unfair Trading Regulations
2008, 203 which prohibit a range of misleading acts (including misrepresentations),
omissions (including non-disclosure) and aggressive commercial practices (including
harassment, coercion, and undue influence204).
However, an agreement is not void or unenforceable by reason only of a breach of
the Regulations,205 although the Government is contemplating introducing a private
right of redress for consumers who have suffered from unfair commercial practices.206
Whether the Courts might yet be willing themselves to take the step of unifying the
doctrine of duress, undue influence, and unconscionable bargains, as Lord Denning
sought to do, remains uncertain. We have noted elsewhere that there are examples
of statutory regimes, which express a policy from which a principle can be derived,
being used analogically in developing the common law.207 This has not, however, yet
occurred in the context of duress, undue influence and unconscionable bargains. But
in Timeload Ltd v British Telecommunications plc208 Sir Thomas Bingham MR said,
in relation to section 3 of the Unfair Contract Terms Act 1977, that it was arguable
that ‘the common law could, if the letter of the statute does not apply, treat the clear
intention of the legislature expressed in the statute as a platform for invalidating or
restricting the operation of an oppressive clause’.

201 Above, p 353.

202 Above, p 206 ff. Also of importance are ss 140A–140D of the Consumer Credit Act 1974 (inserted
by Consumer Credit Act 2006, ss 19–21), which protect against the claimant’s need for credit by giving the
Court a wide range of remedies to undo credit agreements where the relationship between the creditor and
the debtor is unfair to the debtor.
203 SI 2008 No 1277, implementing Directive 2005/29/EC on Unfair Commercial Practices.
204 ‘Undue influence’ is defi ned in reg 7(3) as ‘exploiting a position of power in relation to the consumer
so as to apply pressure, even without using or threatening to use physical force, in a way which significantly
limits the consumer’s ability to make an informed decision’.
205 2008 Regulations, reg 29.
206 See Law Commission Preliminary Advice, A private right of redress for unfair commercial practices
(2008); Collins (2010) 75 MLR 89, 113–17.
207 Above, pp 346–7; see Beatson (2001) 117 LQR 247. See also Collins (2010) 75 MLR 89, 113–14 for
discussion of whether the Courts might develop the common law in directions that harmonize the rules
regarding the invalidity of contracts in the laws of misrepresentation, duress, and undue influence with the
prohibitions contained in the Consumer Protection from Unfair Trading Regulations 2008.
208 (1995) 3 EMLR 459, 468.
This page intentionally left blank
 11
ILLEGALITY
1. introduction
Public policy imposes certain limitations upon the freedom of persons to contract. An
ostensibly valid contract may be tainted by illegality.1 The source of the illegality may
arise by statute or by virtue of the principles of common law. In some instances the
law prohibits the agreement itself, and the contract is then by its very nature illegal but
in the majority of cases the illegality lies in the object which one or both parties have
in mind or in the method of performance. As a general rule, although all the other
requirements for the formation of an agreement are complied with, an agreement that
is illegal in one of these ways will not be enforceable.
The subject of illegality is one of great complexity and the effects of illegality
are by no means uniform. Th is is because the seriousness of the illegality varies.
Illegal objects may range from those tainted with gross moral turpitude, eg murder,
to those where the harm to be avoided is relatively small, eg breach of licensing
requirements or cases in which a person commits an unlawful act in order to escape
danger to his or her life or the life of a third party.2 It is not surprising, therefore,
that there are differences in the attitude of the judges to those who have an illegal
object in view or are parties to an illegal transaction. Attempts have been made to
distinguish between ‘illegal’ contracts and those which are ‘nugatory’ or ‘void’. In
the former case, it is said that the law will refuse to aid in any way a person whose
cause of action is founded upon such a contract; in the latter case, the law simply says
that the contract is not to have legal effect. While some contracts can be classified in
this way, it is both impracticable and impossible to apply this classification over the
whole field of the subject. Moreover, confusion is created by the fact that the judges
have on many occasions treated the terms as interchangeable. It seems better to use
the single word ‘illegality’ to cover the multitude of instances where the law, for
some reason of public policy or as a result of a statutory prohibition, denies to one or
both of the parties the rights under the contract to which he or she would otherwise
be entitled.

1 Th is chapter is concerned with initial illegality and illegality in performance and not with supervening
illegality which is dealt with in Chapter 14, Discharge by Frustration.
2 Howard v Shirlstar Container Transport Ltd [1990] 1 WLR 1292.
380 factors tending to defeat contractual liability

2. statutory illegality
This section deals with general principles. The statutory control of anti-competitive
agreements is dealt with in section 4 below.

(a) express prohibition: contract illegal

The nature and effects of statutory illegality may vary considerably. A statute may
declare that a certain type of contract is expressly prohibited. There is then no doubt
of the intention of the legislature that such a contract should not be enforced. ‘What
is done in contravention of the provisions of an Act of Parliament cannot be made the
subject-matter of an action.’3 Thus, in Re Mahmoud and Ispahani:4
A wartime statutory order prohibited the purchase or sale of linseed oil without a licence
from the Food Controller. M held a licence to sell to other licensed dealers. I falsely assured
him that he had a licence and M agreed to sell a quantity of linseed oil to I. I later refused
to accept the oil on the ground that he had no licence. M brought an action for damages for
non-acceptance.

The Court of Appeal rejected M’s claim even though he was ignorant, at the time the
contract was made, of the facts which brought it within the statutory prohibition. ‘The
Order’, said Bankes LJ,5 ‘is a clear and unequivocal declaration by the Legislature in
the public interest that this particular kind of contract shall not be entered into’.

(b) implied prohibition: contract illegal

The position is the same where the contract is impliedly prohibited by statute. The
statute is to be construed in the ordinary way. The Courts must determine whether the
statutory words, construed in context including the purpose of the statute, prohibit
and penalize only the prescribed conduct or whether they additionally prohibit the
contract.6 If, for example, the purpose of the statute is to protect the public from
injury or fraud the inference is likely to be that contracts made in contravention of its
provisions are prohibited.7 Again,
if a contract has as its whole object the doing of the very act which the statute prohibits, it can
be argued that you can hardly make sense of a statute which forbids an act and yet permits
to be made a contract to do it.8

3 Langton v Hughes (1813) 1 M & S 593, 596 (Lord Ellenborough CJ).

4 [1921] 2 KB 716. See also Chai Sau Yin v Liew Kwee Sam [1962] AC 304; Wilson, Smithett & Cope Ltd v
Terruzzi [1976] QB 683; Hughes v Kingston upon Hull CC [1999] QB 1193. 5 Ibid, 724.
6 St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267, 283, 287. See generally Buckley (1975) 38 MLR
535. 7 Anderson v Daniel [1924] 1 KB 138.
8 St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267, 288 (Devlin J); Mohamed v Alaga & Co [2000]
1 WLR 1815, 1824.
 illegality 381

But, in the absence of a clear implication, the following pages show that Courts are
cautious in construing a statute in this way in part because ‘so much of commercial
life is governed by regulations of one sort or another; which may easily be broken
without wicked intent’.9 Thus, the fact that the purpose of a statute is to limit the scope
of companies’ commercial activities does not mean that every contract entered into
in a prohibited sphere should be invalidated.10 The absence of a criminal sanction and
the presence of a wide array of regulatory remedies indicate that such contracts are
not prohibited.11

(c) illegal performance

Statutory illegality may also arise in connection with the performance of a contract
which is not in itself illegal. The method of performance adopted by one of the parties
may violate some statutory prohibition, for example, the vendor of goods may deliver
them to a purchaser without the required statutory invoice.12 In such a situation
the party in default will not be able to enforce any claim based on its own illegal
performance. But since such a contract is lawful in its inception, notwithstanding that
it has been performed in an unlawful manner, there is no reason why the other party,
if innocent, should not be able to sue. The innocent party does not have to rely on the
illegal performance in order to establish a cause of action. Thus in Marles v Philip
Trant & Sons Ltd:13
PT, a fi rm of seed merchants, bought a quantity of wheat described as ‘spring wheat’
from a third party. It sold this wheat to various farmers, including M, but the wheat
was found not to be spring wheat and the crops failed. M claimed damages from PT for
breach of warranty. PT, as it was entitled to do, brought in the third party to the action,
claiming from him an indemnity in respect of M’s claim, and damages. The third party,
however, raised the defence that PT had not, at the time of the sale, delivered to M certain
particulars in writing as required by section 1(1) of the Seeds Act 1920. He contended that
he was not bound to indemnify PT, as he could not be made liable on a contract which
was illegal.

A majority of the Court of Appeal held that the contract between PT and M was
not illegal from the beginning, but was only rendered illegal later by the method of
performance which did not comply with the statutory requirements. M could recover
damages for breach of warranty from PT, since the warranty was given on the lawful
stage of the agreement. The third party’s contention that he was not liable to compensate
PT in respect of its liability under this head therefore failed.14

9
Ibid. See also Shaw v Groom [1970] 2 QB 504, 522.
10 Fuji Finance Inc v Aetna Life Insurance Co Ltd [1997] Ch 173, 193–4. 11 Ibid.
12 Anderson Ltd v Daniel [1924] 1 KB 138.
13 [1954] 1 QB 29. See also Archbolds (Freightage) Ltd v Spanglett Ltd [1961] 1 QB 374, below, p 419.
14 Singleton and Denning LJJ. Hodson LJ, dissenting, stated (at 42) that the defendants ‘cannot rely upon
the breach of warranty by a third party to prove their damages when those damages are to be measured by
reference to a contract illegally performed by them’.
382 factors tending to defeat contractual liability

On the other hand, if the other party participates in, or assents to, the illegal
performance, it will likewise be unable to sue. In Ashmore, Benson, Pease & Co Ltd v
AV Dawson Ltd:15

The defendant, a road haulage company, contracted with ABP to carry two 25-ton tube
banks to a port. ABP’s transport manager and his assistant watched the tube banks being
loaded onto two lorries whose lawful maximum load was 20 tons. ABP sued the defendant
in respect of damage to one of the tubes when the lorry carrying it toppled over.

The Court of Appeal found that ABP’s manager must have realized that the lorries
were overloaded, and that he had participated in the defendants’ illegal performance
of the contract by sanctioning the loading of the two vehicles with a load in excess of
the statutory maximum. ABP’s claim therefore failed.

(d) statute only imposes a penalty

Although the fact that a statutory offence has been committed in the course of
performance of a contract may render the contract unenforceable, it will not necessarily
have this effect.16 For the law to prescribe that the commission of any unlawful act
in the course of performing a contract should inevitably deprive the wrongdoer of
all contractual remedies might well inflict on the wrongdoer a loss far in excess of
the statutory penalty. This would be unreasonable. For example, a road haulier might
be unable to claim freight simply on the ground that the driver of the vehicle had
exceeded the speed limit or the permitted driving hours or on the ground that the
vehicle did not have the appropriate licence.17 It is therefore necessary, in all cases
of statutory illegality to have regard to the statutory language and to its scope and
purpose. Was the statute intended to interfere with the contract under consideration,
to render it unenforceable at the suit of a party who performs it illegally, or merely
to impose a penalty on the offender?18 Where the purpose of the statute is simply to
impose a penalty, even the ‘guilty’ party can sue. Thus in St John Shipping Corporation
v Joseph Rank Ltd:19
St J, shipowners, contracted to carry a load of grain but overloaded the ship contrary to
the Merchant Shipping (Safety and Load Line Conventions) Act 1932. The master was
prosecuted and fi ned for this offence. JR, the consignee of part of the cargo, withheld
a proportion of the freight due, ie a sum equivalent to the freight on the excess cargo
carried.

Devlin J held that JR was not entitled to do so. The Act did not render unlawful the
contract of carriage, but merely imposed a penalty in respect of its infringement.

15 [1973] 1 WLR 828. 16 Sometimes the statute is explicit: below, p 383, n 28.
17 See the facts of Archbolds (Freightage) Ltd v Spanglett Ltd [1961] 1 QB 374, 385, 390, below, p 419.
18 Hughes v Asset Managers plc [1995] 3 All ER 669, 673–4, ‘applauded’ by the Law Commission in
Consultation Paper No 189, The Illegality Defence: A Consultative Report (2009), para 3.101; Nelson v Nelson
(1995) 132 ALR 133 (High Court of Australia), below, p 431.
19 [1957] 1 QB 267. See also Cope v Rowlands (1836) 2 M & W 149.
 illegality 383

Similarly, a landlord who fails to provide a tenant with a proper rent-book is exposed
to a criminal penalty, but is not precluded from recovering the rent.20

(e) void contracts

A statute may also declare a contract, or a particular kind of term, to be void, that is,
a nullity, and may also prescribe the consequences of the contract or the term being
void. Statutory provisions of this nature are numerous and are often (but by no means
invariably)21 connected with a failure to register the agreement22 or to comply with
certain requirements of form.23 A party to such a contract cannot enforce it, but may
be able to recover money or property transferred under it,24 provided that this is not
precluded by the express words of the statute25 or by judicial interpretation.26

(f) contract unenforceable by one party

Frequently, a statute will in express terms or on its true construction render a contract
unenforceable only by the party whose duty it is to observe the statutory requirement.
In such a case, if that party contravenes the provisions of the statute, the contract will
be unenforceable by him or her but may be enforced by the other party.27

(g) contract not void or unenforceable

Finally, where a contract is not directly contrary to the provisions of a statute by reason
of any express or implied prohibition or even where the statute expressly states that
a breach of its prohibition does not render any contract void or unenforceable,28 the
Court may still refuse to enforce the contract because this could lead to the Court

20 Shaw v Groom [1970] 2 QB 504.

21 See, eg, Gaming Act 1845, s 18 (contracts of ‘gaming or wagering’ null and void; repealed by Gambling
Act 2005 under which the fact that a contract relating to gambling does not prevent its enforcement unless
it is otherwise illegal: s 335(1) (2)); Marine Insurance Act 1906, s 4(1) (every contract of marine insurance by
way of gaming or wagering is void: this is unchanged by Gambling Act 2005); Sex Discrimination Act 1975,
s 77 and Race Relations Act 1976, s 72 (certain kinds of contract terms are void; a term that is unlawfully
discriminatory is not void, but is only unenforceable against the victim of the discrimination).
22 Bills of Sale Act 1878, s 8; Companies Act 2006, s 874 (unregistered company charge is void, but
without prejudice to contract for repayment of money secured by the charge which becomes immediately
repayable).
23 Bills of Sale Act (1878) Amendment Act 1882, s 9 (bill of sale void if not in required form); Marine
Insurance Act 1906, s 22 (marine insurance inadmissible in evidence if not embodied in a marine policy);
see above, p 79.
24 North Central Wagon Finance Co Ltd v Brailsford [1962] 1 WLR 1288 (bill of sale).
25 Th is was the position under Gaming Act 1845, s 18, above, n 21.
26 See, eg, Life Assurance Act 1774, s 1; Harse v Pearl Life Assurance Co [1904] 1 KB 558. See below, p 423.
27 Cope v Rowlands (1836) 2 M & W 149; Victorian Daylesford Syndicate Ltd v Dott [1905] 2 Ch 624;
Consumer Credit Act 1974, s 40 (substituted by Consumer Credit Act 2006, s 26); Sex Discrimination Act
1975, s 77; Race Relations Act 1976, s 72; Financial Services and Markets Act 2000, ss 26, 27. See Group Josi Re
v Walbrook Insurance Co Ltd [1996] 1 WLR 1152 on the similarly worded Financial Services Act 1986, s 132.
28 See, eg, Trade Descriptions Act 1968, s 35; Business Protection from Misleading Marketing Regulations
2008 (SI 2008 No 1276) reg 29; Consumer Protection from Unfair Trading Regulations 2008 (SI 2008 No
1277) reg 29.
384 factors tending to defeat contractual liability

assisting in something illegal or because the contract is associated with or furthers

an illegal purpose.29 This, however, is a question of illegality at common law, which is
considered in Part 3 of this chapter.

3. illegality at common law

There are a number of situations where the policy of the common law means that a
contract cannot be enforced even though it is not expressly or impliedly prohibited by
statute. The origins of the concept of the policy of the law, or public policy, are ancient
and obscure. By the beginning of the nineteenth century the lack of definition and
consequent uncertainty of the concept led to judicial statements against the extension of
public policy which was described as ‘a very unruly horse’.30 The view was also expressed
that it was not the function of the Courts to create new law, but to interpret and elucidate
existing principles,31 and that there was a public interest in upholding freedom of
contract. The effect of the nineteenth-century emphasis on freedom of contract was
reluctance to interfere with a contract on the ground of public policy.32 It is in reconciling
this freedom of contract with other public interests that the difficulty arises.
By the second half of the twentieth century, however, the positive function of the
Courts in matters of public policy was increasingly recognized. As Lord Denning MR
has said: ‘With a good man in the saddle, the unruly horse can be kept in control. It
can jump over obstacles’.33 Moreover, some flexibility is clearly desirable in matters
of public policy which cannot remain immutable.34 Certain aspects of public policy
are more susceptible to change than others, though the policy of the law has, on some
subjects, been worked into a set of tolerably definite rules. The principles applicable
to agreements in restraint of trade, for example, have on a number of occasions been
modified or extended to accord with prevailing economic conditions,35 and this
process still continues. 36 So too the principles applicable to transactions between
cohabiting couples have been modified to accord with prevailing social conditions,37
as have those concerning the financing of litigation. 38 For the rest, the application of
canons of public policy to particular instances necessarily varies with the progressive
development of public opinion and morality, but like any other branch of the common
law is governed by the judicial use of precedents.39

29 See Chase Manhattan Equities Ltd v Goodman [1991] BCLC 897, 931–4, and below, p 416; Nelson v
Nelson (1995) 132 ALR 133, 143, 178 (High Court of Australia). See also Gambling Act 2005, s 335 (gambling
contract not unenforceable, but without prejudice to unenforceability for unlawfulness other than a rule
relating specifically to gambling).
30 Richardson v Mellish (1824) 2 Bing 229, 252 (Burrough J).
31 Re Mirams [1891] 1 QB 594, 595; Mogul Steamship Co v McGregor, Gow & Co [1892] AC 25, 45.
32 Above, pp 4, 16–17, and see especially Printing and Numerical Registering Co v Sampson (1875) LR 19
Eq 462, 465 (Jessel MR). 33 Enderby Town FC Ltd v Football Association Ltd [1971] Ch 591, 606.
34 Nagle v Feilden [1966] 2 QB 633, 650 (Danckwerts LJ). 35 See below, p 398.
36 See below, pp 398, 411. 37 Below, p 393.
38 Thai Trading Co v Taylor [1998] QB 781, below, p 392.
39 Lord Wright, Legal Essays and Addresses (1939) 76, 78.
 illegality 385

Contracts which the Courts will not enforce because they are contrary to public
policy may be arranged under certain heads.

(a)agreements to commit a crime or civil wrong, or to

perpetrate a fraud
(i) Agreements to commit a crime
The Courts will not enforce an agreement which has as its object the deliberate
commission of a criminal offence (whether by statute or at common law),40 although
the fact that an offence is committed in the course of an otherwise legal agreement will
not necessarily render the contract unlawful.41

(ii) Agreement to commit a civil wrong or fraud

The Courts will not enforce an agreement to commit a tort. An agreement to commit
an assault has therefore been held to be void, as in Allen v Rescous,42 where one of
the parties undertook to beat up someone. So too has an agreement involving the
publication of a libel,43 or deceit,44 or the perpetration of a fraud.45 In Mallalieu v
Hodgson46 a secret agreement by which a debtor agreed to pay M part of his debt in
full, when the debtor had agreed to pay all his other creditors was held to be a fraud
on the other creditors, each of whom had promised to forgo a portion of his debt
in consideration that the others would forgo a similar proportion of their debts. The
agreement to prefer one creditor was unenforceable.47 Similarly, an agreement by the
promoters of a company to defraud prospective shareholders,48 or to rig the market for
shares,49 has been held to be fraudulent and unenforceable.

(iii) Agreements to defraud the revenue

One of the most common types of illegal agreement is one to defraud the revenue,
whether that of the central or local government. In Alexander v Rayson:50
A let a flat in Piccadilly to R at a rent of £1,200 a year. The transaction was effected by two
documents: (1) a lease of the flat at a rent of £450 a year, covering certain services to be
rendered by the lessor A, and (2) an agreement to render services (which were substantially
the same) in consideration of an extra £750 a year. A dispute having arisen, R declined to pay
an instalment due under the agreement. When sued by A, R pleaded that the object of the

40 See, eg Levy v Yates (1838) 8 A & E 129; Bigos v Bousted [1951] 1 All ER 92, below, p 425); Tinsley v
Milligan [1994] 1 AC 340. 41 See above, p 381.
42 (1677) 2 Lev 174. 43 Clay v Yates (1856) 1 H & N 73.
44 Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621.
45 Willis v Baldwin (1780) 2 Doug KB 450. 46 (1851) 16 QB 689.
47 Ibid, 711 (Erle J) (‘altogether void’). See also Insolvency Act 1986, ss 339–40.
48 Begbie v Phosphate Sewage Co Ltd (1876) 1 QBD 679.
49 Scott v Brown, Doering, McNab & Co [1892] 2 QB 724.
50 [1936] 1 KB 169; see also Miller v Karlinski (1945) 62 TLR 85; Napier v National Business Agency Ltd
[1951] 2 All ER 264; Corby v Morrison [1980] IRLR 218; Tinsley v Milligan [1994] 1 AC 340, below, p 430
(social security authorities). Cf 21st Century Logistic Solutions Ltd v Madysen Ltd [2004] EWHC 231 (QB),
[2004] 2 Lloyd’s Rep 92 (contract not unenforceable where claimant’s illegal intention is to remote from the
contract).
386 factors tending to defeat contractual liability

two documents was that only the lease was to be disclosed to the local authority in order to
deceive them as to the true rateable value of the premises.

The Court of Appeal held that, if the documents were to be used for this fraudulent
purpose, A was not entitled to the assistance of the law in enforcing either the lease or
the agreement.

(iv) Contracts of indemnity

A contract of indemnity which would enable persons to commit crimes or torts with
impunity is enforceable. Although it has been held that a motorist may recover under
a policy of insurance against third party risks even if the motorist’s own gross or
criminal negligence caused the loss,51 an assured cannot claim indemnity against the
consequences of an intentional wrongful act.52 In Geismar v Sun Alliance and London
Insurance Ltd, 53 for example:
G had brought into the United Kingdom certain jewellery which he failed to declare to
the customs and on which he failed to pay customs duty. He claimed indemnity from the
defendant insurers for the loss through theft at his home of the uncustomed jewellery.

It was held that G could not enforce the contract of indemnity. And shipowners, who
had been promised an indemnity by a shipper of cargo if they would issue false bills of
lading, were unable to enforce the promise as it was one to indemnify them against the
consequences of the tort of deceit.54

(b) agreements which injure the state in its relations

with other states
(i) Contracts with an alien enemy
Contracts with alien enemies are illegal in time of war and it is unlawful to enter
into or to perform such a contract, even one made before war broke out.55 Further,
a contract which expressly provides for the suspension of all rights and obligations
arising under it during a war may yet be held to be void on grounds of public policy as
tending, merely by its continued existence, to promote the economic interests of the
enemy state or to prejudice those of the United Kingdom.56

51 Tinline v White Cross Insurance Co Ltd [1921] 3 KB 327. See also Hardy v Motor Insurers’ Bureau [1964]
2 QB 745; Cooke v Routledge [1998] NILR 174.
52 Gray v Barr [1971] 2 QB 554; R v Chief National Insurance Commissioner [1981] QB 758 (intentional
manslaughter: social security benefits) (but see now the Forfeiture Act 1982, s 4); Lancashire CC v Municipal
Mutual Insurance Ltd [1997] QB 743 (exemplary damages). See also WH Smith & Son v Clinton (1908) 25
TLR 34 (intentional libel). 53 [1978] QB 383.
54 Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621. See also Haseldine v Hosken
[1933] 1 KB 822.
55 Potts v Bell (1800) 8 Term R 548; Kuenigl v Donnersmarck [1955] 1 QB 515; Trading with the Enemy Act
1939. For the contractual incapacity of an alien enemy, see Porter v Freudenberg [1915] 1 KB 857.
56 Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260.
 illegality 387

(ii) Contracts hostile to a friendly state

An agreement which contemplates action hostile to a friendly foreign government
cannot be enforced.57 It is also contrary to public policy to allow the enforcement in
English Courts of agreements to be performed in a foreign state in breach of the laws of
that state. ‘This country’, it has been said,58 ‘should not assist or sanction the breach of
the laws of other independent States’. Thus the Court of Appeal has refused to entertain
an action arising out of certain transactions which had for their object the importation
of whisky contrary to the prohibition laws of the United States of America.59
This does not, however, mean that the Court must necessarily refuse to enforce a
contract merely because its performance will involve a foreign defendant in a breach
of its own law.60 A foreign law that is repugnant to English conceptions of liberty or
freedom of action will not be enforced here. Examples of such laws include those
involving persecution of such a character that an agreement to break the law would
be regarded as meritorious61 or imposing a contractual incapacity which is foreign to
the ideas of English law.62 Although the same principle has been said to apply to the
penal, political, or revenue laws of other countries,63 this formulation is too wide; the
Court is not prepared to disregard them altogether.64 And if two people knowingly
contract to break such a law, they cannot expect the Court to enforce their agreement.
In Regazzoni v KC Sethia (1944) Ltd:65
S agreed to sell and deliver to R at Genoa in Italy a quantity of jute bags to be shipped
from India. At that time the government of India was in dispute with the South African
government over the treatment of Indian nationals in South Africa and had prohibited the
direct export of jute to South Africa, and also imposed penalties on any indirect shipments.
Both S and R knew that the jute bags were to be shipped to South Africa in violation of the
Indian prohibition. The bags were not delivered and R brought an action for non-delivery.

The House of Lords held that, since the contract required the export of goods from
India in breach of the law of that country, it could not be enforced in this country, even
though the law might be classed as a political law. R accordingly failed.

57 De Wütz v Hendricks (1824) 2 Bing 314, 316.

58 Ralli Brothers v Compañia Naviera Sota y Aznar [1920] 2 KB 287, 304 (Scrutton LJ). See also Libyan
Arab Foreign Bank v Bankers Trust Co [1989] QB 728, 743–6 (Staughton J); Soleimany v Soleimany [1999]
QB 785. 59 Foster v Driscoll [1929] 1 KB 470.
60 Kleinwort Sons & Co v Ungarische Baumwolle Industrie AG [1939] 2 KB 678; British Nylon Spinners Ltd
v ICI Ltd [1953] Ch 37; Toprak Mahsulleri Ofisi v Finagrain Compagnie Commerciale Agricole et Financière
[1979] 2 Lloyd’s Rep 98.
61 Regazzoni v KC Sethia (1944) Ltd, below, n 65, 325. See also Lemenda Trading Co Ltd v African Middle
East Petroleum Co Ltd [1988] QB 448, 461. Cf Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd
[1999] QB 740, 801, aff ’d [2000] QB 288. 62 Re Selot’s Trust [1902] 1 Ch 488.
63 Holman v Johnson (1775) 1 Cowp 341, 343; Government of India Ministry of Finance v Taylor [1955]
AC 491; Brokaw v Seatrain UK Ltd [1971] 2 QB 476; A-G of New Zealand v Ortiz [1982] QB 349; cf [1984] AC
1, 46.
64 Re Emery’s Investment Trusts [1959] Ch 410; Empresa Exportadora De Azucar v Industria Azucarera
Nacional SA [1983] 2 Lloyd’s Rep 171. Cf Re Helbert Wagg & Co Ltd’s Claim [1956] Ch 323, 352.
65 [1958] AC 301. Cf Pye v BG Transport Service Ltd [1966] 2 Lloyd’s Rep 300; Fielding & Platt Ltd v Najjar
[1969] 1 WLR 357.
388 factors tending to defeat contractual liability

(c) agreements which tend to injure good government

(i) Sale of offices
The public has an interest in the proper performance of their duty by public servants,
and is entitled to be served by the fittest persons procurable. Contracts which have for
their object the sale of public offices are illegal.

(ii) Assignment of public salaries

An agreement to assign the salary of a public officer is also illegal based on a somewhat
different principle. The rule has been explained on the ground that ‘it is fit that the
public servants should retain the means of a decent subsistence, without being exposed
to the temptations of poverty’.66

(iii) Other contracts injurious to the public service

The law will not uphold a contract whereby one of the parties agrees to use influence
or position for the purpose of securing a title, contract, or some other benefit from
the government for the other;67 or an agreement whereby a member of Parliament
in consideration of receiving a salary from a political association agreed to vote on
every subject in accordance with the directions of the association;68 or an agreement
whereby a donation to a charity is made in consideration of a promise to secure the
donor a knighthood.69 The public has a right to demand that public officials shall not
be induced merely by considerations of personal gain to act in a manner other than
that which the public interest demands, and that no-one shall enter or refrain70 from
entering the public service for the same reason.
But agreements that may influence the proceedings before a public official are not
necessarily against the public interest. Thus, it has been held not to be against public
policy for a party to a commercial transaction involving the disposition of an interest
in land to enter into a covenant to support and not to oppose a planning application
by the other party.71

(d)agreements which tend to pervert the course of

justice
(i) Agreements not to disclose wrongdoing
The Courts will normally refuse to enforce an undertaking not to disclose misconduct
which is of such a nature that it ought in the public interest to be disclosed to others

66 Wells v Foster (1841) 8 M & W 149, 151 (Lord Abinger CB). See also Roberts v Roberts [1986] 1 WLR 437
(statutory prohibition of assignment of soldiers’ pay and benefits). Cf Re Mirams [1891] 1 QB 594 (assignment
of salary of chaplain to workhouse not void: ‘To make the office a public office, the pay must come out of
national and not out of local funds, and the office must be public in the strict sense of that term’ (Cave J at
596)). 67 Montefiore v Menday Motor Components Co [1918] 2 KB 241.
68 Osborne v Amalgamated Society of Railway Servants [1910] AC 87.
69 Parkinson v College of Ambulance Ltd [1925] 2 KB 1.
70 Re Beard [1908] 1 Ch 383 (armed forces).
71 Fulham Football Club Ltd v Cabra Estates plc [1994] 1 BCLC 363, 390–1.
 illegality 389

who have a proper interest to receive it.72 Nevertheless, a promise not to disclose the
fact that a crime has been committed may still be lawful. In Howard v Odhams Press
Ltd Greene LJ stated ‘It may well be permissible for a person against whom frauds
have been and are intended to be committed to give a promise of secrecy in order to
obtain information relating to them which will enable him, by taking steps himself,
to prevent the commission of future frauds’.73 But such a promise is void if its effect
is not merely to enable the protection of the party to whom the information is given,
but to preclude that party from disclosing information as to frauds committed or
contemplated against others to whom such information would be of use in preventing
the commission of such frauds.

(ii) Compromise of criminal offences

Before 1967, although the compromise of a prosecution for a misdemeanour which
was of a private character, eg assault or libel, was permissible,74 an agreement not to
prosecute a felony or a misdemeanour of a public nature was not enforceable,75 and
the compounding of a felony was itself a criminal offence.76 The Criminal Law Act
1967 abolished the distinction between felonies and misdemeanours and further
provided that the compounding of an offence (other than treason) was no longer to
be criminal by English law.77 Section 5 of the Act, however, established a new crime of
concealing an arrestable offence78 which is committed if a person accepts as the price
of not disclosing such an offence any consideration other than the making good of loss
or injury occasioned by the offence, or the making of any reasonable compensation
for that loss or injury. The effect of this provision in the law of contract is enigmatic.
It can be argued that, subject to the rules of duress,79 an agreement to compromise a
prosecution is now legal and enforceable, provided that it is not one which is rendered
criminal by the Act of 1967. The better view, however, is that the abolition of the
offence of compounding did not in itself affect the rules of public policy administered
by the Courts, for these were not dependent upon the fact that the agreement itself
constituted a crime. Further, an agreement to compromise a criminal offence may,
in certain circumstances, expose one (or possibly both) of the parties to a charge of
attempting or conspiring to pervert the course of justice,80 and the agreement will in
consequence be illegal in that event.

72 Initial Services Ltd v Putterill [1968] 1 QB 396; Lion Laboratories Ltd v Evans [1985] 1 QB 526. See also
A-G v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109, 268–9.
73 [1938] 1 KB 1, 42.
74 Baker v Townsend (1817) 7 Taunt 422; Fisher & Co v Apollinaris Co (1875) LR 10 Ch App 297. See also
Keir v Leeman (1844) 6 QB 308, 321, aff ’d (1846) 9 QB 371.
75 Windhill Local Board of Health v Vint (1890) 45 Ch D 351 (obstruction of highway); Clubb v Hutson
(1865) 18 CBNS 414 (obtaining by false pretences).
76 It was also probably an offence to compound a misdemeanour of a public nature. 77 s 5(5).
78 Amended by Serious Organised Crime and Police Act 2005 to simply a ‘relevant’ offence, but still
defi ned as an offence the sentence for which is fi xed by law or for which a person may be sentenced to
imprisonment for five years. 79 See above, p 350.
80 R v Grimes [1968] 3 All ER 179; R v Panayiotou [1973] 1 WLR 1032.
390 factors tending to defeat contractual liability

(e) agreements which tend to abuse the legal process

(i) The policy against speculative litigation
Agreements encouraging speculative litigation are contrary to public policy and
unlawful. It is not thought right that a person should buy an interest in another’s
quarrel, or should incite another to litigation by offers of assistance for which there
is an expectation of payment. Someone who does this might be tempted, for personal
gain, to inflame the damages, to suppress evidence, or even to suborn witnesses.81
This head of public policy, which rests on the perceived need to protect the integrity
of public justice, 82 has, however, not been static. In the last century, as much litigation
became supported by some association or other, eg by trade unions or insurance
companies, its operation was progressively redefined and narrowed in scope. It was
also significantly altered by the Courts and Legal Services Act 1990 as amended by the
Access to Justice Act 1999. The legislation constitutes recognition by Parliament that
where legal aid is not available certain agreements which would have been illegal at
common law confer a benefit to the public by increasing access to justice.

(ii) Maintenance and champerty

Maintenance and champerty are the names given to agreements which may contravene
the policy against the encouragement of speculative litigation. Maintenance occurs
where a person supports litigation in which he has no legitimate concern without just
cause or excuse.83 Champerty occurs where it is agreed that the person who maintains
another’s litigation is to receive a share of the proceeds of the litigation. Champerty
has been said to be an aggravated form of maintenance.84 The Courts, until recently,
looked with particular disfavour upon champertous agreements between solicitors
and their clients under which the solicitor is to receive a share of the proceeds of the
client’s litigation.85
Agreements which ‘savour of champerty’ will also be struck down. It is not
unlawful to agree to supply information which will enable property to be recovered,
in consideration of receiving a part of the property when recovered;86 but if the person
giving such information is to recover the property or actively to assist in the recovery
by procuring evidence or other means, the arrangement is contrary to the policy of the
law and void.87 The question to what extent the purchase of a right of action already
accrued is obnoxious to the rules against champerty is considered later in connection
with the subject of assignment of choses in action.88
Maintenance and champerty were both torts and crimes at common law. Both
criminal liability and tortious liability were abolished by the Criminal Law Act 1967.89

81 Re Trepca Mines Ltd [1963] Ch 199, 219 (Lord Denning MR).

82 Giles v Thompson [1993] 3 All ER 321, 328 (Steyn LJ); [1994] 1 AC 142, 164 (Lord Mustill).
83 Hill v Archbold [1968] 1 QB 686, 694. 84 Giles v Thompson [1993] 3 All ER 321, 328 (Steyn LJ).
85 Wild v Simpson [1919] 2 KB 544; Re Trepca Mines Ltd [1963] Ch 199. See also Solicitors Act 1974, s 59;
Wallersteiner v Moir (No 2) [1975] QB 373 (contingency fees); Aratra Potato Co Ltd v Taylor Joynson Garrett
[1995] 4 All ER 695 (acceptance of a lower fee for lost cases). 86 Rees v De Bernardy [1896] 2 Ch 437.
87 Stanley v Jones (1831) 7 Bing 369. See also Theft Act 1968, s 23. 88 See below, p 673.
89 ss 13, 14.
 illegality 391

But section 14(2) of the Act expressly provides that this abolition is not to affect cases
in which a contract is to be treated as contrary to public policy or otherwise illegal.

(iii) Just cause or excuse

The concept of what is a just cause or excuse widened considerably as the operation of
this head of public policy narrowed during the time that maintenance and champerty
were still criminal and civil wrongs.90 For example, as a general rule it came to be
legitimate for litigation to be supported by trade unions or insurance companies.
Again, it was held not to be maintenance where an employer supported an action
for libel brought by an employee to protect his reputation attacked by reason of acts
done by him in the course of his employment,91 and where a national anglers’ society
provided funds for an action by a riparian owner against a company alleged to be
polluting a particular river.92 A genuine commercial interest might also suffice.93 But
the legitimacy of the interest of the person supporting the action had to be distinct
from the benefit which that person sought to derive from the agreement to support
it.94
Where a person with a legitimate interest in maintaining an action, agrees to do so
but does not agree to pay the costs of action if the action of the person supported does
not succeed, the better view is that an agreement by a person with a legitimate interest
in maintaining the action will not be illegal solely on the ground that it makes no
provision for the maintainer to pay the costs if the action does not succeed.95

(iv) Conditional fee agreements

Section 58 of the Courts and Legal Services Act 1990 permits certain speculative
actions undertaken on a ‘no win, no fee’ basis, and validates certain agreements
between lawyers and their clients for a percentage uplift in the fees in the event of
success.96 The maximum increase under the Order made under the Act is 100 per
cent.97 Such conditional fee agreements must be in writing and must comply with the

90 See the historical survey in Giles v Thompson [1993] 3 All ER 321, 328–33 (Steyn LJ), approved [1994]
1 AC 142, 164.
91 Hill v Archbold, above, n 83. See also Bourne v Colodense Ltd [1985] ICR 291 (support by trade union).
Cf Neville v London Express Newspaper Ltd [1919] AC 368 (support by newspaper).
92 Martell v Consett Iron Co Ltd [1955] Ch 363.
93 British Cash and Parcel Conveyors Ltd v Lamson Stores Service Co Ltd [1908] 1 KB 1006; Bourne v
Colodense Ltd, above, n 91; Trendtex Trading Corp v Crédit Suisse [1980] 1 QB 629, 668; [1982] AC 679; Giles
v Thompson [1994] 1 AC 142, 164; Camdex International Ltd v Bank of Zambia [1998] QB 22; Norglen Ltd v
Reeds Rains Prudential Ltd [1999] 2 AC 1. 94 Giles v Thompson [1994] 1 AC 142, 163.
95 Hayward v Giffard (1838) 4 M & W 194, 196; Shah v Karanjia [1993] 4 All ER 792; Murphy v Young
& Co’s Brewery plc [1997] 1 Lloyd’s Rep 236; Tharros Shipping Co Ltd v Bias Shipping Ltd (No 3) [1997] 1
Lloyd’s Rep 246, 250. Cf Hill v Archbold, above, n 83, 694–5; McFarlane v EE Caledonia Ltd (No 2) [1995]
1 WLR 366.
96 ‘Contingency fees’, calculated as a percentage of monies recovered in the claim but with no fee payable
if the client loses, are not permitted, but Jackson LJ’s Review of Civil Litigation Costs: Final Report (2009)
ch 12 proposes that agreements for such fees should be permitted, subject to certain safeguards, although the
unsuccessful party should be required to pay only an amount of costs reflecting what would be a conventional
amount, with the difference to be borne by the successful party.
97 Conditional Fees Agreements Order 2000 (SI 2000 No 823) reg 3 (replacing earlier Orders but without
any change on this point).
392 factors tending to defeat contractual liability

relevant regulations.98 Conditional fee agreements by clients who do not have legal aid
were first permitted in proceedings for personal injuries, by or on behalf of insolvent
companies, and before the European Court of Human Rights.99 The Access to Justice
Act 1999, which restricted the availability of legal aid in a radical way, also extended
the availability of alternative methods of funding litigation by authorizing conditional
fee agreements in all money and damages claims except family cases100 and made clear
that an agreement between a solicitor to charge a client only if the client succeeds in
litigation is valid.101
There have been different views about the effect of the legislation on further
common law development of this head of public policy. In Thai Trading Co v Taylor
the Court of Appeal had to consider the enforceability at common law of an agreement
by a solicitor only to charge his client if she succeeded in litigation, facts which would
now fall within section 27 of the 1999 Act. It took the view that the progressive
narrowing by the Courts of this head of public policy during the last half-century
meant that, if Parliament wished to freeze further common law development, it had
to do so more directly. The agreement was held not to be contrary to public policy.102
Millett LJ stated that the policy which had invalidated such agreements in the past
was formed in an age when litigation was regarded as an evil and to be discouraged.
‘It rings oddly in our ears today when access to justice is regarded as a fundamental
human right which ought to be readily available to all.’ He considered that current
attitudes are exemplified by the passage into law of the Courts and Legal Services Act
1990 which showed that ‘the fear that lawyers may be tempted by having a financial
incentive in the outcome of litigation to act improperly is exaggerated, and that there
is a countervailing public policy in making justice readily accessible to persons of
modest means’.103 But in a subsequent case104 the Court of Appeal was of the view
that the carefully crafted legislative scheme shows and defines the extent to which
Parliament has decided to make such agreements enforceable. May LJ stated that where
Parliament has by successive enactments ‘modified the law by which any arrangement
to receive a contingency fee was impermissible, there is no present room for the court,
by an application of what is perceived to be public policy, to go beyond that which
Parliament has provided’.105

98 Conditional Fees Agreements (Revocation) Regulations 2005 (SI 2005 No 2305) revoked the earlier
regulations and since 1 November 2005 parties may enter into conditional fee agreements based on the
primary legislation. The Solicitors’ Code of Conduct 2007 contains provisions relating to the operation of
conditional fee agreements. 99 Conditional Fees Agreements Order 1995 (SI 1995 No 1674), reg 2.
100 See Access to Justice Act 1999, ss 27–28, amending the Courts and Legal Services Act 1990. See also
Bawden (1997) 147 NLJ 1559; Hoon, ibid, 1611; Tunkel, ibid, 1784; Harrison, ibid, 1786.
101 For the proposal that the success fee chargeable by the claimant’s lawyer should no longer be
recoverable against an unsuccessful defendant, see Jackson LJ’s Review of Civil Litigation Costs: Final
Report (2009) ch 10.
102 [1998] QB 781. Cf the contrary decisions in British Waterways Board v Norman (1993) 26 HLR 232 and
Aratra Potato Co Ltd v Taylor Johnson Garrett [1995] 4 All ER 695. 103 Ibid, 786, 790.
104 Awwad v Geraghty & Co [2001] QB 570.
105 Ibid, 600. See also at 593 (Schiemann LJ). Thai Trading may be also open to question on other
grounds: see Thomas Hughes v Kingston upon Hull CC [1999] QB 1193; Mohamed v Alaga & Co [2000] 1
WLR 1815, but notice that leave to appeal was refused by HL in Thai Trading: see Awwad v Geraghty & Co,
above, n 104, 588–9.
 illegality 393

(f) agreements which are contrary to good morals

Although it has sometimes been said that contracts contra bonos mores—contrary
to good morals—are void, the only aspect of immorality with which Courts of law
have actually dealt is sexual immorality.106 Formerly the Courts generally refused to
enforce any contract which directly or indirectly promotes sexual immorality. Thus a
promise by a man to pay a woman money if she would become his mistress has been
held to be illegal and unenforceable.107 And a landlord who let premises to a woman
who was, to the knowledge of the landlord’s agent, the kept mistress of a man who
was in the habit of visiting her there, and who was expected to pay the rent, was not
permitted to recover the rent reserved in the lease.108
The Courts today, however, are unlikely to adopt the same attitude to agreements
involving extra-marital cohabitation.109 As an Australian judge has said: ‘The social
judgments of today upon matters of “immorality” are as different from those of the
last century as is the bikini from a bustle’.110 The law has come to terms with the fact
that a man and woman, or two persons of the same sex, may set up home together
in a stable relationship, and has afforded to unmarried partners certain rights in the
‘matrimonial home’.111 Such rights (which may sometimes be contractual in origin)
have not been denied on the ground of immorality. And the Court of Appeal has held
that an agreement to advertise telephone sex lines is not unenforceable on the grounds
of immorality.112
On the other hand, it seems unlikely that an agreement which involves prostitution
would be enforced. An action cannot be maintained to recover the rent of premises
knowingly let for the purposes of prostitution,113 or upon a contract of employment
which requires the employee to procure prostitutes for customers of the employer.114
Also in Pearce v Brooks:115
P, a firm of coach-builders, agreed with B, a prostitute to hire to her an ornamental brougham
of an intriguing design, with the knowledge that it was to be used by her in the furtherance
of her trade. She failed to pay the hire, and P brought an action to recover the money.

It was held that P could not recover.

106 Coral Leisure Group Ltd v Barnett [1981] ICR 503, 506.
107 Walker v Perkins (1764) 1 W Bl 517; Benyon v Nettlefold (1850) 3 Mac & G 94. But a promise made in
consideration of past illicit cohabitation merely lacks consideration, and is not illegal: Beaumont v Reeve
(1846) 8 QB 483. 108 Upfill v Wright [1911] 1 KB 506.
109 See Dwyer (1977) 93 LQR 386. 110 Andrews v Parker [1973] Qd R 93, 104 (Stable J).
111 Eves v Eves [1975] 1 WLR 1338; Tanner v Tanner [1975] 1 WLR 1346; Paul v Constance [1977] 1 WLR
527. See also Part IV of the Family Law Act 1996, especially s 62 (defining cohabitants), as amended by Civil
Partnership Act 2004; Davis v Johnson [1979] AC 264; Tinsley v Milligan [1994] 1 AC 340, below, p 430
(where what made the agreement illegal was that its purpose was to defraud the social security, rather than
that it concerned lesbian cohabitees); Barclays Bank plc v O’Brien [1994] 1 AC 180, 198. Cf Law Com No
304, Cohabitation: The Financial Consequences of Relationship Breakdown (2007) which would not equate
cohabiting couples fully with married couples.
112 Armhouse Lee Ltd v Chappell, The Times, 7 August 1996.
113 Girardy v Richardson (1793) 1 Esp 13.
114 Cf Coral Leisure Group Ltd v Barnett [1981] ICR 503.
115 (1866) LR 1 Ex 213. See also Armhouse Lee Ltd v Chappell, above, n 112 (agreements to promote sex
dating probably illegal).
394 factors tending to defeat contractual liability

(g) agreements which affect the freedom or security of

marriage or the due discharge of parental duty
(i) Restraint of marriage
Agreements which restrain the freedom to marry are contrary to policy as injurious
to the moral welfare of the citizen. Thus a promise under seal not to marry any person
besides the promisee, and on breach to pay the promisee £1,000, was held void, as
there was no promise of marriage on either side and the agreement was purely
restrictive.116

(ii) Marriage brokage

Promises made upon the consideration of procuring a marriage between two persons,
are held illegal ‘not for the sake of the particular instance or the person, but of the
public, and that marriages may be on a proper foundation’.117 It has been held that an
agreement to introduce a person to others of the opposite sex with a view to marriage
is invalid, although there is a choice given of a number of persons, and not an effort
to bring about marriage with a particular person.118 However, it is submitted that
decisions such as these require reconsideration in the light of modern conditions.
If they remain good law the transactions between the many marriage bureaux and
dating agencies and their clients may be unenforceable.

(iii) Promises by person already married

At common law, a promise to marry after a spouse’s death, made by a married person
to someone who knew the promisor was married, was not enforceable.119 Such a
contract, it was said, was ‘not only inconsistent with that affection which ought to
subsist between married persons, but is calculated to act as a direct inducement to
immorality’.120 Actions for breach of promise of marriage have now, however, been
abolished.121

(iv) Agreements for separation

Agreements providing for the separation of husband and wife are valid if made
in prospect of an immediate separation; but it is otherwise if they contemplate a
possible separation in the future, because they then give inducements to the parties
not to perform their matrimonial duties, in the fulfi lment of which society has an
interest.122

116 Lowe v Peers (1768) 4 Burr 2225. 117 Cole v Gibson (1750) 1 Ves Sen 503, 506 (Lord Eldon).
118 Hermann v Charlesworth [1905] 2 KB 123. Note, however the liberal approach to the restitution of
money paid under such an agreement after substantial performance, below, p 425, and compare the general
approach, below, p 423.
119 But if she did not know, she could bring an action for breach: Shaw v Shaw [1954] 2 QB 429.
120 Wilson v Carnley [1908] 1 KB 729, 740 (Farwell LJ). Cf Fender v St John-Mildmay [1938] AC 1 (promise
after decree nisi for dissolution of earlier marriage is not void).
121 Law Reform (Miscellaneous Provisions) Act 1970, s 1. But see s 2 and Mossop v Mossop [1988] Fam 77
(regarding disputes about property). 122 Cartwright v Cartwright (1853) 3 De GM & G 982.
 illegality 395

(v) Parental duty

For the same reason a parent cannot by contract transfer to another his or her rights
and duties in respect of a child, because the law imposes such duties in respect of
the minor and for its benefit.123 In a proper case, however, an adoption order can be
obtained from the Court under the Adoption and Children Act 2002. Statute expressly
provides that a surrogacy agreement, ie an agreement by a woman to carry and bear a
child at the behest of another with a view to that other person subsequently assuming
the parental role, is unenforceable.124

(h) agreements which oust the jurisdiction of the courts

At common law an agreement which purports to oust the jurisdiction of the Courts is
contrary to public policy and void.125 It is the policy of the common law that citizens
have the right to have their legal position determined by the ordinary tribunals. In the
case of arbitration, the common law position has been substantially modified by statute,
particularly in the case of arbitrations involving foreign nationals and companies.

(i) Arbitration clauses

There is no objection to contracts which contain a clause that any dispute or difference
between the parties is to be referred to and settled by arbitration. Such a clause is
valid and binding. An arbitration clause which requires as a condition precedent to
the accrual of any cause of action that the arbitrator shall have made an award is not
contrary to public policy. Such a clause is common in arbitration agreements and is
known as a ‘Scott v Avery’ clause.126 It does not oust the jurisdiction of the Court but
merely provides that the cause of action shall not be complete until the arbitration
award is made. A similar provision known as an ‘Atlantic Shipping’ clause is also
frequently inserted, and this provides that no claim shall arise unless it is put forward
in writing and an arbitrator appointed within a limited period.127 Its validity rests
upon the same foundation.
Provision is made in the Arbitration Act 1996 for an appeal to the Court on points
of law arising out of an arbitrator’s award.128 There are, however, a number of limits
on this right. For example, unless all the parties agree to the appeal, leave of the
Court is required.129 Moreover, the parties may agree to exclude the jurisdiction

123 Humphreys v Polak [1901] 2 KB 385. See also Children Act 1989, s 2 (defi ning which parent has
responsibility) and see s 2(9) (person who has parental responsibility for a child may not surrender or
transfer any part of that responsibility to another but may arrange for some or all of it to be met by one or
more persons acting on his behalf).
124 Human Fertilisation and Embryology Act 1990, s 36, amending Surrogacy Arrangements Act 1985.
See also Re P (Minors) (Wardship: Surrogacy) [1987] 2 FLR 421.
125 Czarnikow v Roth Schmidt [1922] 2 KB 478. But cf Jones v Sherwood Computer Services plc [1992] 1
WLR 277; Kendall (1993) 109 LQR 385 (question remitted to expert); West of England Shipowners Mutual
Insurance Association v Crystal Ltd [1996] 1 Lloyd’s Rep 370 (a chosen tribunal may be the final arbiter on
questions of fact). 126 Scott v Avery (1855) 5 HLC 811. Cf Arbitration Act 1996, s 9(4)–(5).
127 Atlantic Shipping and Trading Co v Louis Dreyfus & Co [1922] 2 AC 250. But see Arbitration Act
1996, s 12. 128 Ibid, s 69(1). See also ss 70 and 71.
129 Ibid, s 69(2)–(3).
396 factors tending to defeat contractual liability

of the Court. In the case of a domestic arbitration agreement130 such an exclusion

will be upheld if entered into during arbitration proceedings.131 In the case of non-
domestic arbitration agreements, the freedom of the parties to include such a clause
is not restricted in any way.132

(ii) Foreign jurisdiction clauses

The Courts will normally uphold a clause in a contract whereby any dispute between
the parties is to be referred to the exclusive jurisdiction of a foreign Court.133 But such
a clause is not absolutely binding, and the Court has a discretion to override it if the
claimant establishes good cause for bringing the claim in England.134

(iii) Maintenance agreements

Another example of an agreement which ousts the jurisdiction of the Courts is one
in which a wife contracts not to apply to the Courts for maintenance in return for a
promise by the husband that he will make her a definite allowance.135 The right of the
Court to award maintenance cannot be ousted, although the financial arrangements
are not thereby rendered void or unenforceable.136

(i) agreements in restraint of trade

The common law does not favour agreements that prohibit or restrain a person in the
exercise of a lawful trade, employment, or profession. It protects the right of individuals
to work and prevents them from disabling themselves from earning a living by an
unreasonable restriction by the doctrine of restraint of trade. Since a principal aim of this
doctrine is to prevent agreements which unreasonably restrict competition, it is considered
in the next section, together with statutory control of anti-competitive agreements.

4. common law and statutory control of

anti-competitive agreements
(a) introduction
There are statutory and common law controls over anti-competitive agreements. The
statutory controls are contained in Articles 101 and 102 of the Treaty on European
Union137 and the very similar provisions introduced by the Competition Act 1998.

130 Defi ned in ibid, s 85: broadly, not involving foreign nationals, residents, and companies.
131 Ibid, ss 69 and 87(1). 132 Ibid, s 69(1).
133 Donohue v Armco Inc [2001] UKHL 64, [2002] 1 Lloyd’s Rep 425 at [24] (Lord Bingham: the contractual
bargain should be given effect ‘in the absence of strong reasons for departing from it’).
134 The Fehmarn [1958] 1 WLR 159; The Eleftheria [1970] P 54; The Adolf Warski [1976] 1 Lloyd’s Rep 107,
aff ’d [1976] 2 Lloyd’s Rep 241. But see the Civil Jurisdiction and Judgments Act 1982, Sched 1, art 17, and
Council Regulation (EC) 44/2001, art 23.
135 Hyman v Hyman [1929] AC 601. See Cretney in Rose (ed), Consensus ad idem (1996), 269–74.
136 Matrimonial Causes Act 1973, s 34. Cf Sutton v Sutton [1984] Ch 184. A financial agreement which is then
embodied in a consent order will bar further application to the Court: De Lasala v De Lasala [1980] AC 546, 560.
137 As amended and consolidated by the Treaty of Lisbon, in force from 1 December 2009. Formerly EEC
Treaty, arts 85 and 86, later EC Treaty, arts 81 and 82.
 illegality 397

At common law the control is exercised by the doctrine of restraint of trade. This
reflects the fact that the ‘public have an interest in every person’s carrying on his
trade freely: so has the individual. All interference with individual liberty of action in
trading, and all restraints of trade of themselves, if there is nothing more, are contrary
to public policy, and therefore void’.138 As formulated, this is a prima facie rule. Not
all restraints of trade are contrary to public policy. For example, the public interest
does not necessarily suffer if a person who sells the goodwill of a business undertakes
an obligation not to enter into immediate competition with the buyer. An agreement
prima facie in restraint of trade is enforceable if it is established that the restrictions in
it are reasonable in the interests of the parties and of the public.

(b) restraint of trade defined

An agreement in restraint of trade has been defined as ‘one in which a party (the
covenantor) agrees with any other party (the covenantee) to restrict his liberty in the
future to carry on trade with other persons not parties to the contract in such a manner
as he chooses’.139 This definition is adequate provided it is not applied too literally. In one
sense, all commercial contracts restrain trade; for when one person binds another by
contract, say to sell a rare Sheraton writing table or a particular cargo of oil, the seller’s
future liberty to deal lawfully in that subject-matter with persons not parties to the
contract is restricted. Yet ordinary commercial contracts are clearly not tainted with
invalidity. The issue is how to determine which agreements are ‘in restraint of trade’.
Two categories of agreement have long been recognized as ‘in restraint of trade’.
First, agreements between employers and employees, whereby the employees covenant
not to set up business on their own account on leaving the employers’ service or to
enter into employment with a rival firm. Secondly, agreements between the buyer and
seller of a business together with its goodwill, whereby the seller covenants not to carry
on a business which will compete with that of the buyer.
Apart from these types of agreement, there is no definitive way of determining
whether or not an agreement is in restraint of trade. As noted above, asking whether a
person has agreed to give up some freedom which he or she otherwise had could bring
in all commercial contracts. The difficulty is not met by asking whether the agreement
only regulates normal commercial relations because this too begs the question. Lord
Wilberforce has said:140
[I]t would be mistaken, even it were possible, to try to crystallise the rules of this, or any,
aspect of public policy into neat propositions. The doctrine of restraint of trade is one to be
applied to factual situations with a broad and flexible rule of reason.

The factual situations which invite the application of the doctrine will change with
prevailing economic and social conditions, and it is important to bear in mind that those

138 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, 565 (Lord
Macnaghten).
139 Petrofina (Great Britain) Ltd v Martin [1966] Ch 146, 180 (Diplock LJ, adopted by Lord Hodson in Esso
Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 317. See also ibid, 307 (Lord Morris).
140 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd, above, n 139, 331.
398 factors tending to defeat contractual liability

referred to later in this chapter are not exhaustive: ‘the classification must remain fluid
and the categories can never be closed’.141 But today, when economic theory indicates
that a competitive economy produces more beneficial results—from the point of view
of the public—than a non-competitive economy, it is tempting to define a contract in
restraint of trade as being one which is designed to restrict competition,142 although it
must be admitted that there is no judicial authority for this formulation and it has been
authoritatively stated that the reason for the Courts’ intervention in cases of restraint of
trade is simply to protect the weaker party against oppression.143
The law concerning restraint of trade has also changed from time to time, both
in form and in spirit, in response to changes in conditions of trade. In modern law
the operation of the common law doctrine, particularly concerning agreements for
exclusive dealing and market-sharing, has been significantly affected by both national
and European Community legislation which seeks to control anti-competitive
practices, which are of wider application than the common law doctrine and which
are primarily administered by regulatory authorities.144

(c) the modern law

The foundation of the modern law on the subject is contained in the speech of Lord
Macnaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd:145
N was a maker and inventor of guns and ammunition. He sold his business to the MN
company for £287,500 and entered into a covenant (later to be repeated in a contract of
service) that he would not for 25 years ‘engage . . . either directly or indirectly in the trade or
business of a manufacturer of guns, gun mountings or carriages, gunpowder explosives or
ammunition, or in any business competing or liable to compete in any way with that for the
time being carried on by the company’, but expressly reserved the right to deal in explosives
other than gunpowder, in torpedoes or submarine boats, and in metal castings or forgings.
After some years N entered into a business with a rival company dealing with guns and
ammunition, and MN sought an injunction to restrain him from so doing.

The House of Lords was of the opinion that the covenant not to compete with the
company ‘in any business competing or liable to compete in any way with that for the
time being carried on by the company’ was unreasonable, as it attempted to protect
not only the business as it was when sold, but any future activities of the company.
It was therefore void; but this clause was distinct and severable from the rest of the
agreement. As for the remainder of the restraint, in so far as it protected the business
actually sold, it was reasonable between the parties, because N not only received a
large sum of money, but also by his reservation retained scope for the exercise of his
inventive and manufacturing skill. Moreover, the wide area over which the business
extended necessitated a restraint co-extensive with that area for the protection of the

141 Ibid, 337.

142 Guest (1968) 2 JALT 3. Contrast Texaco Ltd v Mulberry Filling Station Ltd [1972] 1 WLR 814, 827;
Heydon (1969) 85 LQR 229.
143 A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308, 1315–16 (Lord Diplock).
144 Below, pp 408–10, 414. 145 [1894] AC 535.
 illegality 399

respondents. Finally it could not be said to be contrary to the public interest since it
transferred to an English company the making of guns and ammunition for foreign
lands. The restraint was therefore valid.
As a result of this decision and later cases in which it has been elucidated, certain
propositions of law can be stated:
(1) All restraints of trade, in the absence of special justifying circumstances, are
contrary to public policy and do not give rise to legally binding obligations,
and in that sense are void.146 But in this context being void does not mean that
the agreement will be disregarded for all purposes, and it has been said that a
contract in restraint of trade should more properly be spoken of as one ‘which the
law will not enforce’.147 It is not unlawful for the parties to agree to implement it,
and if the parties do so the Courts will not later allow them to recover sums paid
under the agreement or property transferred on the basis that the agreement is
of no effect whatsoever.148 But, as we shall see, in certain situations it is the effect
of an agreement on third parties which renders the agreement in unreasonable
restraint of trade, and, in such cases, the third parties may be able to challenge
the agreement.149
(2) It is a question of law for the decision of the Court whether the special
circumstances adduced do or do not justify the restraint; and if a restraint is not
justified, the Court will, if necessary, take the point, since it relates to a matter
of public policy, and the Court does not enforce agreements which are contrary
to public policy.150
(3) A restraint can only be justified if it is reasonable (a) in the interests of the
contracting parties, and (b) in the interests of the public.
(4) The onus of showing that the restraint is reasonable between the parties rests
upon the person alleging that it is so, that is to say, upon the covenantee.151 The
onus of showing that, notwithstanding that a covenant is reasonable between
the parties, it is nevertheless injurious to the public interest and therefore
void, rests upon the party alleging it to be so, that is to say, usually upon the
covenantor.152 But once the agreement is before the Court it is open to scrutiny
in all its surrounding circumstances as a question of law.153

146 Mason v Provident Clothing & Supply Co Ltd [1913] AC 724.

147 Joseph Evans & Co Ltd v Heathcote [1918] 1 KB 418, 431 (Bankes LJ).
148 Boddington v Lawton [1994] ICR 478, 491–3 (Nicholls V-C). See also Joseph Evans & Co Ltd v Heathcote
[1918] 1 KB 418; Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 297; A Schroeder
Music Publishing Co Ltd v Macaulay [1974] 1 All ER 174, 181, aff ’d [1974] 1 WLR 1308.
149 Below, p 414.
150 Wyatt v Kreglinger and Fernau [1933] 1 KB 793, 806; North Western Salt Co Ltd v Electrolytic Alkali
Co Ltd [1914] AC 461, 470.
151 Mason v Provident Clothing & Supply Co Ltd [1913] AC 724, 733; Herbert Morris Ltd v Saxelby [1916]
1 AC 688, 700; Attwood v Lamont [1920] 3 KB 571, 587.
152 Herbert Morris Ltd v Saxelby, above n 151, 700, 708; A-G of Commonwealth of Australia v Adelaide
Steamship Co Ltd [1913] AC 781, 795.
153 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 319.
400 factors tending to defeat contractual liability

(5) Covenants in restraint of trade are construed (a) with reference to the object
sought to be obtained, that is the protection of one of the parties against
competition in trade, and (b) in their context and in the light of the factual
matrix when the agreement was made.154
Reasonableness as a test for the validity of a restraint, however, requires further
consideration.

(d) reasonableness in the interests of the parties

The application of this test will depend on the answers to two questions: what is it
that the covenantee is entitled to protect, and how far can such protection extend? A
covenant cannot be considered reasonable unless it is designed to protect the legitimate
interests of the covenantee. The issue of whether a covenant in restraint of trade is
reasonable ultimately falls to be decided by reference to the legitimate interests that
are sought to be protected and not by a classification of the relationship between the
parties.155 But the nature of the interests recognized as legitimate by the law will vary
according to the subject-matter and nature of the contract.

(i) Subject-matter and nature of agreement

The different approaches of the Courts can be illustrated by comparing restraints on
the seller of a business and those on former employees. The buyer of a business with its
goodwill is entitled to prevent the seller from competing with the business sold. The
buyer has acquired a business which, from the nature of the case, has been immune
from competition by the person who has sold it, and the goodwill of that business is
an interest which the buyer is legitimately entitled to protect. In Herbert Morris Ltd v
Saxelby Lord Shaw stated:156
When a business is sold, the vendor, who, it may be, has inherited it or built it up, seeks to
realize this piece of property, and obtains a purchaser upon a condition without which the
whole transaction would be valueless. He sells, he himself agreeing not to compete; and the
law upholds such a bargain, and declines to permit a vendor to derogate from his own grant.
Public interest cannot be invoked to render such a bargain nugatory: to do so would be to use
public interest for the destruction of property.

The law will not, however, permit a covenant which merely restricts competition, and
does not protect the interest of the buyer in the business actually sold.157
A different set of considerations comes into play in the case of restraints upon former
employees. An employer cannot prevent competition by a former employee, or restrict
the use by the employee of personal skill and knowledge acquired in the course of the
employment. The employer is entitled only to protect its trade secrets, and to prevent
the use by the employee of influence acquired over its clients or customers.158

154 Clarke v Newland [1991] 1 All ER 397, 402. 155 Bridge v Deacons [1984] 1 AC 705, 714.
156 [1916] 1 AC 688, 713. 157 See below, p 406.
158 Faccenda Chicken Ltd v Fowler [1987] Ch 117, 137.
 illegality 401

Where the question of restraint of trade is raised outside these two categories
of agreements, the law159 adopts a much more lenient attitude, and recognizes as a
legitimate interest the right of the covenantee to secure its competitive position in
the market, or to maintain the effectiveness and stability of its organization.160 What
interests can be protected will therefore depend upon the nature of the contract.

(ii) Extent of protection

Where the covenantee has a legitimate interest which it is entitled to protect, the
restriction must not be longer in point of time, or wider in area, or otherwise be more
extensive in scope than is necessary to protect that interest.161 Again, however, the
answer to this question in any individual case must necessarily depend upon the
interest to be protected, the nature of the contract and the relative positions of the
contracting parties.

(iii) Restraint must be reasonable for both parties

The restraint must be reasonable not only in the interests of the covenantee, but of both
parties. At first sight it might appear that any restraint, since it protects the covenantee
alone, must be opposed to the interests of the covenantor, but if the transaction is
regarded as a whole this is clearly not so. If the vendor of a business could not covenant
not to compete with the person to whom it is being sold, the business would command a
lower price; if employees could not bind themselves not to convey trade secrets to their
employers’ rivals, they might not so readily obtain proper training or employment.162

(iv) Consideration
The quantum of the consideration which the covenantor has received in exchange for
the restraint is relevant to the determination of the reasonableness of the contract.163

(v) Time of assessment of reasonableness

The reasonableness of the restraint is normally determined at the time the covenant was
entered into. But in Shell UK Ltd v Lostock Garage Ltd,164 Lord Denning MR held that a
covenant which, though at its inception was reasonable, could become unenforceable
if it was found afterwards to operate unreasonably or unfairly in circumstances that
were not envisaged beforehand. This approach did not, however, receive the support of
the other members of the Court of Appeal in the case.165

159 See below, pp 410–11.

160 Eastham v Newcastle United Football Club Ltd [1964] Ch 413; Esso Petroleum Co Ltd v Harper’s Garage
(Stourport) Ltd [1968] AC 269. See also McEllistrim v Ballymacelligott Co-operative Agriculture and Dairy
Society Ltd [1919] AC 548, 563–4.
161 See below, pp 404–5, 410–11.
162 Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 707 (Lord Parker). See also Lord Shaw, quoted above,
p 400.
163 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, 565; Esso Petroleum Co
Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 300, 318, 323; Allied Dunbar (Frank Weisinger) Ltd v
Weisinger [1988] IRLR 60. 164 [1976] 1 WLR 1187.
165 Ormrod and Bridge LJJ.
402 factors tending to defeat contractual liability

(e) reasonableness in the interests of the public

Cases in which a restraint has been held void as not being reasonable in the interests
of the public are not common. Indeed, in 1913, the Judicial Committee of the Privy
Council observed that ‘their Lordships are not aware of any case in which a restraint
though reasonable in the interests of the parties has been held unenforceable because
it involved some injury to the public’,166 and it was further said that ‘if once the Court
is satisfied that the restraint is reasonable as between the parties this onus [of proving
injury to the public] will be no light one’.167 More recently, however, in relation to
certain types of agreement such as cartels168 and other forms of restrictive trading
agreements,169 there has been a distinct shift of emphasis in favour of recognizing the
importance of the interests of the public.170 Such agreements are, as a general rule,
freely entered into between traders who are perfectly capable of deciding for themselves
what is reasonable in their own interests. So the real point at issue is whether the
maintenance of the restraint is detrimental to the interests of the public.
Even where cases are decided on the basis of reasonableness between the parties,
it is ultimately on the ground of public policy that the Court will decline to enforce
an unreasonable restraint. As Lord Pearce has said: ‘There is not, as some cases seem
to suggest, a separation between what is reasonable on grounds of public policy and
what is reasonable as between the parties. There is one broad question: is it in the
interests of the community that this restraint should, as between the parties, be held
to be reasonable and enforceable?’171

(f) covenants between employer and employee

The general approach to such covenants has been noted above. Covenants imposing
restraints upon an employee which operate only during the currency of the contract of
employment cannot normally be challenged on the ground that they are unreasonable.
During this period an employer has the exclusive right to the services of the employee
and the doctrine of restraint of trade will have no application unless the employee is
too unilaterally fettered or the contract has as its object the sterilizing rather than the
absorption of a person’s capacity for work.172
But if covenants are imposed which restrain the employee’s freedom to work
after the termination of the employment, those covenants must be reasonable in the
interests of the parties and of the public. Whether a clause is or is not in restraint of

166 A-G of Commonwealth of Australia v Adelaide Steamship Co [1913] AC 781, 795.

167 Ibid, 797. 168 See below, p 406. 169 See below, p 410.
170 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 300–1, 318–19, 321, 324, 330,
340–1. See also Dickson v Pharmaceutical Society of Great Britain [1970] AC 403, 441. But cf the more cautious
approach adopted by Ungoed-Thomas J in Texaco Ltd v Mulberry Filling Station Ltd [1972] 1 WLR 814, 826–9,
below, p 413. See also Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 WLR 173, 191.
171 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd, above, n 170, 324.
172 Young v Timmins (1831) 1 Cr & J 331; Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd (above,
n 170), 294, 328, 329; A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308; Clifford Davis
Management Ltd v WEA Records Ltd [1975] 1 WLR 61.
 illegality 403

trade will be judged by the effect the clause has in practice,173 and this is determined
by the circumstances that existed at the time of formation.174

(i) Interest of employer

An employer is generally entitled to protect its trade secrets or other confidential
information, and to prevent the misuse by the employee of acquaintance with
the employer’s clients or customers.175 An employer also has an interest in a stable
workforce, and will be able to impose restrictions on the solicitation of employees.176
But an employer cannot inhibit the use of the employee’s own skill and experience,
even if this is acquired during the course of the employment.177
Yet the dividing line between confidential information and personal skill and
knowledge may not be easy to draw. In Sir WC Leng & Co Ltd v Andrews:178
A Sheffield newspaper took from one of its junior reporters a covenant that he would not,
after leaving his employment, be connected with any other newspaper within 20 miles of
that city. The newspaper claimed that this was necessary to protect its ‘organization’ and
‘sources of information’.

It was held that these interests did not merit protection. Today, however, business
‘know-how’ is regarded as a thing of value, a saleable commodity. Although it is not
precisely of the same nature as a trade secret, it is nevertheless not simply part of the
employee’s stock of experience. If ‘know-how’ involves an element of confidentiality
it can be protected,179 and in principle the Courts should recognize ‘know-how’ as an
interest capable of protection in its own right where it can be separated from what the
employee can legitimately claim to be his own skill and experience, albeit acquired
during the course of the employment.180 The difficulties of recognizing what is and
what is not confidential, or who may or may not have been a customer of the employer,

173 See eg Stenhouse Australia Ltd v Phillips [1974] AC 391; Sadler v Imperial Life Assurance Co of Canada
Ltd [1988] IRLR 388. Cf Watson v Prager [1991] 1 WLR 726, 749.
174 Briggs v Oates [1991] 1 All ER 407, 417; Watson v Prager [1991] 1 WLR 726 738. But where the contract
has been discharged because of the employer’s breach, the employee is released from the covenants: General
Billposting Co Ltd v Atkinson [1909] AC 118; Rock Refrigeration Ltd v Jones [1997] 1 All ER 1, Phillips LJ
expressing doubts, and see below, pp 519, 524.
175 Faccenda Chicken Ltd v Fowler [1987] Ch 117, 137; Systems Reliability Holdings plc v Smith [1990] IRLR
377; Dawnay, Day & Co Ltd v de Braconier d’Alphen [1998] ICR 1068. But it has been stated obiter (Faccenda
Chicken Ltd v Fowler, ibid, 136) that confidential information falling short of a trade secret or its equivalent
cannot, to the extent that it is inevitably carried away in the employee’s head as part of the employee’s skill
and knowledge, be protected after the employment has ended. Th is is however doubtful. Cf Roger Bullivant
Ltd v Ellis [1987] ICR 464, 473; Systems Reliability Holdings plc v Smith, above, 384.
176 Dawnay, Day & Co Ltd v de Braconier d’Alphen, above, n 175. See also Sales (1988) 104 LQR 600.
177 Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 710 (Lord Parker). See also Faccenda Chicken Ltd v
Fowler, above, n 175, 137; Office Angels Ltd v Rainer-Thomas [1991] IRLR 214. 178 [1909] 1 Ch 763.
179 Printers and Finishers Ltd v Holloway [1965] 1 WLR 1, 5; Commercial Plastics Ltd v Vincent [1965] 1
QB 623, 642. See also Lansing Linde Ltd v Kerr [1991] 1 WLR 251, 260, 270 (trade secrets can include highly
confidential information of a non-technical nature, eg names of customers and goods they buy); Johnson &
Bloy (Holdings) Ltd v Wolstenholme Rink plc [1989] 1 FSR 135; Universal Thermosensors Ltd v Hibben [1992]
1 WLR 840.
180 Cf Faccenda Chicken Ltd v Fowler, above, n 175, 136. See also Lock International plc v Beswick [1989]
1 WLR 1268, 1273–5.
404 factors tending to defeat contractual liability

have led to the suggestion that an anti-competition covenant which is reasonable as to

space and time may be the ‘most satisfactory form of restraint’.181

(ii) Scope of restraint

A covenant will not be adjudged reasonable between the parties unless it does no more
than protect the legitimate interests of the employer. The employer is not entitled to
restrain the employee from carrying on a business different from that in which the trade
secrets exist or the customer connection has been built up and in which the employee
was employed. Thus a covenant ‘not to carry on any business whatsoever’ is void.182 And
a baker cannot restrain an employee employed to sell bread from opening a restaurant,
even though he himself keeps a restaurant or contemplates doing so in the future.183
However, a covenant which appears unduly wide as to scope or area may, on its proper
construction, be limited and thus held valid. So, a covenant by a milkman not to sell
or solicit orders for ‘milk or dairy produce’ from any of the employer’s customers was
held not to include any dairy produce but only that with which the milkman had been
concerned in his employment and thus was not too wide.184 Finally, it has been held that
if an employer expressly states the interest to be protected then the employer may not
justify the restraint by reference to some other interest.185

(iii) Area of restraint

The restraint must not be more extensive in area than the employer’s interests require.
Thus in Mason v Provident Clothing & Supply Co,186 where a canvasser in the company’s
Islington branch covenanted not to work in any similar business for three years within
25 miles of London, the restraint was held to be unreasonable as it extended further
than was legitimately warranted. But in Foster & Sons Ltd v Suggett187 a covenant by
a works manager not to engage in glass-making anywhere in the United Kingdom
was considered reasonable for the protection of his employer’s business, as he had
been instructed in secret methods of making glass and the employer’s trade extended
throughout the country. Again, a covenant which is unlimited in area, ie is literally
worldwide, may be construed by reference to the business of the employer to which
it relates, and so be limited to the area in which that business is in fact carried on.188
But it has been said that Courts should not strive to find implicit limitations within
covenants which on their face are too wide and thus to make them enforceable since
employers would otherwise have no reason to impose restraints in appropriately
limited terms.189

181 Turner v Commonwealth & British Minerals Ltd [2000] IRLR 114, 117 (Waller LJ).
182 Baker v Hedgecock (1888) 39 Ch D 520.
183 Bromley v Smith [1909] 2 KB 235, 241.
184 Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526. See also Plowman & Son Ltd v Ash [1964] 1
WLR 568; Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472; Edwards v Worboys [1984] 1 AC 724,
727–8 (Dillon LJ). 185 Office Angels Ltd v Rainer-Thomas [1991] IRLR 214, 219.
186 [1913] AC 724. See also Office Angels Ltd v Rainer-Thomas [1991] IRLR 214, 221.
187 (1918) 35 TLR 87.
188 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472; Scully (UK) Ltd v Lee [1998] IRLR 259.
189 JA Mont (UK) Ltd v Mills [1993] IRLR 173, 176 (Simon Brown LJ). See also below, p 432 (severance).
 illegality 405

(iv) Length of restraint

A restraint may be struck down on the ground that it is too extensive in time. The
protection of trade secrets does not justify keeping someone out of trade indefinitely,190
and an employee’s connections with the customers of a former employer must
necessarily weaken with the passage of time. So, in M & S Drapers v Reynolds,191
where a collector-salesman of a drapery firm covenanted not to canvass his employer’s
customers for a term of five years from the determination of his employment, this
period was held to be too long in view of the humble position which he occupied.192

(v) Nature of employment

The nature of the employment is also material. It is clear, for example, that a greater
measure of protection will be allowed to the employer against the subsequent activities
of a senior employee, such as a managing director,193 than in the case of a temporary
or subordinate employee, such as a travelling sales representative.194 Each case must be
considered in the light of its own circumstances.

(vi) Public interest

Covenants in a contract of employment which are reasonable between the parties will
seldom be invalidated on the ground that they are contrary to the public interest. In
Wyatt v Kreglinger and Fernau,195 however, the public interest was considered:
W had worked for K’s firm as a wool broker. On his retirement, they wrote him a letter
offering him a pension of £200 a year on condition that he did not engage in the wool trade.
There was some doubt whether this offer was ever specifically accepted by W, but K paid
him the pension for 9 years, after which time they ceased to do so, claiming that there was
no proper contract, or if there was a contract, it was unenforceable as being in unreasonable
restraint of trade.

The Court of Appeal upheld K’s plea. They differed as to whether there was a proper
contract, but held unanimously that the restraint was invalid as being contrary to the
public interest, as well as being unreasonable between the parties. The reason given
was that such covenants deprived the country of the services of able-bodied persons
who might still be of benefit to it in their own trade.
This judgment has been justly criticized, since the person seeking to evade his
obligations was the very person who had imposed the unreasonable stipulation and
there were several million unemployed at the time.196 But it is possible to conceive
of situations where it would be injurious to the public interest, say, in the case of a
distinguished engineer or economist, that a person should be tied by an agreement

190 Kerchiss v Colora Printing Inks Ltd [1960] RPC 235.

191 [1957] 1 WLR 9. See also Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526 (milk roundsman:
one year).
192 [1921] 2 AC 158. See also Bridge v Deacons [1984] 1 AC 705. See further Edwards v Worboys [1984] AC
724. Cf Oswald Hickson Collier & Co v Carter-Ruck [1984] AC 720.
193 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535.
194 M & S Drapers Ltd v Reynolds [1957] 1 WLR 9. 195 [1933] 1 KB 793.
196 But see Howard F Hudson Pty Ltd v Ronayne (1972) 126 CLR 449 (Australia).
406 factors tending to defeat contractual liability

which, though reasonable from the point of view of the protection of the employer’s
proprietary interest, is yet detrimental to the community at large. Indeed, in one case,
a condition of a pension scheme that a former salesman of a company should not
engage in any activity which competed with the company was said to be invalid on the
ground that it would deprive the public of his skilled services in promoting the export
trade.197

(g) sale of the goodwill of a business

It has been noted that considerably more latitude is allowed to covenants which
accompany the sale of the goodwill of a business than in the case of contracts between
employer and employee,198 but the rules relating to the area and length of the restraint
are, in principle, the same.
Covenants in gross, however, which do not protect the business actually sold, and
whose object is merely to restrain competition, will not be upheld. In the Nordenfelt
case199 we saw that a covenant ‘not to engage in any business liable to compete with
that for the time being carried on by the company’ was considered unreasonable.
There seems to be no reported case in which a covenant reasonable as between the
parties has been struck down as contrary to the public interest.

(h) cartel agreements

Business organizations frequently enter into cartels, that is to say, agreements to
regulate the production and marketing of the commodities manufactured by them,
and to maintain prices and standards in relation to those commodities. Similarly,
employers may enter into agreements attempting to regulate labour and to impose
mutual restrictions upon the re-employment of former employees. The rules of
professional organizations also restrict professionals such as lawyers or doctors as to
how they may work, for instance, by restricting advertising or controlling the charges
for services. Cartel agreements are, like all other agreements in restraint of trade, prima
facie void at common law and must be justified as being reasonable in the interests of
the parties and of the public.

(i) Reasonableness between the parties

In this type of agreement, which is generally freely negotiated, the parties can be
regarded ‘as the best judges of what is reasonable between themselves’.200 They are
entered into for the purpose of avoiding undue competition and carrying on trade
without excessive fluctuations or uncertainty. As a result, it is difficult for a Court to
say that they are unreasonable between the parties, and in fact the Courts have only

197 Bull v Pitney-Bowes Ltd [1967] 1 WLR 273. See also JA Mont (UK) Ltd v Mills [1993] IRLR 172.
198 Above, p 400.
199 [1894] AC 535, above, p 398. See also Vancouver Malt & Saké Brewing Co Ltd v Vancouver Breweries
Ltd [1934] AC 181.
200 North Western Salt Co v Electrolytic Alkali Co Ltd [1914] AC 461, 471 (Viscount Haldane LC); English
Hop Growers v Dering [1928] 2 KB 174, 180.
 illegality 407

done so if an agreement contains no provision, or virtually no provision, for voluntary

withdrawal.201

(ii) Public interest

The position adopted by the common law has been to regard many cartels at least as
being not injurious to the public,202 and in some cases even as positively beneficial.203
Indeed, the Courts virtually excluded the possibility that a cartel should be held
contrary to the public interest by requiring it to be one which was calculated to produce
‘a pernicious monopoly, that is to say, a monopoly calculated to enhance prices to an
unreasonable extent’.204 The effect was that in this context the common law did not
promote competition.
Even if the Courts had, in fact, adopted a different economic attitude, the doctrine
of restraint of trade could not have been employed to any real effect in the suppression
of cartels, since, save in exceptional circumstances, a cartel agreement would only
have come before the Courts if one of the parties failed to perform it and was sued for
the breach.

(iii) Agreements between employers and professional rules

The exception concerns agreements between employers which attempt to regulate
labour and to impose mutual restrictions upon the re-employment of former
employees. These may be struck down as being employer–employee covenants in
disguise or as being contrary to the public interest.205 So, in Eastham v Newcastle United
Football Club Ltd, 206 a professional football player, who could be debarred by rules
in an agreement between his club and the Football Association from playing for any
other club, was held entitled to a declaration that the rules were invalid. Wilberforce J
accepted that some restriction was required for the proper and stable organization of
the game of football in England, but concluded the rules were more restrictive on the
player’s liberty of employment than was necessary to protect this interest. He therefore
granted a declaration that the system was invalid, not only against the defendant
club, but also in respect of the rules of the Football Association. Although these rules
constituted an agreement between employers only, they were calculated to affect the
employees’ freedom of employment and so could be challenged by the player on the
same grounds as if they had been contained in an agreement between him and his
employer. Similarly, in Greig v Insole 207 Slade J held void as being in unreasonable

201 McEllistrim v Ballymacelligott Co-operative Agriculture and Dairy Society Ltd [1919] AC 548; J Evans
& Co v Heathcote [1918] 1 KB 418; Bellshill and Mossend Co-operative Society v Dalziel Co-operative Society
[1960] AC 832. 202 A-G of Commonwealth of Australia v Adelaide Steamship Co [1913] AC 781.
203 North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461.
204 A-G of Commonwealth of Australia v Adelaide Steamship Co, above, n 202, 796.
205 Mineral Water Bottle Exchange and Trade Protection Socy v Booth (1887) 36 Ch D 465; Kores
Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1959] Ch 108; Esso Petroleum Co Ltd v Harper’s Garage
(Stourport) Ltd [1968] AC 269, 300, 319. But see Trade Union and Labour Relations (Consolidation) Act 1992,
s 128 (purposes of employers’ associations, defi ned in s 122, not, by reason only that they are in restraint of
trade, unlawful or unenforceable).
206 [1964] Ch 413, 432. See also Buckley v Tutty (1971) 46 ALJR 23; Hall v Victorian Football League [1982]
VR 64 (Australia). 207 [1978] 1 WLR 302.
408 factors tending to defeat contractual liability

restraint of trade resolutions of the International Cricket Conference and the Test
and County Cricket Board disqualifying from playing in test and county matches any
player who took part in a match arranged by a private promoter (Mr Kerry Packer)
during a certain period.
The common law doctrine of restraint of trade also extends to cover the rules of
professional bodies. Thus the Court of Appeal refused to strike out a claim that a rule
of the Jockey Club preventing a woman from holding a trainer’s licence was invalid,208
and a rule of the Pharmaceutical Society restricting the types of goods in which their
members might deal has been held invalid.209 The doctrine may even apply to the rules of
professional bodies the members of which do not technically engage in ‘trade’,210 though
possibly not to those rules which are related solely to the maintenance of professional
honour or standards.211 But the basis upon which a person who is not a member of the
relevant professional body, and thus a party to the restrictive agreement, can challenge
it, has been put into question212 and in practice the field has largely been left to modern
legislation promoting competition or proscribing certain forms of discrimination.

(iv) Legislative control of cartels

In 1956 legislation213 was enacted rendering restrictive trading agreements affecting
the supply, acquisition, or process of manufacture of goods, or the prices to be charged
for them, void, unless they are shown positively to be in the public interest. Since the
accession of the United Kingdom to the European Communities a separate regime of
European Community competition law has also been directly applicable in English
law, and the Competition Act 1998 replaced the United Kingdom legislation with
prohibitions closely based on those in the European Community Treaty.214
The provisions that relate to competition now contained in the Treaty on European
Union215 are designed not merely to promote competition within the Union, but to
ensure that the objective of establishing an internal market is not defeated by the

208 Nagle v Feilden [1966] 2 QB 633. See also Greig v Insole [1978] 1 WLR 302; Adamson v NSW Rugby
League Ltd (1991) 103 ALR 319.
209 Pharmaceutical Society of Great Britain v Dickson [1970] AC 403.
210 Ibid, 420, 427, 430, 436, 441. 211 Ibid, 421, 436.
212 Privity of contract precludes an action in contract at common law (see below, Chapter 21), and in R v
Disciplinary Committee of the Jockey Club, ex p Aga Khan [1993] 1 WLR 909 it was said by Hoff mann LJ at
933 that gaps in private law remedies should not be fi lled by subjecting them to public law and the judicial
review procedure. Where there is unlawful discrimination or the restriction seeks to prevent those subject
to the rules from dealing with a non-party, there may be a remedy: Cutsforth v Mansfield Inns Ltd [1986] 1
WLR 558.
213 Restrictive Trade Practices Act 1956, re-enacted in 1976, amended in 1977 and 1980, and repealed by
the Competition Act 1998. See also Enterprise Act 2002, Part 6 (cartel offence).
214 European Communities Act 1972, s 2; De Geus v Bosch (Case 13/16) [1962] ECR 45; Belgische Radio
en Televisie v SVSABAM (Case 127/73) [1974] 1 ECR 51. See Crehan v Inntrepreneur Pub Co (CPC) [2006]
UKHL 38, [2007] 1 AC 333 (circumstances in which UK Courts bound by decisions of Commission). See
also Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004 No 1261),
implementing Regulation 1/2003.
215 (‘TEU’), as amended and consolidated by the Treaty of Lisbon, in force from 1 December 2009 and
replacing the EC Treaty; by art 1, the European Union replaced and succeeded the European Community.
Arts 101 and 102 of the TEU replaced arts 81 and 82 of the EC Treaty (which in turn had replaced arts 85 and
86 of the EEC Treaty (the Treaty of Rome)).
 illegality 409

existence of agreements which endanger, either directly or indirectly, freedom to trade

between Member States. There is a very considerable body of law within the Union on
competition, and detailed treatment of that or the similar provisions introduced by
the Competition Act 1998 would be out of place in this book.216
It suffices to say that agreements directly or indirectly to fi x prices, including target
prices,217 and market-sharing and segmentation agreements are covered by article 101
(ex-article 81 EC Treaty, and article 85(1) EEC Treaty) and section 2 of the Competition
Act, even where the arrangements between the parties are an informal and non-binding
‘gentlemen’s agreement’.218 The concept of ‘concerted practices’ includes the knowing
substitution of practical cooperation for the risks of competition, and although this
will not be inferred from parallel behaviour, it will where, in the light of the economic
structure of the market, such behaviour cannot be otherwise explained.219 In principle,
these provisions cover services220 including the rules of professional bodies.221
Infringement of the prohibitions not only renders a prohibited agreement
automatically void,222 but may expose the parties to the risk of heavy fines223 or to
an order that the infringement be discontinued.224 By article 101(3) of the Treaty
(ex-article 81(3) EC Treaty and article 85(3) EEC Treaty) and sections 6 and 9 of the
1998 Act, however, provision is made for the exemptions (including ‘block’ exemptions,
considered below)225 of agreements or concerted practices, which
(a) contribute to improving production or distribution, or promote technical or
economic progress,
(b) allow consumers a fair share of the resulting benefit,
(c) contain only indispensable restrictions, and

216 See Whish, Competition Law (6th edn, 2008) and Albors Llorens, EC Competition Law and Policy
(2002). 217 Cementhandelaren v Commission (Case 8/72) [1972] ECR 977.
218 ACF Chemiefarma NV v Commission (Cases 41, 44 and 45/69) [1970] ECR 661. See also Enterprise Act
2002, s 188 (cartel offence).
219 ICI v Commission (Case 48/69) [1972] ECR 557. Cf Ahlström Osakeyhtio v Commission (Joined Cases
C-89, 104, 114, 116, 117, 125–9/85) [1993] ECR I-1307 (burden on Commission).
220 See, for example, Italy v Commission (Case 41/83) [1985] ECR 873 (telecommunications); Verband
der Sachversicherer v Commission (Case 45/85) [1987] ECR 405 (insurance); CB and Europay v Commission
(Cases T-39 and T-40/92) [1994] ECR II-49 (banking). Cf Regulation 1008/2008 (air services), art 15.
221 Competition Act 1998, s 3(1)(d) and Sched 4 provided for certain professional services, such as those
of lawyers, doctors, surveyors, accountants, and architects, if designated by the Secretary of State, to be
excluded from the prohibition in section 2 of the 1998 Act; SI 1999 No 2546, but these provisions were
repealed by Enterprise Act 2002. Cf Wouters v Algemene Raad van de Nederlandse Orde van Advocaten (Case
309/99) [2002] I ECR 1577 (restrictions not prohibited by art 81 EC Treaty (now art 101 TEU) if they do not
exceed those necessary for proper regulation of members of the (Dutch) Bar); Meca-Medina v Commission
(Case 519/04) [2006] I ECR 6991 (International Olympic Committee doping control rules).
222 Article 101(2) TEU (ex art 81(2) EC Treaty and ex art 85(2) EEC Treaty). See Delimitis v Henninger
Bräu AG (Case C-234/89) [1991] ECR I-935. Whether severance is possible is governed by English law: Société
de Vente de Ciments et Béton v Kerpen & Kerpen (Case 319/82) [1983] ECR 4173.
223 Regulation 17/1962, art 15(2)(a). See also Enterprise Act 2002, s 190 (up to five years’ imprisonment or
unlimited fi ne for ‘cartel offence’).
224 Ibid, art 3. On the consequences, see Courage Ltd v Crehan (Case C-453/99) [2002] QB 507.
225 Below, p 414.
410 factors tending to defeat contractual liability

(d) do not afford the parties the possibility of eliminating competition in respect of
a substantial part of the products in question.
Article 102 of the Treaty (ex-article 82 EC Treaty and article 86 EEC Treaty) of and
section 18 of the 1998 Act also prohibit the abuse by one or more undertakings of a
dominant position. The provisions give a number of illustrations of such abuse, for
example, ‘limiting production, markets or technical development to the prejudice of
consumers’. These provisions enable control to be exercised by European and national
regulatory authorities and Courts over ‘abusive’ practices, and over mergers by
dominant firms when these substantially reduce competition.226

(i) exclusive dealing agreements

An agreement by which a firm undertakes to buy all that it requires of a certain
commodity from a single seller and from no other source, or to sell its whole output of
a certain commodity to a single buyer and to no other generally falls within both the
restraint of trade doctrine and the prohibition in article 101 of the Treaty on European
Union (ex article 81 EC Treaty and ex article 85 EEC Treaty) and section 2 of the
Competition Act 1998.

(i) ‘Solus’ ties

In Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd,227 the House of Lords held
that a ‘solus’ agreement relating to the purchase of petrol was an agreement in restraint
of trade:
HG, owned two garages. In relation to the first garage, it entered into a ‘solus’ agreement
whereby it undertook to purchase from Esso for 4 years and 5 months all its requirements of
petrol to be sold at that garage, and to buy from no other source. The agreement contained a
‘continuity’ clause under which, if HG sold the garage, it was bound to procure the buyer to
enter into a similar agreement with Esso. The agreement also contained a ‘keep open’ clause
under which HG was to keep open the garage at all reasonable times for the sale of petrol.
In return HG received a certain rebate per gallon off the scheduled wholesale price of the
petrol supplied.
In relation to the second garage, in return for a loan of £7,000, HG entered into a mortgage
of the garage premises in favour of Esso. HG covenanted to repay the loan with interest
during 21 years, and not to redeem the mortgage before this time. It also covenanted that,
during the continuance of the mortgage, it would observe obligations similar in nature to
those contained in the agreement relating to the first garage.
HG began to sell another brand of petrol and, when sued, pleaded that both transactions
were in unreasonable restraint of trade.

The House of Lords held that the agreement for four years and five months on the first
garage was (despite its onerous covenants) reasonable in the interests of the parties,

226 Europemballage & Continental Can Co Inc v EC Commission (Case 6/72) [1973] 1 ECR 215; United
Brands Co v EC Commission (Case 27/76) [1978] 1 ECR 207. Cf Garden Cottage Foods Ltd v Milk Marketing
Board [1984] AC 130.
227 [1968] AC 269. See also Petrofina (Great Britain) Ltd v Martin [1966] Ch 146.
 illegality 411

since it was reasonably required to protect Esso’s legitimate interest in securing the
continuity of their selling outlets, their system of distribution, and the stability of their
sales; it was also not contrary to the public interest. But the agreement for 21 years on
the second garage was longer than was necessary to protect Esso’s interests and was
therefore unenforceable.

(ii) Restrictive covenants on land

The fact that the agreement is contained in a mortgage of land does not prevent the
application of the doctrine of restraint of trade. This incursion of restraint of trade
into the sphere of land raises some difficult questions as to the extent of the doctrine in
this sphere. In the Esso Petroleum case a majority of their Lordships considered that it
had no application to covenants contained in leases or conveyances on purchase.228 So
a person who purchases a petrol station, or takes a lease of one from an oil company,
where the conveyance or lease contains a petrol ‘solus’ agreement, could not on this
view challenge the ‘solus’ agreement as being in restraint of trade. The reason for this
is given by Lord Reid:229
Restraint of trade appears to me to imply that a man contracts to give up some freedom
which otherwise he would have had. A person buying or leasing land had no previous right
to be there at all, let alone to trade there, and when he takes possession of that land, subject to
a negative restrictive covenant he gives up no right or freedom which he previously had.

This reasoning does not appear entirely convincing, for the economic effect of a
‘solus’ agreement contained in a lease or conveyance is no different from one which
is contained in a mortgage or is in gross. Undoubtedly, what their Lordships had in
mind was the disastrous inconvenience which would occur if familiar restrictive
covenants in such form as not to use leased premises for the purpose of trade, or not
to use them for the purpose of carrying on any offensive trade, eg a fried fish shop,
could be challenged under the restraint of trade doctrine. It is submitted, however,
that a more satisfactory criterion would be to inquire whether or not the covenant was
imposed in order to restrict the covenantor from competing with the covenantee, or
to restrict competition by third parties by removing the covenantor’s freedom to trade
with them. Most restrictive covenants on lease or on sale are imposed to preserve the
amenities of the particular or neighbouring property; they would therefore not be
subject to the doctrine. But if the covenant was imposed by a covenantee who owned
a fried fish shop, and wished to be secure against competition, or if the covenantee
wished to secure the covenantor’s custom to the exclusion of any competitors (as in
a ‘solus’ agreement), then the doctrine of restraint of trade could, and should, apply.
This would accord with the opinion, previously expressed,230 that in the modern law
the answer to the problem of defining a contract in restraint of trade is to be found in
terms of its anti-competitive effect. Nevertheless a number of cases have subsequently
endorsed the view that a person’s freedom to trade is not restricted when that person

228 Ibid, 298, 309, 316–17, 325. 229 Ibid, 298.

230 See above, p 398.
412 factors tending to defeat contractual liability

takes possession of land under a lease or conveyance which contains restrictions on

the use to which the land may be put.231

(iii) Lease and lease-back

If the key to the application of the doctrine is contracting to give up some freedom
which otherwise a person would have had, a further problem arises. Suppose that P,
the proprietor of a filling station, leases it to an oil company for a period of (say) 50
years in return for the payment of a capital sum. Immediately afterwards the company
leases the fi lling station back to P for a term of 50 years less one day by an underlease
which contains a ‘solus’ tie, and P repays the capital sum and interest in the form of
rent. Does the fact that the ‘solus’ tie is now contained in the lease-back place it outside
the doctrine of restraint of trade because immediately before it P had no right to trade
on the land? Or will the lease and lease-back be treated as a single transaction whereby
the filling station proprietor gives up his existing freedom to trade?
It was held in Alec Lobb (Garages) Ltd v Total Oil Great Britain Ltd,232 that in such a
case the lease and lease-back were to be treated as one transaction by which P gave up
its existing freedom to trade, and that the doctrine of restraint of trade could not be
circumvented by the transparent device of the lease-back to P.
An oil company paid £35,000 and a nominal rent for a 51-year lease of a petrol station
forecourt from a family company in financial difficulties. On the same day the oil company
sub-leased the forecourt to the company’s shareholders for 21 years at a rent of £2,500 per
annum and subject to a ‘solus’ tie in its favour.

Notwithstanding the absence of evidence of economic necessity which the decision

in the Esso Petroleum case stated would be required to uphold a tie of this length (21
years), the Court of Appeal held that the tie was reasonable. This was because of the
£35,000 consideration, received by the family company claimant,233 because there
was provision for the tie to be ended after seven and 14 years, and because the public
interest did not require the tie to be set aside since the land could only be used as a
garage and it made no difference to the public who supplied the petrol.234

(iv) Other forms of exclusive dealing agreements

A further problem raised in the speeches in the Esso Petroleum case is whether other
forms of exclusive dealing agreement are subject to the doctrine of restraint of trade.
In A Schroeder Music Publishing Co Ltd v Macaulay:235
M, a young and unknown song-writer, entered an ‘exclusive services’ agreement with the
S music publishing company, under which he undertook to assign the full copyright in

231 Cleveland Petroleum Co Ltd v Dartstone Ltd [1969] 1 WLR 116; Robinson v Golden Chips (Wholesale)
Ltd [1971] NZLR 257; Quadramain Pty Ltd v Sevastopol Investments Pty Ltd (1976) 133 CLR 390 (Australia);
Re Ravenseft Properties Ltd’s Application [1978] QB 52; Irish Shell Ltd v Elm Motors Ltd [1982] ILRM 519
(Ireland).
232 [1985] 1 WLR 173. See also Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1975]
AC 561 (Australia). 233 [1985] 1 WLR 173, 179, 185, 189–90.
234 Ibid, 186, 191 (Dunn and Waller LJJ: to uphold the tie may encourage the rescue of businesses in
fi nancial hardship). 235 [1974] 1 WLR 1308.
 illegality 413

present and future works produced by him to S for a period of 5 years, or for 10 years if his
royalties exceeded £5,000. S was under no obligation to publish any of the works, could
terminate the agreement by one month’s notice, and could assign its benefit. In fact M was
a great success.

The House of Lords held that the agreement was subject to the doctrine and was
unreasonable. It took account of the extent of the inequality of bargaining power
between the parties, and the contrast between the total commitment on the part of
the song-writer and the lack of obligation on the part of S. But there is more difficulty
with ‘sole agency’ agreements (under which a person is given the sole right to supply
a manufacturer’s goods within a certain area)236 and tied public houses.237 The view
was expressed by some of their Lordships in the Esso Petroleum case that these were
exempt because they had gained general commercial acceptance.

(v) ‘Reasonableness in the interests of the public’

In the Esso Petroleum case considerable emphasis was placed on the public interest test
in the application of the restraint of trade doctrine to exclusive dealing agreements.238
But what does this mean in this context? In Texaco Ltd v Mulberry Filling Station Ltd, a
case which also concerned the validity of a petrol ‘solus’ agreement, the parties adduced
evidence of a general economic nature in an attempt to show the relative advantages
and disadvantages to the public of the abolition or retention of the ‘solus’ tie system.
Ungoed-Thomas J, however, considered that much of this evidence was irrelevant.
The public interest test was, in his view, only the expression of a rule of public policy
reflecting the desire of the law to secure to every individual the liberty to trade; it was
not concerned with ultimate economic advantage to the public in general:
If it refers to interests of the public at large, it might not only involve balancing a mass of
conflicting economic, social and other interests which a court of law might be ill-adapted to
achieve; but, more important, interests of the public at large would lack sufficiently specific
formulation to be capable of judicial as contrasted with unregulated personal decision and
application—a decision varying, as Lord Eldon put it, like the length of the Chancellor’s
foot.239

Although, at first sight, this might appear to be a somewhat narrow approach, it is

nevertheless true to say that the Courts of common law are unlikely to be willing
to assume the task of weighing, without any specific guidance, conflicting economic
judgments and predictions. Where, as in A Schroeder Music Publishing Co Ltd v
Macaulay, the Courts do strike down a restriction, their conclusions may be open to
question on economic grounds. So it has been argued, on the basis of an analysis of the
risky music publishing business, where there are many failures for every success such
as M’s, that the effect of the decision would be to make it more difficult for unknown

236 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 296, 310–11, 320, 328, 336.
237 Ibid, 298, 325, 333–4, 341.
238 [1972] 1 WLR 814.
239 Ibid, 827. Sometimes there will be such evidence. In the Esso Petroleum case account was taken of a
Report of the Monopolies Commission into the Distribution of Retail Petrol (HC No 264, 1965).
414 factors tending to defeat contractual liability

composers to be taken up by publishers.240 The task of weighing conflicting economic

judgments and predictions is, indeed, better entrusted to government, regulatory
agencies, such as the Office of Fair Trading or the Competition Commission, or to
specialized tribunals such as the Competition Appeal Tribunal.
Where, however, as in A Schroeder Music Publishing Co Ltd v Macaulay, there is great
inequality of bargaining power, the primary concern of the Court is the reasonableness
of the restriction as between the parties and not the broader economic issues that are
involved in determining whether it is ‘reasonable in the interests of the public’. The
deep concern of the common law with the personal liberty of the citizen led to the
legal principle favouring the right of an individual to work and not to be disabled from
supporting himself or herself by an unreasonable restriction.

(vi) Legislative control

The prohibition in article 101 of the Treaty on European Union (ex-article 81 of the EC
treaty and article 85 of the EEC Treaty) and section 2 of the Competition Act 1998,
considered above, will often apply to exclusive dealing agreements. For example, in
Consten and Grundig v Commission of the European Communities:241
G, a German manufacturer of radios, television and similar equipment, appointed C, a
French company, the sole distributor of its products within France. C undertook (inter alia)
not to export any of G’s products outside France, and, in turn, G imposed on all its other
distributors outside France an obligation not to export its products outside their respective
territories. It further assigned to C the trademark ‘GINT’ which would enable C to sue
any third party importing G’s products into France, for infringement of this trade mark.
The object of this arrangement was to confer upon C absolute territorial protection within
France from competing G products imported from outside.

The European Court of Justice held that C could not rely upon the agreement with G,
nor upon the trade mark or on French national law, to prevent the importation of G’s
products into France. The agreement prevented other distributors in a national market,
ie France, from obtaining supplies of G products from elsewhere in the Community. It
accordingly fell within article 85(1).
Certain categories of exclusive dealing agreements have been accorded a block
exemption, provided they contain the required provisions and do not contain those
proscribed.242 Where an agreement does not fall within a block exemption, it may still
be individually exempt provided the requirements of article 101(3) (ex-article 81(3)
and article 85(3)) and the 1998 Act are fulfi lled.243

240 Trebilcock (1976) 26 U of Tor LJ 359.

241 (Cases 56/64, 58/64) [1966] ECR 299. For the remedies of a third party affected by such an agreement,
see Cutsforth v Mansfield Inns Ltd [1986] 1 WLR 558.
242 For current EC block exemptions see, eg, Regulations 487/2009 (air transport); 772/2004 (technology
transfer agreements); 358/2003 (insurance sector); 1400/2002 (motor vehicle sector); 2659/2000 (research
and development agreements). See also Competition Act 1998, s 6 and SI 2001 No 319 (public transport
ticketing schemes).
243 Above, pp 409–10. Applications to the Commission and the OFT for individual exemption were
abolished by Regulation 1/2003 and SI 2004 No 1261 respectively.
 illegality 415

(j) trade unions

Trade unions are, to a large extent, protected from the doctrine of restraint of trade by
section 11 of the Trade Union and Labour Relations (Consolidation) Act 1992, which
provides that the purposes of any trade union are not, by reason only that they are
in restraint of trade, unlawful so as to make any agreement or trust void or voidable
and its rules are not similarly unlawful or unenforceable. In Faramus v Film Artistes’
Association244 F was expelled from the union because of a rule barring any person who
had been convicted of a criminal offence. His challenge to the rule on the ground that
it was in unreasonable restraint of trade failed because the agreement constituted by
the rules of the union was one which related or was directed to its purposes. It could
not therefore be challenged on the ground that it was an unreasonable restraint of
trade.

(k) monopolies
In 1948, Parliament enacted the Monopolies and Restrictive Practices (Inquiry
and Control) Act,245 which set up an advisory body, now named the Competition
Commission.246 Provisions of the Competition Act dealing with monopolies
were replaced by a new regime in the Enterprise Act 2002, and the Competition
Commission is responsible for carrying out merger and market investigations under
the Enterprise Act. It is independent of government, but it has itself no power to
initiate an investigation. References to the Commission can be initiated only by the
Secretary of State, by the Office of Fair Trading or by regulators of certain industry
sectors. The Enterprise Act 2002 gave the Commission remedial powers; formerly any
order made in consequence of its reports had to be made by the Secretary of State.

5. the effect of illegality

(a) the fundamental principle of policy
It has already been pointed out that the single word ‘illegal’ may embrace varying
degrees of impropriety,247 and it should not be supposed that the effect of illegality is
always identical.
In some cases, the law adopts a very severe attitude and refuses to assist a person
implicated in the illegality in any way whatsoever. In others, public policy does not
require that such a person should be so completely denied a remedy. Money paid
or property transferred may be recoverable;248 collateral transactions may not be
tainted;249 and the Court may be prepared to sever the illegal part of the contract
from that which is legal, and enforce the legal part alone.250 In this section, however,

244 [1964] AC 925 (decided on the similar wording of the Trade Union Act 1871, s 3).
245 Th is has now been repealed. 246 Competition Act 1998, s 45. 247 See above, p 379.
248 See below, pp 423, 426. 249 See below, p 432. 250 See below, p 432.
416 factors tending to defeat contractual liability

unless otherwise stated, we shall be dealing with those situations where the law
rigorously discourages the claims of those who found their cause of action upon an
illegal transaction. Even in these situations, there is some variation in the rules to
be applied.251 Moreover, in some instances, the Courts will refuse their aid only to a
party who intends to break the law; in others, the contract is unlawful per se. Thus,
although general rules can be set out, each case must be examined in order to discover
the precise effect of the illegality.
The fundamental principle upon which the Courts will act when they have to deal
with an illegal contract was long ago explained by Lord Mansfield:252
The objection, that a contract is immoral or illegal as between plaintiff and defendant,
sounds at all times very ill in the mouth of the defendant. It is not for his sake, however,
that the objection is ever allowed; but is founded in general principles of policy, which the
defendant has the advantage of, contrary to the real justice, as between him and the plaintiff,
by accident, if I may so say. The principle of public policy is this: ex dolo malo non oritur
actio. No Court will lend its aid to a man who founds his cause of action upon an immoral
or an illegal act. If, from the plaintiff ’s own stating or otherwise, the cause of action appears
to arise ex turpi causa, or the transgression of a positive law of this country, there the Court
says he has no right to be assisted. It is upon that ground the Court goes; not for the sake of
the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff
and defendant were to change sides, and the defendant was to bring his action against the
plaintiff, the latter would then have the advantage of it; for where both are equally at fault,
potior est conditio defendentis.

It has recently been said that:

the principle is not a principle of justice: it is a principle of policy, whose application is
indiscriminate and so can lead to unfair consequences as between the parties to litigation.
Moreover the principle allows no room for the exercise of any discretion by the court in
favour of one party or the other.253

The consequence is that, subject to exceptions, discussed below, no person who is

aware of the illegal nature of a contract can enforce it, or recover money or property
transferred under it.
Since the justification for the rule that an illegal contract cannot be enforced by
a guilty party is not to protect the defendant but because the Courts will not lend
their aid to such a claimant it does not matter that the defendant shares the guilt.
But, questions of illegality involve varying degrees of impropriety, of participation and
responsibility, of injustice because of unjust enrichment, and of relationship between
the illegality and the claim.254 This, as well as the harshness of the consequences of

251 See below, pp 423, 426.

252 Holman v Johnson (1775) 1 Cowp 341, 343. See also Glanville Williams (1942) 8 CLJ 51; Grodecki
(1955) 71 LQR 254; Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39, [2009] 1 AC 1391 at [20]–[26],
[128]–[141].
253 Tinsley v Milligan [1994] 1 AC 340, 355 (Lord Goff ). But cf Case C-453/99 Courage Ltd v Crehan [2002]
QB 507 (where EC competition law renders agreement illegal a national rule barring relief to an innocent
party is precluded by art 81 EC Treaty (now art 101 TEU)).
254 Tan (1988) 104 LQR 523, 526. See also above, p 379, below, pp 417, 423; Buckley (1994) 110 LQR 3; Rose
(1996) JCL 271.
 illegality 417

the application of the ex turpi causa maxim, led to the adoption in some decisions of
an approach, originating in cases concerned with the effect of illegality on a claim in
tort,255 whereby the Courts would help such a claimant unless to do so ‘would be an
affront to public conscience’.256 Although the ‘public conscience’ test seeks to address
the underlying policy issues and would lead to a more unified approach to the effect
of illegality in the law of obligations, and a greater harmony between common law
and equitable rules, it has been rejected by the House of Lords. In Tinsley v Milligan
their Lordships stated that it was ‘inconsistent with numerous authorities’ and with
Lord Mansfield’s principle, it was ‘imponderable’, and that its adoption would replace
a system of rules by a discretionary balancing operation.257 Lord Goff considered that
to introduce a system of discretionary relief is a matter for the legislature after a full
inquiry rather than for a Court. However, after a lengthy review of the law on illegality,
the Law Commission has concluded that there should be no legislation in this area
because it would be difficult to define the ambit of a statutory discretion in a way that
did not cause further problems. Rather, the Courts should develop the law in ways
that would render it clearer, more certain, and less arbitrary, basing their decisions in
individual cases directly on the policies that underlie the illegality defence.258

(b)the intention of the parties and enforceability of

the contract
It must, however, be emphasized at the outset that most contracts are not legal or
illegal in the same way that eggs are good or bad. The effect of illegality will in most
cases turn on the intention of the parties, ie whether one or both of them entered into
the contract intending to do an act forbidden by the law. Their rights and remedies will
depend upon whether they knew of or participated in the illegal intention.

(i) Guilty parties

A party who enters into a contract for an illegal purpose or intending to perform it in
an illegal manner, or a contract which to the knowledge of that party involves or has as
its object the commission of an illegal act, cannot bring any action upon the contract

255 Thackwell v Barclays Bank plc [1986] 1 All ER 676; Saunders v Edwards [1987] 1 WLR 1116. On the test in
tort, see further Pitts v Hunt [1991] 1 QB 24, Gray v Thames Trains Ltd [2009] UKHL 33, [2009] 1 AC 1339.
256 Euro Diam Ltd v Bathurst [1990] QB 1, 35. See also Howard v Shirlstar Container Transport Ltd [1990]
1 WLR 1292, although Tinsley v Milligan (above, n 253) 360 has now explained this case as an example of the
principle stated in St John Shipping Corp v Rank [1957] 1 QB 267, above, p 382.
257 [1994] 1 AC 340, respectively at 358 and 361 (Lord Goff ), 369 (Lord Browne-Wilkinson), and 358 and
363–4 (Lord Goff ). Th is decision is open to criticism on other grounds; below, p 431.
258 Consultation Paper No 189, The Illegality Defence: A Consultative Report (2009), confi rmed in the
fi nal report, Law Com No 320, The Illegality Defence (2010). They identified the policies as including (a)
furthering the purpose of the rule which the illegal conduct has infringed; (b) consistency; (c) that the
claimant should not profit from his or her own wrong; (d) deterrence; and (e) maintaining the integrity of
the legal system: Consultation Paper No 189, paras 2.5–2.35, and that only if depriving the claimant of his or
her rights is a proportionate response should the defence succeed: ibid, para 3.142. Cf Consultation Paper No
154, The Effect of Illegality on Contracts and Trusts (1999). See, however, the New Zealand Illegal Contracts
Act 1970 and NZ Law Commission Report No 25 Contract Statutes Review (1993) 21, 173 (‘in practice’ this
statute ‘has worked reasonably well’).
418 factors tending to defeat contractual liability

or enforce it in any way.259 And if both parties share the unlawful intention, as in
Pearce v Brooks,260 where both knew that the brougham was to be used for the purpose
of prostitution, no action can be maintained by either party.

(ii) Innocent parties

A party who is innocent of any illegal intention is not without remedy. A number of
situations must be distinguished.
(a) Lawful act intended to further illegal purpose. If the contract is one to do
something which is lawful in itself, but which one of the parties intends to use for the
furtherance of some illegal purpose or to perform in an illegal manner, the agreement
can be the subject-matter of an action at the suit of the innocent party. Provided that
there was no knowledge of the illegal intention of the other party, the innocent party
is entitled to recover what may be due under the contract, or to obtain damages in
full.261 An innocent party who becomes aware of the illegality before the transaction
is completed or while it is still executory, may refuse to perform the contract. Thus in
Cowan v Milbourn:262
M agreed to let a set of rooms to C for certain days; then he discovered that it was proposed to
use the rooms for the delivery of lectures which were unlawful because blasphemous within
the meaning of a statute. M refused to carry out the agreement.

It was held that he was entitled to do so. But should the illegal purpose be discovered
before it is carried into effect, an innocent party who allows it to proceed none the
less cannot recover. In Cowan v Milbourn, M could not have recovered the rent of his
rooms if, having let them in ignorance of C’s intentions, he had allowed the rooms to
be used after he had learned of the illegal purpose which his tenant contemplated.
(b) Commission of illegal act. The same principle applies where the contract is not
unlawful ‘per se’263 and one party is unaware that it involves or has as its object the
commission of an illegal act. The contract itself is still valid, and an innocent party
who was ignorant of the facts which constitute the illegality can enforce it. In Bloxsome
v Williams:264

259 Alexander v Rayson [1936] 1 KB 169, 182. Cf Edler v Auerbach [1950] 1 KB 359. On the attribution of
knowledge to a company, see Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2
AC 500. See further Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555, 1654–5.
260 (1866) LR 1 Ex 213, above, p 393. See also Alexander v Rayson, above, n 259; Corby v Morrison [1980]
IRLR 218; Anglo Petroleum Ltd v TFB (Mortgages) Ltd [2007] EWCA Civ 456, [2007] BCC 407 at [79]
(Toulson LJ: shared purpose can be inferred, eg, from letting of a flat to a prostitute at a rent beyond normal
commercial rent).
261 Mason v Clarke [1955] AC 778, 793, 805. See also Fielding & Platt Ltd v Najjar [1969] 1 WLR 357;
Newland v Simons and Willer (Hairdressers) Ltd [1981] ICR 521.
262 (1867) LR 2 Ex 230. The defi nition of blasphemy in this case must be revised in the light of Bowman v
Secular Society Ltd [1917] AC 406. 263 See below, p 421.
264 (1824) 3 B & C 232 (the defendant in this case could not have sued: Fennell v Ridler (1826) 5 B & C 406).
See also Shaw v Shaw [1954] 2 QB 429; Bank für Gemeinwirtschaft v City of London Garages Ltd [1971] 1 WLR
149 and the cases cited above, pp 381–2. Cf Phoenix General Insurance Co of Greece SA v Halvanon Insurance
Co Ltd [1988] QB 216 (effect reversed by the Financial Services Act 1986, s 132; now replaced by Financial
Services and Markets Act 2000).
 illegality 419

B contracted with W on a Sunday for the purchase of a horse, W warranting that the horse
was not more than 7 years old and sound. Unknown to B, W was a horse-dealer and the
Sunday Observance Act 1677 imposed a penalty on a horse-dealer for exercising his trade
on a Sunday. The horse was 17 years old and unsound, and B sued for damages for breach of
warranty.

The Court of King’s Bench held that the illegality was no defence to the action for
breach of contract as B was ignorant of the fact that W was a horse-dealer. It is
also possible for an innocent party who has executed part of such a contract before
discovering the illegality to recover reasonable remuneration for the work already
done in a restitutionary action. So in Clay v Yates265 a printer was able to recover the
value of work done towards the publication of a treatise which, after the major part of
it had been printed, he found to contain defamatory material.
(c) Legal formation but illegal performance. Different considerations, however,
apply where there is no illegal intention at the time the contract is entered into, but one
party subsequently performs the contract in an illegal manner. Normally that party
will be precluded from enforcing any claim which requires reliance on its own illegal
performance. 266 But this is not necessarily the case. As we have seen, if a statutory
offence is committed in the course of performing a contract, the intention of the
statute may simply be to impose a penalty, and not to prevent the party in default
from asserting civil remedies.267 There may also be other situations where public
policy does not require that the commission of an unlawful or immoral act in the
course of performance should deprive the ‘guilty’ party of recourse to the Courts.268
In any event, the normal contractual remedies are available to the innocent party. In
Archbold’s (Freightage) Ltd v Spanglett Ltd:269
S agreed with A to carry a consignment of whisky from Leeds to London docks in one of its
vans. Unknown to A, the vehicle to be used for this purpose did not possess an ‘A’ licence
entitling it to carry the goods of other persons for reward. Owing to the driver’s negligence,
the whisky was stolen en route and A claimed damages for its loss. S contended that it was
not liable as the contract was illegal.

The Court of Appeal refused to accept this contention. The contract was not one
prohibited by statute; and it was not rendered illegal merely by the fact that one of the parties
(S) had performed it in an unlawful manner. Thus, even though S might not have been
able to enforce the contract, A was ignorant of the illegality and was entitled to damages.
In such cases the illegal performance of the contract will not render it unenforceable
unless, in addition to knowledge of the facts which make the performance illegal, the
party seeking to enforce it actively participates in the illegal method of performance.270

265 (1856) 1 H & N 73. Cf Taylor v Bhail [1996] CLC 377, 383 (no such remuneration for guilty party) and
Aratra Potato Co v Taylor Johnson Garrett [1995] 4 All ER 695, 709–10 (no quantum meruit for work done
under champertous agreement).
266 Anderson Ltd v Daniel [1924] 1 KB 138; B & B Viennese Fashions v Losane [1952] 1 All ER 909.
267 See above, pp 382–3. 268 Coral Leisure Group Ltd v Barnett [1981] ICR 521.
269 [1961] 1 QB 374.
270 Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828; above, p 382; Hall v Woolston
Hall Leisure Ltd [2001] 1 WLR 225, 236, 246; Wheeler v Quality Deep Ltd [2004] EWCA Civ 1085, [2005]
420 factors tending to defeat contractual liability

(d) Ignorance of law generally no defence. There is, however, an important

qualification which must be made to the principles stated above. A party to a contract
who has full knowledge of the facts which constitute the illegality, but is ignorant of
the law, will not be held to be innocent, for, in the context of enforcement, ignorance of
the law is no defence. In JM Allan (Merchandising) Ltd v Cloke271 the claimant sued the
defendant for rentals payable in respect of a roulette table hired to the defendant and
designed for the playing of ‘Roulette Royale’, a game which was at that time unlawful
by virtue of the Betting and Gaming Act 1960.272 At the time the parties entered into
the hiring agreement, neither knew that the game was illegal, and the claimant pleaded
that it had no ‘wicked intention to break the law’. The Court of Appeal rejected this
plea and held that ignorance of the law was no answer to the charge of illegality so as
to permit the claimant to enforce the agreement.
(e) Ignorance of law a defence where performance legal. In Cloke’s case, the parties
intended from the beginning that the subject-matter of the contract should be used for
an unlawful purpose (the playing of ‘Roulette Royale’), and this fact was held to render
the contract illegal in its formation. On the other hand, in Waugh v Morris:273
M chartered a ship belonging to W to take a cargo of hay from Trouville to London, the
cargo to be unloaded alongside ship in the river. M subsequently instructed the master to
land the hay at a wharf at Deptford Creek, and the master agreed to do so. Unknown to the
parties an Order in Council (made before the charterparty was entered into) had forbidden
the landing of French hay in order to prevent the spread of disease among animals. M, on
hearing this, took the cargo from alongside the ship without landing it, and exported it, thus
avoiding a breach of the Order in Council. The return of the vessel was delayed, and W sued
for damages arising from the delay.

M pleaded as a defence that the charterparty contemplated an illegal act, the landing
of French hay contrary to the Order in Council. This defence did not prevail. The
charterparty itself merely provided that the hay should be taken and delivered
alongside, but not landed; and the Court found as a fact that W never contemplated or
believed that M would violate the law. In his judgment, however, Blackburn J said:274
where a contract is to do a thing which cannot be performed without a violation of the law it
is void, whether the parties knew the law or not. But we think, that in order to avoid a contract
which can be legally performed, on the ground that there was an intention to perform it in
an illegal manner, it is necessary to show that there was the wicked intention to break the
law; and, if this be so, the knowledge of what the law is becomes of great importance.

It is submitted that Blackburn J did not intend, by these words, to lay down a general
rule that, when a contract is not illegal in its formation, but the illegality resides only
in its performance, a party may be excused by ignorance of the law. The principle is
more narrow: that if one or both parties contemplate a method of performance which

ICR 265 at [71] (foreigner with limited knowledge of English language and tax and national insurance
provisions).
271 [1963] 2 QB 340. See also Nash v Stevenson Transport Ltd [1936] 2 KB 128; Miller v Karlinski (1945) 62
TLR 85. Cf Shelley v Paddock [1980] QB 348. 272 The Act has now been repealed.
273 (1873) LR 8 QB 202. 274 Ibid, 208.
 illegality 421

is, unknown to them, illegal, they will not be shut out from their contractual remedies
if, on their discovering the illegality, the contract is lawfully performed.275

(c) contracts unlawful ‘per se’

If a contract is expressly or by implication forbidden by statute or by public policy,
then it is void and unenforceable, though the parties may have been ignorant of the
facts constituting the illegality and did not intend to break the law. Such contracts are
unlawful per se and the intention of the parties is irrelevant.
An example of a contract forbidden by statute has been given in Re Mahmoud
and Ispahani276 where the claimant, who was ignorant of the fact that the defendant
had no licence to purchase linseed oil, was unable to recover damages for non-
acceptance in face of a statutory prohibition. An example of a contract forbidden
by public policy is one which necessarily involves trading with an alien enemy in
time of war. No rights of action will arise, even though one party at the time of the
agreement is ignorant of the fact that war has broken out or that the other party has
the status of an enemy. 277 The agreement itself is prohibited and cannot be enforced
in any way.
It is clear that considerable difficulty may be experienced in deciding whether a
particular statute or head of public policy renders the contract unlawful per se or
merely prevents a guilty party from suing on it. The modern tendency is to hold that
a contracting party who has not participated in the unlawful intention should not be
denied relief. The state of mind of the parties is the crucial factor. Unless it is clear that
the legislature intended, or public policy demands, that the contract be prohibited
altogether, the innocent party can sue on the agreement.
Moreover, even if the contract is one which is unlawful per se, the innocent party is
not necessarily without remedy. If the innocent party has been induced to enter into
the contract by a misrepresentation or assurance by the other party, then damages
can be recovered for breach of a collateral warranty if such has been given,278 or for
fraud if there is fraud, 279 provided that the conduct of the innocent party is not itself
sufficiently culpable to bar that remedy.280 So in Strongman (1945) Ltd v Sincock281 a
builder recovered damages for the breach of a collateral assurance by his client that he
would obtain the necessary licences to enable the work to be carried out, even though a
contract to build without a licence was absolutely prohibited by statute. And in Shelley

275 See also Hindley & Co Ltd v General Fibre Co Ltd [1940] 2 KB 517; Anglo Petroleum Ltd v TFB
(Mortgages) Ltd [2007] EWCA Civ 456, [2007] BCC 407 at [56]–[64]. Cf Reynolds v Kinsey 1959 (4) SA 50
(South Africa).
276 [1921] 2 KB 716, above, p 380; Chai Sau Yin v Liew Kwee Sam [1962] AC 304; Harse v Pearl Life
Assurance Co [1904] 1 KB 558.
277 Sovfracht (v/o) v Van Udens Scheepvaart en Argentuur Maatschappij (NV Gebr) [1943] AC 203.
278 Strongman (1945) Ltd v Sincock [1955] 2 QB 525, 536, 539; Gregory v Ford [1951] 1 All ER 121.
279 Burrows v Rhodes [1899] 1 QB 816; Road Transport & General Insurance Co v Adams [1955] CLY 2455;
Shelley v Paddock [1980] QB 348. Rescission on the ground of fraud may also be available: see Hughes v
Clewley, The Siben (No 2) [1996] 1 Lloyd’s Rep 35 (not available in that case), above, pp 310, 311.
280 Askey v Golden Wine Co Ltd [1948] 2 All ER 35. 281 [1955] 2 QB 525.
422 factors tending to defeat contractual liability

v Paddock282 a woman who was fraudulently induced to agree to buy a house in Spain
in ignorance of the fact that the purchase was in breach of the Exchange Control Act
1947 was held entitled to recover damages for the fraud.

(d) benefit from illegal contracts

It is sometimes said to be a rule of law that no person can take any benefit from a
contract, either directly or through a personal representative, when that benefit results
from the performance by that person of an illegal act.283 In Beresford v Royal Insurance
Co Ltd:284
R insured his life with the defendant company for £50,000. A few minutes before the policy
was due to lapse, he committed suicide. The policy contained a term avoiding it in the event
of suicide within a year of its commencement, but the suicide occurred after the policy had
run for some years.

The House of Lords held that the insurance company had agreed to pay in this
event, but that the claim was contrary to public policy as the deceased’s personal
representatives could not obtain any benefit from the assured’s illegal act. The case
would certainly not be decided the same way at the present day, for suicide is no
longer a crime, 285 and the rule itself is probably too widely stated. It is submitted
that it will only apply where the statute or head of public policy is such as to require
that the offender be deprived of the fruits of the illegal act.286 Thus, although it has
been held that no recovery would be allowed under a policy of insurance when the
insured goods had been deliberately imported without payment of customs duty, 287
the same considerations would not apply in the case of unintentional importation
or the innocent possession of uncustomed goods. 288 Similarly, in principle no
remuneration in the form of a restitutionary quantum meruit will be given for
work done pursuant to an illegal contract where that would amount to indirect
enforcement of the contract. 289

282 [1980] QB 348. See also Hughes v Clewley, The Siben (No 2) [1996] 1 Lloyd’s Rep 35, 63 and Saunders v
Edwards [1987] 1 WLR 1116, the result, but not the reasoning of which was said to be ‘unassailable’ by Lord
Goff in Tinsley v Milligan [1994] 1 AC 340, 360.
283 Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147; In the Estate of Crippen [1911] P 108,
112; Archbolds (Freightage) Ltd v Spanglett Ltd [1961] 1 QB 374, 388; Re Giles [1971] Ch 544; Davitt v Titcumb
[1990] 1 Ch 110. But see the Forfeiture Act 1982; Re K [1985] Ch 85; Re S [1996] 1 WLR 235.
284 [1938] AC 586. See also Prince of Wales etc Association v Palmer (1858) 25 Beav 605. Cf White v British
Empire etc Assurance Co (1868) LR 7 Eq 394.
285 Suicide Act 1961.
286 Marles v Philip Trant & Sons Ltd [1954] 1 QB 29, 39; St John Shipping Corp v Joseph Rank Ltd [1957] 1
QB 267, 292; R v Chief National Insurance Commissioner [1981] QB 758, 765; Gardner v Moore [1984] AC 548;
Thorne v Silverleaf [1994] 1 BCLC 637.
287 Geismar v Sun Alliance and London Insurance Ltd [1978] QB 383; above, p 386. 288 Ibid, 395.
289 Aratra Potato Co v Taylor Johnson Garrett [1995] 4 All ER 695, 709–10 (champertous agreement).
But, in the case of statutory illegality, there is an issue whether the test is whether the statute bars restitution
as well as enforcement of the executory contract; see by analogy Scott v Pattison [1923] 2 KB 723; Pavey &
Matthews Pty Ltd v Paul (1986–87) 162 CLR 221 (unenforceable contracts).
 illegality 423

(e) recovery of money paid or property transferred

(i) Generally not recoverable
It is scarcely surprising that the Courts will refuse to enforce an illegal agreement at
the suit of a person who is implicated in the illegality. But it is also a rule of English law
that money paid or property transferred by such a person cannot be recovered. In the
colourful words of Wilmot CJ:
All writers upon our law agree in this, no polluted hand shall touch the pure fountains
of justice. Whoever is a party to an unlawful contract, if he hath once paid the money
stipulated to be paid in pursuance thereof, he shall not have the help of a Court to fetch it
back again.290

This principle is expressed in the maxim in pari delicto potior est conditio defendentis
and it may be illustrated by the case of Parkinson v College of Ambulance Ltd:291
The secretary of a charitable organization promised P that he would secure for him a
knighthood if P made a sufficient donation to the organization’s funds. In consideration of
this promise, P paid over £3,000 and promised more when he should receive the honour. The
knighthood never materialized, and P sued for the return of his money.

Although, there was ‘a total failure of consideration’, which, but for the illegality,
would have grounded a restitutionary claim for the return of the money, it was held
that the action must fail as it was founded upon a transaction which was illegal at
common law.
But there are exceptional cases in which a person will be relieved of the consequences
of an illegal contract which that person has entered—cases to which the maxim just
quoted does not apply. They fall into three classes: (i) where the illegal purpose has
not yet been carried into effect before it is sought to recover the money paid or goods
delivered or other property transferred in furtherance of it; (ii) where the party seeking
recovery is not in pari delicto with the party resisting recovery; (iii) where the claimant
does not have to rely on the illegal contract to make out the claim, but can establish
a claim based on a legal or equitable property right. Each of these exceptions will be
considered in turn.

(ii) Illegal purpose not yet carried into effect

The first exception relates to cases where money has been paid, or goods delivered, or
other property transferred for an unlawful purpose which has not yet been carried
into effect because the claimant withdrew in time.292 The law is not quite satisfactorily
settled on this point, and the authorities are difficult to reconcile, but its present
condition would seem to demand that two conditions be satisfied. First, the party
seeking to recover must withdraw from the transaction before the illegal purpose is
executed in whole or in part. Secondly, the withdrawal must be voluntary and not be

290 Collins v Blantern (1767) 2 Wilson 347, 350.

291 [1925] 2 KB 1. See also Shaw v Shaw [1965] 1 WLR 937. For a criticism of the maxim, see Grodecki
(1955) 71 LQR 254.
292 See Beatson (1975) 91 LQR 313; Merkin (1981) 97 LQR 920.
424 factors tending to defeat contractual liability

merely frustration by circumstances over which the party seeking to recover money
paid or property transferred has no control.
It is, however, highly unlikely that the Courts would allow any opportunity for a
withdrawal or change of mind in the most serious cases of moral reprehensibility, as
for example, where money is paid to another to commit murder.293
(a) Repudiation of illegal purpose. While the illegality is still completely executory,
the parties are allowed an opportunity for repentance or change of mind, a locus
poenitentiae. But some doubt exists as to when this privilege ceases. In Taylor v
Bowers294 it was said by Mellish LJ that:
If money is paid or goods delivered for an illegal purpose, the person who had so paid the
money or delivered the goods may recover them back before the illegal purpose is carried
out; but if he waits till the illegal purpose is carried out, or if he seeks to enforce the illegal
transaction, in neither case can he maintain an action.

The facts of the case to which these words applied were as follows:
T, a debtor, had made a fictitious assignment of his goods to one A in order to defraud his
creditors. Two meetings of creditors were then called, but no composition was reached as
only one creditor turned up. A had in the meantime, without T’s consent, parted with the
goods under a bill of sale to the defendant, who was one of the creditors and knew of the
fraudulent assignment. T sued the defendant for the recovery of the goods.

It was held that he was entitled to succeed. It could be contended that, in this case,
the illegal purpose was still entirely executory, for no creditor had actually been
defrauded.295 But it is difficult to see the fictitious assignment as anything but
a part-performance of the illegal purpose, since at the two creditors’ meetings the
creditors would clearly have been less likely to have pressed their claims in view of the
assignment. If this is so, then the facts in Taylor v Bowers support the principle stated
by Mellish LJ, that recovery is possible at any time before the illegal purpose is carried
out, ie completed.296
Subsequent cases, however, do not endorse this formulation. In Kearley v Thomson,297
for instance:
The defendants, a firm of solicitors acting for a petitioning creditor of one Clarke, a bankrupt,
agreed with K, a friend of Clarke, that in consideration of the payment of their costs they
would not appear at the public examination of Clarke, nor oppose the order for his discharge.
They carried out the first part of the agreement, but before any application was made for
Clarke’s discharge, K changed his mind and sought to recover the money which he had paid.

K’s action failed. It was held that the agreement was illegal as tending to pervert the
course of justice, and that recovery was precluded as the illegal purpose had already
been partly executed. The principle as formulated by Mellish LJ in Taylor v Bowers, and

293 Kearley v Thomson (1890) 24 QBD 742, 747; Tappenden v Randall (1801) 2 B & P 467.
294 (1876) 1 QBD 291, 300.
295 Tinsley v Milligan [1994] 1 AC 340, 374; Tribe v Tribe [1996] Ch 107, 121–2, 124, 132–3. See also
Perpetual Executor & Trustees Assoc v Wright (1917) 23 CLR 185, 193 (Australia).
296 See also Singh v Ali [1960] AC 160, 167. 297 (1890) 24 QBD 742.
 illegality 425

even the case itself, might, said the Court, require reconsideration.298 In any event, the
case before the Court was distinguishable as there had been ‘a partial carrying into
effect of an illegal purpose in a substantial manner’.299 Although the matter is not
free from doubt,300 the position now seems to be that money paid or goods delivered
in pursuance of an illegal purpose cannot be recovered where that purpose has been
executed in whole or in part.301
(b) Withdrawal must be voluntary. What the law allows in these cases is a locus
poenitentiae, and therefore, whilst it will help one who repudiates, it will not help a
person who has abandoned the illegal purpose only because that purpose has been
frustrated by the failure of the other contracting party to fulfil his side of the illegal
contract, or in some other way. So, in Bigos v Bousted:302
In breach of the provisions of the Exchange Control Act 1947, A entered into an agreement
with B whereby B agreed to make available £150 worth of Italian currency to enable A’s
wife and daughter to travel in Italy. As security, A deposited with B a share certificate. The
promised money was never forthcoming, and A sued B to recover the certificate.

It was pleaded on A’s behalf that he was entitled to a locus poenitentiae as the illegal
contract had not been performed, but this contention was rejected by Pritchard J.
He held that there was no true withdrawal on A’s part; the contract had merely been
frustrated by B’s failure to supply the money.
But although the withdrawal must be voluntary, it is not necessary that there be
genuine repentance. Thus in Tribe v Tribe:303
A father transferred shares to his son on trust so that they would not be the subject of claims
made against him by creditors but the illegal purpose of defrauding the creditors was not
carried out because the claims settled. The son refused to transfer the shares back to his
father.

The Court of Appeal held that the father was entitled to the benefit of the
locus poenitentiae doctrine. Millett LJ stated that ‘genuine repentance is not
required . . . voluntary withdrawal from an illegal transaction when it has ceased to be
needed is sufficient’.304
(c) Marriage brokage contracts. Marriage brokage contracts are an exception to
the general rule. In Hermann v Charlesworth,305 a woman who had paid £52 to the
proprietor of a newspaper, The Matrimonial Post and Fashionable Marriage Advertiser,
with a view to obtaining by advertisement an offer of marriage, successfully recovered

298 See Millett LJ’s doubts in Tribe v Tribe [1996] Ch 107, 125. But the decision was cited without
disapproval in Tinsley v Milligan [1994] 1 AC 340, 374.
299 Ibid, 747 (Fry LJ). See also Apthorp v Neville & Co (1907) 23 TLR 575; Re National Benefit Assurance
Co Ltd [1931] 1 Ch 46; Parker (Harry) Ltd v Mason [1940] 2 KB 590.
300 Cf Lord Browne-Wilkinson’s formulations (whether illegal purpose ‘put into operation’ and whether
it was ‘carried through’) in Tinsley v Milligan, above, n 298, 374.
301 Tribe v Tribe [1996] Ch 107, 122, 124, 133. Cf at 134. For an alternative formulation, see Beatson (1975)
91 LQR 313, 314–16. 302 [1951] 1 All ER 92. But see Shelley v Paddock [1980] QB 348.
303 [1996] Ch 107. 304 Ibid, 135.
305 [1905] 2 KB 123. Cf above, p 394 doubting that such contracts should be unenforceable.
426 factors tending to defeat contractual liability

the money after advertisements had appeared, and several prospective suitors had
been introduced, but before any marriage had been arranged.

(iii) Parties not ‘in pari delicto’

Where the parties are not in pari delicto the less guilty party may be able to recover
money paid, or property transferred, under the contract. This possibility may arise
in two basic situations. The first is where the contract is rendered illegal by statute in
order to protect a class of persons of whom the claimant is one. The second is where
the nature of the restitutionary cause of action shows that the claimant was ignorant
or innocent of the illegality.
(a) Class-protecting statutes. First, the case of a contract made illegal by statute in
the interests of a particular class of persons of whom the claimant is one. As Lord
Mansfield explained in Browning v Morris:306

where contracts or transactions are prohibited by positive statutes, for the sake of protecting
one set of men from another set of men; the one, from their situation and condition, being
liable to be oppressed or imposed upon by the other; there, the parties are not in pari delicto;
and in furtherance of these statutes, the person injured, after the transaction is finished and
completed, may bring his action and defeat the contract.

The Rent Acts have furnished an illustration of this type of case. The Rent Act 1977
provides that, where under any agreement a premium is paid which could not lawfully
be required or received, the premium is to be recoverable by the person by whom it
is paid.307 But even in the absence of any such express statutory provision, it has been
held that a tenant or assignee of a lease, though a willing party to the evasion of the
Rent Acts, may recover an illegal premium paid, since the Acts were passed for the
protection of such persons.308
The intention of the statute is one of prime importance. In Green v Portsmouth
Stadium Ltd:309
G, a bookmaker, alleged that, over a long period of time, he had been overcharged by the
defendants for admission to a greyhound track run by them. The Betting and Lotteries Act
1934, section 13(1), allowed a charge to be made to bookmakers not exceeding five times
the highest fee for the public at large, but G had been compelled to pay considerably more.
He claimed the excess from the defendants in an action for money had and received.

The Court of Appeal held that the action must fail. The Act was designed to regulate
racecourses; it was not a bookmakers’ charter. The statute was not passed ‘to protect
one set of men from another set of men’, at any rate, not so as to give bookmakers the
right to bring civil proceedings for the recovery of their money.

306 (1778) 2 Cowp 790, 792. 307 Rent Act 1977, s 125. See Farrell v Alexander [1977] AC 59.
308 Gray v Southouse [1949] 2 All ER 1019; Kiriri Cotton Co Ltd v Dewani [1960] AC 192. See also Ailion
v Spiekermann [1976] Ch 158.
309 [1953] 2 QB 190.
 illegality 427

(b) Fraud. Where a person has been induced to enter into the contract by fraud,
recovery will be allowed. In Hughes v Liverpool Victoria Legal Friendly Society:310
H took up five insurance policies with the defendants on the lives of persons in which she
had no insurable interest. She was induced to do so by a fraudulent misrepresentation on the
part of the defendants’ agent that the policies were valid and would be paid. They were in
fact illegal and void.

It was held that she was entitled to recover the premiums which she had paid.
(c) Oppression and duress. The position is the same where a person has been induced
to enter into the contract by improper pressure. In Atkinson v Denby:311
A, a debtor, offered his creditors a composition of 5 shillings in the pound. The defendant,
an influential creditor, refused to assent to the composition unless A would make him an
additional payment of £50 in fraud of the other creditors. Th is was done and the composition
arrangement was carried out. A then sued to recover the £50 on the ground that it was a
payment made by him under oppression.

It was held that he could recover. The Court of Exchequer Chamber, affirming the
judgment of the Court of Exchequer, observed that the parties were not equally to
blame:312
It is said that both parties are in pari delicto. It is true that both are in delicto, because the Act
is a fraud upon the other creditors, but it is not par delictum, because one has the power to
dictate, the other no alternative but to submit.

(d) Mistake. Where money is mistakenly paid under an invalid or ineffective

contract, the payer may recover it subject to defences in the law of restitution such
as change of position. This has long been the case for mistakes of fact, even where
the contract is illegal. In Oom v Bruce313 insurance premiums paid by the agent of a
Russian in ignorance of the outbreak of war between the United Kingdom and Russia
(a matter making the contract illegal) were held to be recoverable. Until recently, as a
general rule, money paid under a mistake of law was irrecoverable. The rule had been
subject to much criticism, and, in 1960, in the context of an illegal contract, Lord
Denning had suggested that money paid under a mistake of law should be recoverable
whenever the payee is primarily responsible for the mistake.314 By 1994, when the Law
Commission recommended its abolition,315 the rule was clearly ‘on the turn’,316 and, in
1998 the House of Lords, in Kleinwort Benson Ltd v Lincoln CC, 317 held that it was not
part of English law. In that case KB sought to recover payments made to the defendant
under interest rate swaps contracts believed to be binding but subsequently held ultra

310 [1916] 2 KB 482. Cf Harse v Pearl Life Assurance Co [1904] 1 KB 558 where there was no fraud. See also
Reynell v Sprye (1852) 1 De GM & G 660. See also above, p 421 (damages for fraud).
311 (1861) 6 H & N 778, aff ’d (1862) 7 H & N 934. On duress, see above, p 350.
312 (1862) 7 H & N 934, 936. 313 (1810) 12 East 225.
314 Kiriri Cotton Co Ltd v Dewani [1960] AC 192, 204.
315 Law Com No 227, Mistakes of Law and Ultra Vires Public Authority Receipts and Payments (1994),
paras 3.7–3.12. 316 Friends Provident Life Office v Hillier Parker [1997] QB 85, 97 (Auld LJ).
317 [1999] 2 AC 349.
428 factors tending to defeat contractual liability

vires. In principle, the position should be the same in the case of money paid under an
illegal contract.
(e) Fiduciary duty. There is some authority for the view that a person who is under
a fiduciary duty to the claimant may not be allowed to retain property, or to refuse
to account for monies received, on the ground that the property or the monies
have come into his hands as the proceeds of an illegal transaction. In Re Thomas, 318
where a client sought to recover from his solicitor money paid in pursuance of
a champertous agreement between them, it was held that he was entitled to do
so. ‘Is every rascally solicitor’, said Lindley LJ, 319 ‘to invoke his own rascality as
a ground of immunity from the jurisdiction of the Court?’ It may also be that an
agent who receives money from a third party under an illegal contract is bound
to account to the principal for the proceeds. 320 But this exception is by no means
clearly established, and it is probable that recovery will be denied where the agency
is itself illegal. 321
(f) Critique. It will be seen from this discussion that until recently only a limited
number of situations in which one of the parties will be held not to be in pari delicto
with the other were recognized. The removal of the bar on recovery of money paid
under a mistake of law is an important liberalizing development. But there is also a
case for going further, and applying a test similar to that in the St John Shipping Corp
case in the context of enforcement of the contract,322 ie weighing up the comparative
merits of the parties in the light of the statutory purposes and policies, and allowing
the recovery of money or property when to do so would not undermine them.323

(iv) Claimant not relying on the illegal contract

It is settled law that the ownership of property can pass under an illegal contract if the
parties so intend, as in the case of goods sold to a buyer under an illegal contract of sale.324
Where, however, only a limited interest is transferred, as under a contract of bailment
or a lease, or a trust, it is equally well established that the owner of the property who is
not forced to found the claim on the illegal contract,325 but simply relies on his or her
title to the property, can recover it from the bailee or lessee.
This principle is extremely difficult to apply since it is frequently hard to determine
whether a claimant is relying upon title, or upon the contractual provisions of the
illegal agreement. For example, it seems probable that a landlord can recover premises
let to a tenant under an illegal agreement once the term of years has expired; but it is

318 [1894] 1 QB 747. But cf Kearley v Thomson (1890) 24 QBD 742; Palaniappa Chettiar v Arunasalam
Chettiar [1962] AC 294. 319 Ibid, 749.
320 Tenant v Elliott (1797) 1 B & P 3; Farmer v Russell (1798) 1 B & P 296; Bone v Eckless (1869) 5 H & N
925. See also Bridger v Savage (1884) 15 QBD 363. 321 Harry Parker Ltd v Mason [1940] 2 KB 590.
322 [1957] 1 QB 267, above, pp 382–3. 323 See Nelson v Nelson (1995) 132 ALR 133, below, p 431.
324 Scarfe v Morgan (1838) 4 M & W 270, 281; Elder v Kelly [1919] 2 KB 179; Singh v Ali [1960] AC 167;
Kingsley v Sterling Industrial Securities Ltd [1967] 2 QB 747, 782, 783; Belvoir Finance Co Ltd v Stapleton
[1971] 1 QB 210; Tinsley v Milligan [1994] 1 AC 340, 374 (Lord Browne-Wilkinson); Aratra Potato Co v Taylor
Johnson Garrett [1995] 4 All ER 695, 710. Cf Amar Singh v Kulubya [1964] AC 142 (transfer prohibited). See
also Higgins (1962) 25 MLR 149.
325 Amar Singh v Kulubya, above, n 324; Tinsley v Milligan, above, n 324.
 illegality 429

a matter of doubt whether the landlord could recover them in the meantime under
a covenant which provided for forfeiture for non-payment of rent.326 Would the
landlord be relying on his independent right of ownership, or (more probably) upon
the contractual provisions of the illegal lease?
(a) Claims based on legal title. In the case of chattels, it has been held that the
termination of the bailment puts the bailor in the more favoured position. In
Bowmakers Ltd v Barnet Instruments Ltd:327
The defendant entered into a contract whereby it agreed to hire-purchase from Bowmakers
certain machine tools. Such an agreement was rendered illegal by a government order which
prohibited the disposition of machine tools without a licence from the Ministry of Supply.
The defendant failed to make the agreed payments for hire. It further sold some of the tools
and refused to deliver up to Bowmakers others still in its possession. Bowmakers sued for
damages for conversion.

It was contended on behalf of the defendant that since the contract of hire-purchase
was illegal, Bowmakers could have no remedy on it. It pointed to the case of Taylor
v Chester328 where a man failed to recover half of a £50 bank note deposited by
him to secure the payment of money for a night’s debauch in a brothel. To this the
claimant replied that it was not relying on the contract, but upon its paramount right
of ownership, the bailment having come to an end; the case of Taylor v Chester was
distinguishable because the pledge had not been redeemed, whereas in Bowmakers’
case all possessory rights of the defendant had been extinguished. This latter argument
was adopted by the Court of Appeal. Du Parcq LJ said:329
In our opinion, a man’s right to possess his own chattels will as a general rule be enforced
against one who, without any claim of right, is detaining them, or has converted them to his
own use, even though it may appear either from the pleadings, or in the course of the trial,
that the chattels in question came into the defendant’s possession by reason of an illegal
contract between himself and the plaintiff, provided that the plaintiff does not seek, and is
not forced, either to found his claim on the illegal contract or to plead its illegality in order
to support his claim.
This case has been criticized330 on the ground that, although the possessory rights of
the defendants in the tools sold had come to an end,331 this was not so in the case of
the tools retained. In so far as the Court allowed the claim to these latter in pursuance
of the terms of the agreement, it was in effect permitting the enforcement of the
provisions of an illegal agreement. Nevertheless, the principle has been accepted,332
even if its application is a matter of dispute.

326 Jaijbhay v Cassim 1939 AD 537 (South Africa); Gas Light & Coke Co v Turner (1839) 5 Bing NC 666,
677 (Tindal CJ); Alexander v Rayson [1936] 1 KB 169, 186 (per curiam).
327 [1945] KB 65. See also Tinsley v Milligan [1994] 1 AC 340. 328 (1869) LR 4 QB 309.
329 [1945] KB 65, 71.
330 Hamson (1949) 10 CLJ 249; Paton, Bailment in the Common Law (1952), p 34; Miles v Watson [1953]
NZLR 958. For wider criticism, see Nelson v Nelson (1995) 132 ALR 133, 176, 189–90, below, p 431. The case
is stoutly defended by Coote (1972) 35 MLR 38.
331 An act inconsistent with the bailment, such as pledging or selling the goods bailed, automatically
determines the bailment and the immediate right to possession re-vests in the bailor.
332 Belvoir Finance Co Ltd v Stapleton [1971] 1 QB 210. Cf Lewis & Hall v McBurney [1970] CLY 372.
430 factors tending to defeat contractual liability

It seems probable that, if the property were of such a kind that it would be absurd
to encourage litigation concerning its ownership, such as housebreaking instruments,
obscene books, or controlled drugs, the Court would not countenance recovery in any
event.333 But it is difficult to see how a principle that entitles parties to recover their
property can properly make a distinction of this sort.334
(b) Claims based on equitable interests. In Tinsley v Milligan335 the principle in the
Bowmakers case was applied to a claim based upon an equitable interest.
T and M purchased a house with funds generated by a joint business venture on the
understanding that they had equal interests in it, but registered it in T’s name so that M was
able to make fraudulent claims for benefit from the Department of Social Security. Later,
after the parties had quarrelled, T asserted her legal title and M, who had confessed her
wrongdoing and made amends to the Department, counterclaimed for a declaration that T
held the house on trust for the parties in equal shares.

It is a rule of equity that (save in the case of certain dealings between spouses and
parents and children) where two parties have provided the purchase money to buy
property which is conveyed into the name of one alone, that party is presumed to
hold the property on a resulting trust for both parties in shares proportionate to their
contributions to the price. Such a resulting trust arose in the case of the purchase of the
house by T and M, and a majority of the House of Lords336 held that the counterclaim
by M did not therefore rely on the illegality but on her equitable interest. Lord Goff and
Lord Keith dissented on the ground that, as M did not have ‘clean hands’ she could not
assert an equitable interest, and the rule in the Bowmakers case is not applicable where
equitable relief is sought.337 But the majority thought that if the law is that a party is
entitled to enforce a proprietary right acquired under an illegal transaction, the same
rule ought to apply to any property right so acquired, whether such right is legal or
equitable.
The limited scope and procedural nature of the decision in Tinsley v Milligan can be
illustrated by comparing the facts of that case with those in Tribe v Tribe, considered
above, where a father voluntarily transferred shares to his son, and the presumption
of resulting trust did not apply. In such cases there is a presumption of advancement,
ie equity presumes an intention to make a gift so that the person who has transferred
property or allowed it to be registered in the name of another will have no equitable
interest to assert unless the presumption is rebutted. Lord Browne-Wilkinson in
Tinsley v Milligan considered this would be difficult for the transferor in such a case
to do without pleading or leading evidence that would reveal the illegal aspect of the
transaction, so that the transferor’s claim would fail.338 In Tribe v Tribe the Court of

333 Bowmakers Ltd v Barnet Instruments Ltd, above, n 327, 72; Taylor v Chester, above, n 328; Webb v Chief
Constable of Merseyside Police [2000] QB 427.
334 Tinsley v Milligan [1994] 1 AC 340, 362 (Lord Goff ). See also R v Lomas (1913) 9 Cr App Rep 220, as
explained in R v Bullock [1955] 1 WLR 1.
335 [1994] 1 AC 340. See Buckley (1994) 110 LQR 3; Enonchong (1995) 111 LQR 134.
336 Lord Browne-Wilkinson, Lord Jauncey, and Lord Lowry. 337 Ibid, 362.
338 [1994] 1 AC 340, 372.
 illegality 431

Appeal was troubled by this consequence of the decision of the House of Lords339 but
was able to avoid it because the father fell within the locus poenitentiae principle,340
which M did not in Tinsley v Milligan because the illegal purpose had been carried
into effect. So, if T had been M’s wife or child, so that the presumption of advancement
applied, M’s claim would have failed.
(c) Critique of the proprietary based approach. The rule established in the Bowmakers
case and extended to equitable interests in Tinsley v Milligan is a manifestation of
judicial concern, where there is no question of enforcing the executory provisions of
an illegal contract or transaction, that people should not be unnecessarily precluded
by illegality from enforcing rights already acquired under the completed provisions
of such a contract or transaction. 341 But it is submitted that it is open to a number of
objections. First, it avoids confronting the issue of illegality, the underlying policy
issues, and the merits of the parties, and relies instead on the mechanical application
of highly technical and procedural concepts.342 Secondly, to the extent that the parties
can, in their illegal contract, determine who owns the property that is its subject-
matter, parties who know that the contract is illegal and nevertheless enter into it
may be able to insulate themselves from the consequences of the in pari delicto rule.
Furthermore, where the illegality consists, as it often does in modern conditions, in
the contravention of a statute, the property-based approach takes no account of the
statutory purposes.
In Nelson v Nelson, 343 where a mother provided the purchase money for a house that
was transferred into the names of her two children to enable her unlawfully to obtain
a subsidized advance from a governmental body on another property, the High Court
of Australia disapproved of both the proprietary based approach of the majority in
Tinsley v Milligan and the unremitting application by the minority of the rule laid
down in Holman v Johnson.344 It applied a similar test to that in the St John Shipping
Corp case in the context of enforcement of the contract,345 and asked whether the
policy of the statute precluded the claim made. McHugh J stated:346
the sanction imposed should be proportionate to the seriousness of the illegality
involved . . . The statute must always be the reference point for determining the seriousness
of the illegality; otherwise the courts would embark on an assessment of moral turpitude
independently of and potentially in conflict with the assessment made by the legislature.
Secondly, the imposition of the civil sanction must further the purpose of the statute and
must not impose a further sanction for the unlawful conduct if Parliament has indicated
that the sanctions imposed by the statute are sufficient to deal with conduct that breaches or
evades the operation of the statute and its policies.

339 [1996] Ch 107, 118, 134. See also Nelson v Nelson (1995) 123 ALR 132, 148, 165–6 and Davies in Oakley
(ed), Trends in Contemporary Trust Law (1996) ch 2. 340 Above, pp 423–6.
341 Tinsley v Milligan [1994] 1 AC 340, 366 (Lord Jauncey). See also Nelson v Nelson (1995) 132 ALR 133,
176 (Toohey J) (Australia); Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39, [2009] 1 AC 1391 at [21].
342 Cf Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39, [2009] 1 AC 1391 at [25], [129]–[131].
343 (1995) 132 ALR 133. 344 (1775) 1 Cowp 341, above, p 416.
345 [1957] 1 QB 267, above, p 382.
346 (1995) 132 ALR 133, 192. See also ibid, 146, 149, 167 and McCamus (1987) 25 Osgoode Hall LJ 787.
432 factors tending to defeat contractual liability

The Court concluded that the policy of the statute did not preclude the claim made,
and awarded the mother the relief sought on the condition that she made appropriate
recompense to the body that had given her the subsidy.

(f) collateral transactions

(i) Securities
A transaction which is collateral to an illegal agreement may also be affected by taint of
illegality.347 Any security given to secure payment under, or performance of, an illegal
contract is itself illegal, even though not given in pursuance of the contract. Thus in
Fisher v Bridges348 a deed executed to secure the payment of the price for land conveyed
to the defendant for an illegal purpose was held to be illegal and unenforceable. Jervis
CJ, said that the deed:349
springs from, and is a creature of, the illegal agreement; and, as the law would not enforce
the original illegal contract, so neither will it allow the parties to enforce a security for the
purchase money, which by the original bargain was tainted with illegality.

(ii) Bills of exchange

Similarly, if a bill of exchange is made and given to secure payment of money due or
about to become due upon an illegal agreement, the rule that a subsequent holder is
presumed to be a holder in due course does not apply; the holder can only recover
by proving that consideration has been given either by himself or some immediate
holder, and without notice of the illegality.350 Money knowingly lent for the purpose of
financing an illegal agreement is also, in principle, irrecoverable.351

(iii) No tainting
Not all collateral transactions are necessarily tainted. As noted above, an innocent
party may have an action for breach of a collateral warranty.352 And securities given in
respect of an agreement which is not strictly illegal, but merely nugatory and void, can
be enforced if supported by independent consideration.353

6. severance
(a) introduction
The same contract may contain both legal and illegal terms. In such a case it has long been
established that an illegal term, or an illegal part of a term, can in certain circumstances

347 Heald v O’Connor [1971] 1 WLR 497 (guarantee). 348 (1854) 3 E & B 642.
349 Ibid, 649. 350 Bills of Exchange Act 1882, s. 30(2); see below, p 680.
351 Cannan v Bryce (1819) 3 B & Ald 179; Spector v Ageda [1973] Ch 30. 352 See above, p 421.
353 Lilley v Rankin (1887) 56 LJQB 248.
 illegality 433

be ‘severed’, leaving the remainder of the contract in force.354 In Pickering v Ilfracombe

Railway Co Willes J stated:355
The general rule is that, where you cannot sever the illegal from the legal part of a covenant,
the contract is altogether void; but, where you can sever them, whether the illegality be
created by statute or by the common law, you may reject the bad part and retain the good.

This does not indicate the circumstances in which it is, or it is not, possible to sever the
illegal from the legal parts of the contract; nor does it indicate that differing criteria have
been adopted from time to time by the Courts. For example, in recent years the Courts
have moved away from the nineteenth-century requirement that an illegal promise
could only be severed if it was supported by separate consideration.356 Emphasis has
now shifted to the nature of the illegality involved and whether it accords with public
policy that severance should be allowed. Nevertheless, the Courts have to bear in mind
that it is not their task to force on the parties an entirely different contract.357 Before
severance is permitted, certain conditions must be satisfied in order to ensure that the
elimination of the offending clause still leaves substantially the same agreement.

(b) public policy

Where there are legal and illegal terms in a contract which are capable of severance,
the jurisdiction to enforce the legal terms will only be exercised if the severance is in
accordance with public policy.

(i) Illegal conditions

If a stipulation involves a serious element of moral turpitude—if, for example, it is
one which has as its object the deliberate commission of a criminal offence—it will
so infect the rest of the contract that the Courts will refuse to give any effect to the
agreement,358 at least at the suit of one who knew of or participated in the illegality.
Thus in Napier v National Business Agency Ltd:359
The defendant agreed to employ N at a salary of £13 a week as salary, and a further £6 per
week for ‘expenses’. In fact, N’s expenses were nowhere near that sum, and this further
provision was merely a device to defraud the income tax authorities. N brought an action to
recover his salary, abandoning his claim to the expense allowance.

The Court of Appeal held that the provision as to expenses was contrary to public
policy. Its inclusion vitiated the whole agreement and no severance could be allowed.
Similarly relief will be refused if severance would be inconsistent with the policy of the
Courts or of Parliament to discourage contracts containing an illegal element of the

354 Henry Pigot’s Case (1614) 11 Co Rep 27b. See Marsh (1948) 64 LQR 230, 347, and (1953) 69 LQR 111.
355 (1868) LR 3 CP 235, 250.
356 Waites v Jones (1835) 1 Bing NC 646, 662; Walrond v Walrond (1858) 28 LJ Ch 97; Lound v Grimwade
(1888) 39 Ch D 605; Kearney v Whitehaven Colliery Co [1893] 1 QB 700; Kuenigl v Donnersmarck [1955] 1
QB 515, 537; below, p 435. 357 Putsman v Taylor [1927] 1 KB 637, 639.
358 Bennett v Bennett [1952] 1 K.B 249, 254.
359 [1951] 2 All ER 264. See also Kenyon v Darwen Manufacturing Co Ltd [1936] 2 KB 193; Miller v
Karlinski (1945) 62 TLR 85 and Hyland v JH Barker (North West) Ltd [1985] ICR 861.
434 factors tending to defeat contractual liability

type sought to be severed. Thus, in Kuenigl v Donnersmarck,360 McNair J refused to

sever certain clauses in an agreement which involved dealings with an alien enemy.
On the other hand, if a provision in a contract is illegal by virtue of a statute passed
for the protection of a class of persons, 361 there is no ground of public policy to prevent
the Court from severing the illegal provision and giving effect to the remainder of the
contract in an action brought by a member of the protected class.362

(ii) Unenforceable provisions

Public policy does not prevent the severance of provisions that are merely void or
unenforceable,363 and, in particular, of covenants in unreasonable restraint of trade or
clauses which oust the jurisdiction of the Courts. Such stipulations are not illegal in
the strict sense, and will not taint the entire agreement in which they are contained.
Provided that certain requirements are satisfied, they may be severed from the rest of
the agreement. As Denning LJ pointed out in Bennett v Bennett:364
The presence of a void covenant of this kind does not render the deed totally ineffective . . . The
party who is entitled to the benefit of the void covenant, or rather who would have been
entitled to the benefit of it if it had been valid, can sue upon the other covenants of the deed
which are in his favour; and he can even sue upon the void covenant, if he can sever the good
from the bad, even to the extent of getting full liquidated damages for a breach of the good
part. So also the other party, that is, the party who gave the void covenant and is not bound
by its restraints, can himself sue upon the covenants in his favour, save only when the void
covenant forms the whole, or substantially the whole, consideration for the deed.

There is no clear delimitation of the types of illegal stipulation which can be severed in
this way, but whether or not a particular stipulation can be severed will depend upon
considerations of public policy.

(iii) Extent of severance

Public policy may also affect the extent of the severance to be allowed. As we have
already seen, the law dislikes employer–employee covenants in restraint of trade and
will be jealous to see that freedom of contract is not abused. The question, therefore,
arises whether an employer should be permitted to bluff (whether intentionally or
not) the employee into accepting a covenant which is unreasonably wide, and, then,
when the bluff is called, to make use of the principle of severance to carve out of that
void covenant the maximum of what might validly have been required. In Mason v
Provident Clothing and Supply Co Ltd, 365 Lord Moulton expressed the view that, in
such cases, the excess which it is sought to delete must be ‘merely trivial’.
More recently, however, in T Lucas & Co Ltd v Mitchell,366 the Court of Appeal
held that an unreasonable restraint, if it can be regarded as intended by the parties
to be separate and separable from a valid restraint,367 is capable of being severed

360 [1955] 1 QB 515. 361 See above, p 426. 362 Ailion v Spiekermann [1976] 1 Ch 158.
363 Bennett v Bennett [1952] 1 KB 249, 254. 364 [1952] 1 KB 249, 260; below, p 436.
365 [1913] AC 724, 745. See also Attwood v Lamont [1920] 3 KB 571, 593. Cf Nevanas & Co v Walker [1914]
1 Ch 413; Putsman v Taylor [1927] 1 KB 637.
366 [1974] Ch. 129. See also Scorer v Seymour Jones [1966] 1 WLR 1419. 367 See below, p 436.
 illegality 435

notwithstanding that it is contained in an agreement between employer and employee.

It may be that, in modern times, an employee needs less protection than formerly. But
as Lord Moulton pointed out:368 ‘It must be remembered that the real sanction at the
back of these covenants is the terror and expense of litigation, in which the servant is at
a great disadvantage, in view of the longer purse of his master’.

(c) requirements
Assuming that severance of the contract is in accord with public policy, certain
requirements must still be satisfied. It must, however, be stated that the formulation
of these requirements has been the subject of much speculation and contradiction. At
present, the situation would appear to be as follows.

(i) The ‘blue pencil’ rule

In the first place, the illegal portion of the contract must be capable at least of being
verbally separated from the remainder of the agreement. This is generally known as
the ‘blue pencil’ rule, that is, ‘severance can be effected when the part severed can be
removed by running a blue pencil through it’369 without affecting the meaning of the
part remaining. The rule in practice can be seen in Goldsoll v Goldman:370
The defendant sold his jeweller’s business in New Bond Street, London to Goldsoll, who
was also a jeweller, and covenanted that he would not for the period of 2 years ‘either solely
or jointly . . . carry on the business of a vendor of or dealer in real or imitation jewellery
in the county of London, England, Scotland, Ireland, Wales, or any part of the United
Kingdom . . . or in France, the United States of America, Russia, or Spain, or within 25 miles
of Potsdamerstrasse, Berlin, or St Stefans Kirche, Vienna’. The defendant joined a rival firm
of jewellers in New Bond Street, and Goldsoll sought an injunction to restrain breach of the
covenant.

The Court of Appeal held that, as Goldsoll’s business was chiefly confined to imitation
jewellery, the covenant was unreasonably wide, and that it was also too wide in area. But
it was possible to excise the words ‘real or’ and also the references to foreign countries,
and so to limit the covenant to dealing in imitation jewellery within the United
Kingdom. In this form the covenant was unexceptionable and could be enforced. The
reason for this somewhat technical rule is that the Court is not prepared to rewrite the
agreement for the parties.

(ii) Illegal promise must not form main consideration

Secondly, the illegal promise must not form the whole or the main consideration for
the contract. It must go only to a part, and a subsidiary part, of the consideration

368 [1913] AC 724, 745. A similar concern also affects the construction of such clauses: JA Mont (UK) Ltd
v Mills [1993] IRLR 173, above, p 404.
369 Attwood v Lamont [1920] 3 KB 571, 578 (Lord Sterndale MR). See also Business Seating (Renovations)
Ltd v Broad [1989] ICR 729, 734 and Ginsberg v Parker [1988] IRLR 483.
370 [1915] 1 Ch 292. See also Putsman v Taylor [1927] 1 KB 637; Ronbar Enterprises Ltd v Green [1954] 1
WLR 815.
436 factors tending to defeat contractual liability

provided.371 Otherwise one party would be compelled to perform a promise, the

consideration for which would be far less than was ever contemplated when the
promise was made. In Bennett v Bennett:372
A wife entered into a deed with her husband by which she covenanted not to apply to the
Court for maintenance for herself or for her children, to maintain the younger herself, and
to indemnify her husband against any legal expenses arising out of the deed. The husband
undertook to pay his wife and son an annuity, and to convey to her certain property. The
husband failed to make the promised payments and was sued by his wife.

It was held that the covenant by the wife not to apply to the Court for maintenance
was contrary to public policy and void. Since it formed the main consideration for the
contract, it could not be severed from the rest of the agreement. The wife was therefore
unable to enforce her claim to the annuity since it was founded upon a consideration
which was void. On the other hand, in Goodinson v Goodinson:373
A husband promised to pay his wife a weekly sum if she would indemnify him against
any debts incurred by her, not pledge his credit for necessaries, and forbear to bring any
matrimonial proceedings against him.

He fell into arrears with the payments and was sued by her. It was held that there was
ample consideration to support the agreement apart from the covenant not to sue, and
so the husband was liable.

(iii) Illegal promise must not alter agreement

Thirdly, the Court will not permit severance where the offending provisions are
‘inextricably interwoven with the other promises in the agreement’374 so that severance
would ‘alter entirely the scope and intention of the agreement’. 375 This is a sensible rule,
for the mechanical deletion of an offending clause could affect the whole nature of the
contract. Nevertheless, it is extraordinarily difficult to apply, and the understanding
of its application is by no means increased by a study of its leading illustration. In
Attwood v Lamont:376
A was the proprietor of a general outfitter’s business. L had been employed as a tailor and
cutter in one of A’s departments. He was not concerned with any of the other departments. In
his contract of service he had bound himself, after the termination of his employment, not to
be concerned in the trade or business of a tailor, dressmaker, general draper, milliner, hatter,
haberdasher, gentlemen’s, ladies’, or children’s outfitter within 10 miles of his employer’s
place of business at Kidderminster.

371 See Carney v Herbert [1985] 1 AC 301 (illegal ancillary provision for the exclusive benefit of the
plaintiff ).
372 [1952] 1 KB 249. Th is decision was effectively reversed by the Matrimonial Causes Act 1965, s 23(1),
now the Matrimonial Causes Act 1973, s 34; above, p 396. See also Triggs v Staines UDC [1969] 1 Ch 10.
373 [1954] 2 QB 118. 374 Kuenigl v Donnersmarck [1955] 1 QB 515, 538.
375 Attwood v Lamont [1920] 3 KB 571, 580 (Lord Sterndale MR). See also Routh v Jones [1947] 1 All ER
179, 758; Marshall v NM Financial Management Ltd [1995] 1 WLR 1461; Crehan v Courage (No 1) [1999] Eur
L Rep 834.
376 [1920] 3 KB 571. Cf Putsman v Taylor [1927] 1 KB 637; T Lucas & Co Ltd v Mitchell [1974] Ch 129
(reversing the decision of Pennycuick J [1972] 1 WLR 938).
 illegality 437

The Court of Appeal held that this covenant was too wide. It attempted to protect against
competition all departments of the employer’s business, and not merely tailoring. The
Divisional Court had found that the covenant was severable by striking out the other
trades except that of tailor. The Court of Appeal reversed this finding. Both Lord
Sterndale MR and Younger LJ considered that severance was only permissible in a case
where the covenant to be severed was ‘not really a single covenant, but was in effect a
combination of several distinct covenants’,377 and the latter said:378
Now, here, I think, there is in truth but one covenant for the protection of the respondent’s
entire business, and not several covenants for the protection of his several businesses. The
respondent is, on the evidence, not carrying on several businesses but one business, and, in
my opinion, this covenant must stand or fall in its unaltered form.

It may be presumed that their Lordships intended simply to say that the deletion of
the offending trades altered the nature, and not merely the extent, of the original
covenant.379 But the distinction drawn between ‘single’ and ‘several’ covenants is
somewhat unprofitable, and cannot easily be applied to covenants such as that in
Goldsoll v Goldman.380 It seems better to say that the question of altering the scope and
intention of the agreement is one which depends upon the true construction of the
covenant and agreement rather than upon this difficult and elusive distinction.

(d) effect of severance

The effect of severance is not uniform in all cases.

(i) True severance

If the illegal and legal undertakings are distinct and separate, each being supported
by its own consideration, the Court will strike out the offending conditions, together
with the consideration, leaving the rest unimpaired.
Suppose that Government regulations prohibit building on a single property in excess of
£1,000 without a licence. A builder undertakes to execute a number of unlicensed works on
a single property on a ‘cost plus’ basis, ie the individual items being executed and paid for
as required.381

Any work ordered or executed within the £1,000 limit will be legal and must be paid
for. Work ordered in excess of this limit will be illegal, but it can be severed from the
rest of the agreement. Neither a promise to do such work, nor a promise to pay for it,
will be enforceable. The illegal part is truly and completely severed.

(ii) One-sided severance

On the other hand, the Court may strike out one or more of the promises on one side,
while leaving the consideration on the other side unaffected. Goldsoll v Goldman382

377 They differed, however, as to how this test should be applied. 378 [1920] 3 KB 571, 593.
379 See Lord Sterndale MR at 578. 380 See above, p 435.
381 Frank W Clifford Ltd v Garth [1956] 1 WLR 570. 382 See above, p 435.
438 factors tending to defeat contractual liability

and Goodinson v Goodinson,383 are examples of ‘one-sided’ severance.384 The Court

excised the offending provisions, but did not interfere with the consideration given for
them. The severance was on one side only.

(iii) Restitution
If severance would substantially alter the nature of the contract, and neither party is
willing to accept the contract in its severed form, there is authority for the view that
the Court may order restitution of benefits obtained under the contract.385 In South
Western Mineral Water Co Ltd v Ashmore:386
A wished to purchase from SWMW a controlling interest in a company. It was agreed that he
should pay £6,000 and be given an option to purchase the assets of the company for £36,500
to be secured by a debenture over the assets. A was let into possession of the company’s
premises and took delivery of all the assets. It was subsequently realized that the proposed
debenture was illegal as it infringed a provision of the Companies Act 1948.

Cross J held that the stipulation for an illegal debenture did not render the whole
agreement void. The agreement could be enforced by SWMW if they waived the
security or by A if he tendered immediate payment. But as neither party was willing
to accept an agreement in these terms, SWMW was to return the £6,000 and A was to
give up possession of the premises and restore the assets received.

383 See above, p 436.

384 A term suggested by Somervell LJ in Bennett v Bennett [1952] 1 KB 249, 260.
385 Provided that recovery is not precluded by the maxim in pari delicto potior est conditio defendentis
(see above, p 423) if the contract as a whole is tainted. 386 [1967] 1 WLR 1110.
 PART 4
PERFORMANCE AND
DISCHARGE
12 Performance 441
13 Discharge by Agreement 459
14 Discharge by Frustration 473
15 Discharge by Breach 507
16 Discharge by Operation of Law 527
This page intentionally left blank
 12
PERFORMANCE
1. performance must be precise and exact
(a) standards of contractual duty
The general rule is that performance of a contract must be precise and exact. That
is, a party performing an obligation under a contract must perform that obligation
exactly within the time frame set by the contract and exactly to the standard required
by the contract. Sometimes that standard will be strict. This is so in the case of many
common law obligations such as a seller’s obligation to load cargo,1 not to ship
dangerous cargo, 2 and to obtain an export licence.3 It is also so in the case of the
statutory implied terms of title and quality in contracts for the sale and supply of
goods.4 Sometimes, as in the case of contracts for services, it will only require the
exercise of reasonable care5 or due diligence.6 Whether the alleged performance
satisfies this criterion is a question to be answered by construing the contract, so as
to see what the parties meant by performance, and then by applying the ascertained
facts to that construction, to see whether that which has been done corresponds to
that which was promised.

(b) deviation from contractual terms

If there is the slightest deviation from the terms of the contract, the party not in default
will be entitled to say that the contract has not been performed, will be entitled to sue
for damages for breach, and, in certain cases, to elect to be discharged. Thus in Re
Moore & Co and Landauer & Co:7

1 Kurt A Becher GmbH & Co KG v Roplak Enterprises SA, The World Navigator [1991] 2 Lloyd’s Rep 23.
2 The Anathanasia Cominos [1990] 1 Lloyd’s Rep 277, 282.
3 Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565.
4 Sale of Goods Act 1979, ss 12, 14 (as amended), above, pp 159–65; Supply of Goods and Services Act
1982, ss 2, 4, 7 and 9. See also Supply of Goods (Implied Terms) Act 1973, s 10 (hire-purchase).
5 eg, Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 (driving lorry); Thake v Maurice [1986]
QB 644, 684–7, cf 677–8 (medical treatment); Smith v Eric S Bush [1990] 1 AC 831, 843 (surveying house);
Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 176 (managing agents of Lloyd’s underwriters). See also
Supply of Goods and Services Act 1982, s 13. Cf Samuels v Davis [1943] 1 KB 526 (contract to supply services
and materials).
6 Carriage of Goods by Sea Act 1971, s 3 (seaworthiness); Union of India v NV Reederij Amsterdam [1962]
2 Lloyd’s Rep 233 (HL). 7 [1921] 2 KB 519.
442 performance and discharge

D agreed to buy from P 3,000 tins of canned fruit from Australia to be packed in cases
containing 30 tins. When the goods were tendered it was found that a substantial part of the
consignment was packed in cases containing 24 tins.

D was entitled to reject the whole consignment. Even if the performance effected is
commercially no less valuable than that which was promised, there is a default in
performance. So a contract to ship goods direct from Singapore to New York was held
not to have been performed by shipping them to the American Pacific Seaboard and
thence to New York by train.8
Only if the deviation is ‘microscopic’ will the contract be taken to have been
correctly performed, for de minimis non curat lex.9 A party who does not render precise
and exact performance of a contract is nevertheless exceptionally treated as having
performed to some extent where that party has attempted (tendered) performance but
the other party has prevented that performance, and in certain cases where there has
been partial performance of an entire obligation.

2. time of performance
(a) stipulations as to time at common law
Where a time was fi xed for the performance of an undertaking by one of the parties
to the contract, the common law as a general rule held this to be ‘of the essence of the
contract’. This phrase is often used but is capable of causing confusion because the
question relates not to the contract as a whole but to the particular term which has
been breached.10 If the condition as to time was not fulfilled, the other party might
treat the contract as broken and elect to terminate it.11 For instance, in a contract for
the sale of a flat where time was stated to be of the essence, the vendor was entitled to
terminate when the purchaser tendered the price 10 minutes late.12

(b) stipulations as to time in equity

Equity did not regard a condition as to time as of the essence. Where it could do
so without injustice to the contracting parties it decreed specific performance
notwithstanding failure to observe the time fi xed by the contract for completion,

8 Re L Sutro & Co and Heilbut Symons & Co [1917] 2 KB 348.

9 Arcos Ltd v EA Ronaasen & Son [1933] AC 470, 479, 480 (Lord Atkin).
10 British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] 1 QB 842, 857 (Browne-
Wilkinson V-C).
11 United Scientific Holdings Ltd v Burnley BC [1978] AC 904, 940–1 (Lord Simon). Cf ibid, 927–8 (Lord
Diplock). See further, above, pp 140, 147 (conditions).
12 Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514. See also Compagnie Commerciale Sucres et
Denrées v C Czarnikow Ltd [1990] 1 WLR 1337, 1347. But cf Sale of Goods Act 1979, s 10(1), below, p 444.
 performance 443

and as an incident of specific performance relieved the party in default by restraining

proceedings at law based on such failure.13

(c) law of property act , section 

Since the passing of the Judicature Acts, the rules of common law and equity have been
fused,14 and section 41 of the Law of Property Act 192515 provides:
Stipulations in a contract, as to time or otherwise, which according to rules of equity are not
deemed to be or to have become of the essence of the contract, are also construed and have
effect at law in accordance with the same rules.

But this relief is not available in three instances:

(1) where the agreement expressly states that time is of the essence of the
contract;16
(2) where time was not originally of the essence of the contract, but has been made
so by one party, upon a breach by the other party,17 giving notice to the party in
breach requiring performance of the contract within a reasonable time;18
(3) where from the nature of the contract, its subject-matter, or the circumstances
of the transaction, time must be taken to be of the essence of the agreement.
The most common examples of this are provided by mercantile contracts,
considered below, but, although time is prima facie not of the essence in sales
of land,19 or provisions in leases, such as rent review clauses,20 in certain cases
it will be. Thus, in the case of the sale of a public-house as a going concern,21 or
of a leasehold house required for immediate occupation,22 or of an option to
acquire property, 23 or the power under a ‘break’ clause in a lease to determine
the lease prematurely,24 time may well be of the essence and, if so, no relief is
permitted.

13 United Scientific Holdings Ltd v Burnley BC [1978] AC 904, 942. See also Stickney v Keeble [1915] AC
386, 415.
14 Ibid, 924–5, 926–7, 940, 956–7, 964.
15 Re-enacting the Judicature Act 1873, s 25(7). Cf Raineri v Miles [1981] AC 1050 (damages available).
16 Steedman v Drinkle [1916] 1 AC 275.
17 Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1; British and Commonwealth Holdings plc v Quadrex
Holdings Inc [1989] 1 QB 842, 857–8; Ramlal v Chaitlal [2003] UKPC 12, [2004] 1 P & CR 1 (party giving
notice must not be in default).
18 Stickney v Keeble, above, n 13; Behzadi v Shaftesbury Hotels Ltd, above, n 17; Finkielkraut v Monohan
[1949] 2 All ER 234. See also Stannard (2004) 120 LQR 137. On ‘reasonableness’, see also Oakdown Ltd v
Berstein and Co (1985) 49 P & CR 282.
19 Webb v Hughes (1870) LR 10 Eq 281; Chancery Lane Developments Ltd v Wade’s Department Stores Ltd
(1986) 53 P & CR 306, 312. 20 United Scientific Holdings Ltd v Burnley BC, above, n 13.
21 Tadcaster Tower Brewery Co v Wilson [1897] 1 Ch 705.
22 Tilley v Thomas (1867) LR 3 Ch App 61. 23 Hare v Nicoll [1966] 2 QB 130.
24 United Scientific Holdings Ltd v Burnley BC, above, n 13, 929; Coventry City Council v J Hepworth &
Sons Ltd (1982) 46 P & CR 170. But cf Metrolands Investments Ltd v JH Dewhurst Ltd [1986] 3 All ER 659.
444 performance and discharge

(d) mercantile contracts

In mercantile contracts, time will readily be assumed to be of the essence of the
contract. For example, if a contract to purchase shares provides for payment by a fi xed
date, payment must be made on or before that date, and in default the seller can treat
the contract as discharged.25 Similarly, time is of the essence for payment under a
time charterparty of a ship if the owner is given the right to withdraw the vessel in
default of ‘punctual payment’ of hire.26 However, section 10(1) of the Sale of Goods Act
1979 provides that, unless a different intention appears from the terms of the contract,
stipulations as to time of payment are not of the essence of a contract of sale of goods.
The unpaid seller may, however, give notice of his intention to re-sell perishable goods
and, if payment is not tendered within a reasonable time thereafter, re-sell and recover
damages for and loss.27 Whether or not any other stipulation as to time is of the essence
of a contract of sale of goods depends upon the terms of the contract;28 but it is very
often held to be so.29
Where a person is required to perform on or before a particular date, the performance
may normally be carried out during the whole of that day.30 Thus if payment of hire
under a time charterparty is due on 14 June, the charterer has (regardless of banking
hours) until midnight on 14/15 June to make the payment, and the shipowner cannot
withdraw the ship for non-payment before that time.31 Where no time is fi xed by the
contract for performance, it must be performed within a reasonable time.32

3. place of performance
The place of performance depends upon the express or implied intentions of the
parties, judged from the nature of the contract and the surrounding circumstances. If
no place of performance is specified even by implication, in a contract for the sale of
goods it is basically the duty of the buyer to collect the goods rather than the seller to
send them,33 and in contracts to pay money it is basically the debtor’s duty to pay the
creditor at the creditor’s place of business or residence.34

25 Hare v Nicoll, above, n 23. See also Union Eagle Ltd v Golden Achievement Ltd, above, n 12.
26 Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana, The Scaptrade [1983] 2 AC 694.
27 Sale of Goods Act 1979, s 48(3).
28 Ibid, s 10(2). But see Hartley v Hymans [1920] 3 KB 475, 483.
29 Reuter v Sala (1879) 4 CPD 239, 246, 249; Hartley v Hymans, above, n 28, 484; Finagrain SA Geneva v
P Kruse Hamburg [1976] 2 Lloyd’s Rep 508; United Scientific Holdings Ltd v Burnley BC [1978] AC 904, 924,
937, 944, 950, 958; Bunge Corp v Tradax Export SA [1981] 1 WLR 711, above, p 149; Compagnie Commerciale
Sucres et Denrées v C Czarnikow Ltd [1990] 1 WLR 1337, 1347.
30 Contrast Sale of Goods Act 1979, s 29(5) (demand or tender of delivery may be treated as ineffectual
unless made at a reasonable hour). 31 Afovos Shipping Co SA v Pagnan [1983] 1 WLR 195.
32 Postlethwaite v Freeland (1880) 5 App Cas 599; Sale of Goods Act 1979, s 29(3).
33 Sale of Goods Act 1979, ss 29(1) (2). See also CISG, art 31.
34 Charles Duval & Co Ltd v Gans [1904] 2 KB 685; Fowler v Midland Electricity Corporation for Power
Distribution Ltd [1917] 1 Ch. 656 (debenture). On payment through the banking system, see below, p 446.
 performance 445

4. order of performance
Where the contract makes no express provision, the order of performance depends on
whether the obligation of one party to perform is interdependent on or independent of
the other’s obligation. The obligations may be interdependent in one of two ways. The
obligation of one to perform may either be conditional upon performance by the other
or concurrent with the obligation of the other. The determination of this is a matter
of intention, and thus of the construction of the contract. The distinction between
interdependent obligations (ie conditions precedent and concurrent obligations),
and independent promises is discussed in Chapters 5 and 15.35 In a contract of sale,
unless the contract provides otherwise, payment and delivery are treated as due
simultaneously and as concurrent, 36 but in a contract of employment the general rule
is that the performance of the work is a condition precedent to the obligation to pay.
The order of performance determines whether one party has to extend credit to the
other and whether failure to perform is a breach of contract,37 and, if so, whether
the innocent party is entitled to be discharged from its obligations. The position at
common law differs from that in many civil law countries where a party may withhold
performance until the other party performs, not only in cases of concurrent obligations
but also where the other party has to perform first.38

5. payment
(a) introduction
One mode of complete performance of an obligation is by payment of a money
obligation. No request or demand for payment is normally necessary39 unless the
contract so provides.40
There is a common, but mistaken, belief that payment of a debt can only be proved
by the production of a written receipt. But payment may be proved by any evidence,41
and a receipt is only prima facie evidence that a debt has been paid.42
Payment normally means payment in cash. The parties may, however, agree,
expressly or impliedly, that payment may be made in some other manner, and, in the
absence of any express stipulation, the method of payment may be determined by
course of dealing between the parties or by trade custom. If the parties are dealing

35 Above, p 141; below, p 519. 36 Sale of Goods Act 1979, s 28. 37 Below, Chapter 15.
38 Lando and Beale, Principles of European Contract Law Parts I and II (2000) 407.
39 Bell & Co v Antwerp, London & Brazil Line [1891] 1 QB 103, 107 (Lord Esher MR); Carne v Debono
[1988] 1 WLR 1107, 1112.
40 Libyan Arab Foreign Bank Co v Bankers Trust Co [1989] 1 QB 728, 748–9. On the need for notice by a
tenant of want of repair before landlord’s obligation to repair is due, see Calebar Properties Ltd v Stitcher
[1984] 1 WLR 287, 298; British Telecommunications plc v Sun Life Assurance Society plc [1996] Ch 69.
41 Eyles v Ellis (1827) 4 Bing 112. See also Cheques Act 1957, s 3.
42 Wilson v Keating (1859) 27 Beav 121.
446 performance and discharge

together on a regular basis, it may be agreed that, at periodic intervals, sums due from
one party shall be set off against sums due to that party by the other, and such set-off
is then equivalent to an actual cash payment.43

(b) interbank transfers

Nowadays payment is frequently made by use of the banking system. The debtor
instructs its bank to pay a specified sum to the account of the creditor at another bank.
The transfer may be effected by letter, telegram, telex, or electronically from the one bank
to the other. Such payment, when made, ‘is the equivalent of cash, or as good as cash’ for
the purposes of a contract that requires payment in cash.44 But difficulties can arise. If
payment has to be made by a certain date, does the receipt of the payment order by the
creditor’s bank constitute payment? Or is payment only made when the order has been
processed and the amount credited to the creditor’s account? In Mardorf Peach & Co Ltd
v Attica Sea Carriers Corporation of Liberia,45 where the evidence was that the system of
processing might take up to 24 hours before the account was credited, members of the
House of Lords expressed differing opinions. Lord Salmon46 and Lord Russell47 were
inclined to the view that, since a payment order was as between banks the equivalent of
cash, it should suffice for punctual payment that such cash equivalent was tendered in
due time to the creditor’s bank to be credited to its account.48 But Lord Fraser49 was of the
opinion that payment would not take place until the creditor’s bank acted on the request
in the order and credited the amount to the creditor’s account. However, in A/S Awilco
of Oslo v Fulvia SpA di Navigazione of Cagliari, The Chikuma:50
R chartered A’s vessel Chikuma. Failing punctual payment of hire in cash in American
currency monthly in advance, A was entitled to withdraw the vessel from service. Payment
of one instalment of hire fell due on 22 January. On 21 January R instructed its Norwegian
bank to make the required payment by credit transfer. By a telex message before noon on
the 22nd there was a credit transfer to A’s bank in Italy of the sum due. The bank credited
this on the same day to A’s account. By Italian banking law, however, although A would
have immediate access to the money, interest would not start to be paid by the bank until 26
January, and if A had withdrawn the sum credited it would probably have incurred liability
to the bank to pay interest for those 4 days. A withdrew the vessel for default in punctual
payment.

The House of Lords upheld their right to do so. The payment on 22 January was not
equivalent to cash for it could not be used to earn interest, eg by immediate transfer to
a deposit account. The fact that A could withdraw the money, but subject to payment
of interest, did not make the payment equivalent to cash, since the arrangement
amounted in substance to an overdraft facility.

43 Larocque v Beauchemin [1897] AC 358, 365–6.

44 A/S Awilco of Oslo v Fulvia SpA di Navigazione of Cagliari, The Chikuma [1981] 1 WLR 314, 320.
45 [1977] AC 850. 46 Ibid, 880. 47 Ibid, 889.
48 In the case of a transfer between branches of the same bank, Momm v Barclays Bank International Ltd
[1977] QB 79 held that payment was effected when the staff of the bank received the debtor’s instructions and
set in motion the bank’s internal procedures for crediting the creditor’s account.
49 [1977] AC 850, 885. 50 [1981] 1 WLR 314 (criticized by Mann (1981) 97 LQR 379).
 performance 447

payment by negotiable instrument or

(c)
documentary credit
A negotiable instrument,51 such as a bill of exchange, cheque, or promissory note
may, by agreement, be given and accepted in payment. But the presumption where a
negotiable instrument is taken in lieu of a money payment is that the parties intend it
to be a conditional discharge only:52
Suppose that A, being owed a sum of money by B, agrees to take a cheque in payment of the
sum due.

So far, B has satisfied the debt.53 But if the cheque is dishonoured when presented for
payment, A’s right to sue on the debt revives and A’s original rights are restored.54
Exceptionally, however, a negotiable instrument may be given and accepted as absolute
payment. In such a case, in the example given above, B’s debt would then be wholly
discharged. A would have to rely upon the rights conferred by the cheque, and, if the
cheque is dishonoured, A must sue on it, and cannot revert to the original claim for the
debt. 55 Similar principles apply to payment by documentary credit.56

(d) payment by credit or charge card

By contrast, payment by a credit or charge card is an unconditional and absolute
payment unless the contract provides otherwise. So, the liability of a cardholder who
has paid for goods or services in this way is discharged and the cardholder will not be
liable to the seller or supplier if the credit or charge card company fails to pay the seller
or supplier the amount charged to the card.57

6. vicarious performance
There may be circumstances which make it permissible for a contracting party to
perform his side of the contract by getting someone else to do in a satisfactory fashion
the work for which the contract provides.58 A contract may be vicariously performed
where this is expressly permitted by the contract,59 or, from the terms of the contract,
its subject-matter, and surrounding circumstances, it may properly be inferred that it

51 See below, pp 677–82. 52 Re Romer and Haslam [1893] 2 QB 286, 296, 300, 303.
53 Sayer v Wagstaff (1844) 5 Beav 415, 423; Hadley & Co Ltd v Hadley [1898] 2 Ch 680; Bolt & Nut Co
(Tipton) Ltd v Rowlands, Nicholls & Co Ltd [1964] 2 QB 10.
54 Sayer v Wagstaff, above, n 53; Re Romer and Haslam, above, n 52.
55 Sard v Rhodes (1836) 1 M & W 153; Sibree v Tripp (1846) 15 M & W 23; Re Romer and Haslam, above,
n 52, 296, 300.
56 WJ Alan & Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189, 209–12; Re Charge Card Services
Ltd [1989] Ch 497, 511.
57 Re Charge Card Services Ltd [1989] Ch 497; Customs & Excise Commissioners v Diners Club Ltd [1989]
1 WLR 1196.
58 See above, pp 675–6, for the distinction between vicarious performance and assignment.
59 eg Société Commerciale de Réassurance v ERAS International Ltd [1992] 1 Lloyd’s Rep 570, 596.
448 performance and discharge

is a matter of indifference whether the performance is that of the contracting party or

his nominee. Thus it has been held that a contract to let out railway wagons and keep
them in repair could be vicariously performed.60 The repairs were ‘a rough description
of work which ordinary workmen conversant with the business would be perfectly able
to execute’.61 If, however, the person employed has been selected with reference to his
individual skill, competence, or other personal qualification, that person is not entitled
to sub-contract the performance of the contract to another. Thus it has been held that
personal care and skill is an ingredient in contracts by a warehouseman for the storage
of furniture,62 by a publishing firm for the publication of a book,63 and by an architect in
the design of a building.64 Such contracts cannot be vicariously performed without the
consent of the promisee. Contracts of service are normally personal to the contracting
parties.65 Furthermore, payment of a debt which is made by a person other than the
debtor or the debtor’s agent will not be effective to discharge the debt.66
Even where the contract may not, in principle, be vicariously performed, if
the promisee in fact agrees to it being performed by a non-party and accepts such
performance, the contract will be discharged.67

7. alternative modes of performance

A contract can provide for alternative modes of performance in one of two ways.68
First, it may provide for performance in a particular way, for instance a shipper’s
obligation to load a cargo of wheat, but give that party the option to perform in an
alternative way, for instance, to change to a cargo of barley. Secondly, it may permit
one party to choose 69 between alternative modes of performance without specifying
one as the primary mode, for instance, a shipper’s obligation to load a full cargo in the
months of September or October.

(a) contract option

In the first situation, once the option is exercised, the contractual obligation is varied;
in the example above, the contract ceases to be one to load wheat and becomes one to
load barley. The option must be exercised within a reasonable time and this must be

60 British Waggon Co v Lea & Co (1880) 5 QBD 149. 61 Ibid, 153 (Cockburn CJ).
62 Edwards v Newland & Co [1950] 2 KB 534.
63 Griffith v Tower Publishing Co Ltd [1897] 1 Ch 21.
64 Moresk Cleaners Ltd v Hicks [1966] 2 Lloyd’s Rep 338.
65 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 (rights). But note the Transfer of
Undertakings (Protection of Employment) Regulations 2006 (SI 2006 No 246), reg 4(1), above, p 674.
66 See Belshaw v Bush (1851) 11 CB 191; Walter v James (1871) LR 6 Ex 124; Owen v Tate [1976] 1 QB 402.
See generally Beatson and Birks (1976) 91 LQR 188; Beatson, The Use and Abuse of Unjust Enrichment (1991)
ch 7; Friedmann (1983) 99 LQR 534.
67 Belshaw v Bush, above, n 66; Hirachand Punamchand v Temple [1911] 2 KB 483, above, p 115.
68 See generally Treitel, Frustration and Force Majeure (2nd edn, 2004) ch 10.
69 If the contract does not specify which party has the option, it will be the one who has to do the fi rst act:
Reed v Kilburn Co-operative Society (1875) LR 10 QBD 264.
 performance 449

communicated to the other party;70 if it is not exercised it is lost. But, in considering

whether to exercise the option, the promisee is not generally bound to consider the
interests of the other party.71 For example, if the primary mode of performance
becomes impossible, the option-holder is not obliged to exercise it in order to avoid
the contract being frustrated.72 But an attempt to rely on the exercise of such an option
to render a contractual performance substantially different from that which was
reasonably expected may be ineffective against a consumer or a party dealing on the
other’s written standard terms of business.73

(b) performance option

In the second situation there is a truly alternative obligation. The promisor is obliged
to perform in any of the authorized modes. If, prior to a choice being made, one mode
ceases to be available, that simply narrows the scope of contractually authorized
performance.74 So, in the example given above, if access to the loading port is impossible
due to strikes or bad weather during September, that does not affect the obligation to
ship a full cargo; the shipper remains liable to load a full cargo in October, even if the
shipper had planned to do so in September. But once a party chooses the alternative to
be performed, that choice binds.75

8. right of party in breach to cure bad or

incomplete performance
We have seen that English law treats a serious misperformance, such as incomplete
delivery or delivery of goods that are not of satisfactory quality, as the standard example
of a breach entitling the innocent party to treat the contract as discharged.76 Unlike
the position in some other systems, the innocent party is not required to serve notice
requiring the other party to perform in a stated time77 and there is only a limited

70 Reardon Smith Line Ltd v Ministry of Agriculture, Fisheries & Food [1963] AC 691, 731.
71 Ibid, 719–20, 730. See also Thompson v ADSA-MFI Group Plc [1988] 1 Ch 241, 251, 266–7 (no general
principle that a party cannot take advantage of own acts to avoid obligations under the contract).
72 On frustration, see further Chapter 14.
73 Unfair Contract Terms Act 1977, s 3(2)(b); Unfair Terms in Consumer Contracts Regulations 1999 (SI
1999 No 2083), Sched 2, para 1(b), (c), (h), (l). See generally above, pp 200, 209.
74 Reardon Smith Line Ltd v Ministry of Agriculture, Fisheries & Food [1963] AC 691, 717, 720, 730; Atlantic
Lines & Navigation Co Ltd v Didymi Corp, The Didymi [1984] 1 Lloyd’s Rep 583, 587; Libyan Arab Foreign
Bank v Bankers Trust Co [1989] QB 728, 766; J Lauritzen AS v Wijsmuller BV, The Super Servant Two [1990]
1 Lloyd’s Rep 1, 9.
75 Schneider v Foster (1857) 2 H & N 4; Gath v Lees (1865) 3 H & C 558. But authority (Brown v Royal
Insurance Co (1859) 1 E & E 853) suggesting the party remains bound even where it is no longer possible to
perform the contract in that way is doubtful since it pre-dates the development of the doctrine of frustration,
on which see below, Chapter 14.
76 Above, pp 140, 145 (conditions and innominate terms). See further below, Chapter 15.
77 Treitel, Remedies for Breach of Contract (1988) 327–34 (Nachfrist in German law, délai de grâce in
French law).
450 performance and discharge

right to cure defective performance.78 If, however, a bad or incomplete performance

is tendered before the time of performance has arrived, the promisor is not generally
prevented from making another tender of performance within time that does comply.
The promisee would have to accept this fresh tender unless the first amounted to a
repudiation which the promisee had already acted upon and terminated the contract.79
One situation in which the defective performance will be treated as a repudiation is
where the defective performance has destroyed the confidence of the promisee.80

9. tender
Tender is attempted performance; and the word is applied to attempted performance
of two kinds, dissimilar in their results. It is applied to a performance of a promise to
do something, and of a promise to pay something. In each case the performance is
prevented by the act of the party for whose benefit it is to take place.

(a) tender of acts

Where one party is obliged by the contract to perform a promise to do something,
but the other party refuses to accept the performance when tendered,81 the promisor
is discharged from performing that obligation and may sue for damages. In addition,
if the promisee commences an action against the promisor for failure to perform the
obligation, the promisor is entitled to set up the refusal to accept the tender as a defence.82
The promisor will not, however, be treated as having performed the obligation. If the
refusal to accept the tender amounts to a repudiation of the contract the promisor can
elect to terminate the contract and sue for damages.83 Although such a refusal does not
always have this effect,84 if it is absolute and unqualified it entitles the promisor to elect
to be discharged. For example, the Sale of Goods Act 1979, section 37, provides that
when the seller is ready and willing to deliver the goods and requests the buyer to take
delivery, the buyer must do so within a reasonable time or become liable for any loss
occasioned to the seller by the buyer’s neglect. But this does not affect the rights of the
seller where the non-acceptance amounts to a repudiation of the contract.

(b) tender of payment

Where, however, the performance due consists of the payment of a sum of money, a
tender by the debtor, though refused by the creditor, does not discharge the debtor

78 Ibid, 371–4; CISG art 48; Restatement of Contract 2nd, § 237 (serious breach initially only justifies
suspension of performance by innocent party).
79 Borrowman, Phillips & Co v Free & Hollins (1878) 4 QBD 500; Motor Oil Hellas (Corinth) Refineries SA
v Shipping Corporation of India, The Kanchenjunga [1990] 1 Lloyd’s Rep 391, 399.
80 On repudiation, see further below, Chapter 15.
81 Tender must be in strictly accordance with the terms of the contract. In the absence of express terms a
tender of goods must be made at a reasonable hour: Sale of Goods Act 1979, s 29(5).
82 Startup v Macdonald (1843) 6 M & G 593. 83 Ibid.
84 See, eg, Sale of Goods Act 1979, s 31(2), above, p 150.
 performance 451

from the obligation to pay the debt. The debtor is bound in the first instance ‘to find
out the creditor and pay him the debt when due’;85 if the creditor will not take payment
when tendered, the debtor must nevertheless continue to be ready and willing to pay
the debt. Then, the debtor, if sued, can plead that a tender had been made, but must
pay the money into Court.86 If the debtor proves this plea, the creditor gets nothing
but the money originally tendered, ie no interest or damages, while the debtor gets
judgment for the costs of the action, and so is placed in as good a position as at the
time of the tender. Tender of payment, to be a valid performance to this extent, must
observe exactly any special terms which the contract may contain as to time, place,
and mode of payment. The nineteenth century authorities further prescribe extremely
strict requirements for a valid tender: it must be unconditional and it must be in legal
currency.87 There must be an offer of money produced and accessible to the creditor,
not necessarily of the exact sum, but of such a sum as will allow the creditor to take
exactly what is due without being called upon to give change.88 Finally, it was necessary
for the cash to be produced to the creditor in person. ‘Great importance’, it was said,89
‘was attached to the production of money, as the sight of it might tempt the creditor
to yield’. But these requirements may be dispensed with expressly or impliedly by the
creditor,90 and the requirement of payment in cash must be interpreted against the
background of modern commercial practice. In commercial transactions, it would
appear that any commercially recognized method of transferring funds, the result
of which is to give the transferee the immediate use of the funds transferred, will
nowadays suffice.91

(c) early tender

A promisee need not, moreover, accept an early tender, but, as we have seen, if a bad
tender is made before the time of performance has arrived, it does not generally
prevent the promisor making another tender within time that does comply with the
contract.92

10. partial performance

(a) entire and divisible obligations
Since the performance of a contractual obligation must be precise and exact, where
one party’s performance is made conditional on complete and entire performance

85 Walton v Mascall (1844) 13 M & W 452, 458 (Parke B). 86 CPR r 37.2.
87 The Currency and Bank Notes Act 1954, the Coinage Act 1971 and the Currency Act 1983 defi ne legal
tender. 88 Betterbee v Davis (1811) 3 Camp 70.
89 Finch v Brook (1834) 1 Bing NC 253, 257 (Vaughan J).
90 Farquharson v Pearl Assurance Co Ltd [1937] 3 All ER 124.
91 Tenax Steamship Co Ltd v The Brimnes (Owners) [1975] 1 QB 929, 963; Mardorf Peach & Co Ltd v Attica
Sea Carriers Corp of Liberia [1977] AC 850, 880, 885, 889; see above, p 446; Libyan Arab Foreign Bank Co v
Bankers Trust Co [1989] 1 QB 728, 749–50. 92 Above, p 450.
452 performance and discharge

by the other party,93 at common law94 the general rule is that the other can recover
nothing for incomplete performance. It is immaterial how the failure to effect complete
performance comes about. It may be due to a deliberate abandonment of the contract,
to a negligent act or omission, or to a simple misfortune occurring without any fault.
In Cutter v Powell,95 for example:
A seaman was engaged to act as second mate on a voyage from Jamaica to Liverpool. He was
to be paid 30 guineas, almost four times the going rate, in a single payment upon completion
of the voyage. Nineteen days out from Liverpool, when the voyage was nearly completed, he
died. His widow sued to recover a proportion of the agreed sum.

Her action failed. The seaman’s obligation was construed as an entire contract or, more
accurately, an entire obligation, that is to say, if the voyage was completed he was to
receive the stipulated sum, but, if it was not, he was to receive nothing. As Sir George
Jessel MR said: ‘if a shoemaker agrees to make a pair of shoes, he cannot offer you one
shoe, and ask you to pay one half the price’.96
The reason it is inaccurate to refer to ‘entire contracts’ is that it is very unlikely
that complete performance of each and every obligation in a contract by one party
is a condition precedent to the liability of the other. The contract may, for example,
be a complex one, composed of a number of undertakings differing in character or
importance; or it may be a promise to do a number of successive acts; or to do a single
act which can be partly or defectively performed.97 Very often a contract may be entire
as to one aspect but ‘divisible’ or ‘severable’ (in the sense that the right to payment
accrues incrementally as the performance is rendered) as to another. For example, in
Cutter v Powell, although the seaman’s obligation to complete the voyage was entire,
his obligation to exercise reasonable care in the performance of his duty was unlikely
to be entire, so that, had he completed the voyage, but had performed his duty badly,
it seems he would have been able to recover his wages, subject to a claim against him
for poor work.98 Again, in contracts for the carriage of goods by sea, whereas the
obligation to deliver the cargo to the stipulated port is entire, so that no freight at all
is payable if delivery is made at an intermediate port,99 the obligations with respect to
the quantity or condition of the cargo are not, so that, if half the cargo is delivered,

93 See Williams (1941) 57 LQR 373; Treitel (1967) 30 MLR 139, 141 ff; Law Com No 121, Pecuniary
Restitution on Breach of Contract (1983). Mr Brian Davenport QC dissented and the government rejected
the report: 19th Annual Report (1983–84) Law Com No 140, para 2.11.
94 For statutory exceptions, see Apportionment Act 1870 (rents, annuities, dividends, and other periodic
payments in the nature of income prima facie considered as accruing from day to day); Law Reform
(Frustrated Contracts) Act 1943, below, p 500.
95 (1795) 6 Term R 320; Stoljar (1956) 34 Can Bar Rev 288. But the effect of this decision has been alleviated
by statute: see the Law Reform (Frustrated Contracts) Act 1943, below, p 500, and what is now the Merchant
Shipping Act 1995, s 38. 96 Re Hall & Barker (1878) 9 Ch D 538, 545.
97 See the discussion in Baltic Shipping Co v Dillon (1993) 176 CLR 344, 350, 384 (High Court of
Australia).
98 Law Com No 121, Pecuniary Restitution on Breach of Contract (1983) para 2.12, citing Somervell LJ in
Hoenig v Isaacs [1952] 2 All ER 176, 178.
99 St Enoch SS Co Ltd v Phosphate Mining Co [1916] 2 KB 624; Metcalfe v Brittania Iron Works Co (1877)
2 QBD 423.
 performance 453

half the freight is payable,100 and if all the cargo arrives damaged (but still of the same
commercial description), freight will be payable subject to a counterclaim against the
carrier for damages.101
Because the consequences can be draconian, Courts are reluctant to construe an
obligation as ‘entire’.102 But where the payment for the performance was to be a lump
sum to be paid after completion they have generally done so, so that the promisee
cannot recover anything until the work is completely executed.103 Thus, apart from
Cutter v Powell, this construction has been put on obligations by a builder to build two
houses and stables for a client,104 and by a plumber to supply and install a combined
central heating and hot water system in a private house.105

(i) Rationale of rule

The general rule has been justified in a number of ways.106 First, the recipient of the
performance has not contracted to buy part of the performance for a proportionate
part of the price and should not be compelled to pay for performance that is different
to that agreed, and, in some cases, insisted upon.107 Where, like the seaman in Cutter v
Powell, the performer is to be paid significantly more than the going rate for the job, it
can also be said that he has accepted the risk of incomplete or defective performance.
Secondly, the rule holds people to their contracts and gives them a strong incentive to
complete.108 It is particularly important where there is inequality of bargaining power
or scope for opportunistic behaviour, as there often is in contracts for small building
works on private houses. It is all too common for a builder not to complete one job
before moving on to the next, and the rule enables the householder to withhold all
payment unless the job is finished.109 Thirdly, the losses the innocent party suffers may
be ones for which the law finds it difficult to compensate.110

100 Ritchie v Atkinson (1808) 10 East 295, 530. But where there is a stipulation for lump freight or freight
to be computed on loading, the carrier will be entitled to full freight: Aires Tanker Corp v Total Transport
Ltd, The Aires [1977] 1 WLR 185; Colonial Bank v European Grain & Shipping Ltd, The Dominique [1989] AC
1056. See further Scrutton on Charterparties (21st edn, 2008) art 166.
101 Dakin v Oxley (1864) 15 CB(NS) 646, 667. See further Scrutton on Charterparties, above, n 100.
102 Button v Thompson (1869) LR 4 CP 330, 342.
103 Appleby v Myers (1867) LR 2 CP 651, 660–1, The Madras [1898] P 90, and Sumpter v Hedges [1898] 1 QB
190, below, p 456, appear to adopt this as a general rule. For criticism, see below.
104 Sumpter v Hedges, above, n 103. 105 Bolton v Mahadeva [1972] 1 WLR 1009.
106 See generally, Waddams in Reiter and Swan, eds, Studies in Contract Law (1980) 163 ff ; Law Com No
121, Pecuniary Restitution on Breach of Contract (1983) paras 2.24–2.26.
107 Wiluszynski v Tower Hamlets LBC [1989] ICR 493; Miles v Wakefield MBC [1987] AC 539, below, p 456;
British Telecommunications plc v Ticehurst [1992] ICR 383.
108 Munro v Butt (1858) 8 E & B 735, 754; Law Com No 121, Pecuniary Restitution on Breach of Contract
(1983) para 2.25.
109 Ibid, 37 (Mr BJ Davenport QC’s dissent). A builder may protect itself by requiring payments before
the completion of performance, which (below, pp 588, 592) will generally be irrecoverable. Note that in
contracts for the sale of goods, consumers have wider power of rejection than non-consumers: Sale of Goods
Act 1979, ss 15A(1), 30(2A), below, n 124.
110 As in the case of non-pecuniary loss (Vigers v Cook [1919] 2 KB 475; and see below, p 536) or loss to a
third party (above, p 619).
454 performance and discharge

(ii) Critique of rule

The principle precluding recovery, however, if rigorously applied, could be productive
of great injustice. It is hard to contend, for example, that even the most trivial defect of
workmanship in the decoration of a flat,111 or some momentary slip or inefficiency on
the part of an employee,112 should entitle the ‘injured’ party to refuse all payment save
where the injured party has made it absolutely clear that the trivial defect or breach
will have this effect.113 It should not, accordingly, be inferred, as it has been,114 that such
penal consequences follow from the mere postponement of payment of a lump sum by
one party until after the other party has completely performed.115 Such postponement
may be prompted by a number of other reasons, including easing the ‘cash-flow’ of
the party who will have to pay, and protecting that party from the risk that the other
may become insolvent. Moreover, the application of the principle would often result in
the unjust enrichment of the injured party if that party could retain the benefit of the
incomplete performance without the necessity of paying for it. A general acceptance of
the risk of incomplete performance by the part performer may not extend to a situation
where the other party is incontrovertibly benefited, and a restitutionary remedy does
not necessarily constitute a redistribution of risks allocated by the contract.116
The unpalatable consequences that can follow have led Courts to seek to avoid
construing an obligation as entire. Broadly speaking this can properly be done in two
situations; where the injured party has accepted the partial performance, and, although
this is not so clearly established, where the part performer can establish that the
services rendered or the work done has incontrovertibly benefited the other party so as
to give rise to a claim for restitution of the unjust enrichment. The underdevelopment
of the law of restitution until recently and the tendency to construe an obligation as
‘entire’ simply because the contract provides for a lump sum has, however, also led
to authority favouring a remedy in a third situation; where the part performer has
substantially performed the ‘entire’ obligation.

(b) doctrine of ‘substantial performance’

Where the contract is substantially performed, there is authority that the injured party
is not discharged from the obligation to pay, but is protected by a counterclaim or set-
off for any loss which may have been sustained by reason of the incomplete or defective

111 Hoenig v Isaacs [1952] 2 All ER 176 (contract price £750, defects remedied for £55).
112 Ibid, 178.
113 Miles v Wakefield MBC [1987] AC 539, 551, 561, 568; Wiluszynski v Tower Hamlets LBC [1989] ICR
493, 500, 503. 114 Above, n 103.
115 Law Com No 121, Pecuniary Restitution on Breach of Contract (1983) paras 2.11, 2.27 and 2.67;
Williams (1941) 57 LQR 373, 389 ff.
116 Although it might do so; see Beatson, The Use and Abuse of Unjust Enrichment (1991) ch 4, and
Wiluszynski v Tower Hamlets LBC [1989] ICR 493, below, p 456. Cf McFarlane and Stevens (2002) 118 LQR
569, supporting the decision in Sumpter v Hedges [1898] 1 QB 673, below, p 456, on the basis that a party
in breach should have no claim for value of services rendered or goods supplied unless he has an accrued
contractual right to payment.
 performance 455

performance.117 A Court will hold a contract to have been substantially performed if

the actual performance falls not far short of the required performance, and if the cost
of remedying the defects is not too great in amount in comparison with the contract
price.118 In H Dakin & Co Ltd v Lee:119
D were builders who had contracted to execute certain repairs to L’s premises for £1,500.
They carried out a substantial part of the contract, but failed to perform it exactly in three
unimportant respects (which could have been rectified at a cost of £80). The official referee
appointed by the parties held that D were consequently not entitled to recover any part of
the contract price.

On appeal, it was held that this finding was erroneous. The contract had been
substantially, if not precisely, performed. Pickford LJ stated that the fact that the work
was done badly did not mean that it had not been performed at all.120 D was accordingly
entitled to recover the price less a reduction for the breach. In the USA a more flexible
approach has been taken whereby the Court may look at the quality of performance so
that, even if the cost of compliance is great, there may still be substantial performance
if the work that is done is of the same quality as that contracted for. In Jacob & Youngs
Inc v Kent121 the New York Court of Appeals held that a builder who failed to use
galvanized piping of ‘Reading manufacture’ for the plumbing in a building had
substantially performed the contract; the pipes in fact used were of the same quality
as those specified and the defect could only be remedied by demolishing a substantial
part of the building. There are indications that this approach may also be taken in
English law.122
Since the basis of the rules governing entire obligations is that the parties have
made complete and precise performance by one party a condition to entitlement to
performance by the other, it is submitted that it is logically difficult to justify applying
a principle of substantial performance to such obligations. To do so is to set aside
the contractual allocation of risks. But the cases which have construed an obligation
as entire simply because the contract provided for a lump sum to be paid after the
completion of performance provide some pragmatic justification, since this fact alone
may not truly indicate that the risks of any trivial incompleteness in performance
are to lie with the part performer. On principle, however, the correct approach is
greater caution in the categorization of an obligation as entire, and development of the
emerging restitutionary principles to which we now turn.

117 Boone v Eyre (1779) 1 H Bl 273; Broom v Davis (1794) 7 East 480n; Bolton v Mahadeva [1972] 1 WLR
1009, 1015; Sim v Rotherham Metropolitan Borough Council [1987] Ch 216, 253; Wiluszynski v Tower Hamlets
LBC [1989] ICR 493, 499; Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, 8–10, 17.
118 Compare Hoenig v Isaacs [1952] 2 All ER 176 (cost of remedying defects was 7.3 per cent of contract
price) and Bolton v Mahadeva [1972] 1 WLR 1009 (no substantial performance where cost of remedying
defects was 31 per cent of contract price).
119 [1916] 1 KB 566, 579. Note Greer LJ’s criticism in Eshelby v Federated European Bank Ltd [1932] 1 KB
423, 431 and cf Vigers v Cook [1919] 2 KB 475; Bolton v Mahadeva [1972] 1 WLR 1009.
120 Th is suggests that on true analysis the obligation concerning the quality of the work may not have
been entire. See Williams (1941) 57 LQR 373, 386–7, and see above, p 452. 121 129 NE 889 (1921).
122 In Ruxley Electronics Ltd v Forsyth [1996] 1 AC 344 (below, p 541, but not involving an entire
obligation), Jacob & Youngs Inc v Kent, was approved at 363 in a slightly different context.
456 performance and discharge

(c)acceptance of partial performance

by innocent party
A party who renders incomplete performance of an entire contract may nevertheless
claim remuneration where the other party has freely accepted such partial performance
or otherwise waived the need for complete performance. So, if the customer of Sir
George Jessel’s shoemaker had accepted one shoe he would have been obliged to pay
for the shoe he accepted.123 In the case of the sale of goods, section 30(1) of the Sale of
Goods Act 1979 provides:
Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the
buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them
at the contract rate.124

In most cases, such a claim will arise upon a quantum meruit, that is to say, for a
reasonable sum in respect of the services rendered or the work done by the partial
performance. But it will do so only if the party not in default has the option whether to
accept or to refuse the partial performance. Thus in Sumpter v Hedges:125
S agreed to erect two houses and stables on H’s land for £565. He failed to complete the
contract. H thereupon completed the buildings himself, using the materials left on the site
by S. S brought an action to recover the value of the work done before he abandoned the
contract, and also claimed in respect of the building materials used.

It was held that S was entitled to recover the value of the materials left which H used,
for H had the choice whether or not to use these to complete the building. But S could
not recover for the work he had done, for H had no option but to accept the partly-
erected building which was on his land. Similarly, an employer who told employees
working ‘to rule’ and not carrying out part of their contractual services not to come to
work at all unless they were prepared to work normally, was not held to have ‘accepted’
the partial performance simply because it did not send them home; ‘a person is not
treated by the law as having chosen to accept that which is forced down his throat
despite his objections’.126
Originally the basis of this liability was said to be that acceptance of partial
performance implies a fresh agreement between the parties to pay for the work already

123 Above, p 452. See also Baltic Shipping Co v Dillon (1993) 176 CLR 344, 378.
124 But a non-consumer may not reject where the shortfall or breach of the conditions implied by ss 13–15
of the 1979 Act is so slight that it would be unreasonable for him to do so: 1979 Act, ss 30(2A), and 15A,
inserted by the Sale and Supply of Goods Act 1994.
125 [1898] 1 QB 673. See also Munro v Butt (1858) 8 E & B 738; Forman & Co Proprietary Ltd v Ship
‘Liddesdale’ [1900] AC 190; McFarlane and Stevens (2002) 118 LQR 569.
126 Wiluszynski v Tower Hamlets LBC [1989] ICR 493, 504 (Nicholls LJ), but see Mead (1990) 106 LQR
192. In Miles v Wakefield MBC [1987] AC 539, 553, 563, two of their Lordships suggested that, if the employer
has not made it clear that reduced or inefficient work will not be accepted, the employee will be entitled to
a reasonable sum for that reduced work. But, as the contract had not been discharged, there are formidable
difficulties with any restitutionary claim: below, p 595. Cf Lord Bridge’s doubts, ibid, 552. Lord Brandon and
Lord Oliver reserved their opinions.
 performance 457

done or goods supplied127 but the implication of such a contract can be fictional, and,
in such cases, it is better to regard the obligation to pay as restitutionary arising from
the operation of the principle of unjust enrichment.128

(d) incontrovertible benefit

The failure of the claim in respect of the partially erected building in Sumpter v
Hedges shows that the mere fact that a person appears to have benefited from the part
performance of an entire obligation, does not suffice to ground a claim for restitution.129
This is because in the law of unjust enrichment, objective benefits may be ‘subjectively
devalued’ by the defendant.130 But, where it can be shown that the recipient of the
part performance has gained a readily realizable financial benefit or has been saved
expense which he must have incurred, there is some support for the view that the part
performer would be entitled to restitution131 save where the parties have made it clear
that the risk of non-completion is to be borne by the part performer even where there
is such a benefit.132

127 Sumpter v Hedges, above, n 125; Steele v Tardiani (1946) 72 CLR 386, 394, 402 (High Court of
Australia).
128 Baltic Shipping Co v Dillon (1993) 176 CLR 344, 374, 385 (High Court of Australia). For the recognition
of unjust enrichment in England, see Lipkin Gorman v Karpnale [1991] AC 548, above, p 23.
129 See also Bolton v Mahadeva [1972] 1 WLR 1009.
130 Birks, Unjust Enrichment (2nd edn, 2005) ch 3; Burrows, The Law of Restitution (3rd edn, 2010) ch 3.
131 Hain SS Co Ltd v Tate & Lyle Ltd (1936) 41 Com Cas 350, 358 (Lord Atkin), 367–8 (Lord Wright MR)
and 373 (Lord Maugham); Procter & Gamble Philippine Manufacturing Corp v Peter Cremer GmbH & Co,
The Manila [1988] 3 All ER 843, 855; Miles v Wakefield MBC, above, n 126, 553, 563. See also Britton v Turner
6 NH 481 (1834) (New Hampshire). Cf Beatson (1981) 98 LQR 389, 411, 413.
132 Law Com No 121, Pecuniary Restitution on Breach of Contract (1983) paras 2.66–2.69, 2.73, and see
above, n 126.
This page intentionally left blank
 13
DISCHARGE BY AGREEMENT
1. introduction
Contract rests on the agreement of the parties: as it is their agreement which binds
them, so by their agreement they may be discharged. And this mode of discharge
may occur in one of four ways: by release under seal; by accord and satisfaction; by
rescission of a contract which is still executory; or by the operation of some provision
contained in the contract itself.
Two sources of difficulty, however, exist which render the topic of discharge by
agreement one of considerable artificiality and refinement.

(a) consideration applies to discharge

The first is that the doctrine of consideration applies to the discharge as well as to
the formation of a contract.1 As a result, a distinction has to be drawn between
those situations where the contract is still executory on both sides, and those where
the contract has been executed on one side. In the case of an executory contract, the
consideration for the discharge by agreement is found in the relinquishment by each
promisee of its right to performance. Where, however, the contract has been wholly
executed by one party, leaving the other party still to perform its side of the obligation,
as, for example, where A has sold and delivered goods to B, but B has not yet paid for
them, any release of B would be purely gratuitous since A would not receive any benefit,
nor would B suffer any detriment, by this action. This distinction was emphasized by
Parke B in Foster v Dawber, when he said:2
It is competent for both parties to an executory contract, by mutual agreement, without any
satisfaction, to discharge the obligation of that contract. But an executed contract cannot be
discharged except by release under seal, or by performance of the obligation, as by payment,
where the obligation is to be performed by payment.

The agreement to discharge must therefore be under seal, or be supported by some

other consideration (‘accord and satisfaction’) on the part of the person seeking to be
released.

1 See above, p 111. 2 (1851) 6 Exch 839, 851.

460 performance and discharge

(b) contracts evidenced by writing

The second source of difficulty is that certain contracts are required by law to be in
writing, or to be evidenced by writing,3 and any subsequent variation of such a contract
must also be in writing, or proved by writing.4 But writing is not required for the
rescission by agreement of such a contract, nor for the waiver of a term contained in it.5
The distinction between rescission, variation, and waiver is, as we shall see, a fine one,
and there is much artificiality in the lines to be drawn between almost identical cases.
The occasions on which this difficulty can arise have declined greatly since writing is
a requirement for very few types of contract.6 But writing is still required for contracts
for the sale or other disposition of land and contracts of guarantee, so that it cannot be
said that the difficulties have entirely disappeared.

2. forms of discharge by agreement

(a) release
The right to performance of a contract can be abandoned by release contained in a
deed.7 If a sealed instrument is employed, it is immaterial that the contract has been
executed on one side, for the deed dispenses with the need for consideration. A release
not contained in a deed requires consideration. The agreement is then discharged by
accord and satisfaction. A release is construed in the same way as any other contract.
It has been held that a general release could not be interpreted as covering rights which
the parties had no idea existed.8
An agreement not to sue in perpetuity amounts to a release9 but, at common law, an
agreement not to sue for a limited period merely gave rise to a cross-action for damages.10
Equity, however, would restrain the promisor from suing within that time,11 and today
the equitable rule prevails12 so that the agreement acts as a bar to the original action.

(b) accord and satisfaction

Discharge of a contract in return for a consideration which consists in some
satisfaction other than the performance of the original obligation is termed ‘accord
and satisfaction’:

3 See Chapter 3.
4 eg McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 (variation of material term in a contract for sale
or other disposition of an interest in land must comply with Law of Property (Miscellaneous Provisions)
Act 1989, s 2).
5 Morris v Baron & Co [1918] AC 1, below, p 463; McCausland v Duncan Lawrie Ltd, above, n 4, 48.
6 See Chapter 3. 7 For the requirements of a deed, see above, p 76.
8 BCCI SA v Ali [2001] UKHL 8, [2002] 1 AC 251 (Lord Hoff mann dissenting). It did not release rights to
stigma damages (below, p 538) which the law did not recognize at the time of the release.
9 Hodges v Smith (1599) Cro Eliz 623. See, however, Cutler v McPhail [1962] 2 QB 292, 298.
10 Ford v Beech (1848) 11 QB 852. 11 Beech v Ford (1848) 7 Hare 208.
12 Senior Courts Act (formerly Supreme Court Act) 1981, s 49.
 discharge by agreement 461

Accord and satisfaction is the purchase of a release from an obligation whether arising under
contract or tort by means of any valuable consideration, not being the actual performance of
the obligation itself. The accord is the agreement by which the obligation is discharged. The
satisfaction is the consideration which makes the agreement operative.13

It is effective to discharge any contract, whether executory or executed, and even if it

was contained in a deed.14

(i) Executory satisfaction

Formerly, a contractual obligation, or cause of action arising from the breach of a
contract, was not discharged so long as the satisfaction remained executory, that is,
so long as the agreement to furnish new consideration had not been carried out.15 As
it was said in an old case:16 ‘Accord executed is satisfaction; accord executory is only
substituting one cause of action in the room of another, which might go on to any
extent’. But the question is now regarded as one of the construction of the agreement;
and the promise only, as distinct from the actual performance of it, may be a good
satisfaction and discharge the original obligation, if it clearly appears that the parties
so intended.17 The original obligation or claim is then discharged from the date the
promise is accepted. If the promisor fails to perform its promise, the promisee’s
only remedy is to sue for breach of the promise, and it cannot return to the original
obligation or claim.18
It must be remembered, however, that the rule in Pinnel’s Case19 prescribes that the
payment of a smaller sum in satisfaction of a larger is not a good discharge of a debt.
So if B owes A the sum of £50 for goods sold and delivered, and A agrees to excuse
him £45 out of this amount, the debt is not discharged by the payment of £5. But the
receipt by A of some satisfaction different in kind, or of a fi xed instead of an uncertain
sum, or of a lesser sum at an earlier date or in a different place than that required
by the contract, is sufficient. Compromises of a disputed claim,20 compositions with
creditors, 21 and payments by a third party,22 also afford exceptions to this rule.

(ii) Promissory estoppel

Accord without satisfaction is not contractually binding, and it is still not certain
whether the principle of promissory estoppel considered above in Chapter 4 could be
successfully relied upon to obviate the necessity for consideration where the accord
involves the permanent abandonment by one party of his right to performance by the

13 British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616, 643–4
(Scrutton LJ). 14 Steeds v Steeds (1889) 22 QBD 537.
15 Peytoe’s Case (1612) 9 Co Rep 79b. 16 Lynn v Bruce (1794) 2 H Bl 317, 319 (Eyre LCJ).
17 Good v Cheesman (1831) 2 B & Ad 328; Morris v Baron & Co [1918] AC 1, 35; British Russian Gazette
and Trade Outlook Ltd v Associated Newspapers Ltd, above, n 13, 650, 654–5; Jameson v Central Electricity
Generating Board [1998] QB 323, 335.
18 British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd, above, n 13, 644, 654;
Green v Rozen [1955] 1 WLR 741.
19 (1602) 5 Co Rep 117a; above, p 111; Ferguson v Davies [1997] 1 All ER 315.
20 Above, p 103, and see Kitchen Design & Advance Ltd v Lea Valley Water Co [1989] 2 Lloyd’s Rep 221.
21 Above, p 114. 22 Above, p 114.
462 performance and discharge

other. The view has been advanced that promissory estoppel serves only to suspend,
and not totally to extinguish, existing rights,23 although it is probable that this is
not a necessary limitation on the doctrine. As we have seen, there is in particular an
unresolved question about whether a debt can be extinguished through the operation
of promissory estoppel.24

(iii) Bills of exchange

One important exception does, however, exist. It was a rule of the law merchant,
imported into the common law, that no satisfaction was required for the discharge of
a bill of exchange or promissory note. The Bills of Exchange Act 1882, section 62, gives
statutory force to this rule, but subject to the provision that the discharge must be in
writing, or the bill delivered up to the acceptor.

(c) rescission
(i) By agreement
A contract which is executory on both sides may be discharged by agreement between
the parties that it shall no longer bind them. This is commonly referred to as a rescission
of the contract, although whether it rescinds the obligations under the contract ab
initio or merely discharges the parties from their outstanding obligations will depend
on the parties’ agreement. Such an agreement is formed of mutual promises, and the
consideration for each promise of each party is the abandonment by the other of its
rights under the contract.

(ii) Abandonment
The Court can infer from a long period of delay or inactivity that the parties have
agreed to abandon their contract. It must be shown that one party conducted itself
in such a way that the other party reasonably assumed that it was agreed that the
contract was abandoned.25 Courts have come close to inferring an offer to abandon
a contract from mere silence, although some overt act is almost always likely to be
required.26 In the case of arbitration, legislation now gives arbitrators the power to
dismiss a claim where there has been inordinate and inexcusable delay on the part of
the claimant in pursuing his claim, irrespective of whether the arbitration contract
has been abandoned.27

(iii) Substituted contract

Rescission of a contract may also take place by such an alteration in its terms as
substitutes a new contract for the old one. The old contract may be expressly discharged
in the new one, or discharge may be implied by the introduction of new terms or new

23 Above, p 122. 24 Above, p 123.

25 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal, The Hannah Blumenthal [1983] 1 AC 854,
865, 885, 914, 916, 924.
26 On arbitration, see above, p 31, n 9. On landlord and tenant, see Collin v Duke of Westminster [1985]
1 QB 581. 27 Arbitration Act 1996, s 41(3).
 discharge by agreement 463

parties. This method of discharge is therefore a form of rescission with a new contract
superadded.
An example of the discharge of a contract by the substitution of new terms is
provided by Morris v Baron & Co:28
A dispute had arisen out of a contract for the sale of cloth and an action had been begun.
Before the case came on for trial the parties made an oral arrangement of which the chief
terms were that the action and counterclaim were to be withdrawn, an extension of credit
was to be given to the buyer for a sum admittedly due from him under the old contract, and,
as regards the balance of goods contracted for but undelivered, there was to be substituted
for a firm contract of sale an option for the buyer to take them if he pleased.

The House of Lords held that in these circumstances it must be concluded that the
parties had agreed to abrogate the old contract and substitute a new one for it.
Similarly, the introduction of new parties29 may impliedly rescind an existing
contract and substitute a new one for it:
Suppose A has entered into a contract with B and C, and that B and C agree among themselves
that C shall retire from the contract and cease to be liable upon it.

A may of course insist upon the continued liability of C; but if A continues to deal
with B after becoming aware of the retirement of C, A’s conduct will probably justify
the inference that a new contract to accept the sole liability of B has been made, and
A cannot then hold C to the original contract. ‘If one partner goes out of a firm, and
another comes in, the debts of the old firm may, by the consent of all three parties—
the creditor, the old firm, and the new firm—be transferred to the new firm’,30 and this
consent may be implied by conduct, if not expressed in words or writing.

(iv) Form of discharge by agreement

As regards the form needed for the expression of an agreement which purports to
rescind an existing contract, the old rule of the common law was that a contract under
seal could only be discharged by agreement expressed under seal. But, in equity, an
agreement to rescind which was not under seal afforded a defence to an action on the
deed. Since the Judicature Acts the rule of equity prevails, and a contract contained in
a deed may be rescinded by a parol contract (a simple contract, oral or in writing) as
well as by deed.31
A parol or simple contract, whether in writing or not, may be discharged by a
subsequent agreement, either written or oral. Even when the original agreement is
one required by statute to be in or evidenced by writing, as in the case of contracts for
the sale or other disposition of land, or contracts of guarantee,32 there is no need for a
written discharge since there is no requirement that they shall be dissolved in writing.
In Morris v Baron & Co, 33 for example, the original contract for the sale of cloth was

28 [1918] AC 1. 29 See also ‘novation’, below, p 676.

30 Hart v Alexander (1837) 2 M & W 484, 493 (Parke B). In the case of partnership, these rules are
substantially embodied in the Partnership Act 1890, s 17(3).
31 Berry v Berry [1929] 2 KB 316; Senior Courts Act 1981 (formerly Supreme Court Act 1981), s 49.
32 See Chapter 3. 33 [1918] AC 1, above.
464 performance and discharge

one which was required by section 4 of the Sale of Goods Act 1893 (now repealed) to
be evidenced by writing. The substituted contract was itself unenforceable because
it did not comply with that section. Nevertheless, it operated as a discharge of the
old contract with the result that the buyer, who claimed damages for non-delivery of
the goods alternatively under the original and under the substituted agreement, was
unable to succeed on either ground.
Rescission of an agreement by substitution of new terms must, however, be
distinguished in form and in effect from (i) variation, and (ii) forbearance or waiver.

(d) variation
The parties to a contract may effect a variation of the contract by modifying or altering
its terms by mutual agreement, but without intending to rescind it and to substitute
a wholly new contract for it.34 A contract may also give one of the parties the power
unilaterally to vary the obligations, for example by a price variation clause, but in the
case of consumer contracts, this power has been restricted by legislation.35

(i) Form of variation

A contract under seal may be varied, as it may be rescinded, by a parol contract.36
A simple contract, again, whether in writing or not, may be varied by a subsequent
agreement either written or oral. This in no way conflicts with the rule that extrinsic
evidence is not admissible to vary or add to the contents of a written document, for that
principle merely refers to the ascertainment of the original intention of the parties. It
has no application to the case of a subsequent variation.37 But a contract required by
law to be in writing, or to be evidenced by writing, must be varied in writing. In Goss
v Lord Nugent:38
By an agreement in writing G had contracted to sell to N several lots of land and to make
good title to them. It was afterwards discovered that a good title could not be made to one
of the lots, and N orally agreed not to insist on a good title to that lot. N later, relying on the
defective title, refused to pay the purchase money.

The contract, being one for the sale of land, was at that time required to be evidenced
in writing.39 The promise to accept the defect in title would operate to vary that
contract. But the Court held that G could not rely on this variation as it was merely
oral, and N was therefore entitled to succeed on the ground that a good title had not
been made.

34 British and Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48; Stoljar (1957) 35 Can Bar
Rev 485; Dugdale and Yates (1976) 39 MLR 680.
35 Lombard Tricity Finance Ltd v Paton [1989] 1 All ER 916; Unfair Terms in Consumer Contracts
Regulations 1999 (SI 1999 No 2083), above, p 206. 36 Berry v Berry [1929] 2 KB 316.
37 Goss v Lord Nugent, below, n 38, 64.
38 (1833) 5 B & Ad 58. See also Noble v Ward (1867) LR 2 Ex 135; United Dominions Corp (Jamaica) Ltd v
Shoucair [1969] 1 AC 340; New Hart Builders Ltd v Brindley [1975] Ch 342.
39 See now Law of Property (Miscellaneous Provisions) Act 1989, s 2, above, p 84 (contract must be in
writing); McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38.
 discharge by agreement 465

Whether there has been a mere variation of terms or a rescission must depend upon
the intention of the parties in each particular case and the question is often not an easy
one to determine; but the following test has been suggested by Lord Dunedin:40

In the first case [variation] there are no such executory clauses in the second arrangement as
would enable you to sue upon that alone if the first did not exist; in the second [rescission]
you could sue on the second arrangement alone, and the first contract is got rid of either by
express words to that effect, or because, the second dealing with the same subject-matter
as the first but in a different way, it is impossible that the two should be both performed.
When I say you could sue on the second alone, that does not exclude cases where the first is
used for mere reference, in the same way as you may fi x a price by a price list, but where the
contractual force is to be found in the second by itself.

The changes must go to the ‘very root’ of the original agreement,41 and ‘there should
have been made manifest the intention in any event of a complete extinction of the first
contract, and not merely the desire of an alteration, however sweeping, in terms which
leave it still subsisting’.42

(ii) Consideration for variation

A variation involves a definite alteration, as a matter of contract, of contractual
obligations by the mutual agreement of both parties.43 It must be supported by
consideration. In most cases, consideration for the variation can be found in a
mutual abandonment of existing rights or the conferment of new benefits by each
party on the other.44 Alternatively, consideration may be found in the assumption
of additional obligations or the incurring of liability to an increased detriment.45
Although an agreement whereby one party undertakes an additional obligation, but
the other party is merely bound to perform its existing obligations, will, as a general
rule, not be effective to vary a contract, as no consideration is present,46 it has been
held that the contract may exceptionally be varied where the Court can identify a
‘practical’ benefit to the party undertaking the additional obligation.47 And if one
party merely agrees not to enforce one of the terms of the contract to be performed
by the other, this does not constitute a variation. Such an agreement may, however, be
binding as a waiver48 or in equity.49

40 Morris v Baron & Co [1918] AC 1, 26.

41 British and Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48, 68 (Lord Sumner).
42 Morris v Baron & Co, above, n 40, 19 (Lord Haldane).
43 Besseler Waechter Glover & Co v South Derwent Coal Co [1938] 1 KB 408, 416 (Goddard J).
44 Re William Porter & Co Ltd [1937] 2 All ER 361; W J Alan & Co Ltd v El Nasr Export and Import Co
[1972] 2 QB 189. 45 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705.
46 Stilk v Myrick (1809) 2 Camp 317; Syros Shipping Co SA v Elaghill Trading Co [1980] 2 Lloyd’s Rep 390;
see above, pp 108–11.
47 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1; Anangel Atlas Compania Naviera
SA v Ishikawajima-Harima Heavy Industries Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526, above, p 109. Cf Re
Selectmove Ltd [1995] 1 WLR 474; Collier v Wright (Holdings) Ltd [2007] EWCA Civ 1329, [2008] 1 WLR
643, above, p 112. 48 See below.
49 Equitable, or promissory, estoppel: see above, p 116; below, p 468.
466 performance and discharge

(e) waiver
A party who voluntarily agrees to forbear from insisting on the mode of performance
or time of performance fi xed by the contract, or forbears from so insisting, will be held
to have waived the right to require that the contract be performed by the other party
in accordance with its terms.50 But ‘waiver’ is a term which bears many meanings, has
been criticized as a ‘slippery word worn smooth with overuse’,51 and, as we shall see, is
also used to refer to an election between inconsistent rights. Waiver is relevant where
difficulties of form or absence of consideration mean that there is no variation of the
contract. Waiver was developed by the common law mainly as a device for evading the
formal requirements of the Statute of Frauds, but because, as we have noted, formal
requirements are much less important in the modern law, this aspect is now of less
importance, although still relevant for certain types of contract, such as contracts for
the sale of land and guarantees.52

(i) Form of waiver

Where a contract has to be by deed, or in, or evidenced by, writing, an oral agreement
to forbear, for example by acceding to a request to extend the time of performance,
might be met by the plea that the contract had been discharged by an alteration of
the time of performance, that a new contract was thereby created, and that the new
contract was not binding or was unenforceable for non-compliance with the statutory
requirements as to form.53 Alternatively, the party which agreed to extend the time for
performance, if sued by the other party, might plead that the other party was never
ready and willing to perform within the time originally fi xed for performance. A party
thus given more time for performance, could not rely on the assent of the other to this,
as this constituted a variation of the contract which was nugatory since it was not in
writing.54

(ii) Variation and waiver distinguished

In order to overcome these difficulties, and so that statutory requirements of formality
might not become a cloak for fraud, the Courts showed themselves willing to draw a
distinction between variation on the one hand and mere waiver or forbearance on the
other. Whereas the former might, in the cases previously mentioned, be required to be
in writing, an oral waiver would be efficacious although not in the statutory form. In
Levey & Co v Goldberg,55 for example:
G agreed in writing to buy from L certain cloth over £10 in value, delivery to be made
within a specified time. At the request of G, L orally consented to withhold delivery during
that period. Subsequently, however, before delivery was made, G sought to terminate the
contract claiming that L had repudiated the contract by not being ready and willing to
deliver the cloth within the contract time or within a reasonable time, and pleading the Sale

50 See Phipps (2007) 123 LQR 286 for a valuable discussion of waiver at common law.
51 Roscoe Pound’s forward to Ewart, Waiver Distributed (1917) vi. See also Carter (1991) 4 JCL 59.
52 Above, p 463, and see generally Chapter 3. 53 Stead v Dawber (1839) 10 A & E 58.
54 Plevins v Downing (1876) 1 CPD 220, 225. 55 [1922] 1 KB 688.
 discharge by agreement 467

of Goods Act 1893, section 4, 56 as a defence to L’s subsequent action for non-acceptance of
the goods.

It was held that the forbearance by L at the request of G to deliver within the defined
period did not constitute a variation but was a valid and effective waiver although not
in writing. G was therefore liable for his failure to accept the cloth. The distinction
between variation and waiver has been said to depend upon the intention of the
parties;57 for there to be a variation the parties must intend permanently to alter the
contractual obligation; if the party forbearing wishes to preserve the possibility of
reverting to the contract, it is at most, a waiver. The distinction is difficult to apply in
practice,58 and, although now much less important in respect of formal requirements,
it is still important in commercial transactions.

(iii) Waiver does not require consideration

Waiver is important because it is an extremely common occurrence in commercial
transactions. It is, however, open to the technical objection that it ought to have no
binding force since it is gratuitous and made without consideration. As it benefits
only the promisee, without any corresponding benefit to the promisor, the element of
consideration is lacking. It should therefore be without legal effect. But the Courts have
not hesitated to hold that the waiver of a contractual stipulation is valid and binding
even though there is no consideration. The party granting the indulgence cannot go
back on the promise and require strict adherence to the contract.59 However, in cases
of postponement of performance, if no period of postponement is fi xed, that party
may give reasonable notice to the other party requiring the contract to be performed
within a certain time, and the contract must then be performed within that time.60
Similarly, in cases of the waiver of other types of contractual term, the party granting
the indulgence may as a general rule, upon reasonable notice, require the other party
to comply with the original contractual stipulation; but cannot treat the forbearance
as of no effect. In Panoutsos v Raymond Hadley Corporation of New York:61
P contracted to buy from RH 4,000 tons of flour which RH was to ship to Greece, by
means of separate shipments. The contract required payment to be effected by P opening
a bankers’ confirmed letter of credit in RH’s favour. P did open a letter of credit, but it was
not ‘confirmed’. RH made some shipments and received payment for these by this letter of
credit. Subsequently, however, RH summarily terminated the remainder of the contract on

56 Sale of Goods Act 1893, s 4, required the contract to be evidenced by writing. Cf Sale of Goods Act 1979,
s 4 (contract of sale may be made in writing, with or without seal, or by word of mouth, or partly in writing
and partly by word of mouth, or may be implied from the parties’ conduct).
57 Stead v Dawber (1839) 10 A & E 57; Tallerman & Co Pty Co Ltd v Nathan’s Merchandise (Vic) Pty Ltd
(1954) 91 CLR 288, 297 (High Court of Australia). Dugdale and Yates (1976) 39 MLR 680 distinguish pre-
breach statements which are likely to be variations from post-breach ones, which are not.
58 Compare, eg Goss v Lord Nugent (1833) 5 B & Ad 58 with Hickman v Haynes (1875) LR 10 CP 598.
59 Leather Cloth Co v Hieronimus (1875) LR 10 QB 140; Bruner v Moore [1904] 1 Ch 305; Besseler Waechter
Glover & Co v South Derwent Coal Co [1938] 1 KB 408; Tankexpress A/S v Compagnie Financière Belge des
Petroles SA [1949] AC 76. 60 Charles Rickards Ltd v Oppenhaim [1950] 1 KB 616.
61 [1917] 2 KB 473.
468 performance and discharge

the ground that the letter of credit was not in accordance with the contractual stipulation.
P sued for breach.

It was held that RH, by its acceptance of payment by means of the unconfirmed letter
of credit, had impliedly waived this condition in the contract. This, however, did not
mean that it was consequently bound to accept that letter of credit until the end of the
contract; it might, by giving reasonable notice, insist on the strict contractual terms.
But it was not entitled to cancel the contract in a summary manner.

(iv) Risk borne by party requesting forbearance

The party to whom the forbearance is granted is also bound by its terms.62 Moreover,
if that party asks to have the performance of the contract postponed, it does so at its
own risk. For if that party subsequently refuses to accept the goods, and the market
value of the goods which it should have accepted at the earlier date has altered at the
later date, the measure of damages may be increased as against it by the addition of
damages consequent on the delay.63

(v) Equitable estoppel

In developing waiver mainly as a common law device for evading the formalities
required by the Statute of Frauds, little attempt was made to explain why a gratuitous
promise should thus be binding. If it is to be justified analytically, it may be more
satisfactory to regard waiver as a species of estoppel. It will be remembered that equity,
by use of the principle of promissory estoppel,64 is also prepared to give effect to a
promise made in similar circumstances:
If persons who have contractual rights against others induce by their conduct those against
whom they have such rights to believe that such rights will either not be enforced or will be
kept in suspense or abeyance for some particular time, those persons will not be allowed
by a Court of Equity to enforce the rights until such time has elapsed, without at all events
placing the parties in the same position as they were before.65

The party who has waived strict performance may be said to be estopped from going
back on the promise or representation to do so, at any rate without giving fair and
adequate notice to the promisee.
The similarity between waiver and estoppel was expressly noted by Denning LJ in
Charles Rickards Ltd v Oppenhaim:66
O ordered from CR a Rolls Royce car chassis, which was delivered to him. He wished to have
a body built on the chassis, and CR accepted this order. The job was to be completed by 20
March 1948, at the latest. On that day it was still not completed, but O continued to press for

62 Hickman v Haynes (1875) LR 10 CP 598; Levey & Co v Goldberg [1922] 1 KB 688.

63 Levey & Co v Goldberg, above, n 62. 64 See above, p 116.
65 Birmingham and District Land Co v London and North Western Railway Co (1888) 40 Ch D 268, 286
(Bowen LJ).
66 [1950] 1 KB 616; cf. Stoljar (1957) 35 Can Bar Rev 485. For more recent discussion on waiver in the sense
of estoppel see Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India, The Kanchenjunga [1990] 1
Lloyd’s Rep 391; Commonwealth of Australia v Verwayen (1990) 170 CLR 394.
 discharge by agreement 469

delivery. On 29 June, however, he wrote to CR stating he would not take delivery after 25 July.
CR still having failed to deliver the car, O treated the contract as repudiated.

The Court of Appeal held that he was entitled to do so. Although by his conduct he had
impliedly waived the original stipulation as to time, he had given reasonable notice
of his intention to reimpose a new time limit. CR having failed even then to perform,
the contract was clearly discharged by its breach. Denning LJ said of O’s consent to
postponement:67
Whether it be called waiver or forbearance on his part, or an agreed variation or substituted
performance, does not matter. It is a kind of estoppel. By his conduct he evinced an intention
to affect their legal relations. He made, in effect, a promise not to insist on his strict legal
rights. That promise was intended to be acted on, and was in fact acted on. He cannot
afterwards go back on it.

The analogy, however, is not completely exact. It may be that promissory estoppel
is more limited than waiver. For an estoppel to become binding, the promisee must
alter its position in reliance on the promise. In fact, when waiver is used in the sense
of estoppel, the focus of the law is on whether the dealings between the parties and
the prejudice to the party who has been told that strict performance is not required
are such as to render it inequitable for the other party to go back on its promise or
representation.68 But the requirement of reliance has not been strictly enforced for
waiver,69 although it is true to say that in cases of waiver of a time fi xed for performance
(but not in the case of waiver of other types of stipulation) it will usually be found to
have been satisfied.
Waiver may also be used in the sense of election, that is, where a party is entitled either
under the terms of the contract or by the general law, to choose between alternative
and inconsistent rights.70 Here the law focuses on that party’s words, conduct, and
knowledge to determine whether an election has been made.71 Once an election is
made it can be said that the party has waived the alternative and inconsistent right. For
example, waiver may apply to conditions precedent,72 to the right of one party to treat
itself as discharged by reason of a repudiatory breach by the other,73 or to terminate a
contract for breach under an express contractual provision to that effect.74 If a party
elects to affirm the contract and thus waive its right to terminate, it will not be held
to have waived (in the sense of an election) its right to damages for the breach unless
the requirements of a waiver in the sense of estoppel are established to that effect.75
Further, a party may, without the assent of the other party, waive compliance with a

67 Ibid, 623. Cf Phipps (2007) 123 LQR 286, 298–9. 68 See above, pp 119–21.
69 WJ Alan & Co Ltd v El Nasr Export and Import Co Ltd [1972] 2 QB 189, 213, but cf ibid, 221; Finagrain
SA Geneva v P Kruse Hamburg [1976] 2 Lloyd’s Rep 508.
70 Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India, The Kanchenjunga [1990] 1 Lloyd’s
Rep 391, 398 (Lord Goff ).
71 See United Australia Ltd v Barclays Bank Ltd [1941] AC 1, 30 (Lord Atkin).
72 See above, p 141. 73 See below, p 509. 74 See below.
75 Hain SS Co Ltd v Tate & Lyle Ltd [1936] 2 All ER 597, 608; Suisse Atlantique Société d’Armament
Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361, 395; Motor Oil Hellas (Corinth) Refineries
SA v Shipping Corp of India, The Kanchenjunga [1990] 1 Lloyd’s Rep 391, 400.
470 performance and discharge

term of the contract which is inserted solely for its own benefit.76 When used in the
sense of an election, waiver is always permanent; it cannot be reversed by the service
of a notice.77 This is to be contrasted with what was said above in relation to waiver in
the sense of estoppel which can (but not always) be negated by the service of a notice.78
In addition, when used in the sense of election there is no requirement of reliance and
detriment although there is still a focus on words and conduct. Moreover, when used
in the sense of estoppel there is no requirement of knowledge whereas with election
there is a requirement that the promisee has knowledge of the facts which give rise to
the right to elect and arguably in some cases knowledge of the right itself.79

(f) provisions for discharge contained in

the contract itself
A contract may contain within itself the elements of its own discharge, in the form
of provisions, express or implied, for its determination or termination in certain
circumstances. Apart from the statutory protection given to those dealing on the
other party’s standard terms80 and to consumers,81 and the power of the Court to give
equitable relief against forfeiture,82 there is no requirement that a party act reasonably
when deciding to exercise a contractual power to terminate.83
The parties may expressly provide that, upon the happening of a certain event,
either the contract shall automatically determine,84 or that, on the occurrence of that
event, one party is to have the option to cancel the contract.85

(i) Automatic termination

Where the event is one over which the parties have no control and cannot bring
about themselves, then effect will generally be given to a provision that the contract

76 Hawksley v Outram [1892] 3 Ch 359. Cf Burgess v Cox [1951] Ch 383; Gregory v Wallace [1998] IRLR 387
(terms inserted for benefit of both parties).
77 Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850, 883; China National
Foreign Trade Transportation Corporation v Evologia Shipping Co. SA of Panama [1979] 1 WLR 1018, 1034–5
(Lord Scarman).
78 Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India, The Kanchenjunga [1990] 1 Lloyd’s
Rep 391, 399. See above, p 122, on estoppel.
79 See Peyman v Lanjani [1985] Ch 457. See further below, p 510.
80 Unfair Contract Terms Act 1977, s 3(2)(b)(ii); above, p 200.
81 Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) Sched 2, esp para 1(f), (g),
above, p 206; Consumer Credit Act 1974, ss 76, 86B, 86D, 86E, 87, 88, 98 (amended by Consumer Credit Act
2006).
82 Th is is considered below, pp 592–3. See also Law of Property Act 1925, s 146 (forfeiture of lease).
83 In some legal systems, a party is required to exercise its rights and remedies, including the right to
terminate, in good faith: Lando & Beale, Principles of European Contract Law Parts I and II (2000) 117–19
or (in particular) to give notice requiring the other party to perform before terminating the contract: above,
p 449, n 77. Cf Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514, 519 Lord Hoff mann: ‘The existence of
an undefi ned discretion to refuse to enforce the contract on the ground that this would be “unconscionable”
is sufficient to create uncertainty’).
84 Continental Grain Export Corp v STM Grain Ltd [1979] 2 Lloyd’s Rep 460.
85 Head v Tattersall (1871) LR 7 Ex 7; Brown v Knowsley BC [1986] IRLR 102, above, p 143. For the
contractual right of a party to terminate for the other party’s breach, see below, p 523.
 discharge by agreement 471

is automatically to cease to bind.86 But if the relevant event is a breach of contract the
Courts are likely to interpret the contract as nevertheless requiring an election by the
innocent party before holding that the contract is terminated. This is an application
of the principle that a party may not rely on its own breach to bring the contract to an
end;87 ie a party may not take advantage of his or her own wrong.88 The better view is
that this is not an independent rule of law,89 but a principle of construction reflecting
the presumed intention of the parties, and which may be rebutted by the express terms
of the contract.90 Moreover, even if the event triggering the automatic termination
provision is not a breach of contract, a party will not be able to take advantage of
that provision if its wrongful action gave rise to the event upon which the automatic
termination provision is based.91

(ii) Termination on notice

More often, a provision is inserted making the contract terminable at the option of
one or both of the parties upon notice. This right of termination may be exercisable
upon a breach of the contract by one party (whether or not the breach would amount
to a repudiation of the contract),92 or upon the occurrence or non-occurrence of a
specified event other than breach,93 or simply at the will of the party upon whom the
right is conferred. For example, the contract may be terminable ‘by 3 months’ notice
in writing on either side’. A similar provision may be incorporated by implication, or
by the usage of trade. At common law,94 for instance, a contract of employment may
be terminated by reasonable notice by either party, the length of the notice depending
upon the nature of the employment and the intervals at which remuneration is to
be paid. Moreover, even where the duration of a written contract is on the face of
the instrument indefinite and unlimited, such a provision may sometimes be implied

86 New Zealand Shipping Co v Société des Ateliers et Chantiers [1919] AC 1, 15 (Lord Wrenbury);
Gyllenhammar & Partners International Ltd v Sour Brodogradevna Industrija [1989] 2 Lloyd’s Rep 403, 413
(Hirst J).
87 The principle does not apply if breach is of a duty owed to a person who is not a party to the contract:
Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180, 189 (Lord Diplock)
and Thompson v ASDA-MFI Group plc [1988] 1 Ch 241, 266.
88 Alghussein Establishment v Eton College [1988] 1 WLR 587; Cheall v Association of Professional
Executive Clerical and Computer Staff, above, n 87; Brown v Knowsley BC [1986] IRLR 102.
89 New Zealand Shipping Co v Société des Ateliers et Chantiers, above, n 86; Alghussein Establishment v
Eton College, above, n 88; Cheall v Association of Professional Executive Clerical and Computer Staff, above,
n 87.
90 See, eg Gyllenhammar & Partners International Ltd v Sour Brodogradevna Industrija [1989] 2 Lloyd’s
Rep 403, 416 (Hirst J).
91 See Cheall v Association of Professional Executive Clerical and Computer Staff, above, n 87, 189 (Lord
Diplock). Th is principle means that even where such a provision declares that the contract is to be ‘void’,
it is not absolutely so: New Zealand Shipping Co v Société des Ateliers et Chantiers, above, n 86, 15 (Lord
Wrenbury). See also below, p 493 (self-induced frustration).
92 But cf Laing Management Ltd v Aegon Insurance Co (UK) Ltd (1998) 86 BLR 70 (reliance on contractual
right to terminate did not constitute acceptance of repudiatory breach, although this may be questioned).
93 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (‘break’ clause in lease). See
also Head v Tattersall (1871) LR 7 Ex 7 and above, p 143 (condition subsequent).
94 But see now the Employment Rights Act 1996, s 86 (minimum periods of notice by employer).
472 performance and discharge

from the nature of the contract,95 particularly where the contract is for a fi xed price96
or is a commercial contract.97 Thus a partnership for no fi xed time is terminable by
notice.98
Any notice given must be clear and unambiguous in its terms, and if it is to be given
in a certain form, eg in writing, or within a certain time, or if a specified period of
notice must be given, these requirements must normally be strictly complied with,
otherwise the notice will be of no effect.99 Notwithstanding this prima facie rule, in
interpreting a clause in a contract which lays down a procedure for the termination
of the contract, the Court will have regard to the commercial purpose served by the
clause.100

95 Crediton Gas Co v Crediton UDC [1928] 1 Ch 447; Winter Garden Theatre (London) Ltd v Millennium
Productions Ltd [1948] AC 173; Re Spenborough UDC’s Agreement [1968] Ch 139; Cf Kirklees Metropolitan BC
v Yorkshire Woollen District Transport Co (1978) 77 LGR 448 (fi xed-term agreement could not be terminated
by notice). See also Carnegie (1969) 85 LQR 392.
96 Staffordshire Area Health Authority v South Staffs Waterworks Co [1978] 1 WLR 1387, on which see
below, p 492. Where there are price variation provisions, such an implied term is unlikely: The Queensland
Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205; Watford Borough Council
v Watford Rural Parish (1987) 86 LGR 524, 528.
97 Martin-Baker Aircraft Co Ltd v Canada Flight Equipment Ltd [1955] 2 QB 556, 577; Re Spenborough
UDC’s Agreement [1968] Ch 139; Watford Borough Council v Watford Rural Parish, above, n 96, 532.
98 Partnership Act 1890, s 26.
99 Avofos Shipping Co SA v Pagnan [1983] 1 WLR 195. Cf Bremer Handelsgesellschaft mbH v Vanden
Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109, above, p 148.
100 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (minor misdescription did
not preclude notice from being effective where, construed in its contractual setting, it would unambiguously
inform a reasonable recipient how and when it was to operate); Ellis Tylin Ltd v Co-operative Retail Services
Ltd [1999] BLR 205.
 14
DISCHARGE BY FRUSTRATION
1. introduction
Some legal systems accept that changes of circumstances may justify modifying a
contract where to maintain the original contract would produce intolerable results
incompatible with justice.1 But many legal systems, including English law, concerned
that modification would undermine certainty and alter the risks allocated by the
contract, make provision for the discharge of a contract only where, after its formation,
a change of circumstances makes contractual performance illegal or impossible. In
English law, such a situation is provided for by the doctrine of frustration.2 Originally,
this term was confined to the discharge of maritime contracts by the ‘frustration of
the adventure’, but it has now been extended to cover all cases where an agreement
has been terminated by supervening events beyond the control of either party.3 But
the doctrine is not one of supervening impossibility; some kinds of impossibility
may in some circumstances not discharge the contract at all, while ‘impossibility’
does not accurately describe the cases of frustration of a commercial purpose where
the fundamentally different situation which has unexpectedly occurred means
that performance would be, as a matter of business, radically different from the
contractually stipulated performance.4 In these cases the contract is discharged
although performance is not literally impossible.
The defining characteristics of the doctrine of frustration that have emerged from
the case law have been summarized by Bingham LJ5 in the following terms:
The doctrine of frustration was evolved to mitigate the rigour of the common law’s insistence
on literal performance of absolute promises . . . The object of the doctrine was to give effect to
the demands of justice, to achieve a just and reasonable result, to do what is reasonable and
fair, as an expedient to escape from injustice where such would result from enforcement of

1 Lando and Beale, Principles of European Contract Law Parts I and II (2000) 328.
2 See generally, Treitel, Frustration and Force Majeure (2nd edn, 2004).
3 Initial impossibility and misunderstandings that exist at the time of the formation of the contract,
sometimes referred to as ‘pre-contractual frustration’, are considered above, in Chapter 8. See esp p 277,
and note that care should be taken not to treat such cases as frustration; cf Gamerco SA v ICM/Fair Warning
(Agency) Ltd [1995] 1 WLR 1226, where it may have been wrongly so treated; see Carter and Tolhurst (1996)
10 JCL 264, 265–6. For discussion of the relationship between frustration and common mistake see above,
pp 277, 288.
4 Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154, 164 (Viscount
Simon). See also Jackson v Union Marine Insurance Co Ltd (below, p 476) and Krell v Henry (below, p 477).
5 J Lauritzen AS v Wijsmuller BV, The Super Servant Two [1990] 1 Lloyd’s Rep 1, 8. For the facts, see below,
p 494.
474 performance and discharge

a contract in its literal terms after a significant change in circumstances . . . Since the effect
of frustration is to kill the contract and discharge the parties from further liability under
it, the doctrine is not to be lightly invoked, must be kept within narrow limits and ought
not to be extended . . . Frustration brings the contract to an end forthwith, without more
and automatically . . . The essence of frustration is that it should not be due to the act or
election of the party seeking to rely on it . . . A frustrating event must be some outside event
or extraneous change of situation . . . A frustrating event must take place without blame or
fault on the side of the party seeking to rely on it.

In this chapter we trace the history of the doctrine and examine the scope of its
present application. It should, however, be noted that as the doctrine has developed,
so too has the use, particularly in standard form contracts, of so-called force majeure
clauses, which entitle one or both of the parties to be excused (in whole or in part)
from performance of the contract. Such clauses may cover non-frustrating events
and may provide for more flexible remedies than total discharge. For instance
they may entitle a party to suspend performance, to claim an extension of time for
performance, or to be compensated for performance which will be more onerous.6
They cannot, however, impose on the parties a duty to renegotiate the terms of the
contract in the light of changed circumstances, because the duty to renegotiate, like
the duty to negotiate, has been held to be too uncertain to be enforced in English
law.7

2. emergence of the doctrine

Before 1863 it was a general rule of the law of contract that a person was absolutely
bound to perform any obligation which had been undertaken, and could not claim to
be excused by the mere fact that performance had subsequently become impossible; for
‘where there is a positive contract to do a thing, not in itself unlawful, the contractor
must perform it or pay damages for not doing it, although in consequence of unforeseen
accidents, the performance of his contract has become unexpectedly burdensome or
even impossible’.8 So in Paradine v Jane in 1647:9

6 On such clauses, which fall outside the scope of this book, see generally, Channel Island Ferries Ltd
v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323; Treitel, Frustration and Force Majeure (2nd edn, 2004) ch 12;
McKendrick, Force Majeure and Frustration of Contract (2nd edn, (1994), esp chs 1 and 3. For one other
advantage, see below, p 495. ‘Force majeure’ is a term of art in French and Belgian law, but has no clear
meaning in English law: Matsoukis v Priestman & Co [1915] 1 KB 681, 685–686; Thomas Borthwick (Glasgow)
Ltd v Faure Fairclough Ltd [1968] 1 Lloyd’s Rep 16, 28. Cf Thames Valley Power Ltd v Total Gas & Power Ltd
[2005] EWHC 2208 (Comm), [2006] 1 Lloyd’s Rep 441 (‘ force majeure’ defi ned in the contract).
7 Walford v Miles [1992] 2 AC 128, 138; above, p 65. Cf Petromec Inc v Petroleo Brasilieiro SA [2005]
EWCA Civ 891, [2006] 1 Lloyd’s Rep 121 at [121]; Cartwright in Cartwright, Vogenauer and Whittaker (eds)
Reforming the French Law of Obligations (2009) ch 3; Peel in Burrows and Peel (eds) Contract Formation and
Parties (2010) ch 3.
8 Taylor v Caldwell (1863) 3 B & S 826, 833 (Blackburn J).
9 (1647) Aleyn 26 and Style 47. On the antecedents of this decision, see Ibbetson in Rose, Consensus ad
Idem (1996) ch 1.
 discharge by frustration 475

P sued J for rent due upon a lease. J pleaded ‘that a certain German Prince, by name
Prince Rupert, an alien born, enemy to the King and kingdom, had invaded the realm
with an hostile army of men; and with the same force did enter upon the defendant’s
possession, and him expelled, and held out of possession . . . whereby he could not take
the profits’. Th is plea was in substance a plea that the rent was not due because the lessee
had been deprived, by events beyond his control, of the profits from which the rent should
have come.

The Court held that this was no excuse:10

When the party by his own contract creates a duty or charge upon himself, he is bound to
make it good, if he may, notwithstanding any accident by inevitable necessity, because he
might have provided against it by his contract. And therefore if the lessee covenant to repair a
house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it.

It has always, however, been open to the parties to introduce an express provision
into their agreement that the fulfi lment of a condition or the occurrence of an event
should discharge one or both of them from some or all of their obligations under it;11
and just as the parties may expressly discharge their obligation to perform a contract,
so there are cases in which a contract, though containing no express provision,
will be interpreted by the Courts as containing such a provision by implication. An
implication of this nature would, it might be thought, readily be made where, without
the fault of either party, an event occurs which renders the contract not merely more
onerous, but completely impossible of performance.
This was the device12 used by the Court of Queen’s Bench in 1863 in the case of
Taylor v Caldwell13 in order to introduce an exception into the existing law:
C agreed with T to hire to him a music-hall and gardens for the purpose of entertainment.
Before the day of performance arrived, the music-hall was destroyed by fire. T sued C for
damages for breach of the contract which C, through no fault of his own, was unable to
perform.

C was held not liable to pay, for ‘the contract is not to be construed as a positive
contract, but as subject to an implied condition that the parties shall be excused in
case, before breach, performance becomes impossible from the perishing of the thing
without default of the contractor’.14 Blackburn J said:15
The principle seems to us to be that, in contracts in which the performance depends on the
continued existence of a given person or thing, a condition is implied that the impossibility of
performance arising from the perishing of the person or thing shall excuse the performance.
In none of these cases is the promise in words other than positive, nor is there any express
stipulation that the destruction of the person or thing shall excuse the performance; but
that excuse is by law implied, because from the nature of the contract it is apparent that
the parties contracted on the basis of the continued existence of the particular person or
chattel.

10 Ibid, 27. 11 See above, p 143. 12 See Trakman (1983) 46 MLR 39.
13 (1863) 3 B & S 826. 14 Ibid, 833. 15 At 839.
476 performance and discharge

From this time onwards the Courts showed themselves prepared to hold that, unless
a contrary intention appears, the continuance of a contract was conditional upon the
possibility of its performance.
It was not long, however, before the new doctrine was extended outside the sphere of
literal impossibility to situations where there had been a ‘frustration of the adventure’.
Most of the early frustration cases arose out of delay, attributable to the fault of neither
party, in the carrying out of charterparties; and they seem at first to have been treated
as raising a question which was regarded as connected, rather than identical, with that
raised by the cases of impossibility.
In Jackson v Union Marine Insurance Co Ltd:16

J’s ship had been chartered to proceed in January to Newport to load a cargo of iron rails for
San Francisco. On the way to Newport she ran aground and it took over a month to refloat
her. She was then taken into Liverpool and underwent lengthy repairs lasting until August.
In the meantime the charterers had chartered another ship. J claimed from the defendant
insurance company for a total loss, by perils of the sea, of the freight to be earned under the
charterparty.

The question whether or not there had been such a loss depended for the answer on the
question whether or not the charterers had been justified in throwing up their contract
with J instead of waiting until the ship was repaired and then loading her. The jury
found that the time necessary to get the ship off, and to repair her so that she might
become a cargo-carrying ship, had been so long as to put an end in a commercial sense
to the speculation entered into by J and the charterers; and on this finding the Court
held that a voyage undertaken after the ship had been repaired would have been an
adventure different from that which both parties had contemplated at the time of the
contract. It was, they said, an implied term of the contract that the ship should arrive
at Newport within a reasonable time, and her inability to arrive put an end to it. ‘The
adventure’, said Bramwell B,17 ‘was frustrated by perils of the seas, both parties were
discharged, and a loading of cargo in August would have been a new adventure, a new
agreement’.
The dislocation of business caused by the war with Germany from 1914 to 1918
brought a large number of frustration cases into the Courts, and it soon became clear
that they raised the same questions as those raised by cases previously considered
under the head of impossibility. ‘When this question arises in regard to commercial
contracts’, said Lord Loreburn,18 ‘the principle is the same, and the language used
as to “frustration of the adventure” merely adapts it to the class of cases in hand’.
‘The doctrine of frustration is only a special case of the discharge of contract by an
impossibility of performance arising after the contract was made.’19 The modern
practice is to use the term ‘frustration’ to cover cases of both classes.

16 (1874) LR 10 CP 125. 17 Ibid, 148.

18 FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Ltd [1916] 2 AC 397, 404.
19 Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154, 168
(Viscount Maugham).
 discharge by frustration 477

3. instances of frustration
Before turning to the theoretical basis of the doctrine of frustration, we consider
examples of factual situations in which the Courts have been ready to infer, from the
nature of the contract and from the circumstances surrounding it, that it has been
frustrated by the happening of a subsequent event. While the reasoning in some of
these examples is based on the ‘implied term’ theory of frustration, which, as we
shall see, is now discredited, they remain useful illustrations of situations in which a
contract may be frustrated.

(a) destruction of subject-matter of contract

The most simple case is probably that where the performance of the contract is made
impossible by the destruction of a specific thing essential to that performance, for
example, the destruction of the music-hall in Taylor v Caldwell. So if A agrees with
B to supply and install certain machinery in B’s factory premises, and the premises
are destroyed by fire, the contract will be frustrated.20 But if the machinery only is
destroyed, leaving the premises untouched, then it is still possible to obtain other
machinery and A must do the work over again: the contract will not be discharged.21
Where an agreement for the sale of specific goods has been made and, before the risk
passes to the buyer, without any fault on the part of the seller or buyer, the goods
perish, the agreement is avoided.22

(b) non-occurrence of a particular event

The principle of frustration has also been held to apply to cases concerning the
cancellation of an expected event. In the so-called ‘Coronation cases’, which arose
out of the postponement of the coronation of King Edward VII owing to his sudden
illness, it was applied to contracts the performance of which depended on the existence
or occurrence of a particular state of things forming the basis on which the contract
had been made. In Krell v Henry,23 for instance:
H agreed to hire a flat from K during the daytime of 26 and 27 June 1902; the contract itself contained
no express reference to the coronation processions, but K had advertised that the windows of the
flat were to be let to view the processions which would pass the flat on those days, and H had
entered into the contract after reading the advertisement. The processions were cancelled.

Two-thirds of the rent had not been paid when the processions were abandoned and
the Court of Appeal held that K could not recover it. The Court considered that the

20 Appleby v Myers (1867) LR 2 CP 651; below, p 498. 21 Ibid, 660.

22 Sale of Goods Act 1979, s 7. See further below, pp 504–6 (effect of frustration and partial perishing of
goods).
23 [1903] 2 KB 740. See also Chandler v Webster [1904] 1 KB 493 (below, p 499). Cf Griffith v Brymer (1903)
19 TLR 434 (mistake, rather than frustration, because the parties made the contract in ignorance of the fact
that the coronation had already been cancelled; above, p 277).
478 performance and discharge

processions and the relative position of the flat lay at the foundation of the agreement.
The contract was therefore discharged.
It should not be imagined, however, that failure before performance of the factor
which induced the parties to enter into the agreement will necessarily discharge the
contract; for ‘it may be that the parties contracted in the expectation that a particular
event would happen, each taking his chance, but that the actual happening of the event
was not made the basis of the contract’.24 In Herne Bay Steamboat Co v Hutton:25
The defendant chartered from the claimant the SS Cynthia for 28 and 29 June 1902, for the
express purpose of taking paying passengers to see the Coronation naval review at Spithead
and to tour the fleet. The review was cancelled, but the fleet remained.
The Court of Appeal, composed of the same judges as in Krell v Henry, refused to
hold the defendant discharged. They did so, partly on the ground that a tour of the
fleet was still possible, but mainly because they considered that it was the defendant’s
own venture and it was at his risk. The Court pointed out that if the existence of a
particular state of things is merely the motive or inducement to one party to enter into
the contract, as distinct from the basis on which both contract, the principle cannot be
applied. In both Krell v Henry26 and Herne Bay Steamboat Co v Hutton27 the example
was given of the hire of a vehicle to take the hirer to Epsom to view the races on Derby
day; the hirer will not be discharged if the races are cancelled, for the hirer’s purpose
is not the common foundation of the contract to hire the vehicle.

(c) death, or incapacity for personal service

Where performance of obligations under a contract for personal services is rendered
impossible or radically different by the death or incapacitating illness of the promisor,
the contract will be frustrated. In Stubbs v Holywell Railway Co28 it was held that a
contract for personal services was put an end to by the death of the party by whom the
services were to be rendered. And in Robinson v Davison:29
D’s wife, an eminent piano player, promised to perform at a concert, but was prevented from
doing so by a dangerous illness. An action was brought against D claiming damages for
breach of contract.

It was held that the contract was discharged by D’s wife’s illness, and it was not therefore
broken by her failure to perform, nor, on the other hand, could she have insisted on
performing when she was unfit to do so as frustration is not brought about by an act of
election.30 These are examples of cases where performance by the relevant party is personal
and cannot be carried out by anyone else so that death or illness gives rise to frustration.31
Similar decisions have been reached in the case of the discharge of a seaman’s contract of

24 Larrinaga & Co Ltd v Société Franco-Américaine des Phosphates de Medulla, Paris (1923) 39 TLR 316,
318 (Lord Finlay). 25 [1903] 2 KB 683.
26 [1903] 2 KB 740, 750–1. 27 [1903] 2 KB 683, 689. 28 (1867) LR 2 Ex 311.
29 (1871) LR 6 Ex 269. 30 Below, p 493 ff.
31 If performance is not of a personal character then the contract is not necessarily frustrated by death or
incapacity: Phillips v Alhambra Palace Co Ltd [1901] 1 QB 59.
 discharge by frustration 479

service by his internment,32 and of that of a music-hall artist, by his call-up for service in the
army.33 However, absence—even prolonged absence—through illness will not necessarily
determine a contract of employment. A number of factors must be considered: the terms
of the contract (including any sick pay provisions), the nature and the expected duration
of the employment, the period of past employment, and the nature and duration of the
illness and the prospects for recovery.34 In Marshall v Harland & Wolff Ltd35 the test for
frustration of a contract of employment was formulated as follows, ‘Was the employee’s
incapacity . . . of such a nature, or did it appear likely to continue for such a period, that
further performance of his obligations in the future would either be impossible or would
be a thing radically different from that undertaken by him and agreed to be accepted by
the employer under the agreed terms of his employment?’. The application of the doctrine
of frustration to employment contracts can give rise to results that may appear harsh. In
Notcutt v Universal Equipment Co (London) Ltd36 frustration was held to have occurred
when it became apparent to the parties that an employee who had suffered a heart attack
would never work again. This had the effect of automatically terminating the contract of
employment and thereby releasing the employer from the contractual provisions which
required that notice be given before terminating the contract and the statutory obligation
to pay the employee during the period of notice.

(d) requisitioning of ships and interferences with

charterparties
A number of cases have arisen concerning charterparties, and these provide some of
the most important instances of the application of the doctrine.
In wartime, ships are often requisitioned for such time and for such purposes as
the Government may require them. If the ship is under charterparty the question will
arise whether or not the requisitioning operates so as to frustrate the rights of the
shipowners and charterers under the agreement. In FA Tamplin Steamship Co Ltd v
Anglo-Mexican Petroleum Products Co Ltd:37
The steamship FA Tamplin was chartered by a time charterparty for 5 years from 4 December
1912, to 4 December 1917. In February 1915 the Government requisitioned the ship for use as
a troopship and made certain structural alterations to her for this purpose. The charterers
were willing to go on paying the agreed freight under the charterparty, but the owners
claimed that the contract had been frustrated by the requisition as they wished to obtain a
larger amount of compensation from the Crown.

32 Horlock v Beal [1916] 1 AC 486. 33 Morgan v Manser [1948] 1 KB 184.

34 Marshall v Harland & Wolff Ltd [1972] 1 WLR 899, 903–5. Note that an employee who is suspended
from work on medical grounds is entitled to be paid by the employer for up to 26 weeks: Employment Rights
Act 1996, s 64.
35 [1972] 1 WLR 899, 903 (Donaldson J). But see Hart v AR Marshall & Sons (Bulwell) Ltd [1977] 1 WLR
1067 (‘key’ worker replaced); Egg Stores (Stamford Hill) Ltd v Leibovici [1977] ICR 260, 264. See also FC
Shepherd & Co Ltd v Jerrom [1987] 1 QB 301 (imprisonment of employee). 36 [1986] 1 WLR 641.
37 [1916] 2 AC 397.
480 performance and discharge

The House of Lords, by a bare majority, held that the contract still continued. The
interruption was not of sufficient duration to make it unreasonable for the parties
to go on. There might be many months during which the ship would be available for
commercial purposes before the five years expired.
In Bank Line Ltd v Arthur Capel & Co,38 on the other hand:
In February 1915, BL chartered the steamship Quito to C for a period of 12 months from
the time the vessel should be delivered. It was provided in the charterparty that (i) if
the steamer had not been delivered by 30 April 1915, C, the charterers, were to have the
option to cancel the contract or to proceed with it, and (ii) ‘Charterers to have option of
cancelling this charterparty should steamer be commandeered by Government during this
Charter’. The steamer was not delivered by 30 April, and, on 11 May, before delivery, she was
commandeered by the Government and not released until September. She was then sold by
BL, and C sued for non-delivery, having never exercised their options to cancel.

The House of Lords held that the contract had been frustrated. The clauses in the
charterparty were not intended to place the shipowners indefinitely at the charterers’
mercy, to oblige them to deliver however long the delay. They merely gave to the charterers
the option to cancel the contract without the necessity of proving frustration:
A contingency may be provided for, but not in such terms as to show that the provision is
meant to be all the provision for it. A contingency may be provided for, but in such a way as
shows that it is provided for only for the purpose of dealing with one of its effects and not
with all.39

Lord Haldane, who dissented, was of the opinion that there was no frustration:
the requisition was not of such a permanent character as to make the terms of the
charterparty wholly inapplicable.
These differences of opinion within the highest tribunal show that cases of
frustration raise most difficult questions of fact and principle. In the Bank Line case
Lord Loreburn stated40 that ‘the main thing to be considered is the probable length
of the total deprivation of the use of the chartered ship compared with the unexpired
duration of the charterparty’. On this basis, the two decisions can perhaps be reconciled
without undue difficulty, since the Bank Line charter was of one year’s duration only,
whereas that in the Tamplin case had still nearly three years to run at the time the
requisitioning took place. But it is by no means certain that Lord Loreburn’s test is the
correct one to apply.41
Events other than the seizure or requisitioning of the ship may also frustrate a
charterparty. It has already been seen that, in Jackson v Union Marine Insurance Co
Ltd,42 the charterparty was frustrated by the stranding of and damage to the ship. In a
number of cases a charterparty has been held to have been frustrated by the inability

38 [1919] AC 435. 39 [1919] AC 435, 456 (Lord Sumner).

40 [1919] AC 435, 454. See also the Tamplin case (above, n 37), 405.
41 International Sea Tankers Inc v Hemisphere Shipping Co Ltd [1982] 1 Lloyd’s Rep 128, 131, 133, 135. The
alternative tests were discussed by Diplock J in Port Line Ltd v Ben Line Steamers Ltd [1958] 2 QB 146. Cf also
Edwinton Commercial Corp v Tsavliris Russ, Worldwide Salvage & Towage Ltd (The Sea Angel) [2007] EWCA
Civ 547, [2007] 2 Lloyd’s Rep 517 at [117]–[120]. See also below, p 487.
42 (1874) LR 10 CP 125, above, p 476.
 discharge by frustration 481

of the ship to leave port, due, for example, to the refusal of a foreign government to
allow the ship to depart,43 or to the outbreak of hostilities, as happened in 1980 when
some sixty ships were trapped in the Shatt-el-Arab river upon the outbreak of war
between Iran and Iraq,44 or to the arrest of the ship.45 More difficulty, however, arises
where strikes prevent the loading or unloading of the ship. The charterer of a ship
usually undertakes in the contract to load and unload the cargo within a specified
number of days, and, in default, to pay a certain sum of money to the shipowner by
way of ‘demurrage’. If strikes occur at the port of loading or discharge, this does not
(in the absence of any express provision to the contrary) absolve the charterer from his
liability to pay demurrage in respect of the delay.46 However, a prolonged strike may in
exceptional circumstances frustrate a charterparty, that is if the delay is such as to make
further performance something radically different from that which was undertaken
in the contract.47 Prolongation of a voyage by interruption of the contemplated route
might also bring about frustration, but did not do so, for example, where the blocking
of the Suez Canal necessitated a voyage round the Cape, since the alternative route was
not fundamentally different, but merely longer and more expensive.48

(e) sale and carriage of goods

Similar principles have been applied to contracts for the sale of goods to be carried by
sea. In Nickoll v Ashton Edridge & Co,49 for example, a cargo sold by the defendants
to the claimants was to be shipped ‘per steamship Orlando . . . during the month of
January’. Without default on the defendant’s part the ship was so damaged by stranding
as to be unable to load in January. It was held that in these circumstances the contract
must be treated as at an end.
The Anglo-French invasion of Egypt in 1956 and the consequent closure of the
Suez Canal led to a number of cases concerning the frustration of cif contracts50 for
the sale of goods. Among these was the case of Tsakiroglou & Co Ltd v Noblee Thorl
GmbH:51
T agreed to sell to NT a quantity of groundnuts to be shipped from the Sudan to Hamburg
during November or December 1956. On 2 November, the Suez Canal was closed and
remained closed for the next 5 months. The price of the groundnuts cif Hamburg was clearly

43 Embiricos v Sydney Reid & Co [1914] 3 KB 45; Scottish Navigation Co v Souter [1917] 1 KB 222; Lloyd
Royal Belge v Stathatos (1917) 34 TLR 70.
44 International Sea Tankers Inc v Hemisphere Shipping Co Ltd [1983] 1 Lloyd’s Rep 400; Kodros Shipping
Corp of Monrovia v Empresa Cubana de Fletes [1983] 1 AC 736; Finelvet AG v Vinava Shipping Co Ltd [1983]
1 WLR 1469.
45 See Adelfamar SA v Silos E Mangimi Martini SpA, The Adelfa [1988] 2 Lloyd’s Rep 466.
46 Budgett & Co v Binnington & Co [1891] 1 QB 35.
47 The Penelope [1982] P 180; Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724.
48 Ocean Tramp Tankers Corp v V/O Sovfracht, The Eugenia [1964] 2 QB 226, overruling Société Franco
Tunisienne D’Armement v Sidermar SpA [1961] 2 QB 278. See also Palmco Shipping Inc v Continental Ore
Corp [1970] 2 Lloyd’s Rep 21. 49 [1901] 2 KB 126.
50 ‘Cif’ stands for cost, insurance, and freight. In a cif contract the price will be agreed on the basis
that it includes insurance of the goods while in transit and the expenses of carriage (freight) to the port of
destination. 51 [1962] AC 93, overruling Carapanayoti & Co Ltd v ET Green Ltd [1959] 1 QB 131.
482 performance and discharge

calculated on the basis of shipment via the canal, but the contract contained no term to this
effect. T refused to perform the contract, claiming that it had been frustrated by the closure
of the canal.

The House of Lords held there was no frustration, since it would still be possible to
ship the nuts to Hamburg around the Cape of Good Hope. Such a journey would not
be commercially or fundamentally different from that by the canal, but merely more
expensive. Their Lordships also pointed out that the contract was one of sale of goods,
the transport of which is normally of no direct concern to the buyer. Nevertheless,
they indicated that, if the goods had been perishable or if a defi nite date had been fi xed
for delivery, the contract might possibly have then been frustrated by the necessity for
the longer Cape route.

(f) building contracts

Further instances of the doctrine of frustration are provided by a group of cases
concerning building or construction contracts. Events may occur which hold up
completion of the works. Such delays inevitably increase the contractor’s costs. If
the contract is a fi xed-price contract, the contractor may lose the profit which it
expected to gain, or even be forced into loss. In Davis Contractors Ltd v Fareham
UDC:52
In July 1946, D entered into a contract with Fareham UDC to build 78 houses for a fi xed
sum of £94,424. Owing to the unexpected shortage of skilled labour and of certain materials
the contract took 22 months to complete instead of the 8 months expected, and cost some
£115,000. D contended that the contract had been frustrated and that they were entitled to
claim on a quantum meruit for the cost actually incurred.

The House of Lords refused to accept this contention. The mere fact that unforeseen
circumstances had delayed the performance of the contract, and rendered it more
onerous to the appellants, did not discharge the agreement. The ultimate situation was
still within the scope of the contract; the thing undertaken was not, when performed,
different from that contracted for.
These strict requirements were, however, fulfi lled in the case of Metropolitan Water
Board v Dick, Kerr & Co Ltd:53
DK & Co contracted with the MWB to construct a reservoir within 6 years. Two years
elapsed when the Minister of Munitions, acting under statutory powers, required them to
cease work on their contract and to remove and sell their plant. The MWB brought an action
claiming that the contract still continued.

The House of Lords held that the interruption created by the prohibition was of such
a character and duration as to make the contract, if resumed, in effect a different
contract, and that the original contract was therefore discharged.

52 [1956] AC 696. 53 [1918] AC 119.

 discharge by frustration 483

(g) change in the law

The performance of a contract may be made legally impossible either by a change in the
law or by a change in the operation of the law by reason of new facts supervening. The
law may actually forbid the doing of some act undertaken in the contract;54 or it may
take from the control of the promisor something in respect of which it has contracted
to act or not to act in a certain way, as, for example, where a piece of land subject to a
restrictive covenant against building is compulsorily acquired and built upon by Act
of Parliament.55 Such cases are explained by policy and ‘the elementary proposition
that if further performance of a contract becomes impossible by legislation having
that effect the contract is discharged’.56
For there to be frustration, the change in the law must be such as to strike at the root
of the agreement, and not merely to suspend or hinder its operation in part. So it has
been held that a 9-year building lease was not frustrated by Government restrictions
on building for only a small part of the term,57 and that the rights of a payee of a
cheque drawn on a bank in Holland were not discharged by an enemy invasion and
occupation of that country rendering presentation for payment there illegal, but
not elsewhere.58 Lesser interruptions may, however, be covered by provisions in the
contract, for instance clauses providing a seller with an excuse for non-performance
in the event of ‘prohibition of export . . . preventing fulfi lment’,59 although, as will be
seen, the presence of such a clause may preclude the application of the doctrine of
frustration.
The outbreak of war is another event which, by changing the operation of the
law, may have the effect of abrogating obligations outstanding under a contract by
reason of supervening illegality, if one of the parties resides in this country and the
other in enemy or enemy-occupied territory, and the contract is one which involves
commercial dealings with the enemy.60 So strong are the public policy considerations
in this situation that the contract will be wholly frustrated, even though the parties
themselves provide that their obligations shall be merely postponed.61

54 Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265.
55 Baily v De Crespigny (1869) LR 4 QB 180. See also Brown v London Corp (1862) 13 CBNS 828; Studholme
v South Western Gas Board [1954] 1 WLR 313.
56 Reilly v The King [1934] AC 176, 180 (Lord Atkin). On the implications for the theoretical basis of the
doctrine, see below, pp 484–9.
57 Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221; below,
p 496. See also Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728, 772 (Staughton J).
58 Cornelius v Banque Franco-Serbe [1942] 1 KB 29. See also Arab Bank Ltd v Barclays Bank [1954] AC 495
(accrued rights not destroyed).
59 On such clauses, see Bremer Handelgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s
Rep 109; Bremer Handelgesellschaft mbH v C Mackprang Jr [1979] 1 Lloyd’s Rep 221; Bremer Handelgesellschaft
mbH v Westzucker GmbH (No 3) [1989] 1 Lloyd’s Rep 198, and Treitel, Frustration and Force Majeure (2nd
edn, 2004) paras 12–016 ff.
60 Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260; Fibrosa Spolka Akcyjna v Fairbairn Lawson
Combe Barbour Ltd [1943] AC 32 (below, p 499); McNair and Watts, The Legal Effects of War (4th edn,
1966) ch 3.
61 Ertel Bieber & Co v Rio Tinto Co Ltd, above, n 60.
484 performance and discharge

(h) performance of only one party affected

The illustrations above show that, save in cases of supervening illegality, a frustrating
event often only affects the ability of one of the parties to perform, while the other party,
who usually has to pay money, is still capable of performing. So, in the requisitioning
cases considered above, the charterers were able to pay the hire, and may have been
willing to do so notwithstanding the non-availability of the ship, since the rate paid
by the Government for requisitioned ships was higher than that payable under the
charter.62 Nevertheless, if the event is a frustrating one, it excuses both parties even
where this may be to the advantage of the party who is unable to perform.

4. the theoretical basis of frustration

Considerable judicial attention has been paid to the theoretical basis on which the
doctrine of discharge of a contract by frustration rests, perhaps because of a perceived
need to explain why a finding of frustration does not constitute a reallocation of risks
nor permit an escape from a bad bargain.63
Successive pronouncements of the House of Lords have set out a number of learned,
but often contradictory, opinions concerning this issue and a number of theories
have been put forward at various times. Since there is now general agreement on the
appropriate test to be applied, it is necessary to refer only briefly to the four principal
tests or ‘theories’ which have been advanced.64

(a) implied term

At one time the preponderance of judicial opinion favoured the view that frustration
of a contract depended upon the implication of a term although, as we have noted,
this did not explain discharge where the performance of the contract is made legally
impossible by a change in the law or its operation.65 Lord Loreburn’s speech in FA
Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd66 contains the
classic exposition of the reasons on which the implied term theory of frustration was
based:

62 FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397, 405, 410,
422; Bank Line Ltd v Arthur Capel & Co [1919] AC 435, above, p 480.
63 Pacific Phosphates Co Ltd v Empire Transport (1920) 4 LLR 189, 190.
64 In National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, 687, Lord Hailsham LC stated there
were at least five theories; in addition to those considered below, he referred to and rejected one based on
total failure of consideration.
65 In the heyday of the implied contract theory legal impossibility was sometimes said to differ from
other categories of frustration: Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd [1942] AC
154, 163.
66 [1916] 2 AC 397, 403–4; see above, p 479, for the facts. For recent support for this theory, see Smith
(1994) 110 LQR 400, 403.
 discharge by frustration 485

a Court can and ought to examine the contract and the circumstances in which it was
made, not of course to vary, but only to explain it, in order to see whether or not from the
nature of it the parties must have made their bargain on the footing that a particular thing
or state of things would continue to exist. And if they must have done so, then a term to that
effect will be implied, though it be not expressed in the contract . . . Sometimes it is put that
performance has become impossible and that the party concerned did not promise to perform
an impossibility. Sometimes it is put that the parties contemplated a certain state of things
which fell out otherwise. In most of the cases it is said that there was an implied condition
in the contract which operated to release the parties from performing it, and in all of them I
think that was at bottom the principle upon which the Court proceeded. It is in my opinion
the true principle, for no Court has an absolving power, but it can infer from the nature of the
contract and the surrounding circumstances that a condition which was not expressed was a
foundation on which the parties contracted . . . Were the altered conditions such that, had they
thought of them, they would have taken their chance of them, or such that as sensible men
they would have said, ‘If that happens, of course, it is all over between us’?

A contract would therefore be frustrated if a term could be implied that, in the events
that subsequently happened, the contract would come to an end. The expression ‘an
implied term’ is, however, ambiguous. It may be used in a subjective sense, that is to
say, it may mean a term which the Court reads into the contract in order to give effect
to what it regards as the parties’ real intention at the time of contracting. As was said
in a later case67 ‘the law is only doing what the parties really (though subconsciously)
meant to do for themselves’. To such an implied term a number of objections may be
raised. In particular, it is difficult to see how the parties could be taken, even impliedly,
to have provided for something which never occurred to them.68 Moreover, had it
occurred to them, it is unlikely that they would have agreed that the contract was to
come to an end. Lord Wright said:69
It is not possible, to my mind, to say that if they had thought of it, they would have said:
‘Well, if that happens, all is over between us’. On the contrary, they would almost certainly
on the one side or the other have sought to introduce reservations or qualifications or
compensations.

That this is so is shown by the widespread use of so-called force majeure clauses which
specify what is to happen on the occurrence of an event which affects one or both
parties’ performance.70
On the other hand, the implied term may be formulated more objectively. It may
mean a term which, in the light of the events which have actually arisen, the parties as
reasonable people would have imported into the contract to deal with that possibility.71

67 Hirji Mulji v Cheong Yue SS Co Ltd [1926] AC 497, 504.

68 Davis Contractors Ltd v Fareham UDC [1956] AC 696, 728. Also see the example given by Lord Sands
in James Scott & Sons Ltd v Del Sel 1922 SC 592, 597: ‘A tiger has escaped from a travelling menagerie. The
milkgirl fails to deliver the milk. Possibly the milkman may be exonerated from any breach of contract: but,
even so, it would seem hardly reasonable to base that exoneration on the ground that “tiger days excepted”
must be held as if written into the milk contract’. See further, FC Shepherd & Co Ltd v Jerrom [1987] 1 QB
301, 322 (Mustill LJ). 69 Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265, 275.
70 On ‘ force majeure’ clauses, see above, p 474, n 6.
71 Dahl v Nelson, Donkin & Co (1881) 6 App Cas 38, 59.
486 performance and discharge

When used in this sense, the implied term is betrayed by a similar artificiality.
The ‘reasonable person’ has no real existence and represents ‘no more than the
anthropomorphic conception of justice’; an opinion ascribed to such a person is, in
fact, that of the Court, which is and must be the spokesman of the fair and reasonable
person.72 An implied term of this sort is no more than a fiction, something added to the
contract by the law.

(b) ‘just and reasonable result’

In truth, the discharge of a contract by frustration occurs, not because of the actual
or imputed will of the parties, but by operation of law. The doctrine of frustration is,
as Lord Sumner pointed out, ‘a device, by which the rules as to absolute contracts are
reconciled with a special exception which justice demands’.73 In declaring a contract
to have been frustrated, the Court exercises a positive function: it releases the parties
from further performance of the obligations which they would otherwise be bound to
perform.
Recognition of these facts led certain of the judges (and notably Lord Wright
and Lord Denning) to the conclusion that the basis of the doctrine of frustration
was the desire of the Courts to reach a just and reasonable result.74 ‘The truth is’,
Lord Wright said,75 ‘that the Court or jury as a judge of fact decides the question
in accordance with what seems just and reasonable in its eyes’. Th is view, however,
might be taken to suggest that a Court had the power to release the parties from their
obligations whenever it was just and reasonable to do so,76 even, for example, where
the only effect of the subsequent event had been to render the contract fi nancially
more onerous than the parties had anticipated. But it is clear that the circumstances
in which a contract will be held to have been frustrated are far more limited in
scope.77

(c) foundation of the contract

Some test was, therefore, required which would recognize that frustration did not
depend on the intentions of the parties, but which would not permit contracts to be too
easily discharged. The first such test to be formulated was that of the ‘disappearance of
the foundation of the contract’. The question to be asked was whether the events that
had occurred were of a character and extent so sweeping as to cause the foundation

72 Davis Contractors Ltd v Fareham UDC [1956] AC 696, 728 (Lord Radcliffe).
73 Hirji Mulji v Cheong Yue SS Co Ltd [1926] AC 497, 510.
74 Joseph Constantine Steamship Line Ltd v Imperial Shipping Corp Ltd [1942] AC 154, 186.
75 Legal Essays and Addresses (1939) 259. See also Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd
[1944] AC 265, 274–6.
76 British Movietonews Ltd v London and District Cinemas Ltd [1951] 1 KB 190, 201–2 (Denning LJ,
disapproved on appeal: [1952] AC 166).
77 See Notcutt v Universal Equipment Co (London) Ltd [1986] 1 WLR 641, 646–7, where the Court of
Appeal rejected an argument to the effect that, before a Court could determine that a contract was frustrated,
it must be shown that it would be unjust to hold the parties to the contract.
 discharge by frustration 487

of the contract to disappear.78 It was adopted, for example, by Goddard J in WJ Tatem

Ltd v Gamboa:79
During the Spanish Civil War, T chartered to G, acting on behalf of the Republican
Government of Spain, a steamship, for 30 days from 1 July 1937. The ship was to be used for
the evacuation of refugees from Northern Spain to French ports. The hire was to be at the
rate of £250 a day and was payable until the ship was returned to T. On 14 July, the ship was
seized by the Nationalists and detained in the port of Bilbao until 11 September. In answer
to T’s claim for hire, G pleaded that the contract had been frustrated.

Goddard J was prepared to assume that the circumstances of the contract (including the
very high rate of hire) showed that the parties contemplated that seizure and detention
of the vessel might occur. He nevertheless held that the contract was frustrated: the
foundation of the contract was destroyed by the seizure, as G thereafter no longer had
the use of the vessel. The expression ‘foundation’ of the contract is, however, imprecise,
and it leaves open the question what is the foundation of the contract in a particular
case. Moreover, the test is difficult to apply to situations other than those in which the
subject-matter of the contract ceases to be available. It has, therefore, been rejected by
the House of Lords.80

(d) radical change in the obligation

There is now general agreement that the appropriate test to apply to determine whether
a contract has been frustrated is that of a ‘radical change in the obligation’. In Davis
Contractors Ltd v Fareham UDC, Lord Radcliffe said:
frustration occurs whenever the law recognizes that without default of either party a
contractual obligation has become incapable of being performed because the circumstances in
which performance is called for would render it a thing radically different from that which was
undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.81

This test has been adopted by the House of Lords in several cases,82 and was reformulated
by Lord Simon in National Carriers Ltd v Panalpina (Northern) Ltd:83

78 FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397, 406.
79 [1939] 1 KB 132.
80 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675.
81 [1956] AC 696, 729; for the facts, see above, p 482. The Latin phrase is said to be drawn from Virgil’s
Aeneid, Book 4, lines 338–9: see Sir John Megaw, letter to The Times, 20 December 1980 and Edwinton
Commercial Corp v Tsavliris Russ (Worldwide Salvage & Towage) Ltd, The Sea Angel [2007] EWCA Civ 547,
[2007] 2 Lloyd’s Rep 517 at [84] n 1 (Rix LJ: ‘It is ironic that Aeneas’s shabby excuse to Dido has become
the watchword of the modern doctrine of frustration’). But whether the relationship between Aeneas and
Queen Dido was affected by a supervening event (Mercury’s intervention) or an initial mistake (as to the
nature of the relationship) is not entirely clear. Neither is it clear that Aeneas’s ‘excuses’ for his planned
desertion of Queen Dido, were as shabby as many (from Ovid to Sir John Megaw) consider them to be;
see Williams, Tradition and Originality in Roman Poetry (1968) 378–6 and John Sparrow, Jackson Knight
Memorial Lecture, Dido v Aeneas: the case for the defence (1973).
82 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93, 131; Pioneer Shipping Ltd v BTP Tioxide Ltd
[1982] AC 724, 744, 745, 751; Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854,
909, 918. See also William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016, 1039.
83 [1981] AC 675, 700. See also ibid, 688, 717. For the facts, see below, p 496.
488 performance and discharge

Frustration of a contract takes place when there supervenes an event (without default of
either party and for which the contract makes no sufficient provision) which so significantly
changes the nature (not merely the expense or onerousness) of the outstanding contractual
rights and/or obligations from what the parties could reasonably have contemplated at the
time of its execution that it would be unjust to hold them to the literal sense of its stipulations
in the new circumstances; in such a case the law declares both parties to be discharged from
further performance.

This approach has sometimes been called the ‘construction’ theory, because it requires
the Court first to construe the terms of contract in the light of its nature and the relevant
surrounding circumstances when it was made. The original obligation undertaken by
the parties can thus be determined. The Court must then consider whether there would
be a radical change in that obligation if performance were enforced in the circumstances
which have subsequently arisen. A mere rise in cost or expense will not suffice. ‘It is not
hardship or inconvenience or material loss itself which calls the principle of frustration
into play. There must be as well such a change in the significance of the obligation that the
thing undertaken would, if performed, be a different thing from that contracted for.’84
However, the Court of Appeal has recently emphasized that the application of this test
cannot safely be performed without the consequences of the decision being measured
against the demands of justice since, among other considerations, the frustration of a
contract may well mean that the contractual allocation of risk is reversed.85

(i) Application of test

The test is clearly meant to be a difficult one to satisfy. It is, moreover, easier to state
than to apply. ‘The data for decision are, on the one hand, the terms and construction
of the contract, read in the light of the then existing circumstances, and on the other
hand the events which have occurred.’86 If the parties have themselves provided for the
situation that has arisen the contract governs and there is no frustration. If they have
not provided for it then the new situation must be compared with the situation for
which they did provide to see how different it is.87 The comparison is between the rights
and obligations of the parties after the event, assuming the contract still binds them,
and what their rights and obligations would have been had the event not occurred. We
have noted the factors taken into account in contracts of employment.88 In contracts
for the carriage of goods by sea and charterparties, account may be taken of the extent
to which the goods carried or to be carried are liable to damage or to deterioration,89
or are subject to a seasonal market,90 and the extent to which the vessel and crew

84 Davis Contractors Ltd v Fareham UDC,above, n 81, 729 (Lord Radcliffe). See also Tsakiroglou & Co Ltd
v Noblee Thorl GmbH [1962] AC 93.
85 Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage & Towage) Ltd, The Sea Angel [2007]
EWCA Civ 547, [2007] 2 Lloyd’s Rep 517 at [112].
86 Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265, 274–5 (Lord Wright).
87 Ocean Tramp Tankers Corporation v V/O Sovracht, The Eugenia [1964] 2 QB 226, 239.
88 Above, p 479.
89 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93, 115, 118 and 123. See also Jackson v Union
Marine Insurance (1874) LR 10 CP 125, 146 (carriage of ice would be frustrated by shorter delay than carriage
of iron rails). 90 Jackson v Union Marine Insurance (1874) LR 10 CP 125, 115. See also ibid, 146.
 discharge by frustration 489

are fit to proceed in the new circumstances. To constitute frustration, the event or
events must make performance of the contract a thing ‘radically’ or ‘fundamentally’
different in a commercial sense from that undertaken by the contract. These concepts
are elusive and the Courts recognize that it is often difficult to draw the line91 and that
the question is one of degree.92 It is, however, clearly more difficult to frustrate a long-
term contract than a short-term one.93

(ii) Similarity to test for discharge for breach

The terms ‘radical’ and ‘fundamental’ are also used to determine whether a contract
may be discharged for breach of an ‘intermediate’ or ‘innominate’ term.94 In Hong
Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd95 Diplock LJ stated that Jackson
v Union Marine Insurance Co Ltd96 was seeking to apply to frustrating events the same
standard as if they had arisen by a breach by one of the parties. For the purpose of
determining whether a contract may be discharged it is the happening of the event
and not whether the event was the result of a breach that is crucial.97 Despite this,
in practice it is more likely than not that there will be differences between cases of
frustration and cases of breach because in the context of breach, factors other than the
ratio of failure to the performance undertaken are relevant to the question of whether
the breach is fundamental.

(iii) Question of law

The application of the ‘radical change in the obligation’ test is a matter of law; but once
it is shown that a judge or arbitrator has correctly applied the test to the facts found by
him, an appellate Court should be slow to differ from his conclusion.98

5. incidence of risk
The doctrine of frustration is principally concerned with the incidence of risk—who
must take the risk of the happening of the supervening event? The Courts have therefore
to determine whether the contract, on its true construction, has made provision for
that risk. We have noted that increased expense, even if caused by wholly abnormal

91 Ocean Tramp Tankers Corp v V/O Sovracht, The Eugenia [1964] 2 QB 226, 239.
92 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, 688; Pioneer Shipping v BTP Tioxide,
The Nema [1982] AC 724, 744. See also Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage &
Towage) Ltd, The Sea Angel [2007] EWCA Civ 547, [2007] 2 Lloyd’s Rep 517 at [111] (Rix LJ: application of
doctrine of frustration requires ‘multi-factorial approach’).
93 Lord Strathcona Shipping Co Ltd v Dominion Coal Co Ltd [1926] AC 108, 115; National Carriers Ltd v
Panalpina (Northern) Ltd [1981] AC 675, 691 (Lord Hailsham LC). See also Larrinaga & Co v Société Franco-
Américaine des Phosphates de Medulla, Paris (1922) 28 Com Cas 1, 5.
94 Below, p 521 ff. See also above, p 146. 95 [1962] 2 QB 26, on which see below, p 521.
96 Above, p 476.
97 [1962] 2 QB 26, 49, 68. See also, in the same context, The Hermosa [1980] 1 Lloyd’s Rep 638, 649 (delay
by a variety of events, some the consequences of breach and some not).
98 Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724, 738, 752–3.
490 performance and discharge

fluctuations in prices, does not frustrate.99 In this connection, the cases show that a
number of difficult questions may arise.

(a) express provision

Except in certain cases of illegality100 there is little doubt that it is open to the parties to
provide that the contract shall continue, or be merely suspended, and not discharged,
upon the occurrence of a particular event, or to allocate the risks attendant upon that
event. Where the contract makes provision (that is, full and complete provision, so
intended) for a given contingency, this will preclude the Court from holding that
the contract is frustrated.101 But the parties may fail to make complete provision, as
happened in the Bank Line case,102 where the option given to one party, ie the charterers,
to cancel or continue with the charterparty if the ship should be requisitioned, was
held not to be intended to apply to requisitioning of so long a duration as to make the
charter, as a matter of business, a wholly different thing. And a provision in a building
contract, for example, that the contractor is to be allowed an extension of time in the
event of ‘delays’, may be construed as inapplicable to a situation where the delay which
occurs is such as to bring about a radical change in the obligation.103 In this type of
case, the contract can still be frustrated.
It is also open to the parties to provide that the contract is to be suspended or
discharged by a non-frustrating event.104 There are, for example, difficulties in
determining whether a given delay or prospective delay frustrates a contract.105 As a
matter of interpretation the Court may conclude that the parties preferred the certainty
of termination after a specified period of delay, pursuant to a contractual term, to the
uncertainty of possible discharge under the doctrine of frustration.106

(b) foreseen events

The second question is whether events which were foreseen by the parties at the time of
contracting can be relied upon to establish frustration. In many of the cases reference is
made to the occurrence of an ‘unforeseen’ or ‘unexpected’ or ‘uncontemplated’ event,
and it may be argued that the parties must be taken to have assumed the risk of an event
which was present in their minds at the time the contract was made. It is, however, a

99 Above, p 482: Davis Contractors Ltd v Fareham UDC [1956] AC 696,724 (Lord Reid) and Tsakiroglou
& Co Ltd v Noblee Thorl GmbH [1962] AC 93. But note that in the latter case Lord Reid reserved his position
on an increase which reached a wholly astronomical figure, and cf William Cory v LCC [1951] 1 KB 8, aff ’d
[1951] 2 KB 476.
100 See above, p 483.
101 Bank Line Ltd v Arthur Capel & Co [1919] AC 435, 455; Joseph Constantine Steamship Line Ltd v
Imperial Smelting Corporation Ltd [1942] AC 154, 163. See also Bangladesh Export Import Co Ltd v Sucden
Kerry SA [1995] 2 Lloyd’s Rep 1.
102 [1919] AC 435, above, p 480. See also Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125
(clause excusing one party only from liability in a given contingency).
103 Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119, above, p 482.
104 Above, pp 470, 474. 105 Below, pp 491–2.
106 Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209, 222 (Lord Steyn).
 discharge by frustration 491

question of construction of the contract whether it was intended to continue to be

binding in that event,107 or whether, in the absence of any express provision, the issue
has been left open,108 so as to allow the incidence of risk to be determined by the law
relating to frustration. In WJ Tatem Ltd v Gamboa,109 for example, the fact that seizure
of the ship was within the contemplation of the parties did not preclude the operation
of frustration since the contract made no express provision for the contingency.

(c)prevention of performance in manner

intended by one party
The third question is whether a contract will be frustrated by an event which prevents
performance in a manner intended by one party alone. In Blackburn Bobbin Co Ltd v
TW Allen & Sons Ltd:110
A agreed to sell and deliver to BB at Hull a quantity of Finnish birch timber. A found it
impossible to fulfi l this contract because the outbreak of war cut off its source of supply
from Finland. BB was unaware that timber from Finland was normally shipped direct from
a Finnish port to England, and that timber merchants did not, in practice, hold stocks of it
in England.

The Court of Appeal held that there was no frustration. What had happened was
merely that an event had occurred which rendered it practically impossible for the
defendants to deliver: that event might have been, but was not, provided for in the
contract. To free A from liability, it would have to be shown that the continuance of
the normal mode of shipping the timber from Finland was a matter which both parties
contemplated as necessary for the fulfi lment of the contracts. Since this was not the
case, A bore the risk.

(d) delay
Frequently, as we have seen, a subsequent event causes delay111 in the performance of
the contract, bringing financial loss to one of the parties. But the risk of delay is one
which has to be accepted in commercial transactions. Lord Sumner said:112

107 Larrinaga & Co v Société Franco Américaine des Phosphates de Medulla (1923) 39 TLR 316; Maritime
National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524; Chandler Bros Ltd v Boswell [1936] 3 All ER 179; Paal
Wilson & Co A/S v Partenreederei Hannah Blumenthal, The Hannah Blumenthal [1983] 1 AC 854, 909.
108 WJ Tatem Ltd v Gamboa [1939] 1 KB 132, 138; Ocean Tramp Tankers Corporation v V/O Sovfracht, The
Eugenia [1963] 2 QB 226, 239; The Nile Co for the Export of Agricultural Crops v H & JM Bennett (Commodities)
Ltd [1986] 1 Lloyd’s Rep 555, 582; Adelfamar SA v Silos E Mangimi Martini SpA, The Adelfa [1988] 2 Lloyd’s
Rep 466, 471. See also Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage & Towage) Ltd, The
Sea Angel [2007] EWCA Civ 547, [2007] 2 Lloyd’s Rep 517 at [99]–[103].
109 [1939] 1 KB 132; above, p 487.
110 [1918] 2 KB 467. It was also said in this case that there could never be frustration of a contract for the
sale of unascertained goods, but this is probably too wide: see Re Badische Co Ltd [1921] 2 Ch 331; Tsakiroglou
& Co Ltd v Noblee Thorl GmbH [1962] AC 93; above, p 481; CTI Group Inc v Transclear SA, The Mary Nour
[2008] EWCA Civ 856, [2008] 2 Lloyd’s Rep 526. 111 See Stannard (1983) 46 MLR 738.
112 Bank Line Ltd v Arthur Capel & Co [1919] AC 435, 458–9.
492 performance and discharge

Delay even of considerable length and of wholly uncertain duration is an incident of

maritime adventure, which is clearly within the contemplation of the parties . . . so much so
as to be often the subject of express provisions. Delays such as these may very seriously affect
the commercial object of the adventure, for the ship’s expenses and overhead charges are
running on . . . None the less this is not frustration.

The delay must be such as ‘to render the adventure absolutely nugatory’,113 ‘to make it
unreasonable to require the parties to go on’,114 ‘to destroy the identity of the work or
service when resumed with the work or service when interrupted’,115 ‘to put an end in a
commercial sense to the undertaking’.116 It may, however, be difficult for the parties to
determine whether, at any particular point of time, the delay is of this nature. On this
point, Lord Roskill, in Pioneer Shipping Ltd v BTP Tioxide Ltd,117 provided guidance:
it is often necessary to wait upon events in order to see whether the delay already suffered
and the prospects of further delay from that cause, will make any ultimate performance of
the relevant contractual obligations ‘radically different’. . . from that which was undertaken
by the contract. But, as has often been said, business men must not be required to await
events too long. They are entitled to know where they stand. Whether or not the delay is such
as to bring about frustration must be a question to be determined by an informed judgment
based upon all the evidence of what has occurred and what is likely thereafter to occur.

While, therefore, it is for the tribunal to whom the issue has been referred to decide
as a question of law whether or not the contract has been frustrated, ‘that conclusion
is almost completely determined by what is ascertained as to mercantile usage and
the understanding of mercantile men’118 about ‘the significance of the commercial
differences between what was promised and what in the changed circumstances would
now fall to be performed’.119
Even where the delay is prima facie sufficient, where one or both parties are
responsible for it, the rule that reliance cannot be placed on a self-induced frustration
will preclude discharge.120

(e) inflation
Finally, some mention must be made of the effects of inflation. In Staffordshire Area
Health Authority v South Staffordshire Waterworks Co121 a contract was entered into
in 1929 under which the defendants agreed ‘at all times hereafter’ to supply water to a
hospital at a fi xed price of seven (old) pence per 1,000 gallons. By 1978 the equivalent

113 Bensaude & Co v Thames and Mersey Marine Insurance Co [1897] 1 QB 29, 31 (Lord Esher); [1897] AC
609, 611, 612, 614.
114 Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 199, 131 (Lord Atkinson); FA Tamplin
Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397, 405 (Lord Loreburn).
115 Metropolitan Water Board v Dick, Kerr & Co Ltd, above, n 114, 128 (Lord Dunedin); Bank Line Ltd v
Arthur Capel & Co [1919] AC 435, 460 (Lord Sumner).
116 Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125. 117 [1982] AC 724, 752.
118 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93, 124.
119 Pioneer Shipping Ltd v BTP Tioxide Ltd, above, n 117.
120 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854. See below, p 493.
121 [1978] 1 WLR 1387.
 discharge by frustration 493

cost of supplying the water was some twenty times the contract price. The Court
of Appeal held that the contract was, on its true construction, terminable by the
defendants upon reasonable notice.122 But Lord Denning MR expressed the opinion123
that, by reason of 50 years of continuing inflation, a fundamentally different situation
had emerged in which the contract had ceased to bind. His reasoning was not, however,
accepted by the other members of the Court of Appeal, and the orthodox view is that
any depreciation in the purchasing power of sterling,124 or the devaluation of a foreign
currency in which a debt is expressed,125 is a risk which must be borne by the creditor.
If the creditor does not wish to bear this risk, provision may be made in the contract.
In certain contexts, for example leases, it is not unusual for the terms of the contract to
provide for modification of the price to take account of inflation.

6. self-induced frustration
It is well established that a party whose act or election has given rise to the event which
is alleged to have frustrated the contract cannot invoke the doctrine of frustration;
reliance cannot be placed upon a self-induced frustration.126 In Maritime National
Fish Ltd v Ocean Trawlers Ltd:127
OT chartered to MNF a steam trawler fitted with an otter trawl. Both parties knew at the time
of the contract that it was illegal to use an otter trawl without a licence from the Canadian
Government. Some months later MNF applied for licences for five trawlers which it was
operating, including OT’s trawler and three trawlers owned directly or indirectly by MNF. It
was informed that only three licences would be granted, and was requested to state for which
of the three trawlers it desired to have licences. It named two trawlers that it owned directly
or indirectly and a third chartered from a person other than OT, and then claimed that it was
no longer bound by the charterparty as its object had been frustrated.

The Judicial Committee of the Privy Council held that the failure of the contract
was the result of MNF’s own election, and that since ‘reliance cannot be placed upon
a self-induced frustration’ there was no frustration. Similar conclusions have been
reached where, in breach of contract, a charterer of a ship allowed the ship to enter a

122 On the implication of a term to this effect (less likely where there is a price variation clause), see above,
pp 471–2.
123 [1978] 1 WLR 1387, 1397–8. He did not, however, hold that the contract was terminated automatically
(see below, p 498), but only on reasonable notice.
124 Wates Ltd v GLC (1987) 25 BLR 1, 35.
125 British Bank for Foreign Trade Ltd v Russian Commercial and Industrial Bank (1921) 38 TLR 65; Re
Chesterman’s Trusts [1923] 2 Ch 466.
126 J Lauritzen AS v Wijsmuller BV, The Super Servant Two [1990] 1 Lloyd’s Rep 1, 8. But where the relevant
act is caused by a third party for whose action the party claiming frustration is not responsible the result
is not considered to be self-induced frustration: Adelfamar SA v Silos E Mangimi SpA, The Adelfa [1988] 2
Lloyd’s Rep 466, 471.
127 [1935] AC 524 (see [1934] 1 DLR 621, esp at 623 and [1934] 4 DLR 288, esp at 299 for a full statement of
the facts). See also Bank Line Ltd v Arthur Capel & Co [1919] AC 435, 452; Ocean Tramp Tankers Corp v V/O
Sovfracht, The Eugenia [1964] 2 QB 226, 237; Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1
QB 699, 725, 736–7; Paal Wilson & Co. A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854.
494 performance and discharge

war-zone, where she was trapped,128 and where parties to arbitration proceedings were
in breach of their mutual contractual obligations to apply to the arbitral tribunal for
directions to prevent delay in the conduct of the arbitration.129

(a) choosing between different contracts

The position is more complicated where a party enters into a number of contracts and
the supervening event means that, while it is possible to perform one or more of the
contracts, it is not possible to perform them all. This was the position in J Lauritzen AS
v Wijsmuller BV, The Super Servant Two:130
In July 1980 W contracted with L to carry a drilling rig from Japan to a location off Rotterdam
using, at its option, either the Super Servant One or the Super Servant Two. It also entered
into two contracts with third parties containing similar substitution clauses, one before the
contract with L and one afterwards. In its internal schedules W planned to use the Super
Servant Two for L’s contract and the Super Servant One for the other two contracts, but,
prior to the time set for performance, the Super Servant Two sank. W informed L that it
would not transport the rig with either the Super Servant One or the Super Servant Two,
but the parties agreed, without prejudice to their rights under the contract, that the drilling
rig would be transported by another, more expensive, method. In answer to L’s claim for
the losses suffered, W counterclaimed inter alia that the sinking of the Super Servant Two
frustrated the contract.

The Court of Appeal held that the contract was not frustrated. Even if the sinking of
the Super Servant Two occurred without any fault on the part of W, it was not the cause
of the inability to perform. The real cause was said to be W’s election not to use the
Super Servant One, something which it would have been physically possible for it to do.
It was said that that exercise of choice meant that W had accepted the risk of the Super
Servant Two being unable to perform with the result that its unavailability gave rise
to a breach not a frustrating event. Moreover, to allow W to rely on the unavailability
of the Super Servant One as a frustrating event would allow it to rely on its own act of
election whereas frustration in theory occurs automatically.
The reasoning in this case has been criticized131 for not taking sufficient account of
the fact that, in the Maritime National Fish case, it was possible for OT to perform all
contracts made with third parties, and because the rule that frustration is automatic
is not an absolute one.132 W’s ‘election’ was only as to which contract it was not going

128 Ocean Tramp Tanker Corporation v V/O Sovfracht, The Eugenia, above, n 127.
129 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal, above, n 127. The position in arbitration
caused difficulties in commercial practice; see above, p 31, n 9 for another, only partially successful, attempt
to deal with the problem of stale arbitrations, which has now been addressed by legislation empowering
the arbitrator to dismiss a claim in the case of inexcusable and inordinate delay where the delay results in
a substantial risk that it would not be possible to have a fair resolution of the issues or of serious prejudice
to the respondent: Arbitration Act 1996, s 41 and L’Office Cherifien Des Phosphates v Yamashita-Shinnihon
Steamship Co Ltd [1994] 1 AC 486.
130 [1990] 1 Lloyd’s Rep 1, affi rming [1989] 1 Lloyd’s Rep 149.
131 Treitel, Frustration and Force Majeure (2nd edn, 2004), para 14–024. Treitel’s earlier arguments on the
issue were considered and rejected by the Court: [1989] 1 Lloyd’s Rep 148, 152–3, 154, 158; [1990] 1 Lloyd’s
Rep 1, 9, 13–14. 132 See below, p 498.
 discharge by frustration 495

to perform and it is submitted that the decision is likely to lead to practical difficulties.
It would appear to mean, for instance, where a farmer agrees to sell 250 tons of a crop
to be grown on specific land which normally yields over 500 tons to A, and 250 tons
to B, if there is a poor harvest and the yield is only 250 tons, that neither contract
would be frustrated. But this result is difficult to reconcile with cases, apparently not
considered in The Super Servant Two, in which neither party to a contract for the sale
of a specific crop was held to be liable if the crops failed to materialize.133 It is also
difficult to reconcile with cases in which a seller who, following a partial failure of
supply, delivered to other customers or delivered the available supply to all customers
on a pro rata basis, was held entitled to rely on a force majeure clause.134 In the present
state of the law, however, a promisor who wishes protection in the case of a partial
failure of supply ‘must bargain for the inclusion of a suitable force majeure clause in
the contract’.135

(b) negligent acts

Where the act of the party pleading frustration was inadvertent and merely negligent
the position is not altogether clear. Although there have been frequent statements to
the effect that the frustrating event must occur without the ‘default’ of either party,
this point has never been expressly decided. It was discussed by the House of Lords
in Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd, where
Lord Russell, commenting on the kind or degree of fault which might debar a party
from relying on a self-induced frustration, said:136
The possible varieties are infinite, and can range from the criminality of the scuttler who
opens the sea-cocks and sinks his ship, to the thoughtlessness of the prima donna who
sits in a draught and loses her voice. I wish to guard against the supposition that every
destruction of corpus for which a contractor can be said, to some extent or in some sense, to
be responsible, necessarily involves that the resultant frustration is self-induced within the
meaning of the phrase.

In that case:
JC chartered to ISC its steamship Kingswood to proceed to Australia and load a cargo there.
Before this could be done, a violent explosion occurred in the boiler of the ship which resulted in
such a delay as would discharge the contract. The cause of the explosion was never ascertained,

133 eg Howell v Coupland (1876) 1 QBD 258; HR & S Sainsbury Ltd v Street [1972] 1 WLR 834, on which
see below, pp 505–6.
134 Intertradex SA v Lesieur Tourteaux SARL [1978] 2 Lloyd’s Rep 509, 513; Bremer Handelgesellschaft
mbH v Mackprang Jr (No 2) [1979] 1 Lloyd’s Rep 221; Bremer Handelgesellschaft mbH v Continental Grain
Co [1983] 1 Lloyd’s Rep 169, 292; Bremer Handelgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978]
2 Lloyd’s Rep 109. In The Super Servant Two the force majeure cases were said to be of no assistance in
the context of frustration: [1989] 1 Lloyd’s Rep 148, 158; [1990] 1 Lloyd’s Rep 1, 9. For a different view, see
Hudson (1968) 31 MLR 535.
135 J Lauritzen AS v Wijsmuller BV, The Super Servant Two [1989] 1 Lloyd’s Rep 148, 158 (Hobhouse J),
although the distinction from frustration may be put into question since his Lordship also accepted that
protection might be afforded by an implied term. On ‘ force majeure’ clauses, see above, p 474, n 6.
136 [1942] AC 154, 179.
496 performance and discharge

but ISC alleged that JC had first to establish that it occurred without its fault before it could rely
on the doctrine of frustration and so not be liable for breach of contract.

It was not necessary for the House of Lords to decide whether mere negligence would
suffice, for it held that the burden of proving that the event which causes the frustration
is due to the act or default of a party lies on the party alleging it to be so. Since ISC failed
to satisfy the Court on this point, the contract was discharged. It would appear logical,
however, for a finding of negligence to prevent a party claiming that the contract was
frustrated where that negligent act caused the alleged frustrating event.137

7. leases and contracts for the

sale of land
There was at one time considerable doubt as to whether the doctrine of frustration
applied to leases of land. In 1945, in Cricklewood Property and Investment Trust Ltd
v Leighton’s Investment Trust Ltd138 the House of Lords held unanimously that, since
wartime restrictions preventing the performance of a building lease covered only a
small part of the 90 years remaining on the lease, it had not been frustrated. But on the
question whether a lease could in any circumstances be terminated by frustration the
House was evenly divided. Viscount Simon and Lord Wright considered that, on very
rare occasions, frustration could occur, giving as illustrations some vast convulsion
of nature which might sweep the property into the sea, or the frustration of a building
lease by a perpetual statutory prohibition on building for the remainder of the term.
Lord Russell and Lord Goddard took the contrary view. A lease was more than a
contract: it vested an estate in land in the lessee, and the contractual obligations which
it contained were merely incidental to the relationship of landlord and tenant. If all or
some of these should become impossible of performance, the lease would remain.139
The estate in the land would still be vested in the tenant. Lord Porter, the fift h member
of the House, refused to express an opinion.
In 1981, this question was reconsidered by the House of Lords in National Carriers
Ltd v Panalpina (Northern) Ltd:140
P let a warehouse to NC for 10 years from 1 January 1974. NC covenanted that it would not
without P’s consent use the premises for any purpose other than that of warehousing in
connection with its business, or assign, underlet, or part with possession. In May 1979, the
local authority temporarily closed the street which provided the only vehicular access to the
warehouse. The closure lasted for 20 months and during this period the warehouse could
not be used for the purpose contemplated by the lease. In answer to a claim for rent, NC
counterclaimed that the lease had been frustrated.

137 See J Lauritzen AS v Wijsmuller BV, The Super Servant Two [1990] 1 Lloyd’s Rep 1, 10.
138 [1945] AC 221.
139 But there may be excuses for non-performance of covenants short of frustration: ibid, 233–4 (Lord
Russell); John Lewis Properties plc v Viscount Chelsea [1993] 2 EGLR 77, 82.
140 [1981] AC 675. For criticism see Price (1989) 10 JLH 90, 101–3.
 discharge by frustration 497

Their Lordships unanimously held that there was no frustration. A majority,141

however, agreed with Viscount Simon and Lord Wright in the Cricklewood case that,
in principle, the doctrine of frustration was applicable to leases. ‘Coastal erosion as
well as the “vast convulsion of nature” . . . can . . . cause houses, gardens, even villages
and their churches, to fall into the North Sea.’142 However, the view was expressed143
that in practice the doctrine would ‘hardly ever’ apply. In the present case, having
regard to the nature and length of the interruption, and in particular to the fact that
the lease would still have some three years to run after the interruption came to an
end, it could not be said that the lease had been frustrated.
There appears to be no reported English case in which it has been held that a lease
has been frustrated.144 The reason for this may be the relative indestructibility of
land. But the absence of cases of frustration is more likely to be due to the fact that
the events which are most likely to occur, for example, fire,145 are normally expressly
provided for in the lease, and the incidence of the risk of less common events (such
as requisitioning)146 may be held to have been assumed by the tenant and not by the
landlord. It is also very improbable that some personal incapacity which prevents
the tenant from using the premises would be sufficient to terminate the lease,147 at
least if the tenant’s personal occupation was not the common basis of the venture.148
But if commercial premises are let (particularly for a short term) for one principal
purpose known to the lessor, and one which gives to the premises a large part of its
rental value, the failure of that purpose by legal prohibition or otherwise might be
sufficient to bring about the radical change in the obligation required to frustrate
the lease.
Similar problems arise in relation to contracts for the sale of land where a change of
circumstances occurs after exchange of contracts but before completion. The risk that
the premises may be destroyed or damaged, for example, by fire, is one which must
be borne by the purchaser, and in respect of which it is usual to insure. It has further
been held that such a contract was not frustrated when the land agreed to be sold was
made the subject of a compulsory purchase order149 and where a building intended for
development was listed as being of historic or architectural interest.150 The position

141 Lord Russell of Killowen dissenting.

142 [1981] AC 675, 691 (Lord Hailsham LC). See also Holbeck Hall Hotel Ltd v Scarborough BC (1998) 57
Con LR 113, 152–3 (point not considered by CA: [2000] QB 836). 143 [1981] AC 675, 692, 697, 717.
144 Cf Rom Securities Ltd v Rogers (Holdings) Ltd (1967) 205 EG 427 (agreement for a lease). Contrast Tay
Salmon Fisheries Co Ltd v Speedie 1929 SC 593 (Scotland).
145 Cf National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, 690.
146 Whitehall Court Ltd v Ettlinger [1920] 1 KB 680; Matthey v Curling [1922] 2 AC 180; Swift v Mackean
[1942] 1 KB 375. See also (before the National Carriers case) Simper v Coombs [1948] 1 All ER 306; Redmond
v Dainton [1920] 2 KB 256 (destruction of premises).
147 London and Northern Estates Co v Schlesinger [1916] 1 KB 20 (internment of tenant). See also Youngmin
v Heath [1974] 1 WLR 135 (death).
148 See Sumnall v Statt (1984) 49 P & CR 367, and above, p 477.
149 Hillingdon Estates Co v Stonefield Estates Ltd [1952] Ch 627; E Johnson & Co (Barbados) Ltd v NSR Ltd
[1997] AC 400.
150 Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd [1977] 1 WLR 164.
498 performance and discharge

is in doubt, but the answer to the question whether a contract of sale of land can be
frustrated would again appear to be ‘hardly ever’ rather than ‘never’.151

8. effects of frustration
(a) common law
(i) Contract generally determined automatically
Generally, the contract is not merely dischargable at the option of one or other of the
parties; it is brought to an end forthwith and automatically. In Hirji Mulji v Cheong
Yue Steamship Co Ltd:152
In November 1916 CY chartered its ship, the Singaporean, agreeing that it should be placed
at HM’s disposal on 1 March 1917, for 10 months. Shortly before this date the ship was
requisitioned by the Government. Believing that she would soon be released, CY asked if
HM would be willing to take up the charter. HM said that they would. The ship was, however,
not released until February 1919, and HM then refused to accept her.

The shipowners contended that HM had so conducted themselves as to oust the doctrine
of frustration. But the House of Lords held that frustration, unlike breach, brings the
contract to an end automatically, and could not be waived in this manner.153
The rule precluding a party relying on a self-induced frustration, considered above,
shows that the rule that discharge is automatic is not absolute. We have seen that the
party whose act or default has caused the frustrating event is not entitled to treat himself
as discharged. But FC Shepherd & Co Ltd v Jerrom,154 shows that this will not affect the
position of the other party, for whom the event is not ‘self’-induced. In that case:
An employee was sentenced to a term of detention, and his employer stated that it would not
take him back on his release. Once released, he instituted proceedings for unfair dismissal,
which the employer defended inter alia on the ground that the contract had been frustrated
by the imposition of the sentence of imprisonment.

Although it was clear that the employee could not rely on his detention as frustrating
the contract of employment, it was held that the employer could.

(ii) Future obligations discharged

The effect of frustration at common law is to release both parties from any further
performance of the contract. All obligations falling due for performance after the
frustrating event occurred are discharged. In Appleby v Myers,155 for example:

151 See also Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265, 274–6 (option to
purchase land).
152 [1926] AC 497. See also J Lauritzen AS v Wijsmuller BV, The Super Servant Two [1990] 1 Lloyd’s Rep
1, 8.
153 Ibid, 509 (Lord Sumner). See also BP Exploration (Libya) Co Ltd v Hunt [1979] 1 WLR 783, 809 (waiver
or estoppel could not prevent reliance on frustration).
154 [1987] 1 QB 301. See also Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942]
AC 154, 199–200 (Lord Porter); Notcutt v Universal Equipment Co (London) Ltd [1986] 1 WLR 641.
155 (1867) LR 2 CP 651. See also Compania Naviera General SA v Kerametal Ltd [1983] 1 Lloyd’s Rep 373.
 discharge by frustration 499

A undertook to erect certain machinery upon M’s premises, the agreement providing that
the work was to be paid for on completion. While the work was in progress, and before it was
completed, the premises and the machinery already erected were wholly destroyed by fi re.

The contract was frustrated, but since it had been agreed that payment was to be made
only on completion, A could recover nothing for the work already done.

(iii) Accrued obligations remain

Legal rights or obligations already accrued and due, before the frustrating event
occurred, are left undisturbed. In Chandler v Webster:156
C agreed to hire from W a room in Pall Mall to watch the Coronation procession. The price
for the hire was to be £141, payable immediately. C paid £100 of this sum, but before he paid
the balance, the procession was cancelled. He claimed to recover back the money paid.

It was held not only that he could not recover the £100 already paid, but that he was also
liable to pay the other £41 as this obligation had fallen due before the frustrating event
occurred. In part because of the underdevelopment of restitutionary principles at that
time, the Court of Appeal rejected C’s argument that he was entitled to recover the
£100 in restitution as money paid under a consideration which had totally failed. The
effect of the frustration was not to wipe out the contract altogether but only to release
the parties from further performance, so it could not be said that the ‘consideration’
had failed completely.

(iv) Development of a restitutionary response

The harshness of the decision in Chandler v Webster, which allocated all the risks of the
frustrating event on C, excited considerable criticism,157 and in 1942 it was overruled
by the House of Lords in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour
Ltd:158
The respondent contracted with the appellant, a Polish company, to manufacture certain
machinery and deliver it to Gdynia. Part of the price was to be paid in advance, and the
appellant accordingly paid £1,000. The contract was frustrated by the occupation of Gdynia
by hostile German forces in September 1939. The appellant thereupon requested the return
of the £1,000. This request was refused on the ground that considerable work had been done,
and expense incurred, under the contract.

Under the rule in Chandler v Webster this money would have been irrecoverable, as it
had already been paid at the time the frustrating event occurred. The House of Lords,
however, allowed the appellants to recover. It was pointed out that an action for the
recovery of the sum paid was not an action on the contract, which ex hypothesi had
ceased to exist, but an action in restitution to recover money paid on a consideration
which had totally failed.159 The House held that, in the context of a claim to recover
money paid, the term ‘consideration’ should be understood not in the sense of the
consideration which is necessary to the formation of a contract, but rather in the sense

156 [1904] 1 KB 493.

157 Cantiare San Roco SA v Clyde Shipbuilding & Engineering Co Ltd [1924] AC 226, 257.
158 [1943] AC 32. 159 See below, p 588.
500 performance and discharge

of the performance of an obligation already incurred. A party who has paid money but
has received no part of the bargained-for performance, is entitled to recover it, for the
consideration has totally failed.

(b) law reform (frustrated contracts) act 

(i) Underlying principle
The law as the Fibrosa case left it was still not satisfactory, for the party who had
to return the pre-payment might have incurred expenses for the purpose of the
performance of the contract, or might be left with goods which were made valueless by
the failure of the contract.160 Moreover, the insistence that the failure of consideration
be total161 meant that if the party seeking recovery of the money had received any part,
however small, of the performance of the contract, the Fibrosa case did not apply, and
the money was irrecoverable. It was to remedy this situation that the Law Reform
(Frustrated Contracts) Act 1943 was passed.162
It has been stated that the ‘fundamental principle underlying the Act . . . is prevention
of the unjust enrichment of either party to the contract at the other’s expense’ and not
the apportionment of the loss caused by the frustrating event between the parties.163
Although it has been argued that the law is defective in not providing for such loss-
apportionment,164 especially since the line between action in reliance on a contract
which results in a benefit, and action which does not, can be very fine,165 the case for
a financial adjustment is stronger where such pre-frustration action has resulted in
a benefit to one of the parties. But in the present state of the law, it is important not
to allow an over-wide interpretation of ‘enrichment’ or ‘benefit’ to operate as loss-
apportionment by subsuming virtually all action taken by a contracting party in
reliance on the contract. The Act does not apply if there is a provision to the contrary
in the contract.166

(ii) Money paid or payable

By section 1(2) of the 1943 Act:
All sums paid or payable to any party in pursuance of the contract before the time when the
parties were so discharged (in this Act referred to as ‘the time of discharge’) shall, in the case

160 Th is was probably not a problem in Fibrosa since, although the sellers had done a considerable amount
of work in manufacturing the machines ([1942] 1 KB 12, 14), it was accepted that they could be resold without
loss: [1943] AC 32, 49.
161 See below, p 588.
162 See Williams, Law Reform (Frustrated Contracts) Act 1943; Goff and Jones, The Law of Restitution (7th
edn, 2007) 557 ff; McKendrick, Force Majeure and Frustration of Contract (2nd edn, (1994) ch 11.
163 BP Exploration (Libya) Co Ltd v Hunt (No 2) [1979] 1 WLR 783, 799–800 (Robert Goff J). Cf Lawton
LJ in CA at [1981] 1 WLR 232.
164 Williams, Law Reform (Frustrated Contracts) Act 1943, 35; McKendrick, ‘Frustration, Restitution and
Loss Apportionment’ in Burrows (ed) Essays on the Law of Restitution (1991) 147; cf Posner and Rosenfield
(1977) 6 JLS 83, 112 ff (part-performer can generally evaluate the risk better and insure more cheaply than
the other party); Stewart and Carter [1992] CLJ 66, 86–9, 109–10; Burrows, The Law of Restitution (3rd edn,
2010) ch 15. 165 Below, pp 588–9.
166 1943 Act, s 2(3). Cf BP Exploration (Libya) Ltd v Hunt [1983] 2 AC 352, 372, 373.
 discharge by frustration 501

of sums so paid, be recoverable from him as money received by him for the use of the party
by whom the sums were paid, and, in the case of sums so payable, cease to be payable:
Provided that, if the party to whom the sums were so paid or payable incurred expenses
before the time of the discharge in, or for the purpose of, the performance of the contract,
the court may, if it considers it just to do so having regard to all the circumstances of the case,
allow him to retain or, as the case may be, recover the whole or any part of the sums so paid
or payable, not being an amount in excess of the expenses so incurred.

A careful reading of this subsection reveals that it has two effects.

In the first place, it embodies the rule in the Fibrosa case, although it is now no
longer necessary to prove a total failure of consideration. So if A agrees to manufacture
and deliver to B certain machinery, B promising to pay £10,000 down and the balance
on completion, then even if A has delivered part of the machinery to B before the
frustrating event occurs, B can recover the £10,000, if paid, and, if not paid, it ceases
to be payable.167

(iii) Expenses incurred by payee

The Act goes further than the Fibrosa case in that it gives to the Court a discretionary
power to allow the payee to set off against the sum so paid or payable a sum not
exceeding the value of any expenses which the payee has incurred in or for the purpose
of performing the contract before the frustration.168 So if, in the above example, A
has incurred expenses totalling, say, £6,000, then the Court has power to permit A to
recover or retain the whole or part of this sum from the £10,000 due from B under the
contract. But expenses can only be set off against ‘the sums so paid or payable’, ie those
due before frustration, so that if the expenses amounted to, say, £12,000, it would not
be possible to charge the £2,000 in excess of £10,000 against the unpaid balance due
after the frustrating event occurred.
In Gamerco SA v ICM/Fair Warning (Agency) Ltd169 Garland J considered three
methods by which the Court should exercise its discretion; allowing the payee to
retain all the expenses incurred170 as a statutory recognition of the defence of change
of position,171 equal division of the loss caused by the frustrating event,172 and a broad
discretion to do what the Court considers just, ‘having regard to all the circumstances
of the case’.173 His Lordship favoured the third, concluding that the task of the Court
‘is to do justice in a situation which the parties neither contemplated nor provided for,
and to mitigate the possible harshness of allowing all loss to lie where it has fallen’.174
In Gamerco’s case:

167 A’s position may be protected by s 1(3), on which see below.

168 ‘Expenses’ include a reasonable sum in respect of overhead expenses: s 1(4), and the onus of proof lies
on the payee: Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995] 1 WLR 1226, 1235. See also Lobb v Vasey
Housing Auxiliary (War Widows Guild) [1963] VR 239 (Victoria, Australia).
169 [1995] 1 WLR 1226.
170 Th is was favoured by the Law Revision Committee (Cmd 6009, 1939) 7.
171 As suggested in BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 800. Note that this
decision was substantially approved by the House of Lords: [1983] 2 AC 352.
172 Williams, Law Reform (Frustrated Contracts) Act 1943, 35–6.
173 Treitel, Frustration and Force Majeure (2nd edn, 2004) paras 15–071–15–072.
174 [1995] 1 WLR 1226, 1237.
502 performance and discharge

$775,000 was payable by the promoters of a pop concert to the defendant group, Guns
N’ Roses, at the time the contract was frustrated, $412,500 of which had been paid. Both
parties had incurred expenses before the date of frustration which were wholly wasted: the
defendant $50,000, and the promoters $450,000. Neither party was left with any residual
benefit or advantage.

In these circumstances, and having particular regard to the promoters’ loss, and his
view that there was no question of any change of position by the defendant as a result
of the promoters’ advance payment,175 his Lordship made no deduction under the
proviso and ordered repayment of the $412,500.

(iv) Obligations other than to pay money

Section 1(3) of the 1943 Act provides for the adjustment of the financial relations of
the parties:

Where any party to the contract has, by reason of anything done by any other party thereto
in, or for the purpose of, the performance of the contract, obtained a valuable benefit (other
than a payment of money to which the last foregoing subsection applies) before the time of
discharge, there shall be recoverable from him by the said other party such sum (if any) not
exceeding the value of the said benefit to the party obtaining it, as the court considers just,
having regard to all the circumstances of the case and, in particular—
(a) the amount of any expenses incurred before the time of discharge by the benefited
party in, or for the purpose of the performance of the contract, including any sums
paid or payable by him to any other party in pursuance of the contract and retained
or recoverable by that party under the last foregoing subsection, and
(b) the effect, in relation to the said benefit, of the circumstances giving rise to frustration
of the contract.

The result is that recompense may be awarded in respect of a valuable benefit conferred
by either party upon the other party in pursuance of the contract. In BP Exploration
Co (Libya) Ltd v Hunt (No 2)176 Robert Goff J pointed out that the subsection must
be applied in two distinct stages. The first is the identification and valuation of the
benefit. The second stage is for the Court to assess what sum (not exceeding the value
of the benefit) it considers just to award to the party by whom the benefit has been
conferred.
With regard to the identification and valuation of the benefit, there are three
situations to be considered. The first is where the performance rendered results in the
delivery of an item which is unaffected by the frustrating event. If, for example, in the
illustration set out above, A has delivered to B some of the machinery, the machinery
so delivered could constitute a benefit to B. The value of that benefit will ordinarily
be its value to B at the date of frustration. This may be more or less than the expenses

175 The decision may be questioned: see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; Carter and
Tolhurst (1996) 10 JCL 265.
176 [1979] 1 WLR 783 (aff ’d by the Court of Appeal [1981] 1 WLR 232, and by the House of Lords [1983] 2
AC 352). For the facts, see below, pp 503–4.
 discharge by frustration 503

incurred by A in manufacturing and delivering that machinery. It was stated by Robert

Goff J that as a matter of construction ‘benefit’ in the subsection normally meant the
end product of services rather than the services themselves.177
The second is where, although the performance results in the delivery of an item or an
end product, in our example the machinery, the event which frustrates the contract (as in
Appleby v Myers),178 destroys it or renders it useless and of no value to B without delivery
of the remainder. Under paragraph (b) of the subsection regard is to be had to ‘the effect,
in relation to the . . . benefit, of the circumstances giving rise to the frustration of the
contract’. The interpretation of this provision is problematic. Robert Goff J stated179 that
‘benefit’ in section 1(3)(b) clearly refers to the end product of the services, rather than the
services themselves, and that the subsection ‘makes it plain that the plaintiff [the party
conferring the benefit] is to take the risk of depreciation or destruction by the frustrating
event’. If this view is correct,180 then the value of the benefit in such a case will be nil, and
no award could be made in favour of A under the subsection.
The third situation is where the performance rendered is a ‘pure’ service, without
any end product, such as gardening, surveying, or transporting goods.181 Here, Robert
Goff J stated that the ‘benefit’ in the subsection was the services themselves,182 and it is
these that must be valued. In such cases care must be taken not to cross the line between
restitution in respect of a benefit conferred, which is permitted by the subsection, and
recompense for action taken by one party in reliance on the contract: ‘if in fact the
performance of services has conferred no benefit on the person requesting them, it is
pure fiction to base restitution on a benefit conferred’.183
The second stage is for the Court to assess what sum (not exceeding the value of the
benefit) it considers just to award to the party by whom the benefit has been conferred.
This has been termed the ‘just sum’. The purpose of the award has been said to be to
prevent the unjust enrichment of the other party at his expense.184 In the example given
above, if the machinery delivered remained of value to B after the frustrating event,
the just sum would probably be assessed as the reasonable value of that machinery,185
or a rateable part of the contract price.
The principles were applied in BP Exploration Co (Libya) Ltd v Hunt (No 2):186
BP entered into a contract to explore and develop an oil concession in Libya owned by H.
BP was to make initial payments and a transfer of oil to Hunt, and in return was to get

177 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 801–2.
178 (1867) LR 2 CP 651, above, pp 498–9. See also Parsons Bros Ltd v Shea (1965) 53 DLR(2d) 86 (Canada).
179 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 803. Contrast Glanville Williams, Law
Reform (Frustrated Contracts) Act 1943, 48–51.
180 Cf Treitel, Frustration and Force Majeure (2nd edn, 2004) para 15–064; (s 1(3) applies where a
valuable benefit has been obtained ‘before the time of discharge’ and subparagraphs (a) and (b) are relevant
to the assessment of the just sum, not the identification of the benefit); Birks, An Introduction to the Law of
Restitution (1985) 253.
181 See eg Angus v Skully 44 NE 674 (1900) (USA) and the facts of Cutter v Powell (1795) 6 TR 320, above,
p 452. 182 BP Exploration Co (Libya) Ltd v Hunt (No 2), above, n 179, 803.
183 Coleman Engineering v North American Airlines 420 P 2d 713 (1966) 729 (Traynor CJ) (California).
184 BP Exploration Co (Libya) Ltd v Hunt (No 2), above, n 179, 805. 185 Ibid, 805–6.
186 [1979] 1 WLR 783 (aff ’d by the Court of Appeal [1981] 1 WLR 232, and by the House of Lords [1983]
2 AC 352).
504 performance and discharge

a 50 per cent share in the concession and ‘reimbursement oil’ calculated by a formula. A
significant oil field was discovered and oil was produced and transferred under the contract
for four and a half years, but the contract was then frustrated when both parties’ interests
were expropriated by the Libyan Government, which paid some compensation to H. BP
claimed under section 1(3) of the 1943 Act.

It was held that, under section 1(3), the ‘valuable benefit’ had to be not the work
exploring and extracting oil but the end product of that work, the enhancement of
the value of H’s concession. But the effect of the frustrating event was to make this
valueless and unrealizable by H, and subparagraph (b) required this to be reflected in
the valuation of the benefit. But H had received considerable amounts of oil produced
prior to the expropriation, and compensation thereafter, and half the value of this ($85
million) was held to be the benefit obtained from BP’s exploration and development,
and the upper limit of any award.187 The ‘just sum’ was determined by taking account
of the cost to BP of the work done for H and the oil it initially transferred to H reduced
by the amount of the ‘reimbursement oil’ it had received. This amounted to just under
$35 million. Since this was in effect the value of ‘reimbursement oil’ due to BP but not
transferred at the date of frustration, the remedy given approximately corresponded
to a scaled-down contract price, that percentage of the contract price which the part-
performer had ‘earned’ by performance before the frustrating event.
Neither under subsection (2) nor under subsection (3) can any allowance be made
for the time-value of money, that is to say, for the fact that money may have been paid,
or expenses incurred, long before the date of frustration.188

(v) Carriage of goods by sea and voyage charters

The Act does not apply to contracts for the carriage of goods by sea or a charterparty
(other than a time charterparty or a charterparty by way of demise).189 This recognizes
a well-established custom, which has become part of the business practice of
shipowners and insurers, that freight paid or payable in advance under such contracts
is not recoverable even though the completion of the voyage is frustrated.190

(vi) Sale of goods and insurance

The Act is also not applicable to contracts of insurance191 and certain contracts for the
sale of goods.
The exclusion of contracts for the sale of goods is complex in its drafting, but its
effect is to exclude all contracts for the sale of specific goods, where the frustration
occurs by reason of the perishing of the goods. By section 2(5)(c) the Act does not
apply to:
any contract to which section 7 of the Sale of Goods Act 1979 (which avoids contracts for the
sale of specific goods which perish before the risk has passed to the buyer) applies or to any

187 The other half was attributed to Hunt’s ownership of the concession prior to the exploration and
development under the contract.
188 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 800. 189 1943 Act, s 2(5)(a).
190 Compania Naviera General SA v Kerametal Ltd [1983] 1 Lloyd’s Rep 372.
191 1943 Act, s 2(5)(b).
 discharge by frustration 505

other contract for the sale, or for the sale and delivery, of specific goods, where the contract
is frustrated by reason of the fact that the goods have perished.

The first part of this subsection (exclusion by reference to section 7 of the 1979 Act)
covers contracts where the goods perish before the risk has passed to the buyer. If the
goods then perish without the fault of either party, the contract is avoided by section 7
of the Sale of Goods Act 1979 and the 1943 Act does not apply. The general rule in the
case of the sale of goods is that they are at the risk of the person whose property they
are: res perit domino.192 Where there is a sale of specific goods property in the goods
normally passes to the buyer at the time the contract is made,193 and so it follows that
they are also at the buyer’s risk. Where, however, the buyer deals as a consumer, the
goods remain at the seller’s risk until delivered to the consumer.194 But the second part
of the subsection quoted above also exempts cases where there is a contract for the sale,
or sale and delivery, of specific goods and the goods perish but which are not covered
by section 7 of the 1979 Act. This will apply to cases where the risk has passed to the
buyer. In such circumstances the buyer will bear the loss resulting from the perishing
of the goods.
These exclusions relate only to contracts for specific goods, which are defined by
section 61(1) of the Sale of Goods Act 1979 as ‘goods identified and agreed on at the
time a contract of sale is made’. Goods which are unascertained at this time do not
therefore come within the exclusion, although it must be noted that the doctrine of
frustration rarely then applies. If A agrees to sell to B ‘six hundred tons of coal’, there
can normally be no frustration of this contract. Even though A may have had in mind a
particular source, this assumption is not common to both parties. The contract can be
fulfilled at any time and A must obtain sufficient coal from another source or be liable
for breach.195 On the other hand, if the goods, though unascertained, are to come from
a source which is specifically defined, for example, ‘six hundred tons of coal from the
ship Rose Marie now in dock’, and subsequently the ship and cargo are destroyed by
fire, this contract is clearly capable of frustration, but there is some doubt as to whether
or not it falls outside the 1943 Act. In one case,196 goods of this nature were held not to
be specific goods for the purposes of section 52 of the Sale of Goods Act 1979 (specific
performance), and it is submitted that, for the purposes of frustration, the goods are
likewise not specific goods and so are subject to the provisions of the 1943 Act.197
A similar problem may arise in the type of situation exemplified by Howell v
Coupland:198
C agreed to sell to H 200 tons of potatoes to be grown on a particular field. The crop failed, so
that C was able to deliver only 80 tons. In answer to H’s claim for non-delivery of the other
120 tons, C pleaded that he had duly delivered all that it was possible for him to deliver and
that he was excused from delivering the remainder.

192 Sale of Goods Act 1979, s 20. 193 Ibid, s 18, Rule 1.
194 Ibid, s 20(4), added by Sale and Supply of Goods to Consumers Regulations 2002 (SI 2002 No 3045).
195 Blackburn Bobbin Co Ltd v TW Allen & Sons Ltd [1918] 2 KB 467, above, p 491; CTI Group Inc v
Transclear SA, The Mary Nour [2008] EWCA Civ 856, [2008] 2 Lloyd’s Rep 526 at [23]. Cf Re Badische Co Ltd
[1921] 2 Ch 331; see above, pp 481–2. 196 Re Wait [1927] 1 Ch 606.
197 See also Hudson (1968) 31 MLR 535. 198 (1876) 1 QBD 258.
506 performance and discharge

It was held that C was not liable. Mellish LJ said:199

This is not like the case of a contract to deliver so many goods of a particular kind, where no
specific goods are to be sold. Here there was an agreement to sell and buy 200 tons of a crop
to be grown on specific land, so that it is an agreement to sell what will be and may be called
specific things; therefore neither party is liable if the performance becomes impossible.

Despite the use by Mellish LJ of the word ‘specific’ in this case, it is clear that the
potatoes were not ‘specific goods’ within the meaning of the Sale of Goods Act.
Nevertheless this is not a situation to which the provisions of the 1943 Act would
appear to apply. It has been held200 that a contract of sale of this nature is subject to
a condition. Depending on the intention of the parties, the condition which will be
implied may be one that neither party shall be liable if any part of the promised goods
fails to materialize;201 alternatively, it may, as in Howell v Coupland, be a condition that
the buyer can require such performance as remains possible, but the seller is excused
from delivering the remainder of the goods.202
Then exclusion of contracts for the sale of goods from the operation of the 1943 Act
only applies where the frustration occurs by reason of the perishing of the goods. Other
grounds of frustration, such as the performance of the contract becoming illegal, are
not covered and the 1943 Act would then apply.

(vii) Arbitration
There are very few reported decisions on the interpretation of the 1943 Act: most
disputes simply concern the amount of each party’s liability, and are referred to
arbitration.203

199 Ibid, 262.

200 HR & S Sainsbury Ltd v Street [1972] 1 WLR 834. See also Re Wait [1927] 1 Ch 606, 631.
201 See the Sale of Goods Act 1979, s 5(2) (condition precedent). The sale might also be subject to a
condition subsequent: above, pp 143, 470–2.
202 HR & S Sainsbury Ltd v Street, above, n 200.
203 Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724.
 15
DISCHARGE BY BREACH
If one of the parties to a contract breaches an obligation which the contract imposes,
that party is in breach of contract. The breach may consist in the non-performance
of the relevant obligation, or its performance in a manner or at a time which fails
to comply with the requirements of the contract. English law does not generally
distinguish between these different forms of breach of contract, but applies the same
remedial regime to them all, and as soon as the party is in breach a new obligation
will in every case arise by operation of law—an obligation to pay damages to the other
party in respect of any loss or damage sustained by the breach. However, the duty
to perform the contractual obligation normally remains unchanged, although there
are circumstances under which the breach not only gives rise to a right of action for
damages but also gives the innocent party the right to decide not to render further
performance under the contract and to discharge both parties from their obligations
under the contract—that is, to terminate the contract.1 The remedy of damages is
discussed in detail in Chapter 17. Here we consider only the circumstances in which
the contract may be discharged following a breach of contract, and we shall see that
the breach may give rise to discharge only if it is sufficiently serious in its effects (a
breach which ‘goes to the root of the contract’, or a ‘repudiation’ of the contract) or if it
is a breach of a sufficiently serious term of the contract (breach of ‘condition’).

1. discharge at option of the

injured party
It is common to speak of the contract as having been ‘discharged by the breach’. The
phrase, though convenient, is not strictly accurate. A breach does not, of itself, effect a
discharge;2 what it may do is to justify the innocent party, if that party so chooses, in
regarding itself as absolved or discharged from further performance of the contract.
It does not automatically terminate the innocent party’s obligation since that party
has the option either to treat the contract as still continuing or to regard itself as

1 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 849–50 (Lord Diplock, who labels the
obligations contained in the contract, express or implied, ‘primary’ obligations, and the obligation to pay
damages for the loss or damage caused by the breach or by the termination of the contract ‘secondary’
obligations); see also Moschi v Lep Air Services Ltd [1973] AC 331, 350 (Lord Diplock), below, p 510. On the
terminology of ‘discharge’, ‘termination’, and ‘rescission’ for breach, see below, p 524.
2 See below, pp 508, 510, 524.
508 performance and discharge

discharged by reason of the breach of the contract by the other party. An acceptance
of a breach, in order to discharge the contract, must be clear and unequivocal.3 Once
the option is exercised to either keep the contract on foot or terminate it, the decision
is not revocable.4 A fresh option may arise, however, if the breach continues, or there
is another separate breach, sufficient to justify the innocent party terminating the
contract.

(a) effect of unaccepted repudiation

In principle, an innocent party who does not ‘accept’ a repudiation5 is entitled to
continue to insist on performance because the contract remains in full effect. Thus in
White and Carter (Councils) Ltd v McGregor:6
W & C, an advertising contractor, agreed with McG, a garage proprietor, to display
advertisements for his garage for 3 years. On the same day, McG refused to perform the
agreement and requested W & C to cancel the contract. W & C refused to do so, and elected
to treat the contract as still continuing. It made no effort to relet the space, displayed
advertisements as agreed, and sued for the full amount due.

It was contended on behalf of McG that, since he had renounced the agreement
before anything had been done under it, W & C was not entitled to carry out the
agreement and sue for the price: its remedy, if any, lay in damages. A bare majority
of the House of Lords rejected this contention and held that W & C was entitled to
the full contract sum.
The decision has been criticized as encouraging wasteful and unwanted performance.
The criticisms are considered in the context of specific remedies.7 It is in any event
clear from the speeches of the majority in this case that the party not in breach will
not always thus be entitled to complete the contract and sue for the contract price. In
the first place, if the contract cannot be carried out without the co-operation of the
party who has refused to perform, and such co-operation is withheld, the innocent
party’s only remedy is to sue for damages and not for the price.8 So an employee who
is wrongfully dismissed from employment can only claim damages. The employee
cannot claim the salary payable after dismissal on the ground that he is ready, able,
and willing to serve the employer if only the employer would allow him to do so.9
Secondly, the rule in White and Carter (Councils) Ltd v McGregor does not apply ‘if
it can be shown that a person has no legitimate interest, financial or otherwise, in

3 Vitol SA v Norelf Ltd [1996] AC 800, 810–11 (Lord Steyn). See also Heyman v Darwins Ltd [1942] AC
356, 361; Northwest Holt Group Administration Ltd v Harrison [1985] ICR 668; Bliss v South East Thames
Regional Health Authority [1987] ICR 700, 716–17; State Trading Corp of India Ltd v M Golodetz Ltd [1989]
2 Lloyd’s Rep 277, 286.
4 Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India, The Kanchenjunga [1990] 1 Lloyd’s
Rep 391 398 (Lord Goff ); Peyman v Lanjani [1985] Ch 457. 5 See below, p 512.
6 [1962] AC 413, on the facts of which, see Rodger (1977) 93 LQR 168. 7 Chapter 18.
8 [1962] AC 413, 430, 432, 439.
9 Vine v National Dock Labour Board [1956] 1 QB 658, 674; Denmark Productions Ltd v Boscobel
Productions Ltd [1969] 1 QB 699; Hill v CA Parsons & Co Ltd [1972] Ch 305, 314; Gunton v Richmond LBC
[1980] ICR 755. Cf Boyo v Lambeth LBC [1994] ICR 727, 742–4, 747.
 discharge by breach 509

performing the contract rather than claiming damages’,10 in which case a claimant
may be compelled to resort to the remedy of damages, provided the damages are an
adequate remedy for any loss suffered.
The need for acceptance of a repudiation for the contract to be discharged led to
Asquith LJ’s famous and influential aphorism that ‘an unaccepted repudiation is a
thing writ in water’.11 But an unaccepted repudiation is not altogether without effect.
An innocent party who remains ready and willing to perform12 can rely on the
unaccepted repudiation as a defence in an action brought by the guilty party.13 Again,
while the suggestion that contracts of employment are an exception to the normal
rule and are discharged by a unilateral repudiation without the need for acceptance
has been rejected,14 it has been held that an employee’s right to damages following an
unlawful dismissal does not continue beyond the time at which the employer could
have lawfully brought the contract to an end.15

(b) failure of performance

In cases of a failure of performance by one party which goes to the root of the contract,16
the contract is likewise not determined by the breach,17 and it is open to the innocent
party to treat the contract as continuing or to accept the defective performance
when tendered. An innocent party who adopts this course is sometimes said to have
elected to affirm the contract, ie to have waived the right to be treated as discharged,
although the right to claim damages for the breach is still retained.18 Affirmation may
be express or implied. Affirmation will be implied if, to the knowledge of the party in
default, the innocent party does some unequivocal19 act which shows an intention to
go on with the contract regardless of the breach or from which it may be inferred that
the right to be treated as discharged will not be exercised.20 And affirmation must be

10 White and Carter (Councils) Ltd v McGregor [1962] AC 413, 431 (Lord Reid); Attica Sea Carriers Corp v
Ferrostaal Poseidon Bulk Reederei GmbH, The Puerto Buitrago [1976] 1 Lloyd’s Rep 250; Gator Shipping Corp
v Trans-Asiatic Oil Ltd SA [1978] 2 Lloyd’s Rep 357, 372–4; Stocznia Gdanska SA v Latvian SS Co [1996] 2
Lloyd’s Rep 132; [1998] 1 WLR 574; Reichman v Beveridge [2006] EWCA Civ 1659, [2007] 1 P & CR 20. On the
action for the agreed sum, and its contrast with a claim for damages, see further pp 573–5, below.
11 Howard v Pickford Tool Co Ltd [1951] 1 KB 417, 421. See also Fercometal SARL v Mediterranean Shipping
Co SA, The Simona [1989] AC 788, 800; State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd’s
Rep 277, 285.
12 Fercometal SARL v Mediterranean Shipping Co SA, The Simona [1989] AC 788.
13 Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, 245, 251;
Foran v Wight (1989) 168 CLR 385, 438 (Australia). See further Carter, Breach of Contract (2nd edn, 1991)
242 ff. 14 Gunton v Richmond LBC [1980] ICR 755.
15 Boyo v Lambeth LBC [1994] ICR 727. 16 See below, p 521.
17 Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827 (overruling Harbutt’s ‘Plasticine’ Ltd v
Wayne Tank and Pump Co Ltd [1970] 1 QB 447). 18 See below, p 533.
19 China National Foreign Trade Transportation Corp v Evlogia Shipping Co SA of Panama [1979] 1 WLR
1018; Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia [1996] 2 Lloyd’s Rep 604 (very clear
evidence required).
20 Bentsen v Taylor, Sons & Co [1893] 2 QB 274; Hain SS Co Ltd v Tate & Lyle Ltd (1936) 41 Com Cas 350,
355, 363; Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1
AC 361.
510 performance and discharge

total. A contracting party cannot affirm part of the contract and disaffi rm the rest, for
that would be to make a new contract.21

(c) affirmation of contract

Affirmation is a voluntary act, and requires knowledge. Although old authorities to
the contrary can be found, the traditional position was that a party need only have
knowledge of the facts which give rise to the right to affirm or terminate.22 Recent
cases go further and suggest that a party cannot be called upon to make an election or
be held to have made an election, unless, in addition to knowledge of the relevant facts,
that party has knowledge of the right to elect.23 Despite this debate, as we have seen,24
there are circumstances where the innocent party will be deprived of the right to be
treated as discharged even though that party has no knowledge of the breach. There
may also be cases where an innocent party who has led the party in default to believe
that it will not exercise that right will be estopped from exercising it.25

(d) effect of election to accept breach

If the innocent party decides to accept the breach, this discharges all the future
contractual obligations of that party which have not already been performed. At the
same time, the primary obligations of the party in default to perform any of that party’s
contractual promises which remain unperformed are likewise discharged.26 However,
in the case of the party in default, in place of the primary obligations imposed by the
contract there arises a secondary obligation to pay damages for the breach. This point
was clearly made in Moschi v Lep Air Services Ltd:27
R Ltd was indebted to L Ltd, the respondent, in the sum of £40,000, which it agreed to
pay to L Ltd at the rate of not less than £6,000 per week. M, the appellant, guaranteed to
L Ltd the performance by R Ltd of its obligation to make these payments. R Ltd defaulted
from the outset and, after 3 weeks, paid only some £10,000 of the £18,000 then due. L Ltd

21 Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale, above, n 20,
398.
22 Matthews v Smallwood [1910] 1 Ch 777, 786; Kammins Ballrooms Co Ltd v Zenith Investments (Torquay)
Ltd [1971] AC 850, 877–8, 883.
23 Peyman v Lanjani [1985] Ch 457; Sea Calm Shipping Co SA v Chantiers Navals de L’Esterel [1986] 2
Lloyd’s Rep 294. See also Kendall v Hamilton (1879) 4 App Cas 504, 542. Cf Motor Oil Hellas (Corinth)
Refineries SA v Shipping Corp of India, The Kanchenjunga [1990] 1 Lloyd’s Rep 391, 398.
24 See above, p 470.
25 The incidence of estoppel in this situation depends upon interpretation of the difficult case of Panchaud
Frères SA v Établissements General Grain Co [1970] 1 Lloyd’s Rep 53 (esp at 57–8) and cases consequent
thereon.
26 For the terminology of ‘primary’ and ‘secondary’ obligations see above, p 507, n 1. It may, however,
be the intention of the parties that certain primary obligations, for example, an arbitration or jurisdiction
clause, should continue notwithstanding that their other primary obligations have come to an end: see
Heyman v Darwins Ltd [1942] AC 356; Moschi v Lep Air Services Ltd [1973] AC 331, 350. See also above,
pp 185–6 (exemption clauses); below, p 525.
27 [1973] AC 331. See also Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 849.
 discharge by breach 511

elected to treat this default as a repudiation of the contract which it accepted. R Ltd went into
liquidation and L Ltd sued M in respect of both the accrued and future instalments unpaid.

M argued that, since the repudiation had been accepted, the obligation of the
company to pay the outstanding instalments due after that time came to an end, and
in consequence his obligation as guarantor also came to an end. The House of Lords
found little difficulty in disposing of this argument and held that he was liable on
the guarantee. In the first place, upon acceptance of the repudiation, although the
company’s primary obligation to pay the future instalments came to an end, it was
replaced, by operation of law, by a secondary obligation to pay damages for the breach.
This secondary obligation was just as much an obligation arising from the contract
as were the primary obligations it replaced. Secondly, M had undertaken that R Ltd
would perform its contract and so was in breach of his contract of guarantee. The
damages which R Ltd had not paid constituted the loss flowing from M’s breach of
contract for which M was liable.

(e) no or bad reason for claiming to be discharged

Where one party refuses to go on with the contract, giving no reason for this refusal
or the wrong or an inadequate reason, the action can still be justified if (even if this is
unknown to that party) the other party had at the time committed a breach of contract
which would have provided a good reason.28 So, for example, if an employer dismisses
an employee without giving any reason at all, the employer can justify the dismissal
should it subsequently be discovered that, prior to the dismissal, the employee had been
guilty of dishonesty which would have entitled the employer to dismiss the employee.29
Similarly if a buyer of goods rejects the goods on the erroneous ground that they are
defective in quality, that rejection will still be lawful should the goods turn out not to
have been in conformity with the contract description—a breach of contract which
would have justified rejection. This rule, though well established, could be criticized
on the ground that it allows a party to a contract to ‘blow hot and cold’, first alleging
one reason then in fact relying on another. There is some authority30 for the view that
a party will be estopped from relying on a ground which was not specified at the time
of the refusal to perform if that party has thereby led the other party to believe that no
reliance would be placed on that ground and it would be unfair or unjust now to allow
such reliance.
Where, however, a party purports to terminate by accepting a breach which does
not in law justify termination, it risks being itself in repudiatory breach of contract,
although the Courts are reluctant so to hold as long as the purported termination

28 Taylor v Oakes Roncoroni & Co (1922) 127 LT 267, 269; British & Beningtons Ltd v NW Cachar Tea Co
[1923] AC 48, 71; The Mihalis Angelos [1971] 1 QB 164, 195, 200, 204; Scandinavian Trading Co A/B v Zodiac
Petroleum SA [1981] 1 Lloyd’s Rep 81; Sheffield v Conrad (1987) 22 Con LR 108.
29 Ridgway v Hungerford Market Co (1835) 3 A & E 171, 177, 178, 180; Boston Deep Sea Fishing & Ice Co v
Ansell (1888) 39 Ch D 339, 352, 364; Cyril Leonard & Co v Simo Securities Trust [1972] 1 WLR 80, 85, 87, 89.
But the rule does not apply to cases of unfair dismissal under statute: W Devis & Co v Atkins [1977] AC 931.
30 Panchaud Frères SA v Établissements General Grain Co [1970] 1 Lloyd’s Rep 53, 57–8. See also Heisler v
Anglo-Dal Ltd [1954] 1 WLR 1273, 1278.
512 performance and discharge

was done in good faith, honestly (if mistakenly) believing that there was a right to
terminate.31

(f) consumer sale and supply contracts: interaction

with other remedies
In the case of contracts for the sale or supply of goods to consumers there is a special
additional remedial regime for non-conforming goods, giving the consumer in certain
circumstances the right to repair or replacement of the goods, reduction of the price
or rescission of the contract.32 These remedies, introduced in order to implement the
Consumer Sales Directive,33 are in addition to the right to reject the goods for breach of
a condition as to description, quality or conformity with sample implied by sections 13
to 15 of the Sale of Goods Act 1979.34 The complex overlap of remedies in this area has
been reviewed by the Law Commission, which has recommended that the right to reject
by terminating the contract should be retained, but with a fi xed 30–day time limit from
the date of purchase, delivery or completion of the contract, whichever is later.35

2. forms of breach which

justify discharge
The right of a party to be treated as discharged from further performance may arise
in any one of three ways: the other party to the contract (a) may renounce its liabilities
under it, (b) may by its own act make it impossible to fulfil them, (c) may fail to perform
what it has promised.36 Of these forms of breach the first two may take place not only
in the course of performance but also while the contract is still wholly executory, ie
before either party is entitled to demand a performance by the other of the other’s
promise. In such a case the breach is usually termed an ‘anticipatory breach’.37 The last
can only take place at or during the time for performance of the contract.

(a) renunciation
Renunciation (often termed ‘repudiation’) occurs where one of the parties evinces
an intention not to go on with the contract. If there is an express and unqualified

31 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, where HL was
divided on this issue; but see Lord Wilberforce at 283.
32 Sale of Goods Act 1979, Part 5A; Supply of Goods and Services Act 1982, Part 1B, added by Sale and
Supply of Goods to Consumers Regulations 2002 (SI 2002 No 3045).
33 Directive 1999/44/EC. The Directive is itself under review as part of a wider proposal by the European
Commission for a Directive on consumer rights: COM (2008) 614 final.
34 For the terms implied by the Sale of Goods Act 1979 and their classification as conditions, see above,
pp 159–65 35 Law Com No 317, Consumer Remedies for Faulty Goods (2009).
36 Th is statement of the law was approved by Lord Porter in Heyman v Darwins Ltd [1942] AC 356, 397
and by Devlin J in Universal Cargo Carriers Corp v Citati [1957] 2 QB 401, 436 (aff ’d in part [1957] 1 WLR
979 and reversed in part [1958] 2 QB 254). 37 See below, pp 514–6; Dawson [1981] CLJ 83.
 discharge by breach 513

refusal to perform, this intention will, of course, be clear and obvious. But it can also
be evinced by conduct.

(i) By conduct
The test of whether an intention to renounce a contract is evinced by conduct is ‘whether
the party renunciating has acted in such a way as to lead a reasonable person to the
conclusion that he does not intend to fulfil his part of the contract’.38 Acts or omissions
from which renunciation can be inferred may also entitle the injured party to be
treated as discharged on one or both of the two other grounds previously mentioned.39
But if the injured party relies upon renunciation as a ground for discharge, they must
be such as to lead to the conclusion that the other party no longer intends to be bound
by the contract.

(ii) Intention to renounce

The importance of this intention was emphasized in the case of Freeth v Burr,40
where there was a failure on the part of the buyer to pay for one instalment of several
deliveries of iron, under an erroneous impression that he was entitled to withhold
payment as a set-off against damages for non-delivery of an earlier instalment. The
seller was not discharged. Keating J said:41 ‘It is not a mere refusal or omission of one
of the contracting parties to do something which he ought to do, that will justify the
other in repudiating the contract; but there must be an absolute refusal to perform his
part of the contract’.
Also in Mersey Steel and Iron Co v Naylor, Benzon & Co:42
NB bought from MS 5,000 tons of steel, to be delivered at the rate of 1,000 tons each month
commencing in January 1881, payment to be made within 3 days of the receipt of the
shipping documents. MS delivered part only of the first instalment in January, but delivered
another in February. Shortly before payment for these was due, a petition was presented for
the winding up of MS, whereupon NB refused to pay as it had been erroneously advised not
to do so unless MS obtained the leave of the Court. MS informed NB that it would treat this
refusal as breach, but NB continued to express its willingness to take delivery and to make
the payments if possible.

38 Universal Cargo Carriers Corp v Citati [1957] 2 QB 401, 436 (Devlin J). See also Forslind v Becheley
Crundall 1922 SC (HL) 173; The Hermosa [1982] 1 Lloyd’s Rep 570; Nottingham Building Society v
Eurodynamics plc [1995] FSR 605, 611–12.
39 Mersey Steel and Iron Co v Naylor, Benzon & Co (1884) 9 App Cas 434, 441 (renunciation) and 444
(failure of performance).
40 (1874) LR 9 CP 208, applied in Aktion Maritime Corp of Liberia v S Kasmas & Brothers Ltd [1987] 1
Lloyd’s Rep 283, 306. See also Mitsubushi Heavy Industries Ltd v Gulf Bank KSC [1997] 1 Lloyd’s Rep 343,
350, 354.
41 Ibid, 214. Note here that the word ‘repudiating’ is being used in the sense of an election to discharge
the contract. It is more normal to describe the guilty party as repudiating the contract: the innocent party
discharges the contract by ‘accepting the repudiation’.
42 (1884) 9 App Cas 434. See also Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699;
Alfred C Toepfer International GmbH v Itex Itagram Export SA [1993] 1 Lloyd’s Rep 360, 361.
514 performance and discharge

The House of Lords held that MS was not entitled to treat itself as discharged. The Earl
of Selborne LC said:43
I cannot ascribe to their [NB’s] conduct, under these circumstances, the character of a
renunciation of the contract, a repudiation of the contract, a refusal to fulfi l the contract. It
is just the reverse; the purchasers were desirous of fulfi lling the contract; they were advised
that there was a difficulty in the way, and they expressed anxiety that that difficulty should
be as soon as possible removed.

In neither of these two cases did the breach, in the particular circumstances in which
it had been committed, indicate, in the view taken by the Court, an intention in the
party in default to throw up the contract altogether, so as to set the other party free.
Moreover, a Court may be reluctant to find that there has been a renunciation where a
party insists on performing the contract in a particular way which, although ultimately
held to be a breach of contract, arose from a bona fide belief as to the construction
of the contract which is also consistent with its continuance.44 On the other hand,
an unequivocal refusal, by words or conduct, to perform the contract will entitle the
other party to be discharged from any further performance of its obligations even
where the party who has failed to perform acted in good faith.45 So, for example, if a
buyer contracts to buy goods by instalments and agrees to pay cash for them, but then
demands credit in respect of all future deliveries of the goods, the seller may refuse to
make any further deliveries.46 Similarly if, in breach of a contract of employment, a
gardener insolently refuses to carry out instructions,47 or a school teacher refuses to
supervise school meals when required to do so,48 the employer is justified in dismissing
that person, ie terminating the contract of employment.
Renunciation may take place either before performance is due or during performance
itself.

(iii) Renunciation before performance is due: ‘anticipatory breach’

The parties to a contract which is wholly executory have a right to something more
than the performance when the time arrives. They have a right to the maintenance
of the contractual relation right up to that time, as well as to a performance of the
contract when due.
The renunciation of a contract by one of the parties before the time for performance
has come does not, of itself, put an end to the contract, but the ‘anticipatory breach’
entitles the other to choose to be discharged and to sue at once for damages. A contract
is a contract from the time it is made, and not from the time that performance is due.
A leading case upon this subject is Hochster v De la Tour:49

43 (1884) 9 App Cas 434, 441.

44 Vaswani v Italian Motors (Sales and Services) Ltd [1996] 1 WLR 270. See also Woodar Investment
Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277.
45 Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757; Farrant v The Woodroffe
School [1998] 2 ICR 184. 46 Withers v Reynolds (1831) 2 B & Ad 882.
47 Pepper v Webb [1969] 1 WLR 514. 48 Gorse v Durham CC [1971] 1 WLR 775.
49 (1853) 2 E & B 678.
 discharge by breach 515

T engaged H on 12 April to enter into his service as a courier and to accompany him upon a
tour; the employment was to commence on 1 June. On 11 May T wrote to H to inform him
that his services would no longer be required. H at once brought an action, although the time
for performance had not yet arrived.

The Court held that he was entitled to do so.

The rule has also been applied to situations where the performance is not absolute as
in Hochster v De la Tour, but contingent. In that case a time was fi xed for performance,
and before it arrived T renounced the contract, but in Frost v Knight,50 performance
was contingent upon an event which might not happen within the lifetime of the
parties:
K, a bachelor, promised to marry F upon his father’s death; but during his father’s lifetime
he renounced the contract.

F was held entitled to sue on the ground explained above. The principle of anticipatory
breach was justified by Cockburn CJ as follows:51
The promisee has an inchoate right to the performance of the bargain, which becomes
complete when the time for performance has arrived. In the mean time he has a right to have
the contract kept open as a subsisting and effective contract. Its unimpaired and unimpeached
efficacy may be essential to his interests.

It can also be said that the principle is convenient as it enables the innocent party
to assert its rights speedily and so to minimize the damage which may be suffered
from the breach. Nevertheless, it is important to note that a party who has been guilty
of an anticipatory breach by renunciation is accorded no privilege of withdrawing
that renunciation once it has been accepted by the other party,52 even though the
guilty party tenders performance within the time originally fi xed by the contract and
even though the position of the other party has in no way changed as a result of the
renunciation.
The promisee, however, has the right to continue to insist on the performance of
the promise and to refuse to accept the renunciation. If this is done, the promisee
loses the right to rely on the anticipatory breach and the contract remains in existence
for the benefit and at the risk of both parties. Should anything occur subsequently to
discharge the contract from other causes, the promisor, whose renunciation has been
refused, may take advantage of such discharge. Thus in Avery v Bowden:53
A chartered his ship to B. It was agreed that the ship would sail to Odessa, and there take
a cargo from B’s agent, which was to be loaded within a certain number of days. The vessel
reached Odessa, and her master demanded a cargo, but B’s agent was unable to supply one.
Nevertheless, the master of the ship continued to demand a cargo, but before the specified
number of days had elapsed the Crimean War broke out between England and Russia and

50 (1872) LR 7 Ex 111. 51 Ibid, 114 (emphasis added). But see Vold (1928) 41 Harv LR 340.
52 Xenos v Danube, etc, Ry (1863) 13 CBNS 824; but see Aegnoussiotis Shipping Corp of Monrovia v A/S
Kristian Jebsens Rederi of Bergen [1977] 1 Lloyd’s Rep 268, 276 (new contract).
53 (1855) 5 E & B 714; (1856) 6 E & B 953. See also Michael v Hart & Co [1902] 1 KB 482; Berners v Fleming
[1925] Ch 264.
516 performance and discharge

the performance of the contract became legally impossible. A afterwards sued for breach of
the charterparty.

His action failed. If B’s agent had positively informed the master that no cargo
would be provided, and that there was no use in his remaining there any longer,
the master might have treated this as an anticipatory breach and sailed away. A
would then have had the right to sue at once upon the contract. But the Court
found that as the conduct of B’s agent was not such as to constitute a renunciation
of the contract there was therefore no breach committed by B before the contract
was frustrated. Even, however, if there had been a renunciation of the contract, the
Court considered that it could not be treated as a cause of action after the master still
continued to insist upon having a cargo in fulfi lment of the charterparty. Again, it
has been held by the House of Lords54 that where, following an anticipatory breach
by charterers which was not accepted by the shipowners, the owners later failed to
tender the vessel ready to load on time, the charterers were entitled to cancel the
charterparty.
Despite the utility of the principle of ‘anticipatory breach’, the term itself is somewhat
misleading. It suggests that the cause of action lies in the future breach that will
occur on the date fi xed for performance, which the innocent party is, in some sense,
permitted to anticipate. But it is clear from the cases cited that, at any rate where the
anticipatory breach consists of a renunciation of the contract, the breach is constituted
by the renunciation itself, and, if this is accepted, the innocent party is immediately
entitled to recover by way of damages the true value of the contractual rights which
have been lost, subject to the innocent party’s duty to mitigate.55

(iv) Renunciation during performance

If during the performance of a contract one of the parties by words or conduct
unconditionally refuses to perform its side of the contract, the other party is forthwith
entitled to be released from any further performance of its obligations, and to sue.
In Cort v Ambergate etc Railway Co:56
C contracted with the defendant to supply it with 3,900 tons of railway chairs, at a certain
price, to be delivered in certain quantities at specified dates. After 1,787 tons had been
delivered, the defendant requested C to deliver no more, as they would not be wanted.
C brought an action upon the contract, averring that he was always ready and willing to
perform his part, but had been prevented from doing so by the action of the defendant.

C obtained a verdict, and when the defendant moved for a new trial on the ground
that he should have proved not merely that he was ready and willing to deliver, but
an actual delivery, the Court rejected this submission. Since the contract had been
renounced, C could maintain an action without manufacturing and tendering the rest
of the goods.

54 Fercometal SARL v Mediterranean Shipping Co SA, The Simona [1989] AC 788.

55 The Mihalis Angelos [1971] 1 QB 164. 56 (1851) 17 QB 127.
 discharge by breach 517

(b) impossibility created by one party

If by the act or default of one party further commercial performance of the contract is
made impossible,57 although that party has not, by words or conduct, renounced the
intention to fulfil it, the other party will be discharged.
Renunciation is usually easier to establish because the innocent party need only
show that the conduct of the promisor was such as to lead a reasonable person to
believe that the promisor did not intend to perform the promise, whereas if reliance
is placed on impossibility the innocent party must show that the contract was in fact
impossible of performance due to the default of the promisor. But it is an independent
ground for discharge, as can be seen from Universal Cargo Carriers Corporation v
Citati:58
UCC chartered a ship to C who agreed to nominate a berth and a shipper, and to provide
a cargo, all before a certain day. Three days before the due date C had done none of these
things. Although C was willing to perform the contract if he could, UCC cancelled it and
found another charterer.

Devlin J held that C had not renounced the contract, but, since he could not have
performed before the delay became so long as to frustrate the commercial purpose
of the contract, UCC was entitled to treat this inability to perform as discharging its
obligations.
Here also the impossibility may be created either before performance is due or in
the course of performance.

(i) Impossibility created before performance is due: anticipatory breach

If the act or default of a promisor which makes performance impossible occurs
before the time for performance arrives, the effect is the same as though the
promisor had renounced the contract at that time. Such impossibility need not be
deliberately created: ‘Anticipatory breach was not devised as a whip to be used for
the chastisement of deliberate contract-breakers, but from which the shift less, the
dilatory, or the unfortunate are to be spared. It is not confi ned to any particular
class of breach, deliberate or blameworthy or otherwise; it covers all breaches that
are bound to happen’.59
The aggrieved party may sue at once. In Lovelock v Franklyn:60
F promised to assign to L within 7 years from the date of his promise, all his interest in a lease
for the sum of £140. Before the end of 7 years he assigned his interest to another person.

It was held that L need not wait until the end of the seven years to bring an action. Lord
Denman CJ stated:61

57 If the impossibility arises through the occurrence of some external event, which radically alters the
nature of the obligation (but not otherwise), the contract may be discharged by frustration: see above,
pp 473, 476.
58 [1957] 2 QB 401 (aff ’d in part [1957] 1 WLR 979 and revs’d in part [1958] 2 QB 254). See also Sanko
Steamship Co Ltd v Eacom Timber Sales Ltd [1987] 1 Lloyd’s Rep 487, 492. 59 Ibid, 438 (Devlin J).
60 (1846) 8 QB 371. 61 Ibid, 378. See also Omnium D’Enterprises v Sutherland [1919] 1 KB 618.
518 performance and discharge

[L] has a right to say to [F]: ‘You have placed yourself in a situation in which you cannot
perform what you have promised; you promised to be ready during the period of seven years;
and, during that period, I may at any time tender you the money and call for an assignment,
and expect that you should keep yourself ready; but, if I now were to tender you the money,
you would not be ready’. That is a breach of the contract.

Similarly, in Universal Cargo Carriers Corporation v Citati,62 the ship-owners’

cancellation of the contract was not premature. They were permitted to anticipate a
breach which was in fact inevitable.

(ii) Impossibility created during performance

The rule is similar where the complete performance of the contract is made
impossible by the act or default of one party. This is illustrated by the case of O’Neil
v Armstrong:63
O’N, a British subject, was engaged by A, the captain of a warship owned by the Japanese
Government, to act as a fireman on a voyage from the Tyne to Yokohama. In the course
of the voyage the Japanese Government declared war on China. O’N was informed that
performance of the contract would bring him under the penalties of the Foreign Enlistment
Act 1870. He consequently left the ship, and sued A for the wages agreed upon.

It was held that he was entitled to succeed in his action, for the act of A’s principal, the
Japanese Government, had made his performance of the contract legally impossible.
It will be seen from this case that discharge by breach may occur, not only where
one party disables itself from performing the contract, but also where it prevents
completion of the contract by the other party.64 The Courts may imply a term that the
parties co-operate to ensure performance. A duty to co-operate cannot be imposed
so as to compel a party to do something which the contract on its true construction
relieved that party from doing, and cannot be used to compel a party to do something
which that party is in fact unable to do.65 But the Courts are often ready to imply a
term that each party undertakes to do all that is necessary to secure performance of
the contract.66 Thus if a licence is required for the export of goods, and the buyer fails
to provide the seller with the information necessary to obtain the licence, no action
will lie against the seller for non-delivery.67 In some situations, where performance
has thus been prevented by the promisee, the contract is taken as satisfied and the
promisor can sue for the full remuneration or price.68 But in most cases the promisor

62 Above, n 58. 63 [1895] 2 QB 418.

64 See also Ogdens Ltd v Nelson [1905] AC 109. Cf Bremer Vulkan v South India Shipping Co [1981] AC 909
(both parties in breach).
65 North Sea Energy Holdings NV v Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep 483, 492.
66 Stirling v Maitland (1864) 5 B & S 840, 852; Southern Foundries (1936) Ltd v Shirlaw [1940] AC 701; The
Unique Mariner (No 2) [1979] 1 Lloyd’s Rep 37. Cf Rhodes v Forwood (1876) 1 App Cas 256; Luxor (Eastbourne)
Ltd v Cooper [1941] AC 108. See Bateson [1960] JBL 187; Burrows (1968) 31 MLR 390.
67 Kyprianou v Cyprus Textiles Ltd [1958] 2 Lloyd’s Rep 60.
68 Mackay v Dick (1881) 6 App Cas 256. See also Metro Meat Ltd v Fares Rural Co Pty Ltd [1985] 2 Lloyd’s
Rep 13.
 discharge by breach 519

will be forced to sue for damages for the breach, since the contract cannot be fulfi lled
without the co-operation of the party in default.69

(c) failure of performance

Failure of performance, whether total or partial, is the most common ground for the
discharge of a party by breach. But it is not every failure of performance by one party
which entitles the other to be discharged from its own liabilities under it. In order to
determine if this is so, it is necessary to ask a number of questions.

(i) Are the promises independent?

In certain circumstances, the obligations entered into by each party may be independent
of each other in the sense that neither party can claim to be released from its promise
by the failure of the other to perform its part. Put in another way, each party can
enforce the obligations undertaken by the other even though it has not performed its
own. For example, in the case of leases, a tenant’s covenant to pay rent is independent
of a landlord’s covenant to repair; the tenant cannot withhold payment on the ground
that the landlord has failed to repair the premises.70 Again, a covenant by a husband
in a separation deed to pay his wife maintenance has been said to be independent of
any covenant on her part, eg not to molest him.71 And, because of the involvement of
third parties in documentary sales, the obligation of a buyer to pay when the shipping
documents are tendered has been held to be independent of the seller’s obligation to
supply goods conforming to the contract.72 But the tendency of the Courts is against
construing a contract in this way unless the parties clearly intend to do so because
such a construction means that both parties are inadequately protected from the
risk of non-performance by the other.73 Thus, in a contract for work or services, the
obligation to pay would fall due although the work had not been done.
Normally, however, the obligations of each party will be regarded as interdependent.
For example, an employee who has been wrongfully dismissed is not bound to
observe a covenant in restraint of trade.74 The clearest example of obligations which
are dependent on each other arises if the parties agree that the performance of their
respective promise shall be simultaneous, or at least that each shall be ready and
willing to perform its promise at the same time. Then the obligation to perform each
promise is dependent or conditional on this concurrence of readiness and willingness

69 Colley v Overseas Exporters [1921] 3 KB 302. Contrast White and Carter (Councils) Ltd v McGregor
[1962] AC 413, above, p 508 where no co-operation was necessary.
70 Taylor v Webb [1937] 2 KB 283.
71 Fearon v Earl of Aylesford (1884) 14 QBD 792, 800. See also Winstone v Linn (1823) 1 B & C 460 (contract
of apprenticeship). Cf Ellen v Topp (1851) 6 Exch 424.
72 Gill & Duff us SA v Berger & Co [1984] AC 382 (cif sale). See also Vagres Comp. Maritima SA v Nissho-
Iwai America Corp, The Karin Vatis [1988] 2 Lloyd’s Rep 330 (terms of contract rendered obligation to pay
freight when cargo loaded independent of charterer’s obligations). 73 See also, above, pp 451–7.
74 General Billposting Co Ltd v Atkinson [1909] AC 118. See also Rock Refrigeration Ltd v Jones [1997] 1
All ER 1, but cf the doubts of Phillips LJ at 18–19 and note that some primary obligations do continue after
discharge, above, p 510, n 26; below, p 525.
520 performance and discharge

to perform the other; their mutual promises are concurrent conditions. Thus section 28
of the Sale of Goods Act 1979 provides that in a contract for the sale of goods:
Unless otherwise agreed, delivery of the goods and payment of the price are concurrent
conditions, that is to say, the seller must be ready and willing to give possession of the goods
to the buyer in exchange for the price and the buyer must be ready and willing to pay the
price in exchange for possession of the goods.

Failure to tender the goods discharges the buyer from its obligation to pay the price;
failure to tender the price discharges the seller from its obligation to deliver the
goods.

(ii) Is the obligation ‘entire’ or ‘divisible’?

It has already been pointed out in Chapter 12, Performance,75 that certain obligations
are ‘entire’ in the sense that the liability of one party is dependent upon the complete
performance of the obligation by the other. Subject to the doctrine of substantial
performance,76 if A agrees to make a dress for B in return for a promise to pay for the
dress on completion, anything less than complete performance by A will release B from
her obligation to pay. It is immaterial how the failure to effect complete performance
comes about. It may be due to a deliberate abandonment of the contract, to a negligent
act or omission, or, as in Cutter v Powell,77 to a simple misfortune occurring without
any fault.
Entire obligations are, however, the exception rather than the rule. The obligations
in most bilateral contracts are ‘divisible’ in the sense that the breach of any one or
more of them will not necessarily constitute a ground of discharge. The contract may,
for example, be a complex one, composed of a number of undertakings differing in
character or importance; or it may be a promise to do a number of successive acts; or
to do a single act which can be partly or defectively performed. A failure by one party
precisely to perform its obligations under the contract will give a right of action in
damages to the other; but it will not necessarily discharge the innocent party from the
performance of its own obligations under the contract.

(iii) Is the term broken a condition?

Assuming that the obligations in the contract are divisible, and not entire, the question
then arises whether the particular term which has been broken is a condition of the
contract. From an historical point of view, the right of the innocent party to choose
to be treated as discharged was said to turn upon the non-performance of a ‘condition
precedent’ in the contract.78 Performance by one party of that party’s promise or
‘covenant’ was regarded as a condition precedent to the liability of the other. The
classification of contractual terms is dealt with in Chapter 5 of this book.79 It was there
noted that, today, a term will only be classified as a condition if it has been so categorized

75 See above, p 452. 76 See above, p 454. 77 (1795) 6 Term R 320, above, p 452.
78 Pordage v Cole (1669) 1 Wms Saund 319; Kingston v Preston (1773) 2 Doug 689, 691. The history of the
expression is expounded in Cehave NV v Bremer Handelsgesellschaft [1976] QB 44, 57, 72; United Scientific
Holdings Ltd v Burnley BC [1978] AC 904, 927. See also Hurst v Bryk [2002] 1 AC 185, 193 (Lord Millett);
Dawson [1981] CLJ 83, 87. 79 Above, pp 139–49.
 discharge by breach 521

by statute (for instance by the Sale of Goods Act 1979) or by judicial decision, or if the
parties have so agreed in their contract, either expressly or by implication.80 Any breach
of a condition will entitle the innocent party to choose to be treated as discharged.81 It
was also noted, however, that there has now emerged a category of ‘intermediate terms’,
the breach of which will not necessarily produce that effect.82

(iv) Does the breach go to ‘the root of the contract’?

If the term broken is not a condition, but an intermediate term, the right of the
innocent party to choose to be treated as discharged from further performance will
depend upon the nature and consequences of the breach. Differing terminology
has been used by the Courts to describe the test to be applied, the most common
being that the breach must go to ‘the root of the contract’.83 It has also been said
that the breach must be ‘fundamental’,84 that it must ‘affect the very substance of the
contract’85 or ‘frustrate the commercial purpose of the venture’.86 The use of these
and similar expressions emphasizes that the breach must be far-reaching in its effect
in order to justify discharge. A test which is nowadays frequently applied is that
stated by Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd:87
‘Does the occurrence of the event deprive the party who has further undertakings to
perform of substantially the whole benefit which it was the intention of the parties as
expressed in the contract that he should obtain as the consideration for performing
those undertakings?’ In that case:
H chartered to K the Hongkong Fir for a period of 24 months, on terms that she was ‘in
every way fitted for ordinary cargo service’. The vessel was an old one, and by reason of its
age needed to be maintained by an experienced, competent, careful, and adequate engine
room staff. This H did not provide. The chief engineer was addicted to drink and inefficient,
and the engine room complement inadequate, with the result that there were many serious
breakdowns in machinery. In the first 7 months of the charter the ship was only eight and a
half weeks at sea, the rest of the time being spent in breakdowns and repair to make the ship
seaworthy; but this was eventually achieved. K refused to continue with the charterparty.

80 Above, pp 146–9.
81 Above, p 140. See, eg Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 (vendor entitled to
terminate where purchaser tendered price 10 minutes late). In the case of a contract for the sale of goods a
non-consumer buyer may not reject goods by reason of a breach of the statutory implied condition by the
seller as to description, quality or conformity with sample, because the breach is to be treated as breach of
warranty, rather than breach of condition: Sale of Goods Act 1979, s 15A. See also Supply of Goods and
Services Act 1982, ss 5A (transfer of goods), 10A (hire of goods). 82 Above, p 145.
83 Mersey Steel & Iron Co v Naylor, Benzon & Co (1884) 9 App Cas 434, 444; Heyman v Darwins Ltd [1942]
AC 356, 397; Suisse Atlantique Société d’Armement SA v NV Kolen Centrale [1967] 1 AC 361, 422; Cehave NV
v Bremer Handelsgesellschaft [1976] QB 44, 60, 73; Federal Commerce & Navigation Co Ltd v Molena Alpha
Inc [1979] AC 757, 779.
84 Suisse Atlantique Société d’Armement SA v NV Kolen Centrale, above, n 83, 397, 409–10, 421–2, 431;
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 849 (Lord Diplock).
85 Wallis, Son and Wells v Pratt and Haynes [1910] 2 KB 1003, 1012.
86 MacAndrew v Chapple (1866) LR 1 CP 643, 647, 648; Jackson v Union Marine Insurance Co (1874) LR 10
CP 125, 145, 147, 148; Trade and Transport Inc v Iino Kaiun Kaisha Ltd [1973] 1 WLR 210, 223.
87 [1962] 2 QB 26, 66; above, pp 145–6. See also Photo Production Ltd v Securicor Transport Ltd [1980]
AC 827, 849.
522 performance and discharge

It was argued on behalf of K that the term as to seaworthiness was a condition of

the contract, and that it was therefore entitled as of right to treat itself as discharged.
This argument was not accepted by the Court of Appeal.88 The Court then went on to
hold, on the facts, that the delays which had already occurred, and the delay which
was likely to occur, as a result of the vessel’s unseaworthiness, and the conduct of H
in taking steps to remedy the same, were not, when taken together, such as to deprive
K of substantially the whole benefit which it was the intention of the parties K should
obtain from further use of the ship under charterparty. K had therefore unjustifiably
treated the contract as repudiated.
The same approach has been adopted with respect to contracts to deliver and pay
for goods by instalments. If the seller makes defective deliveries in respect of one or
more instalments, or the buyer neglects or refuses to take delivery of or pay for one or
more instalments, this will not necessarily permit the innocent party to choose to be
treated as discharged. The question will arise whether the breach is a repudiation of
the whole contract or whether it is a severable breach giving rise to a claim for damages
but not to a right to treat the whole contract as repudiated.89 The breach or breaches
may, of course, amount to an express or implied renunciation of the contract.90 But if
they amount only to a failure of performance, they must go to the root of the contract
in order to justify discharge. Thus in Simpson v Crippin91 it was agreed that 6,000 to
8,000 tons of coal should be delivered in equal monthly instalments during a period of
12 months, the buyer to send wagons to receive the coal; the buyer sent wagons for only
158 tons in the first month, but the seller was not held entitled to cancel the contract as
the breach did not go ‘to the whole root and consideration of the agreement’.
On the other hand, in Honck v Muller:92
H, in October 1879, bought from M 2,000 tons of pig iron to be delivered ‘in November,
1879, or equally over November, December and January next at 6d per ton extra’. H failed to
take delivery of any iron in November, but claimed to have delivery of one-third of the iron
in December and one-third in January. M refused, and gave notice that he considered the
contract discharged.

H brought an action for breach and failed, as a majority of the Court considered
that his failure of performance was so substantial as to discharge M from further
liability.93
In contracts for the sale and delivery of goods by instalments, the most relevant
factors have been said to be, ‘first, the ratio quantitatively which the breach bears to the
contract as a whole, and secondly the degree of probability or improbability that such a
breach will be repeated’.94 The importance of the second factor was clearly emphasized
by Bigham J in Millar’s Karri and Jarrah Co v Weddel:95

88 See above, p 146. 89 Sale of Goods Act 1979, s 31. 90 See above, p 512.
91 (1872) LR 8 QB 14.
92 (1881) 7 QBD 92. See also Munro & Co Ltd v Meyer [1930] 2 KB 312 (nearly half of goods seriously
adulterated).
93 Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148, 157 (Lord
Hewart CJ). 94 Ibid.
95 (1909) 100 LT 128, 129.
 discharge by breach 523

If the breach is of such a kind, or takes place in such circumstances as reasonably to lead to
the inference that similar breaches will be committed in relation to subsequent deliveries,
the whole contract may there and then be regarded as repudiated and may be rescinded.
If, for instance, a buyer fails to pay for one delivery in such circumstances as to lead to the
inference that he will not be able to pay for subsequent deliveries; or if a seller delivers goods
differing from the requirements of the contract, and does so in such circumstances as to lead
to the inference that he cannot, or will not, deliver any other kind of goods in the future, the
other contracting party will be under no obligation to wait to see what may happen; he can
at once cancel the contract and rid himself of the difficulty.

It follows that, the further the parties have proceeded with the due performance of
a contract, the less likely it is that one party will be able to claim that it has been
discharged by a single breach.96
The right of discharge therefore depends on the answer to this question: Does the
breach go so far to the root of the contract as to entitle the injured party to say, ‘I have
lost all that I cared to obtain under this contract; further performance cannot make
good the prior default’?97

(v) Termination clauses

A contract may contain a clause setting out the circumstances and conditions upon
which one party shall have the right to terminate by reason of the other party’s breach.
Such a clause may make clear that a particular term is a condition of the contract
so that the rules of termination for breach of condition, discussed above, will then
apply.98 But the clause may be drafted more generally to provide a remedial regime
(including the right for the innocent party to terminate the contract) for breach of
contract in specified circumstances,99 and it may refer to a standard of breach which
is different from that which gives rise to the right to terminate at common law—such
as where the breach is ‘material’, which has been held to cover breaches which are
less than ‘fundamental’, but where it is more than trivial or minimal.100 The party
seeking to rely on such a clause must establish strictly that the clause entitles it to
terminate in relation to the breach which has occurred,101 and the Courts will not hold
that the common law right to terminate for repudiatory breach has been excluded
by an express termination clause without clear words showing such an intention.102
Moreover, the exercise of the right to terminate under an express termination clause
will not normally constitute affirmation of the contract so as to deprive the innocent

96 Cornwall v Henson [1900] 2 Ch 298, 304.

97 Cited with approval in Alkok v Grymek (1966) 56 DLR (2d) 393 (Canada).
98 Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514.
99 Lombard North Central plc v Butterworth [1987] QB 527;
100 Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm), [2006] 1 Lloyd’s
Rep 599.
101 Cf Rice v Great Yarmouth BC (2001) 3 LGLR 4 (clause in long-term contract involving substantial
investment, which allowed the defendant to terminate for ‘a breach of any of the [claimant’s] obligations’
was construed as applying only to repudiatory breach); criticized by Whittaker in Burrows and Peel (eds)
Contract Terms (2007) 253.
102 Dalkia Utilities Services plc v Celtech International Ltd, above, n 100; Stocznia Gdynia SA v Gearbulk
Holdings Ltd [2009] EWCA Civ 75, [2010] QB 27 at [23].
524 performance and discharge

party of the right to claim its remedies for breach at common law, at least where the
clause provides a right to terminate at common law which corresponds to a right under
the general law (eg because the breach goes to the root of the contract).103

3. consequences of discharge
(a) release from future obligations
An innocent party who is entitled to, and does, choose to be treated as discharged by
the other party’s breach, is thereby released from further performance of those future
obligations which remain still to be performed.104 After such discharge the innocent
party is not bound to accept, or pay for, any further performance by the party in
breach. The duty of the party in default to perform future unperformed obligations
likewise comes to an end, as does that party’s right to perform them.

(b) contract not rescinded ab initio

In the terminology employed in many of the cases, these consequences are often
described as a ‘rescission’ of the contract; or it is stated that the contract is ‘terminated’
or ‘put an end to’ by the breach. But these expressions are somewhat misleading:

To say that the contract is rescinded or has come to an end or has ceased to exist may in
individual cases convey the truth with sufficient accuracy, but the fuller expression that
the injured party is thereby absolved from future performance of his obligations under
the contract is a more exact description of the position. Strictly speaking, to say that on
acceptance of the renunciation of the contract the contract is rescinded is incorrect.105

Certainly, this so-called rescission is quite different from rescission ab initio, such as
may arise, for example, in cases of misrepresentation or mistake.106 The contract is not
set aside as from the beginning.

(c) accrued obligations remain

Although both parties are discharged from further performance of their obligations,
rights are not divested which have already been unconditionally acquired. Rights and
obligations which arise from the partial execution of the contract and causes of action

103 Stocznia Gdynia SA v Gearbulk Holdings Ltd, above, n 102 at [44].

104 See Shea (1979) 42 MLR 623; Beatson (1981) 97 LQR 389; Rose (1981) 34 CLP 235; Law Com No 121,
Pecuniary Restitution on Breach of Contract (1983).
105 Heyman v Darwins Ltd [1942] AC 356, 399 (Lord Porter). Th is statement was unanimously approved
by the House of Lords in Johnson v Agnew [1980] AC 367. See also Bank of Boston Connecticut v European
Grain and Shipping Ltd [1989] AC 1056, 1098–9 and State Trading Corp of India Ltd v M Golodetz Ltd [1989]
2 Lloyd’s Rep 277, 286. 106 Johnson v Agnew, above, n 105, 393.
 discharge by breach 525

which have accrued from its breach alike continue unaffected.107 So, for instance, if a
time charterparty of a ship is repudiated by the charterer, the shipowner can recover
arrears of hire charges due but unpaid up to the date of the shipowner’s acceptance of
the repudiation.108 Again, if building work is to be paid for by instalments, the builder
can sue for any instalment due but unpaid at the time of discharge.109
It makes no difference in this respect whether the accrued obligation is in favour of
the innocent or the guilty party. An employee who repudiates a contract of employment
can nevertheless sue for wages earned before that time110 and, following termination
of a partnership agreement, it seems that the innocent partner remains liable for the
accrued liabilities of the partnership, provided these were incurred when the innocent
party was a partner.111
Admittedly, if money has been paid by one party to the other under the contract,
and the consideration for the payment has wholly failed, the money may be recoverable
in unjust enrichment by an action for money had and received.112 But, in principle,
accrued liabilities remain enforceable despite the discharge. Moreover, as we have
seen,113 only the primary obligations of the parties as a general rule come to an end.
The primary obligations of the party in default are then replaced by a secondary
obligation to pay compensation to the injured party for the breach. Note, however,
certain primary obligations will survive discharge and continue to be enforceable. The
continued enforcement of such obligations simply reflects the presumed intention of
the parties. The best examples of obligations that survive are arbitration clauses and
dispute resolution mechanisms.114 In addition, there are clauses that may only come
into operation upon discharge such as certain liquidated damages clauses. It has also
been held that an obligation to pay a retainer for a specified period115 and an agent’s
duty to provide records to its principal survive discharge.116

(d) restitutionary claims

With respect to payments not yet due at the time of discharge, for example, for goods
supplied or for services rendered under the contract, the innocent party can sue in
unjust enrichment for restitution in the form of a reasonable price for the goods
supplied (quantum valebat) or reasonable remuneration for the services rendered
(quantum meruit),117 or include them in his claim for damages for breach. Whether the
guilty party has any claim will depend on whether the contract is entire or divisible. If

107 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 476 (Dixon J) (Australia). But, once the contract
has been discharged, equitable relief, eg an injunction, cannot be granted: Walker v Standard Chartered
Bank plc [1992] BCLC 535.
108 Leslie Shipping Co v Welstead [1921] 3 KB 420. See also Chatterton v Maclean [1951] 1 All ER 561
(hire-purchase). 109 Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129 (HL).
110 Taylor v Laird (1856) 25 LJ Ex 29. Cf Apportionment Act 1870, s 2.
111 Hurst v Bryk [2002] 1 AC 185. See also Partnership Act 1890, s 9.
112 See below, p 588. 113 See above, p 524. 114 Heyman v Darwins Ltd [1942] AC 356.
115 Duffen v Frabo SpA [2000] 1 Lloyd’s Rep 180.
116 Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd
[1995] QB 174. 117 See below, p 594.
526 performance and discharge

it is entire, in principle no claim is possible.118 But if it is divisible, the guilty party may
be entitled to claim in respect of performance completed, subject to a counterclaim for
damages by the innocent party in respect of loss suffered by the breach.

4. loss of the right of discharge

The right of discharge may be lost by waiver, affirmation, acceptance, and operation
of law. In addition, a party may be estopped from claiming to be entitled to treat a
contract as discharged. This has been dealt with earlier in this book.119

118 See above, pp 451–3. But see below, p 590. 119 See above, pp 149–51, 466–70.
 16
DISCHARGE BY OPERATION
OF LAW
There are rules of law which, operating upon certain sets of circumstances, will bring
about the discharge of a contract, and these we will briefly consider.

1. merger
(a) acceptance of higher security
If a higher security is accepted in place of a lower, the security which in the eye of the
law is inferior in operative power,1 in the absence of a contrary intention manifested
by the parties, merges and is extinguished in the higher.
Thus, if two parties to a simple contract embody its contents in a deed which they
both execute, the simple contract is thereby discharged. This most often happens in
the case of a contract for the sale of land, the written agreement being merged and
extinguished in the subsequent conveyance or transfer of the land which is executed
as a deed.2
The rules governing this process may thus be summarized:
(1) The later security must be of higher efficacy than that which it is sought to
replace. A negotiable instrument is not a higher security for the purposes of this
rule,3 although the giving of a negotiable instrument may constitute payment of
a debt.4
(2) The subject-matter of the two securities must be the same, that is, they must
secure the same obligation and be made between the same parties.5

(b) rights vesting in same person

The rights and liabilities under a contract are also extinguished if they become vested
by assignment or otherwise in the same person and in the same right, for it is not

1 Price v Moulton (1851) 10 CB 561.

2 Knight Sugar Co Ltd v Alberta Ry and Irrigation Co [1938] 1 All ER 266, 269–70. Cf Tito v Waddell (No
2) [1977] Ch 107, 284 (contrary intention). 3 Drake v Mitchell (1803) 3 East 251.
4 See above, p 447.
5 Twopenny v Young (1824) 3 B & C 208; Holmes v Bell (1841) 3 M & G 213; Hissett v Reading Roofing Co
Ltd [1969] 1 WLR 1757.
528 performance and discharge

possible to contract with oneself. So where a tenant for a term of years retains the
lease and acquires the reversion, the lease merges in the reversion and is destroyed.6
Similarly, a bill of exchange is discharged if the acceptor is or becomes the holder of it
at or after its maturity in his own right.7

2. discharge by judgment of a court

A right of action arising from breach of contract is discharged by the judgment of a
Court of Record8 in the claimant’s favour for the same demand. The right is thereby
merged in the more solemn form of obligation called a Contract of Record. The result
of legal proceedings taken upon a broken contract may be summarized as follows:

(a) effect of bringing action

The bringing of an action has not itself any effect in discharging the right to bring
the action. Another action may be brought for the same cause, although proceedings
in such an action would, if they were merely vexatious, be struck out or stayed upon
application to the summary jurisdiction of the Court.9

(b) effect of judgment for claimant

But when judgment is given in the claimant’s favour, the cause of action is merged
into matter of record, and only the judgment can be enforced.10 Further, ‘damages
resulting from one and the same cause of action must be assessed and recovered once
for all’,11 so that successive judgments cannot be obtained for different breaches of a
single undertaking.12

(c) effect of judgment for defendant

A person may be estopped from re-litigating in subsequent proceedings a cause of action
in respect of which judgment was given against that person in earlier proceedings, or
an issue raised and determined against him or her in such proceedings.13 But, for such

6 Capital and Countries Bank Ltd v Rhodes [1903] 1 Ch 631. By a rule of equity, however, the intentions
of the parties may operate to prevent the occurrence of such merger. Under the provisions of the Law of
Property Act 1925, s 185 the equitable rule now prevails in all cases.
7 Bills of Exchange Act 1882, s 61.
8 A county court is a court of record: County Courts Act 1984, s 1(2).
9 CPR rr 3.4(2), and 3.1(2)(f); cf County Courts Act 1984, s 35.
10 Kendall v Hamilton (1879) 4 App Cas 504.
11 Brunsden v Humphrey (1884) 14 QBD 141, 147 (Bowen LJ); Furness, Withy & Co Ltd v Hall Ltd (1909)
25 TLR 233.
12 Conquer v Boot [1928] 2 KB 336. Cf Overstone Ltd v Shipway [1962] 1 WLR 117 (separate causes of
action).
13 Palmer v Temple (1839) 9 A & E 508. Th is is also known as estoppel per rem judicatam which encompasses
both cause of action estoppel and issue estoppel: Thoday v Thoday [1964] P 181, 197–8.
 discharge by operation of law 529

an estoppel to arise, certain conditions must be satisfied:14 first, there must have been
a final judgment on the merits15 in the earlier proceedings by a Court of competent
jurisdiction;16 secondly, there must be identity of parties in the two sets of proceedings;17
thirdly, there must be identity of subject-matter in the two proceedings.18 Cause of action
and issue estoppel are based upon the public interest in finality of litigation.19

3. alteration or cancellation of
a written instrument
(a) rule as to alteration
If a deed or contract in writing is altered by addition or erasure, it is discharged, except
as against a party making or assenting to the alteration, for ‘no man shall be permitted
to take the chance of committing a fraud, without running any risk of losing by the
event, when it is detected’.20
This principle is subject to the following rules:
(1) The alteration must be made deliberately by the promisee or by one acting
with the promisee’s consent;21 and even an alteration by a stranger while the
instrument is in the custody of the promisee will have the same effect.22 Earlier
editions of this book stated that this responsibility for the acts of officious
burglars, could not be supported, but although described as ‘a harsh and ancient
common law doctrine’, it is good law.23
(2) The alteration must be made without the consent of the other party, else it would
operate as a new agreement.
(3) The alteration must be made in a material part. What amounts to a material
alteration necessarily depends upon the character of the instrument, and it is

14 Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853, 909, 910.
15 Hines v Birkbeck College (No 2) [1992] Ch 33.
16 Midland Bank Trust Co Ltd v Green [1980] Ch 590; Hines v Birkbeck College (No 2) [1992] Ch. 33; The
European Gateway [1987] QB 206.
17 Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510; North West Water Ltd v Binnie & Partners [1990] 3
All ER 547; House of Spring Gardens Ltd v Waite [1991] 1 QB 241, 252; Talbot v Berkshire CC [1994] QB 290,
296–7. Cf Marginson v Blackburn BC [1939] 2 KB 426; C (a minor) v Hackney LBC [1996] 1 WLR 789.
18 Haystead v Commissioner of Taxation [1926] AC 155.
19 Republic of India v India Steamship Co Ltd [1993] AC 410, 415; ibid (No 2) [1998] AC 878, 912;
Thrasyvoulou v Secretary of State for the Environment [1990] 2 AC 273, 289. While a foreign judgment does
not operate as a merger, under the Civil Jurisdiction and Judgments Act 1982, s 34, further proceedings are
barred unless waived: [1993] AC 410, 423–4.
20 Master v Miller (1791) 4 Term Rep 320, 329 (Lord Kenyon CJ).
21 Pattinson v Luckley (1875) LR 10 Ex 330; Hongkong & Shanghai Banking Corporation v Lo Lee Shi
[1928] AC 181. Cf Co-operative Bank v Tipper [1996] 4 All ER 366, 371 (pencilled alteration insufficient).
22 Pigot’s Case (1614) 11 Co Rep 26b; Davidson v Cooper (1844) 13 M & W 343.
23 Goss v Chilcott [1996] AC 788; Co-operative Bank v Tipper, above, n 21, 369. But the nullifying operation
is confi ned to cases falling strictly within its ambit: Farrow Mortgage Services Pty Ltd v Slade (1996) 38
NSWLR 636, 640 (Australia).
530 performance and discharge

possible for the character of an instrument to be affected by an alteration which

does not touch the contractual rights set forth in it. In most cases, a material
alteration will be one which imposes a greater liability on the promisor.24

(b) bills of exchange

The Bills of Exchange Act 1882, section 64, provides that a bill shall not be avoided as
against holder in due course, though it has been materially altered, if the alteration
is not apparent, and the holder may enforce payment of it according to its original
tenor.

(c) cancellation and loss

Intentional cancellation of a written instrument by the promisee also discharges the
obligation, but the loss of the instrument only affects the rights of the parties in so far
as it may occasion a difficulty of proof. In the case of bills of exchange and promissory
notes, if the holder of the instrument loses it, he may require the drawer to give him
another bill upon his giving an indemnity against possible claims.25

4. bankruptcy
A contract is not discharged by bankruptcy of one of the parties to it;26 but it effects a
statutory release from debts and liabilities provable under the bankruptcy, when the
bankrupt has obtained from the Court an order of discharge. It is sufficient to call
attention to this mode of discharge, without entering into a discussion of the nature
and effects of bankruptcy, or the provisions of the Insolvency Act 1986.

24 On the different position of alterations to bank notes, see Suffell v Bank of England (1882) 9 QBD 555.
25 Bills of Exchange Act 1882, s 69.
26 Re Edwards, ex p Chalmers (1873) LR 8 Ch App 289; see below, p 683.
 PART 5
REMEDIES FOR BREACH
OF CONTRACT
17 Damages 533
18 Specific Remedies 573
19 Restitutionary Awards 587
20 Limitation of Actions 605
This page intentionally left blank
 17
DAMAGES

1. damages and other remedies for

breach of contract
Where a party performing a contract does not do so to the standard required by the
contract1 or within the timeframe set, that party will breach the contract. Chapter 15
sets out the rules which govern the discharge of a contract by breach, and it now remains
to consider the various remedies which are available apart from the entitlement of
the innocent party in an appropriate case to be treated as discharged from further
performance.
These remedies fall under three heads:2
(1) Every breach of contract entitles the injured party to damages. Damages are
primarily concerned to compensate the injured party for the loss he or she has
suffered.
(2) In certain circumstances the injured party may obtain the enforcement of the
promise by an order for specific performance of the contract, an injunction to
restrain its breach or for the payment of the sum due under the contract.
(3) In certain circumstances the parties to a contract that has been broken may
be entitled to the return of money paid or restitution of the value of services
rendered or goods transferred. These are restitutionary remedies for the
independent cause of action of unjust enrichment. They are not remedies for
the breach of contract. Exceptionally an injured party may be granted an award
reflecting the gain made by the contract-breaker from the breach of contract.
This is a restitutionary remedy for the breach of contract.
This and the following two chapters consider each of these remedies in turn, and a
further chapter examines how they may be barred by lapse of time.
It will be seen that the development of the law has been marked by a broadening
approach to the concept of loss and thus in its ability to protect the claimant’s interest
in the performance by the other party of the contractual obligations. Except in the case

1The standard may be strict or may require only the exercise of reasonable care, above p 441.
2See Burrows, Remedies for Torts and Breach of Contract (3rd edn, 2004); Harris, Campbell and Halson,
Remedies in Contract and Tort (2nd edn, 2002); Treitel, Remedies for Breach of Contract (1988).
534 remedies for breach of contract

of a debt, the repayment of which may be specifically enforced at common law by an

award of the agreed sum, the common law remedy for breach of a contractual promise is
that of damages. There has been increased sophistication in identifying and calculating
economic interests and in recognizing intangible interests of no economic value but
for which a contractor has paid, and in reflecting these in awards of damages. If the
claimant’s interest in the performance of the contractual obligations cannot adequately
be protected by an award of damages, there has been greater willingness to order that
the contract be specifically performed where this is possible and practicable.
In certain cases, for example professional negligence cases, there will be overlapping
claims for damages in contract and in tort. The rules discussed in this section only
apply to contractual damages. However, it should be borne in mind that in cases of
overlap damages within the law of tort may present an alternative, and sometimes
preferable, remedy.3

2. compensatory nature of damages

(a) compensation for loss
Damages for breach of contract are normally designed to compensate for the damage,
loss or injury the claimant has suffered through that breach. A claimant who has not,
in fact, suffered any loss by reason of the breach, is nevertheless entitled to a verdict,
but the damages recoverable will be purely nominal (usually £2–£10).
Whereas physical losses are the most frequent subject of actions in tort, commercial
(ie financial) losses are the most frequent subject of actions for breach of contract.
However, as will be seen, damages for breach of contract are not necessarily limited
to compensation of financial loss alone. Damages may also be awarded in contract to
compensate for physical damage to the person or property, for the loss of an attribute
of property (such as comfort or privacy) even where this has not affected its value, for
inconvenience, and, in certain circumstances, for disappointment.

(b) damages are not punitive

Damages for breach of contract are given to compensate for loss suffered by the
innocent party and not to punish the contract-breaker. ‘Punitive’ or ‘exemplary’
damages have no place in the law of contract.4 Contractual damages cannot be used
to punish, however outrageous the defendant’s conduct. In Addis v Gramophone
Co Ltd:5

3 Above, pp 23–24. See, for example, Henderson v Merrett Syndicates Ltd [1995] 2 AC 145; Midland Bank
Trust Co Ltd v Hett Stubbs & Kemp [1979] Ch 384 (limitation).
4 They may be recoverable in certain circumstances in tort: see Rookes v Barnard [1964] AC 1129, 1221;
Broome v Cassell & Co Ltd [1972] AC 1027; Kuddus v Chief Constable of Leicestershire Constabulary [2001]
UKHL 29, [2002] 2 AC 122. For discussion of restitutionary damages in cases of ‘cynical’ breach, see below,
pp 599, 603.
5 [1909] AC 488, followed on this point but not others (below, p 538) by Malik v Bank of Credit & Commerce
International SA [1998] 1 AC 20, 50–1. See also Co-operative Insurance Society Ltd v Argyll Stores (Holdings)
 damages 535

A was employed by G as manager of their business in Calcutta at a salary together with a

commission on trade done. G wrongfully dismissed A without giving him the required 6
months’ notice.

The House of Lords held that, although A might recover a sum representing his salary
for the period of notice and the commission he would have earned during that period,
his employers were not to be penalized in damages for the humiliating and oppressive
manner in which they had dismissed him.6

(c) difficulty of assessment no bar

Difficulty in assessing damages does not disentitle a claimant from having an attempt
made to assess them, unless they depend on entirely speculative possibilities. This can
be seen from the case of Simpson v London and North Western Railway Company,7
where Simpson was deprived of the opportunity of exhibiting his products at an
agricultural show. Although the ascertainment of damages was difficult, it was held
that this was no reason for not giving any damages at all. Again, in Chaplin v Hicks,8
a candidate in a beauty competition, who had successfully passed the earlier stages
of the competition, was, in breach of contract, not allowed to compete in the later
stages with 49 others from whom 12 winners were to be chosen. She was awarded
substantial damages for the loss of the chance of being successful of which she had
been wrongfully deprived. Similar considerations may affect the measure of damages
in the cases where an offer to consider all conforming tenders is held to give rise to an
enforceable obligation.9 The value of the chance depends upon the number and type of
contingencies upon which it depends.10

(d) the date for assessment

The date for the assessment of damages is normally thought to be the date when the
cause of action arose: ie the date of the breach of contract.11 However, in some recent
cases a more flexible approach has been adopted, in which a later date for assessment
has been taken so as to enable compensation to be more accurately calculated (subject
to not infringing the mitigation principle).12 In Golden Strait Corporation v Nippon
Yusen Kubishika Kaisha, The Golden Victory:13

Ltd [1998] 1 AC 1, 15. Cf McBride (1995) 24 Anglo-American L Rev 369 and Cunnington (2006) 26 LS 369
for arguments that punitive damages should be available for breach of contract.
6 See also Malik v Bank of Credit & Commerce International SA [1998] 1 AC 20, 51; Johnson v Unisys
Ltd [1999] 1 All ER 854, 861, but note that the manner and circumstances of a dismissal may increase the
claimant’s fi nancial loss: see below, p 538. 7 (1876) 1 QBD 274; below, pp 553–554.
8 [1911] 2 KB 786. Cf Sapwell v Bass [1910] 2 KB 486. See also Allied Maples Group v Simmons & Simmons
[1995] 1 WLR 1602 (uncertainty as to what the claimant, as opposed to a third party, would have done should
be decided in an all-or-nothing way by applying a balance of probabilities test).
9 Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 WLR 25, above, p 36, where the measure of
damages was not considered. 10 Ministry of Defence v Wheeler [1998] 1 WLR 637.
11 See, eg, Dodd Properties (Kent) v Canterbury City Council [1980] AC 174.
12 See below pp 555–556.
13 [2007] UKHL 12, [2007] 2 AC 353. See also, eg, Johnson v Agnew [1980] AC 367.
536 remedies for breach of contract

After three years of a seven-year charterparty there was a repudiatory breach by the
charterers. Fifteen months later, the Iraq war broke out which, under a war clause, would
have entitled the charterers to terminate the contract in any event and it was assumed that,
had the contract still been on foot, they would have done so.

The question that arose was whether damages should be assessed as at the date of
breach on the basis of the value of a four-year remaining charterparty ignoring the
outbreak of war, or as at the date of trial taking into account the known outbreak
of war and hence on the basis of only a fifteen-month remaining charterparty. By a
3–2 majority (Lord Bingham and Lord Walker dissenting) it was held that damages
should be assessed on the second basis. This is justified as more precisely measuring
the claimant’s known loss in a situation where the mitigation principle was essentially
irrelevant because the claimant had not attempted to mitigate its loss by concluding a
substitute charterparty for the four-year period. The minority preferred to adhere to
the date of breach rule as promoting commercial certainty.

(e) compensation for inconvenience or mental distress

Contractual damages may be recovered for substantial physical inconvenience or
discomfort arising from a breach. For example, where a family were transported by
a railway company to the wrong station, with the result that they had to walk several
miles home on a drizzling wet night,14 and where a man, with his wife and child, was
forced to live for two years in discomfort with his wife’s parents owing to the failure of
a solicitor to take any effective steps to obtain possession of a house,15 damages for the
physical inconvenience were recovered.
Damages are not generally recoverable for ‘any distress, frustration, anxiety,
displeasure, vexation, tension or aggravation’ caused by the breach even where it
was in the contemplation of the parties that the breach would expose the parties to
distress.16 The reparation of such non-pecuniary, non-physical harm poses problems
of incommensurability and subjectivity, and difficulties of proof.
There are, however, two exceptions to the general rule. Damages for mental distress
can be awarded where the claimant’s distress is directly consequential on physical
inconvenience caused by the breach of contract.17 They can also be awarded where

14 Hobbs v L & SW Ry (1875) LR 10 QB 111.

15 Bailey v Bullock [1950] 2 All ER 1167. Noise can amount to physical inconvenience: Farley v Skinner
[2001] UKHL 49, [2002] 2 AC 732 at [30], [60].
16 Watts v Morrow [1991] 1 WLR 1421, 1445 (Bingham LJ). See also Bliss v SE Thames RHA [1987] ICR 700
(contract of employment); Hayes v James & Charles Dodd [1990] 2 All ER 815 (solicitor’s contract to provide
professional services); Branchett v Beaney [1992] 3 All ER 910 (covenant for quiet enjoyment of property);
Johnson v Gore Wood & Co [2002] 2 AC 1 (claim for professional negligence against solicitor).
17 Perry v Sidney Phillips & Son [1982] 1 WLR 1297 (anxiety and distress of living in a house in poor
condition which had been bought in reliance on negligence in breach of contract in a surveyor’s report);
Calebar Properties v Sticher [1984] 1 WLR 287 (unpleasantness of living in deteriorating premises until
they became uninhabitable because of landlord’s delay in repairing). But such damages should be ‘modest’:
Watts v Morrow [1991] 1 WLR 1421, 1443, 1445. Cf Lord Cooke (dissenting) in Johnson v Gore Wood & Co
[2002] 2 AC 1, 49 (distress due to poverty and changed way of life akin to that due to physical loss).
 damages 537

an important purpose of the contract is to provide enjoyment or peace of mind, or to

prevent distress.18 In Jarvis v Swans Tours Ltd:19
J, a solicitor, was entitled to two weeks’ paid holiday a year and booked with S Tours a
15-day Christmas winter sports holiday at a hotel in Switzerland. He did so on the faith
of S’s brochure which described the holiday as a ‘house-party’, and promised a variety of
entertainments including excellent skiing, a yodeller evening, a bar, and afternoon tea and
cakes. In the first week there were only 13 people at the hotel and in the second week he
was entirely alone. The promised entertainments proved to be wholly inferior in quality in
comparison with the description in the brochure.

The Court of Appeal held that J was entitled to damages consisting of the amount
which he had paid for the holiday and an additional sum of some £60 to compensate
him for the disappointment he had suffered. Similarly, damages were awarded for
anxiety and distress suffered by a woman whose solicitors failed to take prompt and
effective measures against a man who was pestering her,20 by a woman whose solicitors
had failed to obtain proper fi nancial relief in matrimonial proceedings,21 by a bride
when a photographer failed to keep his promise to be present and take photographs
at her wedding, 22 and by children when a cemetery owner broke its contract to grant
exclusive burial rights in a plot adjacent to that in which their parents were buried.23
Such damages are compensatory in nature and are not designed to inflict retribution
on the defendant for inflicting the harm.
Originally this exception only applied if ‘the sole’ object of the contract was to
provide enjoyment or peace of mind, or to prevent distress.24 Accordingly, a contract
with an architect to design a house for a couple who contemplated that it would be
their ‘dream home’ did not qualify.25 This meant that the non-economic purposes
of a party to a contract would be protected where they were the only purposes but
would not be where there were also economic purposes, and to this extent part of the
purposes of the contract were unenforceable.26 It has, however, been held in Farley v
Skinner that it suffices that the provision of peace of mind, or the prevention of distress
is ‘an important object’ of the contract.27 In that case:

18 Ruxley Electronics & Constructions Ltd. v Forsyth [1996] AC 344, 374 (Lord Lloyd) (cf Lord Mustill,
ibid, 360–1, on which see below, p 541); Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732 at [28]; Johnson v
Gore Wood & Co [2002] 2 AC 1, 37 (Lord Bingham). Lord Cooke, ibid, 49, considered that contracts for status
such as membership of a trade union or club are also included.
19 [1973] QB 233. See also Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468. For the quantum of mental
distress damages, see Milner v Carnival plc [2010] EWCA Civ 389.
20 Heywood v Wellers [1976] QB 446; McLeish v Amoo-Gottfried & Co The Times, 13 October 1995
(solicitor’s negligence led to wrongful conviction). Cf Cook v Swinfen [1967] 1 WLR 457, 461; Hayes v James
& Charles Dodd [1990] 2 All ER 815. 21 Dickinson v James Alexander & Co (1990) 20 FLR 137.
22 Diesen v Samson 1971 SLT (Sh Ct) 49. 23 Reed v Madon [1989] Ch 408.
24 Watts v Morrow [1991] 1 WLR 1421, 1445 (Bingham LJ).
25 Knott v Bolton (1995) 45 Con LR 127 (overruled by Farley v Skinner).
26 Capper (2000) 116 LQR 553, approved in Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732 at [24], [51].
27 Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732. See also Hamilton Jones v David & Snape [2003]
EWHC 3147 (Ch), [2004] 1 All ER 657 (mental distress damages awarded for loss of custody of claimant’s
children consequent on defendant solicitor’s negligent failure to renew ‘agency notifications’ of the risk of
the children being taken out of the jurisdiction by the claimant’s former husband).
538 remedies for breach of contract

F, a prospective purchaser of a house who wanted peace and quiet, employed a surveyor to
report on the property and he was specifically requested to advise on whether the house
might be affected by aircraft noise. The surveyor advised that it was unlikely that the
property would suffer greatly from aircraft noise and F bought the house.28 In fact, the house
was near a navigation beacon used by aircraft waiting to land at Gatwick Airport and was
substantially affected by noise.

It was held by the House of Lords that F was entitled to damages for the significant
interference with his enjoyment of the property caused by the noise. But it was made
clear that a contract for an ordinary survey report on a house would not fall within the
exception: what made this case different was the specific request relating to the noise.

(f) loss of reputation

Although damages cannot be recovered in a contractual action for injury to reputation
per se,29 they may be where the loss of reputation caused by the breach of contract
causes financial loss. In Malik v Bank of Credit & Commerce International SA:30
M and other relatively senior employees of BCCI, were made redundant following the bank’s
insolvency. They claimed that they were unable thereafter to obtain employment in the
financial services industry because of the stigma attached to former employees of BCCI, and
sought substantial compensation for this handicap in the labour market. For the purposes
of the proceedings it was assumed that BCCI had carried on its business in a corrupt and
dishonest manner, that this had become widely known, that M and the other employees were
innocent of any involvement, were at a handicap in the labour market because of the stigma,
and had suffered financial loss as a result.

The House of Lords held that contracts of employment contained an implied term of
mutual trust and confidence so that the defendant was under an implied obligation
not to carry on a dishonest or corrupt business, and that, in principle, financial loss
in respect of damage to reputation caused by breach of this term is recoverable in a
contractual action. It will, however, often be difficult to prove a handicap on the labour
market.
The effect of this decision is to establish that financial loss resulting from a loss of
reputation caused by a breach of contract is recoverable subject to standard contractual
principles. The contrary statements in Addis v Gramophone Co Ltd31 were explained
in Malik’s case on the basis that the earlier case was decided before the development
of the implied obligation of mutual trust and confidence so that the loss of reputation
there had not been caused by a relevant breach of contract.32 Having said that, it has
been established that a claim for wrongful dismissal will still not trigger damages

28 The price F paid for the house coincided with its market value taking into account aircraft noise, so he
had no claim for diminution of value. 29 Addis v Gramophone Co Ltd [1909] AC 488, above, p 535.
30 [1998] 1 AC 20.
31 [1909] AC 488, for example at 491 (Lord Loreburn).
32 [1998] 1 AC 20, 38 (Lord Nicholls) and 51 (Lord Steyn).
 damages 539

for loss of reputation.33 This is, however, not because Addis is regarded as correctly
reasoned but rather because the Courts are anxious not to undermine the statutory
regime—and the levels of compensation laid down—for unfair dismissal.
Cases previously regarded as exceptional can now be seen as examples of the
general rule. So, where a bank refuses to pay a customer’s cheque when it has funds
of the customer to meet, it will be liable in respect of any loss to the customer’s trade
reputation or credit-rating caused by the breach.34 It is, moreover, no longer necessary
to distinguish a breach of contract which causes injury to a reputation which a person
already possesses from a breach of a specific undertaking to protect or enhance a
person’s reputation, for which damages were awarded prior to the decision in Malik’s
case. 35 So, where a contract entitles an actor to be advertised as playing a leading part
at a well-known music-hall, the actor may recover damages for the loss of publicity and
for any injury that the failure to appear may cause to the actor’s existing reputation.36
In view of the assumed facts in Malik’s case, there was no need to deal with a breach
of contract that causes non-financial loss, for instance distress and injured feelings
resulting from loss of reputation, but the increased willingness to award contractual
damages for such losses37 suggests that this aspect of Addis’s case may also be ripe for
reconsideration.

3. basis of assessment of damages

The general principle that damages are compensatory in nature is nevertheless only
a starting point, and the question must still be asked—when a contract is broken and
action is brought upon it, how are we to arrive at the amount which the claimant, if
successful, is entitled to recover in respect of its loss?

(a) the ‘performance’ or ‘expectation’ measure

The object of an award of damages for breach of contract is to place the claimant, so far
as money can do it, in the same situation, with respect to damages, as if the contract
had been performed.38 Claimants are thus enabled to recover damages in respect of the
loss of gains of which they have been deprived by the breach. For example, if machinery
is not delivered to a person or delivered late in breach of contract, that person will
have a claim for loss of profits for being deprived of its use. A claim for loss of profits,
however, is not peculiar to an action in contract, since a similar claim would lie if the

33 Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 AC 518. The Unisys case was distinguished, without
reopening its correctness, in Eastwood v Magnox Electric plc [2004] UKHL 35, [2005] 1 AC 503.
34 Kpoharor v Woolwich Building Society [1996] 4 All ER 119, suggesting that a distinction between trade
and personal transactions should no longer be made.
35 Clayton & Waller Ltd v Oliver [1930] AC 209.
36 Marbe v George Edwardes (Daley’s Theatre) Ltd [1928] 1 KB 269, 281, 288.
37 For the conditions under which such an award will be made, see above, pp 536–538.
38 Robinson v Harman (1848) 1 Exch 850, 855.
540 remedies for breach of contract

machinery were damaged or destroyed by a tort. But the law of contract goes further
and entitles claimants to damages for the loss of the bargained-for performance, that
is to say, for the loss of the particular benefit which it was expected would be received
by the contract which has been broken: an art dealer contracts to purchase a painting
which is worth far more than the agreed price; a record company by contract obtains
for a relatively modest sum the sole right to distribute the records of what proves to be a
highly successful pop-group; a caterer obtains an extremely lucrative contract to cater
for a banquet. In each case, if the contract is broken by the other party, the damages
will be assessed by reference to the claimant’s ‘performance’ or ‘expectation’ loss,
consisting of what would have been received had the contract been duly performed.39

(i) Assessment by reference to contract terms

Damages must be assessed by reference to the terms of the contract sued upon, and the
Court cannot take account of ‘the expectations, however reasonable, of one contractor
that the other will do something that it has assumed no legal obligation to do’.40
Thus an employee who is wrongfully dismissed and sues the employer for breach of
contract may be unable to recover contractual damages for the loss of ‘fringe benefits’
from the employment unless the employer has assumed a contractual obligation to
provide those benefits.41 Also, where the defendant has a choice of two methods of
performance, damages will be assessed on the basis of the minimum legal obligation,
ie that the contract would have been performed by the method least onerous to the
defendant and least beneficial to the claimant.42

(ii) Difference in value or ‘cost of cure’

In many cases the assessment of the claimant’s loss of bargain will be the difference in
value between the performance received and that promised in the contract; ‘difference
in value’.43 However, in appropriate circumstances, damages may be assessed on the
basis of what it has cost or will cost the claimant to have the contract performed by a
third party; the ‘cost of cure’.44 So if work contracted for is not performed or is performed
badly, the claimant is entitled to the cost of substitute or remedial work to be carried
out by a third party where it is possible to do so,45 unless, in all the circumstances, this
is unreasonable, as where the cost of cure is wholly disproportionate to any resulting

39 See Fuller and Perdue (1936–7) 46 Yale LJ 52, 573; Taylor (1982) 45 MLR 139; Burrows (1983) 99 LQR
217; Friedmann (1995) 111 LQR 628; Coote [1997] C.LJ 537. Cf Atiyah (1978) 94 LQR 193.
40 Lavarack v Woods of Colchester Ltd [1967] 1 QB 278, 294. Cf Horkulak v Cantor Fitzgerald International
[2004] EWCA Civ 1287, [2005] ICR 402. 41 Ibid.
42 Re Thornett & Fehr and Yuills Ltd [1921] 1 KB 219; Abraham v Herbert Reiach Ltd [1922] 1 KB 477;
Bunge Corp v Tradax Export SA [1981] 1 WLR 711. Cf Paula Lee Ltd v Robert Zehil & Co Ltd [1983] 2 All ER
390; Lion Nathan Ltd v C-C Bottlers Ltd [1996] 1 WLR 1438. See Hudson (1975) 91 LQR 20.
43 See below, p 557; Landlord and Tenant Act 1927, s 18; Sale of Goods Act 1979, ss 50(3), 51(3), 53(3).
44 Jones v Herxheimer [1950] 2 KB 106; East Ham Corp v Bernard Sunley & Sons Ltd [1966] AC 406, 434;
Tito v Waddell (No 2) [1977] Ch 106, 329; Radford v de Froberville [1977] 1 WLR 1262, 1269–70; Ruxley
Electronics & Constructions Ltd v Forsyth [1996] 1 AC 344. Where the ‘cost of cure’ is less than the reduction
in value, the mitigation principle, below, p 555, will restrict the claimant to the former.
45 Cf Ward v Cannock Chase DC [1985] 3 All ER 537 (a tort case where cost of cure was awarded subject
to planning permission) and note that where a surveyor in breach of contract fails to identify defects in the
property surveyed the prima facie measure is the diminution in the value of the property, not the cost of
 damages 541

benefit46 or unless the claimant does not intend to have the work carried out.47 In
Ruxley Electronics & Constructions Ltd v Forsyth:48
F contracted with R for the construction of a swimming pool in his garden with a diving
area 7 feet 6 inches deep at a price of £17,797. In breach of contract the diving area was
only 6 feet 9 inches deep but was suitable for diving and there was no adverse effect on the
market value of the pool. The estimated cost of rebuilding the pool to the specified depth
was £21,560.

The House of Lords held that F was not entitled to the ‘cost of cure’. In this case, the
trial judge had found that F did not intend to rebuild the pool even if awarded the cost
of so doing. It would also have been unreasonable to do so given the large disparity
between the cost of so doing and the nil difference in value. However, it was held that
as F had lost his personal preference for a deeper pool he was entitled to £2,500 for
loss of amenity. This is best regarded as compensation for mental distress (ie, loss of
pleasure) as in the ruined holiday cases. Economists see this as a recognition of F’s
non-monetary ‘consumer surplus’.49 The decision has been said to be an example of
the Courts taking steps to recognize and remedy a deficiency in the remedial regime
for breach of contract where the claimant’s loss is non-financial by giving fuller
recognition to the performance interest as the basis of contractual damages.50 In cases
where there was never any question of being able to ‘cure’ the breach, for example where
a carrier provided a low grade delivery service rather than the ‘enhanced’ service that
was promised and paid for, it should, in principle, also be possible to put a figure to any
non-monetary loss suffered. 51
The increased willingness to award damages in such cases is a reflection of
recognition that ‘the principle of pacta sunt servanda would be eroded if the law did

repairing it: Phillips v Ward [1956] 1 WLR 491; Watts v Morrow [1991] 1 WLR 1421; Patel v Hooper & Jackson
[1999] 1 WLR 1792, 1801.
46 Ruxley Electronics & Constructions Ltd v Forsyth [1996] 1 AC 344, 354, 361; Sealace SS Co Ltd v
Oceanvoice Ltd [1991] 1 Lloyd’s Rep 120; Channel Island Ferries Ltd v Cenargo Navigation Ltd [1994] 2 Lloyd’s
Rep 160, 167 (claimant’s interest wholly fi nancial). In principle ‘benefit’ should include non-monetary
benefits such as bathroom tiles matching an existing colour scheme.
47 Ruxley Electronics & Constructions Ltd v Forsyth [1996] 1 AC 344, 354, 359 (Lord Jauncey) and 372–3
(Lord Lloyd). See also Tito v Waddell (No 2) [1977] Ch 106, 317; Radford v de Froberville [1977] 1 WLR 1262,
1248; Dean v Ainley [1987] 1 WLR 1729 (Glidewell LJ and Sir George Waller); Watts v Morrow [1991] 1
WLR 1421; Taylor v Hepworths Ltd [1977] 1 WLR 659 (tort); Southampton Container Terminals Ltd v
Schiffahrtsgesellschaft Hansa Australia MBH & Co, The Maersk Colombo [2001] EWCA Civ 717, [2001] 2
Lloyd’s Rep 275 (tort). For Australia, see De Cesare v Deluxe Motors Pty Ltd (1996) 67 SALR 28, 33–5; Tabcorp
Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8.
48 [1996] 1 AC 344, on which, see Coote [1997] CLJ 537; O’Sullivan, in Rose (ed), Failure of Contracts
(1997) ch 1. See also Harbutt’s ‘Plasticine’ Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447, 473.
49 Harris, Ogus, Phillips (1979) 95 LQR 58; Muris (1983) 12 JLS 379. See also Lord Bridge and Lord
Mustill at 354, 360–1; Lord Lloyd, at 374, reserving his position but regarding it as compensation for F’s
disappointment.
50 O’Sullivan, ‘Reflections on the Role of Restitutionary Damages to Protect Contractual Expectations’,
unpublished but adopted in this context by Lord Goff and Lord Millett (dissenting) in Alfred McAlpine
Construction Ltd v Panatown Ltd [2001] 1 AC 518, 548, 587: see below, pp 616–617.
51 See Beale (1996) 112 LQR 205, discussing White Arrow Express Ltd v Lamey’s Distribution Ltd (1995)
15 Tr LR 69.
542 remedies for breach of contract

not take account of the fact that the consumer often demands specifications which,
although not of economic value, have value to him’.52

(b) the reliance measure

At first sight an alternative basis for the assessment of damages is that the claimant
should recover its ‘reliance loss’, that is to say, expenses which it has incurred in preparing
to perform or in part performance of the contract and which have been rendered futile
by the breach. Even expenses incurred prior to, and in anticipation of, the making of
the contract are recoverable, provided it was reasonably in the contemplation of the
parties that they would be wasted if the contract was broken. Thus in Anglia Television
Ltd v Reed,53 the television company obtained damages in respect of expenses of £2,750
which had been thrown away by reason of the defendant’s refusal, in breach of contract,
to play the leading part in a television play, even though the expenses had been incurred
before the contract was made. A claimant may be compelled to claim damages for
wasted expenses rather than for the loss of its bargain by reason of its inability to prove
that financial benefit would have accrued to it had the contract been performed.54
If, however, the defendant can prove that the claimant would not have benefited
financially had the contract been performed, the claimant will not be permitted to
escape from a bad bargain by recovering as damages sums spent in reliance on the
contract instead of loss of expectancy.55 In such a case the reliance losses are considered
to flow from entering into a losing contract and not from the defendant’s breach.56 A
claimant who recovers for the loss of bargain cannot, as a general rule, combine a
claim for reliance loss with one for loss of expectation so as to recover twice in respect
of the same loss.57 Thus damages for expenses rendered futile by the breach cannot be
sought at the same time as damages for loss of profit, since such expenses would have
had to be laid out in order to earn the profit claimed.
Although traditionally the reliance measure has been seen as an alternative basis to
the expectation measure, the ‘no escape from a bad bargain’ and the recovery of pre-
contractual expenses suggests that the reliance measure is better viewed as merely a
method of assessing the claimant’s expectation measure. That is, where the claimant
has incurred reliance expenses it is given the benefit of a rebuttable presumption–and
is thereby saved having to provide direct proof of the gains it would have made–that,
if the contract had been performed, it would at the very least have made gains to cover
its reliance expenses.58

52 Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732 at [21] (Lord Steyn); see also at [79]; Ruxley Electronics
& Constructions Ltd v Forsyth, above, n 00, 360 (Lord Mustill).
53 [1972] 1 QB 60. See also Lloyd v Stanbury [1971] 1 WLR 535.
54 Anglia Television Ltd v Reed, ibid (inability to prove what profits from TV play would have been);
McRae v Commonwealth Disposals Commission (1950) 84 CLR 377 (value of ship to be salvaged too
speculative; price paid and cost of salvage expedition recovered).
55 C & P Haulage v Middleton [1983] 1 WLR 1461; CCC (London) Films Ltd v Impact Quadrant Films Ltd
[1985] QB 16. 56 Cf below, p 587 (restitutionary remedies can ‘save’ a claimant from a bad bargain).
57 See Cullinane v British ‘Rema’ Manufacturing Co Ltd [1954] 1 QB 292, below, p 561.
58 Th is is supported by the High Court of Australia in Commonwealth of Australia v Amann Aviation Pty
Ltd (1991) 66 ALJR 123. See also McLauchlan [2007] NZLR 417; Burrows, Remedies for Torts and Breach of
Contract (3rd edn, 2004) ch 5.
 damages 543

4. causation
In order to establish a right to damages for a loss the claimant must show that the
breach of contract caused the loss. Establishing ‘but for’ causation (ie, that but for the
breach of contract, the loss would not have been suffered) is not enough. Rather the
breach of contract must be the ‘effective’ cause of the loss, as opposed to an event which
merely gives the opportunity for the claimant to sustain the loss.59 The Courts have
treated the determination of whether a breach was the cause of the loss in a broad way,
in the end turning to their ‘commonsense’60 in interpreting the facts. Accordingly,
there are few rules of law that can be stated.
Where another event has also affected the fact situation, if that other event was
likely to happen once the breach of contract had occurred it will generally not be
held to break the chain of causation. In Monarch Steamship Co Ltd v Karlshamms
Oljefabriker (A/B) 61 a voyage was delayed by the unseaworthiness of the vessel so
that it arrived in European waters after the outbreak of the Second World War
and was diverted by the Admiralty to Glasgow. It was held that the outbreak of
war and the Admiralty’s action did not break the chain of causation; the cause of
the cargo-owners’ loss was the defendant’s breach of contract in failing to provide
a seaworthy ship. But where that other event was not likely to happen once the
breach of contract has occurred, the chain of causation may well be held to have
been broken. Thus a breach of contract by a solicitor in wrongfully ceasing to
act for a client gave rise to the opportunity for the client to sustain loss by acting
without alternative legal advice and lodging a defective application, but was not
the cause of such loss. 62

5. remoteness
Where the test of causation is satisfied the law does not, however, compel the
defendant to assume liability for all the loss which the claimant may have suffered
as a consequence of the breach. Certain losses may be too ‘remote’, and for these the
claimant is not entitled to compensation.

59 Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360; Young v Purdy [1997] PNLR 130, disapproving
of the ‘but for’ test. But cf Weld-Blundell v Stephens [1920] AC 956; Banco de Portugal v Waterlow & Sons
Ltd [1932] AC 542; Compania Naviera Maropan S/A v Bowaters Lloyd Pulp & Paper Mills Ltd [1955] 2 QB 68;
Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370.
60 Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360, 1374–5.
61 [1949] AC 196. On the position where the other event is the act of the claimant, see below, pp 561–563.
62 Young v Purdy [1997] PNLR 130; Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360. See also
South Australia Asset Management Co v York Montague Ltd [1997] AC 191, 212–13 (Lord Hoff mann). Cf ibid
[1995] QB 375, 406, 420–1 (Bingham MR).
544 remedies for breach of contract

(a) the basic two-branched rule

The foundation of the law on this subject is contained in the judgment of Alderson B
in the Court of Exchequer in the case of Hadley v Baxendale. Drawing on the civilian
principle of foreseeability and Articles 1149–1151 of the French Civil Code, he stated
that where the parties have made a contract which one of them has broken damages
are recoverable: (1) when they are ‘such as may fairly and reasonably be considered
arising naturally, ie, according to the usual course of things’ from the breach, or (2)
when they are ‘such as may reasonably be supposed to have been in the contemplation
of both parties, at the time they made the contract, as the probable result of the breach
of it.’63 The effect of the second branch of the rule was explained by Alderson B as
follows:64
[I]f the special circumstances under which the contract was actually made were communicated
by the plaintiffs to the defendants, and thus known to both parties, the damages resulting
from the breach of such a contract, which they would reasonably contemplate, would be
the amount of injury which would ordinarily follow from a breach of contract under these
special circumstances so known and communicated. But, on the other hand, if these special
circumstances were wholly unknown to the party breaking the contract, he, at the most,
could only be supposed to have had in his contemplation the amount of injury which would
arise generally, and in the great multitude of cases not affected by any special circumstances,
from such a breach of contract. For, had the special circumstances been known, the parties
might have specially provided for the breach of contract by special terms as to the damages
in that case; and of this advantage it would be very unjust to deprive them.

From this it will be seen that liability under the second branch of the rule will depend
upon the special circumstances made known to the party in default at the time the
contract was made. In the case in which these principles were formulated:
H’s mill was stopped by the breakage of a crankshaft, and it was necessary to send the
crankshaft to the makers as a pattern for a new one. The defendants, who were carriers,
undertook to deliver the shaft to the makers, but the only information given to them was ‘that
the article to be carried was the broken shaft of a mill, and that H was the owner of the mill’.65
By some neglect on their part the delivery of the shaft was delayed, and in consequence the
mill could not be restarted until some time after it could otherwise have been. H lost profits
which he would otherwise have made.

The question was whether this loss of profits ought to be taken into account in
estimating the damages. Applying the principles quoted above, the Court pointed out
that the circumstances communicated to the defendants did not show that a delay
in the delivery of the shaft would entail loss of profits of the mill; H might have had
another shaft, or there might have been some other defect in the machinery to cause

63 (1854) 9 Exch 341, 354. The French civil code, however, allows unforeseeable losses to be recovered
where the breach is deliberate. Hadley v Baxendale and the English cases which have followed it do not
distinguish between deliberate and non-deliberate breach. 64 Ibid, 354, 355.
65 Ibid, 355 (Alderson B). It was stated by Asquith LJ in Victoria Laundry (Windsor) Ltd v Newman
Industries Ltd [1949] 2 KB 528, 537, that the headnote is misleading in that it wrongly ascribes to the
defendants knowledge that the mill was stopped for want of the shaft .
 damages 545

the stoppage. Accordingly they could not recover for this loss because the Court
stated66 that:
[I]n the great multitude of cases of millers sending off broken shafts to third persons by
a carrier under ordinary circumstances, such consequences would not, in all probability,
have occurred; and these special circumstances were here never communicated by [H] to
the defendants.

The rule was further considered in Victoria Laundry (Windsor) Ltd v Newman
Industries Ltd:67
V, a launderer and dyer, wished to expand its business, and for this purpose entered into a
contract with the defendant to purchase from it a new boiler. It was agreed that the boiler was
to be delivered on 5 June, but when V sent to collect the boiler on that day it was informed
that it had been damaged by a fall and was not ready. The boiler was not, in fact, delivered
until November. In consequence of this delay, V lost the profits which it would have earned
during this period, and, in particular, certain highly lucrative dyeing contracts which it
could have obtained with the Ministry of Supply. V sued inter alia to recover these losses.

Streatfeild J held that V was not entitled to include in its measure of damages the loss
of any business profits during the period of delay. His decision was reversed. Asquith
LJ, delivering the judgment of the Court of Appeal, pointed out that the defendant
knew before, and at the time of the contract, that V was a launderer and dyer and
required the boiler for immediate use in its business. From the defendant’s own
technical experience, and from the business relations existing between the parties, the
defendant must be presumed to have anticipated that some loss of profits would occur
by reason of its delay. But in the absence of special knowledge on its part, the defendant
could not reasonably foresee the additional losses suffered by V’s inability to accept the
highly lucrative dyeing contracts. The case was therefore to be referred to an Official
Referee for a reassessment of the damages.
Although there are two branches to the rule in Hadley v Baxendale, in essence
they both form a part of a single general principle. This was made clear by Asquith
LJ in the Victoria Laundry case68 albeit that he used the terminology of the loss being
reasonably foreseeable rather than reasonably contemplated. According to Asquith
LJ, the general principle which governs both branches of the rule is that the aggrieved
party is only entitled to recover such part of the loss actually resulting from the breach
as was at the time of the contract reasonably foreseeable as liable to result from the
breach. What was at that time reasonably so foreseeable depends on the knowledge
then possessed by the parties or, at all events, by the party who later commits the
breach. For this purpose, knowledge ‘possessed’ is of two kinds: one imputed, the
other actual. Everyone, as a reasonable person, is taken to know the ‘ordinary course
of things’ and consequently what loss is liable to result from a breach of contract in
that ordinary course. This is the subject-matter of the first branch of the rule. But to

66 (1854) 9 Exch 341, 356 (Alderson B).

67 [1949] 2 KB 528.
68 [1949] 2 KB 528, 539. See also Koufos v C Czarnikow Ltd (The Heron II). [1969] 1 AC 350, 385, 415; The
Pegase [1981] 1 Lloyd’s Rep 175, 182; Khophraror v Woolwich Building Society [1996] 4 All ER 119.
546 remedies for breach of contract

this knowledge, which a contract-breaker is assumed to possess whether it is actually

possessed or not, there may have to be added in a particular case knowledge which the
claimant actually possesses, of special circumstances outside the ‘ordinary course of
things’, of such a kind that a breach in those special circumstances would be liable to
cause more loss.69 Such a situation attracts the operation of the second branch of the
rule and makes this additional loss recoverable. Under neither branch is it necessary
that the contract-breaker should actually have asked what loss is liable to result from a
breach. It suffices that, if the issue had been considered, the contract-breaker would as
a reasonable person have concluded that the loss in question was liable to result.
The language of the judgment in the Victoria Laundry case was carefully considered
in Koufos v C Czarnikow Ltd, The Heron II:70
The respondent, a sugar merchant, chartered the ship Heron II from the appellant to carry
a cargo of sugar from Constanza to Basrah. The ship deviated without authority from the
agreed voyage, with the result that the cargo was delayed. Owing to a fall in the market for
sugar at Basrah, the respondent obtained £3,800 less for the sugar than the price obtainable
when it should have been delivered.

The appellant contended that he was not liable for this sum as he had no special
knowledge of the seasonal and other fluctuations of the sugar market. But the House
of Lords held that a shipowner must be presumed to know that prices in a commodity
market were liable to fluctuate, and judgment was given against him.
Asquith LJ’s judgment in the Victoria Laundry case was described as ‘a justifiable
and valuable clarification of the principles which Hadley v Baxendale was intending
to express’ particularly in explaining that the phrase used by Alderson B—‘in the
contemplation of the parties . . . as the probable result’—did not mean an odds on
probability.71 Nevertheless, there was some criticism of the way in which Asquith LJ
formulated the general principle in terms of ‘reasonable foresight’ of the loss ‘liable to
result’. This, it was said, may engender confusion with the rule regarding remoteness
of damage in tort,72 where a defendant will be held responsible for damage which is
reasonably foreseeable as liable to happen even if the risk is very small,73 because it is
said that normally in tort, unlike in contract, there is no opportunity for the injured
party to protect itself against an unusual risk by informing the defendant.74 Lord Reid
and Lord Morris interpreted Alderson B’s phrase as meaning the contemplation of a
result which was ‘not unlikely’ to happen rather than an odds on probability;75 and a

69 Knowledge of special circumstances may, however, in some situations be such as to lead the parties to
believe that the loss will be reduced: see Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422, 436; Koufos v C
Czarnikow Ltd, ibid, 416.
70 [1969] 1 AC 350.
71 Ibid, 417. See also at 399, but contrast at 389, 390, 410–11, 424–5. In R & H Hall Ltd v WH Pim (Junior)
& Co Ltd (1927) 33 Com Cas 324, 330 Lord Dunedin stated that ‘probable’ did not mean more than an even
chance.
72 Overseas Tankship (UK) v Morts Dock and Engineering Co, The Wagon Mound [1961] AC 388.
73 Koufos v C Czarnikow Ltd, The Heron II, [1969] 1 AC 350, 385–6, 389.
74 Ibid, 385–6, 411, 422–3. See also Jackson v Royal Bank of Scotland plc [2005] UKHL 3, [2005] 1 WLR
377 at [36] (Lord Hope). But this suggests that where the parties to a tort claim are in a contractual or similar
relationship there should be no difference in the remoteness tests. See below, p 550. See also Burrows, above,
n 2, 54. 75 Ibid, 388, 406. See also at 416–17 (Lord Pearce), 424 (Lord Upjohn).
 damages 547

majority of their Lordships distinguished the tort rule by requiring that the loss must
be ‘not very unusual and easily foreseeable’,76 or that there must be ‘a real danger’ or ‘a
serious possibility’77 of its occurrence.
In Jackson v Royal Bank of Scotland plc78 it was again stressed by the House of
Lords that the contract remoteness test looks at the defendant’s knowledge at the date
the contract was made and not at the date of the breach of contract; and, as in The
Heron II, it was explained that this is because it is at that date that the parties have the
opportunity to draw attention to special circumstances outside the ordinary course of
things and to limit their liability.

(b) the impact of the achilleas

The law on remoteness, as so far set out, has arguably been altered by the House of
Lords in Transfield Shipping Inc v Mercator Shipping Inc, The Achilleas.79
Under a time charter, the defendant charterers should have redelivered the ship to the
claimant owners by 2 May 2004. In breach of contract, they did not redeliver to the owners
until 11 May. The owners had entered into a follow-on time charter (referred to as a follow-on
‘fi xture’) under which they were bound to deliver the ship to the new charterers by 8 May.
When they were unable to do so as a result of the defendants’ breach, the owners renegotiated
the follow-on fi xture and, because rates had fallen, they agreed to reduce the rate of hire on
that follow-on fi xture from $39, 500 to $31,500, a loss of $8,000 a day.

The defendants accepted that they were liable for damages of the difference between
the market rate and the charter rate for the nine-day overrun period between 2 May
and 11 May. That came to $158,301. However, the owners sought damages to cover
the loss of $8,000 a day for the whole period of the follow-on fi xture. That came to
$1,364,584. It was held by the House of Lords that the owners’ damages were limited
to $158,301. The rest of the loss was too remote.
The reasoning of Lord Rodger and Baroness Hale differed sharply from that of Lord
Hoffmann and Lord Hope. What makes it difficult to determine the ratio is that Lord
Walker agreed with both lines of reasoning.
Lord Rodger and Baroness Hale applied the conventional remoteness test that
has been set out above. The question they were therefore asking was whether it was
reasonably contemplatable as a serious possibility at the time of contracting that, in
the event of breach by late redelivery, a follow-on fi xture might be lost. One would have
thought that, on the facts, the answer to that would have been ‘yes’ so that the loss on
the follow-on fi xture would not have been too remote. However, the answer given was
‘no’ so that that loss was held to be too remote.
Lord Hoffmann and Lord Hope arrived at the same result by significantly different
reasoning. In effect they departed from the conventional test for remoteness by adding
to it a requirement that the defendant must have accepted liability or responsibility for

76 Ibid, 383. 77 Ibid, 414–15, 425. 78 [2005] UKHL 3, [2005] 1 WLR 377.
79 [2008] UKHL 48, [2009] 1 AC 61. For criticism, see Peel (2009) 125 LQR 6; Wee [2010] LMCLQ 150.
For support, see Kramer (2009) 125 LQR 408.
548 remedies for breach of contract

the loss. Lord Hoffmann reasoned that the charterers had not accepted liability for the
loss because the understanding of the shipping industry was that charterers were only
liable for loss during the overrun period. Lord Hope thought that the charterers had not
accepted liability for the loss because it was out of their control and unquantifiable.
The additional requirement insisted on by Lord Hoff mann and Lord Hope has
thrown the law on remoteness in contract into confusion. As we shall see, the Courts
have previously rejected the view that loss should be regarded as too remote unless
the defendant has accepted liability for it as a term of the contract80 and yet that
appears to be very close to the reasoning of Lord Hoffmann and Lord Hope. It also
seems doubtful whether leading decisions, such as The Heron II,81 can be reconciled
with their approach. Admittedly there have long been doubts about whether merely
informing the claimant of the special risks involved is sufficient in all circumstances
to make a defendant liable for the loss under the second branch of the rule in Hadley
v Baxendale.82 But that was not the issue in The Achilleas. Although their Lordships
did not sharply distinguish between them, the facts clearly concerned the first branch
of the rule in Hadley v Baxendale and not the second.83 A further problem with
the reasoning of Lord Hoffmann is that it is far from clear that he should have paid
such deference to the apparent views of the shipping industry on a matter that had
never previously been litigated and which, applying the previously accepted law on
remoteness, was based on a mistaken understanding of the law.
Lord Hoff mann saw remoteness as an aspect of construing the contract and he
further drew in aid his approach in determining the scope of the duty of care in South
Australia Asset Management Corp v York Montague Ltd.84 The counter-argument to
Lord Hoff mann’s approach is that rules of remoteness are policy default rules of
fairness set by the Courts albeit that they can be departed from by the contracting
parties by express or implied terms. To treat the rules of remoteness as ‘agreement-
centred’ is to put the matter the wrong way round and leads to ‘construction’ of the
contract becoming a fictional mask for a decision that in reality is imposed on the
parties. 85
That the law of remoteness has been rendered less certain, and that The Achilleas is
not to be confined to its own narrow sphere of shipping, is well illustrated by the first
important case since The Achilleas. In Supershield Ltd v Siemens Building Technologies

80 Below, pp 554–555, esp n 116. 81 Above, p 546. 82 Below, p 554.

83 See [2008] UKHL 48, [2009] 1 AC 61 at [6] (Lord Hoff mann) and at [93] (Baroness Hale).
84 [1997] AC 191. That controversial decision was that, where there had been a fall in property prices,
valuers who had negligently undervalued property were not liable to lenders, who had relied on that negligent
undervaluation in lending money on the security of those properties, for losses greater than the difference
between the represented value of the property and its actual value at the date of valuation. In the light of The
Achilleas, it appears that Lord Hoff mann would regard that decision as being that the market fall loss was too
remote as being outside the scope of the duty assumed by the valuer. For criticism of SAAMCO, see Burrows,
Remedies for Torts and Breach of Contract (3rd edn, 2004) 109–22.
85 Robertson (2008) 28 LS 172 criticizes the agreement-centred approach of Kramer in Comparative
Remedies for Breach of Contract (eds Cohen and McKendrick, 2004) 249. For the latter type of approach, see
also Tettenborn (2007) 23 JCL 120. All three of these articles were cited by Lord Hoff mann in The Achilleas.
 damages 549

FE Ltd,86 the Court of Appeal, in the context of deciding that a settlement reached
by the parties was reasonable, has said that, while Hadley v Baxendale remains the
standard rule and is grounded on policy, it can be displaced if, on examining the
contract and the commercial background, the loss in question was within or outside
the scope of the contractual duty. In other words, the approach in The Achilleas might
displace the standard rule by making loss that would be recoverable under Hadley v
Baxendale too remote (an ‘exclusionary effect’) or by making loss that would be non-
recoverable under Hadley v Baxendale not too remote (an ‘inclusionary effect’). On
the facts, although it was unlikely that loss by flooding would occur as a consequence
of the defendant’s breach in failing properly to install a float valve in a fire-sprinkler
water storage system—because normally the drains would have taken the overflow
water but here the drains were blocked—that loss was thought not to be too remote
because within the scope of the installer’s duty. Although this is helpful in clarifying
that Hadley v Baxendale basically remains good law and is the standard rule, it does
show that it is far from clear what triggers the displacement of that standard rule.

should there be a difference between the tests of

(c)
remoteness in contract and tort?
We have seen from the reasoning of the House of Lords in The Heron II that, in the usual
case where a tort claim is brought but the parties are not in a contractual relationship,
the less strict Wagon Mound tort remoteness test is applied rather than the stricter
contract remoteness test.87 The interrelation of the tests for remoteness in contract and
tort was further considered by the Court of Appeal in the context of physical damage
in H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd.88
UI agreed to supply and erect on P’s pig farm a bulk food storage hopper for the purpose
of storing pig nuts for P’s top grade pig herd. When the hopper was installed, UI failed to
ensure that a ventilator at the top of the hopper was open, with the result that the pig nuts
stored in it became mouldy. P fed the mouldy nuts to their pigs believing (as would normally
be the case) that no harm could result. But the pigs suffered an attack of E coli, an intestinal
infection triggered by feeding on the mouldy nuts, and 254 pigs died.

At first instance, Swanwick J held that the damage caused was not within the reasonable
contemplation of the parties as a result of UI’s breach of contract. The Court of
Appeal reversed that decision. Lord Denning MR expressed the opinion89 that the
observations of the House of Lords in Koufos v C Czarnikow Ltd were limited to cases
where a claimant was claiming for loss of profit or, at any rate, for economic loss. In his
view, where the claim was for damages for personal injury or damage to property, or
for resulting expenses to which the claimant had actually been put, the rule in contract
was the same as that in tort, so that a defendant would be liable for any loss or damage

86 [2010] EWCA Civ 7, [2010] 1 Lloyd’s Rep 349. See also Sylvia Shipping Co Ltd v Progress Bulk Carriers
Ltd [2010] EWHC 542 (Comm) (the ‘assumption of responsibility’ approach in The Achilleas to be
confi ned to exceptional cases where the orthodox approach would result in unquantifiable, unpredictable,
disproportionate liability or a result contrary to clear market understanding and expectations).
87 Above, p 546. 88 [1978] QB 791. 89 Ibid, 803–4.
550 remedies for breach of contract

which ought reasonably to have been foreseen at the time of the breach as a possible
consequence, even if it was only a slight possibility.
A distinction between loss of profit and physical damage might be justified on
the ground that a person is unlikely to consider the possibility of physical injury in
advance and thus to disclose unusual risks.90 However, Orr and Scarman LJJ, who held
that the parties could have contemplated as ‘a serious possibility’ that the pigs might
become ill as a result of the breach, considered that neither authority 91 nor principle
supported a distinction in remoteness tests between loss of profit and physical damage.
Nevertheless, Scarman LJ stated92 that although the formulation of the remoteness
test is not the same in tort and contract because the relationship of the parties in a
contractual situation differs from that in tort, it would be absurd if the amount of
damages recoverable were to depend upon whether the claimant’s cause of action was
in contract or in tort. In his opinion the difference between ‘reasonably foreseeable’
(the test in tort) and ‘reasonably contemplated’ (the test in contract) was semantic, not
substantial. This suggests that where there is a contractual relationship between the
parties and concurrent liability in contract and tort there should, in principle, be no
difference between the remoteness tests in contract and tort.93

(d) type of damage

In the context of physical injury it is established that the word ‘damage’ refers to the
type or kind of damage in question; it is not necessary for a claimant to go further and
show contemplation of the exact nature of the damage that has arisen, or the amount
of damage of the type or kind.94 In principle the same should apply to cases of loss of
profit,95 but this is not easy to reconcile with the decision of the Court of Appeal in
the Victoria Laundry case in which the ‘ordinary’ loss of profits were recovered but
not that from the highly lucrative Ministry of Supply contracts.96 In Brown v KMR
Services Ltd Stuart-Smith LJ stated that, although categorization into types is difficult
in the case of financial loss, loss of ordinary business profits is different in type or
kind from loss flowing from a particular contract which gives rise to very high profits,

90 But this may not be the case for all types of contracts, eg a contract for medical services or for instruction
in a sporting activity.
91 The authority relied on by Lord Denning, Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441
and Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, in fact applied Koufos v C Czarnikow
Ltd [1969] 1 AC 350, as, more recently, did Kemp v Intasun Holidays Ltd [1987] 2 FTLR 234 (asthmatic attack
caused by dirty hotel room too remote).
92 [1978] QB 791, 806–7. See also Archer v Brown [1985] QB 401, 418.
93 Th is is supported by Brown v KMR Services Ltd [1995] 4 All ER 598 where it would appear that the
contract remoteness test was applied not only to the claim for breach of contract but also to the claim in the
tort of negligence. See generally Cartwright [1996] CLJ 488, 500–4, 514.
94 Koufos v C Czarnikow Ltd, above, n 83, 382, 383, 385–6, 417.
95 H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791, 804, 813, Wroth v Tyler [1974] Ch
30, 60–2; Transworld Oil Ltd v North Bay SS Corp [1987] 2 Lloyd’s Rep 173, 175 (relying on cases of physical
injury); Homsy v Murphy (1997) 73 P & CR 26, 36, 45.
96 Above, p 545. See also Islamic Republic of Iran SS Lines v Ierax SS Co of Panama [1991] 1 Lloyd’s
Rep 81, 85–6.
 damages 551

whereas underwriting losses of a far larger magnitude than any contemplated were of
the same type as those foreseeable.97

(e) damage arising in the usual course of things

Although it would be incorrect to treat the two branches of the rule in Hadley v Baxendale
as rigidly separate, it is helpful to examine the operation of each branch. Each may be
regarded as covering a different degree of knowledge possessed by the contracting
parties. The first branch of the rule in Hadley v Baxendale deals with such damage as may
fairly and reasonably be considered arising naturally, ie, according to the usual course of
things, from the breach of contract, as the probable result of the breach. It depends, as we
have seen, on the knowledge which the parties are presumed to possess.

(i) Normal business position of parties

Damages will not be too remote if they flow from the normal business position of the
parties, for the Court will assume that this is known to both of them. In Monarch
Steamship Co Ltd v Karlshamns Oljefabriker (A/B),98 the facts of which are summarized
above, as a result of the diversion of the delayed vessel to Glasgow the purchasers of
the cargo of soya incurred expenses in having them forwarded to the contractual
destination in Sweden.
The House of Lords held that the purchasers were entitled to recover this cost. Lord
Wright pointed out that the question in all such cases must always be ‘what reasonable
business men must be taken to have contemplated as the natural or probable result
if the contract was broken. As reasonable business men each must be taken to
understand the ordinary practices and exigencies of the other’s trade or business’.99
In this case, the possibility of war must have been present in the minds of the parties,
and experienced business people would know that one of the risks that would be
consequent upon prolongation of the voyage at that time would be the diversion of the
vessel by the order of the Admiralty. The cost of transhipment was therefore not too
remote a consequence of the unseaworthiness of the ship.

(ii) Non-delivery or late delivery

The Sale of Goods Act 1979 contains statutory provisions for the standard assessment
of damages for breach of a contract of sale which are founded on the first branch of the
rule in Hadley v Baxendale, and these are considered later in this chapter.100 But the
first branch of the rule also applies where a seller fails to deliver or is late in delivering
what is on the face of it obviously a profit-earning chattel, for instance, a merchant or
passenger ship, or some essential part of such a ship.101 In such cases the party injured

97 [1995] 4 All ER 598, 620–1.

98 [1949] AC 196, above, p 543. Cf Diamond v Campbell-Jones [1961] Ch 22.
99 Ibid, 224. See also Bulk Oil v Sun International [1984] 1 Lloyd’s Rep 531, 544.
100 Below, p 557.
101 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, 536 (Asquith LJ). See also
Fletcher v Tayleur (1855) 17 CB 21; Saint Lines v Richardsons Westgarth & Co [1940] 2 KB 99.
552 remedies for breach of contract

will be entitled to recover the loss of profit which might reasonably be expected to arise
if the contract were broken.102
In contracts for the carriage of goods, if, by default of a carrier, the goods which he
has contracted to deliver are lost or delayed in transit, certain loss will ordinarily be
assumed to have been suffered by the consignee as the natural and probable result of
the breach. In the case of loss, the normal measure of damages is the market value of
the goods at the time when they ought to have arrived, less the freight payable on safe
delivery.103 In the case of delay in delivering the goods, it is the difference between the
market value of the goods on the day on which they ought to have arrived and their
market value on the day on which they did arrive.104

(iii) Exceptional loss not covered

On the other hand, the first branch of the rule in Hadley v Baxendale does not cover
losses which are the consequence of special facts not known to the party in default
at the time the agreement was made. In Hadley v Baxendale itself, H was unable to
recover damages arising from the fact that they had only one shaft, and in Victoria
Laundry V was unable to recover in respect of the exceptionally lucrative Ministry of
Supply contracts because information about those facts had not been conveyed to the
defendants. Again in British Columbia etc Saw-Mill Co Ltd v Nettleship:105
A number of cases of machinery intended for the erection of a sawmill at Vancouver were
shipped on the defendant’s vessel. The defendant failed to deliver one of the cases, but was
unaware of the fact that it contained a material part without which the sawmill could not be
erected at all. BC Saw-Mill claimed the cost of replacing the lost parts, and the loss incurred
by the stoppage of its works during the time that the rest of the machinery remained useless
owing to the absence of the lost parts.

It was held that the measure of damages was the cost of replacing the lost machinery at
Vancouver only, and the Court said:106
The defendant is a carrier, and not a manufacturer of goods supplied for a particular
purpose . . . He is not to be made liable for damages beyond what may fairly be presumed
to have been contemplated by the parties at the time of entering into the contract. It must
be something which could have been foreseen and reasonably expected, and to which he
assented expressly or impliedly by entering into the contract.

This principle will exclude the recovery of damages in respect of loss of profit on
actual or contemplated forward contracts where the carrier has no actual or imputed
knowledge of these at the time of the contract. The loss of profit on such sales is too
remote. An illustration is provided by Horne v Midland Railway Company:107

102 Cory v Thames Ironworks & S.S. Co (1868) LR 3 QB 181 (use of hull as coal store); Fyffes Group Ltd v
Reefer Express Lines Pty Ltd [1996] 2 Lloyd’s Rep 171, 203 (sub-charter of vessel on three-year time charter).
103 Rodocanachi v Milburn (1886) 18 QBD 67, 76.
104 Wilson v Lancs & Yorks Ry (1861) 9 CBNS 632; Koufos v C Czarnikow Ltd, above, p 546.
105 (1868) LR 3 CP 499. 106 (1868) LR 3 CP 499, 505 (Bovill CJ).
107 (1873) LR 8 CP 131. Although this case was one of an exceptionally lucrative contract, the same
principle applies to ordinary loss of profit: Heskell v Continental Express [1950] 1 All ER 1033.
 damages 553

H being under contract to deliver military shoes in London for the French army at an unusually
high price by a particular day, delivered them to the defendant to be carried, with notice of
the contract only as to the date of delivery. The shoes were delayed in carriage, and were
consequently rejected by the intending purchasers. H sought to recover, in addition to the
ordinary loss for delay, the difference between the price at which the shoes were actually sold
and the high price at which they would have been sold if they had been punctually delivered.

It was held that this damage was not recoverable unless it could be proved that
the company was informed of the exceptional loss which H might suffer from an
unpunctual delivery. Again, it has been held that a person who contracts to purchase
land intending to resell it to an identified sub-purchaser at a profit will not be able
to recover in respect of the loss of the sub-sale where the seller does not know of the
purchaser’s intention and purpose and the consequent exposure of the seller to the risk
of such damage in the event of breach.108

(iv) Immaterial that breach not contemplated

In Banco de Portugal v Waterlow & Sons Ltd:109
W & Sons agreed to print for the Bank of Portugal a quantity of Portuguese banknotes of a
particular type. They negligently delivered to one M, the head of an international band of
criminals, some 580,000 of these notes, and these were subsequently put into circulation
in Portugal. Upon discovery of the fraud, the Bank issued notices withdrawing from
circulation all notes of that type, and undertook to exchange them for other notes. The Bank
then brought an action against W & Sons claiming as damages for breach of contract the
value of the notes exchanged, and the cost of printing the genuine notes withdrawn.

It was held by a majority of the House of Lords that these losses were recoverable.
The damage suffered, although the result of a breach which could scarcely be said to
have been in the contemplation of the parties at the time they made the contract, was
nevertheless to be considered as flowing from the business positions of the parties and
arising naturally from the breach.

(f) damage reasonably supposed to be in the

contemplation of the parties
As we have seen, the application of this second branch of the rule depends upon the
knowledge which the contract-breaker possesses at the time of the contract, of special
circumstances outside the ‘ordinary course of things’, of such a kind that a breach in
those circumstances will cause more loss. The question is whether the damage is such
as may reasonably be supposed to have been in the contemplation of both parties,
at the time they made the contract, as the probable result of the breach of it. So, in
Simpson v London and North Western Railway Company:110

108 Seven Seas Properties v Al Essa (No 2) [1993] 1 WLR 1083 (purchaser concealed purpose). See also
Seven Seas Properties v Al Essa [1988] 1 WLR 1272, 1276.
109 [1932] AC 452. See The Portuguese Bank-note Case by Sir Cecil Kisch for an exciting account of this
case. 110 (1876) 1 QBD 274.
554 remedies for breach of contract

S, a manufacturer, was in the habit of sending specimens of his goods for exhibition to
agricultural shows. After exhibiting in a show at Bedford, he entrusted some of his samples
to an agent of the defendant company for carriage to a show-ground at Newcastle. On the
consignment note he wrote: ‘Must be at Newcastle Monday certain’. Owing to a default on
the part of the company, the samples arrived late for the Newcastle show. S therefore claimed
damages for his loss of profits at the show.

It was held that the company was liable. The company’s agent had knowledge of the
special circumstances, that the goods were to be exhibited at the Newcastle show, and
so should have contemplated that a delay in delivery might result in this loss.
It is usually said that ‘bare knowledge’ of the special circumstances surrounding the
contract is sufficient to make the contract-breaker liable.111 But there is some authority
for the view that, in addition, the contract-breaker should either expressly or impliedly
have contracted to assume liability for the exceptional loss. On this view, the mere
communication to a party of the existence of special circumstances is not enough:
there must be something to show that the contract was made on the terms that the
defendant was to be liable for that loss.112
This view cannot be supported. No doubt a casual intimation would not suffice,
for the special circumstances must be disclosed in such a manner as to render it a
fair inference of fact that both parties contemplated the exceptional loss as a probable
result of the breach. Thus in Kemp v Intasun Holidays Ltd:113
While booking a holiday Mrs K remarked to the travel agent that her husband was not
present because he was suffering, as he sometimes did, from an asthma attack. In breach of
contract Mr and Mrs K were accommodated for the first 30 hours of their holiday in a fi lthy
and dusty room in an inferior hotel and Mr K had an asthma attack throughout the period.
The trial judge awarded Mr K inter alia £800 for the consequences of having suffered an
asthma attack due to the state of the alternative accommodation.

It was held by the Court of Appeal that this casual remark did not suffice to give the
defendant the necessary degree of knowledge of special circumstances to make the
defendant responsible for the consequences of the asthma attack he had suffered. What
is necessary to enlarge the area of contemplation is that the special circumstances
should be brought home to the party.114 But, although one might interpret the
reasoning of Lord Hoffmann and Lord Hope in The Achilleas as offering some support

111 Patrick v Russo-British Grain Export Co Ltd [1972] 2 KB 535, 540 (Salter J).
112 British Columbia etc. Saw-Mill Co Ltd v Nettleship (1868) LR 3 CP 499, 509; Horne v Midland Ry
(1873) LR 8 CP 131, 141. See also Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB
528, 538; Seven Seas Properties v Al Essa (No 2) [1993] 1 WLR 1083, 1088 (a party should not be exposed to
risks of liability going beyond the fi rst branch of Hadley v Baxendale without the opportunity of making an
informed decision whether to accept such risk and whether to negotiate some exclusion from liability).
113 [1987] 2 FTLR 234.
114 See Heywood v Wellers [1976] 1 QB 446, 459 (Lord Denning MR) (tort). A much-discussed hypothetical
example is of A booking a taxi for £50 with B, a taxi-driver. A explains to B when booking that it is essential
for him to reach his specified destination on time as he is meeting a business client there to clinch a highly
lucrative deal. In breach of contract, B takes the wrong route so that A arrives late at his destination. As a
consequence A loses the lucrative deal (worth an estimated £10m net profit). Is A entitled to damages of
£10m from B?
 damages 555

for this,115 the Courts have expressly denied that it is necessary for there to be a term of
the contract that the defendant is to be liable for that loss.116

6. mitigation
A person who has suffered loss from a breach of contract must take any reasonable
steps that are available to mitigate the extent of the damage caused by the breach.117
The innocent party cannot claim to be compensated by the party in default for loss
which is really due not to the breach but to its own failure to behave reasonably after
the breach118 The underlying policy is the desirability of avoiding waste, in this context
a loss which could have been avoided by reasonable action. It is often said that the law
imposes ‘a duty’ on claimants to mitigate their loss. But this expression is misleading.
The claimant cannot itself be sued for failure to comply with its duty; rather the
consequence is simply that no damages are given for the avoidable loss.

(a) acting reasonably

An employee who is wrongfully dismissed must make reasonable efforts to obtain,
and must accept an offer of, suitable alternative employment. A failure to do so may
mean that the employee is, in certain circumstances, entitled to nominal damages
only.119 Again, where a seller wrongfully refuses to deliver goods due under a contract
for the sale of goods, a buyer who fails to buy substitute goods which are available
will be debarred from claiming any part of the damage which is due to the failure
to do so.120 A claimant may even be required to accept a reasonable offer from the
defendant which would make good the loss or part of it.121 But there is no obligation
to do anything other than in the ‘ordinary course of business’122 and it is a question
of fact in each case whether the claimant has acted as a reasonable person might have
been expected to act. For example, there is no compulsion to accept goods of inferior
quality123 or to risk one’s commercial reputation124 or to embark upon complicated

115 Above, pp 547–548.

116 Koufos v C Czarnikow Ltd, The Heron II [1969] 1 AC 350, 422; GKN Centrax Gears Ltd v Matbro Ltd
[1976] 2 Lloyd’s Rep 555. 117 Bridge (1989) 105 LQR 398.
118 British Westinghouse Electric Co Ltd v Underground Electric Rys Co of London Ltd [1912] AC 673,
689.
119 Beckham v Drake (1847–9) 2 HLC 579; Shindler v Northern Raincoat Co Ltd [1960] 1 WLR 1038; Brace
v Calder [1895] 2 QB 253.
120 Kaines (UK) v Osterreichische Warenhandelsgesellschaft Austrowaren Gesellschaft mbH [1993] 2
Lloyd’s Rep 1 (in volatile market buyer must act quickly); Coastal (Bermuda) Petroleum Ltd v VTT Vulcab
Petroleum (No 2) [1994] 2 Lloyd’s Rep 629, 635.
121 Brace v Calder [1895] 2 QB 253; Payzu Ltd v Saunders [1919] 2 KB 581; Sotiros Shipping Inc v Sameiet
Solholt [1983] 1 Lloyd’s Rep 605. Cf Bridge (1989) 105 LQR 398, 411 ff.
122 Dunkirk Colliery Co v Lever (1878) 9 Ch D 20, 25.
123 Heaven & Kesterton Ltd v Et Francois Albiac & Cie [1956] 2 Lloyd’s Rep 316. See also Strutt v Whitnell
[1975] 1 WLR 870.
124 James Finlay & Co Ltd v NV Kwik Hoo Tong HM [1929] 1 KB 400; London & South of England Building
Society v Stone [1983] 1 WLR 1242.
556 remedies for breach of contract

litigation125 or to undergo an operation with the risk of surgical complications126 in

order to mitigate loss. The claimant need not take steps which it cannot financially
afford: ie, impecuniosity is an excuse for failure to mitigate.127 In cases of wrongful
dismissal, an employee is not compelled to accept re-employment if it involves lower
status, if relations are irretrievably affected by the circumstances of dismissal (as where
there has been a public charge of misconduct), or if it is likely to be less permanent
than alternatives.128
A claimant who has taken unreasonable steps cannot hold the defendant liable for loss
which has thus been suffered.129 Again, the question of reasonableness is a question of
fact. For example, it has been held reasonable to incur hire-purchase charges to replace
a damaged rotor,130 legal expenses in proceedings with a third party,131 advertising
to safeguard one’s commercial reputation,132 and voluntary expenses to meet the
claimant’s commercial (but legally unenforceable) obligations to the public.133

(b) compensating advantages may reduce damages

Where a person mitigates loss and obtains a compensating advantage, the advantage
will be deducted from the damages provided it arose directly from the breach and the
act of mitigation and is not merely an ‘indirect’ or collateral benefit.134 Thus where
turbines which were less efficient than the contract specification and used more coal
were replaced by turbines which resulted in an overall saving of coal over the whole
period, the damages had to be reduced by the savings achieved.135 But, where the
benefit is independent of the act of mitigation, damages will not be reduced. Thus
benefits from wholly independent transactions, for example sums due under an
insurance policy, will not lead to a deduction.136 The fact that replacement property
bought is better than the original property, which was damaged as a consequence of
the breach of contract, will not in itself reduce damages;137 rather it must be shown that
the claimant will derive a real pecuniary advantage from the better property.138

125 Pilkington v Wood [1953] Ch 770.

126 Selvanayagam v University of West Indies [1983] 1 WLR 585.
127 Clippens Oil Co Ltd v Edinburgh & District Water Trustees [1907] AC 291, 303. See generally Lagden v
O’Connor [2003] UKHL 64, [2004] 1 AC 1067.
128 Yetton v Eastwoods Froy Ltd [1967] 1 WLR 104. Cf Brace v Calder [1895] 2 QB 253.
129 Sotiros Shipping Inc v Sameiet Solholt [1983] 1 Lloyd’s Rep 605, 608.
130 Bacon v Cooper (Metals) Ltd [1982] 1 All ER 397.
131 The Antaios [1981] 2 Lloyd’s Rep 284, 299.
132 Holden Ltd v Bostock & Co Ltd (1902) 18 TLR 317.
133 Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452, the facts of which are set out above, p 553.
134 British Westinghouse Co v Underground Electric Rys Co of London [1912] AC 673; Lavarack v Woods
of Colchester [1967] 1 QB 278; Hussey v Eels [1990] 2 QB 227; Famosa SS Co Ltd. v Armada Bulk Carriers Ltd
[1994] 1 Lloyd’s Rep 633, 637; Dimond v Lovell [2002] 1 AC 384; Needler Financial Services Ltd v Taber [2002]
3 All ER 501; Primavera v Allied Dunbar Assurnace Plc [2002] EWCA Civ 1327, [2003] PNLR 12.
135 British Westinghouse Co v Underground Electric Rys Co of London [1912] AC 673.
136 Bradburn v GW Ry (1874) LR 10 Ex 1; Arab Bank plc v John D Wood Commercial Ltd [2000] 1 WLR
857.
137 Bacon v Cooper (Metals) Ltd [1982] 1 All ER 397. See also Harbutt’s Plasticine Ltd v Wayne Tank and
Pump Co Ltd [1970] 1 QB 447.
138 Voaden v Champion, The Baltic Surveyor [2002] EWCA Civ 89, [2002] 1 Lloyd’s Rep 623.
 damages 557

7. assessment of damages in contracts for

the sale of goods
Useful illustrations of the application of the principles so far discussed are provided by
the manner of assessment of damages in contracts for the sale of goods. For example,
sections 50 and 51 of the Sale of Goods Act 1979 state that the measure of damages
for non-acceptance or non-delivery of the goods is ‘the estimated loss directly and
naturally resulting, in the ordinary course of events, from the buyer’s or seller’s breach
of contract’; and where there is an available market for the goods in question, this is
prima facie to be ascertained by the difference between the contract price and the
market or current price at the time when the goods ought to have been accepted or
delivered, as the case may be, or, if no time was fi xed, then at the time of the refusal to
accept or deliver. The reason for this prima facie ‘breach-date’ rule139 is that in a case of
non-delivery by the seller the buyer may go into the market and buy alternative goods
at the current price and, in a case of the buyer’s failure to accept goods, the seller may
take his goods into the market and obtain the current price for them.140

(a) non-delivery
Suppose that A promises to sell and deliver to B 1,000 tonnes of coal at £112 per tonne
on 8 February. A fails to carry out its contract. On 8 February the market price of
coal of that quality is £120 per tonne. B can recover as damages for non-delivery
the difference between the contract price and the market price on that day, ie £8 per
tonne.141
Uncontemplated forward or sub-sales must ordinarily be disregarded. If, for
instance, in the expectation of receiving the coal, B has contracted to sell a similar
quantity to C at £117 per tonne, its damages will still be £8 (and not £5) per tonne,
since it must normally go into the market in order to fulfi l its contract with C.142 And
the same is true where the sub-sale is at a price higher than the market price at the date
when delivery should be made.143

(b) late delivery

Where the seller is late in delivering the goods, the damage is normally the difference
between the market value at the time they ought to have been delivered and the market

139 ss 50(3) and 51(3). For examples of its displacement, see Van den Hurk v R Martens & Co Ltd [1920] 1
KB 850 (sale of goods); Johnson v Agnew [1980] AC 367, 400–1 (sale of land). See generally Waddams (1981)
97 LQR 445 and above, pp 535–536.
140 Barrow v Arnaud (1846) 8 QB 604, 609 (Tindal CJ); Kaines (UK) Ltd v Osterreichische
Warrenhandelgesellschaft Austrowaren Gesellschaft mbH [1993] 2 Lloyd’s Rep 1 (in a volatile market this
must be done at the fi rst practical opportunity). 141 s 51 (3).
142 Cf Williams Bros v ET Agius Ltd [1914] AC 510.
143 Great Western Ry v Redmayne (1866) LR 1 CP 329. But contrast Hall Ltd v Pim Junr & Co (1928) 139
LT 50 and Coastal International Trading Ltd v Maroil AG [1988] 1 Lloyd’s Rep 92 where it was contemplated
that the buyer might resell the particular goods purchased.
558 remedies for breach of contract

value at the time when they actually were delivered.144 Difficulties have arisen where
the goods have been resold for more than their market value. In Wertheim v Chicoutimi
Pulp Co Ltd:145
The seller was late in delivering the goods. The market price of the goods at the time when
they ought to have been delivered was 70s per ton, and, at the time they were delivered, 42s
6d per ton. The normal measure of damages would therefore have been 27s 6d per ton, and
this was the sum claimed by the buyer. But proof was adduced that he had actually sold the
goods for 65s per ton.

The Judicial Committee of the Privy Council held that the seller could rely on this
sale to reduce the damages to 5s per ton. Lord Atkinson considered that the prima
facie market value rule was displaced where the sub-sale proves that the value of
the goods to the buyer was more than their market value at the time of delivery and
that to assess damages by reference to market value would allow the buyer to be
‘compensated for a loss he never suffered’.146 A possible counter-argument is that
the buyer was not obliged to fulfi l the subcontract by delivering the specific goods
received.147 The buyer would have been free to resell the goods at the time they ought
to have been delivered at their then market price (70s per ton) and to procure other
goods for the subcontract. In a falling market a buyer is likely to do this and, on the
facts of Wertheim’s case, to sell one lot at 70s per ton and to fulfi l the 65s per ton sub-
sale by buying in at the market price of 42s 6d per ton. The late delivery therefore
deprived the buyer in that case of the opportunity to sell at the due date, a fact that
was unaffected by the sub-sale.

(c) non-acceptance
Although the normal rule, as set out in section 50(3) of the Sale of Goods Act 1979,
is that the measure of damages is the difference between the contract price and the
market price on the day fi xed for acceptance, in modern trading conditions the
retail price is frequently that recommended by the manufacturers, so that there is no
difference between the contract and the market price. The question then arises whether
a seller who is a dealer can recover its loss of profit on the sale. In WL Thompson Ltd v
Robinson (Gunmakers) Ltd:148
The defendant contracted to buy a new Vanguard car from T. T was a car dealer and the
price of the car was that fi xed by the manufacturers, which it was unable to vary in any
way. The defendant refused to accept the car, but T managed to persuade its wholesale

144 Elbinger Aktiengesellschaft v Armstrong (1874) LR 9 QB 473; Sale of Goods Act 1979, s 53(3).
145 [1911] AC 301 approved in Williams Bros v ET Agius Ltd [1914] AC 510, 522. See also the reasoning in
Pagnan & Fratelli v Corsiba Industrial Agropacuaria [1970] 1 WLR 1306. 146 Ibid, 307–8.
147 Slater v Hoyle & Smith Ltd [1920] 2 KB 11, 23 (Scrutton LJ). See also Campbell Mostyn (Provisions) Ltd
v Barnett Trading Co [1954] 1 Lloyd’s Rep 65. But in Bence Graphics Ltd v Fasson UK Ltd [1998] QB 87, Slater’s
case was not followed, it was stated that it ‘should be reconsidered’, and Auld LJ approved of Wertheim’s case.
For the Bence Graphics case, see below, pp 560–561.
148 [1955] Ch 177. Contrast Lazenby Garages Ltd v Wright [1976] 1 WLR 459 (second-hand BMW
‘unique’).
 damages 559

suppliers to take the car back. T nevertheless claimed from the defendant the loss of its
profit on the sale.

The defendant claimed that T was entitled to only nominal damages, there being no
difference between the market price of the car and the contract price. Upjohn J refused
to accept this contention. He held that section 50(3) of the Sale of Goods Act 1979 laid
down only a prima facie rule, and that it was displaced by proof in this case that the
supply of Vanguard cars currently exceeded demand. T therefore acted reasonably in
returning the car to its suppliers, but it had sold one less Vanguard car than it would
otherwise and so was entitled to claim its loss of profit on the transaction. It had
therefore suffered a loss in the volume of its sales.149
On the other hand, in Charter v Sullivan,150 the Court of Appeal held that a car
dealer could recover only nominal damages for non-acceptance of a car when the state
of the motor trade was such that he could sell all the cars he could get, and he in fact
sold the vehicle in question within 10 days of the failure to accept; here the breach did
not result in loss in the volume of sales. Jenkins LJ went so far as to doubt whether it
could be said that there was an ‘available market’ for the operation of the market price
rule when goods could only be sold at a fi xed retail price. But the Court was agreed
that the dealer in this case could not be held to have made ‘only one sale instead of two’,
since he was limited in the number of sales he could make by the fact that demand
exceeded supply. The dealer had therefore suffered no loss of profit by the breach. The
conclusion seems to be that loss of profit is not recoverable where demand exceeds
supply, but can be recovered where supply equals or exceeds demand.151
A buyer who delays in accepting delivery is liable to the seller for any loss
occasioned by the delay including for a reasonable charge for the care and custody of
the goods.152

(d) breach of warranty

Where goods are delivered in breach of warranty, section 53 of the Sale of Goods Act
1979 provides a prima facie rule that the buyer is entitled to the difference between the
value of the goods at the time of delivery to the buyer and the value which they would
have had if they had fulfi lled the warranty.

(i) Sub-sales
If it was within the reasonable contemplation of the parties at the time they made
the contract that the goods would probably be re-sold to sub-purchasers on the
same or substantially similar terms, either as they were or after manufacturing them

149 On ‘lost volume sellers’, see Harris (1962) 60 Mich L Rev 577, 600–1; (1964) 18 Stan L Rev 66; Childres
and Burgess (1973) 48 NYU L Rev 833. Cf economists’ scepticism about an assumption of lost volume in the
case of retail sales, Goetz and Scott (1979) 31 Stan L Rev 323, 355; Goldberg (1984) 57 S Cal Rev 283.
150 [1957] 2 QB 117.
151 See also Re Vic Mill Ltd [1913] 1 Ch 465.
152 Sale of Goods Act 1979, s 37. Also under s 48(3) of the Act, an unpaid seller has the right to sell
perishable goods, or any goods after notice, and to recover from the original buyer damages for any loss
occasioned by the breach.
560 remedies for breach of contract

into another product, the Court may have regard to the sub-sale. The buyer will, for
example, be able to recover from the seller any damages which it has been forced to pay
to those sub-purchasers together with any costs reasonably incurred in defending an
action against him by them. Thus in Hammond & Co v Bussey:153
H, a shipping agent, contracted with B, a coal merchant, for the supply of a quantity of
‘steam-coal’ to be used in steamships, B knowing at the time of the contract that H was
buying the coal for resale as fit for this purpose. H resold the coal, which was not fit for the
purpose of steamships and they reasonably, but unsuccessfully, defended an action brought
against them by their sub-purchaser.

It was held that H might recover not only the damages paid by it to its sub-purchaser,
but the costs incurred in defending the action, for this damage came within the second
branch of the rule in Hadley v Baxendale, B having had special knowledge of the
probability of the subcontracts.
Where, however, the buyer has not been faced with claims by the sub-purchasers,
it may not be able to recover from the seller for the difference between the value of
the goods delivered and the value which they would have had if they had fulfi lled the
warranty. Thus in Bence Graphics Ltd v Fasson UK Ltd:154
B bought vinyl fi lm from the defendant for some £564,300, and used it to manufacture
decals which it then sold to companies to be used to identify bulk containers. It was a term
of the contract that the decals should have a ‘guaranteed minimum five year life’ but due to
a latent defect the vinyl fi lm degraded prematurely and many of the decals became illegible.
There were many complaints but only one claim, for which the defendant had compensated
B. B returned some £22,000 worth of defective decals to the defendant, and the defendant
conceded that B was entitled to be reimbursed for this. The lack of durability was found
by the trial judge to render the vinyl fi lm worthless, and he awarded B £564,300, being the
difference between the value of the product had it fulfi lled the warranty and its actual value.
By the date of the trial, there was no possibility of further claims against B by its customers
because the limitation period for such claims had expired.

A majority of the Court of Appeal allowed an appeal by the defendant, and held
that since the parties contemplated that the vinyl fi lm would be manufactured and
sold on, they contemplated that the measure of damages would be the claimant’s
liability to the ultimate users, thus displacing the prima facie measure of damages
in section 53 of the Sale of Goods Act 1979. The majority cast doubt on the ignoring
of the sub-sales in Slater v Hoyle & Smith Ltd.155 This greater willingness to depart
from the statutory prima facie rule has been criticized.156 For example, it has been

153 (1887) 20 QBD 79. Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314. Cf Coastal International Trading
Ltd v Maroil AG [1988] 1 Lloyd’s Rep 92 (terms of sub-sale unusual so loss of profit irrecoverable).
154 [1998] QB 87.
155 [1920] 2 KB 11. Auld LJ boldly said that Slater should be reconsidered. Otton LJ preferred to distinguish
it because in that case, in contrast to Bence, the same goods were sub-sold without any manufacturing
process and the defendant sellers did not know of the particular sub-sale.
156 Treitel (1997) 113 LQR 188 prefers the reasoning in Slater v Hoyle & Smith Ltd [1920] 2 KB 11, which
the Court of Appeal refused to follow. But cf McGregor on Damages (18th edn, 2009) para 20–066; Burrows,
Remedies for Torts and Breach of Contract (3rd edn, 2004) 215–16.
 damages 561

said that, had B’s customers brought claims against B, the defendant would have
undoubtedly been liable for the cost of meeting them so that the effect of the decision
gave a defendant who delivered worthless goods a windfall gain, the benefit of the
forbearance of a person’s customers from claiming against him or her. However, it
might be thought that this criticism sits uneasily with the rule, considered above, that
in general a claimant may not recover for loss that has been avoided.157

(ii) Loss of profit

If, at the time of making the contract, the seller knew or may be presumed to have
known that goods were to be used to produce a profit, and the breach of warranty
precludes or reduces the profit likely to have been made, the buyer may recover
damages for the loss of profit caused by the breach.158 Such a buyer who brings an
action for breach of warranty in respect of the quality or performance of goods
sold to it cannot recover both the whole capital loss in the value of the goods and
also the whole of the profit which it would have made by its use of them for this
would be to allow the recovery of damages twice over. In Cullinane v British ‘Rema’
Manufacturing Co Ltd:159
C purchased from the defendants a clay pulverizing plant, warranted to be capable of
pulverizing clay at the rate of six tons per hour. Th is warranty was not fulfi lled, and C
claimed as damages (a) the difference between the purchase price of the plant and its
residual value, and (b) his loss of profits from the date of installation to the date of trial
of the action.

The Court of Appeal held that these claims could not be cumulative but must be
alternative because the profits would only have been made if the capital expenditure
had been incurred. C could claim one or other, but not both.

8. claimant’s contributory negligence

(a) no apportionment at common law
As a general rule, where the claimant’s loss has been caused partly by the defendant’s
breach of contract and partly by the claimant’s own blameworthy conduct, the damages
are not reduced160 unless the claimant’s conduct breaks the chain of causation161 or

157 Below, p 556. The position would have been different if the limitation period for claims by B’s customers
had not expired, since it would have still been at risk of such a claim.
158 Richard Holden Ltd v Bostock & Co Ltd (1902) 18 TLR 317.
159 [1954] 1 QB 292. Cf TC Industrial Plant Pty Ltd v Robert’s (Queensland) Pty Ltd [1964] ALR 1083
(Australia).
160 See generally Law Com No 219, Contributory Negligence as a Defence in Contract (1993).
161 Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370; Lambert v Lewis [1982] AC 225; Schering
Agrochemicals Ltd v Reisbel NV SA (1992, CA), noted by Burrows (1993) 109 LQR 175; Beoco Ltd v Alfa
Laval Co Ltd [1995] QB 137; County Ltd v Girozentrale Securities [1996] 3 All ER 834. See above, p 543.
562 remedies for breach of contract

constitutes a failure in the claimant’s duty to mitigate its loss162 or itself amounts to a
breach of contract.163

(b) law reform (contributory negligence) act 

The 1945 Act applies to reduce damages, where the claimant has been at fault in relation
to his or her own damage. Damages are reduced proportionately taking into account
both the causal potency and comparative blameworthiness of the parties’ conduct.164
The Act plainly applies to claims brought in tort. As regards breach of contract,
the interpretation of the definition of ‘fault’ in the 1945 Act has led to a tripartite
classification of claims.165 The Act does not apply to the breach of a strict contractual
duty (category one)166 nor does it apply to the breach of a duty of care imposed by the
contract which does not give rise to a liability in tort (category two).167 However, the
Act does apply to the breach of a duty of care imposed by the contract where there is
concurrent liability in the tort of negligence, as where services are negligently rendered
to a client by lawyers, builders or carriers (category three).168
While this position is not entirely logical, particularly in respect of breaches of
contractual obligations to exercise reasonable care where the defendant’s liability
exists solely in contract, it has been argued that permitting apportionment in contract
cases would allow Courts to vary an agreed allocation of risks. It has also been said
that existing contract doctrines, in particular implied terms obliging claimants to
take care for their own interests, mitigation, and causation, recognize and give effect
to the principle that account should be taken of the fact that it is the claimant who
is part author of the loss suffered. Those who take this view, while recognizing that
these doctrines operate in an ‘all or nothing’ manner either allowing full recovery
or no recovery, believe that apportionment would unduly undermine the certainty
which is important in the English law of contract. The Law Commission accepted that
this would be so in the (category one) case of a breach of a strict contractual duty but
recommended that apportionment should be available in (category two) cases where

162 See above pp 555–556.

163 Tennant Radiant Heat Ltd v Warrington Development Corp [1988] 1 EGLR 41; Harper v Ashton’s
Circus Pty Ltd [1972] 2 NSWLR 395.
164 See, eg, Davies v Swan Motor Co (Swansea) Ltd [1949] 2 KB 291, 326.
165 Th is classification was fi rst put forward by Hobhouse J, and confi rmed by the Court of Appeal in
Forsikringsaktieselskapet Vesta v Butcher [1986] 2 All ER 488, [1989] AC 852; aff ’d on a different point [1989]
AC 880, HL.
166 Schering Agrochemicals Ltd v Reisbel NVSA (1992, CA), noted by Burrows (1993) 109 LQR 175;
Barclays Bank plc v Fairclough Building Ltd [1995] QB 214.
167 Forsikringsaktieselskapet Vesta v Butcher [1989] AC 852, 866; Rafl atac Ltd v Eade [1999] 1 Lloyd’s Rep
506. Cf Clark Boyce v Mouat [1992] 2 NZLR 559, 564, rev’d on other grounds [1994] 1 AC 428.
168 Forsikringsaktieselskapet Vesta v Butcher [1989] AC 852; UCB Bank plc v Hepherd Winstanley and Pugh
[1999] Lloyd’s Rep PN 963. Cf. the different conclusion of the High Court of Australia in Astley v Austrust Ltd
(1999) 197 CLR 1 which has been criticized as based on a mechanical, even formalistic construction of the
legislation: Swanton (1999) 14 JCL 251, 260. It is not settled whether the 1945 Act applies where the claimant
has a right of action in tort which is not co-extensive with the one it has in contract. The Law Commission
concluded that the Act does not apply: Law Com No 219 (1993), para 3.29. Cf Vacwell Engineering Co Ltd
v BDH Chemicals Ltd [1971] 1 QB 88 and Bank of Nova Scotia v Hellenic Mutual War Risks Association
(Bermuda) Ltd [1988] 1 Lloyd’s Rep 514, 555; [1990] 1 QB 818, rev’d on other grounds [1992] 1 AC 233, 266.
 damages 563

the defendant is in breach of a purely contractual obligation to exercise reasonable

care.169 However, since the authoritative acceptance of concurrent liability in contract
and tort,170 it will be very rare for a case to fall within category two rather than category
three so that the Law Commission’s recommendation would, in practice, make very
little difference to the law and has no prospect of being implemented.

9. the tax element in damages

Since damages are designed to compensate the claimant for the actual loss suffered
and no more, any liability to pay tax may have to be taken into account. In British
Transport Commission v Gourley,171 where G claimed for loss of earnings arising
out of personal injuries caused by negligence, the House of Lords held that damages
awarded to G on the basis of his gross earnings before deduction of income tax and
surtax (£37,720) should be reduced by the amount which he would have had to pay in
tax. G was therefore left with a net sum of £6,695. Th is principle has subsequently been
applied to contractual claims arising out of the wrongful dismissal of an employee172
and to a claim for loss of profits on a contract for the purchase of goods.173 Before
it can be applied, however, two conditions must be satisfied: first, the earnings or
profits in respect of which the claim is made must be subject to tax; secondly, the
sum awarded as damages must either not be subject to tax in the claimant’s hands
or, if it is, the tax payable on the damages must be taken into account in assessing
the damages.
The first requirement means that the principle in Gourley’s case does not apply to
a claim in respect of the loss of a capital asset, for this would not have been subject to
income tax.174 The second excludes from its operation most claims for loss of profit,
for sums awarded as damages for loss of profit are normally subject to tax (at the same
rate) in the claimant’s hands as part of the profits of his or her business.175 The Gourley
case itself has been the subject of considerable criticism. It is said, for example, that
it has added needless complexity to the assessment of damages; and that the Courts
treat damages for loss of earnings arising out of personal injuries as taxable income,
whereas the Legislature exempts them, in part, from tax as being compensation for

169 Law Com No 219 (1993) Parts III and IV.

170 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. See above, p 24. 171 [1956] AC 185.
172 Beach v Reed Corrugated Cases Ltd [1956] 1 WLR 807; Re Houghton Main Colliery Co Ltd [1959] 1
WLR 1219; Phipps v Orthodox Unit Trusts Ltd [1958] 1 QB 314. But under the Income Tax (Earnings and
Pensions) Act 2003, ss 401–403, damages for wrongful dismissal are made taxable in the claimant’s hands,
save that tax is not chargeable on the first £30,000 of such payment. It has been held that the rule in Gourley’s
case nevertheless continues to apply to the exempted amount: Parsons v BNM Laboratories Ltd [1964] 1 QB
95; Bold v Brough, Nicholson & Hall Ltd [1964] 1 WLR 201; Lyndale Fashion Manufacturers v Rich [1973] 1
WLR 73; Shove v Downs Surgical plc [1984] ICR 582.
173 Amstrad plc v Seagate Technology Inc (1998) 86 BLR 34.
174 Hull & Co Ltd v Pearlberg [1956] 1 WLR 244. Capital gains tax is to be disregarded.
175 Diamond v Campbell-Jones [1961] Ch 22; Dickinson v Jones Alexander [1993] 2 FLR 521.
564 remedies for breach of contract

the loss of what may be called ‘natural capital equipment’.176 Nevertheless, the Gourley
case is fully in accord with the avowed compensatory aim of damages and should, it is
submitted, remain good law.177

10. interest
Until recently, the position at common law was that the general loss of use of money
(ie, interest) could not be awarded as damages for the late payment of money.178 In
general,179 therefore, parties to a contract would have to rely either on a term of the
contract, express or implied,180 requiring the payment of interest or on the statutory
power to award interest on debts and damages conferred by the Senior Courts Act
(formerly Supreme Court Act) 1981, s 35A. That section enables the High Court181 to
include in any sum for which judgment is given simple (but not compound) interest at
such rate as the Court thinks fit or as rules of Court may provide, on all or part of any
part of the debt or damages for which judgment is given for all or any part of the period
between the date when the cause of action arose and the date of the judgment. Further,
if the debtor pays the debt after the institution of proceedings but before judgment, the
Court has a similar power to award interest in respect of the period between the date
when the cause of action arose and the date of payment.
However, the common law rule barring interest as damages was swept aside by the
House of Lords, albeit in obiter dicta, in Sempra Metals Ltd v IRC.182 Interest, including
compound interest, can now be awarded as damages where the loss of use, at the rate
claimed, is proved and subject to the normal limitations, such as remoteness and the
duty to mitigate.
The Late Payment of Commercial Debts (Interest) Act 1998 provides that it is an
implied term in contracts for the supply of goods or services (other than consumer
credit agreements or contracts intended to operate by way of security) where both
parties are acting in the course of a business,183 that any ‘qualifying debt’ created by

176 See Baxter (1956) 19 MLR 373; Hall (1957) 73 LQR 212; Jolowicz [1959] CLJ 85; Tucker, ibid, 185;
Bishop and Kay (1987) 103 LQR 211; Kerridge (1992) 108 LQR 433, 442–5.
177 Th is was also the view of the Law Reform Committee in its 7th Report (1958), Cmd 501.
178 London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429; President of India
v La Pintada Co Nav [1985] AC 104.
179 Specific losses caused by not receiving money or receiving it late, such as interest charges paid on
taking out a loan, have been recovered as ‘special damages’ where not too remote within the second rule
in Hadley v Baxendale (1854) 9 Ex 341: Wadsworth v Lydall [1981] 1 WLR 598. Cf President of India v Lips
Maritime Corp, The Lips [1988] AC 395 (currency exchange losses).
180 Re Marquis of Angelsey [1901] 2 Ch 548.
181 For the county courts, see analogously the County Courts Act 1984, s 69.
182 [2007] UKHL 34, [2008] 1 AC 561.
183 Th is includes a profession and the activities of government: s. 2(1). The 1998 Act was brought fully
into force on 7 August 2002 by the Late Payment of Commercial Debts (Interest) Act 1998 (Commencement
No 5) Order 2002 (SI 2002 No 1673).
 damages 565

the contract carries simple interest after 30 days184 at a rate prescribed by the Secretary
of State. 185 The interest may be remitted, wholly or in part, because of the creditor’s
conduct.186 Where the contract provides a ‘substantial remedy’ for late payment of
the debt, the parties are permitted to oust or vary the right to statutory interest.187
A remedy is to be regarded as ‘substantial’ unless it is insufficient for the purpose of
compensating for or for deterring late payment, and it would not be ‘fair or reasonable’
to allow it to be relied on to oust or vary the right to statutory interest.188
Where the relationship between the creditor and the debtor is not purely contractual
but also gives rise to equitable duties, for example where the parties are in a fiduciary
relationship, interest, including not only simple interest but also compound interest,
has long been recoverable in certain circumstances even in the absence of any
agreement or custom to that effect.189

11. agreed damages clauses

(a) liquidated damages and penalties
The parties to a contract not infrequently make provision in the contract for the
damages to be paid on a breach of contract. Such provision does not exclude the
application of the general rule that damages for breach are intended to compensate for
the actual loss sustained by the claimant. It is a question of the proper construction
of the contract to decide whether a sum fi xed by the parties, however they may have
described it, is a ‘penalty’, in which case it cannot be recovered, or a genuine attempt
to ‘liquidate’, that is to say, to reduce to certainty, prospective damages of an uncertain
amount, in which case the sum will be recoverable.
The rule against penalties originated in equity which would relieve against penalties,
cutting them down to the actual damage suffered, but was taken up and applied by the
common law, and reinforced by statute.190 The Court will accept as liquidated damages
the sum fi xed by the parties if it is a genuine pre-estimate of the damage which seems
likely to be caused if the breach provided for should occur.191 The question is one

184 The 30 days runs from the performance by the supplier or from when the purchaser has notice of
the amount of the debt whichever is the later: s 4(5). See on this Ruttle Plant Ltd v Secretary of State for the
Environment, Food and Rural Affairs (No 2) [2008] EWHC 730 (TCC), [2009] 1 All ER (Comm) 73.
185 The rate of interest has been fi xed at the base rate plus 8%: SI 2002 No 1675. 186 s 5.
187 ss 1(3) and 7–10. 188 s 9.
189 Wallersteiner v Moir (No 2) [1975] QB 373, 388; Re Fox, Walker & Co (1880) 15 Ch D 400 (surety);
Mathew v TM Sutton Ltd [1994] 1 WLR 1453 (pawnbroker). For a wider view of the equitable jurisdiction,
see Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, 695–6 (Lord Goff, dissenting) and
719–21, 735–6 (Lord Woolf, dissenting). Cf the majority, ibid, 717, 718–19, 737–41.
190 8 & 9 Will III, c 11 (an Act for the better preventing frivolous and vexatious Suits), s 8. For history, see
Wall v Rederiaktiebolaget Luggude [1915] 3 KB 66, 72–3; Simpson (1966) 82 LQR 392.
191 There is some doubt about whether the loss that is the yardstick is actual or legally recoverable loss.
In Lansat Shipping co Ltd v Glencore Grain BV, The Paragon [2009] EWHC 551 (Comm), [2009] 1 Lloyd’s
Rep 659 at [22] Blair J thought that it was the legally recoverable loss. For the contrary view, see Burrows,
Remedies for Torts and Breach of Contract (3rd edn, 2004) 446–7.
566 remedies for breach of contract

of construction, to be decided upon the terms and inherent circumstances of each

particular contract, judged as at the time of making the contract, not as at the time of
breach.192 Or, again, if, although it is not an estimate of the probable damage, the parties
had fi xed that sum because they were agreed in limiting the damages recoverable to
an amount less than that which a breach would probably cause, it will similarly be
accepted by the Court.193 On the other hand, if the sum was fi xed in terrorem—that is,
in order to frighten the other party into performing the contract rather than breaking
it—the provision will be considered to be a penalty. It will be unenforceable.
In construing the terms ‘penalty’ and ‘liquidated damages’ when inserted in a
contract, the Courts will not be bound by the phraseology used, but will look to the
substance rather than to the form. The parties may call the sum specified ‘liquidated
damages’ if they wish, but if the Court fi nds it to be a penalty, it will be treated as
such. Conversely, if the parties had described the sum fi xed as a ‘penalty’, but it
turns out to be a genuine pre-estimate of the loss, it will be treated as liquidated
damages.194
The purpose of such clauses is to promote certainty and, especially in commercial
contracts, where the parties are able to protect themselves, the Court is likely to take
the view that what the parties have agreed should normally be upheld and to take care
not to set too stringent a standard which could defeat that purpose.195
Alongside the common law rules, one must also now bear in mind in consumer
contracts the Unfair Terms in Consumer Contracts Regulations 1999.196 These allow
the Courts to protect consumers against unfair terms by, for example, holding that
such terms are not binding on the consumer. In Schedule 2 of the Act, one of the
examples given of a term that may be unfair is one requiring any consumer who fails
to fulfil his obligation to pay a disproportionately high sum in compensation.197 In
respect of sums payable on breach, it is likely that the Regulations will be construed so
as to be consistent with the common law on liquidated damages and penalties.

(b) rules of construction

The leading case on penalties is that of Dunlop Pneumatic Tyre Co Ltd v New Garage
and Motor Co Ltd:198

192 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79; Phillips Hong Kong Ltd
v A-G of Hong Kong (1993) 61 BLR 41 (PC).
193 Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20; for the facts see below, p 570.
194 Ibid. See also Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514; Britvic Soft Drinks Ltd v
Messer UK Ltd [2002] 1 Lloyd’s Rep 20.
195 Phillips Hong Kong Ltd v A-G of Hong Kong (1993) 61 BLR 41 (PC); Alfred McAlpine Capital Projects
Ltd v Tilebox Ltd [2005] EWHC 281 (TCC), [2005] BLR 271 at [48]. For the advantages of such clauses,
including avoiding difficulties of measuring loss (on which see above, p 535) and the inability of the penalty
rule accurately to identify unfairness, leading to the argument that such clauses should be upheld subject to
standard factors invalidating a contract or contract terms, see Goetz and Scott (1977) 77 Col L Rev554; Rea
(1984) 13 JLS 147; Downes in Birks (ed) Wrongs and Remedies in the Twenty-First Century (1996) ch 11; Chen-
Wishart in the same publication, ch 12. But cf Fenton (1975/6) 51 Ind L Rev 189, 191–2.
196 See above, pp 206–215.
197 Para 1(e). 198 [1915] AC 79.
 damages 567

The appellant sold motor tyre-covers, tyres, and tubes to the respondent which contracted
not to resell them, or offer them for sale, at a price below the appellant’s list prices and to
pay the sum of £5 by way of liquidated damages for every breach of this agreement. The
respondent sold a tyre-cover at less than the list price, and was sued by the appellant for
liquidated damages for breach.

The House of Lords held that the sum fi xed by the parties was a genuine pre-estimate
of the damage which might ensue and not a penalty. In the course of his speech Lord
Dunedin laid down the following rules:199
(i) ‘It will be held to be a penalty if the sum stipulated for is extravagant and
unconscionable in amount in comparison with the greatest loss that could
conceivably be proved to have followed from the breach.’
An illustration was provided by the Earl of Halsbury in an earlier case, where he
said:200
For instance, if you agreed to build a house in a year, and agreed that if you did not build the
house for £50, you were to pay a million of money as penalty, the extravagance of that would
be at once apparent.

The question is one of fact in each particular case.201

(ii) ‘It will be held to be a penalty if the breach consists only in not paying a sum of
money, and the sum stipulated is a sum greater than the sum which ought to
have been paid.’
In Kemble v Farren:202
The defendant agreed to perform at the Covent Garden Theatre for four seasons at £3 6s 8d
a night. The contract provided that if either party refused to fulfi l the agreement or any part
thereof, such party should pay to the other the sum of £1,000 as ‘liquidated damages’. The
defendant refused to perform during the second season.

It was held that the stipulation was penal. The obligation to pay £1,000 might have
arisen upon a failure to pay £3 6s 8d and was therefore quite obviously a penalty. The
most obvious example of this presumption is where a borrower of money promises to
pay the lender an additional sum (over and above interest) if the money is not repaid
by a fi xed day. In contrast, ‘accelerated payment’ clauses, which are common in sales
by instalments and leasing arrangements and which accelerate an existing liability to
pay on default, are not invalid as penalties.203 Moreover, in Lordsvale Finance Ltd plc v
Bank of Zambia,204 it was held that a provision increasing by one per cent the interest

199 Ibid, 87.

200 Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905]
AC 6, 10.
201 In Jeancharm Ltd v Barnet Football Club Ltd [2003] EWCA Civ 58 (2003) 92 Con LR 26 a clause
requiring the contract-breaker to pay interest that amounted to a rate of 260% was struck down as a
penalty.
202 (1829) 6 Bing 141.
203 Protector Loan Co v Grice (1880) 5 QBD 529; O’Dea v All States Leasing System Pty Ltd (1983) 152 CLR
359; The Angelic Star [1988] 1 Lloyd’s Rep 122. 204 [1996] QB 752.
568 remedies for breach of contract

chargeable on a loan from the time a borrower defaulted reflected the increased credit
risk of having such a debtor, and was not therefore a penalty. In a statement in that case
which has been treated as a useful modern summary of what underpins the approach
in the Dunlop case, Colman J said:
[W]hether a provision is to be treated as a penalty is a matter of construction to be resolved
by asking whether, at the time the contract was entered into, the predominant contractual
function of the provision was to deter a party from breaking the contract or to compensate
the innocent party for breach. That the contractual function is deterrent rather than
compensatory can be deduced by comparing the amount that would be payable on breach
with the loss that might be sustained if breach occurred.205

(iii) ‘There is a presumption (but no more) that it is a penalty when a single lump
sum is made payable by way of compensation, on the occurrence of one or
more of all of several events, some of which may occasion serious and others
but trifling damage.’

An illustration is offered by Ford Motor Co v Armstrong:206

A retailer of motor-cars agreed with a manufacturer inter alia not to sell any one of the
manufacturer’s cars, or any part, below the listed price. For every breach of this agreement
he was to pay £250, as ‘agreed damages’.

A majority of the Court of Appeal held that this was a penalty. The defendant
might have become bound to pay the sum of £250 for the breach of a term which
would cause only trifl ing damage. Similarly, in Kemble v Farren, the same factor
provided an additional reason for the Court to hold that the £1,000 was a penalty
because that very large sum was to become immediately payable if ‘the defendant
had refused to conform to any usual regulation of the theatre, however minute or
unimportant’.207
A single sum, as opposed to a sum proportioned to the seriousness of the breach
(for example per week for delay or per item for items sold in breach of covenant), is
presumed to be penal because one tests it against the least serious breach possible. The
presumption does not apply where the sum is payable for breach of a single obligation
which can be broken in a number of ways, for example non-completion of a building
contract.208 Where it is difficult to estimate the loss and it is therefore uncertain
that losses from one breach would be greater than those from another, a Court may
hold that the presumption is rebutted. It may also be rebutted where it is clear that

205 Ibid, 762. Th is passage was cited with approval in, eg, Cine Bes Filmcilik ve Yapimcilik v United
International Pictures [2003] EWCA Civ 1669; Murray v Leisureplay plc [2005] EWCA Civ 963, [2005] IRLR
946; Euro London Appointments Ltd v Claessens International Ltd [2006] EWCA Civ 385, [2006] 2 Lloyd’s
Rep 436; M & J Polymers Ltd v Imerys Minerals Ltd [2008] EWHC 344 (Comm), [2008] 1 Lloyd’s Rep 541;
General Trading Company (Holdings) Ltd v Richmond Corp Ltd [2008] EWHC 1479 (Comm), [2008] 2 Lloyd’s
Rep 475. Lansat Shipping Co Ltd v Glencore Grain BV, The Paragon [2009] EWCA Civ 855, [2009] 2 Lloyd’s
Rep 688. 206 (1915) 31 TLR 267.
207 (1829) 6 Bing 141, 148.
208 Law v Local Board of Redditch [1892] 1 QB 127.
 damages 569

the contractual provision has sought to average out the probable losses from all the
breaches provided, however, that the disparity is not too great.209
On the other hand:

(iv) ‘It is no obstacle to the sum stipulated being a genuine pre-estimate of damage,
that the consequences of the breach are such as to make precise pre-estimation
almost an impossibility.’

For example, in the Dunlop Tyre case itself, the stipulated sum of £5 could only, at
the most, be a very rough and ready estimate of the possible damage which might be
suffered if a trader undercut the manufacturer’s listed price. In public works contracts,
such as those for the construction of roads or tunnels, the nature of the loss may in
part be non-financial and therefore be particularly difficult to evaluate: in Phillips
Hong Kong Ltd v Attorney-General of Hong Kong a clause using a formula based on
estimates, of the loss of return on the capital at a daily rate, the effect of the delay on
related contracts, and increased costs, was said to be sensible.210
All these rules are no more than presumptions as to the intention of the parties; they
may be rebutted by evidence of a contrary intention, appearing from a consideration
of the contract as a whole.211

(c) necessity for breach

At common law the question whether the sum of money or other performance212
stipulated for is a penalty or liquidated damages can only arise when the event upon
which it becomes payable is a breach of the contract between the parties.213 It does not
arise where the obligation to pay exists on entering the contract as an advance payment
or deposit,214 or is a true alternative mode of performing the contract.215 However, it
has been held that a ‘take or pay’ clause, whereby a buyer agreed to pay for a minimum
quantity of goods per month whether it had ordered that minimum quantity or not,

209 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, 99; English Hop Growers
v Dering [1928] 2 KB 174. 210 (1993) 61 BLR 41 (PC).
211 Pye v British Automobile Commercial Syndicate Ltd [1906] 1 KB 425.
212 Jobson v Johnson [1989] 1 WLR 1026 (transfer of shares); General Trading Company (Holdings) Ltd
v Richmond Corp Ltd [2008] EWHC 1479 (Comm), [2008] 2 Lloyd’s Rep 475 (clause entitling the buyer of
shares, on the seller’s breach by failing to procure a guarantee, to withhold payment of a sum otherwise due).
For the forfeiture of money paid, see below, pp 592–593.
213 Export Credits Guarantee Department v Universal Oil Products Co [1983] 1 WLR 399. See also Jervis v
Harris [1996] Ch 195 (tenant to pay for costs of repairs); Nutting v Baldwin [1995] 1 WLR 201; Euro London
Appointments Ltd v Claessens International Ltd [2006] EWCA Civ 385, [2006] 2 Lloyd’s Rep 436 (a clause
disentitling the payor to a refund of fees paid to an employment agency—where the employee introduced
did not stay—unless the fees were paid within seven days of the invoice was held not to be capable of being a
penalty); Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm), [2008] 2 All ER (Comm) 625
at [295]–[323] (bank charges not payable on breach and therefore could not be penalties).
214 See below, pp 592–593.
215 Alder v Moore [1961] 2 QB 57. See also Golden Bay Realty v Orchard Investment [1991] 1 WLR 981
(penalty rules not applicable to contract in statutory form).
570 remedies for breach of contract

does fall within the scope of the rule against penalties although on the facts the clause
in question was not a penalty.216
The distinction between clauses within and outside the penalty jurisdiction has
given rise to litigation in the context of hire-purchase agreements. Finance companies
sometimes provide that, in the event of termination of the agreement, not only shall
they be entitled to take possession of the goods hired and to forfeit instalments already
paid, but that the hirer shall also pay a certain sum as compensation for ‘loss of profit
on the transaction’. If the hiring is terminated as a result of a breach of the agreement
by the hirer, the Courts may hold this payment to be a penalty in terrorem.217 But if it
is terminated voluntarily by the hirer, or by his death or bankruptcy, so that there is
no breach of the agreement, the question of a penalty or liquidated damages cannot
arise.218 This produces the anomaly that, at common law,219 it may be more expensive
for a hirer to terminate the agreement voluntarily than to repudiate and break the
contract. The Courts have, however, been unwilling to extend the common law
rule.220

(d) amounts recoverable

Where the clause is a liquidated damages clause the claimant will recover the stipulated
sum without being required to prove damage and irrespective of any actual damage,
even where this is demonstrably smaller than the stipulated sum.221 However, where
the actual loss is greater, the claimant is limited to the stipulated sum. In Cellulose
Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd:
The appellant agreed to pay ‘by way of penalty the sum of £20 per week for every week
we exceed 18 weeks’ in the completion of the delivery and erection of an acetone recovery
plant. The work was completed 30 weeks late. Calculated on the agreed basis, the damages
recoverable by the respondent on breach amounted to some £600, but its actual loss amounted
to £5,850. It therefore claimed that it was entitled to disregard the penalty and to sue for the
damages actually suffered.

It was, however, clear from the circumstances that the parties must have known that
the damage which would be incurred might greatly exceed the stipulated sum. The

216 M & J Polymers Ltd v Imerys Minerals Ltd [2008] EWHC 344 (Comm), [2008] 1 Lloyd’s Rep 541.
217 Bridge v Campbell Discount Co Ltd [1962] AC 600; Cooden Engineering Co Ltd v Stanford [1953] 1 QB
86; Financings Ltd v Baldock [1963] 1 QB 887; Lombard North Central plc v Butterworth [1987] QB 527.
218 Bridge v Campbell Discount Co Ltd, above, n 217, 613, 614, 625; cf Lord Denning at 631; Goulston
Discount Co v Harman (1962) 106 SJ 369. See also Alder v Moore [1961] 2 QB 57; Richco v AC Toepfer [1991]
1 Lloyd’s Rep 136.
219 Contrast the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) Sched 2, para
1(e) (consumer’s ‘failure to fulfi l his obligation’). See also the Consumer Credit Act 1974, s 100 dealing with
regulated hire-purchase and conditional sale agreements: where a debtor exercises its statutory right to
terminate, its maximum liability, despite a higher agreed sum payable on termination (assuming it has taken
reasonable care of the goods) is to pay what is needed to bring its payments up to half the purchase price, and
the Court can further reduce this if the creditor’s loss is less.
220 Else (1982) Ltd v Parkland Holdings Ltd [1994] 1 BCLC 130, 138 (Evans LJ). See also Phillips Hong Kong
Ltd v A-G of Hong Kong (1993) 61 BLR 41. 221 Wallis v Smith (1882) 20 Ch D 243, 267.
 damages 571

House of Lords therefore held that the sum was not a penalty, but was liquidated
damages and that damages must be limited to this agreed amount.222
Where a clause is held to be penal, the damages recoverable must be assessed in the
usual way. Normally this will produce a lower award than the penalty. But it is possible
for the claimant to recover a sum, equivalent to normal damages, that is greater than
the stipulated penal sum.223 It cannot be said that the clause has a penal effect in such
circumstances and invalidating the penalty also means that a claimant who has acted
unfairly by inserting a penal clause is treated more favourably than one whose clause is
a genuine attempt to ‘liquidate’ prospective damages. However, this result can be seen
as following from the principle that the validity of a clause is determined by reference
to the time at which the contract is made.

222 [1933] AC 20. See also Diestal v Stevenson [1906] 2 KB 345. Cf AKT Reidar v Arcos [1927] 1 KB 352
(unliquidated damages available in respect of breaches outside ambit of clause).
223 Wall v Rederiaktiebolaget Luggude [1915] 3 KB 66; Watts, Watts & Co v Mitsui [1917] AC 227; AMEV-
UDC Finance Ltd v Austin (1986) 162 CLR 344 (Australia). For criticism, see Robophone Facilities v Blank
[1966] 1 WLR 1428, 1446; Law Com WP No 61 (1975), paras 46–8; Hudson (1974) 90 LQR 25, (1985) 101 LQR
480; Gordon (1974) 90 LQR 25.
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 18
SPECIFIC REMEDIES
Under certain circumstances, a contractual promise may be enforced directly. This
may be by an action for the agreed sum, for instance the price it has been agreed would
be paid for goods, by an order for specific performance of the obligation, or by an
injunction to restrain the breach of a negative stipulation in a contract or to require
the defendant to take positive steps to undo a breach of contract. These remedies have
different historical roots, the claim for an agreed sum being, like damages, a common
law remedy whereas specific performance and injunctions are equitable remedies
which were once exclusively administered by the Court of Chancery.

1. actions for the agreed sum

Where, for example, it is agreed to sell goods for a certain price, the seller may seek
payment of the agreed price.1 The claim, a liquidated claim for the precise sum, is for
the payment of a debt. Although the award of an agreed sum orders the defendant to
perform its positive contractual obligation to pay money, and in that sense is similar to
specific performance, it is distinct from specific performance and does not attract the
same bars.2 The law of contract also draws a clear distinction between a claim for the
agreed sum and a claim for damages for breach of contract. The claimant need prove no
loss where the claim is for the payment of an agreed sum and rules, such as remoteness
of damage and mitigation of loss, are irrelevant. However, a seller who suffers loss over
and above the sum due may recover both the agreed sum and damages.3
An action for an agreed sum will not be available until the contractual duty to pay
has arisen, whether expressly or impliedly.4 Subject to any provision in the contract,
in sale of goods, by section 49(1) and (2) of the Sale of Goods Act 1979 the seller is
not entitled to the price unless the property in the goods has passed to the buyer or
payment is due ‘on a day certain irrespective of delivery’.5 Where the goods have not

1 Burrows, Remedies for Torts and Breach of Contract (3rd edn, 2004) ch 19.
2 But this remedy was incorrectly treated as if it were specific performance and hence subject to, eg, a
want of mutuality bar in Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch), [2003]
2 All ER (Comm) 823.
3 Overstone Ltd v Shipway [1962] 1 WLR 117. For interest on the agreed sum, including damages as
interest, see above pp 564–65.
4 Mount v Oldham Corporation [1973] QB 309 (implied term that school fees be paid in advance).
5 Stein Forbes & Co Ltd v County Tailoring & Co Ltd (1916) 86 LJKB 448 (provision for payment in cash ‘against
documents on arrival of steamer’ means an action for the price can be brought before delivery of the goods).
574 remedies for breach of contract

been delivered, the seller’s claim for the price depends on it being ready and willing to
deliver.6 The contractual duty to pay and the correlative right to payment may arise on
entering the contract, as in the case of the deposits required in contracts for the sale of
land7 or during the course of performance, as in the case of hire in charterparties,8 or
progress payments in building contracts.9 By the Apportionment Act 1870, all rents,
annuities (including salaries and pensions), dividends and other periodic payments in
the nature of income shall be considered as accruing from day to day and are, subject
to express contrary stipulation, apportionable in respect of time.10
Where the sum due is simply an advance payment of the price and was not required
as security for due performance, the right to it is conditional upon subsequent
completion of the contract. Where the contract is discharged before completion, the
payment ceases to be due and the innocent party is relegated to its claim for damages.11
Where the sum due is a deposit or other sum required as security for due performance
of the contract, as a general rule it remains payable where the contract has been
discharged.12 It makes no difference whether the accrued obligation is one in favour of
the innocent or the guilty party although a claim by the guilty party may be off-set by
the innocent party’s claim for damages. Thus, an employee who repudiates a contract
of employment, can nevertheless sue for wages earned before that time.13
The effect of a repudiatory breach by the party who will become liable to pay the
agreed sum but before the agreed sum has fallen due has been considered in the
context of discharge.14 White and Carter (Councils) Ltd v McGregor15 established that
an injured party who can perform without the co-operation of the contract-breaker16
has an almost unfettered option to hold the contract open, to perform and to recover
the sum once it becomes due. Admittedly Lord Reid indicated that that option is not
available where it can be shown that the innocent party had ‘no legitimate interest’17
in performing the contract rather than claiming damages; and Kerr J subsequently
expressed the same idea by saying that the innocent party could not hold the contract
open to claim an agreed sum ‘where damages would be an adequate remedy and where

6 Maclean v Dunn & Watkins (1828) 6 LJ (OS) CP 184. 7 Howe v Smith (1884) 27 Ch D 87.
8 Leslie Shipping Co v Welstead [1921] 3 KB 420.
9 Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129; Stocznia Gdanska SA v Latvian
Shipping Co, [1998] 1 WLR 574 (ship-building contracts).
10 By the Apportionment Act 1870, ss 2, 7.
11 Dies v British and International Mining and Finance Co Ltd [1939] 1 KB 724, below, p 591; McDonald
v Dennys Lascelles (1933) 48 CLR 457, 477; Chinery v Viall (1860) 5 H & N 288. On the position where the
payment has been made, see below, pp 588–593.
12 Ibid. See also Hinton v Sparkes (1868) LR 3 CP 161, 166; Damon Compania Naveria v Hapag Lloyd
[1985] 1 WLR 435, 451; Rover International Ltd v Cannon Film Sales Ltd (No 3) [1989] 1 WLR 912, 924–5. See
further, above, pp 524–526 (consequences of discharge).
13 Taylor v Laird (1856) 25 LJ Ex 329, above, p 39; Apportionment Act 1870, s 2. Cf Boston Deep Sea
Fishing and Ice Co v Ansell (1888) 39 Ch D 339. Note the difference of opinion in Moriarty v Regent’s Garage
& Engineering Co [1921] 1 KB 423. Cf ibid, 434 (Lush J) and 448–9 (McCardie J). 14 Above, Ch 15.
15 [1962] AC 413.
16 Th is can include passive co-operation: Hounslow London BC v Twickenham Garden Developments Ltd
[1971] Ch 233; Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC (Ch) 2178, [2003] 2 All ER
(Comm) 823. 17 [1962] AC 413, 431.
 specific remedies 575

an election to keep the contract alive would be wholly unreasonable.’18 However, this
fetter on the innocent party’s right to perform and create an entitlement to an agreed
sum applies only in extreme cases.19
The almost unfettered option established by White & Carter may be said to uphold
directly what the parties agreed in their contract and is consistent with the rejection in
English law of a rule that contract remedies must be exercised reasonably. But it can be,
and has been, criticized20 as encouraging wasteful performance, as being inconsistent
with the mitigation rule (which it is said should apply to actions for an agreed sum)
and as giving what amounts to indirect specific performance of contracts which are
not specifically enforceable. It is also noteworthy that the approach in White & Carter
has not been applied in a number of other common law jurisdictions.21

2. specific performance
An order for specific performance is one by which the Courts direct the defendant
to perform the contract, and in accordance with its terms. By contrast to civil law
systems which generally regard the innocent party’s primary recourse as, in principle,
to have the contract performed,22 the jurisdiction to order specific performance is
supplementary to the common law remedy of damages.

(a) adequacy of damages

Specific performance will not be granted where damages provide adequate relief.23
As we shall see, a main reason why damages are considered inadequate is because
no substitute for the failed performance can be bought. But damages may also be
inadequate where, for example, the contract provided for a series of regular payments

18 Gator Shipping Corp v Trans-Asiatic Oil Ltd SA, The Odenfeld [1978] 2 Lloyd’s Rep 357, 374.
19 Ibid; Clea Shipping Corp v Bulk Oil International Ltd, The Alaskan Trader [1984] 1 All ER 129, 137;
Ocean Marine Navigation Ltd v Koch Carbon Inc, The Dynamic [2003] EWHC 1936 (Comm), [2003] 2 Lloyd’s
Rep 693 at [23]; Reichman v Beveridge [2006] EWCA Civ 1659, [2007] 1 P & CR 20 at [41]. For two cases where
the exception was held to apply, see Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH, The
Puerto Buitrago [1976] 1 Lloyd’s Rep 250 (interest not legitimate where cost of repairing ship exceeded the
value of the ship when repaired); Clea Shipping Corp v Bulk Oil International Ltd, The Alaskan Trader [1984]
1 All ER 129 (which is controversial because the facts were not extreme).
20 Nienabar [1962] CLJ 213; Goodhart (1962) 78 LQR 263; Stoljar (1974) 9 Melb ULR 355, 368; Priestley
(1990–91) 3 JCL 218. But cf (1962–66) 2 Adelaide LR 103; Tabachnik [1972] CLP 149, 164 ff.
21 Rockingham County v Luten Bridge Co 35 F2d 301 (1929); Restatement of Contracts 2d, §253 (USA);
Asamera Oil Corp v Sea Oil Corp [1979] 1 SCR 633 (Canada).
22 Lando and Beale, The Principles of European Contract Law Parts I and II (2000) 399–402. Although
civil law systems may refuse specific performance on a variety of grounds which appear to be similar to
those on which English courts would also refuse the remedy, in practice civil law judges will order specific
performance in a wider range of circumstances than the English Courts. Cf Co-operative Insurance Society
Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, 11–12.
23 Harnett v Yielding (1805) 2 Sch & Lef 549, 553; Ryan v Mutual Tontine Westminster Chambers
Association [1893] 1 Ch 116, 126; South African Territories Ltd v Wallington [1898] AC 309.
576 remedies for breach of contract

but damages could only be sought as each payment fell due,24 or, as discussed in Chapter
21, where the loss is suffered by a person who is not a party to the contract.25 Sometimes
the Courts have preferred to use different terminology than adequacy to explain the
relationship between specific performance and damages. For example, it has been
said that specific performance will be ordered if that remedy will ‘do more perfect
and complete justice than an award of damages.’26 However, while some of the other
bars to specific performance have been weakened in the modern law, so that an order
of specific performance has become easier to obtain, it seems clear that no different
underlying approach to the relationship between the two remedies has been heralded
merely by such a change of terminology.
Should the inadequacy of damages requirement remain? Put another way, should
specific performance remain a secondary remedy to damages? Two factors suggest
that it should. First, specific performance, unlike damages, does not take account of
the desirability of a claimant taking reasonable steps to mitigate its loss and granting
specific performance avoids the policy of the mitigation rule. Secondly, there have
been many improvements in the techniques for identifying and quantifying loss
recoverable by damages.27

(i) Sale of goods

Where there has been a failure to supply goods, substitute goods can usually be bought
so that damages are adequate. Specific performance has therefore only been awarded
where the goods sold were in some sense unique, such as where they have special
beauty, rarity or interest,28 so that substitutes cannot (easily) be bought. In contrast,
specific performance has been refused where the chattel is ‘an ordinary article of
commerce’ such as a piano or even a set of Hepplewhite chairs, as substitute goods can
be obtained. 29
Section 52 of the Sale of Goods Act 1979 provides that, in any action for breach of
contract to deliver specific or ascertained goods, the Court may, if it thinks fit, direct
that the contract shall be performed specifically, without giving the defendant the
option of retaining the goods on payment of damages. This section has not, however,
affected the law on specific performance. In particular, it does not mean that specific
performance should be ordered simply because goods are specific or ascertained. And
even in the case of a contract falling outside section 52 for the sale of generic goods,

24 Beswick v Beswick [1968] AC 58.

25 Ibid, below, pp 619–620. But not always, see Co-operative Insurance Society Ltd v Argyll Stores (Holdings)
Ltd [1998] AC 1, 18, below, pp 579–580 (wrongful closure of ‘anchor’ supermarket in shopping centre caused
losses to other tenants).
26 Tito v Waddell (No 2) [1977] Ch 106, 322 (Megarry V-C). See also Beswick v Beswick [1968] AC 58, 77,
83, 88; The Stena Nautica (No 2) [1982] 2 Lloyd’s Rep 336, 346–7.
27 Burrows, Remedies for Torts and Breach of Contract (3rd edn, 2004) 472–5.
28 Holroyd v Marshall (1862) 10 HL Cas 191, 209; Falcke v Gray (1859) 4 Drew 651, 658.
29 Whiteley Ltd v Hilt [1918] 2 KB 808, 819; Cohen v Roche [1927] 1 KB 169. Cf Th e Oro Chief [1983]
2 Lloyd’s Rep 509 (ship); Record v Bell [1991] 1 WLR 853, 862 (furniture in house separately sold to
claimant).
 specific remedies 577

such as petrol or steel, specific performance may be ordered where scarcity of supplies
means that substitutes are not available.30
Sections 48A–48F of the Sale of Goods Act 197931 give a buyer, who is a consumer,
a right to the repair or replacement, within a reasonable time, of goods which do
not conform to the contract terms unless repair or replacement is impossible or
disproportionate to a price reduction or rescission (ie termination) of the contract. By
section 48E(2), the Courts are expressly given the power to enforce the right to repair
or replacement by an order of specific performance. The structure of the provisions
militates against the Courts applying the normal common law approach of denying
specific performance unless damages are inadequate. Rather it appears that Courts
should only refuse specific performance (ordering repair or replacement) if repair or
replacement would be impossible or disproportionate to a price reduction or rescission.
This therefore appears to mark a move in favour of specific performance being the
primary judicial remedy for consumers in sale contracts. Given that those Regulations
implement an EC Directive it is perhaps not surprising that, in the primacy apparently
afforded to specific performance, they reflect a civilian rather than a common law
approach.

(ii) Sale of land

On the other hand, as a general rule, either party to a contract for the sale of land is
entitled to sue for specific performance of the agreement.32 As regards the vendor’s
obligation, the reason traditionally given for this is that each piece of land is unique
and cannot readily be replaced in the market. And, as regards the purchaser’s
obligation to pay the price, the reasoning appears to be that the vendor should be
entitled to a reciprocal remedy (not least because, by reason of the availability of
specific performance, the purchaser acquires under the contract an immediate
equitable interest in the land). The power of the Court to grant specific performance
is not limited to those situations in which at law damages would be recoverable. Thus
specific performance may be ordered in respect of an anticipatory breach of a contract
for the sale of land in circumstances where the claimant, having elected to affirm the
agreement, would have no immediate right of action for damages.33

(b) want of mutuality

In considering whether or not to entertain a claim for specific performance, the Court
will take into account whether ‘mutuality’ exists between the parties. If one party
were compelled to perform its obligations in accordance with the terms of the contract

30 Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 WLR 576 (scarcity due to oil embargo); Howard E Perry
v British Railways Board [1980] 1 WLR 1375 (steel strike).
31 Inserted by the Sale and Supply of Goods to Consumers Regulations 2002 (SI 2002 No 3045). See
Harris (2003) 119 LQR 541.
32 Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 478. In cases of misdescription by a vendor of
land, for example where the area of the land is less than that stated in the contract, the purchaser may claim
specific performance with an abatement of the purchase price to compensate for the misdescription: see
Harpum [1981] CLJ 108. 33 Hasham v Zenab [1960] AC 316; and see above, pp 514–516.
578 remedies for breach of contract

while the obligations of the other party under the contract, or some of them, remained
unperformed, it might be unfair that the former party should be left to its remedy in
damages if the latter party failed to perform any of its unperformed obligations.34
At one time it was supposed that the Court would not grant specific performance
to one party unless, at the time the contract was entered into, it could have been
specifically enforced against that party by the other.35 But this supposed rule was
subject to a number of exceptions36 and has since been exploded.37 Lack of mutuality
is now only relevant if, at the date of the hearing, the claimant has not performed
its obligations under the contract and could not be compelled for some reason to
perform its unperformed obligations specifically.38 Even where mutuality in this sense
does not exist, the Court may possibly, in the exercise of its discretion, order specific
performance if damages would be an adequate remedy to the defendant for any default
on the claimant’s part.39

(c) contracts of personal service

The Court will not, in general, compel the performance of contracts which involve
personal service.40 In the case of contracts of employment, and as regards enforcing an
employee’s obligations, this principle is now embodied in legislation which provides
that an employee shall not be compelled to perform a contract of employment.41 The
basis of this approach seems to be that to make one person serve another against his
or her will would be improper and could ‘turn contracts of service into contracts of
slavery’.42 But this does not explain why specific performance should not be ordered
in favour of an employee against an employer and, on this side of the relationship,
there have been departures from the general rule. So, for example, by declaration, a
public official43 and a university lecturer44 may in effect be reinstated; certain statutes
now enable a tribunal to make an order for re-engagement or reinstatement of an
employee;45 and, in exceptional circumstances, especially where there is no breakdown
in mutual confidence, an injunction may be granted to restrain an employer from
dismissing an employee even though this amounts to specific enforcement of the
contract of employment.46

34 Price v Strange [1978] Ch 337, 361.

35 Fry, Specific Performance (6th edn, 1921) 219. 36 Ames, Lectures on Legal History (1913) 370.
37 Price v Strange [1978] Ch 337. 38 Ibid; Sutton v Sutton [1984] Ch 184. 39 Ibid, 368.
40 Rigby v Connol (1880) 14 Ch D 482, 487; Scott v Rayment (1868) LR 7 Eq 112 (partnership).
41 Trade Union and Labour Relations (Consolidation) Act 1992, s 236. Cf. Stevenson v United Road
Transport Union [1977] ICR 893. 42 De Francesco v Barnum (1890) 45 Ch D 430, 438.
43 Ridge v Baldwin [1964] AC 40; R v BBC, ex p Lavelle [1983] 1 WLR 23. But cf Chief Constable of North
Wales Police v Evans [1982] 1 WLR 1155, 1175–6; R v East Berkshire HA, ex p Walsh [1985] QB 152; McLaren
v Home Office [1990] ICR 808.
44 Thomas v University of Bradford [1987] AC 795, 824; Pearce v University of Aston (No 2) [1991] 2 All
ER 469. 45 Employment Rights Act 1996, ss 114–115, 130. See also Race Relations Act 1976, s 56.
46 Hill v CA Parsons & Co Ltd [1972] Ch 305; Irani v Southampton and SW Hampshire Health Authority
[1985] ICR 590; Powell v Brent LBC [1988] ICR 176; Robb v Hammersmith and Fulham LBC [1991] IRLR 72.
Cf Chappell v Times Newspapers Ltd [1975] 1 WLR 482.
 specific remedies 579

(d) uncertainty
The obligations in an agreement which it is sought to enforce may be so ill-defined, or
what has to be done in order to comply with the order of the Court may not be capable
of sufficient definition, that specific performance would in the circumstances be an
unsuitable remedy. Thus a covenant to ‘lay out £1,000 in building’47 and a contract
to construct ‘a railway station’ with nothing to indicate the nature, materials, style,
dimensions, or anything else48 have been held not to be specifically enforceable.

(e) constant supervision by the court

At one time it was said that an order for specific performance would not be granted
if the Court would be required constantly to supervise the execution of the contract.
Thus in Ryan v Mutual Tontine Westminster Chambers Association49 the Court held
that it could not grant specific performance of a covenant to maintain a resident porter
in constant attendance at a block of flats for the benefit of the tenants as it was a contract
which would require such supervision as the Court was not prepared to undertake.
However, the impossibility for the Court to supervise the doing of the work has more
recently been rejected as a ground for denying relief 50 and in Posner v Scott-Lewis51 a
covenant to employ a resident porter was specifically enforced. In the case of contracts
which involve continuing or complex obligations, difficulties may arise in formulating
with sufficient precision (having regard to the terms of the contract) what it is that the
defendant must do to comply with the order for specific performance, any breach of
which is punishable as a contempt of court. If those difficulties can be overcome, there
is no reason why such a contract cannot be specifically enforced if damages would be
an inadequate remedy.
A narrower approach was, however, taken by the House of Lords in Co-operative
Insurance Society Ltd v Argyll Stores (Holdings) Ltd.52 Their Lordships refused to order
the specific performance of an undertaking in a lease (which had 19 years to run) to keep
a supermarket ‘open for retail trade during the usual hours of business’. A distinction
was drawn between cases in which the order would require the party to achieve a
result, for instance building or repairing a house, and those in which it would require
the party to carry on an activity, such as to run a business over an extended period of
time. The more liberal approach was said to apply only to the first type of case53 since,
in the second type of case, there was a greater possibility of repeated applications to the

47 Moseley v Virgin (1796) 3 Ves 184.

48 Wilson v Northampton and Banbury Ry Co (1874) 9 Ch App 279. 49 [1893] 1 Ch 116.
50 Shiloh Spinners Ltd v Harding [1973] AC 691, 724 (Lord Wilberforce). See also the statements of
Megarry V-C cited below, n 53.
51 [1987] Ch 25. See also Rainbow Estates v Tokenhold Ltd [1999] Ch 64 (repairing covenant).
52 [1998] AC 1. For criticism, see Burrows, Remedies for Torts and Breach of Contract (3rd edn, 2004)
480–1.
53 Ibid, 13–15. Lord Wilberforce’s rejection of the nineteenth-century authorities in Shiloh Spinners Ltd
v Harding [1973] AC 691, 724, was made in that context and Megarry V-C’s statements in CH Giles & Co
Ltd v Morris [1972] 1 WLR 307, 318 and Tito v Waddell (No 2) [1977] Ch 106, 321 were said to be based on
incomplete analysis.
580 remedies for breach of contract

Court to rule on whether the order would be breached. In the Co-operative Insurance
Society Ltd case it was also said to be contrary to the long-standing and settled practice
of the Court to order a person specifically to perform a contract to run a business,54
and that the contract in that case did not define the obligation sufficiently precisely
to make it capable of specific performance because it said nothing about the level of
trade, the areas of trade, or the kind of trade.55

(f) conduct and hardship

Specific performance is a discretionary remedy. The Court has a choice in the matter
and, although this does not mean that the choice will be exercised in an arbitrary
or capricious manner, the Court can consider whether it would be fair to grant the
remedy56 and refuse it in circumstances which would not justify a refusal of the
common law remedy of damages. ‘He who comes to Equity must come with clean
hands.’ Thus the Court can take into account the fact that the claimant’s conduct
has been tricky or unfair,57 or that the claimant has tried to take advantage of a
mistake on the part of the defendant. 58 It can also take account of the conduct of
the defendant, 59 and it can refuse specific performance if, to grant it, great hardship
would be caused to the defendant.60 The defendant’s bad conduct may also induce
the Court to grant the remedy where there has been a gross breach of personal faith
or an attempt to use the threat of non-performance as blackmail.61 But where the
parties’ interests are purely fi nancial, acting ‘with gross commercial cynicism’
will not suffice.62 These considerations are, of course, generally considered to be
irrelevant at common law.63

(g) miscellaneous
In addition to the above bars, the Court will also refuse specific performance where
the interest to be transferred is merely transitory,64 or where an entire obligation is
specifically enforceable in part only.65 Also contracts to appoint an arbitrator,66 to

54 Ibid. See also below, n 60 (hardship to defendant). 55 Ibid, 16–17.

56 Shell UK Ltd v Lostock Garages Ltd [1976] 1 WLR 1187.
57 Mortlock v Buller (1804) Ves 292; Walters v Morgan (1861) 3 De GF & J 718; Sang Lee Investment Co v
Wing Kwai Investment Co (1983) 127 SJ 410. 58 Webster v Cecil (1861) 30 Beav 62; above, p 266.
59 Sang Lee Investment Co v Wing Kwai Investment Co (1983) 127 SJ 410
60 Malins v Freeman (1837) 2 Keen 25; Denne v Light (1857) 8 De GM & G 774; Handley Page Ltd v
Commissioners of Customs and Excise [1970] 2 Lloyd’s Rep 459; Tito v Waddell (No 2) [1977] Ch 106, 326;
Patel v Ali [1984] Ch 283. But cf Mountford v Scott [1975] Ch 258; Howard E Perry & Co v British Railways
Board [1980] 1 WLR 1375.
61 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, 18 (Lord Hoff mann).
62 Ibid.
63 But see Friedmann, in Beatson and Friedmann (eds) Good Faith and Fault in Contract Law (1995) ch
16, and above, pp 565–571 (the rules concerning penalties), and below, p 603 (right to recover the defendant’s
gain). 64 Lavery v Pursell (1888) 39 Ch D 508, 519 (tenancy for a year).
65 Ryan v Mutual Tontine Westminster Chambers Association [1893] 1 Ch 116. Cf Rainbow Estates ltd v
Tokenhold Ltd [1999] Ch 64, 73. 66 Re Smith & Service and Nelson & Sons (1890) 25 QBD 545.
 specific remedies 581

convey the goodwill of a business without the business premises,67 and to exercise a
testamentary power of appointment68 will not be specifically enforced.

3. injunctions
Injunctions are either prohibitory or mandatory.69 A prohibitory injunction may be
granted to restrain the breach of a negative contract or of a negative stipulation in a
contract. A mandatory injunction compels the positive performance of an act and may
be used to restore the situation to what it was before the breach of contract.

(a) prohibitory injunctions

(i) General
Although the grant of an injunction is discretionary,70 an injunction will normally
be granted to restrain the breach of a negative contract or stipulation.71 A negative
contract or stipulation is one whereby a promisor covenants not to do something,
for example, not to carry on a certain trade,72 or to build on land,73 or not to ring
church bells early in the morning.74 A negative stipulation, though not express, may
be implied, for example, in the case of an exclusive dealing agreement relating to a
particular product,75 or an agreement to charter a ship to a particular person,76 the
injunction being granted to restrain the promisor from buying (or selling) the product
elsewhere or chartering the ship to another.

(ii) Indirect specific performance?

An injunction may be granted to restrain the breach of a negative stipulation in a
contract even though the Court would not order specific performance of the positive
stipulations contained in the same contract.77 Also, it has been granted in cases where
its effect may be to enforce performance of the contract, even though the contract is
one which the Court might not normally specifically enforce. Thus in Metropolitan

67 Baxter v Connelly (1820) 1 J & W 576. But see Beswick v Beswick [1968] AC 58, 89, 97.
68 Re Parkin [1892] 3 Ch 510.
69 On damages in lieu of an injunction, see below, p 584.
70 eg Bankers Trust Co v PT Jakarta International Hotels and Development [1999] 1 Lloyd’s Rep 910, 911
(anti-suit injunction will only be granted where ‘damages are manifestly an inadequate remedy’).
71 Doherty v Allman (1878) 3 App Cas 709, 720. But the grant of an interim injunction is not so readily
made: Texaco Ltd v Mulberry Filling Station Ltd [1972] 1 WLR 814. Cf Hampstead and Suburban Properties
Ltd v Diomedous [1969] 1 Ch 248. And see generally American Cyanamid Co v Ethicon Ltd [1975] AC 396.
72 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535.
73 Wrotham Park Estate Co v Parkside Homes Ltd [1974] 1 WLR 798 (in relation to building that had been
undertaken before the decision, see below, p 597). 74 Martin v Nutkin (1724) 2 Peere Wms 266.
75 Catt v Tourle (1869) LR 4 Ch App 654; Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349.
76 Lord Strathcona SS Co v Dominion Coal Co [1926] AC 108, below, p 653; Associated Portland Cement
Manufacturers Ltd v Teigland Shipping A/S [1975] 1 Lloyd’s Rep 581.
77 Lumley v Wagner (1852) De GM & G 604; Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 WLR 576; Hill
v CA Parsons & Co Ltd [1972] Ch 305.
582 remedies for breach of contract

Electric Supply Co Ltd v Ginder,78 an express promise by the defendant to take the
whole of his supply of electricity from the Company was held to import a negative
promise that he would take none from elsewhere, and an injunction was granted.
The question of whether a prohibitory injunction should be refused because
it amounts to indirect specific performance of a contract that cannot be directly
specifically enforced has been particularly raised in the context of contracts of personal
service. As we have seen, in general contracts of personal service cannot be specifically
enforced.79 But the Courts have traditionally accepted that it is possible by means of
an injunction to encourage performance in an oblique manner. In Lumley v Wagner,80
for instance:
The defendant agreed to sing at the claimant’s theatre, and during that season to sing
nowhere else. She then made a contract with another person to sing at another theatre, and
refused to perform her contract with the claimant.

The Court refused to order specific performance of her positive engagement to sing at
the claimant’s theatre, but granted an injunction to restrain the breach of her promise
not to sing elsewhere.
The scope of the principle in Lumley v Wagner has, however, been confi ned
by two restrictions. In the fi rst place, although in certain instances an express
positive promise implies a negative undertaking not to do anything which would
interfere with the performance of this promise, the Courts have normally refused
in contracts of personal service to enforce by injunction anything but an express
stipulation not to do some specific thing. There must have been inserted in the
contract itself an express negative stipulation, and the defendant must have acted
in breach of that stipulation. Thus in Mortimer v Beckett, 81 a boxer, Joe Beckett,
agreed with the claimant that he should have ‘the sole arrangements of matching
me for all my boxing contests and engagements during the period of the next seven
years’: afterwards he refused to be managed by the claimant. In terms, the contract
contained no negative covenant, and so the Court held that an injunction could not
be granted.
Secondly, an injunction will not be granted if its effect will be to compel the
defendant to fulfil a contract for personal service or to abstain from any business
whatsoever, for this would be to compel a contract-breaker to choose between specific
performance and starvation. In Ehrman v Bartholomew,82 therefore, where a traveller
promised that he would serve a firm for 10 years and would not, during that period,
‘engage or employ himself in any other business’, an injunction was refused, among
other grounds, because to have granted it would have given him no real choice but to
work for the firm. But if the employment is of a special kind, an injunction may be
granted to restrain the defendant from doing similar work of that kind. So in Warner
Brothers Pictures Incorporated v Nelson:83

78 [1901] 2 Ch 799. 79 Above, p 578. 80 (1852) 1 De GM & G 604.

81 [1920] 1 Ch 571. See also Whitwood Chemical Co v Hardman [1891] 2 Ch 416. Cf Hivac Ltd v Park Royal
Scientific Instruments Ltd [1946] Ch 169. 82 [1898] 1 Ch 671.
83 [1937] 1 KB 209.
 specific remedies 583

A fi lm actress, Mrs Nelson (professionally known as Bette Davis), agreed that she would
render her exclusive services as an actress to the claimants for a three-year period, and
would not during that period render any similar services to any other person or engage
in any other occupation. In breach of these stipulations, she entered into an agreement to
appear for another fi lm company. The claimants sought an injunction to restrain her.

Branson J held that, although it was impossible to grant an injunction to prevent her
from engaging in any other occupation as this would amount to specific performance,
an injunction should be granted to restrain her from working as an actress for any other
person for a period of up to three years. There were other spheres of activity which, if not
so remunerative, would still be open to her, so that she would not be driven, although she
might be encouraged, to perform the contract.84 This has been criticized as implying that
nothing short of idleness or starvation is compulsive and it has been said that Branson J’s
view that ‘an actress of her then youth and soaring talent’ might employ herself usefully
and remuneratively in other spheres of activity for a period of up to three years appeared
‘extraordinarily unrealistic’.85 More recent cases have examined the practical realities of
granting an injunction and have been more willing to infer compulsion where a longer
term injunction was being sought. So in Warren v Mendy:86
There was a dispute over the management of the boxer, Nigel Benn. The case differed from
the usual restrictive covenant case in that the injunction being sought by the claimant
(Warren) was not against Benn for breach of contract but against another manager (Mendy)
in a tort action for inducing breach of Benn’s contract with the claimant. But as the claimant
would have sought an injunction against anyone who arranged to manage Benn, the same
principles were applicable as if the injunction had been sought against Benn for breach of
contract.

The Court of Appeal refused the injunction on the ground that to grant it would
constitute indirect specific performance of Benn’s contract to be exclusively managed
by the claimant for the three-year contract period.
On the other hand, Warren v Mendy was distinguished in LauritzenCool AB v Lady
Navigation Ltd:87
In 1998 the defendant owners chartered two ships to the claimant charterers under a
time charter that was due to run until 2010. The ships were part of a ‘pool’ managed by
the claimants. Following a dispute the owners informed the charterers that they wished to
withdraw the two ships from the pool: that is, they wished to pull out of the charterparty
in respect of the two ships. Pending final arbitration, the charterers sought an interim
injunction to restrain that alleged breach.

That injunction was granted. Although a time charter is a contract for personal
services (the owner being required to provide the ship and services of the crew),88 the

84 Ibid, 217. 85 Warren v Mendy [1989] 1 WLR 853, 865 (Nourse LJ).
86 [1989] 1 WLR 853. See also Page One Records Ltd v Britton [1968] 1 WLR 157 (injunction not granted to
restrain breach of management contract by pop group); Young v Robson Rhodes [1998] 3 All ER 524, 534–5.
87 [2005] EWCA Civ 579, [2005] 1 WLR 3686.
88 It was accepted in The Scaptrade [1983] 2 AC 694, per Lord Diplock, that specific performance will not
be ordered of a time charter because it is a contract for personal services.
584 remedies for breach of contract

Court of Appeal reasoned that it was acceptable to grant the injunction even though
its practical effect would be to compel performance of the contract. Warren v Mendy
was distinguished because the personal services in that case required very special
skills and talents. But while that distinction may explain a greater willingness to order
specific performance, it does not satisfactorily explain why the injunction granted did
not indirectly amount to specific performance.
It has been assumed in the above discussion that the claimant wants the defendant
to perform his or her positive contractual obligations. Where this is not so, for
example where there is a restrictive covenant to take effect after termination of the
defendant’s employment89 or where the claimant undertakes to pay the defendant
and to give him his other contractual benefits even though the defendant does no
work for him,90 there is no question of an injunction amounting to indirect specific
performance.

(b) mandatory injunctions

An injunction may also be granted to restore the situation which would have prevailed
but for the defendant’s breach of contract, eg to put back a tenant wrongfully evicted
by a landlord.91 Such mandatory injunctions are not as readily granted as prohibitory
injunctions92 but the Court will intervene in this way where it is shown that the
defendant has deliberately ridden roughshod over the claimant’s rights93 or that the
claimant would be gravely prejudiced if the remedy were withheld.94 At trial, specific
performance, rather than a mandatory injunction, orders a defendant to perform its
positive contractual obligations.95

4. equitable damages
Since Lord Cairns’ Act 1858 there has been jurisdiction to grant damages either
in addition to or in substitution for specific performance or an injunction.96
Such damages—often referred to as equitable damages—are governed by the

89 As in, eg, General Billposting Co Ltd v Atkinson [1909] AC 118; Credit Suisse Asset Management Ltd v
Armstrong [1996] ICR 882; Rock Refrigeration Ltd v Jones [1997] ICR 938.
90 Evening Standard Co Ltd v Henderson [1987] IRLR 64; Provident Financial Group plc v Hayward [1989]
3 All ER 298. The defendant under such an arrangement is described as being on ‘garden leave’.
91 Luganda v Service Hotels Ltd [1969] 2 Ch 209.
92 Sharp v Harrison [1922] 1 Ch 502, 512; Shepherd Homes Ltd v Sandham [1971] Ch 340.
93 Luganda v Service Hotels Ltd, above, n 91; Mortimer v Bailey [2004] EWCA Civ 1514, [2005] 2 P &
CR 9.
94 Durell v Pritchard (1865) LR 1 Ch App 244, 250; Shepherd Homes Ltd v Sandham [1971] Ch 340;
Wrotham Park Estate Co v Parkside Homes Ltd [1974] 1 WLR 798.
95 For interim mandatory injunctions enforcing positive contractual obligations, see Nottingham
Building Society v Enrodynamics Systems [1993] FSR 468; Zockoll Group Ltd v Mercury Communications Ltd
[1998] FSR 354. 96 See now the Senior Courts Act (formerly Supreme Court Act) 1981, ss 49, 50.
 specific remedies 585

same principles as are damages at common law.97 But in contrast to common law
damages, damages in substitution for an injunction or specific performance may
compensate for an anticipated, rather than just an accrued, cause of action.98 They
can also be awarded where an order for specific performance has been made and
not complied with.99

97 Johnson v Agnew [1980] AC 367, 400 overruling Wroth v Tyler [1974] Ch 30.
98 Oakacre Ltd v Claire Cleaners (Holdings) Ltd [1982] Ch 197; Jaggard v Sawyer [1995] 1 WLR 269.
99 Biggin v Minton [1977] 1 WLR 701; Johnson v Agnew [1980] AC 367.
This page intentionally left blank
 19
RESTITUTIONARY AWARDS
A person who pays money or renders services or supplies goods to the defendant
pursuant to a contract which is discharged by breach may be entitled to restitution
of the money paid or to restitution in the form of a reasonable remuneration for the
services rendered (quantum meruit) or a reasonable price for the goods supplied
(quantum valebat). These restitutionary remedies may be available not only to an
innocent party but also, in certain situations, to a contract-breaker. These remedies
may also be available in respect of money paid or non-money benefits rendered under
other ineffective agreements including those that are void, illegal, discharged for
frustration, or too uncertain to amount to contracts: such claims, which are outside
the scope of this part of the book, since they do not follow a breach of contract, have
been briefly considered in the chapters on ineffective contracts.1 It should also be
stressed that, even where the innocent party is seeking these remedies where the
contract has been discharged for breach, the cause of action is not breach of contract
but rather unjust enrichment with the relevant ground of unjust enrichment being,
for example, total failure of consideration. A major advantage to an innocent party in
seeking restitution after breach, rather than compensatory damages for the breach,
is that restitution may enable the innocent party to escape from a bad bargain. 2
In certain limited circumstances, the claimant may, by way of exception to the
normal compensatory measure, be able to claim a restitutionary remedy (whether
an account of profits or ‘restitutionary damages’) for the breach of contract (ie,
the cause of action is breach of contract) to strip the profits the contract-breaker
made from the breach. Th is will be advantageous where compensatory damages are
limited or irrecoverable (perhaps because of the rules of remoteness or the mitigation
principle), or where for some reason the innocent party finds it difficult to prove the
loss suffered. 3

1 Above, pp 64, 68, 89, 219, 228, 231, 242–246, 423–432, 500–504. See further Goff and Jones, The Law of
Restitution (7th edn, 2007) chs 19–26; Beatson, The Use and Abuse of Unjust Enrichment (1991) 1–11; ch 3;
Burrows, The Law of Restitution (3rd edn, 2010) ch 14–15.
2 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 800, aff ’d [1983] 2 AC 352; Bush v
Canfield 2 Conn 485 (1818) (Connecticut). See also below, pp 595–596. The limitation period may also be
more favourable: see below, p 606. 3 Above, p 535, 542.
588 remedies for breach of contract

1. the recovery of money paid

(a) recovery by the innocent party
If one party is entitled to be treated as discharged from further performance of
the contract by reason of the other party’s breach, and does so, any money paid by
that party to the other party under the contract can be recovered provided that the
consideration for the payment has failed. Strictly, the rule requires that the failure be
total, but several factors indicate that the requirement of totality may be ‘on the turn’.
We shall first consider total failure, and then the recent developments.

(i) Total failure of consideration

In Kwei Tek Chao v British Traders and Shippers Ltd,4 a case concerned with a cif
contract for the sale of goods, Devlin J said:
If goods have been properly rejected, and the price has already been paid in advance, the
proper way of recovering the money back is by an action for money paid on a consideration
which has wholly failed, ie money had and received.

As well as the requirement that the failure of consideration be total, the party seeking
repayment must have elected to accept the breach as discharging the contract. 5
The need for a total failure of consideration is illustrated by Hunt v Silk:6
The claimant paid £10 to the defendant in return for a promise by the defendant to give
him immediate possession of certain premises, to put them into repair, and to execute a
lease of them in his favour within 10 days. The claimant obtained possession, but left soon
afterwards when the defendant failed to carry out the rest of his promise; he also sued to
recover the £10.

His action failed. It was held that, the contract having been in part performed, no part
of the consideration could be recovered.
The common law has required the failure of consideration to be total for two main
reasons.7 First, the common law has set its face against apportionment, partly because
one cannot assume that all parts of the payee’s performance are equally valuable and
that the contract price is earned incrementally. For example, in a contract to build a
house, the preparation of the ground and the foundations on a difficult site may involve
greater expense in either time or labour than the completion of the brickwork, the
roof and the interior. Secondly, in many cases the benefit the payer has received from
the payee’s part-performance cannot easily be valued in money. This is particularly
so where it consists of services. So, where a builder who has agreed to modernize a
bathroom, abandons the contract after disconnecting the old fittings and removing
some of them, it is not obvious what the benefit of such part performance is to the

4 [1954] 2 QB 459, 475. 5 Ibid. 6 (1804) 5 East 449.

7 Whincup v Hughes (1871) LR 6 CP 78, 81 (Bovill CJ). Birks, An Introduction to the Law of Restitution
(revd edn, 1989) 242–4. For other justifications, see Law Com No 121, Pecuniary Restitution on Breach of
Contract (1983), paras 3.8–3.10.
 restitutionary awards 589

owner of the house,8 who will have to pay another person to clear the room as well as
having the trouble of finding another builder to complete the task.
Total failure of consideration occurs where none of the promised performance has
been rendered.9 Consideration in this context refers to performance by the payee of the
contractual promise.10 This means that any performance of the actual thing promised,
as determined by the contract, is fatal to recovery. But in practice the concept of total
failure of consideration has been applied somewhat arbitrarily, and has ignored real
benefits received by the payer and significant detrimental reliance by the payee. For
instance, in the case of a contract for the sale of goods,11 or of hire purchase,12 a failure
by the seller to convey a good title to the goods in breach of the condition implied by
statute13 will constitute a total failure of consideration. Thus in Rowland v Divall:
R bought a motor-car from D for £334, repainted it and sold it on to a third party. It then
turned out that the car had been stolen, although D had dealt with it in good faith. The police
took possession of it on behalf of the true owner and R brought an action to recover from D
the £334.

The Court of Appeal held that, since R ‘had not received any part of that which he
had contracted to receive—namely, the property and right to possession’ of the car,
there had been a total failure of consideration. He was entitled to recover the whole
purchase price, notwithstanding that he and his sub-purchaser had had four months’
use and enjoyment of the vehicle and that he could not restore the car to D.14 Similarly,
in Butterworth v Kingsway Motors15 the hire-purchase price of a car (£1,275) was
recovered although by the time the car, which had been used by the hire-purchaser for
nearly a year, was returned it was worth only £800. Again in Barber v NWS Bank plc16
a conditional purchaser was able to recover the purchase price of a car that had been
used for twenty-two months before the defect in title was discovered and the contract
terminated. In an action for damages, account would be taken of the benefit received
by purchasers in these cases.17 Similarly, there will be a total failure of consideration

8 Sumpter v Hedges [1898] 1 QB 673, 514.

9 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; Rover International v
Cannon Film Sales Ltd (No 3) [1989] 1 WLR 912; Stocznia Gdanska SA v Latvian SS Co [1998] 1 WLR 574.
10 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbur Ltd [1943] AC 32, 48. There is a wider
meaning of failure of consideration that extends beyond non-performance of a contractual obligation. In
that wider sense it means a failure of purpose or condition, whether promissory or not. That wider meaning
was stressed by the High Court of Australia in Roxborough v Rothmans of Pall Mall Ltd (2001) 208 CLR 516
in which restitution was granted of money paid under a contract that had not been discharged.
11 Hudson v Robinson (1816) 4 M & S 475; Rowland v Divall [1923] 2 KB 500.
12 Karfl ex Ltd v Poole [1933] 2 KB 251; Warman v Southern Counties Car Finance Corp Ltd [1949] 2
KB 576. 13 Above, pp 159, 165.
14 [1923] 2 KB 500, 504, 506–7. The principle has been both criticized and defended; see Law Reform
Committee, Twelft h Report (Cmnd 2958, 1966); Law Com No 24, Exemption Clauses in Contracts (1969);
Law Com No 160, Sale and Supply of Goods (1987), paras 6.1–5, the last of which recommended no reform of
the rule by requiring a buyer seeking to recover the price to make a money allowance in favour of the seller
in respect of the use. Cf Torts (Interference with Goods) Act 1977, s 6(3). 15 [1954] 1 WLR 1286.
16 [1996] 1 WLR 641.
17 Harling v Eddy [1951] 2 KB 739, and above, p 556. But where a buyer has spent money on the goods while
they are in its possession, damages may be the preferable remedy because this can be recovered in such an
action but not in an action for the return of the price: Mason v Burningham [1949] 2 KB 545.
590 remedies for breach of contract

even though a buyer or hirer has incurred substantial reliance expenditure for the
purpose of the contract18 or where, although there has been partial performance
by the payee, the Court is able to divide the contract and hold that there has been a
total failure in relation to the parts not performed,19 or can find that the parties have
impliedly acknowledged that the consideration can be ‘broken up’ or apportioned.20

(ii) Partial failure of consideration

The willingness of the Court so to divide the contract may indicate dissatisfaction
with the requirement of totality. We have seen that the requirement of totality can
produce fine and sometimes arbitrary distinctions. In the case of frustrated contracts,
dealt with in an earlier chapter,21 the requirement of a total failure has been removed
by statute so that money paid can be recovered even though there has only been a
partial failure of consideration.22 We shall also see that where a quantum meruit claim
is made in respect of services rendered, the difficulty of valuing the work done is not
regarded as an insurmountable bar to relief.
It may, moreover, be difficult to maintain the requirement that the failure be total
now that the principle of unjust enrichment and the defence of change of position have
been recognized in English law.23 It has been said that ‘if counter-restitution is relatively
simple . . . insistence on total failure of consideration can be misleading and confusing’,24
and in Goss v Chilcott, 25 the Judicial Committee of the Privy Council relaxed the
requirement that the failure be total by the use of apportionment. It was held that a
loan could be apportioned between the principal sum lent and the interest, so that the
receipt by the lender of interest did not prevent the lender recovering the principal sum
lent, and the Court indicated that it would have been willing to apportion the principal
sum itself so that partial repayment of the principal sum would not have prevented a
restitutionary claim but would have merely reduced such a claim to the balance of the
loan. Moreover, support has been expressed in the House of Lords for the reformulation
of the total failure of consideration rule.26 Although these cases all concerned loans or
other transactions in which the part-performance received by the payer consisted of
money so that the problems of valuing non-monetary performance did not arise, it is

18 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, above, p 499 (work done
by payees in manufacturing machines); Rover International v Cannon Film Sales Ltd (No 3) [1989] 1 WLR
912, 932, 936, 937 (expenditure in buying back fi lms to fulfi l terms of distributorship contract).
19 DO Ferguson v Sohl (1992) 62 BLR 92 (building contract; total failure of consideration in respect of
sum paid in excess of value of work done); White Arrow Express Ltd v Lamey’s Distribution Ltd (1995) 15 Tr
LR 69, noted Beale (1996) 112 LQR 205; Baltic Shipping Co v Dillon (1993) 176 CLR 344, 375 (High Court of
Australia). 20 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 383.
21 Above, Ch 14. 22 Above, p 500 (Law Reform (Frustrated Contracts) Act 1943, s 1(2)).
23 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.
24 David Securities Pty Ltd v Commonwealth Bank of Australia, (1992) 175 CLR 353, 383 (High Court of
Australia). ‘Counter-restitution’ means restitution to the defendant of any benefits received by the claimant.
25 [1996] AC 788, 798.
26 Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, 682–3. See also Birks, An
Introduction to the Law of Restitution (revd edn, 1989), 259–64; Goff and Jones, The Law of Restitution
(7th edn, 2007) paras 19-002–19-009, 20-012, but cf Law Com No 121, Pecuniary Restitution on Breach of
Contract (1983), paras 3.8–3.9 and Stocznia Gdanska SA v Latvian SS Co [1998] 1 WLR 574, 590.
 restitutionary awards 591

submitted that, in principle, restitution should be available in all cases of a failure of

consideration subject to giving counter-restitution.

(b) recovery by the party in breach

It is similarly possible for the party who has broken the contract to recover from the
innocent party money pre-paid by it. The recoverability of such payments partly
depends on the construction of the contract and the purpose for which the payment
is required. A distinction is drawn between deposits and other payments required as
security for due performance on the one hand and advance payments of the price on
the other.

(i) Advance payments of the contract price

Where the payment was not a deposit or otherwise required as security for due
performance and where recovery was not otherwise expressly or impliedly precluded
by the terms of the agreement (eg by express provision that it be forfeited) it may be
recoverable. Thus in Dies v British and International Mining and Finance Corporation
Ltd:27
The defendant contracted to sell rifles and ammunition to one Quintana at a total price
of £270,000 of which £100,000 was paid before the agreed delivery date. Subsequently, in
breach of contract, Quintana failed to take delivery or to pay the balance. The defendant
elected to treat the contract as discharged but refused to return the £100,000. Quintana
assigned his rights to the claimant, who brought an action to recover the money.

Stable J held that the claimant might recover it, less the amount of any damages suffered
by the defendant through Quintana’s breach of contract. It might seem strange, at first
sight, that the party in breach should have succeeded. But as the judge pointed out, the
defendant was ‘amply protected’, since it could set off its claim for damages against
the sum sought to be recovered. Again, however, in the present state of the law, the
consideration for the payment must have totally failed. So if the party in default has
received a benefit from the subject-matter of the sale before the discharge, it cannot,
subject to any equitable relief,28 recover any part-payment made. Thus where a contract
for work and materials provides for payment of the purchase price by instalments, a
contractor who is bound to incur expense as the work proceeds, will be entitled to
retain any instalment paid if the other party repudiates the contract before completion
of the work because, subject to a de minimis rule, the services rendered by the innocent
party are to be regarded as part of the bargained-for performance and there is thus no
total failure of consideration in such a contract once performance has commenced.29

27 [1939] 1 KB 724. See also McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (sale of land); Rover
International Ltd v Cannon Film Sales Ltd (No 3) [1989] 1 WLR 912; Beatson, The Use and Abuse of Unjust
Enrichment (1991) ch 3 (updating (1981) 97 LQR 389). 28 See below, p 592.
29 Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129; Stocznia Gdanska SA v Latvian
Shipping Co [1998] 1 WLR 574. The case for relaxing the rule requiring that the failure of consideration be
total is much weaker where the person seeking recovery is a contract-breaker: see above, p 451, in the context
of the rule precluding recovery for part-performance of an entire obligation.
592 remedies for breach of contract

(ii) Deposits and other payments as security for due performance

It is settled law that a sum paid by way of ‘deposit’ for the purchase of goods or land
is security for completion of the contract by the buyer and cannot as a general rule
be recovered if the buyer fails to perform its side of the contract.30 Similarly, where
the contract provides that on default instalments of the price already paid shall be
forfeited, there will generally be no recovery.
The general rule that deposits and other payments required as security or subject
to forfeiture clauses are irrecoverable is, however, subject to statutory and equitable
exceptions. By section 49(2) of the Law of Property Act 1925 the Court has an
unqualified discretion to order repayment of a deposit paid under a contract for the
sale of land where the justice of the case requires it.31 Another legislative exception
can be found in the Unfair Terms in Consumer Contracts Regulations 1999 which
provide that a term which permits the seller or supplier ‘to retain sums paid by the
consumer where the latter decides not to conclude or perform the contract, without
providing for the consumer to receive compensation of an equivalent amount from
the seller or supplier where the latter is the party cancelling the contract’ may be
unfair. 32 Secondly, where the provision for the forfeiture of the sum paid is penal and it
is unconscionable for the payee to retain the money, equitable relief may be available.33
Thus a person who purchases goods or land by instalments, or who hires goods in
return for payment of rent, may be entitled to equitable relief against forfeiture of the
property or purchase money if he defaults in prompt payment of the instalments or rent
when due. 34 The principle is similar to that governing penalty clauses and liquidated
damages clauses35 but the law has treated the two situations as entirely separate.36 The
‘genuine pre-estimate of damage’ test does not apply to stipulations for security for
due performance; ‘the forfeiture rule looks at the position after the breach when the
innocent party is enforcing the forfeiture’.37
The scope of the jurisdiction to relieve against forfeiture is somewhat uncertain.38
It probably does not apply to those commercial contracts where speed and certainty

30 Howe v Smith (1884) 27 Ch D 89. See generally Harpum [1984] CLJ 134; Beatson, The Use and Abuse of
Unjust Enrichment (1991), 46–50, 76–7, 90–4.
31 Universal Corporation v Five Ways Properties Ltd [1979] 1 All ER 552. Cf James Macara Ltd v Barclay
[1945] 1 KB 148 for a narrower approach to the discretion and the view that repayment could only be ordered
where the vendor’s conduct was open to criticism.
32 SI 1999 No 2083, Sched 2, para 1 (d). See generally above, pp 206–215.
33 See Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, where it was stated that
the amount of the deposit has to be reasonable and that, as long usage established the reasonableness of a 10
per cent deposit in sales of land, a larger deposit would, unless justified, be penal.
34 Stockloser v Johnson [1954] 1 QB 476; Shiloh Spinners Ltd. v Harding [1973] AC 691, 726–7 (Lord Simon).
Cf Lord Wilberforce, ibid, 723–4.
35 Above, pp 565–571. See Public Works Commissioners v Hills [1906] AC 368.
36 Linggi Plantations Ltd. v Jagatheesan (1972) 1 MLJ 89, 91 (Lord Hailsham LC); Workers Trust &
Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573. It may sometimes be hard to say whether a
contract is providing for forfeiture of money paid absolutely or for a penal liability: Else (1982) Ltd v Parkland
Holdings Ltd [1994] 1 BCLC 130, 146.
37 Else (1982) Ltd v Parkland Holdings Ltd [1994] 1 BCLC 130, 144 (Hoff mann LJ). His Lordship also
described the penalty rule as ‘mechanical’, ibid, 145. See also ibid, 139, 143.
38 See, generally, Smith [2001] CLJ 178; Gullifer in Commercial Remedies (eds Burrows and Peel, 2003)
191, 205–19.
 restitutionary awards 593

are of paramount importance.39 Although not entirely logical, it also appears that the
Courts may only relieve against the forfeiture of proprietary or possessory interests as
opposed to the forfeiture of ‘mere contractual rights’.40 This may, however, leave open
the possibility of seeking relief where a contract is specifically enforceable and thus
creates equitable rights, although in the case of breach of an essential condition as to
time relief by way of specific performance is less likely to be given than relief by way of
restitution, for example by repayment of retained money.41 Apart from the uncertainty
as to the scope of the equitable jurisdiction it is also possible, though unlikely, that the
only form of relief available is to give the contract-breaker more time to perform the
contract so that no relief will be possible if it is clear that the contract-breaker will not
be able to pay after such extension of time.42
In the exercise of the equitable jurisdiction account has been taken of whether
the sum to be forfeited is much greater than the damage caused by the breach,43
whether the party seeking relief had received a substantial part of the consideration
for the payment,44 whether there has been any fraud or sharp practice,45 whether it is
reasonable to require the party who is prima facie entitled to forfeiture to accept an
alternative to the property it is sought to forfeit,46 and whether relief would permit
the evasion of a contractual obligation simply because the contract has turned out to
be an unwise one.47

39 The Laconia [1977] AC 850; Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana, The
Scaptrade [1983] 2 AC 694; Sport International Bussum BV v Inter-Footwear Ltd [1984] 1 WLR 776; Union
Eagle Ltd v Golden Achievement Ltd [1997] AC 514. Cf the broader approach of the High Court of Australia:
Legione v Hateley (1983) 152 CLR 406; Stern v McArthur (1988) 165 CLR 489.
40 Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana, The Scaptrade [1983] 2 AC 694;
BICC plc v Burndy Corporation [1985] Ch 232, 251–2; Nutting v Baldwin [1995] 1 WLR 201. See also Transag
Haulage Ltd v Leyland DAF Finance plc [1994] 2 BCLC 88, 99; Alf Vaughan & Co v Royscot Trust plc [1999]
1 All ER (Comm) 856; On Demand Information plc v Michael Gerson (Finance) plc [2000] 4 All ER 734, CA;
[2002] UKHL 13, [2003] 1 AC 368; More OG Romsdal Flykesbatar AS v The Demise Charterers of the Ship
Jutenheim, The Jutenheim [2004] EWHC 671 (Comm), [2005] 1 Lloyd’s Rep 181. Cf the broader dictum in
Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, 578.
41 Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514; Steedman v Drinkle [1916] 1 AC 275. Cf. Re
Dagenham (Thames) Dock Co, ex p Hulse (1873) LR 8 Ch App 1022 and the broader Australian approach:
Legione v Hateley (1983) 152 CLR 406; Stern v McArthur, (1988) 165 CLR 489.
42 Stockloser v Johnson [1954] 1 QB 476 (Romer LJ; cf Denning and Somervell LJJ); Galbraith v Mitchenall
Estates Ltd [1965] 2 QB 473; Starside Properties Ltd v Mustapha [1974] 1 WLR 816; BICC plc v Burndy
Corporation [1985] Ch 232; Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573.
See also Jobson v Johnson [1989] 1 All ER 621.
43 Stockloser v Johnson [1954] 1 QB 476, 484, 490; Transag Haulage Ltd v Leyland DAF Finance plc [1994]
2 BCLC 88, 101–2. 44 Ibid, 484, 492.
45 Ibid, 495–6 (Romer LJ).
46 Shiloh Spinners Ltd v Harding [1973] AC 691, 726–7; Transag Haulage Ltd v Leyland DAF Finance plc
[1994] 2 BCLC 88, 101–2.
47 Galbraith v Mitchenall Estates Ltd [1965] 2 QB 473; Hyundai Ship Building and Heavy Industries Co Ltd
v Pournaras [1978] 2 Lloyd’s Rep 502, 508–9.
594 remedies for breach of contract

2. restitution in respect of services

or goods
(a) introduction
Sometimes a quantum meruit (or quantum valebat) claim is genuinely contractual. 48
That is, the remedy is given where there is a promise to pay for services (or goods) but
no particular remuneration has been specified. The party performing the services is
entitled at common law to a quantum meruit, ie, as much as the services are worth or,
as it is generally described, a ‘reasonable’ sum. 49 The principle is statutorily embraced
in the Sale of Goods Act 1979, s 8(2) and the Supply of Goods and Services Act 1982,
s 15(1) which provide that the buyer and the recipient of services must pay a reasonable
price or charge. 50
However, in many situations a quantum meruit (or quantum valebat) is a non-
contractual remedy awarded to effect restitution of an unjust enrichment, including
where there has been reasonable reliance by the claimant on the defendant’s words
or conduct. 51 There is no promise to pay, express or implied, and the obligation is
imposed. We are here concerned with this non-contractual quantum meruit.

(b) restitutionary claims by the innocent party

Where a contract has been broken in such a way as to entitle the innocent party to
be treated as discharged, and it has elected to be so treated, it may sue on a quantum
meruit for the value of the work done under the contract, as an alternative to bringing
an action on the contract for damages. In such a case the quantum meruit claim arises
in the law of restitution. Two cases provide possible illustrations of this remedy. In
Planché v Colburn:52
The claimant had contracted to write a book on custom and ancient armour for a periodical
publication, called the Juvenile Library to be published by the defendant. For this he was to
receive the sum of £100 on completion. When he had completed half, but not the whole, of
his volume, the defendant abandoned the publication.

The claimant was held entitled to retain a verdict for £50 which the jury had awarded
him. Tindal CJ said:53
I agree that when a special contract is in existence and open, the plaintiff cannot sue on a
quantum meruit: part of the question here, therefore, was whether the contract did exist or

48 Winfield, The Province of the Law of Tort (1931) 157; (1947) 63 LQR 35; Birks, An Introduction to the
Law of Restitution (1985) 275.
49 Paynter v Williams (1833) 1 C & M 810; Steven v Bromley and Son [1919] 2 KB 722; Sir Lindsay Parkinson
& Co Ltd v Commissioners of Works [1949] 2 KB 632; The ‘Batis’ [1990] 1 Lloyd’s Rep 345, 352.
50 See above p 63.
51 Goff and Jones, The Law of Restitution (7th edn, 2007) 1-019–1-026, 20-019–20-023 and ch 26; Beatson,
above, n 27, ch 2. Cf Birks, above, n 48, 265–76. 52 (1831) 8 Bing 14.
53 Ibid, 16. As no part of the book had been handed over, there is controversy as to whether the services
were a benefit to the defendant and hence whether the case concerned restitution of an unjust enrichment.
 restitutionary awards 595

not. It distinctly appeared that the work was finally abandoned; and the jury found that no
new contract had been entered into. Under these circumstances, the plaintiff ought not to
lose the fruit of his labour.

Again, in De Bernardy v Harding:54

The defendant appointed the claimant his agent to advertise and sell tickets for seats to
view the funeral of the Duke of Wellington, the claimant to receive a commission on the
tickets sold. The defendant wrongfully revoked the claimant’s authority after he had already
incurred expenses in carrying out the contract.

It was held that the claimant was entitled to a quantum meruit for the work done.

(c) quantum meruit compared with damages

If the contract has not been discharged, the innocent party cannot use the quantum
meruit remedy, but can only sue for damages. However, if the restitutionary remedy
is available and the injured party chooses to sue on a quantum meruit, the principle
of assessment differs from that which is applied in assessing damages for breach of
contract and the sum which the innocent party is entitled to recover may differ from
that which is recoverable as damages:55
Suppose that by the terms of a contract A plc is to pave one mile of road for B plc for £100,000,
payable on its completion. B repudiates the contract when A has done half of the work and A
accepts that repudiation as discharging it from further performance of its obligations under
the contract.

It is clear that A cannot claim the stipulated sum since the work has not been completed.56
Should it claim damages, however, it will receive £100,000 less any saving on labour and
materials. If, however, a quantum meruit is sought, A is asking to be paid the reasonable
value of the work done. That is, it is seeking restitution of the unjust enrichment.
Ordinarily, damages will be the more favourable remedy since the profit element in the
transaction can then be recovered. But there might be special circumstances where, for
instance, the contract price had been underestimated, or the costs of doing the work had
risen considerably since the contract was made. In these circumstances it is arguable that
a claimant may secure a higher measure by suing on a quantum meruit instead of for
damages. Thus it has generally been held that relief by way of quantum meruit is not
limited to a pro-ration of the contract price (in our example £50,000) or the contract price
itself (in our example, £100,000).57 Although this can be criticized as inconsistent with the

54 (1853) 8 Ex Ch 822. See also Prickett v Badger (1856) 1 CBNS 296; Chandler Bros Ltd v Boswell [1936]
3 All ER 179.
55 Heyman v Darwins Ltd [1942] AC 356, 398 (Lord Porter). See also The Batis [1990] 1 Lloyd’s Rep 345,
353. 56 See above, p 451 (entire obligations). Cf above, p 508 (repudiation not accepted).
57 Lodder v Slowey (1900) 20 NZLR 321, 358; [1904] AC 442; Boomer v Muir 24 P 2d 570 (1933); Newton
Woodhouse v Trevor Toys Ltd, 20 December 1991, CA; Renard Constructions (ME) Pty Ltd v Minister for
Public Works (1992) 26 NSWLR 234. The contrary view was taken in Taylor v Motability Finance Ltd [2004]
EWHC 2619 (QB) in which it was also held that restitution for work done could not be granted where the
claimant had substantially performed the contract because then there was a claim for the agreed sum under
the contract.
596 remedies for breach of contract

contract and as reallocating contractual risks, pro-ration is difficult in a complex contract

and may be unfair because it takes no account of fixed costs which may be incurred
at the early stages of a contract or of economies of scale which may have affected the
determination of the contract price but be lost on part performance.
Restriction to the contract price, while having some attractions58 on pragmatic
grounds, would give the contract-breaker a proportion of the profits expected under
the contract even though the contract has been discharged. It would also produce
disequilibrium between the position of an innocent party who has only done a small
proportion of the work before the contract is discharged, where the contract price limit
would rarely apply, and a person who has done the bulk of the work, where the limit
would be more likely to apply. So, in the example above, if the market value of half the
work is in fact £200,000, the limit would not apply, and A would recover the true value of
the work, £100,000, but if A has completed three-quarters of the job, it would apply and
A would only recover £100,000 as the quantum meruit. On the other hand, it may be that
some reference to the contract price ought to be applied as part of the standard exercise
in the law of unjust enrichment of determining whether the particular defendant has
been benefited. In other words, it is the value of the work to the particular defendant
that one ought to be awarding and in determining that one would have expected the
price under the contract to be relevant if lower than the market price.

(d) restitutionary claims by the party in breach

Where the contractual obligations are entire the party in breach will have no
entitlement to a restitutionary quantum meruit for past performance unless, perhaps,
the other party freely accepted the work. In Sumpter v Hedges59 the party in breach
was held entitled to recover the value of materials left on the building site and used by
the defendant who had a choice whether or not to use them to complete the building
but not in respect of the partially completed building. This rule can work harshly
where substantial benefits are conferred on an innocent party who has suffered
no loss whatsoever from the breach of contract.60 In one case it was suggested that
a shipowner who deviated but delivered the goods at the port of discharge without
injury or substantial delay would be entitled to reasonable remuneration.61 Perhaps
the best explanation of this is that it was not really a case of part-performance but one
in which the goods’ owner, in the end, got everything he had contracted for. Where,
however, the innocent party has made it clear that anything other than full and precise
performance is not wanted a quantum meruit will clearly not be awarded.62

58 See Goff and Jones, The Law of Restitution (7th edn, 2007) paras 20-020–20-023, citing Wuchter v
Fitzgerald 163 P 819 (1917) (Oregon).
59 [1898] 1 QB 673 (for facts see above, p 456); Bolton v Mahadeva [1972] 1 WLR 1009. See, generally,
McFarlane and Stevens (2002) 118 LQR 569.
60 Law Com No 121, Pecuniary Restitution on Breach of Contract (1983) proposed reform but this was
rejected by the Lord Chancellor; Law Com No 140, 19th Annual Report, para 2.11.
61 Hain SS Co Ltd v Tate and Lyle Ltd (1936) 41 Com Cas 350 (HL).
62 Wilusznynski v Tower Hamlets LBC [1989] ICR 493. See also British Telecommunications plc v Ticehurst
[1992] ICR 383. Cf Miles v Wakefield MBC [1987] AC 539. See also above, p 454.
 restitutionary awards 597

an account of profits or damages

3.
measured by benefit to contract-breaker
(a) introduction
A defendant may make a gain from a breach of contract as where a financier broke
his contract to invest £15,000 in the claimant’s timber business but instead invested it
in a distillery which proved much more profitable;63 or where a developer built more
houses on a site than was permitted by the contract and thereby made extra profit.64
Alternatively, a defendant may gain by saving expense from its breach as where
remedial work, for instance replacing soil or planting trees on the claimant’s land, is
not done.65 The traditional approach, which remains the general rule, is that the gain
to a defendant from a breach of contract is irrelevant.66
The defendant’s gain has, however, been relevant in a number of situations in
which a strict application of the principle that damages are compensatory would
not do justice between the parties. In sales of land the defendant’s gain is taken
into account because the effect of the contract is that the purchaser has an equitable
interest in the land and is accordingly entitled to the proceeds of any wrongful sale
to a third party.67 The defendant’s gain will also be relevant where, in the context
of a contractual relationship, there has been a breach of a duty of confidence68 or a
fiduciary duty. 69
Prior to A-G v Blake,70 the only direct exception to the rule against there being
restitution for breach of contract—hence its description in Blake as a ‘solitary
beacon’ 71—was the principle established in Wrotham Park Estate Co v Parkside
Homes Ltd.72 Although the claim in question was for breach of a restrictive
covenant, rather than an ordinary breach of contract, that is still in essence an
action for breach of contract albeit one that depends on an equitable exception to
privity of contract.
The defendants had built a number of houses on land in breach of a restrictive
covenant enforceable in equity by the claimant neighbouring landowner. Brightman
J refused an injunction ordering the demolition of the houses but held that, although
the claimant’s land had not been diminished in value, the defendants were liable to
pay substantial damages assessed using a ‘hypothetical bargain’ approach. That is,
he asked what would have been a reasonable contract price for the claimant to have

63 Teacher v Calder (1899) 1 F 39.

64 Surrey CC v Bredero Homes Ltd [1993] 1 WLR 1361.
65 Tito v Waddell (No 2) [1977] Ch 106 (for the reasons why ‘cost of cure’ damages were not available, see
above, p 541).
66 A-G v Blake [2001] 1 AC 268. See also The Siboen [1976] 1 Lloyd’s Rep 293, 337; Tito v Waddell (No 2)
[1977] Ch 106, 332; Surrey CC v Bredero Homes Ltd [1993] 1 WLR 1361.
67 Lake v Bayliss [1974] 1 WLR 1073; Tito v Waddell (No 2), ibid, 332.
68 Peter Pan Manufacturing Corp v Corsets Silhouette Ltd [1964] 1 WLR 96.
69 See Reading v A-G [1951] AC 507. See also Hospital Products Ltd v US Surgical Corp (1984) 156 CLR 41
(Australia). 70 [2001] 1 AC 268.
71 Ibid, 283. 72 [1974] 1 WLR 798.
598 remedies for breach of contract

accepted for relaxation of the covenant. In working out the price, the major factor
taken into account was the defendants’ profits from the housing development. That
emphasis on the defendants’ profits, in addition to Brightman J’s acceptance that it
was artificial to pretend that the claimant would ever have relaxed the covenant, means
that the damages are most naturally viewed as restitutionary.73 On a restitutionary
analysis, the reasonable fee damages can be regarded as stripping the defendants of
a fair proportion of their profits (assessed at 5%) or, perhaps, as the difference in use
value to the defendant of its land with and without the restrictive covenant over it.
Not everyone agrees that the Wrotham Park decision was an example of restitution
for breach of contract. For example, applying their ‘loss of opportunity to bargain’
approach, Sharpe and Waddams argued that the case was simply explicable as
awarding compensation for loss.74 This can be criticized as fictional.75 It was accepted
that the claimant would never have relaxed the covenant.
Having said that, one can perhaps defend the view that the damages in Wrotham
Park were compensatory on the basis that it was the loss of the opportunity to sell
the right in the future that was being compensated; or that the claimant was being
compensated for a non-pecuniary loss (ie the claimant valued the right so much—to
protect the views over that land— that it would not have been willing to sell it).76

(b) attorney-general v blake

The liability of a contract-breaker to account for gains made from the breach was
considered afresh by the House of Lords in the leading case of Attorney-General v
Blake.77 B, a former member of the intelligence services, undertook not to divulge any
official information gained as a result of his employment and broke the undertaking
by publishing an autobiography. The Crown sought to recover the royalties he was
to be paid by his publishers. Their Lordships confirmed that, in general, damages
are measured by the claimant’s loss, but held that in an exceptional case, where
compensatory damages, specific enforcement and injunction are inadequate or are not
available, the Court can require the defendant to account to the claimant for profits
received from a breach of contract even where the breach of contract does not involve
the use of or interference with the claimant’s property.
In determining whether to order an account of profits, the Court will have regard
to all the circumstances, including the subject matter of the contract, the purpose
of the contractual provision which has been breached, the circumstances in which

73 See, eg, Rotherham [2008] LMCLQ 25; Burrows in (Saidov and Cunnington, eds) Contract Damages
(2008) ch 7.
74 (1982) 2 OJLS 290, 292. See also Stoljar, (1989) 2 JCL 1, 4–5.
75 In Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361, 1369, Steyn LJ said, ‘The plaintiff ’s
argument that the Wrotham Park case can be justified on the basis of a loss of bargaining opportunity is a
fiction. The object of the award in the Wrotham Park case was not to compensate the plaintiffs for fi nancial
injury, but to deprive the defendants of an unjustly acquired gain.’ But these comments were expressly
disagreed with by Millett LJ in Jaggard v Sawyer [1995] 1 WLR 269: in that case, which concerned damages
for breach of covenant and trespass to land, the Court of Appeal applied compensatory ‘hypothetical bargain’
reasoning and rejected a restitutionary analysis. 76 See above pp 536–538 (Ch 17).
77 A-G v Blake [2001] 1 AC 268.
 restitutionary awards 599

the breach occurred, the consequences of the breach and the circumstances in
which relief is being sought. Lord Nicholls of Birkenhead (with whom Lord Goff
and Lord Browne-Wilkinson agreed) stated that ‘a useful general guide, although
not exhaustive, is whether the plaintiff had a legitimate interest in preventing the
defendant’s profit-making activity and, hence, in depriving him of his profit’.78 The
Crown was held to have such an interest in preventing B from profiting from breaches
of the undertaking in an autobiography. He was thus liable to account to the Crown
for the royalties.
Their Lordships declined to give more specific guidance as to when an account of
profits might be awarded for breach of contract. But they indicated that it would not
in itself suffice that (a) the breach was cynical and deliberate;79 (b) the breach enabled
the defendant to enter into a more profitable contract elsewhere; and (c) by entering
into a new and more profitable contract the defendant put it out of his power to
perform the contract with the claimant.80 Their Lordships did not, moreover, consider
the two categories that had been suggested by the Court of Appeal in the Blake case
for ‘restitutionary damages’81 were satisfactory. The first was the case of ‘skimped’
performance, where defendants fail to provide the full extent of the contracted services,
as where a security firm which has agreed to guard premises using a stipulated number
of guards uses a much smaller number and saves a considerable sum.82 This was said
not to fall within the scope of an account of profits as ordinarily understood and in
any event, an account of profits was not needed in this context. Suppliers of inferior
goods have to refund the difference in price as damages for breach of contract, and
a similar approach should apply in cases where the defendant provided inferior and
cheaper services than those contracted for.83 The second category suggested by the
Court of Appeal—where, as in Blake’s case, defendants profited by doing the very
thing that they contracted not to do—was considered to be too widely defined because
it embraced all express negative obligations.84
If an account of profits is to be awarded for breach of contract, it is the net profits
from the breach that must be given up although, by analogy to cases awarding an
account of profits for breach of fiduciary duty,85 the Courts may give an allowance to
the defendant for the skill and labour provided.

78 Ibid, 285. See also Lord Steyn at 292 (defendant’s position closely analogous to that of a fiduciary).
79 Cf Birks [1987] LMCLQ 421 who suggested that gains should be recovered in all cases of cynical
exploitation of breach for the purpose of making a gain so as to deter breaches of contract. This, however,
would revolutionize contract remedies since in many cases, particularly commercial cases, the breach is
in fact deliberate in the sense that it is knowingly done for commercial reasons. For instance, a seller of
goods may choose to breach its contract and sell to a third party who is willing to pay a premium over and
above the market price. Restitutionary awards made on this basis might also permit a claimant to evade the
requirements of the mitigation rule.
80 [2001] 1 AC 268, 286, 290, 293. See [1998] Ch 439, 457, 458 (CA).
81 Lord Nicholls preferred (at 284) to avoid this term.
82 See City of New Orleans v Firemen’s Charitable Association 9 So 486 (1891). See also White Arrow
Express Ltd v Lamey’s Distribution Ltd (1995) 15 Tr LR 69; Beale (1996) 112 LQR 205.
83 [2001] 1 AC 268, 286, 290, 291. 84 Ibid, 286, 291.
85 See, eg, Boardman v Phipps [1967] 2 AC 46.
600 remedies for breach of contract

(c) developments since attorney-general v blake

The picture emerging since the case of Blake is that, while the award of an account of
profits, stripping the defendant of all its wrongful net profits, has been extremely rare,
the Courts have been increasingly willing to award ‘Wrotham Park damages’86—best
rationalized as restitutionary albeit often treated as compensatory87—in actions for
breach of contract.
In only one subsequent case, Esso Petroleum Co Ltd v Niad,88 has an account of
profits been awarded for breach of contract. In that case Sir Andrew Morritt V-C
decided that the claimants were entitled, at their election, to compensatory damages
or an account of profits or a ‘restitutionary remedy’ for breach of contract.
Niad, who owned a petrol station, had entered into a pricing agreement (called ‘Pricewatch’)
with Esso who supplied Niad with petrol. In breach of that agreement, Niad charged higher
prices to its customers than had been agreed. This in turn meant that Niad was given ‘price
support’ by Esso to which Niad was not entitled: that is, Niad paid less to Esso for its petrol
than it would have done had Esso known that Niad was over-charging its customers.

Applying the case of Blake, Morritt V-C held that Esso was here entitled to an account
of profits aimed at stripping away the gains Niad had made from breaking the contract.
Compensatory damages were inadequate because it was almost impossible for Esso
to establish that sales had been lost as a result of the breach by Niad. The breach
undermined the whole Pricewatch scheme that Esso had agreed with all retailers in
the area. Esso had complained to Niad on several occasions. And Esso had a legitimate
interest in preventing Niad from profiting from its breach. Alternatively Morritt V-C
said that Esso was entitled to a ‘restitutionary remedy’ for the amount of the price
support that, in breach of contract, it had obtained from Esso.
Although the distinction between an account of profits and the so-called
‘restitutionary remedy’ is a difficult one to draw on these facts, the importance of the
case is that it shows AG v Blake being applied, so as to award an account of profits, for
breach of a commercial contract far removed from the peculiar facts of Blake’s case
itself. Some have criticized the decision for precisely that reason89 although, as we
shall see, it has subsequently been referred to, without disapproval, by the Court of
Appeal.
While an account of profits has been extremely rare, there have been several cases in
which the Courts have awarded ‘Wrotham Park damages’ for breach of contract since

86 See above, pp 597–598. Th is refers to damages assessing using a hypothetical bargain between the
parties according to which the defendant was released from its contractual obligation.
87 See, eg, Lane v O’Brien Homes Ltd [2004] EWHC 303 (QB) where the claimant was awarded damages
based on a developer’s estimated profit from building one house more than he was contractually entitled
to build. The damages were treated as compensating the claimant’s loss of opportunity to bargain. See also
Chadwick LJ in WWF-World Fund for Nature v World Wrestling Federation Entertainment Inc [2007] EWCA
Civ 286, [2008] 1 WLR 445 at [59]. The force of [59] is weakened because Chadwick LJ there treated an
account of profits as belonging alongside ‘Wrotham Park damages’ as a flexible response to the need to
‘compensate’ the claimant for the wrong: but it cannot possibly be correct to regard an account of profits as
compensatory rather than restitutionary.
88 22 November 2001, unreported, noted by Beatson (2002) 118 LQR 377.
89 McKendrick in Burrows and Peel (eds), Commercial Remedies (2003) 93, 108–12.
 restitutionary awards 601

A-G v Blake.90 The most important of these has been Experience Hendrix LLC v PPX
Enterprises Inc.91
The claimant, the estate of the rock star Jimi Hendrix, sued for breach of a contract made in
1973 between Jimi Hendrix and the defendant record company settling a dispute. Under the
contract, the defendant was permitted to use certain master tapes but was required to deliver
up others to Jimi Hendrix. In breach of that contract, the defendant used master tapes that
should have been delivered up.

The claimant did not seek compensatory damages because the loss was too speculative
to assess but sought an injunction, which was granted, and an account of profits, which
was refused. However, Wrotham Park was applied in holding that the claimant was
entitled to damages based not on compensating the claimant’s loss but on what was a
reasonable sum taking into account the gains made by the defendant from its use of
the forbidden master tapes.
Although the Court of Appeal was not required to assess that reasonable sum, it
considered that one-third of the defendant’s royalties on the retail selling price of
records made from the forbidden tapes would probably be an appropriate reasonable
sum. Although there are passages where the judges referred to the damages as
‘compensation’, they are most naturally viewed as restitutionary being concerned
to strip some, but not all, of the defendant’s wrongful profits or to reverse the user
value of the forbidden master tapes. That compensation was not principally in mind
is consistent not only with counsel for the claimant’s starting-point that the claimant
was not seeking compensation for loss because that was too speculative to assess but
also with the acceptance that the claimant would not have agreed to the defendant’s
use of those master tapes.92 It is also consistent with the judges’ emphasis on the profits
made by the defendant in fi xing the reasonable sum. Mance LJ said, ‘[I]f Lord Nicholls’
general guide is a useful starting point in respect of an account of profits, it must be
all the more so in respect of the lesser claim to a reasonable sum taking account of the
defendant’s profitable infringement.’93 And in the words of Peter Gibson LJ:
In my judgment, because (1) there has been a deliberate breach by PPX of its contractual
obligations for its own reward, (2) the claimant would have difficulty in establishing financial
loss therefrom, and (3) the claimant has a legitimate interest in preventing PPX’s profit-
making activity carried out in breach of PPX’s contractual obligations, the present case is a
suitable one (as envisaged by Lord Nicholls) in which damages for breach of contract may
be measured by the benefits gained by the wrongdoer from the breach. To avoid injustice I
would require PPX to make a reasonable payment in respect of the benefit it has gained.’94

The Court stressed that the facts of this case were not as exceptional as those in A-G
v Blake and it was for that reason that an account of profits, stripping the defendant

90 See, eg, Amec Developments Ltd v Jury’s Hotel Management (UK) Ltd (2000) 82 P & CR 286; Lane v
O’Brien Homes Ltd [2004] EWHC 303 (QB); Lunn Poly Ltd v Liverpool and Lancashire Properties Ltd [2006]
EWCA Civ 430, [2006] 2 EGLR 29; Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45,
[2010] BLR 73.
91 [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830.
92 See esp Peter Gibson LJ in [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830 at [57].
93 [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830 at [35]. 94 Ibid at [58].
602 remedies for breach of contract

of all its gains made from the breach of contract, was refused. In particular, although
the defendant knew it was doing something which it had contracted not to do and to
which the claimant would not have consented, the defendant was not close to being a
fiduciary to the claimant and no issue analogous to national security was involved. The
relationship was a straightforward commercial one. The Court of Appeal also referred
to Esso Petroleum v Niad without disapproval but distinguished that decision on the
ground that the contractual obligation broken had been central to the claimant’s whole
mode of operation and integrity which was not the position on the facts of this case.
It seems, therefore, that the Courts are more willing to award ‘Wrotham Park
damages’ for breach of contract than they are an account of profits. This should not be
a surprise. Even assuming that the former is, at least sometimes, concerned to effect
restitution rather than compensation, it is a less extreme remedy than an account of
profits. One can express this by saying that the former is concerned with a proportion
of the profits made rather than with all the profits made (subject to an allowance for
skill and effort).
Nevertheless it would appear that both restitutionary damages and an account of
profits are exceptional remedies for breach of contract and are not as readily available
as compensatory damages. It would seem therefore that an initial condition before
either can be awarded is that standard remedies are ‘inadequate’. However, it is not
easy to pinpoint what ‘inadequacy’ here means. The concern might primarily be
that difficulties of assessment, or bars to the recovery of certain types of damages,
mean that compensatory damages will not put the claimant into as good a position
as if the contract had been performed. In other words, compensatory damages (and
specific remedies) will not properly protect the claimant’s contractual expectations.
In a case like Surrey CC v Bredero Homes Ltd 95 (on the facts of which, it may be
suggested that, post-Blake, restitutionary damages would be awarded) and in A-G
v Blake the claimants had non-financial expectations which would not be protected
by compensatory damages; their interests were in protecting the environment or in
protecting national security respectively. And in Esso v Niad and Experience Hendrix,
while the claimants entered into the contract for financial reasons, the assessment
of damages compensating their financial losses was highly problematic and prone to
error. In contrast in standard commercial contracts, compensatory damages ought to
be perfectly adequate.
Alternatively, ‘inadequacy’ might mean that the situation is one in which the
courts wish to deter breach and yet standard remedies are thought inadequate to
achieve that aim.
On either interpretation of the ‘inadequacy’ hurdle, it would seem that the measure
of restitution will then turn on the extent to which (if at all) the courts consider that
deterrence is justified. Stripping all profits is more of a deterrent than stripping some
profits and it is therefore only in very exceptional cases, like A-G v Blake, that a full
account of profits, rather than ‘Wrotham Park damages’, is required. It may be that
the more cynical the breach, the more likely the Courts are to wish to deter it. The

95 [1993] 1 WLR 1361: see above, p 597.

 restitutionary awards 603

breach was cynical in A-G v Blake, Esso Petroleum v Niad and Experience Hendrix
LLC v PPX Enterprises Inc. The same can be said, although restitution was refused,
of the earlier case of Surrey County Council v Bredero Homes. But, as Lord Nicholls
stressed, this is not a sufficient condition.96 This is because there are many cynical
breaches (for example, where a party to a commercial contract of sale breaks it in
order to enter into a more lucrative contract with someone else) that the law does not
wish to deter.97

96 Above, 599.
97 See, eg AB Corp v CD Company, The Sine Nomine [2002] 1 Lloyd’s Rep 805, noted by Beatson (2002)
118 LQR 377, in which an account of profits was refused by arbitrators for the withdrawal, and use of, a ship
in breach of a charterparty.
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 20
LIMITATION OF ACTIONS
At common law, lapse of time does not affect contractual rights. But it is the policy of
the law to discourage stale claims, because after a long period a defendant may not have
the evidence to rebut such claims and should be in a position to know that after a given
time an incident which might have led to a claim is finally closed. Accordingly, in the
Limitation Act 1980, the Legislature has laid down certain periods of limitation after
the expiry of which no action can be maintained.1 Equity has developed a doctrine of
laches, under which a claimant who has not shown reasonable diligence in prosecuting
the claim may be barred from equitable relief.

1. limitation act 

(a) the general rule
The Act provides that an action founded on a simple contract must be commenced
within six years, and one created or secured by a deed, within 12 years, from the date
on which the cause of action accrued.2 In contract, the cause of action accrues, not, as
in the tort of negligence, when the damage is suffered, but when the breach of contract
takes place3 or, in the case of an anticipatory breach, when the innocent party elects
to treat the contract as terminated.4 In the case of certain loans, however, the six-year
period does not start to run unless and until a demand in writing for the repayment of
the debt is made by or on behalf of the creditor.5
A distinction is drawn between a ‘once and for all’ breach and a ‘continuing’ breach.
In the case of a continuing breach, such as of an obligation to repair a building, the
promisor’s duty is considered as persisting and as being forever renewed until that

1 For proposals for reform see Law Com Report No 270, Limitation of Actions (2001); Law Com No 316,
Annual Report 2008–09 (2009) 60.
2 Limitation Act 1980, ss 5, 8. But in the case of personal injuries arising from a breach of contract, ss 11
and 14 of the Act provide that the limitation period is to be three years from the date on which the cause of
action accrued or the date of the claimant’s knowledge (if later) of certain relevant facts: and that period may
be disapplied at the Court’s discretion under s 33. See also ss 12, 13, 14 (fatal accidents).
3 Battley v Faulkner (1820) 3 B & Ald 288; Short v M’Carthy (1820) 3 B & Ald 626; Howell v Young (1826) 5
B & C 259. For accrual at the date of damage of a concurrent action in the tort of negligence, see, eg, Midland
Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384; Forster v Outred & Co [1982] 1 WLR 86; Pirelli
General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1; Bell v Peter Browne & Co [1990] 2 QB 495;
Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. 4 Reeves v Butcher [1891] 2 QB 509.
5 Limitation Act 1980, s 6; Boot v Boot [1996] 2 FCR 713.
606 remedies for breach of contract

which has been promised has been done; ‘a further breach arises in every successive
moment of time during which the state or condition is not as promised, during
which . . . the building is out of repair’.6 In cases of continuing breaches the claimant
will be able to recover in respect of that part of the breach which occurred within the
six or, in the case of an obligation created or secured by a deed, 12 years before the
action was brought.
It is no answer to a plea of limitation that the claimant was unaware or could not
have been aware of the existence of the cause of action for breach of contract until after
the expiry of the limitation period. The ‘discoverability’ rule for economic loss claims
in the tort of negligence7 does not apply to breach of contract.8
Where the action is for restitution of an unjust enrichment, the limitation period is
normally six years from the accrual of the claimant’s cause of action which normally
accrues when the defendant is unjustly enriched whether by the receipt of money or
otherwise.9

(b) persons under a disability

If on the date on which the cause of action accrued the person to whom it accrued
was under a disability, ie was a minor or person of unsound mind,10 the action may be
brought within six years from the date when he or she ceased to be under the disability,
or dies.11 This enlargement of time does not apply when the disability supervenes
after the right of action has already accrued, or where the same person is afflicted by
successive disabilities (eg minority followed by insanity) separated by an interval in
which he or she is under no disability.12 Again, no extension is allowed when the right
of action first accrues to a person not under a disability through whom the person
under a disability claims.13

(c) effect of fraud, concealment, and mistake

Where an action is based on the fraud of the defendant,14 or where any fact relevant to
the right of action has been deliberately concealed from the claimant by the defendant,15

6
Larking v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221, 236 (Dixon J) (High Court of
Australia). See also the facts of Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384.
7 Limitation Act 1980, ss 14A–14B.
8 Iron Trades Mutual Insurance Co Ltd v JK Buckenham Ltd [1990] 1 All ER 808; Société Commerciale de
Réassurance v Eras International Ltd [1992] 1 Lloyd’s Rep 570.
9 Kleinwort Benson v South Tyneside MBC [1994] 4 All ER 972, 978. See generally McLean [1989] CLJ
472; Burrows, The Law of Restitution (3rd edn, 2010) Ch 22; Virgo, The Principles of the Law of Restitution
(2nd edn, 2006) ch 28. 10 Limitation Act 1980, s 38(2).
11 Ibid, s 28. 12 Purnell v Roche [1927] 2 Ch 142. 13 Limitation Act 1980, s 28(2).
14 Beaman v ARTS Ltd [1949] 1 KB 550; Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] 1
QB 488; Barnstaple Boat Co Ltd v Jones [2007] EWCA Civ 727, [2008] 1 All ER 1124. It is submitted that an
action under the Misrepresentation Act 1967, s 2(1) does not fall within s 32(1)(a) of the 1980 Act despite the
statutory fiction of fraud: above p 328.
15 The leading case on the meaning of concealment is Cave v Robinson Jarvis & Rolf [2002] UKHL 18,
[2003] 1 AC 384. See also Williams v Fanshaw Porter & Hazelhurst [2004] EWCA Civ 157, [2004] 1 WLR
3185.
 limitation of actions 607

whether before or after the cause of action has accrued,16 or where an action is for
relief from the consequences of a mistake,17 the period does not begin to run until the
claimant has discovered the fraud, concealment, or mistake, or could with reasonable
diligence have discovered it.18 The 1980 Act further provides that a deliberate breach of
duty in circumstances in which it is unlikely to be discovered for some time amounts to
deliberate concealment of the facts involved in that breach of duty.19 So, for example, if
a builder fails to disclose the deliberate breach of a building contract by using defective
bricks20 or putting in inadequate foundations,21 or if the vendors of a house knowingly
fail to warn the purchaser of the risk of subsidence, when they are aware that the house
has been built on a disused rubbish tip,22 the running of the limitation period will be
postponed until such time as the claimant discovers the concealment or could with
reasonable diligence discover it.23

(d) acknowledgement and part payment

An acknowledgement of a debt or part payment of a debt may extend the period of
limitation. The 1980 Act provides24 that in such a case the right shall be treated as
having accrued on, and not before, the date of the acknowledgement or payment. Thus
where A owes B the sum of £500, say, as the price of goods sold and delivered, B’s
remedy is barred after the passing of six years from the date on which payment became
due. But if A, during that period, either acknowledges the debt and its legal liability
to pay it25 or makes a part payment on account of the debt, time begins to run afresh
from the date of the acknowledgement or part payment. The limitation period may
thus be repeatedly extended. Once, however, it has expired, the right of action cannot
subsequently be revived.26 To be effective, an acknowledgement must be in writing and
signed by the person making it or that person’s agent, and either an acknowledgement
or part payment must be made to the person or to the agent of the person whose claim
is acknowledged or in respect of whose claim the payment is made.27

16 Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] AC 102.

17 Th is has been interpreted to mean that the mistake must be an element of the cause of action: Phillips-
Higgins v Harper [1954] 1 QB 411; Test Claimants in the Franked Investment Group Litigation v Commissioners
of the Inland Revenue [2010] EWCA Civ 103, [2010] BTC 265 at [230]–[245]. The mistake can be a mistake of
law resulting from a ‘change’ in the law: Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349.
18 Limitation Act 1980, s 32. But this provision is not to affect the rights of third parties taking bona fide
and for value. 19 Ibid, s 32(2).
20 Clark v Woor [1965] 1 WLR 650. 21 Applegate v Moss [1971] 1 QB 406.
22 King v Victor Parsons & Co [1973] 1 WLR 29.
23 Note, however, these cases were decided on the wording of the Limitation Act 1939, s 26(b), now
repealed. But see generally on deliberate concealment Cave v Robinson, Jarvis and Rolf [2002] UKHL 18,
[2003] 1 AC 384 (where the claim was for the tort of negligence). 24 s 29(5).
25 Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565; Kamouh v Associated Electrical
Industries International Ltd [1980] QB 199; Bradford and Bingley plc v Rashid [2006] UKHL 37, [2006] 1
WLR 2066; Habib Bank Ltd v Central Bank of Sudan [2006] EWHC 1767 (Comm), [2007] 1 All ER (Comm)
53; Lia Oil SA v ERG Petroli SpA [2007] EWHC 505 (Comm), [2007] 2 Lloyd’s Rep 509; Ofulue v Bossert
[2009] UKHL 16, [2009] 1 AC 990. 26 Limitation Act 1980, s 29(7).
27 Ibid, s 30.
608 remedies for breach of contract

(e) statute bars remedy not right

The Act operates merely to bar the contractual remedy, but not to extinguish the
right.28 It is procedural and not substantive. Accordingly, a debtor who pays a statute-
barred debt, cannot recover the money as money not due.29 And if the debtor owes
to the creditor certain debts some of which are, and some of which are not, statute-
barred, the creditor is entitled to appropriate any payment made by the debtor to those
debts which are statute-barred, unless the debtor at the time expressly indicates that
he is discharging a debt which is still actionable.30

2. bars to equitable relief: laches

(a) the statute applied by analogy
The statutory periods of limitation for contract do not apply to claims for ‘specific
performance of a contract or for an injunction or for other equitable relief’ except in so
far as the Court may apply them by analogy.31 The situations to which the statute will
be applied by analogy are relatively few and, broadly, include those situations in which
there is ‘correspondence’ between the remedies available at law and in equity, and equity
is providing a remedy analogous to that which would have been available at law.
For example, it would appear that the statute will be applied by analogy to a claim
for equitable compensation for dishonest assistance of a breach of fiduciary duty;32 and
the right to a final injunction will not be barred so long as the substantive legal right
which it seeks to protect has not become barred (ie so long as the claimant could still
recover damages for infringement of the right).33 In P & O Nedlloyd BV v Arab Metals
Co, The UB Tiger 34 it was held, in a careful judgment by Moore-Bick LJ, that the usual
contractual limitation period of six years does not apply by analogy under s 36(1) to a
claim for specific performance.35 This is because there is no directly equivalent remedy
at common law to specific performance and because it is not even a requirement for
specific performance that there be an existing breach of contract.36 However, the
doctrine of laches, discussed below, can apply.

28 Royal Norwegian Government v Constant & Constant and Calcutta Marine Engineering Co Ltd
[1960] 2 Lloyd’s Rep 431, 442; Ronex Properties Ltd v John Laing Construction Ltd [1982] 3 WLR 875, 879.
But exceptionally delay may extinguish title to goods (Limitation Act 1980, s 3(2)) and unregistered land
(Limitation Act 1980, s 17); and the right to damages for product liability under Part I of the Consumer
Protection Act 1980 is extinguished by a 10-year long-stop (Limitation Act 1980, s 11A(3)).
29 Bize v Dickason (1786) 1 Term R 286, 287. 30 Mills v Fowkes (1830) 5 Bing NC 455.
31 Limitation Act 1980, s 36(1).
32 Cattley v Pollard [2006] EWHC 3130 (Ch), [2007] Ch 353. For the contrary (less persuasive) view, see
Statek Corp v Alford [2008] EWHC 32 (Ch), [2008] BCC 266.
33 Fullwood v Fullwood (1878) 9 Ch D 176. Th is was a tort case. There appears to be no example of this
principle being applied where a fi nal injunction is being sought for a breach of contract.
34 [2006] EWCA Civ 1717, [2007] 1 WLR 2288.
35 See Beatson, ‘Limitation Periods and Specific Performance’ in Lomnicka and Morse (eds), Contemporary
Issues in Commercial Law (1997) 9–23.
36 As shown in Hasham v Zenab [1960] AC 316.
 limitation of actions 609

(b) laches
Equitable claims or remedies to which the statute does not apply expressly or by
analogy are subject to the equitable doctrine of laches.37 Equity has always refused its
aid to stale claims. Delay which is sufficient to deprive a person of the right to claim
specific performance or injunction is known technically as ‘laches’. This doctrine has
been described in a well-known passage in the advice of the Privy Council in Lindsay
Petroleum Co v Hurd, 38 as follows:
The doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it
would be practically unjust to give a remedy, either because the party has, by his conduct, done
that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and
neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in
which it would not be reasonable to place him if the remedy were afterwards to be asserted, in
either of these cases lapse of time and delay are most material. But in every case, if an argument
against relief, which otherwise would be just, is founded upon mere delay, that delay of course
not amounting to a bar by any statute of limitations, the validity of that defence must be tried
upon principles substantially equitable. Two circumstances, always important in such cases,
are, the length of the delay and the nature of the acts done during the interval.

Delay may therefore bar equitable remedies such as claims for rescission,39
rectification, 40 specific performance,41 or for an interim injunction.42 It has
traditionally been said that the claimant must show himself to be ‘ready, desirous,
prompt and eager’43 to assert his rights, and even a short lapse of time may, in certain
circumstances,44 be fatal. But in exceptional circumstances, as where the parties have
been negotiating, a long lapse of time will not be fatal.45

37 It is not clear whether laches can apply to bar an equitable remedy even where a statutory limitation
period does apply. It may be that the best answer to this turns on whether the laches in question comprises
mere delay or delay plus prejudice to the defendant. As regards the latter, there seems no reason why laches
should not apply even within a statutory limitation period given that ‘acquiescence’ can so apply (as laid
down in the Limitation Act 1980, s 36(2)). For this distinction as to the nature of the laches, see obiter dicta
of Moore-Bick LJ in P & O Nedlloyd BV v Arab Metals Co, The UB Tiger [2006] EWCA Civ 1717, [2007] 1
WLR 2288 at [61].
38 (1874) LR 5 PC 221, 239 (Lord Selborne). Th is was applied in Fisher v Brooker [2009] UKHL 41, [2009]
1 WLR 1764: it was not ‘practically unjust’ to grant a declaration of copyright despite 38 years delay because
there was no prejudice to the defendant (and, in any event, the relief sought was not ‘equitable’).
39 Lindsay Petroleum Co v Hurd, ibid. 40 Beale v Kyte [1907] 1 Ch 564.
41 Mills v Haywood (1877) 6 Ch D 196; P & O Nedlloyd BV v Arab Metals Co, The UB Tiger [2006] EWCA
Civ 1717, [2007] 1 WLR 2288. But delay does not bar specific performance ordering mere transfer of the legal
estate where a party has taken possession of the property in reliance on that interest: Williams v Greatrex
[1957] 1 WLR 31 (specific performance despite 10-year delay).
42 Great Western Ry v Oxford, Worcester and Wolverhampton Ry. (1853) 3 De GM & G 341; Shepherd
Homes Ltd v Sandham [1971] Ch 340 (four-month delay).
43 Milward v Earl of Thanet (1801) 5 Ves 720n. Contrast Lazard Bros & Co Ltd v Fairfield Properties Co
(Mayfair) Ltd (1977) 121 SJ 793.
44 Lehmann v McArthur (1868) LR 3 Ch App 496 (short leasehold interest); First National Reinsurance
Co. Ltd v Greenfield [1921] 2 KB 260 (shares). Cf Jones v Jones [1999] 1 WLR 1739 (mere delay in seeking relief
does not signify acquiescence).
45 Southcomb v Bishop of Exeter (1847) 6 Hare 213. See also Tito v Waddell [1977] Ch. 106, 244–52 (specific
performance refused 17 years after the breach of contract not because of delay but because of futility).
This page intentionally left blank
 PART 
LIMITS OF THE
CONTRACTUAL
OBLIGATION
21 Third Parties 613
22 Assignment 661
This page intentionally left blank
 21
THIRD PARTIES
1. introduction
This chapter deals with the scope of a valid contract when formed, and the question,
to whom does the obligation extend? This question must be considered under two
separate headings: (1) the acquisition of rights by a third party, and (2) the imposition
of liabilities upon a third party. At common law the general rule is that no one but the
parties to a contract can be entitled under it, or bound by it. This principle is known as
that of privity of contract.
Both aspects of this principle have long been subject to common law and statutory
exceptions. But the first aspect, which prevented parties to a contract from enabling
a third party to acquire rights under it, was subject to widespread criticism by judges,
law reform bodies, and scholars.1 Despite these criticisms it was reaffirmed on several
occasions by the House of Lords in the late twentieth century. However, the criticisms
were eventually heeded by the legislature. The Contracts (Rights of Third Parties)
Act 1999, largely implementing a Law Commission report, 2 enables a third party to
enforce a contract where the parties so intend.
While the 1999 Act creates a potentially ‘general and wide-ranging exception’3 to
the first aspect of the privity principle, it does not abolish it and leaves it intact for cases
not covered by the Act. It also preserves the statutory and common law exceptions to
the rule.4 A third party who is able to invoke one of these may be in a better position
than one who relies on the 1999 Act.5 The statutory and common law exceptions to
the rule will also continue to be of importance because of the tendency of commercial
contracts drafted since its enactment to exclude the Act. Moreover, the Act does not
enable a contract term to be directly enforced against a third party and thus does not
change the second aspect of the principle under which a burden cannot be imposed on
a third party.6 Accordingly, it remains necessary to consider the common law principle
and the exceptions to and circumventions of it.

1 Below, p 622.
2 Law Commission No 242, Privity of Contract: Contracts for the Benefit of Third Parties (1996), hereinafter
‘Law Com No 242’. 3 Law Com No 242, paras 5.16, 13.2.
4 s 7(1), below, p 624. 5 Below, pp 634, 639.
6 Hansard HL Debs 11 January 1999, col 21 (Lord Irvine LC). But see below, pp 632, 659.
614 limits of the contractual obligation

2. the acquisition of contractual rights

by third parties
(a) the development of the common law rule
If A and B make a contract in which A promises to do something or to refrain from
doing something for the benefit of C, all three may be willing that C should have all the
rights of an actual contracting party.7 Thus A may promise to pay a sum of money8 to,
or perform a service for,9 C. Alternatively, A may promise not to sue C, either at all10 or
in circumstances covered by an exclusion or limitation clause in the contract between
A and B.11 Many systems of law give effect to the intentions of those concerned but
the rule of the English common law, now modified by the Contracts (Rights of Third
Parties) Act 1999, is that a person who is not a party to a contract can neither sue on
nor rely on defences based on that contract.

(i) A relative latecomer

This rule was not clearly established until the middle of the nineteenth century. There
are earlier decisions permitting the third party, often a relative of the promisee12 but
not always,13 to enforce the promise. The development of the rule of privity of contract
was linked with that of the doctrine of consideration and the early cases used both
strands of reasoning. In Price v Easton:14
WP owed Price £13. WP promised to work for E, and in return E undertook to discharge the
debt to Price. The work was done by WP, but E did not pay the money to Price. Price sued E.

It was held that Price could not recover because he was not a party to the contract.
However, the reasoning of the judges differed. Lord Denman CJ said that the
claimant did not ‘shew any consideration for the promise moving from him to
the defendant’,15 while Littledale J said, ‘No privity is shewn between the plaintiff
and the defendant’;16 and Patteson J that there was ‘no promise to the plaintiff
alleged’.17
In Tweddle v Atkinson,18 it was also held that no action could be brought by a non-
party:
H and W married. After the marriage, X and Y, their respective fathers, made a contract by
which they undertook that each should pay a sum of money to H, and that H should have

7 Dowrick (1956) 19 MLR 374. 8 Beswick v Beswick [1968] AC 58, below, p 615.
9 Jackson v Horizon Holidays Ltd [1975] 1 WLR 1548, below, pp 617–618 (provision of holiday
accommodation). 10 Snelling v John Snelling Ltd [1973] QB 87, below, p 621.
11 Scruttons v Midlands Silicones Ltd [1962] AC 446, below, p 645.
12 Bourne v Mason (1699) 1 Ventr 6; Dutton v Poole (1672) 2 Lev 210.
13 Marchington v Vernon (1787) 1 Bos & P 101n (doubted in Phillips v Bateman (1812) 16 East 356);
Carnegie v Waugh (1823) 1 LJ (OS) 89. 14 (1833) 4 B & Ad 433.
15 Ibid, 434. 16 Ibid. 17 Ibid, 435.
18 (1861) 1 B & S 393; above, p 98.
 third parties 615

power to sue for such sums. After the death of X and Y, H sued the executors of Y for the
money promised to him.

Wightman J said:19
Some of the old decisions appear to support the proposition that a stranger to the consideration
of a contract may maintain an action upon it, . . . But there is no modern case in which the
proposition has been supported. On the contrary, it is now established that no stranger to the
consideration can take advantage of a contract, although made for his benefit.

The modern rule is based on Lord Haldane’s formulation in Dunlop Pneumatic Tyre
Co Ltd v Selfridge & Co Ltd:20
[I]n the law of England certain principles are fundamental. One is that only a person who is
a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising
by way of contract. Such a right may be conferred by way of property, as for example, under a
trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract
in personam.

The House of Lords reaffirmed the rule in several cases, notably in 1968 in Beswick v
Beswick:21
B, a coal merchant, agreed to transfer the business to his nephew in return for a promise by
the nephew to employ him as ‘consultant’ during his lifetime, and, after his death, to pay an
annuity of £5 a week to his widow. On B’s death, the nephew failed to pay the money to the
widow. She brought an action against him in her personal capacity as the beneficiary of the
contract, and also in her capacity as administratrix of her deceased husband’s estate.

The House of Lords, applying the doctrine of privity, held that she was not entitled
to enforce the obligation in her personal capacity because she was not a party to the
contract (although she was able to sue as administratrix of the estate, ie as her deceased
husband’s personal representative, being in that capacity a party to the contract).

(ii) Relationship with doctrine of consideration

Price v Easton and Tweddle v Atkinson might seem to rest solely on the rule that
consideration must move from the promisee and it has been argued, therefore, that
the privity rule is really no more than an application of the doctrine of consideration.22
However, in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd Lord Haldane23
distinguished the two and there is support for this in other cases.24 Certainly in a broad

19 Ibid, 397–8, emphasis added.

20 [1915] AC 847, 853.
21 [1968] AC 58, 72, 78, 83, 92, 95, 105. See also Scruttons Ltd v Midland Silicones Ltd [1962] AC 446; The
Eurymedon [1975] AC 154; Woodar Investment Development Ltd v Wimpey Construction (UK) Ltd [1980] 1
WLR 277, 284, 291, 297, 300; JH Rayner (Mincing Lane) Ltd v DTI [1990] 2 AC 418, 479, 506; White v Jones
[1995] 2 AC 207, 262–3, 266.
22 Furmston (1960) 23 MLR 373; Smith, The Law of Contract (4th edn, 2002), p 94.
23 [1915] AC 847, 853.
24 Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70, 79; Scruttons Ltd v Midland
Silicones Ltd [1962] AC 446; Kepong Prospecting Ltd v Schmidt [1968] AC 810, 826. See also Atiyah, Essays
on Contract (1986) 220; KH Enterprise v Pioneer Container [1994] 2 AC 324, 355; White v Jones [1995] 2 AC
207, 262–3; Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460, 478, 486, 493; Trident General
616 limits of the contractual obligation

sense privity and consideration may be said to reflect two logically separate issues of
policy.25 The first, primarily associated with the privity doctrine, relates to who can
enforce a contract. The second, primarily associated with consideration, concerns the
types of promises that can be enforced. Having said that, the closeness of the link between
the two depends on the precise sense in which one is using the maxim ‘consideration
must move from the promisee’. This has been discussed in Chapter 4 above.26 Suffice
it to say here that, in so far as one means by that maxim that consideration must move
from the claimant the maxim overlaps with, and is indistinguishable from, the doctrine
of privity according to which only a party to a contract can enforce it.

(b) remedies of the promisee

Notwithstanding the fact that the third party cannot enforce the contract, the contract
is binding between the parties to it. The remedies that may be available to the promisee
if the promisor fails to perform the promise are only relevant where the promisee is
able and willing to enforce the contract for the benefit of the third party. The widow in
Beswick v Beswick would not have been able to obtain her annuity had Peter Beswick
appointed his nephew the executor of his estate instead of the widow. There is no
procedure by which an unwilling or unco-operative promisee can be compelled to
institute proceedings on behalf of the third party.27 The existence of a right of action
in the promisee does not, in consequence, necessarily ensure that the third party
will obtain damages or the performance promised in the contract. Even where the
promisee seeks a remedy there are certain difficulties.

(i) Damages for loss sustained by the promisee

The general rule is that damages are for loss suffered by the claimant. Therefore,
where the breach of contract consists of failure to perform in favour of the third
party, the damages will, in principle, be nominal only.28 Thus in Beswick v Beswick29
the promisee’s estate suffered no loss because the promise was to benefit the widow
and not Peter Beswick (or his estate). 30 In some situations, however, including many
commercial transactions, the promisee will suffer loss by reason of the breach, either
because an obligation it owes to the third party is not discharged, as in Price v Easton,31

Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 164 (High Court of Australia); London Drugs
Ltd v Kuehene & Nagel International Ltd [1992] 3 SCR 299, 417 (Supreme Court of Canada).
25 Law Revision Committee, Sixth Interim Report 1937 (Cmnd 5449), para 37; Law Com. CP No 121,
Privity of Contract: Contracts for the Benefit of Third Parties (1991), para 2.9 and see (albeit more equivocally)
Law Com No 242, Part VI.
26 Above, pp 98–99.
27 But see the suggestion that the third party be joined as a party to the action made by Lord Denning in
Beswick v Beswick [1966] Ch 538, 554, and (in a different context) Snelling v John Snelling Ltd [1973] QB 87,
below, p 621. Contrast Gurtner v Circuit [1968] 2 QB 587, 599, 606; White v Jones [1995] 2 AC 207, 267.
28 See Coote’s argument ([1997] CLJ 537, 549 ff ) that Courts have confused loss of the enjoyments of the
fruits of performance (which the promisee has not lost) and loss of the bargained-for contractual rights
(which the promisee has lost). 29 [1968] AC 58.
30 Ibid, 102 (Lord Upjohn). See also at 72, 78, 101. Cf Lord Pearce, at 88.
31 (1833) 4 B & Ad 433, above, p 614.
 third parties 617

or where the consequence is that the promisee comes under a legal obligation to the
third party. In such cases substantial damages will, in principle,32 be recoverable.
In principle, the promisee should also be able to recover substantial damages if,
by reason of the breach of contract, the promisee (a) comes under a moral obligation
to compensate the third party, though under no legal obligation to do so,33 or, (b)
voluntarily incurs expense in making good the default.34 Thus if a vicar hires a coach
for an outing for the choir, and the coach operator leaves the choir stranded half way,
the vicar might recover substantial damages in respect of the taxi fares incurred in
getting the choir home, whether the choir paid their own fares (in which case the vicar
would recompense the choir from the damages recovered) or the vicar paid their fares
for them.35
There may also be certain cases of contracts for the benefit of a third party where
what might at first sight appear to be the third party’s loss can in fact be analyzed as
the promisee’s. One example, discussed below, is where the promisee contracts for a
family holiday.36

(ii) Damages for loss sustained by the third party rejected as a general rule
The principle that as a general rule substantial damages can only be given for loss
suffered by the claimant, applied by the House of Lords in Beswick v Beswick,37 has
been affirmed on several occasions since then. In Woodar Investment Development Ltd
v Wimpey Construction UK Ltd:38
The defendants contracted to buy land from the claimants for £850,000. It was agreed that
on completion £150,000 was to be paid by the defendants to a third party. The claimants
sought damages for a repudiatory breach of the contract by the defendants.

A majority of the House of Lords held that the defendants had not repudiated the
contract. But their Lordships agreed that, if the contract had been repudiated, the
claimants could not, without showing that they had themselves suffered loss or were
agents or trustees for the third party, have recovered damages for non-payment of the
£150,000.
In Jackson v Horizon Holidays Ltd39 Lord Denning MR, with whom Orr LJ agreed,
had stated that whenever a contract was made for the benefit of a third party and
the third party suffered loss as a result of the failure of the promisor to perform the

32 ie, subject to the ordinary rules, including those concerning remoteness and mitigation on which see
above, pp 543 and 555.
33 Jackson v Watson [1909] 2 KB 193; Radford v de Froberville [1977] 1 WLR 1262.
34 It may be reasonable to make a voluntary payment; Banco de Portugal v Waterlow & Sons Ltd [1932]
AC 452, above, p 556 (mitigation of damages). See also Admiralty Commissioners v SS Amerika [1917] AC
38, 61.
35 An example given by Lord Denning MR in Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468,
1472–3. 36 Below, p 618.
37 [1968] AC 58, 72, 78, 101, above, p 616. 38 [1980] 1 WLR 277, 283–4, 291, 293, 297, 300.
39 Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468. Cf in tort, where voluntary services by the victim’s
carer are analysed as the carer’s loss and damages are held on trust by the victim for the carer: Cunningham v
Harrison [1973] QB 454; Donnelly v Joyce [1974] QB 454; Housecroft v Burnett [1986] 1 All ER 332, 343; Hunt
v Severs [1994] AC 350, 363,
618 limits of the contractual obligation

contract, the promisee could recover damages in respect of the loss sustained by the
third party, holding the damages as money had and received to the use of the third
party and paying them over. In that case:

J contracted with a travel company for the provision by the company of holiday
accommodation for himself, his wife and two children. The accommodation provided fell
below the standard required by the contract and the whole family suffered discomfort,
vexation, inconvenience and distress. The trial judge awarded J £1,100 damages including
£500 for his mental distress.

The Court of Appeal upheld the award. James LJ appeared to agree with the trial judge.
Lord Denning MR said that, if regarded as only for the distress of the claimant himself,
the award was excessive but held that the claimant could recover both for his loss and
that of his family.
In Woodar’s case the House of Lords disapproved of this view40 but it was said
that the decision in Jackson’s case could be supported either on the ground that the
claimant there was recovering damages in consequence of the loss which he had
himself sustained41 or as a case which called for ‘special treatment’.42 In view of its
decision on the repudiation point it was not necessary for the House to make a decision
on the damages point and it did not state any rule of law regarding the recovery of
damages for the benefit of third parties. Nevertheless certain members of the House of
Lords were strongly critical of the result produced by the combined effect of these two
aspects of the privity of contract principle; neither the third party for whom the benefit
was intended nor the promisee who contracted for it could recover damages for that
which the promisor had agreed, but failed, to provide.
The hope was expressed that the House of Lords would soon have the opportunity
of reconsidering this matter43 but when the question again came before the House
in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and St Martins Property
Corporation Ltd v Sir Robert McAlpine Ltd44 and in Alfred McAlpine Construction
Ltd v Panatown Ltd,45 the opportunity was not taken. In the Linden Gardens case the
decision was that the case fell within the rationale of the exceptions to the general
rule46 and in Alfred McAlpine Construction Ltd v Panatown Ltd it was held that the
exceptions did not apply where the third party has, as it was in that case, been given a
direct contractual right against the promisor.47

40 Lord Denning had relied on a statement of Lush LJ in Lloyd’s v Harper (1880) 16 Ch D 290, 321 which
was made in the context of the ‘trust of a promise’ exception to the general rule; see below, p 636 and
Beswick v Beswick [1968] AC 58, 101; Woodar Investment Development Ltd v Wimpey Construction UK Ltd
[1980] 1 WLR 277, 283, 293–4, 297. The Package Travel, Package Holidays and Package Tours Regulations
1992 SI 1992 No 3288, below p 641 now give the beneficiaries of package holidays a direct right of action.
41 [1980] 1 WLR 277 293, 297; Jackson v Horizon Holidays Ltd, above, 1474 (James LJ).
42 Ibid, 283, 291, 293. See also Calebar Properties Ltd v Sticher [1984] 1 WLR 287, 290 (tenant’s damages
included sum in respect of spouse’s ill-health). 43 Ibid, 291, 297–8, 300–1.
44 [1994] AC 85, varying (1992) 57 BLR 57. 45 [2001] 1 AC 518.
46 [1994] AC 84, 114. See below, p 619. 47 [2001] 1 AC 518. See below, p 619.
 third parties 619

(iii) Exceptionally third party’s loss recoverable

What then are the exceptions to the general rule? A trustee-promisee may recover in
respect of the beneficiary’s loss,48 an agent may recover in respect of the undisclosed
principal’s loss,49 and a person with a limited interest in property who has taken out
full insurance may recover the full amount of loss or damage.50 Again, in a contract for
the carriage of goods by sea, a consignor may recover substantial damages even where
it has sold the goods and they are not at its risk provided it is not contemplated that
the carrier would also be put into a direct contractual relationship with whomsoever
might become the owner of the goods.51 The last two exceptions concern commercial
contracts about goods where the parties contemplate that the proprietary interests
in the goods may be transferred after the contract has been entered into but before
the breach which causes loss or damage to the goods. This principle has been held to
apply to a contract for the development of land where the land was owned or occupied,
or it was contemplated that the land was going to be owned or occupied, by third
parties.52 In such a case, where the third-party owner or occupier has no direct right to
sue for breach of contract,53 the contracting party can recover substantial damages as
representing the third party’s loss.

(iv) Specific performance

The promisee may be able to obtain an order for specific performance against the
promisor to compel him to carry out the promise in favour of the third party. Thus in
Beswick v Beswick54 the House of Lords held that the widow, in her capacity as personal
representative of Peter Beswick (the promisee), could obtain specific performance of
the promise in favour of herself as third party. As Lord Pearce explained: ‘The estate
(though not the widow personally) can enforce it’.55
Specific performance is, as has been seen, a discretionary equitable remedy which is
not available as a matter of course. As a general rule, an order for specific performance
will not be made against a defendant in any case where damages are an adequate
and appropriate remedy,56 where, had the positions been reversed, the claimant’s
undertaking could not have been specifically enforced, so ‘mutuality’ was lacking,57

48 Lloyd’s v Harper (1880) 16 Ch D 290, 331 on which see below, p 636. See also St Albans City and District
Council v International Computers Ltd [1996] 4 All ER 481, 489 (local authority recovered in respect of
chargepayer’s loss). 49 Allen v F O’Hearn & Co [1937] AC 213, 218, below, pp 708–710, 715–716.
50 Waters v Monarch Fire and Life Assurance Co (1856) 5 E & B 870; Hepburn v A Tomlinson (Hauliers) Ltd
[1966] AC 451. Marine Insurance Act 1906, s 26(3). See also the right of the bailee, albeit in tort, in The Winkfield
[1902] P 42 and the analagous fact situation in Bovis International Inc v The Circle Limited Partnership (1995)
49 Con LR 12.
51 Dunlop v Lambert (1839) 6 Cl & F 600; The Albazero [1977] AC 774, 846–7. The direct contractual
relationship, rendering the exception unnecessary, might be by the operation of the Carriage of Goods by
Sea Act 1992 or by making a separate contract.
52 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and St Martins Property Corporation Ltd v
Sir Robert McAlpine Ltd [1994] AC 85, 114–15 (contracting party owner of land); Darlington BC v Wiltshier
Northern Ltd [1995] 1 WLR 68 (contracting party had no proprietary interest).
53 Alfred McAlpine Construction Ltd v Panatown Ltd [1994] AC 85 (exception did not apply because third
party had direct contractual right). 54 [1968] AC 58, above, p 615.
55 Ibid, 89. 56 See above, p 575. 57 See above, p 577.
620 limits of the contractual obligation

or where the contract has been discharged and is no longer in existence.58 Contracts
of personal service are normally not specifically enforceable;59 and not all contractual
undertakings are sufficiently precisely defined to be enforced specifically.60
In Beswick v Beswick an award of damages was considered inadequate and specific
performance appropriate for a number of reasons. First, damages would not have taken
account of the loss to the third party and would have been purely nominal.61 Secondly,
the defaulting promisor had received the full benefit of the contract by the completed
transfer of the business.62 Thirdly, had the business not been transferred, the defaulting
promisor could have obtained specific performance of the promise.63 Fourthly, specific
performance was more appropriate for a promise to make a series of regular payments
than a succession of actions for damages which would have had to have been brought
as each payment fell due. It does not therefore follow that specific performance will
necessarily be ordered in all cases where performance is to be made to a third party.

(v) Action for the agreed sum

Where money is promised to be paid to a third party, the contracting party to whom
the promise is made has normally no claim whatsoever to the money which is properly
due to the third party. It follows that the promisee cannot by means of an action for the
agreed sum require the promisor to pay the agreed sum to the promisee.64 However,
although there is no clear support for this in the authorities,65 it would seem that in
principle the promisee should be able to bring an action for the agreed sum to enforce
payment to the third party. This is simply to enforce the promise made.

(vi) Recovery of money paid

Where a contract is made for the benefit of a third party and the promisee has
paid money to the promisor in consideration of a promise which the promisor has
totally failed to perform, the promisee will be entitled to recover the money as paid
on a consideration which has totally failed. This remedy for restitution of an unjust
enrichment, which might be less advantageous than damages or specific performance,
would not be available in the present state of the law if the promisor had partly
performed the promise, as there would not be a total failure of consideration.66

(vii) Injunction
Where the promisor, either expressly or by necessary implication, promises not to
sue a third party, the third party, as a stranger to the contract, cannot rely directly on

58 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, 300.
59 See above, p 578.
60 Forster v Silvermere Gold and Equestrian Centre (1981) 125 SJ 397, above, p 579.
61 Above, p 616.
62 [1968] AC 58, 83, 89, 97. 63 Ibid, 89 (Lord Pearce).
64 Re Stapleton-Bretherton [1941] Ch 482; Re Schebsman [1944] Ch 83; Coulls v Bagot’s Executor and
Trustee Co Ltd (1967) 119 CLR 460, 502; Beswick v Beswick [1968] AC 58, 94, 96. Cf Re Sinclair’s Life Policy
[1938] Ch 799.
65 Passages in Beswick v Beswick [1968] AC 58, 81, 88, 97 may be thought to suggest that the administratrix
could sue for arrears to be paid to the widow in her personal capacity. 66 See above, p 588.
 third parties 621

the terms of the contract as a defence to any action brought by the promisor.67 But the
promisee may obtain an injunction enforcing the negative promise or a declaration
that the promise is binding on the promisor thereby effectively preventing the promisor
from suing the third party. In Snelling v John Snelling Ltd:68
Three brothers were shareholders and directors of a family company which owed each
of them considerable sums of money. Differences arose between them, and, as part of an
effort to settle these, they made a contract, agreeing, inter alia, that, in the event of any
director resigning, he would immediately forfeit all moneys due to him from the company.
Subsequently, one brother (Brian) resigned his directorship and brought an action against
the company for payment of the money owed to him. His two brothers applied to be, and
were, joined as co-defendants to the action, and they counterclaimed for a declaration that
the sums due to Brian from the company had been forfeited.

The question arose whether the company, which was not a party to the agreement, could
rely on it. In principle, it could not do so, and so Brian would be entitled to judgment
on his claim. The two brothers would, however, also be entitled to a declaration that
the provisions of the agreement were binding on Brian. In the view of Ormrod J the
resulting situation was absurd, and he held that the proper order to make was to
dismiss Brian’s claim. The reality of the situation was that Brian’s claim had failed
since his two brothers had succeeded in their counterclaim, and the order of the Court
should reflect that fact. It would therefore seem that, where all parties are before the
Court, the Court may stay69 or dismiss a claim brought by a contracting party against
a third party whom the other contracting party has promised not to sue.
It has been said that for the Court to exercise its power to stay or dismiss a claim, the
promisee must have a sufficient interest,70 such as a legal or equitable right to protect,71
and must be able to show a real possibility of prejudice to himself, for example by being
exposed to an action by the third party.72 In Snelling’s case the promisees were not
subject to this kind of ‘legal’ prejudice since they would not have been exposed to an
action by the company. However, they would have been commercially and financially
prejudiced by any deterioration in the company’s financial position, as would have
occurred had Brian’s action succeeded.

(c) rationale and appraisal of the common law rule

(i) Justification of rule
The case for the common law rule that a third party cannot enforce a contract rests on
a number of factors. First, although consideration has been provided for the promise,
it has not been provided by the third party. Secondly, it would be unjust if a person

67 See below, p 645 (exemption clauses). 68 [1973] QB 87.

69 Th is power is now in Senior Courts Act (formerly Supreme Court Act) 1981, s 49(2). But contrast Gore
v Van der Lann [1967] 2 QB 31. 70 Gore v Van der Lann [1967] 2 QB 31.
71 European Asian Bank v Punjab & Sind Bank [1982] 2 Lloyd’s Rep, 356, 369.
72 The Elbe Maru [1978] 1 Lloyd’s Rep 206. Cf The Chevalier Roze [1983] 2 Lloyd’s Rep 438, 443; The Starsin
[2001] 1 Lloyd’s Rep 437, 461–2.
622 limits of the contractual obligation

could sue on a contract but not be sued upon the contract.73 Thirdly, if third parties
could enforce contracts made for their benefit, the rights of the contracting parties to
vary or terminate such contracts would be affected. Fourthly, it is undesirable for the
promisor to be liable to two actions from both the promisor and the third party, and
the privity rule limits the potential liability of a contracting party to a wide range of
possible third-party claimants.74 The Law Commission did not regard any of these
explanations as convincing justifications of the rule.75
Those who favour the common law rule76 also point out that it is not absolute.
The Courts and the legislature have created exceptions and circumventions to avoid
perceived injustice. These are considered below.77 In some, particularly those based on
statute, the third-party rule is simply overridden. In others the third-party claimant
does not need to rely on the contract but is able to have recourse to other areas of
the law and to rely on a property right, a possessory right, or is able to sue in tort.78
Alternatively, the third party may be able to establish a collateral contract with
the promisor.79 Other exceptions to and circumventions of the rule may be seen in
assignment,80 agency (including the doctrine of the undisclosed principal),81 transfer
on death,82 and bankruptcy.83

(ii) Criticism of rule

The considerable criticism of the principle that a third party cannot acquire rights under
a contract has been noted. Its desirability as a matter of policy has been questioned by
judges,84 law reform bodies,85 and commentators.86 Its pedigree has also been criticized
on the ground that it was doubtful that the nineteenth-century cases on which it is
based in fact established its existence and that it was only a rule of procedure.87 It is said
that it serves only to defeat the intentions of the contracting parties and the legitimate
expectations of the third party, who may have organized its affairs on the faith of
the contract; that it undermines the social interest of the community in the security

73 Tweddle v Atkinson (1861) 1 B & S 393, 398; London Drugs Ltd v Kuehene & Nagel International Ltd
[1992] 3 SCR 299, 418, 440 (Canada). But see above, p 30 for the position in the case of unilateral contracts.
74 Trident General Insurance Co Ltd v McNiece Bros Pt. Ltd (1988) 165 CLR 107, 121–2 (Australia).
75 Privity of Contract: Contracts for the Benefit of Third Parties, Law Com. CP No 121 (1991), para 4.4; Law
Com No 242, para 3.1.
76 Kincaid (1994) 8 JCL 51; (1999) 12 JCL 47; (2000) 116 LQR 43; Smith (1997) 17 OJLS 643; Stevens (2004)
120 LQR 292. 77 See below, pp 635–651.
78 See below, pp 643 (tort), 635, 642 (property).
79 See generally, above, p 137 and, on exemption clauses and third parties, below, p 647.
80 See below, ch 22. 81 See below, ch 24. 82 See below, p 682. 83 See below, p 683.
84 Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, 467–8; Beswick v Beswick [1968] AC 58, 72;
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, 291, 297–8, 300;
Forster v Silvermere Gold and Equestrian Centre (1981) 125 SJ 397; Swain v The Law Society [1983] 1 AC 598,
611; Darlington BC v Wiltshier Northern Ltd [1995] 1 WLR 68, 73, 76.
85 Law Revision Committee Sixth Interim Report (Cmnd 5449); Law Com No 242, Privity of Contract:
Contracts for the Benefit of Third Parties (1996).
86 Corbin (1930) 46 LQR 12; Furmston (1960) 23 MLR 373; Flannigan (1987) 103 LQR 564; Andrews
(1988) 8 LS 14; Adams & Brownsword (1990) 10 LS 12. Cf Kincaid [1989] CLJ 243, (1994) 8 JCL 51, (2000) 116
LQR 43; Smith (1997) 17 OJLS 643; Stevens (2004) 120 LQR 292.
87 Drive Yourself Hire Co (London) Ltd v Strutt [1954] 1 QB 250, 273; Beswick v Beswick [1968] Ch 538,
553–4, 557 (Lord Denning MR, a particularly vigorous critic).
 third parties 623

of bargains; and that it is commercially inconvenient.88 In the standard situation the

person who has suffered the loss cannot sue, while the person who has suffered no
loss can sue but may be able to obtain only nominal damages.89 Where the object of
the contract is to benefit the third party, the effect of this is tantamount to ruling that
the object of the contract is unenforceable. The exceptions and circumventions are
complicated and not always available, particularly to those who do not have access
to sophisticated legal advice. Moreover, their technicality has led to artificiality and
uncertainty.

(iii) Reform
The right of a third party to sue on a contract made for its benefit is recognized by the
law of Scotland and the legal systems of the United States. It has also been introduced
by statute in several Commonwealth jurisdictions90 while in others the privity
doctrine has been modified judicially.91 In England, the Courts, while criticizing the
principle that a third party cannot acquire rights under a contract, indicated that
a radical change in the common law, such as abrogation of the principle, should be
introduced by legislation.92 This reluctance stemmed from the nature of the third-
party rule itself, which some saw as a ‘fundamental’ rule and which, in Anson’s words,
‘seems to flow from the very conception we form of contract’.93 As such, it fi xed ‘a
reference point for the development of subsidiary rules’, here the rules of trust, agency
and estoppel. Those who took this view considered that it was not possible to abrogate
the rule without leaving open major issues of policy, which it was not appropriate for
Courts to decide.94
As long ago as 1937 the Law Revision Committee recommended that where a contract
by its express terms purports to confer a benefit directly on a third party, the third
party should be entitled to enforce the provision in its own name.95 Although widely
supported, the recommendation was not implemented because of the outbreak of the
Second World War.96 In 1991 the Law Commission returned to the subject and in 1996
it recommended that the rule should be reformed so as to enable contracting parties
to confer a right to enforce the contract on a third party.97 The Law Commission saw

88 For difficulties in construction and insurance contracts, see Law Com No 242 (1996), paras 3.10–3.27.
89 Above, p 616.
90 Western Australia, Queensland and New Zealand. For a summary of this legislation, see Law Com No
242 (1996), Appendix B, and for a summary of the position in other legal systems, including Scotland, the
United States, France, and Germany, see the Appendix to Law Com CP No 121 (1991).
91 London Drugs Ltd v Kuehene & Nagel International Ltd [1992] 3 SCR 299, (Canada), below, p 650
(exemption clauses); Trident General Insurance Co Ltd v NcNiece Bros Pty Ltd (1988) 165 CLR 107 (Australia).
92 Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, 467–8; Beswick v Beswick [1968] AC 58, 72;
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, 291, 297–8, 300. But
cf KH Enterprise v Pioneer Container [1994] 2 AC 324, 335; Darlington BC v Wiltshier Northern Ltd [1995] 1
WLR 68. Cf The Mahkutai [1996] AC 650, 665. 93 Principles of the Law of Contract (1879) 195.
94 See Brennan and Deane JJ’s minority judgments in Trident General Insurance Co Ltd v NcNiece Bros
Pty Ltd (1988) 165 CLR 107, 128, 131–2, 134, 140–1, 142–5 and Beatson (1992) 44 CLP 1.
95 Sixth Interim Report (Cmnd 5449), para 48. 96 See further Beatson (1992) 44 CLP 1, 10–15.
97 Law Com No 242, Privity of Contract: Contracts for the Benefit of Third Parties (1996) paras 3.29, 3.32,
including (see now s 1(6) of the 1999 Act) the right to rely on clauses limiting or excluding the third party’s
liability to a contracting party. See Adams, Beyleveld and Brownsword (1997) 60 MLR 238.
624 limits of the contractual obligation

its proposals ‘as achieving at a stroke and with certainty and clarity what a progressive
House of Lords might well itself have brought about over the course of time’, and as not
cutting across the underpinning principles of the common law.98
While the simple recognition of some form of third-party right might be
uncontroversial, the determination of its precise extent is not. The most important
difficulties concern the test of enforceable benefit, the validity of defences that would
have been available had the promisee sued, and whether the contracting parties should
have power to vary or cancel the contract. The way that these issues are dealt with by
the Contracts (Rights of Third Parties) Act 1999, which substantially implemented the
Law Commission’s Report,99 is considered in the next section.

(d) the contracts (rights of third parties) act 

(i) Introduction
The Contracts (Rights of Third Parties) Act 1999 enables the parties to a contract to
make it enforceable by a third party.100 It enables a third party both to sue to enforce
a positive provision in the contract, such as a promise to pay money, and to rely on
an exemption or limitation clause in its favour as a defence.101 The Act thus removes
the limit on the autonomy of the parties represented by the first rule of the privity
principle. It is fundamental to the scheme of the Act that the parties to the contract
control both whether a third party has an enforceable right and, if so, the extent of
such right.102 The third party’s rights are thus derived from the parties’ intentions as
embodied in the contract. But they are distinct from, and additional to, the rights of
the promisee, which the promisee retains.103 The existing statutory and common law
exceptions, by which the third party has rights, are preserved.104 These are considered
later in this chapter.105 It will be seen that some of the common law and statutory
exceptions give third parties more secure rights than those given by the 1999 Act.

(ii) The scope of the Act

The Act applies to contracts made after 11 May 2000. Although it is general, certain
types of contract are not affected by it. The common law position for contracts in the
constitution of a company, binding on the company and its members under section
33 of the Companies Act 2006, is preserved by section 6(2) of the 1999 Act. Moreover,

98 Law Com No 242, para 1.10.

99 s 6(2)–(4), exempting contracts of employment and the contract contained in a company’s articles
from the Act (see below, pp 624–625, is not based on recommendations of the Law Commission and s 8, on
arbitration clauses, differs from the Draft Bill attached to the Commission’s Report.
100 For commentary on the Act see Andrews [2001] CLJ 353; Bridge (2001) 5 Edin L Rev 85; Burrows [2000]
LMCLQ 540; MacMillan (2000) 63 MLR 721; Roe (2000) 63 MLR 887; Merkin, Privity of Contract (2000)
ch 5 (usefully containing the Law Commission consultation paper, report and the Parliamentary debates on
the bill in appendices). For criticism of the Act, see Stevens (2004) 120 LQR 292. For an assessment of the
Act ten years on from its enactment, see Beale in Burrows and Peel (eds), Contract Formation and Parties
(2010) ch 11. 101 s 1(6). See below, p 645 ff on exemption clauses and third parties.
102 s 1(4), see below, pp 632, 658. 103 s 4, see below, p 632.
104 s 7(1). See Law Com No 242, paras 12.1–12.2. But note the position of negotiable instruments and
certain contracts of carriage, below, p 625. 105 Below, p 635 ff
 third parties 625

section 6(3) prevents third parties from relying on the 1999 Act to enforce terms in
contracts of employment and similar contracts purporting to enable them to sue an
employee, a worker, or an agency worker.106
A second category of contracts is excluded from the 1999 Act because they are
subject to an alternative legislative regime recognizing and regulating third-party
rights which might otherwise be undermined. Bills of exchange, promissory notes,
and negotiable instruments are excluded by section 6(1). Contracts of carriage subject
either to the Carriage of Goods by Sea Act 1992 or international conventions governing
carriage by road, air and rail to which the United Kingdom is party are, subject to one
qualification, excluded by section 6(5). The qualification is that a third party may avail
itself of an exclusion or limitation of liability in such a contract.107 Contracts by way of
charterparties are not excluded.108
In the case of negotiable instruments, only third parties who are ‘holders’ of the
instrument can sue109 whereas, if the 1999 Act applied, this would have opened up the
possibility of others suing. In the case of contracts of carriage, where third parties are
given the right to enforce the contract under the Carriage of Goods by Sea Act 1992
they also take some or all of the burdens, whereas under the 1999 Act the third party
takes only the benefits.110 Moreover, under section 2(1) of the 1992 Act, ‘all rights of suit’
are transferred to the third party111 so that, unlike under the 1999 Act, the promisee is
left with no rights of enforcement.

(iii) The tests of enforceability

The 1999 Act contains two tests of enforceability. By section 1:
(1) Subject to the provisions of this Act, a person who is not a party to a contract (a ‘third
party’) may in his own right enforce a term of the contract if—
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears
that the parties did not intend the term to be enforceable by the third party.
(3) The third party must be expressly identified in the contract by name, as a member of
a class or as answering a particular description, but need not be in existence when the
contract is entered into.

Each of the two tests will be considered in turn.

(a) Express provision. Section 1(1)(a) of the 1999 Act provides a simple and certain
test: a third party acquires an enforceable right where the contract contains an express
provision to that effect. Section 1(3) provides that the third party must be expressly

106 As defined by the National Minimum Wage Act 1998, ss 54 and 34–35. See Hansard HL Debs 11 January
1999, col 21 (Lord Irvine LC)
107 s 6(5). 108 See the defi nitions in ss 6(6) and (7) of the 1999 Act. 109 See below, pp 678–679.
110 See Law Com No 242, paras 12.7–12.16. See below p 684. 111 See below, p 684.
626 limits of the contractual obligation

identified in the contract by name, class or description.112 Identification in the course

of negotiations does not suffice. But the third party need not be in existence when the
contract is made. Accordingly, a contracting party’s present and future employees and
subcontractors may qualify, as may unborn children. 113 Third parties who qualify
under section 1(1)(a) may enforce a contractual term (including an exclusion or
limitation clause) even if they are not intended to be the beneficiaries of the term, as
where they are trustees.114
The Law Revision Committee had recommended that this should be the only way
that a third party could acquire an enforceable right.115 But, while a requirement of
express contractual provision is conducive to certainty, it means that the intentions
of contracting parties (including those reflected in trade practice or by the principles
governing implied terms)116 will not always be recognized. Nor would it cover the facts
of many of the cases where the privity doctrine caused a problem, such as Beswick v
Beswick.117 For these reasons, and because requiring express contractual provision
would ‘operate to the disadvantage of those who do not have the benefit of (good) legal
advice’,118 the Law Commission concluded that there should also be a second test of
enforceability to cover situations where the parties do not expressly contract to confer
a legal right on the third party.
(b) Term purporting to confer a benefit on an expressly identified third party. The
effect of section 1(1)(b) and section 1(2) is in general terms to provide for what the
Law Commission and the Lord Chancellor described as a rebuttable presumption in
favour of there being a third-party right where a contractual term purports to confer a
benefit on a third party expressly identified by name, class, or description.119 This will
be rebutted where, on the proper construction of the contract as a whole, ie including
the surrounding circumstances,120 the parties do not intend the third party to have a
right to enforce it.
It has been suggested that the words ‘purport to confer a benefit’ mean that the
presumption in section 1(1)(b) is triggered only where the third party is to receive a
benefit directly from the promisor,121 but this is not entirely clear from the words of the
Act or the Law Commission’s report.122
The approach of the 1999 Act should avoid a problem which has arisen in the United
States where an ‘intention to benefit’ test has been used. That test has led to difficult

112 In the similarly worded New Zealand legislation, the words ‘or nominee’ may not sufficiently identify
the third party (Karangahape Road International Village Ltd v Holloway [1989] 1 NZLR 83) and may be
insufficient to indicate an intention to create an enforceable right in the nominee (Field v Filton [1988] 1
NZLR 482). But cf Rattrays Wholesale Ltd v Meredyth Young and A’Court Ltd [1997] 2 NZLR 363.
113 Law Com No 242, paras 8.1–8.16.
114 Law Com No 242, para 7.12 ff. Such a third party may also have a common law right of enforcement:
see below, p 635. 115 Law Com No 242, paras 8.1–8.16.
116 Sixth Interim Report (Cmnd 5449).
117 [1968] AC 58, above, p 615. See Law Com. No 242, para 7.11. 118 Law Com No 242, para 7.11.
119 Law Com No 242, para 7.17; Hansard HL Debs, 2 February 1999, col 1425. The identification
requirement in s 1(3), above p 625, also applies to s 1(1)(b). 120 See above, p 166.
121 Burrows [2000] LMCLQ 540, 544.
122 Cf the example in Law Com No 242, paras 7.33, 7.51, based on the facts of Green v Russell [1959] 2 QB
226, below, p 628.
 third parties 627

distinctions between the ‘intended beneficiary’ and the ‘incidental beneficiary’: the
latter is the third party who benefits incidentally by the performance of a contract by
others.123 Where A contracts with B to construct a new road on B’s land, C, whose
adjoining land would be enhanced in value by the building of the road, while deriving
a factual benefit from the performance of the contract made between A and B, is merely
an incidental beneficiary of the contract, the primary benefit of which is conferred
upon B. Moreover, while the road may be intended for the benefit of all road-users, it
is unlikely that the parties intend that road-users should have a right of action in the
event of a delay in construction.
It is clear that the 1999 Act does not enable either C or other road-users to enforce
the terms of the contract between A and B. Again, a standard liability insurance policy
indemnifying the assured against liability to third parties is plainly for the benefit
of those who may make claims against the assured. But, in general, payment is to be
made to the assured and the term so providing purports to confer a benefit on the
assured. It is accordingly difficult to say that the term purports to confer a benefit on a
person with a claim against the assured.124
The Law Commission illustrated the application of the test now contained in section
1(1)(b) by reference to a number of hypothetical situations and some of the celebrated
cases in which the first aspect of the privity principle has caused difficulty.125 A
selection is set out below. First, there are cases or situations in which the Commission
considered the third party would be able to enforce the term on the basis of what is
now section 1(1)(b).
(1) In Beswick v Beswick126 the contract gave Mrs Beswick, who was expressly
named, a presumed right of enforceability because the nephew promised to
confer the benefit (the annuity payments) on her. As there was no indication in
the contract that the parties did not intend her to enforce the term, she would
have been able to enforce it under section 1(1)(b).
(2) B takes out a policy of insurance with A Ltd to cover her employees against
medical expenses. The policy provides that payments under it will be made
directly to ill employees or, at the discretion of A Ltd, to the provider of the
medical services in discharge of an employee’s liability. C, an employee,
becomes ill and requires hospitalization. Meanwhile B disappears. C seeks to
sue as a beneficiary of B’s contract of insurance with A Ltd In the absence of
some contrary indication in the contract triggering section 1(2), C would be
able to do so. A Ltd has promised to confer a benefit (direct payment or the
discharge of C’s liability) on C, who is expressly identified by class.127
(3) B Ltd, the owner of land, takes out a liability insurance policy with A Ltd,
an insurance company, whereby A Ltd agrees to indemnify B Ltd and B’s

123 Restatement of Contracts (1932) paras 133(1) and 147; Restatement of Contracts (2d) (1981) para 302.
See Prince (1985) 25 Boston College L Rev 919, 934–7, 979.
124 Merkin, Privity of Contract (2000) 105; Burrows [2000] LMCLQ 540, 544–5.
125 Law Com No 242, paras 7.28–7.51. For other examples see Burrows [2000] LMCLQ 540, 552–3.
126 [1968] AC 58, above, p 615. See Law Com No 242, para 7.46. 127 Law Com No 242, para 7.32.
628 limits of the contractual obligation

subsidiary companies, contractors, and subcontractors. C, one of B Ltd’s

contractors, incurs liability while carrying out work for B Ltd C seeks to sue
as a beneficiary of B’s contract of insurance with A Ltd In the absence of some
contrary indication in the contract triggering section 1(2), C would be able
to do so. The contract purported to confer a benefit on C, who is expressly
identified by class.128
(4) B Ltd takes out a personal accident insurance policy with A Ltd to cover its
employees against accidents. By the terms of the policy, payments are to be made
to B Ltd. C, an employee, is injured and B Ltd is insolvent. The Commission
considered this a difficult case because it is arguable that, since payment is to be
made to B Ltd, it is difficult to say that under the contract A purports to confer
a benefit on C so as to bring section 1(1)(b) into operation. But it concluded that,
once received by B Ltd, the money is held on trust for C, so that the contract does
purport to confer a benefit on C and the provision that the money be paid to
B Ltd would not show that the parties did not intend C to be able to enforce the
term because channelling the money in this way is a matter of administrative
convenience.129
Secondly, there are those cases or situations in which the Commission considered that
the third party would not be able to rely on section 1(1)(b). The first is the clear case
where the parties expressly provide that the third party is to have no rights, or where
the intention to benefit the third party is not known to one of the parties (illustration
(5)). It is also likely to be the case where the third party is an incidental beneficiary of
the contract (illustration (6)), or where the transaction is part of a customary chain
of contracts which gives the third party a contractual claim against someone else
(illustrations (7) and (8)).
(5) On Mr and Mrs C’s marriage, their wealthy relative B buys an expensive set
of china dishes as a wedding gift from A Ltd, a well-known department store.
The china is delivered to B, who sends it to Mr and Mrs C. The glazing is
defective and after two weeks of use the pattern is fading badly. Mr and Mrs C
could not sue A Ltd under the 1999 Act since the contract between A Ltd and
B does not purport to confer a benefit on them and they are not identified in
the contract.130 The position would be different if B had made it clear to A Ltd
when purchasing the china that it was a gift and A Ltd agreed to deliver it to
Mr and Mrs C’s home. In such circumstances the Commission concluded that
A Ltd would have promised to confer a benefit (china of satisfactory quality)
on Mr and Mrs C, who have been expressly identified by name.131

128 Ibid, para 7.50, broadly the facts of Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165
CLR 107 (High Court of Australia).
129 Ibid, paras 7.33, 7.51, broadly the facts of Green v Russell [1959] 2 QB 226. See Pearce LJ, ibid, 246–7.
130 Based on the example in Law Com No 242, para 7.42. On the rejection of a special test for consumers,
see ibid, para 7.54. 131 Based on the example in Law Com No 242, para 7.41.
 third parties 629

(6) In White v Jones132 a fi rm of solicitors, A, contracted with B to draw up a

will benefiting C but, as a result of the solicitors’ negligence, the will was
never drawn up. Although the intended legatee is expressly designated as
a beneficiary, the contract is not one in which the solicitor promises the
testator to confer a benefit on the third party, the intended legatee, but one by
which the solicitor is to enable the testator to do so. The relevant contractual
beneficiary is the testator who intends to confer on the third party the benefit
of his assets after death and not the benefit of the solicitor’s promise to draft
the will. Accordingly, the contract does not fall within section 1(1)(b) of
the 1999 Act. The intended legatee, however, has a claim in tort against the
solicitors.133
(7) C, the owner of property, contracted with B Ltd for the erection of a factory.
The contract entitled C to nominate subcontractors and B Ltd made a contract
with A, a nominated flooring subcontractor. The floor was defective. The
Commission considered that in such a care, even if A’s obligations, including
the obligation to use reasonable care in laying the floor, purported to benefit
C, who was expressly identified, C would not be able to sue A under section
1(1)(b). It considered that the presumption of an enforceable right would be
rebutted because A’s subcontract was part of a wider chain of contracts, under
which C’s rights for breach of A’s obligations, were to lie against B Ltd, the head-
contractor.134
(8) A person who purchases goods from a retailer against whom he has a claim
under the contract of sale is, in general, unlikely to be able to rely on section
1(1)(b) to sue the manufacturer of the goods for breach of the manufacturer’s
contract with the retailer.135
There have now been four main reported cases on the 1999 Act in the first two of
which the second test of enforceability was held to be satisfied, while in the latter two
it was held not to be satisfied.136
In Nisshin Shipping Co Ltd v Cleaves & Co Ltd:137
A chartering broker (Cleaves) had negotiated a number of charterparties on behalf of the
shipowners (Nisshin). In each of the charterparties, Nisshin agreed with the charterers to

132 [1995] 2 AC 207.

133 See Law Com No 242, paras 7.19–7.27, 7.48. Because there was a claim in tort (on which see below,
p 644), the Commission was content (Law Com No 242, para 7.25) to leave these cases outside its proposed
third-party right although ‘at a theoretical level’ it preferred the view that the right of the prospective
beneficiaries more properly belongs within the realm of contract than tort: ibid, para 7.27.
134 Law Com No 242, para 7.47, the facts of Junior Books Co Ltd v Veitchi Co Ltd [1983] 1 AC 520. The
owner successfully sued the subcontractor in tort in respect of the economic loss suffered; see below, p 644.
Macmillan (2000) 63 MLR 721, 725 considers the view that the presumption of enforceability was rebutted
to involve a certain circularity. 135 See Law Com No 242, para 7.54.
136 In Prudential Assurance Co Ltd v Ayres [2008] EWCA Civ 52, [2008] 1 All ER 1266 the Court of
Appeal’s reasoning in reversing the decision at fi rst instance ([2007] EWHC 775 (Ch), [2007] 3 All ER 946)
meant that, contrary to the approach at fi rst instance, no issue arose on the 1999 Act.
137 [2003] EWHC 2602, [2004] 1 Lloyd’s Rep 38.
630 limits of the contractual obligation

pay Cleaves its commission. In each charterparty, there was also an arbitration clause by
which the parties agreed to refer all disputes arising out of the contract to arbitration.

Colman J held that, applying the second test of enforceability, Cleaves had the right as
a third party under the 1999 Act, to enforce Nisshin’s promise to pay it commission;
and that it was entitled, and indeed bound (as a condition of enforcement), to enforce
that right by arbitration. The most difficult argument facing Colman J was that, as the
contract had not provided for arbitration by the third party, so the parties could not
have intended the third party to have a right of enforceability. The contracting parties
could only have intended either a right of enforceability by arbitration (which they had
not provided for) or no right of enforceability at all. Colman J rejected that argument
by accepting that the parties could have intended the third party to have a right of
enforceability by court action. In any event, he went on to hold that the third party, by
reason of the elaborate provisions on arbitration in section 8 of the 1999 Act, did have
the right to enforce payment of the commission by arbitration (and indeed was bound
to do so, applying a ‘conditional benefit’ analysis).
In Laemthong International Lines Company Ltd v Artis, The Laemthong Glory
(No 2):138
By a contractual letter of indemnity given by the receivers (ie buyers) of sugar to the
charterers of the ship carrying the sugar, the receivers promised to indemnify the charterers
against loss sustained by them. Under clause 1 of the letter of indemnity, the promise was to
indemnify the charterers and their ‘servants and agents’ against loss caused by releasing the
goods without the bill of lading. Under clause 3 the promise was to provide security for the
ship’s release, and to indemnify the charterers against loss caused, if the ship was arrested in
connection with the delivery of the cargo. The ship was arrested by a bank for non-payment
to it in relation to the cargo.

The question at issue was whether the third-party shipowners could enforce clause
3 of the letter of indemnity given by the receivers to the charterers. The Court of
Appeal held that, applying the second test of enforceability, they could. In deciding
that the letter of indemnity purported to confer a benefit upon the shipowners,
the term ‘agents’ in clause 1 was construed as referring to the shipowners and as
applying equally to clause 3. Moreover, although the charterers had also given a
direct letter of indemnity to the shipowners, so that there was a chain of contracts,
this was thought on the facts not to rebut the presumption under section 1(1)(b). In
contrast to the chain of contracts in the context of construction or sales, the third-
party right would not here cut across a legal framework that has customarily been
employed.
In Avraamides v Colwill:139
On the takeover of a company (B) by a partnership (A), A agreed to ‘pay any liabilities
properly incurred’ by B. B had a liability to C. On B’s insolvency, C sought to enforce that
liabilities clause against A.

138 [2005] EWCA Civ 519, [2005] 1 Lloyd’s Rep 688. 139 [2006] EWCA Civ 1533, [2007] BLR 76.
 third parties 631

It was held that the second test of enforceability was not satisfied not least because C
had not been expressly identified in the liabilities clause so that the requirement of
s 1(3) was not met.
Finally, in Dolphin Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans
Forening:140
A cargo of scrap steel was damaged in a collision at sea. The insurers of the cargo paid the
cargo-owners for the damage and hence took over their rights to recover compensation from
the relevant ship. The insurers instructed the claimant (Dolphin) as their agent to recover
the compensation. The interests of the ship were represented by the defendant P & I Club.
The defendant gave a letter of undertaking (LOU) to the insurers promising that, in return
for the non-arrest of the ship, the defendant would pay the claimant, on the cargo-interest’s
behalf, such sums as might be held, or agreed, to be owing by the owners of the ship for the
damage. Subsequently the defendant paid the insurers $8.5 million directly.

The claimant argued that, by reason of the Contracts (Rights of Third Parties) Act
1999, it was entitled to be paid the $8.5 million under the terms of the LOU and that
it could then deduct its commission from that before accounting for it to the insurers.
That argument failed. The LOU did not ‘purport to benefit’ the claimant under s 1(1)
(b). Payment to the claimant was merely the means by which the defendant’s obligation
to the insurers was to be discharged and the intended beneficiaries were the insurers
not their agent. In any event, under s 1(2), on a proper construction of the contract, the
parties to the LOU did not intend the term to be enforceable by the claimant.

(iv) The nature of the rights under the Act

(a) The third party’s rights. The third party’s rights are derived from the parties’
intentions as embodied in the contract and are supplementary to rights the third party
has under the common law or other statutes. But, as will be seen in the discussion of
defences and variation and cancellation below, the third party entitled to sue under
the 1999 Act does not specifically step into the shoes of the promisee and is not treated
as a party to the contract.141
By section 1(5), a third party who has a right to enforce a contractual provision
under the 1999 Act will be able to claim any remedy for breach of contract
given by the Courts that would have been available if he had been a party to the
contract. Accordingly, while the third party may claim damages for its own loss,
an award of an agreed sum, specific performance, and an injunction, the Act does
not permit him or her to terminate the contract since termination is a self-help
remedy, or to claim restitution of money paid or a restitutionary quantum meruit,
since those are not remedies for breach of contract.142 Where the third party seeks
damages, it would appear that rules, such as those concerning remoteness and
mitigation, will be applied by reference to the position of the third party rather

140 [2009] EWHC 716 (Comm), [2009] 2 Lloyd’s Rep 123.

141 Save for the limited purposes set out in ss 1(5) and 3(4), see the next paragraph and below, p 633.
142 Law Com No 242, para 3.33.
632 limits of the contractual obligation

than the contracting party, so that, for example, it would be the third party’s loss
that had to be contemplated.143
Section 1(4) contains an important limitation on the third party’s rights. A third
party has no right to enforce a term ‘otherwise than subject to and in accordance with
any other relevant terms of the contract’. In this way, although the Act does not change
the rule whereby parties to a contract cannot generally impose an obligation upon
a third party, if the benefit conferred is qualified or subject to a condition, the third
party cannot ignore the qualification or condition.
The distinction between the imposition of a burden and the conferral of a conditional
benefit is easy to draw where the condition does not require any performance by the
third party, for example where the contract states that the benefit is conditional on the
third party reaching a certain age or where the contract contains a clause exempting
or limiting the promisor’s liability to the third party. Where, however, the condition
requires performance by the third party, for example the grant of a right of way over a
path subject to a condition that the third party keeps the path in repair, the distinction
may be less easy to draw. In order to avoid the possibility of the third party being
overall worse off by being given the right to enforce, the Commission considered that
in such a case the third party should be bound by the condition in the limited sense
that the promisor can use the condition as the basis of a defence or set-off to a claim by
the third party to enforce the contract.144
(b) The promisee’s rights. The third party’s rights are distinct from the rights of the
promisee, which are preserved by the provision in section 4 that section 1 ‘does not
affect any right of the promisee to enforce any term of the contract’.145
(c) Avoidance of double liability. Since, unless otherwise agreed between the
contracting parties, both the promisee and the third party have independent and
concurrent rights to sue, the Law Commission was concerned to protect the promisor
against double liability. This is not a problem where the promisee either recovers nominal
damages or is granted specific performance of the obligation to benefit the third party.
The Commission considered that it is also not a problem where the third party first
recovers damages because then the promisee will be left with no corresponding loss
outstanding. In the occasional cases in which the promisee has suffered personal loss
which is independent of the third party’s loss, the promisee should be entitled to sue
for that loss in its own name.146 That leaves the situation in which the promisee has
recovered substantial damages and the third party then brings an action in reliance on
section 1.147 Section 5 of the 1999 Act provides that in any such action by the third party
the Court or arbitral tribunal shall reduce any award to the third party to such extent as
it thinks appropriate to take account of the sum recovered by the promisee.

143 An amendment to make this clear was rejected as unnecessary: Hansard HL Deb, 27 May 1999, col 1052.
144 Law Com No 242, para 10.27. 145 On damages in such cases, see above, pp 616–619.
146 Andrews [2001] CLJ 353, 371.
147 But of the two situations envisaged in section 5 that in s 5(a) no longer raises the ‘double liability’
problem because, according to Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, a promisee
cannot recover a third party’s loss where the third party has its own contractual right against the promisor.
Such a contractual right is precisely what is given to the third party under the 1999 Act.
 third parties 633

(v) Defences

(a) Defences that would have been available against the promisee. Section 3(2) of
the Act provides that the rights of the third party are subject to the entitlement of the
promisor to raise any defence or set-off which arise out of or in connection with the
contract and which would have been available against the promisee.148 Counterclaims
are excluded because a counterclaim may exceed the value of the third party’s claim
and thus impose a burden on the third party.149 ‘Defences’ include matters which
render the contract void (such as mistake), voidable (such as misrepresentation), or
which have led to the contract being discharged (such as serious breach or frustration).
But the Law Commission did not consider that personal bars on the promisee, such
as inequitable conduct by the promisee which would bar a claim by him for specific
performance or a failure to mitigate his loss, should automatically bar or restrict the
third party’s remedy.150
That is the default position. The Act enables the parties to the contract by an express
term either to enlarge the defences available to the promisor to include all defences
available against the promisee whether or not they arise out of or are connected with
the contract,151 or to preclude the promisor from raising any defence available against
the promisee.152
(b) Defences that would have been available had the third party been a party to the
contract. By section 3(4) the third party’s claim is also subject to the defences, set-
offs, and counterclaims (not arising from the contract) that would have been available
to the promisor had the third party been a party to the contract. Again, the parties
may expressly contract out of this. Section 3(5) enables the parties to provide that such
defences, set-offs, and counterclaims are not to be available in a claim by the third
party.

(vi) Variation and rescission

Perhaps the most difficult question in deciding on the precise extent of a third-party
right is when the contracting parties should have power to vary or cancel the contract
by agreement. A balance has to be struck between preserving the freedom of the
contracting parties to implement their intentions at any particular time and allowing
the creation of effective third-party rights so that a third party can arrange its affairs
with some certainty.153
(a) The range of solutions. The matter has not been satisfactorily solved in certain
jurisdictions which recognize third-party rights.154 The Law Revision Committee
considered that third-party rights should be subject to cancellation of the contract
by the contracting parties at any time before the third party had adopted the contract

148 Law Com No 242, para 10.12. Cf Law Revision Committee, Cmnd 5449, para 47.
149 Ibid, para 10.10. 150 Ibid, para 10.2.
151 1999 Act, s 3(3). 152 Ibid, s 3(5). 153 Law Com No 242, para 9.8.
154 In Scotland, while Carmichael v Carmichael’s Executrix 1920 SC (HL) 195 suggests the right becomes
irrevocable when brought to the notice of the third party, the position is unclear; McCormick [1970] Jur Rev
228, 236; Scot Law Com Memorandum No 38 (1977).
634 limits of the contractual obligation

either expressly or by conduct. But this notion lacks precision and may lead to Courts
presuming that there has been acceptance.155 In New Zealand, variation is allowed
until the third party has materially altered his position in reliance on the contract.156
In certain cases, such as contracts of insurance157 and possibly other contracts which
expressly name a third party, it is even arguable that the third party’s rights should not
be subject to cancellation unless the contract expressly provides for this.
The Law Commission sought to balance the freedom of the contracting parties
to implement their intentions with the need to create effective third-party rights by
having a statutory scheme as the ‘default’ arrangement but allowing the parties to
vary it by express provision in the contract. The Commission considered that reliance
should be the primary test for the crystallization of the third party’s rights but that
there should also be an alternative test of acceptance to enable a third party who has
successfully communicated its assent to the promisor to be secure in its entitlement
without having to show reliance.
(b) Section 2(1) of the Act. Section 2(1) of the Act gives effect to the Law Commission’s
recommendations. It provides that the contracting parties’ right to vary or rescind the
contract by agreement should be lost in two situations. First, where the third party
has relied on the term and the promisor is aware of such reliance or could reasonably
have foreseen that the third party would rely on it.158 The third party will have to
prove that it has relied on the term. Secondly, the right to rescind is lost where the
third party has communicated its assent to the term by words or conduct159 to the
promisor.160 Communication of the acceptance to the promisee will not suffice and by
section 2(2)(b) if sent by post the acceptance shall not be regarded as communicated to
the promisor until received by him; the Law Commission considered that it would be
inappropriate to apply the postal acceptance rule.161
(c) Contractual provision. The Commission’s recognition of the autonomy of the
parties resulted in it recommending that the contracting parties be able expressly to
reserve the right to vary or rescind the third party’s right without the third party’s
consent irrespective of reliance or acceptance by the third party; or to provide that, for
rescission or variation, the third party’s consent is needed in specified circumstances
(including that the third party’s consent is always needed)162 instead of, and irrespective
of, whether there has been reliance or acceptance.163 These are enacted in section 2(3)
(a) and (b) of the 1999 Act.
(d) Discretion to dispense with the third party’s consent. Where the consent of a third
party is, or may be, required for any variation or rescission of the term by agreement,

155 Law Com CP No 121 (1991), paras 4.32, 5.31; Law Com No 242, para 9.17.
156 New Zealand Contracts (Privity) Act 1982, s 5, set out in Appendix B to Law Com No 242 (1996). See
also Restatement of Contracts (2d), para 311.
157 As in the case of the Married Women’s Property Act 1882, s 11, below, p 641.
158 s 2(1)(b) and (c). See Law Com No 242, paras 9.26–9.30. 159 s 2(2)(a).
160 s 2(1)(a). See Law Com No 242, para 9.20, 9.26.
161 Law Com No 242, para 9.20. On postal acceptance, see above, p 46.
162 Law Com No 242, paras 9.45–9.47, are unclear on this point. But the broad wording of s 2(3) clearly
allows for this. 163 Law Com No 242, paras 9.37–9.42.
 third parties 635

a Court or arbitral tribunal has power to dispense with such consent in three
limited situations. First, where consent cannot be obtained because the third party’s
whereabouts cannot reasonably be ascertained.164 Secondly, where the third party is
mentally incapable of giving his consent.165 Thirdly, where it cannot reasonably be
ascertained whether or not the third party has in fact relied on the term.166 This limited
conferral of discretion is designed to allow the contracting parties to escape from being
unreasonably ‘locked in’ to a contract that confers a right on a third party.

(vii) The relationship with the Unfair Contract Terms Act 1977
Say a third party is given a right under the 1999 Act but there is an exclusion or
limitation clause in the contract (valid as between the promisor and promisee) which
excludes or limits the promisor’s contractual liability to the third party. Might that
exclusion or limitation clause be struck down as unreasonable under the Unfair
Contract Terms Act 1977? To ensure that the answer to this question is ‘no’—which
the Law Commission thought important in reassuring contracting parties that their
intentions do govern167—section 7(2) of the 1999 Act lays down that section 2(2) of
UCTA 1977 does not apply in this situation. It was thought unnecessary to curtail
the operation of any other section of UCTA or of the Unfair Terms in Consumer
Contracts Regulations 1999 because they could not apply in any event where a third
party is seeking to enforce its rights.168

(viii) The meaning of ‘contract’ under the 1999 Act

The term ‘contract’ was not defined in the 1999 Act. The better view is that, in accordance
with our general understanding of what a contract is,169 it includes both simple contracts
(contracts supported by consideration) and contracts made by deed.170

agency, assignment, transfer on death and

(e)
bankruptcy
Agency (especially the doctrine of the undisclosed principal), assignment, and transfer
on death and bankruptcy, may be viewed as exceptions to the benefit or rights side of
privity (and are also, with the exception of assignment, exceptions to the burden side
of privity). They are dealt with in detail in Chapters 22 to 25 and will not be discussed
further in this chapter.

(f) trusts of contractual rights

(i) Rights based on equitable property not contract
Equity allows a third party to enforce a contract where it can be construed as creating
a completely constituted trust of the contractual right, also known as a trust of the

164 s 2(4)(a). 165 s 2(4)(b). 166 s 2(5). 167 Law Com No 242 para 13.10, point (viii).
168 Law Com No 242 para 13.10, point (x) and para 13.12. 169 Above, pp 2, 75.
170 Th is is supported by section 7(3) of the 1999 Act in the references made to the Limitation Act 1980.
636 limits of the contractual obligation

promise. However, as Lord Haldane stated in Dunlop v Selfridge,171 the rights do not
arise by way of contract but are based on the third party’s equitable proprietary interest
in the subject matter of the contract and the right of the equitable owner to enforce the
trust in his favour. Property may be tangible or intangible172 and certain rights under a
contract, ‘choses in action’, constitute an important example of intangible property.173
Thus a promisee under a contract, either at the time when the contract is made
or thereafter, may constitute a trust of the right to which the promisee is entitled in
favour of a third party which is enforceable in equity.174 The subject of the trust, the
contractual right to money or property,175 is at law vested in the trustee, that is to say,
in the promisee under the contract.
As with the enforcement of equitable rights in general, the person having the legal
right in the thing demanded, in this case the promisee who has thus become a trustee,
must in general be a party to the action. ‘The trustee then can take steps to enforce
performance to the beneficiary by the other contracting party as in the case of other
equitable rights. The action should be in the name of the trustee. If, however, the
trustee refuses to sue, the beneficiary can sue, joining the trustee as defendant’.176 A
trustee who sues on behalf of the third party may recover not merely nominal damages
representing the trustee’s own meagre interest in the performance of the contract, but
the whole loss suffered by the beneficiary.177
Although this equitable principle was first enunciated in the eighteenth century by
Lord Hardwicke,178 the important developments occurred in the nineteenth century.
Thus in Lloyd’s v Harper:179
H, whose son was about to be elected a member of Lloyd’s, wrote to the committee guaranteeing
his son’s solvency. When the son became insolvent, Lloyd’s claimed against the father on
behalf of members who had suffered thereby, and also on behalf of some outsiders.

It was held that the creditors were entitled to the benefit of the contract made, since
the committee had entered into it as trustee for all those who had suffered by the
insolvency of the son.
The principle was applied by the House of Lords in Les Aff réteurs Réunis Société
Anonyme v Leopold Walford (London) Ltd:180
In a charterparty made between the appellant, the owner of a steamship, and a firm of
charterers, the appellant promised to pay a commission of 3 per cent on the gross amount of
hire to the respondent, the broker who had negotiated the contract of charterparty. It failed
to pay, and the respondent sued to obtain its commission.

171 [1915] AC 847; above, p 615.

172 Lawson and Rudden, The Law of Property (3rd edn, 2003) ch 2. 173 Ibid, 26–8. Below, p 661.
174 Williston (1902) 15 Harvard LR 767; Corbin (1930) 46 LQR 12; Glanville Williams (1944) 7 MLR 123;
Barton (1975) 91 LQR 236; Rickett (1979) 32 CLP 1; Law Com No 242, paras 2.8–2.9.
175 Cf Southern Water Authority v Carey [1985] 2 All ER 1077, 1083 (no trust of the benefit of an exemption
clause).
176 Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70, 79.
177 Lloyd’s v Harper (1880) 16 Ch D 290. 178 Tomlinson v Gill (1756) Amb 330.
179 (1880) 16 Ch D 290. See also Fletcher v Fletcher (1844) 4 Hare 67.
180 [1919] AC 801. For the approach to this situation under the Contracts (Rights of Th ird Parties) Act
1999, see Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602, [2004] 1 Lloyd’s Rep 38; above,
p 629 and below p 639.
 third parties 637

The respondent was not a party to the contract. Although it would not normally be
entitled to any rights under it, it was the practice for a charterer, if necessary, to sue
the shipowner for the amount of a broker’s commission as trustee for the broker. Here
the action had been brought by the broker, but by consent it was treated as brought by
the charterers as trustees for the broker. The House of Lords recognized the practice
and gave judgment in the broker’s favour.

(ii) Intention to create trust

To establish a trust of the promise it is necessary to establish that the promisee intended
to enter the contract as trustee but, in the absence of express words,181 there is no
satisfactory test to determine whether the requisite intention exists. The consequence
is uncertainty.182
The different judicial approaches to the question at different stages of the doctrine
have led to a complicated body of case law which is not possible to reconcile. Lloyds v
Harper and Walford’s case may suggest that it is possible to infer an intention to create
a trust solely from the intention to benefit the third party and, as such, the device of
a trust could be fictionally employed as a way round the privity rule.183 However, the
approach of the Courts in more recent times has been stricter. It is said that the intention
to constitute the trust must be affirmatively proved by substantial evidence,184 in part
because the presence of a trust renders the contract immutable where the parties might
otherwise wish to be free to vary it.185 Thus it will be more difficult to establish a trust
where the intention to benefit the third party is not irrevocable,186 where the contract
consists of a complex package of benefits and burdens,187 or where the third party may
not need the benefit.188
An example of the differences of approach is provided by the contrast between Re
Flavell189 and Re Schebsman.190 In Re Flavell:
Partnership articles provided that, in the event of the death of one of the partners, an annuity
out of the firm’s net profits each year was to be paid to his widow or children as he should
appoint and, in default of appointment, to his widow.

It was held that the executors of the deceased partner were trustees for the widow
under this contract, and that she was entitled to be paid the promised sums. But in Re
Schebsman:
In 1940 S’s employment was terminated, and, in consideration of his retirement, the company
agreed to pay him the sum of £5,500 by instalments. If he died before the completion of the

181 Fletcher v Fletcher (1844) 4 Hare 67. 182 Glanville Williams (1944) 7 MLR 123.
183 Corbin (1930) 46 LQR 12, 17; Lord Wright (1939) 55 LQR 189, 208 (a ‘cumbrous fiction’).
184 Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70, 80.
185 Re Schebsman [1944] Ch 83, 104; Green v Russell [1959] 2 QB 226, 241.
186 Re Sinclair’s Life Policy [1938] Ch 799.
187 Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70, 81; Swain v The Law Society
[1983] 1 AC 598, 612; Southern Water Authority v Carey [1985] 2 All ER 1077, 1083.
188 Vandepitte v Preferred Accident Insurance Corp of New York, ibid, 80 (contracting party liable for
infant third party’s torts); Swain v The Law Society [1983] 1 AC 598, 612, 621 (third-party beneficiary
accorded direct action against promisor by statute). 189 (1883) 25 Ch D 89.
190 [1944] Ch 83.
638 limits of the contractual obligation

payments to him they were to be paid to his widow and daughter. S later became bankrupt,
and then died. His trustee in bankruptcy claimed to intercept the sums being paid to his
widow, on the ground that S himself could have intercepted them, and so they were available
for his creditors.

The Court refused to hold that the contract created a trust in favour of the widow and
daughter; they had therefore no enforceable right to the money. But the company was
free to perform its obligation if it so wished, and, if it did so, neither S nor his trustee in
bankruptcy could intercept the money and put it in his own pocket. Accordingly, the
claim failed. Du Parcq LJ said:191
It is true that, by the use possibly of unguarded language, a person may create a trust, as
Monsieur Jourdain talked prose, without knowing it, but unless an intention to create a trust
is clearly to be collected from the language used and the circumstances of the case, I think
that the Court ought not to be astute to discover indications of such an intention. I have little
doubt that in the present case both parties (and certainly the debtor) intended to keep alive
their common law right to vary consensually the terms of the obligation undertaken by the
company, and if circumstances had changed in the debtor’s life-time injustice might have
been done by holding that a trust had been created and that those terms were accordingly
unalterable.

Similar contrasts can be found in the approach of the Courts to contracts of insurance.
Thus while in some cases such contracts have been held to create a trust in favour of
third parties,192 in others they have not.193 In this context too it would appear that
English Courts no longer favour the device of a trust of a contractual right. It has
been stated in Australian decisions that this may be too cautious and that there is
‘considerable scope for the development of trusts’ particularly in the context of
insurance policies for the benefit of third persons.194 One recent English case also
indicates less hostility.195 However, the dominant approach is exemplified by the
decision of the Judicial Committee of the Privy Council in Vandepitte v Preferred
Accident Insurance Corporation of New York196 on appeal from British Columbia:
B insured his car with the respondent. The contract of insurance was stated to cover not
only B himself, but all persons driving the car with his consent. B’s daughter, while driving
it with his consent, knocked down and injured the appellant, V. She was successfully sued in
negligence by V, but the judgment was unsatisfied. By the British Columbia Insurance Act,
an injured person could, in such circumstances, avail himself of any rights possessed by the

191 [1944] Ch 83, 104.

192 Royal Exchange Assurance v Hope [1928] Ch 179; Re Webb [1941] Ch 225; Re Foster’s Policy [1966] 1
WLR 222. See also Williams v Baltic Insurance Association of London Ltd [1924] 2 KB 282.
193 Re Englebach’s Estate [1924] 2 Ch 348; Clay’s Policy of Assurance [1937] 2 All ER 548; Re Sinclair’s Life
Policy [1938] Ch 799; Green v Russell [1959] 2 QB 226; Swain v The Law Society [1983] 1 AC 598; McCamley v
Cammell Laird Shipbuilders Ltd [1990] 1 WLR 963, 969.
194 Trident General Insurance Co Ltd v NcNiece Bros Pty Ltd (1988) 165 CLR 107, 166 (Toohey J). See also
ibid, 120–1, 146–51, 156; Wilson v Darling Island Stevedoring and Lighterage Co (1956) 95 CLR 43, 67.
195 Darlington BC v Wiltshier (Northern) Ltd [1995] 1 WLR 68, 75, 81 (a constructive trust). Cf Law Com
No 242, para 2.9.
196 [1933] AC 70. Cf Williams v Baltic Insurance Association of London Ltd [1924] 2 KB 282; Road Traffic
Act 1988, s 148(7).
 third parties 639

driver of the vehicle against the insurance company. V therefore brought an action against
the respondent under this Act.

In order to succeed, he had to establish that the daughter had some rights against
the company under the policy, and he could only do this by showing that a trust
had been created for her benefit. The Judicial Committee was not satisfied that
this was B’s intention. First, as British Columbia law provided that a father was
liable for the torts of his minor children living with the family, B would ‘naturally
expect’ any claim to be against him.197 Secondly, a trust was not appropriate for
a contract, such as insurance which imposes ‘serious duties and obligations . . . on
any person claiming to be insured, which necessarily involve consent and privity
of contract’.198
The strict approach to the requirement of intention means that, other than where
a trust of the promise is expressly created by the draftsman, or where the finding of a
trust is established by binding authority, it will now be rare for the Courts to find that
a contract for the benefit of a third party creates a trust of the promise.199

(iii) Relationship to rights under the 1999 Act

Any incentive to strain to find the necessary intention to create a trust in this context
has been weakened still further by the Contract (Rights of Third Parties) Act 1999,
which provides a straightforward non-fictional way of upholding the rights of third
parties. In the Nisshin Shipping Co Ltd v Cleaves & Co Ltd,200 Colman J held that the
finding of a trust of the promise, in line with the binding authority of the Les Aff réteurs
Réunis Société Anonyme v Leopold Walford (London) Ltd,201 did not preclude the
conferral of rights on the third-party broker under the 1999 Act; and that the Act
provided a more natural and direct approach to enforcement of the broker’s right to
commission than the ‘cumbrous fiction’202 of the trust of the promise. He particularly
had in mind the procedural disadvantage that it is necessary in an action based on a
trust of the promise for the promisee to be joined in the action, whereas under the 1999
Act this is unnecessary.203 This indicates that, in time, the trust of the promise may
wither away as an exception to privity.
Having said that, and while it is clearly more difficult for a third party to establish
a trust of a contractual promise for the third party’s benefit than to establish a right
to enforce the promise under the 1999 Act, the third party’s rights under the 1999 Act
may be more limited because, subject to section 2, they can be altered or extinguished
by the agreement of the contracting parties whereas the third party’s rights under a
trust of a promise are irrevocable.

197 Ibid, 80. 198 Ibid, 81.

199 For a rare example, see Burton v FX Music Ltd [1999] EMLR 826, 840–1 (trust of promise to pay
royalties due under a music distribution agreement).
200 [2003] EWHC 2602, [2004] 1 Lloyd’s Rep 38; above, p 629. 201 [1919] 1 AC 801; above, p 636.
202 Citing at [31] Lord Wright, above n 183.
203 Although, applying the normal approach in Civil Procedure Rules, r 19.2, the Court has a discretion
to join other parties where desirable to do so.
640 limits of the contractual obligation

(g) statutory exceptions to privity in relation to

contracts of insurance
The potential application of the 1999 Act to insurance contracts has been noted.204
This section considers other statutory exceptions to privity in relation to contracts of
insurance. 205

(i) Road traffic insurance

Under the Road Traffic Act 1988, section 148(7), the person issuing a policy of insurance
against death or bodily injury to third parties in accordance with the requirements
of the Act is made liable to indemnify not only the persons taking out the policy,
but ‘the person or classes of persons specified in the policy in respect of any liability
which the policy purports to cover’. This means that the driver of a motor vehicle
is entitled to the benefit of an insurance policy made with an insurance company
by the owner of the vehicle and which purports to cover the driver.206 The Act also
permits an injured third party to proceed directly against the insurance company on
obtaining judgment against the assured.207 It precludes the insurer relying on various
defences which would have been available in a claim by the assured.208 Victims of road
accidents are also protected by agreements entered into between the Secretary of State
and the Motor Insurers’ Bureau.209 These are designed to compensate those injured by
untraced (‘hit and run’) drivers and by uninsured drivers. Where the victim claims
against the Bureau in respect of injuries sustained, as it is the policy of the Bureau not
to raise the defence that the victim is not a party to the agreement between it and the
Secretary of State,210 the victim may proceed and even obtain judgment.211

(ii) Third Parties (Rights Against Insurers) Act 1930

Under the Third Parties (Rights against Insurers) Act 1930 a third party who has a
claim against a defendant who has taken out insurance against liability to third parties
will be able to claim against the insurer where the defendant has become, inter alia,
insolvent either before or after incurring the liability to the third party.212 The 1930
Act has several limitations, primarily that the third party has to establish its claim in
proceedings against the defendant before obtaining any rights against the insurer.213

204 See above, pp 427–428.

205 For an analogous exception, see Swain v Law Society [1983] 1 AC 598: s 37 of the Solicitors Act 1974
held to empower the Law Society to make a contract of indemnity insurance with insurers that could be
directly enforced against the insurers by third parties (ie, solicitors).
206 Tattersall v Drysdale [1935] 2 KB 174.
207 Road Traffic Act 1988, ss 151–3. 208 Ibid, ss 148, 152. Cf 1999 Act, s 3 above, p 633.
209 For interpretation of the 1998 agreement, see White v White [2001] UKHL 99, [2001] 1 WLR 481.
210 Hardy v Motor Insurers’ Bureau [1964] 2 QB 745, 757; Gurtner v Circuit [1968] 2 QB 587, 599.
211 But see the criticism voiced by Lord Dilhorne in Albert v Motor Insurers’ Bureau [1972] AC 301, 320.
212 The Contracts (Rights of Th ird Parties) Act 1999 would almost certainly not apply so as to enable the
third party to claim against the insurer. In the standard situation, s 1(1)(b) would not be satisfied because the
payment term purports to confer a benefit on the assured and no money is payable direct to the third party.
213 Bradley v Eagle Star Insurance Co Ltd [1989] AC 957 (cf Companies Act 1989, s 141); The Fanti and The
Padre Island [1991] 2 AC 1; Cox v Bankside Members Agency Ltd [1995] 2 Lloyd’s Rep 437.
 third parties 641

The Law Commission214 therefore recommended the replacement of the 1930 Act with
legislation under which a third party will be entitled to resolve all issues relating to
a claim in a single set of proceedings against the insurer and to improved rights to
information about the insurance policy. Those recommendations have been enacted
in the Third Parties (Right Against Insurers) Act 2010.214a

(iii) Life assurance

The Married Women’s Property Act 1882, section 11, allows a husband to effect an
insurance on his life for the benefit of his wife and children. A wife, too, may effect an
insurance on her own life for the benefit of her husband and children. By section 11,
such an insurance creates a trust in favour of the objects of the policy, and does not
form part of the assured’s estate. The Law Revision Committee proposed that this be
extended to all life, endowment, and education policies which name a beneficiary215
but the Law Commission considered that this would only be sensible as part of a
general review of insurance.216 Nevertheless, those named as beneficiaries under such
policies may have a right to enforce them by virtue of the 1999 Act, albeit subject to the
limits set out in it, in particular those in sections 2 and 3.

(iv) Property insurance

Persons with limited interests in property may also be given the right to sue even
though they are not parties to the contract insuring the property. In contracts of
marine insurance, when several persons have an interest in the merchandise conveyed,
any such person ‘may insure on behalf and for the benefit of other persons interested
as well as for his own benefit’.217 Similarly, in the case of sales of land, if A contracts to
sell land to B and property on the land is damaged or destroyed before the completion
of the sale, any insurance moneys received by A are held by A in trust for B.218 And a
tenant can claim under the landlord’s fire insurance policy, and vice versa.219

(h) miscellaneous statutory exceptions to privity

(i) Negotiable instruments and bills of lading
Negotiable instruments and bills of lading provide important illustrations of statutory
exceptions, and are additionally excluded from the operation of the 1999 Act.220 But since
these are dealt with later in this book,221 it is not necessary to elaborate their effect here.

(ii) Package holidays

Where a consumer makes a contract for the provision of a package holiday, the
beneficiaries of that contract (for example family members and others who go on the

214 Law Com No 272 (2001). 214a As at June 2010, this has not yet been brought into force.
215 Sixth Interim Report 1937, Cmnd 5449, para 49. 216 Law Com No 242 (1996), para 12.26.
217 Marine Insurance Act 1906, s 14(2). 218 Law of Property Act 1925, s 47(1).
219 Fires Prevention (Metropolis) Act 1774, s 83.
220 1999 Act, s 6(1) and (5), but a third party may invoke s 1 to avail itself of an exclusion or limitation of
liability in contracts of carriage. 221 See below, pp 677–682, 684.
642 limits of the contractual obligation

holiday) are given direct contractual rights against the organizer and the retailer even
where they are not parties to the contract.222

(i) contracts concerning land

(i) Covenants
The benefit (and burden) of the landlord’s and the tenant’s covenants in a lease, as long
as they are not personal, will run upon an assignment of the lease or of the reversion.223
Also, under the rule in Tulk v Moxhay,224 a vendor of freehold land may attach to the
land sold restrictive covenants as to its future use (for example, that no buildings shall
be erected on the land). Provided that the covenant was imposed for the benefit of
neighbouring land, any subsequent owner of that land may enforce the covenant if
he shows that the benefit of the covenant has become annexed to the land,225 has been
assigned to him, or that its benefit has passed to him under a building scheme.226 Third
parties may thus acquire rights under a covenant to which they were not privy. These
rules, however, are simply rules applicable to rights over land.227

(ii) Law of Property Act 1925, section 56(1)

A more controversial exception is provided by section 56(1) of the Law of Property Act
1925, which states:
A person may take an immediate or other interest in land or other property, or the benefit
of any condition, right of entry, covenant or agreement over or respecting land or other
property, although he may not be named as a party to the conveyance or other instrument.

The word ‘property’ is defined in the Act, unless the context otherwise requires, as
including ‘any thing in action, and any interest in real or personal property’.228
The scope of this sub-section has long been debated.229 In the view of some it is
merely a conveyancing provision and applies only to land; but others, in particular
Lord Denning, interpreted it much more widely.230 There has also been considerable
doubt as to who can properly rely on it. In its terms the sub-section is wide enough to
permit any person who might conceive it of ‘benefit’ to take advantage of a covenant

222 Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992 No 3288), regs 2 and
15, implementing EEC Council Directive 90/314, 1990 OJ L 158/59. See also Jackson v Horizon Holidays Ltd
[1975] 1 WLR 1468, above, pp 617–618.
223 Landlord and Tenant (Covenants) Act 1995, s 3 (covenants in post-1995 leases). For pre-1996 leases,
the covenant must ‘touch and concern the land’: Spencer’s Case (1583) 5 Co Rep 16a; Law of Property Act
1925, ss 141, 142. 224 (1848) 2 Ph 774; see below, p 653.
225 In Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594 Brightman LJ indicated this
could take place automatically without express words.
226 See s 78(1) of the Law of Property Act 1925, and also Smith and Snipes Hall Farm Ltd v River Douglas
Catchment Board [1949] 2 KB 500.
227 See generally, Harpum, Bridge and Dixon, Megarry & Wade’s Law of Real Property (7th edn, 2008),
ch 32. 228 s 205(1)(xx).
229 See Elliott (1956) 20 Conv (NS) 43, 114; Andrews (1959) 23 Conv (NS) 179; Furmston (1960) 23 MLR
373, 380–5; Ellinger (1963) 26 MLR 396; Wade [1964] CLJ 66.
230 See Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board [1949] 2 KB 500, 517; Drive
Yourself Hire Co (London) Ltd v Strutt [1954] 1 QB 250, 274; Beswick v Beswick [1966] Ch 538.
 third parties 643

or agreement made by others, but such could scarcely have been the intention of the
legislature. Accordingly, the Courts have construed it in a more limited fashion. In
White v Bijou Mansions Ltd Simonds J said that the only person who could rely on
section 56 is one who, although not expressly named, the instrument purports to
grant something to, or covenant with.231
This, which we may call the orthodox meaning, however, does not assist a person
who is not a party to a contract but wishes to sue on that contract. The agreement is not
‘made with him’, nor does it ‘grant something to him’ since the sub-section does not
give to the non-party a right to the performance of a contract if, apart from the sub-
section, that person has no such right.232 The sub-section did not create any fresh rights
to sue under a contract, but only assisted the protection of rights shown to exist.
In Beswick v Beswick233 the House of Lords held unanimously that the context
of section 56(1) required that a limited interpretation should be given to the word
‘property’, but there was no agreement as to what that interpretation should be. Lord
Guest thought that it meant land,234 but Lord Upjohn did not accept that the word was
limited to an interest in real property.235 There was similar disagreement about the
orthodox meaning of the scope of the sub-section.236 And Lord Upjohn expressed the
view, based on historical grounds, that the words ‘conveyance or other instrument’ were
confined to documents inter partes and under seal.237 These differences of opinion have
yet to be resolved,238 and the enactment of the 1999 Act with its wider scope for third-
party enforcement may mean that they will not be. It is, however, clear that section
56(1) does not apply to a simple promise by A to B to pay a sum of money to C.

(j)contracts giving rise to tortious duties of care

to third parties
The tort of negligence sometimes entitles a claimant, who has suffered injury or loss, to
sue a defendant who was performing a contract with another party. So, for example, in
Donoghue v Stevenson239 the claimant was held to be owed a duty of care by a manufacturer
in relation to injury caused by a defective product supplied by the manufacturer under
a contract with the distributor or retailer. In that very general sense, the standard
application of the tort of negligence evades the doctrine of privity of contract.
However, in some more limited situations, liability for pure economic loss in the tort
of negligence more obviously represents an exception to privity in that, arguably, it is
tantamount to enforcement of a contract by a third-party beneficiary. For example, in

231 [1937] Ch 610, 625. See also ibid (on appeal) [1938] Ch 351, 365; Re Ecclesiastical Commissioners for
England’s Conveyance [1936] Ch 430; Amsprop Trading Ltd v Harris Distribution Ltd [1997] 1 WLR 1025.
Contrast Stromdale and Ball Ltd v Burden [1952] Ch 223.
232 Re Miller’s Agreement [1947] Ch 615. See also Re Foster [1938] 3 All ER 357; Re Sinclair’s Life Policy
[1938] Ch 799; Green v Russell [1959] 2 QB 226; Scruttons Ltd v Midland Silicones Ltd [1962] AC 446.
233 [1968] AC 58. 234 Ibid, 87. 235 Ibid, 105, with whom Lord Pearce agreed (at 94).
236 Ibid, 74–5, 81, 87, 94, 106.
237 Ibid, 107, with whom Lord Pearce agreed (at 94). See also Lord Reid at 76–7.
238 In Lyus v Prowsa [1982] 1 WLR 1044, 1049 and Amsprop Trading Ltd v Harris Distribution Ltd [1997]
1 WLR 1025 the orthodox meaning was considered correct. 239 [1932] AC 562.
644 limits of the contractual obligation

Ross v Caunters240 and White v Jones241 solicitors, who had contracted with a testator
to draw up wills benefiting third parties, were held liable in tort to the third parties
where, as a result of their negligence, in the first case the will was executed in such a
way as to invalidate the gift, and in the second case it was never drawn up. In these
cases the relationship created by the contract gave rise to a duty of care to a third party
who was thus able to sue the contracting party in tort in a situation where no loss was
suffered by the testator’s estate.242
It has been noted243 that these cases do not fall within section 1(1)(b) of the 1999 Act.
Although the intended legatee is expressly designated as a beneficiary, the contract is
not one in which the solicitor promises the testator to confer a benefit on the third party,
the intended legatee, but one by which the solicitor is to enable the testator to do so.244
The direct contractual beneficiary is the testator who intended to confer on the third
party the benefit of his assets after death and not the benefit of the solicitor’s promise to
draft the will. Given that the legatees were incidental beneficiaries, a solution through
the tort of negligence seems appropriate.
In contrast, one can criticize the decision in Junior Books Co Ltd v Veitchi Co
Ltd245 as going too far in allowing the tort of negligence to operate as an exception to
contractual privity. This was a decision of the House of Lords on appeal from Scotland,
in which the owner of a factory under construction successfully sued a nominated
subcontractor who had negligently laid a floor for the economic loss suffered. The
subcontractor had contracted with the head-contractor who had in turn contracted
with the factory owner. Although Scottish law recognizes that third parties may
acquire rights under a contract, the factory owner did not seek to argue that it could
sue in contract.246 It was not known to the Court whether allowing the factory owner
to sue the subcontractor in tort circumvented an exemption clause in the contract
between the subcontractor and the head contractor.247 Courts have, however, been
increasingly reluctant to impose liability in tort for pure economic loss, particularly
where this would cut across the contractual structure governing dealings between the
defendant and others. Personal injury or damage to property is normally necessary
and the reasoning in the Junior Books case has been substantially undermined.248
Detailed discussion of this topic will be found in works on the law of tort.249

240 [1980] Ch 287.

241 [1995] 2 AC 207. See Weir (1995) 111 LQR 357. See further Hill v Van Erp (1997) 142 ALR 687
(Australia). See generally Barker (1994) 14 OJLS 137; Markesinis (1987) 103 LQR 354; Macmillan (2000) 63
MLR 721, 724. 242 Carr-Glyn v Frearsons [1997] 2 All ER 614, 623–4, 628.
243 Above, p 629.
244 White v Jones [1995] 2 AC 207, 262–3, 273; Gartside v Sheffield, Young & Ellis [1983] NZLR 37, 42, 49.
245 [1983] 1 AC 520, above, p 629.
246 It is not clear whether the requirements for a contractual action by the third party had been satisfied.
On these, see McBryde, The Law of Contract in Scotland (3rd edn, 2007) ch 10.
247 [1983] 1 AC 520, 538 (Lord Roskill).
248 See D & F Estates v Church Commissioners for England [1989] AC 177, 202; Caparo Industries plc v
Dickman [1990] 2 AC 605; Murphy v Brentwood DC [1991] 1 AC 398; Henderson v Merrett Syndicates Ltd
[1995] 2 AC 145.
249 Cane, Tort Law and Economic Interests (2nd edn, 1996); Deakin, Johnston and Markesinis, Markesinis
and Deakin’s Tort Law (6th edn, 2007), pp 157–199; Rogers, Winfield & Jolowicz on Tort (17th edn, 2006)
paras 5–35 to 5–40.
 third parties 645

(k) third parties taking the benefit of exemption clauses

(i) Introduction
Say a contracting party (A) has sought to exempt persons who are not parties to
the contract, for example, its employees or subcontractors who participate in the
performance of the contract from liability to the other party to the contract (B).250
A’s employees and subcontractors, although not in a contractual relationship with B,
may nevertheless be under duties to B imposed by the law of tort. If the employees or
independent contractors are not able to rely on the exemption clause as a defence to a
tort action by B, they in turn may have a right to be indemnified by A. Even where there
is no right to be indemnified, A may, particularly in the case of employees, nevertheless
agree to meet the damages awarded to B.251 In both cases the risk is ultimately borne by
A, thus defeating the purpose of the exemption clause. Whether or not it is A who ends
up paying, permitting B to succeed against the employees or independent contractors
will in many cases upset the allocation of risks and consequent pattern of insurance
in the transaction, since A and its employees and independent contractors will have
expected B to insure against the relevant loss and not done so themselves.252
Despite this, prior to the Contracts (Rights of Third Parties) Act 1999, such attempts
by third parties to rely on exemption clauses encountered great difficulties, primarily
because A’s employees or subcontractors were not parties to the contract. The tension
between the doctrine of privity of contract and the commercial expectations of those
who take part in multiparty transactions produced a very complicated body of law.
At times the Courts applied the doctrine and prevented a defendant from relying on
an exemption clause. At other times, and particularly more recently, they have been
willing to circumvent the doctrine and even to contemplate some form of modification
or exception to it with regard to exemption clauses.

(ii) Privity applied

The operation of the doctrine of privity in such cases will first be considered. In
Scruttons Ltd v Midland Silicones Ltd:253
A drum of chemicals was shipped from New York to London and consigned to the
respondents upon the terms of a bill of lading which exempted the carriers from liability
in excess of $500 (£179) per package. The drum was damaged by the negligence of the
appellants, a firm of stevedores employed by the carriers, and the damage amounted to
£593. The consignees sued the stevedores in the tort of negligence for that damage. Although

250 See Law Com No 242, paras 2.19–2.35. 251 Adler v Dickson [1955] 1 QB 158.
252 For example where there is a limitation clause, the non-party performer would be expected to insure
up to the limit and the contracting party (B) beyond that: see Scruttons Ltd v Midland Silicones Ltd [1962]
AC 446, where the non-party stevedores only agreed to take out insurance in excess of a $500 limitation
where that limitation did not apply: Lord Denning at 481–2. See also The Mahkutai [1996] AC 650; London
Drugs Ltd v Kuehene & Nagel International Ltd [1992] 3 SCR 299, 423 (Iacobucci J) (Canada); Fraser River
Pile & Dredge Ltd v Can-Dive Services Ltd [2000] 1 Lloyd’s Rep 199 (third party able to enforce waiver of
subrogation clause).
253 [1962] AC 446.
646 limits of the contractual obligation

the stevedores were not a party to the bill of lading, nor expressly mentioned therein, they
claimed to be entitled to the benefit of the clause limiting liability.

In the House of Lords, Lord Denning (dissenting) considered that the stevedores were
protected by an accepted principle of the law of tort, that of voluntary assumption of
risk, since the consignees had assented to the limitation of liability. But the majority of
their Lordships unequivocally reasserted the doctrine of privity of contract. They held
that the stevedores could not claim the benefit of an exemption clause in a contract to
which they were not a party.254
At one time the proposition was advanced that where a contract contained an
exemption clause, any employee or agent while performing the contract was entitled
to the same immunity from liability as the employer or principal.255 But this principle
of ‘vicarious immunity’ was rejected by the House of Lords in Scruttons Ltd v Midland
Silicones.256

(iii) Privity avoided

Exemption clauses are unambiguously brought within the 1999 Act257 so that effect
can now be given to the commercial expectations of those who take part in multiparty
transactions. The Act thus sweeps ‘away the technicalities applying to the enforcement
by expressly designated third parties of exclusion clauses’.258
Nevertheless, discussion of the complex common law position remains necessary.
First, the common law applies to contracts made before 11 May 2000 and disputes
concerning such contracts will continue to come before the Courts for some time.
Moreover, there may be cases in which the 1999 Act does not apply or in which, if it
does, it will be advantageous for a person to rely on the common law,
There are a number of ways in which the doctrine of privity may be avoided at
common law. The willingness of the Courts to do so has varied. The application of the
doctrine in some cases can be seen as part of the process by which Courts sought to
alleviate the position of those affected by onerous terms,259 for instance clauses seeking
to exclude liability for personal injury resulting from negligence, now prohibited by
statute.260 The reluctance to save negligent people from the normal consequences of
their fault, however, extended beyond such cases and may have influenced the decision
in Scruttons Ltd v Midland Silicones Ltd261 Since that decision, the perceived need
to support established commercial practice and to avoid redistributing the risks of

254 Article IV bis (2) of the Hague-Visby Rules, contained in the Schedule to the Carriage of Goods by
Sea Act 1971, now extends protection to the servants and agents (but not independent contractors) of the
carrier in respect of loss or damage to goods covered by a contract of carriage of goods by sea to which the
Rules apply.
255 Elder Dempster & Co Ltd v Peterson, Zochonis & Co Ltd [1924] AC 522, 534 (Viscount Cave). See also
at 548 (Viscount Finlay) and [1923] 1 KB 436, 441 (Scrutton LJ). 256 [1962] AC 446.
257 1999 Act, s 1(6), above, p 624. Th is includes such clauses in contracts of carriage which are otherwise
excluded from the 1999 Act by s 6(5). 258 Law Com No 242, paras 2.35, 3.32.
259 Above, p 172.
260 Cosgrove v Horsfall (1945) 62 TLR 140; Adler v Dickson [1955] 1 QB 158; and Genys v Matthews [1966]
1 WLR 758 concerned such clauses. See now the Unfair Contract Terms Act 1977, s 2, above, p 197.
261 See [1962] AC 446, 472 (Viscount Simonds), relying on Wilson v Darling Island Stevedoring &
Lighterage Co Ltd (1956) 95 CLR 43, 78 (Fullagar J). See also The Mahkutai [1996] AC 650, 660 (Lord Goff ).
 third parties 647

transactions has led to greater judicial dissatisfaction with the operation of privity in
such situations and a greater willingness to avoid the operation of the doctrine.
There are two methods of avoiding the privity doctrine at common law; these may
be termed the ‘direct contractual relationship’ route and the ‘negating the tortious
duty’ route. The contractual route involves the identification of a second contract
between the claimant (B) and the person wishing to rely on the exemption clause.
The second route is based on the exemption clause showing that the claimant (B), in
its contract with A, assumed the risk of damage or loss resulting from the negligence
of the defendant so as to qualify or negate the defendant’s tortious duty of care to it.
In its wider form this was not favoured by the majority in Scruttons Ltd v Midland
Silicones Ltd but has since attracted some support.262 One should also not forget that
the promisee may be willing to intervene in the proceedings to protect the defendant.
So, where the contract containing the exemption clause can be construed as a promise
by the claimant not to sue the third-party defendant, if the promisee intervenes in the
proceedings to protect the defendant, the Court may stay or dismiss the claim.263
(a) Finding a direct contractual relationship. The Courts may be able to imply that
a party (A) to a contract containing an exemption clause which is intended to benefit
third parties such as its employees or subcontractors was either acting as agent for the
third parties or as agent for the other party to the contract (B) so as to create a direct
contractual relationship (in particular by means of a unilateral contract) between B
and the employees or subcontractors.
This device was first employed during the nineteenth century, when England was
(as it is again) covered by a network of small railway companies and a contract made
with one might entitle the holder of a ticket to travel on one or more of them. In such
circumstances, the passenger was not allowed to say that only the company which was a
party to the primary agreement was protected by the exemption clauses contained in it.
The Courts were ready to find either that the contracting company was acting as agent for
the other companies,264 or that it was acting as agent for the passenger.265 The passenger
was thus brought into a direct contractual relationship with the other companies. In
reliance on the principle of agency many enterprises have framed contractual clauses
designed to protect their employees and subcontractors from liability.
In Scruttons Ltd v Midland Silicones Ltd,266 the House of Lords left open the question
whether the stevedores could have been protected if the carriers had contracted as
agents on their behalf. Lord Reid said:267
I can see a possibility of success of the agency argument if (first) the bill of lading makes it
clear that the stevedore is intended to be protected by the provisions in it which limit liability,
(secondly) the bill of lading makes it clear that the carrier, in addition to contracting for
these provisions on his own behalf, is also contracting as agent for the stevedore that these
provisions should apply to the stevedore, (thirdly) the carrier has authority to do that, or

262 See Pacifi c Associates v Baxter [1990] 1 QB 933, 1011 (Purchas LJ); Norwich CC v Harvey [1989]
1 WLR 828; Marc Rich & Co AG v Bishop Rock Marine Co Ltd, The ‘Nicholas H’ [1996] AC 211, 239–40
(Lord Steyn). 263 See above, p 621.
264 Hall v NE Ry (1875) LR 10 QB 437, 442. 265 Ibid, 443.
266 [1962] AC 446; above, p 645. 267 Ibid, 474.
648 limits of the contractual obligation

perhaps later ratification by the stevedore would suffice, and (fourthly) that any difficulties
about consideration moving from the stevedore were overcome.

These conditions set out in Scruttons Ltd v Midland Silicones Ltd were held to have
been satisfied in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd, The
Eurymedon, 268 where the bill of lading contained a clause by which the carrier, as
agent of the stevedore, stipulated that both he and the stevedore should be entitled to
the limitation of liability contained in the bill. The Judicial Committee of the Privy
Council held that the stevedore had furnished consideration by unloading the goods
under its contract with the carrier.269 The contract was, however, only established by
somewhat artificially270 identifying an offer to the stevedore in the contract between
the carrier and the shipper.271 That is, the offer was treated as being the offer of a
unilateral contract under which the owner excluded or limited the liability of the
stevedore in return for the stevedore unloading the goods. This technical approach
will not be possible in all cases. The carrier may not have authority to act as agent of
the stevedore and, although in the majority of cases this may be solved by recourse to
the principle of ratification,272 this may not always be possible.273 Again, the company
seeking the benefit of the exemption clause will only be held to have furnished
consideration where it is performing the contract containing the exemption
clause.274 More fundamentally, the exclusion clause may not refer to the employee or
subcontractor.275
Although, in cases of the carriage of goods by sea, it has been said that stevedores
and others performing the contract would normally be protected and that Courts
should not search for ‘fine distinctions’ which would diminish this general position,276
this approach has not been applied in other contexts.277 It is in such contexts that the
1999 Act is likely to make a real difference. It is, moreover, inevitable, even in carriage
of goods by sea, ‘so long as the principle continues to be understood to rest upon an
enforceable contract as between the cargo owners and the stevedores entered into
through the agency of the shipowner . . . that technical points of contract and agency
law will continue to be invoked’.278

268 [1975] AC 154. 269 See above, p 107.

270 See Reynolds (1974) 90 LQR 301; Coote (1974) 37 MLR 453; Battersby (1978) 28 U of Tor LJ 75.
271 The claimant was in fact the consignee not the shipper. It would be party to the offer made by the
shipper to the stevedore either by statute (then the Bills of Lading Act 1855, now the Carriage of Goods by Sea
Act 1992, s 2) or by presenting the bill of lading to the ship and requesting delivery of the goods thereunder:
Brandt v Liverpool Brazil & River Plate Navigation Co Ltd [1924] 1 KB 575.
272 The Mahkutai [1996] AC 650.
273 The Suleyman Stalskiy [1976] 2 Lloyd’s Rep 609 (Sup Ct of British Columbia); Lummus Co Ltd v East
African Harbours Corp [1978] 1 Lloyd’s Rep 317, 322–3 (High Ct of Kenya).
274 Raymond Burke Motors Ltd v The Mersey Docks and Harbour Co [1986] 1 Lloyd’s Rep 155 (goods
damaged while they were being stored and not during loading or unloading).
275 eg in London Drugs Ltd v Kuehene & Nagel International Ltd [1992] 3 SCR 299 the clause did not refer
to warehouseman’s employees. Cf s 1(3) of the Contracts (Rights of Th ird Parties) Act 1999, above, p 625.
276 Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd [1981] 1 WLR 138, 144
(Lord Wilberforce). See Reynolds (1979) 95 LQR 183; Coote [1981] CLJ 13.
277 Southern Water Authority v Carey [1985] 2 All ER 1077, 1084 (construction); Kendall v Morgan The
Times, 2 December 1980 (employment). 278 The Mahkutai [1996] AC 650, 664 (Lord Goff ).
 third parties 649

The approach in The Eurymedon was approved by the House of Lords in Homburg
Houtimport BV v Agrosin Private Ltd, The Starsin:279
The claimants were owners of a cargo of timber who had entered into a contract of carriage
with the charterers of a ship. Under that contract, they excluded liability for negligent
stowage. In their action in the tort of negligence against the shipowners, who were the actual
performing carriers, one question was whether the shipowners could take the benefit of that
exclusion.

While approving The Eurymedon,280 the House of Lords held that it was inapplicable to
these facts. This was because to allow the actual performing carriers to take the benefit
of the exclusion clause would undermine the Hague-Visby Rules (given legislative
force by the Carriage of Goods Act 1971) which, in a contract of carriage, invalidate
the exclusion clause in question.
(b) Negating the tortious duty. The majority in Scruttons Ltd v Midland Silicones
Ltd281 rejected Lord Denning’s powerful reasoning based on the general defence to
actions in tort where a claimant has voluntarily consented to take the risk of a loss or
injury. But a defendant who is sued in tort may rely on an exclusion clause in a contract
to which the claimant but not the defendant is a party as restricting or excluding the
duty of care that it would otherwise owe to the claimant. Where this is so the defendant
is taking the benefit of an exemption clause in a contract to which it is not a party.
So, in Pacific Associates Inc v Baxter282 a consultant engineer successfully defended
a claim for negligence by the contractor by relying on a term of the contract between
the employer and the contractor which provided that neither the engineer nor any
of his staff ‘shall be in any way personally liable for the acts or obligations under the
Contract . . .’. Purchas LJ said:
The presence of such an exclusion clause, while not directly binding between the parties,
cannot be excluded from a general consideration of the contractual structure against which
the contractor demonstrates reliance on, and the engineer accepts responsibility for, a duty
in tort, if any, arising out of the proximity established between them by the existence of that
very contract.283

The contractual structure may be relevant even where there is no express provision
seeking to exempt the third party.
In Norwich CC v Harvey:284
A building was damaged by fire as a result of the negligence of a roofing subcontractor. The
main contract provided that the building owner was to bear the risk of damage by fire and
the subcontractor contracted on the same terms and conditions as in the main contract. The
owner of the building brought an action against the subcontractor.

279 [2003] UKHL 12, [2004] 1 AC 715.

280 There are clear analyses by Lord Hoff mann at [93], by Lord Hobhouse at [149]–[153] and, especially
helpful, by Lord Millett at [196]–[197]. Cf Lord Bingham at [34] who talks of a bilateral contract.
281 [1962] AC 446. See also Leigh & Sillavan Ltd v Aliakmon SS Co Ltd [1986] AC 785, 817 (Lord Brandon)
but cf Robert Goff LJ [1985] QB 350, 399. Cf also the cases considered below.
282 [1990] 1 QB 993. See also Southern Water Authority v Carey [1985] 2 All ER 1077.
283 Ibid, 1022–3. 284 [1989] 1 WLR 828.
650 limits of the contractual obligation

It was held that, although there was no direct contractual relationship between the
owner and the subcontractor, nevertheless they had both contracted with the main
contractor on the basis that the owner had assumed the risk of damage by fire and
the subcontractor owed no duty in respect of the damage which occurred. It is not,
however, necessary for the defendant’s contract to contain the exemption clause; what is
important is whether the recognition of a duty of care by the defendant would outflank
the contractual structure governing dealings between the claimant and others.285
(c) A general common law exception for the benefit of exemption clauses? The
commercial inconvenience that results from the application of the doctrine of privity
in the context of exemption clauses has led to the recognition by the Supreme Court
of Canada of a wide exception whereby employees and subcontractors acting in the
course of their employment and performing the services provided for in the main
contract can rely on an exemption clause in that contract which is intended to protect
them.286
Prior to the enactment of the 1999 Act there were indications that the artificiality
and technical nature of the approach based on New Zealand Shipping Co Ltd v AM
Satterthwaite, The Eurymedon287 inclined senior judges to regard the development
started in that decision as not yet complete. They appeared to be prepared to recognize
a fully fledged exception to the doctrine of privity where a contract clearly provides
that (for example) independent contractors such as stevedores are to have the benefit of
exceptions and limitations contained in that contract.288 The case for such recognition
is that the reasons for and justifications of the privity doctrine do not apply where a
third party seeks to rely on a contractual provision as a defence; there is an identity of
interest between the contracting party and the third party as far as the performance
of the contracting party’s contractual obligations is concerned, and it is commercially
undesirable to allow a person to circumvent a contractual exclusion clause and thus
redistribute the contractual allocation of risk by suing the employee or subcontractor
of the other party to the contract.289

285 Marc Rich & Co AG v Bishop Rock Marine Co Ltd, The Nicholas H [1996] AC 211, 239–40 (Lord
Steyn) (if the cargo owner recovered from the defendant, a classification society, the cost of insuring against
such claims would be passed on to shipowners and the contractual structure governing dealings between
shipowners and cargo owners and the limitation of shipowners’ liability would be destroyed). See also
Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 197.
286 London Drugs Ltd v Kuehene & Nagel International Ltd [1992] 3 SCR 299. It may be more problematic
to establish a clear intention to extend the protection of an exemption clause to an independent contractor
than to an employee; ibid, 441. See also Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd [2000] 1
Lloyd’s Rep 199 (third party able to enforce waiver of subrogation clause).
287 [1975] AC 154, above, p 648.
288 The Mahkutai [1996] AC 650, 665 (but the exclusive jurisdiction clause was held not to be intended
to benefit third parties). See also Dresser UK Ltd v Falcongate Freight Management Ltd [1992] 1 QB 502, 511
(Bingham LJ) (describing the principle of bailment on terms as ‘a pragmatic legal recognition of commercial
reality’); Law Com CP No 121 (1991), paras 4.8–4.12; Law Com No 242 (1996) para 2.19 ff.
289 London Drugs Ltd v Kuehene & Nagel International Ltd [1992] 3 SCR 299, 440–7. For these reasons and
justifications, see above, p 645 and Privity of Contract: Contracts for the Benefit of Third Parties Law Com CP
No 121 (1991), para 4.3; Law Com No 242 (1996) para 2.33–2.35.
 third parties 651

It is important to realize, however, that the wide Canadian common law exception
goes further in the context to which it applies than the 1999 Act. This is because,
contrary to the 1999 Act, the Canadian exception does not require the third party to
be expressly identified by name, class or description.290 In the light of that, the English
Courts may consider it inappropriate to adopt the Canadian exception.291 On the
other hand, the Law Commission, as we shall now see, indicated that it did not want
its reform to curtail further development of the common law.

(l) further development of the common law

The traditional reluctance of English Courts to reform the third party rule has been
noted.292 What is the effect of the enactment of the Contracts (Rights of Third Parties)
Act 1999 on further development of the common law?293
The Law Commission stated that it intended that legislation based on its
recommendations, which it described as ‘relatively conservative and moderate’ should
not hamper the judicial development of third-party rights where the Courts decide
that in a particular sphere the reform did not go far enough.294 It is submitted that this
cannot mean that, in situations in which the ‘intention that the third party should
enforce the contract’ test is not satisfied, Courts should have no regard to the existence
of the 1999 Act and its policy and should continue to develop the common law in the
same way as they would have done without the 1999 Act. So, for example, it would seem
inappropriate to build on the suggestion, based on dicta in Darlington BC v Wilshier
(Northern) Ltd295 that, despite an unpromising history, the trust of a promise should
be deployed as a way of granting a right of action to a third party.
In contrast, it may be appropriate for the Courts in a particular context to identify
some common law principle other than the intention of the parties upon which to
rest third-party rights of suit, for instance ‘reasonable reliance’. Moreover, there seems
no good reason why the 1999 Act should prevent Courts, after careful consideration,
accepting the Canadian exception adopted in the London Drugs case,296 albeit that
that exception applies a wider intention test than that under the 1999 Act.297 It may
also be appropriate for there to be judicial development where, as in the case of the
promisee’s remedies in contracts for the benefit of third parties, this has expressly
been left to the common law.298

290 s 1(3), above, p 625.

291 Cf Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, 535 (Lord Clyde).
292 Above, p 623. 293 See Beatson (2001) 117 LQR 106.
294 Law Com No 242, para 5.11. See also paras 5.15, 12.1. See eg, the exception for exemption clauses
developed by the Supreme Court of Canada in London Drugs Ltd v Kuehene & Nagel International Ltd [1992]
3 SCR 299, above p 650. 295 [1995] 1 WLR 68, 75, 81.
296 [1992] 3 SCR 299. 297 See above, n 290.
298 Law Com No 242, paras 5.12–5.17. See Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC
518, 551–2 (Lord Goff ), 590 (Lord Millett) (both dissenting). Cf Lord Clyde at 535.
652 limits of the contractual obligation

3. the imposition of contractual

liabilities upon third parties
(a) introduction
As a general rule, two persons cannot, by any contract into which they may enter,
thereby impose contractual liabilities upon a third party.
This principle may be illustrated by reference to building contracts, where a person
(the employer) engages a contractor to carry out certain building work. The contractor
frequently subcontracts parts of the work to subcontractors. A subcontractor has no
cause of action against the employer for the price of work done or materials supplied
under the subcontract, since the employer is not a party to that contract.299 Even if the
employer has nominated the subcontractor and taken the benefit of the subcontractor’s
work, the employer will not be liable to the subcontractor for the price, as there is no
privity of contract between them. Conversely, the employer has no claim in contract300
against the subcontractor, 301 since the subcontractor is not a party to the main contract
between the employer and the contractor.
Further, the principle of privity of contract normally prevents a person from being
bound by an exemption clause contained in a contract to which it is not a party.
This is not to deny that third parties may be legally affected by contracts to which
they are not parties. For example, a person who knowingly interferes with contractual
rights may be liable for an ‘economic tort’; the contractual creation of proprietary rights
(in land or personal property) bind most third parties who deal with the property;
and a contractual obligation to keep information confidential can sometimes render a
third party liable for the equitable wrong of breach of confidence.
There are also a few exceptions where a third party is liable in contract for breach
of the duty created by a contract to which it is not a party. Agency is considered in
Chapter 24 and transfer by death and bankruptcy in Chapter 22. In this chapter, we
consider covenants concerning land and the controversial issue as to whether a similar
approach applies to contracts concerning chattels. We also look at situations where
exemption clauses have been held to bind third parties.

(b) covenants concerning land

Certain kinds of covenants concerning land are enforceable against third parties
whether or not there is notice. If A leases land to B, there is privity of contract between
them. But covenants in a lease which have reference to the subject-matter of the lease
will be enforceable, not only between A and B, but against assignees of the lease or of
the reversion.302

299 Hampton v Glamorgan CC [1917] AC 13. See also Schmaling v Tomlinson (1815) 6 Taunt 147 (principal
and sub-agent). 300 But a claim may lie in tort.
301 Unless there is a collateral warranty: see above, p 136.
302 See above p 642, n 223.
 third parties 653

Also, under the rule in Tulk v Moxhay,303 the burden of covenants restricting the use
to which land may be put can ‘run with the land’. In that case:
T, who owned houses in Leicester Square, sold the garden in the centre of the square to E. E
covenanted to maintain the land sold as a garden and not to build on it. The land was sold
several times before being purchased by the defendant with notice of the covenant. The
defendant proposed to build on the land and T sought an injunction to restrain him.

The injunction was granted. The defendant was not permitted to use the land in
a manner inconsistent with the covenant entered into by E. The ground for the
decision was the defendant’s notice of the covenant at the time of the purchase.304
But in subsequent cases the principle in Tulk v Moxhay has undergone a considerable
change. It must now be shown that the covenant was imposed for the benefit of
neighbouring land owned by the person seeking to enforce it and that the benefit of
the covenant has passed to that person.305 The right of a person entitled to the benefit
of the covenant to prevent the inconsistent use has taken on a proprietary quality, an
‘equitable interest’306 in the land burdened by the covenant. A subsequent purchaser
of that land buys it subject to the equitable interest and with the burden of the interest
attached.307

(c) contracts concerning chattels

The question arises as to whether an analogous approach applies to contracts
concerning chattels.
In De Mattos v Gibson Knight Bruce LJ said:
Reason and justice seem to prescribe that, at least as a general rule, where a man, by gift or
purchase, acquires property from another, with knowledge of a previous contract, lawfully
and for valuable consideration made by him with a third person, to use and employ the
property for a particular purpose in a specified manner, the acquiror shall not, to the
material damage of the third person, in opposition to the contract and inconsistently with
it, use and employ the property in a manner not allowable to the giver or seller.308

In Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd:309

The D Co had a long-term time charterparty of a ship. The owners sold the ship, which
eventually came into the possession of the LS Co, who took it with notice of the charterparty
and on the understanding that the agreement should be honoured. They did not honour the
agreement, and, when sued by the charterers, D Co pleaded that they were not bound by the
charterparty as there was no privity of contract between them.

303 (1848) 2 Ph 774.

304 The doctrine of notice no longer applies to such covenants, which must now be protected by registration
if they are to bind a purchaser of the land: Land Charges Act 1972, ss 2(5), 4(6) (unregistered land); Land
Registration Act 2002, ss 28, 29 (registered land).
305 London CC v Allen [1914] 3 KB 642; see above, p 642.
306 Re Nisbet and Potts’ Contract [1905] 1 Ch 391, 398; [1906] 1 Ch 386, 403, 405.
307 Rogers v Hosegood [1900] 2 Ch 388, 407. 308 (1858) 4 De G & J 276, 282.
309 [1926] AC 108.
654 limits of the contractual obligation

The Judicial Committee of the Privy Council upheld the decision of the Courts in
Nova Scotia granting the charterers an injunction restraining the LS Co from using
the ship inconsistently with the charterparty. The Board relied upon the dictum of
Knight Bruce LJ in De Mattos v Gibson quoted above.310 The case was said to fall under
the rule in Tulk v Moxhay relating to the use of land: whether the subject-matter was
land or a chattel, the principle is the same: ‘the remedy is a remedy in equity by way of
injunction against acts inconsistent with the covenant, with notice of which the land
was acquired’.311
This reasoning has, however, been the subject of considerable criticism,312 and it
has been said that the case was wrongly decided.313 In the first place, it is argued that
reliance should not have been placed on the dictum of Knight Bruce LJ. In De Mattos v
Gibson an interim injunction was granted to restrain the mortgagee of a ship, who
had acquired his mortgage with knowledge of an existing voyage charterparty, from
interfering with the performance of the charter. Knight Bruce LJ’s reasoning did not,
however, form part of the concurring judgment of Turner LJ and has been doubted.314
When the case came before Lord Chelmsford LC, 315 a final injunction was refused.316
Although the Lord Chancellor expressed the opinion that the mortgagee was
bound to abstain from any act which would have the immediate effect of preventing
performance of the charter, he appeared to do so on the ground that any right to
an injunction was based on an extension of the principle whereby a person who
knowingly induces one party to break his contract with another is liable to that other
in tort in respect of any loss which may have been suffered by the breach. 317
Secondly, in so far as the Judicial Committee in the Strathcona case drew an analogy
with the rule in Tulk v Moxhay, this too will not bear examination. We have seen that
the Tulk v Moxhay rule is now dependent upon the ownership of neighbouring land
for the benefit of which the covenant was imposed: the person seeking to enforce
the covenant must have a continuing proprietary interest in its enforcement.318 But
a charterer under a voyage or time charterparty (even if of long duration) only has
a personal right that the shipowner should continue to use the ship to perform the
services which he has covenanted to perform. The charterer has no proprietary
interest in the subject-matter of the contract, the ship.319

310 Above, p 653. 311 [1926] AC 108, 119.

312 Greenhalgh v Mallard [1943] 2 All ER 234, 239.
313 Port Line Ltd v Ben Line Steamers Ltd [1958] 2 QB 146, 168.
314 London CC v Allen [1914] 3 KB 642, 658; Barker v Stickney [1919] 1 KB 121, 132.
315 (1859) 4 De G & J 288.
316 On the ground that the mortgagee had not interfered with performance of the charter until it was
evident that the shipowner was wholly unable to perform it (at 299–300).
317 Lumley v Gye (1853) 3 E & B 216. See also Wade (1926) 42 LQR 139; The Lord Strathcona [1925] P 143;
below, p 655, n 321. 318 See above, p 642.
319 Port Line Ltd v Ben Line Steamers Ltd [1958] 2 QB 146, 166 (Diplock J). Unless it is a charterparty
by demise, when the charter could be said to acquire a ‘possessory interest’ in the vessel: see Baumwoll
Manufacturer Von Carl Scheibler v Furness [1893] AC 8. See also Lorentzen v White Shipping Co Ltd (1943)
74 Ll LR 161.
 third parties 655

Although the principle stated by Knight Bruce LJ in De Mattos v Gibson was

subsequently applied in cases of the mortgage of ships subject to a charterparty,320
these are open to the same criticisms. The better view is that any right of the charterer
to an injunction to restrain a use of the ship inconsistent with his charterparty arises
if, but only if, the conduct of the purchaser is such as to constitute the tort of knowing
interference with the charterer’s contractual rights.321
There may, moreover, be alternative explanations for the decision in the Strathcona
case. One is that there was an implied contract between the third party and the
charterers, or a ‘novation’ of the original agreement,322 for the Board pointed out:
‘This is not a mere case of notice of the existence of a covenant affecting the use of
the property sold, but it is the case of the acceptance of their property expressly sub
conditione’.323 Alternatively, there may be some ground for saying that the third party
was in the position of a ‘constructive trustee’324 with obligations which a Court of
Equity would not permit it to violate.325
With these reservations in mind, we have now to consider the scope of the decision.
This was considered in Port Line Ltd v Ben Line Steamers Ltd:326
The ship Port Stephens was chartered to Port Line by its owner, Silver Line Ltd, on a time charter
for 30 months from March 1955. In February 1956, Silver Line sold the ship to the defendant,
it being agreed that the defendant should immediately charter the ship back to Silver Line
by demise in order that it might fulfil its contract with Port Line. Unfortunately, this second
charterparty contained the term that ‘If the ship be requisitioned this charter shall thereupon
cease’, although no such clause appeared in the original time charterparty. The defendant was
unaware of this disparity. In August 1956 the ship was requisitioned by the Crown, and as a
result Port Line lost the use of the ship. Its claim against Silver Line was settled, but it then
brought an action against the defendant to recover the whole or part of the compensation
received by the defendant from the Crown in respect of the period of requisition.

Diplock J stated that the Strathcona case was wrongly decided but held that, even if it
was correct, Port Line could not bring its claim within its principles, as the defendant
had no knowledge at the time of its purchase of Port Line’s rights under the time
charter. The principle in the Strathcona case thus only applies where there is actual
knowledge by the subsequent purchaser at the time of the purchase of the charterer’s
rights.327 Constructive notice is insufficient.328 Moreover, Diplock J considered that,

320 Messageries Imperiales v Baines (1863) 7 LT 763; The Celtic King [1894] P 175.
321 Lumley v Wagner (1852) 1 De GM & G 604. See also Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106;
Acrow Ltd v Rex Chainbelt Inc [1971] 1 WLR 1676; Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd
[1995] Ch 152. In Swiss Bank Corp v Lloyd’s Bank Ltd [1979] Ch 548, 573 (rev’d [1982] AC 584), Browne-
Wilkinson J stated that the principle of Knight Bruce LJ represented ‘the counterpart in equity of the tort
of knowing interference with contractual rights’. But although they may cover the same ground they are
doctrinally distinct and subject to different requirements: see Cohen-Grabelsky (1982) 45 MLR 241, 265–7;
Gardner (1982) 98 LQR 279, 289–93; Tettenborn [1982] CLJ 58, 82. 322 See below, p 676.
323 [1926] AC 108, 116. 324 Cf above, p 635.
325 [1926] AC 108, 125. See also Swiss Bank Corp v Lloyd’s Bank Ltd [1979] Ch 548, 573 (rev’d [1982] AC
584). 326 [1958] 2 QB 146.
327 [1958] 2 QB 146, 168.
328 The doctrine of constructive notice does not apply to chattels (Joseph v Lyons (1884) 15 QBD 280, 287) nor
to the contents of documents in commercial transactions (Manchester Trust v Furness [1895] 2 QB 539, 545).
656 limits of the contractual obligation

even if notice had been shown, (a) the defendant was not in breach of duty to Port
Line since it was not by its act that the vessel during the period of requisition was used
inconsistently with the terms of Port Line’s charter —it was by act of the Crown by title
paramount—and (b) Port Line was not entitled to any remedy against the defendant
except an injunction to restrain the defendant from using the vessel in a manner
inconsistent with the terms of the charter.329
The charterer cannot obtain specific performance of the contract,330 nor, it seems,
damages or monetary compensation.331 It would also seem that the Court will not be
prepared to grant an injunction if the situation is such that, in any case, the vendor was
incapable of further performing the charterparty,332 or if, in the case of the mortgage
of a vessel, the charter is such as substantially to impair the security.333
There is even more doubt as to whether the principle stated by Knight Bruce LJ in
De Mattos v Gibson, and the decision in the Strathcona case, would apply to contracts
under which the owner of a particular chattel, other than a ship, undertakes to use the
chattel to perform its obligations to the other contracting party: for example, where
the owner of a costly machine334 agrees to use the machine to manufacture goods for
the other party over a certain period. In De Mattos v Gibson Lord Chelmsford LC
stressed that ‘a vessel engaged under a charterparty ought to be regarded as a chattel
of peculiar value to the charterer’,335 and it has been said that the Strathcona decision
may be confined to ‘the very special case of a ship under charterparty’.336 Nevertheless,
there would seem to be no reason why the immediate purchaser of a chattel should not
be restrained by injunction if it commits or threatens to commit the tort of knowing
interference with such a contract.337 The same would probably apply to any covenant
by the owner of a chattel to use338 or not to use339 the chattel in a particular manner.
But the relief granted against the third-party purchaser would depend upon the fact of
tortious interference, and not upon notice of any ‘interest’ in the chattel.
Moreover, it is highly unlikely that any covenant affecting the use of a chattel would
be held to ‘run with the goods’, so as to bind all persons who subsequently purchased
the chattel with notice of the covenant.340 There are good reasons why land-owners
should be entitled to prevent neighbouring land from being put to a use that would

329 Port Line Ltd v Ben Line Steamers Ltd [1958] 2 QB 146, 167.
330 De Mattos v Gibson (1859) 4 De G & J 277, 297.
331 Although the form of the order made in the Strathcona case would seem to indicate that damages
could be awarded, cf Port Line Ltd v Ben Line Steamers Ltd, above, 169; Law Debenture Trust Corp v Ural
Caspian Oil Corp Ltd [1993] 1 WLR 138, 144; rev’d on another ground [1995] Ch 152.
332 Lord Strathcona [1925] P 143. See also above, p 654, n 316. 333 The Celtic King [1894] P 175.
334 De Mattos v Gibson (1858) 4 De G & J 276, 283 (Knight Bruce LJ).
335 (1859) 4 De G & J 288, 299.
336 Clore v Theatrical Properties Ltd [1936] 3 All ER 483, 490 (Lord Wright MR).
337 See Cohen-Grabelsky (1982) 45 MLR 241; Gardner (1982) 98 LQR 279; Tettenborn [1982] CLJ 58.
338 Sefton v Tophams Ltd [1965] Ch 1140 (land). But see Clarke v Price (1819) 2 Wils Ch 157; Haywood v
Brunswick Permanent Benefit Building Soc (1876) 3 Ch D 694.
339 British Motor Trade Association v Salvadori [1949] Ch 556 (covenant not to resell chattel). See also Esso
Petroleum Co Ltd v Kingswood Motors (Addlestone) Ltd [1974] QB 142 (land); Law Debenture Trust Corp v
Ural Caspian Oil Corp Ltd [1995] Ch 152 (shares).
340 Taddy v Sterious & Co [1904] 1 Ch 354; McGruther v Pitcher [1904] 2 Ch 306; above, p 653.
 third parties 657

be prejudicial to their property. But no such reasons would justify the imposition of
incumbrances on chattels.341

(d) exemption clauses binding third parties

An exemption clause will, as a general rule, only operate so as to take away the rights
of the contracting parties, and not those of third parties who suffer injury or damage.
In Haseldine v CA Daw & Son Ltd:342
The owners of a block of flats employed the defendant engineers to repair a lift in the building.
Owing to their negligence, the lift was badly repaired and H, a visitor to the premises, was
injured when the lift fell to the bottom of the lift-shaft.

The defendant was held liable in tort for negligence. Goddard LJ said:343
It is, however, argued that it is not right that a repairer who, as in the present case, has
stipulated with the person who employs him that he shall not be liable for accidents, should
none the less be made liable to a third person. The answer to this argument is that the duty to
the third party does not arise out of the contract, but independently of it.

Nevertheless it has been held that a third party may be bound by an exemption clause
where that clause relates to goods that have been bailed by the third party.
Bailment involves the transfer of possession (or an agreement to transfer possession)
of goods to a person (the ‘bailee’) who holds (or agrees to hold) the goods either for
or at the direction of the bailor, to whom they will be returned.344 The hirer of a car
is a bailee as is the dry cleaning fi rm which takes in a customer’s clothes for cleaning.
In many situations there will be a series of bailments and the question is whether, if
the ultimate sub-bailee loses or damages the goods and is sued by the bailor either
in tort or for breach of duties arising from the bailment,345 it can rely on the terms of
the contract it made with its immediate bailor as a defence. In Morris v CW Martin
& Sons Ltd:346
Morris sent a mink stole to a furrier to be cleaned. The furrier did not clean furs himself, so,
with Morris’s consent, he delivered it for cleaning to the defendant, one of whose servants
later stole it. The contract between the furrier and the defendant contained an exemption
clause, on which the defendant sought to rely when sued by Morris.

On the facts the exemption clause was held, as a matter of construction, not to apply
but Lord Denning MR said that, had it applied, in principle the defendant could have

341 The position is different where there are competing ‘proprietary’ claims to the same goods. The
starting point in resolving such title conflicts is nemo dat quod non habet (‘one cannot give what one does
not have’). But there are numerous exceptions to that which often protect a bona fide purchaser for value
without notice.
342 [1941] 2 KB 343. By s 3(1) of the Occupiers Liability Act 1957, a contract made by an occupier of
premises may increase its liability to non-parties beyond the common duty of care but may not reduce it
below that duty. Cf, at common law, Fosbroke-Hobbes v Airwork Ltd [1937] 1 All ER 108, 112.
343 [1941] 2 KB 343, 379.
344 Palmer on Bailment (2nd edn, 1991); Chitty on Contracts, 30th edn (2008), para 33–001ff.
345 For instance, only to deal with the goods in the manner authorized. 346 [1966] 1 QB 716.
658 limits of the contractual obligation

relied on it. Morris would be bound by the conditions if she had expressly or impliedly
consented to the furrier making a sub-bailment containing those conditions. Since
she had agreed that the furrier should send the stole to the defendant, she impliedly
consented to his making a contract for cleaning on the terms current in the trade.347
In KH Enterprise v Pioneer Container348 this principle was applied to a contract for
the carriage of goods by sea:
KHE contracted for the carriage of goods from Taiwan to Hong Kong. The carrier was
permitted to sub-contract ‘on any terms’ and did so to the defendant who took possession of
the goods under bills of lading providing that any dispute was exclusively to be determined
in Taiwan. The goods were lost and KHE sued in Hong Kong, contending that it was not
bound by the exclusive jurisdiction clause because there was no contract between it and the
defendants.

The Judicial Committee of the Privy Council stated that a person who voluntarily
takes another person’s goods into its custody holds them as bailee of that person (the
owner) even if it does so without the owner’s consent, but can only invoke the terms of
the sub-bailment under which it received the goods from an intermediate bailee (the
carrier) as qualifying its responsibility if the owner consented to them.349 It held that
consent to subcontract and therefore to sub-bail ‘on any terms’ was wide enough to
constitute express consent to the clause and KHE was bound by it.
Privity questions may also be avoided by the implication of a contract between the
claimant and the third party. In Pyrene Co Ltd v Scindia Navigation Co Ltd:350
P sold to ISD in India certain fire-tenders ‘fob London’. The defendant agreed with ISD to
carry the tenders to India. The contract of carriage contained a clause limiting the liability
of the defendant to £200. Owing to the negligence of the defendant, a tender was damaged
while being loaded. But since it had not yet crossed the ship’s side, it was still at P’s risk. P
made good the damage and sued the defendant for the loss, which amounted to more than
£900.

Devlin J held that P was bound by the exemption clause. Although it was not a party
to the contract of carriage, it was entitled to the benefits of the contract and had in
consequence also to accept its liabilities. But this approach would constitute a wide-
ranging exception to privity and has not subsequently found favour. In the Midland
Silicones case it was stated that this decision could be supported ‘only upon the facts of the
case, which may well have justified the implication of a contract between the parties’.351 It

347 Ibid, 729. See also Salmon LJ at 741. See also Singer Co (UK) Ltd v Tees and Hartlepool Port Authority
[1988] 2 Lloyd’s Rep 164; The Captain Gregos (No 2) [1990] 2 Lloyd’s Rep 395, 405.
348 [1994] 2 AC 324.
349 Ibid, 342, disapproving Johnson Matthey & Co Ltd v Constantine Terminals Ltd [1976] 2 Lloyd’s Rep
215. The principles in The Pioneer Container were applied in Sonicare International Ltd v East Anglia Freight
Terminal Ltd [1997] 2 Lloyd’s Rep 48 and Spectra International plc v Hayesoak Ltd [1997] 1 Lloyd’s Rep 153.
350 [1954] 2 QB 402.
351 [1962] AC 466, 471 (Viscount Simonds), and see at 470 where Elder Dempster & Co Ltd v Paterson,
Zochonis & Co Ltd [1924] AC 522 was similarly explained. See also Hispanica de Petroleos SA v Vencedora
Oceanica SA, The Kapetan Markos NL (No 2) [1987] 2 Lloyd’s Rep 321, 331; Comp Portorafti Comm SA v
Ultramar Panama Inc, The Captain Gregos (No 2) [1990] 2 Lloyd’s Rep 395, 401–3.
 third parties 659

may therefore be an example of an implied contract, that is to say, all three parties
intended P to participate in the contract of affreightment.

(e) the contracts (rights of third parties) act 

The Contracts (Rights of Third Parties) Act 1999 Act does not affect the principle
that a third party to a contract cannot be subjected to a liability, or the burden of an
exemption clause, in that contract.352 This must be distinguished from the clarification
in the Act that a benefit being enforced may be conditional. So, by section 1(4), a third
party who wishes to enforce a term conferring a benefit on him or her can only do so
subject to and in accordance with any other terms of the contract. Those other terms
may impose burdens and conditions upon the enjoyment of any benefit.

352 Hansard HL Debs 11 January 1999, col 21 (Lord Irvine LC).

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 22
ASSIGNMENT
The benefit of a contract may, in certain circumstances, be transferred to a third
party. This chapter considers assignment, that is to say, the transfer of B’s contractual
rights against A to C by means of an agreement between B (the assignor) and C (the
assignee) irrespective of A’s (the debtor’s) consent. After examining assignment,
we will distinguish it from several similar concepts: the negotiability of ‘negotiable
instruments’, vicarious performance, novation, and the transfer of rights and liabilities
by operation of law.

1. assignment
(a) no assignment at common law
At common law the benefit of a contract could not be assigned so as to enable the
assignee to bring an action upon it in its own name. This rule was sometimes expressed
by the phrase ‘a chose in action is not assignable’.
‘“Choses in action” is a known legal expression used to describe all personal rights of
property which can only be claimed or enforced by action, and not by taking physical
possession.’1 The contrasted term in a classification of types of personal property is
‘chose in possession’, which refers to tangible personal property, ie goods. A chose
in action is intangible personal property, ie property that does not physically exist
and cannot be physically possessed. A chose in action includes not only debts and
all other contractual rights but rights to tort damages, intellectual property rights,
shares, and equitable rights in a trust fund.2 We are concerned here, however, only
with the assignment of contractual rights.
The only exceptions to the no assignment rule allowed by the common law were
assignments by or to the Crown.3 The common law also recognized the law merchant by
which rights to payment of a sum of money embodied in a negotiable instrument could
be transferred by transfer of the instrument to a holder for value.4 The reason for the
non-recognition of assignments of choses in action seems to have been that the common

1 Torkington v Magee [1902] 2 KB 427, 430 (Channell J); rev’d [1903] 1 KB 644.
2 In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 the House
of Lords clarified that a right to rescind a mortgage is not a chose in action or part of a chose in action (and
an owner cannot therefore assign a right to rescission separately from his property).
3 Master v Miller (1791) 4 Term Rep 320, 340. 4 See below, pp 677–682.
662 limits of the contractual obligation

law judges feared that to permit assignments would both undermine the doctrine of privity
of contract and encourage unnecessary litigation and maintenance and champerty.5 But
even at common law it was (and still is) possible for the right to sue on a contract to be
transferred to a third party by other, albeit cumbrous and unsatisfactory, means.
In the first place, the contracting party could give to the third party a power of
attorney and thus enable the third party to sue the debtor as the contracting party’s
representative.6
Secondly, the contracting party could allow the third party to sue the debtor in the
contracting party’s name, taking from the third party an indemnity against costs.
Thirdly, with the consent and co-operation of the debtor, the contracting party
could effect a transfer by means of a substituted agreement, or ‘novation’.7

(b) assignment in equity: the historical background

Equity would permit the assignment of a chose in action, including debts and other
contractual rights, whether such chose was equitable or legal.

(i) Equitable choses

An equitable chose is one which, before 1875, could only be enforced in the Court of
Chancery, such as a share in a trust fund, a legacy, or a reversionary interest under a
will. Where there was an assignment of an equitable chose, the assignee was allowed to
proceed in its own name, and only an assignor who retained an interest in the action
(for example, if the assignment was not absolute but conditional) had to be made a
party to it.8 The reason for this was that since there was no claim that might be asserted
by an action at law, the Court of Chancery had exclusive jurisdiction over the whole
transaction; there was therefore no risk that the trustees of the fund (ie the debtors)
would be exposed to a second action at law by the assignor.

(ii) Legal choses

A legal chose in action is one which, before 1875, could be enforced by an action at
law, for example, a right under a contract, such as a debt or a claim under a policy of
insurance. Equity would recognize the assignment of a legal chose in action, but had
here to proceed more carefully. If equity itself enforced the claim of the assignee, that
would not prevent the assignor from bringing an action at law; and the debtor would
have been put to the inconvenience of resorting to equity to restrain the assignor from
enforcing the judgment on the ground that the assignee had already recovered in
equity. Consequently, the Court of Chancery did not in the ordinary case enforce the
assignee’s claim. What it did was to infer from the assignment a duty on the assignor
to exercise the right for the benefit of the assignee. On receiving a proper indemnity
against costs, the assignor’s duty was to permit the assignee to use the assignor’s name

5 Lampert’s Case (1612) 10 Co Rep 46b, 48a; Fitzroy v Cave [1905] 2 KB 364, 372.
6 Re Bowden [1936] Ch 71, 74. 7 See below, p 676.
8 Goodson v Ellisson (1827) 3 Russ. 583; Cator v Croydon Canal Co (1841) 4 Y & C Ex 593; Donaldson v
Donaldson (1854) Kay 711.
 assignment 663

so that the assignee might bring an action at law. If necessary, it would enforce this
duty.9 So whenever a legal chose in action was assigned in equity—and it could not be
assigned otherwise—the action in a Court of law was brought in the assignor’s name.10
This was primarily in the interests of the party liable, so that it was not susceptible to
more than one action; and partly in the interests of the assignor, who might dispute
the assignment if he thought fit.
Since the Judicature Act 1873 an assignment in equity will be recognized by all
divisions of the High Courts of Justice, whether it be of a legal or equitable chose in
action. But the rules relating to such assignments (including the use of the assignor’s
name) are based on those in operation before the passing of the Act. These rules are
examined in detail below, but it is first necessary to examine section 136(1) of the Law
of Property Act 192511 which provides a form of statutory assignment.

(c) assignment under the law of property act 

By section 136(1) of the Law of Property Act 1925:
Any absolute assignment by writing under the hand of the assignor (not purporting to be by
way of charge only) of any debt or other legal thing in action, of which express notice in writing
has been given to the debtor, trustee or other person from whom the assignor would have been
able to claim such debt or thing in action, is effectual in law (subject to equities having priority
over the right of the assignee) to pass and transfer from the date of such notice—
(a) the legal right to such debt or thing in action;
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same without the concurrence of the
assignor.

The effect of this section, provided the conditions laid down in it are fulfilled, is to
allow the assignee to sue the debtor in its own name.12
This sub-section is merely machinery; it enables an action to be brought by the assignee in
his own name in cases where previously he would have sued in the assignor’s name, but only
where he could so sue.13

9 Hammond v Messenger (1838) 9 Sim 327.

10 See, however, the statement of practice by Buller J in Master v Miller (1791) 4 Term Rep 320, 341, which
shows that a Court of law did not always insist on the rule.
11 Th is replaced and substantially reenacted s 25(6) of the Judicature Act 1873. Other statutes have
created specific further exceptions to the rule that there can be no assignment at law. For example, by s 1
of the Policies of Assurance Act 1867 and by s 50(2) of the Marine Insurance Act 1906, policies of life and
marine insurance can be assigned, but the former Act requires notice to be given by the assignee to the
insurance company. Stock and shares in a company are transferable under s 544 of the Companies Act 2006
and the Stock Transfer Act 1963, and assignments of patents and copyright are regulated by ss 30 and 32 of
the Patents Act 1977 and ss 90 and 94 of the Copyright, Designs and Patents Act 1988.
12 Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430. The assignee’s right is subject to the right of a
debtor who receives notice of a disputed assignment to call upon the persons giving notice to interplead.
13 Torkington v Magee [1902] 2 KB 427, 435 (Channell J); Marchant v Morton, Down & Co [1901] 2 KB
829, 832.
664 limits of the contractual obligation

It is necessary to examine the words of the section in some detail.

(i) ‘Absolute’ and not a charge

The Act requires the assignment to be ‘absolute’ ie unconditional. This means that it
must be an assignment of a sum due or about to become due, not of an amount which
is dependent on any question as to the state of accounts between assignor and assignee.
An assignment by way of charge is one which merely gives a right to payment out of a
particular fund, and does not transfer the fund to the assignee.
If the assignment is to take effect or to cease upon the happening of a future uncertain
event, so that the original debtor is uncertain as to the person in whom the right to
receive the money is vested, it is not absolute. Thus in Durham Brothers v Robertson:14
A building contractor wrote to the claimants in the following terms: ‘Re Building Contract,
South Lambert Road. In consideration of money advanced from time to time we hereby
charge the sum of £1,080, being the price . . . due to us from [the defendant] on the completion
of the above buildings as security for advances, and we hereby assign our interest in the
above-mentioned sum until the money with added interest be repaid to you’.

It was held that the assignment was not within the section. It was purporting to be by
way of charge and so did not transfer the whole debt to the claimants unconditionally,
but only until the advances were repaid. The defendant could not be sure that he was
paying his debt to the right person without knowing the state of accounts between the
assignor and assignee.
A further illustration is furnished by Jones v Humphreys:15
A schoolmaster, in consideration of a loan to him of £15, assigned to the claimant so much
and such part of his income, salary and other emoluments from his employers as should be
necessary and requisite for repayment of the sum borrowed (with interest) or of any further
or other sums in which he might thereafter become indebted to the claimant.

It was held that this was not an absolute assignment, but was a mere security purporting
to be by way of a charge. Even the assignment of a definite part of an existing debt, for
example part of a sum deposited in a bank account,16 is not absolute, but merely a
charge upon the whole debt;17 for otherwise it would be in the power of the original
creditor ‘to split up the single legal cause of action for the debt into as many separate
legal causes of action as he might think fit’,18 thus obviously prejudicing the position
of the debtor. But an assignment which passes the entire interest of the assignor in the
debt (ie, it is a mortgage rather than a charge) is absolute despite the fact that it contains
a proviso for redemption and reassignment on repayment.19 The assignment cannot
prejudice the debtor, who will receive notice first of the assignment, and then of the

14 [1898] 1 QB 765. See also Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC [2001]
EWCA Civ 68, [2001] QB 825.
15 [1902] 1 KB 10. See also Court Line Ltd v Akt Gøtaverken [1984] 1 Lloyd’s Rep 283.
16 Deposit Protection Board v Dalia [1994] 2 AC 367.
17 Williams v Atlantic Assurance Co [1933] 1 KB 81.
18 Durham Brothers v Robertson [1898] 1 QB 765, 774 (Chitty LJ); Forster v Baker [1910] 2 KB 636. See
Hall [1959] CLJ 99. 19 Tancred v Delagoa Bay and East Africa Ry (1889) 23 QBD 239.
 assignment 665

reassignment, if one is made. The debtor will always know to whom the debt is owed.
There may, too, be an absolute assignment of a debt arising out of an existing contract,
even though it does not become payable until a date later than the assignment.20 All
contracted rights are vested from the moment the contract is made, even if they are
not presently enforceable.21

(ii) ‘Writing’
The assignment must be in writing and signed by the assignor; signature by an agent
may be insufficient.22

(iii) ‘Notice’
The Act requires that notice in writing should be given to the debtor. This requirement
has been strictly construed so that in a case where the debtor was unable to read and it
was therefore thought useless to give him written notice, though the assignment was
read over to him and understood by him, there was held to be no legal assignment.23
The written notice, however, need not be in any particular form, provided that it
sufficiently indicates the fact of the assignment.24 The notice takes effect when it is
received by the debtor.25

(iv) Consideration
An assignment under the Act does not require the assignee to have furnished
consideration.26

(v) Rights assignable

The Act refers to ‘any debt or other legal thing in action’.27 This expression is not, as
might appear at first sight, confined to legal choses in action, which were enforceable
only in a Court of Common Law, but extends to choses in equity as well; ie rights
which a Court of Equity would have dealt with as being assignable.28
A ‘legal thing in action’ may therefore be defined as any right the assignment of which
a Court of law or equity would, before the Judicature Act, have recognized or enforced.

(d) equitable assignment

We have seen that assignment was possible in equity but not at common law.29 An
assignment which does not comply with one or more of the requirements of section

20 G & T Earle Ltd v Hemsworth RDC (1928) 44 TLR 758; Care SS Corp v Latin American SS Corp [1983]
QB 1005.
21 Marathon Electrical Mfg Corp v Mashreqbank PSC [1997] CLC 1090, approving Oditah, Legal Aspects
of Receivables Financing (1991) 28–9. 22 Wilson v Wallani (1880) 5 Ex D 155.
23 Hockley v Goldstein (1922) 90 LJ KB 111.
24 Denny, Gasquet & Metcalfe v Conklin [1913] 3 KB 177.
25 Holt v Heatherfield Trust Ltd [1942] 2 KB 1. 26 Re Westerton [1919] 2 Ch 104.
27 See, eg King v Victoria Insurance Co Ltd [1896] AC 250; Investors Compensation Scheme v West
Bromwich BS [1998] 1 WLR 898.
28 Re Pain [1919] 1 Ch 38; Torkington v Magee [1902] 2 KB 427, 430, rev’d on other grounds [1903] 1 KB
646. 29 See above, pp 661–663.
666 limits of the contractual obligation

136(1) of the Law of Property Act 1925 (eg because it is by way of charge or because
no written notice has been given to the debtor) may still be a perfectly good and valid
equitable assignment. ‘The statute does not forbid or destroy equitable assignments
or impair their efficacy in the slightest degree.’30 But whereas a statutory assignee
acquires a legal title to the chose assigned, an assignee in equity does not do so.31 Thus
a statutory assignee is entitled to bring an action without the necessity of joining the
assignor as a party to the action, but an assignee in equity will not always enjoy this
right.

(i) Joinder of the assignor

If the chose in action is equitable, the assignee is entitled to sue without joining the
assignor as a party unless the assignor still has some interest in the suit.32 This may
arise where there is still some question of accounts outstanding between the assignor
and the assignee, or where the assignment consists of a charge upon a trust fund. In
such a case the parties interested must be made parties to the action so that the Court
may make a final adjudication binding them all.
If the chose in action is legal, the assignee cannot normally recover damages or
other relief without joining the assignor as a party to the action, if the assignor is
willing as co-claimant, if not, as co-defendant.33 Moreover the assignor of part of a
debt cannot recover the balance in excess of the sum assigned without joining the
assignee.34 Attempts have been made to justify these requirements on the ground
that they serve to protect the debtor who might otherwise pay the debt to the wrong
person,35 and that they allow an assignor who wishes to dispute the assignment to do
so.36 But the first reason is only relevant where the assignor retains an interest in the
chose, and the second would apply even in the case of a statutory assignment, where
the assignee is entitled to sue alone. Where the assignor retains no interest in the chose
in action and the assignment only fails to be statutory, eg because it was not in writing
or because no notice has been given, a requirement that the assignor be made a party
to the proceedings would seem to serve no useful purpose.37

(ii) Form
No particular form is necessary for an equitable assignment, and, except where the
interest assigned is an equitable interest or trust within section 53(1) of the Law of

30 Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, 461 (Lord Macnaghten). See also Raiffeisen
Zentralbank Österreich AG v Five Star General Trading LLC [2001] EWCA Civ 68, [2001] QB 825.
31 Warner Bros. Records Inc v Rollgreen Ltd [1976] QB 430. 32 See above p 662.
33 Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454; Performing Right Society Ltd v London
Theatre of Varieties Ltd [1924] AC 1; Williams v Atlantic Assurance Co [1933] 1 KB 81; The Aiolos [1983] 2
Lloyd’s Rep 25; Weddell v JA Pearce & Major [1988] Ch 26; Three Rivers DC v Bank of England [1996] QB
292; Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC [2001] EWCA Civ 68; [2001] QB
825 at [60]. 34 Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 1 QB 584.
35 Ibid, 588 (Parker LJ). 36 Durham Brothers v Robertson [1898] 1 QB 765, 770 (Chitty LJ).
37 The Aiolos [1983] 2 Lloyd’s Rep 25, 33–4; Weddell v J A Pearce & Major [1988] Ch 26, 40–1; Raiffeisen
Zentralbank Österreich AG v Five Star General Trading LLC [2001] EWCA Civ 68, [2001] QB 825 at [60].
 assignment 667

Property Act 1925,38 it need not even be in writing. It may be addressed to the debtor
or to the assignee. If it is addressed to the debtor:
It may be couched in the language of command. It may be a courteous request. It may assume
the form of mere permission. The language is immaterial if the meaning is plain. All that is
necessary is that the debtor should be given to understand that the debt has been made over
by the creditor to some third person.39

In Thomas v Harris,40 it was addressed to the assignee:

A father handed to his son certain insurance policies on his life with the request that the son
should erect a tombstone in his memory, using the policy monies for this purpose. No notice
was given to the insurance company.

It was held that, by this informal act, the father had assigned the policies to his son by
way of charge for the cost of the tombstone. There was a valid equitable assignment.
While no formalities are required, it has been said in recent cases that there must
be ‘an outward expression by the assignor of his intention to make an immediate
disposition of the subject matter of the assignment’.41

(iii) Notice
No notice to the debtor is necessary; the assignment is effective as between assignor
and assignee from the moment it is made.42 Notice is nevertheless advisable for several
reasons. In the first place, the assignment will not bind the debtor until notice has
been received, not necessarily in writing, of the assignment. So, if, before notice, the
debtor pays the assignor, that is a good discharge of the debt43 but if the debtor pays the
assignor after notice that is no answer to a claim by the assignee.44 Secondly, notice to
the debtor is necessary to establish priority under the rule in Dearle v Hall, which we
shall deal with later.45 Thirdly, notice to the debtor will prevent the debtor from setting
up new equities which may mature after the receipt of the notice.

(iv) Consideration
The question whether, as between assignor and assignee, consideration is necessary
in an equitable assignment is a difficult one.46 Equity will not assist a volunteer, and

38 Grey v IRC [1960] AC 1; Oughtred v IRC [1960] AC 206. Cf Vandervell v IRC [1967] 2 AC 291; Neville v
Wilson [1997] Ch 144.
39 Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, 462 (Lord Macnaghten). See also Allied
Carpets Group Plc v MacFarlane [2002] EWHC 1155, [2002] PNLR 38. But the assignment must either have
been made by prior arrangement with, or be communicated to, the assignee: Re Hamilton (1921) 124 LT
737. 40 [1947] 1 All ER 444.
41 Phelps v Spon-Smith & Co [2001] BPIR 326 at [33]; Coulter v Chief of Dorset Police [2003] EWHC 3391
(Ch), [2004] 1 WLR 1425; Finlan v Eyton Morris Winfield [2007] EWHC 914 (Ch), [2007] 4 All ER 143.
42 Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, 462.
43 Stocks v Dobson (1853) 4 De GM & G 15.
44 Deposit Protection Board v Dalia [1994] 2 AC 367, 387 (CA), rev’d on other grounds, ibid.
45 Below, pp 671–672.
46 For a discussion of this subject see Megarry (1943) 59 LQR 58; Hollond (1943) 59 LQR 129; Sheridan
(1955) 33 Can Bar Rev 284; Hall [1959] CLJ 99; Marshall, The Assignment of Choses in Action (1950), 109;
Smith, The Law of Assignment (2007) paras 7.78–7.83.
668 limits of the contractual obligation

it has been said that ‘for every equitable assignment . . . there must be consideration.
If there be no consideration, there can be no equitable assignment’.47 This statement
is, however, much too wide, and it is by no means true to say that value is required in
every case.
Valuable consideration for this purpose may consist in any consideration sufficient to
support a simple contract.48 Thus if A assigns to B the benefit of a contract in satisfaction
of a debt owed by A to B, this is good consideration for the assignment. Similarly, if
the assignment is by way of security for an existing debt in such circumstances that
a forbearance to sue will be implied on the part of the assignee, this is sufficient to
give the assignee a right to sue the debtor.49 If consideration has been furnished by
the assignee, no problem will arise; it is where the assignment is gratuitous that some
doubt exists.
It is well established that a mere agreement to assign a chose in action must, like
other contracts, have consideration to support it; if it is gratuitous, it is unenforceable.50
An assignment of a future chose in action therefore requires consideration.51 A future
chose in action is a mere expectancy which may or may not materialize, such as a share
of a trust fund which will be received only if an uncertain event occurs,52 damages in
an action which is still pending, 53 or the right to payments falling due under contracts
not yet made.54 Such an assignment can only operate as a contract to assign when
the subject-matter comes into existence, for ‘nothing passes even in equity until the
property comes into present existence’;55 it is therefore unenforceable unless value has
been given.
But just as it is possible to make a gift of a chattel, so also it is possible to make a gift
of (ie to transfer without consideration) a chose in action, provided that the transfer is
effected in whatever manner is necessary for a transfer of that particular chose. Such a
transfer, however, must, as it is said, be ‘complete and perfect’, for if anything remains
to be done by the donor in order to give effect to the donor’s intention, the gift will fail.
Equity will not intervene to perfect an imperfect gift.56 The question of consideration
in equitable assignments turns, therefore, on whether any act remains to be done by
the assignor in order to perfect the assignment; the assignor must have made every
effort to complete the transaction.57
If the subject-matter assigned is an equitable chose in action, the assignment is
complete when the assignor has unequivocally, even though informally, expressed an

47 Glegg v Bromley [1912] 3 KB 474, 491 (Parker J).

48 Currie v Misa (1875) LR 10 Ex 153; Leask v Scott (1877) 2 QBD 376; (1943) 59 LQR 208.
49 Glegg v Bromley [1912] 3 KB 474. 50 Re McArdle [1951] Ch 669.
51 Tailby v Official Receiver (1888) 13 App Cas 523.
52 Re Ellenborough [1903] 1 Ch 697. See also Norman v Federal Commissioner of Taxation (1963) 109 CLR
9 (future interest and dividends). 53 Glegg v Bromley [1912] 3 KB 474.
54 E Pfeiffer Weinkellerei-Weineinkauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150; Annangel
Glory Comp Nav SA v M Golodetz, Middle East Marketing Corp Ltd [1988] 1 Lloyd’s Rep 45.
55 Ibid, 490 (Parker J).
56 A similar principle is that in Milroy v Lord (1862) 4 De GF & J 264, 274. See also Pennington v Waine
[2002] EWCA Civ 227, [2002] 1 WLR 2075.
57 Fortescue v Barnett (1834) 3 My & K 36; (1943) 59 LQR 58, 61, 129; Kekewich v Manning (1851) 1 De F
M & G 176; [1959] CLJ 99.
 assignment 669

intention that the chose should henceforth belong to the assignee.58 The assignee is
then, as we have seen, in a position to enforce the right to the chose without more ado:
‘such an assignment without any valuable consideration is not a mere agreement but
is an actual transfer of the equitable right’.59 But if the subject of the assignment is a
legal chose in action, can a merely equitable assignment of it be said to be complete
and perfect given that a statutory assignment could have been made which would have
entitled the assignee to sue in its own name? That is the question on which the law is
still not altogether clear. But as noted,60 it is not now necessary for the assignee to ask
the Court to compel the assignor to join as co-claimant, for an unwilling assignor can
be made a defendant. In the result, an equitable assignee of a legal chose in action is
able to enforce the rights under the contract against the debtor without seeking the
aid either of the assignor or of the Court. In that sense the assignor has done all those
things which it and only it could do61 and there seems no reason why the assignment
should not be regarded as complete and perfect without consideration.62
There may, of course, be other reasons why a particular equitable assignment is not
complete and perfect, eg because the assignor fails to complete the transfer of shares or
stock in the sole recognized form,63 or because the necessary consent of a third party
to the transfer has not been obtained.64 But the better view is that, as between assignor
and assignee, an equitable assignment of an existing chose in action, whether legal or
equitable, is not rendered ineffective merely because there is no consideration.

(e) assignee takes ‘subject to equities’

Whether the assignment of a chose in action is statutory65 or equitable,66 the assignee
takes ‘subject to equities’, that is, subject to all such defences as might have prevailed
against the assignor. An assignee of contractual rights must therefore take care to
ascertain the exact nature and extent of those rights; for no more than the assignor has
to give can be taken and an assignee cannot be exempt from the effect of transactions
by which the assignor may have lessened or invalidated the rights assigned.

(i) Claims arising out of contract assigned

The debtor is entitled to raise, by way of defence to an action brought by the assignee,
all claims that directly arise out of the contract or transaction which forms the

58 Voyle v Hughes (1954) 2 Sm & G 18; Re Wale [1956] 1 WLR 1346; cf Re Earl of Lucan (1890) 45 Ch D 470
where an assignment which failed to create a complete and perfect charge on a reversionary interest was held
to be unenforceable for want of consideration.
59 Voyle v Hughes (1954) 2 Sm & G 18; Letts v IRC [1957] 1 WLR 201. 60 Above, p 666.
61 Corin v Patton (1990) 169 CLR 540 (High Court of Australia). Cf Olsson v Dyson (1969) 120 CLR 365.
62 Holt v Heatherfield Trust Ltd [1942] 2 KB 1; Harding v Harding (1886) 17 QBD 442; Re Patrick [1891] 1
Ch 82; Re Griffin [1899] 1 Ch 408; German v Yates (1915) 32 TLR 52; Re Rose [1952] Ch 499; Pulley v Public
Trustee [1956] NZLR 771; Mascall v Mascall (1984) 50 P & CR 119.
63 Milroy v Lord (1862) 4 De GF & J 264. But such an ‘assignment’ could nevertheless take effect as a
declaration of trust. 64 Re Fry [1946] 312.
65 The wording of s 136 of the Law of Property Act 1925 is ‘subject to equities having priority over the right
of the assignee’: see above, p 663.
66 Mangles v Dixon (1852) 3 HLC 702, 731; Crouch v Crédit Foncier of England (1873) LR 8 QB 374, 380.
670 limits of the contractual obligation

subject-matter of the assignment, whether such claims accrue before or after notice
of the assignment is received. So, for example, despite the fact that the assignee is
wholly innocent and has given value for the contractual rights assigned, the debtor
can rescind the contract on the ground that it was induced to enter into it by the fraud
of the assignor67 or set off a claim for unliquidated damages for breach of the contract
by the assignor,68 or obtain a stay where the assignor’s action would have been stayed
for failure to pay the costs of an earlier action.69
But a debtor with a tort claim against the assignor cannot set that claim up against
an innocent assignee. The debtor is restricted to claims which arise out of the contract
itself and do not exist independently of it. For instance, while, as we have seen, the
debtor can assert a right to rescind a contract because of the fraud of the assignor, a
claim for damages for fraud cannot be asserted by the debtor in proceedings by the
assignee. Thus in Stoddart v Union Trust:70
The Union Trust were fraudulently induced by one Price to buy a newspaper called ‘Football
Chat’ for the sum of £1,000, of which £200 was to be paid immediately, and the balance of
£800 by instalments. Price assigned this £800 to the claimant, Stoddart, who took in good
faith without knowledge of the fraud. When sued by Stoddart, the Union Trust pleaded
that they had sustained damage exceeding £800 and that therefore no money was owed by
them.

The Court of Appeal rejected this contention and held that the Union Trust could not
set off their claim for damages against the assignee. Kennedy LJ said:71
The defendants are claiming damages for the fraud which induced them to enter into the
contract on the footing that they are liable under it, and at the same time seeking to repudiate
their obligation under it. The claim for damages is a personal claim against the wrong-doer;
it is something dehors the contract.

The debtor may also not recover from the assignee hire paid to the assignee, even
though the hire was to be repaid by the assignor to the debtor if unearned.72

(ii) Claims arising out of other transactions

Where a claim arises out of a contract or transaction other than the one which forms
the subject-matter of the assignment, the debtor can set off such a claim against the
assignee if but only if the claim accrues73 before the debtor has notice of the assignment.
An example is where money on deposit with a bank is assigned, but the bank has
a claim against the assignor for taking up and paying bills of exchange.74 The effect
of notice is, therefore, in this case to prevent the debtor from setting up against the

67 Graham v Johnson (1869) LR 8 Eq 36; Banco Santander SA v Bayfern Ltd [2000] 1 All ER (Comm) 776
(letter of credit).
68 Young v Kitchin (1878) 3 Ex D 127; Newfoundland Government v Newfoundland Ry (1888) 13 App Cas
199. See also Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] AC 1056 (if debtor’s claim
against assignor could not be set off against debt, it cannot be set off against assignee).
69 Sinclair v British Telecommunications plc [2000] 2 All ER 461, 469. 70 [1912] 1 KB 181.
71 Ibid, at 194. 72 Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161.
73 Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578.
74 Re Pinto Leite and Nephews [1929] 1 Ch 221.
 assignment 671

assignee any fresh equities which may mature. ‘After notice of assignment of a chose
in action the debtor cannot by payment or otherwise do anything to take away or
diminish the rights of the assignee as they stood at the time of the notice’.75

(iii) Assignee cannot recover more than assignor

A further aspect of the idea that an assignee takes an assignment ‘subject to equities’ is
the principle that an assignee cannot recover more from the debtor than the assignor
could have done had there been no assignment.76 In recent years, the principle has
given rise to particular difficulties where damaged or defective buildings have been
sold along with the assignment of claims in contract or tort relating to the building.
But the problem of damages disappearing into some ‘legal black hole’ has now been
solved by the Court of Appeal’s clarification in Offer-Hoar v Larkstore Ltd 77 that, in
applying in this context the principle that the assignee cannot recover more than the
assignor, one should be asking what damages the assignor could itself have recovered
had there been no assignment and had there been no transfer of the land to the assignee.
Substantial damages were therefore recoverable by the assignee where an assignor had
sold its land to an assignee along with, or prior to, the assignment of the relevant cause
of action relating to the land.
The problem has, in any event, normally been circumvented because of the Courts’
recognition that, where a third party is, or will become, owner of the defective or
damaged property, there is an exception to the general rule that a contracting party
can recover damages only for its own loss and not the loss of the third party.78 Where
the exception applies, the contracting party (the assignor) is entitled to substantial
damages for the loss suffered by the third party (the assignee): by the same token,
there is no question of an award of substantial damages to the assignee infringing the
principle that the assignee cannot recover more than the assignor.

(f) priorities
It may happen that an assignor makes two or more assignments of the same chose in
action (whether statutory or equitable) to different assignees. If the fund is insufficient
to meet all the claims, a problem of their respective priorities will arise. The rule is that
assignments have priority according to the priority of notice.79 The successive assignees
of an obligation rank as to their title, not according to the dates at which the creditor
assigned the contractual rights to them respectively, but according to the dates at
which notice was given to the party to be charged. This rule is generally known as the

75 Roxburghe v Cox (1881) 17 Ch D 520, 526 (James LJ).

76 Dawson v Great Northern & City Railway Co [1905] 1 KB 260.
77 [2006] EWCA Civ 1079, [2006] 1 WLR 2926. Th is was applied in Landfast (Anglia) Ltd v Cameron
Taylor One Ltd [2008] EWHC 343 (TCC), (2008) 117 Con LR 53.
78 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; Darlington BC v Wiltshier
Northern Ltd [1995] 1 WLR 68; Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518. The
exception is based on Dunlop v Lambert (1839) 6 Cl & F 600 and The Albazero [1977] AC 774. See above,
p 619. 79 Marchant v Morton, Down & Co [1901] 2 KB 829.
672 limits of the contractual obligation

rule in Dearle v Hall.80 The reason lying behind it seems to be that, by failing to give
notice to the debtor, the first assignee has enabled the assignor to make a second, and
possibly fraudulent, assignment to the subsequent assignee. Accordingly, even though
the first assignee’s assignment was first in time, it ought to be postponed to the later
assignment.
But the first assignee will only be postponed to a subsequent assignment of which
prior notice has been given, if, at the time of the first assignment, the second assignee
had no knowledge of the previous assignment.81 A second assignee who had such
knowledge, could scarcely claim to have been misled.
Except where the interest assigned is an equitable interest in land or in personalty,
when the notice must be in writing,82 no special form is required for a notice to gain
priority. Provided it is clear and unequivocal, and brought home to the party charged,
oral notice is sufficient. Even a notice in a newspaper read by the debtor has been held
to suffice.83 If the interest assigned is an equitable interest in a trust fund, it is advisable
to give notice to all the trustees in order to be perfectly safe; otherwise notice given to
one trustee alone may determine with his death or resignation.84

(g) rights not assignable

Some choses in action are not assignable, and not every right which arises under or out
of a contract can be assigned. These restrictions apply to both statutory and equitable
assignments.

(i) Assignment prohibited by contract

In the first place, the contract itself may expressly provide that the rights arising under
it, or some of them, shall not be assignable. In such a case, a purported assignment
of those rights will be invalid as against the debtor,85 although it may be effective
as between assignor and assignee86 and enable the assignee to sue the assignor for
breach of contract.87 It has also been held that a clause prohibiting assignment does not
necessarily prohibit a declaration of trust in favour of a third party.88

80 (1823) 3 Russ 1. See generally E Pfeiffer Weinkellerei-Weinenkauf GmbH & Co v Arbuthnot Factors Ltd
[1988] 1 WLR 150; Smith, The Law of Assignment (2007) paras 15.65–15.122; Oditah (1989) 9 OJLS 513; De
Lacy [1999] Conv 311.
81 Re Holmes (1885) 29 Ch D 786. 82 Law of Property Act 1925, s 137(3).
83 Lloyd v Banks (1868) LR 3 Ch App 488. 84 Re Phillips’ Trusts [1903] 1 Ch 183.
85 Helstan Securities Ltd v Hertfordshire CC [1978] 3 All ER 262; Linden Gardens Trust Ltd v Lenesta
Sludge Disposals Ltd [1994] 1 AC 85, 103; Hendry v Chartsearch Ltd [1998] CLC 1382; British Energy Power &
Energy Trading Ltd v Credit Suisse [2007] EWHC 1428 (Comm), [2007] 2 Lloyd’s Rep 427; Ruttle Plant Ltd v
Secretary of State for the Environment and Rural Affairs [2007] EWHC 2870 (TCC), [2008] 2 All ER (Comm)
264; Goode (1979) 42 MLR 553; Allcock [1983] CLJ 328; Turner [2008] LMCLQ 306; Goode [2009] LMCLQ
330; Akseli [2009] JBL 650.
86 Re Turcan (1888) 40 Ch D 5; Re Westerton [1919] 2 Ch 104. Contrast Spellman v Spellman [1961] 1 WLR
921, 928, but cf at 925.
87 R v Chester & North Wales Legal Aid Office, ex p Queensferry Ltd [1998] 2 BCLC 436; Bawejem Ltd v MC
Fabrications Ltd [1999] 1 All ER (Comm) 377.
88 Don King Productions Inc v Warren [2000] Ch 291; Barbados Trust Co Ltd v Bank of Zambia [2007]
EWCA Civ 148, [2007] 1 Lloyd’s Rep 494, noted by Smith (2008) 124 LQR 517.
 assignment 673

(ii) Bare right of action

Secondly, it is said that by reason of the rules against champerty and maintenance89 a
mere right to sue for damages (a ‘bare right of action’) cannot be assigned.90 However,
rights of action arising out of or incidental to rights of property can be assigned with
the property transferred. Thus the purchaser of an estate was permitted to sue for
damages for breaches of covenant committed by the vendor’s tenants before the sale,91
and the purchaser of land injuriously affected by a railway was permitted to claim
compensation in respect of damages already sustained.92 Again, a debt, as opposed to
a mere right to sue for damages, is assignable:93 the practice of ‘selling’ debts to debt-
collecting agencies (‘factoring’) could not be carried on if the law were otherwise.
Further, in Trendtex Trading Corporation v Crédit Suisse,94 the House of Lords made
it clear that even an assignment of a bare right of action may be upheld if the assignee
has a ‘genuine commercial interest’ in taking the assignment. An assignment to an
insurer, who has indemnified the insured under a policy of insurance, of the insured’s
right of action has been held valid on the ground that the insurer has a legitimate
interest in recouping the loss sustained by paying out on the policy.95 Likewise, an
assignee who has financed the transaction giving rise to the right of action assigned
will have a legitimate commercial interest in taking the assignment if its sole object is
to enable the assignee to recoup its loss on the transaction.96
On the other hand, in the Trendtex case, the purchase with a view to profit of a right
of action arising out of the breach and repudiation of a letter of credit was held to be
invalid in English law as ‘savouring of maintenance’, since it involved trafficking in
litigation.97 But where the assignee has a genuine commercial interest an assignment
by a party unable to fund litigation to recover damages for breach of contract to a
person who can, where the object and effect of the assignment is to enable the litigation
to be funded, is not contrary to public policy or unlawful98 unless there is an obvious
disproportion between the assignee’s true interest and what it bargained to receive
under the assignment.99

89 See above, p 390. Th is principle is unaffected by the abolition of the torts and crimes of champerty and
maintenance: see Criminal Law Act 1967, s 14(2).
90 De Hoghton v Money (1866) LR 2 Ch App 164; May v Lane (1894) 64 LJ QB 236; Torkington v McGee
[1902] 2 KB 427, 433 (decision rvsd [1903] 1 KB 644); Defries v Milne [1913] 1 Ch 98. Cf Glegg v Bromley [1912]
3 KB 474 (fruits of action).
91 Defries v Milne [1913] 1 Ch 98; Ellis v Torrington [1920] 1 KB 399.
92 Dawson v GN & City Ry [1905] 1 KB 260.
93 Ellis v Torrington [1920] 1 KB 399, 411; Camdex International Ltd v Bank of Zambia [1998] QB 22.
94 [1982] AC 679, 694, 696, 697, 703. For criticism of the Trendtex test and a call for a reconsideration of
this area of the law so that assignments of rights to compensation are recognized as valid, subject to a few
specific exceptions, see Tettenborn [2007] LMCLQ 392.
95 Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101.
96 Trendtex Trading Cpn v Crédit Suisse, above, n 94, 694, 696, 697, 703 (but not if the object is to sell on to
and divide the ‘spoils’ with a subsequent assignee).
97 See also Re Trepca Mines Ltd (No 2) [1963] Ch 199; Laurent v Sale & Co [1963] 1 WLR 829; Re Oasis
Merchandising Services Ltd [1998] Ch 170.
98 Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1; Circuit Systems Ltd v Zuken-Redac (UK) Ltd
[1997] 1 WLR 721.
99 Advanced Technology Structures Ltd v Cray Valley Products Ltd [1993] BCLC 723.
674 limits of the contractual obligation

(iii) Personal relationship

Thirdly, where there is a relationship of personal confidence between the parties, or
their personal qualifications are of the essence of a contract, one party cannot assign
the right to the performance of the obligations of the other, since to do so would be to
alter the nature of the contract without the other’s consent.
So, for example, a cake manufacturer was held not to be able to assign the right to
be supplied with ‘all the eggs he should require for manufacturing purposes for one
year’ to a new company on the amalgamation of the business.100 What the supplier
had undertaken to do was to supply all the eggs that the manufacturer, and not all
that any other person or company, should require. Moreover, the manufacturer had
undertaken not to buy eggs elsewhere and this introduced a personal element which
was most material to the contract. This undertaking would not be binding on the
assignee, so that the supplier would be deprived of its benefit. For a similar reason, a
motor insurance policy cannot be assigned to the purchaser if the car is sold, unless
the insurance company consents to the assignment, for that would be to ‘thrust a
new assured upon a company against its will’.101 On the other hand, where it appears
from the nature of the contract that no special personal considerations are involved,
so that it can make no difference to the party on whom an obligation rests whether
the performance is rendered for the original contracting party or another, then the
right to the performance of an obligation may be assigned.102 Moreover, as noted, the
fact that a contract is non-assignable has been held not to preclude the making of a
declaration of trust of the benefit of the contract for a third party.103
The paradigm example of a personal contract is a contract of employment but,
although at common law an employer could not assign its rights under contracts
of employment with employees if it transferred the business without consent,104
the position has been altered by legislation. On transfers of a business by sale, other
disposition or by operation of law (eg on insolvency), there is a statutory novation by
which all rights, powers, duties, and liabilities under a contract of employment operate
between the employee and the transferee105 unless the employee gives notice that he or
she objects to being employed by the transferee.

(iv) Miscellaneous
Finally, for reasons of public policy, no assignment may be made of the salary of a
public officer paid out of national funds (for example of a civil servant’s pay),106 of
maintenance granted to a wife,107 or of benefits under social security legislation.108

100 Kemp v Baerselman [1906] 2 KB 604.

101 Peters v General Accident and Life Assurance Corp Ltd [1937] 4 All ER 628, 633 (Goddard J).
102 Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414; Shayler v Woolf
[1946] Ch 320. 103 Don King Productions Inc v Warren [2000] Ch 291.
104 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, 1026; Newns v British Airways (1992)
21 IRLR 575, 576.
105 Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006 No 246).
106 See above, p 388. 107 Re Robinson (1884) 27 Ch D 160.
108 eg Social Security Administration Act 1992, s 187.
 assignment 675

(h) liabilities cannot be assigned

The burden of a contract can never be assigned without the consent of the other party
to the contract.109 Everybody has a right to choose who should perform a contractual
obligation for him so that a promisee should not be compelled, by reason of an
agreement between the promisor and a third party, to accept any but the promisor as
the person liable on the promise.
The rule is illustrated by the case of Robson and Sharpe v Drummond:110
S hired a carriage to D for 5 years, undertaking to paint it every year and to keep it in repair.
R was the partner of S, but the contract was made with S alone. After 3 years S retired from
business, and D was informed that R was thenceforth answerable for the painting and repair
of the carriage and would receive the payments. D refused to deal with R, and returned the
carriage.

It was held that he was entitled to do so. Lord Tenterden stated:111

[T]he defendant may have been induced to enter into this contract by reason of the personal
confidence which he reposed in [S], and therefore have agreed to pay money in advance.
The . . . defendant had a right to object to its being performed by any other person, and to say
that he contracted with [S] alone, and not with any other person.

Parke J stated that D ‘had a right to have the benefit of the judgment and taste of [S] to
the end of the contract’.112
Although liabilities cannot be assigned, the ‘conditional benefit’ principle means that
rights assigned may themselves be qualified or conditional, the condition being that
certain restrictions be observed or certain obligations assumed.113 In such situations,
an assignee who takes the benefit of the contract must also bear the burden.114 The
question whether a contract creates a conditional benefit is one of construction.115

2. vicarious performance
At first sight, an exception to the rule that there can be no assignment of liabilities is
that there may be circumstances which make it permissible for a contracting party to
perform its side of the contract by getting someone else to do in a satisfactory fashion
the work for which the contract provides. If A undertakes to do work for B which needs
no special skill, and it does not appear that A has been selected with reference to any
personal qualification, B cannot complain if A sub-contracts the work to an equally

109 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, 103.
110 (1831) 2 B & Ad 303.
111 Ibid, 307. 112 Ibid, 308.
113 Tolhurst v Associated Portland Cement Manufacturers Ltd [1903] AC 414; Tito v Waddell (No 2) [1977]
Ch 106, 290–307. See also Pan Ocean Shipping Co Ltd v Creditcorp Ltd, The Trident Beauty [1994] 1 WLR
161, 171.
114 For doubt cast on a wide ‘pure principle of benefit and burden’, see Rhone v Stephens [1994] 2 AC 130.
115 Tito v Waddell (No 2) [1997] Ch 106, 302.
676 limits of the contractual obligation

competent subcontractor. Such cases are sometimes loosely referred to as assignments

of a contractual liability, but they are really instances of the vicarious performance of a
contract. This is because the original contracting party remains liable on the contract
and, as a rule, is the only person entitled to sue for payment. This is clearly stated by
Lord Greene MR in Davies v Collins:116
In many contracts all that is stipulated for is that the work shall be done and the actual hand
to do it need not be that of the contracting party himself; the other party will be bound to
accept performance carried out by somebody else. The contracting party, of course, is the
only party who remains liable. He cannot assign his liability to a subcontractor, but his
liability in those cases is to see that the work is done, and if it is not properly done he is liable.
It is quite a mistake to regard that as an assignment of the contract; it is not.

The circumstances in which a contract may be vicariously performed, which are similar
to those which determine whether a contractual right is assignable, are discussed in
Chapter 12.

3. novation
Another way by which the benefit or burden of a contract may be transferred to a third
party is with the co-operation of all the parties.
If A owes M £100, and M owes X £100, it may be agreed between all three that A shall pay X
instead of M, which thus terminates M’s legal relationship with either party. In such a case
the consideration for A’s promise to pay X is the discharge by X of M’s debt; for M’s discharge
of A, the promise of A to pay X; for X’s discharge of M, the discharge by M of A’s debt to M.

This is in effect the rescission of one contract and the substitution of a new one in which
the same acts are to be performed by different parties. This is called a novation and
it can only take place by an agreement supported by consideration117 between all the
parties. Novation is not, therefore, ‘compulsory’;118 and precisely because it involves
the consent of all three parties it cannot properly be regarded as an assignment.
A mere written authority from the creditor to the debtor (ie from M to A) to pay
the amount of the debt over to a third party, even though the debtor acknowledges
in writing the authority given, does not entitle the third party to sue for the amount
unless the third party has furnished consideration by an express promise to release the
creditor from the debt.119

116 [1945] 1 All ER 247, 249. See also Stewart v Reavell’s Garage [1952] 2 QB 545.
117 Commissioners of Customs and Excise v Diners Club Ltd [1988] 2 All ER 1016, 1023, aff ’d [1989] 1 WLR
1196.
118 Approved in Re United Railways of the Havana and Regla Warehouses Ltd [1960] Ch 52, 84, rev’d in
part on other grounds sub nom Tomkinson v First Pennsylvania Banking and Trust Co [1961] AC 1007.
119 Liversidge v Broadbent (1859) 4 H & N 603. But cf Walker v Rostron (1842) 9 M & W 411 and Shamia
v Joory [1958] 1 QB 448.
 assignment 677

4. negotiable instruments
Under the most favourable circumstances the assignment of a contract binds the party
chargeable to the assignee only when notice is given, and subject always to the rule that
a better title than the assignor possesses cannot be given to the assignee.
There is, however, a class of promises in writing, the benefit of which can be
transferred in such a way that the promise may be enforced by the transferee of the
benefit without previous notice to the debtor, and without the risk of being met by
defences which would have been good against the transferor of the promise. This class
of contracts is known as ‘negotiable instruments’,120 in which the process of transfer is
termed ‘negotiation’.121
For an instrument to be negotiable these features seem to be essential:
In the first place, the title to it passes by delivery, or, if it is made to order (that is to
say, either expressed to be so payable, or expressed to be payable to a particular person)
then by the indorsement of the payee completed by delivery.
Secondly, the written promise which it contains gives a right of action to the holder
of the document for the time being, though the holder and the fact of the holding may
be alike unknown to the promisor.
Thirdly, a bona fide holder for value without notice is not prejudiced by defects in
the title of the assignor; that holder does not hold ‘subject to equities’.
Fourthly, the instrument is of a type recognized by the law as negotiable. The parties
cannot confer negotiability upon a contract which is not recognized by the law to
possess this quality.

(a) types of negotiable instrument

Certain instruments are negotiable by the custom of merchants recognized by the
Courts; others are negotiable by statute. The operation of negotiability can best be
illustrated by reference to some of these.

(i) Cheques
A cheque is a type of bill of exchange but is governed by its own special rules. In
particular, since the Cheques Act 1992, most cheques are not negotiable.122 A cheque
is an unconditional order, addressed by its drawer to a banker, directing the banker
to pay on demand a certain sum to the person named on the face of the cheque or the
bearer. If the cheque is made payable to ‘Bearer’ or to ‘A or Bearer’, the mere delivery
of it by one holder to another suffices as negotiation and the holder for the time being
is entitled to present the cheque for payment without any further formality. But if it
is made payable to ‘A or Order’, it must first be indorsed. Until it is indorsed, a simple

120 See generally Chalmers and Guest, Bills of Exchange and Cheques (17th edn, 2009); Barak (1983) 18
Israel L Rev 49. 121 See below, p 680, n 136 for the separate legal notion of ‘transferability’.
122 Below, p 682.
678 limits of the contractual obligation

delivery does not suffice.123 For the cheque to be negotiated, A must indorse it, and this
is done by A signing on the back.
If the indorsement consists in the mere signature of A, the cheque is said to be
indorsed ‘in blank’. It then becomes a cheque payable to bearer, that is, negotiable
by mere delivery, for A has given his order, though it is an order not mentioning
any particular person. The cheque is in fact indorsed over to anyone who becomes
possessed of it.
If the indorsement takes the form of an order in favour of B, written on the cheque
and signed by A, ie ‘B or Order’, it is called a ‘special’ indorsement. Its effect is to
transfer to B the right to demand payment of the cheque. Once again, B must now
indorse the cheque, and may do so specially or in blank. Thus the cheque may pass
through several hands before it is ultimately presented for payment.

(ii) Bills of exchange

A bill of exchange is an unconditional order in writing, addressed by A to B, requiring
B to pay a sum of money to or to the order of a specified person or to bearer. Usually
this specified person is a third person, C, but it need not be. A may draw a bill upon B
in favour of A. The order may be addressed to B because B is buying goods from A and
it may have been arranged that ‘payment’ for the goods is to be made to C or directly
to A by means of a bill instead of cash. Since bills of exchange are here considered
merely as illustrative of negotiability, we will adopt the most usual, as it is the most
convenient, form of illustration.
A directs B to pay a sum of money ‘to the Order of C’, or to ‘Bearer’. A is then called
the drawer of the bill, and by drawing it promises to pay the sum specified in it either
to C or to any subsequent holder into whose hands it may come if B does not ‘accept’
the bill or, having accepted it, fails to pay.
B, upon whom the bill has been drawn, is called the drawee; but on assenting to pay
the sum specified, B is said to become the ‘acceptor’. Such assent (or ‘acceptance’) must
be expressed by writing on the bill and signed by B. By its acceptance B promises to
pay the sum specified on presentation of the bill and is primarily liable to make that
payment. The payee of the bill, in our example C, may transfer it to another person
before it has been accepted, and in that case it is for the transferee to present it to B
for acceptance. Acceptance may be general or qualified. A general acceptance assents
without qualification to the order of the drawer; but the person presenting the bill may
be willing to take one qualified by conditions as to amount, time, or place,124 though
this releases the drawer or any previous indorser from liability unless they assent to
the qualification.
The rules relating to payment, indorsement, and transfer by delivery are similar to
those concerning cheques, and given above. If the bill has been accepted, the holder

123 The Cheques Act 1957 removed the necessity for the indorsement of cheques paid into the account of
the payee, but this does not apply where it is sought to negotiate the instrument.
124 But by the Bills of Exchange Act 1882, s 19(2) a condition as to payment at a particular place is not a
qualified acceptance ‘unless it expressly states that the bill is to be paid there only, and not elsewhere’. Hence
the common form ‘accepted payable at X Bank’ is not a qualified acceptance.
 assignment 679

may demand payment from the acceptor. But in the event of default in acceptance or
payment, the holder may also demand compensation either from the original drawer,
or from any indorser; for an indorser is to all intents and purposes a new drawer,
and becomes therefore an additional security for payment to the holder for the time
being.
The contract on the bill of exchange is independent, or autonomous, from the
underlying transaction. So the fact, for example, that the payee has broken the
underlying transaction to which the payment relates, and is therefore liable for damages
on that underlying transaction, is not a defence to a claim on the bill of exchange.125
In modern business practice, the primary function of a bill of exchange is to enable
a seller or exporter to obtain cash as soon as possible after the despatch of the goods,
and yet enable the buyer or importer to defer payment until the goods reach him, or
later. Credit can be obtained if the bill is accepted by a bank, upon whom the parties
can rely, and bills can be bought and sold on the discount market.

(iii) Promissory notes

A promissory note is an unconditional promise in writing made by one person to
another signed by the maker, engaging to pay, on demand or at a fi xed or determinable
future time, a sum certain in money, to, or to the order of, a specified person or to
bearer.126 A Bank of England note is a promissory note which by statute is made legal
tender.127
Bills of exchange were negotiable by the law merchant; promissory notes were
originally made so by the Promissory Notes Act 1704; both classes of instrument are
now governed by the Bills of Exchange Act 1882.128

(iv) Instruments negotiable by custom

Certain other instruments are negotiable by the custom of merchants recognized by
the Courts; such are foreign bonds expressed to be transferable by delivery,129 and
scrip certificates which entitle the bearer to become holder of such bonds or shares
in a company.130 The character of negotiability may from time to time be attached to
other instruments by the custom of merchants proved to the satisfaction of the Courts;
ie where notorious, certain, reasonable, and general.131 The categories of negotiable
instruments are never closed.
In Goodwin v Robarts132 the Court of Exchequer Chamber rejected the view that
a mercantile custom of recent origin was insufficient to attach to an instrument the
character of negotiability:

125 Nova (Jersey) Knit Ltd v Kammgarn Spinnerei [1977] 1 WLR 713; Cebora SNC v SIP (International
Products) Ltd [1976] 1 Lloyd’s Rep 271.
126 Bills of Exchange Act 1882, s 83(1). 127 Currency and Bank Notes Act 1954, s 1.
128 As amended. 129 London Joint Stock Bank v Simmons [1892] AC 201.
130 Goodwin v Robarts (1875) 1 App Cas 476; Rumball v Metropolitan Bank (1877) 2 QBD 194.
131 See above, pp 157–159.
132 (1875) LR 10 Ex 337, aff ’d (1875) 1 App Cas 476. See also Bechuanaland Exploration Co Ltd v London
Trading Bank Ltd [1898] 2 QB 658 and Edelstein v Schuler & Co [1902] 2 KB 144; Bosanquet and Palmer
(1899) 15 LQR 130, 245.
680 limits of the contractual obligation

G purchased scrip issued by the agent of a foreign government from a broker, but allowed
the broker to remain in possession of it. The broker fraudulently pledged the scrip to R in
order to secure a loan. R took the scrip in good faith and, upon the default of the broker, sold
it. If the scrip was negotiable, R acquired a good title; if not, R would be liable to G as true
owner.

It was held that the scrip was negotiable according to the custom of merchants.
Dealing with the argument that this was a new and unrecognized type of negotiable
instrument, Cockburn CJ said:133
We are of the opinion that [this argument] cannot prevail. It is founded on the view that the
law merchant thus referred to is fi xed and stereotyped, and incapable of being expanded and
enlarged so as to meet the wants and requirements of trade in the varying circumstances of
commerce. It is true that the law merchant is sometimes spoken of as a fi xed body of law,
forming part of the common law, and as it were coeval with it. But as a matter of legal history,
this view is altogether incorrect. The law merchant thus spoken of with reference to bills of
exchange and other negotiable securities, though forming part of the general body of the
lex mercatoria, is of comparatively recent origin. It is neither more nor less than the usages
of merchants and traders in the different departments of trade, ratified by the decisions of
Courts of law, which, upon such usages being proved before them, have adopted them as
settled law with a view to the interests of trade and the public convenience.

Negotiability emphasizes the interest which merchants have in dynamic security, in

speedy transactions, and the protection of the bona fide purchaser, as opposed to static
security which is designed to safeguard the title of the true owner.134 The decision in
Goodwin v Robarts enables the Courts to give effect to that interest.

(b) assignability and negotiability

There are a number of differences between assignability and negotiability.

(i) Notice
In the first place, notice to the debtor is never required in the case of a negotiable
instrument. The benefit of the promise to pay is transferable by the mere delivery and
the right of action vests in the holder for the time being. In the case of an assigned
contract, however, notice is necessary to perfect a statutory assignment, and is advisable
in equitable assignments so as to prevent the debtor paying the assignor.

(ii) Title
Secondly, a bona fide holder for value without notice135 obtains a good title to a negotiable
instrument;136 whereas in assignment, the assignee takes ‘subject to equities’. So, for

133 (1875) LR 10 Ex 337, 346. 134 Demogue, Modern French Legal Philosophy, 418.
135 A ‘holder in due course’: Bills of Exchange Act 1882, s 29(1).
136 Bills of Exchange Act 1882, s 38(2). It is this that principally distinguishes ‘negotiability’ from
‘transferability’. A bill of lading, for example, is a transferable document in the sense that the lawful holder
has rights transferred to it; but, unlike a bill of exchange, a bill of lading is not a negotiable document because
the holder of a bill of lading (even if in good faith without notice) has no better rights than the transferor.
 assignment 681

example, if the instrument has been stolen, or obtained by fraud, a holder who took the
instrument in good faith and for value, and without notice of any defect in the title of
the person who negotiated it, will still be entitled to demand payment. Thus in London
Joint Stock Bank v Simmons:137
Negotiable bonds belonging to X were pledged to a bank by X’s broker without authority, to
secure a loan to the broker. The bank had no notice of these facts. On the broker’s insolvency,
the bank sold the bonds in satisfaction of the debt due, and the broker’s clients sued the
bank.

The House of Lords held that the bank was entitled to retain and realize the securities,
as it had taken the bonds for value and in good faith. ‘It is’, said Lord Herschell,138
‘surely of the very essence of a negotiable instrument that you may treat the person in
possession of it as having authority to deal with it, be he agent or otherwise, unless you
know to the contrary, and are not compelled, in order to secure a good title to yourself,
to inquire into the nature of his title, or the extent of his authority’.

(iii) Consideration
We have seen that a statutory assignment under s 136 of the Law of Property Act
1925 does not require consideration and that consideration is not always needed for
an equitable assignment.139 Special rules deal with the doctrine of consideration in
relation to negotiable instruments. In the case of bills of exchange, for example, no
consideration need necessarily have been given by the holder of the bill. Section 27(2)
of the Bills of Exchange Act 1882 provides that, where value has at any time been given
for a bill, the holder is deemed to be a holder for value as regards the acceptor and all
parties to the bill who became parties prior to such time.140 Once value has been given
by a party to the bill, the holder can enforce the bill whether he or she personally gave
value or not.141

(iv) Holder in due course

Finally, in the case of bills of exchange certain presumptions greatly assist the holder to
establish a right to sue on the bill. Every holder of a completed bill of exchange is prima
facie deemed to be ‘a holder in due course’—that is, is presumed to have given value
for it in good faith, without notice of any defect in title of the person who negotiated
it.142 The holder will therefore have to do no more than prove the signature of the
person sued, everything else being presumed in the holder’s favour. The burden will
be on the person sued to prove that the holder’s title is in some way defective or that no
consideration has been given.

137 [1892] AC 201. See also, eg, Bank fur Gemeinwirtschaft Aktiengesellschaft v City of London Garages
Ltd [1971] 1 WLR 149. 138 Ibid, 217.
139 See above, pp 665 and 658.
140 See Scott v Lifford (1808) 1 Camp 246; Diamond v Graham [1968] 1 WLR 1061. See also above, p 97.
141 It is not clear whether this is so as between immediate parties whose relations regarding the bill arise
out of their direct dealings: Churchill & Sim v Goddard [1937] 1 KB 92, 110; Pollway Ltd v Abdullah [1974] 1
WLR 493; Hasan v Willson [1977] 1 Lloyd’s Rep 431, 441. 142 Bills of Exchange Act 1882, s 30(2).
682 limits of the contractual obligation

There is an important exception to this rule. If in an action on the bill it is admitted

or proved that the acceptance, issue, or subsequent negotiation of the bill is tainted
with fraud or illegality of some kind, then this presumption no longer holds good.
The burden of proof is shifted, and it is now the holder of the bill who must prove
affirmatively that, subsequent to the alleged fraud or illegality, value has in good faith
been given for the bill, though not necessarily by itself.143 A holder who can do so will
still win the action whatever the earlier history of the bill may be, unless the holder
was a party to the fraud or illegality alleged. A holder who has been a party to the fraud
or illegality can never succeed, though mere knowledge of it will not invalidate the
holder’s title, if it is derived, not from a person whose own title is defective, but from
one who is a holder in due course.144

(c) limitation of negotiability

We have spoken all the time of a bill of exchange or promissory note as if it must always
be a negotiable instrument. But it is to be noted that a particular bill or note is only
negotiable if it is in a condition of negotiability. It may, for example, contain words
which prevent its transferability or negotiability. If so, it is valid as between the parties
thereto, but is not negotiable.145 For example, if a bill of exchange is drawn payable
‘to P only’ it is not transferable and only P can sue on it.146 By the Cheques Act 1992 a
crossed cheque with the words ‘account payee’ or ‘a/c payee’ with or without the words
‘only’ is not transferable. Cheque books issued by banks usually contain these words.
It is also possible for a bill to be restrictively indorsed, eg ‘Pay Q only’, in which
case Q has the right to receive payment of the bill and to sue any party thereto that
the indorser could have sued, but it gives Q no power to transfer its rights as indorsee
unless the indorsement expressly authorized Q to do so.147

5. assignment by operation of law

So far we have dealt with the voluntary assignment by parties to a contract of the
benefit of the contract. But rules of law may also operate to transfer these rights, or
contractual liabilities, from one to another.

(a) the effect of death

The general rule is that rights and liabilities under a contract pass, on the death of a
party to the contract, to his or her personal representatives. They can, therefore, both
sue, and be sued,148 on the contract made by the deceased.

143
Tatam v Haslar (1889) 23 QBD 345. 144 Bills of Exchange Act 1882, s 29(3).
145 Ibid, s 8(1). 146 Hibernian Bank Ltd v Gysin and Hanson [1939] 1 KB 483.
147 Ibid, s 35(1) and (2). 148 But only to the extent of the assets of the estate.
 assignment 683

But performance of such contracts as depend upon the personal service or skill of
the deceased cannot be demanded of personal representatives, nor can they insist upon
offering such performance, though they can sue for money earned by the deceased
and unpaid at the time of the death.149 Contracts of agency and of personal service
expire with the death of either of the parties to them; thus an apprenticeship contract
is terminated by the death of the master, and no claim to the services of the apprentice
survives to the executor or administrator.150

(b) bankruptcy
Bankruptcy is regulated by the Insolvency Act 1986. Proceedings commence with
the filing of a petition for a bankruptcy order either by a creditor alleging acts of
bankruptcy against the debtor or by the debtor alleging inability to pay the debts.151
Where the grounds of the petition are established the Court may, in an appropriate
case, appoint an insolvency practitioner to ascertain whether the debtor is willing to
make a proposal for a voluntary arrangement and a meeting of the creditors should
be summoned.152
If the creditors decide not to accept a composition or scheme of arrangement, the
Court makes a bankruptcy order and a trustee is appointed. To the trustee passes
‘all property belonging to or vested in the bankrupt at the commencement of the
bankruptcy’,153 or property which may be acquired by or has devolved upon the
bankrupt since the commencement of the bankruptcy.154 The object of the laws of
bankruptcy is that ‘every beneficial interest which the bankrupt has shall be disposed
of for the benefit of his creditors’.155 It suffices to note that:
(1) Where any part of the property of the bankrupt consists of a chose in action, it
is deemed to have been assigned to the trustee.156
(2) The trustee may disclaim, and so discharge, unprofitable contracts.157
(3) The trustee is excluded from suing for personal injuries arising out of breaches
of contract, such as injuries to reputation or credit.158
(4) Executory contracts personal to the bankrupt do not pass.159

149 Stubbs v Holywell Railway Co (1867) LR 2 Ex 311. 150 Baxter v Burfield (1746) 2 Stra 1266.
151 Insolvency Act 1986, ss 264–72. 152 Ibid, ss 273–4.
153 Ibid, s 283(1). ‘Property’ includes ‘things in action’: ibid, s 436. Between the date of the order and the
appointment of the trustee the official receiver is under a duty to act as receiver and manager of the estate:
ibid, s 287. 154 Ibid, s 307.
155 Smith v Coffin (1795) 2 H Bl 444, 461.
156 Insolvency Act 1986, s 311(4). Where there is a cross-claim what is assigned is a claim to the net
balance: ibid, s 323; Stein v Blake [1996] AC 243.
157 Ibid, s 315. An administrative receiver of a company becomes liable on any contract of employment
‘adopted’ by him: ibid, s 44; Powdrill v Watson [1995] 2 All ER 65.
158 Wilson v United Counties Bank [1920] AC 102 (credit); Re Kavanagh [1949] 2 All ER 264, aff ’d [1950]
1 All ER 39n (reputation). Cf Beckham v Drake (1849) 2 HLC 579 (wrongful dismissal). See Heath v Tang
[1993] 1 WLR 1421.
159 Gibson v Carruthers (1841) 8 M & W 321 (contract to marry); Lucas v Moncrieff (1905) 21 TLR 683
(contract to publish book).
684 limits of the contractual obligation

The trustee, as statutory assignee of the bankrupt’s choses in action, is in one respect
in a more favourable position than an ordinary assignee. If a chose in action has been
assigned by the bankrupt before the bankruptcy took place, the assignment will be void
as against the trustee if (i) it is of a future chose in action for which the consideration
is not supplied until after the commencement of the bankruptcy160 or (ii) it is a general
assignment of book debts by a trader and has not been registered under the Bills of
Sale Act 1878.161

(c) carriage of goods by sea act 

Under the Carriage of Goods by Sea Act 1992, a person may have transferred to him
rights under a contract for the carriage of goods by sea to which he was not an original
party. So, for example, the lawful holder of a bill of lading has transferred to him the
rights under the contract which is contained in, or evidenced by, that bill of lading.162
Such a person may also be subject to the liabilities under the original contract: for
example, if he takes or demands delivery of the goods.163 But as regards the liabilities,
the original party remains liable so that there is no transfer of liability as such.164

(d) land
If a person acquires an interest in land from another, either by purchase or lease, upon
terms which bind that person to observe certain covenants respecting the land, the
assignment by either party to the contract of his interest will, in certain circumstances,
operate as a transfer to the assignee of the rights and obligations arising out of the
covenants.165 This subject is, however, best studied in the special works on land law,
and is accordingly omitted here.

160 Wilmot v Alton [1897] 1 QB 17; Re Collins [1925] Ch 556; Re de Marney [1943] Ch 126. Cf Re Davis &
Co (1888) 22 QBD 193; Re Trytel [1952] 2 TLR 32. 161 Insolvency Act 1986, s 344.
162 s 2(1)(a). By s 2(5), the rights of the original party are extinguished by the transfer so that the effect is
the same as an assignment. 163 s 3(1)(a).
164 s 3(3). 165 See above, pp 642, 652.
 PART 7
AGENCY
23 Creation of Agency 687
24 Effect of Agency 701
25 Termination of Agent’s Authority 717
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 23
CREATION OF AGENCY
Agency is the relationship which exists where one person (the principal) authorises
another (the agent) to act on its behalf and the agent agrees to do so.1 Although agency
can be relevant in various areas of the law, this book is solely concerned with the agent
acting on behalf of its principal in making contracts with others.
The fact that the principal acquires rights against, and incurs liabilities to, someone
with whom he or she has not personally contracted means that agency can be regarded
as an exception to the doctrine of privity.2 However, in most circumstances, one can
say without any fiction that the principal, not the agent, is the real party to the contract
concluded by its agent. But that is not the case where one has an undisclosed principal
which is, therefore, a true exception to privity.3

1. modes of creation
Agency may be created in any one of four ways:

(1) by an actual authority to contract given by the principal to the agent;

(2) by the principal’s ratification of a contract entered into by the agent on the
principal’s behalf but without its authority (ie, the authority is retrospectively
conferred);
(3) by an ostensible authority conferred by the principal on the agent even though
no actual authority has been given;
(4) by authority implied by law in cases of necessity.

In the first two cases, the principal can sue and be sued by the third party and rights
and duties also arise between the principal and the agent. In the last two cases, the
principal can be sued but cannot always sue. We shall deal with each of these in turn,
and also consider the authority which is vested in different kinds of agents.

1 The leading textbook on this subject is Bowstead and Reynolds on Agency (18th edn, 2006). See generally
Dowrick (1954) 17 MLR 24; McMeel (2000) 116 LQR 387. See also the United States Restatement of the Law
of Agency (3rd edn, 2006) 2 See above, pp 613, 635.
3 See below, pp 708–710.
688 agency

(a) actual authority

Actual authority to contract may be express or implied.
Normally the authority given by a principal to its agent is an express authority
enabling the latter to bind the former by acts done within the scope of that authority.
Such authority may, in general, be given orally. But in some cases it is necessary that
the authority should be given in a special form. First, in order that an agent may make
a binding contract by deed, it is necessary that authority should normally be given in
a deed.4 Certain transactions, for example, conveyances of land, must still be made
by deed.5 Secondly, the Law of Property Act 1925,6 which requires the creation or
disposition of any equitable interest, or interest in land, to be in writing, signed by the
grantor or the grantor’s agent, lays down that in such case the agent shall be authorized
in writing.
The authority of an agent may also be implied.7 But such implied authority can
be negatived by an express limitation. In most cases implied authority is said to be
incidental to an express authority or required due to the circumstances of the case. The
category of implied authority also includes usual and customary authority. Generally,
agents have the authority usually possessed by agents in their position. Therefore if an
agent is authorized to conduct a particular trade or business, or to perform certain
duties, that agent has implied authority to do such acts as are usual in the trade or
business, or ordinarily incidental to the due performance of the duties. In addition,
every agent has implied authority to act in accordance with the reasonable customs
and usages of the particular place, trade, or market where the agent is employed, for
example, the London Stock Exchange. 8
Another, somewhat archaic, example of implied authority is that a wife, living with
her husband, has implied authority (which can be negatived) to pledge the credit of her
husband in dealing with suppliers of necessary domestic goods and services.9

(b) ratification
Even if the agent enters into a contract without the authority of the principal, the
principal may subsequently ratify, that is to say, adopt the benefit and liabilities of a
contract made on the principal’s behalf.
This may occur in one of two ways. First, when A, though contracting as P’s agent,
and having P in contemplation as the principal, was not at the time of the contract P’s

4 Bowstead and Reynolds on Agency (18th edn, 2006) Art 10.

5 See above, p 78. On formalities for the creation of powers of attorney, see Powers of Attorney Act 1971,
s 1; Mental Capacity Act 2005, s 9.
6 ss 53(1), 54. Th is is to be contrasted with a contract for the disposition of an interest in land: McLaughlin
v Duffill [2008] EWCA Civ 1627, [2010] Ch 1.
7 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 502; Hely-Hutchinson v
Brayhead Ltd [1968] 1 QB 549. 8 Pollock v Stables (1848) 12 QB 765.
9 See generally Bowstead and Reynolds on Agency (18th edn, 2006) paras 3–040—3–041 ff. It is usually
said that this authority is based on a rebuttable presumption but there seems no real difference between that
and implied authority (given that the latter can be overridden). The rules extend to unmarried cohabitees:
Debenham v Mellon (1680) 6 App Cas 24, 336.
 creation of agency 689

agent in fact, as no precedent authority had been received. Secondly, when A was in
fact P’s agent at the time of making the contract, but exceeded the authority which P
had given. In either case a ratification duly made places the parties in exactly the same
position in which they would have been if A had P’s authority at the time the contract
was made. It is said to ‘relate back’ to the time of contracting and to have a retrospective
effect.10 An unauthorized acceptance may therefore be ratified even though the offer
has in the meantime been withdrawn. So in Bolton Partners v Lambert:11
The managing director of a company, purporting to act as agent on the company’s behalf,
but without its authority, accepted an offer by the defendant for the purchase of some sugar
works belonging to them. The defendant then withdrew his offer, but the company ratified
the manager’s acceptance.

It was held that the defendant was bound. The ratification related back to the time of
the agent’s acceptance and so prevented the defendant subsequently revoking the offer.
But there can be no true ratification where an agent purports to accept an offer ‘subject
to ratification’. In such a case the so-called ratification would itself be an acceptance of
the offer of the other party, which may be withdrawn at any time before the so-called
ratification takes place.12
The following rules govern ratification:

(i) The agent must purport to act as an agent for a disclosed principal
An individual may not conclude a contract on its own behalf and then transfer it to
someone else under colour of ratification. The individual must contract as agent at
the time of the contract, and an undisclosed principal, that is, a principal who is not
disclosed by the agent to the third party at the time of contracting, may not step in and
ratify acts done by the agent in excess of what had previously been authorized.13 In
Keighley, Maxsted & Co v Durant:14
A corn merchant was authorised to buy wheat at a certain price on a joint account for himself
and KM. Acting in excess of his authority, he purchased wheat at a higher price from D, but
in his own name. KM next day ratified the transaction, but later failed to take delivery of the
wheat. D brought an action against KM for breach.

The action failed. The corn merchant had contracted in his own name without
mentioning that KM was his principal. Any purported ratification by KM was therefore
ineffective, and KM was consequently under no contractual obligation to D.
On the other hand, if this requirement is satisfied, it makes no difference that the
agent’s act was a fraud on the principal. So where an agent, without authority, and
fraudulently, entered into a contract for the sale of wheat in the principal’s name, but
intending to take the benefit of it, the principal could nevertheless ratify and adopt

10 Wilson v Tumman (1843) 6 M & G 236, 242 (Tindal CJ) 242. 11 (1888) 41 Ch D 295.
12 Watson v Davies [1931] 1 Ch 455; Warehousing & Forwarding Co of East Africa Ltd v Jafferali & Sons
Ltd [1964] AC 1.
13 Cf Welsh Development Agency v Export Finance Co Ltd [1992] BCLC 148, 159, 173, 182 (this principle is
qualified by the maxim id certum est quod certum reddi potest, ie that which is capable of being made certain
is to be treated as certain). 14 [1901] AC 240.
690 agency

the contract and hold the buyers to their bargain.15 But a forged signature cannot
be ratified, for one who forges the signature of another is not an agent. The forger
does not act for another; but rather personates the person whose signature has been
forged.16

(ii) The principal must be in existence

To ratify the contract, the intended principal must have been in existence, and
ascertainable, at the time that the contract was made. It is not necessary for the
principal to be named as long as he or she is ascertainable.17
Th is rule is important in its bearing on the liabilities of companies for the contracts
made by the promoters on their behalf before they are formed. In Kelner v Baxter:18
The promoters of an unformed company entered into a contract on its behalf, which the
company when duly incorporated, ratified. It went into liquidation and the promoters, who
had contracted as agents, were sued upon the contract. They pleaded that the liability had
passed, by ratification, to the company, and no longer attached to them.

The Court rejected this argument. Willes J said:19

Could the company become liable by a mere ratification? Clearly not. Ratification can only be
by a person ascertained at the time of the act done,—by a person in existence either actually
or in contemplation of law; as in the case of assignees of bankrupts and administrators,
whose title, for the protection of the estate, vests by relation.

This limitation might work hardship to solicitors and others who are called in to do
the preliminary work leading to the formation of a company as they will have no
right of action against the company when formed. But as the above case shows, and as
embodied in statute,20 they will normally be able to assert a right of action against the
agent (the promoter) in such cases, since the agent will be considered to have incurred
personal liability on the contract.

(iii) Capacity of the principal to contract

‘At the time the act was done the agent must have had a competent principal.’21 Thus,
if an agent enters into a contract on behalf of a principal who is, at the time, incapable
of making it, no ratification is possible.22

15 Re Tiedemann and Ledermann Frères [1899] 2 QB 66.

16 Brook v Hook (1871) LR 6 Ex 89.
17 National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582, 592–7.
18 (1866) LR 2 CP 174. See also Natal Land and Colonization Co Ltd v Pauline Colliery and Development
Syndicate Ltd [1904] AC 120. 19 Ibid, 184.
20 Companies Act 2006, s 51(1), which replaces Companies Act 1985, s 36C(1). See below, p 714. In
Braymist Ltd v Wise Finance Co Ltd [2002] EWCA Civ 127, [2002] Ch 273 it was held that this statutory
provision meant that the agent was not only liable on the contract but entitled to enforce it.
21 Firth v Staines [1897] 2 QB 70, 75 (Wright J).
22 Ashbury Railway Carriage and Iron Co v Riche (1875) LR 7 HL 653 (ultra vires contract); Boston Deep
Sea Fishing and Ice Co Ltd v Farnham [1957] 1 WLR 1051 (alien enemy).
 creation of agency 691

(iv) Manner of ratification

The principal who accepts the contract made by a person whom the principal thereby
undertakes to regard as its agent, may accept by words or conduct. The principal
may avow responsibility for the act of the agent, or take the benefit of the contract,
or otherwise by acquiescence in what is done create a presumption of authority. In
the absence of an express avowal, however, the ratification must be founded on a
full knowledge of the facts,23 and the principal must have had the option whether
to accept or to refuse the contract.24 Otherwise it will be unenforceable against the
principal. It is not, however, necessary for the ratification to be communicated to the
third party.25

(v) Time and retrospectivity of ratification

The general rule is that the effect of ratification is retrospective so that the agent is
treated as having had the relevant authority at the time it purported to make the
contract. So an offer accepted without authority by an agent can be later ratified by a
principal even though at that later time the other party, to the principal’s knowledge,
has withdrawn its offer.26
An exception to that general rule is that ‘an estate once vested cannot be divested,
nor can an act lawful at the time of its performance be rendered unlawful by the
doctrine of ratification’.27 Similarly the traditional rule for non-marine insurance,
albeit controversial, is that a contract of insurance made by an agent without the
principal’s authority cannot be ratified after the principal has become aware that the
event insured against has in fact occurred.28
Subject to any express time limit for ratification fi xed by the parties and, assuming
that a time fi xed for performance by the other party has not expired, the principal has
a reasonable time to ratify after acquiring notice of the unauthorised act.29

(c) ostensible authority

The principal may, by words or conduct, create an inference that an agent has authority
to act on behalf of the principal even though no authority exists in fact. In such a case,

23 La Banque Jacques-Cartier v La Banque d’Epargne de Montréal (1887) 13 App Cas 111.

24 Forman & Co Pty Ltd v Ship ‘Liddesdale’ [1900] AC 190, above, p 456.
25 Shell Co of Australia Ltd v Nat Shipping Bagging Services Ltd, The Kilmun [1988] 2 Lloyd’s Rep 1, 11. See
also Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601.
26 Bolton Partners v Lambert (1881) 41 Ch D 295: see above, 689. See also Presentaciones Musicales SA v
Secunda [1994] Ch 271 (the unauthorized commencement of legal proceedings within the limitation period
by an agent could be ratified by the principal outside the limitation period); The Borvigilant [2002] EWHC
1759 (Admlty), [2002] 2 Lloyd’s Rep 631.
27 Bolton Partners v Lambert (1881) 41 Ch D 295, 307 (Cotton LJ).
28 Grover & Grover v Matthews [1910] 2 KB 401. The contrary rule applies to marine insurance (see
Marine Insurance Act 1906, s 86; Williams v North China Insurance Co (1876) 1 CPD 757): in obiter dicta
in National Oilwell (UK) Ltd v Davy Offshore Ltd [1983] 2 Lloyd’s Rep 582, 607–8, Colman J expressed the
strong view that the rule in marine insurance should be extended to non-marine insurance.
29 Re Portuguese Consolidated Copper Mines (1890) 45 Ch D 16; Bedford Insurance Co Ltd v Instituto de
Ressaguros do Brasil [1985] QB 966, 987.
692 agency

if the agent contracts within the limits of the apparent authority, although without any
actual authority, the principal will be bound to third parties by the agent’s acts.

(i) Requirements
This doctrine of apparent authority, or ostensible authority as it is usually called, is
really an application of the principle of estoppel, for estoppel means only that a person
is not permitted to resist an inference which can reasonably be drawn from that
person’s words or conduct. Thus where one person expressly or impliedly represents
another to have authority to act as agent, so that a third party reasonably believes
the person who is so held out to possess that authority and deals with that person in
reliance on the representation so made, the person making the representation will
be bound to the same extent as if actual authority had in fact been conferred.30 The
person making the representation is estopped from denying the ostensible authority
which was thus created.
It is, however, important to note three things. First, the representation must be made
by the principal. Ostensible authority cannot be created simply by a representation by
the agent.31 Secondly, subject to certain exceptions discussed below,32 the third party
must rely on a representation of the agent’s authority to act as agent. The doctrine
cannot apply where the third party does not know or believe that person to be an
agent, for example, if the existence of the principal is unknown to the third party.33
Thirdly, the agent’s want of authority must be unknown to the third party.34

(ii) Never any authority

These requirements mean that there will seldom be ostensible authority where a person
has never at any time had authority to contract. But that there can be an exceptional
case is exemplified by Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd:35
The articles of a company contained power to appoint a managing director. With the
knowledge and approval of the board of directors, K acted as managing director, although
he was never appointed to this post. K instructed the claimants, a firm of architects, to do
certain work for the company. The company disclaimed liability for payment for this work
on the ground that K had no authority to contract on the company’s behalf.

30 For a clear general statement of the law, see Freeman & Lockyer v Buckhurst Park Properties (Mangal)
Ltd [1964] 2 QB 480, 503–4 (Diplock LJ). For examples of factual situations in which ostensible authority
may exist, see Egyptian Intl Foreign Trade Co v Soplex Wholesale Supplies Ltd, The Raffaella [1985] 2 Lloyd’s
Rep 36; Shearson Lehman Hutton Inc v MacLaine, Watson & Co Ltd (No 2) [1988] 1 WLR 16; Polish SS Co v AJ
Williams Fuels (Overseas Sales) Ltd, The Suwalki [1989] 1 Lloyd’s Rep 511. A person negotiating a contract on
behalf of a company but known not to have authority to bind the company may, nevertheless, have ostensible
authority to communicate that those with authority to bind the company have approved the contract in
question: First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 distinguishing
Armagas Ltd v Mundogas SA, The Ocean Frost [1986] AC 717.
31 A-G for Ceylon v Silva [1953] AC 461, 479; Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd
[1964] 2 QB 480, 505; British Bank of the Middle East v Sun Life Assurance Co of Canada (UK) Ltd [1983] 2
Lloyd’s Rep 9; First Sport Ltd v Barclays Bank plc [1993] 1 WLR 1229; First Energy (UK) Ltd v Hungarian Int’l
Bank Ltd [1993] 2 Lloyd’s Rep 194. 32 See below, p 694.
33 Farquharson Bros v King & Co [1902] AC 325; Freeman & Lockyer v Buckhurst Park Properties (Mangal)
Ltd, [1964] 2 QB 480, 503. 34 See Armagas Ltd v Mundogas SA [1986] 1 AC 717, 777–9.
35 [1964] 2 QB 480. But see now Companies Act 2006, s 39(1), and above, p 230 (ultra vires contracts).
 creation of agency 693

The Court of Appeal held that, although K had no actual authority to employ
the claimants, the company had created an ostensible authority by its conduct in
permitting him to act as managing director to the knowledge of the board. Any act
done within the usual ambit of that ostensible authority was therefore binding on the
company.

(iii) Limited or revoked authority

The doctrine of ostensible authority is more likely to apply where an authorized agent
goes beyond the limits of his actual authority, yet acts within an authority which he is
made to appear to possess.36 In particular, where a principal has publicly allowed the
agent to assume an authority, that authority cannot be revoked privately. The principal
will be bound by the acts of the agent if the principal has given other persons reason to
suppose that they are done with authority.
Thus an employer who habitually allows employees to purchase goods on credit37
or a husband who takes upon himself the liability in respect of his wife’s past dealings
with suppliers of goods or services38 ‘holds out’ the employees or wife as agent. They
will be liable on such contracts unless and until they actually make known to the
supplier the fact that the agency has been determined.

(iv) Partnership
Every partner is an agent of the firm and of the other partners for the business of the
partnership; this is simply a case of implied authority. But any act done by a partner
for carrying on in the usual way business of a kind carried on by the firm binds the
firm and the other partners, even if the partner so acting has in fact no authority to
act for the firm in the particular matter, unless the person with whom the partner
is dealing either knows that person has no authority, or does not know or believe
that person to be a partner.39 Moreover, a partner who retires from a firm may still
be liable for partnership debts contracted after retirement. A person dealing with
a firm after a change in its constitution is entitled to treat all apparent members of
the old firm as still being members of the fi rm until that person has notice of the
change.40 The retiring partner will be estopped from denying the continuation of
that authority,41 except where he was not known to be a partner by the person dealing
with the firm.42

36 Todd v Robinson (1825) 1 Ry & M 217; Summers v Solomon (1857) 7 E & B 879; Manchester Trust v
Furness [1895] 2 QB 539; AMB Generali Holding AG v SEB Trygg Liv Holding AB [2005] EWCA Civ 1237,
[2006] 1 WLR 2276. 37 Summers v Solomon, ibid.
38 Drew v Nunn (1879) 4 QBD 661; Jetley v Hill (1884) Cab & El 239. See also Ryan v Sams (1848) 12 QB
460 (mistress).
39 Partnership Act 1890, s 5. See also s 8. See further, United Bank of Kuwait Ltd v Hammoud [1988] 1
WLR 1051.
40 Partnership Act 1890, s 36(1). Under s 36(2), notice in the London Gazette is sufficient notice as to
persons who had no dealings with the fi rm before the change; otherwise express notice is required.
41 Scarfe v Jardine (1882) 7 App Cas 345, 349. 42 Partnership Act 1890, s 36(3).
694 agency

(d) usual authority?

There are a number of cases which appear to establish that, in certain circumstances,
a principal may be liable for the unauthorized acts of an agent, even though the third
party did not rely upon any representation by the principal of the agent’s authority to
act as agent. In these cases, the existence of the principal was unknown to the third
party, so that it could not be said that the principal held out the agent to have authority
to act as agent and was estopped. The apparent rule to be extracted from them is as
follows: an undisclosed principal who employs an agent to conduct business is liable
for any act of the agent which is incidental to or usual in that business, although
such act may have been forbidden by the principal. The leading example is Watteau v
Fenwick:43
F, a firm of brewers, bought a pub from H, but kept him on as manager, and his name appeared
above the door. They instructed H not to buy cigars although it was usual for such a business
to deal in cigars. H bought some cigars on credit from W, who thought H was the owner of
the business and gave credit to him personally. On discovering that he was employed by F,
W sued F for the price of the cigars.

It was held that F was liable. Wills J rejected the argument that a principal could only
be bound where there had been a holding out of authority—which could not be said
of this case where the person supplying the goods knew nothing of the existence of
the principal. ‘The principal’, he said,44 ‘is liable for all the acts of the agent which are
within the authority usually confided to an agent of that character, notwithstanding
limitations as between the principal and the agent, put upon that authority’.
This case is anomalous, and has been criticized as such.45 One attempt made to
explain it and similar cases is that they are cases of ‘usual authority’. But as noted
above,46 the usual authority of an agent is normally merely an example of implied
authority, which could be negatived by an express limitation. If this and similar cases47
are rightly decided, which seems unlikely, they are perhaps best regarded as examples of
the operation of a quasi-tortious principle whereby an employer is rendered vicariously
liable for the acts of an agent if done in the course of the agent’s employment.

(e) agency of necessity

(i) Ship-masters and carriers of goods by sea
In certain circumstances the law confers an authority on one person to act as agent for
another without any regard to the consent of the principal. Such an agency is called
an agency of necessity. The classic example is a carrier of goods by sea or a master of a
ship. Under certain circumstances of necessity, the carrier or master is empowered on

43 [1893] 1 QB 346. 44 Ibid, 348.

45 Rhodian River Shipping SA v Halla Maritime Corporation [1984] 1 Lloyd’s Rep 373, 378–9 (Bingham
LJ); Sign-o-Lite Plastics Ltd v Metropolitan Life Insurance Co (1990) 73 DLR (4th) 541 (British Columbian
CA). See also Hornby [1961] CLJ 239; Fridman (1991) 70 Can Bar Rev 329. 46 Above, p 688.
47 It is not unique: see Edmunds v Bushell and Jones (1865) LR 1 QB. 97. For further examples, see Powell,
The Law of Agency (2nd edn, 1961) 72 ff.
 creation of agency 695

behalf of the shipowner or the owner of the goods carried to dispose of the goods or
to enter into such other contract as may be necessary, and will be considered to have
their authority to do so.48 In order that this agency of necessity should arise, it must be
shown that the carrier or master:

(1) took action which was the only practicable action in the circumstances;49 thus
a master of a ship who finds that the cargo is perishing rapidly is entitled to put
into the nearest port and to sell the goods for the best price there obtainable;50
(2) had no opportunity in the time available of communicating with the
principal;51
(3) acted honestly in the interests of the principal.

In the situations mentioned above, the acts of the agent bind the principal, and it has
been suggested that the expression ‘agency of necessity’ should properly be confined
to situations where the agent of necessity brings its principal into a contractual
relationship with a third party.52

(ii) Agent of necessity in a wider sense

However, the expression ‘agent of necessity’ is frequently used also to describe
cases where one person, in an emergency, performs services or incurs expenditure
to preserve the property or rights of another and seeks reimbursement,53 or where
a person claims to be protected against an action for wrongful interference with
the property of another by pleading necessity.54 A long-established example of the
former—to which the term ‘agency of necessity’ has often been applied55 —is the
acceptance for honour of bills of exchange. 56 Any person, not being a party already
liable on a bill of exchange, may, with the holder’s consent, intervene and accept a bill
supra protest for the honour of any party liable thereon, after it has been ‘protested’
for dishonour by non-acceptance. The acceptor for honour thereby makes himself
liable to pay the bill, and succeeds to the rights and duties of the holder as regards the
party for whose honour he pays, and all parties liable to that party.

48 See, eg The Choko Star [1990] 1 Lloyd’s Rep 516. By the Merchant Shipping Act 1995, s 224(1) the master
of a ship has authority to conclude salvage agreements on behalf of the shipowner.
49 Prager v Blatspiel, Stamp & Heacock Ltd [1924] 1 KB 566. Cf. Surrey Breakdown Ltd v Knight [1999]
RTR 84. 50 Couturier v Hastie (1852) 8 Exch 40, rvsd on a different point (1856) 5 HLC 673.
51 Springer v Great Western Ry [1921] 1 KB 257. See also Re F [1990] 2 AC 1, 75.
52 China-Pacific SA v Food Corp of India [1982] AC 939.
53 Exall v Partridge (1799) 8 TR 308; Re F [1990] 2 AC 1 (mentally handicapped woman could be lawfully
sterilised without her consent); Surrey Breakdown Ltd v Knight [1999] RTR 84 (no necessity to pull stolen car
out of pond without owner’s consent).
54 See Elvin & Powell Ltd v Plummer Roddis Ltd (1933) 50 TLR 158; Sachs v Miklos [1948] 2 KB 23; and now
the Torts (Interference with Goods) Act 1977, s 12.
55 Prager v Blatspiel, Stamp & Heacock Ltd [1924] 1 KB 566, 569.
56 Bills of Exchange Act 1882, s 65 (acceptance for honour) and s 68 (payment for honour).
696 agency

(iii) Negotiorum gestio not generally recognized

The granting of reimbursement to an agent of necessity (using that phrase in its
wide sense) links to the more general question of whether necessitous intervenors
are entitled to reimbursement in English law. The starting point is that a person who
voluntarily incurs expense by performing work or services which are ‘necessary’ to
another cannot normally recover in the absence of some legal authority to incur the
expense.57 English law does not recognize the negotiorum gestor of Roman law—the
person who voluntarily spends money upon the necessary protection of another.58 So
a person who finds a dog and spends money on its keep,59 or a local authority which
repairs a bridge which it is not bound to repair,60 cannot recover from the owner of the
property benefited.
Clear exceptions, however, exist in the case of salvage at sea (the owner of the cargo
salvaged being bound to compensate the rescuer)61 or the supply of necessaries to
mental patients.62 Apart from these recognized exceptions, there may yet be other
cases where, especially after some legal relationship has been created between the
parties, one party reasonably incurs expenses in safeguarding the other’s goods in a
situation of necessity, and is entitled to reimbursement. Thus a carrier has recovered
the expense of stabling an uncollected horse,63 a salvor the expense of warehousing
cargo after the salvage services had come to an end,64 and statute enables a doctor
who has given emergency treatment to the victim of a road accident to a fee.65 These
cases may be regarded as an extension of the principle that an agent is entitled to be
reimbursed expenses reasonably incurred on behalf of the principal.66 At a deeper
level, it is unclear whether they are based on restitution of an unjust enrichment or on
a miscellaneous principle or policy.67

2. different kinds of agents

We note here the authority with which certain kinds of agents are invested in the
ordinary course of their employment.

(a) auctioneers
An auctioneer is an agent to sell property at a public auction. Although primarily
an agent for the seller, upon the property being knocked down, it has been held that

57 Macclesfield Corp v GC Ry [1911] 2 KB 528.

58 Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234, 248 (Bowen LJ) 248.
59 Binstead v Buck (1776) 2 W Bl 1117 (no lien on dog for expenses).
60 Macclesfield Corp v Great Central Ry [1911] 2 KB 528.
61 The Five Steel Barges (1890) 15 PD 142, 146. See also Merchant Shipping Act 1995, s 224(1). Cf The
Goring [1988] AC 831 (maritime salvage did not cover saving a boat on non-tidal waters).
62 Above, p 248. 63 GN Ry v Swaffield (1874) LR 9 Ex 132.
64 China-Pacific SA v Food Corp of India [1982] AC 939. 65 Road Traffic Act 1988, ss 158–9.
66 See below, p 706. 67 See Birks, Unjust Enrichment (2nd edn, 2005) 23–4.
 creation of agency 697

the auctioneer becomes the agent of the buyer, but only for the purpose of signing
a memorandum sufficient to satisfy any statutory formalities.68 Auctioneers have
authority to sell, but not to give warranties as to the property sold, unless expressly
authorized by the seller.69 Any deposit paid by the buyer is normally held by the
auctioneer, not as agent of the seller, but as stakeholder.70
The seller will be bound if the auctioneer acts within his ostensible authority,
even though disobeying instructions privately given. So, if an auctioneer through
inadvertence, and contrary to instructions, puts up an article for sale without reserve,
the seller will be bound by the sale.71 But where there is a sale by auction with notice
that it is subject to a reserve, the auctioneer cannot reasonably be supposed to have
authority to accept a bid at less than the reserve fi xed, and so cannot bind the seller by
doing so.72
An auctioneer has a lien on goods sold until the whole price is paid, and, if not paid,
can sue in its own name for the price.73

(b) factors
A factor is an agent who has possession of the goods, authority to sell them in its own
name, and a general discretion as to their sale. The factor may sell on the usual terms
of credit, may receive the price, and give a good discharge to the buyer. At common
law a factor has ostensible authority to do such things as are usual in the conduct of
its business.74
This ostensible authority was extended by a series of Factors Acts which were
consolidated by the Factors Act 1889. The Act applies not only to factors, but also to
any mercantile agent ‘having in the customary course of his business as such agent
authority either to sell goods, or to consign goods for the purpose of sale, or to buy
goods, or to raise money on the security of goods’.75
Such a person is also deemed to have power to pledge the goods, and section 2 of the
Act in effect provides that where a mercantile agent is, with the consent of the owner,
in possession of goods76 or of the documents of title to goods, any sale, pledge, or other
disposition of the goods, made when acting in the ordinary course of business of a
mercantile agent, is as valid as if it were expressly authorized by the owner of the goods.
Accordingly, persons who, in good faith, take the goods under such a disposition, and
who have not at the time notice that the agent has not the authority to dispose of them,
acquire a good title to them. And so long as the agent is left in possession of the goods,
revocation of authority by the principal cannot prejudice the rights of such persons to
them.

68 See Chaney v Maclow [1929] 1 Ch 461.

69 Payne v Lord Leconfield (1881) 51 LJ QB 642. 70 Skinner v Trustee of Reed [1967] Ch 1194.
71 Rainbow v Howkins [1904] 2 KB 322, 326. 72 McManus v Fortescue [1907] 2 KB 1, 6.
73 Chelmsford Auctions Ltd v Poole [1973] QB 542. Cf Cherry v Anderson (1876) IR 10 CL 204 (land).
74 Pickering v Busk (1812) 15 East 38; see above, p 692. 75 Factors Act 1889, s 1(1).
76 Provided that the possession is in the capacity of mercantile agent, and not eg solely as bailee: Astley
Industrial Trust Ltd v Miller [1968] 2 All ER 36.
698 agency

(c) brokers
A broker is an agent primarily employed to negotiate a contract between two parties.
A broker for sale has not got possession of the goods to be sold, and so has not got the
authority which a factor enjoys. Nor has a broker the authority to sue in its own name
on contracts made by it. A broker should be distinguished from a commission agent
who is employed not to establish privity of contract between the principal and third
parties, but to sell or buy goods for the principal at the most favourable price available.
The commission agent receives a commission or reward, but the purchase or sale is
made with the third party by the commission agent alone.77

(d) estate agents

An estate agent,78 who is employed to find a purchaser for property, has implied
authority to make representations or to give warranties relating to the property.79 An
estate agent has no authority to effect an actual contract for the sale of the property
unless expressly authorized so to do80 and does not have implied authority to receive a
deposit from an intending purchaser as agent of the vendor.81

(e) solicitors
When undertaking litigation on behalf of a client, a solicitor has implied authority to
accept process and appear for a client, but is not entitled to commence an action without
express authority.82 As against third parties, a solicitor has an ostensible authority to
effect a compromise in all matters connected with an action and not merely collateral
to it.83 In certain circumstances solicitors have authority to receive payment on behalf
of a client.84

(f) commercial agents

This and the following two chapters are primarily concerned with the basic principles
of agency as developed by the common law. Brief mention is, however, also made
of a new form of agency, unknown to the common law, which, as a result of the EC
Directive on Commercial Agents, is now part of English law.85 A commercial agent

77 It appears, therefore, that in English law a commission ‘agent’ is not covered by the law of agency in
the sense that not only is there no contractual relationship between principal and third party (including
by ‘undisclosed’ agency) but also there is no agency relationship between principal and agent so that, for
example, there are no fiduciary duties owed. See generally Bowstead and Reynolds on Agency (18th edn,
2006) paras 1-020–1-021; Hill (1968) 31 MLR 623.
78 See Estate Agents Act 1979. 79 Mullens v Miller (1882) 22 Ch D 194.
80 Hamer v Sharp (1874) LR 19 Eq 108; Law v Robert Roberts & Co [1964] IR 292.
81 Sorrell v Finch [1977] AC 728.
82 Wright v Castle (1817) 3 Mer 12.
83 Strauss v Francis (1866) LR 1 QB 379; Waugh v HB Clifford & Sons Ltd [1982] Ch 374.
84 Law of Property Act 1925, s 69; Yates v Freckleton (1781) 2 Doug KB 623.
85 Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No 3053).
 creation of agency 699

is a self employed intermediary with continuing authority to negotiate the sale or

purchase of goods on behalf of the principal, or to negotiate and conclude the sale or
purchase of goods on behalf of and in the name of the principal. A distributor buying
from manufacturers and selling on at a mark-up has been held to deal as principal86
and not to be a ‘commercial agent’, as has a person selling petrol under licence who
did not ‘negotiate’ with the buyers of petrol.87 Where the Regulations implementing
the Directive apply, the freedom to terminate a commercial agency, at least without
compensation, is restricted.88

86 AMB Imballaggii Plastici SRL v Pacflex Ltd [1999] 2 All ER (Comm) 249; cf Mercantile International
Group plc v Chuan Soon Huat Industrial Group Ltd [2002] EWCA Civ 288, [2002] 1 All ER (Comm) 788.
87 Parks v Esso Petroleum Ltd [2000] Eu LR 25. For other decisions as to whether the agents in question
were ‘commercial agents’ for the purposes of the 1993 Regulations see, eg, PJ Pipe & Valve Co Ltd v Audco
India Ltd [2005] EWHC 1904 (QB), [2006] Eu LR 368 (was a commercial agent); Nigel Fryer Joinery Services
Ltd v Ian Firth Hardware Ltd [2008] 2 Lloyd’s Rep 108 (was a commercial agent); Sagal v Atelier Bunz GmbH
[2009] EWCA Civ 700, [2009] 2 Lloyd’s Rep 303 (not a commercial agent). For the position of sub-agents, see
Light v Ty Europe Ltd [2003] EWCA Civ 1238, [2004] 1 Lloyd’s Rep 693. 88 See below, pp 723–724.
This page intentionally left blank
 24
EFFECT OF AGENCY
The effects of agency, when created as described in the last chapter, may be arranged
as follows:
(1) the relations between the principal and agent;
(2) the relations between the principal and third parties;
(3) the relations between the agent and third parties.

1. the relations between the

principal and agent
The rights and duties of the principal and agent depend upon the terms of the contract,
whether express or implied, which exists between them. But in addition to these
specific provisions, the mere existence of the relationship raises certain duties on both
sides. In particular, an agent owes fiduciary duties to its principal. ‘The distinguishing
obligation of a fiduciary is the obligation of loyalty.’1 Although it has been said that ‘the
essence of a fiduciary obligation is that it creates obligations of a different character
from those deriving from the contract itself’, 2 where the agency is based on a contract
between the principal and the agent, the fiduciary duties may in certain cases be varied
by the terms of the contract.3

(a) duties of the agent

(i) To account
The agent is bound to account for such property of the principal as comes into its
hands in the course of the employment. The agent must keep accurate accounts of the
transactions which are entered into on the principal’s behalf,4 and produce them on
demand to the principal.5

1 Bristol & West BS v Motthew [1998] 1 Ch 1, 17.

2 Re Goldcorp Exchange Ltd [1995] 1 AC 74, 98 (Lord Mustill).
3 Clark Boyce v Mouat [1994] 1 AC 428; Kelly v Cooper [1993] AC 205 (implied term of contract permitted
estate agent to have confl ict of interests). See also Law Com No 236, Fiduciary Duties and Regulatory Rules
(1995), para 3.24 ff, but cf Bowstead and Reynolds on Agency (18th edn, 2006), para 6–054, n 94; Brown (1993)
109 LQR 206. 4 White v Lincoln (1803) 8 Ves Jun 363.
5 Pearse v Green (1819) 1 Jac & W 135.
702 agency

(ii) To use care and skill

The agent must also use ordinary diligence in the discharge of its duties, displaying
any special skill or capacity which it may profess in relation to the work in hand.6
Where the agency is gratuitous, the agent is only liable in tort; the standard of care is
that which might reasonably be expected in the circumstances.7
If the agent fails in its duty, the normal remedy of the principal is to bring an action
for damages or equitable compensation; but where the breach consists of a failure to
pay across money received on behalf of the principal, an action for money had and
received or an action for an account may also be brought by the principal.

(iii) Not to make secret profit

The fiduciary’s obligation of loyalty entails that the agent must not, except with the
knowledge and assent of the principal, make any profit out of its position as agent.8
It is immaterial that the principal has suffered no loss, or that the agent has acted
throughout in good faith.9 Any such profit is held on constructive trust and must be
accounted for (ie paid over) to the principal.10
In Hippisley v Knee Brothers:11
H employed K Brothers, auctioneers, to sell certain property for him, and undertook to
pay them a commission on the sale and their out-of-pocket expenses, including those of
printing and advertising. K received discounts from printers and advertisers, but charged
H with the full amount in the honest belief that they were entitled to keep the discounts for
themselves.

It was held that K were bound to account to H for the money. In this case, however,
they did not forfeit their commission; but commission will not be payable to an agent
who has acted dishonestly,12 and, if paid in ignorance of the breach of duty, will be
recoverable by the principal.
Where an agent is promised a bribe or secret commission which might induce
the agent to act disloyally to the principal or which might diminish his interest in
the affairs of the principal, the agent cannot recover the amount of the bribe from
the person who promised it, since the transaction is a corrupt one and cannot be
enforced.13 If the agent has received the bribe, it can be claimed by the principal as
restitution for the breach of fiduciary duty from the agent14 and also from the briber;15

6 Lee v Walker (1872) LR 7 CP 121. See also Luxmoore May v Messenger May Baverstock [1990] 1 WLR
1009. 7 Chaudhry v Prabhakar [1989] 1 WLR 29.
8 Parker v M’Kenna (1874) LR 10 Ch App 96; Cook v Deeks [1916] AC 554; Regal (Hastings) Ltd v Gulliver
[1967] 2 AC 134n; Phipps v Boardman [1967] 2 AC 46; English v Dedham Vale Properties Ltd [1978] 1 WLR 93;
Guinness plc v Saunders [1990] 2 AC 663; Clark Boyce v Mouat [1994] 1 AC 428.
9 See especially Phipps v Boardman [1967] 2 AC 46. 10 See ibid. 11 [1905] 1 KB 1.
12 Andrews v Ramsay & Co [1903] 2 KB 635. See also Kelly v Cooper [1993] AC 205, 216.
13 Harrington v Victoria Graving Dock Co (1878) 3 QBD 549.
14 Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339; Logicrose Ltd v Southend United Football
Club [1988] 1 WLR 1256. The basis of the claim for the bribe from the briber is not obvious. One possibility
is that it is an aspect of compensation for a tort or equitable wrong (eg, inducing breach of contract by the
bribee or procuring breach of fiduciary duty by the bribee).
15 Arab Monetary Fund v Hashim [1993] 1 Lloyd’s Rep 543; Hurstanger Ltd v Wilson [2007] EWCA Civ
299, [2007] 2 All ER (Comm) 1037.
 effect of agency 703

the agent cannot recover or retain any remuneration from the principal in respect of
the transaction.16 Moreover, the bribe is held by the agent on constructive trust so
that, if property or investments acquired with the bribe have increased in value, the
principal has an equitable proprietary interest in the profits and is entitled to them.17
Alternatively, it is open to a principal who discovers that its agent has been paid a
bribe for bringing about a contract to recover from the agent and the person who paid
the bribe, jointly and severally, damages in tort18 for any loss which the principal may
have sustained by entering into the contract in respect of which the bribe was given.
But the principal is bound to elect, at the time judgment is entered, between the claim
for the amount of the bribe and the claim for damages. In TH Mahesan s/o Thambiah
v Malaysia Government Officers’ Co-operative Housing Society Ltd:19
A director and employee of a housing society in Malaysia dishonestly agreed with M that M
should purchase certain land in Penang at a low price and sell it to the housing society at a
profit, and that the director would not inform the housing society of the price at which the
land was available nor the fact that M was selling the land to the housing society at more
than double the price which he had paid for it. M made a gross profit of $488,000 on the
transaction, one-quarter of which he passed on to the director as a bribe.

The Federal Court of Malaysia held that the housing society could recover from its director
both the amount of the bribe and damages for the whole of the loss suffered by it as a result
of the fraudulent transaction.20 The Judicial Committee of the Privy Council, however,
held that the housing society could recover either the amount of the bribe or damages for
the loss suffered, but not both. In the result, since the loss suffered was (net) $443,000 and
the amount of the bribe was $122,000, it was assumed that the housing society would have
elected to claim the former sum, and judgment was entered for that amount.
The Prevention of Corruption Acts 1906 and 1916 (to be replaced by the Bribery Act
2010) also make corrupt transactions of all kinds by or with agents criminal offences
punishable by fine and imprisonment.

(iv) Not to put itself in a position where interest and duty conflict
More generally, the fiduciary’s duty of loyalty means that the agent must not put
itself in a position where its duty and interest conflict unless full disclosure of the
agent’s interest (specifying its exact nature) has been made to the principal, and the
principal has given its informed consent to the conflict.21 So, an agent will in general

16 Andrews v Ramsay & Co. [1903] 2 KB 635.

17 A-G for Hong Kong v Reid [1994] 1 AC 324; Daraydon Holdings Ltd v Solland International Ltd [2004]
EWHC 622 (Ch), [2005] Ch 119. Cf Fyffes Group Ltd v Templeman [2000] 2 Lloyd’s Rep 643 (no entitlement
if profits would have been earned anyway for services rendered by briber to principal). See also Petrotrade
Inc v Smith [2000] 1 Lloyd’s Rep 486.
18 The tort is presumably normally the tort of deceit although, as regards the briber, it might be, eg, the
tort of inducing a breach of contract by the bribee.
19 [1979] AC 374. See Beatson and Reynolds (1978) 94 LQR 344. Cf Tettenborn (1979) 95 LQR 68.
20 Relying on dicta of the Court of Appeal in Mayor of Salford v Lever [1891] 1 QB 168, which were
disapproved by the Judicial Committee.
21 Armstrong v Jackson [1917] 2 KB 822; Clark Boyce v Mouat [1994] 1 AC 428; Guinness plc v Saunders
[1990] 2 AC 663. Cf Kelly v Cooper [1993] AC 205 (implied term of contract, above, p 158).
704 agency

be precluded from acting for two principals whose interests may conflict, unless the
principals’ assent has been obtained.22
Moreover, an agent may not cease to be an agent and become a principal party to
the transaction even though this change of attitude does not result in injury to the
employer. If a person is employed to buy or sell on behalf of another, that person may
not sell to or buy from the principal. Nor, if a person is employed to bring another
(the principal) into contractual relations with a third party, may that person lawfully
also act as agent for that third party.23 Where an agent puts itself in a position where
the agent has an interest in direct antagonism to its duty, or where, due to the conflict
of duties, the agent’s duty to the principal cannot be fully discharged, the principal
is entitled to claim an account and payment over of any benefit which the agent has
received as a result.24

(v) Not to delegate to another

The agent may not, as a general rule, delegate to another person the task undertaken
by the contract of agency.25 The reason for this rule, and its limitations, are outlined by
Thesiger LJ in De Bussche v Alt:26
As a general rule, no doubt, the maxim ‘delegatus non potest delegare’ applies so as to prevent
an agent from establishing the relationship of principal and agent between his own principal
and a third person; but this maxim when analyzed merely imports that an agent cannot,
without authority from his principal, devolve upon another obligations to the principal
which he has himself undertaken to personally fulfi l; and that, inasmuch as confidence in
the particular person employed is at the root of the contract of agency, such authority cannot
be implied as an ordinary incident in the contract.

There are, however, a number of occasions when such authority to delegate is implied.
These occasions arise from the conduct of the parties, the usage of a trade, the nature
of a business, or an unforeseen emergency.27 Also purely ministerial acts, which do not
involve any special care and skill, can normally be delegated to another.28
Where an agent is authorized to delegate to another the employment of a sub-agent
does not normally bring into being any privity of contract between the principal and
the sub-agent. The sub-agent is responsible to the agent alone and cannot be sued
directly in contract by the principal.29 But where the principal expressly or impliedly
authorizes the delegation, or ratifies a delegation which has already taken place, privity
of contract is established.30 The sub-agent becomes responsible to the principal for
the due discharge of the duties which its employment casts upon it, and a fiduciary
relationship arises between them. Where the sub-agent has been negligent, it may also

22 Ibid.
23 Anglo-African Merchants Ltd v Bayley [1970] 1 QB 311, 323–4; North & South Trust Co v Berkeley [1971]
1 WLR 470. 24 De Bussche v Alt (1878) 8 Ch D 286.
25 See eg John McCann & Co v Pow [1974] 1 WLR 1643 (estate agent). 26 (1878) 8 Ch D 286, 310.
27 Ibid, 310; Re Newen [1903] 1 Ch 812; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 197 (although
the agent remained under an obligation that the services would be carried out with reasonable skill and
care). 28 Allam & Co Ltd v Europa Poster Services Ltd [1968] 1 WLR 639.
29 Kahler v Midland Bank [1952] AC 24. But see Shamia v Joory [1958] 1 QB 448.
30 Keay v Fenwick (1876) 1 CPD 745; De Bussche v Alt (1878) 8 Ch D 286.
 effect of agency 705

be liable to the principal in tort, provided such liability is not inconsistent with the
contractual structure put in place by the principal and agent.31

(vi) Del credere agents

An agent is not normally responsible for ensuring that the parties with whom the
principal is brought into contractual relations will pay the money which may become
due under the contract into which they enter. But such a responsibility is assumed by a
del credere agent.32 This is an agent employed for the purpose of sale who, in return for
extra remuneration, undertakes to be liable to the principal for payment by the buyer.
A del credere agent does not, however, become responsible to the buyer for the due
performance of its contract by the principal.

(b) rights of the agent

(i) To be paid agreed remuneration

The principal must pay the agent such remuneration or commission as may be agreed
upon between them. In the absence of any express agreement, an agent is normally to
be paid a reasonable remuneration.33 This may be based on an implied term or may be
a non-contractual quantum meruit—granting restitution of an unjust enrichment—
for the value of services rendered.
Before becoming entitled to remuneration or commission, the agent must have
carried out the duties, or fulfi lled the conditions, stipulated for in the agreement. The
agent is not entitled to a commission until the event on which the commission is payable
comes about. This question has frequently arisen in relation to commission payable to
estate agents. The Courts have construed such provisions very strictly, and have said
that a claim to commission, if no sale is actually made, must be established by the use
of clear and unequivocal language.34 Thus if the commission is payable ‘on finding
a purchaser’, it has been held that a person found by an agent is not to be considered
a ‘purchaser’ until that person actually purchases by entering into a contract.35 And
if the commission is payable on the introduction of a person ‘ready, willing and able
to purchase’, that person is not ‘willing’ to purchase where the agreement is ‘subject
to contract’ or where the prospective purchaser withdraws before completion;36 and
a prospective purchaser is not ‘able’ to purchase if any obstacles, whether legal or
financial, would prevent the purchase.37

31 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145.

32 For an example, see Couturier v Hastie (1856) 5 HLC 673: above p 284.
33 Turner v Reeve (1901) 17 TLR 592; Way v Latilla [1937] 3 All ER 739; Vedatech Corp v Crystal Decisions
(UK) Ltd [2002] EWHC 818 (Ch). See also Commercial Agents (Council Directive) Regulations 1993 (SI 1993
No 3053) regs 6–12. Cf Re Richmond Gate and Property Co [1965] 1 WLR 335.
34 Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 129; Ackroyd & Sons v Hasan [1960] 2 QB 144, 154;
Jaques v Lloyd D George & Partners Ltd [1968] 1 WLR 625; Harwood (trading as RSBS Group) v Smith, The
Times, 8 December 1997. Cf Scheggia v Gradwell [1963] 1 WLR 1049; Christie Owen & Davies Ltd v Rapacioli
[1974] QB 781. The test is similar where the Commercial Agents (Council Directive) Regulations 1993 (SI
1993 No 3053) apply: see reg 7. 35 Martin v Perry & Daw [1931] 2 KB 310.
36 Dennis Reed Ltd v Goody [1950] 2 KB 277. 37 Dellafiora v Lester [1962] 1 WLR 1208.
706 agency

(ii) Opportunity to earn commission

Where the employment of an agent is on a commission basis, the commission being
payable on results, there is no general rule which prevents the principal from taking a
step which deprives the agent of the opportunity to earn commission. So, for example,
a person who employs an estate agent is not necessarily bound to complete the sale,38
and can sell the property elsewhere, 39 or simply refuse to sell at all.40 But there may be
an express term of the agreement to the contrary, and in some cases the Courts have
been prepared to imply a term in order to give business efficacy to the contract.41 It is
difficult to imply such a term, however, if it means that the principal’s business must be
kept in existence simply for the agent’s benefit. In Rhodes v Forwood:42
An agreement by the defendant colliery owner with the claimants, a firm of brokers, that for
a term of seven years, or for so long as the claimants should carry on business, the claimants
were to be the sole agents for the sale of any of the defendant’s coal in Liverpool was not
broken when, within five years, the defendants sold the colliery and ceased to carry on
business.

The House of Lords held that the terms of the agreement did not bind the defendant to
send any coal to Liverpool; they merely stipulated that, if coal was sent, the claimants
were to be the sole agents for its sale. There could therefore be no implication that the
defendant should keep his colliery so that they might earn their commission.
On the other hand, in Turner v Goldsmith:43
G agreed to employ T as his agent, canvasser, and traveller for five years. T was to do his
utmost to obtain orders for, and sell, such various goods manufactured or sold by G as should
from time to time be forwarded or submitted by sample to him. Within the period of five
years G’s factory was burnt down and he did not resume business. T brought an action for
breach.

The Court of Appeal gave judgment in his favour. They implied a term that he was to be
allowed to earn his commission. Rhodes v Forwood was distinguished on the ground
that, in that case, there was no express contract to employ the agent.44 Moreover, the
Court held that the contract had not been frustrated by the fire, for the claimant’s
employment was not confined to articles manufactured by the defendant, but extended
also to articles sold by him without reference to their origin.

(iii) Reimbursement and indemnity

Unless otherwise agreed, the agent must also be reimbursed by the principal for all
expenses, and indemnified against all liabilities, which the agent has reasonably

38 Boots v E Christopher & Co [1952] 1 KB 89. 39 McCallum v Hicks [1950] 2 KB 271.

40 Luxor (Eastbourne) Ltd v Cooper [1914] AC 108. 41 See above, p 152.
42 (1876) 1 App Cas 256. See also French & Co Ltd v Leeston Shipping Co Ltd [1922] 1 AC 451. See also
Orient Overseas Management and Finance Ltd v File Shipping Co Ltd, The Energy Progress [1993] 1 Lloyd’s
Rep 355.
43 [1891] 1 QB 544. See also Warren & Co v Agdeshman (1922) 38 TLR 588; Alpha Trading Ltd v Dunnshaw-
Patten [1981] QB 290; George Moundreas & Co SA v Navimpex Centrala Navala [1985] 2 Lloyd’s Rep 515.
44 Ibid, 546 (Lindley LJ).
 effect of agency 707

incurred in the execution of its duties.45 These rights of reimbursement and indemnity
extend to cases where the agent has occasioned liability by an honest mistake,46 but not
where they have arisen from breach of duty or default by the agent.47

(iv) Lien
The agent is entitled to a lien on the goods of the principal in its possession in respect
of any claim by the agent against the principal arising out of the agency.48 The lien is a
possessory and particular lien, ie the goods can only be retained by the agent in respect
of the particular transaction, unless by agreement or custom a general lien is given in
respect of any claim outstanding against the principal, whether connected with the
agency or not.49

2. the relations between the principal

and third parties
(a) the general position
When a principal endows an agent with actual authority to contract, the principal
is bound, as regards third parties, by all acts of the agent which are done within the
limits of that authority. This rule is often expressed in the maxim, Qui facit per alium,
facit per se, a person who acts through another acts in person.
The same rule applies where the agent is acting within its ostensible authority.50
The principal will be liable to third parties even though the agent has acted for its own
benefit and in fraud of the principal.51 Where, however, the third party dealing with the
agent is aware that the agent is acting for its own benefit, or where the circumstances
of the transaction are such as to put the third party on enquiry, the principal is not
bound.52
A principal also acquires rights against a third party under a contract entered
into by an agent on its behalf where the agent has acted within the limits of its actual
authority. But a principal does not acquire rights (as opposed to liabilities) against
the third party by reason of ostensible authority because that doctrine is based on
a representation by the principal. In other words, a principal must ratify a contract
entered into without authority before it can acquire rights (as opposed to liabilities)
against the third party.

45 Adamson v Jarvis (1827) 4 Bing 66. See also Islamic Republic of Iran Shipping Lines v Zannis Cia Naviera
SA, The Tzelepi [1991] 2 Lloyd’s Rep 265. 46 Pettman v Keble (1850) 9 CB 701.
47 Lewis v Samuel (1846) 8 QB 685. 48 Williams v Millington (1788) 1 H Bl 81, 85.
49 See eg Snook v Davidson (1809) 2 Camp 218 (factor); John D Hope & Co v Glendinning [1911] AC 419
(stockbroker); Barratt v Gough-Thomas [1951] Ch 242 (solicitor). 50 Above, p 691.
51 Hambro v Burnand [1904] 2 KB 10. See also Watts (2001) 117 LQR 300.
52 Reckitt v Burnett, Pembroke & Slater Ltd [1929] AC 176.
708 agency

(b) undisclosed principal

Normally, where an agent acts on behalf of a principal whose existence, at the time
the contract is made, is not disclosed, that ‘undisclosed principal’ can sue and be
sued under the contract; and the agent does not drop out53 so that there is a contract
between the undisclosed principal and agent on the one hand and the third party on
the other.54 This doctrine of the undisclosed principal is peculiar to English law,55 and
has sometimes been criticized as an anomaly, since it runs counter to the principles
of privity of contract.56 But it serves a useful commercial purpose.57 Moreover, it is
subject to the qualification that the authority must have been in existence at the time
the contract was made: in other words, it is not possible to ratify a contract unless the
principal is named therein, or is at any rate identifiable. Otherwise it would be open to
any stranger to intervene and sue.58
But the right of the undisclosed principal to intervene as a contracting party is
subject to certain limitations.
First, intervention is excluded if the contract is in terms which import that the
agent is the real and only principal, for then the idea of agency is incompatible with
the terms of the contract. Thus, in Humble v Hunter,59 where an agent in making a
charterparty described himself therein as ‘owner’ of the ship, it was held that evidence
was not admissible to prove that another person was the real owner and that he was
merely acting as agent on his behalf. His principal could not intervene, nor could he be
sued. On the other hand, where the agent was described as ‘charterer’,60 ‘landlord’,61
‘tenant’, 62 ‘disponent owner’,63 and ‘employer’64 evidence has been admitted to show
who the real principal was. It appears that in modern law intervention of the principal
will only be excluded by descriptive words where such intervention would clearly be
inconsistent with the object and intent of the contract.65

53 Bowstead and Reynolds on Agency (18th edn, 2006) para 9–012. See below, pp 709, 715.
54 Welsh Development Agency v Export Finance Co [1992] BCLC 148, 173, 182.
55 Lando and Beale, Principles of European Contract Law Parts I and II (2000) 221.
56 Pollock (1888) 3 LQR 359; Ames, Lectures on Legal History (1913) 453. Cf Goodhart and Harrison
(1932) 4 CLJ 320; Tan Cheng-Han (2004) 120 LQR 480. In continental systems the absence of the doctrine of
privity of contract makes such a principle commercially unnecessary. Cf Müller-Freienfels (1953) 16 MLR
299. 57 See Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199, 207.
58 Keighley, Maxstead & Co v Durant [1901] AC 240; above, p 689.
59 (1848) 12 QB 310. See also Formby v Formby (1910) 102 LT 116 (‘proprietor’); Asty Maritime Co Ltd and
Panagiotis Stravelakis v Rocco Guiseppe & Figli, SNC, The Astyanax [1985] 2 Lloyd’s Rep 109 (‘disponent
owner’). 60 Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic [1919] AC 203.
61 Epps v Rothnie [1945] KB 562. 62 Danziger v Thompson [1944] KB 654.
63 O/Y Wasa SS Co v Newspaper Pulp and Wood Exports (1949) 82 Ll LR 936. Cf Asty Maritime Co Ltd and
Panagiotis Stravelakis v Rocco Guiseppe & Figli, SNC, The Astyanax [1985] 2 Lloyd’s Rep 109.
64 Ferryways NV v Associated British Ports, The Humber Way [2008] EWHC 225 (Comm), [2008] 2 All
ER (Comm) 504.
65 See eg JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1989] Ch 72, 190–1; Welsh
Development Agency v Export Finance Co [1992] BCLC 148, 159; Siu Yin Kwan v Eastern Insurance Co Ltd
[1994] 2 AC 199, 209; Rolls-Royce Power Engineering plc v Ricardo Consulting Engineers Ltd [2003] EWHC
2871, [2004] 2 All ER (Comm) 129; Ferryways NV v Associated British Ports, The Humber Way [2008] EWHC
225, [2008] 2 All ER (Comm) 504.
 effect of agency 709

Secondly, where the personality of the agent is of such importance that the contract
must be taken to have been made with that person alone, no one else can interpose and
adopt the contract.66 For example, in the case where there is an agreement to write a
book,67 or to underwrite shares in a company,68 or to purchase goods subject to a right
of set-off,69 if the agent contracts in its own name without disclosure of the agency,
the principal cannot intervene. Of course, if the third party subsequently discovers
the identity of the principal, and with an opportunity of affirming or rejecting the
contract, elects to affirm it, as, for example, by retaining goods purchased, the third
party will be bound to the principal, but not otherwise.70
In any case, a person who contracts with an agent, honestly and reasonably believing
the agent to be the principal party to the transaction, is entitled to set up against the
principal, when discovered, any set-off which is available against the agent, and which
accrued before the person knew that the party with whom the contract was made
was in fact an agent.71 This rule rests upon the doctrine of estoppel.72 But a person
who has not been misled cannot claim such a set-off. So in a case where a man dealt
with brokers whom he knew to be in the habit of selling, sometimes as brokers for
principals, and sometimes on their own account, he could not set off his indebtedness
to the brokers against his debt to the principal.73
Upon discovering the principal, the other contracting party may elect to sue either
the agent or the principal. Any act which unequivocally indicates the adoption of either
principal or agent as the party liable determines the election, and the contracting party
cannot afterwards sue the other.74
A contract for the sale or other disposition of land must be in writing ‘signed by
or on behalf of each party to the contract’.75 Although, as we have noted, the contract
to which the undisclosed principal is a party is considered not to be separate from
the contract between the agent and the other party,76 the sub-section would seem
to preclude an undisclosed or an unnamed principal from suing or being sued on
contracts signed by their agents.77 But the Law Commission’s Working Paper stated
that ‘plainly agents should be permitted to sign on behalf of the parties’ and that it was
intended to ‘let the ordinary principles of agency operate’,78 and the Commission’s
Report indicates that its recommendations were made on this basis.79 So, it is arguable

66 Said v Butt [1920] 3 KB 497, above, p 272. Cf Dyster v Randall & Sons [1926] Ch 932.
67 Boulton v Jones (1857) 2 H & N 564, 566 (Bramwell B).
68 Collins v Associated Greyhound Racecourses Ltd [1930] 1 Ch 1.
69 Boulton v Jones (1857) 2 H & N 564, above, p 269; Greer v Downs Supply Co [1927] 2 KB 28.
70 Greer v Downs Supply Co [1927] 2 KB 28, 33.
71 Isberg v Bowden (1853) 8 Exch 852, 859; Montagu v Forwood [1893] 2 QB 350.
72 Cooke v Eshelby (1887) 12 App Cas 271, 278 (Lord Watson).
73 Cooke v Eshelby (1887) 12 App Cas 271.
74 Scarf v Jardine (1882) 7 App Cas 345. Cf Clarkson Booker Ltd v Andjel [1964] 2 QB 775; Pyxis Special
Shipping Co Ltd v Dritsas & Kaglis Bros Ltd [1978] 2 Lloyd’s Rep 380 (institution of legal proceedings not
conclusive). See Reynolds (1970) 86 LQR 318.
75 Law of Property (Miscellaneous Provisions) Act 1989, s 2(3), above, p 86.
76 Welsh Development Agency v Export Finance Co, above, n 54.
77 See Bowstead and Reynolds on Agency (18th edn, 2006) para 8–004.
78 Law Com WP No 92 (1985), para 5.16. 79 Law Com No 164 (1987), para 4.8.
710 agency

that, as was the case before the enactment of the 1989 Act,80 an agent signs ‘on behalf
of’ the principal whenever the contract is signed with authority and the agent intends
to act on behalf of the principal.

(c) misrepresentation by the agent

(i) Liability of principal in deceit
A principal who expressly authorizes an agent to make a statement which the principal
knows to be false, or who knows that the agent has made or will make such a statement,
yet deliberately does not intervene, will be liable in the tort of deceit. So, for example,
a landlord who knows of facts which would deter a prospective tenant from taking a
lease of a house, and deliberately employs an agent in order that it might be innocently
represented that the house is sound, will be liable to an action for damages for fraud.81
A principal is also responsible for fraudulent misrepresentations made by the agent in
the course of its employment under the normal rules of vicarious liability.82
One of the most difficult problems, however, is to know how far the knowledge of
the agent that the representation is false can be attributed to the principal.83 In general
it is true to say that where the state of mind of a party to a contract is material, the law
regards the principal and agent as one.84 Thus in a contract uberrimae fidei, if there is a
failure to disclose material facts which are known to the agent but not to the principal,
or vice versa, the contract may be avoided.85 But this formula is correct only ‘where the
employment of the agent is such that in respect of the particular matter in question,
he really does represent the principal’.86 So, if, for example, the agent of an insurance
company assists the proposer by filling in the proposal form, and does so in such a
way as to mislead the company, the policy is voidable by the company. No knowledge
of the inaccuracies will be attributed to the company, for the agent is not employed by
them to fill in proposal forms; but knowledge will be attributed to the proposer, for the
company’s agent became the proposer’s agent for the matter in question.87 Again, the
knowledge of a person whose agency has been determined before the insurance policy
sued upon had been made cannot be imputed to the principal.88
But even where the knowledge of the principal and agent can be treated as one, in
order for an action in deceit to lie in respect of a representation by an agent, it must

80 Basma v Weekes [1950] AC 441, 454, on the Law of Property Act 1925, s 40.
81 Ludgater v Love (1881) 44 LT 694. 82 Lloyd v Grace, Smith & Co [1912] AC 716.
83 See generally on imputed knowledge—as well as on the ‘directing mind and will’ theory in relation to
a company—El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 (which concerned ‘knowing receipt’ of
funds transferred in breach of fiduciary duty). As regards the ‘directing mind and will’ theory, the classic
judgment is that of Lord Hoff mann in Meridian Global Funds Management Asia Ltd v Securities Commission
[1995] 2 AC 500. See also Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39, [2009] 1 AC 1391.
84 S Pearson & Son Ltd v Dublin Corporation [1907] AC 351 (principal believes to be true, but agent knows
to be false). See also Watts (2001) 117 LQR 300.
85 Blackburn, Low & Co v Vigors (1887) 12 App Cas 531, 541. 86 Ibid, 538 (Lord Halsbury).
87 Biggar v Rock Life Assurance Co Ltd [1902] 1 KB 516; Newsholme Bros v Road Transport etc Insurance Co
Ltd [1929] 2 KB 365. Cf Stone v Reliance Mutual Insurance Society [1972] 1 Lloyd’s Rep 463.
88 Blackburn, Low & Co v Vigors (1887) 12 App Cas 531. Th is case was decided before the Marine Insurance
Act 1906: above, p 335.
 effect of agency 711

be shown that one of the two was dishonest. If, upon examination, the facts resolve
themselves into an ‘innocent division of ingredients’,89 no deceit will be established.
Although the principal knows facts which falsify the agent’s representation, this does
not make the principal guilty of deceit.90 An innocent state of mind on the part of the
agent cannot be added to an innocent state of mind on the part of the principal so as
to produce fraud.

(ii) Liability of principal in negligence

It is a moot point how far these same principles would apply if a third party sought
to make the principal liable in damages for negligent misstatement or under section
2(1) of the Misrepresentation Act 1967.91 Both at common law and under the Act,92 the
principal may be liable in damages for a misrepresentation made by the agent, acting
within the scope of its authority, as if the misrepresentation had been made by the
principal. Although the misrepresentation may have been made by the agent without
negligence and with reasonable ground to believe and belief in its truth, it may be that
knowledge or means of knowledge on the part of the principal, or of a fellow agent or
of an employee of the principal, of facts which would show the representation to be
untrue would, in certain circumstances, be sufficient to render the principal liable in
negligence or under the Act.93

(d) settlement with the agent

It often happens that either the principal or the third party incurs a debt to the other
under a contract made through an agent and the principal or the third party thereupon
settles with the agent, intending that the agent should pay across the money and so
discharge the debt. Sometimes, however, the agent fails to do so, and makes away
with the money or becomes bankrupt. Is the debtor then liable to pay over again? The
answer will depend on whether it is the principal or the third party who is making the
payment.

(i) Payment by principal

Where the principal pays the agent, the general rule is that the principal is not
discharged.94 But where there are indications that the third party looks to the agent
alone for payment and in consequence the principal settles with the agent,95 or where
the third party’s conduct leads the principal to suppose that the debt has already been
paid,96 the third party is estopped from claiming to be paid over again. Normally,
however, this is not the case. Where the third party knows that the agent is contracting
on behalf of a principal, this indicates that the third party did not look exclusively

89 Devlin (1937) 53 LQR 344; Armstrong v Strain [1951] 1 TLR 856, 871 (Devlin J).
90 Armstrong v Strain [1952] 1 KB 232; Armagas Ltd v Mundogas SA [1986] AC 717.
91 See above, p 325. 92 Gosling v Anderson (1972) 223 EG 1743.
93 Cf Atiyah and Treitel (1967) 30 MLR 369, 374.
94 Irvine & Co v Watson & Sons (1880) 5 QBD 414. 95 Smith v Ferrand (1827) 7 B & C 191.
96 Wyatt v Marquis of Hertford (1802) 3 East 147.
712 agency

to the agent for payment.97 It is necessary to show conduct by the third party which
would estop it from proceeding against the principal, or a custom of the trade to this
effect.
It was laid down in Armstrong v Stokes98 that, if an undisclosed principal pays
the agent for the price of goods sold to it, and the existence of the undisclosed
principal is then discovered, the seller cannot sue the undisclosed principal. Th is
decision proceeded on the ground that a demand for payment could not be made
from ‘those who were only discovered to be principals after they had fairly paid the
price to those whom the vendor believed to be the principals, and to whom alone
the vendor gave credit’.99 But this case is contrary to earlier authority,100 and it was
subsequently criticized by the Court of Appeal.101 No estoppel could legitimately
arise since the seller was unaware of the undisclosed principal’s existence, and thus
could not have induced it to settle with the agent. It may therefore be that it does
not represent the law.

(ii) Payment by third party

If it is the third party who settles with the agent, again the general rule is that the third
party is not discharged. The reason for this is that an agent who is authorized to sell is
not necessarily authorized to accept the purchase money.102 Payment, however, to an
agent who has such authority, either from an express mandate of the principal or in
the ordinary course of business, will constitute a good discharge.103 It would also seem
that where the principal is undisclosed, payment to the agent before disclosure would
be effective, for the principal has led the third party to believe that the agent is dealing
on its own account.104

3. the relations between the agent

and third parties
An agent who is employed to establish privity of contract between the principal
and a third party, in most instances will acquire no rights and incur no liabilities
in respect of the contract which is entered in the capacity of agent. But ‘it is not the
law that, if a principal is liable, his agent cannot be’,105 and the agent may be found
to have undertaken personal liability.106 It is therefore our first task to discover the
circumstances in which an agent may be under a personal liability.

97 Irvine & Co v Watson & Sons (1880) 5 QBD 414. 98 (1872) LR 7 QB 598. 99 Ibid, 610.
100 Heald v Kenworthy (1855) 10 Exch 739, 745.
101 Irvine & Co v Watson & Sons (1880) 5 QBD 414, 417 (Bramwell LJ).
102 Butwick v Grant [1924] 2 KB 483.
103 Howard v Chapman (1831) 4 C & P 508; International Sponge Importers v Watt [1911] AC 279.
104 Curlewis v Birkbeck (1863) 3 F & F 894. Cf Drakeford v Piercy (1866) 7 B & S 515.
105 Yeung Kai Yung v Hong Kong and Shanghai Banking Corp [1981] AC 787, 795 (Lord Scarman).
106 See Reynolds (1969) 85 LQR 92.
 effect of agency 713

(a) personal liability of the agent

Where an agent contracts, as agent, for a disclosed principal, so that the other party to
the contract looks through the agent to a principal, it may be laid down, as a general
rule, that the agent drops out of the transaction as soon as the contract is made. The
agent acquires neither rights nor liabilities. But there are several situations in which
the agent is personally liable.

(i) Agent undertakes liability

Whether the agent has undertaken personal liability depends on the proper construction
to be put upon the conduct of the parties where the contract is oral, or upon the
wording of the document and the surrounding circumstances if it is written.107 There
is nothing to prevent both principal and agent being severally liable on, and entitled
to enforce, a contract which the agent has made on behalf of the principal, if that
was the intention of the parties.108 The agent may, for example, expressly or impliedly
undertake liability for payment,109 or may be considered to have done so by trade
usage.110 Or the document in which the contract is written may give no indication that
the agent was acting as such, although both parties knew this to be the case: ‘Where
a person signs a contract in his own name, without qualification, he is prima facie to
be deemed to be a person contracting personally: and, in order to prevent this liability
from attaching, it must be apparent from the other portions of the document that he
did not intend to bind himself as principal’.111

(ii) Agent party to a deed

An agent who is party to a deed is bound thereby even though described as agent,112
except possibly where the agent is acting under a power of attorney.113

(iii) Negotiable instruments

An agent who signs as party to a negotiable instrument, such as a bill of exchange or
promissory note, either as drawer, indorser, or acceptor, will be personally liable even
though words which describe the agent as such, or as filling a representative character,

107 Chapman v Smith [1907] 2 Ch 97, 103. See also Elpis Maritime Co Ltd v Marti Chartering Co Inc, The
Maria D [1992] 1 AC 21; Punjab National Bank v De Boinville [1992] 1 WLR 1138, 1155.
108 The Swan [1968] 1 Lloyd’s Rep 5, 13–14.
109 Hall v Ashurst (1833) 1 C & M 714; Rusholme & Bolton, etc Ltd v SG Read & Co [1955] 1 WLR 146;
Format International Security Printers Ltd v Mosden [1975] 1 Lloyd’s Rep 37; Fraser v Equitorial Shipping Co
Ltd [1979] 1 Lloyd’s Rep 103.
110 Fleet v Murton (1871) LR 7 QB 126; Perishables Transport Co v Spyropoulos [1964] 2 Lloyd’s Rep 379.
111 2 Smith’s Leading Cases (12th edn, 1915) 379; HO Brandt & Co v HN Morris & Co Ltd [1917] 2 KB
784; Hichens Harrison Woolston & Co v Jackson [1943] AC 266, 273; Tudor Marine Ltd v Tradax Export SA
[1976] 2 Lloyd’s Rep 134. Cf The Santa Carina [1977] 1 Lloyd’s Rep 478 (oral contract); Seatrade Gronigen
BV v Geest Industries Ltd [1996] 2 Lloyd’s Rep 375 (signature had to be read in conjunction with other parts
of document). 112 Appleton v Binks (1804) 5 East 148.
113 Powers of Attorney Act 1971, s 7(1), as amended by the Law of Property (Miscellaneous Provisions)
Act 1989 and S1 2005 No 1906. Th is exception probably only applies where the principal is named in the
deed: Harmer v Armstrong [1934] Ch 65.
714 agency

are added to the signature.114 The agent must go even further and indicate clearly that the
signature is only on the principal’s behalf. Thus the addition of the words ‘receiver’,115
‘executor’,116 or ‘director’117 will not necessarily relieve the agent of liability; but such
expressions as ‘for and on behalf of X as agent’, or ‘per pro’ will do so.118

(iv) Foreign principal

Although there is no rule of law to the effect that an agent who contracts on behalf of a
foreign principal will be personally liable, the fact that a principal is a foreigner may be
of some weight in determining whether the mutual intention of the third party and the
agent was that the agent should be personally liable to be sued as well as the principal,
particularly if credit has been extended by the third party.119

(v) Principal not in existence

An agent who contracts on behalf of a non-existent principal (for example a company
before it has been incorporated) risks incurring personal liability on the contract so
made.120 At common law this was a question of construction. While the Court may
assume that the agent making the contract would be personally liable,121 there was no
rule of law that an agent is automatically a party whenever there is no principal capable
of being bound by the agreement.122 The construction of the particular contract, and
the signature on the contract may show that it was made with the principal alone, so
that the agent acquires neither rights123 nor liabilities124 under the contract. Section
51(1) of the Companies Act 2006, however, provides that a contract which purports
to be made by or on behalf of a company at a time when the company has not been
formed has effect, subject to any agreement to the contrary, as one made with the
person purporting to act for the company or as agent for it, and he is personally liable
on the contract accordingly. This provision applies whatever the form of the signature,
ie whether the agent signs on behalf of the company or as the company itself.125
Moreover, the agent can sue as well as be sued.126

(vi) Misrepresentation
An agent who, while acting on behalf of the principal, is guilty of deceit, will be liable
in damages in tort.127 Although, in certain circumstances, such an agent may also be
liable for negligent misstatement, where the principal owes a duty of care to the third
party, the existence of a further duty of care owed by the agent is dependent on the

114 Bills of Exchange Act 1882, s 26. Cf ibid, s 17. See also Companies Act 2006, s 83. Cf Bondina v Rollaway
Shower Blinds Ltd [1986] 1 WLR 517. 115 Kettle v Dunster and Wakefield (1927) 43 TLR 770.
116 Liverpool Bank v Walker (1859) 4 De G & J 24. 117 Elliott v Bax-Ironside [1925] 2 KB 301.
118 Ibid, 307 (Scrutton LJ); Bills of Exchange Act 1882, ss 25, 31(5).
119 Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545, 558.
120 Kelner v Baxter (1866) LR 2 CP 174, above, p 690. 121 Ibid, 185 (Willes J).
122 Black v Smallwood (1966) 117 CLR 52 (Australia).
123 Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45.
124 Hollman v Pullin (1884) 1 Cab & El 254. 125 Phonogram Ltd v Lane [1982] QB 938.
126 Braymist Ltd v Wise Finance Co Ltd [2002] EWCA Civ 127, [2002] Ch 273.
127 Standard Chartered Bank v Pakistan National Shipping Corp (No 2) [2002] UKHL 43, [2003] 1 AC 959.
 effect of agency 715

agent personally assuming responsibility to the third party.128 But it has been held
that an agent cannot, as agent, be made liable in damages under section 2(1) of the
Misrepresentation Act 1967.129

(vii) Unnamed principal

An agent who contracts as agent, but does not disclose the name of the principal, is
also, as a rule, not personally liable on the contract which is made. Yet here too, as
where the name of the principal is disclosed, the matter is one of construction.130 But,
although there is a prima facie rule that the agent drops out of the transaction, the
terms of the contract or trade usage may again indicate a contrary intention.131

(b) ‘agent’ acting as principal

Is it possible for a person who has purported to contract as agent for an unnamed
principal, to state that he or she is in fact the real principal? The answer is that this
is possible, for if the other party to the contract was willing to take the liability of an
unknown person, it is hard to suppose that the agent was the one person in the world
with whom the other party was unwilling to contract. At any rate, the character or
the solvency of the unnamed principal could not have induced the contract. Thus in
Schmaltz v Avery:132
S entered into a contract of charterparty with D. S described themselves as ‘agents of the
freighter’, and it was provided in the contract that, since they were contracting ‘on behalf of
another party’, all personal liability on their part should cease when the cargo was shipped.
They then revealed themselves as principals and sought to enforce the charterparty.

It was held that they were entitled to do so. In this case, the ‘agent’ was allowed to sue
on the contract, and by the same token ought similarly to incur liability under it.

(c) undisclosed principal

If the agent acts on behalf of a principal whose existence is not at the time disclosed
(the ‘undisclosed principal’),133 the other contracting party, when discovering the true
facts, is entitled to elect whether to treat the principal or the agent as liable.

128 Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. See also Smith v Eric S Bush [1990] 1
AC 831 (mortgagee’s valuer); Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560, 571 (Nicholls V-C)
(solicitor); Henderson v Merrett Syndicates Ltd [1995] AC 145; McCullagh v Lane Fox & Partners Ltd (1996)
49 Con LR 124 (estate agent).
129 Resolute Maritime Inc v Nippon Kaiji Kyokai [1983] 1 WLR 857; MCI WorldCom v Primus
Telecommunications Inc [2003] EWHC 2182 (Comm), [2004] 1 All ER (Comm) 138. The explanation for this
is that s 2(1) is concerned only with a misrepresentation by ‘a party’ to the contract.
130 Fleet v Murton (1871) LR 7 QB 126, 131.
131 Southwell v Bowditch (1876) 1 CPD 374, 376; Hichens, Harrison Woolston & Co v Jackson & Sons [1943]
AC 266; Perishables Transport Co v N Spyropoulos (London) Ltd [1964] 2 Lloyd’s Rep 379.
132 (1851) 16 QB 655. See also Harper & Co v Vigers [1909] 2 KB 549. Cf Sharman v Brandt (1871) LR 6
QB 720. 133 See above, p 708.
716 agency

The reason for this rule is plain. If T enters into a contract with A, T is entitled at all
events to treat A, the party with whom T supposed the contract was made, as liable. If
T subsequently discovers that A is in fact the representative of P, T is entitled to choose
whether to accept the actual state of things, and treat P as liable, or whether to adhere
to the supposed state of things upon which the contract was entered, and continue to
treat A as liable.
The liability of the agent continues until the other contracting party has done some
act which unequivocally indicates that it regards the principal as the party solely
liable.134

(d) unauthorized acts of the agent

Where a person purports to act as agent for a disclosed principal but without any
authority to do so, the party who was thus induced to enter into a contract has one of
three remedies if damage has been suffered as a result.

(i) Breach of warranty of authority

First, the other party may sue on a warranty of authority. This is an implied promise
on the part of the professed agent that, in consideration of the other party entering
into the contract, the professed agent warrants the existence of a principal and that the
contract is within the authority conferred by that principal.135
This rule applies not only to transactions or representations which would result
in contract, but also to any representation of authority whereby one induces another
to act detrimentally.136 It is immaterial that the agent had no knowledge or means of
knowledge that it was acting without authority, for ‘moral innocence, so far as the
person who has been induced to contract is concerned, in no way aids that person
or alleviates the inconvenience and damage which he sustains’.137 The warranty is,
moreover, a continuing warranty, and therefore the agent is liable even though the
authority, though valid at the time of the contract, has, unknown to the agent, been
determined, as by the death or mental incapacity of the principal.138

(ii) Deceit
Secondly, if the professed agent knew that it had not the authority which it was assumed
to possess, it may be sued by the third party in an action for deceit.139

(iii) Negligence
Finally, if the agent failed to take reasonable care in representing the existence or
extent of its authority, it may be liable in damages for negligent misstatement.140

134 See above, p 709.

135 Collen v Wright (1857) 8 E & B 647; Penn v Bristol and West Building Society [1997] 1 WLR 1356; AMB
Generali Holding AG v SEB Trygg Liv Holding AB [2005] EWCA Civ 1237, [2006] 1 WLR 2276 at [60].
136 Starkey v Bank of England [1903] AC 114.
137 Collen v Wright (1857) 8 E & B 647, 657 (Willes J). See also Suart v Haigh (1893) 9 TLR 488; Yonge v
Toynbee [1910] 1 KB 215; below, p 719. 138 See below, pp 718–720.
139 Polhill v Walter (1832) 3 B & Ad 114; above, p 320.
140 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, 532.
 25
TERMINATION OF AGENT’S
AUTHORITY
An agent’s authority may either be terminated by the act of the parties, or by operation
of law. In certain circumstances, however, it will be irrevocable, and, where the
Commercial Agents Regulations 1993 apply, although the agent’s authority can be
terminated, there are restrictions on the principal’s ability to terminate the agency
contract.1

1. modes of termination
(a) act of the parties
The relation of principal and agent is generally founded on mutual consent, and may
be brought to a close by the same process which originated it, by agreement.
It may also be determined by an express revocation on the part of the principal, or
an express renunciation on the part of the agent, although this will not affect the rights
of third parties under the doctrine of ostensible authority.2 Agency is thus prima facie
determinable unilaterally and at will, subject, of course, to any claim which either
party may have for breach of contract.
The principal may expressly or impliedly contract not to revoke the agent’s authority
during a fi xed period, or until the agent has carried out the act which has been
authorized. In such a case the authority is sometimes loosely said to be ‘irrevocable’,
but this is incorrect. The authority will be effectively revoked, at least from the time
that the agent ‘accepts’ the revocation as a repudiatory breach.3 But the principal will be
compelled to pay the agent damages for breach of contract, or to provide an indemnity
against any liability already incurred. ‘[T]he principal can revoke the agent’s authority
at will, even though it is expressed to be irrevocable and even though he commits a
breach of contract by doing so . . .’4 The revocation is therefore effective, but unlawful.

1 The Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No 3053) (as amended by SI
1993 No 3173) regs 14–15, 17. 2 Above, p 691.
3 Cf Atlantic Underwriting Agencies Ltd v Cia di Assicurazione di Milano SpA [1979] 2 Lloyd’s Rep 240
(non-acceptance of repudiatory breach; see above, p 508).
4 Temple Legal Protection Ltd v QBE Insurance (Europe) Ltd [2009] EWCA Civ 453, [2009] 1 CLC 553 at
[49] (Moore-Bick LJ).
718 agency

The notice of the revocation may be given in any form, even if the original authority
was conferred by deed,5 and it can take effect immediately unless the parties otherwise
provide in the agreement. But where the agency is a continuing one, and analogous to
a contract of service, the agent undertaking to serve the principal and the principal to
pay for the services rendered, there is an implied term in the contract that the agency
will not be revoked summarily, but only on reasonable notice.6

(b) operation of law

There are certain circumstances which will put an end to the relationship of principal
and agent by operation of law.

(i) Insolvency
The insolvency of either the principal7 or the agent8 will determine an agency for most purposes.
But the appointment of a receiver or the cessation of business by the agent will not.9

(ii) Frustration
An agency which is created to deal with certain subject-matter will normally be
frustrated by the destruction of that subject-matter.10 So, for example, if an agent is
employed to effect an insurance on a particular piece of property, and the property is
destroyed by fire, the agency determines. Also on the outbreak of war, where either the
principal or the agent becomes an enemy, the authority of the agent normally ceases
on the ground that it is not permissible to have relations with an enemy alien, and the
existence of the relationship of principal and agent necessitates such a relation.11 But
this is not invariably the case, for the agency may be of such a kind (for example, a
general power of attorney)12 that it has no tendency to assist or increase the resources
of the enemy.

(iii) Death
The death13 (or, if the principal is a corporation, its winding up or dissolution)14 of the
principal determines at once the authority of the agent. The third party’s remedy will

5 The Margaret Mitchell (1858) Jur NS 1193.

6 Martin-Baker Aircraft Co Ltd v Canada Flight Equipment Ltd [1955] 2 QB 556.
7 The principal’s property will be vested in the trustee in bankruptcy and an agent generally cannot
dispose of it. See Insolvency Act 1986, ss 283–284, 307, 315, 436.
8 Beckham v Drake (1849) 2 HL Cas 579. But only if the bankruptcy renders the agent unfit to perform
his duties: McCall v Australian Meat Co (1870) 19 WR 188; Bailey v Thurstan & Co Ltd [1903] 1 KB 137.
9 Triffit Nurseries & Others v Salads Etc Ltd [2000] 2 Lloyd’s Rep 74. Cf the winding-up or dissolution of
a company (n 14, below).
10 Rhodes v Forwood (1876) 1 App Cas 256. Cf Turner v Goldsmith [1891] 1 QB 544; above, p 706.
11 Sovfracht (v/o) v Van Udens Scheepvaart en Agentuur Maatschappij (NV Gebr) [1943] AC 204, 253–5.
See also Hugh Stevenson & Sons Ltd v Aktiengesellschaft für Cartonnagen-Industrie [1918] AC 239. Cf
Schostall v Johnson (1919) 36 TLR 75 (enemy resident in England).
12 Hangkam Kwingtong Woo v Liu Lan Fong [1951] AC 707.
13 Campanari v Woodburn (1854) 15 CB 400.
14 Salton v New Beeston Cycle Co [1900] 1 Ch 43; Pacific and General Insurance Co Ltd v Hazell [1997]
BCC 400.
 termination of agent’s authority 719

be against the agent for breach of warranty of authority. It is not necessary for the agent
to have notice of the death, so that there may be liability for such breach of warranty,
even though the agent was ignorant of the fact that the authority had been determined
by the death and had no means of finding out that this was so.15 The representatives
of a deceased principal may, however, ratify any contract entered into on behalf of the
estate,16 but they are in no way bound to do so.
A statutory qualification exists in the case of powers of attorney. A donee of a power
of attorney who acts in pursuance of the power in ignorance of the death of the donor
incurs no liability (either to the donor or to any other person) by reason of the fact that
the power has been revoked by the death.17
The death of the agent also determines the agency18 but where the Commercial
Agents Regulations apply, compensation may be due where the agency is terminated
in this way.19

(iv) Mental incapacity

The effect of the mental incapacity of the principal is a matter of some difficulty at
common law.20 In Yonge v Toynbee:21
T, after instructing solicitors to defend on his behalf a threatened action, became insane
before the action was heard. The solicitors, in ignorance of this fact, duly entered an
appearance to the writ, and took all necessary steps on their client’s behalf. When T’s insanity
became known to Y, he sought to have the appearance and all subsequent proceedings struck
out, and to make the solicitors personally liable for the costs incurred, on the ground that
their authority to act had been determined by T’s insanity.

The Court of Appeal decided in Y’s favour, holding that the solicitors had warranted
an authority which they had ceased to possess. On the other hand, in Drew v Nunn:22
N, being sane, held out his wife to have authority to deal with D on his behalf. He subsequently
became insane, but the wife continued to deal with D who had no notice of N’s insanity. N
recovered, and sought to resist an action against him for the price of the goods supplied to
his wife during the period of his insanity.

This defence did not succeed. The Court of Appeal did not expressly decide how far
the disability affected the continuance of authority, but held that N, ‘by holding out
his wife as agent, entered into a contract with [D] that she had authority to act on
his behalf, and that until [D] had knowledge that this authority was revoked he was
entitled to act on [N’s] representations’.23
These two cases can be reconciled on the ground that, although mental incapacity
puts an end to the agency as between principal and agent, it can have no effect on

15 Blades v Free (1829) 9 B & C 167; Yonge v Toynbee [1910] 1 KB 215. Cf Smout v Ilbery (1842) 10 M
& W 1. 16 Re Watson (1886) 18 QBD 116.
17 Powers of Attorney Act 1971, s 5(1)–(5). But see below, p 721.
18 Friend v Young [1897] 2 Ch 421.
19 Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No 3053), reg 17(8).
20 See below, p 722 for the effect of the Mental Capacity Act 2005, ss 9–14. 21 [1910] 1 KB 215.
22 (1879) 4 QBD 661.
23 (1879) 4 QBD 661, 669 (Brett LJ). See also Re Parks (1957) 8 DLR (2d) 155 (Canada).
720 agency

third parties who continue to contract in the belief that the agency is still in existence.
The principal is estopped from denying the authority of the agent unless and until
the third party becomes aware of the revocation. Nevertheless the decision in Yonge
v Toynbee does produce a somewhat curious result, for, as we have seen,24 if a person
contracts with a mentally incapacitated person, the contract is good unless, at the time
of contracting that person was aware of the disability.
Further, if two persons make a binding contract, and one of them, subsequently
unknown to the other, becomes mentally disabled, the contract is not, in general,
avoided by that event. Yonge v Toynbee, however, obliges us to say that if the contract
is one of agency, it will be an exception to this general principle. There is also the
additional difficulty that, if the principal is estopped from denying the contract which
the agent purported to make for the principal it is hard to see how there can have been
a breach of the agent’s warranty of authority at all, or if it has been technically broken,
what damage the third party has suffered, since the third party’s rights against the
principal are exactly what the agent professed to be able to create. The decision in
Yonge v Toynbee requires reconsideration.25
The mental incapacity of the agent would also seem to determine the agency.

2. irrevocable authority
The authority given to an agent may become irrevocable in three main instances: (a)
when it is coupled with an interest, (b) when it is contained in a power of attorney,
(c) when revocation would cause the agent personal loss.26 Additionally, as indicated
above, where the Commercial Agents Regulations 1993 apply, although the agent’s
authority can be terminated, there are restrictions on the principal’s ability to terminate
the agency contract, at least without compensation.

(a) authority coupled with an interest

An authority coupled with an interest is irrevocable during the subsistence of the
interest. This rule has been explained by Wilde CJ to mean that ‘where an agreement
is entered into on a sufficient consideration, whereby an authority is given for the
purpose of securing some benefit to the donee of the authority, such an authority is
irrevocable’.27 So where a principal and agent a gree for valuable consideration or by
deed that the agent is to have authority, for example, to collect rents in order to secure
a loan,28 or to sell certain land and discharge a debt owed to the agent by the principal
out of the purchase money,29 the principal thereby confers an interest on the agent, and

24 Above, pp 246–248. 25 See Law Commission WP No 69 (1976).

26 Reynolds in Cranston (ed), Making Commercial Law (1997) 259.
27 Smart v Sandars (1848) 5 CB 895, 917.
28 Spooner v Sandilands (1842) 1 Y & C Ch 390. Cf Doward, Dickson & Co v Williams & Co (1890) 6 TLR
316 (no security). 29 Gaussen v Morton (1830) 10 B & C 731.
 termination of agent’s authority 721

the agency cannot be revoked unilaterally by the principal, or by the death, incapacity,
or insolvency of the principal.30
But the authority must be given with the object of protecting or securing an
interest of the agent, and it is not sufficient that it does so incidentally. Thus in Smart
v Sandars:31
The defendants, who were corn factors, were entrusted by the claimants with certain wheat
to sell on their behalf. They subsequently advanced the sum of £3,000 to the claimants,
which the claimants failed to repay. The claimants gave orders that the wheat was not to be
sold, but the defendants nevertheless sold it to secure their advance.

In an action against them, the defendants pleaded that the agency, being coupled with
an interest, was irrevocable; but the Court held that this was an improper application
of the rule. The authority had not been given to secure the advance of £3,000, since it
had been given prior to, and independently of, the loan.
Similarly, in Temple Legal Protection Ltd v QBE Insurance (Europe) Ltd32 an
underwriting agent was held not to have a sufficient interest to prevent its principal
revoking its authority. Moore-Bick LJ in obiter dicta indicated that the exception to
irrevocability will be narrowly construed:
I confess to having some doubt whether an interest of a purely commercial kind can ever
be sufficient of itself to render the agent’s authority irrevocable. Almost all agents operating
in a commercial context have an interest of some kind in the exercise of their authority, if
only in earning their commission, developing their businesses and seeking to enhance their
reputations. Hitherto the law has not regarded an interest of that kind as sufficient to render
the agent’s authority irrevocable, presumably because, notwithstanding the agent’s interest,
the relationship remains one of a fiduciary nature.33

(b) powers of attorney

An instrument creating a power of attorney must be made by deed.34 Where a power of
attorney is expressed to be irrevocable and is given to secure a proprietary interest of
the donee of the power, or the performance of an obligation owed to the donee, then, so
long as the donee has that interest or the obligation remains undischarged, the power
cannot be revoked by the donor without the consent of the donee, or by the death,
incapacity, insolvency, winding-up, or dissolution of the donor.35
If a power of attorney is effectively revoked, the donee of the power does not incur any
liability, either to the donor or to any third party, if at the time the donee of the power
does not know of the revocation.36 Similarly, where a third party, without knowledge
of the revocation, deals with the donee of the power, the transaction between them is
treated as valid as if the power was still then in existence.37

30 It is not clear whether the agency persists despite the dissolution of a principal which is a company.
31 (1848) 5 CB 895. 32 [2009] EWCA Civ 453, [2009] 1 CLC 553. 33 Ibid at [52].
34 Powers of Attorney Act 1971, s 1(1) as amended by the Law of Property (Miscellaneous Provisions)
Act 1989, s 1. 35 1971 Act, s 4.
36 Ibid, s 5(1). 37 Ibid, s 5(2)–(7). See also ibid, s 6 (share transactions).
722 agency

Subject to the statutory provisions outlined above, at common law a power of attorney
is automatically revoked upon the donor becoming mentally incapable. Many powers
of attorney are given just because of this possibility, but at a time when the assistance
of the attorney became essential if the donor’s affairs were to be managed properly,
the attorney lost its authority to act. The inconvenience of this led to the enactment of
what is now the Mental Capacity Act 2005 ss 9–14,38 which allow a ‘lasting power of
attorney’ to be given (ie, a power which includes authority to make decisions for the
donor where the donor no longer has capacity) provided the requirements of the Act
are followed.

(c) agent’s personal liability or loss

Where the agent has, in pursuance of its authority, contracted a personal liability or
become liable to personal loss, the agency cannot be revoked by the principal without
the agent’s consent, for this would be to defeat rights already established.39
The liability incurred by the agent may either be a legal liability, as where the agent is
bound by contract to pay to a creditor of the principal a debt which the agent has been
authorized to receive;40 or it may simply be a loss which is likely to occur in fact. Thus
in Seymour v Bridge:41
B employed S, who were stockbrokers, to buy shares for him according to the rules of the
Stock Exchange. S purchased the shares from a jobber in the usual way, but B, before settling
day, repudiated the transaction on the ground that the numbers of the shares had not been
specified in accordance with Leeman’s Act 1867.42 This Act would indeed have invalidated
the purchase, but the Stock Exchange forces its members to complete such bargains under
pain of expulsion. B must have been taken to have known of this rule as he contracted on
that basis.

It was held that S’s authority could not be revoked by B so as to cause S actual loss, and
that B was bound to indemnify S for the money which they had paid for the shares.
The liability or loss must have been in the contemplation of the parties at the time
that the authority was conferred.43 Thus, where an investor did not know of the custom
in Seymour v Bridge, he was held, under circumstances in other respects precisely
similar to those in that case, not to be bound to pay for the shares.44 Also the principle
does not apply where the contract entered into by the agent is not merely void, but
illegal.45
In Temple Legal Protection Ltd v QBE Insurance (Europe) Ltd,46 in which it was
decided that an underwriting agent’s continuing authority could be revoked, it was
pointed out that there is a distinction between the operation of this ‘personal loss’
exception in the context of whether the principal is bound to indemnify the agent

38 Th is has replaced the Enduring Powers of Attorney Act 1985.

39 Cf Pacific and General Insurance Co Ltd v Hazell [1997] BCC 400, 409–10.
40 Hodgson v Anderson (1825) 3 B & C 842. 41 (1885) 14 QBD 460.
42 Banking Companies’ (Shares) Act 1867, repealed by the Statute Law Revision Act 1966.
43 Read v Anderson (1884) 13 QBD 779, 783. 44 Perry v Barnett (1885) 15 QBD 388.
45 See above, p 428. 46 [2009] EWCA Civ 453, [2009] 1 CLC 553.
 termination of agent’s authority 723

for its loss—which is what many of the past cases have been concerned with—and
its operation in the context, being dealt with in the instant case, of whether the
agent has continuing authority to act. Moore-Bick LJ said, referring to Read v
Anderson:47
[T]hat case, and others like it, are not concerned with revocation of the agent’s authority
in the sense of his power to affect the legal position of the principal but to authority
in the context of the rule that the right to reimbursement and indemnity does not
extend to unauthorised acts. The distinction would be of importance in a case where the
principal was willing and able to indemnify the agent against any loss flowing from the
revocation of his authority, but was not willing to allow the agent to take action on his
behalf which would avoid the loss. In such a case I do not think that the agent’s authority
would be irrevocable. In the present case if, before [the principal] purported to revoke
its authority, [the agent] had incurred liabilities to third parties as a result of acts done
in the exercise of that authority, its right to an indemnity would be unaffected by any
subsequent revocation of authority. It does not follow that [the agent] would continue to
have authority to act on behalf of [the principal] in the future, or that there would be any
need for it to do so.48

(d) commercial agents

Where the Commercial Agents Regulations 199349 apply, the principal’s freedom to
terminate a commercial agency is restricted. If the contract is for an indefinite period,
minimum periods of notice are specified,50 and, save where the termination is on the
ground of the agent’s breach, the agent is entitled to be compensated for damage.51
It appears that under the Regulations compensation is calculated by reference to the
commission the agent would have earned had the contract continued to be performed
in the normal manner in which the parties had intended,52 and not, as at common law,
on the basis of the principal’s acting to minimize its liability to the agent.53 This right
to compensation exists even where the principal’s termination of the agency contract
is not a breach of contract.54
The leading case on how precisely one assesses compensation under the Regulation
is Lonsdale v Howard & Hallam Ltd:55
L was a commercial agent in the shoe trade. From 1990 he went round the South-East of
England selling, inter alia, ‘Elmdale’ shoes on behalf of H. In 2003, H ceased trading as its
business had gone into hopeless decline. L was given six months notice of termination and

47 (1884) 13 QBD 779. 48 [2009] EWCA Civ 453, [2009] 1 CLC 553 at [59].
49 The Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No 3053) as amended by SI
1993 No 3173.
50 Ibid, reg 15 (one month for the fi rst year of the contract, two months for the second year, and three
months for the third and subsequent years). An agreement for a fi xed period which continues to be performed
after that period has expired is (reg 14) converted into one for an indefi nite period.
51 Ibid, regs 17, 18(a). 52 Page v Combined Shipping & Trading Co Ltd [1997] 3 All ER 656.
53 Above, p 540. 54 1993 Regulations, reg 17(1)(6).
55 [2007] UKHL 32, [2007] 1 WLR 2055; Saintier (2008) 124 LQR 31.
724 agency

was paid commission on the sales he had generated. At the time of termination, his net
annual commission was £8,000.

The question at issue was how should compensation under the Regulations be assessed.
The House of Lords upheld an assessment of £5,000. This was on the basis that, at the
time of termination, that is the price at which, on a generous view, L could have sold
his agency for assuming that it would carry on. The French approach of assessing
compensation under the 1993 Directive56 at twice the average annual commission
over the previous three years was rejected as inapplicable in England.

56 Council Directive (EEC) 86/653 which was the directive given effect to in England by the Commercial
Agents Regulations 1993.
 index
ab initio classification telephone, by 46 principal, third parties
terms 144–5 telex, by 46, 51 and 696
abandonment 462 unilateral contracts 30–1 recognition of 696
absolute assignment 664–5 variation in 42 privity of contract 635
abuse of power waiver of communication 45 agents
companies accord and satisfaction auctioneers as 696–7
capacity to contract consideration 113 authority
distinguished from 230 discharge 459–61 actual 687–8
abuse of process 390–2 accrued obligations 524–5 implied 687
‘accept’ Achilleas, The ostensible 687, 691–3
meaning of 150 impact of 547–9 absence of 692
acceptance 40–53 acknowledgement 42 limited 693
agreements 29–32 limitation of actions 607 partnership 693
ascertained person 37–8 actionability requirements 692
auctions 36 promises 94 revoked 693
battle of the forms 41–3 actions for agreed sum 573–5 usual 694
change of terms 41 advance payments 574 brokers as 698
communication 43–50 apportionment 574 commercial agents 698–9,
expressly prescribed 51 damages 573 723–4
other than by offeree 44–5 discharge 574 commission, opportunity to
to offeror 44 legitimate interest 574 earn 706
counter-offer 40–1 privity of contract 620 Crown 224
definition 43–4 remedy of 573 death 718–9
e-mail, by 46 repudiatory breach 574 deceit 710–1, 716
equivocal 43 sale of goods 573–4 deeds, party to 713
fax, by 46 security 574 del credere 705
general offers 37–8 active concealment 301–2 duties of 701–5
knowledge of offer 51 additional obligations 465 account, to 701
limiting power to revoke 48 adhesion, contracts of 5–6 care and skill, exercise
mental, sufficiency of 43–4 admissibility of 702
methods, distinction evidence 139 conflicts of interests 703–4
between 46 adoption 395 del credere agents 705
mistake 254–6, 269–71 advance payments delegation 704–5
must correspond with actions for agreed sum 574 secret profits 702–3
offer 40–3 restitution 591 estate agents 698
notification of 38, 48 advertisements 34–5 estoppel 709
offer 34 generally not offer 34 factors as 697
by ascertained person 37–8 invitations to treat 33 foreign principal 714
not coincident with 254–6 offer 38 frustration 718
origins of 16 affirmation 149, 510 indemnity 706–7
performance, distinction misrepresentation 314–5 insolvency 718
between and 54 undue influence 368–9 interest, coupled with
post, by 45–6, 51 voluntary nature of 149–50 authority 720–1
revocation 52–3 agency irrevocable authority 720–4
prescribed mode of 51–2 creation of 687–99 knowledge 710
presumption 39 effects of 701–16 liens 707
promises nature of 687 limitation of authority 693
for an act 45–6 necessity, of 694–6 loss, agent’s personal 722–3
qualified 43 definition 694–5 mental incapacity 719–20
rejection 40–1 scope 695 misrepresentation 326, 710–1,
revocation 52–3 ship-masters and 714–5
silence, by 49–50 carriers 694–5 negligence 711, 716
telegram, by 46, 51 negotiorum gestio negotiable instruments 713–4
726 index

agents (cont.) acceptance 29–32 proving 29

partnerships 693 anti-competitive provisional 69
personal liability of 713–5, agreements 396–415 public interest 402
722–3 bilateral contracts 30–1 reasonableness 402
personality, importance cartels 406–10 restraint of trade 397–8
of 709 certainty 61–6 revenue, to defraud 385–6
powers of attorney 721–2 conditional fee separation 394
principal and agreements 391–2 speculative litigation 390
agent acting as 715 contrary to good morals 393 states, injure in relations with
capacity 690 correspondence, by 34 other states, which 386–7
existence of 690, 714 crime, agreement to telegram, by 33–4
ratification 688–91 commit 385–6 telex, by 29
manner of 691 discharge 459–72 third party agreements 30
retrospectivity 691 accord and unilateral contracts 30–1
time of 691 satisfaction 459–61 wrongdoing, not to
relations between 701–7 e-mail, by 29 disclose 388–9
third parties and 707–12 elicited from alien enemy
ratification 688–91 correspondence 29–30 contracts with 386–7
principal 689–90 encouraging speculative allocation
reimbursement 706–7 litigation 390 economic risks 3
remuneration 705 establishing 29–33 allotment of shares 343–4
revocation of authority 693 exclusive-dealing alteration see variation
rights of 705–7 agreements 410–4 ambiguity
commission, opportunity to solus ties 410–1 construction of contract 169
earn 706 fax, by 29 American Law Institute 2, 21
indemnity 706–7 gentlemen’s agreements 409 Restatement see Restatement
liens 707 government, which tend to Second of the Law of
reimbursement 706–7 injure 388 Contracts
remuneration 705 incomplete 66–9 Ancient Law 4
settlement 711–2 agreement ‘subject to antecedent debt
solicitors as 698 contract’ 68–9 past consideration 97
termination of contracts subject to anti-competitive agreements
authority 717–24 condition 69 common law 396
act of parties, by 717–8 letters of intent 67–8 concerted practices 409
death 718–9 inferences from conduct 31–2 EC law 396
frustration 718 jurisdiction of courts, illegality 396–415
insolvency 718 ousting 395–6 control of 396–415
mental incapacity 719–20 lease and lease-back 411–2 modern law on 398–400
modes of 717–20 legal process, which tend to price fixing 409
operation of law 718–20 abuse 390–2 restraint of trade 397–8
third parties and 712–6 maintenance 390–1, 396 anticipatory breach 514–6
payment by 712 marriage 394 apportionment
types of 696–9 affecting freedom or actions for agreed sum 574
uberrimae fidei 710 security of 394 apprenticeships
unauthorized acts of 716 morals, contrary to good 393 minors 240
undisclosed principal 708–10, multiparty agreements 30 arbitration 19, 64
715–6 negotiation 29–30 frustration 506
unnamed principal 715 offer 29–32 specific performance
usual 694 offices, sale of 388 580–1
warranty, breach of ousting jurisdiction of arbitration clauses
authority 716 courts 395–6 illegality 395–6
agreed damages clauses 565–71 parental duty 395 survive termination 525
amounts recoverable 570–1 affecting freedom or ascertained person
construction of 566–7, 569 security of 395 offer 37–8
liquidated damages 565–6 perverting the course of ascertainment
penalties 565–6 justice 388–9 certainty 64–5
purpose of 566 price fixing 409 assessment of damages see
agreement 17 promises 31 measure of damages
 index 727

assignment quid pro quo 14 as offer 36

absolute 664–5 Slade’s Case 15 auction 36–8
bills of lading 684 tort 13–16 consideration, as 37
charge, not by way of 664–5 trespass 13 offer, as 36–7
choses in action 661–2 attestation retractable 38
claims arising 669–71 deeds 77 bilateral contracts
common law 661–2 Attorney-General v Blake offer 30–1
Crown 661 restitution 598–603 bills of exchange 530
equitable 662–3, 665–9 attributes assignment 678–9
choses in action 662, 668–9 identity distinguished 271 collateral transactions 432
consideration 667–9 auctioneers 696–7 discharge 462
form 666–7 auctions writing, must be made
joinder 666 consideration, bids as 37 in 79
legal choses 662–3 invitation to treat 37 bills of lading
notice 667 offer 36–7 assignment 684
equities, assignee taking bid as 36 privity of contract 641
subject to 669–71 retractable, bids as 38 binding agreements
historical background 662–3 sale of goods 160 rules on 16
land, covenants on 684 Statute of Frauds 37 blackmail
liabilities 675 withdrawal of goods from 36 duress 357–8
negotiability without reserve 36 undue influence 361
distinguished 680–2 Australia Blackstone’s Commentaries on
negotiable instruments 677–82 promissory estoppel 124–5 the Laws of England 1
bills of exchange 678–9 third-party rights 623 block exemptions
cheques 677–8 unconscionable bargains cartels 409
custom, negotiable in 374 exclusive-dealing
by 679–80 automatic determination agreements 414
promissory notes 679 frustration 498 ‘blue pencil’ rule
notice 665 severance 435
novation 676 bad bargains bonds 12
operation of law, by 682–4 duty of disclosure 299 boycotts
bankruptcy 683–4 frustration 484 duress 353
death, effect of 682–3 mistake 250, 277, 297 breach 2, 8
priorities 671–2 reliance measure affirmation 510
privity of contract 635, 662 damages 542 compensatory damages 8
recovery 671 restitutionary awards 587 conditions 141, 178
right of 665 bailment damages for 533–4
rights not capable of 672–4 exemption clauses 189–90 discharge, justifying 512–7,
bare right of action 673 privity of contract 657–8 519–24
maintenance granted to bankruptcy duress 354
wife 674 assignment 683–4 duty of disclosure by
personal relationships 674 discharge 530 fiduciaries 342
prohibitions 672 privity of contract election
public officials, salaries transfer on 635 affirmation 510
of 674 bargaining power see inequality effect of 510–1
social security benefits 674 of bargaining power failure of performance 509–10,
statutory provisions 663–5 bargains 519–24
vicarious performance 675–6 enforcing 129–30 broken condition 520–1
writing 665 ‘basis of contract’ clauses entire obligation 520
assumpsit 12–16 disclosure 336 independence of
consideration 15–16 battle of the forms promises 519–20
covenant 13 acceptance 41–3 instalments, payment
deceit 15–16 benefit by 522
enforcement 14 consideration 92 root of contract, going
indebitatus 15 bequests to 521–3
misfeasance 13 undue influence 360 termination
money, for 14–16 bids clauses 523–4
nonfeasance 13–14 as consideration 37 fiduciary duty 25
728 index

breach (cont.) minors 232 negotiation, agreements to and

forms which justify principal and agent 690 not to 65–6
discharge 512–24 public authorities 224–8 previous transactions 62–3
frustration compared with 489 restitution 219 public authorities 224
fundamental 183–6 unincorporated reasonableness 63
impossibility created by one associations 231–2 terms 61–6
party 517–9 void contracts 219 ultra vires 224
inducement of 17 voidable contracts 219 champerty
injured party, at option car hire illegality 390–1
of 507–12 minors 236 Chancery Court
misrepresentation 307–8 carriage of goods 216 jurisdiction of 10
no reason or bad reason given exclusion clauses 188–9 charge cards 447
for 511–2 frustration 481–2, 504 charterparties
non-conforming goods 512 limitation of liability exclusion clauses 188–9
recovery by party in 591–3 clauses 188–9 frustration 479–81
remedies 573–85 misdelivery 189 interferences with 479–81
actions for agreed carriage of persons 2, 35 mercantile contracts 444
sum 573–5 carriers 694–5 privity of contract 629–30, 653–7
renunciation 512–6 deviation by 188 terms 146
repudiation cartels 406–10 chattels
unaccepted 508–9 Art 81 EC 409 privity of contract 653–7
restitution 587–603 Art 85 EEC 409 cheques
rules for damages recoverable Art 101 TEU 409 assignment 677–8
for 16 block exemptions 409 indorsement 677–8
sale of goods 512 competition law 408–9 choses in action
supply 512 concerted practices 409 assignment 661–2
supply contracts 512 EC and EU law 408–9 equitable assignment 668–9
terms 133, 135, 139–40 employers, agreements civil proceedings
unaccepted repudiation 508–9 between 407–8 Crown, against 220
unfair contract terms 194–5 gentlemen’s agreements 409 civil servants
warranties 143–4 price fixing 409 contract of employment 72
withdrawal of goods at professional bodies 407–8 intention to create legal
auction 36 professional rules 407–8 relations 72
brokers 698 public interest 406–7 Civil Service Pay and Conditions
building contracts reasonableness between the of Service Code 72, 223
frustration 482 parties 406–7 civil wrong
implied terms 198 statutory control 408–10 agreement to commit 385
partial performance 455 catalogues clarity
burden of proof generally not offer 34 terms 205
terms 202 catching bargains class-protecting statutes 426
unconscionable bargains 373 unconscionable bargains 373 codification
business liability ‘causa’ attempts at contract law 18
unfair contract terms 194–5 consideration not equivalent common law duty of
of 94 disclosure 335
Canada Steamship causation mercantile contracts 157
principles 181 duress 353–4 coercion
cancellation misrepresentation 305 discouraging 129
written instruments 529–30 caveat emptor 161, 256, duress 17, 358
capacity to contract 281, 339 undue influence 361
companies 228–30 certainty cohabitees
abuse of power advantage of 145 illegality and 384
distinguished from 230 agreements 61–6 undue influence 364
Crown 220–4 ascertainment, machinery collateral contract
drunken persons 246–8 for 64–5 entire agreement clause 329
enforcement 219 custom 62–3 land, for sale or disposition 85
frustration 478–9 implied terms 157–8 collateral transactions 432
limitations on 219 ‘lock-out’ agreements 66 bills of exchange 432
mental disabilities 246–8 mistake 249 securities 432
 index 729

collateral warranties Commonwealth categorized as by judicial

damages 137 privity of contract 623 decision 147
pre-contractual statements communication categorized as by
as 137 acceptance 43–50 statute 147
terms 136–8 expressly prescribed 51 distinguished 146–9
commercial agents 698–9 offer 39–40 non-fulfilment of
compensation 723–4 revocation of offer 57–8 contingent 143
statutory provisions 723 ‘risk’ approach inapplicable 49 non-promissory 141–3
commercial contracts waiver of 45 offer 38
Crown 222 companies promissory 140–1
strict liability 181 contracts by 228–31 terms 140
commercial transactions 2 capacity 228–30 tickets, on 174
commission abuse of power uniform 171–2
agents, opportunity to distinguished warranties
earn 706 from 230 distinguished 145–6
Commission of European directors’ powers 231 warranty distinguished 140
Contract Law 20 form of contracts 231 conduct
common courts restitution 231 inferences from 31–2
development of 15 ultra vires conduct specific
Common Frame of doctrine of 228–30 performance 580
Reference 20 restitution of conflict of interest
common intention benefits 231 agents 703–4
mistake 262–3 statutory modification conflict of laws
common law of 230–1 illegality 387
anti-competitive types of 228 consent
agreements 396 compensating advantages duress vitiating 351
assignment 661–2 mitigation 556 consideration
contributory compensation see damages accord and satisfaction 113
negligence 561–2 competition adequacy 99–100
damages 585 EC and national law assumpsit 15–6
disclosure 332–3 promoting 5 attempts to rationalize 16
equity and 17, 291 Competition Commission 415 benefit 92
frustration 498–500 competition law bids at auction 37
illegality 379, 384–96 cartels 408–9 compromise 103–4
minors 233 compromise condition distinguished 92–3
misrepresentation 299–300 consideration 103–4 creditors, compositions
exclusion clauses 328–9 contracts of 338 with 114
mistake 249–50, 252, 279–85, compulsory purchase definition 91–3
290–1 orders 497 detriment 92, 121
negligent compulsory transactions 6 development of
misrepresentation 323–5 concealment doctrine 16–17, 93–4
powers of attorney 721–2 active 301–2 discharge 459, 465
privity of contract 613, 651 limitation of actions discharge of debt 111–15
criticism of rule 622–3 606–7 general rule 111–12
justification of rule concerted practices 409 equitable assignment 667–9
621–2 concurrent liability 23–4 equivalent of ‘causa’ 94
rules controlling exemption conditional bonds 12 erosion of doctrine of 17
clauses 190–2 conditional fee executed 95
statutory provisions 722 agreements 391–2 executory 95
unjust enrichment conditions existing duty
minors 242 breach 141, 178 promisor, owed to 108–11
waiver 466 consideration public duty 105–6
common law rules distinguished 92–3 third party, owed to 106–8
equity used to avoid 17 contingent 142 existing duty, performance
common mistake 251 definition 139–40 of 104–11
doctrine of 281 failure of performance not failure of 83
common relationships breach of 146 partial 590–1
standardized terms in 154–7 intermediate terms total 588–90
730 index

consideration (cont.) rule of construction not rule of re-negotiation 17

forbearance to sue 102–3 law 183–6 repudiation 184
gifts distinguished 113 syntax 168 society moves from status to 4
history 16–17, 93–4 terms 166–70 termination 3
illegal promise must not incorporation 173–7 contract law
form 435–6 rules for 169–70 attempts at codification 18
impossibility 102 construction of terms attempts to develop common
laesio enormis doctrine 100 incorporation principles of
letters of credit 115–16 signature 173 European 19–20
moral obligations 94 notice 173–7 codification 18
motive distinguished 101 construction theory codification of English law for
necessity for 93–5 frustration 488 use in India 18
negotiability 681 constructive trusts 88–9 description of 1
nominal 100 consumer development of standard form
overview of doctrine of 130 company as 195 of contract 171–2
part payment 114–15 natural person as 208 growth in legislation 18
past consideration 95–8 consumer credit growth of 1
antecedent debt 97 agreement must be in impact of human rights
negotiable writing 79 on 20
instruments 97–8 unfair contract terms 216 influence of European Union
request of promisor 96–7 consumer protection 5, 35, on 19–21
performance, difference 199–201, 203, 346 international initiatives
in 112–13 ‘cooling off ’ provisions 346 for 20–1
Pinnel’s Case 113–14 scope 207–8 reshaping of modern 17
‘practical benefit’ 110–14 unfair contract terms 172, contract option 448–9
privity of contract, relationship 195–6, 206–16 contract terms see terms
with 615–16 consumer surplus, loss of contracts
promisee, must move non-monetary 541 companies 228–31
from 98–9 contingencies Crown, by 220, 222–4
promises 94–5 provision for future 3 electronic 90
gratuitous 94 contingent conditions express designation in 148
return for 91–2 promissory conditions hire purchase 187–8
promissory estoppel 116–26, distinguished 142 illegal 22
129–30 continuing intention implication from nature
real 101–4 mistake 263 of 148–9
reciprocity and 91 continuing liability implied 17
restraint of trade 401 guarantee contracts 81 minors 232–46
specific performance 100 continuing offer 35 public authorities 224–8
third parties contra proferentem rule 179, sanctity of 7–8
part payment by 114–15 182, 214 single-performance 148
uncertainty 102 contract status 172
unconscionable bargains 100 as part of law of statutory restrictions on
undue influence 100 obligations 23–5 parties to 5
used to invalidate unfair concurrent liability 23–4 ‘string’ 144
agreements 17 definition of 2 subject to condition 69
value, having 100 delay 3 termination 145
waiver, not required for English law, principles of 1 unenforceable 22–3
467–8 exchange 2 unincorporated
conspiracy 17 extra-judicial controls 19 associations 231–2
construction of contracts frustration 8 void 22
ambiguity 169 functions of 2–4 voidable 22
ejusdem generis rule 170 history in English law 9–10, contracts of employment 156
exemption clauses 12–9 minors 235–6, 240
177–88, 190 implied 18 restrictive covenants 402–6
strict interpretation 178–9 inter praesentes 53 unfair contract terms 200, 207
expressio unius est exclusio medieval meaning of 12 contractual intention see
alterius 169 nature and function of 1–9 intention
language 168 place of 47 contractual liability 199–201
 index 731

contractual obligations see civil proceedings against 220 Crown 221

obligations commercial contacts, binding duress 354
contributory negligence 561–3 itself by 222 enjoyment, loss of 357–8
common law 561–2 damages 221 equitable 584–5
recommendations for reform EC law 220 exceptional loss 552–3
of law on as a defence in employees fraudulent
contract 18 dismissal 223 misrepresentation 320–3
statutory provisions 562–3 liability to 222–4 inadequacy of 575–6
convention office, holding during inconvenience 536–8
estoppel by 128–9 pleasure of 222 interest 564–5
conveyance 339 rights of 223 loss, for 534
completion of 87 executive action, fettering mental distress 536–8
‘cooling off ’ provisions 346 future 221–2 misrepresentation 307
Coronation cases guarantees 221 measure of damages 318–9
frustration 477–8 injunctions 220 rescission, in lieu of 317–9
corporations see companies Parliamentary funds, contract mitigation 555–6
correspondence providing for payment negligent
agreements by 34 from 220–1 misrepresentation 324–5
agreements elicited procurement 220 non-delivery or late
from 29–30 public law, application of 220 delivery 551–2
counter-offer 41–2 specific performance 220 non-punitive nature
rejection and 40–1 war 221 of 534–5
course of dealing custom peace of mind, loss of 357–8
exemption clauses 177 implied terms 157–9 promisee, loss by 616–7
Court of Chancery 290 quantum meruit
Court of Common Pleas damage compared 595–6
jurisdiction of 10, 14 liability for 189 rejection of 617–8
courts damages remoteness 543–54
agreements ousting adequacy of 575–6 Achilleas, The, impact
jurisdiction of 395–6 agreed damages clauses 565–71 of 547–9
supervision of specific liquidated damages 3, 565–6 basic two-branched
performance by 579–80 penalties 565–6 rule 544–7
covenants purpose of 566 physical injury 550–1
assumpsit 13 agreed terms clauses reasonable
debt 12–3 amounts recoverable 570–1 foreseeability 546
early actions on 11 breach, necessity of 569–70 tests for 549–50
privity of contract 643 construction of 566–8 tort, rule in 546–7, 549–50
title arising in the normal course of type of damage 550–1
recommendations for events 551–3 reputation, loss of 358–9
reform of law on in sale business position of restitutionary 24
of land 18 parties 551 right to 136
credit agreements 216 contemplation of rules on recovery for
credit cards 447 parties 553–5 breach 16
creditors exceptional loss 552–3 tax element 563–4
consideration for non-delivery or late third parties, loss by 617–8
compositions with 114 delivery 551–2 unjust enrichment 24
relationship with debtor 216 assessment, difficulty of no Wrotham Park damages 600–3
crime bar 535 damages clauses
agreement to commit 385–6 breach of contract 2, 533–4 compensation orders 5
criminal offences causation 543 dangerous goods 216
compromise of 389 collateral warranties 137 de minimis rule 591
cross-border trade common law 585 death
facilitation of 19 compensatory nature of 8, agents 718–9
cross-offers 39, 51 534–9 assignment 682–3
Crown contemplation of frustration 478–9
agents 224 parties 553–5 privity of contract
assignment 661 contributory transfer on 635
capacity to contract 220–4 negligence 561–3 unfair contract terms 209
732 index

debt accrued obligations 524–5 disclosure

action in 11–3 actions for agreed sum 574 ‘basis of contract’ clauses 336
consideration 111–5 agreement, by 459–72 codification of common law
covenant, on a 12–3 accord and duty of 335
discharge of satisfaction 459–61 common law 332–3
general rule 111–2 consideration 459 distance selling
obligation, on an 12 formation of contract 459 contracts 344–5
debtor writing, contracts duty of
relationship with creditor 216 evidenced by 460 allotment of shares,
deceit 309, 342 agreements, by contracts of 343–4
agents 716 rescission 462–4 compromise, contracts
assumpsit 15–6 variation 464–5 of 338
development of economic waiver 465–70 family settlements 338
tort 17 automatic termination 470–1 insurance contracts 334–5
fraudulent bankruptcy 530 material
misrepresentation 320 bills of exchange 462, 530 circumstances 335–6
minors 243–4 breach justifying 512–24 shortcomings of law
principals 710–1 consequences of 524–6 on 345–7
deeds consideration 459 fiduciary relationships 340–2,
agents party to 713 executory contacts 459 345
contracts by 76–7 executory satisfaction 461 employment 341
delivery 77–8 formation 459 special relationships 342
escrow 78 forms of 512–24 guarantees 337–8
signature and attestation 77 frustration 473–504 insurance contracts 334–6
when essential 78 loss or right of 149–51, 526 liability in tort for non-
promises in 31 acceptance 149–51 disclosure 342–3
default 190 affirmation 149 mistake 256
terms 155 substantial benefit 149–51 negligence and 343
defective goods 188, 196 waiver 149 negotiations 333–4
defective performance no or bad reason for claiming partnership contracts 337
standard form of contract 172 to be discharged 511 proposals for reform 337
defective premises 216 operation of law, by 527–30 rescission 343–6
defects in quality 187 judgment of court, sale of land 339
defences by 528–9 shortcomings of law on 345–7
misrepresentation 308 merger 527–8 statutory duties of 343–6
third-party rights 633 option of injured party 507–12 suretyship contracts 337–8
del credere agents 705 promissory estoppel 461–2 uberrimae fidei 334, 341
delay 3, 208 provisions for 470–2 wrongdoing 388–9
frustration 491–2 release 460 discretion
delegation rescission 462–4 public authorities 227
agents 704–5 ab initio 524 discretionary remedies 17
delivery abandonment 462 discrimination
deeds 77–8 agreement, by 462–4 affecting freedom of
defective 522 substituted contract 462–3 contract 5
frustration 503 restitution 525–6 European Union law to
deposits 89 termination on notice 471–2 prevent in tendering 19
restitution 592–3 variation 464–5 offer and 35
designation consideration for 465 dismissal
express 148 form of 464–5 Crown employees 223
detinue 11 waiver 465–70 displays of goods
detriment writing, contracts evidenced generally invitations to
consideration 92, 121 by 460 treat 34
proprietary estoppel 127–8 written instruments, alteration generally not offer 34
deviation or cancellation 529–30 disposition
carrier, by 188 disclaimers interests in land 84–9
directors’ powers 231 effect of 238 distance selling 216, 344–5
disability, persons under 606 liability 190 divisible obligations 451–4
discharge 507–26 time of 238 documentary credits 447
 index 733

documents EC law promises 129–30

guarantees 85 anti-competitive promissory estoppel 118–9, 125
land, sale or disposition of agreements 396 enjoyment
land 85 cartels 408–9 damages for loss of 357–8
signed in blank 261 Crown 220 entire obligation 451–4
single, terms for sale or electronic contracts 90 equitable assignment 665–9
disposition of land 85 exclusive-dealing choses in action 668–9
double liability agreements 414 consideration 667–9
avoidance of 632 good faith in 213 form 666–7
Draft Common Frame of promoting competition 5 joinder 666
Reference 20 tenders 36 notice 667
drunken persons unfair contract equitable damages 584–5
capacity 246–8 terms 206–7 equitable estoppel 17
due performance economic duress 353 equitable interests 430–1
security for 592–3 first recognition as factor privity of contract 653
duress 138, 350–8, 427 vitiating contract 17 equitable relief
blackmail 357–8 economic loss 310 minors, against 243–4
boycotts 353 no liability for 17 equity
causation 353–4 economic risks common law and 291
coercion 358 allocation of 3 common mistake in 289–99
consent, vitiating 351 economy mistake 252, 290–1
damages 354 changing structure of 1 role of 17
economic duress 353 ejusdem generis rule 170 Solle v Butcher 291–7
extortion 357 election time 442–3
goods, of 352 effect of to accept used to avoid common law
illegitimate pressure 350–1, breach 510–1 rules 17
357–8 waiver 469–70 equivocal acceptance 43
juridical basis of 351–2 electronic contracts 90 escrow
lawful action, threats of 356–8 EC law 90 deeds 78
nature of 350–2 signature 90 essentially different transactions
overlap with doctrine writing 90 mistake 259–61
of unconscionable employees estate agents 698
bargains 374 Crown estimates 137
person, of 352 dismissal 223 estoppel
remedies, alternative 354 liability to 223–4 agents 709
renegotiation office, holding during convention, by 128–9
commercial reasonableness pleasure of 222 equitable 17
of 356 rights of 223 evasion of guarantee contracts
legitimate liability of Crown to 222–3 by 83
distinguished 355 employment public authorities 226
rescission 358 cartels 407–8 types of 126–9
scope of 349 fiduciary relationships 341 waiver 468–70
threats 356–8 employment contract see European Union see also EC law
types of 351–3 contracts of employment influences on English law of
undue influence 349, 359–60 employment rights contract 19–21
unlawful pressure 350–1 Crown employees 223 evidence
voidable contracts 353, 358 enemy admissibility 139
Dutch law contracts with 386–7 terms 138–9
good faith in 213 enforcement exchange
duty of care assumpsit 14 contract 2
misrepresentation 331 bargains 129–30 value of 3
capacity to contract 219 exclusion clauses see exemption
e-mail illegality 383–4, 387, 417–21 clauses
acceptance by 46 privity of contract 625–31 exclusive-dealing
agreements by 29 benefit on third parties, agreements 410–4
early tender 451 term purporting to Art 81 EC 410, 414
easements confer 626–31 Art 85 EEC 410, 414
implied 156 express provision 625–6 Art 101 TEU 410, 414
734 index

exclusive-dealing existing duty Financial Ombudsman 19

agreements (cont.) performance of 104–11 ‘firm’ offers 56
block exemptions 414 expectation interest 9 ‘first shot’ approach
EC law 414 expectation measure battle of the forms 41–2
lease and lease-back 412 measure of damages 542 fitness for purpose 198
public interest 413–4 expectations 2 fixed time offer 59
reasonableness 413–4 expenses force majeure 201
restraint of trade 411–3 frustration 501–2 frustration 485
restrictive covenants on measure of damages for forbearance 102–3
land 411–2 breach 542 waiver 468
solus ties 410–1 express designation foreign jurisdiction clauses
statutory control 414 contracts 148 illegality 396
excuse 391 express prohibition formalities
executed consideration 95 illegality 380 contracts for which writing
past consideration express terms required 78–90
distinguished 95–6 consistency with implied recommendations for reform
executed contracts terms 159 of law on in sale of land 18
misrepresentation 319–20 express undertakings 190–1 formation of contract 19–130
executive action expressio unius est exclusio contracts by deed 76–8
Crown 221–2 alterius 169 delivery 77–8
executory consideration 95 extortion escrow 78
executory contracts duress 357 signature and attestation 77
discharge 459 extra-judicial controls when essential 78
executory satisfaction contract 19 discharge by agreement 459
discharge 461 formal requirements 75–6
exemption clauses fact illegality 419
bailment 189–90 mistake of 278 mistake 251–2
carriage of goods 188–9 factors 697 prevention of 142
charterparties 188–9 fairness writing 78–90
common law 183–6, 190–2 insurance contracts 336 fraud 138, 427
construction of 177–90 false representation 301 agreement to commit 385
strict interpretation 178–9 family arrangements definition 320–2
contra proferentem rule 179, intention to create legal exemption clauses 191
182 relations 71 limitation of actions 606–7
course of dealing 177 family settlements 338 minors 243–4
express undertakings, fault mistake 267
inconsistency with 190–1 absence of 293 revenue, agreement to
fraud 191 faulty goods defraud 385–6
freedom of contract 192 recommendations for reform undue influence 359, 361
fundamental breach 183–6 of law on consumer fraudulent
fundamental terms 183–6 remedies for 18 misrepresentation 309–10
hire-purchase 187–8 fax damages 320–3
international sale of acceptance by 46 deceit 320
goods 187 agreements by 29 definition 320–2
legislative controls 216 revocation of offer by 57 measure of damages 322–3
limitation clauses 182–3 fee simple 88 mistake 268
misrepresentation 191 fidelity bonds 338 fraudulent statements 305
negligence 180–2 fiduciaries free market economy 4
privity of contract 645–50, definition 340 free trade 4
657–9 remedies for breach of duty of freedom of contract 4–7
reasonableness 192 disclosure by 342 exemption clauses 192
sale of goods 187 fiduciary duty limitation on public
standard forms of breach of 25 authorities 227
contract 174 money paid, recovery of 428 unfair contract terms 209–10
statutory control 192–203, fiduciary relationships 345 French law
205–16 disclosure 340–2 commercial agency 724
variety of 196–7 employment 341 contract types 15
exhibited notice 175 special relationships 342 délai de grâce 449
 index 735

French law (cont.) money gifts

force majeure 474 obligations other than to consideration
good faith in 213 pay 502–4 distinguished 113
influence on English law paid or payable 500–1 good faith 65
249, 544 move away from 17–8 concept of 20–1
mistake 249, 287 non-occurrence of particular differing concepts of 213
offer to public 34 event 477–8 governing principle
price in sale contract 100 obligation, radical change of 347
remoteness of damage 544 in 487–9 mistake 250
subjective test of performance of only one party, requirement for 209
agreement 32 affecting 484 unfair contract terms 208,
friendly state personal services, death or 212–3
contracts hostile to 387 incapacity for 478–9 goods
frustration 8 prevention of performance in duress of 352
accrued obligations 499 manner intended by one sale see sale of goods
adventure, of 476 party 491 goodwill
agents 718 reasonableness 485–6 sale of 406
arbitration 506 restitution government
automatic determination 498 restitutionary response, agreements which tend to
bad bargains 484 development of injure 388
benefits 499–500 Great Peace case 282–97
identification of 502 risk, incidence of 489–93 guarantee contracts 80–3
valuation of 502–3 contracts, provision in 490 continuing liability 81
breach compared with 489 delay 491–2 Crown 221
building contracts 482 foreseen events 490–1 disclosure 337–8
carriage of goods 481–2 inflation 492–3 documents 85
carriage of goods by sea 504 prevention of performance evasion by estoppel 83
change in law 483 in manner intended by exceptions 81–2
change of circumstances 487 one party 491 form required 82
charterparties 479–81 sale of goods 481–2, 504–6 indemnity contracts
common law 498–500 sale of land 496–7 distinguished 80
compulsory purchase 497 self-induced 493–6 nature of liability 80–1
construction theory 488 different contracts, non-compliance, effect
Coronation cases 477–8 choosing between 494–5 of 82–3
death 478–9 inadvertent acts 495–6 signature 85
defining characteristics 473–4 negligent acts 495–6 guilty parties
delay 491–2 ships, requisitioning illegality 417–8
delivery 503 of 479–81
destruction of subject- specific goods 505–6 Hague-Visby Rules 186
matter 477 standard form contracts 474 hardship
effects of 498–506 statutory provisions 500–6 specific performance 580
emergence of 474–6 underlying principles 500 harmonization
expenses 501–2 theoretical basis 484–9 European Union 19
force majeure 485 unascertained goods 505 unfair contract terms 213
foreseen events 490–1 war 476, 481, 483 High Court 290
foundation of contract, functions of contract 2–4 hire
disappearance of 486–7 fundamental breach 183–6 contracts for 198
future obligations, discharge fundamental mistake 292–3 hire-purchase
of 498–9 fundamental terms 183–6 agreements 62
implied terms 484–6 writing, must be made
impossibility 473–4, 483 gentlemen’s agreements 409 in 79
incapacity 478–9 German law exemption clauses 187–8
instances of 477–84 good faith in 213 implied terms 187–8
insurance contracts 504–6 Nachfrist 449 minors 236
intention 485 offer to public 34 unfair contract terms
just and reasonable result 486 property acquired by 195–6, 198
just sum, award of 503–4 purchaser in good faith 276 home information packs
leases 496–7 rejection of offer 58 333, 339
736 index

human rights guilty parties, effect on 417–8 monopolies 415

impact on English contract indemnities 386 morals, agreements contrary
law 20 innocent parties 381–2, to good 393
public authorities 226 418–20 offices, sale of 388
hypothetical bargain approach ignorance of law no parental duty, agreements
restitution 597–8 defence 420 affecting freedom or
illegal act, commission of security of 395
identification innocent parties 418–9 penalties, imposition of 382–3
property 243 illegal purpose, lawful act performance 381–2
identity intended to further 418 perverting the course of
attributes distinguished 271 legal formation but illegal justice, agreements which
mistake 268–76 performance 419 tend to 388–9
illegal contracts see illegality performance legal, public interest 402
illegality 138, 379–438 ignorance of law a public salaries, assignment
alien enemy, contracts defence where 420 of 388
with 386–7 intention of parties 417–21 public service, contracts
anti-competitive jurisdiction of courts, injurious to 388
agreements 396–415 agreements ousting 395–6 reasonableness 402
control of 396–415 Law Commission work on restraint of trade 396–415
arbitration clauses 395–6 18, 417 definition 397, 399
benefit from 422 legal process, agreements trade unions 415
cartel agreements 406–10 which tend to abuse 390–2 restrictive covenants 402–6
champerty 390–1 maintenance revenue, agreement to
civil wrong agreements 390–1, 396 defraud 385–6
agreement to commit 385 marriage, agreements affecting severance 432–8
cohabitation and 384 freedom or security of ‘blue pencil’ rule 435
collateral transactions 432 brokerage contracts 394 consideration, illegal
bills of exchange 432 restraint of 394 promise must not
securities 432 separation agreements 394 form 435–6
untainted 432 modification of law effect of 437–8
common law 379, 384–96 affecting 384 extent of 434–5
conditional fee money paid, recovery general rule 433
agreements 391–2 of 423–32 illegal conditions 433–4
conflict of laws 387 class-protecting statues 426 illegal promise must not
contract, illegal 380–1 duress 427 alter agreement 436–7
contracts unlawful per equitable interests, claims one-sided 437–8
se 421–2 based on 430–1 public policy 433–5
crime, agreement to fiduciary duties 428 requirements 435–7
commit 385–6 fraud 427 restitution 438
criminal offences, compromise generally not true 437
of 389 recoverable 423 unenforceable
effects of 415–30, 432 genuine withdrawal 425 provisions 434
enforcement 383–4, 387, illegal purpose not yet speculative litigation,
417–21 carried into effect 423–6 agreements
exclusive-dealing in pari delicto, parties encouraging 390
agreements 410–4 not 426–8 states, agreements which
express prohibition 380 marriage brokerage injure in relations with
foreign jurisdiction contracts 425–6 other states 386–7
clauses 396 mistake 427–8 statutory 380–4
fraud, agreement to oppression 427 express prohibition 380
commit 385 proprietary based approach, implied prohibition 380–1
friendly state, contracts hostile critique of 431–2 penalties, imposition
to 387 reliance on contract, of 382–3
fundamental principle of claimant not 428–32 trade unions 415
policy 415–7 repudiation of illegal vitiating factors 22
goodwill, sale of 406 purpose 424–5 void contracts 383
government, agreements title, claims based on wrongdoing, agreements not
which tend to injure 388 legal 429–30 to disclose 388–9
 index 737

illegitimate pressure agreement ‘subject to ignorance of law no

duress 350–1, 357–8 contract’ 68–9 defence 420
implied contract 17–8, 239–42 contracts subject to illegality 381–2, 418–20
implied easements 156 condition 69 illegal act, commission
implied obligations 156 letters of intent 67–8 of 418–9
implied prohibition incomplete performance 449–50 illegal purpose, lawful act
illegality 380–1 incontrovertible benefit intended to further 418
implied terms 138, 151–65 partial performance 457 legal formation but illegal
custom, by 157–9 inconvenience performance 419
certainty 157–8 damages for 536–8 performance legal,
consistency with express indebitatus assumpsit 15 ignorance of law a
terms 159 indemnity defence where 420
notoriety 158 agents 706–7 restitution 587–91, 594–5
reasonableness 158 illegality 386 insolvency
recognized as legally misrepresentation agents 718
binding 158 alongside rescission 313–4 inspection
excluding 178 indemnity clauses opportunities for 306
frustration 484–6 unfair contract terms 198 instalments
hire purchase 187–8 indemnity contracts breach of contract 522
implied by courts 152–9 guarantee contracts insurance 3
‘necessary for business distinguished 80 growth of 1
efficacy’ 152–4 India insurance contracts 153
‘officious bystander’ 152–4 codification of English law of ‘basis of contract’ clauses 336
information 156–7 contract for use in 18 disclosure 334–6
mistake 272–3 indorsement fairness 336
recommendations for reform cheques 677–8 frustration 504–6
of law as to quality in sale of inducements 202 Law Commission examining
goods 18 breach of contract 17 law on 18
sale of goods 159–65 terms 133 privity of contract 640–1
fitness for purpose 163–4 industrial revolution 1 unfair contract terms 204, 207
‘merchantable’ quality 161 inequality of bargaining intention
sale by description 160–1 power 4, 7, 192, 202, 375–7 ascertaining 135
sale by sample 165 undue influence 376 clarity 33
satisfactory quality 161–3 unfair contract terms 375–7 contractual 134–5
second-hand goods 162 inferences determining 71–3
ss14(2) and 14(3) Sale from conduct 31–2 frustration 485
of Goods Act 1979 inflation 492–3 illegality 417–21
compared 164 information interpreting 135
title 159–60 implied rights of 156–7 misrepresentation 303–4
standard form contracts 6–7 injunctions 581–4 mistake 262–4
standardized terms Crown 220 renunciation 513–4
in common discretion 581 terms 134–5
relationships 154–7 laches 609 test of 32–3
statute, by 5, 159–65 mandatory 584 intention to create legal
tests for 7, 154 privity of contract 620–1 relations 130
theory of 24 prohibitory agreements 70–3
impossibility negative stipulations 582 determining intention 71–3
anticipatory breach 517–8 personal service family arrangements 71
before performance contracts 582–3 social engagements 70
due 517–8 realities of 584 interbank transfers 446
breach of contract 517–9 specific performance 581–4 interest
consideration 102 unfair contract damages 564–5
during performance 518–9 terms 215 interests
frustration 473–4, 483 injurious falsehood 17 creation of 8
mistake 288 innocent misrepresentation expectation 9, 539–42
incapacity see capacity to 309–10 land, in 84–5, 88
contract innocent parties protection of 8–9, 533
incomplete agreements 66–9 illegalities reliance 9, 542
738 index

interference part performance 87 limiting 183, 188–9, 200, 204,

charterparties 479–81 supplementary 328–9
intermediate terms 145–9 agreements 85 loss 184, 189
conditions writing, must be made in 79 minors 239–45
distinguished 146–9 language 208 misdelivery, for 184
judicial decision, condition contract terms 168 nature of guaranteed 80–1
categorized by 147 plain, intelligible 214–5 negligence 180–2
statute, condition categorized lapse restricting for 197–8
by 147 offer 59–60 non-contractual 17
international sale of goods express or implied none without consent 4
exemption clauses 187 condition as to 60 personal of agents 713–5
international trade no fixed time 59–60 privity of contract, restriction
growth of 1 offer for fixed time 59 by 17
interpretation ‘last shot’ approach prohibition of exclusion
exemption clauses 178–9 battle of the forms 42 of 201
invitations to treat late delivery requirements for
advertisements 33 measure of damages 557–8 misrepresentation 301–6
auctions 37 law liens
displays of goods 34 mistake of 278 agents 707
offer distinguished 33–4 representation of 304–5 life assurance
self-service shops 34 Law Commission 18, 84–8, privity of contract 641
138–9, 336–7, 623, 626–8, 709 limit of liability 183, 204
joinder 666 Law Revision Committee 113, carriage of goods 188–9
jurisdiction 119, 130, 623, 626 limitation clauses 182–3
agreements ousting lease and lease-back 411–2 limitation of actions 605–9
courts’ 395–6 leases acknowledgement 607
just and reasonable result execution of valid 87 concealment 606–7
frustration 486 frustration 496–7 disability, persons under 606
just cause 391 legal process fraud 606–7
just sum 503–4 agreements which tend to general rule 605–6
abuse 390–2 laches 608–9
King’s Bench legal relations see intention to mistake 606–7
jurisdiction of 10, 14 create legal relations part payment 607
legitimate expectation remedies, barring 608
laches public authorities 226 statutory provisions 605–9
doctrine of 609 legitimate interest liquidated damages 3
injunctions 609 actions for agreed sum 574 agreed damages clauses 565–6
limitation of actions 608–9 letters of credit listed buildings 497–8
rescission 609 consideration 115–6 loan agreements
specific performance 609 letters of intent writing, must be made in 79
laesio enormis doctrine 100 incomplete agreements 67–8 local authorities
land liability ultra vires 224
assignment 684 assignment 675 local courts
disposition of interests business jurisdiction of 10–1
in 84–9 unfair contract local taxpayers 224
privity of contract 642–3, terms 194–5 ‘lock-out’ agreements 66, 85
652–3 cannot be forced upon London
restrictive covenants people 17 as centre of international
exclusive-dealing contractual 199–201 trade 1
agreements 411–2 Crown loss 205
land, sale or disposal of employees, to 222–3 damages for 534
collateral agreements 85 damage 189 liability for 184, 189
form required 86 disclaimer of 190 lump sum
interests in land 84–5 disclosure 342–3 partial performance 452–3
Law Commission employees to Crown 223–4
considerations on 84–5 excluding 178–9, 196–7 machine
non-compliance with exclusion of 202 transactions by 35
requirements, effect of 87–8 exemption from 192 Maine’s Ancient Law 4
 index 739

maintenance mental disabilities recommendations for reform

illegality 390–1, 396 capacity 246–8 of law on contracts 18
mandatory injunctions 584 procedural impropriety 247 restitution 245–6
manifest disadvantage sale of goods 248 equitable 244–5
undue influence 365–6 unconscionability 247 fraudulent
manorial courts voidable contracts 247 misrepresentation of full
jurisdiction of 10 mental distress age 244–5
marine insurance contracts damages 536–8 identity of property 243
writing, must be made in 79 mercantile contracts statutory provisions 245
marriage performance 444 tortious liability 241–2
agreements affecting freedom ‘merchantable’ quality ‘mirror image’ rule 41–2
or security of 394 criticism of term 161 misdelivery
brokerage of 394 mere puffs 38 carriage of goods 189
restraint of 394 misrepresentation 300, 303 liability for 184
separation agreements 394 mergers 415 misdescription
marriage settlements discharge by 527–8 sale of land 339
minors 236 minors misfeasance
masters 694–5 contracts by 232–46 claim for 13
material advantage apprenticeships 240 misrepresentation 138, 299–332
undue influence 361 beneficial contracts active concealment 301–2
material circumstance 236–7 affirmation 314–5
duty of disclosure 335–6 capacity 232, 240 agents 710–1, 714–5
matrimonial home car hire 236 breach 307–8
undue influence 361 common law rules 233 categorization in older
measure of damages deceit 243–4 cases 309–10
basis of 539–42 disclaimers change in facts 302
consumer surplus, loss of non- time of 238 common law rule 299–300
monetary 541 disclaimers controls on exclusion or
contract terms, reference effect of 238 restriction of 216
to 540 fraud 243–4 damages 307
cost of cure 540–2 hire-purchase, exclusion measure of damages 318–9
date for 535–6 of 236 rescission, in lieu of 317–9
difficulty no bar to 535 liability 239–45 defence to 308
expectation measure implied contract duty of care 331
539–42 theory 239–41 effect of 300
fraudulent unjust exclusion clauses 328–32
misrepresentation 322–3 enrichment 242–5 common law 328–9
misrepresentation 308–9, common law 242 executed contracts 319–20
318–9 marriage settlements 236 exemption clauses 191
negligent medical attendance 236 false representation, need
misrepresentation 324–8 necessaries 233–7 for 301
pacta sunt servanda, principle definition 234–5 fraudulent 309–10
of 541–2 loans for 235 damages 320–3
performance measure 539–42 partnerships 237–8 deceit 320
reliance measure 542 qualified enforceability 240 measure of damages 322–3
sale of goods 557–61 ratification 238–9 fraudulent misrepresentation
late delivery 557–8 restitution, in 239 definition 320–2
non-acceptance 558–9 sale of goods 236, 239–40 indemnity alongside
non-delivery 557 third parties 246 rescission 313–4
warranties, breach of 559–61 tortious liability 241–2 innocent 309–10
medical attendance training 235–6 inspection, opportunities
minors 236 voidable contracts 237–8 for 306
mental assent definition 232 intention 303–4
insufficient for employment contracts lapse of time 315
acceptance 43–4 235–6, 240 law, representation of 304–5
mental capacity implied contract theory 242 liability
agents 719–20 necessities limiting 328–9
powers of attorney 722 price, reasonable 240–1 requirements of 301–6
740 index

misrepresentation (cont.) fault, absence of 293 subject matter 276–7

measure of damages 308–9 formation of contract 252 subjective test 252–3
mere puffs 303 fraud 267 substance, as to 286–8
mistake 267 fraudulent terms 252–68
negligent 309–10, 323–8 misrepresentation 268 terms known to other
common law 323–5 fundamental 288–9, 292 party 256–8
measure of damages 324–8 genuine agreement, absence of third parties 251
rescission 311–20 acceptance need for identifiable 271–2
statutory provisions 325–8 only by person to whom none in existence 272–3
non-fraudulent 309 it is addressed 269–71 title to property 285–6
opinion insufficient 302–3 documents signed in unilateral 251, 277–8
partial non-disclosure 301–2 blank 261 rectification 264–5
predictions 303–4 identity of party 268–76 void contracts 270, 280
puffs 300 non est factum 259–61 voidable contracts 250, 295–8
remedies 307–9 objective test 253–8 written contracts 273, 290
representations 300 offer and acceptance not written documents 258–65
addressed to party coincident 254–6 mistake of law 89
misled 305–6 parties’ presence, mitigation
rescission 307, 311–20 transactions concluded compensating advantages 556
limitations to 319 in 274–5 damages 555–6
limits on right to 314–9 promise known to other reasonableness 555–6
mode of 311–2 party 256–8 modification see variation
partial, no power to void contracts 270 money
award 312–3 written documents 258–65 assumpsit 14–6
restitution good faith 250 recovery 83
inability to make 316–7 Great Peace case 282–97 money markets
statutory provisions 329–32 identity of party 268–76 growth of 1
terms 300, 307–8, 320 implied terms 272–3 money paid
third party rights 316 intention 262–4 frustration 500–1
time, lapse of 315 judges’ attitude to 250 privity of contract 620
uberrimae fidei 299 law, of 278 recovery of 423–32
undue influence 372 current state of 275–6 class-protecting
unfair contract terms 331–2 limitation of actions 606–7 statutes 426
misstatement misrepresentation 267 duress 427
negligent 136 mutual mistake 251 equitable interests, claims
mistake 138, 249–98 narrowness of doctrine 295 based on 430–1
acceptance non est factum 259–61 fiduciary duties 428
only by person to whom it objective test 253–8 fraud 427
is addressed 269–71 offer and acceptance not generally not
case law on 283–98 coincident 254–6 recoverable 423
categorizing 251–2 parties’ presence, transactions genuine withdrawal 425
certainty 249 concluded in 274–5 illegal purpose not yet
common intention 262–3 promise known to other carried into effect 423–6
common law 249–50, 252, party 256–8 in pari delicto, parties
279–85 reasonableness 256 not 426–8
common mistake 251, 281 recognition of doctrine of 249 marriage brokerage
continuing intention 263 rectification 258 contracts 425–6
disclosure 256 limits on 265 mistake 427–8
documents signed in blank 261 nature of 265 oppression 427
effects on formation of written contracts 262–5 proprietary based approach,
contract 251–2 remedies 266–8 critique of 431–2
equity 252, 289–98 rescission 266–8, 293 reliance on contract,
common law and 290–1 signing, negligence of claimant not 428–32
essentially different party 261 repudiation of illegal
transaction 259–61 situations considered by purpose 424–5
fact, of 278 courts 283–98 title, claims based on
false and fundamental specific performance legal 429–30
assumption 288–9 refusal of 266 monopolies 415
 index 741

morals negotiability 680–2 freedom of contract and 7

agreements contrary to past consideration 97–8 objectivity
good 393 privity of contract 641 meaning of 253
motive negotiations 133 obligations 1
consideration agreements 29–30 accrued 524–5
distinguished 101 certainty 65–6 additional 465
multiparty agreements 30 disclosure 333–4 conditional upon
mutual mistake 251 negotiorum gestio 696 performance 55
mutuality nominal consideration 100 contract as part of law of 23–5
want of 577–8 non est factum debt on an 12
mistake 259–61 entireness of 520
natural person non-acceptance expansion of non-contractual
consumer, as 208 measure of damages 558–9 in tort 17
necessaries non-conforming goods 512 history in English law 9–19
definition 234–5 non-contractual liability 17 implied 156
loans for 235 non-contractual obligations law of property distinguished
minors’ liabilities for 233–7 expansion of in tort 17 from law of 25
‘necessary for business efficacy’ non-delivery 240 liability and 4
implied terms 152–4 measure of damages 557 promises 30
necessity 6 non-disclosure radical change in 487–9
neglect partial 301–2 restitutionary non-
wilful 190 non-fraudulent contractual 42–3
negligence misrepresentation 309 offer
agents 716 non-occurrence acceptance must correspond
common law 323–5 frustration 477–8 with 40, 42–3
disclosure and 343 non-performance 240 advertisements 38
economic loss 17 risk of in standard form of generally not 34
exclusion clauses 180–2 contract 172 agreements 29–32
liability for 204 non-promissory ascertained person 37
principals 711 conditions 141–3 auctions 36–7
privity of contract 644 nonfeasance 13–4 bid at auctions 36
restricting liability for 197–8 notice bilateral contracts 30–1
negligent misrepresentation assignment 665 carriage of persons 35
309–10, 323–8 construction of terms 173–7 catalogues generally not 34
common law 323–5 contemporaneous with choice to accept or refuse 34
measure of damages 324–5 contract 173 communication of 39–40
rescission 311–20 contractual document, must conditions 38
statutory provisions 325–8 be in 175–6 continuing 35
negligent misstatement 136 equitable assignment 667 cross-offers 39
negligent pre-contractual exhibited 175 death, effect of 60–1
misrepresentation 310 negotiability 680 definition of 33
negotiability onerous terms 176–7 discrimination and 35
assignment standard form of displays of goods generally
distinguished 680–2 contract 172 not 34
consideration 681 sufficiency of 174–5 distinction between
holder in due course tickets 174–5 acceptance and
681–2 undue influence 370–1 performance 54
limit of 682 unusual terms 176–7 general 37–8
notice 680 notification invitations to treat
title 680–1 acceptance 38, 48 distinguished 33–4
negotiable instruments 447 notoriety knowledge of 51
agents 713–4 implied terms 158 lapse 38, 59–60
assignment 677–82 novation express or implied
bills of exchange 678–9 assignment 676 condition as to 60
cheques 677–8 no fixed time 59–60
custom, negotiable objective test offer for fixed time 59
by 679–80 mistake 253–8 mere puff 38
promissory notes 679 objective theory mistake 254–6
742 index

offer (cont.) partial non-disclosure 301–2 consideration

nature and terms of 45 partial performance 451–7 difference in 112–3
not coincident with acceptance contract option 448–9
acceptance 254–6 innocent party, by 456–7 deviation from terms 441–2
origins of 16 building contracts 455 distinction between
performance 38 critique of rule 454 acceptance and 54
price lists generally not 34 divisible obligations 451–4 equity 442–3
promises 30 doctrine of 87–8 expected 3
railway timetables 35 entire obligation 451–4 failure not breach of
rejection 39, 58–9 incontrovertible benefit, condition 146
revocation 53–8 from 454–5, 457 failure of 8, 509–10, 519–24
before acceptance 53 injured parties 454–5 broken condition 520–1
communication of 57–8 lump sum 452–3 entire obligation 520
fax, by 57 payments 452–3 independence of
‘firm’ offers 56 postponement 454 promises 519–20
irrevocable after quantum meruit 456 root of contract, going
acceptance 53–4 rationale of rule 453 to 521–3
post, by 57 sale of goods 456 termination clauses
telex, by 57 substantial 523–4
unilateral contracts 54–5 performance 454–5 frustration 484
rewards 38 partial rescission future 2–3
sale of shares 53 no power to award 312–3 illegal 419
self-service shops 34–5 parties illegality 381–2
services, by rendering 39–40 responsibilities of impossibility 517–9
simultaneous 39 contracting 3 incomplete 449–50
tenders 35–6 partnership contracts Law of Property Act
termination 53–61 disclosure 337 1925 443
death, effect of 60–1 partnerships 232 mercantile contracts 444
lapse of offer 59–60 minors 237–8 offer 38
rejection of offer 58–9 past consideration 95–8 order of 445
revocation of offer 53–8 antecedent debt 97 partial 451–7
test of intention 32–3 executed consideration payments 445–7
transaction by machine 35 distinguished 95–6 charge card 447
unilateral contracts 30–1 negotiable instruments 97–8 credit card 447
Office of Fair Trading 19, request of promisor 96–7 documentary credits 447
208–10, 214–5, 415 payment in advance 3 interbank transfers 446
offices payments negotiable instruments 447
sale of 388 partial performance 452–3 performance option 449
‘officious bystander’ 152–4 performance 445–7 place of 444
opinion charge card 447 renunciation 514–6
insufficient for credit card 447 standards of 441
misrepresentation 302–3 documentary credits 447 strict 468
oppression 358, 374, 427 interbank transfers 446 substantial 454–5
order negotiable instruments 447 tender
performance 445 principle, by 711–2 acts 450
recovery under void early 451
package holidays 216 contracts 228 payment 450–1
privity of contract 641–2 tender of 450–1 tender, by 450–1
unfair contract terms 200 third parties 712 time of 442–4
pacta sunt servanda, principle withholding 196 equity, stipulations as to
of 541–2 peace of mind in 442–3
parental duty 395 damages for loss of 357–8 Law of Property Act
Parliamentary funds penalties 1925 443
contract providing for agreed damages clauses unfair contract terms 196
payment to Crown 220–1 contrasted 565–71 vicarious 447–8
part payment illegality 382–3 performance option 449
consideration 114–5 performance 441–57 person
limitation of actions 607 alternative modes of 448–9 duress of 352
 index 743

personal injury price 205 agreed sum, action for 620

unfair contract terms 209 consideration 100–1 assignment 635, 662
personal service contracts disparity in 374 bailment 657–8
frustration 478–9 establishing 3 bills of lading 641
personal service contracts exclusion of 210–1 charterparties 629–30
prohibitory injunctions 582–3 fair or reasonable not always common law 613, 651
specific performance 578 required 100–1 criticism of rule 622–3
perverting the course of justice restitution of advance justification of rule 621–2
agreements which tend payments 591 consideration, relationship
to 388–9 price fixing agreements 409 with doctrine of 615–6
physical injury price increases 3 Contracts (Rights of Third
damages 550–1 price lists Parties) Act 1999 624–35
Pinnel’s Case generally not offer 34 covenants 643
consideration 113–4 principal damages
promissory estoppel 113–4, agent acting as 715 promisee 616–7
116–7 agents and 688–91 losses by 616–7
place capacity 690 rejection of 617–8
performance 444 existence of 690 defences 633
place of contracting 47 ratification development of rule 614–6
post manner of 691 double liability, avoidance
acceptance by 45–6, 51 retrospectivity 691 of 632
offer, revocation of by 57 time of 691 enforceablity, tests of 625–31
revocation by 52–3 relations between 701–7 benefit on third parties,
postal acceptance rule 46–7 deceit, liability in 710–1 term purporting to
proposal to abolish 49 existence of 714 confer 626–31
rationale of 47–9 foreign 714 express provision 625–6
postponement negligence, liability in 711 exceptions to 641–2
partial performance 454 payment by 711–2 exemption clauses 645–50,
waiver 469 relations with third 657–9
Pothier parties 707–12 historical perspective 614–5
influence on English law 249 undisclosed 708–10, 715–6 imposition of contractual
powers of attorney unnamed 715 liabilities on third
agents 721–2 Principles of European Contract parties 652–9
common law 722 Law 20 charterparties 653–7
irrevocable 721 priorities chattels, contracts
mental capacity 722 assignment 671–2 concerning 653–7
revocation 721 privity of contract 613–59 equitable interests 653
‘practical benefit’ acquisition of contractual land, covenants
consideration 110–14 rights concerning 652–3
praecipe writ 11 bills of lading 641 proprietary interests 654–5
debt 11 common law rule 614–6 injunction 620–1
pre-contractual consideration 615–6 land, contracts
misrepresentation insurance contracts 640–1 concerning 642–3
negligent 310 land, contracts money paid, recovery of 620
pre-contractual procedures concerning 642–3 negligence 644
public authorities 227 negotiable instruments 641 negotiable instruments 641
pre-contractual statements package holidays 641–2 package holidays 641–2
collateral warranties 137 remedies of the promisee
terms 135 promisee 616–21 loss by 616–7
pre-existing duty 129 specific performance 619–20 rights of 616–21, 632
precision statutory provisions 624–35 reform 623–4
terms 153 tortious duties of remedies 616–21
predictions care 643–4 rescission 633–5
misrepresentations 303–4 trusts of contractual restriction of tort liability
presumed consent 6 rights 635–9 by 17
presumption acquisition of contractual Scotland 644
acceptance 39 rights 614–52 statutory provisions 613,
previous transactions 62–3 agency 635 624–35
744 index

privity of contract (cont.) origins of 16 public law 226

third parties, loss by 617–8 Pinnel’s Case limited recovery of payments under
tort 643–4 by 113–4, 116–7 void contracts 228
tortious duties of care 643–4 promise and 117–8 refusal to contract 227
transfer 635 proprietary estoppel statutory controls 227–8
trusts 635–9 distinguished 124 statutory purpose,
variation 633–5 reliance 125–6 incompatibility
procedural impropriety scope 119–26 with 225–6
mental disabilities 247 suspense effect of 122 ultra vires
substantive unfairness temporary effect of 117 statutory modification of
contrasted 375–6 unjust enrichment 125 doctrine 224–5
procurement waiver 123, 469 void contracts 228
Crown 220 promissory notes public duty
product liability 216 assignment 679 consideration 105–6
professional bodies writing, must be made in 79 public interest
cartels 407–8 proof cartels 406–7
professional rules agreements 29 exclusive-dealing
cartels 407–8 property agreements 413–4
profit can pass under voidable and reasonableness 402
loss of 561 unenforceable contracts 25 restrictive covenants 405–6
prohibitory injunctions 582–4 law of obligations public law
promises distinguished from law Crown and 220
actionablity of 94 of 25 public authorities 226
agreement and 1–2 mistake as to title 285–6 public policy see also illegality
change of position 120–1 transfer of 25 restraint of trade 399
clear and unequivocal, property insurance severance 433–5
need for in promissory privity of contract 641 public salaries
estoppel 119 property rights assignment of 388
consideration 91–2, 94–5, 98–9 creation of 87 public service
deeds 31 proprietary estoppel 88–9 contracts injurious to 388
enforcement 129–30 basis of 127–8 puffs 38
gratuitous 94 creation of new rights 128
illegal 436–7 detriment 121, 127–8 qualified acceptance 43
independence of 519–20 promissory estoppel qualified enforceability 240
inequitable to go back distinguished 124 qualities
on 119–20 reliance 127–8 substance distinguished 271
intention 134–5 unjust enrichment 128 quality 198
legally binding 1–3 where arising 127 defects in 187
mistake 256–8 proprietary interests quantum meruit
offer 30 privity of contract 654–5 damages compared
promissory estoppel 117–8 protection of property 20 595–6
waiver 469 protectionism 4 partial performance 456
promissory conditions 140–1 provisional agreements 69 restitution 594
contingent conditions public authorities quasi-contract 17
distinguished 142 capacity 224–8 quid pro quo 12, 14
promissory estoppel certainty 224
cause of action 123–6 contracts by railway timetables
change of position 120–1 discretion 227 offer and 35
clear and unequivocal EU law 227–8 ratification
promise, need for 119 estoppel 226 agents’ authority 688–91
consideration 116–26 freedom of contract, minors 238–9
consideration and 129–30 limitation on 227 re-negotiation
discharge 461–2 human rights 226 contract 17
emergence of 117–9 legitimate expectation 226 ‘reasonable examination’
enforcement 118–9, 125 payments, recovery under sale of goods 165
estoppel 120–1 void contracts 228 reasonableness
inequitable to go back on pre-contractual cartels 406–7
promise 119–20 procedures 227 certainty 63
 index 745

reasonableness (cont.) compensation orders 5 rescission

exclusive-dealing misrepresentation 307–9 ab initio 524
agreements 413–4 mistake 266–8 contract terms 167
exemption clauses 192 privity of contract 616–21 damages, in lieu of 317–9
frustration 485–6 specific performance 575–81 discharge 462–4
implied terms 158 unjust enrichment 24–5 abandonment 462
mistake 256 remoteness agreement, by 462–4
mitigation 555–6 Achilleas, The, impact substituted contract
public interest 402 of 547–9 462–3
renegotiation 356 basic two-branched disclosure 343
restraint of trade 399–402 rule 544–7 disclosure giving rise to
both parties, for 401 damages 543–54 334–6
consideration 401 arising in the normal course duress 358
nature of agreement 400–1 of events 551–3 laches 609
protection, extent of 401 business position of misrepresentation 307
subject matter 400–1 parties 551 indemnity alongside
time of 401 contemplation of 313–4
restrictive covenants 402–6 parties 553–5 limitations to 319
standard of 6–7 exceptional loss 552–3 limits on right to 314–9
test for unfair contract non-delivery or late mode of 311–2
terms 201–6 delivery 551–2 partial, no power to
rebuttal physical injury 550–1 award 312–3
presumed undue tests for 549–50 mistake 266–8, 294
influence 366–7 tort, rule in 546–7, 549–50 negligent misrepresentation
receipt type of damage 550–1 311–20
standard form of contract 172 remuneration privity of contract 633–5
reciprocity agents 705 undue influence 367–9
consideration and 91 renegotiation Restatement Second of the Law of
recovery commercial reasonableness Contracts 2, 21, 31, 39, 43–47,
assignment 671 of 356 50–52, 54, 56, 58–61, 71, 124,
rectification duress distinguished 355 141, 356, 450, 575, 627,
common mistake 262–4 renunciation 634, 687
limits on 265 anticipatory 514–6 restitution 587–90, 592–600,
nature of 265 breach of contract 512–6 602–3
unilateral mistake 264–5 conduct, by 513 advance payments of contract
written contracts 262–5 definition 512–3 price 591
refusal intention 513–4 Attorney-General v Blake
offer 34 performance 598–603
refusal to contract before due 514–6 capacity to contract 219
public authorities 227 during 516 circumstances in which may
reimbursement representation of law be claimed 587
agents 706–7 misrepresentation 304–5 companies 231
rejection representations see also contract-breaker 597–603
counter-offer and 40–1 misrepresentation deposits 592–3
offer 39, 58–9 addressed to party due performance, security
release misled 305–6 for 592–3
discharge 460 dividing line between terms frustration
reliance 205 and 136 restitutionary response,
promissory estoppel 125–6 misrepresentation 300 development of
proprietary estoppel 127–8 terms and 133–6 499–500
reliance interest 9 repudiation 184 see also hypothetical bargain
reliance measure renunciation approach 597–8
measure of damages 542 illegal purpose 424–5 inability to make 316–7
remedies unaccepted 508–9 inadequacy 602–3
barring 608 repudiatory breach innocent parties 587–91,
breach 573–85 actions for agreed sum 574 594–5
breach of duty of disclosure by reputation liability to make for unjust
fiduciaries 342 damages for loss of 358–9 enrichment 17
746 index

restitution (cont.) offers restitution 594–6

minors 239, 243, 245–6 communication of 57–8 sale by description 160–1
equitable 244–5 ‘firm’ offers 56 sale by sample 165
fraudulent telegram, by 52 satisfactory quality 161–3
misrepresentation of full telephone, by 52 specific performance 576–7
age 244–5 rewards 51 ss14(2) and 14(3) Sale of Goods
statutory provisions 245 offer 38 Act 1979 compared 164
misrepresentation 316–7 right to fair trial 20 title 159–60
obligations 42–3 risk unfair contract terms 195–6,
party in breach 596 frustration 489–93 198
quantum meruit 594 contracts, provision in 490 warranties 160
recovery by party in delay 491–2 sale of land
breach 591–3 foreseen events 490–1 contract for can only be made
sale of goods 594–6 inflation 492–3 in writing 22
supply of services 594–6 prevention of performance disclosure 339
undue influence 367–8 in manner intended by frustration 496–7
unjust enrichment 4, 24–5, one party 491 misdescription 339
40, 89 mistake 250, 277, 281, 284–5 recommendations for reform
restitutionary damages 24 waiver 468 of law on formalities and
restraint of trade risk allocation covenants of title in 18
agreements 397–8 economic 3 specific performance 577
definition 397–8 standard form of contract 172 sample 198
doctrine of 7 ‘risk’ approach sale by 165
exclusive-dealing inapplicable in sanctity of contracts 7–8
agreements 411–3 communication 49 satisfaction
illegality 396 road traffic insurance executory 461
public policy 399 privity of contract 640 satisfactory quality
reasonableness 399–402 Roman law definition 161–2
both parties, for 401 contracts 15 sale of goods 161–3
nature of agreement 400–1 influence on English law of Scotland
protection, extent of 401 mistake 249, 287 codification project 18
subject-matter 400–1 negotiorum gestio 696 intention not consideration as
time of 401 price in sale contract 100 test 93
trade unions 415 royal courts privity of contract 623, 633, 644
restrictive covenants 339 jurisdiction of 10–1 Scottish Law Commission 18, 49
employer and employee, seal
between 402–6 sale of goods 2, 159–65 abolition of requirement of
employer’s interest 403–4 actions for agreed sum 573–4 sealing by individuals 77
geographical restraint 404 auctions 160 debt 12
nature of employment 405 breach 512 deeds 76–7
public interest 405–6 exemption clauses 187 second-hand goods 162
scope 404 fitness for purpose 163–4 secret profits
time limits 405 frustration 481–2, 504–6 agents 702–3
land international sale of securities
exclusive-dealing goods 187 collateral transactions 432
agreements 411–2 measure of damages 557–61 security
reasonableness 402–6 late delivery 557–8 actions for agreed sum 574
revenue non-acceptance 558–9 self-induced frustration 493–6
agreement to defraud 385–6 non-delivery 557 different contracts, choosing
revocation warranties 559–61 between 494–5
acceptance 52–3 mental disabilities 248 inadvertent acts 495–6
liming power in relation to ‘merchantable’ quality 161 negligent acts 495–6
acceptance 48 minors 236, 239–40 self-service petrol stations 35
offer 53–8 partial performance 456 self-service shops
before acceptance 53 ‘reasonable examination’ 165 invitations to treat 34
irrevocable after recommendations for reform offer 34–5
acceptance 53–4 of law implied terms as to seller
unilateral contracts 54–5 quality in 18 definition 207
 index 747

separation agreements 394 Solle v Butcher ticket 172

serious disadvantage equity 291–7 unfair contract terms 199–201
unconscionable bargains 373 solus ties 410–1 uniform conditions 171–2
services see supply of services South Africa statement
set aside 309 local authorities refuse to argument that is warranty 136
set-off 196 contract with during statements
settlement apartheid era 227 fraudulent 305
agents 711–2 special relationships states
severance fiduciary relationships 342 agreements which injure
‘blue pencil’ rule 435 undue influence 360–1 in relations with other
consideration, illegal promise specific goods states 386–7
must not form 435–6 frustration 505–6 status
effect of 437–8 specific performance 8, 290, contracts 172
extent of 434–5 575–8, 580–1 society moves to contract
general rule 433 arbitration 580–1 from 4
illegal conditions 433–4 conduct 580 Statute of Frauds 75, 79–83, 89
illegality 432–8 consideration 100 auctions 37
illegal promise must not Crown 220 criticism of scope of 82
alter agreement 436–7 damages, adequacy of 575–6 requirements of 15
one-sided 437–8 hardship 580 waiver 466
public policy 433–5 injunctions 581–4 strict liability 181
requirements 435–7 laches 609 ‘string’ contracts 144
restitution 438 mistake 266 sub-sales
true 437 mutuality, want of 577–8 warranties 559–61
undue influence 368 personal service contracts 578 subject to contract 68–9
unenforceable provisions 434 privity of contract 619–20 subject-matter
shares refusal of 266 destruction of 477
allotment of 343–4 sale of goods 576–7 exclusion of main 210–1
offers for sale 53 sale of land 577 mistake 276–7
shipping substitution 576 subjective test
growth of 1 supervision by court, mistake 252–3
signature constant 579–80 subsidiary unilateral contracts 55
construction of terms 173 transistory interest 580–1 substance
deeds 77 uncertainty 579 mistake as to 286–8
electronic contracts 90 speculative litigation qualities distinguished 271
guarantee contracts 85 agreements encouraging 390 substantial benefit 149–51
significant imbalance 214 conditional fee substantial performance 454–5
definition 211–2 agreements 391–2 substantial undervalue
signing spouses transactions at 374
negligence of party 261 intention to create legal substantive fairness 17
silence relations 71 substituted contract 462–3
acceptance by 49–50 undue influence 361, 363–4 substitution
simultaneous offers 39 standard form contracts 5–6 specific performance 576
single market adhesion, contracts of 5–6 supervision
development of 19 compulsory transactions 6 specific performance 579–80
single-performance consumers 172 supplementary agreements
contracts 148 defective performance 172 land, for sale or disposition 85
Slade’s Case development of 171–2 supplier
contract litigation exemption clauses 174 definition 207
following 15 frustration 474 supply contracts
small print 205 implied terms 6–7 breach 512
Smith, Adam non-performance, risk of 172 unfair contract terms 198–9
Wealth of Nations 4 notice 172 supply of services 2
social engagements receipt 172 offer by rendering 39–40
intention to create legal risk allocation 172 restitution 594–6
relations 70 standard of suretyship contracts
solicitors reasonableness 6–7 disclosure 337–8
agents, as 698 status 172 undue influence 371–2
748 index

surrogacy agreements 395 language 168 negotiations 133

suspension notice 173–7 onerous 176–7
promissory estoppel 122 rescission 167 pre-contractual statement 135
syntax rules for 169–70 precision of 153
contract terms 168 syntax 168 reasonableness test for
contractual intention 134–5 201–6
taxation default rules 155 representations and 133–6
damages 563–4 deviation from 441–2 termination clauses 523–4
telegram dividing line between tickets, on 174
acceptance by 46, 51 representation and 136 transparency 212
agreements by 33–4 EU-wide 20 unusual 176–7
revocation by 52 evidence 138–9 third parties 613–59 see also
telephone express privity of contract
acceptance by 46 ab initio consideration 106–8
revocation by 52 classification 144–5 part payment by 114–5
telex fundamental 183–6 minors 246
acceptance by 46, 51 implied 138, 151–65 misrepresentation 316
agreements by 29 courts, by 152–9 mistake 251, 272–3
revocation of offer by 57 ‘necessary for business need for identifiable
tendering efficacy’ 152–4 271–2
European Union law to ‘officious recommendations for reform
prevent discrimination bystander’ 152–4 of law on contracts for
in 19 custom, by 157–9 benefit of 18
tenders certainty 157–8 relations between agents
EC law 36 consistency with express and 712–6
offer 35–6 terms 159 undue influence 369–72
performance notoriety 158 third party agreements 30
acts 450 reasonableness 158 threats
early 451 recognized as legally duress 351, 356–8
payment 450–1 binding 158 lawful action 356–8
performance by 450–1 information 156–7 tickets
termination 3 sale of goods 159–65 notice 174–5
automatic 470–1 fitness for standard form of contract 172
notice, on 471–2 purpose 163–4 time
offer 53–61 ‘merchantable’ lapse 135
death, effect of 60–1 quality 161 misrepresentation 315
lapse of 59–60 sale by performance 442–4
rejection of 58–9 description 160–1 equity, stipulations as to
revocation of 53–8 sale by sample 165 in 442–3
termination clauses 523–4 satisfactory time bar 186
terms 3 quality 161–3 title
breach 135, 139–40 second-hand goods 162 sale of goods 159–60
broken condition 520–1 ss14(2) and 14(3) Sale title to property
burden of proof 202 of Goods Act 1979 mistake 285–6
certainty of 61–6 compared 164 tort
change of 41 title 159–60 assumpsit 13–6, 15–6
clarity 205 standardized terms concurrent liability 23–4
collateral warranties 136–8 in common expansion of non-contractual
conditions 140 relationships 154–7 obligations in 17
construction of 166–70 statute, by 159–65 privity of contract 643–4
ambiguity 169 inducements 133 trespass as medieval equivalent
contextual approach 166–9 intermediate 145–9 of 10
ejusdem generis language expressed in 214–5 tortious liability
rule 170 loss of right of discharge minors 241–2
expressio unius est exclusio 149–51 trade unions 232
alterius 169 misrepresentation 300, 307–8, restraint of trade 415
incorporation 173–7 320 trading practices
signature 173 mistake 252–68, 256–8 regulation of 35
 index 749

training undervalue, transactions third parties, by 369–72

minors 235–6 at 373 unconscionable bargains 373
transfer undue influence 373 vitiating factors 372
privity of contract 635 undertakings unenforceable contracts
property 25 unfair contract terms 215 property can pass
transitory interest undervalue under 25
specific performance 580–1 transactions at 373 vitiating factors 22–3
transparency undue influence 359–68, 370–2 voidable contracts
terms 212 actual 360–1 distinguished 22–3
trespass affirmation 368–9 unfair contract terms
assumpsit 13 bequests 360 business liability 194–5
medieval equivalent of tort 10 blackmail 361 consideration used to
trusts coercion 361 invalidate 17
Contracts (Rights of Third common law 359–60 consumers, dealing as
Parties) Act 1999 639 consideration 100 195–6
contractual rights 635–9 duress 349, 359–60 contract of employment
equitable property, based evidence 363–5 200, 207
on 635 fraud 359, 361 control, pattern of 193
intention to create 637–9 inequality of bargaining courts, powers of 206
power 376 death 209
uberrimae fidei 337–8, 346 material advantage 361 EC and EU law 206–7
agents 710 matrimonial home, charges effect of 215
disclosure 334, 341 over 361 excepted contracts 193–4
misrepresentation 299 misrepresentation 372 force majeure clauses 201
ultra vires nature of 359–60 freedom of contract
certainty 224 notice 370–1 209–10
companies 228–30 actual 370 good faith 208–9, 212–3
local authorities 224 constructive 370–1 harmonization 213
purpose of rule 224 overlap with doctrine hire-purchase 195–6, 198
restitution of benefits 231 of unconscionable indemnity clauses 198
statutory modification of bargains 374 inequality of bargaining
doctrine 224–5, 230–1 presumed 361–7 power 375–7
unascertained goods classes of 361–2 injunctions 215
frustration 505 cohabitees 364 insurance 204, 207
uncertainty 205 definition 361–2 legislative controls 216
consideration 102 evidential onus, shift misrepresentation 331–2
specific performance 579 in 363–5 negligence, restricting liability
unconditional gifts explanation, transaction for 197–8
unsolicited goods treated which calls for 365–6 overriding 7–8
as 50 manifest disadvantage, package holidays 200
unconscionability requirement of 365–6 performance 196
mental disabilities 247 matter of law, true personal injury 209
unfair contract terms 377 presumption raised plain, intelligible
unconscionable bargains as 363–5 language 214–5
372–4 nature of relationship 362–5 prevention of 215
burden of proof 373 rebutting price, exclusion of 210–1
catching bargains 373 presumption 366–7 procedural or
consideration 100 spouses 363–4 substantive 213–4
development of doctrine 374 trust and confidence, ‘reasonableness’ test 201–6
doctrine of 349–50 relationships of 363–4 recommendations for reform
overlap with doctrines rescission 367–9 of law on 18
of duress and undue restitution, need for 367–8 regulations 206–15
influence 374 severance 368 relationship to Unfair
price, disparity in 374 special relationships 360–1 Contract Terms
serious disadvantage, party spouses 361 Act 1977 206–9
at 373 suretyship contracts 371–2 scope 206–9
substantial undervalue, third parties sale of goods 195–6, 198
transactions at 374 rights of 369 significant imbalance 211–2
750 index

unfair contract terms (cont.) value form of 466

standard form establishing 3 performance
contracts 199–201 variation strict 468
subject-matter, exclusion of acceptance 42 postponement 469
main 210–1 discharge 464–5 promise 469
supply contracts 198–9 consideration for 465 promissory estoppel 469
unconscionability 377 form of 464–5 risk, burden of 468
undertakings 215 privity of contract 633–5 Statute of Frauds 466
Unfair Contract Terms Act waiver distinguished 466–7 variation distinguished 466–7
1977 192–206 written instruments 529–30 war
scope of 192–3 vending machines 35 Crown 221–2
variety of clauses 196–7 vicarious performance 447–8, frustration 476, 481, 483
Unidroit Principles for 675–6 war clauses 62
International Commercial vitiating factors 17 warranties
Contracts 20 effect of 21–3 argument that statement
uniform conditions 171–2 illegal contracts 22 is 136
unilateral contracts 55 undue influence 372 breach of 143–4, 716
acceptance 30–1 unenforceable measure of damages 559–61
offer 30–1 contracts 22–3 conditions distinguished 140,
revocation 54–5 void contracts 22 145–6
unilateral mistake 251, voidable contracts 22 excluding 178
277–8 void contracts 219 loss of profit 561
rectification 264–5 illegality 383 nature of 143–4
unincorporated associations mistake 270, 280 sale of goods 160
contracts by 231–2 recovery of payments statute, by 144
capacity 231–2 under 228 sub-sales 559–61
partnerships 232 vitiating factors 22 wilful neglect 190
trade unions 232 voidable contracts 219, 358 withdrawal
United States see also duress 353 goods at auction 36
Restatement Second of the mental disabilities 247 without reserve
Law of Contracts minors 237–8 auctions 36
contract defined in 1–2 mistake 250, 295–8 writing
development of contract property can pass under 25 assignment 665
law 16 unenforceable contracts contracts for which
development of doctrine of distinguished 22–3 required 78–90
unconscionable bargains vitiating factors 22 electronic contracts 90
in 374 form required 86
privity of contract 623 wager of law 10–2, 14 written contracts
unjust enrichment end of 15 mistake 273, 290
damages 24 waiver 149 rectification 262–5
liability to make restitution common law 466 written documents
for 17 communication 45 mistake 258–65
minors 242–5 consideration not written instruments
promissory estoppel 125 required 467–8 alteration or cancellation
proprietary estoppel 128 definition 466 529–30
restitution 4, 24–5, 40, 89 discharge 465–70 wrongdoing
unlawful pressure election 469–70 agreements not to
duress 350–1 estoppel 468–70 disclose 388–9
unsolicited goods 50 forbearance 468 Wrotham Park damages 600–3