How Do I Prove Undue Influence?

Undue influence is based upon four elements. First, the victim must prove that he or she faced the probability of undue influence. Physical or mental illness is common in undue influence cases. Injuries from an accident, the recent death of a loved one and other traumatic events may create situations where the victim will be vulnerable to undue influence. Second, the victim must show that the defendant had the opportunity to dominate the victim. As mentioned previously, special relationships often hold the potential for such opportunities. The victim believes that the defendant had victim s best interests in mind when the defendant was actually ta!in" advanta"e of the victim s trust and circumstances. Third, it must be shown that the defendant too! the opportunity to influence the victim. Attempts to isolate the victim or to constantly pressure the victim into a decision are common si"ns that the defendant is usin" the victim for the defendant s own ends. Finally, there must be a record of an unusual or suspicious transaction. This is usually the result or product of the defendant s undue influence over the victim. The defendant abuses the relationship with the victim to coerce the victim into doin" somethin" beneficial for the defendant. Pressurin" the victim to sell the victim s home to the defendant at an e#tremely low cost is an e#ample of such a transaction

Unconscionable Conduct
Unconscionable conduct deals with transactions between dominant and wea!er parties$ it therefore overlaps with duress and undue influence. Unconscionable conduct is prohibited both in e%uity and, more recently, by statute.

Allcard v Skinner (1887) 36 Ch D 145

In &'() an unmarried woman a"ed *) sou"ht a cler"yman as a confessor. The followin" year she became an associate of the sisterhood of which he was spiritual director and in &')& she was admitted a full member, ta!in" vows of poverty, chastity and obedience. +ithout independent advice, she made "ifts of

money and stoc! to the mother superior on behalf of the sisterhood. She left the sisterhood in &'), and in &''- claimed the return of the stoc!. Proceedin"s to recover the stoc! were commenced in &''.. It was held by the /ourt of Appeal that althou"h the plaintiff0s "ifts were voidable because of undue influence brou"ht to bear upon the plaintiff throu"h the trainin" she had received, she was disentitled to recover because of her conduct and the delay.

Ways In Which Contracts May Be Terminated

Contracts may be brought to an end: (a) By performance of the parties i.e. each party completing his obligations as stipulated by the contract. (b) By frustration i.e. an event through no fault of the parties that make one party unable to perform the contract. For example: if one party suffers a prolonged illness which makes him unable to perform the contract. (c) By lapse of time i.e. if the time limit set for the contract to be executed by both parties has been passed. For example sellers of real estate usually re!uire that the buyers pay the full balance on the property within a certain time period after the initial down payment has been made. (d) By the mutual agreement of all parties. (e)"f one of the parties become bankrupt after the contract has been signed. (f) By changes in law i.e. where a legal contract is rendered illegal through changes in law. (g) By notice e.g. some firms re!uire that employees give at least one month notice when resigning their positions. (h) "f one party dies. (i) By breach of contract#$hen one party defaults on his part of the agreement i.e. he does not perform his part of the contract.

Remedies in contract law

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Various remedies exist in contract law. These include:

Damages epudiation escission !pecific performance "n#unctions estitutionary awards

Damages in Contract Law Damages in contract law are a legal remedy a$aila%le for %reach of contract. Damages are

an award of money to compensate the innocent party. The primary purpose of damages in contract law is to place the in#ured party in the position they would ha$e %een in had the contract %een performed.
&ddis $ 'ramophone ()*+*, &- .//
-ase summary

&n award of damages in contract law is su%#ect to the application of the rules on causation0 remoteness and a duty to mitigate loss. Causation: The Monarch Steamship v Karlshamns Oljefabrika ()*.*, &- )*1 -ase summary Remoteness: 2nder the rules of remoteness of damage in contract law set out in Hadley v Baxendale0 a claimant may only reco$er losses which may reasona%ly %e considered as arising naturally from the %reach or those which may reasona%ly %e supposed to %e in the contemplation of the parties at the time the contract was made: Hadley v Baxendale 3)/4.5 * 6x -h 7.)

-ase summary

The application of this principle can %e seen in the following cases:

Victoria La ndry !"indsor# Ltd v $e%man &nd stries Ltd()*.*, 8 9: 48/ -ase summary Kpohraror v "ool%ich B ildin' Society ()**1, . &ll 6 ))* -ase summary (ilkin'ton v "ood ()*47, -h ;;+ -ase summary )ackson v *oyal Bank of Scotland (8++4, ) <= 7;; -ase summary +,arniko% Ltd v Ko fos 3The >eron ""5 ()*1*, ) &- 74+ -ase summary Parsons $ 2ttley "ngham ()*;/, ?: ;*) -ase summary Duty to mitigate loss The claimant is not permitted to allow their losses to mount up. They are under a duty to take reasona%le steps to reduce their loss: (ay, v Sa nders ()*)*, 8 9: 4/) -ase summary (ilkin'ton v "ood ()*47, -h ;;+ -ase summary Heads of damages

There exist $arious heads of damage in contract law under which an amount can %e claimed to reflect different types of loss. These include loss of %argain0 reliance loss0 discomfort or disappointment0 incon$enience0 diminution of future prospects0 speculati$e damages and liquidated damages. Reliance loss
<here it is difficult to quantify the position the claimant would ha$e %een in it may %e possi%le to reco$er expenses incurred in reliance of the contract:

-n'lia TV v *eed ()*;), 7 &ll 6 summary Discomfort, disappointment

1*+ -ase

Damages to reflect discomfort and disappointment can only %e claimed where en#oyment was part of the %argain of the contract eg holidays or a meal out or entertainment. This most commonly seen in holidays which fail to meet the standard the holiday maker was lead to %elie$e would %e en#oyed: )arvis v S%ann To rs ()*;8, 7 <= *4. -ase summary @ackson $ >orizon >olidays ()*;4, ) <= -ase summary

).1/

Inconvenience
<here the claimant has %een put to physical incon$enience rather than anger or disappointment that the defendant has not met his contractual o%ligation0 the court may award a sum to reflect such incon$enience:

Bailey v B llock ()*4+, 8 &ll 6 summary

))1;

-ase

Diminution of future prospects

<here a %reach of contract ad$ersely affects the claimantAs future prospects0 for example a contract promising training and qualifications0 a sum can %e awarded to reflect the loss:

. nk v /eor'e "aller ()*;+, 8 ?: )17 -ase summary Speculative damages

+haplin v Hicks ()*)),8 9: ;/1 -ase summary

Liquidated damages/ enalty clauses Parties to a contract may legitimately agree the amount of damages to %e paid in the e$ent of a %reach and pro$ide for this in their contract terms. This pro$ides certainty to each party so that they know exactly what they are lia%le to pay should they %e una%le to perform their o%ligations. !uch a clause will %e enforcea%le %y the courts only in so far as it is a genuine preBestimate of loss. "f it is a genuine preBestimate it is known as a liquidated damages clause. "f howe$er0 the amount specified in the contract is not a genuine preBestimate %ut is aimed at deterring a %reach of contract or punishing the

party in %reach0 this is known as a penalty clause which is not enforcea%le:

. nlop v $e% /ara'e ()*)4, &- ;* -ase summary -ine :es Cilmcilik $ 2nited "nternational Pictures (8++7, 6<-& -i$ )11* -ase summary Durray $ =eisureplay Plc (8++4, 6<-& -i$ *17 -ase summary 6uro =ondon &ppointments =td. $ -laessens (8++1, 6<-& -i$ 7/4 -ase summary Repudiation epudiation is a remedy a$aila%le for %reach of contract. epudiation in$ol$es %ringing an end to the contract. "t is only a$aila%le for %reach of condition as oppose to %reach of warranty: Bettini v /ye 3)/;15 ?:D )/7 -ase summary (o ssard v Spiers 3)/;15 ) ?:D .)+ -ase summary "t may also %e a$aila%le for %reach of an innominate term0 where the %reach su%stantially depri$es the claimant of the whole %enefit of the contract.

>ong 9ong Cir !hipping $ 9awasaki 9isen 9aisha ()*18, 8?: 81 -ase summary !ee further here. Rescission escission is an equita%le remedy a$aila%le at the discretion of the #udge. escission seeks to place the parties %ack in their preBcontractual position and thus represents an unra$eling of the contract. escission is a$aila%le where a contract is $oida%le as a result of a $itiating factor such as misrepresentation0 undue influence or duress. The right to rescind may %e lost if the claimant affirms the contract0 where a third party acquires rights in the goods0 through lapse of time or where restit tio in inte'r mis not possi%le. +ar 0 1niversal +redit v +ald%ell ()*1., 8 <= 1++ 3-ase summary5 Lon' v Lloyd ()*4/, ) <= summary5 ;47 3-ase

Leaf v &nternational /alleries ()*4+, 8 9: /1 3-ase summary5

Specific performance !pecific performance is an equita%le remedy a$aila%le at the discretion of the #udge. "t is an order %y the court requiring one party to perform their contractual o%ligation. <hilst it is often said that contracts are made to %e performed and parties should %e held to their contractual o%ligations0 the courts are often reluctant to order a party to unwillingly perform the contract and specific performance is only a$aila%le in limited circumstances. "n considering whether to grant specific performance the courts look to whether damages would %e an adequate remedy0 the type of contract and whether equity requires such an order. ). <here damages are an inadequate remedy: "f the claimant could adequately %e compensated %y an award of damages for the %reach of contract0 the courts are unlikely to order specific performance. -ompare the cases: $ tbro%n v Thornton 3)/+45 )+ Ves )4* -ase summary

+ohen v *oche ()*8;, ) 9: )1* summary 8. Type of contract

-ase

!pecific performance is most commonly ordered for contracts for the sale of land The courts are unlikely to order specific performance for contracts for personal ser$ice. 7. 6quity -lean hands: "alters v Mor'an 3)/1)5 7 DC E @ ;)/ summary Lamare v .ixon 3)/;75 = summary >ardship: -oBop insurance $ &rgyll !tores ()**;, 8 <= /*/ -ase summary (atel v -li ()*/., ) &ll 6 *;/ -ase summary -ase

1 >= .). -ase

In!unctions

"n#unctions are another form of an equita%le remedy a$aila%le only at the discretion of the #udge. There are three types: ). "nterlocutory or interim 3temporary in#unction until a court hearing5 8. Prohi%itory 3a court order that a party must not do something5 7. Dandatory 3an order that a party must do something5
There is an o$erlap %etween mandatory in#unctions and specific performance which has %een recognised %y the courts. The courts will not grant an in#unction in circumstances that would in effect %e an order for specific performance where it would not generally %e allowed: (a'e One *ecords v Britton ()*1/, ) <= summary )4; -ase

>owe$er0 this does not pre$ent the ordering of a prohi%itory in#unction which may %e an indirect way of ensuring compliance with contract: L mley v "a'ner 3)/485 .8 6 1/; -ase summary

The court may se$er terms and only order an in#unction in respect of partial o%ligations: "arner Bros v $elson ()*7;, ) 9: 8+* -ase summary

1emedies for breach of contract

esource t!"e# Article Status# $ublished on %1&'ct&1((( )urisdiction# United *in+do,

This final part of a four part series on practical contract law considers remedies for breach of contract. Samantha Cotton, PLC 2any commercial a"reements contain e#press provisions for remedies. For e#ample, in a contract for the sale of "oods, the buyer may be entitled to re%uire the seller to ma!e "ood or replace defective items. There may be a presumption 3which may be e#pressed in the contract4 that all the terms which are to "overn their contractual relationship have been included by the parties in e#press written form in the contract itself. In doin" so they intended to displace any ri"hts and remedies provided by law 3such as the buyer0s ri"ht to terminate the contract for fundamental breach4 which are not specified in the contract. The purpose of a cumulative remedies clause is to ensure that the parties0 ri"hts specifically provided for in the a"reement are in addition to their ri"hts provided by the "eneral law 3 see inset box "Cumulative remedies clause"4. Any particular remedy that a party envisa"es it may need should be specifically preserved in the contract.

Da,a+es
Unli!e the e%uitable remedies of specific performance and injunction 3 see "Specific performance" and "Injunctions" below) dama"es for loss in a breach of contract claim are available as of ri"ht. An innocent party may claim dama"es from the party in breach in respect of all breaches of contract. The dama"es may be nominal or substantial. 5ominal dama"es are awarded where the innocent party has suffered no loss as a result of the other0s breach and substantial dama"es are awarded as monetary compensation for loss suffered as a result of the other party0s breach. For an innocent party to obtain substantial dama"es he must show that he has suffered loss as a result of the breach 3remoteness4 and the amount of his loss 3measure4. It is up to the party in breach to ar"ue that the innocent party has failed to miti"ate his loss.

e,oteness o- loss
The innocent party may only recover dama"es for loss suffered as a result of the breach provided it is not too remote. The aim of dama"es is to put him in the position he would have been had the contract been properly performed. The principles of remoteness are "iven in Hadle v !axendale "#$%&'( ) *xch+ ,'$4 and provide that the followin" losses are recoverable6 All loss which flows naturally from the breach. All loss which was in the contemplation of the parties at the time the contract was made as a probable results of the breach. If the loss does not fall within the above cate"ories, then it will be too remote and will not be recoverable. The rule in Hadle v !axendale has been interpreted to mean that only loss which is within the reasonable contemplation of the parties may be recovered 3-he Heron II #$).)( $ /C ,&04. 35ote that when dealin" with specific types of contract there may be le"islation that covers remedies under that particular type of contract. For e#ample, in a sale of "oods contract, a party may be able to recover special dama"es 3for e#ample, from unusual loss arisin" from

special circumstances !nown the contract brea!er 3section &', Sale of 1oods /ct $)2)4 3S7A4.4

.easure o- da,a+es
This is the method for calculatin" the dama"es to which the innocent party is entitled. It covers loss of bar"ain or e#pectation loss. The usual aim of the court is to put the innocent party in the position he would have been in had the contract been properly performed 33obinson v Harman #$%'%( $% L4 *x 5054. The two usual methods of assessin" this are difference in value or cost of cure. The court will "enerally use the more appropriate. Sometimes reliance loss may be sou"ht where loss of e#pectation is difficult to prove. The aim of reliance loss is to put the innocent party into the position he would have been in had the contract never been made, that is, an indemnity for his out of poc!et e#penses incurred in reliance on the contract 3/n6lia -7 v 3eed #$)25( $ 8! .04. There are many other types of loss that have been claimed by innocent parties. 8ama"es for disappointment or mental distress are not "enerally awarded 3/ddis v 1ramophone Co+ Ltd #$)0)( /C '%%4 unless the contract is, for e#ample, a holiday contract 34arvis v Swans -ours Ltd #$)2,( $ 8! 5,,4.

.iti+ation
An innocent party cannot recover for loss that he could have avoided by ta!in" reasonable steps. This is sometimes e#pressed as the duty to miti"ate. This does not apply to actions for the price of "oods delivered. Such an action is an action for an a"reed sum and not an action for dama"es. Althou"h there is no duty to miti"ate before actual breach occurs the innocent party should not a""ravate his loss. It is for the defendant to prove that the plaintiff has failed to miti"ate his loss 3Pil9in6ton v :ood #$)&,( Ch 2204.

Advance "a!,ents
If a party in breach has made advanced payments under the contract his ability to recover that money depends upon whether that payment constitutes a deposit 3that is, a "uarantee by him of due performance4 or merely a payment of the whole or part of the price in advance. If it is a deposit 3this depends on the intentions of the parties4 the "eneral rule is that it cannot be recovered and it will be set off a"ainst any dama"es awarded to the innocent party. /are should always be ta!en with deposits so that they do not amount to penalties 3see 9Penalt clauses" below4. :owever it may be possible to recover a deposit if the party has a lien over it 3for e#ample,Chatte and /nother v ;arndale Holdin6 Inc+, -he -imes, $2th <ctober, $)).4. If the advance payment is not a deposit, the party in breach may recover it, subject to any claim for dama"es by the innocent party in respect of the breach. An innocent party may only recover an advance payment if there has been a total failure of consideration. This is a %uasi;contractual remedy. If there is only a partial failure of consideration, this remedy is not available 33owland v =ivall #$)5,( 5 >! &00)+

$enalt! clauses and li/uidated da,a+es

It is common for the parties to e#pressly state in the contract that if the contract is breached, a specified sum will be payable or that "oods will be forfeited. /lauses coverin" these areas are !nown as li%uidated or a"reed dama"es clauses. They fre%uently appear in commercial

contracts, whether individually ne"otiated or on a party0s standard business terms and, most commonly, in relation to late rather than defective performance, particularly in the fields of construction and en"ineerin" and supply or sale of "oods. <ccasionally, they appear in lease a"reements imposed by a !ey or anchor tenant who, for e#ample, needs to be tradin" from the demised premises by a certain deadline. Such clauses do not usually appear in contracts of employment. The purposes of such clauses are to ma!e recovery of dama"es easier, avoidin" the problems of provin" actual loss$ to avoid ar"uments as to the remoteness of certain types of conse%uential or indirect losses$ and to assure the other party of their intention to be bound by the contract. The normal rules applicable to the determination of whether a clause operates as li%uidated dama"es or a penalty apply irrespective of the type of contract in %uestion. A distinction must be drawn between clauses which purport to impose a penalty on the defaultin" party and clauses which levy li%uidated dama"es from that party. Penalty clauses are "enerally not enforceable, whereas li%uidated dama"es clauses are.

$enalt! or li/uidated da,a+es0

For a li%uidated dama"es clause to be valid the specified sum must be a "enuine pre; estimate of the anticipated loss which the claimant would be li!ely to suffer in the event of a breach of the obli"ation in %uestion. If the loss is difficult to %uantify a 9best "uess9 procedure should be operated, !eepin" a record of the calculations underlyin" any elements of the determined fi"ure. Provided the selected fi"ure is not vastly in e#cess of the "reatest loss which could be suffered, the clause is li!ely to be enforceable. The essence of a penalty is that the money specified is in terrorem of the defaultin" party, in other words, it is intended to apply undue force to the other party to perform his side of the contract. The use of the words 9penalty9 or 9li%uidated dama"es9 are not conclusive. It is necessary to e#amine whether the amount specified is in fact a penalty or li%uidated dama"es. It is for the party in breach to show that the sum is a penalty 33obophone ;acilities Ltd v !lan9 #$)..( , /ll *3 $5%4. The leadin" case of =unlop Pneumatic - res establishes the tests to distin"uish penalties from li%uidated dama"es6 A clause will be construed as a penalty clause if the sum specified is 9e#trava"ant and unconscionable9 in comparison with the "reatest loss that could possibly have been proved as a result of the breach. It is li!ely to be a penalty if the breach of contract consists of not payin" a sum of money and the sum stipulated as dama"es is "reater than the sum which ou"ht to have been paid. There is a presumption that if the same sum is stated to apply to different types of breach of contract, some of which are serious and others not, it is li!ely to be a penalty clause. It is not a bar to the operation of a li%uidated dama"es clause that a precise pre; estimation is impossible. 3=unlop Pneumatic - re Co Limited v ?ew 1ara6e @ Aotor Co Limited #$)$&( /+C 2) 4 There is no public policy issue in relation to the upper limit of dama"es to which parties can contract to be liable. The Unfair /ontract Terms Act &,)) will in certain circumstances impose a test of reasonableness in relation to e#clusion clauses 3which purport to limit or

e#clude liability4 but this is unli!ely to apply to a "enuine li%uidated dama"es clause. If the clause specifies a sum which is more than a "enuine pre;estimate 3and therefore a penalty4 the clause will be unenforceable. The courts will not benefit the party claimin" dama"es by imposin" a lower substitute fi"ure. To claim on a "enuine li%uidated dama"es clause, the claimant merely has to show breach of contract, whether or not there has been any actual loss and re"ardless of the e#tent of any loss. It is not entirely clear whether a li%uidated dama"es clause is intended to be a mutually bindin" limitation on the amount of dama"es payable. It is li!ely that it is intended to be mutually bindin" in the field of buildin" and en"ineerin" contracts. A /ourt of Appeal case held that where 9=nil9 was inserted as the amount of li%uidated dama"es, then "eneral dama"es for breach of contract were not recoverable in the alternative 3 -emloc v *rrill Properties, $)%2 ,) !L3+,04. A contract can, however, e#pressly provide for the party see!in" to impose the clause to have a choice whether to operate it or not. /ertain charterparty cases su""est that the claimant may have a choice either to sue under the li%uidated dama"es clause or to i"nore it and claim "eneral dama"es without limitation althou"h these cases are probably limited to that area of law. If, however, the clause is invalidated because it is a penalty clause or due to acts of the claimant 3such as re%uirin" the other party to perform additional wor! without a contractual mechanism to "rant that party further time to perform the contract4 or breach of contract by the claimant, then the limit specified in the unwor!able clause will operate as a limitation on the amount of dama"es which can be claimed 3althou"h in the case of a penalty the limit is unli!ely to be reached because by its nature, it will be hi"her than the loss could ever be4. As re"ards enforcement, many contracts will specify that the dama"es can be deducted from subse%uent sums due. This is particularly the case for buildin" contracts where interim payments to the contractor are usual. 2any contracts will also provide for the claimant to be able to recover li%uidated dama"es as if they were a debt due by the other party. If possible, when draftin" a penalty clause, you should try to ensure that you can deduct or recover dama"es in these ways as they are a more effective way of ensurin" that you will be able to recover the money due. <therwise the usual rules of enforcement would apply and a claim form would be issued in the normal manner 3without, of course, havin" to prove actual loss4. 5ote that it will be a defence to a claim for li%uidated dama"es that the claimant has prevented the other party from completin" his obli"ations either by the claimant0s own breach of contract or by other acts of prevention in circumstances where there is no provision in the contract to ma!e an allowance or "ive a time e#tension to the party from whom dama"es are claimed for these circumstances. It is important to observe all relevant procedural re%uirements in the contract such as notice periods and provisions re%uirin" the li%uidated dama"es to be assessed and deducted within certain time periods, otherwise the defendant will not be re%uired to pay the dama"es.

S"eci-ic "er-or,ance
This is an e%uitable remedy "ranted at the court0s discretion. Specific performance is a decree by the court to compel a party to perform his contractual obli"ations. It is usually only ordered where dama"es are not an ade%uate remedy 3for

e#ample where the subject matter of the contract is uni%ue for e#ample, /hinese vases in ;alc9e v 1ra 3#$%&)( ' =rew .&$4 but not if a replacement of the subject matter could be obtained even after a lon" delay 3Societe des Industries Aetallur6iBues S/ v !ronx *n6ineerin6 Co Ltd #$)2&( $ Llo ds 3ep '.&4. It is a "eneral rule that specific performance will not be ordered if the contract re%uires performance or constant supervision over a period of time and the obli"ations in the contract are not clearly defined. For e#ample, specific performance of a covenant to !eep a shop open durin" normal business hours was refused by the :ouse of >ords in CoCop Insurance v /r6 ll Stores3#$))2( , /ll *3 5)24 on the "rounds that enforcement of a covenant to carry on a business would re%uire constant supervision of the courts with the court resortin" to criminal punishment for contempt of court if the order was not complied with. :owever, a recent case has reversed this rule in relation to a tenant0s repair covenants 3 3ainbow *states Limited v -o9enhold Limited and another #$))%( ?ew Propert Cases ,, 4. The jud"e in this case concluded that the old law of refusin" specific performance if it would involve constant supervision was no lon"er "ood or 3at least4 that there were e#ceptions. It may be that only in the most e#ceptional circumstances 3such as in this case4 specific performance will be available to the landlords$ however the ar"uments advanced indicate that it should be available in other situations. Specific performance was ordered re%uirin" tenants to spend =?@@,@@@ on repairs to the flats. Factors militatin" in favour of this remedy were that the landlord had no ri"ht of entry to repair in default of the tenant$ that the lease had no forfeiture clause and that the buildin" was listed so that repair as distinct from redevelopment was the most appropriate outcome. Specific performance is often ordered in relation to buildin" contracts because the contract deals with results rather than the carryin" on of an activity over a period of time and it usually defines the wor! to be completed with certainty 34eune v 8ueens Cross Properties Ltd #$)2,( , /ll *3 )24. Specific performance is not available for contracts re%uirin" personal services such as employment contracts because such an order would restrict an individual0s freedom 3Chappell v -imes ?ewspapers Ltd #$)2&( $ :L3 '%5 4. The court has broad discretion to award specific performance and in e#ercisin" this discretion it ta!es into account factors such as6 8elay in as!in" for the order 3LaDard !rothers @ Co Ltd v ;airfield Properties co "Aa fair) Ltd #$)22( $5$ S4 2),4. +hether the person see!in" performance is prepared to perform his side of the contract 3Chappell v -imes ?ewspapers Ltd #$)2&( $ :L3 '%5 4. +hether the person a"ainst whom the order is sou"ht would suffer hardship in performin" 3Patel v /li #$)%'( $ /ll *3 )2%4. The difference between the benefit the order would "ive to one party and the cost of performance to the other 3-ito v :addell "?o 5) #$)22( Ch $0.4. +hether any third party ri"hts would be affected. +hether the contract lac!s ade%uate consideration 3the rule 9e%uity will not assist a volunteer9 applies so that specific performance will not be ordered if the contract is for nominal consideration even if it is under seal 34effr s v 4effr s #$%'$( $ Cr @ Ph $,% 44.

1n2unction

>i!e specific performance, an injunction is an e%uitable remedy and therefore only "ranted at the discretion of the court. It is awarded in circumstances where dama"es would not be an ade%uate remedy to compensate the claimant because the claimant needs to restrain the defendant from startin" or continuin" a breach of a ne"ative contractual underta!in" 3prohibitory injunction4 or needs to compel performance of a positive contractual obli"ation 3mandatory injunction4. In e#ercisin" its discretion the court will consider the same factors as above for specific performance and will use the balance of convenience test 3wei"hin" the benefit to the injured party and the detriment to the other party4. An injunction will not be "ranted if its effect would be to compel a party to do somethin" which he could not have been ordered to do by a decree of specific performance 3Lumle v :a6ner #$%&5( $ =A @ 1 .0')+ In ur"ent cases a plaintiff may be able to obtain an interim injunction to restrain an act. Special types of injunction may be "ranted to preserve property and assets pendin" trial 32areva injunctions and Anton Piller orders4.

3uasi contract# other re,edies

Auasi;contract creates obli"ations at common law, distinct from obli"ations under a contract. It is an area of law in its own ri"ht. Auasi;contractual remedies are sometimes available either as an alternative to a remedy for breach of contract or where there is no remedy for breach of contract. For e#ample, a claim for %uantum meruit 3a reasonable remuneration for wor! done of "oods supplied under a contract which is later discovered to be void4.

4i,itation o- actions
An innocent party will lose his ri"ht to brin" a claim for breach of contract if he delays for a certain len"th of time. The >imitation Act &,'@ provides statutory limitation periods. Theses do not apply to e%uitable remedies, however, in practice, e%uity usually applies the statutory rules. The >imitation Act &,'@ distin"uishes between simple contracts and deeds. It provides the followin" limitation periods6 For simple contracts, si# years from when the cause of action accrued. For deeds, twelve years from when the cause of action accrued. If there has been fraud or mista!e, the limitation period does not be"in to run until the innocent party has discovered this or should have discovered this. There is a three year time limit in respect of dama"es for personal injuries arisin" from breach of contract. In ac%uisition a"reements 3which may be deeds4 the seller may want a shorter limitation period 3commonly si# years from the date of the contract4 This shorter period relates to the Inland 1evenue0s time limit for ma!in" ta# assessments. Alternatively, the seller may want an even shorter period in relation to non;ta# matters 3perhaps to lin! in with the audit of the tar"et company4.

Sel-&hel" re,edies
1ather than brin"in" an action for breach of contract, parties can ma!e use on some self; help remedies such as retention of title clauses, enforcement of security, withholdin" payments and set off and ri"hts a"ainst the "oods themselves.

etention o- title

A seller can avoid the problems of havin" to sue a buyer in event of the buyer0s default under the a"reement by insertin" a retention of title clause into the contract. A retention of title clause 3sometimes referred to as a 3omalpa clause, after the first leadin" case on the subject, /luminium Industrie 7aasen !7 v 3omalpa /luminium Ltd #$)2.( $ :L3 .2.4 aims to "ive the supplier of "oods priority over secured and unsecured creditors of the buyer if the buyer fails to pay for the "oods because it is insolvent, or for some other reason which may be specified in the clause. In a basic retention of title clause the supplier reserves ownership of the "oods supplied to the buyer until the buyer has paid for those particular "oods. +hen draftin", it is important to ensure that le"al and beneficial title are retained6 the reservation of e%uitable or beneficial title alone will not do "3e !ond :orth #$)2)( , /*3 )$)). The clause should be supplemented by standard clauses containin"6 A ri"ht for the supplier to enter the buyer0s premises in order to repossess the "oods 3so that the supplier will not commit a trespass when doin" so4. An obli"ation on the part of the buyer to store the supplier0s "oods separately from "oods belon"in" to third parties, to mar! them as the supplier0s property and to allow the supplier access to the buyer0s premises to verify that this has been done. This will enable the supplier to identify its own "oods if a repossession of the "oods becomes necessary. A list of insolvency related events which will tri""er the supplier0s ri"ht to demand payment for the "oods 3if not already due4 and to repossess them. In addition, althou"h not a standard clause, if the "oods supplied mi"ht be attached to the buyer0s premises 3for e#ample, in the case of heavy plant or machinery4, it is worth includin" a provision prohibitin" the buyer from anne#in" them to such premises without the supplier0s consent. If "oods do become anne#ed to the buyer0s premises, the consent of the owner of those premises will be necessary if the supplier is to be entitled to repossess them in the event of non;payment by the buyer. This basic clause is often bac!ed up by certain other standard clauses such as clauses for all monies, proceeds of sale and mi#ed "oods6

All ,onies clause

In this of clause, the supplier reserves ownership of the "oods supplied until the buyer has paid not only for those particular "oods, but also for any other "oods supplied by the supplier to the buyer, and has repaid all other moneys owed to the supplier, re"ardless of how such indebtedness arose. A limitation upon the practical effectiveness of this clause is that the supplier retains title to "oods only until those specific "oods have been paid for. The buyer will therefore obtain title to those "oods upon payin" for them even if other "oods received from the supplier have not been paid for. The effect of the all monies clause is that all of the "oods supplied, whether paid for or not, belon" to the supplier until the buyer has settled all invoices. In practice, the clause therefore avoids the need to relate specific "oods at the buyer0s warehouse with specific unpaid invoices. It has been su""ested that an all monies clause creates a char"e by the buyer in favour of the supplier, which would be void a"ainst a li%uidator or administrator and any creditor of the buyer unless re"istered at /ompanies :ouse in accordance with the /ompanies Act &,'.. The :ouse of >ords, on appeal from a Scottish decision, has held that such a clause does

not create a char"e, but the decision, while of stron" persuasive authority, is not bindin" on the Bn"lish courts 3/rmour v -h ssen *delstahlwer9e /1, PLC, $))0, I"&), &$4. It is therefore advisable to incorporate the all monies clause in a separate sub;clause from the basic retention of title clauses so that it could be severed from them if it were ever held invalid by a court for lac! of re"istration as a char"e. Althou"h possible in theory, the re"istration by a supplier of all its sales contracts at /ompanies :ouse in case they contain retention of title clauses which create char"es is, for a number of practical reasons, unli!ely to be a realistic option.

$roceeds o- sale clause

This is where the "oods supplied are to be sold on by the buyer and the supplier see!s ri"hts in the proceeds of sale in order to satisfy the purchase price of the "oods. A clause "ivin" the supplier ri"hts over the sale proceeds of "oods resold by the buyer was held to be valid in the 3omalpa case, on the basis that there was, on the facts before the court, a fiduciary relationship between the buyer and the supplier, and the buyer as a fiduciary was under a duty to account for the sale proceeds to the supplier as beneficiary. Since the 3omalpadecision, the courts have distin"uished the facts of the cases before them from the facts in the3omalpa case, and have in a series of cases held that clauses of this !ind create a char"e by the buyer in favour of the supplier which will be void if not re"istered at /ompanies :ouse. As a result, it is now e#tremely difficult, if not impossible, to draft a proceeds of sale clause without its bein" construed as a char"e over the "oods which will, therefore, be unenforceable unless re"istered as such. <ne of the main difficulties in practice is that, in order to rely on the e%uitable remedy of tracin", the supplier must create a fiduciary relationship with the buyer and, in order to achieve that, the buyer must resell the "oods as the supplier0s a"ent. This would mean the buyer0s customers holdin" the supplier directly liable for any defects in the "oods, which is unli!ely to be desirable from the supplier0s point of view. If, on the other hand, the authority of the buyer as a"ent is cut down, so that it cannot create privity of contract between the supplier and the buyer0s customers, the result is that there is unli!ely to be a true a"ency. The inclusion of a proceeds of sale clause in standard terms is inadvisable without specialist advice or a thorou"h review of the latest relevant case law. It has been ar"ued that if a court were to hold that the proceeds of sale clause created a char"e which was invalid for non; re"istration, it mi"ht also decide that the invalidity of the proceeds of sale clause e#tended to the basic retention of title and all monies provisions, with the result that they too would be rendered invalid for non;re"istration. It is considered more li!ely that, if the proceeds of sale clause is contained in a separate clause or sub;clause and the standard terms contain a severance provision, the court will sever the proceeds of sale clause leavin" the remainin" provisions unaffected, but the need for caution in this area is clear.

.i5ed +oods clause

This is useful where the "oods supplied have been mi#ed or combined in a manufacturin" process with other "oods owned by the buyer or third parties. In this clause the supplier see!s ri"hts of ownership in any new product resultin" from the manufacturin" process.

The supplier may be sellin" "oods for use in a manufacturin" process, rather than for resale in their ori"inal condition 3if, for e#ample, it is a supplier of components rather than finished products4. The case law distin"uishes between6 7oods which maintain their identity 3and which, if attached to other "oods, can be separated without causin" dama"e4. Such "oods will continue to belon" to the supplier where there is a basic form of retention of title clause as described above, so no additional provisions are necessary. 7oods which lose their identity in the manufacturin" process$ for e#ample, the sale of resin which is used in the manufacture of chipboard. The resultin" new product 3the chipboard4 will belon" to the buyer and the courts have held that if a retention of title clause purports to reserve ri"hts in the new "oods to the supplier, the clause will create a char"e which will be ineffective if not re"istered 3!orden "E>) Limited v Scottish -imber Products #$)2)( , /*3 ).$4. It is clear from the case law, therefore, that the use of a mi#ed "oods clause will achieve nothin" for the supplier$ on the contrary, it may do harm if 3followin" the same ar"ument as described above in the case of a proceeds of sale clause4, its invalidity also rendered the basic and all monies clauses invalid for non;re"istration as char"es. Suppliers of products which are %uic!ly consumed within a manufacturin" process should therefore consider alternative means of securin" their purchase price, such as credit insurance.

4i,itations on e--ectiveness

The followin" actual or potential limitations upon the effectiveness of retention of title clauses should be borne in mind6 If the buyer is a company a"ainst which an application for an administration order has been made, no steps may be ta!en without the consent of the court 3which in practice is unli!ely to be forthcomin"4 to repossess "oods supplied pursuant to a retention of title clause until the hearin" of the application and, if an administration order is made, while the order remains in force 3section $$, Insolvenc /ct $)%.4. The retention of title clause must be properly incorporated in the contract between the supplier and the buyer in order to be enforceable as a contract term. A retention of title clause is not, however, so unusual that special notice needs to be "iven of it "4ohn Snow @ Compan Limited v =!1 :oodcroft @ Compan Limited #$)%&( !CLC &') . 1etention of title will be of little or no practical benefit where the "oods supplied are perishable or have a low scrap value. 1etention of title is an area which "enerates a rapidly chan"in" body of case law. Particular clauses are liable to be rendered ineffective by a court decision at any time, so a review of retention of title clauses is a particularly important aspect of the overall review of standard terms which suppliers should be carryin" out on a re"ular basis. 8ecisions of the courts have severely restricted the effectiveness of comple# mi#ed "oods and proceeds of sale clauses. The most that a well drafted retention of title clause is li!ely to achieve for a supplier is6 The ri"ht to enter the buyer0s premises without trespassin". The ability to recover "oods stored at the buyer0s premises which can be identified as the supplier0s, possibly to the e#tent of all sums owed by the buyer to the supplier. A possible action for dama"es for conversion a"ainst a receiver or li%uidator personally who sells "oods which were identifiably the supplier0s. A retention of title clause should be re"arded as an adjunct to a proper credit control system, not as a substitute for it. +here the supplier has doubts as to the financial standin" of the buyer, the supplier should consider6

1educin" the period of credit allowed to the buyer, or the amount of credit, or both. Ta!in" alternative forms of security, such as a ban! "uarantee or letter of credit. <btainin" credit insurance. This has become more readily available in recent years, with a "reater choice of tailor;made products on offer. The e#istence of a satisfactory set of standard terms of business is li!ely to be a precondition to obtainin" such insurance.

isk and insurance

The ris! in the "oods will pass at the same time as title to them passes unless otherwise a"reed 3section 50, S1/4. In standard terms of sale ris! is usually stated to pass at the time of delivery of the "oods. This is on the basis that the supplier will not wish to remain responsible for loss or dama"e to the "oods up to the time when title passes, "iven that the effect of the basic retention of title clause is that title does not pass until the buyer has paid for the "oods. The result is that if the "oods are destroyed after delivery the buyer will remain liable for the price. To "uard a"ainst the ris! of the buyer bein" unable to pay, the supplier should include a provision re%uirin" the buyer upon delivery to insure the "oods with a reputable insurance company 3the supplier may reserve a ri"ht of pre;approval4 and to ensure that the supplier0s interest in the "oods is noted on the policy.

6akin+ securit!
If a lender has loaned money to a person and ta!en security to support the loan, this enables the lender to appoint a receiver to enforce his security if the person defaults on the loan. Security can ta!e the form of a fi#ed char"e over specific assets or a floatin" char"e over the whole of part of an underta!in".

7ithholdin+ "a!,ent and set&o-+here a debtor has a cross;claim a"ainst a creditor, a ri"ht of set;off enables him to reduce or e#tin"uish the creditor0s claim by the amount of his cross;claim. There are four types of set;off 3the first three of which may be e#tended by contract46 4e+al set&o--8 >e"al set;off is a procedural remedy which evolved from the Statutes of set;off and a number of &'th and &,th century cases 3see also !ennett v :hite #$)$0( 58! .', C/4. It can only be resorted to as a defence to a court action and, unli!e other types of set;off, is not available as a 9self;help9 remedy. >e"al set;off is also only available where the two claims are li%uidated or ascertainable with certainty and are both due and payable at the commencement of the action. :owever, unli!e e%uitable set;off, the two claims do not have to arise from the same transaction or closely connected transactions. 9/uitable set&o--8 This is available to a debtor outside the conte#t of liti"ation where his cross;claim arises from the same transaction 3or a closely related transaction4 as the debt owed. Bither and probably both of the claims may be for an unli%uidated sum, such as a claim for dama"es 3Hana9 v 1reen #$)&%( 5 /ll *3 $'$ C/ and AcCrea6h v 4udd #$)5,( :? $2' =C4. As it is a self;help remedy, a debtor can, without formality, simply deduct the amount of his mutual cross;claim from the debt he owes and tender the balance of the debt 3if any4 to the creditor. :owever, as with le"al set;off, the sums in %uestion must be due and payable or, in the case of unli%uidated dama"es must be a reasonable assessment of the loss made in "ood faith 3-he ?anfri #$)2%( Llo dFs 3ep $,5 C/4. :anker;s set&o--8 Can!er0s set;off arises in a situation where a customer has more than one account with his ban!, at least one of which is in debit and one of which is in credit. It is also !nown as the ri"ht to combine accounts. Can!er0s set;off is ar"uably of wider commercial application and could be available in any situation where one party has two or more accounts with another, for e#ample between principals and their a"ents or between a supplier and his customer, but the position has not been e#plicitly judicially determined. A

debtor can only invo!e ban!er0s set;off if the two accounts are current or runnin" accounts, that is, where the balance on the account, whether it be positive or ne"ative, is payable on demand or on reasonably short notice 33e :illis, Percival @ Co ex parte Aorier #$%2)( $5 Ch= ')$ C/4. As with e%uitable set;off, the remedy is one of self;help and can be automatically e#ercised without formality. 1nsolvenc! set&o--8 +hile each of the above cate"ories of set;off may be varied by contract, either by e#tendin" or restrictin" a party0s ri"hts under the "eneral law, the rules of insolvency set;off are mandatory and may not be varied by contract 3 Halesown Presswor9 and /ssemblies Ltd v :estminster !an9 #$)25( /C 2%&4. /ontractual ri"hts of set;off do not survive the li%uidation or ban!ruptcy of either the creditor or the debtor. Any creditor provin" in a li%uidation or ban!ruptcy must deduct from his claim the amount of any liabilities incurred6 Prior to the company or individual "oin" into li%uidation or ban!ruptcy. At any time when the creditor had notice of either a resolution or a petition to wind up the company or ban!rupt the individual. All liabilities, includin" future, contin"ent and unli%uidated sums must be brou"ht into account 33ule '+)0, Insolvenc 3ules $)%. for compan liBuidationsG section ,5,, Insolvenc /ct $)%. for ban9ruptcies4. Since any attempt to vary these rules by contract will be void, parties would need to use indirect means to avoid their application. They could, for e#ample, enter into an a"reement which provides that one or both of them should not prove in any li%uidation or ban!ruptcy of the other or that any such claims will be subordinated to those of other creditors. 1i"hts of set;off are fre%uently varied by the terms of a contract. For e#ample, in a commercial contract, a buyer may want the ability to set;off claims for debts or claims under other contracts a"ainst payments that he owes for "oods or services under that contract.

$ur"ose o- e5clusion o- set&o-- clause

/ommercial a"reements fre%uently restrict ri"hts of set;off. For e#ample, a seller may wish to ensure that a buyer is prevented from settin" off amounts owed to it or claims re"ardin" alle"ed defects in the seller0s performance a"ainst the sums due to be paid by it to the seller under the a"reement. An e#clusion of set;off ri"hts is particularly common in an a"reement which provides for payments over a period of time. A borrowers0 ri"ht of set;off will invariably be e#cluded in loan and security documentation. +hile such a clause does not survive the insolvency of either party, the /ourt of Appeal has confirmed that such a clause is enforceable and not contrary to public policy 3 CocaCCola ;inancial Corporation v ;insat International, -he -imes, $st Aa , $)). 4. :owever, as a"ainst a party contractin" on its standard terms or with a consumer, the clause constitutes a limitation of liability which will be subject to the reasonableness test set out in the Unfair /ontract Terms Act &,)) 3Stewart 1ill v Horatio A er Co #$))5( 5 /ll *3 5&2)+

S<A and ri+hts a+ainst +oods

The S7A provides for the conse%uences of disputes arisin" in contracts for the sale of "oods. For e#ample, if a seller delivers a %uantity of "oods less than he contracted to sell, the buyer can either6 1eject the "oods and sue for any loss occasioned by the breach, and if the price had been paid, recover the price$ or 1etain the "oods, pay for them at the contract rate, recover such part of the price for the undelivered %uantity and claim dama"es for the breach.

There are restrictions on the buyer0s ri"ht to reject the "oods. First, at common law, if the shortfall is de minimis, he will not be allowed to reject the "oods. Second, section ?@3*A4 provides that a buyer who does not deal as a consumer may not reject the "oods if the shortfall is so sli"ht that it would be unreasonable for him to do so. If a the buyer is in breach of a term of a sale of "oods contract, for e#ample in relation to the payment terms, the unpaid seller has ri"hts a"ainst the "oods themselves in addition to ri"hts a"ainst the buyer. These ri"hts may prove useful on the buyer0s insolvency. If some or all of the price of the "oods is outstandin" the seller will be an unpaid seller 3 section ,%"$), S1/4. This "ives the seller the ri"ht to6 1etain the "oods. This can be done if the seller is still in possession of the "oods and the buyer has not been "iven a period of credit, or the credit period has e#pired or the buyer is insolvent. The seller can retain the "oods until the buyer pays for them 3the seller0s lien4. The seller loses his lien when the "oods are delivered to an independent carrier or the buyer lawfully ta!es possession of them. Stop the "oods in transit. If the buyer is insolvent the unpaid seller may stop the "oods in transit and retain them until the buyer pays for them 3section ''4. Sections -. and -( provide rules as the duration of transit and how to effect stoppa"e. 1esell the "oods. Section -'3?4 allows the seller to resell the perishable "oods if he notifies the buyer of his intention to sell and the buyer does not pay within a reasonable time. The seller may claim dama"es from the buyer for loss on the resale 3section '%",)4.

9/uitable e,edies
There are two main e%uitable remedies for breach of contract. Specific performance ; this is an order directin" the breachin" party to perform the contract in the way specified by the court. It will only be ordered if dama"es will not provide ade%uate compensation and will not be awarded in relation to contracts of personal service. Injunctions ; these are orders directin" a party not to do somethin" ; e", not to persist with a contractual breach. Coth remedies are discretionary$ the court is not obli"ed to award them even where breach is established. B%uitable dama"es may also be available in some cases

Mistake Case
Raffles v Wichelhaus "#$%&' ( H ) C *+%

Court of Exchequer

The parties entered a contract for the sale of some cotton to be shipped by 'The Peerless' from Bombay. The Peerless had a sailing from Bombay in October and in December. The defendant thought that it as the October sailing and the claimant belie!ed it as the December sailing hich had been agreed.

The court applied an ob"ecti!e test and stated that a reasonable person ould not ha!e been able to state ith certainty hich sailing had been agreed. Therefore the contract as !oid as there as no consensus ad idem