Presentation Transcript

1. Comparative Contract LaWPart II: The law of contract(Continued) - the english common law

   Comparative Law LLM KiLAW Spring 2013 Dr Myra Williamson
2. overview This is the final slideshow on contract in the the English common law In this slideshow we will briefly touch on a few final issues before bring this part of comparative contract law to a close We can’t cover the entire body of contract law but we should mention some important points before moving on Issues we will touch upon here include: Interpretation of contracts – general principles Implied terms Good faith Setting the contract aside Mistake Misrepresentation Unconscionability Frustration and force majeure (Duress, undue influence and lack of capacity have already been discussed in an earlier slideshow)

3. 1. Interpretation of contracts

   General principles
4. Interpretation of contracts I How will courts interpret a contract? What approach will they take? From “Literalism” to “contextualism” In the past, the courts took a “literal” approach, meaning that they tried to find the meaning of the contract within the 4 corners of the contract Some people argued this was unrealistic: courts shouldn’t separate the contract from the context in which it was made There was a change in around 1971 – courts moved from a literalist to a contextualist approach: Prennv Simmonds [1971] 1 WLR 1381 – House of Lords said that the contract, to be understood, had to be placed in tis context
5. Interpretation of contracts II The principles of interpretation of contracts were clearly stated by Lord Hoffmann in Investors Compensation Scheme v West Bromich Building Society: Interpretation is the ascertainment of meaning which the document would convey to a reasonable person having all the background knowledge that would have been available to the parties This includes anything that would have affected the way in which the language of the document would have been understood by a reasonable man – this is sometimes called the ‘matrix of fact’ The law excludes from this background the previous negotiations of the parties The meaning is not a matter of dictionaries. Words should be given their ‘natural and ordinary meaning’ - but the law does not require judges to give words a meaning that the parties could not have had
6. Interpretation of contracts III The future: There are 3 options: Return to the traditional, literalist past Continue with Lord Hoffmann’s principles (pre-contractual negotiations and conduct subsequent to the making of the contract are inadmissible) Law should continue to evolve – courts should continue to expand the range of materials to which they have regard when interpreting contracts Arts 5-102 Principles of European Contract Law state that when interpreting contracts, regard shall be had to: The circumstances in which the contract was concluded, including the preliminary negotiations The conduct of the parties, even subsequent to the conclusion of the contract The nature and purpose of the contract The interpretation that has already been given to similar clauses The meaning commonly given to terms in this area Usages Good faith and fair dealing To read more about the Principles of European Contract Law see http://en.wikipedia.org/wiki/Principles_of_European_Contract_Law

7. 2. Implied terms

8. Implied terms We should note that sometimes terms are implied into a contract A number of important terms are in contracts not because they were agreed upon by the parties but because the courts have implied them into the contract Sources of implied terms: Statute Custom Courts Statute: e.g. the Sale of Goods Act 1979 implies some terms into consumer contracts, mainly for the protection of consumers Custom: where a custom is certain, reasonable and notorious Courts also imply terms but this is a source of controversy. If it does, it uses the justification that it is giving effect to the presumed intention of the parties

9. 3. Good faith

10. GOOD FAITH i There is no general doctrine of ‘good faith’ in English contract law However, the Unfair Terms in Consumer Contracts Regulations 1999 introduced a requirement of good faith in relation to consumer contracts When these regulations were introduced, there was excitement that perhaps it would lead to wider recognition of the doctrine – this has so far not happened In this area, English law stands out from many other legal systems Some say that the difference is one of form not substance – that just because there is no requirement of good faith doesn’t mean that the rules encourage parties to act in ‘bad faith There are some signs of change in both judicial and academic attitudes to the doctrine of good faith so English courts may recognise it in the future
11. Good faith II What is good faith? It has its conceptual roots in the civil law legal systems In the UK, the ‘good faith’ element in consumer contracts seeks to promote fair and open dealing, to prevent unfair surprise; terms should be reasonably transparent and should not operate to defeat the reasonable expectations of the consumer The HL has said that in consumer contracts, the doctrine of ‘good faith’ means the idea of ‘fair and open dealing’ but the House of Lords has stated that there is no general requirement (beyond consumer contracts) for parties to negotiate in good faith Although, by contracts, civil law systems recognise this doctrine, there is no one common understanding of what it means
12. Good faith iii The leading UK case is the House of Lords’ decision in Walfordv Miles [1992] 2 AC 128 where the HL held that the defendant was under no obligation to conduct the pre-contractual negotiations in good faith Why doesn’t English contract law recognise this requirement? It cuts against the individualist ethic of English contract law Good faith is a loose cannon in commercial contracts (there is endless uncertainty about which morality would be applicable) – it’s a vague idea & would introduce uncertainty It would call for difficult inquiries into a contractor’s state of mind It impinges on the autonomy of the contracting parties – its inconsistent with the principle of ‘freedom of contract’ Contracting contexts are not all alike –e.g. the commodities market where trading is intrinsically competitive and where opportunistic behaviour is expected Note: even if ‘good faith’ were introduced, what would it mean? The EU Member States have no common conception of what ‘good faith’ means

13. 4. Setting the contract aside

14. Setting the contract aside Earlier we looked at how a contract can be discharged – we looked at breach But there are other ways in which a contract can be brought to an end: Mistake Misrepresentation Unconscionability Frustration and force majeure
15. mistake The law must strike a balance between the need for certainty and the desire to protect a party who discovers he has entered into a contract radically different in nature from the one he intended to enter The effect of a mistake may be to prevent the formation of a contract because the parties are at cross-purposes There may be a ‘common mistake’ made by both parties – e.g.. Where the mistake relates to existence or the identity of the subject matter, then the mistake may be sufficient to set the contract aside A mistake may be made when recording the agreement, rather than when making it – in such a case the court may be able to rectify the document A party may not be able to understand the document that he has signed – if he can show that there was a real or substantial difference between the document he signed and the document that he thought he was signing
16. misrepresentation When one party is induced to enter a contract as a result of a false statement of fact made to him by the defendant or by a third party To succeed the claimant must show that a misrepresentation (an unambiguous false statement of fact) was made to him, which induced him to enter into the contract Sometimes a failure to disclose information may give rise to a claim for misrepresentation A claimant who has been induced to enter a contract by a misrepresentation is, in principle, entitled to set aside (‘rescind’) the contract
17. unconscionability Unconscionability” is a term used in the English common law – it’s a defence to the enforcement of a contract on the grounds that the contract contains terms that are “unconscionable” It means that the terms are grossly unfair to one party – it has to have been that way at the time of formation of the contract (subsequent events are not usually relevant) The court could decide to ‘set aside’ the contract if it finds that one party took advantage of its superior bargaining position to obtain terms that are unconscionable If a court finds “unconscionability” it could decide to set aside just those terms or it could set aside the whole contract – it has quite a bit of discretion All common law countries have this doctrine in their case law although the exact formulation may differ and the leading cases will be different When might such a finding occur? When boilerplate clauses are inserted and one party might not have read or understood them When one party has clearly taken advantage of the other (e.g. a bank against an elderly couple who speak little English) Where one party has a serious disadvantage vis-à-vis the other
18. Frustration and force majeure A contract can be set aside under the doctrine of “frustration” That is when unforeseen events render contractual obligations impossible OR unforeseen events occur that radically change what the parties agreed to Leading UK case: Taylor v Caldwell 1893: the parties had agreed to the lease of a music hall; after the contract had been made but before the date of performance, the music hall burnt down; the court held that the contract was now impossible to perform Some contracts include a term to cover this – they might state that both parties will be freed from liability if an extraordinary even occurs that is beyond the control of the parties (e.g.. War, riot, Act of God such as volcanic eruption, earthquake etc.) The force majeure clause will not bring the contract to end necessarily – it just suspends non-performance for the duration of the force majeure
19. Force majeure clause - example Clause 19. Force Majeure A party is not liable for failure to perform the party's obligations if such failure is as a result of Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalisation, government sanction, blockage, embargo, labor dispute, strike, lockout or interruption or failure of electricity or telephone service. No party is entitled to terminate this Agreement under Clause 17 (Termination) in such circumstances.
20. Conclusion We have spend the last few weeks discussing the general principles of contract law in the common law legal systems, particularly in the English common law We have looked at the elements needed to have a contract We have looked at performance, breach and remedies We have looked at interpretation of the contract We have looked at ways in which a contract might be set aside There are some other areas that we have not touched on – contract law is understandably a huge (and hugely important) area of law Although the rules will differ between each common law country (and the leading cases will be different), the basic ideas and doctrines will be the same The courts have tended to look to one another – i.e.. compare what is happening in other common law countries – when developing the common law in their own jurisdiction A comparative law approach to contract law could take various approaches: It could compare these rules within common law jurisdictions, or it could compare the common law generally with the civil law generally, or it could compare one country with another (egg UK and Kuwait) We will try (at the end of this unit on comparative contract law) to compare the UK with Kuwait