BUSINESS LAW:
LECTURE 4 - CONTRACT LAW
The classical position is that if a party
enters into a contract on the basis of certain statements of fact which turn
out to be untrue, the court may be prepared to hold that the presence of such
untrue statements
of fact can form the basis of relief for an aggrieved party. The courts are not
impressed by statements that are mere puffs, opinions, beliefs, representations
as to the future or representations with regards to the law.
Miller v Edelweiss
International Franchise Corp (1996) B.C.S.C. C914895
Vraj Pankhania,
Joshna Pankhania v The London Borough of Hackney, The Receiver for the
Metropolitan Police District [2002] E.W.H.C. 2441 (Ch D)
Spice Girls Ltd v
Aprilia World Service Bv [2002] E.W.C.A. Civ 15 (24 January 2002)
Elements of
Misrepresentation
Where a
representation does not have contractual force, it will only give rise to
remedies if it is unambiguous and material and if the representee has relied on
it.
Morris v Jones
[2002] E.W.C.A. Civ 1790 (C.A.)
It
was once the case that only a person that was party to a contract could
commence legal proceedings with respect to the contract. This is based on the
rule of privity of contract and largely on the notion of consideration, as a
third party to a contract would not have provided the requisite consideration
to turn an obligation, moral or otherwise, into a contact. The situation has
changed tremendously and there have been so many exceptions to the rule of
privity of contract that it is now considered more of a fossil from the days of
classical contractual dogma.
Fraser River Pile
& Dredge Ltd v Can-dive Services Ltd [1999] 3 S.C.R.
108
The
early common law courts took the view that a contract, after its formation,
must be performed even where events beyond the control of a party occurred and
prevented the party obligated to perform the contract from so performing. The law has changed from the days of strict
enforcement even when performance of a contract has been prevented by acts
beyond the control of a party. However, it should be noted that the courts are
not yet ready to release a party from its contractual obligations except in
limited circumstances and where there is no reasonable opportunity for the
contract to be substantially performed.
National Carriers
Ltd v Panalpina (Northern) Ltd [1981] A.C. 675 (H.L.)
E. Johnson &
Co (Barbados) Ltd v N S R Ltd (1993) 47 W.I.R. 28
The courts are also
vigilant to prevent self-induced frustration as a mechanism to escape
contractual obligations.
F.C. Shepherd
& Co Ltd v Jerrom [1987] Q.B. 301
It
stands to reason that a contract that is contrary to law or public policy will
not be enforced. Contracts that are tainted by the element of illegality will
be rejected by the courts.
Meer Safdar
Alli-Shaw v J Wailoo (1967) 11 W.I.R. 357
Alfred Maragh v James Williams and Edith
Williams, Rachael Williams v Leonard Maragh (1970) 16 W.I.R. 322
Restraint of Trade
A restrictive
covenant in a contract of employment will be void ab initio unless the
restraints that it imposes are reasonable having regard to the interests of the
parties and of the public. In practice this test of what is reasonable tends to
be resolved by considering whether or not the restrictive covenant is
reasonably necessary to protect legitimate interests of the employer in
preserving goodwill and confidential information. It is well settled that the
reasonableness of a restraint clause is to be tested by reference to the position
as at the date of the contract of which it forms a part.
Esso Petroleum Co
Ltd v Harper’s Garage (Stourport) Ltd [1968] A.C. 269
BFi Optilas v
Blyth & Others [2002] E.W.H.C. 2693 (Q.B.D.)
Fitch v Dewes [1921] 2 A.C. 158
National
Chemsearch Corporation Caribbean v Davidson (1966) 10 W.I.R.
36
Barry Allsuch
& Co v Harris [2001] WL 720358
Dranez Anstalt and
Others v Zamir Hayek and Others [2002] E.W.C.A.
Civ 1729
Richard Aitcheson
Toby v Attorney General of Trinidad and Tobago (1973) 27 W.I.R.
266
Contracts Contrary
to Public Policy
The
public policy which a court is entitled to apply as a test of validity to a
contract is in relation tosome definite or governing principle which the
community as a whole has already adopted either formally by law or tacitly in
its general course of corporate life. The court is not a legislator; it cannot
initiate the principle; it can only state or formulate if it already exists.
The courts refuse to give effect to such a bargain, not for the sake of the
defendant – indeed they do not fail to notice that his failure to abide by the
agreement sometimes adds dishonesty to illegality – but for the sake of the
community, who will be prejudiced if such a bargain were countenanced.
Universal
Caribbean Establishment v Egg-Hill Holding Co Ltd (1992) 41 W.I.R. 125
Contract to Commit
a Crime
It
goes without saying that a contract to commit a crime will not be sanctioned by
the courts as this would be contrary to public policy and would undermine the
rule of law.
Lemenda Trading Co
Ltd v African Middle East Petroleum Co Ltd [1988] 1 Lloyd’s Rep. 361 (Q.B.D.)
(Comm Ct)
Parkinson v
College of Ambulance, Limited, and Harrison [1925] 2 K.B. 1 UK
Damages
The
underlying principle of damages as a remedy for breach of contract is to put
the plaintiff in the position he would have been if the contract which had been
breached had been performed as agreed.
It would seem that the measure of damages can now include in certain
circumstances damages for mental distress.
Colby v Suntours
Ltd (1979) 35 W.I.R. 78
Damages should be awarded when arising naturally or as may reasonably be supposed to have been within the contemplation or knowledge of both the parties at the time they made the contract. Knowledge can be based on awareness (or what the party in breach ought to be aware of) in the ordinary course of things of the party in breach imputed (‘ordinary course of things’) or special circumstances outside the ordinary course of things which the party in breach was made aware of at the time of the making of the contract.
Victoria Laundry v
Newman Industries [1949] 2 K.B. 528
If
a party who is claiming damages for breach of contract would have in fact
suffered more losses if the contract had been properly performed, the court may
be inclined to award nominal damages.
Rainbow Industrial
Caterers Ltd v Canadian National Railway Co [1991] 3 S.C.R.
Once
the defendant breached his obligations or stated his intention to breach his
obligations, the plaintiff has a duty to mitigate his loss, unless the
plaintiff had ‘substantial and legitimate interest’ in actual performance.
Alcoa Minerals of
Jamaica Inc v Herbert Broderick [2002] 1 A.C. 371 Privy Council
(Jam)
‘Quantum
meruit’ literally translates ‘as much as he deserves’. It is trite law that
when a contract is terminated under a termination clause or at common law, both
parties are discharged from the further performance of the contract but that
rights are not divested or discharged which have already been unconditionally
acquired unless the contract provides to the contrary. Quantum meruit is an
equitable doctrine based on the principle that one who benefits from the labour
and materials supplied by another should not be unjustly enriched thereby.
Under circumstances where contracts are not enforceable because of uncertainty
or where there has been no contract (eg, the voluntary provision of goods and
services under certain circumstances), the law implies a promise to pay a
reasonable amount for the materials and labour which have been furnished.
Parry Husbands v
Warefact Limited App. No. 74 of 2001 (2003)
Design Construct
Management Associates Ltd v Tobago Race Club Limited (H.C.A. No. 1808 of 1994)
The
parties to a contract may anticipate the possibility of a breach and include in
the contract a term that a certain sum shall be paid to the injured party by
the party in default if a specified breach occurs. If this sum is a genuine
pre-estimate of the damage the term is known as liquidated damages but if it is
in excess of a genuine pre-estimate, it may be deemed a penalty and not
enforceable.
Dunlop Pneumatic
Tyre Co Ltd v New Garage and Motor Co Ltd [1915] A.C. 79
Specific
Performance
Specific
performance is exceptional and ordered only when an award of damages would be
‘inadequate’. Specific performance is
often the preferred remedy with respect to land contracts. The court more often
than not would order the party in breach to perform his contract primarily due
to the irreplaceable character of the goods or services covered. Specific
performance is a ‘coercive’ remedy and is a creation of equity, thus making
those seeking specific performance subject to the rules of equity.
Powercor Australia
Ltd v Pacific Power [1999] V.S.C. 1102
1. On 24 February 1998 the Spice Girls, a well-known group of girl
singers then consisting of five members, embarked on a tour of Europe. The
claimant (‘SGL’), a company owned by them and through which their services were
exploited, had instructed agents (‘KLP’) to obtain sponsors for the tour. The
agents made contact with Aprilia Spa (‘Aprilia’), a company incorporated in
Italy and a manufacturer of motorcycles. On 4 March 1998 heads of agreement
were reached between SGL and Aprilia for the latter to sponsor the Spice Girls
tour of Europe, due to end on 29 May 1998, and, on a more limited basis, the
tour of the United States then planned for the period from 15 June to 31 August
1998. The sponsorship was announced on 8 March 1998. The terms of the heads of
agreement were substantially performed by all parties until given contractual
effect by an agreement in writing dated 6 May 1998 (‘the Agreement’) made
between SGL and Aprilia World Service BV (‘AWS’), a member of the Aprilia Group
incorporated in the Netherlands. The Agreement signed on 6 May 1998 described
the Spice Girls as ‘currently consisting’ of the five named members. On 31 May
1998 it was announced that Ms Geri Halliwell, professionally known as Ginger
Spice, had left the Spice Girls on 27 May 1998. In October 1999 Ms Geri Halliwell published her autobiography entitled
‘If Only’. She disclosed that on both 3 and 9 March 1998 she had informed the
other four members of the Spice Girls that she intended to leave the Spice
Girls at the end of the European Tour in May 1998.
AWS has refused to pay part of the fees due to the Spice Girls and is
seeking your advice as to whether it can legally continue to refuse to make
such payments. Please advise.
3. In January 2000, Dr. John Crow purchased a brand new black Hardest
sports sedan for $40,750.88 from an authorized Hardest Car dealer in Robert
Hill, Siparia. After driving the car
for approximately nine months, and without noticing any flaws in its
appearance, Dr. Crow took the car to "Posh Finish," an independent detailer,
to make it look 'jazzier than it normally would appear.' Mr. Posh, the
proprietor, detected evidence that the car had been repainted. Convinced that
he had been cheated, Dr. Crow brought suit against Hardest Car Company of
Sunnyland. Dr. Crow alleges that the failure to disclose that the car had been
repainted constituted suppression of a material fact and a false representation
and claimed compensatory damages on the basis that a repainted car could not be
considered a new car and was worth less than one never repainted. Dr. Crow is also seeking punitive damages
for not being advised that the car had been repainted prior to being sold as a
new car.
Hardest Car Company acknowledges that it had adopted a policy that if a
car was damaged in the course of transportation from the factory in Rainyland,
it will be repainted and sold as new.
Hardest Car Company is seeking your advice.
4.
Grouper Limited entered a contract with an employee, Shark Ramnarine which purported to restrict Shark from working
with or being interested in any business that competed or proposed to compete
with any business carried on by Grouper at any time during the last two years
of Shark's employment or at the date of the termination of Shark's employment. Shark was employed by Grouper for six years
until he left on 8 October 2001. It was accepted that Shark had acquired
confidential information and trade secrets during that time. Shark then
commenced work setting up a new venture similar to Grouper's business that was
to begin trading shortly after the period of restraint ended. Grouper is of the
opinion that Shark had to have used the confidential information and trade
secrets he acquired over the course of his employment with Grouper to the
advantage of his new employer. Please
advise Grouper.
5. Prior
to the sale of a yacht (the “Raj”), to John Baney by Karen Smart, work had
commenced to refurbish the Raj. Work in
relation to the painting of the Raj and to its main engines was contracted out.
Remedial work was carried out on the Raj's three main Rolls Royce engines and
one of the turbines was replaced. The Raj was surveyed with a view to obtaining
certification in compliance with the MCA Code of Practice for Safety of Large
Commercial Sailing and Motor Vessels. Steps were taken towards compliance, but
the necessary work had not been completed by the time of the sale. Almost none
of the individual engine maintenance logs were handed over at the time of the
sale. Following the sale John Baney
discovered problems with the engines of the Raj and learned of the details of
the engine repairs. John Baney also could not obtain his MCA certification
which was required for using the Raj as a Charter boat. John Baney wants to rescind the contract on
the basis that Karen Smart had misrepresented that the Rolls Royce main engines
had been overhauled to Rolls Royce standards and reinstalled and that all the
work required for MCA certification had been completed. John Baney further
claim that Karen Smart had been given a video and brochure with respect to the
chartering of the Raj prior to the sale.
Please advise John Baney.
6. Spock
Co Ltd of Trinidad & Tobago (Spock) entered a joint venture with Shatner
Inc of Canada to develop a special software for processing check payments. After the software was developed Spock Ltd
obtained a lucrative contract to implement and maintain the system for the
Government of Trinidad and Tobago for the processing of pensioners’ checks.
Spock decided to recruit trainee technicians to be sent to Canada to be trained
by Shatner. Among the candidates
included, Rudy Matthias, Rohan Ramlogan, Esha Roopnarine, Mona Ramlackhan and
Joy Seepersad all of whom were interviewed and successful. On the day of the interview Rudy Matthias
appeared very nervous and almost in a daze.
He was questioned as to his state of mind and replied that he was just
nervous. One of the interviewers
thought he might have been intoxicated, while the others accepted his
explanation. Due to his impeccable
qualifications, he was successful at the interview. All five candidates signed a contract to work exclusively for
Spock immediately after the interview and within 2 weeks departed for Canada to
be trained for 6 months at an individual cost of CDN$50 000 per person. Further, the contract stipulated that upon
leaving the employ of Spock none of the software specialist would work in the
field of software application for a period of two years. On their return home, all five were happily
employed until Peter Pan Ltd made its entry into the Trinidad and Tobago market
selling similar software for the processing of checks. They made lucrative offers to all five
employees and four submitted their resignations in anticipation of immediately
joining Peter Pan Ltd. Rohan Ramlogan
produced evidence that he lied when he said he was age 18 at the time of the
interview, the legal age of majority, when he was in fact 17 years and 10
months. He claimed that his employment
contract was null and void due to the fact that he was a minor at the time of
the execution. Rudy Matthias claimed
that he was drunk at the time he executed his contract and he was not aware of
the terms therein. Esha Roopnarine
offered to repay the amount spent on her training and claimed that this would
entitle her to work for Peter Pan Ltd.
It turned out that Peter Pan Ltd met with her prior to her resignation
and offered her money to pay for her training with an additional amount as a
bonus for joining Peter Pan Ltd. Mona Ramlackhan did not seek employment with
Peter Pan Ltd but obtained a job with Macrosoft Ltd in their department dealing
with children’s software.
Discuss the legal issues raised.