Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991]

English Contract Law

Williams v Roffey Bros &  Nicholls (Contractors) Ltd [1991]
‘Carpenter Shop’ by Carl Larsson

The amendment of an existing contract underpins the argument between contracting parties when a main building contractor secures a residential refurbishment project and accepts the tender of a carpentry subcontractor’s tender despite the low value of his submission.

Having agreed to both first and second fix twenty-seven flats within a specified time for £20,000, the respondent carried out the work on the understanding that payments were made on an arbitrary basis, and so after six months he had first-fixed all twenty-seven flats but second-fixed only nine, while having been paid £16,200 for the work performed.

Aware that his tender was now unprofitable, the respondent renegotiated to keep his business afloat and avoid the financial penalty clause applied to the appellants should the project overrun, whereupon both parties agreed to continue working together on the condition that a further £10,300 would be paid in incremental payments of £575 for each flat completed, however when the respondent left the project only £1,500 had been paid and only seventeen of the twenty-seven flats were substantially completed.

Initially seeking around £33,000 in damages the respondent reduced his claim to around £11,000, citing that the appellants had breached the terms of their oral agreement; whereas the appellants argued that the agreement to pay the additional £10,300 was unenforceable due to non-completion, and that no consideration had been given by the  respondent during revision of the original contract. 

Argued in the Kingston-Upon Thames County Court the judge found that while the flats had not been completed there had been sufficient consideration as to allow calculable damages of around £11,800, and awarded accordingly, while presented to the Court of Appeal the issues around payment for incomplete performance of a contract and the argument for lack of consideration were given closer examination before the Court  noted how p.126, para.183 of Chitty on Contracts stated that:

“The requirement that consideration must move from the promisee is most generally satisfied where some detriment is suffered by him e.g. where he parts with money or goods, or renders services, in exchange for the promise. But the requirement may equally well be satisfied where the promisee confers a benefit on the promisor without in fact suffering any detriment.”

Thus the Court dismissed the appeal on grounds that the respondent’s agreement to continue working toward completion of the flats provided a degree of benefit to the appellants, because failure to do so rendered them subject to the penalty clause, while the Court finally reminded the parties that:

(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; then (vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.”

Davis Contractors Ltd v Fareham Urban District Council [1956]

English Contract Law

Davis Contractors Ltd v Fareham Urban District Council [1956]
‘Construction Site’ by Jan Altink

The principle of ‘frustration’ and the nature of commercial contracts are both given equal consideration when a local authority fails to acknowledge or pay costs exceeding the original agreement despite pleas for reasonability by the claimants.

Shortly after World War II the appellants tendered for the construction of a large number of houses over a fixed period, and so due to the economic fragility of the country, their submission included a letter outlining allowances for rising material costs and labour shortages, while after further negotiations the respondents allowed them to perform their contractual obligations until the agreed eight-month period expired. 

Upon discovery that only a fraction of the total number of houses had been completed the appellants cited frustration through inclement weather, delays in material deliveries and a shortage of labour, whereupon the local authority expressed no disagreement with their statement and the work continued for another fourteen months, however upon completion the total cost of the work was £115,233 versus the agreed £94,424, which left the appellants facing a loss of around £20,000.

When asked to pay the additional sum on grounds of quantum meruit (payment for services rendered and therefore deserved) the respondents refused to pay and offered only the amount contracted for, before the appellants claimed recovery on grounds that:

1. The letter submitted with the tender was part of the contract.

2. The contract was entered into on the proviso that both materials and labour were available.

3. Because those two elements were absent the contract had ceased to exist thus any subsequent performance was subject to a quantum meruit. 

Under arbitration the doctrine of frustration was given considered significance in favour of the appellants on the strength of the letter, while in court the judge also agreed the letter formed part of the contract and so awarded accordingly. 

Under challenge the Court of Appeal disagreed and referred the matter back for greater clarification of frustration, and so with the arbitrator remaining resolute on the letter the Court held that the letter was a mere facet of negotiations therefore frustration had not occurred, after which it was put before the House of Lords in order that the appellants could advance their contention that where frustration failed quantum meruit ought to succeed.

To clarify, the nature of frustration relies more upon unforeseen circumstances affecting both parties to a contract as opposed to one at a loss through unexpected events, while in this instance the appellants were aware that labour and material shortages were likely, and neither party had agreed that the original contract had ceased to exist and that another had begun.

With this in mind the House dismissed the appeal on grounds that unless agreed to, the terms of the original contract had remained unaltered despite the increased duration of the project and escalating costs incurred by the appellants, all of which amounted to little more than a seemingly well-drafted plan gone awry, while the House clarified for the parties that:

“[F]rustration 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.”

Dunlop Pneumatic Tyres Co Ltd v Selfridge & Co Ltd [1915]

English Contract Law

Dunlop Pneumatic Tyres Co Ltd v Selfridge & Co Ltd [1915]
‘Tyre’ by Kiku Poch

After litigation is bought against a third party the enforcement of a contract extending beyond reasonable bounds proves the undoing of a commercial tyre distributor when the rules of English contract law move to narrow the scope of claim and protect those party to sub-contracts.

In 1911 the appellant tyre manufacturer set about establishing written agency distributorship agreements with a number of commercial outlets in order to retain control over the sale value of its key products, wherein sch.2 and sch.5 of those contracts required all participating agencies to agree that:

“(2) We will not sell or offer any Dunlop motor tyres, covers or tubes to any private customers or to any co-operative society at prices below those mentioned in the said price list…nor give to any such customer or society any…discounts or advantages reducing the same.

(5) We agree to pay to the Dunlop Pneumatic Tyre Co Ltd, the sum of 5l for each and any tyre, cover or tube sold or offered in breach of this agreement, as and by way of liquidated images and not as penalty, but without prejudice to any other rights or remedies you or the Dunlop Pneumatic Tyre Co Ltd may have hereunder.”

In exchange the agencies were granted a 10% discount and some instances annual rebates for high value orders, and so on this occasion the respondents had purchased a Dunlop tyre from an agency, who as consideration were prevented from selling Dunlop products to any other firms or individuals for less than the standard list price, while afforded a discretionary right to sell Dunlop products to other trade outlets at a maximum of 10% discount on the proviso that those purchasing had pre-signed a prohibitive contract similar to the one held by the agencies.

With this in mind the respondents later sold a particular Dunlop tyre to a private customer at a seven and a half percent discount, and yet when ordering the tyre from the agency they were informed that no discount could be offered to the buyer without the completion of a signed price maintenance agreement (an act later executed by the respondents). 

Having learned of this the appellants sought an injunction and sued the respondents for breach of contract on grounds that the agency were acting under their principle control, therefore by selling the tyre to a prohibited party they were liable for damages as expressed in sch. 5 above. 

In the first instance the judge awarded in favour of the appellants before granting the injunction as requested, while challenged in the Court of Appeal the respondents argued that the contract between the agency and the appellants excluded the right to enforce it upon a third party on grounds that no consideration had been given by the appellants when the price maintenance agreement was drafted between the respondents and the agency. 

Having lost the appeal the appellants pressed the issue before the House of Lords, who unanimously upheld the previous judgment on grounds that lack of consideration at the point the agreement was made precluded the appellants any claim of right under English common law, while reminding the parties that:

“[O]nly a person who is a party to a contract can sue on it.

Adeneler and others v Ellinikos Organismos Galaklos (ELOG) [2006]

European Law

Adeneler and others v Ellinikos Organismos Galaklos (ELOG) [2006]
‘Old Milk Bottle and Grapes’ by Mark Van Crombrugge

In this case workers rights directly related to the powers conferred under a Framework Agreement annexed to Council Directive Directive 1999/70/EC were given new protections in instances where fixed-term employment contracts were no longer seen as helpful but in fact deemed contrary to the security of European citizens. 

On this occasion a collective claim was put before the Greek Monomeles Protodikio Thessalonikis (Court of the First Instance) by eighteen publicly employed staff of the Greek Milk Organisation (ELOG), after the firm failed to renew their fixed-term contracts, and although the aim of the Framework Agreement was to reduce inherent abuses found in all forms of employment, it was intended that unless an employer could demonstrate that repeated fix-term employment contracts served both the employer and employee they were to become contracts of ‘indefinite duration’.

While it is agreed under Community law principles that Member States are expected to transpose Directives within a predetermined period, the Greek government applied for a two year extension under para.2 of Directive 1999/70/EC, however it was not fully transposed until April 2003 under the Presidential Decree No.81/2003 (later superseded by Presidential Decree 164/2004).

For clarity, protections for public employees found in the Framework Agreement were presented in such a way as their employers could continue using fixed-term employment contracts for ‘seasonal purposes’, or in times requiring periodic or temporary needs, as explained in art.21 of Law No.2190/1994, while this was further supported by art.5 of Presidential Decree 164/2004, which provided that successive contracts of employment enjoyed by the same workers were prohibited if contract renewal periods were greater than three months.

In this instance the claimants had worked under contracts lasting no more than eight months, while contract renewals ranged between twenty-two days and eleven months, therefore it was argued that cessation of their employment constituted a breach under the terms of the Framework Agreement and Directive 1999/70/EC inasmuch as they had all been employed for fixed and permanent needs as opposed to those described in art.21 of Law No.2190/1994.

When referred to the European Court of Justice under art.234 EC the Court of the First Instance sought a preliminary ruling as to four questions: 

1. What was the exact date of effect of Directive 1999/70?

2. What was the definition of ‘objective reasons’ as per clause 5(1)(a) of the Framework Agreement when determining the renewal of fixed-term contracts?

3. What was the practicality of Presidential Decree 81/2003 when interposed with the terms of the Directive? 

4. Did the limitations of art.21 of Law No.2190/1994 allow for abuses in contrast to the reductive effects of the Framework Agreement?

Having appreciated the somewhat unnecessary aims of the questions it was ultimately  agreed by the European Court of Justice that:

1. The date of effect was that of the publication of the Directive, which was July 1999 and not April 2003.

2. That national legislation cannot overrule the aims of objective reasoning as prescribed within the framework agreement.

3. That clause 5(1)(a) to (c) offered a number of available measures to the Member States in order to reduce contractual abuses.

4. That the same clause again offered sufficient remedies in order to fully support the effects of Directive 1999/70 and the Framework Agreement.

Therefore the Court upheld the claim while reminding the parties that:

“[F]rom the date upon which a Directive has entered into force, the courts of the Member States must refrain as far as possible from interpreting domestic law in a manner which might seriously compromise, after the period for transposition has expired, attainment of the objective pursued by that Directive.”

Notes on the 2018 Carillion collapse

Insight | August 2019

Carillion
‘Le Chantier’ by Maximilien Luce

This is a twenty page report detailing the financial collapse of Carillion plc in 2018, and while this independent research explains much of the background leading up to their downfall, it also includes judicial insight into the rights of those left out of pocket when the hammer finally fell (click here to read it).

Twinsectra v Yardley (2002)

English Equity & Trusts

Twinsectra v Yardley
‘A Country Solicitor’ by Edward Lamson

Interference with the performance of a contract, and assistance in a breach of trust, lie central to a matter involving two solicitors and a property developer, whose triangulated relationship resulted in financial abuses and ethical ignorance by those expected to conduct themselves with nothing less than self-discipline and professionalism.

Having owned and operated a number of business ventures, the respondent had ventured to obtain a business loan for the purposes of acquiring further properties, however at the time of inquiry his bank was unable to commit to lending the money, therefore he made contact with the plaintiffs, so as to borrow the sum of £1m, to which the plaintiffs requested that the loan agreement be underwritten by a qualified solicitor.

Upon consultation with the appellant his request was denied, and so with time against him he approached another law practice, whose second partner had a business history with the defendant, and through which the partner had become liable to the defendant to the sum of £1.5m.

In order to repay the debt owed, the partner then agreed to become principle debtor to the loan by way of its underwriting, while keeping the truth of their arrangement from the plaintiffs, and so when signing the loan agreement, they were now legally subject to its terms, in which sections 1 and 2 read:

“1. The loan moneys will be retained by us until such time as they are applied in the acquisition of property on behalf of our client. 

2. The loan moneys will be utilised solely for the acquisition of property on behalf of our client and for no other purpose.”

While s. 4 further read that:

“We confirm that this undertaking is given by us in the course of our business as solicitors and in the context of an underlying transaction on behalf of our clients which is part of our usual business as solicitors.”

However once the money had been loaned, the partner contacted the appellant, and asked that he retain the funds in a client account until such time that the plaintiff required it. While both solicitors were aware that such a transfer was tantamount to a breach of s.1, the money was nonetheless accepted and then released by the appellant to the respondent with no proof that any of the money was being used for the purchase of properties, as per s. 2 of the agreement.

At the point of initial litigation, the plaintiffs sued for recovery of the funds following non-payment by the now dissolved partner on grounds of breach of trust, and for dishonest assistance on the part of the appellant when holding the money and paying it to the respondent upon his request, despite knowledge of the initial breach prior to his receipt of the funds from the partner.

While in the first instance the Court of the Queen’s Bench dismissed the claim on grounds that the appellant had merely acted recklessly in the course of his duties, the Court of Appeal reversed the judgment on grounds that the appellant had knowingly received money destined not for the purchase of property, and thereby in breach of s.2, and that he had wilfully closed his eyes to the facts when agreeing to both hold and transfer the funds to the respondent.

Upon appeal to the House of Lords, the appellant argued that his involvement in the matter was certainly naive and remiss but in no way unlawful, and so the House agreed to examine the details of the case for the purposes of clarity.

Turning first to Royal Brunei Airlines Sdn Bhd v Tan, the House noted that the Court of Appeal had explained how:

“A fraudulent and dishonest design is not confined to personal gain. It is sufficient if the stranger knowingly assists in the use of trust property in a way which is not permitted by the trust.”

And that in its simplest form:

“[A] trust is a relationship which exists when one person holds property on behalf of another. If, for his own purposes, a third party deliberately interferes in that relationship by assisting the trustee in depriving the beneficiary of the property held for him by the trustee, the beneficiary should be able to look for recompense to the third party as well as the trustee.”

Thus in its conclusion, the court had held that:

“[D]ishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation.”

And so it was clear that when the appellant acquiesced to the instructions of the partner, he had, whether intentionally or not, become complicit in the misuse of what was held to be trust property of the plaintiffs, while the House also also referred to Gilbert v Gonard in which the Court of Chancery had also held that:

“[I]f one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given. He may decline to take it if he likes; but if he chooses to accept the money tendered for a particular purpose, it is his duty, and there is a legal obligation on him, to apply it for that purpose.”

Although the House drew the distinction that unlike civil courts, equity relies less upon the mens rea of a man and more on his behaviour, and while the appeal was founded upon a breach of trust and dishonest assistance, there was insufficient evidence to suggest certainty as to the mind of the appellant when carrying out his part of the agreement. However, the House did conclusively note that under the circumstances there was ample grounds for a liability under wrongful interference with a contract and for assisting in a breach of trust, therefore the court of appeal judgment was upheld and reversed in part, while the House held that:

“[E]quity looks to a man’s conduct, not to his state of mind.”

And:

“Where a third party with knowledge of a contract has dealings with the contract breaker which the third party knows will amount to a breach of contract and damage results, he commits an actionable interference with the contract…”

Faccini Dori v Recreb Srl [1994]

European Law

Faccini v Recreb Srl
‘Snake Oil Salesman’ by Morgan Weistling

Private contracts between individuals are often overlooked in terms of actual rights, therefore when an Italian consumer entered into an agreement to purchase an English language course while visiting a railway terminal, the vendor looked to enforce the contract when notified that her order was to be cancelled.

Relying upon Doorstep Selling Directive 85/577/EEC the applicant later issued proceedings against the vendor and contended to the Giudice Concilliatore (Judge-Concillaitor) that arts.1(1), 2 and 5 conferred protective measures allowing for rescindable notice within a period of seven days between consumers and private companies, which on this occasion had been undertaken through written instruction to the contracting vendor.

Although Directive 85/577/EEC had been in force for a number of years the Italian government had failed to transpose it within the allotted time, therefore no domestic legislation existed in support of this specific issue, while it was acknowledged that a failure to adopt Directives in the prescribed period resulted in a loss of profit to the Member State when defending against ‘direct effect’ claims by their citizens.

However in this instance the terms of the Directive were both clear and precise, yet  related to dealings between individuals and so not subject to the benefit of protection unless transposed under the guidance of Community law and within the adoption window, which presented the national court with a dilemma inasmuch as they were unable to determine exactly what rights the claimant had when seeking cancellation of the contract, and if consideration was ultimately due to the vendor as per the agreement.

For this reason the court sought a preliminary ruling from the European Court of Justice under art.177 EC, while asking:

1. Were the terms of the Directive clear and precise enough to provide direct effect?

2. Despite a failure to adopt the measures in accordance with the Treaty, could the claimant rely upon them to enforce her individual right to cancel?

Having examined the arguments around Directive powers and the horizontal effect between parties, it was agreed that for reasons of legal certainty future consideration must be given to broaden the scope of those entitlements when applying them to private and not public matters, yet it was still held that although the terms of the Directive served horizontal dealings it was not possible for the claimant to rely upon them when seeking to terminate her agreement with the vendor.

However the Court held that in light of the fact that the Italian government had failed to adopt the Directive and in the absence of relevant domestic legislation, it was now possible for the national courts to transpose the effects of Directive 85/577/EEC in order that a remedy could be provided in favour of the consumer, while reminding the parties that:

“Where damage has been suffered and that damage is due to a breach by the State of its obligation, it is for the national court to uphold the right of aggrieved consumers to obtain reparation in accordance with national law on liability.”