The Legal 500

Deeds are used in a commercial context for various reasons. One such use is to record settlement agreements between parties in dispute. Considering the importance of these instruments, it is crucial that companies entering into deeds are certain as to the point in time when a deed becomes binding on, and therefore irrevocable by, one or more parties. 


In the recent case of Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd [2010], the Court of Appeal was once again tasked with confirming the proper test for offer and acceptance. 


Kevin Perry (left), Charlotte Bunn (centre) and Tom McKernan (right) discuss the recent decision and the consequences in Oceanbulk Shipping & Trading SA v TMT Asia Ltd & ors [2010]

Remedies for contractual disputes are traditionally compensatory in nature, with damages assessed based on the loss suffered by the claimant. Restitutionary remedies, however, focus on any unfair benefit (known as ‘unjust enrichment’) to the defendant at the claimant’s expense, with the aim of restoring that benefit to the claimant. Restitutionary remedies are therefore distinct from traditional remedies, but in some circumstances are essential to ensuring a client can obtain an appropriate remedy.

English law generally respects the sanctity of contract and the courts are reluctant to void terms just because they are onerous to one party. An important exception to this is penalty clauses. 


Parties to a contract can agree to liquidated damages, a set sum to be paid by a party in the event of a breach. This allows an innocent party to recover any expenditure wasted on giving effect to a contract and provides recourse against a defaulting party. As a matter of public policy, courts can choose not to uphold any clause that stipulates an excessive pecuniary charge on a defaulting party; such a clause is deemed to be a penalty clause and, therefore, unenforceable.


An injured party is entitled to claim for damages in compensation for breach of contract by the guilty party, provided the damages are not too remote. The principle for the remoteness of damages was first laid down in Hadley & anor v Baxendale & ors [1854], and has stood as good law ever since. 


In Durham Tees Valley Airport LTD v BMI Baby Ltd & anor [2010], the Court of Appeal overturned a ruling that a contractual term was void for uncertainty and instead looked at the factual circumstances surrounding the contract. In doing so it found that one party had failed to perform its obligations, even though those obligations were not clearly outlined in the contract.

The modernisation of business practice dictates that companies need to adapt quickly to their business environments. As a result, parties to long-term contracts may need to change or modify their contractual rights for them to have a continued commercial effect. This can be done in one of two ways. 


there is a situation more common than most people would think, particularly in the construction industry whereby parties commence work under a letter of intent, pending the negotiation and execution of a full written contract, setting out all the detailed terms and conditions governing contract performance. This often occurs where projects are time and cost sensitive.

The recent RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh & Company KG (UK Production) [2010] clearly demonstrates the perils of beginning work without agreeing the precise basis on which it is to be done and finalising a contract to that effect.

Supershield Ltd v Siemens Building Technologies FE Ltd [2010] takes us back to the nuts and bolts of contract law – to the question of remoteness of damage.

A type of loss resulting from a breach of contract cannot be recovered if it is too remote. The law in this area has become unsettled in recent years, but the Court of Appeal’s new judgment helps clarify when a type of loss will be considered too remote to be recovered.

The commercial background of the contract has, as a result of Supershield, taken on greater significance in this area of the law.

In a contractual dispute (or indeed any dispute), involving at least one party domiciled in an EU member state, the choice of jurisdiction will be governed by Brussels II (Council Regulation (EC) No 44/2001). This regulation sets out when the courts of a member state should have jurisdiction. It also allows the parties to opt out of the regime and agree their own jurisdiction provisions, provided that the jurisdiction clause satisfies certain formal requirements contained in Article 23. As a minimum, the clause must be in writing or evidenced in writing.

There are times when one party to a contract will know that the other has no intention of performing, even though the time for performance has yet to expire. The courts have again recently confirmed that, in certain circumstances, and provided the ingredients of a repudiatory breach are present (see pp8-9, IHL174), the innocent party may treat the contract as repudiated as a result of an anticipatory breach of contract.

IN JIREHOUSE CAPITAL & ORS v BELLER & anor [2009] the parties were conducting settlement negotiations and although they had not expressly lifted the ‘subject to contract’ banner (in fact both sides used it fastidiously through their various exchanges) the High Court found that, on the facts, the parties’ negotiations could only be understood to have been conducted on that basis (ie not intending that any formalisation was required for the parties to be bound). As such, the banner having been lifted, the parties were bound by the terms agreed despite the absence of any more formal contractual agreement.

Parties arguing that the express terms of a contract do not apply to the circumstances that have arisen will often contend for the existence of an implied term. Whether a term should be implied is often dependent on the facts of a case. Contractual terms can be implied:

The basic principles of repudiatory breach are commonly misunderstood both in terms of the nature of this type of breach and its effect. Definitions of the term often refer to ‘immediate’ or ‘automatic’ termination. For reasons discussed in more detail below, such definitions are misleading.

A repudiatory breach is a breach that the law regards as sufficiently serious to justify termination. The terms of the contract themselves may also entitle a party to terminate in the event of a breach that would not otherwise be regarded by law as a repudiatory breach.

While it is true that the rights and obligations of the innocent party do fundamentally change at the point of breach, it does not follow that the only possible outcome from that point is that the contract is brought to an end.

Parties faced with an ambiguous contractual term, or indeed parties faced with what seems to be an unambiguous term not to their liking, often seek to rely on evidence of the factual background to support their favoured interpretation. In doing so, reliance is placed on the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998]. Here, Lord Hoffman reiterated that interpretation was an objective exercise seeking to determine what a reasonable person, having all the background knowledge available to the parties, would have understood the contract to mean.

In Westbrook Resources Ltd v Globe Metallurgical Inc[2009] the seller, Westbrook Resources Ltd, entered into a contract for the sale to the buyer, Globe Metallurgical Inc, of 30,000 tonnes of manganese ore. The first shipment was to be made by 28 January 2005, with subsequent shipments thereafter. The ore to be sold had been stored in the open for many years and contained material of various sizes, including small material known as fines.

The Internet Broadcasting Corporation Ltd (NETTV) is in the business of constructing and providing interactive internet television platforms. The now defunct MAR LLC (MAR) provided information and services to hedge funds, and organised conferences for the hedge fund industry. The company’s president was Gary Lynch, who the court determined to be the ‘controlling mind’ of MAR. NETTV and MAR entered into a joint venture agreement in which NETTV agreed to set up and operate an internet television channel broadcasting conferences organised by MAR.

Contracts can be terminated both at common law and in reliance on specific contractual provisions. If a breach of contract deprives the innocent party of substantially the whole benefit of the contract (see Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]), the common law recognises the right to treat the contract as discharged and to recover damages. Such breaches are described as repudiatory.


Following a breach of contract, the innocent party has a duty to mitigate the loss it has suffered. This duty requires reasonable steps to be taken to limit the losses that are incurred (and also to avoid incurring unnecessary expenditure seeking to remedy the breach). A claimant cannot simply sit on its hands watching losses accumulate with the intention of recovering them in full from the defendant. However, a claimant need not take unusual steps that would be outside the normal course of business, or even incur undue costs. The reasonable costs of mitigation are recoverable from the defendant.

Where one party has made a mistake as to the terms of a contract, the contract will not be binding and can be set aside. The rationale is that the parties have not in fact reached agreement. Three types of mistake have been recognised by the courts: 


At common law, a contract may be discharged on the grounds of frustration when something occurs after the formation of the contract that renders it physically or commercially impossible to perform, or makes the obligations radically different from those undertaken when the contract was executed.


How are damages calculated if a manufacturer and seller of goods loses them through the fault of another prior to delivery and payment? 


EXPERT DETERMINATION IS A (RELATIVELY) informal contractual dispute resolution mechanism. It is commonly found in commercial contracts, particularly in relation to specialist or technical issues, or in relation to valuations or pricing. An obvious example is the production of completion accounts on the sale of a company.

UNDER THE UNFAIR TERMS IN CONSUMER CONTRACTS Regulations (UTCCR) 1999, companies must ensure that any term of a standard-form consumer contract is written in plain and intelligible language.

ACCORDING TO REGULATION 17 OF THE COMMERCIAL Agents (Council Directive) Regulations (CAR) 1993, commercial agents are entitled to statutory compensation following termination of an agency agreement. The compensation is intended to reflect the agent’s efforts in establishing a market and goodwill for the principal. The test for calculating compensation was a controversial issue until the House of Lords decision in Lonsdale v Howard & Hallam Ltd [2007], in which it was decided that compensation should be based on the value of the business on termination – that is, the present value of future net earnings for a period appropriate for the business in question.

HARPER AND SIMPSON SOLD A COMPANY TO 4 ENG. After the acquisition’s completion it became apparent that the sellers had made false statements about the company’s financial position. Orders from the company’s biggest customer had been procured by bribes. That meant not only that business from that customer would be lost, but also that the company had a significant liability to compensate the customer.

GEORGE S HALL (GSH), AN ENERGY MANAGEMENT consultancy, agreed a contract with Carpetright under which it agreed to manage gas and electricity supplies to Carpetright’s premises. In addition to fees, Carpetright made monthly payments to GSH to settle Carpetright’s estimated energy costs, and the figures were reconciled at the end of each year. The relationship between the parties deteriorated and Carpetright gave notice to terminate the contract. A dispute arose as to the level of GSH’s outstanding fees and responsibility for sums due to third-party energy suppliers.

KYLE BAY LTD (T/A ASTONS NIGHTCLUB) v Underwriters [2007] saw Kyle Bay claiming under its business-interruption insurance policy after a fire at its nightclub. The parties agreed to settle the claim on the basis that the policy was a ‘gross profits’ policy and not ‘declaration-linked’. This was a mistake. The policy was in fact declaration-linked, which meant that Kyle Bay should have received additional money. On discovering this, Kyle Bay sought to have the settlement agreement set aside on the grounds of mutual mistake.

IN QUEST 4 FINANCE LTD v MAXFIELD & ORS [2007] the defendants were directors of Hilmax Engineering Ltd. Hilmax obtained a loan, known as a ‘Wageroller’, from Quest. The loan agreement contained a continuing warranty that Hilmax was not subject to any insolvency proceedings, and was supported by a document, described as a warranty, in which the directors agreed to indemnify Quest if the loan agreement was breached.

IN COMPLEX CONTRACTS, THE NOVATION OF ONE obligation does not necessarily require an entire contract to be terminated and replaced. In Langston Group Corp v Cardiff City Football Club Ltd [2008], Cardiff City entered into an agreement (the main agreement) with a third party to develop a football stadium. Langston agreed to provide a loan (the loan agreement) to Cardiff City, which was conditional upon the project proceeding under certain terms.

THE HOUSE OF LORDS HAS RECENTLY LOOKED AT the construction and separability of arbitration clauses in Fiona Trust & Holding Corp & ors v Yuri Privalov & ors [2007]. The parties agreed a contract containing an arbitration clause. Arbitration proceedings were commenced, but Fiona Trust applied for an injunction restraining the proceedings on the grounds that the contract – and hence the arbitration clause – had been rescinded, as it had been procured by bribery. Yuri Privalov responded by seeking a stay of the rescission claims. The House of Lords considered whether the arbitration clause was separable from the contract and whether the issue of rescission was a dispute to be decided by arbitration or by a court.

THE HIGH COURT DECISION IN REGUS (UK) LTD v Epcot Solutions Ltd [2008], discussed in our contract briefing in IHL159 (p44), has recently been overturned by the Court of Appeal.

The requirement in a contract for a party to make ‘best endeavours’, ‘all reasonable endeavours’ or ‘reasonable endeavours’ is often used to limit parties’ contractual obligations. These clauses occur frequently in commercial agreements between parties, and the courts have recently tried to clarify what is required by each variation of the wording.

When drafting a contract parties often look to protect themselves by excluding liability for breach of contract terms, or by limiting liability to a set value. Problems arise when clauses are not properly incorporated into a contract, where the wording does not cover the breaches it was intended to cover, or where the wording does not meet the statutory requirements for reasonableness. Recent case law emphasises how easily exclusion and limitation clauses can be challenged in the courts.

In many business environments, from retailers placing orders for stock to individuals buying car insurance, negotiations and contracts will often be made by telephone and then followed up and confirmed in writing. This manner of completing a deal is, for example, common practice in investment banking – an environment in which traders make and conclude trades in a rapidly moving market, ahead of administrative and compliance employees arranging the supporting paperwork.

In Renault UK Ltd v (1) Fleetpro Technical Services Ltd (2) Russell Thoms, the High Court looked at whether fraudulent misrepresentations can be made to a machine, such as a computer.

The Court of Appeal recently considered whether deemed service of a notice would be achieved if the notice was sent not to the original solicitors named in the contract but to the other party’s new solicitors.

Directors who knowingly make fraudulent misrepresentations to obtain goods or services that their company will be unable to pay for may be held personally liable for the deceit. This has been demonstrated recently by the Court of Appeal case of Contex Drouzhba Ltd v Wiseman and another.

At common law a contract may be discharged on the grounds of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to perform, or makes the obligations radically different from those undertaken when the contract was executed.

In Wittman (UK) Ltd V Willdav Engineering SA the Court of Appeal has held that the variation of an agreement underlying a guarantee may not release a guarantor from its liability, even if that variation is made without the consent of the guarantor. The guarantee may remain in place in relation to those obligations that were originally in the agreement, but any additional obligations will require the consent of the guarantor.

When relationships deteriorate, it is often the case that both parties breach contractual obligations. This frequently leads to arguments that the first breach in time entitled the innocent party, in order to protect its position, to refuse to perform the contract or to perform in a different manner than it otherwise should have done. This is particularly so where the breach arises from a deliberate decision to flout the terms of the contract.

Commercial agents are entitled to statutory compensation following termination of their agency. This compensation is in addition to contractual entitlements.

A liquidated damages clause will be struck down as an unenforceable penalty if it is not a genuine pre-estimate of the loss likely to be suffered as a result of any breach of contract. The latest example of this is a hire contract that required, following early termination for breach, payment of all future rental payments that would have been due had the contract continued for its intended period.

Entire agreements are a standard part of most contracts. Their intention is to ensure that the contractual relationship is governed by one document that sets out the agreements that have been reached, and that the scope to bring claims for other statements or representations made during negotiations is excluded or (more likely) severely limited.

In the recent case of Golden Strait Corporation v Nippon Yusen KK sub nom The Golden Victory, the House of Lords decided that events subsequent to a breach of contract should be taken into account when assessing damages. This may allow the courts, in appropriate circumstances, to calculate a more realistic level of damages (‘Why gaze into the crystal ball when you can read the book?'), but at some cost to principles of certainty and finality.

While Wayne Rooney and his England teammates were in the tabloids following their infamous showing in the 2006 World Cup, Rooney's current and previous representatives found themselves in the legal press following a dispute over his agency contracts.

The Contract (Rights of Third Parties) Act 1999 (the Act) allows a third party to enforce a contract if that contract confers a benefit on it. However, the third party must be 'expressly identified in the contract by name, as a member of a class or as answering a particular description'.

Commercial agents are entitled to statutory compensation following termination of an agency agreement. The compensation is equivalent to a ‘buyout' of the agency, and reflects the agent's efforts in establishing a market and goodwill for the principal, from which the principal derives benefit after the agency agreement has been terminated.

In this article, we take a look at two recent cases highlighting the effects and importance of retention of title clauses and obligations to procure.

The first briefing of 2007 is a good opportunity to review cases featured last year which are of common interest, or which offer useful lessons in avoiding expensive and protracted disputes.

The current legislative regime governing unfair terms in contracts is considered by many to be complex, confusing and inconsistent. Earlier this year, the government announced that, in principle, it accepts recommendations made by the English and Scottish Law Commissions to simplify and improve this area of the law.

The importance to commercial parties of understanding the principles of contract formation and interpretation cannot be overstated. Two recent judgments, WesternGeco Ltd v ATP Oil & Gas (UK) Ltd and Monavon Construction Ltd v (1) Simon Davenport (2) Angelika Davenport, provide useful examples of the courts' approach in relation to these principles, and serve to highlight important points of consideration for parties to all forms of contract.

In this month's briefing, we look at two cases where simple contracts were unclear, generating disputes that proved incapable of compromise before trial. In both cases, one or both parties may not have entered into the agreement they had intended, and the disputes might have been avoided with more careful thought as to the meaning of the terms that were agreed.

Does the unenforceability of a non-compete clause render the entire contract void, or can the offending clause be severed? This question was recently considered by the Commercial Court in James E McCabe Ltd v Scottish Courage Ltd.

It is not legitimate to use as an aid in the interpretation of a written contract anything that was said or done by the parties after it was made. The objective is to construe the meaning of the contract on the day it was made. Later recollections of what was meant may be unreliable, particularly when the contract has not turned out as one or both parties hoped.

Litigants finding the express terms of a contract not to their liking will often base a claim on pre-contractual oral or written agreements or representations. Such claims have regularly been the subject of this briefing. Entire agreement clauses are the standard contractual device intended to thwart claims outside of the contract.

Last year, we reported on Peekay Intermark Ltd and another v Australia and New Zealand Banking Group Ltd (IHL133, p37). Here, an experienced customer had not read an investment contract before signing it, instead relying on a description of the product previously given to him on the telephone. The product purchased differed significantly and materially to the one described on the phone. Could losses suffered be recovered in a claim for misrepresentation, or did the bank (ANZ) escape liability on the basis that the contract corrected the misrepresentations?

In CMC Group Plc and others v Michael Zhang, the Court of Appeal considered the effect of a compromise agreement, under which the settlement sum was repayable in full on breach of an obligation not to make derogatory or unfavourable comments about the paying party.

The case of Powergen Retail Ltd v British Sugar Plc turned on the preliminary issue of whether the benefit of an expired contract had been transferred to Powergen under a sale and purchase agreement.

Previously we addressed the question of how commercial agents should be compensated following termination of their agency. This followed the High Court case of PJ Pipe & Valve Co Ltd v Audco India Ltd.

In a long-term contract in which payment is made in instalments, it can often be difficult to assess when non-payment of instalments becomes a material or repudiatory breach. The Commercial Court’s recent decision in Dalkia Utilities Services Plc v Celtech International Ltd provides a useful summary of the law relating to termination of contracts.

In what circumstances will you be taken to acquiesce to another

When can you lawfully terminate a contract for delay in performance when the obligation is to complete the work within a reasonable time? That was the main issue considered by the Court of Appeal in Shawton Engineering Ltd v DGP International Ltd and another. The case is instructive on how defects in a contract can generate expensive disputes.

Tradigrain v State Trading Corporation of India (STC) concerned wrongful drawdown of a performance bond following an (alleged) breach of contract. The call on the bond exceeded the true loss. It was decided that the amount overpaid had to be immediately repaid as a debt.

when is an agent an agent and how is compensation calculated?

Commercial agents are entitled to statutory compensation after termination of an agency agreement. The compensation is equivalent to a ‘buyout’ of the agency, and reflects the agent’s efforts in establishing a market and goodwill for the principal.

There is a group of torts – the economic torts – that broadly seek to protect ‘business interests’. Amongst them is the tort of interference with contractual relations. This effectively makes a third party to a contract liable for its breach.

In Investors Compensation Scheme Ltd v West Bromwich Building Society and others Lord Hoffmann famously said that a literal approach should not be taken to contractual interpretation:

This briefing focuses on two cases where a claim for breach of contract has been met with a defence that no binding contract was executed: the first because it was allegedly executed by an agent without authority; the second because no formal written agreement had been executed.

The case of Peekay Intermark Ltd and another v Australia and New Zealand Banking Group Ltd concerned an investment product that had been explained and sold to a customer over the telephone. The bank (ANZ) and the customer later executed a contract in relation to the transaction. The customer did not read the contract before signing it. The product described over the telephone differed significantly and materially from that described in the contract. Those differences led to the customer suffering loss. Could that loss be recovered in a claim for misrepresentation, or did ANZ escape liability on the basis that the contract corrected the misrepresentations?

In the June 2005 edition of IHL we reported on the interesting first instance decision in Cable & Wireless v Valentine, and remarked that a different judge could easily have reached a different decision (IHL131, p42). The Court of Appeal has done just that.

The relative informality of e-mail increasingly generates business disputes. The recent case of NBTY Europe Ltd (Formerly Holland & Barrett Europe Ltd) v Nutricia International BV is a recent example. Did an exchange of e-mails during settlement negotiations result in a binding agreement?

This month's briefing considers recent cases dealing with three discrete topics:

• ouster of the court's jurisdiction by expert determination in Campbell and others v Océ UK Ltd;
• contractual formation in Cable & Wireless Plc and another v Valentine and others; and
• a variation on the question of whether evidence of contractual negotiations is admissible as evidence when seeking to interpret a contract in Beazer Homes Ltd v Stroude.

Liquidated damages clauses allow contracting parties to control the amount of damages that will be payable on the occurrence of a future breach of contract.

In June and October 2004 (IHL121 and 124), we reported on a number of decisions in the controversial area of unilateral mistake. The cases debated the boundary between legitimate negotiation and unfair dealing. In what circumstances should a negotiator draw an opponent's attention to a change to draft contractual terms?

Inadvertent disclosure in 1993 of confidential details of profit arising from the supply of dog chews has led to a House of Lords decision on the recovery and assessment of damages to compensate the loss of the opportunity to earn future profits from an existing business relationship.

Emcor Drake and Scull Ltd v Sir Robert McAlpine Ltd is the latest example of a dispute arising where substantial work has been undertaken in anticipation of a contract that did not materialise.

Contract claims are sometimes met by a defence that the contract is not binding as the individual entering into it had no authority to do so on behalf of their principal. The individual may be an employee or director of a defendant company, or an agent.

The case of Computer 2000 Distribution Ltd and others v ICM Computer Solutions Plc concerned liability for theft by a third party.