Key Ideas in Contract Law 9781509907212, 9781509907243, 9781509907236

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KEY IDEAS IN CONTRACT LAW This book introduces the reader to a number of ideas and issues that underlie the English law of contract—an area of law that is often regarded as forbiddingly dry and technical but which is here made easy to understand and full of interest. Taking as its starting point the role contract law plays in helping ­markets to operate, the book explains how contract law regulates the commercial risks people take, while at the same time placing limits on what may be bought and sold, and ensuring that contractual powers are not unacceptably abused. A final chapter discusses how contract law can be used to make gifts of binding promises to other people. The book provides a rigorous and stimulating journey through the ideas underpinning contract law and is essential reading for anyone with an interest in the subject. Key Ideas in Law: Volume 1

Key Ideas in Law Series Editor: Nicholas J McBride Hart Publishing’s series Key Ideas in Law offers short, stimulating introductions to legal subjects, providing an opportunity to step back from the detail of the law to consider its broader intellectual foundations and ideas, and how these work in practice. Written by leading legal scholars with great expertise and depth of knowledge, these books offer an unparalleled combination of accessibility, concision, intellectual breadth and originality in legal writing. Each volume will appeal to students seeking a concise introduction to a ­subject, stimulating wider reading for a course or deeper understanding for an exam, as well as to scholars and practitioners for the fresh perspectives and new ideas they provide.

Recent titles in this series: Key Ideas in Contract Law Nichlas J McBride Key Ideas in Tort Law Peter Cane

For the complete list of titles in this series, see ‘Key Ideas in Law’ link at www.bloomsburyprofessional.com/uk/series/key-ideas-in-law

Key Ideas in Contract Law

Nicholas J McBride

OXFORD AND PORTLAND, OREGON 2017

Hart Publishing An imprint of Bloomsbury Publishing Plc Hart Publishing Ltd Kemp House Chawley Park Cumnor Hill Oxford OX2 9PH UK

Bloomsbury Publishing Plc 50 Bedford Square London WC1B 3DP UK www.hartpub.co.uk www.bloomsbury.com

Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA www.isbs.com HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published 2017 © Nicholas J McBride 2017 Nicholas J McBride has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, e­ lectronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/opengovernment-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2017. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: PB: 978-1-50990-721-2 ePDF: 978-1-50990-723-6 ePub: 978-1-50990-722-9 Library of Congress Cataloging-in-Publication Data Names: McBride, Nicholas J., author. Title: Key ideas in contract law / Nicholas J McBride. Description: Oxford [UK] ; Portland, OR : Hart Publishing, 2017.  |  Series: Key ideas in law ; vol. 1  |  Includes bibliographical references and index. Identifiers: LCCN 2017029128 (print)  |  LCCN 2017031522 (ebook)  |  ISBN 9781509907229 (Epub)  |  ISBN 9781509907212 (pbk. : alk. paper) Subjects: LCSH: Contracts—England. Classification: LCC KD1554 (ebook)  |  LCC KD1554 .M379 2017 (print)  |  DDC 346.4202/2—dc23 LC record available at https://lccn.loc.gov/2017029128 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

For Isabel, Ines and Luca Always

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CONTENTS

1. Introduction����������������������������������������������������������������������������������������1 2. Markets������������������������������������������������������������������������������������������������3 3. Risk�����������������������������������������������������������������������������������������������������25 4. Conscience�����������������������������������������������������������������������������������������47 5. Limits�������������������������������������������������������������������������������������������������73 6. Gifts����������������������������������������������������������������������������������������������������97

Acknowledgements�����������������������������������������������������������������������������������121 Bibliography���������������������������������������������������������������������������������������������123 Table of Cases�������������������������������������������������������������������������������������������127

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1 Introduction This is a short book about contract law, which—for the time being—we can define as the institution that allows people to enter into legally binding undertakings with other people. The book aims to introduce you to a number of key ideas which will help you make sense of the way contract law works, and why it works in the way it does. Chapter 2 explains how contract law is fine-tuned to support the making of exchanges and deals among people trading goods and services with each other. Chapter 3 deals with how contract law manages the risk that entering into a contract involves, that the contract may prove to be a bad deal for one of the parties to the contract. Chapter 4 looks at when the courts will refuse to enforce certain contracts or contractual terms because the contracts or terms in question are unfair or ‘unconscionable’. Chapter 5 discusses the limits of what can be traded in the marketplace and the consequent limits on what sort of contracts people can enter into with each other. And Chapter 6 looks at the interaction between the law of contract and the law of gifts, and in particular when a promise for which nothing was asked in return will be legally binding. John Maynard Keynes famously observed that ‘The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist’ (Keynes 1936, chapter 24).* In the case of contract law, we have been slaves too long to the ideas of a French jurist, Robert Joseph Pothier (1699–1772) and his 1761 work Traité des obligations. Written about French law, not English law, Pothier’s views on

*  Throughout this book, full references to books and articles referenced in the text can be found by consulting the Bibliography at the back of the book.

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Introduction

contract law—in particular, what is sometimes called ‘The Will Theory of Contract Law’, according to which contract law exists to give effect to the intention of the parties to an agreement that the agreement be legally binding—were seized upon by English contract scholars in the nineteenth century mainly, it seems to this author, because of an inability to imagine any better theory of contract law. (For an account of the reception of Pothier’s views among English writers on contract law, see Swain 2015, 148–52, 172–200, 264–65.) This book is an attempt to offer the reader something better than warmed-over Pothier; something that does more justice to the details and features of English contract law than the Will Theory can, and puts the reader in the best possible position to understand and evaluate contract law and develop informed opinions as to what the future of English contract law should look like.

2 Markets In this chapter, I want to set out a very simple idea—that we have a law of contract in order to facilitate the orderly workings of the marketplace, where people can trade whatever can be lawfully traded.

1.  ARTIFICIAL TRUST For markets to exist, two things are essential (see Mises 1949, at 238). First, it must be the case that no one person can produce everything they need to live—so in order to survive, people have to trade with each other. Second, people need to be able to enjoy (i) secure legal control (in other words, private ownership) of the means by which useful things are produced, and the things which are produced with those means, and (ii) the ability to transfer that secure legal control to one another. This then enables people to trade with each other, so that if having secure legal control over my apple would be more useful to you than the secure legal control that you currently have over your orange, and having secure legal control over your orange would be more useful to me than the secure legal control I currently have over my apple, then we can enter into a mutually beneficial trade—your orange for my apple. But if we are to make a trade, we will usually need a third element to be present—we will need to be able to act as though we trust each other. This quality of being able to act as though I trust you, we can call ‘artificial trust’ (following Galanter 1998, 806, and Putnam 2000, 147; Cross 2005 calls this kind of trust, ‘cognitive trust’). As has long been acknowledged (see Hobbes 1651, XIV; and Hume 1738, 3.2.5.8), if this third element of artificial trust is missing, then people’s abilities to make deals with each other become radically attenuated. People would not be able to stagger

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their exchanges, so that I pay you now for delivery later, or I deliver now and expect payment from you later. My inability to act as though I trust you not to let me down later on, after I have performed my side of our deal, will prevent us from doing this. So if I want to buy a car from you for £1,000, the only way that deal could work—in the absence of our being able to act as though we trust each other not to let each other down in performing our side of the deal—would be for me to hand over £1,000 to you at exactly the same time as you hand over the keys to the car to me. However, if you want me to wash your car for £50, that exchange would become impossible in the absence of our third element as we could not (unlike in the previous example) instantaneously swap your £50 for my services in washing your car. One of us will always have to perform before the other and take the risk of being let down by the other. The same point applies to David Hume’s example of a trade of services, where Farmer A and Farmer B cannot harvest their ripe corn on their own, but need the other’s help to get the corn in. It makes sense for them to trade their services, with Farmer A helping to harvest Farmer B’s corn when it becomes ripe, in return for Farmer B doing the same for Farmer A. But making such a trade will be impossible if Farmer A and Farmer B cannot act as though they trust each other as one of them will inevitably have to perform first and hope that the other does not let them down when it comes to their performing their side of the deal. This is where contract law comes in. It enables people trading in the marketplace to act as though they trust each other by making the promises they make to each other legally enforceable. The result is that if A orders some goods from B, promising to pay B at the end of the month, B can sell the goods to A on credit (Latin for ‘he believes’) because B knows that A’s promise to pay at the end of the month will be legally enforceable—so if A lets B down and does not pay, B will still be able to extract the promised money from A. B does not have to actually trust A to pay—if B did, then B would not have to worry whether A’s promise to pay was legally binding. All B has to do, to be able to sell to A on credit, is act as though he trusts A to pay—and that is what the law of contract both enables B to do, and aims to enable B to do. As the legal historian Brian Simpson observes, ‘the essential function of contract law is to permit credit, money-credit’ (Simpson 1975, 281). More generally, ‘largescale, well-functioning markets [cannot] develop without the assistance of law’ and contract law ‘strengthens and extends markets’ (Oman 2016, 35–36; see also Oman 2012) by enabling parties to a deal to act as though

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they trust that any promises that are made as part of that deal will be performed. In other words, contract law exists to facilitate exchanges of goods and services in the marketplace by fostering artificial trust among the people engaged in making those exchanges.

2.  ASPECTS OF CONTRACT LAW The role contract law plays in creating artificial trust between actors in the marketplace accounts for a number of different aspects of contract law.

THE DOCTRINE OF CONSIDERATION The doctrine of consideration says, very roughly, that a promise will only be contractually binding if something of value in the eyes of the law has been given in return for the promise. (Note that some promises for which nothing has been given in return (known as ‘gratuitous promises’) can be legally binding—we will deal with these in Chapter 6, where the doctrine of consideration is discussed in much more detail.) Immediately one sees a connection being made here between contract law and the marketplace—according to the doctrine of consideration, a promise will only be contractually binding if something has been given in return for it. In practice, two types of promise will normally be said to be ­‘supported by consideration’ and therefore contractually binding. The first is a promise to reward someone if they act in a particular way, with the result that that someone is induced to act in that way. So, for example, if I promise to pay you £100 if you wash my car, and you are induced by my promise to wash my car, my promise to pay you £100 will be contractually binding—your washing my car has provided the consideration needed to make my promise binding. (Note that there is no need for my promise to be in writing or accompanied by any kind of formality to be legally binding—the joke that ‘A verbal contract isn’t worth the paper it’s written on’ is just that: a joke.) The second kind of promise is made as part of an agreement under which both of the parties to the agreement promise to do things for each other. The promises made under this agreement will normally be contractually binding, with the promises made by one of the parties providing consideration for the promises made by the other

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party and vice versa. The agreement reached by the parties is known as a­ ‘bilateral contract’, because both parties to the agreement will be contractually bound to perform the promises they made to the other party. Contrast that with the situation where in return for my promise to pay you £100, you have washed my car. As only one of us (me) is legally bound to do something for the other (you) in this situation, lawyers say that there exists here a ‘unilateral contract’. It has been questioned whether consideration should be found in the case of a bilateral executory contract—where you and I have reached an agreement under which I promise to deliver 1,000 widgets (an imaginary item of commerce) to you at the end of the month and you promise to pay £500 per widget when they are delivered, but neither of us have yet done anything to perform our sides of the agreement. Why, it has been asked (see Atiyah 1990, 22–25, 167–70, 191–92) should the law find that we are each bound by our promises, even though neither of us have done anything to rely on the other’s promises, and one of us may be attempting to pull out of the agreement just five minutes after it was entered into? However, it can easily be seen that contract law would fail in its mission to facilitate the orderly workings of the marketplace were it not to find that bilateral agreements are legally binding as soon as they are entered into. In a world where such agreements were not automatically binding, but had to be relied on or part-performed before they could be said to be binding, the chains of contracts that go into the production of something as simple as a pencil would become much more vulnerable to being broken by a party who forms one link in the chain trying to argue that he is entitled to back out of what now appears to him to be a bad deal (see Rudden 1989, 84–89).

OBJECTIVITY The principle of objectivity in contract law says that if I enter into a contract with you, I am not bound to do what I intended to promise to do when I entered into that contract, but I am instead bound to do what I reasonably gave you the impression I was promising to do when I entered into that contract. More generally, I will not be allowed to argue, ‘Term x isn’t part of the contract I entered into with you because I never intended to agree to that.’ If I reasonably gave you the impression that I was agreeing to term x being part of our contract, then I will normally be bound

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by that term. Again, one can easily see how contract law would fail in its mission to facilitate the orderly workings of the marketplace were it not to give effect to the objective principle. If you reasonably thought that you had made a deal with me on terms x, y and z, you would still be unable to act as though you trusted me to adhere to those terms if it were the case that I could at any time say that I was not bound by one of those terms because I had not intended to agree to that term being part of my contract with you. Two limits on the objective principle for determining the terms of a contract should be mentioned. First, you can only argue that term x is part of a contract you made with me if you reasonably thought that I was agreeing to term x’s being part of the contract. If you knew all along that I was not agreeing to this, you cannot argue that term x is part of our contract even if a reasonable person watching our negotiations would have concluded that it was. For example, in Hartog v Colin & Shields [1939] 3 All ER 533, the defendants proposed to sell 30,000 hare skins to the claimants. The defendants offered to sell the hare skins at a price of 10 pence per piece; that is, 10 pence per hare skin, resulting in a total price of £3,000. In the course of the subsequent negotiations, the defendants made a slip and offered to sell the hare skins for 10 pence per pound, which was effectively an offer to sell the hare skins for £1,000 as three hare skins weighed a pound. The claimants immediately accepted this very generous offer and attempted to hold the defendants to the deal. The Court of Appeal held that they could not: the claimants never seriously thought that the defendants were agreeing to sell the hare skins for 10 pence per pound. Second, what happens if two parties both think they have reached an agreement, but they have different views as to what they agreed, and both views are reasonable? Arguably, this was the case in Raffles v Wichelhaus (1864) 2 H & C 906. The contract there was for the sale and purchase of 125 bales of cotton at 17 pence per pound, where the cotton was due to arrive in Liverpool ‘ex Peerless from Bombay’—that is, on board a ship called Peerless that was coming from Bombay. Unfortunately, there were two such ships. The purchaser of the cotton had been thinking of a ship called Peerless that left Bombay in October 1862 and arrived in ­Liverpool in February 1863. The seller had been thinking of an identically named ship that left Bombay in December 1862 and arrived in L ­ iverpool in April 1863. It is not known what happened when the purchaser turned up quayside in February 1863 to discover none of the cotton he had

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­ urchased emerging from ‘his’ Peerless. He might have been quite relieved p as the going price for cotton was then about 16 pence per pound, and undertaking to purchase it at 17 pence per pound had turned out to be a bad deal (see Baird 2013, 9). But we do know what happened when the April Peerless arrived and the seller unloaded 125 bales of cotton only to find the purchaser was absent. The seller sued the purchaser for the price of the cotton, and the purchaser argued that he was not bound to pay because he had been expecting to purchase cotton arriving on the ­February Peerless. The outcome of the case was inconclusive. The seller argued that the purchaser’s belief as to which Peerless the cotton would be arriving on was irrelevant to the purchaser’s liability, but the court agreed with the purchaser that it might be and sent the case for trial. However, most academics are of the opinion that there was no contract in Raffles—the two parties had different views as to what they had agreed, and both parties’ views were equally reasonable given the fact of there being two ships named Peerless, both sailing from Bombay.

STRICT LIABILITY Contractual liability is unusual in that it is usually strict liability—a contracting party who has undertaken to do x under a contract cannot escape liability for failing to do x by showing that it was not his fault that he failed to do x. For example, under section 9 of the Consumer Rights Act 2015, a term will be implied into a contract between a business and a consumer purchasing goods from that business that the goods will be of ‘satisfactory quality’. So if you buy a car from a dealer, and the car turns out to be no good, you can require the dealer to replace the car, or give your money back, or cover the cost of purchasing an equivalent car from another dealer—and whatever remedy you seek, it will never be a defence for the dealer to say ‘It’s not my fault the car was no good! It was the manufacturer’s fault!’ Again, the market-based perspective on contract law being advanced here makes sense of this aspect of contract law. Someone buying a car would find it more difficult to act as though he trusted a dealer to sell him a car of ‘satisfactory quality’—the only thing the consumer is interested in getting—if all the law gave him on purchasing the car was an assurance that should the car turn out to be no good, he would be able to sue the dealer if the dealer was at fault for the fact that the car was no good.

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Only an assurance of being able to sue the dealer whenever the car turns out to be no good will reassure a consumer who is wondering whether or not to purchase a car from that dealer. However, there are limits to strict liability in contract law. It would be a foolish doctor who guaranteed to cure her patient, and in the case of a business that contracts to do work for a consumer, the most the law will require the business to do is to ‘perform the service with reasonable care and skill’ (Consumer Rights Act 2015, section 49). And as we will see in Chapter 3, there are certain limited circumstances in which a contracting party can escape liability for failing to do what she contracted to do on the ground that a change in circumstances made it impossible or difficult for her to fulfil her side of the deal she made.

STANDARD FORM CONTRACTING It has been estimated (Zamir 2013, 2096) that 99 per cent of all contracts take the form of standard form contracts—that is, contracts that are formed by A presenting B with a standard form setting out the terms on which they are willing to contract on a ‘take it or leave it’ basis, with B opting to ‘take it’. (Whenever you purchase goods in a store or online, you are effectively entering into a standard form contract with the seller.) This does not mean that A entirely gets to dictate the terms of the contract between him and B. Under the objective principle, A will find it difficult to argue that he reasonably thought that B was agreeing to be bound by a term in A’s standard form that is so oppressive that B would be surprised to hear that such a term was in A’s standard form. So that term will not form part of the A–B contract unless A can argue that he made reasonable efforts to bring B’s attention to that term before B agreed to deal with A (Thornton v Shoe Lane Parking Co [1971] 2 QB 163) or B did something, such as signing A’s standard form, to make A think that B was agreeing to deal with A on all of A’s standard terms regardless of what they said (L’Estrange v F Graucob Ltd [1934] 2 KB 394). In such cases, A’s claim that he reasonably thought B was agreeing to the onerous term in A’s standard form will become much more plausible. But being able to get me to agree to deal with you on your terms obviously allows you a lot of latitude to dictate the terms of the contract—any terms in your standard form that don’t count as ‘particularly onerous or unusual’ (Interfoto Picture Library v Stiletto Visual Programme [1989] QB 433, 437)

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will automatically become part of the terms of our contract as you can argue that you reasonably thought that I was agreeing to deal with you on those kind of terms. The fact that modern day contracting overwhelmingly takes the form of standard form contracting poses a huge problem for moralistic theories of contract law (such as Fried 2015 and Smith 2004), which see the law of contract as giving legal force to a moral duty to keep one’s promises (see Radin 2013, 58–62, 82–98). What sort of morality requires me, when I deal with you, to abide by terms set out in a form drawn up by you—and which I almost certainly have never seen—just because you have indicated that you are only willing to deal with me on those terms? However, if we see contract law as existing to facilitate the orderly workings of the marketplace, contract law’s willingness to give effect to standard form contracts—within the constraints created by the objective principle—becomes easily explicable. Modern day economic transactions simply could not work unless contract law were so willing. For example, were contract law to adopt the stance that, for example, a consumer dealing with a business is only bound by terms to which the consumer has expressly agreed, dire consequences would follow. As Ian Macneil observes (Macneil 1984, 6), ‘imagine the disaster at [an] ­airport, even on a slow day, if [the airline insisted on] each customer … ­reading—or worse, reading and understanding—all the terms on which the ticket is offered by the airline’ so as to ensure that the airline’s terms are binding on the customer.

REMEDIES The remedies for a breach of contract are, for the most part, designed to allow the victim of the breach to get the monetary equivalent of what she would have received had the contract been properly performed. Lawyers call these remedies ‘expectation measure remedies’ or ‘remedies­ protecting the expectation interest’ (following the terminology introduced by Fuller and Perdue 1936). Primary among these is the action for debt—according to Weir 1986, 90 per cent of claims for remedies for breach of contract are claims for debt—where A sues B for money that A says B owes him under a contract between A and B. Second is the action for damages, where A sues B for a sum designed ‘so far as money can do it, to [put A] in the same situation … as if the contract had been performed’

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­(Robinson v Harman (1848) 1 Exch 850, 855 per Parke B). Much rarer is specific performance, a remedy which consists of an order requiring the breaching party to do exactly what he was bound to do under his contract, and which will only be awarded if awarding damages to the victim of a breach would not be an ‘adequate remedy’ because, for example, the victim had bargained for something unique from the breaching party that cannot be bought on the open market. The rarity of specific performance is taken by some to indicate a lack of seriousness on the part of contract law about ensuring the victims of a breach of contract get what they bargained for. However, it is hard, in turn, to take such views seriously. The rarity of specific performance is easily accounted for on the basis that the remedy of specific performance amounts to a much more serious intrusion on civil liberties than an order to pay damages. This is not just because ordering someone to act in a particular way is more constraining than ordering someone to pay another money (this is why people would much rather give money to charity than volunteer their time to work for a local charity) but also because the breach of an order of specific performance amounts to a contempt of court, punishable through imprisonment—so making an order of specific performance turns a simple breach of contract into a potential crime. Moreover, ordering a contract to be specifically performed involves a lot more work for the justice system, both in adjudicating future disputes over whether the order for specific performance has been properly observed and in dealing with contractors who fail to abide by those orders. The courts, quite properly, will refuse to involve the justice system in doing such extra work if damages would be an ‘adequate remedy’ to protect the interests of the victim of a breach of contract. Finally, being able to obtain an order for specific performance and being able to hold it—with the possibility of punitive sanctions for its breach—over the head of a breaching party creates all sorts of unpleasant opportunities for extorting excessive amounts of money from the breaching party in return for allowing the order to lapse. Again, the courts, quite properly, would rather not create such opportunities for extortion when damages would be an ‘adequate remedy’ to protect the interests of the victim of a breach of contract. The existence of expectation measure remedies such as debt, damages and specific performance is, again, easily accounted for on the view of contract law being advanced in this chapter. It is the assurance that you will, one way or another, either get what you are bargaining for under a

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contract or its monetary equivalent that enables you to act as though you trust the other party to the contract in exchanging goods and services with them. One standard remedy for a breach of contract that does not amount to an expectation measure remedy is the ability to sue for your money back if you have paid upfront for goods or services that you have not received. But even this remedy can be seen as facilitating the existence of artificial trust between traders in the marketplace: you are much more likely to be willing to pay now for some counter-performance in the future if you have some kind of assurance that you will be able to get your money back should the promised counter-performance never materialise. Another remedy for a breach of contract which does not count as an expectation measure remedy and which, it should be stressed, is not available in the UK (Addis v Gramophone Co Ltd [1909] AC 488), is p­ unitive damages—damages designed to punish a contract breaker for their conduct. The unavailability of such damages may be explained on the basis that they are unnecessary to facilitate the orderly workings of the marketplace. However, if there were evidence of industry-wide contract breaking on a systematic basis, awarding punitive damages against businesses engaging in such breaches of contract could be justified in order to restore artificial trust among people contracting with those kinds of businesses. This may account for the willingness of the Supreme Court of Canada to award exemplary damages against an insurance company that deliberately attempted to avoid paying out on a house insurance policy when the house accidentally burned down: Whiten v Pilot Insurance Co [2002] 1 SCR 595.

3.  DISTRUST OF CONTRACT LAW The rationale for contract law being advanced in this chapter may be thought to be undermined by empirical studies—starting with Macaulay 1963, and continuing with Bernstein 1992 and 2001—that clearly show that businesses do not want to rely on contract law, or contract lawyers, in dealing with other businesses. As Stewart Macaulay’s seminal study of business practices when it came to contracting observed, when it comes to making a deal, ‘Businessmen often prefer to rely on “a man’s word” in a brief letter, a handshake, or “common honesty and decency”—even

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when the transaction involves exposure to severe risks’ (Macaulay 1963, 58). And when it comes to dealing with problems that crop up in the course of a business relationship, the last thing a business wants to do is involve contract lawyers, or refer to the terms of a contract, in order to resolve the problem. One businessman in Macaulay’s study observed, ‘You don’t read legalistic contract clauses at each other if you ever want to do business again. One doesn’t run to lawyers if he wants to stay in business because one must behave decently.’ Another observed, ‘You can settle any dispute if you keep the lawyers and accountants out of it. They just do not understand the give-and-take needed in business.’ (Both quotes in Macaulay 1963, 61.) Some have taken these studies as showing that contract law does not exist to facilitate the orderly workings of the marketplace as contract law does not seem to be needed for markets to work effectively (see Morgan 2013 and Gava 2016). However, this view seems illogical. In any kind of market, something is needed to generate artificial trust between traders in that market. In the sort of industries studied by Lisa Bernstein, it is usually being a member of a trade body, where your membership is dependent on your abiding by various industry norms, including allowing disputes between you and another member of the trade body to be resolved by special courts set up by the trade body. In the case of trades on the ‘dark net’ (the part of the Internet that is not accessible through a normal web browser), which operate outside of the law of contract by virtue of the illegal nature of what is traded there, positive user reviews are vital to enable both buyers and sellers to act as though they trust each other (see Bartlett 2015, 148–53). The same is true of a legitimate trading platform such as eBay, where the amounts being traded and the nature of the dealers on the platform are such that it is unlikely that it would ever be economic to rely on contract law to resolve a dispute arising out of a transaction on eBay. So the need for artificial trust to exist between operators in the marketplace is ever-present. Contract law can—and should—be seen as the law’s attempt to foster the existence of such artificial trust in the marketplace. That people might not rely on contract law as the basis for establishing artificial trust between them and the people they deal with, choosing instead to adopt alternative strategies for generating such trust, does not in any way establish that contract law is not, after all, in the business of fostering artificial trust among traders in the marketplace. As Nathan Oman observes, ‘Markets may not be natural, but they do not require law to exist. Thriving informal and even illegal

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markets testify to this fact … Contract law, however, can strengthen and deepen markets. By limiting opportunism, lowering transaction costs, inculcating moral attitudes conducive to market exchange, and the like, contract law makes widespread exchange between strangers easier and more likely’ (Oman 2012, 204). However, studies such as Macaulay’s have given rise to concerns that contract law is—almost by definition—failing in its mission of generating artificial trust among traders in the marketplace if no one wants to take it into account in either making deals with other people, or in resolving problems that arise in the course of giving effect to a deal that two people have made with each other. On this view, contract law is like a football player who never gets to play for his or her team but sits out every match as an unused substitute. The player has the skills needed to do a job for the team, but he or she is simply not a good enough player to merit being used ahead of his or her teammates. This view of contract law has been taken up by Hugh Collins who builds on Ian Macneil’s pioneering work on the ‘relational’ nature of many contractual relationships (see, in particular, Macneil 1974) to argue in favour of a contract law that is more attentive to the different aspects of a given deal: (1) the deal’s formal dimension: the parties’ attempts to set out explicitly the terms of their deal; (2) the deal’s economic dimension: what the parties are hoping to get out of the deal; and (3) the deal’s relational dimension: the fact that the deal may well be embedded in an ongoing business relationship that exists between the parties that can be endangered by a too heavy-handed insistence on the formal or economic dimensions of the deal (see Collins 1999, 128–32). A contract law that is more flexible in dealing with disputes between market traders—at certain times resolving the dispute by holding the parties to the explicit terms of their deal, and at other times requiring one of the parties to accommodate the other party’s legitimate demands, demands which are rooted in the economic or relational aspects of the deal—will, Collins hopes, become much more trusted by business people and provide a much more user-friendly platform for the deals they make than is the case at the moment. This sort of view of what contract law should become is generally known as the contextual approach to contract law. The contextual view is opposed by a formalist approach to contract law, which favours a contract law that is simply concerned to give effect to the explicit terms of a deal that two parties have made, while allowing the parties maximal freedom to define what those terms will be. The differences between these two

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 15

approaches should not be exaggerated. Under the formalist approach, two parties who want the courts to adopt a contextual approach to adjudicating disputes between them would be free to contract for such an approach to be adopted. Under the contextual approach, two parties who made it abundantly clear that they intended that the explicit terms of their deal were the only things that could be taken into account in determining the terms of their contract (as happens with ‘entire contract clauses’, which state that the terms of a particular contract can only be found in a written document drawn up by the parties to the contract) would have their wishes respected by the courts. So the difference between the two approaches is as to what the default approach of the courts should be: touchy-feely unless the parties say otherwise, or coldly rigid unless the parties say otherwise. The criticisms that have been made of the contextual approach are threefold: (1) it is unworkable (Gava and Greene 2004); (2) it is inappropriate (Bernstein 1996); and (3) it is unwanted by the business community (Scott 2004). (1) John Gava and Janey Greene quote Hugh Collins as arguing that ‘The most appropriate form of legal regulation would temper its formalism with a sensitivity to the particular facts of the case, especially the history of prior dealings, and an understanding of the informal conventions (and formal trading standards where available) governing the business relation’ (Collins 1999, 181). Gava and Greene argue that ‘the lack of expertise and knowledge of the judges’ (Gava and Greene 2004, 618) and the general lack of information about the context in which businesses contract with each other mean that ‘Judges are never going to be able to do what ­Collins asks of them’ (ibid, 620). (2) Lisa Bernstein draws a distinction between two kinds of norms that a business might make use of in dealing with problems arising in its relationship with another business: relationship preserving norms (RPNs) and end game norms (EGNs). Bernstein explains: ‘Some RPNs are “performance norms”, which reflect the implicit extralegal terms transactors have agreed to abide by as long as they continue to trust one another and/or value potential future dealings. Other RPNs are “dispute-resolution norms”, norms that transactors follow in attempting to cooperatively resolve disputes in a manner that will not jeopardize future dealings. Even when these

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RPNs are clear and well-developed, they may be quite ­different from the terms of transactors’ written contracts, which contain the norms [EGNs] that transactors would want a third-party neutral to apply in a situation where they were unable to cooperatively resolve a dispute and viewed their relationship as being at an endgame stage’ (Bernstein 1996, 1796). Calls for contract law to adopt a contextual approach to dealing with disputes between businesses are essentially calls for the courts to apply RPNs to resolving those disputes. ­However, businesses need no assistance to apply RPNs to resolve disputes between themselves. When businesses do resort to the courts to resolve a dispute that is because their relationship has reached an end game stage, and applying a RPN to resolve their dispute at that stage is simply inappropriate. Instead, the courts should simply apply the EGNs which the parties have expressly agreed should govern their relationship in the event that that relationship breaks down—and those EGNs are most likely to be found in the express terms of the deal agreed by the parties. (3) Robert E Scott follows Grant Gilmore (Gilmore 1974) in announcing the ‘death of contract’. Unlike Gilmore, Scott does not see contract law as dying because it has been overtaken by other areas of private law (most obviously, tort law) that impose non-voluntary obligations on private persons. Instead, Scott argues that ‘contract law is dying from hubris, from the belief that more contract law is always better than less’ (Scott 2004, 370). Scott’s view is that contract law has already gone a long way towards adopting the contextual approaches to contract law favoured by theorists like Hugh ­Collins and the results, Scott claims, have been disastrous: ‘Contextual interpretation disables parties from predicting how contract terms and language will be interpreted in subsequent transactions and prevents enforcement of even apparently clear obligations by summary procedures. Either party can claim that an apparently complete and integrated written contract is subject to private meanings and collateral understandings. Here, then, is the most significant fact: Standing on one’s contract now requires a full trial, with all its attendant costs’ (Scott 2004, 376; emphasis in original). ­Contract law’s flight away from a ‘formal and acontextual’ approach to contract law, under which ‘contractual liability [is] hard to assume and hard to escape once assumed’ and ‘Once a promise falls within the scope of legal enforcement, only a few gaps are filled, and

Distrust of Contract Law

 17

they are filled with simple, binary default rules’ (Scott 2004, 372) has, in turn, resulted in a flight away from contract law, with some businesses developing ‘Commercial trade associations … [that] use binding arbitration to develop private contractual regimes for their members’ and other businesses that cannot form such associations turning ‘to private arbitration, where they can direct the arbitrator to resolve the dispute through plain meaning interpretation’ (Scott 2004, 378–79). While these criticisms make a good case for thinking that the default approach to contract cases should be formalist in nature, where contract law gives high priority to giving effect to the terms that the parties to a deal reasonably thought governed the deal, two points about the formalist approach should be noted. First, there are limitations on the ability (or willingness) of the parties to a contract to negotiate (in American, ‘dicker’) over every possible eventuality pertaining to their deal that make it unrealistic to say that a party to a contract whose interests have been prejudiced by some turn of events for which the contract made no provision agreed to take the risk of his interests being prejudiced in that way. So if that party is held to his contract, despite the disadvantage that doing so involves for him, it must be for some reason other than the formalist one that that party agreed to be bound by the deal he made in the circumstances that have now arisen; for in many such cases, there will be no such agreement. This is a topic we will explore in greater detail in Chapter 3, which examines how contracts are used to distribute risks between the parties to a contract. Second, the formalist approach only warrants giving effect to the reasonable expectations of the parties to a contract as to what the terms of their deal were within the rules of contract law that are supposed to ensure that contract law performs its overall goal of facilitating the orderly workings of the marketplace. The formalist approach should not be taken as a warrant for giving effect to the intentions of the parties to a contract regardless of the nature or quality of those intentions. For ­example, facilitating the orderly workings of the marketplace does not involve blindly giving effect to a contractual provision that has as its aim not the ordering of a mutually beneficial trade, but rather the aim of enabling one person to pick another’s pocket. (We will deal with the courts’ treatment of such provisions in Chapter 4.) Similarly, facilitating the orderly workings of the marketplace does not involve either giving effect

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to deals that are made in bad markets—that is, markets that either involve trading in evils (such as child pornography) or that involve trading in goods that are turned bad as soon as they are traded (such as, arguably, sex). (We will deal with the subject of bad markets in Chapter 5.) More generally, adoption of a formalist approach to contract law should not result in contracting ‘eating itself ’, with parties to a contract being allowed to ‘contract around’ the rules that govern the formation of a contract or what remedies are available when a contract is breached. So the courts should be suspicious of ‘contractual estoppel’ clauses (first given effect to in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386, and powerfully criticised by McMeel 2011) that purport to forbid a party to a contract making certain allegations or arguments in court; and clauses which, for example, provide that ‘This contract will be specifically enforceable’ should be automatically void, as purporting to dispose of something that was not within the parties’ power to dispose of.

4.  ACTUAL TRUST While contract law cannot be allowed to ‘eat itself ’ through the courts’ too slavishly giving effect to the formalist ideal of ‘party autonomy’ (the horribly ugly phrase du jour), contract law does perhaps contain within itself the seeds of its own destruction. At a macro level, it is striking that the heyday of contract law in the eighteenth and nineteenth centuries coincided with a vast, and unprecedented in human history, explosion in the wealth of Western societies—a development which makes even more plausible the idea that contract law exists to facilitate the orderly workings of the marketplace; the more powerful contract law was, the better markets worked in the West to generate wealth. (For discussion of the links between contract law and economic development, see Trebilcock and Leng 2006.) However, that explosion in wealth created opportunities for new forms of economic organisation to emerge (in particular, the firm where goods and services are produced through internal bureaucracies rather than through contractual links with external suppliers: see Coase 1937) that relied less and less on the binding force of contracts in order to function properly.

Actual Trust

 19

At a micro level, the work a contract does to create artificial trust between A and B, enabling them to deal with each other, can result in contract law eventually becoming redundant as the artificial trust that exists between A and B is replaced by actual trust (Cross 2005 calls this kind of trust ‘affective trust’) as both A and B show themselves to be reliable in their dealings with each other. As actual trust between A and B develops, A and B will feel less and less need to formalise their deals along the lines that make it easiest for contract law to regulate those deals. British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] 1 QB 303 shows at least the beginnings of this process at work. In­ February 1969 and in October 1969 the defendants hired cranes from the claimants, each time expressly agreeing to hire the cranes on the terms carefully set out in the claimants’ standard hire form. The third time the defendants hired a crane from the claimants, they did so over the phone and the claimants were willing to let the defendants use their crane ­without referring to their standard terms. This time round something went wrong: the crane sank into the ground while it was being used by the defendants and the issue arose as to who was to pay for the cost of rescuing the crane. The Court of Appeal was able to find in this case that the third hire was just as much governed by the claimants’ standard terms as the first two hires, and therefore held the defendants liable for the cost of rescuing the crane as the claimants’ standard form made it clear that anyone who hired one of their cranes would be liable for any damage done to the crane while it was being hired. Under the objective principle, this was the right result: when the claimants agreed to hire out their crane to the defendants on the phone, they would have reasonably expected the defendants to deal with them on their standard terms given their previous course of dealing with the defendants; and it would have been unreasonable for the defendants to think that the claimants were agreeing to hire out the crane on any other basis. However, the lack of formality and negotiation that accompanied the third hire of the crane in British Crane Hire shows how parties who are used to repeatedly dealing with each other also get used to cutting corners in the way they deal with each other that then creates problems for contract law if it is called upon to deal with a dispute that has arisen between the parties. The more actual trust that exists between two people, the harder it is to find that a contract exists between the parties in order to regulate their relationship: the relationship is too open-ended, and the expectations of

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the parties too diffuse, for the relationship to be properly characterised as contractual in nature. However, the more actual trust that exists between A and B, the more vital it is that the law provide those people with some kind of protection against their trust being suddenly betrayed by (say) A distancing himself from B and insisting on treating B as though she is a stranger. The case of Baird Textile Holdings Ltd v Marks & Spencer plc [2002] 1 All ER (Comm) 737 illustrates the point. Baird made and supplied clothes for Marks & Spencer for over 30 years. In order to give themselves maximum flexibility in terms of what it could require Baird to do for it, Marks & Spencer made it clear to Baird it was not willing to enter into a contract with it. Instead, Baird had to trust Marks & Spencer to place enough orders with it each year to keep Baird in business, and Marks & Spencer had to trust that Baird would not switch its focus to supplying any of its competitors. This relationship of actual trust worked very well for 30 years, until Marks & Spencer reacted to a downturn in its profits by deciding to source most of its clothes from abroad, with the result that it terminated its relationship with Baird with virtually immediate effect. Baird sued, arguing that Marks & Spencer should be required to give it three years’ notice of its intention to terminate their relationship, which would give Baird the time it needed to find new markets for its clothes. However, Baird’s claim failed: there were never any kind of undertakings or expectations between Baird and Marks & Spencer that could be used as the basis for finding a contract between them, and no other area of law could be appealed to in order to provide Baird with the protection it needed. As this chapter should have demonstrated, contract law is simply not designed to provide parties in a relationship of actual trust with protection against that trust being opportunistically betrayed by one of the parties. That job has been left, so far as they can do it, to other areas of law, which are often stretched and distorted in the process. Among those areas is the law on estoppel, which has its origins in nineteenth century rules of evidence about what an individual would not be allowed to say in court—in proceedings between A and B, A would be prevented (or estopped) from denying that some fact F was true if he had previously represented to B that F was true and B had relied on that representation in a way that made it inequitable for A to go back on that representation. The law on estoppel was soon extended to provide more general protection to people who had put their trust in another’s word. Thus arose the law on promissory estoppel, which was originally intended to stop A

Actual Trust

 21

enforcing his strict legal rights against B when he had promised B that he would not do so, with the result that B relied on that promise in a way that would now make it inequitable for A to go back on his ­promise. (So, for example, suppose that you owe me £1,000, and I tell you that as my birthday gift to you I am waiving the debt. Your kindly uncle then offers to pay off the debt as his birthday gift to you. You respond, ‘No need—Nick’s waived the debt.’ In these circumstances, it might well be inequitable for me to then later on turn round and say, ‘Pay me the £1,000 you owe me!’—it would depend on whether you could then get your uncle to repeat his earlier offer to pay off the debt.) And the law on proprietary estoppel also became firmly entrenched in English law. That area of law originally operated in cases where I told you that you had an interest in my land. For example, suppose I told you that as a birthday present to you, I have given you the cottage at the bottom of my land, which you are currently occupying. If you relied on the belief the cottage was yours (by, for example, renovating the cottage), but we then fell out and I told you to get off my land, the law on proprietary estoppel, in its original form, would have operated to stop me denying that the cottage now belongs to you—with the result that I would be prevented from evicting you from it. As we will see in Chapter 6, each type of estoppel has developed far beyond these basic roots so as to give more and more protection to people who were formerly in a relationship of actual trust with someone else where that trust has been betrayed. But the protection of such people is not just left to the law on estoppel. The Matrimonial Causes Act 1973 is an obvious example of the law protecting parties who were formerly in a relationship of actual trust—a marriage—that has now broken down, by giving the courts the power to redistribute property among the formerly married parties and to make orders for one of the parties to financially support the other in the future. Where two people were not married—or in a civil relationship—but were living together in a property owned by one of the parties in the relationship, the law of trusts may allow the other party to claim an interest in the property and thereby obtain some kind of financial protection against the breakdown of the relationship and just recognition of the financial value of their contribution to the relationship while it lasted. The law of trusts will also be available to help two parties who embark on a joint venture for the acquisition of property, or the commercial development of a business idea. If one of the parties attempts to pull out of the relationship and appropriate for themselves the whole benefit of the joint

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venture, the law of trusts will intervene to impose a trust for the benefit of the betrayed party of (usually) 50 per cent of the proceeds of the joint venture: Pallant v Morgan [1953] Ch 43 (joint venture to purchase land); Lac Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574 (joint venture to develop a mine). The law of restitution, or the law on unjust enrichment, has also been invoked to protect a party who has trustingly conferred a benefit on another in the expectation of eventually obtaining a reward for their efforts, only to be disappointed. So in William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932, the defendant sought to take advantage of a government scheme for funding the rebuilding of properties bombed during the war. The defendant commissioned the claimant builders to draw up some plans, and costings, for the reconstruction of the defendant’s property; the claimants expected to be repaid for this work by being hired to rebuild the defendant’s property. Instead, after the plans and costings had been drawn up, the defendant changed his mind and sold the land on which his bombed out property was located to a developer. The claimants were allowed to sue the defendant for a reasonable sum (in Latin, a quantum meruit—‘as much as he deserves’) for the work they had done. While the case is nowadays commonly explained as one where the defendant was made to account for (or make restitution of) the benefit that he had unjustly obtained from the claimants by having them work for him for no reward when they had expected to get something for their efforts, the artificiality of this analysis is readily apparent. The defendant’s change of mind meant that he obtained no benefit from the claimants’ work. If the law of restitution or unjust enrichment was at play in William Lacey it was being made to operate very far from its natural home in order to provide some kind of protection against the claimants’ trust from being abused. In truth, the extent of the protection that the law provides to parties who are in a relationship of actual trust against that trust being betrayed is of a very patchwork and inconsistent nature. For example, in Baird ­Textile Holdings Ltd, Baird could not take advantage of the law on promissory estoppel to obtain a stay of execution against Marks & Spencer as the law on promissory estoppel, as currently developed in English law, only works to stop A exercising rights that he would otherwise have to sue B, and cannot be used to compel A to do something for B, like continue to order clothes for B for three years: Combe v Combe [1951] 2 KB 215. For the law to work in a more consistent and principled manner, it needs

Actual Trust

 23

to work out some rules and doctrines that work to protect r­ elationships of actual trust against opportunistic betrayals of that trust and will apply regardless of how that relationship arose, or what form the trust that was placed in that relationship took. It has been suggested, again building on the pioneering work of Ian Macneil, that this can be done through the recognition of a new legal concept: the relational contract, which will be found to exist between parties in a relationship of actual trust and which will provide protection against that trust being abused. (For a very thorough discussion of the concept of a relational contract, see Collins 2016.) The use of the term ‘contract’ in this context is, perhaps, regrettable, as it confuses the function of contract law—which is to generate artificial trust among parties who do not (at least initially) trust each other—with what the concept of a ‘relational contract’ is supposed to do, which is to protect people who actually trust other people from the consequences of that trust being betrayed. However, these matters lie very far in the future: there is little chance of the concept of a relational contract (or whatever one wants to call it) being explicitly recognised by the courts and used to bring together the various actual trust-protecting doctrines that are currently scattered throughout the law of trusts, the law of r­ estitution/unjust enrichment, family law, and the law on estoppel. The next three chapters focus on the heartland of contract law; we will return to the badlands that lie outside contract law proper in the final chapter of this book.

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3 Risk If we had to think of a typical contract, our minds would normally go to a contract for the sale of goods, where you contract to sell (say) a car to me. In the principal piece of legislation governing that kind of contract—the Sale of Goods Act 1979—there are 13 references to ‘risk’. For example, section 20(1) of the 1979 Act provides that ‘Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not.’ And section 20(2) provides that ‘But where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault.’ ‘Risk’ here refers to the risk of the goods being destroyed. So in the case where you contract to sell your car to me, the car is at my (the buyer’s) risk if I have to pay for the car even if it has been destroyed. If the car is at your (the seller’s) risk, then if the car is destroyed, I don’t have to pay for it and I might be able to sue you for failing to deliver the car to me. So a straightforward contract like a contract for the sale of goods is not just concerned with facilitating an exchange of money for goods. It is also concerned with distributing risks between the parties to the contract—in the case of section 20, the risk of losing out as a result of a car being destroyed before the contract for its sale is completed. This chapter is about how contract law helps people distribute risks among themselves, and how it protects people from the risks they run when they enter into contracts.

1.  PROTECTING AGAINST RISK Contracting is sometimes (but not always) motivated by a desire to avoid risk—the risk of some undesired event happening in the future.

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A ­contract can provide you with insurance against that event happening. This is literally so in the case of something like an insurance contract, but is also in the case of something like an employment contract or a forward contract. An employment contract provides a business with insurance against its being unable to obtain the workers it needs to carry on its business—when Alpha Co enters into an employment contract with Daisy, it assures itself of Daisy’s services for the period of her contract with them. Under a forward contract, Alpha Co can order 10,000 widgets to be delivered to it by Beta Business six months from now, at a price of £500 a widget. In entering into this kind of deal, Alpha Co insures itself against the prospect that when it needs the widgets six months from now, it won’t be able to obtain them, or it will only be obtain them at a much higher price than £500 a widget. Contracting always involves a risk—the risk of being stuck with a bad deal, either because one of the parties made a mistake in entering into that contract, or because the circumstances changed after they entered into that contract. Alpha might be very happy to tie up the supply of 10,000 widgets six months from now, at a price of £500 a widget, but that deal will not look so smart if three months from now the market for widgets collapses, and they can be bought for £300 a widget. Similarly, Alpha will regret taking Daisy on as one of their employees if she turns out to be dishonest, or regularly falls ill. In these cases, it turns out that the insurance that Alpha’s contracts provided it with was not as valuable as it thought it was. But even contracts that are not entered into with the object of providing insurance against a risk create the risk of one of the parties regretting the contract they entered into. A simple sale of goods where I purchase a painting from you will turn out to be a very good deal for me and very bad for you if the painting turns out to be a previously unknown Rembrandt; and very bad for me and very good for you if the painting, which we thought was by Rembrandt, turns out to be a fake. So while the decision to enter into a contract may not be motivated by a desire to avoid risk, the negotiations over the terms of the contract may well be influenced by the desire to avoid, or mitigate, the risk of being stuck with a bad deal. So Alpha might try to hedge against the risk that its forward contact with Beta will turn sour by inserting a term into the contract providing that if the price of widgets falls below £400 a widget before the contract is due to be performed, it can cancel the contract. In return for agreeing to this, Beta might stipulate that Alpha has to pay

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£550 a widget under the contract, and require Alpha to pay a premium of £500,000 if it cancels the contract. Similarly, we could each protect ourselves against the risk that my purchasing a painting from you will turn out to be a bad deal for one of us by providing in the contract that if the painting turns out to be a fake, I can get back the money I paid for it from you, and that you will be entitled to 10 per cent of any proceeds from my selling the painting if I resell it for at least double what I paid for it.

2.  THE LIMITATIONS OF CONTRACTUAL PROTECTIONS Ideally, the terms of a contract would perfectly reflect how much of a risk each of the parties to the contract was willing to run as to whether the contract would turn out to be a bad deal for them. Three factors mean that this will not be the case. First, the risk that a contract might turn out to be a bad deal for you because you have made a mistake in entering into the contract is incredibly hard to guard against because (by definition) you don’t know that you are making a mistake when you are making it. For example, in the Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2003] QB 679, the defendant salvage company chartered (hired) a ship called Great Peace to assist in a rescue and salvage operation that the defendants had been hired to carry out in relation to a ship called Cape Providence that had gotten into trouble in the South Indian Ocean. The defendants had been told (but not by the owners of the Great Peace) that the Great Peace was only 35 miles away from the Cape Providence. In fact, the Great Peace was 410 miles away. This obviously meant that it would take much longer to get to where the Cape Providence was than the defendants had expected when they contracted to hire the Great Peace. The fact that the contract to charter the Great Peace did not specify what should happen if the Great Peace was in fact 410 miles away from the Cape Providence did not necessarily indicate that the defendants were willing to take the risk that chartering the Great Peace would turn out to be a bad deal for them because they were mistaken about its location. Precisely because they confidently believed the Great Peace was only 35 miles away from the Cape Providence, the defendants did not know that they needed to guard

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against the risk that they had made a mistake as to the Great Peace’s location. Second, while in theory any change of circumstances that might make an initially good deal turn bad can be predicted and guarded against, it would be unreasonable to expect contracting parties to think of every single possible change of circumstances that might affect their deal and make provision in the contract as to what should happen in the event of that change of circumstances. For example, in Taylor v Caldwell (1863) 3 B & S 826, the defendants hired out a concert hall to the claimants for one day in each of June and July 1861 and two days in August 1861 at a rent of £100 each day. The claimants planned to use the hall on each of the days for a ‘grand concert’ and fêtes in the morning and the evening. Unfortunately, the hall burned down six days before the first day the claimants were due to use the defendants’ hall. This turned the deal between the defendants and the claimants into a potentially disastrous one for the defendants, as a failure to provide the claimants with the hall that the claimants had rented from them would seem to make the defendants liable for all of the profits that the claimants would have made from being able to use the hall; and, indeed, that is what the claimants proceeded to sue the defendants for. However, Blackburn J held that it was unreasonable to think that just because the contract between the claimants and the defendants made no provision to protect the defendants from being sued in the event that the concert hall burned down, the defendants were agreeing to take the risk of being sued in that event: ‘The parties when framing their agreement evidently had not present to their minds the possibility of such a disaster, and have made no express stipulation with reference to it’ (at 833). Third, as Stewart Macaulay has observed, ‘Even when we can foresee that it is possible that something might happen, there are limits on the time that we can or should spend on trying to provide for all contingencies in our contracts. In most instances, it would not pay to hire enough people with the skill needed to review what is printed in fine print on the back of various sellers’ forms such as proposals, acknowledgments of orders and invoices. A firm that is filling thousands of purchase orders every week could not afford to take the time to negotiate all the details of every transaction’ (Macaulay 2003, 46). Moreover, empirical studies such as the ones referred to in the previous chapter show that businesses are loath to make too much use of lawyers in reaching agreements with

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other businesses. One reason for this is that ‘Transactors may … fail to include written provisions dealing with a particular contingency because each may fear that the other will interpret a suggestion that they do so as a signal that the transactor proposing the provisions is unusually litigious or likely to resist flexible adjustment of the relationship if circumstances change’ (Bernstein 1996, 1789). Another reason is likely to be that two businesses (A and B) will not want what could be a very lucrative deal for both of them to be derailed by their lawyers arguing about what the fine print of the deal should say as to what the position will be if event X happens when event X is very likely not to happen anyway. The result is that once A and B have agreed on the essentials of their deal, they will close the deal and send their lawyers home—and, to the frustration of the lawyers on both sides, the contract between A and B will make no provision for event X happening. So should event X actually happen, with the result that the A–B deal turns into a bad bargain for A, it is not possible to say that A was willing to take the risk of this happening, as both A and B did not want to think about what the consequences of event X happening should be. So in the case where a contract between A and B is now threatening to turn out badly for A, the fact that the terms of the contract do not expressly provide A with any protection against the particular mistake or change of circumstances that have soured the contract for A does not necessarily mean that contract law should ‘let the risk lie where it falls’ and simply hold A to what is now turning out to be a bad deal for her. The silence of the contract on the issue of whether A should be protected against the particular risk of the contract going bad that is now materialising does not necessarily indicate that A was willing to take that risk. As it happens, contract law is willing in certain cases to protect a contracting party against the risk of a deal going bad even though no protection against that particular risk was expressly provided for in the contract. What those cases are, we will now discuss.

3. MISTAKE There are many different kinds of mistake that might result in a deal between A and B turning into a bad deal for A.

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MISTAKE AS TO TERMS The first type of mistake arises when you purport to enter into a contract with me, and you have a certain understanding of what the terms of that contract will be, but a court ends up finding that: (1) there is a contract between us, but (2) the terms of that contract are very different from what you thought they were. The law offers you very little protection against being landed with a bad bargain because you made this kind of mistake. Your principal protection against this sort of thing happening is that the courts will only tend to find that (1) and (2) are true if your belief as to what the terms of your deal with me were was unreasonable. So long as your belief as to what the terms of our deal were was reasonable, the courts are much more likely to find either that there was no contract between us (which will be the case if my (very different) belief as to what the terms of our deal were was also reasonable) or that there was a contract between us but on the terms that you believed governed the contract (which will be the case if my (very different) belief as to what the terms of our deal were was unreasonable). However, there is one situation where the courts may well find that (1) and (2) are true even though your belief as to what the terms of our deal were may have been entirely reasonable. This is the situation where you and I have been involved in negotiations over a deal for some time, and when the negotiations finally reach a successful conclusion, we sensibly decide to draw up a document setting out the terms of our deal and for the convenience of everyone (including any court that has to decide any disputes between us) we include in that document an ‘entire contract clause’ saying that the document sets out all of the terms of our contract, and is therefore intended to be the only guide as to what the terms of our contract are. The courts will, under the parol evidence rule (‘parol’ means ‘oral’—the parol evidence rule excludes oral evidence of what the terms of our contract were intended to be in the face of a document that is intended to be the exclusive guide to the terms of our contract) usually give effect to the ‘entire contract clause’ and only look at the document to determine what the terms of our contract are. However, what if what the document says does not correspond with what you thought we agreed? In this situation, if the courts go along with what the document says as to what the terms of our contract are, then (1) and (2) may well end up being true, even if your belief as to what we agreed was entirely reasonable.

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Here the law does provide you with some protection against being landed with a bad bargain, but to understand how much protection it gives you, we need to distinguish three situations. (i)

It was important to you that our deal include term x and we agreed that our deal would indeed include term x, but because of a typing error or a simple failure to remember what we agreed, term x was omitted from the final document setting out our agreement. In this case, you can apply to the courts to have the document rectified so that it accurately sets out our agreement. No injustice is done to me by your so doing; in fact, it would be unconscionable for me to resist your application to have the document rectified given that I too agreed to term x being part of our deal. (ii) You thought we had agreed that term x was part of our deal, but I thought that we had agreed that term x would not be part of our deal, and it so happened that the final document setting out our agreement corresponded with my recollection rather than yours, and you signed off on the document without checking to see whether term x was included in it. In this situation, rectification will not be available. Given that you did not object to the final document, my view as to what we agreed is much more reasonable than yours, and corresponds to what the final document says as well. So there is no case for rectifying the final document. (iii)  You thought we had agreed that term x was part of our deal, and I was aware of that belief of yours. I did not want term x to be part of our deal, and when it came time for the final document to be drawn up, I made sure term x was omitted from the document. You signed off on the document without checking to see whether term x was included in it. In this situation, rectification will be available (Riverlate Properties Ltd v Paul [1975] Ch 133)—the courts will not allow my sharp practice to combine with the parol evidence rule to land you with a bad bargain.

MISTAKE AS TO IMPLICATIONS According to legend, an Indian king was so delighted with the invention of the game of chess that he summoned the inventor and asked what reward he would like for inventing the game. The inventor responded,

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‘If your Majesty pleases, I would like him to take a chessboard and place one grain of rice on the first square of the chessboard, then two grains of rice on the second square, then four grains on the third square, then eight on the fourth square, and so on—doubling the number of grains of rice on each consecutive square until all 64 squares are filled up.’ The king thought that this was a ridiculously small reward to ask for­ inventing such a great game as chess, but instructed his staff to do as the inventor asked. He soon found out that he had committed himself to placing 2(n−1) on every nth square of the chessboard, which meant that on just the 21st square of the chessboard, he would have to place 1,048,576 grains of rice, and on the last, 64th, square of the chessboard, he would have to place over nine quintillion grains of rice (nine quintillion is a 9 with 18 zeroes after it). The total number of grains of rice that would end up on the board would be almost 18.5 quintillion grains of rice— over twice the number of grains of sand in the world, 180 million times the total number of stars in our galaxy, and only one-fiftieth of the total ­number of stars in the universe. The king in our legend knew exactly what he had agreed to. His mistake was as to the implications of what he had agreed to, which meant that what he had agreed to was a lot more onerous than he initially thought. How far does the law of contract save people from making bad bargains because they have made a mistake to the implications of what they agreed? The law’s starting point is that such a person should be held to the deal he or she has made. This is understandable: the law of contract would do a very poor job of generating artificial trust among contracting parties if one of the parties could too easily escape a deal he had made on the basis that he had made a mistake as to the implications of that deal. The case of Arnold v Britton [2015] AC 1619 (discussed in Tan 2016) illustrates the law’s presumption in favour of holding people to deals that have turned out to be bad bargains because they made a mistake as to the implications of their deal. That case concerned the yearly service charge payable on a number of holiday chalets that were the subject of 99 year leases. The service charge in the leases at issue in Arnold was originally set at £90 per year and was scheduled to rise by 10 per cent a year, compounded, so that n years after the start of the lease the service charge would be £90 × 1.1n. The result was that 20 years after the start of the lease, the ­service charge would be £605; after 30 years, £1,570; after 40 years, £4,073; and after 50 years, £10,565. Towards the end of the lease, after 80 years, the service charge would be an incredible £184,356; and over a million

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pounds by the end of the lease. The tenants under the leases argued that the service charge provision in the leases should be interpreted as capping the amount by which the service charge could be increased. The UK Supreme Court declined to save the tenants from the improvident bargain they had made: ‘it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party’ (at [20], per Lord Neuberger). Having said that, as we will see in the next chapter, the law does act to penalise sharp practices where one party takes unfair advantage of another’s ignorance (for example, of mathematics) to land that other party with a bad deal. (It might have been argued that the legalese in which the service charge provision in Arnold was phrased amounted to sharp practice—the provision stipulated that after the first year the charge would increase ‘by ten pounds per hundred’—except for the fact that the tenants in Arnold would have had their own legal advisers.) The law will also, on occasion, impose duties on contracting parties to disclose information that will help the other party to a deal to better realise what the implications of that deal might be and thus make a better informed decision as to whether or not to enter into that deal. The most obvious example of this is the case of a contract of insurance—if A wants B to insure her health or her home against harm, then A is under a duty to disclose any risks that make her health or home particularly vulnerable to the harm against which she is seeking insurance. The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 require business traders who are selling goods or services to consumers to provide those consumers with a large amount of information that would help them understand the implications of any contracts that they might enter into with those consumers, including ‘the total price of the goods or services inclusive of taxes, or where the nature of the goods or services is such that the price cannot reasonably be calculated in advance, the manner in which the price is to be calculated’ and ‘all additional delivery charges or, where those charges cannot reasonably be calculated in advance, the fact that such additional charges may be payable.’ These limited protections against people being trapped into bad deals by virtue of their having made a mistake as to the implications of their deals do not undermine contract law’s efforts to create artificial trust among operators in the marketplace. So long as contract law creates a

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bright-line distinction between bargains that are legally binding and bargains which are not, traders’ trust in the solidity of the bargains they strike on the right side of this distinction will not be undermined by the fact that the bargains on the wrong side are built on shaky ground. Rules such as the ones mentioned in the previous two paragraphs do not seem to blur the distinction between bargains that will be legally binding and bargains that will not be and therefore do not undermine confidence in the binding force of bargains generally. Businesses will know when they can, and cannot be, accused of taking advantage of another’s ignorance, or accused of wrongfully withholding important information from a customer that might have affected the customer’s decision as to whether or not to deal with the business. So if a business is confident in the integrity of their business practices, there seems no reason why they should not be confident in the binding force of the deals they strike with other people.

MISTAKE AS TO CIRCUMSTANCES The mistake in the Great Peace case is an example of a mistake as to circumstances: a mistake as to the factual background against which one is striking a bargain with someone else (and a bargain that turns out to be a bad one because of that mistake as to the factual background). The Great Peace was 410 miles away from the Cape Providence, not 35 miles away, and that difference in distance made all the difference as to whether it was a good idea or a terrible idea for the defendants to charter the Great Peace to assist in saving the Cape Providence. As it happens, the Court of Appeal found in the Great Peace case that the defendant charterers were stuck with the terrible deal that they made to charter the Great Peace: they could not rely on their mistake as to circumstances to escape the bargain they had made. The Court of Appeal held (at [76]) that if A entered into a contract with B under a mistake as to circumstances (call the mistake, ‘M’) which meant that the deal A made with B has now turned out to be a bad deal for A, A would only be able to get out of his contract with B by showing that: (1) the terms of the contract did not make it clear that A was still to be bound by the contract even if A made mistake M; and (2) A was not at fault for making mistake M; and (3) the fact that A made mistake M means that the contract he entered into with B was impossible to perform according to its terms. Conditions (1) and (2) applied in the Great Peace case.

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(1) As has already been explained, neither the defendants nor the owners of the Great Peace adverted to the possibility that the Great Peace might be hundreds of miles away and so did not provide for that possibility in their contract. (2) The defendants were not at fault for thinking that the Great Peace was only a few miles away from the Cape Providence as they had been told the Great Peace was the closest ship to the Cape Providence by ‘Ocean Routes, a respected organisation which provides weather forecasting services to the shipping industry and receives reports about vessels at sea’ (at [6]). However, condition (3) did not apply—the mistake about the position of the Great Peace did not make it i­mpossible for the contract between the defendants and the owners of the Great Peace to be performed according to its terms: the Great Peace could still sail towards the Cape Providence to assist in its rescue—it would just take a lot longer to do so—and the defendants could still pay the agreed hire for the Great Peace’s services. The Court of Appeal’s restrictive stance on when a contracting party could escape a contract that had turned out to be a bad deal for them because they entered into that contract under a mistake as to circumstances was mirrored by the stance taken by the House of Lords in the much earlier case of Bell v Lever Brothers Ltd [1932] AC 161. In that case, following a business reorganisation which made redundant the position of two directors of a subsidiary of Lever Brothers, Lever Brothers agreed to pay the directors £30,000 and £20,000 respectively in return for their agreeing to leave the subsidiary’s employ. What Lever Brothers did not know at the time they entered into these agreements was that they could have dismissed both directors for nothing because the directors had committed various breaches of their contracts of employment of which Lever Brothers were ignorant. So Lever Brothers had agreed to pay ­thousands of pounds for something that they could have obtained for nothing. Lever Brothers attempted to get out of their deals with the (by now) ex-directors of their subsidiary and recover the monies paid under those deals, relying on the mistake they had made in entering into those deals. The House of Lords rejected the claim. Applying the three conditions set out in the Great Peace we can see why. Just like the claim to get out of the contract in the Great Peace foundered on condition (3), so did the claim in Bell v Lever Brothers Ltd—Lever Brothers’ mistake did not make it impossible for the two directors to leave the employ of Lever Brothers’ subsidiary and did not make it impossible for Lever Brothers to pay those directors £30,000 and £20,000 ­respectively.

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However, in Bell v Lever Brothers Ltd, the House of Lords’ decision did not turn on the issue of whether Lever Brothers’ mistake made it impossible for the contract to be performed according to its terms but on whether Lever Brothers’ mistake meant that the thing that they were contracting for lacked some quality ‘which [made] the thing without [that] quality essentially different from the thing as it was believed to be’ (at 218, per Lord Atkin). While some judges (Sedley LJ in Brennan v Bolt Burdon [2005] QB 303, at [60]) and academics (Andrews 2016, Article 78) have shown a hankering to go back to this much vaguer test for when someone can escape a bad bargain that they made because of a mistake as to circumstances, such siren voices should be resisted. C ­ ertainty in the law is important to people’s being able to trust in the deals they have made, and the Great Peace ‘impossibility’ test for getting out of a bad bargain on the grounds of a mistake of circumstances provides much more certainty than Lord Atkin’s test in Bell v Lever Brothers Ltd. However, two issues remain. The first is—why should you be able to get out of a bad bargain even if the Great Peace’s conditions (1)–(3) are satisfied? Why not always let the ‘risk lie where it falls’ when someone enters into a contract under a mistake of circumstances? The Court of Appeal in the Great Peace said that the law on mistake as to circumstances, as set out in the Great Peace, ‘fills a gap in the contract where it transpires that it is impossible of performance without the fault of either party and the parties have not, expressly or by implication, dealt with their rights and obligations in that eventuality’ (at [80]). But why fill the gap with a rule that allows the party that is prejudiced by the mistake to escape the bad bargain he has made, especially as doing so does—to some extent—undermine the reliability of bargains that have been fairly and honestly made? The answer is that such a rule is the only reasonable way of filling the gap that has been revealed in the parties’ intentions as to how the contract should operate. To hold A to the bad bargain that he has made would (i) make B better off but at the expense of making A worse off. Not to hold A to the bad bargain he has made would (ii) return both A and B to the starting positions that they occupied before they contracted with each other. Faced with a choice between doing (i) or (ii), it seems obvious that the least harmful option is (ii) and that is, indeed, the option the courts have chosen to take where Great Peace’s conditions (1)–(3) are satisfied. The second issue is—what is the position if A has entered into a contract with B under a mistake as to circumstances which means that

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A’s deal with B is now bad for A, and B was aware of A’s mistake at the time A and B contracted? It was emphasised both in Bell v Lever Brothers Ltd (at 218, per Lord Atkin: ‘a mistake will not affect assent unless it is the mistake of both parties’ (emphasis added)) and in the Great Peace (at [76]: ‘there must be a common assumption as to the existence of a state of affairs’ (emphasis added)) that for A to get out of his contract with B on the basis of mistake of circumstances, B needed to have made the same mistake. This seems strange: where B knows that A is entering into what is a bad deal for A because A has (to B’s knowledge) made a mistake of circumstances, no injustice would be done to B if B were deprived of the benefit of the bargain she has made with A. Moreover, the reliability of bargains in general would not be undermined by a rule that said that you cannot count on a deal you made with me being legally binding if you knew when you made that deal that it was bad for me because I was labouring under a mistake as to circumstances. However, this is not the rule in England. Smith v Hughes (1871) LR 6 QB 597 illustrates the point. The defendant agreed to buy some oats from the claimant. He then realised that the oats he had agreed to buy from the claimant were new oats—and therefore unsuitable for feeding to his horses, which is what he had planned to use the oats for. Only old oats would do. The defendant contacted the claimant to say he was no longer willing to purchase the oats, and the claimant sued. The Court of Appeal laid down the principles that should govern the outcome of the case. If the defendant reasonably understood from the claimant’s conduct that the claimant was guaranteeing that the oats he was proposing to sell to the defendant were old, then the defendant should win. Under the objective principle, the claimant would be required under the contract to supply the defendant with old oats, and the defendant would not be required to pay for new oats. But if all that happened was that the defendant contracted to buy the oats that the claimant was offering to sell, regardless of their age, then the defendant would be bound to pay for the oats even though they were new, and even if the claimant knew at the time the defendant contracted with him that the defendant had made a mistake about the age of the oats the claimant was offering to sell him. Having said that, in the case where A contracts with B under a mistake of fact that B knows about, the law will sometimes save A from the bad bargain that his mistake would otherwise land him with. The most obvious example of the law’s doing this is where you buy goods from a business, letting the business know in advance for what purpose you want

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to use the goods. If it turns out you made a mistake and the goods were not in fact fit for the purpose for which you wanted them, then it is actually the business that will lose out and not you—there will be an implied term in your contract with the business (under section 14(3) of the Sale of Goods Act 1979 if you are a business, and under section 10 of the ­Consumer Rights Act 2015 if you are a consumer) that the goods would be fit for the purpose you let the business know you wanted them for, and that implied term will entitle you to reject the goods and get back any money you paid for them, or sue for damages for any losses you have suffered as a result of the goods not being fit for purpose (including the cost of purchasing alternative goods that do fit the bill). So if the defendant in Smith v Hughes had let the claimant know that he wanted the oats for his horses, then—at least nowadays—he would have been able to escape having to pay for the new oats that he had agreed to buy from the claimant.

4.  CHANGE OF CIRCUMSTANCES While there are situations where the law will protect A against being stuck with a bad bargain by virtue of the fact that he contracted with B under a mistake, there is a much stronger case for saying that the law should not assist A to escape a contract with B that has turned into a bad deal by virtue of a change of circumstances that occurred after A entered into his contract with B. The need to assure B of the reliability of her deal with A, and the fact that B is very likely to have relied on the deal she struck with A after she struck it—so that allowing A to escape the contract may well not just deprive B of an opportunity to enrich herself, but also positively make B worse off—indicate that the law should be very hostile to any attempt by A to claim that his contract with B is no longer binding on him (in lawyers’ language, is frustrated) because a change of circumstances after the contract was entered into has now made it difficult, or even impossible, for him to perform his side of the deal, or has now rendered useless to him what he will be getting from B under the deal. (This second category of case where A might attempt to claim that his contract with B has been frustrated is popularly known as frustration of purpose). This kind of absolutist attitude towards allowing people to escape their contracts on the basis of a change of circumstances is well represented by Paradine v Jane (1646) Aleyn 26, where a tenant was sued for

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unpaid rent. The tenant pleaded that he should be excused from having to pay the rent because he had been prevented from using the premises he was renting by soldiers under the command of Prince Rupert of the Rhine, who had arrived in England to assist King Charles I in the English Civil War. The court was unsympathetic: ‘when [a] party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity’ (at 27). This absolutist stance was seemingly maintained in Taylor v Caldwell (1863) 3 B & S 826—the case of the burned-down concert hall—with­ Blackburn J ruling that ‘where there is a positive contract to do a thing … the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burdensome or even impossible’ (at 833). However, Blackburn J held (quite rightly) that this rule only applied if the contract was ‘not subject to any condition either express or implied’ which provided that the contractor would not be bound by the contract in the circumstances that had arisen, and (much more dubiously) that if, when they entered into a contract, the parties knew ‘that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist … [then] in the absence of any express or implied warranty that the thing shall exist, the contract is … to be construed … as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor’ (833–34). The effect of Taylor v Caldwell was to reverse the absolutist stance in Paradine v Jane. In the case where A’s contract with B had turned into a bad bargain for A because of a change of circumstances after the contract was entered into, the law shifted from saying that A would still be bound by his contract unless the contract said he should not be so bound to saying that in certain cases A would not be bound by his contract unless the contract said that he should still be bound. In changing the law in this way, Taylor v Caldwell launched the ­English law of contract on a 100-year long wild goose chase to attempt to define in what cases exactly A would be relieved from a contract that had turned into a bad bargain because of a change of circumstances after the contract was entered into, with the courts eventually settling on the vague test that ‘frustration 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

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called for would render it a thing radically different from that which was undertaken by the contract’ (Davis Contractors v Fareham UDC [1956] AC 696, 729, per Lord Radcliffe). In The Eugenia [1964] 2 QB 226, Lord Denning MR observed that to see if this test applies ‘you have first to construe the contract and see whether the parties have themselves provided for the situation that has arisen. If they have provided for it, the contract must govern. There is no frustration. If they have not provided for it, then you have to compare the new situation with the situation for which they did provide. Then you must see how different it is. The fact that it has become more onerous or more expensive for one party than he thought is not sufficient to bring about a frustration. It must be more than merely more onerous or more expensive. It must be positively unjust to hold the parties bound. It is often difficult to draw the line. But it must be done’ (at 239). Taylor v Caldwell also eventually necessitated English law’s adopting a very complicated regime to deal with the situation where a contract was held to have been frustrated in the middle of its being performed. The regime is set out in the Law Reform (Frustrated Contracts) Act 1943, with section 1(2) providing that any monies that have been paid under the contract should be repaid (and any accrued obligations to pay money due under the contract will be extinguished), subject to the recipient of the money being allowed to retain a ‘just’ sum to cover any expenses that the recipient has incurred in the course of performing under the contract. Section 1(3) allows someone who has done work under a frustrated contract to sue the other party to the contract for a reasonable sum for the work they did before the contract was frustrated—but only if that work resulted in the other party to the contract obtaining a ‘valuable benefit’. Interestingly, section 2(5) provides that the 1943 Act will not apply to any contract for the carriage of goods by sea, or to a contract for insurance—in other words, to contracts where commercial certainty is most important. Having said that, the absolutist stance in Paradine v Jane seems to have survived in frustration of purpose cases. It is, consequently, not surprising that it is extremely hard to find that a contract has been frustrated when A’s complaint is that a change of circumstances has turned a contract he has with B into a bad bargain for him because what he will be getting from B under the deal is now useless to him. In such a case, A will almost always be held to the contract he has made with B. A will only be relieved from the contract if he can show that he contracted with B on the basis

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that he would not have to perform in the circumstances that have now arisen. Krell v Henry [1903] 2 KB 740 is the only case involving frustration of purpose where the defendant was successfully able to argue that his contract with the claimant was frustrated. Krell left the country in March 1902, and instructed his solicitor to let his flat at 56A Pall Mall. With the coronation of King Edward VII due to occur on 26 June 1902, Krell’s solicitor saw a chance to make some extra money for his client and had a notice posted in one of the windows of Krell’s flat, advertising the possibility of renting two of the rooms on the third floor of Krell’s flat which had windows which would overlook the processions that were due to take place in connection with the coronation. Henry saw the advertisement and was attracted to the idea of getting a great view of the processions for him and his guests. Henry therefore agreed to pay Krell £75 for the use of the two rooms on the 26 and 27 June. Unfortunately, Edward VII fell ill with appendicitis shortly before the coronation, and it was postponed until 9 August. Krell’s rooms were now useless to Henry, and he declined to pay for them. Krell sued for the agreed fee for the rooms, but the Court of Appeal held that the Krell–Henry contract had been frustrated by virtue of the coronation being postponed. The result in Krell v Henry is often contrasted with that in Herne Bay Steam Boat Co v Hutton [1903] 2 KB 683 (decided five days before Krell v Henry, but after argument was heard in that case, and by an identically constituted Court of Appeal) and a hypothetical example raised by Vaughan Williams LJ in Krell v Henry, where a defendant enters into a contract for a taxi to take him to Epsom on Derby Day. The Court of Appeal held in the Herne Bay Steam Boat case that a contract to charter a steamboat to take Hutton and his guests down the Thames to see ships belonging to the Royal Navy sail past the newly crowned king at S­ pithead on June 28 1902 was not frustrated by the cancellation of the king’s ­coronation. And Vaughan Williams LJ was of the view that the contract to take the defendant to Epsom on Derby Day would not be frustrated if the Derby (a famous horse race) were cancelled after the contract was entered into. The result in both cases is that the defendant was/would be required to pay for a service that was now useless to him. The best way of reconciling these cases is to see them giving effect to the already stated rule—that in a frustration of purpose case, A will only be relieved from his contract with B if he can show that he contracted with B on the basis that he would not have to perform in the circumstances that have now arisen. ‘The basis’ on which A contracted with

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B can be tested by applying what is known as the ‘officious bystander’ test (from Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227, per Mackinnon LJ) for implying a term into a contract and asking: ‘If an “officious bystander” had asked A and B whether the contract would still be in force in the situation that has now arisen, would A and B have responded, “Of course it will no longer apply”?’ This test would not have been satisfied in the Herne Bay Steam Boat case or in Vaughan Williams’ taxi cab hypothetical. The crucial aspect of both of these cases is that the steamboat company in the Herne Bay Steam Boat case was in the business of taking people up and down the Thames every day, and the taxi driver in Vaughan Williams’ hypothetical was in the business of driving people where they wanted to go—so by contracting with the defendant, these people, by definition, turned away business from other customers who wanted their services at the same time as the defendant. So if an officious bystander had asked the steamboat company in Herne Bay Steam Boat ‘If the coronation is cancelled, will your contract with the defendant no longer be in force?’ they steamboat company would have responded, quite legitimately, ‘Absolutely not—the defendant still has to pay, because if I hadn’t contracted with him I could have dealt with someone else who would still have wanted to go down the Thames in my steamboat regardless of whether the coronation was happening or not.’ The same would apply in the taxi cab hypothetical: the driver would say, ‘Absolutely not—the defendant still has to pay me for taking him to Epsom, because if I hadn’t contracted with him I could have made an arrangement with someone else to drive them where they wanted to go.’ But this was not something Krell could have said in Krell v Henry because by renting out the two upper rooms in his flat for two days over the period of the coronation, he did not give up any opportunities to rent out those rooms to other people who would have wanted the rooms regardless of whether or not the coronation was going on. So Krell could have had no legitimate reason for claiming, in response to our officious bystander, that his contract with Henry would still be in force even if the entire reason why Henry was attracted to hiring out Krell’s rooms disappeared. (Of course, Krell might have wanted to say that his contract with Henry would still be in force even if the coronation was cancelled in order to make himself better off by £75 whatever happened—but as we will see in the next chapter, the law does not look favourably on people who brazenly seek to use the law to get something for nothing, and would

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not have treated the Krell–Henry contract as having been based on such an intention unless the contract itself had made that clear.) It would have been different had Henry realised that a particular hotel room would give him a good view of the coronation processions and had booked that room before the coronation was cancelled. In such a case, the hotel would have been entitled to insist that the risk of the coronation being cancelled was on Henry and that he would still pay for the room: had they not contracted to allow him to use the room, they might have booked the room out to some other customer who did not care about getting a good view of any coronation procession.

5.  CONTROLS ON CONTRACTUAL DISCRETION As we can see from the previous two sections, the amount of protection that general law provides contracting parties against the risk of making a bad bargain is very limited and patchy. The most reliable form of protection continues to be the express terms of the contract itself. And the most reliable form of that kind of protection are contractual clauses which give one of the parties a great deal of discretion over how, and whether, they will perform their contract—thus allowing them to back out of what is turning out to be a bad deal, or to modify what they are required to do under the contract to ensure that their obligations remain commensurate with the return they can expect to make under the contract. For example, A might make performance of a particular term in his contract with B a condition of the contract, so that breach of that term will not only allow A to sue B for damages but also to terminate the contract so that A is no longer obliged to deal with B. The emphasis here is on the word ‘allow’—B’s breach of a condition in the A–B contract will not automatically terminate the A–B contract, but will give A the power to terminate the contract if A so wishes. Any discretion can be abused, and the discretion that A will enjoy in this kind of case to terminate the A–B contract is no exception. A may well capitalise on B’s breach of a condition in the A–B contract in order to get out of a deal that has turned out to be a bad deal not because of B’s breach but just because of general market movements.

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The only real common law control on this kind of abuse is through the courts’ holding that the term breached by B was not actually a ­condition (see, for example, Schuler v Wickman Machine Tool Sales Ltd [1974] AC 235), with the result that A will only be entitled to terminate the A–B contract if B’s breach has had the effect of depriving A ‘“of the whole of the benefit of the contract” or “went to the root of the contract”’. The last quoted phrases are from Roskill LJ’s judgment in The Hansa Nord [1976] 1 QB 44 (at 73), a case which illustrates this common law technique for controlling abuses of the power to terminate a contract. In that case, A agreed to purchase 3,400 tons of US citrus pulp pellets from B for £100,000. Under the terms of the A–B contract, the pellets were to be shipped to A in Rotterdam and were supposed to be ‘shipped in good condition’. After the A–B contract was entered into, the contract turned into a bad deal for A as the market price for the amount of pellets he was buying fell to £84,000. Looking to get out of the deal, A inspected the pellets when they arrived in Rotterdam, claimed that the pellets had not been ‘shipped in good condition’ and purported to terminate the A–B contract. Trying to make the best of a bad job, B had the pellets auctioned off in Rotterdam, and A—for whose purposes the pellets were still perfectly fine despite the discolouration they had suffered as a result of how they had been shipped—had one of its agents buy the pellets for a cut-price £33,000. Very unimpressed at the way A had behaved, the Court of Appeal held that the term requiring B to ship the pellets in good condition had not amounted to a condition, and that A had not therefore been entitled to terminate the A–B contract as B’s breach had not deprived A of ‘substantially the whole benefit which it was intended that he should obtain from the contract’ (Hongkong Fir Shipping Co Ltd v Kawasaki Kisen ­Kaisha [1962] 2 QB 26, 70 (per Diplock LJ)). So B was still entitled to be paid the full £100,000 that was due to it under the contract. ­Nowadays, section 15A of the Sale of Goods Act 1979 is intended to put a stop to this kind of game-playing among businesses in how they exercise a right to terminate a contract for the sale of goods. Section 15A provides that a business buying goods from another business will not be allowed to reject the goods it receives under the contract on the ground that they are defective in some way if the defect in the goods ‘is so slight that it would be unreasonable for the [business] to reject them.’ (For criticism of the common law for not doing more to control the exercise of powers to terminate a contract, see Hooley 2013, 83–89.)

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Let’s turn now to a term in a contract between A and B that purports to give A discretion to (1) modify what A is required to do for B, or (2) vice versa. An example of (1) is a term in an employment contract between A and B under which A is supposed to pay B a bonus each year but is given a discretion to decide how much that bonus should be. An example of (2) is a term in a loan contract between A and B under which A is allowed periodically to alter the interest rates payable under the loan. The law is currently unsettled on whether the law will place any limits on A’s exercise of a discretion that he enjoys under a contract with B. The starting point is that A will not be permitted to exercise his discretion ‘dishonestly, for an improper purpose, capriciously or arbitrarily’ (Paragon Finance plc v Nash [2002] 1 WLR 685, at [32] (per Dyson LJ)). This limit on A’s discretion is said to be based on a term that will be implied into the A–B contract, and the implication of that term can easily be explained on the ‘officious bystander’ test: it would be strange if A and B did not respond ‘Of course not!’ if an officious bystander asked whether A was permitted under the contract to exercise his discretion in a dishonest, improper, capricious or arbitrary manner. Having said that, in Compass Group UK Ltd v Mid Essex Hospital ­Services NHS Trust [2013] EWCA Civ 200, the Court of Appeal ruled that not all discretions to alter the parties’ rights and obligations under a contract would be limited in this kind of way. Perhaps with one eye on the general lack of common law controls over how a power to terminate a contract for breach of condition is exercised, Jackson LJ held that in a case where a contract gave A a discretion to award penalty points against B for failures of performance, which penalty points would then translate into financial penalties for B, it would be inappropriate to imply a term into the contract requiring A not to exercise his discretion ‘dishonestly, for an improper purpose, capriciously or arbitrarily’ (at [91]). This kind of discretion amounted to an ‘absolute contractual right’ that A would be free to exercise to its full, or not at all, or somewhere in between—and whatever A chose to do, he could not be criticised. The best explanation of the ruling in Compass is that A could not act dishonestly, for an improper purpose, capriciously or arbitrarily in exercising its discretion to award penalty points against B because the parties intended that A should be allowed to award penalty points against B, and specified how those penalty points should be awarded. But where A exercises a more open-ended discretion under a contract with B—as is the case in

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examples (1) and (2), above—and there is, consequently, much more opportunity for that discretion to be abused, then the courts will imply a term into the A–B contract that A’s discretion will not be exercised ‘dishonestly, for an improper purpose, capriciously or arbitrarily’. The limits that the law of contract places on the exercise of contractual discretion takes us nicely onto Chapter 4, which is concerned with how the law generally governs the exercise of contractual power to ensure that such power is not exercised unconscionably.

4 Conscience The medieval judges who laid the foundations on which our law of contract was built were very different from modern-day judges in two respects. First, the medieval judges were acting as representatives of the monarch in deciding cases, and thereby ordering the affairs of the realm. So medieval judges did not have to worry about whether they were acting ‘democratically’ in building up a corpus of judge-made law—their authority to decide cases and add to the law came from their King. Second, what saved rule by the medieval judges from descending into a corrupt tyranny was that those judges believed in God and an afterlife, and as a result they believed that they had a solemn responsibility to themselves, their King and the litigants before them to ensure that the law did not become an instrument of sin. Ensuring that this did not happen became the principal concern of the Lord Chancellor, who was charged with deciding petitions made to the King, and who came to be known as ‘the keeper of the King’s conscience’. The body of law surrounding the Lord Chancellor’s decisions—particularly when they involved setting aside or adding to the decisions of the King’s judges—came to be known as ‘Equity’, while the decisions of the judges that ‘Equity’ supplemented or set aside made up the ‘Common Law’. This language survives to this day, where we call equitable the rules and doctrines that originated in the decisions of the Lord Chancellors, and common law the rules and doctrines that derived from the judgments of judges in the royal courts; and we think of the equitable rules and doctrines as existing to modify or supplement the common law rules and doctrines. These equitable rules and doctrines had their origin, as we have just explained, in the notion of conscience which, as Brian Simpson explained, ‘connoted what we now call the moral law as it applied to p­ articular individuals for the avoidance of peril to the soul through m ­ ­ ortal sin’ ­(Simpson 1975, 398, emphasis in original). It was for this reason, S­ impson

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explained, that one could obtain specific performance of ­contracts in equity: ­‘specific performance … compels the sinner to put matters to [right], which he must do if his soul is to be saved’ (ibid, 399). While we obviously no longer think of saving people’s souls as a legitimate concern of the courts, the language of conscience—and in particular the notion of ­unconscionability—still pervades the law of contract. For example, in ­Cavendish Square Holding BV v Makdessi [2016] AC 1172, the UK Supreme Court (UKSC) held that if you and I enter into a contract under which we agree that if you breach the contract, you will have to pay me a certain sum of money (say £10,000), that provision will be unenforceable as a penalty if: (a) the provision did not serve to protect any legitimate business interest of mine; or (b) ‘assuming such interest to exist, the [agreed sum is] nevertheless in the circumstances extravagant, exorbitant, or unconscionable’ (at [152], per Lord Mance (emphasis added)). So suppose that the courts prevent me from suing you for £10,000 that you agreed to pay me on breach, and they do so because the sum in question is so large as to be unconscionable. If, in preventing me from suing you for this sum, the courts are not concerned to save my soul, what are they concerned to do? There are two possibilities, which correspond with the distinction between a duty and a disability. First, the courts could take the view that in the circumstances I have so little justification for suing you for £10,000 that the law is justified in imposing a duty on me not to sue you for £10,000 so that I would actually be doing something legally wrong in suing you for the money. In this context, this seems an unlikely analysis: it would be odd for the law to take the view that I have a duty not to enforce a term in a contract with you which you did, after all, agree to. But in other contexts, such an analysis is not so unlikely. For example, it is accepted that if I act in a ‘morally reprehensible manner, that is to say, in a way which affects [my] conscience’ (Multiservice Bookbinding Ltd v Marden [1979] 1 Ch 86, 110) by exploiting some weakness of yours, such as your being ‘elderly, illiterate [or] on a very low income’ (Portman Building Society v Dusangh [2000] 2 All ER (Comm) 221, 299) so as to get you to enter into a contract with me that is as very bad for you as it is good for me, I will not be allowed to enforce that contract: the contract will be too unconscionable to enforce. In that kind of context, a case can be made for saying I acted wrongfully—in breach of a duty I owed to you not to exploit your weakness—in getting you to enter into your contract with me, and the courts will not enforce my contract with you in order to prevent me profiting from my wrong.

Conscience

 49

Going back to our original example where you agreed to pay me £10,000 if you breached your contract with me, but the courts hold that that term is unenforceable as a penalty, the second possible analysis of what the courts are doing in this kind of case is that while I don’t have a full-blown duty not to sue you for the £10,000, if the law were to allow me to sue you for that kind of money, it might end up being brought into disrepute. Contract law would look less like the institution that was described in Chapter 2—an institution for fostering the productive and mutually beneficial exchange of goods and services—and more like an institution that can be manipulated to effect undeserved transfers of wealth from the feckless and the gullible to the clever and the cunning. Given this, the courts might think it wise—so as to maintain general respect for the law and its institutions—to disable me from enforcing our agreement that you would pay me £10,000 if you breached your contract with me. On this analysis, then, the concept of unconscionability is applied not to prevent people from acting in a way that is legally wrongful, or from profiting from their wrongs, but in order to uphold respect for the law; or, in other words, in order to uphold the rule of law (see Harding 2016). Our two analyses of what the courts might be talking about when they stigmatise someone’s conduct, or a contract, as ‘unconscionable’, updates for modern times the way medieval judges thought about conscience. While a medieval judge might refuse to enforce a contractual term because doing so would cause the enforcing party to sin (and would therefore ‘affect the conscience’ of the enforcing party), the modern-day judge might refuse to enforce a term either because enforcing that term would be legally wrong (an unlikely possibility) or (much more likely) the term owes its existence to a legal wrong. And while a medieval judge might also enforce a contractual term because doing so would cause the judge (or the King on whose behalf the judge acted) to sin (and would therefore ‘affect the conscience’ of the judge or the King), the modern-day judge might refuse to enforce a term because doing so would bring the legal system into disrepute. (For this dual analysis of the notion of unconscionability—as either referring to the conscience of the party bringing the claim, or to the conscience of the court, see Klinck 2001, 602–05.) In this chapter we will look in much more detail at a number of different occasions when the courts will depart from the normal common law rules surrounding the making and enforcement of contracts in order to prevent some form of ‘unconscionable’ result occurring. However, before we look at those occasions it should be noted that the normal rules also

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show some concern to prevent ‘unconscionable’ advantage-taking and oppressive practices. We have already seen that: (1) if you mistakenly offer to deal with me on terms x, and—being aware of your mistake—I snapped up your offer, I cannot then say that I have a contract with you on terms x (see above, page 7); (2) if I agree to deal with you on your standard terms, you cannot claim that I have agreed to deal with you on all your terms, no matter how unreasonable they might be—I will only be bound by all your terms if I expressly indicated by writing that I was willing so to be bound; otherwise, I will only be bound by those of your terms that are ordinary and to be expected and any unusual or unexpected terms that were reasonably brought to my attention before I contracted with you (see above, page 9). It is also the case that: (3) if I commit a breach of a contract I have with you, under the rule in Hadley v Baxendale ((1854) 9 Ex 341) you cannot sue me for a loss that you have suffered as a result of that breach unless at the time I contracted with you I could have foreseen that you might suffer that kind of loss in the event of my breaching the contract. So suppose that I contract to install a swimming pool in your back garden, and undertake to complete the work by 1 June. I am late finishing the work and only get the swimming pool done by 15 July. You sue me for £100,000 in damages, arguing that you lost out on the chance of a film company using your house as a set because the swimming pool was not ready by 1 June. If I had no idea you might suffer such a loss when I contracted to install the swimming pool, the rule in Hadley v Baxendale will apply to prevent you suing for that loss: it will be ‘too remote’ a consequence of my breach. This is the fair result: had I known you might suffer such a huge loss if I was late installing the pool when I contracted with you, I might have declined to contract with you, or declined to offer any guarantees as to when I would be done, or might have asked for a much higher fee for installing the pool to cover the risk that I might be held liable for such a large amount of money if I finished the work late. So the common law is not indifferent to the need to avoid ‘unconscionable’ results, any more than a common law judge in medieval times would have been indifferent to the need to avoid being a cause of sin in himself

Withdrawal of Offers

 51

or others. However, sometimes the normal common law rules give rise to the risk of exploitation and abuse, and the rest of the chapter is concerned with how the law reacts to that kind of risk.

1.  WITHDRAWAL OF OFFERS Suppose that I promise to pay you £1,000 if you get a First in your contract exam. You are encouraged by this promise to work extra hard on studying for the contract exam, but just before you are due to sit the exam, I have a change of heart and tell you that the deal’s off. What is the position? There are four possibilities. (1) You have no remedy against me because there is no contract between us. I have offered to enter into a unilateral contract with you, whereby my promise to pay you £1,000 will be binding on me if and only if you do what I requested you to do in return for that promise, which is to get a First in the contract exam. Until you accept my offer by getting a First in the contract exam, my promise is not binding on me and I am free to withdraw it at any stage so long as I let you know that the offer has been withdrawn. This is what the normal rules on contract formation would have to say about this situation. But it seems very rough on you that I can encourage you to work hard at getting a First in contract law, while retaining right up until the last moment the power to pull the rug from under your feet by withdrawing the promise I made to you. (2) I am disabled from withdrawing the offer I made to you precisely because it would be so unfair on you—or unconscionable—if I were allowed to withdraw it when you have relied on the ­expectation that your getting a First in the contract will result in my owing you £1,000. The result is that whatever I may say to you, my offer to enter into a unilateral contract with you still stands and can be accepted by you by getting a First in the c­ ontract exam. This was the analysis adopted by the Court of Appeal in ­Errington v Errington [1952] 1 KB 290, where a newly married couple were promised by the husband’s father that if they kept up the mortgage repayments on a house that the father had bought for his son and daughter-in-law to live in, that the house would be theirs when the

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mortgage was paid off. The father died, and under the father’s will the house—which was still occupied by the son and daughter-in law, and who had been dutifully keeping up the mortgage repayments—was inherited by the father’s wife. The son and the daughter-in-law then split up and the son went back to live with his mother. The daughterin-law kept up the mortgage repayments, but the mother told the daughter-in-law to get out of the house. The Court of Appeal held that she could not do this, with Denning LJ holding (at 295) that the father’s promise to give the house to his son and daughter-in-law if they paid off the mortgage ‘could not be revoked by him once the couple’ started paying off the mortgage, and would only ‘cease to bind him’ if the couple stopped paying the instalments. While this analysis may have done justice in the Errington case, this analysis would leave you without any remedy if my telling you that I was withdrawing my offer left you so disheartened that you did not perform very well in the exam and got a 2.1 instead. The fact that my offer is technically binding on me is no good to you—the fact that you got a 2.1 and not a First means that I don’t have to pay you anything. (3) I have a contractual duty not to withdraw my offer to enter into a unilateral contract with you. So when I told you our deal was off, I committed a breach of contract, which would then entitle you to sue me for damages designed to give you the monetary equivalent of what you would have had, had I not withdrawn my offer—that is, the chance of earning £1,000 by getting a First in your contract exam. This analysis was adopted by Goff LJ in Daulia Ltd v Four Millbank Nominees Ltd [1978] 1 Ch 231, holding (at 239) that where A offers to enter into a unilateral contract with B, under which A promises to do something for B if B fulfils some condition, there ‘must be an implied obligation on the part of [A] not to prevent the condition becoming satisfied, which obligation … must arise as soon as [B] starts to perform.’ The problem with adopting this analysis in our case is that it depends on the courts’ being able to say (i) that I reasonably gave you the impression that I was promising I would not get in the way of your getting a First in the contract exam, and (ii) I asked you to give me, and you gave me, something in return for that promise. While it is possible in certain contexts to find that something like (i) and (ii) exist, thus establishing what lawyers call a collateral­

Enforcement of Debts

 53

contract existing alongside our principal contractual ­arrangement (see, for example, Blackpool and Fylde Aero Club v Blackpool ­Borough ­Council [1990] 1 WLR 1195 where an invitation to tender for a concession to operate pleasure flights from the defendant’s airport was held to have come with a promise to consider any tender that was submitted, which promise was held to have been made in return for a tender being submitted), it seems very difficult to say that (i) and (ii) exist in our case. A promise not to ‘get in the way’ of your getting a First in the contract exam seems too vague to be enforceable and it seems simply not to be the case that I gave the impression of making any more restricted promise to you—such as a promise not to withdraw my promise—or that I asked you for anything in return for that promise. (4) I have a non-contractual duty not to withdraw my offer to enter into a unilateral contract with you, based on the fact that having encouraged you to rely on the prospect of being able to make £1,000 if you get a First in your contract exam, it would be unconscionable for me to withdraw my offer. While no case seems to have adopted this analysis of the position between us, it seems to avoid the disadvantages of all of the preceding analyses: it means you are not left without a remedy if I attempt to withdraw my offer or if my attempt to withdraw my offer gets in the way of your getting a First and earning £1,000, and does not attempt to ground my duty not to withdraw my offer in an illusory promise not to withdraw my offer, supported by an equally illusory consideration. Grounding my duty not to withdraw my offer in the notion of unconscionability also creates the potential that I might be allowed to withdraw my offer if the circumstances are such that I have a legitimate interest in wishing to withdraw my offer (I have just found out that you have been having an affair with my wife) and withdrawing my offer would not be so unfair on you (my offer has made no difference to how hard you have been working to prepare for the contract exam).

2.  ENFORCEMENT OF DEBTS The normal rules on the enforcement of debts are very simple—if I promise to pay you £300 if you clean my car, and you clean my car, then

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I owe you £300 and you can sue me for that £300. The rules are so simple that summary judgment is normally available in the case where someone sues for a debt—the facts will be so clear that there will be no prospect of the defendant avoiding liability. However, the notion of conscience recurrently crops up in relation to various different issues surrounding the enforcement of debts.

PROMISSORY ESTOPPEL Suppose that I owe you £300 because you cleaned my car but it turns out I don’t have £300 to give you. You decide to cut your losses and promise that if I give you £100, you will forget about the remaining £200 that I owe you. Relieved at the prospect of getting free of my debt to you so cheaply, I cobble together £100 and hand it over to you. You then turn round and sue me for the remaining £200. Are you entitled to do this? It used to be thought that I could—your promise not to sue me for the remaining £200 was, it was thought, not binding on you because my payment of £100 to you could not amount to valid consideration for that promise as paying you £100 was something I was already duty-bound to do for you: Foakes v Beer (1884) 9 App Cas 605. However, beginning with Denning J’s judgment in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, it was suggested that you might be estopped (or prevented) from going back on your promise not to sue me for the remaining £200 on the ground that in the circumstances it would be unconscionable for me to enforce my strict legal right to sue you for that £200. We will say no more for the time being about the High Trees case and its subsequent history: you will find a full discussion of that in Chapter 6, where I will discuss the law’s treatment of what are sometimes called gift-promises.

SUBSTANTIAL PERFORMANCE Suppose that I promised to pay you £300 if you cleaned my car, and you claim to have cleaned my car but I argue that while the car looks immaculate inside and out, you have not technically cleaned the whole car because you have not cleaned the inside of the boot of the car. And technically I am right: cleaning the car means cleaning the whole car, including the boot. But it would be rough on you if I could rely on a technicality

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like that to deprive you of any payment for all of the work you have done on the rest of the car. To avoid this, the courts have adopted the rule that if you have substantially performed the job of cleaning my car, then I will have to pay you the £300 I promised to pay you for cleaning the car. This doctrine was applied in Hoenig v Isaacs [1952] 2 All ER 176, where the claimant contracted to decorate the defendant’s flat for £750. The defendant refused to pay the claimant the price agreed for decorating the flat on the ground that the door of the flat’s wardrobe needed replacing, as did one of the bookshelves. The Court of Appeal held that the claimant was entitled to the agreed price, as he had ‘substantially performed’ his obligation to decorate the flat. Any injustice done to the defendant by making him pay in full for what was not, technically, full performance was mitigated by the fact that the defendant could sue the claimant for damages for breach of contract to repair any deficiencies in the claimant’s performance. But note that that is not true in the case where you cleaned my car: as you were under no obligation to clean my car (the contract between us was unilateral only, where the only person who could come under any obligation was me, the person promising to pay you £300 if you cleaned my car) I cannot sue you for damages for the cost of having the boot of my car cleaned. So it may be that there is less justification for applying the doctrine of substantial performance in your case than there was in Hoenig.

REFUSAL TO TERMINATE In White & Carter Councils v McGregor [1962] AC 413, the defendant McGregor ran a garage in Clydebank. McGregor entered into a contract with the claimant council, under which the council agreed to place advertisements for McGregor’s garage on certain of their rubbish bins in Clydebank for three years. McGregor soon repented of this deal and told the council he no longer wanted his garage to be advertised on their bins. Given McGregor’s repudiation of his contract with the council, the council was entitled to terminate the contract and sue McGregor for damages equal to the net profit they would have made on the contract had it been properly performed—which net profit would have equalled £D (the money payable to the council had the contract been properly performed) minus £E (the expenses the council would have had to incur in performing the contract). But the council did not terminate

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the ­contract. Instead, they continued to perform it, and brought a claim against McGregor in debt for £D—the money McGregor had agreed to pay the council for displaying his advertisements on their bins. McGregor argued that the council’s claim for debt should be disallowed on the basis that when McGregor told the council to stop displaying his advertisements, the council should have terminated their contract with McGregor and should have sued him for £(D–E) in damages. At the time White & Carter Councils was decided, there was only one situation where a party to a contract had no choice but to accept the other party’s repudiation of that contract and terminate the contract: this was where proper performance of the contract required both parties to co-operate together. (Think about a contract to paint your portrait—if either you or the painter refuse to go through with the deal, the other party has no choice but to accept that the contract has come to an end and sue for damages.) But in White & Carter Councils, the council did not need McGregor’s co-operation to continue advertising his garage on their bins. Given this, the House of Lords ruled that the council had been perfectly entitled to hold McGregor to his deal, and could now sue him in debt for £D. However, Lord Reid suggested a further exception to the general rule that you don’t have to accept that a contract has come to an end just because the other party no longer wants to perform. He suggested (at 431) that ‘it may well be that, if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden [here, that of paying £D in debt, rather £D-E in damages] with no benefit to himself ’ (emphasis added). In such a case, Lord Reid suggested that the ‘general equitable jurisdiction of the court’ (ibid) might be invoked to prevent the victim of a repudiatory breach of contract acting unconscionably by relying on her strict legal rights to hold the other party to the contract, instead of accepting that the contract has come to an end and simply suing for damages. Lord Reid thought that ‘it seems improbable’ (ibid) that the claimant council had no legitimate interest in holding McGregor to his contract with them—but is this true? Subsequent case law has established that a mere desire on A’s part to earn money under a contract that A has with B will not give A a legitimate interest in holding B to the contract if B no longer wants to be bound by it (The Alaskan Trader [1984] 1 All ER 129)—so what gave the claimant council a legitimate interest in­ holding McGregor to their contract with him? It is not hard to guess.

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­ erformance of the contract would not just have earned the c­ laimant P council £D, the money McGregor promised to pay the council for advertising his garage; it would also have earned the council the chance of obtaining further custom as a result of other businesses seeing McGregor’s adverts on the council bins and thinking that they might like their businesses to be advertised in a similar way. Had the council sued McGregor for damages, the value of this lost chance of obtaining further business would have been impossible to estimate and to compensate properly. Given this, the council would have suffered an uncompensatable loss—the loss of a chance of drumming up more business—had they terminated their contract with McGregor when McGregor wanted them to, and it is this that gave the council a legitimate interest in holding McGregor to that contract.

PENALTY CLAUSES A liquidated damages clause specifies that if A breaches a contract that A has made with B, A will owe B a fixed sum of money, with the result that B will be able to sue A in debt for that money and avoid the inconvenience of having to sue A for damages for breach of contract, which would entail proving that A’s breach caused B to suffer various losses, putting a value on those losses, and dealing with arguments that for one reason or another B should not be allowed to sue for one or more of the losses suffered by B as a result of A’s breach. If, however, the fixed sum of money that A is contractually obliged to pay on breach is excessive, then the courts will decline to enforce the liquidated damages clause on the ground that it amounts to a penalty for breach. In his judgment in White & Carter Councils, Lord Reid drew an analogy between the equitable jurisdiction to prevent the victim of a repudiatory breach of contract from holding the breaching party to the contract that he is repudiating and the rule against enforcing penalty clauses: ‘just as a party is not allowed to enforce a penalty, so he ought not to be allowed to penalise the other party by taking one course when another is equally advantageous to him’ ([1962] AC 413, 431). Both aspects of the law were, Lord Reid thought, rooted in the general principle that ‘if a party has no interest to insist on a particular remedy, he ought not to be allowed to insist on it’ (ibid). The UKSC’s decision in Cavendish Square Holding BV v Makdessi (and the conjoined appeal in ParkingEye Ltd v Beavis) [2016]

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AC 1172 resoundingly endorses this view of the basis of the rule against penalty clauses (especially at [29], per Lords Neuberger and Sumption). All of the Supreme Court Justices who decided Makdessi agreed that in the case where A’s contract with B specified that if A breached, A would be liable to pay B £x, determining whether or not that stipulation amounted to a penalty turned on the issue of whether or not B had a legitimate interest in requiring A to pay her £x on breach. We have already set out Lord Mance’s test for determining whether a liquidated damages clause amounted to a penalty. For Lords Neuberger and Sumption, the test was whether ‘the impugned provision … imposes a detriment on the ­contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the [contract]’ (at [32]). Lord Hodge’s test (which won the agreement of Lord Toulson, at [293]) was whether ‘the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract’ (at [255]). Sarah Worthington—a long-standing critic of the rule against penalty clauses—complains that there is nothing in the UKSC’s judgments in Makdessi which explains why a liquidated damages clause should not be enforced if it goes well beyond what the legitimate interests of a contracting party in performance of the contract would demand (Worthington 2017, 373). However, as we have already seen, it is not hard to guess at a rationale for the rule against penalty clauses, as restated in Makdessi. The law has a strong aversion to its institutions being used to help people engage in what economists call ‘rent-seeking’, and what is more colloquially called ‘getting something for nothing’. A classic example of rent-­ seeking behaviour is provided by Robert Shiller—a feudal lord places a chain across a river flowing through his land, and charges people sailing down the river money to have the chain lowered and allow them to continue on their way. There is not much that the law can do about this particular form of rent-seeking activity without fundamentally undermining the virtues of allowing land and other resources to be privately owned. However, when it comes to penalty clauses—which are so excessive that they must have been inserted into a contract in the hope that the contract would be breached and thereby give the victim of the breach a chance of obtaining a large sum of money from the breaching party without having to do anything to earn that money—a party seeking to enforce a penalty clause needs the courts’ help to do it. And when the courts’ help is asked for, the courts can simply say ‘No’ and their saying

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‘No’ will have no detrimental effects at all on genuinely productive commercial activity. As it happens, neither of the provisions for what should happen on breach in Makdessi and ParkingEye could be said to have been infected by a rent-seeking motivation, and so neither provision was struck down as a penalty. Makdessi did not actually involve a liquidated damages clause. The contract in Makdessi was a contract for the sale of shares in a company (TYR) by Makdessi (M) to Cavendish (C). The contract included a non-compete clause, requiring M not to engage in any activity that would damage TYR’s interests for as long as he held any shares in TYR or for two years after he gave up his remaining shares in TYR. The contract further specified that if M breached this clause, various sanctions would apply—any portion of the contract price for the shares that had not yet been paid to M by C would no longer be payable, and C would have the option of purchasing M’s remaining shares in TYR at a special price. M’s claims that these sanctions amounted to a penalty were dismissed: they were an entirely legitimate way of protecting C’s investment in TYR from being undermined by M. In ParkingEye Beavis left his car in a supermarket carpark for almost three hours. Notices in the carpark had made it clear that anyone who parked for longer than two hours would have to pay £85 (reducible to £50 on prompt payment). Beavis’ claim that this amounted to a penalty were dismissed: making over-stayers pay £85 served the legitimate goals of ensuring that customers wanting to shop at the supermarket would be able to find a place to park and of funding the scheme for monitoring how long customers were using the carpark; and £85 was not an excessive sum to perform these goals.

3. FORFEITURE The equitable jurisdiction providing relief against ‘forfeiture’ covers two principal types of cases. (1) Where A contracts to purchases goods or services from B, and pays a deposit upfront, and the contract specifies that if A refuses to pay in full for the goods or services, B will be entitled to retain the deposit. (2) Where A and B enter into a contract under which A acquires title to property from B, in return for A’s undertaking to pay B in instalments for that property, and the contract provides that should A fail to keep up the instalment payments, title to the property will revert to B.

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By analogy with the rules against penalty clauses, the courts will ­ rovide relief against the first type of forfeiture if the deposit being forp feited was excessive given B’s interests in having A perform his contract with B (see Makdessi, at [227] (per Lord Hodge)). What counts as ‘excessive’ will depend on the circumstances, though custom has legitimated the practice of asking for a 10 per cent deposit of the purchase price when contracting to sell land to someone else (Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573). With house prices in ­London regularly approaching or exceeding £1 million, pocketing the deposit of someone who has contracted to buy a house in London but then failed to pay the rest of the purchase price on time could prove a nice little earner in future for some lucky house owners. Relief against the second type of forfeiture will be available if A, having failed to keep up the instalment payments, can show that he is now ready and willing to pay B all of the money he owes B under their contract. This type of relief is most significant with mortgage contracts, where B lends money to assist A to purchase land, in return for B’s obtaining a charge over or lease of the land under which if A does not keep up the mortgage repayments, B can then take the land from A and sell it to recover the money that A owes B. A can fall into quite serious arrears in his mortgage repayments but still avoid what is called ‘foreclosure’ if he can arrange a mortgage with another lender and thereby pay B off in full. We can notice that the conditions for relief from the second type of forfeiture will not apply to the first type. Suppose that A has contracted to buy a house from B for £2 million and paid a standard 10 per cent deposit of £200,000, and the contract specifies that A must pay the balance by 10am on 1 June and that ‘time is of the essence’, thus making it clear that any breach of this term will be so serious as to justify B terminating her contract with A (in lawyer’s language, the term as to when the balance is to be paid amounts to a contractual condition). The result is that if A comes through with the money at 10.05am, the courts will do nothing for A. B will be entitled to terminate her contract with A, and pocket A’s deposit. The fact that A is now ready and willing to pay for B’s house will be neither here nor there. The courts could provide A with some relief by disregarding the provision that ‘time is of the essence’, and ruling that A’s breach is not so serious as to justify B’s terminating the contract. This would allow A to keep the contract with B on foot, and not lose his deposit. However, the Privy Council declined to do this in Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514, citing the need for

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sellers of land to know where they stand when purchasers do not come through with the purchase price. The courts could also provide A with some relief by preventing B from acting unconscionably in exercising her strict legal right to terminate her contract with A. However, in Lombard North Central v Butterworth [1987] QB 527, the Court of Appeal declined to extend the rule against penalty clauses to cases where B has specified that a particular term amounts to a contractual condition, with the result that breach of that term can be ‘penalised’ by the contract being terminated. It follows that the only time English law provides any form of relief against unconscionable invocations of the right to terminate a contract for breach of a contractual condition is when section 15A of the Sale of Goods Act 1979 (which we discussed in Chapter 3 (at page 44)) applies.

4.  RESCISSION OF CONTRACT NATURE AND GROUNDS OF RESCISSION The words ‘termination’ and ‘rescission’ are often used interchangeably by contract lawyers. They should not be. A contract that is terminated is halted in its tracks—as a general rule, any obligations that were due to arise after the contract was terminated no longer come into existence; but any obligations that arose before the contract was terminated remain in force. A contract that has been rescinded is wiped out as though it never existed. This is why a contract that can be rescinded is often said to be voidable—if the contract is rescinded, it is made void, a nullity. So if A enters into a contract with B and subsequently rescinds the contract, neither A nor B can bring a claim for breach of contract against the other—the contract, having been rescinded, is treated as though it never existed and so there was no contract for A or B to breach. The grounds on which a contract can be rescinded are wellestablished: A may be entitled to rescind a contract that he has entered into with B if A entered into the contract because of (i) a misrepresentation, or (ii) duress (an illegitimate threat), or (iii) undue influence. (Whether A will be entitled to rescind will depend on whether B was responsible for (i), (ii) or (iii) (and if B was not, how much notice B had that A entered into the contract because of (i), (ii) or (iii)), how much time has elapsed

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since A entered into the contract (wait too long to rescind and you lose the right to rescind), and whether A can give back to B anything that he has obtained from B under the contract.) A may also be entitled to rescind if his contract with B amounts to an unconscionable contract. The conditions for A’s contract with B to amount to an unconscionable contract have already been laid out (at page 48): it has to be shown that someone (not necessarily B) has taken unconscionable advantage of some weakness of A’s to get A to enter into a contract that was good for B and bad for A. Rescission is often said to be a remedy, but a remedy for what? There are a number of possibilities: (1) a remedy for the fact that A has entered into a contract with B without the degree of freedom that we want contracting parties to enjoy in entering into contracts; (2) a remedy for the fact that A’s contract is the product of a wrong that does not involve any kind of distinctively unconscionable behaviour; (3) a remedy for the fact that A’s contract is the product of a wrong that does involve some kind of distinctively unconscionable behaviour; (4) a remedy for the fact that the law will be brought into disrepute were A to be bound by the contract he has made with B.

UNCONSCIONABLE CONTRACTS Where A is allowed to rescind a contract with B because the contract amounts to an unconscionable contract it seems pretty obvious that the remedy of rescission is made available to A for reasons (3) or (4). Which of these analyses is correct can be tested by asking: if A suffered a loss as a result of entering into a contract with B that B induced A to enter into by unconscionably exploiting some weakness of A’s, could A sue B for damages in respect of that loss? If B’s act of unconscionable exploitation amounted to a legal wrong, then A could indeed sue B, in the same way that anyone who is the victim of a legal wrong is normally allowed to sue the wrongdoer for damages to compensate them for losses flowing from that wrong. And if B’s act of unconscionable exploitation amounted to a legal wrong, then it seems likely that A is allowed to rescind the contract for reason (3). If, however, B’s act of unconscionable exploitation did not amount to a legal wrong, then we have to conclude that A is allowed to rescind the contract for reason (4); in other words, A is allowed to rescind because contract law

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would be brought into disrepute if it could be used as an instrument for exploiting the elderly, or the illiterate, or the poor so as to extract money from them. No currently decided case tells us whether someone who suffers loss as a result of entering into an unconscionable contract can sue for compensation for that loss, so the issue of whether rescission of an unconscionable contract rests on reason (3) or reason (4) remains unresolved. But what is clear is that considerations of conscience underlie rescission in such a case—the only issue is whether the law’s primary concern in allowing rescission is the conscience of the person who unacceptably exploited another’s weakness to get them to enter into an unfair contract, or the conscience of the legal system. What about the other grounds of rescission?

MISREPRESENTATION It seems clear that where A is induced to enter into a contract with B because someone made a fraudulent or negligent misrepresentation to A, then rescission is allowed for reason (2)—the contract is the product of a wrong, but not a wrong that involves any kind of distinctively unconscionable behaviour: a legal system that had no room for the concept of unconscionability could still recognise that people have duties not to tell deliberate lies, and will have in certain circumstances duties to take care to tell the truth. But A will also be allowed to rescind where B has ­innocently made a misrepresentation to A (Redgrave v Hurd (1881) 20 Ch D 1). Why is this? Tony Weir suggests that conscience-based considerations have something to do with it: ‘Telling deliberate lies, of course, is manifestly bad, and making an honest mistake is not, but if you do make an honest mistake in what you say and the other party believes you and contracts on that basis, it would be very bad of you to try to take advantage of the mistake you innocently caused, and equity will not allow you to do it. Although there is no fraud in the transaction, there is fraud in the action …’ (Weir 1992, 1624). While this may be right, by switching the focus from A to B in explaining why we allow rescission for innocent misrepresentation, this explanation makes it hard to understand why we allow rescission when the contract in question has already been completely performed, and consequently B isn’t seeking to sue A for anything. This leaves us with reasons (1) (we allow A to rescind because if A enters into a contract because of any kind of misrepresentation, then A has not been afforded

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sufficient freedom of choice to decide whether or not to enter into the contract) and (4) (we allow A to rescind because the law would fall into disrepute if it held A to a contract that he entered into because of a misrepresentation, albeit innocent). (1) seems unlikely given that the law will not allow A to rescind a contract that he has entered into because of a mistake that was not induced by a misrepresentation (Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2003] QB 679) and there seems little difference in the quality of freedom that A enjoys when entering into a contract as a result of a non-induced mistake and a mistake induced by misrepresentation. This leaves us with (4), which may have enough going for it to justify rescission for innocent misrepresentation (for further discussion of the issue, see Bridge 2004 and McBride 2017, 165–66).

DURESS Rescission of a contract entered into to avert an unlawful threat to one’s person or property can be easily explained as based on reason (1)— indeed, in the case where you sign an agreement with a gun to your head, you so lack the necessary freedom to enter into a contract that your agreement will not be recognised as amounting to a contract at all. Where A enters into a contract with B because B has threatened to breach another contract that B has with A (‘Unless you agree to buy apples from me at £2 a pound, I won’t supply you with any of the pears that I contracted to deliver to you at £3 a pound!’), A will normally be entitled to rescind, but why? The threat to A seems too trivial to allow us to say that A is entitled to rescind for reason (1). Could we say that B’s threat was wrongful, and that therefore A is entitled to rescind for reason (2) or reason (3)? The difficulty is that while breaching a contract is wrongful, it is not clear that threatening to breach a contract is also wrongful. It has been suggested (DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530, at [131] (per Dyson J)) that A will only be entitled to rescind his contract with B if B’s threat to breach his contract with A was made in bad faith. The suggestion that a threat to breach a contract in bad faith amounts to a wrong seems plausible, but if it is a wrong, it is a wrong that seems to involve some element of unconscionable conduct—with the result that a contract that is rescinded for duress where the duress took the form of a threat to breach a contract in bad faith seems to be rescinded for reason (3).

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What if A entered into a contract with B to avert a threat made by B to do something that B is perfectly entitled to do? (‘Unless you agree to buy apples from me at £2 a pound, I won’t sell any fruit at all to you in future!’) While the books and the cases admit that rescission for what is called lawful act duress is possible, it is also very rare—the standard case where it is said to be available is the case of a contract entered into because of blackmail—and it seems likely that it would only be allowed where the contract entered into by A and B amounted to an unconscionable contract; that is, the contract is substantively unfair to A, and was entered into by unacceptably exploiting some weakness of A’s.

UNDUE INFLUENCE The nature of undue influence has not been well understood by the contract law textbook writers. Particularly egregious is the characterisation of actual undue influence as involving ‘overt acts of improper pressure or coercion such as unlawful threats.’ The quoted words are from Lord Nicholls’ judgment in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 (at [8]). It is, however, tolerably clear that Lord Nicholls himself—and most of the other judges in Etridge—did not think of actual undue influence in this way (see paragraphs [17] (per Lord Nicholls), [92] (per Lord Clyde), and [219] and [315] (per Lord Scott)). The two principal types of undue influence—actual and presumed undue influence—are distinguished not by what they are, but how they are proved. In terms of what they are, actual and presumed undue influence are the same thing. The difference between actual and presumed undue influence is that in an actual undue influence case, A proves that he entered into a contract with B because of undue influence; in a presumed undue influence case, A raises a presumption that he entered into a contract with B because of undue influence, and it is then up to B to rebut that presumption—if B cannot, the court will then accept that A did enter into the contract with B because of undue influence. So what is undue influence? A relationship of undue influence exists between you and me when our relationship is such that you will do w ­ hatever you tell me to do. Such a relationship may be founded in infatuation—you are so in love with me, that whatever I tell you to do, you will do. But more often the relationship is based on authority—you regard me as an authority figure and will therefore do whatever I tell

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you to do; and you will regard me as an authority figure if you believe that you will do better in life doing whatever I tell you to do rather than making up your own mind as to what to do. (For this account of what it is to be an authority figure for someone else, see Raz 1986, 53.) So if you actually prove that you entered into a contract because someone else told you to do so then you will have established that you entered in that contract because of undue influence. But it is more common to attempt to establish that you entered into a contract because of undue influence by relying on a presumption. First, you might try to raise a presumption of undue influence by showing that our relationship was such that it would be normal to expect you to do whatever I told you to do, and then show that the contract that you entered into was really good for me and really bad for you. In such a case, the most natural explanation of why you entered into the contract was because I induced you to do so by exercising the power we are presuming I had over you to get you to do whatever I told you to do. Second, you might try to raise a presumption of undue influence by actually proving that our relationship was such that you would do whatever I told you to do, and then show that the contract that you entered into was really good for me and really bad for you. In such a case, the most natural explanation of why you entered into the contract was because I induced you to do so by exercising the power that it has been proved I had over you, to get you to enter into the contract. When will you have to prove that our relationship was such that you would do whatever I told you to do? The answer is—when our relationship is such that it would not be normal to expect you to do whatever I told you to do. Examples of such relationships are husband and wife, or bank manager and customer—wives don’t normally do whatever their husbands tell them to do, and bank customers don’t tend to do whatever their bank managers tell them to do. So when a wife enters into a contract that is really good for her husband and really bad for her, if she wants to raise a presumption that she entered into the contract because of her husband’s undue influence, she will have to prove that she had the kind of relationship with her husband where she would do whatever her husband told her to do. And if she enters into a contract that is not so bad for her, the only way for her to establish that she entered into the contract because of her husband’s undue influence is to show actual undue influence by proving that she had the kind of relationship with her husband

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where she would do whatever her husband told her to do and proving that her husband exercised the influence he had over her to get her to enter into the contract. It is clear from the above that undue influence has nothing to do with threats—the suggestion that it does owes its existence to a nineteenth century case involving lawful act duress (Williams v Bayley (1866) LR 1 HL 200: a contract to guarantee his son’s debts was held not to be binding on the father because it was procured by threats to prosecute the son for forgery) that was, at the time, litigated as an undue influence case because of the limits that then existed on when a contract could be rescinded for duress. The whole point of undue influence is that when a relationship of undue influence exists between us, I can get you to do things without having to threaten you—all I have to do is tell you what to do. But if you can establish (either by proving everything, or by relying on a presumption) that you entered into a contract because of my undue influence, why might the courts allow you to rescind that contract? There are two schools of thought on this issue. The first says that if you are allowed to rescind a contract for undue influence it is for reason (1)— as you entered into a contract because of undue influence, you did not enjoy the kind of freedom to choose whether or not to enter into the contract that we need you to have enjoyed. (For this view, see Birks and Chin 1997.) The second says that you are allowed to rescind a contract for undue influence for reason (3)—that your entering into that contract under undue influence means the contract was the product of a wrong that involves some kind of distinctively unconscionable behaviour. (For this view, see Capper 1998.) Lord Browne-Wilkinson’s judgment in CIBC Mortgages v Pitt [1994] 1 AC 200 supports the first view. In that case, he ruled that if you prove that you entered into a contract under undue influence, you will be able to rescind that contract even if entering into that contract was in your interests. If entering into that contract was in your interests, the only reason for allowing you to rescind must be reason (1), as using influence over you to act in your best interests hardly looks like unconscionable behaviour. On the other hand, Lord Nicholls’ ­judgment in Etridge supports the second view. In that case, he observed that the law allows contracts to be rescinded for undue influence in order ‘to ensure that the influence of one person over another is not abused’ (at [6]), and that undue influence amounts to a ‘wrong’ (at [13], [41], [44]). To similar effect, Lord Hoffmann observed in R v Attorney General for

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England and Wales [2003] UKPC 22 that undue influence concentrates ‘in particular upon the unfair exploitation by one party of a relationship which gives him ascendancy or influence over the other’ (at [21]). It is probably impossible to resolve this disagreement by reference to the case law: each view has some cases in favour of it, and those cases must be held to be wrongly decided if the other view is correct. As the second view implies a narrower view of the ambit of rescission for undue influence than the first, the onus is on defenders of the first view to establish that rescission for undue influence should extend more widely than the second view would imply. It is not clear whether that onus has been discharged—in particular, it is hard to see why a choice to put your trust in my judgment and enter into a contract because I have told you that it is in your best interests to do so is any less ‘free’ than a choice to enter into a contract because you have decided that it is in your best interests to do so.

5.  THE ATTACK ON CONSCIENCE We have now surveyed a number of different areas of contract law that could be said to be based on a concern to prevent a particular individual, or the law as a whole, acting in an ‘unconscionable’ manner. But it would be wrong to conclude that these areas of law are regarded as uncontroversial. Two arguments are made, in particular, in favour of the view that the law of contract would be better off if it were freed of moralistic references to conscience and unconscionability. The first argument goes back to the point made right at the start of this chapter—that modern-day judges, unlike medieval judges, have to worry about whether they have any kind of democratic warrant for what they do. The argument is that they have no such warrant to apply conscience-based considerations to rule that certain contracts or terms are invalid because doing so undermines the proper workings of the free market, which has been a linchpin of Western liberal societies since the nineteenth century. So, for example, Sarah Worthington argues that the values underpinning the ideal of ‘party autonomy’—‘independence, freedom, self-determination, self-rule, sovereignty, liberty’—demand that ‘legal intervention restricting freedom is kept to an absolute minimum’ (Worthington 2016, 302) and goes on to criticise the rule against penalty

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clauses as an irrational and therefore unjustified limit on the freedom of contracting parties to decide on what terms they will contract. Jonathan Morgan agrees, arguing that the rule against penalty clauses is ‘an oddity of the common law’ that is ‘unacceptable in commercial law’ as ‘there is no compelling reason for refusing to give effect to supercompensatory remedies designed to provide enhanced incentives for performance in commercial contracts’ (Morgan 2013, 247). The second argument focuses on the nebulous nature of the idea of ‘unconscionability’. The argument is that setting aside contracts or contractual provisions on the grounds that they are ‘unconscionable’ or that they ‘shock the conscience of the court’ (Credit Lyonnais Nederland NV v Burch [1997] 1 All ER 144, 152 (per Millett LJ)) injects an intolerable degree of uncertainty into the law, and is therefore inconsistent with the core ideals of the rule of law—that we should be governed by rules that are clear and are applied in a predictable fashion. This criticism was pressed most vigorously by Peter Birks (and it is no accident that, as we have just seen, he preferred to analyse what is being remedied in cases of rescission for undue influence as a lack of freedom, rather than unconscionable advantage-taking). He argued that judgments about what is ‘unconscionable’ inevitably rely on intuition and gut reactions: ‘Like “fair” and “just”, the word “unconscionable” is so unspecific that it simply conceals a private and intuitive evaluation’ with the result that ‘Playing with words like these offends … principles intrinsic to the nature of law as we know it [such as] that like cases should be decided alike’ (Birks 1996, 16–17) and is ‘antithetical to the rule of law’ (Birks 1999, 22). These criticisms have something going for them, but also seem overstated. What they overlook is the distinction drawn towards the beginning of this chapter between a duty and a disability. When the courts disable A from exercising a particular legal power, they do not limit A’s freedom in any way: they merely refuse to assist A to use the law to get what he wants. By contrast, when the courts impose a duty on A, they do limit A’s freedom—both by requiring him to act (or not act) in a particular way, and (in cases where the duty is imposed on A for the benefit of B) making him liable to pay money to B should he violate that duty. It follows that disabilities are a lot less objectionable than duties, and the courts should enjoy much more leeway in the range of disabilities they are prepared to recognise than the range of duties that they impose on other people.

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So when the courts disable A from enforcing a liquidated damages clause in a contract with B, on the grounds that the sum B has to pay under the clause is so unconscionable that it amounts to a penalty, neither of the arguments made above against the courts’ relying on the notion of conscience or unconscionability really apply. The courts are not limiting A’s freedom in refusing to assist him to get what he wants. And the fact that it may have been difficult to predict in advance whether or not the courts would enforce the liquidated damages clause does not seem to be an issue—the fact that A could not predict in advance whether or not the courts would assist him to get what he wants did not disadvantage A in any way. Could A have good grounds for complaint if, because of the vagueness of the notion of unconscionability, a very similar liquidated damages clause in a contract between C and D was enforced by a different judge? Could A complain that the ideal that ‘like cases be decided alike’ is violated in his case? Perhaps, but any injustice to A is mitigated by the fact that all that has happened to A is that he has failed to receive a benefit from the law—he has not been made worse off—and some arbitrariness in the dispensing of benefits can be tolerated, particularly when eliminating the risk of that arbitrariness by removing the rule against penalty clauses might bring the law into disrepute in other ways (for example, by encouraging people to view contract law as an instrument by which ‘the strong [are] allowed to push the weak to the wall’ (Lloyds Bank v Bundy [1975] QB 326, 336–37 (per Lord Denning MR)). Where the criticisms made at the start of this section come into their own is where the courts rely on conscience-based considerations to impose duties on people. Such duties—like any legal duties—need strong justification, and they need to arise and operate in a clear and consistent fashion so that people can be guided by them and avoid falling foul of them. It follows that if the courts not only set aside a contract between A and B on the ground that the contract amounted to an unconscionable bargain, or was the product of B’s unfairly abusing the influence that she had over A, but then went further and held B liable to pay A compensation for various losses suffered by A as a result of entering into that contract with B on the ground that B wronged A in inducing A to contract with her, then B could legitimately complain if the court’s judgment that B had wronged A rested on nothing more than a judgment that B had behaved towards A in a ‘morally reprehensible manner’ (Cheese v Thomas [1994] 1 WLR 129, 138 (per Sir Donald Nicholls V-C)). The courts have not yet begun to do this—though in the aforementioned

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case of Cheese v Thomas the Court of Appeal gave a strong indication that they thought they had the power to reallocate property between the parties to a ­contract that had been rescinded for undue influence where ‘practical justice’ or ‘fairness’ (ibid, 137) demanded it. Should the courts become more aggressive about finding that parties to a contract (or a putative contract, in a withdrawal of offer case) owe each other conscience-based duties, then we could legitimately require in that context, that the courts provide us with very clear definitions of what is, and what is not, contrary to the demands of conscience.

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5 Limits Even if a particular deal does not offend the ‘conscience of the court’, it may still be held not to be contractually binding because it violates limits that the law places on what can be traded in the marketplace. To take an obvious example, if you and I agree that I will buy your baby for £10,000, that agreement will not be legally binding: we don’t think that babies are the sort of things that it should be possible to buy and sell in the marketplace. But why is this? This chapter is intended to help the reader understand the limits on what kinds of legally binding agreements people can enter into with each other, and the ideas and the principles that underlie those limits.

1.  GIVING AND SELLING In understanding these limits, we need first to make a distinction between things that cannot be given to someone else, and things that cannot be sold to someone else. A thing that cannot be given to someone else obviously cannot also be sold to someone else. But the same is not true the other way round: some things can be given, but they cannot be sold. An example is a baby—you can give your baby up for adoption, but you cannot sell your baby to someone who wishes to adopt it. Let’s say (following Radin 1996, 18) that something that cannot be given away is non-transferable and that something that can be given away but cannot be sold is market-inalienable. With that distinction made, we now need to distinguish the different reasons why a particular thing might be: (1) non-transferable; or (2) market-inalienable. So far as (1) is concerned, the law might say that a particular thing ­cannot be given to be someone else because: (a) giving that thing to someone else would be harmful to the donor (the person giving that thing away);

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(b) giving that thing to someone else would be harmful to the donee (the person to whom that thing is given); (c) giving that thing to someone else would be harmful to the public interest. (Of course, a particular thing might be non-transferable because it is not yours to give away—so, for example, it is not possible to sell your wife to someone else. But we are interested here in why certain things are non-transferable by anyone.) An example of (a) would be a heart. While people might talk about ­‘giving their heart’ to someone, if I actually offered to donate my heart to you, someone who is in desperate need of a heart transplant operation, no hospital would be allowed to extract my heart from my body and plant it in yours. An example of (b) would be heroin. Heroin is something I am not allowed to give you—if I supply you with heroin, I commit an offence under section 4 of the Misuse of Drugs Act 1971—because it is harmful to you. An example of (c) would be a vote in a local or general election. If I vote for John Doe in an election, I might say that ‘I gave John Doe my vote’—and there’s nothing wrong either with saying or doing that. But if I give you my voting card and allow you to decide how to cast the vote given to me, there does seem to be something wrong with that. My vote is my vote: it is meant to be cast by me and not someone else, and our democracy is harmed when people are allowed to hoover up other people’s votes and cast them in bulk for whichever candidate is favoured by the person hoovering up the votes. The issue raised by the existence of (2)—why some things can be given to someone else but cannot be sold—has attracted a large amount of academic discussion. That discussion indicates that there seem to be four principal reasons why the law might allow a given good G to be given away but not sold. (As the law allows G to be given away, we can assume that G is not harmful to whoever acquires G and can therefore be called a ‘good’.) (d) The ability to give away G realises some further good that would be destroyed or impaired if G could be bought and sold instead. In order to preserve this further good, we prevent G from being sold; (e) what makes G good would be destroyed if G could be bought and sold. In order to preserve G as a good, we prevent G from being sold;

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(f) we don’t want inequalities in the distribution of money to spill over into creating inequalities in the distribution of G. In order to p ­ revent that happening, we prevent G from being sold so that ­people who have lots of money are not able, by virtue of their wealth, to obtain lots of G; (g) we don’t want inequalities in the distribution of money to enable the wealthy to exploit the poor’s desperation for money, which they would be allowed to do if a rich person were allowed to offer a poor person money in return for the poor person handing over G to the rich person. (On reasons (d), (e) and (g), see Sandel 2012; on reason (f), see Walzer 1983, chapter 4, and Satz 2010, chapter 4.) These reasons why we might allow G to be given away but not sold may overlap. For example, if we take the good of having a functioning kidney, the law does allow you to give someone else a kidney, but not to sell a kidney to someone else. This may be because of reason (d). It has been argued (see—in another context (blood donations)—Titmuss 1971) that the further good that is promoted by kidney donations—the health of the donees of kidneys—would be impaired were it possible to buy and sell kidneys on the open market. This is because turning k­ idneys into marketable commodities would result in fewer kidneys overall being available for transplant: the number of donated kidneys would go down by a larger number than the number of kidneys that would become available through the marketplace. But why would turning kidneys into marketable commodities result in fewer kidneys being donated? The argument is that a further good—other than the good of health— that is realised by allowing people to donate their kidneys to others, would be impaired if kidneys became marketable commodities. This further good is the good of allowing people to feel that they have acted heroically by making a significant sacrifice to save someone else’s life. The meaning of one’s act in donating a kidney to another would be ­undesirably diminished if a kidney had a market value of (say) £10,000. Giving a kidney to a stranger would (or so the argument goes: see Radin 1996, 97) be interpreted as the equivalent of making a cash donation of £10,000 to that stranger—a considerably less heroic act. Because of this (again, so the argument goes), not only is the act of donating a kidney rendered less valuable in the eyes of the donor, this loss of value results in

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a fall in the number of kidneys that people donate to others and this fall is not offset by the supply of kidneys that is realised by allowing people to buy and sell kidneys. Hence the seemingly paradoxical result that allowing kidneys to be bought and sold results in a net decline in the number of kidneys that are available for transplant. The negative effects that allowing kidneys to be bought and sold would have on the further goods that are realised by allowing people to donate their kidneys to others might justify our allowing kidneys to be donated but not sold. However, it may be that reasons (f) and (g) justify our adopting such a policy as well. On (f), it may be that kidneys are the kind of goods that we don’t want to be distributed in such a way that the rich have a much better chance of getting hold of a kidney when they need one than the poor. Distributing kidneys on the basis of need, or by lottery, or according to how much you are loved by others who might consequently be willing to donate a kidney to you, might seem more satisfactory than allowing the size of your wallet to determine whether or not you get a life-saving kidney. On (g), it may well be that allowing kidney sales would result in the unacceptable exploitation of the poor by the rich, with the rich trading on the poor’s desperation for money in order to get them to enter into deals where they agree to give up what nature has given them—a healthy kidney—in return for money. This initial discussion allows us to identify seven possible reasons why the law might place a limit on what kinds of things we can contract to acquire. A contract to acquire a particular thing, T, will not be binding if T is non-transferable, or T is market-inalienable. The law may regard T as being non-transferable if the transfer of T would harm: (a) the transferor; or (b) the transferee; or (c) the public interest. The law may regard T as being market-inalienable if (d) some further good that is realised by allowing people to give T to each other would be destroyed or impaired by allowing T to be bought and sold; (e) whatever it is that makes T valuable would be destroyed or impaired were people to have the option of buying and selling T; (f) we don’t want the distribution of T to be affected by inequalities in the distribution of wealth; (g) we don’t want the poor to be exploited by the rich into giving up T. With these distinctions in mind, let’s now turn to some concrete examples in the law where contracts for a particular T will be void because the law takes the view that T is either non-transferable or market-inalienable.

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2.  SOME ACTUAL LIMITS PERSONAL FREEDOM According to Kantian theories of contract law (named after the German philosopher, Immanuel Kant (1724–1804) and inspired by Kant’s late work, The Metaphysics of Morals (1797)), contract law exists in order to provide people with a way of transferring their freedom to choose what to do in the future to other people—so that if I make a contract with you, under which I undertake to supply you with 1,000 widgets in six months’ time, I am effectively transferring to you my freedom to choose whether or not to supply you with those widgets at that time. While this book does not endorse this view of the purpose of contract law, there is no doubt that the effect of contract law is to provide people with a way of surrendering and transferring to others freedoms that they would otherwise have enjoyed. However, some particularly personal freedoms are non-transferable and a contractual provision which has the effect of trenching on one of these freedoms will not be binding. For example, promises to marry someone else used to be legally binding (a fact which the novelist Charles Dickens made use of in his The Pickwick Papers (1837)), but that is no longer the case (Law Reform (Miscellaneous Provisions) Act 1970, section 1)—the freedom to decide who you will marry is now non-transferable. Similarly, a contract to have sex with someone else would not be binding. (The issue of whether a contract to pay for sex would be binding is dealt with in the third subsection.) Someone who enters into a contract of employment inevitably gives up their freedom to seek alternative employment for the duration of the contract—though the effect of that surrender is mitigated by the fact that the courts will not force someone who wants out of their contract of employment to stay in their job, but will merely hold them liable to pay damages instead. So the freedom to choose who you work for is transferable. However, contract law cannot be used to interfere with that freedom to a serious extent. So a contract of slavery—where you bind yourself to work for one employer (or his assignees) for the rest of your life, with no limits on what you might be required to do for that employer—will not be legally binding. Nor will a contractual provision limiting what work an employee can do after his contract of employment has come to an

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end, unless it can be shown that such a provision was reasonable in order to protect the employer’s business interests; a provision which does not satisfy this requirement will be struck down as an unreasonable restraint on trade. Similarly, a contract that seriously impinges on your freedom to choose how to live your life is liable to be held to be void: Horwood v Millar’s Timber and Trading Co [1917] 3 KB 305 (contract with ­moneylender under which borrower undertook not to move house, leave his job, sell or pledge any of his property, or borrow money from anyone else without the moneylender’s express written consent).

DOMESTIC ARRANGEMENTS The law places a soft limit on the ability of family members to enter into contracts with each other, thereby limiting their freedom to determine how they will deal with each other. It is possible for them to make contracts with each other, but they have to make it clear that they intend to do so—otherwise any agreements they make with each other will be held not to have been intended to be legally binding and will therefore be devoid of any contractual effect. This rule was first articulated and applied in Balfour v Balfour [1919] 2 QB 571, where the Court of Appeal held that a husband who was separated from his wife was not bound by a promise that he made her before they separated to pay her £30 a month while he worked abroad. ­Warrington LJ observed (at 575) that ‘If we were to imply … a contract in this case we should be implying on the part of the wife that whatever happened and whatever might be the change of circumstances while the husband was away she should be content with this £30 a month, and bind herself by an obligation in law not to require him to pay anything more; and on the other hand we should be implying on the part of the ­husband a bargain to pay £30 a month for some indefinite period whatever might be his circumstances.’ Atkin LJ agreed on the importance of ensuring that contract law did not deprive a married couple of the flexibility they needed to manage their affairs just because they made an agreement with each other that had the appearance of amounting to a binding contract: ‘Agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreements between spouses. Their promises are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural

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love and ­ affection which counts for so little in these cold Courts. The terms may be repudiated, varied or renewed as performance proceeds or as disagreements develop, and the principles of the common law as to exoneration and discharge and accord and satisfaction are such as find no place in the domestic code’ (at 579).

SEX As has been observed, a contract to have sex with someone else will not be legally binding. So if A, a prostitute, agrees to have sex with B for £1,000, A cannot be said to have entered into a bilateral contract with B where A is required to have sex with B, and B is required to pay her £1,000 for ­having sex with A. But could A and B’s arrangement amount to a u ­ nilateral contract, where B is legally bound to pay A £1,000 if A has sex with B? Such a contract would preserve A’s freedom of choice as to whether or not to have sex with B, while entitling her to payment if she does have sex with him. However, the law says that such a contract is unenforceable on the ground of immorality. So sex is a good that is transferable—you can obviously have sex with someone for free—but is also market-inalienable. The courts’ desire to ensure the market-inalienability of sex led them in Pearce v Brooks (1866) LR 1 Ex 213 to hold unenforceable a contract for the hire of a horse-drawn carriage which the claimants had let to the defendant, knowing that she was a prostitute and intended to attract trade by riding around in the carriage. While some might be inclined to doubt whether the same result would be arrived at today—would a hotel be barred from suing in the case where it let a room to a prostitute knowing that she was planning to use the room to see clients?—Pearce v Brooks probably accounts for why it is still common today for private landlords to specify that the let premises will not be used for any immoral purposes.

BODY ORGANS A contract under which I undertake to donate a kidney to you should you need one will not be binding on me on the grounds that it unacceptably interferes with my freedom to do what I like with my own body. But what if I am induced to give you a kidney by your promise to pay me £10,000? Is your promise contractually binding on you? The answer

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is no: ­section 32 of the Human Tissue Act 2004 prohibits the commercial dealing in body organs that are intended for transplantation. Instead, someone in need of a kidney transplant only has two ways of getting one: (1) be allocated one under a national matching scheme that uses a points-based system to allocate kidneys that have been extracted from organ donors to the ‘right’ patient; (2) be offered one by someone who wishes to give you a healthy kidney. So kidneys—and other non-essential body organs—are transferable, but market-inalienable.

BABIES As has already been mentioned a contract to sell a baby (or a child, for that matter) to someone else will be completely unenforceable. So will a contract to bear someone’s child as their surrogate: Surrogacy ­Arrangements Act 1985, section 1A. So if A agrees to be artificially inseminated with B’s sperm, or to have a fertilised ovum that is the product of B and C’s genetic material implanted in her, and as a result subsequently gives birth to a child, any ‘contract’ that she made with B and/or C under which she agreed to give up the child to B and/or C in return for B and/or C paying her for her services will be unenforceable. In the event, then, that A backs out of her agreement with B and/or C and refuses to give up the child, who will end up with custody of the child will be a matter for family law, not contract law, and will depend on what a court judges to be in the best interests of the child.

VOTES Section 113 of the Representation of the People Act 1983 makes it an offence (‘bribery’) to give ‘any money [to] any voter … in order to induce any voter to vote or refrain from voting.’ It follows that a contract to pay someone for casting (or not casting) a vote in a local or general election will be void.

JUSTICE The law has long been suspicious of any commercial dealings that might affect the proper administration of justice: see, for example, clause 40 of

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Magna Carta (1215), under which the King undertook ‘We will not sell, deny or delay right or justice to anyone’ (emphasis added). Nowadays, should you make a ‘contract’ with a judge under which you undertake to pay the judge for deciding a case a particular way, both you and the judge will commit an offence under the Bribery Act 2010 (you under s­ ection 1, the judge under section 2) and your ‘contract’ with the judge will be void. Similarly, a contract procured by blackmail, under which you undertake not to report some crime of mine to the authorities in return for money, will be void as tending to undermine the criminal justice system. If you make a contract with me, under which you undertake to financially support me in bringing some claim against a third party when you have no legitimate concern in the outcome of my claim, it used to be the case that you would be guilty of the offence of ‘maintenance’ and our contract would be unenforceable. While the offence has now been abolished, our contract will still be unenforceable: Criminal Law Act 1967, section 14(2). The case for non-enforcement is even stronger if in return for your support in helping me bring a claim against a third party, I agree to share with you whatever I obtain from bringing my claim. Such an arrangement used to amount to the crime of ‘champerty’ and, again, while the offence has now been abolished, our agreement will still be unenforceable on the basis that it is champertous. The unenforceability of champertous contracts or contracts that amounted to maintenance long prevented solicitors representing clients on a ‘no win, no fee’ basis. However, solicitors are now allowed to enter into ‘conditional fee agreements’ with their clients in cases other than criminal or family matters under section 58 of the Courts and Legal Services Act 1990.

WAIVERS The law sometimes places limits on what kinds of rights people can waive by entering into a contract with someone else. In order to understand this area of law, we need to distinguish between two kinds of waiver. These two kinds of waiver correspond with two senses in which the word ‘right’ is used. (For discussion of the different meanings of waiver, see Stevens 2017, 125–27.) First of all, we might say that someone has a ‘right’ if the law gives them a power to alter their or someone else’s legal position. For example, as we saw in Chapter 3, if you and I enter into a contract and you commit a serious breach of the contract, the law gives me the power to terminate

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the contract, thereby bringing my obligations under the contract to an end. In such a case, I might be said to have a ‘right’ to terminate the contract, and I might be said to ‘waive’ that right if I decline to terminate the contract and decide to hold you to our deal, despite your serious breach. To waive this kind of ‘right’—a power to alter your or someone else’s legal positon—no contract is needed. If I simply make it clear that I intend to hold you to our deal, the power lapses, and I cannot revive that power if I later change my mind and decide that I want to get out of our contract after all: The Kanchenjunga [1990] 1 Lloyds Rep 391. And the power to terminate our contract will also lapse if I don’t exercise it within a reasonable period of time: Stocznia Gdanska SA v Latvian Shipping Co (No 2) [2002] 2 EWCA Civ 436, at [87] (per Rix LJ). Second, we might say that someone has a ‘right’ if they have a right that someone else act in a particular way. This kind of right is sometimes known as a ‘claim right’, following Hohfeld 1913, at 32. The temporary waiver of a claim right does not, again, need a contract to be effective. For example, I have a claim right that you not kiss me—but of course I can temporarily waive that right at any moment and make it lawful for you to kiss me at that moment. However, the permanent waiver, or complete surrender, of a claim right does usually need a contract to be effective. (We will discuss in the next chapter when someone might be estopped from asserting a claim right because the subject of that right has relied on a representation or promise that the right does not exist, or will not be asserted.) However, the law places limits on what sort of rights someone can permanently waive by entering into a contract with someone else. For example, if I entered into a contract with you under which I undertook to allow you to kiss me whenever you liked for the rest of my life, we have already seen that that provision is likely to be unenforceable as impinging too seriously on my ability to decide how to live my life. More seriously, section 31 of the Consumer Rights Act 2015 provides that ‘A term of a contract to supply goods is not binding on the consumer to the extent that it would exclude or restrict the trader’s liability arising under any of ’ sections 9–17 or 28–29 of the 2015 Act. This is so no matter how happy a consumer might have been to waive one or more of the claim rights that the 2015 Act gives him under those sections. Section 65 of the same Act provides that ‘A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence.’ The language mirrors that used in the earlier Unfair Contract Terms Act 1977, section 2(1) of which prevents

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a business relying on a contract term or notice to exclude its liability in negligence for someone’s dying or being injured. It used to be the case that agreements between a couple who are about to get married (pre-nuptial agreements) or who have married (postnuptial) as to what rights that they will have against each other should they divorce would not be contractually enforceable—so it was not possible through entering into such an agreement directly to waive whatever rights one would otherwise have on getting divorced from one’s spouse. This position was abandoned in the case of post-nuptial agreements in MacLeod v MacLeod [2008] UKPC 64 and in the case of pre-nuptial agreements in Granatino v Radmacher [2011] 1 AC 534. However, the fact that such nuptial agreements may now be contractually binding was said in Granatino (at [63]) to be a ‘red herring’ as a court, in exercising its powers under Part II of the Matrimonial Causes Act 1973 to determine what rights a divorcing couple will have against each other post-divorce, need not give effect to the nuptial agreement. Instead, the court should only give full effect to the agreement (as opposed to simply taking it into account in exercising its discretion) if (i) the agreement was freely entered into, with full understanding of its implications, and (ii) there is no reason why it would be unfair on the divorcing couple to give full effect to the agreement. And even if (i) and (ii) are true, the agreement should not be taken into account in making provision for any children of the marriage.

HONOURS We have already mentioned the Bribery Act 2010, which makes it clear that offering to pay someone money in return for a public honour is an offence, with the result that any ‘contract’ to give someone an honour for cash will be void. The common law took this position long before the 2010 Act. In Parkinson v College of Ambulance Ltd [1925] 2 KB 1, Colonel Parkinson was assured by the secretary of the defendant charity that if Parkinson donated £10,000 to the charity (over half a million pounds in today’s money), the charity would secure a knighthood for him. Parkinson performed his part of the deal, and brought an action for breach of contract when no knighthood was forthcoming. His action was dismissed by Lush J: ‘No court could try such an action and allow … damages to be awarded with any proprietary or decency. The contract … is one that could not be sanctioned or recognized in a Court of justice’ (at 13).

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3. EVALUATION Many of these limits on what can be bought and sold in the marketplace are easily explained and uncontroversial. For example, the fact that honours are market-inalienable—they can be given but not bought or sold—is easily accounted for by reference to reason (e), above: what makes honours valuable would be impaired or destroyed if honours could be bought or sold. The recognition that comes with being granted an honour—the recognition that one has done something particularly creditable or noteworthy—would be impaired or destroyed if people thought that the honour might have been bought (see Sandel 2012, 94). Similarly, justice that has been bought is not justice at all. However, other examples in the law of market-inalienability are less obviously justified.

SEX The case for ensuring that sex is market-inalienable is put by Michael Sandel: ‘Some people oppose prostitution on the grounds that it is rarely, if ever, truly voluntary. They argue that those who sell their bodies for sex are typically coerced, whether by poverty, drug addiction, or the threat of violence … But others object to prostitution on the grounds that it is degrading to women, whether or not they are forced into it. According to this argument, prostitution is a form of corruption that demeans women and promote bad attitudes toward sex’ (Sandel 2012, 111–12). The validity of both of these arguments might be questioned. While there is no doubt that, in almost all cases, prostitution involves the unacceptable exploitation of women’s desperation, Margaret Jane Radin points out it is ‘deeply troubling’ to invoke this as a reason for making sex market-inalienable: ‘If poverty can make some things nonsaleable because we must prophylactically presume that such sales are coerced, we would add insult to injury if we then do not provide the would-be seller with the goods she needs or the money she would have received’ (Radin 1996, 51). Making sex market-inalienable in order to protect women from harm catches us in what Radin calls a ‘double bind’ (Radin 1996, 125) where we may actually be doing them more harm than good given the lack of other opportunities available to the women we are trying to protect (see also Anderson 1993, 156).

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As for the second argument, we need to clarify whose attitudes might be corrupted by sex being made market-alienable or—in other words—turned into a commodity that can be bought and sold. If we focused on women, it is not clear that their attitudes towards themselves or their bodies would be altered in a negative way if the sale of sexual services became normalised in our society. While a paid-for sexual encounter obviously falls some way short of the ideal of a sexual encounter that involves a couple expressing mutual love for each other, so—as Debra Satz observes (Satz 2010, 142)—‘does casual sex.’ In a world increasingly characterised by instrumental attitudes towards sex—where T ­ inder is used to arrange hook-ups between strangers, and where people who are thinking of dating have sex first in order to see whether dating will be worth the time and trouble—it is hard to see how making sex marketinalienable could cause women to look at themselves and their bodies any more instrumentally than they do already. In fact, as Satz also observes (Satz 2010, 137), it is women who already regard themselves instrumentally and therefore engage in ‘run of the mill promiscuity’ who are most likely to end up as high-class prostitutes. Prostitution at that level is a product of women thinking of themselves instrumentally; it is not responsible for their thinking of themselves that way. If we turn to whether men’s attitudes towards women would be corrupted by sex becoming commodified there is room for greater concern. Radin paints for us a world where ‘newspapers, radio, TV, and billboards advertised sexual services as imaginatively and vividly as they advertise computer services, health clubs, or soft drinks’ and where ‘the sexual partner of your choice could be ordered through a catalog … or in a local showroom’ and where ‘the business of recruiting suppliers of sexual services was carried on in the same way as corporate headhunting or training of word-processing operators’ (Radin 1996, 133). Could men ever regard women non-instrumentally in such a world? Against those who argue that just because things come with a price, that does not prevent us putting an intrinsic value on those things (see, for example, Saprai 2013, 282; Radin 1996, 114), Elizabeth Anderson points out that it may not be possible to keep up a wall between the attitudes expressed towards women in having paid-for sex with them, and in having sex that has not been paid for: ‘When heterosexual masculine identity is partly defined in terms of the power to have sex with a woman, prostitution and ­pornography supply the unmet demand for sexual intercourse g­ enerated internally in the personal sphere; they also provide techniques and ­models for sexual

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gratification that men import back into the sphere of personal relations and make normative for their intimate female partners there’ (Anderson 1993, 155). So the desire to prevent the kind of corruption (or further corruption) of men’s attitudes towards women that might come with sex being routinely commodified may justify the law’s attempting to ensure that sex is market-inalienable—and none of the writers just cited favour overturning contract law’s position on the enforceability of contracts for sex. However, if it were possible, in Radin’s terminology, to ‘incompletely’ commodify sex—by allowing sex to be traded but under strict conditions that ensure that women always play the dominant role in the trade—that might do more to promote women’s equality than the current position. Whether that is a possibility remains a matter of debate.

BABIES The question whether it should be possible to buy and sell babies crops up in a couple of contexts. First of all, Richard Posner—the guru of the law-and-economics movement, which believes that the law does and should ensure that resources are allocated to those who are ready and willing to pay the most for those resources—has argued that ‘the imbalance between the demand for and supply of babies for adoption’ (­ Posner 1987, 61) could be addressed by allowing payments to mothers who are willing to put their babies up for adoption. Second, as we have seen, contracts for pregnancy—where a woman agrees to have a baby as a surrogate for a couple—are not legally enforceable. The question of whether it should be possible to make such contracts is a staple of discussions of the limits on the market. Sandel again provides us with an overview of the arguments against creating ‘a market in babies up for adoption … Those who object offer two reasons. One is that putting children up for sale would price less affluent parents out of the market, or leave them with the cheapest, less desirable children … The other is that putting a price tag on children would corrupt the norm of unconditional parental love; the inevitable price differences would reinforce the notion that the value of a child depends on his or her race, sex, intellectual promise, physical abilities or disabilities, and other traits’ (Sandel 2012, 111). Posner objects to the first argument on the grounds that ‘wealthy couples tend to have few rather than many

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children’ (Posner 1987, 64) and that it is ‘unlikely that allowing people to bid for babies with dollars would drive up the price of babies, thereby allocating the supply to wealthy demanders’ (Posner 1987, 65). However, the second argument is more troubling. While it seems unlikely that adoptive parents would love a baby that they had bought any less than a baby that had been allocated to them by an adoption agency, it would be hard for a boy or a girl who was bought at birth not to ‘identify’ with their price (if they found it out) so that if they were bought for £10,000, they would regard themselves as ‘worth’ ten times less than someone who was adopted at birth in return for their adoptive parents paying £100,000 for them (see Radin 1996, 137–38). So the same objection that Sandel makes to people trading tickets to access national parks—that ‘national parks are not merely objects of us or sources of social utility. They are places of natural wonder and beauty, worth of appreciation, even awe. For scalpers to auction access to such places seems a kind of sacrilege’ (Sandel 2012, 37)—can be made to putting a price tag on babies. It is a kind of sacrilege to attempt to put a price on the wonder that any baby is. When it comes to contracts for surrogacy, such contracts could not be bilateral in nature—where the surrogate is bound to give up her baby and the couple for whom she is acting as surrogate is required to pay the surrogate for her services—because we could not countenance ­requiring an unwilling surrogate to give up the baby she has given birth to (see Waldron 1995, 162). So if such contracts were to be binding, they would have to be unilateral in nature, where the couple would be required to pay the surrogate for her services if the surrogate handed over the baby. However, a number of objections might be made to recognising such contracts. First, the mere possibility of making such a contract might result in an overall decline in the number of surrogates as the choice to become a surrogate for a couple who cannot have a baby would become commercialised—so that even if a surrogate declined to accept payment for her services, it would seem that she was making a gift to the couple of the cash that she might have been paid, rather than a gift of her body (Radin 1996, 97–98). Second, were contracts for surrogacy to increase the overall number of surrogates, it seems very likely that the increased ­number of surrogates would come from people from poorer backgrounds—with the result that differentials in wealth would result in differentials in the distribution of pregnancy. The wealthy would not go through pregnancy but have someone from a poorer background do the hard yards of carrying a baby for them for nine months. Even with

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financial compensation, it is hard to imagine that the poor would be ­better off if the toll of having babies fell disproportionately on them, and for this reason Radin agrees with the law’s current stance in refusing to enforce contracts for surrogacy: Radin 1996, 148. Anderson and Satz also think that pregnancy should be market-inalienable, but because of the ­symbolism involved in buying a woman’s reproductive services. Allowing such services to be bought reinforces ‘negative stereotypes about women as “baby machines”’ (Satz 2010, 130) and as ‘objects of use’ (Anderson 1993, 189).

BODY ORGANS In discussing whether it should be possible to buy someone else’s body organs, we need to distinguish between cases where (1) the seller is still alive; and (2) the seller is the family of a person who has just died, and whose organs the buyer proposes to harvest. Neither kind of transaction is currently legally enforceable, but Martin Wilkinson argues that they should be, and that the law’s current position is inconsistent with ‘the value we should attach to personal sovereignty … People should be able to run their own lives, and deciding what to do with their bodies is an especially important aspect of running their own lives’ (Wilkinson 2011, 177). This seems exaggerated: people are perfectly capable of ‘running their own lives’ without being granted unlimited dominion over their own bodies. And it seems likely that the costs of allowing a type (1) transaction to be legally enforceable—where I agree to sell you a non-essential body part, such as a kidney—would be substantial. As Satz points out (Satz 2010, 199), markets in kidneys might worsen existing class inequalities as those at the bottom end of society are forced by circumstances into giving up the last thing they have—their own body parts—and are left with absolutely nothing when the money they obtain from selling their body parts runs out. Satz also makes the interesting point (at 200) that in areas of India where kidney selling was common, the result was that this enabled moneylenders to demand that people put up a kidney as collateral for a loan and the available quantity of credit was diverted away from people who were unwilling to agree to this condition. So ­people who wanted to decide ‘what to do with their bodies’ by keeping their kidneys were made worse off—in terms of their ability to get credit— as a result of other people’s willingness to give up one of their kidneys.

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Satz sees much less of an objection (at 205) to a ‘competitive futures market with organs given up only after death’—in other words, a market where someone could sell the future right to their organs after they died. However, it is hard to see such a market amounting to much, given the uncertainties over what the condition of someone’s organs might be when they died. As to whether it should be possible to sell and buy body organs from a recently deceased person’s family—a type (2) transaction—the prospect of cashing in on the body of one’s parent after they die may not help the parent’s children to be as objective as they ought to be in making life or death decisions about what medical care their parent receives.

WAIVERS Margaret Jane Radin’s interest in market-inalienability has led her in her recent book, Boilerplate, to look at how companies use standard form contracts to get people to surrender rights granted them under the general law. Her concern is that allowing certain rights to be alienable degrades democracy, and in three ways. First, standard form contracts (what Radin calls ‘boilerplate’) can be used to ‘undermine the significance of political debate and procedures’ by wiping out ‘entitlement regimes that … have been enacted through democratic processes, often after extended debate and fierce political struggle’. Radin asks ‘Why does Congress debate reform of the Copyright Act for years if the resulting legislative regime can be restructured in minutes by a firm deploying a boilerplate scheme? When firms can easily divest recipients of entitlements that are part of a legislative regime arrived at only with much difficulty, debate and compromise, it makes a sham of the apparatus of democratic governance’ (Radin 2013, 39–40). Second, when firms use contract law to wipe out certain rights that ­people have, the idea that the state acts impartially in the public ­interest—as determined through democratic processes—is undermined just as surely as it would be if ‘firms and interest groups [were able to] purchase legislation when it is of benefit to themselves … To organize and justify a state, each firm is supposed to give up its untrammelled quest for profit at the expense of society as a whole, provided that all other firms will also do so. It is hard to mesh this kind of justification of the state with the [idea] that legislation is purchased for self-interested reasons by firms or interest groups’ (45).

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Third, the kinds of rights that can be interfered with through the use of standard form contracts may be democratically significant. Among these democratically significant rights, ‘the right of redress of grievances is paramount’ for Radin (166). This right—which is crucial if a person is not to ‘depend on self-help or the help of one’s friends and relatives to enforce promises or maintain possession of one’s resources’ (ibid)—is undermined by ‘arbitration clauses, waivers of class action and class-wide arbitration, and choice of forum clauses’ (167) in standard form contracts that consumers often have no alternative but to accept. Other significant rights mentioned by Radin as coming under threat from standard form contracts are rights to freedom of speech (think of confidentiality agreements, or university contracts dictating to academics what kind of research they are allowed to undertake) and rights to privacy (think of standard terms in Facebook or Instagram’s contracts with their users, allowing those companies to make use of the information and images posted online by those users). It’s safe to say that the courts and legislatures (or academics other than Radin!) have not yet faced up to the democratic challenge posed by the use of standard form contracts by companies, and that the existing legal treatment of waivers does not come close to dealing properly with that challenge. In chapter 9 of Boilerplate, Radin sets out an ‘analytical framework’ that the courts or legislature or public body can use in determining whether to strike down ‘a waiver of a background legal right.’ The three main things that should be focused on in making that decision are (180–81) ‘(1) the nature of the divested right’—the more significant the right, the stronger the case for striking down the waiver of that right; ‘(2) the quality of the consent by recipients’—the more happy someone was to waive a particular right, the stronger for case for not striking down the waiver; and ‘(3) the extent of social dissemination of a scheme that supersedes recipients’ background rights’—the harder it is to avoid a particular waiver by dealing with another business the stronger the case for striking it down.

4. FALL-OUT While a lot of the law’s limits on what may be bought and sold can be justified, the existence of those limits means that the law has to deal with the

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fall-out resulting from people’s trying to make contracts that cross those limits. For example, suppose that A agrees to pay B £100 in return for her having sex with him. Now consider the following scenarios: (1) A pays B upfront, and then B refuses to have sex with A. Can A sue B for his money back?; (2) B has sex with A, and then A refuses to pay B the agreed sum. Can B sue A for a reasonable sum for her services in having sex with A?; (3) B has sex with A, and A pays her £100. A then decides that he wants to sue B for his money back. Can A do so? In dealing with issues like these, a distinction that is of great ­importance—and which some readers may have spotted me making ­earlier in the second section—is between an unenforceable contract and a void contract. An unenforceable contract is a contract which the courts won’t do anything to enforce but which the courts won’t do anything to undo either, if it has had partial or full effect (see Maddison v Alderson (1883) 8 App Cas 467, 474). A void contract is a contract which is supposed to have no legal effect at all. The contract for sex in the previous paragraph was unenforceable, not void. This means that in scenario (3), A will not be able to sue B for his money back: the courts will see no reason to undo A and B’s transaction. By contrast, in scenario (1), A will be able to sue for his money back. In this case, the fact that A has not got what he bargained for—has suffered, in the terminology, a total failure of consideration—will provide the courts with a substantial reason for intervening to allow A to get his money back. What about scenario (2)? In this case, the desire to ensure that sex is market-inalienable will mean that the courts cannot give B a remedy. Allowing B to sue for a reasonable sum for having sex with A would come too close to enforcing A and B’s agreement that A would pay B for having sex with him. If the A–B ‘contract’ in this case had been void—of no legal effect at all—then the outcome in scenario (3) might have been different. ­Monies paid under a void contract are repayable (Westdeutsche Landesbank v Islington LBC [1994] 4 All ER 890, 929 per Hobhouse J) and this is so even if the payor has got everything he expected to get in return for his money (Guinness Mahon v Kensington & Chelsea RLBC [1999] QB 215). However, there is an exception to the rule that monies paid under a void contract must be repaid (with due allowance made, of course, for the value of any return performance received under the contract). This exception applies where the reason why the contract was void is that performance of the contract involved a criminal offence. In such a case, the traditional rule was that if the defendant (the payee) and the claimant

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(the payor) were equally blameworthy for making the criminal contract, then the defendant would be allowed to keep the claimant’s money—in Latin: in pari delicto potior est conditio defendentis (‘when both parties are equally blameworthy, the defendant’s position is stronger’). This is why in Parkinson v College of Ambulance Ltd [1925] 2 KB 1, Colonel Parkinson could not sue to get back the £10,000 he had paid the defendant charity in order to get a knighthood. Because the contract between Parkinson and the charity involved the payment of a criminal bribe and because Parkinson was at least as blameworthy as the charity (in fact, Parkinson was almost certainly more blameworthy) for getting involved in such a dubious transaction, potior was the position of the charity and they were allowed to keep Parkinson’s money. Such was the traditional position on the recovery of money paid under a contract that was void because it involved some kind of illegality. However, this has now been overturned by the UK Supreme Court (UKSC)’s decision in Patel v Mirza [2016] UKSC 42. In that case, Mirza told Patel that he could get advance notice of a government announcement regarding the Royal Bank of Scotland (RBS), which announcement would have an effect on the value of RBS’s shares. Patel paid Mirza £620,000 so that Mirza could use his insider knowledge to bet on the value of RBS shares on Patel’s behalf. Doing this would obviously have been illegal: it amounts to the crime of insider trading. After Mirza received Patel’s money, he did nothing with it—but neither did he give Patel the money back. Patel sued Mirza for the value of the money he had paid him. Under the traditional in pari delicto rule, Patel’s claim should have been dismissed: Patel and Mirza were equally blameworthy for entering into their criminal scheme and so a court applying the in pari delicto rule would therefore have refused to disturb the position between the parties. However, the UKSC unanimously held that Patel should be entitled to sue Mirza for £620,000. Which is not to say, however, that the Supreme Court Justices agreed on why Patel should be entitled to sue Mirza. Lord Toulson gave the majority judgment (which four other Supreme Court Justices—out of nine—expressly agreed with, and one other—Lord Neuberger—largely agreed with). He held that a claim like Patel’s should not be struck out ‘mechanistically’ simply on the ground that Patel was involved in an illegal transaction with Mirza. So what should the courts do instead? The two crucial paragraphs in Lord ­Toulson’s judgment are paragraphs [99] and [101]. At [99], Lord Toulson said that ‘there are

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two broadly discernible policy reasons’ that underlie the case where a ­claimant’s claim has been dismissed on the basis of illegality. These are: (1) the desire to ensure that a person does not ‘profit from his own wrongdoing’ and (2) the desire to ensure that the law is ‘coherent and not self-defeating, condoning illegality by giving with the left hand what it takes with the right hand.’ At [101], Lord Toulson says that ‘one cannot judge whether allowing a claim which is in some way tainted by i­ llegality would be contrary to the public interest, because it would be harmful to the integrity of the legal system, without a) considering the underlying purpose of the prohibition which has been transgressed, b) considering conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, and c) keeping in mind the possibility of overkill unless the law is applied with a due sense of proportionality’ (emphasis added). The italicised words may refer back to the ‘policy reasons’ identified at [99]. If this is right, this would suggest that on Lord Toulson’s approach, the courts should first see whether the policy reasons identified at [99] give them any reason to dismiss a claim that is tainted with illegality, and if they do then check whether d­ ismissing the claim would (1) be inconsistent with the purpose of the rule that has been violated in this case, or (2) run counter to some other demand of public policy, or (3) have a disproportionate effect on the interests of the claimant. On this reading of Lord Toulson’s judgment, it is easy to see why the majority thought Patel’s claim against Mirza should not be ­dismissed: allowing Patel’s claim (whether on the basis that his contract with Mirza was void, or because he has suffered a total failure of consideration by virtue of not getting anything for his money) would not result in him profiting from his own wrong, and would not make the law (and, in particular, the law against insider trading) incoherent (see paragraph [115] of Lord Toulson’s judgment in support of this reading). The minority three Supreme Court Justices were in favour of a more mechanical approach to the issue of whether claims like Patel’s should be dismissed on the ground of illegality. In their view, such a claim should only be dismissed if the claimant had to rely on the fact that he had performed an illegal act in order to make out a claim (as an assassin would have to if he or she were suing for the agreed price for carrying out a hit on someone), or if allowing the claim put the courts in the invidious position of giving effect to an illegal agreement, thereby creating an inconsistency in the law (which would be another basis for dismissing

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our hypothetical assassin’s claim for the price of killing someone). (Lord Sumption’s judgment emphasises the first factor (at [233]), Lord Mance’s the second (at [192]), and Lord Clarke agreed with both (at [210]).) As Patel could make out his claim for the value of his money back without relying on the fact that he had paid the money for an illegal purpose—he could simply say, ‘I paid Mirza £620,000 to do some work for me, and he hasn’t done it!’—and undoing the effect of Patel’s illegal agreement with Mirza by allowing Patel to sue Mirza for the value of his money back was the very opposite of giving effect to Patel’s illegal agreement with Mirza, even the minority judges agreed that Patel’s claim against Mirza should be allowed in this case. All of which makes Parkinson v College of Ambulance Ltd look like it would be decided very differently nowadays. While, of course, P ­ arkinson would not be allowed to sue for damages for the fact that he did not receive a knighthood, all of the judgments in Patel v Mirza support the view that Parkinson should have been allowed to sue to get back the value of the ‘donation’ he had made to the defendant charity—with Lord Neuberger going so far as to say that Parkinson was wrongly decided and should be overruled (at [150]). Speaking for the majority, Lord Toulson hinted that he agreed, observing (at [118]) that: ‘Bribes of all kinds are odious and corrupting, but it does not follow that it is in the public interest to prevent their repayment … If today it transpired that a bribe had been paid to a political party … it might be regarded as more repugnant to the public interest that the recipient should keep it than that it should be returned.’ However, something has gone wrong with the law if it says that I can pay you a bribe for an honour, and if the honour is not forthcoming, I can sue for the value of the bribe back. What has gone wrong is that Lord Toulson’s list of ‘policy reasons’ that might lead the courts to dismiss a claim on the basis of illegality misses out probably the most important policy concern, which is that the law should not encourage people to enter into illegal agreements. And a legal rule which says that if you pay a bribe for an honour, you can always get your money back if you don’t get the honour, has the effect of encouraging people to pay such bribes. By contrast, the old in pari delicto rule, which effectively said that if you pay a bribe for an honour, you can’t get your money back even if you don’t get the honour, worked very effectively (so far as it could) to discourage people from paying bribes for honours—had someone like Colonel Parkinson known that he would

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never be able to get his ­‘donation’ back once it had been made, and that the defendant charity would have no incentive to give him anything in return for his ‘donation’ as they would be allowed to keep it even if they did nothing for him, he might well have decided to keep his money rather than take the chance of handing it over and getting nothing in return for it.

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6 Gifts Gifts are not contracts, but contract law (and the areas of law surrounding contract law) has a lot to say about gift-promises—a term which covers both (1) a promise that is intended to be legally binding even though nothing has been given in return for it, and (2) a promise to make a gift to someone else that is legally binding. We begin in the first three sections with situations where a gift-promise will be legally binding under the law of contract, before turning in the final section to discuss when a gift-promise that is not legally binding under the law of contract will be binding under some other area of law.

1. DEEDS The law has long provided people with a way of making a gift of binding promise to someone else. A promise made in a deed would be legally binding even though nothing had been given in return for it. Such a promise is known as a covenant—and the ability to make covenants is so ancient in English law that some sticklers insist that a covenant is not a contract, as covenants were around long before the development of the rules and doctrines that make up the modern-day law of contract. We won’t be so fussy, and will say that promises made in a deed are­ contractually binding, and the ability to make promises binding by putting them in a deed creates an exception to the rule that a promise will not be contractually binding unless something—some consideration—has been given in return for that promise. Just as with any other gift, making a gift of a binding promise to someone else has to be accompanied by some pomp and circumstance. A deed used to be only counted as valid if it had been signed by the ­person ­creating the deed, sealed by that person, and then delivered to the

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­ erson for whose benefit the deed was created. (Hence the Stevie ­Wonder p song, ‘Signed, Sealed, Delivered (I’m Yours)’.) These requirements were watered down by the Law Reform (Miscellaneous Provisions) Act 1989, which abolished the requirement for a seal to be affixed to a deed:­ section 1(1)(b). Instead, for a deed to be valid it merely needs (in addition to being signed, witnessed (section 1(3)(a)), and delivered) to make clear on its face that ‘it is intended to be a deed’: section 1(2)(a). The fact that it is possible to make a gratuitous promise (a promise where nothing is sought in return) binding so long as the promise is made formally in a deed has led some to argue that promises that are binding because they are supported by consideration are binding for the same reason as promises that are made in a deed are binding (see, for example, Smith 2004, 232–33). In both cases, it is argued the existence of the deed/consideration performs what Lon Fuller (Fuller 1941, 801–03) identified as the three functions of a formality: (1) it provides someone wanting to make a binding promise with a way of doing so (the ‘channelling function’); (2) it provides evidence that a binding promise was intended to be made (the ‘evidentiary function’); and (3) the rigmarole around the making of a binding promise gives the promisor the opportunity to think about whether he really wants to make this promise binding (the ‘cautionary function’). It is argued that if some sort of formality which performs these three functions is attached to the making of a promise, then there is no reason why the promise should not be legally enforced—and, it is further argued, the law of deeds and the doctrine of consideration both spring from that main idea. It is for this reason, perhaps, that Lord Mansfield suggested in P ­ illans v Van Mierop (1765) 3 Burr 1663 (at 1669) that ‘In commercial cases amongst merchants, the want of consideration is not an objection’ to finding a promise binding because ‘the ancient notion [that a promise would not be binding for] the want of consideration was for the sake of evidence only: for when [a promise] is reduced into writing, as in ­covenants, specialities, bonds … there was no objection to the want of consideration.’ Wilmot J took the same view in the same case. He held that provided a promise between business people was reduced to ­writing, it should be legally binding and not held to be of no effect simply because it amounted to a ‘nudum pactum’ (a gratuitous p ­ romise): the promise’s ‘being reduced into writing, is a sufficient guard against

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surprize; and therefore the rule against nudum pactum does not apply …’ (at 1671). However, the fact that Pillans v Van Mierop was disapproved in Rann v Hughes (1778) 7 TR 350n should give anyone pause to reflect that perhaps in enforcing promises supported by consideration, the courts are not doing the same thing as they are in enforcing promises in a deed; as should the fact that the courts of equity have always drawn a distinction between the two kinds of promises in that the equitable remedy of specific performance may be available (depending on the circumstances) to enforce a promise supported by consideration, but is never available to enforce a promise that is binding merely by virtue of being made in a deed. This book takes the view that the enforcement of promises supported by consideration has nothing to do with the enforcement of promises made in a deed. As was explained in Chapter 2, the first are enforced because such promises have to be enforced for us to enjoy any kind of sophisticated market economy; the second are enforced because it is good to be able to make a gift of a binding promise to another, just as it is good to be able to make other kinds of gifts. If this is right, the question then becomes whether the way in which the law allows people to make a gift of a binding promise to another is too restrictive. The Law Revision Committee thought so, recommending—in its 1937 Sixth Interim Report, on the Statute of Frauds and the doctrine of consideration—that a promise made in writing (whether in a commercial context or not) should be legally binding. Writing 80 years later, this position has been roundly criticised by Mindy Chen-Wishart. She points out that writing is too casual a means of promising to properly serve as a formality for making a binding promise to another: ‘Writing is such a common means of communication that it may not make the parties stop and think much more than any other communication, nor mark it out as inviting legal liability. The charge seems conclusive when we include electronic communications such as text messages, email and … messaging from everyday electronic devices such as mobile telephones’ ­(Chen-Wishart 2016, 88). As Chen-Wishart points out, only a deed works to ensure that it is only someone who intends to make a gift of a binding promise to another that ends up making a promise in a deed: ‘it must always be a conscious choice to make a deed’ and ‘it will not generally be possible to find oneself accidentally bound by a deed’ (ibid).

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2.  GIFT-PROMISES SUPPORTED BY CONSIDERATION There are a number of different kinds of gift-promises that the courts might end up enforcing on the basis that they were supported by consideration.

PEPPERCORNS So long as something of value in the eyes of the law has been given in return for a promise, the courts will find that the promise is supported by consideration and therefore—other things being equal—contractually binding. The courts will not question the adequacy of the consideration: ‘A contracting party can stipulate for what consideration he chooses’ (Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87, 114 (per Lord Somervell)). The result is that even something of trivial value—the traditional example is a peppercorn—can count as consideration, and a ‘peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn’ (ibid). The fact that consideration needs to be sufficient but not adequate gives people who know their law a very easy way of making enforceable a promise that they want to be legally binding—all the promisor has to do is request that the promisee give him a trivial item of property that the promisee has on her person in return for the promisor’s promise. However, this does not support the arguments considered in the previous section that consideration merely plays a formal role in identifying what promises are intended to be binding and which not. The rule that consideration needs to be sufficient but not adequate is much more plausibly explained on the basis that the courts would fundamentally undermine the workings of the free market if they held that A’s promise to B will not be binding if B has not paid, or promised to pay, a fair price (in Latin, a iustum pretium) for A’s promise. (For arguments in favour of the law adopting this position, see Smith 1996.) This point is recognised by the Consumer Rights Act 2015, where the jurisdiction given to the courts under section 62 to set aside a term of a consumer contract if it is ‘unfair’ (defined by section 62(4) as being a term that ‘contrary to the requirements of good faith, … causes a significant imbalance in the

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­ arties’ rights and obligations under the contract to the detriment of the p consumer’) is limited by section 64, which provides that a contractual term may not be held to be unfair if it is ‘transparent and prominent’ and it relates to ‘the main subject matter of the contract’ or ‘the price payable under the contract’.

PROMISES TO PAY MORE In Williams v Roffey Bros & Nicholls Contractors Ltd [1991] 1 QB 1, the defendant building contractors hired the claimant carpentry firm to do carpentry work on 27 flats that the defendants were building. As the work proceeded, the claimant got into financial difficulties and there was a real prospect that because of those financial difficulties, the claimant would not be able to finish the work it had contracted to do on the defendants’ flats. In order to avert that possibility, the defendants agreed to pay the ­claimant a premium of £575—on top of the originally agreed contract price (£740 per flat)—for each flat it finished working on. The question arose whether this promise to pay more (in Guenter Treitel’s terminology, an ‘increasing pact’ (Treitel 2002, 12)) was legally binding on the defendants. The problem was that while the defendants had asked the claimant for something in return for their promise to pay more—that the claimant finish work on each of the flats that the defendants were building—the defendants had not asked the claimant to do anything in return for their promise to pay more that they were not already entitled to receive from the claimant under their original contract with them. Had the defendants asked the claimant to give them a nail out of his pocket in return for their promise to pay more, it would have been legally binding on them. But they did not: all they asked was that the claimant do what he was already contractually obliged to do for the defendants. And the traditional position of the courts had been that A’s doing something she was already legally required to do for B could not count as consideration for a promise by B to do something for A, as what B would be obtaining in return for her promise was not of any value in the eyes of the law. This was the position taken in Stilk v Myrick (1809) 2 Camp 317. The contract in that case was a contract to serve aboard a ship sailing from London to Kronstadt in Russia, and thence back to London. The plaintiff was to be paid £5 a month. A couple of the crew deserted the ship once it got to Kronstadt and the captain could not find any replacements.

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He therefore promised the plaintiff and the other crew members that if they got the ship back to London even though they were two men down, he would divide the missing men’s wages among the crew. The ship having arrived back in London, the plaintiff sued for the extra amount he had been promised but his claim was dismissed on the ground that there was no consideration for the captain’s promise to pay the plaintiff more than the originally agreed £5 a month. This was because, Lord E ­ llenborough found, the plaintiff ’s contract required him and his fellow crew members ‘to do all that they could under all the emergencies of the voyage’ (ibid, 319)—and that included getting the ship back to London even if they were two men short on the voyage home. It is possible to criticise the rule that if A and B enter into a contract under which A undertakes to pay B £100 for certain services, then a subsequent promise by A to pay B £150 for those services will not be binding unless B does, or undertakes to do, something for A that is different from what she undertook to do for A under the original contract. It could be argued that the function of the doctrine of consideration is to ensure that only business promises—promises made in the marketplace—are enforced by the law of contract. But as A and B are already in a contractual relationship, we know already that any promises they subsequently make to each other varying the terms of their relationship are business promises. It is therefore a major error to apply the doctrine of consideration to such promises and hold that a promise to pay more is not binding unless some fresh consideration is provided in return for that promise. (For criticism of the law along these lines, see Gordon 1990.) This was the position adopted by the New Zealand Court of Appeal (‘NZCA’) in Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (discussed, Coote 2004). In that case, the defendants hired the claimant master of a ship to explore whether a given area of the sea had the potential to be turned into a new fishing field for the defendants. Under the defendants’ contract with the claimant, the claimant would be rewarded for finding a new fishing field by being awarded a percentage of the value of any fish that were subsequently caught in the field. The claimant thought that this did not give him enough of a reward for taking the risk of not being able to find a new fishing field; so the defendant subsequently promised also to allow him to keep 10 per cent of any catch from any field he found. The NZCA held that this subsequent promise was binding even though no consideration had been supplied for it.

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The Court of Appeal did not take such a radical stance in Williams v Roffey Bros, even though they did find that the promise to pay more in that case was contractually binding. They found that consideration had been supplied for the promise in Williams because the defendant contractors had obtained a ‘practical benefit’ ([1991] 1 QB 1, 13 (per Glidewell LJ)) from promising to pay the claimant carpenter more for his services. This benefit (enumerated by each judge in Williams, at 11, 19, and 19–20) primarily took the form of the defendant contractors’ not losing money on their contract with their clients, under which the price payable by those clients stood to be reduced if there were delays with finishing the flats. But can this be reconciled with Stilk? Didn’t the master of the ship obtain a benefit from promising to divide the deserting crew members’ wages among the remaining crew? Maybe not: as Treitel observes, there is no evidence that the sailors in Stilk ‘had made any threat to desert’ and the ‘captain’s promise [seems to have been] spontaneous’ (Treitel 2002, 21). So it may be possible to reconcile the finding of no consideration in Stilk with the finding of consideration in Williams. The real objection to the emphasis in Williams on finding consideration by virtue of the benefit to the promisor from making his promise is that just as something may count as consideration even though it was of no value to the promisor (cf Lord Somervell’s remarks in Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87, quoted in the previous section), something may not count as consideration even though it was of value to the promisor. So while (i) it may have been of value to the defendants in Williams to keep the claimant on board with their building project and (ii) it may have been necessary to promise the claimant more money to keep him on board, the objection to ­finding that there was consideration for the defendants’ promise in Williams—that what the defendants got in return for their promise was of no value in the eyes of the law as all they got was what they were already entitled to—is not convincingly answered in Williams. It follows that in terms of applying an orthodox understanding of what amounts to consideration for a promise, Williams was wrongly decided, and that if the Court of Appeal had wanted to find that the promise to pay more in Williams was binding, it should have taken the New Zealand position and ruled that it is simply a mistake to apply the doctrine of consideration to determine whether a promise to vary the terms of an already existing business relationship is contractually binding.

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PROMISES TO ACCEPT LESS Orthodoxy has been harder to shift in the context of what Treitel calls ‘decreasing pacts’ (Treitel 2002, 23)—an example of which is the situation where A owes B £100, and B agrees that if A pays B £70, B won’t sue A for the balance of £30. The orthodox understanding is that even if B’s promising not to sue A for the balance was of some ‘practical benefit’ to him because it encouraged A to cough up £70 instead of giving B nothing and leaving B to his legal remedies—which would have been both costly to take advantage of and might have been worth little to B if A has lots of other creditors—A’s paying B £70 will not count as consideration for B’s promise not to sue for the balance as that £70 was something B was entitled to anyway. That was what the House of Lords held in Foakes v Beer (1884) 9 App Cas 605, which was in turn based on the more ancient authority of Pinnel’s Case (1601) 5 Co Rep 117a, where it was held that consideration for a promise not to sue for all or part of money owed can be provided by giving the creditor something to which the creditor is not entitled—‘The gift of a horse, hawk, robe, &c. in satisfaction, is good. Payment of part [of the debt owed] before the day [the debt was due to be paid] … may be in satisfaction of the whole; so payment of part at a different place.’ But what cannot count as consideration is ‘Payment of a less sum on the day’ that payment was due. The question of whether the law in this area had been disturbed by the decision of the Court of Appeal in Williams v Roffey Bros—if a ‘practical benefit’ can provide consideration for a promise to pay more, why not a promise to accept less?—has now been considered twice by the Court of Appeal (which, we might note, is technically bound to apply decisions of the House of Lords, such as that in Foakes v Beer). The first time was In re Selectmove Ltd [1995] 1 WLR 474. In that case, Selectmove Ltd owed the Inland Revenue about £24,000 in PAYE (‘Pay As You Earn’) payments that they were supposed to have deducted from their employees’ salaries and handed over to the Inland Revenue. The company suggested that it pay off the arrears in instalments at £1,000 a month. The Inland Revenue could have wound the company up, but doing so would have meant it would see very little of the money owed to it, so it made sense for the Inland Revenue to hold off and see if the new payment arrangement would work—and the company took the Inland Revenue to have agreed to do this. Unfortunately, the company soon started missing its payments to the Inland Revenue, and the Inland Revenue lost patience

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and sought to have the company wound up, claiming that the company still owed it £17,000. The company argued that the Inland Revenue had promised not to sue for this sum all at once, and that that promise was supported by consideration because the Inland Revenue had obtained a practical benefit from making that promise in that it was likely to obtain far more by waiting for payment than it could by winding the company up. Orthodoxy won out: the Court of Appeal held that it was bound by Foakes v Beer—which, as a decision of the House of Lords, could not have been overruled by the Court of Appeal’s decision in Williams v Roffey Bros—to find that there was no consideration for any promise that the Inland Revenue was supposed to have made in this case. No matter how beneficial it might have been for the Inland Revenue to have made that promise, the only thing it obtained in return for it was a promise (and some payments in fulfilment of that promise) to give the Inland Revenue what it was already entitled to. Orthodoxy lost out the second time this issue came before the Court of Appeal, in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553. In that case, Rock were tenants of MWB. Due to problems with its business, Rock soon fell into arrears with their rent payments, and racked up a debt of £12,000 that it owed MWB. MWB agreed to reduce the rent payable by Rock for a few months, in order to help Rock’s business get on its feet, after which time the rent would go above its original level in order to allow Rock to pay off its debt to MWB gradually. Unfortunately, and just the same as happened in Re Selectmove, Rock’s financial problems were such that it couldn’t keep even to the revised agreement that it had made with MWB, and MWB locked Rock out of its premises for non-payment of rent and sued Rock for immediate repayment of all the money that it claimed Rock owed it. Rock argued that MWB was bound by its agreement to wait for repayment and, in the teeth of authorities like Foakes v Beer and Re Selectmove, the Court of Appeal agreed. The Court of Appeal distinguished those cases on the basis that a mere payment, or a promise to pay, part of what A owed B could not amount to consideration for a promise by B not to sue for the rest of what was owed, or to wait for repayment of the rest. However, in MWB, MWB had not just obtained part-payment of what it was owed in return for its agreement to seek repayment from Rock via Rock’s rent payments—MWB had obtained a ‘practical benefit’ as well, in that by varying its agreement with Rock, MWB had kept Rock on as its tenant, thus putting itself in a position to possibly earn much more from Rock in the long-term than Rock c­ urrently owed it (ibid, at [48] (per Kitchin LJ)) while at the same time avoiding having

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to seek a new tenant for its premises with the potential that its premises might lie unoccupied and unused for a long period of time (ibid, at [85] (per Arden LJ)). The distinction is unsatisfactory: in Foakes v Beer itself, it was acknowledged that a compromise with one’s debtors can be of practical benefit to the creditor (see, for example, Lord Blackburn’s judgment at (1884) 9 App Cas 605, 618: ‘it is not the fact that to accept prompt payment of a part only of a liquidated demand, can never be more beneficial than to insist on payment of the whole’) but it was still held in that case that if all the creditor obtained under the compromise was part of what he was owed, the compromise was not binding on the creditor. The UKSC has given leave to appeal the Court of Appeal’s decision in MWB, though given the sums involved it would be incredible if MWB took up the option to appeal, particularly as there is little reason to think that, if asked to do so, the UKSC would reassert the orthodoxy represented by Foakes v Beer and find in favour of MWB. Were an appeal to be pursued, it is far more likely that the UKSC would: (1) rule that the Court of Appeal was correct to apply Williams v Roffey Bros to determine whether there was consideration for MWB’s promise to vary its legal position vis-à-vis Rock; or (2) (perhaps more satisfactorily, though far more radically) rule that the doctrine of consideration has no application to agreements to vary the contractual rights that businesses have against each other, given that such agreements already count as marketplace transactions even without the provision of fresh consideration.

3.  ENFORCEMENT OF CONTRACTUAL GIFT-PROMISES A contractual gift-promise will be enforceable in the normal way, with the promisee being able to sue for damages or, perhaps (if valuable consideration has been provided for the promise, and damages are an inadequate remedy), specific performance. However, problems arise where A enters into a contract with B with the object of making a gift to C.

TRANSFERRED LOSS The first such situation is where A purchases goods or services from B with the intention of making a gift of those goods or services to C. If the

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goods or services prove defective, it seems at first sight that A will not be entitled to obtain substantial damages from B, as it is C and not A who has suffered the loss here. The loss that A stood to suffer as a result of B’s breach has been transferred to C because of A’s intention to make a gift to C. Two issues arise: (i) is there some way that A can recover damages not just in respect of his own loss, but also C’s loss?; (ii) if A can recover such damages, does A have to hand them over to C? On issue (i), the Court of Appeal ruled in Jackson v Horizon ­Holidays Ltd [1975] 1 WLR 1468 that the purchaser of a family holiday that was ruined due to the defendant holiday provider’s breach of contract should not only be entitled to recover damages for his own distress and disappointment at the holiday being ruined but also the distress and disappointment of his wife and two sons. Around about the same time, the House of Lords ruled in The Albazero [1977] AC 774 that ‘in a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of them both, is to be treated in law as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into’ (at 847 (per Lord Diplock)). Lord Diplock introduced one qualification to this rule: it would not apply where the person who had actually suffered a loss as a result of the goods being damaged could sue the defendant in his own right for damages in respect of that damage (ibid). The principle in The Albazero was extended in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 to the case where A contracted with B for B to erect buildings or do some work on C’s land. If B breached the contract, A would be able to sue B for damages equal to the cost of repairing B’s breach even though it is actually C who has lost out as a result of B’s breach. This extension was endorsed in Panatown Ltd v Arthur McAlpine Construction Ltd [2001] 1 AC 518, though subject to Lord Diplock’s limit that if C can sue B in his own right in respect of B’s breach, then A cannot sue B for s­ ubstantial damages. This is potentially a significant limit given that—as we will shortly see—in the case where A contracts with B for B to do work on C’s land, C may be able to sue B for breach of that contract under the Contracts (Rights of Third Parties) Act 1999.

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On issue (ii), the picture is confused. In Woodar Investments D ­ evelopment Ltd v Wimpey Construction Ltd [1980] 1 WLR 277, the House of Lords endorsed the result in Jackson v Horizon Holidays Ltd (at 283 (per Lord Wilberforce)) but rationalised the award of substantial damages in that case as being designed to compensate the claimant father for his loss in failing to get what he paid for: ‘the [claimant] had bought and paid for a high class family holiday: he did not get it, and therefore he was entitled to substantial damages for the failure to supply him with one’ (at 293 (per Lord Russell of Killowen, emphasis in original)). This suggests that the father in Jackson would have been entitled to recover damages in respect of his wife and sons’ disappointment and distress, but as such damages were awarded to compensate him for his loss, he could have done what he liked with them. On the other hand, Lord Diplock made it clear that any damages recovered by a claimant under the rule stated in The Albazero—which was set out in the previous paragraph—could be subsequently sued for by the owner of the goods who had actually suffered a loss as a result of the defendant’s breach of contract in damaging those goods (ibid, 846). In Linden Gardens v Lenesta Sludge, Lord Griffiths held that if a husband contracts with a builder to repair the roof of the matrimonial house, which is in the wife’s name, then if the builder botches the repair ‘the husband can recover from the builder the cost of putting [the work] right and thus obtain the benefit of the bargain that the builder had promised to deliver’ ([1994] 1 AC 85, 97). This rationalisation of the husband’s right to recover—which is sometimes referred to as allowing the husband to sue for a ‘performance interest’ measure of damages (see, for example, Friedmann 1995)—is similar to that of the House of Lords’ rationalisation of the husband’s right to recover in Jackson and would suggest that the damages awarded to the husband are his to dispose of as he pleases. In Panatown, Lord Goff endorsed Lord Griffiths’ rationalisation ([2001] 1 AC 518, 547–48) but went on to say that it would be inconceivable if a philanthropist—who had contracted with a builder to renovate the village hall—were able to recover substantial damages for builder’s breach in failing to renovate the hall but was then able to ‘simply put the damages in his pocket and leave the building in its defective state’ (at 560). He sought to avoid this result by arguing that if A is permitted by B to get a builder in to do work on B’s land, A ‘must be under some obligation with regard to [the work’s completion]’ (at 559). However, a simpler way of reaching the same result may be to argue that cost of cure damages (that is, damages equal to the cost of repairing a defendant’s

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breach) should not be awarded to a claimant unless the claimant actually intends to cure the breach; and Lord Goff endorsed that proposition as well (at 556, citing numerous authorities in favour of this limit on awards of cost of cure damages).

CONTRACT TO MAKE A GIFT TO A THIRD PARTY The second situation where A enters into a contract with B with the object of making a gift to C is where B undertakes, in a contract with A, to make a gift to C. This fact pattern gives rise to the same problems as the previous one (where A contracts with B for goods or services that A intends to give to C): if B breaches, it is A who is the victim of B’s breach—and therefore entitled to sue B in respect of that breach—but it is C who suffers loss as a result of B’s breach. Beswick v Beswick [1968] AC 58 illustrates the problem. In consideration of his uncle Peter Beswick’s giving him Peter’s coal business, the defendant nephew, John Beswick, promised that when Peter died, John would pay Peter’s widow Ruth an allowance of £5 a week (about £85 a week in today’s money) for life. After Peter died, John made one payment of £5 to Ruth, and then stopped paying. The House of Lords held that Peter’s estate (essentially, Peter brought back to life) would not be entitled to sue John for substantial damages because Peter’s estate had suffered no loss as a result of John’s not paying Ruth. The House of Lords then went on to hold that the inadequacy of the damages available to Peter’s estate in this case meant that the estate could apply for an order of specific performance, requiring John to perform his obligation to pay Ruth a weekly allowance. Fortunately, Ruth was the administratrix (or manager) of Peter’s estate and could therefore bring a claim for specific performance, thereby obtaining via Peter’s estate what she could not obtain in her own right. In the past, the courts had to grapple with a similar fact pattern, arising out of the case where A sells land to B, but inserts into the contract a provision requiring B to allow C—who has been staying on some part of A’s land—to stay on the land for as long as C liked. After B bought the land, B would then seek to throw C off the land, in breach of his contract with A. As C had no proprietary right in the land, and no way of enforcing the A–B contract, it would seem that C had no defence to B’s claim. But the injustice of allowing C to be thrown off the land is the same as that which obtained in Beswick v Beswick: if B has received something of value from

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A on condition that he do something for C in return, B will be unjustly enriched—will obtain something for nothing—if he is allowed to breach that condition without any kind of sanction. After some to-ing and froing on the issue, the Court of Appeal ruled in Ashburn Anstalt v Arnold [1989] Ch 1 that in the above fact pattern, provided that the provision in the A–B contract was genuinely intended to benefit C (and was not intended simply to protect A from being sued for not giving B the land with vacant possession) and B had obtained a discount on the purchase price by virtue of his undertaking to allow C to stay on the land, then B’s ‘conscience’ will be affected and he will be subject to a ‘constructive trust’ that will prevent him from relying on his strict legal rights to throw C off his land (at 22–27). How this ‘constructive trust’ works is a matter of some dispute: this author’s suggestion that a constructive trust will arise for C’s benefit over A’s right to enforce the contractual provision allowing C to stay on the land, thus allowing C to enforce that right himself, has been criticised (see McFarlane 2004). The problems raised by these fact patterns may have been resolved by the Contracts (Rights of Third Parties) Act 1999, section 1 of which provides that C, a third party to a contract, may enforce a term in a contract between A and B if either (a) A and B expressly intended that C should be able to enforce that term, or (b) the term purports to confer a benefit on C, identifying C either by name or by virtue of C’s being a member of a particular class, and A and B did not make it clear that they did not intend that C should be able to enforce that term. Had the Act been in force before 1999, it would have provided a remedy to the third party in Beswick v ­Beswick and the sort of fact pattern dealt with in Ashburn Anstalt v Arnold. If the Act applies to a term in a contract between A and B—say A has contracted with B for B to provide C with regular fitness classes—A and B will be prevented from varying or eliminating that term under ­section 2 of the Act if (i) C has told B that he ‘assents’ to that term; or (ii) C has relied on that term (for example, by buying some training clothes) and B knows that C has relied on that term or could have reasonably expected C to rely on that term. Perhaps because of the inconvenience that section 2 creates for A and B—who might undergo some change of circumstances that makes it imperative for them to withdraw the gift that they were intending to confer on C—anecdotal evidence indicates that it is routine in commercial contracts to make it clear that the 1999 Act is not intended to apply to the contract. So the solution provided by the 1999 Act to the kind of situations discussed in this section may be more theoretical than real.

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4.  NON-CONTRACTUAL GIFT-PROMISES Having looked at when, and how, a gift-promise might be made binding under the law of contract, we will look in this section at how the law outside contract law deals with such promises.

PAST CONSIDERATION A promise to reward someone for something they have done in the past—say, a promise to pay me £10,000 for saving your life—will not be binding. While your promise has been given ‘in return’ for my saving your life, the ‘consideration’ and the promise are the wrong way round. The promise has been given for the consideration; not the consideration for the promise. The consideration, having come first, is ‘past’ and cannot count as valid consideration for your promise to pay me £10,000. There is, however, one ‘exception’ to the rule that ‘past consideration is not good consideration’. If I rescued you at your request and we understood at the time you made that request, that you would give me something for saving your life, then your subsequent promise to pay me £10,000 will be binding on you: Pao On v Lau Yiu Long [1980] AC 614, 632. Why is this? The best analysis is that your obligation to pay me £10,000 is actually non-contractual in nature, and the fact that you are bound to pay me £10,000 is not a true exception to the rule that ‘past consideration is not good consideration’. The analysis proceeds as follows. If I do work at your request, and we both understand at the time that you make your request that I expect to be paid for the work I did, then you will have to pay me a reasonable sum (in Latin, a quantum meruit, meaning ‘as much as he deserves’) for the work I did: William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932 (see above, page 22). So if, when I save your life, I did so at your request and on the understanding I would be rewarded for doing that, then you have to pay me a reasonable sum for what I did. When you subsequently promise to pay me £10,000, that is the best evidence the courts have as to what a reasonable sum for saving your life might be—so it is only natural that in requiring you to pay me a reasonable sum for what I did, that the courts require you to pay me £10,000.

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This obligation—to pay me a reasonable sum for saving your life in the case where I save your life at your request and we both understand I am to be rewarded for doing so—is non-contractual in nature. While some (see, for example, Hedley 2004) might analyse the obligation as contractual in nature, on the basis that given the circumstances I am impliedly promising to pay you a reasonable sum for the work I am requesting you to do, the implied promise seems both too fictional and uncertain to be capable of giving rise to a contractual obligation. The better view is that the obligation exists outside the law of contract, and exists to prevent someone feeling aggrieved at not having a contractual remedy when he might have thought that he would have such a remedy under the law of contract (cf McFarlane and Sales 2015, 632–33).

PROMISSORY ESTOPPEL The concept of an estoppel originates in the law of evidence. The word ‘estoppel’ comes from Norman French—an estoupail was a cork or a bung. Under the law of evidence, someone who is subject to an estoppel is prevented from saying something in court. So if you are subject to an estoppel by representation you are prevented, in proceedings between you and me, from denying that F is true if, outside the court, you represented to me that F was true and I relied on that representation. That the law on estoppel has spilled over from the law of evidence into the law of obligations as well, and in some cases can be used not just to prevent people from doing things but to force people to do things, is largely due to the efforts of one man: Alfred Thompson Denning, beginning with his judgment (as a first instance judge) in the High Trees case (Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130). The claimants (CLP) leased an entire block of flats in central ­London to the defendants (HTH) in 1937 for a rent of £2,500 a year. HTH then sublet the individual flats to tenants. When World War II broke out, and London began to suffer nightly bombing raids, a lot of those tenants moved out, with the result that HTH began to struggle to afford to pay its rent of £2,500 a year. HTH approached CLP about the problem in 1940, and CLP agreed that while London continued to be bombed, they would accept a lower rent of £1,250 a year from HTH. By the end of the war, CLP had gone into administration, and the receiver conducting CLP’s

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affairs went to court to find out: (i) whether he could put the rent back up to £2,500 a year, and if so (ii) whether HTH could be sued for the rent payments they didn’t make between 1940 and 1945 because CLP agreed they didn’t have to. Taking issue (ii) first, Denning J was faced with the problem that under Foakes v Beer (1884) 9 App Cas 605, CLP’s agreement that if HTH paid them £1,250 a year, they would not sue HTH for the remaining half of the rent, was not contractually binding on CLP. Unlike the Court of Appeal in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, Denning J did not seek to undermine Foakes v Beer by finding that there was consideration for CLP’s agreement to accept less rent from HTH, in the form of the ‘practical benefit’ resulting from CLP’s promise—the fact that CLP continued to get some rent for a block of flats that HTH might have refused to continuing leasing had CLP proved more stubborn about insisting on its strict legal rights. Instead, Denning J sought to get round Foakes v Beer via the law on estoppel. But in doing so, he faced the problem that up until then, the law on estoppel had been thought to relate purely to the law of evidence, and simply to work to prevent someone in court from denying that certain facts were true. But so far as the facts of the case were concerned, there was nothing that the CLP’s administrator would have wanted to deny. The administrator freely admitted that a promise had been made to HTH. The question was: what was its effect? It is for this reason that Denning J began his judgment by admitting that under the established law on estoppel, there was nothing in the High Trees case that could give rise to an estoppel—the only representation that CLP had made was ‘as to the future, namely, that payment of the rent would not be enforced at the full rate but only at the reduced rate’ and ‘Such a representation would not give rise to an estoppel, because … a representation as to the future must be embodied as a contract or be nothing’ ([1947] 1 KB 130, 134). But, Denning J held, a number of cases—which were ‘not cases of estoppel in the strict sense’ (ibid)—had established that ‘promises intended to be binding, intended to be acted on, and in fact acted on’ ‘must be honoured’ in the sense that the party making the promise will not be allowed ‘to act inconsistently with it’ by bringing a claim against the promisee (ibid). ‘It is in that sense, and that sense only, that such a promise gives rise to an estoppel’ (ibid)—an estoppel, a promissory estoppel, which stops a promisor going back on a promise not to enforce his strict legal rights against the promisee.

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This form of estoppel could not help the claimant in Combe v Combe [1951] 2 KB 215, who sought to argue that her ex-husband was ‘estopped’ from going back on his promise to pay her £100 a year in maintenance payments (about £3,000 a year in today’s money). Denning LJ (as he had then become) held that promissory estoppel could not be used as basis for suing someone but could only be used as a way of preventing someone going back on a promise not to assert their strict legal rights against the promisee; in the happy expression of counsel in Combe (at 218) promissory estoppel ‘may be used as a shield and not as a sword’. But this form of estoppel did apply to the High Trees case, to prevent CLP unconscionably going back on its word not to sue HTH for all of the rent that it technically owed CLP. What made it unconscionable for CLP to do this? Not just the fact that HTH would have relied on CLP’s promise—both by continuing to lease the block of flats in the High Trees case, but by making all sorts of financial decisions on the basis that they did not owe CLP any more than the £1,250 a year that CLP had indicated it was willing to accept in rent from HTH—but also the fact that those acts of reliance were irreversible. So the law on promissory estoppel does not prevent A from going back on a promise to B not to enforce his strict legal rights against B if giving B sufficient notice of A’s intention to go back on his promise would enable B to unwind whatever acts of reliance B has performed on the basis of A’s promise: Ajayi v R T Briscoe (Nigeria) Ltd [1964] 1 WLR 1326. It is in this sense, and only in this sense, that it is correct to say that promissory estoppel may ‘suspend’ rather than ‘extinguish’ someone’s strict legal rights. Turning to issue (i)—could CLP put the rent back up to £2,500 a year?—Denning J made short work of this issue, finding that CLP’s ‘promise was understood by all parties only to apply under the conditions prevailing at the time when it was made, namely, when the flats were only partially let, and that it did not extend any further than that’ ([1947] 1 KB 130, 135). So ‘by the early months of 1945’ CLP’s promise not to ask for more than £1,250 a year in rent no longer applied to it, and there was nothing then for it to be estopped from going back on in putting the rents back up. There is no need to explain the ability of CLP to put the rent back up by reference to the idea that promissory estoppel is merely ‘suspensory, not extinctive.’ It is much simpler than that: promissory estoppel does not prevent you going back on promises you never made.

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PROPRIETARY ESTOPPEL The idea that promissory estoppel only works as a shield, and not as a sword, came under some strain in the case of Crabb v Arun District Council [1976] Ch 179. The claimant in that case was a landowner who sold the half of his land that contained the only access point onto his land because he had been given to understand that the defendant council would allow the claimant to obtain access to the remaining half of his land by going over the council’s land, which adjoined the claimant’s. In other words, the claimant thought that the council would grant him an easement over its land to enable him to access his land. The word ‘would’ is important here: in Crabb, we are in the realm of promises and expectations, not representations. Those promises and expectations were soon disappointed when the council blocked up the gap in the fence around its land which the claimant had been going through in order to access his own land. The claimant’s land became ‘landlocked’ and would remain so for six years, while the claimant took the council took court. How could the claimant sue the council? He thought the council had promised to grant him an easement over the council’s land, but even if he could establish that such a promise had been made (or argue that the council was ‘estopped’, in the original evidential sense, from denying that it had made such a promise), how could he argue that the council was bound by its promise given that he had supplied no consideration for that promise? Undaunted, the claimant argued that the law on estoppel applied to prevent the council going back on its promise to him. Deciding the case, Lord Denning MR (as he had then become) observed that ‘When Mr Millett, for the [claimant], said that he put his case on an estoppel, it shook me a little: because it is commonly supposed that estoppel is not in itself a cause of action. But that is because there are estoppels and estoppels. Some do give rise to a cause of action. Some do not. In the species of estoppel called proprietary estoppel, it does give rise to a cause of action’ (ibid, 187). And he went on to find that given the claimant’s reliance on the expectation, encouraged by the council, that it would grant him an easement over his land, and the effect on the c­ laimant resulting from the council’s going back on that expectation, the law on proprietary estoppel applied to the claimant’s case so that the claimant could claim that he had an easement—and not just an easement, but an easement free of charge—over the council’s land (ibid, 189–90).

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In so ruling, Denning was crossing a Rubicon. While the law on proprietary estoppel had been used before Crabb to bring claims against defendants, it was always in the context of cases where the defendant had encouraged the claimant to believe that the claimant had an interest in the defendant’s land, and the claimant had relied on that belief by—for example—building on the defendant’s land. In such a case, if the defendant evicted the claimant from the defendant’s land, the claimant would then sue the defendant, claiming that the defendant acted wrongfully in evicting him. If the defendant sought to argue ‘But it was my land I was evicting him from!’, the claimant could raise an estoppel—a proprietary estoppel—against the defendant, arguing, ‘He’s not allowed to say that, because he told me differently when I was on his land, and I relied on the belief that I had an interest in his land!’ And having in this way deprived the defendant of his only defence to the claimant’s claim, the claimant’s claim against the defendant would succeed. Allowing a claimant to use the law on proprietary estoppel to sue a defendant for breaching a promise to grant the claimant an interest in the defendant’s land was something that had not been seen before, and something that prompted the contract scholar Patrick Atiyah to write a casenote on Crabb called ‘When is an Enforceable Agreement not a Contract? Answer: When it is an Equity’ ((1976) 92 LQR 174). In crossing this Rubicon, Lord Denning created a number of tensions within the law that the law is still coming to grips with today. (1) A law which says that the only non-contractual promise that can be sued on is a promise to grant someone an interest in land seems indefensible—there is nothing special about land that means promises in relation to land should be the only kind of non-­contractual promise that can be sued on. So concluded the High Court of ­Australia in Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, and swept away the rule that promissory estoppel can only work as a shield, and not a sword. In its place, they adopted a new regime that was originally intended, in the case where A has made a promise to B and B has foreseeably relied on that promise, to require A to ensure that B was not made worse off as a result of relying on A’s promise. As things have turned out, in cases like these the ­Australian courts have tended to require A to keep the promise that he made to B (for discussion, see Robertson 1996). In England,

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the courts have sometimes flirted with the idea that the ‘shield, not a sword’ rule might be abolished in relation to promises that do not involve land (see, for example, Williams v Roffey Bros [1991] 1 QB 1, at 13), but a full-frontal assault on the rule was repelled by the Court of Appeal in Baird Textile Holdings Ltd v Marks & Spencer plc [2002] 1 All ER (Comm) 737, at [38]. (2) The policy of the law is not to allow a contractual claim to be made against a landowner, alleging that the landowner is duty-bound to give the claimant an interest in his land, unless some evidence of the existence of the contract is available in writing: Law of Property (Miscellaneous Provisions) Act 1989, section 2. (cf Law of Property Act 1925, section 53(1)(b), giving effect to the same policy with regard to proprietary claims against landowners, where the c­ laimant argues that the land or some part of it is held on trust for him because the landowner declared that he held the land or some part of it on trust for the claimant.) The reason why the law is so protective of landowners being deprived of their land without very clear proof being established that they have agreed to give up their land is that land is the most valuable commodity that someone can usually own. This not only means that land should not be lightly given up, and should only be given up after the most careful deliberation; it also means that landowners are targets for exploitation by the needy, greedy and unscrupulous. While the formality requirements that the law sets up to protect landowners from being robbed of their land may be set aside where it is clear that applying it will unfairly disadvantage the claimant (‘Equity will not allow a statute to be used as an instrument of fraud’) there must be a concern that the law on proprietary estoppel, post-Crabb, is open to being used in a way which completely undermines the desire to protect landowners against claims which are based on nothing more than allegations of a nod and a wink having passed between the landowner and the claimant. (3) Post-Crabb, the law on proprietary estoppel gives rise to a nest of difficulties that the courts are ill-equipped to deal with. Suppose, for example, that A, a farmer, tells B, someone who has worked on A’s land for not very much by way of wages, that A will leave B the land in his will. B is encouraged by this promise to continue working for A. 10 years later, A falls very ill and can only raise the money

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Gifts for the medical treatment he needs by selling his major asset, his land. Could B use the law on proprietary estoppel to prevent A doing this? Under the law on proprietary estoppel, B has done everything he needs to do to raise an ‘equity’ in his favour which would prevent A from treating the land as his own to dispose of. But at the same time, it is hard to imagine the courts’ effectively condemning A to death by holding that B’s reliance on A’s promise is such that A cannot sell what is still, in law, his own land.

Perhaps for these reasons, the House of Lords sought in Cobbe v ­Yeoman’s Row Management Ltd [2008] 1 WLR 1752 to restore the law on proprietary estoppel to its pre-Crabb position, and confine the use of the term proprietary estoppel to cases where a defendant was attempting to resile from a relied-upon representation that the claimant had an interest in the defendant’s land. However, this reactionary stance could not be sustained for more than a year. In Thorner v Major [2009] 1 WLR 776, ‘normal’ service was resumed, and a farmhand was allowed to rely on the law on proprietary estoppel to sue for the farm that the farm-owner had promised the farmhand he would inherit after the farm-owner’s death.

TORT LAW Lord Denning’s judgment in Crabb still lay about 15 years into the future when he addressed the Society of Public Teachers of Law in 1959, giving the address the characteristically understated title ‘The Way of an Iconoclast’ (Denning 1959, reprinted in Denning 1960). Denning surveyed with some satisfaction the developments in what he was by then very happy to call the law on ‘estoppel’ (Denning 1959, 79; 1960, 211), and pondered whether the law should adopt the Law Revision Committee’s 1937 recommendation that gift-promises that are made in writing should be binding. He noted that the Committee’s ‘unanimous recommendation has not been accepted—so far. It is often said that it takes 25 years for the recommendation of a committee to get on the statute book. It did in the case of the divorce laws. If this is right, the doctrine of consideration has only three more years to go’ (Denning 1959, 81; 1960, 213). As it happens, it was four years after Lord Denning’s speech that the House of Lords delivered its decision in Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465, and effectively ruled that if A promises B to take

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care in managing some aspects of B’s affairs, and B relies on A’s promise, then B will be able to sue A in tort—under the law of negligence—if A breaches that promise. The fact that B provided no consideration for A’s promise will provide no obstacle to B’s being able to sue A. Quite the opposite: in holding that B should be allowed to sue A in tort for breaching his promise (in tort lawyers’ language ‘assumption of responsibility’) to take care, the House of Lords placed great weight on the fact that had B provided consideration for A’s promise, then B would have been able to sue A for breach of contract (ibid, at 495 (per Lord Morris), 526–29 (per Lord Devlin)). It seems obvious in retrospect that the decision in Hedley Byrne was intended fundamentally to weaken the doctrine of consideration. There are a few reasons why it has not completely succeeded in doing so. First, Hedley Byrne will only apply to promises to take care in managing someone else’s affairs—if you want to sue someone on a strict liability basis for breach of a promise to ensure that something happens, contract (and the need for consideration) is your only source of recourse. Second, Hedley Byrne will only apply to relied-upon promises—so if you want to sue someone for breaching a promise on which you have not relied, then again contract (and the need to show you provided consideration for the promise) is your only source of recourse. Third, the fact that you have to show reliance and lack of care in order to sue someone for breach of promise under Hedley Byrne means claims under Hedley Byrne are messy—contract law claims have the potential to be cleaner and more straightforward (particularly when they involve claims for a debt). The real significance of Hedley Byrne for the law of contract has been that in the case where A has breached a contractual duty to B to take care in managing some aspect of B’s affairs, A now has the option of suing B for breach of that duty in negligence rather than just suing B for breach of contract: Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. This is because, as Tony Weir liked to observe, if liability under Hedley Byrne attaches to relationships that are akin or ‘equivalent to contract’ ([1964] AC 465, at 529 (per Lord Devlin)), you don’t get much more akin to a contractual relationship than an actual contractual relationship. The courts have sought to ensure, so far as they can, that it will make no difference whether A sues B (i) in negligence or (ii) for breach of contract: the rule in Hadley v Baxendale will apply to (i) just as much it does to (ii) ­(Wellesley Partners LLP v Withers LLP [2016] Ch 529); and the defence

120 

Gifts

of contributory negligence (under the Law Reform (­Contributory ­Negligence) Act 1945) will apply to (ii) just as much as it does to (i) (Vesta v Butcher [1988] 3 WLR 565). The one difference the courts have not been able to eliminate is how soon, under the law on the limitation of actions (as set out in the Limitation Act 1980), A has to sue B—if A is suing B for breach of contract, he has six years from the date of B’s breach; but if A is suing B in negligence, he has six years from the date B’s breach first caused A to suffer an actionable loss. To this extent, then, A will be better off suing B in negligence than for breach of contract. The decision in Hedley Byrne—and similar decisions in the areas of promissory and proprietary estoppel—illustrates how an understandable desire to protect deserving recipients of gift-promises (in particular promisees who have relied on the expectation of a gift-promise being kept) constantly threatens, in Lord Denning’s terminology, to overthrow the law of contract ‘by a side-wind’ (Combe v Combe [1951] 2 KB 215, 220). This is because if you don’t need a promise to be contractually binding in order to be legally binding, then people have less reason to look to the law of contract to structure their affairs and to attend to the values and principles that shape the law of contract in so doing. How the law manages this tension—the tension between protecting deserving claimants while at the same time retaining respect for the institution of the law of contract—is likely to be the most difficult issue affecting contract law in the twenty-first century.

ACKNOWLEDGEMENTS

I am extremely grateful to Bill Asquith, the Commissioning Editor for Hart Publishing, for asking me to edit the series of Key Ideas in Law books, and for giving me the chance to write about contract law, as well as commenting on drafts of some of the chapters of the book. Further comments were provided by Paul Davies, Tatiana Cutts, Sandy Steel and Julius Grower. I don’t think this book could have been written without the start I got as a law student in being taught contract law by Hugh ­Collins (and tort law by John Davies); or without the friendship and love of the dedicatees of this book.

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TABLE OF CASES

Addis v Gramophone Co Ltd [1909] AC 488�������������������������������������������������������12 Ajayi v R T Briscoe (Nigeria) Ltd [1964] 1 WLR 1326��������������������������������������114 The Alaskan Trader [1984] 1 All ER 129���������������������������������������������������������������56 The Albazero [1977] AC 774����������������������������������������������������������������������� 107, 108 Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23�����������������������������������������102 Arnold v Britton [2015] AC 1619��������������������������������������������������������������������������32 Ashburn Anstalt v Arnold [1989] Ch 1��������������������������������������������������������������.110 Baird Textile Holdings Ltd v Marks & Spencer plc [2002] 1 All ER (Comm) 737����������������������������������������������������������������������������������������� 20, 22, 117 Balfour v Balfour [1919] 2 QB 571�����������������������������������������������������������������������78 Bell v Lever Brothers Ltd [1932] AC 161�������������������������������������������������� 35–36, 37 Beswick v Beswick [1968] AC 58����������������������������������������������������������������� 109, 110 Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195��������������������������������������������������������������������������������������������������������53 Brennan v Bolt Burdon [2005] QB 303����������������������������������������������������������������36 British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] 1 QB 303�������������������������������������������������������������������������������������������������������������19 Cavendish Square Holding BV v Makdessi [2016] AC 1172������������� 48, 57–59, 60 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130������������������������������������������������������������������������������������������������ 54, 112–114 Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87������������������������������������� 100, 103 Cheese v Thomas [1994] 1 WLR 129��������������������������������������������������������������70–71 CIBC Mortgages v Pitt [1994] 1 AC 200���������������������������������������������������������������67 Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752�������������������������118 Combe v Combe [1951] 2 KB 215�������������������������������������������������������� 22, 114, 120 Compass Group UK Ltd v Mid Essex Hospital Services NHS Trust [2013] EWCA Civ 200��������������������������������������������������������������������45 Crabb v Arun District Council [1976] Ch 179��������������������������� 115–116, 117, 118 Credit Lyonnais Nederland NV v Burch [1997] 1 All ER 144�����������������������������69 Daulia Ltd v Four Millbank Nominees Ltd [1978] 1 Ch 231������������������������������52 Davis Contractors v Fareham UDC [1956] AC 696���������������������������������������������40 DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530��������������������64 Errington v Errington [1952] 1 KB 290����������������������������������������������������������51–52 The Eugenia [1964] 2 QB 226�������������������������������������������������������������������������������40

128 

Table of Cases

Foakes v Beer (1884) 9 App Cas 605��������������������������������������54, 104, 105, 106, 113 Granatino v Radmacher [2011] 1 AC 534������������������������������������������������������������83 Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2003] QB 679���������������������������������������������������������������������� 27, 34–35, 36, 37, 64 Guinness Mahon v Kensington & Chelsea RLBC [1999] QB 215�����������������������91 Hadley v Baxendale (1854) 9 Ex 341������������������������������������������������������������� 50, 119 The Hansa Nord [1976] 1 QB 44��������������������������������������������������������������������������44 Hartog v Colin & Shields [1939] 3 All ER 533�������������������������������������������������������7 Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465�������������� 118, 119, 120 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145��������������������������������������119 Herne Bay Steam Boat Co v Hutton [1903] 2 KB 683�����������������������������������41–42 Hoenig v Isaacs [1952] 2 All ER 176���������������������������������������������������������������������55 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha [1962] 2 QB 26���������44 Horwood v Millar’s Timber and Trading Co Ltd [1917] 3 KB 305���������������������78 Interfoto Picture Library v Stiletto Visual Programme [1989] QB 433����������������9 Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468�������������������������������� 107, 108 The Kanchenjunga [1990] 1 Lloyds Rep 391��������������������������������������������������������82 Krell v Henry [1903] 2 KB 740������������������������������������������������������������������������41–43 Lac Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574�������22 L’Estrange v F Graucob Ltd [1934] 2 KB 394���������������������������������������������������������9 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85������������������������������������������������������������������������������������������������������������� 107, 108 Lloyds Bank v Bundy [1975] QB 326��������������������������������������������������������������������70 Lombard North Central v Butterworth [1987] QB 527���������������������������������������61 MacLeod v MacLeod [2008] UKPC 64�����������������������������������������������������������������83 Maddison v Alderson (1883) 8 App Cas 467��������������������������������������������������������91 Multiservice Bookbinding Ltd v Marden [1979] 1 Ch 86������������������������������������48 MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553��������������������������������������������������������������� 105–106, 113 Pallant v Morgan [1953] Ch 43�����������������������������������������������������������������������������22 Panatown Ltd v Arthur McAlpine Construction Ltd [2001] 1 AC 518����� 107, 108 Pao On v Lau Yiu Long [1980] AC 614���������������������������������������������������������������111 Paradine v Jane (1646) Aleyn 26��������������������������������������������������������������� 38–39, 40 Paragon Finance plc v Nash [2002] 1 WLR 685���������������������������������������������������45 Parkinson v College of Ambulance Ltd [1925] 2 KB 1���������������������������� 83, 92, 94 Patel v Mirza [2016] UKSC 42������������������������������������������������������������������������92–94 Pearce v Brooks (1866) LR 1 Ex 213���������������������������������������������������������������������79 Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386���������������������������������������������������������������������18 Pillans v Van Mierop (1765) 3 Burr 1663������������������������������������������������������� 98, 99 Pinnel’s Case (1601) 5 Co Rep 117a��������������������������������������������������������������������104 Portman Building Society v Dusangh [2000] 2 All ER (Comm) 221�����������������48

Table of Cases

 129

R v Attorney General for England and Wales [2003] UKPC 22��������������������67–68 Raffles v Wichelhaus (1864) 2 H & C 906�����������������������������������������������������������7–8 Rann v Hughes (1778) 7 TR 350n�������������������������������������������������������������������������99 Redgrave v Hurd (1881) 20 Ch D 1�����������������������������������������������������������������������63 Riverlate Properties Ltd v Paul [1975] Ch 133�����������������������������������������������������31 Robinson v Harman (1848) 1 Exch 850����������������������������������������������������������������11 Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773���������������������������� 65, 67 Schuler v Wickman Machine Tool Sales Ltd [1974] AC 235�������������������������������44 In re Selectmove Ltd [1995] 1 WLR 474�����������������������������������������������������104–105 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206��������������������������������42 Smith v Hughes (1871) LR 6 QB 597�������������������������������������������������������������� 37, 38 Stilk v Myrick (1809) 2 Camp 317������������������������������������������������������ 101–102, 103 Stocznia Gdanska SA v Latvian Shipping Co (No 2) [2002] 2 EWCA Civ 436������������������������������������������������������������������������������������������������82 Taylor v Caldwell (1863) 3 B & S 826�������������������������������������������������������� 28, 39, 40 Thorner v Major [2009] 1 WLR 776�������������������������������������������������������������������118 Thornton v Shoe Lane Parking Co [1971] 2 QB 163���������������������������������������������9 Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514�������������������������������60 Vesta v Butcher [1988] 3 WLR 565���������������������������������������������������������������������120 Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387����������������������������116 Wellesley Partners LLP v Withers LLP [2016] Ch 529���������������������������������������119 Westdeutsche Landesbank v Islington LBC [1994] 4 All ER 890������������������������91 White & Carter Councils v McGregor [1962] AC 413�����������������������������������55–57 Whiten v Pilot Insurance Co [2002] 1 SCR 595���������������������������������������������������12 William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932������������������������ 22, 111 Williams v Bayley (1866) LR 1 HL 200�����������������������������������������������������������������67 Williams v Roffey Bros & Nicholls Contractors Ltd [1991] 1 QB 1��������� 101, 103, 104, 105, 106 Woodar Investments Development Ltd v Wimpey Construction Ltd [1980] 1 WLR 277��������������������������������������������������������������������������������������������108 Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573����������������������������������������������������������������������������������������������������60

130