Module code LW650

Module title The Law of Contract

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https://moodle.kent.ac.uk/
The Consumer Rights Act (CRA) 2015 applies to contracts ‘between a trader and a
consumer.’1 Jodie is not a consumer. She is a professional horse rider, purchasing a
horse and saddle pad to profit from an upcoming race. This is not acting ‘wholly or
mainly outside’2 the purposes of her profession. Her contracts with Bruce and Horsie
and Co are therefore business-to-business contracts.

Bruce’s Early Statements

Express terms can be made over the course of pre-contractual negotiations. Bruce
stated that his horses are free from hereditary diseases and are checked by a vet. It
would be in Jodie’s interest to contend that these were express terms so that she
secures herself greater legal protection. A court distinguishes between terms and
representations by considering various factors and objectively assessing parties’
common intentions.3 The ‘totality of the evidence’4 is considered and no single factor
is necessarily conclusive. Though the majority of the facts suggest that Bruce’s
statements are terms, both possibilities are reviewed in turn.

The statements were made orally - this does not preclude them from being terms.5 If
there is a short passage of time between when the statements were made and the
point of contract, this suggests the statements are terms.6 Jodie could also
potentially argue that the statements were important7 or that Bruce is a horse seller,
perhaps having some expert knowledge, and was therefore in a better position to
understand the health of his horses.8 If the court grants the statements contractual
effect, then there is a breach of contract. The horse truly does suffer from a
hereditary disease. A condition is implied that ‘goods will correspond with the
description.’9 Breach of condition would entitle Jodie to terminate the contract and
claim damages. Having said that, Jodie accepted the horse, following the ‘lapse of a

1 CRA 2015 s1(1)

2 ibid s2(3)
3 Heilbut, Symons and Co. v Buckleton [1913] AC 30, 50-51
4 ibid
5 Birch v Paramount Estates Ltd. [1956] 167 EG 396
6 Routledge v McKay [1954] 1 All ER 855 ; Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd's

Rep 611 [4]

7 Bannerman v White [1861] 10 CBNS 844
8 Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623
9 Sale of Goods Act (SGA) 1979 s13(1)
reasonable time’10 after several months. What is reasonable is a question of fact for
the court.11 Previously, courts have sustained buyers’ rights to reject goods despite
possessing and using the goods for several months.12 Nonetheless these cases are
factually different (respectively involving re-sale and further negotiations). The courts
are therefore likely to hold that Jodie accepted the horse following months of training.
Bruce’s breach of condition will be treated as a breach of warranty.13 Jodie could
keep the horse and claim damages.

She should attempt to claim £20,000 of reliance losses. Jodie relied on Bruce’s term
that the horse would be free of hereditary diseases. She could not have mitigated
her loss until after learning of this breach. The loss was foreseeable.14 However, the
reliance measure is subordinate to the expectation measure. If Bruce can establish
that the expectation measure (diminution in value: £20,000 minus the actual value of
the diseased horse she received) is less than £20,000 then the court will only grant
the expectation measure of damages to Jodie.15

Meanwhile, it is conceivable that the court could determine Bruce’s statements to be

representations. For instance, Jodie may not have sufficiently expressed to Bruce
the significance of his statements.16 Bruce may not have had expert knowledge, as
he did not intend for his assurance to exclude the need for external verification.17
This points away from the statements being contractual terms. If mere
representations, Jodie can claim misrepresentation against Bruce. He made
statements of material fact to Jodie prior to the point of contract.18 They was false
(the horse had a hereditary disease) and misleading (he suggested that his horses
had been checked by a vet but this was not true at the time the statement was

10 ibid s35(4)
11 ibid s59
12 Truk (UK) v Tokmakidis GmbH [2000] 2 All ER (Comm) 594 ; Clegg v Anderson [2003] EWCA Civ

320
13 SGA 1979 s11(4)
14 Czarnikow Ltd v Koufos [1969] 1 AC 350, 386
15 C&P Haulage v Middleton [1983] 1 WLR 1461, 1467-1478 ; Omak Maritime Ltd v Mamola

Challenger Shipping [2010] EWHC 2026 (Comm)

16 ibid (n>7)
17 Schawel v Reade [1913] 2 IR 81
18 Roscoria v Thomas [1842] 3 QB 234
made).19 She relied on his statements, even if they were not the sole inducement.20
The ideal claim for Jodie would be fiction of fraud misrepresentation21 because it
provides the same remedies as fraudulent misrepresentation, without requiring Jodie
to prove fraud.22 She entered the contract in reliance of the false statements and
suffered financial loss. Bruce would likely be unable to establish that he had
reasonable grounds, from the known facts, to believe his representations had been
true.

Jodie should claim damages and rescind the contract.23 Rescission could be barred
if the court determines that restoring the status quo ante is impossible: the value of
the horse could have changed since the point of contract.24 However, in Salt v
Stratstone Specialist Ltd25 the court took a flexible approach by allowing rescission,
despite a car’s depreciating value, to achieve ‘practical justice.’26 It was emphasised
that depreciation ‘should not operate to the disadvantage of the representee who
should never have been put in the position of having a troublesome old car.’27 This
approach could be applied here to allow rescission. It is down to the court’s
discretion to ‘take account of profits and make allowance for deterioration.’28
Irrespective of whether rescission is barred, damages ‘flowing from having entered
into the contract’29 can still be claimed.30

Bruce’s Obligation to Deliver

Bruce offered to sell a disease-free horse for which Jodie had to pay £20,000 as
valuable consideration.31 After paying, Bruce then claimed he will deliver the horse. It
can be questioned whether he is legally obliged to carry out actual delivery in 5 days.

19 Dimmock v Hallett [1866] L.R. 2 Ch.App. 21

20 Edgington v Fitzmaurice [1885] 29 CH D 459
21 Misrepresentation Act (MA) 1967 s2(1)
22 Derry v Peek [1889] 14 App Cas 337
23 MA 1967 s2(1)
24 Thomas Witter Ltd v TBP Industries [1996] 2 All ER 573
25 [2015] EWCA Civ 745
26 ibid [30]
27 ibid
28 Erlanger v New Sombrero Phosphate Co [1878] 3 App.Cas. 1218, 1278
29 William Sindall Plc v Cambridgeshire CC [1994] 3 All ER 932, 953
30 MA 1967 s2(1)
31 Thomas v Thomas [1842] 2 QB 851
If this is an issue, Jodie could argue that delivery was an intended contractual term.
It is in Jodie’s interest to enforce actual delivery.

Jodie could argue that Bruce’s promise formed an express term of a collateral
contract. The court will consider the parties’ objective intentions.32 Jodie intended to
train with the horse, as a horse rider reasonably would, and Bruce promised to
deliver. The primary contract served as consideration for Bruce’s promise.33 The
court could allow the collateral contract because Bruce’s promise does not contradict
the terms of the primary contract34 and is independent.35 On this basis, Bruce’s
promise to deliver the horse in 5 days is established as a term.

Alternatively, Bruce’s promise could be implied into their contract by custom, so long
as the custom (that a horse seller typically delivers the horse to the buyer) is
evidenced to be sufficiently certain in the market.36 It must have been the parties’
objective intentions that Bruce would deliver.37 This could theoretically succeed here
to establish the promise as a term.

Late Delivery

Bruce delivered the horse 3 days late. Late delivery is usually considered a breach of
condition, normally enabling Jodie to reject the goods, terminate the contract and
claim damages for non-delivery.38 However, the SGA 1979 does not specifically
comment on late deliveries and here, it is questionable whether this term is a
condition or warranty. On one hand, Jodie did not explicitly stipulate that time is of
the essence.39 Bruce’s stipulation of ‘5 days’ does not have the same effect,
suggesting the term is a warranty.40 On the other hand, the term could be held as a
condition for the sake of commercial certainty in delivery contracts.41 Furthermore,

32 ibid (n>3) 47
33 ibid
34 De Lassalle v Guildford [1901] 2 KB 215, 223
35 Jameson v Kinmell Bay Land Co Ltd [1931] 47 TLR 593
36 Hutton v Warren [1836] 1 M&W 466
37 Palgrave, Brown&Son v SS Turid [1922] 1 AC 397, 408
38 SGA 1979 s51
39 Union Eagle Limited v Golden Achievement Limited [1997] AC 514
40 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904
41 The Mihalis Angelos [1970] EWCA Civ 4 ; Bunge Corpn v Tradax SA [1981] 2 All ER 513
payment and delivery are performed as concurrent conditions.42 Nonetheless, Jodie
accepted the horse despite the breach in contract.43 She thereby lost her right to
reject the goods and the breach of condition is treated as a breach of warranty.44
She is now only able to claim damages. But she suffered no actionable loss from the
late delivery, so there are no damages to recover.

Vet

A common law claim for negligent misrepresentation45 cannot be made by Jodie

against the vet. The vet’s opinion served as a statement of material fact because she
is an expert.46 The statement was communicated as a written certificate and was
later revealed to be inaccurate. By inspecting the horse, the vet voluntarily assumed
responsibility to provide advice under reasonable care and skill so there was
sufficient proximity between Jodie and the vet.47 However, Jodie’s claim would not
succeed because the misrepresentation was not made before the contract was
entered into48 and Jodie did not enter the contract in reliance of the vet’s
misrepresentation (the certificate).49 Jodie was reassured by Bruce and had not seen
the certificate until after entering the contract.

Personal Injury

The horse equipment had a manufacturing defect. Horsie and Co is liable for breach
of contract. A condition is implied that ‘goods supplied under the contract are of
satisfactory quality.’50 The saddle does not ‘meet the standard that a reasonable
person would regard as satisfactory,’51 especially because it was unfit for the
product’s intended purpose of horse riding.52 Liability for s14 SGA 1979 is strict so

42 SGA 1979 s28

43 ibid s35
44 ibid s11(4)
45 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
46 Esso Petroleum v Mardon [1975] QB 801
47 ibid (n>45)
48 ibid (n>18)
49 JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583, 589
50 SGA 1979 s14(2)
51 ibid s14(2A)
52 ibid s14(2B)(a)
Horsie and Co will be liable – even for example, if the fault had been caused by a
third-party manufacturer. As Jodie accepted the saddle, she cannot repudiate the
contract.53 Jodie could claim cost of cure damages, having the saddle repaired, so
that she is put in the position she would have been in - had the contract been
performed as expected.

Owing to the saddle pad’s defect, it fell off and Jodie suffered personal injuries,
consequently requiring £15,000 for treatment. Henceforth, she should claim
damages from Horsie and Co for her injuries despite provision a). First, to consider
whether provision a) is incorporated. It is not known whether the electronic contract
was signed by Jodie but if so, it is incorporated.54 If not, the electronic contract could
be incorporated by reasonable notice, providing that it was sent to Jodie before or at
the time that the contract was entered into.55 It is unknown whether provision a) is
appropriately drawn to Jodie’s attention as it is an onerous exclusion clause.56 More
facts are therefore needed to be sure that the clause is incorporated. With
construction, the literal meaning of words and context of the contract is considered
as a ‘unitary exercise.’57 The clause clearly conveys intention to exclude Horsie and
Co’s liability for Jodie’s personal injury. However, a clause cannot exclude or restrict
liability ‘for death or personal injury resulting from negligence.’58 The term is
therefore unfair. Jodie could claim the full £15,000.

Loss of Potential Income

Resulting from the saddle’s defect, Jodie fell, didn’t finish the race and lost £50,000
of potential income. Accordingly, the Jodie’s claim for loss-of-chance damages is
against Horsie and Co. However, it is unclear whether Jodie would have won
£50,000 simply as an award for finishing the race or otherwise as prize money for
finishing in a certain position. This distinction is significant.

53 ibid s35
54 L’Estrange v Graucob [1934] 2 KB 394
55 Thompson v LMS Railway Co. [1930] 1 KB 41
56 Spurling v Bradshaw Ltd [1956] 1 WLR 461,466 ; Interfoto Picture Library v Stilletto [1989] QB 433
57 Wood v Capita Insurance Services Ltd [2017] UKSC 24 [12]
58 Unfair Contract Terms Act (UCTA) 1977 s2(1)
Chaplin v Hicks59 and Allied Maples v Simmons & Simmons60 established that,
where it is down to a third party (such as the organisers of a competition) to
determine whether a claimant would have achieved a financial benefit, this must be
proven by the claimant on a loss of chance basis. The clamant must merely establish
a ‘real and substantial chance’61 that the third party would have granted them the
benefit. The claimant’s damages would then be quantified by the doctrine of
averages.62 However, this can be distinguished from the current facts. In a horse-
riding race, there is no question over the actions of the third party (the organisers of
the race who grant the cash prize). What is in question is whether Jodie would
complete the required action (either finishing the race or coming in the required
position) to receive £50,000. Where it is a question of the claimant’s actions, it must
be proven that on the balance of probabilities, the claimant would have successfully
performed the action that would lead to achievement of the benefit. This is a
question of causation with a different burden of proof.63

If Jodie only had to finish the race to receive the £50,000 then she can argue that,
but for Horsie and Co’s breach of contract, she would have completed the race on
the balance of probabilities and achieved the £50,000 participatory prize. Jodie could
then claim the loss against Horsie and Co. On the other hand, if Jodie was actually
required to finish the race in a certain position to receive the £50,000 then it is
questionable whether she would have achieved this, but for the breach of contract,
on the balance of probabilities. This would depend on the number of competitors
and, as her chances may not exceed 50%, she would not succeed in claiming her
potential loss. Thus, whether she can claim loss-of-chance damages falls on this
factual distinction.

Limitation Clause

Whether Jodie can claim all of her damages (for the mentioned breach of contract
and £50,000 potential income) depends on whether Horsie and Co can rely on

59 [1911] 2 KB 786
60 [1995] 4 All ER 907
61 ibid 927
62 ibid 915
63 Perry v Raleys [2019] UKSC 5 [20]
provision b). This is a limitation clause which would limit Horsie and Co’s liability for
Jodie’s financial loss to £500. First, the clause must be incorporated. This involves
considering the same (already mentioned) factors as with provision a). Provision b)
is another term sent in the contract and is also onerous. Again, more knowledge of
the facts is needed to be sure that the term is incorporated. Next, the construction of
the limitation clause is assessed to determine whether it limits liability for Jodie’s
losses. The literal meaning of words and the context is reviewed.64 Considering the
Canada Steamship test,65 the provision does not explicitly restrict liability for
‘negligence.’ However, the clause is broad and excludes ‘any financial loss caused
by defects.’ The saddle’s manufacturing defect is damage that would be considered
negligent and is the reason for Jodie’s claims for damages so (although ‘negligence’
is not explicitly stated) the limitation clause could apply. Notably, this test does not
‘provide an automatic solution’66 so there is room for judicial discretion. Nonetheless,
limitation clauses are construed more favourably: ‘words must be given, if possible,
their natural, plain meaning. Clauses of limitation are not regarded by the courts with
the same hostility as clauses of exclusion.’67 As the clause refers to ‘defects,’ it
sufficiently alludes to damage caused by negligence.

Finally, under s6(1A) UCTA 1977, the limitation clause must satisfy a
‘reasonableness’ test.68 Horsie and Co, aiming to rely on provision b), must convince
the court that the test is satisfied and justify the £500 limit.69 However, this test is
fact-based and there are many unknown relevant facts. For instance: whether the
term is common in the relevant trade determines whether Jodie is reasonably
expected to have known of the term.70 We do not know anything about Horsie and
Co’s available resources to meet liability nor whether they have insurance,71 whether
the saddle was adapted to meet specifications for Jodie72 or whether there were
other contracts offered to Jodie with different terms.73 The outcome of the test relies

64 ibid (n>57)
65 Canada Steamship Lines Ltd v R [1952] AC 192
66 Mir Steel UK Ltd v Morris [2012] EWCA Civ 1397 [35]
67 Ailsa Craig Fishing v Malvern Fishing [1983] 1 All ER 101,102
68 UCTA 1977 s11
69 Overseas Medical Supplies v Orient Transport Services [1999] 1 All ER (Comm) 981 [7]
70 UCTA 1977 sch2(c)
71 ibid s11(4)
72 ibid sch2(e)
73 ibid sch2(b)
on a balancing act undertaken by the court. A single factor is unlikely to be
conclusive. On one hand, courts are generally reluctant to find a term in a non-
consumer contract unreasonable.74 On the other hand, Jodie should emphasise the
difference in bargaining power, likening this business-to-business contract to a
consumer contract and suggesting that Horsie and Co have greater resources. If the
parties are not of equal bargaining power to the extent that there is a significant
imbalance then the courts could find the term unreasonable.75 Nonetheless,
additional facts are required for a more certain conclusion.

74 Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA CIV 317 [55]
75 Granville Oil and Chemicals Ltd v Davis Turner [2003] EWCA Civ 570 [31]
Bibliography
Cases
- Ailsa Craig Fishing v Malvern Fishing [1983] 1 All ER 101
- Allied Maples v Simmons & Simmons [1995] 4 All ER 907
- Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10
- Bannerman v White [1861] 10 CBNS 844
- Birch v Paramount Estates Ltd. [1956] 167 EG 396
- British Crane Hire v Ipswich Plant Hire [1975] QB 303
- Bunge Corpn v Tradax Export SA Panama [1981] 2 All ER 513
- Business Environment Bow Land Ltd v Deanwater [2007] EWCA Civ 622
- C&P Haulage v Middleton [1983] 1 WLR 1461
- Canada Steamship Lines Ltd v R [1952] AC 192
- Chapleton v Barry [1940] 1 KB 532
- Chaplin v Hicks [1911] 2 KB 786
- Clarke v Dickson [1858] EB & E 148
- Clegg v Anderson [2003] EWCA Civ 320
- Czarnikow Ltd v Koufos [1969] 1 AC 350
- De Lassalle v Guildford [1901] 2 KB 215
- Derry v Peek [1889] 14 App Cas 337
- Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623
- Dimmock v Hallett [1866] L.R. 2 Ch.App. 21
- Ecay v Godfrey [1947] 80 Lloyd's Rep 286
- Edgington v Fitzmaurice [1885] 29 CH D 459
- Erlanger v New Sombrero Phosphate Co [1878] 3 App.Cas. 1218
- Esso Petroleum v Mardon [1975] QB 801
- George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803
- Granville Oil and Chemicals Ltd v Davis Turner [2003] EWCA Civ 570
- Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
- Heilbut, Symons and Co. v Buckleton [1913] AC 30
- Horsfall v Thomas [1862] 1 H&C 90
- Hutton v Warren [1836] 1 M&W 466
- Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd's Rep 611
- Interfoto Picture Library v Stilletto [1989] QB 433
- Jameson v Kinmell Bay Land Co Ltd [1931] 47 TLR 593
- JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583
- L’Estrange v Graucob [1934] 2 K.B. 394
- Mir Steel UK Ltd v Morris [2012] EWCA Civ 1397
- Olley v Marlborough Court [1949] 1 KB 532
- Omak Maritime Ltd v Mamola Challenger Shipping [2010] EWHC 2026 (Comm)
- Oscar Chess Ltd v Williams [1957] 1 WLR 370
- Overseas Medical Supplies v Orient Transport Services [1999] 1 All ER (Comm)
981
- Palgrave, Brown & Son v SS Turid [1922] 1 AC 397
- Perry v Raleys Solicitors [2019] UKSC 5
- Poussard v Spears & Pond [1876] 1 QBD 410
- Robinson v Harman 1 [1848] Exch 850
- Roscoria v Thomas [1842] 3 QB 234
- Routledge v McKay [1954] 1 All ER 855
- Royscot Trust Ltd v Rogerson [1991] 2 QB 297
- Ruxley Electronics & Constructions Ltd v Forsyth [1996] AC 344
- Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745
- Schawel v Reade [1913] 2 IR 81
- Smith v Eric Bush [1990] 1 AC 831
- Spurling v Bradshaw Ltd [1956] 1 WLR 461
- St Albans City and District Council v International Computer [1996] 4 All ER 481
- The Mihalis Angelos [1970] EWCA Civ 4
- Thomas v Thomas [1842] 2 QB 851
- Thomas Witter Ltd v TBP Industries [1996] 2 All ER 573
- Thompson v London Midland and Southern Railway Co. [1930] 1 KB 41
- Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
- Truk (UK) v Tokmakidis GmbH [2000] 2 All ER (Comm) 594
- Union Eagle Limited v Golden Achievement Limited [1997] AC 514
- United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904
- Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA CIV 317
- William Sindall Plc v Cambridgeshire CC [1994] 3 All ER 932
- Wood v Capita Insurance Services Ltd [2017] UKSC 24
- Yam Seng Pte Ltd v International Trade Crop Ltd [2013] EWHC 111 (QB)
Law Journal Articles
- Fuller L.L. and Perdue W.R., ‘The Reliance Interest in Contract Damages: 1’ (1936)
The Yale Law Review 46(1) 52
- Wedderburn K.W., ‘Collateral Contracts’ (1959) The Cambridge Law Journal 17(1)
58

Legislation
- Consumer Rights Act 2015
- Misrepresentation Act 1967
- Sale of Goods Act 1979
- Supply of Goods and Services Act 1982
- Unfair Contract Terms Act 1977