Chitty on Contracts With Second Supplement ( PDFDrive )

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Chitty on Contracts 32nd Ed.

Consolidated Mainwork Incorporating Second Supplement
Volume I - General Principles
Part 1 - Introduction
Chapter 1 - Introductory
Section 1. - Sources of English Contract Law
Contract law
1-001
As Sir Joseph Chitty observed, the law affecting commerce can be seen both in “the law of nations
[and] those municipal institutions of our own country, which are of a public and general nature, and
which form the basis of that commercial intercourse which takes place between individuals” and in the
law “which relates to commerce itself, strictly so called, as contradistinguished from those measures
of state policy by which it is secured and protected”. 1 In the modern law, it remains useful to
distinguish between laws which create the legal environment within which parties conclude their
contract (which may broadly be termed market regulation) and laws which relate specifically to the
conclusion of contracts, their terms, the relative rights and obligations which they create and the
remedies which arise on breach (contract law in the narrow and usual sense). The present work is
principally concerned with contract law in this usual sense, but on occasion the wider regulatory
framework is considered, particularly where the two sets of regulation are closely related. 2
The different sources of contract law
1-002
English contract law in this usual sense possesses four legal sources: common law, statute,
international convention and EU law. 3
1. Sir J. Chitty, A Treatise on the Laws of Commerce and Manufactures and the Contracts relating
thereto Strahan, London, 1st edn (1824), Vol.III, p.5. This work preceded the first edition of the
present work by Sir Joseph Chitty (the younger, died 1838) which was published in 1826.
2.
See especially as regards consumer contracts on which see Vol.II, Ch.38 and especially
paras 38-127—38-129 (enforcement of consumer information requirements); 38-145—38-191
(unfair commercial practices and consumer rights to redress); 38-323—38-333 and
38-387—38-394 (enforcement of law on unfair contract terms) and see Whittaker (2017) 133
L.Q.R. 47 esp. at 66–72. See also Vol.II, paras 38-002 et seq. (consumer credit (para.39-005))
and paras 34-215 et seq. (banking).
3. On the sources of English law more generally see J. Bell, “The Sources of Law” in A. Burrows
(ed.) English Private Law, 2nd edn (2007) Ch.1.
© 2018 Sweet & Maxwell

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(a) - The Common Law of Contract
The common law’s dominance of the general law
1-003
Writing in 1879 Sir William Anson observed:
“The law of contract so far as its general principles are concerned has been happily free
from legislative interference: it is the product of the vigorous common sense of English
judges.” 4
The common law (including equity for this purpose) still provides the fundamental rules governing all
aspects of the law applicable to contracts generally: English law has not adopted a contract law code
nor a “Contract Act”. 5 As a result, the common law governs the nature and definition of a contract
(including the requirement of consideration 6); the grounds of vitiation of contracts (mistake,
misrepresentation, duress and undue influence 7); the contents of contracts (the incorporation and
construction of express terms and the finding of implied terms) 8; the general framework treating
illegal contracts and a good number of their examples 9; performance and the grounds of discharge of
contractual obligations 10; the effects of contracts on third parties (privity of contract) 11 and the
remedies available for breach of contract. 12 Within this wider common law picture, equity has had a
fairly restrained impact, though it may be seen in the doctrine of undue influence 13 and in examples
of wider relief on the ground of unconscionability, 14 has supplied the important (if fairly restricted)
remedies of specific performance and injunction, 15 and has allowed promissory and proprietary
estoppel to qualify the doctrine of consideration and (sometimes) legislative requirements of formality.
16
Rules governing specific contracts
1-004
There is a much greater diversity in relation to the modern significance of the common law as regards
the rules governing specific contracts as contrasted with the law governing contracts in general. In
some contexts, the common law (sometimes supported or corrected by equity) still dominates the law
governing the relationships between the contracting parties 17: this is true, inter alia, of contracts of
agency, 18 contracts of insurance 19 and contracts of suretyship, 20 even though even in these
examples the law is sometimes supplemented or corrected by legislation. As will be seen, in other
types of contract, the role of the common law has become much diminished, with legislation (whether
national or European in origin) becoming increasingly significant, especially as regards the regulation
of the consequences of concluding a contract. Finally, in some types of contract, the regulation of the
parties’ relationship remains all but entirely in the hands of the parties themselves, who may for this
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purpose use standard contract terms, whether their own or ones drawn from industry practice. 21
4. Principles of the English Law of Contract and of Agency in relation to Contract, 1st edn (1879),
Preface.
5.
Other common law systems have chosen different paths, e.g. the Indian Contract Act of 1873
whose first draft was written by Sir Frederick Pollock. In the 1960s and early 1970s work on
drafting an English contract code was undertaken by the English and Scottish Law
Commissions, but was later abandoned: see Law Com. No.1 (1965) 6; Law Com. No.4 (1966)
7; Law Com. No.50 (1972) 3. A draft was published by McGregor, A Contract Code Drawn up
on Behalf of the English Law Commission (1993). See Cartwright (2009) 17 Eur. Rev. Private
law 155, 168–169. The modern position of consumer contract law is more arguable as recent
legislation has reframed a good deal of the law: see below, para.1-008 and Vol.II, Ch.38. See,
however, Burrows, A Restatement of the English Law of Contract (2016), whose aim (p.x) is “to
provide the best interpretation of the present English law of contract”.
6. Below, para.1-014, and see Chs 2 and 4.
7. Below, Chs 3, 6, 7 and 8 respectively.
8. Below, Chs 13 and 14 respectively.
9. Below, Ch.16.
10. Below, Chs 21 (Performance); 22 (Discharge by agreement); 23 (Discharge by frustration); 24

(Discharge by breach) and 25 (Other modes of discharge).
11. Below, Ch.18.
12. Below, Chs 26 (Damages) and 27 (Specific performance and injunction).
13. Below, para.8-057.
15. Below, Ch.27.
16. Below, paras 4-086 et seq., 5-041 et seq.
17. Here, there is an implicit distinction between the law governing the contract itself and the law
governing the market context in which the contract is made: see above, para.1-001. For
example, the business of insurance is highly regulated by legislation, even though the law
governing the parties to contracts of insurance remains dominated by the common law.
18. See Vol.II, Ch.31.
19. See Vol.II, Ch.42. In the case of insurance, this position has been qualified by recent legislation:
Consumer Insurance (Disclosure and Representations) Act 2012 and Insurance Act 2015, on
which see Vol.II, paras 42-031—42-032, 42-046 et seq.
21. See, in particular, as regards construction contracts: Vol.II, paras 37-019—37-023.

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(b) - Statute
Increasing importance of statute
1-005
Statute has become increasingly important in setting the law governing contracts, both in its broad
sense of the regulation of markets and in the narrower sense of the law governing the relative rights
and obligations of the parties and of third parties. 22 This has manifested itself in two principal ways.
General law
1-006
Some important aspects of the general law of contract have been subject to change by statute, the
legislation typically qualifying or supplementing the existing common law position rather than
reforming or recasting a particular aspect of contract law systematically. This can be seen as regards
the control of exemption clauses and certain related classes of unfair terms, 23 the law of
misrepresentation, 24 the law governing the capacity of minors 25 and persons lacking the mental
capacity to contract 26, and the consequences of frustration. 27 Even the Contracts (Rights for Third
Parties) Act 1999 merely creates a new (if broad and important) exception to the common law
doctrine of privity of contract. 28
Specific contracts
1-007
Statute has been much more important in the regulation of specific contracts. An old example may be
found in the Statute of Frauds of 1677, which imposed various requirements of form on particular
types of contract, and while the Statute itself survives only as regards contracts of guarantee, 29 its
provisions have had an important effect on the classification of contracts. There were various statutes
governing aspects of insurance contracts 30 and bills of sale 31 in the eighteenth and nineteenth
centuries and, in the last quarter of the latter, a series of statutes which sought to “codify” the law
governing particular types of contract, as in the case of bills of exchange, 32 contracts of partnership 33
and contracts for the sale of goods. 34 In the course of the twentieth century, important legislation was
introduced governing, inter alia, contracts of tenancy, 35 contracts of employment 36 and contracts of
consumer credit. 37
Consumer contracts
1-008
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Consumer contracts have long been the object of legislative intervention, with special rules
governing exemption clauses, 38 unfair contract terms more generally 39 and aspects of particular
types of consumer contract (such as consumer credit, 40 sale of goods, 41 package holiday contracts 42
or timeshare contracts 43). There have also been information requirements for contracts concluded in
certain circumstances (notably “doorstep selling” 44 and “distance contracts” 45), with accompanying
short-lived rights of cancellation for the consumer. Earlier legislation was scattered across a series of
legislative instruments (some primary legislation, some secondary) and formed part of and/or
overlapped with protective rules which could apply other than for the benefit of consumers. 46
Moreover, the key definitions of the person protected (the consumer) and the other party to the
contract (the party acting in the course of business) differed between the various legislative
instruments. 47 However, recent legislation has sought to address the problems of inconsistency
between consumer protection legislation and has also sought to mark a clear separation between
legislation governing consumer contracts and legislation governing contracts more generally. The
central pillar of this new legislative framework is the Consumer Rights Act 2015, whose most
important provisions provide for a set of statutory terms governing consumer “goods contracts”,
“digital content contracts” and “services contracts” (with sets of special remedies for their breach) and
which also provide for the control of unfair terms. 48 At the same time, the 2015 Act amends earlier,
more general, legislation (notably the Misrepresentation Act 1967, the Unfair Contract Terms Act
1977 and the Sale of Goods Act 1979) so that its provisions do not apply where the provisions of the
2015 Act apply. 49 Moreover, other legislation has reshaped and extended earlier legislative controls
so as to place most of the information duties on traders in a single set of statutory regulations 50 and
to create new rights to redress for certain unfair commercial practices committed by a trader. 51 The
overall result is the creation of a distinct and distinctive body of statutory law governing “consumer
contracts” paralleling (but separated from) the law applicable more generally, whether statutory or
common law 52 . Having said that, however, this body of consumer contract law by no means
provides a complete legislative regime governing consumer contracts. First, a good deal of legislation
specifically governing consumer contracts remains outside the four main relevant legislative
instruments, 53 including the very important Consumer Credit Act 1974 54 and legislation governing
consumer insurance contracts. 55 Secondly, even for those types of contract where the Consumer
Rights Act 2015 provides new discrete rules (notably sale of goods), wider general legislation still
applies to issues not regulated by those new rules. 56 And, thirdly, many issues arising between
parties to a consumer contract (or a would-be consumer contract) are not governed by legislation at
all and where this is the case the common law rules (whether applicable to contracts generally or to
specific types of contract) apply. The new patterns of legislation governing consumer contracts are
the subject of Ch.38 in Vol.II of the present work. 57
22. Above, para.1-001 and see Burrows (2012) 128 L.Q.R. 232.
23. Unfair Contract Terms Act 1977 and see below, paras 15-066 et seq.
24. Misrepresentation Act 1967 and see below, paras 7-074—7-085; 7-104—7-110; 7-111—7-113;
7-146—7-150.
25. Minors’ Contracts Act 1987 and see below, paras 9-061—9-064.
26. Mental Capacity Act 2005 s.7 and see para.9-096.
27. Law Reform (Frustrated Contracts) Act 1943 and see below, paras 23-074—23-077.
28. Contracts (Rights for Third Parties) Act 1999 and see below, paras 18-090—18-125.
29. See Vol.II, paras 45-042—45-061. Its provisions governing contracts for the sale or other
disposition of an interest in land were replaced by s.40 of the Law of Property Act 1925, itself
replaced by s.2 of the Law of Property (Miscellaneous Provisions) Act 1989, on which see
below, paras 5-010 et seq. The 1677 Act’s provision governing contracts for the sale of goods
(s.17) were finally abolished by the Law Reform (Enforcement of Contracts) Act 1954 s.4
(repealing Sale of Goods Act 1893 s.4).
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30. Life Assurance Act 1774, on which see Vol.II, paras 42-010, 42-014.
31. Bills of Sale Act 1878 (later amended).
32. Bills of Exchange Act 1882, see Vol.II, para.34-006.
33. Partnership Act 1890.
34. Sale of Goods Act 1893 replaced by the Sale of Goods Act 1979 on which see Vol.II, paras
44-001 et seq.
35. e.g. Landlord and Tenant Act 1954.
36. Notably, Employment of Children Act; Sex Discrimination Act 1975; Employment Protection Act
1975; Equal Pay Act 1970; Race Relations Act 1976. The law of discrimination was brought
together in the Equality Act 2010. See Vol.II, Ch.40.
37. Consumer Credit Act 1974 (as amended by the Consumer Credit Act 2006): see Vol.II, paras
39-007 et seq.
38. Unfair Contract Terms Act 1977 s.3–5, 6(2) and 7(2), 12 (as enacted) on which see below,
paras 15-066 et seq.
39. Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) on which see Vol.II,
40. See Consumer Credit Act 1974 and Vol.II, Ch.39.
41. See notably, Sale of Goods Act 1979 Pt 5A as inserted by Sale and Supply of Goods to
Consumers Regulations 2002 (SI 2002/3045) on which see Vol.II, paras 38-405 et seq.
42. The Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992/3288)
on which see Vol.II, paras 38-132—38-135.
43. Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (SI
2010/2960) (replacing earlier provisions) on which see Vol.II, paras 38-136—38-142.
44. Consumer Protection (Cancellation of Contracts Concluded Away from Business Premises)
Regulations 1987 (SI 1987/2117).
45. Consumer Protection (Distance Selling) Regulations 2000 (SI 2000/2334); Financial Services
(Distance Marketing) Regulations 2004 (SI 2004/2095) (on which see Vol.II, para.38-131).
46. This was notably the case as regards the Misrepresentation Act 1967 and the Unfair Contract
Terms Act 1977.
47. A key example was the definition of a person “dealing as consumer” within the meaning of the
Unfair Contract Terms Act 1977 and “consumer” within the meaning of the Unfair Terms in
Consumer Contracts Regulations 1999: see below, paras 15-073—15-078 and Vol.II, paras
38-028 et seq.
48. See Vol.II, paras 38-334—38-394, 38-399—38-547. The Consumer Rights Act 2015 Pts 1 and
2 were brought into force on October 1, 2015: see Vol.II, paras 38-197 and 38-335.
49. For the details see below, paras 15-064 et seq. and Vol.II, paras 38-336—38-344 and
38-436—38-442.
50. Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI
2013/3134) on which see Vol.II, paras 38-055 et seq.
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51. Consumer Protection (Amendment) Regulations 2014 (SI 2014/870) inserting, notably, new Pt
4A Consumers’ Rights to Redress in Consumer Protection from Unfair Trading Regulations
2008 (SI 2008/1277), on which see Vol.II, paras 38-145 et seq.
52.
On the distinctive features of modern consumer contract law see Whittaker (2017) 133 L.Q.R.
47.
53. Consumer Protection from Unfair Trading Regulations 2008; Consumer Contracts (Information,
Cancellation and Additional Charges) Regulations 2013; Consumer Rights Act 2015.
55. Consumer Insurance (Disclosure and Representations) Act 2012; Insurance Act 2015 and see
Vol.II, paras 42-033 et seq.
56. See Vol. II, paras 38-437—38-442.
57. Vol.II, Ch.38.

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(c) - International Convention
Generally
1-009
The UK has signed and ratified a number of international conventions which have required it to
introduce into English law by statute sets of uniform rules governing aspects of certain types of
contract. This can be seen in the case of international carriage of goods and passengers by sea, 58
international carriage by air 59 and international carriage by land. 60 While there is an United Nations
Convention on Contracts for the international sale of goods, the UK has yet to ratify it. 61
European Convention on Human Rights
1-010
The “bringing home” of the majority of rights protected by the European Convention on Human Rights
and its protocols by the Human Rights Act 1998 possesses implications for contract law, which will be
discussed later in the present chapter. 62
58. See notably Hague Rules and Hague-Visby Rules (goods) introduced into English law by the
Carriage of Goods by Sea Act 1971 (on which see below, para.15-134); Athens Convention
relating to the Carriage of Passengers and their Luggage by Sea 1974 (on which see Vol.II,
para.36-064).
59. Vol.II, Ch.35 commencing with the Warsaw Convention on International Carriage by Air of
1929.
60. Vol.II, para.36-003, paras 36-079 et seq.
61. See Vol.II, para.44-014.
62. Below, paras 1-057—1-094.

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(d) - EU Law
(i) - The Current Position
EU law governing contracts: the Union acquis
1-011
Various elements of EU law have affected the conclusion and the regulation of contracts by English
law. As regards the Treaties themselves, one prominent area is the law of competition, which has
both a general impact on the environment within which contracts are made and which holds certain
categories of contract or contract term unlawful. 63 EU legislation (principally in the form of
directives) has also regulated aspects of a number of types of contract. Consumer contracts have
been an important object of attention, with directives requiring rules controlling the fairness of most of
their standard terms, rules governing aspects of contracts made in certain circumstances (as with
“distance contracts” or “off-premises contracts”) and of certain types (sale of goods, consumer credit,
64
time-share, and package holidays). Outside the consumer context, directives have required
65
rules governing commercial agency contracts and particular aspects of commercial contracts in
66
general (notably, as regards late payment of commercial debts). The public procurement
67
directives have had a major impact on the process of public contracting ; and a series of
employment directives have created or reshaped rights of employees in a number of ways. 68 EU
law instruments have also an important impact on international jurisdiction and applicable law in the
area of contract law. 69 This catalogue illustrates, however, that EU legislation harmonising
contract law has hitherto remained piecemeal, targeting particular situations or particular aspects of
the rules governing contracts.
Towards a “European Contract Law”?
1-012
By the late 1990s, there was growing academic interest in the development of a more general
“European contract law” kindled in part by the Lando Commission’s Principles of European Contract
Law (a set of legal propositions relating to the conclusion, content, performance and non-performance
of contracts agreed by a group of European legal scholars 70 ) and in part by growing criticism of
the “incoherence” of the EC contract law acquis which for continental civil lawyers in particular
71
contrasts sharply with the formal completeness of their national private law codifications.
Encouraged by the conclusions of the meeting of the European Council at Tampere in 1999 72 and
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in 2001 the European Commission issued the first of a series of communications which called for a
debate as to the proper way of addressing these criticisms of European contract law and which
sought to encourage means of developing its usefulness for the internal market. 74 In 2008, further
academic work was published which proposed, inter alia, a draft “Common Frame of Reference” for
European contract law. 75 There have been two expressions of these discussions. 76 First,
some directives of the consumer acquis have been revised and, of these, some made the subject of
“full harmonisation” (meaning that Member States are not permitted to maintain or enact legislation
which is more protective of consumers). 77 Secondly, the European Commission proposed a more
general optional “Common European Sales Law”. 78
The Proposed Common European Sales Law (CESL) 79
1-013
In 2011 the Commission proposed the enactment of an EU regulation which would have
established the availability of a Common European Sales Law for parties to choose to govern
cross-border contracts for the sale of goods, supply of “digital content” and related services. 80
The Proposal defined “cross-border contracts” distinctly for contracts between traders (“if the parties
have their habitual residence in different countries of which at least one is a Member State” 81 )
and contracts between a trader and a consumer (which for consumers replaces habitual residence
with “the address indicated by the consumer, the delivery address for goods or the billing address”). 82
The Proposal restricted the availability of the CESL to the case where one of the parties is a
trader and the other a consumer and to the case where both parties are traders, but at least one is a
small or medium-sized enterprise (SME), a category which the Proposal defines. 83 The CESL set
out two broad categories of rules: rules of general contract law governing the conclusion, validity,
contents and interpretation of contracts, damages for breach and interest, restitution on invalidity of
contract, and prescription of rights (Pts I to III, VI to VIII CESL respectively) and rules governing the
obligations and remedies pertaining to the particular types of contracts to which CESL may apply (Pts
IV and Pt V CESL). These rules were prefaced by the setting of three “general principles”: freedom of
contract; “good faith and fair dealing”; and co-operation in the performance of obligations. 84
Within its scope, the CESL was intended to create a uniform law, distinct from national laws, as it
provided that:
“[w]here the parties have validly agreed to use the Common European Sales Law for a
contract, only the Common European Sales Law shall govern the matters addressed in
its rules.” 85
The definition of the scope (and therefore the exclusive regulation reserved for the CESL) was
furthered in two ways. First, the recitals to the Proposal explained that certain issues are outside its
86
scope. Secondly, the CESL provided that it was “to be interpreted autonomously and in
accordance with its objectives and the principles underlying it” 87 and that
“[i]ssues within the scope of the Common European Sales Law but not expressly settled
by it are to be settled in accordance with the objectives and the principles underlying it
and all its provisions, without recourse to the national law that would be applicable in the
absence of an agreement to use the Common European Sales Law or to any other law.”
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88
However, the proposal met with considerable criticism and opposition, including challenges to its
competence under the Treaty, and in December 2014 it was withdrawn, though the Commission
announced its intention of bringing forward a modified proposal “to unleash the potential of
e-commerce in the digital Single Market”. 89 Moreover, despite the withdrawal of the earlier
proposal, the substantive provisions of the draft Common European Sales law itself (particularly those
intended to govern contracts generally) remain of interest as they may be seen as reflecting an
emerging “common European law of contract”. This may be significant for the drafting of future more
90
particular EU legislation, and may also be used for the development of autonomous
interpretations of undefined concepts in present or future EU legislation in the area of contracts. 91
Its provisions—and especially its three general principles 92 —are also likely to be seen as a basis
for the European Court of Justice’s identification and development of “general principles of civil law”.
93
63.
Notably, as being an “agreement between undertakings … which may affect trade between
Member States and which [has] as [its] object or effect the prevention, restriction or distortion of
competition within the internal market”: art.101 TFEU (ex art.81 EC). On this law, see generally
Vol.II, Ch.43, especially paras 43-004 et seq.
64.
Directive 93/13/EEC of April 5, 1993 on unfair terms in consumer contracts [1993] O.J.
L95/29 (see Vol.II, paras 38-199—38-200); Directive 97/7/EC on the protection of consumers in
respect of distance contracts [1997] O.J. L144/19; Directive 85/577/EEC to protect the
consumer in respect of contracts negotiated away from business premises [1985] O.J. L372/31
(the latter two of which were revoked and replaced by Directive 2011/83/EU on consumer rights
[2011] O.J. L304/64) (see Vol.II, paras 38-056—38-061); Directive 99/44/EC on certain aspects
of the sale of consumer goods and associated guarantees [1999] O.J. L171/7 (see Vol.II, paras
38-400—38-402); Directive 2002/65/EC concerning the distance marketing of consumer
financial services [2002] O.J. L271/16 (see Vol.II, para.38-131); Directive 2005/29/EC
concerning unfair business-to-consumer commercial practices in the internal market [2005] O.J.
L149/22 (see Vol.II, paras 38-147—38-152); Directive 2008/48/EC on credit agreements for
consumers and repealing Council Directive 87/102/EEC [2008] O.J. L133/66 below, Vol.II,
para.39-011; Directive 2008/122/EC on the protection of consumers in respect of certain
aspects of timeshare, long-term holiday product, resale and exchange contracts [2009] O.J.
L33/30 (see Vol.II, para.38-136); Directive 90/314/EEC of June 13, 1990 on package travel,
package holidays and package tours [1990] O.J. L158/59 (itself repealed and replaced by
Directive (EU) 2015/2302 on package travel and linked travel arrangements [2015] O.J. L326/1
as from July 1, 2018 (arts 28 and 29)) (see Vol.II, para.38-136); Regulation (EC) 261/2004
establishing common rules on compensation and assistance to passengers in the event of
denied boarding and of cancellation or long delay of flights [2004] O.J. L46/1 (see Vol.II, paras
35-071—35-073); Directive 2014/17/EU on credit agreements for consumers relating to
residential immovable property [2014] O.J. L2014/34 on which see Vol.II, paras 39-003 and
39-531.
65.
Council Directive 86/653/EEC on the coordination of the laws of the Member States relating
to self-employed commercial agents [1986] O.J. L382/17: see Vol.II, paras 31-017—31-020.
66.
Directive 2011/7/EU on combating late payment in commercial transactions [2011] O.J. L48/1
(replacing Directive 2000/35/EC on combating late payment in commercial transactions). The
2011 Directive is implemented in UK law by the Late Payment of Commercial Debts (Interest)
Act 1998 as amended by the Late Payment of Commercial Debts Regulations 2013 (SI
2013/395) on which see below, paras 26-232—26-235.
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67.
In 2004 these were placed into the “Legislative package”: Directive 2004/18/EC of the
European Parliament and of the Council of March 31, 2004 on the co-ordination of procedures
for the award of public works contracts, public supply contracts and public service contracts
[2004] O.J. L134/114; Directive 2004/17/EC of the European Parliament and of the Council of
March 31, 2004 co-ordinating the procurement procedures of entities operating in the water,
energy, transport and postal services sectors [2004] O.J. L134/1. The two 2004 directives were
repealed and replaced as from April 18, 2016 by Directive 2014/24/EU on public procurement
and repealing Directive 2004/18/EC [2014] O.J. L94/65 (see esp. art.91) and Directive
2014/25/EU on procurement by entities operating in the water, energy, transport and postal
services sectors and repealing Directive 2004/17/EC [2014] O.J. L94/243 (see esp. art.107),
which were supplemented by Directive 2014/23/EU on the award of concession contracts
[2014] O.J. L94/1. On these see below, paras 11-051—11-052.
68.
See Vol.II, Ch.40 especially paras 40-039, 40-112, 40-136, 40-155, 40-156, 40-172, 40-179
and 40-245.
69.
Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil
and commercial matters [2001] O.J. L12/1 (the “Brussels I Regulation”), especially arts 5(1)
(special jurisdiction in “matters relating to a contract”), 8–14 (matters relating to insurance),
15–17 (jurisdiction over consumer contracts), 18–21 (jurisdiction over individual contracts of
employment), 23 (jurisdiction agreements). The Brussels I Regulation is itself replaced as from
January 10, 2015 by Regulation (EU) 1215/2012 of December 12, 2012 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters (recast) (“the
Brussels Ibis Regulation”); Regulation 593/2008 on the law applicable to contractual obligations
(“Rome I”) [2008] O.J. L177/6, on which see below, paras 30-129 et seq.
70.
Formally, the “Commission on European Contract Law”, but often named after Professor O.
Lando who chaired it. They are published as Lando and Beale, Principles of European Contract
Law Parts I and II (1999); Lando, Clive, Prüm and Zimmermann, Principles of European
Contract Law Part III (2003).
71.
e.g. Roth (2002) 10 ERPL 761.
72.
Presidency Conclusions, Tampere European Council October 15 and 16, 1999, SI 1999/800.
73.
EP Resolution B5–0228, 0229–0230/2000, p.326 at point 28 (March 16, 2000), [2000] O.J.
C377/323 (following earlier resolutions in 1989 and 1994 which explicitly concerned the
possibility of a codification of substantive private law).
74.
Communication from the Commission to the Council and the European Parliament on
European Contract Law Com(2001) 398 final; Communication from the Commission to the
European Parliament and the Council, “A more coherent European Contract Law, An Action
Plan” Com(2003) 68 final; European Contract Law and the revision of the acquis: the way
forward Com(2004) 651 final; EU Commission, Green Paper from the Commission on policy
option for progress towards a European Contract Law for consumers and businesses
COM(2010) 348 final.
75.
Principles, Definitions and Model Rules of European Private Law, Draft Common Frame of
Reference (DCFR) prepared by the Study Group for a European Civil Code and the Research
Group on EC Private Law (Acquis Group) (2010), six volumes.
76.
See further Whittaker (2007) European Review of Contract Law 381; Whittaker (2009) 125
L.Q.R. 616.
77.
Notably, Directive 2011/83/EU on consumer rights (above, n.63).
Page 5
78.
Proposal for a Regulation on a Common European Sales Law, Com(2011) 635 final. (“CESL
Proposal”).
79.
On the idea of an “optional instrument” for European contract law before the CESL Proposal,
see H. Schulte-Nölke (2007) ERCL 332 especially at 348–349; Cartwright (2011) 7 ERCL 335.
On the proposal itself see The Law Commission and Scottish Law Commission, Advice to the
UK Government, An Optional Common European Sales Law: Advantages and Problems
(November 2011) available at http://lawcommission.justice.gov.uk. Whittaker (2012) 75 M.L.R.
578; Dannemann and Vogenauer, The Common European Sales Law in Context, Interactions
with English and German law (2013).
80.
CESL Proposal art.1. The first part of the proposed regulation sets out the framework of the
new scheme (here referred to as “CESL Proposal”); the CESL itself is contained in Annex I and
is separately numbered (“CESL Proposal, Annex I”).
81.
CESL Proposal art.4(2).
82.
CESL Proposal art.4(3).
83.
CESL Proposal art.7.
84.
CESL Proposal Annex I arts 1–3 respectively.
85.
CESL Proposal art.11.
86.
Notably, CESL Proposal, recitals 27–28. Issues outside the scope of the CESL would be
governed by the law applicable as identified by the private international law rules of the forum.
87.
CESL Proposal Annex I art.4(1).
88.
CESL Proposal Annex I art.4(2).
89.
European Commission, Annex 2 to the Commission Work Programme 2015 Com(2014) 910
final, p.12. See also the Communication from the Commission, A Digital Single Market Strategy
for Europe, 2015 COM(2015) 192 final, pp.4-5. This strategy has led, inter alia, to a Proposal
for a Directive of the European Parliament and of the Council on certain aspects concerning
contracts for the online and other distance sales of goods COM(2015) 635 final and a Proposal
for a Directive of the European Parliament and of the Council on certain aspects concerning
contracts for the supply of digital content COM(2015) 634.
90.
cf. the explicit borrowing by Directive 2011/7/EU on combating late payment in commercial
transactions [2011] O.J. L48/1, art.7(1)(a) (as explained by recital 28) of “good faith and fair
dealing” from the DCFR (which was an important precursor to the CESL, above, n.74).
91.
See e.g. (before issuing the Proposal) A.G. Trstenjak’s reference to art.167(3) CESL in the
context of the 1993 Directive in Banco Español de Crédito, SA v Calderón Camino (C-618/10)
para.42. cf. Masdar (UK) Ltd v EC Commission (T–333/03) [2007] 2 All E.R. 261 where the
Court of First Instance accepted reference to the work of the Study Group on a European Civil
Code in order to develop a EU law of restitution for unjustified enrichment under art.288
(formerly 215) EC; Hamilton v Volksbank Filder eG (412/06) A.G. Poires Maturo at [24]
(referring to time limits for the exercise of a right as being a “principle common to the laws of the
Member States” and citing the possible future DCFR). On these predecessors of the CESL, see
above, n.74.
Page 6
92.
CESL Proposal Annex arts 1–3.
93.
Whittaker, The Future of European Contract Law, Essays in Honour of Ewoud Hondius
(2007), 333; Weatherill (2010) 6 European Review of Contract Law 74; Hesselink, The
Involvement of EU Law in Private Law Relationships (2012). e.g. Hamilton v Volksbank Filder
eG (C-412/06) [2008] E.C.R. I–2383 at para.42; Messner v Krüger (C-489/07) [2009] I–07315
para.26; E. Friz GmbH v Carsten von der Heyden (C-215/08) [2010] E.C.R. I–2947, paras 48,
49.

Page 1

(d) - EU Law
(ii) - United Kingdom’s Exit from the EU (“Brexit”)
A note on “Brexit”
1-013A
After a national referendum held on June 23, 2016 at which a majority voted in favour of the UK
leaving the EU, the UK Conservative Government formed on July 16, 2016 declared its intention to
end the UK’s membership of the EU (“Brexit”) and on March 29, 2017 the Prime Minister, the Right
Hon. Mrs Theresa May MP, set in motion the process of doing so under art.50 of the Treaty of the
European Union (TEU). 94 The Conservative Government set out its intentions as to the position of
existing EU law in the UK in two white papers, The United Kingdom’s exit from and new partnership
95
with the European Union and Legislating for the United Kingdom’s withdrawal from the
96
European Union.
European Union (Withdrawal) Bill 2017
1-013B
After a general election held on June 8, 2017, the Conservative Government earlier formed by Mrs
May remained in government. On July 13, 2017 the European Union (Withdrawal) Bill (“the 2017 Bill”
or “the Bill”) received its first reading in the House of Commons, its second reading being held on
September 7 and 11, 2017 97 ; the 2017 Bill is accompanied by Explanatory Notes (“Explanatory
Notes to 2017 Bill”). For the purposes of the likely impact of Brexit on English contract law, the
following points arise from the terms of the Bill as presently drafted.
The general preservation of the UK’s EU legislative acquis
1-013C
98
The Bill would repeal the European Communities Act 1972 on “exit day”, defined as “such
99
day as a Minister of the Crown may be regulations appoint”, but clearly intended to be the day
on which the UK leaves the EU. Despite this repeal, the Bill would in principle retain the EU legislative
acquis as part of UK law. First, in principle “EU-derived domestic legislation, as it has effect in
domestic law immediately before exit day, continues to have effect in domestic law on and after exit
100
day”. This provision would preserve much of the UK legislation governing contract law, which
Page 2
has been enacted as secondary legislation under the European Communities Act 1972, as in the
case of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations
101 102
2013 and the Timeshare Regulations 2010 in the field of consumer contracts or the
Commercial Agents (Council Directive) Regulations 1993 in the field of commercial agency. 103
Secondly, “[d]irect EU legislation, so far as operative immediately before exit day, forms part of
domestic law on or after exit day”. 104 Such direct EU legislation includes EU regulations 105
and would therefore concern such instruments affecting contract law as the Brussels Ibis Regulation
106 107
or the Rome I Regulation in the area of private international law, and the Denied
Boarding Regulation in the area of consumer protection 108 Thirdly, the 2017 Bill contains
provision for the preservation of UK primary legislation enacted for the purpose of implementing EU
109
obligations (such as the Consumer Rights Act 2015 ) or secondary legislation with the same
purpose but made under statutory powers other than those contained in s.2(2) of the 1972 Act. 110
Taken together, these laws are referred to as “retained EU law” by the Bill. 111 There are, however,
two types of qualifications on the resulting preservation in UK law of the EU legislative acquis as the
Bill itself sets out certain exceptions for this purpose, and also provides for the later amendment or
repeal of legislation (primary or secondary) whose source is in EU legislation either by secondary
legislation made by a Minister of the Crown or by a devolved authority (such as the Scottish
Ministers), this being referred to as “dealing with deficiencies arising from withdrawal”. 112
Further issues arising from Brexit
1-013D
Three further issues in particular should be noted. First, the 2017 Bill makes provision to ensure
that any remaining EU rights and obligations which are not preserved in the way just explained 113
continue to be recognised and available in domestic law after the UK leaves the EU and these include
directly effective rights contained in the European Treaties themselves. 114 Secondly, on leaving
the EU, the 2017 Bill would end the general supremacy of EU law, but this would take effect only
prospectively in the sense that any conflict between two pre-exit laws (one EU-derived, one not)
would be resolved in favour of the EU-derived law. 115 Thirdly, provision is made for the future
authoritative interpretation of the UK legislation whose source is EU legislation before and after the
UK has left the EU (“exit day”). For this purpose a distinction is drawn between the case-law of, or
principles laid down by, the Court of Justice of the EU before and after the UK’s leaving the EU. As
116
regards the former, “retained EU law” is in principle to be interpreted “in accordance with any
117
retained case law and any retained general principles of EU law, and, having regard (among
118
other things) to the limits, immediately before exit day, of EU competences”. However, the Bill
then provides that “the Supreme Court is not bound by any retained EU case law” 119 and then
explains that “[i]n deciding whether to depart from any retained EU case law, the Supreme Court …
must apply the same test as it would apply in deciding whether to depart from its own case law”. 120
As the Government’s second white paper earlier foresaw, this would therefore treat “retained EU
case law” as “normally binding” but it would allow the Supreme Court to depart from it “when it
appears right to do so”. 121 As regards the position of EU case law and principles after the UK has
left the EU, the Bill provides that “[a] court or tribunal … is not bound by any principles laid down, or
any decisions made, on or after exit day by the European Court” 122 and adds that “[a] court or
tribunal need not have regard to anything done on or after exit day by the European Court, another
EU entity or the EU but may do so if it considers it appropriate to do so”. 123 This position would
therefore mean that UK courts would not be required even to consider case law of the Court of
Page 3
Justice made after exit day, though they may do so if they consider it appropriate. 124 In this
respect, the position would differ from the duty of UK courts under the Human Rights Act 1998 s.2(1)
of which provides that in determining a question which has arisen in connection with a right under the
European Convention on Human Rights a court “must take into account any … judgment, decision,
declaration or advisory opinion of the European Court of Human Rights”.
Present position
1-013E
However, until the UK leaves the EU (whether two years after March 29, 2017 when the Prime
Minister gave the EU notice under art.50 TEU or at some later date with the agreement of the
European Council), the UK remains a full member of the EU and the status of EU law remains the
same as it has been since the UK’s becoming a Member State in 1972 and the enactment of the
European Communities Act. 125 The text of this Supplement continues, therefore, to be written on
the premise that the UK is a Member of the EU and that the status of EU law in the UK remains the
same until such time as the European Union (Withdrawal) Bill is enacted, the UK leaves the EU and a
Minister of the Crown therefore designates “exit day” as presently foreseen by the Bill.
94.
The Prime Minister’s authority to do so was given by the European Union (Notification of
Withdrawal) Act 2017 s.1.
95.
Department for Exiting the European Union, Cm.9417 (February 2017).
96.
Department for Exiting the European Union, Cm.9446 (March 2017).
97.
See http://services.parliament.uk/bills/2017-19/europeanunionwithdrawal.html.
98.
European Union (Withdrawal) Bill 2017 (“2017 Bill”) cl.1.
99.
2017 Bill cl.14(1) “exit day”, itself referring to cl.14(2) as regards the time of day.
100.
2017 Bill cl.2(1). Clause 2(2) defines “EU-derived domestic legislation” to include, in
particular, any enactment made under s.2(2) of the European Communities Act 1972. The
exceptions to this general position are set out by cl.5 and Sch.1.
101.
SI 2013/3134 implementing Directive 2011/83/EU on consumer rights [2011] O.J. L304/64 on
which see Main Work, Vol.I, paras 38-057 et seq.
102.
Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (SI
2010/2960) implementing Directive 2008/122/EC on the protection of consumers in respect of
certain aspects of timeshare, long-term holiday product, resale and exchange contracts [2009]
O.J. L33/30, on which see Vol.II, paras 38-136—38-142.
103.
SI 1993/3053 implementing Directive 86/653 on the co-ordination of the laws of the Member
States relating to self-employed commercial agents [1986] O.J. L382/17, on which see Main
Work, Vol.II, paras 31-017—31-020.
104.
2017 Bill cl.3(1).
Page 4
105.
2017 Bill cl.3(2).
106.
Regulation (EU) 1215/2012 of December 12, 2012 on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters (recast) [2012] O.J. L351/1.
107.
Regulation 593/2008 on the law applicable to contractual obligations (“Rome I”) [2008] O.J.
L177/6, on which see Main Work, Vol.I, paras 30-129 et seq.
108.
Regulation (EC) 261/2004 establishing common rules on compensation and assistance to
passengers in the event of denied boarding and of cancellation or long delay of flights [2004]
O.J. L46/1 on which see Main Work, Vol.II, paras 35-071—35-073.
109.
The 2015 Act implements Directive 1999/44/EC on certain aspects of the sale of consumer
goods and associated guarantees [1999] O.J. L171/12 (principally in Pt 1, Ch.2 of the Act); the
Directive 93/13/EEC of April 5, 1993 on unfair terms in consumer contracts [1993] O.J. L95/29
(principally in Pt 2 of the Act) and certain aspects of Directive 2011/83/EU on consumer rights
[2011] O.J. L304/64 (ss.11(4)–(6), 12; ss.36(3)–(4) and 37; and s.50(3)–(4) of the Act). On this
see Main Work, Vol.II, paras 38-345 et seq. and 38-402, 38-431 et seq.
110.
2017 Bill cl.2(2) and see Explanatory Memorandum para.74, which gives as an example
domestic health and safety law implementing EU obligations made under powers in the Health
and Safety at Work etc. Act 1974 rather than the European Communities Act 1972.
111.
2017 Bill cl.6(7) defining “retained EU law” by reference to “anything which, on or after exit
day, continues to be, or forms part of, domestic law by virtue of” cls 2, 3, 4 or 6(3) or (6) of the
Bill, “as that body of law is added to or otherwise modified by or under [the Bill] or by other
domestic law from time to time”.
112.
2017 Bill heading of cl.7 and Sch.2 Pt 1; Cm.9446 (March 2017) paras 1.14–1.16. and Ch.3.
The definition of “devolved authority” is contained in cl.14(1) of the 2017 Bill.
113.
Above, para.1-013C.
114.
2017 Bill cl.4 and Explanatory Notes to 2017 Bill, paras 87 et seq.
115.
2017 Bill cl.5; Cm 9446 (March 2017) paras 2.19–2.20.
116.
See above, n.92.
117.
Defined in terms of temporal origin by cl.6(7) of the 2017 Bill as those which are made or laid
down immediately before exit day: cl.6(7) “retained EU case law” and “retained general
principles of EU law”.
118.
2017 Bill cl.6(3).
119.
2017 Bill cl.6(4)(a). Further provision is made as regards the (Scottish) High Court of
Justiciary.
120.
2017 Bill cl.6(5).
121.
Cm 9446 (March 2017) para.2.16 quoting the House of Lords Practice Statement (Judicial
Page 5
Precedent) of 1966, [1966] 1 W.L.R. 1234; and see also Explanatory Notes to 2017 Bill,
para.107.
122.
2017 Bill cl.6(1)(a).
123.
2017 Bill cl.6(2).
124.
Explanatory Notes to 2017 Bill, paras 103-104.
125.
This follows from the remaining in force of the European Communities Act 1972 and is
acknowledged by Cm.9446 (March 2017) para.1.10.

Page 1

Section 2. - Definitions of Contract
Competing definitions of contract
1-014
There are two main competing definitions of a contract in the common law. 126 The first, which was
adopted by the 26th edition of this work, defines a contract as a promise or set of promises which the
law will enforce. 127 The competing view, which was taken by the 2nd edition of this work, 128 is that a
“contract is an agreement giving rise to obligations which are enforced or recognised by law”. 129
There are two main arguments in favour of the definition of contract in terms of promise. First, the
idea of contracts as being based on agreement was introduced into English legal discussions only in
the nineteenth century, in particular under the influence of Pothier, Treatise on Obligations 130 and
does not accord with the raw material of the common law, in particular in relation to the requirement
of consideration. 131 For English law does not in general enforce gratuitous promises, the element of
non-gratuity being expressed technically by the requirement that some consideration must move from
the promisee and in lay terms that it enforces bargains rather than agreements. 132 Moreover, it is in
relation to the requirement of consideration that modern usage most readily relies on the language of
promise: what is required is consideration for a party’s promise, not consideration for the parties’
agreement. 133 Finally, one of the justifications for the enforcement of contracts is said to lie in the
moral obligation of a party to perform his promise. 134
Difficulties with “contract as promise”
1-015
However, analysis of contracts in terms of an enforceable promise or sets of enforceable promises

is not entirely satisfactory. First, outside the context of consideration, in general neither courts nor
parties to contracts describe the relationships which they create in terms of promises, but rather in
terms of agreements, and for the courts this is clearest in the context of the rules as to offer and
acceptance which when satisfied form that agreement. 135 Moreover, as will be described later, the
doctrine of consideration to which the “promise theory” is so closely related, is somewhat under siege:
from the legislature, since the enactment of the Contracts (Rights of Third Parties) Act 1999 has
limited its traditional domain, 136 and from the courts, notably in the decision in Williams v Roffey Bros
& Nicholls (Contractors) Ltd. 137 Secondly, definition of contracts in terms of sets of promises does
not give full force to the interrelationship of the obligations of the parties which exists in many
contracts, 138 an interrelationship which can be seen particularly in the availability of the remedy of
termination for substantial failure in performance, by which an injured party may terminate his own
obligations by reason of the failure of the other party to perform his side of the bargain. 139
Difficulties with “contract as agreement”

Page 2
1-016
However, an understanding of modern contracts as agreements does not fit easily with two
recognised types of contract. First, in the case of a unilateral contract 140 where A promises to do
something if B does something else, the performance by B of the condition is enough for A to be
bound. Here, analysis in terms of doing something of value in return for a promise fits more naturally
than does the construction of an acceptance by B’s performance of the condition of A’s promise. 141
Secondly, promises contained in deeds 142 are enforceable by the person in whose favour they are
made, whether or not that person is aware of them 143 and so while a deed may give contractual force
to an agreement, agreement is unnecessary for the enforcement of the promises which it contains.
And, for Pollock, writing in 1885, the position of contracts under seal made it difficult for him to accept
that “proposal and acceptance [form] part of the general conception of contract”. 144 For other writers,
however, it has led instead to a denial that the binding force of a promise in a deed depends on
contract at all. 145 Certainly, although it is true that the action to enforce promises made under
seal, the action of covenant, was traditionally classified as arising ex contractu, 146 this classification
cannot be treated as conclusive as to whether promises in deeds should be considered contractual,
given that at the time other actions which are clearly not so considered were also included within this
category (notably, actions for money had and received, which would now be understood as
restitutionary 147 and actions for detinue whose function before their abolition was clearly proprietary).
148
Actual agreement not required
1-017
Moreover, even though it is true that the existence of an agreement is in the vast majority of cases a
condition for the existence of a contract not contained in a deed, this statement ought to be treated
with some caution. First, the existence of an agreement is not an issue merely of fact, to be found by
a psychological investigation of the parties at the time of its alleged origin: English law takes an
“objective” rather than a “subjective” view of the existence of agreement 149 and so its starting point is
the manifestation of mutual assent by two or more persons to one another 150:
“Agreement is not a mental state but an act, and, as an act, is a matter of inference from
conduct. The parties are to be judged, not by what is in their minds, but by what they
have said or written or done.” 151
Furthermore, for reasons of commercial convenience, the common law regulates what is to be treated
as a manifestation of assent capable of giving rise to a contract in its rules relating to offer and
acceptance. 152 For example, a posted acceptance of an offer is said to conclude a contract on
posting, rather than on communication to the offeror, and so an acceptance lost in the post will bind
the offeror. 153 Similarly, if A sends an offer to B by post, and then changes his mind and sends a
letter revoking his offer, but B posts an acceptance of the offer after A posted his letter of revocation,
but before B received it, there may be a contract, though the parties were never ad idem. 154 Another
example of common law regulation of what constitutes an agreement may be found in the general
rule that silence in an offeree cannot be treated as acceptance. 155 And it has been held that the
traditional analysis in battle of forms cases will not be displaced unless it is shown that it was the
parties’ common intention (as objectively construed from their words or conduct) that some other
terms were intended to prevail. 156
Agreement and consideration not sufficient
1-018
Secondly, the presence of an agreement supported by consideration is not always sufficient to
establish the existence of a contract. This is notably the case where the parties agree in
Page 3
circumstances in which it is considered inappropriate for the law to impose legal obligations, for
example, in a social or domestic context, and is justified on the basis that the parties cannot be
considered to have intended to create a legal relationship. 157 However, the courts have used the
requirement that the parties must possess an intention to create legal relations to exclude other types
of nongratuitous agreement from the domain of contract. 158 Furthermore, even if a transaction fulfils
these three conditions of agreement, consideration and an intention to create legal relations, it may
be defeated by the presence of other factors such as the absence of a particular form, 159 mistake, 160
misrepresentation, 161 duress, 162 undue influence, 163 incapacity 164 or illegality. 165 Some of these
factors will render the contract void, 166 others voidable, 167 and others still will render it unenforceable
against one or both contracting parties. 168
Enforcement of agreements under other rules
1-019
Thirdly, even though contracts are in general to be defined as agreements, this does not mean that all
enforceable agreements (or enforceable promises) are contracts. This is particularly noticeable in
relation to promissory and proprietary estoppel and constructive trust. In the case of promissory
estoppel, A may be prevented from going back on a promise not to rely on his legal rights against B,
subject to the condition that B has relied on A’s promise (possibly, to B’s detriment). 169 B does not
need to furnish consideration for A’s promise for it to be enforceable under this doctrine and although
the requirement of reliance by B suggests some element of acceptance on the latter’s part of the
benefit of the promise, there is no need for this to be communicated to or known by A. 170 The
doctrines of proprietary estoppel and constructive trust may also enforce promises or agreements,
even though these elements form merely part of the factual circumstances which attract their
application. For example, in Crabb v Arun DC, 171 A made an assurance to B that it would grant a right
of way to B over its land to and from B’s land and B acted in reliance on this assurance. B’s claim for
a declaration that he was entitled to the right of access succeeded by way of estoppel, even though
apparently B could not have established the existence of a contract on the ground of its uncertainty.
172
So too, as will be seen, constructive trust, and possibly also proprietary estoppel, can be used by
the courts to give some legal effect to agreements for the sale or other disposition of an interest in
land which do not constitute contracts for lack of the proper form. 173 On the other hand, sometimes
constructive trust is used not so as to allow an agreement not counting as a contract to be enforced
between its parties but rather so as to allow it to affect the position of third parties. For example, in
Binions v Evans, 174 A had been given permission by B to occupy a cottage on B’s land for the rest of
her life. B sold the land to C expressly subject to A’s tenancy of the cottage, but a few months later C
gave A notice to quit. It was accepted by the majority of the Court of Appeal 175 that the agreement
between A and B had contractual force, but for Lord Denning, M.R. in the circumstances of the case it
would also give rise to a constructive trust so as to bind C. 176
EU law definitions of contract
1-020
The definitions which we have so far discussed have been those which have arisen from analysis of
the common law, equitable and statutory material native to English law or the legal systems which
have developed from it. However, as earlier noted, 177 legislation of the EU has now had a very
considerable effect on the law governing English contracts. In these areas, the relevant EU legislation
often makes the application of legislation contingent on the existence of a contract, but the question
arises whether this notion should be interpreted according to the understanding of the various
Member State laws or instead on the basis of an “autonomous” definition to be formulated by the
Court of Justice of the EU. It is submitted that there is not likely to be any single answer to be given to
this question and that different answers may be given according to the context of the legislation in
question, these turning on a variety of considerations, but particularly on the degree of juristic
integration which the Court of Justice thinks desirable and practicable in that context. However, where
the Court of Justice considers it right to take an autonomous view of “contract” for the purposes of EU
legislation, it may well take as its starting-point the definition of contract set out in the Proposed
Regulation on a Common European Sales Law, which defines “contract” as “an agreement intended
Page 4
to give rise to obligations or other legal effects”. 178 It is to be noticed, in particular, that this definition
makes no requirement of reciprocity or provision of value such as is found in the doctrine of
consideration with the result that, in principle, purely gratuitous agreements could fall within its scope.
179
The following paragraphs consider the approach to definitions of “contract” following existing case
law of the European Court.
EU private international law
1-021
The Court of Justice itself has had occasion to hold that a European and “autonomous” view should
be taken of the understanding of what constitutes a contractual as opposed to an extra-contractual
action for the purposes of jurisdictional rules under the Brussels Convention (now brought within EU
law as the Brussels Ibis Regulation), 180 and this has meant that an action classified in one
Member State (France) as contractual has been held extra-contractual for these purposes. 181 The
European Court decided that:
“… the phrase ‘matters relating to a contract’ within the meaning of Article 5(1) of the
Convention should not be understood to cover a situation where there is no obligation
freely entered into by one party to another. Where a sub-buyer of goods which are bought
from an intermediate seller brings an action against a manufacturer for damages on the
sole ground that the goods are not in conformity, it is important to observe that there is no
contractual link between the sub-buyer and the manufacturer because the latter has not
undertaken a contractual obligation of any kind to the former.” 182
As regards the EU instruments governing applicable law, the Rome II Regulation on the law
applicable to non-contractual obligations specifies that “the concept of non-contractual obligation”
must be understood as an “autonomous concept” 183 and includes certain areas of law (notably,
“product liability” and precontractual liability (“culpa in contrahendo”)) which in some national laws fall
within contract and sometimes outside it. 184 The scope of the Rome I Regulation (replacing the earlier
Rome Convention) on the law applicable to contractual obligations is to be interpreted in a way
consistent with the earlier Rome II Regulation. 185 For this purpose, the Court of Justice of the EU has
held that “the concept of ‘contractual obligation’ [under the Rome I Regulation] designates a legal
obligation freely consented to by one person towards another”. 186
European definition of “worker”
1-022
As to the various legislative provisions governing contracts of employment and contracts under which
“workers” act, clearly their concern is not with “contract”, but rather with “employment contract” or
“worker”, but in this respect some of the EU legislation clearly invites the courts of the Member States
to refer to a conception of contract drawn from their own legal system, while other provisions have
attracted a European conception. So, for example, Directive 91/533 which makes certain
requirements as to the information to be given by employers to their employees as to the conditions of
employment expressly provides that it shall apply “to every paid employee having a contract or
employment relationship defined by the law in force in a Member State”. 187 On the other hand, the
European Court of Justice made clear as early as 1964 that “worker” for the purposes of the principle
of freedom of movement of workers contained in art.48 (later art.39) of the EC Treaty (now art.45
TFEU) must be given a European understanding 188 the fleshing out of this being the matter for a
series of subsequent judgments. 189
“Consumer contract”
Page 5
1-023
Finally, while it is clear that certain aspects of the notion of “consumer contract” for the purposes of
the Directive on Unfair Terms in Consumer Contracts 1993 190 are to be interpreted “autonomously”, it
is less clear whether the notion of “contract” itself will also be so interpreted by the Court of Justice of
the EU or will instead fall to be governed by the legislation or case law of the Member States. 191 If it
were interpreted autonomously, then the significance of “contract” may well differ from that given by
English law, notably as regards the latter’s requirement of consideration, a requirement which is not
shared by the other Member States except the Republic of Ireland. Furthermore, in coming to a view
as to what constitutes “a contract” for this purpose, the Court of Justice is likely to be inspired by the
definition already noted in the Proposal for a Regulation on a common European sales law. 192
“Contract” in EU public procurement law
1-024
The Court of Justice has adopted an autonomous European view of “contract” for the purposes of
the public procurement directives. In Teckal Srl v Comune di Viano 193 the Court recognised that the
conclusion of an agreement by a public authority and a company which, although a separate entity, is
in substance a department of the authority falls outside the requirements of these directives. 194
According to the Court:
“As to whether there is a contract, the national court must determine whether there has
been an agreement between two separate persons.
In that regard, … it is, in principle, sufficient if the contract was concluded between, on
the one hand, a local authority and, on the other, a person legally distinct from that local
authority. The position can be otherwise only in the case where the local authority
exercises over the person concerned a control which is similar to that which it exercises
over its own departments and, at the same time, that person carries out the essential part
of its activities with the controlling local authority or authorities.” 195
As A.G. Stix-Hackl observed in the TREA Leuna Case, “in Teckal the court … narrowed the concept
of “contract” by interpreting it teleologically”. 196 Subsequent case law in the European Court (as
reviewed by the Supreme Court in Risk Management Partners Ltd v Brent LBC) makes clear that the
“Teckal exception” does not “depend on the meaning to be given to particular words or phrases in the
Directive, such as those to be found in the definition of ‘public contracts’ ”, but rather on fundamental
policies pursued both by the procurement directives and by the EC Treaty itself. 197
126. This sentence was referred to with apparent approval in Engel v Joint Committee for Parking
and Traffic Regulation Outside London [2013] I.C.R. 1086, [2013] I.R.L.R. 787 at [6].
127. Chitty on Contracts, 26th edn (1989), Vol.I, para.1; Pollock, Principles of Contract, 13th edn
(1950), p.1; cf. Pollock, Principles of Contract at Law and in Equity, 1st edn (1876), p.5. The
American Law Institute’s Restatement of Contracts, 2nd edn, para.1, adopts substantially the
same definition.
128. Chitty, A Practical Treatise on the Law of Contracts (1834), pp.1–2.
129.
Peel, Treitel on The Law of Contract 14th edn (2015), para.1–001. cf. Burrows, A
Restatement of the English Law of Contract (2016), para.2 which defines “contract” as an
Page 6
agreement that is legally binding because it is supported by consideration or made by deed,

certain and complete, made with the intention to create legal relations, and complies with any
formal requirement needed for the agreement to be legally binding; and see the commentary at
pp.44–55.
130. Pothier, Treatise on Obligations (trans. Evans, 1806) and see Simpson (1975) 91 L.Q.R. 247,
257–262; Atiyah, The Rise and Fall of Freedom of Contract (1979), p.399; Gordley, The
Philosophical Origins of Modern Contract Doctrine (1991), Ch.6.
131. cf. Nicholas, The French Law of Contract, 2nd edn (1992), p.144.
132. According to the Restatement of Contracts at para.3, a bargain is an agreement, whereby two
or more persons exchange promises, or exchange a promise for a performance. However, the
word “bargain” is seldom used in any technical sense in the law of contract: Atiyah, Essays on
Contract (1986), Essay 8, p.207; and see Eisenberg (1982) 95 H.L.R. 741. It is sometimes said
that the requirement of consideration means that contracts are exchanges. This suggests some
element of reciprocity between the parties to the contract and while this is often the case, a
promise by A to do work for B can support a promise by C of payment for it: see below,
para.4-005. According to Gordley above, n.97 at pp.137–139, the systematisation of the
doctrine of consideration took place at the same time as the acceptance of civilian theories of
contract and was intended to act as a control device on the ambit of contract.
133. See below, para.4-001.
134. Goodhart, English Law and the Moral Law (1953), p.101; Fried, Contract as Promise (1983);
Harris (1983) 3 Int. Rev. Law & Econ. 69; Burrows (1985) C.L.P. 141. cf. Atiyah (1978) 94
L.Q.R. 193; Promises, Morals and Law (1981); Essays on Contract (1986), Essays 2 and 6;
Raz, Law, Morality and Society (1977), Ch.12; Smith, Contract Theory (2004), Chs 2–4.
135. See below, Ch.2.
136. And see The Law Commission, Privity of Contract: Contracts for the Benefit of Third Parties,
Law Com. No.242 (1996), para.6.8 and below, Ch.18.
137.
Williams v Roffey Bros Nicholls (Contractors) Ltd [1991] 1 Q.B. 1 and see below, para.4-069.
See also MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553,
[2017] Q.B. 604 (appeal to SC pending) on which see below, para.4-119A.
138. cf. Atiyah, An Introduction to the Law of Contract, 5th edn (1995), pp.38–39.
139. See below, paras 24-035—24-048. This is not to say that the availability of this remedy cannot
be expressed in terms of independent or dependent promises, but the term “promise” here is
used synonymously with that of obligation and can apply to obligations imposed on a contractor
by law, which are not a matter of “promise” at all. Thus, a buyer of goods can terminate the
contract, and thereby extinguish his own obligation to pay the price, for breach of the term that
they are of satisfactory quality, a term imposed by s.14 of the Sale of Goods Act 1979 on sellers
selling goods in the course of business, and see Vol.II, paras 44-066 and 44-093.
141. There is some doubt as to whether an offeree of a unilateral offer must be aware of that offer on
performance of the condition for a contract to arise: see below, para.2-040. If the offeree need
not be so aware, then no agreement can be constructed from performance of the condition. It is
clear that the offeree of a unilateral offer does not in general have to communicate his
acceptance to the offeror before he fulfills the condition and the contract arises: Carlill v
Carbolic Smoke Ball Co [1893] 1 Q.B. 256, and see below, para.2-046.
142. After the abolition by the Law of Property (Miscellaneous Provisions) Act 1989 s.1(1) of the
requirement of sealing for the validity of deeds made by individuals, it is more appropriate to
refer to promises in deeds rather than the former “promises under seal”: see below, paras
Page 7
1-114 et seq.
143. Xenos v Wickham (1866) L.R. 2 H.L. 296, 312; Macedo v Stroud [1922] 2 A.C. 330.
144. Pollock, Principles of Contract at Law and in Equity, 4th edn (1885), p.9 and cf. p.5.
145.
Peel, Treitel on The Law of Contract, 14th edn (2015), para.3–170. cf. Burrows, A
Restatement of the English Law of Contract (2016), paras 2 and 8(1), commentary on
pp.63–64, which includes agreements supported by a deed within its definition of contract, but
distinguishes deeds which contain agreements and those which do not (deeds poll).
146. Bacon, A New Abridgment of the Law, 7th edn (1832), Vol.I, p.55 included debt, detinue,
account, covenant, assumpsit, quantum meruit, quantum valebat and annuity in his treatment of
actions ex contractu. cf. Chitty and Chitty, A Treatise on the Parties to Actions and on Pleading,
6th edn (1836), pp.98–125.
147. See below, para.29-006; Birks, An Introduction to the Law of Restitution (1985), pp.29–39.
148. Technically, detinue protected the plaintiff’s right to possession of personal property. For further
discussion of the classification of actions at common law, see below, para.1-146. Detinue was
abolished by the Torts (Interference with Goods) Act 1977 s.2.
149. Howarth (1984) 100 L.Q.R. 265 and 528; Vorster (1987) 103 L.Q.R. 274; Goddard (1987) 7 L.S.
263; de Moor (1990) 106 L.Q.R. 632 and see The Hannah Blumenthal [1983] 1 A.C. 854; The
Leonidas D. [1985] 1 W.L.R. 925; Beatson (1986) 102 L.Q.R. 19; Atiyah (1986) 102 L.Q.R. 363
and below, para.2-002.
150. Restatement of Contracts at para.3.
151. Furmston, Cheshire, Fifoot and Furmston’s Law of Contract, 15th edn (2007), p.38.
152. See below, paras 2-003 et seq.
153. Household Fire Insurance Co v Grant (1879) 3 Ex. D. 216, overruling British and American
Telegraph Co Ltd v Colson (1871) L.R. 6 Ex. 108. See below, paras 2-047 et seq.
154. Byrne v Van Tienhoven (1880) 5 C.P.D. 344; below, para.2-094.
155. Felthouse v Bindley (1862) 11 C.B.(N.S.) 869, affirmed (1863) 1 N.R. 401 and see below, paras
2-068 et seq.
156. Tekdata Interconnections Ltd v Amplenol Ltd [2009] EWCA Civ 1209, [2010] 1 Lloyd’s Rep. 357
especially at [11], [21], [25] and [30].
157. See below, paras 2-177—2-184.
158. See below, paras 2-188—2-193.
160. See below, Chs 3 and 6.
162. See below, paras 8-003—8-056.
163. See below, paras 8-057—8-129.

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171. [1976] Ch. 179 and see below, para.4-143.
172. [1976] Ch. 179, 195 and see below, para.4-143.
173. Below, paras 5-040—5-049 discussing Cobbe v Yeoman’s Row Management Ltd [2008] UKHL
55, [2008] 1 W.L.R. 1752 and Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776.
174. [1972] Ch. 359.
175. [1972] Ch. 359 at 367, 371.
176. [1972] Ch. 359 at 367–368. Megaw and Stephenson L.JJ. preferred to protect A’s position by
holding her to be a tenant for life within the meaning of the Settled Land Act 1925.
177. Above, para.1-011.
178. Proposal for a Regulation of the European Parliament and of the Council on a Common
European Sales, Law Com(2011) 635 final art.2(a). On the Proposal, see above, para.1-013.
179. This is confirmed by the inclusion within those contracts for which the Common European Sales
Law would be available of “contracts for the supply of digital content … irrespective of whether
the digital content is supplied in exchange for the payment of a price”: Proposal Com(2011) 635
final, art.5(b).
180.
Kalfelis v Schröder (C-189/87) [1988] E.C.R. 5565 especially at 5577 (A.G. Darmon), 5585;
ÖFAB, Östergötlands Fastigheter AB v Koot (C-147/12) July 18, 2013 at para.33; Brogsitter v
Fabrication de Montres Normandes EURL (C-548/12) March 13, 2014 at para.18; ERGO
Insurance SE v If P&C Insurance AS (Joined Cases C-359/14 and C-475/14) January 21, 2016
at para.43; Kolassa v Barclays Bank Plc (C-375/13) January 28, 2015 at para.43; Granarolo
SpA v Ambrosi Emmi France SA (C-196/15) July 14, 2016 at para.19. The Brussels Convention
was replaced as from March 1, 2002 by the Council Regulation 44/2001 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters [2001] O.J. L012/1
(“Brussels I Regulation”), which is itself replaced as from January 10, 2015 by Regulation (EU)
1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of
judgments in civil and commercial matters (recast) (“the Brussels Ibis Regulation”). And see
below, para.1-199.
181. Jakob Handte & Co GmbH v Société Traitements Mécano-chimiques des Surfaces (TMCS)
(C-26/91) [1993] I.L.Pr. 5 and see below, para.1-199.
182. [1993] I.L.Pr. 5 at 22.
183. Regulation 864/2007 of the European Parliament and of the Council law applicable to
noncontractual obligations (“Rome II Regulation”) [2007] O.J. L199/40 recital 11.
184. Rome II Regulation arts 5 and 12 respectively.

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185. Regulation (EC) 593/2008 on the law applicable to contractual obligations (“Rome I”) [2008]
O.J. L177/6 recital 7. See below, Ch.30 and especially para.30-133.
186.
ERGO Insurance SE v If P&C Insurance AS (Joined Cases C-359/14 and C-475/14) January
21, 2016 para.44; Verein für Konsumenteninformation v Amazon EU Sàrl (C-191/15) July 28,
2016 esp. at para.60 (action for cessation of use of unfair contract terms falls under Rome II as
concerning a non-contractual obligation, though the assessment of the terms falls under Rome I
as concerning a contractual obligation following the nature of these terms whether this arises in
an action for cessation or in an individual action between a trader and a consumer); Committeri
v Club Mediterranee SA [2016] EWHC 1510 (QB) at [45]–[48].
187. Directive 91/533 on an employer’s obligation to inform employees of the conditions applicable
to the contract or employment relationship [1991] O.J. L288/32 art.1(1). Similarly, Framework
Agreement on Part-time Work cl.2(1) “[t]his Agreement applies to part-time workers who have
an employment contract or employment relationship as defined by the law, collective agreement
or practice in force in each Member State”, Annex to Directive 97/81/EC concerning the
Framework Agreement on part-time work concluded by UNICE, CEEP and the ETUC [1998]
O.J. L14/9.
188. Hoekstra (née Unger) v Bestuur der Bedrijfsvereniging voor Detailhandel en Ambachten
(C-75/63) [1964] E.C.R. 177.
189. See Craig and de Búrca, EU Law, 6th edn (2015), Ch.21.
190. See Vol.II, paras 38-199—38-200.
191. Whittaker (2000) 116 L.Q.R. 95 and see Vol.II, paras 38-014, 38-210—38-211. cf. the position
under the Consumer Rights Directive 2011 art.6(5), on which see Vol.II, paras 38-059—38-061.
192. Above, para.1-020.
193. C-107/98 [1999] E.C.R. I-8121.
194. At the time, Council Directive 1992/50/EEC relating to the co-ordination of procedures for the
award of public service contracts; Directive 93/36/EEC of June 14, 1993 co-ordinating
procedures for the award of public supply contracts.
195. C-107/98 [1999] E.C.R. I-8121 at paras 49 and 50.
196. Stadt Halle & RPL Recyclingpark Lochau GmbH v Arbeitsgemeinschaft Thermische Restabfall
und Energierverwertungsanlage (C-26/03) [2005] E.C.R. I-1 at [52].
197.
Risk Management Partners Ltd v Brent LBC [2011] UKSC 7, [2011] 2 A.C. 34 at [22], per
Lord Hope of Craighead D.P.S.C. and see further [2011] UKSC 7 at [38]. The conclusion of
public contracts between entities in the public sector (which forms the context of this case-law)
has been the subject of regulation by the Public Contracts Directive 2014: Directive 2014/24/EU
on public procurement and repealing Directive 2004/18/EC [2014] O.J. L94/65 art.12 and
recitals 31 and 32.

Page 1

Section 3. - Fundamental Principles of Contract Law
1-025
There are a number of norms of the English law of contract of a generality, pervasiveness and
importance to have attracted the designation of principle, though such a designation does not have a
technical legal significance. A number of legal norms could be advanced as included within such a
category of principle, including the principle of privity of contract, 198 the principle of “objectivity” in
agreement, 199 and principles of contractual interpretation. 200 However, two linked principles remain of
fundamental importance, viz the principles of freedom of contract and of the binding force of contract.
201
By these two principles, English law has expressed its attachment to a general vision of contract
as the free expression of the choices of the parties which will then be given effect by the law.
However, while the modern law still takes these principles as the starting-point of its approach to
contracts, it also recognises a host of qualifications on them, some recognised at common law and
some created by legislation. 202 Moreover, some commentators have argued that these various
qualifications should not be seen merely as the expression of particular reasons or considerations of
policy special to their context, but should instead be seen as themselves reflecting a further, central
principle, sometimes put in terms of a principle of good faith in contract or a principle of contractual
fairness. 203 EU law also recognises the importance of freedom of contract and the binding force of
contracts, but, unlike English common law, also appears to be moving towards the recognition of a
principle of good faith or “good faith and fair dealing”. 204
198. See below, Ch.18, para.18-003.
200. See below, paras 13-041 et seq. and especially Investors Compensation Scheme Ltd v West
Bromwich Building Society Ltd [1998] 1 W.L.R. 896 at 912–913, per Lord Hoffmann.
201. See below, paras 1-026—1-035, 1-036—1-038.
202. See below, paras 1-027, 1-031 et seq.
204. Below, paras 1-042—1-043.

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(a) - Freedom of Contract
Freedom of contract in the nineteenth century
1-026
In the nineteenth century, freedom of contract was regarded by many philosophers, economists and
judges as an end in itself, finding its philosophical justification in the “will theory” of contract and its
economic justification in laissez faire liberalism. 205 Thus, the parties were to be the best judges of
their own interests, and if they freely and voluntarily entered into a contract, the only function of the
law was to enforce it. In particular, its validity should not be challenged on the ground that its effect
was unfair or socially undesirable (as long as it was not actually illegal or immoral, the latter of which
was understood in a restrictive sense) 206 and it was immaterial that one party was economically in a
stronger bargaining position than the other. Nowhere can this attitude be seen more clearly than in
the attitude of the courts to clauses which attempted to regulate the damages payable on breach of
contract. For, the courts held that parties to a contract were able to limit or exclude liability in
damages not merely for breach of contract, but also in tort. 207 The courts’ attitude to freedom of
contract can also be seen in their treatment of an exception to it, for while they accepted that penalty
clauses were ineffective even if agreed by the parties, they did so only owing to the force of
established precedent to this effect and with considerable reluctance. 208
Freedom of contract in the modern common law
1-027
Freedom of contract as a general principle of the common law retains considerable support. For
example, in 1966, Lord Reid rejected the idea that the doctrine of fundamental breach was a
substantive rule of law, negativing any agreement to the contrary (and capable of being used to strike
down an exemption clause) 209 on the ground, inter alia, that this would restrict “the general principle
of English law that parties are free to contract as they may think fit”. 210 In 1980, in the same context,
Lord Diplock observed 211 that:
“A basic principle of the common law of contract … is that parties to a contract are
free to determine for themselves what primary obligations they will accept.” 212
This support remains particularly strong in commercial contexts. So Lord Bingham of Cornhill stated
that “[l]egal policy favours the furtherance of international trade. Commercial men must be given the
utmost liberty of contracting”. 213 Moreover, English courts have proved unwilling to strike down
contracts on the ground simply that one of the parties suffered from an “inequality of bargaining
power”. 214 Conversely, the House of Lords held that it would not add to the agreement which the
parties have made by implying a term merely because it would be reasonable to do so, but only
Page 2
where it is “necessary”, 215 nor will the courts put a meaning on the words of a contract different
from that which they clearly express. 216 Even while taking a broad approach to the implication of
terms (in particular interpreting the requirement of “necessity” as merely explaining that “the proposed
217
implied term must spell out what the contract actually means” ), for Lord Hoffmann in Attorney
General of Belize v Belize Telecom Ltd:
“the court has no power to improve upon the instrument which it is called upon to
construe, whether it be a contract, a statute or articles of association. It cannot
introduce terms to make it fairer or more reasonable. It is concerned only to discover
what the instrument means … It is the meaning which the instrument would convey to
a reasonable person having all the background knowledge which would be reasonably
be available to the audience to whom the instrument is addressed.” 218
Moreover, Lord Hoffmann has further observed (in a commercial context) that it is:
“… logical to found liability in damages upon the intention of the parties (objectively
ascertained) because all contractual liability is voluntarily undertaken. It must be in
principle wrong to hold someone liable for risks for which the people entering into
such a contract in their particular market, would not reasonably be considered to have
undertaken.” 219
Even where the common law recognises an exception to freedom of contract, as in the case of the
law controlling penalty clauses, 220 the courts have distinguished between the nature of this control
and wider controls of contracts on the ground of fairness. According to Lord Neuberger P.S.C. and
Lord Sumption J.S.C. (with whom Lord Carnwath J.S.C. agreed) in Cavendish Square Holding BV v
Makdessi, ParkingEye Ltd v Beavis:
“There is a fundamental difference between a jurisdiction to review the fairness of a

contractual obligation and a jurisdiction to regulate the remedy for its breach. Leaving
aside challenges going to the reality of consent, such as those based on fraud, duress
or undue influence, the courts do not review the fairness of men’s bargains either at
law or in equity. The penalty rule regulates only the remedies available for breach of a
party’s primary obligations, not the primary obligations themselves.” 221
In the view of the Supreme Court, the true test whether a contract term imposes a “penalty” on the
party in default is whether “it imposes a detriment on the contract-breaker out of all proportion to any
222
legitimate interest of the innocent party in the enforcement of the primary obligation”. For this
purpose,
“the circumstances in which the contract was made are not entirely irrelevant. In a
negotiated contract between properly advised parties of comparable bargaining
power, the strong initial presumption must be that the parties themselves are the best
judges of what is legitimate in a provision dealing with the consequences of breach.”
223
And the bargaining position of the parties more generally may be relevant. 224
Freedom of contract in EU law

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1-028
225
The “principle of freedom of contract” has been recognised by the European Court of Justice.
According to A.G. Kokott:
“Contractual freedom is one of the general principles of Community law. It stems from
the freedom to act for persons. It is inseparably linked to the freedom to conduct a
business [protected by art.16 of the EU Charter of Fundamental Rights]. In a
Community which must observe the principle of an open market economy with free
competition, contractual freedom must be guaranteed.” 226
Freedom of contract has also been set by the European Commission as a fundamental point of
reference for the development of European contract law 227 and was placed by it as a “general
principle” in its Proposal for a Regulation on a Common European Sales Law, 228 it being explained
that “[p]arty autonomy should be restricted only where and to the extent that this is indispensable, in
particular for reasons of consumer protection”. 229 The principle of “party autonomy” is also important
in EU private international law. 230
Alemo-Herron v Parkwood Leisure Ltd
1-029
The decision of the Court of Justice in Alemo-Herron v Parkwood Leisure Ltd provides a striking
illustration of the use of art.16 of the EU Charter of Fundamental Rights to give effect to its vision of
freedom of contract. 231 There, the UK Supreme Court asked the Court of Justice whether a Member
State is prohibited by the Transfer of Undertakings Directive 232 from extending to employees, in the
event of a transfer of an undertaking or business, a “dynamic” protection as a result of the recognition
by domestic contract law of the effectiveness of a contract term in the employees’ individual contracts
of employment that their pay may be determined from time to time by a third party, there a public
sector collective negotiating body (the “dynamic pay clause”). If such a dynamic protection were
permitted, then in the particular case the transferee (a private sector company which had bought the
undertaking from a local authority) would in effect be bound by a collective agreement to whose
negotiation it could not be party. 233 The Transfer of Undertakings Directive provides that:
“the transferor’s rights and obligations arising from a contract of employment or from
an employment relationship existing on the date of a transfer shall, by reason of such
transfer, be transferred to the transferee”
but also that Member States have the right to apply or introduce laws “which are more favourable to
employees or to promote or permit collective agreements between social partners more favourable to
employees”. 234 While acknowledging this right in Member States, the Court of Justice held that the
aim of the directive was not solely to safeguard the interests of employees on the transfer of an
undertaking, but to ensure a fair balance between their interests and the interests of the transferee
employer, which “must be in a position to make the adjustments and changes necessary to carry on
its operations”, notably where the transfer of the undertaking was from the public sector to the private
sector. 235 Giving effect to the dynamic pay clause would undermine this fair balance. 236 Moreover,
the fundamental freedom to conduct a business laid down in art.16 of the EU Charter of Fundamental
Rights “covers, inter alia, freedom of contract”. 237 In the light of the Directive’s provision that the
transferee of an undertaking must give effect to the rights of employees existing at the date of its
transfer,
“[i]t is apparent that, by reason of the freedom to conduct a business, the transferee
Page 4
must be able to assert its interests effectively in a contractual process to which it is

party and to negotiate the aspects determining changes in working conditions for its
employees with a view to its future economic activity.” 238
This is not the case where a transferee cannot participate in the collective bargaining body identified
by the dynamic pay clause and so, in this situation, “the transferee’s contractual freedom is seriously
reduced to the point that such a limitation is liable to adversely affect the very essence of its freedom
to conduct a business.” 239
The Court of Justice therefore held that the Directive cannot be interpreted as “entitling Member
States to take measures which, while being more favourable to employees, are liable to adversely
affect the very essence of the transferee’s freedom to conduct a business”. 240 So, in effect, the need
to preserve the transferee employer’s freedom of contract trumps the freedom of contract of the
contracting parties to the original contracts of employment who had agreed to set the employees’ pay
by a third party. 241 In doing so, the Court of Justice interpreted restrictively the reference in the
Directive to “the transferor’s … obligations arising from a contract of employment … existing on the
date of a transfer”, treating the relevant obligation as the obligation to pay the employee’s wages
rather than a wider obligation to honour the contract’s terms governing the determination of pay,
including its future determination.
Freedom of Contract and the ECHR
1-030
While the European Convention on Human Rights does not refer to freedom of contract, the
European Court of Human Rights has held that the extent to which a State interferes with an owner of
property’s freedom of contract relating to the property is relevant to the assessment of its compliance
with its duties in respect of the right to property under art.1 of the First Protocol. 242
Qualifications on freedom of contract
1-031
However, the principle of freedom of contract is subject to many qualifications in modern English law.
These qualifications may affect a person’s decision as to whether and with whom to contract; the
parties’ choice as to the terms on which their contractual relations are to be governed and more
generally as to their legal consequences. Furthermore, even where it does not bear directly on the
mutual rights and duties of the contracting parties, modern legislation has also regulated the
contractual environment in which the parties to some types of contract negotiate, conclude and
perform their contracts.
(i) Refusal to enter contracts
1-032
Even at common law, an innkeeper or common carrier was not entitled to refuse to accommodate a
would-be customer without sufficient excuse. 243 Companies which supply what used to be called
public utilities such as water, gas and electricity, in some circumstances are under a statutory duty to
supply the commodity in question, 244 though in this type of case the existence of the duty has led the
courts to hold that the relationship so created is not contractual. 245
(ii) The law of discrimination
1-033
Page 5
Moreover, modern discrimination law has forbidden a person to refuse to contract in certain situations
and has provided more widely for the prevention of discrimination. This was first the case as regards
discrimination on the grounds of sex 246 and racial group, 247 and was later extended to discrimination
on the grounds of disability of the would-be contractor, 248 and, in the context of employment,
prohibitions on discrimination on the ground of a person’s sexual orientation, 249 religion or belief, 250
and age. 251 However, the Equality Act 2010 subjected this earlier law of discrimination to
considerable legislative consolidation, reframing and reform. A full discussion of the scope of this
important legislation would be beyond the scope of the present work, but the general scheme of the
new legislation is as follows. A key new concept is “protected characteristics”, which are set out by
the Act: age; disability; gender reassignment; marriage and civil partnership; pregnancy and
maternity; race; religion or belief; sex; and sexual orientation. 252 The Act then defines and explains
“prohibited conduct” in relation to these protected characteristics, which includes “direct and indirect
discrimination, harassment and victimisation”. 253 The Act sets out the extent to which and how the
various “protected characteristics” are protected against the different types of prohibited conduct,
notably, for present purposes, in relation to the provision of public services (which includes goods and
facilities) 254; the disposal of premises 255; work, including provisions governing employment and
partnerships 256; education 257; and associations. 258 Provision is made for the relationship of the Act’s
rules on discrimination and contracts, 259 including a general provision to the effect that:
“[a] term of a contract is unenforceable against a person in so far as it constitutes,

promotes or provides for treatment of that or another person that is of a description
prohibited by this Act.” 260
(iii) Restricted freedom as to terms
1-034
Moreover, even where, as in the majority of cases, a person is free to decide whether to enter a
particular contract, he or she is not free to determine on what terms to do so. First, many contracts,
whether between two commercial parties or between such a party and a consumer, are made on the
written standard terms of one of the parties in such circumstances that it is all but impossible for them
to be varied, 261 a phenomenon which led French commentators to refer to such transactions as
contrats d’adhésion. Similarly, the terms of employees’ contracts of employment may be determined
by agreement between their trade union and their employer, 262 or by a statutory scheme of
employment. 263 However, in both the latter situations, despite the lack of real freedom of the parties
to do other than accept or reject the whole package as it is offered to them, these types of
transactions are still treated as contracts. 264 Secondly, even while the courts formally stated the need
for a term to be “necessary” before it will be implied into a contract, 265 the courts have over the years
found many such implied terms, often in situations where it is difficult to see how this test is fulfilled,
266
thereby creating for many types of contracts the “legal incidents of those … kinds of contractual
relationship”. 267 According to one author:
“Faced with a problem in contract, the Common lawyer is as likely as not to try to
solve it with an implied term. [In contrast,] the Civil lawyer will probably resort to a rule,
whether it be a broad and fundamental precept such as the German requirement of
good faith 268 … or one derived from the nature of obligation or contract … or, finally,
one derived from the nature of the particular contract in question.” 269
While some judicially implied terms have been recognised by statute, 270 many remain a matter of
common law, where they constitute an important part of the regulation of many contractors’ relations.
271
Thirdly, the effects of many modern contracts are regulated by statute, sometimes by way of
statutory insertion of an implied term, 272 but sometimes by attaching a legal consequence directly to
the conclusion of a particular type of contract. This is particularly noticeable as regards some types of
Page 6
contracts made by consumers, notably contracts for the sale of goods, hire purchase and consumer
credit, 273 where the protection which the law thereby ensures is often not capable of avoidance by an
expression of contrary intention. 274 Contracts of employment and between a landlord and tenant have
also been subjected to considerable legislative regulation, to the extent that the voluntary aspect of
the contract appears only to be whether or not to enter the contract, a decision which then triggers a
set of obligations which are determined by the law. 275
(iv) Regulation of the contractual environment
1-035
Other statutory techniques for the regulation of contracts are less direct. For example, one aim of
modern competition law is to help ensure that no company is able to impose what terms it likes on
those with whom it deals because of its “dominant position” in the market. 276 This can be seen either
as an intervention in the market (and therefore as interfering with the principle of freedom of contract
277
) or as a mechanism for ensuring that the market functions properly (and therefore as promoting
freedom of contract). Another modern technique is for legislation to set up a system of regulation for a
particular type of business. For example, under the Financial Services and Markets Act 2000, there is
a general prohibition on the carrying on without authorisation or exemption of a regulated investment
activity, 278 and doing so may constitute an offence and give rise to civil liability. 279 The Act gives to
the Financial Conduct Authority very considerable rule-making powers for the conduct of investment
business, 280 and breach of a rule so made is actionable at the suit of a private person who suffers
loss as a result, though it will not constitute a criminal offence. 281 Clearly, this system of regulation
affects the way in which contracts relating to investment business are concluded, even though breach
of the rules does not affect the validity of any such contract. 282 A further example of the regulation of
contractual behaviour is to be found in the Unfair Commercial Practices Directive 2005, implemented
in UK law by the Consumer Protection from Unfair Trading Regulations 2008. 283 The Directive sets a
very broad standard of commercial behaviour in relation to consumers in a “general clause” which
prohibits practices which contrary to “professional diligence”, “materially distort the economic
behaviour” of an average consumer. 284 This general standard frames particular protections given to
consumers by existing EU directives and is fleshed out by the 2005 Directive itself by the setting of
two main examples of unfair commercial practices: misleading actions and omissions and aggressive
commercial practices. 285 The Directive also provides a black list of particular commercial practices
which “are in all circumstances [to be] considered unfair”. 286 On the other hand, the concern of the
Directive is to prohibit unfair commercial practices, and it explicitly provides that it is “without prejudice
to contract law and, in particular, to the rules on the validity, formation or effect of a contract” 287 and
the UK’s initial implementing regulations reflected this feature and provided explicitly that “an
agreement shall not be void or unenforceable by reason only of a breach of these regulations” 288
though they said no more as to the wider lack of effect of the Regulations on the “law of contract”,
apparently on the basis that they set out the consequences of the new controls and do not need to set
out other non-consequences. However, in 2014 the 2008 Regulations were amended so as to create
a series of “rights to redress” for consumers against traders in respect of some categories of unfair
commercial practices. 289
205. See Dicey, Law and Opinion in England, 2nd edn (1914), pp.150–158; Printing and Numerical
Registering Co v Sampson (1875) L.R. 19 Eq. 462 at [465], per Jessel M.R.; Manchester,
Sheffield and Lincolnshire Ry v Brown (1883) 8 App. Cas. 703 at [716]–[720], per Lord
Bramwell; Salt v Marquis of Northampton [1892] A.C. at 1 [18]–[19], per Lord Bramwell. It is
instructive to observe that Lord Bramwell, who was one of the foremost judicial champions of
freedom of contract, also believed in the necessity for a real as opposed to an apparent
consent: see his judgment in British and American Telegraph Co Ltd v Colson (1871) L.R. 6 Ex.
108, and his dissenting judgment in Household Fire Insurance Co v Grant (1879) 4 Ex. D. 216,
232. See further, Atiyah, The Rise and Fall of Freedom of Contract (1979) and cf. Gordley,
above, n.97 at pp.214–217.

Page 7
207. Nicholson v Willan (1804) 5 East 507. Lord Ellenborough C.J., at 513, rejected the plaintiff’s
argument that the attempt of the defendant, a common carrier, to exclude his liability for the
loss of goods carried beyond the value of £5 was: “contrary to the policy of the common law,
which has made common carriers responsible to an indefinite extent for losses not occasioned
by … act of God [or] the King’s enemies”.
208. Ranger v G.W. Ry Co (1854) 5 H.L.C. 72, 94–95, 118–119; Atiyah, The Rise and Fall of
Freedom of Contract (1979), pp.414–415.
209. See Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale
[1967] 1 A.C. 361 and below, paras 15-023—15-027.
210. [1967] 1 A.C. 361 at 399.
211. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827 at 848.
212. And see Eurico SpA v Philipp Brothers [1987] 2 Lloyd’s Rep. 215, 218 (term to do the
impossible valid).
213.
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2003] 3 W.L.R.
711 at [57]; Prime Sight Ltd v Lavarello [2013] UKPC 22, [2014] A.C. 436 at [47] (contractual
recital of fact known by both parties to be untrue enforceable in principle); MWB Business
Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, [2017] Q.B. 604 at [31]
and [34], following dicta in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016]
EWCA Civ 396, [2017] 1 All E.R. (Comm) 601, esp. at [100] and [119] (the general principle that
parties are free to agree whatever terms they choose to undertake allows them to vary by
contract an earlier contract containing an “anti-oral variation” clause); Transocean Drilling UK
Ltd v Providence Resources Plc [2016] EWCA Civ 372, [2016] 2 All E.R. (Comm) 606 at [28]
(“the principle of freedom of contract is still fundamental to [English] commercial law”).
214. National Westminster Bank Plc v Morgan [1985] 1 A.C. 686, 708, disapproving the dictum of
Lord Denning M.R. in Lloyds Bank Ltd v Bundy [1975] Q.B. 326, 339; and see below,
para.8-143. cf. paras 8-130 et seq. (unconscionable bargains).
215.
Liverpool City Council v Irwin [1977] A.C. 239, 254; Tai Hing Cotton Mill Ltd v Liu Chong Hing
Bank Ltd [1986] A.C. 80, 104-105; and see below, paras 14-001 et seq. especially at
14-011—14-012; Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd
[2015] UKSC 72, [2015] 3 W.L.R. 1843 at [14]–[21] and [77].
217.
Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 at
[22]. On the views of the Supreme Court on Lord Hoffmann’s approach to implied terms, see
Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72,
[2015] 3 W.L.R. 1843.
218. [2009] UKPC 10 at [27], per Lord Hoffmann on behalf of the PC and see Mediterranean
Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] EWCA Civ 531, [2009] 1
C.L.C. 909 at [8]–[18] and below, para.14-006.
219. Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48 at [12], [2009]
1 A.C. 61 at [12] and see below, paras 26-107 et seq.
220.
Cavendish Square Holding BV v Makdessi, ParkingEye Ltd v Beavis [2015] UKSC 67, [2015]
3 W.L.R. 1373 at [33] (“[t]he penalty rule is an interference with freedom of contract”, per Lord
Neuberger and Lord Sumption); at [257] per Lord Hodge. On this decision see below, paras
26-178 et seq.
Page 8
221.
[2015] UKSC 67, [2015] 3 W.L.R. 1373 at [13]; and see similarly at [73].
222.
[2015] UKSC 67 at [32] per Lord Neuberger P.S.C. and Lord Sumption J.S.C. (with whom
Lord Carnwath J.S.C. and Lord Clarke J.S.C. agreed. See similarly per Lord Mance J.S.C. at
[152] per Lord Mance J.S.C. and [249] and [255] per Lord Hodge J.S.C.
223.
[2015] UKSC 67 at [35] Lord Neuberger P.S.C. and Lord Sumption J.S.C. (with whom Lord
Carnwath J.S.C. and Lord Clarke J.S.C. agreed. See similarly at [75]. For discussion of this
point, see below, para.26-214.
224.
[2015] UKSC 67 at [35].
225. Spain v European Commission (C-240/97) [1999] E.C.R. I–6571 at [99] (common agricultural
policy); Société thermale d’Eugénie-les-Bains v Ministère de l’Economie, des Finances et de
l’Industrie (C-277/05) [2007] E.C.R. I–6415 at [21], [24], [28] and [29] (VAT); Opinion of A.G.
Wahl in Kásler v OTP Jelzálogbank Zrt (C-26/13) February 12, 2012 at [3] referring to art.4(2) of
Directive 93/13/EEC on unfair terms in consumer contracts as “safeguarding, to some extent,
the principles of freedom of choice and freedom of contract”. The CJEU’s judgment of April 30,
2014 did not refer to art.4(2) in this way.
226. European Commission v Alrosa Co Ltd (C-441/07) [2010] 5 C.M.L.R. 11 at AG para.225.
227. EC Commission, First Annual Progress Report on European Contract Law and the Acquis
Review COM(2005) 456 final, para.2.6.3.
European Sales Law Com(2011) 635 final, Annex I, art.1 CESL.
229. CESL Proposal recital 30.
230.
See Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I)
[2008] O.J. L177/6, art.3 and Vol.I, paras 30-169 et seq.; Regulation (EU) 1215/2012 of 12
December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and
commercial matters (recast) (“the Brussels Ibis Regulation”) art.23 (on jurisdiction agreements)
and recital 14, on which see Dicey, Morris and Collins, The Conflict of Laws, 15th edn (2014),
paras 12–099 et seq.
231. C-426/11, July 18, 2013. For the UK Supreme Court judgment of referral see [2011] UKSC 26,
[2011] 4 All E.R. 800.
232. Directive 2001/23 relating to the safeguarding of employees’ rights in the event of transfers of
undertakings, businesses or parts of undertakings or businesses [2001] O.J. L82/16
implemented in UK law by the Transfer of Undertakings (Protection of Employment)
Regulations 2006 (SI 2006/246). The case itself concerned earlier UK regulations implementing
an earlier EEC directive, but the relevant provisions were essentially identical.
233. C-426/11 at para.8.
234. Directive 2001/23 art.3(1) and (8) respectively (emphasis added).
235. C-426/11 at paras 25 and 26.
236. C-426/11 at paras 28–29.
237. C-426/11 at para.32.
238. C-426/11 at para.33.

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239. C-426/11 at para.35.
240. C-426/11 at para.36.
241. cf. Alemo-Herron v Parkwood Leisure Ltd [2011] UKSC 26 at [9], Lord Hope referring to the
argument in favour of the binding nature of a third party pay determination clause as “entirely
consistent with the common law principle of freedom of contract”.
242. Hutten-Czapska v Poland App. No.35014/97 (2006) 42 E.H.R.R. 15 at [151]; Edwards v Malta
App. No.17647/04 at [69]–[71]; Gauci v Malta App. No.47045/06 (2011) 52 E.H.R.R. 25 at [58].
243. Clarke v West Ham Corp [1909] 2 K.B. 858, 879, 882. See Vol.II, para.36-008 on the ways by
which a carrier could “abdicate” this status by giving notice that he would not accept custom
from the public.
244. Gas Act 1986 s.10; Electricity Act 1989 s.16 (as substituted by Utilities Act 2000 s.44);
Electricity Act 1989 Sch.6 para.3 (as substituted by Utilities Act 2000 s.51 and Sch.4) (deemed
contracts in respect of the supply of electricity in certain cases).
245. Read v Croydon Corp [1938] 4 All E.R. 631; Norweb Plc v Dixon [1995] 1 W.L.R. 637 (on which
see Peel (ed.), Treitel on The Law of Contract, 13th edn (2011), para.1-037 n.37). cf. Oceangas
(Gibraltar) Ltd v Port of London Authority [1993] 2 Lloyd’s Rep. 292 (no contract in respect of
compulsory pilotage services); cf. Rushton v Worcester City Council [2001] EWCA Civ 367,
[2002] H.L.R. 9 (no contract between council and tenant exercising “right to buy” under scheme
created by Pt V of the Housing Act 1985); R. (on the application of Data Broadcasting
International Ltd) v Office of Communications [2010] EWHC 1243 (Admin), [2010] All E.R. (D)
289 (May) at [88]–[94] (broadcasting licences given to broadcasting companies under
Broadcasting Act 1990 are not contractual giving rise to private law rights and obligations).
246. Sex Discrimination Act 1975 s.6(1)(c).
247. Race Relations Act 1976 ss.4(1)(c), 17, 20 and 21.
248. Disability Discrimination Act 2005.
249. Employment Equality (Sexual Orientation) Regulations 2003 (SI 2003/1661).
250. Employment Equality (Religion or Belief) Regulations 2003 (SI 2003/1660).
251. Employment Equality (Age) Regulations 2006 (SI 2006/1031).
252. Equality Act 2010 ss.4-12. The main provisions concerning discrimination in the workplace and
in the provision of goods, facilities and services took effect from October 1, 2010: Equality Act
2010 (Commencement No.4, Savings, Consequential, Transitional, Transitory and Incidental
Provisions and Revocation) Order 2010 (SI 2010/2317). A summary of the commencement
dates of the provisions of the 2010 Act may be found at
http://www.homeoffice.gov.uk/equalities/equality-act/commencement. The statutory provisions
noted above at nn.206–211 are superseded on the coming into force of the relevant provisions
of the Equality Act 2010, which repeals and replaces, inter alia, the Equal Pay Act 1970; the
Sex Discrimination Acts 1975 and 1986; the Race Relations Act 1976; and the Disability
Discrimination Act 2005: Equality Act 2010 Sch.27 Pt 1. See also below, paras 2-191, 2-192,
2-193, 27-026, 40-009, 40-039, 40-094, 40-125—40-129, 40-132—40-138 and 40-174.
253. Equality Act 2010 ss.13-27.
254. Equality Act 2010 Pt 3 ss.28-31.

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258. Equality Act 2010 Pt 7 ss.100–106.
260. Equality Act 2010 s.142(1).
261. Sales (1953) 16 M.L.R. 318; Law Commission, Unfair Terms in Contracts, Law Com No.292
(2005), especially parts 4 and 5. Where both parties to the contract are in business, each may
attempt to impose its own conditions on the other, and this sometimes gives rise to what is
known as a “battle of forms”: see below, paras 2-033—2-036.
262. See Vol.II, paras 40-047 et seq.
263. cf. Barber v Manchester Regional Hospital Board [1958] 1 W.L.R. 181, 196; Roy v Kensington
& Chelsea and Westminster Family Practitioner Committee [1992] 1 A.C. 624; Scally v
Southern Health and Social Services Board [1992] 1 A.C. 294, 304.
264. cf. below, paras 1-224 et seq. on the question of the availability of public law remedies in this
sort of case.
265. See above, para.1-027 and below, para.14-005.
267.
Mears v Safecar Securities Ltd [1983] Q.B. 54, 78, per Stephenson L.J. The learned Lord
Justice specifically accepted, however, that “the obligation must be a necessary term; that is,
required by their relationship”. A legislative regime governing a particular category of contracts
may require the implication of an appropriate term by the courts: see, e.g. contracts governed
by the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for
Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649) and Aspect
Contracts (Asbestos) Ltd v Higgins Construction Plc [2015] UKSC 38, [2015] 1 W.L.R. 2961
esp. at [23].
268. cf. below, paras 1-042 et seq.
269. Nicholas (1974) 48 Tulane L.R. 946, 950.
270. See, e.g. Jones v Just (1868) L.R. 3 Q.B. 197 and Sale of Goods Act 1893 s.14 (now Sale of
Goods Act 1979 s.14 and Consumer Rights Act 2015 ss.9 and 10).
271. See, below, Ch.14. The contract of employment has proved particularly fertile ground for the
implication of terms: see Vol.II, paras 40-059—40-068, 40-072—40-073.
272. See Equality Act 2010 s.66(1); Sale of Goods Act 1979 ss.12-15; Supply of Goods (Implied
Terms) Act 1973 ss.8-11. cf. Consumer Rights Act 2015 ss.9-14, 17, 34-37, 39-41, 49-52
referring to the contracts to which they apply as “treated as including” terms of differing
contents.
273. See Vol.II, Chs 39 and 44 (on the law generally applicable) and paras 38-399 et seq. (on the
law applicable to consumer contracts).
274. Other contracts made with consumers, for example contracts of insurance and guarantee, were
for long left unregulated in this way, but important changes were made in this respect by the
Unfair Terms in Consumer Contracts Regulations 1994 (SI 1994/3159); revoked and replaced
by the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) and due to be
replaced on the coming into force of the Consumer Rights Act 2015 Pt 2: see below, Vol.II,
Page 11
275. Hepple (1986–1987) 36 King’s Counsel 11.
276. See art.101 TFEU (ex 81 EC), art.102 TFEU (ex 82 EC); Vol.II, Ch.43, especially paras 43-004
et seq.
277. See, e.g. European Commission v Alrosa Co Ltd (C-441/07) [2010] 5 C.M.L.R. 11 at AG
para.225.
278. Financial Services and Markets Act 2000 s.19(1). “Regulated activities” are defined by s.22.
279. ss.23, 20(3), respectively.
280. Financial Services and Markets Act 2000 Pt IXA (inserted by Financial Services Act 2012).
281. Financial Services and Markets Act 2000 ss.138D(2), 138E(1) (inserted by Financial Services
Act 2012).
282. Financial Services and Markets Act 2000 s.138E(2) (inserted by Financial Services Act 2012).
283. Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) implementing
Directive 2005/29 concerning unfair business-to-consumer commercial practices in the internal
market, on which see Vol.II, paras 38-145 et seq.
284. Unfair Commercial Practices Directive art.5; Consumer Protection from Unfair Trading
Regulations 2008 reg.3(3).
285. Unfair Commercial Practices Directive arts 6 and 7; Consumer Protection from Unfair Trading
Regulations 2008 regs 5, 6 and 7.
286. Unfair Commercial Practices Directive art.5(5) referring to Annex I; Consumer Protection from
Unfair Trading Regulations 2008 reg.3(4)(d), Sch.1.
287. Unfair Commercial Practices Directive art.3(2) on which see Whittaker in Weatherill and Bernitz
at Ch.8.
288. 2008 Regulations reg.29.
289. Consumer Protection (Amendment) Regulations 2014 (SI 2014/870) on which see Vol.II, paras
38-160 et seq.

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(b) - The Binding Force of Contract
General significance
1-036
290
A concomitant of the doctrine of freedom of contract is the binding force of contracts, a force
291
which the French Civil Code compares to the binding force of the law itself and which has been
recognised by the European Court of Justice as a “general principle of civil law”. 292 English law has
also long recognised this principle, which suits the needs of commerce as well as the expectations of
parties to contracts more generally. However, care must be taken in interpreting what is meant by the
“binding force” of contracts in English law. Some authors argue that:
“[g]enerally speaking the law does not actually compel the performance of a contract, it
merely gives a remedy, normally damages, for the breach” 293
an approach which echoes Oliver Wendell Holmes’ famous statement that the law leaves a contractor
“free from interference until the time for fulfilment has gone by, and therefore free to break his
contract if he chooses”. 294 However, four arguments can counter such an approach. First, the courts
sometimes do enforce the primary obligations of a contract: apart from the equitable remedies of
specific performance and injunction, 295 this is clearest in relation to the action for the agreed contract
price, a remedy available at common law and as of right which enforces a party’s primary contractual
obligation to pay money. 296 Moreover, the special statutory consumer right to repair and replacement
of goods or digital content, and the right to repeat performance of services, similarly seek to ensure
that one party (the consumer) obtains a conforming performance from the other (the trader). 297
Secondly, the purpose of many awards of damages for breach of contract, and the one which is
particular to it, 298 is to put the injured party in the position as though the contract had been performed.
299
While this approach to damages is not without its restrictions 300 (notably, those imposed by the
rules as to remoteness 301 and mitigation of damage), 302 where an award of damages is made on this
basis, it can be seen as reflecting the idea that the obligations created by the contract should have
been performed. Thirdly, a concern with the apparent injustice of allowing a party to break his contract
without sanction where the breach has occasioned no loss but has allowed him to make a profit can
be seen to lie behind the recognition of the remedy of an “account of profits” on breach based on the
principle of unjustified enrichment. 303 Fourthly, English law recognises the binding force of contracts
in another way, it being a tort for a third party knowingly 304 to induce a party to a contract to break his
obligations to his co-contractor. 305 While a third party may be liable in damages for such a tort of
interference with a contractual relationship, its commission may also be prevented by injunction in an
appropriate case. 306 And finally, and at a much more general level, the argument that English law
does not recognise the truly obligational character of contracts often rests on the absence of a
particular form of sanction for a breach of contract—viz the threat of punishment for contempt of
court, a sanction which exists in the contractual context only in relation to a failure to conform to a
judicial order for specific performance or injunction. However, to this it may be countered that there is
no reason to tie the question of the truly binding character of a contract to the presence of a particular
Page 2
type of sanction for its breach and that many English lawyers are content to use the language of
obligation to describe the consequences of contracts, which suggests that they see contract terms as
set up and to be used as guides for the conduct of the contracting parties. 307
1-037
However, rather than alluding to the variety of sanctions which are available if a contract is broken,
the notion of the binding force of contracts is often used instead to draw attention to the general
refusal of the courts to deny them effect on the ground of unfairness or inequality, for example where
an inadequate price has been stipulated for the sale of property. 308 This refusal is also reflected in the
development of the law of frustration. Until 1863, the general rule was that a party who contracted in
absolute terms remained liable, notwithstanding a change of circumstances between the time of
making the contract and the time for performance, 309 but in that year this harsh rule was mitigated by
the doctrine of frustration, 310 which for many years was reconciled with principle by the device of
implying a term into the contract, to which both parties could be supposed to have agreed, and which
provided for its discharge in the event of a given thing or state of things ceasing to exist. However, the
doctrine came to be applied in circumstances where it was obvious that both parties would never
have agreed to any such term and in Davis Contractors Ltd v Fareham Urban DC, 311 this basis for
relief on frustration was firmly rejected. While some judges had relied simply on the notion of justice to
justify the doctrine, 312 this decision of the House of Lords also made clear that its proper basis is the
construction of the contract. 313 By so doing, reliance is again placed on what the parties agreed or
rather on what they did not agree, viz to perform the contract in such radically different circumstances
from those which obtained when it was made. However, even if the view were taken that the rationale
for the doctrine of frustration is simply that in the circumstances the law decides that it would be unfair
to keep the parties to the terms of their agreement, this does not mean that simple unfairness is the
test of frustration. Again, in Davis Contractors Ltd 314 Lord Radcliffe made clear that the proper test for
frustration is whether performance of the contract is radically different from that which was undertaken
by the contract 315 and this test has been consistently upheld, 316 the courts refusing to grant relief for
frustration merely because performance of the contract is more onerous than was envisaged by the
parties on contract. 317
Limits on binding force of contracts
1-038
Nevertheless, recognition of the principle of the binding force of contracts does not mean that
contracts, or particular terms of contracts, will always be enforced. This is clearest in cases of illegal
contracts, 318 but another exception to the principle exists at common law in the case of penalty
clauses. 319 As regards the latter, the Supreme Court has recently clarified the limits of the law which
renders a contract term unenforceable as a penalty, holding that a contract term which stipulates the
payment of a sum of money on breach of contract will be classed as a penalty clause (and so
unenforceable) only if it “imposes a detriment on the contract-breaker out of all proportion to any
legitimate interest of the innocent party in the enforcement of the primary obligation”. 320
Furthermore, very important changes on the binding force of contract terms were introduced as a
result of modern legislative intervention, of which the Unfair Contract Terms Act 1977 and the Unfair
Terms in Consumer Contracts Regulations 1999 321 and, on its coming into force, the Consumer
Rights Act 2015, are particularly prominent. 322 First, the Unfair Contract Terms Act 1977 as enacted
declares exemption clauses totally ineffective in certain situations, notably where they attempt to
exclude business liability for death or personal injuries caused by negligence 323 and where they
attempt to exclude or limit liability for breach of the terms as to quality and fitness for purpose implied
by s.14 of the Sale of Goods Act 1979 as against someone dealing as consumer. 324 Furthermore, it
gives to the courts a discretion in a wide category of other cases to deny effectiveness to an
exemption clause unless it is proven to be “fair and reasonable” by the person who seeks to rely upon
it. 325 Secondly, the Unfair Terms in Consumer Contracts Regulations 1999 impose a system of
control of the terms of consumer contracts on the ground of unfairness which is not restricted to
exemption, limitation and indemnity clauses, but extends to most terms 326 which have not been
individually negotiated and:
Page 3
“… which contrary to the requirement of good faith causes a significant imbalance in the
parties’ rights and obligations under the contract to the detriment of the consumer.” 327
As will be explained, on its coming into force, the Consumer Rights Act 2015 amends the 1977 Act so
as no longer to apply to the terms of consumer contracts, 328 and creates its own controls on the terms
of consumer contracts replacing and amending the 1999 Regulations as well as incorporating the
substance of some of the provisions of the 1977 Act. 329 Another very striking inroad into the binding
force of contracts may be found in provisions of the Consumer Credit Act 2006 which replaced earlier
provisions governing extortionate credit bargains in the Consumer Credit Act 1974 with very broad
provisions concerning “unfair relationships” arising from a consumer credit agreement. 330 These
provisions empower a court to make a range of orders (including requiring the creditor to repay any
sums paid by the debtor, to reduce or discharge any sum payable by the debtor and to alter the terms
of the agreement) 331 in connection with a consumer credit agreement:
“… if it determines that the relationship between the creditor and the debtor arising out of
the agreement (or the agreement taken with any related agreement) is unfair to the
debtor”
in one or more of a number of ways. 332 According to the Supreme Court, this provision “is deliberately
framed in wide terms with very little in the way of guidance about the criteria for its application … It is
not possible to state a precise or universal test for its application, which must depend on the court’s
judgment of all relevant facts”, though the Supreme Court offered some general points which courts
should take into account for this purpose. 333
290. This has been termed the “sanctity of contracts”: see Hughes Parry, The Sanctity of Contracts
in English Law (1959).
291.
French Civil Code art.1134.1 (inspired by D. 16.3.1.6; D. 50.17.23 (both attributed to Ulpian)).
Logically, this Code recognised the effectiveness of penalty clauses, whose purpose is to
ensure the performance of a contract: arts 1152, 1226. The law relating to penalty clauses was
changed in 1975, when the courts were given a discretion to modify them where otherwise their
effect would be “manifestly excessive or derisory”: see new art.1152.1, C. civ. As from October
1, 2016 the provisions in the French Civil Code governing general contract law are reformed:
Ordonnance No.2016/131 of February 10, 2016. The equivalent provision of art.1134.1 of the
Civil Code as promulgated appears in art.1103 of the Civil Code as reformed; the latter’s
provisions on penalty clauses are contained in art.1231-5 of the Civil Code as reformed.
292. Société thermale d’Eugénie-les-Bains v Ministère de l’Economie, des Finances et de l’Industrie

(C-277/05) [2007] E.C.R. I–6415 at [24].
293. Atiyah, An Introduction to the Law of Contract, 5th edn (1995), p.37.
294. The Common Law (1881), p.301.
297. See Consumer Rights Act 2015 ss.23 (goods), 43 (digital content) and 55 (services) and 58
(powers of the court) on which see Vol.II, paras 38-422 and 38-485, 38-518 and 38-520, and
38-541 and 38-543.
298. In particular, a contrast is drawn here with the basis of awards of damages in tort: see below,
Page 4
paras 1-193—1-195.
299. See below, para.26-001. Such an award is sometimes said to be made to protect the injured
party’s expectation interest or performance interest. An award of damages may be made on
other bases, in particular in order to protect what is known as the reliance interest of the injured
party: below, paras 26-019—26-021.
300. A practical as opposed to a legal restriction is that a claim for damages on the basis of an
injured party’s performance interest may be difficult to show: see below, para.26-024.
303. See A.G. v Blake [2001] 1 A.C. 268 and below, paras 26-055—26-057.
304. See Clerk & Lindsell on Torts, 21st edn (2014), paras 24-14 et seq.
305. See Lumley v Gye (1853) 2 E.B. 216 and below, para.1-202.
306. e.g. Torquay Hotel Co Ltd v Cousins [1969] 2 Ch. 106.
307. cf. Hart, The Concept of Law (1961), pp.79-88, who distinguishes the situation where a person
is under an obligation and where a person is obliged.
308. This can be seen in those cases which hold that the consideration for a promise need not be
adequate: below, paras 4-014—4-021.
309. Paradine v Jane (1647) Aleyn 26.
310. Taylor v Caldwell (1863) 3 B.S. 826; see below, Ch.23.
311. [1956] A.C. 696, 720–729.
312. e.g. Denny, Mott & Dickson Ltd v James B. Fraser & Co Ltd [1944] A.C. 265, 275; British
Movietonews Ltd v London and District Cinemas Ltd [1951] 1 K.B. 190, 202 (reversed [1952]
A.C. 166).
313. [1956] A.C. 696, 720–721; and see below, para.23-011.
314. [1956] A.C. 696.
315. [1956] A.C. 696, 729; and see below, para.23-012.
317. British Movietonews Ltd v London and District Cinemas Ltd [1952] A.C. 166, 185; Davis
Contractors Ltd v Fareham Urban DC Ltd [1956] A.C. 696; Tsakiroglou & Co Ltd v Noblee Thorl
GmbH [1962] A.C. 93.
319. See below, paras 26-178 et seq. Another exception is to be found in the inability of the parties
to a contract to fetter the discretion of the court in deciding whether to grant the remedy of
specific performance: Quadrant Visual Communications Ltd v Hutchison Telephone (UK) Ltd
[1993] B.C.L.C. 442, 451, 452.
320.
3 W.L.R. 1373 at [32] per Lord Neuberger of Abbotsbury P.S.C. and Lord Sumption J.S.C. (with
Page 5
whom Lord Carnwath and Lord Clarke of Stone-cum-Ebony JJ.S.C. (at [291] agreed); and see
similarly at [152] (Lord Mance J.S.C.) and [255] (Lord Hodge J.S.C., with whom Lord Toulson
J.S.C. at [292] agreed on this issue). On this decision see paras 26-178 et seq.
321. SI 1999/2083 implementing Directive 93/13 on unfair terms in consumer contracts. On the
coming into force of the 2015 Act, the 1999 Regulations are revoked and replaced by the Act’s
own provisions implementing the directive in Pt 2. Pts 1 and 2 of the 2015 Act came into force
on October 1, 2015: see generally Vol.II, paras 38-192 et seq.
323. Unfair Contract Terms Act 1977 s.2(1).
324. s.6(2).
325. Unfair Contract Terms Act 1977 ss.2(2), 3, 6(3) and 11; and see below, paras 15-096 et seq.
326. The most important exception is found in the “core exclusion” in the 1999 Regulations reg.6(2)
on which see Vol.II, paras 38-224—38-241; the Consumer Rights Act 2015 s.64 makes similar
provision on which see Vol.II, paras 38-363—38-369 respectively.
327. Unfair Terms in Consumer Contracts Regulations 1999 reg.5(1).
330. Consumer Credit Act 1974 ss.140A–140D as inserted by Consumer Credit Act 2006 ss.19-22.
See Vol.II, paras 39-212—39-228.
331. Consumer Credit Act 1974 s.140(B)(1) as inserted by Consumer Credit Act 2006 s.20.
332. Consumer Credit Act 1974 s.140(A)(1) as inserted by Consumer Credit Act 2006 s.19. On
these provisions see Vol.II, paras 39-213—39-228.
333.
Plevin v Paragon Personal Finance Ltd [2014] UKSC 61, [2014] 1 W.L.R. 4222 at [10] per
Lord Sumption J.S.C. (with whom Baroness Hale of Richmond D.P.S.C., Lord Clarke of
Stone-cum-Ebony, Lord Carnwath and Lord Hodge J.J.S.C. agreed).

Page 1

(c) - A Principle of Good Faith or of Contractual Fairness?
No general principle of good faith
1-039
Use by EU legislation of the notion of good faith or “good faith and fair dealing” has made more
prominent the question whether English law requires that a party to a contract exercise his rights in
good faith, whether the right in question concerns the creation of a contract, its performance or its
non-performance. 334 Such a question may be expressed in different ways and may use a variety of
language: put negatively, it may be asked whether a party’s bad faith should affect his exercise of
rights or whether his “unconscionable conduct” in the creation or performance of a contract should
affect its validity. 335 Put more positively, the question may be posed in terms of a general requirement
or series of more particular requirements that a person act in good faith, reasonably and fairly. 336 In
1766, in the context of recognising the duty of disclosure in contracts of insurance, 337 Lord Mansfield
C.J. stated that:
“The governing principle is applicable to all contracts and dealings. Good faith forbids
either party by concealing what he privately knows, to draw the other into a bargain,
from his ignorance of that fact, and his believing the contrary. But either party may be
innocently silent, as to grounds open to both, to exercise their judgment upon.” 338
Nevertheless, the modern view is that, in keeping with the principles of freedom of contract and the
binding force of contracts, in English contract law there is no legal principle of good faith of general
339
application, although some authors have argued that there should be. As Bingham L.J.
famously observed:
“In many civil law systems, and perhaps in most legal systems outside the common
law world, the law of obligations recognises and enforces an overriding principle that
in making and carrying out contracts parties should act in good faith. This does not
simply mean that they should not deceive each other, a principle which any legal
system must recognise; its effect is perhaps most aptly conveyed by such
metaphorical colloquialisms as ‘playing fair’, ‘coming clean’ or ‘putting one’s cards
face upwards on the table.’ It is in essence a principle of fair open dealing … English
law has, characteristically, committed itself to no such overriding principle but has
developed piecemeal solutions in response to demonstrated problems of unfairness.”
340
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The fact that at least some English judges have not been attracted by the idea of a general ground
for relief for unfairness is also clear from judicial treatment of the attempt of Lord Denning M.R. to
construct a general principle of “inequality of bargaining power” in Lloyds Bank Ltd v Bundy 341 and
the House of Lords’ refusal in Walford v Miles 342 to imply a term in a “lock-out” agreement that a party
to it be obliged to continue to negotiate in good faith. Indeed, in that case, Lord Ackner stated that:
“… the concept of a duty to carry on negotiations in good faith is inherently repugnant

to the adversarial position of the parties when involved in negotiations 343 … [and] …
unworkable in practice.” 344
Similarly, Potter L.J. observed in denying relevance to a injured party’s motive in termination of a
contract, that:
“There is no general doctrine of good faith in the English law of contract. The [injured
parties] are free to act as they wish, provided that they do not act in breach of a term
of the contract.” 345
And, very recently, Moore-Bick L.J. has observed that:
“the better course is for the law to develop along established lines rather than to
encourage judges to look for what the judge in this case called some ‘general
organising principle’ drawn from cases of disparate kinds … There is … a real danger
that if a general principle of good faith were established it would be invoked as often
to undermine as to support the terms in which the parties have reached agreement.””
346
Moreover, according to Rix L.J. in ING Bank NV v Ros Roca SA:
“Outside the insurance context, there is no obligation in general to bring difficulties

and defects to the attention of a contract partner or prospective contract partner.
Caveat emptor reflects a basic facet of English commercial law (the growth of
consumer law has been moving in a different direction). Nor is there any general
notion, as there is in the civil law, of a duty of good faith in commercial affairs,
however much individual concepts of English common law, such as that of the
reasonable man, and of waiver and estoppel itself, may be said to reflect such a
notion. In such circumstances, silence is golden, for where there is no obligation to
speak, silence gives no hostages to fortune.” 347
1-040
A very stark example of the preference of English judges for the strict application of the terms of a
contract rather than tempering their effect on the grounds of fairness may be found in Union Eagle Ltd
v Golden Achievement Ltd. 348 There, the Privy Council refused specific performance of a contract for
the sale of land to its purchaser who had paid the price 10 minutes late, time having been made
expressly of the essence for performance of this obligation. It rejected the argument that the courts
enjoyed a discretion to relieve a party from the contractual consequences of late performance
(stemming from its jurisdiction to relieve from forfeitures in equity). According to Lord Hoffmann:
Page 3
“The principle that equity will restrain the enforcement of legal rights when it would be
unconscionable to insist upon them has an attractive breadth. But the reasons why
the courts have rejected such generalisations are founded not merely upon authority
… but also upon considerations of business. These are, in summary, that in many
forms of transaction it is of great importance that if something happens for which the
contract has made express provision, the parties should know with certainty that the
terms of the contract will be enforced. The existence of an undefined discretion to
refuse to enforce the contract on the ground that this would be ‘unconscionable’ is
sufficient to create uncertainty.” 349
It is to be noted, though, that Lord Hoffmann recognised that “the same need for certainty is not
present in all transactions”. 350
Moreover, the House of Lords has had occasion to hold that a party is not prevented from relying on
the formal invalidity of a contract on the ground merely that it would be “unconscionable” to do so, in
the absence of an unambiguous representation of the contract’s validity (not being the promise to be
enforced itself) on which to base an estoppel. 351 In the words of Lord Clyde:
“Without entering into questions of categorisation of different classes of estoppel, it

seems to me that some recognisable structural framework must be established before
recourse is had to the underlying idea of unconscionable conduct in the particular
circumstances.” 352
Similarly, in Cobbe v Yeoman’s Row Management Ltd 353 (which concerned claims, inter alia, for
proprietary estoppel and/or constructive trust arising from an oral agreement to develop another
person’s land intended to be binding “in honour alone”), Lord Scott of Foscote observed that:
“… unconscionability of conduct may well lead to a remedy but, in my opinion,

proprietary estoppel cannot be the route to it unless the ingredients for a proprietary
estoppel are present … To treat a ‘proprietary estoppel equity’ as requiring neither a
proprietary claim by the claimant nor an estoppel against the defendant but simply
unconscionable behaviour is, in my respectful opinion, a recipe for confusion.” 354
Similarly, Lord Walker of Gestingthorpe considered that no cases cited before the House:
“… cast doubt on the general principle that the court should be very slow to introduce
uncertainty into commercial transactions by over-ready use of equitable concepts
such as fiduciary obligations and equitable estoppel. That applies to commercial
negotiations whether or not they are expressly stated to be subject to contract.” 355
Moreover, the courts do not generally allow a party to a contract to rely on public law defences (such
as one based on its legitimate expectation) against its contractual partner where the latter’s claim is
fundamentally for the enforcement of a commercial bargain, even if that partner was a public authority
acting under statutory powers, though it has been accepted that they could do so where “a true public
law defence vitiates a contractual claim”. 356 For this purpose, in the view of Lewison L.J., it cannot
“usually be an abuse of power [in a public body] to exercise contractual rights freely conferred, even if
the result may appear to be a harsh one”. 357
Good faith in other common law systems
1-041
Page 4
As Lord Brown-Wilkinson has observed:
“… throughout the common law world it is a matter of controversy to what extent

obligations of good faith are to be found in contractual relationships”, 358
and other common law systems have taken varying positions as to the relevance of good faith in the
creation or the performance of contracts. 359 Perhaps the most extensive use is taken by lawyers in
the United States, the Restatement (Second) of Contracts requiring that “[e]very contract imposes
upon each party a duty of good faith and fair dealing in its performance and enforcement”. 360 In
Australia too, courts and writers are generally quite open to the use of good faith, holding that an
agreement to negotiate in good faith may be contractually enforceable, 361 and willing to find implied
terms requiring co-operation in performance, if not always good faith, between the parties. 362
Moreover, although earlier Canadian cases show considerable hesitation in accepting a general duty
of good faith in either negotiation or performance of contract, 363 the Canadian Supreme Court has
recently ruled that there is “a general organizing principle of the common law of contract which
underpins and informs the various rules in which the common law, in various situations and types of
relationships, recognizes obligations of good faith contractual performance” and that “as a further
manifestation of this organizing principle of good faith, … there is a common law duty which applies to
all contracts to act honestly in the performance of contractual obligations.” 364 However, the Canadian
Supreme Court acknowledged that “the principle of good faith must be applied in a manner that is
consistent with the fundamental commitments of the common law of contract which generally places
great weight on the freedom of contracting parties to pursue their individual selfinterest.” 365
Good faith in civil law systems
1-042
As Bingham L.J.’s observations quoted x above illustrate, 366 in modern discussions of the English
position contrasts are often drawn with use of the concept of good faith in civil law systems, i.e. those
whose private law has derived substantially from doctrines and rules of Roman law. The practical
interest of this use is heightened by the increasing reference to good faith or “good faith and fair
dealing” in European legislation in the area of contract law and the possibility of the Court of Justice of
the EU drawing on its existing significance in the laws of the Member States in interpreting its
significance there. 367 In this respect, though, it is helpful to note that, even restricting the discussion
to the legal systems of western Europe, there are very considerable divergences in both the
significances given to “good faith” and its supposed linguistic equivalents and in the uses to which
they are put within each legal system. So, in some (but not in all) systems, good faith has provided
the basis of some pre-contractual grounds of relief or compensation (notably, as regards duties of
disclosure and information and breaking-off from negotiations); the addition of “supplementary”
obligations to those expressly provided either by the parties or by legislation; the control of unfair
contract terms; the toughening of the sanction of deliberate breaches of contract; the control of the
exercise of a party’s contractual right; and relief on account of supervening circumstances or the
substantively unfair nature of the contract as a whole. 368 In the result:
“… the notion of good faith (or its equivalents in the various languages … ) actually
means different things both within a particular legal system and between the legal
systems.” 369
And while in those legal systems which possess a general requirement of good faith:
“… good faith is not devoid of meaning, a pious hope or incantation or simply a

supertechnique waiting to be put to whatever legal end a legal system wishes (though
it may act as a super-technique if required) … even where a particular meaning of
good faith is accepted in two systems, this does not entail that they will take the same
Page 5
view of what it in fact requires in any given situation.” 370
Moreover, the extent of the use to which a legal system puts a potentially corrective principle such as
good faith depends on the extent to which it is dissatisfied with its more particular, established laws of
contract, on the availability of other legal techniques which have a similar corrective possibility and on
the perceived appropriateness of judicial as opposed to legislative intervention in the area in question.
For English law, the difference between resort to the “piecemeal solutions” mentioned by Bingham
L.J. and recognition of a legal principle of good faith in contract is likely to be that the latter would tend
not merely to give a juridical unity to existing examples of situations in which good faith or fairness is
considered relevant, but also to invite future courts to add further examples in new situations by way
of application of the principle. 371 Given the remarkably open-textured nature of good faith, this would
lead to a very considerable degree of legal uncertainty, and could be seen as trespassing too far into
the legislative domain.
“Good faith” and “good faith and fair dealing” in EU law
1-043
EU legislation has had increased recourse to the concept of good faith in setting standards for
various legal purposes. In this respect, a particularly prominent example is found in the reference to
the “requirement of good faith” in the test of unfair terms in consumer contracts under the Directive of
1993. 372 The concept of “good faith and fair dealing” has also been used in the directive on late
payment in commercial transactions as part of its control on unfair terms. 373 Moreover, good faith has
been used for legal purposes other than the control of unfair terms. So, the Financial Services
Distance Marketing Directive of 2002 refers to the “principles of good faith in commercial transactions”
in setting the information which a supplier must provide to a consumer prior to the conclusion of the
contract 374 and the Unfair Commercial Practices Directive of 2005 sets as its general test of an “unfair
commercial practice” in part by reference to the “requirements of professional diligence”, which is then
itself defined as:
“the standard of special skill and care which a trader may reasonably be expected to
exercise towards consumers, commensurate with honest market practice and/or the
general principle of good faith in the trader’s field of activity.” 375
Finally, “good faith” is used by Commercial Agents Directive 1986 to set the standard of the agents’
duties to their principals, providing that the “agent must … act dutifully and in good faith”. 376 Apart
from these particular examples of the use of “good faith” by EU legislation, the European Court of
Justice has referred to good faith as a “principle of civil law”, although in a way which is not explicitly
clear whether this principle is a principle of EU law or merely of the national law before the court. 377
Support for the existence of such a general principle may be found in the earlier proposal for a
Common European Sales Law, art.2 of which provided that:
“1.
Each party has a duty to act in accordance with good faith and fair dealing.
2.
Breach of this duty may preclude the party in breach from exercising or relying
on a right, remedy or defence which that party would otherwise have, or may
make the party liable for any loss thereby caused to the other party.
Page 6
3.
The parties may not exclude the application of this Article or derogate from or
vary its effects.” 378
The Proposed Regulation defined “good faith and fair dealing” as
“a standard of conduct characterised by honesty, openness and consideration for the

interests of the other party to the transaction or relationship in question.” 379
The proposed optional Common European Sales Law would have been available only to contracts for
the sale of goods, the supply of digital content and related services, 380 but many of its provisions
were equally appropriate to contract law in general. Apart from the general principle of good faith and
fair dealing, the proposed Common European Sales Law made specific use of good faith and fair
dealing in its provisions governing duties of information in commercial contracts, 381 mistake, 382 fraud,
383
contractual interpretation, 384 the implication of terms 385 and unfair contract terms. 386 However, the
CESL Proposal was withdrawn by the Commission in 2014, 387 and the legislative proposals put
forward by the EU Commission instead are of much narrower scope than the CESL and do not refer
to the concept of good faith. 388
Good faith, fairness or reasonableness relevant exceptionally in English law
1-044
The following paragraphs set out a number of ways by which English law takes into account
considerations of fairness which qualify the position established either by the general law or by a
contract to govern the creation or the regulation of contractual relationships. Some of these refer
explicitly to the notion of good faith, as is the case in contracts arising from fiduciary relations,
contracts of partnership and of employment, and contracts of insurance (which are said to be of the
utmost good faith) though the significance of this is much altered by recent legislation. 389 Sometimes,
the law gives effect to the notion of good faith by way of the application of an exceptional rule and
sometimes by the implication of a term. Moreover, other qualifications on the strictness of the express
terms of the contract or on contract law itself do not refer explicitly to good faith, preferring rather to
use the language of fairness, equitableness or reasonableness.
(i) Duties to consider other party’s interest
1-045
First, some particular types of contract attract rules (usually considered to be of law, though
sometimes justified by reference to the implied intentions of the parties) which impose duties on one
party to act other than in their own interest. This is most clearly the case in contracts under which a
person assumes fiduciary duties, as is notably the case as regards agents, for a fiduciary must act
honestly and must not allow his own interests to conflict with those of his principal. 390 Indeed, the
Commercial Agents (Council Directive) Regulations 1993, echoing the EU Directive that they
implement, put the duties of agents to their principals expressly in terms of good faith. 391 So too, it
has been said that partnership is a “contract of good faith” 392 and held that this means that
prospective partners owe each other a duty to disclose all material facts of which each has knowledge
and of which the other negotiating parties may not be aware. 393 Another example may be found in
relation to mortgages. Thus, the Privy Council has recognised that a mortgagee of property must
exercise his powers in good faith and for the purpose of obtaining repayment of the debt, though
given this purpose these powers may be exercised in such a way that disadvantageous
394
consequences accrue to the borrower. And at common law the parties to contracts of
Page 7
insurance owe each other duties of “the utmost good faith”, the most important consequence of which
is the imposition of extensive obligations of disclosure, though this law has been partly abrogated and
widely amended by statute. 395 Moreover, a contract may give rise to fiduciary duties in one party to
the other in other circumstances. So, for example, in a contract of joint venture for the development of
premises under which A provided finance and B managed the development and the disposal of its
funds and the parties were to share the profits, B was held to owe a fiduciary duty of good faith to A in
respect of the venture assets, with the result that B was prohibited from using or paying to itself any
part of the proceeds except as regards the venture expenses or in accordance with the agreement. 396
On the other hand, while a contractual and a fiduciary relationship may co-exist between the same
parties in this way, it has been said that:
“the courts must be careful not to distort the parties’ contractual bargain by the
inappropriate introduction of equitable principles. In a commercial context wider duties
will not lightly be implied. Fiduciary duties do not commonly arise outside the settled
categories of fiduciary relationships, not least because independently contracting
parties do not undertake normally to subordinate their own commercial interests to
another.” 397
For this purpose, while a fiduciary must act in good faith, the existence of an express contract term
requiring good faith in one or more parties does not necessarily mean that a fiduciary relationship
exists. 398 Moreover, any fiduciary duties which do exist in a party or parties to a contract must “be
moulded to fit the contractual framework”. 399
(ii) Express terms as to good faith or fairness
1-046
Sometimes, the express terms of a contract require one or both of the parties to act fairly or in good
faith towards the other in a particular context or respect or more generally.
Express term to negotiate in good faith
1-047
In the case of good faith, the validity of such a term remains doubtful owing to the view expressed by
Lord Ackner in Walford v Miles that a duty to negotiate in good faith is “unworkable in practice”. 400
This view has been followed by some later courts, which have seen an express agreement to
negotiate in good faith as an (unenforceable) agreement to agree. 401 However, a rather more liberal
approach was taken to this question in Petromec Inc v Petroleo Brasileiro SA Petrobras (No.3). 402 In
that case the Court of Appeal considered that Lord Ackner’s observations were not appropriate (nor
binding on it 403) to determine the validity of an express obligation to negotiate in good faith contained
in a complex concluded contract which had been drafted by City of London solicitors. The term in
question formed part of a contract supplementing a complex series of contractual arrangements
relating to the purchase, “upgrading” and hire of an oil production platform, and provided for the
negotiation in good faith of the cost of the upgrading of the platform for use on a particular oil field. On
the loss by fire of the platform, the question arose, inter alia, of the applicability and enforceability of
the term as to negotiation in good faith. Having held it inapplicable as a matter of construction, 404
Longmore L.J. nevertheless considered whether the term would have been enforceable. In this
respect, he noted that there were three traditional objections to enforcing an obligation to negotiate in
good faith:
“(1) … that the obligation is an agreement to agree and thus too uncertain to enforce,
(2) that it is difficult, if not impossible, to say where, if negotiations are brought to an
end, the termination is brought about in good or in bad faith, and (3) that, since it can
never be known whether good faith negotiations would have produced an agreement
Page 8
at all or what the terms of any agreement would have been if it would have been
reached, it is impossible to assess any loss caused by breach of the obligation.” 405
In the view of the learned Lord Justice, the first of these objections carried little weight in the context
as the express obligation to negotiate in good faith was contained in a contract which it was accepted
was generally enforceable; and the third objection could be overcome as the obligation to negotiate in
question related to a limited aspect of the extra costs involved in the upgrade of the platform and so, if
agreement were not reached, the court could itself ascertain the losses arising, these being likely to
be the same as the reasonable cost of the upgrade. 406 Rather:
“It is the second objection that is likely to give rise to the greatest problem viz that the
concept of bringing negotiations to an end in bad faith is somewhat elusive. But the
difficulty of a problem should not be an excuse for the court to withhold relevant
assistance from the parties by declaring a blanket unenforceability of the obligation.”
However, he added that in the absence of fraud, it would be unlikely that there would be a finding of
bad faith. 407 Overall, therefore, given the inclusion of a term of “comparatively narrow scope” which
had been “deliberately and expressly” entered by the parties to a professionally drafted commercial
contract, Longmore L.J. concluded that it would be “a strong thing to declare [it] unenforceable” as
this would “defeat the reasonable expectations of honest men”. 408 This approach has been followed
at first instance so as to allow the enforcement of a contract term to seek to resolve any dispute or
claim by “friendly discussions” for a period of four weeks before proceeding to arbitration. 409
Express term to act in good faith
1-048
In a series of recent cases the courts have considered the proper approach to express terms which
require one or more of the parties to a contract to act in good faith or with the utmost good faith. 410
In Berkeley Community Villages Ltd v Pullen 411 a property developer contracted with owners of
land to use its expertise to maximise the potential for development of a substantial part of the land in
return for a fee payable in certain circumstances. The contract contained an express term that:
“… [i]n all matters relating to this Agreement the parties will act with the utmost good
faith towards one another and will act reasonably and prudently at all times.”
Although the developer made efforts to promote the owners’ land (including towards obtaining a
Planning Consent of considerable value), the owners wished to sell the land in question to a third
party for a very large sum. The developer, which argued that the would-be sale price reflected the
significant improvement in its planning prospects, applied for an injunction to prevent the owners from
selling or otherwise disposing of the land. Morgan J. agreed to grant such an injunction, holding first
that, as a matter of construction, the express term imposed on the owners:
“… a contractual obligation to observe reasonable commercial standards of fair

dealing in accordance with their actions which related to the Agreement and also
[required] faithfulness to the agreed common purpose and consistency with the
justified expectations of the [developer].” 412
He held, secondly, that in the circumstances the intended sale would amount to breach of the owners’
obligation of good faith on the grounds that: the developer had invested considerable time and
incurred expense as a result of which the value of the land had been significantly enhanced; on the
Page 9
terms of the contract, the owner was not obliged to pay a reasonable fee to the developer on the sale;
in any event, the developer’s expectations were that they would promote the land to obtain planning
consent and sale in the open market (whereupon they would be entitled to a fee under the express
terms of the contract); the third party buyer would not be bound by the terms of the contract; and,
finally, the owner put forward no extenuating circumstances or hardship. 413 Berkeley Community
Villages Ltd v Pullen was considered in Gold Group Properties Ltd v BDW Trading Ltd. 414 There A, a
property developer, agreed by contract to construct dwellings on land owned by B; B was then to sell
the dwellings, sharing the revenue with A. Minimum sale prices for each of the properties were
agreed together with revenue sharing provisions. An express term of the contract required each of the
parties “at all times to act in good faith towards the other and use all reasonable endeavours to
ensure the observance by themselves of the terms of this Agreement …”. A failed to develop the land
and was sued for damages for repudiatory breach of contract by B, to which A countered that B was
in repudiatory breach of this express term requiring good faith by refusing to countenance any
negotiation or revision of their agreement so as to address the difficulties caused by a fall in the
property market and insisting that the minimum prices which it contained were for its benefit alone. 415
Having cited the dictum of Morgan J. in Berkeley Community Villages Ltd v Pullen quoted above,
Judge Stephen Furst Q.C. quoted the observations of Barrett J. in the Supreme Court of New South
Wales in Overlook v Foxtel to the effect that:
“… the party subject to the obligation [of good faith] is not required to subordinate the
party’s own interests, so long as pursuit of those interests does not entail
unreasonable interference with the enjoyment of a benefit conferred by the express
contractual terms so that the enjoyment becomes (or could become) … ‘nugatory,
worthless or, perhaps, seriously undermined’ … the implied obligation of good faith
underwrites the spirit of the contract and supports the integrity of its character. A party
is precluded from cynical resort to the black letter. But no party is fixed with the duty to
subordinate self-interest entirely which is the lot of the fiduciary … The duty is not a
duty to prefer the interests of the other contracting party. It is, rather, a duty to
recognise and to have due regard to the legitimate interests of both the parties in the
enjoyment of the fruits of the contract as delineated by its terms.” 416
In applying this approach to the meaning of good faith on the facts before him, Judge Stephen Furst
Q.C. concluded that,
“good faith, whilst requiring the parties to act in a way that will allow both parties to
enjoy the anticipated benefits of the contract, does not require either party to give up a
freely negotiated financial advantage clearly embedded in the contract.” 417
He therefore found for the landowners B, holding that the owners were not in breach of their
obligation to act in good faith in refusing to accept or negotiate on the basis of the developer’s (A’s)
offer to delay the development for two years or to revise the revenue sharing agreement in the
contract. 418
The approach of Morgan J. in Berkeley Community Villages Ltd v Pullen was followed by Vos J. in
CPC Group Ltd v Qatari Diar Real Estate Investment Co. 419 This case concerned a number of issues
arising from a contract of joint venture for the development of a large site in London, including alleged
breaches of an express term which required its parties to:
“act in the utmost good faith towards each other in relation to the matters set out [in
the contract] and [the defendant] shall use all reasonable but commercially prudent
endeavours to enable the achievement of the various threshold events and Payment
Dates [for the benefit of the claimant] …”.
In Vos J.’s view, in the context:

Page 10
“the obligation of utmost good faith in the [contract] was to adhere to the spirit of the
contract, which was to seek to obtain planning consent for the maximum Development
Area in the shortest possible time, and to observe reasonable commercial standards
of fair dealing, and to be faithful to the agreed common purpose, and to act
consistently with the justified expectations of the parties.” 420
While the learned judge did not require “to decide whether this obligation could only be broken if [the
defendant or the claimant] acted in bad faith”, he considered that “it might be hard to understand, as
Lord Scott said in Manifest Shipping, how, without bad faith, there can be a breach of a ‘duty of good
faith, utmost or otherwise”’. 421 On the facts, however, he found that there had been no breach of
the obligation of utmost good faith as so interpreted. 422
1-049
In Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) 423
the Court of Appeal considered the significance of an express term in a detailed contract for the
supply of catering and cleaning services for a seven-year period by a contractor to an NHS Trust at
one of its hospitals. The term in question provided that:
“The Trust and the Contractor will co-operate with each other in good faith and will
take all reasonable action as is necessary for the efficient transmission of information
and instructions and to enable the Trust … to derive the full benefit of the Contract.”
At first instance, it had been held that “it accorded with commercial common sense for there to be a
general obligation on both parties to co-operate in good faith” and that the Trust’s behaviour
constituted breach of this obligation. 424 The Court of Appeal disagreed, reversing the decision below.
First, on its proper construction the term did not create a general obligation to co-operate in good faith
which “qualifies or reinforces all of the obligations of the parties in all situations where they interact”,
but rather the term was “specifically focused upon the two purposes stated in the second half of that
sentence”. 425 As Beatson L.J. observed, “care must be taken not to construe a general and
potentially openended obligation such as the obligation to ‘co-operate’ or ‘to act in good faith’ as
covering the same ground as other, more specific provisions, lest it cut across those more specific
provisions and any limitations in them”. 426 Secondly, the Court of Appeal considered that “it is clear
from the authorities that the content of a duty of good faith is heavily conditioned by its context” 427
and in the context the relevant term means that the “parties will work together honestly endeavouring
to achieve the two stated purposes”. 428 Having so decided, the Court of Appeal held that the
behaviour complained of by the contractor related to neither of the purposes set by the term; nor had
there been any finding of dishonesty by the Trust. 429 As a result, the Trust was not in breach of its
obligation under this express term.
Express term to act fairly
1-050
In a very different context, in Gray v Marlborough College 430 the Court of Appeal considered the
significance of an express term in the standard contract between an independent school and the
parent of one of its pupils which required the headmaster of the school to consult the pupil’s parents
and generally to act fairly before requiring the pupil’s removal from the school. For this purpose, in the
view of Auld L.J.:
“… fairness is a flexible principle and highly fact-sensitive in its application. That is so

Page 11
whether a duty to act fairly is one of public law or contractual in nature. Much depends
on the context of and procedural framework in which a decision is made, the nature of
the decision, who made it, how it was made, what is at stake and the contribution, if
any, by those affected by it to the chain of events leading to it.” 431
As will be seen, the courts have sometimes also seen some implied contractual duties to act fairly as
analogous to public law duties, though sometimes this analogy has been rejected. 432
(iii) Contractual interpretation
1-051
Considerations of fairness and reasonableness are more generally relevant to the way in which
English courts treat the consequences of making contracts in several different ways. First, the
fairness or reasonableness of the result reached is clearly relevant to the interpretation of the express
terms which the parties have made. The courts have long made clear that, in general, they should
look to the intention of the parties rather than the strict letter of a contract’s stipulations 433 and in
interpreting their intention, the courts look at the factual matrix of the contract:
“… modern principles of construction require the court to have regard to the

commercial background, the context of the contract and the circumstances of the
parties, and to consider whether, against that background and in that context, to give
the words a particular or restricted meaning would lead to an apparently unreasonable
and unfair result.” 434
As Lord Reid earlier observed, “[t]he more unreasonable the result the more unlikely it is that the
parties can have intended it”. 435 The Supreme Court has recently confirmed in the context of a
commercial guarantee that “[i]f there are two possible constructions, the court is entitled to prefer the
construction which is consistent with business common sense and to reject the other”, although it
added that “[w]here the parties have used unambiguous language, the court must apply it”. 436
Furthermore, while the Supreme Court in Arnold v Britton recently reaffirmed that the meaning of
words in a contract must be seen in their “documentary, factual and commercial context”, including
437
“commercial common sense”, the latter and the surrounding circumstances “should not be
invoked to undervalue the importance of the language of the provision which is to be construed” 438
: “[t]he purpose of interpretation is to identify what the parties have agreed, not what the court thinks
that they should have agreed”. 439 On the other hand, other principles governing the relationship of
the parties also find their formal source in the construction of the contract: so, for example, the courts
accept that, in general, a party in default under a contract cannot take advantage of his own wrong, 440
an idea which in some other legal systems is put in terms of the adage nemo auditur turpitudinem
suam allegans. Another example of English law’s occasional imposition of a requirement of fairness
may be found in the situation where a contract on its terms provides that a particular act of one of its
parties (or their agent) will result in or affect a liability in the other: here, the courts have held that this
act must be made fairly to have this effect. This result has been long established in the context of the
issuing of certificates by an owner’s agent (for example, his architect) in respect of building work
having been properly executed: here, the certification holds good only if the agent acts fairly as
between the two parties to the contract. 441 Similarly, where a charterparty provided that the ship’s
master’s “notice of readiness” to receive cargo would, after a delay, start “notice time” running so as
to allow its owner to claim demurrage, it was observed that:
“… a notice of readiness proved to be given by the master or chief officer with

knowledge that it was untrue, that is to say in the knowledge that the vessel was not
then ready would be ineffective to start time running. There must by implication be a
Page 12
requirement of good faith.” 442
(iv) Implied terms
1-052
As has been indicated, 443 the common law often resorts to the implication of a term in a contract in
a case which could otherwise be considered to be a matter of “good faith in the performance of a
contract”. Thus, for example, the House of Lords accepted that a term is to be implied in contracts of
employment to the effect that the:
“… employer [will] not, without reasonable and proper cause, conduct itself in a
manner likely to destroy or seriously damage the relationship of confidence and trust
between employer and employee.” 444
The courts sometimes refer to this as an implied term requiring good faith and loyalty in both
employer and employee. 445 Sometimes, indeed, an implied term imposes a duty on an employer to
act positively in the interests of the employee. So, for example, in Scally v Southern Health and Social
Services Board, 446 the House of Lords held that an employer who knew that its employees had a
valuable right under the terms of their contracts of employment (here, relating to the enhancement of
their pension rights), in a situation where it was reasonable for the employee to be unaware of that
right (as it stemmed from a collective agreement), was under a duty to take reasonable steps to
inform those employees of their rights. And again in the context of employment, it has been accepted
that where an employee bonus scheme gives the employer a very wide discretion as to the payment
and size of bonus, this discretion must nevertheless be exercised bona fide, rationally and not
perversely. 447 An example drawn from another context may be found in the courts’ implication of a
term in a contract of sale of the goodwill of a business that the seller is not entitled to solicit the
business’s former customers, it being “not an honest thing to pocket the price and then to recapture
the subject of sale”, 448 though the courts do not go further and accept that the seller is not entitled to
compete with his purchaser in the absence of express provision. 449 And where a buyer has returned
defective goods to their seller for inspection and, if possible, repair (it not being clear as to the nature
of the problem), and the seller has repaired them, the latter has been held to bear an implied
obligation to inform the buyer about the nature of the defect and what has been done to repair it, as
this information was necessary in the circumstances of the case for the buyer to make a properly
informed choice between accepting and rejecting the goods as it was entitled to do under the contract
of sale. 450 And the courts have been willing to imply duties of honesty and good faith in contracts for
joint business ventures and similar types of contract. 451 On the other hand, it has been said that a
court should not imply a term requiring good faith in a party to a contract where it would be
“inconsistent with the express terms which set out the parties’ mutual obligations”, though this leaves
a duty of honesty. 452 Moreover, even in those types of contract which involve “a high degree of
communication, co-operation and predictable performance based on mutual trust and confidence and
expectations of loyalty”, in which the courts may be willing to imply a duty of good faith, this will
453
depend on the terms of the particular contract : “an implication of a duty of good faith will only
be possible where the language of the contract, viewed against its context, permits it”. 454
A general implied term to perform in good faith?
1-053
In Yam Seng Pte Ltd v International Trade Corp Ltd 455 Leggatt J. considered, obiter, that a
contract for a licence to distribute and for the supply of branded goods contained an implied term of
Page 13
good faith in its performance which had the significance in the context of not knowingly providing false
information on which the other party was likely to rely. 456 While this decision may be fitted easily into
established case-law on the implication of terms of good faith in particular circumstances or as
regards particular types of contract, 457 in the course of a lengthy discussion of implied terms as to
good faith, Leggatt J. appeared on occasion to go further and argue in favour of the implication of a
term requiring good faith in performance not merely in what he referred to as “relational contracts” 458
but in most, if not all, commercial contracts on the ground of the expectations of their parties. 459 In his
view, for this purpose, while good faith may have the significance of honesty, “not all bad faith
conduct would necessarily be described as dishonest. Other epithets which might be used to describe
such conduct include ‘improper’, ‘commercially unacceptable’ or ‘unconscionable”’. 460 With
respect, the implication of such an implied term applicable generally (or even widely) to commercial
contracts would undermine to an unjustified extent English law’s general position rejecting a general
legal requirement of good faith. 461 Subsequent judicial comments on Leggatt J.’s discussion have
suggested that it should not be seen as establishing a principle of general application to all
commercial contracts, but rather as recognising a particular example of a contract where a term as to
good faith (meaning honesty) should be implied. In particular, in Mid Essex Hospital Services NHS
Trust v Compass Group UK and Ireland Ltd (t/a Medirest) Jackson L.J. noted that, while there is no
general doctrine of “good faith” in English contract law, a duty of good faith may be implied by law as
an incident of certain categories of contract, citing Yam Seng Pte Ltd as an example. 462 Similarly,
in Greenclose Ltd v National Westminster Bank Plc Andrews J. observed that:
“there is no general doctrine of good faith in English contract law and such a term is
unlikely to arise by way of necessary implication in a contract between two
sophisticated commercial parties negotiating at arms’ length.” 463
In Andrew J.’s view, Yam Seng Pte Ltd is not to be regarded as laying down any general principle
applicable to all commercial contracts, but rather “the implication of an obligation of good faith is
heavily dependent on the context,” as Leggatt J. expressly recognised. 464 Moreover, the
approach of the Supreme Court to the implication of terms in Marks & Spencer Plc v BNP Paribas
Securities Services Trust Co (Jersey) Ltd 465 may lead to a greater reluctance in the courts to
imply terms requiring good faith in at least some commercial contracts: as Lord Neuberger of
Abbotsbury P.S.C. there observed, “a term should not be implied into a detailed commercial contract
merely because it appears fair”. 466
Implied restrictions on broad contractual powers
1-054
The courts have also sometimes used the implication of a term to restrict the ambit of a unilateral
discretionary power conferred on one of the parties by the contract. 467 In Paragon Finance Plc v Nash
468
a mortgage company possessed a power expressed in very general terms to vary the interest
rates in a contract of consumer credit. Drawing on analogies from public law, the Court of Appeal held
that this power was “not completely unfettered” 469 and implied a term that “it should not be exercised
dishonestly, for an improper purpose, capriciously or arbitrarily”. 470 While the court was prepared to
imply a term that the interest rate would not be set in a way that “no reasonable lender, acting
reasonably, would do”, this was not the same as saying that the lender could not impose
unreasonable rates. 471 On the other hand, in Paragon Finance Plc v Pender 472 it was held that this
approach should not mean:
“… that a lender may not, for a genuine commercial reason, adopt a policy of raising
interest rates to levels at which its borrowers generally, or a particular category of its
borrowers, may be expected to consider refinancing their borrowings at more
favourable rates of interest offered by other commercial lenders. Save as otherwise
Page 14
expressly agreed with its borrowers, a commercial lender is … free to conduct its
business in what it genuinely believes to be its best commercial interest.” 473
In a different context, in Lymington Marina Ltd v MacNamara 474 the Court of Appeal accepted that it
should imply some limitations on the exercise of a contractual power in one of the parties drawn in
very broad terms, but it considered that the standard to be applied should not be too onerous, nor
should it rest on public law principle. 475 The case concerned a contractual licence to berth a yacht at
a marina, the express terms of which provided that the licensee was entitled to authorise a third party
to exercise his rights for a period of between one month and one year “provided that such party first
be approved” by the licensor who operated the marina. In these circumstances, the Court of Appeal
was clear that the grounds on which approval of the sub-licence might be withheld were limited to
those relating to the sub-licensee himself and his proposed use, and more generally could not be
“wholly unreasonable” or be made “arbitrarily”, “capriciously” or “in bad faith”. 476 However, it refused
to imply a term in the contract that the approval should be “objectively justifiable” as this was neither
so obvious that the parties would not have thought it necessary to mention nor necessary to give the
contract business efficacy. 477
Similarly, in Socimer International Bank Ltd v Standard Bank London Ltd 478 in the context of an
express contractual discretion in a seller of securities on a forward basis to value assets on default of
payment by the buyer), Rix L.J. observed that:
“… a decision-maker’s discretion will be limited, as a matter of necessary implication,

by concepts of honesty, good faith, and genuineness, and the need for the absence of
arbitrariness, capriciousness, perversity and irrationality. The concern is that the
discretion should not be abused. Reasonableness and unreasonableness are also
concepts deployed in this context, but only in a sense analogous to Wednesbury
unreasonableness, not in the sense in which that expression is used when speaking
of the duty to take reasonable care, or when otherwise deploying entirely objective
criteria: as for instance when there might be an implication of a term requiring the
fixing of a reasonable price, or a reasonable time.” 479
Rix L.J. agreed with the observation of Laws L.J. in the course of argument that:
“… pursuant to the Wednesbury rationality test, the decision remains that of the
decision maker, whereas on entirely objective criteria of reasonableness the decision
maker becomes the court itself.” 480
The Court of Appeal therefore rejected the contention that the seller’s decision as to valuation of the
assets had to be exercised with reasonable care (an implied term which was both unnecessary and of
uncertain content in the context), 481 rejecting also for this purpose the analogy (accepted by the court
below) between the position of the parties to the commercial contract before it and the relationship
between a mortgagor and a mortgagee. 482 And in Mid Essex Hospital Services NHS Trust v
Compass Group UK and Ireland Ltd (t/a Medirest) 483 the Court of Appeal considered whether the
decision-making of a party under particular terms of its contract was impliedly subject to a term that it
should not do so “in an arbitrary, capricious or irrational manner”. Jackson L.J. (with whom Lewison
and Beatson L.JJ. agreed) reviewed the authorities that accepted such a qualification on the exercise
of a contractual discretion, notably Socimer International Bank Ltd v Standard Bank London Ltd, 484
but distinguished the contractual terms with which these cases dealt and the relevant terms before
the court:
“[a]n important feature of the … authorities is that in each case the discretion does not
involve a simple decision whether or not to exercise an absolute contractual right. The
discretion involved making an assessment or choosing from a range of options, taking
Page 15
into account the interests of both parties. In any contract under which one party is
permitted to exercise such a discretion, there is an implied term. The precise
formulation of that term has been variously expressed in the authorities. In essence,
however, it is that the relevant party will not exercise its discretion in an arbitrary,
capricious or irrational manner. Such a term is extremely difficult to exclude, although
I would not say it is utterly impossible to do so.” 485
In the contract before the Court of Appeal, an NHS Trust had agreed to employ the respondent to
supply catering and cleaning services for seven years for one of its hospitals. Under the contract, the
Trust was entitled to award “service failure points” in respect of failures in the provision of the
services, the contract specifying both how these points should be calculated and their consequences
for the contractor in terms of deductions from its remuneration and possible termination of the
contract. This being the case, the Court of Appeal held that the contract left no room for discretion in
the calculation of the “service failure points” nor in their deduction from the remuneration and, as a
result, there could be no implied term not to act in relation to this calculation or deduction in an
arbitrary, irrational or capricious manner when assessing these matters. 486 As Lewison L.J. observed,
while “it was up to the Trust to decide whether or not to levy payment deductions; and whether or not
to award [service failure points]”, in doing so “[e]ither the Trust was right or wrong in its application of
the contract terms to the facts of the case”. 487 In these circumstances, the Trust had no discretion to
exercise in these matters. 488
1-054A
Most recently, in Braganza v BP Shipping Ltd an employer had a power under the contract of
employment to determine the facts surrounding the death of its employee while serving on its vessel
at sea; the employer had decided that he had committed suicide, with the result that no
death-in-service payments were payable to his widow under the contract. 489 The Supreme Court was
agreed on the principles applicable. According to Lady Hale D.P.S.C.:
“Contractual terms in which one party to the contract is given the power to exercise a
discretion, or to form an opinion as to relevant facts, are extremely common. It is not
for the courts to rewrite the parties’ bargain for them, still less to substitute themselves
for the contractually agreed decision-maker. Nevertheless, the party who is charged
with making decisions which affect the rights of both parties to the contract has a clear
conflict of interest. That conflict is heightened where there is a significant imbalance of
power between the contracting parties as there often will be in an employment
contract. The courts have therefore sought to ensure that such contractual powers are
not abused. They have done so by implying a term as to the manner in which such
powers may be exercised, a term which may vary according to the terms of the
contract and the context in which the decision-making power is given.” 490
In this respect, the Supreme Court approved Rix L.J.’s view of the authorities in Socimer International
Bank Ltd 491 and accepted the parallel earlier drawn with the control of decision-making by public
bodies under a statutory or prerogative power, 492 while noting the “understandable reluctance” of the
courts to adopt the “fully developed rigour of the principles of judicial review of administrative action in
a contractual context” and their difficulty in articulating the difference. 493 In this particular context the
Supreme Court held that the contractual power in the employer to decide the facts surrounding the
employee’s death was subject to an implied term that “the decision-making process be lawful and
rational in the public law sense, that the decision is made rationally (as well as in good faith) and
consistently with its contractual purpose”. 494 This meant that “both limbs of the Wednesbury
formulation in the rationality test” applied, i.e. imposing requirements both as to the decision-making
process (considerations properly to be taken into account and ones not to be taken into account) 495
and as to the outcome (the result not being “so outrageous that no reasonable decision-maker could
have reached it”). 496 In the case before them, the majority of the Supreme Court held that the
employer should not simply have accepted the conclusion of its investigators’ report (whose purpose
Page 16
was to determine if its systems could be improved) in deciding whether its employee had committed
suicide, and had relied on insubstantial evidence and had failed to take all relevant matters into
account. 497 As a result, the decision of the employer could not stand and the employee’s widow was
entitled to the death-in-service payment. 498
(v) Reasonableness and legitimate interest in relation to remedies for breach
1-055
A number of the rules governing remedies for breach of contract take into account what is
reasonable and this can leave considerable room for a court to assess the fairness or
appropriateness of the remedy. This is the case notably as regards restrictions on the availability of
damages based on the cost of re-instatement, 499 the injured party’s duty to mitigate 500 and the law of
remoteness of damage. 501 Furthermore, the ability of an injured party faced with a repudiatory breach
by the other party to affirm, perform and recover the price is subject to the injured party having a
legitimate interest in doing so. 502 And the Supreme Court has held that a contract term stipulating
payment of a sum of money on breach of contract will be a penalty clause at common law (and so
unenforceable) only if the term does not serve a legitimate interest and if in the circumstances its
amount is extravagant, exorbitant or unconscionable. 503 Finally, the availability of some of the
special remedies for consumers in respect of breach of the statutory (implied) terms (for example of
the satisfactory quality of goods) require consideration of the proportionality of the remedy as
compared to other possible remedies. 504
(vi) Equitable and statutory discretions
1-056
General considerations of fairness are also relevant to the availability of certain equitable doctrines
which are significant in the contractual context, notably promissory and proprietary estoppel, 505 as
well as to the equitable remedies of specific performance and injunction which are sometimes
available on breach. 506 To these, modern statutes have added discretions given to the courts to act
according to the dictates of justice, equity or reasonableness (as the case may be) in relation to the
exercise of other remedies by parties to contracts, notably, in relation to rescission for
misrepresentation 507 and termination for breach in contracts of sale of goods 508 and also in relation to
contracts which have been frustrated. 509
334. Above, para.1-038.
336. art.1:201(1) of the Principles of European Contract Law provides that “[e]ach party must act in
accordance with good faith and fair dealing”. cf. the provision in the proposed Common
European Sales Law (above, para.1-013), art.1(1) which provides that “Each party has a duty to
act in accordance with good faith and fair dealing”: see further below, para.1-043.
338. Carter v Boehm (1766) 3 Burr. 1905, 1910.
339.
Bridge (1984) 9 Can. Bus. L.J. 385; Collins, The Law of Contract, 4th edn (2003), Chs 13 and
15; Finn in Finn, Essays on Contract Law (1987), p.104; Lücke in Finn, Essays on Contract Law
, p.155; Steyn (1991) Denning L.J. 131; Carter and Furmston (1994) 8 J.C.L. 1; Brownsword
(1994) 7 J.C.L. 197; Staughton (1994) 7 J.C.L. 193; Beatson and Friedmann, Good Faith and
Page 17
Fault in Contract Law (1995), especially the essays by Beatson and Friedmann, p.3; Cohen,
p.25; McKendrick, p.305; Friedmann, p.399; Brownsword in Deakin and Michie, Contracts,
Co-operation and Competition (1997), p.255; Stein (1997) 113 L.Q.R. 433; Teubner (1998) 6
M.L.R. 11; Brownsword [1997] C.L.P. 111; McKendrick, Contract Law, 6th edn (2014), Ch.15;
Smith, Atiyah’s Introduction to the Law of Contract, 6th edn (2006), pp.164-166. Burrows, A
Restatement of the English Law of Contract (2016) considers that it remains clear that there is
no free-standing rule imposing a duty to perform in good faith in English law, though notes that
English law sometimes comes to the same result by implying a term: commentary to s.5, p.50;
commentary to ss.15(3)–(4), p.93; on the latter, see Vol.I, paras 1-052—1-054A.
340. Interfoto Picture Library Ltd v Stilletto Visual Programmes Ltd [1989] 1 Q.B. 433, 439. Bingham
L.J. gave as illustrations of these solutions equity’s striking down of unconscionable bargains
(see below, paras 8-130 et seq.), statutory control of exemption clauses (see below, paras
15-066 et seq.) and hire-purchase (see Vol.II, paras 39-356 et seq.) and the ineffectiveness of
penalty clauses (see below, paras 26-178 et seq.). See similarly, Director General of Fair
Trading v First National Bank [2001] UKHL 52, [2002] 1 A.C. 507 at [17] (Lord Bingham of
Cornhill), on which see Vol.II, para.38-249.
341. [1975] Q.B. 326, 339; and see below, para.8-143.
342. Walford v Miles [1992] 2 A.C. 128, 138. cf. Little v Courage Ltd, The Times, January 19, 1994;
Cobbe v Yeomans Row Management Ltd [2006] EWCA Civ 1139, [2006] 1 W.L.R. 2964 at [4].
The CA’s decision on the facts applying the doctrine of proprietary estoppel was overturned by
the House of Lords: see [2008] UKHL 55 and below, paras 4-161—4-162.
343. [1992] 2 A.C. 128, 138. The agreement was held unenforceable on the grounds of uncertainty,
and see below, paras 2-143—2-145.
344. [1992] 2 A.C. 128, 138. In Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990]
1 Q.B. 665, 772 (affirmed on other grounds [1990] 2 All E.R. 947), Slade L.J. rejected Steyn J.’s
formulation of the content of the ambit of the duty of disclosure on insurers based simply on the
question “did good faith and fair dealing require a disclosure?” on the ground that: “[I]n the case
of commercial contracts, broad concepts of honesty and fair dealing, however laudable, are a
somewhat uncertain guide when determining the existence or otherwise of an obligation which
may arise even in the absence of any dishonest or unfair intent”. See further Vol.II, paras
42-030 et seq.
345.
James Spencer & Co Ltd v Tame Valley Padding Co Ltd Unreported April 8, 1998 CA (Civ
Div). See similarly Bernhard Schulte GmbH & Co KG v Nile Holdings Ltd [2004] EWHC 977,
[2004] 2 Lloyd’s Rep. 352 at [113]; Horkulak v Cantor Fitzgerald International [2004] EWCA Civ
1287, [2005] I.C.R. 402 at [30]; Mid Essex Hospital Services NHS Trust v Compass Group UK
and Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200, [2013] B.L.R. 265 at [105]; MSC
Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789, [2017] 1 All E.R.
(Comm) 483 at [45]. cf. Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111
(QB), [2013] Lloyd’s Rep. 526 at [121]–[154] where Leggatt J. discussed, obiter, the arguments
in favour of and against the recognition of an apparently general implied duty of good faith in
the performance of contracts. On the latter see below, para.1-053.
346.
MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789 at [45]. The
judge at trial was Leggatt J., who had earlier given judgment in Yam Seng Pte Ltd v
International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 Lloyd’s Rep. 526, discussed in
Vol.I, para.1-053.
347. [2011] EWCA Civ 353, [2011] All E.R. (D) 39 (Apr) at [92]. Having stated this as a general rule,
Rix L.J. held that, in the circumstances, the relationship between the parties and the
unconscionable conduct of the silent party justified the latter being estopped from relying on the
contract as concluded: at [93]–[107], [111]. Carnwath L.J. agreed on the basis of estoppel by
convention ([66]–[71]). Stanley Burton L.J. agreed with both judgments: [2011] EWCA Civ 353
at [76].
Page 18
348. [1997] A.C. 514.
349. [1997] A.C. 514 at 518.
350. [1997] A.C. 514 at 519. cf. O’Neill v Phillips [1999] 1 W.L.R. 1092, 1098 where Lord Hoffmann
observed in the context of contracts of partnership and a company’s duty not to engage in
conduct “unfairly prejudicial” to its members that: “One of the traditional roles of equity, as a
separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in
which it considered that this would be contrary to good faith.” See also the significance of
“unconscionability” in the context of the law of duress in Borrelli v Ting [2010] UKPC 21, [2010]
Bus. L.R. 1718, below, para.8-011.
351. Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA [2003] UKHL 17, [2003] 2
All E.R. 615 especially at [16]–[20], [51] and see below, para.5-039.
352. [2003] 2 All E.R. 615 at [34].
353. [2008] UKHL 55, [2008] 1 W.L.R. 1752, on which see below, paras 4-161—4-162.
354. [2008] UKHL 55 at [16].
355. [2008] UKHL 55 at [81].
356. Dudley Muslim Association v Dudley MBC [2015] EWCA Civ 1123, [2016] 1 P. & C.R. 10 at [29]
per Lewison L.J. (with whom Treacy and Gloster L.JJ. agreed) (local authority able to enforce
covenant in lease as to re-conveyance of freehold transferred under option on the failure of a
condition as to obtain timely planning permission).
357. Dudley Muslim Association v Dudley MBC [2015] EWCA Civ 1123 at [49], who noted (at [50])
that in the case before the court, private law mechanisms which preclude a person from relying
on his strict legal rights such as promissory estoppel had not been pleaded.
358. Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2002] 2 All E.R. (Comm) 849 (PC) at [54].
359. See also works noted above, at n.299.
360. Restatement (Second) of Contracts para.205. cf. Uniform Commercial Code s.1-203 and see
for a general introduction Summers in Zimmermann and Whittaker, Good Faith in European
Contract Law (2000), Ch.4; White and Summers, Uniform Commercial Code, 6th edn (up to
date to 2011), Vol.1, Ch.4.
361. Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 N.S.W.L.R. 1 at 21-27.
362. Carter, Contract Law of Australia, 6th edn (2012), Ch.2.
363. Waddams, The Law of Contract, 6th edn (2010), paras 17, 210, 498-508, 550.
364. Bhasin v Hrynew 2014 SCC 71, [2014] 3 S.C.R. 495 at [33] per Cromwell J. giving the judgment
of the S.C. of Canada, which reviews earlier Canadian cases and wider common law literature.
An “organizing principle” was defined by the court as one which “states in general terms a
requirement of justice from which more specific legal doctrines may be derived” and is “not a
freestanding rule, but rather a standard that underpins and is manifested in more specific legal
doctrines and may be given different weight in different situations”: Bhasin v Hrynew at [64].
However, the list of these specific legal doctrines “is not closed”: Bhasin v Hrynew at [66]. The
Supreme Court of Canada saw the duty of honest performance as a “general doctrine of
contract law” rather than as an implied term, thereby operating “irrespective of the intentions of
the parties”: Bhasin v Hrynew at [74]. As a result, the duty was mandatory and was not affected
by an express entire agreement clause in the contract, though there may be circumstances in
which it could be influenced by the agreement of the contracting parties: Bhasin v Hrynew at
[75]–[78].
Page 19
365. 2014 SCC 71 at [70].
366. Above, para.1-039.
367. Below, para.1-043.
368. For an overview see Whittaker and Zimmermann in Zimmermann and Whittaker, Good Faith in
European Contract Law (2000), Ch.1.
369. Whittaker and Zimmermann at p.690 and cf. Director General of Fair Trading v First National
Bank [2001] UKHL 52, [2002] 1 A.C. 507 at [17], per Lord Bingham of Cornhill (Member States
“have no common concept of … good faith”).
370. Whittaker and Zimmermann at p.699.
371. Whittaker and Zimmermann at pp.687–690. cf. Supreme Ct of Canada in Bhasin v Hrynew
2014 SCC 71, [2014] 3 S.C.R. 495 at [64], noted above, n.321.
372. art.3(1), implemented by the Unfair Terms in Consumer Contracts Regulations (SI 1999/2083)
reg.5(1) and (as regards contracts made on or after October 1, 2015) the Consumer Rights Act
2015 s.62(4) (on which see Vol.II, paras 38-242—38-251 and 38-358—38-359 respectively).
373. Directive 2011/7/EU on combating late payment in commercial transactions [2011] O.J. 48/1
art.7(1)(a) (“any gross deviation from good commercial practice, contrary to good faith and fair
dealing” relevant to whether a contractual term or a practice relating to the date or period for
payment, the rate of interest for late payment or the compensation for recovery costs is grossly
unfair to the creditor). Directive 2011/7/EU is implemented in UK law by the Late Payment of
Commercial Debts Regulations 2013 (SI 2013/395) amending the Late Payment of Commercial
Debts (Interest) Act 1998, on which see below, paras 26-232—26-234.
374. Directive 2002/65/EC concerning the distance marketing of consumer financial services [2002]
O.J. L271/16, art.3(2) implemented by the Financial Services (Distance Marketing) Regulations
2004 (SI 2004/2095) reg.7(2). Article 3(2) provides that the information to be supplied (as
earlier specified by art.3(1)): “the commercial purpose of which must be made clear, shall be
provided in a clear and comprehensible manner in any way appropriate to the means of
distance communication used, with due regard, in particular, to the principles of good faith in
commercial transactions, and the principles governing the protection of those who are unable,
pursuant to the legislation of the Member States, to give their consent, such as minors”. On
these Regulations see Vol.II, para.38-131.
375. Directive 2005/29 concerning unfair business-to-consumer commercial practices in the internal
market [2005] O.J. L149/16 art.5(2) and art.2(h) implemented by the Consumer Protection from
Unfair Trading Regulations 2008 (SI 2008/1277) regs 3(3) and 2(1) “professional diligence”.
The 2005 Directive prohibits unfair commercial practices business-to-consumer but does not
itself affect “contract law” in the sense of the rules governing the relative rights of the
contracting or would-be contracting parties (including in relation to the formation and validity of
the contract): 2005 Directive art.3(2) and see Vol.II, paras 38-145 and 38-148. However, the UK
government has given contractual significance to some of the UK provisions implementing the
directive in the 2008 Regulations by creating “rights to redress” for the consumer in respect of
certain unfair commercial practices (misleading actions and aggressive practices): the
Consumer Protection (Amendment) Regulations 2014 (SI 2014/870) amending the 2008
Regulations). In doing so, the consumer is not given any rights against the trader in respect of a
commercial practice unfair under the general test which refers to professional diligence and,
therefore, to good faith: 2008 Regulations reg.27A(4)(a), 27B and see Vol.II, paras 38-160 et
seq.
376. Directive 86/653 on the co-ordination of the laws of the Member States relating to selfemployed
commercial agents [1986] O.J. L382/17: art.3(1), implemented in UK law by the Commercial
Agents (Council Directive) Regulations 1993 (SI 1993/3053) reg.3(1) and see Rosetti Marketing
Ltd v Diamond Sofa Co Ltd [2011] EWHC 2482 (QB), [2012] 1 All E.R. (Comm) 18 at [41]–[42]
Page 20
and Vol.II, paras 31-017 and 31-118.
377. Messner v Krüger (C-489/07) [2009] E.C.R. I–7315 para.26. cf. Case 464/01 Gruber v Bay Wa
AG [1997] E.C.R. I–3767 at [53] where the European Court used good faith in the application of
the special jurisdiction provisions in art.13 of the Brussels Convention.
European Sales Law Com(2011) 635 final Annex I, CESL Proposal Annex I, art.2 CESL. On the
CESL Proposal generally, see above, paras 1-013.
379. Proposal for a Regulation, n.335, art.2(b).
380. CESL Proposal art.1 above, para.1-013.
381. CESL Proposal Annex I, art.23(2) CESL.
382. CESL Proposal Annex I, art.48 CESL.
386. CESL Proposal Annex I, arts 83, 86 and 170 CESL.
387.
European Commission, Annex 2 to the Commission Work Programme 2015 Com(2014) 910
final, p.12. See also the Communication from the Commission, A Digital Single Market Strategy
for Europe, 2015 COM(2015) 192 final, pp.4–5.
388.
Proposal for a Directive of the European Parliament and of the Council on certain aspects
concerning contracts for the online and other distance sales of goods COM(2015) 635 final and
Proposal for a Directive of the European Parliament and of the Council on certain aspects
concerning contracts for the supply of digital content COM(2015) 634.
389. Consumer Insurance (Disclosure and Representations) Act 2012; Insurance Act 2015 and see
391. SI 1993/3053 reg.3(1), implementing Directive 86/653 art.3(1), above, para.1-042.
392. O’Neill v Phillips [1999] 1 W.L.R. 1092, 1098, per Lord Hoffmann and see Blisset v Daniel
(1853) 10 Hare 493; Floydd v Cheney, Cheney & Floydd [1970] Ch. 602, 608. cf. the position of
parties to a contract setting up a limited liability partnership: F & C Investments (Holdings) Ltd v
Barthelemy [2011] EWHC 1731 (Ch), [2012] 3 W.L.R. 10 at [207]-[254] (reversed on costs order
[2012] EWCA Civ 843).
393. Conlon v Simms [2006] EWCA Civ 1749, [2007] 3 All E.R. 802 at [127].
394.
Downsview Ltd v First City Corp Ltd [1993] A.C. 295, 312 and see also Albany Home Loans
Ltd v Massey [1997] 2 All E.R. 609, 612-613; Alpstream AG v PK Airfinance Sarl [2015] EWCA
Civ 1318, [2016] 2 P. & C.R. 2 at [115].
395. Consumer Insurance (Disclosure and Representations) Act 2012; Insurance Act 2015
especially ss.5 and 14, and see Vol.II, paras 42-030 et seq.
396. Ross River Ltd v Waveley Commercial Ltd [2013] EWCA Civ 910, [2014] 1 B.C.L.C. 545 at [64]
and [93].
Page 21
397. Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC), 153 Con. L.R. 203 at
[126], per Carr J., referring, inter alia, to Re Goldcorp Exchange Ltd (In Receivership) [1995] 1
A.C. 74 at 98 (Lord Millett); Ross River Ltd v Cambridge City Council [2008] 1 All E.R. 1004 at
[197] (though the court held that there was a fiduciary duty on the facts); F & C Alternative
Investment (Holdings) Ltd v Barthelemy [2011] EWHC 1731, [2013] Ch. 613 at [223] and [225];
John Youngs Insurance Services Ltd v Aviva Insurance Service UK Ltd [2011] EWHC 1515
(TCC), [2012] 1 All E.R. (Comm) 1045 at [94]; Ross River Ltd v Waveley Commercial Ltd [2013]
EWCA Civ 910, [2014] 1 B.C.L.C. 545 at [40], [56] and [59] (upholding a fiduciary duty of good
faith as consistent with the contract made).
398. Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC) at [133].
399. Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC) at [123], referring, inter
alia, to Hospital Products Ltd v United States Surgical Corp (1984) 156 C.L.R. 41 at [70] (HC
Aus, Mason J.); Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145 at 206 (on which see
below, para.1-166).
400. [1992] 2 A.C. 128.
401. Barbudev v Eurocom Cable Management Bulgaria EOOD [2012] EWCA Civ 548 especially at
[44]-[46].
402. [2005] EWCA Civ 891, [2006] 1 Lloyd’s Rep. 121. In Knatchbull-Hugessen v SISU Capital Ltd
[2014] EWHC 1194 (Comm) at [23] Leggatt J. observed that, “notwithstanding the decision of
the House of Lords in Walford v Miles” it is now generally accepted that a binding contract to
regulate the parties’ negotiations “may impose an obligation on one or both parties to conduct
negotiations in good faith”, citing Petromec Inc as an example.
403. [2005] EWCA Civ 891 at [121].
404. [2005] EWCA Civ 891 at [45], [112]-[113] and [124].
405. [2005] EWCA Civ 891 at [117].
406. [2005] EWCA Civ 891 at [117]. cf. Shaker v Vistajet Group Holding SA [2012] EWHC 1329
(Comm) at [17] where the court distinguished this aspect of the position in Petromec Inc on the
basis that in the latter case there were objective criteria by which the extra costs could be
assessed in the absence of an agreement of which the obligation to negotiate in good faith was
the object.
407. [2005] EWCA Civ 891 at [119].
408. [2005] EWCA Civ 891 at [121] echoing Steyn (1997) 113 L.Q.R. 433.
409. Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd [2014] EWHC 2104, [2015] 1
W.L.R. 1145 especially at [26], Teare J. considering that such a contract term imports an
obligation to resolve disputes in good faith at [51]-[52], [63]-[64] and reviewing extensively the
authorities.
410.
See also Peel in Burrows and Peel, Contract Formation and Parties (2010) Ch.2. See also
Astor Management AG v Atalaya Mining Plc [2017] EWHC 425 (Comm), [2017] 1 Lloyd’s Rep.
476 at [62]–[72] (Leggatt J.) (express contractual obligation to use all reasonable endeavours to
achieve particular result held enforceable, though not broken on the facts).
411. [2007] EWHC 1330 (Ch), [2007] 3 E.G.L.R. 101.
412. [2007] EWHC 1330 (Ch) at [97], relying in particular on the judgment of French J. in Bropho v
Human Rights and Equal Opportunity Commission [2004] FCAFC 16 at [92]-[93] (decided
outside the context of contract, though itself quoting the US Restatement of Contracts (2nd)
para.205).
Page 22
413. [2007] EWHC 1330 (Ch) at [109].
414. [2010] EWHC 1632 (TCC), [2010] All E.R. (D) 18 (Jul).
415. [2010] EWHC 1632 (TCC) at [74].
416.
[2002] NSWSC 17; (2002) Aust. Contract R. 90-143 at [65]-[67]: [2010] EWHC 1632 (TCC) at
[90]. As was noted in Gold Group Properties Ltd, this dictum was quoted with approval by
Hasluck J. in the Supreme Court of Western Australia in Automasters Australia Pty Ltd v
Bruness Pty Ltd [2002] WASC 286 at 357. See also BP Gas Marketing Ltd v La Societe
Sonatrach [2016] EWHC 2461 (Comm), 169 Con. L.R. 141 at [401] per Simon Bryan QC (“good
faith does not normally require a party to surrender contractual rights”).
417. [2010] EWHC 1632 (TCC) at [91].
418. [2010] EWHC 1632 (TCC) at [92]–[103].
419. [2010] EWHC 1535 (Ch), [2010] C.I.L.L. 2908. See also F & C Investments (Holdings) Ltd v
Barthelemy [2011] EWHC 1731 (Ch) at [255]–[259] (clause in agreement setting up LLP that
“[e]ach Member shall at all times show the utmost good faith to the LLP”).
420. [2010] EWHC 1535 (Ch) at [246].
421.
[2010] EWHC 1535 (Ch) at [246], quoting Lord Scott in Manifest Shipping Co v Uni-Polaris
Shipping Co [2003] 1 A.C. 469 at [111] (which concerned the obligation of utmost good faith in
s.17 of the Marine Insurance Act 1906). See also BP Gas Marketing Ltd v La Societe Sonatrach
[2016] EWHC 2461 (Comm), 169 Con. L.R. 141 at [379]–[382].
422. [2010] EWHC 1535 (Ch) at [277].
423. [2013] EWCA Civ 200, [2013] B.L.R. 265. See similarly TSG Building Services Plc v South
Anglia Housing Ltd [2013] EWHC 1151 (TCC) especially at [42] (express duty to act reasonably
in all matters governed by the contract held on its proper construction in the context not to
constrain the exercise of an apparently unfettered express right to terminate in one of the
parties). In Barclays Bank Plc v Unicredit Bank AG [2014] EWCA Civ 302, [2014] Bus. L.R. D15
at [15], [16] a contract of guarantee contained an express power of termination subject to the
consent of the guarantor, “such consent to be determined by the Guarantor in a commercially
reasonable manner”. This was held to require that the manner of the determination, rather than
its outcome, had to be commercially reasonable and that, while it was intended to impose a
control on the determination, the guarantor was entitled to have primary regard to his own
commercial interests. cf. Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752
(TCC), 153 Con. L.R. 203 at [152] where it was observed that, in a detailed contract, “clear
words” would be expected for there to be an express duty of good faith. For the CA’s decision in
the Mid Essex Hospital Services case on an alleged implied term not to act “in an arbitrary,
capricious or irrational manner” under an express term, see para.1-053, below.
424. [2013] EWCA Civ 200 at [99]-[101], Jackson L.J. reporting the decision of Cranston J.
425.
[2013] EWCA Civ 200 at [106] per Jackson L.J., with whom Lewison and Beatson L.JJ.
agreed. See similarly Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969
(TCC) at [92]–[96]. However, the HC accepted (at [110]-[112]) that the exercise of a party’s
decision-making power under the contract which affected the other party’s rights was subject to
an implied term that it would be exercised honestly, on proper grounds and not in a manner that
is arbitrary, irrational or capricious, on which cf. below, paras 1-054—1-054A. See also BP Gas
Marketing Ltd v La Societe Sonatrach [2016] EWHC 2461 (Comm), 169 Con. L.R. 141 (express
term requiring one party to act in good faith while performing its contractual obligations requires
other party to prove the identification of one or more such obligations and their breach by not
acting in good faith in a particular way at a particular time or times; there was no “freestanding
obligation of good faith” (at [403] per Simon Bryan QC); and on the facts no such breach was
Page 23
established: at [409]).
426. [2013] EWCA Civ 200 at [154].
427. [2013] EWCA Civ 200 at [109] and see similarly [2013] EWCA Civ 200 at [150] where Beatson
L.J. cited in support Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB)
at [141], [144], [147], on which see para.1-053, below.
428. [2013] EWCA Civ 200 at [112].
429. [2013] EWCA Civ 200 at [114], [116].
430. [2006] EWCA Civ 1262, [2006] E.L.R. 516. See also Berkley Community Villages Ltd v Pullen
[2007] EWHC 1330 (Ch) especially at [86]-[97], [2007] 3 E.G.L.R. 101 above, para.1-047
(express term requiring “utmost good faith” interpreted as requiring the “observance of
reasonable commercial standards of fair dealing”).
431. [2006] EWCA Civ 1262 at [54].
432. Below, para.1-054.
433. e.g. Solley v Forbes (1820) 2 Brod. & B. 28, 48, per Dallas C.J.
434. Cargill International SA v Bangladesh Sugar and Food Industries Corp [1998] 1 W.L.R. 461,
468, per Potter L.J. and see the important speech of Lord Hoffmann in Investors Compensation
Scheme Ltd v West Bromwich Building Society Ltd [1998] 1 W.L.R. 896, 912–913, explaining
Prenn v Simmonds [1971] 1 W.L.R. 1381 especially at 1383-1384 and Charter Reinsurance Co
Ltd v Fagan [1997] A.C. 313 especially at 387–388; Chartbrook Ltd v Persimmon Homes Ltd
[2009] UKHL 38, [2009] 1 A.C. 1101 at [3], [33]–[39]; Oceanbulk Shipping SA v TMT Asia Ltd
[2010] UKSC 44, [2011] 1 A.C. 662 and see further below, paras 13-041 et seq.
435. Wickman Machine Tool Sales Ltd v Schuler A.G. [1974] A.C. 235, 251. For examples of this
sort of approach in the context of rights of termination of a contract see Ringway Roadmarking
v Adbruf Ltd [1998] 2 B.C.L.C. 625; Rice (t/a The Garden Guardian) v Great Yarmouth BC
(2001) 3 L.G.L.R. 4, CA; Dominion Corporate Trustees Ltd v Debenhams Properties Ltd [2010]
EWHC 1193 (Ch), [2010] N.P.C. 63.
436. Rainy Sky SA v Kookmin Bank [2001] UKSC 50, [2011] 1 W.L.R. 2900 at [21] and [23]
respectively per Lord Clarke of Stone-cum-Ebony J.S.C. with whom the other JJSC agreed. cf.
OMV Supply and Trading AG v Kazmunaygaz Trading AG [2014] EWCA Civ 75. [2014] 1
C.L.C. 113 at [18] rejecting a construction which would have made the contract “grossly unfair”
to a point which “borders on the absurd” (with supporting further reasons).
437.
[2015] UKSC 36, [2015] A.C. 1619 at [15] per Lord Neuberger of Abbotsbury P.S.C. (with
whom Lord Sumption and Lord Hughes JJ.S.C. agreed); Lord Hodge J.S.C. in a separate
judgment also agreed with Lord Neuberger, at [66]). See also Wood v Capita Insurance
Services Ltd [2017] UKSC 24, [2017] 2 W.L.R. 1095 at [8]–[15].
438.
[2015] UKSC 36 at [15].
439.
[2015] UKSC 36 at [20] per Lord Neuberger of Abbotsbury P.S.C.; Globe Motors Inc v TRW
Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396, [2017] 1 All E.R. (Comm) 601 at [62].
440. Alghussein Establishment v Eton College [1988] 1 W.L.R. 587.
441. Pawley v Turnbull (1861) 3 Giff. 70; Hickman & Co v Roberts [1913] A.C. 229. cf. Skidmore v
Dartford & Gravesham NHS Trust [2003] UKHL 27, [2003] 3 All E.R. 292 at [15]–[16] (power to
decide on disciplinary procedure in employment).
Page 24
442. Colbelfret NV v Cylclades Shipping Co Ltd (The Linardos) [1994] 1 Lloyd’s Rep. 28, 32, per
Colman J.
443. See above, para.1-034 and see generally below, Ch.14.
444. Malik v Bank of Credit and Commerce International SA (In Liquidation) [1998] A.C. 20 but see
Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 A.C. 518 (no term to be implied not to dismiss
employee without good cause or in an unfair manner as inconsistent with the statutory system
of unfair dismissal and see below, Vol.II, para.40-153) and cf. Modahl v British Athletic
Federation [2001] EWCA Civ 1447, [2002] 1 W.L.R. 1192 (implied term in contract of
membership of British Athletic Federation under which Federation agreed to provide a
disciplinary hearing to provide a fair result overall).
445. Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 A.C. 518 at [24]. Eastwood v Magnox Electric
Plc [2004] UKHL 35, [2005] 1 A.C. 503 at [4]–[6], [51]; cf. Prudential Staff Pensions Ltd v
Prudential Assurance Co Ltd [2011] EWHC 960 (Ch), [2011] Pens. L.R. 239 at [140]–[153]
(obligation of good faith on employer in relation to decision-making under employee pension
scheme); Lonmar Global Risks Ltd v West [2010] EWHC 2878 (QB), [2011] I.R.L.R. 138 at
[148]–[159] (distinction between employee’s general duty of good faith and loyalty and
employee’s fiduciary duty, which would arise where “the particular functions of an employee
may require him to pursue the interests of his employer to the exclusion of other interests,
including his own” ([2010] EWHC 2878 at [152], per Hickinbottom J.); Threlfall v ECD Insight
Ltd [2012] EWHC 3543 (QB) at [112]–[115]. See generally Bogg (2011) 32 Comparative Labor
Law and Policy Journal 729. cf. Chelsfield Advisers LLP v Qatari Diar Real Estate Investment
Co [2015] EWHC 1322 (Ch) (no implied condition of mutual trust and confidence in contract
setting some terms and acting as precursor for development contract).
446. [1992] 1 A.C. 294. cf. University of Nottingham v Eyett [1999] 1 W.L.R. 594.
447. Horkulak v Cantor Fitzgerald [2004] EWCA Civ 1287, [2005] I.C.R. 402 at [46]–[47];
Commerzbank AG v Keen [2006] EWCA Civ 1536, [2007] I.C.R. 623 at [53]-[59].
448. Trego v Hunt [1896] A.C. 7 at 25, per Lord Macnaghten.
449. [1896] A.C. 7 at 20.
450. J.H. Ritchie Ltd v Lloyd Ltd [2007] UKHL 9, [2007] 1 W.L.R. 670 especially at [18], [36]–[37] (on
appeal from Ct. of Sess).
451. Nathan v Smilovitch (No.2) [2002] EWHC 1629 (Ch) at [9]; Training in Compliance Ltd v Dewse
[2004] EWHC 3094 (QB), [2004] All E.R. (D) 377 (Dec) (implied terms of honesty and good faith
in contracts for joint business venture); Dymocks Franchise Systems (NSW) Pty Ltd v Todd
[2002] 2 All E.R. (Comm) 849 at [57] (PC not ruling out implied obligation of good faith in
franchise contract); but cf. Jani-King (GB) Ltd v Pula Enterprises Ltd [2007] EWHC 2433 (QB),
[2008] 1 All E.R. (Comm) 451 at [51], relying on Bedfordshire CC v Fitzpatrick Contractors Ltd
[1998] 62 Con. L.R. 64 (Dyson J.) (court refused to imply a term of trust and loyalty owed by a
franchisor to a franchisee since such a relationship is “much closer to an ordinary commercial
relationship, than one between employer and employee”); Carewatch Care Services Ltd v
Focus Caring Services Ltd [2014] EWHC 2313 (Ch) at [106]–[112] (no implied terms of good
faith etc. in franchise agreements). But cf. Yam Seng Pte Ltd v International Trade Corp Ltd
[2013] EWHC 111 (QB), below, para.1-053.
452. Bernhard Schulte GmbH & Co K.G. v Nile Holdings Ltd [2004] EWHC 977 (Comm), [2004] 2
Lloyd’s Rep. 352 at [113]–[114]. See also Knatchbull-Hugessen v SISU Capital Ltd [2014]
EWHC 1194 (Comm) at [23] and especially at [24]–[29] in which the HC refused to imply a term
to negotiate in good faith to govern the period after the expiry of an exclusivity period set by a
contract which contained an express term to negotiate in good faith, on the basis that this would
be inconsistent with the parties’ agreement which disapplied the “default position” of no legal
duty to negotiate in good faith for limited period.
Page 25
453.
Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396, [2017] 1 All
E.R. (Comm) 601 at [67].
454.
Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396, [2017] 1 All
E.R. (Comm) 601 at [68] per Beatson L.J.
455.
[2013] EWHC 111 (QB), [2013] Lloyd’s Rep. 526; Whittaker (2013) 129 L.Q.R. 463; Campbell
(2014) 77 M.L.R. 475.
456. [2013] EWHC 111 (QB) at [156]. See for the acceptance (by the parties and the court) of a
similar implied term of honesty and integrity D&G Cars Ltd v Essex Police Authority [2015]
EWHC 226 (QB), at [174]–[176] (contract under which contractor dealt over a relatively lengthy
period with the recovered property of members of the public acting on behalf of the police
authority). cf. Bhasin v Hrynew 2014 SCC 71, [2014] 3 S.C.R. 495 (above, para.1-041) where
the Supreme Court of Canada held that there is a common law duty which applies to all
contracts to act honestly in the performance of contractual obligations.
457. See the cases noted in n.405 above.
458. [2013] EWHC 111 (QB) at [143]. Leggatt J. saw as examples of this category of contract joint
venture agreements, franchise agreements and long-term distributorship agreements, on which
cf. above, n.405.
459. [2013] EWHC 111 (QB) at [132], [135]–[136].
460.
[2013] EWHC 111 (QB) at [138]. cf. Hamsard 3147 Ltd (trading as “Mini Mode
Childrenswear”) v Boots UK Ltd [2013] EWHC 3251 (Pat) at [87]–[88] where the HC observed
(obiter) that a term requiring good faith in the operation of a contract would only have imposed
on the parties “a duty to deal with one another on an open and collaborative basis” and not an
“obligation to maximise profit” and did not qualify a party’s implied right of termination on
reasonable notice limiting it to exercise only in “good faith”. cf. Astor Management AG v Atalaya
Mining Plc [2017] EWHC 425 (Comm), [2017] 1 Lloyd’s Rep. 476 in which Leggatt J. observed
(at [98]) that “[a] duty to act in good faith, where it exists, is a modest requirement. It does no
more than reflect the expectation that a contracting party will act honestly towards the other
party and will not conduct itself in a way which is calculated to frustrate the purpose of the
contract or which would be regarded as commercially unacceptable by reasonable and honest
people”, considering it therefore a “lesser duty” than an express contractual “positive obligation
to use all reasonable endeavours to achieve a specified result”.
461. Whittaker (2013) 129 L.Q.R. 463.
462.
[2013] EWCA Civ 200, [2013] B.L.R. 265 at [105] and see also at [150]; TSG Building
Services Plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC), especially at [46]; Hamsard
3147 Ltd (trading as “Mini Mode Childrenswear”) v Boots UK Ltd [2013] EWHC 3251 (Pat) at
[83]–[84] (where the HC refused to imply a term requiring good faith in the implicit contract
brought about by force of circumstance as an interim arrangement subsequent to a contract of
joint venture containing an express term requiring good faith in relation to the operation of the
contract); Bristol Groundschool Ltd v Whittingham [2014] EWHC 2145 (Ch) at [196] (contract
which combined joint venture and product distribution agreement held to contain implied term
requiring honesty, judged in terms of commercially unacceptable behaviour); Acer Investment
Management Ltd v Mansion Group Ltd [2014] EWHC 3011 (QB) at [101]–[109]; Globe Motors
Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396, [2017] 1 All E.R. (Comm)
601 at [67]; Monde Petroleum SA v WesternZagros Ltd [2016] EWHC 1472 (Comm), [2017] 1
All E.R. (Comm) 1009 at [249]–[259]; Apollo Window Blinds Ltd v McNeil [2016] EWHC 2307
(QB) (no implied term in contract of franchise requiring one party (the franchisor) to inform the
other (the franchisee) of its contractual rights); National Private Air Transport Services Co
(National Air Services) Ltd v Creditrade LLP [2016] EWHC 2144 (Comm) at [132]–[136] (no
implied term in aircraft lease as not a “relational” contract and lessor was entitled to redelivery
Page 26
in compliance with contract terms (obiter)). See also MSC Mediterranean Shipping Co SA v
Cottonex Anstalt [2016] EWCA Civ 789, [2017] 1 All E.R. (Comm) 483 at [45] (disapproving of
the establishment of a general principle of good faith, contrary to the suggestion by Leggatt J. at
trial).
463.
[2014] EWHC 1156 (Ch), [2014] 2 Lloyd’s Rep. 169 at [150]; Property Alliance Group Ltd v
Royal Bank of Scotland Plc [2016] EWHC 3342 (Ch) at [250] and [276] (where in addition an
implied term requiring good faith would have been inconsistent with express terms excluding
equitable or fiduciary duties).
464.
[2014] EWHC 1156 (Ch) at [150], referring to [2013] EWHC 111 (QB) at [147]. cf. Hockin v
Royal Bank of Scotland [2016] EWHC 925 (Ch) at [44]–[47] (no strike out of claim for breach of
implied term as to the exercise of a right/discretion under a contract in the absence of factual
matrix to be established at trial).
465.
[2015] UKSC 72, [2015] 3 W.L.R. 1843.
466.
[2015] UKSC 72 at [21] and see for an example of this approach being adopted in the context
of good faith: Hockin v Royal Bank of Scotland [2016] EWHC 925 (Ch) at [46] (high threshold
for the implication of a term in a standard commercial contract). On the decision of the SC in
Marks & Spencers Plc generally, see below, para.14-007.
467. cf. Johnstone v Bloomsbury Health Authority [1992] Q.B. 334 (express discretionary power in
employer read subject to duty not to harm employee’s health), below, para.1-182.
468. [2001] EWCA Civ 1466, [2002] 1 W.L.R. 685.
469. [2002] 1 W.L.R. 685 at [30], per Dyson L.J.
470. [2002] 1 W.L.R. 685 at [32].
471. [2002] 1 W.L.R. 685 at [40].
472. [2005] EWCA Civ 760, [2005] 1 W.L.R. 3412.
473. [2005] EWCA Civ 760 at [120] (original emphasis).
474. [2007] EWCA Civ 151, [2007] Bus. L.R. D29, Morgan [2008] Lloyd’s Maritime and Commercial
Law Quarterly 523. cf. Eastleigh BC v Town Quay Developments Ltd where, while it was
accepted (by agreement of the parties) that there is no general principle that, whenever a
contract requires the consent of one party to be obtained by the other, there must be a term
implied that such consent shall not be unreasonably withheld, in the circumstances a term
should be implied that consent to the exercise of a right over land would not be unreasonably
withheld: [2009] EWCA Civ 1391, [2010] 2 P. &. C.R. 2 at [20], [36]–[39].
475. [2007] EWCA Civ 151 at [36]-[37].
476. [2007] EWCA Civ 151 at [42]–[44].
477. [2007] EWCA Civ 151 at [43], per Arden L.J. (with whom Pill L.J. and Sir Martin Nourse
agreed). See similarly Jani-King (GB) Ltd v Pula Enterprises Ltd [2007] EWHC 2433 (QB) at
[33]-[34]. cf. Barclays Bank Plc v Unicredit Bank AG [2014] EWCA Civ 302, [2014] 1 C.L.C. 342
at [19]-[21], holding that an express term as to the giving of consent by a guarantor to
termination of a guarantee “in a commercially reasonable manner” did not on its proper
construction mean that the guarantor had to give priority to the other party’s commercial interest
over its own: [2014] EWCA Civ 302 at [21]–[22].
478. [2008] EWCA Civ 116, [2008] 1 Lloyd’s Rep. 558. cf. Prudential Staff Pensions Ltd v Prudential
Page 27
Assurance Co Ltd [2011] EWHC 960 (Ch), [2011] Pens. L.R. 239 at [140]-[153] (obligation of
good faith on employer in relation to decision-making under employee pension scheme).
479. [2008] EWCA Civ 116 at [66] (with whom Laws and Lloyd L.JJ. agreed).
480. [2008] EWCA Civ 116 at [66].
481. [2008] EWCA Civ 116 at [107]–[121] (Rix L.J.).
482. [2008] EWCA Civ 116 at [122] (Rix L.J.); [147]-[157] (Lloyd L.J.), with both of whom Laws L.J.
agreed: [2008] EWCA Civ 116 at [158].
483.
[2013] EWCA Civ 200, [2013] B.L.R. 265. For other cases discussing similar qualifications on
the exercise of a broad contractual discretion see JML Direct Ltd v Freesat UK Ltd [2010]
EWCA Civ 34 at [14] (satellite television service contracting to supply a provider of television
shopping channels with two shopping channels on its platform and having discretion under the
contract in the allocation of logical channel numbers); Mckay v Centurion Credit Resources LLC
[2012] EWCA Civ 1941, especially at [17], [21]-[22] (term for advance of funds on demand of
borrower); WestLB AG v Nomura Bank International Plc [2012] EWCA Civ 495, especially at
[30], [32] (discretion as to valuation of fund); TSG Building Services Plc v South Anglia Housing
Ltd [2013] EWHC 1151 (TCC) (no implied term of good faith restricting the exercise of an
apparently unfettered right in party to terminate contract); Brogden v Investec Bank Plc [2014]
EWHC 2785 (Comm), [2014] I.R.L.R. 924 at [91], [95]-[102] (term in employment contract for
payment of bonus); Greenclose Ltd National Westminster Bank Plc [2014] EWHC 1156 (Ch),
[2014] 1 C.L.C. 562 at [144]–[151] (no implied qualifications on express “unqualified right” to
extend the term of an interest rate hedging transaction); Myers v Kestrels Acquisitions Ltd
[2015] EWHC 916 (Ch) at [40]–[41], [50]–[63] (no implied term that a power in a loan-note
instrument to modify its terms had to be exercised in good faith). Portsmouth City Council v
Ensign Highways Ltd [2015] EWHC 1969 (TCC) at [110]–[112]; Monde Petroleum SA v
WesternZagros Ltd [2016] EWHC 1472 (Comm), [2017] 1 All E.R. (Comm) 1009 at [261]–[275].
In British Telecommunications Plc v Telefónica O2 UK Ltd [2014] UKSC 42, [2014] 4 All E.R.
907 at [37] Lord Sumption J.S.C. observed that, although the matter remains a matter of
construction, it is “well established that in the absence of very clear language to the contrary, a
contractual discretion must be exercised in good faith and not arbitrarily or capriciously”. See
also Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 W.L.R. 1661, below, para.1-054A.
484.
[2008] EWCA Civ 116, [2008] 1 Lloyd’s Rep. 558. See also Abu Dhabi National Tanker Co v
Product Star Shipping Ltd (The “Product Star”) [1993] 1 Lloyd’s Rep. 397 esp. at 404; Horkulak
v Cantor Fitzgerald International [2004] EWCA Civ 1287, [2005] I.C.R. 402 at [66]; JML Direct
Ltd v Freesat UK Ltd [2010] EWCA Civ 34 at [14].
485. [2013] EWCA Civ 200 at [83].
486. [2013] EWCA Civ 200 at [84]–[92].
487. [2013] EWCA Civ 200 at [138].
488.
[2013] EWCA Civ 200 at [138]–[139]; applied in Monde Petroleum SA v WesternZagros Ltd
[2016] EWHC 1472 (Comm), [2017] 1 All E.R. (Comm) 1009 at [261]–[275] (contractual right to
terminate a contract not a discretion and may be exercised irrespective of the party’s reasons
for doing so); Monk v Largo Foods Ltd [2016] EWHC 1837 (Comm) at [52]–[60].
489. [2015] UKSC 17, [2015] 1 W.L.R. 1661.
490. [2015] UKSC 17 at [18] with whom Lord Kerr agreed generally. Lords Wilson, Hodge and
Neuberger agreed with Lady Hale in this respect: [2015] UKSC 17 at [52]–[53], [102]–[103].
491. Socimer International Bank Ltd v Standard Bank Ltd [2008] EWCA Civ 116 at [60]–[66], below,
para.15-054 and see [2015] UKSC 17 at [22] and [102].
Page 28
492. [2015] UKSC 17 at [19].
493. [2015] UKSC 17 at [20] per Lady Hale and see also at [28], [53] (Lord Hodge) and [103] (Lord
Neuberger). It was considered unnecessary to conclude finally on the precise extent to which
an implied contractual term may differ from the principles applicable to judicial review of
administrative action: [2015] UKSC 17 at [31] (Lady Hale).
494. [2015] UKSC 17 at [30]. Lady Hale and Lord Kerr considered that the fact that contracts of
employment contain an implied obligation of trust and confidence is relevant for this purpose:
[2015] UKSC 17 at [32]; Lord Hodge agreed (at [61]), though he did not rely on this as it had not
been argued and cf. at [54]–[55]. cf. Lord Neuberger considered that such an implied term did
not add anything once the implied term based on Wednesbury rationality had been accepted:
[2015] UKSC 17 at [104].
495. [2015] UKSC 17 at [30] and cf. at [24]; similarly at [53] (Lord Hodge) [103] (Lord Neuberger).
496.
[2015] UKSC 17 at [24]. cf. Patural v DB Services (UK) Ltd [2015] EWHC 3659 (QB), [2016]
I.R.L.R. 286 at [61].
497. [2015] UKSC 17 at [38]–[42] (Lady Hale and Lord Kerr); [49]-[50], [58]–[59], [62] (Lord Hodge).
In this respect, Lords Neuberger and Wilson dissented, considering that the employer was
justified in finding that the employee had committed suicide based on a combination of cogent
reasons: [2015] UKSC 17 at [114] and [126].
498.
Watson v Watchfinder.co.UK Ltd [2017] EWHC 1275 (Comm), concerned a contractual option
to purchase shares in a company which formed part of a wider commercial relationship
between the parties and which was contingent on the consent of that company’s board. The
High Court held that the company board had a discretion as to the consent which must be
exercised in a way which was not arbitrary, capricious or irrational, following the SC’s decision
in Braganza: [2017] UKSC 1275 at [102]–[103] and [116] et seq. cf. Property Alliance Group Ltd
v Royal Bank of Scotland [2016] EWHC 3342 (Ch) at [277], where it was explained that a
discretion “requires the contracting party to make some kind of assessment or to choose from a
range of options” and this exercise of power justifies the implication of a term as to its exercise
arbitrarily, etc.; no such discretions were found in the contract between bank and its commercial
customer (at [272]–[280]).
499. Ruxley Electronics and Construction Ltd v Forsyth [1996] A.C. 344 and see below, paras
26-036—26-038.
501. Below, paras 26-107 et seq.
502.
White and Carter (Councils) Ltd v McGregor [1962] A.C. 413 and see below, para.24-010.
While this law was seen by Leggatt J. in MSC Mediterranean Shipping Co SA v Cottonex
Anstalt [2015] EWHC 283 (Comm), [2015] 1 Lloyd’s Rep. 359 at [97] as reflecting an
“increasing recognition in the common law world of the need for good faith in contractual
dealings” as it implies “some constraint on the decision-maker’s freedom to act purely in its own
self-interest”, on appeal the CA (which did not see the White & Carter principle as applicable on
the facts) did not encourage judges to recognise a “general organising principle” drawn from
cases of disparate kinds in this way: [2016] EWCA Civ 789 at [43] and [45] respectively.
503.
3 W.L.R. 1373 at [32] and [152] and see, below, paras 26-178 et seq.
504. e.g. Consumer Rights Act 2015 s.23 and see Vol.II, para.38-482.

Page 29
507. Misrepresentation Act 1967 s.2(2) (damages in lieu of rescission) on which see below, paras
7-104—7-110.
508. Sale of Goods Act 1979 s.15A and see Vol.II, para.44-070.
509. Law Reform (Frustrated Contracts) Act 1943 s.1(2) and (3) and see below, para.23-090.

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Section 4. - The Human Rights Act 1998 and Contracts
Introduction
1-057
The Human Rights Act 1998 (“the 1998 Act”) was enacted in order to “bring home” the human rights
declared by the European Convention on Human Rights (“the Convention”) into the domestic legal
systems of the United Kingdom. 510 In order to do so, it put in place two main mechanisms. First, there
are controls on legislation. So, under s.3 of the 1998 Act it is provided that:
“So far as it is possible to do so, primary legislation and subordinate legislation must be
read and given effect in a way which is compatible with Convention rights.” 511
And under s.4 of the 1998 Act, where a court is unable to “read down” primary legislation in this way,
and where a court 512 is satisfied that the legislation is incompatible with Convention rights, it may
make a “declaration of incompatibility”. 513 As a result, the duty of compatible interpretation and the
possibility of a declaration of incompatibility may arise in any proceedings in which the compatibility of
primary legislation is challenged, whether or not a “public authority” is party. Secondly, the Act
declares it unlawful for “public authorities” to act in a way which is incompatible with a “Convention
right”, and for this purpose “public authority” includes a court or tribunal and may include any person
certain of whose functions are functions of a public nature. 514
Temporal impact of the Human Rights Act on contracts
1-058
In determining the impact of these provisions on contracts and, indeed, also upon the law of contract
itself, a distinction must be drawn between contracts made before and after the coming into force of
the operative provisions of the 1998 Act—October 2, 2000. 515
510. Not all the rights contained in the European Convention and its protocols were included in this
process, but only those defined by the Act as “Convention rights”: Human Rights Act 1998 s.1.
511. Human Rights Act 1998 s.3(1).
512. The courts which are so entitled are listed in s.4(5).
513. Human Rights Act 1998 s.4(1) and (2).
514. Human Rights Act 1998 s.6(1) and (3). Section 6(5) further provides that “[i]n relation to a
Page 2
particular act, a person is not a public authority by virtue only of subs.3(b) if the nature of the act
is private” and see below, paras 1-073—1-075.
515. Human Rights Act 1998 (Commencement No.2) Order 2000 (SI 2000/1851).

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(a) - Contracts made before October 2, 2000
(i) - The Construction and Review of Legislation Governing Contracts
The impact of ss.3 and 4 of the 1998 Act on accrued contractual rights
1-059
In Wilson v First County Trust Ltd (No.2), 516 the question arose whether provisions in the Consumer
Credit Act 1974 which had the effect of denying the enforceability of a creditor’s rights under the
contract and its accompanying security for lack of fulfilment of some of its requirements as to proper
execution 517 were “incompatible” with the creditor’s “Convention rights”. The effect of the relevant
provisions of the 1974 Act was to deprive the court of any power to enforce a regulated agreement
from which a prescribed term has been omitted for the benefit of the creditor, notwithstanding that no
prejudice has been caused to anyone by that omission. 518 The Court of Appeal held that a court, as
itself a “public authority”, 519 must not act in a way which is incompatible with Convention rights. 520 In
its view, the provisions in the 1974 Act in question which required a court to deny any possibility of
enforcement for the benefit of the creditor infringed to a disproportionate and unexplained extent its
right to a fair and public hearing under art.6(1) of the Convention. 521 The Court of Appeal therefore
exercised its discretion in favour of declaring the relevant provision of the 1974 Act incompatible with
the Convention. 522 However, this decision was reversed by the House of Lords in a ruling of
fundamental importance for the temporal application of the Human Rights Act to private transactions,
including contracts. 523 Unlike the Court of Appeal, whose starting point was the duty of a court under
s.6 of the 1998 Act, the House of Lords started by asking whether ss.3 and 4 of the 1998 Act apply
retrospectively to the facts before them, the contract of consumer credit having been made and
having been due to have been performed before the coming into force of the operative provisions of
the 1998 Act on December 2, 2000. The House of Lords held unanimously that in the circumstances
of the case ss.3 and 4 should not be held to apply to a contract made and to be performed before the
coming into force of the 1998 Act. For a majority of their lordships this position was reached by
holding that while ss.2–4 of the 1998 Act may clearly apply to enactments made before its coming
into force, 524 they should not be interpreted so as to allow the challenge of primary legislation
affecting “transactions that have created rights and obligations which the parties seek to enforce
against each other”. 525 In the words of Lord Scott of Foscote:
“The legal consequences under the civil law of a transaction or of events ought to be
established by reference to the law at the time they take place. They cannot do so if
subsequent legislation may add to or diminish those rights or obligations.” 526
Given their lordships’ view of the lack of impact of ss.3 and 4 on the contract before them, it followed
that the Court of Appeal’s reliance on s.6 of the 1998 Act was misplaced, since s.6 cannot make
unlawful a court’s lawful action in giving effect to pre-Act rights and obligations. 527 As a result, the
Court of Appeal should not have considered the question of the compatibility with Convention rights of
the Consumer Credit Act’s provisions which denied the enforceability of the contract for the benefit of
the creditor. 528 While Lord Rodger of Earlsferry agreed with this decision on the facts before the
Page 2
House, he did so explicitly on the narrower ground that ss.3 and 4 of the 1998 Act did not apply to
pending proceedings so as to protect the Convention rights enshrined in art.1 of the First Protocol to
the Convention protecting a person’s right to the peaceful enjoyment of his possessions. 529
1-060
On the other hand, in PW & Co v Milton Gate Investments Ltd 530 Neuberger J. was prepared to
accept that s.3 of the Human Rights Act could apply to an issue arising from a lease made before its
coming into force. There, the learned judge had held that, apart from the operation of s.3, the exercise
of a “break clause” in a head-tenancy did not determine the sub-tenancies entered into by the tenant
as permitted under the head-lease even though the head-landlord was unable to recover rent under
the sub-tenancy covenants. 531 Having referred to a number of passages in the speeches of their
lordships in Wilson v First County Trust (No.2), 532 Neuberger J. concluded that their reasoning did not
preclude the application of ss.3 or 4 of the 1998 Act to issues arising out of contracts made before its
coming into force as long as this did not impair “vested rights” or otherwise create unfairness. 533 In
particular, he noted as “very much in point” Lord Scott of Foscote’s reference in Wilson’s case to the
example of the impact of legislation intervening between the creation of a lease and its expiry where
the legislation could affect the rights and obligations arising under the transaction. 534 On the facts
before him, Neuberger J. considered that:
“… the earliest that any ‘vested rights’ could be said to have arisen under [the break
clause in the head-lease], was the date of the service of the Notice under that clause.
Unless and until [the break clause] was operated, the rights and obligations of any of the
parties as a result of the exercise were merely contingent and not vested.” 535
Since this notice had been served after the coming into force of s.3 of the 1998 Act there were no
vested rights at the relevant time so as to prevent its operation on the legislative provisions whose
application allegedly prejudiced the headlandlord’s right to property under art.1 of the First Protocol of
the European Convention. Moreover, in the learned judge’s view, it was not more generally unfair to
apply s.3 in this way even though the notice had been served only four days after its coming into force
given, in particular, that the 1998 Act had been on the Statute Book for around two years before it
came into force. 536
516. [2003] UKHL 40, [2003] 3 W.L.R. 568, reversing [2001] EWCA Civ 633, [2002] 2 Q.B. 74.
517. Consumer Credit Act 1974 ss.65(1) and 127(3). Section 127(3) of the 1974 Act was repealed
by the Consumer Credit Act 2006 s.15: see Vol.II, para.39-094.
518. [2001] EWCA Civ 633 at [9].
519. Human Rights Act 1998 s.6(3)(a).
520. [2001] EWCA Civ 633 at [17]–[18].
521. [2001] EWCA Civ 633 at [28]-[29].
523. [2003] UKHL 40, [2003] 3 W.L.R. 568.
524. [2003] 3 W.L.R. 568 at [17], per Lord Nicholls.
525. [2003] 3 W.L.R. 568 at [98] and see at [101]–[102] (Lord Hope of Craighead); [26] (Lord
Nicholls of Birkenhead); [145] (Lord Hobhouse of Woodborough); [161]-[162] (Lord Scott of
Foscote).
Page 3
526. [2003] 3 W.L.R. 568 at [161].
527. [2003] 3 W.L.R. 568 at [157] (Lord Hope of Craighead).
528. See below, paras 1-066—1-068 on the substantive issues of compatibility of the then provisions
of the Consumer Credit Act 1974 with the Human Rights Act 1998, putting aside the issue of
retroactivity.
529. [2003] UKHL 40, [2003] 3 W.L.R. 568 at [215]–[220]. For a straightforward application of the
HL’s approach see Laws v Society of Lloyd’s [2003] EWCA Civ 1887 at [32]–[33] (Lloyd’s
enjoyed statutory immunity barring bad faith prior to coming into force of 1998 Act).
530. [2003] EWHC 1994 (Ch), [2003] All E.R. (D) 58 (Aug).
531. [2003] EWHC 1994 (Ch) at [103]-[104].
532. [2003] UKHL 40, [2004] 1 A.C. 816, above, para.1-059.
533. [2003] EWHC 1994 (Ch) at [107]–[115].
534. [2003] UKHL 40 at [161]; [2003] EWHC 1994 (Ch) at [110] and [114].
535. [2003] EWHC 1994 (Ch) at [114].
536. [2003] EWHC 1994 (Ch) at [115].

Page 1

(ii) - Contracts made by “Public Authorities”
Section 6 and accrued contractual rights
1-061
The making of a contract by a person or body may sometimes constitute an “act” by a “public
authority” within the meaning of s.6 of the 1998 Act. 537 While the decision in Wilson v First County
Trust Ltd (No.2) 538was directly concerned with the application of ss.3 and 4 of the 1998 Act to
transactions which created rights accruing before its coming into force, it is submitted that a similar
approach would be taken so as to deny the application of s.6 of the 1998 Act to contracts made by
“public authorities” before its coming into force. As Lord Nicholls observed in setting out the general
framework of the 1998 Act:
“On a natural reading [s.6] is directed at post-Act conduct. The context powerfully
supports this interpretation. One would not expect a statute promoting human rights
values to render unlawful acts which were lawful when done.” 539
Lord Scott of Foscote agreed, observing that:
“It is plain that section 6 is looking to the future. It is not purporting to make unlawful a pre
2 October 2000 act of a public authority.” 540
The approach of the majority of the House of Lords in Wilson v First County Trust Ltd (No.2) therefore
clearly indicates that s.6 of the 1998 Act will not be applied so as to make unlawful the making of
contracts by public authorities before its coming into force on December 2, 2000. And while Lord
Rodger of Earlsferry took a more nuanced approach to the distinct types of “retroactivity” which he
identified according to the different Convention rights protected by the 1998 Act, 541 he also
proceeded on the basis that:
“Parliament must have intended all the operative provisions [which include s.6] of this
particular statute to take effect in the same way in respect of any given Convention right.”
542
The later performance of contracts made by “public authorities”

Page 2
1-062
A further question relating to contracts made before the coming into effect of s.6 of the 1998 Act
concerns a public authority’s “act” of performance of a contract rather than its “act” in making one. 543
For if a public authority has made a contract before the coming into effect of the 1998 Act, but after its
coming into effect performs one of its obligations in a way required by the contract but incompatible
with a Convention right, such a performance could be thought itself to constitute an “act” made
unlawful by s.6 of the 1998 Act. On the other hand, against this line of reasoning it could be
contended that s.6 of the 1998 Act should not be interpreted so as to render illegal the performance of
existing contractual obligations since this would have the correlative effect of prejudicing the existing
rights of the other party under the contract. In resolving these arguments, observations made in
Wilson v First County Trust Ltd (No.2) concerning the retroactive effect of legislation in general and
the 1998 Act in particular may be helpful, even though that decision was concerned with the
incompatibility with Convention rights of primary legislation as applied to facts occurring before the
1998 Act’s coming into force. 544 In this respect, Lord Rodger of Earlsferry noted that:
“Retroactive provisions alter the existing rights and duties of those whom they affect. But
not all provisions which alter existing rights and duties are retroactive. The statute book
contains many statutes which are not retroactive but alter existing rights and duties—only
prospectively, with effect from the date of commencement.” 545
While Lord Rodger quoted with approval the words of Dickson J. to the effect that “[n]o-one has a
vested right to continuance of the law as it stood in the past”, 546 he observed that:
“… often … a sudden change in existing rights would be so unfair to certain individuals or

businesses in their particular predicament that it is to be presumed that Parliament did
not intend the new legislation to affect them in that respect.” 547
Although he added that “in practice the presumption against legislation altering vested rights is
regarded as weaker than the presumption against legislation having retroactive effect”. 548 What these
observations suggest is that s.6 of the 1998 Act should be interpreted so as not to make unlawful the
“acts of performance” of public authorities of contractual obligations created before its coming into
force even if these acts are incompatible with Convention rights, since such an illegality would
prejudice the existing rights of other parties under those contracts. However, a future court could
prefer to follow the more nuanced approach adopted by Lord Rodger for this purpose, distinguishing
between the various Convention rights 549 in assessing the effect of the operative provisions of the
1998 Act. 550
Effect of any unlawful performance by a public authority
1-063
If a court were to hold that a public authority would act unlawfully within the meaning of s.6 of the
1998 Act by performing an obligation arising under a contract made before the coming into force of
that Act, then either the performance of the contractual obligation in question would be excused or the
contract as a whole would be frustrated by this supervening illegality, this depending on the illegality’s
significance for the main purpose of the contract as a whole. 551
Unlawful manner of performance by public authority
1-064
Different considerations apply where a public authority’s action in performing an obligation arising
Page 3
under a contract made before the coming into force of the 1998 Act is incompatible with a Convention
right, but where this incompatibility is not required by the obligation itself, but rather reflects the
chosen manner of its performance by the public authority. In these circumstances, the arguments as
to the effect of s.6 of the 1998 Act would differ from those exposed earlier, 552 as ex hypothesi the
other party to the contract would not have any accrued rights to the action of the public authority in
purported performance of the contract. It is submitted, therefore, that in these circumstances a public
authority could be held to act unlawfully within the meaning of s.6, even though the contract predated
the 1998 Act’s coming into force. Where this is the case, then the courts are likely to look to their
general approach to illegality in performance to determine the effects of this “unlawful act” on the
contractual rights of the parties inter se. 553
537. On the application of the definition of “public authority” under ss.6(3) and (5) of the 1998 Act to
the making of contracts, see below, para.1-073—1-075.
538. [2003] 3 W.L.R. 568, (2003) 3 W.L.R. 568.
539. [2003] 3 W.L.R. 568 at [12].
540. [2003] 3 W.L.R. 568 at [156].
541. See above, para.1-059.
542. [2003] UKHL 40, [2003] 3 W.L.R. 568 at [156].
543. For the purposes of the present discussion, it will be assumed that the public authority fulfils the
criteria required by the 1998 Act s.6(3) and (4), on which see below, paras 1-073—1-075.
544. [2003] UKHL 40, [2003] 3 W.L.R. 568. Lord Rodger of Earlsferry explicitly stated that ss.3–9 of
the 1998 Act should be interpreted so as to apply retroactively or only from commencement as
a whole: at [204], [206].
545. [2003] 3 W.L.R. 568 at [188]. On the restricted basis for Lord Rodger’s decision, see above,
para.1-059. Lord Rodger drew on the discussion in P.A. Coté, The Interpretation of Legislation
in Canada, 3rd edn (2000), Ch.2, s.1 and referred to West v Gwynne [1911] 2 Ch. 1. Lord
Hobhouse adopted Lord Rodger’s observations on the various usages of the word
“retrospective”: [2003] UKHL 40, [2003] 3 W.L.R. 568 at [145]. See also the observations of
Lord Scott of Foscote at [161], who noted that: “Where transactions calculated to continue for
some considerable period are entered into, intervening legislation may in some respect or other
affect the rights or obligations that accrue after the legislation has come into force”. He
illustrated this by reference to contracts of lease and landlord and tenant legislation.
546. [2003] UKHL 40, [2003] 3 W.L.R. 568 at [192]; Gustavson Drilling (1964) Ltd v Minister of
National Revenue [1977] 1 S.C.R. 271, 282–283.
547. [2003] UKHL 40, [2003] 3 W.L.R. 568 at [193].
548. [2003] 3 W.L.R. 568 at [195].
549. [2003] 3 W.L.R. 568 at [209]–[210]. He distinguished in particular between the procedural rights
protected by art.6 of the Convention and other, substantive rights. For Lord Rodger the proper
question was therefore whether the 1998 Act gave effect to art.1 of the First Protocol to the
Convention so as to affect vested rights or pending proceedings: [2003] 3 W.L.R. 568 at [215].
550. i.e. Human Rights Act 1998 ss.3–9.
551.
cf. Peel, Treitel on The Law of Contract, 14th edn (2015) and see below, paras
23-066—23-069.
Page 4
552. Above, paras 1-062—1-063.

Page 1

(iii) - The Duty of Courts as “Public Authorities” in relation to Contracts
The construction of contracts
1-065
In Biggin Hill Airport Ltd v Bromley LBC 554 (which concerned a contract made between a local
authority and a private company), it was held that the 1998 Act did not require a court as itself a
public authority 555 to interpret a contract made before the coming into effect of the same Act in such a
way as to be compatible with the Convention rights of third parties to the contract, since common law
authority established that a court should look to the factual circumstances at the time of a contract’s
conclusion for the resolution of issues of its construction. 556 This decision may be seen as reflecting
in the context of the control and application of the common law a similar principle of non-retroactivity
as was applied by the House of Lords in its later decision in Wilson v First County Trust Ltd (No.2) for
the purposes of the control and application of primary legislation. 557 On the other hand, in Biggin Hill
Airport it was accepted that even in respect of a contract made before the coming into force of the
1998 Act, where the contract was made by a public authority the protection of people’s Convention
rights might form an element in its decision-making process, although on the facts the court found that
it had not done so. 558 If a court were to find such an element to have been the case, then its decision
protecting the Convention right would not have any true retroactive impact: it would merely be giving
effect to the existing common law principle of interpretation of a contract by reference to the common
intentions of the parties as construed in their factual matrix. 559
554. The Times, January 9, 2001, (2001) 98(3) L.S.G. 42 reversed on other grounds [2001] EWCA
Civ 1089, The Times, August 13, 2001, (2001) 98(33) L.S.G. 30.
556. Prenn v Simmonds [1971] 1 W.L.R. 1381; Investors Compensation Scheme Ltd v West
Bromwich Building Society [1998] 1 W.L.R. 896 and see below, paras 13-041 et seq.
557. Above, para.1-059.
558. Biggin Hill Airport Ltd v Bromley LBC, The Times, January 9, 2001, (2001) 98(3) L.S.G. 42 at
[173], reversed on other grounds [2001] EWCA Civ 1089, The Times, August 13, 2001, (2001)
98(33) L.S.G. 30.
559. See below, paras 13-043, 13-121—13-123.

Page 1

(b) - Contracts made on or after October 2, 2000
(i) - The Construction and Review of Legislation Governing Contracts
Sections 3 and 4 of the 1998 Act: primary or secondary legislation governing the contract and
Convention rights
1-066
While it was not necessary for its decision in Wilson v First County Trust Ltd (No.2), 560 four
members of the House of Lords considered there the substantive questions of compatibility with
Convention rights of the then provisions of the Consumer Credit Act 1974 (putting aside the
retroactive element found on the facts), and this makes clear their general view that questions of
compatibility with Convention rights of legislation governing contracts made on or after the date of
their coming into force, viz October 2, 2000, would arise for the purposes of ss.3 and 4 of the 1998
Act. The substantive questions raised in Wilson v First County Trust Ltd (No.2) itself were whether the
denial of any possibility of enforcement of the contract of consumer credit or its attendant security by
the creditor against the consumer was incompatible either with the creditor’s right to a fair trial under
art.6 of the European Convention or with the creditor’s right to the peaceful enjoyment of his
possessions under art.1 of the First Protocol to the Convention. The issue of compatibility with art.6
was fairly quickly dealt with by the House of Lords as art.6(1) is concerned to ensure a fair civil
process and “does not itself guarantee any particular content for civil rights and obligations in the
substantive law of the contracting states”. 561 The effect of the Consumer Credit Act was to deny the
creditor any substantive legal rights under the contract or in relation to the security and did not
concern its procedural rights. 562 While their lordships also agreed that (putting aside the question
of the temporal application of the 1998 Act) the creditor’s right to its possessions was not denied by
the relevant provisions of Consumer Credit Act 1974, 563 their reasons for coming to this conclusion
differed. Here, there were two issues: (i) did the facts of the case engage the application of art.1 of
the First Protocol; (ii) if so, did the provisions of the Consumer Credit Act put in place a legitimate,
proportionate and sufficiently certain restriction on the creditor’s rights? The following paragraphs will
examine the treatment of these issues in Wilson v First County Trust Ltd (No.2) itself and in the
subsequent case law.
Unenforceable contractual rights and engaging art.1 of the First Protocol
1-067
The four members of the House of Lords who expressed their views were divided in their response to
the question whether the facts of Wilson v First County Trust Ltd (No.2) 564 engaged the application of
art.1 of the First Protocol. 565 For Lord Nicholls, “‘possessions’ in Article 1 is apt to embrace
contractual rights”, 566 and the provisions of the 1974 Act which denied any rights of enforcement of
the contract to the creditor would engage art.1 as they are:
Page 2
“… more readily and appropriately to be characterised as a statutory deprivation of the

lender’s rights of property in the broadest sense of that expression than as a mere
delimitation of the extent of the rights granted by a transaction.” 567
Lord Hobhouse of Woodborough agreed that art.1 could be engaged, but on the narrower ground that
the 1974 Act was able to operate so as to deprive the creditor of its special title to possession of the
security under a contract of pledge; conversely, if a creditor had not taken possession of any security,
art.1 would not be engaged as the creditor would be left merely with “the purported enforcement of a
claimed contractual right which the lenders had never in truth validly acquired”. 568 By contrast, Lords
Hope and Scott agreed that art.1 would not be engaged on the facts before them: art.1 of the First
Protocol is directed to interference with existing possessions or property rights, whereas the creditor
never had any rights of enforcement or possession against the borrower owing to the application of
the provisions of the 1974 Act. 569 In the words of Lord Hope, art.1:
“… does not confer a right of property as such nor does it guarantee the content of any
rights of property. What it does is to guarantee the peaceful enjoyment of the
possessions that a person already owns … [I]t is a matter for domestic law to define the
nature and extent of any rights which a party acquires from time to time as a result of the
transactions which he or she enters into.” 570
According to Lord Scott:
“No authority has been cited … for the proposition that a statutory provision which
prevents a transaction from having the quality of legal enforceability can be regarded an
interference for Article 1 purposes with the possessions of the party who would have
benefited if the transaction had had that quality.” 571
Implicit in Lord Nicholls’ view is an understanding that even in a context such as consumer credit
where statute defines the circumstances in which the parties’ rights arise, it is the parties’ agreement
(possibly as recognised by the common law) which forms the source of their contractual rights, which
are then eligible for protection under art.1. For Lords Hope and Scott, it is the statute itself which
defines the circumstances when the parties’ agreement will or will not give rise to rights in them: the
law creates the parties’ rights, it does not curtail pre-existing rights. 572
1-068
It is submitted, that whatever the general theoretical validity of either view of the nature and origin of
contractual rights in the modern law, the approach of Lord Nicholls is to be preferred for the purposes
of art.1 of the First Protocol. 573 For the overall function of art.1 is to prevent states from depriving
persons of their possessions illegitimately and for this purpose legislation which denies a right which
would otherwise arise (i.e. under the general law) can be seen to have such a depriving effect. This
approach may be supported by reference to the case law of the European Court of Human Rights 574
and especially its later decision in Stretch v UK 575 in which it held that art.1 of the First Protocol was
engaged where a person’s option to renew a lease was subsequently found to be void as ultra vires
the lessor public authority’s powers, the Court observing that:
“… according to the established case law of the Convention organs, ‘possessions’ can be
‘existing possessions’ or assets, including claims, in respect of which the applicant can
argue that he has at least a ‘legitimate expectation’ of obtaining effect enjoyment of a
property right.” 576
This decision is therefore incompatible with an approach to art.1 which views the existence of a
property right as contingent on its recognition by the national law of contract unmitigated by the
Page 3
influence of Convention rights.
Subsequent cases
1-069
In subsequent English decisions, Lord Nicholls’ distinction in Wilson v First County Trust Ltd (No.2)
between an Act’s deprivation of a person’s contractual rights and its mere delimitation of them has
sometimes been taken up and applied. 577 So, for example, in Pennycook v Shaws (EAL) Ltd, 578 the
Court of Appeal considered whether a tenant’s statutory right to renew a business tenancy conferred
by Pt II of the Landlord and Tenant Act 1954 is a “possession” for the purposes of art.1. Arden L.J.
(with whom Thorpe L.J. and Sir Martin Nourse agreed) found “the most detailed guidance” as to how
to approach this question in Lord Nicholls’s speech in the Wilson case, 579 with the result that the court
needed to look:
“… at the substance of the claimed right to see whether the bar to the exercise of the
tenant’s right is a delimitation of the right or whether it represents a deprivation of right.”
580
On the facts before her, Arden L.J. held that the 1954 Act deprived the tenant of a right. 581 By the
time of PW & Co Ltd v Milton Gate Investments Ltd, 582 however, Neuberger J. was able to take into
account the decision of the European Court of Human Rights in Stretch v UK 583 in deciding whether
art.1 was engaged. Neuberger J. there accepted that the Human Rights Act required ss.139 or 141 of
the Law of Property Act 1925 to be interpreted so as to prevent a head-landlord from being deprived
of rent under the covenants of sub-tenancies which had not determined by the exercise of a “break
clause” by the head-tenant. In these circumstances, art.1 of the First Protocol to the European
Convention was engaged: if the underleases would survive the determination of the head-lease
without the tenant’s covenants being enforceable, the head-landlord would be kept out of the
premises in question for the remainder of the sub-leases without being able to recover any rent
whatever: “[t]hat is scarcely ‘peaceful enjoyment of [its] possessions’.” 584 In Horsham Group
Properties Ltd v Clark 585 the questions arose whether the exercise of the right by a mortgagee to
appoint a receiver under s.101(1)(i) of the Law of Property 1925 and to sell the property under a term
of the mortgage deed engaged art.1 of the First Protocol of the Convention by reason of its effect on
the mortgagor’s interest and, if it did, whether it infringed that article. Briggs J. held that a mortgagor’s
equity of redemption was a “possession” for the purposes of art.1 First Protocol, 586 relying on
Pennycook v Shaws (EAL) Ltd. 587 However, he further held that the particular mortgagor before him
“lost her equity of redemption by virtue of the exercise of powers conferred purely by contract” rather
than as a result of the legislative powers, and therefore “without any state intervention at all” so as to
engage art.1 First Protocol. 588 Moreover, he preferred to rest his decision on the broader ground that
“section 101 serves to implement rather than override the private bargain between mortgagor and
mortgagee”, being “in substance a form of conveyancing shorthand designed to implement the
ordinary expectations of mortgagors and mortgagees while reducing the costs and delays of
conveyancing”. 589 Section 101 was subject to contrary intention and was “as far removed from the
concept of state intervention into private rights through overriding legislation, which lies behind article
1, as it is possible for legislation to get”. 590 As a result, the exercise of the statutory power under
s.101 did not constitute a deprivation of possessions within the meaning of art.1 First Protocol so as
to engage that provision. 591 On the other hand, in K Ltd v National Westminster Bank Plc 592
Longmore L.J. (with whom Ward and Laws L.JJ. agreed) doubted whether the exception creation by
ss.328, 333, 335 and 338 of the Proceeds of Crime Act 2002 to a bank’s customer’s right to have the
contract of mandate performed is “the kind of possession which art.1 [of the First Protocol]
contemplates will be peaceably enjoyed” as the legislation did not cancel the debt but merely deferred
performance of the contract for a number of days during which the bank’s suspicion of
money-laundering was investigated. 593
1-070
By contrast, in Salat v Barutis 594 the Court of Appeal saw the majority opinion in Wilson v First County
Page 4
Trust Ltd (No.2). as being found in the speeches of Lords Hobhouse, Scott and Hope rather than
Lords Nicolls and Roger 595 and held that Wilson is therefore authority for the proposition that there is
no violation of a contracting party’s rights under art.1 of the First Protocol to the Convention where
that party did not acquire any effective rights against the other contracting party as a result of the
application of UK statute. 596 The Court of Appeal applied this proposition to a case where a
contracting party’s rights under a contract of credit hire agreement were unenforceable against the
consumer hirer by operation of the Cancellation of Contracts made in a Consumer’s Home or Place of
Work etc. Regulations 2008. 597 In the Court of Appeal’s view, this position was not affected by the
decision of the European Court of Human Rights in Stretch v UK 598 at least in the context before it, as
the credit hire company must be taken to have been aware of the effect of the 2008 Regulations at
the time it entered into the agreement and so cannot have had a legitimate expectation of being able
to enforce the agreement against the consumer hirer if it did not comply with the relevant regulation.
599
The legitimacy, certainty, and proportionality of the legislative interference with a person’s property
1-071
If a court decides that art.1 of the First Protocol is engaged, it must then address the question
whether the law’s interference with the right of property is legitimate, sufficiently certain and
proportionate. 600 In this respect, in Wilson v First County Trust Ltd (No.2) 601 those judges who
expressed a view on the matter considered that if the provisions of the Consumer Credit Act 1974
were properly held to interfere with the creditor’s right of property, then this interference was both
“legitimate” and “proportionate” given the importance of the social policy of protection of borrowers
which lay behind them. 602 And while Lord Nicholls expressed some hesitation on the issue of
certainty, he concluded that he was “not persuaded [that] the degree of uncertainty involved … [was]
unacceptably high”. 603 Therefore, there was no incompatibility between the relevant provisions of the
Consumer Credit Act 1974 and creditors’ Convention rights. Similarly, in K Ltd v National Westminster
Bank Plc 604 the Court of Appeal held that even if the exception created by the Proceeds of Crime Act
2002 to a bank’s customer’s right to have the contract of mandate performed attracted the application
of art.1, any interference with the customer’s common law rights under the mandate did not impair its
right of access to the courts in anything more than a short suspensory manner and, given the
purposes of the 2002 Act, did so in pursuance of a legitimate aim in a proportionate manner. 605
Examples of other Convention rights
1-072
Examples of the application of ss.3 and 4 of the 1998 Act may arise in relation to other Convention
rights. 606 So, it has been argued that s.11(1)(a) of the Landlord and Tenant Act 1985 imposing an
obligation “to keep in repair the structure” of the dwelling house must be construed by operation of
s.3(1) of the 1998 Act so as to give effect to the tenant’s rights under art.8 of the European
Convention and thereby must be read as imposing an obligation “to put and keep [the structure] in
good habitable repair”. 607 However, this argument was rejected by the Court of Appeal on the basis
that this was not a possible reading of the relevant provisions of the Landlord and Tenant Act 1985,
given the interpretation to them previously established by the Court of Appeal. 608 It has also been
argued that the system of adjudication set up by the Housing Grants Construction and Regeneration
Act 1996 s.108(2) is incompatible with art.6 of the European Convention. 609 Furthermore, in Ghaidan
v Godin Mendoza 610 a majority of the House of Lords relied on s.3 of the Human Rights Act 1998 to
“read and give effect” to the provisions of the Rent Act 1977 611 which grants a statutory tenancy to
“[t]he surviving spouse (if any) of the original tenant if residing in the dwelling-house immediately
before the death of the original tenant” so as to include homosexual cohabitees, so as to give effect to
their Convention right not to be discriminated against on the ground of sexual orientation in respect of
their right to respect for a person’s home. 612
Page 5
560. [2003] UKHL 40, [2003] 3 W.L.R. 568. These observations were obiter given their decision on
the non-retroactive impact of ss.3 and 4 of the 1998 Act: see above, paras 1-059—1-060. Lord
Rodger expressed no views on these hypothetical issues: [2003] 3 W.L.R. 568 at [220].
561. [2003] UKHL 40, [2003] 3 W.L.R. 568 at [33], per Lord Nicholls.
562.
[2003] 3 W.L.R. 568 at [104]–[105] (Lord Hope); [132] (Lord Hobhouse); [165]–[166] (Lord
Scott); [215] (Lord Rodger agreeing with Lord Nicholls). This approach was applied in
Winstanley v Sleeman [2013] EWHC 4792 (QB) at [58]–[59] (rule against scrutiny of academic
judgments in claims for breach of contract does not bar access to the courts).
563. Consumer Credit Act 1974 ss.65, 106, 113 and especially 127(3). Section 127(3) of the 1974
Act was repealed by the Consumer Credit Act 2006 s.15: see Vol.II, para.39-094.
564. [2003] UKHL 40, [2003] 3 W.L.R. 568. These observations were obiter given their decision on
the non-retroactive impact of ss.3 and 4 of the 1998 Act: see above, para.1-059.
565. As has been noted, Lord Rodger of Earlsferry did not decide the point: [2003] 3 W.L.R. 568 at
[220].
566. [2003] UKHL 40, [2003] 3 W.L.R. 568 at [39]. This view may be supported from the Strasbourg
case law, e.g. Stran Greek Refineries & Stratis Andreadis v Greece (1995) E.H.R.R. 293 at
[60]–[62] (right under arbitration award); Stretch v UK (2004) 38 E.H.R.R. 12 especially at [32]
(option to renew lease later considered void as ultra vires the public authority lessor’s power).
567. [2003] 3 W.L.R. 568 at [44].
568. [2003] 3 W.L.R. 568 at [137].
569. [2003] 3 W.L.R. 568 at [107] (Lord Hope) and [168] (Lord Scott).
570. [2003] 3 W.L.R. 568 at [106].
571. [2003] 3 W.L.R. 568 at [168].
572. While the context of this discussion was the application of s.4 of the 1998 Act to primary
legislation, similar questions would arise in relation to any review or development of the
common law undertaken by the courts as “public authorities” under s.6 of the 1998 Act. On this
see below, para.1-084.
573. See further McMeel, The Construction of Contracts: Interpretation, Implication and Rectification,
2nd edn (2011), paras 9.17 et seq.; Allen, Property and the Human Rights Act 1998 (2005),
Ch.8.
574. See cases cited at n.504, above.
575. (2004) 38 E.H.R.R. 12.
576. (2004) 38 E.H.R.R. 12 at [32], and see also [34] and [35].
577. [2003] UKHL 40, [2004] 1 A.C. 816 at [137].
578. [2004] EWCA Civ 100, [2004] Ch. 296 at [30]–[42]. See also C A Webber (Transport) Ltd v
Railtrack Plc [2003] EWCA Civ 1167, [2004] 1 W.L.R. 320 at [59]–[61]; Re T & N Ltd [2005]
EWHC 2870 (Ch), [2006] 1 W.L.R. 1728 at [171]; JA Pye (Oxford) Ltd v United Kingdom (2006)
43 E.H.R.R. 3 at [52].
579. [2004] EWCA Civ 100 at [34].

Page 6
580. [2004] EWCA Civ 100 at [35].
581. [2004] EWCA Civ 100 at [38].
582. [2003] EWHC 1994 (Ch), [2004] Ch. 142.
583. (2004) 38 E.H.R.R. 12 especially at [32].
584. [2003] EWHC 1994 (Ch) at [126], per Neuberger J.
585. [2008] EWHC 2327 (Ch), [2009] 1 W.L.R. 1255.
586. [2008] EWHC 2327 (Ch) at [25].
587. [2004] EWCA Civ 100, [2004] Ch. 296 at [30]–[42].
588. [2008] EWHC 2327 (Ch) at [33] and [38].
589. [2008] EWHC 2327 (Ch) at [35].
590. [2008] EWHC 2327 (Ch) at [36].
591. [2008] EWHC 2327 (Ch) at [40].
592. [2006] EWCA Civ 1039, [2007] 1 W.L.R. 311.
593. [2006] EWCA Civ 1039 at [25].
594. [2013] EWCA Civ 1499, [2013] C.T.L.C. 250.
595. [2003] UKHL 40, [2004] 1 A.C. 816 at [107] (Lord Hope); [137] (Lord Hobhouse); [168] (Lord
Scott) and cf. [44] (Lord Nicholls). While Lord Rodger agreed with Lord Nicholls as to the
application of the Human Rights Act 1998 to the facts of Wilson (i.e. to a contract made before
the 1998 Act), he did not express a view on the engagement of art.1, First Protocol ECHR to
the Consumer Credit Act): [2003] UKHL 40 at [215] and [220]. See above, paras 1-059 and
1-061.
596. [2013] EWCA Civ 1499 at [27] (Moore-Bick L.J. giving judgment for the court).
597. SI 2008/1816; [2013] EWCA Civ 1499 at [27]. The 2008 Regulations were revoked and
replaced by the Consumer Contracts (Information, Cancellation and Additional Charges)
Regulations 2013 (SI 2013/3134) on which see Vol.II, paras 38-056 et seq.
598. (2004) 38 E.H.H.R. 12 discussed above, para.1-068 where it is argued that it supports the view
of Lord Nicholls in Wilson v First County Trust Ltd (No.2).
599. [2013] EWCA Civ 1499 at [27].
600. Sporrong and Lönnroth v Sweden (1983) 5 E.H.R.R. 35 at [69]–[73].
601. [2003] UKHL 40, [2003] 3 W.L.R. 568.
602. [2003] UKHL 40, [2003] 3 W.L.R. 568 at [62], [74]–[75] (Lord Nicholls, with whom Lord Hope
agreed at [109]); [138] (Lord Hobhouse of Woolborough); [169]–[170] (Lord Scott).
603. [2003] UKHL 40 at [77]. See also Horsham Group Properties Ltd v Clark [2008] EWHC 2327
(Ch), [2009] 1 W.L.R. 1255 at [44] (on which see above, para.1-069), where it was held that any
deprivation of possession constituted by the exercise by a mortgagee of its powers under s.101
of the Law of Property Act after a relevant default by the mortgagor is justified in the public
interest, and requires no “case-by-case exercise of a proportionality discretion by the court”.
Page 7
604. [2006] EWCA Civ 1039 [2007] 1 W.L.R. 311.
605. [2006] EWCA Civ 1039 at [24].
606. On the possible impact of the Human Rights Act on arbitral proceedings see Vol.II, paras
32-015—32-019 referring, inter alia, to Stretford v Football Association Ltd [2007] EWCA Civ
238, [2007] 2 Lloyd’s Rep. 31 (where it was held that an arbitration clause and any arbitration
made under it which was subject to the provisions of the Arbitration Act 1996 did not constitute
an infringement of a person’s rights under art.6 of the European Convention); Sumukan Ltd v
The Commonwealth Secretariat [2007] EWCA Civ 243, [2007] 2 Lloyd’s Rep. 87 at [53]–[62]
(where it was held that an agreement not to appeal an arbitration award under s.69 of the
Arbitration Act 1996 did not constitute an infringement of a person’s rights under art.6 of the
European Convention).
607. Lee v Leeds City Council [2002] EWCA Civ 6, [2002] 1 W.L.R. 1488 at [56].
608.
[2002] 1 W.L.R. 1488 at [56]–[59], referring to Quick v Taff Ely BC [1986] Q.B. 809. See also
McDonald v McDonald [2016] UKSC 28, [2017] A.C. 273 at [61]–[70], noted below, para.1-091.
609. Austin Hall Building Ltd v Buckland Securities Ltd [2001] B.L.R. 272 at [18]. No determination
was made under s.4 of the Act as no notice had been given to the Crown pursuant to s.5 of the
Human Rights Act 1998.
610. [2004] UKHL 30, [2004] 2 A.C. 557.
611. Rent Act 1977 Sch.I paras 2 and 3 (as amended).
612. European Convention on Human Rights arts 8 and 14.

Page 1

(ii) - Contracts made by “Public Authorities”
“Public authorities” within the meaning of s.6 of the 1998 Act
1-073
An important preliminary question is whether, when or to what extent contracts made (or not made) 613
by public authorities or by other persons attract the application of s.6 of the 1998 Act. According to
s.6(1) “[i]t is unlawful for a public authority to act in a way which is incompatible with a Convention
right”. Section 6(3) provides for this purpose that “public authority includes (a) a court or tribunal, and
(b) any person certain of whose functions are functions of a public nature”; s.6(5) then explains that:
“In relation to a particular act, a person is not a public authority by virtue only of
subsection 3(b) if the nature of the act is private.”
This provision therefore recognises two categories of person: “core public authorities” (sometimes
termed “pure public authorities”), that is, those persons or bodies which are public authorities for all
purposes, such as government ministers, local authorities, and the police 614; and “hybrid” bodies
which may act either publicly or privately depending on the nature of the act or omission. 615 As
regards “core public authorities”, all their “acts” (including apparently their acts in making, performing
or breaking their contracts) are subject to the test of illegality found in s.6, however “private” they may
appear. 616 As regards “hybrid” bodies, it is a much more difficult question whether their conclusion of
a contract constitutes an act “the nature of [which] is private”, rather than public.
“Hybrid bodies” and “functions of a public nature”
1-074
The way in which s.6 applies to “hybrid bodies” has arisen in three important decisions. 617 In Aston
Cantlow and Wilmcote with Billesley Parochial Church Council v Wallbank 618 the House of Lords
considered that there is no single test to determine whether or not a particular function exercised by a
“hybrid body” is “public” within the meaning of s.6(3)(b), though factors to be taken into account
include:
“… the extent to which in carrying out the relevant function the body is publicly funded, or
is exercising statutory powers, or is taking the place of central government or local
authorities, or is providing a public service.” 619
Page 2
In this respect, although the domestic case law on judicial review may provide some assistance as to
what does and does not constitute a “function of a public nature” within the meaning of s.6(3)(b), this
case law must be examined in the light of the jurisprudence of the European Court of Human Rights
as to those bodies which engage the responsibility of the state for the purposes of the Convention. 620
Subsequently in R. (West) v Lloyd’s of London 621 the Court of Appeal held that decisions by Lloyd’s
of London under powers contained in its byelaws to approve minority buy-outs of four syndicates of
which the applicant was a member (and which he complained were prejudicial to his rights of due
process and of possession of this property under art.6 of the Convention and under art.1 of its First
Protocol) were not subject to challenge by way of judicial review, whether by virtue of s.6 of the 1998
Act or more generally. In the view of the Court of Appeal, the relationship between Lloyd’s and its
members was entirely voluntary and contractual and their rights to participate in a syndicate governed
exclusively by the terms of their contracts with their managing agents. 622 Applying the approach of
the House of Lords in Aston Cantlow, the Court of Appeal held that for the purposes of s.6 of the 1998
Act the objectives of Lloyd’s were “wholly commercial” and “not governmental even in the broad
sense of that expression”: it was rather the Financial Services Authority acting under the Financial
Services and Markets Act 2000 “which is the governmental organisation which will be answerable to
the Strasbourg court”. 623
1-075
Thirdly, in the important and controversial decision in YL v Birmingham City Council 624 a majority of
the House of Lords held that a commercial company providing residential and nursing care to a
person under a contract was not acting as someone “certain of whose functions are functions of a
public nature” within the meaning of s.6(3)(b) of the 1998 Act, even though in so doing the company
acted under a contract with a local authority which concluded it in furtherance of its statutory duties to
make arrangements for providing residential accommodation for persons in need of care and
attention not otherwise available to them. The grounds of their lordships’ decisions were complex, but
of key significance for the majority were the nature of the body providing the care (“a private,
profit-earning company” 625); the nature of the obligation which the person in receipt of nursing care
was seeking to enforce, namely “a private law contract” 626; and, more widely, a concern for the
widespread effect of the opposite decision, which was seen as requiring any commercial company
(and its employees) which carried on an operation of a similar nature to an operation carried on by a
local authority under statutory powers also to be covered by the 1998 Act. 627 For the minority
(Baroness Hale of Richmond, with whom Lord Bingham of Cornhill agreed) the meaning of s.6 had to
be seen in the context of the case law of the European Court of Human Rights which has sometimes
placed responsibility on a state for the acts of a private body, notably imposing positive obligations on
it to prevent violations of an individual’s human rights. 628 So, for the purposes of s.6 of the 1998 Act in
Baroness Hale’s view:
“The contrast is between what is ‘public’ in the sense of being done for or by or on behalf
of people as a whole and what is ‘private’ in the sense of being done for one’s own
purposes.” 629
and:
“… while there cannot be a single litmus test of what is a function of a public nature, the
underlying rationale must be that it is a task for which the public, in the shape of the state,
have assumed responsibility, at public expense if need be, and in the public interest.” 630
This led the minority to hold that the company undertook functions “of a public nature” in providing
residential care to persons in need under a contract with the local authority which discharged thereby
its statutory duty to make arrangements for this purpose. 631 The minority’s position has been cogently
supported by Professor Craig on the basis that:
Page 3
“If it is decided that a core public authority is performing a public function pursuant to a
statutory duty or power cast upon it, then that should be decisive” 632
of the question of its performing a public function and so there should be no assessment of factors (as
undertaken by the majority):
“… the nature of the function does not change if the task is contracted out to a body that
is nominally private. 633 It cannot be correct as a matter of principle for the availability of
Convention rights to be dependent upon the fortuitous incidence as to how the core
public authority chooses to discharge its functions.” 634
However, he acknowledges that legislative intervention may be required to reform the law on the
question. 635
A rather more liberal approach to “public act” was taken by the Court of Appeal in R. (Weaver) v
London and Quadrant Housing Trust. 636 There, the Court of Appeal considered whether the
termination of a tenancy by a registered social landlord constituted a “private act” within the meaning
of s.6(5) of the Human Rights Act 1998, it having been conceded that some of the landlord’s functions
were public functions. A majority of the Court of Appeal (Lord Collins of Mapesbury, Elias L.J.; Rix
L.J. dissenting) held that it was necessary to focus on the context in which the act occurs and, for this
purpose, both the course and nature of the activities need to be considered when deciding whether
an act is a private act or not within s.6(5), as they would in determining whether a function is public or
not. In the context, it was held that there were a number of features which brought the act of
terminating a social tenancy within the purview of the Human Rights Act as a public act. 637 According
to Elias L.J (with whom Lord Collins of Mapesbury agreed)
“… if an act were necessarily a private act because it involved the exercise of rights
conferred by private law [including contract], that would significantly undermine the
protection which Parliament intended to afford to potential victims of hybrid authorities”.
638
Unlawful refusal to contract by public authority
1-076
Section 6(6) of the 1998 Act provides that “‘[a]n act’ includes a failure to act”. In R. (Haggerty) v St.
Helen’s BC 639 Silber J. was prepared to assume that a local authority’s decision not to enter a new
contract with a private sector provider for the provision of places in a nursing home in fulfilment of a
statutory duty, 640 did fall within s.6 so as to require its effects to be assessed as to their compatibility
with the Convention rights of the existing residents of the home (who had to move to other
accommodation provided by the local authority as a result of its decision not to enter the contract). 641
However, on the facts the learned judge held that this act of the local authority did not infringe any of
their Convention rights.
Unlawful conclusion of contract
1-077
Where a “public authority”, 642 concludes a contract after the coming into force of the operative
provisions of the 1998 Act, then the “act” of so doing would engage s.6 of the 1998 Act. Where this
“act” is itself incompatible with a Convention right (either of the other party or of a third party) then it is
Page 4
rendered “unlawful”. So, for example, it has been said that a local authority must bear in mind the
Convention rights of the residents of accommodation to be provided in performance of its functions
under the National Assistance Act 1948 s.21 in making their contracts with private sector providers.
643
Similarly, where a “public authority” concludes a contract of employment, it should bear in mind its
employees’ Convention rights, notably, to freedom of expression and privacy. 644
Unlawful manner of performance of contract
1-078
Section 6 of the 1998 Act may also affect the way in which a “public authority” ought to act in
performance of, or in relation to a situation created by, a contract. An example may be found in the
actions of a public employer, which must not act inconsistently with the Convention rights of its
employees, for instance, as regards the secret monitoring of their telephone conversations. 645 An
important series of examples can be found in the context of public sector housing. 646 In Lee v Leeds
City Council, 647 the Court of Appeal proceeded on the basis that a local authority acted as a “public
authority” in relation to the provision of public sector housing and that this therefore imposed on it a
statutory duty to take steps to ensure that the condition of the houses which they provided was such
that their tenants’ rights to respect of their private and family life under art.8 of the European
Convention were not infringed. 648 However, according to the Court of Appeal:
“The steps which a public authority will be required to take in order to ensure compliance
with Article 8 … must be determined, in each case, by having due regard to the needs
and resources of the community and of individuals, [having regard to the fact that] [t]he
allocation of resources to meet the needs of social housing is very much a matter for
democratically determined priorities”. 649
In relation to the cases before it, the Court of Appeal held that no breach of the statutory duty which it
had identified had been established, in part owing to the proceedings being by way of preliminary
issues without any determination of the relevant facts. 650 In two important decisions, the Supreme
Court considered the implications of more recent case law of the European Court of Human Rights on
the protection of a person’s right to respect of his home under art.8 of the Convention in relation to
claims for possession of a person’s home by a public authority landlord. 651 In Manchester City
Council v Pinnock the Supreme Court held that this case-law made clear that “where a court is asked
to make an order for possession of a person’s home at the suit of a local authority, the court must
have the power to assess the proportionality of making the order, and, in making that assessment, to
resolve any relevant dispute of fact” 652 and that this “unambiguous and consistent approach” 653 in the
European Court of Human Rights should be followed by the Supreme Court, despite three previous
decisions of the House of Lords to the contrary. 654 Where, therefore, a local authority which had
obtained a court order to “demote” a secured tenant on the ground that he or persons living with him
were engaged in housing-related anti-social conduct or conduct which used the premises for unlawful
purposes, then sought a court order for possession of the premises under s.143D(1) of the Housing
Act 1996, the provisions of the Act which required the court to grant the order subject to certain
procedural requirements 655 could and should be interpreted as requiring the court to consider
whether the local authority landlord had considered its tenant’s art.8 rights. 656 The Supreme Court
considered that its decision would have implications beyond the special context of claims for
possession against “demoted tenants”, although it noted that, as regards public sector “secured
tenants”, 657 there would be “no difficulties of principle or practice” since “no order for possession
can be made against a secure tenant unless, inter alia, it is reasonable to make the order” 658: given
that
“reasonableness involves the trial judge ‘tak[ing] into account all relevant circumstances
… in a broad common-sense way’ … [i]t therefore seems highly unlikely, as a practical
matter, that it could be reasonable for a court to make an order for possession in
circumstances in which it would be disproportionate to do so under art.8.” 659
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In Hounslow LBC v Powell, Leeds CC v Hall, Birmingham CC v Frisby the Supreme Court applied its
earlier approach to court orders for possession in favour of a public authority landowner and art.8
rights in Manchester City Council v Pinnock to the position of residential occupiers of property granted
a licence under the homelessness regime in Pt VII of the Housing Act 1985 and to tenants of
residential properties under the regime for “introductory tenancies” in Ch.1 of Pt V of the Housing Act
1986. 660 In the view of the Supreme Court, in all cases where a local authority seeks possession in
respect of a property that constitutes a person’s home for the purposes of art.8, the court must have
the power to consider whether the order is necessary in a democratic society, meaning that it must be
proportionate to a legitimate aim that the local authority is seeking to achieve. 661 However, in those
cases where domestic law does not subject the making of a possession order to a requirement of
reasonableness, as a general rule the court will have to consider whether the making of such an order
is proportionate only if the issue has been raised by the occupier 662 and if it has crossed the high
threshold of being seriously arguable 663:
“[i]n seeking an order for possession, the local authority is not required to advance a
positive case that this will accord with the requirements of article 8(2). This will be
presumed by reason of the authority’s ownership of the property and duties in relation to
the management of the housing stock.” 664
1-079
However, in Sims v Dacorum BC 665 the Supreme Court considered how this law affected the position
of a tenant in a public sector joint tenancy where the other tenant has served a notice to quit. At
common law, in the absence of a contractual term to the contrary, such a tenancy will be validly
determined by service on the landlord of a notice to quit by only one of the joint tenants, thereby
bringing the tenancy to the end against the wishes or even without the knowledge of his or her
co-tenants. 666 In Sims this rule was reflected in an express term of the lease taken, to the effect that
the tenancy would be lost if a notice to quit were served by his joint tenant, though the lease also
provided that the local authority landlord would consider whether to let him remain or to find other
accommodation for him. The claimant tenant argued that the loss of his tenancy by the notice to quit
by his joint tenant (his then wife) breached his Convention rights under art.8 or under art.1 of the 1st
Protocol, but this was firmly rejected by the Supreme Court. First, as regards his right to property, in
the view of the Supreme Court:
“the property which [the claimant] owned and of which he complains to have been
wrongly deprived, whether one characterises it as the tenancy or an interest in the
tenancy, was acquired by him on terms that (i) it would be lost if a notice to quit was
served by [the other joint tenant], and (ii) if that occurred, [his landlord] could decide to
permit him to stay in the house or find other accommodation for him.” 667
The claimant’s property was therefore lost as a result of his joint tenant serving a notice to quit, and
by the fact that the landlord considered whether to let him remain and decided not to let him do so.
Given that he therefore was deprived of his interest:
“in a way, which was specifically provided for in the agreement which created it, his A1P1
claim is plainly very hard to sustain.” 668
Moreover, the contract term under which the tenancy was determined was not unreasonable, as it
reflected the common law rule (which was not itself challenged) and someone’s interest has to suffer
when one of two joint tenants serves a notice to quit; nor was the landlord’s decision against him
staying in the property unreasonable or disproportionate. 669 Secondly, as regards his rights under
art.8, while the claimant was entitled to raise the question of the proportionality of the landlord’s
pursuit of its claim for possession in the light of its earlier case-law on art.8, this would not help the
Page 6
claimant as the landlord had considered carefully this decision in a lawful and proportionate manner.
670
Moreover, the service of the notice to quit did not in itself violate the claimant’s art.8 rights as full
respect was given to those rights by the fact that his tenancy had been determined in accordance with
its contractual terms to which he had agreed, he was to be considered for rehousing, and he could be
evicted only by a court order in accordance with domestic law and with an opportunity to argue that
the eviction was disproportionate. 671
Effect on the contract
1-080
Where s.6 of the 1998 Act renders the making or performance of a contract unlawful as incompatible
with Convention rights it creates a new head of contractual illegality. In the absence of special
provision on this issue in the 1998 Act, the contractual and restitutionary consequences for the parties
to the contract of this “unlawfulness” fall to be governed by the common law’s approach to illegality
exposed and analysed in Ch.16. In this respect, difficult questions may arise as to whether the
“unlawful act” of the public authority renders the whole contract illegal (and with what effects for its
parties) or whether it merely renders a term or terms illegal by application of the doctrine of
severance. 672
Construction of contracts made by a “public authority”
1-081
In Biggin Hill Airport Ltd v Bromley LBC 673 it was held that the 1998 Act did not require a court as
itself a public authority 674 to interpret a contract made before the coming into effect of the same Act in
such a way as to be compatible with the Convention rights of third parties to the contract. 675 On the
other hand, where a contract is made after the coming into force of the 1998 Act by a “public
authority” 676 and another person (whether or not a public authority), it may be argued that there is a
presumption that such a public authority intends in making and performing the contract to avoid acting
unlawfully under s.6 of the 1998 Act, without any need for reliance on the position of courts as
themselves “public authorities”. For such a presumption could be supported by reference to the
maxim ut res magis valeat quam pereat, since a construction of compatibility with Convention rights in
these circumstances would avoid the threat of contractual illegality. 677 Moreover, as regards “terms
implied in law” it may be argued that a court should imply terms in a contract so as allow a public
authority to perform its duty to act consistently with Convention rights, as “necessary” for the efficacy
of the particular type of contract in question (viz a contract made by a public authority whose
performance would have otherwise potentially prejudicial effect on a person’s Convention rights). 678
614. For the HL in Aston Cantlow and Wilmcote with Billesley Parochial Church Council v Wallbank
[2003] UKHL 37, [2004] 1 A.C. 546 at [6]–[7], [52], [88], [171] the purpose of s.6(1) is that those
bodies for whose acts the state is answerable before the European Court of Human Rights shall
be subject to a domestic law obligation not to act incompatibly with Convention rights and the
phrase “a public authority” for the purpose of s.6(1) is therefore “essentially a reference to a
body whose nature is governmental in the broad sense of the expression”.
615. Aston Cantlow and Wilmcote with Billesley Parochial Church Council v Wallbank [2003] UKHL
37, [2004] 1 A.C. 546 at [8]–[11], [35], [85]. Craig, Administrative Law, 7th edn (2012), paras
20–016 et seq. (who notes that this categorisation reflects the parliamentary debates of the
Human Rights Act and accords with the approach adopted by the European Court of Human
Rights).
616. YL v Birmingham City Council [2007] UKHL 27, [2007] 3 W.L.R. 112 at [131] (Lord Neuberger).
Page 7
617. See further HL & HC Joint Committee on Human Rights, The Meaning of Public Authority under
the Human Rights Act 2006–2007 (2007) (published before the decision in YL v Birmingham
City Council [2007] UKHL 27, [2007] 3 W.L.R. 112); Craig, Administrative Law, 7th edn (2012)
paras 20-016–20-021.
618. [2003] UKHL 37, [2004] 1 A.C. 546.
619.
[2003] UKHL 37 at [12]. The approach taken by the HL was applied in TH v Chapter of
Worcester Cathedral [2016] EWHC 1117 (Admin) (decision by the Chapter of a cathedral
affecting the claimant’s ability to perform his hobby of bell-ringing was held not to be an act of a
“hybrid” public authority within s.6(3) of the Human Rights Act 1998).
620. [2003] UKHL 37 at [52].
621. [2004] EWCA Civ 506, [2004] 3 All E.R. 251.
622. [2004] EWCA Civ 506 at [8]–[9].
623. [2004] EWCA Civ 506, at [38], per Brooke L.J.
624. [2007] UKHL 27, [2007] 3 W.L.R. 112 noted by Landu (2007) P.L. 630.
625. [2007] UKHL 27, per Lord Mance at [115] with whom Lord Neuberger of Abbotsbury agreed at
[126].
626. [2007] UKHL 27, per Lord Scott of Foscote at [34], although cf. Lord Mance at [117]–[118] and
Lord Neuberger at [151] who saw the absence of any relevant difference between a resident
staying privately under a contract with the company and one staying under an arrangement
between the company and a local authority as a reason for treating both as unable to rely on
Convention rights against the company.
627. [2007] UKHL 27 at [30] and [82] (Lord Mance using the example of private contractors cleaning
the windows of premises let to council tenants).
628. [2007] UKHL 27 at [56]–[57], per Baroness Hale of Richmond.
629. [2007] UKHL 27 at [62], per Baroness Hale of Richmond.
630. [2007] UKHL 27 at [66] and see also [7]–[12] (Lord Bingham of Cornhill).
631. A private Members’ Bill was introduced to Parliament, the Human Rights Act 1998 (Meaning of
Public Authority) Bill 2007 cl.1 of which provided that: “[F]or the purposes of section 6(3)(b) of
the Human Rights Act 1998 (c.42), a function of a public nature includes a function performed
pursuant to a contract or other arrangement with a public authority which is under a duty to
perform that function.” The Bill was not, however, passed into law.
632. Craig, Administrative Law, 7th edn (2012), para.20-021.
633. Craig at para.20-021.
634. Craig at para.20-024 (with other arguments to the same effect).
635. Craig at para.20-024 noting the Human Rights Act 1998 (Meaning of Public Authority) Bill 2007.
636. [2009] EWCA Civ 587, [2010] 1 W.L.R. 363. The decision was applied in R. (on the application
McIntyre) v Gentoo Group Ltd [2010] EWHC 5 (Admin), [2010] 2 P. & C.R. DG6 (where,
however, judicial review was refused partly on the basis of the existence of other remedies
open to the claimants). The decision in Weaver was distinguished by Southward Housing
Cooperative Ltd v Walker [2015] EWHC 1615 (Ch) at [220]–[225] (fully mutual housing
Page 8
co-operative not a public authority or acting as such for the purposes of s.6 of the 1998 Act).
637. [2009] EWCA Civ 587 at [66]–[82].
638. [2009] EWCA Civ 587 at [77], per Elias L.J. with whom Lord Collins of Mapesbury agreed
(especially at [100]–[101]).
639. [2003] EWHC 803 (Admin), The Times, April 30, 2003.
640. National Assistance Act 1948 s.21.
641. [2003] EWHC 803 (Admin) at [25]–[26].
642. Above, paras 1-073—1-075.
643. R. (Heather) v Leonard Cheshire Foundation [2002] EWCA Civ 366, [2002] H.R.L.R. 30 at [34].
cf. YL v Birmingham City Council [2007] UKHL 27, [2007] 3 W.L.R. 112 in relation to the
position of the private sector providers themselves: above, para.1-075.
644. See further Morris (1998) I.L.J. 293 and Palmer [2000] C.L.J. 168.
645. Halford v UK (1997) 24 E.H.R.R. 523; Copland v UK (2007) 45 E.H.R.R. 37.
646. cf. below, para.1-091 on the position of private sector tenancies.
647. [2002] EWCA Civ 6, [2002] 1 W.L.R. 1488 at [26].
648. [2002] 1 W.L.R. 1488 at [48].
649. [2002] 1 W.L.R. 1488 at [49], per Chadwick L.J.
650. [2002] 1 W.L.R. 1488 at [51].
651. Manchester City Council v Pinnock [2010] UKSC 45, [2010] 3 W.L.R. 1441 at [30] et seq. (Lord
Neuberger J.S.C., to whose judgment all seven members of the Court contributed). The
relevant Strasbourg Court’s jurisprudence is: Connors v UK [2004] ECHR 66746/01; Ble#i#
Croatia [2004] ECHR 59532/00; McCann v UK [2008] ECHR 19009/04; #osi# v Croatia [2009]
ECHR 28261/06; Zehentner v Austria [2009] ECHR 20082/02; Pauli# v Croatia [2009] ECHR
3572/06; Kay v UK [2010] ECHR 37341/06.
652. [2010] UKSC 45 at [49].
653. [2010] UKSC 45 at [46].
654. Harrow LBC v Qazi [2003] UKHL 43, [2004] 1 A.C. 983; Lambeth LBC v Kay, Leeds City
Council v Price [2006] UKHL 10, [2006] 2 A.C. 983; Doherty v Birmingham City Council [2008]
UKHL 57, [2009] A.C. 367.
655. Housing Act 1996 s.143D(2).
656. [2010] UKSC 45 at [79].
657.
The Supreme Court explicitly stated that nothing they said was “intended to bear on cases
where the person seeking the order for possession is a private landowner”: [2010] UKSC 45 at
[50]. On this, see below, para.1-091 and McDonald v McDonald [2016] UKSC 28, [2017] A.C.
273.
658. [2010] UKSC 45 at [55]; Housing Act 1985 s.84(2)(a).

Page 9
659. [2010] UKSC 45 at [56], quoting Lord Greene M.R. in Cumming v Danson [1942] 2 All E.R. 653
at 655.
660. [2011] UKSC 8, [2011] 2 A.C. 186.
661. [2011] UKSC 8 at [2]–[3] (Lord Hope of Craighead D.P.); [73]–[75] (Lord Phillips P. with whom
Lord Rodger, Lord Walker, Lady Hale, Lord Brown and Lord Collins JJ.S.C. agreed).
662. Manchester City Council v Pinnock [2010] UKSC 45 at [40] citing Pauli# v Croatia [2009] ECHR
3572/06 at [43]; [2010] UKSC 45 at [63].
663. [2011] UKSC 8 at [33], [34] and [44]–[45] (Lord Hope of Craighead D.P.).
664. [2011] UKSC 8 at [88], per Lord Phillips P. Manchester CC v Pinnock [2010] UKSC 45 and
Hounslow LBC v Powell [2011] UKSC 8 were applied by the CA in Thurrock BC v West [2012]
EWCA Civ 1435, [2013] H.L.R. 5 to the context of persons living in a house the subject of a
public sector secured tenancy but who were not entitled to become its tenants as survivors of
deceased tenants under the Housing Act 1985 ss.87–90. See also Fareham BC v Millar [2013]
EWCA Civ 159, [2013] H.L.R. 22.
665. [2014] UKSC 63, [2014] 3 W.L.R. 1600.
666. Hammersmith and Fulham LBC v Monk [1992] 1 A.C. 478; [2014] UKSC 63 at [2].
667. [2014] UKSC 63 at [15].
668. [2014] UKSC 63 at [15].
669. [2014] UKSC 63 at [16]–[18].
670. [2014] UKSC 63 at [21] referring to Manchester CC v Pinnock [2010] UKSC 45 and Hounslow
LBC v Powell [2011] UKSC 8.
671. [2014] UKSC 63 at [23].
672. See below, Ch.16 and especially paras 16-211 et seq.
673. The Times, January 9, 2001, (2001) 98(3) L.S.G. 42 at [171]; reversed on other grounds [2001]
EWCA Civ 1089, The Times, August 13, 2001, (2001) 98(33) L.S.G. 30.
674. Human Rights Act 1998 s.6(3)(a) and see below, para.1-082.
676. See above, paras 1-073—1-075.
677. On the maxim see below para.13-084.
678. cf. Lee v Leeds City Council [2002] EWCA Civ 6, [2002] 1 W.L.R. 1488 at [62]–[63] (no implied
term in public sector residential tenancy inconsistent with limited express terms). On the
general law as to the implication of terms, see below, Ch.14.

Page 1

(iii) - The Duty of Courts as “Public Authorities” in Relation to Contracts
Introduction
1-082
The way in which the terms of s.6 of the 1998 Act are drafted demonstrate that actions by public
authorities are the primary focus of its protection of Convention rights. However, “courts and tribunals”
are specifically included as “public authorities” for these purposes 679 and as a result a number of
questions arise as to how their duty as “public authorities” may affect their functions in relation to
disputes concerning contracts where neither party is itself a “public authority” 680 . A very clear
application of this duty is found in relation to issues arising from the courts’ supervision and
management of the civil process, applicable to proceedings arising from contracts as to other civil
proceedings. However, other questions arising from the application of s.6 in this way are less
straightforward.
The exercise of judicial discretions
1-083
Where the law in certain circumstances grants a true discretion to a court then its exercise of that
discretion can be seen as an “act” so as to engage s.6 of the 1998 Act, with the result that the court
must exercise the discretion in a way which is compatible with Convention rights. Both statute and
common law confer discretions on courts in a number of situations affecting the relationship between
parties to a contract. Examples of such statutory discretions may be found in the power to award
damages in lieu of rescission for misrepresentation 681 or the determination of the “just sum” for the
purposes of relief on frustration. 682 Rather more likely to involve the consideration of Convention
rights, though, are the discretions enjoyed by courts in relation to the equitable remedies of specific
performance and injunction. 683
The development of the common law
1-084
The question has arisen whether the courts as “public authorities” have a duty to protect Convention
rights in their work in the development of the substantive common law as between two persons
neither of whom are themselves “public authorities” within the meaning of the 1998 Act. 684 This
“highly controversial topic” is often referred to as the possible “indirect horizontal effect” of s.6 of the
1998 Act. 685 An important context in which this question has arisen has been the development of the
law of breach of confidence so as to reflect the Convention rights to a private life and to freedom of
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expression, this having proved possible owing to the relative flexibility of the established law of breach
of confidence. 686 It remains to be seen how far the courts will be willing to mould existing common
law rules or principles or, more radically, to create entirely new legal remedies so as to give effect to
Convention rights. 687 In the context of the law of contract, the general question is particularly likely to
arise in the following contexts. 688
The existence of an intention to create legal relations
1-085
In President of the Methodist Conference v Preston (formerly Moore), the Court of Appeal considered
that, at common law, ministers of religion are appointed on a basis which does not give rise to a
rebuttable presumption that there is no intention to create legal relations and it therefore held that,
under the general law, a Methodist minister acted under a contract of employment with the President
of the Methodist Conference so as to gain the benefit of the law of unfair dismissal, a decision
reversed on appeal to the Supreme Court. 689 However, the Court of Appeal then considered how
ECHR’s art.9 provision on “freedom of thought, conscience and religion” could affect its view on the
existence of such a contract. 690 The Court concluded that art.9’s role here is a modest one, approving
a dictum of Arden L.J. in New Testament Church of God v Stewart according to whom:
“the fact that in an employment dispute one party to the litigation is a religious body or
that the other party is a minister of religion does not itself engage article 9. There must be
religious beliefs that are contrary to or inconsistent with the implications of the contract or
a contract of employment. It follows that the implication of a contract of employment is not
automatically an interference with religious beliefs.” 691
In the view of the Court of Appeal in Preston, the dispute between the parties as to whether a
Methodist minister worked for the President of the Methodist Conference under a contract of
employment did not include a religious doctrinal element so as to engage art.9, nor would the court’s
finding that such a contract existed interfere with the right of Methodists to manifest their religious
belief. 692
Implied contracts
1-086
In Smith v Carillion 693 the Employment Appeal Tribunal considered the question whether a court
should imply a contract so as to give effect to Convention rights. There the question arose as to
whether the relationship between an agency worker and the end-user of his services was based on
an implied contract and, in particular, a contract under which he worked as a “worker”. The
Employment Appeal Tribunal held that, according to “generally applicable contractual principles”, the
reality of the arrangements before it did not attract the implication of a contract between the agency
worker and the enduser. 694 It rejected the argument that the Human Rights Act 1998 required it to
apply the common law as to the existence of a contract compatibly with Convention rights. In its view:
“HRA and Convention rights do not require or permit the implication of a contract of
employment between the agency worker and the end-user in circumstances in which
domestic law would not…. [T]he doctrine of necessity in implying contracts applies to all
contracts not just to agency contracts. Applying the common law rule that a contract will
only be implied between two parties where the relevant facts are capable of interpretation
both for and against such a conclusion if such a result is necessary is not demonstrably
incompatible with a Convention right. Further to disapply a rule would be likely to lead to
uncertainty and inconsistency.” 695
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The Court of Appeal upheld the Employment Appeal Tribunal’s decision on the implication of a
contract in the circumstances, though it did not do so without consideration of the relevance of the
agency worker’s Convention rights for this purpose as this had not been argued before it. 696
The construction of contracts
1-087
As regards contracts made after the coming into force of the Human Rights Act, ought courts as
“public authorities” to interpret contracts (where neither party is a “public authority”), 697 so as to be
compatible with Convention rights, either of the parties or of third parties? While there is no provision
in the 1998 Act requiring courts to construe contracts so as not to be incompatible with Conventions
rights, 698 in contrast to the position as regards legislation which must be so read “in so far as it is
possible”, 699 this silence may not rule out such a duty arising from s.6 and stemming from the courts’
functions either in finding of facts or in the development of the common law. As to the former, it is
established at common law that the purpose of construction of the contract is to give effect to the
parties’ intentions as objectively determined, this involving issues both of fact and law, and that, at
least where the express terms of the contract are ambiguous, the court should look to the factual
matrix of the contract for guidance. 700 It may be argued that a court should “interpret” the contract so
as to ensure that performance of its obligations is compatible with Convention rights, at least,
perhaps, where such an interpretation is possible on the natural meaning of the words used. On the
other hand, it may be countered that if it appears either from the terms of the contract on their natural
meaning or from the factual matrix of the contract that the parties intended to agree to something
which would be incompatible with a person’s Convention rights, then the courts should hold to this
interpretation, rather than impose on the parties something to which they did not agree. Indeed, for
the courts to do otherwise in such a situation could be thought to be a misuse of their powers of
“fact-finding” in a way itself vulnerable under art.6(1) of the Convention, for the court would be
imposing its view of what should have been agreed by the parties and deliberately “mistaking” the
facts of a case as generally understood and determined in order to do so. A similar set of arguments
would apply to the implication of terms “in fact”. 701 A more robust argument would be that the courts
should develop the common law governing the construction of the express terms of contracts so that
it builds within it a requirement of interpretation “whenever possible” which makes performance
compatible with Convention rights, this being an example of the “horizontal effect” of s.6. However,
such a development would fly in the face of existing contractual principles of construction which have
been established in the interests of commercial certainty and fairness to the parties: this would not be
an example of Convention rights suffusing existing common law principles, but rather of their
subverting them. 702 Moreover, the decision of the Employment Appeal Tribunal in Smith v Carillion 703
which refused to imply a contract so as give effect to Convention rights suggests that the courts are
unlikely to read down the general rules on construction of contracts to do so.
New implied terms
1-088
Similar lines of argument may be developed for the implication of terms “in law” as have been just
exposed in relation to the construction of express terms, so as to contend that a court should imply a
term in a contract so as to give protection to the Convention rights of parties or of non-parties. 704
However, under the established test for the implication of such terms that they are necessary as well
as reasonable, 705 and where neither party to the contract is a public authority 706 it is difficult to
see the genuine necessity of the implication of such a term. And under Lord Hoffmann’s reformulation
of the law governing the implication of terms which asks whether a particular implied term provision
“would spell out in express words what the instrument, read against the relevant background, would
reasonably be understood to mean”, such an approach to the implication of terms so as to protect
Convention rights looks even less likely. 707 Again, though, if the courts as themselves “public
authorities” have a duty under the 1998 Act to adapt and develop the common law so as to protect
Convention rights, then the proper approach to the implication of terms could itself fall to be
interpreted or adapted so as to promote the protection of Convention rights. 708 In support of this, it
Page 4
may be argued that the courts have historically taken a more or a less liberal approach to the
implication of terms so as to give effect to their own views of the proper balance of interest between
the parties and to create thereby the incidents of particular types of contract. 709 At least as regards
the protection of the Convention rights of the parties to the contract, use of an implied term to achieve
compatibility may not be alien to the spirit of the common law technique. On the other hand, the
technique of implication of terms does have its limits, given that they must be fitted around the
express terms and legal regulation of the contract in question. So, for example, it has been held that
no term to maintain the dwelling in good condition should be implied in a residential tenancy which
contains only an express term to keep the structure in good repair or which contains no express
repairing obligation on the landlord as this would “invite the criticism that the court is seeking to make
for the parties a bargain which they have not themselves made”. 710
Open-textured norms governing the contract
1-089
The courts may also protect or promote Convention rights in the process of the interpretation and
application of broad or “open-textured” norms applicable to particular types of contract, whether these
norms are expressed as implied terms or as common law rules, 711 even where neither party is a
“public authority” so as to be caught directly by s.6 of the 1998 Act. 712 So, for example, at common
law it has been held that contracts of employment contain as their incident an implied term of mutual
trust and confidence between the parties. 713 Such a term could be used by a court as a vehicle for
the protection of an employee’s rights under the Convention, for example, his right to privacy or
freedom of expression, by treating a disregard by an employer of his employee’s rights as a breach of
his obligation of trust and confidence. 714 Such a development could be seen as reflecting a positive,
indirect impact of the Human Rights Act on contractual relations, positive in that it would increase the
practical duties of employer or employee, even if under the cover of an existing general implied term.
Moreover, in Telchadder v Wickland (Holdings) Ltd 715 the Court of Appeal accepted that in
considering the reasonableness of termination by a private landowner of the licence of a mobile-home
owner (as provided for by the Mobile Homes Act 1983), a court should consider, inter alia, the
competing rights of the parties under art.8 and art.1 of the First Protocol of the Convention, accepting
an argument to this effect based on the decision of the Supreme Court in Manchester City Council v
Pinnock, 716 even though the latter concerned the impact of the Human Rights Act on a public sector
landlord. 717
Open-textured controls on express contract terms
1-090
Rather differently, and “negatively” as it could lead to the striking down of contract terms, it may be
argued that the judicial control of the fairness of terms in consumer contracts under the Unfair Terms
in Consumer Contracts Regulations 1999 or, to those contracts to which it applies, the Consumer
Rights Act 2015 Pt 2, 718 may properly take into account in determining whether a term “contrary to
the requirement of good faith, … causes a significant imbalance in the parties rights and obligations
arising under the contract, to the detriment of the consumer”, 719 whether or not that term is
incompatible with Convention rights. 720 In this respect, it should be noted that the preamble to the EC
Directive which the 1999 Regulations (and the 2015 Act) implement suggests that the function of the
“requirement of good faith” is to ensure that a court makes “an overall evaluation of the different
interests involved”, and it then refers to matters which appear to relate to the public interest. 721 So, for
example, where rules governing the legal relationship between a university and its students find their
basis in terms of the contract between them, the question of the fairness of these rules within the
meaning of the 1999 Regulations, or 2015 Act Pt 2, could take into account their impact on the
student’s Convention rights (for example, their rights to privacy or freedom of expression). 722
Private sector possession orders and article 8 of the Convention
1-091
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The question has been raised whether a tenant, former tenant or other possessor of land may rely
on art.8’s right to respect of a person’s home against a claim for possession by a private land-owner.
The Supreme Court has held that a possessor of a dwelling may so rely in relation to claims made by
a public authority, and while it explicitly took no view of the position as regards claims by private
persons, it recognised that “[c]onflicting views have been expressed both domestically and in
Strasbourg” on the latter situation. 723 So, although comments in the House of Lords in its earlier
decision in Qazi suggest that a distinction should be drawn between claims by a private landowner
and by a public landowner, 724 in Belchikova v Russia, 725 the European Court of Human Rights:
“seems to have considered that article 8 was relevant, even when the person seeking
possession was a private sector landlord …[p]resumably … on the basis that the court
making the order was itself a public authority.” 726
However, in McDonald v McDonald 727 the Supreme Court held that, although it may well be
that art.8 of the Convention is engaged when a court makes an order for possession of a tenant’s
home at the suit of a private sector landlord under s.21(4) of the Housing Act 1988, art.8 cannot:
“justify a different order from that which is mandated by the contractual relationship
between the parties, at least where, as here, there are legislative provisions which the
democratically elected legislature has decided properly balance the competing interest of
private sector landlords and residential tenants.” 728
A court considering whether to make such an order is therefore not required to assess the
proportionality of evicting the occupier in the light of s.6 of the Human Rights Act 1998 and art.8 of the
Convention. 729 In the view of the Supreme Court,
“[t]o hold otherwise would involve the Convention effectively being directly enforceable as
between private citizens so as to alter their contractual rights and obligations, whereas
the purpose of the Convention is … to protect citizens from having their rights infringed by
the State. To hold otherwise would also mean that the Convention could be invoked to
interfere with the A1P1 [art.1, 1st Protocol] rights of the landlord, and in a way which was
unpredictable.” 730
The Supreme Court contrasted this situation where there are “legislative provisions which the
democratically elected legislature has decided properly balance the competing interests of private
sector landlords and residential tenants” 731 with situations where the relationship between two
private parties is “tortious or quasi-tortious” rather than contractual and where the legislature has
“expressly, impliedly or through inaction, left it to the courts to carry out the balancing exercise”, for
example, where a person is seeking to rely on her art.8 rights to restrain a newspaper from publishing
an article in breach of her privacy and where the newspaper relies on art.10 of the Convention. 732
680.
See, however, McDonald v McDonald [2016] UKSC 28, [2017] A.C. 273 (below para.1-091)
where the SC observed that, while a court is a public authority for the purposes of the 1998 Act,
Page 6
when it makes an order for possession against a private sector tenant it does so “merely as the
forum for determination of the civil right in dispute between the parties” and that “once it
concludes that the landlord is entitled to possession, there is nothing further to investigate”: at
[44], quoting Lord Millett in Harrow LBC v Qazi [2003] UKHL 43, [2004] 1 A.C. 983 at [108].
681. Misrepresentation Act 1967 s.2(2) and see below, paras 7-104, 7-110.
682. Law Reform (Frustrated Contracts) Act 1943 s.1(3) and see below, para.23-090.
683. See below, paras 27-034 et seq. and 27-065 et seq.
684. For discussion of these other “public authorities”, see above, paras 1-073—1-075.
685. Wilson v First County Trust Ltd (No.2) [2003] UKHL 40, [2003] 3 W.L.R. 568 at [25], per Lord
Nicholls and see similarly at [174] (Lord Rodger). See for an introduction to this question: Craig,
Administrative Law, 7th edn (2012) at paras 18-027–18-028 and see further Hunt [1998] P.L.
423; Markesinis (1998) 114 L.Q.R. 47; Bamforth [1999] C.L.J. 159; Buxton (2000) 116 L.Q.R.
48; Wade (2000) 116 L.Q.R. 217; Morgan (2002) L.S. 259; Phillipson (2003) 66 M.L.R. 726;
Phillipson & Williams (2011) 74 M.L.R. 878.
686. Douglas v Hello! Ltd (No.1) [2001] Q.B. 967; A v B Plc [2002] EWCA Civ 337, [2003] Q.B. 195;
London Regional Transport v Mayor of London [2001] EWCA Civ 1491, [2003] E.M.L.R. 4;
Douglas v Hello! Ltd (No.6) [2003] EWHC 786, (2003) 153 N.L.J. 595; Lady Archer v Williams
[2003] EWHC 1670, [2003] E.M.L.R. 38; Douglas v Hello! Ltd (No.3) [2005] EWCA Civ 595,
[2006] Q.B. 125; Campbell v MGN Ltd [2004] UKHL 22, [2004] 2 A.C. 457; McKennitt v Ash
[2006] EWCA Civ 1714, [2007] 3 W.L.R. 194 and see below, para.1-094.
687. cf. the observations on the creation of an independent tort of privacy in Douglas v Hello! Ltd
(No.1) [2001] Q.B. 967, 997 et seq. (Sedley L.J.) and the denial of any general tort of invasion
of privacy at common law by the House of Lords in Wainwright v Home Office [2003] UKHL 53,
[2003] 3 W.L.R. 1137 (though on facts preceding the coming into effect of the 1998 Act and
involving a claim against a public authority).
688. cf. Hanchett-Stamford v Attorney General [2008] EWHC 330 (Ch), [2009] Ch. 173 at [47]–[48],
where Lewison J. declined to follow the earlier dictum of Walton J. in Re Bucks Constabulary
Widows’ and Orphans’ Fund Friendly Society (No.2) [1979] 1 W.L.R. 936, 943 to the effect that
a sole surviving member of an unincorporated association (whose members hold the assets of
the association according to the terms of the contract between them while the association
exists), cannot claim the association’s assets and that they vest in the Crown as bona vacantia:
“for one of an unincorporated association to be deprived of his share of the association by
reason of the death of the other of them, and without any compensation, appears to be a
breach” of ECHR art.1 First Protocol.
689. [2011] EWCA Civ 1581, [2012] 2 W.L.R. 1119 at [21]–[28]; [2013] UKSC 29, [2013] 2 A.C. 163
on which (and on further case-law) see below, paras 2-190—2-191.
690. [2011] EWCA Civ 1581, [2012] 2 W.L.R. 1119 at [29]–[34]. The Supreme Court held that, in the
context of the constitution of the Methodist Church, the requirement of contractual intention was
not satisfied; no reference was made for this purpose to the possible relevance of the minister’s
Convention rights.
691. [2008] I.C.R. 282 at [62] and see also, per Lawrence Collins L.J. at [66].
692. [2011] EWCA Civ 1581 at [33]–[34], per Maurice Kay L.J. with whom Longmore L.J. and Sir
David Keene agreed.
693. [2014] I.R.L.R. 344.
694. [2014] I.R.L.R. 344 at [57]–[63], applying James v London Borough of Greenwich [2008] I.C.R.
302 and Tilson v Alstrom Transport [2011] I.R.L.R. 169 at [8].
Page 7
695. [2014] I.R.L.R. 344 at [64] per Slade J. relying on The Aramis [1989] 1 Lloyd’s Rep. 213.
696. [2015] EWCA Civ 209, [2015] I.R.L.R. 467. The CA rejected the relevance of s.3 of the Human
Rights Act 1998 to the interpretation of the legislation conferring the rights claimed by the
agency-worker on the basis that the end-user’s actions took place before the coming into force
of that Act: [2015] EWCA Civ 209 at [49].
697. For discussion of how the 1998 Act may affect construction of contracts made by a “public
authority”, see above, para.1-081.
698. Biggin Hill Airport Ltd v Bromley LBC (2001) 98(3) L.S.G. 42, The Times, January 9, 2001 [171],
reversed on other grounds [2001] EWCA Civ 1089, The Times, August 13, 2001, (2001) 98(33)
L.S.G. 30.
700. See below, paras 13-051, 13-120 et seq.
701. See below, paras 14-004—14-007 and 14-010 (“obvious inference from agreement”).
702. cf. below, para.1-094 concerning the law of confidentiality.
703. [2014] I.R.L.R. 344, above, para.1-086.
704. On implied terms generally, see below, Ch.14.
705.
Liverpool City Council v Irwin [1977] A.C. 239; Marks & Spencer Plc v BNP Paribas Securities
Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2015] 3 W.L.R. 1843 at [14]–[21] and [77].
706. For the position where one of the parties is a public authority, see above, para.1-081.
707.
Att-Gen of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 especially at
[21]. In Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015]
UKSC 72, [2015] 3 W.L.R. 1843 a majority of the SC considered that Lord Hoffmann’s guidance
on implied terms in the Belize case should not be seen as “authoritative guidance on the law of
implied terms”: [2015] 3 W.L.R. 1843 at [31]; and see below, para.14-006.
708. On this wider question, see above, para.1-084.
710. Lee v Leeds City Council [2002] EWCA Civ 6, [2002] 1 W.L.R. 1488 at [62], per Chadwick L.J.
The context of this decision was a claim that the existing interpretation of a “public authority”
landlord’s obligations to his residential tenants was incompatible with their Convention rights, on
which see above, para.1-078.
711. Where an open-textured rule which governs a contract is legislative, then courts are under a
duty to interpret the legislation itself “so far as it is possible to do so” in a way which is
compatible with Convention rights: Human Rights Act 1998 s.3(1) and see above, para.1-066.
712. On which see above, paras 1-073—1-075.
713. See Vol.II, paras 40-062—40-066; 40-150—40-153 and Johnson v Unisys Ltd [2001] 2 W.L.R.
1076.
714. Hepple, Amicus Curiae (June 8, 1998), pp.19–23; Palmer [2000] C.L.J. 168, 181. cf. the
moulding of the existing law of breach of confidence rather than the direct creation of a law of
privacy so as to give effect to Convention rights of privacy noted, below, paras 1-092—1-094.
Page 8
715. [2012] EWCA Civ 635, [2012] H.L.R. 35.
716. [2010] UKSC 45, [2010] 3 W.L.R. 1441, on which see above, para.1-078.
717. [2012] EWCA Civ 635 at [42], [56], [58]–[59]. cf. below, para.1-091. The decision of the CA
upholding the landlord’s termination was reversed on other grounds by the Supreme Court:
[2014] UKSC 57, [2014] 1 W.L.R. 4004.
718. On which see Vol.II, paras 38-201 et seq.
719. Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) reg.5(1).
720. A similar argument could be run as regards the application of the “reasonableness test” under
the Unfair Contract Terms Act 1977 s.11(1), though this test does not explicitly draw attention to
the relevance of issues of public interest for its assessment.
721. Directive 93/13 on unfair terms in consumer contracts, preamble, recital 16 and see Vol.II,
paras 38-244—38-245 and 38-359.
722. Whittaker (2001) 21 O.J.L.S. 193, 210–213.
723.
Manchester City Council v Pinnock [2010] UKSC 45 at [50]. And see Main Work, Vol.I,
para.1-078.
724. Harrow LBC v Qazi [2003] UKHL 43, [2004] 1 A.C. 983 at [23] (Lord Bingham); [26] (Lord
Steyn) (both expressing no view on the question) and [52]–[53] (Lord Hope who contrasts the
position as regards art.6 and art.1 of the First Protocol and art.8, on the basis that the
Strasbourg jurisprudence on the latter is to the effect that “the object of article 8 is to protect the
individual against arbitrary interference by the public authorities with his right to privacy and that
it is not concerned, as such, with the protection of his right to own or to occupy property”).
725. App. No.2408/06 (Unreported March 25, 2010).
726. [2010] UKSC 45 at [50].
727.
[2016] UKSC 28, [2017] A.C. 273.
728.
[2016] UKSC 28 at [40]. The SC expressed these views conditionally on there being no
Strasbourg jurisprudence to the contrary, which it later held was the case: see [2016] UKSC 28
at [48]–[59].
729.
[2016] UKSC 28 at [40]–[46], [59] and [76]. The SC also held, obiter, that if a proportionality
assessment were required, it would not be possible to read this into s.21(4) of the 1988 Act by
way of application of s.3(1) of the 1998 Act, the only remedy therefore being a declaration of
incompatibility under s.4 of the 1998 Act: [2016] UKSC 28 at [69]–[70]; and that, even were a
proportionality assessment required, the claimant tenant’s circumstances were not such as to
justify refusing an order for possession and thereby postponing indefinitely the right of the
landlord’s mortgagee/lender (acting through appointed receivers): [2016] UKSC 28 at [71],
[74]–[75].
730.
[2016] UKSC 28 at [41] per Lord Neuberger of Abbotsbury P.S.C. and Baroness Hale of
Richmond D.P.S.C. (with whom Lord Kerr of Tonaghmore, Lord Reed and Lord Carnwath
JJ.S.C. agreed). See further at [42]–[47]. The SC held that there was no support in the case law
of the European Court of Human Rights for the proposition that a court must consider the
proportionality of the order in the context of claims for possession by private sector landlords:
see at [48]–[59] (where the relevant case-law was reviewed).
Page 9
731.
Richmond D.P.S.C.
732.
Richmond D.P.S.C. See further Main Work, Vol.I, para.1-092.

Page 1

(iv) - Contractual Confidentiality and s.12 of the 1998 Act
Section 12 and “horizontal effect”
1-092
Section 12 of the 1998 Act makes special provision for the protection of freedom of expression after
the general coming into effect of the Act, on the basis that otherwise this right (which is itself found in
art.10 of the Convention) may be unduly curtailed as the result of developments giving effect to the
right to a private life contained in art.8 of the Convention. Section 12 therefore constrains in certain
ways the granting by a court of relief which, if granted, might affect the exercise of the Convention
right to freedom of expression. In this respect, s.12(4) provides that:
“The court must have particular regard to the importance of the Convention right to
freedom of expression and, where the proceedings relate to material which the
respondent claims, or which appears to the court, to be journalistic, literary or artistic
material (or to conduct connected with such material), to—
(a)
the extent to which
(i)
the material has, or is about to, become available to the public; or
(ii)
it is, or would be, in the public interest for the material to be published;
(b)
any relevant privacy code.”
According to Sedley L.J., this provision:

Page 2
“… puts beyond question the direct applicability of at least one Article of the Convention
as between one private party to litigation and another—in the jargon, its horizontal effect.”
733
1-093
In Ashworth v The Royal National Theatre, 734 the claimants had been employed as musicians for a
particular production by the defendant theatre, which had purported to terminate their contracts of
employment on alleged grounds of redundancy as it had decided to produce the play without live
music. They applied to the High Court for an interim injunction, or alternatively specific performance,
to continue to engage them in the production until trial of their claim. In assessing the balance of
convenience in relation to the award of specific relief, Cranston J. held that art.10 of the European
Convention on Human Rights:
“has a significant role in the application of the American Cynamid test,[ 735] not only in
considering the claimants’ prospect at trial but also in deciding where the balance of
convenience lies.” 736
In the learned judge’s view, there was a serious issue to be tried on the question whether the
defendant was contractually entitled to terminate the claimants’ contracts and that the claimants’
prospects in claiming that it did so in breach of contract were strong. 737 However, he noted that
s.12(1) and (4) of the Human Rights Act 1998
“provides that, in considering whether to grant any relief which may affect the right of
freedom of expression in Article 10 of the European Convention on Human Rights, the
court must have particular regard to the importance of that right. Section 12(4) refers to
artistic and related material and the Strasbourg jurisprudence is clear that Article 10
protects artistic expression … The decisions of producers and artistic teams in staging
plays are protected by Article 10. Here the effect of the order sought would be to interfere
with the National Theatre’s right of artistic freedom.” 738
This would be a clear interference with the defendant’s right under art.10 and would not be necessary
or proportionate to the claimants’ rights under art.10(2), which were not interfered with by the
dismissal (as they can play their instruments elsewhere) and their contractual rights could be
adequately protected by an award of damages. 739 Overall, therefore, Cranston J. refused the interim
relief sought. 740
The impact of s.12 on duties of confidentiality
1-094
Before the coming into force of the Human Rights Act, English law recognised the existence of duties
of confidentiality arising from express or implied contractual agreement or from the nature of a
non-contractual relationship between the parties and saw the basis of these duties in very broad
concepts of good faith, loyalty and fair dealing. 741 The application of s.12 of the 1998 Act has arisen
in the context of both contractual and non-contractual duties of confidentiality in a number of cases
since its coming into force. 742 It has been observed that:
“these cases … represent a fusion between the pre-existing law of confidence and rights
and duties arising under the Human Rights Act.” 743
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In the result, “the values enshrined in articles 8 and 10 are now part of the cause of action for breach
of confidence”. 744 In applying s.12, the court evaluates and weighs up duties of confidentiality,
competing rights of privacy and of free expression and more general considerations of the public
interest. 745 In this respect, it has been observed that:
“… it is arguable that a duty of confidentiality that has been expressly assumed under
contract carries more weight, when balanced against the restriction of the right of
freedom of expression, than a duty of confidentiality not buttressed by express
agreement.” 746
733. Douglas v Hello! Ltd (No.1) [2001] Q.B. 967 at [133].
734. [2014] EWHC 1176 (QB), [2014] 4 All E.R. 238.
735. American Cynamid Co v Ethicon Ltd [1975] A.C. 396.
736. [2014] EWHC 1176 (QB) at [3].
737. [2014] EWHC 1176 (QB) at [15].
738. [2014] EWHC 1176 (QB) at [27].
739. [2014] EWHC 1176 (QB) at [27] and [30]–[31].
740. [2014] EWHC 1176 (QB) at [31]–[33].
741. Fraser v Evans [1969] 1 Q.B. 349, 361; A.G. v Guardian Newspaper (No.2) [1990] 1 A.C. 109,
269; Douglas v Hello! Ltd (No.6) [2003] EWHC 786, (2003) 153 N.L.J. 595 at [181].
742. Douglas v Hello! Ltd (No.1) [2001] Q.B. 967; A v B Plc [2002] EWCA Civ 337, [2003] Q.B. 195;
London Regional Transport v Mayor of London [2001] EWCA Civ 1491, [2003] E.M.L.R. 4;
Douglas v Hello! Ltd (No.6) [2003] EWHC 786, (2003) 153 N.L.J. 595; Lady Archer v Williams
[2003] EWHC 1670, [2003] E.M.L.R. 38; Campbell v MGN Ltd [2004] UKHL 22, [2004] 2 A.C.
457; Douglas v Hello! Ltd (No.3) [2005] EWCA Civ 595, [2006] Q.B. 125; McKennitt v Ash
[2006] EWCA Civ 1714, [2007] 3 W.L.R. 194; Ntuli v Donald [2010] EWCA Civ 1276, [2011] 1
W.L.R. 294.
743. Douglas v Hello! Ltd (No.6) above at [186], per Lindsay J.
744. Campbell v MGN Ltd [2004] UKHL 22, [2004] 2 A.C. 457 at [17], per Lord Nicholls of
Birkenhead.
745. A v B Plc [2002] EWCA Civ 337, [2003] Q.B. 195 at [6]; Douglas v Hello! Ltd (No.1) [2001] Q.B.
967 at [135]; Lady Archer v Williams [2003] E.M.L.R. 38 at [59] and note s.12(4)(a)(ii)’s
reference to the significance of the public interest.
746. Campbell v Frisbee [2002] EWCA Civ 1374, [2003] I.C.R. 141 at [22], per Lord Phillips M.R.
(who noted, however, conflicting dicta on this point in London Regional Transport v The Mayor
of London [2003] E.M.L.R. 4 at [46]; A.G. v Barker [1990] 3 All E.R. 257, 260–261) (no
comment was made by members of the HL on appeal in Campbell v MGN Ltd [2004] UKHL 22,
[2004] 2 A.C. 457). cf. McKennitt v Ash [2006] EWCA Civ 1714, [2007] 3 W.L.R. 194 at [43],
where in the circumstances Buxton L.J. considered that: “the provision of the written contract
did not add much to the obligations that the first defendant owed in equity by reason of the
closeness of her personal relationship with the first claimant.”
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Section 5. - Classification of Contracts
The different types of classification
1-095
Contracts may be classified in a variety of ways: according to their subject matter 747; according to
their parties 748; according to their form (whether contained in deeds 749 or in writing, 750 whether
express or implied 751); or according to their effect (whether bilateral or unilateral, 752 whether valid,
void, voidable or unenforceable 753).
747. See below, paras 1-096—1-100.
749. See below, paras 1-103, 1-113—1-144.
753. See below, paras 1-108—1-112.

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(a) - Classification of Contracts According to their Subject Matter
General
1-096
Despite the generality of approach of English contract law, 754 the most prominent classification
of contracts in the modern law divides them according to their subject matter: thus, there are
contracts of sale of goods and of land, insurance, suretyship, employment, hire, etc., and some of the
more prominent of these special contracts are discussed in the second volume of this work.
Classification for legislative purposes
1-097
Some types of contract are statutorily defined, for example, contracts of sale of goods, 755 contracts to
supply digital content, 756 contracts for the carriage of goods by sea, 757 contracts of marine insurance,
758
and contracts of consumer credit, 759 and the purpose of these definitions is made clear by the
statute in which they are contained. However, in other cases, even where important statutory
regulation applies to a particular type of contract, its definition is left to the common law, examples of
this being the contracts of employment, 760 contracts for services, 761 contracts of tenancy 762 or
contracts of insurance. 763 Further, in the case of the classification of a contract for the purposes of EU
legislation, the European Court of Justice has held that “it is not for [itself] to classify specifically the
transactions at issue” in the main proceedings from which a reference has been made, this being:
“… within the jurisdiction of the national court alone. The [European] Court’s role is
confined to providing the national court with an interpretation of Community law which will
be useful for the decision which it has to take in the dispute before it.” 764
For this purpose, the European Court explained, for example, the distinction between “public service
contracts” and “service concession” contracts found in the European law of public procurement. 765
Classification for common law purposes
1-098
Classification of the parties’ agreement as a particular type of contract may also need to be
undertaken for the purposes of the common law. First, the courts have over the years found many
implied terms in contracts which are not special to the particular agreement of the parties, 766 but are
considered incidental to the type of agreement in question. 767 By attaching an implied term to a
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particular set of facts in this way, a court thereby either recognises an existing category of contract or
creates a new one. In this respect, there is a certain tendency for the broader categories of contracts
to be subdivided into smaller ones. For example, the contract of employment attracts many implied
terms which are of general application, 768 but in Sim v Rotherham MBC, 769 the court implied a term
into a contract of employment between a local authority and a school teacher that the latter would
cover for her fellow teachers in their absence if reasonably requested to do so, a term which would
apply to similar contracts but not necessarily to contracts of employment beyond that context. 770 In
Scally v Southern Health and Social Services Board, 771 Lord Bridge felt able to imply a term in the
contracts of employment between a hospital board and its employees to take reasonable steps to
inform the latter of their valuable right to opt to make payments into their pension schemes. His
Lordship rejected the argument that the formulation of an implied term must necessarily be too wide,
holding that “this difficulty is surmounted if the category of contractual relationship in which the
implication will arise is defined with sufficient precision”. 772 Similarly, while some terms are implied
into leases in general, 773 others apply only to particular types of lease. Thus, in Liverpool City Council
v Irwin 774 the House of Lords implied a term into a contract of lease, but their Lordships’ speeches
suggest that this term was considered incidental to a much more specific contract, namely one made
by a local authority for the lease of a flat in a high-rise block. 775
Exceptional rules
1-099
Secondly, the courts sometimes make a formal exception to a rule of common law which applies only
to a particular type of contract. For example, although in general a breach of contract, however
fundamental, does not terminate it so as to prevent the application of any exemption clause which it
may contain, 776 in a contract of carriage of goods by sea, any unnecessary deviation from the agreed
or customary route constitutes a breach of the contract which gives rise in the owner to a right to treat
himself as discharged and this right, if exercised, does have the effect of disapplying any exemption
clause from the deviating journey. 777 Similarly, although in general a person is not bound by an
exemption clause in a contract to which he is not party, if for example, A sends goods for repair to B
with permission to send the work out to a sub-contractor, C, A may be bound by any exemption
clause in this contract of sub-bailment. 778 A final example may be found in relation to restrictive
covenants concerning land. These started life as a particular type of contract, or rather a particular
type of contractual obligation, as they were stipulated as part of the sale of land, 779 but after Tulk v
Moxhay 780 in 1848, they were held capable of binding a successor in title of the purchaser of the land,
despite the principle of privity of contract. While technically this is justified by saying that the making
of the covenant creates an equitable (proprietary) interest in land, 781 it can equally be seen as an
example of the law creating an exception to the rules of privity of contract for a particular type of term
in a particular type of contract.
Commercial practice
1-100
Other types of contract arise from commercial practice rather than from the regulation of either statute
or common law, though the practical homogeneity on which they are based easily attracts particular
treatment by the courts. Very clear examples of this can be found in an area like the building industry,
in which the industry offers standard forms for the conclusion of the many contracts which modern
construction requires. 782 Moreover, new types of contracts in this sense are constantly arising, for
example, for the supply and maintenance of information technology. 783
754.
Nicholas (1974) 48 Tulane L.R. 946, 948–949. This approach in English law is to be
contrasted with, for example, French law. In that legal system, while the Civil Code contains
provisions describing the conditions for and effects of contracts in general, it also contains
much more extensive sections relating to particular types of contract, e.g. sale, hire, mandate,
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etc. Thus, some of the “nominate contracts” of Roman law survived into the, Civil Code, though
as particular examples of a general principle of contract based on agreement: art.1101, C. civ.
(as promulgated); art.1101 C.civ. (as inserted by Ordonnance No.2016/131 of February 10,
2016).
755. Sale of Goods Act 1979 s.2(1) and see below, Vol.II, para.44-020. In the case of consumer
contracts, the Consumer Rights Act 2015 places “sales contracts” within a wider framework of
“goods contracts”: 2015 Act s. 3(2)(a) and 5. “Goods contracts” also includes contracts of the
hire of goods, hire-purchase agreements and contracts for transfer of goods: 2015 Act s.3(2).
On this new law see Vol.II, paras 38-431—38-500.
756. Consumer Rights Act 2015 s.33 (definition for purposes of Ch.3 of Pt 1 of the Act) which applies
only to contracts for a trader to supply digital content to a consumer: see Vol.II, paras
38-501—38-526.
757. Carriage of Goods by Sea Act 1971 s.1 and Sch. to the Act art.I(b).
758. Marine Insurance Act 1906 s.1.
759. Consumer Credit Act 1974 s.8 and see below, Vol.II, para.39-017.
760. See Vol.II, paras 40-010 et seq., where it is noted that there is no comprehensive definition of
the contract, the cases instead relying on a number of factors relevant to finding whether a
particular contract is of service.
761. See, in particular, the Supply of Goods and Services Act 1982 ss.2–16 (on which see below,
para.14-037) and the Consumer Rights Act 2015 ss.48–57 (on which see Vol.II, paras
38-527—38-547).
762. There has been particular difficulty in distinguishing between leases and contractual licences:
see Street v Mountford [1985] A.C. 809; A.G. Securities v Vaughan [1990] 1 A.C. 417.
763. See Vol.II, para.42-001. See, in particular, the Consumer Insurance (Disclosure and
Representations) Act 2012 and Insurance Act 2015 and see Vol.II, paras 42-031 et seq.
764. Parking Brixen GmbH v Gemeinde Brixen (C-458/03) [2006] 1 C.M.L.R. 3 at [32].
765. [2006] 1 C.M.L.R. 3 at [38]–[43].
766. cf. Ashmore v Corp of Lloyd’s [1992] 2 Lloyd’s Rep. 620, 630–631.
768. For example, it is an implied term in every contract of employment that the employee will not
disclose any confidential information which he learns by reason of his employment: see Vol.II,
para.40-066.
769. [1987] Ch. 216.
770. cf. [1987] Ch. 216 at [248].
771. [1992] 1 A.C. 294.
772. [1992] 1 A.C. 294 at [307]. Lord Bridge defined the category by reference to three special
circumstances.
773. e.g. a landlord’s implied covenant for quiet enjoyment: see Woodfall on Landlord and Tenant
(2015) paras 11.226 et seq.
774. [1977] A.C. 239.

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775. See [1977] A.C. 239 at 254, 258, 261. This subdivision of large categories for the purposes of
the implication of terms can be seen in Jones v Just (1868) L.R. 3 Q.B. 197, 202–203 in relation
to sale before the Sale of Goods Act 1893.
776. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827.
778. Morris v C. W. Martin & Sons Ltd [1966] 1 Q.B. 716; The Pioneer Container [1994] 2 A.C. 324
and see below, paras 15-057, 33-026.
779. Lawson and Rudden, The Law of Property, 3rd edn (2002), p.157.
780. (1848) 2 Ph. 774.
781. Gray and Gray, Elements of Land and Law, 5th edn (2009), paras 3.4.16–3.4.18.
782. These are known as “RIBA/JCT standard forms”: see Vol.II, paras 37-021 et seq.
783. See Morgan and Burden, Morgan and Burden on IT Contracts, 9th edn (2013).

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(b) - Classification of Contracts According to their Parties
General
1-101
Contracts are sometimes classified according to their parties and this type of classification sometimes
cuts across those other types which have already been mentioned. Perhaps the most important of
this type of division is between commercial and non-commercial contracts. Commercial contracts can
be described as those which are made between two or more parties who are in business for the
purposes of trade. “Non-commercial contracts” is a residual category and would include transactions
as disparate as contracts on the dissolution of marriage, contracts under which legal claims are
settled, sales between private individuals other than in the course of business as well as “consumer
contracts”. The latter is in the modern law an important category and may be defined as those
contracts which are made between one party who is in business and one who is contracting other
than for business purposes. 784 However, the common law of contract does not recognise the
categories of commercial 785 or consumer contracts and the latter category has only become
prominent as a result of modern legislation passed for the protection of consumers, in particular
concerning credit agreements, 786 the effectiveness of exemption clauses and other unfair contract
terms, 787 and governing some aspects of particular categories of contract. 788
Another important distinction in the modern law is between contracts made between private persons
and those where one or both parties are public bodies. This distinction has been discussed for the
purposes of the Human Rights Act 1998 789 and will be discussed generally later. 790
784. cf. Unfair Contract Terms Act 1977 s.12 “dealing as consumer” (on which see below,
para.15-073) and more generally Vol.II, Ch.38.
785. cf. McKendrick, Goode on Commercial Law, 4th edn (2009), p.155. Some legal systems
possess a commercial law code to govern at least in part the relationships of traders and which
is distinct from the civil code which is of more general application: see Zekoll and Reimann,
Introduction to German Law, 2nd edn (2005), Ch.4; Bell in Bell, Boyron and Whittaker,
Principles of French Law, 2nd edn (2008), Ch.11.
786. Consumer Credit Act 1974 and see Vol.II, Ch.39.
787. Unfair Contract Terms Act 1977 (on which see below, paras 15-062 et seq.); Unfair Terms in
Consumer Contracts Regulations 1999 (SI 1999/2083) (on which see Vol.II, paras 38-201 et
seq.). For the contracts to which it applies, the Consumer Rights Act 2015 amends the 1977 Act
and revokes and replaces the 1999 Regulations as explained below, paras 15-064 et seq. and
Page 2
788. This is particularly clear under the Consumer Rights Act Pt 1 which governs certain aspects of
“goods contracts”, “digital contents contracts” and “services contracts”, on which see Vol.II,
789. See above, paras 1-061—1-063, 1-073—1-081.

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(c) - Classification of Contracts According to their Form or Means of Formation
Introduction
1-102
Contracts can also be classified according to their form or means of formation and for this purpose,
distinctions can be drawn between formal and informal contracts, and express and implied contracts,
contracts which are and which are not made at a distance or which are made “offpremises”.
Formal and informal contracts
1-103
Contracts may be either formal or informal. Apart from the so-called contracts of record, comprising
judgments and recognisances, which are not properly speaking contracts at all, the only formal
contract in English law is the contract contained in a deed or specialty contract. All others are informal
contracts, or simple contracts as they are more often termed. Such contracts may in principle be oral
or in writing, 791 though particular contracts possess different requirements as to writing. 792 The
requirements of a valid contract contained in a deed are discussed in the next section of this chapter.
The chief respect in which they differ from simple contracts is that, for historical reasons, they are
valid without the necessity for consideration.
Express and implied contracts
1-104
Contracts may be either express or implied. 793 The difference is not one of legal effect but simply
of the way in which the consent of the parties is manifested. Contracts are express when their terms
are stated in words by the parties. They are often said to be implied when their terms are not so
stated, as, for example, when a passenger is permitted to board a bus: from the conduct of the parties
the law implies a promise by the passenger to pay the fare, and a promise by the operator of the bus
to carry him safely to his destination. 794 There may also be an implied contract when the parties make
an express contract to last for a fixed term, and continue to act as though the contract still bound
them after the term has expired. In such a case the court may infer that the parties have agreed to
renew the express contract for another term or the court may infer an implied contract drawing on
some of the terms of the earlier contract, but omitting others. 795 Express and implied contracts are
both contracts in the true sense of the term, for they both arise from the agreement of the parties,
though in one case the agreement is manifested in words and in the other case by conduct. Since, as
we have seen, 796 agreement is not a mental state but an act, an inference from conduct, and since
many of the terms of an express contract are often implied, it follows that the distinction between
express and implied contracts has little importance. However:
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“One distinction exists … in relation to the ease with which an express or implied contract
may be established. Where there is an express agreement on essentials of sufficient
certainty to be enforceable, an intention to create legal relations may commonly be
assumed. It is otherwise when the case is that a contract should be implied from the
parties’ conduct. It is then for the party asserting a contract to show the necessity for
implying it.” 797
The recognition of implied contracts in the sense explained in the present paragraph does not mean
that a court should imply terms in an oral agreement so as to enable it to be sufficiently complete to
amount to a binding contract. As Lewison L.J. has recently observed,
“[i]t is of course the case that the court may imply terms into a concluded contract. But
that assumes that there is a concluded contract into which terms can be implied. It is not
legitimate, under the guise of implying terms, to make a contract for the parties”. 798
“Distance contracts”, “off-premises contracts” and other contracts
1-105
Under legislation implementing EU directives, distinctions are drawn within the broad category of
consumer contracts between “distance contracts”, “off-premises contracts” and consumer contracts
concluded in other circumstances (termed “on-premises contracts”). This law is now principally
contained in the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations
2013, 799 which define a “distance contract” as:
“a contract concluded between a trader and a consumer under an organised distance

sales or service-provision scheme without the simultaneous physical presence of the
trader and the consumer, with the exclusive use of one or more means of distance
communication up to and including the time at which the contract is concluded”. 800
The definition of “off-premises contract” is more elaborate, but it includes
“a contract concluded in the simultaneous physical presence of the trader and the
consumer, in a place which is not the business premises of the trader.” 801
The 2013 Regulations impose differing information requirements in the trader according to this triple
distinction as to the circumstances in which the contracts are concluded, and, as regards distance
contracts and off-premises contracts for the purposes of rights of cancellation in the consumer. 802
791. Rann v Hughes (1778) 7 T.R. 350n.
793. cf. above, para.1-086 (no contract of employment implied so as to give effect to person’s rights
under the ECHR).
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794. Modahl v British Athletic Federation [2001] EWCA Civ 1447, [2002] 1 W.L.R. 1192 at [100].
795. Hamsard 3147 Ltd (trading as “Mini Mode Childrenswear”) v Boots UK Ltd [2013] EWHC 3251
(Pat) at [71], [84]–[88] (where a contract of joint venture between a supplier and a retailer
expired in circumstances where the retailer was concerned with the reliability of its future
supply, the contract to be implied by reason of the necessity of circumstances dealt only with
the parties’ current operational arrangements, and did not include an implied term requiring
good faith in the parties in relation to the operation of the contract as had been expressed in the
earlier joint venture contract).
796. Above, para.1-017.
797.
Modahl v British Athletic Federation [2001] EWCA Civ 1447, [2002] 1 W.L.R. 1192 at [102],
per Mance L.J.; Heis v MF (Global) Services Ltd [2016] EWCA Civ 569 at [36]–[47] and see
below, paras 2-169—2-170.
798.
Devani v Wells [2016] EWCA Civ 1106, [2017] 2 W.L.R. 1391 at [19] (with whom McCombe
L.J. agreed at [79]), referring to Scancarriers A/S v Aotearoa International Ltd [1985] 2 Lloyd’s
Rep. 419, 422 per Lord Roskill.
799. SI 2013/3134 (“2013 Regulations”), implementing Directive 2011/83/EU on consumer rights

[2011] O.J. L304/64. The 2013 Regulations revoked and replaced the Cancellation of Contracts
made in a Consumer’s Home or Place of Work etc Regulations 2008 (SI 2008/1816) and the
Consumer Protection (Distance Selling) Regulations 2000 (SI 2000/2334): see generally Vol.II,
paras 38-056 et seq. Financial services contracts concluded at a distance are governed by the
Financial Services (Distance Marketing) Regulations 2004 (SI 2004/2095): see Vol.II,
para.38-131.
800. 2013 Regulations reg.5 “distance contract” and see Vol.II, paras 38-081 et seq.
801. 2013 Regulations reg.5 “off-premises contract” (a) and see Vol.II, paras 38-076 et seq.
802. 2013 Regulations regs 7–18, 27–38 on which see Vol.II, paras 38-086 et seq.

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(d) - Classification of Contracts According to their Effect
Introduction
1-106
Contracts are sometimes classified according to their effect and so distinctions can be drawn between
unilateral and bilateral contracts and valid, void, voidable and unenforceable contracts. The last three
terms denote varying degrees of imperfection and are in constant use in the law of contract.
Unilateral and bilateral contracts
1-107
Contracts may be either unilateral or bilateral. 803 By a unilateral contract is meant a contract under
which only one party undertakes an obligation. 804 Bilateral (or synallagmatic) contracts, on the other
hand, are those under which both parties undertake obligations. It is to be noted, though, that the
unilateral nature of the contract does not (in the ordinary case) mean that there is only one party, nor
that there is no need for an acceptance or the provision of consideration by the other party. 805 An
example of a unilateral contract may be found in the case of an offer for a reward for the return of lost
property: here, a contract is formed (at the latest) on the return of the property, this constituting the
offeree’s acceptance of the offer and the furnishing of consideration for the creation of the contract. 806
Bilateral contracts comprise the exchange of a promise for a promise, e.g. if you promise to pay
me £1,000, I promise to sell you my car.
Void contracts
1-108
A void contract is strictly a contradiction in terms, because if an agreement is truly void it is not a
contract; but the term is a useful one and well understood by lawyers. Properly speaking, a void
contract should produce no legal effects whatsoever. Neither party should be able to sue the other on
the contract. If goods have been delivered, they or their value should be recoverable by an action in
tort, because the property will not pass. If money has been paid, it should be recoverable by an action
in restitution, because the money was not due. In one situation, i.e. where a contract is void for
mistake, these consequences would appear to follow from the fact that the contract is void. 807 But it is
by no means true that all contracts termed “void” by the law necessarily produce this effect.
“Void” contract may have effects
1-109
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For example, a contract may be void for illegality. But, although in many cases, neither party can sue
on it, in other cases a party who is innocent of any illegal design may have a right of action. 808
Property may pass under an illegal contract 809 and money paid in pursuance of it is often
irrecoverable. 810 Moreover, where A and B have paid money to C under an agreement under which C
is empowered to pay some of the money to B, the court will not at A’s request restrain C from so
doing, even though the agreement is illegal and void as an unreasonable restraint of trade. 811 Other
difficult questions arise in relation to the relative positions of the parties to a contract for the sale or
other disposition of an interest in land which is a nullity as a result of not having been made in writing
as is required by s.2 of the Law of Property (Miscellaneous Provisions) Act 1989. 812
Voidable contracts
1-110
A voidable contract is one where one or more of its parties have the power, by a manifestation of
election to do so, to avoid the legal relations created by the contract; or by affirmation of the contract
to extinguish the power of avoidance. 813 In English law, contracts may be voidable, e.g. for
misrepresentation, 814 duress, 815 undue influence, 816 minority, 817 lack of mental capacity, 818
drunkenness 819 or under statute. 820 If the contract is wholly executory, the party entitled to avoid the
contract can plead its voidability in an action against him. If it has been wholly or partly executed, he
can claim to have set it aside and to be restored to his original position. But until the right of
avoidance is exercised, the contract is valid. Thus if a contract for the sale of goods is voidable for
fraud (but has not been avoided), the fraudulent party acquires a good title to the goods which he can
transfer to an innocent purchaser for value. 821 The right of avoidance must also be exercised
promptly in most cases. It is theoretically possible for a contract to be avoidable by both parties
thereto, e.g. if each defrauds the other, or both are drunk; but naturally instances of this are rare.
Power to set aside on terms
1-111
In the case of contracts said to be voidable for common mistake in equity, this description refers not
to a power in one or other of the parties to avoid the contract, but to a power in the court to set aside
the contract on terms. 822 However, the existence of such a distinct equitable jurisdiction has been
denied on the ground of its being irreconcilable with the leading, higher common law authority. 823
Unenforceable contracts
1-112
Unenforceable contracts are valid in all respects except that one or both parties cannot be sued on
the contract. Instances of unenforceable contracts in English law are afforded by certain contracts
which are not evidenced by a signed writing as required by statute 824; contracts in respect of which
the right of action is barred by the Limitation Act 1980 825; and certain contracts with a foreign
sovereign 826 or in breach of foreign exchange control regulations. 827 In some cases the defect of
unenforceability is curable. Thus, if written evidence of a contract of guarantee comes into existence,
the contract becomes enforceable, though it was made orally 828; a current period of limitation may be
repeatedly extended if the defendant makes a written acknowledgment of his indebtedness, or a part
payment 829; a foreign sovereign may waive his immunity. 830 An unenforceable contract may be
indirectly enforceable by means other than bringing an action. Thus a statute-barred debt may be
recoverable indirectly if the creditor has a lien on goods of the debtor which are in his possession. 831
Although in principle a term in a consumer contract found to be unfair will not bind a consumer, “the
contract shall continue to bind the parties if it is capable of continuing in existence without the unfair
term”. 832 If, therefore, a contract is not capable of continuing in existence without the unfair term, then
apparently the consumer contract is unenforceable by either party. 833
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803. Restatement of Contracts (1932), para.12. The Restatement of Contracts, 2nd edn (1981),
para.45 abandons this distinction and substitutes for unilateral contracts “option contracts”.
804. See New Zealand Shipping Co Ltd v A.M. Satterthwaite & Co Ltd [1975] A.C. 154, 167–168,
171, 177. Quaere whether the engagement of an estate agent is a unilateral contract: Luxor
(Eastbourne) Ltd v Cooper [1941] A.C. 108, 124; Murdoch (1975) 91 L.Q.R. 357; McConnell
(1983) 265 E.G. 547.
805. See Carlill v Carbolic Smoke Ball Co [1893] 1 Q.B. 256. In certain situations, a contract under
which only one party undertakes an obligation may be truly one-sided, in that the other party
may be dispensed from the need to provide consideration. Thus, an agreement contained in a
deed under which A covenants to pay B a sum of money may be considered a unilateral
contract as only A undertakes an obligation (see below, para.1-136).
806.
For an unusual example of a unilateral contract see Rollerteam Ltd v Riley [2016] EWCA Civ
1291, [2017] Ch. 109 esp. at [45], where the description in the text of unilateral contracts was
cited with approval. On this case see below, para.5-017. On the issue of when such a contract
is formed see below, paras 2-082 et seq.
807. See below, paras 3-036 et seq. and 6-008 but cf. paras 3-029 et seq.
811. Boddington v Lawton [1994] I.C.R. 478.
813. See Restatement of Contracts, 2nd edn, para.7.
814. See below, Ch.7. See also the consumer’s “right to unwind” a contract made with a trader if the
trader engages in a “misleading action”: the Consumer Protection from Unfair Trading
Regulations 2008 (SI 2008/1277) Pt 4A as amended by Consumer Protection (Amendment)
Regulations 2014 (SI 2014/870): see Vol.II, paras 38-160 et seq. especially at 38-167,
38-180—38-181.
815. See below, paras 8-001—8-056. See also the consumer’s “right to unwind” a contract made
with a trader if the trader engages in an “aggressive commercial practice”: the Consumer
Protection from Unfair Trading Regulations 2008 (SI 2008/1277) Pt 4A as amended by
Consumer Protection (Amendment) Regulations 2014 (SI 2014/870): see Vol.II, paras 38-160
et seq. especially at 38-167, 38-180—38-181.
816. See below, paras 8-057—8-129.
817. See below, paras 9-005—9-074.
819. See below, paras 9-105—9-106.
820. e.g. Auctions (Bidding Agreements) Act 1969 s.3(1) replacing Auctions (Bidding Agreements)
Act 1927 s.2 (as amended). Consumer Credit Act 1974 ss.67–73 (cancellation of consumer
credit agreements) and see Vol.II, paras 39-095 et seq.; Consumer Contracts (Information,
Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) regs 27–38 and see
Page 4
Vol.II, paras 38-107 et seq. (cancellation of off-premises or distance contracts).
821. See Phillips v Brooks Ltd [1919] 2 K.B. 243; Lewis v Averay [1972] 1 Q.B. 198; Sale of Goods
Act 1979 s.23. Contrast Cundy v Lindsay (1878) 3 App. Cas. 459 and Ingram v Little [1961] 1
Q.B. 31, where the contract was void for mistake (though see Shogun Finance Ltd v Hudson
[2003] UKHL 62, [2004] 1 A.C. 919). See below, Vol.II, para.44-208.
822. See Solle v Butcher [1950] 1 K.B. 671, 696–697.
823. Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2002] EWCA Civ 1407, [2003] Q.B. 679; Bell
v Lever Bros [1932] A.C. 161 and see below, paras 6-055—6-060.
824. e.g. contracts of guarantee: Statute of Frauds 1677 s.4 (see Vol.II, paras 45-042—45-060). cf.
consumer credit agreements whose failure to satisfy certain requirements of form render them
in principle enforceable only on order of the court: Consumer Credit Act 1974 ss.60, 61, 65 and
see Vol.II, paras 39-080, 39-093—39-094.
827. United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] 1 A.C. 168, 189–190.
828. See below, Vol.II, para.45-053.
829. Limitation Act 1980 s.29 and see below, paras 28-093 et seq.
832. Unfair Terms in Consumer Contracts 1999 (SI 1999/2083) reg.8; Consumer Rights Act 2015
ss.62(2)–(3) and 67 on which see Vol.II, paras 38-311—38-312 and 38-369 respectively.

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Section 6. - Contracts Contained in Deeds
(a) - General
Preliminary
1-113
At common law, contracts under seal, or specialties, were an important example of deeds and at
common law a deed was an instrument which was not merely in writing, but which was sealed by the
party bound thereby, and delivered by him to or for the benefit of the person to whom the liability was
incurred. 834 In no other way than by the use of this form could validity be given to executory contracts
at common law in early times. At common law, all deeds were documents under seal, but not all
documents under seal were and are deeds. A deed must:
(a)
effect the transference of an interest, right or property;
(b)
create an obligation binding on some person or persons; or
(c)
confirm some act whereby an interest, right or property has already passed.
Some documents under seal are not deeds, for instance a certificate of admission to a learned
society or probate of a will. 835
General abolition of the requirement of sealing
1-114
In 1989, legislation was enacted which abolished the ancient requirement of sealing for the
execution of the deeds in many situations. 836 As regards deeds executed by an individual, s.1 of
the Law of Property (Miscellaneous Provisions) Act 1989 (the “1989 Act”) replaced the requirement of
sealing with requirements that the intention of the party making a deed should make this intention
clear on its face, of signature by that party 837 and of attestation. 838 As regards companies
incorporated under the Companies Acts (“companies”), the requirement of sealing for the execution of
documents 839 was supplemented by an alternative method of execution of a document which
required signature by a director and the secretary of the company or by two directors and the
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expression “in whatever form of words” that it was executed by the company; and it was further
provided that where a document made clear on its face that it was intended to be a deed, it should
take effect on delivery as a deed, delivery being rebuttably presumed where it was so executed. 840
Similar provisions were enacted in 1993 to govern the position of charities incorporated under the
Charities Act 1993, later replaced by the Charities Act 2011. 841 In the case of deeds executed by
other persons (including other corporations aggregate 842 and corporations sole 843), the common law
requirement of sealing was left unaffected.
Further amendment of the law governing the execution of instruments
1-115
In 2005 further amendments were made to the law governing the execution of deeds and some other
instruments by an order (“the 2005 Order”) made under the Regulatory Reform Act 2001, 844 so as to
give effect to the principal recommendations of a report of the Law Commission. 845 The main
changes introduced in 2005 concern the creation of standard requirements for companies
incorporated under the Companies Act 1985 and corporations aggregate (but not corporations sole)
for the due execution of instruments in general and of deeds in particular; the making of specific
provision for the execution of documents by persons (including companies and corporations
aggregate) by or on behalf of another person (whether the latter is an individual, a company within the
meaning of the Companies Act or a corporation); and the clarification that the mere sealing of a
document by a person (whether an individual or another corporate body) does not in itself satisfy the
so-called “face-value requirement” that:
“an instrument shall not be a deed unless … it makes clear on its face that it is intended
to be a deed by the person making it.” 846
The changes introduced by the 2005 Order came into force as regards “instruments executed” on or
after September 15, 2005, but leave unaffected any instrument executed before this date. 847
Electronic documents and deeds 848
1-116
Following the recommendations of the Law Commission, 849 the Land Registration Act 2002 made
provision for the creation of a framework in which it will be possible to transfer and create interests in
registered land by electronic means through a network controlled by the Land Registry. In order to
permit this, Pt 8 of the Act makes provision for the fulfilment of formality requirements by the
transactions in question. Accordingly, by s.91(4) and (5) of the 2002 Act:
“… a document to which this section applies is to be regarded as: (a) in writing; and (b)
signed by each individual, and sealed by each corporation, whose electronic signature it
has. [And such a document] is to be regarded for the purposes of any enactment as a
deed.” 850
Section 91 applies to “documents in electronic form” of certain types dealing with registered interests
in land 851 as long as: (a) the document makes provision for the time and date when it takes effect;
(b) the document has the electronic signature of each person by whom it purports to be authenticated;
(c) each electronic signature is certified; and (d) such other conditions as rules may provide are met.
This provision does not, therefore, create a new type of deed capable of being made electronically;
rather it assimilates certain qualifying electronic documents to deeds for the purposes of any
enactment requiring the dispositions to which those documents relate to use a deed. 852 At the time of
writing, this new system has not yet been brought into operation. 853
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834. Compare above, para.1-016 on the question of agreement in relation to deeds.
835. R. v Morton (1873) L.R. 2 C.C.R. 22, 27.
836.
On the ancient requirement see Sheppard, Touchstone of Common Assurances, 7th edn
(1820), p.56. The recognition of “electronic seals” by Regulation (EU) 910/2014 of 23 July 2014
on electronic identification and trust services for electronic transactions in the internal market
and repealing Directive 1999/93/EC [2014] O.J. L257/73 (the “eIDAS Regulation”), see esp. arts
2(25), 35–40, does not affect the law described here, as art.2(3) provides that the Regulation
does not affect national or Union law related to the conclusion and validity of contracts or other
legal or procedural obligations relating to form: see further below, para.5-008.
837. This requirement had been imposed by the Law of Property Act 1925 s.73.
838. Law of Property (Miscellaneous Provisions) Act 1989 s.1.
839. Companies Act 1985 s.36A(2) (as inserted by s.36A of the Companies Act 1989 (c.40)
ss.130(2), 213(2)). This provision has been superseded as explained at para.1-128 below.
840. Companies Act 1985 s.36A(4) and (5) (as inserted by s.36A of the Companies Act 1989 (c.40)
ss.130(2), 213(2)). This provision has been superseded as explained at para.1-128 below.
841. Charities Act 1993 ss.50 and 60; Charities Act 2011 ss.252 and 260–261.
842. A corporation aggregate may be defined as consisting of: “[A] body of persons which is
recognised by the law as having a personality which is distinct from the separate personalities
of the members of the body or the personality of the individual holder of the office in question
for the time being”: Law Com. No.253 para.4.1, n.1 referring to Halsbury’s Laws of England, 4th
edn (reissue, 1998), Vol.9(2), para.1005.
843. A corporation sole may be defined as consisting of: “[O]ne person and his or her successors in
some particular office or status, who are incorporated in law in order to give them certain legal
capacities and advantages which they would not have in their natural person”: Law Com.
No.253 para.4.23 referring to Halsbury’s Laws of England, 4th edn, Vol.9(2), para.1007 and
giving as examples a government minister or Church of England bishop.
844. Regulatory Reform (Execution of Deeds and Documents) Order 2005 (SI 2005/1906).
845. The Execution of Deeds and Documents by or on behalf of Bodies Corporate, Law Com.
No.253 (1998).
846. Law of Property (Miscellaneous Provisions) Act 1989 s.1(2)(a) and see below.
847. 2005 Order art.1 (this being 12 weeks from June 23, 2005, the day on which the Order was
made).
848. “Electronic documents and deeds” for the purposes of the Land Registration Act 2002 (which
are the subject of the present paragraph) are to be distinguished from “electronic seals”
recognised by Regulation (EU) 910/2014 of 23 July 2014 on electronic identification and trust
services for electronic transactions in the internal market and repealing Directive 1999/93/EC
[2014] O.J. L257/73 (the “eIDAS Regulation”), see below, para.5-008.
849. Law Commission, Land Registration for the Twenty-First Century (2001) Law Com. No.271.
850. Land Registration Act 2002 (Commencement No.4) Order 2003 (SI 2003/1725) brought this
provision into force on October 13, 2003.
Page 4
851.
The relevant dispositions are specified by the Land Registration Act 2002 s.91(2).
852. Land Registration Act 2002 s.91(3).
853.
See Smith, Property Law, 8th edn (2014), pp.113–115 discussing the Land Registration Act
2002 and noting that in 2011 the Land Registry halted the e-conveyancing project: Land
Registry Annual Report and Accounts 2010–2011, p.26; Megarry and Wade, The Law of Real
Property 8th edn (2012) by Harpum, Bridge and Dixon, paras 7-157–7-163. See further Law
Commission, Updating the Land Registration Act 2002, A Consultation Paper (Consultation
Paper No.227, 2016), Pt 8, which notes (at para.20.6) that the electronic system provided for by
Pt 8 of the 2002 Act which would have implemented the model which it had earlier
recommended has not been developed, and instead makes recommendations for a “new vision
for electronic conveyancing” (at para.20.11).

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(b) - Intention, Form and Delivery
Introduction
1-117
The following paragraphs will explain first the law as amended by the legislation in 1989 and then
explain how this position was affected by the 2005 Order, though it is to be noted that the position of
charitable corporations differs again. 854 There will then follow a discussion of certain aspects of the
requirements of form and of delivery which apply to deeds whenever executed.
854. Below, para.1-120. It is also to be noted that the relevant provisions of the Companies Act 1989
which were amended in 2005 were then replaced by the Companies Act 2006, though without
substantive changes. The notes to the following paragraphs explain these sets of legislative
changes.

Page 1

(i) - Deeds executed on or after July 31, 1989 and before or on September 14,
2005
Deeds executed by an individual
1-118
The law introduced by the Law of Property (Miscellaneous Provisions) Act 1989 s.1 requires that
for an instrument made by an individual to be a deed, it must make:
“… clear on its face that it is intended to be a deed by the person making it or, as the
case may be, by the parties to it (whether by describing itself as a deed or expressing
itself to be executed or signed as a deed or otherwise).” 855
It has been observed that:
“… the Act provides that documents can be deeds without using the word ‘deed’; but …
that a document is only to be held to be a deed if it is clear from the wording of the
document itself (‘on its face’) that it was intended to be a deed.” 856
As a result, words which indicate an intention by the parties that a document should be legally binding
are not enough: “what is needed is something showing that the parties intended the document to
have the extra status of being a deed”. 857 The 1989 Act also introduced other requirements for the
execution of a deed by an individual and preserved an existing one. For an instrument to be validly
executed as a deed, it must be:
“… signed (i) by him in the presence of a witness who attests the signature; or (ii) at his
direction and in his presence and the presence of two witnesses who each attest the
signature.” 858
“Signature” is defined later in the section to include making one’s mark. 859 The Act specifically
preserved the common law requirement that for an instrument to be validly executed as a deed it
must be “delivered” as a deed by him or a person authorised to do so on his behalf. 860
Deeds executed by companies incorporated under the Companies Acts

Page 2
1-119
In 1989, the law governing the execution of documents and deeds by companies incorporated under
the Companies Acts was amended so as to create a “dual system”. 861 So, while it preserved the
possibility for a company to execute a document (including a deed) by the affixing of its common seal,
862
it also provided that a document signed by a director and secretary, or by two directors, of a
company incorporated under the Act and expressed to be executed by the company has the same
effect as if executed under the common seal of the company and notwithstanding that the company
has no common seal. 863 In either case, it is provided that a:
“… document executed by a company which makes clear on its face that it is intended by
the person or persons making it to be a deed has effect, upon delivery, as a deed.” 864
The deeds of a company must be executed in accordance with its articles of association but, in favour
of a purchaser, s.74(1) of the Law of Property Act 1925 provides that a deed is deemed to have been
duly executed if its seal is affixed thereto in the presence of and attested by its secretary and a
member of the board of directors 865 and a similar deeming provision applies to documents not made
under the company seal, but where the document makes clear on its face that it is intended by the
person or persons making it to be a deed. 866 There is no statutory requirement that the name used in
the body of a deed should be the company’s registered name rather than its trading name and the
common law rule therefore applies so that extraneous evidence is admissible to identify a contracting
party when its identity is not clear from the face of the deed. 867
Deeds executed by other persons
1-120
Where a deed is executed by a person other than a private individual, a company incorporated under
the Companies Acts, or a charity incorporated under the Charities Act 1993, 868 the common law
requirement of sealing still applies. This would apply to corporations aggregate and to corporations
sole. 869 However, the requirement of sealing has been interpreted by the courts very liberally: “to
constitute a sealing neither wax nor wafer nor a piece of paper nor even an impression is necessary”.
870
Pieces of green ribbon 871 or a circle printed on the document containing the letters “L.S.” (locus
sigilli) 872 or even a document bearing no indication of a seal at all 873 will suffice, if there is evidence
(e.g. attestation) that the document was intended to be executed as a deed. 874 In the absence of
such evidence, a signatory of a document expressed to have been “signed, sealed and delivered” by
him may be estopped from denying that it was sealed. 875
Delivery
1-121
It remains the case after the 1989 legislation that “[w]here a contract is to be by deed, there must be a
delivery to perfect it”. 876 “Delivered”, however, in this connection does not mean “handed over” to the
other party. It means delivered in the old legal sense, 877 namely, an act done so as to evince an
intention to be bound. 878 Any act of the party which shows that he intended to deliver the deed as an
instrument binding on him is enough. He must make it his deed 879 and recognise it as presently
binding on him. 880
“The critical thing is that the person who has signed the deed must have separately
indicated that he intends to be bound by the deed. Mere signature is not enough. Nor is it
enough that what looks like a deed has been given to the person who appears to be the
beneficiary of it—the issue is not whether the document has been physically handed over
to the beneficiary, but whether the person whose deed it is supposed to be intended to be
Page 3
bound by it.” 881
Delivery is effective even though the grantor retains the deed in his own possession. There need be
no actual transfer of possession to the other party:
“… the efficacy of a deed depends on its being sealed 882 and delivered by the maker of it,
not on his ceasing to retain possession of it.” 883
Where a solicitor or licensed conveyancer in the course of a transaction involving the disposition or
creation of an interest in land, purports to deliver an instrument as a deed on behalf of a party to the
instrument, it shall be conclusively presumed in favour of a purchaser that he is authorised so to
deliver the instrument. 884
Delivery and corporate bodies
1-122
In Bolton Metropolitan BC v Torkington 885 the Court of Appeal held that while s.74(1) of the Law of
Property Act 1925 deemed a deed “duly executed” where a corporation’s seal is affixed in the
presence of and attested by its designated officers, it created no presumption as to its delivery. 886
Moreover, while strictly obiter, Peter Gibson L.J. expressed the view that at common law:
“… to describe the sealing by a corporation as giving rise to a rebuttable presumption

may go too far, implying, as that does, that the burden is on the corporation affixing the
seal.” 887
As a result, where, as on the facts before the court, negotiations were undertaken towards a lease
expressly subject to contract, a court should not infer an intention to be bound from the mere sealing
of a deed of execution of a lease. 888 On the other hand, in the case of a company incorporated under
the Companies Act 1985, where a document makes it clear on its face that:
“[I]t is intended by the person or persons making it to be a deed … it shall be presumed,

unless a contrary intention is proved, to be delivered upon its being so executed.” 889
855. s.1(2)(a). Section 1(11) of the 1989 Act provided that “nothing in this section applies in relation
to instruments delivered as deeds before this section comes into force” i.e. July 31, 1989. This
appears to mean that an instrument made before this date but delivered after it remains
governed by the earlier law.
856. HSBC Trust Co v Quinn [2007] EWHC 1543 (Ch), [2007] All E.R. (D) 125 (Jul) at [50], per
Christopher Nugee Q.C. cf. Johnsey Estates (1900) Ltd v Newport Marketworld Ltd Unreported
May 10, 1996 (noted and criticised by Law Com. No.253, paras 2.17–2.18) where it was held
that the mere fact that a document was made under seal is sufficient to make it clear that it was
executed as a deed.
857. [2007] EWHC 1543 (Ch) at [51].
858. Law of Property (Miscellaneous Provisions) Act 1989 s.1(3) (as enacted). The signature and
Page 4
attestation must form part of the same physical document which constitutes the deed: R. (on
the application of Mercury Tax Group Ltd) v Revenue and Customs Commissioners [2008]
EWHC 2721 (Admin), [2009] S.T.C. 743 at [40].
859.
Law of Property (Miscellaneous Provisions) Act 1989 s.1(4). The question whether the
requirement of signature may be satisfied other than by a party writing his or her name or mark
with his or her own hand remains unclear. There is authority for the purposes of s.2 of the 1989
Act that requires such writing (Firstpost Homes Ltd v Johnson [1995] 1 W.L.R. 1567, on which
see Vol.I, para.5-037), but a more liberal position has been taken for the purposes of the (less
demanding) formalities of s.4 of the Statute of Frauds: J Pereira Fernandes SA v Mehta [2006]
EWHC 813 (Ch), [2006] 2 All E.R. 881 at [31]; Golden Ocean Group Ltd v Salgaocar Mining
Industries Pvt Ltd [2012] EWCA Civ 265, [2012] 1 Lloyd’s Rep. 542 at [32] (on which see Vol.II,
para.45-057). In Ramsay v Love [2015] EWHC 65 (Ch) at [7], Morgan J. observed (in the
context of s.1(3) of the 1989 Act, obiter) that the position in Firstpost Homes Ltd v Johnson
(which requires signature by an executing party with a pen in his own hand) was not designed
to distinguish between signing in such a way and by use of a signature writing machine. For
further discussion of the significance of “signature” see Emmet & Farrand on Title (looseleaf
and electronic version updated to June 2016) paras 2–041—2–041.06. For the possibility that
an “electronic signature” may satisfy this requirement by way of s.7 of the Electronic
Communications Act 2000 see below, para.5-008.
860. 1989 Act s.1(3)(b).
861. Law Commission, The Execution of Deeds and Documents by or on behalf of Bodies
Corporate, Law Com. No.253 (1998), para.3.3.
862. Companies Act 1985 s.36A(4) as inserted by Companies Act 1989 s.130(2).
865. This provision was amended by the 2005 Order for instruments executed on or after September
14, 2005, below, para.1-128.
866. Companies Act 1985 s.36A(6) and cf. s.36C, also inserted by Companies Act 1989 s.130(1)
(pre-incorporation contracts, deeds and obligations).
867. OTV Birwelco Ltd v Technical & General Guarantee Company Ltd [2002] 4 All E.R. 668.
868. Charities Act 1993 ss.50, 60 remain applicable to instruments executed between August 1,
1993 and March 13, 2012, being the day preceding the coming into force of the Charities Act
2011 ss.260–261: see below, n.827.
869. Law of Property (Miscellaneous Provisions) Act 1989 s.1(10). On “corporations aggregate” and
“corporations sole” see above, nn.775 and 776. Note also s.1(9) which specifically reserves the
requirement of sealing at common law in relation to deeds required or authorised to be made
under the seals of the County Palatine of Lancaster, the Duchy of Lancaster or the Duchy of
Cornwall.
870. Ex p. Sandilands (1871) L.R. 6 C.P. 411, 413.
871. Ex p. Sandilands (1871) L.R. 6 C.P. 411; See also Stromdale & Ball Ltd v Burden [1952] Ch.
233, 230.
872. First National Securities Ltd v Jones [1978] Ch. 109; Hoath (1980) 43 M.L.R. 415.
873. First National Securities Ltd v Jones [1978] Ch. 109; Commercial Credit Services v Knowles
[1978] 6 C.L. 64.
Page 5
874. cf. National Provincial Bank v Jackson (1886) 33 Ch. D. 1; Re Balkis Consolidated Ltd (1888)
58 L.T. 300; Re Smith (1892) 67 L.T. 64 (these cases were explained in First National
Securities Ltd v Jones [1978] Ch. 109): cf. TCB v Gray [1986] 1 Ch. 621, 633.
875. TCB v Gray [1986] 1 Ch. 621. cf. Rushingdale Ltd v Byblos Bank (1985) P.C.C. 342, 346–347.
876. Xenos v Wickham (1863) 14 C.B.(N.S.) 435, 473; Termes de la Ley, s.v. Fait; Co Litt. 171b;
Law of Property (Miscellaneous Provisions) Act 1989 s.1(3)(b).
877. But see Yale [1970] C.L.J. 52.
878. Vincent v Premo Enterprises Ltd [1969] 2 Q.B. 609, 619. See further Longman v Viscount
Chelsea [1989] 58 P. & C.R. 189 at 195; Queen Maritime Ltd v Persia Petroleum Services Ltd
[2010] EWHC 2867 (QB) [107]–[114].
879. Tupper v Foulkes (1861) 9 C.B.(N.S.) 797; Xenos v Wickham (1867) L.R. 2 H.L. 296, 312; Re
Seymour [1913] 1 Ch. 475.
880. Xenos v Wickham (1867) L.R. 2 H.L. 296.
881. Bibby Financial Services Ltd v Magson [2011] EWHC 2495 (QB) at [335], per Judge Richard
Seymour Q.C.
882. But see above, para.1-113.
883. Xenos v Wickham (1867) L.R. 2 H.L. 296, per Lord Cranworth at 323; cf. per Pigott B. at 309;
Doe d. Garnons v Knight (1826) 5 B. & C. 671; Macedo v Stroud [1922] 2 A.C. 330; Beesly v
Hallwood Estates Ltd [1960] 1 W.L.R. 549, affirmed [1961] Ch. 105; Vincent v Premo
Enterprises Ltd [1969] 2 Q.B. 609.
884. Law of Property (Miscellaneous Provisions) Act 1989 s.1(5). In Bank of Scotland Plc v King
[2007] EWHC 2747 (Ch), [2007] All E.R. (D) 376 (Nov) at [66] it was held that s.1(5) does not
apply where a solicitor or licensed conveyancer transfers a deed in escrow as they would not
have “purport[ed] to deliver an instrument as a deed on behalf of a party to the instrument”. For
deeds in escrow see below, para.1-133. The definition of the persons to whom this provision
applies changed on the bringing into force on January 1, 2010 of the Legal Services Act 2007
s.208(1), Sch.21 para.81(a) to “a relevant lawyer, or an agent or employee of a relevant
lawyer”, s.1(6) of the 1989 Act (as amended) providing that “‘relevant lawyer’ means a person
who, for the purposes of the Legal Services Act 2007, is an authorised person in relation to an
activity which constitutes a reserved instrument activity (within the meaning of that Act)”.
885. [2003] EWCA Civ 1634, [2004] Ch. 66. The decision concerned the effect of s.74(1) as in force
before its amendment by the 2005 Order, on which see below, para.1-128.
886. [2003] EWCA Civ 1634 at [22], [45].
887. [2003] EWCA Civ 1634 at [46].
888. [2003] EWCA Civ 1634 at [53].
889. Companies Act 1985 s.36A(5) as inserted by the Companies Act 1989 s.130(2). On the new
law, see below, para.1-128.

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(ii) - Documents Executed on or after September 15, 2005
“Instruments executed”
1-123
The 2005 Order 890 refers to “instruments executed” and this raises the question as to how the
changes it introduced apply in relation to the making of deeds. 891 It could be thought that a deed (the
“instrument”) is “executed” only after its delivery, and not merely after the making of the document, as
only on delivery is the deed a valid instrument. However, the 2005 Order (following the Law
Commission’s recommendation 892) distinguishes clearly between the formal requirements required for
the execution of an instrument (or document) and the further requirement of delivery for the execution
of an instrument as a deed 893 and this argues that the changes introduced by the Order apply only to
documents executed on or after September 15, 2005, and not also to documents executed as deeds
on or before September 14, 2005, but delivered as deeds only after this date. This interpretation also
has the practical advantage of not applying the changes contained in the Order retrospectively.
The new general requirements for deeds after the 2005 Order
1-124
Under s.1(2) of the Law of Property (Miscellaneous Provisions) Act 1989 (as amended by the 2005
Order 894), an instrument shall not be a deed unless:
“(a)
it makes clear on its face that it is intended to be a deed by the person making it or,
as the case may be, by the parties to it (whether by describing itself as a deed or
expressing itself to be executed to be signed as a deed or otherwise); and
(b)
it is validly executed as a deed—
(i)
by that person or a person authorised to execute it in the name or on behalf of
that person; or
Page 2
(ii)
by one or more of those parties or a person authorised to execute it in the
name or on behalf of one or more of those parties.”
These requirements apply to instruments executed by an individual, by a company incorporated

under the Companies Act 1985, by a corporation aggregate or by a corporate sole. 895 However, even
after the reforms of 2005, the significance and impact of these provisions differ somewhat according
to these different categories of person. In this respect, a distinction is to be drawn between the
condition contained in s.1(2)(a) of the 1989 Act as amended (the so-called “facevalue requirement”)
and the condition in s.1(2)(b) of the 1989 Act as amended (the condition of “valid execution”).
The “face-value requirement” for deeds
1-125
The reforms of 1989 introduced the idea that an instrument should qualify as a deed by reference to
the intention of the party or parties to it as made clear on its face, 896 this reflecting earlier
developments in judicial attitudes to the common law requirement of sealing. 897 Following the Law
Commission’s recommendations, 898 this face-value requirement was retained in 2005, though its
formulation was clarified and standardised for instruments executed by individuals and companies. 899
In particular, it is expressly provided that:
“… an instrument shall not be taken to make it clear on its face that it is intended to be a
deed merely because it is executed under seal.” 900
Execution on behalf of one or more of the parties to the instrument
1-126
Following the Law Commission’s recommendations, 901 the 2005 Order introduced new clarifying
provisions so as to provide expressly for execution in the name or on behalf of another person. So, it
is provided that as regards individuals, a document may be executed by a person on behalf of
another, and that it is the person who executes the document (whether or not on behalf of the other)
who must comply with the formalities 902; as regards companies, the legislative provisions which state
how a company may execute a document and provide for deemed execution in favour of a purchaser
apply where a company executes a document on behalf of another person 903; and as regards
corporations aggregate, the Law of Property Act 1925 was amended so as to provide that deemed
execution in favour of a purchaser applies where the corporation executes an instrument on behalf of
another person. 904
“Valid execution”: individuals
1-127
After amendment by the 2005 Order, the 1989 Act provides that for an instrument to be validly
executed as a deed by an individual, it must be:
Page 3
“… signed
(i)
by him in the presence of a witness who attests the signature; or
(ii)
at his direction and in his presence and the presence of two witnesses who each
attest the signature.” 905
“Signature” is defined later in the section to include making one’s mark. 906 The 2005 Order preserved
the further common law requirement that for an instrument to be validly executed as a deed it must be
“delivered” as a deed. 907
“Valid execution”: companies and corporations aggregate
1-128
One of the purposes of the 2005 Order was to harmonise the law governing the execution of
instruments as deeds by corporate bodies. 908 So, it is now provided that a document is validly
executed as a deed by both companies and corporations aggregate so as to satisfy the general
requirements imposed by the 1989 Act 909 “if and only if” it is “duly executed” by the corporate body
and if it is delivered as a deed. 910 As regards delivery, it is provided for both types of corporate body
that an instrument shall be presumed to be delivered for these purposes “upon its being executed,
unless a contrary intention is proved”. 911 As regards companies, this provision marked a change
from the previous law where the presumption of delivery was irrebuttable in these circumstances 912;
as regards corporations aggregate, it clarified the position given that the existence of a rebuttable
presumption at common law had been recently judicially questioned. 913 However, the conditions for
the “due execution” of a document still differ somewhat as between companies and corporations
aggregate. In the case of companies, there are alternative requirements: a document may be
executed either by the affixing of its common seal or by being signed “by two authorised signatories,
or by a director of the company in the presence of a witness who attests the signature”, 914 provided
that such a signed document is “expressed, in whatever words, to be executed by the company”. 915
Where a document is to be signed by a person as a director or the secretary of more than one
company, it shall not be taken to be duly signed by that person for these purposes unless the person
signs it separately in each capacity. 916 In the case of corporations aggregate, the common law
requirement of affixing the corporation’s seal still applies in principle, 917 but it is provided that:
“… in favour of a purchaser an instrument shall be deemed to have been duly executed

… if a seal purporting to be the corporation’s seal purports to be affixed to the instrument
in the presence of and attested by (a) two members of the board of directors, council or
other governing body of the corporation, or (b) one such member and the clerk, secretary
or other permanent officer of the corporation or his deputy.” 918
“Valid execution”: corporations sole
1-129
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Where a deed is executed by a corporation sole, the common law requirement of sealing which has
already been explained still applies. 919
890. Regulatory Reform (Execution of Deeds and Documents) Order 2005 (SI 2005/1906).
891. cf. the discussion in Law Com. No.253, paras 3.6-3.12 as to the confusion over whether the
term “executed” in the Companies Act 1985 s.36A (as amended in 1989), the Law of Property
Act 1925 s.74 and the Law of Property (Miscellaneous Provisions) Act 1989 s.1 included
“delivery”.
892. Law Com. No.253, para.3.12.
893. See notably, the 2005 Order arts 4, 6 and below, paras 1-127—1-128.
894. 2005 Order art.7(3).
895. In the case of instruments executed by charities incorporated under statute, the formal
requirements contained in the Charities Act 1993 s.60 remain applicable to instruments
executed between August 1, 1993 and March 13, 2012, whereas those contained in the
Charities Act 2011 ss.260-261 apply to instruments made on or after March 14, 2012 (the date
of their coming into force).
896. Above, para.1-115.
897. First National Securities v Jones [1978] Ch. 109 and Chitty on Contracts, 26th edn (1989),
para.23.
898. Law Com. No.253, paras 2.29-2.34.
899. 2005 Order art.7(3) (individuals); Sch.2, repealing Companies Act 1985 s.36A(5) (companies);
Law Com. No.253, paras 2.50, 2.54. cf. above, paras 1-118—1-119.
900. Law of Property (Miscellaneous Provisions) Act 1989 s.1(2A) as inserted by the 2005 Order
art.8. cf. Startwell Ltd v Energie Global Management Ltd [2015] EWHC 421 (QB) at [48] where
it was noted that the fact that there is a witness to a contract contained in a document is not of
itself enough to satisfy the “face value requirement” of s.1.
901. Law Com. No.253, Pt 7.
902. Law of Property (Miscellaneous Provisions) Act 1989 s.1(2)(b) and (4A), as amended and
inserted by the 2005 Order art.7(3) and 7(4) respectively.
903. Companies Act 1985 s.36A(7) as inserted by the 2005 Order art.7(2) and replaced by
Companies Act 2006 s.44(8).
904. Law of Property Act 1925 s.74(1A) as inserted by the 2005 Order art.7(1).
905. Law of Property (Miscellaneous Provisions) Act 1989 s.1(3) (as amended by 2005 Order
art.7(3)). The signature and attestation must form part of the same physical document which
constitutes the deed: R. (on the application of Mercury Tax Group Ltd) v Revenue and Customs
Commissioners at [2008] EWHC 2721 (Admin), [2009] S.T.C. 743 at [40]. A signature of an
unidentified individual added later cannot constitute attestation for these purposes: Darjan
Estate Co Plc v Hurley [2012] EWHC 189 (Ch), [2012] 1 W.L.R. 1782 at [11]–[12].
906. Law of Property (Miscellaneous Provisions) Act 1989 s.1(4)(b) as amended by the 2005 Order
Sch.1 para.14.
Page 5
907. Law of Property (Miscellaneous Provisions) Act 1989 s.1(3)(b).
908. Law Com. No.153, Pt 4.
909. Law of Property (Miscellaneous Provisions) Act 1989 s.1(2)(b) (as amended); see above,
para.1-124.
910. Law of Property Act 1925 s.74A(1) as inserted by the 2005 Order art.4 (corporations
aggregate); Companies Act 1985 s.36AA(1) as inserted by the 2005 Order art.6 replaced by
911.
Law of Property Act 1925 s.74A(2) as inserted by the 2005 Order art.4 (corporations
aggregate); Companies Act 1985 s.36AA(2) (companies) as inserted by 2005 Order art.6 and
replaced by Companies Act 2006 s.46(2). For these purposes an objective approach must be
taken to the establishment of contrary intention: Silver Queen Maritime Ltd v Persia Petroleum
Services Ltd [2010] EWHC 2867 (QB) at [117]—[118]. It has been held that a requirement of
the “execution” of a deed in a consent order must equally be understood as requiring delivery
as well as signature of a document: Arrowgame Ltd v Wildsmith [2016] EWHC 3608 (Ch).
912. As a result, the 2005 Order art.5 amended the Companies Act 1985 s.36A(6) and see Law
Com. No.253 paras 6.37-6.43.
913. Bolton Metropolitan BC v Torkington [2003] EWCA Civ 1634, [2004] Ch. 66 at [46], above,
para.1-122.
914. Companies Act 2006 s.44(2) replacing Companies Act 1985 s.36A(1), (4) as inserted by the
915. Companies Act 2006 s.44(4). This proviso has been held not to require that, in addition to the
signature of the individuals who are authorised signatories, there must be words spelling out
that those signatures are “by or on behalf of” the company, as long as the capacity in which
they sign is demonstrated from the terms of the document: Williams v Redcard Ltd [2011]
EWCA Civ 466, [2011] All E.R. (D) 214 (Apr) at [25]–[27].
916. Companies Act 2006 s.44(6) replacing Companies Act 1985 s.36A(4A) as inserted by 2005
Order art.10(1), Sch.1 para.10
917. Law Com. No.253 para.4.5.
918. Law of Property Act 1925 s.74(1) as substituted by the 2005 Order art.3. Section 74(1B) of the
1925 Act as inserted by the 2005 Order art.10(1), Sch.1 para.2 provides that for these
purposes: “a seal purports to be affixed in the presence of and attested by an officer of the
corporation, in the case of an officer which is not an individual, if it is affixed in the presence of
and attested by an individual authorised by the officer to attest on its behalf.” And see Law
Com. No.253 paras 4.6-4.9 and Lovett v Carson County Homes Ltd [2009] EWHC 1143 (Ch),
[2009] 2 B.C.L.C. 196 at [70]–[80].
919. See above, n.776, for a definition of corporations sole and see also Law. Com. No.253
para.4.23. On the common law requirements see above, para.1-120.

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(iii) - Common Aspects
Introduction
1-130
There remain certain aspects of the law governing deeds which apply irrespective of the nature of the
person making them or the date on which they are executed.
Date
1-131
A date is not essential to the validity of a deed. 920 A deed takes effect on the date of its delivery. 921
Estoppel preventing reliance on formal invalidity
1-132
In Shah v Shah 922 the Court of Appeal held in relation to an instrument governed by the 1989 Act
as enacted 923 that where an individual has signed an instrument which on its face purports to be a
deed and has delivered it apparently attested by the signature of a witness, he may be estopped from
denying the validity of this “deed” on the ground that the apparently attesting signatory was not
present at the time of that individual’s signature. 924 The Court of Appeal expressed its approval in this
respect for Beldam L.J.’s earlier statement in Yaxley v Gotts to the effect that the:
“… general principle that a party cannot rely on an estoppel in the face of a statute
depends upon the nature of the enactment, the purpose of the provision and the social
policy behind it.” 925
While it was accepted before the Court of Appeal in Shah v Shah that no estoppel could operate in
the case of the absence of a signature by the person allegedly executing a deed, there was no social
policy requiring a person attesting such a signature to be present so as to prevent an estoppel from
arising in respect of a defect in attestation. 926 On the other hand, in Briggs v Gleeds it was held that
estoppel cannot be invoked where a document does not even appear to comply with the 1989 Act in
that it did not bear any signature (or even place for a signature) of a witness, distinguishing the
position in Shah v Shah. 927 Moreover, as the House of Lords made clear in Actionstrength Ltd v
International Glass Engineering IN.GL.EN SpA (which concerned s.4 of the Statute of Frauds 928), an
Page 2
estoppel cannot arise to prevent a person relying on formal invalidity unless there is an unambiguous
representation that the transaction in question was enforceable. 929 This was the case in Shah v Shah
where “the delivery of an apparently valid deed constituted an unambiguous representation of its
nature”. 930
Delivery of deed as an escrow
1-133
A party may deliver a deed as an escrow, that is, so that it shall take effect or be his deed on
certain conditions. It is in other words a limited or conditional delivery. 931 Such delivery need not
be accompanied by express words; if from all the facts attending the transaction it can reasonably be
inferred that the writing was delivered so as not to take effect as a deed until a certain condition
should be satisfied, it will operate as an escrow. 932 To constitute a delivery as an escrow, however, it
was at one time necessary that the deed should not have been handed over to the grantee or
covenantee. 933 But nowadays a deed may be delivered as an escrow by handing it to a solicitor who
is acting for all the parties to it 934; or even to the solicitor of the grantee or covenantee himself,
provided it is clear upon the whole transaction that such handing over was not intended to be a
delivery at that time to such grantee or covenantee. 935 In other words, evidence is admissible to show
the character in which and the terms upon which the deed was delivered. 936 It is a question of fact,
and depends on what the parties intended. Their intention may be ascertained either from their
statements or from the surrounding circumstances prior to or simultaneous with (but not subsequent
to) the delivery of the instrument. 937
Conveyance as an escrow
1-134
Where a conveyance is executed by the vendor and entrusted to his solicitor with a view to its being
handed over to the purchaser on completion, then, in the absence of special circumstances, it is to be
inferred that the conveyance is executed as an escrow conditional upon payment of the purchase
price and (where appropriate) execution by the purchaser. 938 In such a case, there must be a time
limit within which the implied condition of the escrow is to be performed. 939 So if the vendor by notice
makes time of the essence of the contract, and the purchaser does not within the time specified in the
notice perform the condition, it is no longer possible for the condition of the escrow to be performed.
940
However, the inference as to delivery as an escrow arising from non payment of the price can be
rebutted by other circumstances attending the delivery. 941
Retrospective effect
1-135
A deed delivered as an escrow takes effect as between grantor and grantee retrospectively from the
date of its delivery, and not on the date on which the relevant conditions are satisfied. 942
920. Bacon, Abridgment Obligation (C); Comyns Digest Fait (B3); Goddard’s Case (1584) 2 Co Rep.
4b.
921. This paragraph was cited with approval in Silver Queen Maritime Ltd v Persia Petroleum
Services Ltd [2010] EWHC 2867 (QB) at [124]. See also below, para.1-133 (escrow).
922. [2001] EWCA Civ 527, [2002] Q.B. 35.

Page 3
923. Above, para.1-118.
924. The 1989 Act s.1(3) requires that the instrument is signed in the presence of the attending
witness or witnesses.
925. [2001] EWCA Civ 527, [2002] Q.B. 35 at 44 (Pill L.J. with whom Tuckley L.J. and Sir
Christopher Slade agreed): Yaxley v Gotts [2000] Ch. 162, 191.
926. [2001] EWCA Civ 527, [2002] Q.B. 35 at 47.
927.
[2014] EWHC 1178 (Ch), [2015] Ch. 212 at [43]–[44]; Bank of Scotland Plc v Waugh [2014]
EWHC 2117 (Ch), [2015] 1 P. & C.R. DG3 at [68]–[79].
929. [2003] UKHL 17, [2003] 2 All E.R. 615 at [51].
930. [2003] UKHL 17 at [51], per Lord Walker of Gestingthorpe; [2001] EWCA Civ 527, [2002] Q.B.
35 at 47.
931.
It may be difficult to distinguish between a deed which has not been delivered at all and one
which has been delivered as an escrow: Peel, Treitel on The Law of Contract, 14th edn (2015),
para.3–173; Vincent v Primo Enterprises (Voucher Sales) Ltd [1969] 2 Q.B. 609, 620; Kingston
v American Investments Ltd [1975] 1 W.L.R. 161; Windsor Refrigerator Co Ltd v Branch
Nominees Ltd [1961] Ch. 88 at 102 (reversed on other grounds [1961] Ch. 375); Silver Queen
Maritime Ltd v Persia Petroleum Services Ltd [2010] EWHC 2867 (QB).
932. Murray v Earl of Stair (1823) 2 B. & C. 82; Xenos v Wickham (1867) L.R. 2 H.L. 296 at [323];
Macedo v Stroud [1922] 2 A.C. 330 at [337]; Beesly v Hallwood Estates Ltd [1961] Ch. 105;
Vincent v Premo Enterprises Ltd [1969] 2 Q.B. 609; D’Silva v Lister House Development Ltd
[1971] Ch. 17; Kingston v Ambrian Investment Co Ltd [1975] 1 W.L.R. 161; Glessing v Green
[1975] 1 W.L.R. 863; Terrapin International Ltd v IRC [1976] 1 W.L.R. 665; Bank of Scotland Plc
v King [2007] EWHC 2747 (Ch), [2007] All E.R. (D) 376 (Nov) at [63].
933. Co.Litt. 36a; Sheppard, Touchstone of Common Assurances, 7th edn (1820), p.59.
934. Millership v Brookes (1860) 5 H. & N. 797; Kidner v Keith (1863) 15 C.B.(N.S.) 35; 42. Glessing
v Green [1975] 1 W.L.R. 863.
935. Watkins v Nash (1875) L.R. 20 Eq. 262, 266; Nash v Flyn (1844) 1 Jo. & La.T. 162, 177.
936. London Freehold and Leasehold Property Co v Suffield [1897] 2 Ch. 608, 621–622. See below,
para.13-109.
937. Bowker v Burdekin (1843) 11 M.W. 128, 147; Davis v Jones (1856) 17 C.B. 625, 634;
Governors, etc., of Foundling Hospital v Crane [1911] 2 K.B. 367, 374. Thompson v
McCullough [1947] K.B. 447.
938. Kingston v Ambrian Investment Co Ltd [1975] 1 W.L.R. 161; Glessing v Green [1975] 1 W.L.R.
863.
939. Glessing v Green [1975] 1 W.L.R. 863. cf. Kingston v Ambrian Investment Co Ltd [1975] 1
W.L.R. 161 at [168]–[169].
940. Glessing v Green [1975] 1 W.L.R. 863. cf. Beesly v Hallwood Estates Ltd [1961] Ch. 105, 118,
120; Kingston v Ambrian Investment Co Ltd [1975] 1 W.L.R. 161 at 166.
941. Bank of Scotland Plc v King [2007] EWHC 2747 (Ch), [2007] All E.R. (D) 376 (Nov) at [51].
Page 4
942. Alan Estates Ltd v W.G. Stores Ltd [1982] Ch. 511, not following Terrapin International Ltd v
IRC [1976] 1 W.L.R. 665; Bank of Scotland Plc v King [2007] EWHC 2747 (Ch), [2007] All E.R.
(D) 376 (Nov) at [51]; Kenny (1982) Conv. 409.

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(c) - Consideration
No consideration required
1-136
Generally speaking, as will be seen later in detail, 943 the law does not enforce gratuitous promises
but instead requires a certain reciprocity for the creation of a “simple” contract, this requirement being
expressed through the rules gathered under the heading of the doctrine of consideration. However, in
contracts contained in a deed no such reciprocity is ordinarily required, the rule being that a contract
contained in a deed is good even against a party standing to derive no advantage from it. 944 This
means that the common law actions of debt (for a promised sum of money) or damages (for failure to
perform promises more generally) are available to the person for whose benefit they are expressed.
On the other hand equity never favoured voluntary transactions even if they were contained in a
deed, and refused to grant its special remedies in cases where these were without consideration. So
it has been laid down that specific performance will not be decreed of a contract contained in a deed
which is entirely without consideration. 945 Knight-Bruce L.J. in Kekewich v Manning 946 said:
“In equity, where at least the covenantor is living, or where specific performance of such a
(voluntary) covenant is sought, it stands scarcely, or not at all, on a better footing than if it
were contained in an instrument unsealed.” 947
And an imperfect conveyance, if voluntary, is not binding, and equity will not execute it in favour of
volunteers if anything remains to be done. 948 A contract contained in a deed, if made without
consideration, may be impeached by third parties on similar grounds to those on which voluntary
settlements can be impeached as being fraudulent as against creditors or purchasers. 949 Where a
promise or agreement unsupported by consideration is enforceable by reason of its being contained
in a deed, it may be avoided on the ground of special equitable rules of mistake which are distinct
from the rules of mistake applicable to contracts. 950
944. See Plowd. 308; Morley v Boothby (1825) 3 Bing. 107, 111–112.
945. Wycherley v Wycherley (1763) 2 Eden 175, 177; Groves v Groves (1829) 3 Y. & J. 163;
Jefferys v Jefferys (1841) Cr. & Ph. 138. See Fry on Specific Performance, 6th edn (1921),
p.53; Jones and Goodhart, Specific Performance, 2nd edn (1996), p.24. Contrast Mountford v
Scott [1975] Ch. 258 (token payment for grant of option). See also below, paras 4-021, 27-039.
946. (1851) 1 De G.M. & G. 176, 188.

Page 2
947. But see above, para.1-113.
948. As in Milroy v Lord (1862) 4 De G.F. & J. 264; Richards v Delbridge (1874) L.R. 18 Eq. 11; Re
Kay’s Settlement [1939] Ch. 329; Re Fry [1946] Ch. 312. See also Law of Property Act 1925
s.173, replacing Voluntary Conveyances Act 1893.
949. See Law of Property Act 1925 s.173; Insolvency Act 1986 ss.423–425, 436 (replacing Law of
Property Act 1925 s.172).
950.
Pitt v Holt [2013] UKSC 26, [2013] 2 A.C. 108 esp. at [115]; applied in Van der Merwe v
Goldman [2016] EWHC 790 (Ch), [2016] 4 W.L.R. 71 at [26]–[32]. On the common law rules
applicable to mistakes in contracts, see Vol.I, Chs 3 and 6.

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(d) - Other Aspects
Benefit of person not a party
1-137
According to an ancient rule of the common law, no one could take an immediate interest as grantee
nor the benefit of a covenant as covenantee under an indenture inter partes (as opposed to a deed
poll) unless he was named as a party thereto. 951 This was altered by s.5 of the Real Property Act
1845, which provided that under an indenture, an immediate estate or interest in any tenements or
hereditaments, and the benefit of a condition or covenant respecting any tenements or hereditaments,
might be taken, although the taker was not named a party to the same indenture. 952 This section was
re-enacted with modifications by s.56(1) of the Law of Property Act 1925, which provides that a
person may take the benefit of any covenant or agreement over or respecting land or other property,
although he may not be named as a party to the conveyance or other instrument. 953 The
determination of the exact scope of this provision is a matter of considerable difficulty 954; but it is clear
that it does not effect any general abrogation of the doctrine of privity of contract. 955 In Beswick v
Beswick, 956 a majority of the House of Lords was of the opinion that a limited meaning should be
given to the word “property”. Lord Guest thought it meant real property. Lord Upjohn, however, was
not prepared to accept this limitation, although he considered that the application of the section was
restricted to covenants contained in documents strictly inter partes and under seal. 957
Contract (Rights of Third Parties) Act 1999
1-138
It is not entirely clear how the position described in the preceding paragraph is affected by the coming
into force of the Contract (Rights of Third Parties) Act 1999, which creates a new exception to privity
of contract where the contract expressly provides that a third party may in his own right enforce a
term of the contract, or where a term purports to confer a benefit on him unless on a proper
construction of the contract it appears that the parties did not intend the term to be enforceable by the
third party. 958 Where a contract in the ordinary sense of an agreement supported by consideration is
contained in a deed, there is nothing in the 1999 Act which suggests that its provisions should not
apply to contracts owing to the use of this formality: indeed the 1999 Act itself assumes that some
actions upon a speciality can be brought under it as it provides that “an action upon a specialty” in s.8
of the Limitation Act 1980 shall include references to … an action brought in reliance on [s.1] relating
to a specialty”. 959 More difficult, however, is the question whether an agreement contained in a deed
is itself “a contract” for the purposes of the 1999 Act even in the absence of any supporting
consideration. As has been noted, 960 there is no agreement as to whether in general a promise or an
agreement contained in a deed takes effect as a “contract”. In the case of the 1999 Act, though, its
own provisions do make clear that the contracts with which it is concerned must consist of an
agreement between two or more persons for the benefit (as defined) of a third party. 961 Moreover, the
Law Commission’s report on whose recommendations the 1999 Act was based took the view that its
proposed reform would restrict the ambit of the doctrine of consideration so as to prevent the rule that
Page 2
“consideration must move from a promisee” from denying a right in a third party to a contract
otherwise fulfilling the requisite conditions. 962 In the course of exposing its views of the future
position, however, the Law Commission observed that:
“… provided there is a contract supported by consideration (or made by deed), it may

then be enforceable by a third party beneficiary who has not provided consideration.” 963
Given that the courts refer to Law Commission reports for guidance in the interpretation of resulting
legislation, 964 this suggests that an agreement contained in a deed should count as a “contract” for
the purposes of the 1999 Act, even if it is unsupported by consideration. 965
Non est factum and mistake
1-139
There was an ancient common law defence to actions on specialties known as non est factum: if
an illiterate man, to whom the provisions of a deed had been wrongly read, executed it under a
mistake as to its contents, he could say that it was not his deed. 966 In modern times this doctrine has
undergone modification 967 and has been extended to cases other than those of illiteracy and to
simple contracts in writing, 968 so that there is now no difference between specialty and other written
contracts in this respect. This position is to be contrasted with mistakes made in making gifts or other
voluntary dispositions (including those made by deed), where equitable rules apply which differ from
the common law rules applicable to mistake in contracts (whether or not contained in deeds). 969
Estoppel and facts stated in the deed
1-140
“A party who executes a deed is estopped in a Court of Law from saying that the facts
stated in the deed are not truly stated.” 970
The principle has been extended to statements in recitals in a deed. 971 It is a question of the
construction of the deed as a whole as to which parties are estopped by a recital. When a recital is
intended to be a statement which all the parties to the deed have mutually agreed to admit as true, it
is an estoppel upon all. But when it is intended to be the statement of one party only, the estoppel is
confined to that party: and the intention is to be gathered by construing the instrument. 972 The scope
of the doctrine is extremely limited in modern law. First, it only applies between the parties to the deed
and those claiming through them. 973 Secondly, it only applies when an action is brought to enforce
rights arising out of the deed and not collateral to it. 974 Thirdly, it only applies if the statement is clear
and unambiguous. 975 Fourthly, it does not prevent a party from relying on defences such as non est
factum, fraud, illegality or incapacity. In such cases the facts may be pleaded in order to defeat the
deed, even though they may contradict statements made on the face of the deed. 976 And so, although
a party to a deed may be estopped from denying facts which are stated in it, he is not estopped from
saying that, on the facts so stated, the deed is void in law. 977 Fifthly, where a deed is rectifiable (that
is to say, ought to be rectified), the doctrine of estoppel by deed will not bind the parties to it. 978
However, it may be going too far to say that there is, given these restrictions, little point in preserving
a separate category of estoppel by deed on the basis that it appears to be covered by estoppel
representation or by convention. As Lord Toulson has observed:
“For one thing, convention may be contractual or non-contractual. Consideration is still

ordinarily a requirement of a contract. In Johnson v Gore Wood[ 979] Lord Goff expressed
Page 3
reservation about attempting to encapsulate the many circumstances capable of giving

rise to an estoppel within a single formula, in part because consideration remains a
fundamental principle of the law of contract and is not to be reduced out of existence by
the law of estoppel. A particular characteristic of a deed is that consideration is not
ordinarily required for it to be effective as between the parties…. However, where there is
a contractual convention, it makes no difference in principle whether or not the contract is
embodied in a deed.” 980
Merger
1-141
A deed is an instrument of a higher nature than a simple contract. A security created by simple
contract will be merged in and extinguished by a specialty security if it secures the same obligation.
981
A simple contract may also be merged in a deed, e.g. a conveyance, if so intended by the parties.
982
Alteration of deeds
1-142
Where a deed is altered in a material way either by a party in whose custody it is kept or by a stranger
to the transaction, it becomes void, but where the alteration is not material it does not become void.
983
This rule applicable to deeds was extended in 1791 to contracts in written instruments generally 984
and is discussed further in Ch.25. 985
Variation or discharge
1-143
At common law, an attribute of a contract contained in a deed was that it could only be varied or
discharged by another contract contained in a deed, and not by a contract under hand or by word of
mouth 986; but in equity such contracts could be varied or discharged by parol, 987 and the rule of
equity now prevails. 988
Period of limitation
1-144
The period of limitation for an action for a breach of contract is 12 years if the contract is contained in
a deed, whereas it is only six years in the case of a simple contract. 989
951. Scudamore v Vandenstene (1587) 2 Co.Inst. 673; Berkeley v Hardy (1826) 5 B. & C. 355;
Forster v Elvet Colliery Co Ltd [1908] 1 K.B. 629, 639, affirmed sub nom. Dyson v Forster
[1909] A.C. 98. (An “indenture” is a deed executed by more than one party, whereas a “deed
poll” is one executed by only one party.) cf. Moody v Condor Insurance Ltd [2006] EWHC 100,
[2006] 1 W.L.R. 1847, where it was held that the mere fact that a deed was executed by a
guarantor and a principal debtor and expressed as being made “between” them did not
conclude the issue whether the document was a deed poll or a deed inter partes, as it was
“necessary to examine what the parties … set out to do by it”: at [18], per Park J.
Page 4
952. Kelsey v Dodd (1881) 52 L.J.Ch. 34, 39; Forster v Elvet Colliery Co Ltd [1908] 1 K.B. 629.
953. “Property” is defined in s.205(1)(xx). See also Law of Property Act s.78, re-enacting with
modifications Conveyancing Act 1881 s.58.
954. Beswick v Beswick [1968] A.C. 58; Elliott (1956) 20 Conv.(N.S.) 43, 114; Andrews (1959) 23
Conv.(N.S.) 179; Ellinger (1963) 26 M.L.R. 396; below, para.18-022.
955. Beswick v Beswick [1968] A.C. 58.
956. [1968] A.C. 58, 77, 81, 87.
957. [1968] A.C. 58 at [105]–[107]. See also Lord Pearce at [94]. The reference to sealing must be
read in the light of the effect of the Law of Property (Miscellaneous Provisions) Act 1989 s.1,
above, para.1-113.
958. Contract (Rights of Third Parties) Act 1999 s.1 and see generally, below, paras 18-090 et seq.
959. Contracts (Rights of Third Parties) Act 1999 s.7(3).
961. Contract (Rights of Third Parties) Act 1999 s.1(2) which refers to the intention of the parties.
962. Law Commission, Privity of Contract: Contracts for the Benefit of Third Parties, Law Com.
No.242 (1996) Pt VI.
963. Privity of Contract, Law Com. No.242, para.6.4 (emphasis added).
964. Wilson v First County Trust Ltd (No.2) [2003] UKHL 40, [2003] 3 W.L.R. 568 at [56].
965. In Prudential Assurance Co Ltd v Ayres [2008] EWCA Civ 52, [2008] L. & T.R. 30 at [33]–[42] it
was assumed that a third party could take a right under a deed under the Contracts (Rights of
Third Parties) Act 1999, although on the facts the Court of Appeal held that as a matter of
construction the parties did not intend to do so (landlord’s undertaking by deed that liability for
rent owed by partnership assignees of a lease should not extend to their personal assets held
not intended to create a right in the former tenant, guarantor of that rental liability). On the facts,
however, there was consideration moving to the promisors (the landlords) under the deed,
which was expressed as supplemental to the lease.
966. Thoroughgood’s Case (1584) 2 Co. Rep. 9a. But the doctrine was much older than that case:
see Holdsworth, History of English Law, Vol.8, p.50.
969.
Pitt v Holt [2013] UKSC 26, [2013] 2 A.C. 108 esp. at [115]; applied in Van der Merwe v
Goldman [2016] EWHC 790 (Ch), [2016] 4 W.L.R. 71 at [26]–[32]. On the common law rules
applicable to mistakes in contracts, see Vol.I, Chs 3 and 6.
970. Baker v Dewey (1823) 1 B. & C. 704, 707. See also Hayne v Maltby (1789) 3 Term Rep. 438,
441; Potts v Nixon (1870) I.R. 5 C.L. 45.
971. Lainson v Tremere (1834) 1 Ad. & El. 792; Bowman v Taylor (1834) 2 Ad. & El. 278; Young v
Raincock (1849) 7 C.B. 310, 338.
972. Stroughill v Buck (1850) 14 Q.B. 781, 787; cf. Greer v Kettle [1938] A.C. 156, 168–171.
Page 5
973. Carpenter v Buller (1841) 8 M. & W. 209, 212.
974. Carpenter v Buller (1841) 8 M. & W. 209 at [213]; Wiles v Woodward (1850) 5 Exch. 557, 563;
Ex p. Morgan (1875) 2 Ch. D. 72.
975. Bensley v Burdon (1830) 8 L.J.(O.S.) Ch. 85, 87; Right v Bucknell (1831) 2 B. & Ad. 278, 282;
Heath v Crealock (1874) L.R. 10 Ch. App. 22; General Finance, etc., Co v Liberator, etc.,
Building Society (1879) 10 Ch. D. 15; Onward Building Society v Smithson [1893] 1 Ch. 1;
Poulton v Moore [1915] 1 K.B. 400; cf. Trinidad Asphalte Co v Coryat [1896] A.C. 587.
976. Collins v Blantern (1767) 2 Wils. K.B. 341; Hayne v Maltby (1789) 3 Term Rep. 438; Hill v
Manchester and Salford Waterworks Co (1831) 2 B. & Ad. 544.
977. Doe d. Preece v Howells (1831) 2 B. & Ad. 744, and see Re A Bankruptcy Notice [1924] 2 Ch.
76.
978. Greer v Kettle [1938] A.C. 156, 171; Wilson v Wilson [1969] 1 W.L.R. 1470; OTV Birwelco Ltd v
Technical & General Guarantee Co Ltd [2002] 4 All E.R. 668.
979. [2002] 2 AC 1, 39–40.
980. Prime Sight Ltd v Lavarello (Official Trustee) [2013] UKPC 22, [2014] A.C. 436 at [30] (on
behalf of the Privy Council).
983. Pigot’s Case (1614) 11 Co. Rep. 26B, 27A; Aldous’s Case (1868) L.R. 3 Q.B. 753; Northern
Bank Ltd v Laverty [2001] N.I. 315.
984. Master v Millar (1791) 14 T.R. 320.
986. Kaye v Waghorn (1809) 1 Taunt. 428; cf. Ex p. Morgan (1875) 2 Ch. D. 72 at 89 and see the
rule recognised but infringed in Nash v Armstrong (1861) 10 C.B.(N.S.) 259.
987. Webb v Hewitt (1857) 3 K. & J. 438.
988.
Senior Courts Act 1981 s.49; Steeds v Steeds (1889) 22 Q.B.D. 537; Berry v Berry [1929] 2
K.B. 316; Mitas v Hyams [1951] 2 T.L.R. 1215; Plymouth Corp v Harvey [1971] 1 W.L.R. 549.
The parties to a contract contained in a deed (as in the case of a simple contract) may vary or
discharge that contract by simple contract despite its containing an “anti-oral variation clause”
by which, for example, any variation may be effected only by deed or only in signed writing:
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, [2017]
Q.B. 604 at [19]–[34], following dicta in Globe Motors Inc v TRW Lucas Varity Electric Steering
Ltd [2016] EWCA Civ 396, [2017] 1 All E.R. (Comm) 601 esp. at [100] and [119], and reviewing
earlier conflicting authorities.
989. Limitation Act 1980 s.8(1) (but subject to s.8(2)). See, e.g. Aiken v Stewart Wrightson Members
Agency Ltd [1995] 1 W.L.R. 1281, 1292. See below, paras 28-002, 28-003.

Page 1

Section 7. - The Relationship between Contract and Tort
Introduction
1-145
The proper relationship between contract and tort has caused considerable difficulty and justifies
some discussion of its history as well as an examination of the modern law. 990 As a matter of history,
the first problem for the common law was to decide whether a particular form of action which it
granted ought to be considered as founded on tort or on contract, a problem of the classification of
actions. 991 Secondly, it is clear that there are considerable differences between the typical cases of
liability in tort and contract: contractual obligations are voluntary and particular to the parties, whereas
liability in tort is imposed by law as a matter of policy and affects persons generally. 992 Moreover, the
distinction between the two liabilities is reflected in differences of rule which govern not merely their
existence but also their incidents. 993 Thirdly, given these differences of regime between contract and
tort, the question arises whether a party to a contract may choose to sue the other party in tort where
the constituent elements of a tort can be made out and, if so, with what effects. 994 Again, where the
existence of liability in tort is doubtful, the question arises whether the existence of a contract between
the parties is a reason in favour of the recognition of such a tortious duty or a reason against it, a
question which has arisen in particular in the context of recovery of pure economic loss in the tort of
negligence. 995 Finally, the question is posed whether or to what extent the existence of a contractual
obligation owed by A to B under a contract affects any liability in A to C, who is not party to that
contract or, conversely, liability in C to A: do contracts affect torts beyond privity? 996
990. See Prosser, Selected Topics on the Law of Torts (1953), p.380; Guest (1961) 3 Univ. Malaya
L.R. 191; Poulton (1966) 82 L.Q.R. 346; Fridman (1977) 93 L.Q.R. 422; Duncan Wallace (1978)
L.Q.R. 60; Burrows (1983) 99 L.Q.R. 217; Smith (1984) U.B.C.L. Rev. 95; Jaffey (1985) 5 L.S.
77; Reynolds (1985) 11 N.Z. Univ. Law Rev. 215; Atiyah, Law & Contemporary Problems 287;
Cane, The Law of Torts (1986), Ch.6; Cane, Tort Law and Economic Interests, 2nd edn (1996),
pp.129–149, 307–343; McLaren (1989) 68 Can. Bar Rev. 30; Adams and Brownsword (1991)
55 Sask. L. Rev. 441; Burrows (1995) C.L.P. 103; Cane, Consensus ad Idem (1996), p.96;
Whittaker (1996) 16 O.J.L.S. 191; Whittaker (1997) 17 Legal Studies 169. For an economic
analysis see Bishop (1983) 12 L.S. 241. For comparative studies see Weir, International
Encyclopedia of Comparative Law (1976), Vol.XI, “Torts” Ch.12; Markesinis (1987) 103 L.Q.R.
354.
992. See below, paras 1-147—1-149.
993. See below, paras 1-150—1-153.

Page 2

Page 1

(a) - The Classification of the Forms of Action at Common Law
Forms of action
1-146
For a long time, the common law did not require formally to distinguish between actions in contract
and in tort. 997 Until the late seventeenth century, only Bracton used a Roman legal framework for the
treating of common law material, including the distinction between actions ex delicto and ex contractu,
and even he did not make this distinction central to his exposition. 998 Moreover, while some early
decisions appear to turn on such a distinction, care should be taken not to read into these cases,
which turned on differences of individual writs, disputes as to a classification unfamiliar and irrelevant
to contemporary legal thought 999: indeed, the action which became the main sanction of breach of
contract (assumpsit) and the modern torts both grew out of the action of trespass. 1000 However, from
the late seventeenth century, the courts did distinguish between actions in contract (assumpsit,
covenant and account) and actions in tort (which included trespass, trover and nuisance). They did so
for the purposes of rules governing transmissibility of actions on death 1001 and capacity, 1002 but the
principal purposes were procedural and in particular the rules as to joinder of actions in the same
declaration and joinder of parties to proceedings were said to turn on whether the action was in a
form ex contractu or a form ex delicto. 1003 Even so, it was not until the nineteenth century that this
distinction was used as a general basis of exposition of the common law material, 1004 though it had
been mentioned in earlier works. 1005 However, since the abolition in the mid-nineteenth century of
many of the procedural differences between the two types of action, 1006 these disputes could be seen
as “useless, and worse than useless learning”. 1007 Where, therefore, after these reforms a court has
had to classify a particular type of claim by a claimant as contractual or tortious, for example for the
purposes of the jurisdiction of a court of limited jurisdiction, it has done so on the basis of what it
considered was the substance rather than the form of action. 1008
997. Maitland, Appendix A to Pollock, The Law of Torts, 1st edn (1887), p.467, p.468.
998. Maitland, Appendix A to Pollock, The Law of Torts, p.468.
999. Prosser above, n.920, at pp.380–381.
1000. Simpson, A History of the Common Law of Contracts (1975), p.199; Milsom, Historical
Foundations of the Common Law, 2nd edn (1981), Ch.12; Fridman (1977) 93 L.Q.R. 422.
1001. Pinchon’s Case (1608) 9 Col. Rep. 86b; Hambly v Trott (1776) 1 Cowp. 371.
1002. Johnson v Pye (1666) 1 Sid. 258, 1 Keb. 913; Bristow v Eastman (1794) 1 especially 172.
1003. Denison v Ralphson (1682) 1 Vent. 365; Bosun v Sandford (1691) 2 Salk. 440. In this respect,
there was something of a dispute as to the form in which the action of detinue was properly to
Page 2
be classified: see Chitty, A Practical Treatise on Pleading (1809), Vol.II, p.399; Cooper v Chitty
(1756) 1 Burr. 20, 31; Gledstane v Hewitt (1831) 1 C. & J. 566; Manning, note to Walker v
Needham (1841) 3 Man. & Gr. 561. This dispute appears particularly strange given the clearly
proprietary function of the action.
1004. Chitty, above, n.933 Vol.I, Chs 1 and 2.
1005. Bracton, Fol. 102; Bacon, A New Abridgement of the Law (1736) “Actions in General (A) Of the
different Kinds of Actions”; Comyns, A Digest of the Laws of England, 1st edn (1762–67), Vol.1,
p.120; Blackstone, Commentaries, III, Ch.VIII.
1006. Common Law Procedure Act 1852 ss.34, 35, 41, 74.
1007. Bryant v Herbert (1878) 3 C.P.D. 389, 392, per Bramwell L.J., referring to the problem of the
classification of detinue, on which see above n.933.
1008. Bryant v Herbert (1878) 3 C.P.D. 389; Legge v Tucker (1856) 1 H. & N. 500. In theory, this
issue of the classification of a particular type of claim is distinct from the issue whether in cases
of concurrence of actions the claimant may choose the basis of his claim. Thus, in Att-Gen v
Canter [1939] 1 K.B. 318 the question arose whether a claim by the Crown for a penalty
imposed on a taxpayer for fraud transmitted against the latter’s estate under s.1 of the Law
Reform (Miscellaneous Provisions) Act 1934, and if so, whether it ought to be considered a
“cause of action in tort” for the purposes of s.1(3) of the same Act which imposed time
restrictions as to the accrual of such a transmitted claim. At first instance, Lawrence J. held that
the claim was “one for a debt created by the statute” under which the penalty was imposed and
did transmit against the estate, but was not a “cause of action in tort”: at 321. The Court of
Appeal confirmed this decision, though only the principle of transmissibility was addressed.
However, the courts have also looked to the substance of a plaintiff’s claim as being contract
rather than tort in cases of concurrence, to prevent the plaintiff’s choice of form of action from
governing the procedural rule applicable: see Legge v Tucker, above, though the court denied
the “independence” of the tort from the contractual duty: at 502; Kelly v Metropolitan Ry Co
[1895] 1 Q.B. 944; Edwards v Mallen [1908] 1 K.B. 1002.

Page 1

(b) - Differences of Substance between Contract and Tort
General
1-147
Publication in the mid-nineteenth century of the great systematising textbooks of Addison, 1009
Underhill 1010 and Pollock 1011 saw a change in understanding of the distinction between contract and
tort from one of form to one of substance. This change resulted, not only from the sweeping away of
the old procedural differences between the two types of action, but also from the acceptance by
English lawyers of the “will theory” of contractual obligation, 1012 a theory which pointed to the special
voluntary nature of contractual obligations, in contrast to duties in tort which were not. 1013 This
contrast lies behind part of the generally accepted modern distinction between contract and tort.
Thus, according to Winfield, 1014 liability for breach of contract is distinguished from liability in tort in
that:
“(i)
the duties in tort are primarily fixed by the law while in contract they are fixed by the
parties themselves; and
(ii)
in tort the duty is towards persons generally while in contract it is towards a specific
person or persons.”
Both propositions still hold good, at least as a starting point. So, Jackson L.J has observed that:
“Contractual obligations are negotiated by the parties and then enforced by law because
the performance of contracts is vital to the functioning of society. Tortious duties are
imposed by law (without any need for agreement by the parties) because society
demands certain standards of conduct.” 1015
Moreover, there is a further real, general distinction: for torts can be said to make the claimant’s
(existing) position worse, whereas a breach of contract often consists of failing to make the claimant’s
position better, better, that is, from the claimant’s pre-contractual position and as defined by the other
party’s obligations under the contract. 1016 However, developments in the modern law have blurred
Page 2
these contrasts. First, as has already been remarked, many of the incidents of modern contracts are
not fixed by the parties: the courts 1017 and the legislature have regulated the relationships of many
contractors. Moreover, even where this regulation is effected by the implication of a term, some terms
are not susceptible to express exclusion or alteration by the parties. 1018 Indeed, in some types of
contracts legislative regulation has reached a level where the “voluntary element” is reduced to a
simple choice whether or not to enter the relationship. 1019 Furthermore, in general common law or
statute, rather than the parties, specify what legal consequences arise on the failure to perform a
contract, whether this is considered a matter of breach 1020 or frustration. 1021 It is the law itself which
provides and delineates the remedies of damages, termination for major breach of contract or specific
performance, and the role of the parties’ agreement here is not to create but at most to modify the
rules already provided by the law. 1022 Conversely, “voluntariness” can be relevant to the imposition of
liability in tort: positively, where “voluntariness” or consent on the part of the defendant is a factor in
the imposition of liability, for example, in relation to occupier’s liability, 1023 liability for omissions 1024 or
under the principle established by Hedley Byrne & Co Ltd v Heller & Partners Ltd. 1025 Negatively,
however, the consent of a claimant may prevent liability from arising in tort: thus, consent to medical
treatment 1026 or to a risk of injury in sport 1027 may exclude liability in tort by operation of the maxim
volenti non fit injuria, as may a contractual agreement by the parties excluding liability, whether in tort
or in contract. 1028
1-148
Some writers have stressed the special protection of expectations created by a contract, reflected
in the nature of the damages awarded on its breach and the lack of protection of expectations by the
law of torts. 1029 Others have disagreed, 1030 arguing that this obscures the importance of awards of
damages in contract based on the claimant’s “reliance interest”, which is similar to that protected
generally in tort. 1031 Conversely, damages in tort can compensate the injured party’s disappointed
expectations, for example, his expectation to be able to earn a living, 1032 although it has been pointed
out that this expectation is general, unlike contractual expectations which are induced by making the
contract. 1033 On the other hand, while traditionally it could be said that recovery for non-intentional
pure economic loss was generally irrecoverable in tort, while being recoverable in contract, this
position has been significantly qualified by the House of Lords’ application of the principle of
“assumption of responsibility” of Hedley Byrne & Co Ltd v Heller & Partners 1034 to cases of the
negligent performance of services. 1035
1-149
More radical criticism of the division between contract and tort argues that it, together with other
broad conceptual distinctions in the law, at times helps to obscure similarities of factual situation
which cut across it and at others to group together situations which have practically nothing in
common. 1036 Instead, it has been suggested, private law should be reclassified according to the
nature of the interest of the claimant to be protected. 1037 However, this type of suggestion has not
been generally accepted and the distinction between contract and tort remains fundamental.
Differences of regime between contract and tort: damages
1-150
Some legal incidents of liability differ according to whether the claimant’s claim is based on a
breach of contract or a tort. Thus, there are important differences between the damages recoverable
in contract and in tort. 1038 As has been noted, the most basic difference remains that the function of
damages in contract is primarily to put the injured party as far as possible in the position in which he
would have been had the contract been performed, 1039 whereas the function of damages in tort is to
put the injured party in the position in which he would have been if the tort had not been committed.
1040
Thus, damages for breach of warranty may give the claimant his lost bargain, 1041 whereas
damages in the tort of deceit, 1042 negligent misstatement, 1043 under s.2 of the Misrepresentation
1044
Act 1967 and in respect of “misleading actions” or “aggressive commercial practices” 1045 may not,
being instead restricted to what has been termed compensation of his “status quo interest”. 1046 The
Page 3
tests of remoteness of damage in contract and in tort are apparently different 1047 and in general the
defence of contributory negligence does not apply to claims in contract, though it is now established
that the court may reduce a claimant’s damages for breach of contract on this ground if his claim is
based on breach of a contractual duty to take reasonable care, concurrent with liability in the tort of
negligence. 1048
1-151
Other differences in the heads of damages available in contract and in tort are often to be based on
circumstances other than the mere classification of the liability in issue. Thus, whereas nominal
damages are always possible in an award in contract, it would appear that they are only available in
tort if it is actionable per se. 1049 Punitive or exemplary damages are sometimes said to be possible in
tort, but not in contract, 1050 though the exceptional circumstances in which they are permitted in tort
are usually inapplicable to the contractual context. 1051 Similarly, damages for injured feelings or
mental distress not consequential on the claimant’s own physical injury are very closely, if differently,
circumscribed both in tort 1052 and in contract, 1053 though there remains some authority which
excludes them entirely from liability in contract. 1054 Traditionally, it was sometimes said that damages
for loss of reputation are not available in contract in contrast to tort, 1055 but there were conflicting
decisions on this point, 1056 and some cases clearly recognised such a recovery in contract in
appropriate cases, such as injury to a trader whose business reputation is affected by the breach 1057
and where the contract can be said to be for the maintenance or promotion of the claimant’s
reputation. 1058 Moreover, in Mahmud v Bank of Credit and Commerce International SA (In
Liquidation), 1059 the House of Lords allowed recovery by two former employees for damage to their
employment prospects by breach of their employer’s obligation not to damage the relationship of trust
between employer and employee, seeing this as an example of the general rule allowing recovery for
financial harm caused by breach of contract (as opposed to caused by the manner in which the
contract was breached). 1060
Limitation of actions
1-152
Although the Limitation Act 1980 1061 provides an identical period of six years 1062 for actions founded
on simple contract or on tort, the period begins to run “from the date on which the cause of action
accrued”. 1063 This may vary according to whether the action is framed in tort, contract or restitution.
1064
For example, in contract the cause of action accrues when the breach of contract takes place, not
when the damage occurs or is discovered. 1065 But, in the tort of negligence, the cause of action
accrues when damage occurs, and not at the time of the act or default giving rise to the claim. 1066
However, the practical effect of this rule was reduced by the provision of the Latent Damage Act
1986, which provides 1067 that:
“… actions for damages for negligence in respect of latent damage not involving personal
injuries may be brought for a period of three years after the discovery of the damage by
the plaintiff even if this is after six years after accrual of the cause of action.”
This provision has created its own distinction between claims in contract and in tort, as it has been
held that the term "negligence actions" for this purpose does not include actions for breach of a
contractual obligation to take reasonable care, even where this is concurrent with an action for
tortious negligence. 1068
Other differences
1-153
A contractual right, for example, to a certain sum due under a contract, can generally be assigned,
but a right of action in tort generally cannot. 1069 The rules of the conflict of laws governing both
Page 4
jurisdiction 1070 and applicable law are different in matters relating to tort and to contract. 1071 The law
governing the capacity of parties may be different: so, for example, a minor is in principle liable for his
torts, but only to a limited extent on his contracts. 1072 Statutory provisions sometimes distinguish
according to rights arising out of a contract, and other rights (which would include tort) though this
appears to be a diminishing practice. 1073
1009. Addison, Contracts, 1st edn (1845).
1010. Underhill, A Summary of the Law of Torts or Wrongs Independent of Contract, 1st edn (1873).
1011. Pollock, Principles of Contract at Law and in Equity, 1st edn (1876); The Law of Torts, 1st edn
(1887).
1012. See Gordley, The Philosophical Origins of Modern Contract Doctrine (1991), Ch.6.
1013. Atiyah, The Rise and Fall of Freedom of Contract (1979), p.408.
1014. Winfield, Province of the Law of Tort (1931), p.380.
1015. Robinson v P.E. Jones (Contractors) Ltd [2011] EWCA Civ 9, [2011] B.L.R. 206 at [79] (with
whom Stanley Burnton and Maurice Kay L.JJ. agreed).
1016. cf. Weir, International Encyclopedia of Comparative Law (1976), Vol.XI, “Torts”, Ch.12, p.5;
Whittaker (1996) 16 O.J.L.S. 191, 207 et seq. cf. below, para.1-150.
1017. See above, para.1-034; below, Ch.14.
1018. See, e.g. Sale of Goods Act 1979 s.14; Unfair Contract Terms Act 1977 s.6; and (on its coming
into force) Consumer Rights Act 2015 ss.9–10; 31. On these provisions see below, para.15-093
and Vol.II, para.38-492.
1019. Hepple (1986–1987) 36 King’s Counsel 11 and see above, para.1-034.
1020. See below, Chs 24, 26, 27.
1022. For example, the law specifies what losses may be compensated by an action for damages for
breach of contract. In principle, the parties may specify the circumstances in which a right to
terminate a contract on the ground of breach will arise (below, paras 13-019, 24-039) or can
exclude or limit a party’s liability in damages, but they cannot resort to the use of “penalties”:
below, paras 26-178 et seq.
1023. The liability of an occupier to someone on the premises for injury depends, inter alia on whether
that person had permission to be there: see Occupiers’ Liability Act 1957 s.1(2) (visitors) and
Occupiers’ Liability Act 1984 s.1(1) (trespassers).
1024. Thus, liability in the tort of negligence will be imposed for a negligent “pure omission” where the
defendant has voluntarily accepted a duty: Clerk & Lindsell on Torts, 21st edn (2014), paras
8-53—8-61.
1025. [1964] A.C. 465. See Spring v Guardian Assurance Co Ltd [1995] 2 A.C. 296; Henderson v
Merrett Syndicates Ltd [1995] 2 A.C. 145; Williams v Natural Life Health Foods Ltd and Mistlin
[1998] 1 W.L.R. 830. cf. Smith v Eric S Bush [1990] 1 A.C. 831; Harris v Wyre Forest District
Council [1990] 1 A.C. 831 at 862 and see below, paras 1-166 et seq. See also Barker (1993)
109 L.Q.R. 461; Whittaker (1997) 17 Legal Studies 169.
Page 5
1026. Montgomery v Lanarkshire Health Board [2015] UKSC 11, [2015] 2 W.L.R. 768.
1027. Condon v Basi [1985] 1 W.L.R. 866.
1029. Burrows (1983) 99 L.Q.R. 217; Taylor (1982) 45 M.L.R. 139; Friedmann (1995) 111 L.Q.R. 628;
Whittaker (1996) 16 O.J.L.S. 191, 207 et seq. cf. Stapleton (1997) 113 L.Q.R. 257.
1030. Atiyah, Essays on Contract (1986), Essay 2; Hedley (1988) 9 L.S. 137.
1031. Fuller & Purdue (1936–1937) 46 Yale L.J. 52 and 373.
1032. Atiyah, The Rise and Fall of Freedom of Contract (1979), pp.762–763.
1033.
Peel, Treitel on The Law of Contract, 14th edn (2015), para.20–021.
1034. [1964] A.C. 465.
1035. See Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145; Williams v Natural Life Health
Foods Ltd and Mistlin [1998] 1 W.L.R. 830 and below, paras 1-166—1-173.
1036. Atiyah, Essays on Contract (1986), pp.53–55. cf. Burrows (1983) 99 L.Q.R. 217.
1037. Atiyah at Essay 2; Hedley (1988) 8 L.S. 137.
1038. McGregor on Damages, 19th edn (2014), paras 22-001 et seq.; Burrows, Remedies for Torts
and Breach of Contract, 3rd edn (2004), Ch.2.
1039. Robinson v Harman (1848) 1 Exch. 850, 855; Burrows (1983) 99 L.Q.R. 217. cf. Atiyah (1978)
94 L.Q.R. 193 and Essays on Contract (1986), Ch.2; Owen (1984) 4 O.J.L.S. 393; Waddams
(1983–84) 8 Can. Bus. L.J. 2; Friedmann (1995) 111 L.Q.R. 628.
1040. Livingstone v Raywards Coal Co (1880) 5 App. Cas. 25, 39; Lim Poh Choo v Camden and
Islington Area Health Authority [1980] A.C. 174, 186 et seq.; Gates v City Mutual Life
Assurance Society Ltd (1986) C.L.R. 1, 11–12.
1041. e.g. Sale of Goods Act 1979 s.53(3).
1042.
Peek v Derry (1887) 37 Ch. D. 541, 578; Doyle v Olby (Ironmongers) Ltd [1969] 2 Q.B. 158,
167 and see Smith New Court Securities v Scrimgeour Vickers (Asset Management) Ltd [1997]
A.C. 254; cf. Davidson v Tullock (1860) 3 Macq. 783; East v Maurer [1991] 1 W.L.R. 461; OMV
Petrom SA v Glencore International AG [2016] EWCA Civ 778, [2017] 3 All E.R. 157 and see
below, paras 7-055, 7-058—7-059.
1043. Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801, 820–821; Box v Midland Bank Ltd [1979] 2
Lloyd’s Rep. 391.
1044. André & Cie SA v Ets Michel Blanc et Fils [1977] 2 Lloyd’s Rep. 166, 181; McNally v
Welltrade International Ltd [1978] I.R.L.R. 497, 499; Taylor (1982) 45 M.L.R. 139; Cartwright
(1987) 51 Conv. 423; Sharneyford Supplies Ltd v Edge Barrington & Black [1986] Ch. 128,
[1987] Ch. 305, not following Watts v Spence [1976] Ch. 16; Royscot Trust Ltd v Rogerson
[1991] 2 Q.B. 297 and see below, para.7-078.
1045. The right in a consumer to claim damages in respect of the “misleading action” or “aggressive
practice” of a trader is contained in the Consumer Protection from Unfair Trading Regulations
2008 (SI 2008/1277) regs 5 and 7, 27A–27D, 27J (as amended by the Consumer Protection
(Amendment) Regulations 2014 (SI 2014/870)). The measure of damages is set by reg.27J(1);
reg.27J(3) specifically excludes recovery of damages for financial loss in respect of the
Page 6
difference between the market price of a product (as specially defined) and the amount payable
for it under the contract: see generally Vol.II, paras 38-160 et seq. and, on the right to damages,
paras 38-185—38-186.
1046. Burrows (1983) 99 L.Q.R. 217, 219–221. Damages in tort may include compensation for
wasted expenditure and lost opportunities: East v Maurer [1991] 1 W.L.R. 461 and see below,
para.7-058.
1047. Koufos v Czarnikow Ltd [1969] 1 A.C. 350; Yapp v Foreign and Commonwealth Office [2014]
EWCA Civ 1512, [2015] I.R.L.R. 112 at [119]–[122] and see below, paras 26-116—26-118. The
principles of causation, e.g. in relation to the effect of supervening causes, are said sometimes
to be the same in contract as in tort: Beoco Ltd v Alfa Laval Co Ltd [1995] Q.B. 137; cf. Galoo
Ltd v Bright Grahame Murray [1994] 1 W.L.R. 1360.
1048. Law Reform (Contributory Negligence) Act 1945; Forsikringsaktieselskapet Vesta v Butcher
[1989] A.C. 852; Barclays Bank Plc v Fairclough Building Ltd [1995] Q.B. 21; Barclays Bank Plc
v Fairclough Building Ltd (No.2) [1995] I.R.L.R. 605 and see below, para.26-077.
1049. Ogus, The Law of Damages (1973), pp.22 et seq. cf. Marzetti v Williams (1830) 1 B. & Ad. 415.
1050. Addis v Gramophone Co Ltd [1909] A.C. 488; Perera v Vandiyar [1953] 1 W.L.R. 672, see
below, paras 26-044—26-045.
1051. Rookes v Barnard [1964] A.C. 1129; Cassell & Co Ltd v Broome [1972] A.C. 1027. cf. below,
para.7-070 (fraud). The exception to this is where “the defendant’s conduct had been calculated
by him to make a profit for himself which may well exceed the compensation payable to the
plaintiff”: Rookes v Barnard [1964] A.C. 1129, 1126–1127. The traditional and general rule is
that a party injured by a breach of contract cannot on this ground alone recover against the
party in breach for profits made as a consequence of that breach as distinct from losses caused
by that breach: Teacher v Calder [1899] A.C. 451; Surrey CC v Bredero Homes Ltd [1993] 3
W.L.R. 1361. However, in Att-Gen v Blake [2001] 1 A.C. 268, the House of Lords held that
exceptionally the courts possess a discretion to award an account of profits against a party in
breach of contract, even where the injured party has suffered no loss and see below, paras
26-001, 26-046 et seq.
1052. McGregor on Damages, 19th edn (2014), paras 5-012 et seq. cf. McLoughlin v O’Brien [1983] 1
A.C. 785; Alcock v Chief Constable of South Yorkshire Police [1992] 1 A.C. 310; Page v Smith
[1995] 2 W.L.R. 644; White v Chief Constable of South Yorkshire [1998] 3 W.L.R. 1509;
Rothwell v Chemical Insulating Co Ltd [2008] 1 A.C. 281.
1053. Below, paras 26-139—26-147 and see McGregor on Damages, 19th edn (2014) paras 5-023 et
seqCook v Swinfen [1967] 1 W.L.R. 457; Jarvis v Swann Tours Ltd [1973] 1 Q.B. 233; Bliss v
S.E. Thames Regional Health Authority [1985] I.R.L.R. 308; Hayes v James & Charles Dodd (A
Firm) [1990] 2 All E.R. 815, 824; McLeish v Amoo-Gottfried & Co, The Times, October 13, 1993
; Watts v Morrow [1991] 1 W.L.R. 1421; Knott v Bolton [1995] E.G.C.S. 59; Mahmud v Bank of
Credit and Commerce International SA (In Liquidation) [1998] A.C. 20; Johnson v Unisys Ltd
[2001] UKHL 13, [2001] 2 W.L.R. 1076; Edwards v Chesterfield Royal Hospital NHS Foundation
Trust [2011] UKSC 58, [2012] 2 W.L.R. 55. cf. Yapp v Foreign and Commonwealth Office
[2014] EWCA Civ 1512, [2015] I.R.L.R. 112 at [119].
1054. Addis v Gramophone Co Ltd [1909] A.C. 488.
1055. Addis v Gramophone Co Ltd [1909] A.C. 488; Withers v General Theatre Corp Ltd [1933] 2 K.B.
536.
1056. cf. Withers v General Theatre Corp Ltd [1933] 2 K.B. 536 with Marbe v George Edwardes
(Daly’s Theatre) Ltd [1928] 1 K.B. 269.
1057. Wilson v United Counties Bank Ltd [1920] A.C. 102.

Page 7
1058. Rolin v Steward (1854) 14 C.B. 595; Aerial Advertising Co v Batchelors Peas (Manchester) Ltd
[1938] 2 All E.R. 788.
1059. [1998] A.C. 20 and see McGregor on Damages, 19th edn (2014), para.5-035.
1060. [1998] A.C. 20, 51. But see Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 A.C. 518;
Eastwood v Magnox Electric Plc [2004] UKHL 35, [2005] 1 A.C. 503; Edwards v Chesterfield
Royal Hospital NHS Foundation Trust [2011] UKSC 58, [2012] 2 W.L.R. 55; Yapp v Foreign and
Commonwealth Office [2014] EWCA Civ 1512, [2015] I.R.L.R. 112 and below, paras
26-148—26-149.
1061. Ss.2, 5.
1062. But see s.11 (three years for actions in respect of personal injuries): below, paras 28-006 et
seq. This provision specifically applies to actions in contract as well as in tort.
1063. A similar phrase is used in the Senior Courts Act 1981 s.35A (interest on debt and damages)
which by the Administration of Justice Act 1982 s.15(1), Sch.1 Pt 1 replaced s.3 of the Law
Reform (Miscellaneous Provisions) Act 1934.
1064. Battley v Faulkner (1820) 3 B. & Ald. 288; Beaman v A.R.T.S. Ltd [1948] 2 All E.R. 89, 92
(reversed on other grounds [1949] 1 K.B. 550); Bagot v Stevens, Scanlan & Co Ltd [1966] 1
Q.B. 197; Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch. 384. See below, paras
28-031—28-062. Saunders v Edwards (1662) Sid. 95; Bonomi v Backhouse (1859) E., B. & E.
646; Gibbs v Guild (1881) 8 Q.B.D. 296, 302; Chesworth v Farrar [1967] 1 Q.B. 407; Pirelli
General Cable Works Ltd v Oscar Faber & Partners [1983] 2 A.C. 1. See also below, paras
28-031—28-032.
1065. Battley v Faulkner (1820) 3 B. Ald. 288; Walker v Milner (1866) 4 F. & F. 745; Lynn v Bamber
[1930] 2 K.B. 72; Bagot v Stevens, Scanlan & Co Ltd [1966] 1 Q.B. 197. cf. Shaw v Shaw
[1954] 2 Q.B. 429; Midland Bank Trust Co Ltd v Hett, Stubbs Kemp [1979] Ch. 384; Forster v
Outred & Co [1982] 1 W.L.R. 86.
1066. Watson v Winget Ltd (1960) S.C. 92; Cartledge v E. Jopling & Sons Ltd [1963] A.C. 758 (now
modified by ss.11(4), 14 of the Limitation Act 1980); Sparham-Souter v Town and Country
Developments Ltd [1976] 1 Q.B. 858; Anns v Merton London BC [1978] A.C. 728; Midland Bank
Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch. 384; Pirelli General Cable Works Ltd v Oscar
Faber & Partners [1983] 2 A.C. 1; Ketterman v Hansel Properties Ltd [1987] 1 A.C. 189; London
Congregational Union Inc v Harriss and Harriss (A Firm) [1988] 1 All E.R. 15; D. W. Moore & Co
Ltd v Ferrier [1988] 1 W.L.R. 267; Lee v Thompson [1989] 40 E.G. 89; McGee (1988) 104
L.Q.R. 376; Law Society v Sephton & Co [2006] UKHL 22, [2006] 2 W.L.R. 1091.
1067. Creating new s.14A of the Limitation Act 1980.
1068. Iron Trades Mutual Insurance Co Ltd v J.K. Buckenham Ltd [1990] 1 All E.R. 808 and see
below, para.28-033. cf. Consumer Protection Act 1987 s.5(5) which sets a different time of
accrual for actions for damage to property against a supplier or producer under Pt I of the Act
from that which would exist against a contractor under the general law of limitation.
1070. Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in
civil and commercial matters (recast) (“the Brussels Ibis Regulation”) [2012] O.J. L351/1 arts
7(1) and 7(2) replacing Regulation (EC) 44/2001 of 2001 on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters (“Brussels I Regulation) art.5(1)
(“matters relating to a contract”) and (3) (“matters relating to tort, delict or quasi-delict”) which
itself replaced the Convention on Jurisdiction and the Enforcement of Judgments in Civil and
Commercial Matters 1968 (the “Brussels Convention”).
1071. See in particular Regulation (EC) 593/2008 on the law applicable to contractual obligations
Page 8
(“Rome I”) [2008] O.J. L177/6; Regulation (EC) 864/2007 applicable to non-contractual
obligations (“Rome II Regulation”) [2007] O.J. L199/40 and generally Dicey, Morris and Collins
on The Conflict of Laws, 15th edn (2014), Chs 32–35. On the Rome I Regulation, see below,
1072. See below, paras 9-053—9-054. See also below, para.10-081 (trade unions).
1073. An example may be found in Companies Act 2006 ss.81 and 83 (replacing ss.4 and 5 of the
Business Names Act 1985). The former distinction in the Bankruptcy Act 1914 s.30(1) between
demands arising by reason of contract which were provable in bankruptcy and others which
were not normally so provable, is not found in the provisions which replaced it in the Insolvency
Act 1985 (ss.163, 211(1), (2) and (3)).

Page 1

(c) - Concurrence of Actions in Contract and Tort
General
1-154
Where the constituent elements of a claimant’s case are capable of being put either in terms of a
claim in tort or for breach of contract, the general rule is that the claimant may choose on which basis
to proceed, though this rule is subject to a number of qualifications, notably where to do so would be
inconsistent with the terms of the contract. This traditional position was clearly affirmed by the House
of Lords in Henderson v Merrett Syndicates Ltd, 1074 which drew to a close the uncertainty on this
point caused by a dictum of Lord Scarman in the Privy Council in 1985 in Tai Hing Cotton Mill Ltd v
Liu Chong Hing Bank Ltd, to the effect that:
“… their Lordships do not believe that there is anything to the advantage of the law’s
development in searching for a liability in tort where the parties are in a contractual
relationship.” 1075
This dictum appeared to favour the exclusion of claims in tort where the parties were in a contractual
relationship, though the context of its acceptance by later courts was typically the denial of liability of
recovery of pure economic loss in the tort of negligence. 1076 However, paradoxically, the House of
Lords’ decision on the nature and ambit of the tortious liability to be found on the facts before it in
Henderson v Merrett Syndicates Ltd created new and very considerable uncertainty as regards the
relationship of contractual and tortious claims between parties to a contract. For, it accepted that its
own earlier decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd 1077 should be interpreted as
establishing a “broad principle” of liability in tortious negligence based on the defendant’s assumption
of responsibility, an assumption which would appear to be satisfied whenever a party to a contract
either possessing or holding himself out as possessing a special skill agrees to perform a service for
the other party. In this respect, the courts have apparently returned to an approach similar to one
taken in the earlier nineteenth century, though subsequently superseded. 1078
1-155
The present discussion will start by looking briefly at the older authorities which governed the issue of
concurrence of actions in contract and tort; it will then state the modern law allowing an option, first as
regards pre-contractual liability and then as regards liability for torts committed in the course of
performance of a contract; as to the latter, it will discuss the breadth of the principle of “assumption of
responsibility” recognised in Henderson v Merrett Syndicates Ltd, and the nature and ambit of the
qualifications on the option and on the effects which its exercise will entail.
Older authorities
Page 2
1-156
Disputes as to the availability of an action in tort against one’s fellow contractor are not new and
before the reforms of common law procedure of the mid-nineteenth century three positions can be
detected in the cases. The first was that a plaintiff could neither join a claim in tort with one in contract
in the same action nor opt whether to sue in tort when there was a contract between the parties. For
example, in Orton v Butler, 1079 Best J. refused to allow the joining of actions in trover (tort) and money
had and received (contract), stating that:
“There is a broad distinction between actions ex contractu and ex delicto. Here, it arises
out of breach of a contract, and the party ought not to be allowed to proceed in the
present mode of framing his count [sc. claim] ex delicto.” 1080
Other cases distinguished between the rules against joinder of counts in contract and tort and the
question whether a plaintiff was entitled to opt on which of the two bases to put his claim, 1081 some
expressly recognising the validity of the option. Moreover, where they did it was acknowledged that
the plaintiff’s choice would affect the rules applicable to his claim. As Abbott J. observed:
“There is nothing to compel a plaintiff to elect that form which may be most convenient to
the defendant. The very notion of election imports that the plaintiff may exercise it for his
own benefit.” 1082
At the time, those courts which allowed an option between contract and tort thereby enabled a plaintiff
to avoid in particular the rules against transmissibility of actions on death which applied to actions in
tort 1083 or the rules of joinder of parties to litigation which applied to actions in contract. 1084 However,
the courts did not allow the plaintiff’s option to avoid certain other rules which applied to contract,
notably, those as to capacity, 1085 nor the express terms of a contract, notably, limitation clauses. 1086
1-157
The third approach to the relationship between actions in contract and tort can be seen in the decision
in Brown v Boorman. 1087 The plaintiffs retained the defendant as broker to sell their linseed oil on
commission. This he did, but in breach of contract delivered it without payment and to the wrong (and
later insolvent) person. The plaintiffs sued in case (i.e. tort), contending that the broker owed them a
duty at common law to take reasonable care based on his trade or calling. The defendant countered
that their proper form of action should have been assumpsit (i.e. contract). The House of Lords
upheld Tindal C.J.’s judgment for the plaintiffs, Lord Campbell stating that:
“… wherever there is a contract, and something to be done in the course of the

employment which is the subject of that contract, if there is a breach of a duty in the
course of that employment, the plaintiff may either recover in tort or in contract.” 1088
It is difficult not to agree with the defendant’s contention that such an approach “would altogether
destroy the distinction between assumpsit [i.e. contract] and tort”, 1089 as it suggests that the option to
plead in tort or contract exists in all situations of breach of contract and not merely in those where an
independent cause of action exists in tort. However, this was not the fate of Brown v Boorman. As
Pollock stated 1090:
“… notwithstanding the verbal laxity of one or two passages, the House of Lords did not
authorize the parties to treat the mere non-performance of a promise as a substantive
tort.”
Page 3
Instead, the decision was relied on as authority for the existence of an option for the plaintiff as to
whether to sue in tort as long as a distinct and independent action in tort exists. 1091
The modern law
1-158
In the modern law, a distinction can usefully be drawn between a claim by a party to a contract on the
basis of a pre-contractual liability to be imposed on the other party and one based on a liability arising
in the course of performance of the contract.
1074. [1995] 2 A.C. 145. This position is also taken in Canada: Central Trust Co v Rafuse (1987)
D.L.R. (4th) 481 SCC; Canadian Pacific Hotels Ltd v Bank of Montreal (1988) 40 D.L.R. (4th)
385; B.C. Checo International Ltd v British Colombia Hydro & Power Authority (1993) 99 D.L.R.
(4th) 477. Although there was Australian authority against concurrence (Hawkins v Clayton
(1988) 164 C.L.R. 539), the approach of the Canadian Supreme Court in Central Trust Co v
Rafuse was followed in Bryan v Maloney (1995) 182 C.L.R. 609, 620–622.
1075. [1986] A.C. 80, 107.
1076. See, e.g. Banque Keyser Ullmann SA v Skandia (UK) Co Insurance Ltd [1990] 1 Q.B. 665,
[1991] 2 A.C. 249 (affirmed on other grounds; National Bank of Greece SA v Pinios Shipping
(No.1) [1990] 1 A.C. 637).
1077. [1964] A.C. 465.
1079. (1822) 5 B. & Ald. 652.
1080. (1822) 5 B. Ald. 652 at [656].
1081. e.g. Brown v Dixon (1786) 1 T.R. 274, 276–277.
1082. Ansell v Waterhouse (1817) 6 M. & S. 385, 392.
1083. Hambly v Trott (1776) 1 Cowp. 371.
1084. Govett v Radnidge (1802) 3 East 62.
1085. Johnson v Pye (1666) 1 Sid. 258, 1 Keb. 913.
1086. Nicholson v Willan (1804) 5 East 507.
1087. (1842) 3 Q.B. 511, (1844) 11 Cl. & Fin. 1, HL.
1088. (1844) 11 Cl. & Fin. 1, 44.
1089. (1844) 11 Cl. & Fin. 1, 12.
1090. Pollock, Torts, 1st edn (1887), p.434.
1091. Hyman v Nye (1881) 6 Q.B.D. 685; Baylis v Lintott (1873) L.R. 8 C.P. 345; Esso Petroleum Co
Ltd v Mardon [1976] Q.B. 801; Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch.
384.
Page 4

Page 1

(i) - Pre-contractual Liability
Representations
1-159
Even at the time when it was doubtful whether a party to a contract could claim in tort against the
other party in respect of matters relating to the performance of the contract, it was established that
such a party could rely on established liabilities in tort arising from facts which occur in the course of
the dealings of the parties before contract. A party to a contract can therefore claim damages for a
pre-contractual statement which induced him to contract under various headings: in the tort of deceit,
where the statement was made fraudulently 1092; in the tort of negligence, 1093 if the claimant can
establish the conditions for the existence of a duty of care under Hedley Byrne & Co Ltd v Heller &
Partners Ltd, 1094 under the provisions of the Misrepresentation Act 1967, 1095 or as a right to redress
under the Consumer Protection from Unfair Trading Regulations 2008. 1096 It is also clear that these
rights to damages in tort may exist whether or not the misrepresentation has been incorporated into
the contract, thereby giving rise to a claim for breach of contractual warranty, 1097 and whether or not
the claimant chooses to exercise any right of rescission of the contract on the grounds of
misrepresentation. 1098
1-160
More complex, however, is the question whether the claimant’s option to rely on one of these
liabilities in tort enables him to avoid restrictions which exist on any claim in contract. While it is clear
that a party can by contract exclude liability for negligent misstatement at common law or liability in
damages for misrepresentation under the 1967 Act to the extent to which such a term satisfies the
requirements of reasonableness, 1099 a party to a contract cannot exclude liability in damages for his
own fraud. 1100 On the other hand, a party to a contract with a minor cannot avoid a defence of infancy
by claiming damages in the tort of deceit against the minor on the ground that the latter fraudulently
misrepresented his age, even though in general, an infant is liable for his torts, 1101 because:
“If it were in the power of a plaintiff to convert that which arises out of a contract into a
tort, there would be an end of that protection which the law affords to infants.” 1102
Damages for misrepresentation
1-161
Page 2
Finally, although there are considerable differences between damages in tort and for breach of
contract, 1103 not all of these are significant in the context of pre-contractual statements. In general, an
injured party can claim damages for the loss of an expectation or performance interest in contract but
not in tort, and in the context of pre-contractual representation the latter rule means that a claimant
can recover damages for misrepresentation in tort only so as to put him in a position as though the
representation (and, therefore, it is assumed, the contract) had not been made and not damages as
though the representation had been true. 1104 By contrast, if a court finds that a party made a
contractual promise or warranty that his pre-contractual statement was true, then he can recover
damages for breach of contract to put him in the position as thought the statement had been true. 1105
On the other hand, in some cases where a claim is based on breach of a term which has resulted
from the incorporation of a pre-contractual statement, 1106 there will be no difference on this
ground between the contractual and tortious measures of damages. In Esso Petroleum Co Ltd v
Mardon, 1107 the Court of Appeal accepted that a representation of “throughput” of petrol of a garage
by Esso which later proved false, was incorporated into the contract as a warranty. However, the
ability of the representee to claim for breach of contract did not affect the damages which he could
recover, in particular it did not allow him to claim for the loss of profits he expected to make from
taking a lease of the garage with the throughput represented, despite such claims for lost profits being
typical of contract. This refusal resulted from the court’s decision as to the content of the warranty: it
was construed not as a promise that the throughput would be a certain amount, but rather that Esso
had taken reasonable care in making the estimate of throughput. 1108 A claim in contract can indeed
put an injured party in the position as though the contract had been performed, but if Esso had
performed this contractual warranty, and as a result Mardon had been given a true estimate of the
throughput of the garage, then Mardon would not have entered into the contract. 1109 In this way,
damages in contract and in tort 1110 are based on the same measure, viz to put the claimant in the
position as though the contract had not been made. 1111 On the other hand, while it has been stated
that a claimant will not recover more damages in tort than he would in contract, 1112 it is clear that a
claimant may indeed recover more damages where his claim is based on fraud or for negligent
misrepresentation under the 1967 Act, 1113 as the test of remoteness of damage applicable to these
claims is more generous than the test which applies to claims for breach of contract. 1114 Furthermore,
it is possible (if unlikely) that someone suing for fraud may be able to recover punitive damages, 1115
whereas these are not available for claims for breach of contract. 1116
Liability for non-disclosure
1-162
As will be seen, the courts draw a clear line between cases of misrepresentation and of
non-disclosure for the purposes of deciding the availability of rescission for the other party. 1117 While
in general the courts have echoed this distinction in the context of liability in damages, they have
accepted that in principle a contractor may be liable in the tort of negligence for a failure to speak, 1118
but the modern approach has been to restrict liability in these circumstances to cases where the
defendant has “voluntarily accepted responsibility”. 1119 Indeed, even in a case where the law
exceptionally imposes a duty of pre-contractual disclosure on a party to a contract, the courts have
refused to impose liability in damages in tort to sanction its breach. 1120 While this result was reached
before the House of Lords in Henderson v Merrett Syndicates Ltd 1121 had disapproved the idea that
the existence of a contract between the parties is in itself a reason for denying a claim in tort, it may
well be that a future court would hold that a person cannot be said to "assume responsibility" for a
matter in relation to which he owes a legal duty. Moreover, the idea that the law of tort should not be
allowed to “cut across the principles of contract law” could be considered as a consideration of policy
arguing against the existence of a duty of care in the tort of negligence, even where this was based
on an “assumption of responsibility”. 1122
Duress
1-163
Duress, whether by means of physical or economic threats, exercised by A against B with the view to
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making B enter a contract with A, may in certain circumstances give rise to a right in B to avoid that
contract. 1123 While the circumstances which give rise to this right of avoidance will not necessarily
give rise to a right to damages, 1124 in contrast to the position as regards fraud, 1125 they may give rise
to the conditions of liability under the tort of intimidation (or tort of causing loss by unlawful means).
1126
This tort is usually applied to cases where A forces B to do or to refrain from doing something to
the prejudice of C (“three-party intimidation”), but there is high authority for the proposition that it also
applies to cases where A forces B to do something for A’s intended benefit (“two-party intimidation”).
1127
In circumstances where the conditions for the existence of the tort exist, it would seem that it can
be relied on by one party to a contract as against the other, although it is more controversial whether
this right remains after the coerced party has affirmed the contract. 1128 While the ambit of the doctrine
of economic duress as a vitiating element in contract remains somewhat uncertain, 1129 some argue
that its ambit should be coterminous and not wider than any liability which would exist under the tort
of intimidation. 1130 A consumer may be able to recover damages in respect of an “aggressive
practice” committed by a trader under the Consumer Protection from Unfair Trading Regulations 2008
Pt 4A. 1131
“Culpa in contrahendo.” 1132
1-164
Some legal systems consider that cases of fraud or duress are merely examples of a wider category
of “fault in the formation of contract”, a category famously termed culpa in contrahendo by the
German jurist, von Ihering. 1133 In French law, despite its general rule against allowing delict to intrude
between contractors (a rule known as non-cumul), 1134 pre-contractual fault can give rise to a claim for
damages in delict, 1135 there being a very general principle of delictual liability based on fault. 1136 The
extent to which English law reaches similar results to those a continental court might reach by
applying doctrines like culpa in contrahendo are explored in Ch.2. 1137 However, English law
possesses no such general principle and so no claims for damages in tort based on a party’s
“pre-contractual fault” can be brought in the absence of proof of an established tort. This had led to an
occasional temptation in the courts to resort to the law of contract to found a claim for damages in this
type of situation. This was clearest in relation to claims for damages for innocent (i.e. non-fraudulent)
misrepresentation before the Misrepresentation Act 1967, where the courts allowed some claims for
damages for false pre-contractual statements by way of contractual warranty. 1138 More recently, in
Blackpool and Fylde Aero Club v Blackpool BC, 1139 the defendant local authority had invited sealed
tenders from a limited number of persons for licences to use a local airport, to arrive at their premises
by a certain date. The plaintiff delivered such a tender by the stipulated time, but owing to the failure
of the defendant’s staff, it did not consider the plaintiff’s tender and failed therefore to award it a
licence. The plaintiff’s claim for damages for breach of contract was upheld by the Court of Appeal 1140
on the basis that the defendant local authority’s express request for tenders to be made in a particular
form by a particular date, 1141 coupled with the limited number of persons invited to tender, 1142 gave
rise to an implied contract to consider conforming tenders 1143 and therefore the court found it
unnecessary to consider whether the plaintiff could have succeeded in the tort of negligence. 1144
Overall, however, it cannot be said that English courts evince any desire to develop a general
principle of liability in damages for pre-contractual fault, whether this is put in terms of tort or contract,
any more than they wish to recognise a general principle of pre-contractual good faith to which such a
liability would be closely related. 1145 Moreover, when in 2014 the UK government created rights to
redress for consumers against traders in respect of the latter’s unfair commercial practices, it was
careful to restrict the practices in question to “misleading actions” and “aggressive commercial
practices” so that “misleading omissions” and commercial practices assessed as unfair under the
general test in the 2008 Regulations would not have this effect. 1146
1092. Pasley v Freeman (1789) 3 T.R. 51; Peek v Derry (1887) 37 Ch. D. 541 (reversed on other
grounds (1889) 14 App. Cas. 337); Doyle v Olby (Ironmongers) Ltd [1969] 2 Q.B. 158; Archer v
Brown [1985] 1 Q.B. 401. cf. Jack v Kipping (1882) 9 Q.B.D. 113; Tilley v Bowman Ltd [1910] 1
K.B. 745.
1093. Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801; Howard Marine & Dredging Co Ltd v A.
Page 4
Ogden & Sons (Excavations) Ltd [1978] Q.B. 574; Rust v Abbey Life Insurance Co Ltd [1978] 2
Lloyd’s Rep. 386; Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1991] 2 A.C.
249, 275. cf. Cemp Properties (UK) Ltd v Dentsply Research & Development Corp (No.1)
(1989) 35 E.G. 99, 104.
1094. [1964] A.C. 465.
1095. See below, paras 7-074—7-084. Liability in damages under s.2(1) is treated as tortious: see
André & Cie SA v Ets. Michel Blanc et Fils [1977] 2 Lloyd’s Rep. 166; Royscott Trust Ltd v
Rogerson [1991] 2 Q.B. 297 and see below, para.7-077.
1096. SI 2008/1277 reg.5 and Pt 4A (as amended by Consumer Protection (Amendment) Regulations
2014 (SI 2014/870)), on which generally see Vol.II, paras 38-145 et seq. On the question of the
nature of a claim for damages under the right to redress for the consumer see Vol.II,
para.38-184.
1097. Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801.
1098. Archer v Brown [1985] 1 Q.B. 401, 415 and see below, para.7-080. After the Misrepresentation
Act 1967 s.1(a) a representee’s right to rescind is not barred merely by the incorporation of a
representation as a term of the contract. cf. the power of the court under s.2(2) of the
Misrepresentation Act 1967 to refuse rescission of the contract and award damages in lieu; and
see below, para.7-104. A consumer who has the “right to unwind” the contract under the
Consumer Protection from Unfair Trading Regulations 2008 regs 27E may also have a right to
damages under reg.27J: see Vol.II, para.38-185.
1099. See Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] A.C. 465; Smith v Eric S. Bush
[1990] 1 A.C. 831; Unfair Contract Terms Act 1977 s.2(2); Misrepresentation Act 1967 s.3 as
replaced by Unfair Contract Terms Act 1977 s.8 and see below, paras 7-143 et seq. See
similarly the position as regards the exclusion of a consumer’s right to redress under the
Consumer Protection from Unfair Trading Regulations 2008, this being subject to the test of
unfairness contained in the Unfair Terms in Consumer Contracts Regulations 1999 or, on its
coming into force, the Consumer Rights Act 2015 Pt 2 subject to their respective conditions:
see Vol.II, para.38-191.
1100. S. Pearson & Son Ltd v Dublin Corp [1907] A.C. 351, 353–354, 362 and see below,
para.15-146.
1101. Johnson v Pye (1666) 1 Sid. 258 and see below, para.9-053.
1102. Jennings v Rundall (1799) 8 T.R. 335, 336, per Lord Kenyon C.J. and see below, para.9-053.
1103. See above, paras 1-150—1-151.
1104.
Doyle v Olby (Ironmongers) Ltd [1969] 2 Q.B. 158; André & Cie SA v Ets Michel Blanc et Fils
[1977] 2 Lloyd’s Rep. 166; East v Maurer [1991] 1 W.L.R. 461; Clef Aquitaine SARL v Laporte
Materials (Barrow) Ltd [2001] Q.B. 488; OMV Petrom SA v Glencore International AG [2016]
EWCA Civ 778, [2017] 3 All E.R. 157 and see below, paras 7-059—7-077.
1105. Cartwright, Misrepresentation, Mistake, and Non-disclosure, 3rd edn (2012), paras 8–24—8–25
referring to Brown v Sheen and Richmond Car Sales Ltd [1950] 1 All E.R. 1102 at 1104.
1106.
Peel, Treitel on The Law of Contract, 14th edn (2015), paras 9–050—9–058 and Atiyah,
Essays on Contract (1986), Essay 10.
1107. [1976] 1 Q.B. 801.
1108. [1976] 1 Q.B. 801 at 818, 823–824.

Page 5
1109. [1976] 1 Q.B. 801 at 820 (Lord Denning M.R.) and [834] (Shaw L.J.). This reasoning is based
on two assumptions: first, that if Esso had taken reasonable care in making its statement as to
throughput it would have made an accurate estimate and, secondly, that if Mardon had been
given an accurate estimate he would not have entered the contract or perhaps, would not have
entered it on the same terms. Ormrod L.J. expressed no view on the claim for loss of profits as
it was “virtually incapable of proof”: at 829.
1110. The Court of Appeal based its decision in tort on Hedley Byrne & Co Ltd v Heller & Partners Ltd
[1964] A.C. 465.
1111. The Court of Appeal did allow Mardon damages for loss of his “general expectations”, i.e. what
he would have expected to have earned if he had not spent his time running the garage: [1976]
1 Q.B. 801, 821.
1112. Chinery v Viall (1860) 5 H. & N. 28, 29 L.J. Ex. 180; Johnson v Stear (1863) 33 L.J.C.P. 130
(both conversion).
1113. Royscott Trust Ltd v Rogerson [1991] 2 Q.B. 297, in which the Court of Appeal rejected the
proposition that a claim for damages under s.2(1) of the Misrepresentation Act 1967 possesses
the same test of remoteness of damage as applies generally to claims in the tort of negligence;
and see below, para.7-078.
1114. See below, paras 26-116—26-118. It is also more generous than the test for remoteness of
damage applicable to a claim for damages by a consumer under the Consumer Protection from
Unfair Trading Regulations 2008 Pt 4A and especially reg.27J(4), which applies a requirement
that the loss was “reasonably foreseeable at the time of the prohibited practice”: and see Vol.II,
para.38-185.
1115. Mafo v Adams [1970] 1 Q.B. 548; Cassell & Co Ltd v Broome [1972] A.C. 1027, 1076; Archer v
Brown [1985] 1 Q.B. 401, 418–421 and see below, para.7-070.
1117. See below, paras 7-017 et seq. It should be noted that the consumer’s rights to redress under
the Consumer Protection from Unfair Trading Regulations 2008 Pt 4A (as inserted by the
Consumer Protection (Amendment) Regulations 2014 (SI 2014/870)) do not arise in respect of
a trader’s misleading omission: Vol.II, paras 38-166 and 38-172.
1118. Rust v Abbey Life Assurance Co Ltd [1978] 2 Lloyd’s Rep. 386; Cornish v Midland Bank Plc
[1985] 3 All E.R. 513, 522–523; Al-Kandari v J.R. Brown & Co [1988] Q.B. 665, 672; Banque
Keyser Ullmann SA v Skandia (UK) Co Insurance Ltd [1990] 1 Q.B. 665, 794. cf. Argy Trading
Developments Ltd v Lapid Developments Ltd [1977] 1 W.L.R. 444, 461; Barclays Bank Plc v
Khaira [1992] 1 W.L.R. 623; Ashmore v Corp of Lloyd’s [1992] 2 Lloyd’s Rep. 1, 5 (and see
[1992] 2 Lloyd’s Rep. 620). See also Cartwright, Misrepresentation, Mistake, and
Non-disclosure, 3rd edn (2012), para.17–38.
1119. Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665 at 794, per
Slade L.J.; Green v Royal Bank of Scotland [2013] EWCA Civ 1197, [2014] Bus. L.R. 168 at
[17] (no duty to give information unless without it a relevant statement made within the context
of the assumption of responsibility is misleading). cf. below, paras 1-166—1-173 concerning the
significance more generally of a “voluntary assumption of responsibility” for liability for pure
economic loss in the tort of negligence.
1120. Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665.
1121. [1995] 1 A.C. 145.
1122. For the relevance of considerations of policy in this context, see below, paras 1-171 et seq.

Page 6
1124. Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 A.C.
366, 385, cf. 400; Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B.
665 at 780; and see below, para.8-056.
1126. See Clerk & Lindsell on Torts, 21st edn (2014), paras 24–59 et seq. In OGB Ltd v Allan,
Douglas v Hello! Ltd, Mainstream Properties Ltd v Young [2007] UKHL 21, [2008] 1 A.C. 1 the
HL preferred to refer to the “tort of causing loss by unlawful means” rather than to “intimidation”,
seeing threats as only one example of “unlawful means” for this purpose: see below, paras
1-174—1-175. Where the defendant’s conduct threatens physical injury to the claimant, the
latter may possess an action of assault: Clerk & Lindsell on Torts, para.15–13.
1127. Rookes v Barnard [1964] A.C. 1129, 1205, 1209 and see Clerk & Lindsell at paras
24–69—24–70.
1130. Clerk & Lindsell at paras 24–70.
1131. Pt 4A was inserted by the Consumer Protection (Amendment) Regulations 2014 (SI 2014/870).
The right of redress may include damages for financial loss other than “the difference between
the market price of a product and the amount payable for it under a contract” (reg.27J(1)(a) and
(3)) and for “alarm, distress or physical inconvenience or discomfort” (reg.27J(1)(b)), though
damages are recoverable “only in respect of loss that was reasonably foreseeable at the time of
the prohibited practice” (reg.27J(4)). See generally Vol.II, paras 38-160 et seq. especially at
38-173 and 38-185.
1132. This terminology is adopted for the purposes of applicable law by Regulation (EC) 864/2007 on
the law applicable to non-contractual obligations (“Rome II”) art.12.
1133. On the German position see Markesinis, The German Law of Obligations, Vol.I; Markesinis,
Lorenz and Dannemann, The Law of Contracts and Restitution: a Comparative Introduction
(1997), pp.64 et seq.
1134. Bell v Peter Browne & Co [1990] 2 Q.B. 495, 511. The full term for the rule is non-cumul des
responsabilités contractuelle et délictuelle and see Whittaker in Bell, Boyron and Whittaker,
Principles of French Law, 2nd edn (2008), pp.328–9.
1135. Whittaker at pp.308–309.
1136. i.e. arts 1382–1383 C. civ. and see Whittaker at pp.364 et seq.
1138. Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801, 817.
1139. [1990] 1 W.L.R. 1195.
1140. The case came to the court by way of a preliminary issue as to the existence of liability.
1141. [1990] 1 W.L.R. 1195 at 1204.
1142. [1990] 1 W.L.R. 1195 at 1202.
1143. The public character of the defendant was also relied on by the plaintiff as support for the
existence of the contract as it had as a matter of public law a duty to comply with its standing
orders (to consider tenders) and a fiduciary duty to ratepayers to act with reasonable prudence
Page 7
in managing its financial affairs: [1990] 1 W.L.R. 1195 at 1201.
1144. [1990] 1 W.L.R. 1195 at 1204.
1145. See above, paras 1-039 et seq. and below, para.2-201.
1146. Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) Pt 4A (inserted by
the Consumer Protection (Amendment) Regulations 2014 (SI 2014/870)) on which see Vol.II,
paras 38-160 et seq. especially at 38-160 and 38-166.

Page 1

(ii) - Torts Committed in the Course of Performance of a Contract
General
1-165
As Greer L.J. observed in 1936:
“… where the breach of duty alleged arises out of a liability independent of the personal
obligation undertaken by contract, it is tort, and it may be tort even though there may
happen to be a contract between the parties, if the duty in fact arises independently of the
contract.” 1147
In the modern law, it may be stated that a party to a contract may choose to base his claim on an
established and independent tort against the other party, but this choice will not be allowed to subvert
the contract’s express 1148 or implied terms 1149 nor any legal immunity attaching to the other party qua
contractor. 1150 On the other hand, where the contract is silent as to the issue to which a tort relates, in
principle this is no reason for denying the existence of that tort, though an exception may properly be
made where the tort is based on the defendant’s “assumption of responsibility”. 1151 In general, 1152
though, the choice whether to sue in tort or contract does allow a claimant to gain the benefit of any
incidental rules of the regime of liability applicable, 1153 though the modern tendency has been to
reduce the differences between these two regimes in cases of concurrence. 1154
Henderson v Merrett Syndicates Ltd
1-166
As has been noted, in Henderson v Merrett Syndicates Ltd 1155 (Henderson) the House of Lords held
that a party to a contract may rely on a tort committed by the other party, as long as doing so is not
inconsistent with the express or implied terms of the contract. However, in finding a duty of care on
which to base the plaintiffs’ claim in tort, Lord Goff of Chieveley relied on Hedley Byrne as
establishing a very broad principle of liability based on an “assumption of responsibility” and this
principle suggests a very considerable overlap between the tort of negligence and liability in contract
between parties to contracts. 1156 As will be seen, moreover, the basis of a finding of an “assumption
of responsibility” is so closely related to the finding of an agreement in respect of the same matter that
the claim to true independence of the tortious liability thereby established is open to question.
1-167
In Henderson, the plaintiffs were all Lloyd’s “Names” who had agreed to take unlimited liability in
Page 2
respect of certain proportions of risks to be underwritten in the insurance market, but who had done
so through different forms of arrangement. In the case of “direct Names”, 1157 those persons who
acted as their members’ agents also acted as their managing agents (being known sometimes as
“combined agents”, though being termed “managing agents” here) and therefore any claim for
negligence in respect of their claims was within privity of contract. The issue which came before the
House of Lords was whether the “direct Names” could opt to sue their managing agents in the tort of
negligence in respect of the management of the underwriting, the limitation period for their action for
breach of contract having expired. In this respect, Lord Goff of Chieveley, who gave the leading
speech and with whom Lords Keith of Kinkel, Browne-Wilkinson, Mustill and Nolan concurred, held
that prima facie the managing agents did owe a duty of care in the tort of negligence to the “Names”.
Such a duty was, according to Lord Goff, to be based on a broad principle found in Hedley Byrne &
Co Ltd v Heller & Partners Ltd, 1158 according to which a person possessed of special skill or
knowledge may owe a duty of care in tort by assuming a responsibility to another person within a
relationship (whether special or particular to a transaction and whether contractual or not): the
principle was not, therefore, restricted to cases of statements. 1159 The House of Lords further held
that, on the facts of the case, there was no reason why the “Names” should not opt to sue on the
breach of such a duty of care in the tort of negligence rather than for breach of an implied term in their
contract with the managing agents. Lord Goff considered that there was “no sound basis for a rule
which automatically restricts the claimant to either a tortious or a contractual remedy”, 1160 though he
added that this general right of option was:
“… subject only to ascertaining whether the tortious duty is so inconsistent with the
applicable contract that, in accordance with ordinary principle, the parties must be taken
to have agreed that the tortious remedy is to be limited or excluded.” 1161
Contract inconsistent with liability in tort
1-168
This decision therefore affirms the general availability of an option to sue in either tort or contract
where the constituent elements allow, the exception being where the contract is inconsistent with a
claim in tort. While Lord Goff’s discussion of the “inconsistency of the contract” did not go beyond
reference to its express or implied terms (on the facts there was no reason for it to do so), it is
submitted that neither the decision itself in Henderson nor Lord Goff’s speech casts doubt on the
proposition that such an “inconsistency” may be found in other features of the contract, notably the
existence of a certain contractual immunity enjoyed by the party to the contract against whom the
claim in tort is brought. 1162
Assumption of responsibility
1-169
However, with respect, Lord Goff’s approach in Henderson to the existence of a duty of care in tort on
which a party to a contract may choose to rely is more problematic. As has been noted, this approach
rested on a broad principle of assumption of responsibility drawn from the speeches of the members
of the House of Lords in Hedley Byrne. 1163 While the notion of “assumption of responsibility” is clearly
present in those speeches, they also contained various other elements on which the imposition of a
duty of care was to be based, including the special skill and knowledge of the defendant and his or
her “special relationship” with the plaintiff. During the period from its decision in 1963 to the
mid-1990s, 1164 the courts either combined these various elements or emphasised one or more of
them as the facts of the case or their own preference suggested, 1165 but Hedley Byrne was not, in
general, used to expand liability for pure economic loss beyond the situation of liability for negligent
misstatements. 1166 This restriction on the ambit of the “broad principle of assumption of responsibility”
was, however, firmly rejected by Lord Goff in Henderson 1167 and it seems that the principle applies
where: (i) the defendant has agreed to perform a service or otherwise to do something for the
claimant, whether under a contract or not 1168; (ii) the defendant possessed or held himself out as
Page 3
possessing special skill or knowledge in relation to these services or this task 1169; and (iii) some
evidence of reliance by the claimant can be made out. As regards the last of these conditions, in
cases of negligent misstatement the claimant’s reliance provides the causal link between the
defendant’s statement and the claimant’s loss. 1170 However, outside this type of case and as between
parties to a contract, the element of “reliance” by the claimant may be found in the claimant’s entering
the contract under which the services, etc. are agreed to be done by the defendant. 1171 Such a basis
of liability in tort is not merely “equivalent to contract”; it is likely in very many cases to be parasitic on
it. 1172
Robinson v P E Jones (Contractors) Ltd. 1173
1-170
However, in 2011 the Court of Appeal took a step back from this apparent result of the reasoning in
Henderson. There the claimants had bought a house from the defendant, a builder, on terms which
included a clause which limited the defendant’s liability to the liability arising under the National
House-Building Council’s standard form of agreement (which the parties also executed). The
claimants later claimed damages for the financial consequences of a defect in the house as built for
them in the tort of negligence, their claim in contract being time-barred. In these circumstances, the
Court of Appeal denied the existence of a duty of care in the tort of negligence on the basis that the
claimants’ claim was for pure economic loss against a builder for defects in the building. 1174 For the
Court of Appeal, the existence of an effective limitation clause 1175 was inconsistent with the imposition
of a duty of care in tort based on an assumption of responsibility, applying the clear approach taken
by the House of Lords in Henderson. 1176 However, the Court of Appeal expressed views which more
generally took a more cautious approach to assumption of responsibility under Hedley Byrne. So,
Jackson L.J. (with whom Maurice Kay L.J. and Stanley Burton L.J. agreed) saw nothing in the case
before him:
“to suggest that the defendant “assumed responsibility” to the claimant in the Hedley
Byrne sense. The parties entered into a normal contract whereby the defendant would
complete the construction of a house for the claimant to an agreed specification and the
claimant would pay the purchase price. The defendant’s warranties of quality were set out
and the claimant’s remedies in the event of breach of warranty were also set out. The
parties were not in a professional relationship whereby, for example, the claimant was
paying the defendant to give advice or to prepare reports or plans upon which the
claimant would act.” 1177
Even apart from the limitation clause, Jackson L.J. therefore would have been disinclined to find a
duty of care based on assumption of responsibility. Stanley Burton L.J. added that:
“It is important to note that a person who assumes a contractual duty of care does not
thereby assume an identical duty of care in tort to the other contracting party. The duty of
care in contract extends to any defect in the building, goods or service supplied under the
contract, as well as to loss or damage caused by such a defect to another building or
goods. The duty of care in tort, although said to arise from an assumption of liability, is
imposed by the law. In cases of purely financial loss, assumption of liability is used both
as a means of imposing liability in tort and as a restriction on the persons to whom the
duty is owed … The provider of a service, such as an accountant or solicitor, owes a duty
of care in tort to his client because his negligence may cause loss of the client’s assets.”
1178
These passages therefore emphasise that the mere existence of a contractual agreement to
undertake something for the contracting party will not necessarily be treated as an “assumption of
responsibility” for the task which is the subject matter of their contractual obligation.
Page 4
Fair, just and reasonable
1-171
According to Lord Goff in Henderson, where an alleged duty of care is based on the doctrine of
assumption of responsibility there is no need to enter the question of whether it is “fair, just and
reasonable” to impose such a duty, even in cases where the claimant’s loss is purely economic:
“… the concept [of assumption of responsibility] provides its own explanation why there is
no problem in cases of this kind about liability for economic loss; for if a person assumes
responsibility to another in respect of certain services, there is no reason why he should
not be liable in damages for [sic, to] that other in respect of economic loss which flows
from the negligent performance of those services.” 1179
It may be argued in support of this proposition that where a claimant has satisfied the conditions for
the application of the “broad principle”, there is no need for an inquiry as to the desirability as a matter
of policy of the imposition of liability for pure economic loss as the principle itself contains the requisite
factors—such as “special skill or knowledge” and “reliance”—which balance the justice of its
imposition. 1180 However, in the dictum quoted above Lord Goff may be thought to go further: for it
appears to suggest, if not that a person who “assumes responsibility” does so for economic loss (a
position which gives to "assumption of responsibility" the meaning of agreeing to be liable which was
clearly rejected by the House of Lords), then at least that such a person is to be held liable for a type
of loss which flows from the nature of his agreement (to perform a certain type of service) which he
has made. If so, this surely expresses no more than the idea that in these circumstances pure
economic loss is a natural and probable (or indeed forseeable) type of harm arising from the breach
of his agreement. And if this is so, then it is at most an argument in favour of recovery for pure
economic loss, rather than a unanswerable reason for it. With the greatest respect, Lord Goff’s
suggestion that there “should be no need” to inquire into the “fairness, justice and reasonableness” of
imposition of a duty of care should not be interpreted to mean that, apart from the issue of liability for
pure economic loss, questions of policy are incapable of acting to negative a prima facie duty arising
from an assumption of responsibility. Such an interpretation would, it is submitted, be inconsistent
with the careful enquiry undertaken by members of the House of Lords in Arthur J.S. Hall v Simons
1181
into the considerations of policy relevant to the question whether barristers and other advocates
should enjoy a degree of immunity from liability in respect of the conduct and management of
litigation. Rather, as Hamblen L.J. (with whom Gloster V.P. and Irwin L.J. agreed) observed in
Burgess v Lejonvarn, in cases of assumption of responsibility,
“[w]hilst there is no need to make a further inquiry into whether it would be fair, just and
reasonable to impose liability, that is because such considerations will have been taken
into account in determining whether there has been an assumption of responsibility.” 1182
Moreover, in Marc Rich & Co AG v Bishop Rock Marine Co, 1183 the House of Lords confirmed that the
mere fact that a defendant’s conduct has caused damage to property of a forseeable type does not
rule out an inquiry as to the “justice and reasonableness” of the imposition of a duty of care in the tort
of negligence. It would be indeed a paradox if the courts were to inquire into the justice and
reasonableness of imposing liability for forseeable damage to property caused by negligence, but not
into the justice and reasonableness of imposing liability for albeit forseeable pure economic loss.
Effect of broad liability in tort
1-172
One effect of judicial acceptance of a very broad principle of “assumption of responsibility” under
Page 5
Hedley Byrne may be seen to be the creation of a very wide means of circumventing the doctrine of
consideration: for as long as a defendant is possessed of special skill or knowledge, his agreement
with the claimant to perform a service within that skill or pertaining to that knowledge will give rise to a
cause of action in tort based on the negligent performance of those services, whether they were to be
paid for or not. 1184 A second type of effect may be the disapplication of other established rules of
contract law. For example, in Barclays Bank Plc v Fairclough Building Ltd (No.2), 1185 building
sub-contractors had engaged cleaning contractors to clean an asbestos cement roof, but in doing so
negligently the cleaners created a danger from the asbestos which required considerable expenditure
by the owner of the building to make it safe. 1186 The Court of Appeal upheld the builders’ claim for an
indemnity against the cleaners in respect of their own liabilities, but reduced the award on the basis of
their contributory negligence in failing to take steps to inform themselves of the problems involved in
the cleaning of the asbestos cement in the way intended. The Court of Appeal accepted that
contributory negligence is a defence to a claim for breach of contract only where it is concurrent with
the existence of a liability in tort based on negligence, 1187 but found such a liability in the cleaners in
their breach of a duty of care based on their “assumption of responsibility”, the latter arising simply
from their contractual undertaking to do a job which required special skill and which they held
themselves out as capable of doing, coupled with the roofing contractors’ reliance on this, as
evidenced by their entering into the same contract. In the result, the cleaners were entitled to rely on
their own duty of care in tort to allow them to reduce by one half their own liability for breach of
contract. Clearly, then, while in some cases, notably those turning on issues of limitation of actions
such as Henderson itself, judicial acceptance of such a wide basis for establishing a duty of care in
tort will benefit claimants, allowing them to avoid disadvantageous incidental rules applicable to
actions in contract, paradoxically in others, it will instead benefit defendants.
1-173
The following discussion will look first at the question whether a threatened breach of contract gives
rise to liability in the tort of intimidation, before turning to examine the qualifications on the general
rule allowing a claimant to opt whether to sue in contract or in tort and at how such an option affects
the regime of liability applicable to the plaintiff’s claim.
Threatened breach of contract as a tort
1-174
While some dicta in Brown v Boorman 1188 suggest that any breach of contract gives rise to liability in
tort, 1189 such a broad interpretation of that case does not reflect the modern law: a breach of contract
may be linked historically to tort, but does not itself constitute one. 1190 However, it would seem that
what has often been called the tort of intimidation (and is now likely to be known as the tort of causing
loss by unlawful means 1191) could allow at least threatened breaches of contract to give rise to liability
in tort. The tort is committed, inter alia, where A uses “unlawful means” to force B to do something to
his prejudice and it is clear that it includes a threatened breach of contract 1192 and it appears that this
applies to “two-party” intimidation as much as to “three-party” intimidation. 1193 Thus, according to
Clerk & Lindsell on Torts, the tort of intimidation extends to a threat of breach of contract or at least to
a threat of some breaches of contract, 1194 despite the fact that the victim of such a threat may also
have an action for anticipatory breach of contract. 1195
1-175
If so, then it would appear that rules which govern claims in contract, for example ruling out punitive
damages or relating to remoteness of damage, could be avoided. 1196 Indeed, an earlier edition of
Clerk & Lindsell on Torts suggests that it is not clear whether a party who has affirmed the contract
after a threatened breach is thereby prevented from relying on the tort of intimidation. 1197 However, if
a claimant who was the victim of such a threat were allowed to rely on this tort rather than on the
contract, it would be odd to deny him the same option where the other party had not merely
threatened to break the contract, but had carried out this threat. 1198 If this situation were allowed to
give rise to liability in the tort of intimidation, then the law would be fast approaching the recognition of
a distinction based on whether or not a defendant’s breach of contract was “wilful” or “intended to
injure” and there is no reason to think that English courts are inclined to do so. 1199 It is submitted that
Page 6
there is no convincing reason for allowing a party to a contract to avoid the restrictions which the law
already has decided should apply to that party’s claim simply by claiming in tort. For this reason, the
view that “two-party” and “three-party” intimidation should be treated differently where breach of
contract is relied on as the unlawful means is to be preferred. 1200 Thus, while a threatened breach of
contract may constitute the tort of intimidation/tort of causing harm by unlawful means, as between
parties to a contract a threatened breach should not in itself be considered sufficient “unlawful means”
for the purposes of that tort; other independent “unlawful” elements should be required, for example,
tortious means. 1201
Breach of contract as an “aggressive commercial practice”
1-176
In 2014 the Consumer Protection from Unfair Trading Regulations 2008 were amended so as to
create new “rights to redress” for consumers in respect of certain categories of unfair commercial
practices. 1202 Under this new law, a consumer may recover, inter alia, damages in respect of an
“aggressive commercial practice” where the consumer has entered into a contract with a trader for the
sale or supply of a “product” (as specially defined by the Regulations 1203) by the trader or a contract
with a trader for the sale of goods to the trader, or where the consumer makes a payment to a trader
for the supply of a product, and the aggressive commercial practice is a significant factor in the
consumer’s decision to enter into the contract or make the payment. 1204 For these purposes, a
“commercial practice” is aggressive if:
“(a)
it significantly impairs or is likely significantly to impair the average consumer’s
freedom of choice or conduct in relation to the product concerned through the use of
harassment, coercion or undue influence; and
(b)
it thereby causes or is likely to cause him to take a transactional decision he would
not have taken otherwise.” 1205
It is clear that a threat to break a contract or a breach itself may constitute an aggressive commercial
practice for these purposes and, where this threat or breach is a significant factor in the consumer’s
decision to make a payment to the trader which was not due, the consumer may have a right to
receive back the payment from the trader 1206 and/or a right to damages against the trader for any loss
caused, to include financial loss or “alarm, distress or physical inconvenience or discomfort” if the
aggressive commercial practice had not taken place. 1207
Contractual standards of care: can tort be stricter?
1-177
It is clear that where either the express or implied terms of the contract or the law itself governs the
standard of care owed by the defendant to the claimant, the latter cannot seek to impose a higher
standard by claiming in tort, notably the tort of negligence. 1208 Where a contract expressly restricts a
party’s standard of care, it would seem that ordinary principles of construction apply, rather than
construction contra proferentum which applies to exemption clauses proper, i.e. those clauses which
intend to restrict or exclude a party’s liability. 1209 In the case of implied terms, those which relate to
the safety of a person or of his property often impose either reasonable care 1210 or some stricter duty
on the contractor, 1211 and so any liability in tort in the latter would not impose any higher standard
Page 7
than in contract. However, implied terms whose breach gives rise to economic loss in the other party
sometimes impose a more restricted standard of care than that imposed by the general law, and here
the courts have refused to allow the other party to circumvent this contractual standard by claiming in
tort. This was the particular issue in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd 1212 which
gave rise to Lord Scarman’s dictum advising against the intervention of tort between parties to a
contract, 1213 and this was the basis on which the decision of the Privy Council in that case which
denied a claim in tort was explained by the House of Lords in Henderson v Merrett Syndicates Ltd.
1214
Tai Hing Cotton Mill Ltd itself concerned a claim by a bank against its customer for economic loss
caused by the latter’s alleged negligence in the running of its own account. The Privy Council held
that as a matter of authority a bank customer owed only a duty to act honestly in relation to the
conduct of his own account under the contract with the bank and should not, therefore, be held to a
duty to take reasonable care whether by way of implied term or of breach of an alleged duty of care in
the tort of negligence. 1215 Similarly, where a party to a contract owes only a “duty to act rationally”, i.e.
to act honestly, in good faith and not arbitrarily, capriciously, perversely or irrationally in the exercise
of a contractual discretionary power, and owes no duty to act with reasonable care under an implied
term in the contract, then, apart from the situation where the party acts in excess of that power, it will
owe no duty of care in tort 1216: once a claimant’s:
“case on implied statutory or contractual term fails, there is … no room for the imposition
of a tortious duty of care, which is more extensive than that which was provided for under
the [contract].” 1217
Therefore, a clearing broker conducting a close out under a mandate with an options trader did not
owe the latter a duty to take reasonable care in contract or in the tort of negligence. 1218
Contractual standards and equitable principles
1-178
The courts have taken a similar approach where the relationship between the parties is contractual,
but where it has traditionally been subject to regulation by equitable principle. Thus, in
Parker-Tweedale v Dunbar Bank Plc 1219 Nourse L.J. stated that any duty of a mortgagee to a
mortgagor or of a creditor to a guarantor in respect of the property or debt respectively arose in equity
out of that particular relationship, it being:
“… both unnecessary and confusing for the duties owed by a mortgagee to the mortgagor
and the surety, if there is one, to be expressed in terms of the tort of negligence.” 1220
Similarly, according to Lord Templeman, giving judgment on behalf of the Privy Council, where a
creditor was “not obliged to do anything” for the benefit of a surety under these equitable principles,
for example in relation to the recovery of the debt, no duty of care in the tort of negligence can arise.
1221
Indeed, it has been said that “the duty arises in equity, not in contract or tort”. 1222
Contractual standard stricter
1-179
In certain types of case, the courts have refused to construe a contract or imply a term in it so as to
circumvent the traditional standard of care or scope of liability applied to the type of case in question,
even where this has usually been put as a matter of tort. For example, in Thake v Maurice, 1223 a
majority of the Court of Appeal refused to interpret a contract to perform a vasectomy as importing an
obligation that the patient would be rendered sterile as a result, holding that it contained only one of
reasonable care in warning the latter of the possibility of future fertility. Although not put in these
terms by the court, it could be said that the established standard of care in tort was applied to the
Page 8
claim in contract despite persuasive factual considerations which could have lead in a different
direction. 1224 However, in many other situations the courts have accepted that the standard of care
owed by a defendant in contract by reason of an implied term is higher than the reasonable care
which would be imposed in the tort of negligence. 1225 An example may be found in the decision of the
Privy Council in Wong Mee Wan v Kwan Kin Travel Services Ltd. 1226 There a travel agent was held
liable for the death of one of its customers on the basis of the negligence of one of its agents, even
though there was no negligence on its own part, on the basis that the contract included an obligation
that the services which the travel agent had engaged to perform would be carried out with reasonable
care.
Stricter contractual standard does not affect tort
1-180
Finally, in Aiken v Stewart Wrightson Members Agency Ltd 1227 the question arose whether the fact
that the defendant owed a contractual duty more onerous than one of reasonable care could and
should affect the standard of care owed in the tort of negligence. The case concerned a claim by
Lloyd’s “indirect Names” against their “members’ agents”, i.e. the agents who had contracted with
them to advise them on their choice of syndicates and to place them on any syndicate once chosen,
leaving the placing of the insurance to “managing agents”. It was conceded by the members’ agents
that they owed the plaintiff “Names” a contractual duty that:
“… the actual underwriting would be carried out with reasonable care and skill so that the
members’ agent remains directly responsible to its Names for any failure to exercise
reasonable care and skill by the managing agent of any syndicate to whom such
underwriting has been delegated.” 1228
The “Names” contended that the members’ agents also owed them a duty of care in the tort of
negligence of the same content, a “parallel and co-extensive duty of care in tort”, arguing that it was
inherent in Lord Goff’s view expressed in Henderson v Merrett Syndicates Ltd 1229 that any liability in
tort should not be inconsistent with the terms of the contract that the latter “ought in logic and in law to
be definitive also of the nature and extent of their duty in tort”. 1230 However, Potter J. rejected this
argument both as a matter of authority 1231 and principle. The latter he considered well expressed in a
dictum of Le Dain J. in Central Trust Co v Refuse 1232:
“A claim cannot be said to be in tort if it depends for the nature and scope of the asserted
duty of care on the manner in which an obligation or duty has been expressly and
specifically defined by a contract.”
Potter J. therefore concluded that on the facts before him the:
“… common law duty of care … falls short of the specific obligation or duty imposed by
the express terms of the contract, unless that common law duty of care can be shown to
be non-delegable in character for the purposes of the law of tort,”
a proviso which was not satisfied in the case itself. 1233
Contractual exclusion of liability in tort
1-181
The law has taken a similar but not identical approach to cases where a contract term excludes or
Page 9
limits liability of one contractor to another. Since at least the early nineteenth century, exemption
clauses have been held capable of excluding or limiting liability in tort, 1234 though it should be noted
that where the clause limits liability, a (limited) claim in tort may still exist. 1235 While at times the
interpretation of exemption clauses contra proferentem has led to the courts distinguishing between
the two types of liability, holding that a particular clause covered a strict contractual liability but did not
cover liability for negligence in tort, 1236 there would appear to be no real reason to characterise a
contractor’s liability for negligence in these circumstances as tortious rather than contractual and in
other cases the courts have simply inquired whether a particular clause should be construed to cover
cases of negligence as well as any stricter liability. 1237 Of course, in many situations, the
effectiveness of such a term will be subject to the provisions of s.2 of the Unfair Contract Terms Act
1977, which applies to cases of tortious as well as to contractual negligence. 1238
Incompatibility of express term and liability in tort
1-182
Johnstone v Bloomsbury Health Authority 1239 concerned an alleged incompatibility between an
express term of a contract and the existence of an established liability in the tort of negligence in a
rather unusual way. The plaintiff was a junior hospital doctor who worked under a contract of
employment which stipulated a working week of 40 hours and provided for a possible 48 additional
hours availability for work. He claimed that in compliance with this contract he had sometimes worked
in excess of 88 hours per week and had become ill as a result. The issue before the Court of Appeal
was whether his claim for a declaration that he should not be required to work more than a 72-hour
week should be struck out. The plaintiff relied on his employer’s duty, which exists both as a matter of
contract and the tort of negligence, 1240 to take reasonable care as to his health at work, but the
defendant countered that the express provision in the contract as to his hours of work limited the
impact of this implied term and that no wider tortious duty could be imposed, relying on Lord
Scarman’s dictum in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd. 1241 The majority of the Court
of Appeal refused to strike out the plaintiff’s claim, but for different reasons. Stuart-Smith L.J.
considered that while it was quite possible for an express term to exclude an implied one, the express
term in question had not attempted to do so. 1242 Sir Nicolas Browne-Wilkinson V.C. agreed with
Stuart-Smith L.J.’s decision on this point, but on more restricted grounds. The Vice-Chancellor
considered that the approach of the Privy Council in Tai Hing Cotton Mill Ltd:
“… shows that where there is a contractual relationship between the parties their
respective rights and duties have to be analysed wholly in contractual terms and not a
mixture of duties in tort and contract. It necessarily follows that the scope of the duties
owed by one party to the other will be defined by the terms of the contract between
them.” 1243
However, the Vice-Chancellor held that the clause in question did not on its terms impose an absolute
obligation on the doctor to work the extra hours, but merely gave the defendant a discretion as to the
number of hours extra that were to be worked and that this right should be considered subject to their
ordinary duty not to injure the plaintiff. 1244 Leggatt L.J., dissenting, considered that the express term
on the facts did indeed cut down the impact of the employer’s implied term as to the safety of its
employee and, following Tai Hing Cotton Mill Ltd, no tortious obligation could be any greater. 1245 It is
submitted that the approach of all members of the Court of Appeal in Johnstone v Bloomsbury Health
Authority to these issues is consistent with that adopted subsequently by the House of Lords in
Henderson v Merrett Syndicates Ltd, 1246 since the latter confirmed that no concurrent liability in tort
would be allowed where this would be inconsistent with the terms of the contract between the parties.
1247
However, the decisions of the majority in Johnstone also shows that judges will be slow to
interpret a contract as incompatible with an established liability in tort, perhaps particularly where this
relates to personal injuries.
Contract removing condition of or giving rise to a defence to liability in tort

Page 10
1-183
A contract’s terms can affect liability in tort in another way as they may remove one of the conditions
for its existence or give rise to the existence of a defence, and this is particularly clear where the
consent of an injured party excludes liability. Thus, in cases concerning medical treatment involving
physical contact with the patient, the contact is prima facie a battery unless the claimant has
consented to the treatment, 1248 but where a person is able to and has consented, this will exclude
liability in tort as well as contract. 1249 Similarly, a contractual licence given by an owner of land
prevents any liability arising in the licensee in the tort of trespass as long as the latter does not act
beyond the permission. 1250 A contractual consent can also allow the application of the defence of
volenti non fit injuria. For example, in Chapman v Ellesmere, 1251 a racing steward who acted under a
licence from the Jockey Club was held unable to sue members of a committee appointed under that
club’s rules in the tort of defamation in respect of the publication of a report on his role in a particular
race, because on accepting his licence he had agreed to rules under which publication of such a
report was specifically permitted.
Legal immunities for contractors
1-184
Where the law itself rather than a contractual term grants a party to a contract a certain immunity from
liability, the courts have looked to the reason for this immunity and decided whether it applies equally
to a claim in tort as to the one in contract. For example, while the courts recognised that a solicitor
enjoyed a certain immunity from liability in negligence in relation to the conduct and management of a
case for reasons of policy, this immunity applied both to tort and to contract. 1252 However, the
approach of the courts to the very wide 1253 immunity from liability at common law 1254 of landlords to
their tenants has been very different. In Rimmer v Liverpool City Council, 1255 while the Court of
Appeal did not consider itself able as a matter of authority to impose a duty of care in the tort of
negligence on a landlord as to the safety of the premises at the time of letting, it did impose a duty of
care on a landlord qua designer of the premises let as to the reasonable safety of their design to the
tenant qua person who might reasonably be expected to be affected. 1256 As Stephenson L.J. noted,
Cavalier v Pope, 1257 the leading authority which supported the landlord’s immunity, should be
restrictively interpreted 1258 for at the time it was decided:
“… contractual duties were regarded as excluding delictual duties and a contractual

relationship determined completely the rights and obligations of the related parties, as
well as the rights of third parties.” 1259
In this context, and as regards liability for personal injuries, the courts showed themselves willing to
allow the tort of negligence to develop in order to circumvent an immunity attaching to a particular
contract where that immunity was no longer considered justified as a matter of policy, but which was
supported by superior authority. 1260
The decision of the Court of Appeal in Bank of Nova Scotia v Hellenic Mutual War Risks Association
(Bermuda) Ltd (The Good Luck) 1261 concerned a situation in which a legal rule (as opposed to the
terms of the contract) provided one party to a contract with a remedy based on breach of a duty in the
other, but where that breach of duty had not previously been held to give rise to liability in damages.
One issue before the court was whether breach by an insurer of its duty to disclose matters to the
assured during the course of the contract could give rise to liability in damages as well as the
possibility of rescission of the contract by the assured. 1262 Having held that it should not imply a
relevant term as to disclosure into the contract either on the basis of the “bystander test” 1263 or the
“test of necessity”, 1264 the court considered that, whatever the degree of proximity of the parties or the
fairness and reasonableness of recognising a duty of care in tort, it should still apply the “principle
established in Tai Hing Cotton Mill Ltd v Lui Chong Hing Bank Ltd”. 1265 According to May L.J.:
Page 11
“… the [insurer] was entitled … to look to the contract between the parties to discover
what was the obligation of the [insurer] with regard to reporting to the [assured].” 1266
Thus, legal recognition of a limited remedy for a party to a contract for breach of a particular legal duty
imposed on the other party, was seen by the court as a reason for refusing to impose a duty of care in
the tort of negligence so as to give an additional remedy.
1-185
It should be noted, however, that Bank of Nova Scotia was decided before the decision of the
House of Lords in Henderson v Merrett Syndicates Ltd 1267 and therefore at a time when Tai Hing
Cotton Mill Ltd v Liu Chong Hing Bank Ltd 1268 was still seen as an authority against allowing a liability
in tort (at least for economic loss) to be relied on by one party to a contract against the other and
some of these dicta should be seen in this light. 1269 While it would be open to a future court simply to
distinguish the decision on this basis, it is submitted that it is more likely that the latter will be
interpreted as an illustration of the proposition that new or doubtful liabilities in tort should not be
imposed between parties to a contract where to do so would subvert the policy of the law of contract
as reflected in its grant of a more limited remedy than recognition of the tort would entail. Such a
proposition could be seen as the reflection of the idea that any liability in tort between the parties to a
contract should not be inconsistent with that contract or, more directly, as constituting a consideration
of policy arguing for the rejection of a duty of care in tort. 1270 So, for example, in Johnson v Unisys Ltd
1271
a majority of the House of Lords held that a claim for damages by an employee for breach of
contract for the manner of his dismissal by his employer had rightly been struck out as disclosing no
reasonable cause of action on the basis that any implied term concerning the manner of dismissal
would be inconsistent with the statutory scheme of unfair dismissal put in place by Parliament. Lord
Hoffmann considered that the same reasoning precluded any imposition of a duty of care in the tort of
negligence and observed that:
“It is of course true that a duty of care can exist independently of the contractual
relationship. But the grounds upon which … it would be wrong to impose an implied
contractual duty would make it equally wrong to achieve the same result by the imposition
of a duty of care.” 1272
Contractual silence
1-186
In the preceding situations, either the contract’s terms or the law itself has regulated the obligation or
liability imposed on the defendant. More difficult has been the case where the contract is silent as to
an issue which is allegedly governed by a tort, for silence is ambiguous: where the parties have not
provided for a certain issue, this can mean either that they did not address that issue, even implicitly,
or it can mean that they consciously chose not to provide for that issue. 1273 The typical case in which
this problem has arisen has been where a contract has been held not to contain a relevant implied
term and so the claimant has sued instead in the tort of negligence. Clearly, the choice for a court is
whether to hold that the contract’s silence excludes the recognition of any liability in tort, or,
conversely, that it has no effect on the recognition of any liability in tort, which arises or does not arise
according to its own rules. The acceptance by the House of Lords in Henderson v Merrett Syndicates
Ltd of the general rule that a party to a contract may rely on a tort committed by the other party even
in the course of performance of the contract would appear at first sight to have settled this question in
favour of the latter position, but, as been already noted, that same decision’s acceptance of the
“broad principle” of assumption of responsibility drawn from Hedley Byrne reintroduces the question in
this particular context. The following will, therefore, look first at the general position and then at the
Page 12
approach taken by the courts to the question of tortious “assumptions of responsibility” between
parties to a contract which is silent as to the issue on which the assumption is alleged to have been
made.
The general position
1-187
In Henderson v Merrett Syndicates Ltd it was held, inter alia, that a party to a contract may rely on a
tort committed by the other party, as long as doing so is not inconsistent with its express or implied
terms: contract does not necessarily exclude tort. 1274 While Henderson itself concerned a case where
the defendant owed a contractual duty concurrent with the alleged tortious duty, it could be argued
that a contract’s silence is by its nature not inconsistent with the existence of any liability in tort. In
support of this interpretation, it can be noted that to allow a person’s mere entering into a contract
with another to have the effect of excluding the latter’s liability in tort would mean that the law allowed
by implication (the implication that by their silence the parties had intended that the issue in question
should not be regulated) what it traditionally allowed only by a very clear contractual expression, 1275 a
paradox which would only be heightened by the fact that such an express exemption clause would, in
many cases, be subject to legislative control. 1276 In general, therefore, a contract’s silence should not
be interpreted as a choice to oust the general law of tort.
Contractual silence and “assumption of responsibility”
1-188
However, more difficulty arises in relation to cases of recovery of pure economic loss in the tort of
negligence based on the idea of “assumption of responsibility” drawn from the speeches of the
members of the House of Lords in Hedley Byrne. Certainly, until the decision of the House of Lords in
Henderson v Merrett Syndicates Ltd 1277 the courts on more than one occasion refused to recognise a
duty of care in the tort of negligence in respect of pure economic loss based on an “assumption of
responsibility” of one party to a contract to the other where that contract was silent as to the issue in
question. For example, in Reid v Rush & Tompkins Group Plc 1278 the plaintiff was injured in a car
accident in Ethiopia in the course of his employment for his English employer, but as he could not
recover compensation there from the person responsible, he sued his employer, arguing that the
latter owed him an obligation either to insure him against this type of accident or to advise him that he
ought himself to take out appropriate insurance. However, having refused to find an implied term in
his contract of employment either as to insurance or advising him of his position, 1279 the Court of
Appeal rejected his claim for pure economic loss in the tort of negligence, refusing to accept his
argument that the defendant had voluntarily accepted this responsibility. According to Ralph Gibson
L.J.:
“Where there is a contract between the parties, and any ‘voluntary assumption of
responsibility’ occurred, if at all, at the time of making and by reason of the contract, it
seems unreal to me to try to separate a duty of care arising from the relationship created
by the contract from one ‘voluntarily assumed’ but not specifically assumed by a term of
the contract itself.” 1280
Having cited with approval Lord Scarman’s dictum in Tai Hing Cotton Ltd v Liu Chong Hing Bank Ltd
1281
the learned Lord Justice added that:
“… it is not open to this court to extend the duty of care owed by this defendant to the
plaintiff by imposing a duty in tort which … is not contained in any express or implied term
of the contract,” 1282
Page 13
Similarly, in National Bank of Greece SA v Pinios Shipping Co (No.1), The Maira, 1283 while Lloyd L.J.
accepted that “in a large class of cases it was always, and maybe still is, possible for the plaintiff to
sue either in contract or in tort” 1284 he considered that:
“… it has never been the law that a plaintiff who has the choice of suing in contract or tort
can fail in contract yet nevertheless succeed in tort; and if it ever was the law, it has
ceased to be the law since Tai Hing Cotton Ltd.” 1285
Here, again, therefore, the silence of the contract prevented the imposition of a duty of care in tort. 1286
1-189
However, as this brief discussion makes clear, this approach to the imposition of a duty of care based
on an assumption of responsibility in the context of contractual silence was heavily influenced by the
general judicial disfavour with which any liability in tort between the parties to a contract was viewed,
and such an approach was thoroughly disapproved by the House of Lords in Henderson v Merrett
Syndicates Ltd. 1287 However, even after the latter decision a logical difficulty remains with the
imposition of liability in tort based on an assumption of responsibility where the contract is silent. As
has been seen, the current meaning given to the notion of “assumption of responsibility” by the courts
is that the defendant agreed to undertake a task or perform some service for the claimant. In cases of
“contractual silence”, ex hypothesi, 1288 the court has already decided that a defendant did not make
any relevant agreement (as a matter of the express or implied construction of the contract). How then
can a court hold that a defendant did not agree for one legal purpose, but did do so for another? It
would be understandable if a court should consider it illogical to find the existence of such a duty of
care owed by one contractor to another having already decided that there has been no contractual
assumption of responsibility.
1-190
However, in Holt v Payne Skillington, 1289 the Court of Appeal took a rather different view of this
matter. In this case, the plaintiffs had indicated to the defendant estate agents that they wished to
purchase a property in London with the view to letting it on “holiday lets”, a use which they made clear
they required so as to benefit from tax relief in respect of a capital gain they had already made. 1290
One of the estate agent’s employees had, at some time before any retainer, assured them that he
knew about the local planning requirements which would need to be satisfied to allow the plaintiffs to
use whatever property they bought for this purpose. In the result, however, the property which the
estate agents put forward and which the plaintiffs bought could not be used for holiday lets under the
relevant planning rules. At first instance, the judge held the estate agents liable in the tort of
negligence, but not liable for breach of contract on the basis that there was no express term of the
retainer agreement (nor of a second “valuation agreement”) between the parties that the agents
should investigate the planning issue. The estate agents appealed against this decision as to their
liability in tort, but no appeal was made by the plaintiffs on the decision made against them in
contract. Before the Court of Appeal, therefore, the estate agents argued that any duty of care in tort
which they might have owed to the plaintiffs could not be wider than the express and implied terms of
the contract between them and contended that the judge’s decision on the terms of their contracts
meant that they could not be liable in tort. Hirst L.J., however, rejected this argument, relying on a
passage of Lord Goff of Chieveley’s speech in Henderson v Merrett Syndicates Ltd 1291 and stating
that:
“… there is no reason in principle why a Hedley Byrne type of duty of care cannot arise in
an overall set of circumstances where, by reference to certain limited aspects of those
circumstances, the same parties enter into a contractual relationship involving more
limited obligations than those imposed by the duty of care in tort. In such circumstances,
the duty of care in tort and the duties imposed by the contract will be concurrent but not
coextensive.” 1292
Page 14
The Court of Appeal held, therefore, that the judge below was entitled to rely on a factual context
wider than the contractual agreements between the parties to establish a duty of care in tort. 1293 This
approach clearly accords with the general position taken in Henderson v Merrett Syndicates Ltd in
favour of allowing tort to apply between parties to a contract, but it appears to ignore the thrust of the
“logical argument” outlined in the previous paragraph against finding a tortious assumption of
responsibility in a case of contractual silence. In this regard, however, there is, with respect, a
particular difficulty with the decision in Holt: for while Hirst L.J. based the estate agent’s liability in tort
on the principle of assumption of responsibility, 1294 he found (as he had been invited to by both
parties) the: “ … essential characteristics of a situation giving rise to a cause of action in negligence
based on a duty of case of the Hedley Byrne type”, in a passage of Lord Oliver’s speech in Caparo
Industries Plc v Dickman, 1295 which looks to the defendant’s giving of advice to a person who he
knows is likely to rely on it, rather than to any agreement to do a task by the defendant. 1296 This
approach to the Hedley Byrne principle was entirely understandable on the facts, since it was clearly
the bad or inadequate advice which the plaintiffs were given by the estate agents’ employee which
formed the basis of any imposition of liability in tort. Certainly, where liability under Hedley Byrne is
put in terms of a negligent misstatement given by a person who can foresee that it will be relied on
rather than in the broader terms of an “assumption of responsibility” in the sense of an agreement to
perform a service for the other party, then there is nothing inconsistent in finding a duty of care under
Hedley Byrne but no express or implied duty of care in contract. By contrast, however, to the extent to
which a defendant’s having “assumed responsibility” for doing something is to mean that he “agreed
to do it”, then it is submitted that it is much more difficult to hold that a party “agreed to do it” for the
purposes of the tort but did not “agree to do it” for the purposes of the contract. 1297 So, in Outram v
Academy Plastics Ltd 1298 the Court of Appeal held that where a contract of employment did not
contain an express or implied term imposing on the employer a duty to inform his employee of a right
arising from the contract, no duty of care in the tort of negligence would be imposed to the same
effect based on an assumption of responsibility or otherwise. 1299
Scope of duty in tort reflected in scope of contractual implied term
1-190A
The discussion in the preceding paragraphs has considered whether the existence or content of a
contract between the parties should affect any claimed liability in tort arising between them, but in
Greenway v Johnson Matthey Plc 1300 the High Court considered the converse question, that is,
whether the scope of a duty in tort arising in one party to a contract to the other should affect the
scope of the former’s liability for breach of contract. In Greenway v Johnson Matthey Plc the
claimants were employees of the defendants and had, during their employment, been exposed to
platinum salts. This had created a sensitivity to the salts which would have developed into an allergy
had exposure continued (which it did not, as the sensitivity was discovered), but otherwise the
sensitivity was without symptoms. The claimants claimed damages alleging that they had lost
earnings as they had changed jobs (or tasks within their employment) as a result of the need to avoid
the relevant salts. In these circumstances, the High Court held that the claimants had not suffered any
actionable injury for the purposes of their claims in tort (whether in the tort of negligence or for breach
of statutory duty): properly analysed, their claim was for pure economic loss. 1301 Having so decided, it
further held that the claimants’ alternative claim for breach of the implied term in their contract of
employment that their employer should take reasonable care of their safety did not lead to any
different result. This implied term “arises because the law imposes it in view of the relationship
between the parties” and “is in substance the same as the tortious obligation which arises for exactly
the same reasons”. 1302 The scope of the rule of public policy in these cases is to safeguard the health
and safety of employees and this is reflected in the fact that the protection is from personal injury but
not for economic or financial loss suffered without personal injury. 1303
“Put another way, it is because the implied contractual duty is precisely coterminous with
and reflects the obligations imposed by the law of tort—and, in particular, the tort of
negligence, that the outcome must be the same however the cause of action is sought to
be classified.” 1304
Page 15
Subsequently, the Court of Appeal upheld the High Court’s decision in Greenway v Johnson Matthey
1305
Plc, agreeing that the claimants had not suffered any actionable physical injury, but only pure
economic losses. 1306 The Court of Appeal considered that the “classic formulation of the duty
owed by an employer to an employee is focussed on protection of the employee from physical injury,
not protection from economic harm … and this is true both in contract and in tort”. 1307 Moreover,
“having regard to the general policy reasons which inform the analysis of whether a standard term or
duty of care should be implied into a contract of employment, … the proposed term or duty to hold the
employee harmless from economic loss should not be taken to be implied”. 1308 First, it was not
possible for a term to be implied in the claimants’ contracts of employment, “either as a usual feature
of employment contracts in general or in these particular contracts in their commercial setting”,
especially as the terms of the collective agreement incorporated into the individual employment
contracts had made specific provision as to the extent of the defendant employer’s responsibility as
regards the financial welfare of employees affected by the possibility of developing platinum
1309
sensitisation. Echoing the language of the famous approach of Lord Bridge of Harwich to the
existence of a duty of care in the tort of negligence in Caparo Industries Plc v Dickman, 1310 the
Court of Appeal added that it would not be “fair, just or reasonable” to hold that the defendant’s
contractual duty extended to protecting the claimants against the financial consequences of losing
their jobs, etc. beyond the protection provided by those collective agreements (notably, the receipt of
special termination payments). 1311 Finally, the Court of Appeal held that no duty of care should be
imposed in the tort of negligence in respect of the claimants’ pure economic losses, seeing such an
1312
imposition on an employer as being recognised only in very specific situations. Moreover,
1313
where it had been recognised, as in Spring v Guardian Assurance Plc, “[t]he policy arguments
relevant to implication of the duty in contract and the imposition of a duty of care in tort were closely
similar”. 1314 According to the Sales L.J. (with whom Davis L.J. and Lord Dyson M.R. agreed):
“This is significant. Where the nexus between parties is founded in a contractual

relationship, as here, it is the contract which they have made with each other which is the
primary source and reference point for the rights they have and the obligations they owe
each other. Although a duty of care in tort may run in parallel with the contractual duty
and have the same content, it is difficult to see how the law of tort could impose
obligations in this area which are more extensive than those given by interpretation of the
contract which the parties have made for themselves. The usual rule is that freedom of
contract is paramount, and if the parties have agreed terms to govern their relationship
which do not involve the assumption of responsibility by the employer for some particular
risk, the general law of tort will not operate to impose on the employer an obligation which
is more extensive than that which they agreed.” 1315
As a result, since there is no implied contractual term according to which the defendant employer is
obliged to protect the claimants in relation to their financial losses arising in the circumstances of this
case, nor could there be a duty in tort to protect them in relation to pure economic loss suffered by
reason of those financial losses. 1316 It will be seen, therefore, that while the High Court started
with the restricted scope of a relevant duty of care in the tort of negligence (not extending to pure
economic loss) and then held that any implied contractual duty could not differ in scope, the Court of
Appeal instead held that the lack of any relevant implied contract term meant that no duty of care in
tort should go any further. At the time of writing this Supplement, permission to appeal by the
claimants in this case has been granted by the Supreme Court.
The contractual regime
1-191
Both common law and legislation attach particular legal consequences to the classification of a claim
Page 16
as contractual and together these consequences can be considered to form the “contractual regime”.
As has been noted, some rules of this regime are significantly different from their counterparts in the
law of torts, particularly in the context of rules as to the capacity of minors, damages, limitation of
actions and the conflict of laws. 1317 It is clear from the decision of the House of Lords in Henderson v
Merrett Syndicates Ltd 1318 that, in principle, the option of a party to a contract to sue in tort rather than
in contract attracts the application to his claim of those rules incidental to tort, since on the facts of
that case proceeding in tort allowed the plaintiffs to avoid the expiry of the limitation period for their
action for breach of contract. Moreover, the general terms of the acceptance by the House of Lords of
a party’s option to sue in tort (if one is established on the facts) rather than in contract supports the
converse of this proposition, so that a party who could sue in tort, but chooses instead to sue in
contract, thereby gains whatever advantages may be had from those rules which are incidental to
claims in contract. However, it is submitted that these general effects of an option will not be
universally followed by the courts (as the example of contractual capacity of minors will show) and,
perhaps more importantly, where (even before Henderson v Merrett Syndicates Ltd) the courts have
accepted a claimant’s option, they have sometimes reduced the practical differences between the
rules incidental to one or other basis of liability, so that the choice of legal basis does not affect the
outcome of the case.
Capacity of minors
1-192
A minor’s capacity to make a contract and to commit a tort are very different. 1319 However, as has
been seen, a party to a contract with a minor cannot in general avoid a minor’s contractual incapacity
by suing in tort where to do so would subvert the policy of the common law in protecting minors from
making unfavourable contracts. 1320 This approach is particularly clear in the context of a fraudulent
misrepresentation by a minor as to his age, 1321 but has been applied to other torts. 1322 However, the
courts have allowed a person who has contracted with a minor to sue the latter in tort, but only if the
minor’s tort can be considered as arising independently of the contract. 1323 For example, in one case
a minor who hired a mare “merely for a ride” and was warned at the hiring that she was unfit for
jumping, having lent her to a friend who killed her by that act, was held liable in the tort of trespass
which was “wholly independent of any contract”. 1324 Here, it cannot be said that the tort was unrelated
to the contract: the tort consisted in permitting something to be done which the minor had been
expressly forbidden by the contract to do. 1325 In this type of case, the courts are concerned to limit the
protection which the rules of contractual capacity give to a minor where this policy is considered to be
outweighed by the tort’s appeal for sanction and this is the case where a contractual permission for
use of property by the minor is exceeded. 1326
Damages
1-193
There are important differences in the rules under which damages are awarded for breach of contract
and in tort. 1327 However, in cases of concurrence of liability in contract and tort, in many cases the
courts have found means to prevent a claimant recovering more damages merely by the way in which
his claim is put. Thus, although a claim for breach of contract can compensate the claimant for loss of
his expectation or performance interest, whereas a claim in tort can compensate only his status quo
interest, 1328 in cases of concurrence of liability the courts are slow to allow the claimant to recover
damages based on the former measure merely because the claim can be classified as contractual,
and instead award damages for loss of his “general expectations”. 1329 In this type of case, indeed, the
significant distinction appears to be between cases where the content of the contractual obligation is
to take reasonable care and where it is stricter, a “guarantee” that something is the case or will occur.
1330
1-194
This has already been seen in relation to pre-contractual statements which are held to have been
Page 17
incorporated into the contract, 1331 but that the proper distinction in these cases turns on the content of
the defendant’s obligation, rather than on the mere classification of his liability can be supported by
other cases which concern professional negligence, whether contractual or tortious. In Ford v White &
Co 1332 a firm of solicitors was sued for contractual 1333 negligence by the plaintiffs who had been
advised that a particular restrictive covenant did not affect a plot of land which they were intending to
purchase (whereas it did). 1334 The plaintiffs’ claim for the difference between the value of the property
with and without the restriction was rejected by the court. Although Pennycuick J. accepted that in
general damages for breach of contract should put the injured party in “as good a situation as if the
contract had been performed”, 1335 this did not mean that the plaintiffs should be put in a better
position than if the defendant solicitors had performed their duty, as though the latter had warranted
that their view of the restrictive covenant was right. 1336 A similar view was taken by the House of
Lords in relation to a claim by a finance company against a valuer of a house intended as security for
a loan. 1337 Their Lordships held that the finance company could recover damages for the
negligence of the valuer representing the difference in what the secured property could make if sold
(less the expenses of this) and the amount which they had lent in reliance on the valuation. The
House of Lords rejected the finance company’s claim that it could recover the interest which it had
hoped to charge the borrower on the transaction (but had not been able to), accepting the valuer’s
argument that this would put them in a position as if he had warranted performance of the loan
contract by the borrower, 1338 rather than the proper damages for the valuer’s negligence. 1339 Thake v
Maurice 1340 supplies an example of this difference in the context of medical negligence. At first
instance, Peter Pain J. had found on the facts that the defendant surgeon had warranted to his patient
that a vasectomy operation would be successful, 1341 but the majority of the Court of Appeal
disagreed, 1342 holding that the defendant could be held bound only to take reasonable care in the
giving of information as to the effect of the operation and finding it unnecessary to distinguish for this
purpose between claims of contractual or tortious negligence, referring to this as the “negligence
claim”. 1343 However, Kerr L.J. disagreed with the majority’s interpretation of the contract and would
have upheld the existence of a contractual warranty as to the success of the operation (the
“contractual claim”). 1344 If this approach had been accepted, he considered that it would affect the
damages recoverable by the plaintiffs, as damages in tort (i.e. the negligence claim) would be lower
than those in contract. 1345 In tort, damages for pain and suffering caused by the pregnancy should be
reduced to take into account the distress of having to undergo an abortion (which would have been
the case even if the patient had been properly advised as to the risk of pregnancy after the operation),
but this was not the case in contract, 1346 where if the defendant’s warranty had not been broken the
plaintiff’s wife would not have become pregnant and so would not have suffered either proceeding. It
is clear, however, that though put in terms of a contrast between tort and contract, the contrast which
Kerr L.J. was intending to draw was between a duty to take reasonable care whether in tort or
contract and a contractual duty to see that a particular result occurs.
Remoteness of damage
1-195
Another important difference between claims in tort and contract is said to be found in relation to
the applicable tests of remoteness of damage. 1347 In contract, the court asks whether the kind of loss
is within the reasonable contemplation of the parties, 1348 whereas in the tort of negligence, it asks
whether the type of harm is reasonably foreseeable. 1349 Although the difference between these has
been termed “semantic, not substantial”, 1350 members of the House of Lords in The Heron II 1351
considered, and some authors agree, 1352 that a real difference in the two tests exists in relation to the
degree of probability required, the position in contract being less generous than that in tort. However,
where a case concerns concurrent liability in tort and contract, the courts have sometimes proved
unwilling to allow the way in which the claimant puts his claim to affect the quantum of damages
recoverable. Thus, in the Court of Appeal’s decision in H. Parsons (Livestock) Ltd v Uttley Ingham &
Co Ltd 1353 which was such a case, Scarman L.J., with whom Orr L.J. agreed, assimilated the tests of
remoteness in tort and in contract. 1354 The unwillingness of the courts to allow a claimant in the tort of
negligence to recover more than a claim in contract may be illustrated by the decision in How
Engineering Services Ltd v Southern Insulation (Medway) Ltd. 1355 There the question arose as to how
the existence of a contract between the parties would affect the losses for which a defendant would
be liable in the tort of negligence. The particular issues before the court concerned a claim by a
Page 18
building sub-contractor against a sub-sub-contractor for negligence on the basis of a duty of care in
tort alongside the contract between them. In rejecting the sub-sub-contractor’s application to strike out
this claim or for summary judgment in its favour, Akenhead J. held 1356 that sub-sub-contractor could
and did owe the sub-contractor such a concurrent duty of care in tort which was “definable by
reference to the contractual responsibilities and liabilities assumed by the parties to the contract”. 1357
For this purpose, the learned judge considered “the scope of the contractual or tortious duty” in
relation to the losses recoverable, following dicta of Lord Hoffmann on the importance of defining the
“scope of duty” in South Australia Asset Management Corp v York Montague Ltd 1358 and applying
Lord Hoffmann’s approach to the question of remoteness of damage in claims for breach of contract
in Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) according to which a party in
breach is liable for those kinds of loss “which would reasonably have been regarded by the
contracting party as significant for the purposes of the risk he was undertaking”. 1359 In Akenhead J.’s
view:
“[o]nce one ha[s] determined the kind of loss which the innocent party is contractually
entitled to expect to recover, that measure of loss can effectively be applied to the breach
of any concurrent duty of care in tort, save and to the extent there is some overriding
principle in the law of tort which prevents it (if any). Generally, at least, the damages
recoverable in negligence will not exceed what would have been recoverable in contract.”
1360
On the facts before him, Akenhead J. held that the scope of the concurrent tortious duty of care
owed by the sub-sub-contractor to the sub-contractor:
“involves the execution by [the sub-sub-contractor] of the works, which it was

contractually employed to carry out, with reasonable care and skill … Put simply, the cost
of remedial works was the, or one, kind of loss which was within the scope of both the
contractual and tortious duties. Almost inevitably, a sub-sub-contractor in [the
defendant’s] position would, objectively speaking, foresee or anticipate that, if it did work
badly, (assuming that it itself did not do the remedial works) it would have to pay up the
line through the sub-sub-contract damages or compensation for the cost of putting that
bad work right” 1361
even though the “contractual route through which [this loss] comes” was a chain of collateral
warranties between the sub-contractor and main contractor, and between the main contractor and the
employer. 1362 However, in a very different context in Yapp v Foreign and Commonwealth Office the
Court of Appeal denied that the cases support the proposition that: “where there is concurrent liability
in tort and in contract arising out of a contractual relationship claims under either head should be
governed by the contractual rather than the tortious rule as to remoteness”. 1363 There the claimant
claimed for psychiatric injury against his employer either for breach of contract or in the tort of
negligence. In the view of the Court of Appeal “in claims for breach of the common duty of care it is
immaterial that the duty arises in contract as well as in tort: they are in substance treated as covered
by tortious rules”; in such a case “in order to establish whether the duty is broken it will be necessary
to establish … whether psychiatric injury was reasonably foreseeable; and if that is established no
issue as to remoteness can arise when such injury eventuates”. 1364 On the other hand, where an
employee claims for breach of the implied term of mutual trust and confidence or for breach of an
express term, the contractual test of remoteness applies. 1365
1-195A
However, in Wellesley Partners LLP v Withers LLP 1366 the Court of Appeal expressed the
opposite view as to the proper approach to remoteness of damage in cases of concurrence of liability
1367
in contract and tort from the one which that court (differently constituted ) had expressed in
Page 19
Yapp v Foreign and Commonwealth Office, 1368 which was not discussed in Wellesley Partners
LLP. In Wellesley Partners LLP, the claimants were a partnership of executive recruitment
consultants which had instructed the defendant firm of solicitors to draft amendments to their
partnership agreement so as to allow a third party investor to gain an interest in the partnership. The
amendments which were drafted (and agreed) allowed the investor to withdraw half its funds within a
period of 41 months from its formation, rather than (as instructed by the partnership) only outside
such a period: this failure was held to constitute negligence in the solicitors. 1369 One issue before
the Court of Appeal was whether the claimants could recover a percentage of the profits which might
have been made if the investment had remained in place until the end of 41 months, in particular in
relation to a recruitment handling contract or contracts with a major bank. In this respect, it held that
where a claimant is able to sue either for breach of contract or for pure economic loss in the tort of
negligence based on an assumption of responsibility which is assumed under a contract, the contract
law test for remoteness of damage applies even if the claim is brought in tort: “[i]t would be
anomalous … if the party pursuing the remedy in tort in these circumstances were able to assert that
the other party has assumed a responsibility for a wider range of damage than he would be taken to
have assumed under the contract”. 1370 In so holding, the Court of Appeal related the remoteness
of damage rule for breach of contract (as reformulated by Lord Hoffmann in The Achilleas in terms of
1371
assumption of responsibility ) to the basis of liability in tort in the context (assumption of
responsibility as explained by Henderson v Merrett Syndicates Ltd 1372 ). The Court of Appeal
therefore disagreed with the judge at trial on the remoteness test applicable, though it held that the
application of the contract test rather than the tort test did not make any difference on the facts as the
damage claimed by the partnership was of a kind for which the solicitors had assumed responsibility
under their contract and was in the reasonable contemplation of the parties as not unlikely to result
from a breach. 1373 The Court of Appeal in Wellesley Partners LLP therefore took a different view
on the question as to the proper test of remoteness applicable to a claim in the tort of negligence
concurrent with a claim for breach of contract from the one which it had taken in Yapp. 1374 In
neither case were these views necessary for the courts’ decisions on the facts before them, as in both
cases they held that the two tests of remoteness (in tort and in contract) would have led to the same
result. 1375 Moreover, the two approaches to the proper test of remoteness, while apparently
opposing, may be reconciled by reference to their contexts. In Yapp, the claim was for damages by
an employee against his employer for psychiatric injury suffered as a result of withdrawing him from
his post without informing him of the case against him for doing so (which was held to have been
unfair) 1376 and the Court of Appeal held (summarising the authorities in that context) that in such a
claim “for breach of the common law duty of care” it is immaterial that the duty arises in contract as
well as tort. 1377 In such a context, therefore, the defendant’s liability in the tort in respect of
psychiatric injury (which did not rest on any assumption of responsibility) could be seen as primary as
compared with its contractual liability arising from breach of the term implied in law on the employer to
take reasonable care of the employee’s health and safety. 1378 By contrast, in Wellesley Partners
LLP the defendant’s liability in contract was for breach of an express term of the contract (that is, to
follow their client’s instructions as to the terms of the amendment agreement) whereas its liability in
tort was for pure economic loss based on an assumption of responsibility where the assumption
stemmed from the contract itself: indeed, the judges in the Court of Appeal restricted their decision on
the test of remoteness to the situation where the tort was based on such a contractual assumption of
responsibility. 1379 A distinction between claims for psychiatric injury (and, it is submitted, other
harms, such as personal injury and damage to property) where liability in tort in the defendant does
not rest on an assumption of responsibility (Yapp) and claims for pure economic loss where it does (
Wellesley Partners LLP) would echo the approach of Lord Denning M.R. in his minority reasoning in
H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd (who distinguished between concurrent claims for
physical damage and pure economic loss 1380 ) with the difference that under Wellesley Partners
LLP the contract test of remoteness would apply to a claim for pure economic loss in tort only where it
is based (as would normally be the case) on an assumption of responsibility. More generally, while
the Court of Appeal in Wellesley Partners LLP acknowledged that the House of Lords in Henderson v
Merrett Syndicates Ltd treated liability in the tort of negligence that is based on a “broad principle” of
1381
assumption of responsibility in Hedley Byrne as independent from any liability in contract, its
Page 20
own decision treats the liability of the defendant solicitors in tort for negligence as dependent on their
liability for breach of the contract of retainer. 1382 However, a better approach would be to hold that
the contract test should apply whenever one party has had the opportunity to alert the other to the
type of loss of which he is at risk, and that such an opportunity should be assumed (or perhaps
presumed) where the parties are in a contractual relationship. 1383 Most recently, in Wright v Lewis
1384
Silkin LLP the Court of Appeal noted its earlier judgment in Wellesley Partners LLP, seeing the
two cases as having in common that they both involved claims for negligence against solicitors by
their clients in which there was concurrent liability and describing the decision in Wellesley Partners
LLP as being that “where there were contractual and tortious duties to take care in carrying out
instructions, the test for recoverability of damage should be the same, and it should be the contractual
one”. 1385 It was, however, common ground between the parties in Wright v Lewis Silkin LLP that
Wellesley Partners LLP bound the court in Wright v Lewis Silkin LLP, no reference being made either
by the parties or the court in the latter case to the contrasting approach of the Court of Appeal in Yapp
v Foreign and Commonwealth Office. 1386 In Wright v Lewis Silkin LLP the Court of Appeal held
that the main element of the loss claimed by the claimant (a 20 per cent chance of recovering the
voluntary payment of a severance sum from his former Indian employers) caused by his solicitor’s
failure to advise him in relation to an exclusive jurisdiction clause was too remote, not being of a kind
that either party at the time would have had in mind as not unlikely to result from this negligence. 1387
On the other hand, the claimant’s additional litigation costs were not too remote, being “exactly the
kind of loss to be expected”. 1388
1-196
It should also be recalled, moreover, that the “foreseeability test” of remoteness of damage 1389 does
not apply to claims for damages in the tort of deceit, where the claimant can recover all the damage
directly flowing from the tortious act, 1390 and the Court of Appeal has made clear that the latter test
also applies to claims for damages under s.2(1) of the Misrepresentation Act 1967, whose imposition
rests on a fiction of fraud. 1391 This suggests that in some cases a representee will have an advantage
in claiming damages for misrepresentation, rather than for breach of a contractual warranty which
results from the incorporation of a statement into the contract, 1392 as the former allows recovery of all
losses flowing from the misrepresentation even if unforeseeable, “provided that they [are] not
otherwise too remote”. 1393 On the other hand, a consumer’s claim for damages as a “right to redress”
against a trader in respect of the latter’s “misleading action” or “aggressive commercial practice” (the
“prohibited practice) under the Consumer Protection from Unfair Trading Regulations 2008 is limited
to “loss that was reasonably foreseeable at the time of the prohibited practice”. 1394
Contributory negligence
1-197
In Forsikringsaktieselskapet Vesta v Butcher, 1395 the Court of Appeal took a very similar approach to
the defence of contributory negligence as it had done in H. Parsons (Livestock) Ltd v Uttley Ingham &
Co Ltd 1396 to remoteness of damage, and held that while s.1 of the Law Reform (Contributory
Negligence) Act 1945 does not in general apply to claims for breach of contract so as to allow a court
to reduce any award of damages on the ground of contributory negligence, it does apply to claims
based on the breach of a contractual obligation to take reasonable care (“contractual negligence”) as
long as this is concurrent with liability for breach of a duty of care in tort. 1397 This approach leads to
the paradox that a court’s recognition of a duty of care in the tort of negligence in addition to and
concurrent with a contractual obligation to take reasonable care owed to a claimant may lead to the
reduction of the latter’s damages on the ground of contributory negligence, whereas its refusal to do
so would rule out such a reduction. 1398
Page 21
1-198
As has been seen, differences as to the rules of limitation of actions exist according to whether the
claim is brought in tort or contract 1399 and this has often been a reason for a claimant to put a claim in
tort rather for breach of contract. Traditionally, the courts allowed a claimant’s choice whether to sue
for breach of contract or in tort to determine which of the two regimes of limitation will apply and this
practice was confirmed in Henderson v Merrett Syndicates Ltd. 1400 However, although the general
rule is that an action in contract accrues on its breach, whereas an action in tort accrues only on
damage being suffered by the claimant, 1401 in those cases where the courts accept that the claimant
would have had 1402 a claim for pure economic loss in the tort of negligence concurrent with a claim in
contract, their approach has been to assimilate the two rules as to accrual, by finding that the
claimant suffered damage for the purposes of the rule in tort at the same date as the breach of
contract. 1403 On the other hand, rather than reducing differences of rule as to limitation of actions in
contract and in tort, the Latent Damage Act 1986 added a further one, as its provision according to
which “negligence actions” for latent damage can accrue on the latter’s discovery rather than on its
occurrence, has been held to apply only to actions based on negligence in tort. 1404
The conflict of laws: jurisdiction
1-199
It was clearly established at common law that in cases with a foreign element where English law
allows a person alternative claims in contract and in tort, his election between them brings with it the
appropriate rules both of jurisdiction and choice of law. 1405 However, within its scope,Regulation (EU)
1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial
matters (“the Brussels Ibis Regulation”) governs jurisdiction both in “matters relating to a contract” and
“matters relating to tort”. 1406 In a case where English substantive law would in principle allow a
claimant to choose whether to put his claim in terms of contract or of tort, it would appear instead that
the Court of Justice of the EU would regard the claim as “relating to a contract” for this purpose and
so outside the scope of the jurisdictional rule for tort. 1407 Moreover, the classification of a claim as
contractual or tortious for these purposes is in principle a matter for EU law as these concepts should
have an “autonomous” interpretation. 1408 This view of the position was taken by the Court of Appeal in
Source Ltd v TUV Rheinland Holding AG. 1409 In that case, the plaintiffs claimed that the English
courts had jurisdiction to hear their claim in tortious negligence against the defendants, a claim which
arose out of and was concurrent with a claim against them for breach of their contractual obligation to
exercise reasonable care and skill in presenting a report following the inspection of goods which they
(the plaintiffs) had wished to import from China and Taiwan. The Court of Appeal noticed that the
European Court of Justice in Kalfelis v Schröder, 1410 had held that the phrase “matters relating to tort”
in art.5(3) of the Brussels Convention (a predecessor to the Brussels Ibis Regulation art.7(2)) refers
to:
“… all actions which seek to establish the liability of a defendant and which are not
related to a ‘contract’ within the meaning of Article 5(1).” 1411
For Staughton L.J., with whom Waite and Aldous L.JJ. agreed, this means that a claim which may be
brought under a contract or independently of a contract on the same facts, save that a contract does
not need to be established, is excluded from art.5(3) by the European Court’s words “which are not
related to a ‘contract’ within the meaning of Art.5(1)”. 1412 In the result, therefore, both the contractual
and tortious claims of the plaintiffs “related to a contract” and they could not by relying on art.5(3)
bring the tortious claim before the English courts. 1413 In a series of recent cases, the Court of Justice
of the EU has confirmed its approach to the relationship of the contract and tort provisions in the
Brussels Regulation taken in Kalfelis v Schröder in relation to the Brussels Convention 1414 and
has therefore made clear that the question whether a particular claim falls within “matters relating to
contract” or “matters relating to tort, delict or quasi-delict” must be judged by reference to autonomous
EU law understandings of these concepts; and that for this purpose the latter concept “covers all
actions which seek to establish the liability of the defendant and do not concern ‘matters relating to a
Page 22
contract’ within the meaning of Article 5(1)(a)” of the Brussels Regulation. 1415 As a result, where a
national court finds that a claim is a “matter relating to a contract”, a national court does not enjoy
jurisdiction on the basis that the claim could be viewed as relating to tort as a matter of national law.
1416
Conflict of laws: applicable law
1-200
Under the Rome Convention on the Law Applicable to Contractual Obligations 1417 it was held that
there is nothing to prevent a party to a contract from framing his claim in tort so as to attract the
choice of law rules applicable to that basis of liability, rather than in contract whose applicable law
would be determined by that Convention. 1418 However, after the enactment of the Regulation (EC)
864/2007 on the law applicable to non-contractual obligations (“Rome II Regulation”) 1419 and the
replacement for most purposes of the Rome Convention by Regulation (EC) 593/2008 on the law
applicable to contractual obligations (“Rome I”), 1420 it is highly unlikely that a claimant will have the
option as to how to frame his or her claim given that the two EU regulations will classify claims within
their scope autonomously as being “contractual” or “non-contractual” for these purposes and these
classifications are likely to be held mutually exclusive. 1421
1147. Jarvis v Moy, Davies, Smith, Vandervell & Co [1936] 1 K.B. 399, 405.
1148. See below, paras 1-177, 1-183.
1151. See below, paras 1-186—1-190.
1152. The notable exception is in the case of contractual capacity.
1154. See above, paras 1-150 et seq.
1155. [1995] 2 A.C. 145.
1156. Burrows (1995) C.L.P. 103, 118 et seq.; Whittaker (1997) 17 Legal Studies 169.
1157. For the position of “indirect Names” see below, para.1-211.
1158. [1964] A.C. 465.
1159. [1995] 2 A.C. 145 at 180–181.
1160. [1995] 2 A.C. 145 at 193–194.
1161. [1995] 2 A.C. 145 at 194.
1163. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] A.C. 465.
Page 23
1164. It would seem that the speech of Lord Goff in Spring v Guardian Assurance Plc [1995] 2 A.C.
296 marked the turning point.
1165. e.g. Caparo Industries v Dickman [1990] 2 A.C. 605; Smith v Eric S. Bush [1990] 1 A.C. 831.
1166. An exception could be found in the decision of the House of Lords in Junior Books Ltd v Veitchi
Co Ltd [1983] 1 A.C. 520, but this decision has not been followed but has been distinguished on
various grounds: see below, paras 1-207 et seq.
1167. [1995] 2 A.C. 145 at 178–181.
1168. See especially White v Jones [1995] 2 A.C. 207, 273–274 (Lord Browne-Wilkinson, referring to
“assumption of responsibility for the task not the assumption of legal liability”), 280, 288 (Lord
Mustill). See also Barclays Bank Plc v Fairclough Building Ltd (No.2) [1995] I.R.L.R. 605; below,
para.1-172.
1169. Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145, 180, per Lord Goff of Chieveley.
1170. Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145, 180 and see Hunt v Optima
(Cambridge) Ltd [2014] EWCA Civ 714, [2015] 1 W.L.R. 1346 especially at [54] and [66]–[67]
1171. Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145, 180, 182.
1172. cf. Lennon v Metropolitan Police Commissioner [2004] EWCA Civ 130, [2004] 1 W.L.R. 2594
where the principle in Henderson v Merrett Syndicates [1995] 2 A.C. 145 was applied so as to
impose liability on a police authority vicariously in respect of its agent’s express assumption of
responsibility towards one of its constables (technically not being a contractual employee) in
respect of the task of transferring him without loss of allowance to another police force.
1173. [2011] EWCA Civ 9, [2011] 3 W.L.R. 815.
1174. [2011] EWCA Civ 9 at [44] and [92].
1175. The Court of Appeal held the term “reasonable” under s.2(2) and 3 of the Unfair Contract Terms
Act 1977: [2011] EWCA Civ 9 at [58]–[64].
1176. [2011] EWCA Civ 9 at [80] and [84] and see above, para.1-166.
1177. [2011] EWCA Civ 9 at [83].
1178. [2011] EWCA Civ 9 at [94]. See similarly [2011] EWCA Civ 9 at [76].
1179. [1995] 2 A.C. 145, 181. This proposition was treated as established by Henderson by Lord
Steyn in Williams v Natural Life Health Foods Ltd and Mistlin [1998] 1 W.L.R. 830, 834.
1180. cf. the approach of Lord Steyn to the question of “justice and reasonableness” in Marc Rich &
Co AG v Bishop Rock Marine Co [1996] 1 A.C. 221 at 236 et seq., where he weighs various
factors for and against the imposition of a duty of care on the facts.
1181. [2002] 1 A.C. 615 and see especially 688 et seq. (Lord Hoffmann), the HL not following its
earlier decision in Rondel v Worsley [1969] 1 A.C. 191. In Jones v Kaney [2011] UKSC 13,
[2011] 2 A.C. 398 a majority of the SC (Lord Phillips of Worth Matravers P.S.C., Lord Browne of
Eatonunder-Heywood, Lord Collins of Mapesbury and Lord Dyson of Tonaghmore JJ.S.C.; Lord
Hope of Craighead D.P.S.C. and Baroness Hale of Richmond J.S.C. dissenting) overruled
Stanton v Callaghan [2000] Q.B. 75 and held that expert witnesses do not enjoy any immunity
from liability in negligence, rejecting arguments of the public interest in favour of such an
immunity. Although the SC recognised that expert witnesses (unlike witnesses of fact) choose
to provide their services (at [18], per Lord Phillips of Worth Matravers P.S.C.) and even owe
their clients a contractual duty to take reasonable care ([2011] UKSC 13 at [67] and [95]), the
Page 24
SC did not uphold the duty of care in the tort of negligence on the basis of an “assumption of
responsibility”, even though Lord Dyson considered that liability in tort was based on Hedley
Byrne: [2011] UKSC 13 at [95].
1182.
[2017] EWCA Civ 254, [2017] P.N.L.R. 24 at [64] referring in particular to Lord Hoffman’s
speech in Customs and Excise Commissioners v Barclays Bank Plc [2006] UKHL 28, [2006] 3
W.L.R. 1 at [35]–[36].
1183. [1996] 1 A.C. 211.
1184.
See, e.g. Burgess v Lejonvarn [2017] EWCA Civ 254, [2017] P.N.L.R. 24 esp. at [86]–[87] in
which the claimants’ friend who had provided project management services in a professional
context to them not under a contract (for lack of agreement as to terms, intention to create legal
relations and consideration) was held to a duty of care in tort based on an assumption of
responsibility. The CA emphasised that the duty thereby imposed was “not a duty to provide
[the] services. It is a duty to exercise reasonable skill and care in providing the professional
services which [the defendant] did in fact provide”, adding that “[a] duty expressed in these
terms does not trespass on the realm of contract”: at [88] and [89] per Hamblen L.J.
1185. [1995] I.R.L.R. 605.
1186. cf. Barclays Bank Plc v Fairclough Building Ltd [1995] Q.B. 214 which concerned the claim by
the owner of the buildings against the main building contractors.
1187. Forsikringsaktieselskapet Vesta v Butcher [1989] A.C. 852 and see below, para.26-077.
1188. (1842) 3 Q.B. 511, (1844) 11 Cl. & Fin. 1 HL.
1190. But compare paras 1-169—1-170.
1191. OGB Ltd v Allan, Douglas v Hello! Ltd, Mainstream Properties Ltd v Young [2007] UKHL 21,
[2008] 1 A.C. 1 especially at [6]–[8].
1192. Rookes v Barnard [1964] A.C. 1129.
1193. For example, where A threatens B, his creditor, that he will not pay a debt owed unless B
accepts a smaller sum in full satisfaction, A may be liable to B in the tort of intimidation: D.&C.
Builders Ltd v Rees [1966] 2 Q.B. 617, 625.
1194. Clerk & Lindsell on Torts, 21st edn (2014), para.24–65. In Morgan v Fry [1968] 2 Q.B. 710, 737,
Russell L.J.’s judgment suggests that not every threat to break a contract of employment would
be sufficient to constitute the tort of intimidation.
1196. Clerk & Lindsell on Torts, 19th edn (2006) at para.25–86, especially at n.87, referring to Kenny
v Preen [1963] 1 Q.B. 499 in which the Court of Appeal refused to award punitive damages
where the claim was only for breach of contract, and see above, para.1-151.
1197. Clerk & Lindsell on Torts, 19th edn (2006) at para.25–86, n.91.
1198. Cane, Tort Law and Economic Interests, 2nd edn (1996), p.130.
1199. cf. Kenny v Preen [1963] 1 Q.B. 499; McCall v Abelesz [1976] Q.B. 585, 594 and see below,
para.26-044 and cf. the refusal of English courts to distinguish between deliberate and other
breaches of contract for the purposes of the validity of exemption clauses, below, para.15-019
and see Unfair Contract Terms Act 1977 s.1(4). In Bank of Nova Scotia v Hellenic Mutual War
Page 25
Risks Association (Bermuda) Ltd [1990] 1 Q.B. 818, 894, May L.J. observed that “a deliberate
contract breaker is guilty of no more than breach of contract”.
1200. Winfield and Jolowicz on Tort, 19th edn (2014), paras 18–21—18–23.
1201. In OGB Ltd v Allan, Douglas v Hello! Ltd, Mainstream Properties Ltd v Young, Douglas v Hello!
Ltd, Mainstream Properties Ltd v Young [2007] UKHL 21, [2008] 1 A.C. 1 at [61] Lord Hoffmann
was careful to put aside the question of possible recovery by a claimant who has been
compelled by unlawful intimidation to act to his own detriment: “[s]uch a case of ‘two party
intimidation’ raises altogether different issues”.
1202. SI 2008/1277 (“2008 Regulations”) especially Pt 4A as inserted by Unfair Consumer Protection

(Amendment) Regulations 2014 (SI 2014/870) on which see generally Vol.II, paras 38-145 et
seq.
1203. 2008 Regulations regs 2(1), 27C and 27D, on which see Vol.II, paras 38-148 and 38-161.
1204. 2008 Regulations reg.27A and 27B on which see further Vol.II, paras 38-165, 38-166, 38-175
and 38-177.
1205. 2008 Regulations reg.7(1) on which see further Vol.II, para.38-173.
1206. 2008 Regulations reg.27H on which see further Vol.II, para.38-182.
1207. 2008 Regulations reg.27J especially (1) on which see further Vol.II, para.38-186.
1208. An exception to this rule is found in the case of personal fraud in a contractor liability for which
cannot be excluded by contract: S. Pearson & Son Ltd v Dublin Corp [1907] A.C. 351, 353–354,
362. Fraud may occur in the course of performance of a contract as well at the precontractual
stage, for example, where a solicitor’s clerk acts fraudulently in relation to his commission: see
Lloyd v Grace, Smith & Co [1912] A.C. 716, where a solicitor’s employee’s fraud was held to
give rise to liability in both tort and contract in the solicitor. Of course, in many situations the
standard of care owed by a contractor is the same in tort and in contract, notably where the tort
is one of negligence and the relevant contractual obligation is one of reasonable care: see
below, paras 14-017, 14-037.
1209. cf. Trade and Transport Inc v IIno Kaiun Kaisha Ltd [1973] 1 W.L.R. 210, 230–231 and see
below, para.15-012 but cf. Unfair Contract Terms Act 1977 s.13(1), below, para.15-069.
1210. e.g. Readhead v Midland Ry Co (1867) L.R. 2 Q.B. 412, (1869) L.R. 4 Q.B. 379 (carriage of
persons); Davie v New Merton Board Mills [1959] A.C. 604 (employment); Occupiers’ Liability
Act 1957 s.5(1); Thake v Maurice [1986] 1 Q.B. 644 (medical liability).
1211. e.g. Samuels v Davis [1943] 1 K.B. 526 (dentist who designed and constructed prosthesis liable
strictly to patient) and see Sale of Goods Act 1979 s.14.
1212. [1986] A.C. 80.
1213. [1986] A.C. 80, 107.
1214. [1995] 2 A.C. 145 see especially at 186.
1215. cf. Blackwood v Robertson 1984 S.L.T. 68 (lesser standard of care between partners).
1216. Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB [2012] EWHC 584 (Comm),
[2013] 1 B.C.L.C. 125 at 130, relying on Socimer International Bank Ltd v Standard Bank
London Ltd (No.2) [2008] EWCA Civ 116, [2008] 1 Lloyd’s Rep. 558 at [66] on which see
above, para.1-054. See similarly Marex Financial Ltd v Creative Finance Ltd [2013] EWHC
2155 (Comm), [2014] 1 All E.R. (Comm) 122 at [78]–[89].
Page 26
1217. [2012] EWHC 584 (Comm) at [132], referring, inter alia, to the paragraph in the 30th edition
equivalent to the present paragraph and the cases cited therein.
1218. [2012] EWHC 584 (Comm) at [133]–[134].
1219. [1991] Ch. 12 (and see Shamji v Johnson Matthey Bankers Ltd [1986] B.C.L.C. 278).
1220. [1991] Ch. 12 at 18 (and cf. at 24–25, Purchas L.J.), thereby disapproving Salmon L.J.’s dictum
in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch. 949, 966 which talks of a duty of
care in the context of the liability of a mortgagee; and see Downsview Nominees Ltd v First City
Corp Ltd [1993] A.C. 295, 315 and AIB Finance Ltd v Debtors [1998] 2 All E.R. 929, 937;
Yorkshire Bank Plc v Hall [1999] 1 W.L.R. 1713, 1728; Raja v Lloyds TSB Bank Plc [2001]
EWCA Civ 210, [2001] Lloyd’s Rep. Bank. 113; and see Megarry and Wade, The Law of Real
Property, 6th edn (2000), para.25-018.
1221. China and South Seas Bank v Tan [1990] 1 A.C. 536, 543–544.
1222. Raja v Lloyds TSB Bank Plc [2001] EWCA Civ 210 at [31], per Mance L.J.
1223. [1986] 1 Q.B. 644. Peter Pain J. at first instance and Kerr L.J. on appeal took the opposite view
on this issue from the majority in the Court of Appeal and see below, para.1-194.
1224. cf. Readhead v Midland Ry Co (1867) L.R. 2 Q.B. 412, (1869) L.R. 4 Q.B. 379, in which the
court held that a passenger injured while travelling on a railway could sue the company only on
the basis of breach of a duty to take reasonable care, rejecting the plaintiff’s contention that the
company owed an obligation to provide a carriage fit for its purpose, by analogy with cases on
sale of goods.
1225. The stricter type of contractual term was implied by the courts in the context of sale of goods:
Jones v Just (1868) L.R. 3 Q.B. 197 (see now Sale of Goods Act 1979 s.14). See further,
Samuels v Davis [1943] 1 K.B. 526 (liability of dentist in respect of manufacture and supply of
dental prosthesis); Supply of Goods and Services Act 1982 s.4 and below, para.14-034.
1226. [1996] 1 W.L.R. 38.
1227. [1995] 1 W.L.R. 1281.
1228. [1995] 1 W.L.R. 1281 at 1290.
1229. [1995] 2 A.C. 145, 194 and see above, paras 1-166—1-167.
1230. [1995] 1 W.L.R. 1281 at 1294.
1231. [1995] 1 W.L.R. 1281 at 1295. Notably, Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd
[1986] A.C. 80.
1232. (1986) 31 D.L.R. (4th) 481, 521-522.
1233. [1995] 1 W.L.R. 1281, 1301, 1305.
1234. Nicholson v Willan (1804) 5 East 507 and see below, paras 15-001 et seq.
1235. White v John Warwick & Co Ltd [1953] 1 W.L.R. 1285; How Engineering Services Ltd v
Southern Insulation (Medway) Ltd [2010] EWHC 1878 (TCC), [2010] B.L.R. 537 at [14], where
Akenhead J. observed that where a duty of care in the tort of negligence exists concurrently
with a contract between the parties “[t]hat duty of care will be definable by reference to the
contractual responsibilities and liabilities assumed by the parties to the contract and, if for
instance, certain types of loss are, on the proper interpretation of the contract, excluded or
otherwise irrecoverable, the duty of care is similarly circumscribed”.
Page 27
1236. White v John Warwick & Co Ltd [1953] 1 W.L.R. 1285 at 1294 where Denning L.J. held that the
plaintiff “can avoid the exemption clause by framing his claim in tort”.
1237. e.g. Hollier v Rambler Motors (A.M.C.) Ltd [1972] 2 Q.B. 71. In principle a valid exemption
clause in a contract between the parties may exclude any liability in the tort of negligence
otherwise arising on the basis that it would be inconsistent with the contract: Robinson v PE
Jones (Contractors) Ltd [2011] EWCA Civ 9, [2011] B.L.R. 206 at [84].
1238. Unfair Contract Terms Act 1977 s.1(1) and see below, paras 15-064, 15-081—15-083 (where
the impact on the 1977 Act of the Consumer Rights Act 2015 is explained). Such an attempted
exclusion may also fall within the controls of the Unfair Terms in Consumer Contracts
Regulations 1999 (SI 1999/2083) or, on its coming into force, the Consumer Rights Act 2015 Pt
2: on which see Vol.II, paras 38-201 et seq. and 38-358 et seq. and 38-377 respectively.
1239. [1992] Q.B. 334.
1240. See Davie v New Merton Board Mills [1959] A.C. 604 (negligence); Matthews v Kuwait Bechtel
Corp [1959] 2 Q.B. 57 (contract).
1241. [1986] A.C. 80, 107; see above, para.1-154.
1242. [1986] A.C. 80.
1243. [1986] A.C. 80 at 350.
1244. [1986] A.C. 80 at 350–351.
1245. [1986] A.C. 80 at 349.
1246. [1995] 2 A.C. 145.
1247. See above, paras 1-166—1-167.
1248. Chatterton v Gerson [1981] 1 Q.B. 432, 442–443. For the extent to which the consent needs to
be “informed” see Montgomery v Lanarkshire Health Board [2015] UKSC 11, [2015] 2 W.L.R.
768. That the consent of the claimant goes to the existence of the tort of battery rather than
being merely an example of volenti non fit injuria is supported by the fact that the claimant must
show his own lack of consent: Freeman v Home Office (No.2) [1984] Q.B. 524, 539.
1249. Sidaway v Board of Governors of the Bethlem Royal Hospital [1985] A.C. 871 at 904–905.
Although the SC in Montgomery v Lanarkshire Health Board, above, n.1176, departed from
what was said in Sidaway on informed consent, it did not discuss this point.
1250. There is no need for such a licence to be contractual for the defence to arise. See Clerk &
Lindsell on Torts, 21st edn (2014), para.19–46.
1251. [1932] 2 K.B. 431.
1252. Saif Ali v Sydney Mitchell & Co [1980] A.C. 198 applying to solicitors Rondel v Worsley [1969]
A.C. 191. In Arthur J.S. Hall v Simons [2002] 1 A.C. 615 this immunity was rejected and these
earlier decisions not followed.
1253. The immunity extended to positive acts of malfeasance as well as to non-feasance and to
claims for personal injuries: Travers v Gloucester Corp [1947] 1 K.B. 71.
1254. Cavalier v Pope [1906] A.C. 428. See now Defective Premises Act 1972 ss.3, 4.
1255. [1985] 1 Q.B. 1.
1256. [1985] 1 Q.B. 1 at 13.

Page 28
1257. [1906] A.C. 428.
1258. Rimmer v Liverpool City Council [1985] 1 Q.B. 1 at 9.
1259. [1985] 1 Q.B. 1 at 11.
1260. cf. McNerny v Lambeth LBC (1988) 21 H.L.R. 188 (no liability in tort of negligence in landlord to
tenant for condensation damage and illness) and Baxter v Camden LBC (No.2) [2001] Q.B. 1
(no liability in tort of nuisance in landlord to tenant owing to noise from neighbouring property
also owned by landlord) in both of which the rule in Cavalier v Pope [1906] A.C. 428 was
applied.
1261. [1990] 1 Q.B. 818 (reversed on other grounds [1992] 1 A.C. 233).
1262. cf. Banque Keyser Ullmann SA v Skandia (UK) Co Insurance Ltd [1990] 1 Q.B. 655 (affirmed on
other grounds [1991] 2 A.C. 249). On the new law governing duties of disclosure and
representation in contracts of insurance see Consumer Insurance (Disclosure and
Representations) Act 2012 and Insurance Act 2015, on which see Vol.II, paras 42-033 et seq.
1263. [1990] 1 Q.B. 818; [1990] 1 Q.B. 655 at 897–898 and see below, para.14-009.
1264. [1990] 1 Q.B. 818 at 898–899 and see below, paras 14-005—14-010 (where later
developments are explained).
1265. [1990] 1 Q.B. 818, at 901, per May L.J.
1266. [1990] 1 Q.B. 818 at 902.
1267. [1995] 2 A.C. 145.
1268. [1986] A.C. 80.
1270. On this role of policy in recognition of the duty of care in the tort of negligence, see especially
Marc Rich & Co AG v Bishop Rock Marine Co [1996] 1 A.C. 211. For the significance of
considerations of policy in relation to liability in the tort of negligence based on an “assumption
of responsibility”, see above, para.1-171.
1271. [2001] 2 W.L.R. 1076 and see Eastwood v Magnox Plc [2004] UKHL 35, [2005] 1 A.C. 503.
1272.
[2001] 2 W.L.R. 1076 at 1097 and see also at 1122, per Lord Millett. cf. Greenway v Johnson
Matthey Plc [2016] EWCA Civ 408, [2016] 1 W.L.R. 4487 (impact of absence of implied term for
duty of care in the tort of negligence), on which see below para.1-190A.
1273. cf. Ali v Christian Salvesen Food Services Ltd [1997] 1 All E.R. 721, especially at 726 in which
the Court of Appeal refused to imply a term in a collective agreement which represented “a
carefully negotiated compromise between two potentially conflicting objectives” and which was
“wholly silent” as to the issue about which it was argued a term should be implied.
1274. [1995] 2 A.C. 145 and see above paras 1-166—1-167.
1275. See below, paras 15-008 et seq. and cf. Smith v Charles Baker & Sons [1891] A.C. 325 (mere
entry of contract with knowledge of risk not sufficient for defence of volenti non fit injuria).
1276. This would be the case notably as regards “business liability for negligence” under the Unfair
Contract Terms Act 1977 s.2 or in the case of a term in a “consumer contract” under the Unfair
Terms in Consumer Contracts Regulations 1999 or (on its coming into force) the Consumer
Rights Act 2015 Pt 2.
Page 29
1277. [1995] 2 A.C. 145 and see above, paras 1-166—1-167.
1278.
[1990] 1 W.L.R. 212 and see also Van Oppen v Clerk to the Bedford Charity Trustees [1990]
1 W.L.R. 235 and Greenway v Johnson Matthey Plc [2016] EWCA Civ 408, [2016] 1 W.L.R.
4487 (appeal to SC pending) (below para.1-190A), which was itself seen the CA as an
analogous case to Reid v Rush & Tompkins Group Plc : [2016] EWCA Civ 408 at [41].
1279. Relying on Liverpool City Council v Irwin [1977] A.C. 239 and see below, para.14-011.
1280. [1990] 1 W.L.R. 212 at 229.
1281. [1986] A.C. 80, 107 above, para.1-154.
1282. [1990] 1 W.L.R. 212, 232.
1283. [1990] 1 A.C. 637.
1284. [1990] 1 A.C. 637 at 650.
1285. [1990] 1 A.C. 637. If given a general application, this statement would clearly prevent a claimant
from suing in tort after the expiry of a limitation period applicable to a contractual action, on
which see below, para.1-198.
1286. See similarly, Bank of Nova Scotia v Hellenic War Risks Association (Bermuda) Ltd [1990] 1
Q.B. 818 and see above, para.1-184 and Greater Nottingham Co-Operative Society Ltd v
Cementation Piling & Foundations Ltd [1989] Q.B. 71.
1287. Above, paras 1-166 et seq.
1288. On the assumption that the implied term is put before the court for its consideration.
1289. [1995] 49 Con. L.R. 99.
1290. The plaintiffs also claimed against their solicitors, but no issue relating to the latters’ liability
arose before the Court of Appeal.
1291. [1995] 2 A.C. 145, 193.
1292. [1995] 49 Con. L.R. 99, 114.
1293. This approach was followed by the HC in Sumitomo Bank Ltd v Banque Bruxelles Lambert SA
[1997] 1 Lloyd’s Rep. 487 (duty of care arising from failure in carrying out pre-contractual
disclosure).
1294. This can be seen Hirst L.J.’s reliance on passages from Lord Goff’s speech in Henderson v
Merrett Syndicates Ltd [1995] 2 A.C. 145, 178 and 193–194.
1295. [1990] 2 A.C. 605, 638.
1296. [1995] 49 Con. L.R. 99, 114.
1297. cf. Tesco Stores Ltd v The Norman Hitchcox Partnership Ltd [1998] 56 Con. L.R. 52, 163–165.
1298. [2000] I.R.L.R. 499 at [21]–[23].
1299. See similarly Freemont (Denbigh) Ltd v Knight Frank Ltd [2014] EWHC 3347 (Ch), [2015]
P.N.L.R. [34], [148]–[149] (surveyor’s restricted contractual duty limiting any duty of care in tort).
1300. [2014] EWHC 3957 (QB), [2015] P.I.Q.R. P10 (appeal pending).
Page 30
1301. [2014] EWHC 3957 (QB) at [32]–[33], applying Cartledge v E. Jopling [1963] A.C. 758; Rothwell
v Chemical and Insulating Co Ltd [2007] UKHL 39, [2008] 1 A.C. 281.
1302. [2014] EWHC 3957 (QB) at [38] and [46] per Jay J.
1303. [2014] EWHC 3957 (QB) at [47], applying the approach to the “scope of the duty” of Lord
Hoffmann in SAMCO v York Montague [1997] A.C. 191 at 211-212.
1304. [2014] EWHC 3957 (QB) at [47] per Jay J.
1305.
[2016] EWCA Civ 408, [2016] 1 W.L.R. 4487 (appeal to SC pending).
1306.
[2016] EWCA Civ 408 at [29]–[33].
1307.
[2016] EWCA Civ 408 at [37] per Sales L.J. (with whom Davis L.J. and Lord Dyson M.R.
agreed).
1308.
[2016] EWCA Civ 408 at [37] per Sales L.J.
1309.
[2016] EWCA Civ 408 at [39]–[40].
1310.
[1990] 2 A.C. 605, 618.
1311.
[2016] EWCA Civ 408 at [40] and [45].
1312.
[2016] EWCA Civ 408 at [47].
1313.
[1995] 2 A.C. 296.
1314.
[2016] EWCA Civ 408 at [48] per Sales L.J.
1315.
[2016] EWCA Civ 408 at [49], referring to Scally v Southern Health and Social Services Board
[1992] 1 A.C. 294 at 303.
1316.
[2016] EWCA Civ 408 at [51].
1317. See above, paras 1-150—1-153.
1318. [1995] 2 A.C. 145, above, para.1-166.
1319. See below, paras 9-053—9-054.
1321. Johnson v Pye (1665) 1 Sid. 258.
1324. Burnard v Haggis (1863) 32 L.J.N.S. 189, 191, per Keating J. This passage does not appear in
the other report at (1863) 14 C.B.(N.S.) 45.
Page 31
1325. (1863) 14 C.B.(N.S.) 45, 53, (1863) 32 L.J.N.S. 189, 191.
1326. See also Ballett v Mingay [1943] K.B. 281.
1327. See above, paras 1-150—1-151.
1328. See above, para.1-150 and below, paras 7-055, 7-077 and 26-019 et seq.
1330. And cf. Cane, Tort Law and Economic Interests, 2nd edn (1996), pp.142–145 and Whittaker
(1996) 16 O.J.L.S. 191, 207 et seq.
1332. [1964] 1 W.L.R. 885.
1333. [1964] 1 W.L.R. 885 at 891.
1334. And cf. County Personnel (Employment Agency) Ltd v Alan R. Pulver & Co [1987] 1 W.L.R. 916
, where the court did not generally feel it necessary to classify the claim beyond that it was for
negligence, though the test of remoteness applied was found in Hadley v Baxendale (1854) 9
Exch. 341: County Personnel (Employment Agency) Ltd v Alan R. Pulver & Co [1987] 1 W.L.R.
916 at 926.
1335. [1964] 1 W.L.R. 885, 887, citing Lord Haldane in British Westinghouse Electric & Manufacturing
Co Ltd v Underground Electric Rlys Co of London Ltd [1912] A.C. 673, 689.
1336. [1964] 1 W.L.R. 885 at 888. As the property with the restriction was worth the price which they
paid, the plaintiffs’ loss was held to be nil: at [891]. cf. Murray v Lloyd [1989] 1 W.L.R. 1260.
1337.
Swingcastle Ltd v Alistair Gibson [1991] 2 A.C. 223. cf. Banque Bruxelles Lambert SA v Eagle
Star Insurance Co Ltd; sub nom. South Australia Asset Management Corp v York Montague Ltd
[1997] A.C. 191 especially at 216–217; Haugesund Kommune v Depfa ACS Bank [2011] EWCA
Civ 33, [2011] 3 All E.R. 655 at [73] (scope of duty of lawyers advising on invalid loan
agreement treated as same in contract and tort); and see below, para.26-031. See also
Hughes-Holland v BPE Solicitors [2017] UKSC 21, [2017] 2 W.L.R. 1029. cf. above,
para.1-190A (scope of duty in tort reflected in scope of duty in implied contract term).
1338. Swingcastle Ltd v Alistair Gibson [1991] 2 A.C. 223, 225.
1339. Swingcastle Ltd v Alistair Gibson [1991] 2 A.C. 223 at 238. While the House of Lords noted that
the action before it was founded in tort, it did not consider the principles applicable to be any
different from those in contract.
1340. [1986] 1 Q.B. 644.
1341. [1986] 1 Q.B. 644 at 658.
1342. [1986] 1 Q.B. 644 at 685, 688.
1343. [1986] 1 Q.B. 644 at 679 (Kerr L.J.), with whom Neill and Nourse L.JJ. agreed on this point: at
684, 685.
1344. [1986] 1 Q.B. 644 at 678.
1345. [1986] 1 Q.B. 644 at 683. This point had been agreed by the parties.
1346. [1986] 1 Q.B. 644.

Page 32
1347. See McGregor on Damages, 19th edn (2014), Ch.8; Cartwright (1996) 55 C.L.J. 488 and see
Cane n.1241, at pp.145–147, for a discussion of the different treatment in tort and contract of
damages for “lost chances”.
1348. See below, paras 26-107 et seq. which includes discussion of the significance for remoteness
of damage in contract of the defendant’s “assumption of responsibility” for a particular kind of
loss after Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48,
[2009] 1 A.C. 61.
1349. Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd, The Wagon Mound (No.1)
[1961] A.C. 388.
1350. H. Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] Q.B. 791, 807. See similarly
Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] Q.B. 375, 405, per Sir
Thomas Bingham M.R. (though the decision of the Court of Appeal was reversed on other
grounds sub nom. South Australia Asset Management Corp v York Montague Ltd [1997] A.C.
191).
1351.
Koufos v C. Czarnikow Ltd [1969] 1 A.C. 350, 385–386, 422–423 and cf. at 413; Wellesley
Partners LLP v Withers LLP [2015] EWCA Civ 1146, [2016] 2 W.L.R. 1351 at [74] and [146] and
1352. See Harris, Campbell and Halson, Remedies in Contract and Tort, 2nd edn (2002), pp.331-333.
1353. [1978] Q.B. 791.
1354. [1978] Q.B. 791 at 806–807. Lord Denning, M.R. agreed with the result of the majority, but
justified it by drawing a distinction between claims for physical damage and ones for economic
loss: at 802–804. For further discussion of this decision, see Burrows, Remedies for Torts and
Breach of Contract, 3rd edn (2004), pp.88 et seq.; Cane above, n.1241 at pp.146–147;
McGregor on Damages, 19th edn (2014), para.22-009. cf. Galoo Ltd v Bright Grahame Murray
[1994] 1 W.L.R. 1360, 1369 where Glidewell L.J. adopted an approach to causation which he
considered applicable to a claim for breach of contract and to one in “tort in a situation
analogous to a breach of contract”.
1355. [2010] EWHC 1878 (TCC), [2010] B.L.R. 537 (preliminary issue as to duty of care); Linklaters
Business Services v Sir Robert McAlpine Ltd [2010] EWHC 2931 (TCC), 133 Con. L.R. 211
(trial), Akenhead J.
1356. Applying Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145 on which see above,
para.1-167.
1357. [2010] EWHC 1878 (TCC) at [14].
1358. [1996] UKHL 10, [1997] A.C. 191 at [8], [9] and [14]–[15].
1359. Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48, [2009] 1 A.C.
61 at [22]; [2010] EWHC 1878 (TCC) at [16]. On the wider significance of this decision see
below, paras 26-126 et seq. and cf. above, para.1-190A.
1360. [2010] EWHC 1878 (TCC) at [16] in fine.
1361. [2010] EWHC 1878 (TCC) [23] and [24].
1362. [2010] EWHC 1878 (TCC) at [23] and [25]. At trial, Akenhead J. found that A was not in any
material breach of duty: Linklaters Business Services v Sir Robert McAlpine Ltd [2010] EWHC
2931 (TCC), 133 Con. L.R. 211 at [106].
1363. [2014] EWCA Civ 1512, [2015] I.R.L.R. 112 at [119] n.8 per Underhill L.J. (with whom Davis
and Patten L.JJ agreed) and rejecting the position adopted by Burrows, Remedies for Torts and
Page 33
Breach of Contract, 3rd edn (2004) and suggested by McGregor on Damages at n.1265,
para.22-009.
1364. [2014] EWCA Civ 1512 at [119] per Underhill L.J. and cf. Greenway v Johnson Matthey Plc
[2016] EWCA Civ 408, [2016] 1 W.L.R. 4487 (above, para.1-190A).
1365. [2014] EWCA Civ 1512 at [119] per Underhill L.J.
1366.
[2015] EWCA Civ 1146, [2016] 2 W.L.R. 1351.
1367.
The Court of Appeal in Yapp consisted of Underhill, Davis and Patten L.JJ; the Court of
Appeal in Wellesley Partners LLP consisted of Longmore and Floyd L.JJ. and Roth J.
1368.
[2014] EWCA Civ 1512, [2015] I.R.L.R. 112 (discussed in Vol.I, para.1-195).
1369.
[2015] EWCA Civ 1146 at [41], [54] and [58]–[59] (decision at trial not appealed on this point).
1370.
[2015] EWCA Civ 1146 at [68] per Floyd L.J. and see also at [75], explicitly approving the
position proposed by McGregor on Damages at n.1265, para.22–009 that was rejected by the
CA in Yapp [2014] EWCA Civ 1512, [2015] I.R.L.R. 112 at [119] n.8 and at [80]. See similarly,
at [151] (approving the view of Burrows, Commercial Remedies (2003) 27 at 35), [157] and
[163] (Roth J.); [183]–[186] (Longmore L.J.).
1371.
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 A.C. 61. In this
respect, the CA in Wellesley Partners LLP adopted a similar approach to Akenhead J. in How
Engineering Services Ltd v Southern Insulation (Medway) Ltd [2010] EWHC 1878 (TCC), [2010]
B.L.R. 537 (noted in the Vol.I, para.1-195), though the earlier decision was not discussed by the
CA.
1372.
[1995] 2 A.C. 145. See [2015] EWCA Civ 1146 at [69], [74], [80]–[83] (Floyd L.J.) and [155]
(Roth J.). In this respect, the CA in Wellesley Partners LLP adopted a similar approach to
Akenhead J. in How Engineering Services Ltd v Southern Insulation (Medway) Ltd [2010]
EWHC 1878 (TCC), [2010] B.L.R. 537 (noted in the Vol.I, para.1-195), though the earlier
decision was not discussed.
1373.
[2015] EWCA Civ 1146 at [81]–[89] (Floyd L.J.); [179] (Roth L.J.) and [188] (Longmore L.J.).
1374.
[2014] EWCA Civ 1512 and see Vol.I, para.1-195.
1375.
In Yapp the CA held that the claimant’s depressive illness was not reasonably foreseeable
under the tort test (seen as more favourable to the claimant), and therefore was also too remote
in his claim for breach of contract: [2014] EWCA Civ 1512 at [121]–[124], [133]. In Wellesley
Partners LLP the partnerships losses were held not too remote under the contract test thereby
leading to the CA affirming the result at trial which had held them not too remote under the tort
test: [2015] EWCA Civ 1146 at [81] (Floyd L.J.); [179] (Roth L.J.) and [188] (Longmore L.J.).
1376.
[2014] EWCA Civ 1512 at [60] and [67].
1377.
[2014] EWCA Civ 1512 at [119].
1378.
[2014] EWCA Civ 1512 at [42]–[43]. The CA also referred to breach of the implied term of
mutual trust and confidence, but this was not seen as paralleled with any breach of duty at
common law.
Page 34
1379.
[2015] EWCA Civ 1146 at [80] and [151].
1380.
[1978] Q.B. 791 at 802–804 noted in Vol.I, para.1-195 n.1265.
1381.
[2015] EWCA Civ 1146 at [68].
1382.
cf. the discussion in Main Work, Vol.I, paras 1-188—1-190 on the question whether one party
to a contract can be held to have “assumed responsibility” to the other contracting party under
the Hedley Byrne principle even where the contract contained no express or implied term as to
the claimed subject-matter of such an assumption of responsibility. See also Vol.I, paras
1-169—1-172 on assumption of responsibility under Hedley Byrne more generally.
1383.
Peel, Treitel on The Law of Contract, 14th edn (2015) para.20–112 and see similarly
McGregor on Damages 19th edn (2014) para.22–009.
1384.
[2016] EWCA Civ 1308, [2017] P.N.L.R. 16.
1385.
[2016] EWCA Civ 1308 at [60] per Jackson L.J. (with whom Patten L.J. agreed).
1386.
[2014] EWCA Civ 1512, [2015] I.R.L.R. 112 and see Main Work, Vol.I, para.1-196.
1387.
[2016] EWCA Civ 1308 at [65] and [66]. The CA further held that this loss was outside the
scope of the solicitor’s duty to advise about the possibility of including an exclusive jurisdiction
clause: at [73]–[74]. On the importance of scope of duty in relation to a solicitor’s liability for
negligence see Hughes-Holland v BPE Solicitors [2017] UKSC 21, [2017] 2 W.L.R. 1029.
1388.
[2016] EWCA Civ 1308 at [63] per Jackson L.J.
1389. The Wagon Mound (No.1) [1961] A.C. 388.
1390. Doyle v Olby (Ironmongers) Ltd [1969] 2 Q.B. 158.
1391. Royscott Trust Ltd v Rogerson [1991] 2 Q.B. 297; and see below, paras 7-077—7-078.
1393. Royscott Trust Ltd v Rogerson [1991] 2 Q.B. 297 at 307, per Balcombe L.J.
1394. Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) (as amended by the
Consumer Protection (Amendment) Regulations 2014 (SI 2014/870) reg.27J(4) on which see
Vol.II, para.38-185.
1395. [1989] A.C. 852, 858.
1396. [1978] Q.B. 791.
1397. And see Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch. 560; Youell v Bland Welch & Co Ltd
(No.2) [1990] 2 Lloyd’s Rep. 431; Barclays Bank Plc v Fairclough Building Ltd [1995] Q.B. 214;
Barclays Bank Plc v Fairclough Building Ltd (No.2) [1995] I.R.L.R. 605; UCB Bank Plc v
Hepherd Winstandley & Pugh [1999] Lloyd’s Rep. P.N. 963; Trebor Bassett Holdings Ltd v ADT
Fire and Security Plc [2012] EWCA Civ 1158, [2012] B.L.R. 441 and see below, para.26-077.
1398. Barclays Bank Plc v Fairclough Building Ltd (No.2) [1995] I.R.L.R. 605, above, para.1-172.
1399. In particular, in principle, accrual of actions for breach of contract occurs on breach, whereas
Page 35
accrual for actions in tort occurs when the damage is suffered. The latter rule has caused not
inconsiderable difficulty in cases for negligently caused economic loss: see D.W. Moore & Co
Ltd v Ferrier [1988] 1 W.L.R. 267, 279–280; Iron Trades Mutual Insurance Co Ltd v J.K.
Buckenham Ltd [1990] 1 All E.R. 808; Bell v Peter Browne & Co [1990] 2 Q.B. 495; F.G.
Whitley & Sons & Co Ltd v Thomas Bickerton (1993) 07 E.G. 100; Knapp v Ecclesiastical
Insurance Group [1997] All E.R. (D) 44 (Oct); McCarroll v Statham Gill Davies [2003] EWCA
Civ 425, [2003] P.N.L.R. 25; Watkins v Jones Maidment Wilson [2008] EWCA Civ 134, 118
Con. L.R. 1; Shore v Sedgwick Financial Services Ltd [2008] EWCA Civ 863, [2009] Bus. L.R.
42; Axa Insurance Ltd v Akther & Darby Solicitors [2009] EWCA Civ 1166, [2010] 1 W.L.R.
1662; and Pegasus Management Holdings SCA v Ernst & Young [2010] EWCA Civ 181, [2010]
3 All E.R. 297. cf. Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No.2) [1997] 1
W.L.R. 1627; Law Society v Sephton & Co [2006] 2 A.C. 543. The general approach of the
English courts has not been followed by the H.C. Aus.: Wardley Australia Ltd v State of
Western Australia (1992) 175 CLR 514 and see above, para.1-152.
1400. [1995] 2 A.C. 145. In Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch. 384, it was
held that a claim in tort could exist even if the claim in contract was statute-barred, though the
contract claim still existed on the facts. In Pirelli General Cable Works Ltd v Oscar Faber &
Partners [1983] 2 A.C. 1, a case in which the plaintiff’s claim in contract was statute-barred, the
House of Lords had to decide when a claim in tort accrued, on the plaintiff’s suffering of the
damage or on its discovery: [1983] 2 A.C. 1 at 12. This discussion would have been pointless if
the expiry of the contractual limitation period had been thought to have prevented any
concurrent claim in tort even if the latter’s limitation period had not expired.
1401. Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 A.C. 1 at 19 and see above
para.1-152.
1402. i.e. apart from the question whether the claim is statute-barred.
1403. See D.W. Moore & Co Ltd v Ferrier [1988] 1 W.L.R. 267, 280; Iron Trades Mutual Insurance Co
Ltd v J.K. Buckenham Ltd [1990] 1 All E.R. 808, 820–821; Bell v Peter Browne & Co [1990] 2
Q.B. 495, 501-504; Lee v Thompson [1989] 40 E.G. 89; Havenledge Ltd v Graeme John &
Partners [2001] Lloyd’s Rep. P.N. 223 at [35] et seq. cf. Forster v Outred & Co [1982] 1 W.L.R.
86; F.G. Whitley & Sons Co Ltd v Thomas Bickerton (1993) 07 E.G. 100 at 108 and see Cane
above, n.1241, at pp.134–136.
1404. Limitation Act 1980 s.14A; Iron Trades Mutual Insurance Co Ltd v J.K. Buckenham [1990] 1 All
E.R. 808, see above, para.1-152.
1405. Matthews v Kuwait Bechtel Corp [1959] 2 Q.B. 57; Coupland v Arabian Gulf Oil Co [1983] 1
W.L.R. 1136 and see Dicey and Morris on The Conflict of Laws, 11th edn (1987), Vol.1, pp.328,
329, 345.
1406. [2014] O.J. L351/1 arts 7(1) and 7(2) (in force on January 10, 2015) replacing Regulation
44/2001 on jurisdiction and the enforcement of judgments in civil and commercial matters
(“Brussels I Regulation”) arts 5(1) and 5(3), which itself replaced the Brussels Convention on
Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968. For the
law under the Brussels I Regulation see Dicey, Morris and Collins on The Conflict of Laws, 15th
edn (2014), Ch.11.
1407. Kalfelis v Schröder (189/87) [1988] E.C.R. 5565, 5577 (A.G. Darmon), 5585 and see Dicey,
Morris and Collins on the Conflict of Laws, 14th edn (2006), paras 11-284, 11-299.
1408. Case 814/79 Netherlands State v Rüffer [1980] E.C.R. 3807, 3832-3833, 3836; Kalfelis v
Schröder (C-189/87) [1998] E.C.R. 5565; Jakob Handte & Co GmbH v Société Traitements
Mécanochimiques des Surfaces (TMCS) (C-26/91) [1993] I.L.Pr. 5; eDate Advertising and
Martinez (C-161/10) October 25, 2011 at para.38; ÖFAB, Östergötlands Fastigheter AB v Koot
(C-147/12) July 18, 2013 at para.27 and see Dicey and Morris and Collins, 15th edn (2014),
paras 11-268—11-272, 11-285.
1409. [1998] Q.B. 54.

Page 36
1410. Kalfelis v Schröder (189/87) [1988] E.C.R. 5565. The equivalent provision of art.5(1) in the
Brussels Convention is art.7(1) of the Brussels Ibis Regulation.
1411. [1988] E.C.R. 5565 at [5585] and see ÖFAB, Östergötlands Fastigheter AB v Koot (C-147/12)
July 18, 2013 at para.32.
1412. [1998] Q.B. 54, 63.
1413. The decision of the Court of Appeal in Source Ltd v TUV Rheinland Holding A.G. [1998] Q.B. 54
was held to represent the law by Dicey, Morris and Collins on the Conflict of Laws, 14th edn
(2006), para.11-299 (the point is not addressed in the 15th edn) but its authority was doubted
by Tuckey J. in Raiffeisen Zentralbank Osterreich Aktiengesellschaft v National Bank of Greece
SA [1999] 1 Lloyd’s Rep. 408, 411 on the basis that its wide approach to art.5(1) is inconsistent
with the restrictive approach taken by the HL in Kleinwort Benson Ltd v Glasgow City Council
[1999] 1 A.C. 153. See also Domicrest Ltd v Swiss Bank Corp [1999] Q.B. 548, 561; William
Grant & Sons International Ltd v Marie Brizard Espana Sa [1998] S.C. 536.
1414.
C-189/87 [1988] E.C.R. 5565 at para.17.
1415.
Brogsitter v Fabrication de Montres Normandes EURL (C-548/12) March 13, 2014 at para.20;
21, 2016 paras 43–45; Kolassa v Barclays Bank Plc (C-375/13) January 28, 2015 at para.44;
Granarolo SpA v Ambrosi Emmi France SA (C-196/15) July 14, 2016 at para.20.
1416.
Granarolo SpA v Ambrosi Emmi France SA (C-196/15) July 14, 2016 at para.28.
1417. Introduced into English law by the Contracts (Applicable Law) Act 1990 and see generally,
1418. Base Metal Trading Ltd v Shamurin [2004] EWCA Civ 1316, [2005] 1 W.L.R. 1157 especially at
[33] and see below, para.30-031.
1419. Regulation 864/2007 [2007] O.J. L199/40 and see Dicey, Morris and Collins on the Conflict of
Laws 15th edn (2014), Ch.35.
1420. [2008] O.J. L177/6. On which see below, paras 30-129 et seq. and Dicey, Morris and Collins on
the Conflict of Laws, 15th edn (2014) paras 32-011 et seq.
1421.
21, 2016 paras 43–45; Verein für Konsumenteninformation v Amazon EU Sàrl (C-191/15) July
28, 2016 paras 36–53 and 58. See also Committeri v Club Mediterranee SA [2016] EWHC
1510 (QB) at [49]–[53]. Below, para.30-150.

Page 1

(d) - The Influence of Contract on Tort beyond Privity
Introduction
1-201
One of the most basic characteristics of liability in tort is that it can exist in the absence of any
contractual relationship existing between the parties: there is in general no need for any voluntary
element on the part of someone on whom duties or liabilities in tort are imposed. 1422 However, a
contract may affect liabilities in tort beyond its parties either positively or negatively. Positively, in
certain circumstances someone not party to a contract, C, may be liable in tort for behaviour which
induces breach of B’s contract with A (the tort of inducing breach of contract) 1423 and, secondly, A
may be liable to C for threatening B that he will break his contract with B (so-called “three-party”
intimidation). 1424 A contract may have a negative effect on torts involving third parties in two ways.
First, in certain circumstances the fact that A and B are parties to a contract has sometimes been
seen as a reason for refusing to impose or for modifying any liability in tort in A to C. This idea, long
derided as the “privity of contract fallacy”, enjoyed during the later 1980s and early 1990s a
resurgence of judicial popularity in the context of liability for pure economic loss in the tort of
negligence, and to a much lesser extent, in the context of liability in the same tort for damage to
property. 1425 However, since 1994 the courts have taken rather different approaches to these
questions, in general corralling liability in negligence for pure economic loss within the doctrine of
“assumption of responsibility” and treating the disruption of contractual arrangements as a possible
reason of policy for refusing to accept a novel duty of care. Secondly, the existence of a contract
between A and B may be a reason for refusing to impose liability on C to either A or B, depending on
the terms of the contract between A and B. This issue arises clearly in the context of the question
whether A and B can by contract ensure that a third party, C, enjoys the benefit of an exemption
clause so as to be protected from liability to A or B, whether or not C is in privity of contract with that
person. These situations will be examined in turn.
The tort of inducing breach of contract
1-202
It was clearly established by Lumley v Gye 1426 in 1853 that if A intentionally induces B to break her
contract with C, 1427 then A can be liable in damages for any harmful consequences that this causes C
1428
or restrained by injunction from continuing to prejudice C’s contractual rights in this way. 1429 The
courts accept that in this way C may be able to recover more damages against A than he would be
able to against B, this being seen as a reason for imposing the liability in tort, rather than for denying
it. 1430 While at one time this liability in tort was held to extend to cases where A’s interference with C’s
rights does not constitute a breach of contract by reason, for example, of the presence of a force
majeure clause, the House of Lords has since held that it may not arise in the absence of a breach of
contract: the tort liability is accessory to the breach of contract. 1431 Moreover, liability under this tort
does not extend to interference with remedies arising out of a broken contract. Thus, where A has
received shares from B in breach of B’s contractual obligations to C, while A may be ordered to
Page 2
retransfer the shares to B and may be restrained by injunction from retransferring them to D, it is no
tort in A to retransfer them nor in D to receive them. 1432
The tort of causing loss by unlawful means: “three-party intimidation”
1-203
The tort of causing loss by unlawful means is committed, inter alia, 1433 where A threatens B that he
will commit an act, or use means, unlawful as against B, as a result of which B does or refrains from
doing some act which he is entitled to do, thereby causing damage to C, an instance of tortious
liability often called “three-party intimidation”. 1434 In Rookes v Barnard, 1435 the House of Lords
recognised the existence of this liability in tort and further held that a threatened breach of contract by
A can constitute unlawful means for this purpose. 1436 In the Court of Appeal the view had been
expressed that to extend the tort to threats of breach of contract “would overturn or outflank some
elementary principles of contract law”, 1437 notably, privity of contract. 1438 However, for the House of
Lords the two causes of action (for breach of contract and for the “tort of intimidation”) were “quite
independent”, 1439 “the vice of [C’s] argument is the threat to break and not the breach itself”. 1440 Thus,
it is the independence of liability in tort which allows its extension into what had previously been an
exclusively contractual domain. 1441
A contractor’s liability beyond privity and independent torts
1-204
At common law, in principle privity of contract prevents any breach by A of a term of a contract made
with B from giving rise to any contractual liability in A to C, a third party to the contract. This position
has been qualified significantly by the Contract (Rights of Third Parties) Act 1999, which allows
parties to a contract to create rights in third parties (not being party to the contract) in certain
circumstances. 1442 But can C sue A in tort instead? First, it is clear that the mere breach of a contract
by A does not in itself give rise to liability in tort to C. As Pollock stated in 1887 1443:
“… there is a certain tendency to hold that facts which constitute a contract cannot have
any other legal effect. We think we have shown that such is not really the law … the
authorities commonly relied on for this proposition 1444 really prove something different
and much more rational, namely that if A breaks his contract with B … that is not of itself
sufficient to make A liable to C, a stranger to the contract, for consequential damage.”
Secondly, therefore, where the facts which constitute a breach of contract in A to B also constitute the
grounds of an independent liability in tort in A to C, the existence of that contract does not in itself
prevent liability in A to C. 1445 Thus, as has been seen, where A threatens to break his contract with B,
this may give rise to an action in C in the tort of causing loss by unlawful means 1446 and this tort may
also apply to cases of actual as opposed to threatened breach of contract. 1447 Similarly, where a
tenant, A, commits an act which constitutes a breach of the terms of his lease with his landlord, B, this
does not prevent his neighbour, C, from suing A in private nuisance for any harm which he suffers as
a result as long as the conditions for the existence of that tort are fulfilled. 1448
“If it is the tenant who has undertaken the repair [sc. of the premises], of course he is
liable, but his liability is based on the fact that he is the occupier of the premises; any
additional obligation which he may have undertaken by contract with the landlord cannot
affect his liability in tort to third parties.” 1449
On the other hand, where the landlord has undertaken to the tenant to repair, he can be liable in
nuisance to a third party based on the control which this gives him despite not being an occupier 1450
in addition to his liability to the tenant. 1451 Finally, where an agent publishes defamatory material
Page 3
concerning the claimant, the fact that this publication also constitutes a breach of his contract
actionable at the suit of his principal 1452 does not prevent the claimant from suing the agent in the tort
of defamation. 1453
Privity of contract and the tort of negligence 1454
1-205
At two stages in the development of the tort of negligence, it has been argued that A’s breach of
contract to B should not be considered capable of giving rise to liability in this tort for harm caused to
C. The leading nineteenth-century authority was Winterbottom v Wright, 1455 in which the plaintiff was
employed to drive a mail-coach by one Atkinson, who had been engaged to carry mail by the
Postmaster-General. The latter had hired a coach from the defendant, who had undertaken to him
that it would be kept in a fit, proper, safe and secure state. The plaintiff’s claim for damages in respect
of injuries suffered when the coach broke down on a journey owing to its dangerous state was
rejected by the court, which accepted the defendant’s contention that:
“… wherever a wrong arises merely out of the breach of a contract … whether the form in
which the action is conceived be ex contractu or ex delicto, the party who made the
contract alone can sue.” 1456
However, this approach 1457 was of course rejected by the House of Lords in Donoghue v Stevenson.
1458
As Lord Macmillan put it:
“… there is no reason why the same set of facts should not give one person a right of
action in contract and another person a right of action in tort.” 1459
The approach in Winterbottom v Wright 1460 came to be derided as the “privity of contract fallacy”. 1461
Liability for pure economic loss
1-206
While the courts were still willing to extend liability in the tort of negligence, the “contractual
environment” of a claim in the tort of negligence was even considered a ground for the imposition of a
duty of care, rather than a reason for rejecting one. Thus, in Hedley Byrne & Co Ltd v Heller &
Partners Ltd 1462 one of the circumstances on which the House of Lords relied for finding the existence
of a “special relationship” so as to give rise to liability for pure economic loss caused by a negligent
misstatement was that the relationship of the parties was “equivalent to contract”. 1463 While Lord
Devlin considered that the reason that the plaintiff’s claim could not be considered contractual was
the absence of consideration for the defendants’ undertaking, 1464 on the facts there was also no
obvious privity between the parties. 1465
The Junior Books case
1-207
The courts’ recognition of liability for negligently caused pure economic loss was taken one stage
further in 1982 by the decision of the House of Lords in Junior Books Ltd v Veitchi Co Ltd, 1466 where it
held that a specialist flooring sub-contractor who had built a defective but not dangerous floor could
owe a duty of care to the owner of the building who had to replace it as a result. 1467 Clearly, there was
no privity of contract between the parties, but the majority of their Lordships found that there was a
“special relationship” between them, which again rested on a variety of factors, of which one was the
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fact that it fell “only just short of a direct contractual relationship”. 1468 At the time of its decision, Junior
Books appeared to mark a radical departure, for it allowed recovery of pure economic loss beyond
privity of contract other than where it was consequential on the defendant’s negligent misstatement.
However, the fate of Junior Books was not a happy one, its approach to liability for pure economic
loss not being followed by subsequent courts. 1469 While the courts gave many reasons in the many
cases in which recovery for pure economic loss in the tort of negligence has been denied, 1470 in some
cases the presence of a contract or contracts has proven particularly important. In Junior Books itself,
Lord Roskill noted that any exclusion clause in the main contract 1471 may exclude or modify the
liability in the sub-contractor directly to the building owner, 1472 and Lord Fraser of Tullybelton
considered that the terms of the subcontract may have a similar effect. 1473 However, later courts
considered the possibility that the imposition of a duty of care will upset contractual standards or
allocations of risk as itself a reason for refusing to impose one, thereby preferring Lord Brandon’s
approach in his dissenting speech in Junior Books. 1474
“Contractual structure” and liability in tort
1-208
Thus, the existence of a “contractual structure” of which the parties to the litigation are members but
according to which they are not in privity of contract was relied on as a reason for refusing to impose
liability for economic loss in the tort of negligence. For example, in Balsamo v Medici 1475 Walton J.
refused to allow a claim in the tort of negligence by a principal against an unauthorised sub-agent on
the ground that otherwise the Anns principle 1476 of the tort of negligence “will come perilously close to
abrogating completely the concept of privity of contract”. 1477 In 1987 in Simaan General Contracting
Co v Pilkington Glass Ltd (No.2), 1478 there was a chain of contracts, consisting of a building owner
(A), a main building contractor (B), a sub-contractor (C) and a manufacturer of glass which had been
incorporated into a building (D). The glass had failed to come up to specification and B, who had
settled with A, claimed damages in the tort of negligence against D for the economic loss which it had
thereby been caused. The Court of Appeal rejected this claim. According to Bingham L.J.:
“Just as equity remedied the inadequacies of the common law, so has the law of torts
filled gaps left by other causes of action where the interests of justice so required. I see
no such gap here, because there is no reason why the claims beginning with [A] should
not be pursued down the contractual chain.” 1479
Thus the courts treated the fact that A owes a duty under a contract to B to be an important factor in
denying liability to C for negligently caused pure economic loss 1480 and considered that where B owes
a contractual duty to C, there is no good reason for adding an additional duty of care in A for C’s
benefit. 1481
1-209
Nevertheless, at least in some situations the existence of a contractual duty in A to B was not allowed
to rule out the existence of a duty of care in respect of pure economic loss owed by A to C concerning
the same issue. This was the position in the decision of the House of Lords in Smith v Eric S. Bush,
1482
in which a valuer had been engaged by a mortgagee to report on a property of modest value to be
bought by the plaintiff. The plaintiff bought the property in reliance on the report and suffered
economic loss as a result. The House of Lords unanimously held that the valuer owed the plaintiff a
duty of care in the circumstances, which included the fact that the valuer knew that the plaintiff would
be told of their advice and that he would act in reliance on it. The House of Lords further held that a
contractual disclaimer under which the valuer worked did not prevent the duty of care in tort from
arising on the basis that it was incompatible with any “voluntary assumption of responsibility”, but was
to be treated as an exemption clause and subjected to the reasonableness test imposed by the Unfair
Contract Terms Act 1977. 1483 Moreover, Lord Griffiths disapproved the notion of “assumption of
responsibility” as a test for the imposition of a duty of care in the tort of negligence, considering it “not
a helpful or realistic test of liability”. 1484
Page 5
Assumption of responsibility
1-210
However, since 1994 the House of Lords has taken a very different approach to the imposition of
liability for pure economic loss in the tort of negligence and by so doing has allowed liability to be
imposed on one party to a contract beyond privity. The basis on which it has tended to choose to rely
for the imposition of liability has been an “assumption of responsibility” in the defendant to the
claimant, this idea being drawn from the Lords’ earlier decision in Hedley Byrne & Co Ltd v Heller &
Partners Ltd 1485 but its application being extended beyond the context of negligent misstatement. 1486
This “broad principle of Hedley Byrne” or of “assumption of responsibility” has already been seen in
relation to liability in the tort of negligence between the parties to a contract, but now its impact
beyond the parties will be assessed. In this respect, three cases are of particular importance. 1487
Henderson v Merrett Syndicates Ltd
1-211
The first and most important is Henderson v Merrett Syndicates Ltd. 1488 This case concerned claims
in the tort of negligence by various underwriting members of Lloyd’s (“Names”) against the
underwriting agents who had acted for them. In the case of the “indirect Names”, with whom we are
now concerned, they had entered agreements with underwriting agents, known as “members’
agents”, who advised “Names”, inter alia, on their choice of syndicates and placed them on a
syndicate once chosen, but who entrusted the placing of the insurance to others, “managing agents”
for the syndicate which they had chosen. The claims of the “indirect Names” therefore bypassed two
contracts: the first being the agency contract between themselves and the members’ agents and the
second being the sub-agency contract between the members’ agents and the managing agents.
Despite this, however, the House of Lords found no difficulty in finding a duty of care owed by the
managing agents directly to the “indirect Names”. Lord Goff of Chieveley, who gave the leading
speech and with whom Lords Keith of Kinkel, Browne-Wilkinson, Mustill and Nolan concurred, based
this decision on a finding of an assumption of responsibility by the managing agents to the “indirect
Names”, this being found in the managing agents’ agreement to undertake the commission for the
indirect Names, coupled with the formers’ special skill. However, the wider significance of this
decision was far from clear. Lord Goff:
“… strongly suspect[ed] that the situation …[was] most unusual; and that in many cases
in which a contractual chain comparable to that in the present case is constructed it may
well prove to be inconsistent with an assumption of responsibility which has the effect of,
so to speak, short circuiting the contractual structure so put in place by the parties.” 1489
With respect, no very clear indication was given as to what was special about the facts of Henderson
for this purpose: the managing agents had agreed to take on their commission and were aware of the
position of their ultimate principals, but then so are many other sub-agents. Clearly, the context of the
Lloyd’s insurance market may have played some part, but the precise nature of its role does not
appear from the speeches. On the other hand, Lord Goff did see the case of a claim by a building
owner against his sub-contractor in respect of a failure to conform to the required standard as an
example of where “ordinarily” such an assumption of responsibility would be inconsistent with a
contractual structure. 1490 Clearly, then, it was not intended that any doubt should be thrown on the
decision of the House in Murphy v Brentwood DC. 1491
White v Jones
1-212
1492
The second important decision is White v Jones, in which a majority of the House of Lords held
Page 6
that a solicitor who had negligently failed to execute a testament before the decease of the testator
owed a duty of care in the tort of negligence to the would-be legatee under that testament. The House
of Lords considered whether the legatee should be able to sue in contract, rather than in tort, the
contract in question being between the testator and the defendant solicitor. While Lord Goff of
Chieveley considered this attractive, he thought that it “would be open to criticism as an illegitimate
circumvention of [the] longestablished doctrines” of privity and consideration. 1493 Instead, he preferred
to hold the defendant liable in tort on the basis that his “assumption of responsibility … should be held
in law to extend” to the plaintiff, though the contract between the testator and the solicitor remained
significant in that its terms set the content of the duty of care in tort. 1494 Lord Nolan also relied on the
defendant’s “assumption of responsibility”, though apparently seeing this as real rather than (as with
Lord Goff) deemed. 1495 Lord Browne-Wilkinson preferred to consider the facts before him as justifying
the imposition of a duty of care as a matter of “justice and reasonableness” as an “extension of the
principle of assumption of responsibility”. 1496 By contrast, Lords Mustill and Keith of Kinkel dissented,
finding no special reason why a special exception should be made in the circumstances, the latter
expressing the view that the principle of privity of contract should not be circumvented by extending
the law of tort. 1497 This decision of the majority is clearly a remarkable example of the willingness of
our judges to find legal justifications for the imposition of a duty where they find it necessary in the
interests of justice and, as both their own and the minority’s speeches make clear, despite
established principle, whether tortious or contractual. However, the speeches of their lordships in the
case itself and subsequent judicial discussions of it have made clear that the situation in White v
Jones was exceptional 1498 and the decision has not been as influential on subsequent judicial
developments as has Henderson v Merrett Syndicates Ltd. 1499
Williams v Natural Life Health Foods Ltd and Mistlin
1-213
The importance of Henderson v Merrett Syndicates Ltd, and more particularly, the significance of Lord
Goff’s exposition there of the principle of “assumption of responsibility” can be seen in the decision of
the House of Lords in 1998 in Williams v Natural Life Health Foods Ltd and Mistlin. 1500 In that case,
the second defendant, M, who had worked in the health food trade for several years, formed a
company, the first defendant, to franchise the concept of health food shops. M was the company’s
managing director and principal shareholder, having only two employees. The plaintiffs approached
the company with the view to acquiring a franchise, dealing with one of the employees, but also
relying on a brochure produced by the company which advertised M’s experience in the trade. The
plaintiffs entered a franchise agreement with the company, but the turnover of the shop was
substantially less than predicted by the company and they traded for only 18 months and at a loss.
The question before the House of Lords was whether M owed the plaintiffs a duty of care so as to
allow him to be liable personally in damages for the loss caused by their entering the contract of
franchise. According to Lord Steyn, who gave judgment on behalf of the House, the governing
principles for the case were to be found in the “extended Hedley Byrne principle” to be found in Lord
Goff’s speech in Henderson v Merrett Syndicates Ltd, which Lord Steyn saw as a:
“… rationalisation or technique adopted by English law to provide a remedy for the

recovery of damages in respect of economic loss caused by the negligent performance of
services.” 1501
He noted that the test of “assumption of responsibility” is an objective one and this means that the
primary focus of the courts should be on what was said or done by the defendant or on his behalf in
dealings with the plaintiff. This meant that the question for the House was:
“… whether the director, or anybody on his behalf, conveyed directly or indirectly to the
prospective franchisees that the director assumed personal responsibility towards the
prospective franchisees.” 1502
However, applying this principle to the facts, Lord Steyn held that there was not enough to show a
Page 7
personal assumption of responsibility in M to the plaintiffs: while the brochure produced by the
company made clear that its expertise came from M’s experience, in the absence of more and in
particular of personal dealings with the plaintiffs, no duty of care arose. 1503
1-214
Lord Steyn in Williams v Natural Life Health Foods Ltd and Mistlin accepted the view expressed by
Lord Goff in Henderson that once a court finds that a defendant has “accepted responsibility” towards
the claimant in the relevant sense, there is no need to investigate whether it is “just, fair and
reasonable” to impose liability for pure economic loss. 1504 This aspect of Lord Goff’s views has
already been discussed, 1505 but here a striking contrast can be noted with Lord Steyn’s own approach
to the imposition of a duty of care not based on an “assumption of responsibility” taken earlier in Marc
Rich & Co AG v Bishop Rock Marine Co. 1506 In the latter case, the plaintiffs were cargo owners
whose property was lost when the vessel in which it was carried sank. They claimed damages against
the shipowners on the basis that the sinking had been caused by the latters’ failure to act with due
diligence in relation to the seaworthiness of the vessel at the beginning of the voyage, but they also
claimed damages from a classification society, one of whose surveyors had inspected the vessel
during its voyage and had recommended that its voyage should continue. Lord Steyn, 1507 considered
that since Dorset Yacht Co Ltd v Home Office 1508 it had been settled law that considerations of
fairness, justice and reasonableness as well as the elements of foreseeability and proximity are
relevant to the imposition of a duty of care in the tort of negligence, whatever the nature of the harm
sustained by the plaintiff and, therefore, including the situation where the plaintiff has sustained
damage to property. 1509 On the facts before the House in Marc Rich, Lord Steyn considered that the
property damage suffered by the cargo owners was only indirect as it was the shipowners rather than
the classification society which were primary responsible for the vessel’s sailing in an seaworthy
condition nor was there any direct contact between the plaintiffs and the classification society and
therefore no element of reliance so as to give rise to an assumption of responsibility in the sense
explained by Lord Goff in Henderson v Merrett Syndicates Ltd. 1510 Even so, Lord Steyn was prepared
to assume that there was sufficient proximity between the cargo owners and the classification society,
but considered that it was not “fair, just and reasonable” to impose a duty of care. First, such a duty
would outflank the bargain between the shipowners and the cargo-owners. He stated:
“The dealings between shipowners and cargo owners are based on a contractual
structure, the Hague Rules, and tonnage limitation on which the insurance of international
trade depends … Underlying it is the system of double or overlapping insurance of the
cargo. Shipowners take out liability risks insurance in respect of breaches of their duties
of care in respect of the cargo. The insurance system is structured on the basis that the
potential liability of shipowners to cargo owners is limited under the Hague Rules and by
virtue of tonnage limitation provisions. And insurance premiums payable by owners
obviously reflect such limitations on the shipowners’ exposure.” 1511
While Lord Steyn found various other policy factors which argued against imposing a duty of care,
including the non-profit-making nature of the defendant, the scale of the classification society’s
potential liability and the added complication to the settlement of proceedings concerning lost or
damaged cargo of such societies’ involvement, clearly the limited nature of the rights of A (the cargo
owners) under a contract with B (the shipowners) was significant in the House of Lords’ decision not
to impose a duty of care in the tort of negligence on C to A, even in respect of damage to property.
1512
Subsequent cases
1-215
There have been many subsequent cases determining whether or not liability based (in part) on an
assumption of responsibility may establish liability in the tort of negligence beyond privity of contract.
1513 1514
Of these, Briscoe v Lubrizol is a good example of the way in which the contractual
Page 8
structure of the parties’ relations may still argue for the rejection of an “assumption of responsibility” in
the tort of negligence. In that case, under the terms of a contract of employment, L, the employer,
undertook to B, their employee, to arrange a disability insurance scheme, subject to “acceptance by
insurers”. B was registered under the scheme, and later became incapable of work, but L’s claim in
respect of B’s disability was rejected by their insurer, P. B then claimed, inter alia, damages in the tort
of negligence against P on the basis that they were negligent in rejection of the claim (it being
accepted that there was no privity of contract between these parties). The insurer’s contention that
this claim should be struck out was accepted both at first instance and by the Court of Appeal. Giving
judgment, Roch L.J. denied the existence of a duty of care on the facts before him, by whichever legal
approach this was canvassed, whether in terms of the three-fold test of forseeability, proximity and
“justice and reasonableness”, an assumption of responsibility or taking an “incremental approach”. 1515
Roch L.J. agreed with the court below that the contractual provisions between the employer and
insurer showed completely the reverse of any “assumption of responsibility”: “[t]here was a very
carefully structured contractual framework …[which] imposed a curtain between the [employee] and
the [insurer]”. 1516 While Roch L.J. accepted that:
“the existence of a contractual regime is not necessarily fatal to a claim such as the
[employee’s]; … it is nevertheless a powerful indication against the existence of a duty.”
1517
The assumption of responsibility by the insurer was to the employer, not to the employees under the
scheme: a finding of a duty of care would therefore (in the words of counsel for the insurer) “spell the
end of the doctrine of privity of contract”. 1518 Nor did the Court of Appeal consider that recognition of a
duty of care was required as a matter of justice and reasonableness or appropriate as an incremental
development. Moreover, the more eclectic approach to deciding whether or not a duty of care should
be imposed in the tort of negligence (especially as regards pure economic loss) seen in Briscoe v
Lubrizol, and which looks in turn at “assumption of responsibility”, the “three-fold test” in Caparo
Industries Plc v Dickman 1519 and the “incremental approach”, was taken by the House of Lords in
Customs and Excise Commissioners v Barclays Bank Plc 1520 though the third approach was seen as
“of little value as a test in itself” and as “an important cross-check”. 1521 In that case, the House of
Lords unanimously held that a third party (here, the bank) with notice of a “freezing order” (formerly
known as a Mareva injunction) who nevertheless released the property subject to the order did not
owe a duty of care to the person for whose benefit the order had been made (here, the Customs and
Excise). While the grounds of the decisions of the five members of the House differed, the principal
points can be summarised as follows. First, the involuntary nature of the position of the bank as
recipient of the order was inconsistent with any assumption of responsibility, even if this were
understood to mean the undertaking of a task for another person. 1522 Secondly, the courts had
developed a very powerful means for protecting those who fear that their legitimate claims are to be
thwarted by disposal of available assets by the development of freezing orders and these are
buttressed by the sanction of contempt of court. In this respect, a distinction is drawn between the
strict liability of the person against whom an order has been made, and the requirement that a third
party with notice of an order is liable for contempt only if he knowingly takes a step to frustrate the
court’s purpose. It would be inconsistent with this to impose the higher standard of reasonable care
by means of a duty of care in tort. 1523 Thirdly, their Lordships were concerned with the practical
effects of the imposition of liability in damages for negligence by third parties with notice of a freezing
order. While it may appear reasonable in this respect to impose liability for negligence in a business
such as a bank, the new duty of care would also apply to any non-business with notice of such an
order which would be unreasonable. 1524 In BSkyB Ltd v HP Enterprise Services UK Ltd, 1525 the court
determined the existence of a duty of care in the tort of negligence in respect of pure economic loss
under the “three-fold test” in Caparo Industries Plc v Dickman, 1526 holding that where corporate
parties to a wider group have between them chosen the parties with whom to have a contract, it
would not be fair, just and reasonable to recognise the existence of a duty of care so that another
member of the group can pursue a claim which circumvents these contractual arrangements. 1527
The effect of contractual terms on established torts beyond privity
1-216
Page 9
In general, a term in a contract between A and B will not affect liability in A to C under an established
tort since to allow it to do so would contravene the principle of privity of contract. 1528 However, the
courts have allowed exceptions to be developed to this general rule and these are particularly clear
where the term in question expressly allocates the risk of some event, often by way of an exemption
clause. Two situations ought to be distinguished.
Clauses in contract between tortfeasor and another
1-217
First, although in general A’s contractual exclusion of liability to B will not affect A’s liability to C, 1529 it
has been held to do so in certain circumstances. Thus, where a court relies on a defendant’s
“assumption of responsibility” for the imposition of a duty of care, any disclaimer of liability will
apparently affect any third party who wishes to rely on breach of that duty, 1530 though in the case of
liability for negligent misstatements, it appears that such a clause will only be effective if notice of it
has come to the third party. 1531 So too, where an owner of property entrusts it to a bailee and
expressly or implicitly consents to the latter subcontracting work to a sub-bailee subject to certain
exemption conditions, the owner will not be able to sue that sub-bailee in tort except subject to these
conditions. 1532
Clauses in contract between injured party and another
1-218
Secondly, if A contracts with B on terms that A will not be able to sue C, the courts found various
ways to give effect to this agreement despite privity of contract, even before this was made overtly
possible by the Contracts (Rights of Third Parties) Act 1999. 1533 In New Zealand Shipping Co Ltd v
A.M. Satterthwaite & Co Ltd (The Eurymedon) 1534 the Privy Council found that a stevedore engaged
to unload goods by a carrier was protected from liability to their shipper in the tort of negligence for
damage to the goods by a clause in the contract between the shipper and the carrier which was
expressed to exempt the stevedore from liability and to be made by the carrier as his agent. Here,
then, an exemption clause was given effect by the finding of a collateral contract between A and C,
through the agency of B. However, on occasion the courts have instead refused to recognise the
existence of a duty of care in the tort of negligence where to do so would disrupt the “contractual
structure” in which the parties worked, not only in the context of pure economic loss, 1535 but also in
one of physical damage to the claimant’s property. In Norwich City Council v Harvey, 1536 the plaintiff
owned a building, which it wished to have extended and it employed building contractors to do so on
standard terms according to which the “existing structures” should be at its own risk as regards loss or
damage by fire while the works were in progress and should be insured against these risks. The
building contractors engaged sub-contractors to undertake the roofing of the extension on this basis
and owing to the negligence of one of the latter’s employees, a fire was started which spread to and
damaged the plaintiff’s existing building. The Court of Appeal rejected the plaintiff’s claim for this
damage to its property, refusing to recognise the existence of a duty of care in these circumstances.
“On the basis of what is just and reasonable” 1537 May L.J. did not think that:
“… the mere fact that there is no strict privity between the employer and the
subcontractor should prevent the latter from relying on the clear basis on which all the
parties contracted in relation to damage to the employer’s building caused by fire, even
when due to the negligence of the contractors or sub-contractors.” 1538
However, after the Contracts (Rights of Third Parties) Act 1999, parties to a contract may make
provision for the protection from liability of third parties in tort, subject to that Act’s requirements as to
the necessary intention and more generally. 1539
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1422. See above, para.1-147. cf. below, paras 1-210—1-215 on liability in the tort of negligence
beyond privity on the basis of an “assumption of responsibility”.
1424. See below, para.1-203. Contracts may have other consequences for the incidence of liability in
tort. For example, where A has sold goods to B, who has resold them to C, the question
whether the contract between A and B is void for mistake or merely voidable for fraud
determines whether title to the property has passed to B and therefore whether C is liable to A
in the tort of conversion: see Ingram v Little [1961] 1 Q.B. 31; Lewis v Averay [1973] 1 W.L.R.
510; Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919.
1425. See below, paras 1-098, 1-208—1-209.
1426. (1853) 2 E.B. 216.
1427. A’s intention must be to induce such a breach and so a person who sets out to protect their own
interests in the belief that they have a lawful right to do what they are doing does not have the
requisite intention for these purposes: Meretz Investments NV v ACP Ltd [2007] EWCA Civ
1303, [2008] 2 W.L.R. 904 at [124], [137], [174], [181]–[182].
1428. As was the case in Lumley v Gye (1853) 2 E.B. 216 itself.
1429. As was the case in Torquay Hotel Co Ltd v Cousins [1969] 2 Ch. 106 (although as explained in
the text the extended view of the tort in this case will not be followed after OGB Ltd v Allan,
Douglas v Hello! Ltd, Mainstream Properties Ltd v Young [2007] UKHL 21, [2008] 1 A.C. 1).
1430. Lumley v Gye (1853) 2 E.B. 216 at 234.
[2008] 1 A.C. 1 especially at [44] and [189] not following Torquay Hotel Co Ltd v Cousins [1969]
2 Ch. 106; Merkur Island Shipping Corp v Laughton [1983] 2 A.C. 570, 607-610.
1432. Law Debenture Trust Corp Plc v Ural Caspian Oil Corp Ltd [1994] 3 W.L.R. 1221 especially at
1231-1232.
1433. For “two-party” intimidation see above, para.1-174 and Clerk & Lindsell on Torts, 21st edn
(2014) paras 24-59 et seq. especially at paras 24-69—24-70.
1434. See, though, OGB Ltd v Allan, Douglas v Hello! Ltd, Mainstream Properties Ltd v Young [2007]
UKHL 21, [2008] 1 A.C. 1 at [6]–[10] where the terminology of “tort of intimidation” was
criticised.
1435. [1964] A.C. 1129.
1436. This position is consistent with the interpretation of “unlawful means” in OGB Ltd v Allan,
Douglas v Hello! Ltd, Mainstream Properties Ltd v Young [2007] UKHL 21 at [49]–[51], [162],
[266]–[270], [302], [320].
1437. Rookes v Barnard [1963] 1 Q.B. 623, 695, per Pearson L.J.
1438. Rookes v Barnard [1963] 1 Q.B. 623.
1439. [1964] A.C. 1129, 1207, per Lord Devlin.
1440. [1964] A.C. 1129, 1200–1201, per Lord Hodson and see also 1168, 1234-1235.
1441. cf. Wedderburn (1964) 27 M.L.R. 257 at 263-267.

Page 11
1443. Pollock, The Law of Torts, 1st edn (1887), pp.448-449.
1444. Notably Winterbottom v Wright (1842) 10 M.W. 109 and see below, para.1-205.
1445. Pollock at p.450.
1447. cf. above, para.1-203. In either case, this tort is clearly restricted to situations where A has
acted intentionally to injure C: Rookes v Barnard [1964] A.C. 1129, 1183; OGB Ltd v Allan,
Douglas v Hello! Ltd, Mainstream Properties Ltd v Young [2007] UKHL 21, [2008] 1 A.C. 1 and
see Clerk & Lindsell on Torts, 21st edn (2014) para.24-59.
1448. Winfield and Jolowicz on Tort, 13th edn (1989), pp.404-405.
1449. Winfield and Jolowicz at pp.404-405 and see Russell v Shenton (1842) 3 Q.B. 449, 457.
1450. Payne v Rogers (1794) 2 H.Bl. 350, 351; Wringe v Cohen [1940] 1 K.B. 229.
1451. St. Anne’s Well Brewery Co v Roberts (1929) 140 L.T. 1, 8. cf. Defective Premises Act 1972
ss.1, 4; and see Spencer (1974) C.L.J. 307, (1975) C.L.J. 48 and Andrews v Schooling [1991] 1
W.L.R. 783.
1452. It has been held to be a breach of contract for an agent to disclose a document which is
libellous: Weld-Blundell v Stephens [1920] A.C. 956.
1453. In Weld-Blundell v Stephens [1920] A.C. 956 the principal had been held liable in libel
personally for publishing the defamatory statement, which had then been republished by the
agent.
1454. See also below, paras 18-024 et seq.
1455. (1842) 10 M.W. 109.
1456. (1842) 10 M.W. 109, 111, 114. See also Tollit v Sherstone (1839) 5 M.W. 283, 289 where
Maule B. considered it: “[C]lear that an action of contract cannot be maintained by a person
who is not a party to the contract; and the same principle extends to an action of tort arising out
of a contract.” Pollock, Law of Torts, p.449 supported the decision in Winterbottom v Wright
(1842) 10 M.W. 109 on the ground that no bad faith or negligence in the defendant had been
shown and cf. Donoghue v Stevenson [1932] A.C. 562, 589. cf. also Atiyah, The Rise and Fall
of Freedom of Contract (1979), pp.501-505.
1457. The approach was not universal: see Payne v Rogers (1794) 2 H.Bl. 350 (landlord liable to third
party injured on highway owing to poor state of repair of premises as long as landlord had
covenanted to repair) and Gladwell v Steggall (1839) 5 Bing. (N.C.) 733 (medical practitioner
liable to patient where fees had been paid by patient’s father).
1458. [1932] A.C. 562. cf. the dissent of Lord Buckmaster on this ground at 568, 577-578 and see
Grant v Australian Knitting Mills Ltd [1936] A.C. 85, 101-102.
1459. [1932] A.C. 562, 610.
1460. (1842) 10 M.W. 109.
1461. See Greene v Chelsea BC [1954] 2 Q.B. 127, 138 and as late as 1983, Rimmer v Liverpool City
Council [1985] Q.B. 1, 11.
1462. [1964] A.C. 465.

Page 12
1463. [1964] at 525-526, 529 and cf. at 538.
1464. [1964] A.C. 465 at 529.
1465. The statement in question had been made by A (the defendants) to B at the latter’s request
(who had in turn been asked to do so by C), A knowing that the statement would be passed on
to B’s customer, C (the plaintiff). In these circumstances, A could only be considered in privity
with C if B were treated as C’s agent for this purpose.
1466. [1983] 1 A.C. 520 and see below, para.18-025.
1467. As the case came to the House of Lords by way of a preliminary issue, it was not necessary to
consider what damages would be recoverable nor whether the sub-contractor was negligent.
1468. [1983] 1 A.C. 520, 533, per Lord Fraser of Tullybelton and cf. 542.
1469. See Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] A.C.
210; Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] A.C. 785; Candlewood Navigation
Corp Ltd v Mitsui O.S.K. Lines Ltd [1986] A.C. 1; Muirhead v Industrial Tank Specialities Ltd
[1986] Q.B. 507; D. & F. Estates Ltd v Church Commissioners for England [1989] A.C. 177;
Simaan General Contracting Co v Pilkington Glass Ltd (No.2) [1988] Q.B. 758; Yuen Kun Yeu v
Att-Gen of Hong Kong [1988] A.C. 175; Business Computers International Ltd v Registrar of
Companies and Alex Lawrie Factors [1988] Ch. 229; Pacific Associates v Baxter [1990] 1 Q.B.
993; Parker-Tweedale v Dunbar Bank Plc [1991] Ch. 12; Murphy v Brentwood DC [1991] 1 A.C.
398; Department of Environment v Thomas Bates & Son Ltd [1991] 1 A.C. 499; Punjab National
Bank v De Boinville [1992] 3 All E.R. 104; Saipem SpA v Dredging VO2 BV [1993] 2 Lloyd’s
Rep. 315.
1470. See Stapleton (1991) 107 L.Q.R. 249.
1471. The relevant terms of neither this contract nor the subcontract were presented to the House of
Lords: [1983] 1 A.C. 520, 538.
1472. [1983] 1 A.C. 520 at 546.
1473. [1983] 1 A.C. 520 at 533-534.
1474. [1983] A.C. 520, 550–552 and see Greater Nottingham Co-operative Society Ltd v Cementation
Piling & Foundations Ltd [1989] Q.B. 71, 96 where Purchas L.J. noted that Lord Brandon’s
speech had subsequently achieved greater significance. This approach avoids the difficult
question whether liability arising on breach of a recognised duty of care in respect of pure
economic loss may be modified or excluded by either: (i) an exemption clause in A’s contract
with B restricting A’s liability to C (Simaan General Contracting Co v Pilkington Glass Ltd (No.2)
[1988] Q.B. 758, 782-783; 785-786); or (ii) an exemption clause in A’s contract with B which
attempts to exclude C’s liability to A (Southern Water Authority v Carey [1985] 2 All E.R. 1077,
1093-1094) and see below, paras 1-217—1-218.
1475. [1984] 1 W.L.R. 951 and see Whittaker (1985) 48 M.L.R. 86.
1476. This is to be found in Lord Wilberforce’s speech in Anns v Merton London BC [1978] A.C. 728,
751-752. This principle itself has been subject to considerable judicial reservation: see
Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] A.C. 210 at
240–241; Caparo Industries Plc v Dickman [1990] 2 A.C. 605, 618.
1477. [1984] 1 W.L.R. 951, 959-960.
1478. [1988] Q.B. 758. cf. Muirhead v Industrial Tank Specialities Ltd [1986] Q.B. 507.
1479. [1988] Q.B. 758, 782 and cf. Greater Nottingham Co-operative Society Ltd v Cementation Piling
& Foundations Ltd [1989] Q.B. 7, 99 and Pacific Associates v Baxter [1990] 1 Q.B. 993.
Page 13
1480. Pacific Associates v Baxter [1990] 1 Q.B. 993 at 1023. And see Macmillan v AW Knott Becker
Scott [1990] 1 Lloyd’s Rep. 98 at 110–111; Parker-Tweedale v Dunbar Bank Plc (No.1) [1991]
Ch. 12 (no duty of care in tort owed by mortgagor to beneficiary under trust of property subject
to mortgage); Verderame v Commercial Union Assurance Co Plc, The Times, April 2, 1992 (no
duty of care owed by insurance brokers employed by a company to the directors of that
company); Hemmens v Wilson Browne [1994] 2 W.L.R. 323, 334-335 (no duty of care owed by
solicitor to beneficiary of ineffective inter vivos transaction where the situation was not
irremediable).
1481. Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch. 560, 570–571, in which the court held that
there is in normal conveyancing transactions no duty of care in the solicitor of a vendor of land
to the buyer in respect of misstatements. On the facts, the court accepted that the duty owed by
A, the vendor, to B, the buyer could be put equally in terms of contract or the tort of negligence:
at 569, relying on Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801.
1482. Joined with the decision in Harris v Wyre Forest DC [1990] 1 A.C. 831. cf. Preston v Torfaen
BC [1993] N.P.C. 111; Scullion v Bank of Scotland [2011] EWCA Civ 693, [2011] 1 W.L.R. 3212
.
1483. s.2(2) on which see below, paras 15-081 and 15-096 et seq.
1484. [1990] 1 A.C. 831 at 862. cf. at 846, per Lord Templeman.
1485. [1964] A.C. 465.
1486. Some courts have chosen rather to treat the various approaches to the imposition of a duty of
care as alternative routes, to be tried in turn in relation to the facts before them: see Bank of
Credit and Commerce International (Overseas) Ltd (In Liquidation) v Price Waterhouse [1998]
P.N.L.R. 564, 583-586, per Sir Brian Neill; Briscoe v Lubrizol [2000] P.I.Q.R. P39. Moreover,
where the defendant’s liability arises in respect of a negligent misstatement (as in the case of a
surveyor’s certification of property), the Court of Appeal has held that no distinct duty of care
based on any assumption of responsibility should be held to have existed in respect of the work
of inspection preparatory to making the statement: Hunt v Optima (Cambridge) Ltd [2014]
EWCA Civ 714, [2015] 1 W.L.R. 1346 at [90]–[92], [107]–[119] (distinguishing the contractual
duty owed by the surveyor to the builder).
1487. The doctrine of “assumption of responsibility” had been relied on by Lord Goff in Spring v
Guardian Assurance Plc [1995] 2 A.C. 296, 324 but it had not been argued before the House
and his fellow judges chose to rely on other grounds for their decisions. For cases discussing
“assumption of responsibility” between parties to a contract, see above, paras 1-166 et seq.
1488. [1995] 2 A.C. 145 and see Whittaker (1996) 16 O.J.L.S. 191, especially 204-205, 219 et seq.
1489. [1995] 2 A.C. 145 at 195.
1490. [1995] 2 A.C. 145 at 196.
1491. [1991] 1 A.C. 398.
1492. [1995] 2 A.C. 207. For subsequent “disappointed beneficiary cases” see Martin v Triggs Turner
Burtons [2009] EWHC 1920 (Ch), [2010] P.N.L.R. 3; cf. Marquess of Aberdeen and Temair v
Turcan Connell [2008] CSOH 183 at [48] and [49].
1493. [1995] 2 A.C. 207 at 266.
1494. [1995] 2 A.C. 207 at 268.
1495. [1995] 2 A.C. 207 at 294.
1496. [1995] 2 A.C. 207 at 270, 275-276.

Page 14
1497. [1995] 2 A.C. 207 at 251.
1498. See, notably, Williams v Natural Life Health Foods Ltd and Mistlin [1998] 1 W.L.R. 830, 837, per
Lord Steyn.
1499. cf. the approach of the High Court of Australia in R.F. Hill & Associates v Van Erp [1997] 14
A.L.R. 687.
1500. [1998] 1 W.L.R. 830.
1501. [1998] 1 W.L.R. 830 at 834.
1502. [1998] 1 W.L.R. 830 at 836.
1503. [1998] 1 W.L.R. 830 at 837-838.
1504. [1998] 1 W.L.R. 830, 834.
1506. [1996] 1 A.C. 211.
1507. Lords Keith of Kinkel, Jauncey of Tullichettle and Browne-Wilkinson agreed; Lord Lloyd of
Berwick dissented.
1508. [1970] A.C. 1004.
1509. [1996] 1 A.C. 211, 235.
1510. [1996] 1 A.C. 211 at 237-238.
1511. [1996] 1 A.C. 211, 239.
1512. See similarly Norwich City Council v Harvey [1989] 1 W.L.R. 828, below para.1-218; John F
Hunt Demolition Ltd v ASME Engineering Ltd [2007] EWHC 1507 (TCC), [2008] 1 All E.R. 180
at [38]–[42].
1513.
These include Siddell v Smith Cooper & Partners [1999] P.N.L.R. 511; Barex Brothers Ltd v
Morris Dean & Co [1999] P.N.L.R. 344, 349; A.J. Fabrication (Batley) Ltd v Grant Thornton
[1999] B.C.C. 807; Electra Private Equity Partners v KPMG Peat Marwick [1999] 1 Lloyd’s Rep.
P.N. 670; Connolly-Martin v Davis, The Times, June 8, 1999; Yorkshire Bank Plc v Lloyds Bank
Plc [1999] 2 All E.R. (Comm.) 153; Hamble Fisheries Ltd v L. Gardner and Sons Ltd [1999] 2
Lloyd’s Rep. 1; Gorham v British Telecommunications Plc [2000] 1 W.L.R. 2129; B.D.G.
Roof-Bond v Douglas [2000] 1 B.C.L.C. 401; European Gas Turbines Ltd v MSAS Cargo
International Inc [2002] C.L.C. 880; Killick v PricewaterhouseCoopers (A Firm) [2001] 1
B.C.L.C. 65; Merrett v Babb [2001] 3 W.L.R. 1; Weldon v GRE Linked Life Assurance Ltd [2000]
2 All E.R. (Comm.) 914; Dean v Allin and Watts [2001] EWCA Civ 758, [2001] 2 Lloyd’s Rep.
249; Niru Battery Manufacturing Co v Milestone Trading Ltd [2002] EWHC 1425 (Comm.),
[2002] All E.R. (D) 206; European International Reinsurance Co Ltd v Curzon Insurance Ltd
[2003] EWCA Civ 1074, [2003] Lloyd’s Rep. I.R. 793; BP Plc v Aon Ltd [2006] EWHC 424
(Comm), [2006] 1 All E.R. (Comm.) 789; Riyad Bank Plc v Ahli United Bank Plc [2006] EWCA
Civ 780, [2006] 2 Lloyd’s Rep. 292; Galliford Try Infrastructure Ltd v Mott MacDonald Ltd [2008]
EWHC 1570 (TCC), [2009] P.N.L.R. 9; Scullion v Bank of Scotland [2011] EWCA Civ 693,
[2011] 1 W.L.R. 3212; Argos Ltd v Leather Trade House Ltd [2012] EWHC 1348 (QB), [2012]
E.C.C. 34 at [42]; Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714, [2015] 1 W.L.R. 1346;
Swynson Ltd v Lowick Rose LLP [2014] EWHC 2085, [2014] P.N.L.R. 27; Summit Advances
Ltd v Bush [2015] EWHC 665 (QB), [2015] P.N.L.R. 18.
1514. [2000] P.I.Q.R. P39.

Page 15
1515. He accepted the description of the three approaches to the finding of a duty of care in the tort of
negligence found in the judgment of Sir Brian Neill in Bank of Credit and Commerce
International (Overseas) Ltd (In Liquidation) v Price Waterhouse [1998] P.N.L.R. 564, 583-586.
The “incremental approach” was famously advocated by Brennan J. in Sutherland Shire Council
v Heyman (1985) 157 C.L.R. 424 at 481.
1516. [2000] P.I.Q.R. P39 at P44.
1517. [2000] P.I.Q.R. P39 at P48.
1518. [2000] P.I.Q.R. P39 at P50.
1519. [1990] 2 A.C. 605 at 618.
1520. [2006] UKHL 28, [2006] 3 W.L.R. 1.
1521. [2006] UKHL 28 at [7] and [93].
1522. [2006] UKHL 28 at [14], [65], [74].
1523. [2006] UKHL 28 at [61]–[64].
1524. [2006] UKHL 28 at [23], [61], [77] and [102].
1525. [2010] EWHC 86 (TCC), [2010] B.L.R. 267.
1526. [1990] 2 A.C. 605 at 618.
1527.
[2010] EWHC 86 (TCC) at [536]–[543]. See also Playboy Club London Ltd v Banca Nazionale
del Lavoro SpA [2016] EWCA Civ 457, [2016] 1 W.L.R. 3169 (appeal pending to SC) (no
assumption of responsibility in bank in giving a credit reference about one of its customers to a
named company (A Co) where (unknown to the bank) the reference was to be used by another
company (B Co, a casino) in the same group; nor was it “fair, just and reasonable” to impose
liability on the bank in these circumstances).
1528. Below, paras 15-042 et seq. Distinguish the case where A and B agreed that C will be protected
from liability against A: see below, paras 15-045—15-061.
1529. See Haseldine v C.A. Daw & Son Ltd [1941] 2 K.B. 343, 397 and see below, para.15-043.
1530. Pacific Associates v Baxter [1990] 1 Q.B. 993, 1022-1023, 1033; White v Jones [1995] 2 A.C.
207, 268.
1531. In Smith v Eric S. Bush, Harris v Wyre Forest DC [1990] 1 A.C. 831, the House of Lords
considered the validity of such a clause under the Unfair Contract Terms Act 1977 s.2(2) which
concerns the effect of contract terms and notices. Section 2 of the 1977 Act is amended on the
coming into force of the Consumer Rights Act 2015 Pt 2 so as no longer to apply to terms of
consumer contracts or to contractual notices, the 2015 Act providing rules to govern these
cases: 2015 Act s.62 and 65-66 on which see below, paras 15-064, 15-081—15-083 and Vol.II,
paras 38-356, 38-374—38-375 and 38-377.
1532. Morris v C.W. Martin & Sons Ltd [1966] 1 Q.B. 716, 729 and see also Johnson Matthey Co Ltd
v Constantine Terminals Ltd [1976] 2 Lloyd’s Rep. 215; The Pioneer Container [1994] 2 A.C.
324 and below, para.15-057.
1533. s.1(6) and see below, paras 15-046—15-047.
1534. [1975] A.C. 154 and see below, paras 15-051—15-052.

Page 16
1535. Above, paras 1-208—1-209.
1536. [1989] 1 W.L.R. 828 and see similarly John F Hunt Demolition Ltd v ASME Engineering Ltd
[2007] EWHC 1507 (TCC), [2008] 1 All E.R. 180 at [38]–[42] and (in a different context) Marc
Rich & Co AG v Bishop Rock Marine Co [1996] 1 A.C. 211, above, para.1-214. But cf. British
Telecommunications Plc v James Thomson & Sons (Engineers) Ltd [1999] 1 W.L.R. 9.
1537. The phrase “just and reasonable” is a reference to the approach recommended to the finding of
a duty of care by Lord Keith of Kinkel in Governors of Peabody Donation Fund v Sir Lindsay
Parkinson & Co Ltd [1985] A.C. 210, 240–241, which May L.J. had previously quoted.
1538. [1989] 1 W.L.R. 828, 837, per May L.J. and cf. the approach of the House of Lords in Marc Rich
& Co AG v Bishop Rock Marine Co [1996] 1 A.C. 211, above, para.1-213.
1539. s.1(1) and (6) and see below, paras 15-046—15-047.

Page 1

Section 8. - Contract and Other Legal Categories
Contract and trust
1-219
It is sometimes important to distinguish a contract, which creates rights in personam, from a trust
which creates equitable rights indistinguishable in practice from rights in rem. 1540 Until the
Contracts (Rights of Third Parties) Act 1999, a crucial difference lay in the possibility or otherwise of
creating rights in third parties to an agreement. So, it used to be the case that if A agreed with B to
pay money to C in return for valuable consideration furnished by B, C could not in his own right sue A
for failure to pay the money, owing to the application of privity of contract 1541; but he could do so if he
established that a trust had been created in his favour. 1542 While this difference has been
considerably eroded by the Contracts (Rights of Third Parties) Act 1999, which allows parties to a
contract to make provision for the existence of a right of enforcement of a term of their contract in a
third party, the third party’s right so created is subject to the conditions of that Act and these differ
from those applicable to the creation of a right under a trust. 1543 Again, if A, the owner of a chattel,
first agrees that B shall have the right to use it, and then, during the currency of the agreement, sells
or charges it to C, who takes with notice of B’s rights, B can sue A for breach of contract if C refuses
to honour the agreement, and he may be able to recover damages from C for the tort of knowingly
inducing a breach of contract. The question whether B is able to restrain C by injunction from using
the chattel in such a way as to prevent A from performing his contractual obligations is more difficult.
The better view appears to be that there are three bases on which to ground such an injunction. The
first is found in the equitable doctrine in De Mattos v Gibson, 1544 and the second in the tort of inducing
breach of contract. 1545 The third basis is for B to establish an equitable interest in or charge over the
chattel or that C is in the position of constructive trustee. 1546
1-220
Moreover, in some cases the courts have found a trust relationship between the parties in parallel to
their established contractual one. 1547 Thus, for example, in Barclays Bank Ltd v Quistclose
Investments Ltd, 1548 A Ltd loaned a sum of money to B Ltd on condition that it would be used to pay
the latter’s share dividends. The money was paid into a separate account specially opened for this
purpose with and to the knowledge of a bank, C Ltd. On B Ltd’s voluntary liquidation, the House of
Lords held A Ltd entitled to the money held by C Ltd and not paid out as dividend: the loan
arrangements showed a clear intention:
“to create a secondary trust for the benefit of the lender, to arise if the primary trust, to
pay the dividend could not be carried out.” 1549
On the other hand, in Lipkin Gorman v Karpnale Ltd 1550 the Court of Appeal accepted an approach to
the relationship between contract and trust which echoes that already examined in relation to contract
and tort. 1551 In that case a partner in a firm of solicitors drew cheques on a client account and then
Page 2
gambled away the proceeds. The solicitors sued, inter alia, 1552 the bank, claiming that the latter was
liable under a constructive trust. The Court of Appeal took the view that a bank would be subject to a
constructive trust to its customer in respect of the running of an account only in circumstances where
the bank would also be in breach of its contractual duty of care. 1553 Moreover, the content of this duty
had to be set in the context of the bank’s primary contractual duty which was to honour its customer’s
cheques in accordance with its mandate 1554 and so should be limited to cases where there is a
“serious or real possibility, albeit not amounting to a probability, that its customer might be being
defrauded”. 1555 Lipkin Gorman v Karpnale Ltd therefore concerned the requisite degree of knowledge
for liability in a third party “accessory” to a breach of trust and is to be distinguished from Barclays
Bank Ltd v Quistclose Investments Ltd where the bank (C Ltd) had received the money in respect of
which the constructive trust was imposed and had actual notice of the purpose for which it was
intended. 1556
Contract and conveyance
1-221
A contract, which creates rights in personam, must be distinguished from a conveyance of property,
which creates rights in rem. Yet sometimes a contract operates, to some extent at any rate, as a
conveyance of property. For instance, a specifically enforceable contract for the sale of land
constitutes the vendor a trustee of the property for the purchaser, and thus conveys equitable rights
which are scarcely distinguishable in practice from rights in rem. Again, a contract for the sale of
goods passes the property in the goods to the buyer under s.18 of the Sale of Goods Act 1979. But in
both cases the vendor has a lien on the property for unpaid purchase money; and in the case of
goods, as the rubric to the group of sections containing s.18 indicates, the property passes only as
between the seller and the buyer: as regards third parties the seller in possession has powers of
disposition which may defeat the buyer’s title, notwithstanding the maxim nemo dat quod non habet.
1557
Contractual rights as property
1-222
Although contracts create only rights in personam, these rights are treated by the law as themselves
items of property, an example of things in action or choses in action. 1558 So, a right under a contract
may be assigned, subject to the conditions which are explained in Ch.19. And a person may
constitute himself trustee of a contractual promise, giving rise to a trust of the right under the contract:
the conditions for such a constitution (in particular relating to the person’s intention) are explained in
Ch.18 in the context of privity of contract. 1559 More generally, it has earlier been explained that a party
to a contract may invoke the Human Rights Act 1998 so as to claim the protection of property rights
under art.1 of the First Protocol to the European Convention on Human Rights. 1560 However, while
not rejecting the proprietary character of contractual rights, a majority of the House of Lords recently
refused to assimilate them to chattels (things or choses in possession) for the purpose of the tort of
conversion 1561; for the minority, by contrast, “once the law recognises something [here, a contractual
right] as property, the law should extend a proprietary remedy to protect it”. 1562
Contract and unjust enrichment
1-223
“The highest courts have now conclusively recognised that unjust enrichment is a distinct
source of rights and obligations in English private law that ranks alongside contract and
civil wrongs in importance.” 1563
Page 3
Claims based on unjust enrichment are not dependent upon the existence of any contract, express or
implied, between the person enriched and the person at whose expense the enrichment has
occurred. From the seventeenth century, the same form of action, indebitatus assumpsit, was used to
remedy breaches of contract and to enforce claims which we would nowadays consider to be claims
in restitution, e.g. for money had and received, for money paid to the use of another, and on a
quantum meruit. In these cases the obligation to make restitution was deemed to arise on an implied
promise or implied contract (quasi ex contractu) in order to render them enforceable by a court in
indebitatus assumpsit. This fiction has long been discredited. The nature of restitutionary recovery
and its significance for contracts will be discussed in Ch.29.
Contract and public law
1-224
Contracts have often been seen as the expression of individual and private autonomy and therefore
to be contrasted with the expressions of public powers. 1564 Since the rise in prominence of the
distinction between public and private law since the early 1980s, spurred on first by the House of
Lords in its separation of the procedures for judicial review under RSC Ord.53 and for ordinary claims
based on private rights, 1565 the presence of a contract has often been seen as a significant element
in, if not the touchstone of, the private nature of a person’s activity. At the same time, though, there
has been an increasing awareness of the importance of contract as a basis for governmental action,
leading to calls for the development of the adaptation of the ordinary and private law principles of the
law of contract so as to take into account public law considerations 1566: a need for a public law of
contract, rather than a law of public contracts. In the following paragraphs, some of the issues arising
from these significances of contract for the borderline between public and private law will be
identified.
RSC Ord.53 and CPR Pt 54
1-225
In 1982 in O’Reilly v Mackman the House of Lords held that the procedure for judicial review under
RSC Ord.53 was an exclusive one. 1567 Thus, if a plaintiff’s case was a matter of “private right” he
could not proceed by way of judicial review, 1568 whereas if it was a matter of “public right” this was the
only appropriate way of commencing proceedings. 1569 While there were good reasons for the
protection of the special features of the public law procedure, this led to a good deal of waste of time
and of money in purely procedural disputes. In the words of Wade and Forsyth, the decision in
O’Reilly v Mackman:
“turned the law in the wrong direction, away from flexibility of procedure and towards the
rigidity reminiscent of the bad old days.” 1570
However, since the early 1990s, judges made clear that a more flexible approach should be taken to
the line between proceeding by way of an application for judicial review and an action in private law.
This process was given support by the replacement of Ord.53 by Pt 54 of the Civil Procedure Rules,
which are to be interpreted according to their “overriding objective” of dealing with cases justly, as
part of which a court is to consider in its duties of case management considerations of time and cost.
1571
Earlier case law under RSC Ord.53
1-226
It was clear that the mere existence of a contractual relationship between an applicant for judicial
review and the respondent does not make the case a matter of private law, nor conversely are all
Page 4
issues arising from a public authority’s contracts matters of public law, 1572 and the courts used a
range of criteria to determine where to draw the line between private and public law for the purposes
of Ord.53. 1573 However, in the employment context, the source of the power or duty challenged was
for some time prominent. Thus, in Ex p. Walsh the applicant was a nurse who had been dismissed on
grounds of misconduct. 1574 His claim under Ord.53 argued that his dismissal was ultra vires and
decided upon in breach of natural justice. To support this, he alleged a breach of particular conditions
of his employment which had been incorporated into his contract in compliance with regulations made
under statute. However, this statutory background was not enough to give him “public law rights”.
According to the Court of Appeal, these would only arise if Parliament had directly restricted his
employer’s freedom to dismiss him, rather than requiring his employer to contract on particular terms,
otherwise his claim was purely contractual. 1575 The applicant was therefore left to his private law
remedies for unfair dismissal and breach of contract. 1576 By contrast, in Ex p. Benwell the applicant,
who had been a prison officer, based his application for the judicial review of his dismissal on the
failure to observe a code of discipline of prison officers in the Prison Rules, themselves made under a
statutory power. 1577 The court held that this basis gave his claim “sufficient statutory under-pinning”
for it to be properly a matter of public law, 1578 although the lack of any other remedy in the context
appeared to weigh in the applicant’s favour. 1579 The courts also refused to allow the use of the public
law procedure to challenge the decisions of certain types of domestic tribunal, in part on the ground
that the relationship between the association and its members was “wholly contractual”. 1580 However,
a decision of the Take-Over and Mergers Panel has been held susceptible to judicial review despite
the self-regulatory and private form of its control, because inter alia it operated as an integral part of a
governmental framework for the regulation of financial activity. 1581
A more flexible approach
1-227
On the other hand, by 1992 a more flexible approach was taken to the resolution of this type of
procedural dispute by the House of Lords in Roy v Kensington & Chelsea and Westminster Family
Practitioner Committee. 1582 In that case, a doctor who worked for the defendant committee as a
general practitioner under a statutory scheme claimed by writ sums allegedly owing to him which had
been denied him because the Committee had come to the view that he had not devoted a “substantial
amount of time to general practice” within the meaning of the relevant regulations. The Committee
claimed that his action should be struck out as an abuse of the process of the court, arguing that his
proper recourse was by judicial review alone. The House of Lords rejected this argument, holding
that, whether or not the doctor worked under a contract for the committee, his claim for payment was
a matter of “private right”. According to Lord Bridge:
“… where a litigant asserts his entitlement to a subsisting right in private law, whether by
way of claim or defence, 1583 the circumstance that the existence and extent of the private
right asserted may incidentally involve the examination of a public law issue cannot
prevent the litigant from seeking to establish his right by action commenced by writ or
originating summons, any more than it can prevent him from setting up his private right in
proceedings brought against him.” 1584
Moreover, Lord Lowry noticed that Lord Diplock in O’Reilly v Mackman 1585 had acknowledged that
there may be exceptions to the principle that cases involving public law issues should proceed only by
way of judicial review:
“particularly where the invalidity of the decision arises as a collateral issue in a claim for
infringement of a right of the plaintiff arising under private law.” 1586
Lord Lowry recommended that a “liberal attitude” be taken to the ambit of such exceptions, 1587 and
approved a broad approach according to which judicial review would be reserved for cases where
private rights were not at stake. 1588 Clearly, the House of Lords intended to mould the distinction
Page 5
between private and public law according to the appropriateness of the different procedures in a
particular case (for example, whether the case required oral evidence and discovery 1589), rather than
according to the formal source of the plaintiff’s claim. 1590
CPR Pt 54
1-228
1591
In 2000, Ord.53 was revoked and replaced by Pt 54 of the CPR. Under Pt 54, a claim for
judicial review is defined as a claim to:
“… review the lawfulness of: (i) an enactment; or (ii) a decision, action or failure to act in
relation to the exercise of a public function.” 1592
It is provided that the judicial review procedure must be used for applications for certain types of order
(mandatory orders, prohibiting orders, quashing orders, and injunctions under s.30 of the Supreme
Court Act 1981), 1593 and may be used in certain other cases, though not as regards claims solely for
damages. 1594 The court has power to order a claim to continue as if it had not been started by way of
judicial review and, where it does so, to give directions about the future management of the claim. 1595
In common with applications under RSC Ord.53, the court’s permission to proceed is required in a
claim for judicial review 1596 and applications for leave must be made promptly and in any event within
three months of when the grounds arose. 1597 These features of claims for judicial review remain
distinctive and this means that the courts still need to resolve whether a claim is sufficiently public to
be appropriately dealt with under Pt 54 or whether it is private and to be dealt with by ordinary action.
1598
In deciding this, the courts sometimes still see claims based on the contract as being appropriate
for ordinary action. So, for example, as regards disputes between students and their universities it
has been said that the normal procedure will be judicial review, but where claims are based on the
contract between them, then ordinary action is appropriate. 1599 But the courts have made clear
that their approach to the differences in procedure and the exercise of their power to transfer claims
between the two routes will be flexible and subject to the overriding objective of the CPR. 1600 As Lord
Woolf C.J. has observed, Pt 54 was intended to avoid wholly unproductive disputes as to when
judicial review is or is not appropriate. 1601 So:
“… in a case … where a bona fide contention is being advanced (although incorrect) that
[a private sector provider of services for a local authority] was performing a public
function, that is an appropriate issue to be brought to the court by way of judicial review.”
1602
The Court of Appeal wished:
“… to make clear that the CPR provide a framework which is sufficiently flexible to enable
all the issues between the parties to be determined.” 1603
Contracts made by public bodies: capacity
1-229
The nature and limits of the capacity of the Crown and of public authorities is treated at length in
Ch.11. 1604
Page 6
Contracts made by “public authorities” and the Human Rights Acts 1998
1-230
The Human Rights Act 1998 has had important effects on the law of contract itself as well as on the
law governing contracts made by “public authorities”. These effects have been discussed together
earlier. 1605
Public contractors and the Human Rights Act 1998
1-231
The question has been discussed earlier whether a commercial company providing a service to a
person under a contract was acting as someone “certain of whose functions are functions of a public
nature” within the meaning of s.6 of the 1998 Act where it did so under a contract with a public
authority made by it in furtherance of its statutory duties. 1606
The law of public procurement
1-232
Important consequences attach to the categorisation of a contracting-party or would-be
contracting-party as a “contracting authority” within the meaning of the EU law of public procurement.
1607
Contracts made by public bodies: other differences in rule
1-233
There are also circumstances in which the public nature of a party’s contractual capacity (or
contract-making power) affects the substantive rules applicable. 1608 For example, the general rule,
based on the principle of freedom of contract, is that a person can choose with whom to contract and
with whom not to contract. 1609 However, a local authority’s decision not to contract with a company
which had indirect trading links with South Africa was successfully challenged by way of judicial
review: although the policy was not itself unreasonable, it had been adopted partly in order to
penalise the company in question and not solely in order to further racial harmony within the borough.
1610
Another example of difference in substantive rule may be found in Swain v The Law Society 1611 in
which the rules as to accountability of an agent were held inapplicable to the Society’s arrangement of
liability insurance on behalf of its members. The insurance scheme was made under statutory powers
and the Society and its Council acted thereby “in a public capacity and what they do in that capacity is
governed by public law”. 1612
1540.
This is the generally accepted view, despite Maitland’s opinion to the contrary: Equity (1909),
Lect. IX. See Scott (1917) 17 Col. L.R. 269; Winfield, Province of the Law of Tort (1931),
pp.108-112. See also Binions v Evans [1972] Ch. 359; Re Sharpe [1980] 1 W.L.R. 219; Tinsley
v Milligan [1993] 3 W.L.R. 126, 147-148 (though Tinsley v Milligan was disapproved on other
grounds by Patel v Mirza [2016] UKSC 42, [2016] 3 W.L.R. 399, see below, para.16-198). See
also the cases cited in para.14-033 n.204, below.
1541. Tweddle v Atkinson (1861) 1 B. & S. 393; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
[1915] A.C. 847 (although B can obtain an order for specific performance in favour of C:
Beswick v Beswick [1968] A.C. 58); and see below, Ch.19.
Page 7
1543. For example, the power of the parties to a contract to vary or rescind the contract so as to
extinguish or alter the third party’s rights are subject to the conditions provided the Contracts
(Rights of Third Parties) Act 1999 by s.2; the variation of a trust is governed by different rules:
Martin, Hanbury and Martin’s, Modern Equity, 19th edn (2012), Ch.22.
1544. (1858) 4 De G. & J. 276, 282; and see Lord Strathcona S.S. Co Ltd v Dominion Coal Co Ltd
[1926] A.C. 108; Port Line Ltd v Ben Line Steamers Ltd [1958] 2 Q.B. 146; Swiss Bank Corp v
Lloyds Bank Ltd [1979] Ch. 548; [1982] A.C. 584. See also below, paras 18-042—18-043.
1545. Gardner (1982) 98 L.Q.R. 279; Tettenborn (1982) 41 C.L.J. 58, 82. cf. Swiss Bank Corp v
Lloyds Bank Ltd [1979] Ch. 548, 573 where the court considered that the law in De Mattos v
Gibson (1858) 4 De G. & J. is to be understood merely as the “equitable counterpart of the tort
of interference with contract”.
1546. Swiss Bank Corp v Lloyds Bank Ltd [1979] Ch. 548.
1547. For example, where a solicitor is employed by a mortgagee lending a sum to a mortgagor for
the purchase of property and pays the mortgage money which he has received before his
authority to do so, he is liable for breach of trust in respect of that money unless he can justify
this action: Target Holdings Ltd v Redferns [1996] 1 A.C. 421; AIB Group (UK) Plc v Mark
Redler & Co Solicitors [2014] UKSC 58, [2014] 3 W.L.R. 1367 and see generally McKendrick
(ed.), Commercial Aspects of Trusts and Fiduciary Obligations (1992); Burrows, Commercial
Remedies (2003) Ch.4.
1548. [1970] A.C. 567. cf. Re E. Dibbens & Sons Ltd [1990] B.C.L.C. 577.
1549. [1970] A.C. 567, 582. See also Re Kayford [1975] 1 W.L.R. 279; Goodhart and Jones (1980) 43
M.L.R. 489; Swiss Bank Corp v Lloyds Bank Ltd [1974] Ch. 548; Twinsectra v Yardley [2002] 2
A.C. 164; Charity Commission v Framjee [2014] EWHC 2507 (Ch), [2015] 1 W.L.R. 16 (contract
between donors and trustees of charitable trust) and cf. Clough Mill Ltd v Martin [1985] 1
W.L.R. 111, 120 and Swain v The Law Society [1983] 1 A.C. 598.
1550. [1989] 1 W.L.R. 1340. The claim against the bank was not pursued in the House of Lords:
[1991] 2 A.C. 548.
1552. The solicitors also claimed against the casino where the money was lost: see Lipkin Gorman v
Karpnale Ltd [1991] 2 A.C. 548.
1553. [1989] 1 W.L.R. 1340, 1373. This point had been conceded by the solicitors early in argument:
at 1349.
1554. [1989] 1 W.L.R. 1340 at 1356.
1555. [1989] 1 W.L.R. 1340 at 1378, per Parker L.J. and cf. at [1356] and see Birks (1989) 105 L.Q.R.
352, 355.
1556. On this distinction see Hanbury and Martin’s Modern Equity, 19th edn (2012), paras
12-10—12-23.
1558. See also Insolvency Act 1986 s.436 including thing in action within its definition of “property”.
1559. Below, paras 18-080—18-089.
1560. Above, paras 1-067—1-068.

Page 8
[2008] 1 A.C. 1 especially at [95]–[106].
1562. [2007] UKHL 21 at [310], per Baroness Hale of Richmond, and see also [220]–[240] (Lord
Nicholls of Birkenhead).
1563. Goff and Jones, The Law of Unjust Enrichment, 8th edn (2011), para.105.
1564. Whittaker (2001) 21 O.J.L.S. 103, 193.
1565. O’Reilly v Mackman [1983] 2 A.C. 237; Cocks v Thanet DC [1983] 2 A.C. 286.
1566. Leyland and Woods, Textbook on Administrative Law, 5th edn (2005), p.499; A. Davies, The
Public Law of Government Contracts (2008).
1567. [1983] 2 A.C. 237; Cocks v Thanet DC [1983] 2 A.C. 286.
1568. R. v East Berkshire Health Authority, Ex p. Walsh [1985] Q.B. 152. In Council of Civil Service
Trade Unions v Minister for the Civil Service [1985] A.C. 374, Crown service was held
susceptible to judicial review, although the contractual issues involved were not argued before
the House of Lords: see Wade (1985) 101 L.Q.R. 180, 194-197 and cf. Fredman and Morris
(1988) P.L. 58.
1569. O’Reilly v Mackman [1983] 2 A.C. 237.
1570. Wade and Forsyth, Administrative Law, 9th edn (2004), p.676.
1571. CPR Pt 1.
1572. cf. Wade and Forsyth at pp.668–70; Beatson (1987) 103 L.Q.R. 34, 48.
1573. Beatson (1987) 103 L.Q.R. 34.
1574. R. v East Berkshire Health Authority Ex p. Walsh [1985] Q.B. 152.
1575. [1985] Q.B. 152 at 165. cf. R. v Crown Prosecution Service Ex p. Hogg (1994) 6 Admin. L.R.
778.
1576. Employment Rights Act 1996 Pt X, as amended. In some employment cases the courts have
considered issues typical of public law, such as the reasonableness of the exercise of a
discretion and relating to observance of natural justice, as a matter of contract law and in the
course of private law proceedings: R. v British Broadcasting Corp Ex p. Lavelle [1983] 1 W.L.R.
23; Dietman v Brent LBC [1987] I.C.R. 737, 752; Hughes v Southwark LBC [1988] I.R.L.R. 55.
1577. R. v Secretary of State for the Home Department Ex p. Benwell [1984] 3 All E.R. 854.
1578. [1984] 3 All E.R. 854, 867.
1579. [1984] 3 All E.R. 854, 866, 868.
1580. Law v National Greyhound Racing Club Ltd [1983] 1 W.L.R. 1302, following R. v Criminal
Injuries Compensation Board Ex p. Lain [1967] 2 Q.B. 864; R. v BBC Ex p. Lavelle [1983] 1
W.L.R. 23; R. v Fernhill Manor School Ex p. A. [1993] 1 F.L.R. 620; R. v Disciplinary Committee
of the Jockey Club Ex p. Aga Khan [1993] 2 All E.R. 853; R. v Insurance Ombudsman Bureau
Ex p. Aegon Life Assurance Ltd [1995] L.R.L.R. 101. cf. Modahl v British Athletic Federation
[2001] EWCA 1447, [2002] 1 W.L.R. 1192.
1581. R. v Panel of Take-Overs and Mergers Ex p Datafin Plc [1987] 1 Q.B. 815 and see R. v East
Berkshire Authority Ex p. Walsh [1985] Q.B. 152 and Wandsworth LBC v Winder [1985] A.C.
461.
Page 9
1582. [1992] 1 A.C. 624 and see Cane (1992) P.L. 193.
1583. See Wandsworth LBC v Winder [1985] A.C. 461.
1584. [1992] 1 A.C. 624, 628-629.
1585. [1983] 2 A.C. 237.
1586. [1983] 2 A.C. 237, 285, quoted in Roy [1992] 1 A.C. 624, 642.
1587. [1992] 1 A.C. 624, 654.
1588. [1992] 1 A.C. 624, 653.
1589. [1992] 1 A.C. 624, 647, per Lord Lowry, approving the approach of Woolf L.J. in R. v Derbyshire
CC Ex p. Noble [1990] I.C.R. 808, 813.
1590. This approach was followed by the Court of Appeal in Trustees of the Dennis Rye Pension
Fund v Sheffield City Council [1997] 4 All E.R. 747. The need for flexibility in approach to the
distinction between the public and private procedures was noted by the HL in Mercury
Communications Ltd v Director General of Telecommunications [1996] 1 W.L.R. 48 and by the
Court of Appeal in Clark v The University of Lincolnshire and Humberside [2000] 1 W.L.R. 1988
.
1591. Civil Procedure (Amendment No.4) Rules 2000 (SI 2000/2092) rr.54.1, 54.22 came into force
on October 2, 2000.
1592. CPR r.54.1(2).
1593. CPR r.54.2(2). The Supreme Court Act 1981 is renamed the Senior Courts Act 1981.
1594. CPR r.54.3.
1595. CPR r.54.20.
1596. CPR r.54.4.
1597. CPR r.54.5, which also provides that these time limits may not be extended by agreement
between the parties.
1598. It has been noticed that under the CPR delay is also relevant to claims by ordinary action: Clark
v The University of Lincolnshire and Humberside [2000] 1 W.L.R. 1988, 1997.
1599.
[2000] 1 W.L.R. 1988, 1996 and see Feldman, English Public Law, 2nd edn (2009), paras
17.72–17.90 (P. Craig). cf. R. (Holmcroft Properties Ltd) v KPMG LLP [2016] EWHC 323
(Admin), [2017] Bus. L.R. 932 esp. at [23] et seq. applying R. v Panel on Takeovers and
Mergers, Ex p. Datafin Plc [1987] Q.B. 815 (the mere fact that the source of a body’s powers is
contract does not necessarily mean that public law principles do not apply, though it remains
important: [2016] EWHC 323 (Admin) at [43]). See also the cases discussed above at paras
1-074—1-075 on the distinction between public and private acts for the purposes of the Human
Rights Act 1998 s.6. These cases were considered relevant to the context of the availability of
judicial review in R. (Bevan and Clarke LLP) v Neath Port Talbot CBC [2012] EWHC 236
(Admin), [2012] B.L.G.R. 728 at [47]–[48] and R. (Davis) v West Sussex CC [2012] EWHC 2152
(Admin), [2013] P.T.S.R. 494, especially at [76]–[89] (the latter applying the approach of the CA
in R. (Supportways Community Services Ltd) v Hampshire CC [2006] EWCA Civ 1035, [2006]
B.L.G.R. 836 at [42]–[43], [56], [61]).
1600. [2000] 1 W.L.R. 1988, 1997.

Page 10
1601. R. (Heather) v Leonard Cheshire Foundation [2002] EWCA Civ 366, [2002] 2 All E.R. 936 at
[38].
1602. [2002] 2 All E.R. 936 at [38].
1603. [2002] 2 All E.R. 936 at [39].
1604. Paras 11-004, 11-016 et seq.
1606. See above, paras 1-073—1-075 concerning YL v Birmingham City Council [2007] UKHL 27,
[2007] 3 W.L.R. 112.
1607. See below, paras 11-051—11-052.
1608. And see Freedland (1994) P.L. 86.
1609. See above, paras 1-032, 1-033.
1610. R. v Lewisham London Borough Council Ex p. Shell UK Ltd [1988] 1 All E.R. 938, applying
Wheeler v Leicester City Council [1985] A.C. 1054 and see Local Government Act 1988
ss.17–23.
1611. [1983] 1 A.C. 598.
1612. [1983] 1 A.C. 598 at 608.

Page 1

Part 2 - Formation of Contract
Chapter 2 - The Agreement
Section 1. - Preliminary
Introduction
2-001
The first requirement for the formation of a contract is that the parties should have reached
agreement. Generally speaking, 1 the law regards an agreement as having been reached when an
offer made by one of the parties (the offeror) is accepted by the other to whom the offer is addressed
(the offeree or acceptor). However, such an agreement may still lack contractual force because it is
incomplete, 2 because its terms are not sufficiently certain, 3 because its operation is subject to a
condition which fails to occur 4 or because it was made without any intention to create legal relations.
5
An agreement may also lack contractual force for want of consideration. The requirement of
consideration is discussed in Ch.3.
The objective test
2-002
In deciding whether the parties have reached agreement, the courts normally apply the objective
test, 6 which is further discussed at para.2-003 below. Under this test, once the parties have to all
outward appearances agreed in the same terms on the same subject-matter, 7 then neither can,
generally, 8 rely on some unexpressed qualification or reservation to show that he had not in fact
agreed to the terms to which he had appeared to agree. Such subjective reservations of one party
therefore do not prevent the formation of a contract. 9 .
1. The analysis of the process of reaching agreement in terms of the steps of offer and
acceptance gives rise to difficulties in a number of situations to be discussed in paras
2-117—2-118 below.
2. Below, paras 2-119—2-145.
3. Below, paras 2-147—2-155.
4. Below, paras 2-156—2-166.
5. Below, paras 2-167—2-199.
6. Howarth (1984) 100 L.Q.R. 265; Vorster (1987) 103 L.Q.R. 247; Howarth (1987) 103 L.Q.R.
527; De Moor (1990) 106 L.Q.R. 632; Smith v Hughes (1871) L.R. 6 Q.B. 597, 607.
7. See Falck v Williams [1900] A.C. 176; Pagnan SpA v Fenal Products Ltd [1987] 2 Lloyd’s Rep.
Page 2
601 at 610; Guernsey v Jacob UK Ltd [2011] EWHC 918 (TCC), [2001] 1 All E.R. (Comm) 175
at [41]; Global 5000 Ltd v Wadhawan [2011] EWHC 853 (Comm), [2011] 2 All E.R. (Comm) 190
at [45]; VTB Capital Plc v Nutritek International Corp [2013] UKSC 5, [2013] 1 All E.R. 1296 at
[140]. The objective test can apply, not only for the purpose of establishing the existence of a
contract, but also to determine the contents of an admitted contract: see Thake v Maurice
[1986] Q.B. 644; Eyre v Measday [1986] 1 All E.R. 488 and Tekdata Interconnections Ltd v
Amphenol Ltd [2009] EWCA Civ 1209, [2010] 1 Lloyd’s Rep. 357 at [15], [25], and [30]; and to
determine whether a contract had been affirmed by agreement between the parties after the
occurrence of an event which had discharged both or one of them: Glencore Energy UK Ltd v
Transworld Oil Ltd [2010] EWHC 141 (Comm) at [55], [56].
8. The rule stated in the text does not apply in favour of a party who knows that the other does not
assent to the terms proposed in a notice displayed by the former party: e.g. where an offer is
expressed in a language which the offeree, to the offeror’s knowledge, does not understand, in
Geier v Kujawa, Weston and Warne Bros (Transport) Ltd [1970] 1 Lloyd’s Rep. 364; or where
the course of dealing shows that the offeree must have known that the offer was mistaken, in
Hartog v Shields [1939] 3 All E.R. 566. See also below, para.2-004 at n.18. cf. in cases of
mistake, below, para.3-022. But a party who completes and signs a contractual document
“cannot avoid its consequences by saying that they did not read it or did not understand it”:
Coys of Kensington Automobiles Ltd v Pugliese [2011] EWHC 655 (QB), [2011] 2 All E.R.
(Comm) 664 at [40] (where the reason for the signer’s inability to understand the document was
alleged to be that “she was an Italian speaker and the form was in English” (at [38])).
9.
See, e.g. Thoresen Car Ferries Ltd v Weymouth Portland BC [1977] 2 Lloyd’s Rep. 614;
Maple Leaf Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334, [2010] 2 All E.R. (Comm)
788 at [10]; Air Studios (Lyndhurst) Ltd v Lombard North Central Plc [2012] EWHC 3162 (QB),
[2013] 1 Lloyd’s Rep. 63 at [5]; Newbury v Sun Microsystems Ltd [2013] EWHC 2180 (QB)
where Lewis J. held that it is neither legitimate nor helpful to take into account subsequent
communications to determine whether documents gave rise to a binding agreement.

Page 1

Section 2. - The Offer
Offer defined
2-003
An offer is an expression of willingness to contract on specified terms made with the intention that it is
to become binding as soon as it is accepted by the person to whom it is addressed. 10 Under the
objective test of agreement, 11 an apparent intention to be bound may suffice, i.e. the alleged offeror
(A) may be bound if his words or conduct 12 are such as to induce a reasonable offeree to believe that
he intends to be bound, even though in fact he has no such intention. This was, for example, held to
be the case where a university had made an offer of a place to an intending student as a result of a
clerical error 13; and where a solicitor, who had been instructed by his client to settle a claim for
$155,000, by mistake offered to settle it for the higher sum of £150,000. 14 Similarly, if A offers to sell
a book to B for £10 and B accepts the offer, A cannot escape liability merely by showing that his
actual intention was to offer the book to B for £20, or that he intended the offer to relate to a book
other than that specified in the offer. 15
State of mind of alleged offeree
2-004
Whether A is actually bound by an acceptance of his apparent offer depends on the state of mind of
the alleged offeree (B); to this extent, the test of agreement is not purely objective. 16 If B actually and
reasonably believes that A has the requisite intention, the objective test is satisfied so that B can hold
A to his apparent offer even though A did not, subjectively, have the requisite intention. 17 However, if
B knows that, in spite of the objective appearance, A does not have the requisite intention, A is not
bound; the objective test does not apply in favour of B as he knows the truth about A’s actual
intention. 18 There are other permutations. If B does not know, but ought to have known that A does
not have the requisite intention, English law gives no clear answer. 19 However, there are suggestions
that B will not be able to hold A to his apparent offer. 20 It is also possible, although highly unlikely,
that A and B, unknown to each other, both have the same requisite intention but a reasonable third
party would not have thought they did, or would have thought that they had the requisite intention in
respect of a different term. There is no authority on such a case, but it is submitted that where A and
B reach agreement on term X but the unexpressed intention of both is that this means Y, the parties
should be held to a valid contract for Y although a third party’s objective interpretation is that the
agreement is for X. 21 Lastly, B may have simply formed no view on the question of A’s intention, so
that B neither believes that A has the requisite intention nor knows that A does not have this intention.
This situation has given rise to a conflict of judicial opinion. One view is that A is not bound: in other
words, the objective test is satisfied only if A’s conduct is such as to induce a reasonable person to
believe that A had the requisite intention and if B actually held that belief. 22 The opposing view is that
A is bound: in other words, the objective test is satisfied if A’s words or conduct would induce a
reasonable person to believe that A had the requisite intention, so long as B does not actually know
that A does not have any such intention. 23 However, it is hard to see why B should be protected in
this situation. Where B has no positive belief in A’s (apparent) intention to be bound, he cannot be
prejudiced by acting in reliance on it. It is therefore submitted that the objective test should not apply
to the last situation. For this purpose, it should make no difference whether B’s state of mind amounts
Page 2
to ignorance of, or merely to indifference to, the truth.
Conduct as offer
2-005
An offer may be addressed either to a specified person or to a specified group of persons or to the
world at large; and it may be made expressly (by words) or by conduct. At common law, a person who
had contracted to sell goods and tendered different goods (or a different quantity) might be
considered to make an offer by conduct to sell the goods which he had tendered. 24 It seems that an
offer to sell can still be made in this way, though by legislation against “inertia selling” the dispatch of
goods “without any prior request” may amount to a gift to the recipient, rather than to an offer to sell.
25
Inactivity as an offer
2-006
A number of cases raise the further question whether the “conduct” from which an offer may be
inferred can take the form of inactivity. The issue in these cases was whether an agreement to submit
a dispute to arbitration could be said to have been “abandoned” by long delay, where, over a long
period of time, neither party had taken any steps in the arbitration proceedings. In cases of “inordinate
and inexcusable delay” of this kind, arbitrators now have a statutory power to dismiss the claim for
want of prosecution 26 and it is also open to the parties expressly to provide for “lapse” of the claim if
steps in the proceedings are not taken within a specified period. 27 Conversely, however, the statutory
power to dismiss the claim for want of prosecution may be excluded by agreement, 28 and where it is
so excluded the question of abandonment can still arise in the present context. Such a question could
also arise in the context of the alleged abandonment of some other type of right or remedy, 29 to which
no similar legislative provision extends. Mere inactivity by one party is unlikely, 30 when standing
alone, to amount to an offer of abandonment, for it is equivocal and generally explicable on other
grounds, such as inertia or forgetfulness, or the tactical consideration that the party alleged to have
made the offer does not wish to reactivate his opponent’s counterclaims. 31 Consequently, it will not
normally suffice to induce a reasonable person in the position of the other party to believe that an
offer is being made 32; and the mere fact that the other party nevertheless had this belief cannot
suffice to turn the former party’s inactivity into such an offer. 33 However, the arbitration cases indicate
that, on the objective test, 34 inactivity may amount to an offer of abandonment when combined with
other circumstances (such as the destruction of relevant files). 35
Offer and invitation to treat
2-007
When parties negotiate with a view to making a contract, many preliminary communications may pass
between them before a definite offer is made. One party may simply ask, or respond to, a request for
information, or he may invite the other to make an offer. For example, in Harvey v Facey 36 the
claimants telegraphed to the defendants, “Will you sell us Bumper Hall Pen? Telegraph lowest cash
price”. The defendants replied, “Lowest cash price for Bumper Hall Pen £900”. The claimants then
telegraphed, “We agree to buy Bumper Hall Pen for £900 asked for by you”. The Judicial Committee
of the Privy Council held that the defendants’ telegram was not an offer but merely a statement as to
the price for which they might be prepared to sell; that the claimants’ second telegram was an offer to
buy but that, as this had never been accepted by the defendants, there was no contract. Similarly, in
Gibson v Manchester City Council 37 it was held that a letter in which a local authority stated (in reply
to an enquiry from the tenant of a council house) that it “may be prepared to sell” the house to him at
a specified price was not an offer to sell the house: its purpose was simply to invite the making of a
“formal application”, amounting to an offer, from the tenant. Moreover, the letter did not contain
sufficient detail to constitute an offer; it made: “no mention at all of the special conditions which were
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undoubtedly in due course going to be included in the formal contract and the conveyance”. 38 On the
same principle, it has been held that a draft document, sent in the course of contractual negotiations
with the clear intention of eliciting further comment from the recipient, was not an offer 39; that, where
a letter sent in the course of negotiations for the settlement of a dispute was “insufficiently certain to
be capable of amounting to an offer …” it was “at best an invitation to treat” 40; and that a telephoned
request for the supply of goods suitable for a prospective customer’s purpose was only a “preliminary
enquiry”, 41 the offer being made by conduct when the supplier subsequently despatched the goods.
The last of these possibilities may be illustrated by Photolibrary Group Ltd v Burda Senator Verlag
GmbH, 42 where the claimants had for some years supplied photographs to D1 and D2 for publication
in their magazines. The course of business was for D3 (acting as agent for D1 and D2) to fax
requests for photographs to the claimants, who would then send transparencies to D3 to be
forwarded to D1 and D2. A substantial number of transparencies having been lost in transmission, the
questions arose whether any contracts had come into existence; and, if so, on what terms. In
answering the former question, in the affirmative, Jack J. said that the situation could be analysed in
two ways. The “most straightforward” analysis was that “the delivery of the transparencies
accompanied by a delivery note is to be treated as an offer which was accepted by the acceptance of
the transparencies and their onward transmission.”. 43 On this view, the faxed requests are no more
than invitations to treat, presumably because of their lack of certainty as to the terms of the contract.
The second, and “equally viable” analysis was that “the faxed requests for transparencies to be
submitted were offers to submit them on the usual terms of the delivery notes, which offers were
accepted by the submission of the transparencies accompanied by the notes”. 44
On this view, the required degree of certainty was supplied by “an established course of dealing on
the terms of the delivery notes”. 45
2-008
A communication by which a party is invited to make an offer is commonly called an invitation to treat.
It is distinguishable from an offer primarily because it is not made with the intention that it is to
become binding as soon as the person to whom it is addressed simply communicates his assent to its
terms. A statement is clearly not an offer if it expressly provides that the person who makes it is not to
be bound merely by the other party’s notification of assent but only when he himself has signed the
document in which the statement is contained. 46
Wording not conclusive
2-009
Apart from cases of the kind just described, the wording of a statement does not conclusively
determine the distinction between an offer and an invitation to treat. Thus a statement may be an
invitation to treat although it contains the word “offer” 47; while a statement may be an offer although it
is expressed as an “acceptance,” 48 or although it requests the person to whom it is addressed to
make an “offer”. 49 The point that use of the word “offer” in a document does not conclusively
determine its legal nature is illustrated by Datec Electronic Holdings Ltd v United Parcels Ltd 50 where
carriers of goods had issued standard terms, clause 3 of which stated that the carriers did not “offer
carriage of goods” except subject to specified restrictions, one of which was that the value of any
package was not to exceed $50,000. After the shippers had indicated their acceptance of these
terms, they “booked” a number of packages; these were then collected from their premises by an
employee of the carriers who was unaware that the value of each package exceeded $50,000. The
House of Lords rejected the argument that there was no contract because the carriers’ “offer” to carry
could not be accepted by tendering packages which were not in conformity with that offer. 51 Both the
Court of Appeal 52 and the House of Lords 53 approved the view at first instance that, the phrase
“offer” from clause 3 had not been used in its technical legal sense. 54 The fact that the packages
were not in conformity with clause 3 did not prevent the conclusion of a contract. 55 In the words of
Lord Mance, “the more natural inference” was that “the whole of clause 3 provides a contractual
regime governing the carriage of non-conforming goods”. 56 One analysis 57 is that the restrictions in
clause 3 could, in spite of the use of the word “offer”, be regarded as part of an invitation to treat,
while the shippers’ tender of non-conforming goods could be regarded as an offer to enter into a
contract for the carriage of those goods which was then accepted by the carriers’ conduct of collecting
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the goods. This interpretation is also supported by other provisions of clause 3: in particular, those
entitling the carrier to “suspend” the carriage of non-confirming goods and making the shippers liable
for charges in respect of such goods. There would, on the other hand, have been no such acceptance
by the carriers’ conduct if, knowing of the non-conformity of the goods, they had refused to collect
them; there would have been “no contract”. 58
Distinction between offer and invitation to treat
2-010
As the discussion in para.2-009 above shows, the distinction between offer and invitation to treat is
often hard to draw, as it depends primarily on the elusive criterion of the intention of the person
making the statement in question. But, in certain stereotyped situations, the distinction is determined,
at least prima facie, by rules of law. Such rules can be displaced by evidence of contrary intention; but
in the absence of such evidence they will determine the distinction between offer and invitation to
treat, and they will do so without reference to the intention of the maker of the statement. This is true,
for example, in the cases of auction sales and shop window displays. These and other illustrations of
the distinction are discussed in paras 2-011—2-024 below.
Display of goods for sale: general rule
2-011
As a general rule, a display of goods at a fixed price in a shop window 59 or on a shelf in a self-service
store 60 is an invitation to treat and not an offer. The display is an invitation to the customer to make
an offer, which the retailer may then accept or reject. There is judicial support for the view that an
indication of the price at which petrol is to be sold at a filling station is likewise only an invitation to
treat, 61 the offer to buy being made by the customer and accepted by the seller’s conduct in putting
the petrol into the tank. 62 But this analysis hardly fits the now more common situation in which the
station operates a self-service system 63; for once the customer has put petrol into his tank, the seller
has no effective choice of refusing to deal with him.
Display of goods for sale: exceptional cases
2-012
The general rule stated in para.2-011 above relating to shop and similar displays is well established;
but it can be excluded by special circumstances: e.g. if the retailer has stated unequivocally that he
will sell to the first customer who tenders the specified price. The distinction between an offer and an
invitation to treat depends, in the last resort, on the intention of the maker of the statement 64; and
where his intention to be bound immediately on acceptance is sufficiently clear a shop window or
shelf display may be an offer. For example, a notice in a shop window stating that “We will beat any
TV price by £20 on the spot” has been described as “a continuing offer”. 65 The customer may,
indeed, still lose his bargain since the offer can be withdrawn at any time before it is accepted 66; but if
it is so withdrawn the person displaying the notice may incur criminal liability under legislation passed
for the protection of consumers. 67 In the case of a self-service shop, acceptance of any offer that
might be made by the terms of the display would normally take place, not when the customer took the
goods off the shelf, but only when he did some less equivocal act, such as presenting them for
payment. 68
Other displays
2-013
The principles stated in paras 2-011 and 2-012 above can also apply to other displays. Thus, where a
menu is displayed outside a restaurant, or handed to a customer, it seems that the proprietor only
Page 5
makes an invitation to treat, 69 the offer coming from the customer. On the other hand, a notice at the
entrance to an automatic car park may be an offer which can be accepted by driving in 70; and a
display of deck-chairs for hire has been held to be an offer. 71 There is no perfectly general answer to
the question whether such displays are offers or invitations to treat; the answer depends in each case
on the intention with which the display was made. 72 In University of Edinburgh v Onifade 73 a notice
displayed by a landowner on its land stated that any persons parking their cars there without permit
would be liable to a “fine” of £30 per day. A motorist who had so parked his car was held liable for the
specified amount as his conduct amounted to an acceptance 74; so that it must have been assumed
that the notice was an offer. However, with respect, it is open to question whether the landowner had
any objective intention to enter into a contract with persons parking without permit. Rather, the
landowner’s intention seems to have been to deter unauthorised parking. The point could be
significant if an action had been brought against the landowner, e.g. in respect of loss of or damage to
the car.
Advertisements: bilateral contracts
2-014
Advertisements intended to lead to the making of bilateral contracts tend to be regarded as invitations
to treat. Thus a newspaper advertisement that goods are for sale is not generally an offer 75; an
advertisement that a scholarship examination will be held is not an offer to a candidate 76; and the
circulation of a price list by a wine merchant has been held only to be an invitation to treat. 77 It has
been said that, if such statements were offers, a merchant could be liable to everyone who purported
to accept his offer even though his stocks were insufficient to meet the requirements of all the
“acceptors”. 78 But this result would not necessarily follow; for it can be construed as an offer that is
“subject to availability”, and so expires as soon as the merchant’s stock is exhausted. There is, again,
no absolute rule determining the character of advertisements of bilateral contracts: they are normally
invitations to treat, but they may be offers if the advertiser’s intention to be bound immediately on
acceptance is sufficiently clear. 79
Advertisements: unilateral contracts
2-015
Two reasons support the position that advertisements intended to lead to the making of bilateral
contracts are commonly regarded as invitations to treat. First, such advertisements often lead to
further bargaining, e.g. where a house is advertised for sale. Secondly, the advertiser may
legitimately wish, before becoming bound, to assure himself that the other party is able (financially or
otherwise) to perform his obligations under any contract which may result. Neither of these reasons
applies in the case of a unilateral contract 80; and advertisements of such contracts are therefore
commonly held to be offers. In the leading case of Carlill v Carbolic Smoke Ball Co Ltd, 81 for
example, the defendants issued an advertisement promising to pay £100 to any person who, in
accordance with certain directions, used a carbolic smoke ball made by them and then caught
influenza. This was held to be an offer, the defendants’ intention to be bound 82 being made
particularly clear by their statement that they had deposited £1,000 with their bankers “shewing our
sincerity in the matter”. A case nearer the borderline was Bowerman v Association of British Travel
Agents Ltd 83 where a package holiday had been booked with a tour operator who was a member of
the defendant association (ABTA). A notice displayed on the tour operator’s premises stated, inter
alia, that in the event of the financial failure of an ABTA member before commencement of the
holiday, “ABTA arranges for you to be reimbursed the money you have paid for your holiday”. A
majority of the Court of Appeal held that these words constituted an offer since, on the objective test,
84
they would reasonably be regarded as such by a member of the public booking a holiday with an
ABTA member.
Rewards
2-016
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Advertisements of rewards for the return of lost or stolen property, or for information leading to the
capture or conviction of a criminal, are commonly regarded as offers. 85 Some difficulty arises if, in
cases of this kind, the information is given by several persons in succession. In one case it was held
that the first person to give the information was alone entitled to the reward 86 as the offeror did not
intend to pay more than once. This is no doubt the most likely construction; but an advertisement
could be so worded as to impose a more extensive liability. The defendants’ liability in Carlill’s 87 case
would not have been limited to 10 persons merely because the advertisement stated that they had
deposited only £1,000.
Other liability in connection with advertisements
2-017
A statement about goods made by the manufacturer in response to a direct enquiry from the ultimate
purchaser has sometimes been held to amount to a collateral contract 88; but not a general
advertisement by the manufacturer. 89 However, a person who issues an advertisement may be under
some form of liability even though the advertisement does not amount to an offer. For example, a
person who indicates by such an advertisement that he intends to sell goods when he in fact has no
such intention might be liable in deceit to someone who suffered loss by acting in reliance on the
statement; and he might incur criminal liability under legislation passed for the protection of
consumers, 90 or even of traders who are misled by statements made by their suppliers in the course
of marketing. 91 He may also be liable for false statements in advertisements relating to the
characteristics of the subject-matter, or to the terms on which it is to be supplied. 92 Two further
possibilities arise where the advertisement leads to the making of a contract for the sale or supply of
goods to a consumer. First, the advertisement may amount to a “consumer guarantee” and so take
effect as a “contractual obligation” owed by the guarantor by virtue of the Sale and Supply of Goods
to Consumers Regulations 2002. 93 The Consumer Rights Act 2015 revokes the 2002 Regulations 94;
but stipulates that when a trader supplies goods to a consumer 95:
“the guarantee takes effect, at the time the goods are delivered, as a contractual
obligation owed by the guarantor under the conditions set out in the guarantee statement
and in any associated advertising”(italics added). 96
Liability in connection with advertisements can also arise under a “commercial guarantee” within the
Consumer Protection (Information, Cancellation and Additional Charges) Regulations 2013. 97
Regulation 5 defines such a guarantee as:
“an undertaking given by the trader or producer to the consumer … to reimburse the price
paid or to replace, repair or service goods … if they do not meet the specifications or any
other requirements … set out in the guarantee statement or in the relevant advertising
available at the time of the contract or before it is entered into”(italics added).
When such an undertaking is given by the “trader” to the “consumer”, then the undertaking (i.e. the
guarantee) will take effect as a term 98 in the “sales contract”, defined in reg.5 as a contract between
these parties. But this reasoning cannot apply where the undertaking is given by the producer in
advertising where there is no “sales contract” between the producer and the consumer. While reg.15
of the 2002 Regulations and s.30(3) of the 2015 Act provide that a “consumer guarantee” takes effect
as a “contractual obligation” owed by the guarantor, the 2013 Regulations do not attempt to provide
any such (or any other) legal basis for the producer’s liability to the consumer in respect of statements
made in advertising by or on behalf of the “producer” when that person is not a party to the contract of
sale. 99 Secondly, public statements on the specific characteristics of the goods made “in advertising”
may be a “relevant circumstance” for the purpose of determining whether the goods are of
satisfactory quality and so whether the seller is in breach of the statutorily implied term that the goods
are of such quality. 100 The Consumer Rights Act 2015 also replaces this regime, 101 and stipulates
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that where goods are supplied by a trader to a consumer, 102 “any public statement made in
advertising” will be a relevant circumstance for determining whether the goods are of satisfactory
quality 103; the position is the same where “digital content” is supplied by a trader to a consumer. 104
Timetables and passenger tickets
2-018
There is a remarkable diversity of views on the question just when a contract of carriage is concluded
between a carrier and an intending passenger. It has been said that railway carriers made offers by
issuing advertisements stating the times and conditions under which trains would run 105; and that a
road carrier made offers to intending passengers by the act of running buses. 106 Such offers could be
accepted by an indication on the part of the passenger that he wished to travel: e.g. by applying for a
ticket or getting on the bus. Another view is that the carrier makes the offer at a later stage, by issuing
the ticket; and that this offer is accepted by the passenger’s retention of the ticket without objection,
107
or even later, when he claims the accommodation offered in the ticket. 108 On this view, the
passenger makes no more than an invitation to treat when he asks for a ticket to be issued to him;
and the offer contained in the ticket may be made to, and accepted by, the passenger even though
the fare is paid by a third party (e.g. the passenger’s employer). 109 Where the booking is made in
advance, e.g. through a travel agent, yet a third view has been expressed: that the contract is
concluded when the carrier indicates, even before issuing the ticket, that he “accepts” the booking, 110
or when he issues the ticket 111: on this view, it is the passenger who makes the offer. The authorities
yield no single rule; one can only say that the exact time of contracting depends in each case on the
wording of the relevant document and on the circumstances in which it was issued.
Auctions
2-019
At an auction sale the general rule is that the auctioneer’s request for bids is not an offer that can be
accepted by the highest bidder. 112 Instead, it is a bid that constitutes an offer, which the auctioneer
may, but generally 113 is not bound to, accept. Accordingly s.57(2) of the Sale of Goods Act 1979
provides that a sale by auction is completed 114 when the auctioneer announces its completion by the
fall of the hammer, or in other customary manner; and that until then the bidder may retract his bid.
Similarly, the auctioneer can generally 115 withdraw the lot before he accepts the bid. It seems,
moreover, that the offer made by each bidder lapses 116 as soon as a higher bid is made. Thus, if a
higher bid is made and then withdrawn, the auctioneer can no longer accept the next highest. The
Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 defines
“public auction” as “a method of sale where goods or services are offered by a trader to consumers
through a transparent … bidding procedure …”. 117 The word “offered” is here used in what is
presumably regarded as a popular sense, rather than in the legal sense stated. 118 The definition
concludes with the words “(c) the successful bidder is bound to purchase the goods or services”. The
word “successful” shows that the mere making of a bid does not conclude the contract since, if a
higher bid were then made, the former bid would not be “successful”. However, it is unclear whether
the contract is concluded by the highest bid being made or whether some further act of the auctioneer
is required, as is the case under the Sale of Goods Act 1979. 119 Section 30(4)(c) of the Consumer
Rights Act 2015 refers to the situation “where the goods are offered within the United Kingdom” 120;
and it seems that “offered” is here again used in its popular, rather than its legal, sense.
Auctions with and without reserve
2-020
When property is put up for auction subject to a reserve price, there is no contract if the auctioneer by
mistake purports to accept a bid lower than the reserve price. 121 Where the auction is without
reserve, there is no contract of sale between the highest bidder and the owner of the property if the
auctioneer refuses to accept the highest bid. But it has been held that the auctioneer is liable on a
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separate or collateral contract between him and the highest bidder that the sale will be without
reserve. 122 Although a mere advertisement of an auction is not an offer to hold it, 123 the actual
request for bids at the auction itself seems to be an offer by the auctioneer that he will (on the owner’s
behalf) accept the highest bid; and this offer is accepted by bidding. The question whether there is
any consideration for the auctioneer’s promise to the highest bidder is discussed in Ch.4. 124
Provision for resale in case of dispute
2-021
An auction sale may be conducted subject to the express stipulation that, “if any dispute 125 arises
between two or more bidders, the lot in dispute shall be immediately put up again and resold”. If the
dispute arises after the lot has been knocked down to one bidder, it seems that there is a contract 126
with him, subject to the condition subsequent that the sale may be annulled if a dispute immediately
breaks out between two or more bidders.
Tenders
2-022
At common law, a statement that goods are to be sold by tender is not normally an offer to sell to the
person making the highest tender 127; it merely indicates a readiness to receive offers. Similarly, an
invitation for tenders for the supply of goods or for the execution of works is, generally, not an offer, 128
even though the preparation of the tender may involve very considerable expense. The person who
submits the tender makes the offer and there is no contract until the person asking for the tenders
accepts one of them. These rules may, however, be excluded by evidence of contrary intention: e.g.
where the person who invites the tenders states in the invitation that he binds himself to accept the
highest offer to buy 129 (or, as the case may be, the lowest offer to sell or to provide the specified
services). 130 In such cases, the invitation for tenders may be regarded either as itself an offer or as an
invitation to submit offers coupled with an undertaking to accept the highest (or, as the case may be,
the lowest) offer; and the contract is concluded as soon as the highest offer to buy (or lowest offer to
sell, etc.) is communicated. 131 There is also an intermediate possibility. This is illustrated by Blackpool
and Fylde Aero Club Ltd v Blackpool BC 132 in which an invitation to submit tenders was sent by a
local authority to seven selected parties; the invitation stated that tenders submitted after a specified
deadline would not be considered. It was held that the authority was contractually bound to consider
(though not to accept) a tender submitted before the deadline. The unilateral offer to consider
conforming tenders was accepted when a conforming tender was submitted.
Public procurement
2-023
The common law position stated in para.2-022 above is modified by legislation, for example, by
Regulations 133 which give effect to European Community Directives, the object of which is to prevent
discrimination in the award of major contracts for public works, supplies and services in one member
state against nationals of another member state. These Regulations restrict the freedom of the body
seeking tenders to decide which tender it will accept and they provide a remedy in damages for a
person who has made a tender and is prejudiced by breach of the Regulations. A fuller account of the
topic is given in Ch.11. 134
Share offers
2-024
A company which, in commercial language, 135 makes an “offer to the public” of new shares does not
in law “offer” to allot the shares. It invites members of the public to apply for them, reserving the right
Page 9
to decide how many, if any, to allot to any particular applicant. 136 On the other hand a letter informing
an existing shareholder of his entitlement under a “rights” issue of new shares is regarded as an offer.
137
This type of communication will set out the precise rights of the persons to whom it is addressed,
so that it may be inferred that the company intends to be bound in relation to any shareholder who
takes up his rights.
Place of making an offer
2-025
It may be important to know exactly where an offer has been made: for example, in order to
determine whether a contract can be sued on in a particular court. 138 For this purpose it has been
held that an offer sent through the post had been made where it was posted. 139 Since requirements
of this kind are generally imposed by legislation, it is unsafe to lay down any general rule. The
question where an offer was made must, in the last resort, turn on the construction of the relevant
legislation.
10. Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349 at
[75]; e.g. Storer v Manchester City Council [1974] 1 W.L.R. 1403; First Energy (UK) Ltd v
Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep. 195, 201; Glencore Energy UK Ltd v
Cirrus Oil Services Ltd [2014] EWHC 87 (Comm), [2014] 1 All E.R. (Comm) 513, where a
communication was held to be an offer as it was “intended to be capable of acceptance with a
binding contract being thereby concluded” ([at 59]; cf. at [67]); contrast André & Cie v Cook
Industries Inc [1987] 2 Lloyd’s Rep. 463; Schuldenfrei v Hilton (Inspector of Taxes) [1998]
S.T.C. 404 (statement that something had been done, not an offer). For other illustrations of
statements held not to amount to offers, see Destiny 1 Ltd v Lloyd’s TSB Bank Plc [2010]
EWHC 1233 (proposal forming part of a negotiating “package”); Global 5000 Ltd v Wadhawan
[2011] EWHC 853 (Comm), [2011] 2 All E.R. (Comm) at [55] (applying the objective test: at
[46]); [2012] EWCA Civ 13, [2012] 2 All E.R. (Comm) 18 at [65], appeal dismissed on the
different ground that there was “no serious issue to be tried as to the existence of [the alleged]
contract …”.
11. Above, para.2-002; Ignazio Messina & Co v Polskie Linie Oceaniczne [1995] 2 Lloyd’s Rep.
566, 571; Bowerman v ABTA Ltd [1995] N.L.J. 1815; Covington Marine Corporation v Xiamen
Shipbuilding Industry Co Ltd [2005] EWHC 2912 (Comm), [2006] 1 Lloyd’s Rep. 748 at [43].
12. For offers made by conduct, see below, para.2-005; The Aramis [1989] 1 Lloyd’s Rep. 213
(where the objective test was not satisfied); G. Percy Trentham Ltd v Archital Luxfer Ltd [1993]
1 Lloyd’s Rep. 25, 27.
13. Moran v University College Salford (No.2), The Times, November 23, 1993.
14. O.T. Africa Line Ltd v Vickers Plc [1996] 1 Lloyd’s Rep. 700.
15. cf. Centrovincial Estates Plc v Merchant Investors Assurance Co Ltd [1983] Com.L.R. 158; cited
with approval in Whittaker v Campbell [1984] Q.B. 318, 327, in Food Corp of India v Antclizo
Shipping Corp (The Antclizo) [1987] 2 Lloyd’s Rep. 130, 146, affirmed [1988] 1 W.L.R. 603 and
in O.T. Africa Line Ltd v Vickers Plc [1996] 1 Lloyd’s Rep. 700, 702.
16. Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1
A.C. 854, 924.
17. André & Cie SA v Marine Transocean Ltd (The Splendid Sun) [1981] 1 Q.B. 694, as explained
in The Hannah Blumenthal, above; Challoner v Bower (1984) 269 E.G. 725; Tankrederei
Ahrenkeil GmbH v Frahuil SA (The Multibank Holsatia) 2 Lloyd’s Rep. 486, 493 (“subjective
understanding”).
Page 10
18. Ignazio Messina & Co v Polskie Linie Oceaniczne [1995] 2 Lloyd’s Rep. 566, 571; O.T. Africa
Line Ltd v Vickers Plc [1996] 1 Lloyd’s Rep. 700, 703; Covington Marine Corporation v Xiamen
Shipbuilding Industry Co Ltd [2005] EWHC 2912 (Comm), [2006] 1 Lloyd’s Rep. 748 at [45]
(“Subject only to actual knowledge on the part of the buyer [the offeree] that no offer was
intended”); HSBC Bank Plc v 5th Avenue Partners Ltd [2007] EWHC 2819 (Comm) at [117]
(objective principle “not engaged” where absence of any intention to vary an existing contract
was known to both parties, affirmed on other issues [2009] EWCA Civ 296); and see the
authorities cited in n.23, below. The passage of the text ending with n.18 is evidently that in the
30th edition of this book to which approving reference is made in Attrill v Dresdner Kleinwort Ltd
[2012] EWHC 1189 (QB) at [130], [154], affirmed: [2013] EWCA Civ 394, [86]. See further on
the mistake of term known to the other party at paras 3-018, 3-022, 3-035, and rectification for
unilateral mistake as to terms at paras 3-069—3-076.
19. In Merrill Lynch International v Amorim Partners Ltd [2014] EWHC 74 (QB) at [54] Hamblen J.
said that a mistake will only give rise to relief if it was known to the other party, but the point
does not appear to have been argued and the mistake was in any event not as to the terms of
the contract, see below, para.3-023.
20. See Centrovincial Estates Plc v Merchant Investors Assurance Co Ltd [1983] Com. L.R. 158;
O.T. Africa Line Ltd v Vickers Plc [1996] 1 Lloyd’s Rep. 700 at 703, where Mance J. said that
the objective principle would be displaced if a party knew or ought to have known of the
mistake.
22. The Hannah Blumenthal, above, as interpreted in Allied Marine Transport v Vale de Rio Doce
Navegaceo SA (The Leonidas D.) [1985] 1 W.L.R. 925; Beatson (1986) 102 L.Q.R. 1; Atiyah
(1986) 102 L.Q.R. 363; Gebr. van Weelde Scheepvaart Kantoor BV v Homeric Marine Services
(The Agrabele) [1987] 2 Lloyd’s Rep. 223, especially at 235; cf. Cie Française d’Importation,
etc., SA v Deutsche Continental Handelsgesellschaft [1985] 2 Lloyd’s Rep. 592, 597; Amherst v
James Walker Goldsmith and Silversmith Ltd [1983] Ch. 305. The view that, in the third of the
situations described in the text above, there is no contract is referred to with approval by
Andrew Smith J. in Maple Leaf Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm),
[2009] 1 Lloyd’s Rep. 475 at [228], affirmed [2009] EWCA Civ 1134, [2010] 2 All E.R. (Comm)
788 where Longmore L.J. at [22] paid “tribute to the careful and thorough judgment of Andrew
Smith J”.
23. Excomm Ltd v Guan Guan Shipping (Pte) Ltd (The Golden Bear) [1987] 1 Lloyd’s Rep. 330,
341 (doubted on another point in para.2-069, n.351 below, and see para.2-006, n.32); this view
was approved in The Antclizo [1987] 2 Lloyd’s Rep. 130, 143 but doubted at 147 (affirmed
[1988] 1 W.L.R. 603 without reference to the point); and semble in Floating Dock Ltd v Hong
Kong and Shanghai Bank Ltd [1986] 1 Lloyd’s Rep. 65, 77; The Multibank Holsatia [1988] 2
Lloyd’s Rep. 486, 492 (“at least did not conflict with [B’s] subjective understanding”);
Thai-Europe Tapioca Service Ltd v Seine Navigation Inc (The Maritime Winner) [1989] 2 Lloyd’s
Rep. 506, 515 (using similar language). A dictum in Furness Withy (Australia) Pty Ltd v Metal
Distribution (UK) Ltd (The Amazonia) [1990] 1 Lloyd’s Rep. 236, 242 goes even further in
suggesting that there may be a contract even though “ neither [party] intended to make a
contract”.
24. Hart v Mills (1846) 15 L.J. Ex. 200; cf. Steven v Bromley & Son [1919] 2 K.B. 722; Greenmast
Shipping Co SA v Jean Lion et Cie. SA (The Saronikos) [1986] 2 Lloyd’s Rep. 277; Confetti
Records v Warner Music UK Ltd [2003] EWHC 1274 (Ch), [2003] E.M.L.R. 35.
25. Consumer Protection (Distance Selling) Regulations 2000 (SI 2000/2334) (implementing
Directive 97/7/EC) regs 22 (amending Unsolicited Goods and Services Act 1971) and 24 (as
amended by Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277), as
amended by Consumer Protection (Amendment) Regulations 2014 (SI 2014/870) regs 2–4),
30(1) and Sch.2, para.96) see also reg.3(4)(d) and Sch.1 para.29 of the 2008 Regulations,
above. For a further amendment of the 2008 Regulations (SI 2008/1277), see Consumer
Protection (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134)
reg.39. On these Regulations see generally below, Vol.II, paras 38-153—38-191. For further
Page 11
amendments of the 1971 Act, see Regulatory Reform (Unsolicited Goods and Services Act
1971) (Directory Entries and Demand for Payment) Order 2005 (SI 2005/55) and Unsolicited
Goods and Services Act 1971 (Electronic Commerce) (Amendment) Regulations 2005 (SI
2005/148). Normally, these provisions against “inertia selling” would not apply where goods
were dispatched in response to the buyer’s order, even if they were not in accordance with the
order; but they might apply where the qualitative or quantitative difference between what was
ordered and what was sent was extreme.
26. Arbitration Act 1996 s.41(3), replacing Arbitration Act 1950 s.13A. Under s.13A, it had been
held that the court could take into account delay occurring before the section came into force:
Yamashita-Shinnihon S.S. Co Ltd v L’Office Cherifien des Phosphate (The Boucraa) [1994] 1
A.C. 486, and that the court would (mutatis mutandis) apply the same principles to the power to
dismiss arbitration proceedings as those which govern the dismissal of an action for want of
prosecution: James Lazenby & Co v McNicholas Construction Co Ltd [1995] 1 W.L.R. 615.
27. See the GAFTA arbitration rules referred to in Cargill SpA v Kadinopoulos SA [1992] 1 Lloyd’s
Rep. 1.
28. Arbitration Act 1996 s.41(2) so provides.
29. cf. Amherst Ltd v James Walker Goldsmith & Silversmith Ltd [1983] Ch. 305; Collin v Duke of
Westminster [1985] Q.B. 581; M.S.C. Mediterranean Shipping SA v B.R.E. Metro Ltd [1985] 2
Lloyd’s Rep. 239; Fenton Ins. Ltd v Gothaer Versicherungsbank VVaG [1991] 1 Lloyd’s Rep.
172, 180; Indescon Ltd v Ogden [2004] EWHC 2326 (TCC), [2005] 1 Lloyd’s Rep. 31 (right to
appoint arbitrator not lost by lapse of time); Blindley Health Investments Ltd v Bass [2014]
EWHC 1366 (Ch) at [117]–[125] (rejecting the argument that there had been an “abandonment”
of a right of preemption).
30. Unisys International Services Ltd v Eastern Counties Newspaper Group Ltd [1991] 1 Lloyd’s
Rep. 538, 553 suggests that the possibility cannot be wholly ruled out; cf. The Boucraa [1994] 1
A.C. 486, 521 (describing the “abandonment” approach as “largely useless in practice”).
31. Unisys case, above, n.30 at 553.
32. The Leonidas D. [1985] 1 W.L.R. 925; Cie Française d’Importation, etc., SA v Deutsche Conti
Handelsgesellschaft [1985] 2 Lloyd’s Rep. 592; The Antclizo [1988] 1 W.L.R. 603; The Agrabele
[1987] 2 Lloyd’s Rep. 223; The Maritime Winner [1989] 2 Lloyd’s Rep. 506; contra, The Golden
Bear [1987] 1 Lloyd’s Rep. 330 (sed quaere: the decision was in part based on the decision at
first instance in The Agrabele [1985] 2 Lloyd’s Rep. 496, but this was reversed on appeal:
[1987] 2 Lloyd’s Rep. 223); Ulysses Compania Naviera SA v Huntington Petroleum Services
(The Ermoupolis) [1990] 1 Lloyd’s Rep. 161, 166 see also below, para.2-069, n.351; Unisys
case, above, n.30.
33. The Antclizo, above; Davenport (1988) 104 L.Q.R. 493.
34. Above, paras 2-003 and 2-004.
35.
The Splendid Sun [1981] Q.B. 694, as explained in The Hannah Blumenthal [1983] 1 A.C.
854 (though this explanation was doubted in Cie Française d’Importation, etc., SA v Deutsche
Conti Handelsgesellschaft [1985] 2 Lloyd’s Rep. 592, 599); Tracomin SA v Anton C. Nielsen
[1984] 2 Lloyd’s Rep. 195 (as to which see below, para.2-074, n.389); The Multibank Holsatia
[1988] 2 Lloyd’s Rep. 486; for the question whether such an offer can be accepted by inactivity,
see below, para.2-068. In Trunk Flooring Ltd v HSBC Asset Finance (UK) Ltd, Costi Righi SpA
[2015] NICA 68, the Court of Appeal held that the parties had not abandoned the contract, as
there was no evidence by way of conduct or correspondence, or of inactivity, to support such a
finding; both parties were incontrovertibly actively engaged in the arbitration process until an
impasse was created by the costs issue; and the respondent who contributed to the situation
whereby the costs of the reference were increased, could not benefit from this action. Although
the reference to arbitration had been terminated this was distinct from the underlying arbitration
agreement.
Page 12
36. [1893] A.C. 552. See also Clifton v Palumbo [1944] 2 All E.R. 497; Scancarriers A/S v Aotearoa
International Ltd (The Barranduna) [1985] 2 Lloyd’s Rep. 419 (quotation of freight rates not an
offer). But see Philip & Co v Knoblauch, 1907 S.C. 994 (Harvey v Facey distinguished).
37. [1979] 1 W.L.R. 294; cf. Michael Gerson (Leasing) Ltd v Wilkinson [2000] Q.B. 514 at 540 (“I
am willing to make an outright sale [of specified machinery] for £319,000 …”) not an offer and,
even if it was, it had not been accepted: below, para.2-026.
38. Such as “a restrictive covenant that the house shall be used as a private dwelling house only,
that there shall be no advertising, that the purchaser shall not obstruct accesses, and so on”.
The quote is from Geoffrey-Lane L.J. dissenting in the Court of Appeal, [1978] 1 W.L.R. 520 at
530. It was approved by Lord Edmund-Davies in the House of Lords, [1979] 1 W.L.R. 294 at
302; Lord Diplock makes the same point at 299.
39. McNicolas Construction Holdings v Endemol UK Plc [2003] EWHC 2472, [2003] E.G.C.S. 136.
40. Cooper v National Westminster Bank Plc [2009] EWHC 3035 (QB), [2010] 1 Lloyd’s Rep. 490 at
[56].
41. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 Q.B. 433, 436.
42. [2008] EWHC 1343 (QB), [2008] 2 All E.R. (Comm) 811.
43. At [63].
44. At [64].
45. At [64].
46. Financings Ltd v Stimson [1962] 1 W.L.R. 1184.
47. Spencer v Harding (1870) L.R. 5 C.P. 561; Clifton v Palumbo, above, para.2-007, n.36; iSoft
Group Plc v Misys Holdings Ltd [2003] EWCA Civ 229, [2003] All E.R. (D) 438 (Feb).
48. Bigg v Boyd Gibbins Ltd [1971] 1 W.L.R. 913, (1987) 87 L.Q.R. 307.
49. Harvela Investments Ltd v Royal Trust Co of Canada (C.I.) Ltd [1986] A.C. 207.
50. [2007] UKHL 23, [2007] 1 W.L.R. 1325.
52. [2005] EWCA Civ 1418, [2006] 1 Lloyd’s Rep. 279 at [15].
53. [2007] UKHL 23, [2007] 1 W.L.R. 1325 at [24].
54. [2005] EWHC 239, [2005] 1 Lloyd’s Rep. 470 at [118].
55. [2007] UKHL 23 at [23].
56. [2007] UKHL 23 at [25]; cf. [2005] EWCA Civ 1481, [2006] 1 Lloyd’s Rep. 279 at [16].
57. [2007] UKHL 23 at [23].
58. [2007] UKHL 23 at [9].
59. Timothy v Simpson (1834) 6 C. & P. 499, 500; Fisher v Bell [1961] 1 Q.B. 394 (actual decision
reversed by Restriction of Offensive Weapons Act 1961 s.1; contrast Criminal Justice Act 1988
s.14A(1), as inserted by Offensive Weapons Act 1996 s.6: this refers only to selling). Dicta in
Wiles v Maddison [1943] 1 All E.R. 315, 317 may perhaps suggest that a shop window display
Page 13
is an offer. See also Winfield (1939) 55 L.Q.R. 499, 516–518.
60. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 Q.B.
410; cf. Lacis v Cashmarts Ltd [1969] 2 Q.B. 400; Davies v Leighton [1978] Crim. L.R. 575. For
the contrary view, see Ellison Kahn (1955) 72 S.A.L.J. 246, 250–253; Lasky v Economic
Grocery Stores, 319 Mass. 224; 65 N.E. 2d 305 (1946).
61. Esso Petroleum Ltd v Commissioners of Customs & Excise [1976] 1 W.L.R. 1, 5, 6, 11;
Richardson v Worrall [1985] S.T.C. 693, 717.
62. Re Charge Card Services [1989] Ch. 417, 512; for acceptance by conduct, see below,
para.2-029.
63. cf. below, para.2-013 at n.70.
64. Above, para.2-008.
65. R. v Warwickshire CC, Ex p. Johnson [1993] A.C. 583, 588.
67. Under the Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277)
reg.3(4)(d) and Sch.1 para.6, a trader (as defined in reg.2, as amended by reg.2 the Consumer
Protection (Amendment) Regulations 2014 (SI 2014/870)) commits an offence if he “makes an
invitation to purchase products at a specified price” and then refuses to show the advertised
item to consumers or refuses to take orders for it, though only if he does so “with the intention
of promoting a different product (bait and switch)”. A misleading price indication could also
conceivably amount to deceit. And see below, para.2-017.
68. See Lasky v Economic Grocery Stores, above, n.60. An alternative possibility is that the
acceptance may take place before such presentation of the goods but be subject until then to
the customer’s power to cancel: see Gillespie v Great Atlantic & Pacific Stores, 187 S.E. 3d 441
(1972); Sheeskin v Giant Food Inc, 318 A 2d 874 (1974). cf. R. v Morris [1984] A.C. 320 where
taking goods off the shelf of a self-service store and changing the price labels was held to be an
“appropriation” within Theft Act 1968 s.3(1); but it does not follow that at this stage there would
for the purpose of the law of contract be an acceptance even if the shelf-display amounted to an
offer: see R. v Morris [1984] A.C. 320, 334.
69. cf. Guildford v Lockyer [1975] Crim. L.R. 235.
70. Thornton v Shoe Lane Parking Ltd [1971] 2 Q.B. 163, 169.
71. Chapelton v Barry UDC [1940] 1 K.B. 532.
72. cf. the cases discussed below, para.2-018.
73. 2005 S.L.T. (Sh Ct) 63.
74. See below, paras 2-026, 2-029.
75. Partridge v Crittenden [1968] 1 W.L.R. 1204; contrast Lefkowitz v Great Minneapolis Surplus
Stores, 86 N.W. 2d. 689 (1957).
76. Rooke v Dawson [1895] 1 Ch. 480.
77. Grainger & Son v Gough [1896] A.C. 325.
78. Grainger & Son v Gough [1896] A.C. 325 at 334.
79. cf. the cases discussed below, para.2-018.

Page 14
80. For the distinction between unilateral and bilateral contracts, see below, para.2-082.
81. [1893] 1 Q.B. 256.
82. Contrast Lambert v Lewis [1982] A.C. 225, 262, per Stephenson L.J., affirmed without
reference to the point [1982] A.C. 271, below, para.2-173.
83. [1995] N.L.J. 1815.
84. Above, paras 2-002 and 2-003.
85. e.g. Gibbons v Proctor (1891) 64 L.T. 594; Williams v Carwardine (1833) 5 C. & P. 566; 4 B. &
Ad. 621.
86. Lancaster v Walsh (1838) 4 M. & W. 16. Where two persons together supply the information,
they may share a single reward: Lockhart v Barnard (1845) 14 M. & W. 674.
88. Shanklin Pier LD. v Detel Products LD [1951] 2 K.B. 854, [1951] 2 All E.R. 471; Wells
(Merstham) Ltd v Buckland Sand and Silica Ltd [1965] 2 Q.B. 170.
89. Lambert v Lewis, also known as: Lexmead (Basingstoke) Ltd v Lewis [1982] A.C. 225, [1981] 2
W.L.R. 713 at 262: “the difficulty is to show that what the manufacturers stated in the literature
advertising and accompanying their products as to their safety and suitability was intended to
be a contractual warranty or binding promise. It is one thing to express or imply it in a contract
of sale, another to treat it as expressed or implied as a contract, or a term of a contract,
collateral to a contract of sale.”
90. e.g. under Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277), as
amended by the Consumer Protection (Amendment) Regulations 2014 (SI 2014/870) regs 2–4,
reg.3(4)(d) and Sch.1 para.6, above, para.2-012 n.67. See also Consumer Credit Act 1974
s.45.
91. Business Protection from Misleading Marketing Regulations 2008 (SI 2008/1276).
92. Below, Ch.7.
93. SI 2002/3045 reg.15 (as amended by Consumer Protection from Unfair Trading Regulations
2008 (SI 2008/1277) reg.30(1) and Sch.2 para.97); for definition of “consumer” and “consumer
guarantee”, see reg.2.
94. See s.60 and Sch.1 para.53 of the Consumer Rights Act 2015. The Act will apply to contracts
made on or after October 1, 2015.
95. See s.3(1) of the Consumer Rights Act 2015.
96. See s.30(3) of the Consumer Rights Act 2015. And see below, para.2-176.
97. SI 2013/3134.
98. regs 9(3), 10(5) and 13(6) of SI 2013/134.
99. For such liability under the 2013 Regulations, see para.2-176.
100. Sale of Goods Act 1979 s.14(2D), as inserted by SI 2002/3045 reg.3. See also Supply of Goods
and Services Act 1982 s.11D(3A) and Supply of Goods (Implied Terms) Act 1973 s.10(2D), as
inserted by regs 8 and 13 of SI 2002/3045.
101. With respect to contracts made on or after October 1, 2015. The Sale of Goods Act 1979
Page 15
s.14(2D) is repealed by s.60 and Sch.1 para.13(2) of the Consumer Rights Act 2015; the
Supply of Goods (Implied Terms) Act 1973 s.10(2D) is omitted by virtue of s.60 and Sch.1
paras 3(1) and (2) of the 2015 Act; and the Supply of Goods and Services Act 1982 s.11D(3A)
is omitted by virtue of s.60 and Sch.1 para.46 of the 2015 Act. See further below, Vol.II, paras
38-436 et seq.
102. Consumer Rights Act 2015 s.3(1).
103. Consumer Rights Act 2015 ss.9(1), (2), (5) and (6).
104. Consumer Rights Act 2015 ss.33(1), 34(6).
105. Denton v G.N. Ry (1856) 5 E. & B. 860; Thompson v L.M.S. Ry [1930] 1 K.B. 41, 47; perhaps
because such companies could not refuse to carry? See now Railways Act 1993 s.123.
106. Wilkie v L.P.T.B. [1947] 1 All E.R. 258, 259.
107. Cockerton v Naviera Aznar SA [1960] 2 Lloyd’s Rep. 450; the acceptance in such cases would
be by conduct rather than by “silence”: cf. below, para.2-074.
108. MacRobertson-Miller Airline Services v Commissioner of State Taxation [1975] A.L.R. 131; the
principle resembles that stated in Heskell v Continental Express Ltd [1950] 1 All E.R. 1033,
1037 in relation to the time of formation of a contract for the carriage of goods by sea; Carver
on Bills of Lading, 3rd edn (2011), para.3-001 n.7.
109. Hobbs v L. & S.W. Ry (1875) L.R. 10 Q.B. 111, 119, as explained in the MacRobertson-Miller
case, above, n.108, at 147; consideration for the promises of both parties would be provided on
the principle of Gore v Van der Lann [1967] 2 Q.B. 31, below, para.4-202.
110. Hollingworth v Southern Ferries Ltd (The Eagle) [1977] 2 Lloyd’s Rep. 70; Daly v Gen. Steam
Navigation Co Ltd (The Dragon) [1980] 2 Lloyd’s Rep. 415; affirming [1979] 1 Lloyd’s Rep. 257;
Oceanic Sun Line Special Shipping Co v Fay (1988) 165 C.L.R. 97; cf. (in cases of carriage of
goods by sea) Gulf Steel Co Ltd v Al Khalifa Shipping Co (The Anwar al Sabar) [1980] 2 Lloyd’s
Rep. 261, 263. See also British Airways Board v Taylor [1976] 1 W.L.R. 13.
111. Dillon v Baltic Shipping Co (The Mikhail Lermontov) [1991] 2 Lloyd’s Rep. 155, 159; reversed
on other grounds (1993) 176 C.L.R. 344.
112. Payne v Cave (1789) 3 T.R. 148; British Car Auctions v Wright [1972] 1 W.L.R. 1519, (1973) 89
L.Q.R. 7.
113. For the position where the auction is “without reserve”, see below, para.2-020.
114. i.e. concluded: Coys of Kensington Automobiles Ltd v Pugliese [2011] EWHC 655 (QB), [2011]
2 All E.R. (Comm) 664 at [15] (where no reference was made to s.57(2)).
115. Subject to the qualification stated in n.113 above.
116. Below, para.2-101.
117. SI 2013/3134 reg.5.
118. cf. also para.2-024 n.135.
119. s.57(2). No attempt is made in SI 2013/3134 to resolve the possible conflict between the
definition “public auction” in reg.5 and s.57(2) of the 1979 Act (there is no reference to this Act
in the List of Consequential Amendments in Sch.4 to the 2013 Regulations; neither is there
reference to s.57 of the 1979 Act in the list of amendments detailed in Sch.1 of the Consumer
Rights Act 2015).
Page 16
120. Consumer Rights Act 2015 s.31(4)(c).
121. McManus v Fortescue [1907] 2 K.B. 1; on a sale of land, it must be expressly stated whether
the sale is with reserve or not: Sale of Land by Auction Act 1867 s.5.
122. Warlow v Harrison (1859) 1 E. & E. 309; cf. Johnston v Boyes [1899] 2 Ch. 73, 77; Barry v
Davies [2000] 1 W.L.R. 1962, 1967, citing a previous edition of this book with approval. Contra,
Fenwick v Macdonald, Fraser & Co Ltd (1904) 6 F. (Ct. of Sess.) 850; Slade (1952) 68 L.Q.R.
238; Gower, (1952) 68 L.Q.R. 457; Slade (1953) 69 L.Q.R. 21. Under the American Uniform
Commercial Code (hereinafter referred to as UCC) the goods may not be withdrawn once they
have been put up, if the auction is without reserve: s.2–328(3). This position is restated, though
in different terminology, in s.2–328(3) of the American Law Institute’s proposed revisions of
art.2 of the UCC (2003; at present it seems to be unlikely that this proposal will be
implemented).
123. Harris v Nickerson (1873) L.R. 8 Q.B. 286.
124. Below, para.4-195.
125. See Richards v Phillips [1969] 1 Ch. 39.
126. This seems to follow from use of the word “resold” in the stipulation quoted above at n.125.
127. Spencer v Harding (1870) L.R. 5 C.P. 561.
128. Spencer v Harding (1870) L.R. 5 C.P. 561, 564.
129. Spencer v Harding (1870) L.R. 5 C.P. 561, 563.
130. See William Lacey (Hounslow) Ltd v Davis [1957] 1 W.L.R. 932, 939. See also MJB Enterprises
Ltd v Defence Construction Ltd (1999) 15 Const. L.J. 455: promise to accept lowest compliant
tender broken by accepting lowest non-compliant one (Supreme Court of Canada).
131. Harvela Investments Ltd v Royal Trust of Canada (C.I.) Ltd [1986] A.C. 207, 224–225.
132. [1990] 1 W.L.R. 25. No decision was reached on the quantum of damages. See also Fairclough
Building v Port Talbot BC (1992) 62 B.L.R. 82.
133. See below, para.11-051; Craig in (ed. Rose) Consensus ad Idem, Essays in the Law of
Contract in Honour of Guenter Treitel, 148–151; and Environmental Protection Act 1990 Sch.2
Pt II, applied in R. v Avon C., Ex p. Terry Adams Ltd, The Times, January 20, 1994.
134. Below, para.11-051.
135. And indeed in the language of Financial Services and Markets Act 2000 s.103(4) and of
Companies Act 2006 ss.551(17), 578 and 756.
136. e.g. Hebb’s Case (1867) L.R. 4 Eq. 9; Harris’ Case (1872) L.R. 7 Ch. App. 587; Wall’s Case
(1872) 42 L.J.Ch. 372; cf. Wallace’s Case [1900] 2 Ch. 671; National Westminster Bank Plc v
IRC [1995] 1 A.C. 119, 126; cf. Rust v Abbey Life Ins. Co [1979] 2 Lloyd’s Rep. 335 (property
bonds).
137. Jackson v Turquand (1869) L.R. 4 H.L. 305.
138. Taylor v Jones (1875) 1 C.P.D. 87; cf. in criminal law, Treacy v D.P.P. [1971] A.C. 537
(blackmail); contrast R. v Baxter [1972] 1 Q.B. 1 (attempt to obtain by deception).
139. Taylor v Jones, above n.138.

Page 17

Page 1

Section 3. - The Acceptance
(a) - Definition
Acceptance defined
2-026
An acceptance is a final and unqualified expression of assent to the terms of an offer. The objective
test of agreement applies to an acceptance no less than to an offer. 140 On this test, a mere
acknowledgement of the receipt of an offer does not amount to an acceptance; nor is there
acceptance if a person, to whom an offer to sell goods had been made, merely replies that it was his
“intention to place an order” 141 or asks for an invoice. 142 Where a prospective buyer of a home
wanted to know what would happen if there were snagging defect, and the builder replied that he had
an obligation under the NHBC scheme to remedy defects, there was no contract to repair any defects.
143
The mere acknowledgement of an offer, in the sense of a communication stating simply that
the offer had been received, would likewise not be an acceptance. But an “acknowledgement” may by
its express terms or, in a particular context by implication, contain a statement that the sender had
agreed to the terms of the offer and that he was therefore accepting it. Where an offer makes
alternative proposals, the acceptance must make it clear to which set of terms the assent is directed.
In Peter Lind & Co Ltd v Mersey Docks & Harbour Board 144 an offer to build a freight terminal was
made by a tender quoting in the alternative a fixed, and a “cost-plus” price. The offeree purported to
accept “your tender” and it was held that there was no contract.
Continuing negotiations 145
2-027
When parties carry on lengthy negotiations, it may be hard to say exactly when an offer has been
made and accepted. As negotiations progress, each party may make concessions or new demands
and the parties may in the end disagree as to whether they had ever agreed at all. The court must
then look at the whole correspondence and decide whether, on its true construction, the parties had
agreed to the same terms. 146 If so, there is a contract even though both parties, or one of them, had
reservations not expressed in the correspondence. 147 The court will be particularly anxious to hold
that continuing negotiations have resulted in a contract where the performance which was the
subject-matter of the negotiations has actually been rendered. In one such case a building
sub-contract was held to have come into existence (even though agreement had not yet been
reached when the contractor began work) as during its progress outstanding matters were resolved
by further negotiations. 148 The contract may then be given retrospective effect, so as to cover work
done before the final agreement was reached. 149
Negotiation after apparent agreement
2-028
Page 2
Businessmen do not, any more than the courts, find it easy to say precisely when they have
reached agreement, and may continue to negotiate after they appear to have agreed to the same
terms. The court will then look at the entire course of negotiations to decide whether an apparently
unqualified acceptance did in fact conclude the agreement. 150 If it did, the fact that the parties
continued negotiations after this point does not affect the existence of the contract between them 151
: for example, in one such case the subsequent negotiations showed “only that the parties wished to
discuss the implementation of the agreement 152 and that [one of them] wished to improve the terms
that had been agreed”. The position would, of course, be different if the continued negotiations could
be construed 153 as an agreement to rescind the contract. A fortiori, the binding force of an oral
contract is not affected or altered merely by the fact that, after its conclusion, one party sends to the
other a document containing terms significantly different from those which had been orally agreed. 154
Acceptance by conduct 155
2-029
An offer may be accepted by conduct. For example, an offer to buy goods can be accepted by
supplying them 156; an offer to sell goods made by sending them to the offeree, can be accepted by
using them, 157 and an offer contained in a request for services can be accepted by beginning to
render them, 158 where a customer of a bank draws a cheque which will, if honoured, cause his
account to be overdrawn, the bank, by deciding to honour the cheque, impliedly accepts the
customer’s implied request for an overdraft on the bank’s usual terms. 159 But conduct will only
amount to acceptance if it is clear that the offeree’s alleged act of acceptance was done with the
intention (ascertained in accordance with the objective principle 160) of accepting the offer. Thus a
buyer’s taking delivery of goods after the conclusion of an oral contract of sale will not amount to his
acceptance of written terms which differ significantly from those orally agreed, and which are sent to
him by the seller after the oral contract was made but before taking delivery. 161 That conduct is then
referable to the oral contract rather than to the later attempted variation. Nor is a company’s offer to
insure a car accepted by taking the car out on the road, if there is evidence that the driver intended to
insure with another company. 162 Nor is a managing director’s proposal of an employment contract
accepted by the company paying him at the stated rate, if there is doubt over whether the company
accepted the other terms. 163 A fortiori, there is no acceptance where the offeree’s conduct clearly
indicates an intention to reject the offer. This was the position in a Scottish case where a notice on a
package containing computer software stated that opening the package would indicate acceptance of
the terms on which the supply was made, and the customer returned the package unopened. 164
Establishing the terms of contracts made by conduct
2-030
Where an offer or an acceptance or both are alleged to have been made by conduct, the terms of the
agreement may be more difficult to ascertain than where the agreement was negotiated by express
words. The difficulty may be so great as to force the court to conclude that no agreement was
reached at all. 165 But sometimes the court can resolve the uncertainty by applying the standard of
reasonableness 166 or by reference to another contract (whether between the same parties or
between one of them and a third party 167), or even to a draft agreement between them, which had
never matured into a contract. For example, in Brogden v Metropolitan Ry 168 a railway company
submitted to a merchant a draft agreement for the supply of coal. The merchant returned it marked
“approved” but also made a number of alterations to it, to which the railway company did not
expressly assent; but the company accepted deliveries of coal under the draft agreement for two
years. It was held that once the company began to accept these deliveries there was a contract on
the terms of the draft agreement. 169
Correspondence between acceptance and offer

Page 3
2-031
A communication may fail to take effect as an acceptance because it attempts to vary the terms of the
offer. Thus an offer to sell 1,200 tons of iron is not accepted by a reply asking for 800 tons 170; an offer
to pay a fixed price for building work cannot be accepted by a promise to do the work for a variable
price 171; and an offer to supply goods cannot be accepted by an “order” for their “ supply and
installation”. 172 Nor, generally, can an offer be accepted by a reply which varies one of its other terms
(e.g. that specifying the time of performance), 173 or by a reply which introduces an entirely new term.
174
Such a reply is not an acceptance; but it may, rather, be a counter-offer, 175 which the original
offeror can then accept or reject and the new offeror can revoke prior to its acceptance. On the other
hand, statements that are not intended to vary the terms of the offer, or to add new terms, do not
disqualify the acceptance, even where they do not precisely match the words of the offer. 176 It is,
moreover, submitted that, if the introduced term merely makes express what would otherwise be
implied, it does not destroy the effectiveness of the acceptance. 177 Nor will the introduced term have
this effect if it is merely a declaration by the acceptor that he is prepared to grant some indulgence to
the offeror, e.g. to condone late payment in return for specified interest. 178 Similarly, it is submitted
that an acceptance which asks for some indulgence to the offeree is, nevertheless, effective, so long
as it is clear that the offeree is prepared to perform even if the indulgence is not granted: e.g. to buy
for cash if his request for credit is refused. The test in each case is whether the offeror reasonably
regarded the purported acceptance “as introducing a new term into the bargain and not as a clear
acceptance of the offer”. 179 In the case of continuing negotiations, the court must look at the whole
correspondence between the parties. 180 It is also possible for a communication which contains new
terms to amount at the same time: (1) to a firm acceptance of the offer; and (2) to a new offer to enter
into a further contract. 181 In such a case, there will be a contract on the terms of the original offer, but
none on the terms of the new offer, unless that, in turn, is accepted. 182
Subsequent formal document inaccurate
2-032
After parties have reached agreement, the offer and acceptance may be set out in formal documents.
The purpose of such documents may be merely to record the agreed terms 183; and where one of the
documents performs this function accurately while the other fails to do so, the discrepancy between
them will not prevent the formation of a contract. In such a case, the court can rectify the document
which fails to record the agreed terms, and the contract will be on those agreed terms. 184
The “battle of forms”
2-033
The rule that offer and acceptance must correspond gives rise to problems where one or both of the
parties wish to contract by reference to a “standard form” contractual document. Two situations
(described in paras 2-034 and 2-035 below) call for discussion.
One party’s “usual conditions”
2-034
First, A may make an offer to B by asking for a supply of goods or services. B may reply that he is
willing to supply the goods or services on his “usual conditions”. Prima facie, B’s statement is a
counter-offer which A is free to accept or reject, and he may accept it by accepting the goods or
services. If he does so, there is a contract between A and B, though the question whether B’s “usual
conditions” actually form part of it may depend on a number of further factors which are discussed in
Ch.13. 185
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Each party refers to own conditions
2-035
Secondly, each party may purport to contract with reference to his own set of standard terms and
these terms may conflict. In B.R.S. v Arthur V. Crutchley Ltd 186 the claimants delivered a
consignment of whisky to the defendants for storage. Their driver handed the defendants a delivery
note purporting to incorporate the claimants’ “conditions of carriage”. The note was stamped by the
defendants: “Received under [the defendants’] conditions”. It was held that this amounted to a
counter-offer which the claimants had accepted by conduct 187 in handing over the goods, and that the
contract therefore incorporated the defendants’ and not the claimants’ conditions.
“Last shot” doctrine
2-036
This case gave some support to the so-called “last shot” doctrine: i.e. to the view that, where
conflicting communications are exchanged, each is a counter-offer, so that if a contract results at all
(e.g. from an acceptance by conduct) it must be on the terms of the final document in the series
leading to the conclusion of the contract. 188 This view was, for example, applied in Tekdata
Interconnections Ltd v Amphenol Ltd, 189 where a contract for the sale of goods was made by (1) the
buyer’s sending a purchase order on its own terms and conditions to the seller (2) the seller’s sending
an acknowledgement on its own terms to the buyer and (3) receipt of the goods by the buyer. 190 It
was held, applying the “traditional offer and acceptance analysis” 191 that the contract was on the
seller’s terms, which excluded or limited the seller’s liability. But it was recognised that this analysis,
and hence the “last shot” doctrine, might be 192 (though here it was not) 193 displaced by evidence of
the parties’ “objective intention” that the “last shot” should not prevail. In one case, 194 for example, a
buyer placed a purchase order subject to its own conditions, and the seller acknowledged the order
by a fax containing the words “Delivery based on our general conditions of sale”. These were not
attached and, mainly for this reason, it was held that the seller’s acknowledgement was not a
counter-offer but an acceptance, so that the resulting contract was on the buyer’s conditions even
though the seller’s acknowledgement was the last shot in the exchange of messages. It has been
emphasised that a party’s standard terms and conditions will not be incorporated unless that party
has given reasonable notice of them to the other party. In one case, 195 the buyer’s purchase order
sent by email or fax, did not, on its face, refer to the terms and conditions on the back; neither were
the terms and conditions sent separately. The seller’s acknowledgement did refer to its terms but
these were neither included nor were in common use in the industry. Neither party’s terms and
conditions were incorporated in the contract. However, where both parties had attached its terms and
conditions but there had been no acceptance of either set of terms, there may be a contract, but on
neither party’s terms. 196
A more complex situation arose in Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd, 197
where sellers had offered to supply a machine for a specified sum. The offer was expressed to be
subject to certain terms and conditions, including a “price escalation clause” by which the amount
actually payable by the buyers was to depend on “prices ruling upon date of delivery”. In reply the
buyers placed an order for the machinery on a form setting out their own terms and conditions, which
differed from those of the sellers in containing no price-escalation clause and also in various other
respects. 198 It also contained a tear-off slip to be signed by the sellers and returned to the buyers,
stating that the sellers accepted the buyers’ order “on the terms and conditions stated therein”. The
sellers did sign the slip and returned it with a letter saying that they were “entering” the order “in
accordance with” their offer. This communication from the sellers was held to be an acceptance of the
buyers’ counter-offer 199 so that the resulting contract was on the buyers’ terms, and the sellers were
not entitled to the benefit of the price escalation clause. It was held that the sellers’ reply to the
buyers’ order did not prevail (though it was the “last shot” in the series) because the reference in it to
the sellers’ original offer was made, not for the purpose of reiterating all its terms, but only for the
purpose of identifying the subject-matter. It would, however, have been possible for the sellers to
have turned their final communication into a counter-offer by explicitly referring in it not only to the
subject-matter of the original offer, but also to all its other terms. In that case no contract would have
been concluded, since the buyers had made it clear before the machine was delivered that they did
Page 5
not agree to the “price escalation” clause. 200 Thus, it is possible by careful draftsmanship to avoid
losing the battle of forms, but not (if the other party is equally careful) to win it. In the Butler Machine
Tool case, for example, the sellers’ conditions included one by which their terms were to “prevail over
any terms and conditions in Buyer’s order”; but this failed (in consequence of the terms of the buyers’
counter-offer) to produce the effect desired by the sellers. 201 The most that the draftsman can be
certain of achieving is the stalemate situation in which there is no contract at all. Such a conclusion
will often be inconvenient, 202 though where the goods are nevertheless delivered it may lead to a
liability on the part of the buyers to pay a reasonable price. 203
Documents sent after contract made
2-037
The discussion in para.2-036 above is concerned with the effect of the transmission of a document or
documents containing terms before the alleged contract is made. The transmission of such a
document by one party after the making of the contract will not affect the existence of the contract 204;
nor will the terms of the document form part of the contract unless they are, in turn, accepted as
variations of the contract, either expressly or by conduct.
Acceptance of tenders
2-038
The submission of a tender normally amounts to an offer 205; and the effect of an “acceptance” of such
a tender turns on the construction of the acceptance and the tender in each case. Where a tender is
submitted, e.g. for the erection of a building, a binding contract will normally arise from acceptance of
the tender, unless it is expressly stipulated that there is to be no contract until certain formal
documents have been executed. 206 But greater difficulty arises in construing an “acceptance” of a
tender for an indefinite amount for example, of one to supply “such quantities (not exceeding a
specified amount) as you may order”. The person to whom such a tender is submitted does not incur
any liability merely by “accepting” it: he becomes liable only when he places an order for goods, 207
and he would not be bound to place any order at all 208 unless he had (expressly or by necessary
implication 209) indicated in his invitation for tenders that he would do so. 210 The party submitting the
tender also becomes bound, once a definite order has been placed, to fulfil it. 211 Whether he can
withdraw before this point, or avoid liability with respect to future orders, depends on the interpretation
of the tender. He can do so if the tender means: “I will supply such quantities as you may order.” 212
But he will not be entitled to withdraw if the tender means “I hereby bind myself to execute orders
which you may place”, and if this promise is supported by some consideration. 213
Acceptance by tender
2-039
An invitation for tenders may, exceptionally, amount to an offer, e.g. where the person issuing the
invitation binds himself to accept the highest or, as the case may be, the lowest tender. 214 The
acceptance then takes the form of the submission of a tender; but difficulties can arise where several
tenders are made and one (or more) of them takes the form of a so-called “referential bid”. In Harvela
Investments Ltd v Royal Trust Co of Canada (C.I.) Ltd 215 an invitation for the submission of “offers” to
buy shares was addressed to two persons, it stated that the prospective sellers bound themselves to
accept the “highest offer”. One of the persons to whom the invitation was addressed made a bid of a
fixed sum while the other submitted a “referential bid” undertaking to pay either a particular fixed sum
or a specified amount in excess of the bid made by the other, whichever was the higher amount. It
was held that the “referential bid” was ineffective and that the submission of the other person’s bid
had concluded the contract for the sale of the shares. In reaching this conclusion, the House of Lords
stressed that the bids were, by the terms of the invitation, to be confidential, so that neither bidder
would know the amount bid by the other. In these circumstances the object of the invitation, which
was to ascertain the highest amount that each of the persons to whom it was addressed was willing to
Page 6
pay, would have been defeated by allowing it to be accepted by a “referential bid”.
Acceptance in ignorance of offer: unilateral contracts
2-040
In some jurisdictions it has been held that a person who gives information for which a reward has
been offered cannot claim the reward if he did not know of the offer at the time of giving the
information 216; and the position has been said to be the same where that person once knew of the
offer but had, at the time of the alleged acceptance, forgotten it. 217 The English case of Gibbons v
Proctor 218 is sometimes thought to support the contrary view, but the actual decision can probably be
explained on the ground that the claimant did know of the offer of reward by the time the information
was given on his behalf to the recipient named in the advertisement. 219 To allow recovery where the
claimant did not know of the offer when he gave the information may raise the doctrinal difficulty that,
in such cases, the parties have not reached any agreement; the position is simply that their wishes
coincide. But in the case of a unilateral contract it is hard to see what legitimate interest of the
promisor is prejudiced by holding him liable to a party who has in fact complied with the terms of his
offer, though without being aware of it. 220 The suggestion that, in the case of a unilateral contract, the
promisor might therefore be liable to a party who had complied with the terms of the offer, though
without being aware of it, was considered in Great Eastern Shipping Company Ltd v Far East
Chartering Ltd (The Jag Ravi), 221 where a shipowner sought at first instance to rely on this suggestion
so as to enforce a letter of indemnity, even though when he did the act subjecting him to a liability
which was covered by the letter of indemnity, he was unaware of the existence of that letter; but the
point was left open. 222
Acceptance in ignorance of offer: bilateral contracts
2-041
Different considerations may apply where a person who does acts alleged to amount to acceptance of
an offer of a bilateral contract does those acts in ignorance of the offer. For, if those acts are
construed to amount to an acceptance, the actor may not only acquire rights but also incur liabilities
under the contract. It may be unfair to subject him to these if at the time of the alleged acceptance he
was not aware of the fact that an offer had been made to him, and thus had no intention of entering
into a contract. In Upton RDC v Powell 223 the defendant, whose house was on fire, telephoned the
Upton police and asked for “the fire brigade”. He was entitled to the services of the Pershore fire
brigade free of charge as he lived in its district; but the police called the Upton fire brigade, in the
belief that the defendant lived in that district. The Upton fire brigade for a time shared this belief and
thought “that they were rendering gratuitous services in their own area”. 224 It was held that the
defendant was contractually bound to pay for these services. But even if the defendant’s telephone
call was an offer, it is hard to see how the Upton fire brigade’s services, given with no thought of
reward, could be an acceptance. It would have been better to have given the claimants a
restitutionary remedy than to hold that there was a contract. 225 The case was concerned only with the
rights of the fire brigade, but, if there was a contract, the fire brigade would also have owed more
extensive duties than they would have owed, had they been volunteers. It may well be unfair to
subject a person who thinks he is a volunteer to the more stringent duties of a contractor. 226 Similar
reasoning applies where the effect of an alleged bilateral contract is not to impose liabilities on a party
but simply to deprive him of rights. It has accordingly been held that an alleged offer to abandon
arbitration proceedings cannot be accepted unless the persons claiming to have accepted it
understood or believed at the time of the alleged acceptance that such an offer was being made. 227
Motive for the acceptance
2-042
A person who knows of the offer may perform the act required for acceptance with some motive other
than that of accepting the offer. In Williams v Carwardine 228 the defendant offered a reward of £20 to
Page 7
anyone who gave information leading to the conviction of the murderers of Walter Carwardine. The
plaintiff knew of the offer, but gave a “voluntary statement to ease my conscience, and in hopes of
forgiveness hereafter” because she thought she had not long to live. This statement resulted in the
conviction of the murderers. It was held that the plaintiff had brought herself within the terms of the
offer and was entitled to the reward. Patteson J. added: “We cannot go into the plaintiff’s motives.” 229
Similarly, in Carlill v Carbolic Smoke Ball Co, 230 the claimant recovered the £100, although her
predominant motive in using the smoke ball was (presumably) to avoid catching influenza. But in the
Australian case of R. v Clarke 231 a reward had been offered for information leading to the arrest and
conviction of the murderers of two police officers. Clarke was suspected of the crime and gave
information leading to the conviction of the culprits in order to clear himself of the charge; he admitted
that he gave the information with no thought of claiming the reward. Although he knew of the offer, his
claim for the reward failed as he had not given the information “in exchange for the offer”. 232 It seems
that an act which is wholly motivated by factors other than the existence of the offer cannot amount to
an acceptance 233; but if the existence of the offer plays some part, however small, in inducing a
person to do the required act, there is a valid acceptance of the offer.
Cross-offers
2-043
It seems that there is generally no contract if two persons make identical cross-offers, neither knowing
of the other’s offer when he made his own: e.g. if A writes to B offering to sell B his car for £5,000 and
B simultaneously writes to A offering to buy the car for £5,000. The most natural reaction to letters
which cross in this way would be for one of the parties to communicate with the other to make sure
that there was indeed an agreement between them. To hold that there was a contract without some
such further communication might cause considerable surprise to one of the parties, or possibly to
both. The view that “cross-offers are not an acceptance of each other” 234 can therefore be supported
not only on the theoretical ground that the requirements of offer and acceptance are not satisfied, but
also on the practical grounds that it accords with normal commercial expectations and that it
promotes certainty.
140. Above, para.2-003; Inland Revenue Commissioners v Fry [2001] S.T.C. 1715 at [6], [7]; Air
Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349 at [79].
For an application of the objective test to an acceptance, see University of Edinburgh v Onifade
2005 S.L.T. (Sh Ct) 63, above para.2-013. The motorist was there held to have accepted the
landowner’s offer by parking his car on the owner’s land and it was “nothing to the purpose that
he did not intend to pay” (at 6) the “fine” specified in the offer.
141. O.T.M. Ltd v Hydranautics [1981] 2 Lloyd’s Rep. 211, 214.
142. Michael Gerson (Leasing) Ltd v Wilkinson [2000] Q.B. 514 at 530 (where there was probably no
offer: see above, para.2-007 n.37).
143.
Secker v Fairhill Property Services Ltd [2017] EWHC 69 (QB).
144. [1972] 2 Lloyd’s Rep. 234.
145. Paras 2-027 and 2-028 are referred to with apparent approval by Males J. in Air Studios
(Lyndhurst) Ltd v Lombard North Central Plc [2012] EWHC 3162 (QB), [2013] 1 Lloyd’s Rep. 63
at [5].
146. See Glencore Energy Ltd v Cirrus Oil Services Ltd [2014] EWHC 87 (Comm), [2014] All E.R.
(Comm) 513, where a communication forming part of continuing email exchanges was held on
its true construction to be a “clear acceptance” (at [60], [62]) of the offer contained in the
communication referred to in n.10.
Page 8
147. Kennedy v Lee (1817) 3 Mer. 441; cf. Cie de Commerce, etc. v Parkinson Stove Co [1953] 2
Lloyd’s Rep. 487, B.S.E., 17 M.L.R. 476; Port Sudan Cotton Co v Govindaswamy Chettiar &
Sons [1977] 2 Lloyd’s Rep. 5; Thoresen Car Ferries Ltd v Weymouth Portland BC [1977] 2
Lloyd’s Rep. 614; O.T.M. Ltd v Hydranautics [1981] 2 Lloyd’s Rep. 211, 215; Manatee Towing
Co v Oceanbulk Maritime SA (The Bay Ridge) [1999] 2 All E.R. (Comm) 306; David de Jongh
Weill v Mean Fiddler Holdings [2003] EWCA Civ 1058; Allianz Insurance Co of Egypt v Agaion
Insurance Co SA [2008] EWCA Civ 1455, [2009] 2 All E.R. (Comm) 745.
148. G. Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep. 25. Peter Lind’s case (above,
para.2-026) shows that the factor of performance of work is not decisive, though it may (as in
that case) give the performing party a restitutionary claim.
149. G. Percy Trentham Ltd v Archital Luxfer Ltd, above at n.147; and see below, para.2-131.
150. Hussey v Horne-Payne (1878) 4 App. Cas. 311; Bristol, Cardiff & Swansea Aerated Bread Co v
Maggs (1890) 44 Ch. D. 616; British Guiana Credit Corp v Da Silva [1965] 1 W.L.R. 248;
Container Transport International Inc v Oceanus Mutual, etc., Association [1984] 1 Lloyd’s Rep.
476; Asty Maritime Co Ltd v Rocco Guiseppe & Figli (The Astyanax) [1985] 2 Lloyd’s Rep. 109,
112; Hofflinghouse & Co Ltd v C. Trade SA (The Intra Transporter) [1986] 2 Lloyd’s Rep. 132;
Pagnan SpA v Granaria BV [1986] 1 Lloyd’s Rep. 547; Pagnan SpA v Feed Products Ltd [1987]
2 Lloyd’s Rep. 601, 619; Ignazio Messina & Co v Polskie Linie Oceaniczne [1995] 2 Lloyd’s
Rep. 566 (no contract); Frota Oceanica Brasilieira SA v Steamship Mutual Underwriting
Association (The Frotanorte) [1996] 2 Lloyd’s Rep. 461 (no contract as matters of substance
remained unresolved). The same principle has been applied in the context of the question
whether a contract had been rescinded: Drake Insurance Plc v Provident Insurance Plc [2003]
EWCA Civ 1834, [2004] Q.B. 601 at [100]. See also Tryggingarfelagio Foroyar P/F v CPT
Empresas Maritimas SA (The Athena) [2011] EWHC 589 (Admlty) at [44], citing the above text
with apparent approval.
151.
Perry v Suffields Ltd [1916] 2 Ch. 187; Davies v Sweet [1962] 2 Q.B. 300; Cranleigh Precision
Engineering Ltd v Bryant [1965] 1 W.L.R. 1293; Harmony Shipping Co SA v Saudi-Europe Line
Ltd (The Good Helmsman) [1981] 1 Lloyd’s Rep. 377, 409, 416. Contrast Global Asset Capital
Inc v Aabar Block Sarl [2017] EWCA Civ 37, where no contract was found because acceptance
of an offer letter that was “subject to contract” would not remove the subject to contract
condition, and subsequent communications by both parties were materially inconsistent with the
existence of a contract.
152. cf. para.2-122 below.
153. Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm), [2009] 1
Lloyd’s Rep. 475 at [230], affirmed [2009] EWCA Civ 1334, [2010] 2 All E.R. (Comm) 786
without reference to this point, but see above, para.2-004 n.22.
154. Jayaar Impex Ltd v Toaken Group Ltd [1996] 2 Lloyd’s Rep. 437.
155. This paragraph and para.2-031 of the 31st edition were cited with approval in Iliffe v Feltham
Construction Ltd [2014] EWHC 2125 at [80] (decision to grant summary judgment overturned
on appeal on other grounds, [2015] EWCA Civ 715).
156. Harvey v Johnson (1848) 6 C.B. 305; cf. Steven v Bromley & Son [1919] 2 K.B. 722, 728;
Greenmast Shipping Co SA v Jean Lion et Cie (The Saronikos) [1986] 2 Lloyd’s Rep. 277; cf.
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] Q.B. 433, 436; Re Charge
Card Services [1989] Ch. 417 (above, para.2-011); Carlyle Finance Ltd v Pallas Industrial
Finance Ltd [1999] 1 All E.R. (Comm) 659 at 670; and see below, para.2-074; Photolibrary
Group Ltd v Burda Senator Verlag GmbH [2008] EWHC 1343 (QB), [2008] 2 All E.R. (Comm)
811; Finmoon Ltd v Baltic Reefers Management Ltd [2012] EWHC 920 (Comm), [2012] 2
Lloyd’s Rep. 388, where para.2-030 of the 30th edition of the Main Work is cited at [22] with
apparent approval; contrast Capital Finance Co Ltd v Bray [1964] 1 W.L.R. 323. As to
counter-offers, see below, paras 2-097, 2-099.
Page 9
157. Weatherby v Banham (1832) 5 C. & P. 228; Brogden v Metropolitan Ry (1877) 2 App. Cas. 666,
below, para.2-030 at n.166; cf. Hart v Mills (1846) 15 L.J. Ex. 200; Confetti Records v Warner
Music UK Ltd [2003] EWHC 1274, The Times, June 12, 2003. It is assumed that the goods are
not “unsolicited” within the legislation against “inertia selling” (above, para.2-005).
158. Smit International Singapore Pte Ltd v Kurnia Dewi Shipping SA (The Kurnia Dewi) [1997] 1
Lloyd’s Rep. 553; cf. Datec Electronics Holdings Ltd v United Parcels Ltd [2007] UKHL 23,
[2007] 1 W.L.R. 1325 at [23], discussed in para.2-009 above.
159. Lloyds Bank v Voller [2000] 2 All E.R. (Comm) 978.
160. Above, paras 2-002, 2-003. For the application of the objective principle to an acceptance by
conduct, see University of Edinburgh v Onifade 2005 S.L.T. (Sh Ct) 63, above para.2-026
n.140.
161. Jayaar Impex Ltd v Toaken Group Ltd [1996] 2 Lloyd’s Rep. 437.
162. Taylor v Allon [1966] 1 Q.B. 304. The objective principle (above, paras 2-002, 2-003) could not
apply in this case, as the conduct alleged to constitute the acceptance had never come to the
notice of the offeror. cf. Picardi v Cuniberti [2002] EWHC 2933, (2003) 19 Const. L.J. 350:
payments made under another contract held not to amount to acceptance of an offer to enter
into the alleged new contract; and see, in another context, Re Leyland Daf Ltd [1994] 4 All E.R.
300, affirmed sub nom. Powdrill v Watson [1995] 2 A.C. 394.
163.
Arley Homes North West Ltd v Cosgrave Unreported April 14, 2016 EAT.
164. Beta Computers (Europe) v Adobe Systems (Europe) 1996 S.L.T. 604; even opening the
package would not necessarily be an acceptance so as to incorporate the printed terms: see
Tapper in (ed. Rose) Consensus ad Idem, Essays in the Law of Contract in Honour of Guenter
Treitel, 287–288.
165. Capital Finance Co Ltd v Bray [1964] 1 W.L.R. 323.
166. Sale of Goods Act 1979 s.8(2); Supply of Goods and Services Act 1982 s.15(1); below,
para.2-120; cf. Steven v Bromley & Son [1919] 2 K.B. 722.
167. e.g. Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 Q.B. 402.
168. (1877) 2 App. Cas. 666; see also Jones v Daniel [1894] 2 Ch. 332; Port Sudan Cotton Co v
Govindaswamy Chettiar & Sons [1977] 2 Lloyd’s Rep. 5; cf. D. & M. Trailers (Halifax) Ltd v
Stirling [1978] R.T.R. 468; UK Safety Group Ltd v Heane [1998] 2 B.C.L.C. 208.
169. Contrast Jayaar Impex Ltd v Toaken Group Ltd [1996] 2 Lloyd’s Rep. 437, where the conduct of
the buyer was referable, not to the draft sent by the seller, but to the earlier oral agreement
(above at n.160) between the parties; and UK Safety Group Ltd v Heane [1998] 2 B.C.L.C. 208
(company director not bound by terms of a draft agreement which was under the company’s
Articles required to be, but had not been, authorised by the board).
170. Tinn v Hoffman & Co (1873) 29 L.T. 271; cf. Holland v Eyre (1825) 2 Sim. & St. 194; Jordan v
Norton (1838) 4 M. & W. 155; Harrison v Battye [1975] 1 W.L.R. 58.
171. North West Leicestershire DC v East Midlands Housing Association [1981] 1 W.L.R. 1396.
172. Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 W.L.R. 401.
173. Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 W.L.R. 401; North West
Leicestershire DC v East Midlands Housing Association [1981] 1 W.L.R. 1396; cf. Brinkibon Ltd
v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 A.C. 34.
174. Jackson v Turquand (1869) L.R. 4 H.L. 305; Jones v Daniel [1894] 2 Ch. 332; Von
Page 10
Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch. 284; Love & Stewart Ltd v S. Instone & Co Ltd
(1917) 33 T.L.R. 475; Northland Airliners v Dennis Ferranti Meters Ltd (1970) 114 S.J. 845;
Lark v Outhwaite [1991] 2 Lloyd’s Rep. 132, 139; Bircham & Co Nominees (No.2) v Worrell
Holdings Ltd [2001] EWCA Civ 775, (2001) 82 P. & C.R. 427 at [11], Beazley Underwriting Ltd v
Travellers Companies Inc [2011] EWHC 1520 (Comm), [2012] 1 All E.R. (Comm) 1241 at [73].
175. Below, para.2-097; Guernsey v Jacobs UK Ltd [2011] EWHC 918 (TCC), [2011] 2 All E.R.
(Comm) 175 at [45] and see Bonner Properties Ltd v McGurran Construction Ltd [2009] NICA
49, [2010] N.I. 97, where, to the extent that the relevant communication amounted to a
counter-offer, that counter-offer had, in turn, been rejected: see below, para.2-097. Beazley
Underwriting Ltd v Travellers Companies Inc [2011] EWHC 1520 (Comm), [2012] 1 All E.R.
(Comm) 1241 at [184].
176. Clive v Beaumont (1847) 1 De G. & Sm. 397; Simpson v Hughes (1897) 66 L.J.Ch. 334; Butler
Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 W.L.R. 401; Midgulf International
Ltd v Groupe Chimiche Tunisien [2010] EWCA Civ 66, [2010] 2 Lloyd’s Rep. 543, where the
above text (para.2-032 at n.153 in the 30th edition of this book) was cited with approval (at [43])
and a communication was accordingly held to be an acceptance even though there was no
precise verbal correspondence between it and the offer.
177. Lark v Outhwaite [1991] 2 Lloyd’s Rep. 132, 139. For another qualification of the requirement of
exact correspondence between offer and acceptance, see Vienna Convention on Contracts for
the International Sale of Goods (below, para.2-061) art.19(2).
178. Harris’s Case (1872) L.R. 7 Ch. App. 587.
179. Global Tankers Inc v Amercoat Europa NV [1975] 1 Lloyd’s Rep. 666, 671; cf. G. Percy
Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep. 25, 28; Maple Leaf Macro Volatility
Master Fund v Rouvroy [2009] EWHC 257 (Comm), [2009] 1 Lloyd’s Rep. 475 at [247] and
[245], referring to the above text with apparent approval; affirmed without reference to this point
[2009] EWCA Civ 1334, [2010] 2 All E.R. (Comm) 788 and see above, para.2-004 n.22.
180. For example in Air Studios (Lyndhurst) Ltd v Lombard North Central Plc [2012] EWHC 3162
(QB), [2013] 1 Lloyd’s Rep. 63, a prospective seller of goods, to whom an offer to buy them had
been sent, sent two communications to the offeror: the first stating that “[i]f you are successful
in your bid”, the selling process would be “conducted by the issuing of an invoice on our
standard terms” and the second expressed to be a “confirmation that your bid has been
successful” (at [40]). It was held that the first communication was “not a counter offer and did
not change the basis on which the parties were negotiating” (at [70]).
181. This sentence was cited with approval and applied by Edwards-Stuart J. in AB v CD Ltd [2013]
EWHC 1376 (TCC), [2013] B.L.R. 435 at [28], so that the communication in question was held
not to amount to a counter-offer.
182. Monrovia Motorship Corp v Keppel Shipyard (Private) Ltd (The Master Stelios) [1983] 1 Lloyd’s
Rep. 356; Society of Lloyd’s v Twinn, The Times, April 4, 2000; Crest Nicholson (Londinium)
Ltd v Akaria Investments Ltd [2010] EWCA Civ 1331 at [27] (in the reference at [24] to
para.2-003 of the “Thirteenth Edition” of this book—“Thirteenth” is an evident misprint for
“Thirtieth”).
183. e.g. O.T.M. Ltd v Hydranautics [1981] 2 Lloyd’s Rep. 211, 215; cf. below, para.2-123.
184. Domb v Isoz [1980] Ch. 548, 559
185. Below, paras 13-008—13-018. If the test of reasonable notice or signature is satisfied, the
contract will be on B’s conditions.
186. [1968] 1 All E.R. 811; cf. A. Davies & Co (Shopfitters) v William Old (1969) 113 S.J. 262; O.T.M.
Ltd v Hydranautics [1981] 2 Lloyd’s Rep. 211; Muirhead v Industrial Tank Specialities Ltd [1986]
Q.B. 507, 530; Souter Automation v Goodman Mechanical Services (1984) 34 Build.L.R. 81.
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187. A E Yates Trenchless Solutions v Black & Veatch Ltd [2008] EWHC 3183 (TCC), 124 Con. L.R.
188 at [60]; cf. Claxton Engineering Services Ltd v TXM Olaj-és Gázkutató Kft [2010] EWHC
2567 (Comm), [2011] 2 All E.R. 38, where general conditions in an order form sent by the buyer
to the seller contained a Hungarian arbitration and choice of law clause, while the seller in an
email message to the buyer proposed a variation containing an English choice of law and
exclusion jurisdiction clause. This message was held to be a counter-offer (at 49(v)), which the
buyer had accepted by “performance”, i.e. presumably by taking delivery of the goods. For
further proceedings in this case, see [2011] EWHC 345, [2011] 2 All E.R. (Comm) 128.
188. As in Zambia Steel & Building Supplies v James Clark & Eaton Ltd [1986] 2 Lloyd’s Rep. 225.
189. [2009] EWCA Civ 1209, [2010] 1 Lloyd’s Rep. 357, where Dyson L.J. at [23] referred with
apparent approval to the “last shot” doctrine as stated in the text above; the case was followed
on this point in Trebor Bassett Holdings Ltd v ADT Security Plc [2011] EWHC 1936 (TCC),
[2011] B.L.R. 661 at [173].
190. [2009] EWCA Civ 1209 at [7]; cf. at [25].
191. [2009] EWCA Civ 1209 at [9], [25].
192. [2009] EWCA Civ 1209 at [9], [25], [39].
193. [2009] EWCA Civ 1209 at [15], applying the test of the parties’ “objective intention”.
194. Sterling Hydraulics Ltd v Dictomatic Ltd [2006] EWHC 2004 (QB), [2007] 1 Lloyd’s Rep. 8.
195. Transformers and Rectifiers Ltd v Needs Ltd [2015] EWHC 269 (TCC) at [42]–[55].
196. John Graham Construction Ltd v FK Lowry Piling Ltd [2015] NIQB 40.
197. [1979] 1 W.L.R. 401, especially at 405; Adams (1979) 94 L.Q.R. 481; Rawlings (1979) 42
M.L.R. 715.
198. Above, para.2-031 at nn.170 and 171.
199. Per Lawton and Buckley L.JJ.; Lord Denning, M.R. also uses this analysis, but prefers the
alternative approach of considering “the documents … as a whole”: see 405 and cf. above,
para.2-027. In the Tekdata case [2009] EWCA Civ 1209 (above, n.187) it was “not contended
on behalf of [the seller] that there was no contract between it and [the buyer]”; the issue was as
to the terms of an admitted contract.
200. At 406, per Lawton L.J.
201. cf. Matter of Doughboy Industries Inc, 233 N.Y.S. 2d 488, 490 (1962): “The buyer and seller
accomplished a legal equivalent to the irresistible force colliding with the immoveable object.”
202. It seems to have been rejected for this reason in Johnson Matthey Bankers Ltd v State Trading
Corp of India [1984] 1 Lloyd’s Rep. 427.
203. cf. Peter Lind & Co Ltd v Mersey Docks & Harbour Board [1972] 2 Lloyd’s Rep. 234, above,
para.2-026; McKendrick (1988) 8 O.J.L.S. 197. See below para.2-196.
204. Jayaar Impex Ltd v Toaken Group Ltd [1996] 2 Lloyd’s Rep. 437; cf. below, para.2-123.
205. Above, para.2-022.
206. Below, para.2-123.
207. Percival Ltd v L.C.C. Asylums, etc., Committee (1918) 87 L.J.K.B. 677.
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208. cf. Churchward v R. (1865) L.R. 1 Q.B. 173; R. v Demers [1900] A.C. 103.
209. e.g. Sylvan Crest Sand & Gravel Co v US, 150 F.2d 642 (1945).
210. cf. Harvela Investments Ltd v Royal Trust Co of Canada (C.I.) Ltd [1986] A.C. 207.
211. Great Northern Ry v Witham (1873) L.R. 9 C.P. 16; cf. the similar rule applied to “declarations”
under an “open cover” insurance in Citadel Insurance Co v Atlantic Union Insurance Co [1982]
2 Lloyd’s Rep. 543.
212. G.N. Ry v Witham (1873) L.R. C.P. 16, 19.
213. Percival Ltd v L.C.C. Asylums, etc., Committee (1918) 87 L.J.K.B. 677, 678; Miller v F. A. Sadd
& Son Ltd [1981] 3 All E.R. 265. For an exception to the requirement of consideration in the law
of insurance, see the Citadel case, above, n.207 at 546; below, para.4-194.
214. Above, para.2-022.
215. [1986] A.C. 207.
216. Bloom v American Swiss Watch Co (1915) App.Div. 100 (S. Afr.); American authorities are
divided: see Corbin, Contracts, para.59.
217. R. v Clarke (1927) 40 C.L.R. 277, 241.
218. (1891) 64 L.T. 594; 55 J.P. 616; cf. Neville v Kelly (1862) 12 C.B.(N.S.) 740.
219. “The information ultimately reached Penn at a time when the plaintiff knew that the reward had
been offered”: 55 J.P. 616.
220. The view that, in the case of a unilateral contract, may be “constituted” by the relevant
advertisement “whether or not it is read by anyone” derives some (at least hesitant) support
from Air Transworld Ltd v Bombardier Inc [2012] EWHC 243, [2012] 1 Lloyd’s Rep. 349 at [75].
221. [2011] EWHC 1372 (Comm), [2011] 2 Lloyd’s Rep. 309.
222. [2011] EWHC 1372 (Comm) at [47]. The decision was affirmed on appeal, [2012] EWCA Civ
180, without further discussion of this issue.
223. [1942] 1 All E.R. 220; Mitchell, (1997) 12 J.C.L. 78; for the extent of the fire brigade’s duty apart
from contract, see John Monroe (Acrylics) Ltd v London Fire & Civil Defence Authority [1997] 2
Lloyd’s Rep. 161.
224. At 221.
225. Substantially the same point is made in TTMI SARL v Statoil SA (The Sibohelle) [2011] EWHC
1150 (Comm), [2011] 2 Lloyd’s Rep. 220 at [44]. But on the facts of The Sibohelle there was no
need to invoke any restitutionary remedy since both parties there believed that they were
“performing under a contract” (at [44]) and their conduct, coupled with that belief, gave rise to
the inference that a contract had indeed been concluded between them (see below, para.2-148
n.786). In the Upton case (above, n.219) there was no such shared belief.
226. cf. B.S.C. v Cleveland Bridge & Engineering Co Ltd [1984] 1 All E.R. 504, 510; Air Transworld
Ltd v Bombardier Inc [2012] EWHC 243, [2012] 1 Lloyd’s Rep. 349 at [75]. The position where
one party thinks that he is giving or getting a gratuitous service while the other thinks that he is
contracting (i.e. if the fire brigade had intended from the beginning to charge for their services)
will depend on the objective test and the law on mistake as to terms, see below at paras 3-014,
3-022—3-035.
227. Tracomin SA v Anton C. Nielsen [1984] 2 Lloyd’s Rep. 195, 203; and see above, para.2-006,
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below, para.2-069.
228. (1833) 5 C. & P. 566; 4 B. & Ad. 621; it must be assumed that the claimant knew of the offer;
Carlill v Carbolic Smoke Ball Co Ltd [1892] 2 Q.B. 484, 489, n.2. See also England v Davidson
(1840) 11 A. & E. 856; Smith v Moore (1845) 1 C.B. 438; and cf. Bent v Wakefield Bank (1878)
4 C.P.D. 1; Fallick v Barber (1813) 1 M. & S. 108. See also the Theft Act 1968 s.23, penalising
advertisements of rewards for stolen goods which state that no questions will be asked, etc.
229. (1833) 4 B. & Ad. at 623.
230. [1893] 1 Q.B. 256; above, para.2-015.
231. (1927) 40 C.L.R. 227; contrast Simonds v US, 308 F. 2d 160 (1962).
232. (1927) 40 C.L.R. 227, 233; Tracomin SA v Anton C. Nielsen [1984] 2 Lloyd’s Rep. 195, 203.
233. Lark v Outhwaite [1991] 2 Lloyd’s Rep. 132, 140.
234. Tinn v Hoffman & Co (1873) 29 L.T. 271, 278.

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(b) - Communication of Acceptance
General requirement of communication
2-044
The general rule is that an acceptance has no legal effect until it is communicated to the offeror. 235
Accordingly, no contract is concluded by: a person who writes an acceptance on a piece of paper
which he simply keeps 236; a company that resolves to accept an application for shares but does not
communicate the resolution to the applicant 237; a person who decides to accept an offer to sell goods
to him and instructs his bank to pay the offeror but neither he nor the bank gives notice of this fact to
the offeror 238; and a person who communicates the acceptance only to his own agent. 239 The main
reason for the rule is that it would be unfair to bind the offeror before he knows that his offer had been
accepted. So long as the offeror knows of the acceptance, a contract may be concluded even though
the acceptance was not brought to his notice by the offeree. 240 However, there will be no contract if
the communication is made by a third party without the offeree’s authority in circumstances indicating
that the offeree’s decision to accept was not yet regarded by him as irrevocable. 241
What amounts to communication
2-045
For an acceptance to be “communicated” it must normally be brought to the notice of the offeror. Thus
there is no contract if the words of acceptance are “drowned by an aircraft flying overhead”; or if they
are spoken into a telephone after the line has gone dead or become so indistinct that the offeror does
not hear them. 242 However, in some circumstances, the requirement of “communication” may be
satisfied even though the acceptance has not actually come to the notice of the offeror: e.g. where a
written notice of acceptance is left by the offeree at the offeror’s address. 243
Exceptions to requirement of communication of acceptance
2-046
In the following situations an acceptance is, or may be, effective although it is not communicated to
the offeror.
(1) Terms of the offer
The offer may expressly or impliedly 244 waive the requirement of communication of acceptance. 245
This may arise when an offer invites acceptance by conduct. For example, where an offer to supply
goods is made by sending them to the offeree it may be accepted by simply using them 246; and
where an offer to buy goods is made by ordering them, it may sometimes be accepted by simply
Page 2
despatching them. 247 Similarly a tenant can accept an offer of a new tenancy by simply staying on the
premises 248; and an employer’s offer to pay an employee a bonus may be accepted simply by the
employee’s staying in the employment. 249
(2) Unilateral contracts
In the case of a unilateral contract, 250 the requirement of communication of acceptance is almost
always waived. For this reason, performance of the required act or abstention normally suffices,
without any previous intimation of acceptance. 251 Thus in Carlill v Carbolic Smoke Ball Co 252 the
court rejected the argument that the claimant should have notified the defendants of her acceptance
of their offer. The contract which arises 253 between a bank which has issued a credit card to one of its
customers and the retailer to whom the customer presents the card has also been described as
unilateral, 254 so that the bank’s offer can be accepted by the retailer’s dealing with the customer
without any need for the retailer’s acceptance to be communicated to the bank. 255 Another situation in
which notification of acceptance was said to be unnecessary in the case of a unilateral contract arose
in Argo Fund Ltd v Esser Steel Ltd 256 where an arrangement between a debtor and its creditor banks
empowered each creditor to transfer its rights by delivery of a transfer certificate to an “agent”, this
arrangement was said to be a unilateral contract 257 by which the debtor made a standing offer (a) to
the creditor, to terminate the original contract and (b) to the transferee to enter into a new one. 258 The
former offer was accepted by the creditor’s delivery of the transfer certificate to the agent 259 and the
latter by the transferee’s agreeing to the transfer with the transferor on the terms of the agreement, as
set out in the certificate. 260 Notification of these acts of acceptance was not necessary since no such
requirement was stated in the original loan agreement and this fact was apparently regarded as a
waiver of the requirement of communication of acceptance. 261
(3) “Fault” of offeror
The offeror may be precluded from denying that the acceptance was communicated if it was “his own
fault that he did not get it”; e.g. “if the listener on the telephone does not catch the words of
acceptance but nevertheless does not … ask for them to be repeated”. 262 If an acceptance is sent
and duly received during business hours by telex or fax but is simply not read by anyone in the
offeror’s office when it is there transcribed or printed out on his machine, it is probably taken to have
been communicated at that time 263; if such a message is received out of business hours, it probably
takes effect at the beginning of the next business day. 264
(4) Email acceptance
While the issue has received no judicial determination, it is submitted that the time of acceptance by
email should be when the email is received by the offeror, 265 and an email acceptance should be
treated as having been received when it arrives on the offeror’s email server, 266 even if the offeror
has not, or perhaps cannot, access it.
(5) Communication to offeror’s agent
The acceptance may be communicated, not to the offeror personally, but to his agent. The effect of
such a communication depends on the agent’s authority. 267 The communication concludes a contract
if the agent is authorised to receive the acceptance, but not if he is authorised only to transmit it to the
offeror: e.g. if a written acceptance is handed to a messenger sent to the offeree by the offeror. In the
latter case the acceptance takes effect only when it is communicated to the offeror (unless the case
falls within one of the other exceptions to the general rule requiring the acceptance to be
communicated to the offeror).
(6) Acceptance sent by post
An acceptance sent by post often takes effect before it is communicated. The exact effects of such an
Page 3
acceptance are discussed in paras 2-047—2-059 below.
235. McIver v Richardson (1813) 1 M. & S. 557; Mozley v Tinkler (1835) 1 C.M. & R. 692; Ex p.
Stark [1897] 1 Ch. 575; Holwell Securities Ltd v Hughes [1974] 1 W.L.R. 155, 157; Allied Marine
Transport Ltd v Vale do Rio Doce Navegaçao SA (The Leonidas D.) [1985] 1 W.L.R. 925, 937.
In Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep 349
Cooke J. said at [81], that “[t]here is an act of total unreality … in considering offer and
acceptance in the abstract, as national concepts divorced from communication”. This statement
should, it is submitted, be read in the statutory context in which it was made, that is, in the
context of the meaning to be given to the expression “the acts constituting the offer and
acceptance” in s.26(4)(b) of the Unfair Contract Terms Act 1977, and not in the wider common
law contexts discussed in sections 2 and 3 of this chapter.
236. Kennedy v Thomassen [1929] 1 Ch. 426; Brogden v Metropolitan Ry (1877) 2 App. Cas. 666,
692.
237. Best’s Case (1865) 2 D.J. & S. 650; cf. Gunn’s Case (1867) L.R. 3 Ch. App. 40.
238. Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 A.C. 34.
239. Hebb’s Case (1867) L.R. 4 Eq. 9; Kennedy v Thomassen [1929] 1 Ch. 426.
240. Bloxham’s Case (1864) 33 Beav. 529; (1864) 4 D.J. & S. 447; Levita’s Case (1867) L.R. 3 Ch.
App. 36.
241. This appears to be the best explanation of Powell v Lee (1908) 99 L.T. 284.
242. Entores Ltd v Miles Far East Corp [1955] 2 Q.B. 327, 332.
243. cf. below, para.2-096.
244. See the first analysis of the situation in Photolibrary Group Ltd v Burda Senator Verlag GmbH
[2008] EWHC 1343 (QB), [2008] 2 All E.R. (Comm) 811 at [63], discussed in para.2-007 above.
There is no reference to any communication of the acceptance; presumably the conduct of the
parties gave rise to an inference that this requirement had been waived.
245. Attrill v Kleinwort Benson Ltd [2012] EWHC 1189 (QB) at [164].
246. Weatherby v Banham (1832) 5 C. & P. 228; cf. Minories Finance Ltd v Afribank Nigeria Ltd
[1995] 1 Lloyd’s Rep. 134, 140; it is assumed that the goods are not “unsolicited” within the
legislation against “inertia selling” (above, para.2-005).
247. Port Huron Machinery Co v Wohlers, 207 Iowa 826, 221 N.W. 843 (1928); cf. UCC,
s.2–206(1)(b); Smit International Singapore Pte Ltd v Kurnia Dewi Shipping SA (The Kurnia
Dewi) [1997] 1 Lloyd’s Rep. 553, 559; and see the second analysis of the situation in the
Photolibrary case [2008] EWHC 1343 (QB) at [64], where there was (as at [63], above n.240)
no reference to any communication of the acceptance.
248. Roberts v Hayward (1828) 3 C. & P. 432; but not if the tenant disclaims the intention to accept:
Glossop v Ashley [1921] 2 K.B. 451.
249. Attrill v Dresdner Kleinwort Ltd [2012] EWHC 118 (QB) at [177].
250. See above, para.1-107; below para.2-082.
251. Shipton v Cardiff Corp (1917) 87 L.J.K.B. 51; Davies v Rhondda UDC (1917) 87 L.J.K.B. 166;
Air Transworld Ltd v Bombardier Inc [2012] EWHC 243, [2012] 1 Lloyd’s Rep. 349 at [79]; Attrill
Page 4
v Dresdner Kleinwort Ltd [2012] EWHC 1189 (QB) was affirmed by the Court of Appeal [2013]
EWCA Civ 394 where the contract was described as a unilateral one, so that the requirement of
communication of acceptance was waived (at [94]).
252. [1893] 1 Q.B. 256, above, para.2-015.
253. Below, paras 4-040, 18-008.
254. First Sport Ltd v Barclays Bank Plc [1993] 1 W.L.R. 1228, 1234 (where the card had been
stolen and been presented to the retailer by the thief).
255. First Sport Ltd v Barclays Bank Plc [1993] 1 W.L.R. 1228 at 1234-1235.
256. [2005] EWHC 600 (Comm), [2006] 1 All E.R. (Comm) 56; affirmed on other grounds [2006]
EWCA Civ 241, [2006] 2 All E.R. (Comm) 104.
257. Argo Fund Ltd v Esser Steel Ltd [2005] EWHC 600 (Comm), [2006] 1 All E.R. (Comm) 56 at
[51]; affirmed on other grounds [2006] EWCA Civ 241, [2006] 2 All E.R. (Comm) 104.
258. Argo Fund Ltd v Esser Steel Ltd [2005] EWHC 600 (Comm); the effect of the new contract was
said at [50], [51] to be to novate the original one.
259. Argo Fund Ltd v Esser Steel Ltd [2005] EWHC 600 (Comm) at [50], [51].
260. Argo Fund Ltd v Esser Steel Ltd [2005] EWHC 600 (Comm) at [52].
261. Argo Fund Ltd v Esser Steel Ltd [2005] EWHC 600 (Comm) at [53] (“perhaps this is the right
analysis”).
262. Entores Ltd v Miles Far East Corp [1955] 2 Q.B. 327, 333.
263. cf. Tenax Steamship Co Ltd v The Brimnes (Owners) (The Brimnes) [1975] Q.B. 929; and see
below, para.2-096.
264. Schelde Delta Shipping BV v Astarte Shipping Ltd (The Pamela) [1995] 2 Lloyd’s Rep. 249, 252
; Galaxy Energy International Ltd v Novorossiysk Shipping Co (The Peter Schmidt) [1998] 2
Lloyd’s Rep. 1.
267. Henthorn v Fraser [1892] 2 Ch. 27, 33.

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(c) - Posted Acceptance
The posting rule 268
2-047
An acceptance sent by post could take effect when it is posted, when it would in the ordinary course
of post have reached the offeror, when it arrives at his address, or when it is actually communicated
to the offeror. Each of these solutions could cause inconvenience or injustice to one of the parties,
especially when the acceptance is lost or delayed in the post. In English law, the general rule 269 is
that a postal acceptance takes effect when 270 and where 271 the letter of acceptance is posted. A
letter is “posted” for this purpose when it is put in the control of the Post Office 272 or of one of its
employees authorised to receive letters. Handing letters to a postman authorised to deliver letters is
not posting. 273 The same principle applies to the case of an acceptance by telegram: such an
acceptance takes effect when the telegram is communicated to a person authorised to receive it for
transmission to the addressee 274; and it seems that this rule would apply to telemessages, which
have replaced inland telegrams. The “posting” rule, which generally favours the offeree, has been
explained as one of convenience for the reasons stated in paras 2-052—2-056 below.
Conditions of applicability
2-048
The posting rule applies only if it is reasonable to use the post. This will normally be the case if the
offer itself is made by post. It may also be reasonable to use the post even though the offer was made
orally if immediate acceptance was not contemplated and the parties lived at a distance. 275 On the
other hand it would not normally be reasonable to attempt to reply by a posted letter of acceptance to
an offer made by telex 276 or by telephone, fax or email. Nor would it be reasonable to accept by post
if the postal service was, to the acceptor’s knowledge, disrupted. 277
Instantaneous communications
2-049
The posting rule does not apply to acceptances made by some “instantaneous” mode of
communication, e.g. by telephone or by telex. 278 The reason is that the acceptor will often know at
once that his attempt to communicate was unsuccessful, so that he has the opportunity of making a
proper communication. 279 On the other hand, a person who accepts by a letter that goes astray, may
not know of the loss or delay until it is too late to make another communication. Such instantaneous
communications are therefore governed by the general rule 280 that an acceptance must be actually
communicated, subject to the other exceptions to that rule stated in para.2-046 above.
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Dictated telegrams and faxes
2-050
It is now uncommon for acceptances to be made by telegram or telemessage dictated over the
telephone and there is no authority on the question whether such an acceptance takes effect when
the message is dictated by the sender or when it is communicated to the addressee. It is submitted
that such an acceptance should, in accordance with the above reasoning, 281 take effect as soon as it
is dictated 282; for if it later goes astray, the acceptor is unlikely to have any means of knowing this fact
until it is too late to make a further communication. Fax messages seem to occupy an intermediate
position between postal and instantaneous communications. The sender will know at once if his
message has not been received at all, or if it has been received only in part, and in such situations the
mere sending of the message should not amount to an effective acceptance. 283 However, it is also
possible for the entire message to have been received, but in such a form as to be wholly or partly
illegible. 284 Since the sender is unlikely to know, or to have means of knowing, this at once, the above
reasoning would suggest that an acceptance sent by fax might well be effective in such
circumstances.
Excluding the posting rule
2-051
The posting rule can be excluded by the terms of the offer. For this purpose, it is not necessary to say
expressly that the acceptance will take effect only when it has been actually communicated. In
Holwell Securities Ltd v Hughes 285 an offer to sell a house was made in the form of an option “to be
exercisable by notice in writing to the Intending Vendor”. Such a notice was posted but did not arrive.
It was held that there was no contract of sale as the offer, on its true construction, required actual
communication of acceptance.
Operation of the posting rule
2-052
The posting rule is essentially one of convenience. 286 The English authorities support its application
in three situations discussed in paras 2-053—2-056 below. It should not, however, be thought that the
rule will be mechanically applied to all situations which it might, by a process of apparently logical
deduction, be thought to govern. It has been said that the rule will not be applied where it would lead
to “manifest inconvenience and absurdity” 287; so that the question of its application to a further group
of situations discussed in paras 2-057—2-060 below depends on practical considerations and on the
balance of convenience.
Posted acceptance preceded by uncommunicated withdrawal
2-053
A posted acceptance prevails over a withdrawal of an offer which was posted before the acceptance
but which had not yet reached the offeree when the acceptance was posted. 288 It also operates as a
restriction on the otherwise unfettered power 289 of the offeror to withdraw his offer. These are the
logical consequences of the general rule that postal acceptance takes effect when it is posted, while
the revocation of an offer only takes effect when it actually reaches the offeree. 290 In practice, these
are the most important applications of the rule.
Acceptance lost or delayed in the post
2-054
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A posted acceptance takes effect even though it never reaches the offeror because it is lost through
an accident in the post 291; and the same rule probably applies where the acceptance is merely
delayed through an accident in the post, 292 i.e. the contract is concluded at the time of posting of the
acceptance. In Household Fire Insurance Co Ltd v Grant, 293 for example, the defendant had applied
for shares in a company: this application amounted to an offer by him to subscribe for the shares. 294
An acceptance, in the form of a letter of allotment, was posted to him but never received. Some three
years later, the company went into liquidation, and it was held that the defendant was a shareholder
and so liable for calls on the shares. The case has certain unusual features: namely that the initial
deposit on application for the shares was not actually paid, the defendant being instead credited with
an equivalent sum due to him from the company; and that dividends declared by the company were
not actually paid out to the defendant but simply credited to his account with the company. But for
these features the defendant would necessarily have become aware (long before the end of the three
years) of the fact that he was regarded by the company as a shareholder.
2-055
The decision in Household Fire Insurance Co Ltd v Grant was reached only by a majority and
involved the overruling of a previous contrary decision. 295 This indicates that the arguments of
convenience for and against applying the posting rule to such a situation are finely balanced. On the
one hand, it may be hard to hold an offeror liable on an acceptance which, through no fault of his
own, was never received by him; on the other it may be equally hard to deprive the offeree of the
benefit of an acceptance if he had taken all reasonable steps to communicate it. Moreover, each party
may act in reliance on his (perfectly reasonable) view of the situation: the offeror may enter into other
contracts, believing that his offer had not been accepted, while the offeree may refrain from doing so,
believing that he had effectively accepted the offer. In this situation, English law favours the offeree
on the grounds that it is the offeror who “trusts to the post” 296 and that the offeror can safeguard
himself by stipulating in the offer that the acceptance must be actually communicated to him. 297
These arguments are not wholly convincing. The offer may be a counter-offer, in which case it will be
the ultimate offeree who originally “trust[ed] to the post”. Or the offer may be made on a form
prepared by the offeree, 298 in which case he and not the offeror will, for practical purposes, be in
control of its terms. It may be that there are no really convincing reasons to support the weight of the
postal acceptance rule. However, since the law cannot avoid preferring either the offeror or the
offeree, it must simply choose one in the interest of certainty.
Priorities
2-056
A contract is taken to be made at the time when the acceptance was posted, so as to take priority
over another contract affecting the same subjectmatter made after the posting of the first acceptance.
299
Fault and misdirected letter of acceptance
2-057
A letter of acceptance may be lost or delayed because it bears a wrong or an incomplete address, or
because it is not properly stamped. Normally such defects will be due to the carelessness of the
offeree; and, although there is no English authority precisely in point, 300 it is submitted that the
posting rule should not apply to such cases. Although an offeror may have to take the risk of
accidents in the post, it would be unreasonable to impose on him the further risk of the acceptor’s
carelessness. These arguments do not apply where the misdirection is due to the fault of the offeror
—e.g. where his own address is incompletely or illegibly given in the offer itself. 301 In such a case, the
offeror should not be allowed to rely on the fact that the acceptance was misdirected (except perhaps
where his error in stating his own address was obvious to the offeree; for in such a case the offeror’s
fault would not be the effective cause of the misdirection of the acceptance). It is submitted that a
misdirected acceptance should take effect (if at all) at the time that is least favourable to the party
responsible for the misdirection.
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In L.J. Korbetis v Transgrain Shipping BV Toulson J. said that he agreed with the above “general
approach” to the problem of misdirected acceptances “because it seems to me to correspond with
principle and justice”. 302 The question in that case was whether shipowners and charterers had
agreed on the nomination of a sole arbitrator to whom a dispute, which had arisen under a
charterparty between them, was to be referred. The charterers sent a fax inviting the shipowners to
choose one of three names; in reply, the shipowners sent a fax from their office in Piraeus, agreeing
to one of those names. This fax was intended for the charterers in the Netherlands, but it never
reached them because the appropriate international dialling code had not been entered. It was held
that the misdirected acceptance was not effective to conclude an agreement for the appointment of
the arbitrator.
Garbled messages
2-058
A message may be garbled as a result of some inaccuracy in transmission for which neither the
sender nor the recipient are responsible or aware. In Henkel v Pape 303 the claimant invited the
defendant to make an offer to buy 50 rifles; and the defendant, not wanting this number, telegraphed
“send three rifles”. The telegram reached the claimant in the form “send the rifles” and the claimant
despatched 50. It was held that the defendant was not bound to accept more than three. Here the
garbled telegram was an offer, but such a communication could also be an acceptance: for example
where, in response to an offer to sell 50, the buyer sent a telegraphed message in the form “send the
rifles”. It is submitted that this would be a valid acceptance (so long as it was reasonable for the buyer
to accept by this medium) even if the message arrived in the form “send three rifles”. If the offeror has
to take the risk of loss or delay in the post, there seems to be no good reason why he should not also
take the risk of errors in the transmission of a telegraphed message; for in each case the offeree will
have no means of knowing that something has gone wrong until it is too late to make another, proper,
communication. 304
Revocation of posted acceptance
2-059
There is no English authority on the question whether a posted acceptance can be revoked by a later
communication (such as a telex or an email message), which reaches the offeror before, or at the
same time as, the acceptance. One view is that the offeree’s revocation has no effect since, once a
contract has been concluded by the posting of the acceptance, it cannot be dissolved by the act of
one party. 305 But this apparently “logical” deduction from the “posting rule” overlooks the fundamental
point that that rule is only one of convenience. 306 Hence the issue is whether the offeror could be
unjustly prejudiced by allowing the offeree to rely on the subsequent revocation which nevertheless
comes to his actual notice at the same time as, or before, the acceptance. On the one hand, it can be
argued that the offeror cannot be prejudiced since he was not entitled to have his offer accepted and
cannot have relied on its having been accepted if he did not yet know of the acceptance. On the other
hand it can be argued that, since the offeror can no longer withdraw his offer after the acceptance has
been posted by the offeree, 307 reciprocity demands that the offeree should likewise not be allowed to
withdraw his acceptance. 308 Otherwise, the offeree could speculate, without risk to himself, at the
offeror’s expense. He could post an acceptance and hold the offeror bound if the market moved in his
own favour, but retract the acceptance by an overtaking communication if the market moved against
him, while the offeror had no similar freedom of action. While the offeror may take the risks of
accidents in the post, it is submitted that he should not have to bear the risk of the offeree’s
revocation. 309
2-060
In para.2-059 above, it is assumed that the offeror wants to hold the offeree to the contract
notwithstanding the revocation of the acceptance. But to hold an acceptance binding as soon as it
was posted, in spite of an overtaking communication purporting to revoke it, might also cause
Page 5
hardship to the offeror, particularly where he had acted in reliance on the revocation; e.g. by selling
the subject-matter of the original offer to a third party. In such a case it is submitted that the offeree
should not be entitled to change his mind yet again and rely on his letter of acceptance with the object
of claiming damages from the offeror. The offeree’s subsequent purported revocation could in such a
case be regarded as an offer to rescind the contract, accepted by the offeror’s conduct in relation to
subject-matter; communication of such acceptance could be deemed to have been waived.
Alternatively, the purported revocation could be regarded as a repudiation in breach of contract,
giving the offeror the power to put an end to his obligations under the contract by “accepting” the
breach. 310 On the latter view, the offeror who sells to the third party for less than was to be paid by
the original offeree, would be able to claim the difference from the offeree as damages. 311
International sales
2-061
The Vienna Convention on Contracts for the International Sale of Goods 312 (which has not been
ratified by the United Kingdom) governs not only the rights and duties of the parties to, but also the
formation of, such contracts. Under the Convention an offer takes effect when it “reaches” the offeree
313
and an acceptance when it “reaches” the offeror, 314 i.e. (in both cases) when it is communicated to
the addressee or delivered to his address. 315 Thus there is no contract if the acceptance is lost in the
post; but if the acceptance is delayed in transmission, an intermediary position has been adopted; the
delayed acceptance is effective, unless the offeror informs the offeree promptly on its receipt that he
regards the offer as having lapsed. 316 Once an offer has become effective, it cannot be revoked after
the offeree has dispatched his acceptance 317: this preserves the English position that a posted
acceptance prevails over a previously posted withdrawal (referred to in the Convention as a
revocation). An acceptance may be withdrawn by a communication that reaches the offeror before (or
at the same time as) the acceptance would have become effective 318 if there had been no such
withdrawal.
Consumer’s right to cancel distance and off-premises contracts
2-062
Part 3 of the Consumer Protection (Information, Cancellation and Additional Charges) Regulations
2013 319 applies to “distance and off-premises contracts between a trader and a consumer” 320 and in
the circumstances specified in that Part gives the consumer a “right to cancel” such contracts. 321 A
contract made by, for example, exchange of letters, faxes or email message, or in website trading,
falls within the definition of a “distance contract” within the 2013 Regulations if it is one for the supply
of goods or services by a “trader” to a “consumer” and the contract is made:
“without the simultaneous presence of the trader and the consumer, with the exclusive
use of one or more means of distance communication up to and including the time at
which the contract is concluded.” 322
The Regulations do not specify when such a contract is made, 323 but if it has been made, they give
the consumer the right to cancel it 324 by notice within a cancellation period specified in the
Regulations (e.g. a period beginning when the contract is made 325 and ending 14 days after the day
on which the goods which are the subject-matter of the contract come into the physical possession of
the consumer 326). In relation to the argument put forward in para.2-059 above (that, if the revocation
were effective, the offeree could speculate without risk to himself at the offeror’s expense), it is
significant that the “right to cancel” given to the consumer by Pt 3 of Regulations “does not apply as
regards” the supply of goods or certain services “for which the price is dependent on fluctuations in
the financial market which cannot be controlled by the trader and which may occur during the
cancellation period.” 327 Under the 2013 Regulations, this “right to cancel” extends also to
“off-premises contracts” such as contracts made in the simultaneous presence of the trader and the
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consumer in a place that is not the business premises of the trader. 328 Cancellation of the contract
“ends the obligations of the parties to perform the contract” 329 and gives rise to obligations that are
designed, broadly speaking, to restore the parties to their pre-contract position. 330 The effect of the
exercise of the right to cancel is therefore not the same as the effect of saying that no contract has
been concluded by (e.g.) exchange of letters under the common law rules of offer and acceptance
discussed in paras 2-047—2-060 above 331; on the contrary, the very concept of the consumer’s “right
to cancel” is based on the assumption that, as a matter of common law, a contract has come into the
existence. Moreover, the supplier has no right to cancel under the Regulations, so that the question
whether he has entered into the contract continues to be governed by the common law rules.
268. Winfield (1939) 55 L.Q.R. 499; Nussbaum (1926) 36 Col.L.Rev. 920; Ellison Kahn (1955) 72
S.A.L.J. 246; Evans (1966) 15 I.C.L.Q. 553; Gardner (1992) 12 O.J.L.S. 170.
269. But see below, paras 2-052 et seq.
270. Henthorn v Fraser [1892] 2 Ch. 27, 33; Adams v Lindsell (1818) 1 B. & Ald. 681; Potter v
Sanders (1846) 6 Hare 1; Harris’ Case (1872) L.R. 7 Ch. App. 587.
271. Brinkibon Ltd v Stahag Stahl and Stahlwarenhandelsgesellschaft mbH [1983] 2 A.C. 34, 41. It is
also possible for a contract to be made in more than one place. In Conductive Interjet
Technology Ltd v Uni-Pixel Displays Inc [2013] EWHC 2968 (Ch), [2014] 1 All E.R. (Comm) 655
, contractual negotiations were conducted between parties in different countries. One copy of
the agreed terms was signed by A in the first country; another was sent by A as an email
attachment to B in the second country who there signed that copy. In these circumstances Roth
J. said at [73] that it would “be wholly artificial to determine the place of the making of the
contract by applying the traditional posting rule, dependent upon which party happened to send
the fully executed document”; and that there was “a good arguable case that the contract was
made in” both countries.
272. Brinkibon Ltd v Stahag Stahl and Stahlwarenhandelsgesellschaft mbH [1983] 2 A.C. 34, 41; the
"Post Office" here refers to the provider of the universal postal service under the Postal
Services Act 2011, by whatever name that provider may from time to time be known.
273. Re London & Northern Bank [1900] 1 Ch. 220.
274. Bruner v Moore [1904] 1 Ch. 305; cf. Stevenson Jacques & Co v McLean (1880) 5 Q.B.D. 346.
See also Cowan v O’Connor (1888) 20 Q.B.D. 640 (place of acceptance).
275. e.g. in Henthorn v Fraser [1892] 2 Ch. 27. Such a written acceptance of an oral offer does not,
however, create a “contract by correspondence” within the Law of Property Act 1925 s.46:
Stearn v Twitchell [1985] 1 All E.R. 631.
276. cf. Quenerduaine v Cole (1883) 32 W.R. 185 (telegram).
277. Bal v Van Staden [1902] T.S. 128.
278. Entores Ltd v Miles Far East Corp [1955] 2 Q.B. 327; Brinkibon Ltd v Stahag Stahl und
Stahlwarengesellschaft mbH [1983] 2 A.C. 34; NV Stoomv Maats “De Maas” v Nippon Yusen
Kaisha (The Pendrecht) [1980] 2 Lloyd’s Rep. 56, 66; Gill & Duffus Landauer Ltd v London
Export Corp GmbH [1982] 2 Lloyd’s Rep. 627; cf. Schelde Delta Shipping BV v Astarte
Shipping Ltd (The Pamela) [1995] 2 Lloyd’s Rep. 249, 252 (telexed notice withdrawing ship
from charterparty); and (in tort) Diamond v Bank of London & Montreal [1979] Q.B. 333.
279. See the Entores case, above n.274, at 333 and the Brinkibon case, above n.274, at 43.
280. Above, para.2-044.

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281. At n.275, above.
282. Contra Winfield (1939) 55 L.Q.R. 499, 515.
283. JSC Zestafoni Nikoladze Ferroalloy Plant v Ronly Holdings Ltd [2004] EWHC 245 (Comm),
[2004] 2 Lloyd’s Rep. 335, where a fax message was classified at [75] as an “instantaneous
communication” and to take effect only on full receipt as the sender’s machine would usually
indicate whether the message had been received “effectively” (as distinct from having been
received only in part). cf. also Korbetis v Transgrain Shipping BV [2005] EWHC 1345 (QB)
(misdirected fax acceptance, below, para.2-057).
284. This possibility is not considered (as it did not arise) in the JSC Zestafoni case, above n.279.
285. Holwell Securities Ltd v Hughes [1974] 1 W.L.R. 155; cf. New Hart Builders Ltd v Brindley
[1975] Ch. 342.
286. Brinkibon case (above, n.274) at 41; Gill & Duffus Landauer case (above, n.274) at 631.
287. Holwell Securities Ltd v Hughes [1974] 1 W.L.R. 157, 161.
288. Harris’ Case (1872) L.R. 7 Ch. App. 587; Byrne & Co v Leon van Tienhoven (1880) 5 C.P.D.
344; Henthorn v Fraser [1892] 2 Ch. 27; Re London & Northern Bank [1900] 1 Ch. 200.
289. Below, paras 2-093, 4-193.
290. Below, para.2-094.
291. Household Fire Insurance Co Ltd v Grant (1879) 4 Ex. D. 216.
292. See Dunlop v Higgins (1848) 1 H.L.C. 381, which would probably be followed in England
though it is expressly restricted (at 402) to Scots law.
293. (1879) 4 Ex. D. 216.
294. Above, para.2-024.
295. British & American Telegraph Co v Colson (1871) L.R. 6 Ex. 108.
296. Household Insurance case (1879) 4 Ex. D. 216, 223.
297. Household Insurance case (1879) 4 Ex. D. 216, 223.
298. Below, para.2-067.
299. Potter v Sanders (1846) 6 Hare 1.
300. But, see, by way of analogy, Getreide-Import Gesellschaft v Contimar [1953] 1 W.L.R. 207 and
793.
301. cf. Townsend’s Case (1871) L.R. 13 Eq. 148 (the actual reasoning of which is obsolete since
Household Fire Insurance Co Ltd v Grant (1879) 4 Ex. D. 216).
302. [2005] EWHC 1345 (QB) at [15].
303. (1870) 6 Ex. 7.
304. cf. above, para.2-049.
305. This view is sometimes said to be supported by Wenkheim v Arndt (N.Z.) 1 J.R. 73 (1873),
where the defendant had by letter accepted an offer of marriage: her mother then sent a
Page 8
telegram purporting to cancel the acceptance. The actual decision was that the mother had no
authority to act on behalf of her daughter in this way, so that the claimant recovered damages
(of no more than one farthing). The view stated in the text is supported by Morrison v Thoelke
155 So. 2d 889 (1963) and by A to Z Bazaars (Pty) Ltd v Minister of Agriculture (1974) (4) S.A.
392 (c) (discussed by Turpin [1975] C.L.J. 25); but contradicted by Dick v US, 82 F.Supp. 326
(1949). It is also sometimes said to be contradicted by Dunmore v Alexander (1830) 9 Shaw
190, but there the first letter was probably an offer; only the dissenting judge regarded it as an
acceptance. See generally Hudson (1966) 82 L.Q.R. 169. cf. Kinch v Bullard [1999] 1 W.L.R.
423 (notice which, by virtue of Law of Property Act 1925 s.196(3), had taken effect on being left
at a person’s place of abode, but without having been actually communicated to him, could not
thereafter be withdrawn by sender).
306. Above, para.2-047.
307. Above, para.2-053.
308. For similar reasoning in the case of a misdirected acceptance (above, para.2-057) see L.J.
Korbetis v Transgrain Shipping BV [2005] EWHC 1345 (QB) at [11].
309. cf. above, para.2-057. Contrast Hudson, above, n.301.
310. Below, para.24-001.
311. cf. Kinch v Ballard [1999] 1 W.L.R. 423, 430 (purported withdrawal by sender of a notice after it
had taken effect ineffective against addressee (above, n.300) but said at 430-431 to be
effective against sender).
312. Below, Vol.II, para.44-014.
313. art.15(1).
314. art.18(2).
315. art.24.
316. art.21(2).
317. art.16(1); “dispatch” is not defined.
318. art.22.
319. SI 2013/3134. These Regulations have replaced the Consumer Protection (Distance Selling)
Regulations 2000 with effect from June 13, 2014. For amendments of the Consumer Protection
from Unfair Trading Regulations 2008 (SI 2008/1277) see Consumer Protection Regulations
2014 (SI 2014/870) regs 2 to 4. For further discussion of the 2013 Regulations see below,
paras 38-055—38-144.
320. SI 2013/3134 reg.27; for definitions of these expressions see regs 4 and 5.
321. SI 2013/3134 reg.29.
322. SI 2013/3134 reg.5.
323. This is also true of the Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013)
(implementing Directive 2000/31/EC) which merely provide that in the case of, for example, a
contract made on a website, “the order and the acknowledgement of receipt [of the order] will
be deemed to be received when the parties to whom they are addressed are able to access
them” (reg.11(2)(a)). The effect of acknowledgement of receipt of an order falls to be
determined as a matter of common law: see the definition of acceptance in para.2-026 above.
The provision of reg.11(2)(a) quoted in this note does not, in any event apply to “contracts
Page 9
concluded exclusively by exchange of electronic mail or by equivalent individual

communications”: reg.11(3).
324. SI 2013/3134 reg.29(1); for limits of the right to cancel, see reg.28.
325. SI 2013/3134 reg.29(2).
326. SI 2013/3134 reg.30(3).
327. SI 2013/3134 reg.28(1)(a). Other transactions to which Pt 3 does not apply are listed in
reg.28(1)(b) to (h); the operation of Pt 3 is further restricted by reg.28(2) and (3); and by the fact
that the Regulations do not apply to a contract “to the extent that it is for” transactions of the
kinds listed in reg.6(1) and 6(2), subject to reg.6(3).
328. SI 2013/3134 reg.5.
329. SI 2013/3134 reg.33(1)(a); “ancillary contracts” (as defined in reg.38(3)) are “automatically
terminated”.
330. SI 2013/3134 regs 33(1)(b) and 34-36.
331. Here, it is interesting to note that regs 33, 34 and 38 of the 2013 Regulations treat “withdrawal”
of an offer (under Pt 3) and “cancellation” of a contract as distinct concepts.

Page 1

(d) - Prescribed Mode of Acceptance
Method must generally be complied with
2-063
An offer which requires the acceptance to be expressed or communicated in a specified way 332 can
generally 333 be accepted only in that way. Thus, if the offeror asks for the acceptance to be sent to a
particular place, one sent elsewhere will not bind him 334; nor will he be bound by an oral acceptance if
he has asked for one to be expressed in writing. 335 This rule is particularly strict where the offer is
contained in an option. 336
Purported acceptance as counter-offer
2-064
It is sometimes possible for a purported acceptance which does not comply with the prescribed
method to be regarded as a counter-offer and for a contract to come into existence when that
counter-offer is in turn accepted. 337 Since such acceptance may be effected by conduct, 338 the
contract may be concluded without any further communication between the parties after the original,
ineffective, acceptance.
Other equally efficacious mode
2-065
Stipulations as to the mode of acceptance are usually made by the offeror with some particular
object in view, e.g. to obtain a speedy acceptance, or one expressed (for the sake of certainty) in a
particular form. It seems that an acceptance which accomplishes that object just as well as, or better
than, the stipulated method may bind the offeror. For this purpose, the court must first decide, as a
matter of construction, what object it was that the offeror had in view. For example, a requirement that
the acceptance must be sent by letter by return of post may “fix the time for acceptance and not the
manner of accepting”. 339 An acceptance by telex could then suffice. But such an acceptance
would not be effective if the offeror’s object (on the true construction of the offer) was to have a full,
accurate and signed record of the acceptance.
Method of acceptance waived
2-066
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Even if the prescribed method of acceptance is not complied with, the offeror would no doubt be
bound by, 340 and apparently entitled to enforce, 341 the contract if he had acquiesced in a different
mode of acceptance and had so waived the stipulated mode. But a waiver by the offeror alone of a
stipulation as to the method of acceptance would not entitle him to enforce the contract if the
stipulation was, on its true construction, one for the benefit of both parties. 342
Terms of offer drawn up by offeree
2-067
The rules relating to failure to use a prescribed mode of acceptance are traditionally based on two
assumptions: that the offer was drawn up by the offeror; and that stipulations as to the mode of
acceptance were made by him for his own benefit. It is, however, also possible for the offer to be
made on a form drawn up by the offeree: e.g. where a customer submits to a finance company a
proposal to enter into a hire-purchase agreement; or where an offer is made by tender on a form of
tender issued by the offeree. Stipulations as to the mode of acceptance in such documents are
usually intended for the benefit and protection of the offeree. If the offeree accepts in some other way,
this will often be evidence that he has waived the stipulation; and it is submitted that the acceptance
should be treated as effective unless it can be shown that failure to use the stipulated mode has
prejudiced the offeror. 343 In one case, 344 for example, an offer to enter into a conditional sale
agreement was made by the buyer on a form provided by the offeree (a finance company). It was
held that the offer had been accepted by delivery of the subject-matter in spite of a provision in the
offer to the effect that this was not to constitute acceptance, that provision having been waived by the
345
offeree. In another case, the Court of Appeal, approving this and the previous paragraphs, set
346
out the rules in play here and found a concluded contract despite the contract document
remaining unsigned by the offeree as required by the contract, because 347 : the contract was on
the offeree’s standard form and the signature requirement was for its benefit; the requirement was
waived by the offeree performing the contract as contemplated; there was no prejudice to the offeror,
who had benefitted from and had actively facilitated the offeree’s performance; subsequent conduct
on both sides confirmed the existence of the contract; and finding a contract “accords with what would
be the reasonable expectations of Lord Steyn’s honest, sensible business people”. Nevertheless, the
Court acknowledged that the offeree’s failure to sign “was at the expense of certainty as to the
precise date the contract was formed”, although this was not significant on the facts. 348
332. There is no “prescribed” mode of acceptance in the sense under consideration here merely
because “the agreement envisages a signature [by each party] and leaves a space for these
signatures”: Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334, [2010]
2 All E.R. (Comm) 788 at [16]. Even if the offer expressly refers to a method of acceptance
(such as signature by the offeree) that method need only be complied with if, on the true
construction of the offer, it is intended to be the only method of acceptance: Mulcaire v News
Group Newspapers Ltd [2011] EWHC 3469 (Ch), [2012] Ch. 435 at [11].
333. See qualifications in para.2-065 below.
334. Frank v Knight (1937) O.P.D. 113; cf. Eliason v Henshaw 4 Wheat. 225 (1819); Walker v Glass
[1979] N.I. 129.
335. Financings Ltd v Stimson [1962] 1 W.L.R. 1184, 1186. Contrast Hitchens v General Guarantee
Corp [2001] EWCA Civ 359, The Times, March 13, 2001 (where there was no requirement that
the acceptance must be in writing).
336. Holwell Securities Ltd v Hughes [1974] 1 W.L.R. 157.

Page 3
337. Wettern Electricity Ltd v Welsh Development Agency [1983] Q.B. 796.
338. As in the Wettern Electricity case, above; provided, however, that such conduct is accompanied
by the requisite contractual intention: see Harvela Investments Ltd v Royal Trust Co of Canada
(C.I.) Ltd [1986] A.C. 207 and below, para.2-168; for counter-offers, see above para.2-031;
below, para.2-097.
339.
Tinn v Hoffmann & Co (1873) 29 L.T. 271, 278; cf. Manchester Diocesan Council for
Education v Commercial & General Investments Ltd [1970] 1 W.L.R. 242; Edmund Murray v
B.S.P. International Foundations (1994) 33 Con. L.R. 1; A Ltd v B Ltd [2015] EWHC 137
(Comm).
340.
A Ltd v B Ltd [2015] EWHC 137 (Comm).
341. On the analogy of the reasoning of Oceanografia SA de CV v DSND Subsea AS (The Botnica)
[2006] EWHC 1300 (Comm), [2007] 1 All E.R. (Comm) 28, below paras 2-123, 4-082.
342. MSM Consulting Ltd v Tanzania [2009] EWHC 121 (QB), 123 Con. L.R. 154 at [120].
343. See Robophone Facilities v Blank [1966] 1 W.L.R. 1428 and cf. the Manchester Diocesan case,
above, n.335; from this point of view these cases are, it is submitted, to be preferred to
Financings Ltd v Stimson [1962] 1 W.L.R. 1184.
344. Carlyle Finance Ltd v Pallas Industrial Finance Ltd [1999] All E.R. (Comm) 659, approving the
reasoning now contained in para.2-067 above.
345.
Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443.
346.
[2016] EWCA Civ 443 at [40]–[41].
347.
[2016] EWCA Civ 443 at [53].
348.
[2016] EWCA Civ 443 at [53].

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(e) - Silence
Offeree generally not bound
2-068
As a general rule, an offeree who does nothing in response to an offer is not bound by its terms. This
is so even though the offer provides that it can be accepted by silence. Thus in Felthouse v Bindley 349
an uncle offered to buy a horse from his nephew for £30 15s., adding “If I hear no more about him I
shall consider the horse is mine at £30 15s”. The uncle brought an action for conversion against an
auctioneer who had by mistake included the horse in a sale of the nephew’s property. It was held that,
the auctioneer was not liable because:
“The uncle had no right to impose upon the nephew the sale of his horse … unless he
chose to comply with the condition of writing to repudiate the offer ….” 350
The reason for the rule is that it is, in general, undesirable to impose on an offeree the trouble and
expense of rejecting an offer which he does not wish to accept. But in Felthouse v Bindley this was
not the position. The nephew had, before the auction, told the auctioneer that he “intended to reserve”
the horse for his uncle, and later correspondence showed that the nephew did at the time of the
auction intend to sell the horse to the uncle. In spite of this, it was held that there was no contract
because the nephew “had not communicated his intention to the uncle”. 351 But the need to
communicate an acceptance can be waived by the terms of the offer 352 and it seems clear that the
uncle’s letter did waive that need. The actual decision is, in view of these facts, hard to support, but
this is no criticism of the general rule laid down in the case.
Silence generally equivocal
2-069
The question whether silence may amount to an acceptance binding the offeree has also arisen in the
arbitration cases (discussed in para.2-006 above) in which the issue was whether an agreement to
abandon an earlier agreement to submit a claim to arbitration could be inferred from inactivity in the
form of long delay in prosecuting the claim. Such a delay is now in certain circumstances a statutory
ground for dismissing the claim for want of prosecution 353; but the statutory power to dismiss claims
on this ground can be excluded by contrary agreement 354; and similar questions of agreement to
abandon other types of claim could still be governed by the common law principles developed in the
arbitration cases. In these cases, it had been held that, even if one party’s inactivity could be
regarded as an offer to abandon the arbitration, 355. the mere silence or inactivity of the other did not
normally amount to an acceptance. For one thing, such inactivity was often 356 equivocal, 357 being
explicable on other grounds (such as forgetfulness or delay on the part of the offeree’s solicitors). 358
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359
For another, acceptance could not, as a matter of law, be inferred from silence alone “save in the
most exceptional circumstances”. 360
Can offeree exceptionally be bound?
2-070
As the above reference to “exceptional circumstances” suggests, there may be exceptions to the
general rule that an offeree is not bound by silence. First, if the offer has been solicited by the offeree,
the argument that he should not be put to the trouble of rejecting it 361 loses much of its force, 362
especially if the offer is made on a form provided by the offeree 363 and that form stipulates that
silence may amount to acceptance. 364 Secondly, if there is a course of dealing between the parties,
the offeror may be led to suppose that silence amounts to acceptance: e.g. where his offers to buy
goods have in the past been accepted as a matter of course by the despatch of the goods in
question. 365 In such a case it may not be unreasonable to impose on the offeree an obligation to give
notice of his rejection of the offer, especially if the offeror, in reliance on his belief that the goods
would be delivered in the usual way, had forborne from seeking an alternative supply. It has been
held that one party’s wrongful repudiation of a contract may be accepted by the other party’s failure to
take such further steps in the performance of that contract as he would have been expected to take, if
he were treating the contract as still in force 366; and similar reasoning might be applied in the present
context. Thirdly, there may also be “an express undertaking or implied obligation to speak” 367 arising
out of the course of negotiations between the parties, e.g. “where the offeree himself indicates that an
offer is to be taken as accepted if he does not indicate the contrary by an ascertainable time.” 368 The
offeree’s failure to perform such an “obligation to speak” could thus be treated by the offeror as an
acceptance by silence. But it is not normally open to the offeree in such cases to treat his own silence
(in breach of his duty to speak) as an acceptance. 369 This course would be open to him only in
situations such as that in Felthouse v Bindley, 370 in which the offeror had indicated (usually in the
terms of the offer) that he would treat silence as an acceptance. Fourthly, it is also possible that
silence may constitute an acceptance by virtue of a custom of the trade or business in question. 371
Fifthly, parties may have entered into a binding contract but have left some of its terms to be settled in
later negotiations; where one party then made a proposal as to the contents of such a term or terms,
it was held that “lack of objection to those terms is to be regarded as an acceptance of them”. 372 An
“implied obligation to speak” 373 could in such a case be said to have arisen out of the antecedent
negotiations between the parties. Lastly, the offeree can accept by conduct, which can, in principle,
take the form of a forbearance. 374
Liability of offeree based on estoppel?
2-071
Even where silence of the offeree does not amount to an acceptance, it is arguable that he might be
liable on a different basis. In Spiro v Lintern it was said that:
“If A sees B acting in the mistaken belief that A is under some binding obligation to him
and in a manner consistent only with such an obligation, which would be to B’s
disadvantage if A were thereafter to deny the obligation, A is under a duty to B to disclose
the non-existence of the supposed obligation.” 375
Although this statement was made with reference to wholly different circumstances, it could also be
applied to certain cases in which an offeror had, to the offeree’s knowledge, 376 acted in reliance on
the belief that his offer had been accepted by silence. The liability of the offeree would then be based
on a kind of estoppel. 377 But the application of this doctrine to cases of alleged acceptance by silence
gives rise to the difficulty that such an estoppel can arise only out of a “clear and unequivocal” 378
representation. For this purpose, mere inactivity is not generally sufficient, 379 so that silence in
response to an offer will not normally give rise to an estoppel. It is likely to do so only in cases of the
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kind discussed above, 380 in which there are special circumstances which give rise to a “duty to
speak,” and in which it would be unconscionable for the party under that duty to deny that a contract
had come into existence. 381
Performance by offeror benefiting offeree
2-072
It is finally possible that the offeree may be bound by silence if the offeror to the offeree’s knowledge
actually performs in accordance with his offer and so confers a benefit on the offeree; though the
better solution in this type of case would be to make the offeree restore the benefit or be subject to a
claim for unjust enrichment, 382 rather than to hold him to an obligation to perform his part of a contract
to which he had never agreed.
Can offeror be bound?
2-073
There is some authority for saying that the offeror cannot, any more than the offeree, be bound where
the offeree simply remains silent in response to an offer, 383 and the case is not one of the exceptional
ones, discussed in para.2-070 above, in which an offer can be accepted by silence. 384 But it is
submitted that the general rule in Felthouse v Bindley 385 does not lead invariably to such a
conclusion. For the object of this rule is to protect the offeree from having to incur the trouble and
expense of rejecting the offer so as to avoid being bound. No similar argument can be advanced for
protecting the offeror. He may, indeed, be left in doubt on the point whether his offer has been
accepted; but this is a matter about which he cannot legitimately complain where he has drawn his
offer so as to permit (and even to encourage) acceptance by silence. 386 Thus, it is submitted that the
uncle in Felthouse v Bindley might have been bound if the nephew had resolved to accept the offer
and had, in reliance on its terms, forborne from attempting to dispose of the horse elsewhere. This
possibility has, indeed, been doubted 387; but in the case in which the doubt was expressed there was
no express stipulation in the offer that silence would be regarded as acceptance. Where the offer
does contain such a stipulation, it is submitted that silence in response to it by the offeree should be
capable of binding the offeror.
Silence and conduct
2-074
The general rule that there can be no acceptance by silence does not mean that an acceptance
always has to be given in so many words. An offer can be accepted by conduct; and this is never
thought to give rise to any difficulty where the conduct takes the form of a positive act. 388 In principle,
conduct can also take the form of a forbearance 389: for example, a debtor’s offer to give additional
security for a debt can be accepted by the creditor’s forbearing to sue for the debt. 390 Similarly, a
tenant can accept an offer of a new tenancy by simply not vacating the premises. In one such case it
was said that the offer had been accepted by “silence” 391; but it seems better to say that it was
accepted by conduct 392 and that the landlord had waived notice of acceptance. Similarly an offer
made to a landowner to occupy land under a licence containing specified terms may be accepted by
the landowner’s permitting the offeror to occupy the land. 393 An offer by a contractor to carry out
building work on the offeree’s land may also sometimes be accepted by the offeree’s allowing the
work to proceed. 394 The possibility of acceptance by conduct is, yet again, illustrated by the
arbitration cases already mentioned, in which an agreement to abandon the proceedings was alleged
to have arisen from delay in prosecuting them. As already noted, legislation has now dealt with the
practical problems which used to arise from delay in the pursuit of arbitration claims, 395 but the
reasoning of the arbitration cases could still apply where the legislative provisions have been
excluded by agreement 396 or where it was alleged that some other type of claim or remedy had been
abandoned by tacit agreement. According to those cases, an offer of abandonment can be accepted
by reacting to it, not merely by inactivity, 397 but also by some further conduct: e.g. by closing, or
Page 4
disposing of, the relevant files. 398 On the same principle, the wrongful repudiation of an arbitration
agreement (by repeatedly denying its existence) can be accepted by starting court proceedings to
enforce the injured party’s substantive claim. 399
2-075
In Rust v Abbey Life Ins Co 400 the plaintiff applied and paid for a “property bond” which was allocated
to her on the terms of the defendants’ usual policy of insurance. After having retained this document
for some seven months, she claimed the return of her payment, alleging that no contract had been
concluded. The claim was rejected on the ground that her application was an offer which had been
accepted by issue of the policy. 401 But it was further held that, even if the policy constituted a
counter-offer, that counter-offer had been accepted by “the conduct of the plaintiff in doing and saying
nothing for seven months …”. 402 Thus, mere inaction was said to be sufficient to constitute
acceptance; but it is submitted that this conclusion may be justified by reference to the special
circumstances of the case. The negotiations had been started by the plaintiff (the counter-offeree) 403
and, in view of this fact, it was reasonable for the defendants to infer from her silence over a long
period that she had accepted the terms of the policy which had been sent to her and which she must
be “taken to have examined”. 404 The case thus falls within one of the suggested exceptions 405 to the
general rule that an offeree is not bound by silence where this alone is alleged to amount to an
acceptance. 406
349. (1862) 11 C.B.(N.S.) 869; affirmed (1863) 1 N.R. 401; Miller (1972) 35 M.L.R. 489; cf. Financial
Techniques (Planning Services) v Hughes [1981] I.R.L.R. 32
350. (1862) 11 C.B.(N.S.) 869 at 875.
351. (1862) 11 C.B.(N.S.) 869 at 876.
352. Above, para.2-046.
353. Arbitration Act 1996 s.41(3).
355. Above, para.2-006
356. But not always: see para.2-070 at n.357.
357. e.g. Jayaar Impex Ltd v Toaken Group Ltd [1996] 2 Lloyd’s Rep. 437, 445.
358. For acceptance by silence and conduct, see below, para.2-074.
359. Allied Marine Transport Ltd v Vale do Rio Doce Navegaçao SA (The Leonidas D.) [1985] 1
W.L.R. 925, 927; Rafsanjan Pistachio Producers Co-operative v Bank Leumi (UK) Plc [1992] 1
Lloyd’s Rep. 513, 542; Exmar NV v BP Shipping Ltd (The Gas Enterprise) [1993] 2 Lloyd’s Rep.
352, 357, affirmed without reference to this point, at 364; Vitol SA v Norelf Ltd [1996] A.C. 800,
812; Front Carriers Ltd v Atlantic and Orient Shipping Corporation (The Archimidis) [2007]
EWHC 421; [2007] 2 Lloyd’s Rep. 131 at [45]-[46].
360. The Leonidas D., above, n.350, at 927; Cie Française d’Importation, etc. v Deutsche
Continental Handelsgesellschaft [1985] 2 Lloyd’s Rep. 592, 598; Gebr. van Weelde
Scheepvaart Kantoor BV v Compania Naviera Orient SA (The Agrabele) [1987] 2 Lloyd’s Rep.
223, 234-235. Excomm Ltd v Guan Guan Shipping (Pte) Ltd (The Golden Bear) [1987] 1 Lloyd’s
Rep. 330 is hard to reconcile with these cases and was apparently doubted in The Antclizo
[1987] 2 Lloyd’s Rep. at 147. Such “exceptional circumstances” may be illustrated by André &
Cie SA v Marine Transocean Ltd (The Splendid Sun) [1981] Q.B. 694 (where the acceptance
may have been by conduct: below, para.2-074 n.389), though it has been said that this case is
Page 5
hard to reconcile with The Leonidas D, above: see Food Corp of India v Antclizo Shipping Corp
(The Antclizo) [1987] 2 Lloyd’s Rep. 130, 149, affirmed [1988] 1 W.L.R. 607.
361. Above, para.2-068.
362. cf. Rust v Abbey Life Ins. Co [1979] 2 Lloyd’s Rep. 335, below, para.2-075.
364. As in Alexander Hamilton Institute v Jones 234 Ill.App. 444 (1924).
365. As in Cole-McIntyre-Norfleet Co v Holloway 141 Tenn. 679, 214 S.W. 87 (1919).
366. Vitol SA v Norelf Ltd [1996] A.C. 800.
367. Gebr. van Weelde Scheepvaart Kantor BV v Compania Naviera Orient SA (The Agrabele)
[1985] 2 Lloyd’s Rep. 496, 509, per Evans J., whose statement of the relevant principles was
approved on appeal though the actual decision was reversed on the facts: [1987] 2 Lloyd’s Rep.
223, 225. The case concerned an alleged “abandonment” by delay of an agreement to submit a
claim to arbitration and would now be governed by Arbitration Act 1996 s.41(3) (above,
para.2-006).
368. Re Selectmove [1995] 1 W.L.R. 474, 478 (where the point was left open).
369. Yona International Ltd v La Réunion Française, etc. [1996] 2 Lloyd’s Rep. 84, 110.
370. Above, para.2-068; further discussed in para.2-073 below.
371. Minories Finance Ltd v Afribank Nigeria Ltd [1995] 1 Lloyd’s Rep. 134 (where a contract
between two banks for the collection of drafts and remittance of their proceeds arose in this
way).
372. Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N) [2008] EWHC 2257 (Comm),
[2008] 2 Lloyd’s Rep. 685 at [82], also referring at [70] to Pagnan SpA v Feed Products Ltd
[1987] 2 Lloyd’s Rep. 601 at 614, where the further requirement is stated that “the other party
does not object to [the term] when asked if it has objections” (italics added).
373. See above at n.358.
374. See below para.2-074.
375. [1973] 1 W.L.R. 1002, 1011.
376. See Yona International Ltd v Law Réunion Française, etc. [1996] 2 Lloyd’s Rep. 84, 107 (where
this requirement of knowledge was not satisfied).
377. Below, para.4-104; and cf. The Stolt Loyalty [1993] 2 Lloyd’s Rep. 281, 289-291; affirmed,
without reference to this point, [1995] 1 Lloyd’s Rep. 598. The case put in the text above would
not be one of estoppel by convention (below, para.4-108); for such estoppel is based on an
agreed assumption, while in cases of the present kind the question is whether there was any
agreement.
378. Below, para.4-091.
379. Below, para.4-093.
380. Above, at n.358.
381. See AC Yule & Son Ltd v Speedwell Roofing & Cladding Ltd [2007] EWHC 1360 (TCC), [2007]
B.L.R. 499.
Page 6
383. Fairline Shipping Corp v Anderson [1975] Q.B. 180, 189.
384. Even in such exceptional cases, the offeror is not invariably bound by the offeree’s silence: see
above, at n.360.
385. Above, para.2-068.
386. This argument would not apply where the terms of the offer had been drafted by the offeree: cf.
above, para.2-067.
387. Fairline Shipping Corp v Anderson, above, n.374.
389. This statement is cited with apparent approval in Vis Trading v Nazarov [2014] EWCA Civ 313
at [40]. The actual decision in this case was based on a provision of the Russian Civil Code,
which did “not wholly rule out silence as acceptance”.
390. Below, para.4-058.
391. Roberts v Hayward (1828) 3 C. & P. 432.
392. See Claxton Engineering Services Ltd v TXM Olaj-és Gázkutató Kft [2010] EWHC 2567
(Comm), [2011] 2 All E.R. (Comm) 38 (above, para.2-035 n.185), when Gloster J. said (at [52]
that there was “some artificiality in the concept of an implied agreement to the counter-offer by
nonresponsive silence”, but concluded at [55] that the buyer had “accepted [the seller’s]
counterproposal by its subsequent performance”, i.e. by conduct rather than by silence.
393. Wettern Electric Ltd v Welsh Development Agency [1983] Q.B. 796. For acceptance by conduct
(as opposed to mere silence) see also Aspinall’s Club Ltd v Al Zayat [2007] EWCA Civ 1001 at
[19], [30] (acceptance of alleged terms on which a cheque was given by the recipient’s
accepting the cheque and returning “scrip” cheques previously given in respect of gambling
losses).
394. See Westminster Building Co Ltd v Buckingham [2004] EWHC 138, [2004] B.L.R. 163; contrast
Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup & Partners International OAPIL
(No.2) [2004] EWHC 1750, 97 Con. L.R. 1. In these cases the point at issue related to the
terms, rather than to the existence, of the contract.
395. Arbitration Act 1996 s.41(3); above, para.2-006.
397. cf. Collin v Duke of Westminster [1985] Q.B. 581.
398. See André & Cie v Marine Transocean Ltd (The Splendid Sun) [1981] Q.B. 694, 712, 713
(“closed their file”), cf. 706 (“did so act”). Tracomin SA v Anton C. Nielsen A/S [1984] 2 Lloyd’s
Rep. 195 can be supported on the same ground even though it was in part based on the
decision at first instance in Allied Marine Transport Ltd v Vale do Rio Doce Navegaçao SA (The
Leonidas D.) which was reversed on appeal [1985] 1 W.L.R. 925; above para.2-051; cf.
Tankrederei Ahrenkeil GmbH v Frahuil SA (The Multibank Holsatia) [1988] 2 Lloyd’s Rep. 486,
493 (where the offeree had destroyed relevant files, so that the case was not one of mere
inaction). There seems to have been no “conduct” amounting to an acceptance in Excomm Ltd
v Guan Guan Shipping (Pte) Ltd (The Golden Bear) [1987] 1 Lloyd’s Rep. 330.
399. Downing v Al Tameer Establishment [2002] EWCA Civ 545; [2002] 2 All E.R. (Comm) 545.
400. [1979] 2 Lloyd’s Rep. 335.

Page 7
402. [1979] 2 Lloyd’s Rep. 335, 340; affirming [1978] 2 Lloyd’s Rep. 386, 393. For another illustration
of acceptance by silence and conduct, see AC Yule & Son Ltd v Speedwell Roofing and
Cladding Ltd [2007] EWHC 1360 (TCC), [2007] B.L.R. 499.
403. cf. above, para.2-067 and Vitol SA v Norelf Ltd [1996] A.C. 800 (above, para.2-070).
404. Yona International Ltd v La Réunion Française, etc. [1996] 2 Lloyd’s Rep. 84, 110 (where no
inference of assent was drawn from silence).
405. Above, para.2-070.
406. See Cooper v National Westminster Bank Plc [2009] EWHC 3055 (QB), [2010] 1 Lloyd’s Rep.
490, distinguishing Rust v Abbey Life Ins. Co (above, n.391) and applying the general rule that
“acceptance notoriously cannot, in ordinary circumstances, be inferred from silence” (at [69]).

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(f) - Electronic Contract Formation
Electronic communication 407
2-076
The internet has changed the way that many people communicate and conduct business. How do the
rules of offer and acceptance apply to intentions manifested through electronic messages (email), and
interactions with websites? The basic structure of email communications is the same as that
concluded by an exchange of letters via the post so the basic principles determining what constitutes
an offer 408 and what constitutes an acceptance 409 remain the same. The additional difficulties with
respect to contract formation by email communications relate to the time that an email acceptance
takes effect and the consequences of failures of communication, which are discussed below. 410 In
contrast, contract formation through interaction on websites usually raises no problems of timing since
communications are usually instantaneous and any failures of communication should be immediately
apparent. 411 However, contract formation through interaction on websites is significantly different from
contract formation through letters exchanged by the post and this can raise some difficulties in
determining what words or conduct amount to offer or acceptance, although the basic principles on
contract formation remain the same.
Digital purchases online
2-077
One common scenario involves contracts for digital products such as music, videos or software. In
these cases, the websites are like virtual vending machines, which are generally regarded as offers
412
because there is no expectation or opportunity to negotiate, and no practical scope for withdrawal
because the product or service is delivered immediately and cannot be easily returned. In the usual
course of such transactions, the customer selects the digital content, provides payment details and
confirms the order, whereupon the digital content will immediately download onto the customer’s
device (e.g. computer, smartphone or tablet). In these circumstances, it is submitted that the website
is a standing offer, which the customer accepts by confirming his order. Under the Consumer
Contracts (Information, Cancellation and Additional Charges) Regulations 2013 413 the consumer who
makes a “contract for the supply of digital content which is not supplied on a tangible medium” may
cancel the contract before “the end of 14 days after the day on which the contract is entered into”. 414
However, the consumer’s right to cancel will be lost if the consumer has expressly consented to the
supply of the digital content before the end of the cancellation period and has “acknowledged that the
right to cancel the contract … will be lost”. 415
Non-digital purchases online
2-078
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Where the website transaction involves goods and services, rather than digital content, the trader’s
performance does not immediately follow the customer’s confirmation of his order, and a different
analysis is appropriate. Neither the Consumer Protection (Information, Cancellation and Additional
Charges) Regulations 2013 416 nor, the Electronic Commerce (EC Directive) Regulations 417 specify
when such a contract is made, referring instead to “order”, 418 and “acknowledgement of receipt” of
the order. 419 The effect of an acknowledgement of receipt of an order falls to be determined as a
matter of common law. Websites are analogous to virtual shop displays or virtual advertisements.
Therefore, in the absence of clear intention to the contrary, the general rule should be that the content
of the websites constitutes invitations to treat. 420 In exceptional cases, the objective intention evinced
by a website will be that it contains an offer; thus, the result in Carlill v Carbolic Smoke Ball Co Ltd, 421
namely that the advertisement contained a unilateral offer to pay £100 to any person catching
influenza despite using the smoke ball as instructed, should be the same even if the advertisement
had been made online rather than on paper. But, in the absence of such exceptional circumstances,
the customer makes the offer when he confirms his payment details and order, usually by clicking an
appropriate “button” on the website. 422 The trader may respond in a number of ways to the
customer’s offer. First, the trader may send the customer an email acknowledging receipt of the order
(as required by the Electronic Commerce (EC Directive) Regulations 2002) 423 or stating that the
customer’s order is being processed. These are insufficient to constitute an acceptance by the trader
who may yet have good reasons not to accept the customer’s offer; he may have insufficient stock to
fulfil the order, he may pick up a pricing error on the website, or there may be a problem with the
customer’s payment or the customer being in a different jurisdiction. Second, the trader may, in
addition, send one of or a combination of emails stating that the order has been successfully
processed, or that the items have been despatched, or that the item has been delivered, or the trader
may simply deliver the item without sending an email. Subject to the precise content of the email
message, any of these emails may amount to an acceptance; actual delivery would certainly do so.
The time of email acceptances
2-079
Although the general rule is that an acceptance must be communicated to the offeror, 424 the posting
rule discussed above provides a notable exception. 425 The similarity of email communications to
communications by an exchange of letters raises the question of whether the posting rule should also
be applied to acceptances sent by email. It is submitted that the exceptional posting rule should not
be so extended. The Court of Appeal in Entores v Miles Far East Corp 426 and the House of Lords in
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels GmbH 427 refused to extend the posting rule to
acceptances made by telex, holding instead that acceptance takes effect when the telex arrives on
the offeror’s machine. Both courts attached importance to the fact that any failure of communication
(e.g. where the line goes dead or the offeror notifies the offeree that ink on the receiving end has run
out) would be apparent to the offeree. Likewise, the offeree sending the acceptance is more likely
than the offeror (the intended recipient) to know that the email delivery has failed since he will receive
a message informing him of this. This contrasts with the post where the offeree sender usually has no
means of knowing that his acceptance letter has been delayed or lost. Therefore, in general, the time
of acceptance by email should be when the email is received by the offeror.
When an email acceptance is received
2-080
Although email communication is sufficiently unlike post so that it should not be governed by the
posting rule, 428 it is also sufficiently different from the core examples of instantaneous
communications (e.g. face-to-face and telephone conversations) that a question arises as to when an
email acceptance should be regarded as having been received. In the Brinkibon case Lord
Wilberforce accepted the rule on instantaneous communication “where the condition of simultaneity is
met”. 429 The assumption is that both parties are present, so that there is no time lag between the
sending and receiving of the acceptance and any failures of communication are usually detectable
and immediately rectifiable. 430 However, the condition of simultaneity should be assumed in the case
of email and other similar instantaneous methods of communication (e.g. texts, telephone answering
Page 3
machines, faxes, telexes); the message arrives almost instantaneously, but the recipient may not, at
that moment, be at the other end and ready to receive the message. Lord Wilberforce has said that:
“No universal rule can cover all such cases; they must be resolved by reference to the
intentions of the parties, by sound business practice and in some cases by a judgment
where the risks should lie.” 431
One possibility is to treat an email acceptance as having been received when it arrives on the
offeror’s email server. This is supported by a number of international conventions, restatements and
national laws, 432 and has the merit of certainty since that time is recorded in the email. A second
possibility is to treat an email acceptance as received when the addressee can access it. There is
some support for this position, 433 but, it is not only more uncertain, it may also seem unfair because
the causes of the offeror’s lack of access to the email will usually be, broadly speaking, within the
offeror’s sphere of control (e.g. problems with the offeror’s computer or server or the connection
between them, or the operation of spam filters or firewalls), and those risks should not be borne by
the offeree. 434 A third possibility is to treat the acceptance email as received when, in all the
circumstances, a reasonable offeror would have accessed the message (e.g. during normal business
hours) or when the offeror actually accessed the message if earlier. However, the authorities
consistent with this position 435 relate to the “quite different” 436 question of when notice of withdrawal
of a charterparty is deemed to have occurred. Moreover, this approach would create a great deal of
uncertainty where, for example, business hours vary within the same business or across different
businesses, or as between the offeror and offeree, or where the offeror may reasonably be expected
to check his email in the evenings and at weekends, or where the parties do not negotiate in a
business context, or where the offeror sends an automatic email response about his limited access to
his email during certain periods of time. Therefore, subject to the reasonableness of the parties’
conduct and fault discussed in the next paragraph, it is submitted that the first option should be
adopted as the default position; that is, an email acceptance should be treated as having been
received when it arrives on the offeror’s email server, unless the parties or the context indicate to the
contrary.
Failure of email communication
2-081
Email communications may fail; for example, they may not arrive, arrive in garbled form or be blocked
by antivirus programmes or spam filters. Three principles can be derived from the judgments of
Denning L.J. in Entores v Miles Far East Corp 437 and Lord Frazer in Brinkibon Ltd v Stahag Stahl und
Stahlwarenhandels GmbH: 438
(1)
If the offeree knows or should know that the communication has failed, 439 or the failure is due to
an occurrence for which the offeree is responsible, then there is no contract. This would be the
case where, for example, the offeree sender has received an error message, the offeree has
mistyped the offeror’s email address, the email that is sent is blocked because it contains a virus
or has not come to the offeror’s notice because it was sent to an unexpected email address.
(2)
If (1) does not apply, the offeror will be bound by the email acceptance if his failure to receive
the email is due to his fault or to an occurrence for which he is responsible. 440 This would be the
case if, for example, the offeror has given the offeree the wrong or incorrect email address; the
incoming email is blocked because the offeror’s inbox is full, because of a problem with the
offeror’s server, or because of the operation of the offeror’s firewall or spam filter.
Page 4
(3)
Where neither is at fault nor responsible for the failure of communication, then there is no
contract.
Denning L.J. said:
“if there should be a case where the offeror without any fault on his part does not receive
the message of acceptance—yet the sender of it reasonably believes it has got home
when it has not—then I think there is no contract.” 441
407. See D. Nolan, Contract Formation and Parties, (2010), 61; J. Hill, Cross-Border Consumer
Contracts (2008).
408. See above paras 2-003—2-013.
409. See below paras 2-026—2-043.
410. See below paras 2-079—2-081.
411. See below paras 2-077—2-078.
412. See Thornton v Shoe Lane Parking Ltd [1971] 2 Q.B. 163 at 169, Lord Denning held that an
automatic machine outside a car park stating charge rates makes an offer, which the motorist
accepts by putting money into the slot and driving in.
413. SI 2013/3134.
414. reg.27(2)(b).
415. reg.37(1).
416. SI 2013/3134. These Regulations replaced the Consumer Protection (Distance Selling)
Regulations 2000 with effect from June 13, 2014. For amendments of the Consumer Protection
from Unfair Trading Regulations 2008 (SI 2008/1277) see the Consumer Protection Regulations
2014 (SI 2014/870) regs 2-4. For further discussion of the 2013 Regulations see below, paras
38-055—38-144.
417. SI 2002/2013 (implementing Directive 2000/31/EC) which merely provides that in the case of a
contract made on a website, “the order and the acknowledgement of receipt [of the order] will
be deemed to be received when the parties to whom they are addressed are able to access
them” (reg.11(2)(a)).
418. SI 2002/2013 reg.12 states that the word “‘order’ may be but need not be the contractual offer”
for the purposes of regs 9 and 11, except in relation to reg.9(1)(c) and reg.11(1)(b). However,
SI 2013/3134 reg.14 (3) stipulates: “The trader must ensure that the consumer, when placing
the order, explicitly acknowledges that the order implies an obligation to pay.” Regulation 14(4)
stipulates: “If placing an order entails activating a button or a similar function, the trader must
ensure that the button or similar function is labelled in an easily legible manner only with the
words ‘order with obligation to pay’ or a corresponding unambiguous formulation indicating that
placing the order entails an obligation to pay the trader.” These are consistent with treating the
customer’s order as the acceptance that concludes the contract. On the other hand, room is
Page 5
made for the alternative view that the consumer’s order is merely the offer by the last two words
of reg.14(5), which stipulates that if the trader fails to comply with regs 14(3)-(4), “the consumer
is not bound by the contract or order”.
419. SI 2002/2013 regs 9, 11(2)(a).
420. See above paras 2-011 and 2-014. This is consistent with art.11 of the United Nations
Convention on the Use of Electronic Communications in International Contracts. The Electronic
Commerce (EC Directive) Regulations (SI 2002/2013) regs 9 and 11(1) requires the trader to
clearly set out for their customers, prior to orders being placed, the procedure for concluding a
contract and to allow consumers to “identify and correct input errors prior to the placing of an
order”.
421. [1893] 1 Q.B. 256. Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013)
(partly implementing Directive 2000/31/EC) reg.12 states that an “‘order’ may be, but need not
be, the contractual offer …” for certain purposes specified in regs 9 and 11.
422. See Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013) (partly implementing
Directive 2000/31/EC) regs 9(1)-(2), 11 and 12.
423. SI 2002/2013 (implementing Directive 2000/31/EC) reg.11(1)(a). Under the Consumer

Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134,
replacing the Consumer Protection (Distance Selling) Regulations 2000 (SI 2000/2334) for
contracts made on or after June 13, 2014) the customer will almost certainly have the right to
cancel at this stage under regs 30-31.
424. See above para.2-044.
426. [1955] 2 Q.B. 327.
427. [1983] 2 A.C. 34.
428. See above paras 2-047—2-060, 2-079.
429. [1983] 2 A.C. 34 at 42.
430. In Entores v Miles Far East Corp [1955] 2 Q.B. 327 Denning L.J. gives the examples of
face-to-face and telephone communication and communication by telex.
431. [1983] 2 A.C. 34 at 42.
432. See the UN Convention on Contracts for the International Sale of Goods art.24 as interpreted in
CISG Advisory Council Opinion No.1, Electronic Communications under CISG (August 15,
2003), Opinion on art.24 and Opinion on art.18(2); UNIDROIT Principles of International
Commercial Contracts art.1.303(3); US Restatement of Contact (1981) §68; Uniform
Commercial Code §1-201(26); UN Model Law on Electronic Commerce art.15(2); US Uniform
Computer Information Transactions Act s.102(a)(52)(B)(II); Australian Electronic Transactions
Act 1999 (Cth) s.14(3).
433. See UN Convention on the Use of Electronic Communications in International Contracts

art.10(2); the Electronic Commerce (EC Directive) Regulations 2000 (SI 2002/2013)
reg.11(2)(a).
434. Although the offeror’s lack of access may also result from the operation of processes outside
the offeror’s sphere of control (e.g. the offeror’s mail-client may not be able to process and
display a message composed on the offeree’s mail-client), or due to the justifiable operation of
the offeror’s anti-virus software.
Page 6
435. See Tenax S.S. Co Ltd v The Brimnes (The Owners) (The Brimnes) [1974] EWCA Civ 15,
[1975] 1 Q.B. 929 (CA) and Schelde Delta Shipping BV v Astart Shipping Ltd (The Pamela)
[1995] 2 Lloyds’ Rep. 249 (QB).
436. Schelde Delta Shipping BV v Astart Shipping Ltd (The Pamela) [1995] 2 Lloyd’s Rep. 249, 252.
437. [1955] 2 Q.B. 327.
438. [1983] 2 A.C. 34 at 43.
439. [1955] 2 Q.B. 327 at 332; he states that if a face-to-face oral acceptance is drowned out by a
noisy aircraft flying overhead, the offeree must repeat his acceptance once the aircraft has
passed if he wishes to make a contract; likewise, if the telephone goes “dead” before the
acceptance is completed, the offeree must telephone back to complete the acceptance.
440. [1955] 2 Q.B. 327 at 333; Denning L.J. states that if the offeree does not know that his
communication has failed but the offeror knows or has reason to know e.g. because the ink of
the receiving teleprinter runs out, the offeror recipient should alert the offeree sender of the
problem, failing which, the offeror should be bound.
441. [1955] 2 Q.B. 327 at 333.

Page 1

(g) - Unilateral Contracts
Introduction
2-082
An offer of a unilateral contract is made when one party promises to pay the other a sum of money (or
to do some other act, or to forbear from doing something) if the other will do (or forbear from doing)
something without making any promise to that effect: for example where A promises to pay B £100 if
B will walk from London to York 442 or find and return A’s lost dog or give up smoking for a year. 443
The contract in these cases is called “unilateral” because it arises without B’s having made any
counter-promise to perform the stipulated act or forbearance; it is contrasted with a bilateral contract
under which each party undertakes an obligation. The distinction between the two types of contract is
not always clear cut 444; but once a promise is classified as an offer of a unilateral contract, a number
of rules apply to the acceptance of such an offer. First, the offer can be accepted by fully performing
the required act or forbearance. 445 Secondly, there is no need to give advance notice of such
acceptance to the offeror. 446 Thirdly, the offer can be accepted only by performance and not by a
counter-promise, since such a counter-promise would not be what the promisor had bargained for.
And fourthly, the offer can, like all offers, be withdrawn before it is accepted. 447 It is the application of
this fourth rule which gives rise to the greatest difficulty, for it raises the issue of fairness to the offeree
who has embarked on, but not completed, performance when the offeror attempts to withdraw his
offer.
Acceptance by part performance
2-083
It is disputed whether an offer of a unilateral contract can be withdrawn after the offeree has partly
performed the stipulated act or forbearance. The first question (to be discussed here) is whether at
this stage the offeree has accepted the offer; the second (to be discussed in Ch.3) is whether (before
full performance) he has provided any consideration for the offeror’s promise. 448 With regard to the
first question, one possible view is that there is no acceptance until the stipulated act or forbearance
has been completely performed. This may, indeed, be the position where the offeror clearly intends to
have a locus poenitentiae until then, and the offeror commences performance on that understanding.
But in most cases the offeree will not intend to expose himself to the risk of withdrawal when he has
partly performed, 449 intends to complete performance and is able to do so. 450 In such cases, the
offeree’s position can be protected in two ways. The first is by distinguishing between two stages: (1)
that at which the offer is accepted and (2) that at which the offeree has satisfied the conditions which
must be satisfied before he can enforce the offeror’s promise. 451 Where the contract is unilateral, the
second stage is not reached until performance of the stipulated act has been completed. 452 But it may
be that the first stage (of acceptance) can be reached as soon as the offeree has unequivocally
begun performance of the stipulated act or abstention. If so, the part performance can amount to an
acceptance so that the offer can no longer be withdrawn. Of course it may be difficult in fact to tell
when performance has begun, particularly where the offer amounts to a promise in return for an
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abstention. But once the conduct of the offeree has gone beyond mere preparation to perform, and
amounts to actual part performance, then it can amount to an acceptance, so that as a general rule 453
the offer can no longer be withdrawn. 454
2-084
Support for this view is to be found in Errington v Errington, 455 where a father bought a house, subject
to a mortgage, allowed his son and daughter-in-law to live in it, and told them that if they paid the
mortgage instalments the house would be theirs when the mortgage was paid off. The couple started
to live in the house and paid some of the mortgage instalments; but they did not bind themselves to
go on making the payments. It was held that the arrangement amounted to a contract which could
not, after the father’s death, be revoked by his personal representatives. Denning L.J. said:
“The father’s promise was a unilateral contract—a promise of the house in return for their
act of paying the instalments. It could not be revoked by him once the couple entered on
the performance of the act, but it would cease to bind him if they left it incomplete and
unperformed.” 456
This dictum was cited with approval in Soulsbury v Soulsbury 457 where a husband (H) promised his
former wife (W) to leave her £100,000 in his will if (1) during their joint lives, she did not enforce or
seek to enforce a maintenance order which she had obtained against him in divorce proceedings and
(2) she survived him. 458 Longmore L.J. described this promise as “a classic unilateral contract” and
said that, in the case of such a contract,
“[o]nce the promisee acts on the promise by inhaling the smoke ball, by starting the walk
to York or (as here) by not suing for the maintenance to which she was entitled, the
promisor cannot revoke or withdraw his offer.” 459
He added that the present case was “stronger than Errington since on [H’s] death [W] had completed
all possible performance of the act required for the enforcement of [H’s] promise.” 460
2-085
An alternative analysis for the substantive position that the offeror cannot revoke once the offeree
commences performance is contained in Daulia Ltd v Four Millbank Nominees Ltd. 461 Goff L.J. said
that while the general rule is that an offeror “is entitled to require full performance of the condition
which he has imposed and short of that he is not bound”, this is:
“subject to one important qualification, which stems from the fact that there must be an
implied obligation on the part of the offeror not to prevent the condition becoming
satisfied, which obligation it seems to me must arise as soon as the offeree starts to
perform. Until then the offeror can revoke the whole thing, but once the offeree has
embarked on performance it is too late for the offeror to revoke his offer.” 462
On this analysis, the offeror makes two offers; first, the main offer to pay (or otherwise perform) on the
offeree’s completion of performance, and second, a separate collateral unilateral offer not to revoke
the main offer once the offeree’s performance has commenced.
Continuing guarantees
2-086
Page 3
The view that the offeree’s part performance of a unilateral contract can amount to an acceptance,
either of the main offer or of a collateral offer not to revoke the main offer once the offeree
commences performance of the condition of the main offer, and so deprive the offeror of the power to
withdraw, is also supported by the law relating to continuing guarantees. These may be divisible,
where each advance constitutes a separate transaction; or indivisible, e.g. where, on A’s admission to
an association, B guarantees all liabilities which A may incur as a member of the association. 463 If the
guarantee is divisible, it can be revoked at any time with regard to future advances, 464 but an
indivisible guarantee cannot be revoked once the creditor has begun to act on it by giving credit to the
principal debtor. 465 This rule applies even though the contract of guarantee is unilateral, in the sense
that the creditor has not made any promise to the guarantor (in return for the guarantee) to give credit
to the principal debtor.
Bankers’ irrevocable credits
2-087
The issue (or confirmation) by a bank of an irrevocable credit amounts to a promise to pay to the
beneficiary a sum of money on certain conditions, usually if the beneficiary will present specified
documents to the bank. 466 Often the beneficiary is a seller of goods who will have done some act of
part performance, e.g. in manufacturing or shipping the goods. As he makes no promise to the bank,
its liability to him might at first sight seem to be based on a unilateral contract between them. But the
bank’s promise is regarded as binding as soon as it is communicated to the seller, i.e. before he has
done any act of part performance or indeed done any other act of acceptance. The binding force of
the promise is therefore not explicable in terms of acceptance of an offer of a unilateral contract. 467
Estate agents’ contracts
2-088
A unilateral contract may arise where an estate agent is engaged to negotiate the sale of a house. In
one case of this kind it was said that “No obligation is imposed on the agent to do anything”. 468 If he
succeeds in negotiating a sale, his claim for the agreed commission could be regarded as a claim
based on a unilateral contract. However, it is well settled that the client may revoke his instructions, or
sell through another agent, or without any agent, in spite of the fact that the first agent has made
considerable efforts to find a purchaser. 469 It could be argued that this line of cases supports the view
that, where a contract is unilateral, the offeror (i.e. in cases of the present kind, the client) can
withdraw after part performance by the offeree (the agent). Alternatively, these cases can be
regarded as one of the exceptional types of case in which, on the true construction of the offer, a
locus poenitentiae is intended to be reserved to the client even after part performance by the agent. A
commission is payable, however, where a defendant seller breaches an implied term that it would not
do anything to prevent the claimant agent from earning the commission. 470 This was the case where
the defendant seller and the purchaser had got together, formed a new vehicle, transferred the benefit
of the sale to that vehicle, for the sole or dominant motive of depriving the claimant of commissions.
471
Estate agents appointed “sole agents”
2-089
There is a further group of cases in which persons appointed “sole agents” have been held entitled to
damages when the client sold through another agent. 472 However, these have been treated as cases
of bilateral contracts, on the ground that the agents promised to use their best endeavours to effect a
sale, 473 or to bear advertising expenses. 474 Such promises may be (and, it seems, commonly are)
made by agents who are not sole agents at all, though the question whether a promise to use best
endeavours is sufficiently certain to have any legal effect may still be an open one. 475 The rules as to
the revocability of the client’s promise would, it seems, apply whether the contract is regarded as a
unilateral or as a bilateral one and accordingly it is doubtful whether the estate agency cases shed
Page 4
any light on the problems of acceptance in unilateral contracts.
Unilateral contract becoming bilateral
2-090
A contract may be in its inception unilateral but become bilateral in the course of its performance. 476
In the examples given in para.2-082 above, a bilateral contract would not indeed arise merely
because the promisee had promised to perform the stipulated act or abstention (e.g. to walk to York).
This is because the promisor has not bargained for a counter-promise, so that his offer cannot be
accepted by promising to perform but only by actually performing (or by beginning to do so). But if A
promises to pay B a sum of money in return for some service to be rendered by B (such as repainting
A’s house) it is possible that B may, by beginning to render the service (e.g. by stripping off the old
paint), impliedly promise 477 to complete it. 478 In such a case, the contract would at this stage become
bilateral, so that neither party could withdraw with impunity.
Extent of liability
2-091
It is generally assumed that, where a unilateral contract takes the form of a promise to pay money, an
offeror who purports to withdraw after part performance by the offeree must either be liable in full or
not be liable at all. There, is, however, also an intermediate possibility. If, for example, the offer is
withdrawn after the offeree has walked halfway to York, it is arguable that, on being notified of the
withdrawal, he should desist and recover damages 479 amounting to his expenses, or to the value of
the chance of completing the walk, 480 less the expenses saved by not completing it.
442. Rogers v Snow (1573) Dalison 94; Great Northern Ry v Witham (1873) L.R. 9 C.P. 16, 19.
443. cf. Hamer v Sidway 124 N.Y. 538 (1881).
445. See Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch. 231, 238; Harvela Investments Ltd v
Royal Trust of Canada (C.I.) Ltd [1986] A.C. 207, 229.
446. Carlill v Carbolic Smoke Ball Co [1893] 1 Q.B. 256; Bowerman v Association of British Travel
Agents [1995] N.L.J. 1815.
447. Below, para.2-093.
448. Below, para.4-191.
449. Lord Diplock in Harvela Investments Ltd v Royal Trust of Canada (C.I.) Ltd [1986] A.C. 207, 224
can be read as depriving the offeror of the power to withdraw as soon as his offer is
communicated (i.e. before any performance by the offeree); but in that case the offeree had
completely performed the required act by making the requested bid.
450. See n.444 below.
451. Pollock, Principles of Contract, 13th edn (1950), p.19.
452. For a quasi-exception, see para.2-091 below.
453. i.e. so long as no locus poenitentiae has been reserved and so long as performance remains
Page 5
within the offeree’s power: see Morrison S.S. Co v The Crown (1924) 20 Ll.L. Rep. 283 (where
the House of Lords held that the offer could be withdrawn, in spite of the fact that the offeree
had taken steps towards performance, as the acts of foreign governments had made it
impossible for the offeree to complete performance).
454. The corresponding paragraph of the above text in the 29th edition of this book is (among
others) cited with approval in Schweppe v Harper [2008] EWCA Civ 442 at [41] by Waller L.J. in
a dissenting judgment, but the issue on which he dissented was the different one, whether the
agreement lacked contractual force for want of certainty: see below, para.2-150 n.795. Dyson
L.J. at [62] treated the alleged contract as bilateral, while Sir Robin Auld at [77] left open the
question whether, if it had come into existence, the contract would have been “bilateral or
unilateral”. See also the American Law Institute’s Restatement of the Law, Contracts
(hereinafter calledRestatement, Contracts), § 45, and Restatement of the Law, 2d, Contracts
(hereinafter called Restatement, 2d, Contracts), § 45. The Restatement, 2d, Contracts, § 12
abandons the distinction between bilateral and unilateral contracts, and in § 45 substitutes
“option contract” where formerly “unilateral contract” had been used. See also below,
para.4-011.
455. [1952] 1 K.B. 290; doubted on other points in National Provincial Bank Ltd v Ainsworth [1965]
A.C. 1175, 1239-1240, 1251-1252 and in Ashburn Anstalt v Arnold [1989] Ch. 1, 17 (overruled
on another ground in Prudential Assurance Co Ltd v London Residuary Body [1992] A.C. 386).
For another possible illustration, see Beaton v McDivitt (1988) 13 N.S.W.L.R. 162, 175.
456. [1952] 1 K.B. 290, 295. cf. Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch. 231, 239.
457. [2007] EWCA Civ 969 [2008] 2 W.L.R. 874 at [50].
458. [2007] EWCA Civ 969 at [10]; cf. at [22], where the condition of survivorship is not expressly
stated.
459. [2007] EWCA Civ 969 at [49].
460. [2007] EWCA Civ 969 at [50].
461. [1978] Ch. 231.
462. [1978] Ch. 231 at 239.
463. As in Lloyd’s v Harper (1880) 16 Ch. D. 290.
464. As in Offord v Davies (1862) 12 C.B.(N.S.) 748. An obscure passage in the argument at 753 is
inconclusive on the general question of acceptance in unilateral contracts; cf. below, para.2-090
n.467.
465. Lloyd’s v Harper (1880) 16 Ch. D. 290. cf. National Merchant Building Society v Bellamy [2013]
EWCA Civ 452, [2013] 2 All E.R. (Comm) 674, distinguishing between (i) a guarantee of a
debtor’s liability under a specific contract and (ii) a guarantee of obligations arising out of a
course of dealing between debtor and creditor and not linked to the debtor’s credit limit under
the contract between debtor and creditor when the guarantee was given. The Court of Appeal
held that a guarantee of “all sums which are or may hereafter be owing” was, on its true
construction, of the second of the above two kinds. No issue arose in this case as of the
revocability of the guarantee.
467. Vol.II, para.34-505.
468. Luxor (Eastbourne) Ltd v Cooper [1941] A.C. 108, 124. But in fact he may promise to do
something: see below, at nn.462 and 463; cf. Murdoch (1975) 91 L.Q.R. 357. “Obligation” in the
dictum quoted in the text above refers to obligations under any contract between agent and
Page 6
client (as distinct from obligations that may be imposed on the agent by legislation).
469. Below, Vol.II, paras 31-140, 31-150.
470. Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] Q.B. 290.
471. C Christo & Co Ltd v Marathon Advisory Service Ltd [2015] EWHC 1971 (QB).
472. Hampton & Sons v George [1939] 3 All E.R. 627; Christopher v Essig [1958] W.N. 461; and see
below, Vol.II, para.31-150.
473. Christopher v Essig, above, n.461; John McCann & Co v Pow [1974] 1 W.L.R. 1643, 1647. In
Wood v Lucy, Lady Duff-Gordon 222 N.Y. 88; 118 N.E. 214 (1917) it was held that such a
promise could be implied.
474. cf. Bentall, Horsley & Baldry v Vicary [1931] 1 K.B. 253 (where it was held that the owner
committed no breach of a “sole agency” agreement by selling it without the intervention of a
second agent).
475. Below, paras 2-143—2-145.
476. New Zealand Shipping Co Ltd v A.N. Satterthwaite Ltd (The Eurymedon) [1975] A.C. 154,
167-168 (“a bargain initially unilateral but capable of becoming mutual”); cf. The Mahkutai
[1996] 2 A.C. 650, 664, treating the contract in The Eurymedon as “nowadays bilateral”; but this
description should not be understood as meaning that the contract imposed on the offeree any
executory obligations to the offeror: Hombourg Houtimport BV v Agrosin Private Ltd (The
Starsin) [2003] UKHL 13, [2004] 1 A.C. 715 at [34], [59], [93], [153] and [196], where the
contract is described as “unilateral”. See also Treitel, Carver on Bills of Lading, 3rd edn (2011)
para.7-052.
477. It has, indeed, been suggested that it is “impossible to imply terms … which impose legal
obligations … into a unilateral contract” (Little v Courage (1995) 70 P. & C.R. 469, 474). The
reason for this view seems to be that such an implication would destroy the unilateral character
of the contract by imposing an obligation on the promisee. But there is, it is submitted, no good
reason why an intention to undertake such an obligation should not be inferred from the
conduct of the promisee after the unilateral contract has come into existence. This possibility is
recognised in the dictum from The Eurymedon cited in n.465 above and by the example given
in the text to this note.
478. See The Unique Mariner [1979] 2 Lloyd’s Rep. 37, 51-2; Smit International Singapore Pte Ltd v
Kurnia Dewi Shipping SA (The Kurnia Dewi) [1997] 1 Lloyd’s Rep. 553, 559; contrast B.S.C. v
Cleveland Bridge & Engineering Co Ltd [1984] 1 All E.R. 504, 510-511, where such an implied
promise was negatived by the fact that the terms of a bilateral contract were still under
negotiation and were never agreed. It is not clear whether the situation discussed in Offord v
Davies (1862) 12 C.B.N.S. 748, 753 falls into the category of a unilateral or into that of a
bilateral contract.
479. Unless the offeree has a “substantial or legitimate interest” in completing the walk, this may be
the law under the principles laid down in White & Carter (Councils) Ltd v McGregor [1962] A.C.
413, below, para.26-106.
480. The suggestion made in the text above is adopted in Schweppe v Harper [2008] EWCA Civ 442
at [51]-[54] by Waller L.J. who dissented on the different issue, whether the agreement was
sufficiently certain to have contractual force: see below, para.2-150 n.795.

Page 1

Section 4. - Termination of the Offer
Introductory
2-092
An offer may be terminated by withdrawal, rejection, lapse of time, occurrence of a condition, death
and supervening incapacity. These methods of termination will be discussed in the paragraphs that
follow.

Page 1

(a) - Withdrawal
General rule
2-093
The general rule is that an offer may be withdrawn at any time before it is accepted. 481 The rule
applies even if the offeror has promised to keep the offer open for a specified time, 482 for such a
promise is unsupported by consideration 483 and is therefore not binding. Thus, in Routledge v Grant
484
the defendant offered to buy a house, giving the offeree six weeks for a definite answer; and it was
held that the defendant was free to withdraw at any time before acceptance even though the six
weeks had not expired. Likewise, in Dickinson v Dodds 485 the defendant offered to sell land to the
offeree and said that the offer was to be “left over till Friday”. It was held that he could nevertheless
withdraw before Friday.
Communication of withdrawal generally required
2-094
An offer cannot be withdrawn merely by acting inconsistently with it: for example, an offer to sell
goods to A is not withdrawn by selling them to B. 486 If A accepts the offer before he has notice of the
subsequent sale, he will be entitled to damages (though not to the goods themselves). To be effective
in law, a withdrawal must, in general, be communicated to the offeree: that is, notice of the withdrawal
must actually reach the offeree. 487 This requirement of communication applies to withdrawals sent
through the post and by telegram as well as to those sent by other methods. In Byrne & Co v Van
Tienhoven 488 an offer to sell tinplates was posted in Cardiff on October 1 and reached the offerees in
New York on October 11; on the same day, the offerees accepted the offer by a telegram, which they
confirmed by a letter posted on October 15. Meanwhile, on October 8, the offerors had posted a letter
withdrawing their offer; this letter reached the offerees on the October 20. It was held that this
withdrawal did not take effect on posting: it took effect only when it reached the offerees on October
20. As the acceptance had been posted on October 15, there was a binding contract 489 even though
the parties were demonstrably never in agreement; for when the offerees first learnt (on October 11)
of the defendants’ offer the defendants had already (on October 8) ceased to intend to deal with the
offerees.
Communication need not come from offeror
2-095
Although the withdrawal of an offer must, in general, be communicated to the offeree, 490 the
communication need not come from the offeror: it is sufficient if the offeree knows from any reliable
source that the offeror no longer intends to deal with him. In Dickinson v Dodds 491 it was accordingly
held that an offer to sell land could not be accepted after a third party informed the offeree that the
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offeror had been offering or agreeing to sell the land to another third party. The judgments stress the
fact that there is, in such circumstances, no agreement between the parties; but this would also be
true even if the offeree had accepted the offer in ignorance of the offeror’s change of mind. Yet in the
latter case there can be a contract, as Byrne & Co v Van Tienhoven 492 shows. The rule that
communication of withdrawal need not come from the offeror can be a source of uncertainty, making
it hard for the offeree to tell exactly when the offer is withdrawn. For example, in Dickinson v Dodds it
is not clear whether such acceptance was precluded when the offeree knew that the offeror had (a)
sold the land to a third party or (b) started negotiations for its sale to a third party or (c) had simply
decided not to sell it to the offeree.
Exceptions to the requirement of communication
2-096
493
If the general rule means that notice of withdrawal must actually be “brought to the mind of” the
offeree, convenience requires its qualification in a number of situations.
(1) Letter to commercial organisation
Where the offer has been made to a commercial organisation, it seems probable that the offer would
be withdrawn when the letter of withdrawal “was opened in the ordinary course of business or would
have been so opened if the ordinary course of business was followed” 494; it need not be brought to
the actual notice of the officer responsible for the matter.
(2) Offeree’s conduct displacing general rule
A withdrawal which was delivered to the offeree’s last known address could be effective if he had
moved without notifying the offeror. Similarly, a withdrawal which had reached the offeree could be
effective even though he had simply failed to read it after it had reached him: this would be the
position where a withdrawal by telex or fax arrived in the offeree’s office during business hours 495
even though it was not actually read by the offeree or by any of his staff till the next day. 496 But the
withdrawal would not be effective, in such a case, if it had been sent to the offeree at a time when he
and all responsible members of his staff were, to the offeror’s knowledge, away on holiday or on other
business. 497
(3) Offers made to the public
The requirement that a withdrawal must be actually communicated does not apply to offers made to
the public, e.g. of rewards for information leading to the arrest of the perpetrator of a crime. As it is
impossible for the offeror to ensure that the notice of withdrawal comes to the attention of everyone
who knew of the offer, it seems to be enough for him to take reasonable steps to bring the withdrawal
to the attention of such persons, even though it does not in fact come to the attention of them all. 498
481. See, e.g. Payne v Cave (1789) 3 T.R. 148; Routledge v Grant (1828) 4 Bing. 653; Offord v
Davies (1862) 12 C.B.(N.S.) 748; Hebb’s Case (1867) L.R. 4 Eq. 9; Tuck v Baker [1990] 2
E.G.L.R. 195; Scammel v Dicker [2001] 1 W.L.R. 631, applying the principle to an offer to settle
an action under CPR Pt 36 (for further proceedings in this case, see [2005] EWCA Civ 405,
[2005] 3 All E.R. 838, below para.2-153; for the method of withdrawal of such an offer, see
below, para.2-097 n.488); Bircham Nominees (No.2) Ltd v Worrell Holdings Ltd [2001] EWCA
Civ 775; (2001) 82 P. & C.R. 472 at [24], [35]; Beazley Underwriting Ltd v Travellers Companies
Inc [2011] EWHC 1520 (Comm), [2012] 1 All E.R. (Comm) 1241 at [184], quoted in para.2-031
n.173. cf. Defamation Act 1996 s.2(6). Contrast Vienna Convention on Contracts for the
International Sale of Goods (above, para.2-061) art.16(2).
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482. An offer is assumed to be open for a reasonable time if no time limit is expressed in it: see
Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) L.R. 1 Ex. 109; below, para.2-102.
483. Below, para.4-193.
484. (1828) 4 Bing. 653. See also Cooke v Oxley (1790) 3 T.R. 653.
485. (1876) 2 Ch. D. 463.
486. Adams v Lindsell (1818) 1 B. & Ald. 681; Stevenson, Jacques & Co v Maclean (1880) 5 Q.B.D.
346; it is submitted that contrary dicta in Dickinson v Dodds (1876) 2 Ch. D. 463, 472 would no
longer be followed.
487. For a statutory exception to the rule stated in the text, see Consumer Credit Act 1974 s.69(1)(ii)
and (7), as substituted by Consumer Credit Act 1974 (Electronic Communications) Order 2004
(SI 2004/3236) art.2(5).
488. (1880) 5 C.P.D. 44. See also Stevenson Jacques & Co v McLean (1880) 5 Q.B.D. 346;
Henthorn v Fraser [1892] 2 Ch. 27; Raeburn & Verel v Burness & Son (1895) 1 Com. Cas. 22.
489. The same result would be reached under Vienna Convention on Contracts for the International
Sale of Goods art.16(1) (see above, para.2-061), even though under arts 18(2) and 24 the
contract would not be made until the acceptance was communicated to the offeror or delivered
to his address.
490. A salesperson who obtains consumer credit for the consumer is also the financier’s agent to
receive communication of the consumer’s withdrawal of offer: see CF Asset Finance Ltd v
Okonji [2014] EWCA Civ 870; Financing Ltd v Stimson [1962] 1 W.L.R. 1184.
491. (1876) 2 Ch. D. 463; cf. Cartwright v Hoogstoel (1911) 105 L.T. 628.
492. (1880) 5 C.P.D. 344; above, para.2-094.
493. Henthorn v Fraser [1892] 2 Ch. 27, 32.
494. Eaglehill Ltd v J. Needham (Builders) Ltd [1973] A.C. 992, 1011, discussing notice of dishonour
of a cheque; cf. Curtice v London, etc., Bank [1908] 1 K.B. 291, 300–301 (notice to
countermand a cheque); Schelde Delta Shipping BV v Astarte Shipping Ltd (The Pamela)
[1995] 2 Lloyd’s Rep. 249, 252; NV Stoomv Maats “De Maas” v Nippon Yusen Kaisha (The
Pendrecht) [1980] 2 Lloyd’s Rep. 56, 66 (telex notice of arbitration) and Bernuth Lines Ltd v
High Seas Shipping Ltd (The Eastern Navigator) [2005] EWHC 3020 (Comm), [2006] 1 Lloyd’s
Rep. 537 at [30], [37]; according to these passages, it is not necessary for such notices to arrive
during business hours. Quaere whether a notice withdrawing an offer must so arrive; there
seems to be no good reason for distinguishing between such a notice and an acceptance by
telex, as to which see above, para.2-046 at nn.259, 260.
495. For the effect of such messages when sent out of business hours, see above, para.2-046
(acceptance received out of business hours).
496. cf. Tenax Steamship Co Ltd v Brimnes (Owners), (The Brimnes) [1975] 5 Q.B. 929 (notice
withdrawing ship from charterparty) and the last two cases cited in n.483 above. The common
law principle stated at n.483 above does not apply for the purpose of determining “the effective
date of termination” within s.87(1)(b) of the Employment Rights Act 1996. It was held in Gisda
Cyf v Barratt [2010] UKSC 41, [2010] S.C.R. 475 that this “effective date” was not the date
when a letter notifying an employee of her dismissal was delivered at her address, but was the
date when she read the letter or had a reasonable opportunity of learning its contents; cf.
Vasella Ltd v Eyre UKEATS/0039/11/BL, applying similar reasoning to an employee’s notice of
resignation. See also below, Vol.II para.40-221.
497. Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 A.C. 34, 42.
Page 4
498. Shuey v US 92 U.S. 73 (1875).

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(b) - Rejection
What amounts to rejection; counter-offers
2-097
A rejection terminates an offer, so that it can no longer be accepted. 499 For this purpose, an attempt
to accept an offer on new terms (not contained in the offer) may be a rejection accompanied by a
counter-offer. 500 Thus in Hyde v Wrench 501 the defendant offered to sell a farm for £1,000. The
offeree replied offering to buy for £950, and when that counter-offer was rejected, purported to accept
the defendant’s original offer to sell for £1,000. It was held that there was no contract as the offeree
had, by making a counter-offer of £950, rejected, and so terminated, the original offer. A
communication can amount to a counter-offer only if it relates to the subject matter of the original
offer. Where, for example, A offered to indemnify B in respect of legal costs incurred in litigation
against both of them, it was held that this offer was not rejected by B’s seeking compensation from A
for loss of employment in return for B’s co-operating with A in the litigation to an extent beyond that
which B was already bound to give. 502 The negotiations for such compensation were said to be
“collateral” 503 to the offer of indemnity and therefore not to amount to a rejection, by way of
counter-offer, of the original offer. This offer accordingly remained open for acceptance and had been
accepted by conduct. 504
2-098
A rejection of an offer is not prevented from having the effect of terminating the offer by reason of
being contained in a communication expressed to be “subject to contract”. The effect of these words
is that the negotiations will lead to the conclusion of a legally binding agreement only on the execution
of a formal contract. 505 They have no bearing on the question whether the communication amounts to
a rejection of the offer, as to preclude its subsequent acceptance. 506
Inquiries and requests for information
2-099
A communication from the offeree may be construed as a counter-offer (and hence as a rejection)
even though it takes the form of a question as to the offeror’s willingness to vary the terms of the
offer. 507 But such a communication is not necessarily a counter-offer: it may be a mere inquiry or
request for information made without any intention of rejecting the terms of the offer. 508 Whether the
communication is a counter-offer or a request for information depends on the intention, objectively
ascertained, 509 with which it was made. In Stevenson, Jacques & Co v McLean 510 an offer was made
to sell iron to offerees who asked by telegram whether they might take delivery over a period of four
months. It was held that this telegram was not a counter-offer but only a request for information as it
was “meant … only as an inquiry” and as the offeror “ought to have regarded it” in that sense. 511
Similarly, if an offer is made to sell a house at a specified price, an inquiry whether the intending
vendor is prepared to reduce that price will not amount to a rejection of the offer if the inquiry is
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“merely exploratory”. 512
Rejection must be communicated
2-100
A rejection takes effect when it is communicated to the offeree. There is no reason to apply the
posting rule here; the offeree will not act in reliance on posting his rejection as he derives no rights or
liabilities from it; and the offeror will not know that he is free from the offer until the rejection is actually
communicated to him. Hence if the rejection is overtaken by a subsequently despatched acceptance,
which reaches the offeror first, the latter should take effect so long as the offeree has made his
intention to accept (in spite of his original rejection) clear to the offeror. If, however, the rejection has
reached the offeror, it is submitted that he would not be bound by an acceptance posted after the
rejection and also reaching him after the rejection. To apply the “posted acceptance” rule 513 here
could expose the offeror to hardship particularly where he had acted on the rejection, e.g. by
disposing of the subject-matter elsewhere. An offeree who has posted a rejection and then wishes,
after all, to accept the offer should ensure that the subsequently posted acceptance comes to the
notice of the offeror before the latter has received the rejection.
499. Tinn v Hoffmann & Co (1873) 29 L.T. 271, 278; Grant v Bragg [2009] EWCA Civ 1228, [2010] 1
All E.R. (Comm) 1166 at [17], [22]. The above common law rule does not apply where an offer
to settle a claim is made under CPR Pt 36. Such an offer can be withdrawn only by serving a
notice of withdrawal on the offeree in accordance with that Part: Gibbon v Manchester City
Council [2010] EWCA Civ 726, [2010] 1 W.L.R. 2081 at [16]; Carillion JM Ltd v PHI Group Ltd
[2011] EWHC 1581 (TCC), [2011] B.L.R. 504 at [12]–[14].
500. Above, para.2-031; for an exception see Vienna Convention on Contracts for the International
Sale of Goods (above, para.2-061) art.19(2).
501. (1840) 3 Beav. 334; cf. O.T.M. Ltd v Hydranautics [1981] 2 Lloyd’s Rep. 211, 214; Sterling
Hydraulics Ltd v Dichtomatic Ltd [2006] EWHC 2004 (QB), [2007] 1 Lloyd’s Rep. 8 at [17];
Withers LLP v Langbar International Ltd [2011] EWCA Civ 1419, [2012] 2 All E.R. 619 at [47].
502. Mulcaire v News Group Newspapers Ltd [2011] EWHC 3469 (Ch), [2012] Ch. 435.
503. Mulcaire v News Group Newspapers Ltd [2011] EWHC 3469 (Ch) at [27].
504. Mulcaire v News Group Newspapers Ltd [2011] EWHC 3469 (Ch) at [35].
505. See below, para.2-125; for the further requirement of “exchange of contracts”, see below,
para.2-126.
506. Bonner Properties Ltd v McGurran Construction Ltd [2009] NICA 49, [2010] N.I. 97 at [13].
507. See the treatment in Tinn v Hoffmann (1873) 29 L.T. 271, 278 of the claimant’s letter of
November 27. For recognition of the distinction between a counter-offer and a request for
information, see Grant v Bragg [2009] EWCA Civ 1228, [2010] 1 All E.R. (Comm) 1166 at [22]
(where the relevant communication was held to amount to a rejection of the offer).
509. Above, paras 2-002, 2-003.
510. (1880) 5 Q.B.D. 346.
511. (1880) 5 Q.B.D. 346 at 349–350; in fact the offeror did not so regard it but sold the iron to a
Page 3
third party.
512. Gibson v Manchester City Council [1979] 1 W.L.R. 294, 302.
513. Above, para.2-047.

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(c) - Lapse of Time
Specified time
2-101
An offer which expressly states that it will last only for a specified time cannot be accepted after that
time; and the same is true where the time limit is set, not in the offer itself, but in the course of later
negotiations between the parties to the alleged contract. 514 The most common application of the
present rule is to offers that take the form of options, 515 which obviously cannot be accepted after the
expiry of the period during which the option is expressed to be exercisable. On a similar principle, an
offer that stipulates for acceptance “by return of post” must be accepted either in the specified way or
by some other no less expeditious method. 516
Reasonable time
2-102
Where the duration of an offer is not limited in one of the ways described in para.2-101 above, the
offer comes to an end after the lapse of a reasonable time. 517 What is a reasonable time depends on
all the circumstances: for example on the nature of the subject-matter and on the means used to
communicate the offer. An offer to sell a perishable thing, or a thing subject to sudden price
fluctuations, would terminate after a relatively short time; and this would often also be true of an offer
made by telegram 518 or by other equally speedy means of communication such as email, telex or fax.
Effect of conduct of offeree known to offeror
2-103
The period which would normally constitute a reasonable time for acceptance may be extended if the
conduct of the offeree within that period indicates an intention to accept and this is known to the
offeror. Often on such facts there would be an acceptance by conduct, but this possibility may be
ruled out by the terms of the offer, which may require the acceptance to be by written notice sent to a
specified address. 519 In such a case the offeree’s conduct, though it could not amount to an
acceptance, could nevertheless prolong the time for giving a proper notice of acceptance. For the
offeree’s conduct to have this effect, it must be known to the offeror; for if this were not the case the
offeror might reasonably suppose that the offer had not been accepted within the normal period of
lapse, and act in reliance on that belief: e.g. by disposing elsewhere of the subject-matter.
Offer delayed
2-104
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If there has been some delay in the transmission of an offer that contains a time limit for its
acceptance, the question when the offer was made may arise. In Adams v Lindsell 520 the offeror sent
a letter containing an offer to sell wool that required an acceptance by return post. The offer letter was
misdirected by the offerors and consequently delayed by two days. On receipt of the letter, the offeree
immediately posted an acceptance. It was held that there was a binding contract as the delay arose
“entirely from the mistake of the” offerors. However, if the delay had been of such length as to make it
clear to the offeree that the offer was “stale,” it seems unlikely that the offeree could still have
accepted; a fortiori, he could not have done so if the offer had reached him only after an expiry date
specified in it. The emphasis placed in Adams v Lindsell on the fault of the offerors also makes it
possible to argue for a different result in that case if the delay had been due to some other factor,
such as an accident in the post. The time within which the offer could be accepted might then have
run, not from the time of the offeree’s receipt of the offer, but from the time at which the offer would,
but for the accident, have been communicated 521 to the offeree.
514. Grant v Bragg [2009] EWCA Civ 1228, [2009] 1 All E.R. (Comm) 1166 at [25]. The concept that
an offer is terminated by lapse of time does not apply to an offer made under CPR Pt 36. It was
held in C v D [2011] EWCA Civ 646, [2012] 1 All E.R. 302 at [40], [70] and [83] that such an
offer remains open for acceptance until it is formally withdrawn, in accordance with the
provisions of Pt 36.
515. For the legal nature of an enforceable option, see below, para.4-193 n.1234.
516. cf. above, paras 2-063, 2-065.
517. Ramsgate Victoria Hotel Co v Montefiore (1866) L.R. 1 Ex. 109; see also Reynolds v Atherton
(1922) 127 L.T. 189; Chem Co Leasing SpA v Rediffusion [1987] 1 F.T.L.R. 201. And cf. L.J.
Korbetis v Transgrain Shipping BV [2005] EWHC 1345 (QB) (offer to appoint an arbitrator to
whom disputes under a charterparty were to be referred held to have lapsed after eight months;
the fact that the charterparty required agreement on the appointment to be made “forthwith”
was said at [18] to connote “some urgency”). Semble, the offeror could waive the delay. See
also Vienna Convention on Contracts for the International Sale of Goods (above, para.2-061)
art.21(1).
518. Quenerduaine v Cole (1883) 32 W.R. 185.
519. As in Manchester Diocesan Council for Education v Commercial and General Investments Ltd
[1970] 1 W.L.R. 241.
520. (1818) 1 B. & Ald. 681; Winfield (1939) 55 L.Q.R. at 499, 503–504.
521. As to the meaning of “communicated” cf. above, paras 2-045, 2-094.

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(d) - Occurrence of Condition
Provision for termination of offer
2-105
An offer which expressly provides that it is to determine on the occurrence of some condition cannot
be accepted after that condition has occurred; and a similar provision for determination may be
implied. If an offer to buy, or hire-purchase, goods is made after the offeror has examined them, it
may be subject to the implied condition that they should, at the time of the acceptance, still be in
substantially the same state as that in which they were when the offer was made. Such an offer could
not be accepted after the goods had been seriously damaged. 522 Similarly, an offer to insure the life
of a person cannot be accepted after he has suffered serious injuries by falling over a cliff. 523 On the
same principle, it is submitted that the offer which is made by bidding at an auction impliedly provides
that it is to lapse as soon as a higher bid is made. 524
522. Financings Ltd v Stimson [1962] 1 W.L.R. 1184.
523. Canning v Farquhar (1885) 16 Q.B.D. 727; Looker v Law Union Insurance Co Ltd [1928] 1 K.B.
554.
524. Above, para.2-019.

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(e) - Death
In general
2-106
It has been suggested that the death of either party terminates the offer as it is, thereafter impossible
for the parties to reach agreement. 525 But there may be a contract in spite of a demonstrable lack of
agreement, if this result is required by considerations of convenience 526; and such considerations
might in some circumstances support the view that an offer should be capable of acceptance after the
death of one party. This would, in particular, be the case if the death of one of the parties was
unknown to the other at the relevant time; or where a person who had validly contracted not to revoke
an offer for a fixed period died during that time. More generally, unless the offer is one to enter into a
contract of a “personal” nature, it is doubtful that there are any grounds of convenience for holding
that the death of either party should of itself terminate an offer. 527
Death of the offeror
2-107
The effect of the death of the offeror has been considered in a number of cases concerning
continuing guarantees. Such a guarantee (e.g. of a bank overdraft) is, in general, divisible: it is a
continuing offer, accepted from time to time as the bank makes further loans to its customer. It seems
that a guarantee of this kind is not terminated merely by the death of the guarantor. 528 But it is
terminated if the creditor knows that the guarantor is dead and that his personal representatives have
no power under his will to continue the guarantee 529; or if for some other reason it is inequitable to
charge the guarantor’s estate. 530 If the guarantee expressly provides that it can be terminated only by
notice given by the guarantor or his personal representatives, the death of the guarantor (even if
known to the creditor) will not terminate the guarantee; only express notice will have this effect. 531 In
so far as any general statement can be based on this special group of cases, it seems that the death
of the offeror determines an offer only if the offer on its true construction so provides.
Death of the offeree
2-108
Two cases have some bearing on the effect of the death of the offeree. In Reynolds v Atherton 532 an
offer to sell shares was made in 1911 to “the directors of” a company. An attempt to accept the offer
was made in 1919 by the survivors of the persons who were directors in 1911 and by the personal
representatives of those who had since died. The purported acceptance was held to be ineffective;
and Warrington L.J. said:
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“The offer having been made to a living person who ceases to be a living person before
the offer is accepted, there is no longer an offer at all. The offer is not intended to be
made to a dead person or to his executors, and the offer ceases to be an offer capable of
acceptance.”
The actual ground for the decision, however, was that the offer had, on its true construction, been
made to the directors of the company for the time being, and not to those who had happened to hold
office in 1911. In Kennedy v Thomassen 533 acceptance by solicitors of the offeree in ignorance of her
death was held ineffective on the grounds that their authority to act on her behalf had been revoked
by her death 534 and that they had acted under a mistake. Neither case supports the view that an offer
can never be accepted after the death of the offeree. It is submitted that, where an offer related to a
contract that was not “personal”, 535 it might, on its true construction, be held to have been made to
the offeree or to his executors, and that such an offer could be accepted after the death of the original
offeree.
525. Dickinson v Dodds (1876) 2 Ch. D. 463, 475.
526. As, for example, in Byrne & Co v Van Tienhoven (1880) 5 C.P.D. 344 (above, para.2-094),
where the offeree did not know that the offeror intended to contract with him until after the
offeror had ceased to have any such intention.
527. Below, para.23-037. Even in such cases the legal effects of saying that the offer was
determined, so that there was never any contract, would be likely to differ from those of saying
that there had been a contract which had been terminated: e.g. the Law Reform (Frustrated
Contracts) Act 1943 could apply to the latter, but not to the former, situation.
528. Bradbury v Morgan (1862) 1 H. & C. 249; Harriss v Fawcett (1873) L.R. 8 Ch. App. 866, 869;
Coulthart v Clementson (1879) 5 Q.B.D. 42, 46.
529. Coulthart v Clementson, above, n.517.
530. Harriss v Fawcett (1873) L.R. 8 Ch. App. 866.
531. Re Silvester [1895] 1 Ch. 573.
532. (1921) 125 L.T. 690, 695; affirmed (1922) 127 L.T. 189; cf. Somerville v N.C.B., 1963 S.L.T.
334.
533. [1929] 1 Ch. 426.
534. Vol.II, para.31-166.
535. “Personal” is here used in the same sense as in the law relating to termination of a contract by
the death of a party: see n.516, above.

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(f) - Supervening Personal Incapacity
Mental incapacity
2-109
If, after making an offer, the offeror suffers from “an impairment of, or a disturbance in the functioning
of, the mind or brain” 536 and for that reason “lacks capacity”, 537 then he will not be bound by an
acceptance made after this fact has become known to the offeree, or after the offeror’s property has
been made subject to the control of the court. But the offeror could hold the other party to the
acceptance; and an offer made to a person who later became so incapacitated could be accepted so
as to bind the other party. These rules can readily be deduced from the law as to contracts with
persons who lack mental capacity. 538
536. Mental Capacity Act 2005 s.2.
538. Below, paras 9-075—9-104.

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(g) - Supervening Corporate Incapacity
Supervening corporate incapacity
2-110
In discussing the effect on an offer of supervening corporate incapacity, a distinction must be drawn
between companies incorporated under the Companies Acts (and now governed by the Companies
Act 2006) and other corporations.
Companies incorporated under the Companies Acts
2-111
In these Acts, the expression “company” generally means a company formed and registered under
the Companies Act 2006 or under earlier Companies Acts. 539 The legal capacity of such a company
depends on the company’s constitution, an expression which includes the company’s articles 540; and,
in particular, on any statement of the company’s objects in the articles, 541 which may be amended by
special resolution. 542 Unless the articles specifically restrict the objects of a company, its objects are
(in general) unrestricted 543; but our present concern is with cases in which a special resolution
amends the articles by either restricting originally unrestricted objects or imposing further restrictions
on originally restricted objects. If the company nevertheless entered into a transaction which fell within
the newly imposed restrictions on its objects, that transaction would formerly have been ultra vires
and void. 544 The Companies Act 2006 does not abolish this ultra vires doctrine but it contains a
number of provisions which significantly restrict its operation. Of these, the following are of particular
importance for the purposes of the discussion that follows in paras 2-112—2-114 below. First, s.31(3)
provides that, in general, 545 “Any such amendment does not affect any rights or obligations of the
company”; the phrase "such amendment" here refers to an amendment of the company’s “articles so
as to add, remove or alter a statement of the company’s objects”. 546 Secondly, s.39(1) provides that,
in general 547:
“the validity of an act done by a company shall not be called into question on the ground
of lack of capacity by reason of anything in the company’s constitution.” 548
Further problems can, however, arise from the fact that a contract which violated a restriction on the
company’s objects would on that ground be beyond the power of its directors. Section 40(1) therefore
provides, thirdly, that, in general 549:
“In favour of a person dealing with the company in good faith, the power of the directors
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to bind the company, or authorise others to do so, is deemed to be free of any limitations
under the company’s constitution.”
Section 40(4), however, provides that, in general, 550 s.40 “does not affect any right of a member of
the company to bring proceedings to restrain the doing of an action that is beyond the powers of the
directors”; but that “no such proceedings lie in respect of an act to be done in fulfilment of a legal
obligation arising from a previous act of the company.” Our concern here is with the effect of these
provisions where an offer is made either to or by a company which then changes its articles by
restricting its objects so as to deprive itself of the power of entering into the contract that would, but
for such changes, have resulted from an acceptance of the offer. 551
Company as offeree
2-112
A company may receive an offer to enter into a contract and then amend its articles so as to restrict
its objects in such a way as to deprive itself of its capacity to enter into that contract. If the company
nevertheless then (whether by oversight or for good commercial reasons) accepts the offer, two
provisions of the Companies Act 2006 referred to in para.2-111 above may determine the effect of the
acceptance. The first is s.31(3), by which “any such amendment does not affect the rights or
obligations of the company”. The second is s.40(1), by which:
“in favour of a person dealing with the company in good faith, the power of the directors
to bind the company … is deemed to be free of any limitation under the company’s
constitution.” 552
Both these provisions can lead to the conclusion that the acceptance is effective; but they give rise, in
the present context, to the problem that the scope of s.40(1) differs in several respects from that of
s.31(3). First, the requirement in s.40(1) of “dealing … in good faith” has no counterpart in s.31(3).
Secondly, s.40(1) applies only “in favour of a person dealing with the company” while s.31(3) can
apply also in favour of the company itself; this view is reinforced by the reference in s.31(3) to “the
rights or obligations of the company”. Thirdly, s.40(4) provides that “this section does not affect any
right of a member of a company to bring proceedings to restrain the doing of an action that is beyond
the powers of the directors …”; and this subsection of s.40 (further provisions of which are discussed
in para.2-113 below) has no counterpart in s.31. Fourthly, ss.31(3) and 40(1) lay down general rules
but the qualifications to which these rules are subject are not the same. Section 31 is subject only to
one qualification, which applies where the company is a charity 553; s.40 is subject to two qualifications
which apply to certain transactions with directors and where the company is a charity. 554 The scope
of s.40(1) is in all these respects narrower than that of s.31(3) and it is by no means obvious which
subsection would, in case of a conflict between them, prevail. One possible view is that, in the present
context, s.31(3) should prevail since it deals specifically with the effect of an amendment of the
articles. But s.40(1) is expressed to apply to limitations on the directors’ powers deriving “from a
resolution of the company …” 555 and “from any agreement between the members of the company …”;
and such resolutions and agreements can form part of the company’s “constitution”, 556 to which
s.40(1) applies. A second possible view is that the words “rights or obligations of the company” in
s.31(3) refer to rights already in existence at the time of the amendment of the articles, and not to
rights which are alleged to have come into existence after that time. It is submitted, though not without
hesitation, that this second view is to be preferred as it avoids what would be a conflict between the
two subsections; and that accordingly the rights of the offeror would, in the situation discussed in this
paragraph, be governed, not by s.31(3), but by s.40. The rights of the company itself would be
governed by the general principle, stated in s.39(1), that the validity of an act done by it was not to be
“called into question by reason of anything in the company’s constitution”. At the relevant time (i.e.
that of the acceptance) the “constitution” would include the amendment of the articles. 557 Hence the
company would be able to enforce the contract by virtue of s.39(1) and its right to do so would not be
Page 3
subject to the restrictions placed by s.40 on the rights of the offeror to do so.
Company as offeror
2-113
A company may make an offer to enter into a contract, amend its articles so as to restrict its objects in
such a way as to deprive itself of the capacity to enter into that contract, and the offeree may then
(perhaps in ignorance of the amendment) accept the offer. If the reasoning in para.2-112 is correct,
such a case would not be governed by s.31(3) of the Companies Act 2006 since at the time of the
amendment of the articles the company would not have acquired any rights or been subjected to any
liabilities by reason of the then unaccepted offer. Nor (subject to a possible argument to be discussed
below) would the case be governed by s.40 since, when the offer was made, there was no relevant
“limitation under the company’s constitution” on “the power of the directors to bind the company”
within s.40(1); or by s.39(1) since, when the offer was made, the company suffered from no “lack of
capacity [to make it] by reason of anything in the company’s constitution”. It is, however, arguable that
holding the offer open was a continuing act; and if that argument were accepted two consequences
could follow. First, the offeree could acquire rights against the company by virtue of s.40(1) if he
accepted the offer in good faith, i.e. (presumably) in ignorance of the amendment of the articles. But,
secondly, it would appear to be open to a member of the company to bring proceedings to “restrain
the doing of an action that is beyond the powers of the directors” (i.e. the continued making of the
offer) at any time before the offer had been accepted. The company could also normally withdraw the
offer at any time before it had been accepted 558 and would be likely to do so in pursuance of the
policy which had led it to amend its articles in the way described at the beginning of this paragraph.
But this possibility would not be open to the company where it had bound itself not to withdraw the
offer, i.e. where it had granted a legally enforceable option. 559 In such a case, it is clear that a
member of the company could not take proceedings to prevent the conclusion of the contract since
“no such proceedings lie in respect of an act to be done in fulfilment of a legal obligation arising from
a previous act of the company” 560 i.e. in the case put, from the grant of the option.
2-114
A further problem that arises in the situation described in para.2-113 above is whether, if the
company’s offer were accepted when the company no longer had the capacity to enter into the
contract, and were accepted by the offeree in good faith so as to confer rights under it on the offeree,
the company would also be entitled to enforce the contract. No doubt, if the offeree sought to enforce
the contract, then he could normally do so only on condition of performing his own obligations under
it. But there is also the possibility that, having accepted the offer, the offeree might nevertheless
refuse to perform its part and that the company might then seek to enforce the contract (e.g. by
claiming damages for its breach) even though by the time of the acceptance of its offer it no longer
had the capacity to enter into the contract. Section 40(1) of the Companies Act 2006 would not
support such a claim since it applies only “in favour of a person dealing with the company …” and not
in favour of the company itself; nor could the claim be brought under s.31(3) if, as has been
suggested in para.2-112 above, that section refers only to rights and obligations already in existence
when the company amended its constitution. An attempt by the company to enforce the contract
under s.39(1) would run into a difficulty similar to that discussed in para.2-113 above. The difficulty
arises because s.39(1) provides that “The validity of an act done by the company shall not be called
into question” by reason of anything in the company’s constitution. If the “act done by the company”
were the making of the offer, then s.39(1) would, at first sight, be irrelevant since, when the offer was
made, it was, ex hypothesi, within the company’s capacity. It would be the validity of an act done by
the offeree (i.e. the acceptance), rather than any act by the company, that would be in question. The
outcome would depend on s.39(1) only if a suggestion similar to that put forward in para.2-113 above
were accepted: i.e. if the making of the offer were regarded as a continuous act. If that argument
failed, the company would be driven back on argument that a contract outside its capacity was at
common law 561 enforceable by, even though not against, it. This argument would not prevail if, as is
sometimes said, ultra vires contracts were at common law “wholly void”, 562 but the authorities give no
clear guidance on the point. 563
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Other corporations
2-115
Companies may also be incorporated by Royal Charter or by special legislation. Charter corporations
have the legal capacity of a natural person so that an alteration of the charter would not affect the
validity of an offer or acceptance made by the corporation. 564 The legal capacity of corporations
incorporated by special statute is governed by the statute, and acts not within that capacity are ultra
vires and void. 565 An alteration of the statute could therefore prevent the corporation from accepting
an offer made to it, and from being bound by the acceptance of an offer made by it, where the offer
was made before the alteration came into effect. In practice, the problem is likely to be dealt with in
the statute which changes the capacity of the corporation.
Limited liability partnerships
2-116
Limited liability partnerships incorporated under the Limited Liability Partnerships Act 2000 566 are
bodies corporate 567 but problems of the kind discussed in paras 2-110—2-114 above cannot arise
with regard to them as they have “unlimited capacity”. 568
539. Companies Act 2006 s.1.
540. Companies Act 2006 s.17(a).
541. See Companies Act 2006 s.31.
542. Companies Act 2006 s.21; such a resolution is also part of the company’s constitution: see
ss.17(b), 29.
543. Companies Act 2006 s.31(1); for special rules applicable to companies that are charities, see
s.31(4); Charities Act 2011 ss.197, 198; cf. in the case of Charitable Incorporated Organisations
(as defined in ss.204 and 205 of that Act), Pt 11 Ch.3 of the Act.
545. For the position of charitable companies, see above, n.532.
546. Companies Act 2006 s.31(2).
547. For special rules applicable to companies that are charities, see Companies Act 2006 ss.39(2),
42.
549. i.e. subject to s.40(6)(a) (certain transactions with directors: see s.41) and 40(6)(b) (companies
that are charitable: see s.42).
550. i.e. subject to the restrictions referred to in n.538 above.
551. The text will be concerned only with the effect of the general rules stated in this paragraph. It
will not deal with the exceptional cases referred to in nn.532, 536, 538 and 539 above.
552. The company’s constitution includes its articles and any resolution amending them: see
Companies Act 2006 ss.17, 29.
Page 5
553. Companies Act 2006 s.31(4), as amended by Charities Act 2011 s.354 and Sch.7 para.114.
554. Companies Act 2006 s.40(6), referring to ss.41 and 42.
555. Companies Act 2006 s.40(3)(a).
556. Companies Act 2006 ss.17, 29.
557. Companies Act 2006 ss.17, 29.
559. For the nature of legally enforceable options, see below, para.4-193 n.1234.
561. i.e. apart from s.39(1); no doubt in a case within s.39(1), the contract could be enforced by the
company.
563. For a discussion of policy considerations which should govern the outcome in such cases, see
Treitel, The Law of Contract 13th edn (2011), para.12–080.
564. Below, para.10-004; but a member of the corporation could bring proceedings to restrain the
conclusion of the contract.
565. Subject to mitigations provided for, in the case of contracts with “local authorities”, by Local
Government Contracts Act 1996.
566. See Limited Liability Partnerships Act 2000 ss.2 and 3.
567. Limited Liability Partnerships Act 2000 s.1(2).
568. Limited Liability Partnerships Act 2000 s.1(3).

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Section 5. - Special Cases
Difficulty of offer and acceptance analysis in certain cases
2-117
The analysis of the process of reaching agreement into the elements of offer and acceptance gives
rise, in a number of situations, 569 to considerable difficulties.
(1) Multilateral contracts
One such situation arises where participants in a competition address their entries to the organiser. It
is then hard to say whether a particular entry constitutes an offer or an acceptance (or both), or
whether two entry forms put into the post by different competitors at the same time constituted
cross-offers. Yet in spite of such difficulties it has been held that the competitors enter into multilateral
contracts binding each to the others to observe the rules of the competition. 570 Similar reasoning
would seem to apply to the multilateral contract which governs the legal relations between members
of an unincorporated association. 571 Such decisions are based on the assumption that all the parties
to the alleged multilateral contract were willing to agree to the same terms. Where one of the
negotiating parties had refused to accept one of the terms of the proposed contract, no multilateral
contract would arise between that party and any of the others, unless the others agreed to be bound
to that party on terms excluding the one rejected by him. 572
(2) Reference to third party
It is, secondly, hard to apply the analysis of offer and acceptance where negotiations have reached
deadlock and the parties simultaneously agree to a solution proposed by a third party whom they
have asked to resolve their differences. 573 The same is true where parties negotiate through a single
broker acting for both parties who eventually obtains their consent to the same terms. 574
(3) Agreements subject to contract
There is, thirdly, some difficulty, in applying the offer and acceptance analysis to transactions such as
sales of land where parties agree “subject to contract”, so that they are not bound until formal
contracts are exchanged. 575 Strictly, an “offer” expressed to be “subject to contract” does not satisfy
the legal definition of an offer, 576 since the person making such an “offer” has no intention to be
bound immediately on its acceptance. 577 However, the agreement is generally made by the usual,
process; the reason why the parties to it are not bound until they exchange formal contracts is that the
terms of the agreement negative, until then, the intention to enter into legal relations. 578 Alternatively,
a party could be regarded as making an offer when he submits a signed contract for exchange, 579
and this would be accepted when the exchange took place.
2-118
Page 2
The difficulties described in para.2-117 above have given rise to the view that the analysis of the
process of reaching agreement in terms of offer and acceptance is “out of date” 580 and that “you
should look at the correspondence as a whole and at the conduct of the parties and see therefrom
whether the parties have come to an agreement.” 581 But such an outright rejection of the traditional
analysis is open to the objection that it provides too little guidance for the courts (or for the parties or
for their legal advisers) in determining whether an agreement has been reached. 582 For this reason
the cases described above are best regarded as exceptions 583 to a general requirement of offer and
acceptance. This approach is supported by cases in which it has been held that there was no contract
precisely because there was no offer and acceptance 584 ; and by those in which the terms of the
contact have been held to depend on the analysis of the negotiations into offer, counter-offer and
acceptance. 585 In one case of the latter kind, 586 the Court of Appeal applied “the traditional offer and
acceptance analysis” 587 and one reason given by Dyson L.J. was that this approach had “the great
merit of providing a degree of certainty which is both desirable and necessary in order to promote
commercial relationships.” 588
569. See, in addition to the situations discussed in para.2-117, e.g. A. N. Satterthwaite & Co Ltd v
New Zealand Shipping Co Ltd (The Eurymedon) [1975] A.C. 154, 167; Commission for the New
Towns v Cooper (GB) Ltd [1995] Ch. 259 (below, para.2-126) and see below at nn.569 and
570.
570. The Satanita [1895] P. 248, affirmed sub nom. Clarke v Dunraven [1897] A.C. 59; Phillips, 92
L.Q.R. 499. cf. Kingscroft Insurance Co Ltd v Nissan Fire and Marine Insurance Co Ltd [2000] 1
All E.R. (Comm) 272 at 291 (admission of new members to an existing insurance pool analysed
in terms of offer and acceptance).
571. See Artistic Upholstery Ltd v Art Forma (Furniture) Ltd [1999] 4 All E.R. 277, 285; though
breach of the rules by one member may not, on their true construction, be actionable in
damages at the suit of another: Anderton v Rowland, The Times, November 5, 1999. For the
question whether a member of an unincorporated association is liable to a person outside the
association on contracts made on behalf of the association, see below para.10-064 and (for
example) Davies v Barnes Webster & Sons Ltd [2011] EWHC 2560 (Ch).
572. Azov Shipping Co v Baltic Shipping Co [1999] 2 Lloyd’s Rep. 159 at 165.
573. See Pollock, Principles of Contract 13th edn (1950), p.5.
574. Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep. 601, 616.
575. Below, paras 2-125, 2-126. Conductive Inkjet Technology Ltd v Uni-Pixel Displays Inc [2013]
EWHC 2968 (Ch), [2014] 1 All E.R. (Comm) 655, the facts of which (so far as they are here
relevant) are summarised in para.2-047, bears some resemblance to the “subject to contract”
cases discussed here. Roth J. regarded the case as one which did “not fit easily into the normal
analysis of a contract being constituted by offer and acceptance” (at [72]). The contract seems
to have been one which was not intended to be binding until formal documents incorporating
the (previously agreed) terms were executed by both parties: see below para.2-123.
576. Above, para.2-003. cf. the statement in Air Studios (Lyndhurst) Ltd v Lombard North Central Plc
[2012] EWHC 3162 (QB), [2013] 1 Lloyd’s Rep. 63 that a communication “was not an offer
capable of being accepted because it was expressed to be ‘subject to contract’ ”.
577. Below, para.2-126.
578. Below, para.2-171.
579. See Christie Owen & Davies v Rapacioli [1974] Q.B. 781; cf. Commission for the New Towns
Ltd v Cooper (Great Britain) Ltd [1995] Ch. 259 at 285.
Page 3
580. Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 W.L.R. 401, 404; cf. Port
Sudan Cotton Co v Govindaswamy Chettiar & Sons [1977] 2 Lloyd’s Rep. 5, 10; Tankrederei
Ahrenkeil GmbH v Frahuil SA (The Multibank Holsatia) [1988] 2 Lloyd’s Rep. 486, 491–492;
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] Ch. 433, 443.
581. Gibson v Manchester City Council [1978] 1 W.L.R. 520, 523; reversed [1979] 1 W.L.R. 294;
Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm), [2009] 1
Lloyd’s Rep. 475 at [247]; affirmed [2009] EWCA Civ 1334, [2010] 2 All E.R. (Comm) 788
without further reference to the present point. The case fell within the category of continuing
negotiations (above, paras 2-027 and 2-028) rather than within any of the special situations
discussed in para.2-117 above. For the view that the law does not invariably require strict
compliance with the “offer and acceptance” analysis of contract formation, see also Finmoon
Ltd v Baltic Reefer Management Ltd [2012] EWHC 920 (Comm), [2012] 2 Lloyd’s Rep. 388 at
[22].
582. See Gay Choon Ing v Loh Sze T: Terence Peter [2009] SGCA 3 at [63] (Singapore Court of
Appeal), adopting the “traditional approach” while favouring a “less mechanistic or dogmatic
application of” the concepts of offer and acceptance.
583. Gibson v Manchester City Council [1979] 1 W.L.R. 294, 297; cf. Harmony Shipping Co SA v
Saudi-Europe Line Ltd (The Good Helmsman) [1981] 1 Lloyd’s Rep. 377, 409; G. Percy
Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep. 27, 29–30.
584.
Hispanica de Petroleos SA v Vencedora Oceanica Navegacion SA (The Kapetan Markos
N.L.) [1987] 2 Lloyd’s Rep. 323, 331 (“What was the mechanism of offer and acceptance?”);
The Aramis [1989] 1 Lloyd’s Rep. 213; Treitel [1989] L.M.C.L.Q. 162; Taylor v Dickens [1998]
F.L.R. 806, 818 (doubted on another point in Gillett v Holt [2001] Ch. 210); Schuldenfrei v Hilton
[1999] S.T.C. 821; Assuranceforeningen Gard Gjensidig v International Oil Pollution
Compensation Fund [2014] EWHC 3369 (Comm); Price v Euro Car Parks Ltd [2015] EWHC
3253 (QB); and Burgess v Lejonvarn [2016] EWHC 40 (TCC); [2016] T.C.L.R. 3. The “offer and
acceptance” analysis is also used in many of the arbitration cases discussed above, paras
2-006, 2-074 though it is viewed with scepticism in The Multibank Holsatia, above n.569, at 491
and in Thai-Europe Tapioca Service Ltd v Seine Navigation Inc (The Maritime Winner) [1989] 2
Lloyd’s Rep. 506, 515.
585. e.g. the “battle of forms” cases discussed above, paras 2-033 et seq.
586. Tekdata Intercommunications Ltd v Amphenol Ltd [2009] EWCA Civ 1209, [2010] 1 Lloyd’s
Rep. 357 (above, para.2-036).
587. [2009] EWCA Civ 1209 at [20], [25]; it was recognised that this approach could be displaced but
held that it had not been displaced by the existence of “a long term relationship” (at [21]), not
amounting to “a prior overarching contract” (at [6]). For other “battle of forms” cases, also
applying the “traditional offer and acceptance” analysis, see Claxton Engineering Services Ltd v
TXM Olaj-és Gázkutató Kft [2010] EWHC 2567 (Comm), [2011] 2 All E.R. (Comm) 38 (above,
para.2-035 n.185) at [55] and Trebor Bassett Holdings Ltd v ADT Fire & Security Plc [2011]
EWHC 1936 (TCC), [2011] B.L.R. 661, where Coulson J. said (at [155]) that, in such a case, it
would be “difficult” to displace the traditional “offer and acceptance” analysis.
588. [2009] EWCA Civ 1209 at [25]. The sentences between nn.570 and 571 above, as then
contained in the 30th edition of this book, were cited with apparent approval by Longmore L.J.
(at [20]) and Dyson L.J. at [25].

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Section 6. - Incomplete Agreement
Agreement in principle only. 589
2-119
Parties may reach agreement on essential matters of principle, but leave important points unsettled
so that their agreement is incomplete. 590 It has, for example, been held that there was no contract
where an agreement for a lease failed to specify the date on which the term was to commence 591;
that an agreement “in principle” for the redevelopment and disposal of residential property, which
specified core terms but left important matters, such as the timing of the project, for future discussion
was an “incomplete agreement” and so did not amount to a binding contract 592; that an agreement for
sale of land by instalments was not a binding contract where it provided for conveyance of “a
proportionate part” as each instalment of the price was paid, but failed to specify which part is to be
conveyed on each payment 593; that a covenant in a contract of employment restricting competition in
two named counties and in others “to the south” of them was too uncertain to be enforced 594; and that
where, though agreement had been reached “covering some significant matters”, 595 there was no
contract because “many fundamental matters remained to be resolved”. 596 In Wells v Devani 597
an oral contract for an estate agent to find a buyer for a property was incomplete where the parties
had failed to specify the event which would trigger the agent’s entitlement to commission since such
598
contracts do not follow a single pattern. Moreover, a court cannot turn an incomplete contract
599
into a legally binding contract by adding expressly agreed terms and implied terms together. In
600
Teekay Tankers Ltd v STX Offshore and Shipbuilding Co Ltd an option agreement for the
building of oil tankers was unenforceable because the delivery dates were left to be mutually agreed.
The inclusion of a “best efforts” clause in respect of delivery date implicitly recognised that both sides
could have regard to their own interests and so precludes fixing a delivery date by reference to what
would be “reasonable ”. 601 An agreement is also incomplete if it expressly provides that it is
“subject to” specified points; there is no contract in such a case until either those points are resolved
or the parties agree that their resolution is no longer necessary for the agreement to enter into
contractual force. 602
Agreement complete despite lack of detail
2-120
On the other hand, an agreement may be complete although it is not worked out in meticulous
detail. 603 Thus an agreement for the sale of goods may be complete as soon as the parties have
agreed to buy and sell, where the remaining details can be determined by the standard of
reasonableness or by law. 604 Even failure to agree the price is not necessarily fatal in such a case.
Section 8(2) of the Sale of Goods Act 1979 provides that, if no price is determined by the contract, a
reasonable price must be paid. Under s.15(1) of the Supply of Goods and Services Act 1982, a
reasonable sum must similarly be paid where a contract for the supply of services fails to fix the
remuneration to be paid for them. 605 These statutory provisions assume that the agreement amounts
Page 2
to a contract in spite of its failure to fix the price or remuneration. The very fact that the parties have
not reached agreement on this vital point may indicate that there is no contract, e.g. because the
price or remuneration is to be fixed by further agreement. 606 In such a case, the statutory provisions
for payment of a reasonable sum do not apply. There may, however, be a claim for payment of such a
sum at common law: for example, where work is done in the belief that there was a contract or in the
expectation that the negotiations between the parties would result in the conclusion of a contract. 607
Such liability is based on the need to deprive the recipient of the services of unjust enrichment that
may result from his having benefited from the services without being required to pay for them 608 ;
and it arises in spite of the fact that there was no contract. 609 It follows that the party doing the work,
though he is entitled to a reasonable sum, is not liable in damages, e.g. for failing to do the work
within a reasonable time. 610 If the claim arose under a contract by virtue of s.15(1) of the 1982 Act,
the party doing the work would be both entitled and liable.
2-121
Even an agreement for sale of land dealing only with the barest essentials may be regarded as
complete if that was the clear intention of the parties. Thus in Perry v Suffields Ltd 611 an offer to sell a
public house with vacant possession for £7,000 was accepted without qualification. It was held that
there was a binding contract even though many important points, e.g. the date for completion 612 and
the question of paying a deposit, were left open. In another case 613 a buyer and seller of corn feed
pellets had reached agreement on the “cardinal terms of the deal: product, price, quantity, period of
shipment, range of loading ports and governing contract terms”. 614 The agreement was held to have
contractual force even though the parties had not yet reached agreement on a number of other
important points, such as the loading port, 615 the rate of loading and certain payments (other than the
price) which might in certain events become payable under the contract. Similarly, where parties had,
in negotiations for the manufacture by the claimants of machinery to be delivered to the defendants,
reached agreement on “all essential terms” 616 and “substantial works were then carried out”, 617 a
contract between them was held to have been concluded even though some points had been left
unresolved 618; and even though those points were of “economic or other significance”. 619 An even
more striking illustration of this approach is provided by a case 620 in which parties had reached an
oral agreement by telephone for the sale of notes evidencing “distressed debt” of a company which
was in liquidation. The agreement identified the subject-matter and specified the price; and it was held
to be contractually binding even though it did not specify the settlement date and left many other
important points to be resolved by further agreement. In all these cases, the courts took the view that
the parties intended to be bound at once in spite of the fact that further significant terms were to be
agreed later and that even their failure to reach such agreement would not invalidate the contract
unless without such agreement it was unworkable or too uncertain 621 to be enforced.
Agreement required for continued operation of contract
2-122
A distinction must finally be drawn between cases in which agreement on such matters as the price is
required for the making, and those in which it is required for the continued operation, of a contract.
The latter possibility is illustrated by a case 622 in which an agreement for the supply of services for 10
years fixed the fee to be paid only for the first two of those years. On the parties’ failure to fix the fee
in later years, it was held that they had intended to enter into a 10-year contract and that a term was
to be implied into that contract for payment of a reasonable fee in those later years. Likewise, in
another case 623 an agreement for the use of the claimant’s airport by the defendant airline for a
period of ten years provided for the parties to “liaise and consult” about specified matters relating to
the defendant’s use of the airport. It was held that this provision did not deprive the agreement of its
contractual force.
Stipulation for the execution of a formal document
2-123
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The effect of a stipulation that an agreement is to be embodied in a formal written document 624
depends on its purpose. 625 One possibility is that the agreement is regarded by the parties as
incomplete, or as not intended to be legally binding, 626 until the terms of the formal document are
agreed and the document is duly executed in accordance with the terms of the preliminary agreement
(e.g. by signature). 627 This is generally the position where “solicitors are involved on both sides,
formal written agreements are to be produced and arrangements are made for their execution”. 628
The normal inference will then be that “the parties are not bound unless and until both of them sign
the agreement”. 629 A second possibility is that such a document is intended only as a solemn record
of an already complete and binding agreement. 630 Yet a third possibility is that the main
agreement lacks contractual force for want of execution of the formal document but that,
nevertheless, a separate preliminary contract comes into existence at an earlier stage, e.g. when one
party begins to render services requested by the other, so that under this contract the former party will
be entitled to a reasonable remuneration for those services. 631 Conversely, an agreement that
originally lacked contractual force for want of execution of the formal document may acquire such
force by reason of supervening events. This could, for example, be the position where “it can be
objectively ascertained that the continuing intention [sc. not to be bound until execution of the
document] has changed or … subsequent events have occurred whereby the non-executing party is
estopped by relying on his nonexecution” 632; or where the party resisting the enforcement of the
contract had “waive[d] … [the] requirement” of “a formal written contract.” 633 An oral agreement
for the sale of land is enforceable in equity under a constructive trust despite not being in writing
where both parties had considered it to be immediately binding upon them, and where the prospective
buyer had then acted to his detriment in reliance upon it. 634 Where an agreement for the joint
acquisition of property lacks contractual force for want of execution of a formal document and one of
the parties then acquires the property for himself, he may also be liable to hold a share of that
property for the other party by virtue of a constructive trust. 635 The first two of the above possibilities
are further illustrated in the following paragraphs.
Insurance
2-124
A contract of insurance is generally regarded as complete as soon as the insurer initials a slip setting
out the main terms of the contract. This is so even though the execution of a formal policy is
contemplated 636 and even though the contract, if it is one of marine insurance, is “inadmissible in
evidence” unless it is embodied in a policy signed by the insurer and containing particulars specified
by statute. 637
Agreement “subject to contract”
2-125
Agreements for the sale of land by private treaty are usually 638 made “subject to contract”. Such
agreements are normally 639 regarded as incomplete until the terms of a formal contract have been
settled and approved by the parties. Thus, in Winn v Bull 640 an agreement to take a lease of a house
for a specified time at a stated rent, “subject to the preparation and approval of a formal contract” was
held not to have given rise to an enforceable contract. Jessell M.R. said that, “where you have a
proposal or agreement made in writing expressed to be subject to a formal contract being prepared, it
means what it says; it is subject to and is dependent upon a formal contract being prepared.” 641 The
same principle has been applied to an agreement to purchase freehold land “subject to a proper
contract to be prepared by the vendor’s solicitors” 642; to an agreement to take a flat “subject to
suitable agreements being arranged between your solicitors and mine” 643; to an agreement to grant a
lease “subject to the terms of a lease” (because this meant “subject to the terms to be contained in a
lease executed by the lessor” 644); and to an agreement to purchase a house “subject to formal
contract to be prepared by the vendors’ solicitors if the vendors shall so require.” 645 In each of these
cases the court held that the agreement gave rise to no legal liability. 646 The principle that
agreements “subject to contract” are not legally binding, though most frequently applied to contracts
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for the sale of land, is not restricted to such contracts. It has, for example, been held that an
agreement to pay a fee to an estate agent was not legally binding where it was expressed to be
“subject to contract”. 647 By a process of further analogous extension, the same reasoning has been
applied to an agreement which was neither one for the sale of land nor one which was expressly
“subject to contract”. In RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK
Production) 648 the principle was discussed in connection with a draft contract for the supply of goods,
clause 48 of which provided that the proposed contract “shall not become effective until each party
has executed a counterpart and exchanged it with the other”. This was described 649 as “the subject to
contract clause;” and, if matters had rested there, the draft would not have had any contractual force.
But the actual decision was that, in view of the parties’ subsequent conduct, the objective
interpretation of the parties’ words and conduct at formation, 650 the fact that substantial works were
then carried out and thereafter, the basis for the work done varied, 651 failure to comply with the
requirements of clause 48 did not prevent the formation of a binding contract.
General requirement of “exchange of contracts”
2-126
Even after the terms of the formal contract for the sale of land have been agreed, there is, where the
agreement is “subject to contract”, generally 652 no binding contract until there has been an “exchange
of contracts”. 653 It is also necessary (though not sufficient) for the formal requirements for contracts
for the sale of land (which are described in Ch.4) to be satisfied. 654 The formal requirement in cases
of the present kind is that each party must sign a document containing all the terms which have been
expressly agreed 655; and the requirement of exchange traditionally refers to the handing over by each
party to the other of one of these documents, or to their despatch by post; if the latter method is
adopted, the process is completed on the receipt of the second of the posted documents. 656 Such an
exchange may be effected by telephone or by telex. 657 It has been held in Australia that, once an
exchange has taken place, there can be a binding contract even though the two parts do not match
precisely (unless it is clear that the parties only intended to be bound by an exchange of precisely
corresponding parts). 658 The discrepancy can then be remedied by rectification. No doubt the
mechanics of “exchange” will be suitably modified when the proposed system of electronic
conveyancing is brought into operation. 659 Before “exchange” (or whatever requirement may be
substituted for it under that system), there is no uncertainty as to the terms of the agreement, but the
agreement has no contractual force because, at this stage, neither party intends to be legally bound.
660
Mitigations of the requirement of “exchange of contracts”
2-127
The rules stated in paras 2-125—2-126 above enable either party to a concluded agreement to go
back on it with impunity. This position has been described as “a social and moral blot on our law” 661
and there are indications that the courts are prepared to mitigate the former strictness of the
requirement of “exchange of contracts”. Thus it has been held that certain technical slips in the
process of exchange may be disregarded 662; and that exchange is not necessary where both parties
use the same solicitor. 663 The parties may also create a binding contract by a subsequent agreement
to remove the effect of the words “subject to contract,” thus indicating their intention henceforth to be
legally bound. 664 Subsequent conduct may also give rise to liability on other grounds: where one
party to the agreement encourages the other to believe that he will not withdraw, and the other acts to
his detriment in reliance on that belief, the former may be liable on the basis of “proprietary estoppel”.
665
In “a very strong and exceptional context” 666 the court may infer that the parties had an intention to
be legally bound by the original document, even though it is expressed to be “subject to contract”.
This was held to be the position where a document containing these words laid down an elaborate
timetable, imposed a duty on the purchaser to approve the draft contract (subject only to reasonable
amendments) and required him then to exchange contracts. 667 In these exceptional circumstances,
the words “subject to contract” were taken merely to mean that the parties had not yet settled all the
details of the transaction and therefore not to negative the intention to be bound.
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Collateral contracts; “lock out” agreements
2-128
There is also the possibility that the freedom of action of the parties may be restricted by a collateral
contract. For example a vendor who has agreed to sell land “subject to contract” may, either at the
same time or subsequently, undertake not to negotiate for the sale of the land with a third party. Such
a collateral agreement (sometimes called a “lock-out” agreement) must itself satisfy the requirement
of certainty 668 and in Walford v Miles 669 it was held that this requirement had not been satisfied where
the agreement failed to specify the time for which the vendor’s freedom to negotiate with third parties
was to be restricted. But in a later case 670 it was held that a vendor’s promise not to negotiate with
third parties for two weeks was sufficiently certain, and that the purchaser had provided consideration
for it by in turn promising to complete within that time. The uncertainty may also be resolved in other
ways. In one case, 671 for example, an agreement for the supply of chemicals to a manufacturer of
pharmaceutical products gave the supplier “a first opportunity and right of refusal” 672 in respect of
supplies to be made under the agreement. The period for which the supplier was to have this right
was not specified but the clause conferring it was not too uncertain to be enforced, since it could be
interpreted to mean that the right was to cease on the termination of the agreement 673 in which that
clause was contained.
Exceptions to requirement of execution and exchange of formal contracts
2-129
Agreements for the sale of land by auction or by tender are not normally made “subject to contract”.
The intention of the parties in such cases is to enter into a binding contract as soon as an offer has
been accepted; and the terms of that contract are usually set out, or referred to, in a document signed
to provide a written record of the fact of agreement. In one case of this kind, 674 however, the words
“subject to contract” were, by a clerical error, added to the acceptance. It was held that there was
nevertheless a binding contract since the tender documents set out in full the description of the
property and the terms of the transaction. In these highly exceptional 675 circumstances, the words
“subject to contract” were treated as meaningless and disregarded. 676 Presumably this reasoning
could also apply where the sale was by auction. The same reasoning has also been applied where a
notice exercising an option to purchase land was expressed to be “subject to contract”: this phrase
was again held to be meaningless as the notice was clearly intended to give rise to a binding contract.
677
Binding provisional agreements
2-130
Even in the case of an ordinary sale of land, the agreement is not invariably made “subject to
contract,” 678 and the court may on construction find that the parties have made an immediately
binding agreement, even though this is later to be superseded by a formal contract. Thus in Rossiter v
Miller 679 the defendant offered to purchase land and was informed that he must purchase subject to
certain conditions; his offer remained open and was accepted “subject to the conditions and
stipulations printed on the plan”. It was held that the acceptance gave rise to a binding contract and
Lord Blackburn said 680:
“… the mere fact that the parties have expressly stipulated that there shall be a formal
agreement prepared … does not, by itself, show that they continue merely in negotiation.”
And in Branca v Cobarro 681 an agreement for the sale of a farm provided that it was “a provisional
agreement until a fully legalised agreement, drawn up by a solicitor and embodying all the conditions
Page 6
herewith stated, is signed.” It was held that the provisional agreement was binding until it was
superseded when the formal agreement was drawn up and signed; execution of the formal agreement
was not a condition which had to be fulfilled before the parties were bound.
Acting on agreement subsequently completed
2-131
The parties may begin to act on the terms of an agreement before it has contractual force. When it is
later given such force, the resulting contract may then, if it expressly or by implication so provides,
have retrospective effect so as to apply to work done or goods supplied before it was actually made.
682
But where parties have negotiated “subject to contract” (or used expressions to the same effect),
683
then the fact that the contemplated work is begun before the execution of a formal contract, will not
(in the words of Lord Clarke S.C.J. in the RTS case) “always or even usually” 684 give rise to a binding
contract. The facts of that case, however, illustrate an exception to this general approach; for one of
the factors mentioned in support of the conclusion that a contract had there come into existence was
that, after “essentially all the terms were agreed … substantial works were then carried out”. 685 The
resulting contract was one for the supply of goods, a type of contract to which the further requirement
of an “exchange of contracts” (which as a matter of law normally applies to a contract for the sale of
land) 686 does not normally extend, though in the RTS case such a requirement was imposed by one
of the express terms of the draft which formed the basis of the negotiations in that case. 687 It seems
that the mere carrying out of “substantial works” before agreement had been reached on “essentially
all the terms” would not have sufficed to give rise to a binding contract on such terms as had been
agreed, unless the conduct of the parties supported the inference of an implied contract between
them. 688
Letters of intent; letters of comfort. 689
2-132
Issues of contractual intention have arisen in a number of cases concerned with the legal effects of
the commercial practice whereby parties to a transaction issue or exchange “letters of intent” on
which they act pending the preparation of formal contracts. One possibility is that such letters may, by
their express terms or on their true construction, negative contractual intention. 690 There is, similarly,
judicial support for the view that “a letter of comfort, properly so called,” is “one that does not give rise
to contractual liability”. 691 This position is illustrated by a case 692 in which a company issued a “letter
of comfort” to a lender in respect of a loan to one of the company’s subsidiaries. The letter stated that
“it is our policy that [the subsidiary] is at all times in a position to meet its liabilities”. This was held to
be no more than a statement of the present policy of the company: it was not an undertaking that the
policy would not be changed since the parties had not intended it to take effect as a contractually
binding promise. On the other hand, “[t]he label used by the parties is not necessarily determinative”,
693
so that “sometimes a legal obligation may arise as a matter of construction, notwithstanding the
rubric of a letter of comfort”. 694 Hence where the language of such a document, or of a letter of intent,
does not negative contractual intention, it is open to the courts to hold the parties bound by the
document. 695 They will, in particular, be inclined to do so where the parties have acted on the
document for a long period of time or have expended considerable sums of money in reliance on it. 696
The fact that the parties envisage that the letter is to be superseded by a later, more formal,
contractual document does not, of itself, prevent the letter from taking effect as a contract. 697 The
final possibility is that a letter of intent may be so worded that one part of it has, while the rest of it
does not, have, contractual force. In Shaker v VistaJet Group Holding SA, 698 one of the terms of a
letter of intent (LOI) began with the words:
“Non-binding: other than the provisions relating to the application, payment and refund of
the Deposit and the confidentiality provisions hereunder, it is specifically understood as
agreed that this letter of intent does not constitute a binding agreement upon the
Guarantor, Seller and Buyer to enter into the Transaction Documents.”
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On this basis, it was held that the claimant buyer was contractually entitled to enforce the provisions
of the LOI relating to the return of his deposit, 699 even though other parts of the LOI, in particular, the
buyer’s undertaking to negotiate in good faith, had no contractual force, because of the express terms
of the LOI quoted above. In any case, an undertaking to negotiate in good faith is not binding in law.
700
The binding force of the provisions as to the repayment would not be impaired even if they were
subject to a condition precedent 701 that the buyer should negotiate in good faith, since such a
condition could not, any more than an undertaking to negotiate in good faith, be enforced in law. 702
Terms “to be agreed”
2-133
The parties to an agreement may be reluctant to commit themselves to a rigid long-term arrangement,
particularly when prices and other circumstances affecting performance are likely to fluctuate. They
sometimes attempt to introduce an element of flexibility by providing that certain terms are to be
agreed later, or from time to time. The result of such a provision may be to make the agreement so
uncertain that it cannot be enforced. In May & Butcher v R. 703 an agreement for the sale of tentage
provided that the price, dates of payment and manner of delivery should be agreed from time to time.
The House of Lords held that the agreement was incomplete as it left vital matters to be settled. Had
the agreement simply been silent on these points, they could perhaps have been settled in
accordance with the provisions of the Sale of Goods Act 1979 704 or by the standard of
reasonableness 705; but the parties’ agreement precluded this by providing that such points were to be
settled by further agreement between them. 706 Similarly, a lease at “a rent to be agreed” is not a
binding contract. 707 In the above cases, the most natural inference to be drawn from the fact that the
parties left such an important matter as the price to be settled by further agreement was that they did
not intend to be bound until they had agreed on the price. Even where the points left outstanding are
of relatively minor importance, there will be no contract if it appears from the words used or other
circumstances that the parties did not intend to be bound until agreement on these points had been
reached. 708 A fortiori parties are not bound by a term requiring outstanding points to be agreed if that
term forms part of an agreement which is itself not binding because it was made without any intention
of entering into contractual relations. 709
Options and rights of pre-emption
2-134
It follows from the principle stated in para.2-133 above that an option to sell land “at a price to be
agreed” is not a binding contract 710; but such an option must be distinguished from a “right of
pre-emption” 711 by which a landowner agrees to give the purchaser the right to buy “at a figure to be
agreed” should the landowner wish to sell. 712 An option has at least some of the characteristics of an
offer 713 in that it can become a contract of sale when the purchaser accepts it by exercising the option
714
; and it cannot have this effect where it fails to specify the price. A right of pre-emption, on the other
hand, is not itself an offer 715 but an undertaking to make an offer in certain specified future
circumstances. 716 An agreement conferring such a right is, therefore, not void for uncertainty merely
because it fails to specify the price. It obliges the landowner to offer the land to the purchaser at a
price at which he is in fact prepared to sell; and if the purchaser accepts that offer there is no
uncertainty as to price. 717 This is so even though the parties have described the right as an “option”
when its true legal nature is that of a right of preemption. 718
Agreement not incomplete merely because further agreement is required
2-135
Because the courts are “reluctant to hold void for uncertainty any provision that was intended to have
legal effect”, 719 they may sometimes give effect even to an agreement which provides for further
terms “to be agreed”. This was the position in Foley v Classique Coaches Ltd. 720 The claimant owned
a petrol-filling station and adjoining land. He sold the land to the defendants on condition that they
Page 8
should enter into an agreement to buy petrol for the purpose of their motor-coach business
exclusively from him. This agreement was duly executed, but the defendants broke it, and argued that
it was incomplete because it provided that the petrol should be bought “at a price to be agreed by the
parties from time to time”. The Court of Appeal rejected this argument and held that, in default of
agreement, a reasonable price must be paid. 721 May & Butcher v R 722 was distinguished on a
number of grounds: the agreement in Foley’s case was contained in a stamped document; it was
believed by both parties to be binding and had been acted upon for a number of years 723; it contained
an arbitration clause in a somewhat unusual form which was construed to apply “to any failure to
agree as to the price” 724; and it formed part of a larger bargain under which the defendants had
acquired the land at a price which was no doubt based on the assumption that they would be bound
to buy all their petrol from the claimant. 725 While none of these factors is in itself conclusive, 726 their
cumulative effect seems to be sufficient to distinguish the two cases. 727
2-136
Thus an agreement is not incomplete merely because it calls for some further agreement between the
parties. The parties’ later failure to agree on the matters left outstanding may then vitiate the contract
only if it makes it “unworkable or void for uncertainty”. 728 Often, the failure will not have this effect, for
it may be possible to resolve the uncertainty in one of the ways already discussed, e.g. by applying
the standard of reasonableness 729; or the matter to be negotiated may be of such subsidiary
importance 730 as not to negative the intention of the parties to be bound by the more significant terms
to which they have agreed. Thus in Neilson v Stewart 731 a contract for the sale of shares provided
that part of the price payable by the buyer was to be lent back to him and to a third party on
repayment terms to be negotiated after one year. The House of Lords held that there was
nevertheless a binding contract for the sale of the shares as the parties had not intended the validity
of this contract to depend on the outcome of the negotiations as to the repayment of the loan. In RTS
Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) 732 the Supreme Court
held that a contract had come into existence when “essentially all the terms were agreed between the
parties”, 733 even though other terms were still the subject of further negotiations between them. 734
There can be no doubt as to the commercial convenience of the judicial approach described in this
paragraph. Commercial agreements are often intended to be binding in principle even though the
parties are not at the time able or willing to settle all the details. For example, contracts of insurance
may be made “at a premium to be arranged” when immediate cover is required but there is no time to
go into all the details at once: such agreements are perfectly valid and a reasonable premium must be
paid. 735 All this is not to say that the courts will hold parties bound when they have not yet reached
substantial agreement, 736 but once they have reached such agreement it is not fatal that some points
(even important ones) remain to be settled by further negotiation. 737
Criteria laid down in the agreement
2-137
The courts have less difficulty in upholding agreements which lay down criteria for determining
matters which are left open. For example, in Hillas & Co Ltd v Arcos Ltd 738 an option to buy timber
was held binding even though it did not specify the price, since it provided for the price to be
calculated by reference to the official price list. Similarly, an option to renew a lease “at a rent to be
fixed having regard to the market value of the premises” has been held binding as it provided a
criterion (though not a very precise one 739) for resolving the uncertainty. 740 Even a provision that hire
under a charterparty was in certain specified events to be “equitably decreased by an amount to be
mutually agreed” has been held (by reason of its reference to what was equitable) “to provide a
sufficient criterion to enable the appropriate reduction … to be determined”. 741 It was said that
“equitably” meant “fairly and reasonably” and that “a purely objective standard has been prescribed”.
742
On the other hand, where an agreement provided for payment of a fixed percentage of the “open
market value” of shares in a private company, it was held that these words did not provide a
sufficiently precise criterion since there was more than one formula for calculating the market value of
shares in such a company. 743 An agreement may also lack contractual force where, though it lays
down a criterion for resolving matters which are left open, it goes on to provide that the principles for
determining the application of that criterion are to be settled by further negotiations between the
parties. 744
Page 9
Machinery laid down in the agreement
2-138
An agreement is not incomplete where it provides machinery for resolving matters originally left
open. 745 Perhaps the most striking illustration of this possibility is provided by cases in which such
matters are to be resolved by the decision of one party: for example a term by which interest rates are
expressed to be variable on notification by the creditor, is in principle valid, 746 though the creditor’s
power to set interest rates under such a contract is limited by an implied term that he must not
exercise it “dishonestly, for an improper purpose, capriciously or arbitrarily”. 747 Similarly, an arbitration
clause can validly provide for the arbitration to take place at one of two or more places to be selected
by one of the parties 748; a compromise agreement can provide that one party is to have the right to
choose which assets are to be transferred under it 749; and a “staff handbook” can allow an employer
unilaterally to vary terms of a contract of employment. 750 Agreements are a fortiori not incomplete
merely because they provide that outstanding points shall be determined by arbitration 751 or other
dispute resolution procedure, 752 or by the decision or valuation 753 of a third party 754; though the Sale
of Goods Act 1979 provides that if the third party “cannot or does not make the valuation, the
agreement is avoided”. 755 An agreement is not, however, ineffective merely because such machinery
fails to work. Thus, in Sudbrook Trading Estate Ltd v Eggleton 756 a lease gave a tenant an option to
purchase the premises “at such price as may be agreed upon by two valuers, one to be nominated
by” each party. Although the landlord refused to appoint a valuer, the House of Lords held that the
option did not fail for uncertainty. It amounted, on its true construction, to an agreement to sell at a
reasonable price to be determined by valuers. The stipulation that each party should nominate one of
the valuers was merely “subsidiary and inessential” 757; and where the agreed machinery (which fails
to operate) is of this character, 758 the court can, on its failure to operate, substitute other machinery:
for example, the court can itself fix the price with the aid of expert evidence. This is so not only where
the agreed machinery fails because of one party’s failure 759 or refusal to operate it, 760 but also where
it fails for some other reason, such as the refusal of a designated valuer to make the valuation. 761
However, where the designated machinery that fails is regarded as “essential”, the agreement will be
unenforceable. Thus, where one party agreed to pay compensation to the other for increased
water-flow rates from flooding incidents, and the parties failed to identify a site at which water-flow
rates could be gauged via their engineers or via arbitration, the court refused to substitute other
machinery, and refused to allow the gauging site to be determined retrospectively by the engineers or
arbitration. 762
Rent review clauses
2-139
Problems of the kind discussed in paras 2-133—2-138 above have arisen in a number of cases
involving rent review clauses in leases. A provision in a lease that, after an initial period for which the
rent is specified, the tenant shall pay “such rent as may be agreed” is prima facie ineffective. 763 It
does not follow that the lease is, or becomes, void on failure to agree the new rent; indeed, it is
unlikely that the court would so hold where the parties had acted during the initial period in the belief
that the lease was binding for its full term; nor is it likely that the court would hold that, in default of
agreement, no rent at all need be paid. 764 Failure to agree a new rent will therefore lead to one of two
results: that the old rent continues 765 or that a reasonable rent must be paid. The first of these
solutions is open to the objection that it makes the rent review clause inoperative since under it the
party in whose interest it was to maintain the old rent would have no incentive to agree to a new one.
766
The better view, therefore, is that a reasonable rent must be paid. 767 The lease may, of course,
contain an express provision to this effect, 768 or provide for the rent to be determined by arbitration or
by a valuer. 769 The original rent may, however, continue to govern for some reason other than the
fact that the clause provides that the new rent is to be agreed or to be fixed by a third party: for
example, because the party who wishes to vary it has not complied with the conditions laid down by
the contract as a prerequisite to the operation of the rent review clause. 770
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Facts to be ascertained
2-140
An agreement is not ineffective for uncertainty merely because the facts on which its operation is to
depend are not known when it is made. The requirement of certainty will be satisfied if those facts
become ascertainable and are ascertained, without the need for further negotiation, after the making
of the agreement. Thus a finance agreement which depended on the merchantability of goods dealt
with under it was held not to be invalid for uncertainty merely because it was not known, when the
agreement was made, whether the goods were in fact merchantable. 771
Contract to make a contract
2-141
In some cases of incomplete agreements it is said that there is a “contract to make a contract”. 772
This expression may refer to a number of different situations; these are discussed in paras
2-142—2-145 below.
Contract to execute a document incorporating terms previously Agreed
2-142
One possibility is that the parties may agree to execute a formal document incorporating terms on
which they have previously agreed. Such a provision does not deprive the agreement of contractual
force. 773 For example, in Morton v Morton 774 an agreement to “enter into a separation deed
containing the following clauses” (of which a summary was then given) was held to be a binding
contract. The grant of an option to purchase can similarly be described as a contract by which one
party binds himself to enter into a further contract if the other so elects; and neither of these contracts
is (on this ground) void for uncertainty. 775
Agreement to negotiate
2-143
A further possibility is that the parties have simply agreed to negotiate. In spite of dicta to the contrary,
776
it has been held that an express agreement merely to negotiate is not a contract “because it is too
uncertain to have any binding force”. 777 It therefore does not impose any obligations to negotiate, or
to use best endeavours to reach agreement 778 or to accept proposals that “with hindsight appear to
be reasonable”. 779 Nor, where an agreement fails to satisfy the requirement of certainty, can this
defect be cured by implying into it a term to the effect that the parties must continue to negotiate in
good faith. In Walford v Miles, 780 a “lock-out” agreement collateral to negotiations for the sale of a
business lacked sufficient certainty because it failed to specify the period of time during which the
vendors were not to negotiate with third parties. 781 The House of Lords also unanimously rejected the
argument that a term should be implied requiring the vendors to continue to negotiate in good faith
with the purchaser for as long as the vendors continued to desire to sell, since such a term was itself
too uncertain to be enforced. The uncertainty lay in the fact that the alleged duty was “inherently
inconsistent with the position of a negotiating party” 782 who must normally 783 be free to advance his
own interests during the negotiations. The point is well illustrated by the facts of Walford v Miles itself,
where the defendants had agreed, subject to contract, to sell a property to the purchasers for £2m
and had (in breach of the above ineffective “lock-out” agreement) sold it to a third party for the same
sum, and the purchasers then claimed damages of £1m on the basis that the property was (by reason
of facts known to them but not to the defendants) worth £3m. If a duty to negotiate in good faith
exists, it must be equally incumbent on both parties, so that it can hardly require a vendor to agree to
sell a valuable property for only two thirds of its true value when the facts affecting that value are
known to the purchaser and not disclosed (as good faith would seem to require) to the vendor. The
actual result in Walford v Miles (in which the purchasers recovered the sum of £700 in respect of their
Page 11
wasted expenses as damages for misrepresentation, 784 but not the £1m which they claimed as
damages for breach of contract 785) seems, with respect, to be entirely appropriate on the facts,
especially because the vendors reasonably believed themselves to be protected from liability in the
principal negotiation by the phrase “subject to contract”.
2-144
In Cobbe v Yeomans Row Management Ltd 786 Mummery L.J. said that “Under English law there is no
general duty to negotiate in good faith”; but he added that there were “plenty of other ways of dealing
with particular problems of unacceptable conduct occurring in the course of negotiations without
unduly hampering the ability of the parties to negotiate their own bargains without the intervention of
the courts.” 787 In the Cobbe case itself, Court of Appeal had relied on the doctrine of proprietary
estoppel to this end; and although on further appeal this doctrine was held not to apply on the facts of
the case, 788 the House of Lords did provide other relief, by way of quantum meruit, to the party
prejudiced by the other party’s “unattractive” 789 conduct in withdrawing from the agreement which
required further negotiations to acquire contractual force; and in Walford v Miles the award of
damages for misrepresentation may illustrate the same point. 790 It should be emphasised that, in
neither of these cases, did the claimant recover the full damages for loss of his bargain to which he
would have been entitled, if the defendant’s failure to negotiate in good faith had amounted to a
breach of contract.
2-145
In Walford v Miles Lord Ackner, with whom all the other members of the House agreed, described as
“unsustainable” the view expressed in an American case 791 “that an agreement to negotiate in good
faith is synonymous with an agreement to use best endeavours and, as the latter is enforceable so is
the former.” 792 He went on to say that “the reason why an agreement to negotiate, like an agreement
to agree, is unenforceable is simply because it lacks the necessary certainty. The same does not
apply to an agreement to use best endeavours.” 793 If (as appears to be the case) the reference in this
passage is to an agreement to use best endeavours to reach agreement, then the passage gives rise
to a number of difficulties. The first arises from dictum in an English case 794 (which is cited with
approval in Walford v Miles 795) to the effect that an agreement to negotiate does not impose any
obligation to use best endeavours to reach agreement; and this dictum certainly supports the view
that an agreement to negotiate contains no implied term to use such endeavours. It may be that Lord
Ackner’s reference was to an express term to use best endeavours to reach agreement, or that he
was simply prepared to assume (without deciding) that an agreement (express or implied) to use such
endeavours might be legally enforceable and that he was concerned only to make the point that, even
on that assumption, the same was not true of an agreement to negotiate in good faith. That
explanation of Lord Ackner’s statement in turn gives rise to the difficulty of distinguishing between the
two types of agreement. One possibility is that an agreement to negotiate in good faith refers to the
formation and one to use best endeavours to the performance of a contract, e.g. where an admitted
contract between A and B requires A to use his best endeavours to make a computer software
system work, or to procure C to enter into a contract with B. There is no doubt that a term of this kind
can impose a legal obligation on A. 796 But such cases are not concerned with the legal effect (if any)
of an agreement to use best endeavours to reach agreement; and where the question is whether, in
consequence of such an agreement, any contract has come into existence, later decisions support
the view that an express agreement to use best or reasonable endeavours to agree on the terms of a
contract is no more than an agreement to negotiate, lacking contractual force. 797 An alternative
explanation of Lord Ackner’s statement may be that, while an agreement to use best endeavours to
reach agreement could be interpreted as referring to the machinery of negotiation, one to negotiate in
good faith is more plausibly interpreted as referring to its substance. A promise to use such
endeavours might, for example, oblige a party to make himself available for negotiations, or at least
not (e.g. by deliberately failing to pick up his telephone) to prevent the other from communicating with
him. 798 A promise to negotiate in good faith, on the other hand, would oblige a party not to take
unreasonable or exorbitant positions during the negotiations; and it is the difficulty of giving precise
content to this obligation, while maintaining each party’s freedom to pursue his own interests, that
makes such a promise too uncertain to be enforced.
Duty to negotiate outstanding details?

Page 12
2-146
In Walford v Miles the principal agreement was not legally binding because it was subject to
contract, and the lock-out agreement was not legally binding because it specified no dates. 799 The
case does not exclude the possibility that a different conclusion may be reached where the parties
have reached agreement on all essential points so as to show that they do intend to be legally bound
by the agreement, but have left other points open. The court may then imply a term that they are to
negotiate in good faith so as to settle outstanding details which are to be incorporated in the formal
document setting out the full terms of the contract between them. 800 An express term in an
agreement that is intended to be legally binding to negotiate outstanding matters in good faith may
likewise have contractual force. 801 Similarly, a dispute resolution clause in an existing and
enforceable contract which requires the parties to seek to resolve a dispute by friendly discussions in
good faith and within a limited period of time before the dispute may be referred to arbitration is
enforceable. It is not incomplete; not uncertain (it has an identifiable standard, namely, fair, honest
and genuine discussions aimed at resolving a dispute, the difficulty of proving a breach in some cases
does not mean that the clause lacks certainty); and not inconsistent with the position of a negotiating
party since the parties voluntarily accepted a restriction upon their freedom not to negotiate.
Moreover, it is in the public interest, since courts should enforce freely agreed obligations and
because it may avoid expensive and time-consuming arbitration. 802
589. Lücke (1967) 3 Adelaide L.Rev. 46.
590. Referred to with apparent approval in Western Broadcasting Services v Seaga [2007] UKPC
19, [2007] E.M.L.R. 18 at [19].
591. Harvey v Pratt [1965] 1 W.L.R. 1025; and see Re Day’s Will Trusts [1962] 1 W.L.R. 1419.
592. Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [15]; see
also at [7], [88].
593. Bushwall Properties Ltd v Vortex Properties [1976] 1 W.L.R. 591; cf. Hillreed Land v Beautridge
[1994] E.G.C.S. 55; Avintar v Avill, 1995 S.C.L.R. 1012; Hadley v Kemp [1999] E.M.L.R. 589 at
628; London & Regional Development v TBI Plc [2002] EWCA Civ 355; Spectra International
Plc v Tiscali Ltd [2002] EWHC 2084 (Comm); [2002] All E.R. (D) 2009 (Oct); Morgan Grenfell
Development v Arrows Autosport Ltd [2003] EWHC 333 (Ch); [2003] All E.R. (D) 417 (Feb);
Jordan Grand Prix Ltd v Vodafone Group Plc [2003] EWHC 1956 (Comm); [2003] 2 All E.R.
(Comm) 864; Compagnie Nogar D’Importation et D’Exportation SA v Abacha [2003] EWCA Civ
1100; [2003] 2 All E.R. (Comm) 915. It may sometimes be possible to resolve uncertainty as to
the subject-matter of the contract by extrinsic evidence, as in Westville Properties Ltd v Dow
Properties Ltd [2010] EWHC 30 (Ch), [2010] 2 P & C.R. 19.
594. Landmark Brickwork Ltd v Sutcliffe [2011] EWHC 1239 at [39].
595. Bols Distilleries BV v Superior Yacht Services Ltd [2006] UKPC 45, [2007] 1 W.L.R. 12 at [32].
596. Bols Distilleries BV v Superior Yacht Services Ltd [2006] UKPC 45 at [35]. cf. Whittle Movers
Ltd v Hollywood Express Ltd [2009] EWCA Civ 1189 at [14] (no express contract as important
terms were still being negotiated; nor, for reasons given in para.2-169 below could any contract
be implied); Haden Young Ltd v Laing O’Rourke Midlands Ltd [2008] EWHC 1016 (TCC) at
[87], [116] and [138] (no contract between the relevant parties as essential terms had not been
agreed); Barbudev v Eurocom Cable Management Bulgaria EOOD [2012] EWCA Civ 548 at
[52] (no enforceable contract where essential terms had not been agreed).
597.
[2016] EWCA Civ 1106.
Page 13
598.
[2016] EWCA Civ 1106 at [21]–[24].
599.
[2016] EWCA Civ 1106 at [19], [32] citing Luxor (Eastbourne) Ltd v Cooper [1941] A.C. 108
and Scancarriers A/S v Aotearoa International Ltd [1985] 2 Lloyd’s Rep. 419.
600.
[2017] EWHC 253 (Comm).
601.
[2017] EWHC 253 at [175]–[210].
602. Electrosteel Castings Ltd v Scan-Trans Shipping & Chartering Co [2002] EWHC 1993 (Comm);
[2002] 2 All E.R. (Comm) 1064 at [24].
603. First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep. 195, 205; cf. de
Jongh Weill v Mean Fiddler Holdings Ltd [2003] EWCA Civ 1058; RTS Flexible Systems Ltd v
Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14, [2010] 1 W.L.R. 753 at
[48]; Attrill v Dresdner Kleinwort Ltd [2011] EWCA Civ 229, [2011] I.R.L.R. 613 at [29] at [28],
[31] (promise by employer to employees to establish a minimum bonus pool held legally binding
through an individual employee could not point to any specific amount payable to him out of the
pool). On appeal in the Attrill case, see [2012] EWHC 1189 (QB), the Court of Appeal affirming
the decision, rejected the argument that the agreement was too uncertain to be enforced, even
though “there were some loose ends”: [2013] EWCA Civ 394 at [60]. See also Proton Energy
Group SA v Orten Lietuva [2013] EWHC 2872 (Comm), [2014] 1 Lloyd’s Rep. 100 at [39]: “This
was a classic spot deal where the speed of the market requires that the parties agree the main
terms and leave the details, some of which may be important, to be agreed later.” Accordingly,
a contract was held to have been made as soon as each party regarded itself as committed to
the other even though the agreement stated that “other contractual terms not indicated in the
offer shall be discussed and mutually agreed between the parties upon contract negotiations”
(at [17]).
604. See Bear Stearns Bank Plc v Forum Global Equity Ltd [2007] EWHC (below, para.2-121),
where the fact that no settlement date had been agreed did not prevent the conclusion of a
contract since, in the absence of express agreement on this point, there was “an implied term of
the agreement that the parties would execute it within a reasonable time” (at [164]; cf. at [169]).
605. cf. at common law, Way v Latilla [1937] 3 All E.R. 759; Furmans Electrical Contractors Ltd v
Elecref Ltd [2009] EWCA Civ 170 at [32], where the claim was described as “not strictly a
quantum meruit claim”, presumably because it arose under a contract and not (as in the
situations discussed at nn.591–593 below) in spite of the absence of one; and see, as to
agents’ commissions, British Bank of Foreign Trade v Novinex [1949] 1 K.B. 623; Powell v
Braun [1954] 1 W.L.R. 401.
606. e.g. May & Butcher v R. [1934] 2 K.B. 17, below, para.2-133; Courtney & Fairbairn Ltd v Tolaini
Bros (Hotels) Ltd [1975] 1 W.L.R. 297; Dugdale and Lowe [1976] J.B.L. 312; Chamberlain v
Boodle & King [1982] 1 W.L.R. 1443; Pagnan SpA v Granaria BV [1986] 2 Lloyd’s Rep. 547;
Russell Bros. (Paddington) Ltd v John Elliott Management Ltd (1995) 11 Const. L.J. 377;
Southwark LBC v Logan (1996) 8 Admin. L.R. 315.
607. Below, paras 2-218, 29-070 and 29-071. For the availability of a restitutionary remedy where no
contract was concluded, see also Whittle Movers Ltd v Hollywood Express Ltd [2009] EWCA
Civ 1189 at [48] (where, for reasons given in paras 2-119 above and 2-123 and 2-169 below,
the negotiations did not lead to the conclusion of a contract).
608.
Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [40]–[45],
[93]. In Hughes v Pendragon Sabre Ltd (t/a Porche Centre Bolton) [2016] EWCA Civ 18 the
Court of Appeal held that a customer had entered into a binding contract with a car dealership
to buy a limited edition Porsche, even though the contract did not stipulate the price,
specification or delivery date of the vehicle. These could be resolved by reference to the Sale of
Goods Act 1979.
Page 14
609. For the distinction between cases in which a claim for a reasonable sum arises under a contract
in spite of failure to agree on details and cases in which such a claim arises on restitutionary
principles in spite of the fact that no contract was formed because of the parties’ failure to reach
a sufficient measure of agreement, see Benourad v Compass Group Plc [2010] EWHC 1182
(QB) at [106(g) to (l)]. In that case, Beatson J. concluded that, while in principle such a
restitutionary claim might be available, there was no evidence on which he could determine its
amount (see at [132], [134] and [135]). Contrast Haden Young v Laing O’Rourke Midlands Ltd
[2008] EWHC 1016 (TCC), allowing a restitutionary claim of the kind here described where
work had been done in anticipation of a contract which, for reasons given in paras 2-119 above
and 2-123 below, never came into existence.
610. B.S.C. v Cleveland Bridge & Engineering Co Ltd [1984] 1 All E.R. 504.
611. [1916] 2 Ch. 187; cf. Elias v George Sahely & Co (Barbados) Ltd [1982] 3 All E.R. 801.
612. cf. Storer v Manchester City Council [1974] 1 W.L.R. 1403.
613. Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep. 601.
614. Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep. 601 at 611.
616. RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010]
UKSC 14, [2010] 1 W.L.R. 753 (before [70]); and at [61]. And see Malcolm Charles Contracts
Ltd v Crispin [2014] EWHC 3898 at [55]–[59], [67]–[74]; Bieber v Teathers Ltd (In Liquidation)
[2014] EWHC 4205 at [50]–[58].
617. At [85].
618. The further argument that no contract had come into existence because a requirement for the
execution of formal contractual documents had not been complied with was also rejected: see
below, para.2-123.
619. RTS case, above n.600, at [61]; Benourad v Compass Group Plc [2010] EWHC 1882 (QB) at
[106(f)].
620. Bear Stearns Bank Plc v Forum Global Equity Ltd [2007] EWHC 1576.
621. Below, para.2-147.
622. Mamidoil-Jetoil Arab Petroleum Co SA v Okta Crude Oil Refinery AD [2001] EWCA Civ 406
[2001] 2 Lloyd’s Rep. 76; for further proceedings in this case, see [2003] EWCA Civ 1031,
[2003] 2 All E.R. (Comm) 640, below, para.2-137. cf. Scammell v Dicker [2005] EWCA 405,
[2005] 3 All E.R. 838 at [40] per Rix L.J. (“The world is full of perfectly sound contracts which
require further agreement for the purpose of their implementation”).
623. Durham Tees Valley Airport Ltd v Bmibaby Ltd [2010] EWCA Civ 485, [2011] 1 Lloyd’s Rep. 68.
Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417 (below para.2-145 n.778) could be
regarded as a further illustration of the principle discussed in the present paragraph.
624. The mere fact that a document about the terms of which the parties had negotiated contained
spaces for their signatures does not amount to a stipulation for its execution by signature:
Maple Leaf Volatility Master Fund v Rouvroy [2009] EWCA 1334, [2010] 2 All E.R. (Comm) 788.
625. Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch. 284, 288–289.
626. B.S.C. v Cleveland Bridge & Engineering Co Ltd [1984] 1 All E.R. 504; Manatee Towing Co v
Oceanbulk Maritime SA (The Bay Ridge) [1999] 2 All E.R. (Comm) 306 at 329 (“no intention to
create legal relations”); Eurodata Systems Plc v Michael Gershon Plc, The Times, March 25,
Page 15
2003; Emcor Drake & Scull Ltd v Sir Robert McAlpine Ltd [2004] EWCA Civ 1733, 98 Con. L.R.
1; Haden Young Ltd v O’Rourke Midlands Ltd [2008] EWHC 1016 (TCC) at [115]; J D Cleverly
Ltd v Family Finance Ltd [2010] EWCA Civ 1477, [2011] R.T.R. 22; cf. the wording of the “Total
Price Box” in Smith Glaziers (Dunfermline) v Customs & Excise Commissioners [2003] UKHL 7,
[2003] 1 W.L.R. 656.
627. Okura & Co Ltd v Navara Shipping Corp SA [1982] 2 Lloyd’s Rep. 537; cf. R. v Sevenoaks DC
Ex p. Terry [1985] 3 All E.R. 226; Samos Shipping Enterprises Ltd v Eckhart & Co KG (The
Nissos Samos) [1985] 1 Lloyd’s Rep. 378; Hofflinghouse & Co Ltd v C. Trade SA (The Intra
Transporter) [1985] 2 Lloyd’s Rep. 159, 163; affirmed [1986] 2 Lloyd’s Rep. 132; Debattista
[1985] L.M.C.L.Q. 241; Star Steamship Society v Beogradska Plovidba (The Junior K.) [1988] 2
Lloyd’s Rep. 583; Debattista [1988] L.M.C.L.Q. 441; Atlantic Marine Transport Corp v Coscol
Petroleum Corp (The Pina) [1992] 2 Lloyd’s Rep. 103, 107; New England Reinsurance Corp v
Messaghios Insurance Co SA [1992] 2 Lloyd’s Rep. 251; CPC Consolidated Pool Carriers
GmbH v CTM Cia Transmediterranea SA (The CPC Gallia) [1994] 1 Lloyd’s Rep. 68; Ignazio
Messina & Co v Polskie Linie Oceaniczne [1995] 2 Lloyd’s Rep. 566; Drake Scull Engineering
Ltd v Higgs & Hill (Northern) Ltd (1995) 11 Const. L.J. 214; Regalian Properties Plc v London
Dockland Development Corp [1995] 1 W.L.R. 212; Enfield LBC v Arajah [1995] E.G.C.S. 164;
Galliard Homes Ltd v Jarvis Interiors Ltd [2000] C.L.C. 411; Britvic Soft Drinks Ltd v Messer UK
Ltd [2001] 1 Lloyd’s Rep. 20 at [64]; affirmed on other grounds [2002] EWCA Civ 548, [2002] 2
All E.R. (Comm) 321; Sun Life Assurance Co of Canada v CX Reinsurance Co Ltd [2003]
EWCA Civ 283; Thoreson & Co (Bangkok) Ltd v Fathom Marine Co [2004] EWHC 167 (Comm),
[2004] 1 All E.R. (Comm) 935 (agreement for sale of ship “sub details” not a binding contract);
Petromec Inc v Petroleo Brasileiro SA Petrobas [2005] EWCA Civ 891, [2006] 1 Lloyd’s Rep.
121 at [74]–[77] (MOA to be governed by later Transaction Documents not a binding contract;
for further proceedings, see [2006] EWHC 1443 (Comm), [2007] 1 Lloyd’s Rep. 629);
Oceonografia SA de CV v DSND Subsea AS (The Botnica) [2006] EWHC 1300 (Comm), [2007]
1 All E.R. (Comm) 28 (charter “subject to the signing of mutually agreeable terms and condition”
not a binding contract); Service Power Asia Pacific Pty Ltd v Service Power Business Solutions
Ltd [2009] EWCH 179 (Ch), [2010] 1 All E.R. (Comm) 238 at [20] (stipulation for outcome of
negotiations to be reduced to writing containing detailed terms); Whittle Movers Ltd v Hollywood
Express Ltd [2009] EWCA Civ 1189 (tender process “subject to contract” and contemplating
execution of formal contract); Benourad v Compass Group Plc [2010] EWHC 1882 at [110]
(draft providing that it would become effective from signature); cf. Prudential Assurance Co Ltd
v Mount Eden Land Co Ltd [1997] 1 E.G.L.R. 37 (consent to alterations given by landlord
“subject to licence” held effective as the consent was a unilateral act, so that no question of
agreement arose). For a borderline case, see Grant v Bragg [2009] EWCA Civ 1228, [2010] 1
All E.R. (Comm) 1166, where Lord Neuberger concluded that, “contrary to … [his] initial
impression”, there was to be no contract before formal signature of the draft (at [32]). The
sentence (in the 30th edition of this book) ending with what is now n.611 is cited with apparent
approval in Investec Bank (UK) Ltd v Zulman [2010] EWCA Civ 536 at [16], where failure to
execute a formal document negatived contractual intention even though the words “subject to
contract” (below, para.2-125), or words to the same effect, were not used; see also Benourad v
Compass Group Plc [2010] EWHC 1882 (QB) at [106(a)]; Datasat Communications Ltd v
Swindon Town Football Club Ltd [2009] EWHC 859 (Comm) at [87].
628. Cheverny Consulting Ltd v Whitehead Mann Ltd [2006] EWCA Civ 1303; [2007] 1 All E.R.
(Comm) 124 at [45], per Sir Andrew Morritt C; the above statement was accepted at [81] by
Carnwath L.J., who dissented in the result.
629. Cheverny Consulting Ltd v Whitehead Mann Ltd [2006] EWCA Civ 1303 at [45]; cf. Crossco
No.4 Unlimited v Jolan Ltd, Note [2011] EWCA Civ 1619, [2012] 2 All E.R. 754 at [106], where
similar reasoning was said at [108] to be “fatal to the claim to a constructive trust”, even though
there was no stipulation for the execution of a formal document.
630.
Rossiter v Miller (1878) 3 App. Cas. 1124 (below, para.2-130); Filby v Hounsell [1896] 2 Ch.
737; Branca v Cobarro [1947] K.B. 854 (below, para.2-130); E.R. Ives Investments Ltd v High
[1967] 2 Q.B. 379; Elias v George Sahely & Co (Barbados) Ltd [1982] 3 All E.R. 801; Damon
Cie Naviera SA v Hapag-Lloyd International SA (The Blankenstein) [1985] 1 W.L.R. 435;
Clipper Maritime Ltd v Shirlstar Container Transport Ltd (The Anemone) [1987] 1 Lloyd’s Rep.
547; Malcolm v Chancellor, Masters and Scholars of the University of Oxford, The Times,
Page 16
December 19, 1990; Ateni Maritime Corp v Great Marine Ltd (The Great Marine) (No.2) [1990]
2 Lloyd’s Rep. 250; affirmed (without reference to this point) [1991] 1 Lloyd’s Rep. 421; Jayaar
Impex Ltd v Toaken Group Ltd [1996] 2 Lloyd’s Rep. 437; The Kurnia Dewi, below n.615, at
559; Harvey Shopfitters Ltd v ADI Ltd [2004] EWCA Civ 1752, [2004] 2 All E.R. 982; Bryen &
Langley Ltd v Boston [2005] EWCA Civ 973, [2005] B.L.R. 508; Fitzpatrick Contractors Ltd v
Tyco Fire and Integrated Solutions (UK) Ltd [2008] EWHC 1301 (TCC), 119 Con. L.R. 155 at
[55], [56]; Whitney v Monster Worldwide Ltd [2010] EWCA Civ 1312, [2011] Pens. L.R. 1;
Immingham Storage Co Ltd v Clear Plc [2011] EWCA Civ 89; Tryggingarfelagio Foroyar P/F v
CPT Empresas Maritimas SA (The Athena) [2011] EWHC 589 (Admlty) at [45]; Air Studios
(Lyndhurst) Ltd v Lombard North Central Plc [2012] EWHC 3162 (QB), [2013] 1 Lloyd’s Rep. 63
at [70]; and Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2012] EWCA Civ
265, [2012] 1 Lloyd’s Rep. 542 at [30], where the actual decision turned on the question
whether the formal requirement of signature imposed by Statute of Frauds 1677 s.4 had been
satisfied; cf. Crowden v Aldridge [1993] 1 W.L.R. 433, applying the same principle to a
document which was not a contract but a direction by beneficiaries to executors. Crabbe v
Townsend [2016] EWHC 2450 (Ch), where the contemplated additional documents were
“matters of machinery only, whose contents are sufficiently defined by the terms of the 2006
Letter and which were intended to give effect to an existing agreement, not to create one”, and
Ely v Robson [2016] EWCA Civ 774, where separating cohabitees had orally agreed their
respective beneficial interests in the family home, recorded it a letter, and had acted in reliance
upon it; the anticipated formal written agreement was merely the “mechanics necessary to
achieve their stated objectives”.
631. Smit International Singapore Pte Ltd v Kurnia Dewi Shipping SA (The Kurnia Dewi) [1997] 1
Lloyd’s Rep. 553; Galliard Homes Ltd v Jarvis Interiors Ltd [2000] C.L.C. 411, where an
incomplete agreement expressly provided for a reasonable remuneration to be paid in the
events which happened. The “third possibility” described in the text above (para.2-116 in the
30th edition of this book) is referred to with apparent approval by Beatson J. in Benourad v
Compass Group Plc [2010] EWHC 1882 (QB) at [106(f)]. For the possible availability of a
restitutionary remedy where no contract was concluded, see above, para.2-120; on the facts of
the Benourad case, no such remedy was available: see above, para.2-120 n.593.
632. Cheverney Consulting Ltd v Whitehead Mann Ltd [2006] EWCA Civ 1303, [2007] 1 All E.R.
(Comm) 124 at [46]; Benourad v Compass Group Plc [2010] EWHC 1882 at [106(b)]. These
dicta envisage that the non-executing party may be bound by the “estoppel”. The Botnica [2006]
EWHC 1300 (Comm), [2007] 1 All E.R. (Comm) 28 envisages the further possibility that the
non-executing party may, by “waiver” or “a kind of election” (at [90]) acquire rights under the
unexecuted document. For this possibility, see further para.4-082 below.
633.
RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010]
UKSC 14, [2010] 1 W.L.R. 753 at [86]; for the facts of this case, see below paras 2-123 and
2-131; Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443,
where the respondent had clearly and unequivocally represented by its conduct that it was
bound by the deal memorandum and had waived the requirement to sign; contrast J D Cleverly
Ltd v Family Finance Ltd [2010] EWCA Civ 1477, [2011] R.T.R. 22, when there was no conduct
from which a waiver could be inferred (at [26]).
634.
Matchmove Ltd v Dowding [2016] EWCA Civ 1233; see below, paras 4-142 and 5-040.
635. Banner Homes Group Plc v Luff Developments Ltd [2000] Ch. 372; contrast London & Regional
Investments Ltd v TBI Plc [2000] EWCA Civ 355, where the joint venture agreement was
expressly “subject to contract” (below, para.2-125), thus reserving a right to withdraw. In
Crossco No.4 Unlimited v Jolan Ltd Note [2011] EWCA Civ 1619, [2012] 2 All E.R. 754 Arden
and Mcfarlane L.JJ. took the view that the decision in the Banner Homes case was based on
constructive trust (at [129], [119], [124]) while Etherton L.J. took the view that it rested on
breach of fiduciary duty (at [88], [93]). This difference of judicial opinion did not affect the
outcome of the Crossco case and further discussion of it is beyond the scope of this chapter.
636. Ionides v Pacific Insurance Co (1871) L.R. 6 Q.B. 674, 684; Cory v Patton (1872) L.R. 7 Q.B.
304; General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria [1983] Q.B. 856;
Page 17
Hadenfayre Ltd v British National Insurance Soc. Ltd [1984] 2 Lloyd’s Rep. 393; G.A.F.L.A.C. v
Tanter (The Zephyr) [1984] 1 Lloyd’s Rep. 56, 69–70; reversed in part on other grounds [1985]
2 Lloyd’s Rep. 529; Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep. 127, 140–141; HIH
Casualty & General Insurance v New Hampshire Insurance [2001] EWCA Civ 735; [2001] 2 All
E.R. (Comm) 39 at [86], [87]. Under an “open cover” arrangement, it is not the initialling of the
slip but the declaration of the insured, which creates the obligation of the insurer: Citadel
Insurance Co v Atlantic Union Insurance Co [1985] 2 Lloyd’s Rep. 543.
637. See Marine Insurance Act 1906 ss.22, 23 and 24.
638. Not always: see Storer v Manchester City Council [1974] 1 W.L.R. 1403; Tweddell v Henderson
[1975] 1 W.L.R. 1496, 1501–1502; Elias v Group Sahely & Co (Barbados) Ltd [1982] 3 All E.R.
801.
639. See below at n.636.
640. (1877) 7 Ch. D. 29. See also Santa Fé Land Co v Forestal Land Co (1910) 26 T.L.R. 534.
641. (1877) 7 Ch. D. 29, 32.
642. Chillingworth v Esche [1924] 1 Ch. 97.
643. Lockett v Norman-Wright [1925] Ch. 56.
644. Raingold v Bromley [1931] 2 Ch. 307. See also Berry Ltd v Brighton and Sussex Building
Society [1939] 3 All E.R. 217.
645. Riley v Troll [1953] 1 All E.R. 966.
646. See also Kingston-upon-Hull (Governors) v Petch (1854) 10 Ex. 610; Chinnock v Marchioness
of Ely (1865) 4 De G.J. & S. 638; Harvey v Barnard’s Inn (1881) 50 L.J.Ch. 750; May v
Thomson (1882) 20 Ch. D. 705; Hawkesworth v Chaffey (1886) 55 L.J.Ch. 335; Von
Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch. 284 (disapproving North v Percival [1898] 2 Ch.
128); Rossdale v Denny [1921] 1 Ch. 57; Looker v Law Union Insurance Co Ltd [1928] 1 K.B.
554; Brilliant v Michaels [1945] 1 All E.R. 121; Lowis v Wilson [1949] Ir.R. 347; Graham & Scott
(Southgate) Ltd v Oxlade [1950] 2 K.B. 257; Bennett, Walden & Co v Wood [1950] 2 All E.R.
134; Christie, Owen and Davies Ltd v Stockton [1953] 1 W.L.R. 1353.
647. Ronald Preston & Partners v Markheath Securities [1988] 2 E.G.L.R. 23. For the potential
applicability of the principle that an agreement “subject to contract” is not legally binding to an
offer “subject to contract” to buy goods, see Air Studios (Lyndhurst) Ltd v Lombard North
Central Plc [2012] EWHC 3162 (QB), [2013] 1 Lloyd’s Rep. 63 at [70], quoted in para.2-117 at
n.565.
UKSC 14, [2010] 1 W.L.R. 753 at [48].
649. [2010] UKSC 14 at [86].
650. [2010] UKSC 14 at [45]–[48]: “The parties agreed to bind themselves to agreed terms, leaving
certain subsidiary and legally inessential terms to be decided later.”
651. [2010] UKSC 14 at [61], and see below at para.2-131 at n.668.
652. i.e. subject to the qualifications discussed in paras 2-127—2-131 below.
653. Eccles v Bryant & Pollock [1948] Ch. 93; Sante Fé Land Co Ltd v Forestal Land Co Ltd (1910)
26 T.L.R. 534; cf. Coope v Ridout [1921] 1 Ch. 291; Chillingworth v Esche [1924] 1 Ch. 97;
Raingold v Bromley [1931] 2 Ch. 307; Cohen v Nessdale [1982] 2 All E.R. 97; Secretary of
State for Transport v Christos [2003] EWCA Civ 1073, [2004] 1 P. & C.R. 17; Bolton MBC v
Page 18
Torkington [2003] EWCA Civ 1634, [2004] Ch. 66 at [53], where mere sealing (without delivery)
of a counterpart lease by a local authority was held not to give rise to a contract binding the
authority.
654. Below, para.5-011. A document setting out all the terms expressly agreed and signed by both
parties would satisfy the formal requirements; but if it were expressed to be “subject to contract”
it would not give rise to a contract until “exchange” had taken place.
655. Law of Property (Miscellaneous Provisions) Act 1989 ss.2(1), (3).
656. See Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch. 259, 285, 289, cf.
at 293, 295.
657. Domb v Izoz [1980] Ch. 548. This relaxation refers only to the process of exchange; the formal
requirements referred to at n.637 above must also be satisfied.
658. Sindel v Georgiou (1984) 154 C.L.R. 661.
659. On the making of orders under the Land Registration Act 2002.
660. Below, para.2-171.
661. Cohen v Nessdale [1981] 3 All E.R. 118, 128; affirmed [1982] 2 All E.R. 97; cf. Law
Commission Paper No.65.
662. Harrison v Battye [1975] 1 W.L.R. 53.
663. Smith v Mansi [1963] 1 W.L.R. 26; exchange is also unnecessary in the case of a deed which
takes effect on execution and delivery: see above, paras 1-113 et seq.; Vincent v Premo
Enterprises Ltd [1969] 2 Q.B. 609.
664. Law v Jones [1974] Ch. 112, as explained in Daulia v Four Millbank Nominees [1978] Ch. 231,
250; Cohen v Nessdale [1981] 3 All E.R. 118, 127, [1982] 2 All E.R. 97, 104; see also Tiverton
Estates Ltd v Wearwell [1975] Ch. 146, followed in Irani v Irani [2006] EWHC 1811, [2006]
W.T.L.R. 1561; cf. Secretary of State for Transport v Christos [2003] EWCA Civ 1073, [2004] 1
P. & C.R. 17 at [36]–[37] (statement that a party would “not renege” insufficient). For the
present purpose, agreement of both parties is required: a “unilateral” waiver by one party will
not suffice: Haq v Island Homes Housing Association [2011] EWCA Civ 805, [2011] 2 P & C.R.
17 at [72]. Any subsequent agreement would now have to satisfy more stringent requirements,
imposed by Law of Property (Miscellaneous Provisions) Act 1989 s.2 (below, para.5-011) than
those which were in force at the time of the first four of the decisions cited in this note, though
these requirements would not apply if the subsequent agreement could take effect as a
collateral contract. The requirement of a subsequent agreement by both parties to remove the
normal effect of the words “subject to contract” also does not apply where an offer to buy goods
is qualified by these words. In Air Studios (Lyndhurst) Ltd v Lombard North Central Plc [2012]
EWHC 3162 (QB), [2013] 1 Lloyd’s Rep. 63 such an offer was so qualified and it was said at
[70] that “this qualification was removed” by the buyer’s later statement that [o]ur offer is not
conditional, “whereupon the offer was an offer capable of being accepted”.
665. See the discussion at para.4-147 below of Att-Gen of Hong Kong v Humphreys Estate (Queen’s
Gardens) Ltd [1987] A.C. 114. In Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55,
[2008] 1 W.L.R. 1752 Lord Scott said that in a “subject to contract” case proprietary estoppel
“cannot ordinarily arise” (at [25]) and that in such a case it would be “very difficult” (at [26]) to
establish a proprietary estoppel. The difficulty is illustrated by Haq v Island Housing Association
[2011] EWCA Civ 805, [2011] 2 P. & C.R. 17, where merely allowing a prospective lessee to
enter the premises while the agreement was still “subject to contract” was not sufficient to give
rise to a proprietary estoppel (at [73]).
666. Alpenstow Ltd v Regalian Properties Ltd [1985] 1 W.L.R. 721, 730; Harpum [1986] C.L.J. at
356.
Page 19
667. Alpenstow Ltd v Regalian Properties Ltd, above.
668. Below, para.2-145.
669. [1992] 2 A.C. 128. See further para.2-143.
670. Pitt v PHH Asset Management Ltd [1994] 1 W.L.R. 327; cf. Tye v House [1997] 2 E.G.L.R. 171.
671. Astra Zeneca UK Ltd v Albemarle International Corp [2011] EWHC 1574 (Comm).
672. Clause H, set out at [8].
673. At [29]. Under clause B, also set out at [8], the agreement was terminable by notice by either
party, but not before March 2008; it could also be terminated by one party on account of the
other’s breach.
674. Michael Richards Properties Ltd v St Saviour’s [1975] 3 All E.R. 416; Emery [1976] C.L.J. 28.
675. See Munton v G.L.C. [1976] 1 W.L.R. 649.
677. Westway Homes v Moore (1991) 63 P. & C.R. 480.
678. Storer v Manchester City Council [1974] 1 W.L.R. 1403; Tweddell v Henderson [1975] 1 W.L.R.
1496, 1501–1502; Elias v George Sahely & Co (Barbados) Ltd [1982] 3 All E.R. 801.
679. (1878) 3 App. Cas. 1124. For other examples of a completed agreement, see Lewis v Brass
(1877) 3 Q.B.D. 667; Bonnewell v Jenkins (1878) 8 Ch. D. 70; Bolton Partners v Lambert
(1888) 41 Ch. D. 295; Gray v Smith (1889) 43 Ch. D. 208; Filby v Hounsell [1896] 2 Ch. 737;
Lever v Koffler [1901] 1 Ch. 543; E.R. Ives Investments Ltd v High [1967] 2 Q.B. 379; cf. Willis v
Baggs and Salt (1925) 41 T.L.R. 453; Morton v Morton [1942] 1 All E.R. 273; Cranleigh
Precision Engineering Ltd v Bryant [1965] 1 W.L.R. 1293.
680. (1878) 3 App. Cas. 1124, 1151.
681. [1947] K.B. 854.
682. Trollope & Colls Ltd v Atomic Power Construction Ltd [1963] 1 W.L.R. 333. The same principle
can apply also where the parties act on an informal agreement which does not have contractual
force and that agreement is later superseded by the execution of a formal contract: see Twintec
Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10 (TCC), [2014] B.L.R. 150 at [18], [45].
683. As in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010]
UKSC 14, [2010] 1 W.L.R. 753; for the “subject to contract clause” (at [86]) in that case, see
above, para.2-125.
UKSC 14 at [47].
UKSC 14 at [61]; cf. at [84]. A further reason for the decision was that the parties had agreed to
vary the agreement even though the requirements of the “subject to contract” clause (above,
para.2-125) had not been satisfied; and that a variation would make no sense if there was
“nothing to vary” (at [61]). The point is perhaps overstated since the concept of varying a draft
before it has acquired contractual force is not an obviously empty one.
686. Above, para.2-126.
687. See the words of clause 48, quoted in para.2-125 above.

Page 20
688. See the reasoning at first instance in Rugby Group Ltd v Pro Force Recruit Ltd [2005] EWHC
70 (QB) at [16], reversed on other grounds [2006] EWCA Civ 69.
689. Lake and Draetta, Letters of Intent 2nd edn (1994); Furmston, Poole and Norinado, Contract
Formation and Letters of Intent (1997).
690. Below, para.2-194; cf. Snelling v John G. Snelling Ltd [1973] 1 Q.B. 87.
691. Associated British Ports v Ferryways [2008] EWCA Civ 189, [2009] 1 Lloyd’s Rep. 595 at [24],
per Maurice Kay L.J; Barbudev v Eurocom Cable Management Bulgaria EOOD [2011] EWHC
1560 (Comm), [2011] 2 All E.R. (Comm) 951, where it was said at [93] that the relevant
document was “not expressed to be a ‘letter of comfort’, though that is not conclusive”, and was
held “as a matter of construction … not intended to be legally binding” (at [96]), and see
para.2-194 below.
692. Kleinwort Benson Ltd v Malaysian Mining Corp [1989] 1 All E.R. 785; Reynolds 104 L.Q.R. 353
(1988); Davenport [1988] L.M.C.L.Q. 290; Prentice (1989) 105 L.Q.R. 346; Ayres and Moore
[1989] L.M.C.L.Q. 281; Tyree (1989) 2 J.C.L. 279, cf. Chemco Leasing SpA v Rediffusion
[1987] 1 F.T.L.R. 201 (where such a letter was held to be an offer but to have lapsed before
acceptance); Monk Construction v Norwich Union Life Insurance Society (1992) 62 B.L.R. 107.
693. Associated British Ports v Ferryways [2008] EWCA Civ 189 at [24].
694. Associated British Ports v Ferryways [2008] EWCA Civ 189 at [27]. See also Twintec Ltd v
Volkerfitzpatrick Ltd [2014] EWHC 10, [2014] B.L.R. 150, where a building contractor issued a
letter of intent (LOI) to a flooring sub-contractor and the parties accepted that the LOI
constituted a binding contract (at [23]) but disagreed as to which terms of the contemplated
later formal contract were intended to be incorporated into the LOI agreement.
695. In Associated British Ports v Ferryways [2008] EWCA Civ 189, a “letter of comfort” was held to
be a legally binding guarantee, though this had been discharged by a later agreement.
696.
cf. Turriff Construction Ltd v Regalia Knitting Mills (1971) 22 E.G. 169 (letter of intent held to
be a collateral contract for preliminary work); Wilson Smithett & Cape (Sugar) Ltd v Bangladesh
Sugar Industries Ltd [1986] 1 Lloyd’s Rep. 378 (LOI held to be an acceptance); Chemco
Leasing SpA v Rediffusion [1987] 1 F.T.L.R. 201 (LOI held to be an offer but to have lapsed
before acceptance). Spartafield Ltd v Penten Group Ltd [2016] EWHC 2295 (TCC), 168 Con.
L.R. 221 (letter of intent displaced by contract when the key principles for the contract were
agreed and it was agreed that the terms would be those contained in the JCT ICD form; the
contemplated execution of a formal contract was not a precondition to the existence of the
contract).
697. Above, para.2-123. For a combination of the factors described in the text above at nn.673 and
674, see Diamond Build Ltd v Clapham Park Homes Ltd [2008] EWHC 1439 (TCC), 119 Con.
L.R. 33 where a LOI was held to have contractual force even though its provisions indicated
that a formal contract was to be executed but the parties acted on the letter without executing
any such contract.
699. [2012] EWHC 1329 (Comm) at [8].
700. [2012] EWHC 1329 (Comm) at [7]; see below paras 2-143, 2-194.
701. The existence of such a condition was doubted in [2012] EWHC 1329 (Comm) at [9].
702. [2012] EWHC 1329 (Comm) at [12].
703. [1934] 2 K.B. 17n; cf. British Homophone Ltd v Kunz (1935) 152 L.T. 589; Mmecen SA v Inter
Ro-Ro SA (The Samah) [1981] 1 Lloyd’s Rep. 40, 43; Harmony Shipping Co SA v
Page 21
Saudi-Europe Line Ltd (The Good Helmsman) [1981] 1 Lloyd’s Rep. 377, 409; Pancommerce
SA v Veecheema BV [1983] 2 Lloyd’s Rep. 304, 307; Cedar Trading Co Ltd v Transworld Oil
Ltd (The Gudermes) [1985] 2 Lloyd’s Rep. 623; iSoft Group Plc v Misys Holdings Ltd [2003]
EWCA Civ 229, [2003] All E.R. (D) 438 (Feb); Minter v Julius Baer Investments Ltd [2004]
EWHC 2472, [2005] Pens. L.R. 73; Scottish Coal Co Ltd v Danish Forestry Co Ltd [2010] CSJH
56, 2010 S.C. 729, referring at [8] to May & Butcher v R., above n.686.
704. Above, para.2-120; cf. Supply of Goods and Services Act 1982 s.15(1).
705. cf. Mamidoil-Jetoil Greek Petroleum SA v Okta Crude Oil Refinery AD [2001] EWCA Civ 406,
[2001] 2 Lloyd’s Rep. 76, especially at [73]; Malcolm v Chancellor, Masters & Scholars of the
University of Oxford, The Times, December 19, 1990.
706. cf. Willis Management (Isle of Man) Ltd v Cable & Wireless Plc [2005] EWCA Civ 806, [2005] 2
Lloyd’s Rep. 597 at [33].
707. King’s Motors (Oxford) Ltd v Lax [1970] 1 W.L.R. 426; cf. King v King (1981) 41 P. & C.R. 311
(rent review clause).
708. Metal Scrap Trade Corporation v Kate Shipping Co Ltd (The Gladys) [1994] 2 Lloyd’s Rep. 402;
Ignazio Messina & Co v Polskie Linie Oceaniczne [1995] 2 Lloyd’s Rep. 566.
709. Orion Insurance Plc v Sphere Drake Insurance Plc [1992] 1 Lloyd’s Rep. 239.
710. This is assumed in Brown v Gould [1972] Ch. 53, where, however, the option was upheld as it
specified criteria for determining the price: see below, para.2-137.
711. The word “pre-emption” would not be appropriate where the object of the term in question was
to confer a right on a seller to be given the first opportunity of making a supply of goods to a
buyer, as in Astra Zeneca UK Ltd v Albemarle International Corp [2011] EWHC 1574; and this
point may account for the use in that case of the expression “first opportunity and right of
refusal” to refer to the opportunity of this kind there conferred by the contract on the seller. It
may also account for the statement at [24] that “a right of pre-emption” was “essentially another
name for a right of first refusal”. What seems to be meant is that the nature of these two rights
is similar. As a matter of terminology, it is hard to see how a seller can have the first right to buy
the subject-matter (or, in other words, a right of pre-emption). The phrase “right of first refusal”
is more equivocal and seems to be just as capable of referring to a right conferred on a seller
as to one conferred on a buyer: that is to a right of one party to an agreement to receive an
offer from the other in priority to other potential offerees.
712. Pritchard v Briggs [1980] Ch. 339. For the purposes of Landlord and Tenant (Covenants) Act
1995, "option" includes “a right of first refusal”: s.1(6).
713. Below, para.4-193 n.1234. See also Bircham & Co Nominees (No.2) Ltd v Worrell Holdings Ltd
[2001] EWCA Civ 775, (2001) 82 P. & C.R. 427 at [41]; Re Gray [2004] EWHC 1538 (Ch),
[2005] 1 W.L.R. 815 at [25]. On the exercise of a right of pre-emption, the right may acquire
characteristics of an option; see Cottrell v King [2004] EWHC 397, [2004] B.C.C. 309.
714. See Coaten v PBS Corporation [2006] EWHC 1781, [2006] 3 E.G.L.R. 43 (agreement held to
be an option, not a right of pre-emption, as the exercise of the right conferred by it on the
grantee imposed on the grantor an “immediate obligation to sell … if [the grantee] wished that
to happen” (at [35])).
715. Coaten v PBS Corporation [2006] EWHC 1781 at [16], [23]; Speciality Shops Ltd v Yorkshire &
Metropolitan Estates Ltd [2002] EWHC 2969, [2003] 2 P. & C.R. 410 at [28]; for other types of
rights of pre-emption, in which the offer comes from the grantee, see [2002] EWHC 2969 at
[26], [27]. For the distinction between options and rights of pre-emption, see also Tiffinany
Investments Ltd v Bircham & Co Nominees (No.2) [2003] EWCA Civ 1759, [2002] 2 P. & C.R.
10 and Coaten v PBS Corp [2006] EWHC 1781, [2006] 3 E.G.L.R. 43 (above, n.697).
716. Similarly, a “lock-out” agreement (above, para.2-128) does not bind the promisor to sell to the
Page 22
promisee; it merely restricts his freedom to sell to someone else: see Tye v House [1997] 2
E.G.L.R. 171.
717. Smith v Morgan [1971] 1 W.L.R. 803; cf. Snelling v John G. Snelling Ltd [1973] 1 Q.B. 87, 93;
Fraser v Thames Television Ltd [1984] Q.B. 44, 57; Miller v Lakefield Estates Ltd, The Times,
May 16, 1988; Astra Zeneca UK Ltd v Albermarle International Corp [2011] EWHC 1574
(Comm) at [30].
718. See Fraser v Thames Television Ltd [1984] Q.B. 44.
719. Brown v Gould [1972] Ch. 53, 57–58; cf. Smith v Morgan [1971] 1 W.L.R. 803, 807; Snelling v
John G. Snelling Ltd [1973] 1 Q.B. 87, 93; Queensland Electricity Generating Board v New
Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep. 205, 210; Global Container Lines Ltd v State
Black Sea Shipping Co [1999] 1 Lloyd’s Rep. 127, 155; Scammell v Dicker [2005] EWCA Civ
405, [2005] 3 All E.R. 838 at [31], [40]; Durham Tees Valley Airport Ltd v Bmibaby Ltd [2010]
EWCA Civ 485, [2011] 1 Lloyd’s Rep. 68 at [54] (and see para.2-122 above and 2-151 below);
Astra Zeneca UK Ltd v Albermarle International Corp [2011] EWHC 1574 (Comm) at [31].
720. [1934] 2 K.B. 1.
721. cf. British Bank for Foreign Trade v Novinex [1949] 1 K.B. 623; Beer v Bowden [1981] 1 W.L.R.
522; Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 W.L.R. 505, 518–519;
Tropwood A.G. of Zug v Jade Enterprises (The Tropwind) [1982] 2 Lloyd’s Rep. 233, 236;
Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep. 601; Granit SA v Benship International
SA [1994] 1 Lloyd’s Rep. 526; Mitsui Babcock Engineering Ltd v John Brown Engineering Ltd
(1996) 51 Const. L.R. 129; Mamidoil-Jetoil Greek Petroleum SA v Okta Crude Oil Refinery AD
[2001] EWCA Civ 406, [2001] 2 Lloyd’s Rep. 76; for further proceedings, see n.706 below.
722. [1934] 2 K.B. 17n; above, para.2-133.
723. cf. Mamidoil-Jetoil Greek Petroleum SA v Okta Crude Oil Refinery AD (No.3) [2003] EWCA Civ
1031, [2003] 2 All E.R. (Comm) 640 at [38].
724. [1934] 2 K.B. 1, 10; the clause covered disputes as to “the subject-matter or construction of this
agreement,” while the arbitration clause in May & Butcher v R covered “disputes with reference
to or arising out of this agreement”. For the distinction between the two forms of clause, see
Heyman v Darwins [1942] A.C. 356, 385, 392. cf. also Sykes (Wessex) Ltd v Fine Fare Ltd
[1967] 1 Lloyd’s Rep. 53; Voest Alpine Intertrading GmbH v Chevron International Oil Co Ltd
[1985] 2 Lloyd’s Rep. 547; and see Vosper Thorneycroft Ltd v Ministry of Defence [1976] 1
Lloyd’s Rep. 58 where the existence of a contract was admitted and the arbitration clause
referred to “any dispute or difference … ”.
725. Scrutton L.J. said at 7 that he was glad to decide in favour of the claimant “because I do not
regard the appellants’ [defendants’] contention as an honest one”.
726. R.S.T.C. (1933) 49 L.Q.R. at 316.
727. Foley’s case, above, n.703 was approved by the House of Lords in G. Scammell & Nephew Ltd
v Ouston [1941] A.C. 251.
728. Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep. 601, 619.
729. Above, para.2-120; below, para.2-150; or by imposing on one party the duty to resolve the
uncertainty: below, para.2-151; Pagnan SpA v Feed Products Ltd, above n.711.
730. Though this point is not decisive: see above, para.2-133 at n.691.
731. (1991) S.L.T. 523.
732. [2010] UKSC 14, [2010] 1 W.L.R. 753.

Page 23
733. [2010] UKSC 14 at [61].
734. [2010] UKSC 14 at [61]. And see MRI Trading AG v Erdenet Mining Corporation LLC [2013]
EWCA Civ 156, [2013] 1 Lloyd’s Rep. 638. In that case a “Settlement Agreement” left a number
of issues (such as shipping schedules, treatment charges (TC) and refining charges (RC)) “to
be agreed” between the parties. Tomlinson L.J. held the settlement to be enforceable since “the
language used by the parties” showed that “they did not intend that” “they should remain free to
agree or disagree” about the points which were “to be agreed”; rather, a term was “to be implied
that the TC/RC and shipping schedule shall be reasonable, and that in the event of any dispute
… [the matter was] to be determined by arbitration” (at [19]). At [20]–[22] Tomlinson L.J.
expressed his agreement with Eder J. who had, in the court below [2012] EWHC 1988, [2012] 2
Lloyd’s Rep. 638 at [30] and [31] relied on the mandatory language and other expressions used
by the parties to show that the parties intended the agreements in question to be legally
binding. For the application of the standard of reasonableness, cf. para.2-135 at n.704. See
also Glencore Energy UK Ltd v Cirrus Oil Services Ltd [2014] EWHC 87 (Comm), [2014] 1 All
E.R. (Comm) 513 at [61], [64], where acceptance of an offer (see paras 2-003, 2-027) was held
to have concluded a contract even though the acceptance envisaged further “fine tuning” of
detailed terms.
735. Gliksten & Son Ltd v State Assurance Co (1922) 10 Ll.L. Rep. 604; cf. Marine Insurance Act
1906 s.31(2); and American Airline Inc v Hope [1973] 1 Lloyd’s Rep. 233; affirmed [1974] 2
Lloyd’s Rep. 301 (“at an additional premium and geographical area to be agreed”).
736. e.g. Shakleford’s Case (1866) L.R. 1 Ch. App. 567; Bertel v Neveux (1878) 39 L.T. 257; Loftus
v Roberts (1902) 18 T.L.R. 532; Hofflinghouse SpA v C-Trade SA (The Intra Transporter)
[1986] 2 Lloyd’s Rep. 132; Pagnan SpA v Granaria BV [1986] 2 Lloyd’s Rep. 547; Alfred
McAlpine Construction Ltd v Panatown Ltd [2001] EWCA Civ 485, (2001) 76 Con. L.R. 224 at
[35]; Midgulf International Ltd v Groupe Chimiche Tunisien [2010] EWCA Civ 66 at [40] (“It is
not commercially sensible to suppose that the parties can have intended to enter into a contract
of this size for sulphur of indeterminate quantity, to be delivered over an indeterminate period
and with no provision as to payment.” At a later stage an agreement not open to this objection
was reached: see at [48]).
737. Voest Alpine Intertrading GmbH v Chevron International Oil Co Ltd [1987] 2 Lloyd’s Rep. 547;
Maple Leaf Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm), [2009] 1 Lloyd’s Rep.
475 at [223]; affirmed without further reference to this point [2009] EWCA Civ 1334, [2010] 2 All
E.R. (Comm) 788 (for this case, see also above, para.2-004 n.22).
738. (1932) 147 L.T. 503; cf. Miller v F.A. Sadd & Son Ltd [1981] 3 All E.R. 265; Mamidoil-Jetoil
Greek Petroleum SA v Okta Crude Oil Refinery AD (No.3) [2003] 1 Lloyd’s Rep. 1 at
[161]–[165]; affirmed [2003] EWCA Civ 1031, [2003] 2 All E.R. (Comm) 640 at [36]–[41].
739. cf. Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2010] UKSC 47, [2011] 1
All E.R. 175 for a difficult question of construction arising from the obscurity of a formula by
which the price at which an option to purchase became exercisable was to be determined. The
Supreme Court’s decision was unanimous with regard to the outcome but (arguably) not with
respect to the reasons for that outcome.
740. Brown v Gould [1972] Ch. 53.
741. Didymi Corp v Atlantic Lines & Navigation Co Inc [1987] 2 Lloyd’s Rep. 166, 169; Reynolds
(1988) 104 L.Q.R. 353; affirmed [1988] 2 Lloyd’s Rep. 108; cf. below, para.2-149.
742. At 117.
743. Gillatt v Sky Television Ltd [2000] 1 All E.R. (Comm) 461.
744. Willis Management (Isle of Man) Ltd v Cable and Wireless Plc [2005] EWCA Civ 1287, [2005] 2
Lloyd’s Rep. 597; below para.2-150.
Page 24
745. The requirement of certainty may be satisfied even though the operation of the machinery still
lay in the future when the agreement was made. In Anderson v London Fire and Emergency
Planning Authority [2012] I.R.L.R. 888 (EAT), a collective agreement incorporated into
individual employment contracts (see para.2-187) provided for pay to be increased by 2.5 per
cent or by the amount of a National Joint Committee (NJC) settlement plus 1 per cent. The fact
that the agreement left open which of these two alternatives was to apply did not deprive it of
contractual force. Maurice Kay L.J. said at [9], it “was an agreement for pay to be determined in
accordance with agreed terms, properly construed”. Nor did the existence of choice render the
agreement too uncertain to be enforced if (as was the case here) “the choices are clear” (at
[10]). Machinery for resolving matters left open must be distinguished from mechanism in the
sense of an agreed formula for determining the price (or other matters): e.g. where work is done
on a “cost plus” basis. The purpose of such a “mechanism” is not to resolve matters originally
left open. The already agreed mechanism merely has to be applied to determine the matter
governed by it. It is in this sense that the word “mechanism” is used in Coaten v PBX
Corporation [2006] EWHC 1781 (Ch), [2006] 3 E.G.L.R. 43 at [13].
746. Lombard Tricity Finance Ltd v Paton [1989] 1 All E.R. 918. Such terms may be unenforceable
for unfairness under the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083)
reg.5(5) and Sch.2 para.2(b). These Regulations are replaced by the Consumer Rights Act
2015: s.75 and Sch.4 para.34, s.63 and Sch.2 paras 11, 22–24.
747. Paragon Finance Ltd v Staunton [2001] EWCA Civ 1466, [2001] 1 W.L.R. 685 at [36]; the power
(to maintain interest rates at a level above that charged by other lenders) had in that case been
validly exercised. For similar restrictions on the exercise of contractually reserved discretions,
see also Horkulak v Cantor Fitzgerald International [2004] EWCA Civ 1287, [2005] I.C.R. 402 at
[48] (below, para.2-185); cf. Lymington Marina Ltd v Macnamara [2007] EWCA Civ 151, [2007]
2 All E.R. (Comm) 825; McCarthy v McCarthy & Stone Plc [2007] EWCA Civ 664, [2008] 1 All
E.R. (Comm) 221 at [54]; Socimer International Bank Ltd v Standard Bank (London) Ltd [2008]
EWCA Civ 116, [2008] 1 Lloyd’s Rep. 558 at [60], [66]; Attrill v Dresdner Kleinwort Ltd [2013]
EWCA Civ 394 at [57] (where one party’s contractual rights depend, at least to some extent, on
the exercise by the other of a discretion, then it is “implied that the exercise of discretion shall
not be carried out arbitrarily or in bad faith”).
748. Star Shipping AS v China National Foreign Trade Transportation Corp (The Star Texas) [1993]
2 Lloyd’s Rep. 445. See also the Anderson case, the facts of which are summarised in n.728. It
was further held that the agreement gave the employer a choice between two methods of
calculating the pay increases (at [25]; see also [28], [32]).
749. Halpern v Halpern [2007] EWCA Civ 291, [2007] 3 All E.R. 478 at [50].
750. Bateman v Asda Stores Ltd [2010] I.R.L.R. 370 (where the question was not whether a contract
had been made, but was whether an undoubtedly existing contract had been varied).
751. Arcos Ltd v Aronson (1930) 36 Ll.L. Rep. 108; cf. Campbell v Edwards [1976] 1 W.L.R. 403;
Buber v Kenwood Mfg Co Ltd [1978] 1 Lloyd’s Rep. 175; Queensland Electricity Generating
Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep. 205.
752. Cable & Wireless Plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm), [2002] 2 All E.R.
(Comm) 1041; Alstom Signalling Ltd v Jarvis Facilities Ltd [2004] EWHC 1232, 95 Con. L.R. 55;
Holloway v Chancery Mead Ltd [2007] EWHC 2495 (TCC), [2008] 1 All E.R. (Comm) 653 at
[66]–[85].
753. Halpern v Halpern [2007] EWCA Civ 291, [2007] 3 All E.R. 478 at [50] (“machinery for
valuation”).
754. Premier Telecom Communications Group Ltd v Webb [2014] EWCA Civ 994 (“expert valuer”).
755. Sale of Goods Act 1979 s.9(1); cf. Pym v Campbell (1856) 6 E. & B. 370.
756. [1982] 1 A.C. 493; Robertshaw (1982) 46 M.L.R. at 493.

Page 25
757. Re Malpas [1985] Ch. 42, 50; cf. Tito v Waddell (No.2) [1877] Ch. 106, 314; Didymi Corp v
Atlantic Lines & Navigation Co Ltd [1988] 2 Lloyd’s Rep. 108, 115.
758. i.e. not if it is “an integral and essential part of the definition of the payments to be made”: Gillatt
v Sky Television Ltd [2000] 1 All E.R. (Comm) 461 at 419. In that case, the machinery was of
this kind so that, neither party having taken any steps to bring it into operation, it was held that
the court could not intervene by making its own valuation.
759. Herbert v Doyle [2010] EWCA Civ 1095 at [87] (court applying “objective criteria which the
parties had agreed” for making a choice left by the contract to one of them, who had failed
within a reasonable time to make it). For this case, see also para.4-160 below.
760. As in Sudbrook Trading Estate Ltd v Eggleton [1982] 1 A.C. 493 (above, n.739).
761. As in Re Malpas, above; cf. Royal Bank of Scotland v Jennings [1996] E.G.C.S. 168; Anthracite
Rated Investments (Jersey) Ltd v Lehman Brothers Finance SA [2011] EWHC 1822 (Ch),
[2011] 2 Lloyd’s Rep. 538 at [72].
762.
Manchester Ship Canal Co Ltd v Environment Agency [2017] EWHC 1340 (QB).
763. King v King (1981) 41 P. & C.R. 311.
764. See Beer v Bowden [1981] 1 W.L.R. 522, 525.
765. King v King, above.
766. Beer v Bowden, above.
767. Beer v Bowden, above; Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 W.L.R.
505; cf. above, para.2-122.
768. See Brown v Gould [1972] Ch. 53.
769. In Thomas Bates & Sons Ltd v Wyndham’s (Lingerie) Ltd, above, the lease was rectified to
include such a term.
770. Weller v Akehurst [1981] 3 All E.R. 411 (where the rent review clause was invoked too late and
time was expressly made of the essence of the contract); contrast Metrolands Investment Ltd v
J.H. Dewhurst Ltd [1986] 3 All E.R. 659 (where time was not of the essence).
771. Welsh Development Agency v Export Finance Co Ltd [1992] B.C.L.C. 148.
772. Von Hatzfeld-Wildenburg v Alexander [1912] 1 Ch. 284, 284, 288–289 (“contract to enter into a
contract”).
773. Subject to statutory exceptions: see Consumer Credit Act 1974 s.59.
774. [1942] 1 All E.R. 273.
775. See The Messiniaki Bergen [1983] 1 Lloyd’s Rep. 424, 426. cf. below, para.4-193 n.1234 for
the nature of an option.
776. Chillingworth v Esche [1924] 1 Ch. 91, 113; Hillas & Co Ltd v Arcos Ltd (1932) 147 L.T. 503,
515. See F.P. (1932) 48 L.Q.R. 141, F.W.M.C. (1932) 48 L.Q.R. 310; Williams (1943) 6 M.L.R.
81.
777. Courtney & Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 W.L.R. 297, 301; cf. Von
Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch. 284, 249; Malozzi v Carapelli SpA [1976] 1
Lloyd’s Rep. 407; Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The
Page 26
Scaptrade) [1981] 2 Lloyd’s Rep. 425, 432; affirmed without reference to this point [1983] 2 A.C.
694; Nile Co for the Export of Agricultural Crops v H. & J. M. Bennett (Commodities) Ltd [1986]
1 Lloyd’s Rep. 555, 587; Paul Smith Ltd v H. & S. International Holdings [1991] 2 Lloyd’s Rep.
127, 131; Mamidoil-Jetoil Greek Petroleum SA v Okta Crude Oil Refinery AD [2001] EWCA Civ
406, [2001] 2 Lloyd’s Rep. 76 at [53], [59]; Willis Management (Isle of Man) Ltd v Cable and
Wireless Plc [2005] EWCA Civ 806, [2005] 2 Lloyd’s Rep. 597 at [24], [26]; Covington Marine
Corp v Xiamen Shipbuilding Co Ltd [2005] EWHC 2912 (Comm), [2006] 1 Lloyd’s Rep. 278 at
[52].
778. The Scaptrade, above, n.759; Star Steamship Society v Beogradska Plovidba (The Junior K.)
[1988] 2 Lloyd’s Rep. 583. cf., in the United States, Hoffman v Red Owl Stores Inc 133 N.W. 2d
267 (1965).
779. Pagnan SpA v Granaria BV [1985] 1 Lloyd’s Rep. 256, 270; affirmed [1986] 2 Lloyd’s Rep. 547.
780. [1992] 2 A.C. 128; Neill (1992) 108 L.Q.R. 405.
781. Above, para.2-128.
782. [1992] 2 A.C. 128, 138; cf. Surrey CC v Bredero Homes Ltd [1993] 1 W.L.R. 1361, 1368
(doubted on other grounds in Att-Gen v Blake [2001] 1 A.C. 268 at 283); Halifax Financial
Services Ltd v Intuitive Systems Ltd [1999] 1 All E.R. (Comm) 303 at 311; Baird Textile
Holdings Ltd v Marks & Spencer Plc [2001] EWCA Civ 274, [2002] 1 All E.R. (Comm) 737
(below, para.2-150) where an alleged duty to deal with the claimants in good faith was held to
be insufficiently certain to form a basis for an implied contract. See also Shaker v VistaJet
Group Holding SA [2012] EWHC 1329 (Comm), [2012] 2 Lloyd’s Rep. 93, where the
unenforceability of an agreement “to use reasonable endeavours to agree or to negotiate in
good faith” was based, inter alia, on the fact that a “duty to negotiate in good faith” is “inherently
inconsistent with the position of a negotiating party” (at [7]).
783. For an exception, see Re Debtors (Nos 4449 and 4450 of 1998) [1999] 1 All E.R. (Comm) 149
at 158 (Lloyd’s bound to negotiate in good faith with its “names” on the terms of a “hardship
agreement” since for this purpose it was “performing functions in the public interest within a
statutory framework”, so that its freedom of action was restricted).
784. See [1992] 2 A.C. 128, 136.
785. [1992] 2 A.C. 128 at 135.
786. [2006] EWCA Civ 1139, [2006] 1 W.L.R. 2964.
787. [2006] EWCA Civ 1139 at [4].
788. [2008] UKHL 55, [2008] 1 W.L.R. 1752, below paras 4-161—4-164.
789. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [93].
790. See above, at n.766. The misrepresentation was to the effect, not that the defendants would
negotiate with the claimants, but that they would not go on negotiating with third parties (to
whom they proceeded to sell the property).
791. Channel Home Centers Division of Grace Retail Corp v Grossman 795 F. 2d 291 (1986).
792. [1992] 2 A.C. 128, 138.
793. [1992] 2 A.C. 128, 138.
794. Scandinavian Trading Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1981] 2 Lloyd’s
Rep. 425, 432 (and see above n.760); cf. Star Steamships Society v Beogradska Plovidba (The
Junior K.) [1988] 2 Lloyd’s Rep. 583. See also Covington Marine Corp v Xiamen Shipping Co
Page 27
Ltd [2005] EWHC 2912 (Comm), [2006] 1 Lloyd’s Rep. 745 at [52], where it was not argued that
an agreement to use best endeavours to reach agreement had any greater legal effect than an
agreement to agree.
795. [1992] 2 A.C. 128, 137.
796. See Watford Electronics Ltd v Sanderson Ltd [2001] EWCA Civ 317, [2001] 1 All E.R. (Comm)
696 at [45], and the cases discussed in para.2-137; cf. Lambert v HTV Cymru (Wales) Ltd, The
Times, March 17, 1998; Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417, where the
dispute seems to have been, not about the existence of the contract but about its contents (see
at [18], [29]). The Court of Appeal held, by a majority, that a clause in the contract, requiring the
defendant airport authority to “use all reasonable endeavours to promote” (clause 1, para.[6])
the claimant airline’s services from the defendant’s airport, was not too uncertain to be
enforced. cf. in Scotland, R & D Construction Group Ltd v Hallam Land Management Ltd [2010]
CSIH 96, 2011 S.L.T. 236, where agreement for the sale of land part of which the vendor
expected to acquire from a third party was conditional on vendor’s agreeing a price “wholly
acceptable” to him with the third party and the vendor undertook to use “all reasonable
endeavours” in that regard. It was held that this term was enforceable but that the vendor was
not in breach of it. In contrast, see Dany Lions Ltd v Bristol Cars Ltd [2014] EWHC 817 (QB),
[2014] Bus L.R. (D) 11, where A and B entered into an agreement to settle a dispute over their
contract, by which A had agreed to sell a vintage car to B and to recondition the car. The
settlement agreement required B to use reasonable efforts to enter into a contract with C to
carry out the reconditioning work. The settlement agreement between A and B was not legally
binding since, although it specified the object to be attained by the contract between B and C
(i.e. the reconditioning of the car), it left open the price and other terms of that contract, which
envisaged future negotiation between B and C when there were “no objective criteria by which
the court could evaluate whether it was reasonable or unreasonable for [B] to refuse to agree to
any particular terms on offer” (at [38]). It followed that the agreement between A and B was “no
better than an agreement to agree” (at [46]). Andrews J. reached this conclusion with regret
since she regarded it as “obvious that this [i.e. the settlement agreement] was objectively
intended by the parties to be a binding and enforceable obligation” (at [47]).
797. See Little v Courage (1995) 70 P. & C.R. 469 at 475; London & Regional Investments Ltd v TBI
Plc [2002] EWCA Civ 355 at [39]; Multiplex Construction (UK) Ltd v Cleveland Bridge (UK) Ltd
[2006] EWHC 1341, 107 Con. L.R. 1; Barbudev v Eurocom Cable Management Bulgaria EOOD
[2012] EWCA Civ 548 at [44]. For the distinction between an undertaking to use “best” and one
to use “reasonable” endeavours, see Rhodia International Holdings Ltd v Huntsman
International LLC [2007] EWHC 292 (Comm), [2007] 2 Lloyd’s Rep. 325 at [34]–[35].
798. Example based on Nissho Iwai Petroleum Co Inc v Cargill International SA [1993] 1 Lloyd’s
Rep. 80, where such conduct was held to amount to a breach of a party’s duty to cooperate in
the performance (not in the formation) of a contract. cf. Re Debtors (Nos 4449 and 4450 of
1998) [1999] 1 All E.R. (Comm) 49 at 158 (implied obligation to use “best endeavours” to
conclude an agreement requires the party “not unreasonably to frustrate” its conclusion); for the
basis of the duty to negotiate in this case, see above, n.765).
799. Above, para.2-143.
800. Donwin Productions Ltd v EMI Films Ltd, The Times, March 9, 1984 (not cited in Walford v
Miles [1992] 2 A.C. 128).
801. Petromec Inc v Petroleo Brasileiro SA Petrobas [2005] EWCA Civ 891, [2006] 1 Lloyd’s Rep.
121 at [115]–[125], distinguishing Walford v Miles, above para.2-143, on the ground that, in the
latter case, there was “no concluded agreement since everything was subject to contract” and
that there was “no express agreement to negotiate in good faith” (at [120]). In the Petromec
case, the point was “not essential to the disposition of the appeal” (at [115]). For further
proceedings in the Petromec case, see above, para.2-123 n.611. cf. Compass Group UK and
Ireland Ltd v Mid Essex Hospital Services NHS Trust [2013] EWCA Civ 200, [2013] B.L.R. 265
where clause 3.5 of the contract (set out at [14]) required the parties to “co-operate with each
other in good faith”. On the true construction of that clause there had been no breach of it (at
[120], [143]; cf. at [153]).
Page 28
802.
Emirates Trading Agency v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm),
[2015] 1 W.L.R. 1145 at [63]–[64].

Page 1

Section 7. - Certainty of Terms
Requirement of certainty
2-147
An agreement may lack contractual force because it is so vague or uncertain that no definite
meaning can be given to it without adding further terms. For example, in G. Scammell & Nephew Ltd
v Ouston, 803 the House of Lords held that an agreement to acquire goods “on hire-purchase” was
too vague to be enforced since there were many kinds of hire-purchase agreements in widely
different terms, so that it was impossible to specify the terms on which the parties had agreed. Similar
reasoning may be applied where the agreement is expressed to be subject to a condition that
depends on the satisfaction of one of the parties 804; the problems arising from such provisions are
discussed in para.2-163, below.
Qualifications of the requirement of certainty
2-148
The courts do not expect commercial documents to be drafted with strict legal precision. The cases
provide many examples of judicial awareness of the danger that too strict an application of the
requirement of certainty could result in the striking down of agreements intended by the parties to
have binding force. The courts are reluctant to reach such a conclusion, particularly where the parties
have acted on the agreement. 805 As Lord Wright said in Hillas & Co Ltd v Arcos Ltd 806:
“Businessmen often record the most important agreements in crude and summary
fashion; modes of expression sufficient and clear to them in the course of their business
may appear to those unfamiliar with the business far from complete or precise. It is
accordingly the duty of the court to construe such documents fairly and broadly, without
being too astute or subtle in finding defects; but, on the contrary, the court should seek to
apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam
pereat. That maxim, however, does not mean that the court is to make a contract for the
parties, or to go outside the words they have used, except in so far as they are
appropriate implications of law.”
In accordance with these principles, the courts have developed a number of qualifications to the
requirement of certainty; these qualifications are stated in paras 2-149—2-154, below.
Custom and trade usage
2-149
Page 2
Apparent vagueness may be resolved by custom. For example, a contract to load coal at Grimsby “on
the terms of the usual colliery guarantee” was upheld on proof of the terms usually contained in such
guarantees at Grimsby. 807 It has similarly been held that undertaking to grant a lease of a shop “in
prime position” was not too uncertain to be enforced since the phrase was commonly used by
persons dealing with shop property, so that its meaning could be determined by expert evidence. 808
On the other hand, agreements “subject to war clause”, 809 “subject to strike and lock-out clause” 810
and “subject to force majeure conditions” 811 have been held too vague, as there was no evidence in
any of the cases of any customary or usual form of such clauses or conditions.
Reasonableness
2-150
In Hillas & Co Ltd v Arcos Ltd 812 an agreement for the sale of timber “of fair specification” was made
between persons well acquainted with the timber trade. The agreement was held binding on the
grounds that, in these circumstances, the standard of reasonableness could be applied to give
sufficient certainty to an otherwise vague phrase, since that phrase imported an objective standard for
assessing the quality of the goods to be supplied. In contrast, in Baird Textile Holdings Ltd v Marks &
Spencer Plc 813 the court rejected the claim of a supplier of clothing to a retail chain that there was an
implied contract between them not to terminate their long-standing relationship except on reasonable
notice. There were “no objective criteria by which the court could assess what would be reasonable
either as to quantity or price” 814: hence none of the essential terms governing the supply of the goods
could be determined by such criteria. An agreement to pay a “fair” sum may also lack contractual
force where it states that the principles for determining what amounts to such a sum are to be settled
by further negotiations between the parties. In one such case, 815 a compromise agreement provided
that A should pay to B a “fair” share of certain losses suffered by B and that the parties were to draw
up a list of principles by which that “fair” share was to be determined. The description of the share as
a “fair” one was said to be “simply the label which the parties put on the outcome which they hoped to
achieve. There was no unqualified commitment to pay a fair share.” 816 The compromise agreement
was therefore merely an agreement to agree and had no contractual force. 817
Duty to resolve uncertainty
2-151
An agreement containing a vague phrase may be binding because one party is under a duty to
resolve the uncertainty. In one case an agreement to sell goods provided for delivery “free on board
… good Danish port”. It was held that the agreement was not too vague: it amounted to a contract
under which the buyer was bound to select the port of shipment. 818 Where delivery of goods was to
be made “free on truck” in the country of destination and no place for delivery in that country was
specified in the contract, it was again held that one of the parties was under a duty to specify that
place; though in this case the duty was held to be on the seller since it was he who had made all the
necessary arrangements with the ship on which the goods were to be carried to that country. 819 An
analogous principle is illustrated by Durham Tees Valley Airport Ltd v Bmibaby Ltd 820 where the
agreement provided that the defendant airline would support “a minimum ¥2 based aircraft operation
… operating exclusively from” the claimant’s airport. Significant losses were incurred by the airline in
the performance of the agreement and it discontinued its operations from the airport. The airline
argued that the agreement was too uncertain to be enforced as it specified no minimum number of
flights to be undertaken under it and as many operational details (such as the number of flights and
their destinations) were left to the airline’s discretion. 821 The Court of Appeal rejected these
arguments and held that the agreement was sufficiently certain to be enforced and that the airline was
in breach of it. The Court reached this result by construing the airline’s obligation to operate as being
one to “fly commercially” 822; by concluding that “Token flights or a complete absence of any flights
(which is this case) clearly would not amount to operating the aircraft” 823; by invoking the general
principle that courts were reluctant to strike down what were obviously intended to be commercial
agreements 824; and by making the point that it was not uncommon for such agreements to give one
party or the other “a large degree of discretion” as to the conduct of its operations. 825 This reasoning
resembles, but is not identical with, that discussed in para.2-150 above, by which the standard of
Page 3
reasonableness may be applied to give certainty to otherwise vague phrases. The object of the
process of construction applied in the present case is, strictly speaking, to give effect to the intention
of the parties, while the standard of reasonableness would impose on them an external standard; but
in practice the significance of this distinction is reduced by the reference to the commercial context in
which the Court construed the obligation to “operate” the aircraft.
Meaningless and self-contradictory phrases
2-152
The court will make considerable efforts to give meaning to an apparently meaningless phrase 826; but
even where these efforts fail, the presence of such phrases does not necessarily vitiate the
agreement. In Nicolene Ltd v Simmonds 827 steel bars were bought on terms which were perfectly
clear except for a clause which provided that the sale was subject to “the usual conditions of
acceptance”. There being no such usual conditions, it was held that the phrase was meaningless, but
that this did not vitiate the whole contract: the phrase was severable and could be ignored. A
self-contradictory clause can be treated in the same way. Thus where an arbitration clause provided
for arbitration of “any dispute” in London and of “any other dispute” in Moscow the court disregarded
the clause and determined the dispute itself. 828 Such cases show that the question whether the
inclusion of a meaningless clause vitiates the contract, or can be ignored, depends on the importance
which the parties may be considered to have attached to it. If it is simply verbiage, not intended to add
anything to an otherwise complete agreement, or if it relates to a matter of relatively minor
importance, it can be ignored. But if the parties intend it to govern some vital aspect of their
relationship its vagueness will vitiate the entire agreement.
Conflicting provisions
2-153
An agreement is not too uncertain to have contractual force merely because of a conflict between two
of its terms if, as is often the case, the conflict can be resolved in the course of the normal
adjudication of a contractual dispute. In Scammell v Dicker, 829 a consent order relating to a boundary
dispute was alleged to be ineffective by reason of a conflict between the words of the order and a
plan annexed to it. The Court of Appeal held that the order was not vitiated by uncertainty since it was
“for the parties to resolve any disagreement as to interpretation” and if they failed to do so they would
“go to tribunals and find the answer”. 830 The uncertainty can in such cases be resolved by the
ordinary processes of construction.
Vagueness in a subsidiary term
2-154
It has been held that vagueness in one of the terms of an agreement did not of itself vitiate the
agreement as a whole. 831 The underlying assumption appears to be that the vague term related only
to a subsidiary point 832 so that there was no practical difficulty in enforcing the rest of the agreement.
Extrinsic evidence identifying the subject matter
2-155
Such evidence may cure an element of uncertainty on the face of a document. The point may be
illustrated by an hypothetical example given by Lord Scott:
“A contract for the sale of Steart Farm, if in writing, signed by the parties and stating the
Page 4
price, would not lack contractual certainty provided that evidence were available to
identify the agricultural unit that constituted Steart Farm.” 833
803.
[1941] A.C. 251, described as “a rare case of uncertainty” in Scammell v Dicker [2005] EWCA
Civ 405, [2005] 3 All E.R. 838 at [41]. See also Davies v Davies (1887) 36 Ch. D. 359; Kingsley
& Keith Ltd v Glynn Bros. (Chemicals) Ltd [1953] 1 Lloyd’s Rep. 211; Judge v Crown Leisure
Ltd [2005] EWCA Civ 571, [2005] I.R.L.R. 823 at [23]; Kunicki v Hayward [2016] EWHC 3199
(Ch) at [152] (citing this paragraph) and [154]; and below, para.2-149 at nn. 790—792.
804. e.g. Montreal Gas Co v Vasey [1900] A.C. 595; Hofflinghouse & Co Ltd v C. Trade SA (The
Intra Transporter) [1986] 2 Lloyd’s Rep. 132; Shipping Enterprises Ltd v Eckhart & Co K G (The
Nissos Samos) [1985] 1 Lloyd’s Rep. 378, 385; Stabilad Ltd v Stephens & Carter Ltd (No.2)
[1999] 2 All E.R. (Comm) 651, 659 (“void for uncertainty”).
805. Brown v Gould [1977] Ch. 53, 57–58; Tito v Waddell (No.2) [1977] Ch. 106, 314; Sudbrook
Trading Estate Ltd v Eggleton [1983] 1 A.C. 444; Clement v Gibb [1996] C.L.Y. 1209; Hanjin
Shipping Co Ltd v Zenith Chartering Corp (The Mercedes Envoy) [1995] 2 Lloyd’s Rep. 559,
564; Hackney L.B.C. v Thompson [2001] L. & T. Rep. 7; Alstom Signalling Ltd v Jarvis Facilities
Ltd [2004] EWHC 1232, 95 Con. L.R. 55; Maple Leaf Volatility Master Fund v Rouvroy [2009]
EWHC 257 (Comm), [2009] 1 Lloyd’s Rep. 257 at [235], approved on appeal [2010] EWCA Civ
1334, [2010] 2 All E.R. (Comm) 788, especially at [22]; Barbudev v Eurocom Cable
Management Bulgaria EOOD [2012] EWCA Civ 548 at [32]; see also Benourad v Compass Plc
[2010] EWHC 1882 (QB) at [106(d)]; and cf. TTMI SARL v Statoil SA (The Sibohelle) [2011]
EWHC 1150 (Comm), [2011] 2 Lloyd’s Rep. 222 at [43], [47] (where the reason why the
express negotiations had failed to give rise to a contract was not want of certainty but mistake,
and the conduct of the parties in performing the transaction nevertheless supported the
inference that a contract had been concluded between them). See also Dhananiv Crasnianski
[2011] EWHC 926 (Comm), [2011] 2 All E.R. (Comm) 799 at [70] (fact that work has been done
under the contract a “relevant factor” but not a decisive one, so that in that case no contract had
been concluded: below, para.2-194). The reluctance referred to in the text above may account
for the lack of “enthusiasm” with which Dyson L.J. and Sir Robin Auld in Schweppe v Harper
[2008] EWCA Civ 442 at [75] and [82] concluded that the agreement in that case was too
uncertain to be enforced; and for Ward L.J.’s dissent in that case.
806. (1932) 147 L.T. 503, 514; cf. Rahcassi Shipping Co v Blue Star Line [1969] 1 Q.B. 176
(agreement for arbitration “by commercial men and not lawyers” upheld); Nea Agrex SA v Baltic
Shipping Co Ltd [1976] Q.B. 933; Tropwood AG of Zug v Jade Enterprises Inc (The Tropwind)
[1981] 1 Lloyd’s Rep. 232; Deutsche Schachtbau und Tiefbohrgesellschaft mbH v Ras Al
Khaimah National Oil Co [1990] 1 A.C. 295, 306; reversed on other grounds, at 329 et seq.;
Grace Shipping Inc v C.F. Sharpe (Malaysia) Pte [1987] 1 Lloyd’s Rep. 207; Didymi Corp v
Atlantic Lines & Navigation Co Inc [1987] 2 Lloyd’s Rep. 166; affirmed [1988] 2 Lloyd’s Rep.
108 (above, para.2-137); Anangel Atlas Compania Naviera SA v Ishikawajima Harima Heavy
Industries Corp (No.2) [1990] 2 Lloyd’s Rep. 526, 546; Star Shipping AS v China National
Foreign Trade Transportation Corp (The Star Texas) [1993] 2 Lloyd’s Rep. 445, 455; Scammell
v Dicker [2005] EWCA Civ 405, [2005] 3 All E.R. 838 at [31]; Halpern v Halpern [2006] EWHC
603 (Comm), [2006] 2 Lloyd’s Rep. 83 at [115], affirmed on this point [2007] EWCA Civ 291,
[2007] 3 All E.R. 478 at [50]; Durham Tees Valley Airport Ltd v Bmibaby Ltd [2010] EWCA Civ
485, [2011] 1 Lloyd’s Rep. 68 at [54], [88] (paras 2-122 above and 2-151 below); Astra Zeneca
UK Ltd v Albemarle International Corp [2011] EWHC 1574 (Comm) at [31]; Trebor Bassett
Holdings Ltd v ADT Fire & Security Plc [2011] EWHC 1936 (TCC), [2011] B.L.R. 661 at [150].
See also Fridman (1960) 76 L.Q.R. 521.
807. Shamrock S.S. Co v Storey & Co (1899) 81 L.T. 413; cf. Hart v Hart (1881) 18 Ch. D. 670;
Bayham v Phillips Electronics (UK) Ltd, The Times, July 19, 1995 where uncertainty in a
long-term health insurance agreement was resolved by reference to circumstances existing at
Page 5
the time of its formation.
808. Ashburn Anstalt v Arnold [1989] Ch. 1, 27, overruled, on another ground, in Prudential
Assurance Co Ltd v London Residuary Body [1992] A.C. 386.
809. Bishop & Baxter Ltd v Anglo-Eastern Trading Co [1944] K.B. 12.
810. Love & Stewart Ltd v S. Instone Ltd (1917) 33 T.L.R. 475.
811. British Electrical, etc., Industries v Patley Pressings Ltd [1953] 1 W.L.R. 280.
812. (1932) 147 L.T. 503 (and see above, para.2-137); Sweet & Maxwell Ltd v Universal News
Services Ltd [1964] 2 Q.B. 699; cf. G.L.C. v Connolly [1970] 2 Q.B. 100; Finchbourne v
Rodriguez [1976] 3 All E.R. 581; Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep. 601;
Malcolm v Chancellor, Masters and Scholars of the University of Oxford, The Times, December
19, 1990; Hackney LBC v Thompson [2001] L.&T. Rep. 7 (agreement to pay “the due
proportion of the reasonably estimated amount” held to impose an obligation to pay a “fair and
reasonable” proportion); Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD
[2001] EWCA Civ 406, [2001] 2 Lloyd’s Rep. 76 (above, para.2-122); Scammell v Dicker [2005]
EWCA Civ 405, [2005] All E.R. 838 at [42] (“reasonably certain”); Bear Stearns Bank Plc v
Forum Global Equity Ltd [2007] EWHC 1576 at [64], above paras 2-120, 2-121, where the
standard of reasonableness was invoked to deal with the failure of an agreement to specify the
time of performance; Furmans Electrical Contractors v Elecref Ltd [2009] EWCA Civ 170 at [33],
where the standard of reasonableness was used to make good the parties’ failure to specify the
number of hours per day for which services were to be supplied; K G Bunkergesellschaft für
Mineralole m b h [sic] v Petroplus Marketing AG (The Mercini Lady) [2009] EWHC 1088
(Comm), [2009] 2 All E.R. (Comm) 827 at [40], [41] (implied term not too uncertain because it
made use of the standard of reasonableness; on appeal it was held, for other reasons, that no
term such as that alleged could be implied: [2010] EWCA Civ 1145, [2011] 1 Lloyd’s Rep. 442).
cf. the position where the terms of the agreement are such as to negative contractual intention:
below, para.2-185.
813. [2001] EWCA Civ 274, [2002] 1 All E.R. (Comm) 737.
814. [2001] EWCA Civ 274, [2002] 1 All E.R. (Comm) 737 at [30]; cf. Schweppe v Harper [2008]
EWCA Civ 442 at [72] (“the concept of reasonable finance is too uncertain to be given any
practical meaning”), and at [66], [80], [81]. In that case, C had agreed with D to obtain an
annulment of D’s bankruptcy in return for a fee of £50,000 to be paid by D. It was a
“fundamental element” (at [59]) of the agreement that C should obtain the necessary finance
from a third party. It was held by a majority that the agreement was too uncertain to have
contractual force as the agreement did not specify the amount of the loan or the terms of
repayment; and it was impossible for the court to determine these matters by applying the
standard of reasonableness; and see below, para.2-172. See also Dhanani v Crasnianski
[2011] EWHC 926, [2011] 2 All E.R. (Comm) 799 at [105] (“no objective criteria”).
815. Willis Management (Isle of Man) Ltd v Cable and Wireless Plc [2005] EWCA Civ 806, [2005] 2
Lloyd’s Rep. 597.
816. Willis Management (Isle of Man) Ltd v Cable and Wireless Plc [2005] EWCA Civ 806 at [24].
818. David T. Boyd & Co v Louis Louca [1973] 1 Lloyd’s Rep. 209; cf. Siew Soon Wah v Yong Tong
Hong [1973] A.C. 836; Bushwall Properties Ltd v Vortex Properties Ltd [1976] 1 W.L.R. 591,
above, para.2-119; Palmer v East and North Herefordshire NHS Trust [2006] EWHC 1997,
[2006] Lloyd’s Rep. Med. 427 where an agreement between a consultant surgeon and the
defendant Trust provided for his being found a “suitable medical attachment” at another
hospital. Failure to identify that hospital in the agreement did not deprive it of contractual force
since the identification was a contingency to be satisfied in the performance of the contract.
819. Bulk Trading Corp Ltd v Zenziper Grains & Feedstuffs [2001] 1 Lloyd’s Rep. 357.
Page 6
820. [2010] EWCA Civ 485, [2011] 1 Lloyd’s Rep. 68.
821. [2010] EWCA Civ 485 at [90].
822. [2010] EWCA Civ 485 at [57].
823. [2010] EWCA Civ 485 at [57].
824. [2010] EWCA Civ 485 at [54].
825. [2010] EWCA Civ 485 at [91].
826. Tropwood A.G. of Zug v Jade Enterprises Inc (The Tropwind) [1982] 1 Lloyd’s Rep. 232.
827. [1953] 1 Q.B. 543; discussed in Heisler v Anglo-Dal Ltd [1954] 1 W.L.R. 1273 and applied in
Michael Richards Properties Ltd v St Saviour’s [1975] 3 All E.R. 416; see also Slater v Raw,
The Times, October 15, 1977.
828. E. J. R. Lovelock v Exportles [1968] 1 Lloyd’s Rep. 163. cf. Star Shipping A/S v China National
Foreign Trade Transportation Corp (The Star Texas) [1993] 2 Lloyd’s Rep. 445 where a clause
for “arbitration in Beijing or London in defendant’s option” was upheld.
829. [2005] EWCA Civ 405, [2005] 3 All E.R. 838.
830. [2005] EWCA Civ 405 at [31].
831. Pena v Dale [2003] EWHC 3166 (Ch), [2004] 2 B.C.L.C. at 508 at [96].
832. In Pena v Dale, above n.812, an option agreement which was otherwise clear provided that the
grantor would “endeavour to issue these options … in the most tax efficient manner”. The
vagueness of this term was held to be no bar to the enforcement of the agreement.
833. Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [18]. See also Air Studios (Lyndhurst)
Ltd v Lombard North Central Plc [2012] EWHC 3162 (QB), [2013] 1 Lloyd’s Rep. 63 at [73] and
Alhamrani v Alhamrani [2014] UKPC 37 at [23]–[24] where the Privy Council said that “evidence
of the context or factual matrix is admissible on the question whether the agreement is
ambiguous”. If it is ambiguous, the court would then consider all permissible evidence, including
custom, which might bear on the underlying question of what the parties intended to agree.

Page 1

Section 8. - Conditional Agreements
(a) - Classification
Introductory
2-156
An agreement is conditional if its operation depends on an event which is not certain to occur.
Discussions of this topic are made difficult by the fact that in the law of contract the word “condition”
bears many senses: it is “a chameleon-like word which takes on its meaning from its surroundings”.
834
At this stage, we are concerned with only one of these meanings; but to clear the ground it is
necessary to draw a number of preliminary distinctions.
Contingent and promissory conditions
2-157
The word "condition" may refer either to an event, or to a term of a contract (as in the phrase
“conditions of sale” 835). Where "condition" refers to an event, that event may be one of the following.
(1)
It may refer to an occurrence which neither party undertakes to bring about. Where, for example,
a contract requires A to work for B, and B to pay A £50, “if it rains tomorrow,” the obligations of
both parties are contingent on the happening of the specified event. This may therefore be
described as a contingent condition.
(2)
It may refer to the performance by one party of his undertaking. Where, for example, A agrees to
work for B at a weekly wage payable at the end of the week, the contract is immediately binding
on both parties, but B is not liable to pay until A has performed his promise to work. Such
performance is a condition of B’s liability, and, as A has promised to render it, the condition may
be described as promissory. 836
(3)
An intermediate situation arises in the case of a unilateral contract, in which performance by the
promisor becomes due on the performance by the promisee of the stipulated act (such as
walking to York) or abstention (such as not smoking for a year). 837 Since it follows from the
nature of such a contract that the promisee has not promised to render the stipulated
performance, the condition on which his entitlement depends 838 is properly classified as
contingent.
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Our concern here is with contingent conditions.
Conditions precedent and subsequent
2-158
Contingent conditions may be precedent or subsequent. 839 A condition is precedent if it provides that
the contract is not to be binding until the specified event occurs. It is subsequent if it provides that a
previously binding contract is to determine on the occurrence of the specified event: e.g. where A
contracts to pay an allowance to B until B marries. 840 A provision entitling a party to terminate a
contract on the occurrence or non-occurrence of a specified event 841 would likewise amount to, or
give rise, to a condition subsequent.
834. Skips A/S Nordheim v Petrofina SA (The Varenna) [1984] Q.B. 599, 618.
835. Property and Bloodstock Ltd v Emerton [1968] Ch. 94, 118.
836. For the distinction between promissory and contingent condition see Chalmers, Sale of Goods,
18th edn (1981), App.2, Note A; Roadworks (1952) Ltd v Charman [1994] 2 Lloyd’s Rep. 99,
103; Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep. 209, 215, 218. The
discussion in para.2–148 of the 30th edition of this book (para.2–157 of this edition) is cited with
apparent approval in UK Power GmbH v Kuok Oils and Grains Pte [2009] EWHC 1940, [2009]
2 Lloyd’s Rep. at [14]; see also at [15], [22]; it was there held that stipulations to requiring (1) a
buyer of goods to open a transferable letter of credit and (2) the seller to provide a “Proof of
Product” certificate were promissory, as opposed to contingent, conditions. Similarly, in Vitol SA
v Conoil Plc [2009] EWHC 1144 (Comm), [2009] 2 Lloyd’s Rep. 466 a contract of sale required
a buyer to pay by letter of credit and provided that the seller was not obliged to discharge the
goods before receipt of the letter; and it was held that the issue of the letter of credit was not “a
condition precedent to the contract becoming enforceable” (at [16]). In the terminology of paras
2-157 and 2-158 of the text above, it was a promissory, not a contingent, condition.
838. e.g. Soulsbury v Soulsbury [2007] EWCA Civ 969 at [50]; above, para.2-084; below n.821.
839. Conditions precedent are also sometimes called “suspensive”, and conditions subsequent
“resolutive” conditions: see Treitel, Remedies for Breach of Contract (1988) 262–263. In Ignazio
Messina & Co v Polskie Linie Oceaniczne [1995] 2 Lloyd’s Rep. 566, 580 a condition there
under discussion was said to be “a true condition subsequent or suspensive condition”.
“Subsequent” here seems to be a misprint for “precedent”. Conversely, in Golden Strait
Corporation v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 1, [2007] 2
A.C. 353 a time charter contained a war clause by which each party was to have a right to
cancel if war broke out between specified countries. This clause was described at [59], [74] and
[82] as a “suspensive” condition. With great respect, it is submitted that a clause of this kind
(entitling parties to bring contractual obligations to an end) is more properly described as
resolutive. For difficulties in drawing the distinction between the two types of condition, see
below n.821, para.2-162, n.834 and para.2-161 at nn.832, 833.
840. cf. Brown v Knowsley B.C. [1986] I.R.L.R. 102 (appointment to “last only as long as sufficient
funds were provided” from specified sources); (semble) Gyllenhammar & Partners International
v Sour Brodogradevna Industria [1989] 2 Lloyd’s Rep. 403 (contract to “become null and void” if
certain consents were not obtained) and Jameson v CEGB [2000] 1 A.C. 455 at 477 (settlement
of tort claim immediately binding but subject to implied resolutive condition that it was to
become void if the agreed amount was not paid); Covington Marine Corp v Xiamen Shipbuilding
Industry Corp [2005] EWHC 2912 (Comm), [2006] 1 Lloyd’s Rep. 748 at [49] (contract to be
Page 3
“automatically rescinded” if parties to a shipbuilding contract could not reach agreement within
20 days as to the supplier of the main engine). The distinction between conditions precedent
and subsequent was criticised by Holmes (The Common Law (1881), 371); for discussion of
this criticism, see Treitel, Remedies for Breach of Contract (1988), 263–264. English authority
recognises that the distinction is by no means always clear cut: see para.2-161 below at n.833.
In Soulsbury v Soulsbury [2007] EWCA Civ 969, above, para.2-084, H promised W to leave her
£100,000 if W (1) did not enforce or seek to enforce a maintenance order (obtained in divorce
proceedings) against him during their joint lives and (2) she survived H (at [10]). These
conditions were described as “subsequent” (at [22], where the second is said simply to be the
death of H, without any reference to W’s surviving H). Since H’s estate did not become liable for
the £100,000 until both conditions had been satisfied, it might seem that they should more
properly have been classified as precedent. Their description as “subsequent” may reflect the
facts that, once W had begun the stipulated forbearance, H could no longer revoke his promise
(above, para.2-084) and that, if W had, after having begun to forbear, then sought to enforce
the order, she would have lost any right to damages in respect of any purported revocation by H
which she might have had (before her change of course) by virtue of her earlier forbearance
(see above, para.2-091). But her right to payment of the £100,000 as an agreed sum would not
have accrued until both of the above conditions had been fully satisfied. The starting point for
assessing damages would no doubt be the £100,000; but that sum would have to be
discounted: e.g. (if the action were brought during the parties’ joint lives), by the risk of W’s not
surviving H and by the factor of accelerated payment.
841. See the further provision in the contract in the Vitol case (above, para.2-157 n.817) giving the
seller the right to terminate the contract if the letter of credit were not made operative by a
specified date.

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Section 8. - Conditional Agreements
(b) - Degrees of Obligation
Effects of agreements subject to contingent conditions precedent: in general
2-159
Where an agreement is subject to a contingent condition precedent, there is, before the occurrence of
the condition, no duty on either party to render the principal performance promised by him 842: for
example, a seller is not bound to deliver and a buyer is not bound to pay. Nor, in such a case, does
either party undertake that the condition will occur. But an agreement subject to such a condition may
impose some degree of obligation on the parties or on one of them. Whether it has this effect, and if
so what degree of obligation is imposed, depends on the true construction of the term specifying
condition. 843 Various possible degrees of obligation are discussed in paras 2-160—2-164 below.
Unrestricted right to withdraw
2-160
One possibility is that, before the event occurs, each party is free to withdraw from the agreement. In
Pym v Campbell 844 an agreement for the sale of a patent was executed, but the parties at the same
time agreed that it should not “be the agreement” unless a third party approved of the invention. He
did not approve, and it was held that the buyer was not liable for refusing to perform. The written
agreement was “not an agreement at all”. 845 If this is taken literally, either party could have withdrawn
even before the third party had given his opinion.
Restricted right to withdraw
2-161
A second possibility is that, before the event occurs, the main obligations have not accrued; but that,
so long as the event can still occur, one (or both) of the parties cannot withdraw. 846 Thus in Smith v
Butler 847 A bought land from B on condition that a loan to B (secured by a mortgage on the premises)
would be transferred to A. 848 It was held that A could not withdraw before the time fixed for
completion: he was bound to wait until then to see whether B could arrange the transfer. However, if it
becomes clear that the condition has not occurred, or that it can no longer occur, within the time
specified in the contract, 849 the parties will be under no further obligations under the contract. In such
a case, the effect of the non-occurrence of the condition is that the parties are “no longer bound” 850
by the contract, or that the contract is “discharged”. 851 What the parties have called a “condition
precedent” can thus operate as, or have the effect of, a condition subsequent. 852
Duty not to prevent occurrence of the event

Page 2
2-162
A third possibility is that, before the event occurs, the main obligations have not accrued; but that in
the meantime neither party must do anything to prevent the occurrence of that event. Thus in Mackay
v Dick 853 an excavating machine was sold on condition that it could excavate at a specified rate on
the buyer’s property. The buyer’s refusal to provide facilities for a proper trial was held to be a breach.
Similarly, the seller would have been in breach, had he refused to subject the machine to the proper
test. A party’s refusal to perform an implied obligation to co-operate with the other has been held to
be actionable on the same principle. 854 That principle is further illustrated by a case 855 in which a
professional footballer was transferred for a fee, part of which was to be paid only after he had scored
20 goals. Before he had done so, the new club dropped him from their first team, and they were held
to be in breach as they had not given the player a reasonable opportunity to score the 20 goals. The
duty not to prevent the occurrence of the condition has been explained as resting on an implied term
and this explanation limits the scope of the duty in a number of ways. For example, the implied term
may be only to the effect that a party will not deliberately prevent the occurrence of the condition 856;
or (even more narrowly) that he will not wrongfully do so. 857 The latter type of implication may allow a
party to engage in certain kinds of deliberate prevention but not in others: for example, it may allow a
company which has promised an employee the opportunity of earning a bonus to deprive him of that
opportunity by going out of business, but not, in general, by simply dismissing him, before the bonus
has become due 858; but this general rule may be displaced by an express term of the contract: e.g. by
one providing that the employee “must be employed by the [employer] in order to receive the bonus”.
859
Condition of “satisfaction”
2-163
The possibility of excluding the implied term discussed in para.2-162 above by an express contrary
provision 860 is further illustrated by a provision making the operation of a contract depend on the
“satisfaction” of one of the parties with the subject-matter or other aspects relating to the other’s
performance. 861 Thus it has been held that there was no contract where a house was bought “subject
to satisfactory mortgage” 862; and where a boat was bought “subject to satisfactory survey” 863 it was
held that the buyer was not bound if he expressed his dissatisfaction, 864 in spite of the fact that such
expression was a deliberate act on his part which prevented the occurrence of the condition. The
same is true where goods are bought on approval and the buyer does not approve them, 865 and
where an offer of employment is made “subject to satisfactory references”, and the prospective
employer does not regard the references as satisfactory. 866 There is some apparent conflict in the
authorities on the question whether the law imposes any restriction on the freedom of action of the
party on whose satisfaction the operation of the contract depends. In one case 867 a proposed royalty
agreement relating to the use by a manufacturer of an invention was “subject to detailed evaluation of
production and marketing feasibility” by the manufacturer. It was held that his discretion whether to
enter into the contract was “unfettered by any obligation to act reasonably or in good faith” 868 and
that, as his satisfaction had not been communicated 869 to the other party, the agreement had not
acquired contractual force. On the other hand, where a ship was sold “subject to satisfactory
completion of two trial voyages” it was said that such a stipulation was to be construed as “subject to
bona fides”. 870 The distinction between the two lines of cases turns, ultimately, on the construction of
the agreement. Even if this requires the discretion to be exercised in good faith, it does not follow that
it must be exercised reasonably; the matter may be left to the relevant party’s “subjective decision”. 871
It has also been held that the party on whose satisfaction the operation of the contract depends must
at least provide facilities for, or not impede, the inspection referred to in the agreement. 872 Of course
if the result of the inspection is unsatisfactory, the principal obligation of the contract will not take
effect. 873
Duty of reasonable diligence to bring about the event
2-164
A fourth possibility is that, before the event occurs, the main obligations do not accrue but that one of
Page 3
the parties undertakes to use reasonable efforts to bring the event about (without absolutely
undertaking that his efforts will succeed). This construction was applied, for instance, where land was
sold subject to the condition that the purchaser should obtain planning permission to use the land as
a transport depot: he was bound to make reasonable efforts to obtain the permission, but he was free
from liability when those efforts failed. 874 Similarly, where goods are sold “subject to export (or import)
licence”, the party whose duty it is to obtain the licence 875 does not prima facie promise absolutely
that a licence will be obtained 876; but only undertakes to make reasonable efforts to that end. 877 The
principal obligations to buy and sell will not take effect if no licence is obtained 878; but if the party who
should have made reasonable efforts has failed to do so he will be liable in damages, 879 unless he
can show that any such efforts, which he should have made would (if made) have necessarily been
unsuccessful. 880 The same principles have been applied where an agreement was made “subject to
the approval of the court”; and where an agreement was made to assign a lease which could be
assigned only with the consent of the landlord. In such cases the requisite approval or consent must
be sought; but the main obligations do not accrue until the approval or consent is given, 881 and if it is
refused the principal obligation will not take effect. 882
Principal and subsidiary obligations
2-165
It will be seen that, in cases falling within the categories discussed in paras 2-161—2-164 above, a
distinction must be drawn between two types of obligation: the principal obligation of each party (e.g.
to buy and sell) and a subsidiary obligation, i.e. one not to withdraw, not to prevent occurrence of the
condition, or to make reasonable efforts to bring it about. One view is that the party who fails to
perform the subsidiary obligation is to be treated as if the condition had occurred; and that he is then
liable on the principal obligation. Thus in Mackay v Dick 883 the buyer was held liable for the price; but
there was no discussion as to the remedy. In principle it seems wrong to hold him so liable, for such a
result ignores the possibility that, in that case, the machine might have failed to come up to the
standard required by the contract, even if proper facilities for trial had been provided. It is submitted
that the correct result in cases of this kind is to award damages for breach of the subsidiary
obligation: in assessing such damages, the court can take into account the possibility that the
condition might not have occurred, even if there had been no such breach. 884 To hold the party in
breach liable for the full performance promised by him, on the fiction that the condition had occurred,
seems to introduce into this branch of the law a punitive element that is inappropriate to a contractual
action. The most recent authority rightly holds that such a doctrine of “fictional fulfilment” of a
condition does not form part of English law. 885
Waiver of condition
2-166
Where a condition is inserted entirely for the benefit of one party, that party may waive the condition.
If he does so, he can then sue 886 and be sued 887 on the contract as if the condition had occurred.
Obviously this rule does not apply to cases falling within the category of cases discussed in
para.2-160 above, in which there is no contract at all before the condition occurs. Nor can the party
for whose benefit the condition was inserted waive it (so as to enforce the contract) after the other
party has duly exercised a right, conferred by one of its other terms, to terminate the contract. 888
842. In Schweppe v Harper [2008] EWCA Civ 442 Dyson L.J. at [64] referred to the text above (in a
previous edition of this book) with apparent approval.
843. For special difficulties where the condition precedent is implied, see Bentworth Finance Ltd v
Lubert [1968] 1 Q.B. 680; Carnegie 31 M.L.R. 78.
844. (1856) 6 E. & B. 370.

Page 4
845. (1856) 6 E. & B. 370 at 374.
846. A fortiori, a party cannot withdraw after the event has actually occurred. This was the position in
McGahon v Crest Nicholson Regeneration Ltd [2010] EWCA Civ 842, [2010] 2 E.G.L.R. 84
where a contract gave either party the right to rescind if a specified event had not occurred by
June 1. After that time, one of the parties gave a notice to rescind but at the time of the notice
the event had occurred. It was held that the contract no longer allowed such a notice to be
given after the specified event had occurred.
847. [1900] 1 Q.B. 694, cf. Felixstowe Dock & Ry Co v British Transport Docks Bd [1976] 2 Lloyd’s
Rep. 656; Alan Estates Ltd v W. G. Stores Ltd [1982] Ch. 511, 520; Spectra International Plc v
Tiscali UK Ltd [2002] EWHC 2084 (Comm) at [119]. See also Lomas v JFB Firth Rixon Inc
[2012] EWCA Civ 419, [2012] 2 All E.R. (Comm) 1076 at [29]–[30] accepting the view of Austin
J. in Simms v TXU Electricity Ltd [2003] NSWSC 1169, (2003) 204 A.L.R. 659 at [12] that,
where a “payment obligation” was subject to a condition precedent, “it might be said (with only
approximate accuracy) that the payment obligation is ‘suspended’ while the condition remains
unfulfilled … ”; cf. Gold Group Properties v BDW Properties Ltd [2010] EWHC 323, [2010]
B.L.R. 235 at [58]: “a binding contract which suspends some or all of the obligations of one or
both parties pending fulfilment of the condition” (italics supplied).
848. On agreements “subject to finance,” see Coote, 40 Conv. N.S. 37; Furmston, 3 O.J.L.S. 438,
discussing Meehan v Jones (1982) 149 C.L.R. 571.
849. There is some judicial support for the view that if a conditional contract (of professional
indemnity insurance) specified no time by or within which the condition (to which the insurer’s
liability was subject) must occur, then the condition would have to be satisfied within a
reasonable time: see Beazley Underwriting Ltd v Travellers Companies Inc [2011] EWHC 1520
(Comm), [2012] 1 All E.R. (Comm) 1241 at [185]; though, as the same passage goes on to
point out, “[t]hat would leave the assured in a somewhat precarious position”.
850. North Sea Energy Holdings NV v Petroleum Authority of Thailand [1997] 2 Lloyd’s Rep. 418,
428–429; affirmed on other grounds [1999] 1 Lloyd’s Rep. 483; Total Gas Marketing Ltd v Arco
British Ltd [1998] 2 Lloyd’s Rep. 209, 215.
851. Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep. 209 at 218.
852. Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep. 209 at 221, 224. And see
n.834 below.
853. (1881) 6 App. Cas. 251. The condition is described as subsequent in Colley v Overseas
Exporters [1921] 3 K.B. 302, 308. cf. also Shipping Corp of India v Naviera Letasa [1976] 1
Lloyd’s Rep. 132 and C.I.A. Barca de Panama SA v George Wimpey & Co Ltd [1980] 1 Lloyd’s
Rep. 598; South West Trains Ltd v Wightman, The Times, January 14, 1998. The “principle in
Mackay v Dick” would not apply if the parties had not reached agreement on the matter alleged
to have been prevented: see Covington Marine Corp v Xiamen Shipbuilding Industry Co [2005]
EWHC 2912 (Comm), [2006] 1 Lloyd’s Rep. 748 at [56] (where the actual decision was that
such agreement had been reached). For exclusion of the duty by express contrary provision,
854. Hudson Bay Apparel Brands LLC v Umbro International Ltd [2009] EWHC 2861 (Ch), [2010]
E.T.M.R. 15 at [119], [128], [136] and [140].
855. Bournemouth & Boscombe Athletic F.C. v Manchester United F.C., The Times, May 22, 1980.
cf. CEL Group Ltd v Nedlloyd Lines UK Ltd [2003] EWCA Civ 1716, [2004] 1 All E.R. (Comm)
689, where the contract was not in terms conditional but the court applied a similar principle to
that stated in the text above by virtue of the rule stated in para.14-015 below.
856. See Blake & Co v Sohn [1969] 1 W.L.R. 1412.
857. See Thompson v ASDA-MFI Group Plc [1988] Ch. 241. A party would not act “wrongfully” for
Page 5
the present purpose merely by reason of having failed to use its best endeavours to reach
agreement on matters left outstanding: see the Covington case, above n.834, at [56].
858. Example based on Thompson v ASDA-MFI Group Plc, above.
859. Locke v Candy and Candy Ltd [2010] EWCA Civ 1350, [2011] I.R.L.R. 163 at [43], [45]–[50].
860. See Micklefield v S.A.C. Technology Ltd [1990] 1 W.L.R. 1002; cf. North Sea Energy Holdings
NV v Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep. 483; Locke v Candy and Candy Ltd
[2010] EWCA Civ 1350, [2011] I.R.L.R. 163; and see below, para.2-185.
861. This sentence (in a previous edition of this book) is cited with approval in Schweppe v Harper
[2008] EWCA Civ 442 at [70].
862. Lee-Parker v Izett (No.2) [1975] 1 W.L.R. 775; distinguished in Janmohammed v Hassam, The
Times, June 10, 1976.
863. Astra Trust Ltd v Adams & Wiliams [1969] 1 Lloyd’s Rep. 81 doubted in Varverakis v
Compagnia de Navegacion Artico SA (The Merak) [1976] 2 Lloyd’s Rep. 250, 254 and in Ee v
Kahar (1979) 40 P. & C.R. 223 (as to which see below, n.853).
864. But if the buyer declared his satisfaction the seller would be bound even though the survey was
not objectively satisfactory: Graham v Pitkin [1992] 1 W.L.R. 403, 405.
865. cf. Sale of Goods Act 1979 s.18 r.4.
866. Wishart v National Association of Citizens’ Advice Bureaux [1990] I.C.R. 794.
867. Stabilad Ltd v Stephens & Carter (No.2) [1999] 2 All E.R. (Comm) 651.
868. Stabilad Ltd v Stephens & Carter (No.2) [1999] 2 All E.R. (Comm) 651, 662.
869. For the requirement of communication see Stabilad Ltd v Stephens & Carter (No.2) [1999] 2 All
E.R. (Comm) 651, 660; the requirement may be satisfied by conduct from which satisfaction
can be inferred, e.g. where a buyer of goods on approval retains them without notifying
rejection for more than the stipulated or a reasonable time: Sale of Goods Act 1979 s.18 r.4(b).
870. Albion Sugar Co v William Tankers (The John S. Darbyshire) [1977] 2 Lloyd’s Rep. 457, 464; cf.
BV Oliehandel Jongkind v Coastal International Ltd [1983] 2 Lloyd’s Rep. 463; The Nissos
Samos [1985] 1 Lloyd’s Rep. 378, 385; cf. Star Steamship Society v Beogradska Plovidba (The
Junior K) [1988] 2 Lloyd’s Rep. 583, 589 (where the words were held to negative contractual
intention). See also El Awadi v Bank of Credit & Commerce International SA [1990] 1 Q.B. 606,
619; and, in an analogous context, Abu Dhabi National Tanker Co v Product Star Shipping Co
(The Product Star (No.2)) [1993] 1 Lloyd’s Rep. 397, 404; Lymington Marina Ltd v Macnamara
[2007] EWCA Civ 151, [2007] 2 All E.R. (Comm) 825 at [42]–[45], [70].
871. Stabilad Ltd v Stephens & Carter Ltd (No.2) [1999] 2 All E.R. (Comm) 651 at 659; Jani-King
(GB) Ltd v Pula Enterprises [2007] EWHC 2433 (QB), [2008] 1 All E.R. (Comm) 457 at
[35]–[36]; cf. Schweppe v Harper [2008] EWCA Civ 442 at [71]–[72]; Humphreys v Norilsk
Nickel International (UK) Ltd [2010] EWHC 1867 (QB), [2010] I.R.L.R. 976 at [38].
872. Varverakis v Compagnia de Navegacion Artico SA (The Merak) [1976] 2 Lloyd’s Rep. 250; cf.
Ee v Kahar (1979) 40 P. & C.R. 223 (where the sale was simply “subject to survey”—omitting
the word “satisfactory”—thus falling, it is submitted, within the principle of Mackay v Dick, above
n.834).
873. As in Albion Sugar Co v Williams Tankers (The John S. Darbyshire) [1977] 2 Lloyd’s Rep. 457.
874. Hargreaves Transport Ltd v Lynch [1969] 1 W.L.R. 215 (condition not satisfied); Richard West &
Partners (Inverness) Ltd v Dick [1969] 2 Ch. 424 (similar condition satisfied); cf. Fisher v
Page 6
Tomatousos [1991] 2 E.G.L.R. 204; Jolley v Carmel Ltd [2000] 2 E.G.L.R. 153 (buyer who was
required by the contract to make reasonable efforts to get planning permission under no duty to
get it within a reasonable time). cf. Tesco Stores Ltd v Gibson (1970) 214 E.G. 835 (no
obligation on purchaser to apply for planning permission).
875. As to which party has this duty, see H. O. Brandt & Co v H. N. Morris & Co [1917] 2 K.B. 784;
AV Pound & Co v M. W. Hardy & Co [1956] A.C. 588; Bridge, Benjamin’s Sale of Goods 8th
edn (2010), paras 18–352—18–355.
876. The prima facie rule may be excluded by express words which, on their true construction,
impose an absolute duty; e.g. Peter Cassidy Seed Co Ltd v Osuustukkukauppa [1957] 1 W.L.R.
273; C. Czarnikow Ltd v Centrale Handlu Zagranicznego “Rolimpex” [1979] A.C. 351, 371;
Congimex Companhia Geral, etc., SARL v Tradax Export SA [1983] 1 Lloyd’s Rep. 250;
Pagnan SpA v Tradax Ocean Transport SA [1987] 3 All E.R. 565; Yates and Carter, 1 J.C.L.
57. See also B.S. & N. Ltd (BVI) v Micado Shipping Ltd (The Seaflower) [2000] 2 Lloyd’s Rep.
37, a charterparty case in which the issue was whether failure to perform a “guarantee” that the
shipowner would obtain a third party’s approval amounted to a repudiation. A negative answer
was given to this question, but it was held in further proceedings that the “guarantee” was a
promissory condition, so that failure by the shipowner to obtain the approval justified rescission
by the charterer: [2001] 1 Lloyd’s Rep. 341. There was no issue as to the standard of the
owner’s duty, but it seems to have been assumed that the duty was strict (i.e. not merely one of
diligence).
877. Re Anglo-Russian Merchant Traders and John Batt & Co (London) Ltd [1917] 2 K.B. 679;
Coloniale Import-Export v Loumidis & Sons [1978] 2 Lloyd’s Rep. 560; Overseas Buyers Ltd v
Granadex SA [1980] 2 Lloyd’s Rep. 608; Gamerco SA v I.C.M./Fair Warning (Agency) Ltd
[1995] 1 W.L.R. 1226, 1231. Where the contract is expressly subject to the approval of a public
authority, there may not even be a duty to make reasonable efforts to secure that approval: see
Gyllenhammar Partners International v Sour Brodegradevna Industria [1989] 2 Lloyd’s Rep. 403
. For the standard of duty, see generally Bridge, paras 18–356—18–374.
878. Charles H. Windschuegl Ltd v Alexander Pickering & Co Ltd (1950) 84 Ll.L. Rep. 89, 92–93;
Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All E.R. 497, 501;
cf. the cases on sales of goods “to arrive” discussed in Bridge, paras 21–023—21–028.
879. e.g. Malik v C.E.T.A. [1974] 1 Lloyd’s Rep. 279; Agroexport v Cie. Européenne de Céréales
[1974] 1 Lloyd’s Rep. 499.
880. See Bridge, para.18–363; Overseas Buyers Ltd v Granadex SA, above, n.858 at 612.
881. Smallman v Smallman [1972] Fam. 25. Contrast Soulsbury v Soulsbury [2007] EWCA Civ 969,
where the agreement, though subject to the conditions described in para.2-158 n.821 above,
was not subject to any further condition of approval by the court, and so became enforceable
when “the events upon which payment depended came to be fulfilled” (at [46]).
882. Shires v Brock (1977) 247 E.G. 127.
883. (1881) 6 App. Cas. 251, above, para.2-161.
884. Bournemouth & Boscombe Athletic F.C. v Manchester United F.C., The Times, May 22, 1980;
cf. The Blankenstein [1985] 1 W.L.R. 435; Alpha Trading Ltd v Dunshaw-Patten Ltd [1981] Q.B.
290; George Moundreas & Co SA v Navimpex Centrala Navala [1985] 2 Lloyd’s Rep. 515;
Orient Overseas Management & Finance Ltd v File Shipping Co Ltd (The Energy Progress)
[1993] 1 Lloyd’s Rep. 355, 358.
885. Thompson v ASDA-MFI Group Plc [1988] Ch. 241, 266 (where the condition was said at 251 to
be subsequent); and see Little v Courage Ltd (1995) 70 P. & C.R. 469, 474. In Société
Générale, London Branch v Geys [2012] UKSC 63, [2013] 1 A.C. 523 Lord Sumption S.C.J.
(dissenting) refers at [131] to: “the doctrine of deemed performance endorsed by the House of
Lords in Mackay v Dick (1881) 6 App. Cas. 251, according to which a party who is prevented by
the non-co-operation of the counter party from satisfying a condition precedent to his right to
Page 7
receive remuneration may be deemed to have earned it notwithstanding the condition”. But he
refers to that doctrine only to make the point that “the courts have never applied [the doctrine] to
contracts of employment” ([2012] UKSC 63 at [131]); and his attention appears not to have
been drawn to the rejection of the doctrine by the authorities cited in n.686 to para.2-165, in the
text of which paragraph the doctrine is referred to as one of “fictional fulfilment”.
886. Wood Preservation Ltd v Prior [1969] 1 W.L.R. 1077; cf. Heron Garages Properties Ltd v Moss
[1974] 1 W.L.R. 148.
887. McKillop v McMullan [1979] N.I. 85.
888. Irwin v Wilson [2011] EWHC 326 (Ch), [2011] 2 P. & C.R. 8.

Page 1

Section 9. - Contractual Intention
General
2-167
In a number of situations, to be discussed in paras 2-168—2-197 below, it has been held that an
agreement, though supported by consideration, 889 was not binding as a contract 890 because it was
made without any intention of creating legal relations. 891
Burden of proof: express agreements
2-168
In the case of ordinary commercial transactions it is not normally necessary to prove that the parties
to an express agreement in fact intended to create legal relations. 892 The onus of proving that there
was no such intention “is on the party who asserts that no legal effect is intended, and the onus is a
heavy one”. 893 In deciding whether the onus has been discharged, the courts will be influenced by the
importance of the agreement to the parties, and by the fact that one of them acted in reliance on it. 894
Burden of proof: agreements inferred from conduct
2-169
The rule as to burden of proof stated in para.2-168 above applies where the parties had entered
into an express agreement, whether written or oral. 895 Claims or defences are, however, sometimes
based on the allegation that parties between whom there was no express agreement had so
conducted themselves in relation to each other that an implied contract was to be inferred from their
conduct; and in a number of cases of this kind the allegation has been rejected on the ground that
there was no contractual intention. 896 Such cases illustrate the judicial attitude that “contracts are not
lightly to be implied” and that the courts must (in cases of this kind) be able “to conclude with
confidence that … the parties intended to create contractual relations”. 897 Thus, the burden of proof
on this issue appears, in cases of implied contracts, to be on the proponent of the contract, contrary
to the rule which applies to express agreements regulating commercial relationships. In Modahl v
British Athletics Federation, 898 the burden was held to have been discharged so that a contract came
into existence between an athlete and the Federation, under whose rules the athlete had for a long
time competed. The rules of the Federation had contractual force by reason of the “continuous
long-term relationship based on a programme and rules couched in language of a contractual
character and purporting to impose mutual rights and obligations.” 899 Likewise, in Re MF Global UK
Ltd (In Special Administration) 900 the court implied a contract between two companies in
administration, pursuant to which one company paid the expenses of staff seconded to a second
company within the same group. The established relationship between the companies was only
explicable in the particular circumstances on the basis that it had a contractual foundation. In contrast,
the burden of proof was not discharged in Assuranceforeningen Gard Gjensidig v International Oil
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Pollution Compensation Fund 901 where, following a serious oil spill from an insured ship, the
insurer asserted a contract with an international fund, set up to compensate for damage caused by oil
pollution, to indemnify the insurer in respect of aspects of its liability. On the facts, it was impossible to
construe the international fund’s communications as making the offer alleged expressly or impliedly,
let alone clearly and unequivocally. 902
Intention judged objectively
2-170
In deciding issues of contractual intention, the courts normally apply an objective test 903: for
example, where the sale of a house is not “subject to contract”, 904 both parties are likely to be bound
even though one of them subjectively believed that he would not be bound until the usual exchange of
contracts had taken place. 905 In Edmonds v Lawson, 906 the Court of Appeal similarly applied the
objective test to hold that the requirement of contractual intention was satisfied where a pupil barrister
accepted an offer of pupillage with a set of chambers. The resulting contract 907 was between the pupil
and all the members of the chambers—not between the pupil and the individual members of the
chambers who acted as her pupil masters. In New Media Holding Co LLC v Kuznetsov 908 the
court found an intention to create legal relations in respect of a “Term Sheet” signed by both parties.
On the one hand: the language of the document was brief and did not mention consideration; the
document was prepared in a casual and informal way; further formalities were required; and the rights
transferred were not capable of immediate enforcement. On the other hand: the parties were
experienced and sophisticated businessmen; the document contained clear express terms; the
language was consistent with a legally binding agreement; and the “Term Sheet” was consistent with
an intention that this be part of a package agreement (with other terms, including the consideration, to
be dealt with elsewhere) and with the parties’ pre-existing relationship, which itself raised a strong
presumption that the parties intended to be legally bound. Where there has been substantial
performance, courts are especially reluctant to reach the unrealistic conclusion that the parties lacked
intention to be legally bound. 909 The objective test is, however, here (as elsewhere) 910 subject
to the limitation that it does not apply in favour of a party who knows the truth. Thus, in the house sale
example given above, the party who did not intend to be bound would not be bound if his state of
mind was actually known to the other party. 911 Nor could a party who did not in fact intend to be
bound invoke the objective test so as to bind the other party to the contract 912: to permit this would
pervert the purpose of the objective test, which is to protect a party who has relied on the objective
appearance of consent from the prejudice which he would suffer if the other party could escape
liability on the ground that he had no real intention to be bound. The objective test, moreover, merely
prevents a party from relying on his uncommunicated belief as to the binding force of the agreement.
The test therefore does not apply where the parties have expressed their actual intention in the
document alleged to constitute the contract: the question whether they intended the document to
have contractual force then becomes one “of construction of the documents as a whole what effect is
to be given to such a statement” 913; and the general rule in cases of this kind is that a party who has
signed the document is then bound by its terms, as so construed. 914
This general rule is however subject to two exceptions. First, where the express terms of the
document are a “sham”, 915 in the sense of being designed by one party to give the appearance that
the relationship created by the contract differs from the reality of that relationship, so as to deprive the
other party of some protection or benefit given by law to a class of persons to which that other party
belongs (e.g. as tenants or as employees). Thus, an agreement may take effect as a lease even
though it is expressed by the lessor to take effect only as a licence 916; and an agreement may take
effect as a contract of employment even though (contrary to the reality of the relationship created by
it) it described the party who is in truth the other’s employee as being an independent contractor and
not an employee. 917 Second, an agreement, may, on its true construction, be of a different character
from the way in which it has been characterised. 918 Thus, where “the parties may have thought that
they were creating a tenancy” 919 but their “agreement is incapable of taking effect as a tenancy for
some old and technical reason of property law”, 920 then there is “no reason for not holding that they
have agreed a contractual licence” 921 if applying the objective test, that is what “they are likely to have
Page 3
intended”. 922
Intention expressly negatived
2-171
923
The agreement may contain an express provision negativing contractual intention. For example, in
Rose & Frank Co v J.R. Crompton & Bros Ltd 924 an agency agreement provided:
“This arrangement is not entered into, nor is this memorandum written, as a formal or
legal agreement … but it is only a definite expression and record of the purpose and
intention of the … parties concerned, to which they each honourably pledge themselves.”
It was held that this “honour clause” negatived contractual intention. Similarly agreements for the sale
of land are generally made “subject to contract”. These words negative contractual intention, 925 so
that the parties are not normally bound until formal contracts are exchanged. 926 It is a crucial part of
this process of “exchange” that the parties should intend by it to bring a legally binding contract into
existence. 927 Football pool coupons also commonly contained words expressly negativing contractual
intention. 928
Whether a particular phrase expressly negatives contractual intention is a question of construction. 929
In Edwards v Skyways Ltd 930 employers promised to make a dismissed employee an “ex gratia
payment”. It was held that these words did not negative contractual intention but amounted merely to
a denial of a preexisting legal liability to make the payment. 931 Contractual intention was, similarly, not
negatived where an arbitration clause in a reinsurance contract provided that “this treaty shall be
interpreted as an honourable engagement rather than as a legal obligation … ”. The contract as a
whole was clearly intended to be binding; and the purpose of the words quoted was merely to free the
arbitrator “to some extent from strict legal rules” 932 in interpreting the agreement. Again, in The
Mercedes Envoy 933 a shipowner during negotiations for a charterparty said “we are fixed in good
faith”. It was held that the words “in good faith” did not negative contractual intention: if they had any
effect, it amounted merely to a “collateral understanding” 934 that account should be taken of damage
to the vessel, of which both shipowner and charterer were aware.
Intention impliedly negatived
2-172
In Baird Textile Holdings Ltd v Marks & Spencer Plc 935 the claimants had for some 30 years been a
principal supplier of clothing to the defendants, a leading retail chain. When the defendants
terminated the arrangement with effect from the end of the then current production season, the
claimants sought damages, basing their claim on, inter alia, 936 an alleged implied contract not to
terminate the arrangement except on reasonable notice of three years. The claim was rejected
because of “the absence of any intention to create legal relations”. 937 One factor 938 on which this
conclusion was based was that the defendants had (as the claimants themselves had alleged in their
points of claim) 939 deliberately abstained from entering into a long-term contractual relationship with
the claimants in order to maintain the flexibility of the de facto long-term commercial relationship
between the parties. 940 It followed that the claimants must be taken to have accepted the risk inherent
in such a relationship “without specific contractual protection”. 941 Contractual retention was, again,
impliedly negatived in Cobbe v Yeoman’s Row Management Ltd 942 where an agreement “in principle”
for the redevelopment and disposal of residential property left other aspects of the scheme to be
settled by further negotiations between the parties. It was held that the agreement “in principle” lacked
contractual force since, until those outstanding matters had been settled and embodied in a formal
agreement between the parties, each regarded the other as bound in honour only. 943
Page 4
Statements inducing a contract
2-173
A statement inducing a contract may be a “mere puff” if the court considers that it was not seriously
meant and that this should have been obvious to the person to whom it was made. In Weeks v Tybald
, 944 for example, the defendant “affirmed and published that he would give £100 to him that should
marry his daughter with his consent”. The court held that it was “not reasonable that the defendant
should be bound by such general words spoken to excite suitors”. Similarly, in Lambert v Lewis, 945 a
manufacturer stated in promotional literature that his product was “foolproof ” and that it “required no
maintenance”. These statements did not give rise to a contract between the manufacturer and a
dealer (who had bought the product from an intermediary) as they were “not intended to be, nor were
they, acted on as being express warranties”. 946
2-174
Other statements which induce persons to enter into contracts have some effect in law, but exactly
what that effect is often turns on whether they are “mere representations” or have contractual force.
The distinction between these categories turns on the test of contractual intention. In cases
concerning the effect of such statements, the test of intention generally determines the contents of a
contract, the existence of which is not in doubt. But where the inducing statement for some reason
cannot take effect as a term of the main contract it may, nevertheless, amount to a collateral contract;
and whether it has this effect again depends on the test of contractual intention. For example, in
Heilbut, Symons & Co v Buckleton 947 the claimant applied for shares in a company after a
conversation with the defendants’ manager, which led the claimant to believe that the company
(which the defendants were “bringing out”) was a rubber company. It was not a rubber company, and
the claimant alleged that the defendants had warranted that it was a rubber company. It was held that
nothing said by the manager was intended to have the effect of a collateral contract. Lord Moulton
said:
“Not only the terms of such contracts but the existence of an animus contrahendi on the
part of all the parties to them must be clearly shewn.” 948
It follows that an oral statement made in the course of negotiations will not take effect as collateral
contract where the terms of the main contract show that the parties did not intend the statement to
have such effect. This was, for example, the position where the main contract contained an “entire
agreement” clause: this showed that statements made in the course of negotiations were to “have no
contractual force”. 949 Similarly, where a party during negotiations for a lease made a statement of its
intention as to its future conduct under the lease, but the negotiations were then continued and the
final agreement was inconsistent with the statement, it was held that these circumstances negatived
contractual intention with respect to the statement, so that it could not take effect as a collateral
contract. 950
Statements inducing contracts with consumers
2-175
Under the Sale of Goods Act 1979 a commercial seller of goods may be liable to a buyer who deals
as consumer if the goods lack a quality claimed for them in “public statements on the specific
characteristics of the goods made about them by the seller, the producer or his representative in
advertising or labelling.” 951 Similar provisions apply to contracts for the supply of goods other than
contracts of sale. 952 The legislation supporting these requirements is now replaced by the Consumer
Rights Act 2015 953 which imposes analogous liability for statements inducing the contract 954;
including for “any public statement about … specific characteristics” of the subject-matter of the
contract. 955
Page 5
Guarantees given to consumers
2-176
The Sale and Supply of Goods to Consumers Regulations 2002 956 provide that, where goods are
sold or supplied to a consumer and are offered with a “consumer guarantee”, that guarantee “takes
effect as a contractual obligation owed by the guarantor”. 957 It seems to take effect by virtue of the
Regulations, without any separate requirement of contractual intention. This is replaced 958 by a
similar provision contained in s.30 of the Consumer Rights Act 2015, which applies where there is “(a)
a contract to supply goods” and “(b) a guarantee in relation to the goods”, 959 i.e. an undertaking by
the “trader or producer” of the goods. Such a guarantee “takes effect … as a contractual obligation
owed by the guarantor” “under the conditions set out in the guarantee statement or in any associated
advertising”. 960
Social agreements
2-177
Many social arrangements do not amount to contracts because they are not intended to be legally
binding.
“The ordinary example is where two parties agree to take a walk together, or where there
is an offer and an acceptance of hospitality.” 961
Similarly it has been held that the winner of a competition held by a golf club could not sue for his
prize where:
“no one concerned with that competition ever intended that there should be any legal
results flowing from the conditions posted and the acceptance by the competitor of those
conditions” 962
that the rules of a competition organised by a “jalopy club” for charitable purposes did not have
contractual force 963; that “car pool” and similar arrangements between friends or neighbours did not
amount to contracts even though one party contributed to the running costs of the other’s vehicle 964;
that an agreement between members of a group of friends relating to musical performances by the
group was not intended to have contractual effect, 965 and that the provision of free residential
accommodation for close friends did not amount to a contract as it was an act of bounty, done without
any intention to enter into legal relations. 966 On the other hand, contractual intention was found in an
agreement between an employer and employee to play the lottery and share any winnings. 967
Domestic agreements between spouses
2-178
For the same reason, many domestic arrangements between spouses lack contractual force. In
Balfour v Balfour 968 a husband who worked abroad promised to pay an allowance of £30 per month
to his wife, who had to stay in England on medical grounds. The wife’s attempt to enforce this
promise by action failed for two reasons: she had not provided any consideration, and the parties did
not intend the arrangement to be legally binding. On the second ground alone, most domestic
arrangements between husband and wife are not contracts. Atkin L.J. said:
Page 6
“Those agreements, or many of them, do not result in contracts at all … even though
there may be what as between other parties would constitute consideration for the
agreement … They are not contracts … because the parties did not intend that they
should be attended by legal consequences … Agreements such as these are outside the
realm of contracts altogether.” 969
It has been said that the facts of Balfour v Balfour “stretched the doctrine to its limits” 970; but the
doctrine itself has not been judicially questioned and the cases provide many other instances of its
application. 971 The doctrine does not, of course, prevent a husband from making a binding contract
with his wife. For example, a husband can be his wife’s tenant. 972 Binding separation agreements are
often made when husband and wife agree to live apart. 973 And where a man before marriage
promised his future wife to leave her a house if she married him she was able to enforce the promise
although it was made informally and in affectionate terms. 974
Domestic agreements between civil partners
2-179
The authorities relating to the effects of domestic agreements between spouses, discussed in
para.2-178 above, could, it is submitted, be applied by analogy to such agreements between persons
of the same sex who had entered into a civil partnership under the Civil Partnership Act 2004. 975 The
Act is silent on the point but present submission derives support from the fact that it treats civil
partnerships as analogous to marriages for many legal purposes, including (in particular) statutory
provisions relating to the legal effects of agreements between the parties 976 or for the benefit of one
of them. 977
Domestic agreements between other cohabitants
2-180
Issues of contractual intention can similarly arise where a couple make an agreement with regard to a
house in which they live together in a quasi-marital relationship without being married or having
entered into a civil partnership. 978 Where, for example, a man and a woman so cohabited, it was said
to be “part of the bargain between the parties expressed or to be implied that the [woman] should
contribute her labour towards the reparation of the house in which she was to have some beneficial
interest.” 979 This “bargain” was enforceable, either by way of contract 980 or by way of constructive
trust. 981 Formal requirements (imposed in 1989) for contracts for the creation of interests in land 982
make it unlikely 983 that such an arrangement could now take effect as such a contract, but they would
not prevent it from taking effect by way of constructive trust 984 or of proprietary estoppel. 985 Even
where (in a case of this kind) the woman did nothing to increase the value of the house (and so had
no “proprietary interest in the property” 986) the man’s promise that the house should continue to be
available for her and the couple’s children was held to be enforceable as a contractual licence as she
had acted in reliance on the promise by moving out of her rent-controlled flat in reliance on the
promise. 987 But in another case, 988 in which there was no such element of reliance, it was held that
the provision by a married man of a house for his mistress did not give rise to a legally binding
promise that she should be allowed to stay in the house. Even when such a promise can be
established, it would (whether or not the parties were spouses or civil partners) be more difficult to
show that some less important promise, e.g. as to the amount of money to be provided by way of a
dress or housekeeping allowance, was intended to have contractual effect.
Pre-nuptial agreements
2-181
Until quite recently pre-nuptial and post-nuptial agreements (agreements that determine the financial
consequences of divorce where no divorce was actually planned) were void as a matter of contract
Page 7
law 989; they were found to be contrary to public policy, due to their potential to encourage or make it
easier for parties to divorce. In Radmacher v Granatino 990 the Supreme Court held that henceforth:
“the court should give effect to a nuptial agreement that is freely entered into by each
party with a full appreciation of its implications unless in the circumstances prevailing it
would not be fair to hold the parties to their agreement.” 991
Their Lordships added that: 992 “It is, of course, important that each party should intend that the
agreement should be effective”; it may not have been right to infer from such an intention in the past
because parties:
“may have been advised that such agreements were void under English law and likely to
carry little or no weight. That will no longer be the case … Thus in future it will be natural
to infer that parties who enter into an ante-nuptial agreement to which English law is likely
to be applied intend that effect should be given to it.”
Other shared households
2-182
Where adult members of a family (other than husband and wife, persons living together as such or
civil partners) share a common household, the financial terms on which they do so may well be
intended to have contractual effect. This was for example held to be the position where a young
couple were induced to sell their house, and to move in with their elderly relations, by the latters’
promise to leave them a share of the proposed joint home. The argument that this promise was not
intended to be legally binding was rejected as the young couple would not have taken the important
step of selling their own house on the faith of a merely social arrangement. 993 But while the common
household was a going concern the parties must have made many arrangements about its day-to-day
management which were not intended to be legally binding. In cases of this kind, it may often be clear
that there is some contract, but the terms of the arrangement may be so imprecise that it is hard to
say just what obligation it imposes. For example, in Hussey v Palmer 994 a lady spent £600 on having
a room added to her son-in-law’s house, on the understanding that she could live there for the rest of
her life. When she left voluntarily, about a year later, it was held that there was no contract of loan in
respect of the £600 995; but it seems likely that there was a contract to allow her to live in the room for
the rest of her life.
2-183
An agreement between persons who share a common household may be a contract if it has nothing
to do with the routine management of the household. Thus in Simpkins v Pays 996 three ladies who
lived in the same house took part in a fashion competition run by a newspaper. They agreed to send
in their entries on one coupon and to share the prize which any such entry might win; and the
agreement to share was held to be legally binding.
Parents and children
2-184
Similar issues of contractual intention can arise from promises between parents and children. An
informal promise by a parent to pay a child an allowance during study is not normally a contract,
though it may become one if, for example, it is part of a bargain made to induce the child to give up
some occupation so as to enter on some particular course of study. 997 Similarly, there is not normally
Page 8
a contract where a mother agrees to nurse her child who has fallen ill or been injured, even though
she has to give up her work to do so. 998 Conversely, it has been held that the gift of a flat by a mother
to her daughter on condition that the daughter should look after the mother there did not amount to a
contract because it was not intended to have contractual force. 999 On the other hand, where a mother
bought a house as a residence for her son and daughter-in-law on the terms that they should pay her
£7 per week to pay off the purchase price, this was held to amount to a contractual licence which the
mother could not revoke so long as either of the young couple kept up the payments. 1000
Agreements giving discretion to one party whether to perform
2-185
An agreement may consist of mutual promises one of which gives a very wide discretion to one party.
In such a case the discretionary promise may be too vague to constitute consideration for the other
party’s promise which may therefore be unenforceable. 1001 But if the other party has actually
performed (so that there can be no question that he has provided consideration), the further question
may arise whether the discretionary promise can be enforced; and this raises an issue of contractual
intention. In Taylor v Brewer 1002 the claimant agreed to do work for a committee who resolved that he
should receive “such remuneration … as should be deemed right”. His claim for a reasonable
remuneration for work done failed: the promise to pay was “merely an engagement of honour”. 1003
This case is now more often distinguished than followed, 1004 but its reasoning would still be applied if
the wording made it clear that the promise was not intended to be legally binding. 1005 A fortiori, there
is no contract where performance by each party was left to that party’s discretion. 1006 Where,
however, an agreement is clearly intended to have contractual effect, there is judicial support for the
view that a discretion conferred by it on one party cannot “however widely worded … be exercised for
purposes contrary to those of the instrument by which it is conferred”. 1007 The court may also be able
to control the exercise of such a contractual discretion by holding that it must be exercised “rationally
and in good faith” 1008; but, if these requirements are satisfied, there is no further requirement that the
exercise of the discretion must be reasonable. 1009
Even where an agreement does not, from its inception, impose any contractual obligation on either
party, such obligations may arise from the subsequent conduct of the parties in pursuance of it. This
was the position where a local authority engaged the claimant as home tutor for pupils who were
unable to attend school. 1010 The arrangement did not bind the claimant to accept, or the authority to
offer, any pupil but once the claimant had agreed to accept a particular pupil, she was obliged to fulfil
her commitment to that pupil and the authority was bound to provide work in relation to that pupil until
the engagement in relation to him had run its course. Thus a series of contracts arose in relation to
each pupil offered to, and accepted by, the claimant, even though the original arrangement in
pursuance of which the pupils were sent had no contractual force.
Agreements giving discretion to rescind
2-186
An agreement may give one party a discretion to rescind. That party will not be bound if his promise
means “I will only perform if I do not change my mind”. But the power to rescind may only be inserted
as a safeguard in certain eventualities which are not exhaustively stated, for example, where a
contract for the sale of land entitles the vendor to rescind if the purchaser persists in some requisition
or objection which the vendor is “unable or unwilling to satisfy”. In such a case there is a contract and
the court will control the exercise of the power to rescind by insisting that the vendor must not rescind
“arbitrarily, or capriciously, or unreasonably. Much less, can he act in bad faith”. 1011
Collective agreements
2-187
The terms of collective agreements between trade unions and employers (or employers’ associations)
Page 9
may be incorporated in individual employment contracts and so become binding on the parties to
those contracts. 1012 But the general common law view was that such collective agreements were not
legally binding between the parties to them. The Trade Union and Labour Relations (Consolidation)
Act 1992 goes further in providing that a collective agreement 1013 is “conclusively presumed not to
have been intended by the parties to be a legally enforceable contract” unless it is in writing and
expressly provides the contrary (in which case the agreement is conclusively presumed to have been
intended by the parties to be a legally enforceable contract). 1014 To displace the presumption that a
collective agreement is not intended to be a legally binding contract, the agreement must provide that
it was intended to be legally binding. The presumption is not displaced by a statement that the parties
shall be “bound by the agreement” for this may mean that they are bound in honour only. 1015
Free travel passes
2-188
There are conflicting decisions on the question whether the issue and acceptance of a free travel
pass amounts to a contract. In Wilkie v L.P.T.B. 1016 it was held that such a pass issued by a transport
undertaking to one of its own employees did not amount to a contract. But the contrary conclusion
was reached in Gore v Van der Lann 1017 where the pass was issued to an old age pensioner. This
conclusion was based on the ground that an application for the pass had been made on a form
couched in contractual language; and Wilkie’s case was distinguished on the ground that the pass
there was issued to the employee “as a matter of course … as one of the privileges attaching to his
employment”. 1018 But as the pass in Gore’s case was issued expressly on the “understanding” that it
constituted only a licence subject to conditions, the distinction seems, with respect, to be a tenuous
one.
Statements of governmental policy
2-189
In a case 1019 arising out of the First World War a statement was made, during the war, on behalf of
the Government, to the effect that a certain neutral ship would be allowed to leave a British port if
specified conditions were met. It was held that the statement did not amount to a contract: it was
“merely an expression of intention to act in a particular way in a certain event”. 1020
Agreements giving effect to pre-existing rights
2-190
A number of cases support the view that an arrangement which is believed simply to give effect to
preexisting contractual rights is not a contract because the parties had no intention to enter into a new
contract 1021; this may be true even where the contract giving rise to those rights had been discharged,
so long as the parties believed that it was still in existence. 1022 But other cases show that contractual
intention is not negatived where the conduct of the parties makes it clear that they intended not
merely to give effect to their earlier contract but also to enter into a new contract containing additional
terms 1023; or merely because the conduct of one party to the alleged new contract consisted of his
performance of a contract between him and a third party. 1024
Nature of relationship between the parties: clergy
2-191
Contractual intention may sometimes be negatived by the nature of the relationship between the
parties. 1025 This view was, for example, taken in a number of cases in which it was held that there
was no contract between a minister of the church (or between a person holding a corresponding
appointment in a similar religious institution) and the church (or other similar institution); the reason
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given for this conclusion was that the relationship was not one “in which the parties intended to create
legal relations between themselves so as to make the agreement enforceable in the courts”. 1026 But
in Percy v Board of National Mission of the Church of Scotland, 1027 the House of Lords held that the
appointment of Ms Percy as an associate minister of the Church of Scotland had given rise to a
“contract of employment” 1028 for the purpose of the statutory prohibition against sex discrimination in
such a contract. One view is that Percy’s case marks a change in the judicial approach to the
question of contractual intention in cases of this kind. This view is supported by statements of Lord
Nicholls in that case that “in this regard there seems to be no cogent reason today to draw a
distinction between a post whose duties are primarily religious and a post within the church where this
is not so” 1029; and that in the context of statutory protection of employees it was “time to recognise
that employment arrangements between the church and its ministers should not lightly be taken as
intended to have no legal effect.” 1030 This is particularly so in respect of “arrangements which on their
face were intended to give rise to legal obligations” 1031 such as the offer and acceptance of
employment, specifying in some detail the rights and obligations of the parties. 1032 There is therefore
no longer any presumption that, in cases of the kind discussed in this paragraph, there is no intention
to create legal relations. 1033 On the other hand, it was accepted in Percy’s case that “many
arrangements … in church matters” were such that “viewed objectively … the parties [could] not be
taken to have intended to enter into a legally binding contract” because of the “breadth and looseness
[of the arrangements] and the circumstances in which they were undertaken”. 1034 In President of the
Methodist Conference v Preston, the Supreme Court 1035 (reversing the Court of Appeal) 1036 held (by
a majority, Lady Hale dissenting) that a minister of the Methodist Church could not prosecute a claim
for unfair dismissal against the Church 1037 as she had not worked for the Church under a “contract of
service”. 1038 Lord Sumption (with whose leading judgment Lords Wilson and Carnwath agreed)
adopted a new approach to this problem. He said that:
“The correct approach is to examine the rules and practices of the particular church and
any special arrangements made with the particular minister.”” 1039
In the particular case, having regard to the constitution of the Methodist Church as contained in its
Deed of Union and its standing orders, the rights and duties of its ministers arose “entirely from their
status in the constitution of the Church and not from any contract” unless “some special arrangement
is made with a particular minister”. 1040 Lord Sumption pointed, in particular, to:
“the lifelong commitment of the minister, the exclusion of any right of unilateral
resignation and the characterisation of the stipend as maintenance and support.” 1041
In these circumstances, and in the absence of any special arrangements, the requirement of
“contractual intention” 1042 was not satisfied. Percy’s case can be distinguished on the basis that it
relates to a sex discrimination claim rather than a claim for unfair dismissal, the statutory
requirements for which are expressed in different terms. 1043 Consistently, it was held in E v English
Province of our Lady of Charity 1044 that the relationship between a Roman Catholic priest and the
Diocesan Bishop who had appointed him was such as to give rise to the possibility of the Bishop’s
being vicariously liable for the priest’s torts. It was said that the facts that there was no formal
contract, no offer and acceptance, no terms and conditions, and no provision for payment of wages
did not negative this possibility, though they might “have relevance in a different context”. 1045
Affirming this decision on appeal, 1046 Ward L.J. discussed the authorities on the question whether
there is a contract of service between a minister of religion and the Church (or other body) that has
appointed him or her. 1047 He concluded that there was “no contract of service in this case” as the
appointment of the priest by the Bishop “was made without any intention to create any legal
relationship between them”. 1048 Davies L.J. (concurring) found the employment cases “of relatively
limited significance” 1049 in the vicarious liability context before the court. E ’s case was extensively
discussed in Various Claimants v Catholic Child Welfare Society 1050 where the Supreme Court held
that the Institute of the Brothers of the Christian Schools was vicariously liable for acts of abuse of
children committed by the Institute’s lay brothers who had acted as teachers in those schools but who
were not in any contractual relations with the Institute. There is no reference to either of these two
vicarious liability cases in the judgments of the Supreme Court in President of the Methodist
Conference v Prescott 1051 discussed in this paragraph.
Page 11
Civil servants
2-192
At one time, it was thought that the legal relationship between the Crown and its civil servants was not
contractual because the Crown did not, when the relationship was entered into, have the necessary
contractual intention. 1052 But it was said in one of the cases which supported that view that there was
evidence that the Crown was reconsidering its position on the point 1053; and it has since been held 1054
that the requirement of contractual intention was satisfied in spite of the fact that the terms of
appointment stated that “a civil servant does not have a contract of employment” but had rather “a
letter of appointment”. These words were not sufficient to turn a relationship which, apart from them,
had all the characteristics of a contract into one which was binding in honour only. For the purposes
of Pt 5 of the Equality Act 2010 “employment” means (inter alia) “Crown employment”. 1055
Police constables
2-193
It has been said that a police constable is a person who “holds an office and is not therefore strictly an
employee” 1056; and that there is “no contract between a police officer and a chief constable”. 1057 But it
does not follow that the relationship is binding in honour only: the resulting relationship is “closely
analogous to a contract of employment” 1058 so that duties analogous to those arising out of such a
contract may be owed to the constable. For the purposes of Pt 5 of the Equality Act 2010, “holding the
office of constable is to be treated as employment … ”. 1059
Vague agreements
2-194
Another factor relevant to the issue of contractual intention is the degree of precision with which the
agreement is expressed. In one case it was held that a husband’s promise to let his deserted wife
stay in the matrimonial home had no contractual force because it was not “intended by him, or
understood by her, to have any contractual basis or effect”. 1060 The promise was too vague: it did not
state for how long or on what terms the wife could stay in the house. 1061 So, too, the use of
deliberately vague language was held to negative contractual intention where a property developer
reached an “understanding” with a firm of solicitors to employ them in connection with a proposed
development, but neither side entered into a definite commitment. 1062 For the same reason, “letters of
intent” 1063 or “letters of comfort” 1064 may lack the force of legally binding contracts. 1065 The
assumption in all these cases was that the parties had reached agreement, and in them lack of
contractual intention prevented that agreement from having legal effect. Vagueness may also be a
ground for concluding that the parties had never reached agreement at all. 1066 This is a separate
issue from that of contractual intention, which strictly speaking concerns only the effect of an
agreement which is first shown to exist. 1067 On the one hand, the parties may agree on terms that are
sufficiently certain but deprive that agreement of contractual force by express words, as in the
“subject to contract” cases discussed earlier in this chapter. 1068 On the other hand, an agreement
may satisfy the requirement of contractual intention, yet be too vague to enforce. An example, of the
latter situation is Dhanani v Crasnianski. 1069 There, Ramsay J. held that an agreement to set up a
private equity fund satisfied the requirement of contractual intention 1070 but nevertheless lacked
contractual force because it was “in essence an agreement to agree” 1071 on terms which were
“essential for such an agreement to be enforced” 1072 and “[w]ithout such further agreement the fund
could not be set up”, 1073 there being “no objective criteria” 1074 by which the outstanding points could
be resolved. The view that contractual intention and certainty are separate requirements is further
supported by the reasoning of Barbudev v Eurocom Cable Management Bulgaria Eood, 1075 where the
issue was whether a “side letter” to a contract for the acquisition of shares in a company, gave the
claimant (a major shareholder in the company) the right to acquire shares in the purchase company
on terms to be agreed. The Court of Appeal held that the side letter was intended to create legal
relations, 1076 but that it did not give rise to a legally binding contract entitling the claimant to acquire
Page 12
the shares in the purchaser company since it was no more than an agreement to agree, 1077 and also
since many of the essential terms of the alleged contract had not been agreed. 1078 While the issues of
contractual intention and vagueness are conceptually distinct, they may overlap in borderline cases
1079
; the question whether an agreement exists will depend on the degree of vagueness or on whether
the vagueness can be resolved, e.g. by applying the standard of reasonableness. In one case “the
absence of any intention to create legal relations” 1080 was said to have been a ground for holding that
no agreement ever came into existence. Thus, contractual intention may be negatived on the ground
of vagueness where the claim is based, not on an express agreement, but on one alleged to be
implied from conduct. 1081
Statements made in jest or anger
2-195
Contractual intention may be negatived by the fact that the statement is made in jest or anger, at least
if this fact is obvious to the person to whom the statement is made. 1082 Thus in Licences Insurance
Corporation v Lawson 1083 the defendant was a director of Company A and of Company B. Company
A held shares in Company B and resolved, in the defendant’s absence, to sell them. At a later
meeting this resolution was rescinded after a heated discussion, during which the defendant said that
he would make good any loss which Company A might suffer if it kept the shares. It was held that the
defendant was not liable on this undertaking. Nobody at the meeting regarded it as a contract; it was
not recorded as such in the minute book; and the defendant’s fellow-directors at most thought that he
was bound in honour.
Other cases
2-196
The cases in which there is no intention to create legal relations cannot be exhaustively classified.
Contractual intention may, for example, be negatived by evidence that “the agreement was a goodwill
agreement … made without any intention of creating legal relations”, 1084 that it was a sham, made
with “no intention … to create bona fide legal relations”, 1085 that it formed part of a course of conduct
that was “just an act or a role-play”, 1086 and that the parties had not yet completed the contractual
negotiations. 1087 Many other disparate factors can lead to the same conclusion: for example, where
an agreement was made that a landlord would not enforce an order for possession against a tenant
who had fallen into arrears with her rent, it was held that this agreement did not create a new tenancy
as the parties “plainly did not [so] intend” 1088: the agreement merely had the effect of turning the
tenant into a “tolerated trespasser”. 1089
2-197
The cases on this topic, 1090 and in particular those discussed in paras 2-194 to 2-1958 above, show
that the question of contractual intention is, in the last resort, one of fact 1091; and in doubtful cases its
resolution depends, in particular, on the incidence of the burden of proof and on the objective test
which generally determines the issue. These points have already been discussed 1092; they help to
explain two controversial decisions, in each of which there was a difference of judicial opinion on the
issue of contractual intention.
2-198
The first is Esso Petroleum Ltd v Commissioners of Customs and Excise. 1093 Esso supplied garages
with tokens called “World Cup coins,” instructing them to give away one coin with every four gallons of
petrol sold. The scheme was advertised by Esso and also on posters displayed by garages. By a
majority of four to one, the House of Lords held that there was no “sale” of the coins; but that majority
was equally divided on the question whether there was any contract at all with regard to the coins.
Those who thought that there was a contract 1094 relied on the incidence of the burden of proof, and
on the argument that “Esso envisaged a bargain of some sort between the garage proprietor and the
motorist”. 1095 On the other hand, Lords Dilhorne and Russell relied on the language of the
Page 13
advertisements (in which the coins were said to be “going free”), and on the minimal value of the
“coins”, as negativing contractual intention.
2-199
The second case is J. Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd. 1096 The representative
of a firm of forwarding agents told a customer (with whom the firm had long dealt) that his goods
would henceforth be packed in containers, and that these would be carried under deck. About a year
later, one such container was carried on deck and lost. At first instance, 1097 Kerr J. held that the
promise was not intended to be legally binding since it was made in the course of a courtesy call, not
related to any particular transaction, and indefinite with regard to its future duration. The Court of
Appeal, however, held 1098 that the promise did have contractual force, relying principally on the
importance attached by the customer to the carriage of his goods under deck, and on the fact that he
would not have agreed to the new mode of carriage in containers but for the promise. The case is no
doubt a borderline one. While the objective test prevents the promisor from relying on his subjective
intention not to enter into a contractual undertaking, it should equally prevent the promisee’s
subjective intention (if not known to the promisor) from being decisive. The decision is explicable if it
must have been clear to the promisor that, but for his promise, the promisee would not have agreed
to the new mode of carriage in containers.
889. R. v Civil Service Appeal Board Ex p. Bruce [1988] 3 All E.R. 686, 693, 698; cf. Re Beaumont
[1980] Ch. 444, 453: consideration may be provided “under a contract or otherwise”.
890. For enforcement on other grounds, see John Fox v Bannister King & Rigbeys [1988] Q.B. 925,
928 (court’s jurisdiction to enforce honourable conduct on the part of solicitors); Xydhias v
Xydhias [1999] 2 All E.R. 386, 394 (compromise of claim for ancillary relief in divorce
proceedings).
891. For recent statements of the requirement to create legal relations, see Baird Textile Holdings
Ltd v Marks & Spencer Plc [2001] EWCA Civ 274, [2002] 1 All E.R. (Comm) 737 at [30], [59];
below, para.2-169. See also Zakhem International Construction Ltd v Nippon Kohan KK [1987]
2 Lloyd’s Rep. 596. For a denial of the requirement, see Williston, Contracts, para.21; cf. Tuck,
21 Can. Bar Rev. 123 (1943); Shatwell (1954) 1 Sydney L.R. at 293; Unger (1956) 19 M.L.R.
96; Hepple [1970] C.L.J. 122; Hedley (1985) 50 J.L.S. 391. There is also said to be a
requirement of “mutuality”: see Simpkins v Pays [1955] 1 W.L.R. 975, 979; Rajbenback v
Mamon [1955] 1 Q.B. 283, 286; but this expression here refers to consideration rather than to
contractual intention: see Lees v Whitcombe (1828) 5 Bing. 34; Sykes v Dixon (1839) 9 Ad. &
El. 693; Westhead v Sproson (1861) 6 H. & N. 728; Treitel (1961) 77 L.Q.R. 83.
892. Certain regulated agreements under the Consumer Credit Act 1974 must contain a signature in
a “signature box” warning the signer to sign the agreement “only if you want to be legally bound
by its terms”: Consumer Credit (Agreements) Regulations 1983 (SI 1983/1553), as amended by
Consumer Credit (Agreements) (Amendment) Regulations 2004 (SI 2004/1482) reg.2. For
amendment of the definition of a “regulated” consumer credit agreement, see Consumer Credit
Act 2006 s.2.
893. Edwards v Skyways Ltd [1964] 1 W.L.R. 349, 355; Bahamas Oil Refining Co v Kristiansands
Tankrederei A/S (The Polyduke) [1978] 1 Lloyd’s Rep. 211; Financial Techniques (Planning
Services) Ltd v Hughes [1981] I.R.L.R. 32; G.A.F.L.A.C. v Tanter (The Zephyr) [1985] 2 Lloyd’s
Rep. 529, 537 (disapproving [1984] 1 Lloyd’s Rep. 58, 63–64); Yani Haryanto v E.D. & F. Man
(Sugar) Ltd [1986] 2 Lloyd’s Rep. 44; Orion Insurance Plc v Sphere Drake Insurance Plc [1992]
1 Lloyd’s Rep. 239 at 263, where the burden was discharged; Mamidoil-Jetoil Greek Petroleum
Co SA v Okta Crude Oil Refinery AD [2003] 1 Lloyd’s Rep. 1 at [159]; cf. Coastal Bermuda
Petroleum Ltd v VTT Vulcan Petroleum SA (The Marine Star) (No.2) [1994] 2 Lloyd’s Rep. 629,
632, reversed on other grounds [1996] 2 Lloyd’s Rep. 383. See also Attrill v Dresdner Kleinwort
Ltd [2013] EWCA Civ 394 at [79], indicating that this rule applies both where the alleged
contract is a bilateral one, and where it is a unilateral one “at least where the parties are already
in a contractual relationship when the unilateral promise is made” (at [80]).
Page 14
894. cf. above, para.2-148; Kingswood Estate Co v Anderson [1963] 2 Q.B. 169; South West Water
Authority v Palmer (1982) 263 E.G. 438; Benourad v Compass Group Plc [2010] EWHC 1882
(QB) at [106(d)]; Maple Leaf Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334, [2010] 2
All E.R. (Comm) 788 at [21], citing Trentham v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep. 25, 27.
895. Bottrill v Harling [2015] EWCA Civ 564 at [14]–[16], [19]–[21], the Court of Appeal held that in
deciding whether an oral agreement was made it is entirely acceptable to consider how the
parties conducted themselves.
896. Hispanica de Petroleos SA v Vencedora Oceana Navegaceon SA (The Kapetan Markos N.L.)
(No.2) [1987] 2 Lloyd’s Rep. 323; The Aramis [1989] 1 Lloyd’s Rep. 213; Mitsui & Co Ltd v
Novorossiysk Shipping Co (The Gudermes) [1993] 1 Lloyd’s Rep. 311; in some of these cases
rights and liabilities under the shipping documents would now arise by virtue of Carriage of
Goods by Sea Act 1992 ss.2 and 3. Part of the ground covered by these sections of the 1992
Act will, if the Rotterdam Rules (below, para.18-036) are given the force of law in the United
Kingdom, be covered by arts 57 and 58 of those Rules, so that it is likely that the 1992 Act will,
in that event, have to be amended. The scope of arts 57 and 58 is significantly narrower than
that of ss.2 and 3 of the 1992 Act: see, for example, para.18-054 below.
897. Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 W.L.R. 1195, 1202; cf. Baird Textile
Holdings Ltd v Marks & Spencer Plc [2001] EWCA Civ 274, [2002] 1 All E.R. (Comm) 737 at
[20], [21], [30], [62] where the argument that there was an implied contract was rejected for the
reasons given in para.2-172 below. The argument was likewise rejected in West Bromwich
Albion Football Club v El Safty [2006] EWCA Civ 1299, (2006) 92 B.M.L.R. 179 at [43], [48]
(below, para.18-004) and Cairns v Visteon UK Ltd [2007] I.R.L.R. 175 at [18], [23] on the
ground that in these two cases there was no “necessity” for any such implication; and see
below, para.18-005. For other cases in which it was held that it was not “necessary” to imply a
contract, see Whittle Movers Ltd v Hollywood Express Ltd [2009] EWCA Civ 1189 at [17];
Commissioners for Her Majesty’s Revenue and Customs v Benchdollar Ltd [2009] EWHC 1310
(Ch) at [38], where there was no such “necessity” because both parties believed (though
mistakenly: see below, para.4-036 n.228) that their arrangement was binding as an
acknowledgement within Limitation Act 1980 s.29(5); Classic Maritime Inc v Lion Diversified
Holdings Berhad [2009] EWHC 1142 (Comm), [2010] 1 Lloyd’s Rep. 69 at [9]; cf. C N
Associates v Holbeton Ltd [2011] EWHC 43 (TCC), [2011] B.L.R. 261. Contrast Goshaw
Dedicated Ltd v Tyser & Co Ltd [2006] EWCA Civ 54, [2006] 1 All E.R. (Comm) 501 at [66],
apparently rejecting the argument that there was no implied contract.
898. [2001] EWCA Civ 1447, [2002] 1 W.L.R. 1192; cf. recognition of the distinction, for the purpose
of burden of proof, between express and implied agreements, drawn in paras 2-168 and 2-169
above, in Baird Textile Holdings Ltd v Marks & Spencer Plc [2001] EWCA Civ 274, [2002] 1 All
E.R. (Comm) 737 at [61]; and J D Cleverly Ltd v Family Finance Ltd [2010] EWCA Civ 1477,
[2011] R.T.R. 22 at [28]–[32], where the proponent of the contract failed to discharge the
burden as the conduct in question was not “consistent only” (at [36]) with an intention to enter
into contractual relations; see also the CN Associates case, above n.877, at [36] and the
Classic Maritime case, above n.877, at [9] and [14]. And see Re MF Global UK Ltd (In Special
Administration) [2015] EWHC 883 (Ch); [2015] Pens. L.R. 405 at [56]–[58] where an implied
contract was found between companies in a group; one employed staff and seconded them to
another which paid the associated costs, notwithstanding the absence of any express
agreement between them as to the provision of staff.
899. [2001] EWCA Civ 1447 at [109], cf. at [52]. Jonathan Parker L.J. dissented on this point. For
discussion of factors which led to the conclusion that the requirement of contractual intention
had been satisfied in Attrill v Dresdner Kleinwort Ltd [2012] EWHC 1189 (QB), see that case
[134] et seq., [2013] EWCA Civ 394 at [89], n.880. The case was one of express agreement,
not one of agreement inferred from conduct.
900.
[2016] EWCA Civ 569.
901.
[2014] EWHC 3369 (Comm).
Page 15
902.
[2014] EWHC 3369 at [102], [110], [114] and [123].
903. See Carlill v Carbolic Smoke Ball Co [1893] 1 Q.B. 256; Ignazio Messina & Co v Polskie Linie
Oceaniczne [1995] 2 Lloyd’s Rep. 566, 579; Bowerman v Association of British Travel Agents
[1995] N.L.J. 1815; Manatee Towing Co v Oceanbulk Maritime SA (The Bay Ridge) [1999] 2 All
E.R. (Comm) 306 at 327; London Baggage (Charing Cross v Railtrack Plc) [2000] E.G.C.S. 57;
Baird Textile Holdings Ltd v Marks & Spencer Plc [2001] EWCA Civ 274, [2002] 1 All E.R.
(Comm) 737; Maple Leaf Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm), 1
Lloyd’s Rep. 475 at [223], [224] and [2009] EWCA Civ 1334, [2010] 2 All E.R. (Comm) 788 at
[17] (affirming the decision below); RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH &
Co KG (UK Production) [2010] UKSC 14, [2010] 1 W.L.R. 753 at [45], [46]; Benourad v
Compass Group Plc [2010] EWHC 1882 (QB) at [106(b)]; Dhanani v Crasnianski [2011] EWHC
926 (Comm), [2011] 2 All E.R. (Comm) 799 at [80], [88] (“objectively assessed”); Barbudev v
Eurocom Cable Management Bulgaria EOOD [2011] EWHC 1560 (Comm), [2011] 2 All E.R.
(Comm) 951 at [92]–[94], affirmed [2012] EWCA Civ 548, where the objective test is stated at
[30]. For a statement of the objective test of contractual intention, see also Bear Stearns Bank
Plc v Forum Global Equity Ltd [2007] EWHC 1576, above para.2-121, where an oral
acceptance of a “firm” offer (also made orally) was held to give rise to a contract although at the
stage of that acceptance many important points remained unresolved; this was also the position
in the RTS case, above: see at [61]; cf. the Benourad case above, at [106(f)] and above,
para.2-121 at n.603. And see Attrill v Dresdner Kleinwort Ltd [2013] EWCA Civ 394 at [61]: the
Court of Appeal enforced the employer’s promise to their employees to maintain a “guaranteed
minimum bonus pool” from which discretionary bonuses payable under the contracts of
employment were to be distributed “no matter what” (at [22]). The Court relied, in particular, on
the facts that it was made “in the context of a pre-existing legal relationship” (i.e. of employer
and employee); that the promise was originally that of the employer’s Chief Executive Officer;
that it was made as “part of a vitally important strategy to retain staff”; that it “related to pay, the
most fundamental obligation under the employment contract”; and that by its terms “the promise
assured staff that the fund was guaranteed come what may” (at [89]). cf. Crowden v Aldridge
[1993] 1 W.L.R. 433, applying the objective test of intention to produce legal consequences to a
noncontractual direction to executors in favour of a third party. Quaere whether, in the absence
of reliance on the direction, the policy which justifies the objective test in a contractual context
extends to the situation which arose in this case.
904. Above, para.2-125.
905. Tweddell v Henderson [1975] 1 W.L.R. 1496; Storer v Manchester City Council [1974] 1 W.L.R.
1403, 1408.
906. [2000] Q.B. 501.
907. For the consideration moving from the pupil, see below, para.4-039.
908.
[2016] EWHC 360 (QB).
909.
Purton (t/a Richwood Interiors) v Kilker Projects Ltd [2015] EWHC 2624 (TCC) at [7].
910.
Above, para.2-004. In contrast, no intention to be bound was concluded in Price v Euro Car
Parks Ltd [2015] EWHC 3253 (QB) where the claimant put a business proposal and sent an “In
Principle Heads of Agreement” that neither signed, to the defendant. The defendant never
accepted any offer made by the claimant; it merely allowed the claimant to go ahead (at his own
risk) to research his business proposal. Moreover, the “In Principle Heads of Agreement” was
too indefinite. Nor was there intention to be bound in Burgess v Lejonvarn [2016] EWHC 40
(TCC), [2016] T.C.L.R. 3 (affirmed [2017] EWCA Civ 254: see below, para.4-199), where an
architect, for no fee, had found a contractor to landscape her friends’ garden with a view to her
providing subsequent design input for consideration. There was no contract to project manage
the landscaping because the written discussions were simply too inchoate, there was no
intention to be legally bound and there had been no consideration.
Page 16
911. Pateman v Pay (1974) 263 E.G. 467; Attrill v Dresdner Kleinwort Ltd [2013] EWCA Civ 394 at
[86] where the requirement of contractual intention was satisfied: see n.879.
912. Lark v Outhwaite [1991] 2 Lloyd’s Rep. 132, 141.
913. R. v Lord Chancellor’s Department Ex p. Nangle [1991] I.C.R. 743, 751.
914. See L’Estrange v F Graucob Ltd [1934] 2 K.B. 394; below, para.13-002.
915. For use of this expression in the present context, see Autoclenz Ltd v Belcher [2011] UKSC 41,
[2011] I.C.R. 1157 at [23].
916. Street v Mountford [1985] A.C. 809; A. G. Securities v Vaughan [1990] 1 A.C. 417.
917. Autoclenz case, above n.890; and see Davies (2009) 38 I.L.J. 318, cited with approval in that
case at [38].
918. See e.g. Ogwr BC v Dykes [1989] 1 W.L.R. 295; Bruton v Quadrant Housing Trust [1997] N.L.J.
1385. For the two-stage process used to decide questions of characterisation, see Agnew v
Commissioners of Inland Revenue [2001] UKPC 28, [2001] A.C. 170 at [32].
919. Mexfield Housing Co-operative Ltd v Berisford [2011] UKSC 52, [2012] 1 All E.R. 1393.
920. Mexfield Housing Co-operative Ltd v Berisford [2011] UKSC 52 at [62]. The actual decision in
that case was that the agreement did give rise to a tenancy (though not on the terms agreed by
the parties), so that it was not strictly necessary to decide the point made in the text above:
[2011] UKSC 52 at [58].
921. Mexfield Housing Co-operative Ltd v Berisford [2011] UKSC 52 at [63], [95], [102], [108], [120].
922. Mexfield Housing Co-operative Ltd v Berisford [2011] UKSC 52 at [67].
923. e.g. Broadwick Financial Services Ltd v Spencer [2002] EWCA Civ 35, [2002] 1 All E.R.
(Comm) 446 at [27].
924. [1925] A.C. 445; affirming [1923] 2 K.B. 261; County Ltd v Girozentrale Securities [1996] 3 All
E.R. 834; M&P Steelcraft Ltd v Ellis [2008] I.R.L.R. 355, below, para.2-191.
925. They can have the same effect in other types of agreement: see Confetti Records v Warner
Music UK Ltd [2003] EWHC 1274, The Times, June 12, 2003.
926. Above, paras 2-125, 2-126; Rose & Frank Co v J.R. Crompton & Bros Ltd [1923] 2 K.B. 261,
294; Ali v Ahmed (1996) 71 P. & C.R. D39.
927. Commission for the New Towns v Cooper (G.B.) Ltd [1995] Ch. 259, 295.
928. See Jones v Vernons Pools Ltd [1938] 2 All E.R. 626; Appleson v Littlewood Ltd [1939] 1 All
E.R. 464; Guest v Empire Pools (1964) 108 S.J. 98. In Scotland, it has been argued that such
honour clauses in football coupons may be unreasonable and hence ineffective: Ferguson v
Littlewoods Pools 1997 S.L.T. 309, 314–315.
929. R. v Lord Chancellor’s Department Ex p. Nangle [1991] I.C.R. 743; above, para.2-170.
930. [1964] 1 W.L.R. 349. It was admitted that there was consideration moving from the employee.
931. cf. Glaxosmithkline UK Ltd v Department of Health [2007] EWHC 1470, [2007] 2 All E.R.
(Comm) 1140, where a “voluntary” scheme agreed between the Department and members of
the pharmaceutical industry, containing “mandatory provisions” (at [13]), was held to have
contractual force.
Page 17
932. Home Insurance Co Ltd v Administratia Asigurarilor [1983] 2 Lloyd’s Rep. 674, 677; Home and
Overseas Insurance Co Ltd v Mentor Insurance Co (UK) Ltd [1989] 1 Lloyd’s Rep. 473.
933. Hanjin Shipping Co Ltd v Zenith Chartering Corp (The Mercedes Envoy) [1995] 2 Lloyd’s Rep.
559.
934. Hanjin Shipping Co Ltd v Zenith Chartering Corp (The Mercedes Envoy) [1995] 2 Lloyd’s Rep.
559 at 564.
936. For the alternative basis of the claim on the ground of estoppel, see below, para.4-099.
937. Baird case, above n.910, at [30], [47], [69].
938. For another such factor, see below, para.2-194.
939. Baird case, above n.910, at [10], [46], [73].
940. Baird case, above n.910, at [30], [47], [73], [74]; cf. Alstom Transport v Tilson [2010] EWCA Civ
1308, [2010] I.R.L.R. 169 at [50] (no implied contract where one party had actually refused to
enter into an express contract with the other).
941. Baird case, above n.910 at [76]. For somewhat similar reasoning, see Raiffeisen Zentralbank
Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392, [2011] 1 Lloyd’s Rep. 123
(oral assurances given by borrower to lender held not to be legally binding since to give them
contractual force would have defeated their commercial objective, which made it “important that
they should not have legal effect” (at [143])).
942. [2008] UKHL 55, [2008] 1 W.L.R. 1752.
943. [2008] UKHL 55 at [7], [71].
944. (1605) Noy 11; cf. Dalrymple v Dalrymple (1811) 2 Hag.Con. 54, 105.
945. [1982] A.C. 225 affirmed so far as the manufacturer’s liability was concerned, but on other
grounds at 271.
946. [1982] A.C. 225, 262; contrast Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 Q.B. 256 and
Bowerman v Association of British Travel Agents [1995] N.L.J. 1815, above, para.2-015.
947. [1913] A.C. 30 criticised by Atiyah, The Rise and Fall of Freedom of Contract, p.772; but
followed by the House of Lords in IBA v EMI Electronics Ltd (1980) 14 Build. L.R. 1; cf. Strover
v Harrington [1988] Ch. 390, 410; Ignazio Messina & Co v Polskie Linie Oceaniczne [1995] 2
Lloyd’s Rep. 566, 581. The Regulations referred to in para.2-176 below would not apply on
facts such as those of any of the cases cited in this note.
948. [1913] A.C. 30, 47; Unit Construction Co Ltd v Liverpool Corp (1972) 221 E.G. 459; Hispanica
de Petroleos SA v Vencedora Oceanica Navegacion SA (The Kapetan Markos NL) [1987] 2
949. Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep. 611 at 614; cf. White v
Bristol Rugby Club Ltd [2002] I.R.L.R. 2004.
950. Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] EWCA Civ 622, [2007]
NLJ 1263.
951. Under s.14(2D) of the Sale of Goods Act 1979, as inserted by the Sale and Supply of Goods to
Consumers Regulations 2002 (SI 2002/3045) reg.3, implementing Directive 1999/44/EC.
Statements such as those made in Lambert v Lewis, above, would probably not be sufficiently
Page 18
“specific” for this purpose. See above, para.2-017.
952. See Supply of Goods and Services Act 1982 s.4(2B), as inserted by reg.7 of the Regulations
cited above and Supply of Goods (Implied Terms) Act 1973 s.10(2D) as inserted by reg.13 of
those Regulations.
953. The 2015 Act applies to contracts made on or after October 1, 2015. The Sale and Supply of
Goods to Consumers Regulation 2002 (SI 2002/3045) are revoked (2015 Act s.60 and Sch.1
para.53); Sale of Goods Act 1979 s.14(2D) is omitted (2015 Act s.60, Sch.1 para.27; s.14(2D)
is comprised in Pt 5A of the 1979 Act); the Supply of Goods and Services Act 1982 s.4(2B) is
omitted (2015 Act s.60 and Sch.1 para.40); (4) the Supply of Goods (Implied Terms) Act 1973
s.10(2D) is omitted (2015 Act s.60 and Sch.1 para.3(2)).
954. See ss.9(5) and (6), 11(4), 12(2), 34(5) and (6), 37(2), 50(1)(a) and 50(3) of the Consumer
Rights Act 2015.
955. Consumer Rights Act 2015 ss.9(5) and 34(5) resemble the present s.14(2D) of the Sale of
Goods Act 1979.
956. SI 2002/3045.
957. SI 2002/3045 reg.15(1); for the definition of “consumer guarantee” see reg.2. In the present
context, it is significant that this definition refers to such a guarantee as an “undertaking”; cf. the
reference, in the definition in reg.2 of “consumer” to “contracts governed by these Regulations”.
958. See s.60 and Sch.1 para.53 Consumer Rights Act 2015. The Act applies to contracts made on
or after October 1, 2015.
959. See s.30(1) Consumer Rights Act 2015; “guarantee” is defined in s.30(2).
960. Consumer Rights Act 2015 s.30(3). And see above, para.2-017. In contrast, the Consumer
Protection (Information, Cancellation and Additional Charges) Regulations 2013 (SI
2013/3134), which include a “commercial guarantee” in the lists of information which the trader
is required by reg.9(1) and Sch.1 para.(h) and regs 10(1) and 13(1) and Sch.2 para.(q) to make
available to the consumer, contain no equivalent phrase stipulating that a commercial
guarantee “takes effect as a contractual obligation owed by the guarantor”. This is because the
2013 Regulations are concerned with ensuring that the consumer is informed about any
commercial guarantee and not with its enforceability. Therefore the 2013 Regulations do not
attempt to provide a legal basis for the liability of the producer to the consumer. The 2015 Act
also provides that, where the trader is required by the 2013 Regulations to provide information
to the consumer, the information so provided “is to be treated as included as a term of the
contract” (see Consumer Rights Act 2015 ss.12(2) (goods), 37(2) (digital content), 50(3)
(services)). Where it is the trader itself that gives the guarantee, these provisions seem merely
to make it quite clear that what is undertaken by the trader in the guarantee forms a term of the
contract for supply or services with the consumer. Where the information given by the trader
relates to a commercial guarantee offered by the producer, and the information given is
incorrect, the consumer will have the more limited remedy of recovering from the trader the
amount of any costs incurred by the consumer as a result of the breach, up to the amount of the
price paid or the value of other consideration given for the goods: ss.19(2), 42(4); or, in the
cases of a services contract, a price reduction (s.54(4)). See further below, paras
38-458—38-488, 38-504—38-523, 38-530—38-544.
961. Balfour v Balfour [1919] 2 K.B. 571, 578; Rose & Frank Co v J.R. Crompton & Bros Ltd [1923] 2
K.B. 261, 293; Wyatt v Kreglinger & Fernau [1933] 1 K.B. 793, 806.
962. Lens v Devonshire Club, The Times, December 4, 1914; referred to in Wyatt’s case, above
n.936, from which the quotation in the text is taken.
963. White v Blackmore [1972] 2 Q.B. 651.
964. Coward v M.I.B. [1963] 1 Q.B. 259; overruled, but not on the issue of contractual intention, in
Page 19
Albert v M.I.B. [1972] A.C. 301; Buckpitt v Oates [1968] 1 All E.R. 1145, criticised on this point
by Karsten (1969) 32 M.L.R. 88. The actual decisions are obsolete by reason of Road Traffic
Act 1988 ss.145, 149; cf. also s.150; but an issue of contractual intention might still arise if one
party to such an arrangement simply failed to turn up at the agreed time. For another context in
which sharing of expenses did not give rise to an inference of contractual intention, see
Monmouth C. v Marlog, The Times, May 4, 1994.
965. Hadley v Kemp [1999] E.M.L.R. 589; McPhail v Bourne [2008] EWHC 1235.
966. Heslop v Burns [1974] 1 W.L.R. 1241; cf. Horrocks v Forray [1976] 1 W.L.R. 230.
967. Kucukkoylu v Ozcan [2014] EWHC 1972.
968. [1919] 2 K.B. 571. cf. Gould v Gould [1970] 1 Q.B. 275, where there was a division of opinion
on the issue of contractual intention, the majority holding that there was no such intention where
a husband on leaving his wife promised to pay her £15 per week so long as he could manage it.
And see generally Ingman [1970] J.B.L. 109.
969. Balfour v Balfour, above n.943 at 578: it would clearly be undesirable to enforce such
agreements in accordance with their original terms, however much the position of the parties
had changed.
970. Pettitt v Pettitt [1970] A.C. 777, 816.
971. e.g. Gage v King [1961] 1 Q.B. 188; Spellman v Spellman [1961] 1 W.L.R. 921; cf. Re
Beaumont (dec’d) [1980] Ch. 444, 453; cf. Lloyds Bank Plc v Rosset [1991] A.C. 107.
972. Pearce v Merriman [1904] 1 K.B. 80; cf. Morris v Tarrant [1971] 2 Q.B. 143.
973. e.g. Merritt v Merritt [1970] 1 W.L.R. 1211; cf. Tanner v Tanner [1975] 1 W.L.R. 1346 as
explained in Horrocks v Forray [1976] 1 W.L.R. 230; Re Windle [1975] 1 W.L.R. 1628 (doubted
in Re Kumar [1993] 1 W.L.R. 224); contrast Vaughan v Vaughan [1953] 1 Q.B. 762 (below,
para.2-194).
974. Synge v Synge [1894] 1 Q.B. 466, cf. Jennings v Brown (1842) 9 M. & W. 496 (promise to
discarded mistress).
975. Civil Partnership Act 2004 s.1.
976. Civil Partnership Act 2004 ss.1, 73.
977. Civil Partnership Act 2004 ss.1, 70.
978. Either because they have chosen not to enter into such a partnership or because, not being of
the same sex, they were not eligible to do so: see Civil Partnership Act 2004 s.1(1).
979. Eves v Eves [1975] 1 W.L.R. 1338, 1345.
980. Eves v Eves, above n.954, per Browne L.J. and Brightman J.
981. Eves v Eves [1975] 1 W.L.R. 1338 at 1342, per Lord Denning, M.R.; for this basis of liability,
see Grant v Edwards [1986] Ch. 638; cf. Lloyds Bank Plc v Rosset [1991] A.C. 107, 129, Burns
v Burns [1984] Ch. 317; Lowe and Smith (1984) 47 M.L.R. 341; Dewar, 735.
982. Law of Property (Miscellaneous Provisions) Act 1989 s.2; below, para.5-011.
983. cf. Taylor v Dickens [1998] F.L.R. 806, 819; the reasoning of this case was doubted, but not on
the issue of contractual intention, in Gillett v Holt [2001] Ch. 210, 227; s.2(1) of the 1989 Act
(above, n.957) requires the contract to be made in writing incorporating all its “expressly
agreed” terms in a document (or documents, where contracts are exchanged), and if the
Page 20
promise in Eves v Eves (above, at n.954) was indeed implied, it could be argued that there
were no “expressly agreed” terms.
984. The formal requirements imposed by the 1989 Act (above n.957) do not apply to “the creation
or operation of … constructive trusts”: s.2(5).
986. Tanner v Tanner [1975] 1 W.L.R. 1346, 1351.
987. Tanner v Tanner, above.
988. Horrocks v Forray [1976] 1 W.L.R. 320; cf. Coombes v Smith [1986] 1 W.L.R. 808; Windeler v
Whitehall [1990] 2 F.L.R. 505.
989. Cocksedge v Cocksedge (1844) 14 Sim 244; 13 L.J. Ch. 384; H v W (1857) 3 K & J 382.
990. Radmacher v Granatino [2010] UKSC 42, [2011] 1 A.C. 534.
991. [2010] UKSC 42 at [75] per Lord Phillips of Worth Matravers PSC, Lord Hope of Craighead
DPSC, Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe, Lord Brown of
Eaton-under-Heywood, Lord Collins of Mapesbury, Lord Kerr of Tonaghmore JJSC; Baroness
Hale of Richmond dissenting. And see Law Commission report, Matrimonial Property Needs
and Agreements (Law Com No.343) 2014.
992. [2010] UKSC 42 at [70].
993. Parker v Clark [1960] 1 W.L.R. 286; cf. Schaefer v Schuhman [1972] A.C. 572; Lee (1972) 88
L.Q.R. 320; Tanner v Tanner [1975] 1 W.L.R. 1346; Nunn v Dalrymple, The Times, August 3,
1989.
994. [1972] 1 W.L.R. 1286.
995. But she recovered the £600 on equitable grounds; below, para.4-141; cf. Re Sharpe [1980] 1
W.L.R. 219, where there was both a loan and an equitable right in the lender; Briggs v Rowan
[1991] E.G.C.S. 6.
996. [1955] 1 W.L.R. 975.
997. See Jones v Padavatton [1969] 1 W.L.R. 328, 333; cf. Shadwell v Shadwell (1860) 9 C.B.(N.S.)
159; below, para.4-074.
998. If there is very clear evidence of contractual intention there may be a binding contract, as in
Haggar v de Placido [1972] 1 W.L.R. 716. But in practice such “contracts” were made only as
devices to enable the value of the mother’s services to be recovered from a tortfeasor who had
injured the child, and for this purpose they are now unnecessary: Donelly v Joyce [1974] Q.B.
454.
999. Ellis v Chief Adjudication Officer [1998] 1 F.L.R. 184, 188.
1000. Hardwick v Johnson [1978] 1 W.L.R. 683, per Roskill and Browne L.JJ.; Lord Denning, M.R.
thought that there was no contract but reached the same conclusion on other grounds; cf.
Collier v Hollingshead (1984) 272 E.G. 941.
1001. Below, para.4-025; Stabilad Ltd v Stephens & Carter (No.2) [1999] 2 All E.R. (Comm) 651 at
659-660.
1002. (1813) 1 M. & S. 290; cf. Shallcross v Wright (1850) 12 Beav. 558; Roberts v Smith (1859) 28
L.J. Ex. 164; Robinson & Commissioners of Customs & Excise, The Times, April 28, 2000.
Page 21
1003. (1813) 1 M. & S. 290, 291.
1004. Vol.II, para.40-079; cf. Re Brand’s Estate [1936] 3 All E.R. 374.
1005. cf. Re Richmond Gate Property Co Ltd [1965] 1 W.L.R. 335.
1006. Carmichael v National Power Plc [1999] 1 W.L.R. 2042; contrast Franks v Reuters Ltd [2003]
EWCA Civ 417, The Times, April 23, 2003.
1007. Equitable Life Assurance Society v Hyman [2002] 1 A.C. 408 at 460, per Lord Cooke, giving
this as an alternative ground for the decision while also accepting the “implied term” reasoning
of the majority.
1008. Horkulak v Cantor Fitzgerald Ltd [2004] EWCA Civ 1287, [2005] I.C.R. 402 at [48] (discretionary
bonus on dismissal), cf. at [46]; contrast Keen v Commerzbank AG [2006] EWCA Civ 1536,
[2007] I.C.R. 623, where an employer’s “very wide discretion” in relation to a bonus had not
“been exercised irrationally” (at [59], [60]).
1009. Ludgate Insurance Co Ltd v Citibank NA [1998] Lloyd’s Rep. IR 221 at [35]–[36]; Jani-King (GB)
Ltd v Pula Enterprises Ltd [2007] EWHC 2433 (QB), [2008] 1 All E.R. (Comm) 457 at [33]–[34].
1010. Prater v Cornwall CC [2006] EWCA Civ 102, [2006] I.C.R. 731.
1011. Selkirk v Romar Investments Ltd [1963] 1 W.L.R. 1415, 1422; cf. the authorities on agreements
subject to a condition depending on the “satisfaction” of one party, discussed above,
para.2-163. A contract term giving a wide discretion to one party may be subject to the
requirement of reasonableness under Unfair Contract Terms Act 1977 s.3(2)(b)(ii), or may not
be binding on a consumer under Unfair Terms in Consumer Contracts Regulations 1999 (SI
1999/2083), especially Sch.2 para.1(c). In the cases of agreements subject to the “satisfaction”
of one party, there is no general rule requiring that party to act in good faith or reasonably: see
Stabilad Ltd v Stephens & Carter Ltd [1999] 2 All E.R. (Comm) 651 at 622, above, para.2-163
such agreements can be distinguished from contracts which give one party a discretion to
rescind since the exercise of such a discretion deprives the other party of rights under an
existing contract, while in the “satisfaction” cases there is no such contract unless the party’s
satisfaction is communicated to the other. Similar reasoning serves to distinguish a contractual
discretion to rescind (here under discussion) from a contractual discretion of the kind discussed
in para.2-185 above at n.983.
1012. Robertson v British Gas Corp [1983] I.C.R. 351; Marley v Forward Trust Group [1986] I.C.R.
891; cf. N.C.B. v N.U.M. [1986] I.C.R. 736. Contrast Kaur v MG Rover Group Ltd [2004] EWCA
Civ 1507, [2005] I.C.R. 625, where a term to the effect that there would be no compulsory
redundancies was held not to have been incorporated in individual employment contracts as it
was not intended to constitute a binding contractual commitment; and Malone v British Airways
Plc [2010] EWCA Civ 1225, [2011] I.R.L.R. 32, where agreements were intended to be made
with employees collectively and to be binding in honour only (at [58], [62]) and so were not
legally binding between the employers and individual employees. And see below, para.14-022,
1013. As defined by s.178(1) and (2) of the 1992 Act.
1014. s.179(1) and (2); Universe Tankships Inc v International Transport Workers’ Federation (The
Universe Sentinel) [1983] A.C. 366, 380; Monterosso Shipping Co Ltd v International Transport
Workers’ Federation (The Rosso) [1982] 2 Lloyd’s Rep. 120; N.C.B. v N.U.M. [1986] I.C.R. 736;
cf. Cheall v A.P.E.X. [1983] A.C. 180, 189 (inter-union agreement). Provisions making collective
agreements legally binding were said in Commission of the European Communities v United
Kingdom [1984] I.C.R. 192, 195 to be very rare.
1015. N.C.B. v N.U.M. [1986] I.C.R. 736; cf. Malone v British Airways Plc, above n.987, where, since
the collective agreement was intended to be binding in honour only (at [58], [61]), it was not
legally binding even between the employers and the union.
Page 22
1016. [1947] 1 All E.R. 258.
1017. [1967] 2 Q.B. 31; Odgers (1970) 86 L.Q.R. 69.
1018. [1967] 2 Q.B. at 41.
1019. Rederiaktiebolaget Amphitrite v R. [1921] 3 K.B. 500.
1020. Rederiaktiebolaget Amphitrite v R. [1921] 3 K.B. 500 at 503; see further below, paras
11-007—11-009.
1021. Beesly v Hallwood Estates Ltd [1960] 1 W.L.R. 549, 558; the actual decision was affirmed on
other grounds [1961] Ch. 105, while dicta in the decision at first instance were disapproved, on
a point not here under discussion, in Bolton MBC v Torrington [2003] EWCA Civ 1634, [2004]
Ch. 66; cf. Harvela Investments Ltd v Royal Trust of Canada (C.I.) Ltd [1986] A.C. 207; The
Aramis [1989] 1 Lloyd’s Rep. 213; Treitel; [1989] L.M.C.L.Q. 162; Mitsui & Co Ltd v
Novorossiysk Shipping Co (The Gudermes) [1993] 1 Lloyd’s Rep. 311; Glencore Grain Ltd v
Flacker Shipping Ltd (The Happy Day) [2002] EWCA Civ 1068, [2002] 2 Lloyd’s Rep. 487 at
[63].
1022. G.F. Sharp & Co v McMillan [1998] I.R.L.R. 632.
1023. Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd (The Amazonia) [1990] 1 Lloyd’s
Rep. 238, 241-242; cf. the Stirling case, below para.2-196 n.1063, where it was accepted that a
new contract was created by virtue of a subsequent agreement increasing the monthly rent.
1024. Pyrene v Scindia Navigation Co Ltd [1954] 2 Q.B. 402; A.M. Satterthwaite & Co Ltd v New
Zealand Shipping Co Ltd (The Eurymedon) [1975] A.C. 514; Compania Portorafti Commerciale
SA v Ultramar Panama Inc (The Captain Gregos) (No.2) [1990] 2 Lloyd’s Rep. 395 (so far as it
relates to BP’s claim). cf. Halifax Building Society v Edell [1992] Ch. 436, discussed below,
para.18-016.
1025. See, in addition to the cases discussed in this and the two following paragraphs, M&P Steelcraft
Ltd v Ellis [2008] I.RL.R 355 (relationship between a prisoner and a company for which he had
worked under a work placement scheme organised by the Prison Service and recorded in a
tripartite agreement stating that the agreement was not intended to create legally enforceable
rights held not to have contractual force).
1026. President of the Methodist Conference v Parfit [1984] Q.B. 368 at 378; approved in Davies v
Presbyterian Church of Wales [1986] 1 W.L.R. 323 (no contract of employment between pastor
and Presbyterian church); Woolman (1986) 102 L.Q.R. at 356; Santok Sing v Guru Nanak
Gurdwara [1990] I.C.R. 309; Birmingham Mosque Trust v Alawi [1992] I.C.R. 435; Diocese of
Southwark v Coker [1998] I.C.R. 140.
1027. [2005] UKHL 73, [2006] 2 A.C. 28.
1028. Within Sex Discrimination Act 1975 s.82(1). This Act is repealed by Equality Act 2010 s.211(2)
and Sch.27 Pt 1, subject to exceptions and transitional provisions which need not be discussed
here. For sex discrimination, see now s.11 of the 2010 Act; for references to employment in that
Act, see (e.g.) ss.42(1), 83(1).
1029. Percy v Board of National Mission of the Church of Scotland [2005] UKHL 73 at [25], [151].
1030. [2005] UKHL 73 at [26].
1031. [2005] UKHL 73, [2006] 2 A.C. 28 at [23].
1032. [2005] UKHL 73 at [24]; cf. at [112] and [137]; and see the authorities cited in n.999 above.
1033. New Testament Church of God v Stewart [2007] EWCA Civ 1004, [2008] I.C.R. 282 at [53],
Page 23
[63], [66].
1034. [2005] UKHL 73 at [23].
1035. [2013] UKSC 29, [2013] 2 A.C. 163.
1036. [2011] EWCA Civ 1581, [2012] 2 All E.R. 934.
1037. Under s.94 of the Employment Rights Act 1996.
1038. Within s.230 of the Employment Rights Act 1996.
1039. [2013] UKSC 29 at [26].
1040. [2013] UKSC 29 at [11] and [920].
1041. [2013] UKSC 29 at [20], see also at [19] for this characterisation.
1042. [2013] UKSC 29 at [26] see also Lord Hope’s concurring judgment at [32].
1043. Employment Rights Act 1996 ss.94(1), 230(1) and (2).
1044. [2011] EWHC 2871 (QB), [2012] 1 All E.R. 723.
1045. [2011] EWHC 2871 (QB) at [28], [30], [36].
1046. [2012] EWCA Civ 938, [2012] 4 All E.R. 1152.
1047. [2012] EWCA Civ 938 at [24]–[28].
1048. [2012] EWCA Civ 938 at [29]–[30].
1049. [2012] EWCA Civ 938 at [119].
1050. [2012] UKSC 56, [2013] 2 A.C. 1 at [4], [56] and [57].
1051. [2013] UKSC 29.
1052. R. v Civil Service Appeal Board Ex p. Bruce [1988] I.C.R. 649; affirmed on other grounds [1989]
I.C.R. 171; Mclaren v Home Office, The Times, May 18, 1989.
1053. R. v Civil Service Appeal Board Ex p. Bruce 1988] I.C.R. 649 at 659.
1054. R. v Lord Chancellor’s Department Ex p. Nangle [1991] I.C.R. 743; cf. Trade Union and Labour
Relations (Consolidation) Act 1992 ss.62(7), 245: “deemed [for certain purposes] to constitute a
contract.”
1055. s.83(2)(b); it is not entirely clear from the structure of s.83(2) whether the words in s.83(2)(a)
quoted in n.1034 below apply for the purpose of s.83(2)(b).
1056. White v Chief Constable of the South Yorkshire Police [1999] A.C. 455 at 481. cf. Essex
Strategic Health Authority v David-John [2003] Lloyd’s Rep. Med. 586 (relationship between
general practitioner and Health Authority not contractual).
1057. White v Chief Constable of the South Yorkshire Police [1999] A.C. 455 at 497.
1058. White v Chief Constable of the South Yorkshire Police [1999] A.C. 455 at 497; see also Waters
v Commissioner of Police to the Metropolis [2000] 1 W.L.R. 1607, 1616.
1059. s.42(1); employment in Pt 5 of the 2010 Act means (inter alia) “employment under a contract of
Page 24
employment”: s.83(2)(a).
1060. Vaughan v Vaughan [1953] 1 Q.B. 762, 765; cf. Booker v Palmer [1942] 2 All E.R. 674;
Horrocks v Forray [1976] 1 W.L.R. 230; Windeler v Whitehall [1990] 2 F.L.R. 505.
1061. cf. Jones v Padavatton [1969] 1 W.L.R. 328; and see Gould v Gould [1970] 1 Q.B. 275; Layton
v Morris, The Times, December 11, 1985.
1062. J.H. Milner & Son v Percy Bilton Ltd [1966] 1 W.L.R. 1582.
1063. Above, para.2-132.
1064. Kleinwort Benson Ltd v Malaysian Mining Corp [1989] 1 W.L.R. 379; see also Associated British
Ports v Ferryways NV [2009] EWCA Civ 189, [2009] 1 Lloyd’s Rep. 595, above para.2-132
(where a “letter of comfort” was held to have given rise to a legally binding contract, though that
contract had later been discharged).
1065. cf. Snelling v John G. Snelling Ltd [1973] 1 Q.B. 87, 93; Montreal Gas Co v Vasey [1900] A.C.
595; B.S.C. v Cleveland Bridge & Engineering Co Ltd [1984] 1 All E.R. 504; cf. Turiff
Construction Ltd v Regalia Knitting Mills (1971) 222 E.G. 169 (letter of intent held to be a
collateral contract to pay for preliminary work); Diamond Build Ltd v Clapham Park Homes Ltd
[2008] EWHC 1439 (TCC), 119 Con. L.R. 32 (binding letter of intent: above, para.2-132).
Wilson Smithett & Cope (Sugar) Ltd v Bangladesh Sugar Industries Ltd [1986] 1 Lloyd’s Rep.
378 (letter of intent held to be an acceptance).
1066. Above, para.2-147.
1067. See Re Goodchild [1997] 1 W.L.R. 1216 where it is said at 1226 that one of the parties to
alleged mutual wills “regarded the arrangement as irrevocable, but … [the other] did not”; cf.
Taylor v Dickens [1998] 1 F.L.R. 806 (the reasoning of this case is doubted, but not on the
issue of contractual intention, in Gillett v Holt [2001] Ch. 210). See also Judge v Crown Leisure
Ltd [2005] EWCA Civ 571, [2005] I.R.L.R. 823 (above, para.2-147) at [23], distinguishing
between the two issues; and Bear Stearns Bank Plc v Forum Global Equity Ltd [2007] EWHC
1576 at [152], [170] and [171], where certainty and intention to create legal relations were
treated as separate requirements, both of which were satisfied. See also below at n.1052.
1068. Above, paras 2-125, 2-171. The terms of such agreements may be elaborated in considerable
detail, but contractual intention is generally negatived until the requirement of “exchange of
contracts” (above, para.2-125) is satisfied.
1069. Dhanani v Crasnianski [2011] EWHC 926 (Comm), [2011] 2 All E.R. (Comm) 799.
1070. At [75], [80], [81], [89].
1071. [2011] EWHC 926 (Comm) at [95]; see above para.2-143 for such agreements.
1072. [2011] EWHC 926 (Comm) at [105].
1073. [2011] EWHC 926 (Comm) at [94].
1074. [2011] EWHC 926 (Comm) at [104]; for similar reasoning, see Shaker v VistaJet Group Holding
SA [2012] EWHC 1329 (Comm), [2012] 2 Lloyd’s Rep. 93 at [7], where an “agreement to use
reasonable endeavours to agree” was held to be unenforceable because there were “no
objective criteria by which the court can decide whether a party has acted unreasonably” (i.e. in
relation to those endeavours); for such criteria, cf. above, paras 2-125, 2-135, 2-150.
1075. [2012] EWCA Civ 548.
1076. [2012] EWCA Civ 548 at [37].

Page 25
1077. [2012] EWCA Civ 548 at [44].
1078. [2012] EWCA Civ 548 at [52].
1079. This view is supported by passages in Judge v Crown Leisure Ltd, above n.1042 at [9] and [24].
For another borderline case, see Monovan Construction Ltd v Davenport [2006] EWHC 1094,
108 Con. L.R. 15 where an agreement to do building work for a “provisional guide price” of
£100,000 failed to specify the exact scope of the work and was said not to be legally
enforceable as it was not intended to have contractual effect (at [17]).
1080. Baird Textile Holdings Ltd v Marks & Spencer Plc [2001] EWCA Civ 274, [2002] 1 All E.R.
(Comm) 737 at [30]; and see above, paras 2-150, 2-172.
1081. As in the Baird case, n.1055 above.
1082. So that he cannot rely on the objective test: see above, para.2-170.
1083. (1896) 12 T.L.R. 501.
1084. Orion Ins. Co Plc v Sphere Drake Ins. Plc [1990] 1 Lloyd’s Rep. 465, 505; affirmed (by a
majority) [1990] 1 Lloyd’s Rep. 239; Mitsui & Co Ltd v Novorossiysk Shipping Co (The
Gudermes) [1993] 1 Lloyd’s Rep. 311; cf. County Ltd v Girozentrale Securities Ltd [1996] 3 All
E.R. 834, 837; Clarke v Nationwide Anglia Building Society (1998) 76 P. & C.R. D5.
1085. Glatzer & Warwick Shipping Co v Bradstone Ltd (The Ocean Enterprise) [1997] 1 Lloyd’s Rep.
449, 484; Hitch v Stone [2001] EWCA Civ 63; [2001] S.T.C. 214; contrast Ashby v Kilduff [2009]
EWHC 2034, [2010] 3 F.C.R. 80, where the argument that the agreement was a sham failed on
the facts. The question whether an agreement was a “sham” may also arise for the purpose of
determining, not whether a contract has come into existence, but the nature of the legal
relationship created by a contract, the existence of which is not in dispute: e.g. whether one
party to the contract is the other’s tenant or employee. For discussion of such possibilities, see
above, para.2-170.
1086. Sutton v Mishcon Reya [2003] EWHC 3166 (Ch), [2004] Fam. Law 247 at [26].
1087. Manatee Towing Co v Oceanbulk Maritime SA (The Bay Ridge) [1999] 2 All E.R. (Comm) 306,
329; Jackson v Thakrar [2007] EWHC 271 (TCC), [2007] B.P.I.R. 167.
1088. Burrows v Brent LBC [1996] 1 W.L.R. 1448, 1454; cf. Stirling v Leadenhall Residential 2 Ltd
[2001] EWCA Civ 1011, [2001] 3 All E.R. 645: agreement as to rate at which payments under a
court order for rent arrears were to be made held not to give rise to a new tenancy.
1089. Burrows case, above n.1063, at 1455; for discussion of this case, see Knowsley Housing Trust
v White [2008] UKHL 70, [2009] 1 A.C. 636, where Lord Neuberger at [79] described the status
of a “tolerated trespasser” as a “conceptually peculiar, even oxymoronic” one.
1091. See Zakhem International Construction Ltd v Nippon Kohan KK [1987] 2 Lloyd’s Rep. 596.
1092. Above, paras 2-168—2-171.
1093. [1976] 1 W.L.R. 1; Atiyah (1976) 39 M.L.R. 335.
1094. Lords Simon and Wilberforce. Lord Fraser, who dissented on the main issue, took the same
view.
1095. [1976] 1 W.L.R. 1, 6.
1096. [1976] 1 W.L.R. 1078; Adams (1977) 40 M.L.R. 227.

Page 26
1097. [1975] 1 Lloyd’s Rep. 162.
1098. [1976] 1 W.L.R. 1078; cited with apparent approval of the outcome in Daewoo Heavy Industries
Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] EWCA Civ 451, [2003] 1 All
E.R. (Comm) 801 at [19], [40].

Page 1

Section 10. - Liability When Negotiations Do Not Produce A Contract
General
2-200
Contracts of any complexity are likely to be negotiated through a series of communications with one
side responding to the other’s proposals. The starting point in English law is that, until the contract is
concluded, either party is free to decide not to contract and to withdraw from further negotiations
without incurring any liability. This position upholds freedom of contract (which includes freedom from
contract), and assumes that parties must take the risk that negotiations may fail to yield an
enforceable contract. However, such a position may, in some cases, come into tension with
considerations of good faith and fair dealing; for example, when the party refusing to proceed with the
negotiations or claiming that the agreement reached lacks contractual force has induced the other
party to believe that a contract will be concluded, and perhaps even to commence its performance.
Many European continental civil law systems recognise a duty to negotiate in good faith. 1099 The Draft
Common Frame of Reference 1100 states that: “A person who is engaged in negotiations has a duty to
negotiate in accordance with good faith and fair dealing and not to break off negotiations contrary to
good faith and fair dealing”. Likewise, the UNIDROIT Principles of International Commercial
Contracts, 1101 state that while “[a] party is free to negotiate and is not liable for failure to reach an
agreement”, he is “liable for the losses caused to the other party” if he “negotiates or breaks off
negotiations in bad faith”; and “[i]t is bad faith, in particular, for a party to enter into or continue
negotiations when intending not to reach an agreement with the other party.”
Piecemeal approach
2-201
In contrast, English law imposes no general duty to negotiate in good faith. 1102 However, this is not to
suggest that there is a bright line dividing liability when a contract has been concluded, and no liability
before that point. For that would overlook the diverse range of doctrines and principles that can be
deployed by the courts to deal with contraventions of good faith and fair dealing in the pre-contractual
period. As Bingham L.J. observed in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd 1103
:
“In many civil law systems, and perhaps in most legal systems outside the common law
world, the law of obligations recognises and enforces an overriding principle that in
making and carrying out contracts parties should act in good faith. This does not simply
mean that they should not deceive each other, a principle which any legal system must
recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms
as ‘playing fair’, ‘coming clean’ or ‘putting one’s cards face upwards on the table’. It is in
essence a principle of fair and open dealing … English law has, characteristically,
committed itself to no such overriding principle but has developed piecemeal solutions in
response to demonstrated problems of unfairness … At one level they are concerned
with a question of pure contractual analysis … At another level they are concerned with a
Page 2
somewhat different question, whether it would in all the circumstances be fair (or
reasonable) to hold a party bound.”
These “piecemeal solutions” are discussed in greater detail elsewhere in these two volumes and
references will be made to them. They are brought together in this section to show how and to what
extent the common law, in effect, implements a notion of good faith and fair dealing in the
pre-contractual period.
1099. Italian Codice Civile art.1337 and s.311(2) of the German Bürgerliches Gesetzbuch both
impose the obligation of good faith during contract negotiations. And see above, paras 1-042
and 1-043.
1100. Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of
Reference (2009), art.II-3:301(1); cf. O. Lando and H. Beale, Principles of European Contract
Law (Parts I and II) (2000) art.2:301.
1101. art.2.1.15 UPICC.
1103. [1989] Q.B. 433; [1988] 2 W.L.R. 615.

Page 1

(a) - Main Agreements “Perfected” by the Court
Objectivity and fault
2-202
Contracts are premised on the agreement of the parties. But, while the common law adopts the
objective test to agreement (the appearance of agreement is sufficient), 1104 continental European civil
law systems purport to adopt a subjective approach. Accordingly, there may be no contract if one
party no longer intended to enter it, 1105 or the contract may be avoided, if the expression of
agreement is tainted by mistake so that the mistaken party did not intend to enter that particular
contract, despite appearances. 1106 However, in some civilian systems the notion of fault in the
contracting process seems to have developed as a counter-weight to the requirement of subjective
assent. 1107 Thus, for example, according to §122 BGB, the mistaken party must compensate the
other party for their reliance loss unless they knew or ought to have known of the mistake. 1108 The
notion of culpa in contrahendo (fault in the conclusion of a contract) formally entered the BGB as a
general principle in 2001 (§311) and deals with a number of circumstances that do not arise in
English law because the objective approach means that there will simply be contractual liability.
English law has also developed many other techniques to “perfect” an otherwise imperfect
agreement.
Incomplete or vague agreements
2-203
Where the parties have reached agreement one party may allege that, for various reasons, the
agreement lacks contractual force because the agreement is incomplete, 1109 is subject to formal
execution of a contract, 1110 is too vague, 1111 or lacks contractual intent. 1112 The common law has
many ways of countering a party’s unmeritorious attempt to withdraw from concluding a contract or to
refute the existence of an enforceable contract, especially where the other party has engaged in
significant acts of reliance on the existence of an enforceable contract. In addition, statute has now
imposed duties of information on traders making distance contracts, off-premises contracts and some
other (“on-premises”) contracts with consumers. 1113
Overcoming incomplete agreement
2-204
Incomplete agreements may be cured by a statutory or common law implied term based on the
standard of reasonableness, 1114 so long as the agreement did not anticipate further agreement on the
matter. 1115 However, even where the agreement anticipates further terms “to be agreed”, the court
may still give legal effect to it if there is evidence that the parties intended to be bound, for example,
because both parties have acted on the basis that the agreement was binding. 1116 The matter left to
Page 2
be resolved may be regarded as subsidiary and so not to negative contractual intention, or may be
resolved by reference to any criteria or machinery set out in the agreement, 1117 unless the criteria is
too uncertain or the machinery fails and cannot be cured because it is other than “subsidiary and
inessential”. 1118
Duty to negotiate outstanding details
2-205
Although the common law recognises no duty to negotiate in good faith 1119 in order to conclude a
contract, where a contract has been concluded 1120 because the parties have agreed on all essential
points, the court may, in respect of other points left open, enforce any express term to negotiate in
good faith, imply a term that they are to do so, or imply a term based on the standard of
reasonableness. 1121 That is, the court may proceed on the basis that the parties intended to be bound
at once in spite of the fact that further significant terms were to be agreed later and that even their
failure to reach such agreement would not invalidate the contract, unless without such agreement, it
was unworkable or too uncertain to be enforced.
Overcoming vague agreement
2-206
Aside from the ordinary process of construction, 1122 apparent vagueness in the terms agreed may be
resolved by custom or trade usage, 1123 by the standard of reasonableness if the words used imported
an objective standard of assessment, 1124 by requiring one party to resolve the vagueness, 1125 by
severing or ignoring meaningless or self-contradictory phrases, 1126 or by reference to extrinsic
evidence. 1127
Restraint on exercise of discretion
2-207
An agreement that confers a wide discretion on one or both parties may be too uncertain to enforce.
However, where the agreement is clearly intended to have contractual effect, there is judicial support
for the view that a discretion conferred by it on one party cannot “however widely worded … be
exercised for purposes contrary to those of the instrument by which it is conferred”. 1128 The court may
also be able to control the exercise of contractual discretions by holding that the party exercising the
discretion must act “rationally and in good faith” 1129 and not “arbitrarily, or capriciously, or
unreasonably. Much less, can he act in bad faith”. 1130 Thus, the agreement is rendered sufficiently
certain to enforce.
Agreement subject to execution of formal document
2-208
An agreement that is made subject to the execution of a formal document may nevertheless be
accorded legal force. The court may find, in the circumstances: 1131 that such a document is intended
only as a solemn record of an already complete and binding agreement; or that while the main
agreement lacks contractual force, nevertheless, a separate preliminary or interim contract had come
into existence at an earlier stage, e.g. when one party begins to render services requested by the
other, so that under this contract the former party will be entitled to a reasonable remuneration for
those services 1132; or that while the agreement originally lacked contractual force, it has acquired
such force by reason of supervening events, e.g. where subsequent events have occurred whereby
the non-executing party is estopped by relying on his non-execution; or that the non-executing party
has waived the requirement of formal execution; or that the words “subject to contract” are
meaningless and can be severed 1133; or that there was a binding provisional agreement until it is
Page 3
superseded by the formal agreement. 1134 Where the parties have begun to act on an agreement
before it has contractual force and the agreement subsequently acquires such force, the resulting
contract may be regarded as expressly or impliedly having retrospective effect so as to apply to work
done or goods supplied before it was actually made. 1135
Other conditional agreements
2-209
Where an agreement is subject to a contingent condition precedent, there is, before the occurrence of
the condition, no duty on either party to render the principal performance promised by him.
Nevertheless, such an agreement may, on its true construction, impose some degree of obligation on
the parties or on one of them. 1136 The agreement may: restrict the right of one (or both) of the parties
from withdrawing before the occurrence of the condition, so long as it can still occur 1137; impose a
duty on both parties not to do anything to prevent the occurrence of the condition 1138; or impose a
duty on one of the parties to use reasonable efforts to bring the condition about. 1139 Where the
operation of the contract depends on the “satisfaction” of one of the parties with the subject-matter or
other aspects relating to the other’s performance, the court may construe the term as “subject to bona
fides”. 1140 Where a condition is inserted entirely for the benefit of one party, the court may find that
that party has waived the condition, so that the contract is binding as if the condition had been
satisfied. 1141
Letters of intent
2-210
Where commercial parties to a transaction issue or exchange “letters of intent” on which they act
pending the preparation of formal contracts, or issue a “letter of comfort”, such letters may, as a
matter of construction, be held to bind the parties. The courts will, in particular, be inclined to do so
where the parties have acted on the document for a long period of time or have expended
considerable sums of money in reliance on it. The fact that the parties envisage that the letter is to be
superseded by a later, more formal, contractual document does not, of itself, prevent the letter from
taking effect as a contract. 1142
Contractual intention
2-211
A party may seek to escape an otherwise valid contract by alleging that an agreement was made
without any intention of creating legal relations. In the case of ordinary commercial transactions, such
an intention is presumed; a heavy onus is placed on the party who asserts that no legal effect is
intended. The courts will be influenced by the importance of the agreement to the parties, and by the
fact that one or both parties have acted in reliance on it. 1143 Whether any words apparently negativing
contractual intention has that effect is a question of construction. 1144 In contrast, most agreements
made in the social or familial context are presumed to be attended by no intention to be legally bound.
1145
However, this presumption may be rebutted on the facts of the individual case. 1146 Where a
couple make an agreement with regard to a house in which they live together in a quasi-marital
relationship without being married or having entered into a civil partnership, the agreement may be
enforced by way of contract, constructive trust, proprietary estoppel or contractual license. 1147
1105. Thus in Cass. Civ. 17 December 1958, nD.1959.1.33, the French Cour de cassation seems to
assume that an offer to sell a house could no longer be accepted after the house had been sold
Page 4
to a third person, even though the offeror had not informed the offeree of the sale.
1106. §119 BGB art.1109 Code Civile.
1107. Thus it suggested that the offeror in the French case cited in n.1080 might be liable under
art.1382 C.C. (delictual liability) for his failure to inform the offeree that the house was no longer
available: see H. Beale, B. Fauvarque-Cosson, J. Rutgers, D. Tallon and S. Vogenauer, Ius
Commune Casebooks for the Common Law of Europe: Cases, Materials and Text on Contract
Law (2010), 269.
1108. This article of the BGB is not based directly on the notion of cupla in contrahendo, since it is not
based on fault on the part of the mistaken party, but it seems to reflect a similar idea.
1109. See above, paras 2-119, 2-133.
1113. See below, paras 38-055—38-144.
1114. See above, paras 2-120—2-121.
1116. See above, paras 2-135—2-136.
1117. See above, paras 2-137—2-139.
1118. Re Malpas [1985] Ch. 42, 50; cf. Tito v Waddell (No.2) [1877] Ch. 106, 314; Didymi Corp v
Atlantic Lines & Navigation Co Ltd [1988] 2 Lloyd’s Rep. 108, 115.
1120. Petromec Inc v Petroleo Brasileiro SA Petrobas [2005] EWCA Civ 891, [2006] 1 Lloyd’s Rep.
121 at [115]–[125], distinguishing Walford v Miles, above para.2-143, on the ground that, in the
latter case, there was “no concluded agreement since everything was subject to contract” and
that there was “no express agreement to negotiate in good faith” (at [120]). In the Petromec
case, the point was “not essential to the disposition of the appeal” (at [115]). For further
proceedings in the Petromec case, see above, para.2-123 n.611. cf. Compass Group UK and
Ireland Ltd v Mid Essex Hospital Services NHS Trust [2013] EWCA Civ 200, [2013] B.L.R. 265
where clause 3.5 of the contract (set out at [14]) required the parties to “co-operate with each
other in good faith”. On the true construction of that clause there had been no breach of it (at
[120], [143]; cf. at [153]).
1121. See above, paras 2-122, 2-146.
1122. See below, Ch.13, sections 3–4, paras 13-041—13-136.
1126. See above, paras 2-152, 2-154.

Page 5
1128. Equitable Life Assurance Society v Hyman [2002] 1 A.C. 408 at 460, per Lord Cooke, giving
this as an alternative ground for the decision while also accepting the “implied term” reasoning
of the majority.
1129. Horkulak v Cantor Fitzgerald Ltd [2004] EWCA Civ 1287, [2005] I.C.R. 402 at [48] (discretionary
bonus on dismissal); cf. at [46]; contrast Keen v Commerzbank AG [2006] EWCA Civ 1536,
[2007] I.C.R. 623, where an employer’s “very wide discretion” in relation to a bonus had not
“been exercised irrationally” (at [59], [60]). And see above, paras 1-054 and 2-185 to 2-186.
1130. Selkirk v Romar Investments Ltd [1963] 1 W.L.R. 1415, 1422. And see above, para.2-163.
UKSC 14, [2010] 1 W.L.R. 753 at [61]; cf. at [84].
1146. See above, paras 2-178—2-184.
1147. See above, para.2-180 and below, paras 2-219 and 2-220.

Page 1

(b) - Negotiations Broken Off But Preliminary Agreement Exists
No main contract but ancillary contract
2-212
We have seen that even if the parties do not successfully conclude a contract on the main subject
matter of their negotiations (because their agreement is subject to formal execution or other
condition), they may have made a preliminary or collateral contract that the court will enforce, or the
courts may impose such an ancillary contract. 1148 Likewise, even where the parties have not reached
agreement on the main subject matter of negotiations, the courts may enforce the parties’ express
agreed preliminary or collateral contract, or the courts may impose one, to uphold the integrity of the
negotiation process.
No duty to negotiate in good faith
2-213
In Walford v Miles 1149 the House of Lords refused to imply a duty to negotiate in good faith (a “lock-in”
agreement) because, as Lord Ackner stated, “the concept of a duty to carry on negotiations in good
faith is inherently repugnant to the adversarial position of the parties when involved in negotiations …
[and] … unworkable in practice.” 1150 Hence, an express term requiring negotiations in good faith is
also unenforceable. However, the defendant’s promise to terminate negotiations with any third party
amounted to a misrepresentation for which an award of £700 for wasted expenditure was given and
this was not challenged on appeal.
Lock-out agreements
2-214
The parties’ freedom of action in the negotiation period may be restricted by a preliminary or collateral
contract. One instance of this is a “lock out” agreement 1151 whereby one party undertakes to the other
not to negotiate a contract with a third party in respect of a particular subject matter. The “lock out”
agreement must be sufficiently certain as to duration. This was not the case in Walford v Miles 1152
because the agreement failed to specify the time for which the vendor’s freedom to negotiate with
third parties was to be restricted. In contrast, a promise not to negotiate with third parties for two
weeks was sufficiently certain to enforce in Pitt v PHH Asset Management Ltd. 1153
Collateral contract
2-215
Page 2
The courts have been prepared to find other collateral contracts to preserve the integrity of the
negotiation process. For example, a refusal to accept the highest bid in an auction will generally
attract no liability. 1154 But where the auction is “without reserve”, it has been held that the auctioneer
is liable on a collateral contract between him and the highest bidder that the sale will be without
reserve. 1155 Likewise, an invitation to tender does not bind the party inviting the tender to accept the
highest (or lowest, as the case may be) tender. But if the latter does so bind himself, the invitation for
tenders may be regarded either as itself an offer or as an invitation to submit offers coupled with an
undertaking to accept the highest (or, as the case may be, the lowest) offer; and the contract is
concluded as soon as the highest offer to buy (or lowest offer to sell, etc.) is communicated. 1156 Along
the same lines, in Blackpool and Fylde Aero Club Ltd v Blackpool BC, 1157 where an invitation to
tender was sent by a local authority to seven selected parties stating that tenders submitted after a
specified deadline would not be considered, it was held that the authority was contractually bound to
consider (though not to accept) a tender submitted before the deadline. Where, before the main
contract has been concluded, one party has embarked on preliminary work or performance of the
main agreement, the court may find a collateral contract to the effect that such work would be paid
for. 1158
1148. See above paras 2-208—2-209.
1149. [1992] 2 A.C. 128, 138; Knatchbull-Hugessen v SISU Capital Ltd [2014] EWHC 1194 at [10].
See above para.2-143.
1150. [1992] 2 A.C. 128, 138. The agreement was also held to be unenforceable on the grounds of
uncertainty, see above, paras 2-143—2-145.
1152. [1992] 2 A.C. 128. See further para.2-143.
1153. Pitt v PHH Asset Management Ltd [1994] 1 W.L.R. 327; cf. Tye v House [1997] 2 E.G.L.R. 171.
1154. Because the putting up of property for auction is generally only an invitation to treat, the offer
coming from the bidder which the auctioneer is free to accept or reject, see above para.2-019.
1157. [1990] 1 W.L.R. 25. No decision was reached on the quantum of damages.
1158. See above, paras 2-208, 2-210, 2-212.

Page 1

(c) - Negotiations Broken Off Without Preliminary Agreements
Fraud, negligent misrepresentation and non-disclosure
2-216
The award for misrepresentation in Walford v Miles 1159 shows that English law recognises a duty of
good faith in contract negotiation at least to the extent that parties are made liable for damages for
deceit 1160 and negligent misrepresentation. 1161 Even if no contract is ultimately concluded, a party
may be liable for misleading the other party by giving careless advice as to the probable outcome of
the negotiations. For example, in Box v Midland Bank Ltd 1162 the plaintiff sought a large loan from his
bankers; the bank manager told the plaintiff that the approval of head office would be required, but led
the plaintiff to believe that this was a mere formality. When head office refused the plaintiff’s loan
application, Lloyd J. awarded £5,000 as loss suffered, in the form of an extended overdraft, in reliance
on the negligent statement. The question is whether the law recognises a more onerous duty of good
faith in the form of a duty to have regard to the legitimate interests of the other party by making
disclosure of facts that are material to the transaction. The answer is no, unless: the contract is
uberrimae fidei, 1163 the parties are in a fiduciary relationship 1164 or a relationship of trust and
confidence, 1165 the failure to disclose some fact distorts a positive representation, 1166 or statute
requires specific disclosure. 1167 The general picture is summarised by Rix L.J. in ING Bank NV v Ros
Roca SA 1168:
“Outside the insurance context, there is no obligation in general to bring difficulties and
defects to the attention of a contract partner or prospective contract partner. Caveat
emptor reflects a basic facet of English commercial law (the growth of consumer law has
been moving in a different direction). Nor is there any general notion, as there is in the
civil law, of a duty of good faith in commercial affairs, however much individual concepts
of English common law, such as that of the reasonable man, and of waiver and estoppel
itself, may be said to reflect such a notion. In such circumstances, silence is golden, for
where there is no obligation to speak, silence gives no hostages to fortune.”
Manufacturer’s statements that induce purchase of goods
2-217
A person who purchases goods in reliance on statements in a manufacturer’s promotional literature is
not, for that reason alone, entitled to claim for any loss occasioned by the manufacturer’s
misrepresentation. 1169 But if the manufacturer knows both the purchaser’s identity and his purposes,
the purchaser may have an action in deceit or negligent misrepresentation, 1170 or the information
given by the manufacturer may constitute a contractual warranty. 1171 Where goods are sold or
supplied to a consumer with a “consumer guarantee”, the consumer guarantee “takes effect … as a
Page 2
contractual obligation owed by the guarantor under the conditions set out in the guarantee statement
and associated advertising”. 1172
Quantum meruit
2-218
Where work has been done in anticipation of a contract that does not eventuate, the remedy of
quantum meruit (the reasonable value of the services provided) may be awarded, provided that the
services were requested or acquiesced in by the recipient and provided that the claimant did not take
the risk of being reimbursed only if a contract was concluded. The court may also impose an
obligation on the recipient of a benefit if he has behaved unconscionably in declining to pay for it. 1173
In Cobbe v Yeomans Row Management Ltd 1174 Mummery L.J. said that “Under English law there is
no general duty to negotiate in good faith”; but he added that there were “plenty of other ways of
dealing with particular problems of unacceptable conduct occurring in the course of negotiations
without unduly hampering the ability of the parties to negotiate their own bargains without the
intervention of the courts.” 1175 In the Cobbe case itself, quantum meruit was awarded to the party
prejudiced by the other party’s “unattractive” 1176 conduct in withdrawing from the agreement, which
required further negotiations to acquire contractual force.
Constructive trust
2-219
An oral agreement for the sale of land is enforceable in equity under a constructive trust despite not
being in writing where both parties had considered it to be immediately binding upon them, and where
the prospective buyer had then acted to his detriment in reliance upon it. 1177 Where an agreement
for the joint acquisition of property lacks contractual force for want of execution of a formal document
and one of the parties then acquires the property in his own name, he may be liable to hold a share of
that property for the other party by virtue of a constructive trust. 1178
Proprietary estoppel
2-220
Courts may deploy the doctrine of proprietary estoppel 1179 to circumvent the absence of the execution
of a formal document where a plaintiff has done acts in reliance on the defendant’s promise that he
(the claimant) has, or that he will acquire, rights in or over the defendant’s land. There must be:
“clarity as to what it is that the object of the estoppel [i.e. the defendant] is to be estopped
from denying, or asserting, and clarity as to the interest in the property in question that
that denial, or assertion, would otherwise defeat.” 1180
Neither of these requirements were satisfied in Cobbe v Yeoman’s Row Management Ltd 1181 since
the “agreement in principle”, was, as the plaintiff knew, incomplete and binding in honour only, so that
he could not allege that the defendant was bound by it; and since the plaintiff was not asserting any
expectation that he would acquire a proprietary right. 1182 Likewise, in another case, 1183 although it
was accepted that proprietary estoppel should also apply to intellectual property rights, it did not arise
on the facts since the claimant knew that the parties were not in agreement and the defendant made
no representation that the contract would be concluded. In contrast, the claim for proprietary estoppel
was upheld in Thorner v Major 1184 where the plaintiff had worked for 29 years without pay in reliance
on his uncle’s assurance that he would inherit the land.
Page 3
Overcoming failure to comply with formal requirements regarding land
2-221
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 Act declares to be void any
agreement for the acquisition of an interest in land that does not comply with the requisite formalities
prescribed by the section. 1185 Subsection (5) expressly makes an exception for resulting, implied or
constructive trusts. 1186 Despite the absence of any express saving provision in s.2 in respect of the
doctrine of estoppel, there is support for allowing the doctrine to modify or counteract the effect of s.2.
1187
The doctrine of promissory estoppel, owing to its defensive nature, cannot create a new cause of
action in substitution for the contractual action denied for want of formality. 1188 However, the Law
Commission, in its work towards the 1989 Act, saw proprietary estoppel as a particularly attractive
technique for the avoidance of injustice caused by a rigid adherence to the new formality rules. 1189
Nevertheless, the judicial view on the appropriateness of recourse to proprietary estoppel where an
agreement between the parties is void for failure of the formal requirements of s.2 has been mixed.
1190
In particular, Lord Scott has expressed the view in Cobbe v Yeoman’s Row Management Ltd that
“proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that statute
has declared to be void”, 1191 although this may be confined to the commercial context where,
moreover, “the parties intend to make a formal agreement setting out the terms on which one or more
of the parties is to acquire an interest in property” or where “further terms for that acquisition remain to
be agreed between them so that the interest in property is not clearly identified” or where “the parties
did not expect their agreement to be immediately binding”. 1192
Promissory estoppel in other jurisdictions
2-222
Where one party has made a promise or representation to the other party that he will not enforce his
strict legal rights against the other, and this has induced reliance by the latter party, the former party
will not be able to resile from his promise or representation if to do so would be inequitable. 1193 The
English doctrine of promissory or equitable estoppel can only prevent the promisor from fully
enforcing his previous rights against the promisee; it cannot confer new or additional rights on the
promisee. Thus, the doctrine is said to act defensively, and not offensively; it is a “shield, but not as a
sword”. However, other common law jurisdictions have allowed the doctrine of promissory estoppel to
create new rights 1194 and so may operate where negotiations for a contract break down. In the United
States, a promise that can be reasonably expected to induce, and does induce, reliance “is binding if
injustice can be avoided only by enforcement of the promise” although enforcement of the promise is
not automatic, for the remedy “may be limited as justice requires”. 1195 Likewise, a line of Australian
cases supports the view that promises or representations that lack contractual force (for want of
consideration or of contractual intention), may nevertheless be enforced via promissory estoppel. In
Waltons Stores (Interstate) Ltd v Maher, 1196 a prospective lessor of business premises (A), did
demolition and building work on the premises at the request of the prospective lessee (B) while the
agreement for the lease was still subject to contract. A did so on the assumption, encouraged by B,
that a binding contract would be concluded. When B withdrew from the agreement, B was estopped
from denying that a contract had come into existence. On these facts, proprietary estoppel would not
have availed A because the work was done on A’s (rather than on B’s) land and a quantum meruit
claim would not have been available because B was not unjustly enriched by A’s work.
1159. [1992] 2 A.C. 128, and see above, para.2-213.
1160. See below, paras 7-047—7-073.
1161. See below paras 7-074, 7-086—7-091. And see para.7-093 on the special relationship required
to give rise to a duty of care between parties negotiating a contract.
Page 4
1162. [1979] 2 Lloyd’s Rep. 391, on appeal (as to costs only) [1981] 1 Lloyd’s Rep. 434. And see
below, para.7-095.
1163. See below, paras 7-155—7-180.
1164. See below, paras 7-087—7-088.
1165. See below, paras 8-075—8-089.
1166. See below, paras 7-020—7-021.
1167. See e.g. para.7-169.
1168. [2011] EWCA Civ 353, [2011] All E.R. (D) 39 (Apr) at [92].
1169. Lambert v Lewis [1982] A.C. 225; this issue was not discussed on appeal to the House of
Lords. And see below, para.7-094.
1170. See above, para.2-216, below, para.7-094, and further, paras 7-085—7-086.
1171. Shanklin Pier v Detel Products Ltd [1951] 2 K.B. 854; Wells (Merstham) Ltd v Buckland Sand
and Silica Co Ltd [1965] 2 Q.B. 170.
1172. Sale and Supply of Goods to Consumers Regulations 2002 (SI 2002/3045) reg.15(1). This is
replaced by s.30 of the Consumer Rights Act 2015. This section applies where there is “(a) a
contract to supply goods” and “(b) a guarantee in relation to the goods” (s.30(1); “guarantee” is
defined in s.30(2)). Section 30(3) goes on to provide that such a guarantee “takes effect … as a
contractual obligation owed by the guarantor”. And see above, paras 2-017, 2-176.
1174. [2006] EWCA Civ 1139, [2006] 1 W.L.R. 2964; see below, para.4-167.
1175. [2006] EWCA Civ 1139 at [4].
1176. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [93].
1177.
Matchmove Ltd v Dowding [2016] EWCA Civ 1233; see below, paras 4-142 and 5-040.
1179. See below, paras 4-139—4-180.
1180. Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [28].
1183. Motivate Publishing FZ LLC v Hello Ltd [2015] EWHC 1554 (Ch) at [61]–[64], [66], [72]–[73].
1184. [2009] UKHL 18, [2009] 1 W.L.R. 776.
1185. See below, paras 5-013—5-039.
1187. McCausland v Duncan Lawrie Ltd [1997] 1 W.L.R. 38 at 45, 50; Yaxley v Gotts [2000] Ch. 162,
at 174. And, see below, para.5-041.
Page 5
1188. cf. below, paras 2-222, 4-086 et seq., especially para.4-099, and para.5-042. Neither can
estoppel by convention circumvent the requirements of s.2 of the 1989 Act, see below,
para.5-043.
1189. Law Com. No.164 (1987), para.5.5.
1190. See below, paras 5-044—5-048.
1191. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [29].
1192. Herbert v Doyle [2010] EWCA Civ 1095, [2010] N.P.C. 100 at [57].
1193. See below, paras 4-086—4-106.
1195. Restatement, Contracts §90 and Restatement 2d, Contracts §90.
1196. (1988) 164 C.L.R. 387. See below, para.4-107.

Page 1

Chapter 3 - Mistakes as to the Terms or as to Identity 1
Section 1. - Introduction to Mistake
Types of mistake
3-001
The doctrine of mistake in the law of contract deals with two rather different situations. In the first,
there is some mistake or misunderstanding in the communications between the parties which
prevents there being an effective agreement (for instance, if the parties misunderstand each other) or
at least means that there is no agreement on the terms apparently stated (for instance, if one party in
an offer states terms which the other party knows the first party does not intend, but nonetheless the
other purports to accept). This first category of mistake, which can generally be referred to as
“mistake as to the terms or identity”, includes “mutual misunderstanding”, where each is mistaken as
to the terms intended by the other, 2 and “unilateral mistake”, where only one of the parties is
mistaken, over the terms of the contract 3 or the identity of the other party. 4 In the second situation,
the parties are agreed on the terms of the contract but have entered it under a shared and
fundamental misapprehension as to the facts or the law. 5 Cases in this category are now usually
referred to as “common” mistake, 6 for normally the mistake is legally relevant only if both parties
have contracted under the same misapprehension.
Mistakes as to terms and mistakes as to facts
3-002
In other words, the distinction between the two situations drawn in the previous paragraphs is one
between mistakes as to the terms and mistakes as to the facts. It is common to categorise the
situations in which the doctrine of mistake affects a contract 7 into cases of “common mistake”,
“unilateral mistake” or “mutual misunderstanding”. 8 This is useful, but it highlights only one of the
distinctions between the cases. For the purposes of the law, there is a second and vital distinction
between common mistake on the one hand and on the other: namely, that unilateral mistakes or
mutual misunderstandings are relevant only if the mistake is over the terms (or the identity of one
party), while the doctrine of common mistake 9 concerns mistakes about the facts. Indeed, the law
takes account of a mistake as to the factual circumstances 10 in which the contract is made only if the
mistake was common, i.e. both parties made substantially the same mistake—for example, when an
agreement was made to rent a room overlooking the route of a coronation procession, that both
parties believed that the procession was scheduled to take place on the date concerned when in fact
it had been cancelled. 11 Common mistake cases are ones in which:
“… both parties make the same mistake of fact or law relating to the subject matter or the
facts surrounding the formation of the contract.” 12
(As will be seen, the mistake must also be fundamental. 13) In contrast, where only one of the parties
Page 2
is mistaken as to the facts—a “unilateral” mistake as to the facts—there is no basis for relief under the
doctrine of mistake. 14 A unilateral mistake or a mutual misunderstanding will only operate where the
mistake or misunderstanding is about the terms of the contract—for example, the price or the
contractual description of what is being sold. This category includes cases of mistaken identity, when
one party thinks he is dealing with someone different to the person with whom he actually is dealing.
Although mistaken identity cases do not involve a mistake over the terms of the contract, we shall see
that they seem to depend on a parallel distinction between the terms of the offer or acceptance 15 and
the surrounding facts. If the mistaken party’s offer was, by its express or implied terms, not made to
anyone other than the person with whom the mistaken party thought he was dealing, no other person
can accept it and no contract will result from a purported acceptance by anyone else. If however the
offer or acceptance was not so confined, it will result in a contract with the other person, whoever he
is, and the first party’s mistake is treated as merely being to the surrounding facts. 16
Treatment of the two kinds of mistake
3-003
As the principles applicable to mistakes as to the terms or the identity of the other party seem largely
to mirror the rules on agreement dealt with in Ch.2, they are dealt with in the current chapter. The
mistakes as to the facts and the doctrine of “common mistake”, involves different principles and is
dealt with in Ch.6. This is a departure from previous editions of this work, in which the two situations
were dealt with in a single chapter. It is hoped that the new treatment will make the underlying
principles clearer.
Non est factum
3-004
There is a third type of mistake which may be seen as a variant of unilateral mistake, but which for
convenience will be placed in a separate section within this chapter. It is peculiar to the law of written
contracts, and it allows a party who has executed a document under a fundamental misapprehension
as to its nature to plead that it is “not his deed”. This is the defence of non est factum. 17
Rectification of written documents
3-005
This chapter also deals separately with the remedy of rectification, which may be available when the
parties have signed a written document that does not state accurately the terms that were agreed
between them. 18
Money paid under mistake of fact
3-006
Mistake may also entitle a party who has paid money under the mistake to recover it back on the
basis of restitution (or unjust enrichment). The subject of the recovery of money paid under a mistake
is principally dealt with in Ch.29 of this work. 19
“Mistake” implies a positive belief
3-007
Further, it seems that relief will only be granted under the doctrine of mistake if one or both parties
Page 3
entered the contract under a positive belief which was incorrect, rather than merely not having
thought about a particular issue. 20 Thus in all the cases in which a contract has been held to be
void 21 for common mistake, it seems that the parties had a positive belief that X was the case when it
was not, rather than merely making no assumptions about whether X was so or not. Similarly, in the
cases of unilateral mistake over the terms, one party has positively thought the terms he has offered,
or has been offered, are Y when Y is not what in fact was said or written. It is very doubtful whether
relief can be given on the ground of mistake when the party was simply unaware that the terms on
offer included a particular clause, as opposed to positively believing that they were Y when they were
not. 22 However, it seems that the positive belief may be that something is not the case, e.g. that the
terms on offer do not include a particular clause or that the other party is not Z. 23
Mistakes that are not legally relevant
3-008
It can be seen there are many situations that may loosely be called cases of “mistake” in which the
contract will nonetheless be binding. One example is the case considered earlier, in which one party
enters the contract under a mistake as to the facts which the other party does not share. 24 Suppose I
buy a ring mistakenly thinking it is a gold ring. Nothing is said by the vendor as to what the ring is
made of 25; but he knows that it is not gold. Even if he knows that I think the ring to be made of gold, I
cannot avoid the contract on the ground of mistake, though I would never have entered into it had I
known the true position. The mistake does not relate to the terms of the contract, which are simply to
sell and buy the specific ring, so neither mutual not unilateral mistake is relevant. Nor does the
doctrine of common mistake apply: though the mistake may be fundamental, it is not shared. 26 A
second example of a mistake that is not legally relevant is where the mistake is shared by both
parties 27 but it is not sufficiently fundamental to render the contract void. 28
Effects of mistake
3-009
The first type of mistake (termed above “mistake as to the terms or as to identity”) is sometimes said
to operate so as to negative consent, the second (termed above “common mistake”) so as to nullify
consent. 29 In other words, in the first case, the parties may not have in fact reached an agreement; in
the second, the mistake renders the agreement ineffective as a contract. In either case, if the mistake
is operative the contract is said to be void ab initio. This is correct in cases of common mistake;
although until very recently there was authority for the proposition that some common mistakes that
would not make the contract void would nonetheless give either party the right to avoid it, the Court of
Appeal has now disapproved this line of cases. 30 The proposition that in cases of unilateral mistake
and of mutual misunderstanding the contract is also void ab initio must be treated with more
reservation. It is certainly correct in cases of mutual misunderstanding 31 and in some cases of
unilateral mistake. Thus a unilateral mistake as to the identity of the other party may prevent the
formation of a contract, so that if the subject matter of the contract consists of goods, no property in
the goods will pass under the contract, and they may be recovered by the true owner even from a
bona fide purchaser for value. 32 In other cases of unilateral mistake, however, it seems more
accurate to say that there is no contract on the terms apparently agreed. 33 If one party made a
mistake in his offer and the other knew what the offer was meant to be but purported to “snap up” the
apparent offer, the result may be that there is a contract on the terms the first party intended. 34 If
necessary the terms of any contractual document may then be “rectified” to correspond to this
contract. 35
Common law and equity
3-010
Until recently it could be argued that what has been said above about the circumstances in which the
Page 4
law takes account of a mistake by one party, or both parties, to a contract represented the position at
common law; and that the rules of equity “cut across this distinction”. 36 This referred to the line of
cases to the effect that in some circumstances a common mistake would give either party the right to
avoid a contract that was not void for mistake at common law, 37 based on a rule of equity. Now that
these cases have been disapproved, 38 and if the interpretation of certain cases of unilateral mistake
that will be offered in this chapter 39 is accepted, it seems that there is no inconsistency between
common law and equity. Equity will on occasion supplement the remedies available at common law:
for example, a mistake may entitle a party to a contract that has been reduced to writing to have the
document rectified if it is not expressed in accordance with the parties’ true intentions, or does not
reflect the terms that the claimant intended and the other party knew him to intend. 40
3-011
The only apparent “divergence” between the treatment of mistake cases in common law and in equity
is that the hardship that would be caused by granting specific performance of a contract made under
either type of mistake may lead to the court refusing specific performance as a matter of discretion
even though the mistake does not render the contract void or have any other effect at common law. 41
As this is merely the denial of a particular remedy, and the contract remains binding in other respects
(e.g. the claimant would still be entitled to damages if the contract were not performed 42) this is not a
contradiction of the common law rules. 43 Thus in cases of contractual mistake, common law and
equity are consistent and equity plays only a minor role. Thus in this edition of this work there is no
separate treatment of “Mistake in Equity”. 44
Is there a separate doctrine of mistake?
3-012
Any “doctrine” of mistake in English contract law seems to have emerged only in the late nineteenth
or even the twentieth century, 45 and from time to time commentators have argued that the doctrine is
redundant or that the cases are better explained on some other basis. 46 Thus it has been said that
cases of common mistake may be explained as resting on the construction of the contract, and in
particular on an implied condition precedent 47; while cases of unilateral and mutual mistake may be
no more than an application of the rules of offer and acceptance. 48 From a conceptual point of view
there is force in these arguments, and it is certainly hard to discern a single “doctrine” of mistake
when the two categories of case described above are subject to quite different rules. However in this
work it is assumed that there are distinct rules on mistake dealing with each category. This is partly
because, in each situation, the courts have recognised distinct rules of mistake 49 and partly because
the various kinds of mistake are what may be called “functional categories”. In factual terms, a party
may claim that he, or both he and the other party, made the contract under a misapprehension of
some kind, whether it be as to some fact bearing on the contract, as to the terms he has included in
his offer or as to the other party’s intentions or identity, when the mistake was self induced. 50 We
need to know what self-induced “mistakes” or (to use a word that does not have legal connotations)
“misapprehensions” the law will take account of and what the parties’ rights will be. Whether the rules
that are applied are simply applications of more general rules, such as the doctrine of implied
conditions or the rules of offer and acceptance, is from a functional viewpoint irrelevant; they are the
rules that govern these types of mistake. On the other hand, when the relevant doctrine of mistake
seems to be no more than an application of the principles used to decide whether the parties have
reached an agreement, and if so on what terms, it seems helpful to maintain a close link between the
two. This is why mistakes as to the terms and the identity of the other party are treated separately in
this chapter. Mistakes as to the facts are covered in Ch.6.
1. See generally Cheshire (1944) 60 L.Q.R. 175; Tylor (1948) 11 M.L.R. 257; Slade (1954) 70
L.Q.R. 385; Stoljar (1965) 28 M.L.R. 265; Stoljar, Mistake and Misrepresentation: A Study in
Contractual Principles (1968); Smith (1994) 110 L.Q.R. 400; Friedmann (2003) 19 L.Q.R. 68;
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016); Macmillan,
Mistakes in Contract Law (2010).
Page 5
3. Below, paras 3-002 and 3-022 et seq.
4. Below, paras 3-036 et seq. The composite phrase “mistake as to terms or identity” is used as
the “mistake of identity” cases do not involve a mistake over the terms of the contract; but as
will be seen, theses cases depend on the terms of the offer or acceptance, so they are usefully
considered in this chapter also.
5. On mistakes as to the law, see below, para.6-052.
6.
The 29th and earlier editions of this work used the phrase “mutual mistake”, following the
terminology used by Lord Atkin in Bell v Lever Bros [1932] A.C. 161, and until recently some
other works adhered to this usage: e.g. Beatson, Anson’s Law of Contract, 28th edn (2002),
Ch.8. It is now more common to refer to this type of mistake as “common mistake” (e.g.
Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2015), Ch.8; Cheshire,
Fifoot and Furmston, Law of Contract, 16th edn (2012), Ch.8). The courts have also referred to
common mistake: e.g. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The
Great Peace) [2002] EWCA Civ 1407, [2003] Q.B. 679. One reason for using the phrase
“common mistake” is to reduce the risk of confusion with what is termed here “mutual
misunderstanding” (where the parties are at cross-purposes as to the terms of the contract):
7. Compare those cases in which the mistake is not legally relevant, below, para.3-008.
9. Note however that it is also customary to refer to cases in which the written contract does not
accurately record the parties’ prior agreement and is therefore rectified as cases of “rectification
for common mistake”: see below, para.3-057. Rectification depends on quite different principles
to those applicable when the parties make a common mistake as to the facts. On the latter, see
Ch.6.
10. Or as to the law: see below, para.6-052.
11. Griffith v Brymer (1903) 19 T.L.R. 434.
12.
Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2015), p.300.
14. Smith v Hughes (1871) L.R. 6 Q.B. 597; Statoil ASA v Louis Dreyfus Energy Services LP (The
Harriette N) [2008] EWHC 2257 (Comm), [2008] 2 Lloyd’s Rep. 685. See below, para.3-025.
16. See below, paras 3-036—3-039.
17. See below, paras 3-049—3-056.
20.
cf. Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.12–03. In
Pitt v Holt [2013] UKSC 26, [2013] 2 W.L.R. 1200, a case of a mistake affecting a voluntary
settlement, Lord Walker said (at [108]–[109]) that a mistake is different from ignorance,
inadvertence and misprediction as to the future. A mistake encompasses two states of mind,
Page 6
namely an incorrect conscious belief or an incorrect tacit assumption as to a present matter of

fact or law, but does not encompass mere causative ignorance but for which the claimant would
not have acted as he did. The nature of the mistake that must be shown for a settlor to obtain
rectification of a voluntary settlement was discussed extensively: see below, para.29-052.
21. Or voidable in equity, under a line of cases no longer accepted as good law: see below,
para.6-009.
25. Therefore there is no misrepresentation: compare below, para.6-013.
26.
Compare Anson’s famous “Dresden china” example: Anson’s Law of Contract, 28th edn,
p.324 (second scenario). The example is omitted from the 30th edition by Beatson, Burrows
and Cartwright (eds) (2015) but it is explained that a unilateral mistake of fact or law does not
render the contract void or give rise to an equitable jurisdiction to set aside the contract: pp.300.
Friedmann (2003) 119 L.Q.R. 68, 79–81 argues that in such a case relief should be given, by
analogy of cases of innocent misrepresentation.
27. Again it is assumed that neither party has stated what he believes to be the facts. If he had, the
other might have a remedy for misrepresentation. See below, para.6-013.
28. See below, para.6-015. Note that the grounds on which a voluntary settlement may be set aside
because of mistake on the part of the settlor are much wider: see Pitt v Holt [2013] UKSC 26;
Kennedy v Kennedy [2014] EWHC 4129 (Ch) (rescission of self-contained and severable part
of settlement).
29. Bell v Lever Bros Ltd [1932] A.C. 161, 217.
32. Hardman v Booth (1863) 1 H. & C. 803; Cundy v Lindsay (1878) 3 App. Cas. 459; Ingram v
Little [1961] 1 Q.B. 31. See below, paras 3-036 et seq.
36. See the 28th edition of this work, para.5-001.
37. Above, para.3-008 at n.28.
39. Below, paras 3-029—3-035. These paragraphs discuss the relationship between rectification
and unilateral mistake as to the terms at common law. There was very little authority to suggest
that unilateral mistake as to the facts was a ground for rescission in equity, and what there was
has recently been rejected: see below, para.3-025.
40. See below, paras 3-057 et seq. Equity may also prevent a mistaken party from obtaining
rectification to the “true” terms of a contract if a third party has relied on a document that stated
the terms differently: see below, para.3-098.
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41. See below, paras 3-026 and 6-061.
42. See, e.g. Wood v Scarth (1855) 2 K. & J. 33 (equity); (1858) 1 F. & F. 293 (law).
43. cf. cases in which specific performance may be refused because of the hardship that would
result because of a subsequent change of circumstances: see below, paras 3-026 and 6-061
and para.27-036.
44. cf. Chitty, 28th edn, paras 5–060 et seq.
46. e.g. Slade (1954) 70 L.Q.R. 385.
47. Smith (1994) 110 L.Q.R. 400. See below, para.6-014.
48. e.g. Slade (1954) 70 L.Q.R. 385; Atiyah, Essays in Contract (1986), Ch.9.
49. This is clearly so in cases of common mistake, e.g. Bell v Lever Bros [1932] A.C. 161;
Associated Japanese Bank International Ltd v Crédit du Nord SA [1989] 1 W.L.R. 255; Great
Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2002] EWCA Civ
1407, [2003] Q.B. 679. In the cases to be covered in this chapter, usage is less uniform.
50. Or when it resulted from a misrepresentation but the right to rescind for misrepresentation has
been lost. See below, para.6-013.

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Section 2. - Mistakes as to terms or identity 51
(a) - Underlying Principles
Underlying basis of law
3-013
It is arguable that the cases in which there is a mistake as to the terms of the contract, or as to the
identity of one of the parties, that will have some legal effect are no more than an application of
general rules of contract formation and interpretation. 52 They fall into three groups, each seeming to
depend on a particular application of those rules.
Lack of agreement or agreement ambiguous
3-014
No contract can be formed if there is no correspondence between the offer and the acceptance, 53
or if the agreement is not sufficiently certain. 54 The starting point must be whether the parties have
reached an agreement that there is a contract between them on the same terms, so that subjectively
they are agreed on the same thing. If so there will be a contract on the agreed terms. 55 If,
however, one party claims that he did not intend to contract at all, or did not intend to contract on the
terms which the other party claims were agreed, then the question is whether there is a contract (or,
as it is often put, whether or not the “contract is void”). The intention of the parties is, as a general
rule, to be construed objectively: the language used by one party, whatever his real intention may be,
is to be construed in the sense in which it was reasonably understood by the other. 56 Thus:
“… if one party (O) so acts that his conduct, objectively considered, constitutes an offer,
and the other party (A), believing that the conduct of O represents his actual intention,
accepts O’s offer, then a contract will come into existence, and on those facts it will make
no difference if O did not in fact intend to make an offer, or if he misunderstood A’s
acceptance, so that O’s state of mind is, in such circumstances, irrelevant.” 57
Nevertheless cases may occur in which the terms of the offer and acceptance do not match or suffer
from such latent ambiguity that it is impossible reasonably to impute any agreement between the
parties. For example, if it was reasonable for A to interpret the words of O’s offer as meaning x when
O in fact meant y, but it was equally reasonable for O to interpret A’s reply as an acceptance of the
offer as O intended it (i.e. as meaning y), there is no agreement even on an objective basis. 58
Thus “mutual misunderstanding” may prevent the formation of a contract, 59 and arguably this is no
more than an application of the requirements of offer and acceptance and certainty.
Known mistake may prevent party holding other to words used

Page 2
3-015
The “objective principle” just referred to means that normally a party is bound by what he said or
wrote: he cannot escape by simply saying that he did not mean what the other reasonably
understood, in the circumstances, by the words used. It may happen, however, that one party accepts
a promise knowing that the terms stated by the other differed from what the other party intended. In
such circumstances, the mistake may prevent the party’s acceptance being effective at face value:
either the contract will be on the terms the other party actually intended or, possibly, the “mistake” will
render the contract void. 60 This explains the cases on “unilateral mistake as to the terms of the
contract”. 61
Offer limited to particular person cannot be accepted by another
3-016
If an offer is by its express or implied terms open only to one person, or to a defined group of persons,
no one else can accept the offer; and if they purport to do so, no contract will result. This underlies the
cases of “mistaken identity”. 62
Older “subjective” notions
3-017
The modern “objective principle” referred to in the previous paragraphs was not firmly established
in the nineteenth century, and some cases seem to depend on an older theory, probably derived from
continental thinking, that “subjective agreement” or consensus ad idem was necessary for a contract.
63
Some of the earlier authorities may thus require reinterpretation in the light of the modern
principle. 64
Test not wholly objective 65
3-018
It has sometimes been suggested that in deciding whether the parties have reached an agreement,
each party’s words are to be interpreted in a wholly objective fashion. 66 However, it is submitted that
this is not consistent with the leading authorities. First, in Smith v Hughes 67 Blackburn J. said:
“If, whatever a man’s real intention may be, he so conducts himself that a reasonable
man would believe that he was assenting to the terms proposed by the other party, and
that other party upon that belief enters into the contract with him, the man thus
conducting himself would be equally bound as if he had intended to agree to the other
party’s terms.”
The italicised words show that if party O’s words reasonably appear to mean x when in fact O
intended y, the other party (A) can only hold O to meaning x if A in fact believed this to be what O
meant. This is why a party cannot snap up an offer which he knows contains a mistake. 68 Secondly,
in The Hannah Blumenthal, 69 though there were differences between Lords Brandon, Diplock and
Brightman in the way they explained the objective test, 70 all three spoke of the way in which the
individual parties would reasonably understand the others’ conduct. 71 In other words, the test is not
how an entirely detached observer might interpret what each party said or did, but how it would
reasonably appear to the other party in the circumstances. This is why a mistake in the terms of the
offer may be relevant even if the other party did not know of it but ought to have known of it. 72
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51. On this phrase see above, para.3-001 n.4. On the kinds of mistake dealt with in this section,
see Cheshire (1944) 60 L.Q.R. 175, 178, 180; Tylor (1948) 11 M.L.R. 257, 259; Slade (1954)
70 L.Q.R. 385, 386; Stoljar (1965) 28 M.L.R. 265, 266; M. Chen-Wishart, Exploring Contract
Law (2009) 341; G. McMeel, “Interpretation and Mistake in Contract Law: ‘The fox knows many
things’ ” [2006] Lloyd’s Maritime and Law Quarterly 49; R. Stevens, Contract Terms (2007) 101.
55.
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.13–10, citing
Glanville Williams (1954) 17 M.L.R. 154–155; Stoljar, Mistake and Misrepresentation: A Study
in Contractual Principles (1968), p.11; Vorster (1987) 104 L.Q.R. 274, 286; Lord Macnaghten in
Falcke v Williams [1900] A.C. 176 at 178–179, PC; and Blackburn J. in Smith v Hughes (1871)
L.R. 6 Q.B. 597, 607, who clearly assumes that the objective test need be used only if there
was no subjective agreement. The author rightly points out that some decisions, such as Paal
Wilson & Co A/S v Partenreederi Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 A.C.
854, discuss the objective test without mentioning the subjective test. Each party must, of
course, have signalled willingness to contract to the other, or there will be no agreement which
a contract can be based (see above, para.2-001; and the need for some “outward accord” in
rectification cases, below, para. 3-064). For an example in German law, see RG 8 Jun 1920 II
(Ziv), RGZ 99, 147, in which both parties thought that the Norwegian word Haakjöringsköd
meant whale meat when in fact it means shark meat. It was held that the contract was for whale
meat. (The case is translated in Beale, Fauvarque-Cosson, Rutgers, Tallon and Vogenauer, Ius
Commune Casebooks for the Common Law of Europe: Cases, Materials and Text on Contract
Law, 2nd edn (2010), 445.) The importance of the parties’ sharing subjective intentions will be
when they both intend the contract to mean something other than its apparent meaning, when
the communications are unclear, or where there is evidently an agreement but it is not clear
what its terms are. For the possibility that a written agreement can be rectified to match what
the parties were subjectively agreed on, see below, para.3-065.
56. Cornish v Abington (1859) 4 H. & N. 549, 556; Fowkes v Manchester and London Assurance
Association (1863) 3 B. & S. 917, 929; Smith v Hughes (1871) L.R. 6 Q.B. 597, 607;
Woodhouse A.C. Israel Cocoa Ltd SA v Nigerian Products Marketing Co Ltd [1972] A.C. 741;
McInerny v Lloyds Bank [1974] 1 Lloyd’s Rep. 246. Compare the effect of a mistake in a
contractual notice. In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C.
749 (above, para.13-051) the House of Lords held that a contractual notice to determine a
lease was effective although it did not comply exactly with the break clause in the contract,
provided that the notice given would convey the lessee’s intention to exercise its rights under
the clause unambiguously to a reasonable recipient.
57. Goff L.J. in Allied Marine Transport Ltd v Vale do Rio Navegacao SA, The Leonidas D [1985] 1
W.L.R. 925, summarising the approach of Lord Brightman in Paal Wilson & Co A/S v
Partenreederi Hannah Blumenthal, The Hannah Blumenthal [1983] 1 A.C. 854, 924. The Court
of Appeal in The Leonidas D preferred Lord Brightman’s formulation of the objective principle to
those of Lords Brandon and Diplock ([1985] 1 W.L.R. 925, 936). See above, para.2-004.
58.
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.13–18.
Page 4
60. See below, paras 3-029—3-033.
63.
See Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2015), p.270.
64. For examples, see below, paras 3-019, 3-042.
65. The points in the paragraph are particularly well made in Cartwright, Misrepresentation, Mistake
and Non-disclosure, 4th edn (2016), paras 13–07—13–19. Cartwright’s summary of the law
was adopted in DNA Production (Europe) Ltd v Manoukian [2008] EWHC 943 (Ch) at [47], [50].
66. e.g. by Denning L.J. in Frederick E. Rose (London) Ltd v William H. Pim Jnr & Co Ltd [1953] 2
Q.B. 450, 460 (“ … the parties to all outward appearances were agreed. They had agreed with
quite sufficient certainty on a contract for the sale of goods by description, namely, horsebeans.
Once they had done that, nothing in their minds could make the contract a nullity from the
beginning … ”).
67. (1871) L.R. 6 Q.B. 597.
69. Paal Wilson & Co A/S v Partenreederi Hannah Blumenthal (The Hannah Blumenthal) [1983] 1
A.C. 854.
71. See [1983] 1 A.C. 854 at 914, 915 and 924 respectively.

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(b) - Mutual Misunderstanding
Parties at cross-purposes
3-019
In most cases the application of the objective test will preclude a party who has entered into a
contract under a mistake from setting up his mistake as a defence to an action against him for breach
of contract. If a reasonable person in the defendant’s position would have understood the contract in
a certain sense but the defendant “mistakenly” understood it in another, then, despite his mistake, the
court will hold that the defendant is bound by the meaning that the reasonable person would have
understood. 73 But where parties are genuinely at cross-purposes as to the subject matter of the
contract, the result may be that there is no offer and acceptance of the same terms because neither
party can show that the other party should reasonably have understood his version. 74 Alternatively,
the terms of the offer and acceptance may be so ambiguous that it is not possible to point to one or
other of the interpretations as the more probable, and the court must necessarily hold that no contract
exists. 75 The best-known example is of some antiquity. In Raffles v Wichelhaus 76 the defendants
contracted to buy a cargo of cotton to arrive “ex Peerless from Bombay”. There were two ships of that
name and both sailed from Bombay, but one left in October and the other in December. The
description of the goods pointed equally to either cargo. To an action for refusal to accept goods from
the December shipment, the defendant pleaded that the agreement referred to the other one. The
plaintiff demurred, but the court gave judgment for the defendants, apparently taking the view that it
was open to the latter to adduce parol evidence as to which ship was meant. The judgment does not
indicate what the position would be if the parol evidence failed to point to one cargo rather than the
other, but the court did not express any disagreement with counsel’s proposition that, if the defendant
meant one Peerless and the plaintiff the other, there would be no contract. At that time it is likely that
it was thought that there would be no contract without subjective agreement, consensus ad idem. In a
modern case of a similar character it would have to be shown that each party’s interpretation was as
reasonable as the other’s, 77 and it is unlikely that the facts proved would be so sparse as not to give
some ground for adopting one interpretation of the contract rather than the other. 78
Reasonable meaning of A’s offer may depend on B’s conduct
3-020
If one party has misled the other, even unintentionally, he may be precluded from relying on the
normal interpretation of the other’s words or conduct, with the result that even on an objective
criterion no agreement results. In the case of Scriven v Hindley, 79 an auctioneer acting for the plaintiff
put up for sale lots of hemp and tow from a single ship. It was very unusual for both hemp and tow to
be shipped together. The auction catalogue did not indicate the difference in the contents of the lots.
A lot of tow was put up, and the defendant bid for it thinking it was hemp. The bid was accepted. The
jury found that the auctioneer intended to sell tow, while the defendant intended to bid for hemp, and
that the former had merely thought that an overvalue had been placed by the defendant on the tow. It
was held that, as the parties were never ad idem as to the subject matter of the contract, there was
Page 2
no binding contract of sale. In the ordinary way an auctioneer is entitled to assume that a bidder
knows what he is bidding for, and acceptance of a bid will create a binding contract; the decision in
this case seems to have turned on the misleading nature of the catalogue. 80
Parties aware of disagreement over meaning of clause
3-021
The case of mutual misunderstanding should be distinguished from the case in which the parties are
aware that they disagree over the meaning of a term of the contract. It has been held that there may
be a valid contract despite the fact that the parties know that they are not agreed as to the meaning of
one of its terms. Provided there is evidence that the parties intended to make a binding agreement,
the contract will be valid and the parties are treated as having left it to the court to determine its
correct meaning. 81
73. Scott v Littledale (1858) 8 E. & B. 815; Wood v Scarth (1855) 1 F. & F. 293; Smith v Hughes
(1871) L.R. 6 Q.B. 597.
74. e.g. South East Windscreens Ltd v Jamshidi [2005] EWHC 3322 (QB), [2005] All E.R. (D) 317
(Dec) (parties put forward different versions of the agreement as to price); “ … it is a question of
trying to decide objectively what was agreed … neither party has discharged the burden of
proving, on the balance of probabilities, that their version of the agreement is correct” (at [84]).
75. Thornton v Kempster (1814) 5 Taunt. 786; Henkel v Pape (1870) L.R. 6 Ex. 7; Smidt v Tiden
(1874) L.R. 9 Q.B. 446; Hickman v Berens [1895] 2 Ch. 638; Falck v Williams [1900] A.C. 176;
Van Praagh v Everidge [1903] 1 Ch. 434; cf. Marwood v Charter Credit Corp (1971) 20 D.L.R.
(3d) 563. However, it seems possible that the mistake must relate to a point which is of some
importance. If the misunderstanding is as to some unimportant point the court might simply
disregard the relevant term and uphold the rest of the contract. cf. Nicolene Ltd v Simmonds
[1953] 1 Q.B. 543.
76. (1864) 2 H. & C. 906. See further as to this case, Grant Gilmore, The Death of Contract (1974),
pp.35–41; Simpson (1975) 91 L.Q.R. 247, 268.
77. Thus Hickman v Berens [1895] Ch. 638 would not be followed today: a compromise agreement
was set aside for want of consensus even though the document apparently expressed exactly
what one of the parties meant.
78. This paragraph in the 29th edition was cited in NBTY Europe Ltd (formerly Holland & Barrett
Europe Ltd) v Nutricia International BV [2005] EWHC 734, [2005] 2 Lloyd’s Rep. 350, but it was
held on the facts that there was no ambiguity in the agreement, nor indeed were the parties at
cross-purposes.
79. [1913] 3 K.B. 564.

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80. Although the jury found the parties were not ad idem, this does not mean that the court thought
subjective agreement was necessary. Lawrence J. discussed whether the defendants were
“estopped”, which seems to be equivalent to asking whether they were bound by the normal
meaning of their conduct in bidding, and held that, because of the auctioneer’s behaviour, they
were not. It is conceivable that, had the question arisen, the court might have held, not that
there was no contract, but that the lot was sold as hemp. Compare below, paras 3-024 and
3-029.
81. LCC v Henry Boot & Sons Ltd [1959] 1 W.L.R. 1069.

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(c) - Unilateral Mistake as to Terms
(i) - When Mistake will Affect Contract
Mistake known to the other party
3-022
A mistake as to the terms of the contract, 82 if known to the other party, may affect the contract. In
this case, the normal rule of objective interpretation is displaced in favour of admitting evidence of
subjective intention. 83 In Hartog v Colin and Shields 84 the defendants offered for sale to the
plaintiffs some Argentine hare skins, but by mistake offered them at so much per pound instead of so
much per piece. The previous negotiations between the parties had proceeded on the basis that the
price was to be assessed at so much per piece, as was usual in the trade. But the plaintiffs purported
to accept the offer and sued for damages for non-delivery. The court held that the plaintiffs must have
known that the offer did not express the true intention of the defendants and that the apparent
contract 85 was therefore void. 86 On the same principle, it has been held in Canada 87 that an offer
contained in a tender cannot be accepted when it is apparent that the tender had mistakenly omitted
a price escalation clause. 88
Mistakes which ought to have been apparent
3-023
It is not clear whether for the mistake to be operative it must actually be known to the other party,
or whether it is enough that it ought to have been apparent to any reasonable person in the position of
the other party. In Canada there are suggestions that the latter suffices, 89 but the Singapore Court of
Appeal has held that the common law doctrine of mistake applies only when the non-mistaken party
had actual knowledge of the other’s mistake. 90 In England there is no clear authority, 91 but two cases
suggest that if the other party ought to have known of the mistake, he will not be able to hold the
mistaken party to the literal meaning of his offer. In Centrovincial Estates Plc v Merchant Investors
Assurance Co Ltd 92 the Court of Appeal appeared to consider that the plaintiff might be able to
negate any binding agreement by showing that the defendant ought to have known that the plaintiff’s
offer contained an error; and in O.T. Africa Line Ltd v Vickers Plc 93 Mance J. said that the objective
principle would be displaced if a party knew or ought to have known of the mistake. The latter
situation would include cases in which the party refrained from making enquiries or failed to make
enquiries when these were reasonably called for, 94 but first there must be a real reason to suspect a
mistake. In rectification cases, however, it has been said that a unilateral mistake made by one party
is a ground for rectification only if the other party actually knew of it. 95 This may suggest that only
actual knowledge of a mistake in an offer will prevent the other party from accepting it. Thus it is
possible that the courts apply a different standard when the parties have signed a written document
recording their agreement. However, it has been argued that rectification for unilateral mistake should
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be granted when the mistake was not known but ought to have been known to the defendant. These
points will be discussed when we consider rectification. 96
Mistakes caused by the non-mistaken party
3-024
In Deutsche Bank (Suisse) SA v Khan 97 the defendants had argued that even if the mistake as to
terms was neither known nor ought to have been known to the other party, it may still affect the
contract if it has been induced by the other party. Hamblen J. founded it unnecessary to decide the
point but doubted that there is any such principle. 98
Mistake as to the terms of the contract
3-025
It is not sufficient that one party knows the other has entered the contract under a mistake of some
kind. The mistake must relate to the terms of the contract. 99 If it relates, for example, to what is the
subject matter that is being bought and sold (i.e. as to its contractual description), the mistake is to
the terms and may prevent there being a contract; but if the mistake is merely to the quality or the
substance of the thing contracted for, it will be a mistake as to the facts (or “an error in motive”) and it
is well established that an error in motive will not avoid a contract. 100 In Smith v Hughes 101 the
defendant purchased from the plaintiff a quantity of oats in the belief that they were old oats, whereas
in fact they were new oats and quite unsuitable for the purpose for which he wanted them. On
discovering his mistake, he refused to accept them and was sued by the plaintiff for the price. The
judge asked the jury whether the plaintiff believed the defendant to believe, or to be under the
impression, that he was contracting for the purchase of old oats. If so, they were to return a verdict for
the defendant. On a motion for a new trial, the Court of Queen’s Bench considered that this direction
would not sufficiently distinguish between a mistake on the part of the defendant that the oats were
old oats, and a mistake that they were being offered to him as old oats. In the former case, the
contract would be valid, as the error would be one of motive; in the latter, the mistake would be as to
the terms of the contract, and, if known to the plaintiff, would provide a defence to the action. A new
trial was ordered. It is not clear whether the defendant would, on the latter hypothesis, have been free
from liability on the ground that the contract was void, or on the ground that the seller was in breach
by delivering new oats. 102 As the buyer had been given a sample of the oats it is difficult to see how,
on similar facts occurring today, any sort of a defence could be made out. In a recent case, the
parties had reached a compromise over the amount of demurrage due. One party had made an offer,
basing its calculations on a mistaken assumption as to the date the ship had completed its unloading.
The mistaken party was not entitled to relief even though the other party was aware of the mistake
when it accepted the offer and decided to say nothing. 103 It was not a term of the contract that
discharge was completed on the date the claimant supposed. 104 There is no equitable jurisdiction to
set the contract aside where one party has made a unilateral mistake as to a fact or state of affairs
which is the basis upon which the terms of the contract are agreed, but that assumption does not
become a term of the contract. 105
Refusal of specific performance for unilateral mistakes not known to the other party or not as to terms
3-026
Even though a mistake by one party has no effect at common law, for example because the other
party neither knew nor had reason to know of it, 106 or because it is not a mistake as to the terms of
the contract, 107 it may be a ground on which the court will refuse to order specific performance when
it would otherwise have done so. In Barrow v Scammell 108 Bacon V.C. said:
“It cannot be disputed that courts of equity have at all times relieved against honest
mistakes in contracts, where the literal effect and the specific performance of them would
Page 3
be to impose a burden not contemplated, and which it would be against all reason and
justice to fix, upon the person who, without the imputation of fraud, has inadvertently
committed an accidental mistake; and also where not to correct the mistake would be to
give an unconscionable advantage to the other party.”
It has been held that specific performance may be refused if it would cause the defendant “a hardship
amounting to injustice” 109 although he may still be liable to an action for damages at law. 110 It has
also been held that mistake may also be a defence if the plaintiff has in some way contributed, even
unwittingly, to the mistake. 111 But a mistake which is entirely the product of the defendant’s own
carelessness will afford no ground for relief 112 unless (perhaps) the case is one of considerable
harshness or hardship. 113 Most of the cases are ones in which one party made a mistake about the
terms and the other party did not know of the mistake, 114 but there is no reason in principle why the
mistake might not have been one as to the surrounding facts rather than the terms of the contract and
at least one case involved that. 115 However, most of the cases on refusal of specific performance are
old. It is not clear whether the modern tendency to cut down defences of unilateral mistake as
grounds for rectifying a contract, or refusing rescission as an alternative, 116 will extend also to cases
where the defendant seeks to be excused from specific performance.
No equitable power to set aside contract
3-027
It appears that if one party enters a contract under a mistake as to the terms, and what was really
intended is known to the other who nonetheless purports to agree, the contract will be on the terms
actually intended by the first party, 117 and if necessary the document may be rectified to bring it into
line with the contract. 118 In other cases (where the other party knows there has been a mistake but
not what it is, or where he should know there is a mistake) the mistake seems to render the contract
void, as some of the authorities suggest. 119 In neither situation is there a separate equitable
jurisdiction to set aside the contract for unilateral mistake. 120
Positive mistake necessary
3-028
It is submitted that there will not be an effective mistake as to the terms unless the “mistaken” party
has a positive belief that the terms are X when the contract in fact says Y, or at least that the contract
does not include term Y, and the other party knows or ought to know of the mistake. 121 It will not
suffice that the “mistaken” party simply did not know that the contract contained a particular term, for
example because he had not read it before signing it. 122
82. On the application of this to cases of mistaken identity, see above, para.3-002 and below, paras
3-036 et seq.
Page 4
83.
The question is strictly speaking not one of whether either party was at fault, but of whether
one knew (or possibly ought to have known; see next paragraph) of the other’s intention: see
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), paras
13–24—13–26. Contrast LCC v Henry Boot & Sons Ltd [1959] 1 W.L.R. 1069, criticised by
Goodhart (1960) 76 L.Q.R. 32.
84. [1939] 3 All E.R. 566, followed in McMaster University v Wilchar Construction Ltd (1971) 22
D.L.R. (3d) 9 and in Ulster Bank Ltd v Lambe [2012] NIQB 31 (offer to settle claim for €155,000
when P meant €155,000 and D knew this; this paragraph of Chitty was applied (at [20])). See
also Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N) [2008] EWHC 2257
(Comm), [2008] 2 Lloyd’s Rep. 685 (below, para.3-025) at [87].
85. The question whether there was no contract at all, or one on the terms in fact intended by the
defendants, is discussed below at para.3-022. It will be submitted that the effects of the mistake
may differ according to whether the party knew not only that the offer contained a mistake but
what the mistake was, or merely knew or should have known that it contained a mistake.
86. See also Watkin v Watson-Smith, The Times, July 3, 1986. In Taylor v Johnson (1983) 151
C.L.R. 422, 45 A.L.R. 265 the High Court held that where one party knew that the other was
mistaken as to a term in a formal written contract, the contract was voidable rather than void;
sed quaere. Part of the majority judgment of the High Court was adopted by the Court of Appeal
in Commission for New Towns v Cooper (Great Britain) Ltd [1995] 2 Ch. 259, a case of
rectification, without discussion of the majority’s view on this point. See further, below,
para.3-027 n.120. In Deputy Commissioner of Taxation (N.S.W.) v Chamberlain (1990) 93
A.L.R. 729 (Federal Court General Division) a taxpayer was not permitted to take advantage of
a typing error he had noticed in a writ issued against him.
87. McMaster University v Wilchar Construction Ltd (1971) 22 D.L.R. (3d) 9 (Ont.). Canadian cases
have also given relief for mistakes in the calculations underlying a bid, which would almost
certainly not be permitted in English law: see below, para.3-025 n.105.
88. See also Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] SGCA 2, [2005] 1 S.L.R. 502
(buyers tried to take advantage of offer on Internet to sell goods at mistakenly low price). The
case is noted by Yeo in (2005) 121 L.Q.R. 393.
89. See McMaster University v Wilchar Construction Ltd (1971) 22 D.L.R. (3d) 9 (Ont.), 22, per
Thompson J. (“one is taken to have known what would have been obvious to a reasonable
person in the light of the surrounding circumstances”). Some Canadian courts consider that
there is a power to give equitable relief if it would be unconscientious to permit the defendant to
obtain or retain a legal advantage resulting from a mistake, and that it would be
unconscientious for the defendant to do so when he knew or ought to have known of the
claimant’s mistake: see Craig Estate v Higgins [1994] 2 W.W.R. 595 (B.C.S.C.) (contrast
para.3-027 below). When a defendant ought to have known that a contract document did not
reflect the claimant’s intention, the Canadian courts have given the defendant an option
between rescission and rectification, see below, para.3-075; see also Waddams, Law of
Contracts, 6th edn (2010), para.343.
90. Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] SGCA 2, [2005] 1 S.L.R. 502 at [53]. It
appears that actual knowledge would include cases of “‘Nelsonian knowledge’, namely, wilful
blindness or shutting one’s eyes to the obvious” (at [42]). The court considered that there is also
an equitable jurisdiction to set aside a contract for unilateral mistake in cases in which there is
“sharp practice” or “unconscionable conduct” (at [76]–[77]) but this does not seem to represent
English law: see Below, para.3-027.
91. In Merrill Lynch International v Amorim Partners Ltd [2014] EWHC 74 (QB) at [54] Hamblen J.
said that a mistake will only give rise to relief if it was known to the other party, but the point
does not appear to have been argued and the mistake was in any event not as to the terms of
the contract: see below, para.3-025.
92.
[1983] Com. L.R. 158. In this case it was said that if the other party did not know and had no
Page 5
reason to know of the mistake, he is entitled to hold the mistaken party to the terms of the
contract in their objective sense; it is immaterial that he has not changed his position or relied
upon the contract. This appears to be consistent with the objective test of liability, see
93. [1996] 1 Lloyd’s Rep. 700, 703.
94. [1996] 1 Lloyd’s Rep. 700, 703 (i.e. where the party would not be treated as having actual
knowledge: see below, para.3-070).
96. See below, paras 3-069 et seq. The question whether there was no contract at all, or one on
the terms in fact intended by the defendants, is discussed below, para.3-029. It will be
submitted that the effects of the mistake may differ according to whether the party knew not
only that the offer contained a mistake but what the mistake was, or merely knew or should
have known that it contained a mistake.
97. [2013] EWHC 482 (Comm).
98. [2013] EWHC 482 (Comm) at [265]–[268]. cf. above, para.3-020.
99. Or, where the mistake is over one party’s identity, must prevent effective offer and acceptance:
above, para.3-002 and below, paras 3-036 et seq.
100. Balfour v Sea Fire and Life Assurance Co (1857) 3 C.B.(N.S.) 300; Scrivener v Pask (1866)L.R.
1 C.P. 715; Pope v Buenos Ayres New Gas Co (1892) 8 T.L.R. 758; cf. Gill v M’Dowell [1903] 2
Ir.Rep. 463. In G & S Fashions v B&Q Plc [1995] 1 W.L.R. 1088 it was held that, if a landlord
purports to forfeit a lease in the mistaken belief that the tenant is in breach of covenant, the fact
that the tenant knows of the landlord’s mistake does not prevent it accepting the forfeiture. See
also Bank of Credit and Commerce International SA (In Liquidation) v Ali [1999] 2 All E.R. 1005,
1019. See further above, para.3-002. A contract will not be invalidated by a unilateral mistake
over a separate document that was itself of no legal effect: Donegal International Ltd v Zambia
[2007] EWHC 197, [2007] 1 Lloyd’s Rep. 397 at [471], referring to this paragraph.
101. (1871) L.R. 6 Q.B. 597.
102. cf. Roberts & Co Ltd v Leicestershire CC [1961] Ch. 555 (rectification in case of unilateral
mistake); see below, para.3-069.
103. Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N) [2008] EWHC 2257 (Comm),
[2008] 2 Lloyd’s Rep. 685.
104. [2008] EWHC 2257 (Comm) at [91]. See also Merrill Lynch International v Amorim Partners Ltd
[2014] EWHC 74 (QB) at [55].
105. [2008] EWHC 2257 (Comm) at [105], refusing to follow in this respect suggestions made by the
judge at first instance (and not discussed by the Court of Appeal, [2003] EWCA Civ 1104) in
Huyton SA v Distribuidora Internacional de Productos Agricolas SA [2002] EWHC 2088
(Comm) at [455], both reported in [2003] 2 Lloyd’s Rep. 780. In Canada relief has been given
when the claimant has made a “calculation error” which has led to its bid being underpriced,
even though the mistake was not in the terms of the offer itself: see McCamus (2008) 87 Can.
B.R. 1, 6 (compare The Harriette N, where relief was refused because the mistake was not as
to a term of the offer, see text at n. 104above).
107. See previous paragraph.
108. (1881) 19 Ch. D. 175, 182. See also Preston v Luck (1884) 27 Ch. D. 497, 506; Stewart v
Page 6
Kennedy (1890) 15 App. Cas. 75, 105.
109. Tamplin v James (1880) 15 Ch. D. 215, 221.
110. Webster v Cecil (1861) 30 Beav. 62, 64.
111. Baskomb v Beckwith (1869) L.R. 8 Eq. 100; Denny v Hancock (1870) L.R. 6 Ch. App. 1;
Wilding v Sanderson [1897] 2 Ch. 534.
112. Tamplin v James (1880) 15 Ch. D. 215.
113. Manser v Back (1848) 6 Hare 443; Malins v Freeman (1837) 2 Keen 25; Van Praagh v Everidge
[1903] 1 Ch. 434.
114. If the other party did know of the mistake, it would have the effects described below: see
para.3-029.
115. Jones v Rimmer (1880) 14 Ch. D. 588 (though the omission of any mention of the ground rent
in otherwise very detailed particulars makes the case very close to one of misrepresentation by
a misleading half-truth: see below, para.7-020). See also Heath v Heath [2009] EWHC 1908
(Ch), [2009] 2 P. & C.R. DG21 at [26] (“specific performance is a discretionary remedy and
mistake may …still be a relevant factor in refusing equitable relief, at all events where the
mistake has been induced by the words or conduct of the person seeking specific performance.
In such a case … the mistake may also amount to, or be practically indistinguishable from, a
misrepresentation”).
116. See below, paras 3-073—3-075.
119. See below, paras 3-029—3-035.
120. An equitable remedy was applied by the court in VP Plc v Thomas Megarry [2012] NIQB 22.
Compare the cases in Canada (above, para.3-023 n.89) and Singapore (n.90). In Taylor v
Johnson (1983) 151 C.L.R. 422, 45 A.L.R. 265 the Australian High Court held that where one
party knew that the other was probably mistaken as to the terms of a formal written contract,
and tried to prevent her discovering the mistake, the contract was voidable rather than void.
Part of the majority judgment of the High Court was adopted by the Court of Appeal in
Commission for New Towns v Cooper (Great Britain) Ltd [1995] 2 Ch. 259, a case of
rectification, without discussion of the majority’s view on this point. In Deputy Commissioner of
Taxation (NSW) v Chamberlain (1990) 93 A.L.R. 729 (Federal Court General Division) a
taxpayer was not permitted to take advantage of a typing error he had noticed in a writ issued
against him. The dictum of Rimer J. in Clarion Ltd v National Provident Institution [2000] 2 All
E.R. 265, 276, that there are “plenty of examples of equity permitting either rescission or
rectification where one party has, to the knowledge of the other, made the contract under a
mistake as to its subject matter or terms” must, with respect, be doubted as regards rescission.
But cf. below, paras 3-073—3-076.
121. See above, para.3-007. This paragraph was cited with apparent approval in Deutsche Bank
(Suisse) SA v Khan [2013] EWHC 482 (Comm) at [269].
122. Compare Spencer [1973] C.L.J 104, 114–116, cited in Tilden Rent-a-Car Co v Clendenning
(1978) 83 D.L.R. (3d) 400 CA Ont. (signature does not show assent to provision which
company “had no reason to believe were being assented to by the other contracting party”).

Page 1

(c) - Unilateral Mistake as to Terms
(ii) - Effect on Contract
Effect of mistake as to terms: mistaken party’s intention known to other
3-029
In both Hartog v Colin and Shields 123 and Smith v Hughes 124 it was suggested that the effect of a
mistake by one party as to the terms of the contract would, if it were known to the other party, make
the contract void. However, in both cases the only question was whether the party who had made the
mistake could be held to the objective meaning of his words. The apparent contract was void, but it
was not decided that neither party had any contractual rights against the other. When the actual
intentions of the mistaken party are known to the other, it is possible that the mistaken party can
enforce the contract in those terms. Thus it may be that in Hartog v Colin and Shieldsthe seller could
have enforced the contract at so much per piece (the figure the seller actually intended) against the
buyer. 125 The buyer, having accepted an offer which he knew was meant to read so much per
piece, could be said to be bound by it. This was the result reached in a case in Northern Ireland in
which the plaintiff had made an offer to settle a claim for €155,000 when they meant £155,000 and
the defendant knew this 126: Weatherup J. treated the offer as one for £155,000 “mistakenly
expressed in euros” and enforced the settlement accordingly. 127 Further, although a contract entered
under an operative mistake is often said to be void, it appears that this cannot be raised by the
mistaken party against a third party who in good faith and without notice of the mistake has relied on
the signed document. The signer is estopped and can only succeed against the third party if he can
show non est factum. 128
Rectification cases
3-030
The interpretation proposed in the previous paragraph is consistent with the cases granting
rectification in cases of unilateral mistake. 129 There it is said that if the party against whom
rectification is sought knew that the documents did not represent the true intention of the party
seeking relief, the documents will be rectified to show what the party seeking relief actually intended.
This presupposes the existence of a valid contract despite the mistake, on the terms actually intended
by the mistaken party and known by the other to be so intended. 130
Estoppel
3-031
To hold the party to the terms actually intended by the mistaken party is also consistent with cases
Page 2
onestoppel. There it has been said that if one party knows the other has made a mistake and fails to
point it out when the reasonable person would expect him to do so were he acting honestly and
reasonably, an estoppel by silence or acquiescence may arise and result in liability where there would
otherwise be none. 131
Mistake should have been known to the other party; or true intention not known
3-032
It was submitted earlier that,at present, English law gives relief for a unilateral mistake if the mistake
was known to the other party; but that there are suggestions in some of the cases that relief should
also be given if the other party ought to have known of it. 132 If it were decided to give relief in these
circumstances, what should the effect on the contract be? A similar question arises when the other
party knows that the first party has made a mistake over the terms but(unlike in Hartog v Colin and
Shields, 133 for example) does not know what the first party actually intended.
3-033
In these situations it might be argued that if the first party were to purport to accept the apparent offer,
he would be estopped from denying that he had accepted whatever the offer or can prove he actually
meant. But this would at the very least leave the first party in some uncertainty, and might involve
holding him to a contract to which he would never have agreed. In a recent rectification case it was
said that:
“The effect of a successful rectification claim based on unilateral mistake is always that it
imposes a contract upon the defendant which he did not intend to make. It is the
unconscionable conduct involved in staying silent when aware of the claimant’s mistake
that makes it just to impose a different contract upon him from that by which he intended
to be bound.” 134
When the first party’s mistake was not actually known to the second party, or what the first party
actually meant when that was unknown to the second party, it seems less appropriate to hold the
second party to the terms intended by the first. It is more appropriate to hold that there is no contract.
135
Oral and written contracts
3-034
It may be noted that there is at least one difference between the treatment of oral and written
contracts which have been entered into as the result of a mistake as to the terms by one party which
was known to the other. If the submissions above are correct, with an oral contract or one made by
exchange of written communications, where the mistaken party’s real intentions are known to the
other, there will be a contract on those terms 136; and for the most part the result when the contract
has been reduced to writing is parallel. As was just mentioned, 137 a party who has signed a written
agreement under a mistake may, if the mistake was known to the other party, claim to have the
document rectified. The difference is that the right to rectification may be lost,and then, in the case of
an agreement in writing, it is the ostensible agreement which will stand. 138
3-035
It is possible that there is a second difference between the treatment of oral and written contracts, in
the case where the mistaken party’s intentions are not known to the other party, but either the other
knows that there was a mistake but not what it is or he should have known that there was a mistake.
In these cases it is suggested that if the contract was oral, or formed simply by an exchange of
Page 3
correspondence, it is void. 139 What is not wholly clear is whether the same applies when the parties
have reduced their agreement to writing. If oral and written contracts were to be treated identically,
the contract should be void. As we will see below, in very limited circumstances a party who has
signed a deed or other document under a misapprehension can claim that it is not binding on him
under the doctrine of non est factum. The circumstances are very limited because a plea of non est
factum can operate to prejudice third parties who have relied on the contract. It may be thought that
this is the only ground on which the mistaken party can escape from a written contract, which would
mean a second difference between oral and written contracts. But it has been pointed out that when
the dispute is between the original parties, there is no need to rely on this defence: the contract may
be void for mistake 140; moreover, it is possible that in the case of a written contract which the
defendant ought to know does not reflect the claimant’s intention, the claimant may obtain rectification
or possibly cancellation. 141
123. [1939] 3 All E.R. 566; above, para.3-022. In Statoil ASA v Louis Dreyfus Energy Services LP
(The Harriette N) [2008] EWHC 2257 (Comm), [2008] 2 Lloyd’s Rep. 685 Aikens J. preferred to
say that there is no contract at all (at [87]).
124. (1871) L.R. 6 Q.B. 597, 606, 607, 609;above, para.3-025.
125.
See also Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2015),
p.278;comparePeel, Treitel on The Law of Contract, 14th edn (2015), para.8–053(possibly
seller could have held buyer to contract on thestated terms had he wished to do
so).Contra,Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016),
para.13–28(“there can be no contract-for the simple reason that though the defendant may
have intended the contract to be on a different set of terms, there is no external evidence by
which he can say that the claimant in fact agreed to it”). See also McLauchlan (2008) 124
L.Q.R.608, 613. However, if the claimant purported to accept the defendant’s offer, there does
seem to be such evidence,whether the contract was oral or written, unless it was no
treasonable for the claimant to think that the defendant was accepting the claimant’s offer as he
intended it. For example, on facts like those in Chwee Kin Keong v Digilandmall.com Pte Ltd
[2005] SGCA 2, [2005] 1 S.L.R. 502, in which buyers tried to take advantage of an offer on the
internet to sell goods at a mistakenly low price and ordered large quantities of them, even if the
buyers knew what the correct price should be, it would no treasonable for the seller to assume
that a buyer was agreeing to buy large quantities of the goods at the correct price.
126. Ulster Bank Ltd v Lambe [2012] NIQB 31.
127. [2012] NIQB 31 at [28]. The judge would have ordered rectification but thought it unnecessary
to do so.
128. See the judgment of Sir Edward Eveleigh in Lloyds Bank Plc v Waterhouse (1991) 10 Tr. L.R.
161. Contrast the “mistaken identity” cases, Below, para.3-036,where the mistaken party is not
estopped simply by entrusting possession of his property to the rogue who sells it to the third
party. On non est factum see Below, para.3-049.
Page 4
129. See Below, para.3-069.
130. In Ulster Bank Ltd v Lambe [2012] NIQB 31 (above, para.3-029)the judge would have ordered
rectification but thought it unnecessary to do so, as the issue could be dealt with as a matter of
interpretation, cf. Below, para.3-060.
131. Pacol Ltd v Trade Lines Ltd, The Henryk Sif [1982] 1 Lloyd’s Rep. 456, 465; The Stolt Loyalty
[1993]2 Lloyd’s Rep. 281, 290; Republic of India v Indian Steamship Co, The Indian Grace
(No.2) [1994] 2 Lloyd’s Rep. 331, 344. See above, para.2-071.
133. [1939] 3 All E.R. 566; above, para.3-022.
134. Chartbrook Ltd v Persimmon Homes Ltd [2007] EWHC 409 (Ch), [2007] 2 P. & C.R. 9at [137]
(not referred to when the decision was reversed by the House of Lords, [2009] UKHL 38). See
also Daventry District Council v Daventry and District Housing Ltd [2011] EWCA Civ 1153,
[2012] 1 W.L.R. 1333 at [177]. But see Below, para.3-076.
135. In Canada, in the analogous situation in which the mistaken party seeks rectification, the other
party is given the option of submitting to rectification or to rescission, see Below, para.3-075. It
does not seem easy to reach a parallel conclusion in the case of an oral agreement if it is the
law that the effect of a mistake is to make the contract void rather than voidable.
138. See Below, para.3-095. In Taylor v Johnson (1983) 151 C.L.R. 422, 45 A.L.R. 265 the
Australian High Court held that where one party knew that the other was probably mistaken as
to the terms of a formal written contract, and tried to prevent her discovering the mistake, the
contract was voidable rather than void. This is an attractive solution but may go beyond English
authority in allowing rescission for unilateral mistake: see above, para.3-027 and below, paras
3-074—3-075.
161, discussed further below, para.3-050. It is suggested that that, if necessary, the court
should cancel the document; but it is not clear that this remedy is available unless there was
actual or constructive fraud: see Halsbury’s Laws of England Vol. 47 (2014) Equitable
Jurisdiction, para.84.
141. See below, paras 3-075—3-076.

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(d) - Mistaken Identity
Mistaken identity
3-036
A number of cases have raised the question whether a mistake by one party as to the identity of the
person with whom he appears to be contracting will render the contract void. The question arises in a
recurrent situation typified by the facts of Cundy v Lindsay. 142 A fraudulent person named Blenkarn
wrote to the plaintiffs offering to buy certain goods, and so contrived his signature to resemble that of
Blenkiron & Co, a prosperous firm carrying on business in the same street and with whom the
plaintiffs had previously dealt. The plaintiffs despatched the goods in the belief that they were dealing
with Blenkiron & Co and the goods eventually came into the hands of an innocent purchaser, the
defendant. If the contract between the plaintiffs and Blenkarn was void for mistake, no property in the
goods had passed under the contract, and the plaintiffs were entitled to recover them. But otherwise
the contract was merely voidable for fraud, and the defendant would have acquired a good title. 143
Mistake as to the person. 144
3-037
The identity of the person with whom one is contracting or proposing to contract is often immaterial. It
is usually of no importance to a shopkeeper to whom he sells goods across the counter for cash 145;
and an auctioneer who accepts a bid at a public auction is not normally concerned with the identity of
the person who makes the bid. 146 Sometimes, however, and for special reasons, the identity of the
person is material. In such circumstances, if one party mistakenly believes that he is dealing with
person A when he is in fact dealing with B, and he communicates to B an offer that is intended only
for A, the mistake as to identity may prevent a contract coming into existence. The same may apply if
the mistaken party purports to accept an offer that he believes to have been made by A but that was
in fact made by B. 147
Offer to B cannot be accepted by C
3-038
Assuming the identity of the other party to be material to party A, we may start with the general
proposition that, if A offers to make a contract with B, C cannot give himself any rights under the offer:
“A person cannot constitute himself a contracting party with one whom he knows or ought
to know has no intention of contracting with him. An offer can be accepted only by the
Page 2
Equally, if a party makes an offer to another and the other addresses his acceptance to a third person
with whom the other intends to deal, there will be no contract. 149 In Boulton v Jones 150 the defendant
had been used to deal with one Brocklehurst, against whom he had a set-off. He sent Brocklehurst a
written order for some goods. On the very day that the order was sent, Brocklehurst had transferred
his business to his foreman, the plaintiff. The plaintiff thereupon dispatched the goods without
informing the defendant of the change of ownership. The defendant refused to pay for the goods, and
the court held that he was not liable to do so as the plaintiff could not accept an offer which was not
addressed to him. Nevertheless the test is not entirely a subjective one. The question is not simply
“with whom did the offeror intend to contract?” but “how would the offer have been understood by a
reasonable man in the position of the offeree”? If A makes an offer to B in mistake for C, and B
accepts the offer reasonably believing it to have been intended for him, A will be bound despite the
mistake. 151 In Boulton v Jones the circumstances were such that a reasonable man would not have
believed the offer to have been addressed to him. The business had only just changed hands, and
the plaintiff either knew of 152 or could easily have discovered the existence of the set-off. But where
such knowledge or means of knowledge is lacking, the offeror will be bound. Moreover, the growth of
companies and the increasing depersonalisation of commerce may mean that nineteenth-century
cases on questions of this kind are not very reliable as authorities. In 1857 a buyer of goods from a
shop may well have regarded the identity of the seller as a matter of importance; in the day of the
supermarket this is unlikely to be the case.
Offer may be accepted only by person to whom it was made
3-039
Thus the question is, to whom was the offer 153 made: to the actual recipient to whom it was
addressed or sent, or to the person with whom the offeror thought he was dealing? There will be no
contract if it is shown that:
“… there was no objective agreement, e.g. that the offer was, objectively speaking, made
to one person and (perhaps as the result of fraud) objectively speaking, accepted by
another.” 154
In other words, the issue is parallel to the one raised when one party has made a mistake in the terms
of his offer: whether or not the purported offer and acceptance result in a contract depends upon the
terms of the offer or the acceptance.
“Just as the parties must be shown to have agreed on the terms of the contract, so they
must also be shown to have agreed the one with the other. If A makes an offer to B, but C
purports to accept it, there will be no contract. Equally, if A makes an offer to B and B
addresses his acceptance to C there will be no contract. Where there is an issue as to
whether two persons have reached an agreement, the one with the other, the courts have
tended to adopt the same approach to resolving that issue as they adopt when
considering whether there has been agreement as to the terms of the contract. The court
asks the question whether each intended, or must be deemed to have intended, to
contract with the other.” 155
In the typical case 156 in which a rogue (R) has fraudulently induced the innocent party (S) to believe
that R is in fact a third person (X), R is of course aware of S’s mistake and it makes no sense to ask
whether S intended to deal with R or X: to him they were the same person. 157 Nonetheless the
questions are, first, to whom did S intend to make the offer—only to X or to whomever he was in fact
dealing with 158; and secondly, whether the offer must in the circumstances be interpreted as made to,
or intended for, only X or as made to the person with whom S was actually dealing, whom he merely
Page 3
thought to be X. In practice the answer to the second question will depend on whether the parties
were dealing face-to-face or by correspondence.
Face-to-face dealings
3-040
When the parties are dealing with each other face-to-face 159 there is a strong presumption that the
mistaken party “intends” to deal with the person physically present or, to put it in other words, there is
a presumption that the offer is made to the person present. 160 Thus, in Phillips v Brooks 161 one North
entered the plaintiff’s shop and selected several pieces of jewellery. He then wrote out a cheque for
the price, saying “I am Sir George Bullough”—a person known by reputation to the plaintiff. He took
away some of the jewellery and pledged it with the defendant who received it in good faith. In an
action by the plaintiff to recover the jewellery pledged, it was held that the plaintiff intended to contract
with the person in the shop. There was therefore no operative mistake and the property in the
jewellery passed.
The cases have not been wholly consistent in their outcomes. 162
3-041
In Ingram v Little 163 the plaintiffs advertised their car for sale. A rogue who called himself Hutchinson
offered to buy the car and to pay for it with a cheque. This offer was rejected. “Hutchinson” then gave
his initials and address, describing himself as a respectable business man living in Caterham. The
plaintiffs had never heard of this man but one of the plaintiffs ascertained from the telephone directory
that such a person lived at that address. Relying on this information, they accepted the cheque, which
was dishonoured on presentation. The rogue sold the car, which subsequently came into the hands of
the defendant, a bona fide purchaser for value. In an action by the plaintiffs to recover the car, or its
value, from the defendant, the Court of Appeal by a majority held that the contract between the
plaintiffs and the rogue was void for mistake as to identity, and that they were entitled to judgment
since the car was still their property. The circumstances (particularly the investigation of the telephone
directory) indicated that it was with Hutchinson that the plaintiffs intended to deal and not with the
rogue who was physically present before them. Devlin L.J. dissented: there was a presumption that
the person intended to contract with the person to whom she was addressing her words and that the
presumption had not been rebutted. It did not suffice to show that S would not have contracted with R
unless she thought he was X. The decision in Ingram v Little was criticised and not followed in Lewis
v Averay 164 where the facts were very similar but judgment was given for the bona fide purchaser.
Phillimore L.J. emphasised that each of these cases must be decided on its own facts but that there is
a strong presumption against holding a contract to be totally void where it is entered into inter
praesentes. Megaw L.J. held that it had not been shown that the seller considered the identity of the
buyer to be of vital importance. Denning L.J. expressed the view that a mistake of identity would
never make a contract void. In the recent House of Lords case of Shogun Finance Ltd v Hudson 165 (a
case of a contract in writing) it seems to have been accepted by all their lordships who discussed the
point that, in face-to-face dealings, there is a strong presumption that the offer is made to the person
physically present. 166 Indeed, two of their lordships doubted whether the presumption could be
rebutted. 167 The tenor of their lordships’ speeches was that the dissenting approach of Devlin L.J. in
Ingram v Little 168 was to be preferred; Lord Walker said that the case was wrongly decided. 169
Contracts in writing
3-042
Where the contract is in writing, in contrast, only the persons named in the writing can be parties to
the contract, and it seems that the same applies when the negotiations for the contract were
conducted in writing even if there was no formal written agreement. In Cundy v Lindsay 170 (the facts
of which were given in para.3-036, above) it was held that the mistake was one as to the identity of
the contracting party and the contract was void. Lord Cairns remarked:
Page 4
“… how is it possible to imagine that in the that state of things any contract could have
arisen between the Respondents and Blenkarn, the dishonest man? Of him they knew
nothing, and of him they never thought. With him they never intended to deal. Their minds
never, even for an instant of time, rested on him, and as between him and them there
was no consensus of mind which could lead to any agreement or contract whatever.” 171
This decision does not seem at the time to have rested on the distinction between face-to-face
negotiations and a written contract; rather it seems to reflect the subjective approach to intention that
was widely adopted in the nineteenth century. 172 However, the decision has been upheld on the basis
that the negotiations were by correspondence and therefore the respondent’s offer was made only to
the person identified in the writing, i.e. the respectable firm of Blenkirons to whom the respondents
dispatched the goods. This is the effect of the House of Lords decision in Shogun Finance Ltd v
Hudson. 173
3-043
In Shogun Finance Ltd v Hudson 174 a rogue wanted to acquire a vehicle displayed by a car dealer
and showed the dealer a driving licence in the name of a Mr Patel. The dealer contacted the
claimants and, after the claimants had checked Mr Patel’s credit details, a financing agreement with
the claimants was arranged in the name of Mr Patel. After the rogue had paid a deposit partly in cash
and partly by cheque (which was later dishonoured), the dealer allowed the rogue to take the vehicle.
The defendant bought the vehicle in good faith. The defendant claimed that he was protected by Hire
Purchase Act 1964 s.27. This provides that when a motor vehicle has been bailed under a
hire-purchase agreement or agreed to be sold under a conditional sale agreement, and before the
property has vested in the debtor he disposes of it to a private purchaser who buys it in good faith, the
purchaser will obtain good title. The Court of Appeal, 175 by a majority, held that the defendant had not
acquired the vehicle from a “debtor” under a hire-purchase agreement as there was no valid
agreement. Mr Patel was not bound by any agreement and there was no valid agreement with the
rogue. By a majority this decision was affirmed in the House of Lords. A minority of their lordships
argued powerfully that there was a contract between the finance company and the rogue; the effect of
the fraudulently-induced belief by the company that it was dealing with Mr Patel merely rendered the
contract voidable. 176 Lord Millett accepted that A cannot accept an offer that is made to B but argued
that, whether the parties are dealing with each other face-to-face or in writing, there should be a
presumption that the mistaken party intends to deal with the person with whom he is physically
dealing—the person present or the writer of the letter. A contract should come into existence
whenever there is sufficient correlation between the offer and the acceptance to make it possible to
say that the imposter’s offer has been accepted by the person to whom it was addressed. 177 Lord
Millett said that Cundy v Lindsay was wrongly decided. 178 Lord Nicholls agreed that Cundy v Lindsay
should not be followed. 179 A person should be presumed to intend to contract with the person with
whom he is actually dealing, whatever the mode of communication. 180 But the majority held that when
the dealings are carried out by correspondence in writing, and certainly when the contract is reduced
to a writing, 181 the identification of the parties to the agreement is a question of the construction of the
putative contract. If an individual is unequivocally identified by the description in the writing, that
precludes any finding that the party to the agreement is anyone other than the person so described.
182
On the facts, the finance company was willing to do business only with the person who appeared
to have identified himself in the written document, i.e. Mr Patel 183; and where the party is specifically
identified in the document, oral or other extrinsic evidence is not admissible to show that the party is
someone else. 184 There was therefore no contract between the rogue and the finance company.
Non-existent person
3-044
It seems that if the rogue purports to be not another individual who exists but a non-existent person,
then even when the contract is in writing it will normally be between the mistaken party and the rogue.
In King’s Norton Metal Co v Edridge, Merrett & Co Ltd 185 the plaintiffs had despatched goods to one
Wallis, who had written to them posing as a member of a mythical firm named “Hallam & Co”. Wallis
Page 5
subsequently sold the goods so obtained to the defendants, who took in good faith and for value. The
Court of Appeal held that the plaintiffs had intended to contract with the writer of the letter, although
they had invested him with the attributes of solvency and respectability. A.L. Smith L.J. said 186 that if
there had been a separate entity called Hallam & Co the case might have been within Cundy v
Lindsay. 187 In the Shogun case, Lord Phillips said that in the King’s Norton case:
“ … the plaintiffs intended to deal with whoever was using the name Hallam & Co.
Extrinsic evidence was needed to identify who that was but, once identified as the user of
that name, the party with whom the plaintiffs had contracted was established. They could
not demonstrate that their acceptance of the offer was intended for anyone other than
Wallis.” 188
The King’s Norton decision does not completely preclude a finding that the mistaken party intended to
contract only with a person who does not in fact exist 189 but, as Lord Hobhouse pointed out in the
Shogun case, in a credit agreement it would be useless to use a pseudonym as there would be no
actual person against whom a credit check could be run. 190
Identity and attributes
3-045
It often used to be said that only a mistake as to the identity of the other party could ever prevent
the formation of a contract; a mistake as to attributes could never do so. 191 While it is clear that a
mistake as to an attribute of the other party such as whether he is credit-worthy will not prevent the
formation of a contract, 192 the distinction has been criticised. 193 It is possible that in exceptional
circumstances a mistake as to attribute may prevent a contract coming into existence, if a person is
for the purpose identified by some attribute. An offer made only to members of the University of
Warwick could not be accepted by someone who was not a member of the University. 194
Mistake and third parties
3-046
It is not clear whether a person can intervene and allege that a contract is void for mistake as to the
person when the contracting parties themselves are unwilling to assert its invalidity. In Fawcett v Saint
Merat (Star Car Sales Ltd, Claimant) 195 Hardie Boys J. in the Supreme Court of New Zealand held
that a third party (an execution creditor of the original owner of the goods) could not raise “in the
name of one of the contracting parties” the question of mistake as to the person; but his view did not
form part of the reasoning of the decision on appeal. 196 At first sight it might seem that a third party
should be allowed to rely on the invalidity of the transaction for the contract is not voidable at the
parties’ option but void ab initio. But in practice some strange consequences would follow from
permitting such intervention. If the buyer in Boulton v Jones 197 had waived his objections to the
identity of the seller and paid for the goods could it really be contended by a third party that the
property did not thereby pass to the buyer?
A believes B is not B
3-047
Suppose that A makes an offer to B merely in the belief that B is not B? The offer has been made to B
even though A would never have made it had he known B’s true identity. B can therefore accept the
offer whether or not he knows of the mistake. The contract may be voidable for fraud, but it is not a
nullity from the beginning. 198 It is only if a term can be implied into the offer that B is not B, and it is
proved that this was known to the other party, that the contract will be void ab initio. 199 In such a case
Page 6
the other party knows that the terms of the offer preclude him from accepting it, and, as we have
seen, 200 this may invalidate the agreement.
Proposal for reform
3-048
In its Twelfth Report, 201 the Law Reform Committee recommended that, in the case of mistake as to
the person, the distinction between void and voidable contracts should be abrogated so far as the
acquisition of title by innocent parties is concerned. However, the Report was never implemented.
142. (1878) 3 App. Cas. 459; see further below, para.3-042.
143. The owner who has parted with possession of the goods to the rogue is not estopped from
reclaiming them from the innocent third party to whom the rogue sells them; contrast the case
where a party has mistakenly signed a document which is relied on by an innocent third party,
below, para.3-049.
144. See Goodhart (1941) 57 L.Q.R. 228; Cheshire (1944) 60 L.Q.R. 175, 183; Williams (1945) 23
Can. Bar Rev. 271; Tylor (1948) 11 M.L.R. 257, 259; Slade (1954) 70 L.Q.R. 385, 390; Wilson
(1954) 17 M.L.R. 515; Unger (1955) 18 M.L.R. 259; Hall [1961] Camb. L.J. 86; Stoljar (1965) 28
M.L.R. 265, 280; C. Hare, “Identity Mistakes: A Missed Opportunity?” (2004) 67 Modern Law
Review 993; C. Macmillan, “Rogues, Swindlers and Cheats: The Development of Mistake of
Identity in English Contract Law” [2005] Cambridge Law Journal 711; D. McLauchlan, “Mistake
of Identity and Contract Formation” (2005) 21 Journal of Contract Law 1.
145. Ingram v Little [1961] 1 Q.B. 31, 57.
146. Dennant v Skinner [1948] 2 K.B. 164. See also Smith v Wheatcroft (1878) 9 Ch. D. 223. The
seller will normally have lost the right to rescind for fraud: see below, para.7-138 (but nb.
para.7-118).
147. See below, para.3-039. The same may occasionally apply when the mistake is one as attributes
rather than identity: see below, para.3-045.
148.
Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2015), p.290; see
Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919 at [63], [125] and [184].
149. Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919, per Lord Phillips at [125].
150. (1857) 2 H. & N. 564, 6 L.R. 107.
151. Goodhart (1941) 57 L.Q.R. 228, 241–244; Cheshire (1944) 60 L.Q.R. 175, 186–187. See also
Upton-on-Severn RDC v Powell [1942] 1 All E.R. 220; Shogun Finance Ltd v Hudson [2003]
Page 7
UKHL 62, [2004] 1 A.C. 919 at [65], [123] and [183].
152. See the report in (1857) 6 W.R. 107.
153. For convenience it is assumed that it is the offeror who is the mistaken party. The same
principle will apply when the mistaken party purportedly accepts an offer that he believes came
from A but was in fact made by C. See para.3-037 n.147, above.
154. Robert Goff L.J. in Whittaker v Campbell [1984] Q.B. 318, 327.
155. Lord Phillips in Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919 at [125].
157. See the judgment of Devlin L.J. in Ingram v Little [1961] Q.B. 31, 65 and the speeches of Lords
Millett, Phillips and Walker in Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919
at [64], [138], and [125], respectively.
158. See above, para.3-014. cf. Midland Bank Plc v Brown Shipley & Co Ltd [1991] 1 Lloyd’s Rep.
576 at 585 (mistake not of crucial importance).
159. Or probably where they negotiate over the telephone or by other means involving inter-personal
contact other than in writing: Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919
at [153].
160. See the speech of Lord Walker in Shogun Finance Ltd v Hudson [2003] UKHL 62 at
[184]–[185].
161. [1919] 2 K.B. 243, criticised by Goodhart (1941) 57 L.Q.R. 228 at 241, and by Gresson P. in
Fawcett v Star Car Sales [1960] N.Z.L.R. 406. See also Dennant v Skinner [1948] 2 K.B. 164;
Barclays Bank Ltd v Okenarhe [1966] 2 Lloyd’s Rep. 87.
162. Phillips v Brooks [1919] 2 K.B. 243 was distinguished by Viscount Haldane in Lake v Simmons
[1927] A.C. 487, 502, who pointed out that the misrepresentation of his identity by North had
not occurred until after the sale had been concluded and the property had passed. But in Lake v
Simmons the question was whether the loss was covered by an insurance policy and Viscount
Haldane’s approach was not adopted by the other Lords: see Devlin L.J. in Ingram v Little
[1961] 1 Q.B. 31, 69–73 and Lord Phillips in Shogun Finance Ltd v Hudson [2003] UKHL 62,
[2004] 1 A.C. 919 at [141].
163. [1961] 1 Q.B. 31 (Devlin L.J. dissenting).
164. [1972] 1 Q.B. 198.
165. [2003] UKHL 62, [2004] 1 A.C. 919. See below, para.3-043.
166. [2003] UKHL 62. See the speeches of Lord Nicholls at [22] and [37], of Lord Millett at [69], of
Lord Phillips at [170] and of Lord Walker at [187]. Lord Hobhouse did not address the question.
167. Lord Nicholls, [2003] UKHL 62 at [37] and Lord Millett, who at [67] suggested that perhaps the
presumption should be conclusive. Both were dissenting. Of the majority, Lord Walker said at
[187] that exceptions to the presumption would be very rare but might occur in, e.g. cases of
impersonation of someone actually known to a mistaken party whose senses are impaired.
168. [1961] 1 Q.B. 31.
169. [2003] UKHL 62, [2004] 1 A.C. 919 at [185].
170. (1878) 3 App. Cas. 459.

Page 8
171. (1878) 3 App. Cas. 459 at 465. See also the speeches of Lord Hatherly at 469 and Lord
Penzance at 471.
172. For a useful discussion see Simpson (1975) 91 L.Q.R. 247, 266 et seq. and Macmillan in Lewis
and Lobban, Law and History Current Legal Issues (2004) Vol.6, pp.285–315.
173. [2003] UKHL 62, [2004] 1 A.C. 919.
174. [2003] UKHL 62, [2004] 1 A.C. 919. See C. Hare, “Identity Mistakes: A Missed Opportunity?”
(2004) 67 Modern Law Review993; C. Macmillan, “Rogues, Swindlers and Cheats: The
Development of Mistake of Identity in English Contract Law” [2005] Cambridge Law Journal
711; D. McLauchlan, “Mistake of Identity and Contract Formation” (2005) 21 Journal of Contract
Law 1.
175. [2001] EWCA Civ 100, [2002] Q.B. 834.
176. The minority took a different approach to the policy of protecting good faith purchasers, see
[2003] UKHL 62 at [13] and [35] (Lord Nicholls) and [60] and [82] (Lord Millett): compare [2003]
UKHL 62 at [49] and [55] (Lord Hobhouse) and [181]–[182] (Lord Walker).
177. [2003] UKHL 62 at [81].
178. [2003] UKHL 62 at [93]. The minority were in part driven by the desire to protect innocent third
parties who might purchase the property: see Lord Nichols at [35] and Lord Millett at [60] and
[84].
179. [2003] UKHL 62 at [34].
180. [2003] UKHL 62 at [36].
181. Lord Hobhouse appears to state this as the rule when the contract is reduced to writing (at [46])
and then gives as a separate ground that the finance company only accepted the written offer
apparently made on the form by Mr Patel. Lord Walker agreed with Lord Hobhouse and in his
further remarks he appears to say that where there is an alleged contract reached by
correspondence, again the identity of the parties will normally be determined by the writing; but
he seemed to envisage that in such a case there might be room for argument, for example if in
Cundy v Lindsay the respondents had never heard of Blenkiron & Co (at [188]). Lord Phillips
does not seem to distinguish the two situations (see at [170] and [178]).
182. See the speeches of Lord Hobhouse, especially at [47]–[50]; Lord Phillips, especially at [154],
[161] and [170]; and Lord Walker especially at [180] and [188]. The decision in Hector v Lyons
(1989) 58 P. & C.R. 156, in which it was held that the mistaken identity cases have no
application when the contract is wholly in writing ((1989) 58 P. & C.R. 156,159), was said to be
correct in principle though the reason for the decision on the facts was not wholly clear: see
[2003] UKHL 62 at [49], [166] and [192].
183. See the speech of Lord Hobhouse at [48].
184. [2003] UKHL 62 at [49]. It could of course be shown that the party named was acting as agent.
185. (1897) 14 T.L.R. 98.
186. (1897) 14 T.L.R. 98, 99.
187. (1878) 3 App. Cas. 459; above, paras 3-036 and 3-039.
188. [2003] UKHL 62 at [135]. See also the speech of Lord Walker at [189].
189. Lake v Simmons [1927] A.C. 487; cf. Newborne v Sensolid (Great Britain) Ltd [1954] 1 Q.B. 45.
Page 9
190. [2003] UKHL 62, [2004] 1 A.C. 919 at [48].
191. e.g. in Lewis v Averay [1972] 1 Q.B. 198, 215 Megaw L.J. decided the case on the ground that
the mistake was merely as to attributes. See also Whittaker v Campbell [1984] Q.B. 318, 324. A
mistake as to whether a person is contracting as agent for another or as principal may be
relevant, as in Hardman v Booth (1863) 1 H. & C. 803; but not a mistake as to the identity of a
mere messenger: Midland Bank Plc v Brown Shipley & Co Ltd [1991] 1 Lloyd’s Rep. 576.
192. Midland Bank Plc v Brown Shipley & Co Ltd [1991] 1 Lloyd’s Rep. 576, 585.
193. See Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919 at [5] (Lord Nicholls).
194.
SeePeel, Treitel on The Law of Contract, 14th edn (2015), para.8–037.
195. [1959] N.Z.L.R. 952.
196. sub nom. Fawcett v Star Car Sales [1960] N.Z.L.R. 406. The majority of the court make no
reference to this point, and Gresson P. (dissenting) expressly rejects it.
197. (1857) 2 H. & N. 564, above, para.3-038.
198. Ingram v Little [1961] 1 Q.B. 31, 54; Goodhart (1941) 57 L.Q.R. 228; Unger (1955) 18 M.L.R.
259. See also Dyster v Randall & Sons [1926] Ch. 932. Contrast Gordon v Street [1899] 2 Q.B.
641; Sowler v Potter [1940] 1 K.B. 271, which may perhaps now be taken to have been
overruled, see Solle v Butcher [1950] 1 K.B. 671, 691; Gallie v Lee [1969] 2 Ch. 17, 33, 41, 45,
affirmed sub nom. Saunders v Anglia Building Society [1971] A.C. 1004; Lewis v Averay [1972]
1 Q.B. 198, 206; and Wilson (1954) 17 M.L.R. 515.
199. Said v Butt [1920] 3 K.B. 497 (a case of agency); see Vol.II, para.31-067.
201. Cmnd.2958 (1966), para.15.

Page 1

Section 3. - Non est Factum
Definition
3-049
This category of mistake is derived from a small group of cases most of them of modern times,
although the doctrine existed at least as early as 1584. 202 The general rule is that a person is
estopped by his or her deed, and although there is no such estoppel in the case of ordinary signed
documents, a party of full age and understanding is normally bound by his signature to a document,
whether he reads or understands it or not. If, however, a party has been misled into executing a deed
or signing a document essentially different from that which he intended to execute or sign, he can
plead non est factum in an action against him. The deed or writing is completely void in whosesoever
hands it may come. In most of the cases in which non est factum has been successfully pleaded, the
mistake has been induced by fraud. But the presence of fraud is probably not a necessary factor. 203
As Byles J. said in Foster v Mackinnon 204:
“… it is invalid not merely on the ground of fraud, where fraud exists, but on the ground
that the mind of the signor did not accompany the signature; in other words, that he never
intended to sign, and therefore in contemplation of law never did sign, the contract to
which his name is appended.”
However, a party is not permitted to escape the effect of a document that he has signed merely
because he did not intend to sign a contract or a contract of the type he has in fact signed. As is
explained below, the courts have placed strict limits on the doctrine of non est factum.
Importance of doctrine
3-050
The defence of non est factum is most obviously important in two situations. The first is where a party
has signed the supposed contract as the result of the fraud of a third party and the other party to the
contract has no actual knowledge or reason to know of, the fraud. 205 For example, in United
Dominions Trust Ltd v Western 206 the defendant signed a blank hire-purchase proposal form and the
dealer filled in incorrect figures before dispatching it to the finance company. The second is where the
fraud has been committed by the other party to the alleged contract or deed and a third party has then
relied on the document. In Saunders v Anglia Building Society 207 an elderly lady signed what she
believed to be a deed of gift to her house to her nephew but which was in fact an assignment on sale
to a third party who mortgaged the house to the defendants and kept the proceeds. If the case is one
of fraud or misrepresentation by the other party to the contract, with no third party involved, the
majority in the Court of Appeal in Lloyds Bank Plc v Waterhouse 208 said that the case should be dealt
with as one of misrepresentation. 209 Alternatively, where the other party knew that the document did
not represent the intention of the party signing it, the latter may have a remedy for unilateral mistake.
210
Page 2
Nature of mistake necessary to invalidate transaction
3-051
The plea of non est factum was formerly held to be available only if the mistake was as to the very
nature of the transaction. In Foster v Mackinnon 211 the defendant was induced to indorse a bill of
exchange on the false representation that it was a guarantee similar to one he had signed on a
previous occasion. He was held not liable when sued by an innocent indorsee of the bill. In Lewis v
Clay 212 the result was the same. The defendant was induced by a friend of long standing to sign a
document, which was covered by a paper with four openings in it, under the representation that he
was witnessing it. 213 The defendant had in fact signed two promissory notes and two letters
authorising the plaintiff to pay the proceeds of the notes to the friend. The defendant was held not
liable because his mind never went with the transaction. On the other hand, a mistake as to the
contents of a deed or document was held not sufficient. An extreme case was that of Howatson v
Webb, 214 where the defendant was fraudulently induced by one Hooper to execute a mortgage
relating to certain property. The defendant executed the mortgage without reading the deed; he knew
that it disposed in some way of the land in question, but was induced to believe that it was a
conveyance rather than a mortgage. The plaintiff became transferee of the mortgage in good faith
and sued the defendant on a covenant therein to repay £1,000. The defendant’s plea of non est
factum did not succeed as the deed in question was not of a wholly different class and character from
that which the defendant believed it to be. It purported to be a transfer of property, and the defendant
was merely mistaken as to its contents.
Distinction between nature and contents of document rejected
3-052
The law on this subject was completely reviewed and restated by the House of Lords in Saunders v
Anglia Building Society 215 and the distinction between the character and nature of a document and
the contents of the document was rejected as unsatisfactory. It was stressed that the defence of non
est factum was not lightly to be allowed where a person of full age and capacity had signed a written
document embodying contractual terms. But it was nevertheless held that in exceptional
circumstances the plea was available so long as the person signing the document had made a
fundamental mistake as to the character or effect of the document. Their Lordships appear to have
concentrated on the disparity between the effect of the document actually signed, and the document
as it was believed to be (rather than on the nature of the mistake) stressing that the disparity must be
“radical”, “essential”, “fundamental”, or “very substantial”. 216 The plea may also be used when the
mistake was as to the capacity in which the signor was acting, for example when he believed that he
was merely witnessing the document. 217 In contrast, it may not be available when the party knew the
nature of the document he was signing but thought that it would be used for a completely different
purpose. 218
Documents signed in blank
3-053
The plea of non est factum is likewise potentially applicable where one person signs a document in
blank and hands it to another, leaving him to fill in the details and complete the transaction. 219
However, where erroneous details are inserted which are not in accord with the instructions of the
person executing the document, he may yet be liable if the transaction which the document purports
to effect is not essentially different in substance or in kind from the transaction intended. 220 Moreover,
the onus is on the person signing the document to show that he has acted carefully, 221 and if he fails
to discharge that onus he will be bound. 222
Negligence
Page 3
3-054
A person who signs a document may not be permitted to raise the defence of non est factum where
he has been guilty of negligence in appending his signature. It was formerly held in a number of
cases, of which the leading one was Carlisle and Cumberland Banking Co v Bragg 223 that negligence
was only material where the document actually signed was a negotiable instrument, for there was not
otherwise any duty of care owed by the person executing the document to an innocent third party who
acted in reliance on it. But these cases were much criticised, both by the courts 224 and by writers, 225
and they were eventually reconsidered by the House of Lords in Saunders v Anglia Building Society,
above. Bragg’s case was overruled, and it was held that no matter what class of document was in
question, negligence or carelessness on the part of the person signing the document would exclude
the defence of non est factum. This does not depend on the principle of estoppel but on the principle
that no man can take advantage of his own wrong. 226
Disability or trickery
3-055
In Saunders v Anglia Building Society 227 Lord Reid said:
“Originally this extension [of the plea] appears to have been made in favour of those who
were unable to read owing to blindness or illiteracy and who therefore had to trust
someone to tell them what they were signing. I think it must also apply in favour of those
who are permanently or temporarily unable through no fault of their own to have without
explanation any real understanding of the purport of a particular document, whether that
be from defective education, illness or innate incapacity.”
To these cases, Lord Wilberforce added cases, of “persons who may be tricked into putting their
signature on a piece of paper which has legal consequences totally different from anything they
intended.” 228 Non est factum was held to be available in a recent case in which a person was led to
sign a guarantee thinking he was merely witnessing the document, of which he was shown only the
last page. 229 But in each case the person claiming non est factum must have “taken all reasonable
precautions available … before signing to ascertain the nature and purpose of the deed being
signed”. 230
Onus of proof
3-056
There is “a heavy burden of proof on the person who seeks to invoke this remedy”. 231 It will be a rare
case in which a person who does not suffer from a disability will be able to plead non est factum when
he has signed a document without checking to see what it is, or in what capacity he is signing it.
202. Thoroughgood’s Case (1584) 2 Co. Rep. 9a. The doctrine was probably much older than that
case: see Holdsworth, History of English Law, Vol.8, p.50.
203. Contrast Destine Estates Ltd v Muir [2014] EWHC 4191 (Ch) at [83] (“Absent, however,
Page 4
misrepresentation, there can be no sound foundation for the defence of non est factum”).
204. (1869) L.R. 4 C.P. 704, 711. See also Bank of Ireland v M’Manamy [1916] 2 I.R. 161. cf.
Hasham v Zenab [1960] A.C. 316; Mercantile Credit Co Ltd v Hamblin [1965] 2 Q.B. 242, 268,
280 (misrepresentation).
205. On notice of fraud or misrepresentation by a third party, see below, paras 7-024—7-030.
206. [1976] Q.B. 513.
207. [1971] A.C. 1004.
208. (1991) 10 Tr. L.R. 161.
209. See also Destine Estates Ltd v Muir [2014] EWHC 4191 (Ch) at [83].
161. Although a contract entered under an operative mistake is often said to be void, above,
para.3-029, it appears that this cannot be raised by the mistaken party against a third party who
in good faith and without notice of the mistake has relied on the signed document. The signer is
estopped and can only succeed against the third party if he can show non est factum: Contrast
the “mistaken identity” cases, above, para.3-036, where the mistaken party is not estopped
simply by entrusting possession of his property to the rogue who sells it to the third party.
211. (1869) L.R. 4 C.P. 704; cf. National Provincial Bank of England v Jackson (1886) 33 Ch. D. 1;
Carlisle and Cumberland Banking Co v Bragg [1911] 1 K.B. 489; Muskham Finance Ltd v
Howard [1963] 1 Q.B. 904. See also Bagot v Chapman [1907] 2 Ch. 222.
212. (1898) 67 L.J.Q.B. 224.
213. For a recent example with similar facts see Beardsley Theobalds Retirement Benefit Scheme
Trustees v Yardley [2011] EWHC 1380 (QB).
214. [1907] 1 Ch. 537, affirmed [1908] 1 Ch. 1; cf. Mercantile Credit Co Ltd v Hamblin [1965] 2 Q.B.
242.
215. [1971] A.C. 1004; see Stone (1972) 88 L.Q.R. 190.
216. [1971] A.C. 1004, at 1017, 1022, 1026. In Lloyds Bank Plc v Waterhouse (1991) 10 Tr. L.R. 161
it was held that an “all monies” guarantee was fundamentally different to one of liability under a
particular transaction for the purchase of land. cf. Hambros Bank Ltd v British Historic Buildings
Trust and Din [1995] N.P.C. 179.
217. As in Beardsley Theobalds Retirement Benefit Scheme Trustees v Yardley [2011] EWHC 1380
(QB).
218. CF Asset Finance Ltd v Okonji [2014] EWCA Civ 870 at [27]–[32] per Patten L.J. (obiter). The
defendant had signed in blank what she knew was a hire-purchase proposal; she thought it
would be used by the salesman only to see whether she could obtain sufficient credit, but the
salesman completed it and sent it to the finance company, which purported to accept it. Lord
Dyson M.R. preferred to express no opinion, pointing out that: “there is some support in [
Saunders v Anglia BS] for the view that such a mistake may enable her to invoke the remedy
(subject to the question of negligence) … Lord Pearson (1031B–H) agreed with the reasoning
of Russell L.J. and ‘in particular with the principle that importance should be attached to the
“object of the exercise” when dissimilar legal documents may have similar practical effects’.”
219. United Dominions Trust v Western [1976] Q.B. 513. cf. Mercantile Credit Co Ltd v Hamblin
[1965] 2 Q.B. 242 at [279]–[280].
220. United Dominions Trust Ltd v Western [1976] Q.B. 513 disapproving Campbell Discount Ltd v
Page 5
Gall [1961] 1 Q.B. 431; see also Bills of Exchange Act 1882 s.20. cf. Unity Finance Ltd v
Hammond (1965) 109 S.J. 70.
221. See below, para.3-054 (same principles applicable).
222. See also British Ry Traffic and Electric Co Ltd v Roper (1939) 162 L.T. 217; Eastern
Distributors Ltd v Goldring [1957] 2 Q.B. 600.
223. [1911] 1 K.B. 489; Campbell Discount Co Ltd v Gall [1961] 1 Q.B. 431, Wilson and Meeson v
Pickering [1946] K.B. 422, 425.
224. Muskham Finance Ltd v Howard [1963] 1 Q.B. 904, 913; Mercantile Credit Co Ltd v Hamblin
[1965] 2 Q.B. 242 at [278].
225. Anson (1912) 28 L.Q.R. 190; Guest (1963) 79 L.Q.R. 346.
226. [1971] A.C 1004, at 1019, 1038. In the Australian case of Petelin v Cullen (1975) 132 C.L.R.
355 the High Court held that where no innocent third party is involved the question of
negligence is not relevant. But in England it has been held that such a case should be dealt
with as one of misrepresentation or unilateral mistake, not as non est factum, above,
para.3-050. Negligence was one ground for failure of the plea in Hambros Bank Ltd v British
Historic Buildings Trust and Din [1995] N.P.C. 179.
227. [1971] A.C. 1004, 1015–1016. See also the speech of Lord Pearce at 1034.
228. [1971] A.C. 1004, 1025. This is what occurred in Beardsley Theobalds Retirement Benefit
Scheme Trustees v Yardley [2011] EWHC 1380 (QB).
229. Beardsley Theobalds Retirement Benefit Scheme Trustees v Yardley [2011] EWHC 1380 (QB).
230. Beardsley Theobalds Retirement Benefit Scheme Trustees v Yardley [2011] EWHC 1380 (QB)
at [53].
231. Lord Reid in Saunders v Anglia Building Society [1971] A.C. 1004, 1016; see also at 1019 and
1027.

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Section 4. - Rectification of Written Agreements 232
(a) - Introduction
Rectification of document to match agreement
3-057
Rectification only applies to contracts which have been reduced to writing. It is a process by which the
document is made to conform to what was actually agreed between the parties, or what the law,
applying the objective principle, treats as being their agreement.
“… the remedy of rectification is one permitted by the Court, not for the purpose of
altering the terms of an agreement entered into between two or more parties, but for that
of correcting a written instrument which, by mistake in verbal expression, does not
accurately reflect their true agreement.” 233
It has become customary to divide rectification cases into two types. Most of the cases involve what
has been agreed by the parties having been wrongly recorded in the document without either party
being aware of the mistake. These cases involve what may be termed rectification to correct a
common mistake; the document is rectified to bring it into line with the prior agreement. Rectification
may also be available when, whether or not the parties had reached a prior agreement, one party
signed a written document which did not record his intentions correctly, and the other party knew of
the first party’s intentions. 234 In this case the court may rectify the document so that it reflects the first
party’s intentions. This may be termed a case of rectification to correct a unilateral mistake. But in the
case of Chartbrook Ltd v Persimmon Homes Ltd 235 the House of Lords said that rectification can also
be ordered if the parties were not in actual agreement on the content or effect of their prior agreement
but, under the objective approach, the prior agreement has a content or effect that differs from the
content or effect of the document: again the document can be rectified to bring it into line with the
prior agreement as objectively ascertained. This has proven to be controversial and it seems to cut
across the distinction between “common mistake” and “unilateral mistake” rectification in such a way
as to make that distinction of doubtful utility. In this section we will consider first “traditional” common
mistake rectification, then unilateral mistake rectification and then the extended version before
considering some general principles which apply in all situations. 236
232. Hodge, Rectification (2010); A Burrows, Contract Terms (2007), 77; Cartwrigh,
Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), paras 13-38—13-54;
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McLauchlan (2008) 124 L.Q.R. 608, (2010) 126 L.Q.R. 8 and (2014) 130 L.Q.R. 83. N. Patten,
Chancery Bar Association Annual Lecture 2013, available at
http://www.chba.org.uk/formembers/library/annual-lectures/does-the-law-need-to-be-rectified-chartbrook-revisited
; R. Toulson, TECBar Lecture 2013, available at
https://www.supremecourt.uk/docs/speech-131031.pdf; T. Etherton, Current Legal Problems
Lecture 2015, available at
https://www.judiciary.gov.uk/wp-content/uploads/2015/04/contract-formation-and-the-fog-of-rectification-for-delive
233. Agip SpA v Navigazione Alta Italia SpA (The Nai Genova and the Nai Superba) [1984] 1 Lloyd’s
Rep. 353, 359. For further discussion of what “the parties’ agreement” is, see below, paras
3-082 et seq.
234. And possibly also if the other party should have known of the first party’s intentions: see below,
para.3-076.
235. [2009] UKHL 38, [2009] 1 A.C. 1101. See further below, para.3-077.

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(b) - Common Mistake
Common mistake
3-058
It has long been an established rule of equity that where a contract has by reason of a mistake
common 237 to the contracting parties been drawn up so as to militate against the terms intended by
both as revealed in their previous oral or written agreement, 238 the court will rectify the document so
as to carry out such intentions. 239 So if the subsequent agreement was intended to reflect the terms
of the earlier agreement but fails to do so, a party will be entitled to rectification unless it was shown
that the parties intended to vary the terms of the earlier agreement. 240 Rectification will not be
ordered, in contrast, if the terms of the subsequent written agreement were intended to supersede the
terms of the earlier agreement, 241 if a written agreement fails to mention a matter because the parties
simply overlooked it, having no intention on the point at all, 242 or if they decided deliberately to omit
the issue. In such cases the written agreement must be construed as it stands.
Mistake in recording of terms or as to legal effect
3-059
Rectification may be ordered where the document did not record correctly what the parties had
agreed, or where the legal effect of the words used was not what the parties had agreed on 243: for
example, if the document states that £x is to be paid “free of tax” when what was meant was that the
payment would be of such sum that after deduction of tax would amount to £x. 244
Issue may be solved by construction
3-060
Reference is made elsewhere to a series of cases in which the courts of common law have
corrected clerical errors 245; and also to cases in which parol evidence has been admitted to explain
latent ambiguities. 246 Where a mistake is obvious, for example because the literal meaning of the
words would be absurd, 247 and it is clear what is meant, rectification is not necessary; the matter
will be dealt with as one of construction. As Brightman L.J. said in East v Pantiles Plant Hire Ltd 248:
“It is clear on the authorities that a mistake in a written instrument can, in limited
circumstances, be corrected as a matter of construction without obtaining a decree in an
action for rectification. Two conditions must be satisfied: first, there must be a clear
mistake on the face of the instrument; secondly, it must be clear what correction ought to
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be made in order to cure the mistake. If those conditions are satisfied, then the correction
is made as a matter of construction. If they are not satisfied, then either the Claimant
must pursue an action for rectification or he must leave it to a court of construction to
reach what answer it can on the basis that the uncorrected wording represents the
manner in which the parties decided to express their intention.”
In Chartbrook Ltd v Persimmon Homes Ltd 249 Lord Hoffmann accepted Brightman L.J.’s two
conditions for the “correction of mistakes by construction” with two qualifications that had been
explained in an earlier case by Carnwath L.J. 250: first, that this is not a separate branch of the law but
“simply aspects of the single task of interpreting the agreement in its context”; and that:
“… in deciding whether there is a clear mistake, the court is not confined to reading the
document without regard to its background or context. As the exercise is part of the single
task of interpretation, the background and context must always be taken into
consideration.”
Lord Hoffmann’s analysis was accepted by the other members of the Judicial Committee. In State
Street Bank & Trust Co v Sompo Japan Insurance Inc 251 the Chancellor said:
“… although the mistake must be clear it may emerge from a consideration of all the
relevant documents, not only on the face of one of them; nor is there a limit to the
correction which may be made provided that it is clear to the reasonable person having
regard to all the relevant documents what the parties meant.”
It is only where on an objective analysis it appears that each party must have had or must be taken to
have had the same intention that the document will be interpreted in this way. In Bashir v Ali 252 a
property was auctioned and, after the sale, the vendors claimed that they had not intended to include
certain accommodation. Etherton L.J. said:
“The present case is not one, like Chartbrook, in which what is being interpreted is an
agreement between two negotiating parties. This case concerns a contract resulting from
a bid at an auction. In that situation the terms are not negotiated. It is entirely up to the
vendor to decide what to offer and on what terms. The bidder decides how much to bid in
the light of what is offered and the terms dictated by the vendor. If, as in the present case,
there has been a misdescription of the property and a low reserve leading the bidder to
conclude that the vendor has or may have made a mistake in failing to take account of
part of the accommodation, that does not mean that the contract must be construed so as
to rectify the vendor’s mistake. That is to confuse construction with the need for an action
for rectification for (say) unilateral mistake. The vendor’s mistake will only be corrected by
construction if, objectively, it is clear what property and terms the vendor intended to offer
and that the bidder understood them and intended to bid on that basis.” 253
However, it is not only in cases of common mistake that the question may be solved by construction.
In Ulster Bank Ltd v Lambe the plaintiff had made an offer to settle a claim for €155,000 when they
meant £155,000 and the defendant knew this. 254 Weatherup J. treated the offer as one for £155,000
mistakenly expressed in euros and enforced the settlement accordingly. 255
Parol evidence
3-061
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256
Where it is sought to construe a document, evidence of prior negotiations is not admissible. But
257 258
where it is sought to rectify a document, this rule does not apply. In Murray v Parker Lord
Romilly, M.R. said:
“In matters of mistake the court undoubtedly has jurisdiction, and though this jurisdiction
is to be exercised with great caution and care, still it is to be exercised, in all cases,
where a deed, as executed, is not according to the real agreement between the parties.
In all cases the real agreement must be established by evidence, whether parol or written
… If there be a previous agreement in writing which is unambiguous, the deed will be
reformed accordingly: if ambiguous, parol evidence may be used to explain it, in the
same manner as in other cases where parol evidence is admitted to explain ambiguities
in a written instrument.”
Even evidence of what a party believed had been agreed is admissible. In Chartbrook Ltd v
Persimmon Homes Ltd 259 Lord Hoffmann said:
“Unless itself a binding contract, the prior consensus is, by definition, not contained in a
document which the parties have agreed is to be the sole memorial of their agreement. It
may be oral or in writing and, even if the latter, subject to later variation. In such a case, if
I may quote what I said in Carmichael v National Power Plc 260:
‘The evidence of a party as to what terms he understood to have been agreed is some
evidence tending to show that those terms, in an objective sense, were agreed. Of
course the tribunal may reject such evidence and conclude that the party
misunderstood the effect of what was being said and done.’
In a case in which the prior consensus was based wholly or in part on oral exchanges or
conduct, such evidence may be significant. A party may have had a clear understanding
of what was agreed without necessarily being able to remember the precise conversation
or action which gave rise to that belief. Evidence of subsequent conduct may also have
some evidential value. On the other hand, where the prior consensus is expressed
entirely in writing, (as in George Cohen Sons & Co Ltd v Docks and Inland Waterways
Executive 84 Ll. L. Rep. 97) such evidence is likely to carry very little weight. But I do not
think that it is inadmissible.”
Even where the contract is one which is required to be in writing under s.2(1) of the Law of Property
(Miscellaneous Provisions) Act 1989 261 or under s.4 of the Statute of Frauds 1677 262 parol evidence
is admissible, for the jurisdiction of the court to rectify is outside the prohibition of the statute. 263
However, it must be borne in mind that statements made in the course of negotiations are often no
more than statements of a negotiating stance at that point in time. 264
Conditions for rectification on the ground of common mistake
3-062
In Chart-brook Ltd v Persimmon Homes Ltd Lord Hoffmann said 265 that the requirements for
rectification had been “succinctly summarised” by Peter Gibson L.J. in Swainland Builders Ltd v
Freehold Properties Ltd 266:
“The party seeking rectification must show that: (1) the parties had a common continuing
intention, whether or not amounting to an agreement, in respect of a particular matter in
Page 4
the instrument to be rectified; (2) there was an outward expression of accord; (3) the
intention continued at the time of the execution of the instrument sought to be rectified;
(4) by mistake, the instrument did not reflect that common intention.”
The conditions for rectification on the ground of common mistake will be discussed more fully in the
paragraphs that follow.
Concluded prior agreement not required
3-063
It was formerly thought that a plaintiff must show that there was an antecedent concluded contract,
which was inaccurately represented by the instrument purporting to be made in pursuance of it:
“Courts of equity do not rectify contracts; they may and do rectify instruments purporting
to have been made in pursuance of the terms of contracts.” 267
Where, therefore, a builder entered into a contract with an urban authority, the contract being sealed
in accordance with s.174 of the Public Health Act 1875, it was held that it could not subsequently be
rectified, for until the seal was affixed to the formal contract (i.e. the instrument sought to be rectified)
there was no contract at all between the parties, and also because the effect of rectification, if
allowed, would have been to bind the corporation to a contract which required a seal for its validity but
which they had never sealed. 268 But although there was a strong body of judicial opinion in favour of
this view, 269 Clauson J. in Shipley UDC v Bradford Corp 270 refused to accept that:
“… the jurisdiction of the court cannot be exercised even in cases of clear mutual
mistakes in the attempt to embody in the instrument the concurrent intentions of the
parties existing at the moment of the execution of the instrument unless a previously
existing contract can be proved.”
This view was confirmed by a unanimous Court of Appeal in Joscelyne v Nissen. 271 The parties had
negotiated an agreement but no concluded contract was made until execution of a formal legal
document. It was held that the court had power to rectify the agreement so long as there was a
continuing common intention in regard to a particular provision down to the execution of the written
contract.
Outward expression of accord
3-064
Although it is unnecessary to show that there was a binding agreement prior to the execution of the
written document, in Joscelyne v Nissen it was said that there must have been an “outward
expression of accord”. 272 The Court of Appeal cited with approval its previous decision, Lovell and
Christmas Ltd v Wall 273 and, in particular, the following passage from the judgment of Buckley L.J.:
“In ordering rectification the court does not rectify contracts, but what it rectifies is the
erroneous expression of contracts in documents. For rectification it is not enough to set
about to find out what one or even both of the parties to the contract intended. What you
have got to find out is what intention was communicated by one side to the other, and
with what common intention and common agreement they made their bargain.”
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It is not necessary that the parties had formulated their intention into words at the time provided they
had a common intention as to the substance, but there must have been some outward agreement. 274
The requirement of an “outward expression of accord” is not an absolute one, but one of evidence
that the parties shared a common intention even if they had not put it into words. The requirement of
outward accord was first relaxed in a series of cases involving pension schemes 275 but in Munt v
Beasley, which involved rectification of a lease, Mummery L.J., with whom the other members of the
court agreed, said:
“I would also accept … that the recorder was wrong to treat ‘an outward expression of
accord’ as a strict legal requirement for rectification in a case such as this, where the
party resisting rectification has in fact admitted … that his true state of belief when he
entered into the transaction was the same as that of the other party and there was
therefore a continuing common intention which, by mistake, was not given effect in the
relevant legal document. I agree with the trend in recent cases to treat the expression
‘outward expression of accord’ more as an evidential factor rather than a strict legal
requirement in all cases of rectification.” 276
Thus the accord may include understandings that the parties thought so obvious as to go without
saying, or that were reached without being spelled out in so many words. 277
Unexpressed but shared intentions
3-065
It is not clear whether rectification can be based on intentions that were never expressed to the
other party in any form, even if the unexpressed intentions of each party happened to coincide. One
argument is that unexpressed and unknown subjective intentions are irrelevant. 278 Rectification is to
make the document conform to the agreement and in English law some outward manifestation is
required for there to be an agreement. However, it has been argued that if the parties appear to have
contracted, even if neither party has expressed his true intentions and neither party’s intention
coincides with the apparent agreement, if in fact their intentions coincide there may be a contract on
the terms subjectively intended by both. If the apparent agreement is in writing, it would then be
possible to rectify the written agreement to accord with the parties’ subjective agreement. 279 If this
were not the case, the parties would end up being bound by a written agreement that represented
neither party’s intentions.
Continuing intention
3-066
Where it is sought to rectify a document in accordance with a prior agreement between the parties,
it must be shown that the intention of the parties continued unaltered up to the time of the execution
of the document. 280 If A prepares a draft of the written agreement, and the draft differs from the
prior agreement, but B approves and signs the written agreement without noticing the change, can A
resist rectification on the grounds that B knew or should have known that A had changed its mind? It
cannot be that a difference between the prior agreement and the draft always prevents there being a
continuing common intention or no rectification plea would ever succeed. 281 If B’s intention is
unchanged, and the difference between the prior agreement and the version that is signed is merely a
slip, then there is a continuing intention and rectification can properly be granted. In Daventry District
Council v Daventry and District Housing Ltd 282 there was a difference of opinion over the correct test
to apply, and also on its application to the facts. 283 The case involved a prior, non-binding agreement
which the parties had understood in different ways but which, as properly interpreted, placed an
obligation on Daventry and District Housing (DDH) to pay a pension deficit. DDHmade a deliberate
change in the draft contract, so that it no longer represented what had been the prior agreement (as
Page 6
properly interpreted 284): it contained a term requiring Daventry and District Council (DDC) to pay the
deficit, so making explicit DDH ’s understanding of the prior agreement. However, DDC did not
appreciate the effect of the draft and continued to think that the agreement was in the terms of the
prior agreement as DDC had (reasonably) understood it. (The same issue would arise when the draft
prepared by A was different to the prior agreement because A had changed its mind.) Though the
members of the Court of Appeal agreed that the question whether there was a continuing intention
must be answered on an objective test, they took different approaches to what the test should be.
Toulson L.J. asked “whether on a fair view there was a renegotiation of the prior agreement or a
mistake” 285 and concluded that there was no attempt to renegotiate, as there was nothing to show
that DDC had changed its mind. 286 For Etherton L.J. the test was “whether objectively, prior to the
execution of the contract, DDH communicated to DCC that it intended to contract on a different basis”
than the payment provided for in the prior agreement. 287 The Master of the Rolls pointed out that
Toulson L.J.’s approach would require an assessment of DDC ’s reaction to the draft, which he
considered unnecessary: as the prior accord was not legally binding, “there was no need for DDC to
agree to DDH ’s resiling from the prior accord before that resiling could be effective”. He therefore
preferred Etherton L.J.’s approach. 288 However, Etherton L.J. and the Master of the Rolls reached
different conclusions on the facts. The Master of the Rolls held that “the hypothetical observer would
not have concluded thatDDH was signalling a departure from the prior accord: the observer would
have believed that DDH was making a mistake” 289 and therefore there was a continuing intention.
Etherton L.J., dissenting, held that the trial judge 290 had been right to find that DDH had objectively,
prior to the execution of the contract, communicated to DDC that it intended to contract on a different
basis, and therefore the appeal should be dismissed. 291 In a postscript to his judgment Etherton L.J.
explained why he considers the Master of the Rolls’ finding that the reasonable observer would have
concluded that DDH was “making a mistake” to have been an incorrect application of the objective
test, given that the wording inserted in the draft clearly placed the obligation to pay the deficit on DDC
. 292
3-067
In the light of these disagreements, it is difficult to extract a clear ratio from the Daventry case. 293 It is
submitted that when A submits to B a draft which differs from the parties’ earlier agreement, the
correct approach in principle is to ask whether B realised or should reasonably have realised that the
draft agreement was intended to differ from the prior agreement rather than to implement the prior
accord. That B did not realise this is evidence of what it was reasonable for B to understand but no
more. Though in the context of rectification the question is slightly different, this approach is
consistent with the normal approach to the interpretation of contractual intention. In the case of a
statement of intention such as an offer, the question is how should B as a reasonable person in the
circumstances, have understood A’s offer 294; in the context of ascertaining whether or not there was a
continuing common intention for the purposes of rectification, it is how B should reasonably have
understood the draft, as merely to set down what was previously agreed, or as a new proposal (or
perhaps a deliberate assertion that A did not accept the “objective” meaning of the prior agreement).
295
More than one way of achieving intention
3-068
Rectification may be granted if the writing does not carry out the parties’ objective intention even if
there is more than one way by which the parties’ intention can be achieved and the parties had not
agreed on the precise mechanism. 296
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237. Murray v Parker (1854) 19 Beav. 305.
238. On the meaning of this see below, paras 3-077 and 3-082 et seq.
239. Burroughs v Abbott [1922] 1 Ch. 86; Constantinidi v Ralli [1935] Ch. 427; Jervis v Howle and
Talke Colliery Co Ltd [1937] Ch. 67. As regards past transactions, the court may give effect to a
“defence” of rectification without actually ordering rectification: The Nile Rhapsody [1992] 2
Lloyd’s Rep. 399, 408. A claimant may also invoke rectification on the same basis: [1992] 2
240. PT Berlian Laju Tanker TBK v Nuse Shipping Ltd (The Aktor) [2008] EWHC 1330 (Comm),
[2008] 2 Lloyd’s Rep. 246 at [58].
241. [2008] EWHC 1330 (Comm) at [60].
242. Harlow Development Corp v Kingsgate (Clothing Productions) (1973) 226 E.G. 1960; Olympia
Sauna Shipping Co SA v Shinwa Kaiun Kaisha Ltd (The Ypatia Halcoussi) [1985] 2 Lloyd’s
Rep. 364; OMV Supply and Trading AG v Kazmunaygaz Trading AG [2014] EWHC 1372
(Comm) (neither party thought document contained the term that one claimed should be
inserted). It is submitted that the apparent suggestion in that case (at [74]) that a contractual
document cannot be rectified to include a term that has been omitted is not correct, provided
the parties had a common intention that the term should form part of the agreement.
243. Ahmad v Secret Garden (Cheshire) Ltd [2013] EWCA Civ 1005 at [27].
244. See Burroughs v Abbott [1922] 1 Ch. 86; Jervis v Howle and Talke Colliery Co Ltd [1937] Ch.
67. Rectification is not possible if the parties were merely mistaken over the consequences of
their agreement for tax purposes: Ashcroft v Barnsdale [2010] EWHC 1948 (Ch), [2010] S.T.C.
2544 at [17]; Kennedy v Kennedy [2014] EWHC 4129 (Ch) at [43] (voluntary settlement). See
also Hodge, Rectification (2010), paras 3-100 and 3-169. Compare below, para. 3-090.
245. See below, paras 13-074—13-083.
246. See below, paras 13-120—13-129.
247.
See para.13-056. Compare LSREF III Wight Ltd v Millvalley Ltd [2016] EWHC 466 (Comm),
165 Con. L.R. 58 (“no ambiguity, no syntactical difficulty in construing the language used and
the reference to the 1992 form of ISDA Agreement cannot be said to be such a commercial
nonsense as to make it absurd for the parties to refer to it”: at [62]).
248. [1982] 2 E.G.L.R. 111, 112, quoted in Dalkia Utilities Services Plc v Celtech International Ltd
[2006] EWHC 63, [2006] 1 Lloyd’s Rep. 599, at [109]. See below, para.13-077.
249. [2009] UKHL 38, [2009] 1 A.C. 101 at [22]–[24]. For a critique, see Buxton (2010) 69 C.L.J. 253.
250. KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus. L.R. 1336 at [44]–[50].
251. [2010] EWHC 1461 (Ch) at [20].
252. [2011] EWCA Civ 707, [2011] 2 P. & C.R.12.

Page 8
253. [2011] EWCA Civ 707 at [42]. In Scottish Widows Fund and Life Assurance Society v BGC
International [2012] EWCA Civ 607 Arden L.J. said (at [20]) that (i) it must be clear from the
document interpreted with the admissible background that the parties have made a mistake and
what that mistake is; (ii) it must be clear, from the rest of the agreement interpreted with the
admissible background, what the parties intended to agree; and (iii) the mistake must be one of
language or syntax.
254. Ulster Bank Ltd v Lambe [2012] NIQB 31.
255. [2012] NIQB 31 at [28]. The judge would have ordered rectification but thought it unnecessary
to do so.
257.
Lovell and Christmas Ltd v Wall (1911) 104 L.T. 85; Chartbrook Ltd v Persimmon Homes Ltd
[2009] UKHL 38 at [47]. In J.J. Huber (Investments) Ltd v Private DIY Co Ltd [1995] N.P.C. 102
Ch D it was held that the presence on an “entire agreement” clause in the contract does not
prevent rectification. An entire agreement clause may tend to show that the parties have
intended to be bound by the document in the material respects regardless of prior or other
intentions (citing Spry on Equitable Remedies 5th edn (1997) at p.612): Snamprogetti Ltd v
Phillips Petroleum Co UK Ltd [2001] EWCA Civ 889, 79 Con. L.R. 80 at [32]. However, the
clause may not be helpful if it was incorporated without any thought being given to its meaning:
Surgicraft Ltd v Paradigm Biodevices Inc [2010] EWHC 1291 (Ch) at [75]. See also Procter and
Gamble Co v Svenska Cellulosa Aktiebolaget SCA [2012] EWHC 498 (Ch) at [104]–[106];
DS-Rendite-Fonds Nr.106 VLCC Titan Glory GmbH & Co Tankschiff KG v Titan Maritime SA
[2013] EWHC 3492 (Comm) at [48]; LSREF III Wight Ltd v Millvalley Ltd [2016] EWHC 466
(Comm), 165 Con. L.R. 58 at [121]–[123]; Milton Keynes BC v Viridor (Community Recycling
MK) Ltd [2017] EWHC 239 (TCC), [2017] B.L.R. 216 at [77].
258. (1854) 19 Beav. 305, 308.
259. [2009] UKHL 38 at [64]–[67].
260. [1999] 1 W.L.R. 2042, 2050–2051. For an example of the parties’ subjective intentions being
evidence of the objective agreement, see Equity Syndicate Management Ltd v Glaxosmithkline
Plc [2015] EWHC 2163 (Comm) at [35].
262. See Vol.II, Ch.45 (contracts of suretyship).
263. Cowen v Truefitt Ltd [1899] 2 Ch. 309; Johnson v Bragge [1901] 1 Ch. 28; Thompson v
Hickman [1907] 1 Ch. 550; Craddock Bros v Hunt [1923] Ch. 136; USA v Motor Trucks Ltd
[1924] A.C. 196. cf. para.5-034.
264. Scottish Widows Fund and Life Assurance Society v BGC International [2012] EWCA Civ 607
at [34].
265. [2009] UKHL 38 at [48]. Lord Hoffmann’s statements on rectification were obiter, as the case
was decided on a question of construction (see para.3-060), but appear to have been
supported by the other members of the Judicial Committee (see [2009] UKHL 38 at [1], [71],
[97] and [101]). See, however, below, para.3-081.
266. [2002] 2 E.G.L.R. 71 at 74, para.33.
267. Mackenzie v Coulson (1869) L.R. 8 Eq. 368, 375.
268. W. Higgins Ltd v Northampton Corp [1927] 1 Ch. 128.
269. Mackenzie v Coulson (1869) L.R. 8 Eq. 368; Faraday v Tamworth Union (1916) 86 L.J.Ch. 436,
Page 9
438; W. Higgins Ltd v Northampton Corp [1927] 1 Ch. 128, 136; USA v Motor Trucks Ltd [1924]
A.C. 196, 200; Lovell Christmas Ltd v Wall (1911) 104 L.T. 85.
270. [1936] Ch. 375. See also Frederick E. Rose (London) Ltd v William H. Pim Jnr. & Co Ltd [1953]
2 Q.B. 450, 461; Crane v Hegemann-Harris Co Inc [1939] 1 All E.R. 662, affirmed [1939] 4 All
E.R. 68, [1971] 1 W.L.R. 1390n; Monaghan CC v Vaughan [1948] Ir.R. 306; Carlton Contractors
v Bexley Corp (1962) 106 S.J. 391; Kent v Hartley (1966) 200 E.G. 1027.
271. [1970] 2 Q.B. 86.
272. [1970] 2 Q.B. 86, 98. Use of this phrase is criticised by Bromley in (1971) 87 L.Q.R. 532; but
compare Smith (2007) 123 L.Q.R. 116.
273. (1911) 104 L.T. 85.
274.
Grand Metropolitan Plc v William Hill Group Ltd [1997] 1 B.C.L.C. 390. In Mangistaumunaigaz
Oil Production Association v United World Trading Inc [1995] 1 Lloyd’s Rep. 617 no prior
agreement was shown and rectification was refused. In Mace v Rutland House Textiles Ltd (In
Administrative Receivership), The Times, January 11, 2000 rectification was permitted when
the text of the agreement had been prepared by a person instructed by both parties and did not
represent their common intention although that had not been expressed in a settled form of
words. In Prowting 1968 Trustee One Ltd v Amos-Yeo [2015] EWHC 2480 (Ch), [2015] B.T.C.
33 rectification was ordered when an agreement did not reflect the parties’ intention to transfer
enough shares to entitle the claimants to tax relief, although the parties had left the number to
be determined by a trustee, who had miscalculated the number (see at [37]–[38]).
275. In particular AMP v Barker [2001] P.L.R. 77 and Gallaher v Gallaher Pensions Ltd [2005]
EWHC 42 (Ch), [2005] All E.R. (D) 177 (Jan).
276. [2006] EWCA Civ 370, [2006] All E.R. (D) 29 (Apr), at [36].
277. Carnwath L.J. in JIS (1974) Ltd v MCP Investment Nominees Ltd [2003] EWCA Civ 721 at
[33]–[34]; see also Cambridge Antibody Technology v Abbott Biotechnology Ltd [2004] EWHC
2974 (Pat), [2005] F.S.R. 27 at [105]–[112]. “Whilst it must be shown what was the common
intention, the exact form of words in which the common intention is to be expressed is
immaterial if in substance and in detail the common intention can be ascertained”: Co-operative
Insurance Society Ltd v Centremoor Ltd [1983] 2 E.G.L.R. 52 at 54, cited in Swainland Builders
Ltd v Freehold Properties Ltd [2002] EWCA Civ 560 at [34].
278. cf. Smith (2007) 123 L.Q.R. 116; Tartsinis v Navona Management Co [2015] EWHC 57 (Comm)
at [88]–[89]. Similarly, it has been said that in establishing what the prior understanding was,
“the court is not concerned with what the parties thought they had agreed or what they thought
their agreement meant—a subjective inquiry. What it is concerned with is what the parties said
and did, and what that would convey to a reasonable person in their position—an objective
question”: PT Berlian Laju Tanker TBK v Nuse Shipping Ltd (The Aktor) [2008] EWHC 1330
(Comm), [2008] 2 Lloyd’s Rep. 246 at [38]. Christopher Clarke J. added that it was immaterial
that both parties, although agreeing “X”, thought that “X” meant something that, objectively, it
does not mean. He added (at [41]) that “a continuing common intention is not sufficient unless it
has found expression in outward agreement”. See also Chartbrook Ltd v Persimmon Homes Ltd
[2009] UKHL 38, [2009] 1 A.C. 1101 at [57]; and the lectures by Lord Justice Patten and Sir
Terence Etherton, above, para.3-057 n.232. However, it is submitted that if each party
understands “X” to mean “Y” and believes that the other has the same understanding, the
actual agreement is on “Y” (see above, para.3-014). If this is correct, the written document can
be rectified accordingly.
279.
Cartwright 4th edn (2016), para.13-40. See also Hodge, Rectification (2010), paras
3-65—3-69.
280.
Fowler v Fowler (1859) 4 De G. & J. 250; Swainland Builders Ltd v Freehold Properties Ltd
Page 10
[2002] 2 E.G.L.R. 71 at 74, para.33, cited with approval in Chartbrook Ltd v Persimmon Homes
Ltd [2009] UKHL 38 at [48]; see above, para.3-062. It has been said that the word “continuing”
in Peter Gibson L.J.’s first requirement in the Swainland Builders case seems to be superfluous:
it is more accurate to say that there needs to be a common intention (requirement 1) which was
continuing at the time that the contract was executed (requirement 3): Milton Keynes BC v
Viridor (Community Recycling MK) Ltd [2017] EWHC 239 (TCC), [2017] B.L.R. 216 at [48]
(Coulson J.). If the parties have altered their agreement extensively before the document was
executed, rectification will not be appropriate because their initial intention on the point at issue
may well have changed also (as in Pindos Shipping Corp v Raven (“The Mata Hari”) [1983] 2
Lloyd’s Rep. 449), but the fact that there have been minor changes to other aspects of the
agreement does not prevent rectification: [2017] EWHC 239 (TCC) at [62]–[63], citing Dunlop
Haywards Ltd v Erinaceous Insurance Services Ltd [2009] EWCA Civ 354 at [82].
281. Daventry District Council v Daventry and District Housing Ltd [2011] EWCA Civ 1153, [2012] 1
W.L.R. 1333 at [59], per Toulson L.J., and at [211], per Lord Neuberger M.R. Compare below,
para.3-094.
282. [2011] EWCA Civ 1153, [2012] 1 W.L.R. 133. See McLauchlan (2014) 131 L.Q.R. 83.
283. See the summary of the differences in the postscript to Etherton L.J.’s judgment at [104]–[105].
284. In other words, the case was one within the “extended” notion of common mistake: see below,
para.3-077.
285. [2011] EWCA Civ 1153 at [160].
286. [2011] EWCA Civ 1153 at [170].
287. [2011] EWCA Civ 1153 at [91].
288. [2011] EWCA Civ 1153 at [207].
289. [2011] EWCA Civ 1153 at [213].
290. [2010] EWHC 1935 (Ch).
291. [2011] EWCA Civ 1153 at [91]–[92].
292. [2011] EWCA Civ 1153 at [106]–[115], especially at [110]–[112].
W.L.R. 1333.
295. cf. below, para.3-071, text at n.317.
296. Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 E.G.L.R. 71 at para.38; Lloyds TSB
Bank Ltd v Crowborough Properties Ltd [2013] EWCA Civ 107 at [57]–[70].

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(c) - Unilateral Mistake 297
Unilateral mistake
3-069
In this section we deal with cases in which one party makes a mistake over the terms of the contract
and the other party does not intend to contract on the terms intended by the first party. If Lord
Hoffmann’s approach to rectification for common mistake in Chartbrook Ltd v Persimmon Homes Ltd
298
is followed, rectification for unilateral mistake will be less important than hitherto; but it will remain
important in cases in which there was no agreement prior to the document being signed but the
defendant knows that the document does not express the claimant’s intention correctly. In this type of
case rectification cannot be given on the ground of common mistake. 299 Where the mistake is
unilateral, that is of one party only, it was formerly thought that rectification would not be granted
unless a case of fraud or misrepresentation, 300 or unfair dealing, 301 or perhaps sharp practice, could
be shown. In Roberts & Co Ltd v Leicestershire CC 302 it was said that the doctrine might be based on
either fraud or estoppel, when:
“… it is not an essential ingredient of the right of action to establish any particular degree
of obliquity to be attributed to the defendants in such circumstances.” 303
But in Thomas Bates Son v Wyndhams Ltd the Court of Appeal rejected these limits on the availability
of the remedy of rectification. 304 Where one party is mistaken as to the incorporation of the
agreement in the document, and the other knows of the mistake, and does not draw it to the attention
of the first party, it suffices that it would be inequitable to allow the second party to insist on the
binding force of the document, either because this would benefit him or because it would be
detrimental to the mistaken party. Buckley L.J. said:
“For this doctrine—that's to say the doctrine of A. Roberts & Co. Ltd. v. Leicestershire
County Council —to apply I think it must be shown: first, that one party A erroneously
believed that the document sought to be rectified contained a particular term or provision,
or possibly did not contain a particular term or provision which, mistakenly, it did contain;
secondly, that the other party B was aware of the omission or the inclusion and that it was
due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the
notice of A. And I think there must be a fourth element 305 involved, namely, that the
mistake must be one calculated to benefit B. If these requirements are satisfied, the court
may regard it as inequitable to allow B to resist rectification to give effect to A’s intention
on the ground that the mistake was not, at the time of execution of the document, a
mutual mistake.” 306
There are at least two issues which require discussion: the degree of knowledge required and the
“fourth element”, which Buckley L.J. put as whether, in addition to knowing of the mistake, the
Page 2
defendant must be guilty of some inequity. 307
Knowledge of the mistake
3-070
Even though sharp practice may not be required, unilateral mistake is not by itself a ground for
rectifying a contract unless the other party knew of the mistake. 308 On current authority 309 it appears
that the knowledge must be actual knowledge. 310 It is not enough that the party against whom
rectification is sought may have suspected that a mistake had been made 311; but if a party wilfully
shuts its eyes to the obvious, or wilfully and recklessly fails to make such inquiries as an honest and
reasonable man would make, that will count as actual knowledge. 312 The nature of the knowledge
that A must be shown to have of B’s mistake if rectification is to be granted was discussed in detail by
the Court of Appeal in George Wimpey UK Ltd v VI Construction Ltd. 313 Using the analysis of the
various forms of knowledge made by Peter Gibson J. in Baden v Société Générale pour Favoriser le
Développement du Commerce et de l’Industrie en France SA, 314 it must be: (i) actual knowledge; (ii)
wilfully shutting one’s eyes to the obvious; or (iii) wilfully and recklessly failing to make such inquiries
as an honest and reasonable man would make. In Agip (Africa) Ltd v Jackson 315 Millett J. said that
the true distinction is between honesty and dishonesty. In cases within (i)–(iii) A would not be acting
honestly. The implication is that the same would not be true if A merely had (again using the
categories of Peter Gibson J.); (iv) knowledge of circumstances which would indicate the facts to an
honest and reasonable man, or (v) knowledge of circumstances which would put an honest and
reasonable man on inquiry:
“The remedy of rectification for unilateral mistake is a drastic remedy, for it has the result
of imposing on the defendant to the claim a contract which he did not, and did not intend
to, make. Accordingly the conditions for the grant of such relief must be strictly satisfied.”
316
Conduct contributing to the mistake
3-071
It seems that rectification will be granted even if the defendant did not have positive knowledge of the
claimant’s mistake if the defendant deliberately sought to prevent the claimant from discovering that
what was written in the document did not accord with his intentions. Although it has been suggested
that it is not sufficient that the defendant contributed to the mistake unless he did so knowingly, 317 if a
party puts forward a draft document in such a way that he makes a presentation that it is in
accordance with an earlier accord of the parties, and the other party foreseeably relies on this, an
estoppel may arise. 318 Further, in Commission for New Towns v Cooper Stuart Smith L.J. said:
“… were it necessary to do so in this case, I would hold that where A intends B to be

mistaken as to the construction of the agreement, so conducts himself that he diverts B’s
attention from discovering the mistake by making false and misleading statements, and B
in fact makes the very mistake that A intends, then notwithstanding that A does not
actually know, but merely suspects, that B is mistaken, and it cannot be shown that the
mistake was induced by any misrepresentation, rectification may be granted. A’s conduct
is unconscionable and he cannot insist on performance in accordance to the strict letter
of the contract; that is sufficient …” 319
This type of conduct would clearly not be honest. In the Australian case of Taylor v Johnson 320 the
High Court had held that this sort of unconscionable conduct on A’s part would suffice for the contract
to be rescinded on the ground of mistake. 321 The same principle does not necessarily apply to cases
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of rectification, since the court is not simply undoing the bargain but also imposing a different bargain
on A. However, it is not unjust to insist that the contract be performed according to B’s understanding
where that was the very meaning that A intended B to put on it, even if it is not shown that A had
actual knowledge of B’s mistake, and rectification may be granted. 322 If on the other hand it is
reasonable to expect the other party to check the draft, and A does not know that B mistakenly thinks
that it reflects what B hoped would be agreed, there will be no relief. 323 In cases of pure unilateral
mistake that the other party did not know or have any reason to know of, 324 the remedy (if any, and
there will often be none), is refusal of an order of specific performance 325 but not, it appears,
rescission. 326
Inequity
3-072
In Riverlate Properties Ltd v Paul 327 it was suggested that in a case of unilateral mistake the
defendant must not only have known of the mistake but be guilty of sharp practice. In Thomas Bates
Son v Wyndhams Ltd Buckley L.J. rejected this, 328 saying:
“Undoubtedly I think in any such case the conduct of the defendant must be such as to
make it inequitable that he should be allowed to object to the rectification of the
document. If this necessarily implies some measure of “sharp practice”, so be it; but for
my part I think that the doctrine is one which depends more upon the equity of the
position. The graver the character of the conduct involved, no doubt the heavier the
burden of proof may be; but, in my view, the conduct must be such as to affect the
conscience of the party who has suppressed the fact that he has recognised the
presence of a mistake.”
He went on to say that for this requirement 329 to be satisfied, the mistake must be one “calculated to
benefit B”. In contrast, Eveleigh L.J. said that this was not necessary: it was enough that there would
be a detriment to the claimant. 330 It is submitted that either should suffice. In practice, if the claimant’s
mistake was known to the defendant, or the defendant deliberately induced the mistake in the way
described earlier, 331 and the terms of the written document are less favourable to the claimant than
those the defendant knew that the claimant actually intended, it will be inequitable for the defendant to
insist on the terms stated in the document and the grounds for rectification will be satisfied. 332 Even
though it is still sometimes said that sharp practice is required, what amounts to sharp practice may
depend on the comparative competence and resources of the parties. 333 A party with little experience
or few bargaining resources who has noticed a possible mistake made by a much stronger party may
334
be entitled to assume that the stronger party “knew what it was doing”. This may be explained
335
in terms of whether the weaker party was acting unconscionably ; but it can equally be seen as
a question of whether the weaker party had the requisite degree of knowledge—a party who did not
actually know a mistake had been made but who shut his eyes to the obvious or failed to make
enquiries is treated as “knowing of it” only if he acted dishonestly. 336
Cancellation with option of rectification
3-073
In a small group of cases a middle course between refusing and granting rectification was adopted.
These cases are Garrard v Frankel, 337 Harris v Pepperell, 338 Bloomer v Spittle 339 and Paget v
Marshall. 340 The course adopted was to order cancellation with an option to the defendant to accept
rectification instead. They are all cases of unilateral mistake. In Garrard v Frankel 341 the defendant
agreed to take from the plaintiff a lease of a house at the rent of £230, and in the lease drawn up in
pursuance of the agreement the rent was stated to be £130. Lord Romilly M.R. considered that the
error was the plaintiff’s but that the defendant must have perceived it, and held that though the
Page 4
plaintiff was not entitled to have the lease rectified, the lessee ought to be put to his election whether
to have the lease rectified or to reject it. In Harris v Pepperell 342 the vendor had executed a
conveyance including a piece of land he had not intended to sell but which the defendant alleged he
had intended to buy. Lord Romilly, following his previous decision in Garrard v Frankel, gave the
defendant the option “of having the whole contract annulled or else of taking it in the form which the
plaintiff intended”. In Bloomer v Spittle 343 a conveyance of land reserved to the vendor the right to
minerals. The purchaser alleged that the reservation had been inserted by mistake, but the vendor
denied that this was so. The vendor died before he could be cross-examined on this point. In an
action by the purchaser for rectification of the conveyance, it was held that this relief could not be
granted after a long lapse of time and in the face of the vendor’s denial. Nevertheless the personal
representatives of the vendor were to choose whether to have the conveyance set aside or rectified.
In Paget v Marshall 344 the plaintiff by mistake had offered and demised to the defendant four floors of
three houses, whereas he had intended to reserve for his own use the first floor of one of the houses.
Again the defendant had to elect whether to submit to rectification or have the lease cancelled.
3-074
This group of cases was critically re-examined by the Court of Appeal in Riverlate Properties Ltd v
Paul. 345 The court expressed serious doubts about the authority of these cases and was especially
critical of Garrard v Frankel. 346 Although they did not expressly overrule this case they left little doubt
that in their view it was wrongly decided. They emphasised that if the defendant neither knows of, nor
contributes to nor shares the mistake, but bona fide assumes that the written document correctly
represents the common intention, there is no ground for rescission or rectification. If, on the other
hand, the defendant does know of the claimant’s mistake, and what his intention was, the claimant is
today entitled to rectification, and there is no reason why the defendant should be offered the option
of rescission. It seems that the cases referred to in para.3-073 must be explained on the ground that
they were decided before it became clear that rectification could be ordered even for a unilateral
mistake if known to (or, perhaps, if contributed to) by the defendant.
Rescission when known that claimant had made some mistake
3-075
There may be cases in which the claimant has made a mistake, and the defendant is aware of that
but does not know what the claimant intended. It is submitted that in such a case the contract should
not be rectified to accord with what the claimant shows his true intention to have been; that might
force the defendant into a contract to which he had never agreed. 347 However, in such a case it
seems appropriate to allow rescission. 348 This seems to have been recognised by Stuart Smith L.J. in
Commission for New Towns v Cooper. 349 The passage quoted in para.3-071, above in fact ends: “ …
that is sufficient for rescission” (emphasis supplied). If necessary the document should be cancelled.
350
Mistake that ought to have been known to the defendant
3-076
The requirement that the claimant’s mistake must have been known to the defendant and that the
defendant must have been guilty of sharp practice or that there would be inequity were rectification
not to be granted, have been justified on the grounds that rectification for unilateral mistake is a
drastic remedy because it results of imposing on the defendant to the claim a contract which he did
not, and did not intend to, make. 351 It has been argued, 352 however, that rectification is not drastic: its
purpose is simply to bring the written agreement into line with the agreement between the parties as
determined by the ordinary principles of contract formation. Therefore rectification on the ground of a
unilateral mistake should not be confined to the case in which the claimant’s intention was known to
the defendant, but should be extended to cases in which the defendant should have been aware of
the claimant’s intention and led the claimant reasonably to believe that the terms it intended were
accepted. This would be consistent with the principle laid down by Blackburn J. in Smith v Hughes 353:
Page 5
“If whatever a man’s real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed by the other party, and that
other party upon that belief enters into the contract with him, the man thus conducting
himself would be equally bound as if he had intended to agree to the other party’s terms.”
Blackburn J.’s dictum is normally used to justify holding a party (A) to what he appeared to say,
unless the other party (B) does not believe that this is what in fact A intended. However, the
implication is that if in the circumstances it was not reasonable for B to believe that A intended what
he said—in other words, if B should have realised that A had made a mistake—then B cannot rely on
the apparent meaning of what A said. The argument is then made that if B, by his actions, appears to
accept A’s meaning, A is entitled to rely on this, provided his reliance is reasonable, with the result
that the contract at common law will be in the terms in fact intended by A; and if the written agreement
does not reflect what B should reasonably have understood to be A’s intention, it should be rectified.
In Daventry District Council v Daventry and District Housing Ltd, 354 Toulson L.J. expressed sympathy
for this view. 355 It would seem odd not to grant rectification if the contract would be on the terms
intended by A were the contract an oral one. However, the effect on an oral contract of a mistake by A
which of which B did not know but should have known is not clearly established. It may be of no effect
at all; or it may prevent an oral contract being formed; or it may result in the contract being on A’s
intended terms. 356 Earlier it was submitted that it should be treated as not giving rise to a contract.
That would suggest that in case of the kind under discussion, the document should be treated as
void. 357 But the rule stated in the current case law, that actual knowledge is required before a contract
document can be rectified on the ground of a unilateral mistake and that anything less than actual
knowledge is irrelevant, can be justified on the grounds of convenience and certainty; it is undesirable
to allow A to go behind a document it has signed save in exceptional circumstances amounting to
dishonesty, or something close to it, on B’s part. The rule certainly seems to represent the authorities
as they stand currently.
297. Burrows in Burrows and Peel, Contract Terms (2010), p.77; McLauchlan (2008) 124 L.Q.R.
608.
298. [2009] UKHL 38, [2009] 1 A.C. 1101; see below, para.3-077.
299. cf. paras 3-058et seq.; but compare Ulster Bank Ltd v Lambe [2012] NIQB 31, cited in
para.3-060, where it was held that D must have know of the mistake of euros for pounds in P’s
offer when accepting it and that the contract meant what P intended.
300. Wood v Scarth (1855) 2 K. & J. 33, 41; May v Platt [1900] 1 Ch. 616.
301. McCausland v Young [1949] N.I. 49.

Page 6
302. Roberts & Co Ltd v Leicestershire CC [1961] Ch. 555.
303. Pennycuick J. at 570.
304. Thomas Bates & Son v Wyndhams Ltd [1981] 1 W.L.R. 505.
305. Differing views were expressed by the members of the Court of Appeal in Thomas Bates & Son
v Wyndhams Ltd [1981] 1 W.L.R. 505 on this fourth element. See below, para.3-072.
306. [1981] 1 W.L.R. 505, 516. In unilateral mistake cases, it may be said that rectification can be
granted without there having been an antecedent agreement between the parties: Littman v
Aspen Oil (Broking) Ltd [2005] EWCA Civ 1579, [2006] 2 P. & C.R. 2; but as Jacobs L.J. noted
at [24], a party who accepts a clause knowing full well what the other party (mistakenly) thinks it
means or says is in effect agreeing to the other party’s version.
308. Riverlate Properties Ltd v Paul [1975] Ch. 133, below, para.3-074; Kemp v Neptune Concrete
(1989) 57 P. & C.R. 369. In the latter case Purchas L.J. (at 377) said that it must have been
unconscionable for the non-mistaken party to execute the deed or to stand by while the other
does so; but it seems that the requirement of unconscionability will be satisfied if the
non-mistaken party seeks to take advantage of the other’s mistake: Templiss Properties Ltd v
Hyams [1999] E.G.C.S. 60.
309. But see para.3-076, below.
Rep. 353; Commission for New Towns v Cooper (Great Britain) [1995] Ch. 259. cf. above,
paras 3-022—3-023.
311. Olympia Sauna Shipping Co SA v Shinwa Kaiun Kaisha Ltd (The Ypatia Halcoussi) [1985] 2
312. cf. Commission for New Towns v Cooper (Great Britain) Ltd [1995] Ch. 259, applying the
analysis of various forms of knowledge made by Peter Gibson J. in Baden v Société Générale
pour Favouriser le Développement du Commerce et de l’Industrie en France SA [1993] 1
W.L.R. 509 and adopted by Millett J. in Agip (Africa) Ltd v Jackson [1990] Ch. 265, see further,
313. [2005] EWCA Civ 7, [2005] B.L.R. 135.
314. [1993] 1 W.L.R. 509.
315. [1990] Ch. 265 at 293.
316. See the judgment of Sedley L.J. in the George Wimpey case[2005] EWCA Civ 77 at [65]. But
see also below, para.3-076.
Rep. 333, 344. The point was not discussed directly on appeal but appears to be consistent
with the Court of Appeal’s insistence on actual knowledge: [1984] 1 Lloyd’s Rep. 353.
318. [1984] 1 Lloyd’s Rep. 353, 365.
319. [1995] Ch. 259 at 280.
320. (1983) 151 C.L.R. 422, 45 A.L.R. 265; see above, para.3-027 n.120.

Page 7
322. Commission for New Towns v Cooper (Great Britain) Ltd [1995] 2 Ch. 259.
323. Taylor Barnard v Tozer (1984) 269 E.G. 225.
324. cf. below, paras 3-075—3-076.
326. See above, para.3-027. Nor will a document be interpreted in a way one party contends merely
because the other party knew or suspected, at the time, that that was what the first party was
hoping to achieve: Zoan v Rouamba [2000] 2 All E.R. 620, 633.
327. [1955] Ch. 133, 140.
328. [1981] 1 W.L.R. 505 at 515; see similarly Brightman L.J. at 522.
329. The “fourth element”: see para.3-069, above.
330. [1981] 1 W.L.R. 505 at 521.
331. Above, para.3-071.
332. In Littman v Aspen Oil (Broking) Ltd [2005] EWCA Civ 1579 at [23]–[24] Jacobs L.J. said that it
would be sufficiently inequitable for one party to take deliberate advantage of a drafting error by
the other.
333. Rowallan Group Ltd v Edgehill Portfolio No.1 Ltd [2007] EWHC 32 (Ch), [2007] All E.R. (D) 106
(Jan), at [14].
334.
See George Wimpey UK Ltd v VI Construction Ltd [2005] EWCA Civ 77, [2005] B.L.R. 135 at
[65]–[67] (Sedley L.J.).
335.
NHS Commissioning Board v Silovsky [2015] EWHC 3141 (Comm) at [42]–[43].
336.
As by the majority in George Wimpey UK Ltd v VI Construction Ltd [2005] EWCA Civ 77,
[2005] B.L.R. 135, see at [47] and [79]; see Vol.I, para.3-070.
337. (1862) 30 Beav. 445.
338. (1867) L.R. 5 Eq. 1.
339. (1872) L.R. 13 Eq. 427.
340. (1884) 28 Ch. D. 255.
341. Above, n.333.
342. Above, n.334.
343. Above, n.335. This decision was said by Neville J. in Beale v Kyte [1907] 1 Ch. 564, 565 to be
“unintelligible as reported”.
344. (1884) 28 Ch. D. 255.
345. [1975] Ch. 133.
346. (1862) 30 Beav. 445.

Page 8
347. This passage in the 30th edition was referred to with apparent approval by Andrew Smith J. in
BP Oil International Ltd v Target Shipping Ltd [2012] EWHC 1590 (Comm) at [199] (“I know of
no precedent for rectifying a contract on the grounds of unilateral mistake so as to make for
more favourable provision for the mistaken party than the other party realised he had in mind,
and I should be reluctant so to expand the remedy”). The decision was reversed in part, [2013]
EWCA Civ 196, [2013] 1 Lloyd’s Rep. 561, without reference to this point.
348. In Stepps Investments Ltd v Security Capital Corp Ltd (1976) 73 D.L.R. (3d) 351 the Ontario
High Court held that an order for rectification or rescission at the defendant’s option could be
granted where the defendant did not actually know of the mistake but should have known of it.
See also Murphy’s Ltd v Fabricville Co Inc (1980) 117 D.L.R. (3d) 668 (Supreme Ct of Nova
Scotia); Waddams, The Law of Contracts, 6th edn (2010), §344; Hodge, Rectification (2010),
paras 1-38—1-39.
349. [1995] Ch. 259, 280.
350. On cancellation of documents see Halsbury’s Laws of England, Vol.47 (2014) Equitable
Jurisdiction, para.84.
352. McLauchlan (2008) 124 L.Q.R. 608. McLauchlan argues (at 619) that the defendant should
have led the claimant reasonably to believe that the terms it intended were accepted. He seems
to envisage that B does more than merely agree to A’s proposal, but what that should be is not
wholly clear. cf. above, para.3-029 n.125.
353. (1871) L.R. 6 Q.B. 597, 607. See above, para.3-018.
354. [2011] WCA Civ 1153, [2012] 1 W.L.R. 1333. In contrast Davies (2012) 75 M.L.R. 412 argues
that rectification should be confined to cases in which B had actual knowledge of A’s mistake.
355. [2011] EWCA Civ 1153 at [174].
357. Compare above, para.3-033.

Page 1

(d) - The Extended Notion of Common Mistake
Subjective agreement not required
3-077
It has been said in the House of Lords that it is not necessary for rectification on the basis of common
mistake that the parties were subjectively agreed on the same terms; it suffices for there to be an
outward expression of common intention that on an objective view the parties appeared to be in
agreement. In Chartbrook Ltd v Persimmon Homes Ltd 358 Lord Hoffmann said that for rectification for
common mistake, the document must differ from what the parties had agreed, objectively determined.
He said: 359
“Now that it has been established that rectification is also available when there was no
binding antecedent agreement but the parties had a common continuing intention in
respect of a particular matter in the instrument to be rectified, it would be anomalous if the
‘common continuing intention’ were to be an objective fact if it amounted to an
enforceable contract but a subjective belief if it did not. On the contrary, the authorities
suggest that in both cases the question is what an objective observer would have thought
the intentions of the parties to be. Perhaps the clearest statement is by Denning L.J. in
Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd: 360
‘Rectification is concerned with contracts and documents, not with intentions. In order
to get rectification it is necessary to show that the parties were in complete agreement
on the terms of their contract, but by an error wrote them down wrongly; and in this
regard, in order to ascertain the terms of their contract, you do not look into the inner
minds of the parties—into their intentions any more than you do in the formation of
any other contract. You look at their outward acts, that is, at what they said or wrote to
one another in coming to their agreement, and then compare it with the document
which they have signed. If you can predicate with certainty what their contract was,
and that it is, by a common mistake, wrongly expressed in the document, then you
rectify the document; but nothing less will suffice.”’
What one or other party believed they had agreed was not the issue. 361 Lord Hoffmann said that
evidence of what a party believed should not be excluded, “but that is not inconsistent with an
objective approach to what the terms of the prior consensus were”. 362
3-078
In the Chartbrook case, Chartbrook had always intended that Persimmon should pay “super overage”,
Page 2
363
and thought that this was the prior agreement, but the reasonable person reading the prior
documents would conclude that it was not to be payable. The final document might be understood to
provide that it should be payable. The House of Lords held that as a matter of interpretation of the
final document, super-overage was not payable 364; but they also considered Persimmon’s alternative
claim for rectification, on the assumption that while according to the prior agreement, super overage
was not payable, the final document did require it to be paid. Both parties thought that the final written
agreement reflected their previous agreement; and as on this assumption it did not reflect the prior
agreement, Lord Hoffmann reasoned, Persimmon would be entitled to rectification. 365
The Daventry case
3-079
Similarly, in Daventry District Council v Daventry and District Housing Ltd 366 the objective meaning of
the prior agreement was that the burden of paying a pension fund deficit was to be borne by the
defendants, but the defendants were misled by one of their employees into thinking it was to be borne
by the Council. The written contract, as the result of an insertion made at a late stage, placed the
burden on the Council but the Council misunderstood the relevant clause and so were unaware of the
change. It was held that on the Chartbrook principle, as both parties (though for different reasons)
were mistaken in thinking that the final written agreement effected the prior agreement, rectification
should be granted.
An extended notion of “common mistake”
3-080
Lord Hoffmann’s reasoning in the Chartbrook case seems to stretch the notion of “common mistake”,
as though each party had made a mistake, it was not the same mistake: Chartbrook’s mistake was as
to the meaning of the prior agreement, Persimmons’ as to whether the written document reflected the
prior agreement. It may be more accurate to say that what is being done in both traditional cases of
common mistake rectification and in cases like Chartbrook is that the written document is being
brought into line with the prior agreement as properly interpreted.
Criticism of the Chartbrook decision
3-081
This extended notion of rectification for common mistake adopted by the House of Lords in
Chartbrook Ltd v Persimmon Homes Ltd 367 has been criticised by both academic commentators and
judges. Thus it has been said:
“It is difficult to accept that Chartbrook was mistaken, at least in any usual sense of the
word. The company intended the contract to provide the benefits that [on the assumption
that the written agreement did provide for super overage] it did provide for.” 368
In the Daventry 369 case Toulson L.J. doubted the correctness of the Chartbrook principle but was
prepared to apply it since its correctness had not been argued before the court and because it would
cause no injustice, as it was arguable that because the defendant’s employee knew of the Council’s
intention, the Council would be entitled to rectification on the basis of a unilateral mistake. 370 The
Master of the Rolls also considered that the Chartbrook principle “may have to be reconsidered or at
least refined” 371 but agreed with Toulson’s L.J’s approach. 372 Etherton L.J. did not share the
doubt about the Chartbrook principle 373 but dissented for other reasons, discussed above. 374 In
Tartsinis v Navona Management Co 375 Leggatt J. said that in Britoil Plc v Hunt Overseas Oil Inc 376
the Court of Appeal had held that rectification for common mistake is available only where it is proved
Page 3
that both parties were in fact mistaken about the effect of the final document, and that was not the
case in Chartbrook. 377 He also said that he found it
“difficult to see the equity of imposing the view that a hypothetical reasonable observer
would have formed of what had been agreed on a party who did not have that
understanding of what had been agreed and whose understanding is reflected in the
proper interpretation of the final document”, 378
unless the party against whom rectification is sought knew that the party seeking it was mistaken, so
that the requirements of rectification for unilateral mistake were satisfied. 379
Evaluation of the “extended approach”
3-082
It is submitted that Lord Hoffmann’s approach is justified, but that much depends on the
circumstances, in particular the degree of agreement at the “prior accord” stage and the purpose of
the parties in drawing up a final document. Further, the “objective approach to what the terms of the
prior consensus were” must be treated with care. Determining the agreement between the parties is
more complex than applying a simple objective test, as will be explained in the paragraphs that follow.
Subjective accord not necessary
3-083
The first point is that to confine rectification to cases where either there was a genuine subjective
agreement or a unilateral mistake known to the other party would in fact narrow the scope of the law
very considerably. When in “common mistake” cases in the past the courts have determined the
terms of the prior agreement, they have not always looked for actual subjective agreement. Typically
in rectification cases the court looks at the outward expression to determine what the agreement was.
Though evidence of what a party intended or thought the words meant is admissible and may be
relevant, at least when the prior agreement is in writing the court determines its meaning in the usual
way. Thus in Britoil Plc v Hunt Overseas Oil Inc 380 the court considered the meaning of the prior
“heads of agreement” document without asking what each party actually meant. 381 Hobhouse L.J.
referred 382 to an earlier summary of the law by Mustill J., where the latter said:
“… 3. The prior transaction may consist either of a concluded agreement or of a

continuing common intention. In the latter event, the intention must be objectively
manifested. It is the words and acts of the parties demonstrating their intention, not the
inward thoughts of the parties, which matter.” 383
The reason that the Court of Appeal refused rectification in the Britoil case was that the “heads of
agreement” did not constitute the final version: it was in some respects unclear and a witness
conceded that part of the point of drawing up a final version was to eliminate any ambiguities. It is not
surprising therefore that Hobhouse L.J said that to base rectification on going “back to successively
less formal, less considered and less carefully drafted earlier documents …cannot be right”. 384 But if
the parties had thought that their prior agreement was complete, even if not binding on them, and had
merely instructed lawyers to incorporate it into a final document that they both signed without careful
study, it seems the court would have rectified any discrepancy between the prior agreement and the
final document. Hoffmann L.J. dissented precisely because ““there was no further negotiation or
discussion between the parties and that the common intention was that the definitive agreement
should reflect the meaning of the heads of agreement, whatever that might be”. 385
3-084
Page 4
This suggests that, at least where there is a concluded prior agreement, rectification should be given
on the basis of a discrepancy between the “prior accord”, objectively determined, 386 and the final
document, unless there is evidence either that the parties intended to negotiate further or that one
has given a reasonable indication that it has put something different into the draft—which raises the
question of whether there was a continuing common intention, discussed earlier. It was there
suggested that the question is whether the party claiming rectification to bring the terms into line with
the previous agreement knew or should have known that the other party was seeking to renegotiate,
or at least to assert that its own view as to their prior agreement differed from its objective meaning.
387
Prior agreement incomplete
3-085
Some commentators accept that where the prior agreement was complete, even if not legally binding,
and the final document does not match the objective meaning of the prior agreement, then
rectification on the basis of a common mistake should be possible, but argue that this should not be
possible where there was no concluded agreement. 388 In the latter case it should be available only on
the basis of either a subjective common intention or unilateral mistake. It is argued that to allow it on
the basis of the objective meaning of incomplete negotiations would favour, in the words of Hobhouse
L.J. in Britoil Plc v Hunt Overseas Oil Inc, 389 “less formal, less considered and less carefully drafted
earlier documents” over the carefully considered final version. It is submitted, however, that for this
purpose no clear distinction can be drawn between concluded and partially negotiated agreements.
While it may be the case that while negotiations on any aspect continue, the parties will regard the
whole transaction as still open, this will not always be so. The parties may regard some issues as
completely settled (not realising that their intentions on the point differ) and therefore not examine the
relevant parts of the final document with care, so that they fail spot the difference between it and the
final document. There seems no reason why this situation must necessarily be treated differently from
that of the concluded prior agreement. It is a matter of degree, of the extent to which the parties
regarded the matter as “settled” and of whether the party against who rectification is claimed had
indicated that it was proposing a change or at least a clarification. 390
“Objective” meaning known not to be party’s intention
3-086
Lord Hoffmann’s dictum in Chartbrook Ltd v Persimmon Homes Ltd 391 quoted earlier, 392 like the
statement he quotes from Denning L.J., appears to look only at the evidence of prior agreement in a
purely objective way, 393 from the view point of “the reasonable fly on the wall”. 394 The test
normally used in English contract law to determine the content or meaning of a contract is not wholly
objective in this sense. 395 First, as submitted earlier, if the parties were in fact in subjective
agreement as the meaning of their words, it is at least arguable that their subjective intentions should
govern. 396 Secondly, if there is no subjective agreement, the question is how A understood B’s words
and whether A’s interpretation was reasonable, and vice versa. 397 Normally it will be reasonable to
understand the words of the prior agreement on their “purely objective” sense. However, if A knew B’s
intention to be different from the “purely objective” meaning of the words of the prior agreement, A
cannot hold B to that meaning. 398 If the subsequent written agreement provides what B had intended,
A should not be entitled to rectification, even if the result is that A is bound by a contract that he did
not intend to make. If the written agreement were in the same terms as the prior agreement, but to A’s
knowledge B still intended it mean something different, B would be entitled to have it rectified on the
basis of a unilateral mistake. 399 It is submitted that if it cannot be shown that A had actual knowledge
that B was still mistaken at the stage of the final draft, B should still be entitled to have the final draft
rectified to match the intention that A knew that B had at the earlier stage, unless again B should
reasonably have understood the draft as not merely setting down what was previously agreed, but as
a new proposal (or perhaps a deliberate assertion that A did not accept the objective” meaning of the
prior agreement). 400 The aim of rectification should be “to ensure the written agreement reflects the
true bargain between the parties as determined by ordinary principles of contract formation”. 401
Page 5
A ought to have known of B’s intention
3-087
It is arguable that in cases in which B’s intention differed from the “purely objective”, relief should be
given even if A did not have actual knowledge of B’s intention but A should have known that it was
different to the objective meaning of the words used in the prior agreement. A’s belief that B intended
what he appeared to say is not a reasonable belief. In the case of an oral contract, although the
authorities are not conclusive, the result at common law may be either that there is one on the terms
which B intended and A should reasonably have understood to be intended, or that there is no
contract. 402 It was submitted that the latter is the better solution, as to treat the contract as being on
the terms that B intended would be to impose on A terms to which A never intended to agree. 403 If
that is correct, it would be wrong to rectify the written agreement to bring it into line with the “purely
objective” meaning of the prior agreement. Rather, the prior agreement should be treated as void and
the final document cancelled. 404
A “unilateral mistake” approach
3-088
The examples discussed in the two previous paragraphs raise the issue of whether in cases in which
the parties were not in subjective agreement over the “prior accord”, it is more appropriate to consider
rectification for unilateral mistake than to use rectification for common mistake. 405 Unilateral mistake
focuses on the intentions and understandings of the parties at the stage of signature of the document,
rather than on the meaning of the prior agreement and whether there was a continuing common
intention. On the authorities as they stand at present, rectification can be given on the ground of
unilateral mistake only if the defendant knew that the document signed did not represent the
claimant’s intention, or deliberately caused the mistake. 406 It is submitted that this might leave some
deserving claimants without a remedy. Suppose in the prior negotiations, A intends x and B intends y.
The “objective meaning” of the agreement is x. That must be because this is what the words used
would mean to the reasonable person in the circumstances (and that A did not know of B’s actual
intention). The parties then draft a document into which B, without any intent to deceive, has inserted
a clause providing for y. A may reasonably assume that the document merely represents what was
previously agreed and sign without noticing the slip. 407 It is submitted that A should be able to obtain
rectification, provided that A reasonably understood the draft as merely setting down what was
previously agreed, rather than as a new proposal (or perhaps a deliberate assertion that B did not
accept the “objective” meaning of the prior agreement). But in this case rectification could not be
given either on the basis of a subjective common intention or of unilateral mistake, as the law is
currently understood, 408 as B did not know of A’s mistake. If the doctrine of relief for unilateral mistake
were to be extended in the fashion suggested in the preceding paragraph, it might deal adequately
with cases like the one envisaged in this paragraph. It could be argued that B should have known,
from the “purely objective” meaning of the final agreement and the fact that he has not flagged up a
change, that the final document did not represent A’s intentions. A could then at least seek to have
the document cancelled. However, such an extension of relief has yet to be made and is likely to be
controversial. Unless and until it is made, it is submitted that rectification to bring the agreement into
line with the objective meaning of the prior agreement is a useful supplement to rectification when the
final document is different to the subjective agreement of the parties and rectification for unilateral
mistake is not available.
Page 6

358. [2009] UKHL 38, [2009] 1 A.C. 1101. The point on rectification did not have to be decided but it
had been fully argued. The other members of the Judicial Committee agreed with Lord
Hoffmann see above, para.3-062 n.265.
359. [2009] UKHL 38 at [60].
360. [1953] 2 Q.B. 450, 461.
361. [2009] UKHL 38 at [59].
362. [2009] UKHL 38 at [64]–[65].
363. As the amount was called in the Court of Appeal: [2008] EWCA Civ 183 at [13].
365. [2009] UKHL 38 at [66].
366. [2011] EWCA Civ 1153, [2012] 1 W.L.R. 1333.
367. [2009] UKHL 38, [2009] 1 A.C. 1101. The point on rectification did not have to be decided but it
had been fully argued. The other members of the Judicial Committee agreed with Lord
Hoffmann see above, para.3-062 n.265.
368. McLauchlan (2010) 126 L.Q.R. 8, 13.
W.L.R. 1333. See McLauchlan (2014) 131 L.Q.R. 83. See also Lord Toulson’s lecture, above,
para.3-057 n.232.
370. [2011] EWCA Civ 1153 at [178]–[185]. Etherton L.J (at [97]–[98]) held that rectification could not
be granted on the basis of unilateral mistake as the trial judge held the Council had not proved
that the Housing Association knew of the Council’s mistake, and had found that the Housing
Association’s representative was not guilty of dishonesty. The Master of the Rolls found it
unnecessary to decide whether rectification should be granted on the ground of unilateral
mistake (at [226]).
371.
[2011] EWCA Civ 1153 at [19]. In NHS Commissioning Board v Silovsky [2015] EWHC 3141
(Comm), Leggatt J. respectfully agreed with Lord Neuberger MR but held that he was bound to
apply Lord Hoffmann’s “strong” objective approach: at [31]. See also Magellan Spirit ApS v Vitol
SA (The Magellan Spirit) [2016] EWHC 454 (Comm), [2016] 2 Lloyd’s Rep. 1 at [42].
372. [2011] EWCA Civ 1153 at [196]–[202].
373. [2011] EWCA Civ 1153 at [104].
375. [2015] EWHC 57 (Comm).
376. [1994] C.L.C. 561.

Page 7
377. [2015] EWHC 57 (Comm) at [91].
378. [2015] EWHC 57 (Comm) at [92].
379. [2015] EWHC 57 (Comm) at [93].
380. [1994] C.L.C. 561.
381. See also Ruddell [2014] L.M.C.L.Q. 48, 58.
382. [1994] C.L.C. 561, 569.
383. Etablissements Levy v Adderley Navigation Co Panama SA (The Olympic Pride) [1980] 2
Lloyd’s Rep 67, 72–73.
384. [1994] C.L.C. 561, 573
385. [1994] C.L.C. 561, 577.
386. In the passage from the judgment of Mustill J. quoted earlier in the paragraph, the judge does
not say how the meaning of a “concluded” prior agreement is to be judged, but it would certainly
be in the objective manner by which contracts are normally interpreted.
388. Ruddell [2014] L.M.C.L.Q. 48; and see the lecture by Lord Justice Patten, above, para.3-057
n.232.
389. [1994] C.L.C. 561.
391. [2009] UKHL 38, [2009] 1 A.C. 1101 at [60].
392. Above, para.3-077.
393.
394. Spencer [1973] C.L.J. 104, 108.
396. See above, paras 3-014 n.55 and 3-065.
397. See above, para.3-014. In Scottish Widows Fund and Life Assurance Society v BGC
International [2012] EWCA Civ 607 Arden L.J. pointed out that Lord Hoffmann’s test is not fully
objective as the meaning of any words is taken to be that which the meaning would convey to a
reasonable person having all the background knowledge which would have been available to
the parties in the situation in which the parties were at the time of their agreement (at [46]).
398. No more than A can accept an apparent offer from B which A knows does not represent B’s
true intention: see Hartog v Colin and Shields [1939] 3 All E.R. 566, above, para.3-022.
399. Daventry District Council v Daventry and District Housing Ltd [2011] EWCA Civ 1153 at [177],
per Toulson L.J. at [178]. For rectification on the basis of unilateral mistake see above, paras
3-069 et seq.

Page 8
401. McLauchlan (2008) 124 L.Q.R. 608, 640.
402. See above, paras 3-032—3-033.
403. Above, para.3-033.
405. McLauchlan (2010) 126 L.Q.R. 8, 13 argues that if Chartbrook knew of Persimmon’s mistake,
there would be a claim based on unilateral mistake, on which see above, para.3-069. As they
did not know, the writer concludes that the only proper basis for rectification would be if
Chartbrook ought to have known that Persimmon did not intend super overage to be payable,
when there might also be a claim based on unilateral mistake or the contract might be void, see
below, para.3-076.
406. See above, paras 3-070—3-071.

Page 1

(e) - General Principles
Proof of mistake
3-089
The burden of proof is on the party seeking rectification. 409 He must produce “convincing proof” 410 not
only that the document to be rectified was not in accordance with the parties’ 411 true intentions at the
time of its execution, but also that the document in its proposed form does accord with their
intentions. 412 It is essential that the extent of the rectification should be clearly ascertained and
defined by evidence contemporaneous with or anterior to the contract. 413 Although it has sometimes
been suggested that the standard of proof is that required in criminal proceedings, 414 that was
rejected by the Court of Appeal in Agip SpA v Navigazione Alta Italia SpA (The Nai Genova and The
Nai Superba). 415 It is also now established that there is only one standard of proof in civil cases,
namely the balance of probabilities. 416
“The explanation for the statements that ‘convincing proof’ is needed where rectification is
claimed lies in the very nature of the allegation that the written instrument does not record
the parties’ common intention … The fact that the parties to a contract have approved
particular language as the appropriate expression of their bargain is thus often itself
cogent evidence that the document correctly records their common intention, so that
convincing proof will be needed to displace that inference.” 417
The denial of one of the parties that the deed as it stands is contrary to his intention ought to have
considerable weight. 418 Indeed, it has been said that it is not sufficient that the written contract does
not represent the true intention of the parties; it must be shown that the written contract was actually
contrary to the intention of the parties. 419 Where it is sought to rectify a document in accordance with
a prior agreement between the parties, it must be shown that the intention of the parties continued
unaltered up to the time of the execution of the document. 420
Mistake as to terms
3-090
There must be a disparity between the terms of the prior agreement and those of the document which
it is sought to rectify. In Frederick E. Rose (London) Ltd v William H. Pim Junior & Co Ltd, 421 Denning
L.J. said:
“Rectification is concerned with contracts and documents, not with intentions. In order to
get rectification it is necessary to show that the parties were in complete agreement on
the terms of their contract, but by an error wrote them down wrongly …”
Page 2
In this case, the parties entered into an oral agreement for the purchase of horsebeans, in the belief
that they were “feveroles”, and a subsequent written agreement embodied the same terms. The Court
of Appeal refused rectification as both the oral and written contracts were for horse-beans; there was
no disparity between them. In contrast, in London Weekend Television v Paris and Griffith 422 Megaw
J. held that, where two persons expressly agree with one another what is the meaning of a particular
phrase used in a written contract, the contract can be rectified to make it clear that the phrase bears
the meaning agreed.
Live issue required
3-091
Rectification will only be ordered so long as there is an issue between the parties as to their legal
rights inter se. If there is no such issue or if no substantive relief is sought and no practical purpose
will be achieved rectification may be refused. 423
Specific performance
3-092
Before the Judicature Act 1873, it was generally held that the court would not grant rectification of the
contract to comply with its proper terms and then grant specific performance of the contract so
rectified, at least in the same action. 424 But the Judicature Act 1925 s.43, requires the court to grant
to the parties in one action all the relief to which they are entitled, and this has been held to confer
upon the court the power to order rectification and specific performance in the same action, even
though the mistake has been proved by parol evidence. 425
A discretionary remedy
3-093
As with other equitable remedies, the court has a residual discretion to refuse to grant rectification.
426
Effect of negligence
3-094
The fact that one party’s negligence has caused the mistake appears to be irrelevant where
rectification is sought on the ground of a mistake common to both parties 427:
“If it were, many a claim to rectification for mutual mistake would fail since, ex hypothesi,
the instrument as executed has failed accurately to express the parties’ common intention
and this will very often have been as a result of carelessness for which, in part at least,
the claimant for relief must share responsibility.” 428
Equally in cases of unilateral mistake, provided the claimant’s mistake was known to the defendant or
the defendant had deliberately sought to distract the claimant from discovering that the document did
not reflect what he intended, 429 it seems to be irrelevant that the claimant might have discovered the
mistake had he used more care.
Delay
Page 3
3-095
A claimant who has discovered the mistake but delayed in seeking rectification may be denied it.
Mere lapse of time is no bar if the mistake is clearly proved, 430 but as Blackburne J. has put it 431:
“… it is well established that the doctrine does not come into play before the person
against whom it is raised as a defence has discovered the material facts, in this case the
mistake. It must be shown that the subsequent delay in pursuing the claim renders it
‘practically unjust to give a remedy, either because the party has, by his conduct, done
that which might fairly be regarded as a waiver of it, or where by his conduct and neglect
he has, though perhaps not waiving that remedy, yet put the other party in a situation in
which it would not be reasonable to place him if the remedy were otherwise to be
asserted’. See Lindsay Petroleum Company v Hurd (1873) 5 App Cas 221 at 239 (per
Lord Selborne). As Lord Selborne went on (at 240) to observe:
‘Two circumstances, always important in such cases, are the length of the delay and
the nature of the acts done during the interval, which might affect either party and
cause a balance of justice or injustice in taking one course or the other, so far as
relates to the remedy.”’
Parties must be restored to former position
3-096
Rectification will be refused if the parties cannot be restored to the same position which they occupied
prior to the contract sought to be rectified; but this rule will not be applied so strictly as to require an
exact restoration where such is difficult or impossible. 432
Payment of money under judgment
3-097
After money had been paid under a judgment founded on the construction of an agreement, an action
to rectify the agreement on the ground that this construction was contrary to the intention of all parties
was refused by the Court of Appeal. There was no question of res judicata, but the agreement had
been worked out and a fund distributed on that footing. 433
Third parties
3-098
Rectification may be granted against third parties 434 but a conveyance will not be rectified as against
a purchaser for value of a legal or equitable interest claiming under the deed in good faith and without
notice of the mistake. 435 It may, however, be granted after the death of one of the parties. 436
Procedure
3-099
Page 4
Actions for rectification, setting aside or cancellation of deeds or other written instruments are by s.61
of and Sch.1 to the Senior Courts Act 1981 assigned to the Chancery Division of the High Court, but a
counterclaim for rectification or cancellation is not infrequently entertained by the Queen’s Bench
Division. 437
3-100
By ss.23 and 147(1) of the County Courts Act 1984, the county court may exercise all the powers of
the High Court in proceedings for the rectification, delivery up or cancellation of any agreement for the
sale, purchase or lease of any property where, in the case of a sale or purchase, the purchase
money, or, in the case of a lease, the value of the property, does not exceed £350,000 438 and also in
proceedings for relief against fraud or mistake, where the damage sustained or the estate or fund in
respect of which relief is sought does not exceed in amount or value £350,000. 439 The same limit
applies to actions for the specific performance of such contracts. 440
Other instances of rectification
3-101
The court has rectified a bill of exchange, 441 a marine insurance policy, 442 a transfer of shares
wrongly numbered, 443 a bill of quantities, 444 and bought and sold notes by inserting therein a clause
customary in a particular trade, 445 and very frequently conveyances of land. 446 A charge registered at
the Land Registry pursuant to the Land Registration Act 2002 may be rectified. 447
Marriage settlements
3-102
The court has used its jurisdiction in order to rectify marriage settlements. 448 If both the marriage
articles and the settlement are executed before the marriage takes place, rectification will not be
ordered so as to bring the settlement into line with the articles unless the settlement is expressly or
impliedly executed in pursuance of the articles. But if the settlement is made after the marriage, it will
be rectified so as to make it correspond with the articles. 449 It also seems that the court will readily
admit evidence on behalf of the settlor alone that the settlement does not conform with his intention.
450
Articles of association
3-103
The court has no jurisdiction to rectify the articles of association of a company on the ground that they
do not accord with the proved intention of the signatories at the moment of signature. Any power of
alteration in this respect is purely statutory and there is no hint in the Companies Act of any power in
the court to rectify. 451
Voluntary settlements
3-104
A voluntary deed cannot be rectified except with the consent of the donor, 452 and the court will
hesitate to rectify such a deed at the suit of the settlor merely on his own evidence as to his intention
unsupported by other evidence such as written instructions. 453 Nevertheless, the unilateral mistake of
the settlor will suffice, in certain circumstances, to justify rectification 454 or rescission 455 of a
settlement. If it is clearly shown that the settlement as executed does not express the true intentions
of the settlor, and if the settlement was not executed by trustees or other parties as the result of a
Page 5
contract or bargain, rectification can be ordered. If the trustees object, however, the court may, in its
discretion, refuse an order for rectification. 456
409. Tucker v Bennett (1887) 38 Ch. D. 1, 9.
410. This was the expression preferred by the Court of Appeal in Joscelyne v Nissen [1970] 2 Q.B.
86. See also Ernest Scragg & Sons Ltd v Perseverance Banking and Trust Co Ltd [1973] 2
Lloyd’s Rep. 101; Thomas Bates & Son v Wyndhams Ltd [1981] 1 W.L.R. 505.
411. When the contract is negotiated on behalf of a legal person, it is the intention of the decision
maker who that is relevant, not that of a mere negotiator unless that person is also the
decision-maker or shares in a relevant way those intentions with the person who is the decision
maker: Hawksford Trustees Jersey Ltd (Trustee of the Bald Eagle Trust) v Stella Global UK Ltd
[2012] EWCA Civ 55 at [41].
412. Fowler v Fowler (1859) 4 De G. & J. 250, 265; Constantinidi v Ralli [1935] Ch. 427. But
provided that the true agreement is clear, it is sufficient if it is merely doubtful whether the
document accurately records this agreement: Re Walton’s Settlement [1922] 2 Ch. 509.
413. Earl of Bradford v Earl of Romney (1862) 30 Beav. 431; Harris v Pepperell (1867) L.R. 5 Eq. 1,
4; Stait v Fenner [1912] 2 Ch. 504. Where lengthy negotiations have taken place between
experienced negotiators, there must be a strong presumption that the parties intended to be
bound by precisely the words they used, not some earlier understanding which might be
derived from earlier, less carefully drafted documents: Snamprogetti Ltd v Phillips Petroleum Co
UK Ltd [2001] EWCA Civ 889 at [33].
414. Atlantic Maritime Transport Corp v Coscol Petroleum Corp, The Pina [1991] 1 Lloyd’s Rep. 246,
250 (“proof to the criminal standard”).
415. [1984] 1 Lloyd’s Rep 353, 359.
416. In Re B (Care Proceedings) [2009] 1 A.C. 11.
417. Tartsinis v Navona Management Co [2015] EWHC 57 (Comm) at [85]. The evidential weight to
be given to the document will vary according to the circumstances, for example whether it was
prepared after long negotiations with the help of legal advisers, how clearly the document is
drafted and whether the drafters were working in their first language: [2015] EWHC 57 (Comm)
at [86]).
418. Fowler v Fowler (1859) 4 De G. & J. 250, 265; Wollaston v Tribe (1869) L.R. 9 Eq. 44; Cook v
Fearn (1878) 48 L.J. Ch. 63; Hanley v Pearson (1879) 13 Ch. D. 545. cf. Tucker v Bennett
(1887) 38 Ch. D. 1; Bonhote v Henderson [1895] 1 Ch. 742, affirmed [1895] 2 Ch. 202; Re
Page 6
Walton’s Settlement [1922] 2 Ch. 509.
419. Lloyd v Stanbury [1971] 1 W.L.R. 535; Pappadakis v Pappadakis, The Times, January 19, 2000
. It is not enough that there has been confusion between the parties as to what was being
agreed: Cambro Contractors Ltd v John Kennelly Sales Ltd, The Times, April 14, 1994.
420. Fowler v Fowler (1859) 4 De G. & J. 250. See above, para.3-066.
421. [1953] 2 Q.B. 450, 461. Compare above, para.3-025.
422. (1969) 113 S.J. 222. Thus “rectification is available where the words of the document were
purposely used but it was mistakenly considered that they bore a different meaning from their
correct meaning as a matter of construction”: Re Butlin’s Settlement Trusts [1976] Ch. 251, 260
(a case involving a voluntary settlement); applied to rectification of a contract in Phillips
Petroleum Co UK Ltd v Snamprogetti Ltd (2001) 79 Con. L.R. 80 at [39] (affirmed on other
grounds [2001] EWCA Civ 889).
423. Whiteside v Whiteside [1950] Ch. 65; cf. Re Colebrook’s Conveyances [1972] 1 W.L.R. 1397;
Etablissements Georges et Paul Levy v Adderley Navigation Co SA [1980] 2 Lloyd’s Rep. 67.
Provided that there is an issue capable of being contested by the parties it is no bar to
rectification that both sides wish the document to be rectified so as to reduce one party’s tax
liability: Lake v Lake [1989] S.T.C. 865; Racal Group Services Ltd v Ashmore [1995] S.T.C.
1151.
424. Woollam v Hearn (1802) 7 Ves. 211; Martin v Pycroft (1852) 3 De G.M. & G. 785; cf. Thomas v
Davis (1757) 1 Dick. 301.
425. Olley v Fisher (1886) 34 Ch. D. 367; Craddock Bros v Hunt [1923] 2 Ch. 136; USA v Motor
Trucks Ltd [1924] A.C. 196, not following May v Platt [1900] 1 Ch. 616. See now Senior Courts
Act 1981 s.49.
426.
KPMG LLP v Network Rail Infrastructure Ltd [2006] EWHC 67 (Ch), [2006] All E.R. (D) 247
(Jan) at [193] et seq. (party not disentitled by sending a clean copy of a draft rather than one
showing the amendments which were proposed, and stating that none of the amendments were
of any substance, even when it was known that some were. The other party in fact spotted the
changes); reversed without reference to this point [2007] EWCA Civ 363, [2007] All E.R. (D)
245 (Apr). See also Equity Syndicate Management Ltd v Glaxosmithkline Plc [2015] EWHC
2163 (Comm), [2016] Lloyd’s Rep. I.R. 155 at [46]–[47] (on the facts it would have been
inequitable to withhold the remedy).
427. Kent v Hartley (1966) 200 E.G. 1027; Weeds v Blaney, The Times, March 18, 1976.
428. Blackburne J. in KPMG LLP v Network Rail Infrastructure Ltd [2006] EWHC 67 (Ch), [2006] All
E.R. (D) 247 (Jan) at [195]; reversed without reference to this point [2007] EWCA Civ 363,
[2007] All E.R. (D) 245 (Apr).
430. Millar v Craig (1843) 6 Beav. 433; Re Garnett (1885) 31 Ch. D. 1; cf. Beale v Kyte [1907] 1 Ch.
564 (laches).
431. KPMG LLP v Network Rail Infrastructure Ltd [2006] EWHC 67 (Ch), [2006] All E.R. (D) 247
(Jan), reversed without reference to this point [2007] EWCA Civ 363, [2007] All E.R. (D) 245
(Apr). In Ahmad v Secret Garden (Cheshire) Ltd [2013] EWCA Civ 1005 at [56] Arden L.J.
referred to “the inordinate delay that would be necessary to deprive a person of his right to
apply for rectification”.
432. Earl of Beauchamp v Winn (1873) L.R. 6 H.L. 223. cf. below, paras 7-123 et seq.
433. Caird v Moss (1886) 33 Ch. D. 22.

Page 7
434. Leuty v Hillas (1858) 2 De & G. J. 110; Craddock Bros v Hunt [1923] 2 Ch. 136.
435. Bell v Cundall (1750) Amb. 101; Smith v Jones [1954] 1 W.L.R. 1089; Lyme Valley Squash
Club Ltd v Newcastle-under-Lyme BC [1985] 2 All E.R. 405, 413. It is no bar to rectification that
it would deprive a third party of an unintended windfall: Equity Syndicate Management Ltd v
Glaxosmithkline Plc [2015] EWHC 2163 (Comm) at [47].
436. Johnson v Bragge [1901] 1 Ch. 28.
437. Mostyn v West Mostyn Coal & Iron Co Ltd (1876) 1 C.P.D. 145; Storey v Waddle (1879) 4
Q.B.D. 289; but see Leslie v Clifford (1884) 50 L.T. 690 (partnership accounts transferred to
Chancery Division).
438. See County Court Jurisdiction Order 2014 (SI 2014/503), revoking and replacing County Courts
Jurisdiction Order 1981 (SI 1981/1123).
439. R. v Judge Whitethorne [1904] 1 K.B. 827 and Angel v Jay [1911] 1 K.B. 666.
440. See below, Ch.27; but see also Bourne v Macdonald [1950] 2 K.B. 422 and ss.21 and 38 of the
Act.
441. Druiff v Lord Parker (1868) L.R. 5 Eq. 131.
442. Spalding v Crocker (1897) 2 Com. Cas. 189.
443. Re International Contract Co (1872) L.R. 7 Ch. App. 485.
444. Neill v Midland Ry (1869) 17 W.R. 871.
445. Caraman Rowley & May v Aperghis (1923) 40 T.L.R. 124.
446. Beale v Kyte [1907] 1 Ch. 564; Craddock Bros v Hunt [1923] 2 Ch. 136.
447. See Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736, [2013] Ch. 305.
448. Johnson v Bragge [1901] 1 Ch. 28.
449. Cogan v Duffield (1876) 2 Ch. D. 44.
450. Hanley v Pearson (1879) 13 Ch. D. 545; cf. Tucker v Bennett (1887) 38 Ch. D. 1.
451. Evans v Chapman (1902) 86 L.T. 381; Scott v Frank F. Scott (London) Ltd [1940] Ch. 217,
affirmed [1940] Ch. 794.
452. Phillipson v Kerry (1863) 32 Beav. 628.
453. Bonhote v Henderson [1895] 1 Ch. 742, affirmed [1895] 2 Ch. 202; Van der Linde v Van der
Linde [1947] Ch. 306, 311.
454. Re Butlin’s Settlement Trusts [1976] Ch. 251. It is the subjective intention of the settlor, rather
than the intention of an agent of the settlor, which is relevant: see Day v Day [2013] EWCA Civ
280, [2013] 2 P. & C.R. DG1.
455. Pitt v Holt [2013] UKSC 26 (see below, para.29-052); Kennedy v Kennedy [2014] EWHC 4129
(Ch) (rescission of self-contained and severable part of settlement). In NRAM Plc v Evans
[2015] EWHC 1543 (Ch) the same principle was applied to a chargee’s mistaken cancellation of
a charge.
456. Re Butlin’s Settlement Trusts [1976] Ch. 251.

Page 8

Page 1

Chapter 4 - Consideration 1
Section 1. - Introduction
General
4-001
In English law, a promise is not, as a general rule, binding as a contract unless it is either made in a
deed or supported by some “consideration.” The purpose of the doctrine of consideration is to put
some legal limits on the enforceability of agreements even where they are intended to be legally
binding and are not vitiated by some factor such as mistake, misrepresentation, duress or illegality.
The existence of such limits is not a peculiarity of English law: for example, in some civil law countries
certain promises which in England are not binding for “want of consideration” cannot be enforced
unless they are made in some special form, e.g. by a notarised writing. 2 The view was, indeed, at
one time put forward in England that consideration was only evidence of the intention of the parties to
be bound, and that (at any rate in the case of certain commercial contracts), such evidence could
equally well be furnished by writing. 3 But the view that agreements (other than those contained in
deeds) were binding without consideration merely because they were in writing was rejected over 200
years ago, 4 though it has been revived as a proposal for law reform. 5 The present position therefore
is that English law limits the enforceability of agreements (other than those contained in deeds) by
reference to a complex and multifarious body of rules known as “the doctrine of consideration.”
Informal gratuitous promises
4-002
The doctrine of consideration is based on the idea of reciprocity: that “something of value in the eye
of the law” 6 must be given for a promise in order to make it enforceable as a contract. 7 It follows that
an informal gratuitous promise does not amount to a contract. 8 A person or body to whom a promise
of a gift is made from purely charitable or sentimental motives gives nothing for the promise; and the
claims of such a promisee are regarded as less compelling than those of a person who has provided
(or promised) some return for the promise. 9 The invalidity of informal gratuitous promises of this kind
can also be supported on the ground that their enforcement could prejudice third parties such as
creditors of the promisor. 10 Such promises, too, may be rashly made 11; and the requirements of
executing a deed or giving value provide at least some protection against this danger.
Other promises without consideration
4-003
The doctrine of consideration, however, also struck at many promises which were not “gratuitous” in
any ordinary or commercial sense. These applications of the doctrine were brought within its scope by
stressing that consideration must be not merely “something of value,” but “something of value in the
eye of the law.” 12 The law in certain cases refused to recognise the “value” of acts or promises even
though they would, or might, be regarded as valuable by a lay person. This refusal was based on
Page 2
many disparate policies; so that “promises without consideration” included many different kinds of
transactions which, at first sight, had little in common. 13 It is this fact which is the cause of the great
complexity of the doctrine; and which has also led to its occasional unwarranted extensions and
hence to demands for reform of the law. 14
1. Sutton, Consideration Reconsidered (1974); Cartwright, Formation and Variation of Contracts

(2014); Shatwell (1955) 1 Sydney Law Review 289.
2. See generally, von Mehren (1959) 72 Harv.L.Rev. 1009.
3. Pillans v Van Mierop (1765) 3 Burr. 1663.
4. Rann v Hughes (1778) 7 T.R. 350n; 4 Bro.P.C. 27.
5. Law Revision Committee, 6th Interim Report, Cmnd. 5449 (1937), para.29; for comments on
this and other proposals in the Report, see Lord Wright, Legal Essays and Addresses, p.287;
Hamson (1938) 54 L.Q.R. 233; Hays (1941) 41 Col.L.Rev. 849; Chloros (1968) 17 I.C.L.Q. 137;
Beatson [1992] C.L.P. 1. In many of the United States, writing is (at least for some purposes)
regarded as a substitute for consideration: Farnsworth on Contracts, (4th ed.) para.2.18. For a
judicial evaluation of the doctrine of consideration, and a discussion of possible alternatives,
see Gay Choon Ing v Loh Sze Ti Terence Peter [2009] SGCA 3 (Singapore Court of Appeal) at
[92]–[118]. In that case, the requirement of consideration was satisfied (see at [80]–[86]).
6. Thomas v Thomas (1842) 2 Q.B. 851, 859; Haines v Hill [2007] EWCA Civ 1284, [2008] Ch.
412 at [79], citing para.3-002 of this book in its 29th edition (para.4-002 in the present edition)
with apparent approval.
7. See, for example, Ashia Centur Ltd v Barber Gillette LLP [2011] EWHC 148 (QB), [2011] Costs
L.R. 576 at [20] (solicitors held not to be bound by promise not to charge client for work done
after a specified date).
8. Re Hudson (1885) 54 L.J. Ch. 811; Re Cory (1912) 29 T.L.R. 18; Williams v Roffey Bros &
Nicholls (Contractors) Ltd [1991] 1 Q.B. 1, 19.
9. cf. Eisenberg, 85 Cal.L.Rev. 821 (1997).
10.
Eastwood v Kenyon (1840) 11 Ad. & E. 438, 451. For legislation giving effect to the similar
policy of protecting creditors of a gratuitous transferee of property, see Insolvency Act 1986
s.242, applied in Joint Administrators of Oceancrown Ltd v Stonegale Ltd [2016] UKSC 30,
2016 SC (UKSC) 91 at [17] (“received nothing whatsoever”), approving the judgment in the
Court below, quoted in [2016] UKSC 30 at [13] (“no party paid anything” for the transfer).
11. Beaton v McDivitt (1988) 13 N.S.W.L.R. 162 at 170. It is often easier to promise to make a gift
than actually to make one.
12. See above, at n.6.
13. cf. Corbin, Contracts, Vol.I, p.489: “The doctrine of consideration is many doctrines.”
14. See above, n.5.

Page 1

Section 2. - Definitions
Benefit and detriment
4-004
The traditional definition of consideration concentrates on the requirement that “something of value”
must be given and accordingly states that consideration is either some detriment to the promisee (in
that he may give value) or some benefit to the promisor (in that he may receive value). 15 Usually, this
detriment and benefit are merely the same thing looked at from different points of view. Thus payment
by a buyer is consideration for the seller’s promise to deliver and can be described either as a
detriment to the buyer or as a benefit to the seller; and conversely delivery by a seller is consideration
for the buyer’s promise to pay and can be described either as a detriment to the seller or as a benefit
to the buyer. It should be emphasised that these statements relate to the consideration for each
promise looked at separately. For example, the seller suffers a “detriment” when he delivers the
goods and this enables him to enforce the buyer’s promise to pay the price. It is quite irrelevant that
the seller has made a good bargain and so gets a benefit from the performance of the contract. What
the law is concerned with is the consideration for a promise—not the consideration for a contract.
Either sufficient
4-005
Under the traditional definition, it is sufficient if there is either a detriment to the promisee or a benefit
to the promisor. Thus detriment to the promisee suffices even though the promisor does not benefit 16:
for example if A guarantees B’s bank overdraft and the promisee bank suffers detriment by advancing
money to B, then A is bound by his promise, even though he gets no benefit from the advance to B. 17
One view, indeed, was that “Detriment to the promisee is of the essence of the doctrine, and benefit
to the promisor is, when it exists, merely an accident.” 18 But in a number of cases promises have
been enforced in spite of the fact that there was no apparent detriment to the promisee 19; and these
cases support the view that benefit to the promisor is (even without detriment to the promisee)
sufficient to satisfy the requirement of consideration. 20
Benefit and detriment may be factual or legal
4-006
The traditional definition of consideration lacks precision because the key notions of “benefit” and
“detriment” are used in at least two senses. They may mean, first any act, 21 which is of some value,
or secondly, only such acts, the performance of which is not already legally due from the promisee. In
the first sense, there is consideration if a benefit or detriment is in fact obtained or suffered. When the
words are used in the second sense this factual benefit or detriment is disregarded, and a notion of
what may be called legal benefit or detriment is substituted. Under this notion, the promisee may
provide consideration by doing anything that he was not legally bound to do, whether or not it actually
occasions a detriment to him or confers a benefit on the promisor; while conversely he may provide
Page 2
no consideration by doing only what he was legally bound to do, however much this may in fact
occasion a detriment to him or confer a benefit on the promisor. The English courts have not
consistently adopted either of these senses of the words “benefit” and “detriment.” In some of the
cases to be discussed in this chapter, factual benefit is stressed 22 even though legal detriment may
also have been present; while in others the absence of legal detriment or benefit has in the past been
regarded as decisive. 23 One modern authority 24 regards factual benefit to the promisor as sufficient,
even in the absence of a legal benefit to him or of a legal detriment to the promisee; and it is possible
(though far from certain) that this approach may spread to at least some 25 of the situations in which
the courts have in the past insisted on legal benefit or detriment.
Other definitions
4-007
The traditional definition of consideration in terms of benefit and detriment is sometimes felt to be
unsatisfactory. One cause of dissatisfaction is that it is thought to be wrong to talk of benefit and
detriment when both parties expect to, and actually may, benefit from the contract. But this reasoning
falls, with respect, into the error of looking at the subject-matter of the definition as the consideration
for a contract, 26 when the definition is actually concerned with the consideration for a promise. 27
Another cause of dissatisfaction is the artificial reasoning that is sometimes necessary to
accommodate the cases within the traditional definition. Sir Frederick Pollock has, accordingly,
described consideration simply as “the price for which the promise is bought.” 28 This statement has
been approved in the House of Lords 29; but if it is to be regarded as a definition of consideration it is
defective in being so vague as to give no help in determining whether consideration exists on any
given set of facts. A view which leads to even more uncertainty is that consideration “means a reason
for the enforcement of promises” 30 —that reason being simply “the justice of the case.” 31 But “the
justice of the case” is in almost all the decided cases highly debatable, so that the suggested
definition provides no basis at all for formulating a coherent legal doctrine. 32 A modification of the
suggested definition, describing consideration as “a reason for the recognition of an obligation” 33 is
open to the same objection. Of course the traditional definition does not provide complete (or even a
very high degree of) certainty. But it does state the doctrine in a way that is broadly consistent with
the case law on the subject and that gives some basis for predicting the course of future decisions.
The traditional definition also has more support in the authorities than any other definition. For these
reasons it will be used in this chapter.
Performances and promises as consideration
4-008
The consideration for a promise may consist either of a performance rendered by the promisee or of a
promise to render a performance. The first possibility is illustrated by cases of unilateral contracts 34
where performance by the promisee of the stipulated act or forbearance (e.g. walking from London to
York) constitutes the consideration for the promise (usually) to pay a sum of money to the promisee.
35
The second possibility is illustrated by cases in which each party makes a promise to the other, but
neither party has yet rendered any performance. The rule that, in such a case, the parties’ mutual
promises can amount to consideration for each other has long been settled. 36 Hence if a seller
promises to deliver goods in six months’ time and the buyer to pay for them on delivery, there is an
immediately binding contract from which neither party has any right to withdraw, though, of course,
performance cannot be claimed till the appointed time. An implied, no less than an express, promise
is capable of constituting consideration. 37 A promise can, however, only be regarded as consideration
for a counter-promise if the performance of the promise would have been so regarded. 38 It is, for
example, settled that part payment of a debt by the debtor on or after the due day does not amount to
consideration for a promise by the creditor to forgo the balance, 39 and the position would be exactly
the same if the debtor, instead of actually making such a payment, simply promised to do so.
Similarly, a promise to make a gift of £100 could not be made binding by a counter-promise to accept
it since performance of the counter-promise could not conceivably amount to a benefit to the original
promisor or to a detriment to the original promisee. Such benefit or detriment can (in such a case)
arise only if the subject-matter of the promised gift is onerous property and the donee makes a
counter-promise to discharge the obligations attached to it: e.g. to perform the covenants in a lease, 40
Page 3
or to pay outstanding mortgage instalments 41 or to pay calls on shares. 42 Of course if the property is
worth more than the obligations attached to it there will be an element of gift in such a transaction;
and special safeguards are provided by law to ensure that certain categories of third parties (such as
creditors of the promisor) are not prejudiced by this aspect of the transaction. 43
Mutual promises as consideration for each other
4-009
Some difficulty has been felt in explaining the rule that mutual promises can be consideration for each
other. At first sight, it might seem that the mere giving of a promise was not a detriment, nor its receipt
a benefit, so as to make the counter-promise binding. It will not do to say that the person making the
promise suffers a detriment because he is legally bound to perform it; for if this assumption is made
about one of the promises, it must also be made of the other, so that the “explanation” assumes the
very point in issue. Probably the reason for the rule is simpler. A person who makes a commercial
promise expects to have to perform it (and is in fact under considerable pressure to do so).
Correspondingly, one who receives such a promise expects it to be kept. These expectations, which
can exist even where the promise is not legally enforceable, 44 are based on commercial morality, and
can properly be called a detriment and a benefit; hence they satisfy the requirement of consideration
in the case of mutual promises.
Invented consideration
4-010
Normally, a party enters into a contract with a view to obtaining the consideration promised by the
other: for example, the buyer wants the goods and the seller the price. In the United States it has
been said that this is essential, and that “Nothing is consideration that is not regarded as such by both
parties.” 45 But English courts do not insist on this requirement and may regard an act or forbearance
as consideration even though the promisee “did not consciously realise that [he was] subjecting
himself to a detriment and [was] giving consideration for the [promisor’s] undertaking” 46 or even
though it was not the object of the promisor to secure it. 47 They may also treat the possibility of some
prejudice to the promisee as a detriment without regard to the question whether it has in fact been
suffered. 48 These practices may be called “inventing” consideration, 49 and the temptation to adopt
one or the other of them is particularly strong when the act or forbearance which was actually
bargained for cannot be regarded as consideration for some reason which is thought to be technical
and without merit. In such cases the practice of inventing consideration may help to make the
operation of the doctrine of consideration more acceptable 50; but the practice may also be criticised 51
on the ground that it gives the courts a wide discretion to hold promises binding or not as they please.
Thus the argument that the promisee might have suffered prejudice by acting in reliance on a promise
is in some cases made a basis of decision, 52 while in others precisely the same argument is rejected.
53
The practice of “inventing” consideration is, therefore, a source of considerable uncertainty in this
branch of the law.
Motive and consideration
4-011
In Thomas v Thomas 54 a testator shortly before his death expressed a desire that his widow should
during her life have the house in which he lived, or £100. After his death, his executors “in
consideration of such desire” promised to convey the house to the widow during her life or for so long
as she should continue a widow, “provided nevertheless and it is hereby further agreed” that she
should pay £1 per annum towards the ground rent, and keep the house in repair. In an action by the
widow for breach of this promise, the consideration for it was stated to be the widow’s promise to pay
and repair. An objection that the declaration omitted to state part of the consideration, viz. the
testator’s desire, was rejected. Patteson J. said: “Motive is not the same thing with consideration.
Consideration means something which is of value in the eye of the law moving from the plaintiff.” 55
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This remark should not be misunderstood: a common motive for making a promise is the desire to
obtain the consideration; and an act or forbearance on the part of the promisee may (unless the court
is prepared to “invent” 56 a consideration) fail to constitute consideration precisely because it was not
the promisor’s motive to secure it. What Patteson J. meant was that a motive for promising did not
amount to consideration unless two further requirements were satisfied, viz.: (i) that the thing secured
in exchange for the promise was “of some value in the eye of the law”; and (ii) that it moved from the
plaintiff. 57 Consideration and motive are not opposites; the former concept is a subdivision of the
latter. The consideration for a promise is (unless the consideration is nominal 58 or invented) always a
motive for promising; but a motive for making a promise is not necessarily consideration for it in law.
Thus the testator’s “desire” 59 in Thomas v Thomas was a motive for the executors’ promise but not
part of the consideration for it. The widow’s promise to pay and repair was another motive for the
executors’ promise and did constitute the consideration for that promise.
Consideration and condition
4-012
Thomas v Thomas 60 also illustrates the difference between consideration and condition: the plaintiff’s
remaining a widow was not part of the consideration but a condition of her entitlement to enforce the
executor’s promise. On the other hand, in Re Soames 61 A promised £3,000 to B if B would set up a
school in the running of which A was to have an active part. It was held that, by establishing the
school, B had provided consideration for A’s promise. It seems that the distinction between
consideration and condition depends, in such cases, on whether “a reasonable man would or would
not understand that the performance of the condition was requested as the price or exchange for the
promise.” 62 In Thomas v Thomas the executors had not requested the plaintiff to remain a widow;
while in Re Soames a request by A that B should establish the school could be inferred from A’s
expressed intention to participate in its management. The distinction is further illustrated by Carlill v
Carbolic Smoke Ball Co 63 where the claimant provided consideration for the defendants’ promise by
using the smoke-ball; but her catching influenza was a condition of her entitlement to enforce that
promise. 64
Certain limited effects of promises without consideration
4-013
A promise that is not supported by consideration may, in spite of having no contractual force
nevertheless give rise to certain other legal effects. In particular, English law places certain
restrictions on the revocability of a promise where the promisee has acted on it in a way that was
intended and could have been anticipated (without having been requested) by the promisor; and it
may give a remedy against a promisor who would be unjustly enriched (or otherwise act
unconscionably) if he were allowed freely to revoke and did revoke his promise after such action in
reliance on it by the promisee. These limited legal effects of promises without consideration are
discussed later in this chapter. 65 Here it is necessary only to emphasise that these legal effects do
not give such promises the full consequences of a binding contract. Thus the restriction on
revocability may be only temporary 66; breach of the promise may not entitle the injured party to the
full loss of bargain damages normally awarded for breach of contract, 67 or may not entitle him to them
as of right. 68 Only a promise supported by consideration or made in a deed has these full contractual
effects. “Contract” does not exhaust the category of promises having some legal effect; it refers, more
narrowly, to those promises or agreements leading to the full degree of enforceability accorded by the
law to contractual promises. 69 Moreover, while promises without consideration may have some legal
effects, the promisee can still gain a number of important practical advantages by showing that he
provided consideration. If the promise was supported by consideration, the promisee will not need to
show that he had acted in reliance on the promise or that the promisor would be unjustly enriched or
would otherwise be acting unconscionably if he went back on the promise; the promise will not be
revocable but enforceable according to its terms; and the promisee will be entitled to full loss of
bargain damages as of right. The limited legal effects of promises without consideration may have
mitigated some of the rigours of the strict doctrine; but they have not eliminated consideration as an
essential requirement of a binding contract. 70
Page 5

15. Currie v Misa (1875) L.R. 10 Ex. 153, 162. See also Barber v Fox (1670) 2 Wms.Saund. 134,
n.(e); Cooke v Oxley (1790) 3 T.R. 653, 654; Jones v Ashburnham (1804) 4 East 455;
Bainbridge v Firmstone (1838) 8 A. & E. 743, 744; Thomas v Thomas (1842) 2 Q.B. 851, 859;
Bolton v Madden (1873) L.R. 9 Q.B. 55, 56; Gore v Van der Lann [1967] 2 Q.B. 31, 42; Argy
Trading Development Co Ltd v Lapid Developments Ltd [1977] Lloyd’s Rep. 67, 75; Midland
Bank & Trust Co Ltd v Green [1981] A.C. 513, 531; R. v Braithwaite [1983] 1 W.L.R. 383, 391;
Johnsey Estates Ltd v Lewis Manley (Engineering) Ltd [1987] 2 E.G.L.R. 69, 70; Guiness
Mahon & Co Ltd v Kensington & Chelsea Royal B.C. [1999] Q.B. 215 at 236; Modahl v British
Athletics Federation Ltd [2001] EWCA Civ 1447, [2002] 1 W.L.R. 1192 at [50]; cf. at [103].
16. O’Sullivan v Management Agency & Music Ltd [1985] Q.B. 428, 459; Re Dale [1994] Ch. 31, 38
. cf. Gill & Duffus SA v Rionda Futures [1994] 2 Lloyd’s Rep. 67 at 82.
18. Holdsworth, History of English Law, Vol.8, p.11.
19. e.g. below, paras 4-038—4-041, 4-069, 4-127.
20. cf. Sandeman Coprimar SA v Transitos y Transportes Integrales SL [2003] EWCA Civ 113;
[2003] 2 Q.B. 1270 at [63], referring only to “benefit” (and not to detriment).
21. Or forbearance, or promise to do or to forbear. For the sake of brevity, references in the text are
confined to the doing of an act.
22. e.g. in Bolton v Madden (1873) L.R. 9 Q.B. 55, below, para.4-041; cf. R v Att-Gen for England
and Wales [2003] UKPC 22, [2003] E.M.L.R. 24, at [32] (“practical benefit” to promisor).
23. e.g. in some of the existing duty cases discussed in paras 4-069, 4-074, 4-076, below.
24. Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1.
25. e.g. to the variation cases discussed in paras 4-080—4-081; but probably not to the
forbearance to sue cases discussed in paras 4-051—4-054.
26. There are traces of this approach in Williams v Roffey Bros. & Nicholls (Contractors) Ltd [1991]
1 Q.B. 1, 23: “If both parties benefit from an agreement it is not necessary that each also
suffered a detriment.”
28. Principles of Contract (13th ed.), p.133.
29. Dunlop Pneumatic Tyre Co Ltd v Selfridge Ltd [1915] A.C. 847, 855.
30. Atiyah, Consideration in Contracts: A Fundamental Restatement, Canberra, 1971, p.60. For an
earlier, similar statement, see Llewellyn (1931) 40 Yale L.J. at p.741—“any sufficient
justification for court enforcement”; but no attempt is there made to suggest that this actually is
the law. For further criticism of Atiyah’s views, see Treitel (1976) 50 A.L.J. 439. cf. Colonia
Versicherung A.G. v Amoco Oil Co [1995] 1 Lloyd’s Rep. 570, 577 (affirmed without reference
to this point [1997] 1 Lloyd’s Rep. 261) where the words “(a) the reason for and (b) ample
consideration for” a payment clearly treat these concepts as distinct.
31. Atiyah, loc. cit. pp.52, 58.

Page 6
32. cf. the description of a similar concept as “potentially very confusing”: Guinness Mahon & Co
Ltd v Kensington & Chelsea Royal B.C. [1999] Q.B. 215 at 216.
33. Atiyah, Essays on Contract, pp.179, 183.
34. Above, para.2-082. See also Carlill v Carbolic Smoke Ball Co [1892] 2 Q.B. 484; Budgett v
Stratford Co-operative and Industrial Society Ltd (1916) 32 T.L.R. 378; Melhuish v Redbridge
Citizens Advice Bureau [2005] I.R.L.R. 415 at [18].
35. The promisee may accept and provide consideration at an earlier stage: see above, para.2-083
36. See, e.g. Pecke v Redman (1555) 1 Dyer 113a; Joscelin v Shelton (1557) 3 Leon. 4; Manwood
v Burston (1586) 2 Leon. 203; Harrison v Cage (1698) 12 Mod. 214; Simpson, A History of the
Common Law of Contract, pp.459–470; Baker (1980) 43 M.L.R. 467, 468 (reviewing Atiyah,
The Rise and Fall of Freedom of Contract). But a mere proposal falling short of a promise does
not suffice: The Kaliningrad and Nadezhda Krupskaya [1997] 2 Lloyd’s Rep. 35, 39.
37. Thoresen Car Ferries Ltd v Weymouth Portland BC [1977] 2 Lloyd’s Rep. 614, 619; The Aramis
[1989] 2 Lloyd’s Rep. 213 at 225 (where the claim failed for want of contractual intention).
38. Re Dale [1994] Ch. 31, 38.
40. Price v Jenkins (1877) 5 Ch.D. 619. In so far as Thomas v Thomas (1842) 2 Q.B. 851 (below,
para.4-011) is contra, it seems to be inconsistent with Price v Jenkins (where the “case which is
not reported” mentioned at p.620 closely resembles Thomas v Thomas); cf. Johnsey Estates v
Lewis & Manley [1987] 2 E.G.L.R. 69; Westminster City Council v Duke of Westminster [1991] 4
All E.R. 136 (reversed in part on other grounds (1992) 24 H.L.R. 572).
41. Merritt v Merritt [1970] 1 W.L.R. 1211.
42. Cheale v Kenward (1858) 3 D. & J. 27.
43. Insolvency Act 1986, ss.238, 339; and see below, para.4-019 n.122; Re Kumar [1993] 1 W.L.R.
224.
44. cf. Lipkin Gorman v Karpnale Ltd [1991] 2 A.C. 548 at 581; the promise under consideration in
this case would now be legally enforceable by virtue of Gambling Act 2005, s.335(1); Vol.II,
para.41-011.
45. Philpot v Gruninger (1872) 14 Wall. 570, 577; Restatement, Contracts, §75(1): “bargained for
and given in exchange for the promise”; Restatement 2d, Contracts, §75(1) and (2); Williston,
Contracts (rev. ed.), Vol.1, p.320; Corbin, Contracts, §172, is more sceptical. The Restatement
2d, §72 also supports the converse proposition that “any performance which is bargained for is
consideration,” even though there may be no element of benefit or detriment; but this is subject
to important exceptions, especially where the performance bargained for is the settlement of an
invalid claim and the performance of an existing duty: see §§73 and 74; as to these topics, see
46. Pitts v Jones [2007] EWCA Civ 1301, [2008] Q.B. 76 at [18].
47. See, for example, below, paras 4-013, 4-016, 4-074, 4-195 and below at n.52; and cf. Pollwaty
Ltd v Abdullah [1974] 1 W.L.R. 493, discussed by Zuckerman (1975) 38 M.L.R. 384 and
Thornely [1975] C.L.J. 26; cf. Vantage Navigation Corp. v Sahail and Saud Building Materials
Co LLC (The Alev) [1989] 1 Lloyd’s Rep. 138, 147; Moran v University College Salford (No.2),
The Times, November 23, 1993.
48. e.g. below, n.52.

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49. Atiyah, loc. cit. para.4-007, n.30 above, accuses the present editor of having “invented the
concept of invented consideration;” but all that the editor can claim to have invented is a phrase
for describing what the courts sometimes actually do. The phrase does not imply approval of
the practice: see below after n.51. Nor does the phrase necessarily imply inconsistency
between decisions, as Atiyah suggests ibid.: courts could consistently hold that an act or
forbearance was consideration although it was not the promisor’s object to secure it. In fact, the
decisions on the point are not perfectly consistent with each other: see below at nn.52 and 53;
but that is hardly unusual in a common law system.
50. cf. the dictum in Williams v Roffey Bros & Nicholls Contractors Ltd [1991] 1 Q.B. 1 (below,
para.4-069) at 18 that the courts should “be more ready” to find that there was consideration
where such a finding “reflects the true understanding of the parties”; and the reliance on this
dictum in Birmingham City Council v Forde [2009] EWHC 12 (QB), [2009] 1 W.L.R. 2732
(below, paras 4-018 and 4-072) at [88].
51. For criticism, see Holmes, The Common Law, p.292. In the United States there is less need for
“inventing” consideration because of the existence of a broad doctrine of promissory estoppel:
see Restatement, Contracts, §90, and Restatement 2d, Contracts, §90 and below para.4-107.
52. Shadwell v Shadwell (1860) 9 C.B.(N.S.) 159, 174: the consideration was said by Erle C.J. to
consist of the possibility that the promisor “ may have made a most material change in his
position … ” (italics supplied).
53. In Offord v Davies (1862) 12 C.B.(N.S.) 748: the argument of counsel (at 750) that “the plaintiff
might have altered his position in consequence of the guarantie” (italics supplied) was rejected,
Erle C.J. being again a member of the court. cf. also Collier v P & M.J. Wright (Holdings) [2007]
EWCA Civ 1329, [2008] 1 W.L.R. 643 at [27(ii)]; and see below, para.4-015 n.96 and
para.4-016 at n.106 for refusal to “invent” consideration.
54. (1842) 2 Q.B. 851.
55. At 859; cf. Hadley v Kemp [1999] E.M.L.R. 589 at 625.
57. Discussion of these requirements forms the bulk of this chapter.
58. In Thomas v Thomas the consideration may not have been adequate, but it was not nominal; cf.
Westminster City Council v Duke of Westminster [1991] 4 All E.R. 136 (reversed in part on
other grounds (1992) 24 H.L.R. 572); below, para.4-020.
59. After n.54 above.
60. Above, para.4-011 at n.54.
61. (1897) 13 T.L.R. 439; cf. below, para.4-191.
62. Williston, Contracts (3rd ed.), §112; cf. Dickinson v Abel [1969] 1 W.L.R. 295 (where A had
promised to pay £10,000 to B if A succeeded (as he did) in buying Blackacre from X. This was
said to be “nothing but a conditional promise without consideration” because B had not been
requested to do anything to promote the sale by X to A); see also Ellis v Chief Adjudication
Officer [1998] 1 FLR 184 where performance of the condition was no doubt requested but the
actual decision was that an executed gift of a flat failed because the condition (that the donee
should look after her mother there) had not been performed. The agreement in that case lacked
contractual force for want of contractual intention: above, para.2-183.
63. [1893] 1 Q.B. 256; stated above, para.2-015.
64. For the purpose of assessing VAT, a wider test (laid down by European Community Law),
requiring only a “direct link” between performance and counterperformance, suffices: see
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Rosgill Group Ltd v Customs & Excise Commissioners [1997] 3 All E.R. 1012, though in that
case the English test for what constitutes consideration was also said at 1020 to have been
satisfied.
65. Below, paras 4-082—4-107, 4-130—4-185.
66. Below, paras 4-097, 4-131, 4-168.
67. Below, paras 4-172—4-179.
70. See further, below, paras 4-106, 4-185.

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Section 3. - Adequacy of Consideration
Courts generally will not judge adequacy
4-014
Under the doctrine of consideration, a promise has no contractual force unless some value has been
given for it. But as a general rule 71 the courts do not concern themselves with the question whether
“adequate” value has been given, 72 or whether the agreement is harsh or one-sided. 73 The fact that a
person pays “too much” or “too little” for a thing may be evidence of fraud 74 or mistake, or it may
induce the court to imply a term as to the quality of the subject-matter or be relevant to the question
whether a contract has been frustrated. But it does not of itself affect the validity of the contract, so
that (for example) a promise by an employer to make a payment to an employee under a compromise
agreement would not be invalid merely because the amount of the payment was irrationally generous.
This factor might, indeed, where the employer was a public authority, make such a promise void on
the ground that such an authority is “constrained by a general duty arising in public law not to conduct
itself in a way which may be described as ‘irrationally generous’.” 75 But the courts are reluctant to
allow such a body to rely on its own irrationality “to escape from the coils of a contractual obligation by
suggesting that it could not rationally have signed up to it”; and they have given effect to this
reluctance by insisting, not only that the burden on the issue of irrationality rests on the authority, but
also that this burden is “a heavy one indeed.” 76
The principle that the courts are not generally concerned with the adequacy of consideration is also
recognised by the Consumer Rights Act 2015, by s.62(1) of which “unfair terms” in a “consumer
contract”, 77 i.e. to one between a “trader” and a “consumer” 78 is “not binding” on the consumer.” 79
Our present concern is with s.64(1)(b) 80 by which a term “may not be assessed for fairness under
section 62 to the extent that … the assessment is of the appropriateness of the price payable under
the contract by comparison with the goods, digital content or services supplied under it.” For contracts
made on or after October 1, 2015 81 this provision will replace reg.6(2)(b) of the Unfair Terms in
Consumer Contracts Regulations 1999, 82 though the wording of s.64(1)(b) differs in a number of
respects from that of reg.6(2)(b) of the 1999 Regulations: in particular reg.6(2)(b) uses the phrase
“the adequacy of the price” where s.64(1)(b) refers to “the appropriateness of the price.” The Act is
thus less clearly linked (than the Regulations are) to the present discussion of adequacy of
consideration; but it is arguable that “adequacy” is an aspect, even if it is not the sole aspect, of
“appropriateness.” To this extent, it remains arguable that a term would not be “unfair” within the Act
merely because it required the consumer to pay “too much” for what had been supplied to him under
the contract; and that judicial discussions of this point under reg.6(2)(b) 83 can be taken into account
in cases concerned with the scope of s.64(1)(b). For example, in Office of Fair Trading v Abbey
National plc 84 terms in contracts between banks and consumers who were current account holders
specified the level of charges payable in respect of unauthorised overdrafts. It was held that these
terms were protected from challenge under the 1999 Regulations by reg.6(2)(b); and it seems that
they could similarly be protected by s.64(1)(b) of the Act from challenge under its s.62(1). The case is
also of interest in the context of the common law principle that the law does not normally concern
itself with the “adequacy” of consideration. Lord Walker S.C.J. said that “the most important element
of the consideration” that was “received by the bank” was “the interest foregone by customers whose
accounts are in credit since … they will be receiving a relatively low rate of interest … ” 85; and Lord
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Phillips P. similarly said that such customers “reward the bank by allowing it to use the funds standing
to their credit without paying interest at the market rate.” 86 The phrases here italicised appear to
indicate that, where a term was not immune from scrutiny by virtue of reg.6(2)(b), then the court could
have taken questions of adequacy of consideration into account in assessing the fairness of a term
under the 1999 Regulations; and it is submitted that the position is the same under s.64(1)(b) of the
2015 Act. The point is important because, as Lord Walker S.C.J. said, “not every term that is in some
way linked to monetary consideration falls within reg.6(2)(b)” 87: this has, for example, held to be the
position where the term in question was “ancillary” to the consumer’s principal obligation. 88
The general common law rule stated above 89 is subject to a number of exceptions discussed
elsewhere in this book. 90 These indicate that the courts are (even where legislation has not
intervened) by no means insensitive to the problems raised by unequal or unfair bargains; but in none
of them is a promise held invalid merely because adequate value for it has not been given. Some
additional factor is required to bring a case within one of the exceptions: for example, the existence of
a relationship in which one party is able to take an unfair advantage of the other. In the absence of
some such factor, the general rule applies that the courts will enforce a promise so long as some
value for it has been given: “no bargain will be upset which is the result of the ordinary interplay of
forces.” 91
Illustrations
4-015
It follows from the general common law rule stated in para.4-014 above that acts or omissions of very
small value can be consideration. Thus it has been said that there was consideration for a promise to
give a man £50 “if you will come to my house” 92; that the act of executing a deed could be
consideration for a promise to pay money although the deed was void 93; that the execution of a will
can be consideration (for a promise to make, and not to revoke, a similar will 94) even though the will
is in its nature revocable 95; that to give up a piece of paper without reference to its contents was
consideration, 96 and even that to show a person a document was consideration. 97 The mere act of
conducting negotiations can similarly satisfy the requirement of consideration, even though the act
does not commit the promisee to bringing the negotiations to a successful conclusion. 98 Further
illustrations of the principle are provided by a case in which a promise to cut back undergrowth was
regarded as consideration for the grant of a contractual licence to occupy land 99 and by one in which
an employee’s agreement to submit to a temporary change of workplace and to take part in an
assessment of his professional competence was held (though it had no easily quantifiable value) to
amount to consideration for his employer’s promise not to take disciplinary proceedings against him.
100
Objects of trifling value
4-016
In Chappell & Co Ltd v Nestlé Co Ltd, 101 chocolate manufacturers sold gramophone records for 1s.
6d. plus three wrappers of their 6d. bars of chocolate. It was held that the delivery of the wrappers
formed part of the consideration, though the wrappers were of little value to the buyer and were in fact
thrown away by the seller. If the delivery of the wrappers formed part of the consideration it could,
presumably, have formed the whole of the consideration, so that a promise to deliver records for
wrappers alone would have been binding. This case should be contrasted with Lipkin Gorman v
Karpnale Ltd, 102 where gaming chips supplied by a gaming club to one of its members (and then lost
by the member in the course of the gaming) were held not to constitute consideration for the money
which the member had paid for them. One reason for this view appears to have been that “the chips
themselves were worthless” 103; but this is equally true of the wrappers in the Chappell case. Another
seems to have been that the chips “remained the property of the club” 104; but this again would not of
itself be decisive, since it is settled that a transfer of the possession of a thing (no less than that of the
ownership of it) can constitute consideration. 105 A third reason for the view that the chips were not
consideration for the money may be that the parties did not so regard the transaction: they regarded
the chips as merely “a convenient mechanism for facilitating gambling,” 106 and the case may be one
Page 3
in which the court refused to “invent” consideration 107 (by regarding something as consideration
which was not so regarded by the parties) even though this course was technically open to it. This
refusal appears to have been based on the context in which the question arose. The issue was not
whether the club could sue the member on any promise made by him: it arose because the money
paid by the member to the club had been stolen; and the club, which had received the money in good
faith, argued that it had given valuable consideration for it, so as to defeat the true owner’s claim for
the return of the money. This explanation of the case derives some support from Lord Goff’s
discussion of a hypothetical case of tokens supplied by a department store in exchange for cash: he
said that “by receiving the money in these circumstances the store does not for present purposes give
valuable consideration for it.” 108 Yet he also accepted that (in the store example) “an independent
contract is made for the chips when the customer originally obtains them at the cash desk.” 109 The
question whether a party has provided consideration may thus receive one answer when it arises for
the purpose of determining the enforceability of a promise, and a different and narrower one when it
arises for the purpose of determining whether a transaction has adversely affected the rights of an
innocent third party. 110 It was the desire to protect the victim of the theft which led the House of Lords
in the Lipkin Gorman case to reject the, no doubt somewhat technical, argument that the chips
constituted consideration for the receipt of the money.
4-017
The Lipkin Gorman 111 case gives rise to further difficulty because the chips were supplied on the
terms that they could be used, not only for gaming, but also to buy refreshments at the club. There
was no evidence of their having been used for this purpose, 112 but Lord Templeman said that “neither
the power to buy refreshments nor the exercise of that power could constitute consideration for the
receipt [by the club] of £154,693.” 113 One possible interpretation of this passage is that the supply of
refreshments could not constitute consideration for £154,693 (the sum lost by the member of the club)
since the disparity in value was too great; but this would be inconsistent with the principle that
consideration need not be adequate. It is submitted that the preferable explanation of Lord
Templeman’s statement is that the chips were simply “treated as currency” 114 in the club and could
be used for a variety of transactions. The reason why the supply of refreshments was no
consideration for the face value of the chips lost at play was simply that these transactions were
entirely separate ones.
Nominal consideration
4-018
The rule that consideration need not be adequate makes it possible to evade the doctrine of
consideration in the sense that a gratuitous promise can be made binding by giving a nominal
consideration, e.g. £1 for the promise of valuable property, or a peppercorn for a substantial sum of
money. Such cases are merely extreme examples of the rule that the courts will not judge the
adequacy of consideration. 115 If, however, it appears on the face of an agreement that the
consideration must as a matter of arithmetic be worth less than the performance of the
counter-promise, there would seem to be no contract: for example, if A promised to pay B £100 in
return for £1 to be simultaneously paid by B to A. It has been said that, in such a case, the apparent
contract would amount “in reality to a gift of £99.” 116 It is assumed in the example that both sums are
simply to be paid in legal tender. An agreement to exchange a specific coin or coins of a particular
description for a sum of money greater than their face value (e.g. 20 shilling pieces bearing the date
1900 for £100) would be a good contract. The same would be true of an agreement to pay a sum in
one currency in exchange for one payable in another, and of an agreement to pay a larger sum
tomorrow in exchange for a smaller sum paid today. In Birmingham City Council v Forde 117 it was
argued that the reasoning of the hypothetical case discussed above 118 also applied where solicitors
(M) had entered into a conditional fee agreement (CFA 1) with a client (C) and then entered into
another such agreement (CFA 2) with C by which C promised to pay M more than was due to M
under CFA 1. One reason why this argument was, in this context, rejected was that there was a doubt
as to the validity of CFA 1. 119 It should be added that the only arguable arithmetical disparity in the
Birmingham case was between the performances to be rendered by C under CFA 1 and CFA 2. In
this respect, that case differed from our hypothetical case, in which such disparity exists between
promise and counterpromise. The question in the Birmingham case was whether M’s promise in CFA
2 to do work which M had already undertaken in CFA 1 was consideration for C’s promise of extra
Page 4
pay and no precise arithmetical value could have been placed on the former promise, even on the
assumption that there was no doubt as to the validity of CFA 1; and, even if CFA 1 was assumed to
have been valid, M’s actual performance of the work could have amounted to consideration if it had
conferred a factual benefit on C. 120
4-019
Where an agreement is legally binding on the ground that it is supported by nominal consideration,
the doctrine of consideration does not serve its main purpose, of distinguishing between gratuitous
and onerous promises. But the law has no settled policy against enforcing all gratuitous promises. It
refuses to enforce only informal gratuitous promises 121; and the deliberate use of a nominal
consideration can be regarded as a form used with the intention of making a gratuitous promise
binding. In some cases it may, indeed, be undesirable to give promises supported by nominal
consideration the same legal effect as promises supported by substantial consideration; but these
cases are best dealt with by special rules. 122 Such rules are particularly necessary where the promise
can cause prejudice to third parties. For example, the danger that company promoters might use the
device of nominal consideration to the prejudice of shareholders is avoided by imposing fiduciary
duties on the promoters. 123
Nominal distinguished from inadequate consideration
4-020
It is not normally necessary to distinguish between “nominal” and “inadequate” consideration, since
both equally suffice to make a promise binding. The need to draw the distinction may, however, arise
where rules of law treat promises or conveyances supported only by nominal consideration differently
from those supported by consideration which is substantial or “valuable” even though it may be
inadequate. 124 One view is that a nominal consideration is one that is of only token value, 125 while an
inadequate consideration is one that has substantial value even though it is manifestly less than that
of the performance promised or rendered in return. A second view is that “ ‘Nominal consideration’
and ‘nominal sum’ appear …, as terms of art, to refer to a sum or consideration which can be
mentioned as consideration but is not necessarily paid.” 126 This view was expressed by Lord
Wilberforce (in a speech with which all the other members of the House of Lords concurred) in
Midland Bank & Trust Co Ltd v Green. 127 In that case a husband sold a farm, said to be worth
£40,000, to his wife for £500. It was held that the wife was, for the purposes of s.13(2) of the Land
Charges Act 1925, a “purchaser for money or money’s worth” so that the sale to her prevailed over an
unregistered option to purchase the land, which had been granted to one of the couple’s children. 128
It was not necessary to decide whether the consideration for the sale was nominal but Lord
Wilberforce said that he would have had “great difficulty” in so holding; and that “To equate ‘nominal’
with ‘inadequate’ or even ‘grossly inadequate’ consideration would embark the law on inquiries which
I cannot think were ever intended by Parliament.” 129 On the facts of the case the £500 was paid and
was more than a mere token, so that the consideration was not nominal on either of the two views
stated above. But if the stated consideration had been only £1, or a peppercorn, it is submitted that it
would have been nominal even if it had been paid, or delivered, in accordance with the intention of
the parties. So to hold would not lead to inquiries as to the adequacy of consideration; for the
distinction between a consideration that is a mere token and one that is inadequate (or even grossly
inadequate) is, it is submitted, clear as a matter of common sense. Thus where the question was
whether a lease amounted to a “disposition … for a nominal consideration” 130 it was said that “Any
substantial value—that is, a value of more than, say, £5 … will prevent [the] disposition from being for
a nominal consideration.” 131 Such an approach gives rise to no more difficulty than the concept of a
consideration which is “mentioned as a consideration but … not necessarily paid.” This test would
presumably make the question whether consideration was nominal turn on the intention of the parties;
and in the present context this would be an even more than usually elusive criterion since no
guidance could be obtained from the terms of the contract, those terms being in cases of this kind
often deliberately drafted so as to conceal the true nature of the transaction.
Attitude of equity
Page 5
4-021
Even in equity the validity of a contract could not generally be challenged on the ground that the
consideration provided for one party’s promise was inadequate. 132 But the equitable remedy of
specific performance may be refused on this ground 133 (at least if coupled with certain other factors);
and in exceptional cases gross undervalue may even be a ground for more radical forms of equitable
relief, such as setting a contract aside or reopening it. 134 Equity also refuses to aid a “volunteer”—so
that its remedy of specific performance is not available to a person who has given no substantial
consideration but who can nevertheless bring an action on the promise because it is in a deed or
supported by nominal consideration. 135 But while the equitable principle restricts the enforceability of
gratuitous promises, it does not affect the validity of a completed gift. 136

71. For exceptional cases, see below, paras 4-018, 8-130, 8-142, 27-038. See also Bankway
Properties Ltd v Penfold Dunsford [2001] EWCA Civ 538; [2001] 1 W.L.R. 1369, where a
provision for rent increase in a shorthold tenancy far beyond the amount which (as the landlord
knew) the tenant could possibly pay was held to be unenforceable as being inconsistent with
the intention of the parties to create an assured tenancy.
72. Haigh v Brooks (1839) 10 A. & E. 309, 320; Moss v Hall (1850) 5 Exch. 46, 49–50; Westlake v
Adams (1858) 5 C.B.(N.S.) 248, 265; Gravely v Barnard (1874) L.R. 18 Eq. 518; Wild v Tucker
[1914] 3 K.B. 36, 39; Midland Bank & Trust Co Ltd v Green [1981] A.C. 513, 532; cf. Ball v
National and Grindley’s Bank [1973] Ch. 127, 139; Langdale v Danby [1982] 1 W.L.R. 1123;
CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] Q.B. 16, 27; Brady v Brady [1989]
A.C. 755, 775; Normid Housing Association Ltd v R. John Ralphs [1989] 1 Lloyd’s Rep. 265,
272; Haines v Hill [2007] EWCA Civ 1284, [2008] Ch. 412 at [79], referring to para.3-014 of this
book in its 29th edition (para.4-014 in the present edition) with apparent approval; Birmingham
City Council v Forde [2009] EWHC 12 (QB), [2009] 1 W.L.R. 2732 at [84], [90] (as to which see
also below, paras 4-018 and 4-072). cf. Barton (1987) 103 L.Q.R. 118.
73. Gaumont-British Pictures Corp. v Alexander [1936] 2 All E.R. 1686. On such facts, provisions of
the Consumer Rights Act 2015 cited at nn.77–81 below would not apply.
74. Tennent v Tennents (1870) L.R. 2 Sc. & Div. 6, 9. See also Rice v Gordon (1847) 11 Beav. 265;
Cockell v Taylor (1851) 15 Beav. 103.
75. Gibb v Maidstone and Tunbridge Wells Health Trust [2010] EWCA Civ 678, [2010] I.R.L.R. 786
at [4]; for a colourful example of such irrationality, see ibid., at [56], discussing R (Bridgeman) v
Drury [1894] 2 I.R. 489.
76. Newbold v Leicester CC [1999] I.C.R. 1182, at [37], where the defendant authority failed to
discharge the burden of showing that the generosity was irrational; cf. the Gibb case, above
n.75, at [7].
77. For the definition of this expression, see the 2015 Act, ss.61(3), 76(1).
78. ibid., s.61(1); for the definitions of “trader” and “consumer”, see ibid., s.2(2) and 2(3).
79. 2015 Act, s.62(1).
80. This Act is fully discussed in Vol.II, Ch.38; for its s.64(1)(b) see Vol.II, para.38-368.
81. On the dates of commencement, see s.100 below, Vol.II, para.38-197.

Page 6
82.
SI 1999/2083, replaced by Consumer Rights Act 2015, s.75 and Sch.4, para.34. The object of
reg.6(2)(b) was to give effect to the EC Directive on Unfair Terms in Consumer Contracts
(93/13/EEC), Art.4(2). For the possible legal status, after the completion of “Brexit”, of UK
legislation which has been passed to implement EU legal requirements, see above, paras
1-013A—1-013E.
83. See Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 A.C.
481 at [12], per Lord Bingham, with whose reasoning all the other members of the House of
Lords expressed their agreement. Lord Rodger at [64] said that he had “no concluded view” on
the present point, relying on the reference in Recital 19 of the Directive cited in n.81 above to
“the price/quality ratio.” The Recital is not easy to interpret, but at least one possible view is that
this ratio is not relevant to the fairness of the price term (first sentence), though it may be
relevant to the fairness of other terms of the contract.
84. [2009] UKSC 6, [2010] 1 A.C. 696. See also the decision of the ECJ in Kásler v OTP
Jelzálogbank Zrt (C-26/13), [2014] 2 All E.R. (Comm) 443, discussing art.4(2) of the Directive
referred to in n.81 above. That case does not directly deal with the point here under discussion
(i.e. the “adequacy of the consideration” point), being mainly concerned (in its discussion of
art.4) with the question of what constitutes the “main subject-matter of the contract” within
art.4(2) (at [43] and [59]). For a full discussion of this case, see below, Vol.II, paras 38-229 to
38-233.
85. [2009] UKHL 6 at [42].
86. ibid., at [54].
87. ibid., at [43].
88. A point which Lord Walker illustrated by reference to Director General of Fair Trading v First
National Bank, above, n.82, where the term in question was one requiring the customer to pay
interest on the outstanding amounts even after judgment had been given against him for this
principal sum. It was held that this term was not protected from challenge by reg.6(2)(b), though
the challenge failed as the term was held not to be unfair.
89. At n.72.
90. See above, n.71; and Waddams (1976) 39 M.L.R. 393; Tiplady (1983) 46 M.L.R. 601.
91. Lloyd’s Bank Ltd v Bundy [1975] Q.B. 326, 336, per Lord Denning, M.R.
92. Gilbert v Ruddeard (1608) 3 Dy. 272b (n); cf. Denton v G.N. Ry. (1856) 5 E. & B. 860.
93. Westlake v Adams (1858) 5 C.B.(N.S.) 248; perhaps there was also an element of compromise
in this case.
94. If such promises are contractually binding, they can be enforced under the doctrine of mutual
wills even where the promise sought to be so enforced is established by evidence extraneous
to the will: Charles v Fraser [2010] EWHC 2154 (Ch), [2010] W.T.L.R. 1489.
95. Re Dale [1994] Ch. 31. cf. Re Goodchild [1997] 1 W.L.R. 1216 where a mere “common
understanding” (as opposed to definite mutual promises) did not suffice to make B’s promise
irrevocable, but some effect to it was given by an order in favour of the intended beneficiary
under the Inheritance (Provision for Dependants) Act 1975; Taylor v Dickens [1998] 1 F.L.R.
806, the reasoning of which was doubted on other grounds in Gillett v Holt [2001] Ch. 210.
96. Haigh v Brooks (1839) 10 A. & E. 309, 334; cf. Foster v Dawber (1861) 6 Ex. 839; Aspinall’s
Club Ltd v Al Zayat [2007] EWCA Civ 1001 at [30].
97. Sturlyn v Albany (1587) Cro.Eliz. 67; March v Culpepper (1628) Cro.Car.70; contrast Re
Charge Card Services [1987] Ch. 150, 164, affirmed [1989] Ch. 487 (production of charge card
Page 7
and signature of voucher not consideration for a supply of goods, evidently because such
“consideration” would be blatantly “invented”: cf. above, para.4-010).
98. Sepoong Engineering Construction Co Ltd v Formula One Management Ltd [2000] 1 Lloyd’s
Rep. 602, 611.
99. Well Barn Farming Ltd v Backhouse [2005] EWHC 1520, [2005] 3 E.G.L.R. 109 at [45].
100. Palmer v East & North Herefordshire NHS Trust [2006] EWHC 1997, [2006] Lloyd’s Rep. Med
472.
101. [1960] A.C. 87.
102. [1991] 2 A.C. 548. On facts such as those of this case, consideration for the money paid by the
member to the club would now be provided by reason of the fact that the club’s promise to the
member would be legally enforceable by virtue of s.335(1) of the Gambling Act 2005: Vol.II,
para.41-011. But the question whether tokens of very small intrinsic value can constitute
consideration can still arise in other contexts, not connected with gambling: see below at n.107.
103. [1991] 2 A.C. 548 at 561.
104. ibid.; and see 575.
105. Bainbridge v Firmstone (1838) 8 A. & E. 743; below, para.4-198.
106. Lipkin Gorman case above, n.101 at 575. The reasoning of the Lipkin Gorman case on this
point continues to apply after the coming into force of the Gambling Act 2005: see Ritz Hotel
Casino Ltd v Al Daher [2014] EWHC 2847 (QB) at [31]–[32], below, Vol.II, para.41-042 at
n.255.
107. Above, para.4-010.
108. Lipkin Gorman case above, n.101 at 577; italics supplied; cf. below, para.4-032.
109. Lipkin Gorman case above, n.101 at 576.
110. Above, para.4-002.
111. [1991] 2 A.C. 548.
113. ibid. at 567. For the effect of s.335(1) of the Gambling Act 2005 on the reasoning of the Lipkin
Gorman case, see above, para.4-016 n.101.
115. Atiyah, Essays on Contracts, p.194 argues that there is no logical connection between the two
rules, relying on the fact that in many of the United States the courts recognise the principle that
consideration need not be adequate, while rejecting the device of nominal consideration. The
answer to this argument lies in Holmes’ aphorism (The Common Law, p.1) that “life of the law
has not been logic: it has been experience:” American courts which reject the device of nominal
consideration do so on policy grounds which have nothing to do with logic.
116. Birmingham City Council v Forde [2009] EWHC 12, [2009] 1 W.L.R. 3732 at [90].
117. Above, n.115.
118. After n.114, above.

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119. See para.4-072 below.
122. Thus a nominal consideration was disregarded in Milroy v Lord (1862) 4 D.F. & J. 264,
discussed below, para.19-035; specific performance will not be ordered of a promise supported
by only nominal consideration (below, para.27-039) and for the purposes of the Law of Property
Act 1925, “valuable consideration does not include a nominal consideration in money”:
s.205(1)(xxi).
123.
Below, para.10-054. For other ways of protecting third parties from being prejudiced by
promises made for inadequate consideration, see Trustee Act 1925, s.13; Law of Property Act
1925, ss.172, 173; Local Government Act 1972, s.123, considered in R. v Pembrokeshire CC
Ex p. Coker [1999] 4 All E.R. 1007, Structadene Ltd v Hackney LBC [2001] 2 All E.R. 225,
discussing s.123(2) of the 1972 Act, restricting disposals by local authorities “for a consideration
less than the best that can reasonably be obtained” and R. (On the application of Salford
Estates) v Salford City Council [2011] EWHC 2135 (Admin), [2011] B.L.G.R. 982, discussing
the scope of the local authority’s duty under that provision; Inheritance (Provision for Family and
Dependants) Act 1975, ss.10(2)(b), 10(5)(b), 11(2)(c); Insolvency Act 1986, ss.238, 239, 423
(applied in Barclays Bank plc v Eustice [1995] 1 W.L.R. 1238; Agricultural Mortgage Corp. plc v
Woodward [1995] B.C.L.C. 1); Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] UKHL 2, [2001]
1 W.L.R. 143; Bataillon v Shone [2016] EWHC 1174 (QB), [2016] B.P.I.R. 829 (transfers from
husband to wife at an undervalue set aside as having been made for “no consideration” within
s.429(1)(a) of the Insolvency Act 1986). cf. Companies Act 2006, ss.190, 593. See also
Charities Act 2011, ss.197(2)(a) and 218(3), requiring “full consideration in money or money’s
worth” (a similar requirement, previously contained in s.65(1)(a) of the Charities Act 1993, now
repealed by s.354 and Sch.10 of Charities Act 2011, was held not to have been satisfied in
Bayoumi v Women’s Total Abstinence Educational Union Ltd [2003] EWCA Civ 1548 [2004] Ch.
40 at [46]–[47]).
124. Above, para.4-018 at nn.121 and 122.
125. This seems to be the sense in which 10 shillings was described as “nominal” consideration (for
the assignment of a debt) in Turner v Forwood [1951] 1 All E.R. 746.
126. Midland Bank & Trustee Co Ltd v Green [1981] A.C. 513, 532.
127. above n.125.
128. For later successful proceedings by that child against the parents for conspiracy, see [1982] Ch.
529.
129. [1981] A.C. 513, 532. In other legislative contexts such an inquiry may be intended: e.g. by use
of the phrase “full and valuable consideration” in the Inheritance (Provisions for Family and
Dependants) Act 1975, s.1(3); cf. Charities Act 2011, ss.197(2)(a) and 218(3), above n.122.
130. Within Law of Property Act 1925, s.84(7).
131. Westminster City Council v Duke of Westminster [1991] 4 All E.R. 136, 146 (reversed in part on
another ground (1992) 24 H.L.R. 572).
132. See, e.g. Cheale v Kenward (1858) 3 De G. & J. 27; Townsend v Toker (1866) L.R. 1 Ch. App.
446.
133. Below, para.27-038.
134. Below; para.8-130; Pennell v Miller (1857) 23 Beav. 172; Butler v Miller (1867) L.R. 1 Eq. 195,
210; Tennent v Tennents (1870) L.R. 2 Sc. & Div. 6, 9.
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135. Jefferys v Jefferys (1841) Cr. & Ph. 138; below, para.27-039.
136. T. Choithram International S.A. v Pagarani [2001] 1 W.L.R. 1; Pennington v Waine [2002]
EWCA Civ 227; [2002] 1 W.L.R. 2075.

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Section 4. - The Concept of “Valuable” Consideration
“Value in the eye of the law”
4-022
Although consideration need not be adequate, it must be “of some value in the eye of the law,” 137 that
is, it must be capable of estimation in terms of economic or monetary value, 138 even though there
may be no very precise way of quantifying that value. This is one reason why there is no
consideration for a promise made “in consideration of natural love and affection,” 139 and why in
Thomas v Thomas 140 the testator’s desire that his widow should live in his house was not part of the
consideration for the executors’ promise to allow her to do so. The same reasoning may explain the
decision in White v Bluett 141 that a son had not provided consideration for his father’s promise not to
sue him on a promissory note by promising in return not to bore his father with complaints. But in
Ward v Byham 142 a promise by the mother of an illegitimate child to make it happy appears to have
been regarded as part of the consideration for the father’s promise to pay her an allowance. It is by no
means clear why the mother’s promise in the latter case was, while the son’s promise in the former
was not, thought to have “value in the eye of the law.” 143
Impossible and illusory consideration
4-023
A contract may be void for mistake if at the time of the agreement its performance is, unknown to
either party, physically impossible. 144 In such a case there may nevertheless be consideration, e.g. in
the mutual promises of the parties. But if the performance of one party’s promise is known by both to
be impossible to perform, it is arguable that the consideration is only illusory and therefore to be
disregarded. For example, a promise by A to pay B £100 for all the wine in B’s cellar would probably
be regarded as gratuitous if at the time when it was made both A and B knew 145 that there was no
wine in the cellar. The position would be different if B’s promise was to deliver the future contents of
the cellar. In that case, A would be buying the chance of the cellar’s containing wine 146; and the value
of that chance would be illusory only if the question whether any wine was put into the cellar had been
left entirely to B’s discretion. 147
Promisee would have performed anyway
4-024
Consideration may also be said to be illusory where it is clear that the promisee would have
accomplished the act or forbearance anyway, even if the promise had not been made. This would be
the position if A promised B, who had religious objections to smoking, £10 if B did not smoke for a
week. Since “it is no consideration to refrain 148 from a course of conduct which it was never intended
to pursue,” 149 B’s forbearance from smoking would not constitute consideration for A’s promise. The
burden of proof on this issue is on the promisor. 150 To discharge it, the promisor must show that the
promisee would (even if the promise had not been made) definitely have accomplished the act or
Page 2
forbearance in question; the burden would not be discharged by the promisor’s showing no more than
that the promisee had simply not given any thought to the question whether or not to accomplish it. 151
Moreover, where the promise provided an inducement for the act or forbearance, the requirement of
consideration is satisfied even though there were also other inducements operating on the promisee’s
mind. 152
Discretionary promise
4-025
Consideration would again be illusory where it was alleged to consist of a promise the terms of
which left performance entirely to the discretion of the promisor. 153 A person does not provide
consideration by promising to do something “if I feel like it,” or “unless I change my mind.” Promises
are not often made in this form; but the same principle may apply in analogous cases. Thus a promise
may be illusory if it is accompanied by a clause effectively 154 excluding all liability of the promisor for
breach. 155 And a promise to pay for “so much coal as I may decide to order” would be an illusory
consideration for the seller’s counter-promise to deliver, which would therefore not be enforced. 156 On
the other hand, if the promise were one to buy “so much of the coal that I require as I may order from
you,” the court could give reality to the promise by implying a term into it to the effect that at least a
reasonable part of any requirements which the promisor actually turned out to have must be ordered
from the promisee. Equally the buyer would provide consideration by promising to buy “all the coal I
require”; for in such a case, even if the buyer does not promise to have any requirements, he does at
least give a definite undertaking not to deal with anybody else. 157 This promise may, it is true, be
illegal as being in restraint of trade; but if this makes the whole contract invalid, such invalidity
probably rests on grounds of public policy and not on lack of consideration. 158 Similarly, a promise
which is subject to cancellation by A may nevertheless constitute consideration for a counter-promise
from B where A’s power to cancel is limited by the express terms of the promise: e.g. where it can be
exercised only within a specified time. Such a limitation on the power to cancel may also be implied,
so that (for example) A could not cancel after B had begun to perform his counter-promise. A’s
promise would then constitute consideration, so that B would be liable if he failed to complete the
performance. Finally, the objection that a promise amounts, on the grounds here discussed, only to
an illusory consideration can be removed if the promise is performed. Such actual performance can
constitute consideration even though the person who has rendered it was not legally obliged to render
it. 159

137. Thomas v Thomas (1842) 2 Q.B. 851, 859.
138. See R. v Pembrokeshire CC Ex p. Coker [1999] 4 All E.R. 1007 where it was held that, for the
purpose of Local Government Act 1972, s.123(2), only “those elements of commercial or
monetary value to the local authority” (at 1013) were to be taken into account for the purpose of
determining whether a disposal by the authority had been made for “a consideration less than
the best that could reasonably be obtained.”
139. Bret v J.S. (1600) Cr.Eliz. 755; Tweddle v Atkinson (1861) 1 B. & S. 393, disapproving of Dutton
v Poole (1677) 2 Lev. 211; cf. Horrocks v Forray [1976] 1 W.L.R. 230; Mansukhani v Sharkey
[1992] 2 E.G.L.R. 125.
140. (1842) 2 Q.B. 851; above, para.4-011.
141. (1853) 23 L.J. Ex. 36.
142. [1956] 1 W.L.R. 496; below, para.4-065.

Page 3
143. White v Bluett, above, can perhaps be explained on the ground that the father, in spite of his
promise, retained the note.
144. Below, Ch.6.
145. There could be a good contract if the parties were in doubt on this point: see Smith v Harrison
(1857) 26 L.J.Ch. 412. In Birmingham City Council v Forde [2009] EWHC 12 (QB), [2009] 1
W.L.R. 2732 (above, para.4-018, below, para.4-072) Christopher Clarke J. also considered the
question whether the consideration consisting of the solicitors’ promise to provide additional
services in the form of legal representation on appeal was illusory in view of the fact that “the
prospect of a council appeal was very remote” (at [84]). The judgment does not in terms answer
the question, but it may be that a negative answer can be inferred from the fact that the
agreement referred to in paras.4-018 above and 4-072 below as CFA 2 was held to be a
binding contract.
146. cf. Brady v Brady [1989] A.C. 755, 774 (“at the date of the promise”).
147. Below, para.4-025.
148. In Birmingham City Council v Forde [2009] EWHC 12 (QB), [2009] 1 W.L.R. 2732 (paras 4-018
above and 4-072 below) one reason why the principle stated in the dictum quoted in the text
above did not literally apply was that the alleged consideration did “not consist of not doing
something but of continuing to act” (at [97]). It is respectfully submitted that, in the present
context, there is no reason for distinguishing between inaction and a positive act. The crucial
question is whether the promisee’s conduct (whether by acting or by forbearing to act) would
have been the same as it was, even if the promise for which it was alleged to be consideration,
had not been made.
149. Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep. 98, 106; cf. Colchester BC v Smith
[1991] Ch. 448, 489, affirmed without reference to this point [1992] Ch. 421; Beaton v McDivitt
(1988) 13 N.S.W.L.R. 162. In Birmingham City Council v Forde [2009] EWHC 12 (QB), [2009] 1
W.L.R. 2732 (paras 4-018 above and 4-072 below) the principle stated in the text above was
held not to apply as it was not established that the solicitors would not have continued to act for
the client under CFA 1 even if CFA 2 had not been signed: see at [96], and that in any event the
client benefited from the certainty, created by CFA 2, that they would so continue: see at [87].
150. Well Barn Farming Ltd v Backhouse [2005] EWHC 1520, [2005] E.G.L.R. 109, where the
promisor failed to discharge this burden (at [47], [48]); cf. below, para.4-158.
151. Pitts v Jones [2007] EWCA Civ 1301, [2008] Q.B. 706 at [15]–[18].
152. Brikom Investments Ltd v Carr [1979] Q.B. 467, 490.
153.
For another problem arising out of such promises, see above, para.2-185; Stabilad Ltd v
Stephens & Carter (No.2) [1999] 2 All E.R. (Comm), 651, 659 (citing a previous edition of this
book); Simpkin v Berkeley Group Holdings PLC [2016] EWHC 1619 (QB), where it was not
disputed that a contract had come into existence and held that an employer’s discretion to
decide that an employee had been a “good leaver” (and so was to receive benefits under a
bonus scheme operated by the employer) must be exercised in good faith and without being
“arbitrary, capricious or irrational … ” at [327]. Such restrictions on the exercise of the discretion
would also have satisfied the requirement of consideration if an issue of consideration had
arisen.
154. If the clause were ineffective (e.g. under the Consumer Rights Act 2015, s.63 and Sch.2, paras
3 and 7 (see Vol.II, para.38-360)), this fact would give reality to an otherwise illusory promise.
155. Firestone Tyre & Rubber Co Ltd v Vokins [1951] 1 Lloyd’s Rep. 32, 39; cf. the discussion of The
Cap Palos [1921] p.458, in the Suisse Atlantique case [1967] 1 A.C. 361, 432.
156. See Wickham & Burton Coal Co v Farmer’s Lumber Co 189 Iowa 1183, 179 N.W. 417 (1923);
Page 4
cf. the discussion in Cotswold Development Construction Ltd v Williams [2006] I.R.L.R. 181 of
the status of a casual worker. For an exception, see Citadel Insurance Co v Atlantic Union
Insurance Co [1982] 2 Lloyd’s Rep. 543, below para.4-194.
157. The validity of “requirement” contracts is assumed in such cases as Metropolitan Electric
Supply Co v Ginder [1901] 2 Ch. 799 and Dominion Coal Co Ltd v Dominion Steel & Iron Co Ltd
[1901] A.C. 293. Similarly, a contract by a manufacturer to sell his entire output to a particular
buyer is binding even though he does not bind himself to have any output: see, e.g., Donnell v
Bennett (1883) 22 Ch.D. 835 and cf. Thames Tideway Properties Ltd v Serfaty [1999] 2 Lloyd’s
Rep. 110, 127; Howard (1967) 2 U. of Tas.L.R. 446; Adams (1978) 94 L.Q.R. 173.
158. Below, para.4-186.
159. Cambridge Nutrition Ltd v BBC [1990] 3 All E.R. 523, 528; Stabilad Ltd v Stephens & Carter
(No.2) [1999] 2 All E.R. (Comm), 651, 660.

Page 1

Section 5. - Past Consideration
Past consideration is no consideration
4-026
The consideration for a promise must be given in return for the promise. If the act or forbearance
alleged to constitute the consideration has already been done before, and independently of, the giving
of the promise, it is said to amount to “past consideration”; and such past acts or forbearances do not
in law amount to consideration for the promise. 160 If, for example, a thing is guaranteed by a seller
after it has been sold the guarantee is not contractually binding on the seller as the consideration for
his promise is past. 161 Similarly a promise to make a payment in respect of past services is not
contractually binding unless the conditions specified in para.4-030 below are satisfied or some other
consideration 162 is provided. For example, a promise to pay money may be made to an employee
after his retirement or to an agent after the termination of the agency. If the sole consideration for the
promise is the service previously rendered by the former employee or agent, it will be past
consideration, so that the promise will not be contractually binding. 163 It will be so binding only if some
consideration other than the past service has been provided by the promisee. Such other
consideration may consist in his giving up rights which are outstanding (or are in good faith believed
to be outstanding) under the original contract, 164 or in his promising to perform or actually performing
some other act or forbearance not due from him under the original contract: for example, in his validly
promising not to compete with the promisor. 165
When consideration is past
4-027
In determining whether consideration is past, the courts are not, it is submitted, bound to apply a
strictly chronological test. If the giving of the consideration and the making of the promise are
substantially one transaction, the exact order in which these events occur is not decisive. 166 Where,
for example, a contract to erect buildings on land and to grant a lease of that land are substantially
one transaction, the expenditure of money on the buildings would not be past consideration for the
execution of the lease, even though the lease was not executed until after completion of the buildings.
167
Similarly, where a contract of affreightment (COA) had been made between A and B on August 13,
2008, and a guarantee was given by C to A of B’s performance on August 28 in pursuance of B’s
obligation under the COA to procure such a guarantee (though not from C but from D), it was held
that the consideration for the guarantee was not past as the guarantee formed “part and parcel of the
single transaction.” 168 The same reasoning would apply where a manufacturer’s “guarantee” was
given to a customer after he had bought the goods: that is, the consideration for the “guarantee”
would not, merely on that ground, be past since the sale and the giving of the guarantee will often in
substance be a single transaction. This reasoning can, as these guarantee cases show, apply, not
only where “the same parties 169 were involved throughout” but also where the guarantee was (as will
often be the case) given by a person who was not a party to the original contract. 170
Guarantees given to consumers

Page 2
4-028
Legislation passed for the protection of consumers contains a number of provisions which attach
specified legal consequences to “guarantees” given to “consumers” in connection with contracts for
the supply of goods, and certain other contracts, between a “consumer” and a “trader”. In such cases,
the requirement of consideration can, at common law, be satisfied on the reasoning of para.4-027
above not only where the guarantee was given by the supplier of the goods or other subject-matter,
but also by a third person who was not a party to the contract under which the supply was made.
Legislation has, however, gone further than this and has dispensed with the requirement of
consideration for the enforceability of at least some such guarantees. This was, for example, the
effect of a “consumer guarantee” within the Sale and Supply of Goods to Consumers Regulations
2002, which provided that such a guarantee took “effect as a contractual obligation owed by the
guarantor” 171: and where the guarantee so took effect, there was no need for the consumer to show
that he has provided consideration for the guarantor’s promise. These Regulations have been
revoked by the relevant provisions of the Consumer Rights Act 2015, 172 but s.30 of that Act 173
contains a substantially similar provision which applies when “there is a contract to supply goods; and
… there is a guarantee in relation to the goods”. 174 Section 30(3) provides that such a guarantee
“takes effect … as a contractual obligation owed by the guarantor” to the consumer. 175 As under the
2002 Regulations referred to above, there is no need for a consumer who makes a claim under
s.30(3) to satisfy any requirement of consideration. But although s.30(3) provides a satisfactory legal
basis for the liability of a guarantor (even of one who is not the supplier of the goods), it provides only
a partial solution of the problem here under discussion. This is because in the 2015 Act s.30 is
contained in Part 1 Chapter 2, which “applies to a contract for a trader to supply goods to a
consumer” 176 and it is worded so as to apply only “where there is a contract to supply goods” 177.
Section 30 therefore does not apply for the purposes of Part 1 Chapter 3, which “applies to a contract
for a trader to supply digital content to a consumer”, 178 or for the purposes of Part 1 Chapter 4, which
“applies to a contract for a trader to supply a service to a consumer” 179; nor do Chapters 3 and 4
contain any provision resembling the words of s.30(3), which provide the legal basis for the liability of
a guarantor even where he is not a party to the contract to supply goods. Yet the possibility that such
a guarantee may be given in relation to a contract for the supply of digital content or of services by a
trader to a consumer cannot be ruled out and is indeed implicitly recognised by the 2015 Act in the
use it makes of machinery created by earlier legislation.
That earlier legislation is contained in the Consumer Contracts (Information, Cancellation and
Additional Charges) Regulations 2013. 180 These Regulations make use of the concept of a
“commercial guarantee”, an expression defined in reg.5 as an undertaking given “by the trader or
producer 181 to the consumer 182 … to reimburse the price paid or replace, repair or service the goods
… if they do not meet the specifications or any other requirement set out in the guarantee statement
or in the relevant advertising …”. When such an undertaking is given by the “trader” to the
“consumer”, such a guarantee will no doubt take effect as a term in the “sales contract”, defined in
reg.5 as a contract between these parties. But this reasoning cannot apply where the undertaking is
given to the consumer by the producer when, as will often be the case, there is no “sales contract”
between these parties; and the definition of the “guarantee” in reg.5 contains no words resembling
those of s.30(3) of the 2015 Act 183 which provide the legal basis for the producer’s liability to the
consumer in respect of statements made by or on behalf of the “producer” when that person is not a
party to the contract of sale. It may be possible to account for the absence from the 2013 Regulations
of words providing any such legal basis on the ground that these Regulations are not directly
concerned with the binding force of a “commercial guarantee” on a guarantor other than the “trader.”
They make use of the concept of such a guarantee only in including the existence of the guarantee in
the lists of information (here to be called “the information requirements”) which the trader is required
184
to make available to the consumer. It is true that such information is “to be treated as a term of the
contract” 185; but the contract here referred to is that between the trader and the consumer, as
opposed to any further contract that may arise between the consumer and the guarantor where (and
even though) the latter is not a party to the “sales contract” 186 between the consumer and the trader.
These information requirements are imported into the Consumer Rights Act 2015, which provides that
where a trader is required by the above provisions of the 2013 Regulations to provide information to
the consumer, the information so provided “is to be treated as included as a term of the contract” 187
and under the Act this rule applies not only to contracts for the supply of goods 188 but also to those
for the supply of digital content 189 and for the supply of services. 190 Again these contracts are those
between the trader and the consumer 191 and so do not, of themselves provide any legal basis for any
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contractual or other liability of the guarantor to the consumer where the guarantor is a person other
than the trader. But in the present context the important point is that, by applying the “information
requirements” of the 2013 Regulations to contracts for the supply of digital content (s.37(2) and for
the supply of services (s.50(3)) the 2015 Act has made the concept of a “commercial guarantee” a
part of the law relating to such contracts even though the words of the Act itself do not apply any such
concept to them and do not contain any provision resembling s.30(3) of the Act, which in terms makes
a third party guarantee legally enforceable by the consumer against the guarantor. The mere fact that
the trader must inform the consumer of the existence of the guarantee and that this information is
“treated as included in the contract” does not in terms tell us anything about the liability of the
guarantor to the consumer since the contract in which the information about the guarantee must be
treated as included is the contract between trader and consumer, and this contract could not bind the
guarantor. 192 So one possible view is that, by reason of the absence of express words to that effect in
the definition of a “commercial guarantee in reg.5, the guarantee cannot bind the guarantor. But there
are, it is submitted, a number of reasons for rejecting this view. For one thing, it would be pointless to
require the trader to inform the consumer of the existence of a guarantee which the consumer could
not enforce against the guarantor. More seriously, such a requirement would be likely to mislead the
consumers and would so, instead of protecting consumers, constitute a trap for them. Finally, if the
requirement were interpreted in this way, it would lead to the conclusion that, under the 2015 Act, a
guarantee given by a person other than the trader was legally enforceable by the consumer against
the guarantor where the guarantee was given in relation to a contract for the supply of goods but not
where the contract in relation to which it was given was one for the supply of digital content or one for
the supply of services; and there seems to be no justification for such a distinction. 193 For all these
reasons, it is submitted that where, in pursuance of the “information requirements” to be imported
from the 2013 Regulations into the 2015 Act, the trader informs the consumer of the existence of a
“commercial guarantee” as defined by those Regulations, then the legislative scheme of the 2015 Act
should be regarded as giving rise to an implication that, in this context, the reference should be to a
guarantee which is legally enforceable by the consumer against the guarantor, even where there is no
consideration moving from the consumer for the guarantor’s promise. The requirement of
consideration continues to apply to a guarantee which is not a “commercial guarantee” within the
2013 Regulations or a “guarantee” within s.30(2) of the 2015 Act. 194 In such cases there is, however,
nothing in this legislation to prevent the guarantee from taking effect at common law to a collateral
contract of the kind described in para.18-005 below provided that the requirements of consideration
and contractual intention 195 are satisfied.
Wording of promise not decisive
4-029
The question whether consideration is past is one of fact: the wording of the promise is not decisive.
Thus in Re McArdle 196 a promise made “in consideration of your carrying out” certain work was held
to be gratuitous on the ground that the work had already been done. Conversely, a promise made “in
consideration of your having today advanced … £750” has been held to be binding on proof that the
advance was made at the same time as the promise. 197
Past act done at promisor’s request
4-030
An act done before the promise was made can be consideration for the promise if three conditions
are satisfied. 198 First, the act must have been done at the request of the promisor 199; secondly, it
must have been understood that payment would be made; and thirdly, the payment, if it had been
promised in advance, must have been legally recoverable. 200 In such a case the promisee is, quite
apart from the subsequent promise, entitled to a quantum meruit for his services. The promise can be
regarded either as fixing the amount of that quantum meruit 201 or as being given in consideration of
the promisee’s releasing his quantum meruit claim. On the other hand, a past service for which
payment was not expected, or one for which payment, though expected, is not legally recoverable, is
no consideration for a subsequent promise to pay for it. 202
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Past promise given at promisor’s request
4-031
The principle stated in para. 4-030 above can apply not only where the consideration for A’s promise
consists of a past act done by B at A’s request, but also where it consists of an earlier promise made
by B at A’s request. Thus in Pao On v Lau Yiu Long 203 the claimants had entered into a contract with
the X Co for the sale to that company of their shares in another company. Under that contract, the
claimants were to be paid by an allotment of shares in the X Co, and they also promised not to sell 60
per cent of these shares for one year. This promise had been made at the request of the defendants,
who held most of the shares in the X Co and who were anxious that the value of their holding should
not be depressed by a sudden sale of all the shares allotted to the claimants. Later, the defendants
gave the claimants a guarantee in which they promised to indemnify the claimants against any loss
which they might suffer as a result of a fall in the value during the year of the shares in the X Co 204
The Privy Council rejected the argument that the consideration for the guarantee was past. 205 The
claimants’ promise not to sell the shares in the X Co was good consideration for the guarantee; for
although that promise had been made before the guarantee was given, it had been made at the
defendants’ request and on the understanding that the claimants were, in return for making it, to
receive some form of protection against the risk (to which their promise exposed them) of a fall in the
value of the X Co’s shares.
Antecedent debt
4-032
In a number of cases it has been held that the mere existence of an antecedent debt does not
constitute “value” for a transfer since it amounts only to past consideration. Accordingly, in Roger v
Comptoir d’Escompte de Paris 206 it was held that a transfer of a bill of lading by a buyer in
consideration of a debt already due from him to the transferee did not deprive the seller of his right of
stoppage in transit 207; in Re Barker’s Estate 208 a mortgage executed as security for an antecedent
debt and not communicated to the creditor was held to be voluntary and hence a fraudulent
conveyance in bankruptcy; and in Wigan v English & Scottish Law Life Assurance Society 209 an
assignment of an insurance policy which was made as security for an antecedent debt and had not
been communicated to the creditor was held not to have been made (to him as assignee) “for
valuable consideration” within a clause of the policy protecting the rights of such an assignee on the
death of the assured by his own hand. These cases are not directly concerned with the question of
whether such an antecedent debt can constitute consideration for a later promise by the debtor:
indeed, in Wigan’s case such enforceability at common law could hardly have been disputed since
the assignment was made in a deed. The cases may, however, be relevant by analogy to the
enforceability of a promise made by the debtor to the creditor (e.g. of one to pay higher interest or to
pay early); and, in principle, it seems that where the only possible consideration for such a promise is
an antecedent debt owed by the promisor to the promisee, then such consideration is past, so that
the promise is not contractually binding. 210 In practice, however, the creditor (i.e. the promisee) will
often be held to have provided consideration for such a promise if, on the strength of it, he forbears to
sue for the debt. 211
“Moral” obligation
4-033
In the eighteenth and early nineteenth centuries, an attempt was made (originally by Lord Mansfield)
to define consideration so as to include certain pre-existing “moral” obligations. In accordance with
this theory it was held that an executor was personally liable on a promise to pay a legacy if he had
sufficient assets of the deceased in his hands to pay the deceased’s debts and legacies 212; that a
promise by a discharged bankrupt to pay a debt contracted before the discharge was binding 213; and
that a promise to pay a statute-barred debt 214 or one contracted during minority 215 was binding. In
some of these cases, the consideration for the promise was said to be the “moral” obligation of the
Page 5
promisor to pay the debt. In this context, the term “moral obligation” was used in a narrow sense. It
was restricted to cases in which the promisor’s previous obligation was not legally enforceable (or not
enforceable in the particular court in which the action on the promise was brought 216) because it
suffered from some specific legal defect. It did not follow that any “moral obligation,” such as one
which might be said to have arisen from the receipt of a past benefit, constituted consideration. Thus
in Eastwood v Kenyon 217 the guardian of a young girl had raised a loan to pay for her maintenance
and education, and to improve her estate. After she had come of age and married, her husband
promised the guardian to pay the amount of the loan. In dismissing the guardian’s action on this
promise, the court rejected the argument that the defendant’s promise was binding merely because
he was under a moral obligation to perform it. Lord Denman C.J. said that this argument would
“annihilate the necessity for any consideration at all, inasmuch as the mere fact of giving a promise
creates a moral obligation to perform it.” 218 The case also shows that the mere existence of an
antecedent moral obligation (in the ordinary sense of the phrase) to reimburse the guardian did not
amount to consideration for the husband’s promise. From this point of view, the case provides a
classic illustration of the requirement that the consideration for a promise must not be past.
Defective obligations as consideration: present position
4-034
Many of the cases in which promises were held binding under the old “moral obligation” theory 219
would now go the other way. For example, an executor who has assets of the deceased in his hands
is no longer personally liable on a promise to pay legacies 220; a promise by a discharged bankrupt to
pay in full debts incurred before his discharge is binding only if supported by fresh consideration 221;
and the same is true of a promise to pay a debt after it has become statute-barred. 222 There is
Australian authority in favour of the same rule where a company renewed a note that was originally
ultra vires after it had been validated by subsequent legislation. 223 On the other hand, a promise by
an adult to pay a debt (or to perform some other obligation) contracted during minority is enforceable
224
; and in Eastwood v Kenyon 225 Lord Denman did not purport to overrule the “moral obligation”
theory in its original narrow sense, that a promise to discharge an earlier obligation which suffered
from some specific legal defect might be binding. In this sense the theory was again recognised by
Lord Denman himself in Flight v Reed. 226 That case supports the view that a promise to repay a loan
made after the repeal of the legislation against usury was not invalid for want of consideration merely
because the original loan was usurious. Of course an action on such a promise might, under the
modern view of past consideration, fail because the loan was an antecedent debt; but this objection
would be overcome if the promisee’s forbearance to enforce the loan could be regarded as
consideration for the promise in accordance with the requirements stated in paras 4-058 and 4-060,
below.
Bills of exchange
4-035
Under s.27(1)(b) of the Bills of Exchange Act 1882, an “antecedent debt or liability” constitutes
valuable consideration for a bill of exchange. 227 In many cases, such a consideration would not be
past: it could be said to consist in the forbearance of the creditor to sue for the debt 228 or in his
treating the bill as conditional payment. 229 But s.27(1)(b) could apply even though, for some reason,
this analysis were not possible; and in such cases it would constitute an exception to the rule that
past consideration is no consideration.
Acknowledgments of statute-barred debts
4-036
A further qualification of the past consideration rule is contained in s.29(5) of the Limitation Act
1980. This provides (inter alia) that, where a debtor in a writing signed by him 230 “acknowledges” a
Page 6
debt, 231 it shall be deemed to have accrued on and not before the date of the acknowledgment.
An “acknowledgment” need not take the form of a promise 232; but if it does take this form the promise
can extend the period of limitation even though the only consideration for it was the antecedent debt,
and thus past. Further acknowledgments made within such an extended period or periods have the
same effect. 233 But once the debt has become statute-barred the right to sue for it cannot be revived
by any subsequent acknowledgment 234: to this extent, the old “moral obligation” theory, as applied to
statute-barred debts, 235 has been reversed.

160. Dent v Bennett (1839) 4 My. & Cr. 269; Eastwood v Kenyon (1840) 11 A. & E. 438.
161. Thorner v Field (1612) 1 Bulst. 120; Roscorla v Thomas (1842) 3 Q.B. 234. In the latter case an
oral warranty was given at the time of sale (see (1842) 11 L.J.Q.B. 214 and 6 Jur. 929) but this
was presumably considered at the time to be “void” for want of written evidence.
162. Such “other consideration” may be provided by “the exchange of one obligation from one party
for another from a different party”: Classic Maritime Inc v Lion Diversified Holdings Berhad
[2009] EWHC 1142 (Comm), [2010] 1 Lloyd’s Rep. 59 at [46], where a contract between A and
B required B to provide a guarantee from D and A had instead accepted one from C. The
consideration in this case was, for the reason given in para.4-027 below, not past.
163. See the facts of Simpson v John Reynolds [1975] 1 W.L.R. 617, where such a payment was
held to be voluntary for tax purposes and cf. Murray v Goodhews [1978] 1 W.L.R. 499.
164. e.g. Bell v Lever Bros. Ltd [1932] A.C. 1616 (where the value of the rights given up in return for
the payment was uncertain in amount since it included not only future salary but also possible
future commission).
165. cf. Wyatt v Kreglinger and Fernau [1933] 1 K.B. 793 —where the ex-employee’s claim would
have succeeded if the restraint undertaken by him had not been invalid (below, para.16-115).
166. Thornton v Jenkyns (1840) 1 M. & G. 166; Tanner v Moore (1846) 9 Q.B. 1; Lictor Anstalt v MIR
Steel UK Ltd [2015] EWHC 3316 (Ch) at [223] (“whole matter can be construed as a single
transaction”); cf. the discussion of Halifax B.S. v Edell [1992] Ch. 436, below, para.18-016.
167. Westminster City Council v Duke of Westminster [1991] 4 All E.R. 136, 145 (reversed in part on
another ground (1992) 24 H.L.R. 572).
168. Classic Maritime Inc v Lion Diversified Holdings Berhad [2009] EWHC 1142 (Comm), [2010] 1
Lloyd’s Rep. 59 at [45], where para.4-027 above is cited at [46] with apparent approval.
169. Classic Maritime case, above n.167 at [46]; in that case, the “same parties” would be A and B;
in the manufacturer’s guarantee cases, they would be buyer and seller.
170. i.e. by C in the Classic Maritime case, and by the manufacturer in the manufacturer’s guarantee
cases.
171. SI 2002/3045, reg.15; for definitions of “consumer”, “consumer guarantee” and “guarantor”, see
reg.2. Regulation 15(1) required the goods to be “offered with” the guarantee; and these words
seem to exclude the case where no mention was made of the guarantee until after the supply
contract had been made, as in the situation described above in n.160 to para.4-026.
172. Consumer Rights Act 2015, s.60 and Sch.1, para.53. The Consumer Rights Act 2015 applies to
contracts made on or after October 1, 2015; and presumably also to consumer guarantees
given on or after that date.
Page 7
173. The 2015 Act is fully discussed in Vol.II, Ch.38; for its s.30, see Vol.II, para.38-491.
174. ibid., s.30(1); “guarantee” is defined in s.30(2).
175. The words “to the consumer” do not occur in s.30(3), but they do form part of the definition of a
“guarantee” in s.30(2), which applies for the purposes of s.30(3).
176. Consumer Rights Act 2015, s.3(1), italics supplied.
177. ibid., s.30(1).
178. ibid., s.33(1).
179. ibid., s.48(1).
180. SI 2013/3134.
181. Italics supplied.
182. Trader” and “consumer” are defined in SI 2013/3134 reg.4.
183. Quoted at n.173 above.
184. SI 2013/3134, reg.9(3), Sch.1, para.(h); reg.10(1) Sch.2 para.(q); reg.13(1) and Sch.2, para.(q).
Regulation 9 specifies the information requirements for “on premises” contracts; reg.10 those
for “off-premises” contracts and; reg.13 those for “distance” contracts. These expressions are
defined in reg.5. The point to be stressed here is that an “on premises” contract is defined in
reg.5 as “a contract … which is neither a distance contract nor an off-premises contract.” It
follows that between them the three categories of contracts must cover all supply contracts
covered by the Regulations.
185. SI 2013/3134, regs 9(3), 10(5), 13(6).
186. As defined by reg.5.
187. See at nn.186-188 below.
188. s.12(2).
189. s.37(2).
190. s.50(3).
191. ss.3(1), 33(1), 48(1). There is some awkwardness in the idea that the fact of the trader’s
informing the consumer of the existence of a guarantee given to the consumer by a third party
(the guarantor) can make that guarantee a term of the contract between the trader and the
consumer.
192. ss.12(2), 37(2) and 50(3) seem to make the content of the information to be given by the trader
(not the duty to give it) a term of the contract and the content of a third party guarantee can
scarcely bind the trader since it contains no promise by him; nor does the fact of incorporation
of the content of the guarantee in the contract between trader and consumer of itself help to
resolve the question whether such incorporation can give rise to a legal relationship between
consumer and guarantor.
193. By virtue of amendments to the 2013 Regulations by the Consumer Protection (Amendment)
Regulations 2014, SI 2014/870, the “information requirements” set out in Schs 1 and 2 of the
2013 Regulations apply to contracts for the supply of goods, services and digital content: SI
2014/870, reg.9(3) and (4).
Page 8
194. e.g. because the designated beneficiary of the guarantee was not an “individual”: see the
definitions of “consumer” in reg.4 of the 2013 Regulations and in s.2 of the 2015 Act.
195. For these requirements in the present context, see below, paras 18-010, 18-011.
196. [1951] Ch. 669.
197. Goldshede v Swan (1847) 1 Ex. 154. In such cases, the burden of proving that the
consideration is not past lies on the person seeking to enforce the promise: Savage v Uwechia
[1961] 1 W.L.R. 455.
198. Paragraph 3-029 of the 31st edition of this book (para.4-030 of the present edition) was cited
with apparent approval in Lictor Anstalt v MIR Steel UK Ltd [2014] EWHC 3316 (Ch) at [221],
where it was held at [224] that none of the three conditions listed in the text above after n.196
was satisfied but that the consideration was, for the reason given in para.4-027 at n.169, not
past.
199. See Southwark LBC v Logan (1996) 8 Admin.L.R. 292 (where this requirement was not
satisfied).
200. Re Casey’s Patents [1892] 1 Ch. 104, 115–116; cf. Lampleigh v Brathwait (1615) Hob. 105.
201. Kennedy v Brown (1863) 13 C.B.(N.S.) 677, 740; Rondel v Worsley [1969] 1 A.C. 191, 236,
278, 287, as to which, see n.200 below.
202. See the authorities cited in the preceding note: promise to pay barrister for past professional
services not binding since he could not sue for his fees; see now Courts and Legal Services Act
1990, s.61. In Arthur J.S. Hall Ltd v Simons [2002] 1 A.C. 615 the House of Lords disapproved
the reasoning of Rondel v Worsley above, n.199, so far as it relates to an advocate’s immunity
from liability for negligence in the conduct of civil or (by a majority) criminal proceedings. This
disapproval does not affect the point for which Rondel v Worsley is cited in n.199 above i.e. the
common law rule that a barrister cannot sue for his fees. Reference to this point is made,
perhaps with some scepticism, in the Arthur J.S. Hall case at pp.676 and 685. The disapproval
in Jones v Kaney [2011] UKSC 13, [2011] 2 All E.R. 671 at [46] of another dictum in the Arthur
J.S. Hall case has no bearing on the point here under discussion. Jones v Kaney reverses the
former rule that an expert witness was not liable in damages for breach of duty to his own client;
but there is no doubt that such a witness can sue for his fees: see Goulden v Wilson Barca
[2000] 1 W.L.R. 167.
203. [1980] A.C. 614.
204. This guarantee replaced an earlier agreement (made at the time of the principal sale but
subsidiary to it) which was less favourable to the claimants.
205. For the further argument that the consideration was no more than the promise to perform an
existing contractual duty, see below, para.4-076.
206. (1869) L.R. 2 P.C. 393.
208. (1875) 44 L.J.Ch. 487.
209. [1909] 1 Ch. 291.
210. e.g. Hopkinson v Logan (1839) 5 M. & W. 241 (promise fixing date of payment).
211. Below, paras 4-058, 4-060.
212. Atkins v Hill (1775) 1 Cowp. 284; Hawkes v Saunders (1782) 1 Cowp. 289; an alternative
Page 9
ground for the decision given by Buller J. was that the defendant’s equitable (as opposed to
“moral”) obligation to pay the legacy was consideration for the promise.
213. Trueman v Fenton (1777) 2 Cowp. 544.
214. Hyeling v Hastings (1699) 1 Ld.Raym. 389.
215. Below, para.9-051, cf. Lee v Muggeridge (1813) 5 Taunt. 36 (promise by a woman after her
husband’s death to pay debt incurred during marriage); for attempts to restrict or define the
doctrine, see Littlefield v Shee (1831) 2 B. & Ad. 811; Meyer v Haworth (1838) 8 A. & E. 467.
216. As in Hawkes v Saunders, above, n.210.
217. (1840) 11 A. & E. 438.
218. ibid., at 450.
219. Above, para.4-033.
220. Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (19th ed., 2007),
para.55-80.
221. Jakeman v Cook (1878) 4 Ex.D. 26; Re Bonacina [1912] 2 Ch. 394; Wild v Tucker [1914] 3 K.B.
36.
222. Limitation Act 1980, s.29(7) (below para.4-036); cf., as to time bars imposed by contract,
Nippon Yusen Kaisha v Pacifica Navegaceon SA (The Ion) [1980] 2 Lloyd’s Rep. 245, 249.
223. Sharp v Ellis (1971) 20 F.L.R. 199.
224. Minors’ Contracts Act 1987, ss.1 and 4, repealing Infants Relief Act 1874, s.2 and Betting and
Loans (Infants) Act 1892, s.5.
225. (1840) 11 A. & E. 438; above, para.4-033.
226. (1863) 1 H. & C. 703; mentioned with approval by Scrutton L.J. in J. Evans & Co v Heathcote
[1918] 1 K.B. 418, 437.
228.
See Banque Cantonale de Genève v Sanomi [2016] EWHC 3353 (Comm), where
forbearance to sue, “both promised and actual” (at [62]) was held to be consideration for two
promissory notes. No reliance was placed on Bills of Exchange Act s.27(1)(b) though this
provision applies, by virtue of s.89(1) of the 1882 Act, to promissory notes “with the necessary
modifications”.
229. See Currie v Misa (1875) L.R. 10 Ex. 153 and cf. below, paras 4-058—4-061.
230. Limitation Act 1980, s.30(1). An inscription of a person’s name, typed on a telex document, is a
sufficient signature for the present purpose: Good Challenger Navegante SA v
Metalexportimport SA (The Good Challenger) [2003] EWCA Civ 1668, [2004] 1 Lloyd’s Rep. 67
at [20]–[28].
231.
Section 29(5) is expressed to apply also to “any … other liquidated claim” (s.29(5)(a)). In
Barnett v Creggy [2016] EWCA Civ 1004, [2017] P.N.L.R. 4 a majority of the Court of Appeal
held that the words here quoted could include a claim against a trustee for money paid away in
breach of his fiduciary duty, but (unanimously) that these words did not apply to the claim for
“equitable compensation” since this was “equivalent to a claim for damages” (at [37]) and so not
a “liquidated claim” within s.29(5)(a), (at [40], [54], [55]).
Page 10
232. Lia Oil SA v ERG Petroli [2007] EWHC 505 (Comm), [2007] 2 Lloyd’s Rep. 509; an admission
of liability suffices: Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 W.L.R. 481;
see further Bradford & Bingley plc v Rashid [2006] UKHL 37, [2006] 1 W.L.R. 2066, where a
debtor’s statement that he was not in a position to pay “the outstanding amount due to you” was
held to amount to an “acknowledgement within section 29(5)” even though it contained no
admission of the amount (or undisputed amount) of the debt; cf. Re Overmark Smith Warden
Ltd [1982] 1 W.L.R. 1195 (“statement of affairs” by insolvent company). An express denial of
liability is not an acknowledgement within s.29(5): Revenue and Customs Commissioners v
Benchdollar Ltd [2009] EWHC 1310 (Ch), [2010] 1 All E.R. 174; and the same is true of a letter
from the debtor merely questioning the amount claimed: Phillips & Co v Bath Housing
Co-operation Ltd [2012] EWCA Civ 1591, [2013] 1 W.L.R. 1479 at [53], [58]. For the analogous
question of what amounts to an acknowledgement by an occupier of land of the owner’s title for
the purposes of Limitation Act 1980, s.29(a), see Ofalue v Bossert [2009] UKHL 16, [2009] 1
A.C. 290.
233. Limitation Act 1980, s.29(7).
234. ibid.
235. Above, para.4-033.

Page 1

Section 6. - Consideration must Move From The Promisee
Promisee must provide consideration
4-037
The rule that “consideration must move from the promisee” 236 means that a person can enforce a
promise only if he himself provided consideration for it. Thus if A promises B to pay a sum of money
to B if C will paint A’s house and C does so, B cannot enforce the promise (unless, of course, he
procured, or expressly or impliedly undertook to procure, C to do the work). It is, however, not
necessary for the promisee to provide the whole consideration for the promise: thus he can enforce a
promise part of the consideration for which was provided by his agent or partner or by some other
co-promisee. 237
Benefit to promisor sufficient
4-038
The requirement that consideration must move from the promisee is most generally satisfied where
some detriment is suffered by him: e.g. where he parts with money or goods, or renders services, in
exchange for the promise. But the requirement may equally well be satisfied where the promisee
confers a benefit on the promisor without suffering any detriment. This point is illustrated by two rules
to be discussed later in this chapter. The first is that performance of an existing contractual duty (or a
promise to perform such a duty) can constitute consideration if it benefits the promisor 238: this benefit
is conferred by, and so “moves” from, the promisee in that it is conferred by him, even though it may
cause him no detriment 239 in the sense that he was already bound to do the acts in question. The
second is that a composition agreement between a debtor and his creditors is binding 240 because it
benefits the creditors; and this benefit can be said to “move” from the debtor in that his co-operation is
essential to the making and performance of the composition agreement. It could be said that the
debtor suffers a legal detriment 241 by signing the agreement when he is not bound to do so. But the
rule in question is not in fact based on this invented consideration. 242 It is based on benefit to the
promisors. 243
Bar pupillage contracts
4-039
The possibility that consideration may consist in benefit to the promisor is further illustrated by
Edmonds v Lawson, 244 where the relationship between a pupil barrister and the members of the
chambers at which she had accepted an offer of pupillage was held to be contractual even though
she had paid no pupillage fee. 245 The requirement of consideration was satisfied in that her (and
other pupils’) agreement to accept pupillage “provided a pool of selected candidates who can be
expected to compete with each other for recruitment as tenants;” 246 and in that “chambers may see
an advantage in developing close relationships with pupils who plan to practise as employed
barristers or overseas.” 247 Both these factors stress the benefit to the promisors (the members of the
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chambers), moving from the promisee (the pupil barrister) even though no detriment was suffered by
her.
Consideration need not move to the promisor
4-040
While consideration must move from the promisee, it need not move to the promisor. 248 It follows that
the requirement of consideration may be satisfied where the promisee suffers some detriment at the
promisor’s request, but confers no corresponding benefit on the promisor. Thus the promisee may
provide consideration by giving up a job 249 or the tenancy of a flat, 250 even though no direct benefit
results to the promisor from these acts. It also follows that the promisee may provide consideration by
conferring a benefit on a third party at the promisor’s request: e.g. by entering into a contract with the
third party. 251 This possibility is illustrated by the case in which goods are bought and paid for by the
use of a credit or debit or cheque guarantee card. The issuer of the card makes a promise to the
supplier of the goods that the cheque will be honoured or that the supplier will be paid; and the
supplier provides consideration for this promise by supplying the goods to the customer. 252 There
may also be consideration in the form of the discount allowed by the supplier of the goods or services
to the issuer of the card 253: this is both a detriment to the supplier and a benefit to the issuer of the
card.
4-041
In the example given at the end of para.4-040 above, the supplier (i.e. the promisee) suffers a
detriment; but the rule that consideration need not move to the promisor also applies where the
consideration consists simply of a benefit conferred by the promisee without loss to the promisee, and
even though that benefit is conferred, not on the promisor himself, but on a third person at his
request. For example, in Bolton v Madden 254 the claimant and defendant were subscribers to a
charity and entitled to vote on the disposition of its funds. The claimant promised to vote at one
meeting for a person whom the defendant wished to benefit, and the defendant promised in return to
vote at the next meeting for a person whom the claimant wished to benefit. In an action to enforce the
defendant’s promise, it was argued that there was no consideration for it as the claimant “incurred
neither trouble nor prejudice,” 255 but the court rejected this argument and held the agreement binding.
Consideration moved from the claimant when he had at the defendant’s request conferred a benefit
on a third party. It could, of course, be argued that the claimant had suffered a legal detriment 256 by
voting in accordance with his promise as he was not previously bound to do so. But this was not the
basis of the decision.
More than one promisee 257
4-042
Where a promise is made to more than one person, it is clear that it can be enforced by any of the
promisees, even by one who provided only part of the consideration. 258 But the further question may
arise whether the promise can be enforced by one of the promisees even though he provided no part
of the consideration, the whole being provided by the other or others. There is no clear answer in the
present law to this question; but it is submitted that the position depends on the distinctions drawn in
paras 4-043 to 4-045 below.
Joint promises
4-043
Where a promise is made to A and B jointly, it can be enforced by both of them, even though the
whole consideration was provided by A. 259 If this were not so, the promise could not be enforced at
all; for, if A tried to sue alone, he would be defeated by the rule that all the joint creditors must be
parties to the action. 260 It follows from the doctrine of survivorship (which applies between joint
Page 3
promisees) 261 that B would be entitled to the entire benefit of the promise after A’s death.
Several promises
4-044
None of the reasoning in para.4-043 above applies where a promise is made to A and B severally. 262
Hence it seems that each promisee must provide consideration for what is in theory a separate
promise to him.
Joint and several promises
4-045
It is, however, uncertain which of the rules stated in paragraphs 4-043 and 4-044 above applies to the
intermediate case of a promise made to two persons jointly and severally. Such a promise may be
made under s.81 of the Law of Property Act 1925 263; but that section appears to contemplate only
promises under seal, 264 so that no question of consideration can arise. The common law originally did
not recognise the possibility that a promise to a number of persons 265 could be joint and several 266;
but the possibility came to be recognised late in the nineteenth century. 267 It may be illustrated by
McEvoy v Belfast Banking Co, 268 where a father, A, deposited £10,000 in a bank and the deposit
receipt stated that this amount had been received from him and his son, B, and that it was payable “to
either or the survivor.” With reference to these facts, Lord Atkin said obiter that the contract was not
by the bank with A for the benefit of B but “with A and B, 269 and I think with them jointly and severally.
A purports to make the contract on behalf of B as well as himself and the consideration supports such
a contract.” 270 Of course after A’s death (which in McEvoy’s case had occurred) B would be entitled
to sue on any joint promise under the doctrine of survivorship. 271 But it is harder to see how he could
sue on any several promise, for this is ex hypothesi an independent promise and on the facts stated
no consideration for it moved from B. 272 Indeed, the more probable view of such facts is that the bank
makes no promise at all to B but only has authority to pay him. Hence the bank is discharged by
paying B but it is not liable to him. 273 The bank would not, however, be discharged by such payment if
it were not authorised by its contract with A to pay B. This possibility is illustrated by Thavorn v Bank
of Credit & Commerce SA 274 where A opened a bank account in the name of her nephew B (who was
under age), stipulating that only A should operate the account. It was held that B was a mere nominee
and that the bank was not discharged by (or was liable in damages to A for) paying B at the sole
request of B and without any instructions from A. There were two reasons why B could not have sued
the bank: no promise by the bank had been made to him, and no consideration had moved from him.
Contracts (Rights of Third Parties) Act 1999
4-046
Under this Act, a term in a contract between A (the promisor) and B (the promisee) is, in specified
conditions, enforceable by a third party, C, against A. The Act is more fully discussed in Chapter 18
275
; the only points to be made here are that C is not prevented from enforcing the term by the fact
that no consideration for A’s promise moved from him, 276 and that C’s right to enforce that promise
can be described as a quasiexception to the rule that consideration must move from the promisee. 277
It is not a true exception to the rule since in the case put the promisee is B, who must provide
consideration for A’s promise.

236. Barber v Fox (1670) 2 Wms.Saund. 134, n.(e); Thomas v Thomas (1842) 2 Q.B. 851, 859;
Page 4
Tweddle v Atkinson (1861) 1 B. & S. 393, 399; Pollway v Abdullah [1974] 1 W.L.R. 493, 497; cf.
Dickinson v Abel [1969] 1 W.L.R. 295, and (for VAT purposes) Customs and Excise
Commissioners v Telemed [1992] S.T.C. 89. In Revenue and Customs Commissioners v Aimia
Coalition Loyalty UK Ltd [2013] UKSC 15, [2013] 2 All E.R. 719 (the facts of which are stated in
para.18-008 below) the judgments of the Supreme Court contain many references to “third
party consideration” (see at [12] and passim). This phrase simply reflects the words of Art.11 of
the relevant EC Council Directive (95/7 of 10 April 1995) which defines the taxable amount for
VAT purposes as “the consideration which has been obtained by the supplier from the
purchaser or a third party for such supplies” (italics supplied). The phrase carries no implication
to the effect that the “third party consideration” gives any promise to the force of a binding
contract. For criticism of a possibly contrary dictum, see below, para.4-045 at n.268.
237. Jones v Robinson (1847) 1 Ex.454; Fleming v Bank of New Zealand [1900] A.C. 577. For the
position where the whole consideration is provided by a co-promisee, see below, paras
4-042—4-045.
238. Below, para.4-069.
239. Williams v Roffey Bros. & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1, 16. It is not enough for the
promisor to obtain a benefit: consideration must also move from the promisee (above, para.
4-037), so that the benefit must result from some act or forbearance on the part of the
promisee: see Ashia Centur Ltd v Barker Gillette LLP [2011] EWHC 148 (QB) at [20].
240. Below, para.4-127; the application of this rule in West York Darracq Agency Ltd v Coleridge
[1911] 2 K.B. 326 is hard to support, since there the creditors got nothing and so received no
benefit. The consideration was said at 329 to be benefit to the debtor, but he was the person to
whom the promise was made, and benefit to the promisee is obviously no consideration. If it
were, there would be consideration for every gratuitous promise.
241. Above, para.4-006.
242. Above, para.4-010. The creditors do not bargain for the debtor’s signature but for a dividend. If
the debtor’s signature were regarded as the consideration it could equally well be so regarded
in a composition with a single creditor, i.e. in a case such as Foakes v Beer (1884) 9 App. Cas.
605, below, para.4-117, where it was held that there was no consideration for the creditor’s
promise.
243. Below, para.4-127.
244. [2000] Q.B. 501; see also above, para.2-170.
245. But an application for pupillage is not one for “membership” of chambers within Disability
Discrimination Act 1995, s.13(1)(c): Horton v Higham [2004] EWCA Civ 941, [2005] I.C.R. 292,
where Edmonds v Lawson, above n.240 is cited at [2].
246. [2000] Q.B. 501 at 515.
247. ibid.
248. Re Wyvern Developments Ltd [1974] 1 W.L.R. 1097; cf. International Petroleum Refining &
Supply Ltd v Caleb Brett & Sons Ltd [1980] 1 Lloyd’s Rep. 569, 594 (below, para.18-010);
Barclays Bank plc v Weeks, Legg & Dean [1998] 3 All E.R. 213, 220–221.
249. Jones v Padavatton [1969] 1 W.L.R. 628.
250. Tanner v Tanner [1975] 1 W.L.R. 1346; contrast Horrocks v Forray [1976] 1 W.L.R. 230 where
there was no such (nor any other) consideration and no contract, partly for this reason and
partly for lack of contractual intention: above, para.2-177; and see Coombes v Smith [1986] 1
W.L.R. 808.
Page 5
251. See International Petroleum Refining Supply Ltd v Caleb Brett & Son Ltd [1980] 1 Lloyd’s Rep.
569, 594, where the promisor benefited indirectly since promisor and third party were
associated companies. cf. Pearl Carriers Inc. v Japan Lines Ltd (The Chemical Venture) [1993]
1 Lloyd’s Rep. 509, 522 (payments made by charterers of ship to the crew regarded as
consideration for promise by shipowners to charterers).
252. R. v Lambie [1982] A.C. 449; Re Charge Card Services [1987] Ch. 150, affirmed [1989] Ch. 497
.
253. Customs & Excise Commissioners v Diners Club Ltd [1989] 1 W.L.R. 1196, 1207.
254. (1873) L.R. 9 Q.B. 55.
255. At 57.
256. Above, para.4-006.
257. Cullity (1969) 85 L.Q.R. 530; Winterton (1970) 47 Can.Bar Rev. 483.
258. Above, para.4-037, at n.233.
259. This proposition seems to have been accepted in Coulls v Bagot’s Executor and Trustee Co Ltd
[1967] A.L.R. 385; though the majority of the court held that no joint promise had in fact been
made: below, para.18-076.
260. Jell v Douglas (1821) 4 B. & Ald. 374; Sorsbie v Park (1843) 12 M. & W. 146; Thompson v
Hakewill (1865) 9 C.B.(N.S.) 713.
261. Anderson v Martindale (1801) 1 East 497.
262. In such cases it is not necessary to join all the creditors to the action: James v Emery (1818) 5
Price 529; Keightley v Watson (1849) 3 Ex. 716; Palmer v Mallett (1887) 36 Ch.D. 411; nor did
the doctrine of survivorship apply: Withers v Bircham (1824) 3 B. & C. 254.
263. Re-enacting, with some changes, the Conveyancing Act 1881, s.60. Section 81 of the 1925 Act
does not affect the law relating to joint debtors: Johnson v Davies [1999] Ch. 117, 127; but our
present concern is with the case in which there is more than one creditor.
264. See now Law of Property (Miscellaneous Provisions) Act 1989, s.1(7).
265. For promises made by a number of persons, see Ch.17, below.
266. Slingsby’s Case (1588) 5 Co.Rep. 186; Anderson v Martindale (1801) 1 East 487; Bradburne v
Batfield (1845) 14 M. & W. 559, 573; Keighley v Watson (1849) 3 Ex. 716, 723 (criticising the
rule).
267. Thompson v Hakewill (1865) 19 C.B.(N.S.) 713, 726; Palmer v Mallett (1887) 36 Ch.D. 410, 421
.
268. [1935] A.C. 24.
269. Hence B would not be a “third party” within s.1(1) of the Contracts (Rights of Third Parties) Act
1999 (below, paras 18-090 et seq.).
270. [1935] A.C. 24, 43.
271. cf. Aroso v Coutts & Co [2002] 1 All E.R. (Comm) 241, where the contract expressly so
provided.
272. S.J.B. (1935) 51 L.Q.R. 419.

Page 6
273. See Coulls v Bagot’s Executor and Trustee Co Ltd [1967] A.L.R. 385; below, para.18-076.
274. [1985] 1 Lloyd’s Rep. 529. The Contracts (Rights of Third Parties) Act 1999 would not apply to
such a case as it was not the intention of the contracting parties that B should be entitled to
enforce the contract: see s.1(2) of the Act, below, paras 18-093, 18-094.
276. Law Com. No.242 (on which the Act is based), para.6.8.
277. Below, para.18-102.

Page 1

Section 7. - Compromise and Forbearance to Sue
Introductory
4-047
Three situations here call for discussion: in the first a person promises not to enforce a valid claim (or
performs such a promise); in the second the claim which is the subject-matter of such a promise is
invalid or doubtful; and in the third the person in question simply forbears in fact from enforcing a
claim, without making any promise to forbear. The question in all these cases is whether the promise
to forbear (or its performance), or the actual forbearance (without any promise), can constitute
consideration for a (counter-) promise made by the other party. 278

278. Our concern in the ensuing discussion is with compromises made otherwise than in legal
proceedings. Where legal proceedings have been brought, acceptance of an offer to settle the
proceedings under CPR Pt. 36 “may well create a contract and probably does so in the vast
majority of cases”: Orton v Collins [2007] EWHC 803 (Ch), [2007] 1 W.L.R. 2953 at [60]. But the
obligation that arises from a Pt. 36 settlement agreement “is not primarily contractual. It is sui
generis. It is part of the court’s inherent jurisdiction …” (ibid., at [62]). It may therefore be
binding even though it lacks contractual force, e.g. for failure to comply with formal
requirements (as in Orton v Collins, above) or, presumably, for want of consideration.

Page 1

(a) - Valid Claims
Promise not to sue on a valid claim
4-048
A creditor’s promise not to enforce a valid claim is normally good consideration for a promise given in
return. 279 For example, a creditor to whom a sum of money has become due may promise to give the
debtor extra time to pay, in return for the debtor’s promise to give additional security or to pay higher
interest. In such a case, there is good consideration for the debtor’s promise: the creditor suffers a
detriment in that he is, at least for a time, kept out of his money, while the debtor benefits by getting
extra time to pay. 280 In the case put (of a creditor giving his debtor extra time to pay) there is such
detriment and benefit even though the creditor has promised to forbear only for a limited time 281; if no
time is specified in the promise, the court will infer that the creditor undertook to forbear for a
reasonable time. 282 A fortiori, the creditor will provide consideration where he promises absolutely not
to sue on the claim 283: this is the position where a valid claim is settled by agreement between the
parties. The principles just stated apply not only to a promise not to enforce a claim but also to one to
abandon a good defence 284; and to one to abandon a particular remedy: e.g. to one to abandon
arbitration proceedings. 285 Analogous reasoning has been used to support the view that, where a
husband is ordered to transfer property to his former wife by way of ancillary relief in divorce
proceedings, then the wife provides consideration for the transfer in the sense that the transfer wholly
or in part satisfies her claim for ancillary relief. 286
Construction of releases
4-049
Although a promise to release a valid claim is thus supported by consideration, the court may protect
the party granting the release on other grounds. This possibility is illustrated by Bank of Credit and
Commerce International S.A. v Ali 287 where an employee, on being dismissed for redundancy,
promised, in return for certain payments, to release all claims against the employers “of whatever
nature that exist or may exist.” At the time of the release, claims for “stigma damages” were believed
not to be available to employees for breach of their employment contracts, but the availability of such
claims was established by a later decision of the House of Lords. 288 It was held by the House of
Lords in the present case that the general words of the release (quoted above) were not sufficiently
clear to show “that the parties intended to provide for the release of rights and surrender of claims
which they could never have had in contemplation at all.” 289 It is implicit in this reasoning that the
possibility of releasing such a claim is not ruled out as a matter of law: the court is simply “slow to
infer that a party intended to surrender rights and claims of which he was unaware and could not have
been aware.” 290 The principles of construction applied in this case also “apply to fraud-based claims.”
291
Hence only “very clear and specific language in a settlement agreement” 292 will cover such claims.
Other grounds for relief

Page 2
4-050
The crucial point in Ali’s case (above, para.4-049) seems to have been that neither party could have
been aware of the possibility that the employee might, in law, have had a claim for stigma damages. If
the employer had been aware of this possibility, it is far from clear that the employee would have
succeeded on the issue of construction. There is, however, the further possibility that the amount of a
settlement may be affected by the fact that “the party to whom the release was given [B] knew that
the other party [A] had or might have a claim [beyond the one he thought he was releasing] and knew
also that the other party was ignorant of this.” 293 B’s taking the release “without disclosing the
existence of the claim or possible claim” would then be “unacceptable sharp practice” 294 and there is
judicial support for the view that the law should on this ground grant relief to A, 295 i.e. allow him to
pursue the claim which he had unwittingly abandoned.

279. See Pullin v Stokes (1794) 2 H.Bl. 312; Smith v Algar (1830) 1 B. & Ad. 603; Morton v Burn
(1837) 7 A. & E. 19; Coles v Pack (1869) L.R. 5 C.P. 65; Crears v Hunter (1887) 19 Q.B.D. 341;
Greene v Church Commissioners for England [1974] Ch. 467. See also Oliver v Davis [1949] 2
K.B. 727, especially at 743; Centrovincial Estates plc v Merchant Investors Assurance Co Ltd,
The Times, March 8, 1983 (as to which see above para.2-003, n.15); G.N. Angelakis Co SA v
Cie Algérienne de Navigation (The Attika Hope) [1988] 1 Lloyd’s Rep. 439; Haines v Hill [2007]
EWCA Civ 1284, [2008] Ch. 412 at [79].
280. Crowther v Farrer (1850) 15 Q.B. 677. It seems to be immaterial whether the proceedings have
been commenced or not: see Wade v Simeon (1846) 2 C.B. 548, 565, 567.
281. Willatts v Kennedy (1831) 8 Bing. 5; Morton v Burn (1837) A. & E. 19; Board v Hoey (1949) 65
T.L.R. 43.
282. Payne v Wilson (1827) 7 B. & C. 423; Oldershaw v King (1857) 2 H. & N. 517; Fullerton v
Provincial Bank of Ireland [1903] A.C. 309, 313.
283. Mapes v Sidney (1624) Cro.Jac. 683.
284. See Banque de l’Indochine v J. H. Rayner (Mincing Lane) Ltd [1983] Q.B. 711; Haines v Hill
[2007] EWCA Civ 1284, [2008] Ch. 412 at [30].
285. Allied Marine Transport Ltd v Vale do Rio Doce Navegaçao SA (The Leonidas D.) [1985] 1
W.L.R. 925, 933.
286. Haines v Hill [2007] EWCA Civ 1284, [2008] Ch. 412 at [39]; the issue in this case was not
whether there was any consideration for a promise but whether there was consideration for a
transfer (cf. above, paras 4-016, 4-032). The wife was held to have provided such consideration
even though her original claim depended for its quantification on the discretion of the court:
Haines v Hill, above, at [39], approving the judgment of District Judge Cooke, described at [53]
as “a model of lucid erudition”.
287. [2001] UKHL 8; [2002] 1 A.C. 251.
288. Malik v Bank of Credit and Commerce International [1998] A.C. 20.
289. Ali’s case, [2001] UKHL 8 at [19]. This reasoning does not apply to an arbitration clause in a
contract since the very purpose of such a clause is “to provide machinery for the resolution of
disputes which may arise in the future”: Capital Trust Investment Ltd v Radio Design TJAB
[2002] EWCA Civ 135; [2002] 2 All E.R. 159, at [50]; cf. on the issue of construction, Mostcash
plc v Fluor Ltd [2002] EWCA Civ 975, [2002] B.L.R. 411.
Page 3
290. Ali’s case, [2001] UKHL 8 at [10]. Lord Hoffmann dissented.
291. Saytam Computer Services Ltd v Upaid Systems Ltd [2008] EWCA Civ 487, [2008] 2 All E.R.
(Comm) 465 at [84].
292. ibid., at [82].
293. Ali’s case [2001] UKHL 8 at [32], italics supplied.
294. ibid., at [32]. In Ali’s case there was no such knowledge on B’s part. The “sharp practice”
referred to in the dictum quoted above is that of the person against whom the claim was made.
In this respect this situation differs from that discussed in the last sentence of para.4-049
above, in which the fraud is that of the person by whom the claim was made.
295. Ali’s case [2001] UKHL 8 at [32], per Lord Nicholls. Lord Bingham left the point open: ibid., at
[20].

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(b) - Invalid or Doubtful Claims
Claims known to be invalid
4-051
A compromise of a claim which is legally invalid and which is either known by the party asserting it to
be invalid or not believed by that party to be valid is not contractually binding. This rule can be
explained either on the ground that merely making or performing a promise to give up a worthless
claim cannot constitute consideration for the counter-promise, 296 or (preferably) on grounds of public
policy. As Tindal C.J. said in Wade v Simeon 297: “It is almost contra bonos mores and certainly
contrary to all the principles of natural justice that a man should institute proceedings against another
when he is conscious that he has no good cause of action.”
Claims which are doubtful in law
4-052
The compromise of a claim which is doubtful in law is binding as a contract. Making or performing a
promise to give up a doubtful claim can constitute consideration for a counter-promise since it
involves the possibility of detriment to the person to whom the latter promise is made and that of
benefit to the person making it. In Haigh v Brooks, for example, 298 it was held that the promisee had
provided consideration by giving up a guarantee containing “an ambiguity that might be explained …
so as to make it a valid contract.” 299
Claims in law invalid but made in good faith
4-053
The rule stated in para.4-052 above applies also if the forbearing party’s claim is clearly invalid in law,
so long as it was a “reasonable claim” 300 (i.e. one made on reasonable grounds) which was in good
faith believed by the party forbearing to have at any rate a fair chance of success. 301 Since the
claimant would, if he did not forbear, in such a case lose both his action and the costs, it is not easy to
see what detriment he suffers by forbearing; one possible argument is that the delay in bringing the
action (induced by the other party’s promise) will increase the difficulty and costs of bringing it, 302
even though it was bound to fail. It is also arguable that the other party (the promisor) benefits since
“instead of being annoyed with the action, he escapes from the vexations incident to it.” 303 This may,
indeed, also be true where the claim is known to be invalid; but the rule that a compromise of such a
claim is not binding is, as has been suggested in para.4-051 above, more appropriately based on
grounds of public policy than on want of consideration.
4-054
Page 2
Two further conditions must be satisfied by a party who relies on his forbearance to enforce an invalid
claim as the consideration for a promise made to him. He must not deliberately conceal from the other
party (i.e. the promisor) facts which, if known to the latter, would enable him to defeat the claim. 304
And he must show that he seriously intended to pursue the claim. 305
Claims on disputed facts
4-055
The cases considered in paras 4-052 and 4-053 above concern claims the validity of which is doubtful
in law. It seems that the same principles can apply where the validity of a claim is in doubt because of
a dispute about the facts. A settlement based on a simple mistake of fact shared by both parties may
be void for mistake. 306 But this would not be the case where both parties knowingly took the risk that
the facts might turn out to be different from the facts as they were alleged or supposed to be. A
negotiation of a settlement on disputed facts always takes such an element of risk into account.
Void forbearances
4-056
The forbearance itself (as opposed to the claim forborne) may be void on grounds of public policy, or
by statute: for example, where a wife promises her husband not to apply for maintenance in
matrimonial proceedings. 307 In such cases the promise to forbear cannot of course be enforced; but,
unless the promise is illegal, it may nevertheless constitute consideration for a counter-promise to
make a payment in return for it. 308 A fortiori the performance of the promise to forbear may (if the
promise was not illegal) be good consideration for a counter-promise 309 even though the promise
could not have been enforced.
Executed compromises
4-057
The discussion in paras 4-051 to 4-056 above is concerned with the enforceability of an agreement to
compromise a claim. Different problems can arise after such an agreement has been performed,
generally by payment of the amount which one party agreed to pay under the compromise. Even if
there was, under the rules discussed above, no consideration for that party’s promise, he will not be
entitled to the return of the payment if it was made “to close the transaction” 310; in such a case the
payment is treated as if it were an executed gift. 311 To give rise to a claim for repayment, it will be
necessary to establish other circumstances, such as that the payment was made under duress. 312

296. The position is different if there is also other consideration for the promise; see The Siboen and
the Sibotre [1976] 1 Lloyd’s Rep. 293, 334.
297. (1846) 2 C.B. 548, 564. See also Edwards v Baugh (1843) 11 M. & W. 641, especially at 646;
Callisher v Bischoffsheim (1870) L.R. 5 Q.B. 449 at 452 (“fraudulent”). It followed that a promise
by a bookmaker not to sue his client for lost bets was formerly no consideration for a promise
made in return by the client: Hyams v Coombes (1912) 28 T.L.R. 413; Burrell & Son v Leven
(1926) 42 T.L.R. 407; Poteliakhoff v Teakle [1938] 2 K.B. 816; Goodson v Baker (1908) 98 L.T.
415 (contra) was hard to support. Now that the bookmaker can, subject to exceptions discussed
in Vol.II, paras 41-016 et seq., enforce the client’s promise by virtue of Gambling Act 2005,
s.335(1) (Vol.II, para.41-011), the bookmaker’s promise not to sue the client for the amount of
Page 3
the lost bet will generally constitute good consideration for a promise made in return by the
client: see Vol.II, para.41-026.
298. (1839) 10 A. & E. 309; for the earlier, contrary view see Stone v Wythipol (1588) Cro.Eliz. 126;
Jones v Ashburnham (1804) 4 East 455 and dicta in Ex p. Banner (1881) 17 Ch.D. 480, 490
(these dicta being disapproved in Miles v New Zealand Alford Estate Co (1885) 32 Ch.D. 266).
299. (1839) 10 A. & E. 309, 334; cf. Colchester BC v Smith [1992] Ch. 421; Colonia Versicherung
A.G. v Amoco Oil Co [1995] 1 Lloyd’s Rep. 570, 577 (affirmed without reference to this point
[1997] 1 Lloyd’s Rep. 261).
300. Cook v Wright (1861) 1 B. & S. 559, 569.
301. Callisher v Bischoffsheim (1870) L.R. 5 Q.B. 449. See also Longridge v Dorville (1821) 5 B. &
Ad. 117; Cooper v Parker (1855) 15 C.B. 822; Cook v Wright (1861) 1 B. & S. 559; Ockford v
Barelli (1871) 20 W.R. 116; Holsworthy UDC v Holsworthy RDC [1907] 2 Ch. 62; Re Cole
[1931] 2 Ch. 174; Freedman v Union Group plc [1997] E.G.C.S. 28; Moussaka Inc. v Golden
Seagull Maritime Inc. [2002] 1 Lloyd’s Rep. 797 at [14]; Haines v Hill [2007] EWCA Civ 1284,
[2008] Ch. 412 at [79]. For a discussion of the English decisions on a Scottish appeal, see
Hunter v Bradford Property Trust, 1970 S.L.T. 173. Scots law does not require promises to be
supported by consideration but distinguishes for certain purposes between gratuitous and
onerous promises.
302. Cook v Wright (1861) 1 B.& S. 559, 569.
303. Callisher v Bischoffsheim, above n.297, at 452; cf. Pitt v P.H.H. Asset Management Ltd [1994] 1
W.L.R. 327 at 322, but in that case it is not clear that the party forbearing in fact believed in the
validity of his claim; Moussaka Inc v Golden Seagull Maritime Inc [2002] 1 Lloyd’s Rep. 797 at
[14] (“commercial benefit”).
304. Miles v New Zealand Alford Estate Co, above n.294, at 284; Colchester BC v Smith [1992] Ch.
421, 435. The discussion in para.4-050, above, is concerned with the different problem of
nondisclosure by the party against whom a valid claim is made of facts affecting the extent of
that party’s liability.
305. Cook v Wright (1861) 1 B. & S. 559, 569; Syros Shipping Co SA v Elaghill Trading Co (The
Proodos C) [1980] 2 Lloyd’s Rep. 390, 392.
306. e.g. Gloyne v Richardson [2001] EWCA Civ 716; [2002] 2 B.C.L.C. 669 at [39]; cf. Grains &
Fourrages SA v Huyton [1997] 1 Lloyd’s Rep. 628, where there was no compromise since both
parties wished from the start to achieve the same result but were mistaken only as to the effect
of the steps they had taken to achieve it.
307. Matrimonial Causes Act 1973, s.34, re-enacting Maintenance Agreements Act 1957, s.1, below,
para.16-053.
308. Below, para.4-189.
309. Below, para.4-188.
310. Woolwich Equitable B.S. v IRC [1993] A.C. 70, 165.
311. ibid. citing Maskell v Horner [1915] 3 K.B. 106, 120.
312. Below, Ch.8.

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(c) - Actual Forbearance
Actual forbearance may be consideration
4-058
A creditor who, without making any express promise, simply forbears from enforcing a debt or other
claim may be held to have impliedly promised to forbear. 313 For example, the acceptance of a cheque
in payment of a debt may be evidence of a promise not to sue the debtor so long as the cheque is not
dishonoured, or at least for a reasonable time. 314 Where the claim is of such a kind that a promise to
forbear (or the performance of it) would constitute consideration for a counter-promise, 315 an actual
forbearance may also constitute consideration even though the creditor has not made any express or
implied promise to forbear. In Alliance Bank v Broom 316 the defendant owed £22,000 to his bank, who
pressed him to give security. He promised to do so but the bank made no counter-promise not to sue
him. It was held that there was consideration for the defendant’s promise as the bank had given, and
the defendant received, “some degree of forbearance.” 317 On the other hand, in Miles v New
Zealand Alford Estate Co 318 a company had bought land and then became dissatisfied with the
purchase. The vendor later promised to make certain payments to the company, and it was alleged
that the consideration for this promise was the company’s forbearance to take proceedings to rescind
the contract. A majority of the Court of Appeal held that there was no consideration for the vendor’s
promise as no proceedings to rescind were ever intended; and Cotton L.J. added that “it must be
shown that there was something which would bind the company not to institute proceedings.” 319
Bowen L.J. dissented from this proposition, 320 relying on Alliance Bank v Broom; but it may be
possible to reconcile the two cases by reference to the types of claim forborne. A bank to which
£22,000 is owed is virtually certain to take steps to enforce its claim, but a dissatisfied purchaser of
land is much less certain to take proceedings for rescission. It may, therefore, be reasonable to say
that mere forbearance will amount to consideration in relation to the former type of claim, but that a
promise to forbear is necessary where it is problematical whether the claim will ever be enforced. A
promise to forbear is also, of course, necessary where that is what the debtor bargains for.
Time for which creditor must forbear
4-059
Where the consideration consists of a promise to forbear which specifies no time the creditor must
forbear for a reasonable time. 321 There is no such requirement where the consideration consists of
actual forbearance: here it is enough that the debtor had “a certain amount of forbearance.” 322
Relation between actual forbearance and the promise made in return for it
4-060
Page 2
Where the consideration is alleged to consist of an actual forbearance, that forbearance must be
causally connected with the debtor’s promise. A creditor does not give consideration 323 merely by
forbearing to enforce an antecedent debt. 324 In Wigan v English & Scottish Law Life Assurance
Society 325 a debtor executed an assignment of an insurance policy by way of mortgage in favour of
his creditor. Parker J. held that the creditor, who knew nothing of the mortgage, had given no
consideration for it 326; but he added that the creditor would have provided consideration if he had
been told of the mortgage and if, “on the strength of” 327 it, he had actually forborne to sue for the
debt.
Express or implied request of debtor necessary
4-061
The crucial question, therefore, is whether the creditor has forborne “on the strength of” the
debtor’s promise. He will clearly have done so where the debtor has expressly requested the
forbearance. 328 But such an express request is not necessary. In Alliance Bank v Broom 329 the
bank’s forbearance was held to constitute consideration even though the defendant had not expressly
requested it. Lord Macnaghten later explained the case on the ground that the debtor had impliedly
requested forbearance. 330 It seems that an actual forbearance which is not induced by either the
express or the implied request of the debtor is no consideration. In Combe v Combe 331 a husband
during divorce proceedings promised to pay his wife an annual allowance. In an action to enforce this
promise, the wife argued, inter alia, that she had given consideration for it by forbearing to apply to
the court for a maintenance order. But it was held that there was no consideration as the wife had not
forborne at the husband’s request. 332

313. Re Wyvern Developments Ltd [1974] 1 W.L.R. 1097; Thornton Springer v NEM Insurance Co
Ltd [2000] 2 All E.R. 489 at 516.
314. Baker v Walker (1845) 14 M. & W. 465; Elkington v Cooke-Hill (1914) 30 T.L.R. 670; contrast
Hasan v Wilson [1977] 1 Lloyd’s Rep. 431, where the debt in respect of which the cheque was
given was that of a third party.
315. e.g. not if the claim is known to be invalid: above, para.4-051.
316. (1864) 2 Dr. & Sm. 289; R v Att-Gen for England and Wales [2003] UKPC 22, [2003] E.M.L.R.
24 at [31].
317.
(1864) 2 Dr. & Sm. 289 at 292; cf. Banque Cantonale de Genève v Sanomi [2016] EWHC
3353 (Comm) at [62], quoted above, para.4-035.
318. (1886) 32 Ch.D. 267; cf. Hunter v Bradford Property Trust Ltd, 1970 S.L.T. 173.
319. (1886) 32 Ch.D. 267, 285.
320. ibid. at 291; his view was approved by Lord Macnaghten in Fullerton v Provincial Bank of
Ireland [1903] A.C. 309, 314.
321. Above, para.4-048.
322. Alliance Bank v Broom (1864) 2 Dr. & Sm. 289, 292.
Page 3
323. Or, which comes to the same thing, gives only past consideration.
324. Above, para.4-032.
325. [1909] 1 Ch. 291; cf. Hopkins v Logan (1839) 5 M. & W. 241.
326. Above, para.4-032.
327. [1909] 1 Ch. 291 at 298.
328. Crears v Hunter (1887) 19 Q.B.D. 341, 344.
329. (1864) 2 Dr. & Sm. 289; above, para.4-058.
330.
Fullerton v Provincial Bank of Ireland [1903] A.C. 309, 313. For the sufficiency of an implied
request from the debtor for the creditor’s forbearance, see also Banque Cantonale de Genève v
Sanomi [2016] EWHC 3353 (Comm) at [60].
331. [1951] 2 K.B. 215.
332. Quaere whether such a request should not have been implied. On the question whether a
“request” is necessary, see A.L.G. (1951) 67 L.Q.R. 456; Smith (1953) 69 L.Q.R. 99. It seems
that in the present type of case, involving a forbearance to sue, a request is necessary, whether
or not this is true of unilateral contracts generally. As to this, see Australian Woollen Mills Pty
Ltd v The Commonwealth (1954) 92 C.L.R. 424, especially at 457–460.

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Section 8. - Existing Duties as Consideration 333
General
4-062
Much difficulty arises in determining whether a person who does, or promises to do, what he is
already in law bound to do thereby provides consideration for a promise made to him. One possible
view is that, as he was already legally bound to do the thing in question, his doing, or promising to do,
it has no “value in the eye of the law” 334: hence it cannot amount to a legal detriment to him, or to a
legal benefit 335 to the person already entitled to performance. On the other hand the actual
performance of the legal duty may amount to a factual detriment or benefit: it may be a detriment to
the party performing the duty since actual performance may be more troublesome to him than the
payment of (or the risk of being sued for) damages; while the other party may benefit in the sense of
finding his legal remedy for breach of the duty less beneficial than its actual performance. Denning
L.J. has therefore said that the performance of an existing duty, or the promise to perform it, was
always good consideration. 336 This radical view has not been accepted; but the requirement of
consideration in this group of cases has been mitigated by recognising that it can be satisfied where
the promisee has conferred a factual (as opposed to a legal) benefit on the promisor. 337

333. Reynolds and Treitel (1965) 7 Malaya L.Rev. 1; Aivazian, Trebilcock & Penny (1984) 22
Osgoode Hall L.J. 173; Hooley [1991] J.B.L. 195; Halson (1991) 107 L.Q.R. 649.
334. Thomas v Thomas (1842) 2 Q.B. 851 at 859; above, para.4-002.
335. Above, para.4-006.
336. Ward v Byham [1956] 1 W.L.R. 496, 498; Williams v Williams [1957] 1 W.L.R. 148, 151.
337. Below, para.4-069.

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(a) - Public Duty
Where the promisee is under a public duty
4-063
It has been held that a person cannot recover money promised to him in return for his performance of,
or promise to perform, a duty imposed by law. In Collins v Godefroy, 338 an attorney had been
subpoenaed to give evidence on the defendant’s behalf and alleged that the defendant had promised
to pay him a guinea a day for his loss of time incurred in such attendance. It was held that, as the
promisee was under a duty imposed by law to attend, the defendant’s promise was given “without
consideration.” But this reasoning is hard to reconcile with some of the cases to be discussed below,
339
holding that promises of rewards for information leading to the arrest of criminals could be
enforced; and other “public duty” cases are more readily explained on grounds of public policy: it has,
for example, been held that a public officer cannot enforce a promise by a private citizen to pay him
money for doing his public duty 340 and that a person cannot enforce a promise made in consideration
of his forbearing to engage in a course of conduct that is criminal. 341 To uphold such promises would
encourage undesirable forms of extortion; and this, rather than want of consideration, accounts for
most of the authorities which establish the present rule. It is arguable that, when there are no such
grounds of public policy against enforcing the promise, an action on it will not fail for want of
consideration merely because the performance rendered in return was already due under a public
duty from the promisee. Before 1968 a person who knew that a felony had been committed and had
information which might lead to the arrest of the felon was bound to communicate the information to
the police: if he failed to do so he was guilty of misprision of felony. 342 Yet promises to pay rewards
for such information could be enforced, even by police officers giving the information. 343 Public policy
was not offended by such offers, as they might induce people to look for the information and so
promote the interests of justice. The term “felony” is now obsolete in English law 344 and the mere
failure to disclose information which might lead to the arrest of a criminal is no longer an offence 345 or
a breach of a duty imposed by law. But the old reward cases show that an act may constitute
consideration even though there is a public duty to do it.
Promisee doing more than public duty
4-064
A person who is under a public duty can provide consideration for a promise by doing (or promising to
do) more than he was by law obliged to do. In Glasbrook Brothers Ltd v Glamorgan County Council
346
the owners of a coal mine, who feared violence from strikers, asked, and promised to pay, the
police for a greater degree of protection than the police reasonably thought necessary. It was held
that the police had provided consideration for this promise by providing the extra protection, and that
accordingly the promise was enforceable. The position in cases of this kind is now regulated by
statute. Section 25(1) of the Police Act 1996 provides that payment can be claimed for “special police
services” rendered at the “request” of the person requiring them. Such a request can be implied from
conduct: e.g. where a person organises an event which cannot safely take place without such
Page 2
services. On this reasoning, a football club has been held liable to the police authority for the cost of
policing matches played on its ground. 347 Such liability arises irrespective of contract. 348
4-065
In Ward v Byham 349 the father of an illegitimate child wrote to its mother, from whom he was
separated, saying that she could have the child and an allowance of £1 a week if she proved that the
child was “well looked after and happy and also that she is allowed to decide for herself whether or
not she wishes to come and live with you.” The father refused to continue the payments after the
marriage of the mother to another man. It was held that the mother was entitled to enforce the father’s
promise even though she was under a statutory duty to maintain the child. One ground for the
decision is that the mother had provided consideration by showing that she had made the child
happy, etc.: in this way, she could be said to have done more than she was required by law to do, 350
and to have conferred a factual benefit on the father 351 or on the child, 352 even though she may not
have suffered any detriment. But if a son’s promise not to bore his father is not good consideration, 353
it is hard to see why a mother’s promise to make her child happy should, for the present purpose,
stand on a different footing. There is, with respect, force in Denning L.J.’s view that the mother
provided consideration by merely performing her legal duty to support the child. There was certainly
no ground of public policy for refusing to enforce the promise.

338. (1831) 1 B. & Ad. 950. See also Willis v Peckham (1820) 1 Br. & B. 515; Thoresen Car Ferries
Ltd v Weymouth Portland BC [1977] 2 Lloyd’s Rep. 614, 619. For contracts to pay fees to
expert witnesses, see Goulden v Wilson Barca [2000] 1 W.L.R. 167.
339. At n.339 below.
340. Wathen v Sandys (1811) 2 Camp. 640; Morris v Burdett (1808) 1 Camp. 218; Bilke v Havelock
(1813) 3 Camp. 374; cf. Morgan v Palmer (1824) 2 B. & C. 729, 736 (where the actual decision
was that money paid to the official was recoverable by the payee as having been extorted from
him colore officii: see Woolwich Equitable B.S. v I.R.C. [1993] A.C. 70, 155, 165, 181, 198).
341. Brown v Brine (1875) L.R. 1 Ex.D. 5 (forbearance to commit criminal libel).
342. Sykes v D.P.P. [1962] A.C. 528.
343. England v Davidson (1840) 11 A. & E. 856; Smith v Moore (1845) 1 C.B. 438; Neville v Kelly
(1862) 12 C.B.(N.S.) 740; Bent v Wakefield and Barnsley Union Bank (1878) 4 C.P.D. 1.
Contrast Maryland Casualty Co v Matthews 209 F.Supp. 822 (1962) where a similar claim by a
detective failed on grounds of public policy.
344. Criminal Law Act 1967, s.1.
345. The offence of concealing an arrestable offence created by s.5(1) of the Criminal Law Act 1967
is much narrower in scope than the former offence of misprision of felony; the statutory offence
is committed only if the person withholding the information accepts or agrees to accept some
consideration (other than making good the loss) for not disclosing it. For the definition of
“arrestable offence,” see now Police and Criminal Evidence Act 1984, s.24; as amended by
Police Reform Act 2002, s.48.
346. [1925] A.C. 270. cf. Thoresen Car Ferries v Weymouth Portland BC [1997] 2 Lloyd’s Rep. 614
(A’s promise to make use of B’s services for which he was under a legal duty to pay held to
Page 3
constitute consideration for B’s counterpromise).
347. Harris v Sheffield United F.C. Ltd [1988] Q.B. 77. Contrast Reading Festival Ltd v West
Yorkshire Police Authority [2006] EWCA Civ 524, [2006] 1 W.L.R. 2005 where a similar claim
against the promoters of a music festival failed, principally on the ground that they had not
made any “request” for the police services in respect of which the claim was made.
348. Dicta in the Reading Festival case, above n.343, emphasise that a claim under subsection
25(1) of the Police Act 1996 can succeed only if there has been a “meeting of the minds”
between the police authority and the promoter (at [54]) and add (at [20]) that the subsection had
not “added to or altered the common law position” as stated in the Glasbrook case, above
n.342. But it was also said that the police “had the last word on charges” (at [20]) and that “how
the police provide the services must always be a matter for them” (at [21]). It is respectfully
submitted that an agreement for services which left such a broad discretion to the provider of
the services as to what services were to be provided and what the recipient of the services was
to pay for them would not normally be sufficiently certain to give rise to a binding contract (see
above, para.2-119).
349. [1956] 1 W.L.R. 496.
350. This may be what Morris and Parker L.JJ. had in mind when saying at 499 that the mother had
provided “ample consideration” for the promise.
351. See Williams v Roffey Bros. & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1, 13; below, para.4-064.
352. Consideration need not move to the promisor: above para.4-040.
353. Above, para.4-022.

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(b) - Duty Imposed by Contract with Promisor
Contractual duty to promisor
4-066
When A was bound by contract with B to do, or to forbear from doing, something, the law at one time
took the view that A’s performance of that duty (or his promise to perform it) was no consideration for
a new promise by B. Later authority has qualified that view, but the extent of the qualification is
uncertain. The cases fall into three groups. 354
Cases in which there was no consideration
4-067
The view that there was no consideration for B’s new promise is usually traced back to Stilk Myrick. 355
In that case two of the crew of a ship had deserted during the voyage for which they had contracted to
serve and the master promised to divide the wages of the deserters amongst the other nine if
replacements for the deserters could not be found (as turned out to be the case). The court rejected a
claim brought by one of the promisees against the master for a share of the extra wages promised by
the master. According to one of the reports, 356 the claim was rejected on grounds of public policy
stated in an earlier similar case, 357 viz. that the enforcement of such promises might lead sailors to
refuse to perform their contracts unless they were promised extra pay. But according to the other
report 358 (which has been said to have “the better reputation”) 359 the court doubted that reasoning
and based its decision instead on the ground that the nine crew members had provided no
consideration by doing what they were already bound by their contracts to do; and it is on this ground
that the case is now generally explained. 360 On the same principle, a promise to pay more than the
originally agreed freight for the carriage of goods to the agreed destination cannot be enforced by the
carrier 361; and, where a debt is already due in full, a promise by the debtor to pay it in stated
instalments is no consideration for the creditor’s promise not to take bankruptcy proceedings in
respect of the debt. 362
Bases of the rule
4-068
The public policy explanation of the rule, stated in para. 4-067 above, 363 was always open to the
objection that it was based on a danger that was no more than hypothetical: in the cases on seamen’s
wages, 364 for example, there was no evidence of any refusal on the men’s part to perform their
original contracts. Even where there is such evidence, the public policy argument is much reduced in
importance now that the law has come to recognise that such a refusal may amount to economic
duress. 365 Where the refusal does amount to duress, a promise induced by it can be avoided (and
money paid in pursuance of it be recovered back) on that ground. 366 This is true even where the
Page 2
promise is supported by consideration: for example, where the promisee has undertaken not merely
to perform his duties under the original contract, but also to render some relatively small additional
service. 367 If, on the other hand, the promisee’s refusal to perform the original contract does not
amount to duress, the promise cannot be impugned merely on the ground that the refusal amounted
to an abuse by the promisee of a dominant bargaining position. 368 To allow a promise to be
invalidated on this ground even though there was no duress would introduce an intermediate category
of promises unfairly obtained; and this would (in the words of Lord Scarman) “be unhelpful because it
would render the law uncertain.” 369 The now more generally held view is that the new promises in the
present group of cases are unenforceable for want of consideration; and the reason for this view
seems to have been that the promisee suffered no legal detriment 370 in performing what was already
due from him, nor did the promisor receive any legal benefit in receiving what was already due to him.
But this reasoning takes no account of the fact that the promisee may in fact suffer a detriment: for
example, the wages which a seaman could earn elsewhere might exceed those due to him under the
original contract together with the damages which he would have to pay for breaking it. Conversely
the promisor may in fact benefit from the performance which he receives in consequence of the new
promise: in Stilk v Myrick the master got the ship home, and this may well have been worth more to
him than any damages that he could have recovered from the crew.
Factual benefit to promisor
4-069
The forgoing discussion shows that a new promise by B in consideration of A’s performing his duty
to B under an earlier contract between them is not necessarily obtained by duress; and that A’s
performance of the duty may in fact benefit B. Where both these conditions are satisfied, it has been
held that A can enforce B’s new promise. In Williams v Roffey Bros. & Nicholls (Contractors) Ltd 371 B
had engaged A as carpentry sub-contractor, for the purpose of performing a contract between B and
X to refurbish a number of flats. The amount payable by B to A under the subcontract was £20,000
but B later promised to make extra payments to A, who undertook no additional obligation in return.
372
B made this new promise because B’s own surveyor recognised that the originally agreed sum of
£20,000 was too low, and because B feared that A (who was in financial difficulties) would not be able
to complete his work on time, and so expose B to penalties for delay under his contract with X. It was
held that B’s promise to make the extra payments to A was supported by consideration in the shape
of the “practical benefits” 373 obtained by B from A’s performance of his duties under the original
contract between them. 374 Since no allegation of duress on A’s part had been made by B, the new
promise by B to pay extra could not be avoided on this ground. There had been no threat by A to
break his original contract; indeed, the initiative for the agreement containing the promise of extra pay
seems to have come from B.
4-070
The consideration for B’s promise in the Williams case appears to have been the factual benefit
obtained by B from A’s actual performance of his earlier contract with B. This element of factual
benefit has been regarded as consideration where a person performs or (promises to perform) a
contractual duty owed to a third party 375; and the Williams case is to be welcomed in bringing the
two-party cases in line with those involving three parties. 376 But it is by no means clear how the case
is, from this point of view, to be reconciled with Stilk v Myrick and the line of more recent decisions
which have followed that case. 377 As has been suggested above, the master in Stilk v Myrick also
obtained a factual benefit (in getting the ship home); and such a factual benefit will very often be
obtained by B where he secures actual performance from A (as opposed to having to sue him for
non-performance of the original contract). In the Williams case, Stilk v Myrick was not overruled;
indeed Purchas L.J. described it as a “pillarstone of the law of contract.” 378 But he added that the
case might be differently decided today 379; while Glidewell L.J. said that the present decision did not
“contravene” but did “refine and limit” 380 the principle of the earlier case; and Russell L.J. said that the
“rigid approach” to consideration in Stilk v Myrick was “no longer necessary or desirable.” 381 The
conclusion which may tentatively be drawn from these statements is that the factual benefit to B in
securing A’s performance of the earlier contract normally suffices to constitute consideration. The
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insistence in the earlier cases on the stricter requirement of legal benefit or detriment is no longer
justified (if it ever was) by the need to protect B from the undue pressure that A might exert by
refusing to perform his original contract; for this need can now be met by the expanding concept of
duress. 382 This provides a more satisfactory solution of the present problem since it invalidates
promises only where actual duress is established. Where this is not the case, and the promisee has in
fact conferred a benefit on the promisor by performing the original contract, then the requirement of
consideration is satisfied and there seems to be no good reason for refusing to enforce the new
promise. 383
Increase in promisee’s performance
4-071
The promisee may provide consideration for the new promise by doing, or promising, more than he
was bound by the original contract to do. Thus in one case 384 a seaman was promoted during the
course of the voyage and undertook additional duties: these were held to constitute consideration for
a promise to pay him extra wages. The same principle was applied where shipbuilders claimed an
increase in the agreed price for a supertanker on the ground that the currency in which that price was
to be paid had been devalued. The contract provided for the giving by the builders of a performance
guarantee, and it was held that they had provided consideration for the prospective owners’ promise
to pay the price-increase by making corresponding increase in their performance guarantee. 385
4-072
The promisee may similarly provide consideration where, before the new promise was made,
circumstances have arisen which justify the promisee’s refusal to perform the original contract. Thus
members of the crew of a ship may be justified in refusing to complete the contractual voyage
because so many of their fellows have deserted that its completion will involve hazards not originally
contemplated. If they are induced to go on by a promise of extra pay, they do something which they
were not bound by the original contract to do and so provide consideration for that promise. 386 The
same principle applies if the original contract has been brought to an end for some other reason: for
example, by lapse of time or by notice or by mutual consent. Thus the parties to a contract could
rescind it and then make a new agreement providing for the payment of higher wages. Factual
difficulties can no doubt arise in distinguishing between: (1) a rescission followed by a new
agreement; and (2) a mere variation. But in principle the distinction is clear 387: in the first of these
situations, the original contract is brought to an end and replaced by a new one in respect of which
the requirement of consideration is satisfied, 388 while in the second the original contract continues, so
that each party is still bound by it and the promisee who seeks to enforce the variation of it provides
no consideration merely by performing his obligations under it. 389 This reasoning would not apply
where the original contract was void, or voidable at the option of the promisee, or unenforceable
against him, so that in such cases performance by him of the work specified in it would, it seems, be
consideration for a promise of extra pay; and if the original contract was in fact good but was believed
to be defective, the new promise might still be binding on the analogy of the rule that forbearance to
litigate an invalid claim may amount to consideration. 390 Similar reasoning can apply where a doubt
as to the validity is raised by a third party with an interest in the point. This possibility is illustrated by a
case 391 where solicitors (M) agreed in CFA 1 to represent a client (C) in litigation against D who, in a
dispute as to costs, challenged the validity of CFA 1. 392 A second agreement (CFA 2) was then made
between M and C by which C promised to pay an additional amount to M (by way of a success fee)
for the same services 393 as those undertaken by M under CFA 1. It was held that “[t]he provision of
an enforceable obligation [in CFA 2] to provide services in place of one which D asserted to be
unenforceable was consideration for a fresh promise to pay.” 394 Two further possibilities call for
discussion. The first is that the original contract might provide for revision of pay scales, 395 often
after negotiations conducted, in accordance with machinery established by the contract, between the
employer and the employees (or persons acting on their behalf). With reference to such a situation, it
has been said 396 that, where, in the context of such negotiations, “increased remuneration is paid and
employees continue to work as before, there is plainly consideration for the increase by reason of the
settlement of the pay claim 397 and the continuation of the same employee in the same employment.”
398
The employer’s promise would thus be binding at common law even where it was not matched by
Page 4
a counter-promise by the employees of higher productivity. 399 The second possibility is that a contract
may give a party the right to terminate it by notice. That party may then, by forbearing to exercise this
right, provide consideration for a promise made to him by the other party to induce that forbearance.
400

354. For these groups see (i) paras 4-067 to 4-078 below; (ii) paras 4-079 to 4-080 below and (iii)
4-071 to 4-072 below.
355. (1809) 2 Camp. 317; 6 Esp. 129. See also Harris v Carter (1854) 3 E. & B. 559; Sanderson v
Workington BC (1918) 34 T.L.R. 386; Swain v West (Butchers) Ltd [1936] 1 All E.R. 224.
356. (1809) 6 Esp. 129.
357. Harris v Watson (1791) Peake 102.
358. (1809) 2 Camp. 317; in Harris v Carter (1854) 3 E. & B. 559, both public policy and want of
consideration are relied on to explain the rule.
359. North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) [1979] Q.B.
705, 712, where the rule in Stilk v Myrick was recognised as being still good law, though held
inapplicable for reasons stated in para.4-068, below; Coote [1980] C.L.J. 40; South Caribbean
Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676, [2005] 1 Lloyd’s Rep. 128 at [107], as to
which case see also below, paras 4-070, 4-080.
360. Harrison v Dodd (1914) 111 L.T. 47; Swain v West (Butchers) Ltd [1936] 3 All E.R. 261; North
Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) [1979] Q.B. 705,
712; Pao On v Lau Yiu Long [1980] A.C. 614, 633; Sybron Corp. v Rochem Ltd [1983] I.C.R.
801, 817; Vantage Navigation Corp. v Suhail and Saud Building Materials LLC (The Alev)
[1989] 1 Lloyd’s Rep. 138, 147; Hadley v Kemp [1999] E.M.L.R. 586, 626. In WRN Ltd v Ayris
[2008] EWHC 1080 (QB), [2008] I.R.L.R. 889 at [46] it was likewise accepted by counsel for
both parties that “a promise to perform an earlier contract [between the same parties] … cannot
in law constitute consideration.”
361. Syros Shipping Co SA v Elaghill Trading Co Ltd (The Proodos C) [1980] 2 Lloyd’s Rep. 390;
Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] 1 Q.B. 833.
362. Vanbergen v St. Edmunds Properties Ltd [1933] 2 K.B. 223.
363. At n.353.
364. para.4-067, at nn.351–353.
365. Below, Ch.8; Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] 1 Q.B. 833.
366. This would have been the result in North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd
(The Atlantic Baron), above, n.355, if the victim of the duress had not affirmed the contract. For
cases in which recovery was allowed on this ground, see Universe Tankships Inc v International
Transport Workers’ Federation (The Universe Sentinel) [1983] 1 A.C. 366; B. & S. Contracts &
Designs v Victor Green Publications Ltd [1984] I.C.R. 449; and T. A. Sundell & Sons Pty Ltd v
Emm Yannoulatos (Overseas) Pty Ltd [1956] 56 S.R. (N.S.W.) 323. See also Kolmar Group AG
v Traxpo Enterprises Pvt Ltd [2010] EWHC 113 (Comm), [2010] 2 Lloyd’s Rep. 653 where a
seller of goods refused to deliver the full agreed quantity and demanded an increased price in
Page 5
circumstances amounting to economic duress (see at [62], [94] and para.8-035 below) and the
buyer was held to be entitled to restitution in respect of the extra payment made to the seller,
whose “promise to perform a contractual obligation to which it was already subject
accompanied by a threat of non-performance which amounted to economic duress” was “not
good consideration” (at [118]).
367. e.g. North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) [1979]
Q.B. 705; below, para.4-071; Vantage Navigation Corp. v Sahail and Saud Building Materials
LLC (The Alev) [1989] 1 Lloyd’s Rep. 138, 147.
368. Pao On v Lau Yiu Long [1980] A.C. 614, 632.
369. ibid., at 634. This statement was made in a case involving three parties, but is of general
application: Williams v Roffey Bros. & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1, 15.
370. Above, para.4-006.
371. [1991] 1 Q.B. 1; Adams and Brownsword (1991) 53 M.L.R. 536; Chen-Wishart (1991) 14
N.Z.U.L.R. 270; Hird and Blair, [1996] J.B.L. 254.
372. The payments under the original contract were found to be due in unspecified instalments while
those under the new promise were due as each flat was completed, but no attempt was made
to argue that this change in the times when payment was due might have been to A’s
disadvantage and therefore provided consideration. There is perhaps a hint to this effect in
Russell L.J.’s judgment at 19.
373.
[1991] 1 Q.B. at 11; cf. ibid. at 19, 23, followed in Anangel Atlas Compania Naviera SA v
Ishikawajima Harima Heavy Industries Co Ltd (No.2) [1990] 2 Lloyd’s Rep. 526, where
“promisor” and “promisee” appear to have been transposed in a passage at 545; Lee v GEC
Plessey Communications Ltd [1993] I.R.L.R. 383 at [118]–[119], below, para.4-072; Simon
Container Machinery Ltd v Emba Machinery Ltd [1998] 2 Lloyd’s Rep. 428 at 435;
Stevensdrake Ltd v Hunt [2016] EWHC 1111 (Ch) at [61]; MWB Business Exchange Centres
Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, [2017] Q.B. 604, discussed below,
para.4-119A. The same reasoning may account for the view, expressed in Attrill v Dresdner
Kleinwort Ltd [2011] EWCA Civ 229, [2011] I.R.L.R. 613 at [35], that employees had, by
continuing to work under their contracts of employment, provided consideration for their
employer’s promise to establish a minimum bonus pool. The purpose of this promise was said
to retain staff and the fact that in this respect the promise had been “largely successful” (at [35])
can be regarded as a “practical benefit” to the employer; for this case, see also para.4-072
below; for similar reasoning in further proceedings in the Attrill case, above, see [2012] EWHC
1189 (QB), where the requirement of consideration was held to have been satisfied by (1) the
practical benefit obtained by the employer (at [180]–[184], following the Williams case); and (2)
the fact that the employees had remained in the employment of the employer; affirmed [2012]
EWCA Civ 394 where Elias L.J. at [95] referred with evident approval to the reasoning of the
court below on the issue of consideration. In WRN Ltd v Ayris [2008] EWHC 1080 (QB), [2008]
I.R.L.R. 889 (above, para.4-067 n.356) no attempt seems to have been made to argue that the
promisor had obtained a “practical benefit” so as to satisfy the requirement of consideration on
the principle discussed in the text above.
374. In fact, B did not secure the whole of this benefit, but this was because B’s wrongful failure to
make the extra payments justified A’s refusal to continue with the work.
375. Below, para.4-076.
377. Above, para.4-067. The difficulty of reconciling the Williams case with Stilk v Myrick and the
cases which have followed it is discussed in South Caribbean Trading Ltd v Trafigura Beheer
BV [2004] EWHC 2676 (Comm), [2005] 1 Lloyd’s Rep. 128 at [107]–[109]. Colman J, although
accepting that the Williams case appeared to have introduced “some amelioration”, said that he
Page 6
would not have followed it, if it had not been a decision of the Court of Appeal. He regarded the
decision as “inconsistent with the … rule that consideration must move from the promisee” (at
[108]); but it is respectfully submitted that this requirement can be (and in the Williams case
was) satisfied by the promisee’s conferring a benefit on the promisor even though the promisee,
in doing so, suffers no detriment (see above, para.4-038). The Williams case was discussed
with apparent approval in Birmingham City Council v Forde [2009] EWHC 12 (QB), [2009] 1
W.L.R. 2732 at [86]–[89]; for this case, see above, para.4-018, below para.4-072.
378. [1991] 1 Q.B. 1, 20.
379. ibid., at 21. But he was not prepared to accept the American case of Watkins v Carrig 21 A. 2d
591 (1941), where a contractor who had agreed to do excavating work unexpectedly struck
hard rock and was held entitled to enforce a promise to pay nine times the originally agreed
sum. The case was said not to represent English law in North Ocean Shipping Co Ltd v
Hyundai Construction Co Ltd (The Atlantic Baron) [1979] Q.B. 705, 714. It was cited with
apparent approval in Compagnie Noga D’Importation et D’Exportation SA v Abacha [2003]
EWCA Civ 1100; [2003] 2 All E.R. (Comm) 915 at [54] but on the point that the requirement of
consideration was satisfied by rescission of the original contract, followed by the making of a
new one: below, paras 4-072, 4-080. No mention was made in the Compagnie Noga case,
above, of the more sceptical references to Watkins v Carrig in the Williams case and in The
Atlantic Baron, cited earlier in this note.
380. [1991] 1 Q.B. 1, 16.
381.
ibid., at 18. A passage in the judgment of Arden L.J. in MWB Business Exchange Centres Ltd
v Rock Advertising Ltd [2016] EWCA Civ 553, [2017] Q.B. 604 at [79] could be said to support
the view that the decision in Stilk v Myrick (1809) 2 Camp. 317, para.4-067, might now go the
other way on the ground that the master of the ship had obtained a “practical benefit” which
would constitute consideration within the reasoning of the Williams case [1991] 1 Q.B. 1, see
Vol.I, para.4-069; but there is no express reference to Stilk v Myrick (above) in the MWB case,
above.
382. The actual decision in the South Caribbean case (above n.373) seems to be explicable on the
ground that the promisee’s “threat of non-compliance” with the original contract was “analogous
to economic duress” (at [108]); though the words “analogous to” give rise to some difficulty
insofar as they suggest that there was no actual duress: see above, para.4-068 at n.365.
383.
The above sentence is cited with apparent approval by Arden L.J. in MWB Business
Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, [2017] Q.B. 604 at [80].
The question whether in that case the requirement of consideration was satisfied is discussed
below, para. 4-119A.
384. Hanson v Royden (1867) L.R. 3 C.P. 47; cf. Turner v Owen (1862) 3 F. & F. 176. Semble, such
extra pay is recoverable notwithstanding failure to comply with the formal requirements now
prescribed by Merchant Shipping Act 1995, s.25.
385. North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) [1979] Q.B.
705. See also Birmingham City Council v Forde [2009] EWHC 12 (QB), [2009] 1 W.L.R. 2732
(paras 4-018 above and 4-072 below) where solicitors in their new contract (CFA 2) with a client
(C) undertook a duty to represent C on appeal, when no such undertaking had been contained
in their original contract (CFA 1) with C. One reason why the requirement of consideration was
satisfied in relation to C’s promises in CFA 2 was that “CFA 2 provided an additional benefit to
[C] which CFA 1 did not” (at [83]).
386. Hartley v Ponsonby (1857) 7 E. & B. 872. See also O’Neil v Armstrong Mitchell & Co [1895] 2
Q.B. 418; Palace Shipping Co v Caine [1907] A.C. 386; Liston v SS. Carpathian (Owners)
[1915] 2 K.B. 42.
387. Compagnie Noga D’Importation et D’Exportation SA v Abacha [2003] EWCA Civ 1100; [2003] 2
All E.R. (Comm) 915 at [57].
Page 7
388. ibid., at [44–61]; below, para.4-080.
389. Below, para.4-080; this was the reasoning of Stilk v Myrick in (1809) 2 Camp. 317.
390. Above, para.4-053; E. Hulton & Co v Chadwick Taylor Ltd (1918) 34 T.L.R. 230, 231.
391. Birmingham City Council v Forde [2009] EWHC 12 (QB), [2009] 1 W.L.R. 2732.
392. ibid., at [59].
393. For the further point that the requirement of consideration was satisfied by M’s undertaking to
provide additional services see above, para.4-071 n.380.
394. [2009] EWHC 12 (QB) at [82]. For rejection of challenges to the validity of CFA 2 on grounds
other than want of consideration, see [98]–[163].
395.
cf. Finland SS Co Ltd v Felixstowe Dock & Railway Co [1980] 2 Lloyd’s Rep 287; Lombard
Tricity Finance Ltd v Paton [1989] 1 All E.R. 918 (contract providing for increase in interest
rates to be made by lender). See also Amey Wye Valley Ltd v Hertfordshire DC [2016] EWHC
2368 (TCC), [2016] B.L.R. 698 (contract for highway maintenance providing for inflationlinked
increases in contractor’s charges. The case was concerned with the interpretation of this
provision; there was no reference in the judgment to the requirement of consideration).
396. Lee v GEC Plessey Communications Ltd [1993] I.R.L.R. 383 at [118], applied in Hershaw v
Sheffield City Council [2014] UK EAT 00333, [2014] I.C.R. 112 at [13]; Freedland, The Personal
Employment Contract (2003) 254–255.
397. The principle referred to in these words appears to be analogous to that stated in para.4-048
above.
398. The words quoted above after n.392 may be hard to reconcile with Stilk v Myrick (1809) 2
Camp. 317, above para.4-067, but they are consistent with Williams v Roffey Bros & Nicholls
(Contractors) Ltd [1991] 1 Q.B. 1, above, paras 4-069 to 4-070, which is the authority cited in
the Lee case, above, n.391, at [119] in support of the view that the requirement of consideration
was satisfied in that case as the “employer had both secured a benefit and avoided a
detriment”.
399. e.g. Pepper & Hope v Daish [1980] I.R.L.R. 13. Perhaps it was for this reason that the argument
of want of consideration was not raised in Universe Tankships Inc v International Transport
Workers’ Federation (The Universe Sentinel) [1983] 1 A.C. 366.
400. This is a possible reason (in addition to that given in para.4-069 n.369 above) for the decision in
Attrill v Dresdner Kleinwort Ltd [2011] EWCA Civ 229, [2011] I.R.L.R. 613, above, para.4-069.
For reference to the requirement of consideration in later proceedings in the Attrill case, see
[2012] EWHC 1189 (QB), affirmed [2013] EWCA Civ 394, [2013] 3 All E.R. 607 at [95].

Page 1

(c) - Duty imposed by Contract with a Third Party
Introductory 401
4-073
Two problems arise under this heading. The first is whether, if A is under a contractual duty to B, the
performance of this duty can constitute consideration for a promise made to A by C. The second is
whether A’s promise to perform his contractual duty to B can constitute consideration for a
counterpromise made to A by C.
Performance of the duty
4-074
It is now generally accepted that actual performance of a contractual duty owed to a third party can
constitute consideration. 402 Two mid-nineteenth century cases which support this view are not wholly
conclusive, since in each of them the promisee did, or may have done, more than he was bound
under the earlier contract to do, and so have provided additional consideration. 403 But it is harder to
find any such additional consideration in Shadwell v Shadwell. 404 An uncle wrote to his nephew: “I am
glad to hear of your intended marriage with Ellen Nicholl; and as I promised to assist you at starting, I
am happy to tell you that I will pay you £150 yearly during my life …” A majority of the Court of
Common Pleas held that the nephew had provided consideration for the uncle’s promise by marrying
Ellen Nicholl. It was said that there was a detriment to the nephew in that he “may have made a most
material change in his position, and induced the object of his affection to do the same, and may have
incurred pecuniary liabilities resulting in embarrassments” 405; and that there was a benefit to the
uncle in that the marriage was “an object of interest to a near relative.” 406 This reasoning simply
ignores the nephew’s previous contractual obligation to marry Ellen Nicholl, 407 under which he was
legally bound to suffer the alleged detriment. It could perhaps be argued that he forbore from trying to
persuade his fiancée to postpone the wedding or to put an end to the engagement 408; but it is
doubtful whether his forbearance to attempt to persuade her to do this can be regarded as
consideration in the absence of any suggestion that he contemplated the possibility. 409 The argument
that the uncle benefited fares little better, for the benefit described by the court was a purely
sentimental one. It is, moreover, very doubtful whether, on the true construction of the uncle’s letter,
the nephew’s marriage to Ellen Nicholl was intended to be the consideration for the uncle’s promise,
or only a condition. 410 Byles J., who dissented, treated it as a condition and also thought that the
uncle’s promise was not made with any contractual intent. His view was subsequently approved, 411
so that the correctness of the actual decision in Shadwell v Shadwell is very much in doubt. But for
what the decision is worth, it does support the view that the performance of a contractual duty owed
to a third party can be good consideration for a promise. More recent authorities also support that
view. 412
4-075
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In The Eurymedon, 413 A (a firm of stevedores) had unloaded goods from B’s ship. Some of these
belonged to C who, for present purposes, 414 may be taken to have promised A not to sue him for
damaging the goods. It was held that A had provided consideration for this promise by unloading the
goods 415 even if he was already bound by a contract with B to unload them. This conclusion seems to
be based on the fact that such performance conferred a benefit on C 416; and the benefit may be
regarded either as factual (in the sense that C secured the actual delivery of his goods) or as legal 417
(in the sense that C was not legally entitled to the performance of A’s duty to unload, this duty being
owed only to B). It would, of course, be open to C to avoid liability if he could show that his promise
had been obtained by duress. 418 It is arguable that this defence is less likely to succeed in a
three-party than in a two-party case 419; but this is not invariably the case. Sailors in a case like Stilk v
Myrick 420 could exert economic duress on the captain whether their original contract was with him or
with a third party. 421 In both types of cases, it is now recognised that performance of a prior
contractual duty can constitute consideration for a subsequent promise if that performance amounts
to a benefit to the promisor. 422 The promise is therefore binding in the absence of a legally
recognised vitiating factor, such as duress.
Promise of performance
4-076
There was formerly some support for the view that a promise to perform a contractual duty owed to a
third party (as opposed to the actual performance of the duty) could not constitute consideration for a
counter-promise. Thus in Jones v Waite 423 it was said that a promise by A to C that A would pay a
debt which A owed to B was no consideration for a promise made by C to A. This view seems to be
based on the idea that A suffers no (legal) detriment by promising to pay a debt that he was already
bound to pay; nor did it appear that C gained any benefit as a result of the promise. But C may gain
such a benefit: for example, where B is a company in which C has an interest. This was the position
in Pao On v Lau Yiu Long 424 where the claimants, having entered into a contract with a company,
refused to perform it unless the defendants, who were shareholders in the company, guaranteed
them against loss which might be incurred as a result of the performance of one of the terms of that
contract. The guarantee was given in consideration of the claimants’ promise to perform their
pre-existing contractual obligations to the company; and was held binding 425 on the ground that “A
promise to perform, or the performance of, a pre-existing contractual obligation to a third party can be
valid consideration.” 426 This view seems, with respect, to be preferable to that expressed in Jones v
Waite; for, where a shareholder makes a promise to induce a person to perform a contract with the
company, the promise is certainly not gratuitous in a commercial sense. It will, of course, be open to
the promisor to avoid liability if he can show that the promisee’s refusal to perform the contract with
the company amounted to duress 427 not merely with regard to the company, but also with regard to
the promisor himself.

401. See A. G. Davis (1937) 6 Camb.L.J. 202.
402. The above view, as expressed in para.3-073 the 30th edition of this book (para.4-074 in the
present edition) is cited with apparent approval in Dry Bulk Handy Holding Inc v Fayette
International Holdings Ltd (The Bulk Chile) [2013] EWCA Civ 184, [2013] 2 Lloyd’s Rep. 38 at
[34]. For the contrary view, see McDevitt v Stokes 192 S.W. (1917). In Pfizer Corp. v Ministry of
Health [1965] A.C. 512 Lord Reid said that there was no contract where a chemist supplied
drugs to a patient under the National Health Service in return for a prescription charge, because
the chemist is “bound by his contract with the appropriate authority to supply the drug …” (at
536). But it seems from the context that Lord Reid was considering whether the relationship
was consensual and was not thinking of the problem of consideration.
Page 3
403. Scotson v Peg (1861) 6 H. & N. 295; Chichester v Cobb (1866) 14 L.T. 433. The question in
these cases was whether A provided consideration for C’s promise by performing a contractual
duty owed by A to B. There is no doubt that C’s promise to perform a duty owed by B to A (or
the performance of such a promise) can constitute consideration for a promise (express or
implied) by A to C: see, e.g. Brandt v Liverpool, etc. S.N. Co [1924] 1 K.B. 575; The Aramis
[1989] 1 Lloyd’s Rep. 213, 225 (where C’s claim failed for want of contractual intention: above
para.2-190).
404. (1860) 9 C.B.(N.S.) 159.
405. ibid., at 174.
406. ibid.
407. If the facts recurred now, the nephew’s promise to marry Ellen Nicholl would no longer give rise
to a contractual obligation: Law Reform (Miscellaneous Provisions) Act 1970, s.1. This section
applies to an agreement to marry made between two persons of the same sex: Marriage (Same
Sex Couples) Act 2013, s.11 and Sch.3, para.1. An agreement to enter into a civil partnership
likewise has no contractual force: Civil Partnership Act 2004, s.73.
408. cf. De Cicco v Schweitzer 221 N.Y. 413, 117 N.E. 807 (1917).
409. Above, para.4-024.
411. Jones v Padavatton [1969] 1 W.L.R. 328, 333.
412. See above at n.397; below paras 4-075 and 4-076 at n.421.
413. New Zealand Shipping Co Ltd v A.M. Satterthwaite & Co Ltd (The Eurymedon) [1975] A.C. 154,
168; followed in Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd
(The New York Star) [1981] 1 W.L.R. 138 and Glebe Island Terminals Pty Ltd v Continental
Seagram Pty Ltd (The Antwerpen) [1994] 1 Lloyd’s Rep. 213; The Mahkutai [1996] A.C. 650,
664.
414. See further para.15-051, below.
415. A question may arise as to whether A has indeed performed or begun to perform his contract
with B: see Lotus Cars Ltd v Southampton Cargo Handling plc (The Rigoletto) [2000] 2 Lloyd’s
Rep. 532, 542–545, where it was assumed that performance of a contract with a third party
would constitute consideration.
416. The Eurymedon, above, n.408 at 168 (“for the benefit of the shipper”, i.e. of C).
419. Goodhart, (1956) 72 L.Q.R. 490.
420. Above, para.4-067.
421. In Stilk v Myrick the distinction between two- and three-party cases was ignored; no one asked
whether the original contract was with the captain (the promisor) or the shipowner, if these were
separate persons. The report in 6 Esp. 129 makes it clear that the action was against the
captain. cf. also Turner v Owen (1862) 3 F. & F. 176, where improper pressure may have been
the ground for the jury’s verdict even before the law recognised the concept of economic
duress; and B. & S. Contractors & Designs v Victor Green Publications Ltd [1984] I.C.R. 419.
Page 4
422. Above, para.4-069; above, n.411; cf. below, para.4-076 (in the case of a promise to perform a
duty to a third party).
423. (1839) 5 Bing.N.C. 341 affirmed without reference to this point (1842) 9 Cl. & F. 101. A dictum
in Pfizer Corp. v Ministry of Health [1965] A.C. 512, 536 could be interpreted to support the
same view but appears (from the context) to be based on lack of contractual intention: see
above, para.4-074, n.397.
424. [1980] A.C. 614.
425. For rejection of the argument that the consideration was past, see above, para.4-031.
426. [1980] A.C. 614, 632. In The Eurymedon, above, n.408, it was said at 168 that a promise to
perform a contractual duty owed by a third party was consideration because it was a benefit to
the promisee. This is at first sight puzzling, since consideration must be a detriment to the
promisee or a benefit to the promisor. The reference, however, was to a case in which A’s
promise to C was said to be consideration for C’s counter-promise to A and it was the
consideration for that counter-promise which was in issue. In relation to that counter-promise, C
was the promisor and the benefit that C got from A’s promise satisfied the orthodox test of
consideration for C’s counter-promise. cf. above para.4-075.

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Section 9. - Discharge and Variation of Contractual Duties
Introduction
4-077
The parties to a contract may agree to rescind it or to vary its terms. This subject is discussed in
Chapter 22, but it is necessary in the present chapter to say something of the problems of
consideration to which such agreements give rise. Indeed one aspect of the matter has already been
discussed, for cases such as Stilk v Myrick 428 and Williams v Roffey Bros. & Nicholls (Contractors)
Ltd 429 raise a problem of consideration arising from the variation of an existing contract. In those
cases, the question was whether the performance by A of his obligations under the old contract could
be consideration for a new promise from B. Our present problem is whether there is consideration for
a promise by B to accept, in discharge of A’s obligations, some performance other than that originally
undertaken by A, 430 or to grant A a total release from his obligations under the original contract. Even
if there is no such consideration, B’s subsequent promise may, nevertheless, have some limited legal
effect. 431

428. (1809) 2 Camp. 317; 6 Esp. 129; above, para.4-067.
429. [1991] 1 Q.B. 1, above, para.4-069.
430. The issue discussed in South Caribbean Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676
(Comm), [2005] 1 Lloyd’s Rep. 128 at [107]–[112] seems to have been of this kind: see below,
para.4-080.
431. Below, paras 4-082—4-101, 4-130—4-138.

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(a) - Rescission
Agreements to rescind where each party has outstanding rights
4-078
The parties to a contract may agree to rescind it at a time when each has outstanding rights under the
contract against the other. They most obviously have such rights where the contract is wholly
executory and neither party is in breach: for example, where a contract for the sale of goods to be
delivered and paid for on a future day is rescinded before that day by mutual consent. They equally
have such rights where both parties are, at the time of rescission, in breach; and where the contract is
partly executed and obligations remain outstanding on both sides: for example, where a lease for
seven years is rescinded by mutual consent after three years of the term have expired. In all such
cases, the agreement generates its own consideration in the sense that each party provides
consideration for the other’s promise to release him by promising to give up his own rights under the
contract. 432 It is, of course, essential that each party should make such a promise. If only one party
does so, the other making no counter-promise, the former party’s promise will be “entirely unilateral
and unsupported by any consideration.” 433
Agreements to rescind where only one party has outstanding rights
4-079
An agreement to rescind a contract may also be unsupported by consideration (and so lack
contractual force) where only one party has outstanding rights under the contract. This will often be
the position where the contract has been wholly executed by that party (A) alone and he then
promises to release the other party (B) from his obligations. In such a case there is prima facie no
consideration for A’s promise since A gets no benefit and B suffers no detriment from the
arrangement. The same is true where A is ready and willing to perform but B is not: B is then liable in
damages and “rescission” of the contract at this stage would be gratuitous if it merely released B from
liability. This is what is meant by the statement that rescission after breach requires separate
consideration. 434 Whenever the rescinding agreement does not generate its own consideration, such
separate consideration must be provided by B (usually in the form of some additional performance
rendered, or promise made, by B) to make A’s promise binding. There must, in the traditional
terminology, be not merely accord but also satisfaction. The “accord” here refers to the agreement
and the “satisfaction” to the consideration for it. 435

432. Foster v Dawber (1851) 6 Ex.839, 850; cf. Marseille Fret SA v D. Oltman Schiffahrts GmbH &
Co (The Trado) [1982] 1 Lloyd’s Rep. 157; Argo Fund Ltd v Essar Steel Ltd [2005] EWHC 600
Page 2
(Comm), [2006] 1 All E.R. (Comm) at [51]; affd. on other grounds [2006] EWCA Civ 241, [2006]
2 All E.R. (Comm) 104.
433. Collin v Duke of Westminster [1985] Q.B. 581, 588.
434. Atlantic Shipping & Trading Ltd v Louis Dreyfus & Co [1922] 2 A.C. 250 at 262.
435. Below, para.4-117. For an exception to the requirement, see Bills of Exchange Act 1882, s.62,
below, Vol.II, para.34-138. The release prima facie takes effect at the time of the accord: see
Jameson v CEGB [2000] 1 A.C. 455 at 477 (where the original liability arose in tort).

Page 1

(b) - Variation
(i) - Requirement of Consideration
Agreements to vary contracts
4-080
Four situations call for discussion.
(1) Rescission followed by new contract
First, the parties may agree to rescind an existing contract and to enter into a new one, on different
terms, in relation to the same subject-matter. The question whether there is consideration for the
rescission then depends on the tests stated in paras 4-078 to 4-079 above. If these are satisfied,
there will also generally be consideration for the promises of both parties made under the new
contract. “The same consideration which existed for the old agreement is imported into the new
agreement which is substituted for it.” 436
(2) Variation which can prejudice or benefit either party
Secondly, the parties may agree to vary the contract in a way that can prejudice or benefit either
party. Here the possible detriment or benefit suffices to provide consideration for the promise of each
party. This situation may be illustrated by an agreement to vary the currency in which a future
payment under a contract of sale is to be made. 437 The seller’s promise to accept payment in the new
currency is supported by consideration since it may benefit him and prejudice the buyer as it is
possible for the new currency to appreciate in relation to the old between the time of the variation and
the time of payment. This possibility of benefit and detriment is sufficient. It is immaterial for the
purpose of the requirement of consideration that the new currency in fact depreciates in relation to the
old, or even that at the time of the variation it was highly probable that it would so depreciate. On the
same principle, the requirement of consideration is satisfied where an agreement for the sale of
goods is varied by mutual promises (made before the delivery date originally specified) on the part of
the buyer to accept delivery and by the seller to perform his obligations with respect to delivery on a
different (later) date. In one such case, it was said that such a variation amounted to “a new
agreement supported by mutual promises” and that “sufficient consideration [for the buyer’s promise]
moved from the promisee.” 438 (i.e., the seller). If a variation is, taken as a whole, capable of benefiting
either party, the requirement of consideration will be satisfied even though a particular term of the
variation is for the sole benefit of one. 439 However, it has been held that there is no consideration for
a variation which, though capable of benefiting either party, is in fact made wholly for the benefit of
one. For example, a variation as to the place at which a debt is to be paid is capable of benefiting
either party; but where such a variation was introduced solely for the benefit of the debtor there was
held to be no consideration for a promise by the creditor: e.g. for one to accept part payment in full
settlement if the debtor made such payment at the different place. 440
Page 2
(3) Variation which can benefit only one party
4-081
Thirdly, the parties may agree to vary the contract in a way that is considered to be capable of
conferring a legal benefit on one party only: e.g. where one party agrees to pay more for the
performance of the other party’s original obligation, or to accept less than the other party had
originally undertaken without any corresponding variation (that could benefit him) of his own
obligation. In some situations of this kind, it is settled that there is no consideration. Where, for
example, after a debt has fallen due, the creditor promises to accept part payment of it in full
settlement, the mere part payment does not constitute consideration for the variation, 441 though the
creditor’s promise may have a limited effect as a waiver, or in equity. 442 Consideration for the
creditor’s promise could be provided by some further variation which could benefit the creditor: e.g. by
the debtor’s promise to make the payment before the day when the debt becomes due. In other
situations falling within the present group, it is arguable 443 that the variation may be supported by
consideration if, though capable of conferring a legal benefit on only one party, it can also confer a
factual benefit 444 on the other: e.g. where a buyer’s promise to pay more than the originally agreed
price secures eventual delivery of goods when strict insistence on the original contract would have led
to nothing but litigation.
(4) “Variation” before conclusion of contract
Fourthly, there is the apparently paradoxical possibility that the parties may agree to vary a contract
even before that contract has been concluded. This may be the position where A and B negotiate on
the basis of formal documents and A represents that the proposed contract will be on terms less
favourable to himself than those set out in the documents. If the documents are nevertheless
executed without alteration, the representation may then be enforceable as a collateral contract. The
consideration for the promise contained in A’s representation is provided by B when he executes the
documents, and so enters into the principal contract, at the request of A and in reliance on the
representation. This was the position in Brikom Investments Ltd v Carr, 445 where the landlords of
blocks of flats negotiated with their tenants for the sale of long leases of the flats on terms requiring
the tenants to contribute to the cost of (inter alia) roof maintenance. At the time of the negotiations,
the roof was in need of repairs, and the landlords promised to execute these “at our own cost.” It was
held that one of the tenants had provided consideration for this promise by executing the agreement
for the lease, and the lease itself; and that the promise was accordingly binding as a collateral
contract. 446 It followed that the landlords could not enforce the term in the lease under which the
tenant would (but for the collateral contract) have been liable to contribute to the cost of the roof
repair. 447 Greater difficulty would have arisen if the tenant had already entered into the agreement to
take the lease before the landlord’s promise had been made, 448 for in that case the execution of the
documents would have been past consideration. 449 The tenants could, however, have succeeded,
even in such a case, on an alternative ground. The landlords had been guilty of unreasonable delay in
executing the repairs, and the tenants would, by forbearing to take proceedings in respect of that
breach, 450 have provided consideration for the landlords’ promise to bear the cost of the repairs.

436. Stead v Dawber (1839) 10 A. & E. 57, 66; Compagnie Nogar D’Importation et D’Exportation SA
v Abacha [2003] EWCA Civ 1100; [2003] 2 All E.R. (Comm) 915 per Tuckey L.J., with whose
judgment on this point the other members of the court agreed.
437. W. J. Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 Q.B. 189; Woodhouse A.C. Israel
Cocoa Ltd SA v Nigerian Produce Marketing Co [1972] A.C. 741.
438. South Caribbean Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676 (Comm), [2005] 1
Page 3
Lloyd’s Rep. at [105]. The seller’s “apparently insuperable” difficulties in meeting the originally
agreed delivery dates appear not to have been treated by the buyer as breaches of the original
contract.
439. Ficom SA v Sociedad Cadex Ltd [1980] 2 Lloyd’s Rep. 118, 132.
440. Vanbergen v St. Edmunds Properties Ltd [1933] 2 K.B. 233; cf. Continental Grain Export Corp.
v S.T.M. Grain Ltd [1979] 2 Lloyd’s Rep. 460, 476.
441. Below, para.4-117.
442. Below, paras 4-130—4-138.
443. On the analogy of the reasoning of Williams v Roffey Bros. & Nicholls (Contractors) Ltd [1991] 1
Q.B. 1, above, para.4-069.
444. Above, para.4-006.
445. [1979] Q.B. 467.
446. Contrast, on the issue of the contractual intention necessary to establish such a contract,
Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] EWCA Civ 622, [2007]
NLJ 1263, above para.2-174.
447. This was agreed by all members of the Court of Appeal. For other grounds for the decision, see
below, paras 4-129, 4-135.
448. From the grounds of appeal as stated on pp.472–473 of the report, it seems that reliance was
placed on pre-contract promises or representations; cf. the statement at 490 that the landlord’s
promise was made “at the time when the leases were granted.” According to Lord Denning,
M.R. at 480 “some of the tenants” had already signed agreements for leases when the
representations were made; but that does not seem to have been the position with regard to
any of the cases before the court.
449. Above, para.4-026.
450. See [1979] Q.B. 467, 490; cf. above, para.4-058. Delay in executing the repairs was a breach
irrespective of the question of who was to pay for them.

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(b) - Variation
(ii) - Common Law Mitigations
Waiver 451 or forbearance at common law
4-082
A variation which is not contractually binding (e.g. for want of consideration) may nevertheless have
certain limited legal effects. These are sometimes said to arise because the promise by a party to
relinquish some or all of his rights under a contract amounts to a “waiver” of those rights.
Unfortunately, however, “the word ‘waiver’ … covers a variety of situations different in their legal
nature …” 452 It is, for example, sometimes used to refer to the variation of a contract which is
supported by consideration and therefore binding as a contract. 453 To distinguish between such
variations and those which are not supported by consideration, the latter will in the following
discussion be referred to as “forbearances.” A forbearance in this sense may in certain circumstances
limit the right of the party granting it to enforce his rights under the contract. 454 The exact effects of
such a forbearance are discussed in Chapter 22; but something must be said here about the
distinction between a forbearance and a variation.
Forbearance generally revocable
4-083
The effect of a forbearance of the kind mentioned in the preceding paragraph differs from that of a
contractually binding variation which is supported by consideration in that it does not irrevocably alter
the rights of the parties under the original contract. The party granting the forbearance can generally
retract it, provided that he gives reasonable notice of his intention to do so to the other party. 455 Thus
in Charles Rickards Ltd v Oppenhaim 456 a contract for the sale of a car provided for delivery on
March 20. The car was not delivered on that day but the buyer continued to press for delivery and
finally told the seller on June 29 that he must have the car by July 25 at the latest. It was held that the
buyer could not have refused peremptorily to accept the car merely because the original delivery date
had gone by, as he had continued to press for delivery; but that he could refuse on the seller’s failure
to comply with a notice to deliver within a reasonable time. As the notice had given the seller a
reasonable time to deliver, the buyer was justified in refusing to take the car after July 25. A fortiori,
the buyer could have refused to take delivery if the original delivery date had been extended only for a
fixed time and if delivery had not been made by the end of that time. 457
Forbearance may become irrevocable
4-084
A forbearance may, however, become irrevocable as a result of subsequent events: for example if a
Page 2
buyer indicates that he is willing to accept goods of a different quality from those contracted for, and
the seller, in reliance on that assurance, so conducts himself as to put it out of his power to supply
goods of the contract quality within the contract period. 458
Basis of distinction between variation and forbearance
4-085
The question whether a subsequent agreement amounted to a contractually binding variation or to a
forbearance is sometimes said to depend on the intention of the parties. 459 It seems that a statement
should be a forbearance if the party making it intended to reserve a power to retract, and a variation if
he intended it permanently to affect his rights. In practice, however, neither this nor any other
explanation of the distinction provides any very sound basis for distinguishing between the authorities
on this subject. The explanation is also open to the objection that it leads to the paradoxical result
that, the more a party tried to bind himself by a subsequent agreement, the less he was likely to be so
bound. An attempt to abandon a right altogether would be classified as a variation, and so be invalid
without consideration; while an attempt merely to suspend a right would have at least a limited effect
as a waiver. The courts were, however, anxious to avoid the injustice which could result from holding
that a variation was not binding for want of consideration. Accordingly, they were inclined to interpret
the subsequent agreement as a forbearance, so as to give it at least some legal effects.

451. Ewart, Waiver Distributed; Wilkins and Villiers, Waiver, Variation and Estoppel; Spence,
Protecting Reliance; Cheshire and Fifoot (1947) 63 L.Q.R. 283; Stoljar (1958) 35 Can. Bar Rev.
485; Dugdale and Yates (1976) 39 M.L.R. 680.
452. Mardorf Peach & Co Ltd v Attica Sea Carriers Corp. of Liberia (The Laconia) [1977] A.C. 850,
871; cf. Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] A.C. 850,
882–883; Telfair Shipping Corp. v Athos Shipping Corp. (The Athos) [1981] 2 Lloyd’s Rep. 74,
87 (a passage approved on appeal: [1983] 1 Lloyd’s Rep. 127, 134); Scandinavian Trading
Tanker Co A.B. v Flota Petrolera Ecuatoriana (The Scaptrade) [1981] 2 Lloyd’s Rep. 425, 430,
affirmed [1983] 2 A.C. 694; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp. of India
(The Kanchenjunga) [1990] 1 Lloyd’s Rep. 391, 397; Oliver Ashworth (Holdings) Ltd v Ballard
(Kent) Ltd [2000] Ch. 12 at 28; Glencore Grain Ltd v Flacker Shipping Ltd (The Happy Day)
[2002] EWCA Civ 1068; [2002] 2 Lloyd’s Rep. 487 at [64]; Oceanografia SA de CV v DSND
Subsea AS (The Botnica) [2006] EWHC 1300 (Comm), [2007] 1 All E.R. (Comm) 28 at [89],
[90]; Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147, [2008] 2 All
E.R. (Comm) 14 at [1], [36]–[37], distinguishing between “waiver by election” and “waiver by
estoppel”; for this distinction, see also Lexington Insurance Co v Multinacional de Seguros
[2008] EWHC 1170 (Comm), [2009] 1 All E.R. (Comm) 35 at [52]; Argo Systems FZE v Liberty
Insurance [2011] EWCA Civ 1572, [2012] 1 Lloyd’s Rep. 129 at [38], [39]. Waiver by (or in the
sense of) election is relevant to loss of a party’s right to rescind a contract on account of the
other party’s breach and does not call for further discussion in the present Chapter.
453. e.g. in Hickman v Haynes (1875) L.R. 10 C.P. 598, 604; and (semble) by Roskill and
Cumming-Bruce L.JJ. in Brikom Investments Ltd v Carr [1979] Q.B. 467; cf. Shamsher Jute
Mills v Sethia (London) Ltd [1987] 1 Lloyd’s Rep. 388, 392. In Royal Boskalis Westminster NV v
Mountain [1997] 2 All E.R. 929 “waiver” is similarly used to refer to a variation which would have
been contractually binding if it had not been vitiated by duress and illegality. Only Phillips L.J.
took the view that there was no “meaningful” consideration. “Meaningful” here seems to mean
no more than “adequate;” for it appears from the facts stated at 934 and 958–959 that in the
subsequent agreement each party gave up rights existing under the original contract.
454. Phipps, (2007) 123 L.Q.R. 286.

Page 3
455. Banning v Wright [1972] 1 W.L.R. 972, 981; Ficom SA v Sociedad Cadex Ltda. [1980] 2 Lloyd’s
Rep. 118, 131. Para.3-082 of the 31st edition of this book (para.4-083 in the present edition) is
cited with apparent approval in Virulite LLC v Virulite Distribution Ltd [2014] EWHC 366 (QB),
[2015] 1 All E.R. (Comm) 204 at [122], recognising that “a representation [giving rise to ‘waiver’]
is generally revocable” (but may, as is stated in para.4-084 below, exceptionally be irrevocable).
The case arose out of a distributorship agreement between A (the owner of intellectual property
in a medical device) and B (the intended distributor) by which a payment of £25,000 was to be
made by B to A on the provision by A to B of data necessary to secure the approval of a public
authority (the FDA); failure to make the payment as agreed was to give A a right to terminate
the contract. Later negotiations to the effect that the payment was not to be due until after FDA
approval had been obtained were held to amount to a contractually binding variation of the
agreement; and, if that was wrong, to amount to a representation giving rise to a promissory
estoppel (below, para.4-086), which was revocable by reasonable notice (at [133], [152]; and
see [134]–[135] for the length of that notice).
456. [1950] 1 K.B. 616; cf. State Trading Corp. of India v Cie Française d’Importation et de
Distribution [1983] 2 Lloyd’s Rep. 679, 681.
457. cf. Nichimen Corp. v Gatoil Overseas Inc [1987] 2 Lloyd’s Rep. 46, where similar fixed-term
extensions were granted by a seller.
458. Toepfer v Warinco A.G. [1978] 2 Lloyd’s Rep. 569, 576; cf. Leather Cloth Co v Hieronimus
(1875) L.R. 10 Q.B. 140 (goods lost while on altered route); Bottiglieri di Navigazione SpA v
Cosco Quindao Shipping Co (The Bunge Saga Lima) [2005] EWHC 244 (Comm), [2005] 2
Lloyd’s Rep. 1 at [31], below para.4-098.
459. Stead v Dawber (1839) 10 A. & E. 57, 64.

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(b) - Variation
(iii) - Equitable Mitigations
Forbearance in equity
4-086
Equity developed an approach more satisfactory than that taken by the common law to the problem
discussed in para.4-085 above by concentrating, not on the intention of the party granting the
forbearance, but on the conduct of that party and on its effect on the position of the other party. The
leading case is Hughes v Metropolitan Ry 460 where a landlord had given his tenant notice requiring
him to do repairs within six months. During the six months he began to negotiate with the tenant for
the purchase of his lease. When the negotiations broke down, he immediately claimed to forfeit the
lease on the ground that the tenant had not done the repairs. The claim was rejected, Lord Cairns
saying that if one party leads the other “to suppose that the strict rights arising under the contract will
not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might
have enforced those rights will not be allowed to enforce them where it would be inequitable having
regard to the dealings which have thus taken place between the parties.” 461 The landlord had by his
conduct during the negotiations led the tenant to suppose that he would not enforce his right to forfeit.
Hence he could not forfeit immediately the negotiations broke down; he was bound to give the tenant
a reasonable time from that date to do the repairs. This equitable doctrine can now be applied to
arrangements which might formerly have been regarded as variations ineffective at common law for
want of consideration. 462 For reasons to be discussed in para.4-104 below, the doctrine is often (if
rather misleadingly) referred to as “promissory” or “equitable” estoppel.
Requirements
4-087
For the equitable doctrine to operate there must be a legal relationship giving rise to rights and duties
between the parties; a promise or a representation by one party that he will not enforce against the
other his strict legal rights arising out of that relationship; an intention on the part of the former party
that the latter will rely on the representation; and such reliance by the latter party. 463 Even if these
requirements are satisfied, the operation of the doctrine may be excluded if it is, nevertheless, not
“inequitable” for the first party to go back on his promise. The doctrine most commonly applies to
promises not to enforce contractual rights, but it also extends to certain other relationships. The points
here summarised will be discussed in paragraphs 4-088 to 4-096 below.
Relationships within the doctrine
4-088
Page 2
The legal rights which the promisor or representor is prevented by the equitable doctrine from
enforcing normally arise out of a contract between him and the other party. But the doctrine can also
apply where the relationship giving rise to rights and correlative duties is non-contractual: e.g. to
prevent the enforcement of a liability imposed by statute on a company director for signing a bill of
exchange on which the company’s name is not correctly given 464; or to prevent a man from ejecting a
woman, with whom he has been cohabitating, from the family home. 465 On the other hand, it has
been said that the doctrine has “no application as between landlord and trespasser.” 466 Hence the
mere fact that a landowner has for some time failed or neglected to enforce his rights against a
trespasser does not prevent him from subsequently doing so without notice. 467 The doctrine may also
be excluded in some situations by statute. Thus it has been held 468 that estoppel or waiver could not
preclude a man from withdrawing his consent to the use by a woman of his genetic material since the
right to withdraw such consent was expressly given by statute 469 and since the application of waiver
or estoppel to limit that right “would conflict with the Parliamentary scheme.” 470
Requirement of pre-existing legal relationship
4-089
It has, indeed, been suggested that the doctrine can apply where, before the making of the promise
or representation, there is no legal relationship giving rise to rights and duties between the parties, 471
or where there is only a putative contract between them: e.g. where the promisee is induced to
believe that a contract into which he had undoubtedly entered was between him and the promisor,
when in fact it was between the promisee and another person. 472 But it is submitted that these
suggestions mistake the nature of the doctrine, which is to restrict the enforcement by the promisor of
previously existing rights against the promisee. Such rights can arise only out of a legal relationship
existing between these parties before the making of the promise or representation. To apply doctrine
where there was no such relationship would contravene the rule (to be discussed in para.4-099
below) that the doctrine creates no new rights.
A promise or representation
4-090
There must, next, be a promise (or an assurance or representation in the nature of a promise 473)
which is intended to affect the legal relationship between the parties 474 and which indicates that the
promisor will not insist on his strict legal rights, 475 arising out of that relationship, against the
promisee. Here, as elsewhere, the law applies an objective test. It is enough if the promise induces
the promisee reasonably to believe that the other party will not insist on his strict legal rights. 476 A
mere threat to do something is not sufficient, nor, probably, is a representation or promise by a
person that he will enforce a legal right: thus the doctrine does not apply where A tells B that he will
exercise his right to cancel a contract between them unless by a specified date B has paid sums due
under the contract to A. 477
The promise or representation must be “clear” or “unequivocal”
4-091
The promise or representation must be “clear” or “unequivocal,” or “precise and unambiguous.”

478
This requirement seems to have originated in the law relating to estoppel by representation ;
and it is now frequently stated in relation to “waiver” 479 and “promissory estoppel.” 480 It does not
mean that the promise or representation must be express 481; it may equally well be implied. For
example, in Hughes v Metropolitan Ry. 482 itself the landlord made no express promise that he would
not enforce his right to forfeit the lease; but an implication of such a promise fairly arose from the
course of the negotiations between the parties. There is some support for the view that the promise
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must have the same degree of certainty as would be needed to give it contractual effect if it were
supported by consideration. 483 Thus if the statement could not have had contractual force because it
was too vague, 484 or if it was insufficiently precise to amount to an offer, 485 or if it did not amount to
an unqualified acceptance, 486 it will not bring the equitable doctrine into operation. 487
4-092
The purpose of the requirement that the promise or representation must be “clear” or “unequivocal” is
to prevent a party from losing his legal rights under a contract merely because he has granted some
indulgence by failing to insist throughout on strict performance of the contract 488; or merely because
he has offered some concession in the course of negotiations for the settlement of a dispute arising
out of the contract 489 or merely because he has declared his willingness to continue such
negotiations. 490 Thus the requirement was not satisfied where one of the parties to such a negotiation
throughout insisted on strict compliance with the terms of the contract 491; where he accepted less
than that to which he was entitled but did so subject to an express reservation of his rights 492; where
an admission that he was liable for certain expenses was made by his solicitor, expressly “without
prejudice” 493; and where a charter’s notice that the ship would be redelivered on a specified date
within the contractual “redelivery window” was made expressly “without guarantee” and subject to
other qualifications. 494 Failure, in the course of negotiations of this kind, to object to a defect or
deficiency in performance is likewise insufficient if the injured party did not know and could not
reasonably have known of it 495 or if full performance remained possible and continued to be
demanded by that party. 496 On the other hand, failure to object to a known defect or deficiency within
a reasonable time of its discovery 497 may be regarded as an unequivocal indication of the injured
party’s intention not to insist on his strict legal rights. 498 The position seems to be the same where the
defect or deficiency, though not actually known to the injured party, was obvious or could have been
discovered by him, if he had taken reasonable steps. 499 But where more than one matter is in dispute
between the parties, “emphatic reliance upon some important disputed point does not by itself …
imply any unequivocal representation that compliance with other parts of the bargain is thereby
waived.” 500
Conduct contrasted with inactivity
4-093
Although a promise or representation may be made by conduct, mere inactivity will not normally
suffice for the present purpose since “it is difficult to imagine how silence and inaction can be anything
but equivocal.” 501 Unless the law took this view, mere failure to assert a contractual right could lead to
its loss; and the courts have on a number of occasions rejected this clearly undesirable conclusion.
Thus it has been held that there is “no ground for saying that mere delay, however lengthy, destroys
the contractual rights” 502; that the mere failure to prosecute a claim regarded by both parties as
hopeless did not amount to a promise to abandon it 503; and that, because an insurer’s failure for
seven years to raise the defence that the insured was guilty of a breach of warranty (discharging the
insurer 504) amounted to mere “silence and inaction”, it did not give rise to an estoppel, 505 and so did
not prevent the insurer from relying on that defence. 506 The only circumstances in which mere
“silence and inaction” can have this effect are the exceptional ones (discussed elsewhere in this book
507
) in which the law imposes a duty to disclose facts or to clarify a legal relationship and the party
under the duty fails to perform it. 508
Reliance
4-094
The first requirement to be discussed under this heading is that the promise or representation must in
some way have influenced the conduct of the party to whom it was made. Although the promise need
not form the sole inducement, 509 it must (it is submitted) be some inducement. Hence the present
requirement would not be satisfied if it could be shown that the other party’s conduct was not
influenced by the promise 510 so that he was not in any way prejudiced by it. 511 But if this is a matter
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of “mere speculation,” 512 or if the promise or representation “was one of the factors … relied upon,” 513
it would form a sufficient inducement. Where the promisee has, after the promise, conducted himself
in the way intended by the promisor, it will be up to the promisor to establish that this conduct was not
induced by the promise. 514
Whether “detriment” required
4-095
There is sometimes said to be a further requirement, namely that the promisee must have suffered
“detriment” by acting in reliance on the promise. 515 This may mean that the promisee must have done
something that he was not previously bound to do and as a result have suffered loss: for example, by
incurring some expenditure in reliance on the promise. This alleged requirement of “detriment” is
based on the analogy of the doctrine of estoppel by representation. 516 But that analogy is (as we shall
see) 517 inexact, and the equitable doctrine may be applied even though there is no “detriment” in this
sense. 518 It is enough if the promisee has altered his position in reliance on the promise so that it
would be inequitable to allow the promisor to act inconsistently with it 519: for example, if the promisee
has forborne from taking steps that he would otherwise have taken to safeguard his legal position (as
in Hughes v Metropolitan Ry. 520 itself); or if he has performed, or made efforts to perform the altered
obligation (for example, where a seller after being promised extra time for delivery has continued his
efforts to perform after the originally agreed delivery date had gone by). On the other hand, the fact
that the promisee has not suffered any prejudice by acting in reliance on the promise may be relevant
for the purpose of the requirement to be discussed in para.4-096 below; for in such circumstances it
may not be “inequitable” for the promisor to go back on his promise. 521
Inequitable
4-096
It must be “inequitable” for the promisor to go back on the promise. This requirement cannot be
defined with anything approaching precision, but the underlying idea is that the promisee must have
acted in reliance on the promise in one of the ways described in para.4-095 above, so that he can no
longer be restored to the position in which he was before he took such action. 522 If the promisee can
be 523 restored to that position, it will not be inequitable for the promisor to go back on the promise. In
one case 524 the promisor reasserted his strict legal rights only two days after the promise had been
made. It was held that this was not “inequitable” since the promisee had not, in this short period,
suffered any prejudice by acting in reliance on the promise: he could be, and was, restored to exactly
the position in which he had been before the promise was made. Sometimes, moreover, extraneous
circumstances may justify the promisor in going back on the promise even without giving reasonable
notice of his intention to do so. 525 In Williams v Stern 526 the plaintiff gave the defendant a bill of sale
of furniture as security for a loan; the bill entitled the defendant to seize the furniture if the plaintiff
defaulted in making payments under it. When the fourteenth instalment became due, the plaintiff
asked for extra time, and the defendant said that he “would not look to a week.” Three days later he
seized the furniture because he had heard that the plaintiff’s landlord intended to distrain it for arrears
of rent. It was held that the defendant’s seizure was justified. The defendant’s promise to give time
was not binding contractually as the plaintiff had given no consideration for it; nor did it, in the
circumstances, bring the equitable doctrine into operation. Brett L.J. said: “Has there been any
misconduct on the part of the defendant? I think not: it appears that a distress by the plaintiff’s
landlord has been threatened; and under these circumstances I do not blame the defendant for
changing his mind.” 527 The conduct of the promisee in obtaining the promise may also be relevant to
the issue whether the promisor has acted “inequitably” in going back on it. 528
Effect of the doctrine generally suspensive
4-097
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The equitable doctrine, like the common law doctrine of waiver, generally does not extinguish, but
only suspends rights. 529 The landlord in Hughes v Metropolitan Ry 530 was not permanently debarred
from enforcing the covenant to repair. He could have enforced it by giving reasonable notice to the
tenant requiring him to repair. 531 The reason for the general rule is that, in equity, the effect of the
representation is to give the court a discretion to give such relief as is just and equitable in all the
circumstances 532; and in cases such as Hughes v Metropolitan Ry it would be neither equitable nor in
accordance with the intention of the parties to treat the promisor’s rights as having been wholly
extinguished. 533
Extinctive effect in exceptional cases
4-098
Subsequent events may, however, give the doctrine an extinctive effect, by way of exception to the
general rule stated in para.4-097 above. 534 They can most obviously lead to this result where they
make it impossible for the promisee to perform his original obligation. For example, in Birmingham &
District Land Co v L. & N.W. Ry 535 a building lease bound the tenant to build by 1885. The lessor
agreed to suspend this obligation; but in 1886, while the suspension was still in force, the land was
compulsorily acquired by a railway company, so that performance of the tenant’s obligation became
impossible. The tenant recovered statutory compensation from the railway company on the footing
that the building lease was still binding; but clearly his obligation to build was utterly extinguished.
Even where performance of the original obligation has not literally become impossible, the doctrine
may sometimes have an extinctive effect. For example, where a vendor of land on August 15
indicated that he would not insist on the contractual completion date of August 30, it was held that no
question of reinstating that date could arise “because the time was far too short.” 536 And where a
shipowner represented to a charterer that he would not rely, by way of defence to claims under the
charterparty, on a one-year time bar (which had expired) it was held that he could not, after nearly
another year had passed, go back on the representation, since it would by then have been too late to
restore the charterer to his original position. 537 In all these cases the doctrine has an extinctive effect
because subsequent events or the passage of time, though not making performance of the original
obligation impossible, have made it highly inequitable to require such performance, even after
reasonable notice. 538
Defensive nature of the doctrine
4-099
The equitable doctrine prevents the enforcement of existing rights; but it does not “create new
causes of action where none existed before.” 539 The point was decided in Combe v Combe 540 where
a husband, during divorce proceedings, promised to pay £100 per annum to his wife, who in reliance
on the husband’s promise, forbore from applying to the court for maintenance; and this forbearance
did not constitute consideration for the husband’s promise. 541 It was held that the equitable doctrine
did not entitle the wife to recover the promised payments; nor is there any support in English cases
for the view that it could create a cause of action in the narrower sense of creating a new right but
“limiting recovery to reliance loss.” 542 The view that the doctrine gave rise to no new rights came to be
associated with its description as a kind of estoppel (known as “promissory estoppel” 543) and hence
with the rule, established in relation to another kind of estoppel (known as “estoppel by
representation” 544), that “you cannot found a cause of action on an estoppel.” 545 It will be submitted
below 546 that the analogy between the two kinds of estoppel is (to say the least) imperfect and that it
does not satisfactorily account for the rule that the equitable doctrine (or “promissory estoppel”) gives
rise to no new rights. The more plausible explanation for this restriction on the scope of the equitable
doctrine is that the restriction is needed to prevent that doctrine from coming into head-on collision
with the rules which lay down the requirements for the creation of a binding contract. The significant
point in the present context is that the restriction preserves consistency between the equitable
doctrine and the rule that a promise is not binding as a contract unless it is supported by
consideration or made in a deed. 547 Combe v Combe has likewise been relied on in support of the
view that the equitable doctrine could not give rise to a cause of action on a promise which lacked
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contractual force for want, not of consideration, but of certainty and contractual intention. 548 There
seems, with respect, to be no reason in principle for distinguishing for the present purpose between
promises which lack contractual effect for want of consideration and those which lack such effect for
some other reason: the danger of collision between the equitable doctrine and the requirements for
the creation of a contract exists, whatever the reason may be why a particular promise lacks
contractual force. 549 The view that the equitable doctrine does not create new causes of action
seems, indeed, to have been doubted 550 or ignored 551 by dicta in later cases; but the promises in
these cases created new rights on the perfectly orthodox ground that they were, in fact, supported by
consideration. 552 Combe v Combe therefore still stands as the leading English 553 authority for the
proposition that the equitable doctrine creates no new rights 554; and this proposition has been
reaffirmed in a number of later cases. 555
Modifications increasing a party’s obligation
4-100
It appears to follow from the proposition stated at the end of para.4-099 above that the equitable
doctrine would not enable employees in a case like Stilk v Myrick 556 to recover the extra pay which
they had been promised. It could, indeed, be argued 557 that in such a case the cause of action was
the original contract of employment and that the subsequent agreement fell within the principle stated
by Denning L.J. in Combe v Combe that consideration was not necessary for the “modification or
discharge” 558 of a contract where the conditions required for the operation of the equitable doctrine
were otherwise satisfied. This argument may derive some judicial support from a dictum that
promissory estoppel “may enlarge the effect of an agreement” 559; for this could mean that a promise
of extra pay on facts such as those of Stilk v Myrick could create a cause of action even though it was
not supported by consideration. This view is, however, hard to reconcile with the treatment of Stilk v
Myrick in Williams v Roffey Bros 560 and with the fact that the decision in the latter case was based,
not on estoppel, 561 but on the ground that the promise of extra pay there was supported by
consideration. It is submitted that, when in Combe v Combe Denning L.J. used the phrase
“modification or discharge”, he had in mind a modification which reduced a party’s obligations 562; for
to apply it to a case in which it had the effect of increasing them necessarily amounts to giving the
other party new rights of action as a result of a promise for which he has not provided any
consideration; and Combe v Combe decides that this is not the effect of the equitable doctrine here
under discussion. 563 A cause of action on a promise unsupported by consideration may, however,
arise under other equitable doctrines: e.g. under the doctrine of “proprietary estoppel,” discussed later
in this chapter. 564
“Shield and not a sword”
4-101
The essentially defensive nature of the equitable doctrine here under discussion is sometimes
expressed by saying that it operates as a shield and not as a sword. 565 This is true in most cases:
usually the doctrine protects a promisee (wholly or in part) against enforcement of his original
obligation. But the metaphor is apt to mislead 566: the essential point is that the doctrine excuses (at
least temporarily) the performance of the original obligation; and such an excuse may benefit a
claimant no less than a defendant. For example, if the creditor’s conduct in Williams v Stern 567
(discussed in para.4-096 above) had been “inequitable” the debtor could no doubt have obtained an
injunction against a threatened seizure of his property. Similarly, a seller may tender delivery after the
originally agreed date in reliance on the buyer’s promise to accept such delivery. If the buyer then
refuses to accept the delivery, the seller can claim damages. 568
Doctrine may deprive promisor of certain defences
4-102
The equitable doctrine can also assist the promisee as claimant in that it may prevent the promisor
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from relying on a defence that would, but for the promise, have been available to him: e.g. the
defence that a claim which the promisee has made against him is time-barred, 569 or that the claim
has been satisfied, 570 or that it has been lost by reason of the promisee’s breach of the contract
which would, but for the breach, have given rise to the claim, 571 or that the contractual document
suffers from some minor formal defect, the effect of which on the validity of the contract is not
specified by the statute imposing the formal requirement. 572 In such cases, the doctrine will, once
again, enable the promisee to win an action which, but for the doctrine, he would have lost. 573 But it
must be stressed that, in cases of this kind, the promisee’s cause of action will have arisen
independently of the promise which brought the equitable doctrine into operation: the effect of the
doctrine is merely to prevent the promisor from relying on some circumstance which would, if the
promise had not been made, have destroyed the promisee’s original cause of action. This situation
must be distinguished from that in which the promisor’s “defence” is that (apart from the promise) the
promisee’s alleged cause of action never existed at all. It is submitted that the equitable doctrine
should not prevent the promisor from relying on a “defence” of this kind. To allow the doctrine to
operate in this way would amount to giving the promisee a new cause of action based on the promise
though it was unsupported by consideration; and such a result would be inconsistent with the
essentially defensive nature of the equitable doctrine. 574
Doctrine may deprive promisee of a defence
4-103
The doctrine may also, some what paradoxically, deprive a promisee of a defence. This was the
position in Smith v Lawson 575 where a lessor told the lessee that he would not trouble to collect the
small rent which the lessee had previously paid. It was held that the lessee’s rent-free occupation did
not amount to adverse possession since the lessor was precluded by the doctrine of promissory
estoppel from obtaining possession on the ground of non-payment of rent. It followed that the lessee
could not rely on her occupation to defeat the lessor’s claim for the declaration that he remained
freehold owner of the land.
Analogy with estoppel
4-104
The equitable doctrine is sometimes compared with the doctrine of estoppel by representation and
the two have, indeed, certain features in common. Each is based on a representation followed by
reliance, and the nature of each is defensive in the sense that neither is capable of giving rise to new
rights. On the other hand, there are many significant differences between the two, even though the
word “estoppel” is now often used to refer to the equitable doctrine. 576 These differences are reflected
in the statement of Millett L.J. that “the attempt … to demonstrate that all estoppels … are now
subsumed in the single and all-embracing estoppel by representation and that they are all governed
by the same principle” 577 has “never won general acceptance.” 578 The various kinds of estoppel
discussed in this book 579 are linked only by the broadest of general principles, that a person’s taking
of inconsistent positions is in some situations to be discouraged by law: in this sense it can be said
that “unconscionability … provides the link between them.” 580 But they nevertheless have “separate
requirements and different terrains of application” 581 and therefore “cannot be accommodated within
a single principle.” 582 An important difference between the two types of estoppel at this stage under
discussion 583 relates to the types of representations required to bring them into operation. For the
purpose of true estoppel by representation, the traditional view is that there must be a representation
of existing fact. 584 Recent authority has modified this view to the extent that “it is now 585 possible for
an estoppel by representation to be based on a representation of law” 586; but the scope of this
possibility is somewhat limited. 587 The important point to be made here is that this extension of the
scope of estoppel by representation is that it does not affect the further rule that such an estoppel
cannot arise where the representation is one of intention as to the promisor’s future conduct (or a
promise), while this is precisely the type of representation or promise which can bring the equitable
doctrine into operation. For this reason, and because the doctrine was developed in equity, the
588
doctrine is sometimes called “promissory” or “equitable” estoppel. The latter description is,
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however, misleading as the requirement of a representation of existing fact for the purposes of
estoppel by representation was recognised in equity 589 no less than at common law. 590 There are,
moreover, other significant differences between the two doctrines. The first such difference relates to
the requirements of the two doctrines; the equitable doctrine can operate even though there is no
such “detriment” as is required to bring the doctrine of estoppel by representation into play. 591 A
second relates to their effects: in general, the equitable doctrine only suspends rights, 592 while
estoppel by representation, where it operates, has a permanent effect. And thirdly there is a
difference in the legal nature of the two doctrines. Estoppel by representation prevents a party from
establishing facts: i.e. from alleging that the facts represented by him are untrue, even where that is
actually the case. 593 The equitable doctrine, by contrast, has nothing to do with proof of facts; it is
concerned with the legal effects of a promise. There was, for example, no dispute about facts in
Hughes v Metropolitan Ry 594: the issue was not whether the repairs had been done or whether the
landlord had promised or represented that he would not forfeit the lease; it was simply whether he
was (to some extent, at least) bound by that undoubted promise.
Analogy with waiver
4-105
It is submitted that the characteristics of the equitable doctrine, described in para.4-104, above,
indicate that the equitable doctrine is not truly analogous to estoppel by representation. As Denning J.
(a leading proponent of the modern equitable doctrine) has pointed out, the authorities which support
that doctrine, “although they are said to be cases of estoppel, are not really such”. 595 The doctrine
has closer affinities with the common law rules of waiver, in the sense of forbearance 596: both are
based on promises, or representations of intention; both are suspensive (rather than extinctive) in
nature and both are concerned with the legal effects of promises rather than with proof of disputed
facts. The main difference between them is that the equitable doctrine avoids the difficulties
encountered at common law in distinguishing between a variation and a forbearance. 597
There is now much judicial support for these submissions. Thus Lord Pearson in Woodhouse A.C.
Israel Cocoa Ltd v Nigerian Produce Marketing Co Ltd said that “promissory estoppel” was “far
removed from the familiar estoppel by representation of fact and seems, at any rate in a case of this
kind, to be more like a waiver of contractual rights.” 598 In a number of later cases, “waiver” and
“promissory estoppel” (or the rule in Hughes v Metropolitan Ry) 599 are treated as substantially similar
doctrines, 600 the requirements and effects of the one being stated in terms equally applicable to
the other. 601 Indeed, the expressions “waiver” and “promissory estoppel” have been judicially
described as “two ways of saying exactly the same thing,” 602 and the courts often use them
interchangeably when discussing situations in which it is alleged that one party to a legal relationship
has indicated that he will not enforce his strict legal rights against the other. 603 This usage further
supports the view that the equitable doctrine is more closely akin to waiver (in the sense of
forbearance) than to true estoppel by representation of fact.
Distinguished from promises supported by consideration
4-106
Under the equitable doctrine, certain limited effects are given to a promise without consideration. But
it is nevertheless in the interests of the promisee to show, if he can, that he did provide consideration
so that the promise amounted to a contractually binding variation. Such proof will free him from the
many rules that restrict the scope of the equitable doctrine: he need not then show that he has in any
way “relied” on the promise, or that it would be “inequitable” for the other party to go back on it; the
variation will permanently affect the rights of the promisor and not merely suspend them (unless it is
expressed so as to have only a temporary effect); and a contractual variation can not only reduce or
extinguish existing rights but also create new ones. Where parties agree to modify an existing
contract, the equitable doctrine and its common law counterpart may have reduced, but they have by
no means eliminated, the practical importance of the doctrine of consideration. 604
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Other jurisdictions
4-107
The English view that the doctrine of promissory estoppel gives rise to no cause of action has not
been followed in other common law jurisdictions. In the United States, a similar doctrine has long
been regarded as being capable of creating new rights, though both the existence and the content of
the resulting rights are matters for the discretion of the courts. 605 A line of Australian cases likewise
supports the view that promises or representations which, for want of consideration or of contractual
intention, lack contractual force may nevertheless (by virtue of an estoppel) be enforceable as if they
were binding contracts. The leading Australian case is Waltons Stores (Interstate) Ltd v Maher, 606
where A, a prospective lessor of business premises, did demolition and building work on the premises
while the agreement for the lease lacked contractual force because it was still subject to contract 607;
he had done so to meet the prospective lessee’s (B’s) requirements and on the assumption, of which
B must have known, that a binding contract would be brought into existence. B withdrew from the
agreement (relying on his solicitor’s advice that he was not bound by it); and it was held that he was
estopped from denying that a contract had come into existence and that the agreement for the lease
was therefore specifically enforceable against him. The reasoning of the High Court is complex, but
the basis of the decision appears to be that B had knowingly induced A to believe that a binding
contract would be brought into existence by exchange of contracts 608 and to act in reasonable
reliance on that belief. In English law, such reliance is, in appropriate circumstances, capable of
giving rise to a variety of remedies, even where the promise or representation which induces it lacks
contractual force. Sometimes the remedy may be the enforcement of the promise according to its
terms, as in cases of proprietary estoppel (to be discussed later in this Chapter) 609; sometimes it may
be an award of the reasonable value of work done in the belief that a contract had, or would, come
into existence. 610 Neither of these remedies would have been available in the Waltons Stores case
since proprietary estoppel does not arise where work is done on the promisee’s (rather than on the
promisor’s) land 611 and a claim for the reasonable value of the claimant’s work is not available where
the promisor is not unjustly enriched by the promisee’s work 612 and the promisee is aware of the fact
that no binding agreement has come into existence and so takes the risk that the negotiations may
fail. 613 Even where the second of these objections can be overcome (e.g. on the ground that the work
was done at the request of the promisor and as a result of his assurance that an exchange of
contracts would take place) it does not follow that the appropriate remedy is enforcement of the
supposed or anticipated contract in its terms 614: if the basis of “Australian estoppel” 615 is reliance
induced by the promisor, compensation for reliance loss would appear to be the more appropriate
remedy. The Australian doctrine also gives rise to the difficulties that there appear to be no clear limits
to its scope, and that this lack of clarity is a regrettable source of uncertainty. The doctrine is,
moreover, hard to reconcile with a number of fundamental principles of English law, such as the
non-enforceability of informal gratuitous promises (even if relied on) 616 and the rule that there is no
right to damages for a wholly innocent non-contractual misrepresentation. 617 While on the facts of
some of the cases in which the Australian doctrine has been applied the same conclusions would
probably be reached in English law on other grounds, 618 the broad doctrine remains, in the present
context, inconsistent with the view that the English doctrine of promissory estoppel (like that of
estoppel by representation) 619 does not give rise to a cause of action in the sense of entitling the
promisee to enforce a promise in its terms, even though it was unsupported by consideration. 620 It is
true that other forms of estoppel, such as proprietary estoppel, may produce this result; but the scope
and effects of that doctrine is limited in many important ways 621 and the law would present an
incongruous appearance if those limits could be outflanked simply by invoking the broader doctrine of
“Australian estoppel.”
Distinguished from estoppel by convention
4-108
Estoppel by convention may arise where both 622 parties to a transaction “act on assumed state of
facts 623 or law, 624 the assumption being either shared by both or made by one and acquiesced in by
the other.” 625 The parties are then precluded from denying the truth of that assumption, if it would
be unjust or unconscionable 626 (typically because the party claiming the benefit has been “materially
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influenced” by the common assumption) 627 to allow them (or one of them) to go back on it. 628
Such an estoppel differs from estoppel by representation and from promissory estoppel 629 in that it
does not depend on any representation or promise. 630 It can arise by virtue of a common
assumption which was not induced by the party alleged to be estopped but which was based on a
mistake spontaneously made by the party relying on it and acquiesced in by the other party. 631 It
seems, however, that the assumption resembles the representation required to give rise to other
forms of estoppel to the extent that it must be “unambiguous and unequivocal” 632; and this common
feature can make it hard to distinguish between these two forms of estoppel. 633 Estoppel by
convention has also been said to arise out of an express agreement by which the parties had
compromised a disputed claim 634; but where such a compromise is supported by consideration (in
accordance with the principles discussed earlier in this Chapter 635) it is binding as a contract, 636 so
that there is, it is submitted, no need to rely on estoppel by convention. 637
Further requirements of estoppel by convention
4-109
This kind of estoppel was discussed in Amalgamated Investment & Property Co Ltd v Texas
Commerce International Bank Ltd. 638 In that case, A had negotiated with the X Bank for a loan to B
(one of A’s subsidiaries) for the purpose of acquiring and developing a property in the Bahamas. It
was agreed that the loan was to be secured by a mortgage on that property and also by a guarantee
from A. In the guarantee, A promised the X Bank, in consideration of the Bank’s giving credit to B, to
“pay you … all moneys … due to you” from B. This was an inappropriate form of words since the loan
to B was not made directly by the X Bank but by one of its subsidiaries, the Y Bank, with money
provided by the X Bank: hence, if the guarantee were read literally, it would not apply to the loan
since no money was due from B to the X Bank. The Court of Appeal, however, took the view that this
literal interpretation would defeat the intention of the parties, and held that, on its true construction,
the guarantee applied to the loan made by the Y Bank. 639 But even if the guarantee did not, on its
true construction, produce this result, A was estopped from denying that the guarantee covered the
loan by the Y Bank, since, when negotiating the loan, both A and the X Bank had assumed that the
guarantee did cover it; and since the X Bank continued subsequently to act on that assumption 640 in
granting various indulgences to A in respect of the loan to B and of another loan made directly by the
X Bank to A. It made no difference that the assumption was not induced by any representation 641
made by A but originated in the X Bank’s own mistake: the estoppel was not one by representation
but by convention. 642 The same principle was applied in The Vistafjord 643 where an agreement for the
charter of a cruise ship had been negotiated by agents on behalf of the owners. Both the agents and
the owners believed throughout that commission on this transaction would be payable under an
earlier agreement, but on its true construction this agreement gave no such rights to the agents. It
was held that estoppel by convention precluded the owners from relying on the true construction of
the earlier agreement, so that the agents were justified in retaining the amount of the commission out
of sums received by them from the charterers. An estoppel by convention may, similarly, affect the
amount payable under a contract. This was the position in ING Bank NV v Ros Roca SA, 644 where a
dispute had arisen between the claimant bank and the defendant company as to the way in which an
“additional fee” payable to the bank by the company was to be calculated. On the true construction of
the contract, the amount of the fee was indeed that claimed by the bank; but it was held that the bank
was estopped, by reason of its conduct and statements from relying on this construction, and that the
bank was entitled only to a lower fee, based on the parties’ common assumption as to the way in
which the fee was to be calculated.
“Communication” passing “across the line”
4-110
To give rise to an estoppel by convention, the mistaken assumption of the party claiming the benefit
of the estoppel must, however, have been shared or acquiesced in by the party alleged to be
estopped; and both parties must have conducted themselves on the basis of such a shared
assumption 645: the estoppel “requires communications to pass across the line between the parties. It
Page 11
is not enough that each of two parties acts on an assumption not communicated to the other.” 646
Such communication may be effected by the conduct of one party, known to the other. 647 But no
estoppel by convention arose where each party spontaneously made a different mistake and there
was no subsequent conduct by the party alleged to be estopped from which any acquiescence in the
other party’s mistaken assumption could be inferred. 648 An estoppel by convention likewise cannot
arise where neither party was aware of the facts on which the alleged common assumption is said to
have been based 649; or where the conduct alleged to have given rise to the estoppel can with equal
or greater plausibility, be explained on grounds other than that the party alleged to be estopped
shared an assumption made by the other party or as amounting to a communication by the former to
the latter party. 650 Nor can a party (A) invoke such an estoppel to prevent the other (B) from denying
facts alleged to have been agreed between A and B if A has later withdrawn from that agreement; for
in the light of A’s withdrawal it is no longer unjust to allow B to rely on the true state of affairs. 651
Assumption of law
4-111
Many judicial statements support the view that the assumption giving rise to an estoppel by
convention can be one of “fact or law.” 652 The point of the reference to “law” in this formulation
appears to be to include within the scope of the doctrine assumptions about the construction of a
contract 653; for, since the construction of a contract is often said to be a matter of “law,” 654 all such
assumptions would be excluded from the scope of the doctrine (and its scope be unduly narrowed) if
it did not include at least assumptions of this kind. 655 The question whether estoppel by
convention could be based on assumptions of “law” in a wider sense was the subject of conflicting
views in Johnson v Gore Wood & Co 656 In that case, a company had brought a claim for professional
negligence against a firm of solicitors who were told that a further claim based on the same
negligence would be made against them by the company’s managing director. The company’s claim
was settled on terms which limited some of the director’s personal claims against the solicitors and
when the director later brought other claims against the solicitors, it was held that this was not an
abuse of process. Lord Bingham based this conclusion in part 657 on estoppel by convention: in his
view, the terms of the settlement were based on the common assumption that it would not be an
abuse of process for the director to pursue the claims which he had in fact brought; and it would be
unfair to allow the solicitors to go back on this assumption. All members of the House of Lords agreed
with Lord Bingham’s conclusion that there was no abuse of process; but Lord Goff was “reluctant to
proceed on estoppel by convention” 658 as the common assumption was one of law, a type of
assumption which in his view did not give rise to this form of estoppel; while Lord Millett was equally
reluctant to “put it on the ground of estoppel by convention” as he had “some difficulty in discerning a
common assumption.” 659 Lord Millet’s difficulty is an entirely factual one but Lord Goff’s raises a more
difficult issue of principle. Support for the view that estoppel by convention can be based on a
common assumption of law is admittedly based only on dicta 660; but it is arguable that those dicta
gain support from cases concerned with mistakes and misrepresentations of law. In these contexts,
the distinction between matters of “law” and of “fact” has proved hard to draw and is now discredited.
661
On the other hand, the extension of estoppel by convention to all common assumptions of “law”
could undermine the security of commercial transactions by allowing a party to resist enforcement
merely on account of an assumption as to the legal effect of a contract, the terms or meaning of which
were not in dispute; and this is a type of assumption which, on the authorities, does not give rise to
such an estoppel. 662
Effect of estoppel by convention
4-112
The effect of this form of estoppel is to preclude a party from denying the agreed or common
assumption of fact or, at least to the extent suggested in para.4-111, above, of law. 663 One such
assumption may be that a particular promise has been made 664: thus it is possible to describe the
result in Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd 665 by
saying that A was estopped from denying that it had promised the X Bank to repay any sum left
Page 12
unpaid by B to the Y Bank. But, although estoppel by convention may thus take effect in relation to a
promise, it is quite different in its legal nature 666 from promissory estoppel. In cases of promissory
estoppel, the promisor or representor is not estopped from denying that the promise or representation
has been made: on the contrary, this must be proved to establish that kind of estoppel. The doctrine
of promissory estoppel is concerned with the legal effects of a promise that has been shown to exist.
Where, on the other hand, the requirements of estoppel by convention are satisfied, then this type of
estoppel normally operates to prevent a party from denying a fact, 667 i.e. that the assumed promise
has been made, or that a promise contains the assumed term: it does not specify the legal effects of
the assumed promise or term. 668 In Amalgamated Investment & Property Co Ltd v Texas Commerce
International Bank Ltd, once A was estopped from denying the existence of the promise described
above, no question arose as to its legal validity. There could be no doubt that that promise was
supported by consideration 669: this was provided by the X Bank in making funds available to the Y
Bank to enable it to make a loan to B, and in inducing the Y Bank to make that loan. 670 Where the
assumed promise is one that would, if actually made, have been unsupported by consideration, both
types of estoppel can, however, operate in the same case: estoppel by convention to establish the
existence of the promise, and promissory estoppel to determine its legal effect. 671
Estoppel by convention does not operate prospectively
4-113
Estoppel for convention does not operate prospectively, so that “once the common assumption is
revealed to be erroneous the estoppel will not apply to future dealings.” 672 Discovery of the fact
that the common assumption is false does not, however, “kill the estoppel stone dead there and then.
The reliant party is commonly afforded a limited time within which to protect itself from the
consequences of discovering the legal or factual position.” 673 In Revenue and Customs
Commissioners v Benchdollar Limited that “limited” 674 or “reasonable” 675 time after discovery of the
truth by the Revenue was held to be about one month. 676 It followed that the estoppel operated
against the defendants (the taxpayers) so as to prevent them from relying on the Limitation Act 1980
in relation to tax claims which had become statute barred before, but not in relation to tax claims that
had become barred after, the end of that time. 677 So far as the latter claims were concerned, “the
prejudice occasioned to the Revenue by loss of the ability to pursue [them] was in no sense reliant on
the convention” since “those claims could still be saved by taking prompt protective steps” 678 after the
“limited time” had expired.
Whether estoppel by convention creates new rights
4-114
We have seen that promissory estoppel does not “create new causes of action where none existed
before” 679; and we shall see that the same principle applies to estoppel by representation. 680
Estoppel by convention resembles estoppel by representation in that it can prevent a party from
denying existing facts, and one would therefore expect estoppel by convention further to resemble
estoppel by representation in operating only where its effect was defensive in substance. The
question whether estoppel by convention is so limited was discussed in the Amalgamated Investment
& Property case 681 where, however, it was not necessary to decide the point. This action was brought
because the X Bank had sought to apply money due from it to A under another transaction in
discharge of A’s alleged liability under its guarantee of B’s debt. Hence the effect of the estoppel was
to provide the X Bank with a defence to A’s claim for a declaration that the bank was not entitled to
apply the money in that way. Eveleigh L.J. said: “I do not think that the bank could have succeeded in
a claim on the guarantee itself.” 682 Brandon L.J. seems to have taken the view that the bank could
have sued on the guarantee, but to have based that view on the ground that the loan agreement
between A and the X Bank imposed an obligation on A to give the guarantee: hence it was that
agreement, and not the estoppel, which would have given rise to the X Bank’s cause of action, if it
had sued on the guarantee. 683 Lord Denning, M.R. seems to have expressed the principle of estoppel
by convention in such a way as to enable it to give rise to a cause of action 684 but he was alone in
stating the principle so broadly. 685 In The Vistafjord 686 the estoppel similarly operated defensively.
Page 13
This factor was not stressed in the judgments, but there is no suggestion in them that in this respect
estoppel by convention differs from estoppel by representation, which does not, of itself, give rise to a
cause of action. 687 It is indeed, possible for estoppel by convention (as it is for promissory estoppel 688
and estoppel by representation 689) to deprive the defendant of a defence, and so to enable the
claimant to win an action which otherwise he would have lost 690 ; but even in such cases the
estoppel does not create the cause of action, for the facts giving rise to the cause of action exist
independently of the estoppel. 691 In Rivertrade Ltd v EMG Finance Ltd 692 Kitchin L.J., with whose
judgment Moore-Bick and Ryder L.JJ. agreed, said that the case was not one “in which an estoppel
[was] relied upon to create an enforceable right where none previously existed. It is instead one of
those cases in which the estoppel is relied upon to bind the parties to an agreement to an
693
interpretation which it would not otherwise bear” ; and that, where this was the position, an
estoppel by convention could “enlarge the effect of an agreement.” 694 The view that estoppel by
convention may have such an effect can, where the common assumption on which the estoppel is
based increases the obligation of the party alleged to be estopped, give rise to the same difficulty as
that discussed in the context of promissory estoppel in Vol.I, para.4-100: it could, for example, if
695
applied in circumstances resembling those of Stilk v Myrick have the effect of allowing the
claim that was there dismissed. It is respectfully submitted that the Rivertrade case 696 should not
be regarded as concluding the point. In that case, counsel for the defendant conceded the point; and
although the Court approved of this concession, 697 it also seemed to attach importance to the fact
that the estoppel in that case did not “create an enforceable right where none previously existed.” 698
The tension between these two positions should, it is respectfully submitted, not be regarded as
having been finally resolved in the Rivertrade case; in particular the question whether there are limits
to the extent to which estoppel by convention can “enlarge the effect of an agreement” remains an
open one. The answer to this question requires fuller argument 699 than it received in the
Rivertrade case. No other authority squarely supports the view that estoppel by convention can, of
itself, create a new cause of action; and the present position seems to be that it cannot, any more
than promissory estoppel or estoppel by representation, produce this effect. 700
Invalidity of assumed term
4-115
A party is not liable on the basis of estoppel by convention where the alleged agreement would, if
concluded, have been ineffective for want of contractual intention, 701 or on account of a formal defect
702
(other than a minor one) 703 or unenforceable for want of written evidence of it, 704 or where the
term in respect of which such an estoppel is alleged to operate would, if actually incorporated in the
contract, have been invalid (e.g. because it amounted to an attempt to deprive a tenant of statutory
security of tenure which could not be excluded 705 by contract) 706; nor does such an estoppel prevent
a party from relying on the true legal effect (as opposed to the meaning 707) of an admitted contract
merely because the parties have entered into it under a mistaken view as to that effect. 708
“Contractual estoppel”
4-116
This form of “estoppel” is said to arise when contracting parties have, in their contract, agreed that
a specified state of affairs is to form the basis on which they are contracting or is to be taken, for the
purposes of the contract, to exist. The effect of such “contractual estoppel” is that it precludes a party
to the contract from alleging that the actual facts are inconsistent with the state of affairs so specified
in the contract. 709 Three points must here be made about this concept. The first is that the answer
to the question whether the contract term alleged to be of the kind described above in fact has this
effect turns on the construction of the contract; and once the court has decided that, as a matter of
Page 14
construction that term is held to preclude one of the parties from denying the existence of a specified
state of facts, then nothing of substance is gained by classifying this conclusion under the rubric of
“contractual estoppel.” 710 The second is that, even if that phrase is used, such an “estoppel” would
differ from estoppels by convention in that “contractual estoppel” gives effect to a term of a contract
which, on its true construction, prevents a party from denying facts specified in that term and in the
circumstances (if any) specified in it 711; while estoppels by convention invoke factors extrinsic to the
contract as grounds for precluding the estopped party from denying facts such as the existence of a
promise not included in the contract on its true construction 712 and of holding him bound by that
promise (if the circumstances specified in para.4-108 above 713 are satisfied) to the extent specified in
paras 4-112 to 4-115 above. The third is that “contractual estoppel” does not give rise to any of the
problems of consideration which are our concern in this chapter: the term alleged to give rise to such
an estoppels derives its binding force from the fact of being part of a legally binding contract, it being
simply assumed that the requirement of consideration is satisfied in relation to the promises
constituting that contract. For all these reasons, no further discussion of “contractual estoppel” is
called for in this Chapter.

460. (1877) 2 App. Cas. 439.
461. ibid., at 448; cf. Smith v Lawson (1998) 75 P. & C.R. 466: landlord who had told tenant that he
would not ask her to continue to pay rent could not have recovered possession for failure to pay
the rent when due. See further para.4-103, below.
462. e.g. Charles Rickards Ltd v Oppenhaim [1950] K.B. 616 (where both common law and equitable
principles were applied). The principle in Hughes v Metropolitan Ry was said in Brikom
Investments Ltd v Carr [1979] Q.B. 467, 489 to be “an illustration of contractual variation of
strict contractual rights” (italics supplied). This description was apt on the facts of that case,
where the promise not to enforce such rights was supported by consideration: above,
para.4-081. But the principle stated in Hughes v Metropolitan Ry applies even in the absence of
such consideration: cf. below, para.4-134.
463. B.P. Exploration (Libya) v Hunt (No.2) [1979] 1 W.L.R. 783, 812, affirmed (without reference to
the point) [1983] 2 A.C. 352; Nippon Yusen Kaisha v Pacifica Navegacion SA (The Ion) [1980] 2
464. Durham Fancy Goods Ltd v Michael Jackson (Fancy Goods) Ltd [1968] 2 Q.B. 839. A
statement may also prevent the representor from denying the existence of a statutory liability,
as in Robertson v Minister of Pensions [1949] 1 K.B. 227, as to which see also para.4-104,
n.579 below.
465. Maharaj v Chand [1986] A.C. 898.
466. Morris v Tarrant [1971] 2 Q.B. 143, 160; cf. Burrows v Brent LBC [1996] 1 W.L.R. 1448, 1455,
where no attempt was made to invoke the doctrine in favour of a “tolerated trespasser”; for
discussion of this phrase, see Knowsley Housing Trust v White [2009] UKHL 70, [2009] 1 A.C.
636, above para.2-196; there is no reference in this case to the equitable doctrine discussed in
the text above.
467. Lambeth LBC v O’Kane Holdings Ltd [2005] EWCA Civ 1010; [2006] H.L.R. 2.
468. Evans v Amicus Healthcare Ltd [2004] EWCA Civ 727, [2005] Fam. 1.
469. Human Fertilisation and Embryology Act 1990, Sch.3 para.4(1).
470. Evans v Amicus Healthcare Ltd, above n.463, at [37]; see also at [36] and [120].
Page 15
471. Evenden v Guildford City F.C. [1975] Q.B. 917, 924, 926 (actual decision overruled in Secretary
of State for Employment v Globe Elastic Thread Co Ltd [1980] A.C. 506). The view stated in the
text above was expressed at first instance in Evans v Amicus Healthcare Ltd [2003] EWHC
2161 (Fam), [2003] 4 All E.R. 903 at [304], [305], but the only authority there cited for this view
was one of proprietary estoppel, to which the present requirement does not apply as this kind of
estoppel can give rise to a cause of action: see below, para.4-183. The Evans case was
affirmed on other grounds [2004] EWCA Civ 727, [2005] Fam. 1, above para.4-088. For the
position in Australia, see Waltons Stores (Interstate) Ltd v Maher (1988) 164 C.L.R. 387; below,
para.4-107.
472.
Pacol Ltd v Trade Lines Ltd (The Henrik Sif) [1982] 1 Lloyd’s Rep. 456, 466. Some doubt as
to the correctness of this case is expressed by Webster J. (who decided it) in Shearson
Lehman Hutton Inc v MacLaine Watson & Co Ltd [1989] 2 Lloyd’s Rep. 570, 596, 604 though
the decision was approved on another point in The Stolt Loyalty [1993] 2 Lloyd’s Rep. 281,
289–290, 291, affirmed without reference to this point [1995] 1 Lloyd’s Rep. 599; Pacol Ltd v
Trade Lines Ltd (The Henrik Sif) [1982] 1 Lloyd’s Rep. 456 and The Stolt Loyalty [1993] 2
Lloyd’s Rep. 281 were cited without adverse comment in Costain Ltd v Tarmac Holdings Ltd
[2017] EWHC 319 (TCC), [2017] 1 Lloyd’s Rep. 331 at [103]-[104], but that discussion is
concerned with the scope of the circumstances in which a person may be estopped (by
representation or by convention) on the ground of having failed to perform a “duty to speak”:
see below, para.4-092. There is no reference in the Costain case to the question discussed in
Main Work, Vol.I, para.4-089, i.e. whether promissory estoppel can operate where there is no
pre-existing legal relationship between the parties and so give rise to a cause of action, as
opposed to a defence (on this point, see Main Work Vol.I, para.4-099); see also Orion Finance
Ltd v J. D. Williams & Co Ltd [1997] C.L.Y. 986, where no estoppel arose in the absence of a
previous legal relationship; Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ
274; [2002] 1 All E.R. (Comm) 737, at [89] apparently doubting some of the reasoning in The
Henrik Sif, but not the outcome since there was undoubtedly “a legal relationship … whoever
were the parties thereto” (though the difficulty remains that the first defendants, against whom
the doctrine was said to operate, were not parties to that relationship).
473. James v Heim Galleries (1980) 256 E.G. 819, 821; Collin v Duke of Westminster [1985] Q.B.
581, 595. See also Kim v Chasewood Park Residents Ltd [2013] EWCA Civ 239, [2013] H.L.R.
24 where a letter to tenants of flats setting out the benefits to be obtained from a scheme for
acquiring the interest of a superior leaseholder was held not to give rise to a promissory
estoppel (at [34]) because, on its true construction, it “did not promise anything” (at [31]).
474. Central London Property Trust Ltd v High Trees House Ltd [1947] K.B. 130 at 134; Spence v
Shell (1980) 256 E.G. 55, 63; Baird Textile case, above n.467, at [92].
475. Or that he will not rely on an available defence: below para.4-102.
476. Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem P.V.B.A. [1978] 2 Lloyd’s Rep.
109, 126; Bremer Handelsgesellschaft mbH v C. Mackprang Jr. [1979] 1 Lloyd’s Rep. 221 (both
these cases concerned “waiver”); cf. below, n.474.
477. Drexel Burnham Lambert International NV v El Nasr [1986] 1 Lloyd’s Rep. 357.
478.
Low v Bouverie [1891] 3 Ch. 82, 106; Woodhouse A.C. Israel Cocoa Ltd SA v Nigerian
Produce Marketing Co Ltd [1972] A.C. 741; The Shackleford [1978] 2 Lloyd’s Rep. 155, 159;
Channel Island Ferries Ltd v Sealink UK Ltd [1987] 1 Lloyd’s Rep. 559, 580, affirmed without
reference to this point [1988] 1 Lloyd’s Rep. 323; Kim v Chasewood Park Residents Ltd [2013]
EWCA Civ 239, [2013] H.L.R. 24 at [23]–[26]; for the actual ground for this decision, see above,
para.4-090 n.468. The requirement that, for the purpose of an estoppel by representation, the
representation must be “clear or unequivocal” or “precise and unambiguous” is stated by Carr J.
in Spliethoff’s Bevrachtingskantoor BV v Bank of China [2015] EWHC 999 (Comm), [2015] 2
Lloyd’s Rep. 123 at [156] citing, with apparent approval, para.3-090 of the 31st edition, replaced
by para.4-091 of the 32nd (present) edition.
479. Finagrain SA Geneva v P. Kruse Hamburg [1976] 2 Lloyd’s Rep. 508, 534; Mardorf Peach & Co
Page 16
Ltd v Attica Sea Carriers Corp. of Liberia (The Laconia) [1977] A.C. 850, 871; Bremer
Handelsgesellschaft mbH v Vanden Avenne-Izegem P.V.B.A. [1978] 2 Lloyd’s Rep. 109, 126;
China National Foreign Trade Transportation Corp. v Evoglia Shipping Co of Panama SA (The
Mihalios Xilas) [1979] 1 W.L.R. 1018, 1024; Avimex SA v Dewulf & Cie. [1979] 2 Lloyd’s Rep.
57, 67; Bremer Handelsgesellschaft mbH v Westzucker GmbH [1981] 1 Lloyd’s Rep. 207, 212;
Bremer Handelsgesellschaft mbH v Finagrain Cie. Commercial Agricole & Financière SA [1981]
2 Lloyd’s Rep, 259, 266; Scandinavian Tanker Co A.B. v Flota Petrolera Ecuatoriana (The
Scaptrade) [1981] 2 Lloyd’s Rep. 425, 431; (affirmed [1983] 2 A.C. 694) Italmare Shipping Co v
Ocean Tanker Co Inc (The Rio Sun) [1981] 2 Lloyd’s Rep. 489 and [1982] 1 Lloyd’s Rep. 404;
Telfair Shipping Corp. v Athos Shipping Corp. (The Athos) [1983] 1 Lloyd’s Rep. 127, 134-135;
Bremer Handelsgesellschaft mbH v Deutsche-Conti Handelsgesellschaft mbH [1983] 1 Lloyd’s
Rep. 689; Super Chem Products Ltd v American Life & General Insurance Co Ltd [2004] UKPC
2, [2004] 2 All E.R. 358 at [23], where the present requirement was not satisfied; Fortisbank SA
v Trenwick International [2005] EWHC 339, [2005] Lloyd’s Rep. I.R. 464 at [32], [35]; Kosmar
Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147, [2008] 2 All E.R.
(Comm) 14 at [38], where the reference seems to be to “promissory estoppel”: see below
para.4-095 n.516). For the analogy between waiver and the equitable doctrine here under
discussion, see above, para.4-086; below, para.4-104. For the further concept of “waiver by
estoppel”, see above, para.4-082 n.447.
480.
B.P. Exploration Co (Libya) Ltd v Hunt (No.2) [1979] 1 W.L.R. 783, 812 (affirmed without
reference to this point [1983] 2 A.C. 352.); Spence v Shell (1980) 256 E.G. 55, 63; James v
Heim Galleries (1980) 256 E.G. 819, 821; Société Italo-Belge pour le Commerce et l’Industrie v
Palm & Vegetable Oils (Malaysia) Sdn. Bhd. (The Post Chaser) [1981] 2 Lloyd’s Rep. 695, 700;
Goldsworthy v Brickell [1987] Ch. 378, 410; Hiscox v Outhwaite (No.3) [1991] 2 Lloyd’s Rep.
523, 524, 535; Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants [1999]
2 Lloyd’s Rep. 443 at 448, Thameside MBC v Barlow Securities Group Services Ltd [2001]
EWCA Civ 1; [2001] B.L.R. 113 and Evans v Amicus Healthcare Ltd [2003] EWHC 2161 (Fam),
[2003] 4 All E.R. 903 at [303]–[306] (where this requirement was not satisfied), affirmed on
other grounds [2004] EWCA Civ 727; [2005] Fam. 1 (see above, para.4-089); for the
requirement of an “unequivocal representation in a case of “waiver … by estoppel”, see Warren
v Burns [2014] EWHC 3671 (QB) at [17] (where this requirement was not satisfied: at [20]);
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, [2017]
Q.B. 604 at [51], [52] and passim; as the promise in this case was supported by consideration
(see below, para.4-119A) it was not strictly necessary to decide the estoppel issue: see at [50].
481. Spence v Shell (1980) 256 E.G. 55, 63.
482. (1877) 2 App. Cas. 439; cf. The Post Chaser, above, n.475, at 700.
483. China-Pacific SA v The Food Corp. of India (The Winson) [1980] 2 Lloyd’s Rep. 213, 222;
reversed on other grounds [1982] A.C. 939; Food Corp. of India v Antclizo Shipping Corp. (The
Antclizo) [1988] 2 Lloyd’s Rep. 130, 142, affirmed [1988] 1 W.L.R. 603; Youell v Bland Welch &
Co Ltd (The Superhulls Cover Case) (No.2) [1990] 2 Lloyd’s Rep. 431, 452; Rafsanjan
Pistachio Producers Co-operative v Bank Leumi (UK) plc [1992] 1 Lloyd’s Rep. 513, 542.
484. Above, paras 2-147—2-152; cf. Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA
Civ 274; [2002] 1 All E.R. (Comm) 737 at [38], [54], where one reason why the claim based on
estoppel failed was that the implied agreement on which it was based was not sufficiently
certain to have contractual force: see above, para.2-194 and below, para.4-099. The difficulty
arising from lack of certainty was said, at [54], to “extend to the estoppel as well as the
contractual issue.” Cf., in cases of estoppel by convention, below, para.4-108 at n.625.
485. Above, para.2-003.
486. Azov Shipping Co v Baltic Shipping Co [1999] 2 Lloyd’s Rep. 159, 173, a case of estoppel by
representation, to which the requirement of a clear and unequivocal representation also applies:
see Low v Bouverie [1891] 3 Ch. 82; Woodhouse A.C. Israel Cocoa Ltd v Nigerian Produce
Marketing Co [1972] A.C. 741. For the requirement of an “unqualified” acceptance, see above,
para.2-031.
Page 17
487. China-Pacific SA v The Food Corp. of India (The Winson) [1980] 2 Lloyd’s Rep. 213, 223;
reversed on other grounds [1982] A.C. 939; Drexel Burnham Lambert International NV v El
Nasr [1986] 1 Lloyd’s Rep. 357. A promise which lacks contractual force can give rise to a
proprietary estoppel even though by reason of its uncertainty or incompleteness it lacks
contractual force (see below, para.4-145); but in Cobbe v Yeoman’s Row Management Ltd
[2008] UKHL 55, [2008] 1 W.L.R. 1752 (below paras 4-161 to 4-162, 4-165 to 4-167) it was held
that no such estoppel arose in favour of a party who knew that the promise was binding only in
honour.
488. Scandinavian Trading Tanker Co A.B. v Flora Petrolera Ecuatoriana (The Scaptrade) [1981] 2
Lloyd’s Rep. 425, 431, distinguishing Tankexpress AS v Cie. Financière Belge des Petroles SA
[1949] A.C. 76 on the ground that there the creditor’s conduct had resulted in a change in the
“accepted method of payments”; The Scaptrade, above was affirmed without reference to the
present point [1983] 2 A.C. 694; cf. Cape Asbestos Ltd v Lloyd’s Bank Ltd [1921] W.N. 274, 276
; Bunge SA v Compagnie Européenne de Céréales [1982] 1 Lloyd’s Rep. 306; Bremer
Handelsgesellschaft mbH v Raiffeisen Hauptgenossenschaft E.G. [1982] 2 Lloyd’s Rep. 599;
Bremer Handelsgesellschaft mbH v Bunge Corp. [1983] 1 Lloyd’s Rep. 476.
489. cf. London & Clydebank Properties v H.M. Investment Co [1993] E.G.C.S. 63.
490. Seechurn v Ace Insurance SA [2002] EWCA Civ 67; [2002] 2 Lloyd’s Rep. 390, esp. at [55].
491. V. Berg & Son Ltd v Vanden Avenne-Izegem P.V.B.A. [1977] 1 Lloyd’s Rep. 500; cf. Edm. J. M.
Mertens & Co P.V.B.A. v Veevoeder Import Export Vimex B.V. [1979] 2 Lloyd’s Rep. 372.
492. Finagrain SA Geneva v P. Kruse Hamburg [1976] 2 Lloyd’s Rep. 508; cf. Cook Industries Inc v
Meunerie Liegeois SA [1981] 1 Lloyd’s Rep. 359, 368; Peter Cremer v Granaria B.V. [1981] 2
Lloyd’s Rep. 583; Bremer Handelsgesellschaft mbH v Deutsche Conti-Handelsgesellschaft
mbH [1983] 2 Lloyd’s Rep. 476.
493. China-Pacific SA v The Food Corp. of India (The Winson) [1980] 2 Lloyd’s Rep. 213 (reversed
on other grounds [1982] A.C. 399).
494. SMT Shipping and Chartering GmbH v Chansung Shipping Co Ltd (The Zenovia) [2009] EWHC
739 (Comm), [2009] 2 All E.R. (Comm) 177 at [34].
495. Avimex SA v Dewulf & Cie [1979] 2 Lloyd’s Rep. 57.
496. China National Foreign Trade Transportation Corp. v Evoglia Shipping Co SA of Panama (The
Mihalios Xilas) [1979] 1 W.L.R. 1018; Bremer Handelsgesellschaft mbH v Westzucker GmbH
[1981] 1 Lloyd’s Rep. 207, 212–213; Bremer Handelsgesellschaft mbH v C. Mackprang Jr.
[1981] 1 Lloyd’s Rep. 292, 299; Peter Cremer v Granaria B.V. [1981] 2 Lloyd’s Rep. 583; The
Post Chaser, above, para.4-091 n.475 at 700.
497. See Mardorf Peach & Co Ltd v Attica Sea Carriers Corp. of Liberia (The Laconia) [1977] A.C.
850 (where retention of an underpayment accepted without authority by the payee’s bank was
held not to amount to a waiver).
498. e.g. Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem P.V.B.A. [1978] 2 Lloyd’s Rep.
109; Hazel v Akhtar [2001] EWCA Civ 1883; [2002] 2 P. & C.R. 17 (landlord tolerating habitually
late payment of rent).
499. See Bremer Handelsgesellschaft mbH v C. Mackprang Jr. [1979] 1 Lloyd’s Rep. 221, where
there was a division of opinion on the point in the Court of Appeal.
500. Telfair Shipping Corp. v Athos Shipping Corp. (The Athos) [1983] 1 Lloyd’s Rep. 127, 135.
501. Allied Marine Transport v Vale do Rio Doce Navegaçao SA (The Leonidas D.) [1985] 1 W.L.R.
925, 937; cf. Cook Industries v Tradax Export SA [1983] 1 Lloyd’s Rep. 327, 332 ([1985] 2
Lloyd’s Rep. 454); K. Lokumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd (The August P.
Page 18
Leonhardt) [1985] 2 Lloyd’s Rep. 28, 33; M.S.C. Mediterranean Shipping Co SA v B.R.E. Metro
Ltd [1985] 2 Lloyd’s Rep. 239; Cie Française d’Importation, etc., SA v Deutsche Continental
Handelsgesellschaft [1985] 2 Lloyd’s Rep. 592, 598; Food Corp. of India v Antclizo Shipping
Corp. (The Antclizo) [1986] 1 Lloyd’s Rep. 181, 187, affirmed 1 W.L.R. 603; Youell v Bland
Welch & Co Ltd (The Superhulls Cover Case) (No.2) [1990] 2 Lloyd’s Rep. 431, 452; HIH
Casualty & General Insurance v Axa Corporate Solutions [2002] EWCA Civ 1253; [2002] 2 All
E.R. (Comm) 1053 at [26] (where there was no action in reliance); Front Carriers Ltd v Atlantic
Orient Shipping Corporation (The Archimidis) [2007] EWHC 421 (Comm), [2007] 2 Lloyd’s Rep.
131 at [45]–[46]; cf. Tankerederei Ahrenkeil GmbH v Frahuil SA (The Multibank Holsatia) [1988]
2 Lloyd’s Rep. 486, 493 (no estoppel as no action in reliance).
502. Amherst v James Walker Goldsmith & Silversmith Ltd [1983] Ch. 305, 315; cf., in another
context, Agip SpA v Navigazione Alta Italia SpA (The Nai Genova) [1984] 1 Lloyd’s Rep. 353,
365.
503. Collin v Duke of Westminster [1985] Q.B. 581.
504. Marine Insurance Act 1906, s.33(3), second sentence. This sentence will be omitted from the
subsection on the coming into force of s.10(7) of the Insurance Act 2015. See also s.10(1) of
that Act, which abolishes any rule of law by which a breach of warranty (express or implied) in
an insurance contract by “results in discharge of the insurer’s liability”.
505. Argo Systems FZE v Liberty Insurance (Pte) (The Copa Casino) [2011] EWCA Civ 1572, [2012]
1 Lloyd’s Rep. 129 at [38] a case of “waiver by estoppel”: and see above, para.4-082.
506. Argo Systems case, above n.500 at [46].
507. Above, para.2-070; below, paras 7-155—7-180; see, e.g. Tradax Export SA v Dorada
Compania Naviera SA (The Lutetian) [1982] 2 Lloyd’s Rep. 140, 158; The Stolt Loyalty [1993] 2
Lloyd’s Rep. 281, 289–291, affirmed (without reference to the point here under discussion)
[1995] 1 Lloyd’s Rep. 559; and see Petrotrade Inc v Stinnes Handel GmbH [1995] 1 Lloyd’s
Rep. 142, 151, where the statement that there may be a representation by “conduct (including
silence)” seems to refer to the exceptional situations described in the text above.
508.
In MIOM 1 Ltd v Sea Echo ENE (No.2) [2011] EWHC 2715 (Admlty), [2012] 1 Lloyd’s Rep.
142 it was held that a defendant’s “silent conduct”, in failing to take the point that a claim
against him was time-barred, estopped him from taking that point. The decision may be
reconcilable with that in the Argo Systems case (above, n.500) on the ground that in the MIOM
case the defendant had a “duty to take the point promptly” if it wished to rely on it (see the
discussion in the latter case at [34] to [42]); and that this duty would make the case one of the
exceptional ones referred to at n.502 above. Contrast Costain Ltd v Tarmac Holdings Ltd [2017]
EWHC 319 (TCC), [2017] 1 Lloyd’s Rep. 331 where the defendant was under no “duty to speak
out” (at [102]) as it had not been guilty of any “sharp practice” (at [113] and see at [112]) in
failing to do so. In that case, the estoppels alleged to operate against the defendant were
estoppel by representation and estoppel by convention and both these allegations were
rejected by the court (see at [126]). In relation to estoppel by convention, which can arise
without any representation (Main Work, Vol.I, para.4-108 and below, para.4-108), Coulson J.
said in the Costain case (above) that the duty to speak “would extend to a positive obligation on
the part of the defendant to correct a false assumption obviously being made by the claimant …
” ([2017] EWHC 319 (TCC) at [124]). In such circumstances a “duty to speak” was held to have
arisen in Process Components Ltd v Kason Kek-Gardner Ltd [2016] EWHC 2198 (Ch) at [129],
[132].
510. See Fontana N.V. v Mautner [1979] 254 E.G. 199; Raiffeisen Hauptgenossenschaft v Louis
Dreyfus & Co [1981] 1 Lloyd’s Rep. 345, 352; Cook Industries Ltd v Meunerie Liegeois SA
[1981] 1 Lloyd’s Rep. 359, 368; Scandinavian Trading Tanker Co A.B. v Flota Petrolera
Ecuatoriana (The Scaptrade) [1983] 1 All E.R. 301, affirmed without reference to this point
[1983] 2 A.C. 694; Bremer Handelsgesellschaft mbH v Bunge Corp. [1983] 1 Lloyd’s Rep. 476;
Page 19
Bremer Handelsgesellschaft mbH v Deutsche Conti-Handelsgesellschaft mbH [1983] 1 Lloyd’s

Rep. 689; Lark v Outhwaite [1991] 2 Lloyd’s Rep. 132, 142; The Nerano [1996] 1 Lloyd’s Rep. 1
; Rowan Companies Inc v Lambert Eggink Offshore Transport Ltd [1999] 2 Lloyd’s Rep. 443 at
449; Kim v Chasewood Park Residents Ltd [2013] EWCA 239, [2013] H.L.R. 24 at [40] (“no
material reliance”; for the actual ground for the decision in this case, see above, para.4-090
n.468).
511. Ets. Soules & Cie v International Trade Development Co Ltd [1980] 1 Lloyd’s Rep. 129;
Tankrederei Ahrenkeil GmbH v Frahuil SA (The Multibank Holsatia) [1988] 2 Lloyd’s Rep. 486,
493.
512. Brikom Investments Ltd v Carr [1979] Q.B. 467, 482.
513. ibid., at 490 (per Cumming-Bruce L.J., whose decision was based on the different ground
discussed in para.4-081, above).
514. cf. the similar rule in cases of “proprietary estoppel” stated in para.4-158, below.
515. e.g. in Fontana N.V. v Mautner [1979] 254 E.G. 199; Meng Long Development Pte Ltd v Jip
Hong Trading Co Pte Ltd [1985] A.C. 511, 524; cf. Wilson (1951) 67 L.Q.R. 344.
516. For the requirement of detriment in cases of such estoppel, see Carr v L. & N.W. Ry (1875) L.R.
10 C.P. 310, 317. In Aker Oil & Gas Technology UK plc v Sovereign Corporate Ltd [2002]
C.L.C. 557 benefit to the representor (as opposed to the more usually stated factor of detriment
of the promisee) is said to suffice for the purpose of giving rise to this type of estoppel.
517. Below, para.4-104.
518.
W.J. Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 Q.B. 189 at 213; MWB Business
Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, [2017] Q.B. 604 at [54];
for this case (so far as it relates to estoppel) see also above, para.4-091 n.475.
519. James v Heim Galleries (1980) 256 E.G. 819, 825; Société Italo-Belge pour le Commerce et
l’Industrie v Palm & Vegetable Oils (Malaysia) Sdn. Bhd. (The Post Chaser) [1981] 2 Lloyd’s
Rep. 695, 701. Youell v Bland Welch & Co Ltd (The Superhulls Cover Case) (No.2) [1990] 2
Lloyd’s Rep. 431, 454; Fortisbank SA v Trenwick International Ltd [2005] EWHC 339; [2005] 2
Lloyd’s Rep. I.R. 464 at [13]; Virulite LLC v Virulite Distribution Ltd [2014] EWHC 366 (QB),
[2015] 1 All E.R. (Comm) 204 at [121], where the actual decision was that the contract had
been varied by a contractually binding agreement (at [112]–[116]; above para.4-083 n.450) and
“Waiver/Promissory estoppel” (before [117]) was discussed only on the assumption that there
had been no such variation.
520. (1877) 2 App. Cas. 439, above, para.4-086; cf. Bottiglieri di Navigazione SpA v Quindao Ocean
Shipping Co (The Bunge Saga Lima) [2005] EWHC 244, [2005] 2 Lloyd’s Rep. 1 at [31] (“some
conduct [including “a failure to act”] which differs from that which would have occurred in the
absence of the representation”).
521. Société Italo-Belge pour le Commerce et l’Industrie v Palm & Vegetable Oils (Malaysia) Sdn.
Bhd. (The Post Chaser) [1981] 2 Lloyd’s Rep. 695. The point made in the text above may
account for Rix L.J.’s statement in Kosmar Villa Holidays plc v Trustees of Syndicate 1243
[2008] EWCA Civ 147, [2008] 2 All E.R. (Comm) 14 at [38] that detriment is “probably” a
requirement of the operation of this type of “estoppel”. (For the use of “estoppel” to describe the
equitable doctrine, see above, para.4-091 and below para.4-104.) The description in [2008]
EWCA Civ 147 at [38] of the “estoppel” in question as “a promise supported not by
consideration but by reliance” seems to indicate that the reference in this passage is to the type
of “estoppel” here under discussion.
522. Maharaj v Chand [1986] A.C. 898; The Bunge Saga Lima, above n.515, at [31] (quoted in
para.4-098 n.533 below).
Page 20
523. It may also not be inequitable for the promisor to go back on a promise where the detriment
suffered by the promisee consists of a payment of money to the promisor and the latter has
offered to refund that payment. For discussion of this possibility, see Kim v Chasewood Park
Residents Ltd [2013] EWCA Civ 239, [2013] H.L.R. 24 at [43]–[45], where, however, this
reasoning was not needed as the alleged promisees had “made it clear that they did not want
their money back” (at [45]). The actual decision was that no promissory estoppel had arisen for
the reason given in para.4-090 above, n.473.
524. Société Italo-Belge pour le Commerce et l’Industrie v Vegetable Oils (Malaysia) Sdn. Bhd. (The
Post Chaser) [1981] 2 Lloyd’s Rep. 695; cf. Bremer Handelsgesellschaft mbH v Bunge Corp.
[1983] 1 Lloyd’s Rep. 476, 484; Marseille Fret SA v D. Oltman Schiffahrts GmbH & Co K.G.
(The Trado) [1982] 1 Lloyd’s Rep. 157, 160; Bremer Handelsgesellschaft mbH v Deutsche
Conti-Handelsgesellschaft mbH [1983] 1 Lloyd’s Rep. 689; Banner Industrial & Commercial
Properties Ltd v Clark Paterson Ltd [1990] 2 E.G.L.R. 139; Transcatalana de Commercio SA v
Incobrasa Industrial e Commercial Brazileira SA (The Vera) [1995] 1 Lloyd’s Rep. 215, 219.
525. See below, para.4-097 and cf. above, para.4-083 for the requirement of such notice.
526. (1879) 5 Q.B.D. 409.
527. ibid., at 413; cf. also Southwark LBC v Logan (1996) 8 Admin.L.R. 315; Evans v Amicus
Healthcare Ltd [2003] EWHC 2161 (Fam), [2003] 4 All E.R. 903 at [309], affirmed [2004] EWCA
Civ 727, [2005] Fam. 1 on the ground stated in para.4-089 above.
528. See D. & C. Builders Ltd v Rees [1966] 2 Q.B. 167, below, paras 4-118, 4-138 and South
Caribbean Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676 (Comm), [2005] 1 Lloyd’s
Rep. 128 at [112] (promise obtained by economic duress).
529. Paras 3-095 to 3-097 of the 31st edition of this book (paras 4-096 to 4-098 in the present
edition) are cited with apparent approval in Virulite LLC v Virulite Distribution Ltd [2014] EWHC
366, [2015] 1 All E.R. (Comm) 204 at [122] introducing a discussion of when “the doctrine [of
promissory estoppel] suspend[s] and when it … extinguish[es] rights” (heading before [122]).
531.
cf. Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 W.L.R. 761; (below,
para.4-133) Banning v Wright [1972] 1 W.L.R. 972, 981; Brikom Investments Ltd v Seaford
[1981] 1 W.L.R. 863, 869; Société Italo-Belge v Palm & Vegetable Oils (The Post Chaser)
[1981] 2 Lloyd’s Rep. 695, 701; Meng Long Development Pte Ltd v Jip Hong Trading Co Ltd
[1985] A.C. 511, 524; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp. of India (The
Kanchenjunga) [1987] 2 Lloyd’s Rep. 509, 518 affirmed [1989] 1 Lloyd’s Rep. 354; MSAS
Global Logistics Ltd v Power Packaging Inc [2003] EWHC 1391, The Times, June 26, 2003;
Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147, [2008] 2 All E.R.
(Comm) 14 at [38] (“may be suspensory”; the reference appears to be to “promissory estoppel”:
see above, para.4-095 n.516); see also Hazel v Akhtar [2001] EWCA Civ 1883; [2002] 2 P. &
C.R. 17 at [43]; and Kim v Chasewood Park Residents Ltd [2013] EWCA Civ 239, [2013] H.L.R.
24 at [41] (“The general view is that promissory estoppel is usually only suspensory”); the actual
decision in this case was that, for the reason given in para.4-090 n.473, no promissory estoppel
had arisen; MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ
553, [2017] Q.B. 604 at [56] (“may only be suspensive”). No promissory estoppel would have
arisen in this case as reasonable notice had been given to terminate the “variation agreement”
(described below, see para.4-119A); for this point see at [63], [67] and [92]. No reference to the
suspensive nature of the doctrine was made in Smith v Lawson (1998) 75 P. & C.R. 466
(below, para.4-103), probably because no attempt was made by the promisor to give
reasonable notice of any intention to resume enforcement of his legal rights. Notice is not
required to bring an end to the suspension where, on the true construction of the
representation, the circumstances in which it was intended to apply had come to an end: see
Dunbar Assets plc v Butler [2015] EWHC 2546 (Ch) at [50]; or where notice of termination was
not necessary “to allow a reasonable period for the party to whom notice is given to make
alternative arrangements” (ibid., at [51]).
Page 21
532. Roebuck v Mungovin [1994] A.C. 224, 234.
533. This is also true of cases such as Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd
[1955] 1 W.L.R. 761 and Ajayi v R. T. Briscoe (Nig.) Ltd [1964] 1 W.L.R. 1236, discussed in
paras 4-132 and 4-133 below.
535. (1888) 40 Ch.D. 268; cf. W. J. Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 Q.B. 189,
where the actual decision was that there was a contractually binding variation: see above,
para.4-080.
536. Ogilvie v Hope-Davies [1976] 1 All E.R. 683, 696; cf. Voest Alpine International GmbH v
Chevron International Oil Co Ltd [1987] 2 Lloyd’s Rep. 547, 560.
537. Nippon Yusen Kaisha v Pacifica Navegacion SA (The Ion) [1980] 2 Lloyd’s Rep. 245.
538. See Maharaj v Chand [1986] A.C. 898; cf. W. J. Alan & Co Ltd v El Nasr Export & Import Co
[1972] 2 Q.B. 189 (where the actual decision was that there was a variation supported by
consideration); Bottiglieri di Navigazione SpA v Cosco Quindao Ocean Shipping Co (The Bunge
Saga Lima) [2005] EWHC 244 (Comm), [2005] 2 Lloyd’s Rep. 1 at [31]. The further statement in
this passage that “no revocation can be retrospective” is, with respect, open to question; in a
sense, any reassertion of the original obligation has “retrospective” effect. The crucial limitation
on the effectiveness of a revocation lies in its inequitable, rather than in its merely retrospective,
operation. This seems to be the test approved in Virulite LLC v Virulite Distribution Ltd [2014]
EWHC 366 (QB), [2015] 1 All E.R. (Comm) 204 at [122] (“the determinative consideration is
whether it is inequitable in all the circumstances for the representor to enforce his rights
inconsistently with his representation”). The judgment goes on to suggest that, for this purpose,
“there may be a material difference between an open-ended forbearance [as in Hughes v
Metropolitan Ry (1877) 2 App. Cas. 439, above para.4-086] and a promise not to enforce until a
particular date is reached or a particular set of circumstances prevails.”
539. Combe v Combe [1951] 2 K.B. 215 at 219; the point had been foreshadowed in Central London
Property Trust Ltd v High Trees House Ltd [1947] K.B. 130 at 134.
540. [1951] 2 K.B. 215.
541. Above, para.4-061.
542. Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274; [2002] 1 All E.R.
(Comm) 737 at [91]; for the difficulty of distinguishing in that case between reliance and
expectation loss, see ibid., at [81], [82].
543. Above, para.4-086, below, para.4-104.
544. Below, para.4-104.
545. Low v Bouverie [1891] 3 Ch. 82 at 101; cf. ibid. at 105.
546. Below, para.4-104, especially n.588.
547. This appears to be the point that Denning L.J. had in mind in Combe v Combe [1951] 2 K.B.
215 at 219 when he said that he did not want the equitable principle to be “stretched too far lest
it be endangered.” cf. Brikom Investments Ltd v Carr [1979] Q.B. 467, 486; Tool Metal
Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 W.L.R. 761, 764; Beesly v Hallwood
Estates Ltd [1960] 1 W.L.R. 549, 561; Drexel Burnham Lambert International NV v El Nasr
[1986] 1 Lloyd’s Rep. 357, 365. Contrast Vaughan v Vaughan [1953] 1 Q.B. 762, 768; Denning
(1952) 15 M.L.R. 1.
548. Baird Textile Holdings Ltd v Marks & Spencer plc, above, n.537, where Combe v Combe is
Page 22
cited at [34], and [87] in support of the view stated in the text above; though an alternative
explanation for the result in the Baird case may be that, in the absence of certainty or
contractual intention, the requirements for the operation of the equitable doctrine are simply not
satisfied (above, paras 2-150, 4-091), so that no question can arise as to its effects.
549. In Azov Shipping Co v Baltic Shipping Co [1999] 2 Lloyd’s Rep. 159, 175 it is suggested that
the rule that promissory estoppel gives rise to no cause of action “is limited to the protection of
consideration” and has “no general application in the field of estoppel.” The estoppel there
under discussion was estoppel by representation, and the suggestion is, with respect, hard to
reconcile with the statements in Low v Bouverie [1891] 3 Ch. 82 at 101, 105 cited at n.540
above. Similar difficulty arises from the more tentative suggestion in Thornton Springer v NEM
Insurance Ltd [2000] 2 All E.R. 489 at 519 that estoppel could lead to the “enforcement of the
promise” where no contract was concluded for want of acceptance of an offer, though not
where there was no contract for want of consideration. The former situation is one of estoppel
by convention (as to which see below, para.4-108); and it is also, with respect, hard to see why
one answer should be given to the question whether rule in Combe v Combe applies where the
promise lacks contractual force for want of consideration and a different one where it lacks such
force for want of an effective acceptance. Such a distinction seems also to be inconsistent with
the readiness of the Court of Appeal in the Baird case (above at n.537) to apply the rule in
Combe v Combe to an alleged promise which lacked contractual force for some reason other
than want of consideration. See also Oceanografia SA de CV v DSND Subsea AS (The
Botnica) [2006] EWHC 1300 (Comm), [2007] 1 All E.R. (Comm) 1 where “waiver” was invoked
(at [89]) in the context of failure to comply with one of the requirements of contract formation, in
that case the execution of a formal document (above, para.2-123). The normal effect of such a
waiver is that the party granting it is bound by the contract (e.g., above paras 2-046, 2-066); but
in The Botnica it resulted in that party’s entitlement to enforce a term of the contract. No
reference was made to the equitable doctrine here under discussion or to the normally
defensive nature of that doctrine or of waiver.
550. Re Wyvern Developments Ltd [1974] 1 W.L.R. 1097, 1104-1105; Atiyah (1974) 38 M.L.R. 65;
and see Allan (1963) 79 L.Q.R. 238; the point was left open in Pacol Ltd v Trade Lines Ltd (The
Henrik Sif) [1982] 1 Lloyd’s Rep. 456, 466–468 (as to which see above para.4-089, n.467).
551. Evenden v Guildford City F.C. [1975] Q.B. 917, 924, 926; Napier [1976] C.L.J. 38; and see next
note.
552. See Secretary of State for Employment v Globe Elastic Thread Co Ltd [1980] A.C. 506,
overruling Evenden’s case, above. Lord Wilberforce remarked at 518 that “To convert this
[contract] into an estoppel is to turn the doctrine of promissory estoppel … upside down.”
553. For the position in other common law jurisdictions, see para.4-107, below.
554. cf. the position in cases of estoppel by representation, below, para.4-104 n.588.
555.
Argy Trading Development Co Ltd v Lapid Developments Ltd [1977] 1 W.L.R. 444, 457;
Aquaflite Ltd v Jaymar International Freight Consultants Ltd [1980] 1 Lloyd’s Rep. 36; Syros
Shipping Co SA v Elaghill Trading Co (The Proodos C) [1980] 2 Lloyd’s Rep. 390, 391; James v
Heim Galleries (1980) 256 E.G. 819, 821; Brikom Investments Ltd v Seaford [1981] 1 W.L.R.
863; cf. Taylors Fashions Ltd v Liverpool Victoria Trustee Co Ltd [1982] Q.B. 133, 152; Baird
Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274; [2002] 1 All E.R. (Comm)
737, above, n.537; Newport City Council v Charles [2008] EWCA Civ 1541 at [27] where this
position was at [28] viewed with “unease” (for this case, see below, paras 4-102, 4-153); Haden
Young Ltd v Laing O’Rourke Midlands Ltd [2008] EWHC 1016 (TCC) at [167], [169], where the
rule that estoppel could not be used to create a contract where none existed in fact was applied
in relation to estoppel by representation and to estoppel by convention (as to the latter point,
see below, para.4-114). The defensive nature of promissory estoppel is also by implication
recognised in Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [61], where promissory
estoppel is in this respect contrasted with proprietary estoppel: see below, para.4-183. A dictum
in Dixon v Blindley Heath Investments Ltd [2015] EWCA Civ 1023, [2017] 3 W.L.R. 166 at [73]
(quoted in para.4-114 n.684 below) seems to suggest that promissory estoppel can “provide a
Page 23
cause of action”. But the point does not seem to have been argued in that case and no
reference is made in the Dixon case to any of the authorities which are cited in Main Work,
Vol.I, para.4-089 in support of the view that, in English law, promissory estoppel does not
create a cause of action; and it is respectfully submitted that the above dictum in the Dixon
case, so far as it departs from that view, should be treated as having been made per incuriam.
556. (1809) 2 Camp. 317; 6 Esp. 129; above, para.4-067.
557. See Hiscox v Outhwaite (No.3) [1991] 2 Lloyd’s Rep. 524, 535.
558. [1951] 2 K.B. 215, 219.
559. Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274; [2002] 1 All E.R.
(Comm) 737, at [88]; Durham v BAI (Run Off) Ltd [2008] EWHC 2692 (QB), [2009] 2 All E.R. 26
at [269] (discussing estoppel by convention, below paras 4-108 to 4-115) and [278] (“the Baird
Textile exception”), reversed in part [2010] EWCA Civ 1096, [2011] 1 All E.R. 605, where “the
issue of estoppel by convention has not been pursued” (at [24] and see at [187]). There was
likewise “no suggestion of estoppel by convention on further appeal to the Supreme Court (
[2012] UKSC 14 at [39]), where the decision, in part reversing that of the Court of Appeal,
turned solely on the construction of the relevant insurance policies.
560. [1991] 1 Q.B. 1, above, para.4-069.
561. Though there are references to estoppel in that case at pp.13 (“not yet fully developed”) and
17–18 (this reference seems to be estoppel by convention, the relevance of which to the case is
doubted in para.4-112 n.660 below).
562. As in Central London Property Trust Ltd v High Trees House Ltd [1947] K.B. 130, below
para.4-130, this being the case under discussion in Combe v Combe, above n.553.
563. Syros Shipping Co SA v Elaghill Trading Co (The Proodos C) [1980] 2 Lloyd’s Rep. 390.
564. Below, paras 4-139—4-185, especially para.4-170.
565. Combe v Combe [1951] 2 K.B. 215, 224; The Proodos C, above n.558 at 391 (“time honoured
phrase”); Lark v Outhwaite [1991] 2 Lloyd’s Rep. 132, 142; Hiscox v Outhwaite (No.3) [1991] 2
566. Azov Shipping Co v Baltic Shipping Co [1999] 2 Lloyd’s Rep. 159 at 175 (“largely inaccurate”);
Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274; [2002] 1 All E.R.
(Comm) 737, at [54] (“misleading aphorism”).
567. (1879) 5 Q.B.D. 409.
568. cf. Hartley v Hymans [1920] 3 K.B. 475, applying the corresponding common law doctrine:
above, para.4-082; Johnson v Gore Wood [2002] 2 A.C. 1 at [40]. And see Jackson (1965) 81
L.Q.R. 223.
569. See Nippon Yusen Kaisha v Pacifica Navegacion SA (The Ion) [1980] 2 Lloyd’s Rep. 245,
above, para.4-098; the Australian case of Commonwealth of Australia v Verwayen (1990) 170
C.L.R. 394 (discussed by Spence (1991) 107 L.Q.R. 221) could, in England, be decided on the
same ground (Baird Textile Holdings Ltd v Marks & Spencers plc [2001] EWCA Civ 274; [2002]
1 All E.R. (Comm) 737 at [98]) though it was actually based on the wider Australian principle
referred to in para.4-107, below. No reference was made to The Ion (cited above in this note) in
Newport City Council v Charles [2008] EWCA Civ 1541, [2009] 1 W.L.R. 1884 where the rule
that estoppel by representation is “a shield only and cannot found a cause of action” (at [27])
was held to prevent a local authority from relying on this form of estoppel to avoid a time bar
imposed by statute on claims for the recovery of premises which it owned but had let to the
representor on a secure tenancy. The two cases can perhaps be distinguished on the ground
that, in the Newport case, the time bar had been imposed by the very statute which had given
the claimant the right, within the specified time, to recover possession of the premises. But for
Page 24
this point, there would have been considerable force in the argument that the claimant’s cause
of action was based, not on the representations giving rise to the estoppel, but on its title to the
premises.
570. cf. in cases of estoppel by representation, Burrowes v Lock (1805) Ves. 470, as explained in
Low v Bouverie [1891] 3 Ch. 82.
571. Argo Systems FZE v Liberty Insurance (Pte) (The Copa Casino) [2011] EWCA Civ 1572, [2012]
1 Lloyd’s Rep 129 (where, for the reason given in para.4-093 above, the in some respects
analogous doctrine of “waiver by estoppel” did not apply).
572. Shah v Shah [2001] EWCA Civ 527; [2002] Q.B. 35 at [31] (a case of estoppel by
representation).
573. This may be the force of the statement in Evans v Amicus Healthcare Ltd [2003] EWHC 2161
(Fam); [2003] 4 All E.R. 903 at [303] that promissory estoppel “is not, of itself, the cause of
action, although it may be an element in it”; affirmed, without reference to this point, [2004]
EWCA Civ 727, [2005] Fam. 1 (above, para.4-089).
574. cf. the criticism (above, para.4-089) of Pacol Ltd v Trade Lines Ltd (The Henrik Sif) [1982] 1
Lloyd’s Rep. 456. For the position in relation to estoppel by convention see below, para.4-114.
575. (1998) 75 P. & C.R. 466.
576. See the cases cited in n.583 below.
577. The reference seems to be to Lord Denning, M.R.’s statement in Amalgamated Investment &
Property Co Ltd v Texas Commerce International Bank Ltd [1982] 2 Q.B. 73 at 122 (“one
general principle shorn of limitations”). The passage containing these words is cited with
apparent approval by Lord Bingham in Johnson v Gore Wood & Co [2002] 2 A.C. 1 at 33 but it
is not clear whether (a) this citation is part of Lord Bingham’s ratio in that case; or (b) the
apparent approval is shared by Lords Hutton and Cooke who agree generally with the part of
Lord Bingham’s speech in which it occurs. cf. also the reference, in another context, to a
possible “move to a more uniform doctrine of estoppel” in Scottish Equitable plc v Derby [2001]
EWCA Civ 369; [2001] 2 All E.R. 818 at [48]. Lord Denning’s statement quoted above in this
note is also cited in Mears Limited v Shoreline Housing Partnership Limited [2013] EWHC 27
(TCC), [2013] B.L.R. 181 at [30] where the statement is said to give rise to “some difficulties”;
no discussion of these difficulties was called for in the Mears case. The decision in the Mears
case was affirmed on appeal [2013] EWCA Civ 639, [2013] B.L.R. 639 without further reference
to Lord Denning’s statement quoted above. In further proceedings in this case ([2015] EWHC
1396 (TCC)) Akenhead J. treats estoppel by convention as distinct from estoppel by
representation: see at [43].
578.
First National Bank plc v Thomson [1996] Ch. 231, 236; cf. Republic of India v India S.S. Co
Ltd (The Indian Endurance) (No.2) [1998] A.C. 878 at 913; National Westminster Bank plc v
Somer [2001] EWCA Civ 970; [2002] 1 All E.R. 198 at [38], [39]; dicta in Baird Textile Holdings
Ltd v Marks & Spencer plc [2001] EWCA Civ 274; [2002] 1 All E.R. (Comm) 737 at [38], [50],
[83], [84] perhaps incline in the other direction but cannot be regarded as conclusive. Millett
L.J.’s statement in First National Bank plc v Thompson [1996] Ch. 231, 236, to the effect that
“the attempt to demonstrate that all estoppels … are now governed by the same principle …
has never won general acceptance” (quoted in Main Work, Vol.I, para.4-104) is cited with
apparent approval in Monde Petroleum SA v WesternZagros Ltd [2016] EWHC 1472 (Comm),
[2016] 2 Lloyd’s Rep. 229 at [227], though it appears to be qualified by the point made in the
latter judgment that “a representation followed by reliance” is “a fundamental requirement of
estoppel by representation and promissory estoppel” ([ibid.]). This is, with respect, true, but the
kinds of representation capable of giving rise to these two forms of estoppel are not the same, a
representation as to the future (or a promise) being capable of giving rise to promissory
estoppel but not to estoppel by representation (see Main Work, Vol.I, para.4-104). The
judgment in the Monde Petroleum case also accepts that estoppel by convention (Main Work,
Vol.I, paras 4-108—4-109) “does not depend on any representation or promise” ([2016] EWHC
Page 25
1472 (Comm) at [227]), though it does depend on “communications to pass across the line
between the parties”: ibid. and see Main Work, para.4-110. The latter requirement seems to be
regarded as a sort of functional equivalent of the requirement of a representation in cases of
estoppel by representation or promissory estoppel. It is, however, less exacting than those
requirements, especially if the recent judicial suggestion that the existence of the “common
assumption” on which estoppel by convention is based (Main Work, Vol.I, para.4-108) may be
“inferred from conduct, or even silence”: Dixon v Blindley Heath Investments Ltd [2015] EWCA
Civ 1023, [2017] 3 W.L.R. 166 at [92]; and see below, para.4-108 n.630.
579. i.e. estoppel by representation (below, para.7-103) promissory estoppel (discussed here),
estoppel by convention (below, paras 4-108 et seq.) and proprietary estoppel (below paras
4-139 et seq.).
580. Johnson v Gore Wood & Co [2002] 2 A.C. 1 at 41; Gillett v Holt [2001] Ch. 210 at 225, per
Walker L.J., cited with approval by Lord Neuberger in Fisher v Brooker [2009] UKHL 41, [2009]
1 W.L.R. 1764 at [63]. In Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1
W.L.R. 1752 at [59] Lord Walker refers with apparent approval to a “broad or unified approach
to equitable estoppel”. But in this speech he uses “equitable estoppel” to mean proprietary
estoppel: see below, para.4-139 n.822; so that his approval is of a “unified approach” to the
various situations within this kind of estoppel (below, para.4-140): not to such an approach to all
of the other kinds of estoppel discussed in this chapter. In Thorner v Major [2009] UKHL 18,
[2009] 1 W.L.R. 776, Lord Walker (at [67]) while expressing no concluded view on the point
seems to regard promissory estoppel as distinct from proprietary estoppel: see below,
para.4-181 at nn.1150, 1151. Proprietary estoppel is likewise distinguished from estoppel by
representation in Newport City Council v Charles [2006] EWCA Civ 1541 at [27], though neither
of these forms of estoppel there applied: see paras 4-102 above and 4-154 below.
581. Republic of India v India S.S. Co Ltd (The Indian Endurance) (No.2) [1998] A.C. 878 at
913–914, where Lord Steyn distinguished between estoppels by convention and by
acquiescence. This distinction was viewed with some scepticism in ING Bank NV v Ros Roca
SA [2011] EWCA Civ 353, [2012] 1 W.L.R. 472 at [59] by Carnwath L.J., who added at [60] that
there was a “degree of overlap” between these two kinds of estoppel. This view seems to be
based on the passage from The Indian Endurance referred to earlier in this note. Lord Steyn
had there said that an assumption either shared by the parties “or acquiesced in by the other”
could give rise to an estoppel by convention and that this kind of estoppel was distinct from
“estoppel by acquiescence” which can operate in favour of an “acquirer” of property against the
“owner.” In this context, “estoppel by acquiescence” refers to one of the kinds of proprietary
estoppel described in para.4-140 below; and it is the latter kind of estoppel that Lord Steyn
distinguishes from estoppel by convention. Rix L.J. in the ING case, while accepting Carnwath
L.J.’s “solution in terms of estoppel by convention”, also considered that the same solution
could be based on promissory estoppel “supported by a duty to speak” (at [85]); and apparently
regarded the failure to perform that duty as the necessary “acquiescence” (at [86]). Stanley
Burnton L.J. inclined to the view that the case was “not one of promissory estoppel but of
estoppel by convention” but thought it “unnecessary to decide this question, which is largely
one of terminology” (at [76]). See also Donegal International Ltd v Zambia [2007] EWHC 197
(Comm), [2007] 1 Lloyd’s Rep. 397, distinguishing between estoppels by convention and by
representation and referring with apparent approval to the text above in a previous edition of
this book.
582. Johnson v Gore Wood & Co [2000] 2 A.C. 1 at 41. See also Prime Sight Limited v Lavarello
[2013] UKPC 22, [2014] A.C. 436 at [30], referring to Johnson v Gore Wood [2002] 2 A.C. 1 at
39–40, where “Lord Goff expressed reservation about attempting to encapsulate the many
circumstances capable of giving rise to an estoppel within a single formula, in part because
consideration remains a fundamental principle of the law of contract and is not to be reduced
out of existence by the law of estoppel” (at [30], per Lord Toulson).
583. i.e. estoppel by representation and promissory estoppel.
584. Jordan v Money (1854) 5 H.L.C. 195, criticised by Jackson (1965) 81 L.Q.R. 84; cf. Halliwell, 5
L.S. 15. Atiyah (op. cit., above, para.4-007, n.30, pp.53–57) suggests that the case does not
support the proposition for which it is usually cited, but that there was a contract, which was
Page 26
unenforceable for want of written evidence. But the claimant alleged no such contract: as Lord
Cranworth said at p.215, “it is put entirely on the ground of misrepresentation.” The orthodox
view is also supported by Lord Selborne (who was counsel in Jordan v Money) in his speech in
Maddison v Alderson (1883) 8 App. Cas. 467, 473. For recent statements of the rule that
estoppel can be based only on a representation of existing fact, see Argy Trading Development
Co Ltd v Lapid Developments Ltd [1977] 1 Lloyd’s Rep. 67, 76; China-Pacific SA v The Food
Corp. of India (The Winson) [1980] 2 Lloyd’s Rep. 213, 222 (reversed on other grounds [1982]
A.C. 939); Spence v Shell (1980) 256 E.G. 55, 63; T.C.B. Ltd v Gray [1986] Ch. 621, 634
(affirmed [1987] Ch. 458); Roebuck v Mungovin [1994] 2 A.C. 224, 235; cf. Janred Properties v
Ente Nazionale per il Turismo [1987] F.L.R. 179 (implied representation that approval had been
given). So-called “estoppel by convention” is similarly based on a common assumption of fact
or (at least to some extent) on one of “law”: see below, para.4-111. In Robertson v Minister of
Pensions [1949] 1 K.B. 227, the equitable doctrine was mentioned though the representation
was a statement of fact rather than a promise. In the present context, some difficulty arises from
the statement in Kim v Chasewood Park Residents Ltd [2013] EWCA Civ 239, [2013] H.L.R. 24
at [23] that “in order to found a promissory estoppel (in the same way as any other estoppel
based on a representation of fact) the representation or promise must be clear and
unambiguous” (italics supplied). If the word “other” were read as meaning that promissory
estoppel was “based on a representation of fact”, the statement here quoted would be hard to
reconcile with the generally accepted view that promissory estoppel arises from a promise, as
opposed to a statement of (present) fact, and would indeed contain an internal inconsistency by
reason of the use of the words “or promise” where this phrase is italicised above. It would also
be hard to reconcile the statement with the points made below at nn.587 and 589 and in
para.4-105 at nn.594 to 595.
585. i.e. after the rejection of the distinction in Kleinwort Benson Ltd v Lincoln City Council [1999] 2
A.C. 349 between mistakes of fact and of law in the context of claims for the return of money
paid under a mistake (below, paras 29-046, 29-047) and the recognition of the possibility that
an assumption of law can give rise to an estoppel by convention (below, para.4-111).
586. Briggs v Gleeds (Head Office) [2014] EWHC 1178 (Ch), [2015] 1 All E.R. 553 at [35].
587. ibid., stating that “it will very often be the case that a statement about law will not be capable of
giving rise to a relevant estoppel” (giving examples). The actual decision in this case was that
no such estoppel arose from an implied representation that deeds had been validly executed in
accordance with s.1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 by which an
instrument was “validly executed as a deed by an individual if it is signed (a)(i) by him in the
presence of a witness who attests the signature.” Each of deeds in question was not witnessed
and so “did not even appear to comply with the 1989 Act on its face” (at [42]).
588.
e.g. Woodhouse A.C. Israel Cocoa Ltd v Nigerian Produce Marketing Co Ltd [1972] A.C. 741,
758; Ogilvy v Hope-Davies [1976] 1 All E.R. 683, 689; B.P. Exploration Co (Libya) Ltd v Hunt
(No. 2) [1979] 1 W.L.R. 783, 812 (affirmed [1983] 2 A.C. 352, without reference to this point);
China-Pacific SA v The Food Corp. Of India (The Winson) [1980] 2 Lloyd’s Rep. 213, 222
(reversed on other grounds [1982] A.C. 939); Ets. Soules & Cie v International Trade
Development Co Ltd [1980] 1 Lloyd’s Rep. 129, 133; Nippon Yusen Kaisha v Pacifica
Navegacion SA (The Ion) [1980] 1 Lloyd’s Rep. 245, 259; Peter Cremer v Granaria B.V. [1981]
2 Lloyd’s Rep. 583, 587; Société Italo-Belge pour le Commerce et l’Industrie v Palm &
Vegetable Oils (Malaysia) Sdn. Bhd. (The Post Chaser) [1981] 2 Lloyd’s Rep. 695, 700;
Roebuck v Mungovin [1994] 2 A.C. 224, 235; in Glencore International AG v MSC
Mediterranean Shipping Co SA [2015] EWHC 1989 (Comm), [2015] 2 Lloyd’s Rep. 508,
Andrew Smith J. rejected the submission that the facts of that case gave rise to an estoppel
which “might be characterised as an estoppel by representation or an equitable estoppel” (at
[33]); he did so on the ground that the claimant had made no relevant representation or so
conducted itself as to give rise to the alleged estoppel (ibid.). It seems that “equitable estoppel”
here refers to promissory estoppel; cf. Brikom Investments Ltd v Carr [1979] Q.B. 467, 485, 489
, where Roskill L.J. prefers to refer simply to the principle of Hughes v Metropolitan Ry (1877) 2
App. Cas. 439. Amherst v James Walker Goldsmiths & Silversmiths Ltd [1983] Ch. 305, 316
somewhat puzzlingly seems to distinguish between “promissory” and “equitable” estoppel.
Terminological difficulty is compounded by occasional use of the phrase “equitable estoppel” to
refer to true estoppel by representation: see below n.585.
Page 27
589. Jordan v Money, above, was itself an appeal from the Court of Appeal in Chancery. See also
Pigott v Stratton (1859) 1 D.F. & J. 33, 51; Citizens’ Bank of Louisiana v First National Bank of
New Orleans (1873) L.R. 6 H.L. 352, 360; Maddison v Alderson (1883) 8 App. Cas. 467, 473;
Chadwick v Manning [1896] A.C. 231, 238.
590. Estoppel by representation of fact was recognised at common law at least as long ago as
Freeman v Cooke (1848) 2 Ex. 654; but sometimes this form of estoppel is (confusingly)
referred to as “equitable estoppel:” e.g. in Lombard North Central plc v Stobart [1990] Tr.L.R.
105, 107. In that case, an estoppel arose from a finance company’s statement that no more
than £1,003 was due under a conditional sale, when the actual sum due was nearly five times
as much. This statement was clearly a representation of fact rather than a promise.
591. Above, para.4-095.
592. Above, para.4-097.
593. This point accounts for the rule that estoppel by representation does not give rise to a cause of
action: Low v Bouverie [1891] 3 Ch. 82 at 101, 105. If, for example, there are two
warehousemen, A and B, and A represents to C that goods which have been bought by C are
in B’s warehouse when they are not, then the fact that A is estopped from denying the truth of
the representation does not make A liable to C as a bailee of those goods. The rule that
promissory estoppel does not give rise to a cause of action is based on different grounds
explained in para.4-099 above.
594. (1877) 2 App. Cas. 439, above, para.4-086. In Central London Property Trust Ltd v High Trees
House Ltd [1947] K.B. 130 (below para.4-130) the fact that the promise had been made was
likewise not in dispute.
595. Central London Property Trust Ltd v High Trees House Ltd [1947] K.B. 130, 134.
596. Above, para.4-082.
597. Above para.4-085.
598. [1972] A.C. 741, 762.
599. (1877) 2 App. Cas. 439; above, para.4-086.
600.
e.g. Ogilvy v Hope-Davies [1976] 1 All E.R. 683, 688–689; Finagrain SA Geneva v P. Kruse
Hamburg [1976] 2 Lloyd’s Rep. 508, 534; Bremer Handelsgesellschaft mbH v C. Mackprang Jr.
[1979] 1 Lloyd’s Rep. 221, 226; Prosper Homes v Hambro’s Bank Executor & Trustee Co
(1979) 39 R. & C.R. 395, 401; Brikom Investments Ltd v Carr [1979] Q.B. 467, 488, 489, 490;
Scandinavian Trading Tanker Co A.B. v Flota Petrolera Ecuatoriana (The Scaptrade) [1981] 2
Lloyd’s Rep. 425, 430 (affirmed without reference to this point [1983] 2 A.C. 694) Procter &
Gamble Philippine Manufacturing Corp. v Peter Cremer GmbH & Co (The Manila) [1988] 3 All
E.R. 843, 853; MSAS Global Logistics Ltd v Power Packaging Inc [2003] EWHC 1393, The
Times, June 25, 2003; Fortisbank SA v Trenwick International Ltd [2005] EWHC 339; [2005]
Lloyd’s Rep. I.R. 464 at [29]; Edo Corp v Ultra Electronics Ltd [2009] EWHC 689 (Ch), [2009] 2
Lloyd’s Rep. 349 at [28]; Virulite LLC v Virulite Distribution Ltd [2014] EWHC 366 (QB), [2015] 1
All E.R. (Comm) 204 at [117] (there are many other references in this case to “waiver or
estoppel” and to “waiver and promissory estoppel”); MWB Business Exchange Centres Ltd v
Rock Advertising Ltd [2016] EWCA Civ 553, [2017] Q.B. 604 at [64], describing “waiver” in the
context of para.4-015 of Vol.I, as “akin to promissory estoppel”; cf. Bremer Handelsgesellschaft
mbH v Finagrain Cie. Commercial Agricole & Financière [1981] 2 Lloyd’s Rep. 259, where Lord
Denning, M.R. refers at 263 to “the principle … in Hughes v Metropolitan Railway ” while Fox
L.J. refers at 266 to “waiver”; Bremer Handelsgesellschaft mbH v C. Mackprang Jr. [1981] 1
Lloyd’s Rep. 292, 298; Bremer Handelsgesellschaft mbH v Bunge Corp. [1983] 1 Lloyd’s Rep.
476, 484; BICC Ltd v Burndy Corp. [1985] Ch. 232, 253; Pearl Carriers Inc v Japan Lines Ltd
(The Chemical Venture) [1993] 1 Lloyd’s Rep. 509, 521; and see Oliver Ashworth (Holdings)
Ltd v Ballard (Kent) Ltd [2000] Ch. 12 at 27, 28, where the issue was whether there had been a
Page 28
“waiver” in the sense of election between remedies, rather than in the sense (here under
discussion) of giving up rights. In W. J. Alan & Co Ltd v El Nasr Export & Import Co [1972] 2
Q.B. 189, 212 waiver is described as an instance of the principle of Hughes v Metropolitan Ry
(above), which, however, is said to be of “wider” scope; cf. Nippon Yusen Kaisha v Pacifica
Navegacion SA (The Ion) [1980] 2 Lloyd’s Rep. 245 where an agreement not to plead a
contractual time bar was held not to take effect as a “waiver” (at 249) but to give rise to an
“equitable or promissory estoppel” (at 250). In Brikom Investments Ltd v Carr [1979] Q.B. 467,
485, 489 the principle of Hughes v Metropolitan Ry (above) is, unusually, regarded as distinct
from “promissory estoppel” but rather as an illustration of “waiver,” thus suggesting a difference
between these two concepts—perhaps because in the Brikom case the waiver amounted to a
contractual variation supported by consideration: cf. below, para.4-135. In Youell v Bland Welch
& Co Ltd (The Superhulls Cover Case) (No.2) [1990] 2 Lloyd’s Rep. 431, 449 “waiver” is
distinguished from “equitable estoppel” on the ground that the former doctrine requires the party
who is alleged to have lost his rights to know the material facts, while the latter is not subject to
any such requirements. But when “waiver” is said to be subject to this requirement, the
reference is to “waiver” in the sense of election between remedies (below, para.24-007) and not
to the “waiver” in the sense of relinquishing rights; and it is this latter type of waiver which is
here under discussion. The reference in Union Eagle Ltd v Golden Achievement Ltd [1997] A.C.
514, 518 to “waiver or estoppel” is likewise to election between remedies rather than to the
relinquishing of rights which is under discussion in the present chapter. This was also the type
of waiver under discussion in the Oliver Ashworth case, above, and in Glencore Grain Ltd v
Flacker Shipping Ltd (The Happy Day) [2002] EWCA Civ 1068; [2002] 2 Lloyd’s Rep. 487 at
[64].
601. e.g. Bremer Handelsgesellschaft mbH v Westzucker GmbH [1981] 1 Lloyd’s Rep. 207, 212–213
.
602. Prosper Homes v Hambro’s Bank Executor Trustee Co (1979) P. & C.R. 395, 401; cf. The
Nerano [1996] 1 Lloyd’s Rep. 1, 6 (“really one and the same thing”).
603. See the authorities cited in nn.595 and 596, above.
604. cf. para.4-104 above at n.577.
605. Restatement, Contracts §90 and Restatement 2d, Contracts §90. In English law, the need to
use the doctrine to give rise to a cause of action is less acute than in the United States, where
the courts are less ready than the English courts to “invent” consideration (above para.4-010).
606. (1988) 164 C.L.R. 387; Duthie 104 L.Q.R. 362; Sutton 1 J.C.L. 205.
607. Above, para.2-125.
608. For this requirement, see above, para.2-126.
609. e.g. in Dillwyn v Llewelyn (1862) 4 D.F. & G. 517 below, paras 4-141, 4-170.
610. e.g. in William Lacey (Hounslow) Ltd v Davis [1954] 1 Q.B. 428; Countrywide Communications
Ltd v ICL Pathways Ltd [2002] C.L.C. 325; Cobbe v Yeoman’s Row Management Ltd [2008]
UKHL 55, [2008] 1 W.L.R. 1752, as to which see n.607 below.
611. Below, para.4-154; proprietary estoppel would also probably have been excluded on the ground
that A had no belief that a right had been or would be created in his favour while the agreement
remained “subject to contract”: see Att.-Gen. of Hong Kong v Humphreys Estates (Queens
Gardens) [1987] 1 A.C. 114; this obstacle can be overcome if one party induces the other to
believe that he will not withdraw: see ibid., at 124; but this qualification can scarcely enable the
party by whom the interest in property is to be created to rely on proprietary estoppel.
612. Such enrichment was the crucial factor leading to the award of a quantum meruit in Cobbe v
Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 (below, para.4-167)
even though the claimant knew that the anticipated contract was binding in honour only and so
took the risk of its never becoming legally binding.
Page 29
613. Regalian Properties plc v London Dockland Development Corp. [1995] 1 W.L.R. 212.
614. There was no such enforcement in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55,
[2008] 1 W.L.R. 1752, as to which see above, n.607.
615. A phrase borrowed from the title of a thesis for the degree of D.Phil. at Oxford University by M.
J. Spence, in which the Australian cases are fully discussed and compared with English and
other common law authorities.
616. Above, para.4-002.
617. e.g. Oscar Chess Ltd v Williams [1957] 1 W.L.R. 370.
618. See, e.g., Commonwealth of Australia v Verwayen (1990) 179 C.L.R. 394, which could be
explained in English law on the ground stated in para.4-102 at n.564.
619. Low v Bouverie [1891] 3 Ch. 82; Clipper Maritime Ltd v Shirlstar Container Transport Ltd (The
Anemone) [1987] 1 Lloyd’s Rep. 547, 557.
620. Above, para.4-090.
621. e.g. by the requirements that the promisee must believe that legal rights have been, or will be,
created in his favour, and that these are rights in or over the promisor’s property: see below,
para.4-154; and by the further requirements derived from Cobbe v Yeoman’s Row Management
Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 and Thorner v Major [2009] UKHL 18, [2009] 1
W.L.R. 776 and discussed in paras 4-149 to 4-152 and 4-161 to 4-164 below.
622. There can be no such estoppel where one party is not yet in existence: see Rover International
Ltd v Cannon Film Sales Ltd (1987) 3 B.C.C. 369, reversed in part on other grounds [1989] 1
W.L.R. 912 (company not yet formed).
623. In ING Bank NV v Ros Roca SA [2011] EWCA Civ 353, [2012] 1 W.L.R. 472 it was argued at
[63] that “fact” here referred to “present fact”, but Carnwath L.J. said that the “understanding”
giving rise to the estoppel could “relate to the factual or legal basis on which a current
transaction is proceeding, even if that understanding includes reference to events in the future”
(at [64(i)]). This view is indirectly supported by Rix L.J. who adopted Carnwath L.J.’s “solution in
terms of estoppel by convention” even though his preference was for the view that the estoppel
arose from a “promissory representation” so that it could give rise to a promissory estoppel (at
[85]–[86]).
625.
Republic of India v India Steamship Co (The Indian Endurance) (No.2) [1998] A.C. 878, 913;
and see Norwegian American Cruises A/S v Paul Mundy Ltd (The Vistafjord) [1988] 2 Lloyd’s
Rep. 343, 351; Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s
Rep. 570, 596; see also Blindley Heath Investments v Bass [2014] EWHC 1366 (Ch) at [127] to
[134], where the requirements of estoppel by convention were satisfied, and para.3-107 of the
31st edition of this book (para.4-108 of this edition) was cited with apparent approval; Phillip
Collins Ltd v Davis [2000] 3 All E.R. 808 at 823 (where there was no common assumption or
acquiescence): Thor Navigation Inc v Ingosstrakh Insurance [2005] EWHC 19 (Comm), [2005]
1 Lloyd’s Rep. 547 at [66], [70]; Triodos Bank NV v Dobbs [2005] EWCA Civ 630, [2005] 2
Lloyd’s Rep. 588 at [2]; Canmer International Insurance v UK Mutual Assurance [2005] EWHC
1694, [2005] 2 Lloyd’s Rep. 479 at [41], where there was no common assumption and hence no
estoppel by convention; Tamil Nadu Electricity Board v ST-CMS Electricity Company Private
Ltd [2007] EWHC 1713 (Comm), [2007] 2 All E.R. (Comm) 701 at [104], where again there was
no evidence of the alleged shared assumption (at [115]); Kosmar Villa Holidays plc v Trustees
of Syndicate 1243 [2007] EWHC 458 (Comm), [2007] 2 All E.R. (Comm) 215 at [53], where
reliance on estoppel by convention failed on the same ground. On appeal this aspect of the
decision at first instance in the Kosmar case was affirmed ([2008] EWCA Civ 147, [2008] 2 All
E.R. (Comm) 14 at [85]) even though the actual decision was reversed on the ground that the
Page 30
principle of “estoppel by election” (cf. below para.24-003) did not there apply; or, if it did apply,
the requirement of an “unequivocal communication” (at [71]) needed to give rise to such an
estoppel had not been satisfied (at [79]). For other cases in which the requirements of estoppel
by convention were discussed but not satisfied (usually for want of the requisite common
assumption) see Haden Young Ltd v Laing O’Rourke Midlands Ltd [2008] EWHC 1016 (TCC) at
[187]–[192]; The W D Fairway (No.3) [2009] EWHC 1782 (Admlty), [2009] 2 Lloyd’s Rep. 420 at
[22]; Republic of Serbia v ImageSut International NV [2009] EWHC 2853 (Comm), [2010] 1
Lloyd’s Rep. 325 at [68], [69]; Pindell v Airasia Berhad [2010] EWHC 2516 (Comm), [2011] 1 All
E.R. (Comm) 396 at [55]; Khan v Tyne and Wear Passenger Transport Executive [2015] UKUT
43 at [41], where the requirement stated in para.4-110 below was also said not to have been
satisfied and Crossco No.4 Unlimited v Jolan Ltd [2011] EWHC 803, where paras 3-107 to
3-114 of the 30th edition of this book (paras 4-108 to 4-115 in this edition) are referred to with
apparent approval; Mears Limited v Shoreline Housing Partnership Limited [2015] EWHC 1396
(TCC), where the requirements and effects of estoppel by convention are fully discussed at
[43]–[50] and summarised at [57]. The decision in the Crossco case (above) was affirmed on
appeal ([2011] EWCA Civ 1619, [2012] 2 All E.R. 754) without further discussion of the
requirements of estoppel by convention. So far as the claim was based on this kind of estoppel,
it failed on the findings of fact in the court below: see [2011] EWCA Civ 1619 at [115]; see also
F G Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2012] EWHC 2477 (Comm),
[2012] 2 Lloyd’s Rep. 479, where the argument that there was an estoppel by convention was
rejected on the facts as there “was no relevant communicated assumption which was shared by
[the parties] … or in which [the party alleged to be estopped] … acquiesced” (at [73]); reversed,
sub nom. Caterpillar (NJ) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232, [2014] 1
All E.R. 785, without further reference to estoppel. F G Wilson (Engineering) Ltd v John Holt &
Co (Liverpool) Ltd [2013] EWCA Civ 1232, [2014] 1 W.L.R. 2365 is doubted in PST Energy 7
Shipping LLC v O W Bunker Malta Ltd (The Res Cogitans) [2016] UKSC 23, [2016] 2 W.L.R.
1193, but not on the estoppel point for which it is cited in this footnote. And see Spencer Bower
and Turner, Estoppel by Representation, (4th edn) VIII.2.1; Dawson (1989) L.S. 16. The
requirements of estoppel by convention are summarised in Spliethoff’s Bevrachtingskantoor BV
v Bank of China [2015] EWHC 999 (Comm), [2015] 2 Lloyd’s Rep. 123 at [159], citing “paras.
3-107 [of the 31st edition] and following” with apparent approval; the corresponding paragraphs
in the present, 32nd edition are paras 4-108 et seq. Carr J. would have held those requirements
to have been satisfied but it was “strictly unnecessary” (at [154]) to decide the point since his
“primary conclusion” (at [170]) was that the facts which the claimant sought to estop the
defendant from denying had been established by the evidence (see at [147]–[154]). This was
also the position in Crabbe v Townsend [2016] EWHC 2450 (Ch), [2017] W.T.L.R. 13 where an
agreement between the Claimant and the Defendant (her brother) was held to have contractual
force (see above, para.2-123) and the defendant further argued that the claimant was estopped
by convention from enforcing that agreement. The requirements of this form of estoppel were
stated at [2016] EWHC 2450 (Ch) at [7] but were held not to have been satisfied on the ground
that the parties had not made any “common assumption” (at [18]) and on the further grounds
that there had been no reliance on any such assumption (at [19]), nor would it have been
“unjust or unconscionable” (at [20]) for the Claimant to enforce the agreement, so that the
requirement stated in Main Work, Vol.I, para.4-108 at n.621 would also not have been satisfied,
since no detriment had been suffered by the defendant nor any benefit obtained by the claimant
(ibid.).
626. Crédit Suisse v Borough Council of Allerdale [1995] 2 Lloyd’s Rep. 315, 367–370 (where this
requirement was not satisfied); affirmed on other grounds [1997] Q.B. 362; Gloyne v
Richardson [2001] EWCA Civ 716, [2001] 2 B.C.L.C. 669 at [41] (below, para.4-110 at n.644);
Thor Navigation case, above n.620 at [66] and Ease Faith Ltd v Leonis Marine Management
[2006] EWHC 232 (Comm), [2006] 1 Lloyd’s Rep. 673 at [171] and Durham v BAI (Run Off) Ltd
[2008] EWHC 2692 (QB), [2009] 4 All E.R. 26, at [277], [278], where the requirements of
estoppel by convention were not satisfied; for the appeals in the Durham case, see above,
para.4-100 n.554. Cf. Townsend v Persistence Holdings [2013] UKPC 12, where vendors of a
property terminated the contract under a term entitling them to do so if a licence requisite for its
lawful performance were not granted within 12 months. It was held that acts done by the
purchaser in relation to the property did not estop the vendor from terminating, apparently
because “what happened was precisely what the contract envisaged would, or at least could,
happen” (at [38]).
Page 31
627. Mears Limited v Shoreline Housing Partnership Limited [2015] EWHC 1396 (TCC) at [51],
relying on Robert Goff J. in Amalgamated Investment and Property Co Ltd v Texas Commerce
Bank International Ltd [1982] Q.B. 84 at 104 F–G (the reference to p.“34” in para.[44] of the
Official Transcript of the Mears case appears to be a misprint).
628.
Norwegian American Cruises A/S v Paul Mundy Ltd (The Vistafjord) [1988] 2 Lloyd’s Rep.
343, 352; Hiscox v Outhwaite (No.1) [1992] 1 A.C. 562, affirmed on other grounds at 585; The
Indian Endurance (No.2), above, n.620 at 913. For the difficulties of applying estoppel by
convention so as to bind members of a company pension scheme, see Trustee Solutions v
Dubery [2006] EWHC 1426 (Ch), [2007] I.C.R. 412. They arise mainly from the need to show
that “the general body of members” (at [50]) had all put the same interpretation on the scheme
and had acted on the assumption. Here “the evidence was simply too exiguous” to support such
a conclusion. The decision was reversed on other grounds: [2007] EWCA Civ 771, [2008] I.C.R.
101; there was no appeal on the estoppel point: see [2007] EWCA Civ 771 at [12]. For the
requirements of estoppel by convention “arising out of non-contractual dealings, see Revenue
and Customs Commissioners v Benchdollar Ltd [2009] EWHC 1310 (Ch) at [52], cited in
Grieveson v Grieveson [2011] EWHC 1367 (Ch) at [27]. For discussions of estoppel by
convention, see also Mitchell v Watkinson [2014] EWCA Civ 1472, [2015] L. & T.R. 22 at [51],
where para.3-107 of the 31st edition (para.4-108 of the present, 32nd, edition) is cited with
apparent approval; in that case the defence of estoppel by convention failed for want of a
common assumption (at [60]—but the appeal was dismissed on other grounds: at [95]); Edray
Ltd v Canning [2015] EWHC 2744 (Ch), where the two requirements of estoppel by convention
stated at notes 620 and 621 (that there must be a common assumption and that it must be
unjust to allow the party alleged to be estopped to resile from that assumption (at [38]) were
held to have been satisfied (at [48]); and Roundlistic Ltd v Jones [2016] UKUT 325 where the
requirements of estoppel are stated at [47] and [48] and no such estoppel was held to have
arisen as the parties had not made any “common assumption” (at [50] and [56]). See also
Preedy v Dunne [2016] EWCA Civ 805, [2016] C.P. Rep. 44, where, after the claim based on
proprietary estoppel had been rejected at first instance, an alternative claim was made on
appeal that the facts had given rise to an estoppel by convention. This claim, too, was rejected
on the grounds that the parties had not made any “common assumption” ([2016] EWCA Civ 805
at [64]) and that, even if there had been such an assumption, there had been no reliance on it
by the party claiming the benefit of the estoppel (ibid.).
629. cf. the discussion of the distinction between various kinds of estoppel in para.4-104, above;
630.
Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd
[1982] Q.B. 84, 131–132 below, para.4-109; Republic of Serbia v ImageSat International NV
[2008] EWHC 2853 (Comm), [2010] 1 Lloyd’s Rep. 235 at [71]: “no requirement of an
unequivocal representation ” (italics supplied), as opposed to an “unambiguous and
unequivocal” assumption (below at n.625); Dixon v Blindley Heath Investments Ltd [2015]
EWCA Civ 1023, [2017] 3 W.L.R. 166 at [73] (“not founded on a unilateral representation”);
Monde Petroleum SA v WesternZagros Ltd [2016] EWHC 1472 (Comm), [2016] 2 Lloyd’s Rep.
229 at [227] (“does not depend on any representation or promise”); Process Components Ltd v
Kason Kek-Gardner Ltd [2016] EWHC 2198 (Ch) at [116], [117], distinguishing between
estoppel by convention and estoppel by representation (in this case the requirements of both
these forms of estoppel were satisfied: see at [135]). See also Costain Ltd v Tarmac Holdings
Ltd [2017] EWHC 319 (TCC), [2017] 1 Lloyd’s Rep. 331 at [101], where the statement that
“Estoppel by convention depends on a shared assumption, not a representation … ” forms part
of Coulson J.’s discussion of the “ingredients of estoppel by convention”. In that case the
attempt to invoke estoppel by convention failed on the ground that there was no “common
understanding” (at [111]), no “sharp practice” (at [113]) by the party alleged to be estopped, nor
any detriment suffered by the other party (at [118]) so that it would not be unconscionable for
the former party to act inconsistently with any assumption, had it been made (see Main Work,
Vol.I, para.4-108 at n.421).
631.
The passage running from Main Work, Vol.I, para.4-108 after n.619 to n.624a is quoted with
apparent approval by the Court of Appeal in Dixon v Blindley Heath Investments Ltd [2015]
EWCA Civ 1023, [2017] 3 W.L.R. 166 at [74] quoting from the judgment of the Court below
Page 32
[2014] EWHC 1366 (Ch), where the quotation was taken from para.3-107 of the 31st edition of
the Main Work. In the Dixon case, it was further held that such an estoppel was not “confined to
cases of mistake” but could extend to cases in which the common assumption of the parties
had arisen simply because they had forgotten the true facts” since “a mistaken recollection
[was] not … legally different from a state of forgetfulness” (at [79]). In this case the erroneous
common assumption of parties to a share transfer arose because they had forgotten that valid
rights of pre-emption existed in relation to the shares.
632. Smithkline Beecham plc v Apotex Europe Ltd [2006] EWCA Civ 658, [2007] Ch. 71 at [102],
where this point was “not disputed” and the concession was evidently approved by the Court;
cf. Commercial Union Assurance plc v Sun Alliance Group plc [1992] 1 Lloyd’s Rep. 474, 481
where the argument based on estoppel by convention failed as the evidence did not “clearly
and unequivocally establish the agreement of the parties … on the conventional interpretation.”
A passage from Troop v Gibson [1986] 1 E.G.L.R. 1 cited in Baird Textile Holdings Ltd v Marks
& Spencer plc [2001] EWCA 274, [2002] 1 All E.R. (Comm) 734 at [84] must be read as
denying the requirement of a representation rather than the quality of clarity of the common
assumption: see the reference there to “sufficient clarity and certainty of the common
assumption”; cf. ibid., at [38]; cf. the Republic of Serbia case, above n.624, at [71] (“clarity and
certainty necessary for a conventional agreement”) and [81] (“with clarity”). The present
requirement was doubted in ING Bank NV v Ros Roca SA [2011] EWCA Civ 353, [2012] 1
W.L.R. 472 at [64(iii)] but, as only one of the authorities cited in this note (viz. Troop v Gibson)
was, in this context, drawn to the attention of the Court of Appeal in the ING case, the doubt
there expressed may call for further consideration.
633. See Menolly Investments 3 SARL v Cemp SARL [2009] EWHC 516 (Ch), 125 Con. L.R. 75
where the estoppel was said to have been based on the fact that the party allegedly estopped
had “represented … that practical completion [of building works] had been achieved” (at
[153(g)]) or on both parties having “conducted themselves on a common understanding or
convention” to that effect (at [153h]); see also [184], where “[154]” seems to be a misprint for
“[153]”. The further reference to “promissory” estoppel at [154] is puzzling since, insofar as the
estoppel was based on a representation, that representation (as quoted above) was one of
existing fact rather than one amounting to a promise (see above, para.4-104). The further point
that the estoppel was said to arise from failure to perform “a duty to speak out” (at [184]) can be
explained that the case fell within one of the “exceptional circumstances” in which estoppel by
representation can arise from non-disclosure, as opposed to a positive representation (below,
para.7-103).
634. Colchester BC v Smith [1992] Ch. 421, 434.
636. Colchester BC v Smith, above, at 435.
637.
Briggs v Gleeds (Head Office) [2014] EWHC 1178 (Ch), [2015] 1 All E.R. 553 at [179]. Cf.
Finmoon Ltd v Baltic Reefers Management Ltd [2012] EWHC 920 (Comm), [2012] 2 Lloyd’s
Rep. 388 where, as a “contract by conduct” had come into existence (see above, para.2-029) it
was “not necessary to determine” an issue relating to estoppel by convention: see at [21], [37].
In Dixon v Blindley Heath Investments Ltd [2015] EWCA Civ 1023, [2017] 3 W.L.R. 166 the
Court of Appeal did “not think that there must be expression of accord” and that the common
assumption could be “inferred from conduct, or even silence … ” (at [92]), though this view did
not dispense with the requirement, discussed in Main Work, Vol.I, para.4-110, that “something
must be shown to have ‘crossed the line’ to manifest an assent to the assumption” (at [92]).
“Silence”, could it seems, only satisfy this requirement in cases where the party alleged to be
estopped was under a “duty to speak”, as, for example in Process Components Ltd v Kason
Kek-Gardner Ltd [2016] EWHC 2198 (Ch) : see at [129]-[132].
638. [1982] Q.B. 84. See also Astilleros Canarios SA v Cape Hatteras Shipping Co SA [1982] 1
Lloyd’s Rep. 518, 527; Mears Limited v Shoreline Housing Partnership Limited [2015] EWHC
1396 (TCC) at [51].
Page 33
639. cf. on the issue of construction, TCB Ltd v Gray [1987] Ch. 458; Bank of Scotland v Wright
[1990] B.C.C. 663.
640. Contrast Crédit Suisse v Allerdale BC [1996] 2 Lloyd’s Rep. 315, 367, where this requirement
was not satisfied as the conduct of the party alleged to be estopped had not “influenced the
mind” of the other party; the decision was affirmed on other grounds [1997] Q.B. 362.
641. A dictum in the Crédit Suisse case, above n.633 at 367 which appears to treat representation
as a requirement of estoppel by convention is, with respect, inconsistent with the treatment of
that doctrine in the Amalgamated Investment case.
642. cf. Government of Swaziland Central Transport Administration v Leila Maritime Co Ltd (The
Leila) [1985] 2 Lloyd’s Rep. 172; as to which see below, n.641; Thornton Springer v NEM
Insurance Co Ltd [2000] 2 All E.R. 489 at 516–518.
643. Norwegian American Cruises A/S v Paul Mundy Ltd (The Vistafjord) [1988] 2 Lloyd’s Rep. 343.
cf. also Kenneth Allison Ltd v A. E. Limehouse & Co [1992] 2 A.C. 105, 127 per Lord Goff. The
other members of the House of Lords took the view that there was an actual agreement (to
accept service of a writ) which was legally effective even though the requirements of the Rules
of the Supreme Court (with regard to personal service) had not been complied with.
644. [2011] EWCA Civ 353, [2012] 1 W.L.R. 472.
645. Empresa Lineas Maritimas Argentinas v The Oceanus Mutual Underwriting Association
(Bermuda) Ltd [1984] 2 Lloyd’s Rep. 517 (where neither of these requirements was satisfied);
Astilleros Canarios SA v Cape Hatteras Shipping Co SA [1982] 1 Lloyd’s Rep. 518, 527;
Heinrich Hanno & Co B.V. v Fairlight Shipping Co (The Kostas K.) [1985] 1 Lloyd’s Rep. 231,
237; The Vistafjord, above para.4-109 n.636; Thor Navigation Inc v Ingosstrakh Insurance
[2005] EWHC 19 (Comm), [2005] 1 Lloyd’s Rep. 547 at [66]; Fortisbank SA v Trenwick
International [2005] EWHC 339, [2005] Lloyd’s Rep. I.R. 464 at [43], where the present
requirement was not satisfied; Tamil Nadu Electricity Board v ST-CMS Electricity Company
Private Ltd [2007] EWHC 1713 (Comm), [2007] 2 All E.R. (Comm) 701 at [125], where again
this requirement was not satisfied; Bear Stearns plc v Forum Global Equities Ltd [2007] EWHC
1576 at [192], where again the present requirement was not satisfied but the actual decision
was that the communications between the parties had given rise to a contract: see above,
para.2-121; Briggs v Gleeds (Head Office) [2014] EWHC 1178 (Ch), [2015] 1 All E.R. 533 at
[209], where this requirement was not satisfied: see at [185].
646. Compania Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) (No.2)
[1990] 2 Lloyd’s Rep. 395, 405, following K. Lokumal & Sons (London) Ltd v Lotte Shipping Co
Pty Ltd (The August P. Leonhardt) [1985] 2 Lloyd’s Rep. 28, 35; Hiscox v Outhwaite (No.3)
[1991] 2 Lloyd’s Rep. 524, 533; The Indian Endurance, above para.4-108 n.620, at 913;
Republic of Serbia v ImageSat International NV [2009] EWHC 2853, [2010] 1 Lloyd’s Rep. 325
at [69].
647. As in The Vistafjord [1988] 2 Lloyd’s Rep. 343, 351 (“very clear conduct crossing the line … of
which the other party was fully cognisant”). An even stricter requirement was stated in Bank
Leumi (UK) plc v Phillip Robert Akrill [2014] EWCA Civ 909, where it was said that there was no
estoppel by convention because the assumption in question had not been “ expressly
communicated” (at [55], italics supplied) between the parties.
648. K. Lokumal & Sons (London) Ltd v Lotte Shipping Co Pty Ltd (The August P. Leonhardt) [1985]
2 Lloyd’s Rep. 28, reversing [1984] 1 Lloyd’s Rep. 332, which had been followed in The Leila,
above n.635. The present status of The Leila therefore remains in some doubt but the two
cases can be reconciled on the ground that in The Leila there was, while in The August P.
Leonhardt there was not, conduct by the party alleged to be estopped from which acquiescence
in the other party’s mistaken belief could be inferred.
649. HIH Casualty & General Insurance v Axa Corporate Solutions [2002] EWCA Civ 1253; [2002] 2
All E.R. (Comm) 1053 at [32].
Page 34
650. Blankley v Central Manchester etc. NHS Trust [2014] EWHC 168 (QB), [2014] 2 All E.R. 1104
where the actual decision was that the state of facts which the defendant was alleged to be
estopped from denying actually existed (at [59]). But it was also said (at [60]) that, if that had
not been the case, the alleged estoppel would not have arisen since no inference of any shared
assumption by, or communication from, the defendant could be drawn from the latter’s conduct
as this conduct was more readily explicable on other grounds.
651. Gloyne v Richardson [2001] EWCA Civ 716; [2001] 2 B.C.L.C. 669 at [41].
652.
Amalgamated Investment case [1982] 2 Q.B. 84 at 122, 126; The Vistafjord [1988] 2 Lloyd’s
Rep. 343 at 351; Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s
Rep. 570 at 596; Republic of India v India Steamship Co. (The Indian Endurance) (No.2) [1998]
A.C. 878 at 913; Mears Limited v Shoreline Housing Partnership Limited [2015] EWHC 1396
(TCC) at [51]. Cf. NRAM v McAdam [2014] EWHC 4174 (Comm), [2015] 1 All E.R. (Comm)
1239 at [29] and [2015] EWCA Civ 751, [2016] 2 All E.R. (Comm) 333 at [43] and [2015] EWCA
Civ 751, [2016] 2 All E.R. (Comm) 333 at [43]; Dixon v Blindley Heath Investments Ltd [2015]
EWCA Civ 1023, [2017] 3 W.L.R. 166 at [73].
653. See Charterbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 A.C. 1101 at [47]
(“some common assumption, which may include an assumption that words will bear a certain
meaning”). Such an assumption could also be called one of “private rights” and hence of fact:
below, para.7-016.
654. e.g. Carmichael v National Power plc [1992] 1 W.L.R. 2042 at 2049; Hay v Gilgrove [2013]
EWCA Civ 412, [2013] I.C.R. 1139 at [24], [29].
655.
For a recent case in which estoppel by convention arose from a shared mistaken assumption
as to the true construction of a contract, see Zvi Construction Co LLC v Notre Dame University
(USA) in England [2016] EWHC 1924 (TCC), [2016] B.L.R. 604 at [64]. For earlier cases in
which a shared assumption as to the construction of the contract gave rise to an estoppel by
convention, see Main Work, Vol.I, para.4-109.
656. [2002] 2 A.C. 1.
657. See ibid., at p.34 for an alternative ground for Lord Bingham’s decision. Lords Cooke and
Hutton agreed with Lord Bingham on the “abuse of process” point but without referring to
estoppel by convention.
658. ibid., at p.40.
659. ibid., at p.61.
660. Above, nn.645, 646.
661. Below, para.6-042, 29-046.
662. Below para.4-115. For other limits to the principle that an assumption of law may give rise to
estoppel by convention, see Durham v BAI (Run Off) Ltd [2008] EWHC 2692 (QB), [2009] 2 All
E.R. 26 at [268]; for the appeals in this case, see above, para.4-100 n.554.
663. Amalgamated Investment & Property case [1982] Q.B. 84, 126, 130.
664. Such an assumption is one of fact (and not as to the future): below, para.7-015.
665. [1982] Q.B. 84; above, para.4-109.
666. Above, para.4-104.
667. In this respect its legal nature resembles that of estoppel by representation: see above,
Page 35
para.4-104.
668. The Vistafjord [1988] 2 Lloyd’s Rep. 343, 351 (“not dependent on contract but on common
assumption”). For this reason the citation in Williams v Roffey Bros & Nicholls (Contractors) Ltd
[1991] 1 Q.B. 1, 17–18 of the Amalgamated Investment & Property case (above, para.4-109)
seems, with respect, to be of doubtful relevance. In the Williams case there was no doubt that
the promise had been made; and the actual decision was that it was supported by consideration
and thus binding contractually: above, para.4-069.
669. This was also true in The Vistafjord, above, n.660 and para.4-109.
670. It is enough for consideration to move from the promisee (the X bank); it need not move to the
hypothetical promisor (A): above paras 4-037 et seq.
671. e.g. (apparently) Troop v Gibson [1986] 1 E.G.L.R. 1.
672.
Hiscox v Outhwaite [1992] A.C. 562 at 575, per Lord Donaldson, M.R. (affirmed ibid. p.585 on
other grounds); Phillip Collins Ltd v Davis [2000] 3 All E.R. 808 at 823. Tamil Nadu Electricity
Board v ST-CMS Electricity Company Private Ltd [2007] EWHC 1713 (Comm), [2007] 2 All E.R.
(Comm) 701 at [105], [128]; Zvi Construction Co LLC v Notre Dame University (USA) in
England [2016] EWHC 1924, [2016] B.L.R. 604 where it was said (at [64]) that the estoppel
which operated in relation to the dispute before the Court did not apply to any future disputes,
presumably because by the time they arose the truth would have been revealed in the instant
proceedings. But where the common assumption was that intellectual property was vested in
one of the parties sharing that assumption it was held that the other party was “permanently
(like a tenant or bailee) estopped from denying” that the property was so vested and that a
licence agreement relating to it had been terminated: Process Components Ltd v Kason
Kek-Gardner Ltd [2016] EWHC 2198 (Ch) at [136], apparently cross referring to ibid. at [128].
673. Revenue and Customs Commissioners v Benchdollar Limited [2009] EWHC 1310 (Ch), [2010]
1 All E.R. 174 at [60], per Briggs J. For the nature of the falsity of the common assumption, see,
paras 2-170 and 4-036 above.
674. [2009] EWHC 1310 (Ch) at [60].
675. At [61].
676. At [61].
677. At [85].
678. At [65].
679. Combe v Combe [1951] 2 K.B. 215, 219; above, para.4-099.
680. Below, para.7-103.
681. [1982] Q.B. 84; above, para.4-109.
682. [1982] Q.B. 84, 126.
683. ibid. at 132; cf. Dumford Trading A-G v OAO Atlantrybflot [2005] EWCA Civ 24, [2005] 1 Lloyd’s
Rep. 289 at [39], where Rix L.J. referred to Brandon L.J.’s view in the Amalgamated Investment
case [1982] Q.B. 84, 131–132 as the likely answer to the argument that the estoppel was being
used “as a sword rather than a shield.” In Baird Textile Holdings Ltd v Marks & Spencer plc
[2001] EWHC 274, [2002] 1 All E.R. (Comm) 737 at [88] Mance L.J. said that he “would prefer”
the view of Brandon L.J. to that of Lord Denning M.R. The alleged estoppel in the Baird case
was regarded at first instance as one “by convention” (at [20]) but it is far from clear whether the
Court of Appeal so regarded it. In Mears Limited v Shoreline Housing Partnership Limited
[2015] EWHC 1396 (TCC) at [88] Akenhead J. said that he “would prefer” Brandon L.J.’s view
Page 36
in the Amalgamated Investment case to that there expressed by Lord Denning M.R.
684.
[1982] Q.B. 84 at 122. A similar view may be hinted at in Williams v Roffey Bros. & Nicholls
(Contractors) Ltd [1999] Q.B. 1 at 17–18; but as to this see above, para.4-112 n.660. In NRAM
v McAdam [2014] EWHC 4174 (Comm), [2015] 1 All E.R. (Comm) 1239 the point is left open,
there being no need to decide it since the shared assumption was held, as a matter of the true
construction of the contract, to have contractual force: see at [25]–[28]. In this case the Court of
Appeal allowed the appeal: see [2015] EWCA Civ 751, [2016] 2 All E.R. (Comm) 333 at [59].
The Court held that the judge below had been wrong to conclude that the contract contained
the term giving effect to the allegedly shared assumption (at [50]); and that he had also been
wrong in holding that, if there was no “relevant contractual term,” then the lender in that case
was “estopped on the basis of some sort of contractual estoppel, estoppel by convention or
estoppel by representation” from denying that the borrower was protected as if there had been
some such term (at [56]); but the Court further held that the lender’s representations gave rise
to liability (1) under the Misrepresentation Act 1967 and (2) as “contractual warranties” (at [57]),
presumably collateral to the main contract.
685. Keen v Holland [1984] 1 W.L.R. 251, 261–262; and see n.675 above. In Wilson Bowden
Properties Ltd v Milner and Bardon [1996] C.L.Y. 1229 the cause of action arose out of the
undisputed contract and not out of the estoppel.
686. [1988] 2 Lloyd’s Rep. 343; above, para.4-109. In Shearson Lehman Hutton Inc v Maclaine
Watson & Co Ltd [1989] 2 Lloyd’s Rep. 570, the estoppel would likewise (if supported on the
facts) have operated defensively; cf. also Mitsui Babcock Energy Ltd v John Brown Energy Ltd
(1996) 51 Const. L.R. 129, 185–186 where the effect of the estoppel would (if the contract in
question had not existed) again have been to restrict the plaintiff’s rights by reference to the
terms of the (in that event non-existent) contract.
687. Below, para.7-103.
688. Above, para.4-102.
689. Burrowes v Lock (1805) 10 Ves. 470, as explained in Low v Bouverie [1891] 3 Ch. 82.
690.
This was the effect of the estoppel in Furness Withy (Australia) Ltd v Metal Distributors (UK)
Ltd, (The Amazonia) [1990] 1 Lloyd’s Rep. 238, where it operated to prevent a party from
relying on facts giving rise to a mistake of both parties alleged to make the contract void (see
above, para.3-022 at n.86) and where the effect of allowing him to rely on those facts would
have been to bar the other party’s claim by lapse of time. For the possibility that estoppel by
convention may deprive a party of a defence, see also Azov Shipping Co v Baltic Shipping Co
[1999] 1 Lloyd’s Rep. 159 at 175–176; semble this is subject to the limitation discussed with
regard to promissory estoppel at para.4-102 above. See also Revenue and Customs
Commissioners v Benchdollar Ltd [2009] EWHC 1310 (Ch) (above, paras 2-170, 4-113), where
estoppel by convention operated so as to deprive taxpayers in part of the defence that the
Revenue’s claims against them were barred by lapse of time. See also Mears Limited v
Shoreline Housing Partnership Limited [2013] EWCA Civ 639, [2013] B.L.R. 393, where the
Court of Appeal recognised that estoppel by convention could not be “used to set up a contract
where there was no contract at all” (at [24]), but held that such an estoppel could deprive the
defendant of a defence (at [20]). In that case the defence was that the defendants were entitled
to deduct from the amount claimed under a maintenance contract amounts alleged to have
been overpaid by them to the claimants for earlier work done by the claimants under that
contract; and the estoppel was alleged to have arisen on the ground that both parties had
conducted themselves on the common assumption that payment to the claimants would be
made at a rate other than that actually specified in the contract: see the statement of facts and
the pleadings at first instance [2013] EWHC 27 (TCC), [2013] B.L.R. 181 at [6(c)], [9(e)], [17].
These allegations required an investigation of the facts, so that it would be inappropriate to
accede to the defendants’ application that the claim should be struck out (as opposed to
proceeding to trial: [2013] EWCA Civ 639 (at [21]). In further proceedings in this case ([2015]
EWHC 1396 (TCC)) Akenhead J. held that the requirements of estoppel by convention had
been satisfied (at [64]–[69]), so that the defendants were deprived by that estoppel from
Page 37
asserting that they were entitled to make the deduction described above and that they were
accordingly liable for the amount of that deduction (at [84]). The statement (at [69]) that “the
amount deducted should be repaid” (italics supplied) gives rise to some difficulty as the
overpayment had been made by (not to) the defendants; but the sense is clear, i.e. that the
estoppel prevented the defendants from relying on the fact of overpayment as a ground for in
part resisting the claimants’ claim under the present contract. The significant point here is that
the claimants’ cause of action in respect of that deduction was the latter contract and not the
estoppel. The case thus provides a further illustration of the point made in the text above (as
well as in para.[51] of the judgment). See also Rivertrade Ltd v EMG Finance Ltd [2015] EWCA
Civ 1295, where estoppel by convention did not “create an enforceable right” but was relied
upon “to bind the parties to [the] agreement to an interpretation that would not otherwise be
correct” (at [50]).
691. cf. Johnson v Gore Wood & Co [2002] 2 A.C. 1 (above, para.4-111) where the estoppel likewise
did not create the cause of action, which was based on the alleged negligence of the defendant
solicitors; it merely helped to dispose of the defendants’ objection that the action to enforce that
claim was an abuse of process.
692.
[2015] EWCA Civ 1295.
693.
At [50].
694.
At [48].
695.
(1809) 2 Camp. 317, 6 Esp. 129, Vol.I, para.4-067.
696.
Above, at note 683a.
697.
[2016] EWCA Civ 1295 at [48].
698.
At [50], quoted above at note 683b.
699.
The concession referred to at note 683f had the effect that the point was not fully argued.
700.
cf. Russell Brothers (Paddington) Ltd v John Elliott Management Ltd (1995) 1 Const. L.J. 377,
denying that estoppel by convention can be used as a sword. Contrast dicta in Thornton
Springer v NEM Insurance Co Ltd [2000] 2 All E.R. 489 at 516–518, which seem to assume that
estoppel by convention can give rise to new rights. This aspect of the case gives rise to the
same difficulty as that discussed in relation to promissory estoppel at para.4-099 n.544, above.
The actual decision in the Thornton Springer case was that there was a contract supported by
consideration in the form of “an implied promise not to take proceedings” (at p.516): see above,
para.4-048. The view that estoppel by convention cannot create new rights is also supported by
Smithkline Beecham plc v Apotex Europe Ltd [2006] EWCA Civ 658, [2007] Ch. 71 at [103],
[107] and [110], where the claim was based on estoppel by representation and by convention
(at [102]). This was also the position in Haden Young Ltd v Laing O’Rourke Midlands Ltd [2008]
EWHC 1016 (TCC) (above, para.4-099) where the statement, at [169], that estoppel by
convention could not create a contract where none existed in fact seems to mean that such an
estoppel cannot create a cause of action. See also the Mears case [2013] EWCA Civ 639 at
[24], quoted in n.682 above, and Transgrain Shipping BV v Deiulemar Shipping Ltd [2014]
EWHC 4202 (Comm), [2015] 1 Lloyd’s Rep. 461, where para.3-113 of the 31st edition of this
book (para.4-114 in the present edition) was cited at [39] with apparent approval and it was said
(ibid.) that an estoppel “could not create an agreement”. See also Dixon v Blindley Heath
Investments Ltd [2015] EWCA Civ 1023, [2017] 3 W.L.R. 166 at [73], where it is said that the
effect of estoppel by convention “is to bind the parties to their shared, even though mistaken
understanding or assumption of law or facts on which their rights are to be determined (as in
the case of estoppel by representation) rather than to provide a cause of action (as in the case
Page 38
of promissory estoppel and proprietary estoppel)”. Insofar as this passage supports the view
that the effect of promissory estoppel gives rise to a cause of action, it is, with respect,
inconsistent with the authorities discussed in para.4-099 of the Main Work which on balance
support the view that promissory estoppel does not of itself give rise to a cause of action;
though (as is pointed out in n.550 to that paragraph) this position has given rise to some judicial
“unease”: Newport City Council v Charles [2008] EWCA Civ 1541, [2009] 1 W.L.R. 1884 at [28].
701. Orion Insurance plc v Sphere Drake Insurance [1922] 1 Lloyd’s Rep. 239. But an estoppel by
convention may be based on an arrangement which, for want of contractual intention, lacks
contractual force where the liability in respect of which it is invoked arises otherwise than under
a contract: Revenue and Customs Commissioners v Benchdollar Ltd [2009] EWHC 1310 (Ch)
at [51] (estoppel by convention “arising out of non-contractual dealings”).
702. Yaxley v Gotts [2000] Ch. 162 at 182. A party may, however, be liable on an agreement which
does not comply with the formal requirements of s.2(1) of the Law of Property (Miscellaneous
Provisions) Act 1989 on the basis of a proprietary estoppel amounting, or giving rise also, to a
constructive trust: see Kinane v Mackie Conteh [2005] EWCA Civ 45, [2005] W.T.L.R. 345,
below paras 4-141, 5-040. Such liability arises by virtue of s.2(5) of the 1989 Act. On the
question whether a defendant would be so liable, if his conduct gave rise to a proprietary
estoppel but not to a constructive trust, there may be a difference of judicial opinion in the
Kinane case when Arden L.J. at [28] can be read as taking the view that the s.2(5) exception to
s.2(1) would apply in such a case, while Neuberger L.J. at [46] takes the opposite view. In
Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 (below, paras
4-161 to 4-167), the latter view is also supported by Lord Scott at [29] (with whose speech
Lords Hoffmann, Brown and Mance agreed) who added that it was not necessary to resolve the
question since in that case the agreement was not specifically enforceable (quite apart from
s.2) as it “remained incomplete” (above, para.2-119). Probably for this reason, Lord Walker in
the Cobbe case [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [93] said that it was “not necessary to
consider the issue on section 2”. See also Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R.
776 (below, para.4-149) where Lord Neuberger said at [99] that “as at present advised” he did
“not consider that section 2 [of the 1989 Act] … ha[d] any impact on … a straightforward
estoppel claim without any contractual connection”; in this respect the claim in this case differed
from that in the Cobbe case (cited above in this note). Where s.2 thus had “no impact”, there
would be no need to rely on the s.2(5) exception to s.2(1). For the relationship between
proprietary estoppel and constructive trusts, see below, para.4-142. The requirements of
proprietary estoppel (below, paras 4-147 to 4-164) differ widely from those of estoppel by
convention (above, paras 4-108 to 4-111).
703. cf. Shah v Shah [2001] EWCA Civ 527; [2001] 4 All E.R. 138 at [31] (deed signed and
witnessed but not signed in presence of attesting witness); contrast ibid., at [28] (deed not
signed at all); Briggs v Gleeds (Head Office) [2014] EWHC 1178 (Ch), [2015] 1 All E.R. 553 at
[43] (deed signed but not witnessed and therefore “did not even appear to comply with” s.1(3) of
the Law of Property (Miscellaneous Provisions) Act 1989). In both these cases, the estoppels
unsuccessfully invoked.
704. Actionstrength Ltd v International Glass Engineering SpA [2003] UKHL 17; [2003] 2 A.C. 541.
705. The principle stated in the text above does not apply where the statutory right or defence can
be excluded by contract (e.g. to the defence that the claim in question is statute-barred by lapse
of time): Revenue and Customs Commissioners v Benchdollar Ltd [2009] EWHC 1310 (Ch),
[2010] 1 All E.R. 174.
706. See Keen v Holland [1984] 1 W.L.R. 251; cf. Wilson v Truelove [2003] EWHC 750, [2003]
W.T.L.R. 609; Laroche v Spirit of Adventure (UK) Ltd [2008] EWHC 788 (QB), [2008] 2 Lloyd’s
Rep. 34 at [73], affirmed [2009] EWCA Civ 12, [2009] 2 All E.R. 175 without reference to the
present point; contrast Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd (The
Amazonia) [1989] 1 Lloyd’s Rep. 403 (illegality under foreign statute); Godden v Merthyr Tydfil
Housing Association (1997) 74 P. & C.R. D1. For discussion of a similar point in relation to
estoppel by representation, see Newport City Council v Charles [2008] EWCA Civ 1541, [2009]
H.L.R. 18 (above, para.4-102), where the outcome was said at [18]–[21] to depend on whether
this type of estoppel would “frustrate” the purpose of the statute; this reasoning could also apply
Page 39
in relation to estoppel by convention.
707. Above, para.4-111.
708. Keen v Holland, above, n.690; Hamed El Chiaty & Co (T/A Travco Nile Cruise Lines) v Thomas
Cook Group (The Nile Rhapsody) [1992] 2 Lloyd’s Rep. 399, 408, where, however, the court
treated the contract as rectified so as to correct the mistake; affirmed [1994] 1 Lloyd’s Rep. 382,
without reference to estoppel by convention.
709.
Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ 386,
[2006] 2 Lloyd’s Rep. 511 at [57]; Springwell Navigation Corp. v J P Morgan Chase Bank [2010]
EWCA Civ 1221 at [157]–[170]; Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland
Plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd’s Rep. 123 at [230]; Cassa Di Risparmio della
Republica di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm) at [466]; Shaker
v VistaJet Group Holding SA [2012] EWHC 1329 (Comm), heading before [18] where
“contractual estoppel” is mentioned but is not the ground of decision. See also the reference in
NRAM v McAdam [2014] EWHC 4174 (Comm), [2015] 1 All E.R. (Comm) 1239 at [14] and [29]
to “estoppel by convention and/or contractual estoppel”. The phrase (at [14(iii)(a)]) “if either can
be established” (italics supplied) appears to treat these two concepts as distinct, but it is less
clear whether they are likewise treated as distinct at [29]. If the nature of “contractual estoppel”
is correctly stated in the text above after the present note, then there seems in principle to be
no reason why such an “estoppel” should not be used as a sword even if estoppel by
convention cannot be so used (see above, para.4-114); and a hint to the contrary at [14](iii)(a)]
in the NRAM case above is, with respect, open to question. It has been said that a statement
need not be one “as to a past state of affairs” in order to give rise to a “contractual estoppel”:
Crédit Suisse International v Sticthing Vestia Groep [2014] EWHC 3103 (Comm) at [307]–[309].
The Court of Appeal allowed the appeal in the NRAM case: see [2015] EWCA Civ 751, [2016] 2
All E.R. (Comm) 333 at [59]. The judgment of the Court of Appeal contains two references to
“estoppel by convention and/or contractual estoppel” (at [52] and [56]). Neither of these
passages refers to any requirement that the statement or common assumption must relate to a
“past” state of affairs to be capable of giving rise (in cases of alleged “contractual estoppel”) to a
cause of action.
710. See Olympic Airlines SA v ACG Acquisition xx LLC [2013] EWCA Civ 369, [2013] 1 Lloyd’s Rep
658, where the phrase “contractual estoppel” occurs in a statement of the grounds of appeal (at
[16]) and in a quotation from the judgment at first instance (at [46]). But the concept forms no
part of the reasoning which led Tomlinson L.J. (with whose judgment Kitchin and Toulson L.JJ.
agreed) to conclude that the lessee of an aircraft was, in the circumstances which had
occurred, precluded by a term of the contract from denying that the aircraft was, at the time of
delivery, in an airworthy condition: that conclusion was based simply on the construction of that
term. In Prime Sight Limited v Lavarello [2013] UKPC 22, [2014] A.C. 436 a deed of assignment
of an underlease expressed to have been made in consideration of a sum of money “now paid
by the Assignee” was held to have “estopped” the assignor’s trustee in bankruptcy from
asserting that the payment had not been made; but no reference was made to the concept of
“contractual estoppel”, the ground of decision being simply that the assignee was “on ordinary
contractual principles to rely on the terms of the deed … ”, i.e. (apparently) on its true
construction. There is, with respect, force in the statement in the Crédit Suisse case (above,
n.693) at [309] that “contractual estoppel” is no more than a “convenient label” for describing a
situation which lacks a “defining characteristic of estoppels”, viz., “a detriment in some form or
other”.
711. e.g. the Olympic Airlines case, above n.694.
712. See the cases discussed in para.4-109 above, distinguishing between issue of construction and
issues of estoppels by convention.
713. See, in particular, para.4-108 above at nn.621 and 631.

Page 1

Section 10. - Part Payment of a Debt
(a) - General Rule
General common law rule
4-117
At common law, the general rule is that a creditor is not bound by a promise to accept part payment in
full settlement of a debt. An accrued debt can be discharged by the creditor’s promise only if the
promise amounts, or gives rise, to an effective accord and satisfaction. 714 A counter-promise by the
debtor to pay only part of the debt provides no consideration for the accord, as it is merely a promise
to perform part of an existing duty owed to the creditor. And the actual payment is no satisfaction
under the rule in Pinnel’s Case that “Payment of a lesser sum on the day in satisfaction of a greater
sum cannot be any satisfaction for the whole.” 715 This rule was approved by the House of Lords in
Foakes v Beer. 716 Mrs Beer had obtained a judgment against Dr Foakes for £2,090 19s. Sixteen
months later, Dr Foakes asked for time to pay. A written agreement 717 was made under which Mrs
Beer undertook not to take “any proceedings whatsoever” on the judgment, in consideration of an
immediate payment by Dr Foakes of £500 and on condition 718 of his paying specified instalments
“until the whole of the said sum of £2,090 19s. shall have been paid and satisfied.” Some five years
later, when Dr Foakes had paid £2,090 19s., Mrs Beer claimed £360 719 for interest on the judgment
debt. The House of Lords upheld her claim and the actual result does not appear to be unjust; for it
seems that in making the agreement Mrs Beer intended only to give Dr Foakes time to pay and not to
forgive interest. 720
Effects of the rule
4-118
The rule established in Foakes v Beer may sometimes have performed the useful function of
protecting a creditor against a debtor who too ruthlessly exploited the tactical advantage of being a
potential defendant in litigation. This point is well illustrated by D. & C. Builders Ltd v Rees. 721 The
defendant owed £482 to a firm of builders. Six months after payment had first been demanded, the
defendant’s wife (acting on his behalf) offered the builders £300 in full settlement. The builders
accepted this offer as they were in desperate straits financially and there was some evidence that the
defendant’s wife knew this. 722 It was held that they were nevertheless entitled to the balance; and the
majority 723 of the Court of Appeal based their decision to this effect on the rule in Foakes v Beer.
4-119
On the other hand, it is arguable that the function of protecting the creditor in such a situation is now
more satisfactorily performed by the expanding concept of economic duress 724 than by the rule in
Pinnel’s Case; and that the rule therefore no longer serves any useful purpose. In some
circumstances, an agreement to accept part payment of a debt in full settlement may be a perfectly
fair and reasonable transaction. 725 Moreover, in Foakes v Beer the rule was criticised 726 on the
ground that part payment was often in fact more beneficial to the creditor than strict insistence on his
Page 2
legal rights. A factual benefit 727 of a similar kind has been accepted as sufficient consideration for a
promise to make an extra payment for the performance of an existing contractual duty owed by the
promisee to the promisor 728; and the law would be more consistent, as well as more satisfactory in its
practical operation, if it adopted the same approach to cases of part payment of a debt. Agreements
of the kind here under discussion would then be binding unless they had been made under duress.
But it has been held that this departure from the rule in Foakes v Beer could be made only by the
House of Lords 729 (or now by the Supreme Court). In the meantime, its operation is mitigated by
limitations on its scope at common law 730 and in equity. These are discussed in the following
paragraphs.
4-119A
The discussion in para.4-119 of the Main Work of the likely relationship between, on the one hand,
731 732
the general rule stated in Pinnel’s case and in Foakes v Beer, and, on the other, the
more recently developed view stated in Williams v Roffey Brothers & Nicholls (Contractors) Ltd 733
now calls for further discussion in the light of the decision of the Court of Appeal in MWB Business
Exchange Centres Ltd v Rock Advertising Ltd 734 (“the MWB case”). In that case, office premises
managed by the claimants were occupied by the defendants under a licence agreement between
themselves and the claimants. The defendants having fallen into arrears with payments due from
them to the claimants, the parties agreed on February 27, 2012 to vary their original licence
agreement by “re-scheduling” the payments due from the defendants to the claimants (so as in effect
to give the defendants extra time to pay). One of the re-scheduled payments (of £3,500) was made
on that day, but on March 30, 2012 the claimants exercised their right under the original contract to
735
lock the defendants out of the premises. On March 30, 2012 the claimants gave notice
736
terminating the (original) agreement ; they then sued for arrears of licence fees and damages.
The defendants relied on the variation agreement (re-scheduling their payments); and one of the
issues before the Court of Appeal was whether the claimants’ promise to (in effect) give the
defendants extra time to pay was supported by consideration. In answering this question in the
affirmative, 737 the Court applied the reasoning of the Williams case 738 : that is, it held that the
requirement of consideration was satisfied because the variation agreement had conferred “practical
benefits” 739 on the claimants. Foakes v Beer 740 and Re Selectmove 741 were distinguished
on the ground that they applied only where the sole benefit accruing to the creditor from the
performance of the variation agreement took the form of receiving part payment of a debt already
legally due to him, instead of insisting on payment of the whole. 742 Indeed, this view is supported,
as Arden L.J. points out in the MWB case, by the well known statement in Pinnel’s case that the rule
there laid down, and approved in Foakes v Beer, is subject to the “rider” that “the gift of a horse, hawk
or robe etc. shall be good satisfaction …”. 743 It is sometimes assumed that the provision of such
benefits satisfies the requirement of consideration because the debtor was not bound by the original
contract to provide them 744 ; but the ensuing discussion will show that the requirement of
consideration may (though it will not necessarily) be satisfied where the debtor’s performance which
confers the “practical benefit” on the creditor was already due from the debtor to the creditor under
the original contract between these parties before that contract was varied by agreement between
them; indeed that was the position in the Williams case 745 itself. It is convenient here to begin the
discussion of the consideration issue in the MWB case by reference to the way in which Arden L.J.
there discusses this question. Her starting point is to refer to the way in which the judge in the Court
below had dealt with the point: he had found that the “variation agreement conferred on [the claimant]
the practical benefit of continuing occupation by” the defendant and thus (in Arden L.J.’s own words)
that “of avoiding a void”, the noun “void” being here used “in the sense in which it is used in property
management to refer to unoccupied and therefore unproductive property, which may cause loss in the
form of loss of rent and in other ways.” 746 Substantially the same point is made by Kitchin L.J., 747
who in addition agreed with Arden L.J. on this issue 748 ; while McCombe L.J. agreed with both
Page 3
of the other judgments. 749 Both these judgments also identify a second “practical benefit”
obtained by the claimants. This was the benefit which they obtained by reason of the facts that, in
performance of the variation agreement they had received a payment of £3,500 and that they would,
under that agreement, be “likely to recover more than [they] would by enforcing the terms of the
750
original agreement.” This second “practical benefit” seems closely to resemble the benefit
751
described by Lord Blackburn in Foakes v Beer, but reluctantly there regarded by him as not
amounting to consideration, a point on which that case was followed in Re Selectmove. 752 It is
therefore hard to accept that the second “practical benefit” identified in the MWB case would, on its
own, have satisfied the requirement of consideration. That benefit differs, or may differ, from the
benefit that a debtor may provide by way of a horse, a hawk or a robe 753 in that those benefits are
assumed to be of a kind that the debtor is not obliged under the original contract to provide 754 ;
and it is not clear from the report of the Court of Appeal’s decision in the MWB case whether the
original contract in that case imposed any obligation on the defendants to continue to occupy the
premises for the term of the licence. 755 The Anangel Atlas case 756 supports the view that a
benefit may satisfy the requirement of consideration even though it takes the form of an act which the
debtor was bound under the contract to do, in that case taking delivery of the contractual
subject-matter. This benefited the creditor in that the debtor’s refusal to take delivery might have
prejudiced the creditor’s relations with other actual or potential customers; and from a commercial
point of view this resembled the benefit that the claimants in the MWB case obtained from “avoiding a
void.” 757 The only situation in which a “practical benefit” conferred by the debtor on the creditor
will not satisfy the requirement of consideration because the debtor was already bound by the
contract to confer that benefit on the creditor is that in which the benefit consists of part payment (or
the promise of part payment) of a debt already due. In the MWB case, this was said to be the only
situation squarely covered by Foakes v Beer and Re Select-move. 758 Where the benefit is of a
different kind, the MWB case recognises that it can constitute consideration for the creditor’s promise
and it can do so whether or not the debtor was already bound by the original contract to confer that
benefit on the creditor. The remaining puzzle arising from this part of the reasoning of the MWB case
is that the defendants’ continuing in occupation was regarded as a benefit to the claimants in spite of
the fact that, by locking the defendants out of the premises, the claimants had shown that they did not
themselves so regard it. 759

714. Commissioners of Stamp Duties v Bone [1977] A.C. 511, 519 (“A debt can only be truly
released by agreement for valuable consideration or under seal.”) This principle appears to
have been overlooked in a dictum in Brikom Investments Ltd v Carr [1979] Q.B. 467, 488,
according to which a “waiver” of instalments of rent would bind the landlord. The actual promise
of the landlord in that case was supported by consideration: above, para.4-081; below,
para.4-135.
715. (1602) 5 Co.Rep. 117a; Cumber v Wane (1721) 1 Stra. 426; McManus v Bark (1870) L.R. 5 Ex.
65; Underwood v Underwood [1894] P. 204; Re Broderick [1986] N.I.J.B. 36, 49–55; Tilney
Engineering v Admods Knitting Machinery [1987] C.L.Y. 412; cf. Bagge v Slade (1616) 3 Bulst.
162.
716. (1884) 9 App. Cas. 605.
717. Drawn up by Dr Foakes’ solicitor: (1884) 9 App. Cas. at 625.
718. Dr Foakes made no promise to pay the instalments.

Page 4
719. Beer v Foakes (1883) 11 Q.B.D. 221, 222.
720. Lords Fitzgerald and Watson thought that the agreement did not, on its true construction, cover
interest. Lords Selborne and Blackburn sympathised with this view but felt unable to adopt it as
the operative part of the document was too “clear” to be controlled by the recital: see (1884) 9
App. Cas. at 610, 614, 615.
721. [1966] 2 Q.B. 617; Chorley (1966) 29 M.L.R. 165; Cornish (1966) 29 M.L.R. 428; and see
below, para.4-138.
722. [1966] 2 Q.B. at 625.
723. Lord Denning, M.R. based his decision on a different ground: below, para.4-138.
725. e.g. on the facts of Central London Property Trust Ltd v High Trees House Ltd [1947] K.B. 130;
below, para.4-130.
726. Especially by Lord Blackburn: (1884) 9 App. Cas. at 617–622; see also Lord Selborne at 613
and Couldery v Bartrum (1881) 19 Ch.D. 394, 399, where Jessel, M.R. called the rule “a most
extraordinary peculiarity of English law.”
727. Above, para.4-004.
728. Williams v Roffey Bros. & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1, above para.4-069.
729. Re Selectmove [1995] 1 W.L.R. 474, where the Court of Appeal refused to apply the principle of
the Williams case, above n.712, in the present context; Peel, (1994) 110 L.Q.R. 353; Collier v P
& M.J. Wright (Holdings) Ltd [2007] EWCA Civ 1329, [2008] 1 W.L.R. 643 at [27(i)], [44] (as to
which see also below, n.714); Birmingham City Council v Forde [2009] EWHC 12 (QB), [2009] 1
W.L.R. 2732 at [89].
730. In Collier v P & M.J. Wright (Holdings) Ltd above, n.713 Arden L.J. said at [3] that “the rule does
not apply where the debt arises from the provision of services: Williams v Roffey [1991] 1 Q.B.
1”; but that Re Selectmove [1995] 1 W.L.R 474 had “confirmed that a promise to pay part of the
money to which the creditor is already entitled is not good consideration.” The reference to “the
rule” in the first part of this statement appears to be to “the rule in Pinnel’s case” (at [3]) (1603)
5 Co.Rep. 117a, (above, para.4-117) but it is respectfully submitted that this rule was not under
consideration in the Williams case. The issue in that case was not whether payment of less
than the amount due could be good consideration for the creditor’s promise to forgo the
balance. It was whether performance (in full) of the agreed services could be consideration for a
promise by the recipient of the services (the debtor) to pay more than the originally agreed sum:
see above, para.4-069. In the Collier case, the actual decision was that the debtor had an
arguable case based on the doctrine of promissory estoppel: see below, para.4-134.
731.
(1602) 5 Co. Rep. 117a; Vol.I, para.4-117.
732.
(1884) 9 App. Cas. 605; Vol.I, para.4-117.
733.
[1991] 1 Q.B. 1; Vol.I, paras 4-069, 4-070.
734.
[2016] EWCA Civ 553; [2017] Q.B. 604. Leave to appeal to the Supreme Court was granted
on January 31, 2017.
735.
At [4].
Page 5
736.
ibid.
737.
[2016] EWCA Civ 553 at [49], [66], [67], [87].
738.
Above, at note 714c.
739.
[2016] EWCA Civ 553 at [42].
740.
(1884) 9 App. Cas. 605; para.4-117.
741.
[1995] 1 W.L.R. 474; para.4-119 n.713.
742.
See [2016] EWCA Civ 553 at [39], [85]–[87].
743.
At [85].
744.
e.g. at [41] (“some other act that he was not bound by the contract to perform”); cf. at [84],
explaining Re Selectmove (above, n.714k) on the ground that there was no “extra” benefit to
the promisor.
745.
[1991] 1 Q.B. 1, paras 4-069, 4-070.
746.
[2016] EWCA Civ 553 at [72], italics supplied; e.g., perhaps by reducing the rental value of
other units in the same building.
747.
At [48] (“would retain [the defendant] as licensee”).
748.
At [49].
749.
At [67].
750.
At [48].
751.
(1884) 9 App. Cas. 605 at 622, quoted in the MWB case [2016] EWCA Civ 553 at [39].
752.
[1995] 1 W.L.R. 474, para.4-119 n.713.
753.
See above, at note 714m.
754.
See above at note 714n.
755.
Cf., for example, Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd, Vol.I,
para.27-031, for a clause of this kind. No issue of consideration arose in this case.
756.
[1990] 2 Lloyd’s Rep. 526, 544, discussed in the Vol.I, para.4-125.
757.
[2016] EWCA Civ 553 at [72].
Page 6
758.
See [2016] EWCA Civ 553 at [48], [49], [67] and [82]–[87].
759.
Perhaps the resolution of the above reasoning may be sought by reasoning similar to that of
para.4-024.

Page 1

(b) - Limitations at Common Law
Disputed claims
4-120
The rule stated in para.4-117 above does not apply where the creditor’s claim (or its amount) is
disputed in good faith. 760 In such a case, the value of the creditor’s claim is doubtful and the debtor
therefore provides consideration by paying something, even though it is less than the amount
claimed. The requirement of consideration is satisfied even though the amount paid is small in
relation to the amount claimed, and even though the creditor has a good chance of succeeding on the
claim; for the law will not generally investigate the adequacy of consideration. 761 The agreement to
accept a reduced amount may also amount to a compromise of the disputed claim 762; if so, the
requirement of consideration can be satisfied under the rules, discussed earlier in this Chapter, 763
relating to compromises of, and forbearances to enforce, invalid or doubtful claims. However, where
the defendant admits liability for a sum less than that claimed, payment of that smaller sum is no
consideration for the claimant’s promise to accept payment of that sum in full settlement of the larger
claim. The rule in Foakes v Beer applies since, once a binding admission has been made to pay the
smaller sum, the payment of it amounts to no more than the performance of what, at that stage, is
legally due from the defendant. 764
Unliquidated claims
4-121
For reasons similar to those given in para.4-120 above, the general rule applies only if the original
claim is a “liquidated” one, i.e. a claim for a fixed sum of money, such as one for money lent or for the
agreed price of goods 765 or services. It does not apply where the creditor’s claim is an unliquidated
one, 766 such as a claim for damages or for a reasonable remuneration (where none is fixed by the
contract). The value of such a claim is again uncertain; and even if the overwhelming probability is
that it is worth more than the sum paid, the possibility that it may be worth less suffices to satisfy the
requirement of consideration.
Unliquidated claims becoming liquidated
4-122
An originally unliquidated claim may subsequently become liquidated by act of the parties. This
appears to have happened in D. & C. Builders v Rees, 767 where it does not seem that the contract
specified the amount to be paid to the builders. When they presented their account they had only an
unliquidated claim; and if they had at this stage accepted the £300 in full settlement they would not
have been protected by the rule in Foakes v Beer. 768 That rule became applicable only because the
defendant had, by retaining the account without objection, impliedly agreed that it correctly stated the
Page 2
sum due, and so turned the builders’ claim into a liquidated one. 769
Claim partly liquidated and partly unliquidated
4-123
A creditor may have two claims against the same debtor, one of them liquidated and the other
unliquidated; or a single claim which is partly liquidated and partly unliquidated. If the debtor pays no
more than the liquidated amount, and if his liability to pay this amount was undisputed, the payment of
it will not constitute consideration for a promise by the creditor to accept that payment in full
settlement of the whole of the claim or claims in question. In Arrale v Costain Civil Engineering Ltd 770
an employee was injured at work. Legislation in force at the place of work gave him a right against the
employers to a fixed lump sum of £490, for which the employers did not dispute liability; and it was
assumed that he also had a common law right to sue the employers in tort for unliquidated damages.
It was held that any promise which he might have made not to pursue the common law claim was not
made binding by the employers’ payment of the £490. The employers had provided no consideration
for such a promise since in making the payment, they merely did what they were already bound to do.
771
Variation in the debtor’s performance
4-124
Consideration for a creditor’s promise to accept part payment of a debt in full settlement can be
provided by the debtor’s doing some act that he was not previously bound by the contract to do. 772
For example, payment of a smaller sum at the creditor’s request before the due day is good
consideration for a promise to forgo the balance, since it is a benefit to the creditor to be paid before
he was entitled to payment, and a corresponding detriment to the debtor to pay early. 773 The same
rule applies, mutatis mutandis, where payment of a smaller sum is made at the creditor’s request at a
place different from that originally fixed for payment, 774 or in a different currency. 775 Again, payment
of a smaller sum accompanied at the creditor’s request by the delivery of a chattel is good
consideration for a promise to forgo the balance: “The gift of a horse, hawk or robe, etc. in satisfaction
is good. For it shall be intended that a horse, hawk or robe, etc., might be more beneficial than the
money. … ” 776
Other benefit to creditor
4-125
We have seen that a promise to pay a supplier of services more than the agreed sum for performing
his part of the contract can be supported by consideration in the form of a benefit in fact obtained by
the other party as a result of that party’s obtaining the promised performance. 777 Conversely, a
promise by the supplier to accept less than the agreed sum may be supported by a similar
consideration. The mere receipt of the smaller sum cannot, indeed, constitute the consideration: that
possibility is precluded by Foakes v Beer. 778 But the performance by the debtor of other obligations
under the contract may confer such a benefit on the creditor and so satisfy the requirement of
consideration. This possibility is illustrated by the Anangel Atlas 779 case, where a shipbuilder’s
promise to reduce the price which the buyers had agreed to pay was held to have been supported by
consideration, and one way in which the buyers to whom the reduction was promised had provided
consideration was by accepting delivery on the day fixed for such acceptance. Even if the buyers
were already bound to take delivery on that day, they had conferred a benefit on the shipbuilder by so
doing since they were “core customers” 780 and their refusal to take delivery might have led other
actual or potential customers to cancel (or not to place) orders.
Forbearance to enforce cross-claims

Page 3
4-126
A debtor may provide consideration for the creditor’s promise not only by doing an act that he was not
previously bound to do, but also by a forbearance. Thus, where the debtor has a claim against the
creditor, the debtor’s forbearance to enforce that claim can constitute consideration for the creditor’s
promise not to claim part of the debt. For example, where a landlord promises to accept part payment
of rent in full settlement, the tenant may provide consideration for this promise by forbearing to sue
the landlord for breach of the latter’s obligation to keep the premises in repair. 781
Composition with creditors
4-127
The doctrine of consideration gives rise to some difficulty in relation to composition agreements by
which a debtor who cannot pay all his creditors in full induces them to agree with himself and with
each other to accept part payment in full settlement of their claims. 782 The binding force of such
agreements is well established, 783 in spite of the rule in Foakes v Beer. 784 One possible reason for
the validity of such agreements is that it would be a fraud on the other parties for a creditor who had
accepted a composition to claim the balance of his original debt. 785 An alternative view is that the
consideration for the creditor’s promise is to be found in the promise of every other creditor to forgo
part of his own debt 786; but this consideration does not move from the promisee (i.e. the debtor)
unless he also joins in the agreement. 787 In that event there may be consideration in the shape of a
benefit to each creditor 788: he is certain of some payment, while in the scramble for priorities which
might take place if there were no composition agreement he might get nothing at all.
Part payment of debt by a third party
4-128
Part payment by a third party, if accepted by the creditor in full settlement of the debtor’s liability, is a
good defence to a later claim by the creditor for the balance. 789 This rule seems not to depend on any
contract between debtor and creditor, so that it can apply even though no promise has been made to
the debtor and even though no consideration has moved from him. 790 The rule has therefore been
explained on other grounds. One such ground is that it would be a fraud 791 on the third party to allow
the creditor, in disregard of his promise to the third party, to sue the debtor for the balance of the debt.
The difficulty with this reasoning is that the mere breach of a promise does not amount to fraud at
common law: it has this effect only if the promisor had no intention of performing his promise when he
made it. 792 A second reason for the rule is that the court will not help the creditor to break his contract
with the third party by allowing him to obtain a judgment against the debtor. On the contrary, it has
been held that where A (the creditor) expressly contracts with B (the third party) not to sue C (the
debtor) and A nevertheless does sue C, then B can intervene so as to obtain a stay of the action. 793
This possibility would extend to the case where the consideration provided by B was a promise by B
to pay A: it thus goes beyond the cases in which B had actually paid A. A third explanation is
suggested by Hirachand Punamchand v Temple 794 where the defendant was indebted on a
promissory note to the claimant, who accepted a smaller sum from the defendant’s father in full
settlement. It was held that the claimant could not later recover the balance of the debt from the
defendant because the promissory note was extinct: the position was the same as if the note had
been cancelled. 795 This reasoning again does not depend on any contract between the claimant and
the defendant, for the cancellation of a promissory note can release a party liable on it irrespective of
contract and without consideration. 796 The debtor may also, if the requirements of the Contracts
(Rights of Third Parties) Act 1999 are satisfied, 797 be able to take the benefit of any term in the
contract between the creditor and the person making the payment, which may exclude the debtor’s
liability for the balance; and he will be able to do so without having to show that he provided any
consideration for the creditor’s promise to accept the part payment in full settlement. 798
Collateral contract
Page 4
4-129
An agreement to accept part payment of a debt may take effect as a collateral contract if the
requirements of contractual intention and consideration are satisfied. This was the position in Brikom
Investments Ltd v Carr 799 where a tenant’s liability to contribute to the maintenance costs of a block
of flats was held to have been reduced by a collateral contract under which the landlord undertook to
execute certain roof repairs at his own expense. 800 The landlord’s claim for contribution in this case
was probably unliquidated; but the principle seems to be equally applicable where a creditor enters
into a collateral contract to accept part payment in full settlement of a liquidated claim.

760. Cooper v Parker (1855) 15 C.B. 822; Re Warren (1884) 53 L.J.Ch. 1016; Anangel Atlas
Compania Naviera SA v Ishikawajima Harima Heavy Industries Co Ltd (No.2) [1990] 2 Lloyd’s
Rep. 526, 544; for other consideration in this case, see ibid. at 545 and below, para.4-125;
Huyton SA v Peter Cremer GmbH [1999] 1 Lloyd’s Rep. 620 at 629.
761. Above, para.4-014. But the fact that the sum received is much smaller than that claimed may be
evidence that the recipient has not accepted it in full settlement: Rustenburg Platinum Mines Ltd
v Pan Am [1979] 1 Lloyd’s Rep. 19.
762. North Sea Ventures Ltd v Anstead Holdings Inc [2011] EWCA Civ 230, [2011] 2 All E.R.
(Comm) 1024 at [42], [58].
763. Above, paras 4-052 to 4-055.
764. Ferguson v Davies [1997] 1 All E.R. 315 per Henry L.J.; Evans L.J.’s judgment is based on the
ground that, as a matter of construction, the claimant had not accepted the smaller sum in full
settlement. Aldous L.J. agreed with both the other judgments.
765. A claim may be “liquidated” even though it is disputed and even though the dispute relates to its
amount: e.g. where it is for the price of goods and the buyer alleges short delivery: Aectra
Refining and Manufacturing Inc v Exmar N.V. (The New Vanguard) [1994] 1 W.L.R. 1634.
766. Wilkinson v Byers (1834) 1 A. & E. 106; Ibberson v Neck (1886) 2 T.L.R. 427.
767. [1966] 2 Q.B. 617; above, para.4-118.
769. cf. Amantilla v Telefusion (1987) 9 Con.L.R. 139, where a builder’s quantum meruit claim, which
had not been disputed, was treated as “liquidated” for the purpose of Limitation Act 1980,
s.29(5)(a).
770. [1976] 1 Lloyd’s Rep. 98; cf. Rustenburg Platinum Mines Ltd v Pan Am [1979] 1 Lloyd’s Rep.
19, 24.
771. Per Stephenson and Geoffrey Lane L.JJ.; Lord Denning, M.R. based his decision on a different
ground: below, para.4-138, after n.817.
772. e.g. Re William Porter & Co [1937] 2 All E.R. 261; Ledingham v Bermejo Estancia Co Ltd [1947]
2 All E.R. 748.
773. Pinnel’s Case, above, para.4-117.
774. ibid.
Page 5
776. Pinnel’s Case (1602) 5 Co. Rep. 117a, above, para.4-117. Cases which formerly supported the
view that part payment by a negotiable instrument, made at the request of the creditor and
accepted by him in full settlement, discharged the debt were overruled in D. & C. Builders Ltd v
Rees [1966] 2 Q.B. 617.
777. Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1, above, para.4-069.
779. Anangel Atlas Compania Naviera SA v Ishikawajima Harima Heavy Industries Co Ltd (No.2)
[1990] 2 Lloyd’s Rep. 526. For other consideration in that case, in the form of reducing “a
previously ill-defined understanding to ‘precise terms,’ and so settling a potential dispute”, see
ibid. 544.
780. ibid., at 544.
781. Brikom Investments Ltd v Carr [1979] Q.B. 467, as explained in para.4-081, above.
782. Provision for publicity and substantial agreement among creditors is made by Deeds of
Arrangement Act 1914 (repealed in part by Insolvency Act 1985, s.235 and Sch.10, Pt III, and
amended by Insolvency Act 1986, s.439(2)). Oral agreements are not caught by the 1914 Act:
Hughes & Falconer v Newton [1939] 3 All E.R. 869. “Voluntary arrangements” under Insolvency
Act 1986, Pts. I and VIII can, by virtue of ss.5(2) and 260(2), bind even a creditor who did not
attend the meeting, or dissented from the proposal, “as if he were a party to the arrangement:”
see Johnson v Davies [1999] Ch. 117 at 138; cf. Re Cancol Ltd [1996] 1 All E.R. 37. Re a
Debtor (No.259 of 1990) [1992] 1 W.L.R. 226.
783. Good v Cheesman (1831) 2 B. & Ad. 328; Boyd v Hind (1857) 1 H. & N. 938; an agreement to
pay a dividend may, if the parties so intend, operate as satisfaction: Bradley v Gregory (1810) 2
Camp. 383.
785. Wood v Roberts (1818) 2 Stark. 417; Cook v Lister (1863) 13 C.B.(N.S.) 543, 595.
786. Boothbey v Snowden (1812) 3 Camp. 175.
787. As in Good v Cheesman (1831) 2 B. & Ad. 328 where the debtor also made an assignment for
the benefit of his creditors.
788. In West Yorkshire Darracq Agency Ltd v Coleridge [1911] 2 K.B. 326, the same principle was
applied although the creditors got nothing; but it is hard to see how this application of the rule
can be justified: above, para.4-038, n.236. Even in such a case, the debtor may get the benefit
of the agreement if, when he is sued by one creditor, the other (or others) can intervene to stay
the action: see Snelling v John G. Snelling [1973] 1 Q.B. 87, below, para.18-073. The debtor
will not, however, be able to avoid the requirement of consideration by relying on the Contracts
(Rights of Third Parties) Act 1999 since this applies only in favour of “a person who is not a
party” to the contract (s.1(1)); and in the case of a composition agreement the debtor typically
will be a party.
789. Welby v Drake (1825) 1 C.&P. 557; Cook v Lister (1863) 13 C.B.N.S. 543 at 595; Bracken v
Billingshurst [2003] EWHC 1333 (TCC); [2003] All E.R. (D) 488 (Jul).
790. As in Hirachand Punamchand v Temple [1911] 2 K.B. 339, below at n.749.
791. See the first two cases cited in n.744, above.
792. Below, para.7-008.

Page 6
793. See Snelling v John G. Snelling Ltd [1973] 1 Q.B. 87 (below, para.18-072), distinguishing Gore
v Van der Lann [1967] 2 Q.B. 31 where no promise was made not to sue C.
794. [1911] 2 K.B. 330.
795. ibid. at 336; cf., in the case of joint debts, Johnson v Davies [1999] Ch. 117, 130. In Chelsea
Building Society v Nash [2010] EWCA Civ 1247 B and C were jointly and severally indebted to
A who agreed with B to accept part payment “in full and final settlement.” It was held that this
agreement prevented A from suing C for the share of the debt attributed by A to C as the
agreement between A and B was not shown by A to have either expressly or impliedly to have
reserved A’s rights against C. In the Court of Appeal A also relied for the first time on the rule in
Pinnel’s case (1602) Co.Rep. 117a (above, para.4-117) but it was held that this point could not
be taken at this late stage as the opportunity to find relevant facts (presumably relating to the
limitations on the scope of that rule discussed in paras 4-120 above et seq.) had been
irretrievably lost (at [40]).
796. Bills of Exchange Act 1882, s.62; below, paras 22-020 and Vol.II, 34-138.
797. Below, para.18-090 et seq.
798. Above, para.4-046, below para.18-102. For the purposes of the Act it is the debtor who, in the
example given above, is the “third party”.
799. [1979] Q.B. 467. Contrast, on the issue of contractual intention necessary to establish a
collateral contract, Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] EWCA
Civ 622, [2007] L. & T.R. 26, above para.2-174.
800. For the consideration supporting this promise, see above, para.4-081; for other grounds for the
decision, see below, para.4-135.

Page 1

(c) - Limitations in Equity
Equitable forbearance
4-130
Under the equitable doctrine of Hughes v Metropolitan Ry 801 a promise by a contracting party not
to enforce his strict legal rights has (even where it is not supported by consideration) at least a limited
effect in equity. Before 1947, this doctrine had not been applied where a creditor’s promise to accept
part payment of a debt in full settlement was not supported by any consideration moving from the
debtor. 802 Such an extension of the rule seemed to be barred by Foakes v Beer. 803 The possibility of
making the extension was, however, suggested in 1947 in Central London Property Trust Ltd v High
Trees House Ltd. 804 In that case a block of flats had been let for 99 years to the defendants in 1937
at a rent of £2,500 a year. In January 1940 the landlords agreed to reduce this rent to £1,250 a year
because of wartime conditions as a result of which only a few of the flats were let. After the end of the
war, when the flats were fully let, the landlords claimed the full rent, and tested their claim by suing for
rent at the original rate for the last two quarters of 1945. Denning J. upheld the claim on the ground
that, as a matter of construction, the agreement of 1940 was intended to apply only while the war-time
difficulties of sub-letting lasted, and that it had therefore ceased to operate in the early part of 1945,
when these difficulties had come to an end. 805 But he also said that the landlords would have
been precluded by the equitable doctrine of Hughes v Metropolitan Ry 806 from recovering the full rent
for a period which was covered by the agreement of 1940. He added: “The logical consequence no
doubt is that a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding
notwithstanding the absence of consideration.” 807 The requirements of the equitable doctrine have
already been discussed. 808 A number of further points give rise to difficulty in its application to
promises to accept part payment in full settlement of a debt; these points are considered in paras
4-131 to 4-138 below.
Suspensive nature of the doctrine
4-131
The first difficulty is to reconcile Denning J.’s statement in the High Trees case, quoted in
para.4-130 above, 809 with the actual decision in Foakes v Beer. 810 If Mrs Beer could go back on her
promise not to claim interest, why could not the landlords in the High Trees case go back on their
promise not to ask for the full rent in (say) 1941, when the war-time difficulties of subletting still
prevailed? One possibility is to say that “That aspect was not considered in Foakes v Beer” 811 which
was decided on purely common law principles, without reference to equity, 812 and is therefore “no
longer valid” 813; but this reasoning is open to the objection that the rule in Pinnel’s Case 814 (on which
Foakes v Beer was based) was recognised in equity no less than at common law. 815 Another
possibility, and the one which does least violence to the authorities, is to say that the creditor’s right to
the balance of his debt is (save in exceptional cases 816) not extinguished but only suspended. 817 This
is generally the sole effect of the rule in Hughes v Metropolitan Ry. 818 and in the present context it
Page 2
would give effect to the intention of the parties where the purpose of the arrangement was merely to
give the debtor extra time to pay, 819 rather than to extinguish the debt. Of course where the intention
is to extinguish, and not merely to suspend, the creditor’s right to the balance, the suggestion that he
is permanently bound by his promise to accept part payment in full settlement 820 may seem to be an
attractive one. 821 But such an extension of the principle of Hughes v Metropolitan Ry would
require the overruling of Foakes v Beer. It is, no doubt, with such difficulties in mind that Lord
Hailsham L.C. has said that the High Trees principle “may need to be reviewed and reduced to a
coherent body of doctrine by the courts.” 822
Continuing obligations
4-132
For the present, the better view is that the principle only suspends rights; but the meaning of this
statement is not entirely clear where the promisee is under a continuing obligation to make a series of
payments, e.g. of rent under a lease, 823 of royalties under a licence to use a patent, 824 or of
instalments under a hire-purchase agreement. 825 In such cases the statement may mean one of two
things: first, that the creditor is entitled to payment in full only of amounts which fall due after the
expiry of a reasonable notice of the retraction of the promise, 826 or, secondly, that he is then entitled,
not only to future payments in full, but also to the balance of past ones. Of course the latter
interpretation of the rule might sometimes be at variance with the intention of the parties at the time of
the promise. 827 On the other hand it is hard to see why a debtor whose liability accrues from time to
time should, for the purpose of the present rule, be in a more favourable position than one whose
liability is to pay a single lump sum; nor is it clear which of the two possible rules should apply where
a debtor who owed a lump sum promised to pay it off in instalments and the creditor first made, and
then gave reasonable notice revoking, a promise to accept reduced instalments. In such a case, it is
at least arguable that the intention of the creditor is only to give extra time for payment. Hence the
total debt remains due, and the only effect of the promise is to extend the period over which it is to be
repaid. 828
4-133
In Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd 829 a licence for the use of a patent
provided that the licensees should pay “compensation” if they manufactured more than a stated
number of articles incorporating the patent. The owners of the patent agreed in 1942 to suspend the
obligation to pay compensation until a new agreement was made. No such agreement had been
made by 1944, when disputes arose between the parties. In 1945 the owners claimed to have
revoked their suspension and to be entitled to the “compensation” as from June 1, 1945. This claim
failed, the Court of Appeal holding that the arrangement to suspend claims for compensation was
binding until proper notice of its termination had been given; and that no such notice had been given.
The owners then brought the present action claiming compensation as from January 1, 1947. The
House of Lords upheld the claim on the ground that, by then, sufficient notice had been given of the
ending of the suspension period. It seems to have been assumed that the defendants were no longer
liable to pay the sums which would, under the original contract, have fallen due during the suspension
period. But this point was not directly considered by the House of Lords; so that the case does not
conclusively determine the precise results that flow, in cases of continuing obligations, from the
suspensive nature of the doctrine.
Extinctive effects in exceptional cases
4-134
There may, moreover, be exceptional situations in which the creditor’s promise can wholly extinguish
his rights. We have seen that, under the rule in Hughes v Metropolitan Ry, 830 a promise cannot be
retracted where subsequent events make it impossible to perform the original obligation. 831 That
principle cannot, as such, be applied to cases of part payment of a debt, since performance of the
original obligation, being one to pay money, can never become literally impossible. But there is also
support for the view that a forbearance cannot be retracted where it would, even after reasonable
Page 3
notice, be highly inequitable to require performance of the original obligation 832; and this aspect of the
principle could be applied to cases of the present kind, with the result that the promise becomes “final
and irrevocable if the promisee cannot resume his position.” 833 Thus the creditor’s right to the balance
of a debt might be extinguished if in reliance on his promise the debtor had undertaken new
commitments in relation to the subject-matter: if, for example, the tenant in the High Trees case had
used the rebate to modernise the flats. 834 There is some support in the authorities for the view that
the creditor’s right may be extinguished (as opposed to being suspended) even where the debtor’s
reliance on the creditor’s promise goes no further than merely paying the part of the debt which the
creditor had agreed to accept in full settlement. This had been the view of Lord Denning MR in D & C
Buildings Ltd v Rees. 835 His actual decision there was that it was not “inequitable” for the creditor to
go back on his promise to accept part payment of the debt in full settlement as there had been no
“true accord” to this effect. 836 But he went on to say that “where there has been a true accord” and
“the debtor acts upon that accord by paying the lesser sum, then it is inequitable for the creditor
afterwards to insist on the balance.” 837 In Collier v P & M.J. Wright (Holdings) Ltd 838 Arden LJ relied
on this dictum in support of the view that, if a creditor promised to accept part payment in full
settlement of a debt, and the debtor relied on that promise by making the stipulated payment, then the
debtor’s defence on the ground of promissory estoppel was one which had a real prospect of
success. 839 She accepted that “the effect of promissory estoppel is usually suspensory only” but
added that “if the effect of resiling is sufficiently inequitable, a debtor may be able to show that the
right to recover the debt is not merely postponed but extinguished.” 840 There may, indeed, as is
pointed out in para.4-138 below, be special circumstances in which promissory estoppel may,
exceptionally, have such an extinctive effect; but the difficulty to which the Collier case gives rise is
that the judgments do not identify any such circumstances beyond (a) the creditor’s promise to accept
part payment in full settlement and (b) the debtor’s making the stipulated part payment. If these
circumstances were sufficient for the application of promissory estoppel with extinctive effect, the
difficulty mentioned in the discussion of the High Trees case 841 in para.4-131 above would again
arise: that is, there would be a direct conflict between such an application and the outcome in Foakes
v Beer. 842 No doubt, the law as laid down in that case may, for reasons given in para.4-119, be
defective, at least in its operation in some situations. But any such defect would be more satisfactorily
dealt with by a reconsideration by the Supreme Court of Foakes v Beer than by continuing to regard
that case as good law while seeking to bypass its consequences by invoking the doctrine of
promissory estoppel. The latter course would provide no clear guidance as to which of the two
conflicting principles would apply in any particular situation and so be a source of undesirable
uncertainty. The point is well illustrated by the D & C Builders case itself where the judgment of Lord
Denning was based on the doctrine of promissory estoppel, 843 while those of Danckwerts and Winn
L.JJ. were based on the rule in Foakes v Beer 844 and conflict between these two approaches was
avoided in the D & C Builders case only by Lord Denning’s conclusion that promissory estoppel was
of no avail by reason of the debtor’s conduct in securing the creditor’s promise. 845 In the Collier case,
it was assumed that there was no such objectionable conduct on the debtor’s part. The conflict
between the two approaches was thus a real one and the judgments do not provide any principled
basis for its resolution.
4-135
In Brikom Investments Ltd v Carr 846 long leases of flats obliged the tenants to pay, not only rent and a
maintenance charge, but also contributions in respect of certain “excess expenses” incurred by the
landlords in keeping the structure in repair. In the course of the negotiations leading to the execution
of the leases, the landlords had promised to put the roof into repair “at our own cost.” This was held to
amount to a collateral contract 847 with one of the original tenants, precluding the landlords from
enforcing against her the provision in the lease requiring her to contribute to the cost of the roof
repairs. It was further held that claims for contributions to the cost of those repairs could not be made
against assignees and sub-assignees of original tenants, even though there was no collateral contract
with these persons. Lord Denning, M.R. based this conclusion on the High Trees principle which, in
his view, was available not only between the original parties, but also in favour of and against their
assigns. 848 The extinctive effect of the principle in these circumstances can perhaps be supported on
the ground that the original tenants, the assignees and the sub-assignees had all, in reliance on the
landlords’ promise, undertaken fresh commitments by entering into long leases of the flats. Roskill
and Cumming-Bruce L.JJ., on the other hand, treated the case, not as one of “promissory estoppel,”
849
but as one of “waiver.” 850 It seems that the latter expression here refers to a variation supported by
consideration, 851 for the consideration provided by the tenants 852 could equally support the landlords’
promise whether that promise was regarded as a collateral contract or as a variation. On this
Page 4
interpretation of the case, there is no difficulty in accounting for the extinctive effect of the landlords’
promise. It amounted to a variation supported by consideration, so that the liability of the original
tenants to contribute to the cost of the repairs in question was extinguished; and once it had been so
extinguished it was not revived on assignment of the leases.
Requirements
4-136
Granted that the equitable principle can apply to cases of part payment of a debt, it is in this context
subject to the usual requirements on which its operation depends. These have already been
considered 853 but two of them call for further discussion at this point.
Whether detriment necessary
4-137
The equitable principle is sometimes said to be analogous to the doctrine of estoppel by
representation. 854 According to this analogy, the principle would operate only in favour of a person
who had suffered some “detriment” in the sense in which that word is used in that branch of the law.
855
Where, as in the High Trees case, a tenant pays only half the agreed rent he suffers no such
“detriment”; and although ingenious attempts have been made to find some other “detriment” in the
High Trees case, 856 the better view is that “detriment” of the kind required for the purpose of estoppel
by representation is not an essential requirement of the operation of the equitable principle. 857 This is
the position under the rule in Hughes v Metropolitan Ry 858 on which the High Trees case is based;
and no such requirement of “detriment” is mentioned by Denning J. in the High Trees case itself or in
his later statements of the principle. 859 All that is necessary is that the promisee should have acted in
reliance on the promise in such a way as to make it inequitable to allow the promisor to act
inconsistently with it. 860 This requirement was satisfied on the facts of the High Trees case, no less
than on those of Hughes v Metropolitan Ry.
Inequitable
4-138
By making the part payment, the debtor acts in reliance on the creditor’s promise, and so makes it
prima facie “inequitable” for the creditor peremptorily to go back on his promise. But other
circumstances may lead to the conclusion that it would not be “inequitable” for the creditor to reassert
his claim for the full amount 861: this would, for example, be the position where the debtor had failed to
perform his promise to pay the smaller amount. 862 Another such circumstance may be the conduct of
the debtor in obtaining the creditor’s promise. This possibility may be illustrated by further reference to
D. & C. Builders Ltd v Rees. 863 Lord Denning, M.R. there stressed the fact that the builders’ promise
to accept £300 in full settlement of their claim for £482 had been obtained by taking undue advantage
of their desperate financial position. In these circumstances it was not “inequitable” for the builders to
go back on their promise, so that the High Trees principle did not apply. The difficulty with this
reasoning is that most debtors who offer part payment in full settlement try to exert some kind of
“pressure” against their creditors. The law now recognises that it is possible for such “pressure” to
amount to duress, 864 and where it has this effect, a promise obtained as a result of it should clearly
not bring the High Trees principle into operation. 865 Where, on the other hand, there is no duress, the
High Trees principle should not be excluded merely because it could be said that the promise has
been “improperly obtained.” Such an intermediate category between promises obtained by duress
and those not so obtained should here, as elsewhere, 866 be rejected as “unhelpful because it would
render the law uncertain.” 867

Page 5
802. The doctrine had been applied in Buttery v Pickard (1946) 62 T.L.R. 241 to a landlord’s promise
to accept payment of part of the rent in full settlement, but in that case consideration did move
from the tenant in the shape of her forbearance to exercise her contractual right to terminate the
lease (though this was not the ratio decidendi to the case).
804. [1947] K.B. 130; Denning (1952) 15 M.L.R. 1; Wilson (1951) 67 L.Q.R. 330; Sheridan (1952) 15
M.L.R. 325; Bennion (1953) 16 M.L.R. 441; Guest (1955) 30 A.L.J. 187; Turner (1964) 1
N.Z.U.L.Rev. 185; Campbell, ibid. 232.
805.
For similar reasoning, see Dunbar Assets plc v Butler [2015] EWHC 2546 (Ch) where the
issue was not one of part payment of a debt, but was one of the postponement of a liability. In
that case A had lent money to two companies, in the management of which a “prominent part”
(at [2]) was played by B for whom and whose family most of the shares in the companies were
held in trust and who, without charging any fees, managed development properties owned by
the companies (at [11]). B had guaranteed debts of the companies, and in an action to enforce
these guarantees, B relied on the defence of promissory estoppel; such an estoppel was
alleged to have arisen from a representation or promise by A that any such enforcement would
be “postponed indefinitely” for so long as B continued with his (unpaid) work for the companies
(at [18]). B’s defence of promissory estoppel was rejected on the ground that A’s statement was
intended to affect the rights of the parties “only for the intended duration of the arrangement” (at
[49]), i.e. for so long as B continued to provide the (unpaid) management work “with the
concurrence of” A (ibid.). It no longer applied after A had made it clear that B’s work was no
longer required; and, once B had ceased to do the work, his reliance on A’s representation, and
hence the suspension of B’s liability, had come to an end (at [50]).
807. [1947] K.B. 130, 134; cf. Combe v Combe [1951] 2 K.B. 215, 220.
809. At n.761.
810. (1884) 9 App. Cas. 605; above para.4-117.
811. High Trees case [1947] K.B. 130 at p.135; this sentence does not occur in any of the other
reports of the case ([1947] L.J.R. 77, (1946) 175 L.T. 333, (1946) 62 T.L.R. 557, [1956] 1 All
E.R. 256n.); see also Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep. 98, 102. The
argument, with respect, lacks plausibility since Hughes v Metropolitan Ry, above, n.760 had
been decided only seven years before Foakes v Beer and Lords Selborne and Blackburn heard
the appeals in both cases.
812. High Trees case, above n.765, at p.133.
813. Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep. 98 at 102.
814. (1602) Co.Rep. 117a; above, para.4-117.
815. Re Warren (1884) 53 L.J.Ch. 1016; Bidder v Bridges (1887) 37 Ch.D. 406.
816. Below, para.4-134.
817. Ajayi v R.T. Briscoe (Nig.) Ltd [1964] 1 W.L.R. 1326, 1330; Unger (1965) 28 M.L.R. 231; cf. Re
Venning [1947] W.N. 196. Gordon [1963] C.L.J. 222 objects to giving the creditors’ promise
Page 6
even this limited effect, arguing that the equitable principle is limited to relief against forfeiture.
But though Hughes v Metropolitan Ry was a case of this kind, the equitable principle had
developed since 1877 and is no longer restricted to such cases: see Wilson [1965] C.L.J. 93.
818. Above, para.4-097.
819. e.g. in Ajayi v R.T. Briscoe (Nig.) Ltd [1964] 1 W.L.R. 1326: see below, para.4-132, n.781. This
seems also to have been the position in Foakes v Beer: see above, para.4-117, esp. at n.704.
820. Originally made by Lord Denning in the High Trees case at 134 and repeated by him in D. & C.
Builders Ltd v Rees [1966] 2 Q.B. 617, 624; cf. W.J. Alan & Co Ltd v El Nasr Export & Import
Co [1972] 2 Q.B. 189, 213; and ibid., at 218, 220; but in that case there was consideration:
above, para.4-080.
821.
Provided, at any rate, that there was no duress: cf. above, para.4-118. In Stevensdrake Ltd v
Hunt [2016] EWHC 1111 (Ch), at [65], it was held that, where the creditor’s “agreement
permanently to forego rights” was “clear and unequivocal”, and the other requirements of
promissory estoppel were satisfied it would be wrong to treat the agreement as “merely
suspensory”, with the result that “the doctrine of promissory estoppel [was] engaged” and made
it “inequitable” for the creditor to pursue its claim against the debtor. In treating the issue of the
extinctive (as opposed to the “suspensory”) effect of the doctrine as a matter of construction,
this conclusion, though it may in the circumstance have been desirable as a matter of policy, is
not easy to reconcile with earlier authorities (for example Foakes v Beer (1884) 9 App. Cas. 605
, Vol.I, para.4-117) cited in the Stevensdrake case (above) at [42].
822. Woodhouse A.C. Israel Cocoa Ltd v Nigerian Produce Marketing Co [1972] A.C. 741, 758; cf.
Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274; [2002] 1 All E.R.
(Comm) 737 at [49] (“not yet … fully developed”).
823. As in the High Trees case, above, para.4-130.
824. As in the Tool Metal case [1955] 1 W.L.R. 761, discussed in para.4-133, below.
825. As in Ajayi v R.T. Briscoe (Nig.) Ltd [1964] 1 W.L.R. 1326.
826. Banning v Wright [1972] 1 W.L.R. 972, 981; cf. W.J. Alan & Co Ltd v El Nasr Export & Import
Co [1972] 2 Q.B. 189, 213; in Bottiglieri di Navigazione v Cosco Quindao Ocean Shipping Co
(The Bunge Saga Lima) [2005] EWHC 244 (Comm), [2005] 1 Lloyd’s Rep. 1 it was said at [31]
that “no revocation can be retrospective”; but this statement is, with respect, open to question
for the reason given in para.4-098 n.533.
827. This would be so in cases like the High Trees case and the Tool Metal case (below, para.4-133)
but probably not in a case like Ajayi v R.T. Briscoe (Nig.) Ltd [1964] 1 W.L.R. 1326, as the
promise there “was not intended to be irrevocable:” Meng Long Development Pte Ltd v Jip
Hong Trading Pte Ltd [1985] A.C. 511, 524. J.T. Sydenham & Co Ltd v Enichem Elastometers
Ltd [1989] E.G.L.R. 257, 260 (discussed by Cartwright [1990] C.L.J. 13) purports to give the
“estoppel” an extinctive effect; but the amount of rent due in that case was in dispute, so that
the actual decision is explicable on the ground stated in para.4-120, above.
828. Hardwick v Johnson [1978] 1 W.L.R. 683 (where the creditor was said at 691 to have agreed to
“postpone” the debtor’s obligation to pay instalments).
829. [1955] 1 W.L.R. 761; Smith (1955) 18 M.L.R. 609.
830. (1877) 2 App. Cas. 439; above para.4-098.
831. Above para.4-098.
832. ibid.
Page 7
833. Ajayi v R.T. Briscoe (Nig.) Ltd [1964] 1 W.L.R. 1326, 1330; in The Bunge Saga Lima, above
para.4-132 n.780: it was said at [31] that it would there have been “inequitable to permit
retraction.” The case was not concerned with “waiver” of an obligation to pay money.
834. cf. Mitchell (1951) Univ. of W. Australia Law Rev. 245, 251. The principle is somewhat similar to
that which underlies the defence of “change of position” in an action for the recovery of money
paid; for recognition of this defence, see Lipkin Gorman v Karpnale Ltd [1991] 2 A.C. 548;
below paras 29-186, Vol.II, 41-047.
835. [1967] 2 Q.B. 617; above, para.4-118.
836. At 625.
837. At 625; and see below, para.4-138.
838. [2007] EWCA Civ 1329, [2008] 1 W.L.R. 643; Trukhtanov, (2008) 124 L.Q.R. 364.
839. [2007] EWCA Civ 1329 at [21], [37]–[40], [50]; Longmore L.J. was more sceptical: see [2007]
EWCA Civ 1329 at [45]–[49].
840. [2007] EWCA Civ 1329 at [37].
841. [1947] K.B. 130, stated above in para.4-130.
842. The citation of the High Trees case in the Collier case [2007] EWCA 1329 at [37] does not help
to resolve the difficulty discussed in the text below, i.e. that of reconciling what is described in
the latter case (at [42]) as “the brilliant obiter dictum of Denning J, as he then was, in the High
Trees case” with the outcome in Foakes v Beer (above, para.4-117): see above, para.4-131.
Nor does the citation in the Collier case at [37] of “the Tool Metal case” [1955] 1 W.L.R. 761
help to resolve this difficulty: see the discussion of that case in para.4-133 above.
844. See para.4-118 above. Danckwerts L.J. did indeed begin his judgment by saying ([1962] 2 Q.B.
617 at 625–626): “I agree with the judgment of the Master of the Rolls.” But his own reasoning
is entirely concerned with the rule in Foakes v Beer and his conclusion (at 627) is that “the
county court judge was right in applying the rule in Foakes v Beer.”
845. Above at n.790; below, para.4-138.
846. [1979] Q.B. 467.
847. Above, para.4-081; contrast ibid., n.441.
848. [1979] Q.B. 467, 484–485.
849. ibid., at 485, 490.
850. ibid., at 488, 490.
852. Above, para.4-081. Roskill L.J. at 489 refers to Hughes v Metropolitan Ry (1877) 2 App. Cas.
439 (above, para.4-086) as stating a principle of “contractual variation of strict contractual
rights.” It is respectfully submitted that this phrase should be interpreted to refer simply to
variations of contracts, rather than to contractually binding variations; for the principle clearly
applies to variations which are not contractually binding (but revocable on reasonable notice)
because they are not supported by consideration.

Page 8
854. Above, para.4-104.
856. Wilson (1951) 67 L.Q.R. 330, 344.
857. cf. Denning (1952) 15 M.L.R. 1, 6–8.
858. (1877) 2 App. Cas. 439.
859. e.g. in Combe v Combe [1951] 2 K.B. 215 at 220.
860. Above, para.4-096; Tool Metal case [1955] 1 W.L.R. 761, 764; Beesly v Hallwood Estates Ltd
[1960] 1 W.L.R. 548, 560; affirmed [1961] Ch. 105, as to which see below, para.4-193 n.1234;
Ajayi v R.T. Briscoe (Nig.) Ltd [1964] 1 W.L.R. 1326, 1330.
862. Re Selectmove [1995] 1 W.L.R. 474, 481, where the debtor’s promise was not to pay less but to
pay late. Cf. Burrows v Brent LBC [1996] 1 W.L.R. 1448, where decision was based on lack of
contractual intention and not on want of consideration. For this case, see also Knowsley
Housing Trust v White [2006] UKHL 70, [2009] 1 A.C. 636 (above, para.2-196); there was no
reference to the equitable doctrine here under discussion in either the Burrows or the Knowsley
case.
863. [1966] 2 Q.B. 617; above para.4-118; Winder (1966) 82 L.Q.R. 165; cf. Arrale v Costain Civil
Engineering Ltd [1976] 1 Lloyd’s Rep. 98, 102.
864. Below, paras 8-015, 8-020.
865. The same would be true where the creditor’s promise had been obtained by misrepresentation,
e.g. as to the debtor’s ability to pay. In the D & C Builders case, above n.817, Danckwerts L.J.
at 626 suggested that there had been such a misrepresentation by the defendant’s wife on his
behalf, while Winn L.J. said that there was no finding to this effect. If such a false representation
were now made dishonestly and induced the creditor to accept part payment in full settlement,
the representor could be criminally liable under s.2 of the Fraud Act, 2006.
866. Above, para.4-068.
867. Pao On v Lau Yiu Long [1980] A.C. 614, 634. cf. Huyton SA v Peter Cremer GmbH [1999] 1
Lloyd’s Rep. 620, where the requirement of consideration was satisfied (above para.4-120); and
there was no duress (below para.8-023). It was said at 629 that “the submissions relating to
consideration and duress inter-relate”. No separate argument seems to have been advanced
that, in the absence of duress, the agreement might be open to attack on the ground that it had
been “improperly obtained”.

Page 1

Section 11. - Proprietary Estoppel
(a) - Nature of the Doctrine
Introductory
4-139
Proprietary estoppel is said to arise in certain situations in which a person has done acts in reliance
on the belief that he has, or that he will acquire, rights in or over another’s property. Usually, but not
invariably, that property will be land 868 and the acts in question will consist of erecting buildings on, or
making other improvements to, that land. Where the requirements of proprietary estoppel are
satisfied, the landowner is precluded from denying the existence of the rights in question, and may
indeed be compelled to grant them. Because the estoppel precludes him from denying the existence
of rights in property, it has come to be known as “proprietary estoppel.” 869 It is distinct 870 from
promissory estoppel, both in the conditions which must be satisfied for it to come into operation and in
its effects. But under both doctrines some legal effects can be given to promises which are not
contractually binding for want of consideration; and it is this aspect 871 of proprietary estoppel which
calls for discussion in the present chapter.
Scope of proprietary estoppel
4-140
Proprietary estoppel operates in a variety of situations so disparate that it was once described by
Robert Goff J. as “an amalgam of doubtful utility.” 872 The cases can be divided broadly 873 into two
categories. In the first, one person acts under a mistake as to the existence or as to the extent of his
rights in or over another’s land. The landowner might then, even though the mistake was in no way
induced by him, be prevented from taking advantage of it, particularly if he “stood by” knowing of the
mistake, or actively encouraged the mistaken party to act in reliance on his mistaken belief. 874 These
cases of so-called “acquiescence” 875 do not raise any questions as to the enforceability of promises
and therefore do not call for further discussion in this chapter. 876 In the second situation, there is not
merely “acquiescence” by the landowner, but “encouragement” 877 in the sense of conduct by the
landowner, or a representation by him, from which a promise to the other party (the promisee) can be
inferred 878 to the effect that the promisee has a legally enforceable 879 interest in the land or that one
will be created in his favour. If the promisee acts in reliance on such a promise, the question will arise
to what extent the promise can be enforced, even though it may not be supported by consideration, or
fail to satisfy the other requirements (such as those of certainty or form 880) of a binding contract.

Page 2
869. Jones v Jones [1977] 1 W.L.R. 438, 442; Pascoe v Turner [1979] 1 W.L.R. 431, 436; Re
Sharpe [1980] 1 W.L.R. 219, 233; Greasley v Cooke [1980] 1 W.L.R. 1306, 1311; cf. Midland
Bank plc v Cooke [1995] 4 All E.R. 564, 573 (“equities in the nature of an estoppel”). In Cobbe v
Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [3] and [14]–[29]
Lord Scott uses the expression “proprietary estoppel” to refer to the doctrine, while Lord Walker
generally refers to the doctrine simply as “equitable estoppel”. In that case he uses the
expression “proprietary estoppel” only when quoting from or summarising other sources in
which it occurs (e.g., at [48], [67], [73] and [78]); and where he so uses it he does without
disapproval. In Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [29] and passim, Lord
Walker uses the words “proprietary estoppel” to refer to the doctrine. For the use of “equitable
estoppel” to mean “proprietary estoppel,” see also Secretary of State for Transport v Christos
[2003] EWCA Civ 1073, (2004) 1 P. & C.R. 17, e.g. at [42].
870. Fontana N.V. v Mautner (1980) 254 E.G. 199, 207; and see below, paras 4-181—4-184.
871. For wider discussions see Davies (1979) 8 Sydney L.Rev. 200 and (1980) 7 Adelaide L.Rev.
200; Moriarty (1984) 100 L.Q.R. 376; Smith in (ed. Rose) Consensus ad Idem: Essays in the
Law of Contract in Honour of Guenter Treitel, p.235 (1996).
872. Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982]
Q.B. 84, 103.
873.
A proprietary estoppel does not “have to fit neatly” into the “pigeon holes” of the “pure
acquiescence” or “assurance” (or “encouragement”) categories discussed in para.4-140 of Vol.I:
Hoyl Group Ltd v Cromer Town Council [2015] EWCA Civ 782, [2015] H.L.R. 43 at [72]. In this
case a finding that the claimant company was entitled to a right of way on the basis of
proprietary estoppel, partly by reason of the defendant’s encouragement and partly by its
acquiescence in allowing use of the right of way for three years, was accordingly upheld by the
Court of Appeal: see at [71]–[78]. It was further held that a party (A) could be found to have
encouraged the other’s (B) belief in the existence of the right claimed even though A was not
aware of that belief: it sufficed for A’s conduct to be consistent only with B’s having the right in
question (at [73]). See also Caldwell v Bryson [2017] NICh 9 where the proprietary estoppel
was based on both “acquiescence” (at [10(ii)]) and “encouragement” (at [18(a)]).
874. Wilmott v Barber (1880) 15 Ch.D. 96; cf. Taylors Fashions Ltd v Liverpool Victoria Trustee Co
Ltd [1982] Q.B. 133 note; Coombes v Smith [1986] 1 W.L.R. 808; Matharu v Matharu, The
Times, May 13, 1994. In Fisher v Brooker [2009] UKHL 41, [2009] 1 W.L.R. 1764, Lord
Neuberger at [62] said that these “standing by” cases provided the “classic example” of
proprietary estoppel.
875. Wilmott v Barber (1880) 15 Ch.D. 96, 105; in Blue Haven Enterprises Ltd v Tully [2006] UKPC
17 the alleged estoppel was likewise based on acquiescence, so that no question arose as to
the enforceability of any promise. The claim failed as the defendant had drawn the claimant’s
attention to his (the defendant’s) interest in good time and so had not acted unconscionably in
asserting that interest against the claimant.
877. Ramsden v Dyson (1866) L.R. 1 H.L. 129, 170; cf. Att.-Gen. of Hong Kong v Humphreys
Estates (Queen’s Gardens) [1987] 1 A.C. 114 (where this requirement was not satisfied: below,
para.4-147).
878. See Lloyd’s Bank plc v Rosset [1991] 1 A.C. 107; Keelwalk Properties Ltd v Walker [2002]
EWCA Civ 1076 at [63], where this requirement was not satisfied; Walsh v Singh [2009] EWHC
3219 (Ch), [2010] F.C.R. 117, where a claim based on “constructive trust or estoppel” (before
[14]) was rejected because the claimant had failed to establish that any relevant promise had
been made to her; MacDonald v Frost [2009] EWHC 2276 (Ch), [2009] W.T.L.R. 1815 where
again the requirement of a promise or assurance was not satisfied; and Williams v Lawrence
Page 3
[2011] EWHC 2001, where a house sharing agreement between parents and their son did not
give rise to a proprietary estoppel in favour of the son (who had spent money on improvements)
since there had been neither any express promise by the parents to create any property interest
in the son’s favour, nor any conduct on their part from which such a promise could be inferred.
879. Coombes v Smith [1986] 1 W.L.R. 808 (where there was no belief in the existence of a legally
enforceable right); and cf. Brinand v Ewens (1987) 19 H.L.R. 415.
880. See, e.g. below, para.4-142, n.844.

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(b) - Bases of Liability
Expenditure on another’s land in reliance on a promise
4-141
In Dillwyn v Llewelyn 881 a father executed a memorandum “presenting” a named estate to his son
“for the purpose of furnishing himself with a dwelling house.” The son spent £14,000 in building a
house on the land; and it was held (after the father’s death) that he was entitled to have the fee
simple of the estate conveyed to him. Many later cases similarly give some degree of legal
enforceability to a promise by a landowner in reliance on which the promisee has spent money on
making improvements to the promisor’s land: for example, where A built a bungalow on B’s land in
reliance on B’s promise that A could stay there for the rest of his life 882; where B purported to make a
gift of a cottage to her son A “provided he did it up” and A incurred considerable expense in doing so
883
; where A spent money on extending or improving B’s house in reliance on a similar promise by B
884
; where, in reliance on such a promise, A actually did the work of improvement him- or herself
885
; and where a tenant, whose lease had been terminated, spent money on improving the premises in
reliance on the landlord’s promise to grant him a new lease. 886 Cases of this kind can be explained
on the basis of unjust enrichment: in all of them, the landowner would benefit unjustly if he were
allowed to disregard his promise and to take back the land after he had induced the promisee to
make improvements to it. But the unjust enrichment explanation will not account for cases in which
the doctrine has been applied even though the promisee’s expenditure on another’s land did not
result in any benefit to the owner of that land. 887 It follows that, although unjust enrichment of the
promisor may be the most obvious basis of proprietary estoppel, it cannot provide complete
explanation of the doctrine.
Proprietary estoppel and constructive trust
4-142
The explanation of proprietary estoppel as a mechanism for preventing unjust enrichment 888
perhaps accounts for the view that liability, where such an estoppel operates, is based on “an implied
or constructive trust.” 889 While this view does not assert that the two concepts “can or should be
completely assimilated”, 890 it recognises that there is a significant area of overlap between them.
891
Many of the cases in which the relationship between the two concepts was considered were
concerned, not with want of consideration, but with the question whether proprietary estoppel could
be a ground on which a person could be held liable on a transaction which failed to comply with
formal requirements, such as those imposed by section 2 of the Law of Property (Miscellaneous
Provisions) Act 1989. 892 This question is discussed in Chapter 5 below 893; here it suffices to say that
the relation between the two concepts depends on a distinction between two types of cases. The first
is that in which one of the elements capable of giving rise 894 to proprietary estoppel is an “agreement,
or at least an expression of common understanding, exchanged between the parties as to the
Page 2
existence, or intended existence, of a proprietary interest … “ 895 The second type of case is that in
which proprietary estoppel can arise without any such element of agreement: e.g., where “a
landowner stands by while his neighbour mistakenly builds on the former’s land.” 896 In cases of the
first kind, the two concepts overlap in the sense that the same facts can give rise, not only to a
proprietary estoppel, but also to a constructive trust. 897 It is also possible, in cases of the first kind
described in para.4-142 898 for relief to be given on the ground of proprietary estoppel 899 even
though the facts do not, for want of a sufficiently “clear agreement”, give rise to any constructive trust.
900
In cases of the second kind, there is no such overlap, so that, even if the requirements of
proprietary estoppel are satisfied, there will not, for this reason alone, be a constructive trust. 901
Other acts done in reliance on the promise
4-143
The operation of proprietary estoppel is not confined to cases in which the promisee has incurred
expenditure on, or done work to, the promisor’s land. It can also apply where the promisee has
conferred some other benefit on the promisor 902; and even where no work has been done on the
promisor’s land and he has not received any other benefit. This indeed appears from one of the
illustrations given by Lord Westbury in Dillwyn v Llewelyn: if “A gives a house to B, but makes no
formal conveyance, and the house is afterwards included, with the knowledge of A, in the marriage
settlement of B, A would be bound to complete the title of the parties claiming under the settlement.”
903
Similarly, the doctrine operated in the absence of any expenditure on the promisor’s land in Crabb
v Arun DC 904 In that case A (a local authority) by its conduct represented to B that B had a right of
way from his land over adjoining land owned by A. In reliance on that representation, B sold part of
his own land, so that the only access from the remainder to the nearest public highway was by means
of the right of way across A’s land. It was held that B had a right to cross A’s land for the purpose of
access to his retained land. Detrimental reliance by the promisee here gave rise to a proprietary
estoppel even though no benefit was conferred on the promisor. 905
Alternative explanation: contract
4-144
In Dillwyn v Llewelyn Lord Westbury, while referring to the parties of the transaction as “donor” and
“donee” also said that the son’s expenditure “supplied a valuable consideration originally wanting” 906;
and in discussing a hypothetical example similar to the facts of the case before him he concluded
“that the donee acquires a right from the subsequent transaction to call upon the donor to perform
that contract and to complete the imperfect donation.” 907 These passages may suggest that he
regarded the memorandum as a kind of unilateral contract 908 by which the father promised to convey
the land if the son built a house on it. The terms of the memorandum make it improbable that a
modern court would so regard it; it is more likely that these terms would now be regarded as
negativing contractual intention. 909 However, in a number of later cases the rights of a person who
has expended money on the property of another have been explained as being based on contract 910;
and such an explanation is sufficiently plausible to make reliance on a doctrine of proprietary estoppel
unnecessary. 911 A unilateral contract to transfer an interest in land has been held to arise out of a
promise to make the transfer if the promisee would pay instalments due under a mortgage on the
house 912; it can equally arise out of a promise to make the transfer if the promisee will make
improvements to the land, or indeed do any other act. 913
4-145
But there are, it is submitted, obstacles to treating all cases of proprietary estoppel as depending on
contract. One is that the promises in cases of this kind are often made in a family context and lack
contractual force because they were made without contractual intention. 914 Another is that the
promise may lack consideration because the party relying on the estoppel made no counter-promise
and so incurred no obligation, and that the arrangement was one in which it would not be in
Page 3
accordance with the intention of the parties to treat it as a unilateral contract. 915 A third is that the
terms of the alleged contract are often too vague to satisfy the requirement of certainty. 916 This
difficulty accounts for the view of the Court of Appeal that there was no contract in Crabb v Arun DC
917
: there may have been an implied promise to grant the claimant some right of way across the
defendant’s land, but no financial or other terms were specified in that promise, so that it would not
(even if supported by consideration) have been sufficiently certain to give rise to a contract. A fourth is
that, even if the promise or representation has the force of a contract, that contract can bind only the
promisor and so cannot be enforced against any third party, against whom a proprietary estoppel may
nevertheless arise. The point is illustrated by Stallion v Albert Stallion Holdings (Great Britain) Ltd 918
where a husband had, in a “Divorce Settlement Agreement” 919 represented to his wife that, if she
consented to a divorce from him, she would be allowed to live rent free in a specified house. This
agreement may well have amounted to a unilateral contract between the husband and the wife; but
the point is not discussed in the judgment, presumably because any such contract would not have
bound the company (controlled by the husband) which owned the house. 920 But, as the
representation on which the wife had relied 921 had also been made on behalf of that company, it was
found that “the conscience of [the company] was also affected”, 922 so as to give rise to a proprietary
estoppel against it. A fifth is that many arrangements which can give rise to proprietary estoppel are
made without any attempt to comply with the stringent formal requirements now imposed on the
making of contracts for the disposition of interests in land. 923 Failure to comply with these
requirements does not prevent such arrangements from giving rise in certain circumstances to a
proprietary estoppel, 924 but it does prevent them from taking effect as contracts. The possibility of
explaining proprietary estoppel on the basis of contract is therefore in practice likely to be restricted to
cases where the arrangement does not purport to dispose of an interest in land. 925 A sixth is that the
explanation of proprietary estoppel as based on contract also fails to take account of the fact that the
promisee’s remedy in cases of proprietary estoppel may fall short of awarding him the full amount of
the expectation interest to which he is in principle entitled for breach of contract, at least where the
value of that interest can be established with sufficient certainty. In cases of proprietary estoppel the
court may, under the principles discussed in paragraph 4-173 below, award less than the value of his
expectations. This fact (among others), 926 supports the view that remedies based on proprietary
estoppel are distinct from those for breach of contract. A final and related point follows from a
difference between contract and proprietary estoppel explained in the unreported case of Walton v
Walton, 927 where Hoffmann L.J. said that, while “a contract, subject to the narrow doctrine of
frustration, must be performed, come what may”, what he called “equitable” estoppel “looks
backwards from the moment when the promise fails to be performed and asks whether, in the
circumstances which have actually happened, it would be unconscionable for the promise not to be
kept.” 928 This process of looking backwards may lead not only to the conclusion of awarding the
promisee less than the value of his expectation, 929 but also to that of awarding him nothing at all. 930

881. (1862) 4 D.F. & G. 517.
882. Inwards v Baker [1965] 2 Q.B. 507.
883. Voyce v Voyce (1991) 62 P. & C.R. 290; Q v Q [2008] EWHC 1874, [2009] 1 F.L.R. 935.
884.
Hussey v Palmer [1972] 1 W.L.R. 1286; Pascoe v Turner [1979] 1 W.L.R. 431; Durrant v
Heritage [1994] E.G.C.S. 134; cf. Arif v Anwar [2015] EWHC 124 (Fam), [2016] 1 F.L.R. 359,
where the person claiming to be entitled to the benefit of the proprietary estoppel had allowed
money to which he was entitled to be used in improving the property; and this fact was held to
be sufficient detrimental reliance (at [68]) to give rise to the proprietary estoppel (at [69]); for this
requirement, see Vol.I, para.4-158); semble spending money on mere maintenance would not
suffice: Griffiths v Williams [1978] E.G.D. 919. cf. Maharaj v Chand [1986] A.C. 898 (where,
because of local legislation, proprietary estoppel was not argued).
885. Eves v Eves [1975] 1 W.L.R. 1338; Jones v Jones [1977] 1 W.L.R. 438; Ungurian v Lesnoff
[1990] Ch. 206; Clough v Kelly (1996) 72 P. & C.R. D22 (where the claimant had also spent
Page 4
money on the premises); cf. Jiggins v Brisley [2003] EWHC 841; [2003] 1 W.T.L.R. 1141
(provision of purchase money and money to pay for improvements); see also Van Leathen v
Brooker [2006] EWHC 1478, [2006] 1 F.C.R. 697, below para.4-158.
886. J.T. Developments v Quinn (1991) 62 P. & C.R. 33.
887. Canadian Pacific Railway v The King [1931] A.C. 414; Armstrong v Sheppard & Short [1959] 2
Q.B. 384.
888. See para.4-141 above, after n.838.
889. Sen v Headley [1991] Ch. 425, 440; Re Dale [1994] Ch. 31, 47; Lloyd’s Bank plc v Carrick
[1996] 4 All E.R. 632, 640; cf. Drake v Whipp (1996) 28 H.L.R. 531; Yaxley v Gotts [2000] Ch.
162 at 176, 193; Banner Homes Group plc v Luff Developments Ltd [2000] Ch. 372 at 382
where the agreement (if any) lacked contractual force, not for want of consideration, but on
account of its incompleteness (above, para.2-123). For a difference of judicial opinion as to the
basis of the Banner Homes case, see Crossco No.4 Unlimited v Jolan Ltd, Note [2011] EWCA
Civ 1619, [2012] 2 All E.R. 754; further discussion of this difference (which did not affect the
outcome of the Crossco case) is beyond the scope of this Chapter. For reference to the
relationship between proprietary estoppel and constructive trust, see also Scott v Southern
Pacific Mortgages Ltd [2014] UKSC 52, [2014] 1 W.L.R. 1163, where nothing turned on the
distinction, so that the Supreme Court did not find it necessary further to discuss the point: see
at [28]. The actual decision in that case was that, under relevant provisions of the Land
Registration Act 2002, the person in whose favour the estoppel arose did not have priority over
a lender whose loan was secured by a legal charge on the property. This point, too, is beyond
the scope of this Chapter.
890.
Stack v Dowden [2007] UKHL 17, [2007] 2 A.C. 432 at [13]; in this passage, Lord Walker is
reported as having referred to “common interest constructive trust.” Quaere whether “interest” is
not here a misprint for “intention”: cf. the reference to “common intention” ibid. at [17], [18], [25],
[30] and [37]; see also Matchmove Ltd v Dowding and Church [2016] EWCA Civ 1233, [2017] 1
W.L.R. 749 at [29] (“common intention constructive trust”). In Cobbe v Yeoman’s Row
Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 there was neither a proprietary
estoppel (see below, paras 4-161 to 4-162) nor a constructive trust but it is significant that Lord
Scott treats these issues in separate parts of his speech, paras [14]–[29] being devoted to
proprietary estoppel and paras [30]–[38] to constructive trust. Lord Walker at [93] briefly
dismisses the constructive trust claim, having devoted the bulk of his speech to proprietary (or
“equitable” estoppel): see above, para.4-139 n.822. For the recognition of the distinction
between the two doctrines, see also the Cobbe case [2008] UKHL 55 at [24] and [29]; and
Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776, where Lord Scott, while agreeing that
the claim succeeded on the basis of proprietary estoppel (see below, especially paras 4-149 to
4-152, 4-163 to 4-166 and 4-172), found it “easier and more comfortable to regard [that claim]
as established via a remedial constructive trust” (at [14] and see [20]).
891. Kinane v Mackie-Conteh [2005] EWCA Civ 45, [2005] W.T.L.R. 45 at [24]; cf. Stack v Dowden
[2007] UKHL 17, [2007] 2 A.C. 432 at [128]; Q v Q [2008] EWHC 1874 (Fam), [2009] 1 F.L.R.
934 at [112], [113]; Herbert v Doyle [2010] EWCA Civ 1095, [2009] W.T.L.R. 589 at [54]–[55];
Williams v Lawrence [2011] EWHC 2001 (Ch), [2011] W.T.L.R. 1455 at [26].
892. e.g., Yaxley v Gotts [2000] Ch. 162; Kinane v Mackie-Conteh, above n.843.
893. See above, para.2-180 n.958; and paras 5-040, 5-045 below.
894. i.e., if the conditions specified in paras 4-146 to 4-158 below are satisfied.
895. Kinane v Mackie-Conteh, above n.843 at [51]; cf. ibid., at [50], citing Yaxley v Gotts, above
n.844, at 180.
896. ibid., at [176], cited in Kinnane v Mackie-Conteh, above n.843 at [47].

Page 5
897.
ibid., at [51]; S v S [2006] EWHC 2892 (Fam), [2007] F.L.R. 1123 at [59]; Brightlingsea Haven
v Morris [2008] EWHC 1928, [2009] 2 P & C.R. 11 at [40] (“the creation and operation of a
constructive trust through proprietary estoppel”) but even in such cases it should be
emphasised the two concepts cannot be “completely assimilated” (above at n.842); in
particular, their legal effects may differ: Stack v Dowden above n.842 at [37]; Lord Neuberger
ibid., at [128] more cautiously says that “it may well be that facts which may justify a proprietary
estoppel … would give rise to a constructive trust.” In Stallion v Albert Stallion Holdings (Great
Britain) Ltd [2009] EWHC 1950 (Ch), [2010] 2 F.L.R. 78 (below, para.4-145) the claim was
originally based on proprietary estoppel and constructive trust but the second of these bases
was not pursued (at [3], [4]). Conversely, in Matchmove Ltd v Dowding and Church [2016]
EWCA Civ 1233, [2017] 1 W.L.R. 749 relief was given at first instance to buyers of land which
they had bought without complying with the formal requirement of Law of Property
(Miscellaneous Provisions) Act 1989 s.2(1) (Main Work, Vol.I, para.5-011) on the ground of
“both proprietary estoppel and constructive trust” ([2016] EWCA Civ 1233 at [28]), but on
appeal counsel for the buyers “was content to rely solely upon constructive trust” (ibid.) so that
the Court of Appeal, in upholding the decision below, was able to avoid “the issue whether
section 2(5) of the 1989 Act can apply to claims based upon proprietary estoppel as distinct
from constructive trust” [2016] EWCA Civ 1233 at [28]. For this problem, see Main Work, Vol.I,
para.4-115 n.686, para.4-160 n.981 and paras 5-044 to 5-048.
898.
At note 847.
899.
Arif v Anwar [2015] EWHC 124 (Fam) at [69].
900.
At [47], [68].
901. This follows from the reasoning of Kinane v Mackie-Conteh, above n.843 at [51] and of S v S,
above n.849 at [59].
902. e.g. Tanner v Tanner [1975] 1 W.L.R. 1346 (services rendered to promisor in managing his
property); Greasley v Cooke [1980] 1 W.L.R. 1306 (personal and nursing services); Wayling v
Jones (1993) 69 P. & C.R. 170 (services rendered to promisor for virtually no pay); Campbell v
Griffin [2001] EWCA Civ 999; [2001] W.T.L.R. 981 (lodger caring for elderly couple); Jennings v
Rice [2002] EWCA Civ 159; [2002] W.T.L.R. 367 (gardener-handyman caring for childless
widow, below, para.4-175); Stallion v Albert Stallion Holdings (Great Britain) Ltd [2009] EWHC
1950 (Ch), [2010] 2 F.L.R. 78 (wife consenting to divorce and making no claim to ancillary
relief); cf. Plimmer v Mayor of Wellington (1884) 9 App. Cas. 699 and E.R. Ives Investments Ltd
v High [1967] 2 Q.B. 379 (where the landowner benefited from improvements to his land but
also—and more significantly—in other ways); Grant v Edwards [1986] Ch. 638, 657; contrast
Howard v Jones (1988) 19 Fam. Law 231 (contribution to running costs of another property
insufficient).
903. (1862) 4 D.F. & G. 517, 521.
904. [1976] Ch. 179. The case was described in Amalgamated Investment & Property Co Ltd v
Texas Commerce International Bank Ltd [1982] Q.B. 84, 121 as one of “estoppel by
convention”; but this would require a dealing between A and B on the basis of a common
assumption (above, paras 4-109, 4-110) while in Crabb’s case the dealing was between B and
the purchaser from him. In Waltons Stores (Interstate) Ltd v Maher (1988) 164 C.L.R. 387, 403,
Crabb’s case was described as one of “promissory estoppel” (see above, para.4-086); but the
requirements of that doctrine (in particular, the requirement of a pre-existing legal relationship:
above, para.4-089) were not satisfied in Crabb’s case, and the effect of the estoppel differed
from promissory estoppel in giving rise to a new right: cf. above, para.4-099.
905. cf. Hammersmith & Fulham BC v Top Shop Centres Ltd [1990] Ch. 237; Evans v HSBC Trust
Co (UK) Ltd [2005] W.T.L.R. 1289 (as to which see also para.4-160 below, n.983) and Joyce v
Epsom and Ewell Borough Council [2012] EWCA Civ 1398, [2013] 1 E.G.L.R. 21, where the
detriment consisted of work done by the promisee in the expectation of being granted a right of
way over adjoining land owned by the defendants: see at [21]. This “encouragement” (at [39]
Page 6
and see above para.4-140) gave rise to the proprietary estoppels described in para.4-170
below.
906. (1862) 4 D. F. & G. 517, 521.
907. ibid., at 522.
908. Above, para.2-082.
909. Above, para.2-177.
910. e.g. Plimmer v Mayor of Wellington (1884) 9 App. Cas. 699 as explained in Canadian Pacific
Railway v The King [1931] A.C. 414, 428; Eves v Eves [1975] 1 W.L.R. 1338; Tanner v Tanner
[1975] 1 W.L.R. 1346; cf. Re Sharpe [1980] 1 W.L.R. 219, 224; and see E.R. Ives Investments
Ltd v High [1967] 2 Q.B. 379 (where there was a contract between the defendant and the
claimant’s predecessor in title).
911. See Lloyd’s Bank plc v Carrick [1996] 4 All E.R. 632, where the existence of a contract of sale
precluded reliance by the purchaser on proprietary estoppel, even though that contract was, as
against a bank to which the property had been charged as security, void for non-registration.
Contrast Yaxley v Gotts [2000] Ch. 162 at 179, when there was no such contract but, at most,
an agreement lacking contractual force. See also Oxley v Hiscock [2004] EWCA Civ 546,
[2005] Fam. 211 at [35]–[36], distinguishing between cases of proprietary estoppel and those in
which parties, before acquiring property, reach “an agreement, arrangement or understanding
… that each is to have a beneficial share in the property.”
912. Errington v Errington [1952] 1 Q.B. 290; above, para.2-084.
913. e.g. Tanner v Tanner [1975] 1 W.L.R. 1346; merely to maintain the house in repair could be
sufficient for the present purpose, even if it did not suffice to raise a proprietary estoppel: see
above, para.4-141, n.836.
914. Walton v Walton (April 14, 1994, unreported) per Hoffmann L.J., cited in Thorner v Major [2009]
UKHL 18, [2009] 1 W.L.R. 776 at [57] (“in many cases of promises made in a family or social
context, there is no intention to create an immediately binding contract”).
916. Above, para.2-145. See Gillett v Holt [2001] Ch. 210 at 230; Banner Homes Group plc v Luff
Developments Ltd [2000] Ch. 372; Jennings v Rice [2002] EWCA Civ 159; [2002] W.T.L.R. 367,
at [10], [49], [50]; if the party claiming the benefit of a proprietary estoppel knows that the
agreement has no contractual force because it lacks certainty or is incomplete, this fact may
prevent the estoppel from arising, as in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL
55, [2008] 1 W.L.R. 1752, below, paras 4-161 to 4-162. See also paras 4-149 to 4-152 below
for the discussion in Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 of the degree of
certainty which a non-contractual promise or representation must have to give rise to a
proprietary estoppel; and paras 4-165 and 4-166 for the relationship on this point between the
Thorner case and the Cobbe case, above.
917. [1976] Ch. 179; above, para.4-143. Atiyah (1974) 92 L.Q.R. 174 criticises the view that there
was no contract but the argument is based on the fallacy that, merely because a promise has
some legal effects, it must necessarily have all the effects of a contract: cf. above, paras 4-013,
4-106 and below, para.4-185. The alleged contract in Crabb’s case would, quite apart from
lacking consideration, be impossibly vague: see above, para.2-147 and cf. Millett (1976) 92
L.Q.R. 342; Duncanson (1976) 39 M.L.R. 268. See also Joyce v Epsom and Ewell Borough
Council [2012] EWCA Civ 1398, [2013] 1 E.G.L.R. 21 where the “mutual understanding”
between the relevant parties “even if falling short of a contractual bargain” (at [46]) gave rise to
a proprietary estoppel.
918. [2009] EWHC 1950 (Ch), [2010] 2 F.L.R. 78.

Page 7
919. ibid., at [29].
920. ibid., at [12].
922. [2009] EWHC 1950 (Ch) at [20].
923. Law of Property (Miscellaneous Provisions) Act 1989, s.2(1)–(3). Previously the contract could
be made informally, but Law of Property Act 1925, s.40 (replacing part of Statute of Frauds
1677, s.4, and now repealed) had required either a note or memorandum in writing as evidence
of the contract, or “part performance” of the contract. The latter requirement could be satisfied
by the conduct of the promisee giving rise to proprietary estoppel. cf. the reference to “part
performance” in Dillwyn v Llewelyn (1862) 4 D.F. & G. 517, 521.
924. See above, para.4-115 n.686. cf. Law Com. No.164 (1987) para.5.5.
925. For the view that proprietary estoppel can apply where the subject-matter of the promise is
property other than land, see below, para.4-157. For the definition of “interest in land” within s.2
of the Law of Property (Miscellaneous Provisions) Act 1989 s.2, see ibid., s.2(6). An irrevocable
licence can be a sufficiently certain “interest in land” for the purpose of satisfying the second of
the requirements of proprietary estoppel stated in para.4-162 below: see Cobbe v Yeoman’s
Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [21], [22], per Lord Scott.
926. Such as the discretionary nature of the remedy: below, paras 4-173, 4-185.
927. April 14, 1994, cited in Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [52].
928. Cited ibid., at [57] and [101]; the context indicates that “equitable” in the passage so cited refers
to proprietary estoppel.

Page 1

(c) - Conditions giving rise to Liability
Main elements of proprietary estoppel
4-146
There are said to be “three main elements” of proprietary estoppel: a representation made or
assurance given to the claimant, reliance by the claimant on that representation or assurance, and
detriment suffered by the claimant in consequence of such reliance. 931 These requirements are
discussed in paras 4-147 to 4-166 of this Chapter. Our concern in these paragraphs will be with
situations in which the representation or assurance is one which amounts to a promise, 932 or one
from which a promise can be inferred, but that promise is one which for some reason (such as want of
consideration, the absence of contractual intention or failure to comply with formal requirements)
lacks contractual force. There can be no proprietary estoppel of the kind here under discussion where
the statement relied on was not a promise at all: for example, where that statement was contained in
a letter which “did not promise anything”. 933
Kinds of promises capable of giving rise to a proprietary estoppel
4-147
A promise may give rise to a proprietary estoppel even though it is not express but is implied: for
example, from the fact that the parties acted on the common assumption that one of them was to
have the right to reside on the other’s property. 934 The promise must be of such a kind that it is
reasonable for the promisee to rely on it; the promisor must have been aware of the fact that the
promisee would so rely on it, though “the particular act of [the promisee’s] reliance” 935 need not have
been known to, or foreseen by, the promisor, and the promisor must have intended that the promisee
would so rely on it. 936 Whether this last requirement is satisfied depends on “an objective
assessment” 937 of the promisor’s intention or, to put the same point in another way, on whether the
promisee had reasonably understood the promise or representation to be one on which he could rely.
938
It has been said that, in that event, “what [the promisor] intended is not really germane” 939: the
reference here seems to be to the promisor’s actual or subjective intention. The promise must also
induce the promisee to believe that a legal right has been, or will be, created in his favour. 940 There
can normally be no such belief, and hence no proprietary estoppel, if the promise expressly disclaims
legal effect: for example, in one case 941 it was held that no proprietary estoppel arose out of an
agreement for the transfer of a number of flats “subject to contract,” it being well known that the effect
of these words was to negative the intention to be legally bound. 942 The promisee may have
formed “the confident and not unreasonable hope” 943 that the promise would not be withdrawn; but no
belief to this effect had been encouraged 944 by the promisor or relied on by the promisee. It seems
that a proprietary estoppel could arise out of such an agreement if one of the parties did encourage
such a belief in the other and the other acted to his detriment in reliance on that belief. 945 Similar
reasoning applies where the promise in terms reserves a right to the promisor wholly to revoke the
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promise. Thus where a landowner promised her part-time gardener to leave him her house in her will
but told him “not to count his chickens before they were hatched”, it was held that no proprietary
estoppel arose when, after having made a will in his favour, she then revoked it and made another
leaving the property to someone else: in these circumstances it was not unconscionable for the
landowner to revoke the promise. 946 The position is the same where the promise, even though it does
not in terms reserve a power to revoke, is in its nature revocable and this is a matter of common
knowledge so that the promisee must be taken to have been aware of the risk of its being revoked.
This will often be the position where the promise is one to make a will in favour of the promisee; but it
does not follow as a matter of law that such a promise cannot give rise to proprietary estoppel. In
Gillett v Holt 947 the claimant had worked for nearly 40 years in the defendant’s farming business in
reliance on the defendant’s frequently repeated promises to leave him the bulk of his estate; the
claimant had also in various other ways relied on those promises. It was held that the promises were
“more than a statement of revocable intention 948; and that they were capable of giving rise, and did
give rise, to a proprietary estoppel.
Where the property in question was held in trust by two trustees, it was held that the promise of
only one of the trustees, who had no authority to bind the other, did not give rise to a proprietary
estoppel on which the promisee sought to rely by way of defence to a claim for possession of the
949
property, that claim having been made by both trustees. On appeal, the appellant also put
950
forward a new claim based on estoppel by convention, but this claim failed on the ground
stated above, para.4-108.
Silence and inaction
4-148
Proprietary estoppel by “acquiescence” or “standing by” can no doubt arise from “silence and
inaction”; but the further question here to be discussed is whether proprietary estoppel by
“encouragement” 951 can also arise in this way. One passage from Lord Walker’s speech in Thorner v
Major 952 could be interpreted as giving an affirmative answer to this question; but in a later passage
in the same speech he refers, in the context of proprietary estoppel by “encouragement”, to a
requirement of assurances given “expressly, impliedly or, in standing by cases tacitly.” 953 A distinction
seems here to be drawn between an implied assurance, inferred from conduct, which can give rise to
a proprietary estoppel by “encouragement” 954 and a tacit one, based, as Lord Neuberger said in the
same case, on “silence and inaction, rather than any statement or action.” 955 Such a tacit assurance
can give rise to proprietary estoppel by “acquiescence” or “standing by”; but this possibility is, in both
these speeches, restricted to cases of this kind, so that the “encouragement” cases are left to be
governed by the general principle, applied in other legal contexts, that “silence” is, in general, too
equivocal to be given the weight of a positive assurance. The policy reasons for applying this principle
in cases of promissory estoppel are stated in para.4-093 above; in cases of proprietary estoppel by
acquiescence they are, or may be, outweighed by the need to strip a landowner, who has “stood by”
in silence, of the unjust enrichment 956 that would, but for such an estoppel, accrue to him.
“Character or quality” of the promise
4-149
The “character or quality of the representation or assurance made to the claimant” in a case of
alleged proprietary estoppel by “encouragement” was said by Lord Walker to have been the “main
issue” in Thorner v Major. 957 In a later passage, 958 he amplified this statement by putting the question
whether the representation or assurance must (as in cases of promissory estoppel and estoppel by
representation) 959 be “clear and unequivocal” and, if so, just what this requirement meant in cases of
proprietary estoppel. In Thorner v Major, David Thorner had, from 1976, worked without pay on a
farm belonging to his father’s cousin Peter Thorner. David continued to work there without pay
(receiving only pocket money from his father until Peter’s death in 2005). Before then, Peter (who was
“taciturn”, “a man of few words” and “not given to direct talking”) 960 had on a number of occasions
extending over many years given David to understand that he would, on Peter’s death, inherit the
Page 3
farm, but Peter had never made any explicit promise to this effect to David. In reliance on Peter’s
conduct and statements, David had reasonably formed the expectation that he would inherit the farm
on Peter’s death and had forborne from pursuing “one of the other opportunities … available to him.”
961
On Peter’s death intestate, David brought a claim against Peter’s personal representatives 962
based on proprietary estoppel 963 (no attempt being made to argue that there was any contract
between Peter and David). In upholding this claim, the House of Lords considered two main issues.
The first was whether Peter’s representation that David would inherit the farm was sufficiently clear to
give rise to proprietary estoppel: this issue will be discussed in paras 4-150 to 4-152 below. The
second was whether, even assuming that Peter had clearly represented that David would inherit
something, that representation was sufficiently clear with respect to exactly what it was that David
would inherit or (in the words of Lord Scott in the Cobbe case) whether the requirement of “clarity as
to the interest in the property in question” 964 was satisfied: this issue will be discussed in para.4-163
below.
“Clear enough” in context
4-150
In upholding the proprietary estoppel claim in Thorner v Major, 965 Lord Walker referred to the view
that, in cases of such an estoppel, there was no requirement of any “clear and unequivocal”
representation 966; and that, indeed, where such an estoppel was based on mere “acquiescence”, 967
there was no requirement of any representation at all. 968 The latter point was not strictly necessary for
the decision, since Thorner v Major itself was “not a case of acquiescence or standing by” 969 but one
in which the estoppel was based, not on mere inactivity, but on a positive representation or
assurance. 970 With regard, apparently, to such cases, Lord Walker said that he would “prefer to say
(while conscious that it is a thoroughly question-begging formulation) that to establish a proprietary
estoppel the relevant assurance must be clear enough. What amounts to sufficient clarity, in a case of
this sort, is hugely dependent on context.” 971 The words here italicised were approved by Lord
Rodger who pointed out that they gave rise to the further question: clear enough “To whom” 972; and, it
may be added, for what purpose? Both these questions were answered by Lord Walker’s adoption 973
of a passage from the judgment of Hoffmann L.J. in the unreported case of Walton v Walton 974: “The
promise must be unambiguous and must appear to have been intended to be taken seriously. Taken
in its context, it must have been a promise which one might reasonably expect to be relied upon by
the person to whom it was made.” 975 The second of these sentences is reflected in Lord Hoffmann’s
speech in Thorner v Major itself where he said that the trial judge had found “not only that it was
reasonable for David to have understood Peter’s words and acts to mean that ‘he would be Peter’s
successor to [the farm]’ but that it was reasonable for him to rely upon them. These findings of fact
were in my opinion sufficient to support the judge’s decision.” 976 Lord Hoffmann’s further statement
that it would be “unrealistic” to try to “pin point the date at which the assurance became unequivocal”
977
may seem by implication to accept the requirement of an “unequivocal” assurance in the
“encouragement” cases, but his earlier and later remarks 978 indicate a preference for the more
flexible requirement that the assurance must be one on which it was reasonable for the person to
whom it was given to rely.
Three qualifications of “clear and unequivocal” requirement
4-151
Lord Neuberger in Thorner v Major accepts the proposition “that there must be some sort of an
assurance which is ‘clear and unequivocal’ before it can be relied on to found an estoppel” 979; but he
subjects that proposition to three qualifications. First, he expresses his agreement with Lord Walker’s
emphasis on the principle that “the effect of words must be assessed in their context”, adding that “a
sentence, which would be ambiguous and unclear in one context, [can] be a clear and unambiguous
assurance in another context” and that this point was underlined by the fact that “perhaps the classic
case of proprietary estoppel is based on silence or inaction, rather than statement or action” 980
—factors that (for reasons given in para.4-093 above) would not normally give rise to promissory
estoppel or estoppel by representation. 981 Secondly, “it would be quite wrong to be unrealistically
rigorous when applying the ‘clear and unambiguous’ test.” 982 This test is then, in effect, reformulated:
Page 4
“at least normally, it is sufficient for the person invoking the estoppel to establish that he reasonably
understood the statement or action to be an assurance on which he could rely.” 983 Thirdly, there may
be cases in which the assurance “could reasonably be understood as having more than one possible
meaning” 984 or, in other words, was ambiguous: in such cases Lord Neuberger, perhaps somewhat
cautiously, 985 suggests that “the ambiguity should not deprive the person who reasonably relied on
the assurance of all relief: it may well be right, however, that he should be accorded relief on the basis
of the interpretation least beneficial to him.” 986 This interesting suggestion is not in terms or in
substance repeated in any of the other speeches; but it can, with respect, be said to reflect the
flexibility of the principled discretion which enables the courts to fashion the remedy in cases of
proprietary estoppel. 987 The suggestion also derives some support from the similar rule (discussed in
para. 26-075 below) governing the assessment of damages for breach of alternative obligations.
Conclusion on “character or quality” 988
4-152
The requirement of a “clear and unequivocal” assurance, representation or promise forms the starting
point of the discussions in Thorner v Major 989 by Lords Walker and Neuberger of the question
whether, in that case Peter’s conduct and statements were such as to give rise to a proprietary
estoppel in favour of David. But, in giving an affirmative answer to that question, these speeches so
much qualify the requirement (in ways described in paras 4-150 and 4-151 above) that it may
respectfully be doubted whether the requirement will in future cases continue to be the best starting
point for the discussion of the character or quality of the assurance necessary to give rise to a
proprietary estoppel. The qualifications of the “clear and unequivocal” requirement all lead to the
conclusion that the crucial questions in cases of proprietary estoppel by “encouragement” 990 are
whether the person invoking the estoppel can establish that (in Lord Neuberger’s words) “he
reasonably understood the statement or action to be an assurance on which he could rely” 991 and
whether he did then reasonably rely on it to his detriment. Similar statements can be found in the
speeches Lords Hoffmann, Scott, Rodger and Walker 992; and it is of particular interest that Lord
Hoffmann in his speech in Thorner v Major treats this as the decisive question without expressly 993
insisting on any further requirement that the assurance must be “clear and unequivocal.” It is
respectfully submitted that, in any consideration of the “character and quality” of the representation,
discussion of the “clear and unequivocal” point as a separate requirement amounts to an
unnecessary intermediate stage in deciding whether an assurance or promise is such as to be
capable of giving rise to a proprietary estoppel. If the nature of the assurance or promise is such as to
give the promisee reasonable grounds for thinking that he could rely on it, and if he did reasonably
rely on it, then there is no point in insisting on any further requirement that the assurance must be
“clear and unequivocal.” Both these requirements pose essentially the same question; and to treat the
second as if it imposed a requirement additional to the first is not only unnecessary but also
potentially misleading. It should be added that when Lord Scott accepts “the requirement that a
representation, if it is to found a claim based on proprietary estoppel must be clear and unequivocal”
994
he does so in the context of other questions than those discussed in the present paragraph: that is,
of the questions whether the representation adequately identifies the property alleged to be affected
by the estoppel and whether the operation of any such estoppel may be affected by a supervening
change of the representor’s circumstances. The effect of Thorner v Major on these questions is
discussed in paras 4-163 and 4-180 below.
Promise must be one to create rights in or over property
4-153
To give rise to a proprietary estoppel, the promise or representation must contain a statement to the
effect that the promisee either has an interest in the property in question or that such an interest will
be created in his favour. This requirement was not satisfied in Newport City Council v Charles 995
where the defendant had succeeded to his mother’s secure tenancy of premises owned by the
claimant housing authority and had, after his mother’s death, by “deliberate dishonesty” 996 induced
the claimant to believe that she was still alive. The claimant in consequence acted to its detriment 997
in failing to exercise its statutory right to obtain an order for possession of the premises within the
period specified by the statute. It was held that the doctrine of proprietary estoppel did not apply so as
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to enable the claimant to obtain such an order after the end of that period. Laws L.J. said 998: “The
housing authority is not claiming an interest in land. Its interest as landlord and as freeholder is not in
question.” It sought merely “to raise a strictly statutory claim to possession in a strictly statutory
context. That ambition cannot … be fulfilled as the fruit of a proprietary estoppel. The appellant 999 has
not created any expectation that the appellant 1000 will enjoy any kind of interest in land.” Laws L.J.
accepted counsel’s submission “that a proprietary estoppel may require a tenant to surrender his
interest” but added that “the present situation cannot be catalogued in such a manner.” 1001 The
reason why it could not be so catalogued appears to have been that no promise or representation to
make such a surrender could be inferred from the defendant/appellant’s conduct described above. 1002
The property in question must generally be that of the promisor
4-154
The rights which the promisee believes to have been created must, as a general rule, be rights in or
over the property of the promisor. Thus a representation by a planning authority to the effect that a
landowner does not need permission to carry out development on his own land is not capable of
giving rise to a proprietary estoppel. 1003
Exceptions
4-155
There are, however, a number of exceptions, or apparent exceptions, to the general rule stated in
para.4-154 above. One such exception may apply where the promisor makes two promises, of which
the first relates to his own land while the second relates to that of the promisee; and the two promises
may be so closely linked as to form in substance a single transaction. If the doctrine of proprietary
estoppel applies to that transaction as a whole, then it can provide the promisee with a remedy in
respect of the second promise even though that promise, standing alone, could not have given rise to
proprietary estoppel because it related only to the promisee’s land. In one case, 1004 for example, A
promised B (1) to sell Blackacre to B to enable B to build on it, and (2) to buy Whiteacre from B so
that B could pay for the building operations on Blackacre. B carried out the building work envisaged in
the first of A’s promises and it was held that the doctrine of proprietary estoppel provided B with a
remedy in respect of the second promise (which had no contractual force), even though that promise
related only to B’s land. But it was recognised that the doctrine could not have applied to the second
promise if it had stood alone and not formed part of a transaction also relating to A’s land. 1005 It could
not, for example, have applied if A had simply made a non-contractual promise to B to buy Whiteacre
from B, knowing that B intended to use the proceeds of the sale to buy shares from C, and if B had
then entered into a contract to that effect with C. Normally, the doctrine applies to promises to grant
rights in property to the promisee; it only applies to promises to acquire such rights from him where
such promises are inextricably linked with promises of the former kind. The doctrine has also been
invoked to prevent the promisor from asserting rights against the promisee in land which the latter
had acquired from a third party 1006; and from enforcing a charge which had been created in the
promisor’s favour over the promisee’s land. 1007
Promise not to enforce easement over promisee’s land
4-156
Another situation in which a representation or assurance can give rise to a proprietary estoppel,
although its subject-matter might at first sight seem to be the land of the promisee, is illustrated by
Lester v Woodgate, 1008 where A owned a right of way over B’s land and had by words or conduct
represented to B that he (A) had no objection to B’s interfering with that right by erecting a structure
which had the effect of blocking the right of way. It was held that B’s reliance on A’s (implied)
assurance made it unconscionable for A to assert the right of way and that proprietary estoppel
operated so as to prevent A (or his successor in title) from asserting or reasserting that right. Although
A’s representation or assurance could, in one sense, be said to have related to the land of the
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promisee (B), it was equally plausible to regard it as affecting A’s own proprietary interest as owner of
an easement in or over that land. As Patten L.J. said in that case: “Although proprietary estoppel … is
largely concerned with cases in which the defendant acquires some right over the claimant’s property
as a result of the latter’s conduct towards him, I can see no reason why the principles involved are not
of equal application to cases in which the defendant is alleged to have committed an act of nuisance
by interfering with an easement over his own land. In both cases, the claimant’s conduct relates to his
property rights and the estoppel bars the enforcement of the claimant’s legal rights.” 1009 Although
usually the doctrine may have the effect of creating a new right in B’s favour, in or over A’s land, it
may thus equally extinguish a right which had previously (i.e. before the occurrence of the
circumstances giving rise to the estoppel) been vested in A and have fettered B’s unrestricted
ownership of the land.
Subject-matter of the promise
4-157
In the cases to which the doctrine has so far been applied, the subject-matter of the promise has
almost always been 1010 (or at least included 1011) land, but the prevailing view is that the doctrine can
also apply where the subject-matter of the promise is property of some other kind, 1012 e.g., “in relation
to chattels or choses in action” 1013 or to intellectual property: it has, for example, been held to be
capable of applying to a promise relating to a licence to publish a magazine in a specified
geographical region. 1014 But, even where the doctrine applies to promises relating to such kinds of
property, it will in one respect remain narrower than that of so-called promissory estoppel 1015: the
promise must relate to the acquisition of an interest in the property that is the subject-matter of the
promise. It is not enough that the promise should merely (in some other way) relate to property: for
example, the doctrine of proprietary estoppel would not apply on the facts of Central London Property
Trust Ltd v High Trees House Ltd. 1016
Detrimental reliance by promise
4-158
The promisee must have relied on the promise or representation to his detriment. 1017 Although
“reliance and detriment may in the abstract be regarded as different concepts, in applying the
principles of proprietary estoppel, they are often intertwined”, 1018 so much so that they will here be
treated as a single requirement. This requirement has been doubted 1019; but in the absence of any
such reliance it is hard to see why failure to perform a merely gratuitous promise should be regarded
as giving rise to any legal liability. The element of detrimental reliance is necessary to satisfy “the
essential test of unconscionability” 1020 which is a necessary condition for the operation of proprietary
estoppel; and the existence of the requirement is further supported by the rules (to be discussed in
para.4-168 below) as to the revocability of the promise. The detriment must be “substantial,” i.e. such
as to make it “unjust or inequitable to allow the assurance to be disregarded” 1021; and the question
whether it has this character is to be judged “as at the moment when the person who has given the
assurance seeks to go back on it.” 1022 Where a promise has been made which is capable of inducing
detrimental reliance, and which is in fact followed by such reliance, the question may arise whether
the reliance was actually induced by the promise. The burden on this issue is on the promisor: that is,
it is up to the promisor, in order to escape liability, to show that the promisee would have done the
acts in question anyway (even if the promise had not been made). 1023 The position appears to be
different where a proprietary estoppel arises because both parties have acted under a mistake as to
their rights in the land. 1024 Here it seems to be up to the party relying on the proprietary estoppel to
show that his conduct in relation to the property was in fact induced by his belief that he had an
interest in it. 1025
Balance of detriment and benefit
4-159
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The promisee’s conduct in reliance on the promise may result in his both suffering a detriment and
gaining a benefit. This was the position in Henry v Henry, 1026 where the owner of a share in the
relevant land promised one of her younger relations that the share would be his if he cultivated the
land and cared for her (the promisor) until her death. The promisee had complied with these
requirements; and by doing so he had not only suffered a detriment in that he “deprived himself of the
opportunity of a better life elsewhere” 1027 but also gained the benefit of living rent free on the land “for
decades” 1028 and taking part of the produce for his own benefit. The Privy Council held that the
detriment suffered by the promisee must be weighed against the “countervailing advantages which he
enjoyed as a consequence of [his] reliance” 1029 and that, as the detriment was “not outweighed” 1030
by those advantages, a proprietary estoppel arose in his favour. 1031
Whether promise or reliance must relate to specific property
4-160
The authorities are divided on the further question whether, to give rise to a proprietary estoppel, the
promise or reliance must relate to identifiable property. According to one case, the promisee’s
conduct must relate to “some specific asset” in which an interest is claimed; so that proprietary
estoppel did not arise merely because B rendered services to A in the expectation of receiving some
indeterminate benefit under A’s will. 1032 But in another case reliance on a similar expectation (induced
by A’s promise) was held to be sufficient even though it did not relate to any “particular property.” 1033
The latter case can perhaps be explained on the ground that the promise did to some extent identify
the property. 1034 It is submitted that the view that the promise must relate to identified or identifiable
property 1035 is to be preferred 1036; for without some such limitation on the scope of proprietary
estoppel the doctrine could extend to any gift promise on which the promisee had relied to his
detriment. Such a very broad doctrine would be fundamentally inconsistent with the doctrine of
consideration 1037 and, indeed, with the rule that the doctrine of promissory estoppel gives rise to no
new rights. 1038
Unconscionable conduct by promisor
4-161
Reference has been made in para. 4-158 above to the point that the “essential test of
unconscionability” 1039 is a necessary condition for the operation of proprietary estoppel; and the
function of this requirement calls for further consideration in the light of the decision of the House of
Lords in Cobbe v Yeoman’s Row Management Ltd. 1040 In that case an oral agreement “in principle”
had been reached between a landowner (D) and a property developer (C). The purpose of the
agreement was to secure the redevelopment and disposal of residential property owned by D, but the
agreement lacked contractual force as it left significant aspects of the scheme to be settled by further
negotiation, 1041 and then to be embodied in a formal agreement, between the parties, each of whom
regarded the agreement at this stage as binding in honour only. C made considerable efforts and
incurred considerable expense in securing the necessary planning permission; but on the day when
the planning authority resolved to grant the permission D withdrew from the agreement. In the lower
courts, 1042 this conduct on D’s part was, by reason of its unconscionableness, regarded as “sufficient
to justify the creation of a ‘proprietary estoppel equity’ ” 1043 in favour of C. Their decision was
reversed by the House of Lords which unanimously held that C had no such proprietary claim.
4-162
In rejecting the proprietary estoppel claim, Lord Scott 1044 said that “to treat a ‘proprietary estoppel
equity’ as requiring … simply unconscionable behaviour” was a “recipe for confusion” 1045 and he
listed two further
“ingredients for a proprietary estoppel … These ingredients should include, in principle, a

proprietary claim made by a claimant and an answer to that claim based on some fact, or
Page 8
some point of mixed fact and law, that the person against whom the claim is made can be
estopped from asserting.” 1046
He in substance repeated these points in a later passage:
“Proprietary estoppel requires … clarity as to what it is that the object of the estoppel [i.e.,
the defendant] is to be estopped from denying, or asserting, and clarity as to the interest
in the property 1047 in question that that denial, or assertion, would otherwise defeat. If
these requirements are not recognised, proprietary estoppel will … risk becoming
unprincipled and therefore unpredictable, if it has not already done so.” 1048
In the Cobbe case, neither requirement was satisfied since the “agreement in principle”, was, as C
knew, incomplete and binding in honour only, so that C could not allege that D was bound by it; and
since, at the time of D’s withdrawal, C was not asserting any expectation that he would acquire a
proprietary right. 1049 His expectation was “the wrong sort of expectation” 1050; namely one that further
negotiations between him and D would fill the gaps in the “agreement in principle” and that the
agreement, thus completed, would be embodied in a formal written agreement and so become a
binding contract. He was expecting to get a contractual, rather than a proprietary, right. 1051
4-163
The question whether there was sufficient “clarity as to the interest in the property in question” 1052
arose again in Thorner v Major, 1053 where Peter’s assurances (the nature of which is discussed in
paras 4-150 to 4-152 above) were to the effect that David would inherit “the farm” (i.e. Steart Farm);
and where the area to which that expression referred changed, as a result of disposals and
acquisitions during the years in which that assurance had repeatedly been made. This fact was held
not to be an obstacle to David’s proprietary estoppel claim since (in Lord Walker’s words) the parties’
“common understanding was that Peter’s assurance related to whatever the farm consisted of at
Peter’s death … This fits in with the retrospective operation of proprietary estoppel noted in Walton v
Walton ”, 1054 an unreported decision of the Court of Appeal referred to with approval in Thorner v
Major. 1055 Hoffmann L.J. had there (in a passage already quoted in para.4-145 above) said that
“equitable estoppel” (an apparent reference to proprietary estoppel) “looks backwards from the
moment when the promise falls due to be performed and asks whether, in the circumstances which
have happened, it would be unconscionable for the promise not to be kept.” 1056 Such “circumstances”
could, therefore, either reduce or increase the extent of the property known as “Steart Farm”, to which
the proprietary estoppel related. Lord Neuberger similarly said that “the extent of the farm might
change, but … there is … no doubt as to what was the subject of the assurance, namely the farm as it
existed from time to time. Accordingly, the nature of the interest to be received by David was clear: it
was the farm as it existed on Peter’s death.” 1057 That was also the view of Lord Scott: “Peter’s
representation that David would inherit Steart Farm speaks, at least where Peter remained the owner
of an agricultural entity known as Steart Farm, as from his death and if, at that time, evidence were
available to identify Steart Farm with certainty, David’s claim in equity cannot … be rejected for want
of certainty of subject-matter.” 1058 The fact that Lord Scott took this view is of particular significance
as he evidently saw no inconsistency between it and his rejection of the proprietary estoppel claim in
the Cobbe case on the ground of lack of “clarity as to the interest in the property in question.” 1059
4-164
In the Cobbe case, Lord Walker 1060 also rejected the claim based on proprietary estoppel (which
he there called “equitable estoppel”). 1061 His policy reasons for so doing seem to resemble (though
they are not expressed in the same language as) Lord Scott’s. While accepting the flexibility of the
doctrine, Lord Walker starts with the point that it is “not a sort of joker or wild card to be used
whenever the Court disapproves of the conduct of a litigant who seems to have the law on his side”
1062
since, if it were so used, it would impair the certainty which was important in property transactions,
especially in those of a commercial nature. 1063 This reasoning can be said to resemble Lord Scott’s
view that such a broad application of proprietary estoppel would be a “recipe for confusion” 1064; but
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Lord Walker’s more specific reasons for rejecting the proprietary estoppel claim seem to differ in a
number of important respects 1065 from those given in support of the same conclusion by Lord Scott.
First, Lord Scott’s two “ingredients for a proprietary estoppel” (discussed in para.4-162 above) have
no counterpart in Lord Walker’s speech. Secondly (and conversely) Lord Walker’s main ground for
dismissing the proprietary estoppel claim has no counterpart in Lord Scott’s speech. That ground was
stated by Lord Walker to be that C’s proprietary estoppel claim “seems to me to fail on the simple but
fundamental point that, as persons experienced in the property world, both parties knew that there
was no legally binding contract, and that either was free to discontinue the negotiations without legal
liability, that is liability in equity as well as at law. [C] was therefore running a risk … He ran a
commercial risk with his eyes open,” 1066 Lord Scott makes no express reference to this risk, though it
may be reflected in his discussion of the reasons why the first of the “ingredients” of proprietary
estoppel (discussed in para.4-162 above) had not been established. The only “risks” to which Lord
Scott expressly refers as having been taken by C were the different risks “that planning permission
might be refused” and that the enterprise “might leave him with an inadequate profit or even none at
all.” 1067 Thirdly, Lord Scott rejects the proprietary estoppel claim in spite of the fact that D’s conduct
was “unconscionable”, regarding that circumstance as not “sufficient to justify the creation of a
‘proprietary estoppel equity’ ”. 1068 Lord Walker, by contrast, rejects that claim, not only on the ground
given above (i.e. that C “ran a commercial risk with his eyes open”) 1069 but also on the further ground
that C “knew that [D] was bound in honour only, and so in the eyes of equity her [D’s] conduct,
although unattractive, was not unconscionable ”. 1070 One possible explanation of this difference
between the two speeches is that Lord Scott’s concern was to deny that unconscionable conduct,
even if proved, was a sufficient, while Lord Walker’s was to emphasise that such conduct was a
necessary, condition (which had not been satisfied) for the operation of proprietary estoppel. Another
possibility is that while Lord Scott denied that even actually unconscionable conduct was sufficient for
this purpose, Lord Walker was, more narrowly, concerned to deny the sufficiency of conduct that was
not actually unconscionable but only unconscionable “in the eyes of equity”, 1071 or, in other words, by
virtue of a legal fiction. On the first of these views, the question then arises what further requirement,
other than unconscionable conduct, must be satisfied as a necessary condition of the operation of
proprietary estoppel. As the foregoing discussion in paras 4-161 and 4-162 shows, the answer to this
question given by Lord Scott differs from that given by Lord Walker, though on the facts of the Cobbe
case both answers led to the same result. 1072
Relationship between the Cobbe and Thorner cases
4-165
On the issue of proprietary estoppel, the outcome of the Cobbe case 1073 differed from that of Thorner
v Major 1074 and the question arises whether this difference in outcome reflects a difference in legal
principle between the two cases. In discussing this question, a number of preliminary points must be
made. First, of the five members of the Appellate Committee of the House of Lords in the Cobbe
case, three (Lords Hoffmann, Scott and Walker) were also members of that Committee in Thorner v
Major. Of those three, only one (Lord Walker) commented on the former decision in his speech in the
latter, the most detailed discussion of the relationship between the two cases being contained in Lord
Neuberger’s speech in Thorner v Major. Secondly the respondents (i.e., the defendants) in Thorner v
Major “did not contend that this House’s decision in Cobbe v Yeoman’s Row Management … has
severely curtailed, or even virtually extinguished, the doctrine of proprietary estoppel.” 1075 In Thorner
v Major Lord Walker described the view that this was the effect of the Cobbe case as a “rather
apocalyptic one” 1076 though he accepted that the Cobbe case was “certainly relevant to the second
issue” 1077 in the Thorner case; but on that issue the two cases were distinguished on their facts and
not considered to give rise to any conflict of legal principle. 1078 Thirdly, Lord Neuberger in Thornton v
Major said that “Concentrating on the perceived morality of the parties’ behaviour can lead to an
unacceptable degree of uncertainty of outcome, and hence I welcome the decision in Cobbe …” 1079
This statement of the underlying policy is in substance the same as that contained in passages from
the speeches of Lords Scott and Walker in the Cobbe case which are cited in paras 4-162 and 4-164
above, so that, on this point at least, there is no conflict of policy between the two cases. But in the
same paragraph of his speech Lord Neuberger also said that “it would represent a regrettable and
substantial emasculation of the beneficial principle of proprietary estoppel if it were artificially fettered
so as to require the precise extent of the property the subject of the alleged estoppel to be strictly
defined in every case.” 1080 It is accordingly under the heading of the alleged “Uncertainty as to the
extent of the property” 1081 that Lord Neuberger discusses the distinction between the two cases.
Page 10
There is no such discussion under his heading of “Reasonable reliance” 1082 where he deals with the
question (described by Lord Walker as “The main issue before the House”) 1083 whether Peter’s
assurance had been sufficiently clear to make it reasonable for David to act in reliance on it. It may
not always be easy to distinguish between these two issues, but the distinction is, with respect, at
least helpful for purposes of exposition.
4-166
A useful starting point for concluding this discussion of the distinction between the two cases is
perhaps that the facts of each of them were said by Lord Neuberger to be “unusual”, 1084 though, as
might be expected where this was the case, they were unusual in different ways. The unusual feature
of Thorner v Major lay in the oblique, indirect nature of the utterances by which Peter induced David
to believe that David would inherit Steart Farm 1085; the unusual feature of the Cobbe case lay in “the
total uncertainty as to the nature or terms of any benefit (property interest, contractual right or money)
and, if a property interest, as to the nature of that interest (freehold, leasehold or charge) to be
accorded to Mr Cobbe.” 1086 There was “no doubt about the physical identity of the property”, 1087 as
there was in Thorner v Major, where that doubt was resolved in the way explained in para.4-163
above. A second distinction between the two cases lay in the nature of the relationship between the
parties. In the Cobbe case, that relationship was an “entirely at arm’s length and commercial” one, in
which “the parties could well have been expected to enter into a contract” but had “consciously
chosen not to do so”. 1088 In those circumstances it would have been wrong to allow estoppel to be
used as, in effect, a mechanism to enforce an agreement which had deliberately been left incomplete
1089
and which also failed to comply with the formal requirements for contracts for the disposition in
land. In Thorner v Major, by contrast, the relationship between the parties “was familial and personal”
and “at no time had either of them even started to contemplate entering into a formal contract as to
the ownership of the farm after Peter’s death.” 1090 It is true that, from a legal point of view, the
non-contractual nature of Peter’s assurance could be said to result from lack of contractual intention
and that the same explanation could be used to account, at least in part, for the non-contractual
nature of the relationship of the parties in the Cobbe case. But there this conclusion followed from a
deliberate choice of the parties, while in Thorner v Major it followed as a matter of course from the
nature of the relationship between them. In such cases of “familial and personal” relationships, the
fact that the relevant promise or assurance was not intended to be legally binding has never been
regarded as an obstacle to giving effect to it by way of proprietary estoppel. On the contrary, in cases
of this kind, the fact that the promise had no contractual force for want of contractual intention has
traditionally and typically been the precise ground for equitable intervention by way of proprietary
estoppel. 1091 This point is further supported by Lord Neuberger’s explanation of the reason why s.2 of
the Law of Property (Miscellaneous Provisions) Act 1989 (which lays down the formal requirements
for the making of a contract for the disposition of an interest in land) was regarded as relevant to the
outcome in Cobbe’s case 1092 but was not relevant in Thorner v Major, where the claim was “a
straightforward estoppel claim without any contractual connection.” 1093
Quantum meruit
4-167
Although in Cobbe v Yeoman’s Row Management Ltd 1094 C’s proprietary estoppel claim failed for the
reasons given in paragraphs 4-162 and 4-164 above, C was not sent away empty handed. Such an
outcome would have had the effect of leaving D with an enrichment in the form of the enhanced value
of D’s property as a result of the planning permission; and this enrichment, having been obtained at
the expense of C, would have been unjust. 1095 C was therefore entitled to a quantum meruit on the
basis of having rendered services in pursuance of a contract which was expected to materialise but
never came into existence. 1096 This quantum meruit was to cover, not only the value of C’s services,
but also his expenses reasonably incurred in making and prosecuting the planning application (those
expenses being necessary to secure the planning permission which had enhanced the value of the
property); it was, on the other hand, subject to C’s making the architect’s plans used to secure that
permission available to D. 1097 Some care is, however, needed in defining the limits of such a remedy
in cases of this kind. Such a quantum meruit might not be available where a party to an anticipated
contract which failed to materialise had taken the risk of events that turned out to his disadvantage. In
the Cobbe case, C took two such risks: that planning permission might be refused 1098 and that no
binding contract might come into existence. 1099 In the first of those situations, D would not be
Page 11
enriched so that there would seem to be no basis for the quantum meruit claim. In the second
situation, there was such an enrichment and the enrichment was unjust on account of the
unconscionable 1100 or at least the unattractive 1101 conduct of D. It was this combination of
circumstances that justified the remedy by way of a quantum meruit in the Cobbe case. There would,
on the other hand, be no quantum meruit claim where C had “never intended to charge for her
services” 1102 since, in such a case, though D might be enriched, the enrichment would not be unjust;
but in the Cobbe case this was not the position 1103 since there C “did not intend to act gratuitously,
nor did [D] believe the contrary.” 1104

931.
Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [15], [29], [42]; Crossco No.4
Unlimited v Jolan Ltd, Note [2011] EWCA Civ 1629, [2012] 2 All E.R. 754 at [114]; Burton v
Liden [2016] EWCA Civ 275, [2017] 1 F.L.R. 310 at [16]; Davies v Davies [2014] EWCA Civ 565
at [29], also making the point that such “main elements” could not “be treated as subdivided into
three or four watertight compartments” (at [30], quoting Walker L.J. in Gillett v Holt [2001] Ch.
210 at 232) and illustrating ways in which these elements relate to or overlap with each other;
see also Davies v Davies [2016] EWCA Civ 463, [2016] 2 P. & C.R. 10, restating the main
elements of proprietary estoppel and repeating the point that they could not be divided into
“watertight compartments” (at [38]); Suggitt v Suggitt [2012] EWCA Civ 1140, [2012] W.T.L.R.
1607 at [19], where Arden L.J. states the above three requirements and adds a fourth: “the
relief granted by the court”. As appears from these words, this fourth requirement is concerned
with the legal effects of, or remedies for, proprietary estoppel, to be discussed in paras 4-168 to
4-180 below. The first three requirements, by contrast, are those which have to be satisfied
before a proprietary estoppel can arise. In Davies v Davies, above, the requirements of reliance
and detriment were held to have been satisfied, but the scope of the remedy was left over to be
determined in later proceedings (see at [57] and [26]). For a case in which a daughter’s claim
against her mother’s estate, based on proprietary estoppel, was rejected because none of the
three requirements stated in para.4-146 of Vol.I had been satisfied, see Wright v Waters [2014]
EWHC 3614, [2015] W.T.L.R. 353. See also MWB Business Exchange Centres Ltd v Rock
Advertising Ltd [2016] EWCA Civ 553, [2017] Q.B. 604, where the “three main elements” of
proprietary estoppel are stated at [65] but it was held that no such estoppel arose because (1)
the right claimed by the person relying on the estoppel was not “a proprietary right” and (2) that
person had not “suffered any detriment.” For a further statement of the requirements of
proprietary estoppel, see Moore v Moore [2016] EWHC 2202 (Ch), where the requirements
were held to have been satisfied. At [16], this form of estoppel is referred to as “equitable”
estoppel; but it is clear from the authorities cited that the reference is to proprietary estoppel;
see also the use of the expression “proprietary” at (e.g.) [16], [18], [184], [194]. The reference to
“promissory” estoppel at [174] may be a misprint; in any event it is clear from the remedy
granted by the Court in Moore v Moore (see below, para.4-169) that the outcome was not
affected by the restriction on the effect of the estoppel discussed in Main Work, Vol.I,
para.4-101.
932. See [2009] UKHL 18 at [2] (“promise or assurance”).
933. Kim v Chasewood Park Residents Ltd [2013] EWCA Civ 239, [2013] H.L.R. 24 at [31] and [34];
for the facts of this case (so far as here relevant) see above, para.4-090 n.468.
934. e.g. Re Sharpe [1980] 1 W.L.R. 219; Ashby v Kilduff [2010] EWHC 2034 (Ch), [2010] 3 F.C.R.
80 at [72].
935. Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [5].
936. Gillett v Holt [2001] Ch. 210, 229.
937. Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [17]; cf. at [60].
Page 12
938. ibid., at [5], [26]; Suggitt v Suggitt [2011] EWHC 903 (Ch), [2011] 2 F.L.R. 875 at [42]; affirmed
[2012] EWCA Civ 1140, [2012] W.T.L.R. 1607, where the trial judge’s finding that a promise
had been made was not challenged on appeal (see at [28]) and the Court of Appeal concluded
that “there was sufficient reliance and detriment” (at [38]).
939. Thorner v Major, above n.884, at [78].
940. See Kinane v Mackie-Conteh [2005] EWCA Civ 45, [2005] W.T.L.R. 345 at [29] (requirement of
a representation “that the agreement created an enforceable obligation”).
941. Att.-Gen. of Hong Kong v Humphreys Estates (Queen’s Gardens) [1987] 1 A.C. 114; the case
was said in Waltons Stores (Interstate) Ltd v Maher (1988) 164 C.L.R. 387, 404 to be “not a
case of proprietary estoppel” but (apparently) one of promissory estoppel. But most of the
authorities relied on in the Humphreys Estates case were cases of proprietary estoppel; the
leading cases on promissory estoppel were not cited; and if the requirements of encouragement
and reliance had been satisfied the estoppel would have created a new right, which in English
law is not the effect of promissory estoppel: above para.4-101. cf. Saloman v Akiens [1993] 1
E.G.L.R. 101 (no proprietary estoppel arising from agreement “subject to lease”); Pridean Ltd v
Forest Taverns (1998) 75 P. & C.R. 447 (no proprietary estoppel arising from work done during
negotiations which failed to lead to a contract); Edwin Shirley Productions v Workspace
Management Ltd [2001] 23 E.G. 158 (negotiations “subject to contract” and “without prejudice”
held not to give rise to proprietary estoppel); London & Regional Investments Ltd v TBI plc
[2002] EWCA Civ 355, [2002] All E.R.(D) 360 (Mar) (no estoppel or constructive trust where
agreement was “subject to contract”); for the same view, see Spring Finance Ltd v H S Real Co
LLC [2011] EWHC 57 at [40] and [70]; Secretary of State for Transport v Christos [2003] EWCA
Civ 1073, [2004] 1 P. & C.R. 17 where “equitable estoppel” is used (e.g. at [42]) to refer to
proprietary estoppel; Haq v Island Homes Housing Association [2011] EWCA Civ 805, [2011] 2
P & C.R. 17 (no proprietary estoppel held to arise from allowing prospective lessee to enter the
premises to start work there while the agreement was still subject to contract (at [73])); Crossco
No.4 Unlimited v Jolan Ltd, Note [2011] EWCA Civ 1619, [2012] 2 All E.R. 754 at [133] (“where
parties have been dealing on the basis that their negotiations are ‘subject to contract’,
proprietary estoppel will not ordinarily be available”). Cf. the discussion of Cobbe v Yeoman’s
Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 in paras 4-162 and 4-164 below.
942.
Above, para.2-171. But where an oral agreement for the sale of land was intended to be
legally binding by the parties to it as soon as it was made it was arguable that the agreement
could give rise to a proprietary estoppel even though later correspondence between solicitors
instructed by the contracting parties “was headed ‘subject to contract’”. This was the position in
Matchmove Ltd v Dowding and Church [2016] EWCA Civ 1233, [2017] 1 W.L.R. 749 where
relief was granted at first instance “on the basis of proprietary estoppel and constructive trust”
(at [21]). On appeal, the decision below was affirmed (at [46]), though on the basis of
constructive trust only: at [28], [48]; above, para.4-142 n.849.
943. Humphreys Estates case, above n.890, [1987] 1 A.C. 114, 124.
944. cf. above para.4-140; Brinnand v Ewens (1987) 19 H.L.R. 415; and (in a different context) Kelly
v Liverpool Maritime Terminals [1988] I.R.L.R. 310, where authorities on proprietary estoppel
are cited in a case unconnected with property.
945. This is assumed in the Humphreys Estates case, n.890, above, where the Privy Council at 124
stresses that there had been no such encouragement.
946. Taylor v Dickens [1998] F.L.R. 806, as explained in Gillett v Holt [2001] Ch. 210 at 227.
947. [2001] Ch. 210.
948. ibid. p.228.
949.
Preedy v Dunne [2015] EWHC 2713 (Ch), [2015] W.T.L.R. 1795.
Page 13
950.
[2016] EWCA Civ 805, [2016] C.P. Rep. 44 at [61].
951. For the distinction between these two types of proprietary estoppel, see above, para.4-140.
952. [2009] UKHL 18, [2009] 1 W.L.R. 776 at [55]: “ if all cases of proprietary estoppel (including
cases of acquiescence or standing by) are to be analysed in terms of assurance, reliance and
detriment, then the landowner’s standing by in silence serves as the assurance” (italics
supplied). This does not amount to a statement that all cases of proprietary estoppel are to be
so analysed.
953. At [61].
955. At [84].
956. Proprietary estoppel by encouragement can arise without any element of enrichment of the
promisor: see above, para.4-143.
957. [2009] UKHL 18, [2009] 1 W.L.R. 776 at [30].
958. At [52].
959. See above, para.4-091, below, para.7-103.
960. [2009] UKHL at [37], quoting from [31] and [32] of the judgment at first instance.
961. [2009] UKHL at [40].
962. At [32].
963. At [1], [2].
964. Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [28];
below, para.4-162.
965. [2009] UKHL 18, [2009] 1 W.L.R. 777.
966. At [54], where Lord Walker noted that this view had been expressed in a number of editions of
“Treitel, Law of Contract”, including the then current 12th edition by Peel. The same view (as
that quoted by Lord Walker) was stated in para.3-162 of the 30th edition of the present book.
968. [2009] UKHL 18 at [55]; and see below, para.4-183.
969. [2009] UKHL 18 at [55].
971.
At [56], italics supplied. See also Burton v Liden [2016] EWCA Civ 275, [2017] 1 F.L.R. 310 at
[24], where the context in which the representation was made was said to be “hugely important”
and Lord Walker’s test of reasonable clarity in that context (stated in Thorner v Major [2009]
UKHL 18, [2009] 1 W.L.R. 776 at [56], quoted in para.4-150 of Vol.I) was held to have been
satisfied.
972. At [36].
973. At [57].
Page 14
974. See above para.4-145 n.876.
975. Quoted in [2009] UKHL 18 at [57].
976. At [6]. The judge’s decision was in favour of David. See also Suggitt v Suggitt [2011] EWHC
903 (Ch), [2011] 2 F.L.R. 875, where it was said at [53] that the facts were “not nearly as clear
cut as they were in Thorner v Major ” (above n.912), but that it was “more likely than not that
Frank did make some kind of repeated promise or assurance to [his son] John that led him
[John] reasonably to expect that someday at least the farmland (and, by implication if not
expressly somewhere to live) would definitely be his” after the father’s death. When Suggitt v
Suggitt was affirmed ([2012] EWCA Civ 1140, [2012] W.T.L.R. 1607) the trial judge’s finding
that there had been a promise or assurance capable of giving rise to a proprietary estoppel was
referred to by Arden L.J. with apparent approval: see at [20].
977. [2009] UKHL 18 at [8].
978. At [6], quoted above at n.923; and the last sentence of [8].
979. [2009] UKHL 18 at [84].
980. At [84] referring to the “acquiescence” cases (above, para.4-140).
981. See further para.4-183 below.
982. [2009] UKHL 18 at [85].
983. At [84].
984. At [86].
985. See the words “it seems to me that, at least normally …” (at [86]).
986. At [86]. In the unreported case of Walton v Walton (April 14, 1994) Hoffmann L.J. had, in a
passage quoted in Thorner v Major [2009] UKHL 18 at [56] said that “the promise must be
unambiguous”; but the fact that he does not refer in the latter case to this requirement may
indicate that he no longer strictly insisted on it.
987. See below, paras 4-172 to 4-179.
989. [2009] UKHL 18, [2009] 1 W.L.R. 776. Lord Hoffmann at [9] expressed his agreement with the
speeches of Lords Walker and Neuberger on the “identifiable property” issue (discussed in
para. 4-163 below); Lord Scott at [11] expressed his “broad agreement” with the same
speeches; and Lord Rodger at [18] expressed his agreement with those speeches.
991. [2009] UKHL 18 at [85].
992. At [5], [17], [26], [60].
993. Lord Hoffmann’s statement at [6] (quoted in para.4-150 at n.923 above) contains no reference
to any need for an “unequivocal” assurance. Nor does his discussion at [8], read as a whole,
support any such requirement: see the last sentence of para.4-150 above.
994. At [18].
995. [2008] EWCA Civ 1541, [2009] 1 W.L.R. 1884; see also para.4-102, n.564 above.
Page 15
996. [2008] EWCA Civ 1541 at [13].
997. At [9].
998. At [27].
999. i.e. the defendant.
1000. Sic—an evident misprint for “respondent” (i.e. the claimant housing association).
1001. At [27].
1002. That conduct was said to “bear all the marks of estoppel by representation”; but this type of
estoppel was of no avail to the claimant for the reason given in para.4-102 above.
1003. Western Fish Products Ltd v Penwith DC [1981] 2 All E.R. 204 (decided in 1978); cf. Lloyd’s
Bank plc v Carrick [1996] 4 All E.R. 632 (no proprietary estoppel in favour of a purchaser of
land as by virtue of the contract he had become equitable owner of the land).
1004. Salvation Army Trustee Co v West Yorks Metropolitan CC (1981) 41 P. & C.R. 179.
1005. ibid., at 191; the case was approved but distinguished in Att.-Gen. of Hong Kong v Humphreys
Estates (Queen’s Gardens) [1987] A.C. 114, 126–127.
1006. J.S. Bloor (Meacham) Ltd v Calcott (No.2), The Times, December 12, 2001.
1007. S v S [2006] EWHC 2892 (Fam), [2007] F.L.R. 1123.
1008. [2010] EWCA Civ 199, [2010] 2 P. & C.R. 21.
1009. ibid., at [3] italics supplied.
1010. See below, n.959.
1011. Re Basham [1987] 1 W.L.R. 1498.
1012. Western Fish case, above, n.950 at 217; cf. the reference ibid. at 218, and in Crabb v Arun DC
[1976] Ch. 179, 187, to the decision of the Court of Appeal in Moorgate Mercantile Co v
Twitchings [1976] Q.B. 225; that decision was reversed by the House of Lords: [1977] A.C. 890.
1013. Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [14] per
Lord Scott (“in principle equally available in relation to chattels or choses in action”); for
example, in Strover v Strover [2005] EWHC 860 (Ch), [2005] W.T.L.R. 1245, where “proprietary
estoppel” (at [39]) operated in relation to an insurance policy. The estoppel in this case arose
from a mistake, and so was one that arose from “acquiescence” as opposed to an “assurance”
or “encouragement”; and it is with cases of the latter kind that the discussion of proprietary
estoppel in this chapter is concerned (see above, para.4-140).
1014. Motivate Publishing FZ LLC v Hello Limited [2015] EWHC 1554 (Ch) at [61]; the actual decision
in this case was that no proprietary estoppel arose since other requirements of the doctrine
were not satisfied: see at [72], [75].
1015. See above, paras 4-086, 4-102, 4-130.
1016. [1947] K.B. 130; above, para.4-130.
1017. This was the view of the majority of the Court of Appeal in Greasley v Cooke [1980] 1 W.L.R.
1306; the requirement is assumed to exist in Taylors Fashions Ltd v Liverpool Victoria Trustee
Co Ltd [1982] Q.B. 133n, and stated in Grant v Edwards [1986] Ch. 638, 657; Jennings v Rice
[2002] EWCA Civ 159; [2002] W.T.L.R. 367 at [21], [42]; cf. Lloyds Bank plc v Rosset [1991] 1
Page 16
A.C. 107, 132; Hammond v Mitchell [1991] 1 W.L.R. 1127; Van Leathem v Booker [2005]
EWCA Civ 1478, [2006] F.C.R. 697. The fact that there was no such reliance was one reason
why the claim based on proprietary estoppel failed in Western Fish Products Ltd v Penwith DC
[1981] 2 All E.R. 204, see ibid., at 217; in Coombes v Smith [1986] 1 W.L.R. 808; in Att.-Gen. of
Hong Kong v Humphreys Estates (Queen’s Gardens) [1987] A.C. 114; and in H v M (Property
Occupied by Wife’s Parents) [2004] EWHC 625, [2004] F.L.R. 16. cf. Mecca Leisure v The
London Residuary Body [1988] C.L.Y. 1375; Jones v Stones [1999] 1 W.L.R. 1739; Kim v
Chasewood Park Residents Ltd [2013] EWCA Civ 239, [2013] H.L.R. 24 at [40], where the
actual decision was that the statements in question “did not promise anything” (at [31], [34] and
see above para.4-090 n.468); and where it is not entirely clear whether the discussion of
“Reliance” (at [36]–[40]) was concerned with the defence of the promissory estoppel or with the
claim based on proprietary estoppel. See also Lloyd v Dugdale [2001] EWCA Civ 1754; [2001]
48 E.G.C.S. 129, where the detrimental reliance was mainly by a company controlled by the
promisee but also by the promisee himself and the actual result was that the promisee’s claim
failed against a third party to whom the land had been transferred and who had become
registered proprietors of it.
1018. Henry v Henry [2010] UKPC 3, [2010] 1 All E.R. 988 at [55]; cf. Suggitt v Suggitt [2011] EWHC
903 (Ch), [2011] 2 F.L.R. 875 at [59], affirmed [2012] EWCA Civ 1140, [2012] W.T.L.R. 1607,
where the Court of Appeal concluded at [38] that “there was sufficient reliance and detriment”.
1019. By Lord Denning M.R. in Greasley v Cooke, above n.963 at 1311.
1020. Gillett v Holt [2001] Ch. 210 at 232, a dictum cited with approval by Lord Neuberger in Fisher v
Brooker [2009] UKHL 41, [2009] 1 W.L.R. 1764 at [63], stating the requirement of detriment to
be “part of a broad enquiry into unconscionability.” In that case the requirement was not
satisfied: see at [63], [71] and [11]; Jennings v Rice [2002] EWCA Civ 159; [2002] W.T.L.R. 367
at [21], [42]; Kinane v Mackie-Conteh [2005] EWCA Civ 45, [2005] W.T.L.R. 345 at [29]; Hopper
v Hopper [2008] EWHC 228 (CL), [2008] I F.C.R 557 at [111].
1021. Gillett v Holt, above n.966, at 232.
1022. ibid. For the question, by reference to what time the test of unconscionability is to be applied,
see also Mulholland v Kane [2009] N.I.Ch. 9 where a man had assured a woman 27 years his
junior, with whom he had formed a relationship which became sexual, and which endured for 30
years during which she had helped him on his farm and cared for him, that “she would always
have a roof over her head and some land” (at [5]; cf. at [19]). She had acted to her detriment in
various ways in reliance on these assurances; and although he had not deliberately deprived
her of the expectations he had created, his “inertia and failure to make some … disposition for
her” by will was unconscionable and gave rise to a proprietary estoppel, on his death intestate,
against his estate.
1023. Greasley v Cooke, above n.963; Grant v Edwards [1986] Ch. 638, 657; Re Basham [1986] 1
W.L.R. 1498; Hammersmith & Fulham BC v Top Shop Centres Ltd [1990] Ch. 237; Wayling v
Jones (1993) 69 P. & C.R. 170, 172; Thompson v Foy [2009] EWHC 1076 (Ch), [2010] 1 P. &
C.R. 16 at [94].
1024. Above, para.4-140.
1025. Taylors Fashions Ltd v Liverpool Victoria Trustee Co Ltd [1982] Q.B. 133 note; cf. Coombes v
Smith [1986] 1 W.L.R. 808.
1026. [2010] UKPC 3, [2010] 1 All E.R. 988.
1027. ibid., at [61].
1028. ibid., at [27] citing [12] of the judgment at first instance.
1029. [2010] UKPC 3 at [51]; see also at [53].
1030. ibid., at [61].

Page 17
1031. For the remedy giving effect to the estoppel, see below, para.4-175.
1032. Layton v Martin [1986] 2 F.L.R. 277, cited with apparent approval, but distinguished by Lord
Walker in Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [63]; for discussion of the
present requirement in that case, see below, para.4-163.
1033. Re Basham [1986] 1 W.L.R. 1498, 1508.
1034. By referring to the promisor’s cottage. In Gillett v Holt [2001] Ch. 210 the property was likewise
identified, if not very precisely; cf. Jennings v Rice [2002] EWCA Civ 159; [2002] W.T.L.R. 367,
at [50], where the promise again related in part to the promisor’s house.
1035. In Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [61], Lord Walker uses the
expression “identified property” but is not, at this stage, concerned with any distinction between
identified and identifiable property. Other cases support the view that identifiability (as opposed
to identification) suffices. One such case is Suggitt v Suggitt [2012] EWCA Civ 1140, [2012]
W.T.L.R. 1607, where a promise that the promisee was to have “somewhere to live” was held to
give rise to a proprietary estoppel since these words identified the property as the house
occupied by the promisee during the promisor’s life-time and at his death (at [48], where “a
place to leave” seems to be a misprint for “a place to live”). Another is Herbert v Doyle [2010]
EWCA Civ 1095, where an agreement provided for the property to be “identified” by the
claimant and his failure to make the choice within a reasonable time did not deprive the
agreement of legal force since it was an implied term of the agreement that, on such failure, the
selection could be made by the court: at [72], [87] and see above, para.2-138. The decision was
that the agreement gave rise to a constructive trust within Law of Property (Miscellaneous
Provisions) Act 1989, s.2(5); and it seems that it could also have given rise to a proprietary
estoppel.
1036. This view is supported, though perhaps not conclusively, by repeated references in Lord Scott’s
speech in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at
[18], [19], [20] to a “certain interest in land” and at [28] to “clarity as to the interest in the
property”. If there is no certainty or clarity in “the property” it is unlikely for this requirement to be
satisfied with regard to the “interest” in it.
1037. e.g. above, paras 4-002, 4-026. For this reason, Evans v HSBC Trust Co (UK) Ltd [2005]
W.T.L.R. 1298 may, with respect, be doubted. The promise which was held there to have given
rise to a proprietary estoppel was one that the promisee would inherit the whole of promisor’s
estate. This did indeed, at least in general terms, identify the relevant property. But the acts
done in reliance on the promise did not in any way either relate to the property or benefit the
promisor. While the latter factor is not decisive (see above, para.4-143) the combination of both
of them seems to reduce the case to one of mere action in reliance on a gratuitous promise.
The judgment recognises that mere change of position does not suffice to give rise to
proprietary estoppel (at [73]) but does not explain what additional factors in the case justified
the application of the doctrine.
1038. Above, para.4-099.
1039. Above, para.4-158 at n.966.
1040. [2008] UKHL 55, [2008] 1 W.L.R. 1752. For an extended discussion of this case and of Thorner
v Major [2005] UKHL 18, [2009] 1 W.L.R. 776 (above para.4-149), see Crossco No.4 Unlimited
v Jolan Ltd [2011] EWHC 803 (Ch), where estoppel claims failed as their factual bases were not
established; the decision in the Crossco case was affirmed on appeal: [2011] EWCA Civ 1619,
[2012] 2 All E.R. 754.
1041. Above, para.2-117.
1042. [2005] EWHC 266 (Ch), [2005] W.T.L.R. 625; [2006] EWCA Civ 1139, [2006] 1 W.L.R. 2964.
1043. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [28].

Page 18
1044. With whose speech Lord Hoffmann; Brown and (except on a point relating to the amount of the
quantum meruit claim: see at [44], [96]) Lord Mance agreed.
1045. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [16].
1046. ibid., at [16].
1047. See also Capron v Government of Turks and Caicos Islands [2010] UKPC 2, where a
proprietary estoppel claim was rejected on the ground that there was not sufficient certainty in
the interest in the property in question (at [36]–[40]); Crossco No 4 Unlimited v Jolan Ltd, Note
[2011] EWCA Civ 1619, [2012] 2 All E.R. 754 at [114].
1048. [2008] UKHL 55 at [28]. The passage quoted in the text gives rise to the further difficulty that
(as the words “these requirements” in the sentence following it make clear) it states two
requirements of “clarity”, the first of which (“clarity as to what it is that [the defendant] is
estopped from denying or asserting”) is not altogether easy to interpret. It may be a reference to
the requirement that the representation alleged to give rise to the estoppel must be “clear and
unequivocal” (above, paras 4-149 to 4-152). But when, in Thorner v Major [2009] UKHL 18,
[2009] 1 W.L.R. 776 at [15] Lord Scott discusses this requirement, he makes no reference to
the (first) “clarity” requirement as formulated in the phrase from the Cobbe case quoted earlier
in this note; while in the Thorner case Lords Walker (at [31]) and Neuberger [90] treat the
Cobbe case as turning on lack of certainty in the property interest claimed, i.e. to the second
“clarity” requirement stated by Lord Scott in the passage (from the Cobbe case) quoted in the
text above. It seems that, though Lord Scott’s first “clarity” requirement may be related to the
“clear and unequivocal” requirement, the two requirements are not identical. Perhaps the
distinction between them is that, in proprietary estoppel cases, the promisor is prevented from
denying, not the fact that he made the statement in question, but its effect in giving rise to an
expectation on the part of the promisee that he would acquire a property interest in the
subject-matter. This formulation would leave scope for the further requirement of “clarity” as to
the nature or extent of that interest (cf. below, para.4-166 at n.1032). The concluding words of
the passage quoted in the text above (“if it has not already done so”) may contain an implied
criticism of recent decisions but it is not clear at which, if any, such decisions that criticism is
directed. Lord Walker at [66] cites a number of such cases without adverse comment. One of
these cases is Gillett v Holt [2001] Ch. 2010 and in Thorner v Major [2009] UKHL 18, [2009] 1
W.L.R. 776 at [100] Lord Neuberger says that it was “unlikely in the extreme” that in the Cobbe
case Lord Scott “was intending impliedly to disapprove of any aspect of the reasoning of the
Court of Appeal in Gillett.” This view derives some indirect support from the fact that in Thorner
v Major at [18] and [19] Lord Scott refers to Gillett v Holt with apparent approval, though at [21]
he includes it in a list of cases that are “more comfortably viewed as constructive trust [than as
proprietary estoppel] cases.”
1049. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [15]. C’s constructive trust claim also failed (at
[30]–[38]) for reasons beyond the scope of this chapter.
1050. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [20].
1051. C’s claim for specific performance of the “agreement in principle” had been abandoned as that
agreement was not enforceable: [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [9], so that it was not
open to him to argue that he had, by virtue of that agreement, become owner in equity of the
property.
1053. [2009] UKHL 18, [2009] 1 W.L.R. 776, above, para.4-149.
1054. [2009] UKHL 18 at [62]; cf. at [101], per Lord Neuberger.
1055. At [57] and see above para.4-145.
1056. See the passage quoted in Thorner v Major [2008] UKHL 18 at [57].
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1057. At [95]. Lord Hoffmann at [9] agreed with Lords Walker and Neuberger on this point. Lord
Rodger express his agreement with Lord Walker’s speech “on the first point” (i.e. on that
discussed in paras 4-149 to 4-152 above); and at [28] with Lord Neuberger’s reasons.
1058. At [18].
1059. Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [28];
above, para.4-162.
1060. With whose speech Lord Brown agreed.
1061. See above, para.4-139 n.822.
1062. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [46].
1063. ibid., at [81].
1064. ibid., at [16]; above para.4-162 at n.991.
1065. In Henry v Henry [2010] UKPC 3, [2010] 1 All E.R. 988 at [41] and [42], Sir Jonathan Parker
quotes from the speech of Lord Walker, but makes no reference to that of Lord Scott, in the
Cobbe case. Too much should not be made of this point as Henry v Henry did not raise any
issue as to the differences between these cases discussed in para.4-162 above and in the
present paragraph. In Mulholland v Kane [2009] N.I.Ch. 9 (above, para.4-158 n.968) at [17] and
[18] Deeny J. likewise refers to the speech of Lord Walker, but not to that of Lord Scott, in the
Cobbe case, and it may, with respect, be doubted whether Lord Scott’s requirement of “clarity
as to the interest in question” (Cobbe case at [28]) was satisfied in Mulholland v Kane. For a
possible synthesis of the two speeches, see below, n.1018.
1066. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [91].
1067. ibid., at [6].
1068. ibid., at [28].
1069. i.e. in addition to the ground stated by him at [91], above at n.1012.
1070. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [92] (italics supplied).
1071. ibid.
1072.
See also the discussion of the Cobbe case by Arden L.J. in Herbert v Doyle [2010] EWCA Civ
1095. Her conclusion (at [57]) is that “there is a common thread running through the speeches
of Lord Scott and Lord Walker.” This is that parties cannot rely on proprietary estoppel or
constructive trust to make their agreement binding if the relevant interest in property “is not
clearly identified, or if the parties did not expect their agreement to be immediately binding …”.
As the word here italicised shows, even this synthesis does not wholly reconcile the difference
between the two speeches. For further discussion of the passage of Arden L.J.’s judgment in
Herbert v Doyle [2010] EWCA Civ 1095, [2015] W.T.L.R. 1573, see Matchmove Ltd v Dowding
and Church [2016] EWCA Civ 1233, [2017] 1 W.L.R. 749 at [30]-[32]. The latter case differed
from the Cobbe case [2008] UKHL 55, [2008] 1 W.L.R. 1752 in that in the Matchmove case the
parties did intend their agreement “to be immediately binding” ([2016] EWCA Civ 1095 at [36])
even though it was oral and so did not satisfy the requirement of Law of Property
(Miscellaneous Provisions) Act 1989, while in the Cobbe case the parties did not “expect their
agreement to be immediately binding” (see Arden L.J. in Herbert v Doyle [2010] EWCA Civ
1095 at [57]).
1073. Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752, above, paras
4-161 to 4-164; below, para.4-167.
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1074. [2009] UKHL 18, [2009] 1 W.L.R. 776; above, paras 4-149 to 4-152, 4-163. In Suggitt v Suggitt
[2012] EWCA Civ 1140, [2012] W.T.L.R. 1607 Arden L.J. (with whose judgment Sullivan L.J.
and Sir Nicholas Wall agreed) at [29] cites Thorner v Major but makes no reference to Cobbe v
Yeoman’s Row Management Ltd. For other cases relevant to the relationship between the
Cobbe and Thorner cases, see Henry v Henry [2010] UKPC 3, [2010] 1 All E.R. 988 (above,
para.4-164, n.1011); Herbert v Doyle [2010] EWCA Civ 1095, esp. at [57]; Crossco No.4
Unlimited v Jolam Ltd [2011] EWHC 803 (Ch), affirmed [2011] EWCA Civ 1619, [2012] 2 All
E.R. 754; and Mulholland v Cane [2009] N.I.Ch. 9.
1075. [2009] UKHL 18 at [31].
1076. At [31].
1077. At [31]. The “second issue” was that of clarity as to the interest in the property in question; it is
discussed in para.4-162 above.
1078. [2009] UKHL 18 at [63], [64] and see para.4-166 above.
1079. At [98]; and at [92]: it was not enough for Mr Cobbe to be “simply seeking a remedy for the
unconscionable behaviour of Yeoman’s Row”.
1080. [2009] UKHL 18 at [98].
1081. Before [90].
1082. Before [74].
1083. Before [52].
1084. At [81] (referring to the Thorner case) and [99] (referring to the Cobbe case).
1085. See paras 4-149 to 4-152 above.
1086. [2009] UKHL 18 at [94].
1087. At [94].
1088. At [96].
1089. Cf. the rule that a proprietary estoppel cannot generally arise out of an agreement expressed to
be “subject to contract” (above, para.4-147 at n.891).
1090. [2009] UKHL 18 at [97]. For the “distinction between domestic and commercial cases” in the
present context, see also Crossco No.4 Unlimited v Jolan Ltd, Note [2011] EWCA Civ 1619,
[2012] 2 All E.R. 754 at [80], [121].
1091. See, for example, above para.4-141.
1093. Thorner v Major [2009] UKHL 15, [2009] 1 W.L.R. 776 at [99]; above, para.4-115.
1094. [2008] UKHL 55, [2008] 1 W.L.R. 1752.
1095. ibid., at [40] and see below at nn.1046 and 1047.
1096. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [42].
1097. ibid., at [45] and [93].

Page 21
1098. ibid., at [6].
1099. ibid., at [91]; above, para.4-164.
1100. [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [40], where “the circumstances that I need not again
rehearse” (per Lord Scott) seem to refer back to [13] and [16].
1101. ibid., at [92] (per Lord Walker).
1102. Walsh v Singh [2009] EWHC 3219 (Ch), [2010] F.L.R. 1658 at [65], [67].
1103. ibid., at [65].
1104. Cobbe case, above n.1046 at [42].

Page 1

(d) - Effects of the Doctrine
Revocability
4-168
We have seen that proprietary estoppel will not arise at all where the promise to confer a benefit on
the promisee is revocable in the sense that it reserves a power to the promisor wholly to deprive the
promisee of that benefit. 1105 But even where the promise does not allow the promisor do this, and so
is capable of giving rise to a proprietary estoppel, the extent of the promisee’s rights under the
estoppel may be limited by terms of the promise giving the promisor a power of putting an end to
those rights. Thus if the landowner promises to allow the promisee to stay on the land “until I decide
to sell,” then the promisee cannot, merely by spending money on improvements to the land, acquire
any right to stay there for a longer period. 1106 Even where the promise is not expressed to be
revocable, it can be revoked before the promisee has acted on it. Thus in Dillwyn v Llewelyn 1107 it
seems that the father could have revoked his promise before the son had started to build on the land
1108
; in Crabb v Arun DC 1109 the promise to grant a right of way could have been revoked before the
promisee, by selling off part of his land, had made it impossible for himself to obtain access to the
retained land except by means of the promised right of way 1110; and in Thorner v Major 1111 Peter
could not, in the absence of any “clear indication that [his] statement was revocable”, “freely” have
gone back on it “once [it] … had been maintained by Peter and acted on by David for a substantial
period.” 1112 In this respect proprietary estoppel resembles so-called promissory estoppel (under which
promises are similarly revocable 1113) and differs from contractually binding promises which are not
revocable unless they expressly, or impliedly, provide that they are revocable. The cases on
proprietary estoppel assume that, once the requisite action in reliance on the representation has
taken place, the promisee cannot be restored to his original position. Where he has made
improvements to land, this will generally be the case. Where a restoration of the status quo is
physically possible, it seems that a promise giving rise to a proprietary estoppel could be revoked,
even after the promisee had acted on it, if the promisor had in fact restored the promisee to the
position in which he was before he had acted in reliance on the promise, or (it seems) if the promisee
has made it clear that he does not wish to be restored to that position. 1114
A promise which has given rise to proprietary estoppel may also be none the less revocable, because
the court considers it appropriate in this way to limit the effect to be given to the promise. This
situation is discussed in para.4-170 below. 1115
Operation of a proprietary estoppel
4-169
Where the conditions required to give rise to a proprietary estoppel have been satisfied, the effect
of the doctrine is said to be to confer an “equity” 1116 on the promisee. Two further questions then
arise: namely, what is the extent of that “equity,” and what are the remedies for its enforcement. 1117 In
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practice these questions tend to merge into each other; but an attempt to discuss them in turn will be
made in paras 4-170 to 4-172 and 4-173 to 4-180 below.
Extent of the equity
4-170
At one extreme, the promisee may be entitled to conveyance of the fee simple in the property which is
the subject-matter of the promise, as in Dillwyn v Llewelyn. 1118 On the other hand, in Inwards v Baker,
1119
where a son had also built a house for himself at his father’s suggestion on the latter’s land, the
result of the estoppel was only to entitle the son to occupy the house for life. Similar results were
reached in a number of later cases in which the promisee made improvements to the promisor’s
property (or otherwise acted to his detriment) in reliance on a promise, or common understanding,
that the promisee would be able to reside in the property for as long as he or she wished to do so, 1120
or for some shorter period: e.g. until her children had left school 1121; or that a lease of the premises
would be granted to him 1122; or that he was entitled to an equitable charge on the land. 1123 Such
cases can be reconciled with Dillwyn v Llewelyn by reference to the terms of the respective promises
1124
: in the former case, the promise was expressed in terms of a gift of the property, while in the latter
cases it amounted to no more than an assurance that the promisee would be entitled to reside in the
property for the specified period. Another way of giving effect to a promise of the latter kind is by the
grant of a long, non-assignable lease at a nominal rent, on terms that ensured that the right of
occupation was personal to the promisee. 1125 In other cases, not concerned with rights of personal
occupation but with the right to keep and use structures on promisor’s land, the promisee has been
held entitled only to a revocable licence. 1126 On a similar principle, it has been held that, where
proprietary estoppel gave rise to a right of way over the promisor’s land, that right was limited to
serving the single house which existed on the original promisee’s land at the time when the
circumstances giving rise to the estoppel arose 1127 and did not extend to buildings which the claimant
1128
might wish to erect on the dominant land, no such development having been
contemplated at that time. 1129 There is also the possibility that “a statement relied on to found an
estoppel 1130 could amount to an assurance which could reasonably be understood as having more
than one possible meaning.” 1131 In Thorner v Major 1132 Lord Neuberger suggested that at least limited
relief should be available to a person who had acted in reliance on such an ambiguous
representation. The extent of such relief is discussed in para.4-151 above. 1133
Availability of estoppel against third parties
4-171
Where the circumstances are such as to give rise to an estoppel against the landowner, the estoppel
is equally available against a third party who claims later to have obtained title to the land by way of
gift from the landowner. 1134 Proprietary estoppel may also be available against a purchaser from the
promisor: e.g. where the purchaser had notice of the promisee’s equity or knew of facts giving rise,
under legislation governing land registration, to an overriding interest. 1135
Estoppel may operate conditionally
4-172
The estoppel may operate conditionally where the promisee has acted in reliance on the promise
but the terms of the promise show that the promisor did not intend to give up his title to the land
gratuitously. This was the position in Lim Teng Huan v Ang Swee Chuan 1136 where A built a house on
land owned by him jointly with L, who had agreed that he was to have no title to the house and would
exchange his share in the land for other land. The arrangement had no contractual force as the other
land was not identified with sufficient certainty; and it was held that L was estopped from asserting
title to the house but that he was entitled to be compensated for the loss of his share in the land.
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Similarly, where the promise is one to allow the promisee access to his own land over that of the
promisor, the effect of the proprietary estoppel will be to entitle the promisee to an easement or
licence 1137 which may be subject to terms. Such terms, if not agreed between the parties, may be
imposed by the court: they can specify the extent of the permitted user 1138 as well as any payment
that the promisee may be required to make for the exercise of the right. 1139 In Thorner v Major 1140 the
order stated that David should receive Steart Farm (and related assets) but required him to indemnify
Peter’s personal representatives “in respect of inheritance tax payable on Steart Farm.” 1141 But an
order for a payment by the promisee may not be appropriate where the promisor has already
obtained other benefits under the agreement. 1142 It may also be inappropriate for other reasons to be
discussed in para.4-176 below. 1143
Remedy: principled discretion
4-173
The remedy in cases of proprietary estoppel is “extremely flexible”, its object being “to do what is
equitable in all the circumstances.” 1144 Although the court thus has a considerable discretion with
regard to the remedy in cases of proprietary estoppel, that discretion is not a “completely unfettered”
1145
one and a “principled approach” 1146 must be taken to its exercise. In giving effect to the “equity”
1147
account must be taken, not only of the claimant’s expectations “but also of the extent of his
detrimental reliance” 1148; and there must also be “proportionality between the expectation and the
detriment.” 1149 For the purpose of achieving such “proportionality” regard must be had to the
degree of precision of the promise giving rise to the expectation. Where this amounts to an assurance
that an interest in specific property will be transferred in return for specified acts, then an order for the
specific enforcement of that promise (once the acts have been done) may be the appropriate remedy.
1150
Where, on the other hand, the terms of the promise are less precise, amounting only to an
assurance that some indeterminate benefit will be conferred on the promisee, so that the expectations
reasonably arising from it are, at least objectively, uncertain, then the court will not give effect in full to
expectations which the promisee may in fact have formed if they are “uncertain or extravagant or out
of all proportion to the detriment which the claimant has suffered.” 1151 In such cases, compensation in
money is likely to be the more appropriate remedy. That compensation must be proportionate to the
detriment, but need not be its precise equivalent 1152: the fact that the detriment was incurred in
response to a promise indicating (though in vague terms) some higher level of recompense is also to
be taken into account.
Starting point: terms of the promise
4-174
In exercising its discretion with regard to the proper remedy in cases of proprietary estoppel, the court
will obviously take as its starting point the terms of the assurance or promise, as reasonably
interpreted by the promisee. Thus in Thorner v Major 1153 the promise made by Peter to David was
that David would on Peter’s death inherit the farm owned by Peter (Steart Farm). David’s proprietary
estoppel claim had originally extended to the whole of Peter’s net estate 1154 but the order in his favour
was confined to Steart Farm and certain related assets. 1155 Peter had indeed at one stage made (and
then revoked) a will leaving the whole of his residuary estate to David but as “David knew nothing
about this” 1156 the estoppel did not extend to parts of that estate unconnected with the farm.
Illustrations of exercise of the discretion
4-175
The balancing of the factors discussed in paragraph 4-173 above is well illustrated by Jennings v Rice
1157
where for some 17 years the claimant had worked as gardener-handyman for an elderly widow
without pay and had also provided personal care for her in the years of increasing frailty towards the
end of her life. He had done so in response to her statements that “he would be alright” and that “all
Page 4
this will be yours one day”. 1158 The latter statement referred to her house and its contents, valued on
her death at £435,000 out of a total estate of £1.285 million. The Court of Appeal upheld an award of
£200,000 as being properly proportionate to the detriment suffered by the claimant in reliance on the
assurances given to him. In cases of this kind, the amount recoverable may be further reduced by the
amount of life-time gifts made by the promisor to the promisee. 1159 The court may also take account
of other benefits derived by the promisee as a result of his action in reliance on the promise, even
though they may not fall readily into the category of gifts from the promisee. This was the position in
Henry v Henry. 1160 The promise in that case was that the whole of the promisor’s share of the land in
question would be the promisee’s if he cultivated it and looked after the promisor. His acting in
reliance on the promise to his detriment 1161 gave rise to a proprietary estoppel; but his “equity” was
“satisfied” by an award of one half of the promisor’s share in the land. The reason for so reducing the
award below the amount specified in the promise appears (though this is not expressly stated in the
Privy Council’s advice) to be that the promisee had not only suffered detriment, but also derived
benefits from his action in reliance on the promise: in particular, he had occupied the land for many
years rent free and had been allowed to keep some of the produce of it, to sell any surplus, and to
keep the proceeds.
Conduct of promisor
4-176
Apart from the factors discussed in paras 4-173 to 4-175 above the court may also take into account
the conduct of the promisor after the facts giving rise to the estoppel. Thus in Crabb v Arun DC 1162
the defendants had acted without warning in blocking the claimant’s access to his land. In view of this
“high-handedness” 1163 and the resulting loss to the claimant, he was not required to make the
payment that would otherwise have been a condition of the exercise of the right of way. Similarly, in
Pascoe v Turner 1164 a proprietary estoppel arose when a man told a woman with whom he had
formerly cohabited that the house in which they had lived was hers, and she later spent some £230 of
her limited resources on repairs and improvements to it. The Court of Appeal relied on the man’s
“ruthlessness” 1165 in seeking to evict the promisee as a ground for ordering him to convey the fee
simple to her. The submission that she should have no more than a licence to occupy the house was
rejected since this would not protect her against a bona fide purchaser from the promisor. The result
seems, with respect, unduly punitive; and it seems that intermediate possibilities (such as granting the
promisee a long lease 1166) were not put before the court.
Compensation in money
4-177
Pascoe v Turner illustrates the possibility that the grant of an irrevocable licence to remain on the
property may constitute an unsatisfactory remedy because it will not adequately secure the
promisee’s possession. It may also be unsatisfactory on account of its inflexibility: thus in Inwards v
Baker 1167 this remedy would have been of no use to the promisee, had he wanted to move
elsewhere; nor would his dependants have had any remedy, had he died shortly after completing the
house. In such cases a remedy by way of compensation in money would be more satisfactory for the
promisee; and it would also have the advantage for the promisor that he would not be impeded in
dealing with the property for an indefinite time. 1168 Such a remedy was granted in Dodsworth v
Dodsworth 1169 where the promisees spent £700 on improvements to the promisor’s bungalow in
reliance on an implied promise (not intended to have contractual force) that they could live there as if
it were their home. The Court of Appeal held that to give the promisees a right of occupation for an
indefinite time would confer on them a greater interest than had been contemplated by the parties;
and that the most appropriate remedy was to repay them their outlay on the improvements.
Compensation in money will also be the more appropriate remedy where, as a practical matter, the
promise which gave rise to the estoppel cannot be specifically enforced: for example, where its
performance would involve joint occupation of premises by, and co-operation between, members of a
family who later quarrel, 1170 or between a couple whose relationship has broken down. 1171
Compensation in money may, again, be the most appropriate remedy because it will achieve a result
that is fair, not only between the promisee and the deceased promisor’s estate, but also between
beneficiaries who share that estate on the promisor’s death. 1172 Where there is evidence that the
Page 5
improved property has increased in value by reason of market fluctuations, it is submitted that the
amount recoverable by the promisee should be increased correspondingly; conversely, it should be
reduced where the market value of the property has declined. 1173
4-178
In Dodsworth v Dodsworth 1174 the court awarded compensation even though, when the action was
brought, the promisee was still in possession of the improved property. More commonly this form of
remedy is granted where the promisee is no longer in possession, having either left voluntarily 1175 or
been lawfully ejected as a result of legal proceedings. 1176 Where the promisee has been wrongly
ordered to give up possession, compensation in money is similarly available, 1177 though in such a
case the court may alternatively order the promisee to be put back into possession of the premises.
1178
The compensation has been assessed in a variety of ways: at the cost of improvements made
with the promisee’s money 1179; at a proportionate interest in the property 1180; at the reasonable value
of the right of occupation, based (presumably) on the cost to the promisee of equivalent alternative
accommodation 1181; or by applying the more general principle that the remedy in cases of proprietary
estoppel must reflect the reasonable expectations of the promisee and the detriment suffered by him
in reliance on the promise. 1182 The flexibility of the remedy also enables the court to combine
monetary compensation with specific relief: for example, in Gillett v Holt 1183 the promisee was
awarded part of the property to which the promise referred, together with a cash payment to
compensate him for his exclusion from the farming business on that property.
Balance of hardship
4-179
The court may deny the promisee a remedy where, on balance, greater hardship would be produced
by giving effect to the promise than by allowing the promisor to go back on it. This was the position in
Sledmore v Dalby, 1184 where the promisee had contributed to major improvements to the property but
at the time of the proceedings had already enjoyed 20 years’ rent-free occupation and was gainfully
employed, while the promisor was a widow living on social security benefits. The promisee’s claim to
be entitled to a licence for life to stay in the house was in these circumstances rejected and the
promisor was held entitled to possession. The case may be compared with Henry v Henry 1185 where
the benefits obtained by the claimant 1186 in consequence of his action in reliance on the promise were
taken into account in reduction, but not in extinction of his proprietary estoppel claim. Sledmore v
Dalby 1187 was not cited; but the two cases can be reconciled on the ground that in Henry v Henry the
detriment suffered by the promise was “not outweighed by the advantages” 1188 obtained by him. In
fashioning the appropriate remedy, the court can also take account of the interests of third parties, for
example, of blood relatives of the promisor with whom the latter had been on close terms 1189; of the
promisor’s wife, who, as well as the promisee, lived in the house which was the subject of the
estoppel 1190; and of one of the promisor’s daughters where the promise had given rise to a
proprietary estoppel in favour of his son. 1191
Change of circumstances
4-180
One situation in which a change of circumstances, after the events capable of giving rise to a
proprietary estoppel, may affect either the existence or the extent of the promisee’s remedies for
proprietary estoppel is that discussed in para.4-179 above, in which the relevant change was that the
promisee had not only suffered detriment but had also obtained benefits in consequence of the
events relied on to establish the estoppel. Other situations in which different changes of
circumstances may either curtail 1192 or extend 1193 the rights of the person relying on the estoppel
were discussed in Thorner v Major 1194 in the context of the argument there advanced that the area of
land comprised in “Steart Farm” (the property to which Peter’s assurance related) varied between the
time when Peter first made that assurance and the time when it fell to be performed, i.e. at Peter’s
death. That argument was there rejected for the reasons discussed in para.4-163 above. The
overriding principle there stated was that proprietary estoppel “looks backward from the moment
Page 6
when the promise falls due to be performed”, as opposed to the time when it was made, and “asks
whether, in the circumstances which have actually happened, it would be unconscionable for the
promise not to be kept” 1195; another way the point was put was that “Peter’s representation that David
would inherit Steart Farm speaks, at least where Peter remained the owner of an agricultural entity
known as Steart Farm, as from his death”. 1196 It is inherent in these formulations that, in cases of
proprietary estoppel, events between the making of the promise and the time when the promise falls
to be performed are relevant to the extent of the promisee’s equity. In Thorner v Major this principle
operated in David’s favour, Steart Farm having increased (if only slightly) in size between the time
when Peter first made the promise and the time when he died; but the speeches in that case also
consider the possibility of the converse situation of a decrease of the size of the farm during that time:
e.g. because Peter had needed to dispose of part of the land to pay for nursing care “in a decrepit old
age.” 1197 No definite answer needed to be, or was, given to such questions in Thorner v Major, but
the discussions there of such hypotheses seem to accept the possibility that such changes of
circumstances could be taken into account in shaping the remedy for proprietary estoppel. This view
is also supported by a number of factors recognised in the earlier authorities as being relevant to that
issue. For example, in the cases discussed in para.4-176 above the rights of the promisee were
extended (perhaps sometimes unduly) because, after making the promise, the promisor had
conducted himself in a way that had incurred the disapproval of the court. Conversely, those rights
could be curtailed in the exercise of the “principled discretion” described in paras 4-173 and 4-175
above, and in particular by the principle that there must be “proportionality between the [promisee’s]
expectation and the detriment [suffered by him].” 1198 If, for example, in Thorner v Major the value of
Steart Farm had, after Peter’s original assurance but before his death, increased by a hundredfold
because planning permission had in that interval been given to develop the whole of Steart Farm as a
new housing estate, 1199 then it might have been arguable that David’s claim should have been scaled
down so as to give him reasonable, or even generous, compensation for his detrimental reliance on
Peter’s promise, or at least that the resulting windfall should be shared in reasonable or fair
proportions between David and the persons entitled to Peter’s estate on his intestacy. Where A’s
promise leads B to form an expectation of inheriting A’s property, there is also the possibility that the
promise might be subject to an express or implied condition of survivorship so that B’s death during
A’s life-time would defeat the proprietary estoppel claim on behalf of B’s estate. 1200 There is finally the
point that a promise giving rise to proprietary estoppel may, within the limits discussed in para.4-168
above, be revocable; and, where this is the position, the revocation of the promise within those limits
will prevent the operation of the estoppel.

1105. Above, para.4-147.
1106. E. & L. Berg Homes v Gray (1979) 253 E.G. 473.
1107. (1862) D. F. & G. 517; above, para.4-141.
1108. cf. Pascoe v Turner [1979] 1 W.L.R. 431, 435 (where before the promisee’s action in reliance
on the promise she was said to have been only a licensee at will).
1109. [1976] Ch. 179; above, para.4-142.
1110. Cf. Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [20], commenting on the Crabb
case (above at n.1055) and specifying when “it was too late for the Council to change its mind.”
1111. Above, n.1056; for the facts of this case, see above, para.4-149.
1112. Thorner v Major, above n.1056 at [89].
1113. Above, para.4-097. The point that the promise giving rise to proprietary estoppel may be
revocable may, at first sight, appear to be inconsistent with the statement in Kim v Chasewood
Park Residents Ltd [2013] EWCA Civ 239, [2013] H.L.R. 24 at [43] that “the effects of
Page 7
proprietary estoppel are permanent in that they result in the Court ordering the representor to
transfer property or to make compensation …”. But it is submitted that there is no such
inconsistency. The dictum here quoted refers to the position after the Court has made its order.
The point made in the text above refers to the position before any such order has been made.
The first of the above two points, in other words, refers to the effects and the second to the
existence of the estoppel. The second point receives some support from Kim’s case (above) at
[20] and [45].
1114. See Kim v Chasewood Park Residents Ltd [2013] EWCA Civ 239, [2013] H.L.R. 24 where the
claimants had “made it clear that they do not want their money back” (at [45]). For the actual
ground for the decision in this case, see above, para.4-146.
1115. At n.1071.
1116.
Cf. Moore v Moore [2016] EWHC 2202 (Ch) at [194] (“an equitable interest” in the farm which
was the subject-matter of a promise (made by a father to his son) that the farm “would be his
[i.e., his son’s] one day” (at [13], [168]).
1117. Crabb v Arun DC [1976] Ch. 179, 193, per Scarman L.J.
1118. (1862) D. F. & G. 517; above, para.4-141; Durant v Heritage [1994] E.G.C.S. 134; Q v Q [2008]
EWHC 1874 (Fam), [2009] 1 F.L.R. 935 at [143]–[147]; Suggitt v Suggitt [2012] EWCA Civ
1140, [2012] W.T.L.R. 1607 at [27], [45]–[50], [52]; Bradbury v Taylor [2012] EWCA Civ 1208,
[2013] W.T.L.R. 29 (as to the remedy in this case, see also below, para.4-172 n.1086); or, in
the exceptional cases discussed in para.4-154, nn.951–953, to orders enforcing the promises in
those cases.
1119. [1965] 2 Q.B. 507; above, para.4-141, n.834.
1120. Jones v Jones [1977] 1 W.L.R. 438; Re Sharpe [1980] 1 W.L.R. 219; Greasley v Cooke [1980]
1 W.L.R. 1306.
1121. Tanner v Tanner [1975] 1 W.L.R. 1346 (where there was a contract: cf. above, para.4-144);
Yaxley v Gotts [2000] Ch. 162 (where the remedy was based on constructive trust).
1123. As in Kinane v Mackie-Conteh [2005] EWCA Civ 45, [2005] W.T.L.R. 345: see at [1], [36]; cf.
McGuane v Welch [2008] EWCA Civ 785, [2008] 2 P. & C.R. 24 at [47] where a charge on the
property in question was held to be the appropriate way of satisfying the equity arising by virtue
of the proprietary estoppel.
1124. cf. Kinane v Mackie-Conteh [2005] EWCA Civ 45, [2005] W.T.L.R. 345 at [33] (“a remedy
appropriate to the expectations that the defendant has indeed”; the last word of this phrase
appears to be a misprint, probably for “induced”).
1125. Griffiths v Williams [1978] E.G.D. 919; cf. Jones v Jones [1977] 1 W.L.R. 438.
1126. Canadian Pacific Railway v The King [1931] A.C. 414; Armstrong v Sheppard & Short [1959]
Q.B. 384; cf. Clark v Clark [2006] EWHC 275, [2006] 1 F.C.R. 421 (proprietary estoppel held to
give rise to temporary right of access to land for so long as it continued to be used by one party
for the purpose of a business originally carried on by both parties jointly).
1127. Joyce v Epsom and Ewell Borough Council [2013] EWCA Civ 1398, [2013] 1 E.G.L.R. 21 at
[54].
1128. A successor in title of the original promisee.
1129. [2013] EWCA Civ 1398 at [51].

Page 8
1130. The reference is to proprietary estoppel: see Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R.
776 at [72].
1131. [2009] UKHL 18 at [86].
1132. [2009] UKHL 18 at [86].
1133. After n.932.
1134. Voyce v Voyce (1991) 62 P. & C.R. 290.
1135. Henry v Henry [2010] UKPC 3, [2010] 1 All E.R. 988: see at [34].
1136. [1991] 1 W.L.R. 113.
1137. E.R. Ives Investments Ltd v High [1967] 2 Q.B. 379; Crabb v Arun DC [1976] Ch. 179.
1138. As in Joyce v Epsom and Ewell Borough Council [2013] EWCA Civ 1398, [2013] 1 E.G.L.R. 21
(the here relevant facts of which are summarised in para.4-170 above).
1139. Crabb v Arun DC, above n.1082, at 199.
1140. [2009] UKHL 18, [2009] 1 W.L.R. 776, above para.4-149.
1141.
Thorner v Major, above n.1085 at [48]; cf. Bradbury v Taylor [2012] EWCA Civ 1208, [2013]
W.T.LR. 29 at [52], affirming the trial judge’s conclusion that there was a proprietary estoppel in
favour of the promisees “subject to their paying the inheritance tax attributable to” the property;
cf. Moore v Moore [2016] EWHC 2202 (Ch) where the promisee’s “equitable interest” in the
farm which was the subject matter of the promise (see above, para.4-169 n.1061a) was held to
be subject to the right of the promisor (who was the promisee’s father) and the promisor’s wife
(who was the promisee’s mother) to continue to reside in a house on the farm “for so long as
that meets their needs”, with the promisee being “responsible for maintaining and repairing it”
(at [177], [193]). See also Malik v Kalyan [2010] EWCA Civ 113, where the Court of Appeal (at
[31] to [33]) in principle approved the trial judge’s method of satisfying the “equity” by awarding
ownership of the disputed property to the person claiming the benefit of the estoppel, subject to
his paying half of the pecuniary legacies left by the will of the former owner of the property. The
actual decision was to order a limited retrial on a point not here relevant.
1142. As in E.R. Ives Investments Ltd v High [1967] 2 Q.B. 379, where no question of imposing terms
was discussed.
1143. In Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 779 at [19], Lord Scott said that “it is an
odd sort of estoppel that is produced by representations that are in a sense conditional.” The
exact point of this statement is not entirely clear. If the phrase “produced by representations …”
is taken literally, it might seem to deal with the question, what sort of representation is
necessary to give rise to a proprietary estoppel. If so understood, the dictum would not be easy
to reconcile with cases in which a promise by A to B to transfer an interest in property to B if B
engaged in a specified conduct, and B then performed that condition, has been held to give rise
to a proprietary estoppel (see above, para.4-141). But the context in which the dictum occurs is
that of a discussion of the effect of supervening events on a promissory estoppel assumed to
have previously arisen (see below, para. 4-180) and hence with the court’s power to impose
conditions in the exercise of its discretion in fashioning the remedy in cases of proprietary
estoppel (see below, paras 4-173 et seq.). Such conditions are imposed ab extra, rather than
because the representation giving rise to the estoppel is itself “conditional.” In Thorner v Major
none of the other members of the House of Lords expressed any view on the point made in the
dictum here under discussion.
1144. Roebuck v Mungovin [1994] 2 A.C. 224 at 235; Henry v Henry [2010] UKPC 3, [2010] 1 All E.R.
998 at [52] (“wide discretion”); cf. the remedy granted in Gillett v Holt [2001] Ch. 210, below,
para.4–178. Gardner, (1999) 115 L.Q.R. 348. For the flexibility of the remedy in cases of
Page 9
proprietary estoppel, see also Clark v Clark [2006] EWHC 725, [2006] 1 F.C.R. 421, above,
para.4-170; Thorner v Curtis [2007] EWHC 2422 (Ch), [2008] W.T.L.R. 155; Hopper v Hopper
[2008] EWHC 228 (Ch), [2008] I F.C.R. 557; Kim v Chasewood Park Residents Ltd [2013]
EWCA Civ 239, [2013] H.L.R. 24 (above, para.4-090 n.468) at [45]; the actual decision was
that, for the reason given in para.4-146 above, no proprietary estoppel had arisen.
1145. Jennings v Rice [2002] EWCA Civ 159; [2002] W.T.L.R. 367 at [43].
1146. ibid.
1148. Jennings v Rice, above, n.1090 at [49].
1149.
Jennings v Rice, above, n.1090 at [36]; cf. ibid. at [56] (“proportionality between remedy and
detriment”); Henry v Henry [2010] UKPC 3 at [66] (“Proportionality lies at the heart of
proprietary estoppel”); Fischer v Brooker [2009] UKHL 41, [2009] 1 W.L.R. 1761 at [11], where
the estoppel claim failed for want of proof of detrimental reliance: above, para.4-158. For the
importance of “proportionality” in assessing the amount of monetary relief available to the
promisee, see also Davies v Davies [2016] EWCA Civ 463, [2016] 2 P. & C.R. 10 at [38],
quoting from the Court below. On appeal, it was no longer disputed that compensation in
money was in this case the appropriate form of relief. Suggitt v Suggitt [2012] EWCA Civ 1140,
[2012] W.T.L.R. 1607, where it is not altogether clear whether the proportionality of the remedy
must be with (i) the detriment suffered by the promisee in reliance on the promise (at [44]) or (ii)
the promisee’s reasonable expectations generated by the promise (at [45]). The distinction
between the two views is not clear cut since the terms of the promise form the starting point of
both. But in Suggitt v Suggitt itself the considerable value of the property (see at [50]) seems to
have exceeded the promisee’s detriment but was nevertheless awarded (see at [27], [52] as
“the values only reflect the assurances” at [50]), thus supporting the second of the above views.
For the relevance of the promisor’s conduct after the facts giving rise to the estoppel, see
below, para.4-176.
1150. Jennings v Rice, above n.1090 at [45]. Cf. Joyce v Epsom and Ewell Borough Council [2012]
EWCA Civ 1398, [2013] 1 E.G.L.R. 24, where the remedy was by way of a declaration that the
party relying on the estoppel was entitled to the grant of the promised right of way (for the
scope of which see above, para.4-170).
1151. Jennings v Rice [2002] EWCA Civ 159 at [50].
1152. ibid., at [51].
1153. [2009] UKHL 18, [2009] 1 W.L.R. 776; above, para.4-149.
1154. [2009] UKHL 18 at [13].
1155. At [9], [13], [48] and [66].
1156. At [44].
1157. [2002] EWCA Civ 159, [2005] W.T.L.R. 367. For the flexibility of the remedy, see also the
decision of the Court of Appeal in Cobbe v Yeoman’s Row Management Ltd [2006] EWCA
1139, 2006 1 W.L.R. 2964. This decision was reversed by the House of Lords ([2008] UKHL 55,
[2008] 1 W.L.R. 1752, above paras 4-161 to 4-162, 4-164) on the ground that, on the facts, no
proprietary estoppel arose. The speeches in the House of Lords therefore contain no discussion
of what remedy might have been appropriate if a proprietary estoppel had arisen.
1158. At [9].
1159. Evans v HSBC Trust Co (UK) Ltd [2005] W.T.L.R. 1289, as to which see above, para.4-160
n.983. See also Fisher v Brooker [2009] UKHL 41, [2009] 1 W.L.R. 1764 at [11] (“giving weight
Page 10
to countervailing advantages received by” the promisee), illustrating this point by reference to
Sledmore v Dalby (1996) 72 P. & C.R. 196, stated below, para.4-179.
1160. [2010] UKPC 3, [2010] 1 All E.R. 988.
1161. See para.4-158 above.
1162. [1976] Ch. 179; above, para.4-143.
1163. [1976] Ch. at 199; cf. ibid., at 189.
1164. [1979] 1 W.L.R. 431.
1165. ibid. at 439. cf. the reference in Gillett v Holt [2001] Ch. 210 at 235 to the promisee’s “bitter
humiliation” on being summarily dismissed and made the subject of a police investigation for
allegations of dishonesty which the promisor made no attempt to justify at the trial of the civil
action.
1166. As in Griffiths v Williams [1978] E.G. 919; above, para.4-170.
1167. [1965] 2 Q.B. 507; above, para.4-141.
1168. cf. criticisms of the law by Browne-Wilkinson J. in Re Sharpe [1980] 1 W.L.R. 219, 226.
1169. [1973] E.G.D. 233; to the extent that the reasoning is based on the provisions of Settled Land
Act 1925, s.1, it is criticised in Griffiths v Williams [1978] E.G.D. 919. cf. Campbell v Griffin
[2001] EWCA Civ 990, [2001] W.T.L.R. 981; Jennings v Rice [2002] EWCA Civ 159; [2002]
W.T.L.R. 367, above para.4-176; Evans v HSBC Trust (UK) Ltd [2005] W.T.L.R. 1299, above,
para.4-160.
1170. Burrows and Burrows v Sharp (1991) 23 H.L.R. 82; cf. Baker v Baker (1993) 25 H.L.R. 408
(where the action was for damages).
1171. Clough v Kelly (1996) 72 P. & C.R. D22.
1172. See Mulholland v Kane [2009] N.I.Ch. 9, [2009] W.T.L.R. 1521 at [20], [21]; for this case, see
above, para.4-158.
1173. cf., in a case of undue influence, Cheese v Thomas [1994] 1 W.L.R. 129.
1174. above, at n.1114.
1175. As in Hussey v Palmer [1972] 1 W.L.R. 1286 and Eves v Eves [1975] 1 W.L.R. 1328.
1176. As in Plimmer v Mayor of Wellington (1884) 9 App. Cas. 699.
1177. Tanner v Tanner [1975] 1 W.L.R. 1346 (where there was a contract).
1178. ibid.
1179. Hussey v Palmer [1972] 1 W.L.R. 1286; Burrows and Burrows v Sharp (1991) 23 H.L.R. 82.
1180. Eves v Eves [1975] 1 W.L.R. 1338.
1181. Tanner v Tanner [1975] 1 W.L.R. 1346; Baker v Baker (1993) 25 H.L.R. 408.
1182. Above, paras 43-173 to 4-175.
1183. [2001] Ch. 210; above, para.4-146.

Page 11
1184. (1996) 72 P. & C.R. 196.
1185. [2010] UKPC 3, [2010] 1 All E.R. 988.
1186. For these benefits, see above, para.4-175.
1187. Above, at n.1129.
1188. [2010] UKPC 3 at [61].
1189. Evans v HSBC Trust Co (UK) Ltd [2005] W.T.L.R. 1299, above para.4-160.
1190. Stallion v Albert Stallion Holdings (Great Britain) Ltd [2009] EWHC 1950 (Ch) at [136].
1191. Suggitt v Suggitt [2011] EWHC 903 (Ch), taking into account the demands of “fairness and
justice to all” (at [65]); affirmed [2012] EWCA Civ 1140, [2012] W.T.L.R. 1607, without further
reference to the “balance of hardship” point discussed in the text above.
1192. e.g., above, para.4-175.
1193. e.g., above, para.4-176.
1194. [2009] UKHL 18, [2009] 1 W.L.R. 776; above para.4-149.
1195. [2009] UKHL 18 at [57] and [101], quoting from the judgment of Hoffmann L.J. in the unreported
case of Walton v Walton (April 14, 1994), above, paras 4-145, 4-163.
1196. [2009] UKHL 18 at [18].
1197. At [19]; cf. at [65], [107].
1198. Above, para.4-173 at n.1094.
1199. At [48] parts of Steart Farm are said to have had development value, but there is no suggestion
that this had, at any relevant time, increased the value of the farm dramatically (as in the
example given in the text above).
1200. When at [74] Lord Neuberger said that there was “nothing special, as a matter of principle, in
relation to a statement about leaving property in a will” he was, as the context indicates,
referring to a different point from that mentioned in the text above: i.e., to the point whether a
statement by A that he would leave property to B amounted to a “commitment” by A or only to a
“statement of A’s current intention.”

Page 1

(e) - Comparison with other Doctrines
Proprietary and promissory estoppels
4-181
Proprietary and promissory estoppels have a number of points in common. Both can arise from
promises 1201; consideration is not, while action in reliance is, a necessary condition for their operation
1202
; and both are, within limits, revocable. 1203 Perhaps for this reason, Lord Scott has described
“proprietary” estoppel as “a sub-species of ‘promissory’ estoppel—if the right claimed is a proprietary
right”. 1204 But Lord Walker has said that he had “some difficulty” 1205 with this observation; and there
are also important differences 1206 between the two doctrines.
Proprietary estoppel in some respects narrower than promissory estoppel
4-182
The scope of proprietary is in two respects narrower than that of promissory estoppel. First,
proprietary estoppel is restricted to situations in which one party acts under the belief that he has or
will be granted an interest in or over “identified property” 1207 (generally land) of another. This
requirement has been judicially described as “one of the main distinguishing features” 1208 between
the two kinds of estoppel since a promissory estoppel may arise out of any promise that strict legal
rights will not be enforced: there is no need for those rights to relate to land or other property.
Secondly, proprietary estoppel requires the promisee to have acted to his detriment, 1209 while
promissory estoppel may operate even though the promisee merely performs a pre-existing duty and
so suffers no detriment in the sense of doing something that he was not previously under a legal
obligation to do. 1210 This difference between the two doctrines follows from the fact that promissory
estoppel is (unlike proprietary estoppel) concerned only with the variation or abandonment of rights
arising out of a pre-existing legal relationship between promisor and promisee.
Proprietary estoppel in other respects wider than promissory estoppel
4-183
On the other hand, the scope of proprietary is in two other respects wider than that of promissory
estoppel. First, promissory estoppel arises only out of a representation or promise that is “clear” or
“precise and unambiguous.” 1211 Proprietary estoppel, by contrast, can arise where there is no actual
promise: for example, in cases of so-called “acquiescence”, where one party makes improvements to
another’s land under a mistake and the other either knows of the mistake 1212 or seeks to take
unconscionable advantage of it. 1213 This type of proprietary estoppel is typically based on “silence
and inaction rather than on any statement or action.” 1214 That would not normally be true of
promissory estoppel. 1215 Even where proprietary estoppel is based on “encouragement”, 1216 so that
some statement in the nature of a promise, representation or assurance must be established to give
Page 2
rise to it, the requirement that such a statement must be “clear enough” 1217 falls short of any
requirement that it must be “precise” 1218; and since a proprietary estoppel can be based on an
“assurance which can reasonably be understood as having more than one meaning”, 1219 there can be
no requirement for the purpose of proprietary (as there is for the purpose of promissory) 1220 estoppel
that the representation must be “unambiguous.” Secondly (and most significantly), while promissory
estoppel is essentially defensive in nature, 1221 proprietary estoppel can give rise to a cause of action.
1222
The promisee is not merely entitled to raise the estoppel as a defence to an action of trespass or
to a claim for possession: the court can make an order for the land to be conveyed to him, 1223 or for
compensation 1224 or for such other remedy as it regards as appropriate in the exercise of its
“principled discretion”. 1225 Although the authorities support this second distinction between the two
kinds of estoppel, they have not, as yet, provided any convincing explanation or justification for it. 1226
It is submitted that the explanation is in part historical and terminological. In the early cases,
proprietary estoppel was explained in terms of acquiescence 1227 or encouragement. 1228 Hence no
conflict with the requirement that promises must be supported by consideration was perceived; or
where it was perceived the facts were said to give rise to a contract. 1229 Promissory estoppel, on the
other hand, dealt principally with the renegotiation of contracts; it obviously depended on giving
binding effect to promises, and did so in the context of releases and variations, in which the common
law requirement of consideration had long been established. 1230 The rule that promissory estoppel
gives rise to no cause of action was evolved to prevent what would otherwise have been an obvious
conflict between promissory estoppel and consideration. 1231 In cases of proprietary estoppel there
was no such conflict where liability was based on “acquiescence”; and where it was based on
“encouragement” the conflict, though sometimes real enough, was at least less obvious. There are,
moreover, two aspects of proprietary estoppel which help to justify the distinction. These are that the
acts done by the promisee are not ones which he was under any previous legal obligation to perform;
and that generally their effect would be unjustly to enrich the promisor if he were allowed to go back
on his promise. 1232 In these respects, the facts on which proprietary estoppel is based provide more
compelling grounds for relief 1233 than those commonly found in cases of promissory estoppel.
Common basis of proprietary and promissory estoppel?
4-184
While these two doctrines are in the respects discussed in para.4-183 above distinct it can also be
argued that they have a common basis, viz. that it would be unconscionable for the promisor to go
back on his promise after the promisee has acted in reliance on it; and that the precise labels to be
attached to them are “immaterial.” 1234 It is perhaps for these reasons that the distinction between the
two kinds of estoppel was described as “not … helpful” by Scarman L.J. in Crabb v Arun DC. 1235 That
decision was, in a later case, said to illustrate “a virtual equation of promissory and proprietary
estoppel,” 1236 perhaps because it extended the operation of proprietary estoppel beyond the
situations originally within its scope, viz. those in which the promisor would be unjustly enriched by
the work done by the promisee on the promisor’s land unless some legal effect were given to the
promise. Nevertheless it is submitted that the doctrines are distinct in the respects stated above. 1237
Attempts to unite them by posing “simply” the question whether it would be “unconscionable” 1238 for
the promisor to go back on his promise are, for reasons given earlier in this chapter, 1239 unhelpful, 1240
insofar as they detract attention from the other conditions which must also be satisfied to bring each
of the two doctrines into operation 1241 and from the differences in their respective legal effects. 1242
Proprietary estoppel and contract contrasted
4-185
We have seen that some cases which have been said to support the doctrine of proprietary estoppel
have been explained on the alternative basis that there was a contract between the parties. 1243 But
often no such explanation is possible; for proprietary estoppel can operate even though the conditions
required for the creation of a contract are not satisfied. 1244 The need to discuss the doctrine in this
chapter arises precisely because a promise may give rise to a proprietary estoppel even though it is
not supported by consideration; and it can also have this effect even though it cannot take effect as a
contract because it is not sufficiently certain, because there is no contractual intention or (sometimes)
because it fails to comply with formal requirements. Moreover, the effect of a proprietary estoppel
Page 3
differs from that of a contract. Sometimes, indeed, the result of a proprietary estoppel is to give effect
to the promise in the terms in which it was made 1245; but such a result does not follow as of right. We
have seen that the promisee’s remedy may depend, not only on the terms of the promise, but also on
other factors, such as the extent of the promisee’s detrimental reliance on it; the proportionality of that
reliance to his reasonable expectations induced by the promise; and changes of circumstances, such
as the conduct of the promisor after the facts giving rise to the estoppel. Thus in Crabb v Arun DC the
promisee would have had to make some payment for the right of way but for the “high-handedness”
1246
of the promisor; and in Pascoe v Turner the promisee would not have been entitled to the fee
simple of the house (but only to an irrevocable licence for life) if the promisor had not shown a
“ruthless” 1247 determination to evict her. The rights arising under a binding contract are fixed at its
formation and not subject to such variation in the light of the court’s approval or disapproval of the
subsequent conduct of one of the parties. For this reason, and because proprietary estoppel may be
revocable, 1248 it will generally be more advantageous to a party to show (if he can) the existence of a
binding contract than to rely on a proprietary estoppel.

1201. Above, paras 4-090, 4-140. For use of the expression “promissory estoppel” see above,
para.4-104.
1202. Above, paras 4-094, 4-141.
1203. Above, paras 4-097, 4-168.
1204. Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [14]; the
dictum does not go on to consider the differences between the two doctrines discussed in paras
4-182 and 4-183 below.
1206. Discussed in paras 4-182 and 4-183 below.
1208. ibid.
1209. Above, para.4-158.
1210. Above, para.4-095.
1211. Above, para.4-091.
1212. Above, para.4-140; Wilmott v Barber (1880) 15 Ch.D. 96, 105 (the claim in that case failed as
the party against whom it was made did not know of the extent of his own rights or of the other
party’s mistake).
1213. Taylors Fashions Ltd v Liverpool Victoria Trustee Co Ltd [1982] Q.B. 133.
1214. Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [84], per Lord Neuberger.
1215. Above, para.4-093.
1216. For the distinction between cases of “acquiescence” and cases of “encouragement”, see above,
para.4-140.
1217. See para.4-150 above and see the submission made in para.4-152 above.
Page 4
1218. In Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 (above
paras 4-161, 4-162) it was held that no proprietary estoppels arose out of an agreement which
lacked contractual force because it was incomplete (and so not sufficiently precise) but the
crucial point in that case was that the party claiming the benefit of the estoppels knew that the
agreement was binding in honour only: see above, para.4-162.
1219. Thorner v Major, above, at [86], per Lord Neuberger; above, para.4-151.
1220. Above, para.4-091; an ambiguous representation can scarcely be “unequivocal.”
1221. Above, para.4-099.
1222. Crabb v Arun DC [1976] Ch. 179, 187; Taylors Fashions Ltd v Liverpool Victoria Trustee Co Ltd
[1982] Q.B. 133, 148; Newport City Council v Charles [2008] EWCA Civ 1541, [2009] H.L.R. 18
at [23] (where proprietary estoppel was, in this respect, contrasted, not with promissory
estoppel, but with estoppel by representation); Thorner v Major [2008] UKHL 18, [2009] 1
W.L.R. 779 at [61].
1223. e.g. Dillwyn v Llewelyn (1862) 4 D. F. & G. 517.
1224. e.g. Eves v Eves [1975] 1 W.L.R. 1338.
1225. See above, paras 4-173 to 4-175.
1226. In Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [61], Lord Walker relies, as a
justification for the rule that proprietary estoppel can give rise to a cause of action, on Crabb v
Arun DC [1976] Ch. 179, 187, where Lord Denning M.R. based the rule that “some estoppels
[for example, proprietary estoppel] do give rise to a cause of action”(italics supplied) on his own
earlier judgment in Moorgate Mercantile Co Ltd v Twitchings [1976] Q.B. 225. He had there said
at 242 that the effect of an estoppel of, apparently, this kind was that the true owner’s “own title
in the property … has been held to be limited or extinguished and new rights and interests have
been created therein ” (italics supplied). Read together, these passages from Lord Denning’s
two judgments amount to this, that proprietary estoppel “give[s] rise to a cause of action”
because “new rights … have been created therein” (i.e. the property). But this explanation
seems (with respect) simply to restate in different words the proposition which it seeks to prove.
In relation to promissory estoppel, statements that such an estoppel gives rise to no cause of
action, and that it creates no new rights (above, para.4-099) are merely two ways of saying the
same thing; and the same is (with respect) true of the statements that proprietary estoppel does
create a cause of action and that it can create new rights.
1227. Wilmott v Barber (1880) 15 Ch.D. 96, 105.
1228. Ramsden v Dyson (1866) L.R. 1 H.L. 129, 170. Cf. the repeated use in Thorner v Major [2009]
UKHL 18, [2009] 1 W.L.R. 777 of the word “assurance” (in apparent preference to “promise”) as
one of the three main elements of proprietary estoppel (e.g. at [15], [25], [72]), though the
expression “promise or assurance” is also used (e.g. at [12]) by Lord Hoffmann, who in his
earlier unreported judgment in Walton v Walton, quoted in Thorner v Major at [57], had
repeatedly used “promise” in this context. In Thorner v Major “assurance” outnumbers “promise”
by 61 to 24.
1229. Dillwyn v Llewelyn (1862) 4 D. F. & G. 517, 522; above, para.4-144.
1230. Above, paras 4-078—4-081.
1232. See the reference to the landowner’s “profit” in Ramsden v Dyson (1866) L.R. 1 H.L. 129, 141
and cf. above, para.4-141.
1233. See Fuller and Eisenberg, Basic Contract Law (3rd ed.), p.70; “Unjust enrichment presents a
Page 5
more urgent case for judicial intervention than losses through reliance which do not benefit the
defendant.” cf. Fuller and Perdue (1936) 46 Yale L.J. 52, 56.
1234. Taylors Fashions Ltd v Liverpool Victoria Trustee Co Ltd [1982] Q.B. 133, 153, cf. above,
para.4-181 at n.1149; where, however, a distinction is also drawn between “promissory
estoppel” and the principle in Ramsden v Dyson (1866) L.R. 1 H.L. 129 (i.e. proprietary
estoppel).
1235. [1976] Ch. 179, 193.
1236. Taylors Fashions Ltd v Liverpool Victoria Trustee Co Ltd [1982] Q.B. 133, 153; cf. above,
para.4-181 at n.1149; the use of “promissory estoppel” to describe a typical proprietary estoppel
situation in Griffiths v Williams [1978] E.G.D. 919, 921 may be a misprint.
1237. At paras 4-182 and 4-183; cf. above, para.4-158. Lord Scott’s dictum in Cobbe v Yeoman’s
Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [14] (quoted in para.4-181
above) falls short of stating that the requirements and effects of the two doctrines are identical.
1238. Taylors Fashions Ltd v Liverpool Victoria Trustee Co Ltd [1982] Q.B. 133, 155; cf.
Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank [1982] Q.B.
84, 104, 122. cf. also the reference in Gillett v Holt [2001] Ch. 210 at 232 to “the essential test
of unconscionability” in cases of proprietary estoppel (above, para.4-158).
1239. Above, para.4-104.
1240. cf., Haslemere Estates Ltd v Baker [1982] 1 W.L.R. 1109, 1119 where Megarry V.-C., rejecting
the argument that proprietary estoppel arises “whenever justice and good conscience requires
it,” said “I do not think that the subject is as wide and indefinite as that.” See also Cobbe v
Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [16], [17], [28] and
[46], emphasising that unconscionability (or judicial disapproval) of the conduct of the party
alleged to be estopped is not a sufficient (though it may be a necessary) condition of the
operation of proprietary estoppel. Dicta emphasising the flexibility of the remedy (above,
para.4-173) must be read subject to the requirement of adopting a “principled approach” (ibid.)
to this aspect of the doctrine and not be taken to refer to conditions of liability.
1241. See above, paras 4-081 to 4-096, 4-147 to 4-164.
1242. See above, paras 4-097 to 4-103, 4-168 to 4-180.
1243. Above, para.4-144.
1245. e.g. Dillwyn v Llewelyn (1862) 4 D. F. & G. 517, above, paras 4-143, 4-144.
1246. [1976] Ch. 179, 199.
1247. [1979] 1 W.L.R. 431, 438. For other changes of circumstances, see above, para.4-180.
1248. Above, para.4-168.

Page 1

Section 12. - Special Cases
Defective promises 1249
4-186
Mutual promises are generally consideration for each other, 1250 but difficulty is sometimes felt in
treating one of the promises as consideration for the other if the former suffers from some defect, by
reason of which it is not legally binding. The law on this topic is based on expediency rather than on
any supposedly logical deductions which might be drawn from the doctrine of consideration. The
question whether a defective promise can constitute consideration for a counter-promise depends on
the policy of the rule of law making the former promise defective.
Policy considerations
4-187
One group of cases concerns contracts made between persons, one of whom lacks contractual
capacity. A minor can enforce a promise made to him under such a contract even though the only
consideration for it is his own promise, which does not bind him by reason of his minority. 1251 The
same rule applies where a person is entitled to avoid a contract on account of his or her mental
incapacity, 1252 The reason for these rules is that it is the policy of the law to protect the person under
the incapacity, and not the other party, who is therefore not allowed to rely on that incapacity. It has,
on the other hand, been said that a promise by which the Crown purported to fetter its discretion
would not constitute consideration where, under the principles discussed in Chapter 11 below, 1253
that promise did not bind the Crown. 1254 A contrasting group of cases concerns contracts which are
illegal. Obviously the illegal promise cannot be enforced and if both promises are illegal the
consequence that neither can be enforced follows from the policy of the invalidating rule or rules
rather than from the fact that an illegal promise cannot constitute consideration. 1255 But in some
cases of illegal contracts only one of the promises is illegal: this is, for example, often the position
where the contract is in restraint of trade. In such a case, the party who makes the illegal promise
(e.g. not to compete) cannot enforce the counter-promise (e.g. to pay a sum of money) if the illegal
promise constitutes the sole consideration for the counter-promise. 1256 Indeed, where one of the two
promises is illegal, the counter-promise cannot be enforced even if there was some other
consideration for it, but the main consideration for it was the illegal promise. The reason for this rule
lies in the policy of the law to discourage illegal bargains. 1257
Performance of defective promises
4-188
Where a defective promise does not constitute consideration, the performance of it can nevertheless
sometimes provide consideration for the counter-promise. For example a mere promise to negotiate
has no contractual force 1258 and so cannot constitute consideration for a counter-promise; but actually
carrying on the negotiations can satisfy the requirement of consideration. 1259 Likewise, where a
Page 2
promise would not bind the Crown because it purported to fetter the Crown’s discretion, the actual
performance of the promise can nevertheless constitute consideration for a counterpromise. 1260 A
similar principle applies where a victim of fraud, misrepresentation, duress or undue influence can sue
but not be sued: by suing, he affirms the contract, makes his own promise binding, and so supplies
consideration. But where the promise of one party is illegal even its performance does not entitle that
party to enforce the counter-promise, 1261 for the law must not give him any incentive to perform the
illegal promise.
Promise defective by statute
4-189
Where one of the promises is defective by statute, the statute may expressly solve the problem
whether the person giving the defective promise can sue on the counter-promise. 1262 Thus a party
who gives a promise which is defective under s.4 of the Statute of Frauds 1677, or under s.34 of the
Matrimonial Causes Act 1973 may, in spite of not being bound by that promise, be entitled to enforce
the counter-promise, 1263 and this may be so even though for other purposes (such as the validity of a
disposition) his or her promise, precisely because it is void, cannot constitute consideration. 1264
Where a statute invalidates a promise but does not provide for the effect of its invalidity on the other
party’s counter-promise, the general rule seems to be that the invalid promise is not good
consideration 1265; but, unless that promise is illegal, the party giving it can sue on the counter-promise
if he actually performs his promise. 1266
Both promises defective by statute
4-190
A statute may also invalidate both promises. Formerly, this was the position with regard to contracts
“by way of gaming or wagering”, which were “null and void” under section 18 of the Gaming Act 1845.
This section has been repealed by the Gambling Act 2005, 1267 section 335(1) of which provides that,
as a general rule, “[t]he fact that a contract relates to gambling shall not prevent its enforcement.” This
subsection does not prejudice “any rule of law preventing the enforcement of a contract on the ground
of unlawfulness … ” 1268 so that where (for example) a party had, in relation to the gambling contract
committed an offence under the 2005 Act, 1269 then, under the law relating to the effects of illegality on
contracts, 1270 the illegality would often, though not necessarily, 1271 prevent that party from enforcing
the other party’s promise; and where both parties had committed such an offence or such offences,
then these rules would often, though again not necessarily, 1272 lead to the result that neither party’s
promise would be legally enforceable by the other. The promises of each party would also be legally
unenforceable where the Gambling Commission was satisfied that a bet was “substantially unfair” and
on that ground made an order by virtue of which “any contract … in relation to the bet [was] void.” 1273
It is also possible for the promises of both parties to be void under other legislation: for example,
under section 4 of the Marine Insurance Act 1906, by which a contract of marine insurance is void
where the assured has no “insurable interest”, as defined by the Act. 1274 In such cases, the making or
performance of one of the promises would clearly not make the other promise enforceable. This
conclusion follows simply from the fact that both promises are void by statute, so that there is no need
to enquire whether the making or performance of one of the promises can constitute consideration for
the other. The question whether the making or performance of such a void promise could constitute
consideration might, however, arise in the context other than that of the enforceability of the
counter-promise: for example, in the context of the question whether the performance could constitute
consideration for the purpose of a rule of law by which a transfer or disposition of property was
effective only if made for valuable consideration. This was the question which arose in Lipkin Gorman
v Karpnale Ltd 1275 where stolen money had been used by a thief for gambling at a club of which he
was a member and it was held that the club had not received the money for valuable consideration so
as to be entitled, as against the victim of the theft, to retain it. We have noted that the club had not
provided consideration for the member’s payment by exchanging the money for gaming chips. 1276
The present point is that the club had not provided consideration for the payments made to it by the
member and received by it in good faith by allowing him to gamble in the club or by promising to pay,
or actually paying him, in respect of any bets won by him. This aspect of the decision was based on
section 18 of the Gaming Act 1845 and is undermined by the repeal of that section by the Gambling
Page 3
Act 2005 and by the general rule, laid down in that Act, that contracts relating to gambling are legally
enforceable. Under that rule, the club’s promises to its members, or the performance of those
promises, would clearly constitute good consideration for the club’s receipt of the member’s
payments. A number of other problems which could arise under the 2005 Act on facts such as those
of the Lipkin Gorman case are discussed below in Volume II, paragraphs 41-049 to 41-051.
Unilateral contracts
4-191
In the case of a unilateral contract, 1277 the promisee clearly provides consideration if he completes
the stipulated act or forbearance (such as walking to York, or not smoking for a year). 1278 This
amounts in law to a detriment to the promisee; and the promisor may also obtain a benefit: e.g. where
he promises a reward for the return of lost property and it is actually returned to him. It was suggested
in Chapter 2 that commencement of performance can amount to acceptance of an offer of a unilateral
contract, 1279 and it is here submitted that such commencement can also amount to consideration; for
it may in law be a detriment to the promisee to walk only part of the way to York, or to refrain from
smoking for part of the year. Difficult questions of fact may, indeed, arise in determining whether
performance has actually begun and whether such a beginning was made “on the strength of” 1280 the
promise. This is particularly true where the stipulated performance is a forbearance; but if an actual
forbearance to sue can constitute good consideration, 1281 it must in principle be possible to tell when
a forbearance has begun. Thus commencement of performance (whether of an act or of a
forbearance) may provide both an acceptance and consideration, and may accordingly deprive the
promisor of his right to withdraw the promise. 1282 Of course, the promisor’s liability to pay the amount
promised (e.g. the £100 for walking to York) does not accrue 1283 before the promisee has fully
performed the required act or forbearance. The present point is merely that, after part performance by
the promisee, the promisor cannot withdraw with impunity. 1284
4-192
The further suggestion has been made that a unilateral contract may be made as soon as the offer is
received by the offeree 1285; and this could be interpreted to mean that the contract was binding even
before the offeree had acted on it in any way. But at this stage the offeree has clearly not provided
any consideration, and in the case in which the suggestion was made no problem of consideration
arose as the offeree had in fact completed the required act 1286 before any attempt to withdraw the
offer was made. Except in the case of bankers’ irrevocable credits, 1287 the better view is that an offer
of a unilateral contract is not binding on receipt of the offer, but only when the offeree has begun to
render the required performance.
Firm offers
4-193
A “firm” offer is one containing a promise not to withdraw it for a specified time. Such a promise does
not prevent the offeror from withdrawing the offer within that period since prima facie such a promise
will be unsupported by consideration. 1288 Consideration for such a promise is most obviously provided
if the offeree pays (or promises to pay) a sum of money for the promise and so buys an option. 1289
Consideration may also be provided by some other promise: for example, in the case of an offer to
sell a house, the offeree may provide consideration for the offeror’s promise to hold the offer open by
promising to apply for a mortgage on the house; and, in the case of an offer to buy shares, the offeree
may provide consideration for the offeror’s promise not to withdraw the offer for a specified time by
promising not to dispose of those shares elsewhere during that time. The performance of the offeree’s
promise in such cases could likewise provide consideration for the offeror’s promise to keep the offer
open. In one case a vendor of land entered into a so-called “lock-out” agreement 1290 by which he
promised a prospective purchaser not to consider other offers if that purchaser would exchange
contracts within two weeks; and it was said that “the promise by the [purchaser] to get on by limiting
himself to just two weeks” 1291 constituted consideration for the vendor’s promise not to consider other
offers. The case is not strictly one of a firm offer since the vendor’s promise would not in terms have
Page 4
prevented him from simply deciding not to sell at all; but the practical effect of a binding “lock-out”
agreement may be to prevent the vendor from withdrawing his offer; and the reasoning quoted above
1292
could apply to the case of a firm offer. On the facts of the case from which it is taken, the
reasoning gives rise to some difficulty since it does not appear that the purchaser made any promise
to exchange contracts within two weeks. It seems more plausible to say that the vendor’s promise
had become binding as a unilateral contract under which the purchaser had provided consideration by
actually making efforts to meet the deadline, even though he had not promised to do so. Similar
reasoning can apply if a seller of land promises to keep an offer open for a month, asking the buyer
during that period to make efforts to raise the necessary money. If the buyer makes such efforts
(without promising to do so), it is arguable that he has by part performance accepted the seller’s offer
of a unilateral contract to keep the principal offer open. Similarly, it is possible for a person, to whom a
promise not to revoke an offer for the sale of a house has been made, to provide consideration for
that promise by incurring the expense of a survey. 1293 Consideration may also be provided by the
promisee’s entering into another contract with the promisor. 1294 On the other hand, the equitable
doctrine of Hughes v Metropolitan Ry 1295 and of the High Trees case 1296 will not avail the offeree
since it does not create new causes of action where none existed before. 1297 Nor does it seem
probable that the offeree will be able to claim damages in tort 1298 under the principles laid down in
Hedley Byrne & Co Ltd v Heller & Partners Ltd. 1299
Exceptions
4-194
The general rule that a promise to keep an offer open is not binding has been criticised 1300; indeed,
there are some situations in which it has been said that “the market would disdain to take” 1301 the
point that such a promise was not binding. The rule does not, of course, apply if the promise does not
need to be supported by consideration because it is made in a deed; and it is rejected by the Vienna
Convention on Contracts for the International Sale of Goods. 1302 It is also subject to a common law
exception in the law of insurance where an underwriter who initials a slip under an “open cover”
arrangement is regarded as making a “standing offer” which the insured can accept from time to time
by making “declarations” under it. The underwriter’s commitment is regarded as binding even though
there is no consideration for his implied promise not to revoke the “standing offer.” 1303 But even with
these mitigations, the rule can still cause hardship to an offeree who has acted in reliance on the
promise to keep the offer open. 1304 On the other hand, the rule does sometimes provide necessary
protection for the offeror: e.g. when an offer is made by a customer on a form provided by a supplier
and expressed to be irrevocable; or when the period of irrevocability is not specified, so that the
offeror is left subject to an indefinite obligation without acquiring any corresponding right. Any further
development of the law on the point will require a balancing of these conflicting factors. 1305
Auction sales without reserve
4-195
Where goods are put up for auction without reserve, there is no contract of sale if the auctioneer
refuses to knock the goods down to the highest bidder; but the auctioneer is liable to the highest
bidder on a separate promise that the auction will be without reserve. 1306 It can be argued that there
is no consideration for this promise as the bidder is not bound by his unaccepted bid. 1307 But it has
been held that there is both a detriment to the bidder, since he runs the risk of being bound, and a
benefit to the auctioneer, as the bidding is driven up. 1308 Hence there is consideration for the
auctioneer’s separate promise, and it makes no difference to the auctioneer’s liability on this promise
that he would not be liable if he did not put the goods up for sale at all (since an advertisement of an
auction is not an offer to hold it), 1309 or that there was no contract of sale because of his refusal to
accept the highest bid. 1310
Novation of partnership debts
4-196
Page 5
When the composition of a partnership changes, it is usual to arrange that liability for the debts owed
by the existing partners should be transferred by novation 1311 to the new partners. Two situations call
for discussion.
(1) A and B are in partnership; A retires and C is admitted as a new partner; it is agreed between A, B
and C, and the creditors of the old firm of A and B, that A shall cease to be liable for the firm’s debts,
and that C shall undertake such liability. The result is that the creditors can sue C and can no longer
sue A. They provide good consideration for C’s promise to pay by abandoning their claim against A
1312
; and A provides good consideration for their promise to release him by procuring a substitute
debtor, C.
(2) A and B are in partnership; A retires; it is agreed between A, B and the creditors of the firm that A
shall cease to be liable and that B shall be solely liable. It seems that the creditors cannot sue A, but it
is hard to see what consideration moves from him. In one case it was said that there was
consideration in that a remedy against a single debtor might be easier to enforce than one against
several, all of whom were solvent 1313; thus the creditors benefit by the release of A. This is a possible,
if invented, 1314 consideration.
4-197
The second of the situations discussed in para.4-196 above should be distinguished from that in
which the original liability is incurred by an individual who then enters into a partnership. This was the
position in Re Burton Marsden Douglas 1315 where A, a solicitor, incurred liabilities to a client (X) and
then entered into partnership with B and C. It was held that B and C were not liable for the liabilities
incurred by A to X before A had entered into the partnership with B and C. There had been no
novation of those liabilities since (a) there had been no agreement to novate them and (b) if there had
been such an agreement, there would have been no consideration for any promise by B and C to X to
discharge those liabilities since there had been no promise by X to release A.
Gratuitous bailments
4-198
A gratuitous bailment may be for the benefit of the bailee or for the benefit of the bailor.
(1) For benefit of bailee
The first possibility is illustrated by Bainbridge v Firmstone 1316 where the defendant asked for and
received permission from the plaintiff to weigh two boilers belonging to the plaintiff. In performing this
operation, the defendant damaged the boilers, and the plaintiff claimed damages for breach of the
defendant’s promise to return the boilers in good condition. The defendant argued that, as he was not
paid to weigh or look after the boilers, no consideration for his promise had been provided by the
plaintiff; but the court rejected this argument. Patteson J. said: “I suppose the defendant thought he
had some benefit; at any rate, there is a detriment to the plaintiff from his parting with the possession
for even so short a time.” 1317 This consideration would also support some other promise by the
defendant, e.g. a promise to repair the boilers. It is more doubtful whether there would be any
consideration moving from the defendant for any promise by the plaintiff to allow the defendant to
have possession of the boilers. A mere promise to return the boilers might not suffice on the ground
that it was no more than a promise to perform a duty imposed by law on all bailees; but a promise to
repair the boilers or to improve them in some way, or one to look after them for a fixed time, would
probably be regarded as consideration moving from the defendant. 1318
(2) For benefit of bailor
The second possibility would, for example, arise where a thing was deposited by A with B, not for use
but for safe-keeping, without reward. In such a case, A’s parting with the possession is hardly a
Page 6
detriment to him; and B’s duty to look after the thing 1319 does not arise out of a contractual promise
1320
but is imposed by law. 1321 It follows that B’s only duty is that imposed by law. Thus B is under no
obligation before he actually receives the thing; and if he promised to do anything which went beyond
the duty imposed by law (for example, to keep the thing in repair) he would be bound by his promise
only if A had provided some consideration for it apart from the delivery of the chattel. 1322 To constitute
such consideration, it is not necessary to show that B obtained any benefit from the bailment: thus it is
enough if A reimburses (or promises to reimburse) B for any expenses that B has incurred for the
purpose of performing his promise. 1323 This follows from the principle that consideration may consist
either in a benefit to the promisor (B) or in a detriment to the promisee (A). 1324
(3) Promises defining gratuitous bailee’s custodial duty
The liability of a gratuitous bailee for breaches of duty as such a bailee calls for further discussion in
the light of the decision of the Court of Appeal in Yearworth v North Bristol NHS Trust. 1325 In that
case, men who had been treated for cancer and had undergone chemotherapy, were told that this
might lead to their becoming infertile, and were given the opportunity of having samples of their
semen frozen and stored by the defendant, whose fertility unit “extended, and broke, a particular
promise to the men, namely that ‘the sperm will be stored … at minus 196C”’. 1326 In consequence of
the breach, the sperm thawed and became useless. It was held that the defendant had become a
gratuitous bailee of the sperm and was liable as such to the men for breach of its duty under the
bailment; and this duty was described 1327 as “a breach not just of the duty owed by every gratuitous
bailee but of a specific promise extended by the trust to the men.” These words may seem to be
inconsistent with the view, taken in sub-para.4-198(2) above, 1328 that a gratuitous bailee was subject
only to the duty imposed on such as bailees by virtue of the bailment and was not bound by any
promise going beyond that duty unless the bailor had provided some consideration for that promise.
1329
It is, however, submitted that there is no such inconsistency since a distinction must be drawn
between a “specific promise” which serves merely to define the scope of B’s custodial duty as bailee
and one which purports to impose on B further duties, going beyond that duty. The passage of the
judgment (quoted above 1330) appears to refer back to an earlier statement which deals with the
situation “where the gratuitous bailee has extended, and broken, a particular promise to his bailor …
that the chattel will be stored in a particular place or in a particular way” 1331: e.g., where he has
promised to store goods under cover but stored them in the open and they were destroyed or
damaged in consequence of having been so stored. Here the bailee would be in breach of the
custodial duty which is the central feature of the bailment relationship. The defendant’s breach of duty
in the Yearworth case was of this nature, performance of the promise to keep the sperm at the
specified temperature being essential to its preservation. The same could not be said of the example,
given in the text above, 1332 of a promise to keep the thing bailed in repair. Performance of such a
promise would go beyond the essential custodial duty of the bailee since the promise would not
merely define the way in which that duty was to be performed 1333 but would impose an additional duty
to carry out the repairs and so to improve the thing which has been bailed. It is submitted that the
problem here discussed arises at least in part because the distinction drawn in the Yearworth case
1334
between breach of “the duty owed by every gratuitous bailee” and breach of a “specific promise”
made by such a bailee uses categories of which the first is unduly general and which are not mutually
exclusive. Both these points follow from the fact that the scope of the duty owed by a gratuitous bailee
may well depend on a “particular promise” of the kind referred to in the judgment, 1335 i.e. on one as to
where and how the thing bailed will be stored. That was the type of promise under consideration in
the Yearworth case; and where such a promise is made there is no distinction of substance between
the “particular promise” referred to in one part in the judgment 1336 and the “specific promise” referred
to in another. 1337 Whether such a promise is described as a “particular” or as a “specific” one, its
effect is to define the custodial duty of the gratuitous bailee; and this is so whether or not the promise
has contractual force. It follows that, in such cases, the concept of a “duty owed by every gratuitous
bailee” 1338 is (with respect) one of limited practical value.
Gratuitous services
4-199
Page 7
Normally a promise to render services without reward is not supported by consideration and is
therefore not binding contractually. For example, where A gratuitously promises to insure B’s property
but fails to do so, A is not liable to B for breach of contract if the property is destroyed or damaged.
1339
A firm of solicitors is likewise not bound by its promise not to charge its client for work done after a
specified date, since, without more, such a promise is not supported by any consideration. 1340 Where
an architect (A) had provided professional services as such for friends (B) free of charge, one reason
1341
why there was no contract between A and B was that the requirement of consideration had not
been satisfied. 1342 Occasionally, it may be possible to find consideration in the indirect financial
benefit which the promisor obtains from the arrangement, e.g. in the form of favourable publicity. 1343
Liability in tort for negligent performance
4-200
Even where the promise is not supported by consideration, the promisor may be liable in tort for
negligence if he actually renders the gratuitous services but fails to perform a duty to exercise due
care in rendering them and so causes loss. A banker giving a negligent reference or an accountant
giving a negligent report on the financial position of a company could be liable in tort on this ground,
even though he made no charge to the person to whom the information was given. 1344 Similarly,
where A gratuitously promised to insure B’s property but did so negligently, with the result that the
policy did not cover the loss which occurred, A was held liable to B in tort 1345 and, where the
relationship between the supplier (A) of the gratuitous services and their recipient (B) was not
contractual for the reasons stated in para.4-199 above, A was held liable to B in tort for having failed
to exercise reasonable care in performing the services which A had in fact rendered. 1346 In one
case, a person was even held liable in damages for negligently giving free advice to a friend in
connection with the purchase of a second-hand car which turned out to be seriously defective. 1347
Non-feasance and misfeasance
4-201
The most important distinction between the two groups of cases discussed in paras 4-199 and 4-200
above is that between non-feasance and misfeasance in the performance of a promise to render
gratuitous service. For this purpose, non-feasance means complete failure to pursue a promised
course of action, while misfeasance means carelessness in the pursuit of that course of action,
leading to failure to achieve a promised result. The first group of cases shows that non-feasance does
not (in the absence of consideration 1348) make the promisor liable to the promisee in contract, while
the second shows that misfeasance can make him so liable in tort. There is no liability in tort for
simply doing nothing after having promised to render services gratuitously; for to impose such liability
would amount to holding “that the law of England recognises the enforceability of a gratuitous
promise. On the face of it, this would be inconsistent with fundamental principle.” 1349 In cases of pure
non-feasance, the promisee will therefore have a remedy only if he can show that he provided
consideration for the promisor’s promise to render the service. If he can show this he may also be in a
better position with regard to damages even in cases of misfeasance. 1350 There may be an exception
to the general rule that there is no liability in tort for pure omissions. This exception was said to apply
in Lennon v Metropolitan Police Commissioner, 1351 where A represented to B that A would take steps
to safeguard some specified financial interest of B’s (in that case B’s housing allowance as a police
officer on his transfer from one force to another) and that representation amounted to an “express
assumption of responsibility for a particular matter.” 1352 A’s failure to exercise due care in discharging
that responsibility could then make him liable to B in tort, and such liability was said to cover “acts of
omission.” 1353 It may, however, be respectfully doubted whether A’s allegedly wrongful conduct in this
case did not amount to misfeasance in the sense in which this expression has been used in this
paragraph, i.e. to failure to achieve a promised result.
4-202
Page 8
In Gore v Van der Lann 1354 a corporation issued a free travel pass to the claimant who “in
consideration of my being granted a free pass” undertook that the use of the pass by her should be
subject to certain conditions. One of these was that she would not sue the corporation or its servants
for loss or injury suffered while she was boarding, alighting from, or being carried in, the corporation’s
vehicles. The claimant was injured while boarding a corporation bus; and it was held that the issue
and acceptance of the free pass amounted to a contract. 1355 Willmer L.J. said that “Each party gave
good consideration by accepting a detriment in return for the advantages gained.” 1356 The parties
were, as a result of the issue of the pass, brought into a relationship of passenger and carrier which
gave rise to duties quite independently of contract; and it was the promise not to enforce these
obligations which constituted the consideration moving from the claimant. In the absence of such a
relationship, the person to whom the gratuitous service was promised would not provide consideration
for that promise merely by making a counter-promise not to sue for loss or damage caused by the
defective performance of the services. It follows that, if in Gore v Van der Lann the pass had been
issued for a specified period but had been withdrawn before the end of that period, then the holder
would have had no claim in contract in respect of that premature withdrawal. Similarly, if A promised
to carry B’s goods to London free of charge and B promised not to sue A for negligently damaging
them in the course of that operation, then A would not be under any contractual liability for failing to
pick up the goods. But he might be liable if he did pick them up and then unloaded them short of the
agreed destination.
Bankers’ irrevocable credits
4-203
Where a banker issues (or confirms) an irrevocable credit, the generally held commercial view is that
the banker’s promise to the beneficiary is binding as soon as it is communicated to the beneficiary,
and before the latter has acted on it in any way. 1357 If, as seems probable, this view also represents
the law, it constitutes a clear exception to the doctrine of consideration. 1358

1249. Treitel (1961) 77 L.Q.R. 83.
1250. Above, para.4-009.
1251. Holt v Ward Clarencieux (1732) Stra. 937; below para.9-049.
1252. Below, para.9-093 (“voidable at his or her option”). The circumstances in which such a right of
avoidance arises are discussed in paras 9-075 to 9-092 below.
1253. Below para.11-009.
1254. R. v Att.-Gen. for England and Wales [2003] UKPC 22, [2002] E.M.L.R. 24 at [31]. There seems
to be no strong policy reason in such a case for allowing enforcement by the Crown of the other
party’s promise where the contract remains executory.
1255. As suggested in Nerot v Wallace (1789) 3 T.R. 17, 23.
1256. e.g. Wyatt v Kreglinger & Fernau [1933] 1 K.B. 793.
1257. See Goodinson v Goodinson [1954] 2 Q.B. 118 (the actual decision is obsolete in view of
Matrimonial Causes Act 1973, s.34, below, para.4-189).
1258. Above, para.2-143.

Page 9
1259. Sepong Engineering Construction Co Ltd v Formula One Management Ltd [2000] 1 Lloyd’s
Rep. 602 at 611, where it was also said that damages for breach of the resulting contract would
be no more than nominal. The same reasoning applied when, before the Corporate Bodies
Contracts Act 1960, unsealed promises made by a corporation did not bind it: see Fishmonger’s
Corp. v Robinson (1843) 5 Man. & G. 131; Kidderminster Corp. v Hardwick (1873) L.R. 9 Ex. 13
; Re Dale [1994] Ch. 31, 38.
1260. R. v Att.-Gen. for England and Wales [2003] UKPC 22, [2003] E.M.L.R. 24 at [31]; and see
para.4-187 at nn.1198 and 1199.
1261. e.g. Wyatt v Kreglinger & Fernau [1933] 1 K.B. 793.
1262. See Laythoarp v Bryant (1836) 2 Bing.N.C. 735.
1263. Below, para.16-053. For more elaborate provisions of this kind, see Financial Services and
Markets Act 2000, ss.20, 26–30.
1264. Re Kumar [1993] 1 W.L.R. 224, where the void promise was held not to constitute consideration
for the purpose of Insolvency Act 1986, s.339. The common law rule that, because a wife’s
promise not to seek a court order for maintenance was of no effect in law, it could not constitute
consideration for her husband’s promise for maintenance was described as “unfortunate” by
Lord Phillips P. in Radmacher v Granatino [2010] UKSC 42, [2011] 1 A.C. 534 at [39]. The rule
has been reversed by statute: see above at n.1208.
1265. Clayton v Jennings (1760) 2 W.Bl. 706.
1266. Rajbenback v Mamon [1955] 1 Q.B. 283 as explained in (1961) 77 L.Q.R. 83, 95; cf. Unger
(1956) 19 M.L.R. 99.
1267. 2005 Act, ss.334(1), 356(3), 356(1) and Sch.16. The 2005 Act is discussed in Vol.II, paras
41-003 et seq.
1268. 2005 Act, s.335(2), below, Vol.II, para.41-017.
1269. See below, Vol.II, paras 41-018, 41-019.
1271. See the discussion in Ritz Hotel Casino Ltd v Al Daher [2014] EWHC 2847 (QB) (below, Vol.II,
para.41-019 n.102) of the effects of “unlawfulness” on the enforceability of a contract relating to
gambling under s. 335(2) of the Gambling Act 2005; and cf. below para.16-158 and Vol.II,
para.41-043 n.263. The actual decision on the Ritz Hotel case (above) was that there had been
no “unlawfulness”: see below, Vol.II, para.41-019 n.110.
1272. See above, n.1216.
1273. ss.336(2) and (3), below, Vol.II, para.41-022.
1274. In spite of its title, the Act applies (where appropriate) to contracts of insurance generally: see
Locker & Woolf Ltd v W. Australian Insurance Co Ltd [1936] 1 K.B. 408 at 416.
1275. [1991] 2 A.C. 548.
1276. Above, para.4-016.
1278. See Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch. 231, 238.
1279. Above, para.2-082.

Page 10
1280. Wigan v English & Scottish Law Life Assurance Association [1909] 1 Ch. 291, 298; above,
para.4-060.
1282. For the contrary view see Wormser in Selected Readings on the Law of Contracts, p.307—but
he recanted in (1956) 3 Journal of Legal Education 146.
1283. Unless, perhaps, such a promise is divisible: e.g. where the promise is to pay the walker a
specified sum per mile. It would be a question of construction whether such a promise imposed
an “entire” or a “divisible” obligation: see below, paras 21-028 et seq. In the example given in
the text above, the promisor’s obligation would probably be regarded as “entire”.
1284. The above passage (para.3-168 in the 29th edition of this book) is cited with apparent approval
in Schweppe v Harper [2008] EWCA Civ 444 at [42] by Waller L.J. who there dissented on the
different issue, whether the agreement was sufficiently certain to have contractual force: see
above, para.2-150 n.795.
1285. Harvela Investments Ltd v Royal Trust Co of Canada (C.I.) Ltd [1986] 1 A.C. 207, 224 (“when
the invitation was received”).
1286. By submitting the requested bid: cf. above para.2-039.
1287. Below, para.4-203.
1288. Cooke v Oxley (1790) 3 T.R. 653; Routledge v Grant (1828) 4 Bing. 653; Head v Diggon (1828)
3 M. & Ry 97; Dickinson v Dodds (1876) 2 Ch.D. 463; above, para.2-093.
1289. The legal characteristics of such an option have been variously described: (1) as a contract:
Greene v Church Commissioners for England [1947] Ch. 467, 476, 478 (disapproving a dictum
in Beesly v Hallwood Estates Ltd [1960] 1 W.L.R. 549, 555, actual decision affirmed [1961] Ch.
549 but dicta at first instance are disapproved on a point not here under discussion in Bolton
MBC v Torrington [2003] EWCA Civ 1634, [2004] Ch. 66); though not one of sale: Chippenham
Golf Club v North Wilts. RDC (1992) 64 P. & C.R. 527; (2) as a transaction which, even though
it is not a contract, gives rise to an interest in property: Re Button’s Lease [1964] Ch. 263,
270–271; Armstrong & Holmes Ltd v Holmes [1994] 1 All E.R. 826; (3) as a unilateral contract:
United Scientific Holdings Ltd v Burnley BC [1978] A.C. 904, 945; Little v Courage (1995) 70 P.
& C.R. 469, 474; (4) as a conditional contract: Bircham & Co Nominees (No.2) Ltd v Worrell
Holdings Ltd [2001] EWCA Civ 773; (2001) 82 P. & C.R. 427 at [45]; Coaten v PBS Corporation
[2006] EWHC 1781, [2007] 1 P. & C.R. DG 11 at [33]; (5) as an irrevocable offer: Re Gray
[2004] EWHC 1538, [2005] 1 W.L.R. 815 at [25]; contrast the Coaten case, above; and (6) as
being sui generis: Spiro v Glencrown Properties [1991] Ch. 537. And see Mowbray, 74 L.Q.R.
242; Lücke, 3 Adelaide L.Rev. 200.
1290. Above, para.2-128.
1291. Pitt v P.H.H. Asset Management Ltd [1994] 1 W.L.R. 327, 332; for other consideration in this
case, see above. para.4-053; Tye v House [1997] 2 E.G.L.R. 171.
1292. At n.1236.
1293. cf. Ee v Kakar (1979) 40 P. & C.R. 223 (a case not concerned with a “firm” offer).
1294. See Habibsons Bank Ltd v Standard Chartered Bank [2010] EWCA Civ 1335, [2011] Q.B. 943
at [23] (lenders held to have provided consideration for a “standing offer” by entering into a
“Facility Agreement” with the borrower).
1296. [1947] K.B. 130; above, para.4-130.

Page 11
1297. Above, para.4-099.
1298. cf. Holman Construction Ltd v Delta Timber Co Ltd [1972] N.Z.L.R. 1081; and see Blackpool
and Fylde Aero Club v Blackpool BC [1990] 1 W.L.R. 1195, 1202.
1299. [1964] A.C. 465; below, para.7-089.
1300. Law Revision Committee, 6th Interim Report, Cmd. 5449 (1937), para.38; Law Commission
Working Paper No.60 (1975).
1301. Jaglom v Excess Insurance Ltd [1972] 2 Q.B. 250, 258; cf. County Ltd v Girozentrale Securities
[1996] 3 All E.R. 834 where an “offer to subscribe” for shares was described at 837 as “not
legally binding but regarded by City convention as binding in honour unless some unforeseen
exceptional circumstances supervened.” It seems that the “commitment” (below, before n.1248)
was given not to the company but to the underwriter, or by prospective investors to each other,
so that the principles discussed in para.2-024 above did not apply. For the view that the
statement in question in the Jaglom case was not an offer at all, but an acceptance (and
binding as such) see General Reinsurance Corporation v Forsakringsaktiebolaget Fennia Patria
[1983] Q.B. 856, 863–864.
1302. Above, para.2-061; Art.16(2).
1303. Citadel Insurance Co v Atlantic Union Insurance Co [1982] 2 Lloyd’s Rep. 543, 546; contrast
the nature of “preliminary” slips: these were said in Beazley Underwriting Ltd v Travellers
Companies Inc [2011] EWHC 1520 (Comm), [2012] 1 All E.R. (Comm) 1241 at [173] as
“nothing more than quotation slips”: i.e., presumably offers without any indication that they
would be kept open for a specified or ascertainable time, or perhaps mere invitations to treat
(see above, para.2-010).
1304. e.g. where a builder enters into a contract in reliance of offers from sub-contractors to supply
services or materials and expressed to be “firm” for a fixed period. For conflicting American
authorities, see James Baird Co v Gimbel Bros., 64 F. 2d. 344 (1933); Drennan v Star Paving
Co 51 Cal. 2d. 409, 333 P. 2d. 757 (1958); for a review of Canadian authorities, see Northern
Construction Co v Gloge Heating & Plumbing (1984) 6 D.L.R. (4th) 450 (holding the
sub-contractor bound by his offer).
1305. See Law Com. Working Paper 60 (1975).
1306. Warlow v Harrison (1859) 1 E. & E. 309; Harris v Nickerson (1873) L.R. 8 Q.B. 286, 288;
Johnson v Boyes [1899] 2 Ch. 73, 77.
1307. See Slade (1952) 68 L.Q.R. 238; Gower, ibid. at 457; Slade (1953) 69 L.Q.R. 21.
1308. Barry v Davies [2000] 1 W.L.R. 1962 at 1967.
1309. Harris v Nickerson (1873) L.R. 8 Q.B. 286; above para.2-020.
1310. ibid.
1311. Below, para.19-087; Partnership Act 1890, s.17(3). Problems of the kind here discussed do not
arise in the same form in the case of limited liability partnership incorporated under the Limited
Liability Partnerships Act 2000 since the liabilities of the partnership are those of the body
corporate incorporated under ss.1–3 of that Act; these are not affected by a change in the
membership of the body. Section 6(3) of the Act deals with the different question of the extent
to which acts of a person who has ceased to be a member can still impose liability on the
partnership.
1312. Cf. the reasoning of Classic Maritime Inc v Lion Diversified Holdings Berhad [2009] EWHC
1142 (Comm), [2010] 1 Lloyd’s Rep. 59 at [46] and [41].
Page 12
1313. Lyth v Ault (1852) 7 Ex. 669; Thompson v Percival (1834) 5 B. & Ad. 925 is based on reasoning
which is obsolete after D. & C. Builders Ltd v Rees [1967] 2 Q.B. 617; above, para.4-124,
n.731.
1314. Above, para.4-009.
1315. [2004] EWHC 593 (Ch), [2004] 3 All E.R. 222.
1316. (1838) 8 A. & E. 743.
1317. At 744.
1318. cf. Verral v Farnes [1966] 1 W.L.R. 1254, a case relating to land; followed in Milton v Farrow
(1980) 255 E.G. 449.
1319. For this duty, see Coggs v Bernard (1703) 2 Ld. Raym. 909; Mitchell v Ealing LBC [1979] Q.B.
1; Port Swettenham Authority v T.W. Wu & Co [1979] A.C. 580, 590.
1320. For the view that a bailment can come into existence “without consideration passing from the
bailor [A] to the bailee [B]” see also Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37,
[2010] Q.B. 1 at [48]. B’s liability was there said to be based on “an assumption of
responsibility” but not necessarily to “lie in tort”, the Court being “strongly attracted to the view
that B’s liability was sui generis” (citing Palmer on Bailment, 2nd ed. (1991) at pp.44 et seq.).
For this case, see also below after n.1269.
1321. Morris v C.W. Martin Ltd [1966] 1 Q.B. 716, 731; Compania Continental del Peru v Evelpis
Shipping Corp. (The Agia Skepi) [1992] 2 Lloyd’s Rep. 467, 472.
1322. cf. Charnock v Liverpool Corporation [1968] 1 W.L.R. 1498; below, para.18-010.
1323. CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] Q.B. 16, 27.
1324. Above, para.4-014.
1325. [2009] EWCA Civ 37, [2009] 2 All E.R. 986.
1326. At [49].
1327. At [58].
1328. At n.1267.
1329. Above, at n.1267.
1330. At n.1272.
1331. [2009] EWCA Civ 37 at [48].
1332. At n.1267.
1333. See the phrase quoted at n.1276 above.
1334. At [58].
1335. At [48], quoted at n.1276 above.
1336. At [48].
1337. At [58].
Page 13
1338. At [58].
1339. Argy Trading & Development Co Ltd v Lapid Developments Ltd [1977] 1 W.L.R. 444; cf. the
New York case of Thorn v Deas, 4 Johns. 84 (1809); later American authorities are divided:
Corbin, Contracts, para.205, n.54.
1340. Ashia Centur Ltd v Barker Gillette LLP [2011] EWHC 148 (QB); the client argued that it had
provided consideration by forbearing immediately to instruct new solicitors but this argument
was rejected as there was no evidence of any conduct on the client’s part to support a finding of
such forbearance (at [19], [20]).
1341.
For other reasons why there was no contract between A and B, see above, paras 1-172 and
2-170.
1342.
Burgess v Lejonvarn [2017] EWCA Civ 254, [2017] B.L.R. 277 at [71], referring to the
reasoning of the Court below ([2016] EWHC 40 (TCC) at [152]) and affirming the decision of
that Court.
1343. cf. De la Bere v Pearson [1908] 1 K.B. 280, 287.
1344. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] A.C. 465; cf. below, para.7-089.
1345. Wilkinson v Coverdale (1793) 1 Esp. 75.
1346.
Burgess v Lejonvarn [2017] EWCA Civ 254, [2017] B.L.R. 277 at [88], [128].
1347. Chaudhry v Prabhakar [1989] 1 W.L.R. 29; the defendant conceded that he owed a duty of care
to the claimant and two members of the Court of Appeal seem to have regarded this
concession as correct; Brown [1989] L.M.C.L.Q. 148. Contrast Henderson v Merrett Syndicates
Ltd [1995] 2 A.C. 145, 181, suggesting that there may be no liability in respect of services
rendered on “an informal occasion.”
1348. Or of privity of contract: see Hamble Fisheries Ltd v L. Gardner & Son Ltd (The Rebecca
Elaine) [1999] 2 Lloyd’s Rep. 1 at 5.
1349. G.A.F.L.A.C. v Tanter (The Zephyr) [1985] 2 Lloyd’s Rep. 529, 538, disapproving the contrary
view expressed at first instance [1984] 1 Lloyd’s Rep. 58, 85 and there based on authorities
which were all cases of misfeasance. The Zephyr itself was also such a case: [1984] 1 Lloyd’s
Rep. at 79, 86 (“he was making the position steadily worse”). A fortiori, there is no liability in tort
for pure omission where no promise has been made: see Reid v Rush & Tompkins Group plc
[1990] 1 W.L.R. 212 and Van Oppen v Clerk to the Bedford Charity Trustees [1990] 1 W.L.R.
235 though in the latter case it was said at 260 that a voluntary assumption of responsibility by
one party followed by reliance on it by the other might in exceptional cases give rise to such
liability. The scope of the exception is not clear; in the last two cases it was held that there was
no duty on respectively an employer and a school to advise an employee or the parents of a
pupil to insure against foreseeable risks of injury cf. Outram v Academy Plastics Ltd [2001]
I.C.R. 367 at 372: generally no liability in tort “for pure omission”, the omission taking the form
of an employer’s failure, without breach of contract, to advise an employee as to his
membership of the employer’s pension scheme. Liability in tort for pure omission may
exceptionally arise where there is a “duty to act”: see White v Jones [1995] 2 A.C. at 261, 268,
295 below, para.18-039); but it is submitted that no such duty would arise merely from the
making of a gratuitous promise. For a further possible exception, see below, after n.1293.
1350. Because he will then be able to recover damages for loss of bargain.
1351. [2004] EWCA Civ 130, [2004] 1 W.L.R. 2594 at [34].
1352. ibid., at [34].

Page 14
1353. ibid., at [20].
1354. [1967] 2 Q.B. 31; Harris (1967) 30 M.L.R. 584; Odgers (1970) 86 L.Q.R. 69; and see above,
para.2-188 on the issue of contractual intention.
1355. This contract was void, so far as it purported to exclude liability for personal injury, by virtue of
s.151 of the Road Traffic Act 1960 (now Public Passenger Vehicles Act 1981, s.29); below,
para.15-133.
1356. [1967] 2 Q.B. 31, 42.
1358. For explicit recognition of such an exception in the United States, see UCC, s.5–105; cf. United
City Merchants Ltd v Royal Bank of Canada (The American Accord) [1982] Q.B. 208, 225,
reversed on other grounds [1983] 1 A.C. 168. Under the Contracts (Rights of Third Parties) Act
1999 (below, paras 18-090 et seq.) the beneficiary might have a claim against the bank as a
third party identified in the contract between the bank and its customer; there is no requirement,
in such cases, of consideration moving from the third party: above, para.4-046. But his rights
under the Act would be less secure than his common law rights in two respects. First, they
would be subject under subs.3(2) to any defences which the bank might have against its
customer. And, secondly they could be defeated or diminished by rescission or variation of the
contract by subsequent agreement between the bank and its customer before the seller had
either communicated his assent to the bank or relied on the credit, and the bank either was
aware of, or reasonably should have foreseen such reliance: see subs.2(1) and paras 18-105
and 18-106 below.

Page 1

Chapter 5 - Form
Section 1. - In General
The general rule
5-001
The general rule of English law is that contracts can be made quite informally: no writing or other form
is necessary. At common law there was only one exception to this rule: a corporation had to contract
under seal until the last vestiges of this rule were abolished in 1960. 1 At present, all formal
requirements in the law of contract are contained in legislation which deals with specific contracts.
There are four main purposes for making such formal requirements. 2 First, they may serve as clear
evidence of a transaction and of its terms. Secondly, they may have a cautionary effect, thereby
deterring hasty, premature or ill-considered contracts being made. Thirdly, they may have a
“channelling” function, offering “a legal framework into which a party may fit his actions”. 3 Thus,
formalities may mark off transactions from one another and create a standardised form of transaction.
4
Fourthly, formal requirements may be used as a device to protect the weaker parties to contracts.
There has been an increasing tendency to impose such requirements with this last purpose in view:
for example, in the cases of tenants, employees, debtors and sureties under consumer credit
agreements 5 and consumers of certain classes of services, such as package holidays 6 or
“timeshare” accommodation. 7 Formal requirements are discussed in relation to a number of specific
contracts in Vol.II of this work. 8 In the present volume, which deals with general principles, there
would be no point in attempting to make an exhaustive list of contracts for which formal requirements
are imposed by statute. But four general matters may usefully be discussed here: types of formal
requirement; the effects of non-compliance; the impact of estoppel; and contracts made by electronic
communications.
Types of formal requirement
5-002
Legislative requirements of form differ widely from one another. In a few cases, contracts are required
to be made by deed: this is true, for example, of a lease for more than three years. 9 More frequently
the requirement is that certain contracts must be in, or evidenced in, writing; but even requirements of
this kind vary a good deal in stringency. Some statutes simply require, in general terms, that the
contract must be in writing, or that there must be a note or memorandum in writing. 10 Others set out
the formal requirements in great detail and even specify the size of the lettering and the colour of the
print and paper. 11 Yet others do not require the contract to be, or to be evidenced in, writing at all, but
only require one party to give the other written notice of specified terms of the contract. 12 The form of
a contract may also affect the regulation which it attracts, rather than going to its validity. Thus, for
example, the scheme of rules governing “construction contracts” as first enacted under Pt II of the
Housing Grants, Construction and Regeneration Act 1996 applied only “where the construction
contract is in writing”, any other agreement between the parties being “effective for the purposes of
this Part only if in writing”. 13 However, “[t]his was interpreted restrictively by the courts such that all of
the non-trivial terms of construction contracts had to be ‘in writing’ for Part 2 to apply”. The Act has
been amended so as to remove this general requirement, whilst prescribing that various matters must
nonetheless be in writing. 14
Page 2
Duties of information as requirements of form
5-003
The law sometimes imposes on a business or professional a pre-contractual duty to provide

information relating to certain matters, as in the case of consumer credit agreements. 15 Information
requirements are particularly prevalent in EU contract law, where they have been imposed on traders
towards consumers generally 16 as regards contracts concluded in certain circumstances (“distance
contracts” and “offpremises contracts” 17) and in respect of certain types of contract such as
“timeshare” 18 and package travel, package holidays and package tours. 19
Effect of non-compliance
5-004
Non-compliance with statutory requirements of form may produce various effects. It may make the
contract void, 20 or unenforceable, 21 or unenforceable by one party 22 or enforceable only on an order
of the court. 23 It may simply deprive the transaction of certain effects which it would have had, if the
formal requirement had been observed, without generally impairing its validity or enforceability; this
would be the case, for example, if a lease for more than three years were not made by deed 24; if an
assignment of a chose in action were made orally 25; or if the sort of promise which is normally
contained in a bill of exchange or promissory note were made orally. Failure to comply with formal
requirements may also be a criminal offence, and in some cases this is the sole consequence of
failure which is actually specified in the relevant statute. 26 The civil consequences of failure to comply
with a statutory requirement of form in such a case would presumably depend on the court’s view of
the objects which the legislature sought to achieve in imposing the requirement. If the requirement
was imposed to protect one of the parties to a contract, that party would probably be able to enforce
the contract notwithstanding the formal defect; whether the other party could enforce it would depend
on principles discussed elsewhere in this book. 27
Requirements of form and estoppel
5-005
As will be described in more detail below in relation to contracts for the sale or other disposition of an
interest in land, the application of the various doctrines of estoppel have sometimes caused difficulty
in relation to contracts invalid for want of the applicable formality. 28 In this regard, the House of Lords
in Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA 29 in the context of s.4 of the
Statute of Frauds made clear that while in an appropriate case where there had been a clear
representation by a party that the contract was valid (despite any want of formality), 30 the courts
should not found an estoppel simply on the informal agreement itself. 31 As Lord Hoffmann observed:
“The terms of the Statute of Frauds therefore show that Parliament, although obviously
conscious that it would allow some people to break their promises, thought that this
injustice was outweighed by the need to protect people from being held liable on the
basis of oral utterances which were ill-considered, ambiguous or completely fictitious.
This means that while normally one would approach the construction of a statute on the
basis that Parliament was unlikely to have intended to cause injustice by allowing people
to break promises which had been relied upon, no such assumption can be made about
the statute … [I]t must not be construed in a way which would undermine its purpose.” 32
Contracts made by electronic communications

Page 3
5-006
The Electronic Communications Act 2000 created a power in the appropriate Minister to issue
statutory instruments in order to modify provisions of: “… any enactment or subordinate legislation …
in such manner as he may think fit for the purpose of authorising or facilitating the use of electronic
communications” for a number of purposes, including the making of contracts. 33 Moreover, art.9(1) of
the European Directive on Electronic Commerce 2000 34 provides that:
“Member States shall ensure that their legal system allows contracts to be concluded by
electronic means. Member States shall in particular ensure that the legal requirements
applicable to the contractual process neither create obstacles for the use of electronic
contracts nor result in such contracts being deprived of legal effectiveness and validity on
account of their being made by electronic means.” 35
Article 9 continues by allowing Member States to provide for exceptions to this principle notably in
“contracts that create or transfer rights in real estate, except for rental rights” 36 and “contracts of
suretyship granted and on collateral securities furnished by persons acting outside their trade,
business or profession”. 37 Where it applies, this obligation on Member States is not limited to the
conclusion of the contract, but extends to all aspects of the contractual process. 38
Impact on formality requirements
5-007
At first sight, art.9 of this Directive might appear to have required the United Kingdom to revise a good
deal of its law of contractual formalities, much of which requires a contract to be contained or
evidenced in writing and/or signed, neither of these appearing to be able to be achieved by electronic
means. However, the Law Commission advised the Government that in general requirements of
“writing” and of “signature” can be fulfilled via some electronic means without any changes being
made to the law. 39 So, as to “writing” this requirement can be fulfilled by electronic mail and website
trading, but not by electronic data interchange as this does not involve any visible text so as to satisfy
s.5 of the Interpretation Act 1978’s definition of writing. 40 Its view is that “writing” does not need any
“physical memorial”, such as paper. 41 Secondly, the Law Commission’s view was that requirements
of signature can generally be interpreted in a functional way, by asking whether or not the conduct of
a would-be signatory indicates an authenticating intention to a reasonable person, though each
requirement must be considered in its own statutory context. 42 Following this approach, a
requirement of signature can be fulfilled in a number of ways: by “electronic signature” using a
dual-key encryption system and a certification authority 43; by use of a manuscript signature scanned
into a computer and incorporated into an email or other document; by a person typing their name or
initials or by setting up a system by which this occurs automatically 44; and even by a purchaser on a
website “clicking” a button after entering onto the web details of the goods that they wish to purchase,
confirming payment and personal details. 45 The Law Commission concluded that:
“… there is no need for general legislative reform, because we consider that legislation is
not only unnecessary but also risky. It is difficult to envisage a simple global reform that
would be effective in all eventualities … [So], it is only in very rare cases that the statute
book will conflict with Article 9 of the Electronic Commerce Directive.” 46
Where legislative change is needed, it can be effected by exercise of the power contained in s.8 of
the Electronic Communications Act 2000. One particular context in which this may need to be the
case is s.2 of the Law of Property (Miscellaneous) Provisions Act 1989. For, as will be explained, in
this context it has been said that “signature” must be given its ordinary linguistic meaning, so as to
require each of the parties to contracts for the sale or other disposition of an interest in land to write
their names with their own hands upon the document. 47 However, some or all of the contracts
contained within this category may come within one of the exceptions to art.9 of the EU Directive so
Page 4
as to allow English law to retain a formal requirement which is inconsistent with the effectiveness of a
contract made by electronic means. 48 Moreover, the courts may well consider that in some other
statutory contexts (for example, contracts of guarantee under s.4 of the Statute of Frauds) either
“writing” or “signature” should not be interpreted as broadly as the Law Commission generally
propose, in the interests of the protection of the person to be bound thereby. 49 Here, without
legislative intervention, a conflict may arise between the interpretation of the English courts and the
requirements of art.9 of the Electronic Commerce Directive, which does allow a Member State to
make an exception for contracts of suretyship but only where undertaken by persons “acting outside
their trade, business or profession”. 50
Electronic signatures
5-008
In 1999, the EU legislator enacted the Electronic Signatures Directive, 51 whose purposes were
to facilitate the use of “electronic signatures” and to contribute to their legal recognition, and to
establish a legal framework for electronic signatures and certain certification-services: it expressly did
not cover aspects relating to the conclusion or validity of contracts or other legal obligations where
there are requirements as regards form imposed by national or Community law, nor the rules and
limits governing the use of documents. 52 An “electronic signature” was defined by the Directive as
“data in electronic form which are attached to or logically associated with other electronic data and
which serve as a method of authentication”. 53 The United Kingdom implemented the Electronic
Signatures Directive 1999 by two instruments. First, s.7 of the Electronic Communications Act 2000
provided for the admissibility in evidence of electronic signatures and certification by any person of
such a signature “in relation to any question as to the authenticity of the communication or data or as
to the integrity of the communication or data, and followed for this purpose the definition of “electronic
signature” in the Directive. 54 On its terms, this provision is broad enough to include evidence for
the purposes of formal requirements of a contract (such as s.2 of the Law of Property (Miscellaneous
Provisions) Act 1989 55 ), but, if it were so interpreted, it would go beyond the scope of the
requirements of the 1999 Directive. Secondly, the Electronic Signatures Regulations 2002 provided
for the supervision and liability of “certification-service-providers” (i.e. persons who issue certificates
or provide other services related to electronic signatures) and for consequential matters relating to
data protection. 56 However, the Electronic Signatures Directive 1999 was repealed and replaced
by the EU Electronic Identification and Electronic Trust Services Regulation 2014 (the “eIDAS
Regulation”, applicable in general from July 1, 2016), 57 which lays down the conditions under
which Member States mutually recognise “electronic identification means of natural persons and legal
persons falling under a notified electronic identification scheme of another Member State”, and “rules
for trust services, in particular for electronic transactions”; and which establishes “a legal framework
for electronic signatures, electronic seals, electronic time stamps, electronic documents, electronic
registered delivery services and certificate services for website authentication”. 58 Following the
pattern of the 1999 Directive, the eIDAS Regulation provides expressly that it “does not affect national
or Union law related to the conclusion and validity of contracts or other legal or procedural obligations
relating to form”. 59 Instead, its main purpose is to ensure that businesses and individuals can use
their own national electronic identification schemes (eIDs) to access public services in other EU
countries where electronic identification schemes are available; it also aims to create a European
internal market for electronic trust services—electronic signatures, electronic seals, time stamps
etc.—by ensuring that they will work across borders and have the same legal status as traditional
paper-based processes. 60 By way of implementation of some aspects of the eIDAS Regulation,
the UK revoked and replaced the Electronic Signature Regulations 2002 by the Electronic
Identification and Trust Services for Electronic Transactions Regulations 2016, which came into force
on July 22, 2016. 61 The 2016 Regulations also amended s.7 of the Electronic Communications
Act 2000 so as to follow the simplified definition of “electronic signature” in the eIDAS Regulation as:
Page 5
“so much of anything in electronic form as–
(a)
is incorporated into or otherwise logically associated with any electronic
communication or electronic data; and
(b)
purports to be used by the individual creating it to sign.” 62
The main import of s.7 remains the same, viz. to make general provision for the recognition of
electronic signatures as evidence in legal proceedings. 63 The 2016 Regulations also make new
provision for electronic seals and related certificates, electronic time stamps and related certificates,
electronic documents and related certificates and electronic registered delivery service and related
certificates. 64 However, the eIDAS Regulation itself (as earlier noted 65 ) does not affect the
law governing the definitions of signature for the purposes of formal requirements of English contract
66
law ; nor does its provision for “electronic seals” affect the common law or statutory
requirements for the execution of a deed. 67 It is submitted that the uncertainty as to the impact of
s.7 of the Electronic Communications Act 2000 in relation to these same formalities remains after its
amendment by the 2016 Regulations. 68
Electronic documents and deeds
5-009
Following the recommendations of the Law Commission, 69 the Land Registration Act 2002 made
provision for the creation of a framework in which it will be possible to transfer and create interests in
registered land by electronic means through a network controlled by the Land Registry. 70 In order to
permit this, Pt 8 of the Act makes provision for the fulfilment electronically of formality requirements by
the transactions in question, doing so by assimilating certain qualifying electronic documents to deeds
for the purposes of any enactment requiring the dispositions to which those documents relate to use a
deed. However, the system of electronic conveyancing which these legislation provisions envisaged
has not been brought into being and the Law Commission has consulted on a different scheme. 71
1. Corporate Bodies’ Contracts Act 1960.
2. Fuller (1941) 41 Col.L.Rev. 799; Law Commission No.164 (1987), pp.6–7; Whittaker, Themes
in Comparative Law in Honour of Bernard Rudden (2002), p.199.
3. Fuller (1941) 41 Col.L.Rev. 799, 801.
4. Law Com. No.164 (1987), p.7.
5. Landlord and Tenant Act 1985 s.4 (provision of rent books); Consumer Credit Act 1974 ss.60,
61, 105 (form and content of agreement; form of securities) and see Vol.II, paras
Page 6
39-080—39-081.
6. The Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992/3288)
reg.9, on which see Vol.II, paras 38-132—38-133.
7. Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (SI
2010/2960) reg.15, replacing the Timeshare Act 1992 (as amended) on which see Vol.II, paras
38-136—38-139.
8. See Vol.II, Chs 34, 37, 39, 40 and 45.
9. Law of Property Act 1925 ss.52, 54, as amended by Law of Property (Miscellaneous
Provisions) Act 1989 s.1(8), Sch.1 para.2.
10. e.g. Statute of Frauds 1677 s.4 discussed Vol.II, paras 45-042 et seq.
11. e.g. Regulations made or to be made by the Secretary of State under the Hire-Purchase Act
1965, under the Consumer Credit Act 1974 s.60 see Vol.II, para.39-080.
12. e.g. Landlord and Tenant Act 1985 s.4; Employment Rights Act 1996 ss.1–2, 4–6 (as
amended); Estate Agents Act 1979 s.18.
13. Housing Grants, Construction and Regeneration Act 1996 s.107 (which defined what was
meant by agreement in writing for this purpose) on which see RJT Consulting Engineers Ltd v
DM Engineering (Northern Ireland) Ltd [2002] EWCA Civ 270, [2002] 1 W.L.R. 2344; Hatmet
Ltd v Herbert (t/a LMS Lift Consultants) [2005] EWHC 3529 (TCC) at [23]; Allen Wilson Joinery
Ltd v Privetgrange Construction Ltd [2008] EWHC 2802 (TCC), [2009] T.C.L.R. 1. Section 107
of the 1996 Act was repealed as explained in the following footnote.
14. UK Government’s Explanatory Notes to the Local Democracy, Economic Development and
Construction Act 2009. The Housing Grants, Construction and Regeneration Act 1996 s.107
was repealed by Local Democracy, Economic Development and Construction Act 2009
Sch.7(5) para.1. The various matters which must be in writing are contained in s.108 of the
1996 Act (as inserted by s.139 of the 2009 Act).
15. On which see Vol.II, paras 39-076—39-077. See also, e.g. Estate Agents Act 1979 s.18.
16. Directive 2011/83/EU on consumer rights [2011] O.J. L304/64 art.5 implemented in UK law by
the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013
(SI 2013/3134) especially reg.9 (“on-premises contracts”), and see Vol.II, paras 38-056 et seq.
especially paras 38-097—38-098.
17. Directive 2011/83/EU on consumer rights [2011] O.J. L304/64 art.6 implemented in UK law by
the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013
(SI 2013/3134) especially regs 10–11, 13, and see Vol.II, paras 38-056 et seq. especially paras
38-091—38-096.
18.
Directive 2008/122/EC on the protection of consumers in respect of certain aspects of
timeshare, long-term holiday product, resale and exchange contracts [2009] O.J. L33/30 art.4
implemented in UK law by the Timeshare, Holiday Products, Resale and Exchange Contracts
Regulations 2010 (SI 2010/2960) regs 12–13 on which see Vol.II, paras 38-136—38-138. The
1990 directive is repealed by Directive (EU) 2015/2302 on package travel and linked travel
arrangements [2015] O.J. L326/1, art.4 of which sets a general principle of full harmonisation
and must be implemented by January 1, 2018.
19. Directive 90/314/EEC on package travel, package holidays, and package tours [1990] O.J.
L158/59 arts 3 and 4 implemented in UK law by the Package Travel, Package Holidays and
Package Tours Regulations 1992/3288 regs 7 and 8 on which see Vol.II, paras
38-132—38-138.
Page 7
20. Bills of Sale Act (1878) Amendment Act 1882 s.9; Law of Property (Miscellaneous Provisions)
Act 1989 s.2.
21. e.g. Law of Property Act 1925 s.40 subsequently repealed and replaced by s.2 of the Law of
Property (Miscellaneous Provisions) Act 1989 see above, paras 1-108, 1-112 and below,
para.5-039.
22. Consumer Credit Act 1974 s.65; Timeshare, Holiday Products, Resale and Exchange Contracts
Regulations 2010 (SI 2010/2960) regs 20–24 (“right of withdrawal”).
23. Consumer Credit Act 1974 s.127.
24. Law of Property Act 1925 s.52 (“void for the purpose of conveying or creating a legal estate”);
and see s.54, as amended by the Law of Property (Miscellaneous Provisions) Act 1989 s.1 and
Sch.1 para.2.
25. Below, paras 19-007, 19-016, 19-037.
26. e.g. Landlord and Tenant Act 1962 s.1, repealed and replaced by Landlord and Tenant Act
1985 s.4; Shaw v Groom [1970] 2 Q.B. 504.
27. i.e. on the principles stated in St John Shipping Corp v Joseph Rank Ltd [1957] 1 Q.B. 267;
28. See below, paras 5-041—5-049.
29. [2003] UKHL 17, [2003] 2 A.C. 541.
30. e.g. Shah v Shah [2001] EWCA Civ 527, [2001] 4 All E.R. 138.
31. [2003] UKHL 17 at [9], [25].
32. [2003] UKHL 17 at [20]. On the Statute of Frauds s.4, see Vol.II, paras 45-042—45-061.
33. Electronic Communications Act 2000 s.8(1).
34. Directive 2000/31 on certain legal aspects of information society services, in particular
electronic commerce, in the Internal Market [2000] O.J. L178/1.
35. Emphasis added.
36. Directive 2000/31 art.9(2)(a).
37. Directive 2000/31 art.9(2)(d).
38. Directive 2000/31, Recital 34; Beale and Griffiths (2002) L.M.C.L.Q. 467, 468.
39. Law Commission, Electronic Commerce: Formal Requirements in Commercial Transactions

(2001), available in full at http://lawcommission.justice.gov.uk and see a shorter version in
Beale and Griffiths (2002) L.M.C.L.Q. 467 to which the following references will relate.
40. Beale and Griffiths (2002) L.M.C.L.Q. 467, 471–472. The Interpretation Act 1978 s.5 states that:
“"Writing" includes typing, printing, lithography, photography and other modes of representing
or reproducing words in a visible form, and expressions referring to writing are construed
accordingly.”
41. Beale and Griffiths (2002) L.M.C.L.Q. 467, 472.

Page 8
43. And see below, para.5-008.
44. In J Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch), [2006] 2 All E.R. 881 at [25]–[30], it
was held that the automatic insertion of an email address in a message by an internet service
provider did not constitute a signature by the writer of the message as it did not represent any
intention to authenticate the message by the writer. However, Judge Pelling Q.C. accepted that:
“[I]f a party or a party’s agent sending an e-mail types his or her or his or her principal’s name to
the extent required or permitted by existing case law in the body of an e-mail, then … that
would be sufficient signature for the purposes of section 4 [of the Statute of Frauds]” (at [31]),
the learned judge noting the position of the Law Commission to this effect. In Golden Ocean
Group Ltd v Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265, [2012] 1 Lloyd’s Rep.
542 at [32] it was common ground before (and accepted by) the CA that an electronic signature
is sufficient for the purposes of s.4 of the Statute of Frauds and that a first name, initials or
perhaps a nickname will suffice, as long as it was done in a manner which indicates that it is
intended to authenticate the document. And in Bassano v Toft [2014] EWHC 377 (QB), [2014]
E.C.C. 14 at [42]–[44] it was held that clicking an electronic “I accept” button and thereby
generating a document sent to the other party bearing the “signatory’s” typed name constituted
signature for the purposes of s.61 of the Consumer Credit Act 1974: see Vol.II, para.39-084.
45. Beale and Griffiths (2002) L.M.C.L.Q. 467, 473–474.
47. Firstpost Homes Ltd v Johnson [1995] 1 W.L.R. 1567, 1574–1577 and see below, para.5-037.
48. Directive 2000/31 art.9(2)(a), above, para.5-006.
49. cf. J Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch), [2006] 2 All E.R. 881 at [31],
where the Law Commission’s broad approach was approved (and see above, n.44).
50. Directive 2000/31 art.9(2)(d), above, para.5-006.
51.
Directive 1999/93 on a Community framework for electronic signatures [2000] O.J. L13/12.
52.
Directive 1999/93 art.1.
53.
Directive 1999/93 art.2(1).
54.
Electronic Communications Act 2000 s.7(2) (as enacted).
55.
On which see Vol.I, paras 5-010 et seq.
56.
SI 2002/318.
57.
Regulation (EU) 910/2014 of 23 July 2014 on electronic identification and trust services for
electronic transactions in the internal market and repealing Directive 1999/93/EC [2014] O.J. L
257/73 art.52(2) (with the exceptions there noted).
58.
Regulation (EU) 910/2014 art.1.
59.
Regulation (EU) 910/2014 art.2(3) and recital 21.
60.
See EU Commission, https://ec.europa.eu/digital-single-market/en/trust-services-and-eid.
Page 9
61.
SI 2016/696.
62.
SI 2016/696 reg.5, Sch.3 para.1(2). The definition of certification of such an electronic
signature was amended to similar effect: SI 2016/696 reg.5, Sch.3 para.1(3).
63.
Electronic Communications Act 2000 s.7(1).
64.
Electronic Communications Act 2000 ss.7A–7D (as inserted by SI 2016/696 reg.5, Sch.3
para.1(4)).
65.
Regulation (EU) 910/2014 art.2(3). Later general statements, such as the statement in
art.25(2) that “[a] qualified electronic signature shall have the equivalent legal effect of a
handwritten signature” must be read subject to the general definition of the scope of the
Regulation in art.2(3).
66.
“Signature” is relevant to the formal requirements imposed, inter alia, by the Law of Property
(Miscellaneous Provisions) Act 1989 s.1 in relation to deeds (on which see Vol.I, para.1-118);
by s.2 of the same Act in relation to contracts for the sale or other disposition of an interest in
land (on which see Vol.I, paras 5-010 et seq. and esp. para.5-037); and by the Statute of
Frauds s.4 in relation to contracts of guarantee (on which see Vol.II, paras 45-042 et seq. and
esp. para.45-057). The position as regards the so-called rule in L’Estrange v F Graucob Ltd
[1934] 2 K.B. 394 which governs the incorporation of written terms by signature (on which see
Vol.I, para.13-002) is more arguable as it is not clear that the incorporation of contract terms
relates to the “conclusion and validity of contracts or other legal or procedural obligations
relating to form” within the exclusion from the scope of the eIDAS Regulation reg.2(3).
67.
See Vol.I, paras 1-113 et seq.
68.
For further discussion of “signature” and electronic communications see Emmet & Farrand on
Title (updated to June 2016), paras 2–041—2–041.06.
69. Law Commission, Land Registration for the Twenty-First Century, A Conveyancing Revolution
(2001), Law Com. No.271 and see above, para.1-116.
70. See Smith, Property Law, 8th edn (2014), pp.113–115 discussing the Land Registration Act
2002 ss.91 and 93 and noting that in 2011 the Land Registry halted the e-conveyancing project:
Land Registry Annual Report and Accounts 2010–2011, p.26; Megarry and Wade, The Law of
Real Property 8th edn (2012) by Harpum, Bridge and Dixon, paras 7-157—7-163.
71.
See further Law Commission, Updating the Land Registration Act 2002, A Consultation Paper
(Consultation Paper No.227, 2016) Ch.20.

Page 1

Chapter 5 - Form
Section 2. - Contracts for the Sale or Other Disposition of an Interest in Land
Legislative history
5-010
The Statute of Frauds was passed in 1677 and in ss.4 and 17 it required that six classes of contracts
must be supported by written evidence. Its object was to prevent fraudulent claims based on false
evidence, but in practice it worked badly as it enabled contracting parties to rely on what were
considered to be technical defences. Hence the statute was, whenever possible, whittled down by
judicial construction and it was largely repealed by the Law Reform (Enforcement of Contracts) Act
1954. Nevertheless, the statute still applies to contracts of guarantee 72 and its provisions governing
any “contract or sale of lands, tenements or hereditaments, or any interest in or concerning them” in
s.4 were re-enacted in a modified form in s.40 of the Law of Property Act 1925, which applies to
contracts for the sale or disposition of interests in land made on or before September 26, 1989. 73
However, by the Law of Property (Miscellaneous Provisions) Act 1989 s.2, the Law of Property Act
1925 s.40 was itself repealed and new requirements were enacted which apply to all contracts for the
sale or other disposition of interests in land made on or after September 27, 1989. The present edition
of this work discusses the law under the 1989 Act and while on occasion cases discussing the old law
where of use for the interpretation of the new, care must be taken in doing so. As Peter Gibson L.J.
observed in Firstpost Homes Ltd v Johnson 74:
“… the Act of 1989 seems to me to have a new and different philosophy from that which
the Statute of Frauds 1677 and s.40 of the Act of 1925 had. Oral contracts are no longer
permitted. To my mind it is clear that Parliament intended that questions as to whether
there was a contract, and what were the terms of the contract, should be readily
ascertained by looking at the single document said to constitute the contract.”
Law of Property (Miscellaneous Provisions) Act 1989 s.2
5-011
The law relating to the formal requirements of contracts for the sale or other disposition of an interest
in land was significantly changed by the Law of Property (Miscellaneous Provisions) Act 1989 s.2.
This provision, which followed recommendations for reform of the law by the Law Commission in its
report, Formalities for Contracts for Sale etc. of Land 75 supersedes s.40 of the Law of Property Act
1925 76 in relation to contracts made on or after September 27, 1989. 77 Section 2(1) states:
“A contract for the sale or other disposition of an interest in land can only be made in
writing and only by incorporating all the terms which the parties have expressly agreed in
one document or, where contracts are exchanged, in each.”
Page 2
This change was prompted by a concern to settle the uncertainty surrounding s.40, in particular as
regards the status of letters made “subject to contract” as memoranda for the purposes of that section
78
and the ambit of the doctrine of part performance after the decision of the House of Lords in
Steadman v Steadman. 79 Section 2 makes a strict formal requirement whose effect is to preclude the
existence of any contract for the sale or other disposition of land unless it is made in writing. Unlike
the position under the old law, written evidence by way of a memorandum or note of the contract is
clearly not enough. Moreover, the doctrine of part performance, at least in its normal form, is
abolished. 80 On the other hand:
“… the demise of the doctrine of part performance has not brought about such
wideranging effects as might at first have been supposed … and has simply thrown a
heightened emphasis upon the application of alternative equitable doctrines,” 81
notably, constructive trust and proprietary estoppel. 82
Agreements made “subject to contract”
5-012
In Enfield LBC v Arajah 83 the Court of Appeal held that, quite apart from the question whether the
formal requirements contained in s.2 of the 1989 Act had been satisfied, a letter which was headed
“subject to contract” and which was relied on by a tenant as creating a new tenancy, clearly
envisaged that a new lease would be completed before the parties were bound, with the result that,
while this qualification was in force, the relationship did not become binding on either party unless and
until there was an exchange of lease and counterpart.
73. For discussion of the old law under s.40 of the Law of Property Act 1925, see Chitty on
Contracts, 29th edn (2008), paras 4-010—4-051. For an example of the continuing use of this
law, see below, para.5-014, regarding the meaning of “disposition” for the purposes of s.2 of the
1989 Act.
74. [1995] 1 W.L.R. 1567 at 1576 and see McCausland v Duncan Lawrie Ltd [1996] 4 All E.R.
1995, 1001.
75. Law Commission, Formalities for Contracts for Sale etc. of Land Law Com. No.164 (1987).
While the Law Commission’s report may be of use in the interpretation of the 1989 Act, care
needs to be taken in so doing, given that “Parliament chose to enact in s.2(1) of the 1989 Act a
regime which differs materially from that proposed by the Law Commission in its draft Bill”:
North Eastern Properties Ltd v Coleman [2010] EWCA Civ 277, [2010] 1 W.L.R. 2715 at [41]
and see also Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch. 259 at
283–285, 295 (on “exchange of contracts”, below, para.5-035).
76. Law of Property (Miscellaneous Provisions) Act 1989 s.2(8).
77. Law of Property (Miscellaneous Provisions) Act s.5(3), (4).
78. Law Com. No.164 (1987), paras 1.4–1.6.
79. [1976] A.C. 563 and see Law Com. No.164, para.1.9.
80. This part of para.5-011 in an earlier edition was quoted with approval by Simon Brown L.J. in
Godden v Merthyr Tydfil Housing Association [1997] 1 N.P.C. 1.
Page 3
81. Gray and Gray, Elements of Land Law, 5th edn (2008), para.8.1.34.
82. Below, paras 5-040—5-049.
83. [1995] E.G.C.S. 164.

Page 1

Chapter 5 - Form
(a) - Contracts within s.2 of the Law of Property (Miscellaneous Provisions) Act
1989
General
5-013
84
The formal requirements in the 1989 Act apply to contracts for the “sale or other disposition of an
interest in land”. 85
“Sale or other disposition of an interest in land”
5-014
The 1989 Act itself defines the term “interest in land” for the purposes of the formal requirements in
s.2 as “any estate, interest or charge in or over land”. 86 Section 2(6) of the 1989 Act specifies that
"disposition" has the same meaning for this purpose as for the Law of Property Act 1925, which
provides that this term “includes a conveyance and also a devise, bequest, or an appointment of
property contained in a will” 87 and this wide definition includes a mortgage, charge, lease, release
and disclaimer. 88
“Interest in land”: case-law under the Statute of Frauds
5-015
Under earlier case-law, s.4 of the Statute of Frauds was applied to many contracts that concerned
land even though they were not contracts of sale. 89 Thus an agreement to convey an equity of
redemption in land was within the statute, for a court of equity treated the equity of redemption as the
land itself, or at all events as an interest in land. 90 Contracts for the disposition of an interest in land
were held to include: an agreement that if the plaintiff, the tenant of a farm, would surrender her
tenancy to her landlord, and would prevail on her landlord to accept the defendant as his tenant in
place of the plaintiff, the defendant would pay the plaintiff £100 91; an agreement by the defendant, the
landlord of a house, to put certain furniture into the house in consideration that the plaintiff would
become tenant thereof 92; an agreement to grant a lease of furnished premises 93; and an agreement
by the plaintiff to let a house to the defendant, to sell him furniture and fixtures therein, and to make
alterations and improvements in the house, the defendant agreeing to take the house, and to pay for
the furniture, fixtures and alterations. 94 An agreement to extend the time for acceptance, or an
agreement that an acceptance which is out of time shall be treated as valid so as to create a contract,
was held not to be an agreement which the statute required to be evidenced in writing, provided that
the note or memorandum contained in the signed offer is otherwise sufficient. 95 An agreement to sell
a debt, secured by bond and also by a mortgage of land, 96 or to sell debentures of a company
possessed of land charging all its property whatsoever and wheresoever, 97 was held to be within s.4
Page 2
of the Statute of Frauds. An agreement by A, who had borrowed a sum of money from his bankers in
July, to repay the loan out of the rent of a farm to become due to him at the Michaelmas following, 98
was held within the section; so also was an agreement for regulating the height of a party wall, which
was to be pulled down and rebuilt, and the position and shape of skylights on either side of it. 99
Section 2 and “executory” or “contingent” agreements
5-016
It has been held that s.2 of the 1989 Act applies equally to an executory agreement, that is in this
context, an agreement which was made at a time when neither of its parties possessed any
proprietary interest in the property in question, 100 and to an agreement contingent on another event,
such as the giving of consent by a landlord to the assignment of a lease. 101
“Contracts for the disposition of an interest” and “contracts of disposition”
5-017
The formal requirements created by s.2 apply to “contracts for the sale or other disposition of an
interest in land”. 102 This raises the question whether they apply to contracts of sale or other
disposition of an interest in land, i.e. contracts by which the contract itself transfers the interest as
opposed to imposing an obligation on the party (transferor) to do so. In Target Holdings Ltd v
Priestley 103 an oral agreement to vary the terms of repayment of a loan under an executed second
mortgage contract was held to fall outside the terms of s.2 of the 1989 Act. According to Judge Hicks
Q.C., the legislative history of s.2 and ss.51 to 55 of the Law of Property Act 1925 (which concern the
disposition of interests as opposed to contracts for the disposition of interests) disclose that a
distinction had been consistently drawn between contracts for the disposition of land and contracts of
disposition of land. According to the learned judge, the second mortgage fell into the latter category
and so outside the ambit of s.2: this provision should not be applied to instruments for which the
formal or evidential requirements are governed by ss.51–55 of the 1925 Act. As a result, in his view,
any variation of the second mortgage also fell outside the ambit of s.2. In McLaughlin v Duffill 104 the
Court of Appeal approved the distinction drawn by Judge Hicks Q.C. in Target Holdings Ltd v
Priestley in the context of the question whether an agent’s authority to sign on behalf of a party to an
instrument itself requires writing, it being held that writing is not required by s.2 of the 1989 Act for the
conferral of such authority for contracts for the disposition of an interest in land, in contrast to
contracts of disposition of an interest in land for which writing is required by s.53(1)(a) of the Law of
Property Act 1925. 105 A similar approach was taken by the Court of Appeal in Eagle Star
Insurance Co Ltd v Green, 106 where it held that a mortgage executed by deed must fulfil the formal
requirements for a deed (contained in s.1 of the Law of Property (Miscellaneous Provisions) Act 1989)
rather than the formal requirements for a contract for the disposition of an interest in land (contained
in s.2 of the same Act). So, a mortgage executed by deed does not have to comply with the formal
requirements of s.2 of the 1989 Act, but a contract to create a mortgage would have to do so, as
would an equitable mortgage or charge arising out of the deposit of documents which have been held
to find their basis in an implied contract. 107 Similarly, in Rollerteam Ltd v Riley, under the terms of a
settlement agreement A agreed to pay B and C certain sums of money if B executed declarations of
trust by deed over two London properties in favour of A and D. B executed the declarations of trust,
but A paid only a much lesser sum, arguing that the settlement agreement was for the disposition of
interests in land and did not satisfy the formal requirements in s.2 of the 1989 Act. The Court of
Appeal observed that “section 2 of the 1989 Act applies only to executory contracts for the future sale
or other disposition of an interest in land, and does not apply to a contract which itself effects such a
disposition”. 108 The contract before the court was construed as being a unilateral contract, A
agreeing to pay the money to B and C in exchange for the “performance” in the shape of the
execution of the two declarations of trust. 109 As a result, at no point did B undertake an executory
or future obligation to execute the two deeds and so the agreement included an immediate disposition
of interests in land rather than being a contract for the disposition of interests in land and fell outside
the scope of s.2. 110
Page 3
Variations
5-018
In McCausland v Duncan Lawrie Ltd 111 the Court of Appeal held that material variations of contracts
of sale, etc. of an interest in land also have to fulfil the formal requirements contained in s.2 of the
1989 Act. According to the court this means that the contract as varied has to be in writing and
incorporated in one document, or each document if contracts were exchanged, and signed by or on
behalf of each party to the contract. 112 On the facts of McCausland, the variation was held to be
material as it attempted to advance the contractual date for completion and therefore the time when
either party might make time of the essence by service of a notice to complete 113; and it has later
been held that in a contract for the sale of land the price is always a material term so that “any
variation to the price, even a modest one, is a variation of a material term for these purposes”. 114 On
the other hand, the Court of Appeal has held that s.2 does not apply to an agreement by a party to a
contract to waive a term inserted for his benefit as such an agreement does not vary the contract. 115
Boundary agreements between neighbours
5-019
In Joyce v Rigolli 116 the Court of Appeal considered whether a boundary agreement between
neighbouring landowners constituted “a contract for the sale or other disposition of an interest in land”
within the meaning of s.2 of the 1989 Act. In this respect, the court adopted the distinction drawn by
Megarry J. in Neilson v Poole, 117 in the context of the requirement of registration of such an
agreement as an “estate contract” within s.10(1) of the Land Charges Act 1925, between agreements
which constitute an exchange of land and those by which the parties merely intend to “demarcate” an
unclear boundary referred to in title documents, “a contract merely to demarcate and confirm [not
being] a contract to convey”. 118 According to the Court of Appeal, for a contract to be one “for” selling
or disposing of land within the meaning of s.2:
“… it must have been part of the parties’ purposes, or the purposes to be attributed to
them, in entering into such a contract that the contract should achieve a sale or other
disposition of land. The fact that the effect of their contract is that land or an interest in
land is actually conveyed, when that effect was neither foreseen nor intended nor was it
something which ought to have been foreseen or intended, is not the acid test.” 119
Where, therefore, an agreement has a disposing effect, but no disposing purpose, s.2 does not apply,
whether or not the transfer of land is trivial. 120 Moreover, s.2 remains inapplicable even if (as on the
facts of Joyce v Rigolli) one of the parties to a demarcation agreement consciously thought that he
was giving up a small amount of land 121: the important public policy in upholding informal boundary
agreements which are “act[s] of peace, quieting strife and averting litigation” 122 means that
Parliament could not have intended s.2 to apply to transfers of land pursuant to demarcating
boundary agreements simply because a trivial transfer or transfers of land were consciously involved.
It should, moreover, be presumed, until the contrary is shown, that any transfer of land effected by
such an agreement is trivial for this purpose. 123 The Court of Appeal has further held that there is no
need for there actually to have been a boundary dispute for an agreement to demarcate a boundary
to fall within the principle set out in Joyce v Rigolli. 124 Indeed, it has been held that the principles in
Joyce v Rigolli are not restricted to boundary or demarcation agreements, as they turn rather on the
question whether the agreement in question counts as a “contract for the sale or other disposition of
an interest in land” that is, whether it has a “disposing purpose”. 125 As a result, a contract under which
two neighbouring landowners compromised a dispute between them as to whether one had acquired
adverse possession over the land of which the other was the registered proprietor fell outside s.2 on
the basis that the parties had no such disposing purpose, even though it had a (non-trivial) disposing
effect. 126
Page 4
Options and rights of pre-emption
5-020
In Spiro v Glencrown Properties Ltd 127 the question arose whether an option granted by a vendor of
land is a “contract for the sale or other disposition of an interest in land” within the meaning of s.2(1)
of the 1989 Act. 128 Hoffmann J. held that it was, but that the notice by which the option was exercised
was not: the section
“… was intended to prevent disputes over whether the parties had entered into a binding
agreement or over what terms they had agreed. It prescribes the formalities for recording
their mutual consent. But only the grant of the option depends upon consent. The
exercise of the option is a unilateral act. It would destroy the very purpose of the option if
the purchaser had to obtain the vendor’s countersignature to the notice by which it was
exercised.” 129
As Scott L.J. observed in a later case, the alternative view which Hoffmann J. rejected, and according
to which the exercise of options is subject to the section’s formal requirements, would mean that it
“had by an unintended side wind destroyed the enforceability of options”. 130 The approach of
Hoffmann J. has been held to apply equally to a “put option” in a lease (i.e. one where it is the
potential grantor or lessor who is to exercise it), as well as to a “call option” (as in Spiro v Glencrown
Properties Ltd, 131 where it is the potential grantee or purchaser who can exercise the option). 132 On
the other hand, the position of a right of pre-emption (under which a person holding an interest grants
another person a right to acquire it if he chooses to sell) is less clear. 133 As regards registered land, a
right of pre-emption is deemed by statute to have effect “from the time of creation as an interest
capable of binding successors in title” and this strongly suggests that it should be regarded as an
“interest in land” for the purposes of s.2 134; but as regards unregistered land a right of pre-emption
has been held to confer:
“… no immediate right upon the prospective purchaser. It imposes a negative obligation

on the possible vendor requiring him to refrain from selling the land to any other person
without giving to the holder of the right of first refusal the opportunity of purchasing in
preference to any other buyer.” 135
For this reason, the 1989 Act is thought not to apply to any contract which creates a right of
pre-emption over unregistered land. 136 However, this leaves the question as to the application of s.2
to any subsequent agreement arising from the right of pre-emption. In Bircham & Co, Nominees Ltd v
Worrell Holdings Ltd, 137 a clause in a lease was held to have created a mere right of pre-emption (as
opposed to an option) in a landlord in respect of its tenant’s interest in the land and the tenant notified
the landlord of the circumstances giving rise to the latter’s opportunity to acquire this interest in
exercise of this right. In these circumstances, the Court of Appeal held that any “acceptance” by the
landlord of this offer by the tenant in its notice could take effect only by contract and had therefore to
conform to the formal requirements of s.2 of the 1989 Act.
Equitable mortgages
5-021
In United Bank of Kuwait Plc v Sahib, 138 the Court of Appeal held that equitable mortgages or
charges arising out of a deposit of documents of title found their basis in an implied contract and that
such a contract could exist only if the rigorous formal requirements of s.2 of the Law of Property
(Miscellaneous Provisions) Act 1989 are satisfied. 139 But it is less clear whether this provision applies
where the equitable mortgage secures a guarantee which would attract the less rigorous
requirements of s.4 of the Statute of Frauds. 140 In Deutsche Bank A.G. v Ibrahim, 141 which was
Page 5
decided under s.40 of the Law of Property Act 1925, 142 the plaintiff bank sought a declaration that a
deposit of documents of title by the defendants created an enforceable equitable mortgage in its
favour. However, the court accepted the defendants’ argument that where a third party pledges
property with a creditor for the purposes of providing security for the liability of a debtor, that third
party is a guarantor up to the value of the pledged property and the transaction is therefore governed
by the formal requirements contained in s.4 of the Statute of Frauds rather than s.40 of the Law of
Property Act 1925, and therefore held that the doctrine of part performance was inapplicable. 143
However, as one commentator has noted, there was no clear reason given by the court for giving
priority to s.4 of the Statute of Frauds in this way, particularly given that the plaintiff had relied on the
equitable mortgage rather than on the guarantee. 144 It may be thought instead that where two
analyses of a transaction exist in parallel, each with their own formal requirements, the more
demanding set of requirements should prevail, and, if this were accepted, then s.2 of the 1989 Act
would apply to cases like Deutsche Bank A.G. v Ibrahim. It is submitted, however, that a better view
would be to apply those formal requirements which apply to the analysis of the transaction on which
the claimant is relying before the court. Thus, where a claimant seeks a remedy such as foreclosure
which can only be justified by treating the transaction as an equitable mortgage, s.2 of the 1989 Act
should apply. 145
Equitable leases
5-022
Before the 1989 Act, a lease which was required to be made by deed 146 but which had been merely
put in writing could take effect in equity as a contract to create a legal lease as the writing would
satisfy the formal requirements of s.40 of the Law of Property Act 1925. 147 However, this equitable
relief depended on the availability of specific enforcement of a contract to create the lease and this
would clearly not be available if this contract were a nullity owing to its failure to comply with the
formal requirements of s.2. 148 While under the old law a purely oral contract to create a lease could
be enforceable as long as there existed sufficient part performance, with the exception of short
leases, 149 such an oral contract for a lease would also fall foul of s.2.
Conditions in planning agreements
5-023
In Jelson Ltd v Derby City Council 150 it was held that a planning agreement made between a
developer and a local authority under s.106 of the Town and Country Planning Act 1990 under which
the developer agreed to transfer the housing site to a third party was a contract for the purposes of
the formal requirements contained in s.2 of the Law of Property (Miscellaneous Provisions) Act 1989
and had failed to fulfil these requirements for want of signature in that third party. 151 However, in
Milebush Properties Ltd v Tameside MBC 152 Arnold J. refused to follow this approach, preferring
instead the view taken by Neuberger J. (as he then was) in RG Kensington Management Co Ltd v
Hutchinson IDH Ltd 153 and the doubts expressed as to Jelson in Nweze v Nwoko. 154 In Arnold J.’s
view, “it would substantially frustrate the statutory scheme contained in section 106 of the [Town and
Country Planning Act 1990] to interpret section 2 of the 1989 Act as invalidating section 106
agreements which benefit third parties”. 155
“Lock-out agreements”
5-024
Where a prospective vendor of land agrees with a prospective purchaser for a clear specified period
not to deal with any other purchaser and this agreement is supported by consideration, 156 this
agreement is in principle enforceable and is commonly known as a “lock-out agreement”. 157 Although
such an agreement clearly relates to the sale of land, the Court of Appeal has confirmed that its
negative nature means that it is not a contract for the sale of any interest in land and is not therefore
subject to the requirements of s.2 of the 1989 Act. 158
Page 6
Contracts to sell land to third party
5-025
In Nweze v Nwoko 159 the Court of Appeal held that a compromise agreement between two parties to
an executed contract of sale of land under which, inter alia, the buyer agreed to sell the property with
vacant possession at the best price available on the open market (so as to be in a position to pay the
price of the earlier purchase to the sellers) was not a contract for the sale or other disposition of an
interest in land within the meaning of s.2. In doing so, Waller L.J. relied on the Law Commission’s
Report, Formalities for Contracts for Sale, etc. of Land, 160 which “is clearly concerned with contracts
or dispositions under which land or an interest in land is actually sold or disposed of”. 161 While the
compromise agreement required the buyer to sell the property (to a third party), it did not itself effect a
sale of the property. 162
Mutual wills
5-026
Where two testators, such as a husband and wife, make mutual non-revocable wills, in principle a
court will enforce the underlying contract against the estate of the survivor. 163 Where such a contract
is for the sale or disposition of an interest in land, then it must conform to the formal requirements of
s.2 of the 1989 Act: “an undertaking not to revoke a testamentary disposition is the same in effect as
a promise to make that disposition”. 164 So, for example, where two persons with a joint interest in real
property execute mutual wills in identical form, it has been held that there is no contract since their
underlying agreement is void for failing to comply with these requirements. 165 For, “if the mutual will
compact falls to be regarded as one agreement, it is clear that there is no single document signed by
both parties”, nor is it possible to construe the handing over of the parties’ respective wills to the same
solicitor for safe-keeping as “an exchange of contracts” within the meaning of s.2(3) of the 1989 Act.
166
If, on the other hand, the mutual will compact is analysed as two contracts, one by each party in
mirror image terms, then neither will fulfils the formal requirements of s.2 as neither is signed by both
parties nor do either of them contain any terms as to the consideration for the undertaking (and the
precondition for its becoming binding upon each of them), namely that the other shall maintain his or
her will unrevoked until death. As a result, neither will incorporates all the terms or even the essential
terms as s.2(1) requires. 167 Despite this, a court may give the underlying agreement represented by
mutual wills some effect in equity by way of constructive trust, 168 as it may be judged inequitable after
the death of one of the parties to frustrate that person’s expectations by the other seeking to pass on
property received otherwise than in accordance with its terms. 169
Part 36 settlements
5-027
In Orton v Collins the question arose whether a settlement that is alleged to arise under CPR Pt 36
which, if implemented, would require the sale or other disposition of an interest in land falls within s.2
of the 1989 Act, so as to require in particular that the settlement is contained in one document rather
than two for it to be enforced. 170 It was held that while “a Pt 36 offer may well create a contract and
probably does so in the vast majority of cases”, it can be enforced by the court even where for some
reason there is no contract as “the regime of Pt 36 … does not depend upon contract law” 171; the
parties’ obligation to perform such a settlement is sui generis and rests on the court’s jurisdiction to
administer “justice according to law in a regular, orderly and effective manner”. 172
Partnerships
5-028
173
In Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd it was held that an overall bargain for the
Page 7
creation of a joint venture involving the development of premises which consisted of a number of
individual contracts could include contracts falling within and attracting the formal requirements of s.2
of the 1989 Act and that this remained the case even though the contract was expressed as a
partnership. In so holding, the court rejected the argument, based on nineteenth century authority, 174
that an oral partnership agreement can be validly made but that if the partnership assets include land,
then the land is held on a constructive trust for the partnership 175: unlike the Statute of Frauds, the
1989 Act created a “substantive rule of law which prohibits the making of an oral contract for the sale
or disposition of an interest in land” even if “it is wrapped up in an alleged partnership”. 176
Composite agreements
5-029
In North Eastern Properties Ltd v Coleman the Court of Appeal considered the question as to how the
requirements of s.2 of the 1989 Act apply to composite agreements. 177 There the parties to a series
of contracts for the sale of flats expressly kept out of their written agreement that part of their earlier
oral agreement according to which the buyer would receive a “finder’s fee” of 2 per cent of the
purchase price for each contracting purchaser of the flats payable on exchange of contract. The
written contract also contained a clause according to which “[t]his Agreement contains the entire
agreement between the parties”. Briggs J. (with whom Longmore and Smith L.JJ. agreed) noted that
even though “it was no part of Parliament’s intention by enacting s.2 of the 1989 Act to make it easier
for people who have genuinely contracted to escape their contractual obligations … because of the
rigorous discipline which [s.2 of the Act] imposes upon parties to land contracts, it does … enable
persons who have genuinely contracted” to escape their contractual obligations by looking around “for
express terms which have not found their way in the final form of land contract which they have
signed”. 178 Having reviewed “the apparent disharmony constituted by the dicta on this point”, 179
Briggs J. reconciled their differences as follows:
“(i)
Nothing in section 2 of the 1989 Act is designed to prevent parties to a composite
transaction which includes a land contract from structuring their bargain so that the
land contract is genuinely separated from the rest of the transaction in the sense
that its performance is not made conditional upon the performance of some other
expressly agreed part of the bargain … 180
(ii)
By contrast, the parties to a composite transaction are not free to separate into a
separate document expressly agreed terms, for example as to the sale of chattels or
the provision of services, if upon the true construction of the whole of the
agreement, performance of the land sale is conditional upon the chattel sale or
service provision. That would, albeit for reasons which seem to me to frustrate
rather than serve the purposes for which the 1989 Act was passed, fall foul of
section 2(1), however purposively construed. So would a series of separate
contracts for the sale of separate parcels of land, if each was conditional upon the
performance of the other.
(iii)
Since the splitting into separate contracts of parts of a composite transaction is
inherently likely to give rise to uncertainties as to whether performance of the one is
conditional upon performance of the other, the parties are free, and in my opinion
should positively be encouraged, to make plain by express terms whether or not
that conditionality exists. To do so serves rather than evades or frustrates the
purposes of section 2, an important part of which is to encourage clarity rather than
Page 8
uncertainty in land transactions.” 181
While the “normal purpose for the inclusion of an entire agreement clause is to dispose of the risk that
some collateral contract or additional terms may be discovered in the undergrowth of the parties’
negotiations”, such a clause could also
“serve the valuable purpose, (in a composite transaction which includes, but does not
entirely consist of, a land contract), of ensuring that the land contract will not accidentally
be construed as conditional upon the other expressly agreed terms, so as to render the
land contract void under section 2.” 182
In the circumstances of the case, commercial common sense dictated that the entire agreement
clause should be construed in this way. Furthermore, on the “unusual facts” of the case before the
Court, and even without the entire agreement clause, Briggs J. held that performance of the land
contracts was not conditional upon performance of the finder’s fee agreement. 183
Collateral contracts
5-030
Related to the question of the application of s.2 of the 1989 to composite transactions is the approach
of the courts to contracts collateral to a contract for the sale or other disposition of an interest in land.
So, while s.2(1) of the 1989 Act makes clear that “ all the terms which the parties have expressly
agreed” must be incorporated in one document or, “where contracts are exchanged, in each” this
does not prevent the existence of a valid contract (which does not have to satisfy s.2’s formal
requirements) collateral to the main contract for the sale or other disposition of an interest in land
(which does). 184 So, for example, in Record v Bell 185 the question arose whether the formal
requirements contained in s.2 had been satisfied where a contract in two parts had been duly signed
by the respective parties and was awaiting exchange and then some term was orally agreed
immediately prior to exchange and was confirmed by the exchange of letters. On the facts, the vendor
had made an undertaking as to the state of his title in order to induce the buyer to exchange
contracts. 186 The court held that it resulted from s.2 of the 1989 Act that such a term would only be
incorporated into the contract of sale if the latter referred to it, 187 but it felt able to construe the oral
agreement as to the new term as an independent collateral contract, which was valid so long as it
was not itself a sale of an interest in land. 188 In this way, the requirements of s.2 had been fulfilled.
However, in Business Environment Bow Lane Ltd v Deanwater Estates Ltd the Court of Appeal took a
more restrictive approach to the recognition of such a collateral agreement, though s.2 had not been
relied on. 189 There the parties entered discussions and exchanged correspondence (all “subject to
contract”) towards the renewal of a lease, the negotiations concerning provision in the draft lease
concerning the lessee’s repairing covenants. The lease was executed with the provision in question
amended, but (according to the lessee) not in the way which had earlier been agreed. The lessee
therefore contended that this agreement in the course of negotiations could take effect as a collateral
contract. For this purpose, the Court of Appeal agreed 190 with Lightman J. in Inntrepreneur Pub Co
Ltd v East Crown Ltd 191 that the question whether a pre-contractual statement made in the course of
negotiations should be treated as having contractual force rested on a finding of the parties’ objective
intention based on the totality of the evidence and that for this purpose:
“… one important consideration will be whether the statement is followed by further

negotiations and a written contract not containing any term corresponding to the
statement”
as there “the prima facie assumption will be that the written contract includes all the terms the parties
wanted to be binding between them”. Another consideration will be any lapse of time between the
Page 9
statement and the making of the contract; and, finally, “a representation of fact is much more likely
intended to have contractual effect than a statement of future fact or future forecast”. More generally,
the Chancellor of the High Court, Sir Andrew Morritt, recognised that:
“… the law relating to collateral contracts is well-established but in connection with sales
or leases of land needs to be applied with caution if not the suspicion to which Lord
Moulton referred in Heilbut Symons v Buckleton.[ 192] Thus, if the promise said to be
binding as a collateral contract is in truth one of the terms for the sale or other disposition
of land it will be unenforceable unless it is contained in the written contract required by
s.2 … In a normal conveyancing transaction in a commercial context with both parties
represented by experienced solicitors the usual course of dealing is to ensure that all
agreed terms are put into the contract and the conveyance, transfer or lease. Accordingly
those who assert a collateral contract in relation to a term not so contained must show
that it was intended to have contractual effect separate from the normal conveyancing
documents.” 193
On the facts, the Court of Appeal found that on executing the lease 194 the parties had not intended to
conclude a collateral contract relating to the tenant’s covenants, this view being supported by the fact
that the representation relied on related to “future events in unforeseeable circumstances”, a
commitment which would be “wholly uncommercial” 195; that the statement in question was followed by
further negotiations 196; and that these negotiations were followed by the actual amendment of the
lease which was executed, which “is to be seen as the parties’ considered agreed conclusion of the
negotiations”. 197
Excluded contracts
5-031
Section 2(5) of the 1989 Act excludes from its formal requirements contracts to grant short leases, 198
contracts regulated under the Financial Services and Markets Act 2000, other than a regulated
mortgage contract, a regulated home reversion plan, a regulated home purchase plan or a regulated
sale and rent back agreement 199 and those made in the course of a public auction. The last of these
exclusions represents a change, as such contracts were subject to a requirement of a written
memorandum under the Law of Property Act 1925 s.40. 200 The Law Commission considered that the
retention of this requirement fulfilled no cautionary or protective purpose as the practice is that the
auctioneer may sign as agent for both the purchaser and vendor. 201
84. Jenkins (1993) Conv. 13, 18 et seq. contends that the term “contract” for the purposes of s.2 of
the 1989 Act does not include “arrangements” effected by deed. However, it is difficult to see
why a court should wish to allow avoidance of the special formal requirements imposed on
contracts for the sale, etc. of interests in land contained in s.2, simply because such a contract
is contained in a deed. The historical differences between covenant and assumpsit on which
Jenkins relies should not be permitted to defeat the clear purpose of s.2 which was to make one
set of clear requirements in relation to this type of contract in the interests of certainty.
86. Law of Property (Miscellaneous Provisions) Act 1989 s.2(6) (as amended). The Trusts of Land
and Appointment of Trustees Act 1996 removed the reference to any interest “in or over the
proceeds of sale of land”.
87. Law of Property Act 1925 s.205(1)(ii).
88.
Thus, e.g. a contract which would create an option the exercise of which would release a
Page 10
charge on land falls within s.2: Tuscola (110) Ltd v Y2K Co Ltd [2016] EWHC 1124 (Ch) at
[205]–[213] (though it was held that no such contract had been concluded).
89. McManus v Cooke (1887) 35 Ch. D. 681, 687–690, and cases there cited.
90. Massey v Johnson (1847) 1 Exch. 241, 255.
91. Cocking v Ward (1845) 1 C.B. 858, 867; followed in Kelly v Webster (1852) 12 C.B. 283. (In
both these cases there was a “part performance”, but this could not assist the plaintiffs in courts
of common law before the Judicature Acts.)
92. Mechelen v Wallace (1837) 7 A. & E. 49.
93. Inman v Stamp (1815) 1 Stark. 12; Edge v Strafford (1831) 1 Cr. & J. 391; Thursby v Eccles
(1900) 17 T.L.R. 130.
94. Vaughan v Hancock (1846) 3 C.B. 766.
95. Morrell v Studd and Millington [1913] 2 Ch. 648, 658.
96. Toppin v Lomas (1855) 16 C.B. 145.
97. Driver v Broad [1893] 1 Q.B. 744.
98. Ex p. Hall (1879) 10 Ch. D. 615.
99. McManus v Cooke (1887) 35 Ch. D. 681.
100. Singh v Beggs (1996) 71 P. & C.R. 120. cf. McManus v Cooke (1887) L.R. 35 Ch. D 681
(executory contract within s.4 of the Statute of Frauds 1677).
101. Representative Body of the Church in Wales v Newton [2005] EWHC 631 (QB), [2005] All E.R.
(D) 163 (Apr).
102. A variation in the beneficial interests of the parties in the net proceeds of sale of a house has
been held not to constitute the disposition of an interest in the house: Lancashire Mortgage
Corp Ltd v Scottish and Newcastle Plc [2007] EWCA Civ 684, [2007] All E.R. (D) 68 (Jul) at
[54].
103. [1999] Lloyd’s Rep. Bank. 175.
104. [2008] EWCA Civ 1627, [2010] Ch. 1 at [20]–[24]
105.
See also Helden v Strathmore Ltd [2011] EWCA Civ 542, [2011] Bus. L.R. 1592 at [27] where
a claim advanced to the court was described by Lord Neuberger M.R. (with whom Smith and
Elias L.JJ. agreed) as proceeding on a “fundamental misunderstanding of the reach and
purpose of [s.2], … [which] is concerned with contracts for the creation or sale of legal estates
or interests in land, not with documents which actually create or transfer such estates or
interests”. See further Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900, [2012]
1 W.L.R. 2855 at [8]; Rollerteam Ltd v Riley [2015] EWHC 1545 (Ch) at [45].
106. [2001] EWCA Civ 1389.
107. United Bank of Kuwait Plc v Sahib [1997] Ch. 107 on which see below, para.5-021. cf. Clark v
Chandler [2002] EWCA Civ 1249, [2003] 1 P. & C.R. 15 at [13]–[17] where the document could
not be construed as an immediate and unconditional disposition so as to fall outside the
requirements of s.2 of the 1989 Act and within s.53(1)(c) of the Law of Property Act 1925.
108.
[2016] EWCA Civ 1291, [2017] Ch. 109 at [38] (Henderson L.J. with whom David Richards
Page 11
and Tomlinson L.JJ. agreed).
109.
[2016] EWCA Civ 1291 at [44]-[45]
110.
[2016] EWCA Civ 1291 at [45].
111. [1997] 1 W.L.R. 38; Eyestorm Ltd v Hoptonacre Homes Ltd [2007] EWCA Civ 1366, [2007] All
E.R. (D) 284 (Dec). cf. Morall v Krause [1994] E.G.C.S. 177 (decided under the Law of Property
Act 1925 s.40).
112. The Court of Appeal thereby followed the approach of the House of Lords in Morris v Baron &
Co [1918] A.C. 1, 31 and 29 and Willes J. in Noble v Ward (1867) L.R. 2 Ex. 135, 137, though
in relation to different formal requirements. cf. H.L. Estates Ltd v Parker-Lake Homes Ltd [2003]
EWHC 604, [2003] All E.R. (D) 245 (Apr).
113. cf. HL Estates Ltd v Parker-Lake Homes Ltd [2003] EWHC 604 (Ch).
114. MP Kemp Ltd v Bullen Developments Ltd [2014] EWHC 2009 (Ch) at [37].
115. Glen Courtney v Corp Ltd [2006] EWCA Civ 518 at [12]–[14].
116. [2004] EWCA Civ 79, [2004] All E.R. (D) 203 (Feb) applied in Styles v Smith [2005] EWHC
3224 (QB), [2005] All E.R. (D) 167 (Dec).
117. (1969) 20 P. & C.R. 909.
118. Neilson v Poole (1969) 20 P. & C.R. 909, 918–920.
119.
Joyce v Rigolli [2004] EWCA Civ 79 at [31], per Arden L.J. These observations should not be
interpreted as meaning that s.2 applies where the parties intended the contract to effect an
immediate disposition of an interest in land, as it applies only to executory contracts: Rollerteam
Ltd v Riley [2016] EWCA Civ 1291, [2017] Ch. 109 at [40]-[42], as noted above, para.5-017.
120. Yeates v Line [2012] EWHC 3085 (Ch), [2013] 2 W.L.R. 844 at [30].
121. Joyce v Rigolli [2004] EWCA Civ 79 at [30], [32].
122. Nielson v Poole (1969) 20 P. & C.R. 909, 919, per Megarry J.
123. Joyce v Rigolli [2004] EWCA Civ 79 at [32]–[34]. cf., at [45] Sir Martin Nourse referring to the
“de minimis principle”; Yeates v Line [2012] EWHC 3085 (Ch), [2013] 2 W.L.R. 844 at [30]. cf.
Nata Lee Ltd. v Abid [2014] EWCA Civ 1652, [2015] 2 P. & C.R. 3 at [28]–[34] (agreement to
move boundary so as to transfer land from one neighbour to another falls under s.2’s formal
requirements).
124. Melhuish v Fishburn [2008] EWCA Civ 1382 at [21]–[22].
125. Yeates v Line [2012] EWHC 3085 (Ch), [2013] 2 W.L.R. 844 at [35].
126. [2012] EWHC 3085 (Ch) at [36]–[37].
127. [1991] Ch. 537; and see Jenkins [1993] Conv. 13.
128. As Scott L.J. remarked in a later case “[i]t is evident that the draftsman of this section did not
take account of options”: Trustees of the Chippenham Golf Club v North Wiltshire DC (1991) 64
P. & C.R. 527, 530.
129. [1991] Ch. 537, 541, per Hoffmann J.; Bircham & Co, Nominees Ltd v Worrell Holdings Ltd
Page 12
[2001] EWCA Civ 775, (2001) 82 P. & C.R. 34 at [39]–[45].
130. Trustees of the Chippenham Golf Club v North Wiltshire DC (1991) 64 P. & C.R. 527, 530; and
see further Tootal Clothing Ltd v Guinea Properties Ltd (1991) 64 P. & C.R. 452, 455.
131. [1991] Ch. 537. See also Sharma v Simposh Ltd [2011] EWCA Civ 1383, [2012] 1 P. & C.R. 12
at [11].
132. Active Estates Ltd v Parness [2002] EWHC 893, [2002] B.P.I.R. 865.
133. Smith, Property Law, 8th edn (2014), pp. 103–104; Farrand, Emmet on Title (looseleaf updated
to April 2015) paras 2.085–2.089.
134. Land Registration Act 2002 s.115. cf. Farrand, Emmet on Title (looseleaf updated to April 2015)
para.2.089.
135. Mackay v Wilson (1947) 47 S.R. (NSW) 315, 325, per Street J. quoted with approval by Goff
and Stephenson L.JJ. in Pritchard v Briggs [1980] Ch. 338, 390 and 423 respectively.
136. Smith, Property Law, 8th edn (2014) p.104, but see the discussion in Farrand, Emmet on Title
(looseleaf updated to April 2015), para.2.086; Megarry and Wade, The Law of Real Property
8th edn (2012) by Harpum, Bridge and Dixon, para.15-018.
137. [2001] EWCA Civ 775, (2001) 82 P. & C.R. 34.
138. [1997] Ch. 107; Dean v Allin and Watts [2001] EWCA Civ 758, [2001] 2 Lloyd’s Rep. 249 at
[43].
139. Ross v Bank of Commerce [2012] UKPC 3 at [20]. cf. De Serville v Argee Ltd (2001) P. & C. R.
D12 where it was observed that United Bank of Kuwait v Sahib [1997] Ch. 107 did not hold that
all liens were contract-based, but merely that any lien created by deposit of title deeds alone
was contract-based. This leaves the possibility of a document which intends to make an
immediately effective disposition of an interest in land taking effect as long as it conforms to the
formal requirements contained in the Law of Property Act 1925 s.53(1)(a) and see, above,
para.5-017.
140. See below, Vol.II, paras 45-042 et seq.
141. Financial Times, December 13, 1991 and January 15, 1992, noted by Baughen [1992] Conv.
330.
144. Baughen [1992] Conv. 330 at 332.
145. Baughen [1992] Conv. 330 at 332.
146. The Law of Property (Miscellaneous Provisions) Act 1989 s.1 changed the law relating to the
formal requirements for deeds, abolishing the requirement of sealing and replacing it with
requirements of a clear intention as to the making of a deed, of signature and of attestation: see
above, paras 1-117 et seq.
147. Gray, Elements of Land Law, 2nd edn (1993), p.744.
148. Howell [1990] Conv. 441, 443.

Page 13
150. [1999] E.G.C.S. 88.
151. [1999] E.G.C.S. 88 transcript at [44].
152. [2010] EWHC 1022 (Ch) at [61]–[66], [2010] 2 E.G.L.R. 93 (affirmed on other grounds [2011]
EWCA Civ 270, [2011] All E.R. (D) 195 (Mar)).
153. [2002] EWHC 1180, [2003] 2 P. & C.R. 13 at [57].
154. [2004] EWCA Civ 379, (2004) 2 P. & C.R. 33 at [21] and see further below, para.5-025.
155. [2010] EWHC 1022 (Ch) at [66].
156. Such an agreement would be valid in the absence of consideration if contained in a deed, but
this would possess its own formal requirements: see above, paras 1-117 et seq.
157. Walford v Miles [1992] 2 A.C. 128, 139.
158. Pitt v P.H.H. Asset Management Ltd [1994] 1 W.L.R. 327.
159. [2004] EWCA Civ 379, [2004] 2 P. & C.R. 33. See similarly Payne v Zafiropoyloy [1994] C.L.Y.
3513. (Eastbourne CC) and cf. Simmons v Simmons [1996] C.L.Y. 2874. See also Young v
Lauretani [2007] EWHC 1244 (Ch), [2007] 2 F.L.R. 1211 (agreement to apply proceeds of sale
of property to the reduction of the mortgage of another property not within s.2).
160. (1987) No.164.
161. Nweze v Nwoko [2004] EWCA Civ 379 at [25].
162. [2004] EWCA Civ 379 at [31].
163. Re Goodchild [1997] 1 W.L.R. 1216 CA; Olins v Waters [2008] EWCA Civ 782, [2009] Ch. 212.
Even where a will is stated to be irrevocable or where, the testator has agreed contractually
with another person not to revoke it, a subsequent testament will be admitted to probate, even
though its making constitutes a breach of contract: e.g. Re Heys (Deceased) [1914] P 192.
164. Healey v Brown [2002] 19 E.G.C.S. 147, transcript at [19], per David Donaldson Q.C. and see
Jiggins v Brisley [2003] EWHC 841, [2003] W.T.L.R. 1141 at [66].
165. Healey v Brown [2002] 19 E.G.C.S. 147. cf. Olins v Walters [2007] EWHC 3060 (Ch) at [31]
(affirmed on other grounds), [2008] EWCA Civ 782.
166. Healey v Brown [2002] 19 E.G.C.S. 147 at [20], per David Donaldson Q.C. On these aspects of
the formal requirements, see below, para.5-035.
167. Healey v Brown [2002] 19 E.G.C.S. 147.
168. This is expressly preserved by s.2(5) of the 1989 Act and see below, para.5-040.
169. Healey v Brown [2002] 19 E.G.C.S. 147 at [26], [27]; Olins v Waters [2008] EWCA Civ 782,
[2009] Ch. 212 at [36], [37] and [41].
170. [2007] EWHC 803 (Ch), [2007] 3 All E.R. 863 especially at [53].
171. Orton v Collins [2007] EWHC 803 (Ch) at [60] and [62], per Peter Prescott Q.C.
172. [2007] EWHC 803 (Ch) at [62] referring to the overriding objective found in CPR Pt 1.
173. [2004] EWHC 2547 at [193]–[195], [200]–[204]. The decision was affirmed on other grounds:
[2005] EWCA Civ 1355, [2006] 1 P. & C.R. DG20.
Page 14
174. Forster v Hale (1800) 5 Ves. Jr. 308; Dale v Hamilton (1846) 5 Hare 369.
175. [2004] EWHC 2547 at [200]–[204].
176. [2004] EWHC 2547 at [203], per Lewison J.
177. [2010] EWCA Civ 277, [2010] 1 W.L.R. 2715.
178. [2010] EWCA Civ 277 at [43].
179. [2010] EWCA Civ 277 at [46]–[53], notably Tootal Clothing Ltd v Guinea Properties Ltd (1992)
64 P. & C.R. 452, 456 (treated by the CA in North Eastern Properties v Coleman as expressly
obiter): [2010] EWCA Civ 277 at [49]); Godden v Merthyr Tydfil Housing Association [1997] 1
N.P.C. 1; Grossman v Hooper [2001] EWCA Civ 615, [2001] 2 E.G.L.R. 8 at [34]–[35]. These
cases are discussed and explained in Keay v Morris Homes (West Midlands) Ltd [2012] EWCA
Civ 900, [2012] 1 W.L.R. 2855 at [34]–[48].
180. Citing Chadwick L.J. in Grossman v Hooper [2001] EWCA Civ 615, [2001] 2 E.G.L.R. 82 at [20].
181. [2010] EWCA Civ 277 at [54]. See also [2010] EWCA Civ 277 at [81] (Longmore L.J.). The
question whether a particular undertaking constitutes a promise to do something if the other
party enters the agreement which is subject to s.2 of the 1989 Act or whether it instead
constitutes an express term of that agreement is a question of fact and, therefore, may not be
capable of resolution before trial: Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ
900, [2012] 1 W.L.R. 2855 at [31]–[33].
182. [2010] EWCA Civ 277 at [57], per Briggs J.
183. [2010] EWCA Civ 277 at [58]–[64].
185. [1991] 1 W.L.R. 853. See Harpum [1991] C.L.J. 399.
186. Record v Bell [1991] 1 W.L.R. 853 at 862.
187. [1991] 1 W.L.R. 853 at 860.
188. [1991] 1 W.L.R. 853 at 861–862.
189. [2007] EWCA Civ 622, [2007] L. & T.R. 26.
190. [2007] EWCA Civ 622 at [46], [60]–[61]. The CA also relied on the leading general authority on
collateral warranty, Heilbut Symons & Co v Buckleton [1913] A.C. 30. Record v Bell [1991] 1
W.L.R. 853 was not discussed.
191. [2000] 2 Lloyd’s Rep. 611 at 615.
192. [1913] A.C. 30 at 47.
193. Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] EWCA Civ 622 at [42],
[43].
194. It was held that this was the relevant time owing to the negotiations being “subject to contract”:
[2007] EWCA Civ 622 at [45].
195. [2007] EWCA Civ 622 at [47] (Sir Andrew Morritt).
196. [2007] EWCA Civ 622 at [60] (Lloyd L.J.).

Page 15
197. [2007] EWCA Civ 622 at [57] (May L.J.).
198. Under the Law of Property Act 1925 s.54(2). See, e.g. Looe Fuels Ltd v Looe Harbour
Commissioners [2008] EWCA Civ 414, [2009] L. & T.R. 3 (oral agreement for a lease at a rent
which would cover the landlord’s total capital outlay in three years held to be “at the best rent
which can reasonably be obtained” within the meaning of s.54(2)).
199. Law of Property (Miscellaneous Provisions) Act 1989 s.2(5) (as amended). Under s.2(6) of the
1989 Act “regulated mortgage contract”, “regulated home reversion plan”, “regulated home
purchase plan” and “regulated sale and rent back agreement” must be read with Financial
Services and Markets Act 2000 s.22, any relevant order under that section and Sch.2 to that
Act.
200. Kenworthy v Schofield (1824) 2 B. & C. 945, 947; Bartlett v Purnell (1836) 4 A. & E. 792;
Phillips v Butler [1945] Ch. 358.
201. Law Com. No.164 (1987), para.4.11. For another exclusion from the ambit of s.2, see Channel
Tunnel Rail Link Act 1996 ss.41(1) and 56(1).

Page 1

Chapter 5 - Form
(b) - Formal Requirements
“Made in writing”
5-032
As has been noted, the most important change introduced by the 1989 Act was that contracts for the
sale, etc. of an interest in land:
“… can only be made in writing and only by incorporating all the terms which the parties
have expressly agreed in one document, or where contracts are exchanged, in each.” 202
So, for example, where it was held that a single contract was contained partly in a letter between the
parties and partly in signed writing (which made no express reference to the earlier agreement in the
letter), then the requirements of s.2 were not fulfilled as all the express terms of the contract were not
contained in “one document” as is required. 203 On the other hand, s.2(3) explains that:
“The terms may be incorporated in a document either by being set out in it or by

reference to some other document.” 204
No longer is a note or memorandum which may serve as evidence of the contract enough.
“All the terms which the parties have expressly agreed in one document”: generally
5-033
At first sight, the omission of an express term of an oral agreement would seem to have the effect
of rendering the whole contract a nullity as one can “only be made … by incorporating all the terms …
expressly agreed”. 205 However, s.2(4) of the Act recognises the power of the court to order the
rectification of a written document so as to conform with the express terms of the oral agreement
which it records and provides that where a written document relating to the sale of land has been so
rectified, “the contract shall come into being, or be deemed to have come into being, at such a time as
may be specified in the order”. In Firstpost Homes Ltd v Johnson, 206 the Court of Appeal explained
what is meant by the requirement that the contract be made in one document. There, an owner of
certain farm property had agreed orally with a director of a company to sell the property to it at a cost
of £1,000 per acre. The director had then typed a letter purporting to come from the owner agreeing
to sell the land at this price, with a place for her signature and with an enclosed plan, which showed
the land in question outlined in colour and which was signed by the director. The Court of Appeal held
that, on these facts, the requirements of s.2 of the 1989 Act had not been fulfilled, as the letter and
Page 2
the plan constituted two documents (the former referring to the latter as being enclosed with it), but
the letter (which allegedly contained the contract) had not been signed by the director on behalf of the
company as was required. 207 This decision was applied in Francis v F Berndes Ltd, 208 where the
document allegedly recording the agreement “was in form no more than a counter-signed offer, and
… did not set out in writing the obligation to purchase” by the claimants. 209 While
“this is a highly technical distinction, and one which may be productive of injustice in
cases where the nature of the ‘missing’ term is obvious once the document is construed
in its factual context, … one of the main purposes of the 1989 Act was to produce
certainty in relation to contracts for the sale of land, and to reduce as far as possible the
need for extrinsic evidence to establish the terms of the contract.” 210
“All the terms which the parties have expressly agreed in one document” and rectification
5-034
Section 2(4) of the 1989 Act provides that:
“Where a contract for the sale or other disposition of an interest in land satisfies the
conditions of this section by reason only of the rectification of one or more documents in
pursuance of an order of a court, the contract shall come into being, or be deemed to
have come into being, at such time as may be specified in the order.”
The Act therefore expressly acknowledges the possibility of a court rectifying a document so as to
allow a contract to conform to its formal requirements. So, in Firstpost Homes Ltd v Johnson the
Court of Appeal noted that while on its terms the letter contained no commitment by the company to
purchase the property, the company could have applied to the court to rectify the letter so as to reflect
the oral agreement. 211 In Robert Leonard (Developments) Ltd v Wright, 212 the Court of Appeal
exercised its power to order rectification of the terms of documents exchanged by the parties’
solicitors by telephone so as to include reference to the sale of the chattels which had been included
in the parties’ previous oral contract, and the court also ordered that this rectified contract should be
deemed to come into being from the date of the exchange of documents. The Court of Appeal
recognised that allowing rectification detracted from the legislative purpose of s.2 which was to
prevent disputes either as to whether the parties had entered into a binding agreement or as to what
terms they had agreed, but the availability of rectification showed that:
“… it was clearly the intention of the Act that the all terms requirement should not be so
inflexible as to cause hardship or unfairness where there has been a mistake resulting in
a venial non-compliance with the Act.” 213
In Oun v Ahmad 214 Morgan J. agreed that a court could sometimes apply the conventional rules
governing rectification of written instruments, 215 even though the effect of rectification in the context of
the 1989 Act is to rescue an otherwise invalid agreement. 216 Morgan J. further held, however, that the
court could not order rectification of a document so as to include all the terms of the would-be contract
where there was an express agreement to omit a term or terms from the written record of the
agreement since in these circumstances there was no mistake in the recording of the agreement. 217
And in Francis v F. Berndes Ltd 218 Henderson J. followed this approach, holding that, unless
available on “conventional grounds”, rectification should not be ordered so as to save an agreement
from invalidity owing to the formal requirements in s.2 whatever the explanation for the omission of an
express term may be:
Page 3
“Ignorance of the 1989 Act, or a misapprehension about its operation, cannot … suffice,
because the policy which underpins section 2 is the need for certainty in contracts for the
sale of land and the avoidance of disputes about what the parties agreed which can be
resolved only be recourse to extrinsic evidence.” 219
“Exchange of contracts”
5-035
In Commission for the New Towns v Cooper (Great Britain) Ltd, 220 the Court of Appeal explained
the significance of the alternative formal requirement in s.2 of the Law of Property (Miscellaneous
Provisions) Act 1989 that all the terms of the contract which the parties have expressly agreed be
incorporated “where contracts are exchanged, in each [document]”. According to Stuart-Smith L.J. 221
the expression “exchange of contracts”, even if not a term of art, possesses the following features:
“1.
Each party draws up or is given a document which incorporates all the terms which
they have agreed, and which is intended to record their proposed contract. The
terms that have been agreed may have been agreed either orally or in writing or
partly orally or [sic: and] partly in writing.
2.
The documents are referred to as ‘contracts’ or ‘parts of contract’, although they
need not be so entitled. They are intended to take effect as formal documents of title
and must be capable on their face of being fairly described as contracts having that
effect.
3.
Each party signs his part in the expectation that the other party has also executed or
will execute a corresponding part incorporating the same terms.
4.
At the time of execution neither party is bound by the terms of the document which
he has executed, it being their mutual intention that neither will be bound until the
executed parts are exchanged.
5.
The act of exchange is a formal delivery by each party of its part into the actual or
constructive possession of the other with the intention that the parties will become
actually bound when exchange occurs, but not before.
6.
The manner of exchange may be agreed and determined by the parties.”
Page 4
As a result, the Court of Appeal held (through strictly obiter) that this requirement was not satisfied by
the mere exchange of a signed letter of offer and a signed letter of acceptance, even if each had
contained the (same) express terms of the contract as alleged. 222 Moreover, as a result of the
requirement of the third feature of an “exchange of contracts” as set out by Stuart-Smith L.J., there
can be no “exchange of contracts” within the meaning of s.2(1) where the documents in question
contain substantial differences. 223 While in general the time for considering whether a document
complies with s.2 is the time of the agreement, 224 there is no rule preventing the exchange of a
document which has been assembled, or altered, by the signatory or with his authority, after
signature. 225 So, for example, in Rabiu v Marlbray Ltd a contract for the purchase of a 999-year
lease of a London hotel room was made at a “sales fair” by a purchaser by signing a standard first
page of the contract, the purchaser at the same time instructing solicitors to proceed to exchange of
contracts. 226 This contract satisfied the requirements of s.2, as the document exchanged by the
purchaser’s duly authorised solicitors had contained all its terms, even though the purchaser had
signed only the first page. 227
Signature
5-036
Section 2(3) requires that:
“The document incorporating the terms or, where contracts are exchanged, one of the
documents incorporating them (but not necessarily the same one) must be signed by or
on behalf of each party to the contract.”
This provision requires both parties to the contract to sign, 228 though it recognises the possibility of
valid signature by the agent of either vendor or purchaser. 229
Meaning of “signature”
5-037
In Firstpost Homes Ltd v Johnson, 230 the Court of Appeal held that “signature” in s.2 of the 1989
Act should be given its ordinary linguistic meaning, with the result that the section requires that the
parties must write their names with their own hands upon the document. The court thereby rejected
the applicability of earlier authorities on the meaning of “signature” for the purposes of the Statute of
Frauds 1677 and s.40 of the Law of Property Act 925. 231 As Balcombe L.J. observed:
“… the clear policy of [section 2] is to avoid the possibility that one or other party may be
able to go behind the document and introduce extrinsic evidence to establish a contract,
which was undoubtedly a problem under the old law.” 232
However, it has been held that a party can sign a document by writing only his initials, provided that it
is clear that he intended to authenticate the full terms of the document. 233 On the other hand, in
Firstpost Homes Ltd, Peter Gibson L.J. accepted that the principle laid down by the House of Lords in
Caton v Caton 234 in relation to the Statute of Frauds 1677 to the effect that the party’s signature must
be inserted in such a way as to authenticate the whole instrument applies equally to the requirement
of signature made by s.2 of the 1989 Act. Thus, where a letter in which A agrees to sell a piece of
land to B refers to a plan of the land in question and the court considers that the letter and the plans
constitute a single document, B’s signature of the plan may well not constitute authentication of the
Page 5
whole. 235 Similarly, while a manuscript initialling of a document may constitute its “signature”, the
mere initialling of corrections at the margins of a document does not constitute its signing for the
purposes of s.2 of the 1989 Act, as it does not evidence assent to the whole document. 236
Signature by agent
5-038
Section 2(3) requires signature “by or on behalf of each party to the contract”. 237 Clearly, no
difficulty arises where an authorised agent signs on behalf of a principal who is named in the
document otherwise satisfying the section. 238 On the other hand, a signature made without
authority clearly does not satisfy the section (as not made on behalf of the would-be party) and it is to
be noted that a solicitor is not necessarily authorised to sign the writing on behalf of his client merely
as a result of the solicitor-client relationship. 239 However, where a person with authority to sign does
so “as agent only” and no principal is named or identifiable from the document, it has been said that
the section is presumably not satisfied as one of its parties is not named, 240 this view apparently
resting on the proposition that the identity of the contracting party is a term of the contract, all the
terms of the contract being required to be incorporated in the document by s.2(1). 241 A similar
argument can be put as regards the significance of signature by the agent of an undisclosed principal
242
and in both cases this strict approach can be supported from the purpose of the section in terms of
certainty. 243 On the other hand, the Law Commission’s Working Paper which led to the Act intended
to “let the ordinary principles of agency operate” 244 and it can be argued that an agent: “ … signs ‘on
behalf of’ the principal whenever he signs with authority to do so and intending to act for his principal”
and if this were accepted, it would allow both unnamed and undisclosed principals to enforce or be
liable under the contract. 245 It would certainly be a surprising (and practically very inconvenient) effect
of the 1989 Act if signature by the agent of an undisclosed principal were held insufficient to satisfy its
formal requirements and it would mark a significant change from the old law 246 apparently not
envisaged in course of the preparation of the Act. 247
203. Dolphin Quays Development Ltd v Mills [2006] EWHC 931, [2007] 1 P. & C.R. 12.
204. e.g. Glen Courtney v Corp Ltd [2006] EWCA Civ 518 at [11], [30].
205.
Law of Property (Miscellaneous Provisions) Act 1989 s.2(1). Section 2 does not affect the
court’s approach to the interpretation of the contract, so that the usual principles apply,
including as to the relevance of background facts where appropriate and the correction of
mistakes: Westvilla Properties v Dow Properties Ltd [2010] EWHC 30 (Ch), [2010] 2 P. & C.R.
19 at [19]–[20]; Rabiu v Marlbray Ltd [2013] EWHC 3272 (Ch) at [14] and [91] (one of joined
cases reversed on other grounds sub nom. Marlbray Ltd v Laditi [2016] EWCA Civ 476) and
see generally below paras 13-041 et seq. The questions discussed in this paragraph are to be
distinguished from the question as to whether and, if so, how s.2 applies to composite
transactions, that is, where the parties have chosen to structure their agreement so that the
land contract is separated from the rest of the transaction, on which see above, para.5-029.
206. [1995] 1 W.L.R. 1567.
207. See below, paras 5-036—5-038.
208. [2011] EWHC 3377 (Ch), [2012] 1 All E.R. (Comm) 735.
209. [2011] EWHC 3377 (Ch) at [26].
210. [2011] EWHC 3377 (Ch) at [27], per Henderson J.

Page 6
211. Firstpost Homes Ltd v Johnson [1995] 1 W.L.R. 1567, 1576, 1577.
212. [1994] N.P.C. 49. See also Peters v Fairclough Homes Ltd Unreported December 20, 2002 Ch
D at [26]–[27] (contractual document rectified so as to include longstop date included in
correspondence between solicitors). cf. Enfield LBC v Arajah [1995] E.G.C.S. 164 (where
apparently the possibility of rectification was not raised).
213. [1994] N.P.C. 49 at [10], per Henry L.J.
214. [2008] EWHC 545 (Ch), [2008] All E.R. (D) 270.
215. [2008] EWHC 545 (Ch) at [55] and see [2008] EWHC 545 (Ch) at [36] referring to 1989 Act
s.2(4) which states that after rectification “the contract shall come into being, or be deemed to
have come into being”. For the law of rectification generally see above, paras 3-057 et seq.
216. [2008] EWHC 545 (Ch) at [36] referring to 1989 Act s.2(4) which states that after rectification
“the contract shall come into being, or be deemed to have come into being”.
217. [2008] EWHC 545 (Ch) at [42]–[48]. Morgan J. accepted the difference between the case
before him and contracts where “there are two separate contracts and not one composite
contract”: [2008] EWHC 545 (Ch) at [33] and see cf. para.5-029.
218. [2011] EWHC 3377 (Ch), [2012] 1 All E.R. (Comm) 735.
219. [2011] EWHC 3377 (Ch) at [43].
220. [1995] Ch. 259.
221. [1995] Ch. 259, 285.
222. The Court of Appeal distinguished its earlier unreported decision in Hooper v Sherman
November 30, 1994 which took a different position adding that it had been made on the basis of
a wrong concession by counsel: [1995] Ch. 259, 289, 295.
223. De Serville v Argee Ltd (2001) 82 P. & C.R. D12. See also, above, para.5-026 (mutual wills).
224.
Rabiu v Marlbray Ltd [2013] EWHC 3272 (Ch) at [14], relying on Koenigsblatt v Sweet [1923]
2 Ch. 314 at 326 (decided under the Statute of Frauds s.4). While the judgment in Rabiu v
Marlbray Ltd was the subject of considerable criticism (and was reversed in part) by the CA sub
nom. Marlbray Ltd v Laditi [2016] EWCA Civ 476, [2016] 1 W.L.R. 5147 (on which see below,
para.5-038), the point in the text was not subject to appeal.
225.
Rabiu v Marlbray Ltd. [2013] EWHC 3272 (Ch) at [14], relying on Koenigsblatt v Sweet [1923]
2 Ch. 314 at 320 and 326 (decided under the Statute of Frauds s.4); Gavaghan v Edwards
[1962] 1 Ch. 220 CA (decided under the Law of Property Act 1925 s.40). While the judgment in
Rabiu v Marlbray Ltd was the subject of considerable criticism (and was reversed in part) by the
CA sub nom. Marlbray Ltd v Laditi [2016] EWCA Civ 476, [2016] 1 W.L.R. 5147 (on which see
below, para.5-038), the point in the text was not subject to appeal.
226. [2013] EWHC 3272 (Ch).
227. [2013] EWHC 3272 (Ch) at [88]–[91] and [94].
228. Under s.40 of the Law of Property Act 1925, signature was necessary only for “the party to be
charged” without it being signed by the other party: Barber v Rowe [1948] 2 All E.R. 1050.
Under the 1989 Act, a third party who is intended as transferee of the interest in property need
not sign: RG Kensington Management Co Ltd v Hutchinson IDH Ltd [2002] EWHC 1180, [2003]
2 P. & C.R. 13 at [57] not following Jelson Ltd v Derby CC [1999] 3 E.G.L.R. 1991; Nweze v
Nwoko [2004] EWCA Civ 399, (2004) 2 P. & C.R. 33 at [21] above, paras 5-023 and 5-025.
Page 7
230. [1995] 1 W.L.R. 1567.
231. Notably Evans v Hoare [1892] 1 Q.B. 550, 561: see [1995] 1 W.L.R. 1567, 1574-1577.
232.
[1995] 1 W.L.R. 1567, 1577. For criticism of this view of “signature” for the purposes of s.2 of
the 1989 Act see Emmet & Farrand on Title (updated to June 2017), paras 2–041—2–041.06.
Nevertheless, Emmet & Farrand on Title concludes that “conveyancers should be as cautious
as practicable and prefer in practice ‘wet ink’ signatures for contracts for the sale of land”:
Emmet & Farrand on Title at para.2.041.05, not following the view expressed by the Law
Society in its practice note, Execution of documents at virtual signings or closings (February 16,
2010) (available at http://www.lawsociety.org.uk). In Ramsay v Love [2015] EWHC 65 (Ch) at
[7], Morgan J. observed (obiter and in the context of s.1(3) of the 1989 Act rather than s.2 of the
same Act) that the statements in Firstpost Homes Ltd v Johnson which require signature by an
executing party to be made with a pen in his own hand were not designed to distinguish
between signing in such a way and by the use of a signature writing machine.
233. Newell v Tarrant [2004] EWHC 772, (2004) 148 S.J.L.B. 509 at [47].
234. (1867) L.R. 2 H.L. 127.
235. Firstpost Homes Ltd v Johnson [1995] 1 W.L.R. 1567, 1573 (though on the facts the Court of
Appeal held that the letter and plan before them constituted two documents: see above,
para.5-033).
236. Newell v Tarrant [2004] EWHC 772, (2004) 148 S.J.L.B. 509 at [48].
237.
Signature is required by each party to the contract, not each party to the prospective
conveyance or transfer: RG Kensington Management Co v Hutchinson [2002] EWHC 1180,
[2003] 2 P. & C.R. 13. For this purpose an agent’s authority may be oral or in writing:
McLaughlin v Duffill [2008] EWCA Civ 1627, [2010] Ch. 1 especially at [21]–[24], distinguishing
the rule requiring writing for the authorisation of signature by an agent of “dispositions of an
interest in land” to which s.53(1)(a) of the Law of Property Act 1925 applies. It has been said
that, where a party (A) to a contract signs on behalf of another person (B) but without that
person’s actual or ostensible authority, ratification by B can operate so as to render him or her
party to the contract, and in this case the requirements of s.2 are satisfied: Simpole v Chee
[2013] EWHC 4444 (Ch) at [8]–[10]. Where A signs a document setting out a contract of sale
with B in respect of obligations expressed as joint and several, not only on his own behalf but
also on behalf of C in respect of her joint and several obligations but without her authority, in
principle the contract is valid between A and B as long as it is, on an objective interpretation,
not conditional on C’s having authorised him to sign on her behalf, as the joint and several
provision of the contract make it clear that A and C do not constitute a “composite” purchaser:
Marlbray Ltd v Laditi (on appeal from sub nom. Rabiu v Marlbray Ltd ) [2016] EWCA Civ 476,
[2016] 1 W.L.R. 5147 at [56] and [68]. If in these circumstances the document signed by A and
B contains all the terms of the several contract, then it satisfies the requirements of s.2 of the
1989 Act, it being irrelevant that A did not sign identifying the precise capacity in which he did
so, i.e. as principal obligor under his several contract: [2016] EWCA Civ 476 at [71]. A is
therefore bound under his contract with B, even though C is not.
238.
Bowstead and Reynolds on Agency, 20th edn (2014), para.8-004. cf. Braymist Ltd v Wise
Finance Co Ltd [2002] EWCA Civ 127, [2002] 3 W.L.R. 322 (a person who signs a contract for
the purchase of land as agent of a company not yet incorporated and who can, therefore, sue
on the contract by virtue of s.36C(1) of the Companies Act 1985 (now s.51 of the Companies
Act 2006), is properly to be treated as having signed the agreement on its own behalf for the
purposes of s.2 of the Act 1989); Royal Mail Estates Ltd v Maple Teesdale (a firm) [2015]
EWHC 1890 (Ch), [2016] 1 W.L.R. 942.
239. Farrand, Emmet on Title, (looseleaf updated to April 2015), para.2.042.

Page 8
240. Bowstead and Reynolds on Agency, para.8-004.
241. Above, para.5-033.
243. Above, para.5-011.
244. Law Com. Working Paper No.92 (1985), s.5.16.
246. Bowstead and Reynolds on Agency, para.8-003 citing, inter alia, Basma v Weekes [1950] A.C.
441.
247. cf. Government of Sierra Leone v Davenport [2003] EWHC 2769, [2003] All E.R. (D) 99 (Nov) at
[69] where some of these difficulties were noted.

Page 1

Chapter 5 - Form
(c) - The Effect of Failure to Comply with the Formal Requirements
Effect of non-compliance
5-039
Unlike s.40 of the Law of Property Act 1925, which made unenforceable those contracts which did not
comply with its requirements, 248 any agreement not complying with the requirements contained in s.2
of the 1989 Act is void and ineffective, 249 as a contract governed by the section “can only be made in
writing”. The Law Commission considered that the principal effect of this would be to exclude the
operation of the doctrine of part performance 250: “[w]ithout writing there will be no contract for either
party to perform”. 251 Certainly, the courts could hardly use the doctrine of part performance as such to
enforce an oral agreement. However, the doctrine is itself merely part of a wider equitable principle,
viz that equity will not allow a statute to be used as an engine of fraud 252 and this principle is left
untouched by the Act: indeed, it has been considered difficult to see how the operation of such a
principle could be excluded by the legislature. 253 In Singh v Beggs 254 Neill L.J. doubted the view that
s.2 of the 1989 Act had “abolished” the doctrine of part performance, observing (if obiter) that:
“It is true that it is provided by s.2(8) of the 1989 Act, that section 40 of the Law of
Property Act 1925 will cease to have effect, but the doctrine [of part performance] is an
equitable doctrine, and it may be that in certain circumstances the doctrine could be
relied on.” 255
However, the Court of Appeal has later accepted that the doctrine has not survived the 1989 Act,
while at the same time qualifying the strict application of the formal requirements by the doctrine of
constructive trust. 256 For this purpose, the Law Commission recognised that circumstances may arise
in which justice would be denied if a strict requirement of writing were universally upheld. Its view,
reflected in s.2(5) of the 1989 Act, 257 was that any potential injustice could be avoided by judicial use
of the techniques of collateral contracts, constructive trust or equitable estoppel. This has indeed
occurred, although use of proprietary estoppel has been controversial. 258 However, in determining the
circumstances in which it will be appropriate to rely on any of these techniques, the courts are likely to
bear in mind the general considerations outlined by the House of Lords in Actionstrength Ltd v
International Glass Engineering IN.GL.EN SpA 259 as to the proper limits of equitable qualifications on
or supplements to statutory rules entailing the formal invalidity of a contract, notably, the importance
of not frustrating the purpose of the statutory provisions by simply enforcing invalid executory
agreements by another, equitable name. 260 In this respect, while in common with its predecessor,
s.40 of the Law of Property Act 1925, s.2 of the 1989 Act can be seen as based on a perceived need
to protect people from being liable on the basis of oral utterances which are ill-considered, ambiguous
or completely fictitious, 261 it was intended to go further and to introduce a greater certainty into the
law and stricter formal requirements. 262
Constructive trust
Page 2
5-040
Section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989 specifically precludes that
section’s requirements from affecting “the creation or operation of … constructive trusts”. In Yaxley v
Gotts 263 Robert Walker L.J. considered that the relevant “species of constructive” trust for this
purpose is one based on “common intention” and is to be found where, in the words of Lord Bridge in
Lloyds Bank Plc v Rosset 264 there is an:
“… agreement, arrangement or understanding’ actually reached between the parties, and

relied on and acted on by the claimant … Equity enforces it because it would be
unconscionable for the other party to disregard the claimant’s rights.” 265
In Yaxley v Gotts itself, A made an oral agreement to give B the ground floor of a house which he (A)
was proposing to buy in exchange for B’s supplying labour and materials to convert the house into
flats and managing the letting of the property. The house was purchased in the name of A’s son, C,
who subsequently refused to grant B any interest in the property. At first instance, it was held that C
had adopted the oral agreement between A and B and that B and C were bound by proprietary
estoppel to grant a 99-year lease of the ground floor to B. The Court of Appeal upheld this result,
rejecting A and C’s argument based on s.2 of the 1989 Act, but preferring to rely on the ground of
constructive trust rather than proprietary estoppel, though seeing these as running together on the
facts. 266 While the oral agreement between A and B was void by reason of the 1989 Act, which had
abolished the doctrine of part performance and required all contracts for the sale or disposal of land to
be in writing, the agreement could be enforced on the basis of a constructive trust in circumstances
where, previously, the doctrine of part performance might have been relied upon. 267 Similarly, in
Kinane v Mackie-Conteh 268 the claimant had loaned money to a company of which one of the
defendants was managing director, this loan being intended to be secured by a charge on a house in
the form of a “security agreement” signed by himself and his wife. The question arose whether the
security agreement came within the formal requirements found in s.2 of the 1989 Act. The Court of
Appeal held that on the facts “an estoppel overlapping with a constructive trust” was established so as
to come within the exception found in s.2(5) of the 1989 Act, in that the defendants had encouraged
the claimant in his erroneous belief that the agreement created an enforceable obligation. 269 A further
illustration of the way in which a constructive trust may avoid the formal requirements imposed by s.2
of the 1989 Act may be found in the application of the so-called Pallant v Morgan equity. 270 Where A
and B agree that A will acquire some specific property for the joint benefit of A and B, and B, in
reliance on A’s agreement, refrains from attempting to acquire the property, then equity will not permit
A, when he acquires the property, to keep it for his own benefit, to the exclusion of B. It has been said
that because this equity is in the nature of a constructive trust, it is unaffected by s.2(1) the 1989 Act.
271
Estoppel generally
5-041
Despite the absence of any express saving provision in s.2 as is provided for constructive trusts, in
McCausland v Duncan Lawrie Ltd 272 Neill L.J. considered that the “doctrine of estoppel” (without
further specification) was “plainly arguable” to give some effect to the agreement underlying a fairly
trivial variation of a contract for the sale etc. of an interest in land, the variation itself being void for
informality. 273 Morritt L.J. observed that:
“Section 2 does not give rise to any illegality if its terms are not observed and the need for
an estoppel arises in just those circumstances where there is no enforceable contract.
For my part I would not place weight on the contention that an estoppel such as the
vendor would advance is impossible as a matter of law but it still has to be made out as a
matter of fact.” 274
Page 3
The issue could not, therefore, be determined in an application to strike out a plaintiff’s claim. In
Yaxley v Gotts, 275 Robert Walker L.J. had:
“… no hesitation in agreeing … that the doctrine of estoppel may operate to modify (and
sometimes perhaps even to counteract) the effect of section 2 of the Act of 1989. The
circumstances in which section 2 has to be complied with are so various, and the scope
of the doctrine of estoppel is so flexible, that any general assertion that section 2 as a
‘no-go area’ would be unsustainable.” 276
Nevertheless, in deciding whether or how it may apply, the courts must take into account the Act’s
policy of the need for certainty as to the formation of bargains of this type in the general public
interest. 277 As will be seen, however, the question of the appropriateness of recourse to the doctrine
of proprietary estoppel where an agreement between the parties is void for failure of the formal
requirements of s.2 has been more controversial. 278
Promissory estoppel (“forbearance in equity”)
5-042
The Law Commission considered that “promissory estoppel” might apply to qualify the strictness of
the formal requirements of s.2 of the 1989 Act. 279 In the present context, however, the so-called
doctrine of promissory or equitable estoppel, sometimes known as “forbearance in equity”, would not
improve a vendor’s position owing to its essentially defensive nature, for promissory estoppel cannot
create a new cause of action in substitution for the contractual action denied for want of formality. 280
Moreover, as Lewison L.J. has observed, “it would be surprising if one could do by promissory
estoppel what one could not do by informal contract” 281 and, moreover, in the case of promissory
estoppel, “there is no question of a constructive trust of land arising” so as to fall within the exception
to the formality requirements provided by the 1989 Act s.2(5). 282
Estoppel by convention
5-043
It is fairly clear that the courts will not allow the application of estoppel by convention so as simply to
give effect to an agreement rendered a nullity by s.2 of the 1989 Act. In Godden v Merthyr Tydfil
Housing Association 283 a building contractor claimed damages for breach of an oral agreement with a
Housing Association, under which he had agreed to purchase a particular site, obtain planning
permission for the building of seven houses and prepare the site for development, the Housing
Association agreeing to reimburse him for the costs of this acquisition and work and that it would
enter a contract with him for the construction of the houses. In response to the Housing Association’s
claim that this agreement failed the formal requirements of s.2 of the 1989 Act, the builder argued that
since both parties had contracted in ignorance of this provision, the Housing Association was
precluded by the doctrine of estoppel by convention from relying on this provision so as to deny that
there was indeed an agreement reached between the parties. According to Simon Brown L.J., with
whom Thorpe L.J. and Sir John Balcombe agreed, this submission:
“… necessarily involves saying that, although Parliament has dictated that a contract
involving the disposition of land made otherwise than in compliance with s.2 is void, the
defendants are not allowed to say so. That, to my mind, is an impossible argument … [I]f
it were soundly made, it is difficult to see why it should not operate to escape the
intended constraints of s.2 in virtually all cases.” 284
In Simon Brown L.J.’s view, the doctrine of estoppel may not be invoked to render valid a transaction
Page 4
which the legislature has, on grounds of general public policy, enacted is to be invalid. 285 So, for
example, where the effect of the assurance on which the alleged estoppel is based is tantamount to a
variation of the contract (itself void as failing to comply with s.2), then giving effect to the estoppel
would subvert the policy behind s.2 of the 1989 Act. 286
Proprietary estoppel 287
5-044
In its work towards the 1989 Act the Law Commission saw proprietary estoppel as a particularly
attractive technique for the avoidance of injustice caused by a rigid adherence to the new formality
rules because, unlike the doctrine of part performance, it does not simply enforce the underlying
agreement but allows a flexible remedy which can vary according to the particular circumstances. 288
As has earlier been explained, there are three main elements of proprietary estoppel: a
representation made or assurance given to the claimant, reliance by the claimant on that
representation or assurance and detriment suffered by the claimant in consequence of such reliance.
289
It is to be noted, however, that the representation or assurance must have encouraged the
claimant to believe that he has or will in the future enjoy some right or benefit over the owner’s
property 290 and so, even if adopted by a court in a case where an agreement for the sale of land did
not satisfy the formal requirements of s.2, it would apply only so as to give a remedy to a would-be
purchaser 291: any claim by a would-be vendor would not be for a right to land nor indeed for a specific
asset, but for a sum of money, a simple claim for a debt. 292
The difficulties in applying the contrasting approaches to the three main requirements of proprietary
estoppel found in the speeches of the House of Lords in Cobbe v Yeoman’s Row Management Ltd 293
and Thorner v Major have already been discussed. 294 The following paragraphs will discuss how the
courts have applied the doctrine of proprietary estoppel in the context of the formal requirements of
s.2 and their differing approaches as to the appropriateness of so doing.
Earlier cases on use of proprietary estoppel
5-045
An example of the application of proprietary estoppel in this context may be found in Wayling v Jones.
295
In that case, A had promised his companion of some ten years, B, that he would bequeath B the
business in which he worked at very low wages, but A died without having done so. The Court of
Appeal held that B was entitled to rely on a proprietary estoppel against A’s executors and therefore
ordered them to pay the proceeds of sale of the business to B. If, by contrast, B had alleged that he
had contracted with A that the latter would bequeath him the business in return for working for low
wages, his claim would have failed for lack of fulfilling the formal requirements in s.2 of the 1989 Act.
296
In Yaxley v Gotts, 297 Robert Walker L.J. considered that where a constructive trust is based on
“common intention”, then it is “closely akin to, if not indistinguishable from, proprietary estoppel”. 298
So, while the Court of Appeal substituted constructive trust for proprietary estoppel (on which the trial
judge had relied) as the basis for its decision, this case has been seen as authority for the proposition
that:
“… the doctrine of estoppel may operate to modify and counteract the effect of section
2(2) [of the 1989 Act]; and that section 2(5) can cover cases of the equitable intervention
of proprietary estoppel which coincide with or overlap the concept of a constructive trust,
even though section 2(5) does not expressly refer to proprietary estoppel.” 299
On the other hand, in Kinane v Mackie-Conteh 300 Arden L.J. and Neuberger L.J. expressed
contrasting views as to whether a proprietary estoppel “unassociated with a constructive trust” would
avoid the formal requirements found in s.2. According to Neuberger L.J.:
Page 5
“… one must … avoid regarding [subsection 2(5)] as an automatically available statutory

escape route from the rigours of section 2(1) of the 1989 Act, simply because fairness
appears to demand it. A provision such as section 2 … was enacted for policy reasons
which, no doubt, appeared sensible to the legislature … the Court should not allow its
desire to avoid what might appear a rather harsh result in a particular case to undermine
the statutory policy.” 301
He concluded, therefore, that a “mere estoppel, unassociated with a constructive trust” might not
avoid the formal requirements of s.2, especially given the decision of the House of Lords in
Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA. 302 However, here Arden L.J. did
not agree, and emphasised that the latter decision was concerned with s.4 of the Statute of Frauds
1677 which contains no exception to its formal requirements equivalent to s.2(5) of the 1989 Act. In
her view, proprietary estoppel could form the basis of disapplying s.2(1):
“… the cause of action in proprietary estoppel is … not founded on the unenforceable

agreement but upon the defendant’s conduct which, when viewed in all relevant aspects,
is unconscionable.” 303
Cobbe v Yeoman’s Row Management Ltd
5-046
However, a very different approach to the appropriateness of recourse to proprietary estoppel in

the context of s.2 of the 1989 can be seen in the decision of the House of Lords in Cobbe v Yeoman’s
Row Management Ltd. 304 There a company which owned a building had orally agreed in principle
with a property developer that it would sell the building to him if he obtained planning permission for
its redevelopment, this agreement fixing a price and specifying an “overage” payment if the gross
resale of the building exceeded a certain sum. The director of the company encouraged the developer
to expect that her company would fulfil this agreement even after she had decided not to do so but to
renegotiate for more money, and then (acting for the company) reneged on the agreement on the
same day on which planning permission was granted. In these circumstances, the House of Lords
held that proprietary estoppel could not apply as the person (the property developer) wishing to rely
on the doctrine could not point to anything which the other person (the land-owner) could be estopped
from relying on or denying in relation to a certain interest in land, but instead could point only to an
expectation that that other person would enter into a contract with them on terms some of which
remained to be negotiated. 305 In so holding, Lord Scott of Foscote (with whom Lords Hoffmann,
Brown of Eaton-under-Heywood and Mance agreed) cast doubt on the use of proprietary estoppel as
a means of escaping the formal requirements of s.2 of the 1989 Act. Lord Scott expressed the view
(though recognising this as not being necessary for the decision of the House) that:
“… proprietary estoppel cannot be prayed in aid in order to render enforceable an

agreement that statute has declared to be void. The proposition that an owner of land can
be estopped from asserting that an agreement is void for want of compliance with the
requirements of section 2 is, in my opinion, unacceptable. The assertion is no more than
the statute provides. Equity can surely not contradict the statute.” 306
Unlike resulting, implied or constructive trusts, the statute does not recognise any exception from the
formal requirements for proprietary estoppel. 307
Thorner v Majors
Page 6
5-047
In Thorner v Major 308 a somewhat differently constituted House of Lords (Lords Hoffmann, Scott of
Foscote, Rodger of Earlsferry, Walker of Gestingthorpe and Neuberger of Abbotsbury) took a more
positive view of the role of proprietary estoppel in relation to the requirements of the 1989 Act,
although, as has been explained, 309 its context was domestic rather than commercial. In relation to
the 1989 Act Lord Neuberger observed that:
“The notion that much of the reasoning in Cobbe’s case … was directed to the unusual
facts of that case is supported by the discussion, at para 29, relating to section 2 of the
Law of Property (Miscellaneous Provisions) Act 1989. Section 2 may have presented Mr
Cobbe [the developer] with a problem, as he was seeking to invoke an estoppel to protect
a right which was, in a sense, contractual in nature … and section 2 lays down formalities
which are required for a valid “agreement” relating to land. However, at least as at
present advised, I do not consider that section 2 has any impact on a claim such as the
present, which is a straightforward estoppel claim without any contractual connection. It
was no doubt for that reason that the defendants, rightly in my view, eschewed any
argument based on section 2.” 310
This observation therefore suggests a distinction between claims for proprietary estoppel based on an
assurance reasonably relied on and made in a family or domestic context (where s.2’s requirements
of formality are not relevant) and those based on an agreement which would (otherwise) qualify as a
contract (where s.2’s requirements of formality are relevant and, arguably, should not be
circumvented).
Herbert v Doyle
5-048
In Herbert v Doyle 311 the Court of Appeal, on an application for permission to appeal,
considered the approaches taken by the House of Lords in Cobbe and Thorner v Major to the
requirement of certainty as regards constructive trust in the context of s.2 of the 1989 Act. Arden L.J.
(with whom Morgan and Jackson JJ. agreed) noted that while the distinction between proprietary
estoppel and constructive trust must be kept in mind,
“it appears from Cobbe that, in some situations at least, both doctrines have a
requirement for completeness of agreement with respect to an interest in property.
Certainty as to that interest in those situations is a common component. A relevant
situation would be where the transaction is commercial in nature”
as was the case on the facts before her. 312 Arden L.J. saw “a common thread running through the
speeches of Lord Scott and Lord Walker” in Cobbe:
“that, if the parties intend to make a formal agreement setting out the terms on which one
or more of the parties is to acquire an interest in property, or, if further terms for that
acquisition remain to be agreed between them so that the interest in property is not
clearly identified, or if the parties did not expect their agreement to be immediately
binding, neither party can rely on constructive trust as a means of enforcing their original
agreement. In other words, at least in those situations, if their agreement (which does not
comply with section 2(1)) is incomplete, they cannot utilise the doctrine of proprietary
estoppel or the doctrine of constructive trust to make their agreement binding on the other
party by virtue of section 2(5) of the 1989 Act.” 313
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Arden L.J. saw this interpretation of Cobbe as consistent with Lord Neuberger’s position on the need
for certainty in Thorner v Major. 314 For Arden L.J., on the facts before her, the relevant question was
“whether, subject to section 2 of the 1989 Act, there was a valid contract” and for this purpose Arden
L.J. agreed with the finding of the trial judge below that the agreement of the parties was sufficiently
certain. 315 This suggests that where the agreement is sufficiently certain (notably, where it is not
made subject to contract nor is merely “an agreement to agree”), then this agreement may provide
the basis for the recognition of a constructive trust or for proprietary estoppel.
Effects of proprietary estoppel
5-049
One important aspect of the difference between proprietary estoppel and constructive trust lies in
the former’s greater flexibility of remedial response, 316 although sometimes, the effect of the
application of the two doctrines will be the same. 317 For:
“… if there is a constructive trust the court must usually give effect to it, often by ordering
a transfer of the relevant proprietary interest, whereas if there is an estoppel the court will
give a remedy that reflects the value of the equity in question.” 318
Restitution: recovery of money paid by purchaser on a failure of consideration 319
5-050
The availability of restitution of money paid under an agreement which failed to comply with s.40 of
the Law of Property Act 1925 and therefore rendered the contract unenforceable depended on
whether the vendor or purchaser defaulted. The general rule was that if the vendor defaulted, the
purchaser might recover his deposit on the ground of total failure of consideration. 320 It was, however,
possible that, even here, consideration for the payment would not have failed if the vendor had done
acts of part performance of the contract and these acts benefited the purchaser. 321 If, on the other
hand, the purchaser defaulted, he could not recover a deposit paid on the ground of failure of
consideration as the consideration for the payment could not be said to have failed. 322
5-051
What is the position as regards restitution based on failure of consideration of money paid under an
agreement which fails to fulfil the requirements of s.2 of the 1989 Act? If the notion of consideration
were understood as the basis on which the payment was made, 323 then this basis would normally
be the existence of the contract of sale with the result that, under the new requirements, failure to
comply with the formalities nullifies the contract so as to deprive the payment of its basis. If, on the
other hand, the receipt of any promised benefit by the purchaser (such as, for example, by entering
possession) were to be taken as preventing the failure of consideration even under this non-existent
contract, then recovery would be denied. In Sharma v Simposh Ltd the Court of Appeal expressly
adopted the former interpretation of failure of consideration, 324 noting that the Law Commission had
suggested that a purchaser who pays a deposit under an oral agreement for the purchase of land will
generally be entitled to recover his deposit if the sale does not go ahead, “for the state of affairs
contemplated as the reason for the payment will have failed to materialise.” 325 However, the Court of
Appeal held that on the facts of the case before them which concerned an agreement “to attempt to
create an option giving the claimants the right to buy [a building under construction] within the period
leading to its completion for an agreed price in exchange for a non-refundable deposit” 326 there was
no failure of consideration “[s]ince the claimants obtained the benefit for which the payment was
made”, 327 that is, “the defendant took the property off the market pending completion and kept open
Page 8
its offer to sell it to the claimants at a fixed price.” 328 In the result, therefore, the Court of Appeal saw
the benefit obtained under the contract (even though void for informality) as preventing failure of
consideration. Moreover, as the claimants had obtained the benefit for which the payment was made
and given that they had decided not to proceed with the purchase of the property owing to a sharp fall
in the financial market, 329 there was “no merit in their claim and no injustice in the defendant retaining
the money. The justice of the matter is entirely on the defendant’s side”. 330
It is submitted, though, that where a buyer has paid the full purchase price under a contract for the
sale of land and entered into possession of the land for a period, it would be unjust to allow him to rely
on the statutory invalidity in order to claim back the price, leaving the seller to any possible
counterclaim in restitution on the ground of the buyer’s unjust enrichment in enjoying the property
during the period. However, in Singh v Sanghera the High Court accepted that “the result of a finding
that the ‘contract’ under which the parties were acting was void is that any party must restore benefits
the retention of which would unjustly enrich that party”. 331 So, where a contract for the disposition of
an interest in land (there, the sale of goodwill of a supermarket, including a lease of premises) was
void under s.2, the purchasers were held entitled to recover the price paid as “[t]he business they
purchased, and its goodwill, meant nothing without the lease, and, as the agreement to acquire the
business including the lease was void, they acquired nothing”. 332 Conversely, the sellers were entitled
to recover based on the purchasers’ unjust enrichment for benefits derived from the void contract,
these including the value of original stock and in respect of indemnity arrangements in relation to the
businesses’ bank accounts. 333
Restitution: recovery of money paid by purchaser under a mistake of law
5-052
As the previous paragraphs indicate, the traditional ground for recovery of money paid under a
contract for the sale, etc. of an interest of land defective for want of formality has been a total failure
of consideration. However, in Kleinwort Benson v Lincoln City Council 334 the House of Lords
allowed a party to a contract void under the ultra vires doctrine to recover payments made under it on
the ground that at the time of payment it laboured under a mistake of law as to the validity of the
contract: restitution for mistaken payments applies in principle to mistakes of law as to mistakes of
fact. 335 While, therefore, this decision was not made in the context of a contract which failed to
comply with the formal requirements of s.2 of the 1989 Act, the abolition of the mistake of law rule
was put in very general terms and it could well be argued that where a purchaser of land pays money
under an agreement for the sale etc. of an interest in land thinking it to be a valid contract, but which
as a matter of law is void for want of formality, then that purchaser should be able in principle to
recover the money on the ground of this mistake of law, whether or not consideration for the payment
can be said to have failed. However, such a reopening of executed land transactions may be thought
undesirable by future courts. In this respect, it is to be recalled that in Tootal Clothing Ltd v Guinea
Properties Ltd (which was not cited to the House of Lords in Kleinwort Benson v Lincoln City Council),
Scott L.J. expressed the view that:
“… section 2 [of the 1989 Act] is of relevance only to executory contracts. It has no
relevance to contracts which have been completed. If parties choose to complete an oral
land contract or a land contract that does not in some respect or other comply with
section 2, they are at liberty to do so. Once they have done so, it becomes irrelevant that
the contract they have completed may not have been in accordance with section 2.” 336
While in Kleinwort Benson v Lincoln City Council Lord Goff of Chieveley (with whom Lord
Browne-Wilkinson, Lord Lloyd of Berwick, Lord Hoffmann and Lord Hope of Craighead agreed on this
point) rejected a restriction on the ambit of restitution on the ground of mistake of law for the case
where a transaction is completed, 337 he did so by reference to the cause of the voidness of the
contracts before him, i.e. interest rate swap transactions. These had been held void on the ground
that they were ultra vires the local authorities which had entered them and, as Lord Goff concluded:
Page 9
“… it is incompatible with the ultra vires rule that an ultra vires transaction should become
binding on a local authority simply on the ground that it has been completed.” 338
According to Lord Hope, “the purpose of the ultra vires doctrine is to protect the public” and therefore
“it would be unsatisfactory if restitution were to be possible only in the case of uncompleted
transactions”, 339 though he put his rejection of the restriction in very general terms. 340 It is submitted
that a future court could take the view that the policy underlying the invalidity of informal transactions
relating to land would not be defeated by a rule which prevented the restitution of monies paid under
them where they are wholly executed. 341 For, while the formalities required by the 1989 Act may
to a degree serve a protective purpose of would-be purchasers, the main reason for the requirements
is the need for certainty in transactions and where a transaction had been completed there should be
no concern on this ground. 342 On the other hand, a court could instead take a position similar to that
taken by the Court of Appeal in Godden v Merthyr Tydfil Housing Association in relation to the
application of the doctrine of estoppel by convention to a land transaction void for informality, where it
held that a court should not uphold a transaction declared invalid on grounds of general public policy.
343
If it did, or if the full force of restitution on the ground of mistake of law is not otherwise restrained,
then any payments made under a transaction which was thought valid by the payer, but was void for
informality may be recovered.
Restitution: benefits conferred other than money
5-053
Under the Law of Property Act 1925 s.40, a purchaser of an interest in land under a contract
unenforceable under that provision was able to recover on a quantum meruit for improvements to the
land if the vendor allowed him to go on to effect them, but then repudiate the contract, as the
permission to enter might be taken as acquiescence in the work being done. 344 Similarly, in Deglman
v Guaranty Trust Co of Canada and Constantineau, 345 the defendants’ predecessor in title had
promised to bequeath a house to the plaintiff, her nephew, if he performed various household tasks.
He performed the tasks, but she did not leave the house to him in her will. The Supreme Court of
Canada held his acts were not sufficient to satisfy the doctrine of part performance and thus to avoid
the effect of the Statute of Frauds, but further held that the plaintiff was entitled to recover on a
quantum meruit for the work he had done in the expectation of some remuneration and at his aunt’s
request. This law could apparently also apply under s.2 of the 1989 Act, 346 unless the court were to
hold that such recovery would undermine the purpose of the statutory requirements in avoiding
disputes as to what was agreed. 347
5-054
On the other hand, if the vendor of an interest in land improves it at the request of the purchaser and
in anticipation of the contract going ahead, it is not clear whether the purchaser will be liable on a
quantum meruit in respect of the work, because although he has requested the work done, he has not
benefited from its execution. 348 Dicta in the decision of the Court of Appeal in Brewer Street
Investments Ltd v Barclays Woollen Co Ltd 349 suggest that a vendor should not recover where a
contract has failed to materialise owing to his own fault, but should do so only where it is owing to the
purchaser’s fault, or perhaps, circumstances beyond either’s control. However, the case concerned
an agreement made expressly “subject to contract” which failed to proceed further and it is submitted
that, whatever the position under s.40 of the Law of Property Act 1925, a distinction based on the
respective fault of the parties is inappropriate to recovery in respect of benefits conferred under a
contract nullified under the 1989 Act: a party could not be described as “at fault” merely by relying on
the statutory invalidity of an agreement which he has made—an invalidity part of whose purpose was
his own protection. 350 On the other hand, if a purchaser is allowed to enter possession under a
contract void for failing to fulfil the requirements of s.2 of the 1989 Act, a vendor should be able to
recover on a quantum meruit for the purchaser’s enjoyment of the property, this clearly counting as a
benefit for this purpose. 351
Page 10
248. Leroux v Brown (1852) 12 C.B. 801; Steadman v Steadman [1976] A.C. 536, 540, 551, 556;
Elias v George Sahely & Co (Barbados) Ltd [1983] A.C. 646, 650.
249. Godden v Merthyr Tydfil Housing Association (1997) 74 P. & C.R. D1 at D3 (“void”); Yaxley v
Gotts [2000] Ch. 162 especially at 175 (“void”); North Eastern Properties Ltd v Coleman [2010]
EWCA Civ 277, [2010] 1 W.L.R. 2715 at [57] (“void”); Firstpost Homes Ltd v Johnson [1995] 1
W.L.R. 1567, 1571 (“ineffective”). cf. Jelson Ltd v Derby City Council [1999] E.G. 88 (C.S.)
where the court held that it could apply a “blue pencil” test to a clause in a contract failing to
comply with the 1989 Act and uphold the remainder of the agreement: it is submitted that this
approach conflicts with the judicial treatment of “composite agreements” and rectification:
above, paras 5-029, 5-034. In Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ
900, [2012] 1 W.L.R. 2855 the CA held that its earlier extempore decision in Tootal Clothing Ltd
v Guinea Properties Management Ltd (1992) 64 P. & C.R. 452 especially at 455-456 was not
authority for the proposition that, in a case in which the parties have purportedly made a
contract falling within s.2, but have in fact created a nullity because not all the terms of the sale
were included in it, then once the land elements of the purported contract have been
completed, either side can then enforce any non-land terms that either were or should have
been included in it ([2012] EWCA Civ 900 at [40], [44]–[46]), thereby disapproving Lewison J. in
Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2004] EWHC 2547 (Ch), [2005] 2 P. &
C.R. 105 at [198]. As Rimer L.J. (with whom Patten and Laws L.JJ. agreed) observed: “[t]he
proposition that a void contract can, by acts in the nature of part performance, mature into a
valid one is contrary to principle and wrong”: [2012] EWCA Civ 900 at [47].
251. Law Com. No.164 (1987), para.4.13.
252. Lincoln v Wright (1859) 4 De G. & J. 16; Maddison v Alderson (1883) 8 App. Cas. 467.
253. See Goff and Jones, The Law of Restitution, 5th edn (1998), p.580.
254. (1996) 71 P. & C.R. 120.
255. (1996) 71 P. & C.R. 120, 122.
256. Yaxley v Gotts [2000] Ch. 162 at 178 (although the point about part performance was agreed by
counsel) and see below, para.5-040.
257. “[N]othing in this section affects the creation or operation of resulting, implied or constructive
trusts.”
258. Below, paras 5-040—5-049.
259. [2003] UKHL 17, [2003] 2 A.C. 541 (in the context of the Statute of Frauds 1677 s.4) and see
above, para.5-005 and Vol.II, para.45-060.
260. [2003] UKHL 17 at [8]–[9], [20]–[26], [35], [52]. See further below, paras 5-041—5-049.
261. cf. in similar terms, [2003] UKHL 17 at [20], per Lord Hoffmann concerning the Statute of
Frauds generally.
263. [2000] Ch. 162.
264. [1991] 1 A.C. 107, 132.

Page 11
265.
[2000] Ch. 162 at 180. See similarly David Vincent S v Susan Ann S (now M) [2006] EWHC
2892 (Fam), [2007] 1 F.L.R. 1123 at [56]; Ely v Robson [2016] EWCA Civ 774, [2017] 1 P. &
C.R. DG1. See also Dowding v Matchmove Ltd [2016] EWCA Civ 1233, [2017] 1 W.L.R. 749
esp. at [35]-[36] (oral agreement complete in all essential terms intended by both parties to be
binding immediately, relied upon by claimants to their detriment). It has been held that where an
agreement for the disposition of an interest in land is made subject to a condition, then no
constructive trust can arise until the condition is fulfilled so as to allow the “beneficiary” under
the would-be trust (the would-be transferee) to require the would-be “trustee” (the would-be
transferor) to transfer the beneficial interest (the interest in land in question): Representative
Body of the Church in Wales v Newton [2005] EWHC 631 (QB), [2005] All E.R. (D) 163 (Apr)
especially at [64].
266. [2000] Ch. 162 at 180, 181 and 193.
267. Yaxley v Gotts [2000] Ch. 162 at 179-181.
268. [2005] EWCA Civ 45, [2005] W.T.L.R. 345.
269. cf. McGuane v Welch [2008] EWCA Civ 785, [2008] 2 P. & C.R. 24 where the CA held on the
facts that “[a] constructive trust could not be properly inferred or imposed by the court as, to do
so, was inconsistent with the express agreement of the parties that the Lease would be held by
[the appellant] on an express trust for [the respondent] for a period of three years after which
the deed of transfer of the Lease to [the respondent] would take effect”: [2008] EWCA Civ 785
at [35], per Mummery L.J.
270. Pallant v Morgan [1953] Ch. 43; Banner Homes Group Plc v Luff Developments Ltd [2000] Ch.
372; Crossco No.4 Unlimited v Jolan Ltd [2011] EWCA Civ 1619, [2012] 2 All E.R. 754.
271. Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2004] EWHC 2547 at [219] (where it
was held inapplicable on the facts).
272. [1997] 1 W.L.R. 38.
273. [1997] 1 W.L.R. 38 at 45.
274. [1997] 1 W.L.R. 38 at 50. Tucker L.J. agreed. cf. King v Jackson [1998] 03 E.G. 138.
275. [2000] Ch. 162.
276. [2000] Ch. 162 at 174.
277. [2000] Ch. 162 at 174-175 and cf. the approach of the HL in Actionstrength Ltd v International
Glass Engineering IN.GL.EN SpA [2003] UKHL 17, [2003] 2 A.C. 541, above, paras 5-005,
5-039.
278. Below, paras 5-044—5-049.
279. Law Commission, Working Paper No.92, para.5.8.
280. cf. above, paras 4-086 et seq. especially para.4-099.
281.
Dudley Muslim Association v Dudley MBC [2015] EWCA Civ 1123, [2016] 1 P. & C.R. 10 at
[33].
282.
[2015] EWCA Civ 1123 at [33].
283. (1997) 74 P. & C.R. D1. On estoppel by convention generally, see above, paras 4-108—4-115.
Page 12
284. (1997) 74 P. & C.R. D1, D3. Simon Brown L.J. thereby approved the statement found in
Halsbury’s Laws of England, 4th edn, Vol.16, para.962.
285. In Yaxley v Gotts [2000] Ch. 162, 174 Robert Walker L.J. agreed that estoppel by convention in
the context of s.2 of the 1989 Act was “impossible”; Clarke L.J. considered it “likely to fail”: at
182.
286. MP Kemp Ltd v Bullen Developments Ltd [2014] EWHC 2009 (Ch) at [123] (though not stating
that the estoppel in question would be by convention and not deciding whether the effect of the
estoppel on the facts was tantamount to a variation), applying the approach of the HL in
Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA [2003] UKHL 17 (decided in
relation to the Statute of Frauds s.4), on which see above, para.5-039 and Vol.II, para.45-060.
288. Law Com. No.164 (1987), para.5.5.
289. Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 at [15], [29], [72] and see above, paras
4-149 et seq.
290. Megarry and Wade, The Law of Real Property, 8th edn (2012) by Harpum, Bridge and Dixon
paras 16-007, 16-011. In Capron v Government of Turks and Caicos Islands [2010] UKPC 2
[36]–[38] it was emphasised that proprietary estoppel arises from a representation that the
claimant would acquire a certain interest in land.
291. Davis (1993) 13 O.J.L.S. 101, 103.
292. (1993) 13 O.J.L.S. 101, 104 and see Godden v Merthyr Tydfil Housing Association (1997) 74 P.
& C.R. D1.
293. [2008] UKHL 55, [2008] 1 W.L.R. 1752.
294. [2009] UKHL 18, [2009] 1 W.L.R. 776.
295. [1995] 2 F.L.R. 1029.
296. cf. James v Evans [2001] C.P. Rep. 36 (no defence of proprietary estoppel on the facts).
297. [2000] Ch. 162, above, para.5-040.
298. [2000] Ch. 162 at 180; McGuane v Welch [2008] EWCA Civ 785, [2008] 2 P. & C.R. 24 at [37],
per Mummery L.J. cf. Lord Walker’s “lesser enthusiasm” for the complete assimilation of
“common intention” constructive trust and proprietary estoppel in Stack v Dowden [2007] UKHL
17, [2007] 2 A.C. 432 at [37].
299. Lancashire Mortgage Corp Ltd v Scottish and Newcastle Plc [2007] EWCA Civ 684, [2007] All
E.R. (D) 68 (Jul) at [55], per Mummery L.J. (emphasis added).
300. [2005] EWCA Civ 45, [2005] W.T.L.R. 345.
301. [2005] EWCA Civ 45 at [40].
302. [2003] UKHL 17, [2003] 2 A.C. 541.
303. [2005] EWCA Civ 45 at [29].
304. [2008] UKHL 55, [2008] 1 W.L.R. 1752. See also at Capron v Government of Turks and Caicos
Islands [2010] UKPC 2, [33]–[40].
305. See further above, paras 4-146 et seq.

Page 13
306. [2008] UKHL 55 at [29].
307.
[2008] UKHL 55 at [29]; Dudley Muslim Association v Dudley MBC [2015] EWCA Civ 1123,
[2016] 1 P. & C.R. 10 at [33] (doubting the law as expressed in Yaxley v Gotts [2000] Ch. 162
noted in Vol.I, para.5-045) by reference to Lord Scott of Foscote’s view). Lord Walker
considered that it was not “necessary or appropriate to consider the issue of section 2” of the
1989 Act: [2008] UKHL 55 at [93].
308. [2009] UKHL 18, [2009] 1 W.L.R. 776. The decision was applied in Suggitt v Suggitt [2011]
EWHC 903 (Ch), [2011] 2 F.L.R. 875.
309. Above, paras 4-149—4-152.
310. [2009] UKHL 18 at [99] referring to Cobbe [2008] UKHL 55, [2008] 1 W.L.R. 1752 at [129].
311.
[2010] EWCA Civ 1095, [2010] N.P.C. 100. See also Kinnear v Whittaker [2011] EWHC 1479
(QB), [2011] All E.R. (D) 78 (Jun) (allowing the possibility of proprietary estoppel and preferring
the approach of the CA in Yaxley v Gotts [2000] Ch. 162 (above, para.5-040) to the approach
found in Lord Scott’s speech in Cobbe, quoted above, para.5-046; Ghazaani v Rowshan [2015]
EWHC 1922 (Ch) at [192] and [197] (allowing the possibility of proprietary estoppel/constructive
trust in the “exceptional circumstances” of the case); Muhammad v ARY Properties Ltd [2016]
EWHC 1698 (Ch) at [32]–[50]; Pinisetty v Manikonda [2017] EWHC 838 (QB) at [39]-[42]
(agreement not sufficiently certain to be enforced).
312. [2010] EWCA Civ 1095 at [56].
313.
[2010] EWCA Civ 1095 at [57]. According to the CA in Dowding v Matchmove Ltd [2016]
EWCA Civ 1233, [2017] 1 W.L.R. 749 at [32], Arden L.J. was not intending to describe three
different situations in which s.2(5) would not apply, but rather to describe the Cobbe case in
three different ways, which taken together meant that the party “never expected to acquire an
interest in the property otherwise than under a legally enforceable contract” (quoting Lord Scott
in Cobbe [2008] UKHL 55 at [37]). See also Crossco No.4 Unlimited v Jolan Ltd [2011] EWCA
Civ 1619, [2012] 2 All E.R. 754 at [107] and [133].
314. [2010] EWCA Civ 1095 at [58] referring to [2009] UKHL 18 at [93].
315. [2010] EWCA Civ 1095 at [71] and [73]) and see similarly Morgan L.J. [2010] EWCA Civ 1095
at [91].
316. Goff and Jones, The Law of Restitution, 7th edn (2007), p.579-580.
317. Megarry and Wade, The Law of Real Property 8th edn (2012) by Harpum, Bridge and Dixon,
para.11-032.
318.
Representative Body of the Church in Wales v Newton [2005] EWHC 631 (QB), [2005] All
E.R. (D) 163 (Apr) at [62], per Antony Edwards-Stuart Q.C. For general discussions of the
remedial flexibility of proprietary estoppel see Jennings v Rice [2002] EWCA Civ 159, [2002] All
E.R. (D) 324 (Feb); Powell v Benny [2007] EWCA Civ 1283, [2007] All E.R. (D) 71 (Dec);
Davies v Davies [2016] EWCA Civ 463, [2016] 2 P. & C.R. 10 esp. at [39]-[42]; Gardner (1999)
115 L.Q.R. 438 and (2006) 122 L.Q.R. 492 and above, paras 4-173—4-180.
319. See Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), Ch.12 preferring to
describe this law as “restitution on the ground of failure of basis”. See further below, paras
29-057 et seq.
320. Pulbrook v Lawes (1876) 1 Q.B.D. 284, 289, subject to the discretion of the court under the Law
of Property Act 1925 s.49(2).
Page 14
321. cf. Goff and Jones, The Law of Restitution, 7th edn (2007), paras 1-054—1-055. Of course, if
the acts of part performance were sufficient to satisfy the doctrine of part performance, then the
contract might be enforced in equity: Steadman v Steadman [1976] A.C. 536.
322. Thomas v Brown (1875–76) L.R. 1 Q.B.D. 714, 723 subject to the discretion granted to the
court under the Law of Property Act 1925 s.49(2).
323.
Birks, An Introduction to the Law of Restitution (revised edn 1989), p.223; and see Goff and
Jones, The Law of Unjust Enrichment, 9th edn (2016), para.12-003; below, paras 29-057 et
seq.
324. [2011] EWCA Civ 1383, [2012] 1 P. & C.R. 12 at [24] quoting Birks, n.300. Failure of
consideration was “the only suggested ground” of recovery of the deposit: [2011] EWCA Civ
1383 at [55] and cf. below, para.5-054.
325. [2011] EWCA Civ 1383, [2012] 1 P. & C.R. 12 at [25].
326. [2011] EWCA Civ 1383, [2012] 1 P. & C.R. 12 at [9].
327. [2011] EWCA Civ 1383 at [55], per Toulson L.J. giving judgment of the Court.
328. [2011] EWCA Civ 1383 at [26] (the reasons given by the judge below).
329. [2011] EWCA Civ 1383 at [8].
330.
[2011] EWCA Civ 1383, [2012] 1 P. & C.R. 12 at [55], per Toulson L.J. Sharma v Simposh
was applied by the CA in Marlbray Ltd v Laditi (on appeal from sub nom. Rabiu v Marlbray Ltd )
[2016] EWCA Civ 476, [2016] 1 W.L.R. 5147 at [81]–[93], [96], esp. at [92] where it was held
that a deposit paid by a joint and several purchaser off-plan of a long lease of a flat in a large
block should not be returned on the basis of a failure of consideration, even if the contract was
void under s.2 of the 1989 Act (which it was held not to be), as the purchaser had the benefit of
the specific unit chosen being taken off the market; the flat had been secured at a specific price;
the developer had (apparently) completed the works with the deposit as collateral; and the
purchaser had become entitled to 10 free days at a London hotel. For this purpose, it made no
difference that the deposit was held by a third-party stakeholder: [2016] EWCA Civ 476 at [99].
331. [2013] EWHC 956 (Ch) at [33], per H.H.J. Purle Q.C.
332. [2013] EWHC 956 (Ch) at [33].
333. [2013] EWHC 956 (Ch) at [38]–[41].
334.
[1998] 2 A.C. 349. See also Deutsche Morgan Grenfell Group Plc v IRC [2006] UKHL 49,
[2007] 1 A.C. 558 and Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), paras
9-101 et seq., especially paras 9–71 and 9–89 et seq.
335. See further, below, paras 29-047 et seq.
336. (1991) 64 P. & C.R. 452, 455. cf. Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ
900, [2012] 1 W.L.R. 2855 at [42] where Rimer L.J. interpreted this passage as saying ”no more
than that the fact that any agreed land transaction may not be compliant with section 2 does not
prevent the parties proceeding to its practical completion (for example, in the most conventional
case, by an assurance of the land interest against payment of the price)”.
337. [1998] 2 A.C. 349, 385-387. Lord Goff thereby rejected an argument to this effect found in Birks
(1993) 23 U.W.A.L.R. 195, 230.
338. [1998] 2 A.C. 349, 387.

Page 15
339. [1998] 2 A.C. 349, 415.
340. [1998] 2 A.C. 349, 415-416 and see Burrows [1995] R.L.R. 15, 18–19.
341.
cf. Deutsche Morgan Grenfell Group Plc v IRC [2006] UKHL 49, [2007] 1 A.C. 558 where the
HL considered whether the statutory tax regime under which the payments in question were
paid was incompatible as a matter of policy with restitutionary recovery on the ground of
mistake of law and found that it was not. See further Goff and Jones, The Law of Unjust
Enrichment, 9th edn (2016), para.2-21 et seq. which observes that “[t]he courts may refuse to
allow a claim in unjust enrichment where this would lead to the enforcement of a transaction
that a statute deems to be unenforceable. To decide whether a claim should be allowed, the
courts must identify the policy of the statute and then decide whether this would be stultified if
restitution were awarded”.
342. See Firstpost Homes Ltd v Johnson [1995] 1 W.L.R. 1567, 1576, per Peter Gibson L.J., quoted
above, para.5-010.
343. (1997) 74 P. & C.R. D1 at D3. cf. McCausland v Duncan Lawrie Ltd [1997] 1 W.L.R. 38, 45, 50
and see above, para.5-043.
344. Pulbrook v Lawes (1876) L.R. 1 Q.B.D. 284.
345. [1954] 3 D.L.R. 78 and cf. below, para.29-086.
346. cf. Bentley & Coughlan [1989] 10 L.S. 325.
347. cf. below, para.29-086. It may be thought that a more appropriate basis for recovery on facts
such as Deglman would be proprietary estoppel, on which see above, paras 5-044—5-049.
348. cf. below, para.29-082 referring to Craven-Ellis v Canons Ltd [1936] 2 K.B. 403 (void contracts)
and 29-086 (unenforceable contracts) referring to Deglman v Guaranty Trust Co of Canada and
Constantineau.
349. [1954] 1 Q.B. 428, 434, 437, 438.
350. See Law Com. No.164 (1987), para.2.9.
351. Goff and Jones, The Law of Restitution, 5th edn (1998), p.581. This passage does not appear
in subsequent editions. cf. above, para.5-051 regarding Singh v Sanghera [2013] EWHC 956
(Ch).

Page 1

Chapter 6 - Common Mistake 1
Section 1. - Introduction to Mistake
Types of mistake
6-001
As explained in the Introduction to Ch.3, the doctrine of mistake in the law of contract deals with
two rather different situations. In the first, there is some mistake or misunderstanding in the
communications between the parties which prevents there being an effective agreement (for instance,
if the parties misunderstand each other) or at least means that there is no agreement on the terms
apparently stated (for instance, if one party in an offer states terms which the other party knows the
first party does not intend, but nonetheless the other purports to accept). This first category of
mistake, which can generally be referred to as “mistake as to the terms or identity”, includes “mutual
misunderstanding”, where each is mistaken as to the terms intended by the other, 2 and “unilateral
mistake”, where only one of the parties is mistaken over the terms of the contract 3 or the identity of
the other party. 4 These issues are dealt with in Ch.3. In the second situation, the parties are agreed
on the terms of the contract but have entered it under a shared and fundamental misapprehension as
to the facts or the law. 5 Cases in this category are now usually referred to as “common” mistake, 6
for normally the mistake is legally relevant only if both parties have contracted under the same
misapprehension. It is this second situation that is dealt with in this chapter.
Mistakes as to facts and mistakes as to terms
6-002
In other words, the distinction between the two situations drawn in the previous paragraph is one
between mistakes as to the terms and mistakes as to the facts or law. 7 It is common to categorise the
situations in which the doctrine of mistake affects a contract 8 into cases of “common mistake”,
“unilateral mistake” or “mutual misunderstanding”. 9 This is useful, but it highlights only one of the
distinctions between the cases. For the purposes of the law, there is a second and vital distinction
between common mistake on the one hand and unilateral mistake or mutual misunderstanding on the
other. The doctrine of mistake takes account of a mistake as to the factual circumstances in which the
contract is made only if the mistake was common, i.e. both parties made substantially the same
mistake—for example, when an agreement was made to rent a room overlooking the route of a
coronation procession, that both parties believed that the procession was scheduled to take place on
the date concerned when in fact it had been cancelled. 10 Common mistake cases are ones in which:
“… both parties make the same mistake of fact or law relating to the subject-matter or the
facts surrounding the formation of the contract.” 11
(As will be seen, the mistake must also be fundamental. 12) In contrast, where only one of the parties
is mistaken as to the facts—a “unilateral” mistake as to the facts—there is no basis for relief under the
Page 2
doctrine of mistake. 13 A unilateral mistake or a mutual misunderstanding will only operate where the
mistake or misunderstanding is about the terms of the contract—for example, the price or the
contractual description of what is being sold, 14 and in cases of mistaken identity. 15
Money paid under mistake of fact
6-003
Mistake may also entitle a party who has paid money under the mistake to recover it back on the
basis of restitution (or unjust enrichment). 16 The subject of the recovery of money paid under a
mistake is principally dealt with in Ch.29 of this work.
“Mistake” implies a positive belief
6-004
It seems that relief will only be granted under the doctrine of mistake if one or both parties entered
the contract under a positive belief which was incorrect, rather than merely not having thought about a
particular issue. 17 Thus in all the cases in which a contract has been held to be void 18 for
common mistake, it seems that the parties had a positive belief that X was the case when it was not,
rather than merely making no assumptions about whether X was so or not. 19
Mistakes that are not legally relevant
6-005
Thus there are many situations that may loosely be called cases of “mistake” in which the contract
will nonetheless be binding. One example is the case considered earlier, in which one party enters
the contract under a mistake as to the facts which the other party does not share. 20 Suppose I buy a
ring mistakenly thinking it is a gold ring. Nothing is said by the vendor as to what the ring is made of 21
; but he knows that it is not gold. Even if he knows that I think the ring to be made of gold, I cannot
avoid the contract on the ground of mistake, though I would never have entered into it had I known
the true position. The mistake does not relate to the terms of the contract, which are simply to sell and
buy the specific ring, so neither mutual not unilateral mistake is relevant. Nor does the doctrine of
common mistake apply: though the mistake may be fundamental, it is not shared. 22 A second
example of a mistake that is not legally relevant is where the mistake is shared by both parties 23 but it
is not sufficiently fundamental to render the contract void. 24
Underlying policy
6-006
There are, of course, in modern contract law many circumstances in which liability may be imposed
on a party for the consequences of facts that are unknown to one of (or both) the parties. This may be
the result of the implication of appropriate terms by statute 25 or at common law, or by the normal
process of construction, or as the result of doctrines that have a limited application, such as
misrepresentation 26 or the duty of disclosure that applies to insurance contracts. 27 But subject to this,
a mistake about the facts surrounding the contract is relevant only if it is made by both parties and is
fundamental. A mistake as to the facts made by party A only is legally irrelevant, even if the other
party B knows of it, unless the mistake was caused by a misrepresentation by B. 28 Mere silence as
regards a material fact which the one party is not bound to disclose to the other is not a ground of
invalidity, for the principle that in relation to sale is referred to as caveat emptor (“let the buyer
beware”) is still the starting point of the English law of contract. 29 This sets English law apart from
Page 3
many of the continental systems, which not only seem to give relief in cases of shared mistake more
readily than does English law but which also may allow a party who has made a unilateral mistake
about the subject matter to avoid the contract provided the mistake was sufficiently serious. 30 The
restrictive approach to mistake seems to represent a strong policy underlying English contract law. As
Lord Atkin said 31:
“It is of paramount importance that contracts should be observed, and that if parties
honestly comply with the essentials of the formation of contracts—i.e. agree in the same
terms on the same subject-matter—they are bound, and must rely on the stipulations of
the contract for protection from the effect of facts unknown to them”. 32
Mistake and unconscionability
6-007
A qualification must be made to the general rule that a mistake as to the facts that is not shared, and
was not induced by a misrepresentation by the other party, is legally irrelevant. Facts that bring a
case within the category covered by the rules on “mistake” may, in an extreme case, give one party
the right to avoid the contract on the ground of unconscionability. 33 Broadly speaking, if one party is
suffering from what is sometimes termed a “special disability”, 34 such as “poverty, or ignorance, or
lack of advice”, 35 and the other party consciously takes advantage of the disability, the first party may
be entitled to avoid the contract. In many unconscionability cases the first party was in fact making the
contract under a misapprehension as to the facts, typically as to the value of the property he was
selling. 36 There is some suggestion that the doctrine may sometimes be used more broadly to
prevent one party taking unconscientious advantage of the other’s mistake. In Bank of Credit and
Commerce International SA (In Liquidation) v Ali (No.1) 37 Lord Nicholls said that where the party to
whom a general release was given knew that the other party has or might have a claim and knew that
the other party was ignorant of this, to take the release without disclosing the existence of the claim or
possible claim could be unacceptable sharp practice. The law would be defective if it did not provide a
remedy, and while the case did not raise the issue, he had no doubt that the law would provide a
remedy. 38 It is obvious that the unconscionability doctrine has the potential to undermine the principle
that a mistake as to the factual circumstances is irrelevant unless it is a common mistake, and the
courts will no doubt restrict it to cases of “special disability”.
Effects of mistake
6-008
The first type of mistake described in para.6-001 (termed above “mistake as to the terms or as to
identity”) is sometimes said to operate so as to negative consent, the second (termed above
“common mistake”) so as to nullify consent. 39 In other words, in the first case, the parties may not
have in fact reached an agreement; in the second, the common mistake renders the agreement
ineffective as a contract. In either case, if the mistake is operative the contract is said to be void ab
initio. This is correct in cases of common mistake; although until very recently there was authority for
the proposition that some common mistakes that would not make the contract void would nonetheless
give either party the right to avoid it, the Court of Appeal has now disapproved this line of cases. 40
The proposition that in cases of unilateral mistake and of mutual misunderstanding the contract is
also void ab initio must be treated with more reservation. This was explained in Ch.3. 41
6-009
Until recently it could be argued that what has been said above about the circumstances in which the
Page 4
law takes account of a mistake by both parties to a contract represented the position at common law;
and that the rules of equity “cut across this distinction”. 42 This referred to the line of cases to the
effect that in some circumstances a common mistake would give either party the right to avoid a
contract that was not void for mistake at common law, 43 based on a rule of equity. Now that these
cases have been disapproved, 44 and if the interpretation of certain cases of unilateral mistake that
was offered in Ch.3 45 is accepted, it seems that there is no inconsistency between common law and
equity. Equity will on occasion supplement the remedies available at common law: for example, a
mistake may entitle a party to a contract that has been reduced to writing to have the document
rectified if it is not expressed in accordance with the parties’ true intentions, or does not reflect the
terms that the claimant intended and the other party knew him to intend. 46
6-010
The only apparent “divergence” between the treatment of mistake cases in common law and in equity
is that the hardship that would be caused by granting specific performance of a contract made under
either unilateral or common mistake may lead to the court refusing specific performance as a matter
of discretion even though the mistake does not render the contract void or have any other effect at
common law. 47 As this is merely the denial of a particular remedy, and the contract remains binding
in other respects (e.g. the claimant would still be entitled to damages if the contract were not
performed 48) this is not a contradiction of the common law rules. 49 Thus in cases of contractual
mistake, common law and equity are consistent and equity plays only a minor role. Therefore in this
edition of this work there is no separate treatment of “Mistake in Equity”. 50
Is there a separate doctrine of mistake?
6-011
Any “doctrine” of mistake in English contract law seems to have emerged only in the late nineteenth
or even the twentieth century, 51 and from time to time commentators have argued that the doctrine is
redundant or that the cases are better explained on some other basis. 52 Thus it has been said that
cases of common mistake may be explained as resting on the construction of the contract, and in
particular on an implied condition precedent 53; while cases of unilateral and mutual mistake may be
no more than an application of the rules of offer and acceptance. 54 From a conceptual point of view
there is force in these arguments, and it is certainly hard to discern a single “doctrine” of mistake
when the two categories of case described above are subject to quite different rules. However in this
work it is assumed that there are distinct rules on mistake dealing with each category, and in
particular in the case of the “common” mistakes dealt with in this chapter. This is partly because the
courts have recognised distinct rules of common mistake 55 and partly because common mistake is
what may be called a “functional category”. In factual terms, a party may claim that both he and the
other party made the contract under an unstated misapprehension of some kind as to some fact
bearing on the contract. 56 We need to know what self-induced “mistakes” or (to use a word that does
not have legal connotations) “misapprehensions” the law will take account of and what the parties’
rights will be. Whether the rules that are applied are simply applications of more general rules, such
as the doctrine of implied conditions is from a functional viewpoint irrelevant; they are the rules that
govern these types of mistake.
Mistake and misrepresentation
6-012
In earlier paragraphs the factual situation to which the rules on mistake apply was described as one in
which one party, or both he and the other party, have entered the contract under a “self-induced”
misapprehension. This is to differentiate it from a closely similar situation that the law treats in a
different fashion, under the rubric of misrepresentation. If one party has entered the contract relying
on a statement made by the other party about some fact that is material to the contract, and the
statement was untrue, the first party will normally have a remedy for misrepresentation. At least if he
acts promptly he will normally be entitled 57 to avoid the contract for misrepresentation, and this is so
whether the misrepresentor, when he made the untrue statement, was acting fraudulently, negligently
Page 5
or wholly innocently. 58 In one sense, all cases of misrepresentation are also cases of
“misapprehension”, as at least one party, and often both the parties, entered the contract believing
the facts to be different to what they were. Because one party has misled the other, the law gives
relief even though the misapprehension is about the facts surrounding the contract 59 and is not of the
seriousness that we will see is required for relief to be given on the ground of mistake. However, if the
right to rescind has been lost, for example because of the lapse of time, 60 the misrepresentee may
have an effective remedy only if he can show that the contract was void for mistake.
Misrepresentation and common mistake
6-013
Relief may be given on the ground of misrepresentation whether the resulting misapprehension was
only on the part of the misrepresentee, as when he is the victim of a fraudulent misrepresentation by
the other, or whether both parties were under the same misapprehension, as in cases of “innocent”
misrepresentation. The misrepresentation cases are treated differently simply because one party
chose to make a statement of fact on which the other party relied when he entered the contract. 61 It
probably happens far more frequently that one party states the facts as he believes them, and the
other party enters the contract relying to some extent on that statement, 62 than that each enters the
contract relying on his own, equally mistaken view of the facts. This goes some way to explain why
there are relatively few cases in which a party seeks to escape from a contract on the ground of
common mistake: he will often be able to rescind the contract for misrepresentation, while it seems
that the other party, the misrepresentor, will be precluded from arguing that the contract is void for
common mistake. 63 Nonetheless, shared “self-induced” mistake over the facts does happen, and the
rules that apply in this type of case form the subject matter of the present chapter.
Common mistake and construction of the contract
6-014
The question of the effect of common mistake in the law of contract is basically one of the
allocation of risk as to the facts being as assumed. 64 In most situations one or other of the parties will
be considered to have assumed the risk of the ordinary uncertainties which exist when an agreement
is concluded. 65 Where contracts of sale of goods are concerned, for example, the seller will
normally be held to have assumed the risk that the goods do not correspond to their description, or, if
the seller sells in the course of a business, that they may be defective, under express or implied
terms, except insofar as the usual conditions are validly excluded, or may in the particular
circumstances be inapplicable. 66 The risk that for other reasons the goods will be less useful than the
parties envisaged will be borne by the buyer. Thus it has been said that one must first determine
whether the contract itself, by express or implied condition (promissory or non-promissory) or
otherwise, provides who bears the risk of the relevant mistake. Only if the contract is silent on the
point is there scope for invoking the rules or “doctrine” of mistake. 67 It has been pointed out that if the
enquiry whether the construction of the contract is only as to:
“whether either party has given an undertaking as to the matter at issue (i.e. if that is what
is meant by a provision as to ‘who bears the risk of the relevant mistake’), and the answer
is that neither has”
that does not preclude a second enquiry as to the effect of the mistake; but if it includes asking
whether, if neither bears the risk, the contract is as a matter of construction subject to an implied
condition precedent that the facts assumed existed, there seems to be no scope for asking whether
the contract is void for mistake. 68 In other words, if it does include asking whether the contract is
subject to such a condition, there is no room for an independent doctrine of common mistake. 69
Although the courts have held that there is a separate doctrine of mistake, 70 this is a formidable
Page 6
argument. It will be submitted that it can really be met only by admitting that, in cases which involve
the kind of facts to which the doctrine of common mistake might apply, the process of construction
and the application of the rules of mistake are really merely alternative ways of formulating the same
thing and reaching the same result. 71We will see later, however, that sometimes courts have held a
contract to be ineffective because as a matter of construction it was subject to an implied condition
which has not been fulfilled, in circumstances in which the requirements of common mistake do not
seem to have been met. 72
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016); Macmillan (2003)
119 L.Q.R. 625; Macmillan, Mistakes in Contract Law (2010).
2. See above, para.3-019
3. Above, paras 3-002 and 3-022 et seq.
4. Above, paras 3-036 et seq. The composite phrase “mistake as to terms or identity” is used as
the “mistake of identity” cases do not involve a mistake over the terms of the contract; but as
was seen, these cases depend on the terms of the offer or acceptance, so they are usefully
considered in Ch.3 also. Chapter 3 also deals with non est factum and rectification, including
rectification for common mistake, which is based on different principles to the doctrine of
common mistake that is discussed in the current chapter.
5. On mistakes as to the law, see below, para.6-052.
6.
The 29th and earlier editions of this work used the phrase “mutual mistake”, following the
terminology used by Lord Atkin in Bell v Lever Bros [1932] A.C. 161, and until recently some
other works adhered to this usage: e.g. Beatson, Anson’s Law of Contract, 28th edn (2002),
Ch.8. It is now more common to refer to this type of mistake as “common mistake” (e.g.
Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2015), Ch.8; Cheshire,
Fifoot and Furmston, Law of Contract, 16th edn (2012), Ch.8). The courts have also referred to
common mistake: e.g. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The
Great Peace) [2002] EWCA Civ 1407, [2003] Q.B. 679. One reason for using the phrase
“common mistake” is to reduce the risk of confusion with what is termed here “mutual
misunderstanding” (where the parties are at crosspurposes as to the terms of the contract): see
above, para.3-019.
7. As to mistake of law, see below, para.6-052.
8. Compare those cases in which the mistake is not legally relevant, below, para.6-005.
10. Griffith v Brymer (1903) 19 T.L.R. 434.
11.
Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2015), p.300.
13. Smith v Hughes (1871) L.R. 6 Q.B. 597; Statoil ASA v Louis Dreyfus Energy Services LP (The
Harriette N) [2008] EWHC 2257 (Comm), [2008] 2 Lloyd’s Rep. 685.

Page 7
17.
cf. Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.12-03. In
Pitt v Holt [2013] UKSC 26, [2013] 2 W.L.R. 1200, a case of a mistake affecting a voluntary
settlement, Lord Walker said (at [108]–[109]) that a mistake is different from ignorance,
inadvertence and misprediction as to the future. A mistake encompasses two states of mind,
namely an incorrect conscious belief or an incorrect tacit assumption as to a present matter of
fact or law, but does not encompass mere causative ignorance but for which the claimant would
not have acted as he did; Co-operative Bank Plc v Hayes Freehold Ltd [2017] EWHC 1820 (Ch)
at [143(i)], citing this paragraph of Chitty. The nature of the mistake that must be shown for a
settlor to obtain rectification of a voluntary settlement was discussed extensively: see below,
para.29-052.
18. Or voidable in equity, under a line of cases no longer accepted as good law: see below,
para.6-055.
19. As to cases of unilateral mistake as to the terms, see above, para.3-022.
21. Therefore there is no misrepresentation: compare below, para.6-012.
22.
Compare Anson’s famous “Dresden china” example: Anson’s Law of Contract, 28th edn,
p.324 (second scenario). The example is omitted from the 30th edition by Beatson, Burrows
and Cartwright (eds) (2015) but it is explained that a unilateral mistake of fact or law does not
render the contract void or give rise to an equitable jurisdiction to set aside the contract: p.300.
Friedmann (2003) 119 L.Q.R. 68, 79–81 argues that in such a case relief should be given, by
analogy of cases of innocent misrepresentation.
23. Again it is assumed that neither party has stated what he believes to be the facts. If he had, the
other might have a remedy for misrepresentation. See below, para.6-012.
24.
See below, para.6-015. Note that the grounds on which a voluntary settlement may be set
aside because of a mistake on the part of the settlor are much wider: see Pitt v Holt [2013]
UKSC 26; Kennedy v Kennedy [2014] EWHC 4129 (Ch) (rescission of self-contained and
severable part of settlement); Co-operative Bank Plc v Hayes Freehold Ltd [2017] EWHC 1820
(Ch) at [130]–[132]; Bainbridge v Bainbridge [2016] EWHC 898 (Ch) at [6] (applying the remedy
of rescission, as for misrepresentation, see below, para.7-126. Whether a transaction is subject
to the narrower rules that apply to contracts or the wider grounds that apply to voluntary
settlements depends on whether there was consideration for the transfer: Van der Merwe v
Goldman [2016] EWHC 790 (Ch), [2016] 4 W.L.R. 71
25. For example, the terms as to fitness for purpose that are implied into a contract for the sale of
goods where the goods are sold in the course of a business: see Sale of Goods Act 1979 s.14,
below, Vol.II, paras 44-094—44-112.
26. See below, para.6-012 and generally Ch.7.
28. In which case the rules on misrepresentation apply: see below, Ch.7.
29. Bell v Lever Brothers Ltd [1932] A.C. 161, 227; Keates v Lord Cadogan (1851) 10 C.B. 591;
Smith v Hughes (1871) L.R. 6 Q.B. 597, 603; Turner v Green [1895] 2 Ch. 203.
30.
For French and German Law see Beale, Fauvarque-Cosson, Rutgers, Tallon and Vogenauer,
Page 8
Casebooks on the Common Law of Europe: Contract Law, 2nd edn (2010), Ch.3, section 2; for
a broader survey of the European legal systems, Sefton-Green, Mistake, Fraud and Duties to
Inform in European Contract Law, 2nd edn (2009) and Cartwright, Misrepresentation, Mistake
and Nondisclosure, 4th edn (2016), para.15-34. See also Friedmann (2003) 119 L.Q.R. 68, who
demonstrates the links between the English doctrine of mistake and the “objective” principle in
contract (on which see above, para.2-003); H. Beale, Mistake and Non-disclosure of Facts:
Models for English Contract Law (2012).
31. Bell v Lever Bros Ltd [1932] A.C. 161, 224 (referring to common mistake, but the policy appears
to be a general one).
32. The reasons for this narrow approach in cases of common mistake are explored in MacMillan
(2003) 119 L.Q.R. 625, 657–658.
34. A phrase used by Deane J. in Commercial Bank of Australia v Amadio (1983) 151 C.L.R. 447,
474; see below, para.8-135.
35. Alec Lobb Ltd v Total Oil (Great Britain) Ltd [1983] 1 W.L.R. 87, 94–95, per Peter Millett Q.C.
sitting as a Deputy High Court Judge (reversed in part [1985] 1 W.L.R. 173); below, para.8-135.
36. e.g. Boustany v Piggott (1995) 69 P. & C.R. 298 (PC); below, para.8-136.
37. [2001] UKHL 8, [2002] 1 A.C. 251, in which the House of Lords held that a general release was
not effective to release a claim for “stigma” damages that neither party could have known about
38. [2001] UKHL 8 at [32]–[33]. Lord Bingham preferred not to address this question (at [20]), and
so it seems did Lord Clyde (at [87]).
41. See above, paras 3-029—3-035.
42. See the 28th edition of this work, para.5-001.
45. Above, paras 3-029—3-035. These paragraphs discuss the relationship between rectification
and unilateral mistake as to the terms at common law. There was very little authority to suggest
that unilateral mistake as to the facts was a ground for rescission in equity, and what there was
has recently been rejected.
48. See, e.g. Wood v Scarth (1855) 2 K. & J. 33 (equity), (1858) 1 F. & F. 293 (law).
49. cf. cases in which specific performance may be refused because of the hardship that would
result because of a subsequent change of circumstances: see below, para.6-061 and
para.27-036.
50. cf. Chitty, 28th edn, paras 5-060 et seq.

Page 9
52. e.g. Slade (1954) 70 L.Q.R. 385.
53. Smith (1994) 110 L.Q.R. 400. See below, para.6-016.
54. e.g. Slade (1954) 70 L.Q.R. 385; Atiyah, Essays in Contract (1986), Ch.9.
55. e.g. Bell v Lever Bros [1932] A.C. 161; Associated Japanese Bank International Ltd v Crédit du
Nord SA [1989] 1 W.L.R. 255; Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd
(The Great Peace) [2002] EWCA Civ 1407, [2003] Q.B. 679.
56. Or a “mistake” that resulted from a misrepresentation but the right to rescind for
misrepresentation has been lost. See below, para.6-012.
57. Subject in some cases to a statutory discretion in the court: see below, paras 7-104 et seq.
58. The law on misrepresentation is described in Ch.7.
59. One party might also make a misrepresentation as to the terms of the contract, for example as
to the contents of a written contract that the other party is being asked to sign. Where the
statement is that a particular term is or is not in the document, the result will normally be
determined by the rules that determine the content of the contract: see Ch.13 (Express terms),
in particular paras 13-099 et seq. (parol evidence rule) and Ch.15 (Exemption clauses). Where
the misrepresentation is as to the meaning of a clause in the contract the courts have also
fashioned a remedy: below, paras 7-020 and 15-146.
61. One justification given for granting a remedy even when the misrepresentor was acting wholly
innocently is that the statement may put the other party off from making further enquires that
might have revealed the truth: see below, para.7-042.
64. Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd [1977] 1 W.L.R. 164;
McTurnan, An Introduction to Common Mistake in English Law (1963) 41 Can. Bar Rev. 1;
Swan, Studies in Contract Law (1980); American Law Institute’s Restatement of Contracts (2d),
para.152.
65.
Co-operative Bank Plc v Hayes Freehold Ltd [2017] EWHC 1820 (Ch) at [143(ii)], citing this
sentence of the paragraph.
66. e.g. Gloucestershire CC v Richardson [1969] 1 A.C. 480 (normal implied term did not apply
when contractor had no right to object to supplier nominated by employer and supplier would
contract only on limited liability terms).
67. Associated Japanese Bank International Ltd v Crdit du Nord SA [1989] 1 W.L.R. 255, 268;
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2002]
EWCA Civ 1407, [2003] Q.B. 679 at [74]–[75]; Butters v BBC Worldwide Ltd [2009] EWHC
1954 (Ch) at [68]–[69], referring to this paragraph. See also William Sindall Plc v
Cambridgeshire CC [1994] 1 W.L.R. 1016, 1035; Grains & Fourriers SA v Huyton [1997] 1
Lloyd’s Rep. 628. Thus, in Kalsep Ltd v X-Flow BV, The Times, May 3, 2001 it was held that the
risk of the mistake which had been made was allocated to one party by an express clause of
the agreement. In Standard Chartered Bank v Banque Marocaine De Commerce Exterieur
[2006] EWHC 413 (Comm), [2006] All E.R. (D) 213 (Feb) the contract was held to be binding on
the alternative grounds that the mistake did not make the agreement essentially different and
that the risk was clearly allocated to one party.
Page 10
68. Smith (1994) 110 L.Q.R. 400, 407.
69. Smith (1994) 110 L.Q.R. 400, 419. The court might conclude that the contract has not allocated
the risk to either party, but the conditions for common mistake are not fulfilled (e.g. because the
mistake is not sufficiently fundamental), so that the loss lies where it falls. But this does not
demonstrate that there is a separate doctrine of mistake, as the same might occur on a
“construction” approach.
70. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2002]
EWCA Civ 1407, [2003] Q.B. 679 at [73] and [82], discussed below, para.6-034.
71. See below, paras 6-029 and 6-062—6-063.
72. See Graves v Graves [2007] EWCA Civ 660, [2007] All E.R. (D) 32 (Jul), discussed below,
para.6-063.

Page 1

Section 2. - Introduction to Common Mistake 73
Common mistake
6-015
Where the mistake is common, that is shared by both parties, there is consensus ad idem, but the law
may nullify this consent if the parties are mistaken as to some fact or point of law 74 which lies at the
basis of the contract. In summary, if: (i) the parties have entered a contract under a shared and
self-induced 75 mistake as to the facts or law 76 affecting the contract; (ii) under the express or implied
terms of the contract neither party is treated as taking the risk of the situation being as it really is 77;
(iii) neither party was responsible for or should have known of the true state of affairs 78; and (iv) the
mistake is so fundamental that it makes the “contractual adventure” impossible, or makes
performance essentially different to what the parties anticipated, 79 the contract will be void.
Different conceptual bases
6-016
While it is clear on the authorities that a doctrine of common mistake exists in English law, the
situation is complicated by the fact that there are three possible conceptual routes which have been
employed in considering whether a fundamental mistake has the result that a party can in effect
escape from the contract and recover any payment made or other benefit transferred: (1) that there
has been a total failure of consideration; (2) that the contract is subject to an express or implied
condition that the facts were as the parties believed them to be, or (to use a modern formulation
derived from the same argument) that it would be invalid if, on the true construction of the contract,
the essence of the obligations are impossible to perform; and (3) that there is a separate doctrine of
mistake. We will see that these grounds were not always kept distinct and the leading cases seem to
combine the three in a way that makes it hard to state the rules in a simple form. A further issue is
whether there is, or was, a separate rule for mistake in equity under which the contract would be
treated as voidable rather than void. The Court of Appeal 80 has now made it clear that no such
doctrine can have survived the decision of the House of Lords in the leading case of common
mistake, Bell v Lever Bros. 81
73. See Cheshire (1944) 60 L.Q.R. 175, 177; Tylor (1948) 11 M.L.R. 257, 262; Slade (1954) 70
L.Q.R. 385, 396; Bamford (1955) 32 S.A.L.J. 166; Atiyah (1957) 73 L.Q.R. 340; Atiyah and
Bennion (1961) 24 M.L.R. 421; McTurnan (1963) 41 Can. Bar Rev. 1; Stoljar (1965) 28 M.L.R.
265, 275; Smith (1994) 110 L.Q.R. 400.
Page 2
74. On mistake of law see below, para.6-052.
75. In other words, it is not a case where one party’s mistaken belief was induced by a
representation by the other party; cf. para.6-013, above. If it was, the first party will normally
have a remedy for misrepresentation, see Ch.7, below.
77. See below, paras 6-037—6-040.
78. In such cases the relevant party will normally be treated as bearing the risk of the mistake: see
below, para.6-039.
79. See below, paras 6-041—6-051.
EWCA Civ 1407, [2003] Q.B. 679. See below, para.6-055.
81. [1932] A.C. 161.

Page 1

Section 3. - Different approaches before Bell v Lever Bros
Total failure of consideration
6-017
There are a number of early cases in which the parties had bought and sold something which,
unknown to either of them, was very different to what they thought or even did not exist at all; but the
seller tried to claim the price or to retain the price paid. Thus in Strickland v Turner 82 the purchaser of
an annuity on the life of a man who was, unknown to both parties, already dead, was able to recover
the purchase price from the vendor on the basis of total failure of consideration, as the annuity had
ceased to exist at the time of the contract for sale. In Gompertz v Bartlett 83 an unstamped bill of
exchange was sold by the defendant to the plaintiff on a non-recourse basis. The parties believed that
it was a foreign bill but it was shown in fact to have been drawn in England and it was therefore
unenforceable for want of a stamp. The buyer sued to recover the price paid. The Court of Queen’s
Bench held that this was not merely a case of the bill being of poor quality, when the seller would
have been liable only if he had given an express warranty or had been fraudulent. The bill did not
meet the description of “a foreign bill” by which it was sold and the buyer was entitled to recover the
price.
Couturier v Hastie
6-018
In Couturier v Hastie 84 there was a sale of a cargo of corn which was believed to be in transit from
Salonica to the United Kingdom. Unknown to either party the cargo had deteriorated and had already
been sold by the master of the ship. The liability of the purchaser to pay the price depended upon the
construction of the contract. If the contract was a contract for the sale of that specific cargo of corn,
then the consideration for the contract had totally failed and the seller was not entitled to the price. If,
however, as the seller contended, it was a contract for the sale of the adventure, the seller had
performed his side of the contract by offering to deliver the shipping documents and the purchaser
was liable to pay the purchase price. The House of Lords, confirming the decision of the Exchequer
Chamber that had reversed a contrary decision by the Court of Exchequer, held that the contract was
for the sale of a cargo and therefore the purchaser was not bound to pay.
Seller liable for non-delivery
6-019
Neither Couturier v Hastie nor Gompertz v Bartlett was decided on the ground of mistake invalidating
the contract. In each case there was what would later be termed a total failure of consideration. 85 For
the purposes of the decision it did not matter whether the contract was valid or void; the purchaser
could not be compelled to pay for what he had never received. It seems more likely that the court
thought that the contract was valid and that the seller would have been liable, had he been sued, for
damages for failure to deliver the subject matter of the contract. Certainly this seems to have been the
Page 2
view of Parke B. In Barr v Gibson 86 the parties had bought and sold a ship that, unknown to either of
them, had already become stranded on rocks in the Gulf of St Lawrence. Parke B. said that the sale
as a “ship” implied a contract that the subject of the transfer did exist in the character of a ship. In
Couturier v Hastie in the Court of Exchequer, he said that where there is a sale of a specific chattel,
there is an implied undertaking that it exists. 87
Kennedy’s case
6-020
In Kennedy v Panama, New Zealand and Australian Royal Mail Co 88 the prospectus of a company
offering shares stated that fresh capital was required in order to fulfil a lucrative mail contract with the
Postmaster of New Zealand. The contract proved to be beyond the Postmaster’s authority to make
and the plaintiff, who had purchased shares in reliance on the prospectus, claimed to repudiate the
transaction on the ground that there had been a total failure of consideration. The Court of Queen’s
Bench refused to allow him to do so. In deciding whether or not that had been a total failure of
consideration so as to entitle the buyer to get his money back, Blackburn J. referred to the Roman law
on mistake and its distinction between mistakes as to substance, which in Roman law would
invalidate the contract, 89 and mistakes as to quality, which would not; and held that as the
misunderstanding about the shares went only to quality, there was no total failure of consideration. It
is easy to see how this might be interpreted as saying that a mistake as to substance might make the
contract void in English law. It is not clear that this was what was meant 90; and in any event, the fact
that a mistake has led to there being a total failure of consideration cannot lead straight to the
conclusion that the contract is void, since it might be that the seller is liable for non-performance. In
other words, total failure is not an independent ground on which a contract may be held void: rather, it
is a possible basis for an action for the recovery of money when the contract is void. 91 There will
equally be a total failure of consideration when one party has simply failed to perform. 92 Even in
cases in which at the time of sale the goods might have been said no longer to exist 93 (when in
Roman law there could be no contract for want of an object 94), in English law there might be an
implied promise that the thing existed, so that the seller would be liable for failing to deliver.
Development of an independent doctrine of common mistake
6-021
The cases of total failure of consideration seem to have played a central role in the development of a
doctrine of mistake in English law, but one that involved their being given a rather different
interpretation. The great work of Pothier was very influential. 95 His statement, derived from the
Roman law, that if there was no object (because, for example, the thing sold had ceased to exist
before the contract was made) there could be no contract of sale, was cited by counsel for the seller
96
in Couturier v Hastie 97 and may have formed the basis for s.6 of the Sale of Goods Act 1893. 98
This stated:
“Where there is a contract for the sale of specific goods, and the goods without the
knowledge of the seller have perished at the time when the contract was made, the
contract is void.”
The draftsman stated that the rule might be based on mutual mistake or impossibility of performance,
and cited Couturier v Hastie. 99
6-022
The notion that a contract might be void for mistake may also have been influenced by the
development of the idea that a contract depends upon agreement. It has been said that with the
emergence of the theory of consensus ad idem, “it became possible to treat misrepresentation, undue
Page 3
influence and mistake as factors vitiating consent”. 100 At any event, in the early years of the last
century there were a few cases in which contracts entered on the basis of a common mistake were
held to be void. 101
Express or implied condition
6-023
Meanwhile situations of “common mistake” were also sometimes approached on the basis of that the
contract might be subject to a condition that the facts were as the parties believed them to be, just as
“frustration” cases were explained on the basis that there was an implied condition that the facts
would remain as they were. The foundations of the doctrine of frustration were laid in 1863 in the
judgment of Blackburn J. in Taylor v Caldwell. 102 In that case the subject-matter of the contract had
been destroyed by fire after the contract had been made and before the date for its performance. The
Court of Queen’s Bench held that performance of the contract was excused by reason of an implied
term:
“… in contracts in which the performance depends on the continued existence of a given

person or thing, a condition is implied that the impossibility of performance arising from
the perishing of the person or thing shall excuse the performance.” 103
The same approach was applied when subsequent events made the contract a completely different
venture from that which the parties had contemplated. 104 The courts would later abandon the notion
that the doctrine of frustration rests on an implied term. 105 Though in 1916 Earl Loreburn was still
basing frustration on an implied condition of the contract, 106 in the “coronation cases” that arose out
of the sudden cancellation of the coronation of King Edward VII 107 the question was said to be
whether the parties must have contemplated a particular state of affairs as forming the foundation of
the contract. If, because of some event for which neither party was responsible, the contract becomes
impossible because the state of things assumed by the parties as the foundation of the contract
ceases to exist, the contract will be frustrated. 108 In Griffith v Brymer 109 Wright J. applied the same
principle to a case of common mistake, one in which the contract had been made after the
announcement of the cancellation of the procession, and held that the agreement was void because it
was made on a missupposition that went to the whole root of the matter. Thus common mistake
cases were sometimes dealt with by analogy to frustration, which was derived originally from the
notion of an implied condition.
Cases in equity
6-024
In the eighteenth and nineteenth centuries there were many cases in the courts of equity in which it
was held that relief could be given where an agreement had been made under a mistake. It is not
easy to discern the basis for relief. Some cases were based on a wide notion of fraud in equity 110
which has probably not survived the decision of the House of Lords in Derry v Peek. 111 Others seem
to have involved undue influence. 112 Yet others give no real hint of the basis of relief but their facts
were similar to those involving total failure of consideration. 113 While some cases suggest that equity
might grant rescission on the basis of a common mistake that was not induced by one of the parties,
“no coherent equitable doctrine of mistake can be spelt from them”. 114
6-025
It appears that rescission was granted in Cooper v Phibbs. 115 A had agreed to take a lease of a
fishery in Ireland from B, though contrary to the belief of both parties at the time A was himself tenant
in tail of the fishery. The proceedings were brought in equity 116 and the House of Lords ordered that
the agreement should be set aside. However the respondents had a lien on the fishery for the money
they had spent on its improvement. Lord Westbury said that if parties contract under a mutual mistake
Page 4
and misapprehension as to their relative and respective rights, the result is that the agreement is
liable to be set aside as proceeding upon a common mistake. 117
82. (1852) 7 Exch. 208, 155 E.R. 919.
83. (1853) 2 El. & Bl. 849, 118 E.R. 985.
84. (1856) 5 H.L.C. 673, HL; (1853) 9 Exch. 102 (Ex.Ch.); (1852) 8 Exch. 40.
85. In Gompertz v Bartlett (1853) 2 El. & Bl. 849, 854, 118 E.R. 985, 987 Lord Campbell C.J. said
that the money paid for the bill could be recovered as it was paid in mistake of the facts. See
Lord Atkin’s comment in Bell v Lever Bros [1932] A.C. 161, 222, on Gompertz v Bartlett and
Gurney v Wormesley (1854) 3 El & Bl 133: “In these cases I am inclined to think that the true
analysis is that there is a contract, but that the one party is not able to supply the very thing
whether goods or services that the other party contracted to take; and therefore the contract is
unenforceable by the one if executory, while if executed the other can recover back money paid
on the ground of failure of the consideration.”
86. (1838) 3 M. & W. 390; 150 E.R. 1196.
87. 8 Ex. 40, 55; 155 E.R. 1250, 1257.
88. (1867) L.R. 2 Q.B. 580.
89. Lawson (1936) 52 L.Q.R. 79 argued that the Roman texts were not wholly clear on the effect of
such a mistake. If the thing did not exist at all, there would be no object and therefore no
contract; that did not depend on a doctrine of mistake but on the lack of an object.
90. In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2002]
EWCA Civ 1407, [2003] Q.B. 679 at [59] the Court of Appeal agreed with this comment.
91.
Although when a contract is void for common mistake either party will be able to obtain
restitution (see, e.g. Peel, Treitel on The Law of Contract, 14th edn (2015), para.22-013), there
is some uncertainty as to the basis of the restitutionary remedy. One possibility is that restitution
is permitted simply because the contract is void: Treitel at paras 22-014—22-015. When a
contract is void for mistake there will usually be a total failure of consideration, as was held to
be the case in Strickland v Turner (1852) 7 Exch. 208, but it has been argued that this does not
necessarily follow from the fact that the contract is void, as it might nonetheless have been
completely executed: Burrows, Law of Restitution, 3rd edn (2011), p.386. But even in such a
case it seems that either party would be able to recover on the basis that he had performed
under a mistake: see Treitel at para.22-016. Mistake appears to have been the basis of
recovery in Pritchard v Merchant’s and Tradesman’s Mutual Life Assurance Society (1858) 3
C.B.(N.S.) 622, 645. See Burrows at pp.387–388.
92. See below, paras 29-057 et seq., which follows modern terminology by referring to “failure of
basis” rather than the traditional “failure of consideration”.
93. As in Barr v Gibson (1838) 3 M. & W. 390, 150 E.R. 1196.
94. See above, n.90.

Page 5
95. See Simpson (1975) 91 L.Q.R. 247, 266–269.
96. Who argued that this was not a case of a sale of something that had ceased to exist but a sale
of an expectation. Counsel for the defendant was not called upon.
97. (1856) 5 H.L.C. 673.
98. See now Sale of Goods Act 1979 s.6, which is identical.
99. See Chalmers, The Sale of Goods Act 1893 (1894), p.17, cited in Great Peace Shipping Ltd v
Tsavliris Salvage (International) Ltd (The Great Peace) [2002] EWCA Civ 1407, [2003] Q.B. 679
at [52].
100. Steyn J. in Associated Japanese Bank International Ltd v Credit du Nord SA [1989] 1 W.L.R.
255, 264.
101. Scott v Coulson [1903] 2 Ch. 249 (contract for sale of life assurance policy when person whose
life was assured was already dead. Vaughan Williams L.J. at p.252, said the contract was void
at law); Galloway v Galloway (1914) 30 T.L.R. 531 (separation deed between parties who
incorrectly thought they were married held void).
102. (1863) 3 B. & S. 826, 122 E.R. 309.
103. (1863) 3 B. & S. 826, 833–834.
104. Jackson v Union Marine Insurance Co Ltd (1874) L.R. 10 C.P. 125.
106. F.A. Tamplin Steamship Co Ltd v Anglo-Mexican Products Co Ltd [1916] 2 A.C. 397, 403–404.
107. See below, paras 23-033—23-034.
108. See the judgments of Lord Alverstone C.J. in Hobson v Pattenden & Co (1903) 19 T.L.R. 186
and Clark v Lindsay (1903) 19 T.L.R. 202; and of Vaughan Williams L.J. in Krell v Henry [1903]
2 K.B. 740, 749.
109. (1903) 19 T.L.R. 434.
110. e.g. Hitchcock v Giddings (1817) 4 Price 135, 146 E.R. 418 (fraud in equity for a party to
bargain and sell as if he had title to the property when he had none).
111. (1889) 14 App. Cas. 337: below, para.7-048.
112. e.g. Cocking v Pratt (1750) 1 Ves. Snr. 400; 27 E.R. 1150. On undue influence, see below,
paras 8-057 et seq.
113. e.g. Bingham v Bingham (1748) 1 Ves. Snr. 126; 27 E.R. 934 (purchaser bought an estate
which later was found already to have belonged to him; “a plain mistake such as the court was
warranted to give relief against”). In Cochrane v Willis (1865) L.R. 1 Ch. 58 an agreement was
made on the basis that a tenant for life was alive when in fact he had died. The Court of Appeal
held that it would be contrary to all the rules of equity and common law to enforce it or hold a
party bound by it.
EWCA Civ 1407, [2003] Q.B. 679 at [100], quoting Goff and Jones, Law of Restitution, 5th edn
(1998), 288 (see more recently 7th edn (2007), para.9-044). On the “mistake” cases in equity
before 1875 see Macmillan, Mistakes in Contract Law (2010), Ch.3.
115. (1867) L.R. 2 H.L. 149.

Page 6
116. See Matthews (1989) 105 L.Q.R. 599.
117. See also Earl of Beauchamp v Winn (1873) L.R. 6 H.L. 223, 233. Lord Westbury’s suggestion
that the contract is merely “liable to be set aside” has been criticised in the House of Lords: see
below, para.6-056.

Page 1

Section 4. - Mistake at Common Law
(a) - Bell v Lever Bros
Bell v Lever Bros
6-026
The law on common mistake was extensively reviewed by the House of Lords in Bell v Lever Brothers
Ltd. 118 There an action was brought by Lever Brothers for the recovery of money paid to the two
defendants under the following circumstances. Lever Brothers had large interests in Africa and set up
a subsidiary company, called the Niger Company, to control them there. The defendants were
members of the board of the Niger Company and received large salaries in respect of their service
agreements with Lever Brothers. One of the conditions of their service agreements was that they
were not to make any private profit for themselves by doing business on their own account while
serving the company. The defendants did in fact make such profits, unknown to Lever Brothers and
undisclosed by the defendants. Lever Brothers, having made other arrangements for their interests in
Africa, desired to terminate the service agreements with the defendants before their expiry, and
accordingly entered into compensation agreements with them whereby the defendants consented to
terminate their service agreements in consideration of the payment to them of large sums of money.
After the money had been paid, Lever Brothers discovered the breaches of their service agreements
committed by the defendants, which would have entitled the company to dismiss them summarily
without notice or compensation. They therefore claimed to recover the sums which they had paid on
the ground, inter alia, that they had entered into the compensation agreements under the mistaken
assumption that the service contracts could only have been determined by them with the consent of
the defendants.
6-027
At the trial of the action, the jury found that there was no evidence of fraud on the part of the
defendants, and that when they entered into the compensation agreements they had not directed
their minds to their previous breaches of duty. The case was therefore one of common (or as their
Lordships described it, mutual) 119 mistake, as both parties had made the same mistaken assumption.
Wright J. held that this assumption that a state of facts existed which entitled the defendants to
compensation was essential to the agreement; consequently there could be no binding contract, and
Lever Brothers were therefore entitled to recover the money paid. This decision was unanimously
affirmed by the Court of Appeal. Scrutton and Greer L.JJ. both held that if the contract is made on the
basis of a state of facts which is fundamental to the contract, and which turns out not to exist, the
contract is void. Greer L.J. based this on an implied condition, 120 Scrutton L.J. on either an implied
term or mutual mistake as to the assumed foundation of the contract, which he regarded as “only
another way of putting the proposition”. 121 In the House of Lords an appeal by the defendants was
allowed by a majority of three to two. Lord Blanesburgh, 122 one of the majority, based his opinion
largely on the fact that mutual mistake had not been originally pleaded. The other two majority
opinions, those of Lord Atkin 123 and Lord Thankerton, 124 both rested on the ground that the mistake
was not sufficiently fundamental to avoid the contract, although they reached this conclusion by
somewhat different paths. Lord Warrington of Clyffe (with whom Lord Hailsham agreed) dissented,
not on the law but on its application to the facts. 125
Page 2
Lord Atkin’s analysis
6-028
In his speech Lord Atkin gave a number of instances in which a common mistake would nullify the
parties’ consent. He accepted that there is indeed a separate doctrine of mistake that, when the
mistake is shared, may “nullify consent”. 126 First, he said that when there is a sale of a thing that has
ceased to exist, or that already belongs to the buyer, the contract will be void. Then he stated that:
“… mistake as to quality of the thing contracted for raises more difficult questions. In such
a case a mistake will not affect assent unless it is the mistake of both parties, and is as to
the existence of some quality which makes the thing without the quality essentially
different from the thing as it was believed to be.” 127
Applying this test to the facts of the case, Lord Atkin concluded that the contracts to terminate the
defendants’ service agreements were not void merely because it turned out that the agreements had
already been broken and could have been terminated otherwise.
“The contract released is the identical contract in both cases, and the party paying for the
release gets exactly what he bargains for.” 128
6-029
Lastly, Lord Atkin turned to what he calls “an alternative way of expressing the result of a mutual
mistake”. He accepted a proposition formulated by counsel for the respondents:
“Whenever it is to be inferred from the terms of a contract or its surrounding

circumstances that the consensus has been reached upon the basis of a particular
contractual assumption, and that assumption is not true, the contract is avoided; i.e. it is
void ab initio if the assumption is of present fact and it ceases to bind if the assumption is
of future fact.” 129
However, Lord Atkin seemed to think this alternative way of expressing the result of a mutual mistake
as one that gives little guidance as to when a condition should be implied that the facts are as the
parties believed them to be:
“… [if] the contract expressly or impliedly contains a term that a particular assumption is a
condition of the contract, the contract is avoided if the assumption is not true. But we
have not advanced far on the inquiry whether the contract does contain such a condition
… The implications to be made are to be no more than are ‘necessary’ for giving
business efficacy to the transaction; and it appears to me that as to both existing and
future facts a condition should not be implied unless the new state of facts makes the
contract something different in kind from the contract in the original state of facts [Lord
Atkin referred to a number of cases on frustration] … We therefore get a common
standard for mutual mistake and implied conditions, whether as to existing or as to future
facts.” 130
Thus it seems that Lord Atkin viewed saying that the contract was subject to an implied condition
precedent and saying that it was void for mutual mistake as different ways of putting the same thing,
and that he regarded the latter as having more explanatory power as to when the contract will fail.
Page 3
The last sentence of the passage quoted also suggests that he thought there is a direct parallel
between common mistake and frustration. Lord Thankerton, in contrast, rejected the implied term
approach: the frustration cases had “no bearing on the question of error or mistake as rendering a
contract void owing to failure of consideration”. 131
A separate doctrine
6-030
Thus Bell v Lever Bros seemed to establish the existence in English law of a doctrine of common
mistake which is separate from the effect of an implied condition, though often it will lead to the same
results.
118. [1932] A.C. 161. The background to the case and its progress through the courts are explored
in MacMillan (2003) 119 L.Q.R. 625.
119. See above, para.6-001 n.7.
120. [1931] 1 K.B. 577, 595.
121. [1931] 1 K.B. 577, 585.
122. [1932] A.C. 161, 167. Lord Blanesburgh also held that the payments were irrecoverable as: (i)
the defendants’ service contracts were made with the Niger Company and not with the plaintiffs;
and (ii) the payments were in part voluntary, since they greatly exceeded in value the unexpired
portion of the service agreements.
123. [1932] A.C. 161, 210.
124. [1932] A.C. 161, 229.
125. [1932] A.C. 161, 200. On the difference between the majority and minority views see below,
n.129.
126. [1932] A.C. 161, 217.
127. [1932] A.C. 161 at 218.
128. [1932] A.C. 161, 223–224. In contrast, it seems the minority considered the subject-matter to be
not just a contract of employment but a binding contract of employment: see [1932] A.C. 161 at
208–209.
129. [1932] A.C. 161, 225.
130. [1932] A.C. 161, 225–226.
131. [1932] A.C. 237.

Page 1

(b) - The Modern Doctrine
(i) - Analysis after Bell v Lever Bros
McRae’s case
6-031
The notion of a doctrine of common mistake was not accepted throughout the common law world. In
McRae v Commonwealth Disposals Commission 132 the defendants sold to the plaintiffs an oil tanker
said to be lying on a certain reef off New Guinea. The plaintiffs thereupon fitted out a salvage
expedition, but found that there was no tanker at the place indicated, nor even any such reef. They
brought an action against the defendants claiming damages for breach of contract. The High Court of
Australia held that the plaintiffs were entitled to succeed. The principal ground was that the
Commission had promised that the tanker existed. They should have known that it had never existed,
whereas the plaintiffs knew nothing except what the defendants told them. It followed that no
condition could be implied into the contract that it was to be void if the tanker was not in existence.
Dixon and Fullagar JJ., giving the leading judgment, doubted whether there was a doctrine of
common mistake in contract. They thought that in cases such as Couturier v Hastie, the fundamental
question is:
“What did the promisor really promise? Did he promise to perform his part in all events, or
only subject to the mutually contemplated original or continued existence of a particular
subject matter? … the problem is fundamentally one of construction.” 133
However they said that if there is a doctrine of common mistake, a party cannot rely on a mistake
consisting “of a belief which is entertained without any reasonable ground, and … deliberately
induced by him in the mind of the other party”. 134
Subsequent cases
6-032
Notwithstanding the views expressed in McRae’s case, the doctrine was applied by the Privy Council
in Sheikh Bros Ltd v Ochsner, 135 where the parties’ mistake had led them to make a contract that was
impossible to perform. The case was decided under the Indian Contract Act 1872 s.20, which enacts
that where both the parties to an agreement are under a mistake as to a matter of fact essential to the
agreement, the agreement is void, but the English authorities on the law of mistake were expressly
cited to the Board. The contract was for the production of a stated amount of sisal on a piece of land
and was held to be void when the land turned out to be incapable of producing the quantity contracted
for. In Nicholson and Venn v Smith-Marriott 136 Hallett J. said that the buyers could have treated a
contract for the sale of table linen which the parties believed to have been the property of Charles I
Page 2
when it was in fact Georgian as not binding on them.
The Associated Japanese Bank case
6-033
In Associated Japanese Bank International Ltd v Crédit du Nord SA 137 Steyn J. gave a detailed
account of the doctrine. The plaintiffs had entered a sale and lease-back agreement with B and the
defendants had guaranteed the performance of B’s obligations under the lease. It was then
discovered that the machines purportedly sold and leased back did not exist and the arrangement
was a fraud perpetrated by B. Steyn J. held that the defendants were not liable on the guarantee,
which was expressly or by necessary implication subject to a condition precedent that the leases
related to machines that existed. 138 He went on to say that in his view the guarantee was also void for
common mistake. Steyn J. said that Bell v Lever Bros had decided that a mistake might render a
contract void provided it rendered the subjectmatter essentially different from what the parties
believed to exist. 139 The doctrine was subsequently applied in a number of other cases. 140
The Great Peace
6-034
In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) 141 the
principal point was the rejection of the equitable doctrine that had been developed by earlier decisions
of the same court. However, the judgment contains a valuable discussion of the doctrine of mistake at
common law. The Court of Appeal also were quite clear that there is a separate doctrine of common
mistake, which will apply “where that which is expressly defined as the subject matter of a contract
does not exist”. 142 But as to mistakes in relation to the quality of the subject matter of the contract, the
Court favoured a different approach to Lord Atkin’s. It preferred to approach the question of common
mistake as a parallel to the doctrine of frustration. Although originally frustration was based on an
implied condition, and that approach was still favoured in some twentieth-century cases, 143 it has
since been rejected as unrealistic. The modern approach is to say that frustration takes place
whenever a supervening event that occurs without the fault of either party and is not provided for in
the contract so changes the nature of the outstanding obligations from what the parties could
reasonably have contemplated that it would be unjust to hold them to the literal terms of the contract.
144
Equally the Court of Appeal were quite clear that the doctrine of common mistake is a rule of law,
not based on an implied term. 145 However:
“… the implication of a term of the same nature as that which was applied under the
doctrine of frustration, as it was then understood … was a more solid jurisprudential basis
for the test of common mistake that Lord Atkin was proposing.” 146
A mistake, including one as to some quality of the subject-matter, will render a contract void only if the
non-existence of the state of affairs assumed by the parties rendered the contract or the contractual
adventure impossible. 147
Elements of common mistake
6-035
According to the Court of Appeal:
“… the following elements must be present if common mistake is to avoid a contract: (i)
there must be a common assumption as to the existence of a state of affairs; (ii) there
Page 3
must be no warranty by either party that that state of affairs exists; (iii) the nonexistence
of the state of affairs must not be attributable to the fault of either party; (iv) the
non-existence of the state of affairs must render contractual performance impossible; (v)
the state of affairs may be the existence, or a vital attribute, of the consideration to be
provided or circumstances which must subsist if performance of the contractual
adventure is to be possible.” 148
In what follows we will discuss these elements in more detail, and consider how the doctrine may
apply in particular fact situations.
132. (1951) 84 C.L.R. 377; Tommey v Finextra (1962) 106 S.J. 1012.
133. (1951) 84 C.L.R. 377, 407–408.
134. (1951) 84 C.L.R. 377, 408.
135. [1957] A.C. 136.
136. See (1947) 177 L.T. 189, 192. The case was said to have been wrongly decided on this point in
Solle v Butcher [1950] 1 K.B. 671, 692, but that case itself has been disapproved: see below,
para.6-058.
137. [1989] 1 W.L.R. 255.
138. [1989] 1 W.L.R. 255, 263. On this point see below, para.6-037.
139. [1989] 1 W.L.R. 255, 266.
140. In Re Cleveland Trust Plc [1991] B.C.L.C. 424 the common law of mistake was applied to a
bonus issue of shares which was held to be void when a subsidiary’s dividend, which was to
pay for the issue, was held to be ultra vires. In Grains & Fourriers SA v Huyton [1997] 1 Lloyd’s
Rep. 628 the parties believed the results in two certificates of analysis to have been
transposed. An agreement to rectify them was void when it was discovered that there had been
no transposition, so the rectification would produce the very result it was supposed to avoid.
EWCA Civ 1407, [2003] Q.B. 679; K. Low, Exploring Contract Law (2009) 319.
142. [2002] EWCA Civ 1407 at [55].
143. See the cases in para.23-010 n.41, below.
EWCA Civ 1407, [2003] Q.B. 679 at [70], quoting National Carriers Ltd v Panalpina (Northern)
Ltd [1981] A.C. 675, 700. See further below, para.23-013.
145. [2002] EWCA Civ 1407 at [73] and [82].
146. [2002] EWCA Civ 1407 at [61].

Page 4
147.
[2002] EWCA Civ 1407 at [76]. In Chancery Client Partners Ltd v MRC 957 Ltd [2016] EWHC
2142 (Ch), [2016] Lloyd’s Rep. F.C. 578 it was held that the contract was not void for common
mistake because its performance was not impossible (at [37]). See also National Private Air
Transport Co v Kaki [2017] EWHC 1496 (Comm) at [25(iii)].
148. [2002] EWCA Civ 1407 at [76].

Page 1

(b) - The Modern Doctrine
(ii) - Conditions for Common Mistake to Render Contract Void
Common assumption as to the existence of a state of affairs
6-036
We saw earlier that mistake requires that the parties have a positive belief in something which is not
in fact true 149; and that where the mistake is as to the nature of the subject matter or the factual
circumstances, relief on the ground of mistake is possible only where the parties made the same
mistake. 150 They may not have to believe precisely the same thing but they must make “substantially”
the same mistake. 151
Risk not allocated to either party
6-037
It is evident that in order to decide whether the subject matter has turned out to be essentially
different or the contractual adventure has turned out to be impossible, and therefore the contract is
void for “mistake”, the court must construe the contract and, in particular, consider the contractual
allocation of risk. In The Great Peace 152 the Court of Appeal quoted Steyn J.’s words in the
Associated Japanese Bank case:
“Logically, before one can turn to the rules as to mistake, whether at common law or in
equity, one must first determine whether the contract itself, by express or implied
condition precedent or otherwise, provides who bears the risk of the relevant mistake. It is
at this hurdle that many pleas of mistake will either fail or prove to have been
unnecessary. Only if the contract is silent on the point, is there scope for invoking
mistake.” 153
In the summary of the rules of mistake from The Great Peace quoted above, 154 the court refers to a
warranty by one party or the other that the state of affairs exists. That may be the case either because
the law allocates a particular risk to one party (e.g. where the goods do not conform to the contract)
155
or because that is the correct interpretation on the facts. 156 But the Court points out that relief on
the ground of mistake may also be precluded because the risk is allocated under the contract in other
ways than by a warranty, for example when the correct interpretation is that the buyer takes the risk
that the property sold is less valuable than the parties suppose, or that each party takes the risk that
the facts will turn out to be less favourable than he hopes. 157 We will see a particular application of an
allocation of the risk of this kind when we come to consider compromise agreements which turn out to
have been made on a mistaken assumption about the law. 158
Page 2
Non-existence of the state of affairs must not be attributable to the fault of either party
6-038
The most obvious meaning of this is that the contract will not be void if one party should have
known the truth, since he could have prevented the parties from making the mistake they did. 159
The rule that a party who should have known the truth cannot rely on common mistake at common
law was first stated by Steyn J. in the Associated Japanese Bank case 160 : he derived it from
McRae’s case, in which the High Court of Australia had said that a party cannot rely on a mistake
consisting:
“… of a belief which is entertained without any reasonable ground, and … deliberately

induced by him in the mind of the other party.” 161
Steyn J. also referred to a similar requirement stated in Solle v Butcher, 162 one of the “equitable
mistake cases which is no longer treated as good law”. 163 It has been pointed out that Steyn J.’s
principle goes further than what is stated in McRae’s case, since the latter refers only to cases in
which one party should have known the truth and (by a promise or representation) induced the other
party to share the same mistaken belief. 164 In those circumstances the party who induced the
other’s belief will almost invariably have committed at least a negligent misstatement if not (as in
McRae’s case) a breach of warranty, and he should not be permitted to avoid liability by arguing that
the resulting contract was void. But it is submitted that relief on the ground of mistake should be
denied in at least two further cases. 165
One party in better position to discover the truth
6-039
The first is the situation encompassed by Steyn J.’s wider principle. If a party entered the contract
relying on his own self-induced mistake rather than any misrepresentation by the other, he will only
wish to argue that the contract is void for common mistake if otherwise he would bear the risk of the
facts being as in truth they are. Thus in Griffith v Brymer, 166 had the contract not been void the hirer
would have had to pay the agreed fee even though there would be no procession to watch. If he could
have discovered the true situation and have prevented either party from being mistaken, it seems
appropriate to place the risk on him by preventing him from arguing that the contract was void. The
rule will give parties who have reasonable means to discover the truth an incentive to do so. It is
submitted that Steyn J.’s wider principle should be followed.
Misrepresentor cannot rely on common mistake
6-040
The second situation is where the party who is claiming that the contract is void induced the other
party’s mistake, and the other party to enter the contract, by an innocent, non-negligent
misrepresentation. Although the issue is unlikely to arise in practice, it is submitted that in principle
the misrepresentor should not be able to raise common mistake as a defence to a claim for remedies
for misrepresentation—for example, if the other party were to seek an indemnity for costs or liabilities
incurred as part of the process of rescission. 167
Non-existence of the state of affairs must render contractual performance impossible

Page 3
6-041
In The Great Peace the Court of Appeal appears to assume that where the subject matter of the
contract does not exist, the contract will necessarily be one that cannot be performed. 168 In other
cases, even if performance in a literal sense is possible, the mistake may be such that the contractual
venture is impossible and the contract will again be void. Each of these propositions needs
examination. We will consider first cases in which it turns out that property “sold” no longer exists, or
already belongs to the buyer. 169 We will then turn to cases in which the subject matter differs in
quality from what the parties believed and the Court of Appeal’s preferred explanation in terms of the
impossibility of the contractual venture. 170
Sale of thing that has ceased to exist
6-042
Lord Atkin said 171:
“So the agreement of A and B to purchase a specific article is void if in fact the article had
perished before the date of sale. In this case, though the parties in fact were agreed
about the subject-matter, yet a consent to transfer or take delivery of something not
existent is deemed useless, the consent is nullified. As codified in the Sale of Goods Act
the contract is expressed to be void if the seller was in ignorance of the destruction of the
specific chattel. I apprehend that if the seller with knowledge that a chattel was destroyed
purported to sell it to a purchaser, the latter might sue for damages for non-delivery
though the former could not sue for non-acceptance, though I know of so case where the
seller has so committed himself.”
Although we have seen that the nineteenth century cases of sales of a non-existent thing were
unclear as to whether the contract was void or merely not enforceable by the seller, 172 there are
cases that apply s.6 and hold the contract to be void. 173 There are two questions that remain unclear,
however. One is posed by the fact that Lord Atkin’s statement and s.6 refer strictly to those cases
where the subject matter of the contract has once been in existence, but has subsequently perished
before the contract is made. The question is whether the same principles apply where the subject
matter of the contract has never been in existence at all. The second is whether the fact that the
subject matter of the contract has perished always renders the contract void, particularly if the seller
should have known the truth. These questions will be considered in the following paragraphs.
Sale of goods that have never existed
6-043
Although such a case is outside both s.6 of the Sale of Goods Act 1979 and Lord Atkin’s dictum, there
seems no reason why in an appropriate case the same principle should not apply, with the result that
(subject to what is said in the next paragraph) the contract will be void. Such facts did arise in the
Australian case of McRae v Commonwealth Disposals Commission 174 though, as we have seen, the
High Court held that the contract was not void for other reasons. 175
Seller responsible if should have known that goods have ceased to exist
6-044
Although Lord Atkin appears to refer to an absolute rule that if the subject matter has ceased to exist,
the sale must be void, it is submitted that this is not the case except perhaps in cases to which s.6 of
Page 4
the Sale of Goods Act applies. 176 We have seen that earlier cases sometimes based the doctrine of
common mistake on an implied condition, in parallel with the doctrine of frustration. This made it clear
that the condition would not occur, and thus the contract would not be void, unless the mistake came
about without the fault of either party. In other words, the court may refuse to imply such a condition
where it would be inappropriate, and it would normally be inappropriate to do so when one of the
parties should have known the true situation and therefore could have prevented the mistake. 177 Lord
Atkin’s acceptance of the “alternative way of formulating the effect of a mutual mistake” seems to
accept that whether the contract will be nullified will depend on its construction. This is reflected also
in the summary found in the judgment in The Great Peace. 178 If the seller should have known that the
goods no longer exist, he will be treated as warranting that the goods do exist and this will exclude
the doctrine of common mistake.
Section 6 cases
6-045
Where, however, the case is one of the sale of goods which have perished before the contract was
made, s.6 of the Sale of Goods Act 1979 may preclude such a result, since it provides that the
contract will be void. 179 It is possible that the parties are unable to vary this rule by contrary
agreement. 180 In the light of McRae’s case and the fact that under s.6 a seller who knows that the
goods no longer exist may nonetheless commit himself to deliver, it seems unlikely that a modern
court would accept that s.6 necessarily has the effect that a seller who ought to have known that the
goods no longer exist will escape liability. It is submitted that even though s.6 is not expressly stated
to apply only if the parties have not agreed otherwise, it is a statement of the “default position” which
will apply unless in the circumstances the contract should be construed otherwise. 181
Sale of non-existent goods: a question of construction
6-046
In reliance upon the McRae decision, it has been suggested that a contract concerning non-existent
subject-matter is always valid and binding unless a condition can be implied to the contrary. 182 It is
submitted that the question is really one of the construction of the contract. Normally, the parties will
be taken to have contracted on the basis that the subject-matter of their agreement was in existence:
the inference is that neither party assumed the risk of such mischance. 183 Prima facie, therefore, the
contract will be void. But if (as was argued in Couturier v Hastie 184) one of the parties contracts to
purchase an adventure, he binds himself to pay in any event. Conversely, if the seller either expressly
or impliedly assumes responsibility that the subject-matter of the contract is in existence, he will be
liable in damages if in fact it is non-existent. As we have seen, a seller will be normally be taken to
have assumed responsibility for facts about which he should have known.
Sale of property already belonging to the buyer
6-047
Lord Atkin said:
“Corresponding to mistake as to the existence of the subject-matter is mistake as to title

in cases where, unknown to the parties, the buyer is already the owner of that which the
seller purports to sell to him. The parties intend to effect a transfer of ownership; such a
transfer is impossible; the stipulation is naturali ratione inutilis.” 185
186
In support, he cited the case of Cooper v Phibbs and Lord Westbury’s statement that if parties
Page 5
contract under a mutual mistake and misapprehension as to their relative and respective rights, the
result is that the agreement is liable to be set aside as proceeding upon a common mistake. Lord
Atkin said that the only criticism that could be made of this statement was that the agreement “would
appear to be void rather than voidable”. We will consider the last point below. 187 It is submitted that
the position with sales of property that belong to the buyer is directly parallel to that of sales of goods
that do not exist. The question is again one of the construction of the contract. Normally the parties
will be taken to have contracted on the basis that the subject-matter did not already belong to the
buyer. Prima facie, therefore, if that turns out to be the case the contract will be void. However, if one
party should have known the truth the contract will be binding on him; he will be taken to have
assumed responsibility. 188
Mistakes as to quality of subject matter
6-048
On mistakes as to the quality of the subject matter, Lord Atkin said:
“… mistake as to quality of the thing contracted for raises more difficult questions. In such
a case a mistake will not affect assent unless it is the mistake of both parties, and is as to
the existence of some quality which makes the thing without the quality essentially
different from the thing as it was believed to be.” 189
Lord Thankerton, though phrasing his view in a negative sense, seems to have agreed with Lord
Atkin: he said that a common mistake would not avoid the contract unless it related “to something
which both must necessarily have accepted in their minds as an essential and integral part of the
subject matter”. 190 Lord Blanesburgh, who would not have allowed the plea of mistake to be put
forward at such a late stage, nonetheless said that he was in “entire accord” with what Lord Atkin
said. 191
6-049
In the light of Lord Atkin’s statement it has been suggested that a distinction should be drawn
between a mistake as to the substance of the thing contracted for, which will avoid the contract, and
mistake as to its qualities, which will be without effect. 192 Moreover, all the examples given by Lord
Atkin were aimed at supporting his conclusion that the contracts in question in Bell v Lever Bros were
not void, and are ones in which he said that the contract would not be void because the mistake did
not make the thing essentially different:
“A buys B’s horse; he thinks the horse is sound and he pays the price of a sound horse;
he would certainly not have bought the horse if he had known as the fact is that the horse
is unsound. If B has made no representation as to soundness and has not contracted that
the horse is sound, A is bound and cannot recover back the price. A buys a picture from
B; both A and B believe it to be the work of an old master, and a high price is paid. It
turns out to be a modern copy. A has no remedy in the absence of representation or
warranty. A agrees to take on lease or to buy from B an unfurnished dwelling-house. The
house is in fact uninhabitable. A would never have entered into the bargain if he had
known the fact. A has no remedy.” 193
There is thus some doubt whether a common mistake as to the quality of the subject matter will ever
render a contract void for mistake.
Impossibility of the contractual venture
6-050
Page 6
In The Great Peace the Court said that the cases cited by Lord Atkin in support of his statement
“form an insubstantial basis for his formulation”. 194 One was Kennedy v Panama, New Zealand and
Australian Royal Mail Co, 195 in which, as we saw earlier, it is not clear that Blackburn J. was intending
to say that a mistake as to substance would make a contract void at English law. The other was Smith
v Hughes, 196 which does not appear to be relevant. 197 However, the Court said that just as a contract
may be frustrated if subsequent events make the contractual adventure impossible, so a contract may
be void for common mistake if the mistake is as to:
“… the existence, or a vital attribute, of the consideration to be provided or circumstances

which must subsist if performance of the contractual adventure is to be possible.” 198
Where it is possible to perform the letter of the contract but it is alleged that there was a common
mistake in relation to a fundamental assumption which renders performance of the essence of the
obligation impossible it is a matter of construction to decide whether this is the case. 199
“… it is necessary to identify what it is that the parties agreed would be performed. This
involves looking not only at the express terms, but at any implications that may arise out
of the surrounding circumstances. In some cases it will be possible to identify details of
the ‘contractual adventure’ which go beyond the terms that are expressly spelt out, in
others it will not.” 200
What mistakes may frustrate contractual venture?
6-051
Clearly a contract which turns out to be literally impossible to perform may be void for mistake,
provided the other conditions set out above are met. But what other kinds of case may fall within the
phrase, “frustration of the contractual venture”—or, for that matter, following Lord Atkin’s formulation,
make the subject matter “essentially different from the thing it was believed to be”? 201 The cases give
examples: a contract for “a room with a view” when in fact there was no procession to look at 202; a
guarantee of a lease of machines when in fact no machines existed 203; possibly the sale of a life
insurance policy on someone the parties did not know was already dead. 204 Beyond this it is not easy
to generalise. However it has been argued that an appropriate test for determining whether a mistake
is fundamental is to ask the parties “what are you contracting about”? If they would both identify the
subject matter in terms that are correct (e.g. in Bell v Lever Bros they would have answered, “[w]e are
contracting about a service agreement”) the mistake is not fundamental. If they would identify the
subject matter in terms that in fact are not correct, the mistake is fundamental. 205 This argument
is attractive but it presupposes that the correct test is one of the identity of the subject matter. That fits
Lord Atkin’s analysis 206 but not necessarily that in The Great Peace.
149. Above, para.6-004.
150. Above, para.6-005.

Page 7
151. Associated Japanese Bank (International) Ltd v Crédit du Nord [1989] 1 W.L.R. 255, 268.
152. [2002] EWCA Civ 1407, [2003] Q.B. 679 at [80].
153. Associated Japanese Bank (International) Ltd v Crédit du Nord [1989] 1 W.L.R. 255, 268.
154. See para.6-035.
156. In Standard Chartered Bank v Banque Marocaine De Commerce Exterieur [2006] EWHC 413
(Comm), [2006] All E.R. (D) 213 (Feb) the contract was held to be binding on the alternative
grounds that the mistake did not make the agreement essentially different and that the risk was
clearly allocated to one party. See also Butters v BBC Worldwide Ltd [2009] EWHC 1954 (Ch)
at [68]–[69].
157. See [2002] EWCA Civ 1407 at [81], referring to the judgment of Hoffmann L.J. in William Sindall
Plc v Cambridgeshire CC [1994] 1 W.L.R. 1016 at 1035, that: “Such allocation of risk can come
about by rules of general law applicable to contract, such as ‘caveat emptor’ in the law of sale
of goods or the rule that a lessor or vendor of land does not impliedly warrant that the premises
are fit for any particular purpose, so that this risk is allocated by the contract to the lessee or
purchaser.”
158. Below, para.6-053.
159.
It is possible that there is an exception to this when s.6 of the Sale of Goods Act 1979
applies, since that section seems at first sight to state an absolute rule that the contract is void:
but it will be submitted that this is not the correct interpretation of the section, which should be
interpreted as stating the prima facie position. See below, para.6-045. In National Private Air
Transport Co v Kaki [2017] EWHC 1496 (Comm) the state of affairs was attributable to the
claimant’s fault because it resulted from the claimant’s non-performance of another contract
(see at [25(ii)]).
160.
Associated Japanese Bank (International) Ltd v Crédit du Nord [1989] 1 W.L.R. 255, 268.
Steyn L.J.’s dictum was applied in National Private Air Transport Co v Kaki [2017] EWHC 1496
(Comm) at [25(i)].
161. (1951) 84 C.L.R. 377, 408.
162. [1950] 1 K.B. 671, 693. Steyn J. also noted that the civilian doctrine of error in substantia is
qualified by the principles governing culpa in contrahendo: [1989] 1 W.L.R 255, 269.
164.
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.15-22; Peel,
Treitel on The Law of Contract, 14th edn (2015), para.8-005.
165. The second is considered in para.6-040.
166. (1903) 19 T.L.R. 434. See above, para.6-023.
168. [2002] EWCA Civ 1407 at [55].
169. Below, paras 6-042—6-047.
170. Below, para.6-0448.

Page 8
172. Above, paras 6-017—6-019.
173. e.g. Turnbull v Rendell (1908) 27 N.Z.L.R 1067; Barrow, Lane & Ballard Ltd v Phillip Phillips &
Co [1929] 1 K.B. 574, in which A agreed to buy and B to sell 700 specific bags of nuts lying in a
particular warehouse. Unknown to both parties, 109 bags had been stolen prior to the sale. The
contract was held void. However, it should be noted that the surviving bags were delivered and
paid for; the action was brought by the sellers for the price of the missing bags.
174. (1950) 84 C.L.R. 377.
175. Above, para.6-031.
176. On this point see below, para.6-045.
177. cf. The Great Peace [2002] EWCA Civ 1407, [2003] Q.B. 679 at [84] (“ … whether … one or
other party has taken responsibility … is another way of asking whether one or other party has
taken the risk … and the answer to this question may well be the same as the answer to the
question of whether the impossibility of performance is attributable to the fault of one party or
the other”).
179. cf. Atiyah (1957) 83 L.Q.R. 340, 348; Sale of Goods Act 1979 s.55. An extensive discussion of
the meaning of “perish”, in the context of the New Zealand equivalent of s.7, can be found in
Oldfields Asphalts v Govedale Coolstores (1994) Ltd [1998] 3 N.Z.L.R. 479.
180.
See Peel, Treitel on The Law of Contract, 14th edn (2015), para.8-010.
181.
cf. Adams and MacQueen, Atiyah and Adams’ Sale of Goods, 13th edn (2016), p.80;
Benjamin’s Sale of Goods, 9th edn (2014), para.1-132. Alternatively, it might be held that the
seller was liable for breach of a collateral warranty (see below, para.13-004, though there might
be problems over consideration, see Peel, Treitel on The Law of Contract, 14th edn (2015),
para.8-010) or in tort for damages for negligent misstatement, if such should exist, under the
principle stated in Hedley Byrne & Co v Heller & Partners [1964] A.C. 465. It is doubtful whether
he could be liable under Misrepresentation Act 1967 s.2(1), as that subsection applies “where a
person has entered a contract” and thus may not apply when the contract is void for mistake.
182. Svanosio v McNamara (1956) 96 C.L.R. 186; Slade (1954) 70 L.Q.R. 385; Shatwell (1955) 33
Can. Bar Rev. 164; Atiyah (1957) 73 L.Q.R. 340.
183. Couturier v Hastie (1856) 5 H.L.C. 673, 681; Barrow, Lane & Ballard Ltd v Phillip Phillips & Co
[1929] 1 K.B. 574, 582; Corbin, Contracts (1960) Vol.3, para.600; American Law Institute’s
Restatement of Contracts (1932), paras 456, 460 and Restatement of Contracts (2d), para.263;
Uniform Commercial Code s.2-613.
184. (1856) 5 H.L.C. 673; see above, para.6-018.
185. Bell v Lever Bros [1932] A.C. 161, 218. In Lictor Anstalt v MIR Steel UK Ltd [2014] EWHC 3316
(Ch) the parties thought that a piece of plant was a chattel belonging to one of them when in
fact it was annexed to land belonging to the other. It was argued that a contract to rent the plant
to the second party was void for common mistake, but it was held that the agreement was not
void, as aspects of the agreement were still capable of performance (at [210]–[216]).
186. (1867) L.R. 2 H.L. 149. See above, para.6-025.
187. Below, para.6-056.

Page 9
188. If the seller should have known, the practical difference will be slight or nil, as the buyer will
recover the money he has paid on either supposition; and by definition he has the property. It is
conceivable that the buyer might be held to have agreed to pay in any event (compare the
argument in Couturier v Hastie (1856) 5 H.L.C. 673, above, para.6-018) but this seems very
unlikely. The buyer might have to pay anyway if he and not the seller should have known.
189. [1932] A.C. 161, 218.
190. Bell v Lever Bros [1932] A.C. 161, 236.
191. [1932] A.C. 161, 198–199.
192. Tylor (1948) 11 M.L.R. 257.
193. [1932] A.C. 161, 224.
EWCA Civ 1407, [2003] Q.B. 679 at [61].
195. (1867) L.R. 2 Q.B. 580.
196. (1871) L.R. 6 Q.B. 597. See above, para.3-025.
197. See The Great Peace [2002] EWCA Civ 1407, [2003] Q.B. 679 at [59]–[60].
198. [2002] EWCA Civ 1407 at [76].
199. [2002] EWCA Civ 1407 at [82].
200.
[2002] EWCA Civ 1407 at [74]. Thus the test now seems to be whether performance of the
contract or the contractual venture has turned out to be impossible. See also Co-operative Bank
Plc v Hayes Freehold Ltd [2017] EWHC 1820 (Ch) at [143(iii)]. In Dana Gas PJSC v Dan Gas
Sukuk Ltd [2017] EWHC 1896 (Comm) H.H. Judge Waksman QC said (at [65]) that common
mistake is not confined to cases where the contract is impossible to perform, but he cited the
headnote to The Great Peace [2003] Q.B. 679 (which speaks of the contract performance being
essentially different from the performance the parties had contemplated) rather than what was
said by the Court of Appeal itself (at [76], quoted in Main Work, Vol.I, para.6-035); and in any
event it seems to have been arguable in the Dana Gas case that the contractual venture was
impossible, see at [68].
202. Griffiths v Brymer (1903) 19 T.L.R. 434, above, para.6-023.
203. Associated Japanese Bank (International) Ltd v Crédit du Nord [1989] 1 W.L.R. 255, cited with
apparent approval in The Great Peace [2002] EWCA Civ 1407 at [93].
204. Scott v Coulson [1903] 2 Ch. 249. In The Great Peace [2002] EWCA Civ 1407 the Court seems
to have had some difficulty in explaining this decision but did not say it was wrong (at [87]–[88]).
205.
Peel, Treitel on The Law of Contract, 14th edn (2015), para.8-019.
206.
But not his example of the picture thought to be an Old Master, where the parties would
presumably have said they were buying and selling “ a Rembrandt” rather than just “a picture”:
see Peel, Treitel on The Law of Contract, 14th edn (2015), para.8-020.

Page 1

Section 5. - Mistakes of Law
Mistakes as to law
6-052
Until recently, it was established that, for a common mistake to be operative at common law, 207 and
(when it was thought that there might be a separate equitable right to rescind) 208 in equity, 209 it must
be a mistake as to fact and not one as to law. This did not apply when an error as to the meaning of a
document resulted in a mistake as to private rights which led to a party attempting to buy his own
property. 210 Moreover, a question of foreign law is a question of fact. 211 The rule that a mistake of
pure law could not invalidate a contract seems to have been based on the rule that only a mistake of
fact would entitle a party to claim restitution on the grounds of mistake. 212 In Kleinwort Benson Ltd v
Lincoln City Council the House of Lords held that the latter rule is not part of English law. 213 It was not
immediately clear whether this would affect the law of common mistake. The grounds on which a
payment made by mistake may be recovered are wider than those on which a contract may be void
for common mistake. 214 This is said to be because of the policy favouring finality of contracts. 215 Thus
a mistaken payment may be recovered without showing that the mistake was fundamental or that the
recipient shared the payer’s mistake. 216 However, it has been accepted by the Court of Appeal that in
principle a fundamental common mistake as to law may render a contract void; the principle
underlying the decision in the Kleinwort Benson case 217 is not confined to restitution. However, on the
facts (which involved a compromise agreement) the agreement was not void for common mistake. 218
Mistake of law and compromise agreements
6-053
In Brennan v Bolt Burdon 219 the Court of Appeal accepted that a mistake of law may render a
contract void. However, there is not a mistake of law if the relevant law was merely in doubt, as the
majority held it was in this case; the parties could have discovered that the relevant decision was
under appeal. In addition, when combined with the “declaratory theory of law” espoused in the
Kleinwort Benson case, that when a decision is overturned the previous view of the law was
mistaken, 220 the mistake of law rule would threaten the finality of compromise agreements. In the
view of Maurice Kay L.J. and Bodey J., a compromise agreement is one under which each party
should be treated as accepting the risk that their view of the law might subsequently turn out to be
mistaken. 221 The court left open the question whether a mistake of law could ever invalidate a
compromise agreement if, as a matter of construction, the compromise applies. 222 To exempt
compromises altogether from the mistake of law rule might not be inconsistent with the Kleinwort
case, as Lord Goff 223 and Lord Hope 224 had suggested that in a restitution case there might be a
defence of “settlement of an honest claim”. Maurice Kay L.J. doubted if a mistake of law would ever
render performance impossible. 225 Sedley L.J. considered that in mistake of law cases the test of
impossibility was too narrow; he would apply a test of whether the mistake destroyed the subject
matter. 226 Subsequently the Court of Appeal 227 has said that in practice it makes little difference
which approach is followed: on Sedley L.J.’s approach the contract would be void only if the mistake
renders “the subject matter of the contract essentially and radically different from the subject matter
which the parties believed to exist”. 228 On the facts before the court, this test was not satisfied.
However, Lord Hoffmann has suggested that a party who pays a sum demanded when he is doubtful
Page 2
whether or not he is liable should not always be treated as taking the risk. 229
Mistake of law and consent orders
6-054
In S v S 230 it was held that a mistake of law was not a sufficient ground to set aside a consent order
231
made in ancillary relief proceedings, though there was no such mistake on the facts. One ground
for the decision, that the Kleinwort principle was confined to restitution cases, was later rejected in
Brennan v Bolt Burdon 232 but Maurice Kay L.J. expressed sympathy with the other ground, that public
policy favouring an end to litigation must prevail. 233
207. Beesley v Hallwood Estates Ltd [1960] 1 W.L.R. 549, 563, affirmed [1961] Ch. 105.
209. Stone v Godfrey (1854) 5 De G.M. & G. 76, 90; Rogers v Ingham (1876) 3 Ch. D. 351, 357;
Alcard v Walker [1896] 2 Ch. 369, 375; Re Diplock [1948] Ch. 465 (affirmed sub nom. Ministry
of Health v Simpson [1951] A.C. 251); Whiteside v Whiteside [1950] Ch. 65, 74; see below,
para. 29-044. However in Solle v Butcher [1950] 1 K.B. 671 the Court of Appeal assumed that
no relief could be given where the mistake was purely one of law.
210. Cooper v Phibbs (1867) L.R. 2 H.L. 149. As we have seen, on the facts of this case the contract
would now to be regarded as void: above, para.6-047.
211. Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd (The Amazonia) [1990] 1 Lloyd’s
Rep. 236.
212. Bilbie v Lumley (1802) 2 East 469: see below, paras 29-044 et seq.
213. Kleinwort Benson Ltd v Lincoln City Council [1999] 2 A.C. 349; below, para.29-046.
214. Below, para.29-035.
215. See the authors cited in para.29-035 n.193.
217. [1999] 2 A.C. 349.
218. Brennan v Bolt Burdon [2004] EWCA Civ 1017, [2005] Q.B. 303.
219. [2004] EWCA Civ 1017, [2005] Q.B. 303.
220. [1999] 2 A.C. 349, e.g. 378–379 (Lord Goff), 399 (Lord Hoffmann), cf. 410 (Lord Hope).
221. [2004] EWCA Civ 1017 at [31] and [39]; cf. above, para.6-037. Bodey J. would imply a term to
that effect (at [42]). Sedley L.J. reached the same result by considering the agreement in its
factual matrix (at [64]).
Page 3
222. cf. Bank of Credit and Commerce International SA (In Liquidation) v Ali (No.1) [2001] UKHL 8,
[2002] 1 A.C. 251, in which the House of Lords held that a general release was not effective to
release a claim for “stigma” damages that neither party could have known about.
223. [1999] 2 A.C. 349, 382G.
224. [1999] 2 A.C. 349, 412F–G.
225. [2004] EWCA Civ 1017 at [22].
226. [2004] EWCA Civ 1017 at [60].
227. Kyle Bay Ltd (t/a Astons Nightclub) v Underwriters Subscribing under Policy No.019057/08/01
[2007] EWCA Civ 57, [2007] 1 C.L.C. 164 at [24]–[26].
228. Steyn J. in Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 W.L.R.
255, 268.
229. Deutsche Morgan Grenfell Group Plc v Inland Revenue Commissioners [2006] UKHL 49, [2007]
1 A.C. 558 at [27]; see below, para.29-038.
230. [2003] Fam. 1.
231. On consent orders see below, para.6-060 n.276.
232. [2004] EWCA Civ 1017, [2005] Q.B. 303.
233. [2004] EWCA Civ 1017 at [12].

Page 1

Section 6. - No Separate Rule in Equity
No separate doctrine of common mistake in equity
6-055
In The Great Peace 234 the Court of Appeal held that there is no separate jurisdiction in equity to set
aside a contract on the ground of common mistake if the contract is not void at common law. This
decision, it is to be hoped, ends years of uncertainty following the earlier decision of the Court of
Appeal in Solle v Butcher. 235 The Supreme Court has accepted, obiter, that Solle v Butcher has been
effectively overruled by The Great Peace. 236
Previous authority on common mistake in equity 237
6-056
We saw earlier that before Bell v Lever Bros Ltd 238 no coherent equitable doctrine of mistake had
developed. 239 In that case Lord Atkin did not advert to a separate equitable doctrine; he approved
Lord Westbury’s words in Cooper v Phibbs 240 subject to the remark that “the agreement would
appear to be void rather than voidable”. 241 At least so far as common mistake is concerned, the
modern equitable principle of rescission was developed by the Court of Appeal in the case of Solle v
Butcher. 242 Drawing upon the various cases in which contracts have been set aside on the ground of
mistake, together with those in which the defendant has been given the option to rescind or accept
rectification, 243 the Court of Appeal enunciated a new doctrine of mistake in equity: that the courts
have a discretionary jurisdiction to grant such relief as in the circumstances seems just, including
setting aside the contract on terms. In that case, the defendant leased to the plaintiff a dwelling-house
which both parties erroneously believed to have been so altered in structure that it had become a
“new” dwelling-house and fell outside the restrictions imposed by the Rent Acts. The controlled rent of
the house was £140 per annum, but the rent inserted in the lease was £250 per annum. The plaintiff
claimed to recover the money overpaid, and, in his defence, the defendant counter-claimed for
rescission of the lease on the ground of mutual mistake. The majority of the Court of Appeal 244
considered that there had been a mutual mistake of fact. They ordered that the lease should be
rescinded, but on the terms that the plaintiff should choose whether to accept the rescission or claim
a new lease at the full rent of £250 per annum. In his judgment Denning L.J. said 245:
“It is now clear that a contract will be set aside if the mistake of one party has been
induced by the material misrepresentation of the other, even though it was not fraudulent
or fundamental; or if one party, knowing that the other is mistaken about the terms of an
offer, or the identity of the person by whom it is made, lets him remain under his delusion
and concludes a contract on the mistaken terms instead of pointing out the mistake … A
contract is also liable in equity to be set aside if the parties were under a common
misapprehension either as to facts or as to their relative or respective rights, provided that
the misapprehension was fundamental, and that the party seeking to set it aside was not
himself at fault.”
Page 2
Denning L.J said that the correct interpretation of Bell v Lever Bros was that:
“… if the parties have agreed in the same terms on the same subject matter, the contract
is good unless and until it is set aside for failure of some condition on which the existence
of the contract depends, or for fraud, or on some equitable ground.” 246
Lord Denning M.R. (as he by then was) applied this doctrine again in the Court of Appeal case of
Magee v Pennine Insurance. 247 In this case the court held by a majority 248 that an agreement by an
insurance company to pay £385 on the occurrence of the risk insured against was invalidated
because the policy was voidable, though this was only discovered later, but the second member of
the majority, Fenton Atkinson L.J., did not make it clear whether he regarded the contract as void or
voidable. 249 The supposed equitable rule was applied in a number of cases at first instance. 250 In
Associated Japanese Bank International Ltd v Crédit du Nord SA Steyn J. said that he would have
been prepared to set the contract aside even if he had not found it to be void at common law. 251 And
in West Sussex Properties Ltd v Chichester DC 252 the Court of Appeal had considered itself bound by
the decision, but apparently without argument because counsel had accepted that it was good law
unless and until overturned by the House of Lords. 253
Scope of supposed equitable jurisdiction
6-057
Even if it was accepted that there was an equitable jurisdiction to set aside a contract on terms on the
ground of a mutual mistake, there remained doubt about how the jurisdiction was to be exercised.
First, it was suggested above that the common law doctrine will not apply if the risk is one which the
contract expressly or by implication puts on one of the parties. 254 Given the general importance of
upholding agreements and the agreed allocation of risk, 255 it would have been surprising if relief were
given in equity in these circumstances. However, the only explicit limitation upon the equitable
doctrine was that the party seeking relief should not be at fault, and it has to be said that relief was
sometimes given when the normal allocation of risk would suggest that it should be denied. In Grist v
Bailey 256 a vendor sold property subject to an existing tenancy which both parties thought was
protected, when in fact both the protected tenant and her husband were dead. Although neither the
vendor nor her solicitor were personally at fault, it seems more natural to put the risk of this kind of
mistake occurring on the vendor; yet the contract was set aside. 257 Perhaps it was relevant that if it
had been upheld the purchaser would have received a considerable windfall at the vendor’s expense.
Secondly, it seemed that there must be some difference between common law and equity in the
seriousness of the mistake which was necessary for the doctrine to operate, or it would be hard to
see why the contract in Solle v Butcher was not void at common law. However, it is not easy to see
the difference between a mistake rendering the thing contracted for essentially different from what it
was believed to be (or rendering the contractual adventure impossible) and a fundamental mistake
(the supposed test in equity). 258 In the Associated Japanese Bank case 259 Steyn J. merely remarked
that the equitable doctrine “will give relief against mistake in cases where the common law will not”. In
William Sindall Plc v Cambridgeshire CC 260 Evans L.J. said:
“… the difference may be that the common law rule is limited to mistakes with regard to
the subject matter, whilst equity can have regard to a wider and perhaps unlimited
category of ‘fundamental’ mistake.”
Rejection of the equitable doctrine
6-058
In The Great Peace case, the contract for salvage services to be provided by The Great Peace to The
Page 3
Cape Providence was made on a shared assumption that The Great Peace was the nearest available
ship to The Cape Providence, being some 35 miles away. It was then discovered that in fact she was
410 miles away and the defendants, after finding a nearer vessel that could render assistance,
purported to cancel the contract. At first instance, 261 Toulson J. rejected the argument that the
contract was void for mistake at common law. The contract did involve the necessary implication that
The Great Peace was capable of providing the services contracted for. Had she been far away from
The Cape Providence, there would have been a failure of an implied condition precedent. As The
Great Peace, though not as the parties thought the nearest vessel, could have reached The Cape
Providence within 22 hours, the mistake did not turn the contract into something essentially different
from that for which the parties bargained. 262 The contract was therefore not void at law. 263 He then
turned to the supposed equitable doctrine, noting the unanswered problems, the small number of
decided cases and the unsatisfactory nature of them. He held, first, that there is no right to rescind in
equity on grounds of common mistake a contract which is valid and enforceable at common law. 264
Secondly, to hold that the court has a discretion to set aside a contract entered into under a
fundamental mistake if the court considers that the general justice of the case merits it “puts palm tree
justice in place of party autonomy”. 265 He appeared to favour a third view, that Lord Denning’s
statement in Solle v Butcher that the court has jurisdiction to set aside a contract on grounds of
mutual mistake was “over broad”. 266
6-059
In the Court of Appeal, both the judge’s decision on the facts and his view that there is no separate
equitable jurisdiction were upheld. Delivering the judgment of the court, Lord Phillips M.R. examined
at length the decision in Cooper v Phibbs, 267 and concluded that though “the House of Lords …
approached the case on the basis that in equity alone did the agreement fail”, and the speeches did
not define the nature of the mistake that would justify the intervention of equity, there was nothing to
indicate that the House intended to go beyond those cases in which a party agrees to purchase a title
he already owns. 268 He then turned to Bell v Lever Bros and pointed out that counsel for the
appellants had cited Cooper v Phibbs, but in support of the submission, not that equity might provide
relief where the common law would not, but that a common mistake had to be as to the subject matter
of the contract if it was to render the contract void. 269 He concluded that the House did not overlook a
separate right to rescind; they considered that the intervention of equity “took place in circumstances
where the common law would have ruled the contract void for mistake”. 270 There is no separate right
in equity to set aside a contract on the ground of common mistake if the contract is not void at
common law. None of the cases that follow Solle v Butcher:
“… defines the test of mistake that gives rise to the [supposed] equitable jurisdiction to
rescind in a manner that distinguishes this from a test of mistake that renders a contract
void in law.” 271
Nor is it possible “to define satisfactorily two different qualities of mistake, one operating in law and
one in equity”. 272 Coherence can be restored only:
“… by declaring that there is no jurisdiction to grant rescission of a contract on the ground

of common mistake where the contract is valid and enforceable on ordinary principles of
contract law.” 273
As this was the first occasion on which the Court of Appeal had heard full argument on the relation
between Bell v Lever Bros and Solle v Butcher, it was open to the court to hold that Solle v Butcher
cannot stand with the earlier decision of the House of Lords. 274
Mistake and equity after The Great Peace
6-060
Page 4
The decision of the Court of Appeal rejects emphatically the notion that there is any separate
equitable jurisdiction to rescind a contract on the ground of common mistake: the contract will be
either fully binding or void. 275 If it is void there is no scope for the court to impose terms on either
party, as the previous decisions of the Court of Appeal had done. 276 This does not prevent the court
requiring a party to make payments to the other on general principles of restitution. This happened in
Cooper v Phibbs, 277 where payments were ordered in respect of improvements.
Refusal of specific performance
6-061
The decision in The Great Peace does not prevent a common mistake that is not sufficient to make
the contract void being used as a defence to an action for specific performance. Specific performance
is a discretionary remedy, and, in the exercise of its discretion, a court may refuse an order for
specific performance on the ground of a mistake by the defendant. 278 Although the cases are nearly
all ones in which the defendant unilaterally misunderstood the terms, 279 it is submitted that the same
approach should apply in a case in which the contract has been made under a common mistake that
was not sufficient to invalidate the contract at common law, if to enforce the contract specifically
would cause particular hardship to the defendant. 280
234. The Great Peace [2002] EWCA Civ 1407, [2003] Q.B. 679.
235. [1950] 1 K.B. 671. The Court of Appeal in Singapore has hinted that it might not follow The
Great Peace [2002] EWCA Civ 1407. See Chwee Kin Keong v Digilandmall.com Pte Ltd [2005]
SGCA 2, [2005] 1 S.L.R. 502 at [66]–[73]. The case was one of unilateral mistake. It is noted by
Yeo in (2005) 121 L.Q.R. 393.
236. Pitt v Holt [2013] UKSC 26, [2013] 2 W.L.R. 1200 at [115]. The case involved rectification of a
voluntary settlement.
237. See Cartwright (1987) 103 L.Q.R. 594; Slade (1954) 70 L.Q.R. 385.
238. [1932] A.C. 161.
239. See above, paras 6-024—6-025.
240. (1867) L.R. 2 H.L. 149, quoted above, para.6-025.
241. [1932] A.C. 161, 218.
242. [1950] 1 K.B. 671.
244. Denning and Bucknill L.JJ. (Jenkins L.J. dissenting).
245. [1950] 1 K.B. 671, 692.
246. [1950] 1 K.B. 571, 691. In Associated Japanese Bank International Ltd v Crédit du Nord SA
Page 5
[1989] 1 W.L.R. 255, 267 Steyn J. said that Lord Denning’s “interpretation of Bell v Lever Bros
Ltd does not do justice to the speeches of the majority”.
247. [1969] 2 Q.B. 507.
248. Winn L.J. dissented on the ground that the case was indistinguishable from Bell v Lever Bros
Ltd [1932] A.C. 161.
249. [1969] 2 Q.B. 507, 517; see The Great Peace [2002] EWCA Civ 1407, [2003] Q.B. 679 at
[139]–[140]. The equitable doctrine seems to have been applied by the Court of Appeal in Nutt
v Read (2000) 32 H.L.R. 761, but “the proceedings had been beset by muddle and confusion”
(see The Great Peace [2002] EWCA Civ 1407, [2003] Q.B. 679 at [148]; Islington London BC v
UCKAC [2006] EWCA Civ 340, [2006] 1 W.L.R. 1303 at [19]–[21]) and it seems that the point
was not argued.
250. See Peters v Batchelor (1950) 100 L.J. News. 718; Grist v Bailey [1967] Ch. 532; Laurence v
Lexcourt Holdings Ltd [1978] 1 W.L.R. 1128; London Borough of Redbridge v Robinson Rentals
(1969) 211 E.G. 1125. (Contrast Svanosio v McNamara (1956) 96 C.L.R. 186; Slade (1954) 70
L.Q.R. 385, 407; Shatwell (1955) 33 Can. Bar Rev. 164; Atiyah and Bennion (1961) 24 M.L.R.
421, 439.) In Clarion Ltd v National Provident Institution [2000] 1 W.L.R 1888 Rimer J. held that
the grounds for rescission were not made out.
251. [1989] 1 W.L.R. 255, 270. See above, para.6-033.
252. [2000] All E.R. (D) 887.
253. In the court below junior counsel had sought to challenge the correctness of Solle v Butcher:
see The Great Peace [2002] EWCA Civ 1407, [2003] Q.B. 679 at [160].
256. [1967] Ch. 532.
257. In William Sindall Plc v Cambridgeshire CC [1994] 1 W.L.R. 1016, 1035, Hoffmann L.J.
suggested that this case and Laurence v Lexcourt Holdings Ltd [1978] 1 W.L.R. 1128 might
have been decided differently if the judges at first instance had adverted to the question of the
contractual allocation of risk. Magee v Pennine Insurance [1969] 2 Q.B. 507 was also criticised
on this ground: Atiyah, Introduction to the Law of Contract, 6th edn (2006), p.181.
259. [1989] 1 W.L.R. 255, 270.
260. [1994] 1 W.L.R. 1016, 1035.
261. (2001) 151 N.L.J. 1696, [2001] All E.R. (D) 152 (Nov).
262. [2001] All E.R. (D) 152 (Nov) at [56].
263. [2001] All E.R. (D) 152 (Nov) at [62].
264. [2001] All E.R. (D) 152 (Nov) at [118]. He added that, if he was wrong, that he did not know
what is the test for determining the nature of the fundamental mistake necessary to give birth to
such a right.
265. [2001] All E.R. (D) 152 (Nov) at [119]–[120].
266. [2001] All E.R. (D) 152 (Nov) at [121]. Toulson J. continued that, if he was wrong and there
Page 6
were a discretion to set aside for common mistake which is valid on ordinary principles of
contract law, he declined to exercise the discretion on the facts of the case (at [123]).
267. (1867) L.R. 7 H.L. 149.
268. [2002] EWCA Civ 1407, [2003] Q.B. 679 at [110].
269. [2002] EWCA Civ 1407 at [113].
270. [2002] EWCA Civ 1407 at [118].
271. [2002] EWCA Civ 1407 at [153].
272. [2002] EWCA Civ 1407.
273. [2002] EWCA Civ 1407 at [157].
274. [2002] EWCA Civ 1407 at [160]. cf. Midwinter (2003) 119 L.Q.R. 180.
275.
This does not appear to affect the jurisdiction to set aside a consent order. Except in
matrimonial cases (as to which see de Lasala v de Lasala [1980] A.C. 546, 560 and Thwaite v
Thwaite [1982] Fam. 1, 7–8), a judgment given or an order made by consent, being founded on
the agreement of the parties, may be set aside if it was entered into under a mutual mistake of
fact or in ignorance of a material fact if the mistake would justify the setting aside of an
agreement on the same grounds (Att-Gen v Tomline (1877) 7 Ch. D. 388. See also Hickman v
Berens [1895] 2 Ch. 638; Allcard v Walker [1896] 2 Ch. 369; Wilding v Sanderson [1897] 2 Ch.
534). In Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch. 273 the
mortgagees of certain factory premises allowed the defendants to sell, under a consent order,
trade machinery on the premises in the belief, shared by both parties, that the machinery was
affixed to the realty. It subsequently appeared that it had been unlawfully detached, and so
properly belonged to the mortgagees. The order was set aside. (See also Furnival v Bogle
(1827) 4 Russ. 142; Wilding v Sanderson [1897] 2 Ch. 534; Dietz v Lennig Chemicals Ltd
[1969] 1 A.C. 170; Walker v Lundborg [2008] UKPC 17; British Red Cross v Werry [2017]
EWHC 875 (Ch), [2017] W.T.L.R. 441.) But a consent order cannot be set aside on the ground
of a mistake where the mistake would not suffice to impeach the agreement on which the order
was based: Purcell v F.C. Trigell Ltd [1971] 1 Q.B. 358; cf. Chanel Ltd v F.W. Woolworth & Co
Ltd [1981] 1 W.L.R. 485.
276. See above, para.6-056. In The Great Peace [2002] EWCA Civ 1407, at [161], Lord Phillips,
M.R. said: “Just as the Law Reform (Frustrated Contracts) Act 1943 was needed to temper the
effect of the common law doctrine of frustration, so there is scope for legislation to give greater
flexibility to our law of mistake than the common law allows.”
277. (1867) L.R. 7 H.L. 149.
278. Townshend v Stangroom (1801) 6 Ves. 328.
280. “It would be dangerous to attempt an exhaustive definition of the cases in which the court will
refuse specific performance”: Brett L.J. in Tamplin v James (1879) 15 Ch. D. 215, 221. For a
recent case, in which it appears that both parties were mistaken as to the facts, see Heath v
Heath [2009] EWHC 1908 (Ch), [2009] 2 P. & C.R. DG21 at [26] (“specific performance is a
discretionary remedy and mistake may … still be a relevant factor in refusing equitable relief, at
all events where the mistake has been induced by the words or conduct of the person seeking
specific performance. In such a case … the mistake may also amount to, or be practically
indistinguishable from, a misrepresentation”).

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Section 7. - Mistake and Construction
Construction: an alternative route
6-062
It must now be taken as established that there is at common law a doctrine of common mistake, a
rule of law distinct from any question of implying a condition on the facts of the case. However, as
was suggested earlier, 281 construction of the contract, without reference to “mistake”, remains an
alternative route by which the courts may reach its conclusion. 282 This is likely to cause some
confusion unless the courts accept that when they apply the process of construction to a case in
which, factually speaking, the parties have entered the contract under a shared misapprehension as
to the surrounding facts, they are normally merely applying “an alternative formulation” of the doctrine
of common mistake. Normally the outcome will be the same whichever approach is applied. 283
Contract void as a matter of construction where no common mistake
6-063
In exceptional circumstances the outcomes may differ according to whether the case is analysed in
terms of common mistake or as a matter of construction. On occasion the courts have held that a
contract is ineffective because on the facts it was subject to an implied condition precedent which has
failed, even though the conditions for common mistake were not met—in particular because the
contract or contractual venture may not have been impossible to perform. One example is Financings
Ltd v Stimson. 284 The defendant offered to take a car on hire-purchase, his offer acknowledging that
he had examined the car and had satisfied himself that it was in good condition. Before his offer had
been accepted the car was stolen and damaged. It was held that his offer was subject to the implied
condition that the car remained in substantially the same condition as when he saw it, so that the offer
could no longer be accepted. 285 In that case the court emphasised that the condition was as to the
offer, rather than the contract once formed. 286 The same does not apply however to Graves v
Graves. 287 In that case divorcees had agreed that the wife would rent a property from the husband;
they had assumed that the wife would be eligible for housing benefit which would pay 90 per cent of
the rent. It turned out that the wife was not eligible. Thomas L.J., delivering the only full judgment,
referred to Steyn J.’s words in the Associated Japanese Bank case that one must first determine
whether the contract itself, by express or implied condition precedent or otherwise, provides who
bears the risk of the relevant mistake. 288 Following this approach, he held that it was necessary to
imply a condition in the agreement that if housing benefit was not payable, the tenancy would come to
an end, and it was not necessary to consider either mistake or frustration. 289
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281. Above, para.6-014.
282. See, e.g. Associated Japanese Bank International Ltd v Crédit du Nord SA [1989] 1 W.L.R. 255
. Chandler, Deveney and Poole [2004] J.B.L. 34 argue that as the result of the abolition of the
equitable jurisdiction, courts may resort more frequently to the construction technique, which
may give them more flexibility.
283. e.g. in Standard Chartered Bank v Banque Marocaine De Commerce Exterieur [2006] EWHC
413 (Comm), [2006] All E.R. (D) 213 (Feb) the contract was held to be binding on the
alternative grounds that the mistake did not make the agreement essentially different and that
the risk was clearly allocated to one party. See also Butters v BBC Worldwide Ltd [2009] EWHC
1954 (Ch) at [68]–[69].
284. [1962] 1 W.L.R. 1184, CA.
285. See further Atiyah, Essays in Contract (1986), Ch.10.
286.
287. [2007] EWCA Civ 660, [2008] H.L.R. 10.
288. Associated Japanese Bank (International) Ltd v Crédit du Nord [1989] 1 W.L.R. 255, 268,
quoted above, para.6-037.
289. [2007] EWCA Civ 660 at [38]–[42].

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Chapter 7 - Misrepresentation 1
Preliminary
7-001
The modern law relating to misrepresentation is a somewhat complex amalgam of rules of common
law, equity and (since the coming into force of the Misrepresentation Act 1967) 2 statute law. It is also
complicated by the fact that misrepresentation may constitute an actionable tort in certain
circumstances, as well as providing grounds for relief in the law of contract. Prior to the enactment of
the Misrepresentation Act 1967, the position broadly speaking was that a misrepresentation which
induced a person to enter into a contract gave the representee the right to rescind the contract,
subject to certain conditions, but generally gave him no right to damages unless the
misrepresentation was fraudulent, or, in some cases, negligent, or unless the representation
amounted to a term of the contract. Since the coming into force of the Misrepresentation Act the
representee who entered a contract as the result of a misrepresentation will always be able to claim
damages for negligent misrepresentation in circumstances in which he could have recovered
damages had the misrepresentation been fraudulent. In addition the Act gives the court a discretion to
refuse to permit a representee to rescind a contract, but to award him damages in lieu of rescission, if
the misrepresentation is negligent or wholly innocent; but it leaves the representee with an absolute
right to rescind where the misrepresentation is fraudulent. The Act of 1967 does not, however, alter
the rules as to what constitutes an effective misrepresentation. It has been said that the rules on
misrepresentation have developed piecemeal, and that some of the rules, which were developed
when the remedies for misrepresentation were narrower than they now are, may not now operate
well. Given the present state of the law, especially in the light of the decision in Royscot Trust Ltd v
Rogerson 3 that the rules of fraud attach to liability for “negligent” misrepresentation under the
Misrepresentation Act 1967 s.2(1), it has been said that the court should not be too ready to find that
a misrepresentation has been made 4; but this statement has also been doubted. 5
Prohibitions on misrepresentations in consumer cases
7-002
The Unfair Commercial Practices Directive 6 requires Member States to prohibit, and to provide
“adequate and effective” means to combat, unfair commercial practices. These are defined so as to
include misleading actions 7 and misleading omissions. 8 However unfair commercial practices within
the meaning of the Directive will not necessarily give rise to civil remedies for individual consumers,
as the Directive is “without prejudice to contract law and, in particular, to the rules of validity,
formation or effect of a contract”. 9 Accordingly the Regulations made in 2008 10 to implement the
Directive prohibit unfair commercial practices, but originally provided that an agreement shall not be
void or unenforceable by reason only of a breach of the Regulations. In many cases the consumer
would have a remedy under the general law of misrepresentation, but not all unfair commercial
practices will amount to a misrepresentation. The question of whether a remedy for unfair commercial
practices should be given to individual consumers was referred to the Law Commissions, which
recommended that consumers who are the victims of misleading or aggressive practice by a trader
should have a civil law remedy, including the right to “unwind the contract” if the consumer acts
Page 2
quickly or, if the consumer waits more than three months or the goods or services supplied have been
fully consumed, the right to a “discount”; and damages for further loss unless the trader can show that
it used due diligence. These remedies should replace those under the Misrepresentation Act 1967 so
far as the latter apply to business to consumer cases; other common law and statutory remedies
should not be affected. 11 The Law Commission’s recommendations have now been implemented by
the Consumer Protection (Amendment) Regulations 2014, 12 which amend the Consumer Protection
from Unfair Trading Regulations 2008. The amendments apply to any contract made on or after
October 1, 2014. The new remedies are explained in Vol.II, Ch.38. 13
Criminal fraud
7-003
Fraudulent misrepresentation may also be an offence under the Fraud Act 2006. The definition of
fraud for the purposes of the criminal law is different from the civil law definition. 14
Misrepresentation and contractual terms
7-004
Before the Misrepresentation Act was passed, the law relating to misrepresentation was generally
concerned solely with misrepresentations made before the contract was entered into, and not to
misrepresentations which actually constituted contractual terms. Although the word
“misrepresentation” is literally applicable to a contractual term which consists of a false statement of
fact (as opposed to a promise of future conduct), the term was commonly confined to
misrepresentations which did not constitute contractual terms, simply because the law relating to
contractual terms (whether promises as to future conduct or misrepresentations of fact) differed from
the law relating to misrepresentations which were not contractual terms. Moreover, there was also
some authority for the proposition that if a misrepresentation was made before a contract was entered
into, and the misrepresentation was subsequently incorporated into the contract as a contractual
term, the law relating to misrepresentation was not applicable, and the case had to be dealt with as
one involving a contractual term and nothing else. 15 Since the passing of the Act of 1967 this is no
longer the case, 16 and it will often be necessary in any one situation to inquire carefully as to the
effect of a misrepresentation both as a precontractual statement and as a contractual term. Where
these effects differ (as they often do) it is in some cases a matter of considerable difficulty to
determine with any certainty the effect of the Misrepresentation Act on the law relating to contractual
misstatement. 17
Terminology
7-005
For many years it was usual to divide misrepresentations into two categories, fraudulent and innocent
misrepresentation. The latter category included misrepresentations that were made negligently, for, at
least until the decision of the House of Lords in Hedley Byrne & Co Ltd v Heller and Partners Ltd 18 it
was thought that there was generally no difference between a negligent and a completely innocent
misrepresentation. But since that decision, and the passing of the Misrepresentation Act, which also
distinguishes in some respects between negligent (or more accurately, those which were made
without reasonable grounds, but it is convenient to refer to them as negligent 19) and completely
innocent misrepresentations, it has clearly become necessary to recognise that there are now three
categories of misrepresentations. It seems better, therefore, to reserve the term “innocent
misrepresentation” for representations which are neither fraudulent nor negligent, though it must be
appreciated that there are many cases in which the term has been used to include negligent
misrepresentation.
Page 3
1. See Allen, Misrepresentation (1988); Cartwright, Unequal Bargaining (1991), Ch.3; Cartwright,
Misrepresentation, Mistake and Non-disclosure, 4th edn (2016); Spencer Bower and Handley,
Actionable Misrepresentation, 5th edn (2014).
2. The Act was based on the recommendations in the Law Reform Committee’s Tenth Report,
Cmnd.1782 (1962) but with one important change, as to which see below, para.7-142. For a full
appraisal of the Act, see Atiyah and Treitel, “Misrepresentation Act 1967” (1967) 30 M.L.R. 369.
3. [1991] 2 Q.B. 297; see below, para.7-078.
4. Avon Insurance v Swire [2000] 1 All E.R. (Comm) 573, 633, Rix J.
5. Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC
484 (Comm), [2011] 1 C.L.C. 701 at [223], Hamblen J. (“The fact that Parliament (as interpreted
by the Court of Appeal) has thought it right to provide a broad measure of compensation where
a contract has been made as a result of a misrepresentation should not affect the prior question
whether there has been a misrepresentation.”) Hamblen J. referred to the decision in Royscot
Trust Ltd v Rogerson [1991] 2 Q.B. 297 as controversial; see below, para.7-078.
6. Directive 2005/29 on unfair commercial practices [2005] O.J. L149/22. A useful summary of the
Directive and its impact will be found in Twigg-Flesner (2005) 121 L.Q.R. 386.
7. Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) reg.29; Business
Protection from Misleading Marketing Regulations 2008 (SI 2008/1276) reg.29. See now below,
8. Directive 2005/29 art.7.
9. Directive 2005/29 art.3(1).
10. Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) and Business
Protection from Misleading Marketing Regulations 2008 (SI 2008/1276).
11. Law Commission and Scottish Law Commission Report: Consumer Redress for Misleading and
Aggressive Practices (Law Com. No.332, Scot Law Com. No.226 (2012)).
12. SI 2014/870.
14. See below, para.7-051 n.25a.
15. Pennsylvania Shipping Co v Compagnie Nationale de Navigation [1936] 2 All E.R. 1167, 1171;
Leaf v International Galleries [1950] 2 K.B. 86.
16. Misrepresentation Act 1967 s.1(a): see below, para.7-112.
17. Below, paras 7-116 and 7-153.
18. [1964] A.C. 465.

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Section 2. - What Constitutes Effective Misrepresentation
(a) - False Statement of Fact
Statements of fact
7-006
The traditional rule is that a misrepresentation must be a false statement of fact, 20 past or present,
as distinct from a statement of opinion, a statement of intention or a mere commendatory statement.
However, the distinction between a statement of fact on the one hand and a statement of opinion or
intention on the other, is not clear cut. We shall see that a statement of opinion or of intention may
itself be a misrepresentation if the maker does not in fact hold the opinion or have the intention stated.
Also a statement of opinion may amount to a implied representation that the maker has reasonable
grounds for the opinion, 21 and a statement of intention that he reasonably believes that he can carry
out his intentions. 22 Conversely, a statement that on the face of it is one of fact may only amount to
statement of opinion if the person to whom it is made knows that the maker is not in possession of the
facts and thus can only be giving his opinion. 23 The question is whether the statement is one “upon
which the representee was intended, 24 and was entitled, to rely”. 25 “In determining whether there
has been an express representation, and to what effect, the court has to consider what a reasonable
person would have understood from the words used in the context in which they were used”. 26
Puffs and statements of opinion
7-007
Mere “puffs” do not amount to representations. 27 A mere statement of opinion which proves to have
been unfounded, will not be treated as a misrepresentation 28; for as a general rule these cannot be
regarded as representations of fact, except in so far as they show that the opinion or intention is held
by the person expressing it. 29 The statement must be construed as it would reasonably be
understood by the recipient in the context in which the statement was made. 30
Statement of opinion amounts to statement of fact if not honestly held
7-008
However, in certain circumstances a statement of opinion (or of intention) may be regarded as a

statement of fact, and therefore as a ground for avoiding a contract if the statement is false. Thus, if it
can be proved that the person who expressed the opinion did not hold it, or could not, as a
reasonable man having his knowledge of the facts, honestly have held it, the statement may be
regarded as a statement of fact. 31 If a person states as his opinion something which he does not
in fact believe, or which given the facts known to him, he could not honestly hold, he makes a false
Page 2
statement of fact. So where, at a sale of property, the vendor described the occupier as “a most
desirable tenant”, while in fact he knew that the rent was considerably in arrear, this was held to
entitle the purchaser to rescind the contract. 32
Statement of opinion may carry implication that grounds for belief
7-009
In Brown v Raphael, 33 the purchaser of an absolute reversion in a trust fund expectant on the
death of an annuitant was likewise held entitled to rescind: the particulars of sale stated that estate
duty would be payable on the death of the annuitant, “who is believed to have no aggregable estate”;
the vendor’s solicitors honestly believed this to be true but had no reasonable grounds for this belief.
The Court of Appeal held that as the vendor was in a far stronger position than the purchaser to
ascertain the facts, there must be implied a further representation that the former had reasonable
grounds for his belief. 34 If, on the other hand, it is clear that the person who expressed the opinion
had no real way of knowing whether or not it was correct, no such implication can be made. 35 In
Economides v Commercial Union Assurance Co Plc 36 it was held that a statement by an insured,
a private person with no specialist knowledge, of the value of the contents of a flat which contained
his parents’ belongings as well as his own, did not carry an implication that he had an objectively
reasonable basis for the value stated. Thus a statement of the value which the insured made honestly
was not a misrepresentation even though it was inaccurate. Equally, propositions put forward by
parties engaged in negotiating the settlement of a dispute are likely to be treated as mere statements
of opinion and, at least when the negotiations are conducted by experienced professionals in good
faith, are unlikely to be treated as including a representation that they are based on reasonable
grounds. 37 The fact that there was a relationship between the parties is not enough, as a matter of
law, to create an implied representation that there is a reasonable basis for the opinion. 38 Subject to
the principle illustrated by Brown v Raphael, 39 an opinion expressed in good faith is not to be held to
be a misrepresentation merely because it turns out to be incorrect. 40 But a statement of opinion which
is published as if it were a fact may be regarded as a statement of fact. 41
Apparent statement of fact may be no more than expression of opinion
7-010
Conversely, a statement that taken in isolation might seem to be one of fact may in the circumstances
only amount to an expression of opinion, and one without any implied representation that the maker
of the statement has facts to back it up. The statement must be construed as it would reasonably be
understood by the recipient in the context in which the statement was made. 42 Thus a statement as to
the nature of a policy made to an experienced loss adjuster who had a copy of the policy schedule
that described it correctly, and who was thought to have a copy of the policy itself, was regarded as “a
contention, not as a representation” 43 —in other words, it was merely an expression of opinion. The
terms of the contract may also create a contractual estoppel to the effect that a statement which might
otherwise amount to one of fact will be treated as merely one of opinion. 44 On the other hand, the fact
that the party who makes a statement is known not to have personal knowledge does not prevent the
statement from being one of fact if he can reasonably be expected to obtain the information and to
pass it on. 45
Information passed on
7-011
If a person passes on information which has been supplied to him,
“he may simply pass it on as information, or he may adopt it as his own statement of fact.
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If he passes it on merely as information, he may be guilty of a misrepresentation if he

does not fairly set out the information (e.g. where he passes on parts of a surveyor’s
report but omits qualifications to the surveyor’s opinion). But otherwise he does not adopt
it as his own. He may also make implicit representations by passing on the information”,
such as that he is not aware of anything that prevented it from being accurate. 46 Whether the party is
passing the information on or adopting it is a question of interpretation on the facts. 47
Statement of intention not honestly held
7-012
A statement of intention may be looked upon as a misrepresentation of existing fact if, at the time
when it was made, the person making the statement did not in fact intend to do what he said or knew
that he did not have the ability to put the intention into effect; for the promisor’s state of mind was not
what he led the other party to believe it to be. 48 Thus, where a man ordered goods having at the
time the intention not to pay for them, he was held to have made a fraudulent misrepresentation. 49
Equally, if a person makes a statement of an intention that he should have known he was not able to
carry out, in appropriate circumstances he may be held to have made an implied representation that
he did have that ability. 50 There is no doubt that a statement as to the intentions of a third party is a
statement of fact and can constitute a misrepresentation in the ordinary way. 51
Statement as to future may carry implication of fact
7-013
A statement of intention or as to the future may carry the implication that the party making it does not
know of facts that will make it impossible to carry out the intention. 52 But “there is no rule of law that
any particular statement carries with it any particular implication. All depends upon the particular
statement in its particular context”. 53
Implied representations
7-014
Brown v Raphael 54 could be regarded as a case of an implied representation; there are a number of
other cases which can also be regarded as instances of implied representations, though this category
overlaps with that of representations by conduct. 55 Thus in Spice Girls Ltd v Aprilia World Service BV
56
it was held that a pop group had made an implied misrepresentation when they continued with
arrangements to publicise the defendant’s products when they knew that one member of the group
was intending to leave the group shortly, which would prevent the contract being carried out and the
defendants deriving any benefit from the arrangement. It has been held that a description of premises
as “offices” may amount to an implied representation as to the availability of the appropriate planning
consents. 57 The essential issue is whether in all the circumstances it has been impliedly represented
that there exists some state of facts different from the truth. In the case of an implied statement,
“the court has to … consider what a reasonable person would have inferred was being
implicitly represented by the representor’s words and conduct in their context.” 58
In evaluating the effects of the statement or conduct in such circumstances, a helpful test is whether a
reasonable representee would naturally assume that the true state of facts did not exist and that, had
it existed, he would in all circumstances necessarily have been informed of it. 59
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Liability in tort for incorrect opinions and forecasts
7-015
This form of liability is considered later, 60 but it is mentioned here in order to stress that in an action
in tort it is not necessary to show that the statement complained of was a representation in the sense
which this term has traditionally borne in the law of contract. Thus, where there is a sufficient “special
relationship” to give rise to liability in tort under Hedley Byrne & Co Ltd v Heller & Partners Ltd, 61 it
would seem immaterial that the statement consists of mere opinion or even of a proposition of
abstract law. 62 Certainly the distinction between statements of existing facts and predictions seems
less important in tort cases. For instance, in Esso Petroleum Co v Mardon 63 an action for damages
for negligent misrepresentation succeeded where a petrol company, negotiating with a prospective
tenant about a lease of a filling station, had offered a forecast of the probable sales potential of the
filling station. In McNally v Welltrade International Ltd 64 an employment agency was held liable to an
employee for implied representations as to the plaintiff’s suitability for a job from which he was
dismissed. And in Box v Midland Bank Ltd 65 it was said that the distinction between fact and opinion
had become much less important since Esso Petroleum Ltd v Mardon. However, it is submitted that in
these cases liability is based on an assumption of responsibility to take reasonable care and failure to
do so; whether the defendant assumed responsibility to give factual information or an opinion does
not matter. 66 Cases in which an incorrect forecast has given rise to a remedy for
misrepresentation, as opposed to negligent misstatement on the Hedley Byrne principle, can be
explained as involving implicit representations of existing fact, such as that the speaker has taken
reasonable care in making the forecast. 67
Statements of law
7-016
It used commonly to be said that a statement of law cannot be treated as a misrepresentation. 68

But the proposition was always in need of qualification and it is now more accurate to say that a
statement of law will amount to a misrepresentation unless, in the circumstances, it reasonably
appeared that the statement was put forward as nothing more than an opinion on which it would not
be reasonable to rely. First, a statement of law may be regarded as a statement of opinion, but just as
a statement of opinion may be a representation of fact, so too a statement of law may amount to a
representation, or misrepresentation, as the case may be. So a wilful misstatement of law would
always amount to a misrepresentation 69 and even an innocent misstatement of law may do so where
it carries an implication of fact which is itself untrue. Secondly, the question whether a statement is
one of law or fact gives rise to no small difficulty, 70 especially as statements of law and of fact are so
frequently intermingled. It has been said that the dichotomy between statements of fact and
statements of law is too neat, and is apt to mislead. 71 It seems that the courts tend to regard
statements of mixed law and fact, and statements capable of having either meaning, as statements of
fact, 72 and therefore as representations; that they also regard statements as to the purport, effect and
objects of documents as representations 73; and in Cooper v Phibbs, 74 a statement as to private
rights, as distinct from the general law, was regarded as a statement of fact. 75 So a representation
that planning permission exists for a particular use is a representation of fact, and not of law 76;
similarly with a representation by a landlord that he accepts liability for repairs under a lease. 77 On
the other hand a statement of law made separately from a statement of fact was held not to be a
misrepresentation. 78 This seems to rest on a distinction between a statement of an abstract
proposition of law, which was not regarded as a misrepresentation, and a statement applying the law
to the facts of a particular situation which, at least in some circumstances, may constitute a
misrepresentation. 79 But thirdly, in the law of restitution the distinction between a payment made
under a mistake of fact and one made under a mistake of law has been held by the House of Lords
not to be part of English law, 80 and, in the light of this, it was held in Pankhania v Hackney LBC 81 that
the “misrepresentation of law” rule is no longer good law. Thus, for the purposes of the law of
misrepresentation, the distinction between statements of law and statements of fact is no longer
maintainable and that even an incorrect statement of an abstract proposition of law may amount to a
misrepresentation unless it is apparent that all that is being offered is an opinion without implication
Page 5
that the speaker has reasonable grounds for that opinion. 82 It is submitted that the underlying
principle here is the same as that suggested in the previous paragraph, viz that even a statement as
to the law may be a misrepresentation if it was reasonable, in all the circumstances, for the
representee to rely upon it. 83 In any event a statement of foreign law is here (as elsewhere in the
law) treated as a statement of fact. 84
Non-disclosure
7-017
The general rule is that mere non-disclosure does not constitute misrepresentation, for there is, in
general, no duty on the parties to a contract to disclose material facts to each other, however
dishonest such nondisclosure may be in particular circumstances. 85 So, for example, in Percival v
Wright, 86 a company director who had inside information about certain facts likely to enhance the
value of the company’s shares was held to be under no duty to disclose this fact to a shareholder
from whom he bought some shares. For the same reason it is not possible to set up an estoppel on
the basis of an omission to disclose unless a duty to disclose can be established in the particular
circumstances of the case. 87 Tacit acquiescence in another’s self-deception does not itself amount to
a misrepresentation, provided that it has not previously been caused by a positive misrepresentation.
88
But there are exceptions to the general rule that there is no duty to disclose. First, there are many
statutory exceptions. 89 Secondly, there are exceptions at common law where in particular types of
contract there has been held to be a duty of disclosure (often categorised as contracts uberrimae
fidei). 90 These include cases where there is a fiduciary relationship between the parties 91 and where
the relationship between the parties is one of trust and confidence. 92 There may also be a duty to
disclose where failure to disclose some fact distorts a positive representation. It is also possible for a
person to be guilty of misrepresentation by conduct. 93 The first two exceptions at common law are
dealt with later. 94 Misrepresentation by conduct and cases in which a failure to disclose a fact distorts
a positive misrepresentation are dealt with in the following paragraphs.
Misrepresentation by conduct
7-018
As previously mentioned, a person may be guilty of misrepresentation by conduct. 95 It is sometimes
hard to distinguish misrepresentation by conduct from implied representation, but normally it is
unnecessary to do so. 96 In the simplest case, conduct may be intended to convey information in
precisely the same way as the written or spoken word. Thus a person who goes into a shop in a
university town wearing cap and gown may (if such costume is still customary) be representing that
he is an undergraduate, 97 a person who sits down in a restaurant and orders a meal impliedly
represents that he has the means to pay, 98 and more generally it has been said in a well-known
dictum that “a nod or a wink or a shake of the head or a smile” 99 may amount to a representation if it
is intended to induce the other party to believe in a certain state of facts. It is well established that a
mere ordering of goods in the course of business carries a representation that the buyer is not aware
that he will be unable to pay for them 100; a mere payment of money by A to B may in appropriate
circumstances (e.g. where A is B’s employer) amount to a representation by A that B is entitled to the
money so paid 101; and it has been held in a criminal case that tendering of obsolete foreign bank
notes to a currency dealer is a representation that the notes are current tender of some value. 102
Other important criminal cases concerning representations by conduct relate to the use of bank
(cheque) cards and credit cards. In R. v Charles 103 the House of Lords held that use of a cheque card
amounts to a representation that the user has authority, as between himself and his bank, to use his
card. Thus, even though payment of the cheque may be guaranteed by the bank, and may in fact be
made by the bank, the use of the card will amount to a false representation if it is, in the
circumstances, unauthorised by the bank. In R. v Lambie 104 the House of Lords likewise held that use
of a credit card to purchase goods amounts to a representation that the user has the authority of the
credit card company to use the card. So even if the credit card company has a previous contract with
the seller whereby it undertakes to pay for goods acquired with the use of the card, irrespective of
amount, there will be a false representation if the user exceeds the limits agreed between him and the
credit card company. The importance of these decisions for the civil law is that they justify the seller
Page 6
or supplier in rescinding the contract of sale and reclaiming the goods in the event of the fraud being
discovered while the goods are still in the possession of the buyer.
Conduct intended to conceal facts
7-019
But there is also another class of case where conduct may amount to a representation, and that is
where the conduct is not so much intended to convey information as to conceal facts from the other
party. There does not appear to be any modern authority illustrating this type of misrepresentation,
but there are some nineteenth-century cases in which a seller of goods was held guilty of
misrepresentation where it was shown that he had deliberately concealed defects in the goods being
sold, as, for instance, by nailing down planks and closing the seams of a rotten ship, 105 or by plugging
a hole in a gun with soft metal. 106 This principle has not been fully developed by the courts, and it is
uncertain whether it would extend to conduct which is not intended solely to conceal defects; it is, for
instance, not clear whether the vendor of a house could be held guilty of misrepresentation if he
papered a room, partly to hide the defective state of the plaster, but partly because it needed
decorating in any event.
Partial non-disclosure 107
7-020
Although total non-disclosure does not amount to a misrepresentation, a partial non-disclosure may
do so. This may happen in a number of different ways. Thus a statement may be a misrepresentation
even though it is literally true if it implies certain additional facts which are themselves false. A striking
instance of this possibility is Goldsmith v Rodger 108 in which the defendant who was negotiating for
the purchase of the plaintiff’s yacht informed the plaintiff, after paying a visit to the yacht, that she had
rot in her keel. The Court of Appeal held that this statement implied that the defendant had actually
examined the keel, and as he had not done so, this was itself a misrepresentation, whether or not the
yacht did have rot in her keel. Again, a statement may amount to a misrepresentation if facts are
omitted which render that which has actually been stated false or misleading in the context in which it
is made. 109 So, for example, where a shop assistant told a customer that a receipt for the cleaning of
a dress which she was required to sign excluded liability for damage to beads and sequins, and in
fact the receipt excluded all liability, this was held to be a misrepresentation. 110. It will be observed
that these cases of partial non-disclosure can either be explained as cases of actual
misrepresentation, or as cases in which there is a duty to disclose certain facts by reason of the facts
actually stated. Until the passing of the Misrepresentation Act 1967, it was immaterial which
explanation was adopted since the effect of an actual misrepresentation and the breach of a duty to
disclose (where such a duty exists) were generally the same. But since the passing of this Act this is
no longer the case as the Act applies to misrepresentations, but not to the breach of duties of
disclosure. It is thought that cases of partial non-disclosure will normally be treated as cases of actual
misrepresentation falling within the Act, but it has been held that cases of complete non-disclosure
will not. 111
Representation ceases to be true
7-021
A statement may be made which is true at that time but which subsequently ceases to be true to
the knowledge of the representor before the contract is entered into. In such circumstances a failure
to inform the representee of the change in circumstances will itself amount to a misrepresentation, 112
unless in the context it is quite clear to the reasonable recipient of the information that the party
who gives it accepts no responsibility for its accuracy or for reviewing it. 113
Page 7
Withdrawals and corrections.
7-021A
A misrepresentation will cease to have effect if it is withdrawn or corrected before the contract is
made, as then it will not have induced the contract. 114 The burden of establishing a correction or
withdrawal rests on the person making the correction and the correction must be sufficiently clear in
all the circumstances of the case. 115
Continuity of representations
7-022
Representations are treated for many purposes as continuing in their effect until the contract between
the parties is actually concluded. This is one reason why a statement which is true when made, but
which ceases to be true to the knowledge of the representor before the contract is concluded, is
treated as a misrepresentation unless the representor informs the representee of the change in
circumstances. 116 This principle may have other effects as well. First, as we have just seen, if a
representation is made innocently but falsely, and facts later come to the knowledge of the
representor which show that the statement was false, a failure to inform the representee of the truth
may convert what was originally an innocent misrepresentation into a fraudulent one. 117 Again, if a
man truthfully states that he intends to do something but changes his mind at a later stage he may
come under a duty to disclose that change. 118 The principle is also recognised by s.2(1) of the
Misrepresentation Act which extends the right to damages for negligent misrepresentation, 119 for a
misrepresentation falls within this subsection unless the representor had reasonable grounds to
believe and did believe up to the time the contract was made that the facts represented were true. 120
Another consequence of the principle that representations are continuous in their effect is that if a
representation is made by an agent who is acting without authority, and he subsequently obtains the
authority of his principal to continue the negotiations, the principal will become responsible for the
representations previously made by the agent. 121 Conversely, if the contract is ultimately concluded
not between the representor and the original representee but between the representor and a third
person (on the facts of the case, a company formed for the purpose only after the original
representation had been made), the representation may be treated as being made to the third party.
122
On the facts of the case the original representee continued to act as agent of the third person, so
the representation could be regarded as continuing to be made to him, though in a different capacity.
It is submitted that this is not a necessary condition, at least if the representor knows that the
statement made earlier is likely to be passed on to the third person and does nothing to withdraw it or
to indicate that there should be a fresh start to the negotiations, so that “the earlier misrepresentation
is to be regarded as water under the bridge”. 123 There are some circumstances in which a contract
may be treated as commercially binding before it becomes legally binding, and in such a case it
seems that the principle of continuity of representations does not operate beyond the time when the
contract becomes commercially binding. So, for instance, an insured was held not to be obliged
(despite the general duty of disclosure in insurance contracts) 124 to disclose facts coming to his notice
after the insurer had initialled a slip indicating that he was at risk, although there was no binding legal
contract until a policy was issued later. 125
Statement must be false
7-023
It is an obvious requirement of misrepresentation that the statement relied on be false. As to what
amounts to falsity, in Avon Insurance v Swire 126 Rix J. adopted as representing the common law the
test laid down in Marine Insurance Act 1906 s.20(4), so that a statement will be treated as true if it is
substantially correct and the difference would not have induced a reasonable person to enter the
contract. The last phrase reflects the requirement of materiality discussed below. 127 This test has also
been adopted outside the context of insurance. 128
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20. Traditionally relief was only given for misrepresentations of fact, not of law. But see now below,
para.7-016.
24. On the question of intention, see below, para.7-033.
25.
Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392
(Comm), [2011] 1 Lloyd’s Rep. 123 at [86]; see also Cassa di Risparmio della Repubblica di
San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm) (“A representation is a
statement of fact made by the representor to the representee on which the representee is
intended and entitled to rely as a positive assertion that the fact is true …”: Hamblen J. at [215];
Standard Chartered Bank v Ceylon Petroleum Corp [2011] EWHC 1785 (Comm) at [552]–[556])
It has been said that whether the representee was entitled to rely on the representation is partly
a question of reasonableness: Monde Petroleum SA v WesternZagros Ltd [2016] EWHC 1472
(Comm) at [219]. A party is not entitled to rely on a statement that the party was reasonably
expected to have checked by its lawyers: Co-operative Bank Plc v Hayes Freehold Ltd [2017]
EWHC 1820 (Ch) at [119]–[122].
26.
IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [2007] 1 Lloyd’s
Rep. 264, per Toulson J at [50] (affirmed without comment on this point [2007] EWCA Civ 811,
[2007] 2 Lloyd’s Rep. 449). Toulson J.’s statement was adopted by the Court of Appeal in
Webster v Liddington [2014] EWCA Civ 560 at [40]. See also the dictum of Mance J. in Bankers
Trust International v PT Dharmala Sakti Sejahtera [1996] C.L.C. 518 at 531, referring to “the
potential relevance of the parties’ relationship and the surrounding circumstances to a decision
whether any and if so what representation was made in the particular case. The meaning and
effect of words never falls to be viewed in a vacuum. It is shaped by the context of their
communication, including the parties’ respective positions, knowledge and experience. A
description or commendation which may obviously be irrelevant or may even serve as a
warning to one recipient, because of its generality, superficiality or laudatory nature, or because
of the recipient’s own knowledge and experience, may constitute a material representation if
made to another less informed or sophisticated receiver”. See also (in the context of materiality:
below, para.7-041) MCI WorldCom International Inc v Primus Telecommunications Inc [2004]
EWCA Civ 957 (“judged objectively according to the impact that whatever is said may be
expected to have on a reasonable representee in the position and with the known
characteristics of the actual representee”: per Mance L.J., at [30]); Raiffeisen Zentralbank
Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm) at [90]; Mabanga v
Ophir Energy Plc [2012] EWHC 1589 (QB) at [26]–[27]. As Christopher Clarke J. pointed out in
(Comm) at [87], the claimant must show that he understood the statement in the sense (so far
as material) which the court ascribes to it and that, having that understanding, he relied on it.
See further Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016),
para.3-06.
27. Dimmock v Hallett (1866) L.R. 7 Ch. App. 21, 27. See also, for an analogous criminal law case,
West Yorkshire Metropolitan CC v MFI Furniture Centre [1983] 1 W.L.R. 1175; Chartered Trust
v Davies [1997] 2 E.G.L.R. 83, 86 (“prestigious retail development”). The expression "puffery"
does not include communications which the recipient is expected to take seriously: Shaftsbury
House (Developments) Ltd v Lee [2010] EWHC 1484 (Ch) at [35].
Page 9
28. This passage was cited with approval in Hummingbird Motors Ltd v Hobbs [1986] R.T.R. 276.
Nor will a simple statement of intention which is not put into effect be treated as a
misrepresentation: cf. below, para.7-012.
29. See Strachan & Henshaw Ltd v Stein Industrie (UK) Ltd (No.2) (1997) 87 B.L.R. 52.
30. IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [2007] 1 Lloyd’s
Rep. 264 at [50]; affirmed without comment on this point [2007] EWCA Civ 811, [2007] 2 Lloyd’s
Rep. 449. See also Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ
1221, [2010] 2 C.L.C. 705 at [120]; Cassa di Risparmio della Repubblica di San Marino SpA v
Barclays Bank Ltd [2011] EWHC 484 (Comm), [2011] 1 C.L.C. 701 (“In order to determine
whether any and if so what representation was made by a statement requires (1) construing the
statement in the context in which it was made, and (2) interpreting the statement objectively
according to the impact it might be expected to have on a reasonable representee in the
position and with the known characteristics of the actual representee”: Hamblen J. at [215]). As
Christopher Clarke J. pointed out in Raiffeisen Zentralbank Osterreich AG v Royal Bank of
Scotland Plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd’s Rep. 123 at [87], the claimant must
show that he understood the statement in the sense (so far as material) which the court
ascribes to it and that, having that understanding, he relied on it.
31.
Connolly Ltd v Bellway Homes Ltd [2007] EWHC 895, [2007] All E.R. (D) 182 (Apr). The
sentences in this paragraph were cited with approval in Economides v Commercial Union
Assurance Co Plc [1998] Q.B. 587, by Simon Brown L.J. at 598 (who considered that Brown v
Raphael [1958] Ch. 636, below, para.7-009, fell into a different category) and Sir Iain Glidewell
(who considered that the statement summarised that case accurately also), 608–609. Another
way to put the same point is that if a person states that he holds an opinion that in fact he does
not hold, or that he has an intention that in fact he does not have, he makes a false statement
of fact. See Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016),
para.3-17.
32. Smith v Land and House Property Corp (1884) 28 Ch. D. 7.
33. [1958] Ch. 636; Crédit Lyonnais Bank Nederland v Export Credit Guarantee Department [1996]
1 Lloyd’s Rep. 200 (bank’s statement that a management was “respectable and trustworthy” a
misrepresentation as it was contrary to the bank’s actual experience of the management). See
also Patterson v Landsberg & Son (1905) 7 F. 675.
34.
It is possible that Smith v Land House Property Corp (1889) 28 Ch. D. 7 was also decided on
the basis that the vendor was impliedly representing that he had reasonable grounds for his
belief, or at least that he knew of nothing which might be inconsistent with it: Bennett (1998) 61
M.L.R. 886, 888. See also Highland Insurance Co v Continental Insurance Co [1987] 1 Lloyd’s
Rep. 109; Crédit Lyonnais Bank Nederland v Export Credit Guarantee Department [1996] 1
Lloyd’s Rep. 200; Barings Plc (In Liquidation) v Coopers & Lybrand [2002] EWHC 461 (Ch),
[2002] 2 B.C.L.C. 410 at [50]–[51]. A party who merely gives a contractual warranty does not
necessarily represent that the fact warranted is true (see Sycamore Bidco Ltd v Breslin [2012]
EWHC 3443 (Ch) at [203]–[209] and Idemitsu Kosan Co Ltd v Sumitomo Corp [2016] EWHC
1909 (Comm), declining to follow the unreported decision in Invertec Ltd v De Mol Holding BV
[2009] EWHC 2471 (Ch)). Merely offering for signature a document containing the warranty is
not a representation of the truth of the facts warranted: [2016] EWHC 1909 (Comm) at
[28]–[30]. If there was a previous representation, followed by a warranty, the fact of the
warranty does tend to imply that the party giving the warranty has reasonable grounds for
believing the facts warranted: Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd
[2012] EWHC 2198 (Ch) at [133].
35. Bisset v Wilkinson [1927] A.C. 177; Hummingbird Motors Ltd v Hobbs [1986] R.T.R. 276.
36.
[1998] Q.B. 587. Simon Brown and Peter Gibson L.JJ. expressed the view that under the
Marine Insurance Act 1906 s.20(5), which states that a representation as to a matter of
expectation or belief is true if it be made in good faith, there is no room for such an implication,
Page 10
doubting a dictum to the contrary by Steyn J. in Highlands Insurance Co v Continental

Insurance Co [1987] 1 Lloyd’s Rep. 109, 112–113. Sir Iain Glidewell preferred to leave the
matter open. But see Bennett (1998) 61 M.L.R. 886; Cartwright, Misrepresentation, Mistake and
Non-disclosure, 4th edn (2016), para.3-16. See further below, paras 7-012 and 42-038. Section
20 will be repealed when the Insurance Act 2015 comes into force (see below, para.7-159):
s.21(2).
37. Kyle Bay Ltd (trading as Astons Nightclub) v Underwriters subscribing under policy
019057/08/01 [2006] EWHC 607 (Comm), [2006] All E.R. (D) 433 (Mar), Jonathan Hirst Q.C. at
[45]–[47], [52]–[54]. On appeal, this was accepted as the correct approach in principle: [2007]
EWCA Civ 57, [2007] 1 C.L.C. 164 at [31]; see above, para.7-006. Likewise, when a party had
expressly stated that it was giving no representation as to the accuracy of the information
provided, there was no implication that it had no further information suggesting that what was
stated might not be correct. The question is what would the reasonable person in the context
have inferred was being implicitly represented: IFE Fund SA v Goldman Sachs International
[2006] EWHC 2887 (Comm), [2007] 1 Lloyd’s Rep. 264 at [50]; affirmed [2007] EWCA Civ 811,
[2007] 2 Lloyd’s Rep. 449. There might be an implied representation that the information was
supplied in good faith, but not one that the party knew of nothing that might possibly cast doubt
on it: [2006] EWCA 2887 at [60].
38. Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ 1221, [2010] 2 C.L.C.
705 at [121].
39. [1958] Ch. 636.
40. New Brunswick and Canada Ry and Land Co v Conybeare (1862) 9 H.L.C. 711; Anderson v
Pacific Insurance Co (1872) L.R. 7 C.P. 65; Bisset v Wilkinson [1927] A.C. 177; Sanders v Gall
[1952] Current Property Law 343.
41. See Reese River Silver Mining Co Ltd v Smith (1869) L.R. 4 H.L. 64.
Rep. 264 at [50]; affirmed [2007] EWCA Civ 811, [2007] 2 Lloyd’s Rep. 449. See also
Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ 1221, [2010] 2 C.L.C.
705, at [120]; Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd
[2011] EWHC 484 (Comm), [2011] 1 C.L.C. 701 (“In order to determine whether any and if so
what representation was made by a statement requires (1) construing the statement in the
context in which it was made, and (2) interpreting the statement objectively according to the
impact it might be expected to have on a reasonable representee in the position and with the
known characteristics of the actual representee”: Hamblen J. at [215]).
43. Kyle Bay Ltd (t/a Astons Nightclub) v Underwriters Subscribing under Policy No.019057/08/01
[2007] EWCA Civ 57, [2007] 1 C.L.C. 164 at [33]–[35]; distinguishing Wauton v Coppard [1899]
1 Ch. 92. In that case the statement was by a vendor’s agent as to the effect of a restrictive
covenant to a lay person who, as a prospective purchaser, did not (to the knowledge of the
vendor’s agent) have a copy of the covenant. In Hayward v Zurich Insurance Co Plc [2015]
EWCA Civ 327 at [24] Underhill L.J. drew a parallel with Kyle Bay in a case in which it was
decided that a party to a settlement cannot claim to rescind the settlement even if it can now
show that the claims put forward by the other side were in fact false, if at the time of the
settlement it did not believe the claims put forward by the other side but was influenced by a
fear that they might be believed by the court. The suggestion seems to be that claims made in
negotiating a settlement should not necessarily be treated as statements of fact rather than
contentions. It might be different if the claim had been accepted as honest and later had been
found to be fraudulent (at [19]; see also per Briggs L.J. at [30]). The actual decision rested on
the absence of reliance, see below, para.7-035.
45. Highlands Insurance Co v Continental Insurance Co [1987] 1 Lloyd’s Rep. 109, 111–112; Sirius
International Insurance Corp v Oriental Insurance Corp [1999] 1 All E.R. (Comm) 699, 709
(statements by reinsureds or brokers to reinsurers).
Page 11
46. FoodCo UK LLP (t/a Muffin Break) v Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at
[218].
47. IFE Fund SA v Goldman Sachs International [2006] EWHC 2887, [2007] 1 Lloyd’s Rep. 264,
per Toulson J. at [54] (affirmed without comment on this point [2007] EWCA Civ 811, [2007] 2
Lloyd’s Rep. 449). See also Webster v Liddington [2014] EWCA Civ 560 (party may warrant the
accuracy of the information; may adopt it as his own; may represent that he believes on
reasonable grounds that it is accurate; or may merely pass it on as material about which he has
no knowledge or belief (at [46], Jackson L.J.)).
48.
See Edgington v Fitzmaurice (1885) 29 Ch. D. 459; Angus v Clifford [1891] 2 Ch. 449, 470;
Goff v Gauthier (1991) P. & C.R. 388; C21 London Estates Ltd v Maurice Macneill Iona Ltd
[2017] EWHC 998 (Ch) at [44], applying this paragraph (but in that case it was not shown that
the representation was false).; cf. Lewin v Barratt Homes Ltd [2000] Crim. L.R. 323 (a case
under Property Misdescriptions Act 1991 s.1). As David Richards J. said in Abbar v Saudi
Economic & Development Co (SEDCO) Real Estate Ltd [2013] EWHC 1414 (Ch) at [197], it is
difficult to see how a party could negligently, as opposed to fraudulently, misrepresent his own
intentions. Nonetheless, the judge could see the possibility that a party might state its current
intention yet negligently omit to reveal that his intention was qualified in that he had considered
reviewing it at a later date: at [207].
49. Re Shackleton Ex p. Whittaker (1875) L.R. 10 Ch. App. 446; Ray v Sempers [1974] A.C. 370;
Re Gerald Cooper Chemicals Ltd [1978] Ch. 262.
50. cf. Brown v Raphael [1958] Ch. 636 above, para.7-009.
51. Smelter Corp of Ireland Ltd v O’Driscoll [1977] I.R. 305.
52. See Spice Girls Ltd v Aprilia World Service BV [2002] E.M.L.R. 27, 29; Fitzroy Robinson Ltd v
Mentmore Towers Ltd [2009] EWHC 1552 (TCC) at [160]; FoodCo UK LLP (t/a Muffin Break) v
Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at [198].
53. Jaffray v Society of Lloyd’s [2002] EWCA Civ 1101 at [59].
54. [1958] Ch. 636; above, para.7-009.
56. [2002] EWCA Civ 15, [2002] E.M.L.R. 27 at [54].
57. Laurence v Lexcourt Holdings Ltd [1978] 1 W.L.R. 1128. In the criminal law the concept of an
implied representation is widely relied upon in prosecutions under the Theft Act; for instance, it
has been held that a minicab driver who solicited a customer at a London airport, saying, “yes, I
am an airport taxi”, and subsequently assured the customer that £27.50 was the “correct fare”
was guilty of representing that he was an officially licensed taxi driver and that the fare was
somehow at an officially approved rate: R. v Banaster [1979] R.T.R 113. See also below,
para.7-018.
58. IFE Fund SA v Goldman Sachs International [2007] 1 Lloyd’s Rep. 264, per Toulson J. at [50]
(affirmed without comment on this point [2007] EWCA Civ 811, [2007] 2 Lloyd’s Rep. 449);
Merrill Lynch International v Amorim Partners Ltd [2014] EWHC 74 (QB) at [43], referring to a
dictum of Mance J. in Bankers Trust International v PT Dharmala Sakti Sejahtera [1996] C.L.C.
518 at 531, cited above, para. 7-006 n.26.
59. Geest Plc v Fyffes Plc [1999] 1 All E.R. (Comm) 672, 683. See also Raiffeisen Zentralbank
Osterreich AG v The Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm) at [84]–[85];
Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC
484 (Comm) at [215]; Cavendish Corporate Finance LLP v KIMS Property Co Ltd [2014] EWHC
1282 (Ch) at [113]; Deutsche Bank AG v Unitech Global Ltd [2013] EWHC 471 (Comm) at [27]
(that bank that is a member of the LIBOR panel enters into a financial transaction linked to
Page 12
LIBOR does not imply representation that nothing has been done in the past, or is now being
done, by the bank, to manipulate the rate).
60. Below, paras 7-086—7-096.
61. [1964] A.C. 465; below, para.7-089.
62. On statements of law, see below, para.7-016.
63. [1976] Q.B. 801, below, para.7-093.
64. [1978] I.R.L.R. 497.
65. [1979] 2 Lloyd’s Rep. 391; in the Court of Appeal (on costs only) [1981] 1 Lloyd’s Rep. 434.
66.
See Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.6-12.
67. FoodCo UK LLP (t/a Muffin Break) v Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at
[207].
68. Beattie v Ebury (1872) L.R. 7 Ch. App. 777, 802; Beesly v Hallwood Estates Ltd [1960] 1
W.L.R. 549, 560.
69. West London Commercial Bank v Kitson (1884) 13 Q.B.D. 360, 362–363; Oudaille v Lawson
[1922] N.Z.L.R. 259.
70. See Solle v Butcher [1950] 1 K.B. 671.
71. Brikom Investments Ltd v Seaford [1981] 1 W.L.R. 863.
72. Reynell v Sprye (1852) 1 De G.M. & G. 660; West London Commercial Bank v Kitson (1884) 13
Q.B.D. 360; Hughes v Liverpool Victoria Legal Friendly Society [1916] 2 K.B. 482.
73. Hirshfeld v L.B. & S.C. Ry (1876) 2 Q.B.D. 1; De Tchihatchef v Salerni Coupling Ltd [1932] 1
Ch. 330; Curtis v Chemical Cleaning & Dyeing Co [1951] 1 K.B. 805.
74. (1867) L.R. 2 H.L. 149.
75. (1867) L.R. 2 H.L. 149 at 170.
76. Laurence v Lexcourt Holdings Ltd [1977] 1 W.L.R. 1128.
77. Brikom Investments Ltd v Seaford [1981] 1 W.L.R. 863. But cf. China Pacific SA v Food Corp of
India [1981] Q.B. 403, 429 (reversed on different grounds [1982] A.C. 939) where an admission
of liability was said to be a representation of law.
78. Rashdall v Ford (1866) L.R. 2 Eq. 750; Harse v Pearl Life Assurance Co [1904] 1 K.B. 558.
79. See also, below, paras 29-044—29-049.
80. Kleinwort Benson Ltd v Lincoln City Council [1999] 2 A.C. 349. See below, para.29-045.
81. [2002] EWHC 2441(Ch). See also above, para.6-052.
82.
cf. above, para.7-010. It has rightly been remarked that the reasons often given for refusing
relief on the grounds of a mistake of law—for example, that it would be easy to claim a
mistaken belief in the law and hard to disprove it—have much less weight when the mistake
was the result of a misrepresentation by the other party: Cartwright, Misrepresentation, Mistake
and Non-disclosure, 4th edn (2016), para.3-30.
Page 13
83.
See Cartwright, Misrepresentation, Mistake and Non-disclosure 4th edn (2016), para.3-39.
84. André & Cie SA v Ets Michel Blanc & Fils [1977] 2 Lloyd’s Rep. 166.
85. Ward v Hobbs (1878) 4 App. Cas. 13. In Hurley v Dyke [1979] R.T.R. 265, 303 Lord Hailsham
suggested Ward v Hobbs might need reconsideration in the light of recent developments in
negligence but expressed no concluded opinion. Certain statutes may impose duties of
disclosure in particular circumstances: e.g. Housing Act 1985 (as amended) s.125(4A): see
Payne v Barnet LBC (1998) 30 H.L.R. 295 (no duty at common law should be superimposed on
statutory scheme).
86. [1902] 2 Ch. 421; cf. Coleman v Myers [1977] 2 N.Z.L.R. 225, and see also Gething v Kilner
[1972] 1 W.L.R. 237; Prudential Insurance Co Ltd v Newman Industries Ltd [1981] Ch. 257, 295
. Such conduct could constitute an offence under the Criminal Justice Act 1993 s.52, but s.63(2)
provides that no contract shall be void or unenforceable by reason only of s.52.
87. Moorgate Mercantile Co Ltd v Twitchings [1977] A.C. 890.
88. See Keates v Cadogan (1851) 10 C.B. 591; New Brunswick and Canada Ry and Land Co v
Conybeare (1862) 9 H.L.C. 711; Smith v Hughes (1871) L.R. 6 Q.B. 597; Turner v Green [1895]
2 Ch. 205; see also Jewson & Son Ltd v Arcos Ltd (1933) 39 Com. Cas. 59; Wales v Wadham
[1977] 1 W.L.R. 199. This sentence of the text was cited with approval in Donegal International
Ltd v Zambia [2007] EWHC 197 (Comm), [2007] 1 Lloyd’s Rep. 397 at [465].
89. See e.g. below, para.7-169.
90. See below, paras 7-155 et seq. Whether the label uberrimae fidei is useful is discussed below,
para.7-155.
91. See below, paras 7-087—7-088.
93. In certain circumstances failing to disclose information may be a criminal offence, e.g.
Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (SI
2010/2960) reg.12, replacing Timeshare Act 1992 s.1A (inserted by Timeshare Regulations
1997 (SI 1997/1081)).
95. See above, para.7-014. The representation in Spice Girls Ltd v Aprilia World Service BV, The
Times, April 5, 2000 Ch D (reversed in part on other grounds [2002] EWCA Civ 15), referred to
in that paragraph, may equally well be interpreted as one of representation by conduct. There
may also be a misrepresentation by conduct when a master agreement between the parties
provides that each time one party enters a transaction under the agreement, it makes a
representation that particular facts exist or have not occurred: see TMT Asia Ltd v Marine Trade
SA [2011] EWHC 1327 (Comm).
96. But it was necessary where the question was whether there is a representation in writing
sufficient to satisfy the Statute of Frauds (Amendment) Act 1828 (Lord Tenterden’s Act) (see
below, para.7-046): Contex Drouzhba v Wiseman [2007] EWCA Civ 1201, [2007] All E.R. (D)
293 (Nov) (representation implied by a written statement would suffice but representation by
conduct would not).
97. R. v Barnard (1837) 7 C. & P. 784.
98. Ray v Sempers [1974] A.C. 370.
99. Walters v Morgan (1861) 3 De G.F. & J. 718, 723. See also Gill v M’Dowel [1903] 2 Ir.R. 463.
Page 14
100. Re Shackleton Ex p. Whittaker (1875) L.R. 10 Ch. App. 446; Re Gerald Cooper Chemicals Ltd
[1978] Ch. 262; Ray v Sempers [1974] A.C. 370.
101. Avon CC v Howlett [1981] I.R.L.R. 447.
102. R. v Williams [1980] Crim. L.R. 589.
103. [1977] A.C. 177.
104. [1982] A.C. 449.
105. Baglehole v Walters (1811) 3 Camp. 154; Schneider v Heath (1813) 3 Camp. 506. For a case
under the Trade Descriptions Act 1968, see Cottee v Douglas Seaton (Used Cars) Ltd [1972] 1
W.L.R. 1408. In Taittinger v Allbev (1993) 12 Tr.L.R. 165, a passing-off case, it was held that
the labelling and “get-up” of a bottle constituted a false representation.
106. Horsfall v Thomas (1862) 1 H. & C. 90, but it was held in this case that as the buyer had not
examined the gun he had not been influenced by the misrepresentation. See below,
para.7-035.
107. See Hudson (1969) 85 L.Q.R. 524.
108. [1962] 2 Lloyd’s Rep. 249.
109. Oakes v Turquand (1867) L.R. 2 H.L. 325; Barwick v English Joint Stock Bank (1867) L.R. 2 Ex.
259; Peek v Gurney (1873) L.R. 6 H.L. 377, 403; Arkwright v Newbold (1881) 17 Ch. D. 301,
318; R. v Kylsant [1932] 1 K.B. 442; Jewson & Sons Ltd v Arcos Ltd (1933) 39 Com. Cas. 59;
R. v Bishirgian [1936] 1 All E.R. 586.
110. Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 K.B. 805. Denning L.J. said (at
809–810) that the company could not rely on the clause, but it seems that the majority took the
view that because of the misrepresentation, the clause was never incorporated into the
contract: see the judgment of Rix L.J. in AXA Sun Life Services Plc v Campbell Martin Ltd
[2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep. 1 at [100]–[105]; see below, para.15-146
111. Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665, 787–789,
affirmed on other grounds [1991] 2 A.C. 249; cf. Hudson (1969) 85 L.Q.R. 524.
112.
Traill v Baring (1864) 33 L.J.Ch. 521; With v O’Flanagan [1936] Ch. 575; Ray v Sempers
[1974] A.C. 370; FoodCo UK LLP (t/a Muffin Break) v Henry Boot Developments Ltd [2010]
EWHC 358 (Ch) at [208]–[212]; cf. Wales v Wadham [1977] 1 W.L.R. 199 (see below,
para.7-171). It has been said that if a person who has made a representation of fact which,
before the contract is made, he discovers to be untrue, he is not fraudulent in failing to correct
the representation, as he will not be dishonest: Thomas Witter Ltd v TBP Industries Ltd [1994]
Tr.L.R. 145. It is submitted that there may still be fraud if the person knows that he should tell
the other party but fails to do so; see (1995) 111 L.Q.R. 385; Abu Dhabi Investment Company v
H Clarkson and Co Ltd [2007] EWHC 1267 (Comm) at [232] (rev’d on other grounds [2008]
EWCA Civ 699). A failure to reveal that a fact stated was no longer true was held to be
fraudulent in Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC), 125 Con.
L.R. 171; and see FoodCo UK LLP (t/a Muffin Break) v Henry Boot Developments Ltd [2010]
EWHC 358 (Ch) at [213]–[214] (fraud if knows of change and of its significance). If a senior
executive of a company knows that a forecast has been falsified by events to which he is privy
but remains silent intending that the forecast should be relied on by persons to whom the
forecast is directly communicated, dishonesty on the part of that individual will have been
proved without it being necessary distinctly and separately to show a conscious awareness of a
duty to correct the statement: GG 132 Ltd v Hampson Industries Plc [2011] EWHC 1137
(Comm) at [43]. Where statements in listing particulars or in a prospectus become incorrect,
supplementary particulars or a supplementary prospectus may have to be issued: Financial
Services and Markets Act 2000 ss.81, 87G. Section 87G applies to both listed and unlisted
securities. See further below, para.7-098.
Page 15
Rep. 26 at [60]; [2007] EWCA Civ 811, [2007] 2 Lloyd’s Rep. 449, see at [35], [38] and [74].
See above, para.7-010.
114.
Cramaso LLP v Viscount Reidhaven’s Trustees [2014] UKSC 9, [2014] 2 W.L.R. 317 at [20].
On inducement see Vol.I, paras 7-035 et seq.
115.
Mortgage Express v Countrywide Surveyors Ltd [2016] EWHC 224 (Ch) at [194], referring to
Arnison v Smith (1889) 41 Ch. D. 348, 370, 373 and Abu Dhabi Investment Company v H
Clarkson and Co Ltd [2007] EWHC 1267 (Comm).
116. Above, para.7-021.
117. Davies v London Provincial Marine Insurance Co (1878) 8 Ch. D. 469.
118. Ray v Sempers [1974] A.C. 370. But contrast Wales v Wadham [1977] 1 W.L.R. 199, 211 (wife
not obliged to reveal change of intention not to marry; overruled on another ground but
apparent approval given to the decision on this point, Livesey v Jenkins [1985] A.C. 424, 439);
see Cartwright, Unequal Bargaining, pp.84–88.
119. This is dealt with fully below, paras 7-075 et seq.
120. Corner v Munday [1987] C.L.Y. 479.
121. Briess v Woolley [1954] A.C. 333.
122. Cramaso LLP v Viscount Reidhaven’s Trustees [2014] UKSC 9, [2014] 2 W.L.R. 317.
123. [2014] UKSC 9 at [56].
125. Cory v Patton (1872) L.R. 7 Q.B. 304; cf. Berger and Light Diffusers Pty Ltd v Pollock [1973] 2
Lloyd’s Rep. 442, 460–461.
126. [2000] 1 All E.R. (Comm) 573.
127. See para.7-041.
128. Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392
(Comm), [2011] 1 Lloyd’s Rep. 123 at [149]; Bonham-Carter v SITU Ventures Ltd [2012] EWHC
3589 (Ch) at [120].

Page 1

(b) - Statement By or Known to Other Party
The representor
7-024
In order to ground relief to a person who has entered into a contract as a result of a
misrepresentation, it is normally necessary that the misrepresentation should have been made either
by the other party to the contract, 129 or by his agent acting within the scope of his authority, 130 or that
the other party had notice of the misrepresentation. 131 A person who has been induced to enter into a
contract with A as a result of a misrepresentation made to him by B and of which A had no notice has
no ground of relief against A unless B was A’s agent. 132 It is, however, not necessary to show that the
misrepresentor was the agent of the other contracting party for the purpose of concluding the
contract, or even for the purpose of conducting negotiations; it is sufficient if the misrepresentor was
the agent of the other contracting party simply for the purpose of passing on the misrepresentation to
the misrepresentee. 133
Third party representor may be liable in damages
7-025
Although, apart from cases of notice or of agency, a misrepresentation made by one person will not
found relief against another, nevertheless where the representee has been induced to enter into a
contract with a third party, the representor may himself be liable in damages to the representee, either
in tort, if the misrepresentation was fraudulent or, in some cases, negligent 134 or on the grounds of a
collateral contract between the representor and the representee. 135
Sureties and misrepresentation by debtor
7-026
In a number of cases a recurring situation has arisen. A husband has wanted to borrow money from a
creditor who has refused to proceed without having a guarantee secured by a charge over the
matrimonial home, or similarly a charge without a guarantee, from the wife. The wife’s consent has
been secured by misrepresentation 136 or undue influence 137 by the husband. Can the creditor
enforce the guarantee? In a number of cases it was held that if the creditor had “left it to the husband”
to get the wife’s signature, the husband was acting as agent for the creditor 138 and it was therefore
responsible for his misconduct. In Barclays Bank Plc v O’Brien, 139 a case where the husband had by
misrepresentation secured his wife’s signature to a charge over the matrimonial home to secure the
debts of his business, this approach was rejected as artificial. However, the bank was prevented from
enforcing the charge on the ground that it had constructive notice of the husband’s misrepresentation
even though it had no actual knowledge of it. Lord Browne-Wilkinson, delivering the only full speech
in the House of Lords, pointed out that there is a substantial risk that the wife may act as surety when
Page 2
the transaction is not to her advantage because of some legal or equitable wrong by the husband.
Where the creditor is aware that the debtor and the surety are husband and wife, and the transaction
is on its face not to the financial advantage of the surety as well as of the debtor, the creditor will be
fixed with constructive notice of any undue influence, misrepresentation or other legal wrong by the
debtor unless it has taken reasonable steps to satisfy itself that the surety has entered into the
obligation freely and with knowledge of the true facts. 140 The decision in Barclays Bank v O’Brien,
and many other decisions that followed it, must be read in the light of the subsequent decision of the
House of Lords in Royal Bank of Scotland v Etridge (No.2). 141 That case applied a similar approach
wherever “the relationship between the surety and the debtor is non-commercial”, and considered in
detail the steps that the lender should take if, instead of itself ensuring that the wife was not the victim
of misrepresentation or undue influence, it chooses to rely on a confirmation from a solicitor that the
wife has received advice. 142 Since Etridge and most of the decisions following O’Brien were cases of
alleged undue influence rather than misrepresentation, the topic is treated in detail in Ch.8. 143
Application to cases of misrepresentation
7-027
As far as cases of misrepresentation by the debtor are concerned, the bank cannot rely on a solicitor
to give advice if it has material information which is not made available to the solicitor. Lord Nicholls
said:
“… the solicitor should obtain from the bank any information he needs. If the bank fails for
any reason to provide information requested by the solicitor, the solicitor should decline to
provide the confirmation sought by the bank … 144 It should become routine practice for
banks, if relying on confirmation from a solicitor for their protection, to send to the solicitor
the necessary financial information. What is required must depend on the facts of the
case. Ordinarily this will include information on the purpose for which the proposed new
facility has been requested, the amount of the husband’s indebtedness, the amount of his
current overdraft facility, and the amount and terms of any new facility. If the banks’
request for security arose from a written application by the husband for a facility, a copy
of the application should be sent to the solicitor … Exceptionally there may be a case
where the bank believes or suspects that the wife has been misled by her husband … If
such a case occurs the bank must inform the wife’s solicitor of the facts giving rise to its
belief or suspicion.” 145
Where there has been a misrepresentation by the husband of the kind which occurred in O’Brien ’s
case (as to the extent and duration of the guarantee), there should be no problem, as the solicitor will
always be informed of the terms of the guarantee or charge. What might be more problematic is if
there has been some misrepresentation by the husband as to some other matter, such as the state of
his business affairs, 146 but it is submitted that the information required of the bank should reveal
many such misrepresentations. Lord Nicholls said that the protection of surety wives did not require a
review of the rule that a creditor does not normally have any duty to disclose to a surety any unusual
risks relating to the debtor, 147 let alone normal ones. The possibility that the husband has lied to both
the bank and his wife will remain. Moreover, if there is a relationship of trust and confidence between
the husband and the wife, the husband may be required to disclose relevant information to the wife.
148
Effect of constructive notice
7-028
After O’Brien’s case there was some uncertainty as to the position when, as in that case, the husband
had misrepresented the extent of the charge and the bank had constructive notice of the
misrepresentation. Is the charge completely unenforceable against the wife or enforceable to the
extent she was given to believe? (In O’Brien ’s case it seems that £60,000, the sum which the wife
had been led to believe was the limit of her liability, had been paid before the final decision, which did
Page 3
not discuss its fate.) In TSB Bank Plc v Camfield 149 the Court of Appeal held on similar facts that the
charge was completely unenforceable. As against the husband the wife would have the right to set
aside the whole charge. 150 The bank took subject to the equity in favour of the wife and could not be
in a better position. However, in that case the wife had not received any benefit under the agreement.
If she had done so, her right to rescind would have been conditional on her making counter-restitution
of the benefit received. 151 Where a later security is unenforceable by reason of undue influence, that
may still leave an earlier, untainted one in force. 152
Need the party who made the misrepresentation be a party to the trans-action?
7-029
In TSB Bank Plc v Camfield 153 the bank was treated as having constructive notice of the wife’s right
to set aside the charge as against the husband. What would be the position if the husband were not a
party to the charge? As a matter of principle, it seems that a party to a contract who has actual notice
that the other party has entered the contract as the result of a misrepresentation by a third party
should be unable to enforce it, and it is submitted that the same should apply in cases of constructive
notice. In Banco Exterior Internacional SA v Thomas 154 (a case of alleged undue influence) Sir
Richard Scott V.C. expressed the view that it could not have made a difference if in O’Brien’s case
the wife had been sole owner of the home, but the case was decided on other grounds, Roch L.J.
reserving this question. More recent authority treats the two situations in the same way. 155
Procedure
7-030
It will be for the wife or other surety to show that the bank had notice of the non-commercial
relationship between her and the debtor, and that the transaction was, on its face, not to her
advantage. The burden will then be on the bank or other lender to show that it has taken sufficient
steps to prevent it being fixed with constructive notice. 156
129. Hasan v Willson [1977] 1 Lloyd’s Rep. 431.
130. But an agent who seeks to enforce in his own name a contract made by him as such is affected
by a misrepresentation made by his principal: Garnac Grain Co Inc v H.M. Faure & Fairclough
Ltd [1966] 1 Q.B. 650, reversed on the facts [1966] 1 Q.B. 658 and [1968] A.C. 1130n. See also
U.B.A.F. Ltd v European American Banking Corp [1984] Q.B. 713.
131. Barclays Bank Plc v O’Brien [1994] 1 A.C. 180; Bank of Credit and Commerce International SA
v Aboody [1990] 1 Q.B. 923, 973 (undue influence: see below, para.8-108).
132. For an extreme example, see Foote v Hayne (1824) 1 C. & P. 545 (defendant liable for breach
of promise of marriage despite fraud of plaintiff’s father with respect to plaintiff’s illegitimate
child).
133. Pilmore v Hood (1838) 5 Bing. N.C. 97. An agent may have authority to make representations
in relation to a particular transaction even though he has no authority to conclude the
transaction: First Energy v HIB [1993] 2 Lloyd’s Rep. 194, 204; MCI Worldcom International Inc
v Primus Telecommunications Plc [2004] EWCA Civ 957, [2004] 2 All E.R. (Comm) 833 at [25].
For examples see Vol.II, para.31-012.
Page 4
134. That is, if the case falls within the principle in Hedley Byrne & Co Ltd v Heller & Partners Ltd
[1964] A.C. 465, below, para.7-089.
135. See, e.g. Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd [1965] 2 Q.B. 170, below,
para.13-007.
136. e.g. Kings North Trust Ltd v Bell [1961] 1 W.L.R. 119.
137. e.g. CIBC Mortgages Plc v Pitt [1994] 1 A.C. 200.
138. See Coldunell Ltd v Gallon [1986] Q.B. 1184.
139. [1994] 1 A.C. 180.
140. [1994] 1 A.C. 180, at 196.
141. [2001] UKHL 44, [2002] 2 A.C. 773. This case and seven other appeals were heard together.
142. [2001] UKHL 44 at [87].
143. See below, paras 8-108 et seq. The principles laid down in the Etridge cases apply equally
when there has been misrepresentation by the debtor: Royal Bank of Scotland Plc v Chandra
[2011] EWCA Civ 192 at [30]; Annulment Funding Co Ltd v Cowey [2010] EWCA Civ 711 at
[64].
144. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773, at [67], per Lord
Nicholls, with whose speech the rest of the House concurred: see below, para.8-113.
145. [2001] UKHL 44 at [79]. Lord Nicholls pointed out that the bank may need to get the customer’s
consent to the circulation of this confidential information and, if consent is not forthcoming, the
transaction will not be able to proceed. The steps described were said to be applicable to future
transactions: at [80].
146. cf. Massey v Midland Bank Plc [1995] 1 All E.R. 929.
147. Crédit Lyonnais Bank Nederland v Export Credit Guarantee Department [1996] 1 Lloyd’s Rep.
200; Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [81]; below,
para.7-174.
149. [1995] 1 W.L.R. 430. See further below, para.7-126.
150. This was said to be implicit in Misrepresentation Act 1967 s.2(2), which also implies that the
court had no discretion save under that subsection. (On partial rescission see below,
para.7-126.) The subsection does not apply as between a misrepresentee and a third party.
151. Dunbar Bank Plc v Nadeem [1998] 3 All E.R. 876; Midland Bank Plc v Greene (1995) 27 H.L.R.
350. See further below, paras 7-126 and 8-102.
152. Barclays Bank Plc v Caplan [1998] 1 F.L.R. 532.
153. [1995] 1 W.L.R. 430.
154. [1997] 1 W.L.R. 221.
155. Royal Bank of Scotland v Etridge (No.2) [1998] 4 All E.R. 705 CA, 717–718; [2001] UKHL 44 at
[39]. See also Proksch [1997] R.L.R. 71 and below, para.8-124.
156. Barclays Bank Plc v Boulter [1999] 1 W.L.R. 1919. Lord Hoffmann, delivering the only full
Page 5
judgment, said that enough facts must be pleaded to give rise to the presumption of
constructive notice; but it would not be adequate to rely on inferences derived from statements
tucked away in documents that were pleaded. However, the Court of Appeal should be slow to
intervene in the decision that an arguable defence had been raised: National Westminster Bank
Plc v Kostopoulos, The Times, March 2, 2000.

Page 1

(c) - Other Requirements
The representee or person intended to act on the representation
7-031
In order to be entitled to relief in respect of misrepresentation, the person seeking relief must be
able to demonstrate that he is a representee; for, subject to the transmission by operation of law of
claims on death, bankruptcy and assignment, the person or persons who in law come within the
category of representees are alone entitled to a remedy. To put the matter another way, the claimant
must show that it was intended that he should act on the representation, rather than it being aimed
solely at someone else. 157 There may be said to be three types of representees 158: first, persons to
whom the representation is directly made and their principals; secondly, persons to whom the
representor intended or expected the representation to be passed on 159; and thirdly, members of a
class at which the representation was directed. 160 If the representation is directed at a particular class
of persons, the alleged representee must be able to bring himself within that class. Peek v Gurney 161
illustrates this point. The plaintiffs bought shares in the market in reliance on the terms of a fraudulent
prospectus issued by the promoters. The House of Lords held that the plaintiffs could not recover
from the promoters: the purpose of issuing a prospectus was said to be to induce people to apply for
shares, and not to induce them to buy in the market shares already issued; therefore the function of
the prospectus was exhausted with the allotment, and the plaintiffs could not show that they came
within the class of persons at which it was directed. 162 Similarly, in Gross v Lewis Hillman Ltd 163 it
was held that the right of a purchaser of certain land to rescind the contract for misrepresentation did
not “run with the land” so as to be available to a subsequent purchaser; the subsequent purchaser
was not himself a representee of the original vendor. On the other hand, where a person makes a
false statement in a document (such as a bill of lading) which he knows is going to be passed on to
other people and relied on by them, any person who does in fact rely on the document will be a
representee. 164 Nor is it always necessary that the actual representation should reach the
representee. If a person asks an agent to find some property for him, and the agent, relying on the
fraudulent inducements of the vendor, recommends the vendor’s property, the buyer will be entitled to
relief for misrepresentation even though the agent did not actually pass on the fraudulent statements.
165
Tort actions for misrepresentation
7-032
In tort actions based on negligent misrepresentation, there seems to be a tendency to apply rules
which may be somewhat more favourable to a party claiming to be a representee. This is because in
such actions the defendant’s liability turns on whether he owed a duty of care to the claimant, and that
in turn may depend largely upon whether he ought to have foreseen that the statement would be
acted upon by the claimant. In Hedley Byrne & Co Ltd v Heller & Partners Ltd 166 a case of negligent
misrepresentation in tort, the plaintiffs asked their bankers to obtain a reference from the defendants,
Page 2
who were also bankers, about a client with whom the plaintiffs were proposing to do business.
Although the action failed on other grounds, it was held that it was no defence that the defendants did
not know anything about the plaintiffs personally, for it was enough that they must have realised that
the reference was wanted by some customer of the bank who would most probably act upon it. The
Australian High Court has held that a bank giving a reference to another bank must have known that
the reference would be passed on to the second bank’s client even though it was prefaced with the
words “[t]his opinion is confidential and for your private use”. 167 In Smith v Eric S. Bush 168 a surveyor
instructed by a building society to value a house for mortgage purposes knew that the prospective
purchaser, who had in effect paid for the valuation, would probably rely on it in deciding whether or
not to purchase. The surveyor was liable in tort to the purchaser even though the purchaser’s
application form for the mortgage contained a disclaimer of responsibility on the part of the surveyor
towards the purchaser; the clause was held not to be fair and reasonable under the Unfair Contract
Terms Act 1977. 169 It would seem, therefore, that it is sufficient if the representor either intended the
representee to act on the statement or at least should have realised that he would probably do so. 170
On the other hand, in Caparo Industries Plc v Dickman 171 it was held that there will be no liability in
tort for negligent misrepresentation unless the maker of the statement knew that the statement would
be communicated to the person relying on it, either as an individual or as a member of a specified
class, specifically in connection with a particular transaction or a transaction of a particular kind. 172 In
relation to misrepresentation as between contracting parties, the second requirement appears to
mean that the misrepresentation must have been made in connection with the contract in respect of
which relief is sought, or at least that reliance on the representation in connection with the contract
was likely.
Intention
7-033
It is also sometimes said that a misrepresentation will not be effective to create liability for deceit
unless it was intended to be acted on by the representee. 173 If this means no more than that the
representee cannot complain unless the misrepresentation was addressed to him, or to a class of
persons to whom he was one, the statement is doubtless correct. This point has been dealt with
earlier. 174 But if the statement that the representor must have intended the representee to act on the
representation means that the representor will not be liable if he did not intend that the person to
whom he was deliberately giving the false information should act on it at all, or not in the way he did,
the proposition must be treated with some caution. First, it seems that any requirement of intention
applies only to cases of fraud 175 and perhaps (because of the “fiction of fraud”) to cases in which
it is claimed that the misrepresentor is liable in damages under Misrepresentation Act 1967 s.2(1). 176
In cases of liability in tort for negligence, the test is one of reasonable foreseeability. 177 It is submitted
in cases in which the claimant seeks to rescind on the grounds of a non-fraudulent misrepresentation
it will suffice that the misrepresentor should have realised that the misrepresentee might, not
unreasonably, act on the representation, as then the statement will be one on which the
misrepresentee was entitled to rely. 178 Secondly, even in fraud cases the authorities are not clear on
whether it suffices that it must have been obvious that the claimant or someone in his position might
rely on the statement. In Cullen v Thomson 179 three company directors were responsible for reading
a report to a shareholders’ meeting which contained a completely fraudulent account of the
company’s financial condition. It seems probable that the report was merely intended to conceal the
company’s financial condition from the shareholders, but the plaintiff, himself a shareholder,
purchased additional shares in reliance on this report. It was held that the directors were liable for
their fraudulent misrepresentations if they were made:
“… with the real intent to cause the [representee] to act on that representation, or under
such circumstances as they must have supposed would probably induce a person in the
situation of the [representee] to act upon it.” 180
In Tackey v McBain 181 it was held that a manager of a company who said that he had no information
to a broker about an important find of oil when in fact he did was not liable to a party who as a result
Page 3
sold his shares at a low price, whether or not the plaintiff was within the class to whom the statement
was addressed, because the manager did not intend anyone to act as the plaintiff did and therefore
had no fraudulent intent. 182 The likelihood of reliance was not discussed.
7-034
Thus it is possible that a representor may escape liability for damages by proving that he genuinely
had no intention that the representee should act on the statement, for example if a vendor says
something untrue about a property honestly believing that the purchaser will not rely on it at all but will
get his own survey and inevitably discover the truth. But we will see that the law seems to take a
harsh approach to fraud, not even requiring that the fraud be a “but for” cause of the representee
entering the contract. 183 In the light of that, it is doubtful whether a court would allow a party who had
knowingly made a false statement to another to rely on a defence that the representee was not meant
to act on the statement unless the representee’s action was quite unforeseeable. Further, it is unclear
whether “intention” in the sense discussed needs to be shown when the claimant is seeking to rescind
on the basis of fraudulent misrepresentation. 184
Inducement
7-035
It is essential if the misrepresentation is to have legal effect that it should have operated on the
mind of the representee. 185 It follows that if the misrepresentation did not affect the representee’s
mind, because he was unaware that it had been made, 186 or because he was not influenced by it, 187
or because he knew that it was false, 188 he has no remedy. 189 Thus in Horsfall v Thomas 190 a
seller delivered to a buyer a gun which was defective, for after being fired it exploded, and the buyer
was injured; the buyer had not examined the gun, but he alleged that the sale had been procured by
fraudulent misrepresentation and that the defect had been concealed. The court rejected his claim
because, if any attempt to conceal the defect had been made, it had had no effect on the buyer’s
mind because he had never examined the gun. 191 Where an estate agent’s particulars
misrepresented the size of a garage, and the buyer had examined the whole property thoroughly on
two separate occasions, it was held that the misrepresentation had had no effect. 192
Burden of proof
7-036
The burden of proving that the claimant had actual knowledge of the truth, and therefore was not
deceived by the misrepresentation, lies on the defendant; if established, knowledge on the part of the
representee is of course a complete defence, because he is then unable to show that he was misled
by the misrepresentation. 193 It has also been held that a defence is made out if the truth was known
to the agent of the claimant, at least where the facts had deliberately been communicated to the
agent. 194
Need not be sole inducement
7-037
It is not necessary that the misrepresentation should be the sole cause which induced the
representee to make the contract. It is sufficient if it can be shown to have been one of the inducing
causes. 195 Thus in Edgington v Fitzmaurice 196 the plaintiff was induced to take debentures in a
company partly because of a misrepresentation in the prospectus, but also because of a mistaken
belief of his own that the debentures conferred a charge on the company’s property. He was held to
be entitled to have the contract rescinded, and Cotton L.J. said, “[i]t is not necessary to show that the
Page 4
misstatement was the sole cause of his acting as he did”. 197 The plaintiff appears to have agreed to
take the debentures because of a combination of the misrepresentation and his own mistake. 198 What
is required is that the misrepresentee would not have entered the contract but for the
misrepresentation. 199
“But for” causation normally required
7-038
It seems to be the normal rule 200 that, where a party has entered a contract after a
misrepresentation has been made to him, he will not have a remedy unless he would not have
entered the contract (or at least not on the same terms) but for the misrepresentation. 201 Certainly
this is the case when the misrepresentee claims damages in tort for negligent misstatement; and it
seems also to be required if damages are claimed for fraud. 202 It seems likely that the same rule
applies if he seeks to rescind on the ground of an innocent or negligent misrepresentation. 203
“But for” causation not required for rescission for fraud
7-039
In cases of fraud, in contrast, if the representee seeks to rescind, it is no defence for the representor
to show that if the misrepresentation had not been made, the misrepresentee would still have made
the contract. 204 It is sufficient if there is evidence to show that he was materially influenced by the
misrepresentation merely in the sense that it had some impact on his thinking, “was actively present
to his mind”. 205 As Lord Cross put it in a case of duress to the person 206:
“… [i]n this field the court does not allow an examination into the relative importance of
contributory causes.
‘Once make out that there has been anything like deception, and no contract resting in
any degree on that foundation can stand’:
per Lord Cranworth L.J. in Reynell v Sprye.” 207
The Privy Council applied this “fraud rule” when B had entered a contract with A after A had made
threats against B’s life. It held that B was entitled to relief even though he might well have entered into
the contract if A had uttered no threats. It was only if it were shown that B did not allow the threat to
affect his judgment at all that relief would be denied. 208 This does not seem to be merely a reversal of
the usual burden of proof but a special rule that in fraud cases that, provided the misrepresentation
had some influence, it is no defence that the misrepresentee would have entered the contract even if
the statement had not been made. 209 The rule is intended to deter fraud. 210 The same approach has
been applied by the Court of Appeal in a case of “actual” undue influence, 211 which is seen as a
“species of fraud”. 212 The rule applies only to fraud, 213 and only when the remedy sought is
rescission. The victim of fraud cannot recover damages unless the loss for which damages are
claimed would not have been suffered but for the fraud. 214
Material misrepresentation and a presumption of inducement
7-040
Once it is proved that a false statement was made which is “material” in the sense that it was likely
Page 5
to induce the contract, and that the representee entered the contract, it is a fair inference of fact
(though not an inference of law) that he was influenced by the statement, 215 and the inference is
particularly strong where the misrepresentation was fraudulent. 216 There is no set list of matters
that might rebut the presumption which arises from a fraudulent statement. One is to show that the
misrepresentee had already firmly made up his mind, but even then the misrepresentation might have
induced him not to change his mind. 217
Materiality
7-041
It is sometimes said that a misrepresentation will not be effective to ground relief in law unless it
was material, in the sense that a reasonable man would have been influenced by it in deciding
whether to enter into the contract. 218 It is true that courts have sometimes used language which
would support this contention 219 and it is also true that if the representation is not material in this
sense, the representee may have considerable difficulty in satisfying the court that he was in fact
influenced by it. There is no clear authority denying relief to a representee who has in fact been
influenced by a misrepresentation which would not have influenced a reasonable person, 220 but this
may be one reason why a mere “puff” or sales talk does not ground relief. 221 It is submitted that a
remedy will be given where the representor knows that the representee is likely to act on the
misrepresentation, 222 or ought to know that the misrepresentee, not unreasonably, is likely to do
so—in other words, when the representee was entitled to rely on it. 223 In contrast, save in cases of
fraud, if the representor has no reason to know that the representee regards as relevant some fact
which the reasonable person would think was immaterial, there will be no remedy for
misrepresentation:
“… whether there is a representation and what its nature is must be judged objectively
according to the impact that whatever is said may be expected to have on a reasonable
representee in the position and with the known characteristics of the actual representee
… The position in the case of a fraudulent misrepresentation may of course be different.”
224
In cases of fraud, the representor is not permitted to argue that it was unforeseeable that the
representee would be influenced by the lie. 225
Unforeseeable reliance
7-042
The question may arise whether relief may be given when the in the circumstances the representee
was unlikely to act on the representation, even though it was a statement that was material in the
sense that objectively speaking it was relevant: in other words, a question of whether reliance has to
be reasonable or at least foreseeable. This, it is respectfully submitted, is a different question from
whether the statement is material. 226 A person who has entered a contract as a result of a
fraudulent misrepresentation may be entitled to rescind even though one would not have expected a
reasonable person to enter the contract at that stage because, for example, he has not yet secured
finance for the transaction 227 or because he was expected to take the opportunity to check the facts
for himself. It is not clear whether the same would apply if the party unforeseeably entered into a
transaction as the result of an innocent or negligent misrepresentation, rather than a fraudulent one
which was intended to induce the other to act quickly. It depends to some extent on the cases to be
discussed in the next paragraph. We will see that the misrepresentee may be permitted to rescind
even though he passed up an opportunity to discover the truth for himself, but it is not quite clear
whether that applies if it was unforeseeable (as opposed to being merely unreasonable) that he would
do so.
Page 6
Representee could have discovered truth: rescission
7-043
If the representee did not know that the representation was false, it is no defence to an action for
rescission that the representee might have discovered its falsity by the exercise of reasonable care.
228
Thus it is irrelevant that the true position is stated in the contract signed by the misrepresentee
unless he was actually aware of the “correction” in the contract document 229; “it is not enough to show
that the claimant could later have discovered the truth, but that he did discover it”. 230 It has been
argued that the rule that a misrepresentee’s failure to take advantage of an opportunity to discover
the truth is no bar to rescission may require reconsideration in the light of indications in cases of
claims for damages for negligent misstatement to the effect that buyers of expensive or commercial
properties would be expected to have their own survey done, and thus would fail in a claim for
negligent misrepresentation against a surveyor employed by the lender 231; it is suggested that the
rule should be limited to cases in which it was reasonable not to take the opportunity. 232 It is not
clear, however, that the same approach should apply as between contracting parties when the
misrepresentee is seeking to rescind, as is taken when a party claims damages for a negligent
misstatement by a person with whom he is not in a contractual relationship. When the misstatement
leads to a contract with the misrepresentor, there is at least the possibility that the misrepresentor will
have benefited from his misstatement, for example by obtaining a better price for the property he is
selling. The fact that he was innocent, and the other party careless of his own interests, does not
necessarily justify allowing the misrepresentor to retain the advantage gained. 233 It is possible,
however, that relief might be denied if it was unforeseeable that the victim of an nonfraudulent
misrepresentation would not check the accuracy of the statement for himself before entering the
contract. It was submitted earlier that when a misrepresentee seeks to rescind on the ground of a
non-fraudulent misrepresentation, there may be a requirement that his reliance on it was at least
foreseeable. 234 If there is such a requirement, it would not be fulfilled if it was unforeseeable that the
misrepresentee would act without checking first.
Representee could have discovered truth: damages
7-044
As will be seen later, the victim of a fraudulent or negligent misrepresentation may have a claim for
damages. We saw in the previous paragraph that the fact that the misrepresentee could have
discovered the truth is no defence to a claim for rescission if he did not do so. 235 Can the damages be
reduced on the ground that the representee was contributorily negligent in not discovering the truth?
Contributory negligence is not a defence to an action of deceit and the Law Reform (Contributory
Negligence) Act 1945 236 does not apply. 237 There are also dicta in cases in which the misrepresentee
was claiming damages for negligence to the effect that it is irrelevant that the representee could have
discovered the truth for himself. 238 It has been held that damages for negligent misrepresentation
under the Misrepresentation Act 1967 s.2(1) 239 may be reduced if the loss was partly the fault of the
representee, at least when there is concurrent liability under that section and in tort for negligent
misrepresentation under the principle of Hedley Byrne v Heller 240; but it would not be just and
equitable to reduce the damages when the representor had intended, or should be taken as having
intended, that the representee should act in reliance on the answers which had been given to his
questions. 241
157. Compare below, para.7-033.

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158. See Swift v Winterbotham (1873) L.R. 8 Q.B. 244, 253; the rule there stated was applied in
Richardson v Silvester (1873) L.R. 9 Q.B. 34, 36; see also Commercial Banking Co of Sydney
Ltd v R.H. Brown & Co (1972) 126 C.L.R. 13, below, para.7-032.
159. This category includes third persons to whom the original representee passes on the
representation to the knowledge of the representor (see Pilmore v Hood (1838) 5 Bing.N.C. 97
which was applied in Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] Q.B. 488 CA;
Yianni v Edwin Evans & Sons [1982] Q.B. 438), but excludes persons to whom the representor
does not intend any communication to be made (see Peek v Gurney (1873) L.R. 6 H.L. 377),
unless (semble) he ought to foresee such communication, see below.
160. The class may amount to the public at large (cf. R. v Silverlock [1984] 2 Q.B. 766), for if a
representation is made to the public generally with the intention that it should be acted upon,
any member of the public may be a representee, though it does not follow that a legal remedy
exists in respect of it. This is particularly so in cases of liability in tort for negligence, where
(even if any member of the public is a representee) the absence of a duty of care may be fatal
to a claim for damages, below, paras 7-089—7-091.
161. (1873) L.R. 6 H.L. 377.
162.
It might be thought that the actual decision in this case would no longer be the common law
because a prospectus today is intended to be addressed to would-be purchasers in the market
just as much as to purchasers from the company (cf. Taberna Europe CDO II Plc v Selskabet
[2015] EWHC 871 (Comm) at [115]–[118]); in the Court of Appeal Moore-Bick L.J. said ([2016]
EWCA Civ 1262 at [11]) that “In an age when most commercial documents exist primarily in
electronic form and can be made available to a wide audience at the touch of a button it is
important not to allow inroads to be made too easily into the principles enunciated in cases
such as Peek v Gurney … In order for a representation in a document to be actionable at the
suit of the recipient there has to be a connection between the maker and the recipient of a kind
that enables the court to be satisfied that the maker was intending the recipient to rely on the
document in a particular way”. On the facts, the defendant had encouraged the party selling the
investments to direct the investor to the information on the defendant’s website, but in Al Nakib
Investments Ltd v Longcroft [1990] 1 W.L.R. 1390 it was applied in a case of alleged negligent
misstatement. Now, however, under Financial Services and Markets Act 2000 s.90,
compensation is payable to any person who has acquired securities relying on incorrect or
incomplete statements in the prospectus or listing particulars. See Gower & Davies, Principles
of Modern Company Law, 10th edn, 2016, para.25-32.
163. [1970] Ch. 445, 460.
164. See, e.g. Brown, Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 Q.B. 621.
165. Gross v Hillman Ltd [1970] Ch. 445, 461. This paragraph was quoted in Brown v InnovatorOne
Plc [2012] EWHC 1321 (Comm) at [883].
166. [1964] A.C. 465.
167. Commercial Banking Co of Sydney Ltd v R.H. Brown & Co (1972) 126 C.L.R. 13.
168. [1990] 1 A.C. 831.
169. s.2(2); see below, para.15-128.
170. cf. McCullagh v Lane Fox and Partners Ltd [1996] 1 E.G.L.R. 35, where at the time the
information was given the surveyor did not know that the purchaser would act without getting
his own survey, and by the time the surveyor did know he had issued a disclaimer.
171. [1990] 2 A.C. 605, below, para.7-090.
172. cf. Morgan Crucible Co Plc v Hill Samuel Bank Ltd [1991] Ch. 295; Galoo Ltd (In Liquidation) v
Page 8
Bright Grahame Murray [1994] 1 W.L.R. 1360.
173.
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.5-19;
Compare Clerk & Lindsell on Torts, 21st edn (2014), para.18-30.
175.
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.3-49. In a
case of fraud it is necessary only that the representor intended the representation to be acted
on: Goose v Wilson Sandford (No.2) [2000] All E.R. (D) 324 at [48]; Mead v Babington (formerly
t/a Babington Estate Agents) [2007] EWCA Civ 518 at [16].
176. See below, para.7-078; Banque Keyser Ullman SA v Skandia (UK) Insurance Ltd [1990] 1 Q.B.
665, 790 (affirmed on other grounds [1991] 2 A.C. 249).
179. (1862) 6 L.T. 870.
180. (1862) 6 L.T. 870, 874.
181. [1912] A.C. 186 PC.
182. See also Banque Keyser Ullman SA v Skandia (UK) Insurance Ltd [1990] 1 Q.B. 665, 790
(affirmed on other grounds [1991] 2 A.C. 249). In Gabriel v Little [2013] EWCA Civ 1513 it was
held that “whilst the motive of the representor is irrelevant, an intention to influence the mind of
the representee must be shown if the requisite dishonest intention is to be established” (at [33]).
183. Below, para.7-039.
184. It may matter whether the misrepresentation was fraudulent or innocent for the purposes of
Misrepresentation Act 1967 s.2(2): below, para.7-104.
185. See generally Handley, “Causation in misrepresentation” (2015) 131 L.Q.R. 274.
186. Horsfall v Thomas (1862) 1 H. & C. 90.
187. Attwood v Small (1838) 6 Cl. & F. 232; Jennings v Broughton (1853) 5 De G.M. & G. 126; Smith
v Chadwick (1884) 9 App. Cas. 187; Holmes v Jones (1907) 4 C.L.R. 1692.
188.
Cooper v Tamms [1988] 1 E.G.L.R. 257. In Hayward v Zurich Insurance Co Plc [2016] UKSC
48 the Supreme Court, reversing the decision of the Court of Appeal ([2015] EWCA Civ 327)
held that a settlement of an insurance claim could be avoided by the insurer when it discovered
that the amount of loss had been exaggerated fraudulently, even though at the time the insurer
had doubts over the extent of the claim. It was sufficient that the false claim influenced the
insurer in the sum offered in settlement. It is not necessary that the insurer believed that the
claim made was true.
189.
Cited with approval, Brown v InnovatorOne Plc [2012] EWHC 1321 (Comm) at [883]. If it
would have been unreasonable of the representee to rely upon the representation, that may go
to show that the representee did not in fact rely on it: Monde Petroleum SA v WesternZagros
Ltd [2016] EWHC 1472 (Comm) at [219].
190. (1862) 1 H. & C. 90. The judgment of Bramwell B. was criticised in Smith v Hughes (1871) L.R.
6 Q.B. 597, 605 by Cockburn C.J.
Page 9
191. An action for breach of the implied terms as to quality and fitness would probably lie in such
circumstances today. See Vol.II, paras 44-094—44-112.
192. Hartlelid v Sawyer & McClockin Real Estate Ltd [1977] 5 W.W.R. 481.
193. Dyer v Hargrave (1805) 10 Ves. 505; Attwood v Small (1838) 6 Cl. & F. 232; Vigers v Pike
(1842) 8 Cl. & F. 562, 650.
194. Strover v Harrington [1988] Ch. 390; compare Markappa Inc v N.W. Spratt & Son Ltd [1985] 1
Lloyd’s Rep. 534. However, the information must be received by a person authorised and able
to appreciate its significance: Malhi v Abbey Life Assurance Co Ltd [1996] L.R.L.R. 237.
195.
Western Bank of Scotland v Addie (1867) L.R. 1 Sc. & Div. 145, 158; Geest Plc v Fyffes Plc
[1999] 1 All E.R. (Comm) 672; Brown v InnovatorOne Plc [2012] EWHC 1321 (Comm) at [883];
Taberna Europe CDO II Plc v Selskabet [2015] EWHC 871 (Comm) at [153], citing this
paragraph in the 31st edn (reversed on other grounds [2016] EWCA Civ 1262).
196. (1885) 29 Ch. D. 459.
197. (1885) 29 Ch. D. 459, 481.
198. See the judgment of Fry L.J. at 483. Bowen L.J. seems to have applied a slightly different test;
see n.203 below.
199. See next paragraph.
200. Except where the misrepresentee seeks to rescind on the basis of a fraudulent
misrepresentation: see next paragraph.
201.
Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 All E.R. (Comm) 140; Taberna
Europe CDO II Plc v Selskabet [2015] EWHC 871 (Comm) at [153], citing this paragraph in the
31st edn (reversed on other grounds [2016] EWCA Civ 1262). This is consistent with the
decision of the House of Lords in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd
[1995] 1 A.C. 501 (see n.201 below) and Raiffeisen Zentralbank Osterreich AG v Royal Bank of
Scotland Plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd’s Rep. 123 at [163]–[173]. The test is
whether the misrepresentee would have entered the contract had the representation not been
made, rather than what he would have done had he known the truth: [2010] EWHC 1392
(Comm) at [174]–[191].
202. Barings Plc (In Liquidation) v Coopers & Lybrand [2002] EWHC 461 (Ch), [2002] 2 B.C.L.C. 410
at [127]–[130], relying on statements from the speech of Lord Steyn in Smith New Court v
Scrimgeour Vickers (Asset Management) Ltd [1997] A.C. 254, 284. (For the Smith New Court
case see below, para.7-062.) Thus there would be no inducement if the representee would
have gone ahead even if he had been told the truth: Dadourian Group International v Simms
[2006] EWHC 2973 (Ch), [2006] All E.R. (D) 351 (Nov) at [548]; affirmed [2009] EWCA Civ 169,
[2009] 1 Lloyd’s Rep. 601, including the trial judge’s statement that “the presumption of
inducement is rebutted by the representor showing that the misrepresentation did not play a
real and substantial part in the representee’s decision to enter into the transaction; the
representor does not have to go so far as to show that the misrepresentation played no part at
all”: see at [99]–[101]. On the last point, compare the test when the representee seeks to
rescind on the ground of fraud: below, text at n.202.
203. In Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 A.C. 501, a case of
nondisclosure in insurance (see below, para.7-157), Lord Mustill spoke of inducement both “in
the sense in which that expression is used in the general law of misrepresentation” and (549)
“in the sense in which it is used in the general law of contract” without apparently seeing any
difference between the two. As the “but for” test is applied generally to breach of contract, his
statements and an overall reading of his speech suggest that he thought that the insurer’s
decision as to whether to enter the contract or at what premium must have been influenced by
Page 10
the non-disclosure in the sense that “but for” causation is required. cf. Bennett (1996) 112
L.Q.R. 405, 408.
204. See Re Leeds Bank (1887) 56 L.J. Ch. 321.
205. Bowen L.J. in Edgington v Fitzmaurice (1885) 29 Ch. D. 459, 483; Brown v InnovatorOne Plc
[2012] EWHC 1321 (Comm) at [883]. Bowen L.J. seems to have applied this test to a claim for
damages for fraud, but he seems to have been in the minority; see above, n.196.
206. Barton v Armstrong [1976] A.C. 104 PC at 118–119.
207. (1852) 1 De G.M. & G. 660, 708. See also Arnison v Smith (1889) 41 Ch. D. 348, 369, where
Lord Halsbury L.C. said, “[y]ou cannot weight the elements by ounces”.
208. [1976] A.C. 104 PC at 118–119.
209. The rule is usefully discussed in Burrows, Law of Restitution, 3rd edn (2011), pp.94–95.
211. UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555 at [86].
213. Ross River Ltd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch), [2008] 1 All E.R.
1004 at [202], referring to this paragraph in an earlier edition; Raiffeisen Zentralbank Osterreich
AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm) at [198]. The but for test is said
to apply to non-disclosure where there is a duty to disclose: Assicurazioni Generali SpA v Arab
Insurance Group [2003] 1 All E.R. (Comm) 140 at [59], [187], but note the doubts of Ward L.J.
at [218].
215. Smith v Chadwick (1884) 9 App. Cas. 187, 196; also (1882) 20 Ch. D. 27, 44–45; Pan Atlantic
Insurance Co Ltd v Pine Top Insurance Co Ltd [1992] 1 Lloyd’s Rep. 101, 112–113 (affirmed
without reference to this point, [1993] 1 Lloyd’s Rep. 496, and by the House of Lords, where
Lord Mustill refers to the “presumption of inducement” in the case of fraud, but he does not
deny that there may be a similar presumption in other cases of positive misrepresentation:
[1995] 1 A.C. 501, 542); Dadourian Group International Inc v Simms [2009] EWCA Civ 169,
[2009] 1 Lloyd’s Rep. 601 at [99]–[101]; Edwards v Ashik [2014] EWHC 2454 (Ch) at [19].
There is not unanimity as to the weight of any presumption. The following passage from
Halsbury’s Laws of England, 4th edn, Vol.3, para.1067: “Inducement cannot be inferred in law
from proved materiality, although there may be cases where the materiality is so obvious as to
justify an inference of fact that the representee was actually induced, but, even in such
exceptional cases, the inference is only a prima facie one and may be rebutted by
counter-evidence”, was approved in St Paul Fire and Marine Insurance Co Ltd v McConnell
Dowell Constructors Ltd [1996] 1 All E.R. 96, 112; but the same case refers simply to a
“presumption”. See Bennett (1996) 112 L.Q.R. 405. A material representation was said to
create a presumption in Strachan & Henshaw Ltd v Stein Industrie (UK) Ltd (1997) 13 Const.
L.J. 418.
216.
Ross River Ltd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch), [2008] 1 All E.R.
1004 at [241] (Briggs J.). Hayward v Zurich Insurance Co Plc [2016] UKSC 48 at [34], quoting
this paragraph, and [37].
217. County Natwest Bank Ltd v Barton, The Times, July 29, 1999; Edwards v Ashik [2014] EWHC
2454 (Ch) at [20]–[25]. “[I]t is sufficient inducement if, in consequence of the misrepresentation,
the claimant abstains from doing something bearing on his material interests”: Parabola
Investments Ltd v Browallia Cal Ltd [2009] EWHC 901 (Comm) at [107] (affirmed without
reference to this point, [2010] EWCA Civ 486, [2011] Q.B. 477).
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218.
219. Jennings v Broughton (1854) 5 De G.M. & G. 126, 130; Smith v Chadwick (1884) 9 App. Cas.
187. The Marine Insurance Act 1906 s.20(2) incorporates the requirement of materiality, and it
is frequently said that the Act represents the common law, at least in part (e.g. Pan Atlantic
Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 A.C. 501, 518, 553). It is possible that
the requirements of the Act are influenced by the fact that it also applies to non-disclosure. A
requirement of materiality is a necessary part of a rule requiring disclosure; it is not a necessary
part of a rule affording relief for active misrepresentation. However, it seems clear that in
insurance cases, the requirement of materiality applies to misrepresentation as well as
non-disclosure. Note the current definition of materiality in relation to non-disclosure in
insurance: Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 A.C. 501
(material if it “would influence the judgment of a prudent insurer in fixing the premium, or
determining whether he will take the risk”), below, para.7-160. This definition is also used in the
Insurance Act 2015, s.7(3); see below, para.7-161. The Consumer Insurance (Disclosure and
Representations) Act 2012 does not refer to materiality. The consumer has a duty not to make
careless representations; and it is doubtful whether a consumer who without fraud says
something that is incorrect but seemingly irrelevant to the insurer will be careless. On the other
hand, the Act provides that a misrepresentation that is made dishonestly is always to be taken
to show lack of reasonable care (s.3(5)), so it seems that the insurer may have a remedy if the
consumer makes a deliberate misstatement, even if the statement did not seem material in the
sense discussed, provided the insurer can show that without the misstatement it would not have
entered the contract at all, or would have done so only on different terms (s.4(1)(b)).
220. In Avon Insurance v Swire [2000] 1 All E.R. (Comm) 573 Rix J. held that a statement will be
treated as true if it is substantially correct and the difference would not have induced a
reasonable person to enter the contract (above, para.7-023). This might seem to support the
requirement of materiality.
221. Above, para.7-007.
222. It has been so held in Australia: Nicholas v Thompson [1924] V.L.R. 554. In Cuthbertson v
Friends’ Provident Life Office (2006) S.L.T. 567, (2006) S.C.L.R. 697 Lord Eassie pointed out
that the materiality test in insurance (set out in s.20(2) of the Marine Insurance Act) would be
satisfied if the proposer actually appreciated that the fact stated would be relevant to the
insurer. In Museprime Properties Ltd v Adhill Properties Ltd [1990] 2 E.G.L.R. 196 it was said
that materiality was really a question of the burden of proof: if the statement would not have
influenced a reasonable person, the burden of proving that it did induce the contract will be on
the representee, but relief may still be obtained if the burden is discharged. However, the case
did not involve materiality in the sense discussed here; see next paragraph.
224. Mance L.J. in MCI Worldcom International Inc v Primus Telecommunications Plc [2004] EWCA
Civ 957, [2004] All E.R. (Comm) 833 at [30]. He said that the version of this paragraph in the
29th edition “appears … to put the position too cautiously”.
225. Smith v Kay (1859) 7 H.L.C. 750. It is no defence that the maker of a fraudulent statement
thought that it was irrelevant or unimportant: Standard Chartered Bank v Pakistan National
Shipping Corp (No.2) [2000] 1 Lloyd’s Rep. 218, 225 (reversed in part on other grounds, [2002]
UKHL 43, [2002] 3 W.L.R. 1547: see below, para.7-071). See also Dadourian Group
International Inc v Simms [2009] EWCA Civ 169, [2009] 1 Lloyd’s Rep. 601 at [101]. In
Bonham-Carter v SITU Ventures Ltd [2012] EWHC 3589 (Ch) it seems that both parties agreed
that materiality was an essential ingredient of a claim for deceit, relying on a dictum of
Hobhouse L.J. in Downs v Chappell [1997] 1 W.L.R. 426, 433: see at [121]. In Downs v
Chappell the false statement was clearly material: see [1997] 1 W.L.R. 426, 433. In Edwards v
Ashik [2014] EWHC 2454 (Ch) Hamblen J. (at [25]) pointed out that Hobhouse L.J. was
concerned with what the representee needs to prove in order to establish a cause of action in
deceit, not what the representor needs to prove in order to show that the representee was not
induced to enter into a contract by the representation. On the latter, Hamblen J. said the correct
Page 12
approach was that in County Natwest Bank Ltd v Barton, The Times, July 29, 1999, see above,
para.7-040.
226.
It is submitted that this was the question in Goff v Gauthier (1991) 62 P. & C.R. 388, although
the court referred to an earlier version of the previous paragraph of this work. It was also the
question in Museprime Properties Ltd v Adhill Properties Ltd [1990] 2 E.G.L.R. 196
(representee did not take opportunity to check accuracy.) cf. Peel, Treitel on The Law of
Contract, 14th edn (2015), para.9-020.
227. Goff v Gauthier (1991) 62 P. & C.R. 388.
228. Dyer v Hargrave (1805) 10 Ves. 505; Dobell v Stevens (1825) 3 B. & C. 623; Reynell v Sprye
(1852) 1 De G.M. & G. 660; Central Ry of Venezuela v Kisch (1867) L.R. 2 H.L. 99, 120;
Redgrave v Hurd (1881) 20 Ch. D. 1; Nocton v Ashburton [1914] A.C. 932, 962; Laurence v
Lexcourt Holdings Ltd [1977] 1 W.L.R. 1128.
229. Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ 386,
[2006] 2 Lloyd’s Rep. 511. However, the misrepresentee must still prove inducement. If the
misrepresentation was in very “rough and ready terms”, while the contract was a detailed
financial instrument which the investor would be expected to read in order to discover the
details which he claimed were of importance to him, but the investor signed the contract without
reading it, he may be held not to have relied on the misrepresentation. See similarly Reinhard v
Ondra LLP [2015] EWHC 1869 (Ch) at [112]–[118].
230. [2006] EWCA Civ 386, [2006] 2 Lloyd’s Rep. 511 at [40]. The case involved a claim for
damages under Misrepresentation Act 1967 s.2(1).
231. Smith v Eric S. Bush [1990] 1 A.C. 831, 854, 872.
232.
233. See Jessel, M.R. in Redgrave v Hurd (1881) 20 Ch. D. 1, 13.
234. Above, para.7-033.
235. Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ 386 at
[40] (damages under Misrepresentation Act 1967 s.2(1)).
237. Alliance and Leicester Building Society v Edgestop Ltd [1994] 1 All E.R. 38; Standard Chartered
Bank v Pakistan National Shipping Corp (No.2) [2002] UKHL 43, [2003] 1 A.C. 959.
238.
Nocton v Ashburton [1914] A.C. 932, 962; The Arta [1985] 1 Lloyd’s Rep. 534; and Strover v
Harrington [1988] Ch. 390, 410: see Taberna Europe CDO II Plc v Selskabet [2015] EWHC 871
(Comm) at [181]; [2016] EWCA Civ 1262, [2017] Q.B. 633 at [51].
241. Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch. 560, especially at 574. See further below,
para.7-082. In Smith v Eric S. Bush [1990] 1 A.C. 831 (where there was no contract between
plaintiff and defendant) the plaintiff recovered although she might have had her own survey of
the house she bought; but it was not reasonable to expect her to have her own survey of a
modest property. Had the property been more expensive it might have been different and a
disclaimer of liability might have been reasonable: Smith [1990] 1 A.C. 831, 854, 872. See
above, para.7-032 and below, para.15-104.
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Page 1

Section 3. - Damages for Misrepresentation
Preliminary
7-045
Damages are always recoverable for a fraudulent misrepresentation, 242 subject to the exception
noted in the next paragraph. Under s.2(1) of the Misrepresentation Act 1967 damages are
recoverable for (in effect) 243 a negligent misrepresentation if they would have been so recoverable in
fraud, where the representee enters into a contract with the representor as a result of the
misrepresentation. 244 Damages for negligent misrepresentation are also recoverable in some
circumstances at common law, quite apart from the Act of 1967. 245 Damages are not generally
recoverable for innocent misrepresentation unless the representation is, or becomes, a contractual
term, but there are a number of important exceptions to this principle. 246
Lord Tenterden’s Act
7-046
Exceptionally, no action may be brought on a fraudulent misrepresentation as to a person’s “relating
to the character, conduct, credit, ability, trade, or dealings of any other person” unless the
representation is in writing and signed by the representor: Statute of Frauds Amendment Act 1828
(Lord Tenterden’s Act) s.6. This applies only to claims of fraud 247 and possibly to claims under
Misrepresentation Act 1967 s.2(1). 248
242. Below, paras 7-047—7-073.
244. Below, paras 7-075—7-085.
245. Below, paras 7-086—7-097.
246. Below, paras 7-102—7-109.
247. Banbury v Bank of Montreal [1918] A.C. 626 (HL). The Act may be satisfied by a representation
implied by a signed writing but a representation by conduct would not suffice: Contex Drouzhba
v Wiseman [2007] EWCA Civ 1201, [2007] All E.R. (D) 293 (Nov). The representation may be
made in an email, provided that the email includes a written indication of who is sending the
Page 2
email and some form of “signature”: J Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch),
[2006] 1 W.L.R. 1543; Lindsay v O’Loughnane [2010] EWHC 529 (QB), [2012] B.C.C. 153 at
[95].
248. UBAF Ltd v European American Banking Corp [1984] Q.B. 713 CA: see further below,
para.7-078.

Page 1

(a) - Fraudulent Misrepresentation
Claims for damages for fraud
7-047
Where a person has been induced to enter into a contract as a result of a fraudulent
misrepresentation by the other contracting party, he may rescind the contract, or claim damages, or
both. 249 Rescission is dealt with in the next section. 250 In cases in which the parties have entered a
contract as the result of the misrepresentation, damages for fraud are perhaps less important than
they used to be, as a result of the Misrepresentation Act 1967: claims for damages by a person who
has been induced to enter into a contract by the misrepresentation of another party thereto may now
be based either on fraud or on (in effect) 251 negligence. As will be seen in detail below, 252 s.2(1) of
this Act allows a person who has been induced to enter into a contract by a misrepresentation to
make a claim for damages as of right, as though the representation had been fraudulent, unless the
representor “proves that he had reasonable ground to believe and did believe up to the time the
contract was made that the facts represented were true”. In an action under this subsection, it is for
the representor to disprove negligence, whereas in an action in fraud it is for the representee
affirmatively to prove the fraud—and the burden is no light one. 253 However, claims for damages
against a representor who does not subsequently enter into a contract with the representee may have
to be brought in fraud, for although even here negligence may sometimes suffice, it will not always do
so. 254 Further, as will be seen below, the Misrepresentation Act has created a new distinction of some
importance between fraudulent and other misrepresentations in connection with rescission. 255
Definition of fraud
7-048
The common law relating to fraud was established by the House of Lords in Derry v Peek. 256 It was
there decided that in order for fraud to be established, it is necessary to prove the absence of an
honest belief in the truth of that which has been stated. 257 In the words of Lord Herschell:
“… fraud is proved when it is shown that a false representation has been made: (1)
knowingly; or (2) without belief in its truth; or (3) recklessly, careless whether it be true or
false.” 258
The converse of this is that however negligent a person may be, he cannot be liable for fraud,
provided that his belief is honest; mere carelessness is not sufficient, although gross carelessness
may justify an inference that he was not honest. 259
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Absence of honest belief
7-049
That the claimant who alleges fraud must prove the absence of an honest belief is demonstrated by
Derry v Peek itself. A company issued a prospectus stating that it was entitled to use steam power to
run trams; the respondents obtained shares on the strength of this representation, which was in fact
false, although at the time the company had reason to believe that permission would be granted by
the Board of Trade as a matter of course. Permission to use steam power was, however, not granted
and the company was wound up. In an action for deceit the House of Lords held that the directors
were not liable in damages for fraudulent misrepresentation. The decisive factor, in Lord Herschell’s
words, was that “they honestly believed that what they asserted was true”. 260
Defendant’s knowledge of falsity of statement
7-050
The requirement of proof of the absence of honest belief does not, however, mean that the claimant
must prove the defendant’s knowledge of the falsity of the statement. It is enough to establish that the
latter suspected that his statement might be inaccurate, or that he neglected to inquire into its
accuracy, without proving that he actually knew that it was false. Thus where directors issued a
prospectus setting out the advantages of working a particular mine, without having ascertained the
truth of these representations, they were held to have committed a fraud. 261 Lord Cairns expressed
the principle as follows:
“… if persons take upon themselves to make assertions as to which they are ignorant
whether they are true or untrue, they must, in a civil point of view, be held as responsible
as if they had asserted that which they know to be untrue.” 262
Motive irrelevant
7-051
Further, it is not necessary to establish that the defendant’s motive was dishonest. 263 However, it
must be shown that the representor intended the representee to act on the representation, if the
requisite dishonest intention is to be shown. 264
Ambiguity
7-052
If the statement is ambiguous, the representee must first prove that he understood the statement in a
sense in which it is in fact false. 265 If the representor intended the statement to be understood in that
sense, he will be guilty of fraud. But a person who makes a statement honestly believing it to be true
in the sense which he understands it to bear is not guilty of fraud merely because the representee
understands it in a different sense which is false to the knowledge of the representor. 266 And this is
still the case even though the court may agree that the sense in which the representee understands
the statement is the meaning which, on its true construction, it ought to bear. 267 To hold a person
guilty of fraud it must be shown that he intended, or at least was willing, that the representation should
be understood in a sense which is false. 268
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Principal and agent
7-053
Much difficulty has arisen in dealing with cases where responsibility for a statement is divided
between principal and agent, or between several agents of one principal. It has been held that the law
does not recognise any conception of “composite fraud”, i.e. an action in fraud will not lie where a
statement is made by an agent who honestly believes it to be true, merely because the principal, or
another agent, knew the statement to be false. 269 But a principal is vicariously liable for the fraud
of an agent, so that if an agent makes a statement in the scope of his authority, and the agent is
himself fraudulent, the principal will be liable. 270 And if one agent makes a fraudulent statement to
another agent, intending the latter to pass the statement on to a third party, and this is done, the
principal will again be liable; for in these circumstances, the first agent is guilty of the complete tort of
fraudulent misrepresentation, the second agent being his innocent agent. 271 Again, if one agent
makes a statement honestly believing it to be true, but another agent or the principal himself knows
that it is not true, knows that the statement will be or has been made, and deliberately abstains from
intervening, the principal will be liable. 272 In these circumstances the party with the guilty knowledge
can himself be treated as being guilty of fraud.
Causation in damages for fraud
7-054
As stated earlier, 273 when the claimant seeks damages for fraud as opposed to rescission, the normal
“but for” rule of causation seems to apply. Thus if the claimant would have entered the contract on the
same terms even if the misrepresentation had not been made, his claim for damages will fail. 274 The
court is not required to speculate as to what the misrepresentee would have done had he known the
truth, and the defendant will not be permitted to argue that he might have entered the contract on the
same terms anyway. 275 But if the misrepresentor can be definitively show that this is what the
misrepresentee would have done, it will be very difficult for the misrepresentee to argue that it was
induced by the fraudulent misrepresentation. 276
Measure of damages for fraudulent misrepresentation
7-055
The proper measure of damages for fraudulent misrepresentation was discussed by the Court of
Appeal in Doyle v Olby (Ironmongers) Ltd. 277 It was here held that damages for fraud were not the
same as damages for breach of contract in that they were not designed to place the innocent party in
the position he would have been in if the representation had been true, but to put him in the position
he would have been in if the representation had not been made. The presumption seems to be that if
the misrepresentation had not been made, the claimant would not have entered into the contract. 278
So the plaintiff ought to be awarded such damages as will put him back in the financial position he
was in before the contract was made. This means that where a person is induced by fraud to buy
some property, the proper measure of damages is prima facie the difference between the price paid
and the fair value of the property. 279
Unforeseeable losses
7-056
In Doyle v Olby (Ironmongers) Ltd, it was held that in cases of fraud the plaintiff was entitled to
damages for any such loss which flowed from the defendants’ fraud, even if the loss could not have
been foreseen by the latter. Thus the claimant may recover not only the difference between the price
Page 4
paid and the value of what he received 280 but also expenditure wasted in reliance on the contract and
compensation for other opportunities passed over in reliance on it.
7-057
In Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd 281 Lord
Browne-Wilkinson described Doyle v Olby (Ironmongers) Ltd as restating the law correctly. He stated
the principles applicable in assessing damages where a party has been induced by a fraudulent
misrepresentation to buy property as follows:
“(1)
The defendant is bound to make reparation for all the damage directly flowing from
the transaction;
(2)
although such damage need not have been foreseeable, it must have been directly
caused by the transaction;
(3)
in assessing such damage, the plaintiff is entitled to recover by way of damages the
full price paid by him, but he must give credit for any benefits which he has received
as a result of the transaction;
(4)
as a general rule, the benefits received by him include the market value of the
property acquired at the date of the transaction; but such general rule is not to be
inflexibly applied where to do so would prevent him obtaining full compensation for
the wrong suffered;
(5)
although the circumstances in which the general rule should not apply cannot be
comprehensively stated, it will normally not apply where either (a) the
misrepresentation has continued to operate after the date of the acquisition of the
asset so as to induce the plaintiff to retain the asset or (b) the circumstances of the
case are such that the plaintiff is, by reason of the fraud, locked into the property 282;
(6)
in addition, the plaintiff is entitled to recover consequential losses caused by the
transaction;
(7)
the plaintiff must take all reasonable steps to mitigate his loss once he has
discovered the fraud.” 283
Page 5
Lost opportunity
7-058
The points that damages for fraud will not compensate the claimant for loss of bargain but may cover
loss caused by passing up other profitable opportunities are well illustrated by East v Maurer. 284 The
plaintiffs bought a hairdressing business in reliance on a false representation that the defendant had
no intention of working regularly at a second hairdressing business he owned in the same town. In
fact he continued to work at the second business and the plaintiffs were forced to resell the business
they had bought at a substantial loss. They were awarded damages for the difference between the
price they had paid and the price they received on resale, plus expenditure wasted in attempting to
improve the business and in other ways. They were also awarded the sum they could have expected
to make as profit had they bought another similar business in the same area. 285 However, they were
not entitled to the higher amount they might have earned from the actual business bought had the
defendant kept to his stated intention; he had not warranted that they would keep all his old
customers or that he would not compete. 286 Damages for lost opportunity may be recovered even
though they may have to be discounted on the ground that it was not certain that the claimant would
have been able to take up the opportunity, e.g. if the owner of the alternative business might not have
agreed to sell. 287 It is not necessary to show that the alternative deal would necessarily have been
profitable; if necessary the amount can be discounted to reflect the element of risk. 288
Not loss of bargain
7-059
It follows that in many cases the measure of damages for breach of contract will be higher than that
for fraud, as it will include the profit that would have been made on the contract in question had the
representation been true. If as a result of a fraudulent misrepresentation the claimant has bought a
property, but the property appears to be worth the price paid for it and there is no wasted expenditure
or loss of a more valuable opportunity, the claimant damages according to the tort measure would
appear to be nil. 289
Property worth less than paid for it
7-060
While the claimant in an action for fraud cannot claim to be put into the position he would have
been in if the fact represented were true, a claimant who has made a bad bargain, in the sense that
even if what he had been told were true, at the time the contract is made the property he is induced to
buy would have been worth less than he has agreed to pay for it, will be better off under the tortious
measure than the contractual one. 290
Difference in value at time of acquisition
7-060A
As Lord Browne-Wilkinson states in his propositions (3) and (4), 291 the general rule is that the
claimant is entitled to the difference between what he paid and the value of the property he received
at the date he acquired it. The court will not reduce the damages to reflect that fact that, as it turned
out, various risks that, at that date, reduced the value of the property, did not in fact materialise. 292
The claimant will normally recover the difference between the price paid and the value of the
property bought, and also any consequential loss. 293
Page 6
Subsequent falls in value of property
7-061
As Lord Browne-Wilkinson’s fourth proposition indicates, the damages are normally to be calculated
according to the difference between the contract price and the value of the property at the time of the
contract. 294 This seems to follow from the rule that the loss must flow directly from the transaction. 295
But this is only a prima facie rule; as Lord Steyn put it, 296 the date of transaction rule is simply a
second-order rule applicable only if the valuation method is followed, and the court is entitled to
assess the loss flowing directly from the fraud without any reference to the date of the transaction or
indeed any particular date. In some situations, the claimant may recover the difference between the
contract price and the value of the property at a later date. This is so when the fall in value is due to
the discovery of the defendant’s fraud, which has also deceived others in the market. 297 However, it
may also apply even if the reduction of value is not the result of the fraud.
“Already flawed assets”
7-062
One such case is where, as the result of the fraud, the claimant has bought an “already flawed asset”,
the value of which falls when the flaw is discovered, but the fraud did not relate to the flaw. In Smith
New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd, 298 SNC had bought shares
in Ferranti as the result of fraudulent misrepresentations by the defendants. SNC intended to keep the
shares for a period of time. Their value fell drastically when it was discovered that Ferranti had been
the victim of another fraud by a third party. The House of Lords, reversing the Court of Appeal, 299
held that SNC were not limited to recovering the difference between the contract price and the market
value of the shares at the date of the transaction; they could recover the difference between the
contract price and the prices obtained for the shares when they were sold after the discovery of the
fraud. As stated in the fourth and fifth propositions of Lord Browne-Wilkinson quoted above (see
para.7-057), the date of transaction rule will not be applied if it would prevent the claimant obtaining
full compensation, for example if the claimant is locked into the transaction. In this case, as SNC had
intended to keep the shares and it was not commercially feasible to resell them immediately, it was
locked into the property.
7-063
It is not wholly clear whether the purchaser who has bought a “flawed asset”, which falls in value after
the date of the transaction because the flaw is discovered, can recover for this further loss if it was not
clearly the purchaser’s purpose to retain the property. In Twycross v Grant, 300 Cockburn C.J. gave
the example of a person who is induced by fraud to buy a racehorse. If the horse has already
contracted some disease from which it dies when he gets it home, the buyer may recover the entire
price paid. In the Smith New Court Securities case Lord Steyn refers to this example with apparent
approval. 301 It may suffice that it was to be expected that the claimant would keep the property for at
least the time that it took for the flaw to emerge.
Loss caused by fall in market
7-064
Secondly, as the result of the fraud, the claimant may have acquired a property which, had it known
the truth, it would not have acquired, and that property may have fallen because of a subsequent fall
in the general value of property of the kind in question. It is possible that in an appropriate case,
damages for fraud may include such losses. In South Australia Asset Management Corp v York
Montague Ltd 302 the House of Lords held that in a case of negligent valuation, recovery of such
losses are limited to the difference between the valuation given and a correct one, but it left open the
question in cases of fraud. 303 In Downs v Chappell 304 the plaintiffs had bought a business as the
result of the defendant’s fraudulent statements; they recovered the difference between the price paid
Page 7
and the value of the business when the fraud was discovered, even though the difference may have
been increased by a general fall in property prices. In that case, Hobhouse L.J. said that only losses
flowing from the tort would be recoverable, and as a means of testing whether the loss was caused by
the tort and of preventing over-compensation, proposed comparing:
“The loss consequent upon entering the transaction with that which what would have
been the position had the represented, or supposed, state of affairs actually existed.”
This last aspect of the case was disapproved by the House of Lords in Smith New Court Securities
Ltd v Scrimgeour Vickers (Asset Management) Ltd. 305 Thus it appears that in a fraud case the
claimant can recover the full fall in value of the property, at least up to the date of discovery of the
fraud, where the claimant was “locked into the transaction”. Lord Steyn justified a special rule for
cases of deceit by considerations of morality and deterrence. 306
Other cases
7-065
Where the asset bought is not “already flawed” and the claimant is not locked into the transaction, nor
is the fraud continuing to operate to induce him to retain the property (so that Lord
Browne-Wilkinson’s fifth proposition does not apply 307), it appears that the damages will still be
assessed by the value of the property at the date of the transaction. In Twycross v Grant, 308
Cockburn C.J. also gave the example of a person who is induced by fraud to buy a racehorse which
subsequently catches a disease and dies; the buyer may only recover the difference between the
price paid and the real value at the time of the transaction. In Smith New Court Securities Ltd v
Scrimgeour Vickers (Asset Management) Ltd Lord Steyn gave this as an example of a case in which
there would not be a sufficient causal link between the fraud and the loss. 309 But it seems that the
claimant will be treated as locked into the transaction where the other party knew that the claimant
was purchasing the property for a purpose that would require him to retain it.
Claimant would have entered another losing transaction
7-066
As mentioned earlier, in fraud cases it is presumed that had it not been for the fraud, the claimant
would not have entered the contract. 310 In Downs v Chappell 311 it was said that a party who has been
induced to enter a contract by fraud and who seeks damages need not show that, had he known the
truth, he would not have entered the transaction. He need only show that he was induced to enter the
contract by a material misrepresentation and the loss that flowed from entering it. Where the
misrepresentee claims to rescind the contract, it is irrelevant that he might have entered a contract
with the misrepresentor even if the fraudulent misrepresentation had not been made: it need only
have been one of the factors which influenced him. 312 But what the misrepresentee would have done
will normally be relevant to a claim for damages, since he must show a causal connection between
the misrepresentation and the loss claimed; and if it is shown that he would have entered another
losing transaction, this should be taken into account. This is certainly the case when the claim is one
for negligence. In South Australia Asset Management Corp v York Montague Ltd Lord Hoffmann
pointed out that it might be shown that, had the valuer not been negligent, the lender would have lent
a lesser amount to the same borrower on the same security, or “would have used his money in some
altogether different, but equally disastrous venture”. 313 The same rule should apply in cases of fraud,
even though, according to Lord Steyn’s speech in the Smith New Court Securities case, the rules of
causation are applied differently 314 and:
“… it is not necessary for the judge to embark on a hypothetical reconstruction of what

the parties would have agreed had the deceit not occurred.” 315
Page 8
In Yam Seng Pte Ltd v International Trade Corp Ltd 316 Leggatt J. held that although there is some
authority 317 for ignoring the fact that, but for the fraudulent misrepresentation, the claimant might have
entered another losing transaction, such a rule would be logically indefensible when profits that the
claimant might have made are to be taken into account in assessing damages for fraud. 318 Lord
Steyn’s statement quoted above was referring to a different issue, whether the court should consider
what the claimant might have done had the statement been true. It is therefore open to a defendant to
show that, had the representation not been made, the claimant would have entered another losing
transaction. The evidential burden will be on the defendant, and in seeking to discharge this burden,
the defendant (unlike the claimant) does not have the benefit of the principle that if the financial
outcome of the alternative transaction is uncertain the court will make reasonable assumptions in its
favour (for example by allowing damages to be calculated on a loss of a chance basis) to assist in the
proof of loss. 319
Mitigation
7-067
Finally it should be noted that Lord Browne-Wilkinson’s final proposition is that once the fraud is
discovered, the plaintiff must take all reasonable steps to mitigate his loss. 320
Damages for non-pecuniary losses
7-068
321 322
Damages for worry and inconvenience and for mental and physical suffering have been
awarded in actions based on fraud.
No account of profits
7-069
The victim of fraud may not obtain an account of profits made by the fraudulent party, at least where
the victim has affirmed the contract and has suffered no loss. 323 The House of Lords in A.G. v Blake
324
held that, in certain circumstances, the victim of a breach of contract may obtain an account of the
profit made by the other party through his breach. This is undoubtedly a relaxation of the rule in cases
of breach of contract and it may be asked whether the rule that an account of profits is not available in
case of fraud will continue to be applied. However, the conditions which the House of Lords laid down
for an account of profits in breach of contract cases—broadly, that the claimant has a legitimate
interest in the promised performance which an award of damages will not satisfy because the breach
will not necessarily cause a loss—are less likely to occur in cases of fraud, since damages for fraud
by definition do not include the gain the claimant would have made (the “expectation”) had the
statement made been true. Thus the claimant is entitled only to be put into the position he would have
been in had the misrepresentation not been made, 325 and it is suggested that damages will normally
be adequate for this purpose. To award the victim of a fraud an account of profit would be to allow
him a fully restitutionary claim, and in Halifax Building Society v Thomas that was held by the Court of
Appeal not to be available. 326
Exemplary damages
7-070
It is not yet wholly clear if exemplary damages can be awarded for fraud. 327 Until recently it seemed
very unlikely. Even if fraud could be brought within the first or second of Lord Devlin’s three
categories in Rookes v Barnard, 328 namely, first, oppressive, arbitrary or unconstitutional action by
the servants of government or, secondly, cases in which the defendant’s conduct has been calculated
to make a profit for himself which may well exceed the compensation payable to the plaintiff, 329 the
Page 9
interpretation of those categories by the House of Lords in Cassell & Co Ltd v Broome 330 and by the
Court of Appeal in AB v South West Water Services Ltd 331 required that for exemplary damages to be
awarded the tort must be one in respect of which such an award had been made prior to 1964, and
deceit is not such a tort. 332 However in Kuddus v Chief Constable of Leicestershire Constabulary 333
the House of Lords held that the power to award exemplary damages is not limited to those cases in
which such awards had been made before 1964. AB v South West Water Services Ltd was overruled.
This seems to open the way for awards of exemplary damages in cases of deceit which fall into Lord
Devlin’s first two categories. However both Lord Nicholls 334 and Lord Scott 335 remarked that the
growth of remedies for unjust enrichment may make Lord Devlin’s second category of less importance
as the defendant’s profit may be removed without an award of exemplary damages. 336 Even if it is still
open to a court to hold that exemplary damages may be awarded in an action for deceit (even if the
defendant has not succeeded in making any profit from his deceit) it is wrong to do so where the
defendant has already been convicted and imprisoned for the same fraud. 337 This would infringe the
basic principle that a man should not be punished twice for the same offence.
7-071
Contributory negligence is not a defence to an action of deceit and the Law Reform (Contributory
Negligence) Act 1945 338 does not apply. Section 1(1) of the Law Reform (Contributory Negligence)
Act 1945 applies “[w]hen any person suffers damage as the result partly of his own fault and partly of
the fault of any other person”. Section 4 defines “fault” as:
“… negligence, breach of statutory duty or other act or omission which gives rise to
liability in tort or would, apart from this Act, give rise to the defence of contributory
negligence.”
Thus for the Act to apply, the claimant’s conduct must either be an act giving rise to liability to the
defendant in tort or be one which at common law would have given rise to the defence of contributory
negligence. 339 It has been held that at common law contributory negligence is not a defence to fraud
and that therefore the Law Reform (Contributory Negligence) Act does not apply to fraud. 340
Compound interest
7-072
In Black v Davies 341 the Court of Appeal held that compound interest cannot be awarded on damages
for fraud. Waller L.J., giving the judgment of the court, said that compound interest will be awarded in
equity in the two cases:
“[1] … where money had been obtained and retained by fraud, or [2] where it had been
withheld or misapplied by a trustee or anyone else in a fiduciary position.” 342
However, the House of Lords has recently said that the rule that lost interest may not be recovered by
way of damages should be confined to those cases in which the loss is not pleaded or proved. 343
Loss of interest at compound rates can be recovered if that is the loss pleaded and proven. 344 This
applies to damages for fraud as much as to damages for any other common law claim. It has been
held in a case of fraud that damages may be recovered for loss of use of money on an alternative
investment. 345
Illegality
Page 10
7-073
It has been held that payments made under a contract which was illegal (though not to the knowledge
of the plaintiff) could be recovered in an action of fraud, 346 though the contract itself could not be sued
upon because of the illegality. Further, damages for fraud may be recovered even where the contract
was known by the plaintiffs to be illegal, if the fraud and the illegality were quite unconnected. 347 In
Hughes v Clewley, The Siben (No.2) 348 the misrepresentee was permitted to claim damages for fraud
although part of the business transferred to him was used for immoral purposes, as it was said that he
did not have to rely on the illegal contract. Moreover, in calculating the value of what he had received
for the purposes of damages, the value of this part of the business was disregarded.
249. Archer v Brown [1985] Q.B. 401; cf. Companies Act 2006 s.655, replacing Companies Act 1985
s.111A.
250. Below, paras 7-111—7-142.
253.
Strictly, the burden is the same as that in other civil proceedings, namely, proof on the
balance of probabilities (Hornal v Neuberger Properties Ltd [1957] 1 Q.B. 247), but it is well
known that the burden of proof of fraud is not easily discharged in practice. See the explanation
in Dadourian Group International Inc v Simms [2009] EWCA Civ 169, [2009] 1 Lloyd’s Rep. 601
at [31]–[32], referring to the speech of Lord Nicholls in Re H (Minors) [1996] A.C. 563, 586 and
that of Baroness Hale in Re B (Children) (Care proceedings: standard of proof) [2008] UKHL
35, [2009] 1 A.C. 11 at [62]. In Cassa di Risparmio della Repubblica di San Marino SpA v
Barclays Bank Ltd [2011] EWHC 484 (Comm), [2011] 1 C.L.C. 701 at [229] Hamblen J.
summarised the point thus: “Where a serious allegation (such as deceit) is in issue, this does
not mean the standard of proof is higher. However, the inherent probability or improbability of
an event is itself a matter to be taken into account when weighing the probabilities and deciding
whether, on balance, the event occurred. The more improbable the event, the stronger must be
the evidence that it did occur before, on the balance of probability, its occurrence will be
established”.
254. Below, para.7-095.
255. Below, para.7-104.
256. (1889) 14 App. Cas. 337.
257. Or knowledge that a fact stated previously is no longer true, and of its significance: Fitzroy
Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC); FoodCo UK LLP (t/a Muffin
Break) v Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at [213]–[214]: see above,
para.7-021.
258. (1889) 14 App. Cas. 337, 374.
259.
“I can conceive of many cases where the fact that an alleged belief was destitute of all
reasonable foundation would suffice of itself to convince the Court that it was not really
entertained, and that the representation was a fraudulent one.”: Lord Herschell (1889) 14 App.
Cas. 337, 375, cited in Mortgage Express v Countrywide Surveyors Ltd [2016] EWHC 224 (Ch)
Page 11
at [164].
260. (1889) 14 App. Cas. 337, 379.
261. Reese River Silver Mining Co Ltd v Smith (1869) L.R. 4 H.L. 64. See also Taylor v Ashton
(1843) 11 M. & W. 401, 415; Evans v Edmonds (1853) 13 C.B. 777, 786.
262. (1869) L.R. 4 H.L. 64, 79–80.
263. See Polhill v Walter (1832) 3 B. & Ad. 114; Denton v G.N. Ry (1856) 5 E. & B. 860; Brown
Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 Q.B. 621; Standard Chartered Bank v
Pakistan National Shipping Corp [1995] 2 Lloyd’s Rep. 365; Standard Chartered Bank v
Pakistan National Shipping Corp (No.2) [2000] 1 Lloyd’s Rep. 218, 224 (reversed in part on
other grounds, [2002] UKHL 43, [2003] 1 A.C. 959); Gabriel v Little [2013] EWCA Civ 1513 at
[32]. See also Morrell v Stewart [2015] EWHC 962 (Ch) (fraud if vendors said no work done on
property knowing work had been done but believing it had cured any problem). The definition of
criminal fraud under the Fraud Act 2006 is different. Section 2 requires both dishonesty and an
intention, by making the representation, either to make a gain for oneself or to cause loss to
another or to expose another to the risk of loss.
264. Gabriel v Little [2013] EWCA Civ 1513 at [33].
265. Smith v Chadwick (1884) 9 App. Cas. 187; Bonham-Carter v SITU Ventures Ltd [2012] EWHC
3589 (Ch) at [119].
266. Akerhielm v De Mare [1959] A.C. 789; John McGrath Motors (Canberra) Pty Ltd v Applebee
(1964) 110 C.L.R. 656.
267. Akerhielm v De Mare [1959] A.C. 789.
268. Gross v Lewis Hillman Ltd [1970] Ch. 445.
269.
Cornfoot v Fowke (1840) 6 M. & W. 358; Armstrong v Strain [1952] 1 K.B. 232. This sentence
was quoted with approval in Greenridge Luton One Ltd v Kempton Investments Ltd [2016]
EWHC 91 (Ch) at [77].
270. Lloyd v Grace, Smith & Co [1912] A.C. 716; Briess v Woolley [1954] A.C. 333. The position of a
junior employee, for instance one who passes on information given to him by a more senior
officer and, though he has doubts about its accuracy, puts his name to it because he does not
like to question it, is discussed by Tugendhat J. in GE Commercial Finance Ltd v Gee [2006] 1
Lloyd’s Rep. 337 at [96]–[112].
271. London County Freehold & Leasehold Properties Ltd v Berkeley Property & Investment Co Ltd
[1936] 2 All E.R. 1039, as explained in Armstrong v Strain [1952] 1 K.B. 232.
272. Ludgater v Love (1881) 44 L.T. 694; Occidental Worldwide Investment Corp v Skibs A/S Avanti
[1976] 1 Lloyd’s Rep. 293, 320–321 (where this sentence in the text was cited with approval).
See also GG 132 Ltd v Hampson Industries Plc [2011] EWHC 1137 (Comm) at [42].
273. Above, para.7-038.
274. See above, para.7-038; see Templeton Insurance Ltd v Motorcare Warranties Ltd [2010]
EWHC 3113 (Comm) at [168] (need not be sole cause; sufficient that substantially contributed
to deceiving the claimant). Though the defendant will not normally be permitted to argue that
the claimant might have done the same thing had he known the truth.
275. Downs v Chappell [1997] 1 W.L.R. 426 at 433; see also Smith New Court Securities Ltd v
Scrimgeour Vickers (Asset Management) Ltd [1997] A.C. 254, 283. This principle cannot
prevent the claimant from giving evidence that it would not have acted as it did if it had known
the true position, as demonstrating inducement by the fraudulent misrepresentation: Parabola
Page 12
Investments Ltd v Browallia Cal Ltd [2009] EWHC 901 (Comm), [2009] 2 All E.R. (Comm) 589
at [105], per Flaux J. (affirmed without reference to this point, [2010] EWCA Civ 486, [2011]
Q.B. 477).
276. Dadourian Group International Inc v Simms [2009] EWCA Civ 169, [2009] 1 Lloyd’s Rep. 601 at
[107]. This dictum is criticised by Handley (2015) 131 L.Q.R. 275, 283. However, it is consistent
with what appears to be the case if it can be shown that, if the misrepresentation had not
occurred and the misrepresentee would not have entered the contract, nonetheless he would
have entered another losing contract. See below, para.7-066.
277.
[1969] 2 Q.B. 158, noted (1969) in 32 M.L.R. 556; see also New Zealand Refrigerating Co v
Scott [1969] N.Z.L.R. 30; Parma v G. & S. Properties (1969) 5 D.L.R. (3d) 315 Doyle v Olby is
of general application, so it applies whether the claimant is the buyer or the seller: Inter Export
LLC v Townley [2017] EWHC 530 (Ch) at [8]..
278.
See Esso Petroleum Ltd v Mardon [1976] Q.B. 801, 820, 828, 833. Wemyss v Karim [2016]
EWCA Civ 27 at [23].
279. Newark Engineering (N.Z.) Ltd v Jenkin [1980] N.Z.L.R. 504; Smith Kline & French Laboratories
Ltd v Long [1989] 1 W.L.R. 1.
280. When there is no evidence as to values, the cost of making good the representation may be
taken to represent the difference in value: Jacovides v Constantinou, The Times, October 27,
1986.
281. [1997] A.C. 254, 263.
282. In Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486, Toulson L.J. said that
he took these instances “to be illustrative rather than exclusive” (at [34]).
283. [1997] A.C. 254, 267. Lord Mustill said that the judgment of Lord Denning in Doyle v Olby
(Ironmongers) Ltd [1969] 2 Q.B. 158 was in some respects too broad-brush; the case had not
been fully argued (apparently a reference to the fact mentioned by Lord Browne-Wilkinson that
certain nineteenth-century cases on the date of valuation had not been cited). He considered
that, in future, courts would do well to be guided by Lord Browne-Wilkinson’s seven
propositions: 269. On the duty to mitigate, see Standard Chartered Bank v Pakistan National
Shipping Corp [1999] 1 All E.R. (Comm) 417, affirmed [2001] EWCA Civ 55, [2001] 1 All E.R.
(Comm) 822.
284. [1991] 1 W.L.R. 461. See also Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001]
Q.B. 488 (claimants had agreed to buy goods from defendants at prices which defendants had
fraudulently stated to be those charged to the defendants’ UK customers. Although claimants
had been able to resell the goods profitably, they were still entitled to the difference between
the prices they had paid and those they would probably have been able to negotiate had the
misrepresentation not been made). Similar damages for wasted expenditure and loss of other
opportunities were awarded in Esso Petroleum Ltd v Mardon [1976] Q.B. 801. But cf. Davis v
Churchward Unreported May 6, 1993 noted in (1994) 110 L.Q.R. 35. See also Smith Kline &
French Laboratories Ltd v Long [1989] 1 W.L.R. 1, in which sellers, who had been tricked into
supplying goods to a buyer who was unable to pay, recovered the normal wholesale price of the
goods, not just the cost of producing them.
285. The award in East v Maurer [1991] 1 W.L.R. 461 based on a hypothetical profitable business in
which the plaintiff would have engaged but for the deceit has been described by Lord Steyn as
“classic consequential loss”: Smith New Court Securities Ltd v Scrimgeour Vickers (Asset
Management) Ltd [1997] A.C. 254, 282.
286. Even if the claimant would have paid the market price for the alternative business, he may have
lost the opportunity to make profits, both by way of income and capital appreciation, and this
loss is compensable: [2008] EWHC 915 (Ch) at [51]. (On the last point, see further below,
para.26-029.)
Page 13
287. 4 Eng Ltd v Harper [2008] EWHC 915 (Ch), [2009] Ch. 91.
288. Parabola Investments Ltd v Browallia Cal Ltd [2009] EWHC 901 (Comm) at [147]. (The Court of
Appeal held that the issue of loss of chance did not arise on the facts: [2010] EWCA Civ 486,
[2011] Q.B. 477 at [23].) See also Welven Ltd v Soar Group Ltd [2011] EWHC 3240 (Comm);
County Leasing Asset Management Ltd v Michael Green Plant Ltd [2012] EWCA Civ 53. On
damages for loss of chance see further below, para.26-016.
289. In the United States, some jurisdictions allow recovery of damages for loss of bargain in actions
for fraud, e.g. Beardmore v T.D. Burgess Co (1967) 226 A. 2d 329; cf. Uncle Ben’s Tartan
Holdings Ltd v North West Sport Enterprises Ltd (1974) 46 D.L.R. (3d) 280. Loss of bargain
damages did appear to be recoverable in English law where there had been fraud by a vendor
of land who knew that he had no good title and would be unable to make one, with the result
that the rule in Bain v Fothergill (1874) L.R. 7 H.L. 158, below, para.26-003, did not apply; but
this was not a true exception: the fraud simply lifted a restriction on recovery of damages for
breach of contract that would otherwise apply. Mere negligence was not enough: see the
disapproval of Watts v Spence [1976] Ch. 165 in Sharneyford Supplies Ltd v Edge at first
instance [1986] Ch. 128, 149 and by Balcombe L.J. in the Court of Appeal [1987] Ch. 305, 323.
In any event the rule has been abolished as regards all contracts made after September 27,
1989: Law of Property (Miscellaneous Provisions) Act 1989 s.3.
290.
Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] A.C.
254, 281–282, per Lord Steyn, approving the statement by Treitel (1969) 32 M.L.R. 558–559.
See also Sycamore Bidco Ltd v Breslin [2012] EWHC 3443 (Ch) at [201]. Wemyss v Karim
[2016] EWCA Civ 27 at [24]–[25].
291.
See Vol.I, para.7-057.
292.
OMV Petrom SA v Glencore International AG [2016] EWCA Civ 778 (“The purpose of the
flexibility of approach about the valuation date to which Lord Browne-Wilkinson referred was to
ensure that the person duped should not suffer an injustice by failing to recover full
compensation in the type of circumstances to which he referred. There is no need to adopt such
an approach in order to relieve the fraudster from the general rule as to damages, especially if
to do so means that the person defrauded ends up paying more than the cargo was worth at
the time that he bought it.” (at [39]).
293.
[2016] EWCA Civ 778 at [66].
294. See the speech of Lord Steyn in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset
Management) Ltd [1997] A.C. 254, 284; Great Future International Ltd v Sealand Housing Corp
[2002] All E.R. (D) 28; McGregor on Damages, 19th edn (2014), para.47–011.
295. See the speech of Lord Steyn at 281–284.
296. [1997] A.C. 254, 284.
297. [1997] A.C. 254, 262 and 265; McGregor on Damages, 19th edn (2014), para.47-013. A rather
similar explanation may underlie Naughton v O’Callaghan [1990] 3 All E.R. 191, a case under
Misrepresentation Act s.2(1), in which the purchaser did not realise that the pedigree of the
horse had been misrepresented until it had been very unsuccessful, by which time its value had
fallen. Alternatively, the case may be one of a “flawed asset”: see para.7-062 and McGregor,
19th edn (2014), para.47-056.
298. [1997] A.C. 254.
299. [1994] 1 W.L.R. 1271.
300. (1877) 2 C.P.D. 469, 544–545.

Page 14
301. [1997] A.C. 254, 279.
302. [1997] A.C. 191, [1997] A.C. 191. See below, para.26-168.
303. [1997] A.C. 191, 215.
304. [1997] 1 W.L.R. 426.
305. [1997] A.C. 254.
306. [1997] A.C. 254, 280.
307. In Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486, Toulson L.J. said that
he took these instances “to be illustrative rather than exclusive” (at [34]).
308. (1877) 2 C.P.D. 469.
309. [1997] A.C. 254, 285. McGregor on Damages, 19th edn (2014), para.47-016 appears to take
the view that the plaintiff may only be compensated for a subsequent fall in value when the
asset was already flawed.
311. [1997] 1 W.L.R. 426.
312. See para.7-039, above.
313. [1997] A.C. 191, 218.
314. [1997] A.C. 254, 284–285.
315. [1997] A.C. 254, 283. The decision in Downs v Chappell [1997] 1 W.L.R. 426, as far as the
vendor’s accountants were concerned, may have been interpreted in Bristol and West Building
Society v Mothew [1998] Ch. 1 as applying the same measure in cases of negligence, but
Hobhouse L.J., who delivered the only full judgment in Downs, has said that this is not an
accurate account of the decision: Swindle v Harrison [1997] 4 All E.R. 705, 728. But a different
view is taken by McGregor on Damages, 19th edn (2014), para.47-048.
316. [2013] EWHC 111 (QB), [2013] 1 Lloyd’s Rep. 526 at [209]–[217].
317. Slough Estates Plc v Welwyn Hatfield DC [1996] N.P.C. 118, 124; Naughton v O’Callaghan
[1990] 3 All E.R. 191.
318. See e.g. East v Maurer [1991] 1 W.L.R. 461, discussed in para.7-058.
319. [2013] EWHC 111 (QB), [2013] 1 Lloyd’s Rep. 526 at [217].
320. For an application of the mitigation rule in a fraud case see Downs v Chappell [1997] 1 W.L.R.
426.
321. McNally v Welltrade International Ltd [1978] I.R.L.R. 497; Jones v Emerton-Court [1983] C.L.Y.
982.
322. Shelley v Paddock [1980] Q.B. 348; Archer v Brown [1985] Q.B. 401.
323. Halifax B.S. v Thomas [1996] Ch. 217; see also Murad v Al-Saraj [2005] EWCA Civ 959, [2005]
W.T.L.R. 1573; Renault UK Ltd v Fleetpro Techincal Services Ltd [2007] EWHC 2541 (QB),
[2007] All E.R. (D) 208 (Nov) at [153]–[158]; and below, para.29-152.
324. [2001] A.C. 268; see below, paras 26-055 et seq.

Page 15
326. [1996] Ch. 217. The Law Commission had recommended that restitutionary damages should be
available if the defendant has committed a tort and his conduct shows a deliberate and
outrageous disregard for the claimant’s rights, but that was thought to require legislation: Report
on Aggravated, Exemplary and Restitutionary Damages (No.247, 1997), para.3.51.
327. See Mafo v Adams [1970] 1 Q.B. 548; Cassell & Co Ltd v Broome [1972] A.C. 1027 and Archer
v Brown [1985] 1 Q.B. 401, 418–421.
328. [1964] A.C. 1129.
329. Rookes v Barnard [1964] A.C. 1129, 1225–1226.
330. Cassell Co Ltd v Broome [1972] A.C. 1072, Mafo v Adams [1970] 1 Q.B. 548 was criticised.
331. [1993] Q.B. 507.
332. Cassell & Co Ltd v Broome [1972] A.C. 1027, 1076, per Lord Hailsham L.C. See also Law
Commission, Aggravated, Exemplary and Restitutionary Damages (Report No.247, 1997),
para.4.25. In Parabola Investments Ltd v Browallia Cal Ltd [2009] EWHC 901 (Comm) Flaux J.
said that his own research had shown that “exemplary damages have been awarded in cases
of deceit, primarily in the case of fraudulent insurance claims by insureds dealt with in the
county courts. This is no doubt because such cases do fall into that category, as the insurer’s
remedy is rejection of the claim coupled with avoidance and retention of the premium and it
would not expect any compensation as such” (at [205]). However, he declined to make an
award when the defendant’s responsibility was only vicarious (see at [206]–[208]). The Court of
Appeal ([2010] EWCA Civ 486, [2011] Q.B. 477) did not refer to this question.
333. [2001] UKHL 29, [2002] 2 A.C. 122.
334. [2001] UKHL 29 at [67]. Lord Nicholls considered that Lord Devlin’s second category should be
expanded to include cases in which the defendant had acted with a malicious motive.
335. [2001] UKHL 29 at [109]. Lord Scott thought that if exemplary damages were to be retained
(which he personally regretted), deceit practised by a government or local authority official, or
by a police officer, would be a suitable case for their award (at [122]).
336. See above, para.7-069 and below, para.26-055. The Law Commission, in its Report on
Aggravated, Exemplary and Restitutionary Damages (No.247, 1997) had recommended that
punitive damages be available when, in committing a wrong or in subsequent conduct, the
defendant deliberately disregarded the claimant’s rights: above, n.319.
337. Archer v Brown [1985] Q.B. 401.
339. Forsikringaktieselskapet Vesta v Butcher (No.1) [1989] A.C. 852, 862, et seq.
340. Alliance and Leicester Building Society v Edgestop Ltd [1993] 1 W.L.R. 1462; Standard
Chartered Bank v Pakistan National Shipping Corp (No.2) [2002] UKHL 43, [2003] 1 A.C. 959;
see also Corp Nacional del Cobre de Chile v Sogemin Metals Ltd [1997] 2 All E.R. 917,
921–923.
341. [2005] EWCA Civ 531, [2005] All E.R. (D) 78 (May). The question had been left open in Clef
Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] Q.B. 488.
342. The categories given by Lord Brandon in President of India v LaPintada Compania Navigacion
SA [1985] A.C. 104 at 116A. This was the view of the majority in Westdeutsche Landesbank
Girozentrale v Islington LBC [1996] A.C. 669.
Page 16
343. Sempra Metals Ltd v Commissioners of Inland Revenue [2007] UKHL 34, [2008] 1 A.C. 561 at
[96]. See below, para.26-175.
344. [2007] UKHL 34 at [16]–[17], [94]. [100], [132], and [154].
345. Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486, [2011] Q.B. 477.
346. Saunders v Edwards [1987] 1 W.L.R. 1116.
347. [1987] 1 W.L.R. 1116.
348. [1996] 1 Lloyd’s Rep. 35.

Page 1

(b) - Negligent Misrepresentation
Preliminary
7-074
A negligent misrepresentation is one which is made carelessly, or without reasonable grounds for
believing it to be true. Apart from statute, a misrepresentation could not be regarded as negligent
unless the representor owed a duty to be careful to the representee, and the law relating to the
existence of such a duty of care has undergone some quite remarkable fluctuations since the case of
Derry v Peek. 349 That case was at one time thought to lay down that there could never be a duty to
take care in the making of statements unless the duty arose out of a contract itself, but the House of
Lords has rejected this view in two leading cases in this country. In Nocton v Ashburton 350 it was
decided that such a duty to take care could arise out of a fiduciary relationship, and in Hedley Byrne &
Co Ltd v Heller and Partners Ltd 351 the law was greatly widened by the decision that a duty to take
care in making statements could arise out of many other “special relationships”. But the enactment of
the Misrepresentation Act 1967 has somewhat reduced the importance of these cases so far as the
law of contract is concerned.
Misrepresentation Act s.2(1) 352
7-075
This subsection reads as follows:
“Where a person has entered into a contract after a misrepresentation has been made to
him by another party thereto and as a result thereof he has suffered loss, then, if the
person making the misrepresentation would be liable to damages in respect thereof had
the misrepresentation been made fraudulently, that person shall be so liable
notwithstanding that the misrepresentation was not made fraudulently, unless he proves
that he had reasonable ground to believe and did believe up to the time the contract was
made that the facts represented were true.”
Thus, where a person is induced to enter into a contract as a result of a misrepresentation, this
subsection does away with the need to establish any duty of care as between the representor and the
representee. In any circumstances in which this section applies, 353 the representee will have an
action for damages under the Act. In Howard Marine and Dredging Co Ltd v A. Ogden & Sons
(Excavations) Ltd 354 the plaintiffs misrepresented to the defendants the carrying capacity of two
barges which the defendants wished to hire for carrying large quantities of clay out to sea and
dumping them. The defendants entered into the contract in reliance on this misrepresentation and
used the barges for some time, after which they discovered the true facts and returned the barges. It
was said by a majority of the Court of Appeal that the plaintiffs were probably not under a duty of care
Page 2
at common law, but a differently-constituted majority held that the defendants were entitled to
damages for a breach of s.2(1) of the 1967 Act.
Not strictly speaking liability for negligence
7-076
In Howard Marine and Dredging Co Ltd v A. Ogden & Sons (Excavations) Ltd 355 it was also stressed
that under s.2(1) the question was, strictly speaking, not one of negligence, but that the Act imposed
an absolute obligation not to state facts which the representor cannot prove he had reasonable
grounds to believe. No doubt it is correct to say that it is not a question of negligence, as at common
law, where a duty of care is in issue 356; and it is possible that circumstances may exist in which a
person may make a statement without having reasonable ground to believe it, yet in which it would be
held that he was not (having regard to all the circumstances) negligent. Nevertheless, for explanatory
purposes it is sufficient to equate liability under s.2(1) of the Act with liability for negligence, and the
statutory liability is referred to in this chapter, for the sake of convenience, as a liability for negligence.
Effect of s.2(1)
7-077
It will be noted that the gist of the subsection is to confer a right to damages for negligent
misrepresentation in circumstances in which such a right would exist if the misrepresentation has
been fraudulent. 357 A number of consequences seem to follow from this. First, the rules relating to
what constitutes a misrepresentation, 358 and the principle that the representation must have been one
of the inducements influencing the mind of the representee, 359 will apply to an action under the
subsection as they apply to an action in fraud. Secondly, it is now settled that the basic measure of
damages under the subsection is the same as the measure of damages for fraud. 360 This follows
from the wording of the subsection. 361 In any event it would be highly anomalous if the basic measure
of damages for negligent misrepresentation under the Act were different from the normal measure of
damages for common law negligent misrepresentation. This means that generally damages will be
awarded to put the representee in the position in which he would have been if he had never entered
into the contract, and not to put him in the position in which he would have been if the
misrepresentation had been true. 362
Application of rules on damages for fraud
7-078
It has been shown that damages for fraud are governed by somewhat different rules to damages
for negligent misrepresentation at common law: losses may be recoverable even though they were
not of a foreseeable kind 363 and, in some circumstances, consequential losses may include
compensation for falls in the value of the property acquired which were unrelated to the fraudulent
statement. 364 It is not clear whether these rules, which appear to be justified by considerations of
morality and deterrence, 365 are applicable to damages claimed under s.2(1). In the 26th edn of this
work it was suggested 366 that the first rule did not apply, but this was rejected by the Court of Appeal
in Royscot Trust Ltd v Rogerson 367 on the ground that this interpretation “is to ignore the plain words
of the subsection”. 368 In Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management)
Ltd 369 both Lords Browne-Wilkinson and Steyn declined to comment on the correctness of the
Royscot case. If the interpretation of s.2(1) taken in Royscot is correct, however, it would presumably
follow that damages under s.2(1) can also include compensation for loss of value caused by a fall in
the market, at least where the claimant has acquired an “already flawed asset”, 370 and that
contributory negligence will not necessarily be a defence or lead to a reduction in the claimant’s
damages. 371 Whether it is necessary to interpret s.2(1) in this way may, with respect, be doubted. 372
It does not seem appropriate to apply the special rules governing damages for fraud, which are
justified by considerations of morality and deterrence, 373 to cases in which there was, by definition, no
Page 3
Fraud rules on knowledge
7-079
Further, a possible consequence of the decision in Royscot Trust Ltd v Rogerson 375 is that the
difficulties which arise in cases of fraud where the misrepresentation is made by one person, but the
guilty knowledge is that of another, seem to apply equally to an action for negligence under the
subsection. 376 If, for example, the representee contracts with a company as a result of a
misrepresentation made to him by one of the company’s employees or agents, and that employee or
agent did have reasonable grounds for believing the statement to be true, the representee will have
no action under the subsection merely because another employee or agent of the company knew that
the representation was untrue, or knew that there were no reasonable grounds for believing it to be
true. 377 However, in practice this type of case may not prove so troublesome in cases of negligence
as it has been in cases of fraud. Although a court will not impute fraud to an employee or agent
merely because his principal (or another employee or agent) knows that the statement he has made
is untrue, a court might be much more ready to hold that the person making the statement in these
circumstances did not have reasonable grounds for believing that the facts stated were true 378 ;
and it would also be possible to find negligence at common law as a result of a failure of one
employee to inform another of the true facts. 379 Damages have been awarded under this subsection
against a vendor of land because of the misrepresentations of his estate agent. 380
Rescission and damages
7-080
There is nothing in the subsection to prevent the representee from both rescinding the contract and
claiming damages, 381 though (as will be seen below) 382 the court now has a discretion to refuse to
allow rescission, except in cases of fraud, under s.2(2) of the Act. If the representee does rescind he
was, even before the passing of the Act, entitled to an “indemnity” 383 against liabilities incurred as a
result of the contract, and it seems clear that he cannot claim both an indemnity and damages under
s.2(1) in respect of the same loss.
7-081
The section does not give rise to liability in damages for failure to disclose, even when there is a duty
to disclose material facts. 384 Silence as to material facts which should be disclosed is not an implicit
representation that there is nothing to be disclosed, nor does it constitute a “misrepresentation made”
within s.2(1). 385
7-082
It was held in Gran Gelato Ltd v Richcliff (Group) Ltd 386 that damages for negligent
misrepresentation under s.2(1) of the Misrepresentation Act 1967 may be reduced under s.1 of the
Law Reform (Contributory Negligence) Act 1945 387 if the loss was partly the fault of the representee.
Liability under s.2(1) applies unless the representor “had reasonable grounds to believe and did
believe … that the facts represented were true” and thus is “essentially founded on negligence”.
However, it would not be just and equitable to reduce the damages when the representor had
intended, or should be taken as having intended, that the representee should act in reliance on the
answers which had been given to his questions. 388 The decision was based on the fact that there
was concurrent liability under s.2(1) and in tort for negligent misrepresentation under the principle of
Page 4
Hedley Byrne & Co Ltd v Heller & Partners Ltd. 389 It may happen that a defendant is liable under
s.2(1) without being concurrently liable in tort for negligent misrepresentation, for instance because
the court considers that there was on the facts no undertaking of responsibility towards the claimant.
390
In such a case it seems that the claimant’s damages could not be reduced on account of any
contributory negligence. This is because s.2(1) makes the misrepresentor who cannot prove
reasonable grounds liable as if the statement had been fraudulent. It has been held that at common
law contributory negligence is not a defence to fraud and that therefore the Law Reform (Contributory
Negligence) Act does not apply to fraud. 391 Because the misrepresentor is to be liable under the
Misrepresentation Act 1967 s.2(1), “as if the representation had been fraudulent”, 392 the Law Reform
(Contributory Negligence) Act seems not to apply to claims under s.2(1) where there is no concurrent
liability in tort for negligent misrepresentation.
Burden of proof
7-083
Once the representee proves that the statement was in fact false, the burden under the subsection
shifts to the representor to prove that he had reasonable ground to believe and did believe up to the
time the contract was made that the facts represented were true. Where the negotiations for a
contract have continued over a substantial time, and the misrepresentation was made some while
before the contract was finally entered into, this burden may indeed prove a heavy one. It will not be
sufficient for the representor to prove that he had reasonable grounds to believe the statement was
true when made; he will have to go on to prove that he had reasonable grounds to believe and did
believe the statement was true when the contract was made. 393
Parties liable under the subsection
7-084
The subsection only applies where the representee has entered into a contract after a
misrepresentation was made to him by another party to the contract. 394 Presumably, ordinary
principles of agency will still apply, so that an action will lie under the subsection where the
misrepresentation has been made by an agent of the other contracting party, acting within the scope
of his authority. 395 But an agent who makes a misrepresentation which is within his actual or
ostensible authority is not personally liable under the subsection, despite the fact that the subsection,
having referred to a misrepresentation having been made by a party to the contract (i.e. the principal
via the agent) then goes on to refer to the liability of the person making the representation. 396 The
agent may, of course, be liable for negligence at common law but only if he has assumed personal
responsibility towards the claimant. 397 If the agent seeks to enforce the contract in his own name, the
misrepresentation may be set up as a defence against him whether or not it is attributable to him
rather than his principal. 398
Misrepresentation by third person
7-085
The subsection has no application where the representor is neither himself the other contracting
party nor the agent of the other contracting party. Thus where B is induced to enter into a contract
with C as a result of a misrepresentation made by A, and A is not C’s agent, 399 B will have no right of
action against A under the subsection. 400 He may, however, have a remedy in damages against A
on some other ground. There is, of course, no doubt that A would be liable to B in tort for fraud if fraud
were proved, and in these circumstances, he might also be liable on the ground of a collateral
contract or warranty (which requires neither fraud nor negligence to support it). 401 Further, an action
may lie for negligent misrepresentation quite apart from s.2(1) of the Misrepresentation Act.
Page 5
Liability for negligence at common law
7-086
It would be beyond the scope of this work to examine this kind of liability in detail 402 since it is
not strictly contractual in its nature, and in any event, its importance has been greatly diminished by
s.2(1) of the Misrepresentation Act which has been discussed in the preceding paragraphs. 403 But
some account of this kind of liability is not out of place even in a work on the law of contract, since
cases may arise in which a person is induced to enter into a contract as a result of a
misrepresentation by a third party, and in these circumstances it is obviously desirable to consider the
remedies available to the representee as a whole. This kind of liability may sometimes also arise
where parties are negotiating for a contract but no contract is ever concluded, and loss is caused to
one party as a result of a negligent statement by the other. 404 Since the decisions in Nocton v
Ashburton 405 and Hedley Byrne & Co Ltd v Heller & Partners Ltd 406 it is clear that an action will lie in
tort for negligent misrepresentation causing loss to the representee where the relationship of the
parties is such as to give rise to a duty of care. The former case establishes that such a duty may
arise (even apart from contract) out of a fiduciary relationship, such as that of solicitor and client,
principal and agent, or trustee and beneficiary; the latter case establishes that such a duty may also
arise in other circumstances. 407
Nocton v Ashburton
7-087
In this case a mortgagee sued his solicitor, alleging that by improper advice the latter had induced
him to release part of his security, whereby the security had become insufficient; it was further alleged
that the solicitor knew that the security would be rendered insufficient, and that his advice was given
in order that he himself might benefit. The House of Lords held that fraud in the sense of Derry v Peek
408
had not been proved, but that the mortgagee was entitled to relief for the breach of a duty imposed
on the solicitor by the relationship in which he stood to his client.
What is a fiduciary relationship
7-088
The fiduciary or confidential relationship necessary to bring this doctrine into operation extends to
certain obvious ties, such as those between trustee and cestui que trust, solicitor and client, and
parent and child. But the courts have not fettered their jurisdiction by defining its limits, and are ready
to interfere in order to protect the person who is under the influence of another. The principle was
stated in Tate v Williamson 409:
“Wherever two persons stand in such a relation that, while it continues, confidence is
necessarily reposed by one, and the influence which naturally grows out of that
confidence is possessed by the other, and this confidence is abused, or the influence is
exerted to obtain an advantage at the expense of the confiding party, the person so
availing himself of his position will not be permitted to retain the advantage, although the
transaction could not have been impeached if no such confidential relation had existed.”
410
Cases relating to fiduciary relationships are generally dealt with as part of the doctrine of “undue
influence”, 411 but it is not wholly clear whether every relationship which would justify rescission of a
contract for undue influence would also give rise to a duty of care which would support an action for
damages for negligence. 412
Page 6
Hedley Byrne & Co Ltd v Heller & Partners Ltd
7-089
Until the decision of the House of Lords in the Hedley Byrne 413 case in 1964, it was thought
that a duty to take care in the making of statements could only arise in the case of fiduciary (or, of
course, contractual) relationships, but that decision has shown that the law is very much wider than
this. Although the House made it clear that misrepresentations made in the course of a mere social
relationship would not ground liability in tort, they also made it clear that many “special relationships”
would suffice. In particular, it is clear that professional relationships, even where there is no contract
between the parties, will often give rise to a duty of care if it can be said that the representor knew or
ought reasonably to have known that the representee was likely to act on the representation. 414 So,
for example, if a company’s auditor gives negligent advice to a person who invests money in the
company on the strength of the advice, and it can be shown that the auditor ought to have realised
that the representee would act on the advice, an action for negligent misrepresentation will lie against
the auditor. 415 Again advice given “in a business connection” about the creditworthiness of a third
party may give rise to a duty of care even where the adviser is not acting in a professional capacity,
416
provided he has some financial interest in the transaction. 417 On the other hand, the question
whether a banker owes a duty to take care in giving references about his customers was left open by
the House of Lords in the Hedley Byrne case, since it was thought that such a liability might be too
onerous. It was, however, said that a “duty to be honest” is at least owed in such circumstances,
though it is far from clear whether this is the same thing as the duty merely to abstain from fraud. 418 If
the “duty to be honest” goes beyond liability in fraud, it would seem necessary to recognise a new
form of liability midway between fraud and negligence, but it is submitted that this is a confusing and
unnecessary conception. Since the duty of care means a duty to take such care as is reasonable in
all circumstances of the case, the law of negligence is already sufficiently flexible to cater for different
degrees of care. There is, for instance, no reason why a court should not hold that a banker giving
references about a customer does owe a duty of care to the representee, while at the same time
recognising that this duty does not require the banker to compile an exhaustive dossier on the
customer’s activities over a period of many years. 419
Statement in connection with particular transaction
7-090
In Caparo Industries Plc v Dickman 420 it was held that there will be no liability in tort for negligent
misrepresentation unless the maker of the statement knew that the statement would be
communicated to the person relying on it specifically in connection with a particular transaction or a
transaction of a particular kind. In relation to misrepresentation as between contracting parties, 421 this
appears to mean that the misrepresentation must have been made in connection with the contract in
respect of which relief is sought, or at least that reliance on the representation in connection with the
contract was likely.
Voluntary assumption of responsibility
7-091
In Hedley Byrne, considerable emphasis was placed on whether the defendants had voluntarily
assumed responsibility towards the plaintiffs 422; and the defendants’ disclaimer of responsibility
prevented them from being liable in that case. The meaning of assumption of responsibility is not
wholly clear. In Smith v Eric S. Bush, 423 in which the plaintiff had purchased a house on the strength
of a valuation made by surveyors employed by the building society from whom the plaintiff borrowed
to finance the purchase, the application form signed by the plaintiff stated that the defendant valuer’s
report would be “supplied without acceptance of responsibility on their part to me”. Similarly, in the
joined case of Harris v Wyre Forest DC, in which the survey was carried out by an employee of the
lender, the application form stated that the lender took “no responsibility … for the value or condition
of the property”. It was held by the House of Lords that the defendants were responsible nonetheless;
Page 7
the clauses were subject to Unfair Contract Terms Act 1977 s.2(2) and had not been shown to be
reasonable. Lord Griffiths stated that he did not find that “voluntary assumption of responsibility is a
helpful or realistic test for liability”. 424 However, subsequent authority in the House of Lords again
stressed that liability for economic loss, including in cases of negligent misstatement, is based on an
“assumption of responsibility”. 425 Lord Goff has explained that:
“… especially in a context concerned with a liability which may arise under a contract or
in a situation ‘equivalent to contract’, it must be expected that an objective test will be
applied when asking the question whether, in a particular case, responsibility should be
held to have been assumed by the defendant to the plaintiff.” 426
Thus the existence of a disclaimer will not necessarily negate an assumption of liability if the
defendant knows that there is a strong probability that the plaintiff will nonetheless rely on the
information given. 427 The defendant will be protected only if he shows that the disclaimer satisfies the
requirement of reasonableness under the Unfair Contract Terms Act 1977. 428 or the requirement of
fairness under the Consumer Rights Act 2015, 429
Statements not made in course of business
7-092
The principle of the Hedley Byrne case was somewhat limited by the majority decision of the Privy
Council in Mutual Life and Citizen’s Assurance Co Ltd v Evatt 430 where it was held that in general
there is no duty to take care in the making of statements unless the maker has held himself out as
having some special skill or competence in the matter in question. In general, it was held, the duty will
only arise where the statement is made in the course of a business though in some cases other
factors may be sufficient to impose a duty, for example that the person making the statement has a
financial interest in the transaction on which he has given advice. 431 It seems unlikely that this
decision will now be followed. It was decided by a bare majority and several judges have felt free to
indicate their preference for the minority judgments of Lord Reid and Lord Morris. 432 However, it has
been pointed out that although the inflexible view of Mutual Life has been rejected, it remains the
case that a claimant is much more likely to be able to show that he is entitled to depend on a service
or statement where the work is undertaken by a person who is exercising a special skill in a business
context. 433
Special relationship between parties negotiating contract
7-093
It has now become clear that a special relationship, giving rise to a duty of care, may subsist between
parties negotiating a contract if information is given in connection with the contract. 434 In Esso
Petroleum Co Ltd v Mardon 435 it was held that a petroleum company, negotiating a lease of a filling
station, was liable to the tenant for negligently giving him over-optimistic estimates of the sales
potential of the filling station. It should be noted that this was not a casual observation made between
parties each of whom was in the same position to judge the accuracy of the estimate. The information
was based on a detailed evaluation of the position by the petroleum company and the tenant was
clearly not in as good a position as they were to make such an estimate. 436 Similarly, it has been held
that a special relationship existed between a landlord and a tenant as a result of pre-contractual
discussion during which the landlord assured the tenant that he would keep the premises insured 437;
but it was also held in this case that the duty was only a duty not to give misleading information, and
did not extend to requiring the landlord to exercise care not to allow the insurance to expire
unrenewed without informing the tenant. 438 On the other hand, it has been held that a special
relationship existed between an astute and experienced business woman and an insurance company
with whom she was contemplating investing over £90,000 in a property bond; and in this case it was
held that the consequential duty of care required the defendants’ agent to give the plaintiff an
adequate explanation of the nature of property bonds, and was not merely a duty to avoid
Page 8
misrepresentation. 439 An estate agent may be liable to a customer who purchases a house in reliance
on a negligent misrepresentation. 440 A Canadian case has held that a builder who provided an
estimate as to the cost of building a house was under a duty to take care to see that the client
realised that his estimate did not include his 15 per cent mark up. 441 Sometimes even a failure to
disclose may give rise to liability, but this will only be so if there has been a voluntary assumption of
responsibility to disclose and the claimant has relied on it. There is no liability under the Hedley Byrne
principle simply because the contract was uberrimae fidei and thus could be avoided for
non-disclosure of a material fact. 442
Relationship between manufacturer and purchaser of goods
7-094
In Lambert v Lewis 443 it was held by the Court of Appeal that a person who purchases goods in
reliance on statements in a manufacturer’s promotional literature is not, for that reason alone, entitled
to claim that a special relationship exists as a result of which the manufacturer may be held liable for
negligent statements in the literature. The mere making of a serious statement with the intent that it
should be relied upon was not enough, said the court, to create a special relationship. It may seem
regrettable that a manufacturer is under no duty of care with respect to statements made in his
brochures and advertising leaflets which are plainly designed to influence buyers. However, the
decision itself seems consistent with the later decision in Caparo Industries Plc v Dickman 444 that
there will be no liability in tort for negligent misrepresentation unless the maker of the statement knew
that the statement would be communicated to the person relying on it either as an individual or as a
member of a specified class, specifically in connection with a particular transaction or a transaction of
a particular kind. In most cases a manufacturer will not know the purchaser’s identity other than as a
member of a very broad class and will know the purchaser’s purposes only in general terms. If the
manufacturer knows both the purchaser’s identity and his purposes it is submitted that there may be a
special relationship. 445 There is authority for saying that in such circumstances information given by
the manufacturer may constitute a contractual warranty. 446 There is some ground for suggesting that
even in the absence of direct contact between manufacturer and purchaser, statements in the
manufacturer’s literature should be treated as warranties, rendering the manufacturer strictly liable,
and not merely liable for negligence: this is certainly the position in American law, 447 but in English
law such statements are said not to be warranties unless there is an intent to warrant. 448 However,
where goods are sold to a person dealing as a consumer, public statements made by the producer
are relevant to whether the goods are of satisfactory quality 449; and where goods are sold or supplied
to a consumer with a “consumer guarantee”, under the Sale and Supply of Goods to Consumers
Regulations 2002 450 and (for contracts made on or after October 1, 2015) the Consumer Rights Act
2015, 451 the consumer guarantee “takes effect … as a contractual obligation owed by the guarantor
under the conditions set out in the guarantee statement and associated advertising”. 452
Where negotiations do not lead to contract
7-095
In principle there seems no reason why a special relationship should not be held to exist between
parties negotiating a contract even where the negotiations break down so that no contract is
ultimately made. Indeed, this seems to have been the basis of the decision in Box v Midland Bank Ltd
453
where the plaintiff sought a large loan from his bankers. His bank manager told him that the loan
would need approval from head office but gave the plaintiff to think that this was a formality; in the
meantime, the plaintiff was permitted overdraft facilities. The loan application was refused by head
office and the plaintiff claimed that he had suffered loss through being led to believe that the loan
would be forthcoming. This claim was, in part, upheld by Lloyd J. on the basis that the bank manager
owed a duty not to mislead the plaintiff by careless advice as to the probable outcome of his loan
application.
Special relationship between parties already in contractual relationship

Page 9
7-096
It is now clear that one party to a contractual relationship may owe duties in tort to the other; these
duties may overlap with contractual duties, and where this is the case the claimant may have
alternative causes of action in contract and in tort. 454 It has also been held that damages may be
obtainable for misrepresentations made in the course of renegotiating a contract already in existence,
under the Misrepresentation Act, 455 and there seems no reason to doubt that in an appropriate case
liability could also arise under the Hedley Byrne principle in such a situation.
Damages at common law
7-097
Damages for negligent misrepresentation at common law will naturally be on the tortious measure 456;
but the usual rules on remoteness 457 and contributory negligence 458 will apply. So will the restrictions
on a negligent valuer’s liability for subsequent falls in the value of the property set down in South
Australia Asset Management Corp v York Montague Ltd. 459
Other legislative provisions creating liability for negligent misrepresentations: financial services
7-098
There are a number of legislative provisions that in effect create liability for negligent
misrepresentation in particular circumstances. 460 For example, Financial Services and Markets
Act 2000 Pt VI imposes stringent duties on persons responsible for listing particulars of securities for
admission to the Official List, and prospectuses. 461 The legislation makes the person responsible
liable to pay compensation to a person who has acquired securities to which the legislation applies,
462
and who has suffered loss as the result of any untrue or misleading statement in the prospectus or,
in the case of listing particulars, the particulars. 463 It then provides a number of exceptions, one of
which is that liability for the loss will not be incurred if the person responsible satisfies the court that,
at the time when the particulars were submitted to the relevant authority or delivered for registration,
464
he reasonably believed that the statement was true and not misleading. There is also liability
for failure to publish a supplementary prospectus when necessary. 465
Former Property Misdescriptions Act
7-099
Under s.1 of the Property Misdescriptions Act 1991, the making of a false or misleading statement
about a prescribed matter 466 in the course of an estate agency business or a property development
business might constitute a criminal offence, unless all reasonable steps and due diligence had been
used to avoid committing the offence. 467 However no contract was void or unenforceable and no right
of action in civil proceedings would arise by reason only of the commission of an offence under the
section. 468 The Property Misdescriptions Act 1991 has been repealed with effect from October 1,
2013. 469 Consumers will be protected by the Consumer Protection from Unfair Trading Regulations
2008. 470
Package travel, etc
7-100
Under the Package Travel, Package Holidays and Package Tours Regulations 1992, 471 organisers
or retailers of such packages must not supply any descriptive matter concerning a package, the price
Page 10
of a package or any other conditions applying to the contract which contains misleading information. If
a consumer suffers loss as a result of a breach of this requirement the organiser or retailer is liable to
pay compensation. 472 As liability appears to be strict it might be regarded as contractual than for
misrepresentation; but it has been pointed out that the relevant regulation differs from others which
473
imply terms into the contract. The measure of damages is not stated, but it seems likely that a
474
tort measure would be applied.
Home Information Packs
7-101
It had been intended that vendors (or their estate agents) of larger types of residential property would
be required to provide on request a “Home Information Pack” including a “home condition report”
prepared by a home inspector. 475 However, the relevant Regulations were revoked before coming
into force 476 and a home condition report was made optional. 477 The use of Home Information Packs
was then suspended altogether with effect from May 21, 2010 478 and the relevant primary legislation
was repealed. 479
349. (1889) 14 App. Cas. 337; above, paras 7-048—7-049.
350. [1914] A.C. 932; see below, para.7-087.
351. [1964] A.C. 465; see below, para.7-089.
352. Note that under s.2(4) of the Misrepresentation Act 1967 (added by Consumer Protection
(Amendment) Regulations 2014 (SI 2014/870) reg.5), a consumer who has a right to redress
under Pt 4A of the Consumer Protection from Unfair Trading Regulations 2008 (on which see
Vol.I, para.7-002 and Vol.II, paras 38-145 et seq.) in respect of the conduct constituting
misrepresentation no longer has a right to damages under s.2 of the Act: see Vol.II, para.
38-188.
353. There seems no reason why s.2(1) should not apply in cases of insurance when the
policyholder has made a misrepresentation, and on occasion it has been assumed that it does:
see HIH Casualty & General Insurance v Chase Manhattan Bank [2001] 1 Lloyd’s Rep. 30 at
[90] (for further proceedings not related to this point, see [2001] EWCA Civ 1250, [2001] 2
Lloyd’s Rep. 483 and [2003] UKHL 6, [2003] 2 Lloyd’s Rep. 61). However, it has been
questioned whether it is correct to permit an insurer who has lost the right to avoid the policy
nonetheless to recover damages equivalent to the benefit it would have received from
avoidance under s.2(1): Argo Systems FZE v Liberty Insurance Pte Ltd [2011] EWHC 301
(Comm) at [45]; reversed on other grounds [2011] EWCA Civ 1572, [2012] Lloyd’s Rep. I.R. 67,
compare below, para.7-109.
354. [1978] Q.B. 574, noted (1978) 94 L.Q.R. 334.
355. [1978] Q.B. 574, noted (1978) 94 L.Q.R. 334.
356. An action under s.2(1) is not an action for negligence within the meaning of the Limitation Act
1980 s.14A, since it is not necessary for the claimant to aver any negligent act or omission:
Laws v Society of Lloyd’s [2003] EWCA Civ 1887, The Times, January 23, 2004 at [91].
Whether it is an action in tort within s.2 of that Act was left open (see at [92]).
357. s.2(1) only gives rise to a right to damages and cannot be relied on as a defence to a claim for
Page 11
injunctive relief by a misrepresentee who does not wish to avoid the contract as a whole but to
repudiate just one of its terms: Inntrepreneur Pub Company (CPC) v Sweeney, The Times,
June 26, 2002.
359. Above, paras 7-035 et seq. See the Howard Marine case [1978] Q.B. 574.
360. Royscot Trust Ltd v Rogerson [1991] 2 Q.B. 297. See also F. & H. Entertainments Ltd v Leisure
Enterprises Ltd (1976) 120 S.J. 331; André & Cie SA v Ets Michel Blanc & Fils [1977] 2 Lloyd’s
Rep. 166; McNally v Welltrade International Ltd [1978] I.R.L.R. 497; Chesnau v Interhomes
(1983) 134 New. L.J. 341; Heineman v Cooper (1987) 19 H.L.R. 262 (apparently an action
under s.2(1)); Cooper v Tamms [1988] 1 E.G.L.R. 257.
361. Royscot Trust Ltd v Rogerson [1991] 2 Q.B. 297. Note that actual fraud still has to be proved if
it becomes relevant for other purposes: Garden Neptune Shipping Ltd v Occidental World Wide
Investment Ltd [1990] 1 Lloyd’s Rep. 330.
362. Though see the contrary suggestion in Jarvis v Swan Tours Ltd [1973] Q.B. 233, 237. See also
Davis & Co (Wines) Ltd v Afa-Minerva (EMI) Ltd [1974] 2 Lloyd’s Rep. 27; Esso Petroleum Co
Ltd v Mardon [1976] Q.B. 801. Watts v Spence [1976] Ch. 165, which suggested that damages
under s.2(1) might be on a loss of bargain basis, has been disapproved: see above, para.7-058
n.285.
363. Above, para.7-056.
364. Above, paras 7-061—7-066. In Young v Hamilton [2012] NICh 4 damages for distress were
awarded (cf. above, para.7-068) under s.2(1) without referring to the fiction of fraud.
365. See the words of Lord Steyn in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset
Management) Ltd [1997] A.C. 254, 280, referred to earlier, para.7-064.
366. Chitty, 26th edn, Ch.6, para.439, referring to Peel, Treitel on The Law of Contract, 7th edn,
p.278.
367. [1991] 2 Q.B. 297. See the criticisms of that case in (1991) 107 L.Q.R. 547.
368. [1991] 2 Q.B. 297 at 307 and 309.
369. [1997] A.C. 254 at 267 and 283. In Avon Insurance v Swire [2000] 1 All E.R. (Comm) 573 the
defendants reserved the right to argue the correctness of the Royscot case in a higher court.
See also Cheltenham BC v Laird [2009] I.R.L.R. at [524]; Cassa di Risparmio della Repubblica
di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm), [2011] 1 C.L.R. 701 at
[223]. But see Forest International Gaskets Ltd v Fosters Marketing Ltd [2005] EWCA Civ 700
at [15]–[16].
370. Above, paras 7-061—7-066. See Yam Seng Pte Ltd v International Trade Corp Ltd [2013]
EWHC 111 (QB), [2013] 1 Lloyd’s Rep. 526 at [207].
371. See above, para.7-071 and below, para.7-082. Lord Tenterden’s Act may also apply: see
above, para.7-046 n.244.
372. In Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 Lloyd’s
Rep. 526 Leggatt J. said (at [206]) that “It is possible to construe the words ‘and as a result
thereof has suffered loss’ as requiring the claimant to show that he has suffered loss as a
reasonably foreseeable result of a misrepresentation having been made to him, and to treat the
following words as imposing an additional requirement (that the defendant would be liable to
damages had the misrepresentation been made fraudulently) which must also be satisfied”, but
held that unless and until Royscot Trust is over-ruled he was bound to apply it.
Page 12
374.
cf. McGregor on Damages, 19th edn (2014), para.47-053; Peel, Treitel on The Law of
Contract, 14th edn (2015), para.9-072.
375. [1991] 2 Q.B. 297.
376. Above, para.7-053.
377. cf. Armstrong v Strain [1952] 1 K.B. 232.
378.
See Taberna Europe CDO II Plc v Selskabet [2015] EWHC 871 (Comm) at [128] (sufficient
that the meaning that misrepresentee attributed to those expressions was one that he was
reasonably entitled to adopt as an addressee of the representation) (reversed on other grounds
[2016] EWCA Civ 1262).
379. See, e.g. W.B. Anderson & Sons Ltd v Rhodes (Liverpool) Ltd [1967] 2 All E.R. 850.
380. Gosling v Anderson [1972] C.L.Y. 492.
381. See F. & H. Entertainments Ltd v Leisure Enterprises Ltd (1976) 120 S.J. 331.
382. Below, paras 7-104 and 7-115.
383. Below, paras 7-129—7-130.
385. Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665, 787–789,
approved by the House of Lords [1991] 2 A.C. 249, 268, 280, 281.
386. [1992] Ch. 560.
388.
[1992] Ch. 560, 574. See also Taberna Europe CDO II Plc v Selskabet [2015] EWHC 871
(Comm) at [181], citing this paragraph in the 31st edn with apparent approval; no deduction was
made in that case. The Taberna case was reversed on appeal on other grounds but Moore-Bick
L.J. appears ([2016] EWCA Civ 1262, [2017] Q.B. 633 at [51]) to agree with the first instance
judge’s analysis.
389. [1964] A.C. 465.
390. See the views of the majority in the Howard Marine case [1978] Q.B. 574, below, para.7-093
n.425.
391. Alliance and Leicester Building Society v Edgestop Ltd [1993] 1 W.L.R. 1462; Standard
Chartered Bank v Pakistan National Shipping Corp (No.2) [2002] UKHL 43, [2002] 3 W.L.R.
1547, above, para.7-071.
392. Royscot Trust Ltd v Rogerson [1991] 2 Q.B. 297, above, para.7-078.
393. Cooper v Tamms [1988] 1 E.G.L.R. 257. Perhaps the burden would also have been discharged
in Oscar Chess Ltd v Williams [1957] 1 W.L.R. 370.
394. Foxtons Ltd v O’Reardon [2011] EWHC 2946 (QB) at [44].
395. See Gosling v Anderson [1972] C.L.Y. 492.

Page 13
396. Resolute Maritime Inc v Nippon Kaiji Kyokai (The Skopas) [1983] 1 W.L.R. 857, disapproving a
suggestion in earlier editions of this work.
397. Williams v Natural Life Health Foods Ltd [1998] 1 W.L.R. 830; see further below, para.7-091.
398. Garnac Grain Co v H.M. Faure & Fairclough Ltd [1966] 1 Q.B. 650, reversed on facts, 658 and
[1968] A.C. 1130n.
399. As happened, e.g. in Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] A.C. 465. For
rescission in such circumstances see above, paras 7-024 et seq.
400.
It has been held that s.2(1) does not apply if B is induced by a representation by C to enter a
contract with A that also results in B coming into a contractual relationship with C: Taberna
Europe CDO II Plc v Selskabet [2016] EWCA Civ 1262, [2017] Q.B. 633 at [48] (B induced by
C’s misrepresentation to purchase from A subordinated loan notes issued by C; effect that B
came into contractual relationship with C).
401. See Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd [1965] 2 Q.B. 170; below,
para.13-007.
402.
For a full account see Clerk & Lindsell on Torts, 21st edn (2014), paras 8-93—8-124 and
especially 8-113—8-119; Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn
(2016), Ch.6.
403. But the existence of concurrent liability under s.2(1) and at common law may be important if a
question of contributory negligence arises; see above, para.7-082.
404. As in Box v Midland Bank Ltd [1979] 2 Lloyd’s Rep. 391, on appeal (as to costs only) [1981] 1
Lloyd’s Rep. 434; see above, para.2-126, and below, para.7-095.
405. [1914] A.C. 932.
406. [1964] A.C. 465.
407. The plaintiff may be required to specify the nature of the duty in his pleadings: Selangor United
Rubber Estates Co Ltd v Cradock [1965] Ch. 896.
409. (1866) L.R. 2 Ch. App. 55.
410. (1866) L.R. 2 Ch. App. 55, 61.
412. It is perhaps not strictly accurate to refer to an action for “damages” for negligence in breach of
a fiduciary relationship, for this was an equitable remedy and equity did not award damages. In
Nocton v Ashburton [1914] A.C. 932 the House of Lords spoke of an action for “compensation”
and it may be that the measure of damages which they had in mind as appropriate in that case
would have been lower than the usual tort measure. But today it is at least clear that a fiduciary
relationship arising out of a professional relationship will ordinarily support a duty of care in tort
for which ordinary tort damages will be recoverable, see, e.g. Arenson v Arenson [1977] A.C.
405; Midland Bank v Hett, Stubbs and Kemp [1979] Ch. 384.
413.
[1964] A.C. 465. On the facts the defendants could not be liable because they had coupled
their statement with a disclaimer of responsibility. Such a disclaimer is subject to the Unfair
Contract Terms Act 1977 s.2(2) or Consumer Rights Act 2015 s.62(2): Smith v Eric S. Bush and
Harris v Wyre Forest DC [1990] 1 A.C. 831.
Page 14
414. It seems that an explicit voluntary assumption of responsibility by the defendant may not always
be needed, at least when the defendant should know that the plaintiff will reasonably rely on the
defendant’s statement: see further below, para.7-091.
415. See, e.g. Candler v Crane, Christmas & Co [1951] 2 K.B. 164, the majority decision in which
was overruled in the Hedley Byrne case [1964] A.C. 465; J.E.B. Fasteners Ltd v Marks, Bloom
& Co [1981] 3 All E.R. 289, [1983] 1 All E.R. 583. But note the restriction described in
para.7-090, below.
416. W.B. Anderson & Sons Ltd v Rhodes (Liverpool) Ltd [1967] 2 All E.R. 850.
418. Honoré, “Hedley Byrne & Co Ltd v Heller and Partners Ltd” (1965) 8 Journal of the Society of
Public Teachers of Law (N.S.) 284.
419. For UK and Commonwealth cases on the Hedley Byrne principle, see Clerk & Lindsell on Torts,
21st edn (2014), paras 8-93—8-128.
420. [1990] 2 A.C. 605. cf. Morgan Crucible Co Plc v Hill Samuel Bank Ltd [1991] Ch. 295. In Galoo
Ltd (In Liquidation) v Bright Grahame Murray [1994] 1 W.L.R. 1360, it was held that an auditor
of a company’s accounts may owe a duty of care to a takeover bidder if he has expressly been
informed that the bidder will rely on the accounts for the purpose of deciding whether to make
an increased bid and intends that the bidder should so rely. See also Possfund Custodian
Trustee Ltd v Diamond [1996] 1 W.L.R. 1351.
422. e.g. by Lord Reid and Lord Devlin in Hedley Byrne [1964] A.C. 465 at 487 and 529,
respectively. There was no assumption of responsibility or duty of care in IFE Fund SA v
Goldman Sachs International [2007] EWCA Civ 811, [2007] 2 Lloyd’s Rep. 449.
423. [1990] 1 A.C. 831.
424. [1990] 1 A.C. 831, 862.
425. See Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145; White v Jones [1995] 2 A.C. 207;
Williams v Natural Life Health Foods Ltd [1998] 1 W.L.R. 830. All three cases are discussed in
more detail above, paras 1-211—1-214.
426. Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145, 181. See also the speech of Lord Steyn
in Williams v Natural Life Health Foods Ltd [1998] 1 W.L.R. 830.
427. See, e.g. the judgments of Lords Templeman and Griffiths in Smith v Eric S. Bush [1990] 1 A.C.
831, at 852 and 865, respectively.
428. ss.2(2), 11(5) and 13.
429.
s.62. See, Vol.II, paras 38-374—38-375.
430. [1971] A.C. 793, noted (1971) 87 L.Q.R. 147.
431. See W.B. Anderson & Sons Ltd v Rhodes (Liverpool) Ltd [1967] 2 All E.R. 850.
432. In Esso Petroleum Co Ltd v Mardon [1975] Q.B. 819 and [1976] Q.B. 801, below, para.7-093,
and also in the Howard Marine case [1978] Q.B. 574, above, para.7-070. The Australian High
Court has also refused to follow the majority judgments in the Evatt case: see L. Shaddock &
Associates Pty Ltd v Parramatta City Council (1981) 55 A.L.J.R. 713.
Page 15
433. Clerk & Lindsell on Torts, 21st edn (2000), para.8-123.
435. [1976] Q.B. 801; also McInerny v Lloyds Bank Ltd [1974] 2 Lloyd’s Rep. 246, 253–254; Cornish
v Midland Bank Plc [1985] 3 All E.R. 513; Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch.
560.
436. Contrast the Howard Marine case [1978] Q.B. 574, where the majority seems to have
considered that the casual nature of the answer precluded a duty of care.
437. Argy Trading Development Co Ltd v Lapid Developments Ltd [1977] 1 W.L.R. 444.
438. [1977] 1 W.L.R. 444.
439. Rust v Abbey Life Insurance Co Ltd [1978] 2 Lloyd’s Rep. 386.
440. Computastaff Ltd v Ingledew Brown Bennison & Garrett (1983) 268 E.G. 598.
441. A.L. Gullison & Sons Ltd v Corey (1980) 29 N.B.R. (2d) 86.
442. La Banque Financiére de la Cité SA v Westgate Insurance Co Ltd Banque Keyser Ullman SA v
Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665, 791, 794–795, 799, 802–803, affirmed on
other grounds [1991] 2 A.C. 249. On contracts uberrimae fidei see below, paras 7-155 et seq. It
is possible that there might be an implicit assumption of responsibility if the defendant should
have known that the plaintiff was reasonably relying on the defendant to disclose certain facts:
cf. Smith v Eric S. Bush [1990] 1 A.C. 831, above, para.7-091.
443. [1982] A.C. 225; this issue was not discussed on appeal to the House of Lords.
444. [1990] 2 A.C. 605, above, para.7-090.
445. By analogy to the special relationship between employer and nominated sub-contractor in
Junior Books Ltd v Veitchi Co Ltd [1983] 1 A.C. 520. cf. Independent Broadcasting Authority v
EMI Electronics and BICC Construction Ltd (1980) 14 Build. L.R. 1, a case of a post-contractual
representation.
446. Shanklin Pier v Detel Products Ltd [1951] 2 K.B. 854; Wells (Merstham) Ltd v Buckland Sand
and Silica Co Ltd [1965] 2 Q.B. 170.
447. See, e.g. Greenman v Yuba Power Products (1963) 377 P. 2d 897, and many other cases cited
in White & Summers, Uniform Commercial Code, 5th edn (2000), para.11-2.
448. See Lambert v Lewis [1982] A.C. 225 itself, and see also below, paras 13-003—13-007.
449. Sale of Goods Act 1979 s.14(2D)–(2F); see below, Vol.II, para.38-406. Under the Consumer
Rights Act 2015, these sections are repealed and replaced by cl.9(5)–(7) of the Act: see below,
para.44-095.
450. SI 2002/3045. See further below, Vol.II, para.38-491.
451. Consumer Rights Act 2015, s.30: see below, Vol.II, para.38-403.
452. 2002 Regulations reg.15(1).
453. [1979] 2 Lloyd’s Rep. 391, on appeal (as to costs only) [1981] 1 Lloyd’s Rep. 434.
454. Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145; above, paras 1-154 et seq.
455. André & Cie SA v Ets Michel Blanc & Fils [1977] 2 Lloyd’s Rep. 166.
Page 16
457. Compare above, para.7-056.
458. Above, para.7-082.
459. [1997] A.C. 191; above, para.7-064 and below, para.26-168.
460.
Financial Services Act 2012 ss.89–92 impose criminal liability for knowingly or recklessly
making false or misleading statements in relation to financial services, impressions as to the
market in or the price or value of any relevant investments or false or misleading statements in
relation to benchmarks; but it does not appear that there will be civil liability. These sections
replace Financial Services and Markets Act 2000 s.397, that section replacing Financial
Services Act 1986 s.47, which was held not to confer any right to damages or other civil
remedy: Norwich Union Life Insurance Society v Qureshi [1999] 2 All E.R. (Comm) 707, CA.
See further Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), paras
7-82–7-83. For the possibility of a restitution order on the basis that the conduct may constitute
market abuse within the Market Abuse Regulation (Regulation (EU) 596/2014) see Gower &
Davies, Principles of Modern Company Law, 10th edn (2016), paras 30-51 and 30-55 and cf.
Securities and Investments Board Ltd v Pantell SA (No.2) [1993] Ch. 256, decided under
Financial Services Act 1986.
461.
See generally, Gower & Davies, Principles of Modern Company Law, 10th edn (2016), paras
25–10 et seq.; Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016),
paras 7-49 et seq.. For the duties of disclosure imposed by these provisions see below,
para.7-169.
462. Thus investors who have bought on the market after dealing has commenced are now
protected.
463. Financial Services and Markets Act 2000 ss.85, 90(1). Note that s.90 is without prejudice to any
liability which may be incurred apart from the section or regulation: s.90(6). These provisions
stem ultimately from the Directors Liability Act 1890, which was passed to reverse the effect of
Derry v Peek (1889) 14 App. Cas. 337, so far as it applied to prospectuses.
464.
Financial Services and Markets Act 2000 Sch.10 para.1(2). For the possible application of the
Hedley Byrne principle (above, para.7-089) and of Misrepresentation Act 1967 to
misstatements in prospectuses and particulars, see Gower & Davies, Principles of Modern
Company Law, 10th edn (2016), paras 25-36—25-39.
465. See further below, para.7-169.
466. See Property Misdescriptions (Specified Matters) Order (SI 1992/2834).
467. Property Misdescriptions Act 1991 s.2. See Enfield LBC v Castles Estate Agents Ltd (1997) 73
P. & C.R. 343.
468. s.1(4).
469. Property Misdescriptions Act 1991 (Repeal) Order 2013 (SI 2013/1575).
470. See above, para.7-002 and below, Vol.II, paras 38-145 et seq.
471. SI 1992/3288 implementing Directive 90/314. See below, para.14-044.
473.
Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016), para.7-68.
Page 17
474.
Cartwright at 4th edn (2016), para.7-69.
475. See the Housing Act 2004 Pt 5 and the Home Information Pack Regulations 2006 (SI
2006/1503) reg.8.
476. By SI 2007/1525.
477. See Home Information Pack (No.2) Regulations 2007 (SI 2007/1667) reg.9. If a report was
provided, the home inspector would be obliged to use reasonable care and skill and the terms
of the contract under which the report was prepared must provide that, if he does not, the seller,
the purchaser or a mortgagee of the property will have a direct right of action against him, Sch.9
arts 2 and 3.
478. Home Information Pack (Suspension) Order 2010 (SI 2010/1455).
479. Localism Act 2011, Sch.25(29) para.1 repealed Housing Act 2004 Pt 5.

Page 1

(c) - Innocent Misrepresentation
No damages for innocent misrepresentation
7-102
The term “innocent misrepresentation” is here used to mean a representation which is neither
fraudulent nor negligent, and the general rule remains what it has always been, namely, that no action
for damages lies for a mere innocent misrepresentation in this sense. 480 Damages in respect of the
misrepresentation will be recoverable, however, if the court exercises its discretion under the
Misrepresentation Act 1967 s.2(2), to declare the contract subsisting, and awards damages in lieu of
rescission. 481 Also it must be stressed that a misrepresentation will found a claim for damages if it
can be construed as a contractual promise, and is either part of a wider contract, or is itself supported
by consideration. This may happen in two principal types of case. First, where the representor and
representee themselves enter into a contract after the misrepresentation was made. Here, if the
misrepresentation becomes a term of the contract, an action for damages will lie, whether the
misrepresentation was fraudulent, negligent or innocent. 482 Secondly, the representee may enter
into a contract with a third party as a result of the misrepresentation. Even in this situation, it is often
possible to construe the misrepresentation as a collateral contract, the consideration for which is
supplied by the fact that the representee enters into the contract with the third party. 483 A familiar
illustration of the principle of the collateral contract can be seen in an agent’s liability for breach of
warranty of authority. 484
Estoppel
7-103
Circumstances may arise in which damages are recoverable for a completely innocent
misrepresentation, through the assistance of the doctrine of estoppel. For example, if a person agrees
to buy shares in a company on the strength of a share certificate issued to the seller stating that he is
the registered owner of the shares, the company may be estopped from denying that the seller was in
truth the owner of the shares. The purchaser is, in these circumstances, entitled to demand that the
company register him as the owner of the shares, or to claim damages in lieu. 485 The purchaser does
not claim damages directly for the misrepresentation, but the net effect is much the same. For the
doctrine of estoppel to apply the usual requirements of an estoppel must be satisfied; in particular the
statement relied on must be precise, unambiguous and unqualified. 486 An estoppel may in
exceptional circumstances arise out of non-disclosure, but a duty to disclose must then be shown. 487
It is also necessary that some independent cause of action be shown, apart from the
misrepresentation itself. 488 This cause of action will normally be a claim to some form of property to
which the representee would be entitled if the representation were true, and the truth of which the
representor is not entitled to deny, e.g., money which would be due to the representee as assignee,
489
or goods which the representor has acknowledged that he holds on behalf of the representee. 490
Page 2
Misrepresentation Act section 2(2) 491
7-104
This subsection reads as follows:
“Where a person has entered into a contract after a misrepresentation has been made to
him otherwise than fraudulently, and he would be entitled, by reason of the
misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising
out of the contract, that the contract ought to be or has been rescinded, the court or
arbitrator may declare the contract subsisting and award damages in lieu of rescission, if
of opinion that it would be equitable to do so, having regard to the nature of the
misrepresentation and the loss that would be caused by it if the contract were upheld, as
well as to the loss that rescission would cause to the other party.”
It will be seen that this subsection does not give a representee any right to claim damages, but it
enables the court, in its discretion, to grant damages to the representee in lieu of rescinding the
contract. 492 It seems probable that the subsection was intended principally for the benefit of the
representor, so that a contract need not be rescinded where the court feels that the representee can
be adequately compensated in damages. 493 But cases may well occur in which damages would be
the preferable remedy for the representee. In this event there seems nothing to prevent the
representee from claiming the right to rescind but then inviting the court to award damages in lieu.
Nor does there seem to be anything which would prevent the court from taking this course over the
protests of the representor, who may prefer rescission to an award of damages.
Damages only in lieu of rescission
7-105
But it is important to note two limitations on the power to award damages under this subsection. First,
damages can only be awarded in lieu of rescission. In the case of a fraudulent misrepresentation, to
which the subsection does not apply, the representee can both rescind and claim damages as of
right. 494 Rescission for fraud is rescission ab initio, and damages for breach of contract cannot be
recovered after such rescission, but damages for fraud are recovered in tort and there is no reason
why this remedy should not survive rescission of the contract. In the case of a negligent
misrepresentation, the representee can claim both rescission and damages, but whereas his claim to
damages under s.2(1) is as of right, his claim to rescission is now subject to the discretion of the court
under s.2(2). 495 But in the case of an innocent misrepresentation, the representee cannot get both
rescission and damages, 496 nor can he claim either remedy as of right.
Rescission barred
7-106
A second limitation on the subsection is that the power to grant damages is, on the balance of
authority, available only where the remedy of rescission would still be available at the time of the
court’s order. The court may award damages in lieu of rescission wherever the representee “would be
entitled … to rescind the contract”. The question is whether this means: “would be entitled at the time
of the court’s order”, or “would have been entitled after the representation was made”. Purely
linguistic considerations suggest that the former meaning is the correct one and in Atlantic Lines &
Navigation Co Inc v Hallam Ltd (The Lucy) 497 Mustill J. accepted it. Nonetheless earlier editions of
this Work suggested that the wording was ambiguous. In Thomas Witter Ltd v TBP Industries Ltd 498
Jacob J. also considered the section to be ambiguous 499 and referred to a statement of the
Solicitor-General during a debate on the Misrepresentation Bill. 500 Jacob J. expressed the view that
damages could have been awarded under s.2(2) even though the misrepresentee had lost the right to
Page 3
rescind. But the suggestion that the words were unclear was disapproved in Zanzibar v British
Aerospace (Lancaster House) Ltd, 501 in which Judge Jack Q.C. held that the power to award
damages is an alternative to damages and no longer existed when the right to rescission had been
lost. The same conclusion had been reached earlier by Judge Humphrey Lloyd Q.C. in Floods of
Queensferry Ltd v Shand Construction Ltd, 502 who refused to follow the decision in the Thomas Witter
case. The Court of Appeal has now confirmed that there is no power to award damages under s.2(2)
if the claimant has lost the right to rescind. 503
Measure of damages under s.2(2)
7-107
Section 2(2) does not state the measure of damages to be awarded. It is possible that the measure of
damages which may be awarded under subs.(2) is intended to be lower than the measure of
damages for fraudulent misrepresentation which, as seen above, is now also applicable to negligent
misrepresentation under s.2(1). This possibility is suggested by subs.(3) of the same section which
provides that damages may be awarded under subs.(2) whether or not the representor is liable to
damages under subs.(1) (i.e. whether or not he has been negligent), but goes on to provide that any
damages awarded under subs.(2) shall be taken into account in assessing liability under subs.(1).
This seems to indicate that the damages awarded under subs.(2) may be lower than the damages
awarded under subs.(1), and there might be something to be said for this since the representor may
be wholly innocent in a case under subs.(2). But the Act gives little clue as to how damages are to be
assessed under this subsection if they are not to be assessed in the same way as under subs.(1). It
has already been seen that damages under subs.(1) are tortious rather than contractual. 504 It would
seem a fortiori that damages under subs.(2) would not be at the contractual level. The alternatives
then would seem to be to award either the tort measure or a special measure designed to
compensate the representee for the loss resulting from his inability to obtain rescission. There seem
to be two reasons to interpret s.2(2) as applying a special measure. The first relates to consequential
loss, the second to bad bargains.
Section 2(2) and consequential loss
7-108
Suppose the vendor of a house has made an innocent misrepresentation about the state of the drains
and as a result the purchaser has suffered personal injury and property damage. Rescission, even
with an indemnity, would not compensate the purchaser for these losses 505 and it is arguable that
they should not be compensated under s.2(2), which refers to damages “in lieu of rescission”. 506 It
has been held that consequential damages may be recovered under this subsection, 507 but without
averting to these questions.
Section 2(2) and bad bargains
7-109
The second relates to cases where the misrepresentee has made a bad bargain in the sense that,
quite apart from the misrepresentation, the property is worth less than he has paid for it. In such a
case the court might well exercise its discretion to declare the contract subsisting if it thinks the
misrepresentee is less concerned about the effect of the misrepresentation than to escape from the
contract. Were the damages in lieu of rescission to be on the tortious measure as applied in actions
for fraud, 508 or were the damages to be calculated so as to indemnify the misrepresentee fully against
the consequences of rescission being refused, the damages might include loss suffered by the
misrepresentor through the general fall in value of the property. The Court of Appeal in William Sindall
Plc v Cambridgeshire CC 509 said that this would not be appropriate in a case like the one outlined
since the result would be to defeat the object of declaring the contract subsisting; the loss caused by
the general fall in value would once again be put onto the misrepresentor. Evans L.J. 510 said that in
such a case the contract measure—the difference in value between the property with and without the
Page 4
“defect” to which the misrepresentation related, or the cost of correcting the defect—would be
appropriate. With respect, it seems to be contrary to principle to award the contractual measure when
the claim was to rescind because of a misrepresentation. Moreover, the solution will not always be
attractive. Even without the defect, the property might be worth as much as the misrepresentee had
paid for it. In such circumstances and provided that there is no consequential loss, damages for
misrepresentation will normally be nil. 511 It would not be logical for an award under s.2(2) to include
the additional value the property would have had if the representation had been true, which would be
included were the contractual measure to apply. 512 Nor should the amount recoverable under the
contractual measure be used to “cap” recovery for misrepresentation. 513 However, since the Sindall
case was decided it has become clear that in a claim at common law against a negligent valuer, the
valuer will not necessarily be liable for the losses caused by the fall in property prices generally, even
though the lender would not have taken the property as security had a correct valuation been given.
The damages are limited to the difference between the valuation negligently provided and the correct
property value at the time. 514 By analogy, it is submitted that in a case where property has been
bought as the result of a misrepresentation, damages under Misrepresentation Act 1967 s.2(2) should
be limited to any difference between the contract price and the actual value of the property taking
account of the misrepresentation but not taking into account the general fall in the value of the
property. This was canvassed as an alternative approach by Evans L.J. in Sindall ’s case 515 and it
does not seem inconsistent with the words of the statute. It would, in effect, reverse any unjust
enrichment of the defendant. 516 Where as the result of the misrepresentation the misrepresentee has
given up some other right, the damages should be the value of that other right. 517
Exercise of court’s discretion
7-110
The court’s discretion under s.2(2) is a wide one. In particular, it is to be noted that the court is not
confined to a consideration of whether damages would be an adequate remedy to the representee.
The court is also required to consider the loss that would be caused to the representor by rescission.
Thus even where damages would not be an adequate remedy for the representee, the court may feel
that it would be more equitable to award damages where it is shown that great loss would be caused
to the representor by rescinding the whole contract, for instance because the market value of the
performance to be rendered has fallen dramatically. 518 The court may also exercise its discretion
where to permit rescission would expose the misrepresentor to a large liability, even if that might in
practice not be enforceable, whereas to maintain it would result in little additional loss to the
misrepresentee. 519 A court is unlikely to exercise its power to declare the contract subsisting under
s.2(2) when an award of damages against the misrepresentor will be an empty remedy. 520 The Court
of Appeal has indicated that rescission is “the normal remedy” and “should be awarded if possible,
particularly perhaps in a case in which a defendant makes no attempt to prove that he had
reasonable grounds to believe its representation was true.” 521 It has also been said that it would not
be appropriate to refuse rescission of a reinsurance contract for misrepresentation by the reinsured,
as avoidance of the contract performs an important policing function. 522 The burden of persuading the
court to exercise its discretion is on the party seeking its exercise. 523
480. Heilbut, Symonds & Co v Buckleton [1913] A.C. 30; Gilchester Properties Ltd v Gomm [1948] 1
All E.R. 493.
482.
See, e.g. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 W.L.R. 623,
below, para.13-003. If the statement amounts to a contractual term, the promisee need not
show reliance: Wemyss v Karim [2016] EWCA Civ 27 at [26], citing Slade L.J. in Harlingdon
and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1991] 1 Q.B. 564, 584. The
Page 5
measure of damages will also differ: see above, para. 7-055.
483. Below, para.13-007.
484. See Vol.II, paras 31-100—31-107.
485. Re Bahia and San Francisco Ry (1868) L.R. 3 Q.B. 584; Balkis Consolidated Co v Tomkinson
[1893] A.C. 396.
486. Low v Bouverie [1891] 3 Ch. 82; Woodhouse A.C. Israel Cocoa Ltd v Nigerian Produce
Marketing Co Ltd [1972] A.C. 741; China-Pacific SA v Food Corp of India [1981] Q.B. 403,
reversed on different grounds [1982] A.C. 939.
487. Greenwood v Martin’s Bank [1933] A.C. 51; Moorgate Mercantile Co Ltd v Twitchings [1977]
A.C. 890; Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665,
affirmed on other grounds [1991] 2 A.C. 249.
488. [1990] 1 Q.B. 665. But cf. Brikom Investments Ltd v Seaford [1981] 1 W.L.R. 863; Re Wyvern
Developments Ltd [1974] 1 W.L.R. 1097. In cases based on “proprietary estoppel” it seems that
no independent cause of action need be shown, but the authorities in this area of the law are
still developing. See above, paras 4-099—4-106 and 4-139—4-185.
489. Burrows v Lock (1805) 10 Ves. 470.
490. Seton, Laing & Co v Lafone (1887) 19 Q.B.D. 68.
491. Note that under s.2(4) of the Misrepresentation Act 1967 (added by Consumer Protection
(Amendment) Regulations 2014 (SI 2014/870) reg.5), a consumer who has a right to redress
under Pt 4A of the Consumer Protection from Unfair Trading Regulations 2008 (on which see
Vol.I, para.7-002 and Vol.II, paras 38-145 et seq.) in respect of the conduct constituting
misrepresentation no longer has a right to damages under s.2 of the Act: see Vol.II, para.
38-188.
492. It is apparent from subs.(3) that this subsection also applies where the misrepresentation was
negligent, but clearly the victim of such a misrepresentation who wants damages rather than
rescission will claim under subs.(1).
493. See paras 11 and 12 of the Tenth Report of the Law Reform Committee, Cmnd.1782 (1962) on
which s.2 was based.
494. Attwood v Small (1838) 6 Cl. & F. 232, 444; Newbigging v Adam (1886) 34 Ch. D. 582, 592.
There is nothing inconsistent with this in Johnson v Agnew [1980] A.C. 367. See below, paras
7-114 and 24-049.
495. For a case in which damages and rescission were permitted under the Act, see F. & H.
Entertainments Ltd v Leisure Enterprises Ltd (1976) 120 S.J. 331.
496. Except in those exceptional cases in which damages are recoverable for innocent
misrepresentation, above, para.7-102. Note also that, on rescission, the representee is entitled
to an indemnity for burdens assumed under the contract, but this is much narrower than the
right to damages, below, paras 7-129—7-130.
497. [1983] 1 Lloyd’s Rep. 188.
498. [1996] 2 All E.R. 573. See (1995) 111 L.Q.R. 385.
499. [1996] 2 All E.R. 573, 590.
500. The statement itself lends some support to this view but further investigation of the legislative
history throws some doubt on it: see (1995) 111 L.Q.R. 385.
Page 6
501. [2000] 1 W.L.R. 2333.
502. [2000] Build. L.R. 81.
503. Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745 at [17].
504. Above, para.7-077.
505. Whittington v Seale-Hayne (1900) 82 L.T. 49, below, para.7-130.
506. In favour of this alternative is the literal interpretation given to s.2(1) by the Court of Appeal in
Royscott Trust Ltd v Rogerson [1991] 2 Q.B. 297. Against it is the analogy of damages under
Lord Cairns’ Act 1858 in lieu of an award of specific performance where (it seems) the damages
are to be assessed as at common law, and not in accordance with some special measure:
Johnson v Agnew [1980] A.C. 367, 400.
507. Davis & Co (Wines) Ltd v Afa-Minerva (EMI) Ltd [1974] 2 Lloyd’s Rep. 27. In William Sindall Plc
v Cambridgeshire CC [1994] 1 W.L.R. 1016, 1044 Evans L.J. said that in his view a plaintiff
under s.2(2) should recover the same additional compensation as was permitted in Cemp
Properties (UK) Ltd v Dentsply Research and Development Corp [1991] 2 E.G.L.R. 197, a case
under s.2(1) in which the plaintiffs recovered for wasted expenditure. See generally, McGregor
on Damages, 19th edn (2014), para.47–067.
508. See above, paras 7-055 et seq. It would have to be shown that the misrepresentee would not
have entered the contract but for the fraud.
509. [1994] 1 W.L.R. 1016: held that there were no grounds for rescission.
510. [1994] 1 W.L.R. 1016, 1045. At 1037 Hoffmann L.J. remarked that while s.2(1) is concerned
with damage flowing from the plaintiff having entered the contract, s.2(2) is concerned with
damage caused by the property not being what it was supposed to be.
511. See McGregor on Damages, 19th edn (2014), para.47–070.
513. Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] A.C. 254,
disapproving on this point Downs v Chappell [1997] 1 W.L.R. 426; see above, para.7-066. (Both
cases were ones of fraud but it is not clear that disapproval of this form of “cap” is limited to
cases of fraud.)
514. South Australia Asset Management Corp v York Montague Ltd [1997] A.C. 191; see below,
para.26-168.
515. [1994] 1 W.L.R. 1016, 1046. It is, with respect, preferred to the explanation given by McGregor
on Damages, 19th edn (2014), paras 47–076—47–077, for reasons given below, para.7-125
n.559.
516. See Birks [1997] R.L.R. 72, who argues that this is what Parliament intended despite use of the
word “damages”.
517. In UCB Corporate Services Ltd v Thomason [2005] EWCA Civ 225, [2005] 1 All E.R. (Comm)
601 the respondents were liable for large sums under two guarantees. As the result of
misrepresentation, the appellants entered an agreement to waive their rights under the
guarantees in exchange for payment of a much smaller sum. The damages that might be
awarded to the appellants under s.2(2) were not the full sums due under the guarantees but
only compensation for any loss of the chance to recover more than the appellants gave up
when they entered the waiver agreement (at [38] and [51]).
518. Atlantic Lines & Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep. 188; and see William
Page 7
Sindall Plc v Cambridgeshire CC [1994] 1 W.L.R. 1016, discussed in para.7-109.
519. UCB Corporate Services Ltd v Thomason [2005] EWCA Civ 225, [2005] 1 All E.R. (Comm) 601.
It was said that “loss” in s.2(2) includes financial loss and “what may loosely be described as
detriment” (Latham L.J. at [37]).
520. TSB Bank Plc v Camfield [1995] 1 W.L.R. 430, 439.
521. Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745 at [24].
522. Highland Insurance Co v Continental Insurance Co [1987] 1 Lloyd’s Rep. 109.
523. British & Commonwealth Holdings Plc v Quadrex Holdings Inc (unreported April 10, 1985) CA.

Page 1

Section 4. - Rescission for Misrepresentation
(a) - General
Preliminary
7-111
Before the passing of the Misrepresentation Act 1967, the position with regard to rescission was,
broadly speaking, as follows: where a person was induced to enter into a contract as a result of a
misrepresentation by the other party to the contract, and the misrepresentation never became
incorporated as a contractual term, the representee was entitled to rescind the contract, whether the
misrepresentation was fraudulent, negligent or wholly innocent. At common law, the right to rescind
was confined to cases in which the misrepresentation was fraudulent or in which there was a total
failure of consideration, 524 but in equity there was a right to rescind even for innocent
misrepresentation. 525 Since the Act of 1967 this right of rescission is qualified (except in cases of
fraud) by the court’s power to refuse rescission and award damages in lieu, 526 and there remain
certain bars to rescission in all cases, which are discussed below. 527 But it still remains a general
proposition that the remedy for misrepresentation is rescission of the contract. 528
Misrepresentation incorporated as contractual term
7-112
Where the misrepresentation was later incorporated into the contract as a contractual term, the
position was in some respects uncertain before the Act of 1967. In cases of fraud, the subsequent
incorporation of the misrepresentation into the contract made no difference to the representee’s right
to rescind, but in cases of innocent misrepresentation (including, for this purpose, negligent
misrepresentation) the position was different. For in this case there was some authority for saying that
the equitable right to rescind did not arise, and the representee’s right to rescind (if any) depended
entirely on the effect of the misrepresentation as a contractual term. 529 That is to say, if the term was
a condition or an innominate term, breach might justify rescission (or, as it would now be more
appropriately put, 530 termination of the representee’s outstanding obligations) whereas if the term was
a warranty, breach would not justify rescission at all. 531 Thus the somewhat strange result followed
that a misrepresentation which would have justified rescission as of right by the representee if it had
remained a representation pure and simple, might cease to have this effect if it later became
incorporated into the contract as a warranty. 532
Misrepresentation Act section 1(a)
7-113
Section 1(a) of the Act of 1967 provides that a person is not to be deprived of the right to rescind
for misrepresentation merely because the representation has become a term of the contract. Thus a
misrepresentation which is subsequently incorporated into the contract as a warranty will now remain
Page 2
a ground for rescission, whereas breach of a warranty which has never been a misrepresentation will
never ground rescission. But it is not easy to see how, in fact, a misrepresentation could ever be a
term of the contract except where the term had previously been a representation, 533 though a
warranty might, of course, be a promise as to future conduct which would not be a misrepresentation
in any event (unless fraudulent).
Rescission and termination
7-114
Since the decision of the House of Lords in Johnson v Agnew 534 a much clearer and sharper
distinction has been drawn between rescission of a contract ab initio and termination of the contract
for subsequent breach. The former generally has retrospective effect, while the latter does not;
indeed, termination usually affects only some of the obligations under the contract and it is strictly
incorrect to speak of the contract ceasing to exist through termination. It is clear from Johnson v
Agnew itself that rescission for fraud is rescission ab initio, and will therefore prima facie have
retrospective effect, though it has already been submitted 535 that such rescission will not deprive the
representee of a right to damages for fraud, because that right arises in tort, and not out of the
contract. Where s.1(a) of the Act of 1967 applies, it seems that the representee retains his right to
rescind ab initio, but may in addition have a right to terminate for breach of the one-time
representation, now become a term of the contract. Problems may well arise in deciding whether a
refusal to continue with the contract in such circumstances amounts to a rescission or only a
termination. It has been held that where a variation of a contract has been induced by fraud, the
innocent party may rescind the variation ab initio, with the effect that the original contract is
retrospectively revived. 536
Present position
7-115
The right to rescind for fraudulent misrepresentation is unimpaired by the Misrepresentation Act, but
there is no longer any absolute right to rescind for negligent or innocent misrepresentation. Section
2(2) of the Act (which has been set out above) 537 provides that the court now has a discretion to
award damages in lieu of rescission wherever it is of the opinion that it would be equitable to do so,
having regard to the nature of the misrepresentation and the loss that would be caused by it if the
contract were upheld, as well as to the loss that rescission would cause the other party. It has already
been observed that this is a wide discretion, and the court is not confined to a consideration of
whether damages would be an adequate remedy to the representee. 538
Effect on right to terminate for breach
7-116
There is one point of possible difficulty on the construction of s.2(2) of the Act. As mentioned above, it
is clear from s.1(a) of the Act that (subject to the court’s discretion under s.2(2)) there is now a right to
rescind for any misrepresentation made before the contract was entered into, notwithstanding that the
misrepresentation has become a term of the contract. But what is not wholly clear is whether, when
this happens, any right to terminate for breach of contract also becomes subject to the discretion of
the court under subs.(2). There are many circumstances in which a person has a right to terminate a
contract for breach of condition, in which no loss has in fact been incurred by him, and a case could
be made for saying that, where the term is a representation of fact, the court now has a discretion to
refuse to permit repudiation, but to award damages in lieu—indeed, the damages might well be
nominal. 539 On the other hand, it is unlikely that the subsection was intended to have this effect, and it
is submitted that the words: “[w]here a person … would be entitled by reason of the
misrepresentation, to rescind the contract” would exclude the case under discussion since the right to
rescind (or terminate 540) then arises from breach of the contractual term. But whatever the answer to
this point may be, it is at least clear that subs.(2) would not affect a right to treat the contract as
Page 3
terminated for breach of a contractual term which was a promise of future conduct; nor for a breach of
a contractual term which was an undertaking as to fact but which was never made before the contract
was entered into.
Misrepresentation as defence to proceedings
7-117
There is no doubt that a misrepresentation which would justify rescission of a contract may also be
used as a defence to an action brought by the representor against the representee. The use of
misrepresentation as a defence has sometimes been distinguished from its use as a ground for
rescission, 541 and it is possible that the principles governing the two situations are not in all
respects identical 542 but generally speaking they appear to be the same. Indeed, the courts have
sometimes treated the setting up of a misrepresentation as a defence as though this were in itself one
way of rescinding the contract. 543 Accordingly, it is thought that although s.2(2) of the 1967 Act
speaks of rescission, its provisions would apply equally to a case in which the misrepresentation is
set up by way of defence. However, fraud may be used as a defence to a claim for specific
performance (which is a discretionary remedy 544) even where the right to rescind has been lost (save
by affirmation, when the inconsistency of affirming and then resisting specific performance would be
unconscionable). 545 It was said that impossibility of restoring the parties to their original position will
not necessarily prevent the use of fraud as a defence; it will depend on the impact that enforcement
would have on the representee, and especially on whether it would cause hardship, whether on the
facts any estoppel had arisen and the importance of the term to be enforced and the breach of it. The
fact that there would be a claim for damages for deceit should be taken into account. 546
Rescission normally requires notice
7-118
The general rule is that, in order to rescind the contract, the representee must communicate his
intention to do so to the representor. 547 But in Car & Universal Finance Co Ltd v Caldwell 548 it was
held by the Court of Appeal that this was not an inflexible rule. In this case a person was induced to
sell his car by fraud to a purchaser who paid with a bad cheque, and promptly disappeared. When the
seller discovered the fraud he informed the police and the Automobile Association, but was, of
course, unable to notify the fraudulent purchaser. It was held that the seller had done sufficient to
rescind the contract, and that accordingly a subsequent purchaser from the fraudulent party had
acquired no title to the car, as the title had revested in the seller on rescission. The actual ratio of the
decision seems confined to circumstances in which communication of the representee’s desire to
rescind is not possible because the representor is deliberately keeping out of the way, and the court
left open the question whether the decision would apply to a case where the impossibility of
communication did not arise from the representor’s deliberate fraud.
Court order not required
7-119
Although it is common to speak of a court “setting aside” or rescinding a contract for

misrepresentation, it seems clear from this and other cases 549 that the remedy is not necessarily a
judicial one. 550 A representee is entitled to rescind for misrepresentation without invoking the
assistance of the court at all, although the court now has (as seen above) a discretion to refuse to
allow rescission in some cases. 551 It may well be, as a purely practical matter, that the representee
will require the assistance of the court in some cases, e.g. where rescission of an executed
conveyance is sought 552; but “the process of rescission is essentially the act of the party rescinding,
and not of the court”. 553
Page 4
Rescission not available except against contracting party
7-120
It seems clear that rescission is prima facie a remedy which is only available against the other party to
the contract. In Northern Bank Finance Corp Ltd v Charlton 554 this principle was affirmed by a bare
majority of the Supreme Court of Eire in a case in which the plaintiff had been induced by the fraud of
a bank to pay various sums to the bank in order that these sums should be used by the bank to
purchase various properties on behalf of the plaintiff. The properties were in fact so purchased from
third parties. The plaintiff claimed rescission of the contracts of purchase but the majority of the court
held that rescission was not available as against the bank since the properties were not bought from
the bank itself. Rescission would in fact have amounted to a sort of compulsory subrogation under
which the bank would have taken over the properties and refunded the purchase price to the plaintiff.
Misrepresentation inducing consent order
7-121
Where proceedings are compromised by agreement, and the compromise is made the subject of a
consent order, the court may set aside the consent order if it is shown to have been based on an
agreement induced by misrepresentation. 555
Effect of rescission
7-122
When a contract is rescinded it has the effect of revesting any property transferred in the transferor,
so far as no formal steps are required for the retransfer. 556 Thus property in goods will revest in the
victim of fraud without more. 557 If land has been conveyed, rescission will have the effect that the
representor holds the title on constructive trust for the representee. 558 Although the contract is
avoided retrospectively, some clauses that are regarded as “separable” may continue to have effect.
Thus unless otherwise agreed an arbitration agreement is unaffected by the invalidity of the
substantive contract of which it forms part 559; and an exclusive jurisdiction clause will survive
rescission. 560
524. Kennedy v Panama, etc., Royal Mail Co Ltd (1867) L.R. 2 Q.B. 580.
525. Lamare v Dixon (1873) L.R. 6 H.L. 414. The generalisation of this remedy was largely a
post-Judicature Act development, stemming principally from Redgrave v Hurd (1881) 20 Ch. D.
1 and Adam v Newbigging (1888) 13 App. Cas. 308.
527. Below, paras 7-123—7-142.
528. This sentence was cited with approval by Longmore L.J. in Salt v Stratstone Specialist Ltd
[2015] EWCA Civ 745 at [24]: see above, para.7-110, text at n.476a.
529. Pennsylvania Shipping Co v Compagnie Nationale de Navigation [1936] 2 All E.R. 1167, 1171;
Leaf v International Galleries [1950] 2 K.B. 86; cf. Compagnie Française de Chemins de Fer
Page 5
Paris-Orleans v Leeston Shipping Co Ltd (1919) 1 Ll.L. Rep. 235, 237–238.
530. See Johnson v Agnew [1980] A.C. 367.
531. See below, paras 13-031—13-032.
532. However, this “somewhat strange result” was held not to be law in Academy of Health and
Fitness Pty Ltd v Power [1973] V.R. 254, a case arising in a jurisdiction not governed by the
Misrepresentation Act 1967.
533.
If the representee did not know of the representation before the contract was made (as, e.g.
where he simply signed a written agreement) it would not in any event be an effective
misrepresentation, above, para.7-035. There has been some disagreement over whether there
is a representation when one party simply gives a warranty that certain facts are rue. In Invertec
Ltd v De Mol Holding BV [2009] EWHC 2471 (Ch) Arnold J. held that the warranties in that case
also amounted to representations (at [362]–[363]). In Sycamore Bidco Ltd v Sean Breslin [2012]
EWHC 3443 (Ch), at [209]–[210] Mann J. held that the warranties in the case before him were
simply warranties and “there was nothing more to make them into representations”. Thus there
was no claim for damages under Misrepresentation Act 1967 s.2(1), and s.3 was not relevant to
the limitation of liability in the contract. It seems that in the Sycamore case the claimants did not
rely on any pre-contract representations, but only on the warranties “as both warranties and
representations”: at [202]. See also Idemitsu Kosan Co Ltd v Sumitomo Corp [2016] EWHC
1909 (Comm) (above, para.7-009). Thus the question depends on the facts and interpretation
of the agreement: Ticket2final OU v Wigan Athletic AFC Ltd Unreported January 22, 2015 Ch D
at [26]. Usually a party giving a warranty will have stated what it believed to be the facts before
the contract was made and therefore there will have been a representation as well as a
warranty. However, it is possible that even then the other party will be relying on the warranty
and not on the representation. It is also possible, though in practice unlikely, for a person to
warrant the truth of a fact without making any representation at all where he expressly agrees to
take the risk, however the facts may turn out.
534. [1980] A.C. 367.
536. Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep. 293.
537. Above, para.7-104.
538. Above, para.7-110.
539. See, e.g. Re Moore & Co Ltd and Landauer Co [1921] 2 K.B. 519 (although the term here may
well have been a promise rather than a statement of fact). This argument is also applicable to
insurance contracts in which the insured may warrant some fact which is untrue, but the fact in
question may have no bearing on the risk which occurs. Hitherto, it has always been clear that
the insurer may repudiate liability in these circumstances, below, para.7-166.
541.
542. Treitel points to the rule that an insurer who uses fraud as a defence may repudiate liability and
keep the premiums: see below, Vol.II, para.42-076. Further, he suggests that in cases of
criminal fraud a representee who sets the fraud up by way of defence need not return money
received under the contract (Berg v Sadler & Moore [1937] 2 K.B. 158), whereas if he sues for
rescission he must do so (Spence v Crawford [1939] 3 All E.R. 271). Berg v Sadler Moore is
contrary to dicta of the Exchequer Chamber in Clough v L. & N.W. Ry (1871) L.R. 7 Ex. 26, 37
which do not seem to have been cited, and the refusal of the claim for return of the money may
be better explained on the basis of illegality: see below, para.16-194.
Page 6
543. Clough v L. & N.W. Ry (1871) L.R. 7 Ex. 26; Academy of Health and Fitness Pty Ltd v Power
[1973] V.R. 254.
545. Geest Plc v Fyffes Plc [1999] 1 All E.R. (Comm) 627, 694 et seq.
546. Geest Plc v Fyffes Plc [1999] 1 All E.R. (Comm) 627. On the facts of the case, restitutio was
impossible. To refuse specific performance altogether of the undertaking to provide security for
an indemnity that the defendant had given the plaintiff would expose the plaintiff to very
different risks. Specific performance would be granted but limited to the excess of the claim
over any counterclaim for damages.
547. Car & Universal Finance Co Ltd v Caldwell [1961] 1 Q.B. 525. It was accepted that the
misrepresentee could also rescind by retaking the goods, even without the misrepresentor’s
knowledge: 555, 558. There is no principle that rescission (in the case concerned, for
repayment on the ground of mistake) is unavailable unless sought by a notice given before an
action is brought: West Sussex Properties Ltd v Chichester DC [2000] N.P.C. 74 CA, at [12].
548. [1961] 1 Q.B. 525; see also Newtons of Wembley Ltd v Williams [1965] 1 Q.B. 560.
549. Abram S.S. Co Ltd v Westville Shipping Co Ltd [1923] A.C. 773. In Australia, the High Court
has taken a different approach, holding that even in a case of fraud equity does more than
recognise rescission effected by the action of the innocent party. It may impose terms to
achieve observance of the requirements of good conscience and practical justice and this
enables it to grant partial rescission. Thus it could set aside the part of a contract of guarantee
to which the fraud related (previous supplies) but leave the rest (as to future supplies) intact:
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 C.L.R. 102, noted (1997) 113 L.Q.R. 16;
Proksch [1996] R.L.R. 71. On the Vadasz case see further below, para.7-126.
550.
See, however, O’Sullivan [2000] C.L.J. 509. See also Turner (2016) 132 L.Q.R. 388.
551. Thus the court may, in effect, annul a rescission previously effected by self-help: see Atlantic
Lines & Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep. 188, 202. The conferral of a
discretion on the court by s.2(2) has been said to imply that, apart from that section, there is no
power to declare the contract subsisting; the right to rescind is that of the representee, not that
of the court, which merely has to decide whether the rescission was lawful: TSB Bank Plc v
Camfield [1995] 1 W.L.R. 430, 439.
552. In Hughes v Clewley, The Siben (No.2) [1996] 1 Lloyd’s Rep. 35 it was held that rescission will
not be ordered [sic] if the effect would be to transfer a business being used for unlawful
purposes from one party to the other. The case was one of fraud, so there was no power to
declare the contract subsisting under s.2(2).
553. Horsler v Zorro [1975] Ch. 302, 310. In Islington London BC v UCKAC [2006] EWCA Civ 340,
[2006] 1 W.L.R. 1303, it was held that a tenancy to which the Act applies can be brought to an
end only on the grounds stated in the Act on which the landlord may obtain possession, which
include a false statement made knowingly or recklessly by the tenant (s.84 and Sch.2, ground
5). In reaching this conclusion, Dyson L.J. adopted the opposing theory that a contract is only
rescinded for misrepresentation by a court order (at [26]). But the court’s conclusion that, as
Mummery L.J. put it: “[T]he relevant provisions of the 1985 Act provide a complete code for the
termination of a secure tenancy, the private law remedy of rescission of the tenancy for
fraudulent representation is not available to the council” (at [46]), can be supported as a matter
of statutory construction without resorting to the notion that a court order is needed for
rescission.
554. [1979] I.R. 149.
555. Dietz v Lennig Chemicals Ltd [1969] 1 A.C. 170. The consent order had not been drawn up in
this case, but that seems immaterial. Except in matrimonial cases, a consent order derives its
Page 7
force and effect from the contract underlying it, and if the contract can be set aside, so can the
order: Purcell v F.C. Trigell Ltd [1971] 1 Q.B. 358. See further above, para.6-060 n.276.
556. Until the contract is rescinded, the accepted view is that the misrepresentee has no proprietary
right in the property transferred but only a “mere equity”: below, para.7-139.
557. Car & Universal Finance Co Ltd v Caldwell [1961] 1 Q.B. 525. But note that the fact that the
contract has been rescinded does not prevent Sale of Goods Act s.25 (sale by buyer in
possession) from applying. See below, Vol.II, para.44-219.
558. Megarry & Wade, The Law of Real Property, 8th edn (2012), para.11–022. Note that completion
of the contract is no longer a bar to rescission: Misrepresentation Act 1967 s.1(b), below,
para.7-142.
559. Arbitration Act 1996 s.7; Vol.II, para.32-028.
560. FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association
[1998] L.R.L.R. 24, 28; Vol.II, para.32-028.

Page 1

(b) - Restitutio in Integrum
Restitutio in integrum
7-123
The purpose of rescission is to restore the status quo ante, and it was said by Bowen L.J. in
Newbigging v Adam 561 that “there ought … to be a giving back and a taking back on both sides”.
Thus the traditional view is that the remedy will not lie if the parties are not in a position to make
restitutio in integrum. In Clarke v Dickson 562 Crompton J. said that when a party:
“… exercises his option to rescind the contract, he must be in a state to rescind; that is he
must be in such a situation as to be able to put the parties into their original state before
the contract.”
7-124
Common law put a strict interpretation on the requirement of restitution, and consequently
restricted the field within which rescission could operate. Further, there was no machinery for taking
accounts, or for balancing set-offs against each other, or for making allowances. As a result the
injured party was often relegated to his remedy in damages, if any. In contrast equity offered two
advantages to the litigant. 563 As at common law the parties to an action for rescission were required
to make restitution, but equity did not insist that this should be precise. It was content to do practical
justice between the parties. Secondly, the greater flexibility of the machinery at its disposal enabled
equity to direct accounts to be taken and balances to be struck and adjustments to be made which
were impossible at common law. Both of these points were emphasised by Lord Blackburn in
Erlanger v New Sombrero Phosphate Co 564:
“It [a court of equity] can take account of profits and make allowance for deterioration.
And I think the practice has always been for a court of equity to give this relief whenever,
by the exercise of its powers, it can do what is practically just, though it cannot restore the
parties precisely to the state they were in before the contract.”
The present position seems to be that in contracts where the benefits received are in their nature
returnable, such as contracts of sale, while an ability to make restitution is an essential to an action
565
for rescission, the courts require that this should be substantial rather than precise. In other
Page 2
words, the equitable approach to this requirement has prevailed over that of the common law.
Further, it has been suggested that a contract for services, which in their nature cannot be restored,
may be rescinded despite part performance of the services by the misrepresentor. 566
Alteration of subject matter
7-125
Clearly, it is impossible to make substantial restitution of property transferred under the contract if it
has altered its character. Thus in Clarke v Dickson 567 rescission was refused where a partnership, in
which the representee had been induced to take shares, had been converted into a limited liability
company, for the existing shares were wholly different from those which he originally received. Other
examples of alteration in the subjectmatter of the contract sufficient to disentitle the representee to
rescission are the working out of mines 568; the conversion of an unincorporated banking company
into an incorporated joint stock company 569; a material change in the position of both parties in
relation to the patents and business in question 570; the commencement of winding-up proceedings 571
and, when completion was a bar to rescission of a contract for the sale of land, 572 part performance of
a single contract. 573 On the other hand, if property has retained its substantial identity, restitution may
be ordered even though it has deteriorated or depreciated or cannot be restored in its original state.
574
Thus in Adam v Newbigging 575 the respondent was induced by an innocent misrepresentation to
become a partner in a business which was insolvent and which subsequently failed. He was held to
be entitled to rescind and to have his capital repaid although the business to be restored was
worthless. Two further comments may be useful. First, in appropriate cases the court may order the
plaintiff to pay compensation on account of any deterioration that has occurred, in accordance with
the principle that this is preferable to allowing the defendant to retain all the advantages of property
transferred under the contract. 576 The point was put by Roche J. as follows:
“The principle of restitutio in integrum did not require that a person should be put back
into the same position as before; it meant that he should be put into as good a position as
before.” 577
Secondly, it seems that the courts are more willing to exercise their discretionary powers and to order
restitution in a case of fraud than in a case of innocent misrepresentation. 578 Thus in Hulton v Hulton
579
the court rescinded a separation deed obtained by the husband by fraudulent misrepresentation,
and refused to order the wife to repay the sums that she had received under the deed because the
husband had received corresponding benefits, such as freedom from molestation and from
proceedings by the wife for restitution of conjugal rights.
Partial rescission not allowed
7-126
The more flexible approach advocated in the previous paragraph would not necessarily be
inconsistent with what appears to be the current rule that the misrepresentee may only rescind the
whole contract and not part of it. In Vadasz v Pioneer Concrete (SA) Pty 580 the High Court of
Australia had held that in a case of fraud the court has power to set aside the contract on terms and
thus could set aside the part of the contract of guarantee to which the fraud related (previous
supplies) but leave the rest (as to future supplies) intact. This should be contrasted with the decision
of the English Court of Appeal in TSB Bank Plc v Camfield, 581 in which a wife was held to have the
right to set aside a charge in its entirety when she had entered it as the result of the husband’s
misrepresentation that it was limited to £15,000. In Scales Trading Ltd v Far Eastern Shipping Plc 582
the Privy Council had left open the question of whether the approach in Vadasz should be preferred
to that in TSB Bank Plc v Camfield. However, in De Molestina v Ponton 583 Colman J. held that it was
not even arguable that partial rescission may be awarded. 584 That there cannot be partial
rescission is part of a wider principle that there cannot be rescission unless there can be restitutio in
integrum. 585 Thus:
Page 3
“… if a representee is induced to enter separate contracts A and B by the same

misrepresentation, it may be that performance of contract B depends on the prior
performance of contract A. In that case one cannot rescind contract A without also
rescinding contract B … But there may be cases where, although both contracts were
induced by the same misrepresentation, either can be performed without performance of
the other. In that case the misrepresentee may rescind unless the contract not sought to
be rescinded would never have been entered without also entering the other.” 586
Services
7-127
The suggestion 587 that a partly performed contract for services may be rescinded is attractive but
raises difficulties. One view might be that the contract is rescinded for the future, leaving the services
already rendered unaffected, but this would be inconsistent with the normal view that rescission for
misrepresentation is rescission ab initio. 588 It might also result in the party who had rendered the
services going without payment for them if the contract were entire and the payment due on
completion. 589 Rather the suggestion seems to be that the contract is rescinded ab initio but the
misrepresentee must make an allowance for the services received. 590 That seems a workable
proposition but it would leave an anomaly when the services had been performed by the
misrepresentee: it would be rather hard if he were permitted to rescind only at the price of forgoing
payment for what he had done, but unless the contract was severable it is not clear what remedy he
would have to claim payment. The adjustments and allowances which a court may make in a claim for
rescission may not include the allowance of a quantum meruit. This is suggested by Boyd and Forrest
v Glasgow Ry. 591 During the negotiations for a contract for constructing a railway, an innocent
misrepresentation was made about the nature of the subsoil; the contractors claimed to rescind the
contract, and sued on a quantum meruit for the difference between the contract price, which they had
received, and the increased cost of the work which was due to the misrepresentation. The House of
Lords, reversing the Scottish courts, rejected the claim on the ground that, if allowed, it would be
equivalent to an award of damages to the contractors.
A more flexible approach?
7-128
In the Boyd and Forrest case 592 the work had actually been completed, so it was clearly too late for
the contractor to “rescind”, and it is to be hoped that a modern court might see its way to granting a
quantum meruit to the misrepresentee in a case in which he only discovers that an innocent
misrepresentation has been made after he has performed some of the services required of him. 593 It
has been argued that the courts should adopt a still more flexible approach to the requirement of
restitutio in integrum where third party rights are not in question, 594 allowing restitution to be made in
the form of money. 595 This, despite recent endorsement by the Court of Appeal of the difficulties
alluded to earlier, 596 seems a sensible development and one which is in line with the decision in a
case of undue influence to award “equitable compensation” when the property transferred could no
longer be returned. 597 A recent decision of the Court of Appeal in a duress case suggests that the
courts are now adopting this approach. 598
Indemnity distinguished from damages
7-129
Assuming that a claimant who wishes to rescind is in a position to make restitutio in integrum, the
Page 4
present position seems to be that he may expect the restoration of benefits and resumption of
burdens which have passed under the contract. Thus, if property has been delivered, it must be
restored, and the claimant likewise must make restitution of any property delivered to him; and if
obligations have passed to the claimant, these must be resumed by the defendant so that the
restoration of the status quo ante may be achieved. In practical terms this means that the defendant
must indemnify the claimant against obligations which he has discharged or will become liable to
discharge. One problem arises: how is the rule requiring the defendant to indemnify the claimant for
obligations assumed by him reconciled with the rule that damages cannot be recovered for an
innocent misrepresentation which has not become a term of the contract? The traditional answer has
been that the defendant must indemnify the claimant against obligations necessarily created by the
contract, i.e. against liabilities to third parties which the contract required the claimant to incur or
payments to third parties which it required him to make, but against these only. Thus the court is
enabled to stop short of making an award which could be classified as damages. 599
7-130
The practical operation of the distinction between indemnity and damages is illustrated by Whittington
v Seale-Hayne. 600 The plaintiffs took a lease of certain premises on the strength of the defendant’s
innocent misrepresentation that they were in a sanitary condition and they erected certain poultry
sheds thereon. As a result of the unsanitary state of the premises the manager of the plaintiffs’ poultry
farm became ill, and the poultry died; the local council ordered the plaintiffs to renew the drains, and
the plaintiffs were obliged to remove their sheds. In an action for rescission and for an indemnity
against the consequences of having entered into the contract, it was held that the plaintiffs were
entitled to an indemnity against the obligations to pay rates and to effect repairs, for these were
necessarily assumed under the contract. But they were not entitled to recover anything in respect of
medical expenses or loss of poultry, or the removal of the sheds, for these were in effect claims for
damages, and therefore not admissible in an action based on innocent misrepresentation.
561. (1886) 34 Ch. D. 582, 595.
562. (1858) E.B. & E. 148, 154.
563. But note that fraud may be used as a defence to specific performance even when restitutio in
integrum is impossible: Geest Plc v Fyffes Plc [1999] 1 All E.R. (Comm) 672. See above,
para.7-117.
564. (1878) 3 App. Cas. 1218, 1278–1279. See also O’Sullivan v Management Agency Ltd [1985]
Q.B. 428, below, para.8-104.
565.
Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745 (buyer of car could rescind despite
depreciation and intermittent enjoyment). In Smith New Court Securities Ltd v Scrimgeour
Vickers (Asset Management) Ltd in the Court of Appeal it had been accepted that rescission
was no longer possible because the plaintiffs had disposed of the shares they had brought.
Nourse L.J. referred to this rule as harsh in relation to fungible assets: [1994] 1 W.L.R. 1271,
1280. In the House of Lords, Lord Browne-Wilkinson remarked that, if a sale of shares cannot
be rescinded once the specific shares purchased have been sold, “the law will need to be
looked at closely hereafter”: [1997] A.C. 254, 262. See Halson [1997] R.L.R. 89. A claimant is
not entitled to recover the price paid to the defendant for shares if the claimant is able to return
the shares to the defendant but is merely unwilling to do so: Gamatronic (UK) Ltd v Hamilton
[2016] EWHC 2225 (QB) at [218]; to pay the value of the shares to the defendant instead of
returning them would not put the parties back into their original position or anywhere near it (at
[219]).
Page 5
566. Atlantic Lines & Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep. 188, 202. See further
below, para.7-127.
567. (1858) E.B. & E. 148. Some dicta in this case were disapproved in Armstrong v Jackson [1917]
2 K.B. 822, 829. A Name at Lloyd’s cannot rescind membership because the benefits received
are not in their nature returnable: Lloyd’s of London v Leigh [1997] CA Transcript 1416; Society
of Lloyd’s v Khan [1998] 3 F.C.R. 93.
568. Vigers v Pike (1842) 8 Cl. & F. 562.
569. Western Bank of Scotland v Addie (1867) L.R. 1 Sc. & Div. 145, 159–160.
570. Sheffield Nickel Co v Unwin (1877) 2 Q.B.D. 214; see also Lagunas Nitrate Co v Lagunas
Syndicate [1899] 2 Ch. 392.
571. Oakes v Turquand (1867) L.R. 2 H.L. 325.
572. See now below, para.7-142.
573. Thorpe v Fasey [1949] Ch. 649; cf. Kupchak v Dayson Holdings Co Ltd (1965) 53 D.L.R. (2d)
482.
574. Armstrong v Jackson [1917] 2 K.B. 822. The contrary suggestion in McGregor on Damages,
19th edn (2014), para.47–076 is, with respect, doubtful.
575. (1888) 13 App. Cas. 308.
576. Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch. 392, 456, 457. See also O’Sullivan v
Management Agency Ltd [1985] Q.B. 428, below, para.8-104.
577. Compagnie Chemin de Fer Paris-Orleans v Leeston Shipping Co (1919) 36 T.L.R. 68, 69; cf.
Wiebe v Butchart’s Motors [1949] 4 D.L.R. 838 (contract for sale of car rescinded subject to
allowance for depreciation during use); Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745
(buyer of car could rescind despite depreciation and intermittent enjoyment; court could order
an account and/or an inquiry to determine the terms on which restitution should be made: at
[22], referring to these paragraphs in the 31st edition of Chitty on Contracts. The burden of
showing that justice requires compensation for depreciation should be on the misrepresentor: at
[30]).
578. Spence v Crawford [1939] 3 All E.R. 271, 288. The effect of negligent misrepresentation in this
respect is an open question.
579. [1917] 1 K.B. 813.
580. (1995) 184 C.L.R. 102, noted in (1997) 113 L.Q.R. 16.
581. [1995] 1 W.L.R. 430. The case, and De Molestina v Ponton [2002] EWHC 2413, are criticised
by Poole and Keyser (2005) 121 L.Q.R. 273, who argue that in cases of non-fraudulent
misrepresentation, where rescission is allowed under equity’s auxiliary jurisdiction, if the
misrepresentation is as to the terms, partial rescission can be ordered to bring the contract into
line with the misrepresentee’s expectation. This seems doubtful on the authorities, which seem
to recognise that even rescission for non-fraudulent misrepresentation is the act of the party not
of the court. See above, para.7-119.
582. [2001] 1 All E.R. (Comm) 319.
583. [2002] 1 Lloyd’s Rep. 271.
584.
See also Potter v Dyer [2011] EWCA Civ 1417. Note that in cases in which a voluntary
Page 6
settlement is being set aside for mistake (see Main Work, Vol.I, and also above, para.6–025
n.25) or misrepresentation, partial rescission may be allowed: Kennedy v Kennedy [2014]
EWHC 4129 at [46]; Bainbridge v Bainbridge [2016] EWHC 898 (Ch) at [22].
585. [2002] 1 Lloyd’s Rep. 271 at [6.2].
586. [2002] 1 Lloyd’s Rep. 271 at [6.9].
587. Above, para.7-124 n.552.
588. Above, para.7-123. These two sentences were endorsed by the Court of Appeal in Society of
Lloyds v Lyon unreported August 11, 1997.
590. [1983] 1 Lloyd’s Rep. 188, 202.
591. (1915) S.C.(H.L.) 20.
592. Boyd and Forest v Glasgow Ry (1915) S.C.(H.L.) 20; above, para.7-127.
593. If the misrepresentation had been fraudulent or negligent the problem could be avoided since
the victim could claim the cost of performing as part of the damages. In the loosely analogous
situation where a contract is terminated for breach after the victim has performed part of the
services required, the victim may opt to abandon his remedies on the contract and claim a
quantum meruit: Planché v Colburn (1831) 8 Bing. 14; see below, para.29-072.
594. cf. below, paras 8-103 et seq.
595. Burrows, Law of Restitution, 3rd edn (2011), pp.249–252, arguing that the requirement of
restitution is best rationalised as a form of the “change of position” defence; Birks [1997] R.L.R.
72.
596. See above, para.7-127 n.573.
597.
Mahoney v Purnell [1996] 3 All E.R. 61, discussed below, para.8-105. Neither this case nor
Cheese v Thomas [1994] 1 W.L.R. 129 (see below, para.8-106) is authority for allowing a
claimant to recover the price paid to the defendant for shares if he is unwilling to return the
shares to the defendant: Gamatronic (UK) Ltd v Hamilton [2016] EWHC 2225 (QB) at [218].
598. See Halpern v Halpern (No.2) [2007] EWCA Civ 291, [2008] Q.B. 195 at [70]–[73]; below,
para.8-055.
599. Newbigging v Adam (1886) 34 Ch. D. 582, 594, per Bowen L.J. Cotton and Fry L.JJ. interpreted
“indemnity” more widely, but their view was not followed in Whittington v Seale-Hayne (1900)
82 L.T. 49, below, para.7-130. cf. Horsler v Zorro [1975] Ch. 302 where it was held that, on
termination for breach of contract the innocent party was entitled to recover expenses thrown
away.
600. (1900) 82 L.T. 49.

Page 1

(c) - Other Bars to Remedy of Rescission
Restrictions on the right to rescind
7-131
The ability to make restitution is an essential to the rescission of a contract, but it does not follow that
because restitution is possible, rescission must result. For (apart altogether from the court’s
discretionary power to refuse rescission in cases of innocent or negligent misrepresentation) 601 the
plaintiff may find his claim barred by one of three restrictions on the right to rescind, namely,
affirmation of the contract, lapse of time or the acquisition by a third party of rights in the
subject-matter of the contract. Until the passing of the Misrepresentation Act there was also a fourth
bar to rescission in cases of innocent misrepresentation, namely, the execution of the contract; this
has now been abrogated.
Affirmation of the contract
7-132
If the representee, having discovered the misrepresentation, either expressly declares his intention to
proceed with the contract, or does some act inconsistent with an intention to rescind the contract, he
is bound by his affirmation. 602 Thus a shareholder’s right to claim rescission of a contract to take
shares, made on the strength of a misrepresentation in the prospectus, may be lost if, after
discovering the facts, he carries on the business of which the shares give him control, 603 or if he
attends a shareholders’ meeting 604 or tries to sell the shares 605; for by such acts he is taken to have
affirmed the contract. But, where rescission cannot in fact be made without the co-operation of the
representor, affirmation is not to be inferred merely because the representee continues to enjoy the
fruits of the contract. So where purchasers of shares in a motel company continued to occupy the
motel and manage the company after discovering that they had been induced to buy by fraud, this
was held insufficient evidence of affirmation 606; the purchasers in fact took prompt proceedings for
rescission, and they could not have rescinded out of court without the co-operation of the vendors. 607
And a representee who became suspicious of the truth of representations which induced her to buy a
share in a partnership was held not to have affirmed merely because she continued to act as a
partner while she took steps to verify her suspicions. 608 Each case is decided on its own facts, and
the courts pay particular attention to the nature of the contract, to any lapse of time which may have
occurred, and to the question whether the representor has changed his position in reliance on the
absence of a protest by the representee, or whether third parties have been affected by this. 609
Affirmation requires knowledge
7-133
In general, a party entitled to rescind or avoid a contract will not be held to have affirmed it unless he
Page 2
knows the facts, and also is aware that he has a right to rescind or avoid. This was the conclusion of
the Court of Appeal in Peyman v Lanjani, 610 after a full review of the authorities. 611 Such an
affirmation, where there is such knowledge, is conclusive evidence of the party’s election, whether or
not it is acted upon, and whether or not there is any change of position by the other party.
Sale of goods cases
7-134
In contracts for the sale of goods, it has been said that the right to rescind for innocent
misrepresentation will be lost when, had the statement been a condition, the right to reject for breach
of condition would have been lost. 612 In most circumstances an act which constitutes an acceptance
of the goods within s.35 of the Sale of Goods Act, and so bars the right to reject the goods for breach
of condition, would doubtless also constitute an affirmation of the contract and would also bar the right
to rescind. But there may be some cases in which this is not so, because a person can “accept”
goods within s.35 613 without knowing of his right to reject them, 614 whereas there can be no
affirmation without knowledge of the facts. To this extent, sale of goods cases may be an exception to
the general rule; but in the Court of Appeal it has recently been doubted whether after the enactment
of s.1 of the Misrepresentation Act 1967 it is still the law that the right to rescind is lost just because
the goods have been accepted. 615
Estoppel
7-135
A party may, however, be held estopped from rescinding or avoiding the contract even where he does
not know the facts or his rights, 616 but in this event, he must have led the other to believe, by
unequivocal statements or actions, that he does intend to affirm the contract; and it is unlikely that a
party will give a sufficiently clear indication of his intention not to rely on a misrepresentation unless
his statements or conduct indicate apparent awareness that he has some rights. 617 In addition, the
other party must show that he has acted on the statement or conduct to his prejudice. 618
Lapse of time
7-136
Lapse of time after discovery that there has been a misrepresentation may be evidence of affirmation.
619
In Clough v L. & N.W. Ry 620 it was said that “when the lapse of time is great it probably would be
treated in practice as conclusive evidence” of a decision to proceed with the contract. This is
especially true of contracts for the sale or allotment of shares in companies, where the utmost
promptness is required. 621 In such a case a delay of even a few weeks after discovery of the
misrepresentation is usually fatal, and there cannot, in any event, be rescission of an allotment after
the company has gone into liquidation. 622 But there can normally be no affirmation where the
representee is ignorant of the truth and therefore of his right to rescind, 623 and the inference of
affirmation from lapse of time should therefore be rebuttable by proof of lack of knowledge of the
untruth. In Leaf v International Galleries 624 the right to rescind a contract for the sale of goods was
held barred by five years’ delay despite the fact that the representee only discovered the truth shortly
before the proceedings but that was a case in which the delay would have amounted to acceptance of
the goods and appears to be an exception to the general rule 625; and in the Court of Appeal it has
recently been doubted whether Leaf v International Galleries is good law after the enactment of s.1 of
the Misrepresentation Act 1967. 626 It seems doubtful whether mere lapse of time will bar rescission in
other cases of completely innocent misrepresentation, and this will not be so in cases of fraud, nor
where there has been breach of a fiduciary duty. 627
Effect on representee
Page 3
7-137
Older cases indicate that in considering whether the representee has lost his right to rescind by lapse
of time, it may be important to inquire if the representee has been adversely affected by the delay. 628
Thus in Morrison v Universal Marine Insurance Co 629 it was said that rescission of a contract of
marine insurance, the policy of which was voidable for non-disclosure of a material fact, would have
been refused if there had been any evidence that the failure of the underwriters to avoid the contract
after they had become aware of the defect had led the insured party to refrain from insuring
elsewhere. It is submitted that if the misrepresentee has delayed in exercising his right for so long that
he reasonably appears to be indicating that he will not do so, and the other party acts on that
assumption, the misrepresentee will be barred by estoppel 630 or acquiescence. 631 But the fact that
the representor has changed his position is not by itself a bar to rescission, so, e.g. a contract of
guarantee can be rescinded by the guarantor notwithstanding that money has been lent by the
representor in reliance on the guarantee. 632 Prompt action would doubtless be required once the
representee knows the truth in a case of this nature.
Third-party rights
7-138
The intervention of third-party rights may prevent the misrepresentee from rescinding the contract
and reclaiming property transferred under it. 633 This is one of the risks run by the injured party if
he delays in taking action, for if a third party acquires an interest in the subject matter of the contract
before the contract has been avoided a claim for rescission will not lie, 634 provided that the third party
acted in good faith and gave consideration. 635 Thus, although there may be no duty to act within a
prescribed time, it is in the representee’s interest to act promptly, for the longer the delay, the greater
the possibility of a third party acquiring rights in the subject-matter of the contract. This rule does not
apply to void contracts, for in such cases the transferee has no title to pass to the third party 636; it
does apply to voidable contracts, for here the transferee has a good title until the contract is avoided.
637
Thus the rule may operate in all cases of misrepresentation (whether innocent, negligent or
fraudulent) unless the effect of the misrepresentation is to make the contract void for mistake. 638 The
effect on third parties, in this case insured persons, may also prevent a name at Lloyd’s from
rescinding her agreement to become a name. 639
Tracing proceeds of disposition.
7-138A
Even though the fact that, before rescission, an innocent third party has acquired rights over the
property transferred under the contract that was induced by misrepresentation will prevent the
misrepresentee from recovering the property as such, the misrepresentee obtains an equity on which
it may rely to trace into other property that represents the proceeds of disposition of the original
640
property, thus giving it a proprietary claim rather than merely a personal claim against the
641
misrepresentor.
A “mere equity”
7-139
Until the contract is rescinded, the accepted view is that the misrepresentee has no proprietary
right in the property transferred but only a “mere equity”. 642
Page 4
Assignments “subject to equities”
7-140
The principle that the intervention of third party rights will prevent rescission only applies to a transfer
of goods and not to an assignment of contractual rights. If A is induced to sell goods to B by the fraud
of B, and B resells the goods to C who takes in good faith and for value, C acquires a good title to the
goods. But if A is induced to buy goods from B by the fraud of B, and B assigns the right to receive
the purchase price to C, the rule that assignments are “subject to equities” 643 means that C gets no
better right than B.
Rescission by sub-buyer
7-141
If a contract is induced by an innocent misrepresentation and that same innocent misrepresentation is
passed on to a sub-buyer and in turn induces a subcontract, the sub-buyer may rescind the
subcontract; if he does so, there is nothing to prevent the first representee from rescinding the original
contract. 644
Executed contracts
7-142
Until the passing of the Misrepresentation Act 1967 there was a further bar to rescission in certain
cases of innocent misrepresentation, namely, the execution of the contract. This rule, often known as
the rule in Seddon v North Eastern Salt Co Ltd, 645 did not apply to cases of fraud, nor to cases of
breach of fiduciary relationships, 646 and its application to particular types of contract was much
disputed. The rule was, however, completely abrogated by s.1(b) of the Misrepresentation Act which
provides that the performance of the contract shall be no bar to rescission for any misrepresentation
where it would not have barred rescission for fraud. Although the Law Reform Committee (on whose
Report the Act was based) had recommended that this rule should be retained for contracts for the
sale of an interest in land, except for leases not exceeding three years, 647 the Act contains no special
provision for such contracts. And despite the fact that the word “performed” is perhaps not wholly
appropriate to contracts for the sale of an interest in land, it is thought that there can be no doubt that
rescission of such contracts is now possible after execution of a conveyance or other grant in all
cases of misrepresentation. Of course, the execution of the contract may still be a bar to rescission on
other grounds, for example, because it is evidence of affirmation, 648 or because restitutio in integrum
is no longer possible. 649 Moreover, it is to be anticipated that a court might be more ready to exercise
its discretion under s.2(2) of the Act of 1967 to award damages in lieu of rescission in cases where
the contract has been executed. 650 But execution of the contract will no longer in itself be an absolute
bar to rescission.
602. Ormes v Beadel (1860) 2 De G.F. & J. 333; Clough v L. & N.W. Ry (1871) L.R. 7 Ex. 26, 34;
Sharpley v Louth and East Coast Ry (1876) 2 Ch. D. 663. Passive conduct, such as not
claiming to avoid an insurance policy or not offering to return the premium, may amount to
affirmation: Argo Systems FZE v Liberty Insurance Pte Ltd [2011] EWHC 301 (Comm), [2011] 2
Lloyd’s Rep. 61 at [40]; but the Court of Appeal held that the representation must be
unequivocal and on the facts it was not: [2011] EWCA Civ 1572, [2012] Lloyd’s Rep. I.R. 67 at
Page 5
[41], [50].
603. Seddon v North Eastern Salt Co [1905] 1 Ch. 326. As to the wider grounds for this decision, see
below, para.7-142.
604. Sharpley v Louth and East Coast Ry (1876) 2 Ch. D. 663.
605. Re Hop and Malt Exchange and Warehouse Co Ex p. Briggs (1866) L.R. 1 Eq. 483.
606. Kupchak v Dayson Holdings Co Ltd (1965) 53 D.L.R. (2d) 482.
607. See also Edwards v Ashik [2014] EWHC 2454 (Ch) at [60]–[61] (no affirmation when clear
claimant was intending to claim remedies for fraud and was merely waiting to see what the
defendant had to say about the allegations).
608. Senenayake v Cheng [1966] A.C. 63.
609. See Clough v L. & N.W. Ry (1871) L.R. 7 Ex. 26, 34, 35; Bank of Credit and Commerce
International SA (In Liquidation) v Ali [1999] 2 All E.R. 1005, 1023.
610. [1985] Ch. 457.
611. See also Container Transport International Inc v Oceanus Mutual Underwriting Association
(Bermuda) Ltd [1984] 1 Lloyd’s Rep. 476, 498, 518, 529; Motor Oil Hellas (Corinth) Refineries
SA v Shipping Corp of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep. 391, 397–399; Habib
Bank Ltd v Tufail [2006] EWCA Civ 374, [2006] All E.R. (D) 92 (Apr) (Comm) at [20]. For a case
where any right to rescind would have been lost, see Donegal International Ltd v Zambia [2007]
EWHC 197 (Apr), [2007] 1 Lloyd’s Rep. 397 at [467].
612. Leaf v International Galleries [1950] 2 K.B. 86 (lapse of time). See also Long v Lloyd [1958] 1
W.L.R. 753. Sale and delivery to a sub-purchaser also amounts to acceptance (though only
after he has had a reasonable opportunity to examine the goods: Sale of Goods Act 1979 (as
amended) s.35), but if the sub-purchaser rejects the goods the right to rescind for
misrepresentation can probably still be exercised, cf. below, para.7-141. It should make no
difference to the right to rescind for misrepresentation that the representation has become a
term of the contract: Misrepresentation Act 1967 s.1(a). On loss of the right to reject, see Vol.II,
614. The buyer in Leaf v International Galleries [1950] 2 K.B. 86 therefore had lost the right to
rescind although he was unaware of the misrepresentation.
615. Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745 at [34]; see below, para.7-136.
616. See Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga)
[1990] 1 Lloyd’s Rep. 391, 399. In Habib Bank Ltd v Tufail [2006] EWCA Civ 374, [2006] All
E.R. (D) 92 (Apr) (Comm) the Court of Appeal distinguished between promissory estoppel and
acquiescence. The right to avoid a contract for misrepresentation may be lost by acquiescence
if the misrepresentee indicates that he will not avoid it and the other party acts on this to its
detriment, but only if the representation was made after the misrepresentee knew of the facts
giving him the right to avoid (at [22]–[23]). The difference (if any) between estoppel (in the
sense used in this paragraph) and acquiescence seems to be that estoppel envisages a
statement or action indicating the party’s intention, whereas acquiescence implies passive
acceptance of the status quo. Thus mere delay might amount to acquiescence: see below,
para.8-101.
617. HIH Casualty and General Insurance Ltd v Axa Corporate Solutions [2002] EWCA Civ 1253,
[2003] Lloyd’s Rep. I.R. 1 at [21]; IHC (A Firm) v Amtrust Europe Ltd [2015] EWHC 257 (QB) at
[12].
Page 6
618. [2006] EWCA Civ 374 at [20].
619. Lindsay Petroleum Co v Hurd (1874) L.R. 5 P.C. 221; Erlanger v New Sombrero Phosphate Co
(1878) 3 App. Cas. 1218; Clough v L. & N.W. Ry (1871) L.R. 7 Ex. 26, 35; Oelkers v Ellis [1914]
2 K.B. 139; Armstrong v Jackson [1917] 2 K.B. 822; Leaf v International Galleries [1950] 2 K.B.
86; Argo Systems FZE v Liberty Insurance Pte Ltd [2011] EWHC 301 (Comm), [2011] 2 Lloyd’s
Rep. 61 at [40]. The Court of Appeal held that the representation must be unequivocal and on
the facts it was not: [2011] EWCA Civ 1572, [2012] Lloyd’s Rep. I.R. 67 at [41], [50].
620. (1871) L.R. 7 Ex. 26, 34, 35.
621. Taite’s Case (1867) L.R. 3 Eq. 795; Sharpley v Louth and East Coast Ry (1876) 2 Ch. D. 663;
Re Scottish Petroleum Co (1883) 23 Ch. D. 413; Aaron’s Reefs Ltd v Twiss [1896] A.C. 273,
294; Taylor v Oil and Ozokerite Co (1913) 29 T.L.R. 515; First National Reinsurance Co Ltd v
Greenfield [1921] 2 K.B. 260.
622. Oakes v Turquand (1867) L.R. 2 H.L. 325.
623. Aaron’s Reefs Ltd v Twiss [1896] A.C. 273, 287; Armstrong v Jackson [1917] 2 K.B. 822; and
see above, para.7-133.
624. [1950] 2 K.B. 86. Denning L.J. and Lord Evershed M.R. said that the right to rescind for
innocent misrepresentation must be barred if a right to reject for breach of condition would be
barred by acceptance. It is not clear that a strictly analogous rule applies to rescission for
innocent misrepresentation. It seemed doubtful when the courts held that the right to reject for
breach of condition might be lost by acceptance after a matter of weeks: Bernstein v Pamson
Motors (Golders Green) Ltd [1987] 2 All E.R. 220; but subsequent decisions such as that of the
Court of Appeal in Clegg v Andersson [2003] EWCA Civ 320, [2003] 2 Lloyd’s Rep. 32, seem
much more generous (below, para.44-284) and an analogous approach might still be applied to
loss of the right to rescind for misrepresentation.
625. See above, para.7-133 n.598.
626. Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745 at [34] (Longmore L.J, with whom Patten
L.J. agreed. (The third member of the court, Roth J., doubted whether in Leaf a majority had in
fact adopted a strict rule that if the right to reject goods would have been lost, so would the right
to rescind, and held that in the circumstances there had been no undue delay on the part of the
buyer: at [47]–[48].) On s.1 of the Misrepresentation Act 1967 see above, para.7-113.
627. Armstrong v Jackson [1917] 2 K.B. 822.
628. See Clough v L. & N.W. Ry (1871) L.R. 7 Ex. 26, 34, 35; Morrison v Universal Marine Insurance
Co (1873) L.R. 8 Ex. 197, 205; Erlanger v New Sombrero Phosphate Co (1878) 3 App. Cas.
1218, 1278. See also Re Cape Breton Co (1885) 29 Ch. D. 795 and Ladywell Mining Co v
Brookes (1887) 35 Ch. D. 400.
629. (1873) L.R. 8 Ex. 197.
631. See above, para.7-135 n.600.
632. Mackenzie v Royal Bank of Canada [1934] A.C. 468.
633.
But see next paragraph. The effect of insolvency of the misrepresentor is unclear. Older
cases such as Tilley v Bowman Ltd [1910] 1 K.B. 745 assume that the misrepresentee may still
rescind and recover any property from the misrepresentor’s trustee in bankruptcy but more
recent cases involving companies have suggested that the rights of unsecured creditors have
intervened to prevent recovery of the property: Re Crown Holdings (London) Ltd [2015] EWHC
1876 (Ch) at [37]–[45]: Shalson v Russo [2003] EWHC 1637 (Ch), [2005] Ch. 281 at [126]. See
Page 7
Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), para.40–027.
634. White v Garden (1851) 10 C.B. 919; Babcock v Lawson (1880) 5 Q.B.D. 284; Re L.G. Clarke
[1967] Ch. 1121.
635. Scholefield v Templer (1859) 4 De G. & J. 429, 433–434.
636. Hardman v Booth (1863) 1 H. & C. 803; Cundy v Lindsay (1878) 3 App. Cas. 459; Ingram v
Little [1961] 1 Q.B. 31; Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919.
637. Sale of Goods Act 1979 s.23.
638. As, e.g. in Cundy v Lindsay (1877) L.R. 3 App. Cas. 459 and Ingram v Little (1892) L.R. 11
Q.B.D. 251. The rule that intervention of third party rights prevents rescission is normally
invoked where a third party has acquired rights over the property transferred; but it can also
apply where liability to third parties has been incurred before rescission is claimed and
rescission would cause detriment to them: Society of Lloyd’s v Lyon Unreported August 11,
1997.
639. Society of Lloyd’s v Khan [1998] 3 F.C.R. 93.
640.
See Shalson v Russo [2003] EWHC 1637 (Ch), [2005] Ch. 281 at [122]–[127]; National Crime
Agency v Robb [2015] Ch. 520 at [40]–[46] (cases of fraud); Pearce v Beverley [2013] EWHC
2627 (Ch) (undue influence); and Bainbridge v Bainbridge [2016] EWHC 898 (Ch) at [24]–[32]
(voluntary settlement sought to be set aside for mistake (see Main Work, Vol.I, and also above,
para.6-025 n.25)).
641.
Shalson v Russo [2003] EWHC 1637 (Ch) at [122].
642.
Clough v L. & N.W. Ry (1871) L.R. 7 Ex. 26, 32, 34; Bristol and West Building Society v
Mothew [1998] Ch. 1, 22; Barclays Bank Plc v Boulter [1999] 1 W.L.R. 1919, HL, at 1925;
Twinsectra Ltd v Yardley [1999] Lloyd’s Rep. Bank. 438 CA at [461]–[462]; Shalson v Russo
[2003] EWHC 1637, The Times, September 3, 2003 Ch D (defendant did not hold property on
constructive trust before rescission). For a full discussion see Cartwright, Misrepresentation,
Mistake and Non-disclosure, 4th edn (2016), para.4-10, and Worthington [2002] R.L.R. 28.
643. Below, para.19-071.
644. Abram S.S. Co v Westville Shipping Co [1923] A.C. 773.
645. [1905] 1 Ch. 326. See also Senenayake v Cheng [1966] A.C. 63, decided shortly before the
1967 Act was passed.
646. Armstrong v Jackson [1917] 2 K.B. 822.
647. Tenth Report, Cmnd.1782 (1962), paras 6 and 7.
648. Above, para.7-132.
649. Above, paras 7-123—7-130.
650. Above, para.7-110.

Page 1

Section 5. - Exclusion of Liability for Misrepresentation
Position at common law
7-143
At common law a person could not contract out of liability for fraud inducing the making of a contract
with him, at least where the fraud was his own. 651 It is, however, possible that he could do so where
the fraud was that of his employees 652 or agents 653 and there seems no doubt that it was possible, by
a provision of the contract itself, to exclude or modify the normal consequences of innocent or
negligent misrepresentation. 654 Such clauses were, however, subject to the normal principles of
construction common to all exemption clauses. 655 Thus a clause containing a statement by one party
that “we are acting for our own account and have made our own independent decisions … “would not
exclude liability for misrepresentations in investment advice or recommendations 656; and a clause
stating that “this Agreement shall supersede any prior promises, agreements, representations,
undertakings or implications whether made orally or in writing between you and us relating to the
subject matter of this Agreement” was held not to exclude or supersede misrepresentations as to
matters that were not the subject of the terms of the Agreement. 657
“No reliance” clauses
7-144
A clause that acknowledges that a party has not relied on a non-contractual representation may
prevent that party showing that he was induced to enter the contract by a representation, as it may
raise an estoppel. An “evidential estoppel” will have that effect only if the party who made the
representation entered the contract in the belief that the other had not relied on the representation:
“… it may be impossible for a party who has made representations which he intended
should be relied upon to satisfy the court that he entered into the contract in the belief
that a statement by the other party that he had not relied upon those representations was
true.” 658
However it was subsequently pointed out that the clause may also be effective, even if it is known that
the party did rely on a representation, if the parties have in fact agreed to conduct their affairs on the
basis that there has been no reliance, so that an estoppel arises by convention 659 or “by contract”.
This analysis has now been accepted by the Court of Appeal in Springwell Navigation Corp v JP
Morgan Chase Bank. 660 The estoppel should be regarded as one that arises “by contract” rather than
by convention, the difference being that with an estoppel by contract, the party which wishes to rely
on that estoppel has no need to demonstrate that it would be unconscionable for the other party to
resile from the conventional state of affairs that the parties have assumed. 661
Acknowledgement that statement of opinion only

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7-145
The parties’ agreement may create a contractual estoppel to the effect that statements will be treated
as no more than expressions of opinion. 662
Misrepresentation Act s.3
7-146
Section 3 of the Act of 1967 limits the freedom of the parties 663 to contract out 664 of the effect
of the Act in certain respects. The original s.3 was replaced by s.8 of the Unfair Contract Terms Act
1977, and s.3 is now as follows:
“If a contract contains a term which would exclude or restrict—
(a)
any liability to which a party to a contract may be subject by reason of any
misrepresentation made by him before the contract was made; or
(b)
any remedy available to another party to the contract by reason of such a
misrepresentation,
that term shall be of no effect except in so far as it satisfies the requirement of

reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is
for those claiming that the term satisfies that requirement to show that it does.”
The main change of substance between the current and the original s.3 is that under the original
section it was reliance on the exempting provision which had to be shown to be reasonable; under the
current s.3, it is the exempting term itself which has to be shown to be reasonable. The requirement
of reasonableness is now stated in s.11(1) of the Unfair Contract Terms Act 1977 as a requirement
that the term in question:
“… shall have been a fair and reasonable one to be included having regard to the
circumstances which were, or ought reasonably to have been, known to or in the
contemplation of the parties when the contract was made.”
Thus a very wide exempting term may be held unreasonable under the current s.3 while reliance on it
might have been reasonable under the old s.3 665; equally, a term may now be held reasonable where
reliance on it in particular circumstances might formerly have been held unreasonable. A further
change is that the current s.3 makes it clear that the onus is on a person claiming to rely upon an
exempting term to show that it is reasonable under the relevant section of the Unfair Contract Terms
Act. Reasonableness under the Act is discussed below. 666
Consumer cases
7-147
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With the coming into force of the Consumer Rights Act 2015 (for contracts made on or after
October 1, 2015), s.3 of the Misrepresentation Act 1967 is amended so as to no longer apply to “a
667
term in a consumer contract within the meaning of Pt 2 of the Consumer Rights Act 2015”.
These terms are controlled under the 2015 Act by the general test of unfairness provided by s.62. 668
This has the effect of making the application of the legislation (the Misrepresentation Act 1967 s.3
on the one hand, the Consumer Rights Act on the other) turn on the distinction between a person who
contracts as a “consumer” with a “trader” within the meanings of the Act and otherwise. As will be
seen, the definition of “consumer” provided by the Act is fact-sensitive and, therefore, in some cases
the relevant legislation applicable will be difficult to determine. 669 It is not thought that the distinction
will make much, if any, difference to the outcome of cases in which it has to be determined whether a
term that purports to exclude or restrict liability for misrepresentation is “fair” or “reasonable”. This is
because in relation to any particular type of term, application of the test of fairness employed in s.62
of the 2015 Act is unlikely to differ from the test of “reasonableness” under the Unfair Contract Terms
Act 1977. 670 However, it may be easier to show that a term in a consumer contract falls within the
scope of the control, as it will not be necessary to show that the term is one that “would exclude or
restrict liability” (as opposed to preventing any liability for misrepresentation arising in the first place,
e.g. by negating reliance), as is necessary to bring the term within s.3 of the 1967 Act. 671
International supply contracts and s.3
7-148
Section 3 does not apply if the contract is an “international supply contract” within the meaning of the
Unfair Contract Terms Act 1977 s.26. 672 This is because s.3 subjects the relevant clauses to the
requirement of reasonableness under s.11 of the 1977 Act, and s.26 of the 1977 Act provides that the
requirement of reasonableness does not apply to exclusions or restrictions of liability arising under
contracts within s.26. 673
Scope of s.3
7-149
The terms “any liability” and “any remedy” are presumably wide enough to cover provisions which
would exclude or restrict a claim to damages, or the right to rescind, or the right to set up the
misrepresentation by way of defence to an action. 674 The section applies not merely to provisions
totally excluding the normal consequences of misrepresentation, but also to provisions which restrict
any liability or remedy arising from a misrepresentation. 675 This means, for instance, that a provision
barring rescission but allowing claims for damages would fall within the section, as also would a
provision limiting the amount of damages or the time within which a claim may be made. What is more
problematic is whether the section applies to a clause that is worded so as to exclude any liability for
misrepresentation 676 from arising at all, by stating that one of the essential elements is missing. 677
Thus it has been held that the section does not prevent a principal from limiting the authority of his
agent even though the effect is to exclude or restrict a liability to which the principal would otherwise
be subject, 678 and it may not apply to a “no reliance” clause. 679
Section 3 and no reliance clauses
7-150
Whether s.3 applies to clauses under which one party acknowledges that it has not relied on any
statement made to it 680 have been the subject of apparently conflicting views. 681 In Springwell
Navigation Corp v JP Morgan Chase Bank 682 the Court of Appeal held that statements by one party
that it had made its decision to contract independently, without relying on the other party, and that it
was fully familiar with the risks, created a contractual estoppel to the effect that any statement by
other would amount to merely one of opinion 683 and were not within s.3. 684 In contrast, a sentence in
Page 4
the same paragraph of the document which stated that the other party would not be liable for any loss
suffered by the first party unless the loss was caused by gross negligence or wilful misconduct was
within s.3, though in the circumstances it was reasonable and therefore effective. 685 Aikens L.J.,
delivering the only full judgment, said that a statement that “ … no representation or warranty,
express or implied, is or will be made” by the relevant party “is more difficult to classify”; but he was
inclined to treat it as falling within s.3 following because, as Christopher Clarke J. in Raiffeisen
Zentralbank Osterreich AG v Royal Bank of Scotland Plc 686 put it, it “may be nothing more than an
attempt retrospectively to alter the character and effect of what has gone before”. 687 Christopher
Clarke J. held that the same was true of a non-reliance clause in the agreement. 688 It is submitted
that the question is whether a misrepresentation was made; the evidence as a whole, including the
clause, might show that the representee did not rely on the misrepresentation. 689 Or, even if it had
relied on a statement made by the other party, it was not “entitled to do so” as the statement was not
put forward as one of fact. 690 But if the contract was induced by misrepresentation, s.3 applies,
and its effect cannot be excluded. 691 As it was put by Toulson J.:
“If a seller of a car said to a buyer ‘I have serviced the car since it was new, it has had
only one owner and the clock reading is accurate’, those statements would be
representations, and they would still have that character even if the seller added the
words ‘but those statements are not representations on which you can rely’ … If,
however, the seller of the car said ‘The clock reading is 20,000 miles, but I have no
knowledge whether the reading is true or false’, the position would be different, because
the qualifying words could not fairly be regarded as an attempt to exclude liability for a
false representation arising from the first half of the sentence.” 692
As Christopher Clarke J. said in the Raiffeisen case:
“… the essential question is whether the clause in question goes to whether the alleged
representation was made (or, I would add, was intended to be understood and acted on
as a representation), or whether it excludes or restricts liability in respect of
representations made, intended to be acted on and in fact acted on; and that question is
one of substance not form.” 693
Unfair Contract Terms Act 1977 s.3(2)(b)(i)
7-151
It has been said that a clause stating that the document constitutes the “entire agreement [which]
shall supersede any prior promises, agreements, representations, undertakings or implications
whether made orally or in writing between you and us” may also fall within s.3(2)(b)(ii) of the Unfair
Contract Terms Act 1977. This section prevents a party relying on one of its written standard terms of
business to entitle it to render a contractual performance which is substantially different from that
which was reasonably expected of him, unless the clause satisfies the requirement of
reasonableness. 694 In AXA Sun Life Services Plc v Campbell Martin Ltd Stanley Burnton L.J. said
that a pre-contractual representation might affect what was reasonably expected; and therefore the
clause “may be subject to the reasonableness test in UCTA in relation to both collateral warranties
and representations”. 695
Reasonableness
7-152
Page 5
Reasonableness under the Act is discussed below (paras 15-101—15-111) and only selected
points will be considered here. 696 It seems that the court must consider the reasonableness of the
provision as a whole. 697 A clause may be invalid because, taken as a whole, it is too wide, even
though it would not necessarily be unreasonable to exclude or restrict liability on the facts which have
occurred. Thus a clause which purports to exclude liability for misrepresentation of any kind will be
unreasonable, since it is not reasonable to exclude liability for fraud, and the clause as a whole will be
invalid. 698 The court should not, however, hold a clause unreasonable because it might extend to
some situation which is unlikely to occur. 699 But if the clause is too wide, the court cannot rewrite the
clause in a reasonable fashion and, as the test under s.11(1) of the Unfair Contract Terms Act 1977 is
whether the term was “a fair and reasonable one to be included”, the court cannot allow the
misrepresentor to rely on it so far as seems reasonable. 700 Thus it cannot uphold a provision in so far
as it would bar rescission, but reject it in so far as it would bar a claim for damages. However, it is
possible that a clause which is in distinct parts might be severed and the reasonable parts upheld. It
has been said in the Court of Appeal that there are at least two good reasons why the courts should
not refuse to give effect to an exclusion of remedies for misrepresentation in a commercial contract
between experienced parties of equal bargaining power—a fortiori, where those parties have the
benefit of professional advice. First, it is reasonable to assume that the parties desire commercial
certainty; and secondly, it is reasonable to assume that the price to be paid reflects the commercial
risk which each party—or, more usually, the purchaser—is willing to accept. 701
Clauses covering breach
7-153
The section does not seem to apply to a provision which excludes or restricts liability arising solely
from breach of a contractual term, whether the term is a promise or a representation of fact. Read
literally, the section might appear to apply to a provision which excludes or restricts liabilities or
remedies arising both from misrepresentations as such and from misrepresentations as contractual
terms, 702 but it seems more likely that it will be interpreted as affecting only any remedies arising from
the misrepresentation. 703 What is less clear is the position if a single term of the contract purports
to exclude or limit liability for both misrepresentation and breach, and the clause is held to not to be
reasonable. Again read literally, s.3 appears to invalidate the term as a whole. 704 Again it is
suggested that the section should be interpreted as invalidating the term only so far as remedies for
misrepresentation are concerned.
Other statutory provisions affecting disclaimers
7-154
A clause aimed at preventing liability arising in tort under Hedley Byrne & Co Ltd v Heller & Partners
Ltd 705 on the part of a business will be valid under the Unfair Contract Terms Act 1977 s.2(2) only if it
satisfies the requirement of reasonableness under that Act. 706 The Unfair Terms in Consumer
Contracts Regulations 1999 707 also affect clauses in consumer contracts which unfairly exclude or
restrict the consumer’s remedies for misrepresentation. When the Consumer Rights Act 2015 applies,
such clauses will fall within the fairness test imposed by s.62 of the Act. For the most part it seems
likely that the test of unfairness under the Regulations or the 2015 Act will produce substantially
similar results to the reasonableness test of s.11 of the Unfair Contract Terms Act 1977. Any clause
excluding or limiting liability for misrepresentation, however it is worded, will be within the Regulations
provided that it is “in a contract concluded between a seller or supplier and a consumer” and “has not
been individually negotiated”. 708 Thus clauses limiting the authority of agents and “no reliance”
clauses which are not caught by s.3 of the Misrepresentation Act 1967, 709 will be covered.
Page 6
651. S. Pearson & Son Ltd v Dublin Corp [1907] A.C. 351; HIH Casualty and General Insurance Ltd
v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s Rep. 61 at [16], [76], [121]. This will
include, in a case where there is a duty of disclosure (see below, paras 7-155 et seq.),
fraudulent non-disclosure: HIH Casualty and General Insurance Ltd v Chase Manhattan Bank
[2003] UKHL 6 at [21], [72].
652. See John Carter (Fine Worsteds) Ltd v Hanson Haulage (Leeds) Ltd [1965] 2 Q.B. 495.
653. This question was left open by the House of Lords in HIH Casualty and General Insurance Ltd v
Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s Rep. 61, see at [16], [76]–[82]. In that
case the clause was not in sufficiently clear and unmistakable terms to exclude remedies for
alleged fraud on the part of the agent.
654. Boyd and Forrest v Glasgow Ry (1915) S.C.(H.L.) 20, 36. A properly worded clause which
excludes a right of avoidance will be effective (assuming it is not affected by Misrepresentation
Act 1967 s.3; see para.7-146) notwithstanding a purported rescission of the contract as a whole
by the misrepresentee: Toomey v Eagle Star Insurance Co Ltd (No.2) [1995] 2 Lloyd’s Rep. 88.
655. Below, paras 15-007—15-022. Thus a clause stating that a contract of reinsurance was “neither
cancellable nor voidable by either party” was held to apply only to cases of innocent
misrepresentation or non-disclosure, and not to alleged negligence, nor to exclude the right to
damages under Misrepresentation Act 1967 s.2(1): Toomey v Eagle Star Insurance Co Ltd
(No.2) [1995] 2 Lloyd’s Rep. 88. A disclaimer “without responsibility” does not prevent
rescission on the ground of misrepresentation: Crédit Lyonnais Bank Nederland v Export Credit
Guarantee Department [1996] 1 Lloyd’s Rep. 1. However, a clause applying to “rights,
obligations and liabilities arising … in connection with this contract” may apply to a claim for
misrepresentation: Strachan & Henshaw Ltd v Stein Industrie (UK) Ltd (No.2) (1997) 87 B.L.R.
52.
656. Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC
484 (Comm), [2011] 1 C.L.C. 701 at [513]. However, the next sentence of the same clause,
stating that “We are not relying on any communication (written or oral) from you as investment
advice or as a recommendation” was effective under the principle to be discussed in the next
paragraph.
657. AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep.
1. The decision is criticised by A. Trukhtanov (2011) 127 L.Q.R. 345. In Mears Ltd v Shoreline
Housing Partnership Ltd [2013] EWCA Civ 639 the entire agreement clause did not exclude
liability for misrepresentation: see at [16]. However, in Bikam OOD v Adria Cable Sarl [2012]
EWHC 621 (Comm), where in one clause of the contract the seller acknowledged the buyer’s
reliance on specified warranties by the seller, it was held that the effect of an “entire agreement”
clause was that, subject to the exception of fraud, the parties’ rights were confined to those
arising under the agreement, and rights in respect of warranties and representations not
expressly set out in the agreement were waived (at [45]).
658. Chadwick L.J. in Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001]
Build. L.R. 143 at [40], referring to the requirements for evidential estoppel identified by the
Court of Appeal in Lowe v Lombank Ltd [1960] 1 W.L.R. 196 and citing his own unreported
decision in E A Grimstead & Son Ltd v McGarrigan unreported October 27, 1999. This dictum
was applied in Quest 4 Finance Ltd v Maxfield [2007] EWHC 2313 (QB), [2007] 2 C.L.C. 706.
Whether a non-reliance clause is caught by Misrepresentation Act s.3 is discussed below at
para.7-150.
659. Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ 386,
[2006] 2 Lloyd’s Rep. 511 at [54]–[60], referring to Colchester BC v Smith [1991] Ch. 448,
affirmed on appeal [1992] Ch. 421; Moore-Bick L.J’s analysis was followed in several first
instance decisions, e.g. Donegal International Ltd v Zambia [2007] EWHC 197 (Comm), [2007]
1 Lloyd’s Rep. 397, see at [465]; JP Morgan Bank v Springwell Navigation Corp [2008] EWHC
Page 7
1186 (Comm), see at [536]–[567] (holding that the principle stated in the Peekay case formed
part of the ratio, see [556]–[559]); for the Court of Appeal decision in this case, see n.641
below; Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2008] EWHC 1686 (Comm),
[2009] 1 All E.R. (Comm) 16, at [33]–[36] (affirmed [2009] EWCA Civ 290, see para.7-148; the
trial judge’s decision on this point was not appealed, see at [8]); Titan Steel Wheels Ltd v Royal
Bank of Scotland Plc [2010] EWHC 211 (Comm), see at [87]–[89]; FoodCo UK LLP (t/a Muffin
Break) v Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at [168]–[171]; and Raiffeisen
Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm), [2011] 1
Lloyd’s Rep. 123. See generally A. Trukhtanov (2009) 125 L.Q.R. 648. On estoppel by
convention and by contract see above, paras 4-108 et seq.
660. [2010] EWCA Civ 1221, [2010] 2 C.L.C. 705 at [169]. See also Cassa di Risparmio della
Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm), [2011] 1 C.L.C.
701 at [514]. In the Springwell case the Court of Appeal held that dicta by Diplock J. in Lowe v
Lombank Ltd [1960] 1 W.L.R. 196 at 204, to the effect that a statement as to past facts known
to be untrue cannot be converted into a contractual obligation and is not a contractual promise,
“are not binding authority for the far-reaching proposition that there can never be an agreement
in a contract that the parties are conducting their dealings on the basis that a past event had not
occurred or that a particular fact was the case, even if it was not the case and both the parties
knew it was not” (at [155]; the Court did not however agree with the trial judge that Diplock J.
was considering whether the agreement was a sham, nor with the analysis of Lowe v Lombank
in Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392
(Comm) at [253]–[254]).
661. [2010] EWCA Civ 1221 at [177].
662. Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ 1221, [2010] 2 C.L.C.
705 at [118]–[173]. cf. above, para.7-010. See also Brown v InnovatorOne Plc [2012] EWHC
1321 (Comm) at [903].
663.
October 1, 2015), s.3 of the Misrepresentation Act 1967 is amended so as to no longer apply to
“a term in a consumer contract within the meaning of Pt 2 of the Consumer Rights Act 2015”:
see next paragraph.
664. Although s.3 applies only to terms and not to notices, a mere declaration of nonliability by the
representor cannot have the effect of preventing a representor from incurring liability for
misrepresentation: see IFE Fund SA v Goldman Sachs International [2006] EWHC 2887
(Comm), [2007] 1 Lloyd’s Rep. 264 in particular at [65]; but the notice may go to the question of
whether the alleged misrepresentation was made at all (at [67]); in other words, whether he has
made has made a misrepresentation on which the other was entitled to rely. See also Taberna
Europe CDO II Plc v Selskabet [2016] EWCA Civ 1262 at [20].
665. In the Howard Marine case [1978] Q.B. 554 (above, para.7-076) Lord Denning M.R. was
prepared to uphold reliance on an exempting clause under the old s.3 as reasonable; the
majority of the court disagreed without giving reasons.
667.
Consumer Rights Act 2015 s.75; Sch.4 para.1. On the effect of the Act on the law on unfair
terms, see Vol.II, paras 38-196 and 38-334 et seq. It should be noted that (with exceptions that
are not relevant here) s.62 applies to any term of a consumer contract, not just terms that were
not individually negotiated, as was the case under the Unfair Terms in Consumer Contracts
Regulations 1999 (on which see Vol.II, paras 38-201 et seq.).
668.
On which see Vol.II, paras 38-359 et seq.

Page 8
672. Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA Civ 290, [2010] Q.B. 86.
673. For a discussion of s.26, see above, para.15-122. In contrast, s.27 of the Unfair Contract Terms
Act 1977, which prevents the principal provisions of the Act applying to contracts that are
subject to the law of any part of the UK only by choice of the parties, does not affect s.3 of the
Misrepresentation Act 1967.
674. A right of set-off is a remedy for this purpose: Skipskredittforeningen v Emperor Navigation
[1998] 1 Lloyd’s Rep. 66, not following Society of Lloyd’s v Wilkinson (No.2) [1997] 6 Re L.R.
214 on this point. See also WRM Group Ltd v Wood [1998] C.L.C. 189. But a term that
purchasers of a lease would be permitted to enter into possession before completion “at their
own risk” was held not to be within the section (though unreasonable if it was): F. & H.
Entertainments Ltd v Leisure Enterprises Ltd (1976) 120 S.J. 331.
675. It may not apply to clauses excluding liability for non-disclosure: National Westminster Bank Plc
v Utrecht-America Finance Co [2001] EWCA Civ 658, [2001] 3 All E.R. 733 at [62] (point left
open). In Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2008] EWHC 1686 (Comm),
[2009] 1 All E.R. (Comm) 16 s.3 was applied to a clause under which party was said to “give up
any rights … regarding any … misrepresentation” (affirmed [2009] EWCA Civ 290; the trial
judge’s decision on this point was not appealed, see at [8]). See A. Trukhtanov (2009) 125
L.Q.R. 648, 666–670.
676. Misrepresentation Act s.3 does not apply to clauses stating that the written document
constitutes the entire contract and that particulars given do not constitute an offer or contract,
but that is because such a clause does not purport to exclude liability for misrepresentation, but
only to define what are the terms of the contract: McGrath v Shah (1989) 57 P. & C.R. 452.
677. It has been pointed out that the problem is caused by the fact that s.3 has no equivalent to
Unfair Contract Terms Act 1977 s.13, which defines "excluding or restricting liability" to include
“excluding or restricting liability by reference to terms and notices which exclude or restrict the
relevant obligation or duty”: Peel (2001) 117 L.Q.R. 545, 548.
678. Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 W.L.R. 1335, approved by the
Court of Appeal in Museprime Properties Ltd v Adhill Properties Ltd [1990] 2 E.G.L.R. 196, 200.
681. Compare Cremdean v Nash (1977) 241 E.G. 837 CA and FoodCo UK LLP (t/a Muffin Break) v
Henry Boot Developments Ltd [2010] EWHC 358 (Ch) on the one hand to, on the other, William
Sindall Plc v Cambridgeshire CC [1994] 1 W.L.R. 1016 at 1034 and Watford Electronics Ltd v
Sanderson CFL Ltd [2001] EWCA Civ 317, [2001] Build. L.R. 142 at [40].
682. [2010] EWCA Civ 1221, [2010] 2 C.L.C. 705. See McMeel [2011] L.M.C.L.Q. 185.
683. [2010] EWCA Civ 1221 at [173]; see above, para.7-145.
684. [2010] EWCA Civ 1221 at [181]. See also Cassa di Risparmio della Repubblica di San Marino
SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm), [2011] 1 C.L.C. 701 at [514]. Camerata
Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm), [2011] 1
C.L.C. 627 at [186]; Standard Chartered Bank v Ceylon Petroleum Corp [2011] EWHC 1785
(Comm) at [568].
685. [2010] EWCA Civ 1221 at [181]. On reasonableness see below, para.7-152.
Page 9
686. [2010] EWHC 1392 (Comm).
687. [2010] EWCA Civ 1221 at [181], referring to [2010] EWHC 1392 (Comm) at [315]; applied in
Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198 (Ch) at
[144]–[145]. But in Thornbridge Ltd v Barclays Bank Plc [2015] EWHC 3430 (QB) at [97]–[121]
H.H. Judge Moulder, sitting as a judge of the High Court, said “the test is not whether the
clause attempts to rewrite history or parts company with reality. The first step is to determine as
a matter of construction whether the terms define the basis upon which the parties were
transacting business or whether they were clauses inserted as a means of evading liability” (at
[105]); and in Sears v Minco Plc [2016] EWHC 433 (Ch) at [74]–[84] H.H. Judge Hodge, sitting
as a judge of the High Court, said “I respectfully agree with Judge Moulder’s analysis and
conclusions [in Thornbridge]” (at [80]).
688.
[2010] EWCA Civ 1221 at [182]. In Thornbridge Ltd v Barclays Bank Plc [2015] EWHC 3430
(QB) at [97]–[121] H.H. Judge Moulder, sitting as a judge of the High Court, said “the test is not
whether the clause attempts to rewrite history or parts company with reality. The first step is to
determine as a matter of construction whether the terms define the basis upon which the parties
were transacting business or whether they were clauses inserted as a means of evading
liability” (at [105]); and in Sears v Minco Plc [2016] EWHC 433 (Ch) at [74]–[84] H.H. Judge
Hodge, sitting as a judge of the High Court, said “I respectfully agree with Judge Moulder’s
analysis and conclusions [in Thornbridge]” (at [80]). But in First Tower Trustees Ltd v CDS
(Superstores International) Ltd [2017] EWHC 891 (Ch), [2017] 4 W.L.R. 73 Michael Brindle QC,
sitting as a High Court judge, differed, holding that the Springwell case “makes it entirely clear
that where a representation has been made pre-contract and relied upon, a subsequent
provision in the contract which states that there has been no representation or no reliance is,
although contractually valid, an attempt to exclude or restrict liability and therefore subject to the
reasonableness regime” (at [32]).
689.
See e.g. the effect of the clauses in Bikam OOD v Adria Cable Sarl [2012] EWHC 621
(Comm), above, para.7-143 n.637. Similarly, a clause has been held to prevent a duty of care
arising in tort rather than excluding liability, so the clause did not fall within s.2(2) of the Unfair
Contract Terms Act 1977: Crestsign Ltd v National Westminster Bank Plc [2014] EWHC 3043
(Ch).
690.
cf. Vol.I, para.7-006.
691. Cremdean v Nash (1977) 241 E.G. 837 CA. See also Thomas Witter Ltd v TBP Industries Ltd
[1992] All E.R. 573, 597–598; Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1
W.L.R. 2333, 2347.
Rep. 264 at [68]–[69]; affirmed without comment on this point [2007] EWCA Civ 811, [2007] 2
Lloyd’s Rep. 449. The judge held that on the facts no representation had been made (see
para.7-007, above). A “no reliance” clause was held to be ineffective under s.3 in Leofelis SA v
Lonsdale Sports Ltd [2007] EWHC 451 (Ch).
693. Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392
(Comm), [2011] 1 Lloyd’s Rep. 123 at [310], Christopher Clarke J. See also Morgan v Pooley
[2010] EWHC 2447 (QB) at [114]; Welven Ltd v Soar Group [2011] EWHC 3240 (Comm) at
[111].
695. [2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep. 1 at [50]. The clause was held to be reasonable: at
[66]. Note that under the Consumer Rights Bill 2014 s.3 of the Unfair Contract Terms Act will no
longer apply to consumer contracts; it will be replaced by cl.62 of the Bill. See below, Vol.II,
Page 10
696.
It has been held that condition 17 of the National Conditions of Sale (19th edn) was invalid as
unreasonable under s.3 of the Misrepresentation Act: Walker v Boyle [1982] 1 W.L.R. 495.
Condition 17 stated that replies to questions by the vendor or his agents do not obviate the
need for the buyer to make his own inquiries and inspections, and are not to be treated as
representations. See also Southwestern General Property Co Ltd v Marton (1982) 263 E.G.
1090; White Cross Equipment Ltd v Farrell (1982) 2 Tr.L.R. 21; Cooper v Tamms [1988] 1
E.G.L.R. 257; Goff v Gauthier [1991] 62 P. & C.R. 388; Cleaver v Schyde Investments Ltd
[2011] EWCA Civ 929, [2011] 2 P. & C.R. 21. In Lloyd v Browning [2013] EWCA Civ 1637,
[2014] 1 P. & C.R. 11 it was held that a special condition, commonly used within the area,
stating that the buyer entered into the contract solely as a result of his inspection of the property
and that no statement by the seller, other than written statements made in reply to enquiries,
had induced him to enter into the contract, was a reasonable one to be included in the particular
contract. Thus where a “no-reliance” clause is subject to the Act (see above, n.666a) it is likely
to be reasonable if it expressly permits reliance on any reply given by the landlord’s or vendor’s
solicitors to the tenant’s or purchaser’s solicitors, whereas one that seeks to prevent the
landlord or vendor from incurring any liability for misrepresentation other than for fraud is
unlikely to be reasonable: see FoodCo UK LLP (t/a Muffin Break) v Henry Boot Developments
Ltd [2010] EWHC 358 (Ch) at [177]; Lloyd v Browning [2013] EWCA Civ 1637 at [34]; First
Tower Trustees Ltd v CDS (Superstores International) Ltd [2017] EWHC 891 (Ch), [2017] 4
W.L.R. 73 at [36]–[38] (“not a reasonable clause to put into the lease, even if the parties are of
equal bargaining power and act on legal advice, because its effect would render the whole
exercise of making inquiries and relying on answers thereto all but nugatory” (at [39]–[40])). See
below, para.15-104.
698. Thomas Witter Ltd v TBP Industries Ltd [1992] All E.R. 573. cf. Stewart Gill Ltd v Horatio Myer
& Co Ltd [1992] Q.B. 600; below, para.15-112. In Skipskredittforeningen v Emperor Navigation
[1998] 1 Lloyd’s Rep. 66 it was held not to be unreasonable to include in a loan agreement a
no-set off clause which might apply even in cases of fraud.
699. Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd’s Rep. 66, 75–76.
700. Compare the formulation used by the original version of s.3 before amendment by the 1977 Act:
“[T]hat provision shall be of no effect except to the extent that … the court or arbitrator may
allow reliance on it as being fair and reasonable in the circumstances of the case”. But see the
doubts expressed by Mance J. in Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd’s
Rep. 66, 75; and also Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002]
EWCA Civ 549, [2002] 2 Lloyd’s Rep. 379 at [26].
701. See National Westminster Bank Plc v Utrecht-America Finance Co [2001] EWCA Civ 658,
[2001] 3 All E.R. 733 at [60]–[61], citing an unreported judgment of Chadwick L.J. in E A
Grimstead & Son Ltd v McGarrigan Unreported October 27, 1999; Watford Electronics Ltd v
Sanderson CFL Ltd [2001] EWCA Civ 317, [2001] Build. L.R. 143 at [39]. See also FoodCo UK
LLP (t/a Muffin Break) v Henry Boot Developments Ltd [2010] EWHC 358 (Ch), at [177];
(Comm), [2011] 1 Lloyd’s Rep. 123 at [319]–[327]. In Springwell Navigation Corp v JP Morgan
Chase Bank [2010] EWCA Civ 1221, [2010] 2 C.L.C. 705, at [183]–[184] the Court of Appeal
agreed with the trial judge (see [2008] EWHC 1186 (Comm)) that clauses restricting liability
towards a sophisticated investor who was aware of the risks were reasonable. See also
Camerata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm) at
[187]; AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 2 Lloyd’s
Rep. 1 at [48]–[75]; Standard Chartered Bank v Ceylon Petroleum Corp [2011] EWHC 1785
(Comm) at [569]–[572]; Welven Ltd v Soar Group [2011] EWHC 3240 (Comm) at [115].
702. As already seen (above, para.7-113) s.1(a) of the 1967 Act provides that a misrepresentation
continues to be effective as such even if it becomes a term of the contract. See also below,
para.15-130.
703.
Page 11
704.
705. [1964] A.C. 465; above, para.7-089.
706. Smith v Eric S. Bush [1990] 1 A.C. 831; see above, para.7-091 and below, para.15-104.
707. SI 1999/2083; see below, Vol.II, para.38-201. Note that under the Consumer Rights Act 2015,
the Unfair Terms in Consumer Contracts Regulations 1999 are replaced by the provisions of Pt
2 of the Bill. See below, Vol.II, paras 38-201 et seq.
708. Regulations 1999 reg.5(1).

Page 1

Section 6. - Contracts where a duty of disclosure
Non-disclosure
7-155
Mere non-disclosure of fact, material or not, does not ordinarily amount to misrepresentation, and
the general rule is that in order to be actionable a representation must take an active form. 710 But in
certain cases a stricter rule is enforced. The most important of these are the contracts uberrimae fidei
711
in which knowledge of the material facts generally lies with one party alone; that party is under a
duty to make a full disclosure of these facts, and failure to do so makes the contract voidable.
However, it is doubtful whether any contract other than one for insurance is correctly described
uberrimae fidei, as the extent of the duty to disclose and the remedies available seem to vary from
type of contract to type of contract; and when the Insurance Act 2015 comes into force 712 it seems
that it will no longer be accurate to describe even contracts of insurance as uberrimae fidei, as any
duty to disclose will be statutory 713 and any rule of law permitting a party to a contract to avoid it on
the ground that utmost good faith has not been observed by the other party will be abolished. 714
Therefore it is more helpful to consider the extent of the duty and the remedies available in each type
of case in which it has been held that there is a some duty of disclosure. 715 These include
contracts to subscribe for shares in a company, 716 family settlements, 717 contracts for the sale of
land, 718 contracts for suretyship 719 and partnerships. 720 To this list may be added general releases 721
and contracts where the parties are in a relationship of trust and confidence. 722 Contracts of service,
723
contracts of sale of goods 724 and interest rate swap agreements 725 have been held not to be
uberrimae fidei, so that there is no duty of disclosure.
Rescission but not damages
7-156
A breach of the duty to disclose will give rise to the right to rescind the contract but, it is submitted,
not to a right to damages even if the other party kept quiet “fraudulently” in the sense of intended
deliberately to mislead the claimant. 726 In Conlon v Simms it was said that:
“… where the breach of the duty of disclosure is fraudulent, a party to whom the duty is
owed who suffers loss by reason of the breach may recover damages for that loss in the
tort of deceit … Non-disclosure where there is a duty to disclose is tantamount to an
implied representation that there is nothing relevant to disclose.” 727
This, with respect, is very doubtful, and cannot be supported on the ground given. It is well
established that breach of the duty of disclosure in insurance does not of itself give rise to an action
for damages. 728 A negligent failure to speak may give rise to liability in damages but only if there is a
“voluntary assumption of responsibility”. 729 If silence when there is a duty to disclose amounted to an
implied representation that there was nothing to disclose, that would make even a non-fraudulent
Page 2
non-disclosure into a positive misrepresentation for which damages could be recovered under
Misrepresentation Act 1967 s.2(1), unless the non-disclosing party could show that he had
reasonable grounds for believing that there was nothing to disclose, whereas it has been held that if
the non-disclosure is negligent, it does not give rise to liability in damages under Misrepresentation
Act 1967 s.2(1) or, without more, at common law. 730 It is almost certain that without a voluntary
assumption of responsibility there is no liability in damages for merely keeping silent, and it is
submitted that this is so even if there was an intention to deceive. 731
711. For the others, see above, paras 7-017—7-021.
712. The relevant parts of the Act are due to come into force in August 2016.
713. Insurance Act 2015 s.3 imposes a duty of fair presentation: see below, para.7-159.
714. Insurance Act 2015 s.14(1). Any rule of law to the effect that a contract of insurance is a
contract based on the utmost good faith is modified to the extent required by the provisions of
the Act and the Consumer Insurance (Disclosure and Representations) Act 2012: 2015 Act
s.14(2).
715.
See also Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016),
para.17-03.
716. Below, para.7-169.
717. Below, para.7-171.
718. Below, para.7-172.
719. Below, para.7-174.
720. Below, para.7-178.
721. Below, para.7-180.
722. Below, para.7-181.
723. Bell v Lever Bros Ltd [1932] A.C. 161, 227; Nottingham University v Fishel [2000] I.C.R. 1462.
724. Jewson & Sons Ltd v Arcos Ltd (1932) 39 Com. Cas. 59.
725. Nextia Properties Ltd v Royal Bank of Scotland [2013] EWHC 3167 (QB).
726. See also Cartwright, Contract Formation and Parties (2010), pp.137, 146–149.
727. [2006] EWCA Civ 1749, [2008] 1 W.L.R. 484 at [130]; see also at first instance [2006] EWHC
401 (Ch), [2006] 2 All E.R. 1024; JD Wetherspoon Plc v Ven de Berg & Co Ltd [2007] EWHC
1044 (Ch), [2007] P.N.L.R. 28 at [17] (“may be” liability); Cavell USA Inc v Seaton Insurance Co
[2008] EWHC 3043 (Comm), [2008] 2 C.L.C. 898 at [84].
728. Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665, 787–789,
Page 3
790–805, affirmed on other grounds [1991] 2 A.C. 249. See above, para.1-162.
729. Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665 at 794.
731.
Liability in damages for fraudulent non-disclosure had been mooted as a possibility by Rix
L.J. in HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2001] EWCA Civ 1250,
[2001] 2 Lloyd’s Rep. 483 at [48], [164] and [168] but the point was neither argued nor decided.
In the House of Lords, Lord Bingham did say that the deliberate withholding of information
which the person knows or believes to be material, if done dishonestly or recklessly, may
amount to a fraudulent misrepresentation: [2003] UKHL 6, [2003] 2 Lloyd’s Rep. 61 at [21].
However this appears to refer to cases where in the circumstances a failure to disclose
amounts to a positive misrepresentation, and it is not clear that Lord Bingham thought this
included every case of a duty to disclose. Lord Hoffmann said that “non-disclosure (whether
dishonest or otherwise) does not as such give rise to a claim in damages” (at [75]); he referred
to the judgments in Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B.
665, 777–781 and 788 (“without a misrepresentation there can be no fraud in the sense of
giving rise to a claim for damages in tort”) and [1991] 2 A.C. 249 at 280 (per Lord Templeman)
and at 281 (per Lord Jauncey of Tullichettle). Moreover, in Manifest Shipping Co v Uni-Polaris
Insurance Co, The Star Sea [2001] UKHL 1, [2003] 1 A.C. 469 at [46], Lord Hobhouse regarded
the Banque Keyser Ullman case as deciding authoritatively that a breach of duty to disclose
does not give rise to damages. Damages may be recovered in tort for deceit but even
deliberate non-disclosure does not give rise to an action for deceit. See Clerk & Lindsell on
Torts, 21st edn (2014), para.18-09; Cartwright, Misrepresentation, Mistake and Non-disclosure,
4th edn (2016), para.17-37.

Page 1

(a) - Insurance
Contracts of insurance 732
7-157
The traditional position is that, as a matter of law, all of these are uberrimae fidei, whatever their
subject matter, that is whether they relate to marine, fire, life or burglary insurance, or to any other
risk. Marine insurance is governed by the Marine Insurance Act 1906, which codified the existing law.
Non-marine insurance is subject to the common law. It is thought to be contrary to good faith to
withhold material facts from the insurer. 733 Such facts are generally known only to the assured, and
he is therefore under a duty to disclose them. 734 However, the traditional rules no longer apply to
consumer insurance as the result of the Consumer Insurance (Disclosure and Representations) Act
2012; and will no longer apply to contracts for other classes of insurance made after the Insurance
Act 2015 comes into force in August 2016. 735 Note that the Insurance Act 2015 came into force and
the Marine Insurance Act 1906 was repealed in August 2016.
Consumer insurance
7-158
In practice the duty of disclosure has for some time had a very limited application to “retail” or
“consumer” insurance because of the requirements of the Financial Services Authority and, even
more pertinently, the decisions of the Financial Ombudsman Service as to when insurers are
complying with a general requirement to treat customers fairly and reasonably. 736 Under the
Consumer Insurance (Disclosure and Representations) Act 2012, 737 the duty of disclosure on a
consumer insured is removed altogether, as is the insurer’s right to avoid for innocent
misrepresentation. The consumer has a duty to take reasonable care not to make a
misrepresentation to the insurer. 738 Note that the Insurance Act 2015 came into force and the Marine
Insurance Act 1906 was repealed in August 2016.
Insurance Act 2015 739
7-159
In contracts made after the relevant part of the Act comes into force, the non-consumer insured’s duty
of disclosure will be replaced by a duty to make a fair presentation of the risk to the insurer. 740 The
insured must disclose every material circumstance which the insured knows or ought to know, or,
failing that, give the insurer sufficient information to put a prudent insurer on notice that it needs to
make further enquiries for the purpose of revealing those material circumstances. 741 Note that the
Insurance Act 2015 came into force and the Marine Insurance Act 1906 was repealed in August 2016.
Page 2
Materiality
7-160
At common law, a circumstance is material if it “would influence the judgment of a prudent insurer in
fixing the premium, or determining whether he will take the risk”. This is the definition given in the
Marine Insurance Act 1906 s.18(2), and it was held in Locker and Woolf Ltd v Western Australian
Insurance Co Ltd 742 that the definition applies to all forms of insurance. In Pan Atlantic Insurance Co
Ltd v Pine Top Insurance Co Ltd 743 the House of Lords held that, for both marine insurance under
Marine Insurance Act 1906 s.18(2) and non-marine insurance, the test of materiality is not whether
the matter would have had a decisive effect on the prudent insurer’s decision whether to accept the
risk or at what premium, but whether it would have an effect on the mind of the prudent insurer in
weighing up the risk. 744 In St Paul Fire and Marine Insurance Co Ltd v McConnell Dowell
Constructors Ltd 745 it was held that a matter did not necessarily have to lead to an increase in the risk
in order to be material; it was sufficient that the risk was different. 746 But in the Pan Atlantic case the
House of Lords held that, in addition to being material, a misrepresentation or non-disclosure must
have induced the making of the policy. 747 In this respect, the law on insurance contracts is parallel to
the general law on positive misrepresentation. 748 Lord Mustill 749 refers to “a presumption in favour of
causative effect”, as there is in the case of a positive misrepresentation. 750 Note that the Insurance
Act 2015 came into force and the Marine Insurance Act 1906 was repealed in August 2016.
Materiality under Insurance Act 2015
7-161
The 2015 Act adopts the same approach. A circumstance or representation is material if it would
influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what
terms. 751 The insurer will have a remedy for breach of the duty of fair presentation only if the insurer
shows that, but for the breach, the insurer either (a) would not have entered into the contract of
insurance at all, or (b) would have done so only on different terms. Note that the Insurance Act 2015
came into force and the Marine Insurance Act 1906 was repealed in August 2016.
Duty on insurer to be abolished
7-162
Traditionally, the obligation to disclose material facts is mutual and a duty also rests on the insurer to
disclose all facts known to him which are material either to the nature of the risk sought to be covered
or to the recoverability of a claim under the policy. 752 In this case the test of materiality is whether the
fact not disclosed would be taken into account by a prudent insured in deciding whether to place the
risk with that insurer. 753 However, the Insurance Act 2015 provides only for fair presentation by the
insured 754 and any rule of law permitting a party to a contract to avoid it on the ground that utmost
good faith has not been observed by the other party will be abolished, 755 so that when the Act comes
into force the duty on the insured will disappear. The Law Commissions considered that the only
instances in which the duty on the insurer has or might have been invoked—the selling of worthless
policies—would be better dealt with by the Financial Services Authority or its successors) or the
Financial Ombudsman Service. 756 Note that the Insurance Act 2015 came into force and the Marine
7-163
The following have been held to be material facts and their non-disclosure made the contract in
question voidable: that goods were insured upon a voyage for an amount in excess of their value 757;
that the vessel itself was over-insured 758; that (in the particular circumstances of the case) the insured
under a policy of burglary insurance was an alien 759; that the insured had been convicted of robbery
12 years previously 760; that in relation to an insurance comparable to that sought previous claims had
been made. 761 On the other hand, certain details may on construction be held to be irrelevant, 762
Page 3
such as the place where a lorry was to be garaged. 763 A circumstance that is material for one type of
insurance is not necessarily material for another; for example, the fact that the risk has been refused
by another company is material in life, fire, accident and burglary insurance, but not in marine
insurance. 764 Whether a particular circumstance is material is a question of fact, and the opinion of
the assured on its materiality is irrelevant. 765 Note that the Insurance Act 2015 came into force and
the Marine Insurance Act 1906 was repealed in August 2016.
7-164
In marine insurance the duty to disclose is defined as follows:
“Subject to the provisions of this section, the assured must disclose to the insurer, before
the contract is concluded, every material circumstance which is known to the assured and
the assured is deemed to know every circumstance which, in the ordinary course of
business, ought to be known by him.” 766
In non-marine insurance the duty may extend only to facts actually known to the assured. 767 If so, he
is under no duty to disclose facts of which he is ignorant. A statement which is expressed to depend
on the assured’s state of mind will not be untrue simply because he was unaware of the true facts,
provided that his statement of belief was genuine. For instance, a statement by the assured that he is
in good health in relation to a proposed life policy will generally be construed to mean in good health
to his own knowledge, and the contract cannot be rescinded on proof that at the time of the contract
the assured’s state of health was not what he believed it to be. 768 If, however, he is aware of a fact
which a reasonable or prudent insurer might treat as material, he must disclose it; the test is not
whether a reasonable man would think it material. 769 Note that the Insurance Act 2015 came into
force and the Marine Insurance Act 1906 was repealed in August 2016.
Remedies for non-disclosure
7-165
Traditionally, the insurer’s remedy for breach of the duty of disclosure by the insured as been to
rescind (or “avoid”) the contract. 770 Under both the Consumer Insurance (Disclosure and
Representations) Act 2012 and the Insurance Act 2015, if the breach of the relevant duty by the
insured was deliberate or reckless, the insurer may avoid the policy and refuse all claims, and may
not have to return the premium 771; but in other cases the insurer may avoid the contract only if, in the
absence of the breach the insurer would not have entered the contract on any terms. 772 If the insurer
would have entered the contract but on different terms, then the contract is to be treated as if it
contained those terms 773; if at a different premium, then the insurer may reduce the amount paid on
the claim proportionately. 774 Note that the Insurance Act 2015 came into force and the Marine
“Basis of the contract”
7-166
Traditionally, the insurer’s remedies could be enlarged by the terms of the contract, and insurers
commonly provided that the declarations of the assured shall form the basis of the contract. In effect
this means that the assured “warrants” that the information which he supplies is correct, the penalty
for inaccuracy being the avoidance of the contract by the insurer. Thus the insurer may be discharged
from liability 775 if the assured fails to disclose even a non-material fact, 776 or a fact never within his
knowledge, or if he gives what has proved to be an inaccurate statement on a matter of opinion. 777
Where an attempt is made to enlarge the duty by the terms of the contract, the courts put a strict
burden of proof upon the insurer. 778 But this has not prevented the courts from holding that even
disclosure to a representative of the insurer is insufficient, if (as has in the past commonly been the
case with some forms of insurance) the proposal form declares that any person filling in the form is
Page 4
deemed to be the agent of the insured, and not of the insurer. 779 More recently, however, it has been
held that if the representative is authorised by the insurer to fill in the forms and then secure the
proposer’s signature thereto, he may be held to be the agent of the insurer. 780 Under both the
Consumer Insurance (Disclosure and Representations) Act 2012 781 and the Insurance Act 2015, 782 a
representation by the insured may not be converted into a warranty by means of a “basis of the
contract” clause or any other provision of the insurance contract or any other contract. Note that the
Insurance Act 2015 came into force and the Marine Insurance Act 1906 was repealed in August 2016.
Burden of proof
7-167
With regard to the burden of proof generally, the insurer must produce evidence to show
non-disclosure, unless there is prima facie evidence of concealment. In that case the burden is on the
assured to prove disclosure. 783 Similarly, under the new legislation it appears to be for the insurer to
show that the consumer insured has made a careless misrepresentation 784 or that the non-consumer
insured is in breach of the duty to make a fair presentation of the risk. 785 In each case it is provided
expressly that it for the insurer to show that a breach by the insured was deliberate or reckless. 786
Note that the Insurance Act 2015 came into force and the Marine Insurance Act 1906 was repealed in
August 2016.
Continuing duty
7-168
The duty to disclose continues until the contract is concluded. Thus if before the acceptance of the
proposal a new material fact arises, or a fact thought to be non-material becomes material, this must
be disclosed. 787 Neither of the new Acts addresses this point; presumably what matters is whether
any statement made by a consumer insured was inaccurate, or that the presentation made by a
non-consumer insured was fair, at the time that the contract as concluded. Note that the Insurance
Act 2015 came into force and the Marine Insurance Act 1906 was repealed in August 2016.
732. See Hasson (1969) 32 M.L.R. 615 and Vol.II, paras 42-033 et seq.
733. See Carter v Boehm (1766) 3 Burr. 1905, 1909; London Assurance Co v Mansel (1879) 11 Ch.
D. 363, 367.
734. A contract of marine insurance appears to be based on an implied condition that there is no
misrepresentation or concealment: Blackburn v Vigors (1886) 17 Q.B.D. 552, 561, 562;
Pickersgill v London and Provincial Marine and General Insurance Co [1912] 3 K.B. 614, 621.
The duty of disclosure in non-marine insurance, on the other hand, is said to rest on a common
law, and not on a contractual duty: Joel v Law Union and Crown Insurance Co [1908] 2 K.B.
863, 886; Merchants and Manufacturers Insurance Co v Hunt and Thorne [1941] 1 K.B. 295,
313. But see Moens v Hayworth (1842) 10 M. & W. 147, 157. It is otherwise of course if the
common law obligation is superseded by a term in the contract itself.
735. Insurance Act 2015 ss.22 and 23. Pt 2 (which includes the duty to make a fair presentation) will
apply also to subsequent variations of contracts made at any time: s.22(1)(b).
736. An account of the FSA Regulations and the FOS practice will be found in Law Commission,
Joint Consultation Paper, Insurance Contract Law: Misrepresentation, Non-disclosure and
Breach of Warranty by the Insured (LCCP 182, SLCDP 134, 2007) paras 3.5–3.54. The FOS
Page 5
applies the same approach in favour of some small business: para.5.165.
737. The Act came into force on April 6, 2013: SI 2013/450. Proposals for reform of the law were
made by the Law Commission in 1980, see Law Com. No.104, Cmnd.8064 (1980). They were
not implemented. The Law Commission for England and Wales and the Scottish Law
Commission have taken the matter up again. The Consumer Insurance (Disclosure and
Representations) Act 2012 implemented their joint report, Consumer Insurance Law:
Pre-Contract Disclosure and Misrepresentation (Law Com. No.319, Scot. Law Com. No.219,
2009). For their consultation paper and report on non-consumer insurance, see below,
para.7-159 n.716.
738. s.2. See further below, para.42-046.
739. For a detailed explanation, see below, Vol.II, paras 42-051 et seq. The Act implements in part
further recommendations by the Law Commissions: see Insurance Contract Law: The Business
Insured’s Duty of Disclosure and the Law of Warranties (Law Com. Consultation Paper No.204,
Scot. Law Com. Consultation Paper No.155, 2012) and Insurance Contract Law: Business
Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment (Law
Com Report No.353, Scot Law Com Report No.238, 2014).
740. Insurance Act 2015 s.3(1).
741. s.3(4). Section 3(5) creates a number of exceptions for example for information that the insurer
knows, ought to know or is presumed to know. Sections 4, 5 and 6 set out what the insured and
the insurer know or ought to know.
742. [1936] 1 K.B. 408, 415. This was also the test applied in Lambert v Co-operative Insurance
Society Ltd [1975] 2 Lloyd’s Rep. 485.
743. [1995] 1 A.C. 501.
744. See further below, Vol.II, para.42-034.
745. [1996] 1 All E.R. 96.
746. [1996] 1 All E.R. 96, 107.
747. [1995] 1 A.C. 501, 549–550.
749. [1995] 1 A.C. 501, 542.
750. See above, para.7-038 n.200; and also St Paul Fire and Marine Insurance Co Ltd v McConnell
Dowell Constructors Ltd [1996] 1 All E.R. 96, 112.
751. Insurance Act 2015 s.7(3). See further below, para.42-053.
752. Carter v Boehm (1766) 3 Burr. 1905; Banque Keyser Ullman SA v Skandia (UK) Insurance Co
Ltd [1990] 1 Q.B. 665, 770–772, affirmed on other grounds but without disapproval of this
statement of principle, [1991] 2 A.C. 249.
753. [1990] 1 Q.B. 665, 772.
754. Insurance Act 2015 s.3, see above, para.7-159.
755. Insurance Act 2015 s.14(1), see above, para.7-155 n.691.
756. Report No.353, para.30–34.

Page 6
757. Ionides v Pender (1874) L.R. 9 Q.B. 531; Gooding v White (1913) 29 T.L.R. 312.
758. Thames and Mersey Marine Insurance Co v Gunford Ship Co Ltd [1911] A.C. 529.
759. Horne v Poland [1922] 2 K.B. 364. But cf. Associated Oil Carriers Ltd v Union Insurance Society
[1917] 2 K.B. 184.
760. Woolcott v Sun Alliance & London Insurance Ltd [1978] 1 W.L.R. 493; contrast Reynolds and
Anderson v Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep. 440 (mere allegation of fraud
need not be disclosed). Note the effect of the Rehabilitation of Offenders Act 1974 on cases of
this kind, see s.4(2) and (3).
761. Farra v Hetherington (1931) 47 T.L.R. 465.
762. Perrins v Marine Insurance Society (1859) 2 E. & E. 317.
763. Dawsons Ltd v Bonnin [1922] 2 A.C. 413.
764. London Assurance Co v Mansel (1879) 11 Ch. D. 363; Yager v Guardian Assurance Co (1912)
29 T.L.R. 53; Glicksman v Lancashire and General Assurance Co [1927] A.C. 139; Holts’
Motors v South East Lancashire Insurance Co (1930) 35 Com. Cas. 281; Locker and Woolf Ltd
v Western Australian Insurance Co [1936] 1 K.B. 408.
765. Lindenau v Desborough (1828) 8 B. & C. 586, 592; London Assurance Co v Mansel (1879) 11
Ch. D. 363; Joel v Law Union and Crown Insurance Co [1908] 2 K.B. 863, 884; Godfrey v
Britannic Assurance Co Ltd [1963] 2 Lloyd’s Rep. 515; Lambert v Co-operative Insurance
Society Ltd [1975] 2 Lloyd’s Rep. 485.
766. Marine Insurance Act 1906 s.18(1). On the interpretation of this section see PCW Syndicates v
PCW Reinsurers [1996] 1 W.L.R. 1136.
767. Blackburn, Low & Co v Vigors (1887) 12 App. Cas. 531 (a marine insurance case before the
Marine Insurance Act 1906); Joel v Law Union and Crown Insurance Co [1908] 2 K.B. 863,
884–885. In the Economides v Commercial Union Assurance Co Plc [1998] Q.B. 587 it was
held that an insured who is not acting in the course of business has only to disclose material
facts actually known to him; provided that he did not wilfully shut his eyes to the truth (so-called
“Nelsonian blindness”), he is not under a duty to inquire further, for example by checking that
his honest belief in the value of the property is in fact accurate. But see Vol.II, para.42-038.
768. Wheelton v Hardisty (1857) 8 E. & B. 232. But see Macdonald v Law Union Insurance Co
(1874) L.R. 9 Q.B. 328.
769. Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd’s Rep. 485.
771. Consumer Insurance (Disclosure and Representations) Act 2012 Sch.1 para.2 (the premium
must be returned to the extent that it would be unfair to the insured to retain it: para.2(b));
Insurance Act 2015 Sch.1 para.2 (no return of premium: para.2(b)).
772. Consumer Insurance (Disclosure and Representations) Act 2012 Sch.1 para.5; Insurance Act
2015 Sch.1 para.4. In each case the premium must be returned.
773. Consumer Insurance (Disclosure and Representations) Act 2012 Sch.1 para.5; Insurance Act
2015 Sch.1 para.6.
774. Consumer Insurance (Disclosure and Representations) Act 2012 Sch.1 paras 7–8; Insurance
Act 2015 Sch.1 paras 5–6.
775. See Bank of Nova Scotia v Hellenic Mutual War Risks (The Good Luck) [1992] 1 A.C. 233,
Page 7
263–4. The insurer may waive the breach and affirm the contract: Marine Insurance Act 1906
s.34(3).
776. Anderson v Fitzgerald (1853) 4 H.L.C. 484; Condogianis v Guardian Assurance Co [1921] 2
A.C. 125; Dawsons Ltd v Bonnin [1922] 2 A.C. 413. See Vol.II, para.42-044.
777. It was seen earlier (above, para.7-116) that it is not clear whether s.2(2) of the
Misrepresentation Act enables a court to refuse to allow rescission for misrepresentation where
the statement in question was later incorporated as a term of the contract. If it did have this
effect, the totally unexpected result might follow, that an insurer might no longer be able to
repudiate liability for an immaterial misrepresentation, or for a material misrepresentation which
had no bearing on the risk which has occurred, even where the insured’s statement formed part
of the basis of the contract. But this is not generally thought to be the result of the 1967 Act (see
Hudson (1969) 85 L.Q.R. 524); and in any event it is very unlikely that the court would exercise
its jurisdiction to prevent an insurer rescinding on the ground of misrepresentation by the
insured (see above, para.7-110).
778. Anderson v Fitzgerald (1853) 4 H.L.C. 484; Joel v Law Union and Crown Insurance Co [1908] 2
K.B. 863; Anstey v British National Premium Life Association Ltd (1908) 99 L.T. 765.
779. Newsholme Brothers v Road Transport and General Insurance Co Ltd [1929] 2 K.B. 356; Facer
v Vehicle & General Insurance Co Ltd [1965] 1 Lloyd’s Rep. 113. Contra, Bawden v London,
Edinburgh and Glasgow Assurance Co Ltd [1892] 2 Q.B. 534; this case was treated as virtually
overruled by the Newsholme Bros case in the Facer case but now seems to have been
rehabilitated by Stone v Reliance Mutual Insurance Society Ltd [1972] 1 Lloyd’s Rep. 469. Such
a clause might well be caught by Unfair Terms in Consumer Contracts Regulations 1999.
780. Stone v Reliance Mutual Insurance Society Ltd [1972] 1 Lloyd’s Rep. 469; see also Maye v
Colonial Mutual Life Assurance Society Ltd (1924) 35 C.L.R. 14.
781. Consumer Insurance (Disclosure and Representations) Act 2012 s.6. Again, the practical effect
of such warranties had been severely restricted in cases of consumer insurance by the FSA
Regulations and the requirements of the Financial Ombudsman Service: see above, para.7-157
n.713.
782. Insurance Act 2015 s.9(2). Section 10 alters the remedies for breach of warranty for all types of
insurance (see below, Vol.II, para.42-089).
783. Glicksman v Lancashire and General Assurance Co [1925] 2 K.B. 593, [1927] A.C. 139.
784. Consumer Insurance (Disclosure and Representations) Act 2012 s.2(2)
785. Insurance Act 2015 s.2.
786. Consumer Insurance (Disclosure and Representations) Act 2012 s.5(4); Insurance Act 2015
s.8(4). If the breach was careless or reckless, the insurer may have remedies that are not
otherwise available: see above, para.7-165.
787. Allis Chalmers Co v Maryland Fidelity and Deposit Co (1916) 114 L.T. 433; Looker v Law Union
and Rock Insurance Co [1928] 1 K.B. 554; cf. Blackley v National Mutual Life Association of
Australasia Ltd [1972] N.Z.L.R. 1038. See Vol.II, para.42-037.

Page 1

(b) - Contracts to take Shares in Companies
Companies
7-169
Contracts to take shares in companies might be classified as uberrimae fidei because again the
knowledge of the material facts lies with one party alone, namely, the promoters, directors and others
responsible for the issue of the prospectus. It was long ago recognised that invitations to invest, made
through a prospectus, could lead to much enrichment of individuals at the public expense, and at
least from promoters the utmost good faith was required. 788 In time the legislature intervened to
protect the public and to supplement the common law. The present position is governed by Financial
Services and Markets Act 2000 ss.80 and 81. 789 The legislation requires the disclosure of
specified matters, and render those responsible liable in damages to anyone who has acquired
securities to which the legislation applies, 790 and who has suffered loss as the result of the omission
from the prospectus or, in the case listing particulars, the particulars, of any matter that should have
been included. 791 However, mere disclosure does not of itself give a right to rescission. 792 It is
this fact which provokes the doubt as to whether contracts to take shares in companies are properly
classified as contracts uberrimae fidei. However, if failure to disclose makes the prospectus
misleading by falsifying that which is stated, there is a remedy as for positive misrepresentation. 793
With regard to misrepresentations as distinct from non-disclosures, an untrue statement in the
prospectus which has induced a person to subscribe for shares does of course give that person the
right to rescind the contract, provided that he acts promptly and before winding-up proceedings have
begun. 794
7-170
The position of the promoters is also regulated by the common law. They have a fiduciary relationship
with the company, and the rule is that they must not make a secret profit at its expense. 795 They are
under a duty to disclose either to an independent board of directors, or to the intended shareholders,
for instance by making a disclosure in the prospectus, any profit made by them on a sale of property
to the company. A breach of this duty entitles the company to sue the promoters for damages, or to
recover the profit 796 or to rescind the contract. 797
788. Erlanger v New Sombrero Phosphate Co (1878) 3 App. Cas. 1218.

Page 2
789.
See generally, Gower & Davies, Principles of Modern Company Law, 10th edn (2016), paras
25-8 to 25-43; Cartwright, Misrepresentation, Mistake and Non-disclosure, 4th edn (2016),
para.17-53 et seq.
790. Thus investors who have bought on the market after dealing has commenced are now
protected.
791. Financial Services and Markets Act 2000 s.90(1). Note that s.90(1) is without prejudice to any
liability which may be incurred apart from the section or regulation: s.90(6). These provisions
stem ultimately from the Directors Liability Act 1890, which was passed to reverse the effect of
Derry v Peek (1889) 14 App. Cas. 337, so far as it applied to prospectuses.
792.
Gower & Davies, Principles of Modern Company Law, 10th edn (2016), para.25-39.
793. See Central Ry of Venezuela v Kisch (1867) L.R. 2 H.L. 99.
794. Further, a shareholder may rescind if misrepresentations are made in a document issued by the
promoters before the company is formed: Karberg’s Case [1892] 3 Ch. 1.
795. Erlanger v New Phosphate Co (1878) 3 App. Cas. 1218; Lagunas Nitrate Co v Lagunas
Syndicate [1899] 2 Ch. 392; Re Leeds and Hanley Theatre of Varieties [1902] 2 Ch. 809; see
also below, para.10-054.
796. Gluckstein v Barnes [1900] A.C. 240.
797. Erlanger v New Sombrero Phosphate Co (1878) 3 App. Cas. 1218 (provided of course that
restitutio in integrum is still possible).

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(c) - Family Settlements
Family settlements
7-171
In these and in negotiations for these there must not only be an absence of misrepresentation but a
full communication of all material facts known to the parties. Any failure to disclose may be a ground
for setting aside the settlement, and it is immaterial that information was withheld because of a
mistaken opinion as to its accuracy or importance. In Gordon v Gordon 798 a division of property,
based on the assumption that the eldest son was illegitimate, was set aside after 19 years on proof
that the younger son had withheld knowledge of a marriage ceremony that had taken place between
his parents before the birth of his brother. Lord Eldon said that “whether the omission of disclosure
originated in design, or in honest opinion of the invalidity of the ceremony”, 799 the agreement could
not stand. On the other hand, in Wales v Wadham 800 it was held that a wife was under no duty to
disclose to her husband, when they were negotiating for a financial settlement to be embodied in a
consent order after divorce, that she intended to remarry. In the particular circumstances of the case,
the parties had been negotiating a compromise on the basis that neither party was required to make a
full disclosure. However, Wales v Wadham was overruled so far as it related to disclosure in
proceedings for financial relief by the House of Lords in Livesey v Jenkins. 801 This held that the
relevant statutory provisions required a court exercising jurisdiction to make financial provision or
property adjustment between spouses to be placed in full possession of the facts, so that each side
must make full disclosure. 802 These decisions leave it uncertain whether the common law today
recognises family settlements as contracts uberrimae fidei.
798. (1816–19) 3 Swans. 400; see also Fane v Fane (1875) L.R. 20 Eq. 698.
799. (1816–19) 3 Swans. 400, 477.
800. [1977] 1 W.L.R. 199.
801. [1985] A.C. 424. See above, para.7-022 n.116.
802. Matrimonial Causes Act 1973 s.25, now replaced by Matrimonial and Family Proceedings Act
1984 s.3.

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(d) - Contracts for the Sale of Land
Sales of land
7-172
Contracts for the sale of land are not uberrimae fidei in the sense that the vendor has to make to the
purchaser a full disclosure of all material facts. 803 In the absence of actual misrepresentation 804 the
general rule is caveat emptor. But certain qualifications must be made because the vendor is under a
duty to disclose defects relating to title. Every material defect in the vendor’s title must be disclosed,
because if the title is in fact defective the vendor will be unable to perform his contract in the absence
of a condition that the purchaser should accept a defective title. In consequence, if any such defect is
not disclosed the purchaser may rescind the contract or resist a suit for specific performance. But it
has been persuasively argued that there is in addition a duty on the vendor to disclose all latent
defects in his title, since if an undisclosed latent defect appears the purchaser may apparently
terminate the contract without waiting to see whether the vendor will be able to remove the defect
before the date for completion. 805 However, as it appears that all defects must be revealed whether
known to the vendor or not, and that if a latent defect is not revealed the purchaser may recover
damages for breach of contract, it seems that the duty must be based on an implied term of the
contract. 806
7-173
It seems that any fact which will prevent the purchaser from obtaining such a title as he was led to
expect may constitute a defect in title. 807 So where the subject of the sale was a leasehold interest,
and the lease contained onerous and unusual covenants which were not disclosed by the vendor, the
purchaser was held to be entitled to rescind the contract. 808 It has also been suggested that a tenant
who is selling his leasehold interest is bound to disclose receipt of notice from his landlord of an
intention to proceed under a rent review clause. 809 A purchaser may, of course, contract to accept a
defective title, but even an express agreement to this effect will not (it seems) save the vendor where
he fails to disclose defects known to him. 810 A purchaser is not obliged to disclose any information he
may have which may affect the value of the property; but it has been held that a purchaser who
applies for planning permission in the name of the vendor prior to the exchange of contracts is acting
as a self-appointed agent, and may thereby come under fiduciary duties to the vendor. 811
803. It had been intended that vendors (or their estate agents) of larger types of residential property
would be required to provide on request a “Home Information Pack” including a “home condition
report” prepared by a home inspector, but the relevant legislation has now been repealed; see
Page 2
above, para.7-101.
804. See Dyster v Randall [1926] Ch. 932.
805. Harpum (1992) 108 L.Q.R. 208, relying on, inter alia, Carlish v Salt [1906] 1 Ch. 355 and Reeve
v Berridge (1888) 20 Q.B.D. 423. The existence of such a duty was accepted by at least the
majority of the Court of Appeal in Peyman v Lanjani [1985] Ch. 457, 482, 496–497.
806. Harpum (1992) 108 L.Q.R. 208, 332–333.
807. But see Re Flynn and Newman’s Contract [1948] Ir.R. 104.
808. Molyneux v Hawtrey [1903] 2 K.B. 487.
809. F. & H. Entertainments Ltd v Leisure Enterprises Ltd (1976) 120 S.J. 331.
810. Becker v Partridge [1966] 2 Q.B. 155.
811. English v Dedham Vale Properties Ltd [1978] 1 W.L.R. 93; Rignall Developments Ltd v Halil
[1988] Ch. 190.

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(e) - Contracts of Suretyship
Suretyship or insurance 812
7-174
It seems that contracts of suretyship are not contracts uberrimae fidei properly so-called, although
they are sometimes said to bear certain characteristics of that class. One difficulty is that it may be a
matter for doubt whether a given contract is one of suretyship or of insurance. In Seaton v Heath 813
Romer L.J. said that many contracts may with equal propriety be called contracts of insurance or
contracts of suretyship, and that whether a contract requires uberrima fides or not depends not upon
what it is called, but upon its substantial character and how it came to be effected. Commercial
sureties, at least, are generally persons who know the risk they undertake without it being explained
to them, and who if they do not know it, would make inquiry on the subject; in contracts of insurance,
on the other hand, the person desiring to be insured has means of knowledge of the risk which the
insurer does not possess, and he puts the risk before the insurer as a business proposition.
7-175
The position seems to be that while a contract of insurance has traditionally required a full disclosure
of all material facts, a contract of suretyship does not. 814 Thus it has been held that a bank was under
no duty to disclose to the guarantor of a customer’s overdrawn account suspicions that the customer
was defrauding him. 815 On the other hand, it seems that there is a limited duty of disclosure even in
contracts of suretyship, though the nature and scope of this limited duty are hard to define. In Levett v
Barclays Bank Plc 816 it was held that there is a duty to disclose to the surety any unusual feature of
the contract between the principal debtor and the creditor which makes it materially different in a
potentially disadvantageous respect from what the surety might naturally expect. In Crédit Lyonnais
Bank Nederland v Export Credit Guarantee Department 817 it was held that any duty to disclose
unusual features only applied to unusual features of the transaction itself, not to unusual features of
the risk; and it did not extend to matters of which the bank had no knowledge, even if what it knew
might have led it to make further enquiries. However, where a person guaranteed the honesty of a
servant to an employer, who knew but did not disclose the fact that the servant had previously been
dishonest while in his employment, the bond was held to be unenforceable when the servant
subsequently committed a further act of dishonesty. 818 In North Shore Ventures Ltd v Anstead
Holdings Inc 819 the Chancellor (Sir Andrew Morritt) said that the cases establish the following
propositions:
“(1)
the creditor is obliged to disclose to the surety any contract or other dealing
between creditor and debtor so as to change the position of the debtor from what
the surety might naturally expect, but
Page 2
(2)
the creditor is not obliged to disclose to the surety other matters relating to the
debtor which might be material for the surety to know.” 820
But if the duty of disclosure has arisen because the feature of the transaction to be guaranteed is
“unusual”, the creditor is not absolved from his duty of disclosure because he reasonably believes
that the surety knows of it already. 821
Sureties given to banks on a non-commercial basis
7-176
It should be noted that the law which was developed to protect “surety wives” (principally wives who
guarantee the debts of their husband’s business), and which now apply to any guarantee to a bank
given on a non-commercial basis 822 may have the practical effect of requiring the bank to disclose
information to the surety. These rules are discussed in Ch.8. 823
Binding authority to issue insurance
7-177
It has been suggested that an obligation to point out unusual facts, similar to that which appears to
apply to suretyship, 824 may apply to a binding authority to issue insurance, so that unusual features of
the coverholder to whom the authority is to be given should be pointed out. 825
813. [1899] 1 Q.B. 782, 792–793.
814. North British Insurance Co v Lloyd (1854) 10 Ex. 523; Lee v Jones (1864) 17 C.B.(N.S.) 482;
Geest Plc v Fyffes Plc [1999] 1 All E.R. (Comm) 672; below, paras 45-036 et seq.
815. National Provincial Bank v Glanusk [1913] 3 K.B. 335; see also Royal Bank of Scotland v
Greenshields (1914) S.C. 259; Cooper v National Provincial Bank [1946] K.B. 1.
816. [1995] 1 W.L.R. 1260.
817. [1996] 1 Lloyd’s Rep. 200; affirmed on other grounds [2000] 1 A.C. 486.
818. London General Omnibus Co v Holloway [1912] 2 K.B. 72; see also Phillips v Foxall (1872) L.R.
7 Q.B. 666. For further discussion of these points see Vol.II, para.45-036.
819. North Shore Ventures Ltd v Anstead Holdings Inc [2011] EWCA Civ 230, [2012] Ch. 31. At first
instance it had been held that the duty extends to facts that the surety would expect not to exist,
so the creditor should disclose the fact that the debtor has been fraudulent ([2010] EWHC 1485
(Ch) at [119]–[123], referring to statements by Vaughan Williams L.J. in London General
Omnibus Co v Holloway [1912] 2 K.B. 72, 79 which had been cited with approval by the Privy
Page 3
Council in Estate of Imorette Palmer (decd) v Cornerstone Investments & Finance Co Ltd
[2007] UKPC 49 at [40]). The decision was reversed by the Court of Appeal, which held that
Vaughan Williams L.J. had not widened the existing law (at [27] and [57]).
820. [2011] EWCA Civ 230 at [14].
821. [2011] EWCA Civ 230 at [37]. For further discussion of this case see below, para.45-036.
823. See below, paras 8-108—8-122.
824. See para.7-175.
825. Pryke v Gibbs Hartley Cooper Ltd [1991] 1 Lloyd’s Rep. 602, 616.

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(f) - Partnership Agreements
Partnership
7-178
The fundamental duty of every partner is to show the utmost good faith in his dealings with the other
partners. In Conlon v Simms, the Court of Appeal held that in negotiating a partnership agreement:
“… a party owes a duty to the other negotiating parties to disclose all material facts of
which he has knowledge and of which the other negotiating parties may not be aware.” 826
The duty of good faith applies during the continuance of the partnership, and during the winding up
after dissolution. The duties of partners are regulated for the most part, in the absence of agreement
to the contrary, by the Partnership Act 1890; and although the principle requiring the utmost good
faith is not expressly enunciated by the Act, it is embodied in ss.28, 29 and 30. Thus a partner must
account for any private profit made by him; so for instance, if a partner is buying from or selling to the
firm, he cannot do either at a profit to himself. 827
Analogous agreements
7-179
A duty of disclosure may arise as an implied term of an agreement which is not a partnership but
which has “elements of joint enterprise or joint venture”, but:
“… wider duties will not lightly be implied, in particular in commercial contracts negotiated
at arms’ length between parties with comparable bargaining power, and all the more so
where the contract in question sets out in detail the extent, for example, of a party’s
disclosure obligations.” 828
826. [2006] EWCA Civ 1749, [2008] 1 W.L.R. 484 at [127], relying on a dictum of Lord Atkin in Bell v
Page 2
Lever Bros [1932] A.C. 161 at 227 HL.
827. Bentley v Craven (1853) 18 Beav. 75; Dunne v English (1874) L.R. 18 Eq. 524.
828. Ross River Ltd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch), [2008] 1 All E.R.
1004 at [197] (Briggs J.). A duty of disclosure was found to exist in Banwaitt v Dewji [2013]
EWHC 879 (QB), see at [72].

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(g) - General Releases
General releases
7-180
In Bank of Credit and Commerce International SA (In Liquidation) v Ali (No.1) 829 Lord Nicholls said
that where the party to whom a general release was given knew that the other party has or might
have a claim and knew that the other party was ignorant of this, to take the release without disclosing
the existence of the claim or possible claim could be unacceptable sharp practice. The law would be
defective if it did not provide a remedy, and while the case did not raise the issue, he had no doubt
that the law would provide a remedy. 830 Lord Hoffmann agreed:
“There are different ways in which it can be put. One may say, for example, that inviting a
person to enter into a release in general terms implies a representation that one is not
aware of any specific claims which the other party may not know about. That would
preserve the purity of the principle that there is no positive duty of disclosure. Or one
could say, as the old Chancery judges did, that reliance upon such a release is against
conscience when the beneficiary has been guilty of a suppressio veri or suggestio falsi.
… a person cannot be allowed to rely upon a release in general terms if he knew that the
other party had a claim and knew that the other party was not aware that he had a claim.
I do not propose any wider principle: there is obviously room in the dealings of the market
for legitimately taking advantage of the known ignorance of the other party. But, both on
principle and authority, I think that a release of rights is a situation in which the court
should not allow a party to do so. On the other hand, if the context shows that the parties
intended a general release for good consideration of rights unknown to both of them, I
can see nothing unfair in such a transaction.” 831
Whatever the basis on which this is to be explained, it would amount to creating a duty on a party
negotiating for a general release to disclose a claim that he knows the other has or may have and
which he knows the other is not aware of.
829. [2001] UKHL 8, [2002] 1 A.C. 251, in which the House of Lords held that a general release was
not effective to release a claim for “stigma” damages that neither party could have known about
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830. [2001] UKHL 8 at [32]–[33]. Lord Bingham preferred not to address this question (at [20]), and
so it seems did Lord Clyde (at [87]).
831. [2001] UKHL 8 at [69]–[70].

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(h) - Fiduciary Relationships and Relationships of Trust and Confidence
7-181
The existence of a fiduciary relationship 832 or a relationship of trust and confidence 833 between the
parties may also have the effect of requiring the trusted party to disclose information to the other.
Disclosure when there is a relationship of trust and confidence is dealt with in Ch.8. 834
833. See below, paras 8-075—8-089.

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Chapter 8 - Duress and Undue Influence 1
Scope of chapter
8-001
This chapter deals with three further grounds on which a contract may be avoided: duress, undue
influence and unconscionable dealing. In outline, a party may be able to avoid a contract for duress
where he or she entered it because of a wrongful or illegitimate threat or other form of pressure 2 by
the other party, normally because the threat or pressure left him or her with no practical alternative. 3
A contract may be voidable for undue influence where one party was subjected to pressure by the
other or, more usually, where the other took advantage of the first party’s trust and confidence. 4
Unconscionable dealing occurs where one party deliberately exploits the other’s ignorance or weak
position to obtain the other’s agreement to a contract which is substantively unfair. 5 We will see that
there may be some overlap between the three grounds. In particular, some cases that were decided
on the basis of undue influence are now better regarded as examples of the more recently-developed
“economic” duress, 6 while other cases may involve both undue influence and unconscionable
dealing. 7
Unfair Commercial Practices
8-002
The Unfair Commercial Practices Directive 8 requires Member States to prohibit, and to provide
“adequate and effective” means to combat, unfair commercial practices. These include “aggressive”
commercial practices, which are defined thus:
“A commercial practice shall be regarded as aggressive if, in its factual context, taking
account of all its features and circumstances, by harassment, coercion, including the use
of physical force, or undue influence, it significantly impairs or is likely to significantly
impair the average consumer’s freedom of choice or conduct with regard to the product
and thereby causes him or is likely to cause him to take a transactional decision that he
would not have taken otherwise.” 9
However unfair commercial practices within the meaning of the Directive will not necessarily give rise
to civil remedies for individual consumers, as the Directive is “without prejudice to contract law and, in
particular, to the rules of validity, formation or effect of a contract”. 10 Accordingly the Regulations
made in 2008 11 to implement the Directive prohibit unfair commercial practices, but originally
provided that an agreement shall not be void or unenforceable by reason only of a breach of the
Regulations. 12 The question of whether a remedy for unfair commercial practices should be given to
individual consumers was referred to the Law Commissions, which concluded that consumers who
are the victims of misleading 13 or aggressive practice by a trader should have a civil law remedy. 14
While in some cases a consumer who has been the victim of an aggressive practice might have a
remedy under the general law of duress, undue influence or unconscionable dealing, or may have (for
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off-premises sales) a right to cancel, 15 and while the Protection from Harassment Act 1997 will
sometimes provide protection, 16 there was no effective remedy for many kinds of aggressive practice,
in particular for many kinds of high-pressure selling. 17 The remedies should include the right to
“unwind the contract” if the consumer acts quickly or, if the consumer waits more than three months
or the goods or services supplied have been fully consumed, the right to a “discount”; and damages
for further loss unless the trader can show that it used due diligence. Other common law and statutory
remedies should not be affected. The Law Commission’s recommendations have now been
implemented by the Consumer Protection (Amendment) Regulations 2014, 18 which amend the
Consumer Protection from Unfair Trading Regulations 2008. The amendments apply to any contract
made on or after October 1, 2014. The new remedies are explained in Vol.II, Ch.38. 19
1. See Cartwright, Unequal Bargaining (1991), Part III; N. Enonchong, Duress, Undue Influence
and Unconscionable Dealing (2006).
2. See below, paras 8-010—8–011.
8. Directive 2005/29 on unfair commercial practices [2005] O.J. L149/22. A useful summary of the
Directive and its impact can be found in Twigg-Flesner (2005) 121 L.Q.R. 386.
9. Directive 2005/29 art.8.
10. Directive 2005/29 art.3(1).
11. Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) and Business
Protection from Misleading Marketing Regulations 2008 (SI 2008/1276).
12. Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) reg.29; Business
Protection from Misleading Marketing Regulations 2008 (SI 2008/1276) reg.29.
13. On misleading practices see above, paras 7-002 and Vol.II, paras 38–164 et seq.
14. Law Commission and Scottish Law Commission Report: Consumer Redress for Misleading and
Aggressive Practices (Law Com. No.332, Scot Law Com. No.226 (2012)).
15. See below, Vol.II paras 38–107 et seq. The Law Commissions considered that the withdrawal
period is often too short for vulnerable consumers to take action: Report, para.3.50.
16. The Law Commission pointed out that this “does not usually apply to one-off incidents”: Report,
para.3.51.
17. Report, para.3.72.
18. SI 2014/870.
19. See below, Vol.II, paras 38–164 et seq.

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Section 2 - Duress 20
(a) - Introduction
Introductory
8-003
A contract which has been entered as the result of duress may be avoided by the party who was
threatened. It has long been recognised that a threat to the victim’s person may amount to duress 21;
it is now established that the same is true of wrongful threats to his property, including threats to seize
his goods, 22 and of wrongful or illegitimate threats to his economic interests, 23 at least where the
victim has no practical alternative but to submit. 24 In each case, the wrongful or illegitimate threat
must have had some causal effect on his decision to enter the contract, but the causal requirements
may differ between the various kinds of duress. 25
20. Burrows, Law of Restitution, 3rd edn (2011), Ch.5; Goff and Jones, Law of Unjust Enrichment,
9th edn (2016), Ch.10; Virgo, Principles of the Law of Restitution, 3rd edn (2015), pp.192–218.
22. Below, paras 8-013—8–014.
25. Below, paras 8-025—8–037.

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(b) - Nature of Duress
Basis of law relating to duress
8-004
It was at one time common to treat the legal rules relating to duress (and frequently also the equitable
rules relating to undue influence) as resting on the absence of consent. A party who was subject to
duress, or even undue influence, was often said to have had his will “overborne” so that he was
incapable of making a free choice, or even of acting voluntarily. Most of the older cases cited in this
chapter rest on this assumption; and even many modern decisions use the same kind of language. 26
But the basis of the law relating to these topics has been reconsidered in light of the speeches in the
House of Lords in Lynch v D.P.P. of Northern Ireland. 27 This case was concerned with the defence of
duress in the criminal law, and there are no doubt important differences between the civil and the
criminal law on what can constitute duress; but the case contains by far the most extensive analysis
of the juridical nature of duress in the law reports, and on this question, there appears to be no
difference between the criminal and the civil law. Indeed, two of their Lordships in this case
specifically relied upon the analogy of the law of contract. 28 All five members of the House of Lords in
Lynch’s case rejected the notion that duress deprives a person of his free choice, or makes his acts
non-voluntary. 29 Duress does not “overbear” the will, nor destroy it; it “deflects” it. 30 Duress does not
literally deprive the person affected of all choice; it leaves him with a choice between evils. 31 A
person acting under duress intends to do what he does; but does so unwillingly. 32 Lord Wilberforce
specifically stated that:
“… duress does not destroy the will, for example, to enter into a contract, but prevents the
law from accepting what has happened as a contract valid in law.” 33
Similarly, Lord Simon of Glaisdale said that in the law of contract:
“Duress again deflects without destroying, the will of one of the contracting parties. There
is still an intention on his part to contract in the apparently consensual terms; but there is
coactus volui on his side. The contrast is with non est factum. The contract procured by
duress is therefore not void: it is voidable—at the discretion of the party subject to
duress.” 34
8-005
Notwithstanding these clear declarations of principle, in several important decisions relating to
economic duress which post-date the Lynch decision the judges spoke of duress as negativing true
consent and rendering the coerced party’s actions non-voluntary. 35 For example, in Pao On v Lau Yiu
Page 2
Long 36 it was accepted by the Privy Council that economic duress might be recognised in principle by
the law, but it was insisted that:
“… the basis of such recognition is that it must amount to a coercion of will, which vitiates
consent. It must be shown that the payment made or the contract entered into was not a
voluntary act.” 37
However, in Universe Tankships of Monrovia v I.T.W.F., Lord Diplock said that the rationale was that
the party’s consent was induced by pressure which the law does not regard as legitimate with the
consequence that the consent is treated in law as revocable. 38 Similarly Lord Scarman, though
dissenting in the result, agreed that the real issue is whether there has been illegitimate pressure, the
practical effect of which is compulsion or absence of choice:
“The classic case of duress is, however, not the lack of will to submit but the victim’s
intentional submission arising from the realisation that there is no practical choice open to
him.” 39
Subsequent decisions have for the most part applied the test of whether the threat was illegitimate
and the victim had no practical choice. 40
Importance of basis of duress
8-006
No doubt in many circumstances the precise basis of duress will be immaterial; but in other
circumstances it will be a matter of the greatest importance. For, so long as the doctrine of duress is
treated as resting on an absence of consent or of a voluntary act, it would seem immaterial what has
caused the absence of consent, or the act to be involuntary. Duress would be a question of fact, and
not of law. Further, absence of consent would logically render a contract void and not voidable. It is
clear from Lynch’s case that all these propositions are inconsistent with the analysis of the nature of
duress in the speeches in the House of Lords. Because duress does not destroy the will or the
consent of the putative contracting parties, it is not possible to treat the issue as one of pure fact, nor
is it immaterial what caused the will to be deflected, or the consent to be distorted. Whether the threat
or pressure was illegitimate is a question of law. So, also, because duress does not truly deprive a
party of all choice, but only presents him with a choice between evils, it is not possible to inquire
simply whether the party relying on duress had “no choice”; the inquiry must necessarily be as to the
nature of the choices he was presented with, and in what respect the choices differed from those
ordinarily available in the market—where a person also has to choose, between paying the market
price and going without. The question whether the doctrine rests on the absence of consent or on the
use of illegitimate pressure may also affect questions of causation: on the latter approach, it may not
be necessary to show that the threat was an overwhelming cause of the victim entering the contract.
41
Analogy with fraud and mistake
8-007
Both in Lynch’s case and in Barton v Armstrong 42 the analogy with fraud and mistake has been relied
upon by the courts. Thus (as shown by the quotation from Lord Simon’s speech in Lynch ’s case,
above, para.8-004) duress renders a contract voidable rather than void; and in this respect it operates
like fraud, and not like non est factum. 43 No doubt there will be extreme cases of duress, as there are
extreme cases of fraud or mistake, in which non est factum is available as a plea and in which there is
a total absence of consent: for example, if one party seizes another’s hand, puts a pen in it and
physically forces the other’s hand to produce a signature. Equally, the gunman who actually helps
Page 3
himself to his victim’s wallet is stealing it against his victim’s consent, and in no sense obtaining it by
means of a coerced contract. But (artificial though the distinction may seem in such a case) the
gunman who demands and is given the wallet by the victim, is obtaining it by duress. As we will see,
the analogy with fraud was also used in Barton v Armstrong to justify the view that, at least in a case
of duress to the person, a contract entered into under duress may be avoided provided that the
duress had some effect on the mind of the party threatened, even if he might have entered the
contract anyway for other reasons. However, the contract will stand if it can be shown that the threat
had no effect on his mind at all. 44
Legitimacy of the pressure or threat
8-008
Once it is accepted that the basis of duress does not depend upon the absence of consent, but on
the combination of pressure and absence of practical choice, 45 it follows that two questions become
all important. 46 The first is whether the pressure or the threat is legitimate; the second, its effect on
the victim. 47
“The legitimacy of the pressure must be examined from two aspects: first, the nature of
the pressure and secondly, the nature of the demand which the pressure is applied to
support … Generally speaking, the threat of any form of unlawful action will be regarded
as illegitimate. On the other hand, that fact that the threat is lawful does not necessarily
make the pressure legitimate.” 48
Clearly not all pressure is illegitimate; nor even are all threats illegitimate. In ordinary commercial
activity, pressure and even threats are both commonplace and often perfectly proper. Indeed, in one
sense, all contracts are made under pressure: every offeror “threatens” that unless the offeree
accepts the terms offered, he will not get the benefit of whatever goods or services are on offer. We
shall see that the causal link between the pressure or threat and the victim’s action is also important,
49
but it cannot be said that the force or weight of the pressure or the threats is the decisive factor:
“… for in life, including the life of commerce and finance, many acts are done under
pressure, sometimes overwhelming pressure, so that one can say that the actor had no
choice but to act.” 50
It therefore becomes essential to distinguish between legitimate and illegitimate forms of pressure.
We shall see that whereas threats to the person and threats to commit a crime or tort are always
treated as illegitimate, 51 it is possible that in some circumstances a threat to break a contract if a
demand is not met may not be regarded as illegitimate, depending on the nature of the demand. 52
Conversely, a threat to carry out an action which in itself is lawful but which is coupled with an
illegitimate demand may constitute duress. 53
The effect of the threat
8-009
For a contract made after there has been a wrongful or illegitimate threat, the threat must have had
some causal effect on the victim’s decision to enter the contract. However, the causal requirements
differ between the various kinds of duress. 54 It is possible that in cases of “economic duress” there is
a separate requirement that the victim had no reasonable alternative to agreeing to the contract,
although an alternative interpretation is that the absence of a reasonable alternative is merely
evidence that the threat had the necessary causal effect. 55
Page 4
26. Even in Barton v Armstrong [1976] A.C. 104, 121, the dissenting speech of Lord Wilberforce
and Lord Simon refers to the defence of duress as resting on the absence of true consent; and
in several other modern cases courts have continued to use the same kind of language, see
Atiyah (1982) 98 L.Q.R. 197.
27. [1975] A.C. 653.
28. The same analysis of the nature of duress is almost universally adhered to in America. For an
early example, see Holmes J. in Union Pacific Ry Co v Public Service Commission of Missouri
(1918) 248 U.S. 67, 70.
29. Lynch v D.P.P. of Northern Ireland [1975] A.C. 653: Lord Morris of Borth-y-Gest at 670, 675;
Lord Wilberforce at 680; Lord Simon of Glaisdale at 690–691, 695; Lord Kilbrandon at 703; and
Lord Edmund-Davies at 709–711.
30. Lord Simon, [1975] A.C. 653, 695.
31. [1975] A.C. 653, 690–691.
32. [1975] A.C. 653, 670, Lord Morris.
33. [1975] A.C. 653, 680.
34. [1975] A.C. 653, 695.
35. See Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep. 293;
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] Q.B. 705; Pao On v Lau
Yiu Long [1980] A.C. 614; Universe Tankships of Monrovia Inc v I.T.W.F. [1983] 1 A.C. 366;
see also Syros Shipping Co v Elaghill Trading Co [1981] 3 All E.R. 189.
36. Above, and see below, para.8-017.
37. Pao On v Lau Yiu Long [1980] A.C. 614, 636.
38. [1983] 1 A.C. 366, 384.
39. [1983] 1 A.C. 366, 400.
40. e.g. B. & S. Contracts & Design Ltd v Victor Green Publications Ltd [1984] I.C.R. 419; Vantage
Navigation Corp v Suhail and Saud Bahwan Building Materials, The Alev [1989] 1 Lloyd’s Rep.
138. See Beatson, The Use and Abuse of Unjust Enrichment (1991), pp.109–117; and the
remarks of Lord Goff in Dimskal Shipping Co SA v ITWF [1992] 2 A.C. 152, 166, agreeing with
McHugh J.A. in Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19
N.S.W.L.R. 40, 45-46, that the “overbearing of the will” test is unhelpful.
41. See below, paras 8-025—8–037.
42. [1976] A.C. 104.
43. As to the defence non est factum, see above, paras 3–049—3–056. In Barton v Armstrong
[1976] A.C. 104 Lord Cross, speaking for the majority, referred to the deeds as void (at 120),
Page 5
but he had previously referred to “setting aside a disposition for duress” (at 118). The dissenting
minority seemed to consider that duress renders a contract voidable.
44. Below, para.8-026. There may, of course, be some issues on which the analogy with fraud
would be inappropriate and inapplicable, e.g. duress is not necessarily tortious: below,
para.8-056.
45. Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 A.C.
366, 400; R. v Attorney-General for England and Wales [2003] UKPC 22 at [15]. On the
absence of practical choice see further below, para.8-032.
46. See Universe Tankships of Monrovia Inc v I.T.W.F. [1983] 1 A.C. 366, 384, 391, 400.
47. See the next paragraph.
48. Lord Hoffmann in R. v Her Majesty’s Attorney-General for England and Wales [2003] UKPC 22
at [16] referring to Universe Tankships Inc of Monrovia v International Transport Workers
Federation [1983] 1 A.C. 366, 401.
49. See below, paras 8-025—8–037.
50. Barton v Armstrong [1976] A.C. 104, 121, per Lord Wilberforce and Lord Simon dissenting, but
not on this point.
51.
Threats of armed force between states are non-justiciable and cannot give rise to a defence
of duress in English law: Law Debenture Trust Corp Plc v Ukraine [2017] EWHC 655 (Comm) at
[308].
52. See below, paras 8-038—8–045.
53. See below, paras 8-046—8–051.
54. Below, paras 8-025—8–037.

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(c) - Types of Illegitimate Pressure
Types of illegitimate pressure
8-010
Violence to the person, and threats of such violence, have long been recognised as illegitimate forms
of pressure. The law therefore allows a party to avoid any promise extorted from him by terror or
violence, whether on the part of the person to whom the promise is made or that of his agent. 56
Contracts made under such circumstances are said to be made under duress, 57 a term derived from
the common law, which took a narrow view as to the facts which would establish (as was then
thought) the absence of free consent. At common law, duress consisted of actual or threatened
violence or imprisonment. 58 Courts of equity, however, administered the wider doctrine of undue
influence 59 which was applied chiefly to cases where some fiduciary relation existed between the
parties, but was not in any way limited to them. Equity might therefore grant relief where the
compulsion complained of was something less than that required by the common law. Since the
Judicature Act 1873 it has been the duty of all courts to administer both doctrines concurrently and
cases of coercion must be dealt with in the light of their combined effect. In recent years the courts
have recognised that other forms of duress may be grounds for avoiding a contract: firstly, where
there was a wrongful threat to seize the claimant’s goods and secondly, where there was “economic
duress”. These developments to some extent blur the traditional distinction between duress and
undue influence. In particular, there are cases in which equity will give relief against an agreement
entered as the result of an improper threat to bring a prosecution against a member of the claimant’s
family. Traditionally, relief was given on the ground of actual undue influence, but it is strongly
arguable that they are now to be regarded as falling within the doctrine of duress and they are so
treated in this chapter. 60
8-011
Duress is a form of constraint on the victim’s choice, and it is normally assumed that the constraint
involves a threat by the other party to harm the victim in some way. 61 Certainly nearly all the
cases, particularly of economic duress, have involved threats. However, in Borrelli v Ting 62 liquidators
urgently needed to conclude a settlement agreement, and agreed to the defendant’s terms when as
the result of delays caused by the defendant “opposing the scheme for no good reason and in using
forgery and false evidence in support of that opposition, all in order to prevent the Liquidators from
investigating his conduct … or making claims against him arising out of that conduct”, they could wait
no longer. The Privy Council held that the agreement could be avoided on the ground of economic
duress. Duress was defined as “the obtaining of agreement or consent by illegitimate means”. 63 Lord
Saville described the defendant’s conduct as unconscionable. 64 This decision suggests not only that
a constraint caused by actual illegitimate conduct, as opposed to threatened conduct, may amount to
duress, 65 but also that the doctrines of duress and of unconscionable conduct 66 may not be
clearly separable. However, traditionally, relief on the ground of unconscionability does not depend on
the defendant having done anything that is otherwise unlawful or illegitimate.
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56. For the parallel doctrine in cases concerning marriage, see Scott v Sebright (1886) 12 P.D. 21;
Griffith v Griffith [1944] I.R. 35; H. v H. [1954] P. 258; Szechter v Szechter [1971] P. 286; Singh
v Singh [1971] P. 226; Davies (1972) 88 L.Q.R. 549; Matrimonial Causes Act 1973 s.12. See
also Re Roberts (deceased) [1978] 1 W.L.R. 653; Hirani v Hirani (1983) 4 F.L.R. 232.
57. See generally, Beatson [1974] C.L.J. 97.
58. 1 Roll.Abr. 687; Coke 2 Inst. 482.
61.
e.g. Burrows, Law of Restitution, 3rd edn (2011), p.255 (“pressurised … by illegitimate
threats”); see also Goff and Jones, Law of Restitution, 9th edn (2016), para.10–02., in which the
examples seemed to involve threats in one form or another; compare Goff and Jones, Law of
Unjust Enrichment, 8th edn (2011), paras 10–03—10–04. It is usually said that duress to the
person may result from actual physical violence (see below, para.8-012) but it is presumably
the threat of repetition which constitutes the constraint.
62. [2010] UKPC 21, noted [2011] L.M.C.L.Q. 333.
63. [2010] UKPC 21 at [34].
64. [2010] UKPC 21 at [32].
65.
See also Carter v Carter (1829) 5 Bing. 406, 130 E.R. 1118, cited by Goff and Jones, Law of
Unjust Enrichment, 9th edn (2016), para.10-02

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(i) - Duress of the Person
Form of duress
8-012
Duress of the person may consist in violence to the person, or threats of violence, or in
67
imprisonment whether actual or threatened. The threat of violence need not be directed at the
claimant : a threat of violence against the claimant’s spouse or near relation suffices 69
68
and a
threat against the claimant’s employees has been held to constitute duress. 70 It is suggested that a
threat against even a stranger should be enough if the claimant genuinely believed that submission
was the only way to prevent the stranger from being injured or worse. 71
67.
For modern examples, see Friedeberg-Seeley v Klass (1957) 101 S.J. 275; Barton v
Armstrong [1976] A.C. 104. But compare R. v HM Att-Gen for England and Wales [2003] UKPC
22 (threat to return member of armed forces to his unit lawful). Threats of armed force between
states are non-justiciable and cannot give rise to a defence of duress in English law: Law
Debenture Trust Corp Plc v Ukraine [2017] EWHC 655 (Comm) at [308].
69.
Kaufman v Gerson [1904] 1 K.B. 591; cf. Williams v Bayley (1866) L.R. 1 H.L. 200 (threat to
prosecute relation); and see below, para.8-052. See Goff and Jones, Law of Unjust Enrichment,
9th edn (2016), para.10–15.
70. Royal Boskalis Westminster NV v Mountain [1999] Q.B. 674 (threat to use employees as
human shield); Gulf Azov Shipping Co Ltd v Chief Idisi (No.2) [2001] EWCA Civ 505, [2001] 1
Lloyd’s Rep. 727 (detention of ship and crew).

Page 2

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(ii) - Duress of Goods
Duress of goods
8-013
It has been said that a threat to destroy or damage property may amount to duress. 72 It is now
accepted that the same is true of a threat to seize or detain goods wrongfully, though for many years
it was thought that such a threat could not amount to duress at common law. It used to be said that
the distinction between duress of the person and duress of goods was that:
“… the former is a constraining force, which not only takes away the free agency, but may
leave no room for appeal to the law for a remedy …; but the fear that goods may be taken
or injured does not deprive anyone of his free agency who possesses that ordinary
degree of firmness which the law requires all to exert.” 73
There is no evidence of any wider equitable rule concerning duress of goods, although it has for many
years been well established that money paid in order to get possession of goods wrongfully detained,
or to avoid their wrongful detention, may be recovered in an action for money had and received. 74 So
in Maskell v Horner 75 tolls were levied on the plaintiff under a threat of seizure of goods. The tolls
were in fact unlawfully demanded. Their payment was held to be recoverable as it had been made to
avoid seizure of the goods and the plaintiff was entitled to recover the payments he had made under
the illegal demand. Lord Reading C.J. said:
“If a person pays money, which he is not bound to pay, under the compulsion of urgent
and pressing necessity or of seizure, actual or threatened, of his goods, he can recover it
as money had and received.” 76
It is nevertheless somewhat difficult to reconcile this rule with the traditional rule that duress of goods
would not avoid a contract. A possible solution may be that money paid in this way can only be
recovered if it has been paid under protest, without any binding agreement 77; otherwise the absurd
result must ensue that, although an agreement to pay money under duress of goods can be enforced,
any money so paid will be recoverable by the person paying it as money had and received to his use.
But there are cases inconsistent with the notion that duress can only be relied upon by someone who
acted under protest 78; and an alternative view received increasing support. This was that the older
cases denying relief are best explained as cases in which the claim was voluntarily compromised by
the plaintiff. 79 The rule that duress of goods does not invalidate a contract only applied where the
duress is in purported execution of legal process, such as distress or execution, brought in good faith.
Page 2
Where this is the case, an agreement made to secure the release of the goods is a form of
submission to legal process, and seizure of goods under legal process brought in good faith can
scarcely be regarded as an illegitimate form of pressure.
Recognition of duress of goods
8-014
This argument thus opened the door to a broad concept of duress of goods as a ground of relief in
contract law, and the courts have now endorsed duress of goods. 81 As we shall see, they have
also embraced a broader concept of “economic duress”. At least one case that involved duress of
goods was decided on this broader ground. 82
72. Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep. 293, 335.
73. Skeate v Beale (1840) 11 A. & E. 983, 990; The Unitas [1948] P. 205, affirmed sub nom. Lever
Bros & Unilever NV v H.M. Procurator General [1950] A.C. 536.
74. Astley v Reynolds (1731) 2 Str. 915; Atlee v Backhouse (1838) 3 M. & W. 633; Wakefield v
Newbon (1844) 6 Q.B. 276; Oates v Hudson (1851) 6 Exch. 346. Money paid to recover goods
in the custody of the law is not paid under duress and cannot be recovered: Liverpool Marine
Credit Co v Hunter (1868) L.R. 3 Ch. App. 479. See generally below, paras 29-097 et seq.
75. [1915] 3 K.B. 106; below, para.29-097.
76. [1915] 3 K.B. 106, 118.
77. Atlee v Backhouse (1838) 3 M. & W. 633, 650; Parker v Bristol & Exeter Ry (1851) 6 Exch. 702,
705.
78. See, e.g. Spanish Government v North of England S.S. Ltd (1938) 54 T.L.R. 852; T.A. Sundell
& Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd (1956) 56 S.R. (N.S.W.) 323; Universe
Tankships of Monrovia Inc v I.T.W.F. [1983] 1 A.C. 366, 400.
79. See Beatson, The Use and Abuse of Unjust Enrichment (1991), pp.105–106; North Ocean
Shipping [1979] Q.B. 705, 719. On voluntary settlements see further below, para.8-029.
80.
See below, para.8-051; Goff and Jones, Law of Unjust Enrichment, 9th edn (2016), paras
10-20–10-21.
81.
Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep. 293; North
Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] Q.B. 705; Dimskal Shipping Co
Ltd v I.T.W.F. [1992] 2 A.C. 152, 165 (limitation to duress of the person now discarded). See
further Goff and Jones, Law of Unjust Enrichment, 9th edn (2016), paras 10–30 et seq..
82. The Alev [1989] 1 Lloyd’s Rep. 138; see Burrows, Law of Restitution, 3rd edn (2011), p.265.
Page 3

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(iii) - Economic Duress
Recognition of economic duress
8-015
Three English cases, and one important Privy Council appeal, first recognised the possibility of the
concept of economic duress. In substance this amounts to recognising that certain threats or forms of
pressure, not associated with threats to the person, nor limited to the seizure or withholding of goods,
may give grounds for relief to a party who enters into a contract as a result of the threats or the
pressure. In Occidental Worldwide Investment Corp v Skibs A/S Avanti, 83 the charterers of two ships
secured a renegotiation of the rate of hire, after a slump in market rates, by threatening the owners
that they (the charterers) had no substantial assets, and that they would go bankrupt if the rates were
not lowered. This threat was strongly coercive because, given the slump in the market, the owners
would have had to lay up the tankers if the charterers had returned them, and would then have been
unable to pay mortgage charges on the ships—all these facts being well known to the charterers. In
fact the charterers’ allegations, or threats, that they had no substantial assets and would go bankrupt
if the rate of hire were not lowered, were false and fraudulent, and Kerr J. held that the owners were
therefore entitled to avoid the renegotiated terms, and withdraw the ships, on the ground of fraud; but
he recognised that the economic pressure of the threats might also have given rise to relief on the
ground of duress, at least in principle. In the event, however, he denied relief on this ground because
the owners’ consent or will was not vitiated by the pressures, which were only normal commercial
pressures. In light of the discussion of Lynch ’s case, above, para.8-004, this ground of decision
seems dubious; the question which the learned judge ought to have asked himself was not whether
the owners’ consent was negatived by the pressure, but whether the pressure was permissible
pressure to exert. 84 Given his finding that the pressure was based on fraud, it would seem that
duress should have been a further ground for relief, although in the circumstances it would have been
immaterial, given that relief was available for fraud anyhow.
8-016
In North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd 85 ship-builders who were building a
ship under a contract for the plaintiffs, threatened, without any legal justification, to terminate the
contract unless the plaintiffs agreed (within a few days) to increase the price by 10 per cent. The
owners had chartered the vessel to Shell at very favourable rates and feared that they would lose the
charter if the vessel were delivered late, so they reluctantly acquiesced in this demand, but under
protest, and without prejudice to their rights. Mocatta J. held 86 that this amounted to a case of
economic duress, and that the plaintiffs would have been entitled, on that ground, to have refused
payment of the additional 10 per cent. But he went on to hold that the owners had, by implication,
affirmed the contract, or waived their right to avoid it for duress, even though they had not intended to
do so; the basis for this part of his decision was that the owners had failed to raise the matter at any
further stage, paying the extra instalments, and taking delivery of the ship in due course, and so
giving the builders grounds for belief that the owners had affirmed the variation in price.
Page 2
8-017
The Privy Council case is Pao On v Lau Yiu Long 87 in which again the allegation was made that a
party had secured an amendment to a prior commercial transaction of some complexity, as a result of
a threat to break his contract. Here also the Privy Council conceded that economic duress could be
recognised in principle, but held that the plea was not made out on the facts. The speech of Lord
Scarman emphasised that the defendant in this case had carefully considered his position when
faced with the threatened breach of contract, and had concluded that it was in his interests to grant
the concession demanded rather than to sue on the original contract. In determining the validity of the
plea of duress in such circumstances, Lord Scarman said that:
“… it is material to inquire whether the person alleged to have been coerced did or did not
protest; whether, at the time he was allegedly coerced into making the contract, he did or
did not have an alternative course open to him such as an adequate legal remedy;
whether he was independently advised; and whether after entering the contract he took
steps to avoid it.” 88
Lord Scarman did, however, draw attention to American case law which stressed the effectiveness of
alternative remedies available to the party allegedly coerced; and it seems clear that it would no
longer be regarded as an adequate answer to a plea of duress that the party coerced had a legal
remedy which he could in due course have pursued in the courts. The all-important question in
practice is whether, having regard to all the circumstances, that remedy is a practical and effective
one. If it would have been, the complainant may have difficulty in persuading the court to grant relief.
89
If it would not, a case of duress may be made out.
8-018
The fourth case is Universe Tankships of Monrovia v International Transport Workers Federation 90 in
which the defendant trade union had “blacked” the plaintiffs’ ship in port, and refused to release her
except on payment of a large sum of money; most of the money was claimed as back pay on behalf
of seamen on the ship, but a part of it was a payment for the union’s welfare fund. The Court of
Appeal, affirming Parker J., held that the union’s actions constituted duress which would prima facie
have justified the shipowners in recovering the money, because the coercive nature of the threat was
so powerful, and at common law involved unlawful pressure on various third parties to break their
contracts. But the Court of Appeal went on to hold that the union’s conduct was protected by the
statutory immunities in the Trade Union and Labour Relations Act 1974, because it was in the course
of, or in furtherance of, a trade dispute under that Act. The “trade dispute” defence was disallowed in
the House of Lords where the finding of economic duress was not challenged. The decision involves
rejection of the defendants’ argument that a plea of duress requires the party guilty of the duress to
appreciate that the other party is acting under duress. In effect, this was an attempt to revive, in a
slightly different form, the argument that payments made under duress are only recoverable if they
are paid under protest; as already seen (above, para.8-013) this view has been rejected in a number
of previous cases.
8-019
The doctrine of economic duress is therefore now clearly established and its existence was accepted
by the House of Lords in Dimskal Shipping Co Ltd v I.T.W.F. 91 It has been applied in a number of
other cases. 92 For example, in B. & S. Contracts & Design Ltd v Victor Green Publications Ltd 93 the
plaintiffs had contracted to erect an exhibition stand for the defendants at Olympia, but their workmen
went on strike. To get the work done the defendants agreed to contribute £4,500 to pay off the
workmen’s claims. It was held by the Court of Appeal that this promise was made under duress as the
defendants had no realistic alternative 94 but to promise to pay, given the serious threat to their
economic interests.
Relationship between doctrine of consideration and economic duress

Page 3
8-020
In the first three cases cited in paras 8-015—8-017, the parties were already in a contractual
relationship; in these circumstances, a variation of the contract secured by one party as a result of
threats to break the contract might until recently have been viewed as invalid on the ground of lack of
consideration, irrespective of any issue of economic duress. Thus, in D & C Builders Ltd v Rees 95 the
defendants, who owed the plaintiffs some £482, refused to pay anything unless the plaintiffs would
accept £300 in full satisfaction of the claim; the plaintiffs (as the defendants knew) were in desperate
financial straits, so that recourse to law was not a practicable remedy, and they accepted the £300,
giving a receipt in full satisfaction. It was held that this was not a valid surrender of their claim to the
balance because of the absence of consideration. 96 The case could, it is submitted, now be
supported on the ground of economic duress. In contrast, in cases in which a promise is made to pay
an additional sum to the promisee if the latter will perform its existing contractual duty, but where
there is no duress, the law has recently undergone a marked change. In Williams v Roffey Bros &
Nicholls (Contractors) Ltd 97 a carpentry subcontractor which had under-priced work on a number of
flats was having difficulty in completing it on time. The contractor promised an additional payment for
each flat finished. It was held that this promise was enforceable although the subcontractor was only
performing its existing obligation; in the absence of duress the “practical benefit” to the contractor,
that if the work was finished on time it would avoid liability for liquidated damages under the main
contract, constituted consideration. Although in this case the subcontractor made no threat, 98 the
decision suggests that not every case in which a party agrees to make an extra payment in order to
obtain the performance originally promised is one of duress, nor perhaps will every agreement
secured by a threat to break a contract be voidable. As will be seen later, a “threat” to break a
contract which is in fact no more than a statement of the inevitable that will happen unless an extra
payment is made may not amount to duress 99; and even when a breach is not inevitable in that
sense, a threat coupled with a demand for extra payment may sometimes be seen as legitimate. 100
Nor does the fact that there was some consideration rule out any question of duress. Where the
consideration is only trifling, it is suggested that its inadequacy may be relevant in establishing that
the variation of the contract has been secured by improper pressure.
Non-contractual payments
8-021
So far as the law of duress is concerned, there appears to be no difference between a payment made
in pursuance of a contract or a variation of a contract procured under duress, and one made on a
noncontractual basis in response to an illegitimate threat. Although in the first situation it is technically
the case that the contract or contractual variation must first be set aside, it seems that the definition of
duress that applies in the two situations is the same. 101
Different approaches to economic duress
8-022
Although the doctrine of economic duress is now firmly established, there remains considerable doubt
and some disagreement over the circumstances in which relief will be granted, and how the decisions
are best explained. It is evident from the dicta in Occidental Worldwide Investment Corp v Skibs A/S
Avanti 102 and the decision in the Pao On case 103 that a party who has agreed to a contractual
variation cannot always avoid the variation simply because the other party had threatened to break
the contract if it was not varied and this threat had some influence on the party seeking relief.
Something more must be shown. Those cases referred to the party’s consent being vitiated. Now that
the vitiation of consent approach has been discarded, 104 what additional elements have to be shown?
Special causal or other requirements?
8-023
Page 4
Earlier it was suggested that the critical questions are, first, the nature of the pressure or the threats
and, secondly, their effect on the victim. One possible interpretation of the economic duress cases is
that, compared to other cases of duress, there are additional requirements that go to the second
element, causation. Possibly the claimant needs to show more than that his decision to enter the
contract was affected by the illegitimate threat. He might, for instance, have to show that the threat
was the overwhelming reason for the variation, or that in an objective sense he had no reasonable
alternative—in other words, that any reasonable person in the same predicament would have acted in
the same way. These arguments will be rejected. It will be submitted that the necessary causation is
established if the claimant shows that, but for the threat, he would not have entered the contract, and
that lack of a reasonable alternative should be treated as a matter of evidence rather than as an
independent requirement. On the other hand, it would appear that, in contrast to physical duress, it is
not sufficient that the economic duress was merely a reason for the victim entering the contract even
though he might have concluded the contract for other reasons: the “but for” test must be satisfied.
Legitimacy of the demand
8-024
Another possible interpretation looks to the nature of the pressure or threat. It is arguable that for a
contract to be voidable for economic duress, the threat must not only have been wrongful but
illegitimate in the sense of being without any commercial or similar justification. It will be suggested
that not every threat to break a contract is illegitimate in this sense, and that where the threat is one to
breach a contract it will suffice only if it is made in support of a demand that is illegitimate. In the
sections that follow we will consider first causation and lack of a reasonable alternative, and then the
legitimacy of the demand.
83. [1976] 1 Lloyd’s Rep. 293, noted (1976) 92 L.Q.R. 496.
84. It might, however, be said that his finding that consent was not negatived was tantamount to
finding that the pressure was not of sufficient weight to constitute duress, see below,
para.8-031.
85. [1979] Q.B. 705.
86. Relying, inter alia, on Parker v G.W.R. (1844) 7 M. & G. 253; G.W.R. v Sutton (1869) L.R. 4
H.L. 226; Close v Phipps (1844) 7 M. & G. 586; Fernley v Branson (1851) 20 L.J.Q.B. 178;
Nixon v Furphy (1925) 25 S.R. (N.S.W.) 151; Smith v William Charlick (1924) 34 C.L.R. 38, 56;
and D & C Builders Ltd v Rees [1966] 2 Q.B. 617, as to which see below, para.8-020.
87. [1980] A.C. 614.
88. [1980] A.C. 614, 635.
89. See below, para.8-032, where the question whether absence of a reasonable alternative is a
separate requirement is discussed.
90. [1981] I.C.R. 129, reversed [1983] A.C. 366.
91. [1992] 2 A.C. 152, 159, 160, 162, 165, 170.

Page 5
92. B. & S. Contracts & Design Ltd v Victor Green Publications Ltd [1984] I.C.R. 419; Atlas Express
Ltd v Kafco (Importers and Distributors) Ltd [1989] Q.B. 833 (carrier refused to perform without
extra payment after miscalculating number of cartons it could carry per load); The Alev [1989] 1
Lloyd’s Rep. 138 (owner demanded “financial assistance” from consignee before it would
deliver goods under freight pre-paid bills when charterer had failed to pay hire); Carillion
Construction Ltd v Felix (UK) Ltd [2001] B.L.R. 1 (sub-contractor threatened to withhold
performance if main contractor did not settle contested account); Cantor Index Ltd v Shortall
[2002] All E.R. (D) (Nov) (payment made under threat to close customer’s bets); Kolmar Group
AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113 (Comm); Borrelli v Ting [2010] UKPC 21 (a
case of illegitimate pressure which did not take the form of a threat: above, para.8-011);
Progress Bulk Carriers Ltd v Tube City IMS LLC (The Cenk Kaptanoglu) [2012] EWHC 273
(Comm), [2012] 1 Lloyd’s Rep. 501. See also Alec Lobb Ltd v Total Oil G.B. Ltd [1983] 1 W.L.R.
87 (varied on other points, [1985] 1 W.L.R. 173); Dimskal Shipping Co Ltd v I.T.W.F. [1992] 2
A.C. 152; CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All E.R. 714 (below, para.8-047);
Sapporo Breweries Ltd v Lupofresh Ltd [2012] EWHC 2013 (QB) (at [55]); Finance Ltd v Bank
of New Zealand (1993) 32 N.S.W.L.R. 50 (CA, N.S.W.).
93. [1984] I.C.R. 419.
94. On the question of absence of choice see below, para.8-032.
95. [1966] 2 Q.B. 716; see also T.A. Sundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Ltd
(1956) 56 S.R. (N.S.W.) 323.
97. [1991] 1 Q.B. 1. See above, para.4-069.
98. See further below, para.8-041. Compare South Caribbean Trading Ltd v Trafigura Beheever BV
[2004] EWHC 2676 (Comm), [2005] 1 Lloyd’s Rep. 128 at [107]–[109] (Williams doubted but not
applicable because economic duress).
100. See below, paras 8-038—8-045.
101. CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All E.R. 714, 717.
102. [1979] Q.B. 705; above, para.8-015.
103. [1980] A.C. 614; above, para.8-017.
104. See above, paras 8-004—8-009.

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(d) - Causation
Causation in general
8-025
In all cases of duress it is necessary that the victim’s agreement was caused by the duress. 105
However, it appears that the nature of the causation required differs according to the nature of the
duress.
Causation in duress to the person
8-026
In Barton v Armstrong 106 the Privy Council, relying on the analogy of fraud, 107 held that it was
sufficient that the threat was a reason for the victim entering the contract: not only it did not have to be
the predominant reason, but the victim was entitled to relief even if he had not shown that he would
not have entered the contract without the threat. It would be up to the party who made the threat to
show that it had not influenced the victim in any way. 108
Causation in duress to goods
8-027
In cases of duress to goods, it seems that the threatened seizure must have been a significant cause
109
of the victim’s agreeing to the contract or payment. Thus the victim will not be entitled to avoid the
contract if he had an effective alternative remedy, for example to obtain an injunction to prevent the
seizure, though it is recognised that a legal remedy may be of no avail if the victim has an urgent
need for the goods. 110 The victim will also be unable to avoid the contract if it was a “voluntary
settlement” of the other party’s claim. The meaning of this is not wholly clear 111 but it appears that
relief will be denied if the threat was not the reason for the victim agreeing to the other party’s
demand. Nor is it clear exactly what is meant by “significant cause”. Relief will be denied if the threat
did not influence the victim at all, so that it was not even “one of the reasons” for the victim agreeing
to the other party’s demand. 112 On the other hand, it seems unlikely that the courts will apply the
analogy of fraud as they do in cases of duress to the person. 113 Thus the victim will not have the
benefit of the reversed burden of proof in the same way as the victim of duress to the person 114 nor
that it will suffice that the threat was merely “one reason” for his actions or “present to his mind”. 115 It
seems likely that the victim must show that, “but for” the threat, he would not have entered the
contract. We will see that it has been said that this is the appropriate test of causation in economic
duress 116 and, given the similarity of duress of goods and economic duress, the same test of
causation seems appropriate.
Page 2
Causation in economic duress: “but for”
8-028
In Dimskal Shipping Co SA v I.T.W.F. 117 Lord Goff said that there may be duress where “the
economic pressure may be characterised as illegitimate and has constituted a significant cause
inducing the plaintiff to enter the relevant contract”. This dictum indicates that, as cases of duress of
goods, 118 the victim will not have the benefit of the reversed burden of proof in the same way as the
victim of duress to the person, 119 nor will it suffice that the threat was merely “one reason” for his
actions or “present to his mind”. As Mance J. said in Huyton v Cremer, 120 by “significant cause” Lord
Goff meant that what the judge termed the “relaxed view” of causation in the special context of duress
to the person does not apply to economic duress. 121 Mance J. said:
“… the minimum basic test of subjective causation in economic duress ought … to be a

‘but for’ test. The illegitimate pressure must have been such as actually caused the
making of the agreement, in the sense that it would not otherwise have been made either
at all or, at least, in the terms in which it was made. In that sense, the pressure must have
been decisive or clinching. There may of course be causes where a common sense
relaxation … is necessary, for example in the event of an agreement induced by two
concurrent causes, each otherwise sufficient to ground a claim of relief, in circumstances
where each alone would have induced the agreement.” 122
Adopting a “but for” test would place cases of economic duress on a par with cases of negligent or
non-negligent misrepresentation. 123 This seems appropriate. Only in the special circumstances of
duress to the person, as with cases of fraudulent misrepresentation, should relief be given merely
because the threat or fraud had some influence on the mind of the victim.
Voluntary submission
8-029
Confirmation of the need for “but for” causation comes from indications that relief will be denied if the
reason for the victim’s agreement was that he was prepared to pay it anyway. This may have been
relevant in the Pao On case, 124 where the actual decision seems to have rested on the fact that the
defendants thought that they would lose very little by granting the amendment sought. 125
Additional causal elements?
8-030
After the passage quoted in para.8-028 above, Mance J. continued:
“On the other hand it also seems clear that the application of a simple ‘but for’ test of
subjective causation in conjunction with an actual or threatened breach of duty could lead
too readily to relief being granted.”
126
Thus it is seems that Mance J. considered that there may be other elements to economic duress.
Whether these relate to causation or to the nature of the threat remains to be discussed.
“Predominant cause” not required

Page 3
8-031
As mentioned earlier, 127 some cases of economic duress applied the test of whether the victim’s will
was overborne so that he did not consent to the contract. This suggested that relief was only possible
if the threat was the overwhelming reason for the victim’s decision. However, the “overborne will” test
has now been abandoned. 128 This, together with Lord Goff’s dictum quoted above, suggests that the
combination of threat and other pressures need not be overwhelming, “the only reason” the victim
entered the contract.
Reasonable alternative
8-032
It is certainly relevant whether or not the victim had a reasonable alternative. The victim’s lack of
choice was emphasised by Lord Scarman in the Pao On 129 and Universe Sentinel 130 cases and has
clearly been an important factor in those cases in which relief has been given. 131 It is not clear
whether this is a prerequisite or merely evidential 132; but it seems that if the victim had a reasonable
alternative to submitting to the other party’s demand, he will seldom obtain relief. 133 This is
sometimes explicable on causal grounds. Thus a refusal, in breach of contract, to supply goods
unless some extra consideration is supplied by the buyer, may lack genuine coercive force where
alternative supplies are available in the market. Similarly, where the party claiming relief had
adequate time to claim redress at law, and there is no reason to think that this would not protect or
compensate him, submission to the threat may simply reflect that party’s belief that his best interests
would be served by such submission rather than by resort to the courts. The existence of a
reasonable alternative may have been relevant in the Pao On 134 decision itself: Lord Scarman
referred in general terms to American case law stressing the importance of examining the alternatives
available to the party claiming relief. 135 But it is possible to argue that the existence of a reasonable
alternative is not be just a matter of proving causation. Cases can be imagined in which the
illegitimate demand was the factor which “tipped the balance” and led to the victim agreeing to the
demand even though he had an alternative. It is not clear that relief would be available even though
“but for” causation was satisfied. It has been said that “economic duress can only provide a basis for
avoiding a contract if there was no real alternative”. 136 This suggests that a plea of duress would fail if
a reasonable person would have thought that an alternative was practical, even if the actual victim did
not and it is shown that he would not have entered the contract but for the threat.
Reasonable alternative: a matter of evidence
8-033
Mance J. has said that even though it is clear that the innocent party would never have acted as he
did but for the threat, relief may be denied if he had “an alternative remedy which any and possibly
some other reasonable persons would have pursued”, so that he could have resisted the pressure. 137
He said where the threatened party had such an alternative, relief will seldom be appropriate.
However, the judge also remarked that absence of a reasonable alternative was not “an inflexible
third ingredient” (in addition to illegitimate pressure and causation). 138 It is submitted that absence of
a reasonable alternative is not an absolute requirement but rather very strong evidence of whether
the victim was in fact influenced by the threat. 139
Gravity of threat
8-034
For similar reasons it is likely that the threat must normally be one of some gravity. This is to some
extent implicit in the factors to which attention must be had, as specified by Lord Scarman in the Pao
On case. 140 For if attention must be paid to the alternative remedies available to the threatened party
Page 4
(and their effectiveness), it is evident that minor threats, even if unlawful or improper, can normally
give no redress in contract law: the party threatened ought to pursue his other remedies. How serious
the threats must be in order to constitute duress may depend on the physical and mental condition of
the person threatened. Weakness of intellect or fear, whether reasonably entertained or not, may be
relevant factors which should be taken into account. 141 However, it is submitted that the seriousness
of the threat is also a matter of evidence as to whether the victim was coerced by it (or possibly of
whether he had a reasonable alternative, if, contrary to what was submitted above, that is required),
rather than an independent requirement.
Protest
8-035
In the Pao On case 142 it was said that it was relevant whether or not the victim protested. This again
seems to be a question of evidence as whether or not the threat had a coercive effect. It has been
accepted for many years that when a payment is made in order to avoid the wrongful seizure of
goods, protest “affords some evidence … that the payment was not voluntarily made”, 143 but that the
fact that the payment was made without protest does not necessarily mean that the payment was
voluntary. 144
Independent advice
8-036
Likewise in the Pao On case 145 it was said that it is relevant whether or not the victim had
independent advice. The relevance of this is perhaps less obvious: access to legal advice, for
example, will not increase the range of options available to the victim, and lack of advice therefore
cannot be an absolute requirement. However, whether or not the victim appreciated that he had an
alternative remedy and what the practical implications of following it would be are relevant to the
question of causation. 146
Conclusion on causation in economic duress
8-037
It is submitted that for a contract to be voidable on the grounds of economic duress, the usual rule
of causation should apply: the victim must show that “but for” the threat he would not have entered
the contract. 147 It is not necessary that the victim shows that the threat was the predominant reason
for him entering the contract or that it was particularly coercive. On the other hand, it is insufficient
that the economic pressure was merely “a reason” for the victim entering the contract. The question of
reasonable alternative is more difficult. The combination of a wrongful threat without which the
innocent party would not have agreed to the contract and the absence of any reasonable alternative
are clearly very important factors and some writers have argued that they are the ingredients of
economic duress. 148 Others however have argued that other factors not related to causation are
more relevant. These will explored in the next section and, as we shall see, there is some judicial
support for this view. As to causation, it is submitted that while the victim will seldom obtain relief
unless the threats were of some gravity or if he had a reasonable alternative, this is because without
these factors he will fail to convince the court that he would not have entered the contract but for the
threat, rather than absence of a reasonable alternative being an independent requirement of
economic duress. 149
Page 5
105. See the speech of Lord Goff in Dimskal Shipping Co SA v I.T.W.F. [1992] 2 A.C. 152, 165.
106. [1976] A.C. 104.
108. [1976] A.C. 104, 120, 121.
109. See the speech of Lord Goff in Dimskal Shipping Co SA v I.T.W.F. [1992] 2 A.C. 152, 165.
110. Astley v Reynolds (1731) 2 Stra. 915, 916.
111. See Burrows, Law of Restitution, 3rd edn (2011), pp.255–256.
112. cf. Barton v Armstrong [1976] A.C. 104, above, para.8-026.
113. See para.8-026.
114. cf. Barton v Armstrong [1976] A.C. 104.
115. cf. above, paras 7-038—7-039.
117. [1992] 2 A.C. 152, 165.
119. But note the contrary authority of Crescendo Management Pty Ltd v Westpac Banking Corp
(1988) 19 N.S.W.L.R. 40.
120. Huyton SA v Peter Cremer GmbH [1999] 1 Lloyd’s Rep. 620, 636; Kolmar Group AG v Traxpo
Enterprises Pvt Ltd [2010] EWHC 113 (Comm) at [92].
121.
See also Goff and Jones, Law of Unjust Enrichment, 9th edn (2016), paras 10–73—10–74. It
has been suggested that a defendant who has used both duress and misrepresentation will not
be allowed to argue that the “but for” test is not satisfied in relation to one wrong because the
claimant would still have entered the contract because of the defendant’s other wrong: Times
Travel (UK) Ltd v Pakistan International Airlines Corp [2017] EWHC 1367 (Ch) at [258].
122. [1999] 1 Lloyd’s Rep. 620, 636. But see further below, para.8-030.
124. Pao On v Lau Liu Long [1980] A.C. 614, above, para.8-017. Birks, Introduction to the Law of
Restitution (1985), p.183; compare Burrows, Law of Restitution, 3rd edn (2011), p.269.
125. [1980] A.C. 614, 635.
126. Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep. 620, 637. See also Occidental
Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep. 293; above, para.8-015
where the plea of duress was rejected on the basis that the owners were subjected only to
“normal commercial pressures”.
127. Above, para.8-005.

Page 6
128. Above, para.8-005.
129. Pao On v Lau Liu Long [1980] A.C. 614, 635. See also Halson (1991) 107 L.Q.R. 649.
130. “The classic case of duress is, however, not the lack of will to submit but the victim’s intentional
submission arising from the realisation that there is no practical choice open to him”: [1983] 1
A.C. 366, 400.
131. e.g. North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] Q.B. 705; B. & S.
Contracts & Design Ltd v Victor Green Publications Ltd [1984] I.C.R. 419; The Alev [1989] 1
Lloyd’s Rep. 138. cf. Adam Opel GmbH v Mitras Automotive UK Ltd [2007] EWHC 3252 (QB),
[2007] All E.R. (D) 272 (Dec) (in circumstances, injunction not a adequate alternative to nullify
pressure caused by threat to refuse to deliver supplies: at [33]); Kolmar Group AG v Traxpo
Enterprises Pvt Ltd [2010] EWHC 113 (Comm), [2010] 2 Lloyd’s Rep. 653 (if did not perform,
victim would face having very large claims which were unsecured: see at [94]).
132. See Beatson, The Use and Abuse of Unjust Enrichment (1991), pp.122–126.
133. Huyton SA v Peter Cremer GmbH [1999] 1 Lloyd’s Rep. 620, 638.
134. [1980] A.C. 614.
135. For examples, see Tristate Roofing Co of Uniontown v Simon (1958) A.2d. 333, 335; Gallagher
Switchboard Corp v Heckler Electric Co (1962) 229 N.Y.S. 2d. 623, 630.
136. Sir John Donaldson M.R. in Hennessy v Craigmyle & Co Ltd [1986] I.C.R. 461, 468.
137.
Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep. 620, 638. The objective
approach to whether there was a reasonable alternative is criticised in Goff and Jones, 9th edn
(2016), paras 10-75 and 10-77; and the authors point out that in fact the courts seem quite
ready to accept that the victim had no real alternative: Goff and Jones, 9th edn (2016), paras
10-75 and 10-77.
138. Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep. 620, 638. In DSND Subsea Ltd v
Petroleum Geo-services ASA [2000] B.L.R. 530, para. 638, Dyson J. said “compulsion on, or
lack of practical choice for, the victim” was one of “the ingredients of actionable duress”; but it is
suggested that he did not mean lack of practical alternative to be an absolute requirement,
since (also at [31]) he listed “whether the victim had any realistic practical alternative but to
submit to the pressure” as one a range of factors to be taken into account: see below,
para.8-045.
139. This was accepted in Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113
(Comm) at [92].
140. Pao On v Lau Yiu Long [1980] A.C. 614; above, para.8-017.
141. Scott v Sebright (1866) 12 P.D. 21.
142. Pao On v Lau Yiu Long [1980] A.C. 614.
143. Maskell v Horner [1915] 3 K.B. 106, 120.
145. Pao On v Lau Yiu Long [1980] A.C. 614; above, para.8-017.
146. Hennessy v Craigmyle & Co Ltd [1986] I.C.R. 461; N. Enonchong, Duress, Undue Influence
and Unconscionable Dealing, 2nd edn (2012), para.4-025.
Page 7
147. Contrast N. Enonchong, Duress, Undue Influence and Unconscionable Dealing, 2nd edn
(2012), paras 4-011—4–014, who favours applying the Barton test (see above, para.8-026).
148.
Virgo, Principles of the Law of Restitution, 3rd edn (2015), p.225.
149. See also N. Enonchong, Duress, Undue Influence and Unconscionable Dealing, 2nd edn
(2012), paras 4-020 and 4-024—4–030.

Page 1

(e) - Legitimacy of the Demand 150
Threat to commit an unlawful act
8-038
As already indicated, it is clear that not all threats can be regarded as improper or illegitimate, and it is
necessary in the law of duress to distinguish between legitimate and other forms of pressure or
threats. Prima facie it is thought to be clear that a threat to commit an unlawful act will constitute an
improper threat for the purposes of the law of duress. 151 Certainly a threat to commit a crime or a tort
as a means of inducing the coerced party to enter into some contract must prima facie be improper.
152
However, this may not be true of every threatened wrong, particularly a threat to break a contract.
Threat to break a contract
8-039
When the threatened wrong is a breach of contract it seems that the victim will not necessarily be
entitled to relief even if he would not have agreed “but for” the threat and possibly 153 even if he had
no reasonable alternative. The decisions in Occidental Worldwide Investment Corp v Skibs A/S Avanti
154
and Pao On v Lau Liu Long 155 suggest that something more than this is required. It is possible that
in cases where the threat is one of breach of contract, some additional factor is required. As we saw
earlier, one possible “additional factor” is that the combination of the threat and commercial pressures
were overwhelming, but that “causal” approach was rejected. 156 An alternative possibility is that the
additional factor that may be required is that the threatened breach of contract must be regarded as
“illegitimate pressure”, and that in some circumstances a threat of a breach of contract may be
regarded as not illegitimate.
Can a threatened breach be “legitimate”?
8-040
This possibility is suggested by American cases. Where unexpected difficulties arise in the
performance of a contract (even if they do not amount to frustrating circumstances) it is often
commercially reasonable for one party to claim extra remuneration, or some other extra-contractual
concession, as the price of his continuing with performance. In these circumstances, a threat to break
the contract unless the extra consideration is forthcoming may well be regarded as a legitimate form
of commercial pressure 157 where the unanticipated difficulty means that he is genuinely unable to
perform without an extra payment, and possibly also if the threatening party acts in the bona fide
belief that he is entitled to some extra payment or if the demand is in some sense “fair”. We will
consider these three possibilities in turn.
Page 2
Statement of the inevitable is not a threat
8-041
A genuine inability to perform without the promised payment might have been significant in Williams v
Roffey Bros & Nicholls (Contractors) Ltd 158 had the subcontractor demanded extra payment. On the
facts there was no duress because no threat was made: the initiative for the extra payment came
from the contractors. 159 If, however, the subcontractors had said that without extra payment, they
would be unable to perform, and the main contractors had then promised the extra payment, it seems
unlikely that the main contractors could have avoided the promise to pay extra on the ground of
duress. There are a number of ways in which this result could be explained. One is that a party who
truthfully states that, without the extra payment or concession demanded, he will be unable to perform
is not making a threat; he is simply stating a fact. 160 This is not a matter of the words used; the courts
have recognised that a threat may be implicit. 161 Thus where an agreement is entered into not
because of a threatened breach of contract but through fear of prosecution, it was said that:
“… not only is no direct threat necessary, but no promise need be given to abstain from a
prosecution. It is enough if the undertaking were given to prevent a prosecution and that
desire were known to those to whom the undertaking was given.” 162
A “veiled threat” has been held to constitute duress. 163 But if it is genuinely the case that the party will
be forced to default if he is not paid extra, for instance because he will inevitably become bankrupt, he
cannot be regarded as making a threat because he is powerless to prevent his default. 164 It would
seem appropriate to uphold any variation that the other party agrees or extra payment that he makes
in such circumstances. 165 However, this is quite a narrow exception. It may be the case that it is not
impossible for the party to perform without the extra payment but doing so will cause him very severe
hardship.
Bad faith
8-042
Another approach is to say that a demand made in bad faith is illegitimate and may amount to
duress. 166 There is some judicial support for the good or bad faith of the party exerting the pressure
being relevant. 167 One difficulty, however, is to know what is meant by good faith or bad faith. It
seems correct to say that a party who exploits the other’s position to demand a payment that is
unrelated to the contract, and to which he knows he has no legal or moral right, is guilty of economic
duress. 168 However, a demand may constitute economic duress even though the demand is related
to the contract, and it is not necessary that the threatening party was deliberately exploiting the
victim’s position. 169 One interpretation is that a party is in bad faith unless he honestly believes that
his demand is legally justified, but it is not evident that every claim which is known not to have a legal
basis should be treated as made in bad faith; nor conversely that any claim that is honestly made
should be acceptable however little legal justification for it there may be. If the claim is genuinely
made, the other party may of course agree to it because it seems fair rather than because of the
threat, but that will not necessarily be the case: the threat may still be a “but-for” cause of the victim’s
agreement. 170 If a party makes a claim that it knows to be bad, any compromise that results may
lack consideration, 171 so that the compromise is unenforceable on that ground. Provided however
that there is other consideration, in some situations—for example, when a claim is made by a party
who has been confronted with unexpected difficulty or expense not amounting to frustration 172 —it
might be argued that the claim should not be regarded as illegitimate for the purposes of duress even
though the party knows that there is no legal basis for it but honestly believes that the demand is
justifiable in commercial terms. On existing authorities, however, it seems that good faith in this sense
does not preclude a finding of economic duress. 173 Similar circumstances may have obtained in the
North Ocean Shipping case, 174 yet it was held that there was economic duress. Thus the role of good
faith or bad faith in economic duress is uncertain. While one judge has expressed the view that good
or bad faith is irrelevant, 175 other judges have said that the good or bad faith of the party making the
Page 3
threat may be a relevant factor. 176
Fairness of the demand
8-043
In the cases, some of the demands appear to have been made in order to rectify an apparent
imbalance in the existing contract; others appear to have been unrelated to any such factor. Where
the demand is recognised by the “victim” as fair, that may lead to the conclusion that he was not really
influenced by the threat so much as by a desire to help out the other party, and thus the necessary
causal link will be missing. 177 But if it is clear that the threat did have a significant influence, it
does not seem that the fact that the demand might rectify an imbalance in the contract will make the
demand legitimate. In Atlas Express Ltd v Kafco (Importers and Distributors) Ltd 178 the plaintiffs
miscalculated the number of cartons of the defendants’ goods that they could carry on a trailer load
for delivery to a retail chain and, when they discovered the truth, stated that they would not carry any
more cartons without an extra payment. The defendants were heavily reliant on the contract with the
retail chain and were unable to find an alternative carrier, so they agreed; but later they refused to pay
the extra charges. Tucker J. held that their consent had been vitiated by duress. 179 Although the
mistake was the plaintiffs’ and unknown to the defendant, it seems likely that the latter did get the
benefit of cheaper rates than normal for the goods to be carried. Nor would an evaluation of the
“fairness” of the changed contract be consistent with the courts’ normal approach. 180
Conclusion on legitimacy of threat to break contract
8-044
It is thus difficult to state with confidence whether a threat of a breach of contract will ever be
regarded as legitimate and, if so, in what circumstances. It is submitted that deliberate exploitation of
the victim’s position with a view to gaining some advantage, particularly one unrelated to the contract
and to which the threatening
party knows he is not entitled, is clearly illegitimate. 181 At the other end of the scale, an apparent
threat should not be treated as illegitimate if it was really no more than a true statement that, unless
the demand is met, the party making it will be unable to perform. The difficult case is that of the party
who has a genuine belief that he is entitled to the amount demanded. It is submitted that, by analogy
to the cases in which it has been held that there is consideration for a compromise of a claim which is
in fact bound to fail if the party making the claim honestly and reasonably believed in its validity, 182 a
party who honestly and not unreasonably believes that he has a legal claim is not acting in bad faith
by demanding what he thinks is due. A court should hesitate to find that the demand was illegitimate.
It is also suggested that a demand made in good faith in the sense that the party demanding has a
genuine belief in the moral strength of his claim—for example, because he has encountered serious
and unexpected difficulties in performing and will suffer considerable hardship if his demand is not
met; or to correct an acknowledged imbalance in the existing contract—may in some circumstances
also be treated as legitimate. Here the behaviour of the victim, for example whether he protests, will
be relevant. First, as argued earlier, 183 it will go to causation: if the victim pays without protest, that
may be evidence that he was not influenced by the threat. But secondly, payment without protest may
leave the demanding party believing that the justice of his demand is admitted, whereas it will be
harder for him to prove that he was acting in good faith if he ignores the victim’s protests.
A range of factors
8-045
However, it is doubtful whether either the good faith of the party making the threat or the apparent
fairness of his demand provides a touchstone by which to determine whether a threatened breach of
Page 4
contract which influenced the victim and which left him no reasonable alternative amounts to
economic duress. In analogous doctrines, such as undue influence, the courts have refused to lay
down precise limits to the doctrine. 184 This is with good reason: the facts with which they are
presented can vary widely. We can expect the courts to maintain the same fluid approach to
economic duress. It is clear that the threat must be made, as opposed to a warning being given. 185
The threat must influence the victim, at least to the extent that he would not have entered the contract
from which he seeks relief “but for” the threat. 186 He will seldom have a remedy if he had a
reasonable alternative. 187 The threat must be “illegitimate”, and this normally 188 requires that the
threat is of a breach of contract or other civil wrong. 189 But threat of a breach of contract which
caused him to enter the contract or variation agreement may not suffice: he may have to show more
than these facts, and what the additional facts will be is not rigidly defined. The degree of commercial
pressure that combined with the threat to influence him, the good faith or bad faith of the party making
190
the threat and possibly even the fairness of the latter’s demand may all be taken into account.
In other words, the courts take into account a range of factors. As Dyson J. has said:
“In determining whether there has been illegitimate pressure, the courts take into account
a range of factors. These include whether there has been an actual or threatened breach
of contract; whether the person allegedly exerting the pressure has acted in good or bad
faith; whether the victim had any realistic practical alternative but to submit to the
pressure; whether the victim protested at the time; and whether he affirmed and sought to
rely on the contract. These are all relevant factors. Illegitimate pressure must be
distinguished from the rough and tumble of the pressure of normal commercial
bargaining.” 191
150. See Beatson, The Use and Abuse of Unjust Enrichment (1991), pp.117–129; Burrows, Law of
Restitution, 3rd edn (2011), especially pp.267–268.
151. In Dimskal Shipping Co SA v ITWF, The Evia Luck [1992] 2 A.C. 152 the House of Lords held
that the question of whether economic pressure amounted to duress was prima facie a matter
for the proper law of the contract, so that whether the conduct was lawful or not fell to be
determined by the proper law of the contract rather than by that of the place where the threat
was made. In Royal Boskalis Westminster NV v Mountain [1999] Q.B. 674, 689, 730 it was said
that, nonetheless, counsel had been correct to concede, in the light of Kaufman v Gerson
[1904] 1 K.B. 591, that some forms of duress are so shocking that English law would not
enforce a contract made under such duress irrespective of whether the threat would be
acceptable, and the contract valid, under the governing law. See below, para.30-368.
152. See the American Restatement of Contract, para.176(1).
154. [1976] 1 Lloyd’s Rep. 293; above, para.8-015.
155. [1980] A.C. 614; above, para.8-017.
157. See, e.g. Goebel v Linn (1882) 11 N.W. 284; Linz v Schuck (1907) 67 A. 286. There is a sense
Page 5
in which the Pao On case [1980] A.C. 614 also resembles these cases inasmuch as the
variation obtained by the alleged duress was needed to put right what was an obvious
commercial omission or mistake in the original contract.
158. [1991] 1 Q.B. 1; above, para.8-020.
159. But see further below, para.8-043.
160. Birks, An Introduction to the Law of Restitution (1985), p.183. cf. Biffin v Bignell (1862) 7 H. &
N. 877, where it was held to be no duress to warn the promisor that the probable consequence
of her failure to agree would be her continued detention in a lunatic asylum.
161. See Birks [1990] L.M.C.L.Q. 342, 346.
162. Mutual Finance Co Ltd v John Wetton & Sons Ltd [1937] 2 K.B. 389, 395. Thus in Williams v
Bayley (1866) L.R. 1 H.L. 200 a father executed a mortgage to a banker, who insisted on this
course as he had it in his power to prosecute the father’s son for forgery. There was no direct
threat of a prosecution, but the mortgage was executed in return for the delivery up of the
documents forged. It was held that the mortgage was unenforceable in equity as the father was
not a free and voluntary agent since he knew that unless he undertook the liability his son
would be prosecuted.
163. B. & S. Contracts & Design Ltd v Victor Green Publications Ltd [1984] I.C.R. 419.
164. Posner (1977) 6 J.L.S. 411 makes the telling point that if a party will become bankrupt unless
he is promised extra, it is very much in the promisor’s interest to be able to make a binding
promise to pay the extra amount in order to get the work finished, even though the promisor has
no practical choice.
165. Halson (1991) 110 L.Q.R. 649.
166. Birks at p.183; also [1990] L.M.C.L.Q. 342, 347.
167. e.g. DSND Subsea Ltd v Petroleum Geo-services ASA [2000] B.L.R. 530 at [131]; Adam Opel
GmbH v Mitras Automotive UK Ltd [2007] EWHC 3252 (QB), [2007] All E.R. (D) 272 (Dec) (no
good faith belief that entitled to compensation demanded).
168. Compare B. & S. Contracts and Design Ltd v Victor Green Publications Ltd [1984] I.C.R. 419,
where the difficulty faced by the threatening party (a strike by its workers) was not related to the
contract and may have been one it should have dealt with. See also Adam Opel GmbH v Mitras
Automotive UK Ltd [2007] EWHC 3252 (QB), [2007] All E.R. (D) 272 (Dec) (claim so
unreasonable that genuine belief would count for little: at [34]).
169. North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] Q.B. 705.
170.
But compare Goff and Jones, Law of Unjust Enrichment, 9th edn (2016), paras 10-62–10-63.
171. Mance J. in Huyton v Cremer [1999] 1 Lloyd’s Rep. 620, 637. This follows from cases such as
Wade v Simeon (1846) 2 C.B. 528; 135 E.R. 1061: above, para.4-051.
172. cf. below, Ch.23.
173. See Birks and Chin, Good Faith and Fault in Contract Law (1995), pp.57–97, 62. See also
Huyten SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep. 620, 637.
174. [1979] Q.B. 705; above, para.8-016.
175. Kerr J. in Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep. 293,
335.
Page 6
176. Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep. 620, 637, though Mance J.
described the argument that a threatened breach of contract may not represent illegitimate
pressure if there was a reasonable commercial basis for the threat as “by no means
uncontentious”; DSND Subsea Ltd v Petroleum Geo-services ASA [2000] B.L.R. 530 at [131],
where Dyson J. said: “In determining whether there has been illegitimate pressure, the courts
take into account a range of factors. These include whether there has been an actual or
threatened breach of contract; whether the person allegedly exerting the pressure has acted in
good or bad faith … ”. The relevant passage is quoted in full below, para.8-045.
177.
The attitude of the main contractors in Williams v Roffey [1991] 1 Q.B. 1 may be explained by
the fact that the subcontractors appear to have under-priced the job. cf. Goff and Jones, Law of
Unjust Enrichment, 9th edn (2016), para.10-64.
178. [1989] Q.B. 833.
179. He also held that there was no consideration for the payment; but after the decision in Williams
v Roffey & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1, the presence or absence of consideration
may depend on whether or not there was duress: see above, para.8-020.
180. For a helpful discussion of “fairness” in this context, see Burrows, Law of Restitution, 3rd edn
(2011), pp.274–275.
181. “[A] threat to break a contract will generally be regarded as illegitimate, particularly where the
defendant must know that it would be in breach of contract if the threat were implemented”:
Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113 (Comm), [2010] 2 Lloyd’s
Rep. 653 at [92], Christopher Clarke J.
182. e.g. Cook v Wright (1861) 1 B. & S. 559, 569; above, para.4-053.
188. For possible exceptions see below, para.8-046.
189. See above, para.8-011; but see the next paragraph.
190.
cf. Goff and Jones, Law of Unjust Enrichment, 9th edn (2016), paras 10-62–10-63.
191. DSND Subsea Ltd v Petroleum Geo-services ASA [2000] B.L.R. 530 at [131]. Dyson J.’s
statement was accepted as correct by both sides in the later case of Carillion Construction Ltd v
Felix (UK) Ltd [2001] B.L.R. 1, also before Dyson J.

Page 1

(f) - Threats of Actions not in Themselves Wrongful
Threat to commit otherwise lawful act
8-046
Threatening to carry out something perfectly within one’s rights will not normally amount to duress;
for instance, a party who relies on his existing contractual rights to drive a hard bargain is not, on that
ground alone, guilty of economic duress. 192 But there can be no doubt that even a threat to commit
what would otherwise be a perfectly lawful act may be improper if the threat is coupled with a demand
which goes substantially beyond what is normal or legitimate in commercial arrangements. It was at
one time suggested that it could not be unlawful to threaten to exercise one’s legal rights, no matter
what the motive. 193 But such a principle is too widely stated. There are, for example, many cases
where a man who has a “right”, in the sense of a liberty or capacity to do an act which is not unlawful,
but which is calculated seriously to injure another, will be liable to a charge of blackmail if he
demands money from that other as the price of abstaining, e.g. from disclosing discreditable incidents
in the victim’s life. 194 Although it is, in general, true to say that a contract is not rendered voidable by
reason of the fact that pressure has been lawfully applied so as to compel the promisor to accept its
terms, 195 it is unlikely that a court would refuse to entertain an action at the suit of one who had paid
money under a threat amounting to blackmail, or to set aside any agreement entered into as the
result of such a threat. 196 In American law there are many illustrations of other threats to commit
acts lawful in themselves which have been held to amount to duress when coupled with unreasonable
demands. 197 For instance, a threat (lawfully) to dismiss an injured employee unless he accepted a
manifestly low settlement for his injuries has been held to be unlawful duress. 198 It seems probable
that a similar decision would be reached on such facts by an English court. On the other hand, care
must be taken in treating threats lawful in themselves as amounting to duress, for otherwise threats
commonly used in business (e.g. of lawful strikes 199) would fall into the category of economic duress.
8-047
In CTN Cash and Carry Ltd v Gallaher Ltd 200 the plaintiffs had ordered goods from the
defendants, who delivered them by mistake to the wrong warehouse, from which they were stolen.
The defendants, honestly but wrongly believing that the goods were at the plaintiffs’ risk, invoiced
them. The plaintiffs initially refused to pay but did so after the defendants threatened to withdraw the
plaintiffs’ credit facilities, which, it was said, would seriously jeopardise the plaintiffs’ business. The
defendants had the right to withdraw credit facilities at any time. The plaintiffs later sought repayment.
The Court of Appeal upheld the trial judge’s decision that no case of economic duress had been
made out. Steyn L.J., with whom the other members of the Court agreed, said that the combination of
the facts that: (i) the defendants were entitled to refuse to enter into any future contracts with the
plaintiffs for any reason; and (ii), critically, that the defendants bona fide thought that the plaintiffs
owed the sum in question, was sufficient to distinguish cases in which a plea of economic duress had
succeeded. The fact that the defendants were in a sense in a monopoly position was irrelevant, the
control of monopolies being as matter for Parliament. Although there are cases in which the courts
Page 2
have accepted that a threat of a lawful action coupled with a demand for payment may be illegitimate,
201
it would be a relatively rare case in which “lawful act duress” could be established in a commercial
context. 202 In R. v Attorney-General for England and Wales 203 the Privy Council held that a
confidentiality agreement signed by a member of the SAS under threat of being returned to his
original unit if he did not sign was not voidable for duress: the threat was not unlawful, as the Crown
had the right to transfer any member of the SAS to another unit, and the demand could be justified on
the ground that the Ministry of Defence was reasonably entitled to regard anyone unwilling to accept
the obligation of confidentiality as unsuitable for the SAS. 204
Threat not to contract
8-048
It is not clear whether a threat not to enter into a contract unless the threatener’s terms are met
could ever amount to improper pressure, for example where the threatener’s terms are extortionate.
There are a number of salvage cases in which extortionate demands have been made to rescue a
vessel (or those on board) and the contracts so entered into have been set aside, or refused
enforcement. 205 But these cases may rest upon the principle of maritime law that a duty to rescue
human life is imposed on putative rescuers, so that the threat not to rescue may be unlawful. Other
cases can be put in which a threat not to act, or not to contract, may be lawful in itself, and yet may be
strongly coercive, for example where the threatener is in a monopoly position. However, there are
Commonwealth authorities which hold that a person who is under no duty to enter into a contract with
another is entitled to set his own terms, even though these may seem extortionate and the other party
may have little choice but to comply. 206
Threat to prosecute
8-049
A threat to prosecute may itself be an unlawful threat if the charge is known to be false and the threat
is made for malice or other improper motive. Such a threat would amount to a threat to commit the
tort of malicious prosecution. 207 Consequently, a contract made as a result of such a threat would, it
seems, be a clear case of a contract entered into as a result of duress, and if the other conditions are
satisfied, would be voidable for that reason. Even at common law such action could constitute duress
as to the person because the result of the prosecution could be the imprisonment of the threatened
party, and this was sufficient to constitute duress as to the person 208; in equity, an even broader view
was taken, though most of the equitable cases were dealt with as instances of undue influence. Thus
in Williams v Bayley, 209 a father executed a mortgage to a banker, who insisted on this course as he
had it in his power to prosecute the father’s son for forgery. There was no direct threat of a
prosecution, but the mortgage was executed in return for the delivery up of the documents forged. It
was held that the mortgage was unenforceable in equity as the father was not a free and voluntary
agent since he knew that unless he undertook the liability his son would be prosecuted. A threat to
prosecute, even when perfectly proper in itself, in the sense that a prosecution would be justified, may
amount to an improper threat for the purposes of the law, if it is coupled with a demand for restitution
or for a promise of restitution or other contractual undertaking. 210 In Mutual Finance Co Ltd v John
Wetton & Sons Ltd 211 a guarantee was obtained from a family company under an implied threat to
prosecute a member of the family for the alleged forgery of a previous guarantee. The persons
seeking to enforce the guarantee knew that at the time it was given the father of the alleged forger
was so ill that the shock of the prosecution of his son was likely to endanger his life. The guarantee
was held to be invalid on the basis of actual undue influence. It is submitted that today the wider
equitable rule will prevail, so that a contract will be voidable if obtained by a threat of criminal
prosecution or other lawful imprisonment, if the threat amounts to the use of illegitimate pressure.
Stifling a prosecution
8-050
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An agreement obtained by threats to prosecute for a criminal offence may also be invalid on the
ground that it involves the stifling of a prosecution for the offence. 212 In such a case, it is not sufficient
for the party seeking to avoid the contract to show that his promise induced the other party to abstain
from criminal proceedings. 213 He must go further and show that it was an express or implied term of
the contract that there should be no prosecution. 214 An agreement of this nature is not only voidable
on the ground of duress, but may be void as being contrary to public policy. 215 Money paid in
pursuance of an illegal agreement is ordinarily irrecoverable; but the presence of duress may enable
the party threatened to plead that he was not in pari delicto, and so he may recover his money by an
action for money had and received. 216 The law will permit the compromise of a claim for damages,
though made the subject of a criminal prosecution, in certain limited circumstances. 217 It is, however,
submitted that a plea of duress might still be admitted to an action on a compromise of this nature if it
were shown that it was arrived at by an illegitimate threat of a criminal prosecution. The modern trend
seems to be to discourage the making of such contracts whenever serious crime is involved. If a
contract is made without the matter being reported to the police there is a strong probability that the
transaction will be held to amount to the stifling of a prosecution. And if the contract is made after the
matter is reported to the police then there is a danger that it will amount to a conspiracy to pervert the
course of justice. 218 To make a valid contract in such circumstances, it should be made absolutely
clear that the innocent party is only compromising his civil claim for damages, and is neither
threatening to report the matter to the police, nor to prosecute, nor offering not to do so.
Threat to institute civil proceedings
8-051
Since recourse to law is the remedy for redress provided by the law itself, it is obvious that prima facie
a threat to enforce one’s legal rights by instituting civil proceedings cannot be an unlawful or wrongful
threat. Consequently a contract which is obtained by means of such a threat must prima facie be
valid, and cannot be impeached on grounds of duress. 219 So an ordinary bona fide compromise is
clearly a valid contract even though exacted under threats to bring (or defend) legal proceedings, or
to appeal from a judgment already given. Even a threat to bring proceedings where there is no ground
of action in law is prima facie not an unlawful threat, at least where the threat is made bona fide, and
is not manifestly frivolous or vexatious. 220 On the other hand, the malicious institution of some forms
of legal process or other civil proceedings is, at least in limited circumstances, a tort, 221 and a threat
to institute proceedings which would constitute a tort will therefore prima facie constitute a threat to do
something unlawful; consequently a contract entered into as a result of such a threat may be voidable
on grounds of duress. It is not clear whether a threat to institute civil proceedings which is not
unlawful in itself could ever constitute duress for present purposes, if it is coupled (for instance) with a
wholly unjustified demand, or if it is made in special circumstances (for instance) in which the
defendant has a particular fear of the publicity which may follow from a claim. In principle there seems
no reason why such a threat should not amount to duress in appropriate circumstances, but for
obvious reasons these are likely to be rare. 222
192. Alec Lobb Ltd v Total Oil G.B. Ltd [1983] 1 W.L.R. 87 (varied on other points, [1985] 1 W.L.R.
173).
193. Allen v Flood [1898] A.C. 1; Ware and De Freville v Motor Trade Association [1921] 3 K.B. 40;
Hardie and Lane Ltd v Chilton [1928] 2 K.B. 306; Chapman v Honig [1963] 2 Q.B. 502; cf.
Quinn v Leathem [1901] A.C. 495.
194. Thorne v Motor Trade Association [1937] A.C. 797, 822; Universe Tankships of Monrovia Inc v
I.T.W.F. [1983] 1 A.C. 366, 401.
Page 4
195. Hardie and Lane Ltd v Chilton [1928] 2 K.B. 306; Eric Gnapp Ltd v Petroleum Board [1949] 1 All
E.R. 980.
196.
Norreys v Zeffert [1939] 2 All E.R. 187; United Australia Ltd v Barclays Bank Ltd [1941] A.C.
1, 29; Universe Tankships of Monrovia Inc v I.T.W.F. [1983] A.C. 366, 401. In Times Travel
(UK) Ltd v Pakistan International Airlines Corp [2017] EWHC 1367 (Ch) Warren J. (at [252])
said that the words of this paragraph to this point represented an “accurate albeit incomplete
summary” of the law. In that case it was held that even though the defendant had not
threatened actions that were unlawful, the pressure it had applied was illegitimate: at [262].
197. See Restatement of Contracts, para.176(2).
198. Mitchell v C.C. Sanitation Co (1968) 430 S.W. 2d. 933; cf. the somewhat similar facts in Arrale v
Costain Engineering Ltd [1976] 2 Lloyd’s Rep. 98, though there was no real duress in this case.
199. Threats of unlawful strikes are usually protected by the statutory immunities governing acts
done in the course of furtherance of a trade dispute: see Trade Union and Labour Relations
Consolidation Act 1992. But coercive threats falling outside these immunities will often
constitute unlawful duress, see, e.g. Universe Tankships of Monrovia Inc v I.T.W.F. [1983] A.C.
366, above, para.8-018.
200.
[1994] 4 All E.R. 715; Marsden v Barclays Bank Plc [2016] EWHC 1601 (QB). Compare
Progress Bulk Carriers Ltd v Tube City IMS LLC (The Cenk Kaptanoglu) [2012] EWHC 273
(Comm), [2012] 1 Lloyd’s Rep. 501, where the owners had earlier broken the charter by failing
to provide the chartered ship; they then refused to provide a replacement vessel unless the
charterers waived any claim for damages. It was held that the agreement to waive claims
voidable for economic duress. It is submitted that despite the discussion of conduct which is not
itself unlawful at [36], this is a case in which not only had the owner’s committed a wrongful act
already but their threat to provide a replacement only if the charterers gave up their rights to
damages was itself a threat of a wrongful act, i.e. refusing to provide the charterers with a full
remedy for the initial breach.
201. e.g. Thorne v Motor Trade Association [1937] A.C. 797.
202.
Marsden v Barclays Bank Plc [2016] EWHC 1601 (QB) at [35]. The threat, if not wrongful,
must at least be immoral or unconscionable. There is nothing unconscionable in the owner of
goods let on hire purchase threatening to repossess them when the hirer is in default and has
not applied for relief against forfeiture: Alf Vaughan & Co Ltd v Royscot Trust Ltd [1999] 1 All
E.R. 856.
203. [2003] UKPC 22.
204. [2003] UKPC 22 at [17]–[18].
205. See Akerblom v Price (1881) 7 Q.B.D. 129; The Rialto [1891] P.175; The Port Caledonia and
the Anna [1903] P.184; The Crusader [1907] P.196. See now Merchant Shipping Act 1995
s.224, which provides for the Salvage Convention 1989 (contained in Sch.11 to the Act) to have
the force of law. The Convention provides in art.7:
“Annulment and modification of contracts
A contract or any terms thereof may be annulled or modified if—
(a)
the contract has been entered into under undue influence or the influence of
Page 5
danger and its terms are inequitable; or
(b)
the payment under the contract is in an excessive degree too large or too
small for the services actually rendered.“
Article 13 sets out criteria for fixing the proper reward.
206.
See, e.g. Smith v William Charlick Ltd (1924) 34 C.L.R. 38; Morton Construction v City of
Hamilton (1961) 31 D.L.R. (2d) 323. See Goff and Jones at 9th edn (2016), paras 10-71–10-72.
207. Duke Cadaval v Collins (1836) 4 A. & E. 858; Flower v Sadler (1882) 10 Q.B.D. 572.
208. Smith v Monteith (1844) 13 M. & W. 427; Mutual Finance Co Ltd v John Wetton & Sons Ltd
[1937] 2 K.B. 389, 395.
209. (1866) L.R. 1 H.L. 200.
210. Kaufman v Gerson [1904] 1 K.B. 591.
211. [1937] 2 K.B. 389.
212. Williams v Bayley (1866) L.R. 1 H.L. 200; Windhill Local Board v Vint (1890) 45 Ch. D. 351;
Jones v Merionethshire Permanent Benefit Building Society [1892] 1 Ch. 173; see also Criminal
Law Act 1967 s.5(1), (5) and below, paras 16-044—16-046.
213. Flower v Sadler (1882) 10 Q.B.D. 572; Barnes v Richards (1902) 71 L.J.K.B. 341.
214. Jones v Merionethshire Permanent Benefit Building Society [1892] 1 Ch. 173 but the modern
trend seems somewhat against this restricted view: see R. v Panayiotou [1973] 1 W.L.R. 1032.
215. See below, para.16-046; Keir v Leeman (1846) 9 Q.B. 371.
216. Smith v Cuff (1817) 6 M. & S. 160; Davies v London and Provincial Marine Insurance Co (1878)
8 Ch. D. 469. The same is generally true of fraud: Atkinson v Denby (1862) 7 H. & N. 934;
Shelley v Puddock [1980] Q.B. 348.
217. Keir v Leeman (1846) 9 Q.B. 371, 395; Fisher & Co v Apollinaris Co (1875) L.R. 10 Ch. App.
297; see also Criminal Law Act 1967 s.5(1), (5), and below, paras 16-044—16-046. See also
Hudson (1980) 43 M.L.R. 532.
218. See R. v Panayiotou [1973] 1 W.L.R. 1032.
219. Powell v Hoyland (1851) 6 Exch. 67; Ex p. Hall (1882) 19 Ch. D. 580.
220. Decisions upholding the validity of compromises in such cases usually turn on the existence of
consideration and have been dealt with above (paras 4-047 et seq.); although the presence of
consideration is not conclusive that there is no duress (see above, para.8-020) it seems clear
that a bona fide compromise could not be attacked on grounds of duress any more than on
grounds of want of consideration.
221. See, e.g. Roy v Prior [1971] A.C. 470.
222. An example of a threat to take legal proceedings which in the circumstances amounted to
Page 6
improper pressure, and thus actual undue influence, is Drew v Daniel [2005] EWCA Civ 507,
[2005] 2 F.C.R. 365.

Page 1

(g) - Parties to Duress
By whom suffered
8-052
Earlier, it was submitted there may be duress to the person when the threat is not to injure the party
who makes the promise but a third person. 223 It was at one time said that the duress must be suffered
by the party who enters into the contract, so that duress against a principal debtor would be no
defence to an action on a bond against a surety. 224 But there is no modern authority to this effect, and
it does not seem likely that a surety who gave an indemnity as the result of threats of violence to the
principal debtor would be liable. Similarly, if an agent enters into a contract for his principal, from the
same fear of the inconvenience which may arise to the principal from the latter being kept in
confinement as would affect the mind of the principal himself, such a contract will be voidable on the
ground of duress. 225 So, too, duress to a wife will avoid a contract given under its influence by her
husband, 226 duress to a child will avoid a contract obtained by means thereof from a parent, 227 and
even duress to a more remote relative will suffice if a contract is entered into under its influence. 228
Threats against the claimant’s employees have been held to constitute duress. 229 Duress to a
stranger was formerly thought to be ineffective, 230 and would no doubt be exceedingly rare. But if A
takes B as a hostage and threatens to shoot him unless C signs a written agreement placed in front of
him by A, it does not seem likely that the agreement would be held binding merely because B is a
stranger to C. There are old cases holding that a contract made by a person in consideration of the
discharge of a third party from illegal arrest is unenforceable as a mere nudum pactum. 231 In modern
times it is possible that a court would find consideration in such circumstances (for the promisor would
not have made the promise unless he regarded the release of the third party as a benefit to him) but
would hold the promise voidable for duress.
Duress exercised by third party
8-053
Where it is sought to avoid a contract on the ground of duress exercised, not by the party seeking to
enforce the agreement, but by some third person, the party seeking to avoid the contract must prove
that the other party knew of the duress, 232 or had constructive notice of it or had procured the making
of the contract through the agency of the party who exercised the duress. 233
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223. Above, para.8-012.
224. Roll.Abr. 687, pl. 7; Bacon Abr. Duress (B); Huscombe v Standing (1607) Cro.Jac. 187. And
225. Cumming v Ince (1847) 11 Q.B. 112.
226. Kaufman v Gerson [1904] 1 K.B. 591.
227. Williams v Bayley (1866) L.R. 1 H.L. 200.
228. Seear v Cohen (1881) 45 L.T. 589; Jones v Merionethshire Permanent Benefit Building Society
[1892] 1 Ch. 173.
229. Royal Boskalis Westminster NV v Mountain [1999] Q.B. 674 (threat to use employees as
human shield); Gulf Azov Shipping Co Ltd v Chief Idisi (No.2) [2001] EWCA Civ 505, [2001] 1
Lloyd’s Rep. 727 (detention of ship and crew).
230. 1 Roll.Abr. 687, pl. 6.
231. Smith v Monteith (1844) 13 M. & W. 427; Pole v Harrobin (1782) 9 East 416n.
232. Kesarmal s/o Letchman Das v Valliappa Chettiar (N.K.V.) s/o Nagappa Chettiar [1954] 1 W.L.R.
380. In the case of a bill of exchange, the onus of proof is shifted by s.30(2) of the Bills of
Exchange Act 1882, but this has been held not to apply where the holder seeking to enforce the
instrument is the person to whom it was originally delivered and in whose possession it
remains: Talbot v Von Boris [1911] 1 K.B. 854; Hasan v Willson [1977] 1 Lloyd’s Rep. 431
(fraud).
233. These propositions are based on the cases of misrepresentation and undue influence, see
above, paras 7-024 et seq. and below, paras 8-108 et seq.

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(h) - General Effect of Duress
Contract under duress is voidable 234
8-054
Despite earlier doubts, 235 it now seems clearly established that a contract entered into under duress
is voidable and not void 236; consequently a person who has entered into a contract under duress may
either affirm or avoid such contract after the duress has ceased 237; and if he has voluntarily acted
under it with a full knowledge of all the circumstances he may be held bound on the ground of
ratification, 238 or if, after escaping from the duress, he takes no steps to set aside the transaction, he
may be found to have affirmed it. 239
Right to rescind cannot be excluded
8-054A
The right to rescind an agreement reached under duress cannot be excluded by the terms of the
agreement. 240
Counter-restitution of benefits
8-055
In some circumstances a person may not be able to avoid a contract he has entered into under
duress unless he is able to restore the benefits he has received under the contract, at least in
substantially the same form, or make an adequate monetary allowance. The position is the same as
in cases of misrepresentation or undue influence 241; there are not separate rules for duress at
common law and other grounds on which a contract may be avoided in equity. 242 The court will:
“… give … relief whenever, by the exercise of its powers, it can do what is practically just,
though it cannot restore the parties precisely to the state there were in before the
contract.” 243
However, the prime concern is to prevent unjust enrichment of the party who made the threat; that he
should not be prejudiced is a secondary consideration and whether counter-restitution in any form will
be required will depend on the circumstances of the case. 244 Thus where the agreement was a
compromise under which all documents relating to the agreement were to be and had been
destroyed, which (if the agreement were avoided) would benefit the party seeking to avoid and
prejudice the other parties, it would not necessarily be impossible to avoid the contract for alleged
Page 2
duress even though pecuniary relief could not adequately restore the other parties’ position. 245 It is
submitted that counterrestitution or at least pecuniary compensation will normally be required where
the transaction to be set aside involved an exchange from which the victim obtained some benefit. 246
In contrast, where the promise that it is sought to avoid was merely one to pay an additional sum for a
benefit already due under an existing contract, 247 there should be no requirement of
counter-restitution. 248
Damages for duress
8-056
As previously stated, 249 modern authorities have relied upon the analogy of fraud in adumbrating the
law relating to duress. In particular, it now seems clear that a person may affirm a contract which
would have been voidable for duress. In these circumstances it may be a matter of some importance
to consider whether duress may constitute a tort, like fraud, so that damages may be obtained, either
in addition to, or in lieu of, rescission of a contract entered into as a result of the duress. The leading
authority on the tort of intimidation (or duress) is Rookes v Barnard 250 where the defendants
conspired together to threaten to break their contracts of employment with the plaintiff’s employer if
he did not terminate the plaintiff’s contract of employment. They were held liable to the plaintiff on the
ground that a threat to break a contract was a sufficient unlawful act for the purpose of the tort of
intimidation, at least where the intimidation is of a third party. Since it now appears clear that a threat
to break a contract may, in appropriate circumstances, constitute unlawful duress in the law of
contract, so that a variation of the contract thereby obtained may be voidable as a matter of contract
law, it would seem that the doctrines of duress and intimidation are based on similar principles. 251 (It
is, of course, also clear that a threat to commit a crime or a tort may equally constitute both duress in
contract law, and intimidation in tort law.) If this is correct, it may be that, even where a person has
affirmed a contract which is voidable for duress, damages could still be recovered in tort. In Universe
Tankships of Monrovia v I.T.W.F. 252 Lords Diplock and Scarman expressed differing views on the
point. The question was not considered in North Ocean Shipping Co Ltd v Hyundai Construction Co
Ltd, 253 even though this case is a firm authority for holding that duress renders a contract voidable
and not void. Yet it is arguable that this conclusion makes it all the more necessary to recognise that
damages may be recovered for duress; for otherwise (as indeed was held in this case) the plaintiff
who has lost his right to avoid will be left without any remedy for a wrongful act.
234. This paragraph was accepted as stating the law correctly in Capital Structures Plc v Time &
Tide Construction Ltd [2006] EWHC 591, [2006] B.L.R. 226 at [18]. Acquiescence is
presumably also a bar, as it is in cases of misrepresentation and undue influence: see below,
para.8-101.
235. Lanham (1966) 29 M.L.R. 615. In Barton v Armstrong [1976] A.C. 104, 120, the majority of the
Privy Council spoke of the contract as being void “so far as concerns” the plaintiff, but they were
not adverting to this point. Indeed, the analogy with fraud which was relied upon by the majority
supports the view stated in the text. See above, para.8-007 n.43.
236. See Lynch v D.P.P. of Northern Ireland [1975] A.C. 653, 695; North Ocean Shipping Co Ltd v
Hyundai Construction Co Ltd [1979] Q.B. 705.
237. North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] Q.B. 705. See also Pao On
v Lau Yiu Long [1980] A.C. 614.
238. Ormes v Beadel (1860) 2 De G.F. & J. 333.

Page 3
239. As in North Ocean Shipping Co Ltd v Hyundai Construction Ltd [1979] Q.B. 705, in which this
passage was cited. See further below, para.8–101. In Royal Boskalis Westminster NV v
Mountain [1999] Q.B. 674, 730, Phillips L.J. expressed some difficulty in saying that a contract
has been avoided on the grounds of duress if it is governed by a foreign law which would afford
no right of avoidance but where the duress was so unconscionable that English law would
override the proper law of the contract (see above, para.8-038 n.149). However, he considered
that English law would not recognise the effects of the contract (at 731).
240.
Borrelli v Ting [2010] UKPC 21, [2010] Bus. L.R. 1718 at [40]. Compare the right to rescind
for fraud, Vol.I, para.7-143.
241. See above, paras 7-123—7-128 and below, paras 8-102—8-107.
242. Halpern v Halpern (No.2) [2007] EWCA Civ 291, [2008] Q.B. 195 at [70]–[73].
243. Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1279.
244. Halpern v Halpern (No.2) [2007] EWCA Civ 291 at [75]–[76]. For a case of fraudulent
misrepresentation in which the judge seems to have taken the view that rescission was no
longer possible because it was not possible to return the parties to their original position, see
Crystal Palace FC (2000) Ltd v Dowie [2007] All E.R. (D) 135 (Jun) at [210]–[218].
245. Halpern v Halpern (No.2) [2007] EWCA Civ 291, [2008] Q.B. 195; reversing [2006] EWHC 1728
(Comm), [2006] 3 All E.R. 1139.
246. Compare Carnwath L.J.’s example of work being done that was not needed: [2007] EWCA Civ
291 at [74]. It may be that counter-restitution is not required if criminal fraud is used merely as a
defence: see above, para.7-117 n.527. It is possible that the same approach, which seems to
be based on the ex turpi causa rule (see below, paras 16-174 and 16-185), would be applied in
cases of duress were the duress to amount to a crime.
247. As in, e.g. North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] Q.B. 705; see
above para.8-016.
248. See Burrows, Law of Restitution, 3rd edn (2011), pp.261-262, giving other examples also.
249. Above, para.8-007.
250. [1964] A.C. 1129.
251. See Universe Tankships of Monrovia Inc v I.T.W.F. [1983] 1 A.C. 366, 385, 400. But cf. Lord
Reid in J. T. Stratford & Son Ltd v Lindley [1965] A.C. 269, 325, where some doubt is thrown on
the possible assimilation of two-party duress cases (where A coerces B) with three-party cases
(where A coerces B who acts so as to cause loss to C). The reason for Lord Reid’s doubts is
that in the twoparty case, unlike the three-party case, the plaintiff has a choice not to submit to
the coercion, but to pursue his legal remedies. But this doubt seems to be disposed of by Lord
Scarman’s judgment in Pao On v Lau Yin Long [1980] A.C. 614 (above, para.8-017), where it is
stressed that the question turns on the effectiveness of the remedy which the coerced party
has. Damages for intimidation were recovered in a case of duress by threatened breach of
contract in Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113 (Comm), [2010] 2
Lloyd’s Rep. 653; see at [119]–[121]. See also Berezovsky v Abramovich [2011] EWCA Civ
153, [2011] 1 W.L.R. 2290 at [5] (“the essential ingredients of the tort of intimidation are: (1) a
threat by the defendant to do something unlawful or ‘illegitimate’; (2) the threat must be
intended to coerce the claimant to take or refrain from taking some course of action; (3) the
threat must in fact coerce the claimant to take such action; (4) loss or damage must be incurred
by the claimant as a result”); Clerk & Lindsell on Torts, 21st edn (2014), para.24-69.
252. [1983] A.C. 366, 385, 400. See Carty and Evans [1983] J.B.L. 218, 223–225. In Dimskal
Shipping Co SA v I.T.W.F. [1992] 2 A.C. 152, Lord Goff followed Lord Diplock’s analysis that
economic duress is not a tort per se.
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253. [1979] Q.B. 705, above, para.8-016.

Page 1

Section 3. - Undue Influence 254
(a) - Introduction
Equitable doctrine of undue influence
8-057
The equitable doctrine of undue influence is a comprehensive phrase covering cases in which a
transaction between two parties who are in a relationship of trust and confidence may be set aside if
the transaction is the result of an abuse of the relationship. The transaction may be set aside if the
claimant shows that the other party obtained it by abusing the relationship; this, as we shall see, is
often termed “actual undue influence”, but it is better to refer to such cases as ones in which undue
influence is actually (or directly) proved. 255 A transaction may also be set aside in the absence of
direct proof if claimant shows the existence of a relationship of trust and confidence with the other
party, and that the transaction is one that “calls for explanation”. 256 Then there will be an evidential
presumption 257 that the transaction was the result of undue influence and unless the presumption is
rebutted, the transaction may be set aside. 258 The doctrine extends to cases of coercion, domination,
or pressure outside those special relations, though such cases will often now come within the doctrine
of duress. 259 As was said by Lord Chelmsford L.C.: “[t]he courts have always been careful not to
fetter this useful jurisdiction by defining the exact limits of its exercise”. 260 Although most of the cases
in which undue influence has been successfully pleaded relate to gifts and guarantees, 261 the same
principles apply to purchases at an undervalue or sales at an excessive price. 262 The difference
between a gift and a contract that “calls for explanation” is for this purpose only a matter of degree. 263
The rules may also apply to contracts which are not obviously disadvantageous to the complainant in
terms of under- or over-value, at least where undue influence actually is shown 264 and probably
where proof rests on a presumption, because (it will be submitted) a transaction may not involve a
sale at under- or over-value yet still be one that calls for an explanation.
Basis of doctrine
8-058
At common law, the presence of duress was (as has been seen) traditionally justified on the ground
that the duress prevented the party constrained from forming a full and independent resolution to
contract. Cases treated as falling within the doctrine of undue influence included cases of coercion
that are now seen as ones of duress, and were treated in the previous section, 265 but the equitable
doctrine was much wider than this. In equity, however, the application of the doctrine of undue
influence was intended rather to ensure that no person should be allowed to retain the benefit of his
own fraud or wrongful act. The equity view was well expressed in Allcard v Skinner 266:
“This is not a limitation placed on the action of the donor; it is a fetter placed upon the
conscience of the recipient of the gift, and one which arises out of public policy and fair
play.”
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Equity therefore acts on the conscience of the donee, not primarily on want of a true consent on the
part of the donor. As a result, the equitable doctrine extends not only to cases of coercion, but to all
cases “where influence is acquired and abused, where confidence is reposed and betrayed”. 267 It has
been said that:
“… the question is not whether [the party influenced] knew what she was doing, had done
or was proposing to do, but how the intention was produced.” 268
Traditional explanations of undue influence frequently refer to the “conscience of the recipient”, 269
and modern cases often use similar phrases. Thus it has been said that “[t]he court of equity … sets
aside transactions obtained by the exercise of undue influence because such conduct is
unconscionable”. 270 In a recent House of Lords case, actual undue influence was described as “a
species of fraud” and from this was drawn the conclusion that the complainant need not show that
she was “manifestly disadvantaged” by the transaction concerned. 271 And in the latest decision of the
House of Lords, Lord Nicholls (whose opinion was supported by all their Lordships) referred variously
to “the taking of unfair advantage”, 272 “misuse” of influence, 273 “abuse of trust and confidence” 274 and
a “connotation of impropriety”. 275 However, there is some disagreement or ambiguity over the
circumstances in which the conscience of the stronger party (normally the defendant) will be
engaged.
When the stronger party’s conscience is engaged
8-059
There is some difference of opinion, both judicial and academic, 276 as to when the conscience
of the stronger party (normally the defendant) will be engaged. It is certain that a transaction may be
avoided if it is proved that the defendant obtained it by exploiting his relationship with the claimant to
put emotional pressure on the claimant 277; or if he used the fact that the claimant was willing to follow
his suggestions without question to “prefer his own interests”. 278 However transactions that were
manifestly one-sided—the cases have involved gifts—have been set aside when the defendant
seems merely to done no more than acquiesce in receiving the gift without ensuring the claimant took
independent advice or putting it to him that it might leave him with inadequate means of support. 279 It
has been pointed out 280 that in the leading case of Allcard v Skinner, Lindley L.J. put the matter in
terms of protecting the victim from fraud:
“The principle must be examined. What then is the principle? Is it that it is right and
expedient to save persons from the consequences of their own folly? or is it that it is right
and expedient to save them from being victimised by other people? In my opinion the
doctrine of undue influence is founded upon the second of these two principles. Courts of
Equity have never set aside gifts on the ground of the folly, imprudence, or want of
foresight on the part of donors. The Courts have always repudiated any such jurisdiction
… It would obviously be to encourage folly, recklessness, extravagance and vice if
persons could get back property which they foolishly made away with, whether by giving
it to charitable institutions or by bestowing it on less worthy objects. On the other hand, to
protect people from being forced, tricked or misled in any way by others into parting with
their property is one of the most legitimate objects of all laws; and the equitable doctrine
of undue influence has grown out of and been developed by the necessity of grappling
with insidious forms of spiritual tyranny and with the infinite varieties of fraud.” 281
Cotton L.J., in contrast, put the matter in terms of a public policy to ensure that the claimant acted
spontaneously 282:
“These decisions may be divided into two classes—First, where the Court has been
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satisfied that the gift was the result of influence expressly used by the donee for the
purpose; second, where the relations between the donor and donee have at or shortly
before the execution of the gift been such as to raise a presumption that the donee had
influence over the donor. In such a case the Court sets aside the voluntary gift, unless it
is proved that in fact the gift was the spontaneous act of the donor acting under
circumstances which enabled him to exercise an independent will and which justifies the
Court in holding that the gift was the result of a free exercise of the donor’s will. The first
class of cases may be considered as depending on the principle that no one shall be
allowed to retain any benefit arising from his own fraud or wrongful act. In the second
class of cases the Court interferes, not on the ground that any wrongful act has in fact
been committed by the donee, but on the ground of public policy, and to prevent the
relations which existed between the parties and the influence arising therefrom being
abused.”
Bowen L.J.’s view was less clear, as he referred to both public policy and “fair play”. 283 Certainly,
some more recent cases have put emphasis on the claimant’s consent, not the defendant’s conduct.
In Pesticcio v Huet, Mummery L.J. said:
“Although undue influence is sometimes described as an “equitable wrong” or even as a

species of equitable fraud, the basis of the court’s intervention is not the commission of a
dishonest or wrongful act by the defendant, but that, as a matter of public policy, the
presumed influence arising from the relationship of trust and confidence should not
operate to the disadvantage of the victim, if the transaction is not satisfactorily explained
by ordinary motives 284: … The court scrutinises the circumstances in which the
transaction, under which benefits were conferred on the recipient, took place and the
nature of the continuing relationship between the parties, rather than any specific act or
conduct on the part of the recipient. A transaction may be set aside by the court, even
though the actions and conduct of the person who benefits from it could not be criticised
as wrongful.” 285
That case also involved a gift. 286 Thus it is not wholly clear whether influence is to be treated as
“undue” only where at the time of the transaction 287 the defendant has engaged in some form of fraud
or improper behaviour (which may be proved directly or through a presumption arising from the nature
of the relationship between the parties and “a transaction requiring explanation”); or whether there
may be undue influence simply because the claimant was not allowed to exercise a free will or given
independent advice. It is submitted, however, that in the light of the decision of the House of Lords in
Royal Bank of Scotland v Etridge (No.2) 288 that there are not two classes of undue influence,
actual and presumed, but merely two methods of proving undue influence (by direct proof or by use of
a presumption that arises when there is a relationship of trust and confidence between the parties 289
and a transaction between them that “requires explanation” 290 ) to insist that undue influence is
limited to cases of wicked exploitation would involve at least a substantial re-working of the
authorities. 291
Unconscionable conduct and the resulting transaction
8-060
It is submitted that the decisions may be reconciled by taking into account the nature of the
transaction. If the transaction is obviously one-sided, like a substantial outright gift to the defendant,
and particularly if it is one that will have serious effects for the claimant, for example, leaving him with
very limited resources, 292 and if there was a relationship of trust and confidence between the parties,
the presumption of undue influence will arise. The defendant will not rebut the presumption by
showing that he did nothing wrong. In cases of presumed undue influence it has long been accepted
that the transaction may be set aside even though it is accepted that the defendant acted with
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propriety. 293 Unconscionability in such a case consists either in the defendant seeking to retain the
benefit received now that it appears that the claimant did not enter the transaction freely, or perhaps
in failing to point out to the claimant that the transaction was not to her advantage and ensuring that
she took proper independent advice. 294 Conversely, if the transaction is not one that requires
explanation, it will not be voidable unless the claimant actually shows that the defendant used
influence. In a case in which the defendant did not exert emotional pressure or resort to
misrepresentation or nondisclosure to obtain the transaction, but merely “decided for” the claimant,
who simply followed the advice, the exercise of influence is unlikely to be held to be undue unless the
defendant “preferred his own interests”. If the defendant was seeking to make an arrangement that
would be to the claimant’s advantage, the exercise is unlikely to be undue. 295 Thus in a case in which
the wife simply signed whatever her husband put in front of her, it was said that the husband’s
influence was not “undue” because the transaction appeared at the time to be to her advantage: the
husband was seeking to obtain for her an interest in a property which at the time was worth more than
the amount charged, as he “was getting on”. 296 In either type of case it is immaterial that the person
to whom the gift or promise is made derives no personal benefit from it. 297
Classes of undue influence
8-061
In Allcard v Skinner Cotton L.J. classified the cases into two:
“First, where the court has been satisfied that the gift was the result of influence expressly
used by the donee for the purpose; second, where the relations between the donor and
donee have at or shortly before the execution of the gift been such as to raise a
presumption that the donee had influence over the donor. In such a case the court sets
aside the voluntary gift, unless it is proved that in fact the gift was the spontaneous act of
the donor acting under circumstances which enabled him to exercise an independent will
and which justify the court in holding that the gift was the result of a free exercise of the
donor’s will. The first class of cases may be considered as depending on the principle
that no one shall be allowed to retain any benefit arising from his own fraud or wrongful
act. In the second class of cases the court interferes, not on the ground that any wrongful
act has in fact been committed by the donee, but on the ground of public policy, and to
prevent the relations which existed between the parties and the influence arising
therefrom being abused.” 298
In Barclay’s Bank Plc v O’Brien 299 Lord Browne-Wilkinson adopted a classification previously set out
by the Court of Appeal, 300 labelling cases of actual undue influence as Class 1 and of presumed
undue influence as Class 2. Class 2 was subdivided into cases in which there is a relationship
between the parties such that it is presumed as a matter of law that undue influence had been used
(Class 2A) and those in which for the presumption to arise it must be proved on the facts the
existence of a relationship under which the complainant generally reposed trust and confidence in the
defendant (Class 2B). However, in the subsequent House of Lords case of Royal Bank of Scotland v
Etridge (No.2) 301 both these classifications and the statements about when a presumption of undue
influence will arise were criticised. In particular, it was pointed out that no presumption that the
influence was undue will arise unless the transaction between the parties is one that is not readily
explicable by ordinary motives. 302 Further, Lord Hobhouse and Lord Scott criticised the “so-called
Class 2B presumption” in particular. 303 And Lord Nicholls, whose opinion was supported by all their
Lordships, remarked that the custom of distinguishing between cases of actual undue influence and
presumed undue influence “can be confusing”. 304 The question is more one of proof. The claimant
may prove undue influence directly. Even if he does not do this, if nonetheless he shows that he
placed trust and confidence in the other party in relation to the management of his affairs, and that the
transaction in question is one that calls for explanation, that “will normally be sufficient, failing
satisfactory evidence to the contrary, to discharge the burden of proof” and the transaction will be
liable to be set aside. 305 The “presumption” “is descriptive of a shift in the evidential onus on a
question of fact”. 306
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“The combination of a relationship in which a wife entrusts financial decisions to her

husband and a transaction which is sufficiently disadvantageous to her to call for
explanation may shift the evidential burden to the party relying on the transaction, but
when the principal participants have given oral evidence, the issue for the Court is
whether on the totality of the evidence, including any appropriate inference, it finds that
the transaction was in fact brought about by undue influence.” 307
It is presumably this which caused Lord Clyde in the Etridge case to doubt the utility of distinguishing
between actual and presumed undue influence. 308
Manifest disadvantage not essential
8-062
In National Westminster Bank Plc v Morgan Lord Scarman, giving the only full speech in the House of
Lords, stated that relief for undue influence rests “not on some vague ‘public policy’ but specifically
the victimisation of one party by the other”. 309 The House, reversing the Court of Appeal, 310 held that
the presumption that undue influence was used only arises if the transaction is “manifestly
disadvantageous” to the person influenced. 311 Although most of the transactions which have been set
aside were obviously one-sided, 312 this decision seemed to represent a narrowing of the doctrine. For
instance, in the Court of Appeal in National Westminster Bank Ltd v Morgan there had been some
discussion of the position of the client who is induced by his solicitor to sell his house to the solicitor at
a fair price but who regrets the sale for other reasons. 313 But as will be explained in the following
three paragraphs, subsequent cases show that manifest disadvantage is not a necessary ingredient
of any case of undue influence. In cases where undue influence has actually been shown, it has been
rejected. 314 In cases in which there is not just a relationship of trust and confidence but a fiduciary
relationship, it is not needed. 315 In cases in which the claimant cannot prove undue influence directly,
and relies on the presumption of undue influence, the House of Lords have held that the test of
manifest disadvantage should not be applied. Rather, the presumption will only arise if there is the
necessary relationship of trust and confidence and “a transaction that cannot be explained by ordinary
motives”. 316
Undue influence actually proved
8-063
In cases where undue influence has actually been shown, the party influenced is entitled to a remedy
without more, unless the right to rescind has been lost 317; it is not necessary to show that the
transaction was manifestly disadvantageous to him or her. 318
Cases of abuse of confidence
8-064
In a case in the Court of Appeal after Morgan it was pointed out that even if undue influence would
not be a ground for upsetting a transaction that was not manifestly disadvantageous to the claimant, if
the parties were in a fiduciary relationship the client might be able to obtain relief on the more limited
ground of abuse of confidence. 319 This applies only between solicitor and client, principal and agent,
trustee and beneficiary and persons in similar positions. 320 In these cases it is not necessary for the
party seeking relief to show that the transaction is manifestly disadvantageous to him. 321 The cases
are:
“… founded on considerations of general public policy, viz. that in order to protect those
to whom fiduciaries owe duties as a class from exploitation by fiduciaries as a class, the
Page 6
law imposes a heavy duty on fiduciaries to show the righteousness of the transactions.”
322
Abuse of confidence is outside the scope of this chapter. 323
“Manifest disadvantage” replaced by “transaction requiring explanation”
8-065
The existence of the cases referred to in the last paragraph, and the fact that the House of Lords in
Morgan was apparently not referred to them, seems to have led to that decision being the subject of
some doubt in the later case of CIBC Mortgages Plc v Pitt. 324 (The actual decision in that case was
that manifest disadvantage need not be shown in cases of actual undue influence. 325) Lord
Browne-Wilkinson, in a judgment with which the other members of the House agreed, pointed out the
difficulty of reconciling Morgan with the abuse of confidence cases. He stated that “the exact limits of
Morgan may have to be examined in the future”. 326 But in the Etridge case the House of Lords held
that the presumption of undue influence does not arise until it has been shown, first, that the
complainant reposed trust and confidence in the other party, or the other party acquired ascendancy
over the complainant; and secondly, that the transaction is not readily explicable by the relationship of
the parties. The House held that the phrase “manifest disadvantage” should be abandoned because it
had been misunderstood. Lord Nicholls said that in cases in which a wife had given a guarantee of
the debts of her husband’s business, in particular, it had sometimes led to the conclusion that such a
guarantee was always manifestly disadvantageous because the wife undertakes a serious financial
obligation and in return she personally receives nothing. This view was too narrow, and the better test
to apply is that stated by Lindley L.J. in Allcard v Skinner. 327 Thus for a presumption to arise that
undue influence has been exercised, it is not sufficient for the complaining party to show the
existence of a confidential relationship. It must also be shown that the transaction cannot, in Lindley
L.J.’s words, “reasonably [be] accounted for on the grounds of friendship, relationship, charity or other
ordinary motives on which ordinary men act”. 328
254. See N. Enonchong, Duress, Undue Influence and Unconscionable Dealing, 2nd edn (2012), Pt
II; Chen-Wishart (2006) 59 C.L.P. 231.
256. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [10]: see below,
para.8-090.
258. The right to rescind may be lost in various ways, see below, para.8-101.
259. e.g. Williams v Bayley (1866) L.R. 1 H.L. 200; see above, para.8-049.
260. Tate v Williamson (1866) L.R. 2 Ch. App. 55, 61. See also Winder (1940) 3 M.L.R. 97; and see
Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [6].
262. Tufton v Sperni [1952] 2 T.L.R. 516, 526.
263. Wright v Carter [1903] 1 Ch. 27, 52.

Page 7
264. Below, para.8-062.
265. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [8]; see above,
para.8-049.
266. (1887) 35 Ch. D. 145, 190.
267. Smith v Kay (1859) 7 H.L.C. 750, 779.
268. Lord Eldon L.C. in Huguenin v Baseley (1807) 14 Ves. 273, 300.
269. e.g. Allcard v Skinner (1887) L.R. 36 Ch. D. 145, 190.
270. Dunbar Bank Plc v Nadeem [1998] 3 All E.R. 876, 883–884, per Millett L.J. The other members
of the court did not consider the question.
271. Lord Browne-Wilkinson in CIBC Mortgages Ltd v Pitt [1994] 1 A.C. 200, 209. See further below,
para.8-062. The analogy with fraud may also be relevant to causal issues: see below,
para.8-072.
272. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [8].
273. [2001] UKHL 44 at [9].
274. [2001] UKHL 44 at [10].
275. [2001] UKHL 44 at [32]. See also, e.g. National Commercial Bank (Jamaica) Ltd v Hew [2003]
UKPC 51 at [28]–[33] (Lord Millett); R. v Att-Gen for England and Wales [2003] UKPC 22 at [21]
(Lord Hoffmann).
276.
For a useful summary of the debate see Goff and Jones, Law of Unjust Enrichment, 9th edn
(2016), paras 11-08—11-11.
279. This has led for a call for undue influence cases to be re-classified as “plaintiff-sided”, the core
of the doctrine being that the complainant’s dependency led to the impairment of her decision,
rather than that the defendant took advantage. See Birks and Chin, Good Faith and Fault in
Contract Law (1995), pp.57-97, who at p.59 cite dicta by the Australian High Court in
Commercial Bank of Australia Ltd v Amadio (1983) 151 C.L.R. 447, 461, 474 to similar effect.
Contrast N. Enonchong, Undue Influence and Unconscionable Dealing, 2nd edn (2012),
para.7-006. Chen-Wishart (2006) 59 C.L.P. 231 and in Burrows and Rodger, Mapping the Law
(2006) 210 prefers a “relational” analysis which looks to both the defendant’s conduct and the
claimant’s ability to make independent decisions. See also Bigwood (2005) 25 O.J.L.S. 231.
280. Lewison [2011] R.L.R.1.
281. (1887) L.R. 36 Ch. D. 145, 182-183.
282. (1887) L.R. 36 Ch. D. 145, 170.
283. (1887) L.R. 36 Ch. D. 145, 190.
284. At this point Mummery L.J. referred to Allcard v Skinner (1887) 36 Ch. D. 145 at 171.
285. [2004] EWCA Civ 372 at [20].

Page 8
286. See also Hammond v Osborn [2002] EWCA Civ 885, [2002] W.T.L.R. 1125, a case of gift in
which it was held that the donor had not made an informed judgment. It was accepted that the
recipient was not guilty of any reprehensible conduct. It appears that the exercise of undue
influence consisted of failing to draw the donor’s attention to the size of the gift he was making
and to ensure that he obtained independent advice.
287. The undue influence must have existed at the time of the transaction that is impugned:
Thompson v Foy [2009] EWHC 1076 (Ch), [2009] 22 E.G. 119 (C.S.) at [114].
288.
[2001] UKHL 44, [2002] 2 A.C. 773. See Vol.I, para.8-061.
289.
290.
See Vol.I, paras 8-065 and 8-090 et seq.
291.
See Beale, Defences in Contract (2017), Ch.5, where it is argued that while the primary
purpose of the doctrine may be to prevent “tyranny, trickery and fraud”, those are not
requirements. First, exploitation may be passive. Secondly, the defendant’s behaviour need not
be dishonest: it can consist of a failure to ensure that the claimant was properly informed, was
thinking through the consequences and was acting free of the defendant’s influence. Thirdly,
the transaction need not always be apparently to the claimant’s disadvantage at the time.
292. As in Hammond v Osborn [2002] EWCA Civ 885.
293. e.g. Cheese v Thomas [1994] 1 W.L.R. 173; Chen-Wishart (1994) 110 L.Q.R. 173, 175;
Hammond v Osborn [2002] EWCA Civ 885; The Times, July 18, 2002; Scott [2003] L.M.C.L.Q.
145.
294. Compare Hammond v Osborn [2002] EWCA Civ 885, [2002] W.T.L.R. 1125, a case of gift in
which it was held that the donor had not made an informed judgment. It was accepted that the
and to ensure that he obtained independent advice. It has been argued that the approach of the
court in this case was inconsistent with the Etridge case: Scott [2003] L.M.C.L.Q. 145; but the
explanation given in the text above is preferred. See also Macklin v Dowsett [2004] EWCA Civ
904, [2004] All E.R. (D) 95 (Jun) at [10]; Turkey v Awadh [2005] EWCA Civ 382, [2005] 2 F.C.R.
7 at [11] (“no need to show … either misconduct or that the deal was disadvantageous”). See
also Goodchild v Bradbury [2006] EWCA Civ 1868; Gorjat v Gorjat [2010] EWHC 1537 (Ch) at
[147] (“where one person has acquired a measure of ascendancy over the other or one of the
parties is vulnerable and reliant and where the transaction is not readily explicable by ordinary
motives … it must be proved that the donor knew and understood what he was doing”).
295. e.g. Royal Bank of Scotland Plc v Chandra [2011] EWCA Civ 192. See further below,
para.8-071.
296. Dunbar Bank Plc v Nadeem [1998] 3 All E.R. 876, 883-884, per Millett L.J. The other members
of the court did not consider the question.
297. Ellis v Barker (1871) L.R. 7 Ch. App. 104; Allcard v Skinner (1887) L.R. 35 Ch. D. 145; Bullock
v Lloyds Bank Ltd [1955] Ch. 317. The doctrine is not limited to transactions which are in favour
of, or which have been instigated by, the individual on whom reliance has been placed: Naidoo
v Naidu, The Times, November 1, 2000.
298. (1887) L.R. 36 Ch. D. 145, 171.
299. [1994] 1 A.C. 180, 189–190.
300. In Bank of Credit and Commerce International SA v Aboody [1990] 1 Q.B. 923, 953.
Page 9
301. [2001] UKHL 44, [2002] 2 A.C. 773.
302. [2001] UKHL 44 at [22]–[23]; below, para.8-090.
303. See below, paras 8-083—8-089.
304. [2001] UKHL 44 at [17].
305. [2001] UKHL 44 at [14]. The question is whether undue influence has been proved, either by
direct evidence or by inference: Annulment Funding Co Ltd v Cowey [2010] EWCA Civ 711 at
[50].
306. [2001] UKHL 44 at [16]. See also the speeches of Lord Clyde (at [92]) and Lord Hobhouse (at
[98]).
307. Royal Bank of Scotland Plc v Chandra [2010] EWHC 105 (Ch), [2010] 1 Lloyd’s Rep. 677 at
[121], David Richards J. (The decision was affirmed [2011] EWCA Civ 192.)
308. [2001] UKHL 44 at [92]; and see further below, para.8-084.
309. [1985] A.C. 686, 705.
310. [1983] 3 All E.R. 85.
311. [1985] A.C. 686, 704, relying on a Privy Council decision on the Indian Contracts Act,
Poosathurai v Kannappa Chettiar (1919) L.R. 47 Ind. App. 1. As Nourse L.J. put it in
Goldsworthy v Brickell [1987] Ch. 378, 401: “… the presumption is not perfected and remains
inoperative until the party who has ceded the trust and confidence makes a gift so large, or
enters a transaction so improvident, as not to be reasonably accounted for on the ground of
friendship, relationship, charity or other ordinary motives on which men act. Although influence
might have been presumed beforehand, it is only then that it is presumed to have been undue.”
312. As Lord Nicholls put it in Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2
A.C. 77 at [12]: “[I]n the nature of things, questions of undue influence will not usually arise, and
the exercise of undue influence is unlikely to occur, where the transaction is innocuous.”
313. [1983] 3 All E.R. 85, 90.
316. See below, paras 8-073—8-096.
318. CIBC Mortgages Ltd v Pitt [1994] 1 A.C. 200, overruling Bank of Credit and Commerce
International SA v Aboody [1990] 1 Q.B. 923 on this point; Royal Bank of Scotland v Etridge
(No.2) [2001] UKHL 44, [2002] 2 A.C. 773, at [12], [156].
319. Bank of Credit & Commerce International SA v Aboody [1990] 1 Q.B. 923, 943. See Snell’s
Principles of Equity, 32nd edn (2010), paras 8-022 and 9-007—9-012.
320. [1990] 1 Q.B. 923, 943.
321. In a leading case Lord Parmoor, delivering the judgment of the Privy Council, said that relief will
be given “unless the person claiming to enforce the contract can prove, affirmatively, that the
person standing in such a confidential position has disclosed, without reservation, all the
information in his possession and can further show that the transaction was, in itself, a fair one”:
Demara Bauxite Co Ltd v Hubbard [1923] A.C. 673, 681–682.
Page 10
322. Lord Browne-Wilkinson in CIBC Mortgages Plc v Pitt [1994] 1 A.C. 200, 209.
323. See N. Enonchong, Duress, Undue Influence and Unconscionable Dealing, 2nd edn (2012),
Ch.14.
324. [1994] 1 A.C. 200.
325. Above, para.8-062.
326. [1994] 1 A.C. 200. For criticism of the requirement see Capper (1998) 114 L.Q.R. 479, 487 and
numerous further comments cited at (1998) 114 L.Q.R. 479, n.44. In Barclays Bank v Coleman
[2000] 1 All E.R. 385, 400, Nourse L.J., delivering the only full judgment, said that Slade L.J. in
the Court of Appeal in National Westminster Bank Ltd v Morgan [2000] 1 All E.R. 385, had
stated the law as it stood at the time accurately; and that not every transaction in which an
unfair advantage is obtained is necessarily manifestly disadvantageous. While in that case the
House of Lords had held that manifest disadvantage is required in Classes 2A and 2B, this
“may not remain essential indefinitely”. For the time being at least this prediction seems to have
been inaccurate at least in substance, as the test is now more demanding.
327. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773, per Lord Nicholls
at [21]–[29]. See also the speech of Lord Scott at [156]–[158].
328. Allcard v Skinner (1887) L.R. 36 Ch. D. 145, 185.

Page 1

(b) - Direct Proof of Undue Influence
“Actual” undue influence
8-066
If there is no special relationship, of the kind to be mentioned below, between the parties, or if there is
such a relationship but the transaction that is challenged is not one that “requires explanation”, the
onus is upon the person seeking to avoid the transaction to establish that undue influence was used.
329
In Bank of Credit and Commerce International SA v Aboody Slade L.J., delivering the judgment of
the Court of Appeal, said:
“… we think that a person relying on a plea of actual undue influence must show that (a)
the other party to the transaction … had the capacity to influence the complainant; (b) the
influence was exercised; (c) its exercise was undue; (d) that its exercise brought about
the transaction.” 330
It seems that undue influence may be proved by showing one of various forms of conduct.
Coercion or actual pressure
8-067
Undue influence may be proved by showing that there was coercion by the donee; these cases are
probably now better viewed as cases of illegitimate pressure 331 and, accordingly, they were treated in
the previous section. Although there are few modern cases on the point, it seems that undue
influence may be proved by showing that the defendant used his relationship with the claimant to put
pressure on the claimant. 332 Many of the old cases on this point have concerned spiritual “advisers”,
who have used their expert knowledge of the next world to obtain advantages in this. 333 In Morley v
Loughnan 334 executors recovered from the defendant large sums of money obtained by him from
their testator during the last seven years of his life, on the ground that they had been obtained by
undue influence in the guise of religion, it being held unnecessary to decide whether there was a
fiduciary or confidential relationship between the defendant and the testator. 335 There have also been
cases where an employee obtained complete control over an employer of weak understanding, 336
and where an older man acquired a strong influence over a younger one, inducing him to execute
securities for debts contracted by them in their career of mutual dissipation. 337 The transactions were
set aside. In CIBC Mortgages Plc v Pitt there was a finding of actual undue influence which seems to
have rested largely on the pressure that the husband placed upon the wife. 338 But there may have
been some change in what pressure wives are expected to have to withstand. In Royal Bank of
Scotland v Etridge (No.2) Lord Nicholls said:
Page 2
“Statements or conduct by a husband which do not pass beyond the bounds of what may
be expected of a reasonable husband in the circumstances should not, without more, be
castigated as undue influence.” 339
Independent and informed judgment
8-068
However, “importunity and pressure … [are] neither always necessary nor sufficient”. 340 Undue
influence may also be shown by proving that the stronger party exercised such a degree of
domination or control over the mind of the weaker party that the latter’s independence of decision was
substantially undermined. 341 The critical question is whether the complainant was allowed to exercise
an independent and informed judgment. 342 In Bank of Montreal v Stuart the wife succeeded in
establishing undue influence even though the husband had put no pressure on her because none
was needed, as “she had no will of her own … she was ready to sign and do anything he told her to
do”. 343 In Bank of Credit and Commerce International SA v Aboody, 344 the wife trusted her husband
in business matters and signed documents he put before her without question. Although there was
also evidence that he bullied her and that she signed because she wanted peace, the Court of Appeal
did not rely on these facts; it considered that if the husband had intentionally exploited her trust to get
the wife to sign manifestly disadvantageous documents without explaining them to her, that would
constitute undue influence. 345 As now in cases where undue influence is actually proved it is not
necessary to prove that the transaction was manifestly disadvantageous in order to obtain relief, 346 it
seems that a party who is shown to have exploited another’s trust to get them to enter transactions
without proper consideration or explanation will be held to be exercising undue influence, without
more; the influenced party’s mind is still “a mere channel through which the will of [the influencing
party] operates”. 347 As Lord Nicholls put it:
“In cases of this … nature the influence one person has over another provides scope for
misuse without any specific acts of persuasion. The relationship between two individuals
may be such that, without more, one of them is disposed to agree to a course of action
proposed by the other. Typically this occurs when one person places trust in another to
look after his affairs and interests, and the latter betrays this trust by preferring his own
interests.” 348
There is a close parallel between these cases of “actual” undue influence and cases in which undue
influence may be presumed. In each case the capacity to influence the complainant exists because of
the trust and confidence that the complainant had in the other party, at least in relation to the
transaction in question. The fact that the confidence has been abused may be presumed from the fact
that the complainant has entered a transaction that is not readily explicable by the relationship of the
parties 349; but if it is shown that the particular transaction was the result of the complainant simply
following the other party’s suggestions, and the latter did not allow the complainant to exercise his or
her own free and informed judgment but furthered his own interests, 350 that will amount 351 to actual
undue influence. 352 Manifest disadvantage is merely powerful evidence that undue influence has
been exercised. 353
Misrepresentation and non-disclosure as forms of undue influence
8-069
There may also be actual proof of undue influence in the form of misrepresentation or non-disclosure.
Lord Nicholls in the Etridge case said that:
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“[W]hen a husband is forecasting the future of his business, and expressing his hopes or
fears, a degree of hyperbole may be only natural. Courts should not too readily treat such
exaggerations as misrepresentations.” 354
But Lord Nicholls continued:
“… inaccurate explanations of a proposed transaction are a different matter. So are cases

where a husband, in whom a wife has reposed trust and confidence for the management
of their financial affairs, prefers his interests to hers and makes a choice for them both on
that footing. Such a husband abuses the confidence he has. He fails to discharge the
obligation of candour and fairness he owes a wife who is looking to him to make the
major financial decisions.” 355
This does not mean that an unintentional failure by the husband to disclose a relevant fact to the wife
amounts to proof of undue influence 356; but a deliberate suppression of information because the
husband knows that, if disclosed, it will deter the wife from giving the guarantee will involve an abuse
by him of her confidence. 357
Bribery as a form of undue influence
8-069A
It has been said that bribery may also be a form of “actual” undue influence. 358
Disregard of the victim’s interests
8-070
The House of Lords has held that in order to show actual undue influence, or rather if undue influence
is actually shown to have been exercised, 359 it is not necessary to show that the transaction was
“manifestly disadvantageous” or “one that called for an explanation”. 360 In CIBC Mortgages Plc v Pitt
361
Lord Browne-Wilkinson said that actual undue influence was a species of fraud, and the victim is
entitled to have the transaction set aside as of right. He continued:
“No case decided before [National Westminster Bank Plc v Morgan] 362 was cited (nor am
I aware of any) in which a transaction proved to have been obtained by actual undue
influence has been upheld nor is there any case in which a court has even considered
whether the transaction was, or was not, advantageous.”
However, the complainant may have to show that the other party at least “preferred his own
interests”. 363 This phrase several times formed part of Lord Nicholls’ description of “actual undue
influence” in the Etridge case. 364 It certainly seems sufficient that the defendant took advantage of the
claimant’s willingness to trust him to prefer his own interests. Nor in such a case does it seem to
matter that the transaction was not unfair to the claimant in purely financial terms: relief may be given
even though, for example, the claimant obtained a reasonable price for property they were selling if
the sale was disadvantageous to them, and advantageous to the defendant, in some other way. 365 It
is also clear that the defendant need not have derived any personal advantage from the transaction.
366
Must the defendant have preferred his own interest?

Page 4
8-071
What is less clear is whether relief can be given even if the defendant thought he was acting in the
victim’s interests. In a case in which the wife simply signed whatever her husband put in front of her, it
was said that the husband’s influence was not “undue” because the transaction appeared at the time
to be to her advantage: the husband was seeking to obtain for her an interest in a property which at
the time was worth more than the amount charged, as he “was getting on”. Millett L.J. said:
“The court of equity is a court of conscience. It sets aside transactions obtained by the
exercise of undue influence because such conduct is unconscionable.” 367
The law on this point is not wholly clear. Certainly undue influence has been found when the
defendant had not behaved improperly, sought to trick or take advantage of the claimant; but the
court found that the transaction was manifestly disadvantageous to the claimant. 368 In the context of
parties who trust the other to the extent that they sign without question, there seem to be two possible
approaches, reflecting the uncertainty as to the basis of the doctrine of undue influence, to which
reference was made earlier. 369 One approach is that the influence that has been proved to exist may
be treated as undue if the transaction was clearly unwise for the claimant, 370 whether or not the
defendant stood to benefit from it; but that if the transaction was not clearly unwise, the influence will
have been exercised “unduly” only if the defendant preferred his own interests. The other possibility is
that the fact that the claimant was deprived of the opportunity to make an independent and informed
judgment in itself makes the influence undue. In support of this approach it may be argued that
though the other party was not dishonest in the sense of intending to harm the complainant’s
interests, in fraud cases it is no defence that there was no intent to injure; it suffices that the
statement was known to be untrue or was made recklessly. 371 A parallel approach might apply in
cases in which the complainant was deprived of the opportunity to make up his or her own mind as to
the risk and benefits involved. The critical case would be one in which the defendant made the
decision without reference to the complainant’s wishes, or without giving him full information, when at
the time the transaction appeared to be one that was for the complainant’s benefit but subsequently it
turned out badly for the complainant and the claimant now wishes to set it aside. In other words,
denying the complainant the chance to decide for himself might amount to actual undue influence. 372
However, on the balance of recent authorities it seems unlikely that a court will find it proved directly
that the defendant exercised “undue” influence in such a case unless he has at least preferred his
own interests. 373
Causation
8-072
As in cases of fraud, the fraud must have induced the contract, so actual undue influence must have
influenced the contract. 374 However, the analogies with fraud and duress suggest that the undue
influence need only be “a significant reason” for the complainant entering the contract, 375 rather than,
for instance, the principal reason. What was less clear until recently was whether, as has been held in
some fraud cases, 376 provided that the undue influence had some effect, it does not matter that the
complainant would have entered the contract in any event. In Bank of Credit and Commerce
International SA v Aboody 377 it was said that it would not be appropriate for the court to exercise its
jurisdiction to set aside the contract “where the evidence establishes that on the balance of
probabilities the complainant would have entered the contract in any event”. But in UCB Corporate
Services Ltd v Williams 378 the Court of Appeal held that, as undue influence is a species of fraud, it is
no answer that the person influenced would have entered the transaction anyway: it is the fact that
she has been deprived of the opportunity to make a free choice that founds her equity to set aside the
transaction. The proposition in Aboody’s case was said to be:
“… flatly inconsistent with Lord Browne-Wilkinson’s statement of principle 379 … that a

victim of undue influence is entitled to have the transaction set aside ‘as of right’. The
words ‘as of right’ seem … to admit of only one meaning; viz., regardless of other
Page 5
considerations.” 380
Presumably it would follow also that the same presumption applies as in fraud, so that it will be for the
stronger party to show that the undue influence had no impact at all on the complainant’s decision. 381
329. Allcard v Skinner (1887) L.R. 36 Ch. D. 145, 181.
330. [1990] 1 Q.B. 923, 967.
331. Birks and Chin, Good Faith and Fault in Contract Law, pp.63–65; Capper (1998) 114 L.Q.R.
479, 484, 493. An example of actual undue influence that seems to have amounted to
illegitimate pressure is Drew v Daniel [2005] EWCA Civ 507, [2005] 2 F.C.R. 365. Ward L.J.
pointed out that in all cases of undue influence, “the critical question is whether or not the
influence has invaded the free volition of the donor to accept or reject the persuasion or
withstand the influence” (at [36]).
332. An example seems to be Coldunell Ltd v Gallon [1986] Q.B. 1184; see at 1196.
333. Norton v Relly (1764) 2 Eden 286; Nottidge v Prince (1860) 2 Giff. 246; Lyon v Home (1868)
L.R. 6 Eq. 655.
334. [1893] 1 Ch. 736.
335. It is such cases that Lord Nicholls may have had in mind when he said that undue influence
includes “cases where a vulnerable person has been exploited”: Royal Bank of Scotland v
Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [11].
336. Bridgeman v Green (1755) 2 Ves.Sen. 627; Re Craig [1971] Ch. 95. Whether there was actual
influence depends on the individual involved, not on whether a normal person would be
influenced: Re Brocklehurst’s Estate [1978] Ch. 14, 40.
337. Smith v Kay (1859) 7 H.L.C. 750. The position in relation to a will alleged to have been
procured by undue influence is different: see Edwards v Edwards [2007] W.T.L.R. 1387;
Hubbard v Scott [2011] EWHC 2750 (Ch); Wharton v Bancroft [2011] EWHC 3250 (Ch).
338. See the finding of the trial judge recounted in the Court of Appeal (1993) 66 P.&C.R. 179, 182
(affirmed [1994] 1 A.C. 200).
339. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [32]. cf. Hurley v
Darjan Estate Co Plc [2012] EWHC 189 (Ch), [2012] 1 W.L.R. 1782 at [40] (fact that wife signed
in the heat of the moment to keep the husband happy did not mean her consent was not free
and informed; cf. the claim of undue influence made in Barclays Bank v O’Brien, which failed
before the Court of Appeal and was not pursued: [1993] Q.B. 109, 113–117).
340. Royal Bank of Scotland v Etridge (No.2) [1998] 4 All E.R. 705, 712. See also Dunbar Bank Plc v
Nadeem [1998] 3 All E.R. 876, 883.
341. Bank of Montreal v Stuart [1911] A.C. 120.
342. “The donor may be led but she must not be driven; and her will must be the offspring of her own
volition, not a record of someone else’s”: Thompson v Foy [2009] EWHC 1076 (Ch), [2010] 1 P.
Page 6
& C.R. 16 at [101].
343. [1911] A.C. 120, 136-137. In Royal Bank of Scotland v Etridge (No.2) [1998] 4 All E.R. 705, 712
, Stuart-Smith L.J. said that this would today be more readily classed as a Class 2B case. If
there is a sufficient relationship for Class 2B (below, para.8-083) and also a transaction calling
for explanation, it will be in the weaker party’s interest to plead the case as Class 2B as it then
is up to the other party to rebut the presumption of undue influence; but actual undue influence
remains an attractive alternative if there is doubt about the nature of the relationship or the need
for an explanation of the transaction.
344. [1990] 1 Q.B. 923, 967.
345. The court held that manifest disadvantage was essential to a plea of actual undue influence. As
on the facts it did not consider the transactions to be manifestly disadvantageous, it refused
relief.
346. CIBC Mortgages Plc v Pitt [1994] 1 A.C. 200, overruling Bank of Credit & Commerce
International SA v Aboody [1990] 1 Q.B. 923.
347. Bank of Credit and Commerce International SA v Aboody [1990] 1 Q.B. 923, 969, referring to
the observations of Jenkins and Morris L.JJ. in Tufton v Sperni [1952] 2 T.L.R. 516, 530, 532.
348. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [9]. See the
discussion in McGregor v Michael Taylor & Co [2002] 2 Lloyd’s Rep. 468, where at [24]–[27]
these are described as “trust me” cases.
349. McGregor v Michael Taylor & Co [2002] 2 Lloyd’s Rep. 468, at [21]; see further below,
para.8-090.
351. Subject to the point to be discussed in paras 8-070—8-071.
352. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [17]: “such a
plaintiff may succeed even where this presumption was not available to him; for instance where
the impugned transaction was not one which called for an explanation.”
353. Royal Bank of Scotland v Etridge (No.2) [1998] 4 All E.R. 705, 713; cf. [2001] UKHL 44, [2002]
2 A.C. at [104].
355. [2001] UKHL 44 at [33].
356. Royal Bank of Scotland Plc v Chandra [2010] EWHC 105 (Ch), [2010] 1 Lloyd’s Rep. 677
(affirmed [2011] EWCA Civ 192).
357. [2010] EWHC 105 (Ch) at [131]; see also at [140]. In Hewett v First Plus Financial Plc [2010]
EWCA Civ 312 a husband’s concealment from his wife of an affair with another woman
amounted to undue influence. Compare Davies v AIB Group (UK) Plc [2012] EWHC 2178 (Ch)
(held at [113]–[114] that no undue influence: husband made full disclosure of the entire
transaction and all of the relevant documents so as to put wife’s solicitor in the position to
tender full and informed advice to her). A question is whether knowledge of the surety’s solicitor
should be imputed to her. The general rule is that, subject to any statutory variation, a solicitor’s
knowledge is treated as that of his client (see AIB v Martin and Gold Unreported, March 15,
1999, Jacob J), but in Davies v AIB Group (UK) Plc [2012] EWHC 2178 (Ch) at [116], without
deciding the issue, Norris J. thought that some caution might be required in the context of
undue influence arguments: “A principle of attributing the knowledge of an agent to the principal
does not really assist in identifying how an intention to enter a transaction was produced—freely
or under undue influence.”
Page 7
358.
Libyan Investment Authority v Goldman Sachs International [2016] EWHC 2530 (Ch) at
[167]–[168], Rose J. As bribery had not been established, the “difficult legal question” was left
open.
360. CIBC Mortgages Plc v Pitt [1994] 1 A.C. 200; Royal Bank of Scotland v Etridge (No.2) [2001]
UKHL 44, [2002] 2 A.C. 773 at [12], [156]. In Thompson v Foy [2009] EWHC 1076 (Ch), [2010]
1 P. & C.R. 16, Lewison J. said that the Etridge case decided that “Disadvantage to the donor is
not a necessary ingredient of undue influence … However, it may have an evidential value,
because it is relevant to the questions whether any allegation of abuse of confidence can
properly be made, and whether any abuse actually occurred” (at [99]).
361. [1994] 1 A.C. 200, 209.
362. [1985] A.C. 686; above, para.8-062.
364. See [2001] UKHL 44, [2002] 2 A.C. 773 at [9] (quoted above, para.8-068 at n.341) and [32].
365. For an example of a transaction which was unwise but not unfair in terms of value, see Liddle v
Cree [2011] EWHC 3294 (Ch) at [86].
366. Allcard v Skinner (1887) L.R. 36 Ch. D. 145 (where the property went to the Order, not to the
Mother Superior).
367. Dunbar Bank Plc v Nadeem [1998] 3 All E.R. 876, 883–884. The other members of the court
did not consider the question.
368. Cheese v Thomas [1994] 1 W.L.R. 129, decided before the decision of the House of Lords in
Etridge: the case was one of presumed undue influence.
369. Above, para.8-059.
370. In practice, in such a case the transaction will require explanation (see below, para.8-090) and
the claimant will rely on the presumption of undue influence, as in Hammond v Osborn [2002]
EWCA Civ 885, [2002] W.T.L.R. 1125 (see above, para.8-060 n.287). Despite the obviously
disadvantageous transaction (a very large gift which left the donor with limited means of
support), the case has been criticised on the ground that the defendant did nothing wrong in
(after considerable hesitation) accepting the gift: Lewison (2011) 19 Rest L.R. 1.
371. Above, para.7-051.
372. Compare N. Enonchong, Duress, Undue Influence and Unconscionable Dealing, 2nd edn
(2012), paras 9-004—9-005 (wrong-doing required, though not proof of any specific act);
Chen-Wishart (2006) 59 C.L.P. 231, 265 (“an improvident outcome is practically indispensable
even in class I coercion cases”; “substantive unfairness is of the essence of undue influence”).
373. See above, para.8-060. Compare the situation where the transaction was one sided, when it
will require explanation and thus the claimant will rely on the presumption: see further below,
para.8-073.
375. See above, paras 7-037 and 8-027—8-028.
376. See above, paras 7-039 and 8-026.

Page 8
377. [1990] 1 Q.B. 923, 971.
378. [2002] EWCA Civ 555 at [86].
379. CIBC Mortgages Plc v Pitt [1994] 1 A.C. 200, 209.
380. [2002] EWCA Civ 555 at [91].
381. This is the rule suggested by the statement in Bank of Credit and Commerce International SA v
Aboody [1990] 1 Q.B. 923, 971, quoted in this paragraph. For the rule in fraud cases see
above, para.7-039.

Page 1

(c) - Presumed Undue Influence
Presumption of influence from certain relationships
8-073
If the parties were at the time of the transaction in one of certain types of relationship with each other,
it is presumed that one party had influence over the other; and if it is shown that a transaction
between them was one “not readily explicable by the relationship” between them, it will be presumed
(or inferred) 382 that the transaction was the result of an abuse of the influence, unless the
presumption is rebutted. 383 It is not necessary for the complainant to “prove that he actually reposed
trust and confidence in the other party”, 384 or that the other party dominated the relationship. These
are the cases that Lord Browne-Wilkinson in Barclays Bank Plc v O’Brien 385 referred to as “Class 2A
cases”. 386 Once the transaction has been shown to be one requiring explanation, the onus is on the
party taking the benefit to justify that it was free from undue influence.
Relationship of influence shown on facts
8-074
Outside the recognised relationships, if the plaintiff proves that at the time of the transaction “requiring
explanation”, a confidential relationship in fact existed between the parties, the presumption of undue
influence will arise. 387 That at least has been the traditional view. These are the cases labelled by
Lord Browne-Wilkinson as “Class 2B”. 388 But the decision of the House of Lords in Etridge 389 has
cast doubt on the existence of this class as a separate category. This is explored below. 390
383. Allcard v Skinner (1887) 36 Ch. D. 145, 181; Royal Bank of Scotland v Etridge (No.2) [2001]
UKHL 44, [2002] 2 A.C. 773 at [18].
385. [1994] 1 A.C. 180.

Page 2
387. Tufton v Sperni [1952] 2 T.L.R. 516, 522; Lloyds Bank Ltd v Bundy [1975] Q.B. 326.
388. In Barclays Bank Plc v O’Brien [1994] 1 A.C. 180: see above, para.8-061.
389. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773.

Page 1

(i) - Relationships Giving Rise to Presumption of Influence
Presumption of influence
8-075
Certain types of relationship give rise to a presumption that one party had influence over the other.
This does not by itself give rise to a presumption that undue influence has been used by the stronger
party, but if there is a transaction between the parties that cannot, in the words of Lindley L.J. in
Allcard v Skinner, 391 “reasonably [be] accounted for on the grounds of friendship, relationship, charity
or other ordinary motives on which ordinary men act”, 392 then a presumption does arise. Unless the
stronger party raises sufficient doubt to rebut the presumption, the transaction will be set aside.
Nature of presumptions
8-076
It will be seen that in this class of case there may be two separate presumptions. The first arises from
the nature of the relationship. It is simply a presumption that one party had influence over the other,
and it is said to be “irrebuttable”. 393 It is not, however, a presumption that undue influence has been
exercised and it is not sufficient for the transaction to be set aside, even if the stronger party offers no
evidence. A presumption or inference that there was undue influence arises, as we have just seen,
only when also there is a transaction that “calls for explanation”. 394 This second presumption is not
only rebuttable but was said in Etridge ’s case to be merely an “evidential presumption”. 395 This
appears to mean that if the stronger party provides a reasonable explanation of the transaction or
gives evidence that, on the balance of probabilities, casts doubt on whether the transaction did result
from undue influence, the weaker party will succeed only if he or she can show, again on the balance
of probabilities, that it was: the overall burden remains on the party seeking to set aside the
transaction. 396
Dominating influence unnecessary
8-077
Despite the fact that in Morgan Lord Scarman had referred to a “dominating influence”, 397 in cases of
presumed undue influence it is immaterial whether one party has acquired a dominating influence
over the mind of the other party 398:
“It is enough to show that the party in whom the trust and confidence is reposed is in a
Page 2
position to exert influence over him who reposes it.” 399
These cases depend:
“… on the concept that once the special relationship has been shown to exist, no benefit
can be retained from the transaction unless it has been positively established that the
duty of fiduciary care has been entirely fulfilled.” 400
Parent and child
8-078
In the earliest cases in which benefits conferred by children upon their parents were set aside, the
relief seems to have been extended on the ground of actual fraud. 401 Now, however, it is well
established that the child reposes trust and confidence in the parent, 402 even though the child may
have attained his majority not long before. 403 If a gift is made to a parent shortly after the child
reaches the age of majority, the parent will be required to show that the child was acting
independently of his influence. 404 This presumption can continue even after marriage, 405 although the
duration of the presumption is a question of fact and degree in the circumstances of each particular
case. Family arrangements, however, are treated more leniently:
“Transactions between parent and child may proceed upon arrangements between them
for the settlement of property, and of their rights in property in which they are interested.
In such cases the court regards the transactions with favour.” 406
But even so, if the parent gets a disproportionate advantage, the arrangement is likely to be set aside.
407
As between an adult child and elderly or senile parents, no presumption of influence over the
parents arises, but it may be possible to establish a case of undue influence on the facts. 408
Guardian and ward
8-079
The presumption also applies to dealings between guardian and ward, 409 and the fact that the
guardianship has legally terminated will not necessarily mean that the influence ceases, provided that
there is still some control over the ward’s property or actions. 410 Persons in loco parentis are also
subject to the same surveillance by the court, such as uncle and niece, 411 stepfather and
stepdaughter, 412 stepmother and stepdaughter, 413 elder and younger brother, 414 and even an
executor and beneficiary, 415 where the relationship confers a power analogous to that of parental
control.
Solicitor and client
8-080
Any gift or sale by a client to his solicitor will be regarded with considerable suspicion by the court.
416
The relationship between solicitor and client is not only sufficient to raise a presumption of undue
influence should the client enter a manifestly disadvantageous transaction with the solicitor 417 ; as
mentioned earlier, the solicitor is subject to the stricter regime of abuse of confidence. 418 The solicitor
Page 3
must show the utmost good faith in his dealings with his client, 419 and must not make any benefit for
himself at his client’s expense. 420 Even if the benefit is an indirect one, as where a gift is made to the
solicitor’s wife 421 or son, 422 and even if the relationship of solicitor and client has technically ceased,
423
the presumption will apply where the influence still continues between them. 424
Other instances possibly within Class 2(A)
8-081
The presumption applies to certain transactions between fiancé and fiancée. 425 It also applies to the
relationship of medical man and patient, 426 trustee and cestui que trust, 427 to a religious adviser and
a person to whom he gives advice, 428 and between a person who has given a power of attorney and
the person to whom it was given. 429 In contrast, it has been held that the relationship between
husband and wife is not within Class 2A. 430
Value of the presumption
8-082
In Etridge, Lord Nicholls stated that, in the relationships listed above, “the law presumes, irrebuttably,
that one party had influence over the other”. 431 Of course it does not follow that any transaction
between parties in such a relationship will be set aside, even if it is not “readily explicable by the
relationship between the parties”. 432 The ascendant party may be able to rebut the presumption that
he or she used undue influence. 433 But further, it is clear from the preceding paragraphs that it is not
always possible to state with certainty when there will be a presumption of influence; indeed a test
which states that there is a confidential relationship between, say, a parent and child, 434 if the
parent’s influence continues appears to be circular. Lord Clyde disputed “the utility of the further
sophistication of sub-dividing ‘presumed undue influence’ into further categories”. 435 Lord Nicholls
further endorsed Treitel’s view that the question is whether one party has reposed sufficient trust and
confidence in the other, rather than whether the relationship between the parties belongs to a
particular type, without apparently noting that Treitel was referring only to what used to be called
“Class 2B” cases. 436 These statements might be taken as hints that in future the courts will abandon
altogether the separate category of “presumed influence” and simply ask in each case whether the
relationship was one of trust and confidence or of domination, or at least treat the fact that a case falls
within Class 2A as raising no more than a rebuttable presumption that there was a relationship of trust
and confidence between the parties.
391. (1887) L.R. 36 Ch. D. 145, 185.
392. This test is to be used instead of asking whether the transaction was “manifestly
disadvantageous” to the weaker party: above, paras 8-062—8-065.
393. per Lord Nicholls in Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773
at [18]; but see Lord Clyde at [93].
394. [2001] UKHL 44, [2002] 2 A.C. 773 at [14]; above, para.8-065.
395. [2001] UKHL 44, [2002] 2 A.C. 773 at [16], [93] (semble), [104] and [153].
Page 4
396. Compare a legal presumption under which the burden of proof would shift to the stronger party
to prove on the balance of probabilities that there was no undue influence. Before Etridge
[2001] UKHL 44 there seems to have been little discussion of the exact nature of the
presumption in undue influence cases. See further below, para.8-090.
397. National Westminster Bank Ltd v Morgan [1985] A.C. 686, 707.
398. Lloyds Bank Ltd v Bundy [1975] Q.B. 326.
399. Goldsworthy v Brickell [1987] Ch. 378, 404.
400. Lloyds Bank Ltd v Bundy [1975] Q.B. 326, per Sir Eric Sachs at 346.
401. Glissen v Ogden (1731) 2 Atk. 258; Young v Peachy (1741) 2 Atk. 254; Cocking v Pratt (1749)
1 Ves. Sen. 400.
402. Wright v Vanderplank (1855) 2 K. & J. 1.
403. Archer v Hudson (1844) 7 Beav. 551; Berdoe v Dawson (1865) 34 Beav. 603; Powell v Powell
[1900] 1 Ch. 243; London and Westminster Loan & Discount Ltd v Bilton (1911) 27 T.L.R. 184.
404. Bainbrigge v Browne (1881) 18 Ch. D. 188; Bullock v Lloyds Bank Ltd [1955] Ch. 317; Re
Pauling’s Settlement Trusts [1964] Ch. 303, 336.
405. Lancashire Loans Ltd v Black [1934] 1 K.B. 380.
406. Baker v Bradley (1855) 7 De G.M. & G. 597, 620; Hartopp v Hartopp (1855) 21 Beav. 259;
Jenner v Jenner (1860) 2 De G.F. & J. 359; Hoblyn v Hoblyn (1889) 41 Ch. D. 200. cf. Bullock v
Lloyds Bank Ltd [1955] Ch. 317.
407. Hoghton v Hoghton (1852) 15 Beav. 278; Turner v Collins (1871) L.R. 7 Ch. App. 329.
408. Avon Finance Co Ltd v Bridger [1985] 2 All E.R. 281. A very full survey of the doctrine of undue
influence as applied to the elderly will be found in Burns (2003) 23 Legal Studies 251.
409. Hylton v Hylton (1754) 2 Ves.Sen. 547; Taylor v Johnston (1882) 19 Ch. D. 603.
410. Hatch v Hatch (1804) 9 Ves. 292.
411. Archer v Hudson (1844) 7 Beav. 551.
412. Kempson v Ashbee (1874) L.R. 10 Ch. App. 15.
413. Powell v Powell [1900] 1 Ch. 243.
414. Sercombe v Sanders (1865) 34 Beav. 382; cf. Glover v Glover [1951] 1 D.L.R. 657.
415. Grosvenor v Sherratt (1860) 28 Beav. 659.
416. For the analogous principles governing testamentary dispositions to solicitors, see Wintle v Nye
[1959] 1 W.L.R. 284.
417.
Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [18]; AKB v
Willerton, OH v Craven [2016] EWHC 3146 (QB), [2017] 4 W.L.R. 25 at [30]
418. Above, para.8-064.
419. See above, paras 7-087—7-088; Moody v Cox and Hatt [1917] 2 Ch. 71.
Page 5
420. Turrell v Bank of London (1862) 10 H.L.C. 26; Wright v Carter [1903] 1 Ch. 27.
421. Liles v Terry [1895] 2 Q.B. 679.
422. Barron v Willis [1902] A.C. 271.
423. Demerara Bauxite Co Ltd v Hubbard [1923] A.C. 673; McMaster v Byrne [1952] 1 All E.R. 1362.
424. In Markham v Karsten [2007] EWHC 1509 (Ch), [2007] All E.R. (D) 377 it was said that the
relationship of solicitor and client between two parties to a transaction should not be irrelevant
merely because they were also in another well-recognised relationship in which influence, or
the reposing of trust and confidence, might arise. On the contrary, the influence which was
presumed to exist between solicitor and client might be strengthened if they were also in a
marriage or domestic partner relationship. Nor was it correct to confine the presumption of
influence, as between solicitor and client, to transactions of a legal rather than domestic nature.
See at [35]–[36].
425. Cobbett v Brock (1855) 20 Beav. 524; Lovesy v Smith (1880) 15 Ch. D. 655; Re Lloyds Bank
Ltd [1931] 1 Ch. 289. Contrast Zamet v Hyman [1961] 1 W.L.R. 1442. Gifts between engaged
couples may now also be set aside, if the marriage does not take place, under the Law Reform
(Miscellaneous Provisions) Act 1970.
426. Mitchell v Homfray (1881) 8 Q.B.D. 587; Radcliffe v Price (1902) 18 T.L.R. 466.
427. Ellis v Barker (1871) L.R. 7 Ch. App. 104; Beningfield v Baxter (1866) 12 App. Cas. 167.
428. Huguenin v Baseley (1807) 14 Ves. 273; Lyon v Home (1868) L.R. 6 Eq. 655; Allcard v Skinner
(1887) L.R. 36 Ch. D. 145. It has been rightly pointed out that it is dangerous to assume that
every relationship of this type, or of the other types just listed, will give rise to the presumption,
as the relationship between the parties may not be confidential: Cartwright, Unequal Bargaining
(1991), p.178. See further below, para.8-086.
429. Hackett v Crown Prosecution Service [2011] EWHC 1170 (Admin) at [54].
430. See below, para.8-089. Nor is the relationship between a social landlord’s agent and a tenant
under a contractual periodic tenancy: Birmingham City Council v Beech [2014] EWCA Civ 830,
[2014] H.L.R. 38 at [65].
432. [2001] UKHL 44 at [21].
434. Above, para.8-078.
436. [2001] UKHL 44 at [10], referring to Treitel, The Law of Contract, 10th edn (1999), pp.380-381.

Page 1

(ii) - Confidential Relationship Shown on Facts in earlier Decisions
Confidential relationship shown on facts
8-083
An inference of undue influence may also arise if on the facts it is shown that the parties were in a
confidential relationship although one would not be presumed to exist as a matter of law, and that the
parties have entered a transaction that is “not otherwise readily explicable”. 437 The cases in this
section treated this as a separate category of presumed undue influence. In the light of the opinions
expressed by the House of Lords in the Etridge case 438 this analysis may no longer be correct. It
seems that these cases must now be viewed simply as instances of the kind of evidence that,
combined with a transaction “not readily explicable by the relationship of the parties”, may be
sufficient to raise an inference that the transaction was procured by undue influence and, unless the
other party displaces this inference, should be set aside. 439
Confidential relationship shown on facts: a separate class?
8-084
In Barclays Bank Plc v O’Brien 440 Lord Browne-Wilkinson had said that in this type of case:
“… if the complainant proves the de facto existence of a relationship under which the
complainant generally reposed trust and confidence in the wrongdoer, the existence of
such relationship raises the presumption of undue influence. In a Class 2(B) case
therefore, in the absence of evidence disproving due influence, the complainant will
succeed in setting aside the impugned transaction merely by proof that the complainant
reposed trust and confidence in the wrongdoer without having to prove that the
wrongdoer exerted actual undue influence or otherwise abused such trust and confidence
in relation to the particular transaction impugned.”
In Etridge Lord Hobhouse said that it was difficult to apply this statement literally. First, it would seem
to treat the husband as a “‘wrongdoer’ without saying why when it is expressly postulated that no
wrongdoing may have occurred”. 441 This seems to refer to the point that the presumption of undue
influence (which now requires a transaction not explicable by ordinary motives) is no more than a way
of proving that undue influence did occur. 442 Secondly, Lord Hobhouse remarked that Lord
Browne-Wilkinson referred to the complainant reposing trust and confidence generally, whereas a
wife:
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“… may be happy to trust her husband to make the right decision in relation to some
matters but not others; she may leave a particular decision to him but not other
decisions.” 443
He considered, and understood the other members of the court to agree, that “the so-called Class 2B
presumption should not be adopted”. The wife must prove her case by showing that she was the
victim of an equitable wrong. This wrong may be an overt wrong, such as oppression; or it may be the
failure to perform an equitable duty, such as a failure by one in whom trust and confidence is reposed
not to abuse that trust by failing to deal fairly with her and have proper regard to her interests. She
may discharge the burden of proof that rests on her by establishing a sufficient prima facie case to
justify a decision in her favour on the balance of probabilities, the court drawing appropriate
inferences from the primary facts proved. 444 Lord Scott spoke in rather similar terms 445; and what
Lord Hobhouse said was consistent with the remarks of Lord Clyde. 446 It does not seem inconsistent
with what was said by Lord Nicholls, 447 who endorsed Treitel’s view that the question is whether one
party has reposed sufficient trust and confidence in the other, rather than whether the relationship
between the parties belongs to a particular type. 448
8-085
Thus it seems that cases in which a presumption of undue influence may arise because of the
combination of a confidential relationship shown on the facts and a transaction not explicable
otherwise should no longer be regarded as a separate category. Those facts are merely ways of
proving that undue influence was used. Thus for a wife to able to have a transaction between her and
her husband set aside, she will have to show, for example, that her husband took “unfair advantage of
his influence … or her confidence in him”. 449 This is not quite the same as what is required for a case
of “actual” undue influence: that would need direct proof that he exerted undue pressure or took
advantage of her confidence. But the dividing line is thin. If, for example, a wife shows that in respect
a class of transactions including the particular transaction in question, she did not question her
husband’s decision in any way and simply signed what he put in front of her, she has established a
case of actual undue influence, at least if she also shows that he preferred his own interests to hers.
450
She need not show that the transaction was not readily explicable by their relationship. 451 In such
a case, what is the relevance of the transaction being disadvantageous to her? It seems that showing
that the transaction was one that “calls for an explanation” 452 is no more than a piece of evidence that
may be used to show that her husband did indeed abuse her trust when the evidence would
otherwise fall short. The cases in what was formerly termed Class 2B must now be taken merely as
examples of the kind of circumstances in which a combination of the nature of the relationship and the
resulting transaction may provide sufficient evidence of undue influence for the complainant to
succeed unless the other party can somehow rebut the evidential inference.
Relationships that may be confidential
8-086
The relevant type of confidential relationship may arise in “all the variety of relations, in which
dominion is exercised by one person over another”, 453 or where the complaint proves that he or she
reposed trust and confidence in the wrongdoer. The classic statement is that of Lord Chelmsford in
Tate v Williamson 454:
“Wherever two persons stand in such a relation that, while it continues, confidence is
necessarily reposed by one, and the influence which naturally grows out of that
confidence is possessed by the other, and this confidence is abused, or the influence is
exerted to obtain an advantage at the expense of the confiding party, the person so
availing himself of his position will not be permitted to retain the advantage, although the
transaction could not have been impeached if no such confidential relationship existed.”
Page 3
Nevertheless, the “presumption” of undue influence does not arise merely because the relationship
between the parties can be described as fiduciary (as, for instance, that of principal and agent). It
arises only where the fiduciary relationship is of a particular kind which, in the opinion of equity
judges, is such as to raise the presumption. 455 For example, the relationship of bank manager and
customer is not normally a confidential one in the relevant sense 456 ; but when an elderly farmer,
without consulting his solicitor, charged his property to his bank by way of guarantee of the debts of
his son’s company, and it was obvious that he was relying upon the bank manager for advice, a
confidential relationship arose. As the manager neither explained the company’s position fully nor
suggested that the farmer get independent advice, the charge was set aside. 457
Relationship may arise from transaction
8-087
It has been held that a confidential relationship may arise from the circumstances of the very
transaction in question, e.g. if the defendant has advised and assisted the claimant over it and the
claimant has relied on the defendant for that. 458
Examples
8-088
The existence of a relationship of trust and confidence may be inferred from the fact that one party
has entered an excessively onerous transaction at the request of the other (in the case in question, a
junior employee with no stake in the business had at her employer’s request given a second charge
over her flat and an unlimited all monies guarantee of the employer’s business debts). 459 But in such
an extreme case the plaintiff may be able to set aside the transaction on the basis of
unconscionability. 460 So, too, where a young man in financial difficulties sought the advice of a more
experienced relative, who himself purchased the young man’s property at a third of its proper price, 461
where a young woman granted a mining lease to her uncle and to the son of her father’s executor,
being advised to do so by the executor in whom she placed “the greatest confidence”, 462 and where a
member of a committee set up to establish a Moslem cultural centre in London was induced by a
fellow member to buy the latter’s house from him for the purpose at a price which greatly exceeded its
market value, 463 the transactions were set aside on the ground that the defendants had failed to rebut
the presumption of undue influence.
Husband and wife
8-089
The presumption of influence does not apply between husband and wife. 464 In Barclays Bank Plc v
O’Brien 465 the House of Lords recognised “a special tenderness of treatment afforded to wives”
because in many cases:
“… the wife demonstrates that she placed trust and confidence in her husband in relation
to her financial affairs 466 and therefore raises a presumption of undue influence”
and because “sexual and emotional ties … provide a ready weapon for undue influence”. 467 In
contrast, in Etridge ’s case the Members of the House were at some pains to emphasise that the
courts should not be too ready to find undue influence as between husband and wife. Lord Nicholls
said that:
“… statements or conduct by a husband which do not pass beyond the bounds of what
Page 4
may be expected of a reasonable husband in the circumstances should not, without

more, be castigated as undue influence.” 468
Lord Scott said that in the surety wife cases, while there are cases in which the husband abused his
wife’s confidence in him, for example by over-estimating his prospects, misrepresenting his intentions
or subjecting her to excessive pressure, “it should … be recognised that undue influence, though a
possible explanation for the wife’s agreement to become a surety, is a relatively unlikely one”. 469
437. The cases at one time referred to as falling within Class 2(B): see above, para.8-061.
439. “To speak of ‘trust and confidence’ in vacuo as it were, does not assist very much … Whatever
label is put upon the relationship, it must be one as a result of which it can be said, or inferred,
that the donee has acquired influence over the donor … in relation to some general aspect of
the donor’s affairs”: Morley v Elmaleh [2009] EWHC 1196 (Ch) (at [598]). See also Thompson v
Foy [2009] EWHC 1076 (Ch), [2010] 1 P. & C.R. 16 at [100].
440. [1994] 1 A.C. 180, at 189-190.
443. [2001] UKHL 44, [2002] 2 A.C. 773 at [105].
444. [2001] UKHL 44 at [107].
445. [2001] UKHL 44 at [158]–[162].
446. [2001] UKHL 44 at [92].
447. In particular, [2001] UKHL 44 at [19].
448. [2001] UKHL 44 at [10], referring to Treitel, The Law of Contract, 10th edn (1999), pp.380-381.
449. [2001] UKHL 44 at [19].
452. Etridge’s case [2001] UKHL 44, Lord Nicholls at [17].
453. Huguenin v Baseley (1807) 14 Ves. 273, 286, per Sir S. Romilly arguendo; Smith v Kay (1859)
7 H.L.C. 750, 779; Lloyds Bank Ltd v Bundy [1975] Q.B. 326.
454. (1866) L.R. 2 Ch. App. 55, 61.

Page 5
455. Smith v Kay (1859) 7 H.L.C. 750, 771; Re Coomber [1911] Ch. 723.
456.
National Westminster Bank Plc v Morgan [1985] A.C. 686; cf. Libyan Investment Authority v
Goldman Sachs International [2016] EWHC 2530 (Ch) at [167]–[278] and [427]. If a bank takes
it upon itself to explain the nature or effect of a guarantee to a customer, it will be liable for
negligently misstating that nature or effect; and it was suggested that in some circumstances a
bank might be under a duty to explain the nature of a guarantee to a guarantor before it is
executed: Cornish v Midland Bank Plc [1985] 3 All E.R. 513.
457. Lloyds Bank Ltd v Bundy [1975] Q.B. 326. See also Re Craig [1971] Ch. 95; Horry v Tate & Lyle
[1982] 2 Lloyd’s Rep. 416.
458. Turkey v Awadh [2005] EWCA Civ 382, [2005] 2 F.C.R. 7, referring to Macklin v Dowsett [2004]
EWCA Civ 904, [2004] All E.R. (D) 95 (Jun). In that case the defendant, who was impecunious,
had made an arrangement to give up his rights to land for a small sum unless he completed
building a bungalow on the land within three years, which he was very unlikely to be able to do.
459. Crèdit Lyonnais Bank Nederland NV v Burch [1997] 1 All E.R. 144, especially at 154 and 158.
See Chen-Wishart [1997] C.L.J. 60, 65–66.
461. Tate v Williamson (1866) L.R. 2 Ch. App. 55.
462. Grosvenor v Sherratt (1860) 28 Beav. 659.
463. Tufton v Sperni [1952] 2 T.L.R. 516.
464. Hoes v Bishop [1909] 2 K.B. 390. See also Grigby v Cox (1750) 1 Ves.Sen. 517; Nedby v
Nedby (1852) 5 De G. & Sm. 377; Barron v Willis [1899] 2 Ch. 578, 585; Mackenzie v Royal
Bank of Canada [1934] A.C. 468; Midland Bank Plc v Shephard [1988] 3 All E.R. 17. But cf.
Cresswell v Potter [1978] 1 W.L.R. 255n and Backhouse v Backhouse [1978] 1 W.L.R. 243,
below, para.8-132.
465. [1994] 1 A.C. 180.
466. Compare Society of Lloyd’s v Khan [1998] 3 F.C.R. 93.
467. Barclays Bank Plc v O’Brien [1994] 1 A.C. 180, 190. In Barclays Bank Plc v Rivett (1997) 29
H.L.R. 893 it was the wife who had influence over the husband.
468. [2001] UKHL 44 at [32].
469. [2001] UKHL 44 at [160]–[162].

Page 1

(iii) - A Transaction not Explicable by Ordinary Motives
Transaction not explicable by ordinary motives
8-090
As explained earlier, it is not sufficient in order to raise or inference that undue influence has been
used that the parties were in the type of relationship in which influence of one over the other is
presumed. It must also be shown that the transaction in question was, in the words of Lindley L.J. in
Allcard v Skinner:
“… not reasonably to be accounted for on the grounds of friendship, relationship, charity

or other ordinary motives on which ordinary men act.” 470
This need not be shown if undue influence may be proved in other ways, 471 but in all cases in which
there is no direct proof, the combination of a relationship in which influence exists and a transaction
that “that cannot be explained by ordinary motives” 472 seems now to be taken as evidence that undue
influence was used, and it will be sufficient to move the evidential burden of disproving undue
influence to the other party.
Manifest disadvantage not the test
8-091
In Etridge 473 the House of Lords said that the “manifest disadvantage” test should be abandoned in
favour of the test stated in the previous paragraph. The point seems to be that a transaction that is
clearly disadvantageous to the complainant may not “call for an explanation”. Thus even if the parties
are in a confidential relationship, the fact that the weaker party has made a gift of moderate size to
the other will not raise any presumption that undue influence was used. 474 More importantly, as
between husband and wife, even a transaction that is in a narrow sense disadvantageous to the wife,
such as a guarantee of her husband’s business debts, will not necessarily raise the presumption: it
may be explicable in terms of their relationship. In other words the question is not simply, was the
transaction disadvantageous to the complainant but was it one that, given their relationship, “calls for
explanation”. 475 Moreover:
“… the weight of the presumption will vary from case to case and will depend both on the
nature of the relationship and on the particular nature of the impugned transaction.” 476
Page 2
“A transaction calling for an explanation, which is not forthcoming”
8-092
In Mortgage Agency Services Number Two Ltd v Chater the court said:
“In our judgment the correct legal test is that set out by Lord Nicholls at paragraph [14] in
Etridge … In so far as the passage cited from Lord Scarman’s speech in Morgan
suggests a higher test, we prefer the reformulated test given by Lord Nicholls. We detect
a possible distinction between a transaction explicable only on the basis that undue
influence had been exercised to procure it (Lord Scarman) and one which called for an
explanation, which if not given would enable the court to infer that it could only have been
procured by undue influence (Lord Nicholls).” 477
In Turkey v Awadh, 478 in which Mortgage Agency Services Number Two Ltd v Chater does not
appear to have been cited, the Court of Appeal held that a presumption of undue influence does not
arise merely because the transaction called for an explanation. It must be one that cannot be
explained by ordinary motives (as had been said by Lord Scott in Etridge’s case 479); or, as the trial
judge (Judge Cooke Q.C.) had put it:
“… whether, given the circumstances and the nature of the transaction, it says to the
unbiased observer that absent explanation it must represent the beneficiary taking
advantage of his position.” 480
As Buxton L.J. put it:
“If on the evidence the transaction cannot so be explained — that is to say, the
transaction calls for an explanation and that explanation is not forthcoming — the burden
then shifts to the claimant to show that in fact, and despite the terms and nature of the
agreement, he did not in truth abuse the position that he held.” 481
The transaction must be looked at in its context and to see what its general nature was and what it
was trying to achieve for the parties. 482 The judge’s decision that, although neither party had given
thought to the value of the property, the transaction was otherwise explicable by the circumstances
(the transaction had family elements) was upheld. Thus, if there is an explanation, no presumption
arises in the first place. This would mean that the complainant, in order to show that there is a
“transaction not explicable by ordinary motives” would have to show that it was not so explicable even
in the circumstances of the case, for example, even though the complainant might be expected to
want to provide for his family. This appears to be what Lord Nicholls intended, for in discussing the
position as between husband and wife 483 he says that a guarantee of the husband’s business debts
is not:
“… in the ordinary course … to be regarded as a transaction which, failing proof to the

contrary, is explicable only on the basis that it has been procured by the exercise of
undue influence by the husband.” 484
What may be expected as between husband and wife
8-093
Page 3
As between husband and wife, it seems that with the change from requiring “manifest disadvantage”
to that treating a transaction that is “not readily explicable by their relationship” as evidence that,
combined with a relationship of trust and confidence, may suffice to raise an evidentiary presumption,
may have been accompanied by a change of attitude towards what will satisfy this criterion. Earlier
cases had suggested that a charge executed by a wife to secure her husband’s business debts would
be manifestly disadvantageous, even though she would benefit if the business were to thrive. 485 In
Etridge’s case Lord Nicholls discussed at some length the “husband and wife” cases. 486 He said that
it is not correct to take the narrow approach of saying that every guarantee of a husband’s bank
overdraft by the wife is manifestly disadvantageous to her:
“Ordinarily, the fortunes of husband and wife are bound up together. If the husband’s
business is the source of the family income, the wife has a lively interest in doing what
she can to support the business.” 487
In Lord Nicholl’s view, in the ordinary course [emphasis in the original], a guarantee of this kind is not
to be regarded as explicable only on the basis of undue influence by the husband and thus prima
facie evidence of undue influence. However, that applies only “in the ordinary course”:
“There will be cases where a wife’s signature of a guarantee or charge of her share in the
matrimonial home does call for explanation.” 488
8-094
On one view of the previous law, wives who have signed guarantees of their spouses’ business
debts, and others in a similar position, will in future find it less easy to rely on the presumption of
undue influence. However, it must be remembered that Lord Nicholls was discussing the facts
necessary to give rise to an evidential presumption of undue influence. If the wife proves that the
husband used undue influence (for example by showing that she left all such decisions to him and
signed whatever he put in front of her), she does not need to rely on the presumption. Even though in
practice questions are unlikely to arise if the transaction is innocuous, she may avoid the transaction
without having to show that it was disadvantageous “either in financial terms or in any other way.
However, in the nature of things, questions of undue influence will not usually arise, and the exercise
of undue influence is unlikely to occur, where the transaction is innocuous. The issue is likely to arise
only when, in some respect, the transaction was disadvantageous either from the outset or as matters
turned out”. 489
Surety cases that call for explanation
8-095
In Bank of Credit and Commerce International SA v Aboody the Court of Appeal held that the
question whether there was what was then termed manifest disadvantage:
“… must depend on two factors, namely (a) the seriousness of the risk of enforcement to
the giver, in practical terms, and (b) the benefits gained by the giver in accepting the risk.”
490
The Court of Appeal refused to interfere with the trial judge’s findings that, as the wife would receive
substantial benefits if the business survived, and at the relevant times it had “more than an equal
chance” or “at least a reasonably good chance of surviving”, the transactions were not manifestly
disadvantageous to the wife. Conversely, if the chances of the business surviving are not good or if
the marriage is already in difficulties and were it to founder the wife would be left without her only
Page 4
substantial asset, the transaction may be manifestly disadvantageous. 491 But the disadvantage must:
“… be obvious as such to any independent and reasonable persons who considered the
transactions at the time with knowledge of all the relevant facts.” 492
This approach seems compatible with that of the House of Lords in Etridge’s case. If a wife gives a
guarantee for a business that seems to be thriving, the transaction will be explicable by ordinary
motives. 493 But a presumption will arise if the complainant who was induced to guarantee or execute
a charge to secure the other party’s business debts is merely an employee with no stake in the
business 494; indeed some such transactions have been so one-sided that they “shock the conscience
of the court” and may be set aside as unconscionable bargains. 495
Examples from other contracts
8-096
In the context of contracts generally, as opposed to guarantees, it is not easy to say what will be
treated as “not reasonably to be accounted for on … ordinary motives” for the purposes of
establishing an inference that undue influence has been used. Certainly, a sale at undervalue will
suffice 496 ; and so will a transaction which brings the weaker party significant benefits if the benefit
is obviously outweighed by the risks involved. 497 It has been held that vesting a large sum of money
to which a successful personal injury claimant has recently become absolutely entitled in the settlor’s
solicitor upon a bare trust for the settlor (but subject to charging and other powers vested in the
solicitor) cannot readily be accounted for by ordinary motives. 498
470. (1887) L.R. 36 Ch. D. 145, 185.
471. Etridge’s case [2001] UKHL 44, Lord Nicholls at [17]; above, para.8-061.
472. See below, paras 8-091—8-092.
473. [2001] UKHL 44, [2002] 2 A.C. 773 at [29], [156].
474. See Etridge’s case [2001] UKHL 44, [2002] 2 A.C. 773 at [24], [104], [156]. In R. v Att-Gen for
England and Wales [2003] UKPC 22 the majority held that the confidentiality agreement signed
by the service man did not require explanation because it was an agreement that anyone
wishing to service in the special forces could reasonably be asked to sign (at [24]).
475. [2001] UKHL 44 at [30], [158]. See further below, para.8-093.
476. [2001] UKHL 44, per Lord Scott at [153]. On what is required to rebut the presumption see
further below, para.8-093. A confidentiality clause signed by a soldier does not call for
explanation: R. v Att-Gen for England and Wales [2003] UKPC 22.
477. [2003] EWCA Civ 490 at [30].
478. [2005] EWCA Civ 382, [2005] 2 F.C.R. 7.

Page 5
479. [2001] UKHL 44 at [220].
480. [2005] EWCA Civ 382 at [20]–[22].
481. [2005] EWCA Civ 382 at [15]; applied in Hart v Burbidge [2014] EWCA Civ 992 (a gift case) at
[35].
482. [2005] EWCA Civ 382 at [32].
484. Etridge ’s case [2001] UKHL 44 at [30].
485. Turner v Barclays Bank Plc [1997] 2 F.C.R. 151, 165. In Barclays Bank Plc v O’Brien [1994] 1
A.C. 180, 199 Lord Browne-Wilkinson said quite simply that the charge to secure the husband’s
business debts was on the face of it “not to her financial advantage” because she had no direct
pecuniary interest in the business, but there the question was whether the creditor was put on
constructive notice of possible misrepresentation or undue influence and it seems that, as
between the stronger and weaker party, more must be shown in order to raise the presumption
of undue influence. See above, para.8-091 and compare below, para.8-117.
486. [2001] UKHL 44 at [28]–[31].
487. [2001] UKHL 44 at [28].
488. [2001] UKHL 44 at [30]–[31].
489. [2001] UKHL 44 at [12]. See above, para.8-062. It should also be noted that Lord Nicholls, at
[44], pointed out that a much lower threshold is required in order to put a third party, such as a
bank, to whom the wife has given a guarantee or charge, “on inquiry”: see below, para.8-115.
490. [1990] 1 Q.B. 923, 965. In National Westminster Bank Plc v Morgan [1985] A.C. 686 the charge
was not manifestly disadvantageous as it was the only way to save the matrimonial home from
repossession by another creditor.
491. See the Court of Appeal decision in Etridge ’s case [1998] 4 All E.R. 705 at 716.
492. Bank of Credit and Commerce International SA v Aboody [1990] 1 Q.B. 923, 965.
494. Steeples v Lea [1998] 1 F.L.R. 138.
495. Crédit Lyonnais Bank Nederland NV v Burch [1997] 1 All E.R. 144, 152. See further, below,
para.8-132.
496.
Mahoney v Purnell [1996] 3 All E.R. 61. In contrast, in Libyan Investment Authority v Goldman
Sachs International [2016] EWHC 2530 (Ch) the profits made by Goldman Sachs were not
excessive given the nature of the trades and the work that had gone in to winning them, and so
no presumption was raised (at [427]).
497. Cheese v Thomas [1994] 1 W.L.R. 129. It has been argued that a transaction under which the
complainant parted with property at full market value may still be manifestly disadvantageous if
it was not one that a party in similar situation would ordinarily be expected to have made, such
as to sell the family land: Birks and Chin, Good Faith and Fault in Contract Law (1995),
pp.57–97, at 83; but cf. para.8-062 above.
498.
AKB v Willerton, OH v Craven [2016] EWHC 3146 (QB), [2017] 4 W.L.R. 25 at [30]. On the
steps that should be taken to show the settlor was not unduly influenced, see below, para.8-100
Page 6
n.504.

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(d) - Rebutting the Presumption
Rebutting the presumption
8-097
In order to rebut the presumption of undue influence, evidence must be adduced to satisfy the court
“that the donor was acting independently of any influence from the donee and with the full
appreciation of what he was doing”. 499 The most usual, though not the only, way of rebutting the
presumption is to prove that the claimant had competent and independent advice, 500 and the position
of the defendant is stronger if the claimant’s action was taken in accordance with, than if it was taken
in spite of, such advice. Sometimes to show that the complainant had independent advice will be the
only way of rebutting the inference of undue influence, 501 but circumstances may establish the fact
that the claimant’s will was freely exercised although no independent advice was given or although
such advice was disregarded. 502 Conversely, proof of outside advice does not necessarily show that
there was no undue influence: it is a question of fact to be decided on the evidence. 503
Duty of confidence
8-098
In cases falling within the second of the two categories referred to in Allcard v Skinner 504 it is not to
the point to attempt to “rebut the presumption” of undue influence by evidence that the donor’s will
was exercised free of domination. In cases of this kind what needs to be established is that the duty
of confidence has been fulfilled. What constitutes fulfilment of that duty depends on the facts of the
particular case, but in general the duty requires that the person liable to be influenced should be
enabled to form an independent and informed judgment. 505 Where the case involves the giving of
advice by a legal or other confidential adviser this no doubt means that the advice must be fairly and
disinterestedly offered, and must also be reasonable and adequate advice in the circumstances. In
other cases the question may not be so much as to any advice given by the defendant, but as to the
availability of advice from other sources. 506 In some cases, such a duty may be held to require
disclosure of material facts, and no real question arises of undue influence in the literal sense. 507
Independent advice
8-099
On the subject of independent advice there have been varying statements of judicial opinion. In Re
Coomber, 508 it was said that it is sufficient if an independent adviser sees that the donor understands
what he is doing and intends to do it; he need not advise him to do it or not to do it. On the other
hand, in Powell v Powell, 509 it was said:
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“The solicitor does not discharge his duty by satisfying himself simply that the donor
understands and wishes to carry out the particular transaction. He must also satisfy
himself that the gift is one which it is right and proper for the donor to make under all the
circumstances, and if he is not so satisfied, his duty is to advise his client not to go on
with the transaction, and to refuse to act further for him if he persists.”
In Royal Bank of Scotland v Etridge (No.2) the Court of Appeal took a similar view, 510 but in the
House of Lords, Lord Nicholls expressly disagreed. 511 It is not for the solicitor to veto the transaction.
512
The decision whether to proceed is the
decision of the client, not the solicitor. Only in exceptional cases where it is glaringly obvious that the
complainant is being grievously wronged is the solicitor to be expected to decline to act further.
Adequacy of advice
8-100
It has been said that the independent adviser should ensure that the party entering the transaction
understands it even where there has been no misrepresentation by the other party. It appears that if
the solicitor does not have the relevant information or ask the relevant questions, the advice may be
treated as inadequate and the presumption will not be rebutted. The Judicial Committee of the Privy
Council considered this question in Inche Noriah v Shaik Allie Bin Omar, 513 where there was a gift of
almost the whole of her property by an aged Malay widow to her nephew. The Board was of the
opinion that independent advice might be effective even though it was not shown that the advice was
taken; but then it must be given:
“… with a knowledge of all relevant circumstances and must be such as a competent and
honest adviser would give if acting solely in the interests of the donor.” 514
In the instant case, the gift was set aside, for although the widow had received independent advice
from a solicitor, he did not know at the time that the gift comprised almost all of her property, nor did
he advise her that she could equally well have benefited her nephew by will. 515
499. Inche Noriah v Shaik Allie Bin Omar [1929] A.C. 127, 135. In order to rebut the presumption it is
not sufficient to show that C understood what he or she was doing and intended to do it: Curtis
v Pulbrook [2009] EWHC 782 (Ch) at [143], citing Snell’s Equity, 31st edn (2005), para.8-30. At
this stage, whether or not there was manifest disadvantage is irrelevant: Smith v Cooper [2010]
EWCA Civ 722, [2010] 2 F.C.R. 551 at [65].
500. Morley v Loughnan [1893] 1 Ch. 736, 752; Re Coomber [1911] 1 Ch. 723; Inche Noriah v Shaik
Allie Bin Omar [1929] A.C. 127.
501. Inche Noriah v Shaik Allie Bin Omar [1929] A.C. 127 PC.
502. [1929] A.C. 127, 135; Re Estate of Brocklehurst [1978] Ch. 141.
Page 3
503. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773 at [20]. The Court
of Appeal should interfere with the trial judge’s findings on this point only if the judge went
wrong in principle: Curtis v Curtis [2011] EWCA Civ 1602 at [14].
505. Lloyds Bank Ltd v Bundy [1975] Q.B. 326, 342.
506. cf. Hammond v Osborn [2002] EWCA Civ 885, The Times, July 18, 2002, a case of gift in which
it was held that the donor had not made an informed judgment. It was accepted that the
and to ensure that he obtained independent advice.
507. English v Dedham Vale Properties Ltd [1978] 1 W.L.R. 93. See above, para.8-069.
508. [1911] 1 Ch. 723.
509. [1900] 1 Ch. 243, 247. See also Barron v Willis [1902] A.C. 271; Wright v Carter [1903] 1 Ch. 27
.
510. Royal Bank of Scotland v Etridge (No.2) [1998] 4 All E.R. 705, 715.
511. [2001] UKHL 44, [2002] 2 A.C. 773 at [59]–[63]. Lord Nicholls said that Powell v Powell [1900] 1
Ch. 243 was an extreme case and Farwell J.’s statement “cannot be regarded as of general
application”.
512. Or, in a case where the client is offering a guarantee to a third party bank (see below,
para.8-109) by declining to confirm to the bank that he has explained the documents to the wife
and the risks that she is taking upon herself. Lord Nicholls did not accept the view of the Court
of Appeal that the availability of legal advice is insufficient to prevent the bank being fixed with
constructive notice if the transaction is “one into which no competent solicitor could properly
advise the wife to enter”. Etridge was of course a “three-party” case but in this context, Lord
Nicholls did not draw a distinction between two and three-party cases.
513. [1929] A.C. 127.
514. [1929] A.C. 127, 136.
515.
In the context of a personal injury trust under which the claimant’s solicitor is to be trustee
(see above, para.8-096 n.487a), it has been said that, with a settlement of £1 million or more
where its in-house trust corporation is to be a trustee, to ensure that the claimant is not unduly
influenced a separate partner in the firm should instruct Chancery Counsel of not less than five
years’ standing to advise the claimant: AKB v Willerton, OH v Craven [2016] EWHC 3146 (QB),
[2017] 4 W.L.R. 25 at [31]. cf. below, para.8-120.

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(e) - Remedies for Undue Influence
Affirmation. 516
8-101
A transaction entered into as the result of undue influence is voidable and not void. The right to
rescind on the ground of undue influence may be lost either by express affirmation of the transaction
by the victim, 517 by estoppel or by delay amounting to proof of acquiescence. 518 Although there can
normally be no affirmation until the party knows he has the right to rescind, it has been doubted
whether this is a hard and fast rule: “the whole of the circumstances must be looked at to see whether
it is just that the complaining beneficiary should succeed”. 519 Estoppel requires a clear and
unequivocal representation that the claimant would not seek to set the agreement aside, intended to
be acted on and in fact acted on by the other party to his detriment or in such a way that it would be
inequitable to allow the claimant to go back on his representation. 520 In either case, to be of any
value, the affirmation must take place after the influence has ceased:
“The right to property acquired by such means cannot be confirmed in this court unless
there be full knowledge of all the facts, full knowledge of the equitable rights arising out of
those facts, and an absolute release from the undue influence by means of which the
frauds were practised.” 521
Lapse of time in itself does not seem to constitute a bar to relief, 522 but it will provide evidence of
acquiescence if the victim fails to take any steps to set aside the transaction within a reasonable time
after he is freed from the undue influence. 523 And where he has himself failed to commence
proceedings in this way during his lifetime, his personal representatives cannot do so after his death.
524
Restitution
8-102
A complainant who has received no benefit under the contract may simply have it set aside. 525 If the
complainant has received a benefit 526 and rescinds, she must make restitution 527 and it has been
said that her right to rescission is “conditional on her making counter-restitution”. 528
Impossibility of restitution not necessarily a bar
8-103
It is thought that, as between the parties, the fact that property transferred can no longer be returned
Page 2
as such to the complainant (for example, because an innocent third party has acquired rights over it)
is not necessarily a bar to rescission on the grounds of undue influence. Instead, the defendant may
be required to make counterrestitution by a monetary equivalent. 529 This is suggested by the cases
discussed in the next two paragraphs.
Account of profits with allowance
8-104
Thus, a transaction entered into as a result of undue influence can be rescinded even though it has
been fully executed, and even though restitutio in integrum is no longer fully possible, so long as the
court can do substantial justice by ordering an account of profits with, if necessary, an allowance for
work done by the defendant. Where a series of contracts between a young singer and his manager
and agent was set aside after the singer had achieved worldwide success, it was held that the
defendant could be made liable to account for all the profit made from the contracts, but subject to a
reasonable allowance for his work under the transactions in question. This allowance could include a
reasonable element of profit, but not so much as might have been obtained by the defendant if the
plaintiff had been properly advised by independent advisers at the outset. 530
Equitable compensation
8-105
It has been held that if restitutio in integrum is no longer possible, and the defendant does not retain
any profits for which he may be made to account, the claimant may still be given “compensation in
equity”. In Mahoney v Purnell 531 May J. held that equitable compensation under Nocton v Lord
Ashburton 532 is also available in such circumstances and the plaintiff could recover the value of what
he had transferred, giving credit for what he had received. The judge described this as the practical
equivalent of awarding damages, though it should be noted that equitable compensation will not
include compensation for consequential losses. 533 Doubt has been expressed whether equitable
compensation is available in every case of undue influence, or only those in which there is a fiduciary
relationship of a narrower sort, such as between solicitor and client or beneficiary and trustee. 534 In
Bank of Credit and Commerce International SA v Aboody 535 Slade L.J. treated such cases as
different to normal cases of undue influence 536 and said that cases such as Tate v Williamson 537 did
not draw a sufficiently clear distinction between the two types of case; but there is no sign that May J.
saw the case before him to be anything other than one of presumed undue influence. However, it has
been argued persuasively that “equitable compensation” in this context should be understood as
referring to pecuniary restitution of any unjust enrichment, which is appropriate in cases of undue
influence. The case shows not that equitable compensation may be given when restitution is
impossible, so much as that rescission need not be prevented by the fact that property cannot be
returned in specie; as between the parties it may be effected in money. 538
Sharing of loss
8-106
Conversely, where as the result of undue influence the claimant has contributed to the purchase of
property which as a result of the transaction being set aside has to be sold, and the property does not
fetch the price paid for it, the claimant is not entitled to the return of the full contribution he made. The
principle is to prevent unjust enrichment of the other party and the sum obtained on sale of the
property should be shared in the same proportions as the parties’ original contributions to the
purchase. 539
Change of position
Page 3
8-107
It has been noted that the decision described in the last paragraph might be viewed as a form of
change of position defence to even monetary restitution; and that in Allcard v Skinner 540 the
possibility of such a defence was recognised by all three Lords Justice, in that they considered that
the complainant would have been able, had she taken steps in time, to recover from the religious
order to which she had made her gifts only such sums as remained unspent in its hands. 541
516. This paragraph in the 28th edition was cited with approval in DSND Subsea Ltd v Petroleum
Geo-services ASA [2000] B.L.R. 530 at [146].
517. Mitchell v Homfray (1881) 8 Q.B.D. 587; Morse v Royal (1806) 12 Ves. 355.
518. Allcard v Skinner (1887) 36 Ch. D. 145; Turner v Collins (1871) L.R. 7 Ch. App. 329. See
below, paras 28-137—28-143.
519. Goldsworthy v Brickell [1987] Ch. 378, 412 (Nourse L.J.) and 416 (Parker L.J.). Nourse L.J.
considered that the defence might have succeeded on the basis that by the time of the alleged
act of affirmation, the complainant had consulted solicitors. cf. Lloyds Bank Plc v Lucken, heard
with the Etridge case, [1998] 4 All E.R. 705, 738, 751.
520. Goldsworthy v Brickell [1987] Ch. 378, 410–411. In Habib Bank Ltd v Tufail [2006] EWCA Civ
374, [2006] All E.R. (D) 92 (Apr) Lloyd L.J. drew a distinction between affirmation, which
requires knowledge of the right to rescind (at [19]) and acquiescence. Acquiescence can
operate rather like promissory estoppel, though in Goldsworthy v Brickell [1987] Ch. 378 at 409,
Nourse L.J. had pointed out that promissory estoppel is normally concerned with the giving up
of rights under a contract whose validity is not in dispute, and its requirements are more
formalised than those of acquiescence. Thus if before she seeks to avoid the contract the victim
of undue influence or misrepresentation indicates that she will perform it, and the other party
acts on that representation to its detriment, the victim will lose the right to avoid the contract, at
least if the representation was made after she knew of the facts giving her the right to avoid (at
[22]; Lloyd L.J. doubted whether the supposed further requirement that her representation be
intended to be acted on added anything). If, as on the facts of the case, the other party cannot
show that the representation (on the facts, that solicitors had been instructed to sell the
mortgaged property) led it to act differently, it cannot rely on acquiescence (at [25]) and the
victim may still be entitled to avoid the contract. The case was one in which a mortgage to a
bank had been entered into as the result of misrepresentation by a third party of which the bank
had constructive notice (see below, paras 8-109 et seq.) but the same principle applies in a
two-party case like Goldsworthy v Brickell.
521. Moxon v Payne (1873) L.R. 8 Ch. App. 881, 885.
522. Hatch v Hatch (1804) 9 Ves. 292; Re Pauling’s Settlement Trusts [1964] Ch. 303.
523. Allcard v Skinner (1887) L.R. 36 Ch. D. 145; cf. Bullock v Lloyds Bank Ltd [1955] Ch. 317.
524. Wright v Vanderplank (1855) 2 K. & J. 1; Mitchell v Homfray (1881) 8 Q.B.D. 587.
525. cf. TSB Bank Plc v Camfield [1995] 1 W.L.R. 430 (misrepresentation), above, para.7-126.
526. It seems likely that in this context “benefit” refers to something received directly under the
Page 4
contract to be set aside or one inextricably linked with it (as in the case cited in the next note)
rather than to, e.g. a benefit received by a wife through the successful operation of her
husband’s business for a period before the creditor sought to enforce the charge in question
given by the wife.
527. Dunbar Bank Plc v Nadeem [1998] 3 All E.R. 876; see also Midland Bank Plc v Greene [1994] 2
F.L.R. 827.
528. Dunbar Bank Plc v Nadeem [1998] 3 All E.R. 876, 884.
529. Burrows, Law of Restitution, 3rd edn (2011), pp.287–288.
530. O’Sullivan v Management Agency Ltd [1985] Q.B. 428, following the authorities relating to
setting aside contracts for misrepresentation, above, paras 7-123 et seq.
531. [1996] 3 All E.R. 61.
532. [1914] A.C. 932 (a case of a mortgagee suing his solicitor, see para.7-087).
533. See para.7-088 n.402.
534. See Heydon (1997) 113 L.Q.R. 8, 9.
535. [1990] 1 Q.B. 923, 943.
536. See para.8-064.
537. (1866) L.R. 2 Ch. App. 55.
538. Birks [1997] R.L.R. 72. See also above, para.7-128.
539. Cheese v Thomas [1994] 1 W.L.R. 129. The focus should be on the property transactions, not
the entire relationship between the parties: Smith v Cooper [2010] EWCA Civ 722, [2010] 2
F.C.R. 551 at [101].
540. (1887) 36 Ch. D. 145.
541. Chen-Wishart (1994) 110 L.Q.R. 173, 177–178; Allcard v Skinner (1887) 36 Ch. D. 145, 164,
171, 186.

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(f) - Undue Influence by a Third Party
Undue influence by a third person
8-108
Where one party seeks to avoid a contract on the ground of undue influence by a third person, it
must appear either that the third person was acting as the other party’s agent, or that the other party
had actual or constructive notice of the undue influence. 542
Undue influence over a surety
8-109
In a number of cases a recurring situation has arisen. 543 In the typical case, a husband has wanted to
borrow money from a creditor that has refused to proceed without having a guarantee secured by a
charge over the matrimonial home, or similarly a charge without a personal guarantee, from the wife.
The wife’s consent has been secured by undue influence 544 or misrepresentation 545 by the husband.
Can the creditor enforce the guarantee? In some cases it was held that if the creditor had “left it to the
husband” to get the wife’s signature, the husband was acting as agent for the creditor 546 and it was
therefore responsible for his misconduct.
Constructive notice: Barclays Bank v O’Brien
8-110
In Barclays Bank Plc v O’Brien, a case where the husband had secured his wife’s signature by
misrepresentation, the Court of Appeal 547 expressed the view that the “agency” approach referred to
in the previous paragraph was often artificial on the facts. It held that it was not just in cases in which
the debtor was acting as the agent of the creditor in the true sense that the creditor would be unable
to enforce the guarantee if the debtor had procured the surety’s signature by misrepresentation. If the
relationship between the debtor and a surety who charged property to secure the debt was one in
which influence by the debtor over the surety and reliance on the debtor by the surety were natural
and probable features, as in the case of husband and wife, and this was known to the creditor, a
special rule applied. If the debtor procured the surety’s consent by misrepresentation or undue
influence, or the surety lacked an adequate understanding of the nature and effect of the transaction,
and the creditor, whether by leaving it to the debtor to deal with the surety or otherwise, failed to take
reasonable steps to try to ensure that the surety entered the transaction with adequate understanding
and that the consent was a true and informed one, the creditor may not enforce the security given by
the surety. 548
Page 2
8-111
In the House of Lords 549 this approach was rejected: there is no special theory in equity to protect
wives. 550 The surety cannot set aside the transaction simply on the ground that she did not fully
understand it. 551 However, the appeal of the Bank was dismissed on the ground that it had
constructive notice of the husband’s misrepresentation. Lord Browne-Wilkinson, delivering the only
full speech in the House of Lords, pointed out that there is a substantial risk that the wife may act as
surety when the transaction is not to her advantage because of some legal or equitable wrong by the
husband. Where the creditor is aware that the debtor and the surety are husband and wife, and the
transaction is on its face not to the financial advantage of the surety as well as of the debtor, the
creditor will be fixed with constructive notice of any undue influence, misrepresentation or other legal
wrong by the debtor unless it has taken reasonable steps to satisfy itself that the surety has entered
into the obligation freely and with knowledge of the true facts. 552 It is the combination of the fact that
the parties are husband and wife and that the transaction is on its face not to the wife’s advantage
that should put the creditor on notice. 553
8-112
Lord Browne-Wilkinson said that where the creditor is aware that the debtor and the surety are
husband and wife, and the transaction is on its face not one which is to the financial advantage of the
surety as well as of the debtor, the creditor will be fixed with constructive notice of any undue
influence, misrepresentation or other legal wrong by the debtor unless it has taken reasonable steps
to satisfy itself that the surety has entered into the obligation freely and with knowledge of the true
facts. 554 The creditor should explain to the surety the amount of her potential liability and of the risks
involved, and advise her to seek independent legal advice before entering the guarantee 555 ; and
this should be done in a personal interview, as written warnings are often not read and are sometimes
intercepted by the debtor. 556 The interview should not be attended by the husband. As in O’Brien’s
case the bank’s clerk, in disregard of her instructions, had not warned the wife of the risks involved
nor recommended her to take legal advice before getting her to sign the documents charging the
matrimonial home, the bank could not enforce the charge. If the bank has notice of facts rendering
misrepresentation or undue influence not just possible but probable, it must insist that the wife
actually is separately advised. 557
Etridge’s case
8-113
The decision in Barclays Bank v O’Brien, and the many other decisions that followed it, 558 must be
read in the light of the subsequent decision of the House of Lords in Royal Bank of Scotland v Etridge
(No.2), 559 and in particular the speech of Lord Nicholls, which gained the support of all their
Lordships. 560 Reference to this case has already been made in relation to what amounts to undue
influence. 561 The decision on constructive notice, and what steps the lender should take to avoid
being fixed with constructive notice, is of equal importance.
Basis of the constructive notice rule
8-114
Lord Nicholls said that the decision in Barclays Bank Plc v O’Brien:
“… is not a conventional use of the equitable doctrine of constructive notice … 562 The law
imposes no obligation on one party to check whether the other party’s concurrence was
obtained by undue influence. Rather, O’Brien envisages that the steps taken by the bank
will reduce, or even eliminate, the risk of the wife entering into the transaction under any
misapprehension or as a result of undue influence by her husband. The steps are not
Page 3
concerned to discover whether the wife has been wronged by her husband in this way. 563
The steps are concerned to minimise the risk that such a wrong may be committed.” 564
O’Brien concerned suretyship transactions, which (outside commercial suretyship) is a one-sided

transaction, so that the decision is aimed “at a class of contracts which has special features of its
own”. 565
When the bank is put on inquiry
8-115
The bank is put on inquiry (strictly speaking not an accurate description of what the bank is required
to do but now the accepted terminology 566) by a combination of two things: a non-commercial
relationship between the surety and the lender (see below, para.8-116) and a transaction which on its
face is to the disadvantage of the surety (see below, para.8-117). The threshold that must be crossed
before the bank is put “on inquiry” is deliberately set at a low level:
“… much lower than is required to satisfy a court that, failing contrary evidence, the court
may infer that the transaction was procured by undue influence.” 567
The test stated by Lord Browne-Wilkinson 568 is to be taken to mean simply that a bank is put on
inquiry whenever a wife offers to stand surety for her husband’s debts. 569
Relationships giving rise to notice
8-116
The same rule applies whether a husband stands surety for his wife’s debts or one of an unmarried
couple for the other’s debts, provided the bank is aware of the relationship. Cohabitation is not
essential. 570 It also applies where the bank knows that the parties are parent and child; knowledge of
the relationship means that the bank must take reasonable steps to ensure that the child “knows what
she is letting herself into”. 571 And, as the principle should apply to any other relationship where trust
and confidence are likely to exist, 572 there is no rational cut-off point:
“… the only practical way forward is to regard banks as ‘put on inquiry’ in every case
where the relationship between the surety and the debtor is non-commercial.” 573
Transaction not on its face to the advantage of the surety
8-117
The bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts. 574 The
bank is not put on inquiry if the money is advanced jointly to the couple, unless the bank is aware that
the loan is being made for the husband’s purposes. 575 Thus in CIBC Mortgages Plc v Pitt, 576 which
was heard with O’Brien’s case, the loan appeared on its face to be a normal one for the joint benefit
of husband and wife and therefore the creditor was not fixed with constructive notice of the undue
influence used by the husband to secure the wife’s agreement. 577 But if one party becomes surety for
a company whose shares are held by both, the bank is put on inquiry, even if they have equal
shareholdings or if the surety is also a director or secretary of the company. 578
Page 4
Reasonable steps
8-118
As to the steps that the lender should take to avoid being fixed with constructive notice of any undue
influence that has occurred, Lord Nicholls stated in Etridge that for past transactions, the bank should
have taken steps:
“… to bring home to the wife the risk she is running by standing as surety and to advise
her to take independent advice.” 579
For the future, however, Lord Nicholls said in Etridge that a bank will satisfy the requirements if it
insists that the wife attend a private meeting with a representative of the bank at which she is told of
the extent of her liability as surety, is warned of the risk she is running and is urged to take
independent legal advice. 580 In exceptional cases the bank should insist that she be separately
advised. 581
Advice from a solicitor
8-119
In several of the cases subsequent to O’Brien (the facts of many of which occurred before the House
of Lords’ decision in that case), the creditor had not itself advised the wife 582 but had relied on a
certificate from a third party, typically a solicitor employed by the husband or by the creditor itself, that
the wife had been given an explanation. If the wife has actually received such an explanation, this
would go beyond what O’Brien’s case required in the normal case in that the wife actually receives
advice. 583 In Etridge, Lord Nicholls said that if the bank (or other lender) prefers that the task be
undertaken by an independent legal advisor, it will normally be enough to rely on a confirmation from
a solicitor, 584 acting for the wife, 585 that he has advised the wife appropriately. 586 However, if the
bank knows that the solicitor has not duly advised the wife, or knows facts from which it ought to have
realised the wife has not received appropriate advice, the position will be different. 587
Steps the solicitor should take
8-120
Lord Nicholls then set out in some detail the steps the solicitor should take:
“[64]
… As a first step the solicitor will need to explain to the wife the purpose for which
he has become involved at all. He should explain that, should it ever become
necessary, the bank will rely upon his involvement to counter any suggestion that
the wife was overborne by her husband or that she did not properly understand the
implications of the transaction. The solicitor will need to obtain confirmation from the
wife that she wishes him to act for her in the matter and to advise her on the legal
and practical implications of the proposed transaction.
[65]
When an instruction to this effect is forthcoming, the content of the advice require a
Page 5
solicitor before giving the confirmation sought by the bank will, inevitably, depend
upon the circumstances of the case. Typically, the advice a solicitor can be
expected to give should cover the following matters as the core minimum. (1) He will
need to explain the nature of the documents and the practical consequences these
will have for the wife if she signs them. She could lose her home if her husband’s
business does not prosper. Her home may be her only substantial asset, as well as
the family’s home. She could be made bankrupt. (2) He will need to point out the
seriousness of the risks involved. The wife should be told the purpose of the
proposed new facility, the amount and principal terms of the new facility, and that
the bank might increase the amount of the facility, or change its terms, or grant a
new facility, without reference to her. She should be told the amount of her liability
under her guarantee. The solicitor should discuss the wife’s financial means,
including her understanding of the value of the property being charged. The solicitor
should discuss whether the wife or her husband has any other assets out of which
repayment could be made if the husband’s business should fail. These matters are
relevant to the seriousness of the risks involved. (3) The solicitor will need to state
clearly that the wife has a choice. The decision is hers and hers alone. Explanation
of the choice facing the wife will call for some discussion of the present financial
position, including the amount of the husband’s present indebtedness, and the
amount of his current overdraft facility. (4) The solicitor should check whether the
wife wishes to proceed. She should be asked whether she is content that the
solicitor should write to the bank confirming he has explained to her the nature of
the documents and the practical implications they may have for her, or whether, for
instance, she, would prefer him to negotiate with the bank on the terms of the
transaction. Matters for negotiation could include the sequence in which the various
securities will be called upon or a specific or lower limit to her liabilities. The solicitor
should not give any confirmation to the bank without the wife’s authority.
[66]
The solicitor’s discussion with the wife should take place at a face-to-face meeting,
in the absence of the husband. It goes without saying that the solicitor’s
explanations should be couched in suitably non-technical language. It also goes
without saying that the solicitor’s task is an important one. It is not a formality.
[67]
The solicitor should obtain from the bank any information he needs. If, the bank fails
for any reason to provide information requested by the solicitor, the solicitor should
decline to provide the confirmation sought by the bank.”
Conflicts of interest
8-121
The solicitor may also act for the husband or the bank but, in advising the wife, he is acting for her
alone (and therefore his knowledge is not imputed to the bank 588). He must consider whether there is
any conflict of interest and whether it would be in the best interests of the wife for him to accept
instructions from her. If at any stage there is a real risk that other interests or duties may inhibit his
advice to the wife he must cease to act for her. 589
The bank and the solicitor

Page 6
8-122
The bank should check directly with the wife the name of the solicitor she wishes to act for her, telling
her that it will require written confirmation from the solicitor that he has explained to her fully the
nature of the documents and their practical implications, so that she is not able later to dispute that he
is bound by the documents she has signed. It must also send to the solicitor the necessary financial
information. 590 If the solicitor is already acting for the husband and wife the wife should be asked if
she would prefer a different solicitor to advise her. 591 If in exceptional circumstances the bank
suspects that the wife is being misled by her husband or is not entering the transaction of her own
free will, it must inform the solicitor of the facts giving rise to the suspicion.
Procedure
8-123
It will be for the wife or other surety to show that the bank had notice of the non-commercial
relationship between her and the debtor, and that the transaction was, on its face, not to her
advantage. The burden will then be on the bank or other lender to show that it has taken sufficient
steps to prevent it being fixed with constructive notice. 592
Need the party guilty of undue influence be a party to the transaction?
8-124
In at least one case the bank was treated as having constructive notice of the wife’s right to set aside
the charge as against the husband. 593 It is clear, however, that it makes no difference that the
husband is not a party to the charge:
“The transferor wife is seeking to resile from the very transaction she entered into with the
bank, on the ground that her apparent consent was procured by the undue influence or
other misconduct, such as misrepresentation, of a third party (her husband).” 594
Replacement mortgages
8-125
Where a mortgage granted by a wife to a bank was voidable against the bank because the bank had
constructive notice of undue influence by the husband, a replacement of the mortgage may also be
voidable against the bank even if at the time the replacement mortgage was given there was no
undue influence, at least where the replacement mortgage is taken as a condition of discharging the
original mortgage. 595 It does not matter that the new agreement is a fresh contract rather than a
variation of the old one, provided that the replacement mortgage is between the same parties. 596
However, it seems that the replacement mortgage must be inseparable from the original mortgage, in
the sense that the replacement mortgage was granted before the grantor became aware that she had
a right to avoid the original one, and was granted in order to discharge it. 597
Loss of right to avoid by inconsistent action. 598
8-126
Like the right to avoid a contract for undue influence by the other party, the surety’s right against the
lender may be lost. One way in which this may occur is by the surety acting inconsistently with her
Page 7
right to avoid the charge. In First National Bank Plc v Walker 599 the husband and wife had charged
their jointly owned home to the bank as security for a loan to the husband’s business. Subsequently
they divorced and the wife applied for ancillary relief. A property adjustment order was made in her
favour, ordering the husband to convey his interest in the property to the wife. Clause 4 stated that
nothing in the conveyance should prejudice the charge to the bank. Shortly afterwards the wife served
a defence to possession proceedings by the bank, alleging that the charge was voidable by reason of
the bank’s actual or constructive notice of undue influence by the husband. The Court of Appeal held
that the wife, by taking the transfer of her husband’s interest, had lost her right to pursue the defence
to the property proceedings, as this would be inconsistent with her having taken the conveyance. To
pursue it would be an abuse of process or (per Morritt V.C. 600) estoppel, approbation and reprobation,
affirmation or release might apply. The reasoning employed in the Court of Appeal, that the wife’s
claim to set aside the charge because of the undue influence of the other joint and several debtor is
secondary to and parasitic on the existence of such a claim against the other debtor, and that she lost
her right by acting as against him in a way that was inconsistent with avoidance, may not have
survived the decision in Etridge ’s case that the wife’s right to avoid the charge is because of the
bank’s constructive notice by a third party. But it seems that the right to avoid may be lost by acting in
such a way as against the surety itself. 601
Jointly-owned homes
8-127
It is only the surety against whom the charge may not be enforceable. If the property charged is
owned jointly by husband and wife, then even though the charge may not be enforceable against the
wife, it may be against the husband; and the result may be that the court will still order the property to
be sold 602 in order to realise the husband’s share. 603
Other cases
8-128
This doctrine of constructive notice should avoid the need for the somewhat strained approach used
in a number of earlier cases to the effect that the creditor, by “leaving it to the debtor” to get the
surety’s signature, was appointing the debtor as its agent and was therefore in no better position than
the debtor would have been. 604 There may still be cases in which the creditor is responsible for the
husband’s actions because it can be said, “without artificiality”, that the husband was acting as agent
of the creditor, but “such cases will be of very rare occurrence”. 605 The agency argument may still
apply also in cases not involving sureties. In O’Sullivan v Management Agency Ltd 606 it was held that
where a person in a fiduciary relationship procures by undue influence contracts to be entered into
with companies under his control and direction, the companies will be affected by the doctrine of
undue influence even though they themselves were not in fiduciary relationships. In such a case it is
immaterial that the undue influence is exercised in order to obtain a benefit for third parties rather
than for the person himself exercising the undue influence.
Volunteers
8-129
Alternatively, it may suffice to set aside the contract if the person against whom relief is sought gave
no consideration, i.e. he was merely a volunteer. 607 It is not possible to avoid the contract as against
a bona fide purchaser for value without notice. 608 It is clear that a gift made to a person who has
exercised no influence will not be set aside because there is in the same instrument a gift to a person
within the suspect relationships, unless the instrument as a whole can be said to have been executed
as a result of undue influence. 609
Page 8
542.
See Bank of Credit and Commerce International SA v Aboody [1990] 1 Q.B. 923, 973;
Barclays Bank Plc v O’Brien [1994] 1 A.C. 180, discussed in the paragraphs that follow;
Chancery Client Partners Ltd v MRC 957 Ltd [2016] EWHC 2142 (Ch), [2016] Lloyd’s Rep. F.C.
578.
543. For a wide-ranging study of the problem, see Fehlberg, Sexually Transmitted Debt (1997).
544. e.g. CIBC Mortgages Plc v Pitt [1994] 1 A.C. 200.
545. Kings North Trust Ltd v Bell [1961] 1 W.L.R. 119; Barclays Bank Plc v O’Brien [1994] 1 A.C.
180.
546. See Coldunell Ltd v Gallon [1986] Q.B. 1184.
547. [1993] Q.B. 109.
548. Considerable reliance was placed on Turnbull & Co v Duval [1902] A.C. 429 PC.
549. [1994] 1 A.C. 180. In Scotland a similar result has been reached but via the different route of
recognising a duty of good faith by the creditor towards the cautioner: Smith v Bank of Scotland
1997 S.L.T. 1061. In Australia, the problem has been approached through the doctrine of
unconscionability (below, para.8-130): see Tjio (1997) 113 L.Q.R. 13. The O’Brien case has not
been followed: Garcia v National Australia Bank Ltd [1998] 155 A.L.R. 614 High Ct.
550. Turnbull & Co v Duvall [1902] A.C. 429 PC was doubted.
551. Barclays Bank Plc v O’Brien [1994] 1 A.C. 180, 195.
552. [1994] 1 A.C. 180, 196.
553. Compare CIBC Mortgages Plc v Pitt [1994] 1 A.C. 200, heard at the same time as O’Brien
[1994] 1 A.C. 180: see below, para.8-117.
555.
This much is required for “guarantees for personal and micro-enterprise lending” by the
Lending Code, 2nd edn (2011, rev. October 2014 and September 2015), paras 67-75. (This
replaces the Banking Code, which was first adopted by banks and building societies (as the
Code of Banking Practice) in March 1992.) The code also provides that unlimited guarantees or
security should not be taken from an individual (other than to support a customer’s liabilities
under a merchant agreement): para.71. On July 21, 2016, the Lending Standards Board
published a new Standards of Lending Practice, which come into force on October 1, 2016. The
Standards of Lending Practice replace the Lending Code. The Standards of Lending Practice
apply to personal customers and cover loans, credit cards and current account overdrafts. The
new Standards represent a move away from the Lending Code, which was focused more on
compliance with provisions than customer outcomes. New Standards of Lending Practice for
Business Customers were published on March 28, 2017 and became effective on July 1, 2017.
They replace the micro-enterprise provisions of the Lending Code. See further below,
para.34-219. Until July 2017, the existing protections of the Lending Code continued to apply to
micro-enterprises (Standards of Lending Practice, p.3). The issue of guarantees provided by
individuals is dealt with in a separate document issued by the Lending Standards Board, The
Standards of Lending Practice for personal customers: Account maintenance and servicing
(September 2016), Pt 8.
Page 9
556. [1994] 1 A.C. 180, 198.
557. [1994] 1 A.C. 180, 197.
558. For a survey of many of the post-O’Brien cases see Fehlberg (1996) 59 M.L.R. 675.
559. [2001] UKHL 44, [2002] 2 A.C. 773. This case and seven other appeals were heard together.
560. See [2001] UKHL 44 at [3], [91], [100] and [192].
562. [2001] UKHL 44 at [39].
563. Thus the solicitor is not expected to satisfy himself that the wife is free from undue influence:
see the criticism of statements made in Etridge in the Court of Appeal and applied in the
conjoined case of Kenyon-Brown v Desmond Banks & Co ([2001] UKHL 44 at [181]–[182], per
Lord Scott) and the decision of the House in the latter case (see at [90] and [374]).
564. [2001] UKHL 44 at [41]. Compare the speech of Lord Scott, who though he said (at [192]) that
he agreed fully with Lord Nicholls, said that the bank is to take steps to ensure that the wife
understands the nature and effect of the transaction: see at [147], [164]–[165] and [191]. In
contrast, Lord Hobhouse said that while comprehension was essential, the purpose was also to
protect the wife’s vulnerability to undue influence. He disagreed with Lord Scott if he meant that
a belief by the bank that the wife understood the nature and effect of the transaction was
sufficient. That was not the effect of Lord Nicholls’ scheme (see at [111]).
565. [2001] UKHL 44 at [43].
566. Etridge ’s case [2001] UKHL 44, per Lord Nicholls at [44].
567. [2001] UKHL 44 at [44]. For what will raise an inference that undue influence has been used,
see above, paras 8-090—8-095.
569. [2001] UKHL 44 at [44].
570. Etridge ’s case [2001] UKHL 44 at [47]. Lord Browne-Wilkinson had said that the rule applied to
cohabitees: [1994] 1 A.C. 180, 198.
571. Etridge ’s case [2001] UKHL 44 at [84]. See also Barclays Bank Plc v O’Brien [1994] 1 A.C. 180
, at 198; Avon Finance Co Ltd v Bridger (1979) [1985] 2 All E.R. 281 (vulnerable elderly parents
providing security for the debts of their adult son).
572. [2001] UKHL 44 at [82].
573. [2001] UKHL 44 at [87]. The creditor is all the more put on notice when the wife is not known to
the creditor and is put forward as a surety by the husband: Mahon v FBN Bank (UK) Ltd [2011]
EWHC 1432 (Ch) at [50].
574. [2001] UKHL 44 at [44].
575. [2001] UKHL 44 at [48]; cf. Allied Irish Bank Plc v Byrne [1995] 2 F.L.R. 325. Similarly, the third
party is unlikely to be put on constructive notice when the agreement will confer a joint tenancy
on the wife: Darjan Estate Co Plc v Hurley [2012] EWHC 189 (Ch), [2012] 1 W.L.R. 1782 at
[34]; where the claimant gets the direct benefit in the form of an interest in land, the creditor will
assume that she has an interest in the business (at [36]).
576. [1994] 1 A.C. 200.

Page 10
577. And see Society of Lloyds v Khan [1998] 3 F.C.R. 93 (Lloyds not put on notice when wife
agreed to be a Name, which enabled her to undertake a risk in return for reward); Mortgage
Agency Services Number Two Ltd v Chater [2003] EWCA Civ 490, [2004] 1 P. & C.R. 4 (joint
loan to mother and son).
578.
Etridge ’s case [2001] UKHL 44 at [49]. See also Mahon v FBN Bank (UK) Ltd [2011] EWHC
1432 (Ch) at [51] (“where the wife’s interest and/or involvement is substantive rather than titular,
if she is an active participant in managing the company’s affairs and is rewarded by
remuneration for her work and/or dividends or interest for her investment, the loan may well be
equated with a joint loan; but … where the financial arrangements with the bank are negotiated
by the husband and the wife plays no part in those negotiations but is asked to become surety
for the debts of her husband or the business, the bank should be aware of the vulnerability of
the wife and of the risk that her agreement might be procured by undue influence or
misrepresentation on the part of the husband, and is ‘put on inquiry”’). Nor is a bank excused
from making enquiry when the wife is the husband’s partner in the business, especially if there
is a change in the nature or scale of the lending: O’Neill v Ulster Bank Ltd [2015] NICA 64 at
[17].
579. [2001] UKHL 44 at [50], referring to the steps described by Lord Browne-Wilkinson in O’Brien ’s
case [1994] 1 A.C. 180, 196–197 and referred to above, para.8-112. In Royal Bank of Scotland
Plc v Chandra [2010] EWHC 105 (Ch), [2010] 1 Lloyd’s Rep. 677 (affirmed [2011] EWCA Civ
192) the “past transaction” rule was applied to a contract which was in train when the Etridge
case was decided and was completed a few weeks later (see at [175]).
580. [2001] UKHL 44 at [50].
581. [2001] UKHL 44 at [50].
582. In Royal Bank of Scotland v Etridge (No.2) [1998] 4 All E.R. 705, 720, Stuart-Smith L.J. doubted
if banks would be willing to do this even after O’Brien’s case, as it “is likely to expose the bank
to greater risks than those from which it wishes to be protected”.
583. Royal Bank of Scotland v Etridge (No.2) [1998] 4 All E.R. 705, 720, Stuart-Smith L.J.
584. In Barclays Bank Plc v Coleman, one of the cases heard with Etridge, the Court of Appeal had
held that the bank was justified in relying on a certificate given by a legal executive to the effect
that the wife had received advice, provided that the advice was independent and was given with
the authority of the legal executive’s principal ([2001] Q.B. 20 at [78]). The House of Lords
dismissed the appeal, Lord Scott saying that the bank were entitled to believe that the solicitors
would not entrust such a task to a legal executive with insufficient experience to carry out the
task properly ([2001] UKHL 44 at [292]).
585. Thus the bank cannot rely on a confirmation from a solicitor who was not acting for the wife:
National Westminster Bank Plc v Amin [2002] UKHL 9, [2002] 1 F.L.R. 735.
586. As Lord Hobhouse put it at [120]: “[T]he central feature is that the wife will be put into a proper
relationship with a solicitor who is acting for her and accepts appropriate duties towards her”.
Lord Scott said that the bank could not assume that because a solicitor was acting for the wife,
the solicitor’s instructions extend to advising her on the transaction: see at [168] and the
decision in the conjoined case of UCB Home Loans Corp v Moore at [90], [127] and [307]. If a
solicitor is acting for the wife, the bank does not have to give express instructions on the steps
to be taken or that legal advice must be provided to the wife independently, provided the
solicitor confirms that she has received independent advice: Bank of Scotland v Hill [2002]
EWCA Civ 1081, [2002] E.G.C.S. 152. In Kapoor v National Westminster Bank Plc [2010]
EWHC 2986 (Ch) it was held that the wife had received independent legal advice, and the bank
was entitled to rely on the solicitor’s certificate that she had received that advice, despite fact
that the wife had ignored the bank’s suggestion to consult a different solicitor than the one
advising her husband.
587. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44 at [51]–[57].

Page 11
588. Etridge ’s case [2001] UKHL 44 at [77]. See also Midland Bank Plc v Serter [1995] 3 F.C.R. 711
; Halifax Mortgage Services Ltd v Stepsky [1995] 3 W.L.R. 701; Barclays Bank Plc v Thomson
[1997] 4 All E.R. 816.
589. [2001] UKHL 44 at [74]. Lord Hobhouse, at [100], said that the guidance given by Lord Nicholls
should be applied to past as well as future transactions, because it represented a reasonable
response to being put on inquiry.
590. Etridge ’s case [2001] UKHL 44 at [79]. Lord Hobhouse (at [114]) pointed out that this may
require the husband’s consent, and if he will not give it, this would be a clear indication to the
bank and the solicitor that something may be amiss and that it ought not to rely on the wife
being bound.
591. [2001] UKHL 44 at [79].
592. Barclays Bank Plc v Boulter [1999] 1 W.L.R. 1919. Lord Hoffmann, delivering the only full
judgment, said that enough facts must be pleaded to give rise to the presumption of
constructive notice; but it would not be adequate to rely on inferences derived from statements
tucked away in documents that were pleaded. However the Court of Appeal should be slow to
intervene in the decision that an arguable defence had been raised: National Westminster Bank
Plc v Kostopoulos, The Times, March 2, 2000.
593. TSB Bank Plc v Camfield [1995] 1 W.L.R. 430 (a case of misrepresentation).
594. Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44, [2001] 3 W.L.R. 1021, per Lord
Nicholls at [39]. See also the speech of Lord Scott at [144]–[146]; Banco Exterior Internacional
SA v Thomas [1997] 1 W.L.R. 221, 229, per Sir Richard Scott V.C.; Proksch [1997] 1 R.L.R. 71.
595. Yorkshire Bank Plc v Tinsley [2004] EWCA Civ 816, [2004] 1 W.L.R. 2380 at [19].
596. [2004] EWCA Civ 816 at [19]–[20].
597. [2004] EWCA Civ 816 at [24], [32] and [39]. Compare Wadlow v Samuel [2007] EWCA Civ 155,
[2007] All E.R. (D) 370 (Feb), where the relationship of trust and confidence had ceased by the
time of the second agreement and the claimant had been advised on it.
598. The right may also be lost by acquiescence, which is a form of inconsistent action: see above,
para.8-101.
599. [2001] 1 F.C.R. 21.
600. [2001] 1 F.C.R. 21 at [55].
601. See Walker [2001] 1 F.C.R. 21 at [35], per Morritt V.C. The Vice Chancellor said that the wife’s
right to claim ancillary relief on the footing that the mortgage was valid, which would have the
effect that each party shares the liability equally and the equity of redemption is reduced by the
amount of the liability, was inconsistent with her right to avoid the charge, since that would
throw the entire liability to the bank onto the husband and increase the value of the equity of
redemption by a sum equal to the wife’s share of the liability.
602. Under Trusts of Land and Appointment of Trustees Act 1996 s.14.
603. See First National Bank Plc v Achampong [2003] EWCA Civ 487, [2004] 1 F.C.R. 18, noted by
Thompson [2003] Conv. 314.
604. See above, paras 8-109—8-110.
606. [1985] Q.B. 428.

Page 12
607. Bridgeman v Green (1755) Wilm. 58, 65; Huguenin v Baseley (1807) 14 Ves. 273.
608. Cobbett v Brock (1855) 20 Beav. 524, 528; O’Sullivan v Management Agency Ltd [1985] Q.B.
428.
609. Wright v Carter [1903] 1 Ch. 27.

Page 1

Section 4. - Unconscionable Bargains and Inequality of Bargaining Power
Equitable relief against unconscionable bargains
8-130
There are a number of well-established areas of the law where equitable relief is available against
harsh or unconscionable bargains, such as in the law relating to penalties, 610 forfeitures 611 and
mortgages; there are also many legislative interferences with freedom of contract designed to protect
those who enter into harsh or unconscionable bargains. 612 But it remains doubtful in modern law
to what extent there is any general equitable principle entitling the courts to interfere with freedom of
contract on the ground that the contract (or a part of it) is, in all the circumstances of the case, a harsh
and unconscionable bargain. 613 Until recent years, the legacy of nineteenth-century ideology in favour
of freedom of contract has restricted the development of possible residuary principles of
unconscionability, but there were for a time some signs of a possible resurgence of a broader
equitable approach to unconscionable bargains. 614 Subsequently, the courts have shown a
determination to adhere firmly to principles of freedom of contract, particularly in commercial contracts
between businessmen. 615 However, it is clear that relief is possible in certain cases of
unconscionable advantage taking and the real question is the scope of the principles involved,
particularly that of relief against unconscionable bargains with persons suffering from some form of
bargaining disadvantage. 616 The recent decision of the Privy Council in Borrelli v Ting 617 shows that
unconscionable conduct which takes the form of illegitimate actions (such as forgery and fraud) that
are not threats but that nonetheless constrain the victim’s choice can amount to economic duress. 618
In contrast, the unconscionable conduct that is discussed in this section does not involve actions that
are otherwise wrongful.
Salvage cases
8-131
Reference has been made above (para.8-048) to the power of the court to set aside unconscionable
contracts for salvage services rendered to a vessel in distress. When these cases were first decided
they may have been based upon some broader principle permitting the overriding of unconscionable
contracts, but now they are more usually treated as an exceptional category.
Unconscionable bargains with poor and ignorant persons. 619
8-132
Another principle of equity which can be traced back to the old equitable rules permitting
intervention for the protection of expectant heirs 620 has been used in modern times to justify a
substantial broadening of this jurisdiction. The old equitable principle was reviewed and restated in
Fry v Lane 621 where it was held that the court could set aside a purchase at a considerable
Page 2
undervalue from “a poor and ignorant man” who had received no independent advice. Here the
property being sold consisted of reversionary rights, so the case fell squarely within the old principles
about expectant heirs, but little stress was laid upon the nature of the property in the judgment in this
case; indeed it was expressly said that the principle extended to a sale of property in possession. In
two more modern decisions, on somewhat similar facts, it was held that the court could set aside a
contract by a separated wife by which she gave up her rights in the matrimonial home in
consideration of an indemnity against liability on the mortgage. In the first of these cases 622 Megarry
J. held that the requirements of “poverty” and “ignorance” referred to in Fry v Lane were satisfied
because the wife was a “member of the lower income group” and “less highly educated” (than whom,
does not appear). In the second, 623 Balcombe J. was willing to follow Megarry J.’s decision, though
the question did not strictly arise, where the wife “was certainly not wealthy”, and was also not
“ignorant”, but in fact “an intelligent woman”. These generous interpretations of the meaning of vague
words like “poverty” and “ignorance” appear, on their face, to open the door to the possibility of relief
in a substantial number of contracts where the terms are exorbitant or unconscionable, and the party
aggrieved did not have independent advice, and since there have been a number of cases in which
relief on the ground of unconscionability has been considered 624 and some in which it has been
granted. Thus the Privy Council has set aside the renewal of a lease, on very unfavourable terms,
granted by a plaintiff who was “somewhat slow” and who was put under pressure by the lessee while
the plaintiff’s usual advisor was away. 625 In Crédit Lyonnais Bank Nederland NV v Burch 626 the
defendant had given a guarantee and charged her flat to secure the borrowings of her employer’s
company, in circumstances in which the transaction was manifestly disadvantageous to her. The case
was decided on the ground that the bank had constructive notice of undue influence by the employer,
but both Nourse and Millett L.JJ. suggested that it might have been argued that she had a direct right,
as against the bank, to set aside the transaction on the grounds of unconscionability. The bank had
only explained the nature of the transaction without giving the defendant adequate information as to
the risks and should have known she had not taken independent advice. 627
Scope of the doctrine
8-133
The doctrine of unconscionable bargains seems to be limited in three ways. The first is that the
bargain must be oppressive to the complainant in overall terms; the second that it may only apply
when the complainant was suffering from certain types of bargaining weakness; and the third that the
other party must have acted unconscionably in the sense of having knowingly taken advantage of the
complainant. 628 These points will be discussed in turn. 629
An oppressive bargain
8-134
The modern cases in which relief has been granted or said to be available have all involved
transactions which were substantively unfair in that the complainant was parting with property for
much less than it was worth, 630 or getting nothing out of the transaction. 631 “The resulting transaction
has been, not merely hard or improvident, but overreaching and oppressive” so that its terms,
together with the conduct of the stronger party, “shock the conscience of the court”. 632 In Boustany v
Piggott 633 the original lease had reserved a rent of $833 per month and imposed an obligation of
repair on the lessee; the new lease which was set aside at the instance of the lessor imposed no such
obligation, while the rent was fixed at $1,000 per month for a 10-year period and the lease was
renewable for a further 10 years at the same rent. In Portman Building Society v Dusaugh 634 the
Court of Appeal refused relief because the bargain was improvident but not so extravagantly so that it
was difficult to explain in the absence of some impropriety. 635 Thus it is doubtful whether English
courts would follow dicta in Australia 636 to the effect that inadequacy of consideration is not essential.
637
It is equally doubtful whether the doctrine would be applied as it has been in the United States 638
to a single harsh term such as a limitation of liability clause, unless the contract was oppressive
overall. 639
Page 3
The complainant’s circumstances
8-135
As noted earlier, 640 the traditional requirement that the complainant be “poor and ignorant” 641
received a broad interpretation in some of the modern cases; and in one case 642 the majority of the
Court of Appeal were prepared to say that relief could have been given to a young employee who had
charged her flat to secure her employer’s debts without discussing the requirement. 643
Commonwealth cases have allowed relief in a broad variety of “disabling” circumstances. In Blomley v
Ryan 644 Fullagar J. listed as examples:
“… poverty or need of any kind, sickness, age, sex, infirmity of body or mind,
drunkenness, illiteracy or lack of education, lack of assistance or explanation where
assistance or explanation is necessary.”
And in Commercial Bank of Australia v Amadio 645 Deane J. said that the jurisdiction is established:
“… as extending generally to circumstances in which … a party to a transaction was

under a special disability in dealing with the other party with the consequences that there
was an absence of any reasonable degree of equality between them.”
It is submitted that English law can give relief in an equally wide range of circumstances, provided
that:
“… one party has been at a serious disadvantage to the other, whether through poverty,
or ignorance, or lack of advice, or otherwise, so that circumstances existed of which
unfair advantage could be taken.” 646
However, apart from the salvage cases referred to earlier, there is little authority supporting the grant
of relief where the claimant’s “serious disadvantage” consists only of the difficult circumstances in
which he finds himself. 647
Unconscionable conduct
8-136
A contract will not be set aside merely because the aggrieved party did not have independent advice
and the consideration was inadequate. It must also be shown that the other party engaged in
unconscionable conduct or an unconscientious use of power. 648 He must have behaved:
“… in a morally reprehensible manner … which affects his conscience … The classic

example of an unconscionable bargain is where advantage has been taken of a young,
inexperienced or ignorant person to introduce a term which no sensible, welladvised …
person would have accepted.” 649
If there has been no equitable fraud, victimisation, taking advantage, overreaching or other
unconscionable conduct, relief will not be granted. 650 Thus in Hart v O’Connor 651 the vendor was of
unsound mind, but this was not apparent to the purchaser and the vendor appeared to be advised by
a solicitor who had proposed the terms of the bargain. The Privy Council held that the contract could
Page 4
not be set aside on the grounds of insanity unless the vendor’s incapacity was known to the
purchaser, 652 nor as unconscionable because the purchaser had acted with complete innocence. In
the words of Lord Brightman, there must be “procedural unfairness” as well as “contractual
imbalance”, though:
“… contractual imbalance may be so extreme as to raise a presumption of procedural

unfairness, such as undue influence or some other form of victimisation.” 653
In Boustany v Piggott 654 Lord Templeman, delivering the judgment of the Privy Council, agreed in
general terms with the submissions of counsel for the appellant:
(1)
there must be unconscionability in the sense that objectionable terms have been imposed on the
weaker party in a reprehensible manner;
(2)
"unconscionability" refers not only to the unreasonable terms but to the behaviour of the
stronger party, which must be morally culpable or reprehensible;
(3)
unequal bargaining power or objectively unreasonable terms are no basis for interference in
equity in the absence of unconscionable or extortionate abuse where, exceptionally and as a
matter of common fairness, “it is unfair that the strong should be allowed to push the weak to the
wall”;
(4)
a contract will not be set aside as unconscionable in the absence of actual or constructive fraud
or other unconscionable conduct; and
(5)
the weaker party must show unconscionable conduct, in that the stronger party took
unconscientious advantage of the weaker party’s disabling condition or circumstances. 655
Unconscionable conduct may be inferred
8-137
In Crédit Lyonnais Bank Nederland NV v Burch 656 Millett L.J. pointed out that it would be necessary
to show that the bank had imposed the objectionable terms in a morally objectionable manner, but
said that impropriety might be inferred from the terms of the transaction itself in the absence of an
innocent explanation. 657 The same point may be made another way. If the transaction is manifestly
oppressive, it seems that the defendant may be found guilty of “unconscionable conduct” within the
meaning of the doctrine if he did no more than consciously take advantage of the claimant’s
willingness to enter it. 658
Page 5
Absence of independent advice
8-138
The traditional statements of the rule on unconscionable bargains also state that the complainant
must have acted without independent advice. However, it is submitted that the absence of such
advice is not essential. In Crédit Lyonnais Bank Nederland NV v Burch 659 Millett L.J. said that the fact
that the complainant had been offered independent advice would not necessarily save a transaction
which was so harsh that no competent advisor could have recommended it. In Boustany v Piggott 660
a lawyer called on to prepare the documents had pointed out that their terms were disadvantageous
but did not refuse to proceed with execution of the document; the Privy Council refused to interfere
with the trial judge’s finding that the transaction was unconscionable. It may be suggested that an
oppressive transaction will only be saved by independent advice if the advisor explains fully to the
complainant why the transaction is so disadvantageous and that she is under no obligation to agree
to it, or to agree to the terms offered; and (in an extreme case) refuses to act on her behalf if she
persists in going ahead. 661
Burden of showing fair, just and reasonable
8-139
Once the conditions for relief are met, the burden shifts to the stronger party to show that the
transactions are fair, just and reasonable. 662 In practice, this will mean showing either that, in the
particular circumstances, the transaction was not in fact oppressive; or that the complainant was fully
aware of what she was doing. This will normally come back to the question of whether she had
received proper independent advice.
Commonwealth and American developments
8-140
It has already been stated that Commonwealth courts appear to be more in favour of a possible
general doctrine of unconscionability. 663 There is a good deal of Canadian authority, 664 and in
Australia the courts seem prepared to give relief in a wide range of circumstances provided that
advantage has been taken, 665 and to apply the criteria liberally. 666 In America an even broader
doctrine of unconscionability is now a well-established principle of the law entitling courts to refuse to
enforce contracts, or contractual clauses, which are harsh, exorbitant or unconscionable. The
principle is partly statutory, deriving from s.2–302 of the Uniform Commercial Code, but is widely
applied by American courts as a matter of common law where the Code is inapplicable. 667 A
distinction is generally drawn in American law between “procedural unconscionability” and
“substantive unconscionability”. 668 The former can be invoked where some element of oppression or
wrongdoing (in a broad sense) has occurred in the process of making the contract: this enables
courts to use doctrines like duress and undue influence as merely illustrative of a broader principle
requiring that undue advantage or surprise should not be taken of a party; so matters like illiteracy,
lack of knowledge of the English language, general inability to comprehend a complicated document,
etc. may be treated as matters of procedural unconscionability. Substantive unconscionability, by
contrast, goes to the actual substance of the contract and its terms. In practice substantive
unconscionability covers excessively wide exclusion clauses on the one side, and grossly exorbitant
or excessive prices, on the other. The leading commentary on the Uniform Commercial Code states
that:
“Most parties who assert 2-302 [sic. the Code section dealing with unconscionability] and
most of those who have used it successfully in reported cases have been consumers.
Most of these successful consumer litigants have been poor or otherwise disadvantaged.
… The courts have not generally been receptive to pleas of unconscionability by one
merchant against another.” 669
Page 6
670
Some courts have held the doctrine applicable in cases involving petrol station operators and
franchisees; others have refused. 671
Unfair terms in consumer contracts
8-141
With the implementation of Council Directive 93/13 on Unfair Terms in Consumer Contracts, 672
English law has moved slightly closer to the concept of “substantive unconscionability”, since art.3 of
the Directive defines a contractual term which has not been individually negotiated as unfair (and
therefore not binding on the consumer):
“… if, contrary to the requirements of good faith, it causes a significant imbalance in the
parties’ rights and obligations arising under the contract, to the detriment of the
consumer.”
Thus the Regulations 673 implementing the Directive apply to harsh clauses in standard form
consumer contracts 674; and, for contracts made on or after October 1, 2015, 675 Pt 2 of the Consumer
Rights Act 2015 applies the same test to terms in consumer contracts even if the term was negotiated
with the trader. 676 But it will not cover the cases of sales at undervalue which have formed the core of
unconscionable bargain cases in England since under the Directive, and under both the Regulations
and the Consumer Rights Act 2015, the adequacy of the price cannot be reviewed. 677
Consumer Credit Act 1974
8-142
Under the Consumer Credit Act 1974, a credit agreement which is the result of an unfair relationship
may be reopened. 678 When the Act still provided for relief against extortionate credit bargains, 679
there was some disagreement as to whether the principles of unconscionability apply to this
jurisdiction. 680 The new provisions were considered necessary because few cases met the high
threshold set previously. 681
Inequality of bargaining power
8-143
A possible principle which is closely related to the broad idea of unconscionability, but slightly
narrower in scope, is that of inequality of bargaining power. In Lloyds Bank Ltd v Bundy, 682 Lord
Denning M.R. stated the single general principle, which, in his view, underlay many of the cases
discussed in this chapter. He considered that the thread running through the cases was the concept
of “inequality of bargaining power”:
“By virtue of it, the English law gives relief to one who, without independent advice, enters
into a contract upon terms which are very unfair or transfers property for a consideration
which is grossly inadequate, when his bargaining power is grievously impaired by reason
of his own needs or desires, or by his own ignorance or infirmity, coupled with undue
influences or pressures brought to bear on him by or for the benefit of the other.” 683
In National Westminster Bank Plc v Morgan Lord Scarman questioned (the other Law Lords all
concurring) whether there was any need in the modern law to erect a general principle of relief
against equality of bargaining power. 684 It is certainly unlikely that mere inequality of bargaining
power, even when this leads to the exertion of considerable pressure, will be recognised as a ground
Page 7
for setting aside a contract. Even Lord Denning would not have given relief when the pressure was
“the result of the ordinary interplay of forces”. 685 And unless and until a general doctrine along the
lines suggested by Lord Denning is recognised, it seems that a contract will only be set aside if it falls
within one of the recognised categories of “victimisation” such as duress, undue influence or
unconscionable advantage taking.
612.
See in particular the Unfair Contract Terms Act 1977, below, paras 15-062 et seq. Unfair
Terms in Consumer Contracts Regulations 1999 or Consumer Rights Act 2015 Pt 2, below
Ch.38, and Consumer Credit Act 1974 ss.140A–140C (inserted by ss.19–22 of the Consumer
Credit Act 2006; the provisions on extortionate credit bargains, former ss.137–140, have been
repealed by s.70 and Sch.4 of the 2006 Act): see below, para.39-212.
613. See Waddams (1976) 39 M.L.R. 369; Reiter (1981) 1 O.J.L.S. 347.
614. See, e.g. dicta of Lord Simon of Glaisdale in Shiloh Spinners Ltd v Harding [1973] A.C. 691,
726; Lord Diplock in A. Schroeder Music Publishing Co v Macaulay [1974] 1 W.L.R. 1308, 1315
; Burmah Oil Co v Bank of England, The Times, July 4, 1981 (no relief for mere unfair
bargain—there must be an unconscionable bargain—a bargain whose very terms reveal
conduct which shocks the conscience of the court); and Alec Lobb (Garages) Ltd v Total Oil
(Great Britain) Ltd [1985] 1 W.L.R. 173, in which the Court of Appeal did not rule out a broad
doctrine of unconscionability, though it held that no unconscientious conduct had occurred. See
also cases cited below, para.8-132.
615. See, e.g. Photo Productions Ltd v Securicor Transport Ltd [1980] A.C. 827; The Chikuma
[1981] 1 W.L.R. 314; Multiservice Bookbinding Ltd v Marden [1979] Ch. 84; for a slightly earlier
dictum to the same effect, see Lord Radcliffe in Bridge v Campbell Discount Co Ltd [1962] A.C.
600, 626; and, in the particular context of unconscionability, below, para.8-143.
617. [2010] UKPC 21.
619. Bamforth [1995] L.M.C.L.Q. 538.
620.
e.g. Aylesford v Morris (1873) L.R. 3 Ch. App. 484. See Treitel, Treitel on The Law of
Contract, 14th edn (2015), para.10–044; Burrows, Law of Restitution, 3rd edn (2011), 302.
621. (1888) 40 Ch. D. 312. See also Wood v Abrey (1818) 3 Madd. 417; Longmate v Ledger (1860)
2 Giff. 157; Clark v Malpas (1862) 4 De G.F. & J. 401; Baker v Monk (1864) 4 De G.J. & S. 388;
Prees v Coke (1870) L.R. 6 Ch. App. 645; James v Kerr (1888) 40 Ch. D. 449; Rees v De
Bernardy (1896) 2 Ch. 437; cf. Harrison v Guest (1860) 8 H.L.C. 481.
622. Cresswell v Potter [1978] 1 W.L.R. 255n (decided in 1968).
623. Backhouse v Backhouse [1978] 1 W.L.R. 243.
624. See Multiservice Bookbinding Ltd v Marden [1979] Ch. 84; Alec Lobb (Garages) Ltd v Total Oil
(Great Britain) Ltd [1983] 1 W.L.R. 87; Hart v O’Connor [1985] A.C. 1000. Unconscionability
Page 8
was not found on the facts in Pye v Ambrose [1994] N.P.C. 53. The Multiservice and Alec Lobb
cases draw on a line of authority relating to mortgages: see Bamforth [1995] L.M.C.L.Q. 538,
546. A plea of unconscionability was rejected on the facts in Jones v Morgan [2001] EWCA Civ
995, The Times, July 24, 2001.
625. Boustany v Piggott (1995) 69 P. & C.R. 298; see also Watkin v Watson-Smith, The Times, July
3, 1986.
626. [1997] 1 All E.R. 144, noted Chen-Wishart [1997] C.L.J. 60; Hooley and O’Sullivan [1997]
L.M.C.L.Q. 17; Tijo (1997) 113 L.Q.R. 10.
627. [1997] 1 All E.R. 144, 151, 152–153.
628. Strydom v Vendside Ltd [2009] EWHC 2130 (QB), per Blair J. at [36] (“one party has to have
been disadvantaged in some relevant way as regards the other party, that other party must
have exploited that disadvantage in some morally culpable manner, and the resulting
transaction must be overreaching and oppressive”).
629. In Irvani v Irvani [2000] 1 Lloyd’s Rep. 412, 424, Buxton L.J., delivering the only full judgment in
the Court of Appeal, said that this paragraph (in the 28th edition of this work) accurately sets
out the limitations on the doctrine of unconscionability. The doctrine is quite distinct from that of
undue influence, which: “is concerned with the prior relationship between the contracting
parties, and whether that was the motivation or reason for which the bargain was entered into”.
(In Australia it seems that the courts may be abandoning this distinction: see Bridgewater v
Leahy [1998] HCA 66, [1998] 158 A.L.R 66 High Ct.) In Bank of Credit and Commerce
International SA v Ali (No.1) [2000] I.R.L.R. 398 the Court of Appeal (Buxton L.J. dubitante)
held that equity can give relief against a release of a claim on the ground of unconscionability
where the release was procured by the other party’s deliberate concealment of facts, if that
party knew or believed that the party giving the release could not discover the facts and the
releasing party had not in fact known of them. In the House of Lords ([2001] UKHL 8, [2002] 1
A.C. 251), the case was decided upon other grounds, but there is a suggestion by Lord Nicholls
(at [32]–[33]) that in extreme cases, unconscionability might have a part to play: see above,
paras 6-007 and 7-180.
630. Cresswell v Potter [1978] 1 W.L.R. 255n; Backhouse v Backhouse [1978] 1 W.L.R. 243; Watkin
v Watson-Smith, The Times, July 3, 1986; Boustany v Piggott (1995) 69 P. & C.R. 298.
631. Crédit Lyonnais Bank Nederland NV v Burch [1997] 1 All E.R. 144.
632. Alec Lobb Ltd v Total Oil (Great Britain) Ltd [1983] 1 W.L.R. 87, 94–95, per Peter Millett Q.C.
sitting as a Deputy High Court Judge (reversed in part [1985] 1 W.L.R. 173); see also Crédit
Lyonnais Bank Nederland NV v Burch [1997] 1 All E.R. 144, 152–153; Strydom v Vendside Ltd
[2009] EWHC 2130 (QB) at [39], citing this paragraph.
633. (1995) 69 P. & C.R. 298.
634. [2000] 2 All E.R. (Comm) 221.
635. [2000] 2 All E.R. (Comm) 221, 228. See also in Liddle v Cree [2011] EWHC 3294 (Ch) at [91].
636. Blomley v Ryan (1956) 99 C.L.R. 362, 405; Commonwealth Bank of Australia v Amadio (1983)
151 C.L.R. 447, 475. But in the latter case (which was one of a guarantee, so that the
complainant would not expect to receive anything) Deane J. said that the transaction might be
unfair, unreasonable and unjust although there was no inadequacy of consideration.
637. cf. the suggestion in Langton v Langton [1995] 2 F.L.R. 890 that the jurisdiction to set aside
contracts on the ground of unconscionability does not extend to gifts, as this would mean that in
the case of all gifts by poor and ignorant persons without independent advice, an onus would be
placed on the recipient to show that the gift was fair, just and reasonable. Note that Capper
(1998) 114 L.Q.R. 479 argues that “transactional imbalance” is not a precondition of relief but
only evidential (at 491). He thus argues that unconscionability and undue influence can be
Page 9
assimilated.
639.
cf. Multiservice Bookbinding Ltd v Marden [1979] Ch. 84. It is arguable that if the effect of a
clause in the contract is that the bargain is worth a great deal less to the claimant than he
thought, this may make the bargain oppressive: see Beale, Defences in Contract (2017), Ch.5.
640. Above, para.8-132.
641. e.g. Fry v Lane (1888) 40 Ch. D. 312.
642. Crédit Lyonnais Bank Nederland NV v Burch [1997] 1 All E.R. 144.
643. See Hooley and O’Sullivan [1997] L.M.C.L.Q. 17, 23.
644. (1956) 99 C.L.R. 362, 405.
645. (1983) 151 C.L.R. 447, 474. In that case the complainants were elderly immigrants with limited
knowledge of written English.
646.
Alec Lobb Ltd v Total Oil (Great Britain) Ltd [1983] 1 W.L.R. 87, 94–95, per Peter Millett Q.C.
sitting as a Deputy High Court Judge (reversed in part [1985] 1 W.L.R. 173) (emphasis
supplied). In Barclays Bank Plc v Schwartz, The Times, August 2, 1995 Millett L.J. observed
that a person whose illiteracy or inability to speak English is taken advantage of may, in an
appropriate case, be able to have the contract set aside on the grounds of unconscionability. It
is arguable that relief may be given when the claimant’s “bargaining weakness” took the form of
not knowing of a clause in the contract he was signing, or not appreciating its possible effect:
relief can then be given if the result is that the deal is worth a great deal less to the claimant
than he thought, and if the other party deliberately took advantage of the claimant’s ignorance
or lack of understanding. This form of bargaining weakness seems to fall within Fullagar J.’s
words in Blomley v Ryan (1956) 99 C.L.R. 362, 405, quoted in the text of the paragraph, which
included “lack of assistance or explanation where assistance or explanation is necessary”: see
Beale, Defences in Contract (2017), Ch.5.
647. See Burrows, Law of Restitution, 3rd edn (2011), 306–307.
648. Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 W.L.R. 173, 182.
649. Multiservice Bookbinding Ltd v Marden [1979] Ch. 84, 110.
650. Hart v O’Connor [1985] A.C. 1000; Boustany v Pigott [1993] N.P.C. 75 PC; Westpac Banking
Corp v Paterson [2001] FCA 1630, [2001] 187 A.L.R. 168 (Federal Ct of Australia); Portman
Building Society v Dusaugh [2000] 2 All E.R. (Comm) 221.
651. [1985] A.C. 1000.
652. Overruling Archer v Cutler [1980] 1 N.Z.L.R. 386. But the New Zealand court has rejected this
approach to unconscionability: Nichols v Jessup (No.2) [1986] 1 N.Z.L.R. 237; see Bamforth
[1995] L.M.C.L.Q. 538, 550.
653. Hart v O’Connor [1985] A.C. 1000, 1018. Lord Brightman’s language seems to reflect American
terminology, below, para.8-140. It is interesting to contrast the justification offered in Redgrave
v Hurd (1881) 20 Ch. D. 1, 13, for rescission for innocent misrepresentation; it is moral fraud to
insist on keeping the contract now you know the representation is false. cf. Rooney v Conway
[1982] 5 N.I.J.B.
654. (1995) 69 P. & C.R. 298, 303.

Page 10
655. Lord Templeman’s statement of the law was adopted by Buxton L.J. in Irvani v Irvani [2000] 1
Lloyd’s Rep. 412, 424, delivering the only full judgment in the Court of Appeal.
656. [1997] 1 All E.R. 144.
657. [1997] 1 All E.R. 144, 153, referring to Multiservice Bookbinding Ltd v Marden [1979] Ch. 84,
110 and Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1983] 1 W.L.R. 87, 95.
658. This certainly seems to have been the case in some of the older authorities such as Evans v
Llewellin (1787) 1 Cox Eq. Cas. 333, see Devenney and Chandler [2007] J.B.L. 541. In Liddle v
Cree [2011] EWHC 3294 (Ch) the court found that no unconscionable advantage had been
taken (at [92]).
659. [1997] 1 All E.R. 144.
660. (1995) 69 P. & C.R. 298.
662. Aylesford v Morris (1873) 8 Ch. App. 484, 490–491.
663. See generally Bamforth [1995] L.M.C.L.Q. 538, passim. In Irvani v Irvani [2000] 1 Lloyd’s Rep.
412, 425, Buxton L.J., delivering the only full judgment in the Court of Appeal, said that he
agreed with this paragraph in saying that the Commonwealth cases “do or may go beyond the
limits of present English authority”.
664. See, e.g. Black v Wilcox (1976) 30 D.L.R. (3d) 192; Paris v Machnik (1972) 30 D.L.R. (3d) 723;
Morrison v Coast Finance (1965) 55 D.L.R. (2d) 710; and other cases cited in Waddams, Law
of Contracts, 6th edn (2010), para.518 and Enman (1987) 16 Anglo-Am.L.R. 191.
665. Blomley v Ryan (1956) 99 C.L.R. 362.
666. Commonwealth Bank of Australia v Amadio (1983) 57 A.L.J.R. 358; Hardingham (1984) 4
O.J.L.S. 275; Bridgewater v Leahy [1998] H.C.A 66, [1998] 158 A.L.R. 66 High Ct; but see
Westpac Banking Corp v Paterson [2001] FCA 1630, [2001] 187 A.L.R. 168 Federal Ct
(complainant’s disadvantage must be sufficiently evident to other party to make it
unconscionable for it to accept complainant’s apparent assent). The decision in Barclays Bank
Plc v O’Brien [1994] 1 A.C. 180 has not been followed: Garcia v National Australia Bank Ltd
[1998] 155 A.L.R. 614 High Ct.
667. See Farnsworth, Contracts, 4th edn (2004), §4.28.
668. Leff (1967) 115 Un. Pennsylvania L.R. 485.
669. White & Summers, Uniform Commercial Code, 5th edn (2000), para.4–2, though see also
para.4-9.
670. cf. Alec Lobb Ltd v Total Oil G.B. Ltd [1983] 1 W.L.R. 87.
671. See Farnsworth, Contracts 4th edn (2004), 323–324.
672. See below, Vol.II, paras 38-192 et seq.
673. Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083).
674. e.g. the “add-on” clause in Williams v Walker Thomas Furniture Co (1965) 121 U.S. App. D.C.
315, 350 F.2d 445.
675. On the replacement of the Regulations by the Act on from this date, see below, Vol.II, paras
38-334 et seq.
Page 11
677. 1999 Regulations art.4(2) and reg.6(2); Consumer Rights Act 2015 s.64. See below, Vol.II,
paras 38-224 et seq. and 38-363 et seq.
678. Consumer Credit Act 1974 ss.140A–140C, inserted by ss.19–22 of the Consumer Credit Act
2006; see below, Vol.II, para.38-212.
679. The provisions on extortionate credit bargains, former ss.137–140 of the 1974 Act, have been
repealed by s.70 and Sch.4 of the 2006 Act.
680. cf. Davies v Directloans Ltd [1986] 1 W.L.R. 823, 831 and Shahabina v Gyachi, Unreported
1989, cited in Bamforth [1995] L.M.C.L.Q. 538, 559.
682. [1975] Q.B. 326; see too Arrale v Costain Engineering Ltd [1976] 2 Lloyd’s Rep. 98; Levison v
Patent Steam Carpet Cleaning Co Ltd [1978] Q.B. 69, 78–79; Langdale v Danby, The Times,
November 24, 1981.
683. [1975] Q.B. 326, 339. See also A. Schroeder Music Publishing Co v Macaulay [1974] 1 W.L.R.
1308, 1315.
684. [1985] A.C. 686, 708. With respect, the question is not so much whether there is any need for a
principle of this character as whether there may not be a need for a residuary principle to catch
cases which may otherwise slip through the various statutory protections.
685. Lloyd’s Bank v Bundy [1975] Q.B. 326, 336.

Page 1

Part 3 - Capacity of Parties
Chapter 9 - Personal Incapacity
Contractual incapacity
9-001
The incapacity of one or more of the contracting parties may defeat an otherwise valid contract. Prima
facie, however, the law presumes that everyone has a capacity to contract; so that, where exemption
from liability to fulfil an obligation is claimed by reason of want of capacity, this fact must be strictly
established on the part of the person who claims the exemption. In English law, three classes of
individuals are subject to some degree of personal contractual incapacity. 1 These are minors, 2
persons lacking the requisite mental capacity 3 and drunken persons. 4 Abnormal weakness of mind
short of such mental incapacity as prevents a person understanding the nature of the transaction, or
immaturity of reason in one who has attained full age, or the mere absence of skill upon the subject of
the particular contract, affords in itself no ground for relief at law or in equity, 5 although in certain
cases, undue influence 6 or unconscionable dealing by the other party 7 or (perhaps) inequality of
bargaining power may permit the transaction to be set aside as inequitable. 8 Moreover, illiteracy and
unfamiliarity with the English language are not to be equated with disabilities like mental incapacity or
drunkenness. According to Millett L.J. in Barclays Bank Plc v Schwartz, 9 although all four conditions
are disabilities which may prevent the sufferer from possessing a full understanding of a transaction
into which he enters:
“… mental incapacity and drunkenness [may] not only deprive the sufferer of
understanding the transaction, but also deprive him of the awareness that he [does] not
understand it”,
which is not the case as regards an illiterate or a person unfamiliar with English. Again, however,
such a person may in an appropriate case claim that the transaction be set aside as a harsh and
unconscionable bargain. 10
Consumer protection and vulnerable consumers
9-002
Modern consumer protection legislation sometimes requires a court to take into account the limited
understanding of consumers of the contracts which they enter with traders in determining whether a
consumer is to be protected.
Unfair commercial practices: “mental infirmity” or impairment of judgment of consumer
9-003
So, under the Consumer Protection from Unfair Trading Regulations 2008, unfair commercial
Page 2
practices by a trader towards a consumer are prohibited if they fall under a general test of unfairness,
if they constitute a “misleading action”, “misleading omission” or are “aggressive”, or if they are
contained in a legislative list. 11 Under the general test, a court must consider, inter alia, whether a
business’s commercial practice “materially distorts or is likely to materially distort the economic
behaviour of the average consumer”. 12 While in general the average consumer is understood to be
“reasonably well informed, reasonably observant and circumspect”, 13 it is also provided that:
“In determining the effect of a commercial practice on the average consumer—x
(a)
where a clearly identifiable group of consumers is particularly vulnerable to the
practice or underlying product[ 14] because of their mental or physical infirmity, age
or credulity in a way which the trader could reasonably be expected to foresee, and
(b)
where the practice is likely to materially distort the economic behaviour only of that
group,
a reference to the average consumer shall be read as referring to the average member of
that group.” 15
This definition is also relevant to the commission of a misleading statement or omission. 16 Moreover,
in relation to “aggressive commercial practices”, it is provided that a court must take into account in
determining whether the trader uses “harassment, coercion or undue influence” whether the trader
exploited:
“any specific misfortune or circumstance of such gravity as to impair the consumer’s

judgment, of which the trader [was] aware, to influence the consumer’s decision with
regard to the product.” 17
Under the Consumer Protection from Unfair Trading Regulations 2008 as originally made, the
commission of an unfair commercial by a trader had no effect on the validity of any contract
concluded by the trader with the consumer, 18 but in 2014 the 2008 Regulations were amended so as
to create new rights of redress for consumers in respect of misleading statements and aggressive
commercial practices, 19 a right “to unwind” the contract, or to a “discount”, and a right to damages. 20
These rights are discussed in Ch.38 of Vol.II of the present work. 21
Unfair contract terms: consumer’s degree of understanding relevant to fairness of term
9-004
If a person acting in the course of a business takes advantage of the lack of full understanding of the
terms of a contract which he concludes with a consumer, this circumstance would be relevant to the
issue of the fairness of these terms under the Unfair Terms in Consumer Contracts Regulations 1999
22
or (for contracts made on or after October 1, 2015) the Consumer Rights Act 2015 Pt 2. 23
1. At common law, a married woman could not in general enter into a contract on her own account
Page 3
either with her husband or with a third party, but successive statutes from 1857 to 1949
progressively removed this incapacity (although an agreement between spouses may be held
not to be a contract on the ground of a lack of intention to create legal relations: above, paras
2-178—2-179). However, some uncertainty remains as to the liability of a wife in respect of a
contract concluded with her husband before marriage, this turning on whether or not the Law
Reform (Married Women and Tortfeasors) Act 1935 s.1(c) reversed the effect of the decision in
Butler v Butler (1885) 14 Q.B.D. 831 (affirmed on a different point (1885) 16 Q.B.D. 374). It is
submitted that the broader reading of the 1935 Act so as to remove from the law this last
vestige of the peculiar treatment of married women’s contracting is the more likely given
“society’s recognition of the equality of the sexes”: Barclays Bank Plc v O’Brien [1994] 1 A.C.
180, 188, per Lord Browne-Wilkinson (though this observation was made in another context).
4. See below, paras 9-105—9-106.
5. Osmond v Fitzroy (1731) 3 P.Wms. 129; Lewis v Pead (1789) 1 Ves. Jun. 19 and see Barton
(1987) 103 L.Q.R. 118.
9. The Times, August 2, 1995; Hambros Bank Ltd v British Historic Buildings Trust [1995] N.P.C.
179.
11. The Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) (“2008
Regulations (SI 2008/1277)”) regs 3, 5–7, and Sch.1 as amended by Consumer Protection
(Amendment) Regulations 2014 (SI 2014/870). On these regulations generally, see Vol.II, paras
38-145 et seq.
12. 2008 Regulations (SI 2008/1277) reg.3(3)(b).
13. 2008 Regulations (SI 2008/1277) reg.2(2).
14. “Product” is defined by the 2008 Regulations: see reg.2(1) and Vol.II, para.38-156.
15. 2008 Regulations (SI 2008/1277) reg.2(5).
16. 2008 Regulations (SI 2008/1277) regs 5 and 6.
17. 2008 Regulations (SI 2008/1277) reg.7(2)(c).
18. 2008 Regulations (SI 2008/1277) reg.29 (as originally enacted) provided that “an agreement
shall not be void or unenforceable by reason only of a breach of these regulations”.
19. The Consumer Protection (Amendment) Regulations 2014 (SI 2014/870) reg.3 inserting new Pt
4A into the 2008 Regulations. These changes were brought into force as from October 1, 2014.
20. 2008 Regulations (SI 2008/1277) regs 27E et seq. (as inserted by SI 2014/870).
21. Vol.II, paras 38-160 et seq.
22. SI 1999/2083 (as amended) and see Vol.II, paras 38-201 et seq.
Page 4
23. See Vol.II, para.38-201 et seq. especially at 38-268.

Page 1

Section 2. - Minors 24
(a) - Generally
Definition of minors
9-005
The age of capacity for the purposes of the law of contract (as for most other legal purposes) which
was 21 at common law, was reduced to 18 by s.1 of the Family Law Reform Act 1969. Section 9 of
the same Act also abolished the common law rule under which a person attained his majority on the
day preceding the relevant anniversary of the birth. 25 Under this section a person is deemed to attain
the age of 18 at the commencement of the 18th anniversary of his birthday. The Act also declares
that a person who is not of full age may be described as a “minor” instead of an “infant”.
Very young children
9-006
The cases at common law concerning the capacity of a minor to make contracts generally concern
older children. 26 However, it has been doubted whether a very young child has the mental capacity to
enter a contract, even where the contract is of a type which would normally be held valid, though
voidable at common law. In R. v Oldham Metropolitan BC Ex p. Garlick, 27 Scott L.J. observed that:
“If a minor is to enter into a contract with the limited efficacy that the law allows, the minor
must at least be old enough to understand the nature of the transaction and, if the
transaction involves obligations on the minor of a continuing nature, the nature of those
obligations.” 28
Thus, while he considered that a child well under the age of 10 years could purchase sweets, a
four-year-old could not contract for the occupation of residential premises. 29 This approach to the
position of very young children can be related to that taken by the common law and by the Mental
Capacity Act 2005 30 to mental incapacity in adults, where the understanding and competence
required to uphold the validity of a transaction depend on the nature of the transaction. 31
General rule: contracts voidable at minor’s option
9-007
Apart from contracts for necessaries and contracts of apprenticeship, education and service, the
general rule at common law is that a minor’s contracts are voidable at his option, i.e. not binding on
the minor but binding on the other party. 32 Of these voidable contracts there are two classes:
Page 2
(a)
contracts which are binding on the minor unless he repudiates them during minority, or within a
reasonable time of attaining his majority 33;
(b)
contracts which are not binding on him unless and until he ratifies them after attaining his
majority. 34
Prior to the passing of the Minors’ Contracts Act 1987, the second of these classes was partially
governed by the Infants Relief Act 1874, which also introduced a fourth category of minors’ contracts,
namely those declared by s.1 to be “absolutely void”. By s.1 of the 1987 Act, however, both these
changes were abolished and the position returned to the common law. 35
Contracts binding on a minor
9-008
The main qualification on the general rule that contracts are voidable at the minor’s option is found in
relation to contracts for necessaries, which bind the minor, though this does not mean that the minor
is bound by the price of goods or services as stipulated. 36 There is, however, in the cases, a diversity
of meanings given to the word “necessaries”. In one sense, the term is confined to necessary goods
and services supplied to the minor. 37 In another, it extends to contracts for the minor’s benefit and in
particular to contracts of apprenticeship, education and service. 38 It has long been customary for a
distinction to be drawn between these two classes of contract and it remains convenient for the
purposes of exposition, but it is doubtful whether any practical importance still attaches to it. To these
common law examples must be added the special treatment of settlement or compromise
agreements made by a child and approved by the court under CPR r.21.10. 39
Deeds
9-009
In general a minor is bound by a deed to the same extent that he would be bound if the promise
contained in the deed were parol. He is, therefore, liable on a deed which contains a promise to pay
for necessaries. 40
24. The Report of the Committee on the Age of Majority (1967) Cmnd.3342 contained proposals for
fundamental changes in the law relating to minors’ contracts but the only recommendation
which was implemented was the reduction of the age of majority to 18. Many other proposals
for reform were canvassed in the Law Commission Working Paper No.81 on Minors’ Contracts
(1982), including a possible further reduction in the age of contractual capacity to 16. The Law
Commission’s Report on Minors’ Contracts (1984) Law Com. No.134 led to the Minors’
Contracts Act 1987, on which see below, paras 9-051, 9-061—9-064.
25. Re Shurey, Savory v Shurey [1918] 1 Ch. 263.
26. At common law the age of majority was 21 years: see above, para.9-005.
27. [1993] 1 F.L.R. 645. The decision of the Court of Appeal was affirmed by the House of Lords:
[1993] A.C. 509.
28. [1993] 1 F.L.R. 645, 662.

Page 3
29. [1993] 1 F.L.R. 645. The context of these observations was the challenge by two four-year-old
boys of a local authority’s refusal to accept their application for accommodation under the
Housing Act 1985 s.62.
30. ss.2 and 7.
31. See below, paras 9-089—9-092.
32. This passage was relied on as an accurate statement of the law in Proform Sports Management
Ltd v Proactive Sports Management Ltd [2006] EWHC 2903 (Ch), [2007] Bus. L.R. 93 at [34]. In
many old cases certain types of minors’ contracts were often said to be “void” but normally
where the word “void” was used, “voidable” was intended: Williams v Moor (1843) 11 M. & W.
256, 263–264. As will be seen, the treatment of settlement and compromise agreements is
specially treated by CPR r.21(10), on which see below, para.9-035.
35. See below, para.9-051. For the position obtaining under the Infants Relief Act 1874 governing
contracts made before June 9, 1987 see the 25th edition of the present work, Vol.I, paras
569–574.
37. Wharton v Mackenzie (1844) 5 Q.B. 606; Peters v Fleming (1840) 6 M. & W. 42, 46; Cowern v
Nield [1912] 2 K.B. 419, 422.
38. Walter v Everard [1891] 2 Q.B. 369; Roberts v Gray [1913] 1 K.B. 520, 525, 528, 529; Shears v
Mendeloff (1914) 30 T.L.R. 342.
40. Walter v Everard [1891] 2 Q.B. 369. As to the effect of a disposition of property by deed, see

Page 1

(b) - Contracts Binding on a Minor
(i) - Liability for Necessaries
Liability for necessaries
9-010
Executed contracts for “necessary” goods and services were binding on a minor at common law, 41
though this does not mean that the minor will be liable for the price of the goods or services as
stipulated. 42 The common law was partially codified in relation to the sale and delivery of necessary
goods by the Sale of Goods Act 1893. 43 Less clear is the position of executory contracts for
necessaries. 44 The meaning of “necessaries” is an extended one for this purpose, by no means being
confined to “necessities” in the ordinary sense.
Meaning of necessaries
9-011
Such things as relate immediately to the person of the minor, as his necessary food, drink, clothing,
lodging and medicine, are clearly necessaries for which he is liable. But the term is not confined to
such matters only as are positively essential to the minor’s personal subsistence or support; it is also
employed to denote articles purchased for real use, so long as they are not merely ornamental, or are
used as matters of comfort or convenience only, and it is a relative term to be construed with
reference to the minor’s age and station in life. 45 The burden of showing that the goods supplied are
necessaries is always on the supplier:
“Having shewn that the goods were suitable to the condition in life of the infant, he [the
tradesman] must then go on to show that they were suitable to his actual requirements at
the time of the sale and delivery.” 46
Thus the fact that the minor was already sufficiently supplied with the goods in question will defeat
any claim against him 47 even though this fact was unknown to the supplier. 48
Contracts for necessaries must be beneficial
9-012
It has been held that even a contract for necessaries will not be binding on the minor if it contains
harsh and oppressive terms so that the contract, taken as a whole, cannot be said to be for the
Page 2
minor’s benefit. 49 So, for instance, in Flower v London & North Western Ry Co 50 it was held that a
contract of carriage (though clearly a necessary in the circumstances) was void as against the minor
because it contained a clause exempting the defendants from liability for injury to the minor even if
caused by negligence. However, it is submitted that any judgment of the overall beneficial (or
conversely prejudicial) effect of a minor’s contract for necessaries should be viewed after the
application of any relevant legislation governing the fairness of terms. So, for example, since 1977 a
contract term purporting to exclude a business liability for personal injuries and death caused by
51
negligence is ineffective in law ; and many types of terms in consumer contracts may be held
“not binding” on a minor/consumer as unfair. 52
Liability for goods “sold and delivered”
9-013
Section 3 of the Sale of Goods Act 1979 (replacing s.2 of the 1893 Act) provides that where
necessaries are sold and delivered to a minor he must pay a reasonable price for them.
“Necessaries” are defined by s.3(3) as goods suitable to the condition in life of the minor and to his
actual requirements at the time of the sale and delivery. There are two difficult points arising out of the
impact of this section on the common law which have not yet been resolved. First, it is uncertain
whether a minor can be held liable on an executory contract for the purchase of necessaries; and,
secondly, where such a contract is executed by the delivery of the goods to the minor, it is uncertain
whether the goods must be necessary for the minor at the time of sale as well as at the time of
delivery.
Executory contracts for necessary goods
9-014
Section 3 of the Sale of Goods Act 1979 deals only with the case of necessary goods sold and
delivered; it does not in terms deal with the case of necessaries sold but not delivered to a minor, and
such a case may, therefore, still be governed by the common law. But even at common law it is
uncertain whether a minor could be liable on an executory contract for the purchase of necessary
goods. 53 Whether a minor is so liable may depend on the view taken of the basis of the minor’s
liability, though this seems to restate the problem rather than to solve it. 54 On the one hand it is
argued that the minor is liable on such a contract quite apart from the Act, for a contract for
necessaries is one which, despite his lack of age, a minor may make. 55 This may be supported by
more recent authority which has recognised that a minor may give a valid consent, notably, to medical
treatment, 56 and by analogy with decisions which have held a minor liable on an executory contract
for education and training 57: the reason why an older minor’s contracts are not binding on him is a
matter of legal policy rather than because he cannot consent. 58 On the other hand it is said that a
minor’s obligation to pay for goods supplied to him is not contractual at all but is restitutionary, based
on unjust enrichment. 59 Delivery would, therefore, be necessary, for without it the minor could not be
said to be unjustly enriched at the seller’s expense. The supporters of this view buttress their
argument by pointing to the fact that the minor is bound to pay only a reasonable price for the goods,
rather than the contractual price. 60 This, they say, does not suggest a consensual liability. 61
Moreover, if s.3 of the Sale of Goods Act 1979 were treated as superseding the common law, this
would suggest that a minor would not be liable except where the goods were “sold and delivered”. 62
Goods necessary when delivered, but not when sold, and vice versa
9-015
The second problem is, to some extent, tied up with the first. At common law there seems to be no
doubt that the crucial question was always whether the goods were necessary when delivered 63 and
Page 3
it was immaterial whether or not they were necessary when the contract was made. This again would
seem to support the theory that the minor’s liability is based on unjust enrichment rather than being
contractual, for if it were contractual it would be hard to see why a change of circumstances between
the time of sale and the time of delivery should affect the liability of the minor. But whatever the
position may have been at common law it is possible that s.3 of the Sale of Goods Act resolved both
questions. In Nash v Inman 64 the Court of Appeal appears to have treated this section as completely
superseding the common law on the liability of a minor for necessary goods, and the wording of the
section appears to support the view that the goods must be necessary both when sold and when
delivered. If this is indeed the effect of the section it can hardly be supposed that a minor could today
be held liable on a purely executory contract. 65
Necessary services
9-016
Services as well as goods may be necessaries. So, for example, a contract for legal 66 or medical
services 67 may be a contract for necessaries. 68 It has also been held that a contract by a widow (who
was a minor) to pay for her husband’s funeral was binding as for a necessary. 69 Unlike the uncertain
position in respect of contracts to supply necessary goods, it is clear that executory contracts for
necessary services may be enforced against a minor, at least in the context of apprenticeship or
contracts for education. Thus, a minor’s promise to pay part of the premium for his apprenticeship on
gaining his majority has been enforced 70 and his (reasonable) restrictive covenant against competing
with his master after service is concluded has been enforced by injunction after gaining his majority. 71
In Roberts v Gray, the Court of Appeal held a minor who had entered a contract to go on a tour with a
professional billiard player liable in damages for failing to proceed with the tour. 72 The court
considered that once it had been decided that a contract is one for necessaries not qualified by
unreasonable terms, then it was binding on the minor, so as to allow the other contracting party all
such remedies as were appropriate on breach. 73 The reasoning of these decisions runs counter to
that which argues for a noncontractual basis of an infant’s liability for necessaries. 74 The question
whether the services must be necessary only when rendered or whether they must also be necessary
when ordered seems never to have been considered.
Fact and law
9-017
Whether the particular goods or services are necessaries has for many years been treated as a
question of fact in each case, subject to there being some evidence on which they might properly be
so found. 75 Today, however, it would seem that, while it is still a pure question of fact whether the
minor is already well supplied with the goods or services in question, it is a question of mixed fact and
law or a matter of evaluating the facts whether the goods or services can be treated as necessaries in
themselves. 76
Contracts for both necessaries and non-necessaries
9-018
If a minor buys a quantity of goods, some of which may be necessaries, but a substantial number of
which cannot be necessaries, it has been said that the minor will not be liable at all if the contract is
one entire contract. 77 On the other hand the courts have sometimes allowed a claimant to recover for
necessaries while disallowing a claim for non-necessaries without adverting to the question whether
the contract was an entire contract. 78 Since the minor is not bound to pay the contract price but only a
reasonable price, there seems no reason why this course should not always be followed. 79
Examples
Page 4
9-019
The following have been held to be necessaries (although it must be remembered that the usages of
society change and articles which once were necessaries may no longer be held to be so and vice
versa): engagement and wedding rings, 80 regimental uniform (for an enlisted soldier), 81 presents for
a fiancée, 82 a racing bicycle for a youth earning (in 1898) 21s. a week, 83 the hire of horses 84 and for
work done for them, 85 and the hire of a car to fetch luggage from a station six miles away. 86 On the
other hand, the following have been held not to be necessaries: 11 fancy waistcoats for a Cambridge
undergraduate already sufficiently supplied with clothing, 87 expensive dinners with fruit and
confectionery for another undergraduate, 88 jewelled solitaire sleeve-links for the son of a deceased
baronet, 89 a large quantity of tobacco for an army officer, 90 lessons in flying for a law student, 91 a
vanity-bag worth (in 1936) £20, 10s bought by the son of an ex-cabinet minister for his fiancée, 92 a
hunter for an impecunious cavalry officer, 93 a collection of snuff-boxes and curios 94 and a
second-hand sports car. 95
Trading contracts
9-020
A minor’s trading contracts are not contracts for necessaries. 96 While there is no precise definition of
a trading contract for this purpose, it has been held that a minor will not be liable in contract upon an
agreement for services performed for him to enable him to carry on his trade, 97 or for goods supplied
to him for the purposes of his trade, 98 or where he fails to deliver goods to a purchaser who has paid
for them. 99 However, if the contract can be considered to be one by which the minor gains proficiency
in a certain trade (as in a contract of service or apprenticeship) it will be binding on him if, viewed as a
whole, it is for his benefit. 100
9-021
Where a minor’s contract is a “trading contract” the minor cannot be adjudicated bankrupt on this
basis for he is not a debtor at law, 101 though he may be liable for (and be made bankrupt on account
of) a tax debt. 102 It has even been held that a minor is not liable in unjust enrichment for the recovery
of the price of goods sold by him but not delivered. 103 Moreover, the court now possesses a
discretion to order the minor to transfer money, or property representing it, to the other contracting
party under s.3(1) of the Minors’ Contracts Act 1987. 104
Necessaries for wife or children
9-022
There have been some extensions of the doctrine of minors’ necessaries. Necessaries for a minor’s
wife are necessaries for him, 105 though he is not liable on contracts made by his wife unless he has
authorised them. 106 Either spouse is bound by a contract to pay for the funeral of the other where he
or she dies leaving no sufficient estate. 107
Loans for necessaries
9-023
A minor cannot be made liable on a loan advanced to enable him to purchase necessaries. 108 If,
however, the loan is actually expended on necessaries, the lender can recover the amount spent on
them under the equitable principle of subrogation laid down in Marlow v Pitfield. 109 A person who
purchased necessaries for a minor at his request was held at common law to be entitled to sue the
minor for money paid to his use. 110 It would seem that today such an action could be maintained
either by treating the purchaser as a lender and entitled to invoke the principle of subrogation, or by
Page 5
treating the purchaser as the minor’s agent. 111 Any security given in respect of a loan is
unenforceable even though the money was required for necessaries 112 and an account stated is
voidable despite the fact that some of the items in the account consist of necessaries. 113 A bill of
exchange or promissory note is void both as against the minor and any third person although given in
payment of necessaries. 114 But the person who supplied the necessaries can, of course, disregard
the account stated or the security and sue for a reasonable price. 115
41. Peter v Fleming (1840) 6 M. & W. 42; Ryder v Wombwell (1868) L.R. 4 Ex. 32. See below,
para.9-014 as to the position of executory contracts for necessaries.
43. s.2 (now Sale of Goods Act 1979 s.3). cf. Mental Capacity Act 2005 s.7, below, paras
9-095—9-096.
45. Peters v Flemming (1840) 6 M. & W. 42; Ryder v Wombwell (1869) L.R. 4 Ex. 32; Nash v
Inman [1908] 2 K.B. 1.
46. Nash v Inman [1908] 2 K.B. 1, 5, per Cozens-Hardy M.R., Maddox v Miller (1813) 1 M. & s.738;
Harrison v Fane (1840) 1 M. & G. 550; Brooker v Scott (1843) 11 M. & W. 67; Ryder v
Wombwell (1869) L.R. 4 Ex. 32.
47. Barnes & Co v Toye (1884) 13 Q.B.D. 410; Johnstone v Marks (1887) 19 Q.B.D. 509; Nash v
Inman [1908] 2 K.B. 1.
48. Barnes & Co v Toye (1884) 13 Q.B.D. 410; Johnstone v Marks (1887) 19 Q.B.D. 509. See also
Bainbridge v Pickering (1780) 2 W.Bl. 1325; Brayshaw v Eaton (1839) 7 Scott 183; Foster v
Redgrave (1867) L.R. 4 Ex. 35n.
49. Fawcett v Smethurst (1914) 84 L.J.K.B. 473.
50. [1894] 2 Q.B. 65. See also Buckpitt v Oates [1968] 1 All E.R. 1145, 1147–1148.
51.
Unfair Contract Terms Act 1977 s.2(1) or (as regards contracts made on or after October 1,
2015) the Consumer Rights Act 2015 s.65.
52.
Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) or (as regards
contracts made on or after October 1, 2015) the Consumer Rights Act 2015 Pt 2: see Vol.II,
53. Miles (1927) 43 L.Q.R. 389.
54.
Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), paras 24-14–24-27.
55. Nash v Inman [1908] 2 K.B. 1, 12.

Page 6
56. Gillick v West Norfolk Area Health Authority [1986] A.C. 112, 169 (minors under 16); the Family
Law Reform Act 1969 s.8 provides that a minor over the age of 16 can consent to medical
treatment and see Clerk & Lindsell on Torts, 20th edn (2010), paras 10-55–10-57. cf. R. v D.
[1984] A.C. 778, 806 (consent to kidnapping).
57. Roberts v Gray [1913] 1 K.B. 520; Hamilton v Bennett (1930) 94 J.P.N. 136; Doyle v White City
Stadium Ltd [1935] 1 K.B. 110. See below, para.9-032.
58.
Peel, Treitel on The Law of Contract, 14th edn (2015), para.12–008.
59. Nash v Inman [1908] 2 K.B. 1, 8; Elkington & Co Ltd v Amery [1936] 2 All E.R. 86, 88; Birks, An
Introduction to the Law of Restitution (1985), p.436. cf. Re Rhodes (1890) 44 Ch. D. 94, 105
and Re J. [1909] 1 Ch. 574, 577, and below, para.9-095 (mental incapacity).
60. Sale of Goods Act 1979 s.3(2) and see Birks at p.436.
61. Pontypridd Union v Drew [1927] 1 K.B. 214, 220.
63. Winfield (1942) 58 L.Q.R. 82.
64. [1908] 2 K.B. 1, 7, 9.
65.
It is, however, arguable that the words of s.3 of the Sale of Goods Act “at the time of the sale
and delivery” appear to contemplate one time only. See also Peel, Treitel on The Law of
Contract, 14th edn (2015), para.12–008. If a minor is liable on an executory contract it would
have to be decided whether the goods must be necessary when sold, or at the time when they
ought to have been delivered, or perhaps even when the minor refuses to take delivery.
66. Helps v Clayton (1864) 17 C.B.(N.S.) 553; De Stacpoole v De Stacpoole (1887) 37 Ch. D. 139;
Re Jones (An Infant) (1883) 48 L.T. 188.
67. Huggins v Wiseman (1690) Carth. 110. But quaere whether this is still so having regard to the
National Health Service.
68. cf. the position as regards a person lacking mental capacity for necessary goods and services
under the Mental Capacity Act 2005 s.7, below, para.9-096.
69. Chapple v Cooper (1844) 13 M. & W. 252.
70. Walter v Everard [1891] 2 Q.B. 369.
71. Gadd v Thompson [1911] 1 K.B. 304.
72. [1913] 1 K.B. 520. cf. Mathews (1982) 33 N.Ir.L.Q. 150, 154–155.
73. [1913] 1 K.B. 520, 530.
75. Ryder v Wombwell (1868) L.R. 3 Ex. 90.
76. cf. Benmax v Austin Motor Co Ltd [1955] A.C. 370.
77. Stocks v Wilson [1913] 2 K.B. 235, 241–242. As to entire contracts, see below, para.24-043.
78. See, e.g. Ryder v Wombwell (1868) L.R. 3 Ex. 90.

Page 7
79. Certainly this would be the right course if the minor’s liability is based on unjust enrichment; see
above, para.9-014.
80. Elkington & Co Ltd v Amery [1936] 2 All E.R. 86.
81. Coates v Wilson (1804) 5 Esp. 152.
82. Jenner v Walker (1868) 19 L.T. 398; cf. Hewlings v Graham (1901) 70 L.J. Ch. 568; Elkington &
Co Ltd v Amery [1936] 2 All E.R. 86.
83. Clyde Cycle Co v Hargreaves (1898) 78 L.T. 296.
84. Hart v Prater (1837) 1 Jur. 623; cf. Harrison v Fane (1840) 1 M. & G. 550.
85. Clowes v Brook (1739) 2 Str. 1101.
86. Fawcett v Smethurst (1914) 84 L.J.K.B. 473.
87. Nash v Inman [1908] 2 K.B. 1.
88. Wharton v Mackenzie (1844) 5 Q.B. 606.
89. Ryder v Wombwell (1869) L.R. 4 Ex. 32.
90. Bryant v Richardson (1866) L.R. 3 Ex. 93.
91. Hamilton v Bennett (1930) 94 J.P.N. 136.
92. Elkington & Co Ltd v Amery [1936] 2 All E.R. 86.
93. Re Mead [1916] 2 I.R. 285.
94. Stocks v Wilson [1913] 2 K.B. 235.
95. Coull v Kolbuc (1969) 68 W.W.R. 76 (Alberta District Ct).
96. Lowe v Griffith (1835) 1 Scott 458.
97. Re Jones Ex p. Jones (1881) 18 Ch. D. 109.
98. Mercantile Union Guarantee Corp Ltd v Ball [1937] 2 K.B. 498. But where a minor used goods
(supplied to him in his trade) for household purposes he was held liable: Turberville v
Whitehouse (1823) 1 C. & P. 94.
99. Cowern v Nield [1912] 2 K.B. 419.
100. Roberts v Gray [1913] 1 K.B. 520; Doyle v White City Stadium Ltd [1935] 1 K.B. 110. cf. Shears
v Mendeloff (1914) 30 T.L.R. 342; below, paras 9-024—9-034.
101. Re Jones Ex p. Jones (1881) 18 Ch. D. 109, 120; Re Davenport [1963] 1 W.L.R. 817.
102. Re A Debtor (No.564 of 1949) [1950] Ch. 282.
103.
Cowern v Nield [1912] 2 K.B. 419. This decision is supported by Goff and Jones, The Law of
Unjust Enrichment, 9th edn (2016), paras 19-09–19-13 on the basis that as a matter of policy
minors should only have to repay the value of benefits which they still have at the time of the
claim.
104. See below, paras 9-061—9-064.

Page 8
105. Rainsford v Fenwick (1671) Carter 215; Turner v Trisby (1719) 1 Stra. 168.
106. The wife’s “agency of necessity” was abolished by s.41 of the Matrimonial Proceedings and
Property Act 1970: see Vol.II, para.31-050.
107. Chapple v Cooper (1844) 13 M. & W. 252. It was doubted whether a minor would be bound by
a contract to pay for the funeral of a parent or other relative: 260. The common law rule that a
husband is always bound to pay for his wife’s funeral no longer obtains: Rees v Hughes [1946]
K.B. 517.
108. Darby v Boucher (1694) 1 Salk. 279.
109. (1719) 1 P.Wms. 558; Re National Permanent Benefit Building Society (1869) L.R. 5 Ch. App.
309, 313; Martin v Gale (1876) 4 Ch. D. 428; Lewis v Alleyne (1888) 4 T.L.R. 560; Orakpo v
Manson Investments Ltd [1978] A.C. 95; Birks, An Introduction to the Law of Restitution (1985),
p.398. For a similar principle in a different context, see The Mogileff (1921) 6 Ll.L. Rep. 528;
The Fairport (No.5) [1967] 2 Lloyd’s Rep. 162.
110. Ellis v Ellis (1689) Comb. 482; Earle v Peale (1712) 10 Mod. 67.
112. Martin v Gale (1876) 4 Ch. D. 428.
113. Williams v Moor (1843) 11 M. & W. 256. At common law, an account stated may be ratified by
the minor on reaching majority: (1843) 11 M. & W. 256 at 266. The Infants Relief Act 1874 s.1,
which made void all accounts stated with infants, was repealed by the Minors’ Contracts Act
1987 s.1.
114. Re Soltykoff Ex p. Margrett [1891] 1 Q.B. 413; cf. Bills of Exchange Act 1882 s.22(2).
115. [1891] 1 Q.B. 413; Walter v Everard [1891] 2 Q.B. 369.

Page 1

(ii) - Apprenticeship, Employment and Other Beneficial Contracts
Beneficial contracts
9-024
Since it is of obvious advantage to a minor that he should be able to fit himself for his future trade or
profession and to obtain a livelihood, he may enter into contracts of apprenticeship, employment,
education and instruction, provided that these are beneficial to him. As was said by Kay L.J. in
Clements v London & North Western Ry Co 116:
“It has been clearly held that contracts of apprenticeship and with regard to labour are not
contracts to an action on which the plea of infancy is a complete defence, and the
question has always been, both at law and in equity, whether the contract, when carefully
examined in all its terms, is for the benefit of the infant. If it is so, the court before which
the question comes will not allow the infant to repudiate it.”
Contracts of apprenticeship at common law
9-025
At common law, a minor may bind himself apprentice to an employer, and after the employer’s death
to his executors provided that they carry on the same trade in the same place. 117 The validity of such
a contract depends on whether the contract is as a whole, beneficial to the minor at the time when it is
entered into. 118 If the contract of apprenticeship imposes onerous terms 119 such as a penalty clause,
120
or a provision that his wages are to depend on the will of his employer, 121 or if it places the minor
virtually in a position of entire subservience to his employer, 122 it will be unenforceable. The question
of fairness will depend upon whether the clause was common to employment contracts at the time, or
accorded with the current conditions of trade, so that the employer was reasonably justified in
imposing it in protection to himself. 123
Formal requirements
9-026
Before the Apprentices Act 1814 a deed was necessary to create a valid contract of apprenticeship;
and under such a deed the apprentice promised faithfully to serve his employer, and the employer
promised to provide proper instruction for the apprentice and to pay him wages. However, the 1814
Page 2
124
Act reduced the formality to a requirement that the apprenticeship contract must be in writing and
in 2004 even this requirement was abolished. 125
Minor’s apprenticeship covenants
9-027
Although a minor may by contract bind himself apprentice, during the period of apprenticeship no
action is maintainable against him on his covenant to serve in such a contract, 126 nor can an
injunction be obtained to enforce a negative covenant in the contract. 127 Accordingly, at one time it
was customary for the minor’s father or mother to execute the contract so as to covenant for his due
performance of the agreement. 128 After his apprenticeship has ceased, however, a restrictive
covenant in such a contract may be enforced provided that the contract as a whole is for the minor’s
benefit. 129
Rescission of contracts of apprenticeship
9-028
It has been held that a minor cannot validly agree to rescind a binding contract of apprenticeship
unless its rescission would be beneficial and this will not normally be so, since if the contract is
beneficial to him its dissolution cannot normally be beneficial. 130 In a later case this rule was held to
mean that a master cannot terminate a contract of apprenticeship made with a minor on the ground of
the latter’s breach of his covenants to serve, etc. since the minor cannot by breaking his covenants do
indirectly what he may not do directly. 131 However, in the same case it was noted that earlier
authorities on the relationship of master and apprentice dated from a time when the master
possessed real and considerable powers of domestic chastisement, 132 and that (in 1922) these
powers no longer existed and that this social change justified an exception to be made to the master’s
inability to terminate for breach where:
“there is habitual and systematic conduct, arising out of the character of the apprentice,
which renders it impossible that the work of service and of teaching should continue.” 133
Statutory “apprenticeship agreements”
9-029
The Apprenticeships, Skills, Children and Learning Act 2009 recognised a new form of
apprenticeship founded on an “apprenticeship agreement”, and set out rules governing, inter alia, its
134
form and certification. In 2015, the 2009 Act was amended so as to distinguish between
“approved English apprenticeships” 135 and “Welsh apprenticeships”. 136 Under the 2009 Act as
so amended, both “approved English apprenticeships” and “Welsh apprenticeships” are to be treated
as “contracts of service” and are not to be treated as “contracts of apprenticeship” for “the purposes of
any enactment or rule of law”. 137 It is submitted, therefore, that an “apprenticeship agreement”
concluded by a minor would be subject to the rules explained below governing contracts of
employment rather than those governing contracts of apprenticeship, though the two sets of rules are
closely related.
Contracts of employment
Page 3
9-030
A contract of employment entered into by a minor is dealt with by the law in the same manner as a
contract of apprenticeship. A contract of employment may be binding even if the minor gives up
certain rights available under the general law, at least if he gets something equally advantageous in
return, 138 and an agreement to submit disputes to arbitration may also be binding if it forms part of a
binding contract of employment. 139 But a contract containing a term by which his work and wages
depend on the will of his employer 140 or by which, in consideration of special terms, he contracts to
waive all claims for compensation for accident 141 is not binding on him. There are many statutory
restrictions on the employment of minors under which it is in general unlawful to employ a person
under the age of 14, and the employment of persons between 13 and compulsory school age is
subject to many restrictions. 142 An agreement in breach of these provisions would presumably be
unenforceable against the minor.
Covenants in restraint of trade
9-031
If a minor enters into a contract of employment or apprenticeship containing a covenant restraining
his freedom to compete after the termination of the contract, it must first be decided whether this
provision would have been valid against an adult. 143 But a covenant of this kind may not bind a minor
even where it would have bound an adult. 144 Whether, if the covenant is void, it invalidates the whole
contract of employment or apprenticeship may be a difficult question. It seems that in deciding this
question regard must be had to the covenant only in so far as it would have been valid against an
adult. If, therefore, the covenant is severable according to the ordinary principles governing
severance, 145 the question is whether the enforceable part of the covenant (and not the whole
covenant) is so unfair or oppressive as to render the whole contract not beneficial. 146 It seems to
follow that if the whole covenant is void quite apart from the defence of minority it should be
disregarded altogether in deciding whether the remainder of the contract is beneficial to the minor.
Where, on the other hand, the covenant is itself valid and does not render the whole contract void, it
may be enforced against the minor by injunction in the usual way. 147
Education
9-032
At common law a minor could bind himself by a contract for instruction and education, on the same
ground as other contracts for necessaries. Having regard to modern statutory provisions for
compulsory and free schooling it is doubtful if it could still be regarded as necessary for a minor to
contract for ordinary schooling below the school-leaving age except perhaps in very special
circumstances. 148 But a minor can doubtless still bind himself with regard to other forms of education
or instruction, and a minor has been held liable under a contract for singing lessons to be paid for by
commission on his earnings as a singer. 149 That the contract is executory appears to be immaterial.
150
On the other hand, not every form of instruction or education is appropriate to the status and
position of a particular minor, and a contract for unnecessary education is no more binding than a
contract for unnecessary goods. 151
Other beneficial contracts
9-033
The principle that contracts beneficial to a minor are binding on him is not confined to contracts for
necessaries and contracts of employment, apprenticeship or education in a strict sense. 152 It extends
also to other contracts which in a broad sense may be treated as analogous to contracts of service,
apprenticeship or education. 153 So, for instance, a contract by a minor (who was a professional
boxer) with the British Boxing Board of Control whereby he agreed to adhere to the rules of the Board
was held binding on him because he could not have earned his living as a boxer without entering into
Page 4
the agreement. 154 Similarly, it has been held that an agreement between a minor and a publisher for
the publication of the minor’s biography which was to be written by a “ghost writer” was binding on the
minor. 155 So also, a contract between a group of underage musicians (known as “The Kinks”)
whereby they appointed a company as their manager and agent was held binding as analogous to a
contract of employment. 156 On the other hand, it has been held that a contract by which a footballer
aged 15 engaged a person to act as his executive agent and representative in all matters relating to
his work as a professional footballer was not analogous to contracts of employment, apprenticeship or
education as the agent did not provide any training (which was provided by the professional club
where he played) nor did it undertake any matters essential to his livelihood. 157 And there is no
general principle to the effect that any contract beneficial to a minor is binding on him. 158 So a minor’s
trading contracts are not binding on him, even if beneficial. 159
Benefit
9-034
Where the contract contains terms, some of which are beneficial to the minor and others not, the
question is whether, taken as a whole, it is to his advantage. If it is, he is bound. 160 One stipulation
may be so unfair to the minor that it affects the validity of the whole contract 161; but if the agreement
as a whole is for his benefit, in principle he cannot pick and choose and adopt those terms while
rejecting those terms which are not beneficial or not clearly beneficial. 162 However, as in the case of
contracts for necessaries, the question of the beneficial (or prejudicial) effect of a contract of
employment should be judged after the application of any legal control on the effectiveness on any
apparently prejudicial terms. 163
116. [1894] 2 Q.B. 482, 491.
117. Cooper v Simmons (1862) 7 H. & N. 707.
118. De Francesco v Barnum (1890) 45 Ch. D. 430; Dillingham v Harrison [1917] W.N. 305;
Mackinlay v Bathurst (1919) 36 T.L.R. 31; Chaplin v Leslie Frewin (Publishers) Ltd [1966] Ch.
71; Aylesbury Football Club (1997) Ltd v Watford Association Football Club Ltd Unreported
2000 HC.
119. Meakin v Morris (1884) 12 Q.B.D. 352; De Francesco v Barnum (1890) 45 Ch. D. 430.
120. De Francesco v Barnum (1890) 45 Ch. D. 430, 439. See below paras 26-178 et seq. for the
general invalidity of penalty clauses properly so-called and their distinction from liquidated
damages clauses.
121. R. v Lord (1850) 12 Q.B. 757; Corn v Matthews [1893] 1 Q.B. 310; Meakin v Morris (1884) 12
Q.B.D. 352; cf. Green v Thompson [1899] 2 Q.B. 1.
122. De Francesco v Barnum (1890) 45 Ch. D. 430.
123. Leslie v Fitzpatrick (1877) 3 Q.B.D. 229, 232.
124. Apprentices Act 1814 s.2; McDonald v John Twiname Ltd [1953] 2 Q.B. 304 at 313.
Page 5
125. Statute Law (Repeals) Act 2004 s.1, Sch.1 Pt 8.
126. De Francesco v Barnum (1889) 43 Ch. D. 165, 171, where it was noted that the master might
correct him in service or complain to a justice of the peace to have the apprentice punished
under the statute 5 Eliz. c.4. This power was abolished by the Family Law Reform Act 1969
s.11.
127. (1889) 43 Ch. D. 165.
128. Where a child is being “looked after” by a local authority within the meaning of the Children Act
1989 s.22, or is a person qualifying for advice and assistance within the meaning of s.24(2), the
authority may undertake any obligation by way of guarantee under any deed of apprenticeship
or articles of clerkship which he enters into: s.23(9), Sch.2 para.18(1).
129. Cornwall v Hawkins (1872) 41 L.J.Ch. 435; Fellows v Wood (1888) 59 L.T. 513; Evans v Ware
[1892] 3 Ch. 502; Gadd v Thompson [1911] 1 K.B. 304; cf. Brown v Harper (1893) 68 L.T. 488.
130. R. v Great Wigston (Inhabitants) (1824) 3 B. & C. 484.
131. Waterman v Fryer [1922] 1 K.B. 499.
132. [1922] 1 K.B. 499, 506.
133. [1922] 1 K.B. 499, 507, per Shearman J. citing Learoyd v Brook [1891] 1 Q.B. 431 as an
example. cf. Mcdonald v John Twiname Ltd [1953] 2 Q.B. 304, 311 (conduct of apprentice
falling short of these “extreme examples”).
134.
Apprenticeships, Skills, Children and Learning Act 2009 Pt 1 (as enacted). The provisions on
the “prescribed form” were contained in s.32(2)(b) and this form was later designated as being
either “a written statement of particulars of employment” given to the employee/apprentice or “a
document in writing in the form of a letter of engagement” as foreseen by the Employment
Rights Act 1996: the Apprenticeships (Form of Apprenticeship Agreement) Regulations 2012
(SI 2012/844) reg.2, referring to the Employment Rights Act 1996 ss.2 and 7A respectively (with
the exceptions specified by the Regulations). In 2015, s.32 was amended so as to apply only to
“Welsh apprenticeships”, as explained in the following text and notes.
135.
Apprenticeships, Skills, Children and Learning Act 2009, esp. Ch.A1 as inserted by the
Deregulation Act 2015 Sch.1 para.1 (in force May 26, 2015).
136.
Apprenticeships, Skills, Children and Learning Act 2009 ss.2, 7–12, 18–22, 28–36 (as
amended).
137.
Apprenticeships, Skills, Children and Learning Act 2009 s.A5 (approved English
apprenticeships) and s.35 (Welsh apprenticeships).
138. Clements v L. & N.W. Ry [1894] 2 Q.B. 482.
139. Slade v Metrodent Ltd [1953] 2 Q.B. 112.
140. R. v Lord (1848) 12 Q.B. 757.
141. Flower v London & N.W. Ry Co [1894] 2 Q.B. 65; Butterfield v Sibbitt [1950] 4 D.L.R. 302;
Buckpitt v Oates [1968] 1 All E.R. 1145. Such a term would since 1977 not be effective: Unfair
Contract Terms Act 1977 s.2(1).
142. See Children and Young Persons Act 1933 s.18 (as amended); s.30(1)(a) (“child” to be defined
as someone who is not over “compulsory school age” under Education Act 1996 s.8). For the
purposes of the 1933 Act, the “employment” of children is not restricted to children who are
Page 6
employed under a contract of service and extends to those working under contracts for
services: Bebbington v Palmer T/A Sturry News (EAT, February 23, 2010 at [42]–[43]).
144. Sir W.C. Leng & Co Ltd v Andrews [1909] 1 Ch. 763; Gadd v Thompson [1911] 1 K.B. 304;
Express Dairy Co v Jackson (1930) 99 L.J.K.B. 181, 183.
146. Bromley v Smith [1909] 2 K.B. 235.
147. See cases cited above at n.142.
148. cf. Practice Direction (Minor: School Fees) [1980] 1 W.L.R. 1441; Practice Direction (Minor:
Payment of School Fees) [1983] 1 W.L.R. 800; Sherdley v Sherdley [1988] A.C. 213, 225.
149. Mackinlay v Bathurst (1919) 36 T.L.R. 31.
151. Hamilton v Bennett (1930) 94 J.P.N. 136.
152. This paragraph in the 28th edition of the present work was quoted as an accurate statement of
the law in Proform Sports Management Ltd v Proactive Sports Management Ltd [2006] EWHC
2903 (Ch), [2007] Bus. L.R. 93 at [35].
153. Roberts v Gray [1913] 1 K.B. 525.
154. Doyle v White City Stadium Ltd [1935] 1 K.B. 110.
155. Chaplin v Leslie Frewin (Publishers) Ltd [1966] Ch. 71.
156. Denmark Productions Ltd v Boscobel Productions Ltd (1967) 111 S.J. 715 reversed on other
grounds [1969] 1 Q.B. 699; cf. Shears v Mendeloff (1914) 30 T.L.R. 342 where the contract
contained oppressive terms and was void.
157. Proform Sports Management Ltd v Proactive Sports Management Ltd [2006] EWHC 2903 (Ch),
[2007] Bus. L.R. 93 at [35]–[41].
158. Martin v Gale (1876) 4 Ch. D. 428, 431; Mercantile Union Guarantee Corp Ltd v Ball [1937] 2
K.B. 498; Bojczuk v Gregorcewicz [1961] S.A.S.R. 128; Sellin v Scott (1901) 1 S.R.(N.S.W.) Eq.
64; but cf. Slade v Metrodent Ltd [1953] 2 Q.B. 112, 115.
159. Cowern v Nield [1912] 2 K.B. 419, above, para.9-020.
160. De Francesco v Barnum (1890) 45 Ch. D. 430, 439; Clements v London & N.W. Ry [1894] 2
Q.B. 482; Roberts v Gray [1913] 1 K.B. 520; Doyle v White City Stadium Ltd [1935] 1 K.B. 110;
IRC v Mills [1975] A.C. 38, 53.
161. R. v Lord (1848) 12 Q.B. 757; Meakin v Morris (1884) 12 Q.B.D. 352; Corn v Matthews [1893] 1
Q.B. 310; Flower v London & N.W. Ry Co [1894] 2 Q.B. 65; Stephens v Dudbridge Ironworks
Co [1904] 2 K.B. 225; Express Dairy Co v Jackson (1930) 99 L.J.K.B. 181.
162. Slade v Metrodent Ltd [1935] 2 Q.B. 112.
163. Above, para.9-012.

Page 1

(iii) - Settlements or Compromises Approved by the Court
CPR r.21.10
9-035
Rule 21.10(1) of the Civil Procedure Rules (CPR) provides that:
“Where a claim is made—
(a)
by or on behalf of a child or protected party; or
(b)
against a child or protected party,
no settlement, compromise or payment (including any voluntary interim payment) and no

acceptance of money paid into court shall be valid, so far as it relates to the claim by, on
behalf of or against the child or protected party, without the approval of the court.”
This requirement of approval has been held to apply to the settlement of a claim made on behalf of a
child even before any proceedings were begun. 164 It is clearly the main purpose of r.21.10 to protect
the interests of children and other “protected parties” (i.e. persons under a mental incapacity 165), but it
also provides “a means by which a defendant may obtain a valid discharge from a child or protected
party’s claim”. 166 As a result, it has been held that r.21.10 carves out a special exception to the
general rules governing the validity of contracts made by children and “protected parties” so as to
require court approval even where the agreement would otherwise be binding on them. 167
Conversely, any settlement or compromise approved by the court under r.21.10 is binding on the child
even where it would not otherwise bind him under the general law governing minors’ contracts. The
court’s discretion under r.21.10 extends to the approval of a settlement or compromise
retrospectively, that is, in circumstances where the parties did not obtain the court’s approval for a
settlement made in the course of earlier proceedings. 168 The court’s discretion as to approval has
been described as “unfettered”, 169 but the court will take into account that the purpose of the
requirement of approval is to ensure the protection of the minor and to ensure that his best interests
are served, while taking into account the interests of the other party to the settlement or compromise
(for example, as regards any prejudice caused by delay) and the interests of good administration of
Page 2
justice more generally, notably, the “certainty of outcome and finality of judgments”. 170 While it was
said (under the former procedural rules which made similar provision 171) that the court has no power
to compel a compromise against the opinion of the minor’s advisers, 172 it has been held that this does
not apply where the compromise was made by the incapable person himself in circumstances where
the only objection to the enforceability of the compromise is that the approval of the court is required.
173
164. Dietz v Lennig Chemicals Ltd [1969] 1 A.C. 170; Drinkall v Whitwood [2003] EWCA Civ 1547,
[2004] 1 W.L.R. 462; Dunhill v Burgin [2014] UKSC 18, [2014] 1 W.L.R. 933 at [23].
166. Civil Procedure 2015 (2015), Section A, r.21.10.1, Introduction.
167. Dietz v Lennig Chemicals Ltd [1969] 1 A.C. 170 (rejecting counsel’s argument that a settlement
was binding without the court’s approval as being for the benefit of the child); Dunhill v Burgin
[2014] UKSC 18, [2014] 1 W.L.R. 933 at [30] in the context of mental incapacity on which see
below para.9-097.
168. Masterman-Lister v Brutton & Co (Nos 1 & 2) [2002] EWCA Civ 1889, [2003] 1 W.L.R. 1511 at
[31] (Kennedy L.J.); Bailey v Warren [2006] EWCA Civ 51, [2006] C.P.Rep. 26 at [180].
169. Bailey v Warren [2006] EWCA Civ 51, [2006] C.P.Rep. 26 at [180] per Ward L.J. (in the context
of a possible retroactive approval of a settlement by a mentally incapable person), referring to
Masterman-Lister v Brutton & Co (Nos 1 & 2) [2002] EWCA Civ 1889, [2003] 1 W.L.R. 1511 at
[31] (Kennedy L.J.).
170. Bailey v Warren [2006] EWCA Civ 51, [2006] C.P.Rep. 26 at [182]–[184] per Ward L.J. and cf.
at [95]–[96] (Hallett L.J.) and [140]–[144] (Arden L.J.). cf. Rhodes v Swithenbank (1889) 22
Q.B.D. 577; Mattei v Vautro (1898) 78 L.T. 682 where it was said (under earlier rules) that a
compromise will not be sanctioned, although made in good faith, if not for the minor’s benefit.
171. RSC Ord.80 rr.10, 11; CCR Ord.10 r.10.
172. Re Birchall (1880) 16 Ch. D. 41; Norman v Strains (1880) 6 P.D. 219. See also Re Taylor’s
Application [1972] 2 Q.B. 369.
173. Bailey v Warren [2006] EWCA Civ 51, [2006] C.P.Rep. 26 at [94], [139] and [168].

Page 1

(c) - Contracts Binding on a Minor Unless Repudiated
Contracts for an interest of a permanent nature
9-036
Where a minor enters into a contract which involves the acquisition of an interest in property of a
permanent nature, with continuing obligations attached to it, he may avoid it at his option either
before, or within a reasonable time after, attaining his majority. 174 But until he does so avoid it, he is
bound to carry out the obligations as they become due; and if he waits until attaining his majority
before avoiding the contract, he must then act promptly and clearly, or he will be bound by the
contract for its full term. The reason for this was explained by Parke B. in North Western Ry Co v
M’Michael, 175 a case where a minor was sued for a call on railway shares. The learned Baron, after
referring to various cases 176 in which it had been held that minor shareholders in railway companies
were liable for calls on their shares whilst they were minors, continued:
“They have been treated, therefore, as persons in a different situation from mere
contractors, for then they would have been exempt; but in truth they are purchasers who
have acquired an interest, not in a mere chattel, but in a subject of a permanent nature …
and with certain obligations attached to it, which they were bound to discharge, and
having been thereby placed in a situation analogous to an infant purchaser of real estate,
who has taken possession, and thereby becomes liable to all the obligations attached to
the estate, or instance, to pay rent in the case of a lease rendering rent … unless they
have elected to waive or disagree to the purchase altogether, either during infancy or
after full age, at either of which times it is competent for an infant to do so.” 177
9-037
Despite this explanation there does not seem to be any general principle to the effect that any
contract conferring an interest in a subject matter of a permanent nature is valid until repudiated.
There appear to be four types of case which fall within this category though it is not clear whether
these are exhaustive. These are contracts to lease or purchase land, marriage settlements, contracts
to subscribe for or to purchase shares, and partnerships. On the other hand, a contract of hire or of
hire-purchase entered into by a minor as hirer is either valid (if for necessaries) or unenforceable
against the minor without a need for repudiation. 178
Benefit
9-038
Page 2
There is old authority for the view that the underlying principle is one of benefit to the minor—that is, if
the contract were beneficial to the minor, he could not avoid it at all, 179 whereas if it were not
beneficial, he was not bound at all. 180 But since the mid-nineteenth century it has been established
that even if the contract is not beneficial, the minor is bound if he takes possession of the property,
but only until he disclaims within the time stated. 181
Contracts to lease or purchase land
9-039
At common law a lease to a minor was voidable only, 182 but even during his minority he was liable for
accrued rent, if he had gone into occupation. 183 If he continued in occupation after attaining his
majority he was liable for rent which had accrued prior to that date. 184 He was entitled to repudiate
the lease either during his minority or within a reasonable time of attaining full age. 185 It seems that a
contract by a minor to purchase freehold land is also in this category, i.e. the contract is binding
unless and until repudiated by the minor, 186 at all events where there are outstanding obligations on
the minor after completion. If there are no such obligations outstanding the question is really
academic for even if the minor can repudiate the contract after completion he cannot recover the
purchase price. 187
Conveyances to minors
9-040
Since 1926, a minor has not been able to acquire or hold any legal estate, 188 nor has a minor been
able to be a tenant for life or exercise the powers of a tenant for life. 189 A conveyance or lease to a
minor has taken effect only as an agreement for valuable consideration to execute a settlement in his
favour, and in the meantime to hold the land in trust for him. 190 The 1925 property legislation did not,
however, affect a minor’s beneficial interest, or prevent his holding an equitable interest in settled
land. 191 However, this position was altered by the Trusts of Land and Appointment of Trustees Act
1996 as the latter repealed the provisions of the earlier legislation regarding the effect of conveyance
or lease to a minor, 192 and instead provided that after its commencement a conveyance of a legal
estate to a minor takes effect as a declaration of trust and that, where immediately before its
commencement a conveyance is operating as an agreement to execute a settlement in favour of a
minor, the agreement ceases to have effect and subsequently operates instead as a declaration that
the land is held in trust for the minor. 193 In effect, therefore, the common law rule with regard to
leases to minors is preserved. Equity will not allow a minor who has had the benefit of the statutory
trusts to affirm them upon his majority and afterwards to say that he is not liable upon their
obligations. 194
Minor housed as “homeless person”
9-041
Where a local authority, in exercise of its statutory duty to house a homeless person aged between 16
and 17 under the Housing Act 1996, granted a tenancy to such a minor on its standard form for legal
tenancies made with adult tenants, the Court of Appeal held that this grant took effect as an equitable
tenancy under the Trusts of Land and Appointment of Trustees Act 1996, thereby constituting the
local authority trustee of the legal estate of the lease for the benefit of the tenant. 195 The tenant had
argued that the local authority could not terminate the tenancy by notice under one of its clauses as “it
could not lawfully destroy the subject matter of the trust by serving notice to quit” and the Court of
Appeal agreed, 196 holding that the effect of the 1996 Act meant that, in the absence of any other
trustee, the local authority:
“… was in the uncomfortable position of being both lessor and trustee, and in the former
Page 3
capacity of being not merely a party to the breach of trust, but the instigator of the breach
of trust. In these particular circumstances … service of notice to quit only on the minor
beneficiary of the trust was not sufficient to terminate the tenancy that was being held by
the [local authority] on her behalf.” 197
In recognising the practical difficulties to which this decision may be thought to give rise, Waller L.J.
suggested that local authorities could fulfil their duties under the Housing Act 1996 and their social
services functions by agreeing with minors aged 16 to 17 years licences to occupy their dwellings
rather than tenancies or by granting leases until the end of minority. 198
Minors as successors to secured or statutory tenants
9-042
In Kingston upon Thames BC v Prince 199 the question arose whether a minor who was otherwise
qualified to succeed to a secure periodic tenancy under the provisions of the Housing Act 1985 could
do so despite her minority. The Court of Appeal held that such a minor could so succeed. 200
According to Hale J.:
“… a minor is quite capable of becoming a tenant, albeit in equity … If there is nothing to

stop a local authority granting a tenancy effective in equity to a minor in appropriate
circumstances there can be no insuperable technical objection to Parliament rendering
that equitable tenancy secure. If Parliament had wanted to limit these provisions to adults
it could easily have done so: but it did not.” 201
The Court of Appeal therefore ordered that the minor be declared to be the secure tenant of the
property in question until she reached the age of majority and the legal estate in relation to the said
equitable tenancy be held on trust by the minor’s mother until that time. Hale J. further observed that
where a tenancy was for a term certain, an otherwise qualified minor could succeed the deceased
tenant as a secured tenant under the 1985 Act here:
“… the deceased’s estate will continue to hold the legal estate on trust for the minor until
she reaches the age of 18 when she can call for a conveyance of the legal estate.” 202
Hale J. also noted with approval that “it has been established for some time, apparently
uncontroversially, that a minor can succeed to a statutory tenancy under the Rent Acts”. 203
Marriage settlements
9-043
Further instances of contracts which are binding on a minor unless repudiated are to be found in
marriage settlements and agreements for marriage settlements. They can be avoided by the minor
within a reasonable time of coming of age. 204 But he must accept or reject them in their entirety. He
cannot take the benefit and refuse to accept a burden. 205 If he elects to avoid the settlement, any
interest taken by the minor in property brought into the settlement by the other party may be taken
away to make up to the beneficiaries the loss which they have sustained because of the avoidance.
206
Shareholder underage
Page 4
9-044
A minor may be a shareholder in a company regulated by the Companies Clauses Consolidation Act
1845, 207 or by the Companies Act 1985, or in any corporation formed under a statute which
authorises, either expressly or by implication, the membership of minors, or which by its nature does
not prohibit their membership. 208 A contract by a minor to subscribe for shares in the company may
be repudiated either while he is underage or within a reasonable time of attaining full age, 209 but until
he does so he is liable for calls made even while he is underage. 210 If he wishes to avoid the contract
after coming of age he must do so promptly or he will be bound by acquiescence. 211
Purchase of shares
9-045
If a minor purchases shares in the market and thereafter becomes registered as a shareholder there
are two contracts whose validity may come into question, viz that between the minor and the
company, and that between the minor and the vendor. In the nineteenth century there were a number
of decisions concerning the validity of a transfer of partly paid-up shares to a minor, and the liability of
the transferor to pay calls or to contribute in a winding up. 212 In these cases it was held that the
transferor generally remained liable for calls notwithstanding that the minor had been registered as a
shareholder. But although it was said in these cases that a transfer of shares to a minor was voidable
none of them actually raised any question as to the validity of the contracts made between the minor
on the one hand and the vendor or the company on the other. So far as the contract with the
company is concerned the question is largely academic for the only liability likely to be enforceable
against the shareholders is the obligation to pay calls, and partly paid-up shares are rarely met with
today. But if the question were raised it would seem that the position must be the same as in the case
of shares applied for by the minor and allotted to him by the company itself, i.e. the contract would be
binding unless and until repudiated. 213 As to the contract between the minor and the vendor of the
shares it is uncertain whether the contract is unenforceable against the minor, or whether it is
voidable in the sense that it is binding until repudiated. It is submitted that such a contract would be
unenforceable against the minor, but any price paid by him would be irrecoverable unless there was a
total failure of consideration. 214
Partnerships
9-046
A minor who becomes a member of a partnership is, as between himself and his partners, bound
by the contract unless and until he repudiates it. 215 He does not become liable to partnership
creditors for debts or liabilities incurred while he is a minor, 216 but if he repudiates the partnership
agreement while still a minor or within a reasonable time of coming of age, his co-partners may insist
on all partnership debts being paid and liabilities being met before the minor can draw any profits or
capital from the firm. 217 It seems that the creditors may also avail themselves of this right of the
minor’s partners in appropriate proceedings. 218 Furthermore, even if the minor repudiates before
attaining his majority he may still become liable for partnership debts subsequently incurred on the
holding-out principle, by which a person who holds himself out as being a partner is bound to those
who deal with the firm upon the faith of that supposed partnership. 219
Effect of avoidance
9-047
In all contracts of this class, namely, contracts involving the acquisition of an interest in property of
a permanent nature with continuing obligations attached to it, the effect of avoidance by the minor is
that he escapes from liability to perform obligations which have not accrued at the time of avoidance.
Page 5
He has, however, to meet obligations which have already accrued 220; moreover, he can recover
nothing which he has paid under the contract unless there has been a total failure of consideration. 221
So, where a minor paid a premium to the defendant on taking a lease from him, and entered upon
and used and enjoyed the premises for a short period before he came of age, he could not recover
the premium. 222 And where a minor applied for and was allotted shares in a company and paid the
amounts due on allotment and on the first call, it was held that upon subsequently repudiating while
still underage she could not recover back what she had paid, for although she had received no
dividends she had received “the very consideration for which she bargained”. 223 The requirement of
total failure of consideration has been criticised on the basis that:
“[t]he policy justification for allowing minors out of contracts—that the minor’s consent
should not count because one needs to protect the young against foolishness and poor
224
judgment—should surely be fully carried over to restitution of an unjust enrichment.”
Instead, it is argued, the minor’s ability to avoid the contract should be subject to restitutio in integrum
being possible, with the result that:
“A minor who cannot restore the status quo ante should be unable to avoid the contract;
but if he has restored the status quo, then he should be able to avoid the contract and
recover benefits conferred thereunder.” 225
Time of avoidance
9-048
As earlier explained, in this category of contract a minor may avoid a contract within a reasonable
time after attaining his majority, as well as during his minority. What is a reasonable time after
attaining majority will depend upon the circumstances of each particular case. 226 A minor cannot
plead ignorance of his right to repudiate as an excuse for his failure to exercise that right within a
reasonable time 227 nor even that the property had not yet come into possession, so that there was
nothing certain on which the repudiation could operate. 228
174. Presumably the minor could not affirm and then repudiate the transaction, even if he acted
within a reasonable time. cf. the principle stated in para.9-039, below.
175. (1850) 5 Exch. 114, 123, 124, 127, 128.
176. Cork and Bandon Ry v Cazenove (1847) 10 Q.B. 935; Leeds & Thirsk Ry Co v Fearnley (1849)
4 Exch. 26.
177. (1850) 5 Exch. 114, 123–124.

Page 6
178.
See Mercantile Union Guarantee Corp v Ball [1937] 2 K.B. 498. For criticism see Peel, Treitel
on The Law of Contract, 14th edn (2015), paras 12–025—12–026.
179. Maddon v White (1787) 2 Term R. 159.
180. Ketsey’s Case (1614) Cro. Jac. 320; Brownlow 120 (Kirton v Elliott, 2 Bulst. 69).
181. North Western Ry Co v M’Michael (1850) 5 Exch. 114, 128.
182. Davies v Beynon-Harris (1931) 47 T.L.R. 424.
183. Blake v Concannon (1870) 4 Ir. Rep. C.L. 323; Kelly v Coote (1856) 5 Ir. C.L.R. 469.
184. Blake v Concannon (1870) 4 Ir. Rep. C.L.
185. Holmes v Blogg (1818) 8 Taunt. 508.
186. Thurston v Nottingham Permanent Benefit Building Society [1902] 1 Ch. 1, 9, affirmed [1903]
A.C. 6; Whittingham v Murdy (1889) 60 L.T. 956.
187. Steinberg v Scala (Leeds) Ltd [1923] 2 Ch. 452, a case dealing with the purchase of shares.
188. Law of Property Act 1925 s.1(6).
189. Settled Land Act 1925 ss.19, 20.
190. Law of Property Act 1925 s.19; Settled Land Act 1925 s.27(1); Kingston upon Thames BC v
Prince [1999] 1 F.L.R. 593.
191. Law of Property Act 1925 s.19; Settled Land Act 1925 ss.26, 27.
192. Trusts of Land and Appointment of Trustees Act 1996 s.25(2), Sch.4 repealing Law of Property
Act 1925 s.19; Settled Land Act 1925 s.27.
193. Trusts of Land and Appointment of Trustees Act 1996 s.2, Sch.1 para.1(1), (3). The Act came
into force on January 1, 1997: Trusts of Land and Appointment of Trustees Act 1996
(Commencement) Order 1996 (SI 1996/2974).
194. Davies v Beynon-Harris (1931) 47 T.R.R. 424.
195. Alexander-David v Hammersmith and Fulham LBC [2009] EWCA Civ 259, [2010] 2 Ch. 272.
196. Alexander-David v Hammersmith and Fulham LBC [2009] EWCA Civ 259 at [31].
197. Alexander-David v Hammersmith and Fulham LBC [2009] EWCA Civ 259 at [35], per Waller
L.J. (with whom Scott Baker and Sullivan L.JJ. agreed).
198. [2009] EWCA Civ 259 at [37] and [38].
199. [1999] 1 F.L.R. 593.
200. [1999] 1 F.L.R. 593, 600 so interpreting Housing Act 1995 s.89.
201. [1999] 1 F.L.R. 593, 601.
202. [1999] 1 F.L.R. 593, 600, so interpreting Housing Act 1995 s.90. See also Alexander-David v
Hammersmith and Fulham LBC [2009] EWCA Civ 259 at [22].
203. [1999] 1 F.L.R. 593, 596, citing Portman Registrars v Mohammed Latif [1987] 6 C.L. 217
Page 7
(Willesden County Court).
204. Burnaby v Equitable Revisionary Interest Society (1885) 28 Ch. D. 416; Cooper v Cooper
(1888) 13 App. Cas. 88; Duncan v Dixon (1890) 44 Ch. D. 211; Edwards v Carter [1893] A.C.
360. Kingsman v Kingsman (1880) 6 Q.B.D. 122, which appears to suggest that such a contract
is void rather than voidable, can no longer be relied on.
205. Codrington v Codrington (1875) L.R. 7 H.L. 854; Hamilton v Hamilton [1892] 1 Ch. 396. cf. Re
Vardon’s Trusts (1885) 31 Ch. D. 275 as to which see Re Hargrove [1915] 1 Ch. 398.
206. Hamilton v Hamilton [1892] 1 Ch. 396; Carter v Silber [1891] 3 Ch. 553.
207. s.79.
208. Seymour v Royal Naval School [1910] 1 Ch. 806.
209. Newry and Enniskillen Ry Co v Coombe (1849) 3 Exch. 565; North Western Ry Co v M’Michael
(1850) 5 Exch. 114; Hamilton v Vaughan-Sherrin Electrical Engineering Co [1894] 3 Ch. 589;
Re Alexandra Park Co (1868) L.R. 6 Eq. 512.
210. Leeds & Thirsk Ry v Fearnley (1849) 4 Exch. 26; Birkenhead, etc., Ry v Pilcher (1850) 5 Exch.
121; North Western Ry Co v M’Michael (1850) 5 Exch. 114; Dublin and Wicklow Ry v Black
(1852) 8 Exch. 181. Unless perhaps he has derived no advantage from the shares and is still a
minor: Newry and Enniskillen Ry v Coombe (1849) 3 Exch. 565.
211. Cork and Bandon Ry Co v Cazenove (1847) 10 Q.B. 935; Dublin and Wicklow Ry Co v Black
(1852) 8 Exch. 181.
212. Gooch’s Case (1872) L.R. 8 Ch. App. 266; Capper’s Case (1868) L.R. 3 Ch. App. 458; Merry v
Nickalls (1872) L.R. 7 Ch. App. 733; Lumsden’s Case (1868) L.R. 4 Ch. App. 31; Curtis’s Case
(1868) L.R. 6 Eq. 455; Re Crenver and Wheal Abraham United Mining Co (1872) L.R. 8 Ch.
App. 45.
213. Steinberg v Scala (Leeds) Ltd [1923] 2 Ch. 452, a case of allotment and not purchase in the
market; and see Capper’s Case (1868) L.R. 3 Ch. App. 458, 461.
214. Steinberg v Scala (Leeds) Ltd [1923] 2 Ch. 452, 458. cf. Hamilton v Vaughan-Sherrin Electrical
Engineering Co [1894] 3 Ch. 589. For criticisms of this position, see below, para.9-047 and cf.
below, paras 29-044 et seq. on recovery of money paid under a mistake of law.
215.
Goode v Harrison (1821) 5 B. Ald. 147. Peel, Treitel on The Law of Contract, 14th edn (2015),
para.12–020 n.89 suggests that the same rules appear to apply to the relations between
persons who become members of a limited liability partnership if one or more of them is a
minor, noting that ss.4 and 5 of the Limited Liability Partnerships Act 2000 make no mention of
minority. Such a minor’s liability to contribute to the assets of the partnership would seem to be
governed by the rules governing a minor who subscribes for shares in a company: above,
para.9-045.
216. Lovell & Christmas v Beauchamp [1894] A.C. 607.
217. [1894] A.C. 607.
218. [1894] A.C. 607, 611.
219. Goode v Harrison (1821) 5 B. Ald. 147, 157; see Vol.II, paras 31-055 et seq.
220. Cork & Bandon Ry Co v Cazenove (1847) 10 Q.B. 935. cf. North Western Ry Co v M’Michael
(1850) 5 Exch. 114, 125; Newry and Enniskillen Ry Co v Coombe (1849) 3 Exch. 565.
221. See Burrows, The Law of Restitution, 3rd edn (2012), pp.312–314 (who describes this position
Page 8
as the “unsatisfactory but predominant view in the authorities”): for criticisms, see below.
222. Holmes v Blogg (1818) 8 Taunt. 508; cf. Re Burrows (1856) 8 De G.M. & G. 254.
223. Steinberg v Scala (Leeds) Ltd [1923] 2 Ch. 452. Insofar as Hamilton v Vaughan-Sherrin
Engineering Co [1894] 3 Ch. 589 decides to the contrary, it must be taken to have been
overruled. cf. below, paras 29-044 et seq. on recovery of payments made under a mistake of
law.
224.
Burrows, The Law of Restitution 3rd edn (2012) pp.312–314; Goff and Jones, The Law of
Unjust Enrichment, 9th edn (2016), paras 24-21 et seq.
225.
Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), para.24-21; Burrows, The
Law of Restitution, 3rd edn (2012) p.313.
226. See Carter v Silber [1892] 2 Ch. 278, affirmed sub nom. Edwards v Carter [1893] A.C. 360;
Carnell v Harrison [1916] 1 Ch. 328 (disapproving Re Jones [1893] 2 Ch. 461).
227. Carnell v Harrison [1916] 1 Ch. 328.
228. Edwards v Carter [1893] A.C. 360.

Page 1

(d) - Contracts Unenforceable against a Minor unless Ratified
Contracts not binding until ratified
9-049
The largest class of minor’s contracts are enforceable by the minor, 229 but are not binding upon him
unless he expressly ratifies them upon coming of age. For this purpose:
“… in order to be a ratification there must be a recognition, by the debtor after he attained

his majority, of the debt as a debt binding upon him.” 230
It is in this sense that general propositions as to minors’ incapacity should be understood. Indeed,
were it otherwise, the minor’s incapacity, instead of being an advantage to him might in many cases
turn greatly to his disadvantage. 231 The class includes all contracts other than those for necessaries,
beneficial contracts of employment and contracts for the acquisition of a permanent interest in
property which are valid unless expressly avoided. 232 Thus, a minor may sue but may not be sued
upon an account stated 233 or upon a contract for the sale of goods (other than necessaries) or any
other simple contract. It was also held, for example (before the abolition of actions for breach of
promise of marriage), that a minor could sue an adult for breach of promise of marriage, 234 although
the adult could not sue the minor on such a promise. 235 And a minor can maintain an action for
money had and received against an attorney for damages recovered by his next friend in an action
brought on his behalf. 236 A minor cannot, however, obtain specific performance of a contract because
the remedy would not be mutual, 237 at any rate not unless he has himself performed his side of the
agreement. 238
Examples
9-050
The general rule that a minor’s contracts are not binding on him unless ratified on attaining his
majority has the consequence that a minor is not, at common law, liable on a warranty of goods or
chattels sold by him 239 even where the warranty is fraudulent. 240 Nor is he liable on the custom of the
realm as an innkeeper. 241 He is not bound by an agreement to refer a dispute to arbitration 242; nor by
the recitals in a deed made during infancy 243; nor by a release of a legal claim 244; nor by a contract of
guarantee. 245
Ratification after full age
9-051
Page 2
At common law, the general rule in this class of contract is that if, on attaining his majority, a minor
ratifies a contract made by him during his minority, it will bind him although there may be no
consideration for the new promise. 246 Formerly, this rule was replaced by s.2 of the Infants Relief Act
1874 which provided that debts contracted during infancy were made incapable of becoming binding
by ratification by the minor on majority, unless new consideration for such ratification was provided. 247
This provision itself has been repealed, 248 returning the law relating to ratification to the position at
common law. Ratification after reaching majority may be express or implied from the former minor’s
conduct. 249
230. Rowe v Hopwood (1868–1869) L.R. 4 Q.B. 1, 3, per Cockburn C.J. (decided under the Statute
of Frauds (Amendment) Act 1828 s.5).
231. Warwick v Bruce (1813) 2 M. & s.205; Shannon v Bradstreet (1803) 1 Sch. & Lcf. 52, 58; Re
Smith’s Trusts (1890) 25 L.R. Ir. 439, 443.
232. See above, paras 9-010, 9-036. See also above, para.9-035 as regards settlement or
compromises approved by the court.
233. Williams v Moor (1843) 11 M. & W. 256.
234. Holt v Ward (1732) 2 Str. 937, 939.
235. Hale v Ruthven (1869) 20 L.T. 404.
236. Collins v Brook (1860) 5 H. & N. 700.
237. Flight v Bolland (1828) 4 Russ. 298. By the same token, specific performance cannot be
obtained against an adult who is co-defendant with a minor: Lumley v Ravenscroft [1895] 1
Q.B. 683, commented on in Basma v Weekes [1950] A.C. 441, 456.
238. See below, para.27-051
239. Howlett v Haswell (1814) 4 Camp. 118.
240. Green v Greenbank (1816) 2 Marsh. 485.
241. Williams v Harrison (1691) Carth. 160; 1 Roll.Abr. Action sur Case, D (3).
242. Unless it forms one term of an otherwise beneficial contract of service, etc.: Slade v Metrodent
Ltd [1953] 2 Q.B. 112.
243. Milner v Lord Harewood (1810) 18 Ves. 259, 274; Field v Moore (1854) 7 De G.M. & G. 691.
244. Overton v Bannister (1844) 3 Ha. 503; Mattei v Vautro (1898) 78 L.T. 682. But see CPR
r.21.10(2), above, para.9-035, which enables the court to sanction a compromise by a minor
even where no proceedings are otherwise contemplated, on which see Drinkall v Whitwoord
[2003] EWCA Civ 1547, [2004] 1 W.L.R. 462 applying Dietz v Lennig Chemicals Ltd [1969] 1
Page 3
A.C. 170.
245. Re Davenport [1963] 1 W.L.R. 817.
246. Southerton v Whitlock (1726) 2 Str. 690; Williams v Moor (1843) 11 M. & W. 256, 298.
247. See for its effect the 25th edition of the present work, paras 569-570.
248. Minors’ Contracts Act 1987 s.1.
249. cf. Brown v Harper (1893) 68 L.T. 488.

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(e) - Third Parties and Incapacity
Third parties
9-052
In general, lack of capacity of a minor is a personal privilege and does not prevent the other party
being bound. However, there are circumstances where a third party has taken advantage of the
invalidity of a minor’s contract. Thus, for example, in one case an impresario employed an infant who
had entered an unreasonable deed of apprenticeship with the plaintiff. The latter’s action against the
impresario for enticement was rejected by the court as the contract of apprenticeship was invalid as
between its parties. 250 Similarly, where a minor has entered a contract which is not binding on him
then a third party who induces him to enter another contract in circumstances which (putting aside the
issue of minority) would constitute breach of contract is not liable in the tort of inducing breach of
contract. 251 Another example used to be found in the liability of the guarantor of an infant’s debts. By
s.1 of the Infants Relief Act 1874, a loan to an infant was made absolutely void and there was
authority that this meant that any guarantors of the loan were not bound by their guarantee. 252
However, s.2 of the Minors’ Contracts Act 1987 expressly 253 provides that where a guarantee is given
in respect of an obligation of a party to a contract made after its commencement and that obligation is
unenforceable against him (or he repudiates the contract) on the grounds of minority, then the
guarantee is not unenforceable for that reason alone. 254 The extent to which a minor may give title to
property, which may have consequences for third parties, is discussed below. 255
250. De Francesco v Barnum (1890) 45 Ch. D. 430, 438 and 443.
251. Proform Sports Management Ltd v Proactive Sports Management Ltd [2006] EWHC 2903 (Ch),
[2007] Bus. L.R. 93 at [33].
252. Coutts & Co v Browne-Lecky [1947] K.B. 104.
253. As s.1 of the Minors’ Contracts Act 1987 repeals s.1 of the 1874 Act, it would otherwise have
been arguable that a guarantor of an unenforceable (as opposed to a void) loan should be
liable.
254. See also s.113(7) of the Consumer Credit Act 1974, as amended by the Minors’ Contracts Act
Page 2
1987 s.4.
255. See below, paras 9-072—9-074.

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(f) - Liability of Minor in Tort and Contract
Liability for tort
9-053
In principle, minors are liable for the torts which they commit, 256 though the incidence of liability in tort
may be affected by their age. 257 However, if the claim in tort arises out of a contract upon which the
minor is not liable, the claimant may not treat the breach of that contract as a tort and sue
accordingly:
“If one delivers goods to an infant on a contract, knowing him to be a minor, he shall not
be charged for them in trover or conversion.” 258
Therefore, where a minor, having hired a horse, injured it by riding it too hard, it was held that he was
not liable in an action for the tort, 259 and where a minor obtained a loan by falsely misrepresenting his
age he could not be made liable in damages for deceit. 260 In Fawcett v Smethurst 261 a minor hired a
car to fetch his bag from the station six miles away. He met a friend with whom he drove on further.
The car caught fire and was damaged on the extra journey without the negligence of the minor. It was
held that he was not liable in tort, as the extra journey did not take his actions outside the scope of the
contract, nor in contract, as the hiring did not render him liable for loss arising without fault on his part.
Although the hiring itself might have been necessary, the contract would not have been binding on
him had its effect been to render him liable without fault.
Torts independent of the contract
9-054
On the other hand, if the tort may properly be considered as arising independently of the contract
or outside its ambit altogether, the minor can be made liable. So a minor who hired a mare “merely for
a ride” and was warned at the hiring that she was unfit for jumping, having lent her to a friend who
killed her by that act, was held to be guilty of a bare trespass, not within the object of the hiring, and to
be consequently liable. 262 A minor who embezzled money belonging to his employer was held liable
in an action for money had and received because he would have been liable in trover 263; and one
who hired a microphone and improperly parted with it to a friend was held liable in an action of
detinue. 264 It is generally assumed that a minor who buys non-necessary goods cannot be sued in
conversion even where he fails to pay the price and keeps the goods. 265 But it has been held that
a bailee underage who refuses to return goods delivered to him by the bailor may be sued in detinue,
266
and that non-necessary goods sold to a minor can be recovered, when he refuses to pay for them,
though the minor is not liable to damages for conversion. 267 It is more likely, however, that a court will
exercise its discretion under s.3 of the Minors’ Contracts Act 1987 to require a minor to transfer to the
Page 2
claimant any property acquired by the defendant under the contract, or any property representing it.
268
256. Bristow v Eastman (1794) 1 Esp. 172; Defries v Davis (1835) 1 Scott 594. cf. above,
para.1-192.
257. e.g. in the tort of negligence the standard of care varies according to the age of a child
defendant: McHale v Watson [1966] A.L.R. 513; Mullin v Richards [1998] 1 W.L.R. 1304 and cf.
Gough v Thorne [1966] 3 All E.R. 398 (defence of contributory negligence).
258. Manby v Scott (1659) 1 Sid. 109, 129; cf. R. v McDonald (1885) 15 Q.B.D. 323, 327.
259. Jennings v Rundall (1799) 8 Term R. 335.
260. Johnson v Pye (1665) 1 Sid. 258; Stikeman v Dawson (1847) 1 De G. & Sm. 90; R. Leslie Ltd v
Sheill [1914] 3 K.B. 607, 612.
261. (1915) 84 L.J.K.B. 473.
262. Burnard v Haggis (1863) 14 C.B.(N.S.) 45. See also Walley v Holt (1876) 35 L.T. 631.
263. Bristow v Eastman (1794) 1 Esp. 172; Re Seager (1889) 60 L.T. 665. cf. Cowern v Nield [1912]
2 K.B. 419.
264. Ballett v Mingay [1943] K.B. 281.
265.
Atiyah (1959) 22 M.L.R. 273, 281. The view that the minor is not liable is supported by the
generally accepted opinion that property in non-necessary goods may pass to the minor: Stocks
v Wilson [1913] 2 K.B. 235, 246 and see Peel, Treitel on The Law of Contract, 14th edn (2015),
para.12–031. cf. Minors’ Contracts Act 1987 s.3(1) which refers to “property acquired” by the
minor and to the power of the court to order him to “transfer” such property.
266. Mills v Graham (1804) 1 B. & P.N.R. 140 (minor refusing to return skins delivered for finishing).
Detinue was abolished by s.2(1) of the Torts (Interference with Goods) Act 1977, and replaced
by liability in conversion. See also R. v McDonald (1885) 15 Q.B.D. 323; Robinson’s Motor
Vehicles Ltd v Graham [1956] N.Z.L.R. 545.
267. Re Henderson (1916) 12 Tas. L.R. 40; cf. Hall v Wells [1962] Tas. S.R. 122, 128–129.

Page 1

(g) - Liability of Minor to Make Restitution
Generally
9-055
In general a minor cannot be sued on his contracts, but this rule leaves open the question whether he
may be made to make restitution to the other party for benefits conferred on him under the contract.
Such benefits may consist of the receipt of money, goods, interests in land or services. Common law,
equity and statute have different answers to this question of a minor’s liability in restitution. 269
At common law
9-056
The common law rule is that a minor is not liable to restore benefits conferred on him under a
contract which is unenforceable against him, even if the contract results from his fraudulent
misrepresentation of majority. 270 Despite this rule, however, three possible routes may exist to
recovery. The first route is for the other contracting party to rely on an independent tort which the
minor has committed, for example, conversion or deceit, damages for which may compensate him for
the loss which he has suffered by the minor’s retention of the benefit, even though this may not
always be the same as the minor’s gain. 271 The second route is for the other contracting party to find
such an independent tort, “waive” it and sue for any money had and received in respect of property
conferred on the minor. 272 The third possible route to recovery at common law would be to claim
restitution of money paid under an unenforceable contract to a minor based on a total failure of
consideration, but this route has been rejected by the courts. 273 It has, however, been argued that, for
the purposes of a claim at common law against a minor based on unjust enrichment, a distinction
should be drawn between the repayment of benefits which they still have at the time of the claim
(which should be recoverable) and claims for the value of benefits which are gone at the time of the
claim (which should not be). 274 Similar considerations apply to the denial of claims for the value of
non-necessary goods and services supplied to a minor who has failed to pay the contractual price; for
holding a minor even to a reasonable price would undermine his protection. Thus in Lemprière v
Lange, for example, a lease which a minor had taken was set aside and possession by him given up,
but the court refused to award a sum to the lessor as damages for use and occupation of the land on
the ground that the two remedies were incompatible. 275
In equity
9-057
It is no answer at law to a plea of incapacity based on lack of age that the defendant at the time of
entering into the contract fraudulently represented himself to be of full age, and that the other party
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believing this representation and on the faith of it contracted with him 276 nor did these facts before the
Judicature Act form the subject of a good replication on equitable grounds to a plea of infancy. 277 But
in certain cases equity will grant relief against the minor, not on the ground of enforcing the contract,
or recovering the debt, but of an equitable liability resulting from the fraud. He will be compelled to
restore his illgotten gains, or to release the party deceived from obligations or acts in law induced by
the fraud. 278 This obligation is, however, strictly limited in extent.
Restoration of gains 279
9-058
If a minor has obtained property by fraudulently misrepresenting his age, 280 he can be compelled
to restore it; if he has obtained money, he can be compelled to refund it. 281 This remedy is an
equitable one and arises quite independently of the contract. 282 It lasts, however, only so long as the
minor retains the property or money or, perhaps, the proceeds of the property or money. If he has
sold the goods or spent the money, he cannot be compelled through a personal judgment to pay an
equivalent sum out of his present or future resources, for this would be nothing but enforcing an
unenforceable contract 283; “[r]estitution stopped where repayment began”. 284 In Stocks v Wilson, 285
however, a minor who had obtained non-necessary goods by fraudulently misrepresenting his age
was held bound to account for the proceeds of their sale. This decision was criticised, although not
expressly overruled by the Court of Appeal in R. Leslie Ltd v Sheill. 286 Sir Frederick Pollock 287
considered the decision to be correct on the principle of following the property (i.e. as represented by
the money) and not otherwise. His view is supported by other textbook writers 288 and it is
suggested that a fraudulent misrepresentation of full age by a minor will allow the person deceived to
trace his property in equity by an action in rem similar to that possessed by a beneficiary in respect of
trust property. 289
“Bankruptcy debt”
9-059
Under the Insolvency Act 1986 s.382, a "bankruptcy debt" means any debt or liability to which a
bankrupt is subject either at the commencement of the bankruptcy or to which he may become
subject after the bankruptcy by reason of any obligation incurred before the commencement of the
bankruptcy and for this purpose “liability” includes “a liability to pay money, … any liability in contract
… and any liability arising out of an obligation to make restitution”. 290 Thus, while a person who has
loaned money to a minor may not prove this as a debt in the latter’s bankruptcy, there being no
enforceable liability against the minor, 291 if that person was induced to make the loan by the minor’s
fraudulent misrepresentation of age, then any equitable liability in the minor arising from the fraud
may be proved as a “bankruptcy debt”. 292
Release from obligations
9-060
A party who has been induced to enter into an obligation or to perform some act in law by the
fraudulent misrepresentation of a minor that he is of full age will be released from that obligation and
restored, where possible, to his former position. In Clarke v Cobley 293 the defendant, a minor, by such
a misrepresentation, induced the plaintiff to accept a bond for the amount of two promissory notes
drawn by the defendant’s wife before her marriage. The plaintiff accordingly gave up the notes. When
the plaintiff discovered the fact of the defendant’s incapacity he filed a bill after the defendant had
attained majority, praying that the defendant might be ordered to execute a fresh bond, or to pay the
money secured, or deliver back the notes to him. The court ordered this last and also that the
defendant should not plead limitation to any action brought upon them or set up any other plea open
to him when the bond was executed, but refused to decree payment of the money, holding that the
Page 3
court could do no more than see that the parties were restored to the same situation in which they
were at the date of the bond. And where a minor obtained a lease by fraudulently misrepresenting
that he was of full age, the court set it aside and ordered him to give up possession and to pay his
costs. 294
Minors’ Contracts Act 1987 s.3
9-061
The most important means by which a minor may be ordered to make restitution of benefits obtained
under a contract unenforceable against him is found in s.3 of the Minors’ Contracts Act 1987, which
provides that:
“… the court may, if it is just and equitable to do so, require the defendant [minor] to
transfer to the plaintiff [other contracting party] any property acquired by the defendant
under the contract, or any property representing it.”
This provision gives a considerable discretion to the court to order restitution of property acquired by
a minor under a contract, unless it is one for necessaries and therefore binding on him. 295 It is wider
than the equitable remedy already described which is only available where fraud on the part of the
minor is established. 296
“Property”
9-062
Only property acquired by a minor under the contract is included: thus any property acquired by
way of inducement to enter the contract falls outside the section. “Property” itself is not defined by the
Act. Clearly, it includes chattels and it is submitted that it should be taken to include interests in land
to the extent that a minor is permitted by law to hold them. 297 More difficult is the question whether
“property” includes money. Although there is some authority in the context of the equitable relief
against fraud for recovery of money representing the proceeds of sale of goods transferred, 298 this
was subject to criticism. 299 The better view, it is submitted, is that money should be included within
the statutory definition of property. 300 The concern to prevent indirect enforcement of a minor’s
contract which led to the refusal of recovery of monies in equity as at common law may be fully taken
into account as a factor in the discretion which s.3 confers.
“Any property representing it”
9-063
This phrase gives the court power to order the transfer, not only of property acquired by a minor,
but also the product of its exchange, and, assuming money is included within the provision, 301 its
proceeds on sale. 302 This will give rise to a process of statutory tracing, for which cases at
common law and in equity may, though in different contexts, serve as illustrations. 303 However, it has
been suggested that certain difficulties encountered in these cases, for example the identification of
the exchange product of proceeds in a mixed fund, may go to the discretion of the court to make an
award under s.3. 304 For example, if a minor has sold non-necessary goods acquired under a contract
of sale and placed the money in a bank account together with other monies, the court should hesitate
to apply the rules as to tracing of money through accounts in equity which were constructed for and
are appropriate to the context of trustees or fiduciaries. 305 In the minor’s context, the effect of the
award should not be, or even, perhaps, risk being, the payment out of his present or future resources
of a sum equivalent to that owed under a contractual obligation.
Page 4
Discretion
9-064
It is submitted that a court should look in deciding whether to make an order under s.3 at the general
fairness of the contract which the minor has made. In particular, if the other contracting party took
advantage of the minor’s inexperience or tricked him, then the latter should not be held liable to
restore property acquired. Clearly, the question whether a minor appears or does not appear to be of
full capacity, even in the absence of misrepresentation as to full age, will be relevant to the exercise
of the discretion. The most important issue in this exercise will be the balance between the need to
preserve the minor’s protection which is the basis of his contractual incapacity and the interests of the
other contracting party in recovery of benefits conferred by him on the minor.
269. See Goff and Jones, The Law of Unjust Enrichment, 8th edn (2011), paras 34–11 et seq.;
Burrows, The Law of Restitution, 3rd edn (2012) pp.700–702.
270. Johnson v Pye (1665) 1 Sid. 258; Liverpool Adelphi Loan Association v Fairhurst (1854) 9
Exch. 422.
271. See above, paras 9-053—9-054.
272. Bristow v Eastman (1794) 1 Esp. 172 and see Goff and Jones, The Law of Unjust Enrichment,
8th edn (2011), para.34–13.
273. Cowern v Nield [1912] 2 K.B. 491; R. Leslie Ltd v Sheill [1914] 3 K.B. 607. cf. Thavorn v Bank
of Credit & Commerce International SA [1985] 1 Lloyd’s Rep. 259 (where it was held that a
minor was not liable to make restitution for monies received under a mistake of fact).
274.
Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), paras 34-16–34-17.
275. (1879) 12 Ch. D. 675 and see below, para.9-060.
276. Johnson v Pye (1665) 1 Sid. 258; Liverpool Adelphi Loan Association v Fairhurst (1854) 9
Exch. 422, 430; Inman v Inman (1873) L.R. 15 Eq. 260; Levene v Brougham (1909) 25 T.L.R.
265 (no estoppel).
277. Bartlett v Wells (1862) 1 B. & S. 836; De Roo v Foster (1862) 12 C.B.(N.S.) 272.
278. See Atiyah (1959) 22 M.L.R. 273.
279. See generally Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), paras
34-18–34-29 et seq. and below, Ch.29.
280. The representation must be explicit and not inferential: Stikeman v Dawson (1847) 1 De G. &
Sm. 90; Maclean v Dummett (1869) 22 L.T. 710; Re Jones Ex p. Jones (1881) 18 Ch. D. 109,
120–121. See also Nelson v Stocker (1859) 4 De G. & J. 458.

Page 5
282. Re King Ex p. Unity Joint Stock Mutual Banking Association (1858) 3 De G. & J. 63; Re Jones
Ex p. Jones (1881) 18 Ch. D. 109; Stocks v Wilson [1913] 2 K.B. 235.
283. R. Leslie Ltd v Sheill [1914] 3 K.B. 607, 618.
284. [1914] 3 K.B. 607, 618, per Lord Sumner.
285. [1913] 2 K.B. 235, 247.
286. [1914] 3 K.B. 607.
287. Pollock, Principles of Contract, 13th edn (1950), p.64.
288.
Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2016) pp.263–264;
Peel, Treitel on The Law of Contract, 14th edn (2015) para.12–046. cf. Burrows, The Law of
Restitution, 3rd edn (2012), pp.701–702; Furmston, Cheshire, Fifoot and Furmston’s Law of
Contract, 15th edn (2007), pp.563–565.
289.
cf. Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), paras 34-29 who argue for
a distinction between allowing recovery where the minor still has the value received at the time
of the claim and denying it where he does not; Atiyah (1959) 22 M.L.R. 273. See below, paras
29-166 et seq.
290. Insolvency Act 1986 s.382(4).
291. Re Jones Ex p. Jones (1881) 18 Ch. D. 109 (decided under the old law). For the position as to
loans for necessaries, see above, para.9-023.
292. Re King Ex p. Unity Joint-Stock Mutual Banking Association (1858) 3 De G. & J. 63; Stocks v
Wilson [1913] 2 K.B. 235, 246 and see above, paras 9-057—9-058.
293. (1789) 2 Cox. 173 (fraud must be presumed though not appearing specifically in the report).
294. Lemprière v Lange (1879) 12 Ch. D. 675. A claim by the lessor for damages for use and
occupation was held inconsistent with this relief and dismissed. See also Cory v Gertcken
(1816) 2 Madd. 40; Overton v Banister (1844) 3 Ha. 503; Woolf v Woolf [1899] 1 Ch. 343.
299. R. Leslie Ltd v Sheill [1914] 3 K.B. 607.
300.
Peel, Treitel on The Law of Contract, 14th edn (2015) para.12–041.
302.
It has been suggested that the courts should to take a wider view of s.3(1), and be prepared
to exercise their statutory discretion to allow claims against minors whose overall wealth is still
swollen by value received by the claimant: Goff and Jones, The Law of Unjust Enrichment, 9th
edn (2016), para.34-31.

Page 6
304. Treitel at para.12-042.
305. Burrows, Law of Restitution, 7th edn (2007) at pp.88 et seq.

Page 1

(h) - Agency and Membership of Societies
Minor as principal
9-065
A minor cannot execute a valid power of attorney, 306 but he is bound by a contract made by his agent
with his authority, where the circumstances are such that he would have been bound if he had himself
made the contract. 307 A minor may validly appoint an agent where he earns his living in a manner
which necessitates this. 308 And it seems that if a minor authorises an agent to purchase necessaries
for him, and the agent pays for them, the minor can be compelled to reimburse the agent. 309
Minor as agent
9-066
310
A minor can act as agent or as the donee of a power of attorney but is not personally liable on the
contracts entered into on behalf of his principal. 311
Membership of societies
9-067
Subject to certain conditions, a minor may become an associate of a friendly society, 312 or a member
of a registered co-operative or community benefit society, 313 a trade union, 314 or a building society. 315
306. Zouch v Parsons (1765) 3 Burr. 1794; Olliver v Woodroffe (1839) 4 M. & W. 650; Doe d.
Thomas v Roberts (1847) 16 M. & W. 778, 780. An act done by an agent under a void power of
attorney is itself void.
307. See Vol.II, para.31-038; Megarry (1953) 69 L.Q.R. 446; Webb (1955) 18 M.L.R. 461. cf.
Shepherd v Cartwright [1953] Ch. 728, 755, and see G.(A.) v G.(T.) [1970] 3 All E.R. 546, 549.
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308. Denmark Productions Ltd v Boscobel Productions Ltd (1967) 111 S.J. 715.
310. Watkins v Vince (1818) 2 Stark 368; Re D’Angibau (1880) 15 Ch. D. 228, 246.
311. Smally v Smally (1700) 1 Eq. Cas. Abr. 283.
312. Friendly Societies Act 1992 s.119A(1)(a).
313. Co-operative and Community Benefit Societies Act 2014 s.31. The 2014 Act provides that
societies registered for the purposes of the 2014 Act consist of those registered under its own
provisions (which provide for the registration of co-operative societies and community benefit
societies) and of societies already registered under the Industrial and Provident Societies Act
1965 s.20: ss.1 and 2.
314. Explicit provision to this effect was formerly found in the Trade Union Act Amendment Act 1876
s.9 but this Act was repealed by the Industrial Relations Act 1971 and the right of a minor to be
a member of a trade union seems now to depend on inference. cf. Trade Union and Labour
Relations (Consolidation) Act 1992 s.174.
315. Building Societies Act 1986 Sch.2 para.5(3), as amended by the Building Societies Act 1997
s.2(2)(b).

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(i) - Liability of Parent or Guardian
Parent not liable for minor’s debts
9-068
A parent may be ordered to provide financial relief for the benefit of his or her child, 316 but apart from
agency 317 or personal contract, he is no more liable to pay a debt contracted by the child with a third
party (even for necessaries) than a mere stranger would be. 318 The same principles apply in the case
of a guardian and ward.
316. Children Act 1989 s.15(1), Sch.1 para.1. See also Social Security Administration Act 1992
ss.105–106.
317. e.g. where a parent expressly or impliedly authorises the minor to contract on his behalf or
where his wife or some other person, such as his servant, has authority to pledge his credit:
Cooper v Phillips (1831) 4 C. & P. 581; Bazeley v Forder (1868) L.R. 3 Q.B. 559; Collins v Cory
(1901) 17 T.L.R. 242. cf. Fluck v Tollemache (1823) 1 C. & P. 5; Urmston v Newcomen (1836)
4 A. & E. 899; Ruttinger v Temple (1863) 4 B. & s.491.
318. Fluck v Tollemache (1823) 1 C. & P. 5; Shelton v Springett (1851) 11 C.B. 452; Mortimore v
Wright (1840) 6 M. & W. 482. cf. Hesketh v Gowing (1804) 5 Esp. 131; Gore v Hawsey (1862) 3
F. & F. 509 (illegitimate children recognised by father); Greenspan v Slate (1953) 97 A. 2d. 390
(parent liable for cost of emergency medical treatment to child though he had refused to
authorise it).

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(j) - Procedure in Actions
Procedure
9-069
Formerly, under the Rules of the Supreme Court and the County Court Rules, a minor sued by his
next friend and defended by his guardian ad litem. 319 However, since the coming into effect of the
Civil Procedure Rules 1998, proceedings involving minors (termed by these rules, “children”) are
governed by a uniform set of rules 320 under which “a child must have a litigation friend to conduct
proceedings on his behalf” unless the court otherwise orders, and the former distinction between next
friends and guardians ad litem is therefore no longer drawn. 321 Under these rules, special provision is
made for the assessment of costs of proceedings where the claimant is a child and where money is
ordered to be paid to him or for his benefit or where money is ordered to be paid by him or on his
behalf. 322 As earlier noted, the CPR makes special provision for the approval by the court of
settlements or compromises made by a minor. 323
Joint obligations
9-070
Where one of two joint contracting parties is a minor whose promise is voidable or unenforceable
against him, there is no need to join him as a party to the action and the action may be maintained
against the adult only; but if both are sued and the minor relies on his lack of capacity, a claimant may
still recover against the adult defendant. 324 Moreover, in contrast with the position at common law, 325
since 1987 where a contract is entered by a minor and the latter’s obligations are guaranteed by an
adult, the unenforceability of those obligations against the minor shall not alone render the guarantee
unenforceable. 326
Defence of minority
9-071
Under the Civil Procedure Rules, where a defendant denies an allegation in the claimant’s particulars
of claim, he must state his reasons for doing so 327 and so a child who intends to rely on a defence of
minority to a claim for the enforcement of a contract should make this clear in the defence which he
files.
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319. RSC Ord.80 rr.1 and 2; CCR Ord.10 r.1.
320. CPR Pt 21 which also governs litigation involving “protected parties”, i.e. “a party, or an
intended party, who lacks capacity to conduct the proceedings”. cf. below, para.9-097.
321. CPR r.21.1(2).
322. CPR r.46(4) (formerly r.48.5).
323. CPR r.21(10), above para.9-035.
324. See, e.g. Burgess v Merrill (1812) 4 Taunt. 468; Gillow v Lillie (1835) 1 Scott 597; Lovell &
Christmas v Beauchamp [1894] A.C. 607; Wauthier v Wilson (1912) 28 T.L.R. 239. See below,
para.17-005.
325. Coutts v Browne-Lecky [1947] K.B. 104.
326. Minors’ Contract Act 1987 s.2(1) and see Vol.II, para.45-040.
327. CPR r.16.5.

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(k) - Disposition of Property by Minors
Disposition of property by delivery
9-072
A minor can clearly dispose of property under a contract which is binding on him, but there are also
cases in which a minor can effectively dispose of property belonging to him under a contract which is
not binding on him. So, for instance, it has been held that a gift of a chattel by a minor is irrevocable
after delivery. 328 And money paid by a minor under a contract which is voidable or unenforceable
against him cannot be recovered by him unless there is a total failure of consideration, 329 although if
the minor paid it under a mistake as to the voidable nature or unenforceability of the contract, he may
be able to recover it on the basis of this mistake of law. 330
Disposition of property by grant
9-073
A disposition of property not accompanied by delivery is, in general, ineffective against a minor. 331
So, for instance, an assignment of an interest in a trust fund by way of security (at least if it is
intended to secure an unenforceable obligation) is, it seems, ineffective to pass any interest as
against a grantor who is a minor. 332 And a mortgage granted by a minor to secure an unenforceable
loan is itself unenforceable. 333 On the other hand, in Chaplin v Leslie Frewin (Publishers) Ltd, 334 it
was held that a contract whereby a minor assigned the copyright in a written work to a publisher was
effective to pass the copyright and that even if the contract was voidable the minor could not revoke
the contract so as to restore the copyright to himself. 335
Dispositions relating to land
9-074
A minor cannot grant a legal estate in land. But a minor may convey an equitable interest in land,
whether by way of outright sale or by way of lease only. So long as the transfer is executory only it
seems that the minor would not be bound by it, 336 but the position may be different after the grantee
has gone into possession.
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328. Taylor v Johnston (1882) 19 Ch. D. 603, 608 and see Pearce v Brain [1929] 2 K.B. 310 (where
it was held that a minor who delivers a chattel belonging to him under a contract “absolutely
void” under s.1 of the Infants’ Relief Act 1874 cannot recover it unless there has been a total
failure of consideration). cf. Halsbury’s Laws of England, 4th edn, Vol.20, para.10 and see
G.(A.) v G.(T.) [1970] 3 All E.R. 546, 549.
329. Wilson v Kearse (1800) Peake Add. Cas. 196; Corpe v Overton (1833) 10 Bing. 252, 259; Re
Burrows (1856) 8 De G.M. & G. 254, 256; Valentini v Canali (1889) 24 Q.B.D. 166; Steinberg v
Scala (Leeds) Ltd [1923] 2 Ch. 452.
330. cf. Kleinwort Benson v Lincoln City Council [1998] 3 W.L.R. 1095, on which see below, paras
29-044 et seq.
331. Zouch v Parsons (1765) 3 Burr. 1794, 1807, 1808; Fisher v Brooker [2009] UKHL 41, [2009] 1
W.L.R. 1772 at [22], [25]–[26].
332. Inman v Inman (1873) 15 Eq. 260. See also Martin v Gale (1876) 4 Ch. D. 428.
333. Nottingham Permanent Benefit Building Society v Thurston [1903] A.C. 6, which was decided
under the Infants’ Relief Act 1874 and held that a mortgage to secure a void loan was itself
void.
334. [1966] Ch. 71. There are dicta in this case (at 94) which appear to suggest that a minor can
never, by repudiating a voidable contract, recover property which has passed to the other party.
This may be true (at least if there is no total failure of consideration) where the contract is
voidable in the normal sense of the word, but it is doubtful if this is correct where the contract is
void as against the minor, rather than voidable. cf. at 96.
335. cf. Fisher v Brooker [2009] UKHL 41, [2009] 1 W.L.R. 1764 at [26], Baroness Hale of Richmond
commenting that “the effect of even a contractual assignment of copyright by a minor is, to say
the least, controversial” and explaining the majority decision in Chaplin v Leslie Frewin
(Publishers) Ltd as resting on the proposition that “at least if copyright were effectively assigned
as part of a beneficial contract to supply services, then it was binding upon the infant and could
not be avoided”.
336. Zouch v Parsons (1765) 3 Burr. 1794.

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Section 3. - Persons Lacking Mental Capacity
(a) - The Rule in Imperial Loan Co Ltd v Stone 337
(i) - The Requirement of Knowledge of a Party’s Mental Incapacity
Background
9-075
The older English treatment of the validity of contracts made by lunatics 338 was uncertain: Bracton
followed Roman law in holding that such contracts were void, 339 but later writers and courts qualified
this position by holding that “no man could be allowed to stultify himself, and avoid his acts, on the
ground of his being non compos mentis.” 340 However, putting aside the special treatment of a
mentally incapable person’s liability for necessaries, 341 the modern general approach was set out
fairly clearly in Molton v Camraux in 1848–1849, Pollock C.B. stating that:
“unsoundness of mind (as also intoxication) would now be a good defence to an action
upon a contract, if it could be shewn that the defendant was not of capacity to contract,
and the plaintiff knew it.” 342
On appeal, the Exchequer Chamber agreed with this rule, considering that a contract made a person
of unsound mind, but who appeared to be of sound mind, is valid as long as the incompetence was
not known to the other party. 343
Imperial Loan Co Ltd v Stone
9-076
This position was confirmed by the Court of Appeal in what became the leading English authority,
Imperial Loan Co Ltd v Stone 344 where Lord Esher M.R. said:
“When a person enters into a contract, and afterwards alleges that he was so insane at
the time that he did not know what he was doing, and proves the allegation, the contract
is as binding on him in every respect, whether it is executory or executed, as if he had
been sane when he made it, unless he can prove further that the person with whom he
contracted knew him to be so insane as not to be capable of understanding what he was
about.”
The Court of Appeal in Imperial Loan Co Ltd therefore held that in general a contract made by a
mentally incapable person is valid unless he or she establishes both that he was mentally incapable
at the time and that the other party was aware of this, the burden of proof on both issues lying on the
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person so claiming. 345 It will be seen that the common law position governing mental incapacity
therefore differs very considerably from the position governing minors’ incapacity, where the general
rule is that a contract made by a minor is voidable at his or her option, without any requirement of
knowledge of the minor’s lack of age by the other contracting party. 346 This difference is sometimes
explained on the basis that mental incapacity is harder to detect than minority because it is a matter
of medical opinion rather than an objectively verifiable fact, 347 but a minor’s age may be equally
undetectable as a person’s mental incapacity where the other contracting party deals at a distance,
by post, email or the internet.
No special equitable ground of avoidance based on “unfairness”
9-077
Moreover, in Hart v O’Connor 348 the Privy Council rejected the New Zealand Court of Appeal’s view
that references in Imperial Loan Co Ltd and other authorities to a contract made by a mentally
incapable person as being voidable on the ground of “unfairness” reflected a distinct ground of
equitable relief special to the context, 349 holding that they instead referred to cases where “the
conscience of the plaintiff was in some way affected”, that is to cases of:
“actual fraud (which the courts of common law would equally have remedied) or
constructive fraud, i.e. conduct which falls below the standards demanded by equity,
traditionally considered under its more common manifestations of undue influence, abuse
of confidence, unconscionable bargains and frauds on a power.” 350
As a result:
“the validity of a contract entered into by a lunatic who is ostensibly sane is to be judged
by the same standards as a contract by a person of sound mind, and is not voidable by
the lunatic or his representatives by reason of ‘unfairness’ unless such unfairness
amounts to equitable fraud which would have enabled the complaining party to avoid the
contract even if he had been sane.” 351
These more widely applicable doctrines have been discussed earlier. 352
337. So described by the Supreme Court in Dunhill v Burgin [2014] UKSC 18, [2014] 1 W.L.R. 933 at
[1] per Baroness Hale DPSC.
338. The terminology used by English lawyers to refer to persons suffering from a mental incapacity
has changed significantly, earlier cases referring to “lunatics”, cases decided while the Mental
Health Act 1983 was in force referring to “patients”, and more recent cases (especially after the
passing of the Mental Capacity Act 2005) referring to the mental incapacity of a person.
339. Bracton, De legibus, Lib. 3, tit. 19 §8, p. 100.
340. Molton v Camroux (1848) 2 Exch. 487 at 500 per Pollock C.B., affd (1849) 4 Exch. 17 and see
Holdsworth, History of English Law, Vol.VIII, pp.52–53; Hart v O’Connor [1985] A.C. 1000 at
1018–1019.
341. See below, para.9-095. Manby v Trott (1662) 1 Sid. 109, 112; Baxter v Earl of Portsmouth
(1826) 5 B. & C. 170; Re Rhodes (1890) 44 Ch. D. 94. This distinct law was accepted by
Pollock C.B. in Molton v Camroux (1848) 2 Exch. 487 at 501.
342. Molton v Camroux (1848) 2 Exch. 487 at 501 per Pollock C.B.
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343. Molton v Camroux (1849) 4 Exch. 17 esp. at 18–19; followed by Beavan v M’Donnell (1854) 9
Exch. 309. Earlier cases include Niell v Morely (1804) 9 Ves. 478; Browne v Joddrell (1827)
Moo. & M. 105;
344. [1892] 1 Q.B. 599, 601.
345. Imperial Loan Co Ltd v Stone [1892] 1 Q.B. 599 at 601 (Lord Esher M.R.); 603 (Lopes L.J.);
Goudy (1901) 17 L.Q.R. 147, Wilson (1902) 19 L.Q.R. 21.
346. Above, paras 9-007, 9-049 et seq. A minor is in principle not liable in the tort of deceit for
fraudulently misrepresenting his or her age: above, para.9-053. The main exception to the
general position is found in relation to the minor’s liability for necessaries: above, paras 9-010 et
seq.
347. Burrows, The Law of Restitution, 3rd edn (2012), pp.315–316.
348. Hart v O’Connor [1985] A.C. 1000.
349. Archer v Cutler [1980] 1 N.Z.L.R. 386 discussed (and not followed) by the PC in Hart v
O’Connor [1985] A.C. 1000 at 1016–1028. The earlier English dicta are found in Molton v
Camroux (1848) 2 Exch. 487 at 502–503, (1849) 4 Exch. 17 at 19; Imperial Loan Co Ltd [1892]
1 Q.B. 599 at 603; York Glass Co Ltd v Jubb [1925] All E.R. 285 at 289, 292 and 295. Lord
Brightman’s view of the authorities was criticised by Hudson (1986) Conv. 178.
350. Hart v O’Connor [1985] A.C. 1000 at 1024 per Lord Brightman (PC). This rejection of the wider
doctrine is criticised by Hudson (1986) Conv. 178.
351. Hart v O’Connor [1985] A.C. 1000, 1027, per Lord Brightman (PC).
352. Above, paras 8-057 et seq. and 8-130 et seq.

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(ii) - Constructive Knowledge of a Party’s Mental Incapacity
The Supreme Court’s view in Dunhill v Burgin
9-078
In Imperial Loan Co Ltd the Court of Appeal expressed the rule allowing a mentally incapable
person to avoid a contract as subject to a condition that the other party knew of the incapacity 353 and
this is the way in which the rule has been expressed by earlier editions of the present work, 354 and by
other works on English contract law. 355 However, in 2014 in Dunhill v Burgin, Baroness Hale of
Richmond DPSC, with whom the other members of the Supreme Court agreed without further
comment, 356 expressed the rule in Imperial Loan Co Ltd v Stone 357 in distinctly different terms from
the way in which it was expressed both in the judgments of the Court of Appeal in Imperial Loan Co
Ltd itself, and more generally, observing that it is now generally accepted that a person may avoid a
contract which he or she has concluded without the requisite mental capacity where the other party to
the contract either knew or ought to have known of this incapacity (the latter being referred to for
convenience in the present discussion as constructive knowledge). 358 This observation was made in
the context of holding that a settlement of a claim by a mentally incapable person is valid only with the
approval of the court, this result being held to follow from the terms of the CPR. 359 Given this
interpretation of the CPR, the Supreme Court held that the normal rule applicable to contracts made
by a mentally incapable person which it had described does not apply to settlements of claims and,
therefore, did not apply to the case before it. 360 This means that the Supreme Court’s observations on
the content of the normal rule applicable to contracts generally were expressly obiter. They have,
nevertheless, been accepted by the High Court as an accurate statement of English law. 361
Comments
9-079
However, with the greatest respect to the learned justices of the Supreme Court, the extension of the
availability of avoidance of contracts made by a person incapable of doing so to situations where the
other party merely ought to have known of the incapacity should not be seen as generally accepted,
since it finds little direct support in the English authorities or in the principle of the objective theory of
contract, to which Baroness Hale related the reformulation. Moreover, given this relative lack of
support in the authorities and the very considerable practical differences which this extension could
involve, it is submitted that such an extension of the situations in which contracts are invalid on
grounds of mental incapacity should be made by the Supreme Court only after a full consideration of
the authorities (English and otherwise) after argument by counsel, taking into account, to the extent to
which it is appropriate for it to do so, the competing considerations of policy. For this extension may
be a very significant one in practice, for it could be seen as requiring the courts to work out the
circumstances in which a contracting party (and especially those providing goods or services in the
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course of a business) should have known of the other party’s mental capacity so as to be fixed by this
species of constructive knowledge. That this might not be straightforward may be supported by
reference to the considerable litigation which followed the House of Lords’ decision in Barclays Bank
Plc v O’Brien 362 which held that a bank/creditor could be fixed with constructive knowledge of the
rights of a surety (typically a wife) against a principal debtor (typically her husband or his company).
For, as this case-law suggests, a test of constructive knowledge could lead to certain types of factual
circumstance putting a would-be contracting party on notice of the possibility of the other’s mental
incapacity, notice which that other party could then avoid only by investigation or third party advice. 363
It is submitted, therefore, that the most that should be said is that earlier authorities support the
proposition that a party may be fixed with knowledge of another party’s mental incapacity where that
incapacity is apparent. These points will be supported in the following paragraphs.
Earlier authority supporting extension to constructive notice
9-080
While the judgments of the Court of Appeal in Imperial Loan Co Ltd do not themselves support the
view that constructive knowledge is enough to allow a mentally incapable person to avoid a contract,
364
there is some support for this view in other cases prior to Dunhill v Burgin. 365
Mental incapacity apparent
9-081
In Molton v Camroux, 366 which was itself approved in Imperial Loan Co Ltd, 367 Pollock C.B’s
judgment in the Court of Exchequer requiring knowledge in the other contracting party and, Patteson
J.’s judgment affirming it in the Exchequer Chamber, were both expressed as being restricted to
cases where the mental incapacity of the party was not apparent. 368 The reservation of the
requirement of knowledge of mental incapacity by the other party to the situation where the incapacity
was not ostensible also formed part of Lord Brightman’s exposition of the modern law in Hart v
O’Connor. 369 This qualification suggests that where a person’s mental incapacity is apparent, then he
or she can avoid any contract made without establishing that the other contracting party actually knew
of the incapacity. Moreover, for this purpose the apparent nature of the mental incapacity could be
judged according to the standard of the reasonable person in the position of the other contracting
party, rather than his or her actual apprehension (and so knowledge) of the incapacity. If this was all
that was intended by Lady Hale DPSC in Dunhill v Burgin in recognising that avoidance of a contract
for mental incapacity extends to cases where the other party ought to have known of the incapacity,
then this view is supported by these earlier dicta and is, moreover, clearly limited in its extent. On the
other hand, this interpretation of Lady Hale’s formulation would restrict its significance considerably,
for, as earlier suggested, such a test could extend the availability of avoidance of a contract
concluded by a mentally incapable person to situations where, owing to the circumstances of the
parties or surrounding the conclusion of the contract, the other party was put on notice of the
possibility of that incapacity and did not take such steps as to avoid being fixed with constructive
knowledge. 370 Such circumstances might not be restricted to cases of apparent mental incapacity.
York Glass Co Ltd v Jubb
9-082
That mental incapacity in a contracting party can lead to avoidance of the contract where the other
party ought to have known of that incapacity appears to find its explicit origin in York Glass Co Ltd v
Jubb. 371 There, the receiver of a company had sold the company’s buildings and machinery to the
defendant, who was later held to have been mentally incapable of contracting at the time. The
defendant claimed that at common law he could avoid the contract on the ground that the plaintiff
knew of his incapacity or, in the alternative, that he could do so in equity on the ground that the
plaintiff knew “or ought to have known” of his incapacity, and that the sale had been made at an
overvalue, in the absence of proper advice, and in the absence of equality between the parties. 372 As
Page 3
regards the first basis of claim, Sir Ernest Pollock M.R. (with whom Warrington and Sargant L.JJ.
agreed, while delivering their own judgments 373) held that a contract made by a person who is
apparently sane is valid unless his or her mental incapacity was known to the other contracting party,
following Molton v Camroux and Imperial Loan Co Ltd. 374 For this purpose, he identified the
underlying reason for this position, that is that “it would imperil contracts if a party was afterwards
entitled to say that he was a lunatic”, 375 quoting Lord Cranworth L.C. in Elliott v Ince to similar effect.
376
As regards the alternative basis of defence, Sir Ernest Pollock upheld the decision of the trial judge
that the price agreed was not excessive, that the defendant did have the benefit of advice and that
there was no reasonable degree of inequality and that, therefore, the terms of the contract entered
were fair. 377 It will be seen, therefore, that the defendant’s reliance on what the plaintiff ought to have
known as to his mental incapacity formed part of this wider basis for avoidance of the contract,
supposedly in equity: as earlier noted, however, such a wider equitable basis of avoidance for mental
incapacity was firmly rejected by the Privy Council in Hart v O’Connor. 378 Warrington L.J. agreed with
Sir Ernest Pollock, but he expressed himself differently, glossing the position set out by Lord Esher in
Imperial Loan Co Ltd by adding
“the slight corollary that if circumstances are proved which are such that any reasonable
man would have inferred from these circumstances that the man was insane, then the
man who contracts with him, although he may, without swearing by the card, say he did
not know, would be taken to know that the man who was of unsound mind.” 379
Warrington L.J. noted, though, that this position had been accepted by the defendant’s counsel, 380
and that the judge below had decided that the plaintiff had no suspicion of the defendant’s incapacity
and that no appeal had been made on this issue. 381 Warrington L.J. then held that the alleged distinct
equitable defence also failed on the facts for the reasons set out be the judge below. 382 Sargant L.J.
agreed, though without referring to Warrington L.J.’s gloss of the rule in Imperial Loan Co Ltd. In his
view, the defence of lunacy at common law did not apply on the facts as the plaintiff had not known of
the lack of incapacity, holding that there was in this respect no difference between the courts of
common law and equity. 383 He expressly reserved the question whether lack of fairness of a contract
made by a lunatic could lead to its avoidance in the absence of such knowledge. 384 The most that
can be said, therefore, is that the parties in York Glass Co Ltd had agreed that constructive
knowledge of a party’s mental incapacity would be enough for the latter to avoid the contract, and that
Warrington L.J. was content to accept this view of the law; on the other hand, as pleaded, this gloss
formed part of the alleged distinct and (possibly) equitable wider ground of avoidance on the basis of
unfairness rejected by the Privy Council in Hart v O’Connor. 385
Hart v O’Connor
9-083
In the proceedings in Hart v O’Connor before the New Zealand courts the plaintiff had claimed that
the defendant had known or ought reasonably to have known of his mental incapacity, and while the
defendant had denied these claims, he did not dissent from this formulation of the rule in Imperial
Loan Co Ltd in the proceedings before the Privy Council. 386 As the New Zealand court at trial had
rejected this claim on the facts and as this decision was subject to appeal neither before the New
Zealand Court of Appeal nor the Privy Council, 387 the issue before these courts was instead whether
a contract concluded by a mentally incapable person could be avoided on a distinct and wider ground
of unfairness as had been recognised by the New Zealand Court of Appeal in Archer v Cutler. 388 In
holding that no such distinct ground exists in law, the Privy Council therefore did not have occasion
directly to consider the nature (actual or constructive) of the knowledge of mental incapacity required
by the established law in Imperial Loan Co Ltd, but it nevertheless expressed this law in language
which refers exclusively to knowledge rather than adding that this includes what the other party ought
to have known. 389 The most that can be said is that Lord Brightman did not dissent from the view
expressed in the Australian case of Tremills v Benton that the rule would extent to cases where a
party suspected rather than actually knew that the other did not possess the requisite mental capacity
390
and that, as earlier noted, Lord Brightman restricted the rule that a contract made by a mentally
incapable person is valid unless the other party knew of this incapacity to the situation where the first
person was “ostensibly sane”. 391
Page 4
Earlier authorities in the context of settlement of claims
9-084
As earlier noted, the Supreme Court in Dunhill v Burgin was directly concerned with the question
whether a settlement of a claim concluded when the claimant’s mental incapacity was unknown to the
defendant the Supreme Court required the approval of the court to be valid or whether it could be
valid under the general law governing contracts in Imperial Loan Co Ltd. 392 When the Court of Appeal
in Masterman-Lister v Brutton & Co (Nos 1 & 2) first considered the question of mental capacity in this
procedural context, the judges expressed the general rule in Imperial Loan Co Ltd (which they held
inapplicable) in terms of the party’s knowledge of a person’s mental incapacity. 393 This remained true
in the later Court of Appeal decision in Bailey v Warren of two of its members, 394 but Arden L.J.
expressed the rule differently, noting that:
“[t]he position in relation to the compromise of a claim may therefore be different from the
usual position in relation to a contract made by a person who is not known to be a patient.
In such a case, the contract is enforceable unless the other party was aware or ought to
have been aware that the person was a patient. In that event, the contract is voidable:
Imperial Loan Co Ltd v Stone.” 395
Arden L.J. did not, however, provide any further authority beyond Imperial Loan Co Ltd or arguments
in support of the proposition that the general rule governing contracts extends to cases of constructive
knowledge; nor should this be surprising given that the content of this test was not in issue before the
court as the claimant had not suggested that the defendant had known or ought to have known of his
mental incapacity. 396 However, Arden L.J.’s view that the claimant did not have the mental capacity to
conclude the settlement meant that the question whether general contract law applies to
compromises of claims by a mentally incapable claimant became central, and on this question she
held (and Ward L.J. agreed 397) that it did not, as the CPR required such settlements to be approved
by the court. 398 This view of the majority in Bailey v Warren was then accepted by the Supreme Court
in Dunhill v Burgin, which rejected the argument foreshadowed in Masterman-Lister that the CPR
could not change the substantive law of contract in this way. 399 It is understandable, therefore, that
Lady Hale in Dunhill v Burgin should have followed Arden L.J. in Bailey v Warren (if without direct
citation) in describing the general contract law rule so as to include constructive notice. 400
Wider authority
9-085
The Privy Council in Hart v O’Connor noted that the rule in Imperial Loan Co Ltd had been adopted by
the High Court of Australia in 1904, 401 but more recent Australian authority is conflicting as the
leading authority in the High Court of Australia, Gibbons v Wright, appeared generally to require
knowledge of a party’s mental capacity, but also referred to English authority prior to Molton v
Camroux 402 which suggested that constructive knowledge might suffice. 403 As a result, some
Australian courts allow that constructive knowledge is enough, 404 while others have held that actual
knowledge is required. 405 Canadian common law courts have taken a different approach, accepting
that contracts entered by a mentally incapable person are voidable even where the other party has no
notice (actual or constructive) of the incapacity as long as their terms are unfair, 406 a position similar
to the New Zealand cases not followed by the Privy Council in Hart v O’Connor. 407 The position in
Scots law is often put forward as providing a striking contrast with the English law requiring (actual)
knowledge of mental incapacity, as it holds that a contract made by a person incapable of doing so is
“null and void”, following in this respect the Scottish institutional writers, who themselves followed
Roman law. 408 This stark position therefore rests on civil law authorities and on a very subjective view
of contract, and finds no support in the modern English authorities.
Relevance of the objective theory of contract?

Page 5
9-086
In Dunhill v Burgin Lady Hale appeared to adopt the argument of counsel for the defendant (there, the
party seeking to uphold the settlement on the basis that the normal rule of contract law applied to its
validity) that the extension of the rule in Imperial Loan Co Ltd to constructive notice is “consistent with
the objective theory of contract, that a party is bound, not by what he actually intended, but by what
objectively he was understood to intend.” 409 This idea, it would seem, finds its source in a passage of
the most recent edition of Bowstead & Reynolds on Agency 410 which was cited to the Supreme Court
in relation to the question of effect of a principal’s incapacity on a contract of agency, an issue which
the Supreme Court did not find it necessary to determine. 411 It is, of course, the case that English law
generally adopts an objective test to the existence of agreement, with the effect that an apparent
intention to be bound may suffice, so that, notably, an alleged offeror (A) may be bound if his words or
conduct are such as to induce a reasonable person to believe that he intends to be bound, even
though in fact he has no such intention. 412 The objective approach does therefore appear to give
some analogous support to a position according to which a person who ostensibly has mental
capacity to make a contract should be bound by it. However, as explained above, 413 the state of mind
of the offeree may also be relevant. So, if B actually and reasonably believes that A has the requisite
intention, then the objective test is satisfied, but if B knows that, in spite of the objective appearance,
A does not have the requisite intention, A is not bound as the objective test needs to be qualified in
this situation. 414 However, with respect, it is submitted that the approach of English law to offer and
acceptance does not provide a helpful analogy with the law governing the effect on contracts of a
party’s mental incapacity. While the law governing offer and acceptance is generally concerned to
facilitate commerce by protecting the reasonable reliance of parties on what others say or do even if
they do not actually so intend, the question whether a person has the mental capacity to agree to the
particular contract with another party is not generally one on which it is reasonable for that party to
take a view, in the absence of knowledge or at least suspicion of the incapacity, or circumstances
which make the incapacity apparent. Perhaps a closer analogy would be with the law of unilateral
mistake which is also seen as reflecting the objective approach to contract, where a mistake as to the
terms of a contract, if known to the other party, may affect the validity of the contract. 415 However, as
explained above, there is no clear authority that a contract is void for mistake where A’s mistake
ought to have been known by to a reasonable person in B’s position. 416 A further possible analogy
could be drawn with the approach of the courts to the knowledge of a unilateral mistake for the
purposes of rectification, where actual knowledge is held to include cases where a party wilfully shuts
its eyes to the obvious, or wilfully and recklessly fails to make such enquiries as an honest and
reasonable man would make. 417 Overall, however, the objective theory of contract does not provide
clear support for the proposition that constructive knowledge of a person’s mental incapacity should
be sufficient to avoid a contract.
Competing considerations of policy
9-087
In Dunhill v Burgin Baroness Hale DPSC noted that much had been made in argument before the
Supreme Court of the competing policy arguments in favour or against the validity of settlements of
claims made by persons incapable of doing so where the other party to the settlement did not know
(and ought not to have known) of the incapacity. 418 In Baroness Hale’s view, “[p]olicy arguments do
not answer legal questions”, but she then saw the relevant policy underlying the CPR as being the
protection of children and the mentally incapable “not only from themselves but also from their legal
advisers”. 419 It is submitted that a future court considering the general law governing the conditions
for the avoidance of contracts by persons who were incapable of concluding them, should take into
account the competing policies pursued by this area of the law. In this respect, the need to protect a
person mentally incapable of entering the contract should be balanced against the practical need for
commerce to take place without traders and others requiring to consider the mental incapacity of their
contracting parties where it is not apparent. 420
Summary
9-088
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There is, therefore, good support in the authorities for the proposition that the general rule
according to which a contract may be avoided for mental incapacity only where the other party knew
of a person’s mental incapacity is restricted to the situation where that incapacity was not apparent.
421
Secondly, it may be that a suspicion rather than actual knowledge of the other party’s mental
incapacity is enough for this purpose. 422 Beyond this, the general judicial statements which accept
that a contract may be avoided where the other party ought to have known of the mental incapacity
are not supported by binding authority: the dicta of Warrington L.J. to this effect in York Glass Co Ltd
were based on a concession by counsel and their wider authority is further undermined by their link in
that case to the alleged equitable doctrine rejected in Hart v O’Connor 423; the dicta of Arden L.J. in
Bailey v Warren were clearly obiter, as, on her view of the case, the general law governing mental
capacity and contracts was not in issue on the facts, which concerned the validity of a settlement of a
claim. 424 The same can be said of Baroness Hale’s own acceptance of this position in Dunhill v
Burgin: the Supreme Court was not concerned to determine the limits of the test applicable to
contracts generally, but rather whether this test applied to settlements of claims. 425 By contrast, in
Molton v Camroux, Imperial Loan Co Ltd and Hart v O’Connor the law is stated in a way which
requires knowledge and not merely constructive knowledge of the other’s mental incapacity. 426
Thirdly, the objective principle of contract does not give convincing support for the acceptance of
constructive as well as actual knowledge. Given this state of the authorities, the practical significance
of such an extension of the established law prior to Dunhill v Burgin, and the competing
considerations of policy which are in play, it is submitted that English law should not be seen as
allowing the avoidance of a contract by a person mentally incapable of concluding it unless this
incapacity was apparent to or known by the other contracting party. 427
353. Above, para.9-076.
354. See the 31st edition (2012), para.8-069.
355.
Notably, Beatson, Burrows and Cartwright, Anson’s Law of Contract, 29th edn (2010), p.247;
Peel, Treitel on The Law of Contract, 13th edn (2011), para.12-055; McKendrick, Contract Law,
9th edn (2011), p.291; Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016),
para.24-09 (observing that the rule is “arguably harsh”); Burrows, A Restatement of the English
Law of Unjust Enrichment, (2012), p.85. cf. Watts, Bowstead & Reynolds on Agency, 20th edn
(2010), para.2–009 and n.28 (referring to the situation where a party “knew, or ought to have
known, of the incapacity”, without citation of explicit authority justifying “ought to have known”).
356. [2014] UKSC 18, [2014] 1 W.L.R. 933. Lord Kerr, Lord Dyson, Lord Wilson and Lord Reed
agreed without further comment.
357. [2014] UKSC 18 at [1].
358. [2014] UKSC 18 at [1] and [25]. The Supreme Court did not specify the source of its formulation
of the rule so as to include cases where the other party ought to have known of the incapacity,
but it may have come from Bowstead & Reynolds on Agency, 20th edn (2010) by Watts,
para.2-009, which takes this position and which was cited by the defendant’s counsel in relation
to the question of the effect of a principal’s incapacity on a contract of agency, a question on
which the Supreme Court did not find it necessary to form a view: [2014] UKSC 18 at [31].
359. CPR r.21.10(1). On this decision, see below, para.9-097.
360. [2014] UKSC 18 at [25]–[30].
361. Josife v Summertrot Holdings Ltd [2014] EWHC 996 (Ch), (2014) B.P.I.R. 1250 at [19] and [20]
(Norris J.) (holding that the correct test was to consider whether it would have been obvious to
Page 7
the other party that the person lacked capacity and holding that there was no real prospect of
showing that that it would have been).
362. [1994] 1 A.C. 180 discussed above at paras 8-110 et seq.
363. cf. above, paras 8-118 et seq. This view of the possible significance of constructive notice is
given some support by its treatment by Canadian courts which have accepted it as an element
of invalidity of contracts on the ground of mental incapacity (on which see below, para.9-085).
So, in Hardman v Falk [1955] B.C.J. No.199 especially [2] and [9] the court considered whether
the surrounding circumstances should put a contracting party on enquiry as to her lack of
capacity; and in Lingard v Thomas (1984) 46 Nfld. & P.E.I.R. 245, 135 A.P.R. 245
(Newfoundland SC Tr. Div.) at [20]–[22], the court adopted the explanation of constructive
notice in the context of fraud on a person’s creditors in Re Gomersall (1875) 1 Ch. D. 137, 146
(once put on enquiry, a wilful shutting of eyes to knowledge or means of knowledge), following
McNab v The Imperial Trust Co [1935] 4 D.L.R. 570 at [11]–[13].
364. Imperial Loan Co Ltd v Stone [1892] 1 Q.B. 599, above para.9-076.
365. [2014] UKSC 18.
366. (1848) 2 Exch. 487, (1849) 4 Exch. 17.
367. Imperial Loan Co Ltd v Stone [1892] 1 Q.B. 599 at 602 (Fry L.J.); Hart v O’Connor [1985] A.C.
1000 at 1019; above, paras 9-075—9-076.
368. (1848) 2 Exch. 487 at 503, (1849) 4 Exch. 17 at 19 respectively.
369. Hart v O’Connor [1985] A.C. 1000, 1027, above, para.9-077.
371. [1925] All E.R. 285, (1925) 42 T.L.R. 1. cf. Broughton v Snook [1938] 1 All E.R. 411, 417 where
the HC gave Imperial Loan Co Ltd as authority for the test that the other party knew or ought to
have known of a person’s mental incapacity, without further support and obiter (as the court
decided on the basis of unconscionable conduct in the other party).
372. [1925] All E.R. 285 at 287.
373. [1925] All E.R. 285 at 291 and 295 respectively.
374. [1925] All E.R. 285 at 288–289.
375. [1925] All E.R. 285 at 289.
376. (1857) 7 De G.M. & G. 475 at 487, 26 L.J. Ch. 821 at 824 referring to Molton v Camroux as “a
decision of necessity, and a contrary doctrine would render all ordinary dealings between man
and man unsafe. How is a shopkeeper who sells his goods to know whether a customer is or is
not of sound mind?”.
377. [1925] All E.R. 285 at 290.
378. [1985] A.C. 1000 at 1024–1026, above, para.9-077.
379. [1925] All E.R. 285 at 292.
380. [1925] All E.R. 285 at 292.
381. [1925] All E.R. 285 at 293.
382. [1925] All E.R. 285 at 293.

Page 8
383. [1925] All E.R. 285 at 296.
384. [1925] All E.R. 285 at 295.
385. [1985] A.C. 1000 at 1024–1026, above, para.9-077.
386. [1985] A.C. 1000, 1003.
387. [1985] A.C. 1000, 1016.
388. [1980] 1 N.Z.L.R. 386.
389. See, notably, [1985] A.C. 1000, 1019–1020, 1022–1023. This is particularly striking in Lord
Brightman’s treatment of York Glass Co Ltd v Jubb [1925] All E.R. 285 where he makes no
reference to the gloss of the rule in Imperial Loan Co Ltd which Warrington L.J. ([1925] All E.R.
285 at 292) had there accepted: [1985] A.C. 1000 at 1022–1024.
390. Tremills v Benton (1892) 18 V.L.R. 607 (SC Vict.) at 621–622 per Holroyd J.; Hart v O’Connor
[1985] A.C. 1000 at 1026.
391. [1985] A.C. 1000, 1013 (original claim); 1027 (before PC).
392. [2014] UKSC 18 and see above, para.9-078 and below para.9-097.
393. Masterman-Lister v Brutton & Co (Nos 1 & 2) [2002] EWCA Civ 1889, [2003] 1 W.L.R. 1511 at
[57] per Chadwick L.J., with whom Potter L.J. at [55] agreed; Kennedy L.J. did not refer to the
test under the general law.
394. [2006] EWCA Civ 51, [2006] C.P. Rep. 26 at [102] (Hallett L.J.) and at [155] (Ward L.J.)
respectively. Hallett L.J. dissented from the view of the majority of the Court of Appeal as to the
question whether the claimant’s mental capacity should relate just to the compromise or more
broadly to the ability to start proceedings: [2006] EWCA Civ 51, [2006] C.P. Rep. 26 at [90],
[120]–[124] and [178].
395. [2006] EWCA Civ 51 at [109] (emphasis added).
396. [2006] EWCA Civ 51 at [130].
397. [2006] EWCA Civ 51 at [161]–[162]. The Court of Appeal held, however, that the settlement
should be given the approval by the court under CPR r.21(10).
398. [2006] EWCA Civ 51 at [129].
399. [2014] UKSC 18 at [24]–[30].
400. [2014] UKSC 18 at [25].
401. [1985] A.C. 1000 at 1022–1023; McLaughlin v Daily Telegraph Newspaper Co Ltd (No.2)
(1904) 1 C.L.R. 243, 272–274, where the HC Aus. held that this law did not apply to a power of
attorney made by a person of unsound mind which was void, a decision from which the PC
refused special leave to appeal on the basis that there was no reason to doubt that the
judgment of the HC had been right: [1904] 1 C.L.R. 479 at 482.
402. (1848) 2 Exch. 487, (1849) 4 Exch. 17, above, para.9-075.
403. (1954) 91 C.L.R. 423 especially at 441 quoting Dane v Viscountess Kirkwall (1838) 8 C. & P.
679 at 670 (“or at least proof of ‘the greatest reason to believe’ that the lunacy existed”).
404. Ashton v Melbourne Money Pty Ltd (1992) A.N.Z. Conv.R. 95 at 99; Collins by her next friend
Poletti v May [2000] WASC 29 (SC West. Aus.). See to the same effect Australian Law
Page 9
Commission, Equality, Capacity and Disability in Commonwealth Law ALRC Report 124 (2014),
para.11.6; The Laws of Australia Encyclopedia (Westlaw 2014) para.7.3.590 citing Tremills v
Benton (1892) 18 V.L.R. 607; York Glass Co Ltd v Jubb [1925] All E.R. 285, (1925) 42 T.L.R. 1.
as well as Imperial Loan Co Ltd v Stone [1892] 1 Q.B. 599; Carter, Contract Law in Australia,
6th edn (2013), para.15–38 citing Molton v Camroux (1848) 2 Exch. 487 at 501, (1849) 4 Exch.
17; Broughton v Snook [1938] 1 All E.R. 411 and Gibbons v Wright (1954) 91 C.L.R. 423.
405. The Public Trustee (WA) v Brumar Nominees Pty Ltd [2012] WASC 161 at [90]–[96] (SC West.
Aus.) following Giles v Rooney (1996) 23 M.V.R. 510, 513 and 514 (SC West. Aus.). The Public
Trustee (WA) v Brumar Nominees Pty Ltd was relied on by counsel in the English HC in Josife
v Summertrot Holdings Ltd [2014] EWHC 996 (Ch) at [18], but the HC took the SC’s view in
Dunhill v Burgin as the statement of the law for the purposes of its own decision: [2014] EWHC
996 (Ch) at [19].
406. Fyckes v Chisholm (1911) 3 O.W.N. 21 at [8]–[10]; Hardman v Falk [1955] B.C.J. No. 199
especially [9]; Lingard v Thomas (1984) 46 Nfld. & P.E.I.R. 245, 135 A.P.R. 245 (Newfoundland
SC Tr. Div.) at [20]–[22]; Goff and Jones, The Law of Unjust Enrichment, 8th edn (2012)
para.24-09.
407. Above, para.9-077. The current position in New Zealand is much affected by the statutory
provision for the care of persons lacking mental capacity. As a result, where the court appoints
a person (the “manager”) to manage the affairs of a person lacking mental competence, the
latter no longer has the capacity to exercise the power vested and any contract so made is
voidable by that person or by the manager (though the court also has a power to adjust):
Burrows, Finn and Todd, Law of Contract in New Zealand, 4th edn (2012), para.14.3.1;
Protection of Personal and Property Rights Act 1988 s.53. As regards the common law position
governing the invalidity of a contract for mental incapacity, the test is stated as probably
requiring that the other party “knew or should have know of the other’s lack of capacity”:
Burrows, Finn and Todd, Law of Contract in New Zealand para.14.3.1 at pp.555–557; Scott v
Wise [1986] 2 N.Z.L.R. 484 (contract); Dark v Boock [1991] 1 N.Z.L.R 496 (gift).
408. John Loudon & Co v Elder’s Curator bonis [1923] S.L.T. 226 at 228 (Outer House Ct. Sess.),
specifically rejecting Imperial Loan Co Ltd v Stone (which had been argued on the basis that
the contract is voidable only if the other party was or ought to have been aware of the other’s
insanity). For the Roman law see Gaius Inst. 306; D. 44.7.1.12.
409. [2014] UKSC 18 at [25].
410. Watts, Bowstead & Reynolds on Agency, 20th edn (2010), para.2–009, stating that “the
principle that transactions other than gifts cannot be set aside unless the person with whom the
transaction was entered into knew, or ought to have known, of the incapacity” is “consistent with
the higher level general principle that intention in the formation of contracts and other
transactions is judged objectively”.
411. [2014] UKSC 18 at [31].
412. Above, para.2-003. The objective approach also has important implications for the construction
of contracts: below, para.13-043.
413. Above, para.2-004.
414. Above, para.2-004, which notes that English law gives no clear answer to the case where B
does not know, but ought to have known, that A does not have the requisite intention.
415. Smith v Hughes (1870)–(1871) L.R. 6 Q.B. 597; Hartog v Colin and Shields [1939] E All E.R.
566.
416. Above, paras 3-022 et seq. discussing, inter alia, Centrovincial Estates Plc v Merchant
Investors Assurance Co Ltd [1983] Com L.R. 158 (CA); O.T. Africa Line Ltd v Vickers Plc [1996]
1 Lloyd’s Rep. 700, 703 (Mance J.).
Page 10
417. George Wimpey UK Ltd v VI Construction Ltd [2005] EWCA Civ 77, [2005] B.L.R. 135, above,
para.3-070 but see also at para.3-076.
418. [2014] UKSC 18 at [32].
419. [2014] UKSC 18 at [33].
420. cf. the dicta of Sir Ernest Pollock M.R. in York Glass Co Ltd v Jubb [1925] All E.R. 285 at 289
and Lord Cranworth L.C. in Elliott v Ince (1857) 26 L.J. Ch. 821 at 824, quoted above,
para.9-082.
421. Above, para.9-081.
422. Above, para.9-083.
423. Above, para.9-082.
424. Above, para.9-084.
425. Above, para.9-078.
426. Above, paras 9-075—9-076, 9-083.
427.
See similarly Peel, Treitel on The Law of Contract, 14th edn (2015) para.12–055 n.179;
Beatson, Burrows and Cartwright, Anson’s Law of Contract, 30th edn (2016), p.267 at n.194
(stating the rule as being that the other party needs to have been aware of the incapacity,
though noting Baroness Hale J.S.C.’s view that constructive knowledge is sufficient).

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(iii) - The Nature of Mental Capacity and Establishing Incapacity
Nature of understanding required
9-089
At common law, the understanding and competence required to uphold the validity of a transaction
depend on the nature of the transaction. 428 There is no fixed standard of mental capacity which is
requisite for all transactions. 429 What is required in relation to each particular matter or piece of
430
business transacted, is that the party in question should have the capacity to understand the
431
general nature of what he is doing. So, as was observed in Re Beaney in the context of the
capacity to make a will:
“The degree or extent of understanding required in respect of any instrument is relative to

the particular transaction which it is to effect. In the case of a will the degree required is
always high. In the case of a contract, a deed made for consideration or a gift inter vivos,
whether by deed or otherwise, the degree required varies with the circumstances of the
transaction.” 432
The assessment of a person’s mental capacity in relation to a contract should take into account
relevant information or advice which could be available for this purpose. 433
Evidence of lack of capacity
9-090
As earlier noted, at common law, the burden of proof as to a lack of mental capacity to make a
contract lies on the person alleging it. 434 If the party possessed the requisite mental capacity when
the contract was made, evidence of previous or subsequent mental incapacity is not material, 435 but
in a doubtful case it might create a suspicion that he was mentally incapable at the time of making the
contract. 436 The mere existence of a delusion in the mind of a person making a contract is not
conclusive of his inability to understand it, even though the delusion is connected with the subject
matter of the contract. 437
Decisions as to a person’s mental capacity under the Mental Capacity Act 2005
Page 2
9-091
The Court of Protection which was set up under the Mental Capacity Act 2005 with a comprehensive
jurisdiction over the health, welfare and financial affairs of people who lack capacity 438 has the power
to make declarations as to a person’s capacity in relation to specified decisions or matters and on the
lawfulness of any act done or to be done in relation to such a person 439 and it may either itself make
decisions on behalf of a person lacking capacity in relation to a matter concerning that person’s
personal welfare or his property and affairs 440 or appoint another person (a “deputy”) to make
decisions on that person’s behalf in relation to such a matter. 441 For this purpose, it is provided that a
person:
“… lacks capacity in relation to a matter if at the material time he is unable to make a

decision for himself in relation to the matter because of an impairment of, or a
disturbance in the functioning of, the mind or brain” 442
and that:
“… a person is unable to make a decision for himself if he is unable (a) to understand the
information relevant to the decision, (b) to retain that information, (c) to use or weigh that
information as part of the process of making the decision, or (d) to communicate his
decision (whether by talking, using sign language or any other means).” 443
In coming to their decisions, both the Court of Protection and any deputee which it appoints must
follow new statutory principles and give effect to the best interests of the person affected by the lack
of capacity. 444
Relationship of common law and statutory tests of mental capacity
9-092
While the test for mental capacity provided by the Mental Capacity Act 2005 does not apply on its
terms to the question of capacity to contract 445 (which is still determined by the common law), the
Code of Practice made under the 2005 Act states that:
“… the Act’s new definition of capacity is in line with the existing common law tests …
When cases come before the court [involving the issue of contractual capacity], judges
can adopt the new definition if they think it appropriate.” 446
Similarly, in Dunhill v Burgin Baroness Hale DPSC explained that:
“The general approach of the common law, now confirmed in the Mental Capacity Act
2005, is that capacity is to be judged in relation to the decision or activity in question and
not globally.” 447
However, this does not mean that judges are free to adopt the new statutory test in contexts governed
by the common law, 448 not least as the test of capacity in the Act is expressed as being “for the
purposes of the Act” 449 and its purposes do not include the conclusion of contracts. 450 Rather,
according to Munby J.:
Page 3
“… [w]hat is being said [in the Code of Practice] is that judges sitting elsewhere than in
the Court of Protection and deciding cases where what is in issue is, for example,
capacity to make a will, capacity to make a gift, capacity to enter into a contract, capacity
to litigate or capacity to enter into marriage, can adopt the new definition if it is
appropriate—appropriate, that is, having regard to the existing principles of the common
law.” 451
428. Manches v Trimborn (1946) 115 L.J.K.B. 305; cf. In the Estate of Park [1954] P. 112 and see
Fridman (1963) 79 L.Q.R. 502, 518–519; Re Beaney [1978] 1 W.L.R. 770.
429. Gibbons v Wright (1954) 91 C.L.R. 423.
430.
What is required is an ability to understand, rather than actual understanding: Fehily v
Atkinson [2016] EWHC 3069 (Ch), [2017] Bus. L.R. 695 at [81] and [85], referring to Manches v
Trimborn (1946) 115 L.J.K.B. 305 and Re Smith (deceased) [2015] 4 All E.R. 329 at [27]. See
also Masterman-Lister v Brutton & Co (Nos 1 and 2) [2002] EWCA Civ 1889, [2003] 1 W.L.R.
1511 at [58].
431.
In the Estate of Park [1954] P. 112; Bennett v Bennett [1969] 1 W.L.R. 430; Mason v Mason
[1972] Fam. 302 (consent to decree of divorce). cf. Clarke v Prus [1995] N.P.C. 41 in relation to
gifts; Gibbons v Wright (1954) 91 C.L.R. 423 at 427; Masterman-Lister v Brutton & Co (Nos 1
and 2) [2002] EWCA Civ 1889, [2003] 1 W.L.R. 1511 at [58]. In Fehily v Atkinson [2016] EWHC
3069 (Ch), [2017] Bus. L.R. 695 at [87]–[103], which concerned the capacity to conclude an
individual voluntary arrangement (IVA) under Pt VIII of the Insolvency Act 1986, the reference
to understanding “the general nature of what he is doing” stated in the text was held to be
accurate, although in so holding Stephen Jourdan QC clarified that what is required is “the
capacity to absorb, retain, understand, process and weigh information about the key features
and effects of the contract, and the alternatives to it, if explained in broad terms and simple
language” (at [102]).
432.
Re Beaney [1978] 1 W.L.R. 770, 774 per Mr Martin Nourse QC.; A County Council v MS
(2014) 17 C.C.L. Rep. 229, [2014] W.T.L.R. 931 at [64]–[72]. On the application of this test to
the context of the capacity to litigate, see below, para.9-097.
433.
Fehily v Atkinson [2016] EWHC 3069 (Ch), [2017] Bus. L.R. 695 at [82]–[83] and [102]
(capacity to enter individual voluntary arrangement under Pt VIII of the Insolvency Act 1986).
According to Stephen Jourdan QC in Fehily at [82], “in a case where a person needs advice to
enable them to understand the transaction, the question is whether they have: (1) the insight
and understanding to realise that they need advice; (2) the ability to find an appropriate adviser
and instruct them with sufficient clarity to get the advice; and (3) to understand and make
decisions based on that advice”, referring to Masterman-Lister v Brutton & Co (Nos 1 and 2)
[2002] EWCA Civ 1889, [2003] 1 W.L.R. 1511 at [18] and [75] (which concerned capacity for
the purposes of CPR Pt 21).
434. Imperial Loan Co Ltd v Stone [1892] 1 Q.B. 599, 601 and 603, above, para.9-076.
435. Hall v Warren (1804) 9 Ves. Jun. 605.
436. M’Adam v Walker (1813) 1 Dow. 148, 177, HL.

Page 4
437. Jenkins v Morris (1880) 14 Ch. D. 674.
438. Mental Capacity Act 2005 ss.15–19; Pt 2 in force on October 1, 2007 (Mental Capacity Act
(Commencement No.2) Order 2007 (SI 2007/1897) art.2(1)(a) and (b)).
440. 2005 Act ss.16(1) and (2)(a), 17 and 18.
441. 2005 Act s.16(2)(b). On “deputies” see further ss.16–21.
442. 2005 Act s.2(1).
443. Mental Capacity Act s.3(1).
444. ss.1, 4, 16(3) and 20(6).
445. See above, para.9-089. The statutory test does apply to the statutory liability of a person
lacking capacity for necessaries: below, para.9-096.
446. Mental Capacity Act, Code of Practice (2007) 4.32 and 4.33.
447. [2014] UKSC 18, [2014] 1 W.L.R. 933 at [13].
448. Kicks v Leigh [2014] EWHC 3926 (Ch) at [37]–[67] reviewing earlier authorities including
Scammell v Farmer [2008] EWHC 1100 (Ch), [2008] W.T.L.R. 1261, Local Authority X v MM
(an adult) [2007] EWHC 2003 (Fam), [2009] 1 F.L.R. 443; Sutton v Sutton [2009] EWHC 2576
(Ch.) [2010] W.T.L.R. 115; Fisher v Diffley [2013] EWHC 4567 (Ch), [2014] W.T.L.R. 757.
449. Mental Capacity Act 2005 s.1(1).
450. Kicks v Leigh [2014] EWHC 3926 (Ch) at [64] (in relation to the making of a gift).
451.
Local Authority X v MM (an adult) [2007] EWHC 2003 (Fam), [2009] 1 F.L.R. 443 at [79]–[80],
per Munby J.; Saulle v Nouvet [2007] EWHC 2902 (QB), [2008] LS Law Medical 201 at
[15]–[16].cf. A County Council v MS (2014) 17 C.C.L. Rep. 229, [2014] W.T.L.R. 931 at
[64]–[72] (capacity to make gift for purposes of Mental Capacity Act 2005).

Page 1

(iv) - The Effect of Mental Incapacity where operative
Contract voidable
9-093
Where a mentally incapable person concludes a contract and the other party knows of this
incapacity, the contract is voidable at his or her option rather than being void. 452 It has been said
that the mentally incapable person’s right of rescission is subject to the usual bars (lapse of time,
affirmation, third party rights and restitutio in integrum being impossible) familiar from the context of
rescission for misrepresentation, 453 though it should be added that an act of affirmation (as a
declaration of intention 454) would itself require the person allegedly affirming to have possessed the
requisite mental capacity to do so at the time. Where a person is entitled to and does rescind a
contract on the ground of mental incapacity, then it would appear that any property or money
transferred under it is recoverable without the need for any total failure of consideration, this marking
a further distinction in the law’s treatment of mental incapacity and minority. 455
Ratification
9-094
It would appear that a person who lacked mental capacity at the time of making a contract (so as to
render it voidable in principle) may nevertheless be bound by it if he ratifies it subsequently after
recovery or during an interval where he possesses the capacity to do so. 456
452.
Imperial Loan Co Ltd v Stone [1892] 1 Q.B. 599, 602–603; Manches v Trimborn (1946) 115
L.J.K.B. 305; Gibbons v Wright (1954) 91 C.L.R. 423 (HC Aus.) at 449; Dunhill v Burgin [2014]
UKSC 18, [2014] 1 W.L.R. 933 at [1], [25]. In Sutton v Sutton [2009] EWHC 2576 (Ch), [2010]
W.T.L.R. 115 at [46] it was acknowledged that there is real doubt as to whether mental
incapacity renders a gift void or voidable (not deciding the issue)and cf. Fehily v Atkinson [2016]
EWHC 3069 (Ch), [2017] Bus. L.R. 695 at [118]–[127] where it was said, obiter, that the
approach to the effect of mental incapacity on a contract applies to an individual voluntary
arrangement (IVA) made under Pt VIII of the Insolvency Act 1986, distinguishing the position as
regards voluntary dispositions which are rendered void by mental incapacity. cf. Daily
Page 2
Telegraph v McLaughlin [1904] A.C. 776, 779 where the PC held that it was clear law that a
power of attorney made by a mentally incapable person was void and so a deed executed
under it was also void.
453. Burrows, The Law of Restitution, 3rd edn (2011), p.316. On these bars in the context of
rescission for misrepresentation see above, paras 7-131 et seq.
454. Above, paras 7-132—7-133.
455.
Burrows, The Law of Restitution, 3rd edn (2011), p.316; Goff and Jones, The Law of Unjust
Enrichment, 9th edn (2016), paras 24-10–24-11. This would appear from the approach of the
PC in Hart v O’Connor [1985] A.C. 1000, though it held that the contract was not voidable as
the party receiving the property (there land) was not aware of the other’s mental incapacity.
456. Matthews v Baxter (1873) L.R. 8 Ex. 132 (drunken person). The possibility of ratification was
accepted by Andrew Smith J. in Crédit Suisse International v Stichting Vestia Groep [2014]
EWHC 3103 (Comm), [2015] Bus. L.R. D5 at [187].

Page 1

(b) - Liability for Necessaries
Liability for necessaries: the old law
9-095
At common law, a lunatic was held liable for necessaries on the basis of an “implied contract” with
their supplier although it was realised that this was a “most unfortunate expression, because there
cannot be a contract by a lunatic”. 457 The liability was restricted to the situation where the person who
supplies the necessaries acted with the intention of claiming payment rather than by way of gift 458
and was later sometimes explained by the need to reverse the incapable person’s unjustified
enrichment rather than by implied contract. 459 This position at common law was amended by s.2
of the Sale of Goods Act 1893 460 (subsequently s.3 of the Sale of Goods Act 1979) which provided
that:
“… where necessaries are sold and delivered to a minor or to a person who by reason of
mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable
price for them.” 461
And further that:
‘… necessaries’ means goods suitable to the condition in life of such a person, and to his
actual requirements at the time of the sale and delivery.’
While s.3 of the 1979 Act (unlike the common law governing necessitous intervention 462) does not in
terms subject the liability of a mentally incapable person for necessary goods to a condition that they
were supplied with the intention of claiming payment rather than by way of gift, this restriction can be
seen implicitly in its requirement that the goods be “sold”. In common with the liability of minors for
necessaries, 463 it is unclear whether this provision defines the liability of mentally incapable persons
for necessary goods or whether it leaves open the possibility of liability arising at common law beyond
its terms: it certainly leaves aside their liability for necessary services which remained governed by
the common law. If s.3 were to define liability in respect of necessary goods, then liability would arise
only when goods actually sold and delivered were necessary at the time of sale and delivery and not
therefore to executory contracts for necessaries (as the goods would not be “sold and delivered”) nor
to contracts for goods necessary when sold but not necessary when delivered. 464 On the other hand,
it has been said that s.3 does not preclude liability of a mentally incapable person arising for
necessary goods under a contract which would be valid under the general common law rules on the
ground that his mentally incapacity was unknown to the other contracting party. 465 And this must be
right as otherwise where the other party does not know of his incapacity the mentally incapable
person could be liable to the contract price for non-necessary goods but only a reasonable sum for
Page 2
necessary ones. Moreover, in some cases, a person’s mental incapacity may be so severe that it
cannot be said that “necessaries are sold and delivered” to him and yet in these circumstances it has
been argued that the common law rules governing necessitous intervention should still apply. 466
Finally, it is submitted that, unlike the more arguable position as regards the liability of minors for
necessaries, 467 the liability for necessaries under s.3 of a person who lacks the mental capacity to
make a contract for necessary goods should not be seen as arising from contract but rather on the
basis of the principle of unjust enrichment.
Liability for necessaries: the new law
9-096
However, as from October 1, 2007, s.7 of the Mental Capacity Act 2005 removed the reference to
mentally incapable persons from s.3 of the Sale of Goods Act and itself instead provided that:
“If necessary goods or services are supplied to a person who lacks capacity to contract
for the supply, he must pay a reasonable price for them.” 468
And that for this purpose "necessary" means "suitable to a person’s condition in life and to his actual
requirements at the time when the goods or services are supplied" . 469 As has been noted, the 2005
Act provides an explanation of “lack of capacity” for this purpose, 470 a test which can be seen to be
broadly consistent with the test previously applied by the courts, 471 but the shift of statutory locus of
the provisions regarding necessary goods (and its addition of necessary services) into the 2005 Act
brings with it the application of important new general principles governing mental capacity. 472 In
Aster Healthcare Ltd v Shafi the High Court held that the definition of “necessaries” in s.7(2) relates
only to the nature of the services themselves and “the word ‘requirements’ does not extend to the
recipient’s subjective wishes, however reasonable, as to the location at which those necessary
services are to be provided.” 473 Moreover, the High Court considered that s.7 enacted the
common law rule and was therefore:
“designed to cure the hardship that would otherwise arise where a supplier who intended
the person under a mental incapacity to pay for necessary goods or services would be
unable to recover payment from him under a contract, if there was one. There is no need
to show that there was any purported contract between them.” 474
While s.7 may apply where a third party has made the arrangements for the provision of the
necessary goods or services by a supplier, it cannot apply if it was not intended by the supplier that
the person making those arrangements, or someone else, should pay for them. 475 As a result, s.7
does not apply where the services supplied to the mentally incapacitated person were provided by the
service provider under an arrangement with a local authority exercising its statutory duty under the
National Assistance Act 1948. 476 Finally, it is clear that the changes introduced by s.7 of the 2005 Act
do not alter the general common law position which remains that a person lacking the capacity to
enter a contract is liable on the contract (including for necessaries) unless the other party knew of this
incapacity. 477
457. Re Rhodes (1890) 44 Ch. D. 94, 105 Cotton L.J. The liability of a lunatic for necessaries was
established much earlier: Manby v Trott (1662) 1 Sid. 109, 112; Baxter v Earl of Portsmouth
(1826) 5 B. & C. 170.
458. (1890) 44 Ch. D. 94, 107.

Page 3
459.
Re Rhodes (1890) 44 Ch. D. 94; Re J. [1909] Ch. 574 (expressed in terms of “implied
contract”). cf. above, para.9-014 (liability of minors for necessaries). For a discussion of the
legal basis of the liability of incapable persons for necessaries at common law in the context of
minors see Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), paras 24-15–24-19.
The estate of a husband who is mentally disordered is also liable at common law for
necessaries supplied to his wife: Read v Legard (1851) 6 Exch. 636.
460. s.2.
461. Sale of Goods Act 1979 s.3(2) (as enacted).
464. cf. above, paras 9-013—9-015 concerning minors’ liability.
465. Peel, Treitel on The Law of Contract, 13th edn (2011), p.558.
466. Treitel, 11th edn (2003) at p.558 referring to Re Rhodes (1890) 44 Ch. D. 94.
467. Above, para.9-014.
468. Mental Capacity Act 2005 s.7(1) (which came into force on October 1, 2007 (Mental Capacity
Act (Commencement No.2) Order 2007 (SI 2007/1897) art.2(1)(d))). It is to be noticed that
s.7(1) did not retain the phrase “sold and delivered” from s.3 of the 1979 Act and this avoids the
difficulty that they appear to assume that the person was capable of some element of consent
in order to be liable for necessaries: cf. Mathews (1982) 33 N. Ir. L.Q. 148.
469. Mental Capacity Act s.7(2). The Mental Capacity Act 2005 Code of Practice para.6.58 (made
under s.42 of the 2005 Act and to be taken into account in deciding questions which arise under
it) explains that: “The aim is to make sure that people can enjoy a similar standard of living and
way of life to those they had before lacking capacity.”
470. Above, para.9-091.
471. Peel, Treitel on The Law of Contract, 13th edn (2011), para.12–053.
473.
[2014] EWHC 77 (QB), [2014] P.T.S.R. 888 at [54]; permission to appeal on the application of
s.7 of the 2005 Act was refused and the provider of the services’ appeal regarding the
existence of the local authority’s duty under the 1948 Act was rejected: [2014] EWCA Civ 1350,
[2014] P.T.S.R. 1507 (note).
474. [2014] EWHC 77 (QB) at [55] per Andrews J.
475. [2014] EWHC 77 (QB) at [55].
476. [2014] EWHC 77 (QB) at [59].
477. This is apparent from the Parliamentary passage of the Mental Capacity Act 2005 where an
amendment was proposed (and then withdrawn) which would have altered this position so as to
render a contract unenforceable in certain circumstances where it was made with a person
lacking capacity to do so even though the other party was unaware of this incapacity: Hansard,
HL Vol.670, cols 1469–1472.

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(c) - Settlement or Compromise of Claims
Dunhill v Burgin
9-097
In Dunhill v Burgin the claimant had claimed damages from the defendant vehicle driver in respect of
a serious road accident and had settled her claim on the advice of her lawyers at a level which was
later accepted as reflecting a gross undervaluation of her claim. 478 The claimant therefore brought
further proceedings by her litigation friend seeking a declaration that she had not had the mental
capacity to conclude the earlier settlement. For this purpose, the Supreme Court (Baroness Hale of
Richmond DPSC, with whom Lords Kerr, Dyson, Wilson and Reed agreed), held that the proper test
of mental capacity under CPR Pt 21 was and is 479 whether the party, or person intending to bring
proceedings, had capacity to conduct proceedings. 480 The Supreme Court further held that the
relevant “proceedings” for this purpose were the proceedings which she might have brought had her
lawyers given her different advice, rather than the proceedings which she had actually brought on the
advice of her legal representatives (where the relevant decision related to whether or not to accept
the sum offered). 481 Given that the parties had agreed that the claimant did not have capacity under
this test, 482 the Supreme Court then held that the effect of this incapacity on the validity of the
settlement was determined by the CPR, according to which any step taken by a person lacking
mental capacity before he or she has a litigation friend “shall be of no effect, unless the court
otherwise orders”. 483 Moreover, CPR r.21.10(1) specifically provides that:
“[w]here a claim is made—
(a)
by or on behalf of a child or protected party; or
(b)
against a child or protected party,
no settlement, compromise or payment (including any voluntary interim payment) and no

acceptance of money paid into court shall be valid, so far as it relates to the claim, by, on
behalf of, or against a child or protected party without the approval of the court.” 484
The Supreme Court held that this means that a settlement made by a mentally incapable person (the
“protected party”) is not valid without the approval of the court, with the effect that in these
circumstances the normal rule of contract law in Imperial Loan Co Ltd v Stone 485, according to which
a contract made by a mentally incapable person is valid unless the other party knew or ought to have
Page 2
known of the incapacity, does not apply. 486 The reason for this special rule is that “the court needs,
for the purpose of protecting his interests, full control over any settlement compromising his claim”. 487
478. [2014] UKSC 18, [2014] 1 W.L.R. 933 at [4].
479. The current provision is found in CPR r.21.1.(2)(c), which assimilates the test under the CPR to
the test under the Mental Capacity Act 2005. The SC found that the CPR provision applicable at
the time of the earlier proceedings provided substantially the same test.
480. [2014] UKSC 18 at [13]–[14] following Masterman-Lister v Brutton & Co (Nos 1 & 2) [2002]
EWCA Civ 1889, [2003] 1 W.L.R. 1511 and Bailey v Warren [2006] EWCA Civ 51, [2006] C.P.
Rep. 26.
481. [2014] UKSC 18 at [7], [14]–[15], [18].
482. [2014] UKSC 18 at [18].
483. CPR r.21.3(4).
484. The version of CPR r.21(10) in force at the time of the earlier claim and of the settlement
referred to “patient” instead of “protected party”, reflecting the terminology then current under Pt
VII of the Mental Health Act 1983. The change to “protected party” was made by SI 2007/2204
(L20) when the Mental Capacity Act 2005 came into force: [2014] UKSC 18 at [12] and [14].
485. [1892] 1 Q.B. 599.
486. [2014] UKSC 18 at [21], [25]–[30] following Dietz v Lennig Chemicals Ltd [1969] 1 A.C. 170 in
the context of a claim by a minor. On the general rule in Imperial Loan Co Ltd and the SC’s
formulation of it, see above, paras 8-075—8-076, 8-078—8-088 respectively.
487. Dietz v Lennig Chemicals Ltd [1969] 1 A.C. 170, 189 per Lord Pearson quoted with approval
Burgin v Dunhill [2014] UKSC 18 at [28].

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(d) - Property and Affairs Under the Control of the Court
Background
9-098
Under the Lunacy and Mental Treatment Acts 1890 to 1930 a person might be found to be of
unsound mind by inquisition, and if so found was held to be incapable of making a valid disposition of
property by deed even during a lucid interval, 488 though whether the validity of ordinary contracts was
similarly affected was not clear. The reason for this rule was that the statutory purpose of protecting
and administering the property of a person of unsound mind would be frustrated if he remained
capable of disposing of it by contract.
Position under Mental Capacity Act 2005
9-099
The Lunacy and Mental Treatment Acts were repealed 489 and the relevant provisions are now
found in the Mental Capacity Act 2005. This Act establishes the Court of Protection and gives it the
power, inter alia, to make decisions or appoint deputies to make decisions “if a person (“P”) lacks
capacity in relation to a matter or matters … concerning P’s property or affairs”. 490 The powers in
relation to P’s property and affairs extend to the control and management of P’s property, the
disposition of P’s property or the acquisition of property in P’s name or on P’s behalf, and the carrying
out of any contract entered into by P. 491 The question remains, however, whether a person who has
been found by the Court of Protection to lack capacity in relation to a matter or matters concerning his
property or affairs and whose property is therefore the subject of its powers of management (or the
powers of management of a deputee which it has appointed) can execute a valid deed or enter into a
valid contract in relation to those same matters. There is no direct authority on this point, though it has
been argued that he cannot do so at least as regards contracts which potentially may interfere with
the court’s or court appointed deputee’s control over the property. 492 For this purpose, a court
could see an analogy with the decision of the Supreme Court in Burgin v Dunhill in relation to the
court’s power under the CPR to approve settlements or compromises of claims by a person lacking
capacity. 493 As earlier explained, in that case the Supreme Court held that the CPR’s express
provision that no settlement or compromise made by an incapable person can be valid without the
approval of the court disapplies the general rules of contract law applicable to mental incapacity. 494
This exception was explained by reference to the court’s need to have full control over any settlement
of a claim by an incapable person in the interests of protecting the latter’s interests. 495 A similar
argument could be made in relation to the situation where the Court of Protection had decided under
the Mental Capacity Act that a matter or matters concerning a person’s property or affairs should be
subject to its own or a deputee’s decision-making on the ground of that person’s mental incapacity,
with the result that in this situation the normal rules governing the validity of that person’s contracts
would not apply.
Page 2
488. Re Walker [1905] 1 Ch. 160; Re Marshall [1920] 1 Ch. 284. cf. In the Estate of Walker (1912)
28 T.L.R. 466 (disposition by will).
489. Mental Health Act 1959 Sch.8.
490. Mental Capacity Act 2005 s.16(1)(b), (2) and see further ss.15, 16 and 18; Sch.7 para.1; ss.45
and 64(1).
491. Mental Capacity Act 2005 s.16(1)(b); s.18(1)(a), (b), (c) and (f).
492.
Peel, Treitel on The Law of Contract, 14th edn (2015) paras 12–056—12–057.
493. [2014] UKSC 18, [2014] 1 W.L.R. 933, above para.9-097.
494. [2014] UKSC 18, [2014] 1 W.L.R. 933 at [21], [25]–[30], above para.9-097.
495. Burgin v Dunhill [2014] UKSC 18 at [28] quoting Dietz v Lennig Chemicals Ltd [1969] 1 A.C.
170, 189 per Lord Pearson.

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(e) - Other Matters
Deeds
9-100
A deed executed by a person who lacks mental capacity for some purposes may still be valid if he is
capable of understanding the effect of the deed at the time of its execution. 496 Thus deeds executed
during a lucid interval are valid. 497 Where a deed executed by a mentally incapable person gives
effect to an agreement supported by consideration, then the general rule in Imperial Stone Co Ltd
applies so as to subject its avoidance to knowledge of the incapacity in the other party. 498 As with
contracts in general, a deed made with such a person may be set aside on equitable grounds, such
as relief against unconscionability. 499 On the other hand, where property is transferred by a deed
without any consideration, the gift is voidable irrespective of the donee’s knowledge. 500
Effect of principal’s lack of capacity upon agency
9-101
It has been said that at common law the insanity of a principal terminates the authority of an agent to
act on the ground that where the principal “can no longer act for himself, the agent whom he has
appointed can no longer act for him”. 501 It is submitted that (with the important exception of lasting
powers of attorney 502) where a principal develops a lack of capacity in respect of a particular
translation which he has entrusted to an agent, then the agent’s actual authority to make such a
transaction is also terminated. However, the agent’s apparent authority may continue beyond such a
time, and the agent may himself be liable for breach of an implied warranty of authority. 503 However,
this view of the authorities is not taken by the most recent edition of Bowstead & Reynolds on
Agency, which prefers instead to hold that the general rules governing the validity of contracts made
by an incapable person apply here too, with the result that:
“mental incapacity in a principal will not preclude his conferring actual authority on an
agent when the agent had no reason to know of the incapacity,[ 504] and such authority
will endure until the agent becomes aware of the incapacity (or the agency otherwise
terminates upon general principles) … The same principles should apply to the existence
of apparent authority, the incapacity of the principal not preventing any representation
made by him to the third party as to the agent’s authority from being effective, unless the
third party is aware of the incapacity.” 505
According to the Supreme Court in Dunhill v Burgin, the authorities are in a state of some confusion
on these points and, given that the issue did not arise for their decision, did not express any opinion
on the state of the law. 506 Subsequently, the Court of Appeal has expressed considerable sympathy
for the view that it is potentially unfair for the supervening incapacity of a principal (a litigant/client) to
Page 2
have the effect of automatically terminating the authority of their agent (a solicitor), exposing that
agent to the risk of liability for breach of warranty of authority. 507 However, the Court of Appeal did not
need to re-examine the authorities on this point as the issue before it concerned the narrower point
whether the incapacity frustrated the conditional fee agreement (CFA) between the litigant and their
solicitor, 508 holding that it did not as any instructions could be given by a litigation fried or
receiver/deputy after a delay for their appointment. 509
Powers of attorney
9-102
In general, an instrument creating a power of attorney must be executed by deed. 510 Unlike the
general effect of mental incapacity on a contract (which renders it voidable rather than void 511), an
instrument purporting to create a power of attorney executed by a mentally incapable person has
been said to be void at common law rather than voidable with the effect that any instrument made
under the purported exercise of that power is also void. 512 However, the Powers of Attorney Act 1971
provides protection to a person who has dealt with a donee of a power of attorney without knowledge
that it has been revoked, rendering any transaction between them “in favour of that person, as valid
as if the power had then been in existence”. 513 Special rules apply to “lasting powers of attorney” as
noted immediately below. 514
Lasting powers of attorney
9-103
The Mental Capacity Act 2005 Act made new provision for “lasting powers of attorney” which
replaced the “enduring powers of attorney” provided for by the Enduring Powers of Attorney Act 1985.
515
Under the provisions, a “lasting power of attorney” can include a power of attorney under which the
donor confers on the donee authority to make decisions about the donor’s property and affairs or
specified matters concerning his property or affairs “and which includes authority to make such
decisions in circumstances where [the donor] no longer has capacity”. 516 At the time of the execution
of the instrument conferring the lasting power of attorney, the donor must be adult and have “the
capacity to execute it”. 517 On the other hand, the donor may revoke the power “at any time when he
has capacity to do so”. 518
Legal estate vested in person lacking capacity
9-104
By s.22(1) of the Law of Property Act 1925 (as amended by the Mental Capacity Act 2005 519), where
a legal estate in land (whether settled or not) is vested in a person lacking capacity within the
meaning of the 2005 Act to convey or create a legal estate, a deputy appointed for him by the Court
of Protection or (if no deputy is appointed for him) any person authorised in that behalf shall, under an
order of the Court of Protection, or of the court, or under any statutory power, make or concur in
making all requisite dispositions for conveying or creating a legal estate in his name and on his
behalf. And by s.22(2) of the 1925 Act, if land subject to a trust of land is vested in a person who lacks
capacity within the meaning of the 2005 Act to exercise his functions as trustee, a new trustee shall
be appointed in the place of that person, or he shall be otherwise discharged from the trust, before
the legal estate is dealt with by the trustees. 520
496. Ball v Mannin (1829) 3 Bli. N.S. 1, 22; Elliott v Ince (1857) 7 De G.M. & G. 475; Re Beaney
[1978] 1 W.L.R. 770. But see above, para.9-098.
Page 3
497. Hall v Warren (1804) 9 Ves. 605; Selby v Jackson (1844) 6 Beav. 192; Birkin v Wing (1890) 63
L.T. 80; Re Beaney [1978] 1 W.L.R. 770. cf. Daily Telegraph Newspaper Co Ltd v McLaughain
[1904] A.C. 776.
498. Gibbons v Wright (1954) 91 C.L.R. 423, 444 and see above, paras 9-075 et seq.
500. Ernst v Elliott (1857) 7 De G.M. & G. 475 at 487, 26 L.J. Ch. 821 at 824; Sutton v Sutton [2009]
EWHC 2576 (Ch), [2010] W.T.L.R. 115 at [40]. On the effect of mental incapacity on powers of
attorney see Daily Telegraph Newspaper Co Ltd v McLaughain [1904] A.C. 776 and below,
para.9-102.
501. Drew v Nunn (1879) 4 Q.B.D. 661, 666–667. See also McLaughlin v Daily Telegraph
Newspaper Co Ltd (No.2) (1904) 1 C.L.R. 243 (HC Aus.); [1904] 1 C.L.R. 479 at 482 (PC
refusing special leave to appeal).
502. Below, para.9-103.
503. Drew v Nunn (1879) 4 Q.B.D. 661; Yonge v Toynbee [1910] 1 K.B. 215. See Vol.II,
para.31-056.
504. On this formulation of the general test at common law see above, paras 9-078—9-088.
505. Watts, Bowstead & Reynolds on Agency, 20th edn (2010), para.2–009 (citations omitted). This
passage did not appear in previous editions of the work.
506. [2014] UKSC 18, [2014] 1 W.L.R. 933 at [31]. See also Hudson (1959) 37 Canadian Bar Rev.
497.
507. Blankley v Central Manchester and Manchester Children’s University Hospitals NHS Trust
[2015] EWCA Civ 18, [2015] 1 Costs L.R. 119 at [36]–[37].
508. [2015] EWCA Civ 18 at [37].
509. [2015] EWCA Civ 18 at [38]–[39].
510. Powers of Attorney Act 1971 s.1.
511. Above, para.9-093.
512. Daily Telegraph v McLaughlin [1904] A.C. 776, 780 (P.C.) referring to Elliot v Ince (1857) 7
D.M. & G. 475.
513. Powers of Attorney Act 1971 s.5(2); Watts, Bowstead & Reynolds on Agency, 20th edn (2010),
para.2–009.
514. Below, para.9-103.
515. Mental Capacity Act 2005 ss.9–14 (in force on October 1, 2007: Mental Capacity Act
(Commencement No.2) Order 2007 (SI 2007/1897) art.2(1)(a)).
516. Mental Capacity Act 2005 s.9(1).
517. s.9(2)(c).
518.
s.13(2) and see TB v KJP [2016] EWCOP 6, [2016] W.T.L.R. 687.
519. Sch.6 para.4(2)(c).

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520. 2005 Act Sch.6 para.4(2)(c).

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Section 4. - Drunken Persons
Effect of drunkenness
9-105
In Pitt v Smith 521 in 1811, Lord Ellenborough held that a person in a state of complete intoxication has
“no agreeing mind”; and later, in an action for work and labour, held that proof that the plaintiff was
drunk when he signed what the defendant insisted was an agreement, dispensed with the necessity
of producing it, the instrument being a nullity. 522 It would appear that the test of incapacity by reason
of drunkenness is the same as that for persons lacking mental capacity, viz whether the person
alleged to be incapable was so drunk as not to understand what he was doing, and whether the other
party knew of his condition. 523 Moreover, given this close relationship between avoidance of a
contract on the ground of mental incapacity and on the ground of intoxication, if the former extends to
cases where the other party ought to have known of the incapacity, as stated by the Supreme Court
in Burgin v Dunhill, 524 then this extension of the rule should apply equally to cases of intoxication.
Where these conditions are satisfied, then the effect of drunkenness on a contracting party is voidable
at his or her option, and can accordingly be ratified when sober. 525 But other authorities suggest that
equity has a wider jurisdiction to set aside an unfair or unconscionable transaction entered into by a
person affected by drink. 526 It would seem that a similar approach would be taken to a contract made
under the influence of intoxicating substances other than alcohol, notably drugs. 527 In Barclays Bank
Plc v Schwartz, 528 Millett L.J. accepted that the reason for drunkenness of a party to a contract
affecting its validity is that like mental incapacity it deprives a person not only of a full understanding
of a transaction, but also of the awareness that he does not understand it.
Liability for necessary goods
9-106
For necessaries sold and delivered, the liability of a drunken person is, by s.3 of the Sale of Goods
Act 1979, 529 similar to that of a minor.
521. (1811) 3 Camp. 33.
522. Fenton v Holloway (1815) 1 Stark. 126.
523. Gore v Gibson (1845) 13 M. & W. 623; Molton v Camroux (1848) 2 Exch. 487 at 501, (1849) 4
Exch. 17; Imperial Loan Co Ltd v Stone [1892] 1 Q.B. 599; Hart v O’Connor [1985] A.C. 1000;
Irvani v Irvani [2000] 1 Lloyd’s Rep. 412, 425 and see above, para.9-075.
524. [2014] UKSC 18, [2014] 1 W.L.R. 933 at [1] and [25] on which see above, paras 9-078—9-088
where this view is considered.
Page 2
525. Matthews v Baxter (1873) L.R. 8 Ex. 132.
526. Cory v Cory (1747) 1 Ves. Sen. 19; Cooke v Clayworth (1811) 18 Ves. 12; Butler v Mulvihill
(1823) 1 Bligh 137; Wiltshire v Marshall (1866) 14 L.T.(N.S.) 396; Blomley v Ryan (1956) 99
C.L.R. 362. cf. Irvani v Irvani [2000] 1 Lloyd’s Rep. 412, 425. This question is related to the
wider question whether or not English law accepts a wide doctrine of “unconscionability”, on
which see above, paras 8-130 et seq.
527. Irvani v Irvani [2000] Lloyd’s Rep. 412.
528. The Times, August 2, 1995.

Page 1

Chapter 10 - Corporations and Unincorporated Associations
Section 1. - Corporations
(a) - Kinds of Corporations
Kinds of corporations
10-001
Corporations, which are legal personae just as much as are individuals, 1 are either sole or aggregate.
They may also be classified as ecclesiastical and lay, or as statutory and non-statutory. Lay
corporations may be either trading or non-trading. 2
Corporations sole and aggregate
10-002
A corporation sole consists of a single person and his successors in office, such as the Crown, an
archbishop, bishop or parson, the Treasury Solicitor, 3 or the Public Trustee. 4 It would seem that the
benefit 5 and burden 6 of contracts made with a corporation sole pass, on the death of the holder of
the office, to his successor in office; and contracts purportedly made with the corporation during a
vacancy in the office take effect on the vacancy being filled, subject to a right of disclaimer by the
successor in office. 7 A corporation aggregate is a legal person composed of individual members, but
with a continuous identity distinct from that of the members composing it. 8 It follows that it can hold
property in its own right, that its rights and liabilities are unaffected by changes in its membership and
that, generally speaking, its property but not that of its members is available to satisfy its liabilities.
Companies Act 2006
10-003
The Companies Act 1985 has been replaced by the Companies Act 2006 the provisions of which
were brought into effect in stages. Five commencement orders were made, 9 the final implementation
being October 1, 2009. 10 Section 1297 of the 2006 Act is a continuity of law provision. This section
provides that where the 2006 Act re-enacts a provision repealed (with or without modification) by the
Act, the repeal and re-enactment does not affect the continuity of the law. Also, and very importantly,
where there are references in articles of association, resolutions and contracts referring to a provision
in the 1985 Act which is replicated in the 2006 Act, the provisions of the 2006 Act will be applicable
(even if there have been verbal changes) unless it is intended that a change should be affected by the
2006 Act.
1. Re Sheffield, etc. Building Society (1889) 22 Q.B.D. 470, 476.

Page 2
2. There is also the European Economic Interest Grouping (EEIG) which is an entity distinct from
its members: see the European Economic Interest Grouping Regulations 1989 (SI 1989/638)
[1985] O.J. L199/1.
3. Treasury Solicitor Act 1876 s.1.
4. Public Trustee Act 1906 s.1.
5. Law of Property Act 1925 ss.180(1) and 205(1)(xx), reversing the common law rule in Howley v
Knight (1849) 14 Q.B. 240, 255.
6. See Co.Litt. 144b, n.2.
7. Law of Property Act 1925 s.180(3).
8. As to the juristic nature of corporations, see Wolff (1938) 54 L.Q.R. 494; Hart (1954) 70 L.Q.R.
37; Gower & Davies, Principles of Modern Company Law, 9th edn (2012), Chs 1 and 2; Rayner
(Mincing Lane) Ltd v DTI [1990] 2 A.C. 418; Adams v Cape Industries Plc [1990] Ch. 433.
9. Companies Act 2006 (Commencement No.1, Transitional Provisions and Savings) Order 2006
(SI 2006/3428 (c.132)); Companies Act 2006 (Commencement No.2, Consequential
Amendments, Transitional Provisions and Savings) Order 2007 (SI 2007/1093 (c.49));
Companies Act 2006 (Commencement No.3, Consequential Amendments, Transitional
Provisions and Savings) Order 2007 (SI 2007/2194 (c.84)); Companies Act 2006
(Commencement No.4 and Commencement No.3 (Amendment)) Order 2007 (SI 2007/2607
(c.101)); Companies Act 2006 (Commencement No.5, Transitional Provisions and Savings)
Order 2007 (SI 2007/3495 (c.150)).
10. For the implementation programme see The Companies Act 2006: Updating you; updating your
clients (BERR, 2008).

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(b) - Corporations in General
Corporation created by charter
10-004
A corporation created by charter can, unless prevented by some statute regulating its proceedings, 11
contract and deal with its property in the same way as an individual. 12 Contracts made by it outside
the terms of its charter are valid, but by making them the corporation renders itself liable to the
revocation of its charter. 13 But a member may obtain an injunction to restrain a chartered company
from acting on regulations which would materially change the character of the company and which
could not have been contemplated at the date of its incorporation. 14 But he cannot restrain the
corporation, acting on the wishes of a majority of its members, from applying to the Crown for an
alteration of the charter. 15
Corporation created by statute
10-005
The powers of a corporation, whether sole or aggregate, created by statute are confined to those
given expressly or by reasonable inference by the statute concerned. 16 If the subject-matter of a
contract made by such a corporation is outside the scope of its constitution as defined by the statute,
the contract is ultra vires and void. 17 This principle applies to all statutory corporations and not only to
companies incorporated under the Companies Act. 18 However, the ultra vires rule as far as it affects
a company registered under the 2006 Act has been abrogated by s.39 of the Act, 19 the overall
purpose of this provision being to guarantee security of transactions between companies and persons
with whom they deal. Ultra vires will still have relevance as regards director’s authority to bind the
company. 20
Corporations regulated by legislation
10-006
Certain corporations, although not created by statute, are regulated by legislation. Thus, the powers
of ecclesiastical corporations, sole and aggregate, are limited by particular statutory provisions 21; and
most charitable corporations 22 are subject to the control of the Charity Commissioners under the
Charities Act 1993.
11. See Att-Gen v Manchester Corp [1906] 1 Ch. 643.

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12. Sutton’s Hospital Case (1612) 10 Co. Rep. 23a; Baroness Wenlock v River Dee Co (1887) 36
Ch. D. 674, 685n; R. v Bonanza Creek Gold Mining Co Ltd [1916] 1 A.C. 566, 583-584;
Institution of Mechanical Engineers v Cane [1961] A.C. 696, 724-725; Pharmaceutical Society
of Great Britain v Dickson [1970] A.C. 403. See the Companies Act 2006 s.1043 Pt 33, Chs 1
and 2.
13. See the Companies Act 2006 s.1043 Pt 33, Chs 1 and 2 and see British South Africa Co v De
Beers Consolidated Mines Ltd [1910] 1 Ch. 354, 374-376; reversed on other grounds [1912]
A.C. 52. cf. Att-Gen, New Brunswick v St John [1948] 3 D.L.R. 693.
14. Jenkin v Pharmaceutical Society of Great Britain [1921] 1 Ch. 392. A similar action lies if the
alteration is in restraint of trade.
15. Gray v Trinity College, Dublin [1910] 1 Ir. R. 370.
16. For local authorities see Hazell v Hammersmith and Fulham London BC [1992] A.C. 1.
17. Ashbury Ry Carriage and Iron Co v Riche (1875) L.R. 7 H.L. 653.
18. Baroness Wenlock v River Dee Co (1885) 10 App. Cas. 354. The doctrine of ultra vires is
discussed further at below, paras 10-020 et seq. As to the application of this principle to
overseas companies, see Dicey and Morris on the Conflict of Laws, 13th edn (2000),
pp.1109-1116; Janred Properties Ltd v Ente National Per Il Turismo (No.2) [1986] 1 F.T.L.R.
246.
20. See paras 10-031—10-033.
21. Ecclesiastical Leasing Acts 1842 and 1858; Ecclesiastical Leases Acts 1861, 1862 and 1865.
22. On the nature of charitable companies see Liverpool and District Hospital for Diseases of the
Heart v Att-Gen [1981] Ch. D. 193.

Page 1

(c) - Attribution of Acts to a Company
10-007
It is a trite observation that a company can only act through the instrumentability of individuals to, for
example, enter into contracts. The question arises as to which individuals will bind the company so
that it is liable under a contract. The answer to this question is provided by the rules of attribution
whereby the acts of certain individuals are attributed to the company. The principles of attribution
were analysed by Lord Hoffmann in Meridian Global Funds Management Ltd v Securities Commission
. 23 First, there are the company’s primary rules of attribution which are to be found normally in the
company’s constitution (the articles and memorandum of association) and which will determine who
or which organ of the company can enter into transactions on behalf of the company. 24 The primary
rules of attribution may also be provided by the rules of company law, for example, the principle that
the unanimous decision of all the shareholders of a solvent company, even though given informally,
constitutes a decision of the company. 25 Coupled with the company’s primary rules of attribution are
general rules of attribution, namely, the principles of agency and vicarious liability. 26 There will be
situations, however, where the primary and secondary rules of attribution do not provide an answer
and in these situations the court will have to determine who, if anyone, for the particular matter under
consideration is intended to count as the person whose acts are attributed to the company.
Company’s name
10-008
The Business Names Act 1985 was repealed by the Companies Act 2006 27 and replaced by Pt 41 28
of that Act. Part 41 applies to a “person” carrying on business in the United Kingdom. 29 Chapter 1 of
Pt 41 contains prohibitions on the use of sensitive names, broadly names that suggest a connection
with a government department or which are subject to statutory regulations. Individuals and
partnerships are required to set out details as to their names where they are trading under a
“business name”. 30 Such disclosure is also required in “business documents”. 31 Failure to make such
disclosure can have criminal consequences 32 and can affect the company’s right to enforce any
contract. 33 There are no longer display rules of names by corporate bodies. The Secretary of State
may make regulations requiring every company to display its name in a specified way, to include its
name in specified documents, and to provide its name in the course of business. 34 Section 83 deals
with the civil consequences of failure to comply with the name disclosure regulations. Failure to
comply affects the right of the company to bring proceedings arising out of any contract with respect
to which the company was in breach of the name regulations, there is, however, no personal liability
imposed on the directors in this situation. 35
Abolition of old rule requiring seal: other formalities
10-009
Page 2
The contracts of a corporation sole were never required to be made under seal. 36 But the old
common law rule was that a corporation aggregate could contract only under seal. 37 The scope of
this rule had been greatly restricted by numerous statutory, common law and equitable exceptions; it
did not apply to companies incorporated under the Companies Act 38 and it was finally abolished
altogether by the Corporate Bodies Contracts Act 1960.
Deeds
10-010
Section 1(2) of the Law of Property (Miscellaneous Provisions) Act 1989, which defines what
constitutes a deed, applies to companies. How a deed is to be executed by a company is set out in
ss.44–47 of the 2006 Act. 39 Section 44(1)(a) provides that a contract can be executed by a company
by affixing the company’s common seal or, as provided for in s.44(1)(b), by a “signature in
accordance with the following provisions” in the section. These provisions permit a document to be
executed by “two authorised signatories” 40 and for this purpose every director of the company and,
where the company has one, the secretary are authorised persons. 41 To be binding on the company
the document must be “executed by the company” 42 which requires that it be apparent from the face
of the document that it is being “executed by the company” and not merely by someone acting as
agent for the company. 43 Accordingly where there is a requirement that something must be done
“personally”, this can be done by a company by complying with s.44. 44
23. [1995] A.C. 500 PC. See also Bank of India v Morris [2005] EWCA Civ 693, [2005] 2 B.C.L.C.
328; Moore Stephens (a firm) v Stone & Rolls Ltd (In Liquidation) [2009] UKHL 39, [2009] 1
A.C. 1391 (Lords Scott and Mance dissenting). The principles of attribution are developed more
fully in paras 16-175 et seq.
24. See, e.g. art.70 of Table A Companies (Tables A–F) Regulations 1985 (SI 1984/805),
Companies (Model Articles) Regulations 2008 (SI 2008/3229) art.3.
25. Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd
[1983] Ch. 258.
26. See New Zealand Guardian Trust Co Ltd v Brooks [1995] 1 W.L.R. 96.
27. Sch.16.
28. This is excluded from those parts of the Act deemed to constitute “the Companies Act” as it
applies to business names in general: see Companies Act 2006 s.2.
29. s.1192(1).
30. s.1200.
31. s.1202.
32. s.1205.
33. s.1206.
34. s.82.
35. Companies Act 1985 s.349(4) has not been replicated.
36. Bl. Comm. Vol.I, at 475.

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37. Yarborough v Bank of England (1812) 16 East 6; Ludlow Corp v Charlton (1840) 6 M. & W. 815;
A.R. Wright & Son Ltd v Romford BC [1957] 1 Q.B. 431.
38. See now s.43 of the 2006 Act.
39. See Lovett v Carson Country Homes Ltd [2009] EWHC 1143 (Ch), [2009] 2 B.C.L.C. 196.
40. s.44(2)(a).
41. All public companies must have a secretary; a private company does not need to have one but
may do so: s.270 and s.271. A document can also be validly executed by a director in the
presence of a witness who attests the signature: s.44(3)(b).
42. s.44(4).
43. Williams v Redcard Ltd [2011] EWCA Civ 466, [2011] 2 B.C.L.C. 350 at [18] (appellants’
submissions).
44. City & County Properties Ltd v Plowden Investments Ltd [2007] L. & T.R. 15. See also Hilmi
Associates Ltd v 20 Pembridge Villas Freehold Ltd [2010] EWCA Civ 314, [2010] 3 All E.R. 391.

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(d) - Registered Companies 45
Registered companies
10-011
This section is principally concerned with companies registered under the Companies Acts, but many
of the principles herein discussed also apply to corporations created by particular private or public
Acts.
45. This is not a summary of company law, but only of the law applicable to the contracts of
companies.

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(i) - Contracts between Companies and Third Parties
Pre-incorporation contracts
10-012
Contracts entered into before a company is registered can, prima facie, bind or confer rights only on
the actual makers of the contract and not the company, 46 the reason for this being that a company
could not be bound by a contract entered into when it was non-existent. 47 At common law such
contracts could even be completely null and void if the persons purporting to sign on behalf of the
company were not the real principals. 48 However, the courts are strongly disposed to give effect to
pre-incorporation contracts and, acting on the maxim ut res magis valeat quam pereat, the agent
more likely than not will be personally bound on the contract particularly where both parties were
aware at the time of contracting of the non-existence of the company. 49 It must be emphasised,
however, that at common law there was no general rule that a person acting for a non-existent
principal would be automatically bound by the contract; in the final analysis the agent’s liability turns
on the intention of the parties. 50 The common law was significantly modified by the need to
implement art.7 of the First Directive on Company Law which deals with pre-incorporation contracts. 51
Article 7 was first implemented by s.9(2) of the European Communities Act 1972, was consolidated
into s.36(4) of the Companies Act 1985 and became s.36C of the 1985 Act 52 and is now restated in
s.51 of the 2006 Act. What is stated in the text with respect to ss.36(4) and 35C is equally applicable
to s.51. Commenting on s.36(4), Oliver L.J. in Phonogram Ltd v Lane 53 stated that it swept away the
“subtle distinctions” of the common law so that:
“[W]here a person purports to contract on behalf of a company not yet formed, then
however he expresses his signature he himself is personally liable on the contract.” 54
Phonogram Ltd v Lane was the first case 55 to interpret s.36(4), and the Court of Appeal rejected
attempts to construe narrowly the effect of the section. In particular, it rejected the argument that the
phrase “subject to any agreement to the contrary” should be interpreted to relieve a person of liability
where he signs the contract as agent, in that this could be taken as evincing an agreement that the
person acting for the company was not to be personally liable. 56 A person acting for an unformed
company could only avoid liability under s.36C where there was an “express agreement” 57 that he
was not to be liable. In Royal Mail Estates Ltd v Maple Teesdale 58 it was argued that such an
“agreement to the contrary” could arise in one of two ways. The first was that a contrary agreement
exists where there is a “contractual provision which … is inconsistent with a consequence which flows
(or consequences which flow) from the section 36C effect”. The second is that there is “only a
contrary agreement … if there is found to be an agreement between the parties by which they
intended to exclude the section 36C effect”. 59 In Royal Mail Estates Ltd v Maple Teesdale the
defendants had signed a contract on behalf of an unincorporated company. The reason why the
s.36C issue arose was that the contract contained a term that the benefit of the contract “is personal
to the Buyer and is not capable of being assigned by the Buyer other than being novated …”. It was
Page 2
argued that this constituted an “agreement to the contrary” and accordingly fell within the terms of
s.36C, in other words the first method for showing a contrary agreement was applicable. This was
rejected by the court which adopted the second approach set out above, namely that there had to be
an explicit agreement in order to exclude the operation of s.36C. Section 36C creates a deemed
contract which confers mutual obligations and rights, that is, it not only confers obligations on the
agent who acted for the non-existent company but also confers a right of enforcement against the
other party to the contract provided it is a situation where the ordinary principles of the common law of
agency would entitle the agent to enforce the contract against the third party. 60 In determining who is
the “agent” for the purpose of the section it is the person who purported to make the contract for the
company and there is no need to establish from the totality of the negotiations that the purported
agent was the moving mind and will of the whole transaction. 61 Where a person contracts on behalf
of a company which has been struck off the register, and later forms a new company, the section
does not apply as the new company was not in contemplation when the contract was entered into. 62
10-013
Section 36C does not affect the company itself, and it remains the law that a company is not entitled
to the benefits of, or bound by the liabilities in, a contract entered into before it was incorporated. But
in some circumstances a company may acquire rights or incur liabilities at law or equity in respect of a
transaction originally entered into before the incorporation of the company. Broadly speaking, for a
company to be so liable it must enter into a new contract after it has been incorporated, but it is
arguable (as will be seen later) that a company can be liable in other circumstances.
At law
10-014
A company cannot ratify or adopt a contract made ostensibly on its behalf before its incorporation,
since a person cannot by a subsequent ratification make himself liable as a principal where he was
not in existence at the time of the original contract. 63 Before a company is bound it must enter into a
new contract. If promoters purport to enter into a contract on behalf of a company before its
incorporation, the facts may show that a new contract is made with the company after its
incorporation on the terms of the old. But the circumstances relied on for this purpose must be
necessarily referable to, or must necessarily imply, a new contract between the company and the
other contracting party. 64 This is a question of fact. 65 Where the company’s conduct is attributable to
its mistaken belief that it was bound by the original contract 66 or is attributable to the performance by
the company of a contract between it and, for example the promoters, 67 it will be difficult, if not
impossible, to show that the company’s conduct is necessarily referable to a new contract with the
other contracting party. In Rover International Ltd v Cannon Film Sales Ltd 68 Harman J. rejected the
argument that the doctrine of estoppel by convention could operate to preclude the company from
claiming that it was not bound by a pre-incorporation contract if both parties to the contract had, after
the company’s incorporation, acted as though it were bound. 69 He reasoned that where estoppel by
convention operates it must relate to an “assumption of agreed facts … (existing) before the contract
or dealing is made or agreed” and as the company did not exist at the time the contract was entered
into there was accordingly no basis on which the estoppel could operate. Admittedly, in Amalgamated
Investment and Property Co Ltd v Texas Commerce International Bank Ltd 70 the facts on which the
estoppel was based existed at the time the purported contract was entered into, but it is submitted
that it is an unnecessarily narrow reading of the estoppel doctrine to confine it to facts that existed at
the time the contract was entered into. There is, however, no reason in principle why the estoppel
should not date from the time the company is incorporated. The estoppel point was not pursued on
appeal in the Rover International case, 71 but the court allowed a quantum meruit claim with respect to
services rendered by the company after it had been incorporated. Where the company, after its
incorporation, has taken possession of property belonging to the other contracting party in pursuance
to the agreement, 72 or has agreed to modify the terms of the original contract, 73 it will be easier to
infer the making of a new contract.
In equity
Page 3
10-015
Equity also will not assist (in the sense of enforcing a contract) a person who has entered into a
contract for the benefit of a corporation which, at the time of the making of the contract, did not exist,
and it will not, it would seem, enforce such contracts unless they are enforceable at law. 74 It is true
that there are certain late nineteenth-century decisions in which courts of equity did enforce such
contracts on the ground that the company had “adopted” the promoters’ contract 75; but the distinction
between ratification and adoption was never clear 76 and they can no longer be relied upon. 77 Another
attempt to enforce pre-incorporation contracts against companies sought to utilise the device of the
trust; thus where a promoter had contracted with third parties that a company not yet in existence
should pay the third parties £2,000 in consideration for certain services by the third parties, and the
promoter was in a position to sue the company for that remuneration, the promoter was held to be a
trustee for the third parties of his right of action, and the third parties, being cestuis que trustent, could
sue the company. 78 But the courts are increasingly reluctant to imply a trust in such circumstances, 79
and, in any event, as later decisions show, the promoter will not have any right of action to hold in
trust for the benefit of a third party unless the company, after its incorporation, makes a contract with
him. 80
Pre-incorporation benefits
10-016
A company is under no liability, either at law or in equity, to pay for benefits rendered to it prior to its
incorporation. 81 So, for instance, a company is not bound to reimburse a promoter in respect of the
expense of incorporation 82 unless after it has been formed it enters into a binding contract to do so.
Similarly, a company is not bound by any agreement made by its promoters that it will, when formed,
pay something to a third party who has agreed not to oppose the formation of the company in
consideration of such a payment. 83 There are some nineteenth-century cases concerning the
incorporation of railway companies by private Acts of Parliament which suggest that the court will not
allow such a company to exercise its statutory powers without performing undertakings contained in a
contract made by the promoters with a third party, in consideration of which that party agreed not to
oppose the formation of the company. 84 But equity will not interfere even to this extent unless the
original contract would have been intra vires of the company if originally made by the company. 85
Post-incorporation benefits
10-017
It may be that a company will benefit in a tangible way from acts arising under a pre-incorporation
contract which does not give rise to any contractual claim by the other party to the contract. With the
recognition of unjust enrichment as a ground for granting restitutionary remedies, 86 there are now a
range of doctrines that can be invoked by the party providing the tangible benefit to obtain restitution
for the benefit conferred. Where property or money has been transferred to a company pursuant to a
preincorporation contract, the property or money may be recovered on the basis that the transfer or
payment was made under a mistake of fact. 87 Alternatively, recovery may be available on the
grounds of failure of consideration in the sense that the plaintiff has not received any part of the
consideration bargained for under the purported contract. 88 In Westdeutsche Landesbank
Girozentrale v LBC of Islington 89 it was held that there was a general principle that moneys, paid
under an ultra vires contract that was void ab initio, were recoverable on the grounds of total failure of
consideration, or on equitable principles entitling a transferor to recover property that in equity
belonged to him. Since a preincorporation contract is, like an ultra vires contract, void, these
principles could also be applied to moneys paid to a company pursuant to a pre-incorporation
contract. 90 Where benefits are conferred on a company on the basis of a pre-incorporation contract,
the party providing the benefit will be entitled to a quantum meruit. 91
10-018
Page 4
It is submitted that money in the hands of a company can be “traced” no less when it has come into
the company’s hands as the result of a pre-incorporation contract than when it has done so as the
result of an ultra vires contract, 92 and that the ordinary rules of equity also apply where a company
has stood by and allowed another to expend money on its property in the mistaken belief, based on a
pre-incorporation contract and known to the company, that he has some interest in that property. 93
Public companies: trading certificate
10-019
A company which is registered as a public company shall not do business or exercise its borrowing
powers unless it obtains a certificate from the registrar of companies. 94 Broadly speaking, the
registrar is obliged to issue such a certificate once he has been satisfied that the company possesses
the necessary allotted minimum share capital. 95 Failure to obtain a certificate can give rise to criminal
and civil consequences. In particular, if a public company trades without a certificate and fails to
obtain one within 21 days from being called upon to do so, the directors of the company shall be
jointly and severally liable to indemnify the other party to the transaction in respect of any loss or
damage suffered by him by reason of the failure of the company to comply with those obligations. 96
Ultra vires contracts 97
10-020
A company which owes its corporate existence to statute has not the inherent common law powers of
chartered corporations. 98 Indeed, it has only capacity to enter into contracts authorised by the objects
clause in its memorandum of association, or, in the case of companies not registered under the
Companies Act 2006, by the terms of its special Act. Thus, it was held in Ashbury Ry Carriage & Iron
Co v Riche 99 that any contract outside the scope of the objects clause is ultra vires of the company
and void, even if the whole body of shareholders in the company assent to it. 100 A member of a
company 101 is entitled to an injunction to restrain the company and its directors 102 from entering into
an ultra vires contract or otherwise acting outside the powers of the company, e.g. criminally. 103
Although ss.35–35C of the Companies Act 1985 (originally s.9(1) of the European Communities Act
1972) greatly reduced the importance of the ultra vires doctrine, the provisions did not completely
abrogate the effect of the doctrine, and there were some situations (although these were rare) where
the common law doctrine had relevance. More importantly, as stated earlier, some knowledge of the
common law is needed in order to understand fully the statutory modifications of the ultra vires
doctrine. Accordingly, the common law position is discussed in the next six paragraphs, and the
Companies Act 2006 is then considered. 104 At this point it must be emphasised that the development
of the ultra vires doctrine since the Riche decision also witnessed judicial attempts, on the whole
successful, to attenuate the doctrine so that a person dealing with a company will not be prejudiced
by the latter’s lack of capacity except in exceptional circumstances.
Scope of the rule
10-021
The phrase ultra vires “should be restricted to those cases where the transaction is beyond the
capacity of the company and therefore wholly void”. 105 The question whether the making of a
particular contract is or is not ultra vires of the company depends upon the terms of the company’s
memorandum of association, which at the time had to state the company’s objects. 106 Explaining the
rule Lord Wrenbury 107 said:
“The purpose, I apprehend, is twofold. The first is that the intending corporator who
contemplates the investment of his capital shall know within what field it is to be put at
risk. The second is that anyone who shall deal with the company shall know without
Page 5
reasonable doubt whether the contractual relationship into which he contemplates

entering with the company is one relating to a matter within its corporate objects.”
As was stated by Browne-Wilkinson L.J. in Rolled Steel Products (Holdings) Ltd v British Steel
Corporation 108:
“The question whether a transaction is outside the capacity of the company depends
solely upon whether, on the true construction of its memorandum of association, the
transaction is capable of falling within the objects of the company.”
At common law the doctrine is not dependent on the person dealing with the company having notice
of the company’s lack of capacity; it operates regardless of the third party’s state of knowledge as
regards the contents of the company’s objects clause. 109 In a number of cases it was held that where
a company exercised a power which it undoubtedly possessed but for a purpose which was ultra
vires, and this purpose was known to the party dealing with the company, the contract would be ultra
vires in the sense of being outside the capacity of the company and hence void. 110 However, in the
Rolled Steel decision the Court of Appeal considered that these cases should be treated as cases
dealing with an abuse of the company’s powers, not with corporate capacity, with the result that the
transactions in these cases would be enforceable against the company unless the party dealing with it
had notice (actual or constructive) that the transaction was in excess of or an abuse of the company’s
powers. 111 Normally a transaction falling within a company’s objects clause will be within the vires of
a company. However, in certain situations a provision in the objects clause may not be capable as
existing as an object and may be merely an ancillary power; for example, the power to borrow. 112
Formerly parties dealing with companies were deemed to have notice of companies’ memoranda of
association 113 but this rule has now been abrogated. 114
What contracts are ultra vires
10-022
It has been repeatedly asserted that the ultra vires doctrine must be reasonably applied, and that any
contract made by a company which may fairly be regarded as incidental to or consequential upon
those things which are authorised by the memorandum is not, unless expressly prohibited, to be held
ultra vires. 115 This depends on the circumstances of each case. Thus a trading corporation has
implied power to borrow money either upon security or otherwise, 116 to sell its property, 117 to
purchase the subject matter of its business, 118 or to compromise claims made by or against it. 119
Wide powers given by general words in the memorandum of association may be construed as only
ancillary to the company’s main objects 120; but this rule of construction may be excluded by the
wording of the memorandum. 121 Not all the activities stated in a company’s objects clause are
necessarily objects in the strict sense, and “some of them may only be capable of existing as, or on
their true construction are, ancillary powers”. 122 Thus, for example, (as was stated earlier) a provision
in a company’s objects clause relating to borrowing will normally be treated as a power and not an
independent object. 123 The courts have strained to interpret objects clauses liberally so as to validate
transactions. In Re New Finance & Mortgage Co Ltd 124 the operation of a petrol station was held to
fall within the terms of an objects clause authorising the company to carry on the business of
“merchants generally”. Goulding J., in the course of his judgment opined that the company’s entire
“objects clause is too loosely drawn to be of any real value to subscribers or persons dealing with the
company”. 125
Opinion of the directors
10-023
Whether a contract is ultra vires or not depends in principle on whether the memorandum does in fact
authorise the transaction in question, and not on whether the directors think that it does. 126 But where
Page 6
a memorandum states that the company can carry on any business which, in the opinion of the board
of directors, can be advantageously carried on in connection with, or as ancillary to, its authorised
business, the position is different. In such circumstances the bona fide opinion of the directors that a
business can be advantageously carried on in connection with, or as ancillary to, the company’s
principal business will suffice to render the former business intra vires. 127 The memorandum of a
company may contain a statement that the powers of the company, or a particular power, must be
exercised for “purposes of the company”. Normally the court will construe this as being a limitation on
the powers of the directors and not as a “condition limiting the company’s corporate capacity”. 128
No ratification or estoppel
10-024
An ultra vires contract was not capable of ratification by a company 129; nor can the company be
estopped by deed 130 or otherwise 131 from showing that they had no power to do that which they
profess to have done. 132
Effect of ultra vires borrowing
10-025
A loan contracted by persons on behalf of a company which has no power to borrow does not create
an indebtedness on the part of the company either at law or in equity. 133 Securities deposited by the
company to secure such a loan can be recovered by it from the lender. 134 The money borrowed
cannot be recovered from the company upon an implied promise to repay, as money had and
received by the company to the use of the lender. 135 But if any part of the money which has been
borrowed has been applied in discharging the company’s debts, the lender is entitled to have that part
of the loan treated as valid. 136 However, the lender is not subrogated to any securities or priorities
enjoyed by the creditors who are paid by means of his money, the reason for this being that the ultra
vires unsecured creditors should not be put in a better position than the company’s unsecured
creditors. 137 Money which is in the company’s hands as the result of an ultra vires loan is treated as
money belonging to the purported lender. So long therefore as that money is identifiable or traceable
the lender is entitled to recover it or to a charge on the fund of which it forms part. 138
Recovery of property of money under ultra vires transaction 139
10-026
Where money or property is transferred under an ultra vires contract it can be recovered on the
ground that since the contract was wholly void there was an inadequacy of consideration. 140
However, this right or recovery would not be available if the defendant could invoke the defence of
change of position, that is, the recipient of the money had so changed his position that it would be
inequitable to compel him to make restitution or to make restitution in full. 141
Sections 39–42
10-027
Article 9 of the First Directive on Company Law 142 requires member states to introduce legislation
abrogating the doctrine of ultra vires so as to ensure security of transactions between companies and
those with whom they contract. This aspect of the Directive was first implemented by s.9(1) of the
European Communities Act 1972 143 which became s.35 of the 1985 Act. Section 35 was amended by
s.108 of the Companies Act 1989 which inserted ss.35–35B into the 1985 Act. 144 The relevant
provisions of the Companies Act 2006 are ss.39–42. These provisions also deal with the
interrelationship of ultra vires and director’s authority. 145
Page 7
Objects
10-028
Fundamental changes were introduced to the doctrine of ultra vires and the role of objects clauses in
a company’s constitution by the Companies Act 2006. Section 8 of the 2006 Act provides that a
company’s memorandum must merely state that the subscribers 146 to it wish to form a company
under the Act, agree to become members, and in the case of a company with a share capital, to take
at least one share each. 147 Thus the memorandum no longer contains an objects clause. A
company’s objects (if any) will be contained in a company’s articles of association. Section 31(1) of
the 2006 Act provides that “[u]nless a company’s articles specifically restrict the objects of the
company, its objects are unrestricted”. Provisions in the memorandum of pre-2006 Act companies
(which would include objects) are now treated as provisions in the company’s articles other than
provisions required to be in the memorandum by s.8 of the 2006 Act. 148 Where a company amends it
articles to add, remove or alter its objects, notice must be given to the registrar and the amendment is
not effective until it is registered by the registrar. 149 The company’s constitution binds the company
and its members “to the same extent as if there were covenants on the part of the company and of
each member to observe” its provisions. 150 Section 171 of the 2006 Act imposes on the directors a
statutory duty to act in accordance with the company’s constitution 151 (which would cover any
objects) and the shareholders have standing to enforce such a duty. 152
Corporate capacity
10-029
In reforming the doctrine of ultra vires so as to ensure security of transactions between companies
and those with whom they deal, it is necessary to ensure that the validity of the transaction cannot be
called into question on the grounds of the company’s want of capacity. This is clearly done by s.39 of
the 2006 Act which provides that the “validity of an act done by a company” shall not be called into
question by reason of anything in the company’s constitution. Any contract can be enforced by or
against the company even though it is not authorised by the company’s constitution. Since a
company’s objects clause both confers capacity and restricts it, this means that the restriction, implicit
by stating objects in the articles, does not affect the validity of any act entered into by the company. It
is important to note that the section refers to an “act” of the company, a word that is of the widest
import. The common law rule that a company could not ratify an ultra vires transaction has been
jettisoned as ratification of such a transaction is now a matter of internal management given that the
objects (if any) are now contained in the articles. Where a contract can be avoided because of a
conflict of interest of a director who is a party to the contract, the European Court of Justice has held
that this does not constitute a breach of art.9(1) of the First Directive. 153 This deals with “abuse” of
authority rather than “want” of authority. 154
Ultra vires and director’s duties
10-030
It is a breach of duty for directors to enter into an ultra vires transaction since as fiduciaries they must
keep within the limit of their powers arising from the limit on their principal’s capacity. 155 The reform of
ultra vires so as to ensure security of transactions, does not require that a director’s duty to the
company to act within its objects should in any way be modified. Section 171(a) provides that a
director must act in accordance with the company’s constitution.
10-031
An agent only has authority to act for the benefit of his principal unless the parties otherwise agree. 156
The same rule applies to directors. As was stated by Lord Nicholls in Criterion Properties Plc v
Stratford UK Properties Ltd 157:
Page 8
“If a company (A) enters into an agreement with B under which B acquires benefits from
A, A’s ability to recover these benefits from B depends essentially on whether the
agreement is binding on A. If the directors of A were acting for an improper purpose when
they entered into the agreement, A’s ability to have the agreement set aside depends
upon the application of familiar principles of agency and company law. If, applying these
principles, the agreement is found to be valid and is therefore not set aside, questions of
‘knowing receipt’ by B do not arise. So far as B is concerned there can be no question of
A’s assets having been misapplied. B acquired the assets from A, the legal and beneficial
owner of the assets, under a valid agreement made between him and A. If, however, the
agreement is set aside, B will be accountable for any benefits he may have received from
A under the agreement. A will have a proprietary claim, if B still has the assets.
Additionally, and irrespective of whether B still has the same assets in question, A will
have the personal claim against B for unjust enrichment, subject always to the defence of
change of position. B’s personal accountability will not be dependent upon proof of fault
or ‘unconscionable’ conduct on his part. B’s accountability, in this regard, will be ‘strict’.”
Ultra vires and director’s authority
10-032
The authority of directors entering into contracts binding on a company is also constrained by the ultra
vires doctrine since directors either individually or collectively could not possess any greater authority
than their principal. If the doctrine of ultra vires is to be successfully abrogated it is also necessary to
deal with this aspect of the problem. Section 40(1) provides that in “favour of a person dealing with a
company in good faith” the power of the board shall be deemed to be free of any limitation flowing
from the company’s constitution; the same applies to the power of the directors to authorise others to
act on behalf of the company. 158 Section 40 restates ss.35A and 35B of the 1985 Act and decisions
dealing with these sections are equally applicable to s.40. Critical to the operation of this provision are
the concepts of “dealing with” and “good faith”. Both are defined in s.40(2). Section 40(2)(a) provides
that a person deals with a company if he is a party to any act or transaction to which the company is a
party. This would cover not only commercial transactions but also transactions which are gratuitous.
159
In Smith v Henniker-Major & Co 160 a director, at an inquorate board meeting, purported to assign
to himself an asset of the company (a cause of action against the company’s solicitors). This raised
two issues: (a) was the failure to hold a quorate meeting a “limitation under the company’s
constitution” within s.35A(1) (s.40(1)); and (b) was a director a “person” protected by s.35A (s.40). As
regards issue (a), Robert Walker L.J. considered that the question was what was the “irreducible
minimum, if s.35A (s.40) is to be engaged”. 161 In determining whether or not s.35A(1) (s.40(1))
applied it was necessary to distinguish “between a nullity (or non-event) and a procedural regularity”
162
the section only applying to the latter situation. On the facts Robert Walker L.J. held that the defect
in the case, namely the inquorate board meeting, was a procedural irregularity and therefore fell
within s.35A (s.40) as being a limitation under the company’s constitution. Carnwarth L.J. considered
the distinction between nullity and procedural irregularity to be unhelpful. He considered that the
proper approach would be to determine if the act in question was carried out by someone appearing
to be acting on behalf of the company, 163 and in the case he held that this test had been satisfied. As
regards issue (b), the majority (Schiemann and Carnwarth L.JJ.) held that, at least on the facts of the
case where the director was acting for the company, a director could not benefit from s.35A (now s.40
of the 2006 Act). In EIC Services Ltd v Phipps 164 the Court of Appeal held that in the case of a bonus
issue of shares, which is an internal corporate arrangement with no alteration in the assets of
liabilities of the company, a shareholder could not be held as dealing with the company within the
terms of s.35A (s.40).
10-033
The definition of “good faith” is more tortuous and indirect. Section 40(2)(b)(iii) provides that a person
shall not be treated as acting in bad faith by reason of his knowing that the act or transaction is
“beyond the powers of the directors under the company’s constitution”. This is not a definition of
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“good faith” but rather the singling out of a particular act as not constituting “bad faith”. The reason for
this is to found in art.9(2) of the First Directive. This provides that the:
“… limits on the powers of the organs of the company, arising under the statutes or from
a decision of the competent organs, may never be relied on as against third parties, even
if they have been disclosed.”
This Article only deals with restrictions on the scope of an agent’s or organ’s 165 authority and not with
the abuse of authority. Although the provision does not contain any “good faith” limitation it is clear
from the debates on the implementation of the Directive that it was not designed to protect persons
who were acting in bad faith, 166 for example, entering into a transaction which they knew the directors
were entering into not in the interests of the company but in their own interests. 167 This position has
been implicitly adopted by the Court of Justice of the EU. 168 Thus (s.40(2)(b)(iii)) attempts to steer
between actions which are in excess of authority as opposed to acts which constitute an abuse of
authority—the dividing line between these situations will often be wafer thin in that a failure by
directors to observe the limitations of a company’s objects clause may often be indicative of a failure
to act in the interests of the company. Good faith should not be interpreted as “reasonableness” 169
and failure to understand a company’s objects should not be taken as evidence of bad faith, 170 but
the more implausible the interpretation the easier it will be for the company to show an absence of
good faith. 171 There is a presumption that a person has dealt with the company in good faith and the
onus is on the company to prove the contrary. 172
Limitations on director’s authority and shareholder rights
10-034
As we have already seen when discussing corporate capacity, 173 a member of a company has the
right to compel the company to observe the company’s articles and memorandum of association. If
this right were not curtailed then, similarly with the abrogation of the ultra vires doctrine, it would be
possible for shareholders by asserting this right to enforce indirectly limitations on the powers of
directors against third parties. To prevent this from happening, s.40(4) provides that no proceedings
by a member shall lie to enjoin a company from entering into a transaction in fulfilment of a legal
obligation arising out of a previous act of the company and this would cover legal obligations arising
because of s.40 174; a member still retains the right to bring proceedings to restrain an action which is
beyond the powers of the directors. 175
Constructive notice
10-035
As previously stated, 176 it was a principle of company law that a person dealing with a company was
deemed to have constructive notice of the company’s public documents and, while there was some
uncertainty as to what exactly fell within the category of public document for this purpose, it
undoubtedly covered the company’s memorandum and articles of association. 177 It is obviously a
necessary corollary to the abrogation of the doctrine of ultra vires that this doctrine be also
substantially repealed. This has been achieved by s.40(2) which provides that a person dealing with a
company is not bound to enquire as to any limitation on the powers of the directors to bind the
company or authorise others to do so.
Ultra vires contracts involving directors
10-036
It is not felt proper that a director should benefit from s.40 in the case of contracts in which the
director was personally involved. Where a director of the company or of its holding company or any
Page 10
person connected with such a director is a party to a transaction which exceeds any limitation on the
powers of the directors, such transaction is voidable. 178 Also, irrespective of whether it is avoided, the
director will be obliged to account to the company for any profit or to indemnify it for any loss. 179
Where a person (not a person connected with a director) who is a party to a contract along with a
director to whom this provision applies, such person may petition the court to have the contract
affirmed, severed or set aside on such terms as the court thinks fit. 180
Charitable companies
10-037
Sections 39 and 40 181 do not apply to the acts of a company which is a charity except in favour of a
person: (i) who gives full consideration in money or money’s worth; (ii) does not know that the act is
not permitted by the company or that it is beyond the powers of the directors; or (iii) does not know
that at the time the relevant act was done that the company was a charity. 182 In any proceedings the
burden of proving that the person knew that the company was a charity or knew that the act was not
permitted by the company’s constitution or was beyond the powers of the directors lies on the person
asserting that fact. 183 There is added protection for persons who acquire an interest in or over
property acquired from a charitable company. 184
Other applications of ultra vires principle
10-038
The ultra vires doctrine has sometimes been invoked to explain the invalidity of certain types of
contracts entered into by companies, though in truth these appear to have little to do with the
contractual capacity of companies. For example, prior to the Companies Act 1981, a contract by a
company to purchase its own shares was void, 185 and a contract by a company to provide financial
assistance in connection with the purchase of its own shares was illegal and unenforceable. 186 Again,
a contract entered into by a company will not be binding on it if its directors have not been acting
bona fide in the interests of the company in making the contract and this is known to the other party to
the contract. 187 But cases of this kind do not appear to involve questions of capacity and are
explicable on other grounds 188 (e.g. illegality or agency) which do not properly fall within the scope of
this chapter.
Ratification of unauthorised act of officer
10-039
If a contract is beyond the powers of the officer of the company by whom it was effected, it may be
ratified by the company so as to become binding upon it. 189 This also applies to a contract which is
outside a company’s objects as the objects are now in the articles and the shareholders would be
ratifying a breach of the articles, something which is a matter of internal management. 190 In addition,
there may by acquiescence in the act of the directors (if any) so that the company is estopped from
objecting to its validity. 191 The test of acquiescence in such cases is whether the shareholders had
notice of the way in which the affairs of the company were being conducted and were content not to
oppose those acts which they knew were being done. 192 So, where everything that is done by the
directors is known to and acquiesced in by a sole beneficial shareholder, 193 or by all shareholders
with a right to attend and vote at a general meeting, 194 the company will be bound by the directors’
acts whatever the company’s constitution may say unless those acts are illegal. Where a corporation
actually takes the benefit of a contract made in an irregular manner, the adoption will amount to
ratification. 195
Royal British Bank v Turquand

Page 11
10-040
Where a director enters into a contract on behalf of a company, the company may be bound either by
the ordinary rules of agency or by virtue of the rule in Royal British Bank v Turquand. 196 The latter
has been variously described as part of the law of agency, 197 and as distinct from it, 198 but more
recently authority has strongly favoured the first line of reasoning. 199 But it is generally agreed that
this branch of the law presents exceptional difficulties although many of these have been reduced by
s.40 of the 2006 Act. The general rule is that a stranger is entitled to assume that matters of internal
management have been regularly carried out and that the formalities (if any) necessary to enable the
company’s officers to exercise their powers have been duly performed. But one who has notice that
an agent of a company is contracting in excess of his authority cannot enforce that contract against
the company. 200 Formerly notice of the memorandum and articles of association was imputed to
every person having dealings with the company, 201 but this rule is effectively abrogated by s.40(2) of
the 2006 Act. 202 The result of this seems to be that, whatever its original significance, the rule in
Turquand’s case now falls to be treated in most cases as part of the ordinary law of agency. The
section has thus made no longer applicable cases holding (for example) that where directors have, by
the articles, a power to borrow only up to a certain amount, any loan beyond that amount will be
beyond the authority of the directors and therefore not binding on the company. 203
10-041
The rule in Turquand’s case, 204 however, does not apply where the circumstances are such as to put
the third party on inquiry, as for example, where a bank negligently paid the cheques of a company
signed by only one director, 205 or where the company’s cheques were paid into a director’s private
account 206; these decisions appear to be unaffected by s.40 of the 2006 Act because they do not
depend on any limitations on the powers of the directors to bind the company arising from the
company’s constitution. 207 Another restriction on the operation of the rule at common law was that it
could not apply to protect a third party who contracted with the company if, in some different capacity,
e.g. as a director, he also acted on behalf of the company in making the contract. 208 These cases
would now need to be interpreted in the light of s.41 of the 2006 Act which applies to a contract where
the parties include a “director” irrespective of the capacity in which he enters into it. 209
The rule cannot itself confer apparent authority
10-042
The rule in Turquand’s case was often treated as an application of estoppel and it followed that an
outsider who had not in fact examined the company’s public documents could not assert the
existence of an apparent authority merely because of some provision in those documents. This
aspect of the rule is unaffected by ss.39–40 of the 2006 Act. On the other hand, this in no way
prevents an outsider from setting up an apparent authority on ordinary principles of agency where the
company holds a person out as having authority otherwise than by provisions in its articles. Thus if a
company’s constitution provides that the powers, or certain of the powers, of the board of directors
may be delegated to a managing director, and one director acts as a managing director to the
knowledge of the board, then even though he has never been formally appointed as such, an outsider
is entitled to assume that the director has in fact the authority which a managing director would
normally have. 210 Where, however, the director enters into some transaction which would not
normally be within the powers of a managing director and there is no holding out so as to make s.40
of the 2006 Act applicable, it may be that an outsider cannot rely on any apparent authority unless he
has examined the articles, and the articles themselves show that a properly appointed managing
director would have such authority. 211
10-043
In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, 212 where the authorities on this
difficult question were reviewed by the Court of Appeal, Diplock L.J. stated the following four
conditions which must be satisfied to entitle a contractor to enforce a contract entered into on behalf
of a company by an agent without actual authority.
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“It must be shown: (1) that a representation that the agent had authority to enter on behalf
of the company into a contract of the kind sought to be enforced was made to the
contractor; (2) that such representation was made by a person or persons who had
‘actual’ authority 213 to manage the business of the company either generally or in respect
of those matters to which the contract relates; (3) that he (the contractor) was induced by
such representation to enter into the contract, that is, that he in fact relied on it; and (4)
that under its memorandum or articles of association the company was not deprived of
the capacity either to enter into a contract of the kind sought to be enforced or to delegate
authority to enter into a contract of that kind to the agent.” 214
It is important to note how these principles have been affected by ss.39–40 of the 2006 Act. Principle
(4) has been abrogated. More importantly, principle (2) has also been virtually abrogated by s.40
since where that section applies the company will be bound by a transaction outside the authority of
the directors even though no holding out was made by a person with actual authority to make one.
Section 161 of the Companies Act 215
10-044
In some circumstances s.161 of the 2006 Act may also apply. That section provides that the “acts of a
person acting as a director are valid notwithstanding that it is afterwards discovered”: (a) “that there
was a defect in his appointment”; (b) “that he was disqualified from holding office”; (c) “that he had
ceased to hold office”; and (d) “that he was not entitled to vote on the matter”. 216 Thus this section
would appear, for example, to cover under age directors. 217 As stated in Buckley 218:
“Endangering accuracy for the sake of brevity, it may be said that the effect of this section
is that, as between the company and persons having no notice to the contrary, directors,
etc., de facto are as good as directors, etc., de iure.”
In some ways the section is wider than the rule in Turquand’s case 219 in that it may be relied upon not
only by outsiders, but also by directors of the company and by the company itself; on the other hand,
unlike the rule in Turquand’s case, s.161 will not apply unless there has been an “appointment”, albeit
a defective appointment, but does not apply where there is no appointment. 220 Neither the rule nor
the section can be called in aid by a third party who knew or should have known of the defect. 221
Forgeries
10-045
It has been said that the rule in Turquand’s case 222 does not apply where the document upon which it
is sought to make the company responsible is a forgery. 223 But the three cases in which this question
has arisen can all be explained on the ground either that the forged document was not put forward as
genuine by an official acting within his actual or apparent authority, or that the outsider was put on
inquiry. 224 This was the view taken by the High Court of Australia in Northside Developments Pty Ltd
v Registrar-General 225 where the court stated that a company would be bound by a “forgery” where it
was “estopped from denying the authority of the persons affixing the genuine seal and writing the
genuine signature to it”. 226 In Lovett v Carson Country Homes Ltd 227 a guarantee and a debenture
were signed by a director who was also the company’s secretary and this director also added the
signature of another director without having any authority to do so. The court held that the company
was bound, as the director who had actually signed the guarantee and debenture had ostensible
authority to warrant that all the formalities relating to the approval and execution of the guarantee and
debenture had been duly complied with. 228 In the course of his judgment the judge stated 229:
Page 13
“No doubt a forged corporate document is a nullity in the sense that no one has actual
authority on the part of a company to issue a forged document. But as the exception of
estoppel shows, that does not mean that the forged document can in no circumstances
have any effect whatsoever: just because circumstances can arise whereby the company
may be estopped from disputing its validity. But once one accepts that, then, in my
opinion, that immediately opens up the prospect that such a document cannot be
sidelined as a nullity for all purposes in the case of apparent authority.”
It is submitted therefore that where a document is made by an officer of a company who has apparent
authority to do so, the rule can be applied and the company may be bound by the document even
though the officer forged it for some purpose of his own.
Registration of charges 230
10-046
A contract entered into by a company which involves a charge on its assets may require registration
with the registrar of companies under Pt 25 of the Companies Act 2006. The most important types of
charge covered by this section are charges to secure an issue of debentures; charges created by an
instrument which, if executed by an individual, would require registration as a bill of sale; charges on
land or any interest therein; charges on book debts; and floating charges on the undertaking or
property of the company. 231 Prescribed particulars of a charge covered by s.860 must be delivered to
the Registrar within 21 days after its creation. 232 Failure to deliver particulars of a charge 233 renders
the charge void against a liquidator, an administrator and any creditor of the company, and also
renders any debt secured by the charge immediately repayable. 234 The court has power under s.873
of the 2006 Act to extend the time for registration in various circumstances.
Effect of winding up on company’s contracts
10-047
A compulsory winding up automatically brings the powers of a director to an end 235 and publication of
the winding-up order discharges all persons employed by the company, giving them a right to
damages for wrongful dismissal. 236 The liquidator may waive the dismissal brought about by
publication of the winding-up order, and where he does so the old contract of employment continues.
237
Where the winding up is voluntary the powers of the directors likewise cease, except that the
company in general meeting or the liquidator may sanction their continuance 238; the passing of a
resolution for voluntary winding up may, but does not necessarily, terminate general contracts of
employment with the company so as to give the company’s employees a right to damages for
wrongful dismissal. 239 It may do so where the circumstances are such that the employee knows that
the company cannot continue to fulfil its obligations, 240 or where, on the facts, the company has
ceased to carry on business and there is no implied term in the contract of employment that the
contract is subject to the continuance of business by the company. 241 Where an order is made by the
court under s.900 of the Companies Act 2006 for the amalgamation of two companies, a contract of
employment between a worker and the transferor company does not automatically become a contract
of employment between the worker and the transferee company. 242
Winding up not a repudiation
10-048
On the other hand, the winding up of a company is not by itself a repudiation of the contractual
obligations of the company unless the personality of the company goes to the root of the contract, 243
though there are statutory provisions for the disclaimer of leases or other onerous or unprofitable
contracts. 244 The liquidator has certain statutory powers to deal with the company’s property some of
which can only be exercised with the sanction of the court, the liquidation committee, or, in the case
Page 14
of a members’ voluntary winding up, the members. 245 Where a liquidator, appointed by the court,
performs a contract of the company without disclaimer or where he purports to make a new contract
on its behalf, he acts as agent for the company 246 and there is no presumption that he does so in a
personal capacity. 247
Dispositions of property in winding up
10-049
In a winding up by the court any disposition of the property of the company, including things in action,
and any transfer of shares, or alteration in the status of members of the company, made after the
commencement of the winding up, is, unless the court otherwise orders, void. 248 The court has a wide
discretion in this respect which will be exercised having regard to what is fair and just in all the
circumstances, particular attention being paid to the question of good faith and the principle that a
company’s free assets should be distributed pro rata among the company’s unsecured creditors. 249
The court will readily validate transactions entered into bona fide in the course of trade and completed
before the date of the winding-up order 250; but the court will not validate the payment of a debt by the
company to a debtor who has notice of the presentation of a winding-up petition 251 unless it is a
“necessary part of a transaction which as a whole is beneficial to the general body of unsecured
creditors”. 252 The court will also normally validate the sale of an asset at its full market value as this
does not dissipate the company’s assets. 253 Further, the court can only validate a disposition of
property; a contract for the sale of goods by a company is not a disposition of property which can be
validated by the court unless the property in the goods has passed to the purchaser. 254
Appointment of a receiver or manager 255
10-050
An administrative receiver is a receiver appointed under a floating charge where the charge holder
has a charge or charges over all or substantially all of a company’s assets. 256 Under the Enterprise
Act 2002 s.250 the holder of a floating charge created after a date appointed by the Secretary of
State will no longer be able to appoint an administrative receiver. 257 Holders of a floating charge
created before this date will be able to appoint an administration receiver provided of course they
satisfy the terms of s.29(2). 258 The appointment of a receiver and manager by the court operates to
discharge the company’s employees. 259 But the appointment of a receiver and manager out of court
by debenture holders, so that he becomes an agent of the company, does not normally operate to
discharge the company’s employees. 260 At common law such an appointment will, however, operate
to discharge the company’s employees if the appointment is accompanied by a sale of the company’s
business, 261 or if the appointment is accompanied by or followed by a new agreement with the
company’s employees, 262 and probably only if the new contract is inconsistent with the old, 263 or if
the company’s employees occupy positions which would be inconsistent with the position of the
receiver. 264 Section 44(1)(a) of the Insolvency Act 1986 makes an administrative receiver of the
assets of a company the company’s agent unless and until the company goes into liquidation, a
device that is primarily designed to avoid the security holder who appointed him from being treated as
a mortgagee in possession. An administrative receiver is also made personally liable on any contract
entered into by him. 265 Such liability can be excluded and almost invariably is. The 1986 Act also
makes an administrative receiver personally liable “on any contract of employment adopted by him in
carrying out” his functions, but that he is not to be “taken to have adopted a contract of employment
by anything done or omitted to be done within 14 days after his appointment”. 266 Initially, there was
considerable uncertainty as to what this section means and, in particular, whether mere acquiescence
in the continuation of contracts of employment can constitute an adoption. 267 However, in Powdrill v
Watson 268 the House of Lords held that a receiver will be taken to have adopted a contract of
employment where he treats the continued contract as giving rise to a separate liability in the
receivership. The House also decided that the receiver could not reject some of the terms of the
contract but accept others, but that his liability could be limited to liabilities arising during the period
when he was in office. 269
10-051
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The appointment of a receiver does not amount to a repudiation of the trading contracts of the
company, except in special circumstances. 270 It is often claimed that the receiver is in a better
position than the company in that he need not observe existing contracts and, in addition, such
contracts cannot be specifically enforced against him. 271 To permit contracts to be enforced against
the company, or to require the receiver to comply with them would reverse the order of priorities in
that it would oblige the receiver to prefer the interests of unsecured creditors over the interests of the
security holder that appointed him. It is for this reason that the receiver is in a better position than the
company as regards the obligation to observe existing contracts. 272 Where a receiver and manager,
appointed by the court, orders goods for the purpose of the business of the company, the inference is
that he pledges his personal credit for the goods, looking for indemnity to the assets of the company;
he is therefore not necessarily the agent of the company 273 though he may be in particular
circumstances. 274 The same is true of receivers appointed out of court where although an agent of
the company he is personally liable in contracts he enters into unless the contract states otherwise. 275
The authority of a receiver is terminated by the winding up of the company whether it is voluntary 276
or by the court. 277 Although the authority of a receiver to act on behalf of the company is prima facie
terminated by a winding-up order, this does not mean that a receiver appointed by debenture holders
can no longer sell or convey property charged to the debenture holders, in respect of which a power
of sale exists. 278 He can still exercise the in rem rights that his appointor has against the company’s
property.
Receivers and the tort of inducing a breach of contract
10-052
The question has arisen in a number of cases as to whether a receiver who does not observe a
contract which the company has entered into before his appointment can be liable for the tort of
inducing a breach of contract. 279 It has been held (not without misgivings) that a receiver cannot be
held so liable in that the receiver as agent of the company is the alter ego of the company, the other
party to the contract, and accordingly no possible action could lie against a person for procuring
himself to induce a breach of contract. 280
Administrators
10-053
The Enterprise Act 2002 281 replaces the administration procedure set out in Pt II of the Insolvency Act
1986. This procedure like its predecessor imposes significant constraints on the right of a person to
enforce a transaction against a company in administration. 282 Specialist texts should be consulted
with respect to these provisions.
companies.
46. Kelner v Baxter (1866) L.R. 2 C.P. 174; Scott v Lord Ebury (1867) L.R. 2 C.P. 255; Wilson & Co
v Baker, Lees & Co (1901) 17 T.L.R. 473; King v David Allen & Sons Billposting Ltd [1916] 2
A.C. 54; Gross (1971) 87 L.Q.R. 367.
47. See Law Commission, Privity of Contract: Contracts for the Benefit of Third Parties (Report
No.242), paras 8.9–8.16.
48. Newborne v Sensolid (Great Britain) Ltd [1954] 1 Q.B. 45; Black v Smallwood (1965–66) 117
C.L.R. 52. See also Vol.II, para.31-029.
49. Kelner v Baxter (1866) L.R. 2 C.P. 174.

Page 16
50. Hawkes Bay Milk Corp v Watson [1974] 2 N.Z.L.R. 236. Note also the possible liability of the
putative agent for breach of warranty of authority: see Bowstead on Agency, 20th edn (2014),
Art.105.
51. First Directive 68/151 art.7 provides that: “If, before a company being formed has acquired legal
personality, action has been carried out in its name and the company does not assume the
obligations arising from such action, the persons who acted shall, without limit, be jointly and
severally liable therefore, unless otherwise agreed.”
52. This was inserted by s.130(4) of the 1989 Act.
53. [1982] 1 Q.B. 938, 946 (Oliver L.J.).
54. [1982] 1 Q.B. 938, 944, per Lord Denning M.R.
55. For other cases dealing with s.36(4) of the 1985 Act see: Rover International Ltd v Cannon Film
Sales Ltd [1987] B.C.L.C. 540 (the subsection, as would be the case with s.51, does not affect
foreign companies); Oshkosh B’Gosh Inc v Dan Marbel Ltd [1989] B.C.L.C. 507; Cotronic (UK)
Ltd v Dezonie [1991] B.C.L.C. 721; Badgerhill Properties Ltd v Cottrell [1991] B.C.L.C. 805.
56. e.g. as in Newborne v Sensolid (Great Britain) Ltd [1954] 1 Q.B. 45. See generally Prentice
(1973) 89 L.Q.R. 518, 530-533.
57. Phonogram Ltd v Lane [1982] 1 Q.B. 938, 940.
58. [2015] EWHC 1890 (Ch).
59. [2015] EWHC 1890 (Ch) at [51].
60. Braymist Ltd v Wise Finance Co Ltd [2002] EWCA Civ 127, [2002] Ch. 273.
61. [2002] EWCA Civ 127.
62. Cotronic (UK) Ltd v Dezonie [1991] B.C.L.C. 721.
63. Kelner v Baxter (1866) L.R. 2 C.P. 174; Melhado v Porto Alegre Ry (1874) L.R. 9 C.P. 503;
North Sydney Investment & Tramway Co v Higgins [1899] A.C. 263; Scott v Lord Ebury (1867)
L.R. 2 C.P. 255, 267.
64. Natal Land, etc., Co v Pauline Colliery Syndicate [1904] A.C. 120.
65. Howard v Patent Ivory Manufacturing Co (1888) 38 Ch. D. 156.
66. Re Northumberland Avenue Hotel Co (1886) 33 Ch. D. 16; Bagot Pneumatic Tyre Co v Clipper
Pneumatic Tyre Co [1901] 1 Ch. 196, 203.
67. Howard v Patent Ivory Manufacturing Co (1888) 38 Ch. D. 156, 164-168.
68. [1987] B.C.L.C. 54; [1989] 1 W.L.R. 912 CA. For other proceedings involving the parties see
Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 W.L.R. 670 where Hoffmann J.
stated that it “would be a blot on English jurisprudence if this contract, acted on by both sides,
had now to be held null and void” (at 679).
69. This argument was advanced in the 25th edition of this text, p.334.
70. [1982] Q.B. 84.
71. [1989] 1 W.L.R. 912; noted (1989) 105 L.Q.R. 179 (Beatson). For other aspects of this case see
below, para.10-017.
Page 17
72. See n.62.
73. Howard v Patent Ivory Manufacturing Co (1888) 38 Ch. D. 156, 166.
74. In some nineteenth-century cases there are dicta that persons who perform services for an
unformed company will have a claim in equity for payment on the grounds that it is “inequitable
for a man not to pay for services of which he has taken the benefit”, per James L.J., Re
Empress Engineering Co (1880) 16 Ch. D. 125, 130. See also Hereford South Wales Waggon
& Engineering Co (1876) 2 Ch. D. 621. These dicta are of doubtful authority: no case actually
turns on their application; they are often cited in the context of a company having purportedly
“adopted” the contract, a phrase used with no great clarity; they are scarcely compatible with
subsequent authority and were rejected in Re English and Colonial Produce Co Ltd [1906] 2
Ch. 435, 442.
75. Spiller v Paris Skating Rink Co (1878) 7 Ch. D. 368. The question of “adoption” was often
bound up with the problem of part performance in connection with the Statute of Frauds (see
above, paras 5-041—5-049) and it was sometimes suggested that part performance was itself a
ground of liability in equity even in the absence of a binding contract (see Wilson v West
Hartlepool Ry (1865) 2 De G.J. & S. 475) but it is clear today that this is not so: Hunt v
Wimbledon Local Board (1878) 4 C.P.D. 48, 61.
76. Falcke v Scottish Imperial Insurance Co (1886) 34 Ch. D. 234, 249-250.
77. Re Empress Engineering Co (1880) 16 Ch. D. 125, 130; Natal Land, etc., Co v Pauline Colliery
Syndicate [1904] A.C. 120.
78. Touche v Metropolitan Ry Warehousing Co (1871) L.R. 6 Ch. App. 671 (it is important to note
that the court found that there was a trust of the company’s promise to the promoter, although
how the trust was actually constituted is not clear from the facts).
79. Re Empress Engineering Co (1880) 16 Ch. D. 125; and see below, paras 19-066—19-067.
80. Re National Motor Mail Coach Co, Clinton’s Claim [1908] 2 Ch. 515.
81. Re English & Colonial Produce Co Ltd [1906] 2 Ch. 435, disapproving dicta in Re Hereford &
South Wales Waggon, etc., Co (1876) 2 Ch. D. 621; see also n.72.
82. Re Hereford & South Wales Waggon, etc., Co (1876) 2 Ch. D. 621.
83. Earl of Lindsey v Great Northern Ry (1853) 10 Hare 664; Earl of Shrewsbury v North
Staffordshire Ry (1865) L.R. 1 Eq. 593.
84. Earl of Shrewsbury v North Staffordshire Ry (1865) L.R. 1 Eq. 593. These cases, decided
before the consequences of the entity doctrine were fully appreciated, were considered to have
been seriously “shaken” by the development of this doctrine: see Hodges, A Law of Railways,
7th edn (1888), pp.141-152. There is much substance to this view which is not significantly
undermined by a more relaxed doctrine of privity, as to hold the company bound would for all
intents and purposes sweep away the learning on pre-incorporation contracts, something which
is scarcely likely to happen. The promoters who gave the assurance may, of course, be liable if
there is deceit or, perhaps, for negligent misrepresentation or breach of warranty of authority.
85. Earl of Shrewsbury v North Staffordshire Ry (1865) L.R. 1 Eq. 593. See Westdeutsche
Landesbank Girozentrale v Islington LBC [1996] A.C. 669. The effect (if any) of s.51 of the
Companies Act 2006 on this type of case is uncertain. For the categories of company covered
by s.51, see s.1 and Pt 33 of the 2006 Act.
86. See Ch.29.
87. Rover International Ltd v Cannon Film Sales Ltd [1989] 1 W.L.R. 912. See Burrows, The Law of
Restitution, 3rd edn (2011), p.202; Goff and Jones, The Law of Unjust Enrichment, 8th edn
Page 18
(2011), para.2-30.
88. Rover International Ltd v Cannon Sales Ltd [1989] 1 W.L.R. 912; Burrows, at pp.393-396.
89. See above, n.83; see also Kleinwort Benson Ltd v The South Tyneside MBC [1994] 4 All E.R.
972.
90. Moneys paid on behalf of a company before it is has been formed could not be recoverable by
the company, the company has lost nothing. See Rover International Ltd v Cannon Film Sales
Ltd [1989] 1 W.L.R. 912.
91. Rover International Ltd v Cannon Film Sales Ltd [1989] 1 W.L.R. 912; Cotronic (UK) Ltd v
Dezonie [1991] B.C.L.C. 721. In the latter case, the court held that s.34 of the 1985 Act did not
preclude recovery.
93. See Hunt v Wimbledon Local Board (1878) 4 C.P.D. 48, 61. The same rules will apply where it
is the company has expended the money on another’s property.
94. Companies Act 2006 s.761.
95. s.761(2).
96. s.767.
97. The provisions dealt with in this paragraph, ss.35–36C of the 1985 Act, have been replaced by
ss.39–40 of the 2006 Act. This is particularly relevant to paras 10-027—10-034. Also of
relevance is, inter alia, s.31 of the 2006 Act which provides that a company’s objects are
unrestricted unless the company’s articles specifically restrict the objects. Under the 2006 Act, a
company’s memorandum cannot contain a statement of its objects (s.8). If a company has
objects they will have to be in its articles (s.31). See para.10-028 for a more extended
treatment. However, a knowledge of the 1985 Act is necessary for an understanding of the
current position.
99. (1875) L.R. 7 H.L. 653; and see Att-Gen v Great Eastern Ry (1880) 5 App. Cas. 473; Wenlock
(Baroness) v River Dee Co (1885) 10 App. Cas. 354; L.C.C. v Att-Gen [1902] A.C. 165; Att-Gen
v Mersey Ry [1907] 1 Ch. 81; [1907] A.C. 415; Re Jon Beauforte (London) Ltd [1953] Ch. 131;
Parke v Daily News Ltd [1962] Ch. 927.
100. “An ultra vires agreement cannot become intra vires by means of estoppel, lapse of time,
ratification, acquiescence, or delay”: York Corp v Henry Leetham & Sons Ltd [1924] 1 Ch. 557,
573; see also para.10-024.
101. But not, in general, a creditor: Mills v Northern Ry of Buenos Aires Co (1870) L.R. 5 Ch. App.
621; Cross v Imperial Continental Gas Association [1923] 2 Ch. 553; Lawrence v W. Somerset
Mineral Ry Co [1918] 2 Ch. 250; contrast Maunsell v Midland G.W. (Ireland) Ry (1863) 1 Hem.
& M. 130. See also Charles Roberts & Co Ltd v British Railways Board [1965] 1 W.L.R. 396
(action for declaration by business competitor of a nationalised industry); and as to relator
actions, see Att-Gen v Crayford U.D.C. [1962] Ch. 575.
102. Hoole v G.W. Ry (1867) L.R. 3 Ch. App. 262. The right to restrain prospective ultra vires acts is
based on the contract constituted by s.33 of the Companies Act 2006. A shareholder’s standing
to complain of past ultra vires acts gives rise to more complex problems: see Smith v Croft
(No.2) [1988] Ch. 114.
103. See Buckley, The Companies Acts, 15th edn (2000), para.35-190.
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104. Proposals for the reform of the ultra vires doctrine were put forward in a DTI consultative
document: Reform of the Ultra Vires Rule: A Consultative Report (1986). These were partly
implemented by ss.108-109 of the Companies Act 1989.
105. Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] 1 Ch. 246, 303, per
Browne-Wilkinson L.J. (see also Slade L.J. 297). The phrase should not therefore be used to
refer to situations where directors abuse or exceed their authority or where the transaction is
illegal.
106. Companies Act 1985 s.2(1)(c). It has been said that a wider construction ought to be given to
the memorandum of association of a commercial company than to the statute creating a
company with special powers: Att-Gen v Mersey Ry [1907] 1 Ch. 81, 106 (reversed [1907] A.C.
415), but see Charles Roberts & Co Ltd v British Railways Board [1965] 1 W.L.R. 396, at 400.
See para.10-028 on the current position with respect to objects clauses.
107. Cotman v Brougham [1918] A.C. 514, 522; Hazell v Hammersmith and Fulham LBC [1992] 2
A.C. 1, 36–37; Westdeutsche [1996] A.C. 669.
108. [1986] Ch. 246, 306.
109. [1986] Ch. 246, 304. See also Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd
[1964] 2 Q.B. 480, 504.
110. See, e.g. Re Lee, Behrens & Co [1932] 2 Ch. 46; Re Jon Beauforte (London) Ltd [1953] Ch.
131. cf. Insolvency Act 1986 s.238(5); Westdeutsche Landesbank Girozentrale v Islington LBC
[1996] A.C. 669.
111. Where the third party has knowledge the contract would appear to be void ([1986] 1 Ch. 246,
306-307); Jyske Bank (Gibraltar) Ltd v Spgeldmaes Unreported July 29, 1999 CA. Quaere if the
contract is enforceable by the company and therefore only voidable.
112. Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch. 246, 305.
113. [1986] Ch. 246; Ernest v Nicholls (1857) 6 H.L. Cas. 401. Copies of all a company’s public
documents are available for inspection: Companies Act 2006 s.1085.
115. Att-Gen v Great Eastern Ry (1880) 5 App. Cas. 473, 478; Peel v L. & N.W. Ry [1907] 1 Ch. 5;
S. Pearson & Sons Ltd v Dublin & S.E. Ry [1909] A.C. 217, 220; Dundee Harbour Trustees v
Nicol [1915] A.C. 550; Municipal Mutual Insurance Ltd v Pontefract Corp (1917) 116 L.T. 671;
Evans v Brunner, Mond & Co [1921] 1 Ch. 359; Deuchar v Gas Light & Coke Co [1925] A.C.
691; Wimbledon & Putney Commons Conservators v Tuely [1931] 1 Ch. 190; City of Winnipeg
v C.P.R. Co [1953] A.C. 618.
116. General Auction Estate & Monetary Co v Smith [1891] 3 Ch. 432.
117. Re Kingsbury Collieries Ltd and Moore’s Contract [1907] 2 Ch. 259; Re Thomas (William) & Co
Ltd [1915] 1 Ch. 325.
118. Leifchild’s Case (1865) L.R. 1 Eq. 231.
119. Dixon v Evans (1872) L.R. 5 H.L. 606; Bath’s Case (1878) 8 Ch. D. 334.
120. Re German Date Coffee Co (1882) 20 Ch. D. 169, 188. This case dealt with a petition to wind
up a company on the grounds that its substratum had disappeared, a doctrine which although
having a strong resemblance to that of ultra vires is not the same: Cotman v Brougham [1918]
A.C. 514; Re Tivoli Freeholds [1972] V.R. 445.
121. Cotman v Brougham [1918] A.C. 514; Anglo-Overseas Agencies Ltd v Green [1961] 1 Q.B. 1.
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123. [1986] Ch. 246. Normally it will not be possible to elevate this power into an object by a
provision in a company’s objects clause requiring all the objects to be interpreted independently
of each other, although in other situations the courts have given full effect to such a clause: see
Cotman v Brougham [1918] A.C. 514.
124. [1975] 1 Ch. 420. See also Newstead v Frost [1980] 1 W.L.R. 135.
125. Newstead v Frost [1980] 1 W.L.R. 135 at 425.
126. Tinkler v Wandsworth D.B.W. (1858) 2 De G. & J. 261, 274 (directors cannot confer power on a
statutory company by asserting that something falls within the spirit of the Act).
127. Bell Houses Ltd v City Wall Properties Ltd [1966] 2 Q.B. 656. Although the statement to this
effect in Bell was technically obiter, the Court of Appeal found the contract to be intra vires, it is
generally considered to be correct: see American Home Assurance Co v Tjmond Properties Ltd
[1986] B.C.L.C. 181 NZCA.
129. Ashbury Railway Carriage & Iron Co v Riche (1875) L.R. 7 H.L. 653; see below, para.10-029.
130. Ex p. Watson (1888) 21 Q.B.D. 301.
131. Great N.-W. Central Ry v Charlebois [1899] A.C. 114; York Corp v Henry Leetham & Sons Ltd
[1924] 1 Ch. 557; see also n.206, below; cf. Islington Vestry v Hornsey U.D.C. [1900] 1 Ch. 695.
132. For the present statutory provision see below, paras 10-027 et seq.
133. Baroness Wenlock v River Dee Co (1885) 10 App. Cas. 354; see generally Vann (1978) 52
A.L.J. 490.
134. Cunliffe Brooks & Co v Blackburn Benefit Building Society (1882) 22 Ch. D. 61; (1884) 9 App.
Cas. 857.
135. Sinclair v Brougham [1914] A.C. 398. See below, para.10-026. For criticisms of Sinclair v
Brougham see Westdeutsche Landesbank Girozentrale v Islington LBC [1996] A.C. 669,
709-714.
136. Re Cork and Youghal Ry (1869) L.R. 4 Ch. App. 748; Cunliffe Brooks & Co v Blackburn Benefit
Building Society (1882) 22 Ch. D. 61; B. Liggett (Liverpool) Ltd v Barclays Bank Ltd [1928] 1
K.B. 48; Re Airedale Co-operative Worsted Manufacturing Society Ltd [1933] Ch. 639. The
onus is on the person claiming the money to establish the necessary factual connection: see
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] A.C. 689.
137. Re Wrexham Mold and Connah’s Quay Ry [1899] 1 Ch. 440; Goff and Jones, The Law of
Restitution, 6th edn (2002), pp.127, 162-163 (not in the more recent edition). On the limits of
subrogation where the contract is illegal see Orakpo v Manson Investments Ltd [1978] A.C. 95.
138. Sinclair v Brougham [1914] A.C. 398, where the principle of Re Hallett’s Estate (1880) 13 Ch.
D. 696 as to the tracing and identification of blended money was explained and the method
adopted in Re Guardian Permanent Benefit Building Society (Crace Calvert’s Case) (1882) 23
Ch. D. 440 was criticised. See also Re Diplock [1948] Ch. 465, 518-519 (affirmed sub nom.
Ministry of Health v Simpson [1951] A.C. 251). For other consequences of an ultra vires
transaction see Goff & Jones, The Law of Unjust Enrichment, 8th edn (2011), pp.648-649,
772-774.

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140. Title to money or property can be transferred under an ultra vires contract: see Ayres v South
Australian Banking Corp (1871) L.R. 3 P.C. 548; Westdeutsche Landesbank Girozentrale v
Islington LBC [1996] A.C. 669, 689-690.
141. Lipkin Gorman v Karpnale [1991] 2 A.C. 548; see also below, paras 29-186 et seq.
142. First Directive 68/151 on Company Law [1968] O.J. L65/7.
143. See Prentice (1973) 89 L.Q.R. 518; Collier and Sealy (1973) C.L.J. 1.
144. These provisions were brought into effect on February 4, 1991. These reforms were based in
part on a consultative report, Reform of the Ultra Vires Rule (DTI, 1986); see also “Modern
Company Law—The Strategic Framework”, Company Law Review Steering Committee
(February 1999), Ch.5.3.
145. See s.40.
146. These are persons who subscribe their name to the memorandum: s.7.
147. s.8(1).
148. s.28.
149. s.31(2)(c). Charitable companies will still have to restrict their objects under charities legislation:
s.31(4).
150. s.33(1) which replaces s.14 of the 1985 Act. There is, of course, no reference in s.33 to articles
or memorandum but rather to the company’s constitution which is defined in s.17 of the 2006
Act.
151. This was also the position at common law: see below, para.10-030.
152. Pt 11 (Derivative claims).
153. Co-operative Rabobank Vecht en Plassgebied BA v Minderland (C-104/96) [1998] 2 B.C.L.C.

507.
155. Re Faure Electric Accumulator Co (1889) 40 Ch. D. 141; Ferguson v Wilson (1866) L.R. 2 Ch.
77; Northern Counties Securities Ltd v Jackson & Steeple Ltd [1974] 1 W.L.R. 1133; Bowstead
and Reynolds on Agency, 18th edn (2006), paras 8–033, 8–036, 8–038.
156. Bowstead and Reynolds on Agency, 20th edn (2010), at para.8-031, art.23 cited with approval
in Hopkins v T L Dallas Group Ltd [2004] EWHC 1379 (Ch), [2005] 1 B.C.L.C. 543.
157. [2004] UKHL 28, [2004] 1 W.L.R. 1846 at [4].
158. Note that this covers all limitations flowing from the company’s constitution. Limitations on the
directors’ powers flowing from a resolution of any meeting or a class meeting of shareholders or
any agreement of the members are covered: see s.40(3). On this type of constitutional limitation
see, e.g. Cane v Jones [1980] 1 W.L.R. 1451.
159. As, e.g. in Parke v Daily News Ltd [1962] Ch. 927; Simmonds v Heffer [1983] B.C.L.C. 298.
160. [2002] EWCA Civ 762, [2002] 2 B.C.L.C. 655. For the first instance judgment of Rimer J. see
[2002] B.C.C. 544.
161. [2002] EWCA Civ 762 at [41].

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162. [2002] EWCA Civ 762.
163. [2002] EWCA Civ 762 at [108].
164. [2004] EWCA Civ 1069, [2005] 1 All E.R. 325.
165. The concept of organ does not fit neatly into English company law but would at least include the
board and the shareholders in general meeting including, it is submitted, a class meeting of
shareholders.
166. See Stein, Harmonization of European Company Law (1970), p.294.
167. See, e.g. Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch. 246.
168. Co-operative Rabobank Vecht en Plassengebied BA v Minderhoud (C-104/96) [1998] 1 W.L.R.

1025.
169. Barclays Bank Ltd v TOSG Trustfund [1984] B.C.L.C. 1, 18 (“reasonableness is not a
necessary ingredient of good faith”, per Nourse J. at first instance); cf. Bills of Exchange Act
1882 s.90; Paget’s Law of Banking, 14th edn (2014), para.27–13. See also International Sales
and Agencies Ltd v Marcus [1982] 3 All E.R. 551, 559.
170. For example, if the person dealing with the company reads but misinterprets the articles: see
Re Introductions Ltd [1970] Ch. 199.
171. See, e.g. the bank in Re Introductions Ltd [1970] Ch. 199; Wrexham Association Football Club
Ltd v Curcialmove Ltd [2006] EWCA (Civ) 237, [2008] 1 B.C.L.C. 508 at [47].
172. s.40(2)(b)(ii).
173. See para.10-020.
174. It remains a breach of duty for directors to enter into a transaction which is not authorised by
the company’s constitution: see the Companies Act 2006 s.171.
175. s.40(4).
176. See para.10-021.
177. Irvine v Union Bank of Australia (1877) 2 App. Cas. 399 PC; Re London and New York
Investment Corp [1895] 2 Ch. 860.
178. s.41(1), (2). See also s.41(4) (bars to the avoidance of the contract). See also below,
para.10-056.
179. s.41(3). Quaere if the liability under this subsection can be waived by the company. Other
parties to the transaction can also be liable in the same way as directors but they are provided
with a defence in s.41(4).
180. s.41(6). The company may also make an application.
181. The Charities Act 1993 Sch.6 para.20 has been repealed: see Sch.16 to the 2006 Act.
182. s.42.
183. s.42(3). Any affirmation of a transaction with a charity to which s.41 applies requires the written
consent of the Charity Commissioners (s.42(4)).
184. s.42(2).
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185. This was the old rule in Trevor v Whitworth (1887) 12 App. Cas. 409. Companies may now
purchase their own shares provided certain statutory pre-conditions are satisfied: see Pt 18,
Chs 1 and 4 of the 2006 Act; see also Precision Dippings Ltd v Precision Dippings Marketing
Ltd [1986] Ch. 447 (the transaction in that case would have been more appropriately classified
as illegal rather than ultra vires).
186. Victor Battery Co v Curry’s Ltd [1946] Ch. 242; South Western Mineral Water Co Ltd v Ashmore
[1967] 1 W.L.R. 1110; Armour Hick Northern Ltd v Whitehouse [1980] 1 W.L.R. 1520
interpreting the Companies Act 1948 s.54. On financial assistance by a company in the
purchase of its own shares see now Pt 18 Ch.2 of the 2006 Act.
187. For a recent example, see Re R.W. Roith Ltd [1967] 1 W.L.R. 432. An agent (and this includes
a director) only has authority to act for the benefit of his principal unless the parties otherwise
agree: see Criterion Properties Plc v Stratford UK Properties Ltd [2004] 1 W.L.R. 1846. Where
the contract is with a third party who has no notice of the director’s want of good faith, the
contract will be enforceable: Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986]
Ch. 246 (see also para.10-031).
188. See Gower & Davies, Principles of Modern Company Law, 7th edn (2003), pp.132–134 (not in
the more recent edition); see also Charterbridge Corp Ltd v Lloyds Bank [1970] Ch. 62; Heald v
O’Connor [1971] 1 W.L.R. 497.
189. Reuter v Electric Telegraph Co (1856) 6 E. & B. 341, 348; Allard v Bourne (1863) 15 C.B.(N.S.)
468; Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch. 246 clearly
distinguishes the issues of corporate capacity and director’s duties. But an attempt to confer
authority on directors with respect to future transactions would be treated as an attempt to alter
the articles of association for which a special resolution would be necessary: Grant v UK
Switchbank Ry (1888) 40 Ch. D. 135.
190. s.39; see above, para.10-028.
191. Re Magdalena Steam Navigation Co (1860) Johns. 690.
192. Evans v Smallcombe (1868) L.R. 3 H.L. 249, 256; and see Phosphate of Lime Co Ltd v Green
(1871) L.R. 7 C.P. 43; London Financial Association v Kelk (1884) 26 Ch. D. 107; Re Bailey
Hay & Co Ltd [1971] 1 W.L.R. 1357.
193. Personal Service Laundry Ltd v National Bank Ltd [1964] I.R. 49; Walton v Bank of Nova Scotia
(1965) 52 D.L.R. (2d) 506.
194. Re Duomatic Ltd [1969] 2 Ch. 365.
195. Smith v Hull Glass Co (1852) 11 C.B. 897; Re Bonelli’s Telegraph Co, Collie’s Claim (1871)
L.R. 12 Eq. 246, 259.
196. (1856) 6 E. & B. 327. See generally, Campbell (1959–60) 75 L.Q.R. 469, 76 L.Q.R. 115.
197. Gower & Davies, Principles of Modern Company Law, 7th edn (2003) at pp.132–134.
198. Pennington, Company Law, 8th edn (2001), p.131.
199. Freeman & Lockyer v Buckhurst Park Properties Mangal Ltd [1964] 2 Q.B. 480; Nock (1966)
Conv.(N.S.) 123, 163. cf. Northside Developments Pty Ltd v Registrar-General (1990) 64
A.L.J.R. 427.
200. Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch. 246, 283 (per Slade L.J.),
304 (per Browne-Wilkinson L.J.).
201. See Fountaine v Carmarthen Ry (1868) L.R. 5 Eq. 316; Crampton v Varnay Ry (1872) L.R. 7
Ch. App. 562, 568; Mahony v East Holyford Mining Co (1875) L.R. 7 H.L. 869, 893; County of
Page 24
Gloucester Bank v Rudry Merthyr Steam & House Coal Colliery Co [1895] 1 Ch. 629.
202. Replacing s.35B of the 1985 Act.
203. Irvine v Union Bank of Australia (1877) 2 App. Cas. 366. A case which arguably was decided on
a wrong application of the Turquand rule. In that case, Sir Barnes Pollock considered that the
resolution authorising the director to borrow above the stipulated limit would have had to be
registered under the Companies Act 1862 s.53, so that a person dealing with the company
would have had notice of it. This in fact was not so, and the ordinary resolution increasing the
directors’ borrowing powers did not have to be registered.
204. (1856) 6 E. & B. 327.
205. B. Liggett (Liverpool) Ltd v Barclays Ltd [1928] 1 K.B. 48; cf. South London Greyhound
Racecourses Ltd v Wake [1931] 1 Ch. 496; Houghton & Co v Nothard, Lowe & Wills [1927] 1
K.B. 246, affirmed [1928] A.C. 1.
206. A.L. Underwood Ltd v Bank of Liverpool & Martins [1924] 1 K.B. 775. Such a transaction may
also not fall within the usual or apparent authority of a director: see Acute Property
Developments Ltd v Apostolou [2013] EWHC 200 (Ch).
207. International Sales and Agencies Ltd v Marcus [1982] 3 All E.R. 551.
208. Morris v Kanssen [1946] A.C. 459; Smith v Henniker Mayor & Co [2002] EWCA Civ 762, [2002]
2 B.C.L.C. 655. cf. Hely-Hutchinson v Brayhead Ltd [1968] 1 Q.B. 549, affirmed on different
grounds, 573; see also John v Rees [1970] Ch. 345.
209. Above, para.10-036.
210. Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 Q.B. 480. All the
earlier authorities must now be read in the light of this case, see, e.g. Biggerstaff v Rowatt’s
Wharf Ltd [1896] 2 Ch. 93; Dey v Pullinger Engineering Co [1921] 1 K.B. 77; Houghton & Co v
Nothard, Lowe & Wills Ltd [1927] 1 K.B. 246; Kreditbank Cassel GmbH v Schenkers Ltd [1927]
1 K.B. 826; British Thomson-Houston Co Ltd v Federated European Bank Ltd [1932] 2 K.B. 176
; South London Greyhound Racecourses Ltd v Wake [1931] 1 Ch. 496; Rama Corp v Proved
Tin & General Investments Ltd [1952] 2 Q.B. 147; British Bank of the Middle East v Sun Life
Assurance Co of Canada (UK) Ltd [1983] 2 Lloyd’s Rep. 9; Rhoddian River Shipping Co SA v
Halla Maritime Corp [1984] 1 Lloyd’s Rep. 373. See also Vol.II, paras 31-056—31-060.
211. In the Freeman and Lockyer [1964] 2 Q.B. 480 case this was held to be the correct explanation
of the Houghton [1927] 1 K.B. 246 case, the Schenkers [1927] 1 K.B. 826 case, and the Rama
[1952] 2 Q.B. 147 case. As a matter of principle it is difficult to see how mere knowledge of the
articles could operate to confer an apparent authority on a director: see Houghton & Co v
Nothard Lowe & Wills Ltd [1927] 1 K.B. 246, 266.
212. [1964] 2 Q.B. 480. See also Hely-Hutchinson v Brayhead Ltd [1968] 1 Q.B. 549. As to the
authority of: (1) a company’s secretary, see Panorama Developments (Guildford) Ltd v Fidelis
Furnishing Fabrics Ltd [1971] 2 Q.B. 711; (2) the individual director, see Leigh, The Criminal
Liability of Companies in English Law (1969), pp.94–95. There is controversy as to whether
being chairman of the board confers authority on the holder of this position greater than that of
the ordinary director. Although there is some authority that it does (British Thomson-Houston
Co Ltd v Federated European Bank [1932] 2 K.B. 176; Clay Hill Brick Co Ltd v Rawlings [1938]
4 All E.R. 100), it is difficult to appreciate why being appointed chairman should confer this
additional authority; see generally Gower & Davies, Principles of Modern Company Law, 9th
edn (2012) at p.183.
213. There was, however, a difference of opinion in the Court of Appeal on this point. Pearson L.J.
took the view that a director acting as the alter ego of a company may hold himself out qua
agent as having the necessary authority: [1964] 2 Q.B. 480, 499, citing Greer L.J. in the British
Thomson-Houston case [1932] 2 K.B. 176, 182, although the judgment of Greer L.J. provides
scant support for this proposition. The British Thomson-Houston case was cited with approval
Page 25
by Browne-Wilkinson L.J. in Egyptian International Foreign Trading Co v Soplex Wholesale

Supplies Ltd and P.S. Refson & Co Ltd [1985] 2 Lloyd’s Rep. 36, 43, but Kerr L.J. in the latter
case, “as at present advised”, considered that an agent’s assurance as to his authority could
not vest him with wider authority than he already possessed (at 46). For dicta which on the
whole support Kerr L.J. see Armagas Ltd v Mundogas SA [1985] 1 Lloyd’s Rep. 1, 37 and
67–68, [1986] A.C. 717, 733–735, 749. See also Diplock L.J. in Freeman: a “contractor cannot
rely on the agent’s own representation as to his actual authority” (at 505). These somewhat
conflicting dicta were reconciled in First Energy (UK) Ltd v Hungarian International Bank Ltd
[1993] B.C.L.C. 1409 on the grounds that while an agent, without actual authority or apparent
authority, cannot enlarge his appearance of authority by his own representation, he may
nevertheless have apparent authority to communicate decisions of the company, for example,
that the board of directors have approved of a particular transaction.
214. [1964] 2 Q.B. 480, 504–505.
215. Section 161 replaces s.285 of the 1985 Act.
216. s.161 overrides s.160 (“appointment of directors of public company to be voted on individually”).
217. They would be disqualified (s.157 and s.161(1)(b)) or cease to act (s.159 and s.161(1)(c)).
218. Buckley, On the Companies Acts, para.285-4.
219. (1856) 6 E. & B. 327.
220. Morris v Kanssen [1946] A.C. 459, 471.
221. Kanssen v Rialto (West End) Ltd [1944] Ch. 346; affirmed sub nom. Morris v Kanssen [1946]
A.C. 459.
223. Ruben v Great Fingall Consolidated Co [1906] A.C. 439, 443; Kreditbank Cassel GmbH v
Schenkers Ltd [1927] 1 K.B. 826, 844; South London Greyhound Racecourses Ltd v Wake
[1931] 1 Ch. 496. In Lovett v Carson Country Homes Ltd [2009] 2 B.C.L.C. 196 at [89] the court
considered that South London Greyhound Racecourses v Wake was a “decision which to my
mind is very hard to sustain”.
224. See Campbell (1960) 76 L.Q.R. 115, 130 et seq.
225. (1990) 64 A.L.J.R. 427.
226. (1990) 64 A.L.J.R. 427, 443. See also Lonsdale Nominee Pty Ltd v Southern Cross Airlines Ltd
(1993) 10 A.C.S.R. 739. Where there is a forgery in the strict sense of the word, i.e. the name
of a person is falsely appended to a document, then this would obviously not be binding on the
company.
227. [2009] EWHC 1143 (Ch), [2009] 2 B.C.L.C. 196.
228. [2009] EWHC 1143 (Ch) at [96].
229. [2009] EWHC 1143 (Ch) at [90]; see also n.217.
230. For details, see Buckley on the Companies Acts, Division H; Gough, Company Charges, 2nd
edn (1998). As to the conclusiveness of the Registrar’s certificate of registration, see
Companies Act 2006 s.869(6)(b); R. v Registrar of Companies Ex p. Esal Commodities Ltd
[1986] Q.B. 1114. Pt 25 of the 2006 Act restates but does not make any substantive changes to
Pt XII of the 1985 Act. Section 894 of the 2006 Act enables the Secretary of State to amend Pt
25 by regulations which are subject to the affirmative resolution procedure. See Company Law
Review: Proposals for Reform of Part XII of the Companies Act 1985 (DTI, A Consultative
Page 26
Document, November 1994); Registration of Security Interest: Company Charges and Property
other than Land (Law Commission Consultation Paper No.164, 2002).
231. s.861(7).
232. s.870.
233. It is important to note that it is delivery of the particulars of the charge rather than registration
which saves it from invalidity; see NV Slavenburg’s Bank v Intercontinental Natural Resources
Ltd [1980] 1 W.L.R. 1076.
234. s.874.
235. Re Oriental Inland Steam Co (1874) 9 Ch. App. 557, 560; Fowler v Broad’s Patent Night Light
Co [1893] 1 Ch. 724; Gosling v Gaskell [1897] A.C. 575, 587; Measures Brothers v Measures
[1910] 2 Ch. 248, 256. In the case of a voluntary winding up, see Insolvency Act 1986 ss.91(2),
103. On the effect of winding up on the powers and office of directors, see Keay and Walton,
Insolvency Law: Corporate and Personal, 3rd edn (2012), p.290.
236. Re General Rolling Stock Co, Chapman’s Case (1866) L.R. 1 Eq. 346; Ex p. Maclure (1870)
L.R. 5 Ch. 737; Re R.S. Newman Ltd [1916] 2 Ch. 309; Re Oriental Bank Corp, MacDowall’s
Case (1886) 32 Ch. D. 366. An employee’s right to damages is not affected by the fact that he
may, as a shareholder, have supported the resolution for voluntary winding up: Fowler v
Commercial Timber Co [1930] 2 K.B. 1. See Vol.II, paras 40-178—40-179.
237. Re English Joint Stock Bank Ex p. Harding (1867) 3 Eq. 341.
238. Insolvency Act 1986 ss.91(2), 103.
239. Midland Counties District Bank Ltd v Attwood [1905] 1 Ch. 357; Fox Bros (Clothes) Ltd v Bryant
[1979] I.C.R. 64; see also Vol.II, para.40-181.
240. Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 K.B. 592.
241. [1918] 1 K.B. 592; Fowler v Commercial Timber Co [1930] 2 K.B. 1, 6.
242. Nokes v Doncaster Amalgamated Collieries Ltd [1940] A.C. 1014 (this was decided under s.427
of the 1985 Act which s.900 restates).
243. British Waggon Co v Lea (1880) 5 Q.B.D. 149; cf. Tolhurst v Associated Portland Cement
Manufacturers Ltd [1903] A.C. 414, commented on in Nokes v Doncaster Amalgamated
Collieries Ltd [1940] A.C. 1014, 1019–1020; and see paras 19-055—19-057.
244. See Insolvency Act 1986 s.178. This is a change from the old law: see Re Hans Place Ltd
[1993] B.C.L.C. 768; Re Morrish (1882) 22 Ch. D. 410; Re A.B.C. Coupler and Engineering Co
Ltd (No.3) [1970] 1 W.L.R. 702; Warnford Investments Ltd v Duckworth [1979] Ch. 127; Re A.E.
Realisations (1986) Ltd [1987] B.C.L.C. 486. Such disclaimer does not release a guarantor of
the rents from his guarantee: Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] A.C.
70. See also Re Park Air Services Plc [2000] 2 A.C. 172.
245. Insolvency Act 1986 ss.165–167; see Bateman v Ball (1887) 56 L.J.Q.B. 291; Hire Purchase
Furnishing Co v Richens (1887) 20 Q.B.D. 387.
246. Re Anglo-Moravian Co (1875) 1 Ch. D. 130.
247. Stead Hazel & Co v Cooper [1933] 1 K.B. 840. Representative language was not used in this
case although it is always prudent for a liquidator to contract clearly in a representative
capacity.
248. Insolvency Act 1986 s.127; Mond v Hammond Suddards [1996] 2 B.C.L.C. 470; Hollicourt
Page 27
(Contractors) Ltd v Bank of Ireland [2001] Ch. 555; Re Tain Construction Ltd [2003] 2 B.C.L.C.
374; Wilson v SMC Properties [2015] EWHC 870 (Ch).
249. Re Steane’s (Bournemouth) Ltd [1950] 1 All E.R. 21; Re T.W. Construction Ltd [1954] 1 W.L.R.
540; Re Clifton Place Garage Ltd [1970] Ch. 477; Re Operator Control Cabs Ltd [1970] 3 All
E.R. 657n; Re Argentum Reductions (UK) [1975] 1 W.L.R. 186; Re Gray’s Inn Construction Co
Ltd [1890] 1 W.L.R. 711; Re Tramway Building and Construction Co Ltd [1987] B.C.L.C. 632;
Re Webb Electric Ltd [1988] B.C.L.C. 382; Denney v John Hudson & Co Ltd [1992] B.C.L.C.
901.
250. Re Wiltshire Iron Co (1868) L.R. 3 Ch. App. 443; Re Park Ward & Co [1926] Ch. 828; Re
French’s (Wine Bar) Ltd [1987] B.C.L.C. 437.
251. Re Civil Service & General Store Ltd (1887) 57 L.J. Ch. 119; cf. Re T.W. Construction Ltd
[1954] 1 W.L.R. 540.
252. Re Gray’s Inn Construction Co Ltd [1980] 1 W.L.R. 711, 719. See also Denney v John Hudson
& Co Ltd [1992] B.C.L.C. 901.
253. [1992] B.C.L.C. 901. In the case of a solvent company, the court will validate a disposition
under the Companies Act 2006 s.127 provided that an intelligent and honest board of directors
could reasonably take the view that the arrangements were in the best interests of the
company. Only where bad faith or other exceptional circumstances are proved will the court
decline to act under s.127; Re Burton and Deakin Ltd [1977] 1 W.L.R. 390.
254. Re Oriental Bank Corp Ex p. Guillemin (1883) 28 Ch. D. 634; Re Wiltshire Iron Co (1868) L.R. 3
Ch. App. 443.
255. For the definition of receiver see Insolvency Act 1986 s.29. In particular note the definition of
administrative receiver a term first introduced by the Insolvency Act 1986: see also s.251 of the
1986 Act.
256. Insolvency Act 1986 s.29(2).
257. This introduces ss.72A–72H into the Insolvency Act 1986. The prohibition affects floating
charges created after September 15, 2003 (SI 2003/2093).
258. There are also a number of exemptions to the prohibition on appointing an administrative
receiver: see Insolvency Act 1986 ss.72C–72H.
259. Reid v Explosives Co (1887) 19 Q.B.D. 264 (note, however, the reservations of Fry L.J.); Re
Mack Trucks (Britain) Ltd [1967] 1 W.L.R. 780; Griffiths v Secretary of State for Social Services
[1974] Q.B. 468. This principle has not been followed in Australia: see Spidad Holding v
Popovic (1995) 19 A.C.S.R. 108.
260. Griffiths v Secretary of State for Social Services [1974] Q.B. 468; Deaway Trading Ltd v
Calverley [1973] I.C.R. 546; see Vol.II, paras 40-178—40-179.
261. Re Foster Clark Ltd’s Indenture Trusts [1946] 1 W.L.R. 125. The position has now been
substantially modified by the Transfer of Undertakings (Protection of Employment) Regulations
1981 (SI 1981/1794). See Vol.II, paras 40-179 et seq.
262. Re Mack Trucks (Britain) Ltd [1967] 1 W.L.R. 780.
263. Griffiths v Secretary of State for Social Services [1974] Q.B. 468, 486.
264. Griffiths v Secretary of State for Social Services [1974] Q.B. 468; see Freedland, The Contract
of Employment (1975), p.339.
265. s.44(1)(b). On the nature of the administrative receiver’s liability see Re Atlantic Computer
Page 28
Systems Plc (No.1) [1992] Ch. 505, 526.
266. s.44(1)(b), (2). This was designed to overcome the decision in Nicoll v Cutts [1985] B.C.L.C.
322.
267. Stewart, Administrative Receivers and Administrators, pp.96–99.
268. [1995] 2 A.C. 394.
269. In the lower courts it was held that the receiver who adopted the contract would be liable for all
outstanding liabilities: see [1995] 2 A.C. 394 where the judgment of Lightman J. is reported.
Because of the threat of liability this resulted in receivers, and more importantly administrators
who are similarly liable under s.19 of the 1986 Act, in terminating contracts of employment, s.44
and s.19 of the Act have been modified by the Insolvency Act 1994 so that receivers and
administrators will only be liable for services on a contract of employment rendered during the
administration or receivership after the adoption of the contract of employment (referred to as
“qualifying liabilities”).
270. Airlines Airspaces Ltd v Handley Page Ltd [1970] Ch. 193. cf. Rother Iron Works Ltd v
Canterbury Precision Engineers [1974] Q.B. 1; George Barker (Transport) Ltd v Eynon [1974] 1
W.L.R. 462.
271. See, however, Ash & Newman Ltd v Creative Devices Research Ltd [1991] B.C.L.C. 403 where
an injunction was granted to protect a pre-emption right of the plaintiff but the facts were
exceptional in that the injunction did not prejudice the interests of the security holder.
272. Hill (Edwin) & Partners v First National Finance Corp Plc [1989] B.C.L.C. 89; Astor Chemicals
Ltd v Synthetic Technology Ltd [1990] B.C.L.C. 1, 11.
273. Burt, Boulton & Hayward v Bull [1895] 1 Q.B. 276, 279. On the right of a court appointed
receiver to be remunerated see Mellor v Mellor [1993] B.C.L.C. 30.
274. Lawson v Hosemaster Co Ltd [1966] 1 W.L.R. 1300.
275. Insolvency Act 1986 s.44(1)(b).
276. Thomas v Todd [1926] 2 K.B. 571.
277. Gosling v Gaskell [1897] A.C. 575; Re S. Brown & Co Ltd [1940] Ch. 961; see also Bacal
Contracting Ltd v Modern Engineering (Bristol) Ltd [1980] 2 All E.R. 655, 658.
278. Sowman v David Samuel Trust Ltd [1978] 1 W.L.R. 22.
279. The authorities are collected in Welsh Development Agency v Export Finance Co Ltd [1992]
B.C.L.C. 148. See also OBG Ltd v Allan [2007] UKHL 21, [2007] 4 All E.R. 545.
280. [2007] UKHL 21 at 171–173.
281. A new Sch.B1 is inserted by s.248 into the 1986 Act; see Sch.16.
282. See, e.g. paras 42–45 of Sch.B1.

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(ii) - Contracts between Companies and Promoters or Directors
Promoters
10-054
Promoters are the persons who procure the formation of a company and its “flotation”. 283 The term
“promoter” is not a legal term but depends upon the function being carried out with respect to the
formation of the company. A promoter stands in a fiduciary relationship to the company both before
and after its formation. 284 While, therefore, a promoter may make a profit out of the sale of his
property to the company, 285 that profit must be disclosed to an independent board of directors or to
the shareholders 286; he may not take a secret commission from a person selling to the company, 287
and if he does so, the company may rescind the contract 288 or claim to recover the secret profit from
the promoter, 289 or (at any rate in some cases) sue him for damages. 290 Where promoters acquired
property before they began to promote the company and thereafter sold it to the company without
disclosing that they were the vendors, it was held that rescission was the only right open to the
company, as the promoters were not at the time of their purchase in a fiduciary position to the
company. 291 If disclosure is relied on, it must be a genuine disclosure, that is to say, either a
disclosure to a board of directors independent of the promoters, 292 or a communication to all the
shareholders, 293 or a plain indication in the prospectus that the board of directors are acting for the
promoters. 294
Directors
10-055
Directors owe fiduciary obligations to the company and may not make any secret profit by virtue of
their office. 295 But directors are in a more responsible position than promoters and neither they nor
companies in which they are interested 296 can make an enforceable contract with the company,
unless so authorised by the articles of association. 297 Such authorisation is in practice almost
universally included in the articles of association, but even where it is given the interested director has
a statutory obligation to disclose his interest fully. 298 In the absence of the necessary authority in the
articles, or in the event of a failure to disclose an interest where there is such authority, the contracts
will be voidable by the company. 299 It may be affirmed by the shareholders in general meeting 300 or
(probably) by an independent board of directors, 301 or alternatively the company may rescind the
contract if restitutio in integrum is still possible. The company cannot, however, claim both to affirm
the contract and an account of profits unless actual fraud or breach of trust can be proved, as, for
example, where a director has sold to the company property which he already held as trustee
(expressly or constructively) for the company. 302 Where the director is guilty merely of non-disclosure,
having, for example, acquired his interest in the property which he sold to the company before he
became a director, the company may either affirm the sale and pay the price agreed or rescind the
transaction altogether, but, unless the transaction falls within s.190 of the Companies Act 2006, 303 it
Page 2
cannot claim to affirm and yet to recover the profit made by the director. 304
Companies Acts and directors’ contracts
10-056
The Companies Acts contain extensive provisions designed to regulate transactions between
directors and their companies, the overall purpose of these provisions being to prevent overreaching
by directors and to compel disclosure to the members of the details of the transactions. Some types
of transaction must be disclosed and approved in advance (e.g. loans, 305 payments made in
connection with the loss of office), 306 while others merely have to be disclosed (e.g. emoluments). 307
These provisions are much too technical and extensive to be dealt with here and specialist texts on
Company Law should be referred to. Of greater significance with respect to contracts between
directors and their companies is s.177 of the Companies Act 2006, 308 which requires a director who
has a direct or indirect interest in a proposed contract or arrangement with his company to make
disclosure of his interest in the way set out in the section. Directors are also obliged to disclose
interests in an existing transaction or arrangement. 309 There are also special provisions dealing with
contracts which include as one of the parties a director of the company and with respect to that
contract the board exceeds limitations on its powers under the company’s constitution. 310 Such
contracts are (subject to limitations) made voidable at the option of the company. 311
Managing directors
10-057
The appointment of a managing director does not necessarily constitute a contract between the
holder of that office and the company and in the absence of a contract he is removable according to
the regulations in the company’s constitution. 312 Even where a person is appointed as a managing
director pursuant to a contract to that effect the company can lawfully terminate the appointment at
any time in accordance with the company’s constitution if the appointment is not made for a specific
term, though reasonable notice may be required in this event. A person appointed managing director
cannot, in the absence of an agreement to that effect, claim to be entitled to continue as such so long
as he remains a director. 313
Contract for term of years
10-058
A managing director may, however, be employed in that capacity by a company under a contract for a
term of years, 314 and if so his appointment cannot be lawfully revoked by the company before the
expiration of that time by removing him from his directorship in accordance with the articles of
association or s.168 of the 2006 Act. 315 Although the company’s power to remove a director under
s.168 cannot be taken away by contract, 316 the exercise of the power may be a breach of contract
because a managing director who is removed from his position as a director will necessarily lose his
post as managing director, 317 and the company will then be in breach of any contract to employ him
as such. Even if remuneration is attached to the office and there is a contract, the contract may
exceptionally (particularly where it is an informal parol agreement) be treated as being subject to the
provisions of the company’s constitution. In this event removal of the managing director in accordance
with the company’s constitution will not be a breach of contract. 318
Improper appointment
10-059
If a managing director is improperly appointed, fees received by him as such may be recovered from
him by the company. 319
Page 3
companies.
283. Flotation in this sense does not require that the company’s securities be offered to the public;
Gifford v Willoughby’s Mashonaland Expedition Co (1899) 16 T.L.R. 24; Torva Exploring
Syndicate v Kelly [1900] A.C. 612. On liability with respect to defective prospectuses: see
Financial Services And Markets Act 2000 s.90; above, para.7-098.
284. Erlanger v New Sombrero Phosphate Co (1878) 3 App. Cas. 1218; Emma Silver Mining Co v
Lewis (1879) 4 C.P.D. 396; Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch. 392, 428;
Gluckstein v Barnes [1900] A.C. 240.
285. Omnium Electric Palaces Ltd v Baines [1914] 1 Ch. 332.
286. Gluckstein v Barnes [1900] A.C. 240; Re Leeds & Hanley Theatres of Varieties Ltd [1902] 2 Ch.
809; Jubilee Cotton Mills Ltd v Lewis [1924] A.C. 958.
287. Lydney & Wigpool Iron Co v Bird (1886) 33 Ch. D. 85.
290. Re Leeds & Hanley Theatres of Varieties Ltd [1902] 2 Ch. 809; Jacobus Marler Estates v Marler
(1913) L.J.P.C. 167n.
291. Ladywell Mining Co v Brookes (1887) 35 Ch. D. 400; cf. Burland v Earle [1902] A.C. 83. For
statutory liability with respect to a defective prospectus see Financial Services and Markets Act
2000 ss.84, 85 and 150.
292. Gluckstein v Barnes [1900] A.C. 240; Burland v Earle [1902] A.C. 83, above.
293. Salomon v Salomon & Co [1897] A.C. 22; Att-Gen for Canada v Standard Trust Co of New York
[1911] A.C. 498.
294. Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch. 392.
295. Imperial Mercantile Credit Association v Coleman (1873) L.R. 6 H.L. 189; Parker v McKenna
(1874) L.R. 10 Ch. App. 96; Kaye v Croydon Tramways Co [1898] 1 Ch. 358; Tiessen v
Henderson [1899] 1 Ch. 861; Clarkson v Davies [1923] A.C. 100; Regal (Hastings) Ltd v
Gulliver [1942] 1 All E.R. 378, [1967] 2 A.C. 134n; Industrial Development Consultants Ltd v
Cooley [1972] 1 W.L.R. 443. See now Pt 10 of the 2006 Act which contains a codification of the
major directors’ duties.
296. Flanagan v Great Western Ry (1868) L.R. 7 Eq. 116; Transvaal Lands Co v New Belgium Land
Co [1914] 2 Ch. 488.
297. Costa Rica Railroad Co v Forwood [1901] 1 Ch. 746; Re Republic of Bolivia Exploration
Syndicate Ltd [1914] 1 Ch. 139; see now s.177 of the 2006 Act.
298. s.182. This section replaces s.317 of the Companies Act 1985. Failure to comply with s.317 did
not render the contract void or voidable: Hely-Hutchinson v Brayhead Ltd [1968] 1 Q.B. 549;
Guinness Plc v Saunders [1990] 2 A.C. 663. It would also appear that breach of s.317 did not
vest in the company any right of action for damages for breach of statutory duty: Castlereagh
Motels Ltd v Davies-Roe (1966) 67 S.R. (N.S.W.) 279; see also Lee Panavision Ltd v Lee
Lighting Ltd [1992] B.C.L.C. 575; Runciman v Walter Runciman Plc [1992] B.C.L.C. 1084. The
same would apply to s.182.
Page 4
299. Transvaal Lands Company v New Belgium (Transvaal) Land and Development Co [1914] 2 Ch.
488.
300. North West Transportation Co v Beatty (1887) 12 App. Cas. 589. However, Beatty has been
substantially modified by s.239 of the 2006 Act so that a shareholders’ vote affirming the
transaction must be passed by an independent majority of shareholders thus disregarding the
votes of the director or anyone connected with him. For the definition of connected persons see
s.252 of the 2006 Act.
301. Queensland Mines Ltd v Hudson (1978) 52 A.L.J.R. 399 PC; noted (1979) 42 M.L.R. 711. It is
important to note that in this case the shareholders were all aware of the director’s conduct: see
Cane v Jones [1980] 1 W.L.R. 1451 and above, para.10-039.
302. Re Leeds and Hanley Theatres of Varieties Ltd [1902] 2 Ch. 809.
303. Where the transaction is a substantial property transaction as defined in s.190 of the
Companies Act 2006, and that section is not complied with, the director must account for any
gain and are liable to indemnify the company for all losses (s.195); see Joint Receivers and
Managers of Niltan Carson Ltd v Hawthorne [1988] B.C.L.C. 298; Duckwari Plc v Offerventure
Ltd (No.2) [1999] 2 Ch. 253.
304. Re Cape Breton Co (1884) 26 Ch. D. 221; 29 Ch. D. 795; Burland v Earle [1902] A.C. 83.
305. s.197. Loans may also be subsequently affirmed within a reasonable period of time: s.214. The
long standing prohibition on company loans to directors was abrogated by the 2006 Act.
306. ss.215–219. See Company Directors: Regulating Conflicts of Interest and Formulating a
Statement of Duties (Law Commission, Consultation Paper No.153).
307. s.318.
308. See also n.295.
309. ss.182–186. This is extended to a shadow director: s.187.
310. s.41. The purpose of this provision is to deny to directors the full protection of ss.39 and 40.
311. s.41.
312. An appointment without remuneration will normally mean that there is no contract: Foster v
Foster [1916] 1 Ch. 532.
313. Foster v Foster [1916] 1 Ch. 532.
314. Service contract is defined in s.227 of the 2006 Act and it must be open for inspection by
members: ss.228–229. These provisions apply to shadow directors: s.230.
315. Southern Foundries Ltd v Shirlaw [1940] A.C. 701; Shindler v Northern Raincoat Co Ltd [1960]
1 W.L.R. 1038; Cumbrian Newspapers Group Ltd v Cumberland and Westmoreland Newspaper
and Printing Co Ltd [1987] Ch. 10.
316. See, however, Bushell v Faith [1970] A.C. 1099.
317. Re Alexander’s Timber Co (1901) 70 L.J. Ch. 767; Bluett v Stutchbury’s Ltd (1908) 24 T.L.R.
469.
318. Read v Astoria Garage (Streatham) Ltd [1952] Ch. 637; contrast Shindler v Northern Raincoat
Co Ltd [1960] 1 W.L.R. 1038. This gives rise to difficult conceptual problems: see Trebilcock
(1967) 31 Conv.(N.S.) 95; Carrier Australia Ltd v Hunt (1935) 61 C.L.R. 534.
Page 5
319. Brown & Green v Hays (1920) 36 T.L.R. 330; Kerr v Marine Products (1928) 44 T.L.R. 292; cf.
Craven Ellis v Canons Ltd [1936] 2 K.B. 403.

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(iii) - Contracts between Companies and their Members
Purchase and allotment
10-060
The contract between a company and a shareholder may be made in a number of ways. By s.112 of
the Companies Act 2006, the subscribers to the memorandum of association are deemed to have
agreed to become members of the company. 320 The phrase “agrees to become a member” in s.112
does not require a binding contract and this requirement is satisfied where the name of a person is
entered in the register of members with his consent. 321 However, in most cases, 322 the contract
between the shareholder and the company will either be preceded by a purchase of shares from a
third party or will be made by application to the company followed by allotment. In the former case the
contract is probably made by the application of the prospective shareholder to be entered in the
register followed by his being so entered. In the latter case the contract is constituted by an
application to take shares, accepted by the company by a notification that shares have been allotted.
323
Notice of allotment must be given within a reasonable time or the application lapses. 324 It was held
in Houldsworth v City of Glasgow Bank 325 that a person who had applied for and been allotted shares
in a company could not, while he remained a member of the company, sue the company for damages
for breach of his contract of membership, 326 or for damages for fraudulently inducing him to enter into
it. 327 The only remedy used to be that of rescission of the contract and rectification of the register of
members. The position has now been altered by s.655 of the 2006 Act, 328 which provides that being a
member does not preclude an action for damages. Rescission of a contract of subscription will
normally be ordered if the claimant succeeds in showing that he has been induced to take the shares
by a material misrepresentation of fact on the part of the company. A misrepresentation made by a
person acting on behalf of the company within the scope of his authority 329 or contained in a
document which is, to the knowledge of the company, the basis of the contract to take shares, 330 is a
good ground for rescission. 331 In most cases the representations complained of are contained in a
prospectus issued by the company, and inasmuch as the offer to take shares is an offer to take them
on the terms of the prospectus, the materiality of the statements contained in the prospectus will in
most cases be beyond dispute. 332 If the shareholder does not rescind the contract and take steps to
have the register rectified within a reasonable time, 333 and in any event before the commencement of
the winding up of the company, 334 he loses his right of rescission; but this rule does not apply to a
shareholder whose shares have been forfeited by the company and who has done nothing to affirm
the contract, for he has ceased to be a shareholder and has become a debtor to the company. 335
Effect of articles
10-061
The terms of the contract of membership of a company are contained in the memorandum and
articles of association. Where a company prior to the 2006 Act had to possess articles and a
Page 2
memorandum the articles were subordinate to the memorandum and, in the case of inconsistency
between them, the memorandum prevails. Provisions in the memorandum of such companies are
now treated as provisions in its articles. 336 No provision is made in the 2006 Act for dealing with the
unlikely event that a conflict might arise but the courts would probably follow the old law, so that any
provision in the articles derived from the memorandum would prevail. 337 The extent to which the
articles of association form an enforceable contract between the company and its individual members
is determined by s.33 of the Companies Act 2006 which provides that the:
“… provisions of a company’s constitution bind the company and its members to the
same extent as if there were covenants on the part of the company and of each member
to observe those provisions.” 338
In Hickman v Kent or Romney Marsh Sheep-Breeders’ Association, 339 Astbury J. made an elaborate
examination of the cases, some of which decided that the articles of association created no contract
between the company and its members and others that a company was entitled as against its
members to enforce and restrain breaches of its regulations; he concluded “[i]t is difficult to reconcile
these two classes of decisions and the judicial opinions therein expressed”, but he went on to
formulate the following rules:
(1)
No article can constitute a contract between the company and a third person. 340
(2)
No right purporting to be given by an article to a person, whether a member or not, in a capacity
other than that of a member, as, for instance, a solicitor, 341 promoter 342 or director, 343 can be
enforced against the company.
(3)
Articles regulating the rights and obligations of the members generally as such do create rights
and obligations between them and the company respectively.
The articles also constitute a contract been the members inter se. 344
companies.
320. Companies Act 2006 s.112 makes it clear that the subscribers to the memorandum become
members on registration of the company even if the company fails to enter their names in the
register of members.
321. Re Nuneaton Borough Association Football Club Ltd [1989] B.C.L.C. 454. This was decided
under s.22 of the 1985 Act which s.112 restates.
322. cf. Mackley’s Case (1875) 1 Ch. D. 247.
323. For the statutory rules relating to allotment and the effects of irregular allotment, see
Companies Act 1985 ss.82–86 repealed in part by Financial Services Act 1986 Sch.17, settling
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the law left uncertain in Jubilee Cotton Mills Ltd v Lewis [1924] A.C. 958; Re James Burton &
Son Ltd [1927] 2 Ch. 132.
324. Ramsgate Victoria Hotel Co v Montefiore (1866) L.R. 1 Ex. 109.
325. (1880) 5 App. Cas. 317; Soden v British and Commonwealth Holdings Plc [1997] 2 B.C.L.C.
501.
326. Re Addlestone Linoleum Co (1887) 37 Ch. D. 191.
327. Western Bank of Scotland v Addie (1867) L.R. 1 Sc. & Div. 145; Houldsworth v City of Glasgow
Bank (1880) 5 App. Cas. 317.
328. This was first introduced as s.111A of the 1985 Act by s.131 of the Companies Act 1989.
329. Lydney v Anglo-Italian Hemp Spinning Co [1896] 1 Ch. 178; cf. Lagunas Nitrate Co v Lagunas
Syndicate [1899] 2 Ch. 392.
330. Karberg’s Case [1892] 3 Ch. 1; Collins v Associated Greyhound Racecourses [1930] 1 Ch. 1.
331. See above, Ch.7.
332. See Karberg’s Case [1892] 3 Ch. 1; Mair v Rio Grande Rubber Estates [1913] A.C. 853; Re
Pacaya Rubber & Produce Co [1914] 1 Ch. 542.
333. First National Reinsurance Co v Greenfield [1921] 2 K.B. 260.
334. Oakes v Turquand (1867) L.R. 2 H.L. 325; Reese River Silver Mining Co v Smith (1869) L.R. 4
H.L. 64.
335. Aaron’s Reefs v Twiss [1896] A.C. 273.
336. s.28.
337. Ashbury v Watson (1885) 30 Ch. D. 376; Rayfield v Hands [1960] Ch. 1.
338. This replicates the effect s.14 of the 1985 Act, there have been inconsequential linguistic
amendments.
339. [1915] 1 Ch. 881, 900; approved Beattie v Beattie Ltd [1938] Ch. 708. See also Mutual Life
Insurance Co of New York v The Rank Organisation Ltd [1985] B.C.L.C. 11 (the contract
constituted by the articles does not import the requirement that there be parity of treatment of
shareholders of the same class); Bratton Seymour Service Co Ltd v Oxborough [1992] B.C.L.C.
693.
340. Melhado v Porto Alegre Ry (1874) L.R. 9 C.P. 503; Re Greene [1949] Ch. 333.
341. Eley v Positive Life Assurance Co (1876) 1 Ex. D. 88; cf. Cumbrian Newspapers Group Ltd v
Cumberland and Westmoreland Herald Newspaper & Printing Co Ltd [1987] Ch. 1, 16.
342. Pritchard’s Case (1873) L.R. 8 Ch. 956.
343. Browne v La Trinidad (1887) 37 Ch. D. 1; Beattie v Beattie Ltd [1938] Ch. 708; contrast Rayfield
v Hands [1960] Ch. 1, on which see Gower (1958) 21 M.L.R. 401, 465.
344. Rayfields v Hands [1960] Ch. 1. See also Re Royal Institution of Chartered Surveyors’
Application [1985] I.C.R. 330, 345–347 (relationship between members of a body corporate
incorporated by Royal Charter). It has been argued that a member also has the right to compel
a company to observe all of the provisions in the company’s articles of association, a
proposition which if accurate would provide a means for enforcing indirectly outsider rights.
Page 4
Although some cases recognise such a right, it has not constituted the basis of any decision
and its status remains very uncertain. See generally, Wedderburn [1957] C.L.J. 194; [1958]
C.L.J. 93.

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(iv) - Contracts between Companies and their Auditors
Appointment and removal of auditors
10-062
Public companies must appoint auditors. 345 However, if the directors reasonably resolve that no such
appointment is needed on the ground that audited accounts are unlikely to be required then auditors
need not be appointed. 346 The appointment of auditors is made by the members. 347 Although the first
auditors may be appointed by the directors, 348 auditors are normally elected at the general meeting at
which the company’s accounts are considered 349 and the terms of the auditor’s remuneration will
normally be determined by the members of the company. 350 The auditor’s term of office must run
from the conclusion of that meeting to the conclusion of the next such meeting, 351 and although an
auditor may resign he must follow certain stipulated procedures. 352 By virtue of the Companies Act
2006 s.510, a company may by ordinary resolution remove its auditor from office, before the
expiration of his term of office, any such removal is without prejudice to any claim for damages for
breach of contract. 353
Rules of industrial societies
10-063
It would appear that the rules of a society registered under the Industrial and Provident Societies Act
1965 (or earlier Acts replaced by that Act) bind the members of such a society to the same extent as
the articles of association bind the shareholders. 354
companies.
345. s.489(1).
346. s.489(1).
347. s.489(1). In certain restricted circumstances, the directors can appoint auditors: see s.489(3).
348. s.489(3).
349. s.489(4).
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350. s.492.
351. s.495.
352. ss.516–618.
353. The Act contains other procedural provisions relating to the removal of an auditor: see
ss.510–513 of the Act.
354. Biddulph & District Agricultural Society v Agricultural Wholesale Society [1925] Ch. 769, [1927]
A.C. 76.

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Section 2. - Unincorporated Associations
(a) - Generally
Liability of unincorporated associations
10-064
An unincorporated association is not a legal person and therefore cannot sue or be sued 355 unless
such a course is authorised by express or implied statutory provisions as in the case of a trade union
356
and a trustee savings bank. 357 Nor can a contract be made so as to bind all persons who from time
to time become members of such an association. 358 But a contract purportedly made by or with an
unincorporated association is not necessarily a nullity. 359 If the person or persons who actually made
the contract had no authority to contract on behalf of the members they may be held to have
contracted personally. 360 On the other hand, if they had the authority, express or implied, of all or
some of the members of the association to contract on their behalf, the contract can be enforced by or
against those members as co-principals to the contract by the ordinary rules of agency. 361
Representative action
10-065
By the rules of agency, therefore, a large number of members of an association may find themselves
parties to a contract. In practice it would be impossible in such a case to join all the members as
plaintiffs or defendants, and therefore recourse must be had to the device of a representative action.
Order 15 r.12, of the Rules of the Supreme Court (which is preserved by the Rules of the Supreme
Court Sch.1) provides that where there are numerous persons having the same interest in any
proceedings, 362 the proceedings may be begun and, unless the court otherwise orders, continued by
or against any one or more of them as representing all or as representing all except one or more of
them. The attitude of the courts is to interpret the open textured language of Ord.15 r.12, in a liberal
manner. Its language, according to Megarry V.C., is wide and permissive and the rule should be used
as “a flexible tool of convenience in the administration of justice”. 363
Requirements for representative action
10-066
In Prudential Assurance Co Ltd v Newman Industries Ltd 364 Vinelott J. reviewed the authorities
relating to representative actions and formulated the following principles with respect to the bringing
of such actions.
Not if it would confer new right of action
10-067
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First, a representative action may not be brought if the effect of so doing is:
“… to confer a right of action on a member of the class represented who would not
otherwise have been able to assert such a right in separate proceedings, or to bar a
defence which might otherwise be available to the defendant, in such separate
proceedings.” 365
From this Vinelott J. reasoned that the plaintiff in a representative action will normally be only entitled
to declaratory relief, although he may join with the representative action a claim for personal
damages. Although this is the normal rule, in exceptional circumstances the court may grant damages
in favour of the plaintiff in an action commenced in representative form. 366 Also, it may be that the
contractual arrangements between the parties make it appropriate that there be an action in
representative form. 367 An action of libel cannot be instituted under the rule where some of the
members of the association might not have authorised the publication of the alleged libel, or might be
out of the country. 368 Similarly, it was refused where an order was sought against the members at the
date of the proceedings and the members had changed since the cause of action had arisen, 369 and,
in an action for breach of a contract for the carriage of goods by sea, where the shippers in a general
ship held different bills of lading and different defences might have been raised against them. 370
Not to enforce a personal liability
10-068
Nor can representative proceedings under this rule be used in an action in which a personal liability,
such as a judgment for money due or for damages, is sought to be enforced against the individual
members of the association. 371 In Lord Churchill v Whetnall, 372 where three subscribers to a fund
brought an action for misrepresentation in the circular inviting subscriptions to the fund on behalf of
themselves and the other 200 subscribers, it was held that there could be no representative action to
establish the right of numerous persons to recover damages, each in his own several right, where the
only right claimed was the right to recover such damages: before a subscriber could recover he would
have to show that he had been induced by the representation and this could only be done in separate
proceedings. 373 But where the association is possessed of funds in the hands of trustees, a plaintiff
may sue proper persons as representatives of the association for a declaration of his right against the
property belonging to the association, and, by adding the trustees as defendants, may obtain an order
charging the funds which are in their hands and of which they are the legal owners. 374
Common interest
10-069
The Prudential Assurance case also required that there must be an “interest” shared by all members:
“there must be a common ingredient in the cause of action of each member of the class”. 375 This to a
large extent is nothing more than a rephrasing of the first requirement.
For benefit of class
10-070
The third, and related requirement, is that it is for the benefit of the class that the representative action
be brought. 376 This, among other things, will require that all evidence relating to the claim is adduced
to avoid any unfairness to members of the class who will be bound by the outcome of the litigation.
Relation of unincorporated association to its members

Page 3
10-071
Inasmuch as unincorporated associations are generally not legal persons, but mere collective names
for all their members, a contract made by one member with some person or persons on behalf of the
association is a contract by a man with himself and others; and as no man can be both covenantor
and covenantee upon a contract, it must be construed as a contract between the member and the
other members. 377 If that contract is broken the injured member can sue and recover damages from
those who have broken it, 378 though he cannot sue the association except where statutory
authorisation for such a course can be found. But he may be faced with the difficulty that the wrongful
act was committed by an agent of the association on behalf of its members, including himself. In that
case it is possible that he may be unable to recover from his fellow members, whose responsibility, in
the circumstances, will be no greater than his own. But the other members, in order to rely on such a
defence, must show that the agent was really acting on behalf of the injured member; and, at any rate
where the injury is a wrongful expulsion in breach of the rules, that will not be so. 379
355. London Association for Protection of Trade v Greenlands Ltd [1916] 2 A.C. 15, 20, 38; Steele v
Gourley (1886) 3 T.L.R. 118, 119; affirmed (1887) 3 T.L.R. 772. See, generally, Ford,
Unincorporated Non-Profit Associations (1959); Keeler (1971) 34 M.L.R. 615.
356. Trade Union and Labour Relations (Consolidation) Act 1992 s.10; British Association of
Advisers and Lecturers in Physical Education v National Union of Teachers [1986] I.R.L.R. 497
CA; E.E.T.P.U. v Times Newspapers Ltd [1980] Q.B. 585.
357. Knight and Searle v Dove [1964] 2 Q.B. 631. See Wedderburn (1965) 28 M.L.R. 62.
358. See Walker v Sur [1914] 2 K.B. 930; Jarrott v Ackerley (1915) 85 L.J.Ch. 135.
359. The Regulatory Reform (Removal of 20 Member Limit in Partnership, etc.) Order 2002 (SI
2002/3203) removed the size limits on partnerships imposed by s.716 of the 1985 Act. No size
limitation on partnerships has been imposed by the 2006 Act.
360. Bradley Egg Farm v Clifford [1943] 2 All E.R. 378.
362. Barker v Allanson [1937] 1 K.B. 463; London Association for Protection of Trade v Greenlands
Ltd [1916] 2 A.C. 15, 39; Janson v Property Insurance Co (1913) 30 T.L.R. 49.
363. John v Rees [1970] Ch. 345, 370.
364. [1981] Ch. 229; CBS/SONY Hong Kong Ltd v Television Broadcasts Ltd [1987] F.S.R. 262.
365. [1981] Ch. 229, 254.
366. EMI Records Ltd v Riley [1981] 1 W.L.R. 923.
367. Irish Shipping Ltd v Commercial Union Assurance Co Plc [1991] 2 Q.B. 206 (action in
representative form against the lead underwriter of an insurance contract).
368. Mercantile Marine Service Association v Toms [1916] 2 K.B. 243; E.E.T.P.U. v Times
Newspapers Ltd [1980] Q.B. 585.
369. Barker v Allanson [1937] 1 K.B. 463; Roche v Sherrington [1982] 2 All E.R. 426; cf. Campbell v
Thompson [1953] 1 Q.B. 445. There is no reason why a representative action should not be
instituted against those persons who were members when the cause of action arose, but in this
event no order could be made affecting the assets of the association.
Page 4
370. Markt & Co v Knight S.S. Co [1910] 2 K.B. 1021.
371. Walker v Sur [1914] 2 K.B. 930; Hardie and Lane v Chiltern [1928] 1 K.B. 663. See, however,
Morrison S.S. Co Ltd v Greystoke Castle (Cargo Owners) [1947] A.C. 265. It may also be noted
that the new Ord.15 r.12 is in wider terms than the old Ord.16 r.9, and it is perhaps arguable
that the cases denying the use of this procedure in an action for damages should not now be
followed. But see Prudential Assurance [1981] Ch. 229, 244; Roche v Sherrington [1982] 2 All
E.R. 426.
372. (1918) 87 L.J. Ch. 524; Wing v Burn (1928) 44 T.L.R. 258; Markt & Co v Knight S.S. Co [1910]
2 K.B. 1021, 1035.
373. See Prudential Assurance [1981] Ch. 229, 251.
374. Wood v McCarthy [1893] 1 Q.B. 775; Taff Vale Ry v Amalgamated Society of Railway Servants
[1901] A.C. 426, 443; Linaker v Pilcher (1901) 17 T.L.R. 256; Ideal Films v Richards [1927] 1
K.B. 374, 381.
375. Prudential Assurance Co Ltd v Newman Industries Ltd [1981] Ch. 229, 255. Vinelott J. cited
Markt & Co v Knight S.S. Co [1910] 2 K.B. 1021 and Lord Churchill v Whetmall (1918) 87 L.J.
Ch. 524 as two cases where this requirement was not satisfied.
376. Prudential Assurance Co Ltd v Newman Industries Ltd [1981] Ch. 229, 255.
377. Law of Property Act 1925 s.82. See also John v Matthews [1970] 2 Q.B. 443; Reel v Holder
[1981] 1 W.L.R. 1226.
378. See Abbott v Sullivan [1952] 1 K.B. 189, 193, 219; Lee v Showmen’s Guild of Great Britain
[1952] 2 Q.B. 329, 341.
379. Bonsor v Musicians’ Union [1956] A.C. 104, 148–149, 153.

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(b) - Clubs 380
Kinds of clubs
10-072
The principal bodies with regard to which these questions arise are clubs and trade unions. Clubs are
unincorporated associations and may be formed for any purpose for which associations may be
lawfully constituted. There are two principal types of club: members’ clubs and proprietary clubs. 381
380. See Josling and Alexander, The Law of Clubs, 6th edn (1987).
381. The Friendly Societies Act 1974 s.7(2)(d) recognised the “working men’s clubs” but this
definition is not repeated in the Friendly Societies Act 1992. However, the social and
philanthropic purposes that could be carried out by working men’s clubs as defined in 1974 Act
could be carried out by a body registered as a Friendly Society under the 1992 Act: see Sch.2
Pt D as amplified by s.7(2)(b) and s.10 of the 1992 Act.

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(b) - Clubs 380
(i) - Members’ Clubs
Members’ liability
10-073
The question whether contracts purporting to have been made on behalf of an association bind all the
members or only some (e.g. the committee) is one which turns on the general law of agency. 382 Thus,
no member of a members’ club is liable for the debts of the club except to the extent that he has
expressly or impliedly authorised some official of the club to pledge his personal credit. 383 Clubs are
not partnerships 384 and the:
“… law, which was at one time uncertain, is now settled, that no member of a club is
liable to a creditor except, so far as he has assented to the contract in respect of which
such liability has arisen.” 385
Unless the rules expressly so provide, 386 the committee of a club has no authority to pledge the credit
of the members by borrowing on debentures, 387 or by ordering work to be done for or goods to be
supplied to the club 388; but a member may make himself liable by ratifying the order. 389 Members of
the committee of a club are liable in respect of contracts made by them on behalf of the club, 390 but
not in respect of contracts made by officials of the club which they have not themselves authorised. 391
Where one committee man has paid out money under a contract on which another committee man
also could have been sued, the former has a right of contribution against the latter in respect of such
payment, 392 but he has no right of indemnity against the members of the club. 393
Relation of club to its members
10-074
The relations between the members of a club are governed by a contract between the members
which may be express or implied and which is usually found in the rules of the club 394; membership of
a club may also confer proprietary rights on members which will be of significance where the club is
being dissolved. 395 In Lee v Showmen’s Guild of Great Britain 396 Denning L.J. said:
“It was once said by Sir George Jessel M.R. that the courts only intervened in these
cases to protect rights of property: see Rigby v Connol 397; and other judges have often
said the same thing: see, for instance, Cookson v Harewood. 398 But Fletcher Moulton L.J.
denied that there was any such limitation on the power of the courts: see Osborne v
Amalgamated Society of Railway Servants 399; and it has now become clear that he was
Page 2
right: see the cornporters’ case, Abbott v Sullivan. 400 That case shows that the power of
this court to intervene is founded on its jurisdiction to protect rights of contract. 401 If a
member is expelled by a committee in breach of contract, this court will grant a
declaration that their action is ultra vires. It will also grant an injunction to prevent his
expulsion, if that is necessary to protect a proprietary right of his; or to protect him in his
right to earn his livelihood: see Amalgamated Society of Carpenters, etc. v Braithwaite 402;
but it will not grant an injunction to give a member the right to enter a social club, unless
there are proprietary rights attached to it, because it is too personal to be specifically
enforced: see Baird v Wells. 403 That is, I think, the only relevance of rights of property in
this connection. It goes to the form of remedy, not to the right.”
But the absence of property rights may, in certain circumstances, be some evidence that the
members did not intend that their club membership should create legal relations between them. 404 As
a result of the contractual nature of the rules the court will interfere to prevent them being altered, 405
unless they are altered in accordance with a procedure prescribed therein 406 or with the consent of
every member.
Expulsion of members
10-075
The court will not restrain the exercise by a club of a power, contained in its rules, to expel members
unless it is shown that what has been done is, in fact, contrary to the rules or has been done in bad
faith 407 or, at least where some sort of inquiry is contemplated, where the rules of natural justice have
been infringed. 408 It has been said that to give one reason for expelling a member and to act upon
another is evidence of bad faith. 409 In a case of expulsion it was held that the issues were whether
the rules of the club had been observed, whether the committee had given the member a fair hearing
and whether it had acted in good faith. 410 Every member of the committee must be summoned to the
meeting or the proceedings may be invalidated. 411 Notice must be given to the member of the charge
made against him and he must have a proper opportunity of being heard in his own defence 412; a rule
purporting to deprive him of this right would probably be invalid as contrary to public policy. 413 If a
decision of a committee, based on the opinion of the committee, is challenged, the court will only
interfere if there was no evidence upon which to base the opinion, in which case it will declare the
decision ultra vires. The club cannot oust the jurisdiction of the courts by making the committee the
final arbiter on questions of law; and the construction of the rules is always a question of law. 414
Election
10-076
Generally speaking, a person who is refused membership of an unincorporated association has no
ground for legal redress. 415 It has, however, been suggested that if the grounds for such refusal are
unlawful as being in restraint of trade, redress may be available. 416 But refusal to admit a person to
membership of a social club could hardly be in restraint of trade. 417 A refusal to admit a person to
membership of a club on the grounds of colour, race or ethnic or national origins may constitute a
breach of s.25 of the Race Relations Act 1976. 418
Re-election
10-077
Where the rules of an unincorporated association provide for re-election at stated intervals by the
committee, the committee (somewhat surprisingly in the light of the rules relating to expulsion) is not
bound to give a member notice of any objection to his re-election, 419 and provided that they act
neither arbitrarily nor capriciously but in the honest exercise of their discretion, which in the absence
of evidence to the contrary will be presumed, their decision cannot be questioned. 420
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Resignation
10-078
A member of a club may unilaterally resign his membership even in the absence of any provision in
the club’s rules, and such resignation may be inferred from long-continued non-payment of dues. 421
Officers’ mess
10-079
For goods supplied to an officers’ mess neither an individual member of the mess 422 nor the
commanding officer 423 can be made liable without evidence that he authorised his credit to be
pledged and that he was the person to whom the seller gave credit.
382. See Vol.II, Ch.31: Lascelles v Rathbun (1919) 35 T.L.R. 347; Shore v Ministry of Works [1950]
2 All E.R. 228; Prole v Allen [1950] 1 All E.R. 476; cf. Moshenan v Segar [1917] 2 K.B. 325
dealing with proprietary clubs.
383. Steele v Gourley (1887) 3 T.L.R. 772; Wise v Perpetual Trustee Co [1903] A.C. 139.
384. Wise v Perceptual Trustee Co [1903] A.C. 139.
385. Re St James’ Club (1852) 2 De G.M. & G. 383, 387.
386. Cockerell v Aucompte (1857) 2 C.B.(N.S.) 440.
387. Re St James’ Club (1852) 2 De G.M. & G. 383.
388. Flemyng v Hector (1836) 2 M. & W. 172; Hawke v Cole (1890) 62 L.T. 658; Draper v Earl
Manvers (1892) 9 T.L.R. 73.
389. Delauney v Strickland (1818) 2 Stark. 416.
390. Lee v Bissett (1856) 4 W.R. 233; Re London Marine Insurance Association (1869) L.R. 8 Eq.
176; Duke of Queensbury v Cullen (1787) 1 Bro. P.C. 396.
391. Todd v Emly (1841) 7 M. & W. 427; 8 M. & W. 505.
392. Earl of Mountcashell v Barber (1853) 14 C.B. 53.
393. Wise v Perpetual Trustee Co [1903] A.C. 139.
394. Harington v Sendall [1903] 1 Ch. 921; Lee v Showmen’s Guild of Great Britain [1952] 2 Q.B.
329. On the liability of a club or its officers to its members in tort: see Robertson v Ridley [1988]
2 All E.R. 474.
395. Re Sick and Funeral Society of St John’s Sunday School, Golcar [1973] Ch. 51.
396. [1952] 2 Q.B. 329, 341–342.
397. (1880) 14 Ch. D. 482, 487.

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398. [1932] 2 K.B. 478, 481, 488.
399. [1911] 1 Ch. 540, 562.
400. [1952] 1 K.B. 189.
401. See, however, Nagle v Feilden [1966] 2 Q.B. 633, which suggests that in the case of
associations which control entry to a trade or profession (such as the Jockey Club, the Stock
Exchange or the Inns of Court) the court’s power to grant redress is not confined to cases of
contract. See also R. v Jockey Club Ex p. RAM Racecourses Ltd [1993] 2 All E.R. 225,
247–248. cf. Goring v British Actors Equity Association [1987] I.R.L.R. 122, 127–128.
402. [1922] 2 A.C. 440.
403. (1890) 44 Ch. D. 661, 675–676. But a right to vote may be protected by injunction: Woodford v
Smith [1970] 1 W.L.R. 806.
404. See Rigby v Connol (1880) 14 Ch. D. 482, 487 (this was based on the discredited theory that
court intervention in the affairs of an association was only justified to protect rights of property).
405. Harington v Sendall [1903] 1 Ch. 921.
406. Thellusson v Viscount Valentia [1907] 2 Ch. 1.
407. Hopkinson v Marquis of Exeter (1867) L.R. 5 Eq. 63; Richardson-Gardner v Fremantle (1870)
24 L.T. 81; Dawkins v Antrobus (1879) 17 Ch. D. 615; Lambert v Addison (1882) 46 L.T. 20.
See Lloyd (1952) 15 M.L.R. 413.
408. Russell v Duke of Norfolk [1949] 1 All E.R. 109; Lawlor v Union of Post Office Workers [1965]
Ch. 712. cf. Gaiman v National Association of Mental Health [1971] Ch. 317.
409. D’Arcy v Adamson (1913) 29 T.L.R. 367.
410. Lamberton v Thorpe (1929) 141 L.T. 638, following Maclean v Workers’ Union [1929] 1 Ch. 602
.
411. Young v Ladies’ Imperial Club Ltd [1920] 2 K.B. 523.
412. Labouchere v Earl Wharncliffe (1879) 13 Ch. D. 346; Fisher v Keane (1878) 11 Ch. D. 353;
Gray v Allison (1909) 25 T.L.R. 531.
413. Lee v Showmen’s Guild of Great Britain [1952] 2 Q.B. 329, 342; Faramus v Film Artistes’
Federation [1964] A.C. 925, 941; John v Rees [1970] Ch. 345; Enderby Town Football Club Ltd
v Football Association Ltd [1971] Ch. 591.
414. Lee v Showmen’s Guild of Great Britain [1952] 2 Q.B. 329; followed in Barker v Jones [1954] 1
W.L.R. 1005.
415. Faramus v Film Artistes’ Association [1964] A.C. 925, 947.
416. Nagle v Feilden [1966] 2 Q.B. 633; Reg v Disciplinary Committee of The Jockey Club [1993] 1
W.L.R. 909, 933; Bunbury v Lautro Ltd [1996] C.L.C. 1273.
417. [1996] C.L.C. 1273, 644, 653.
418. The law on this is complicated and it is necessary to refer to specialist texts: see Feldman, Civil
Liberties & Human Rights, 2nd edn (2002).
419. Cassel v Inglis [1916] 2 Ch. 211.

Page 5
420. Weinberger v Inglis [1919] A.C. 606; cf. Nagle v Fielden [1966] 2 Q.B. 633.
421. Re Sick and Funeral Society of St John’s Sunday School, Golcar [1973] Ch. 51.
422. Hawke v Cole (1890) 62 L.T. 658.
423. Lascelles v Rathbun (1919) 35 T.L.R. 347.

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(b) - Clubs 380
(ii) - Proprietary Clubs
Proprietary clubs
10-080
In a proprietary club the property and funds of the club belong to the proprietor who regulates the use
of the property by the members in return for their subscriptions. The management is generally in the
hands of a committee of members. Although it was formerly thought that the only remedy of a
member of a proprietary club which had itself no property was against the proprietor, 424 it is now clear
that this is not so. 425 But since members have no right of property in the case of a proprietary club,
one who has been expelled by the committee cannot obtain relief by way of injunction, even though
the proceedings were irregular, but will be left to obtain it in damages. 426
424. Lyttleton v Blackburne (1875) 45 L.J. Ch. 219; Baird v Wells (1890) 44 Ch. D. 661.
425. Lee v Showmen’s Guild of Great Britain [1952] 2 Q.B. 329.
426. Baird v Wells (1890) 44 Ch. D. 661. cf. Millennium Productions Ltd v Winter Garden Theatre
(London) Ltd [1946] W.N. 151; reversed sub nom. Winter Garden Theatre (London) Ltd v
Millennium Productions Ltd [1948] A.C. 173.

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(c) - Trade Unions
Contractual capacity of trade unions
10-081
The law relating to the contractual capacity of trade unions has undergone some remarkable
vicissitudes since the beginning of this century. Under the nineteenth-century statutes governing trade
unions there was no express provision for incorporation, but the Taff Vale case, 427 which held that
registered unions could be sued in their own name, resulted in a limited contractual capacity being
conferred upon them. 428 Legislation on trade unions in the twentieth century has tended to confer
some type of “corporate” status on trade unions. 429 The present position is to be found in s.10 of the
Trade Union and Labour Relations (Consolidation) Act 1992 which provides that a trade union is not
nor is it to be treated as a “body corporate”. 430 However, despite this statutory denial of corporate
status a trade union, so far as the capacity to enter into contracts is concerned, is treated as if it were
a body corporate since it is expressly provided that a trade union is capable of entering into contracts
431
and that it can sue or be sued in its own name. 432 Any judgment or order made against a trade
union is enforceable against any property held in trust 433 for it is as though it were a body corporate.
434
The agreements of a trade union are not void or voidable because they may be in restraint of
trade. 435 Thus for most practical purposes in connection with contracts with third parties the position
of a trade union has been equated with that of a body corporate.
Contracts between trade unions and their members
10-082
The relationship between a member of a trade union and the union itself is contractual, and the terms
of the contract are to be found in the rules of the union. 436 A member of a trade union has in general
the right to take proceedings to enforce compliance with the union’s own rules in relation to matters
such as election of officers and other internal regulations. 437 In general the court has no power to
declare provisions of a trade union’s rules to be void as unreasonable any more than it has with the
provisions of any other contract. 438 However, in Edwards v SOGAT 439 the Court of Appeal, prior to
the 1974 Act, struck down a union rule permitting capricious and arbitrary expulsion of a member,
apparently on the ground that such a rule is contrary to public policy in so far as it permits such
expulsion. 440 Section 46 of the Trade Union and Labour Relations (Consolidation) Act 1992 imposes
a statutory duty on a trade union to ensure that its officers 441 are elected by secret ballot. 442
Re-elections for such offices must take place at intervals of not more than five years. 443
Expulsion and exclusion from a trade union
10-083
Prior to the Industrial Relations Act 1971, the courts had protected members of a union against
Page 2
unlawful expulsion where it could be shown that the union had violated the procedure laid down in its
own rules, and was thus in breach of its contract with its member. It was originally thought that the
only remedy was by injunction but it was eventually held by the House of Lords that damages could
also be awarded against the union. 444 It was also well established that a union, like any other
domestic tribunal, must in general observe the rules of natural justice, 445 and it also seemed that the
rules of the union could not validly exclude the rules of natural justice. 446 Where the rules of natural
justice applied, a trade union, like the committee of a club, 447 was required to give a man notice of the
charge against him and a reasonable opportunity of meeting it. 448 A trade union could not in any case
oust the jurisdiction of the court and could not be made the final arbiter on questions of law 449; and if
it acted without evidence, the courts would interfere. 450 But the courts did not claim to act as courts of
appeal from domestic tribunals and would not disturb a decision which was on a matter of opinion
only. 451
Refusal of membership
10-084
No attempt to protect a worker from arbitrary or unreasonable refusal of membership could (it is
thought) have succeeded at common law since no contractual relation could, ex hypothesi, be
established between a would-be member and the union. 452
Statutory protection of member’s rights
10-085
Of greater importance than the common law in protecting a trade union member’s rights are the
statutory protections accorded to trade union members to prevent them from being excluded, expelled
or disciplined on grounds that the statute treats as being unjustifiable. 453
427. [1901] A.C. 426.
428. See the 23rd edition of this work, paras 520-524.
429. See, for example, s.2 of the Trade Union and Labour Relations Act 1974 (now repealed).
430. s.10(1) and (2).
431. s.10(1)(a).
432. s.10(1)(b).
433. s.12(1) provides that all the property of a trade union must be vested in trustees to be held on
trust for it.
434. s.12(2).
435. s.11.
436. Bonsor v Musicians’ Union [1956] A.C. 104.
437. See Taylor v N.U.M. (Derbyshire Area) [1985] B.C.L.C. 237 (on right of members to sue with
respect to ultra vires disbursements of union assets).
438. Faramus v Film Artistes’ Federation [1964] A.C. 925, 943.

Page 3
439. [1971] Ch. 354.
440. See generally, Rideout, Principles of Labour Law, 5th edn (1989), pp.395–432.
441. These are defined in s.4(2).
442. The voting procedures are set out in ss.47–52.
443. s.46(1)(b).
444. Bonsor v Musicians’ Union [1956] A.C. 104. On the availability of an interlocutory injunction, see
Porter v N.U.J. [1980] 1 I.R.L.R. 404.
445. Lee v Showmen’s Guild of Great Britain [1952] 2 Q.B. 329; Kidner, Trade Union Law, 2nd edn
(1983), Ch.3.
446. Russell v Duke of Norfolk [1949] 1 All E.R. 109; Lawler v Union of Post Office Workers [1965]
Ch. 712; Taylor v National Union of Seamen [1967] 1 W.L.R. 532; Lee v Showmen’s Guild of
Great Britain [1952] 2 Q.B. 329:Faramus v Film Artistes’ Federation [1964] A.C. 925.
448. Annamunthodo v Oilfield Workers’ Trade Union [1961] A.C. 945; Breen v Amalgamated
Engineering Union [1971] 2 Q.B. 175.
449. Luby v Warwickshire Miners’ Association [1912] 2 Ch. 371; Burn v National Amalgamated
Labourers’ Union [1920] 2 Ch. 364; Leigh v National Union of Railwaymen [1970] Ch. 326; and
see Australian Workers’ Union v Brown (1948) 77 C.L.R. 601; White v Kuzych [1951] A.C. 585.
450. Lee v Showmen’s Guild of Great Britain [1952] 2 Q.B. 329, 340.
451. [1952] 2 Q.B. 329.
452. In Nagle v Feilden [1966] 2 Q.B. 633, it was suggested that in some circumstances the court’s
power to intervene might extend beyond cases of contract, but in so far as this decision was
based on the invalidity of an unreasonable restraint of trade it could have no application anyhow
to a trade union by reason of s.3 of the Trade Union Act 1871, now replaced by s.11 of the
Trade Union and Labour Relations (Consolidation) Act 1992. Indeed the wording of s.11 is
more clearly calculated to exclude the argument suggested in Nagle v Feilden. See Greig v
Insole [1978] 1 W.L.R. 302, 363; Goring v Bristol Actors’ Equity Association [1987] I.R.L.R. 122,
127–128.
453. The major statutory protections are to be found in Ch.V of the Trade Union and Labour
Relations (Consolidation) Act 1992 as amended by ss.15 and 16 of the Trade Union Reform
and Employment Rights Act 1993; ss.174–177 of the 1992 Act were replaced by s.14 of the
1993 Act.

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Chapter 11 - The Crown, Public Authorities and the European Union
The influence of public law concepts
11-001
The position of government contracts in English law is somewhat ambiguous. In contrast to many
Continental jurisdictions, government contracts in English law do not have their own special category
as a part of public law. 1 But, although government contracts are dealt with under the general
principles of private law, the private law principles are frequently supplemented, modified or
disapplied in response to the peculiar circumstances of governmental transactions. Often these
alterations to the private law principles are either inspired by, or involve the direct borrowing, of public
and constitutional law concepts. The result is a body of law which, although part of private law, has
been strongly influenced by ideas more familiar to public lawyers. 2
The European Union
11-002
An express power to enter contracts is conferred on the European Union by art.335 of the
Consolidated Version of the Treaty on the Functioning of the European Union, which provides 3:
“In each of the Member States, the Union shall enjoy the most extensive legal capacity
accorded to legal persons under their laws; it may, in particular, acquire or dispose of
movable or immovable property and be a party to legal proceedings. To this end, the
Union shall be represented by the Commission. However, the Union shall be represented
by each of the institutions, by virtue of their administrative autonomy, in matters relating
to their respective operation.”
The broad terms in which the Union is thus granted capacity effectively excludes the application of
doctrines limiting the contractual capacity of English public authorities. The Treaty also provides that
“The contractual liability of the Union shall be governed by the law applicable to the contract in
question”. 4
Alternative remedies
11-003
Although contracts made by government do not engage a special contractual regime, the involvement
of government gives the potential for other bases of liability not normally open to private contracting
parties. The three most obvious possibilities are judicial review, breach of human rights 5 and breach
of the procurement regulations. 6 The possibilities of contractual issues being subjected to judicial
review and the impact of the Human Rights Act 1998 were discussed in Ch.1. 7 A detailed treatment
Page 2
of the procurement regulations is beyond the scope of this chapter but Pt 6 8 of the chapter contains
an outline of the requirements and a discussion of the effect of a breach of the public procurement
regulations on any contract that may have been made. It should be noted that each of these potential
alternatives is independent of contractual liability, and does not require a contract to have been
concluded. Thus, breach of human rights focuses on whether the claimant’s protected right has been
invaded unjustifiably. The public procurement regulations set out a highly detailed, prescriptive series
of obligations relating to the entire contracting process, breach of which may incur liability to any
potential contracting party. Judicial review focuses on the improper exercise of power by a public
authority; where the authority has failed to make good a legitimate expectation it has created, the
factual basis for judicial review may be very similar to the factual basis for a claim for breach of
contract. 9 But the remedies available for a successful application for judicial review are very different
to those available in a successful action for breach of contract. Furthermore, the availability of judicial
review in relation to commercial contracts is controversial. 10
1. Street, Governmental Liability (1953), p.81; Kahn-Freund and Wedderburn, foreword to Turpin,
Government Contracts (1972), p.9, attributing the lack of a separate category to the “quirks of
our legal history”; Auby [2007] P.L. 40. On public law see A Davies, The Public Law of
Government Contracts (2008).
2. J. Mitchell, The Contracts of Public Authorities (1954), particularly Ch.1. For an illustration of the
limits of the public law influence see Krebs v NHS Commissioning Board [2014] EWCA Civ
1540 at [31].
3. [2012] O.J. C326/01.
4. [2012] O.J. C326/01, art.340. On identifying the applicable law, see below Ch.30.
5. Human Rights Act 1998.
7. See above, paras 1-224 et seq. and 1-057 et seq.
8. See below, paras 11-051—11-054.
9. e.g. R. v North and East Devon Health Authority Ex p. Coughlan [2001] Q.B. 213 (authority
promising tetraplegic patient a home for life if she would move from existing hospital
accommodation).
10. Hampshire CC v Supportways Community Services Ltd [2006] EWCA Civ 1035; Arrowsmith
(1990) 106 L.Q.R. 277; Freedland [1994] P.L. 86, 95–102; Bailey [2007] P.L. 444.

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Section 2. - Crown Contracts 11
Capacity
11-004
The Crown has an inherent, common law capacity to make contracts. 12 No statutory authority is
needed. Whilst this contracting power can be seen as part of the prerogatives of the Crown—largely
because it requires no Parliamentary approval 13 —it is probably more accurate to see it as part of the
Crown’s capacity to do whatever is not prohibited by law. 14 It follows that statutory provisions
conferring contracting powers on Ministers are not strictly necessary; such statutory sections are best
explained in terms of the constitutional convention that a programme of expenditure should have prior
statutory authorisation. 15
11. Wade and Forsyth, Administrative Law, 11th edn (2014), Ch.21; Street, Governmental Liability
(1953), Ch.III.
12. Turpin, Government Contracts (1972), p.19; Daintith (1979) 32 C.L.P. 41, 42; Freedland [1994]
P.L. 86, 91–92; Harris (1992) 108 L.Q.R. 626, 627, (2007) 123 L.Q.R. 225; Davies (2006) 122
L.Q.R. 98, 102.
13. Daintith (1979) 32 C.L.P. 41, 42; Freedland [1994] P.L. 86, 91–92.
14. Harris (1992) 108 L.Q.R. 626, (2007) 123 L.Q.R. 225, 226; see also Freedland’s later view that,
at least in relation to the Private Finance Initiative, government does not see itself as exercising
a prerogative power when making contracts: [1998] P.L. 288, 292–294.
15. Turpin, Government Contracts (1972), p.19; Daintith (1979) 32 C.L.P. 41, 44–45.

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(a) - Parliamentary Control Over Crown Contracts
Express limitations
11-005
Where Parliament has limited the Crown’s right to contract, any purported contract made outside
those limits is void. 16 For instance, a statute might require specific legislative approval for contracts
over a certain duration, 17 or prescribe a method for disposal of government property. 18 Failure to
obtain approval, or to follow the prescribed method will be fatal to the validity of the contract.
Implied limitation
11-006
Whilst the Crown has an inherent capacity to make contracts, it has been settled, since the
Revolutionary Settlement of 1688, that the Crown does not have control over public money. 19
Expenditure is controlled by Parliament; and Parliament exercises that control through the
Appropriation Acts, which set out the amounts and purposes for which expenditure is authorised. 20
This fundamental constitutional principle may affect a contracting party’s ability to recover payment
under a contract with the Crown: if no appropriation covers the payment, no money can be paid over
to the claimant. Thus, in R. v Churchward, 21 where the relevant parliamentary appropriation expressly
excluded any payment being made to the claimant, 22 no payment was recoverable. On the facts of
the case payment had only been promised “out of moneys to be provided by parliament”, but Shee J.
went on to say that, if this condition had not been expressed, such a condition:
“… must on account of the notorious inability of the crown to contract unconditionally for
such money payments in consideration of such services, have been implied in favour of
the crown.” 23
Two of the other three judges did not deal with the point, and Cockburn C.J. indicated that he would
not have implied such a condition precedent to payment. Churchward ’s case is, therefore, in itself,
ambiguous in relation to the implied condition advanced by Shee J. 24 But, in a series of later
judgments Viscount Haldane emphasised the importance of legislative control over expenditure, 25
culminating in his speech in the House of Lords in Att-Gen v Great Southern and Western Railway Co
of Ireland. 26 There, in a speech with which Lords Dunedin and Carson agreed, he emphatically
endorsed the analysis of Shee J. in Churchward’s case, saying that:
“However clear it may be that before the Revolutionary Settlement the Crown could be
taken to contract personally, it is equally clear that since that Settlement its ordinary
contracts only mean that it will pay out of funds which Parliament may or may not supply.”
Page 2
27
It is, therefore, clear, that whilst the absence of a Parliamentary appropriation will not make a contract
void, such an appropriation is a condition precedent of liability to pay. 28 The appropriation need not
refer specifically to the particular contract—general terms suffice. 29
(1953), Ch.III.
16. New South Wales v Bardolph (1934) 52 C.L.R. 455, 496, per Rich J.
17. Commercial Cable Co v Government of Newfoundland [1916] 2 A.C. 610.
18. Cugden Rutile (No.2) Pty Ltd v Chalk [1975] A.C. 520.
19. Bill of Rights 1688 art.4.
20. e.g. Supply and Appropriation (Main Estimates) Act 2015.
21. (1865) L.R. 1 Q.B. 173.
22. R. v Churchward (1865) L.R. 1 Q.B. 173, 183.
23. R. v Churchward (1865) L.R. 1 Q.B. 173, 209. The contractual provision seems not to have
been unusual—cf. Taylor v Brewer (1813) 1 M. & S. 290, 291, where Lord Ellenborough C.J.
drew attention to the practice of “several departments of Government” that promised to pay only
what should be deemed right.
24. Sawer (1946) 62 L.Q.R. 23, 24; Street (1948) 11 M.L.R. 129, 131; Williams, Crown Proceedings
(1948), p.10; Street (1949–1950) 8 University of Toronto Law Journal 32, 33–34; Street,
Governmental Liability (1953), pp.85–87.
25. Commercial Cable Co v Government of Newfoundland [1916] 2 A.C. 610; Mackay v Att-Gen for
British Columbia [1922] 1 A.C. 457; Auckland Harbour Board v The King [1924] A.C. 318.
26. [1925] A.C. 754.
27. Att-Gen v Great Southern and Western Railway Co of Ireland [1925] A.C. 754, 773.
28. See also New South Wales v Bardolph (1934) 52 C.L.R. 455. The judgment of Dixon J.
contains a particularly helpful exposition of Viscount Haldane’s views (see especially at 514).
McTiernan J. described Shee J. in Churchward as stating: “the effect on the contract of [the
Crown’s] incapacity … the exigency of binding constitutional practice fashions the promise of
the Crown into a promise to pay out of moneys lawfully available under parliamentary
appropriation”.
29. New South Wales v Bardolph (1934) 52 C.L.R. 455, 467–474, per Evatt J.; Street,
Governmental Liability (1953), p.90, commenting that the opposite rule would be “disastrous”;
Harris (2007) 123 L.Q.R. 225, 229.

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(b) - Fettering of Discretion
Construction of Crown’s obligations so as to avoid fettering
11-007
Virtually every contractual promise restricts a promisor’s future freedom of action. Under ordinary
circumstances there is no policy objection to this, but where the promisor is the Crown, such
restrictions have the potential to inhibit the Crown in its performance of duties or exercise of powers in
the public interest. In order to avert this undesirable consequence, the courts avoid interpreting the
Crown’s contractual promises in a way that would constrain the performance of its functions. 30 Thus,
in Commissioners of Crown Lands v Page 31 a tenant of Crown premises sought to have a covenant
for quiet enjoyment implied into the lease; this covenant was breached, the tenant alleged, when the
premises were requisitioned by the Minister of Works, acting under statutory powers. The Court of
Appeal unanimously held that any implied term would not extend “to prevent the future exercise by
the Crown of powers and duties imposed upon it in its executive capacity by statute”. 32 Devlin L.J.
held that, even if the covenant for quiet enjoyment had been express, he would have read it as, by
necessary implication, excluding “those measures affecting the nation as a whole which the Crown
takes for the public good”. 33 The importance of Devlin L.J.’s approach is illustrated by Shebelle
Enterprises Ltd v Hampstead Garden Suburb Trust Ltd 34 where the covenant for quiet enjoyment was
indeed express. The covenant was contained in a lease originally entered in 1931 between the
predecessors of the claimants as leaseholders, and the predecessors of the Trust as landlords in
respect of a property in Hampstead Garden Suburb. Later, pursuant to a scheme of management
introduced under the Leasehold Reform Act 1967, the Trust’s predecessors acquired a right to control
proposed developments of enfranchised properties in the Suburb, which included the property of the
claimant’s immediate neighbour. The neighbour proposed to build a basement extension, for which,
under the terms of the 1967 scheme, the Trust’s approval was required. The claimant objected, and,
once it became evident that the defendant intended to grant the permission, argued that if the Trust
granted permission, it would be in breach of the obligation of quiet enjoyment contained in the 1931
lease. The Court of Appeal upheld the decision of Henderson J., who had rejected this argument.
Although the case did not concern the Crown, the Court of Appeal relied on the approach of Devlin
L.J. in Page v Commissioners of Crown Lands (which it quoted at length 35) in holding that since the
Trust was acting as a custodian of the public interest in the amenities of Hampstead Garden Suburb,
and was exercising statutory powers in deciding whether to grant permission, its activities fell outside
the scope of the covenant for quiet enjoyment. 36 The Court of Appeal presented its conclusion as an
application of “ordinary contractual principles of interpretation”, 37 but it also acknowledged that the
parties to the 1931 lease could hardly have imagined the radically changed circumstances in which
the covenant for quiet enjoyment fell to be interpreted. It held, however, that, on orthodox principles,
the question to consider was “what reasonable parties should be taken to have intended by the words
used in the agreement in relation to the event which they did not foresee”. 38 Henderson J. at first
instance had taken a similar approach, when he said that:
“the parties … must be taken to have envisaged that [the covenant for quiet enjoyment]
could not be relied upon so as to prevent or hinder the proper exercise of public duties in
Page 2
the public interest by a landlord in whom the freehold reversion might subsequently
become vested.” 39
Asking what the parties “should be taken to have intended”, or “must be taken to have envisaged”
may appear to resolve the issue of interpretation by reference to the intentions of the parties, but, as
both expressions’ qualified phrasing suggests, they are in reality fictions. The less elaborate approach
of Devlin L.J., which was simply to say that such a covenant must “by necessary implication” be read
as excluding measures taken for the public good, seems preferable, because it acknowledges that it
is the court itself that has felt compelled by public policy considerations to read down the general
language of the contract.
11-008
It does not follow from the reasoning in Page ’s case that the Crown is free to disregard its own
contractual obligations with impunity. On the contrary, it is crucial that the situation involves an
interpretation of contractual obligations that would inhibit the Crown from exercising its statutory
powers in pursuance of the public interest. The Crown, like other parties, is subject to the general rule
that a contracting party should neither disable himself from performance, nor prevent the other party
from performing the contractual obligations 40; but where performance has been disrupted by the
passage of legislation, or the performance of some executive function, the disruption is not regarded
as being a case of self-disablement or prevention by the Crown. Instead, the contract is seen as
frustrated 41; the fact that the frustrating event emanated from the Crown is regarded as irrelevant. 42
Express terms fettering the Crown’s discretion
11-009
Where an express term, properly construed, commits the Crown to exercising its executive functions
in a particular way, the position is more controversial. In R. v Rederiaktiebolaget Amphitrite 43 the
claimant steamship company had sent its vessel, during the First World War, to a British port. It had
done so only after being given a guarantee by the Crown that the vessel would not be detained. The
vessel was detained by the Crown, and the claimants sought damages for breach of contract. Rowlatt
J. held that no damages were recoverable. He held that whilst the Crown was bound by commercial
contracts it made, the facts of the case did not show such a contract. Rather, it was “an arrangement
whereby the Government purported to give an assurance as to what its executive action would be in
the future”. 44 This arrangement was not contractually enforceable because:
“… it is not competent for the Government to fetter its future executive action, which must
necessarily be determined by the needs of the community when the question arises. It
cannot by contract hamper its freedom of action in matters which concern the welfare of
the State.” 45
Although the decision in The Amphitrite was applied by the Privy Council in Buttigieg v Cross, 46 it has
subsequently been treated with caution, and its scope remains uncertain. Thus, in Commissioners of
Crown Lands v Page 47 the Court of Appeal refused the opportunity to endorse the principle, 48 and in
Robertson v Minister of Pensions 49 Denning J. suggested that the broad principle from the Amphitrite
case was a dictum, the ratio of the decision being that the statement of the Crown was not binding,
since there was no intention to create legal relations. 50 It is true that Rowlatt J. said that the Crown’s
guarantee was “merely an expression of intention”, 51 but he continued, in the next sentence, to
explain that his “main reason” for reaching that conclusion was that the government could not validly
fetter its future executive action. It is therefore submitted that Denning J.’s reading of the Amphitrite
case is unconvincing. 52 Denning J. also suggested that the defence of executive necessity was
based on an implied term. But this is directly contrary to the facts of the Amphitrite case, where the
defence succeeded despite an express undertaking to exercise powers in a particular way: no term
relating to executive necessity could have been implied, since it would have contradicted the express
terms. Commentators have drawn attention to the lack of authority cited in The Amphitrite, and
Page 3
argued that the case should not be followed. 53 However, it is submitted that, whilst the language used
in the Amphitrite case was perhaps too broad, 54 its main support, and the best guide to interpreting
its scope, is the analogous rule that statutory bodies have no power to fetter their own discretion. 55 Of
course, the Crown’s source of power is non-statutory, 56 but such reasoning by analogy was expressly
endorsed by Devlin L.J. in Commissioners of Crown Lands v Page, 57 and would allow the important
policy justifications underlying the non-fettering rule to inform the application of the Amphitrite
principle. 58 In particular, it should be emphasised that neither the decision in The Amphitrite, nor the
interpretation given to that decision in later cases, entitles the Crown to disregard its contractual
obligations with impunity. On the contrary, The Amphitrite expressly affirmed that the Crown would be
liable under commercial contracts in the ordinary way. The exception arose where “the welfare of the
State” required that executive action “be determined by the needs of the community”. 59 In The
Amphitrite itself this test was satisfied by wartime conditions. 60 In Buttigieg v Cross it was admitted
that the requirements were met where the military authority in Malta had found it necessary to rule a
club to be out of bounds to service personnel, despite having initiated the creation of that club, and
having indicated that the club would remain open during the Second World War. Again, the wartime
context—and particularly the importance of maintaining military discipline in wartime—may go a long
way towards explaining the decision, but it should be noted that neither court formulated the relevant
principle in terms of war. Rather, the public interest in the defence of the realm provides a powerful
example of the kind of overriding justification that justifies a court in releasing the Crown from what
would otherwise have been a binding obligation.
(1953), Ch.III.
30. Commissioners of Crown Lands v Page [1960] 2 Q.B. 274; Molton Builders Ltd v City of
Westminster London Borough Council (1975) 30 P. & C.R. 182 at 188.
31. [1960] 2 Q.B. 274.
32. Commissioners of Crown Lands v Page [1960] 2 Q.B. 274, 287.
33. Commissioners of Crown Lands v Page [1960] 2 Q.B. 274, 292.
34. [2014] EWCA Civ 305, [2014] 2 P. & C.R. 6.
35. [2014] EWCA Civ 305 at [50]–[51]. Henderson J. had also relied on the same passage: [2013]
EWHC 948 (Ch) at [54].
36. On the guardian of the public interest point see Zenios v Hampstead Garden Suburb Trust Ltd
[2011] EWCA Civ 1645. As the Trust was a statutory body, an alternative, perhaps more
orthodox approach, would have been to ask whether the Trust’s contractual promise was
incompatible with the performance of its public functions (see below, paras 11-028—11-032).
37. [2014] EWCA Civ 305 at [34].
38. [2014] EWCA Civ 305 at [36].
39. [2013] EWHC 948 (Ch) at [62]. The point is repeated at [63].
40. Board of Trade v Temperley S.S. Co Ltd (1926) 26 Ll.L. Rep. 76; (1927) 27 Ll.L. Rep. 230.
41. Reilly v The King [1934] A.C. 176.
42. William Cory & Son Ltd v London Corp [1951] 2 K.B. 476, 487, per Harman L.J.
43. [1921] 3 K.B. 500.
44. R. v Rederiaktiebolaget Amphitrite [1921] 3 K.B. 500, 503.

Page 4
45. R. v Rederiaktiebolaget Amphitrite [1921] 3 K.B. 500, 503.
46. Privy Council, October 10, 1946 (available at http://www.bailii.org).
47. [1960] 2 Q.B. 274.
48. See especially Commissioners of Crown Lands v Page [1960] 2 Q.B. 274, 293, per Devlin L.J.
(no need to consider whether the Crown could fetter its future executive action by express
words, since it was “most unlikely” ever to attempt to do so).
49. [1949] 1 K.B. 227.
50. Robertson v Minister of Pensions [1949] 1 K.B. 227, 231.
51. Amphitrite case [1921] 3 K.B. 500, 503.
52. J. Mitchell, The Contracts of Public Authorities (1954), pp.30–31; Turpin, Government Contracts
(1972), pp.21-22.
53. Holdsworth (1929) 45 L.Q.R. 162, 166; Street (1948) 11 M.L.R. 129, 131; Williams, Crown
Proceedings (1948), pp.9–10.
54. A v Hayden (No.2) (1984) 59 A.L.J.R. 6, 8: “The suggestion made by Rowlatt J. in [The
Amphitrite] that the government cannot by contract fetter its executive action in matters which
concern the welfare of the State is too wide” (per Gibbs C.J.).
55. J. Mitchell, The Contracts of Public Authorities (1954), p.57–65; Street, Governmental Liability
(1953), pp.98–99; Turpin, Government Contracts (1972), p.22. See also Re Solinas [2009]
NIQB 43 at [26]–[27], where, in the context of an application for judicial review, the decision in
the Amphitrite case was seen as exemplifying a general principle against fettering of powers,
and was applied to actions by the Minister for Social Development (Northern Ireland). For
detailed analysis of the rule in its application to statutory bodies, see below, paras
11-028—11-032.
57. [1960] 2 Q.B. 274, 292. See also Harris (1992) 108 L.Q.R. 626, 644 (commenting on the courts’
playing down the importance of the source of authority in judicial review cases).
58. Davies (2006) 122 L.Q.R. 98, especially 104–105. See also J. Mitchell (above, n.55), 26
(suggesting that the same general principles underlie the rules applying to the Crown and to
statutory bodies).
59. Amphitrite case [1921] 3 K.B. 500, 503.
60. J. Mitchell (above, n.55), 52–54.

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(c) - Agency
Agency in general
11-010
Contracts made by Crown servants in the course of their service, or by Crown agents within the
scope of their authority bind the Crown. The right to contract on behalf of the Crown must be
established by reference to statute or otherwise; merely being a Crown servant is not enough. 61
Thus, in Nixon v Att-Gen 62 the claimants proved that they had entered employment in the Civil
Service on the basis of a minute issued by the Lords Commissioners of the Treasury and published in
the Civil Service Year Book, which stated that civil servants would be “entitled” to superannuation
payments calculated on a particular basis if certain conditions were met. The claimants satisfied those
conditions, but, following their retirement, the Treasury Commissioners applied a less generous
method of calculation to their superannuation payments. The House of Lords held that the minute did
not bind the Crown, since the only authority conferred on the Treasury Commissioners was a
discretion; they had no authority to make contracts promising that the discretion would be exercised in
a particular way. 63
Whether servant or agent of the Crown
11-011
Since Crown contracts are subject to certain special rules, both substantive 64 and procedural, 65 it
may be crucial to determine whether the contracting party has entered the contract as a servant or
agent of the Crown. The starting point is the list of “authorised departments” published under Crown
Proceedings Act 1947 s.17. 66 These departments may institute “civil proceedings by the Crown”, 67
and may be sued in “civil proceedings against the Crown” 68; it can therefore be assumed that they
are Crown servants or agents. 69 However, the list is not exhaustive. For contracting parties not on the
list a common law test must be applied which balances a range of factors. The main factor to consider
is the degree of control which the Crown is entitled to exercise over the party who is alleged to have
made the contract on its behalf. 70 If that party has wide powers, which can be exercised
independently of the Crown, that will strongly suggest that the contracting party is not a Crown
servant. 71 Conversely, if the Crown has the right to exercise a close degree of control, that will
suggest that the contracting party is a Crown servant or agent. It may even be possible, where a
contracting party exercises several functions, to distinguish between functions in respect of which the
Crown is entitled to exercise control, and those in respect of which it is not. The contracting party
would be a Crown servant for contracts relating to the former functions, but not for contracts relating
to the latter. 72 It should emphasised that, in ascertaining the degree of control, the statutory
provisions setting out the contracting party’s rights and duties are “highly important” 73; whether, as a
matter of fact, the Crown exerted its right of control is irrelevant. 74 It also seems that the statutory
definition of rights and duties prevails over other statutory indications. Thus, in Hills (Patents) Ltd v
University College Hospital Board of Governors 75 the question was whether the defendants occupied
hospital premises as agents for the Minister of Health. Despite the statement in the National Health
Page 2
Service Act 1946 s.13 that hospital boards managed hospitals “on behalf of” the Minister, it was held
that the Board’s statutory duties to manage, control and maintain the hospital, and appoint its staff,
meant that the board occupied as a principal, not as the Minister’s agent. A second factor to consider
in determining whether a contracting party is a servant or agent of the Crown is whether the
contracting party is performing a function linked to an existing Crown prerogative. Thus, for instance,
in Bank voor Handel en Scheepvaart NV v Administrator of Hungarian Property 76 both Lord Tucker
and Lord Asquith were influenced in their decision that the Custodian of Hungarian Property was a
Crown servant by the fact that his functions were linked to the Crown prerogative to wage war. 77
Similarly, in Gilbert v The Corp of Trinity House 78 it was held that the defendants’ remoteness from
the scope of the Crown’s prerogative powers indicated that they were not Crown servants. It is
submitted that the relationship between the contracting party’s functions and the Crown’s prerogative
powers deserves only little weight. As has been powerfully pointed out, to emphasise the importance
of the prerogative powers is, in effect, to confine the sphere of potential Crown servants to activities
which, historically, were seen as the Crown’s responsibility: it freezes the law in a condition which will
inevitably fail to reflect contemporary understandings of the Crown’s role. 79 Other relevant factors
suggesting that a party is not a Crown servant are financial independence, 80 liability of property to be
levied, 81 and incorporation. 82
Unauthorised contracts
11-012
Where a Crown servant or agent enters a contract outside the scope of his actual authority, the
contract will not bind the Crown unless the agent’s authority can be established on some other basis.
Although Lord Denning put forward the view that all contracts should bind the Crown where
government officers or departments took it upon themselves to assume authority, 83 that view was
rejected by dicta in the House of Lords, 84 and criticised persuasively in the literature. 85 The better
view, it is submitted, is that the general principles of the law of agency apply to the Crown—in
particular, that a contract will bind the Crown if the agent had either ostensible or usual authority to
make it. Although ostensible authority is a form of estoppel, 86 it is treated as an exception to the
general principle that estoppel cannot be relied upon to rehabilitate a transaction entered in excess of
powers. 87
Ostensible authority
11-013
In order to establish ostensible authority it must be shown that the principal held out the agent as
having authority; a representation by the agent as to the extent of his own authority is insufficient. In
Att-Gen for Ceylon v Silva 88 the Privy Council indicated that the requirement of a representation by
the principal limited the potential application of ostensible authority to the Crown:
“No public officer, unless he possesses some special power, can hold out on behalf of the
Crown that he or some other public officer has the right to enter into a contract in respect
of the Crown when in fact no such right exists.” 89
Such a special power will be rare, although not impossible to find. 90 Alternatively, it might be shown
that the agent had usual authority. For usual authority, no representation by the principal is
necessary, 91 although the status of usual authority as a separate category is not uncontroversial. 92 In
any case, it is submitted that any recognition that contracts outside an agent’s actual authority bind
the Crown should be made sparingly. In particular, where the agent’s authority is defined by statute,
there is much force in the Privy Council’s comment that to hold the Crown bound would be
undesirable, because it would, in effect, be:
“… to hold that public officers had dispensing powers because they then could by
Page 3
unauthorized acts nullify or extend the provisions of the [statute].” 93
Furthermore, where the agent’s actual authority is set out in statute, it is open to the other contracting
party to ascertain the scope of that authority for himself; in these circumstances it is, therefore,
justifiable not to enforce a contract made in excess of authority. 94
Personal liability of agents
11-014
Where a Crown servant or agent has entered a contract as agent, he cannot be held liable for a
breach of that contract. 95 Nor will a declaration be issued against him. 96 Only if it is found that he
contracted personally, on his own behalf, will he be made liable. 97 This rule accords with the general
position in the law of agency, 98 but the courts have also consistently made it clear that they are very
reluctant to conclude that an individual Crown agent has contracted personally. The concern is that
exposure to personal liability:
“… would, in all probability, prevent any proper and prudent person from accepting a
public situation at the hazard of such peril to himself.” 99
Thus, for instance, in Dunn v Macdonald 100 Lopes L.J. contrasted the position of public and ordinary
agents, saying that for the former to be personally liable, “something special which would be evidence
of an intention to be personally liable” 101 was needed. Similarly, in Graham v His Majesty’s
Commissioners of Public Works and Buildings 102 Ridley J. stated that even where an agent had:
“… put his own name in the contract without saying that he was agent for the Crown, yet,
if you could gather from the surrounding circumstances of the case that he did in fact
contract as agent for the Crown, and in that capacity only, he would not be liable upon the
contract.” 103
There is no reported instance in the last two hundred years of an individual Crown agent being held
personally liable. 104 Where the agent is incorporated, on the other hand, the concern about exposing
individuals to personal liability has no application, and the courts have been willing to find that the
agent in fact contracted on its own behalf. 105
Warranty of authority
11-015
Individual Crown agents cannot be sued for a breach of warranty of authority. 106 This departure from
the general rules of agency 107 is justified by the same concern about exposure to personal liability
which informs the courts’ approach to the personal liability of Crown agents on contracts. 108 It is
submitted that, as with the approach to personal liability under the contract, the concern about
exposure to personal liability can have no application to incorporated servants or agents; and that,
therefore, a breach of warranty of authority by such an incorporated servant or agent should be
actionable.
(1953), Ch.III.
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61. Nixon v Att-Gen [1931] A.C. 184; Att-Gen for Ceylon v Silva [1953] A.C. 461.
62. [1931] A.C. 184.
63. [1931] A.C. 184 at 193.
64. See above, paras 11-005—11-009.
65. Particularly under the Crown Proceedings Act 1947. For further discussion see below, paras
11-016—11-020.
66. The most recent list, published by the Cabinet Office in October 2012, can be accessed at
http://www.justice.gov.uk.
67. Crown Proceedings Act 1947 s.17(2).
69. Griffith (1951–1952) 9 University of Toronto Law Journal 169, 169; Treitel [1957] P.L. 321, 328.
70. Bank voor Handel en Scheepvaart NV v Administrator of Hungarian Property [1954] A.C. 584;
Intraline Resources SDN BHD v Owners of the Ship or Vessel “Hua Tian Long” [2010] HKCFI
361 at [50]–[52]; Treitel [1957] P.L. 321, 327 (describing this criterion as “entitled, if not to
exclusive recognition, at any rate to pre-eminence”).
71. Metropolitan Meat Industry Board v Sheedy [1927] A.C. 899.
72. Intraline Resources SND BHD v Owners of the Ship or Vessel “Hua Tian Long” [2010] HKCFI
361 at [52].
73. Bank voor Handel en Scheepvaart NV v Administrator of Hungarian Property [1954] A.C. 584,
616, per Lord Reid.
74. [1954] A.C. 584, 617.
75. [1956] 1 Q.B. 90.
76. [1954] A.C. 584.
77. Bank voor Handel en Scheepvaart NV v Administrator of Hungarian Property [1954] A.C. 584,
628, per Lord Tucker, 632, per Lord Asquith. See also BBC v Johns (Inspector of Taxes) [1965]
1 Ch. 32 (broadcasting outside province of government).
78. (1886) 17 Q.B.D. 795. The test of whether the body in question is an “emanation” of the Crown,
used in this case, has subsequently been disapproved: Tamlin v Hannaford [1950] 1 K.B. 18;
BBC v Johns (Inspector of Taxes) [1965] 1 Ch. 32.
79. Friedmann (1948) 22 A.L.J. 7; Friedmann (1950) 24 A.L.J. 275; Griffith (1951–1952) 9
University of Toronto Law Journal 169.
80. Metropolitan Meat Industry Board v Sheedy [1927] A.C. 899.
81. Tamlin v Hannaford [1950] 1 K.B. 18. Crown property cannot be levied: Crown Proceedings Act
1947 s.25(4).
82. Tamlin v Hannaford [1950] 1 K.B. 18; Hills (Patents) Ltd v University College Hospital Board of
Governors [1956] 1 Q.B. 90; cf. Metropolitan Meat Industry Board v Sheedy [1927] A.C. 899,
905: “[t]hat they were not incorporated does not matter.” For a powerful argument that
incorporation should be decisive against being a Crown servant or agent see Friedmann (1948)
22 A.L.J. 7; (1950) 24 A.L.J. 275.
Page 5
83. Robertson v Minister of Pensions [1949] 1 K.B. 227; Falmouth Boat Construction Co Ltd v
Howell [1950] 2 K.B. 16.
84. Howell v Falmouth Boat Construction Co Ltd [1951] A.C. 837.
85. Treitel [1957] P.L. 321, 335–337.
86. Marubeni Hong Kong and South China Ltd v Government of Mongolia [2004] EWHC 472
(Comm), [2004] 2 Lloyd’s Rep. 198 at [124].
87. For the general principle see below, para.11-046.
88. [1953] A.C. 461.
89. Att-Gen for Ceylon v Silva [1953] A.C. 461, 479.
90. Treitel [1957] P.L. 321, 338 n.4 suggests that it might exist where the holding out was done by
the “directing mind” of the relevant government department. cf. Turpin, Government Contracts
(1972), p.35, where it is suggested that the “special power” would exist wherever an officer had
actual authority to do the act that he was holding out the agent as having authority to do. In
Marubeni Hong Kong and South China Ltd v Government of Mongolia [2004] EWHC 472
(Comm), [2004] 2 Lloyd’s Rep. 198 it was held that the Mongolian Ministry of Justice had such
a power in respect of the Minister of Finance’s authority to sign a guarantee. (This aspect of the
decision was not challenged on appeal: [2005] EWCA Civ 395, [2005] 1 W.L.R. 2497 at [6].)
91. Watteau v Fenwick [1893] 1 Q.B. 346; Treitel [1957] P.L. 321, 336.
92. See Vol.II, para.31-064, describing the cases as “extremely doubtful”.
93. Att-Gen for Ceylon v Silva [1953] A.C. 461, 481. See also Bowstead and Reynolds on Agency,
20th edn (2014), para.8-041; para.8-044 of the 17th edn (containing the text now in para.8-041)
was quoted with approval in Marubeni Hong Kong and South China Ltd v Government of
Mongolia [2004] EWHC 472 (Comm), [2004] 2 Lloyd’s Rep. 198 at [124].
94. Turpin, Government Contracts (1972), p.35.
95. Macbeath v Haldimand (1786) 1 T.R. 172; Unwin v Wolseley (1787) 1 T.R. 674; Rice v Chute
(1801) 1 East 579; Palmer v Hutchinson (1881) 6 App. Cas. 619.
96. Hosier Brothers v Earl of Derby [1918] 2 K.B. 671.
97. Macbeath v Haldimand (1786) 1 T.R. 172; Prosser v Allen (1819) Gow. 117; Gidley v Lord
Palmerston (1822) 3 B. & B. 275; Dunn v Macdonald [1897] 1 Q.B. 555; Commercial Cable Co
v Government of Newfoundland [1916] 2 A.C. 610.
99. Gidley v Lord Palmerston (1822) 3 B. & B. 275, 286, per Dallas C.J. See also Macbeath v
Haldimand (1786) 1 T.R. 172, 181–182, per Ashhurst J.; Unwin v Wolseley (1787) 1 T.R. 674,
678, per Ashhurst J.
100. [1897] 1 Q.B. 555.
101. Dunn v Macdonald [1897] 1 Q.B. 555, 557.
102. [1901] 2 K.B. 781.
103. Graham v His Majesty’s Commissioners of Public Works and Buildings [1901] 2 K.B. 781, 788.
cf. Auty v Hutchinson (1848) 6 C.B. 266.
Page 6
104. cf. Rice v Everitt (1801) 1 East 583n, which turned on its own unusual facts. In Samuel Bros,
Ltd v Whetherly [1907] 1 K.B. 709, [1908] 1 K.B. 104 the personal liability of the commanding
officer of a volunteer corps was imposed under statutory regulations (Regulations for the
Volunteer Force 1901 reg.407).
105. e.g. Graham v His Majesty’s Commissioners of Public Works and Buildings [1901] 2 K.B. 781
(Ridley J.); International Railway Co v Niagara Parks Commission [1941] A.C. 328.
106. Dunn v Macdonald [1897] 1 Q.B. 401, 555; The Prometheus (1949) 82 Ll.L. Rep. 859. For
criticism of Dunn v Macdonald, and suggestions that the decision is best explained on other
grounds see Williams, Crown Proceedings (1948), p.3; Street, Governmental Liability (1953),
p.93.
107. See Vol.II, paras 31-100—31-107.

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(d) - Crown Proceedings Act 1947
Purpose of the Act
11-016
Before 1947 the Crown could not be sued on its contracts by bringing an ordinary action for breach of
contract or debt. Litigants had to use the petition of right procedure, as amended by the Petitions of
Right Act 1860. This procedure, even as amended, was “antiquated and cumbersome”, 109 and it
came to be seen as an anachronistic defect in the law. Section 1 of the Crown Proceedings Act 1947
abolished the need to bring a petition of right to enforce a contractual claim in most cases. It provided
that:
“Where any person has a claim against the Crown after the commencement of this Act,
and, if this Act had not been passed, the claim might have been enforced, subject to the
grant of His Majesty’s fiat, by petition of right, or might have been enforced by a
proceeding provided by any statutory provision repealed by this Act, then, subject to the
provisions of this Act, the claim may be enforced as of right, and without the fiat of His
Majesty, by proceedings taken against the Crown for that purpose in accordance with the
provisions of this Act.”
The Act also repealed the Petitions of Right Act 1860. 110 However, it did not entirely remove a role for
the petition of right. The Act has no application to proceedings “by or against … his Majesty in His
private capacity” 111; nor does it apply to proceedings:
“… against the Crown … in respect of any alleged liability of the Crown arising otherwise
than in respect of his Majesty’s Government in the United Kingdom.” 112
Contractual liability coming under either of these heads can only be enforced using the petition of
right procedure. And, since the 1947 Act repealed the Petitions of Right Act 1860 for all purposes, the
petition must be in its pre-1860 form. 113 This “most peculiar thing”, 114 as Glanville Williams described
it, was, apparently, intended. 115
Remedies against the Crown
11-017
The Crown Proceedings Act 1947 introduced new rules relating to the availability of remedies.
Section 21(1) provided as follows:
Page 2
“In any civil proceedings by or against the Crown the court shall, subject to the provisions
of this Act, have power to make all such orders as it has power to make in proceedings
between subjects, and otherwise to give such appropriate relief as the case may require:
Provided that—
(a)
where in any proceedings against the Crown any such relief is sought as might in
proceedings between subjects be granted by way of injunction or specific
performance, the court shall not grant an injunction or make an order for specific
performance, but may in lieu thereof make an order declaratory of the rights of the
parties; and
(b)
in any proceedings against the Crown for the recovery of land or other property the
court shall not make an order for the recovery of the land or the delivery of the
property, but may in lieu thereof make an order declaring that the plaintiff is entitled
as against the Crown to the land or property or to the possession thereof.”
By removing the possibility of an injunction or an order for specific performance the subsection
reduced the rights enjoyed by claimants. Before 1947 various government departments had been
subject to awards of specific performance or injunctions in relation to contractual performance, 116 with
courts commenting that the defendant’s status did not call for any special treatment. 117 The same
approach could be seen where statutes expressly provided that, in relation to Crown contracts,
certain ministers could “sue and be sued” 118; and there was also support for the idea that the mere
fact of incorporation indicated that a department could be sued in the ordinary way. 119 The 1947 Act
repealed those statutory provisions stating that departments could sue and be sued, but that left open
the question whether incorporated departments could still be sued in the ordinary way, thereby
circumventing the limitation on remedies contained in s.21(1). Commentators disagreed, and the point
has never been settled. 120 It is submitted, however, that the repeal of the statutory provisions
expressly authorising departments to be sued showed a legislative intention that s.21(1) should be
definitive. Furthermore, it would be undesirable as a matter of policy to allow the statutory definition of
the position in s.21(1) to be undermined where the government department happened to be
incorporated: there is no convincing reason to make such departments subject to more extensive
remedies than those departments which are not incorporated.
Interim remedies
11-018
Where parties have applied for interim relief against the Crown, the language of s.21(1) has proved
difficult to apply. Although parts of the subsection seem to confer a broad discretion (for instance,
“power … to give such appropriate relief as the case may require”), it has been held that since a
declaration is, in its nature, final, no interim declaration can be made against the Crown. 121 Whatever
the merits of that analysis, 122 it is submitted that it has now been superseded by the Civil Procedure
Rules, which expressly provide for interim declarations to be granted. 123 Since interim declarations
are now available in “proceedings between subjects” they must, applying the language of s.21(1),
also be available in proceedings against the Crown.
Page 3
Specific remedies against Crown servants
11-019
Where a contract has been made by a Crown servant in the course of service or by a Crown agent
acting within his authority, the servant or agent is not personally liable on the contract. 124 Hence, the
question of specific remedies against such a servant or agent does not arise. However, a contracting
party might seek to prevent a breach of contract by the Crown by bringing proceedings in tort against
the servant or agent responsible for the contractual performance. For instance, it might be alleged
that the servant or agent’s threatened acts will amount to the tort of inducing breach of contract by the
Crown. 125 In such a situation, Crown Proceedings Act s.21(2) would become relevant. That
subsection states that:
“The court shall not in any civil proceedings grant any injunction or make any order
against an officer of the Crown if the effect of granting the injunction or making the order
would be to give any relief against the Crown which could not have been obtained in
proceedings against the Crown.”
The subsection has been described as “somewhat obscure” 126 and “of Delphic opaqueness”. 127 One
obscurity concerns its scope. Its language refers only to proceedings against an “officer” of the Crown
and it is not clear whether corporate entities are included. The Crown Proceedings Act states that:
"“Officer" in relation to the Crown, includes any servant of His Majesty, and accordingly
(but without prejudice to the generality of the foregoing provision) includes a Minister of
the Crown and a member of the Scottish Executive.” 128
The language of the statutory definition is inclusive, rather than limiting, but it was said in British
Medical Association v Greater Glasgow Health Board 129 that a hospital board admitted to be
exercising functions on behalf of the Minister of Health 130 could not have been argued to be an officer
of the Crown for the purposes of s.21(2). 131 No reasons were given for this assertion, and it is
respectfully submitted that it is difficult to support: a legal person is perfectly capable of being a
servant or agent of the Crown, 132 and nothing in the Crown Proceedings Act definition of “officer”
indicates that a narrow approach is needed. Furthermore, the effectiveness of s.21(2) would be
seriously undermined if it only prevented the circumvention of s.21(1) in relation to actions against a
limited class of representatives of the Crown. It is therefore submitted that the assertion in the British
Medical Association case was mistaken, and that the decision of the House of Lords can be
supported only on the ground that the special legislation creating hospital boards expressly provided
for those boards to be liable as principals. 133
Injunctions against Crown servants
11-020
A second obscurity in s.21(2) relates to its effect. The immediate aim of the subsection may simply
have been to reverse two earlier authorities, which had been doubted by commentators. 134 But the
more difficult question is whether the subsection, in effect, prevents any injunction being granted
against a Crown servant in respect of activities in the course of service. In M v Home Office 135 it was
held that s.21(2) did not have that effect; rather, it only prevented injunctions from being granted
against Crown servants in a representative capacity (such as being the superior of a Crown servant
who had actually committed a tort). The House of Lords supported this narrow reading by reference to
the position before the Crown Proceedings Act came into force: before 1947 specific remedies had
been available against individual servants who had committed torts. 136 The subsection, in their view,
was intended to apply only to situations where no cause of action had previously been available; as
they put it:
Page 4
“… it is only in those situations where prior to the Act no injunctive relief could be
obtained that section 21 prevents an injunction being granted.” 137
This interpretation of s.21(2), particularly the reliance on the position before 1947, has been
questioned, however. In Davidson v Scottish Ministers, 138 without expressing a concluded view, Lord
Rodger put forward the following analysis:
“There are, however, no words in subsection (2) which refer to the position before the
passing of the 1947 Act. If, as seems likely, Lord Woolf was thinking of the closing words
of the subsection, I would respectfully prefer to interpret them as referring to the
hypothetical situation where the claimant or pursuer has brought proceedings against the
Crown rather than against an officer of the Crown. The purpose of the subsection seems
to be to prevent the claimant or pursuer from circumventing the ban on an injunction,
interdict or order for specific performance against the Crown in subsection (1)(a) by
seeking a similar remedy against an officer of the Crown.” 139
Lord Mance shared Lord Rodger’s doubts about whether s.21(2) referred to the position prior to the
1947 Act. “However”, he continued:
“… even without that phrase, the purpose of subsection (2) can hardly have been to
remove or preclude a right on the part of a claimant to injunctive relief against an officer
of the Crown threatening to commit a tortious act against the claimant.” 140
The matter has not been settled. 141 It is submitted that, of the two competing interpretations, Lord
Rodger’s view is the more persuasive. It avoids a strained reading of the statutory language, and,
perhaps more importantly, it recognises that the 1947 legislation responded to deep-rooted
dissatisfaction with the complexity and anachronisms of the existing law by redefining the relationship
between the Crown and litigants. Lord Mance’s objection to Lord Rodger’s interpretation is, it is
submitted, not convincing. There is no inherent reason why the subsection should not have removed
a right to an injunction which existed prior to the Act; on the contrary, the Act expressly repealed
statutory provisions that had provided for certain government departments to “sue and be sued” to the
same extent as private parties.
(1953), Ch.III.
109. Davidson v Scottish Ministers [2005] UKHL 74, 2006 S.C.(H.L.) 41 at [8].
110. Crown Proceedings Act 1947 s.39 and Sch.2. Both s.39 and Sch.2 were themselves repealed
by Statute Law Revision Act 1950 s.1, but that did not have the effect of reinstating the
provisions that had been repealed by the 1947 Act (see proviso to Statute Law Revision Act
1950 s.1).
112. Crown Proceedings Act 1947 s.40(2)(b). The certificate of a Secretary of State to this effect is
conclusive: s.40(3); Trawnik v Lennox [1985] 1 W.L.R. 532.
113. Franklin v Att-Gen [1974] 1 Q.B. 185; Street (1948) 11 M.L.R. 129, 132–133.
114. Williams, Crown Proceedings (1948), p.8.

Page 5
115. Williams, Crown Proceedings (1948), p.8, n.24, states that the situation “was pointed out to
those responsible for the measure when it was a Bill before Parliament”. It was, in fact, Williams
himself who had done so, writing a letter to Lord Chorley which Chorley forwarded to the Lord
Chancellor (Jacob [1992] P.L. 452, 481–482).
116. Rankin v Huskisson (1830) 4 Sim. 13 (injunction against Commissioners of Woods and
Forests); Thorn v Commissioners of Her Majesty’s Works and Public Buildings (1863) 32 Beav.
490; Corbett v The Commissioners of Her Majesty’s Works and Public Buildings (1868) 18 L.T.
548.
117. See, for instance, Thorn v Commissioners of Her Majesty’s Works and Public Buildings (1863)
32 Beav. 490, 493: “a public Government board cannot be treated in any different manner from
that in which a private individual would be dealt with.”.
118. Williams, Crown Proceedings (1948), p.4. e.g. Minister of Supply v British Thomson-Houston
Co Ltd [1943] 1 K.B. 478.
119. Graham v His Majesty’s Commissioners of Public Works and Buildings [1901] 2 K.B. 781, per
Phillimore J.; Roper v The Commissioners of his Majesty’s Public Works and Buildings [1915] 1
K.B. 45.
120. Street (1948) 11 M.L.R. 129, 132; Williams, Crown Proceedings (1948), p.6; Street,
Governmental Liability (1953), p.94.
121. Underhill v Ministry of Food [1950] 1 All E.R. 591; International General Electric Co of New York
Ltd v Commissioners of Customs and Excise [1962] 1 Ch. 784.
122. For criticism see Wade (1991) 107 L.Q.R. 4, 8.
123. CPR r.25.1.
125. See generally, Clerk & Lindsell on Torts, 21st edn (2014), Ch.24.
126. Williams, Crown Proceedings (1948), p.136.
127. Davidson v Scottish Ministers [2005] UKHL 74, (2006) S.C.(H.L.) 41 at [8], per Lord Nicholls.
129. [1989] 1 A.C. 1211.
130. British Medical Association v Greater Glasgow Health Board [1989] 1 A.C. 1211 at 1225.
Quaere whether the admission was correct: in Hills (Patents) Ltd v University College Hospital
Board of Governors [1956] 1 Q.B. 90 it was held that, although the statute stated that the
defendants carried out their functions “on behalf of” the Minister of Health, their independence
from ministerial control showed that they actually occupied hospital premises as principals, not
as agents of the Minister.
131. British Medical Association v Greater Glasgow Health Board [1989] 1 A.C. 1211, 1226.
132. BBC v Johns (Inspector of Taxes) [1965] 1 Ch. 32 at 79, where Diplock L.J. comments that it
“has been increasingly the tendency over the last hundred years” that Crown agents are
“fictitious persons—corporations”; Williams, Crown Proceedings (1948), p.117.
133. British Medical Association v Greater Glasgow Health Board [1989] 1 A.C. 1211, 1226–1227;
National Health Service (Scotland) Act 1978 s.2(8).
134. Street (1948) 11 M.L.R. 129, 138; Williams, Crown Proceedings (1948), p.136; both authors
Page 6
refer to Rankin v Huskisson (1830) 4 Sim. 13 and Ellis v Earl Grey (1833) 6 Sim. 214.
135. [1994] 1 A.C. 377.
136. Raleigh v Goschen [1898] 1 Ch. 73; Hutton v Secretary of State for War (1926) 43 T.L.R. 106.
Actions against such individual servants were not caught by the general pre-1947 rule that the
Crown was not liable in tort, because it was said that since the Crown could do no wrong, it
could never authorise the commission of a tort (see M v Home Office [1994] 1 A.C. 377, 410).
137. M v Home Office [1994] 1 A.C. 377, 413.
138. [2005] UKHL 74, 2006 S.C.(H.L.) 41.
139. Davidson v Scottish Ministers (2006) S.C.(H.L.) 41 at [93]. See also British Medical Association
v Greater Glasgow Health Board [1989] 1 A.C. 1211 at 1226.
140. Davidson v Scottish Ministers (2006) S.C.(H.L.) 41 at [102].
141. In Davidson v Scottish Ministers (2006) S.C.(H.L.) it was anticipated that the matter would be
settled when their Lordships heard the then pending appeal in Beggs v Scottish Ministers (see
e.g. per Lord Mance at [103]). However, when the appeal in Beggs was heard, the appellant
abandoned the points he had raised in relation to s.21. See Beggs v Scottish Ministers [2007]
UKHL 3, [2007] 1 W.L.R. 455 at [28], per Lord Rodger and [51], per Lord Mance.

Page 1

Section 3. - Public Authorities
The position in outline
11-021
Public authorities, as the creations of statute, have the capacity to enter contracts only to the extent
that their statutory powers permit. Any contract entered outside those powers (ultra vires) is void;
similarly, a contractual promise outside the statutory powers is unenforceable. 142 Hence, it has been
said that “the ultra vires concept of corporate capacity is inextricably linked to nullity: they are two
sides of the same coin”. 143 To determine whether a contract or contractual obligation is intra vires the
public authority, three tests must be satisfied. First, the contract or obligation must be within the scope
of the authority’s statutory powers. Second, it must not unduly fetter the authority’s discretion. Third,
the authority’s entering into the contract or obligation must have been as a result of a proper exercise
of its powers. If a contract or contractual obligation is found to be ultra vires, the consequences will
depend on a variety of factors. It may be possible to identify an alternative contract, arising from the
parties’ conduct, which it was within the statutory body’s powers to make. If no such contract can be
identified, no contractual remedies are available, and the parties must have recourse either to claims
in unjust enrichment or under the Human Rights Act 1998. There is, however, one important
exception to these principles, which arises when a local authority has certified, pursuant to the Local
Government (Contracts) Act 1997, that the contract is within its powers. In such situations, the
contract takes effect as if the authority had the power to enter into it.
142. For discussion of whether the ultra vires term can be severed from the contract, leaving the
remainder of the contractual terms enforceable see Re Staines Urban DC’s Agreement ; Triggs
v Staines Urban DC [1969] 1 Ch. 10 and paras 16-211 et seq.
143. Haugesund Kommune v Depfa ACS Bank [2010] EWCA Civ 579, [2012] Q.B. 549 at [135]
(Etherton L.J.).

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(a) - The Scope of Statutory Powers
(i) - Express Powers
Construction of statutory language
11-022
In ascertaining whether the contract or promise in question is within the scope of the authority’s
statutory powers, the statute must be construed. There is no typical form of words for the conferment
of powers to contract, and the range of bodies on whom such powers are conferred has led to an
equally diverse array of statutory language. No special rules of construction apply 144 —the aim is to
identify a “reasonable” interpretation of the words. 145 The power to contract may be narrowly set out,
as it is in the Police Act 1996 s.25(1), which limits the power to charge for policing to “special police
services” provided “at the request of any person”. As the Court of Appeal has observed, this
subsection envisages a contract between the parties, in the sense that a request must have been
accepted by the chief constable. 146 However, the power may also be expressed more broadly, and
need not refer specifically to contracts. For instance, Local Government Act 2000 s.2 (which now
applies only in Wales) 147 confers a power on local authorities to do “anything which they consider is
likely to achieve” the “promotion or improvement” of the “economic”, “social”, or “environmental
well-being of their area”. In Brent London BC v Risk Management Partners Ltd 148 the Court of Appeal
held that, although the section should be construed broadly, it did not authorise entering transactions
solely for the purpose of improving the authority’s financial position; some “reasonably well defined
outcome which [the authority] considers will promote or improve the well-being of its area” was
required. 149 The Localism Act 2011 s.1(1) supersedes the broad power set out in the Local
Government Act 2000, by providing that “A local authority has power to do anything that individuals
generally may do”. 150 The breadth of this statutory language is such that, where a contract falls under
the Act, no recourse to implied powers of contracting will be required to justify it. However, the Act
does not eliminate all restrictions on local authorities’ powers, since pre-existing restrictions are
preserved, the power to charge for services is limited, and things may only be done for a commercial
purpose if they could also be legitimately done for a non-commercial purpose under the general
power. 151 The effect of the Act is, therefore, to alter the focus of legal analysis from whether an
authority’s activity is permitted to whether there are any restrictions on it. 152
Local Government (Contracts) Act 1997 s.1(1)
11-023
One particularly important statutory power is that conferred by Local Government (Contracts) Act
1997 s.1(1), which states that:
“Every statutory provision conferring or imposing a function on a local authority confers

Page 2
power on the local authority to enter into a contract with another person for the provision
or making available of assets or services, or both, (whether or not together with goods)
for the purposes of, or in connection with, the discharge of the function by the local
authority.”
It has been held that a contract of insurance would not come within the section. 153 No definition of
“function” is given in the Act. It almost certainly bears the same meaning as “function” in the Local
Government Act 1972 s.111, namely, any one of the “multiplicity of specific statutory activities the
[authority] is expressly or impliedly under a duty to perform or has power to perform”. 154 The
requirement that a contract be “for the purposes of, or in connection with the discharge” of a function
is not elaborated on further in the Act, and it has not been considered in case law. However, it is
submitted that the test authorises the same contracts as would be authorised under the test for
implying a power to contract 155 —namely, whether such a power is reasonably incidental to the
relevant statutory purpose: in both tests the focus is on the nexus between the statutory power and
the contract. The “reasonably incidental” test has received extensive judicial consideration which, it is
submitted, should be used to guide the application of the test set out in s.1(1) of the 1997 Act. It is
also submitted that the very general terms of s.1(1) should not be taken to override specific statutory
limitations on a local authority’s power to contract. 156
Procedural irregularity
11-023A
An authority’s failure to follow its own procedures for entering a contract does not render the
agreement ultra vires. As the Privy Council put it in Central Tenders Board v White, “There is a
difference between a case of procedural irregularity in the formation of a contract of a kind which a
public body has power to enter, and a case of a public body purporting to conclude a contract of a
kind which it has no power to make”. 157 In that case the authority had accepted a tender for a
building project despite the tenderer failing to comply with the authority’s instructions that all tenderers
must state, on their form of tender, what the duration of the works would be. The authority was found
not to have departed from its own procedures (since the procedures permitted non-conforming
tenders to be considered), but the court went on to express the view that, assuming there had been a
procedural irregularity on the facts, it would not have made the ensuing contract void. The court
explained that any attempt to nullify a contract entered into following a procedural irregularity would
have to be assessed in the light of “the seriousness of the breach and the degree of any injustice and
public inconvenience which may be caused by invalidating the act”, as well as “any alternative
remedies available to a person legitimately aggrieved by the conduct of the public body”. 158 The
court observed that it would be “a serious denial of [a party’s] rights” to invalidate a contract because
of a procedural defect in the contractual process, 159 and indicated that “it would be wrong for a
court to [quash an administrative decision] in such a way as to nullify a contract made between a
public body pursuant to a legal power and a person acting in good faith, except possibly on terms
which adequately protect that person’s interest”. 160 Where a tenderer had been unfairly
disadvantaged by the authority’s failure to follow its own procedures, the Privy Council envisaged that
recourse could be had to an implied tender process contract, of the kind recognised in Blackpool and
Fylde Aero Club Ltd v Blackpool Borough Council. 161
144. Att-Gen v London CC [1901] 1 Ch. 781, 788; Att-Gen v Manchester Corp [1906] 1 Ch. 643, 653.
145. Att-Gen v London CC [1901] 1 Ch. 781, 788.
146. West Yorkshire Police Authority v Reading Festival Ltd [2006] EWCA Civ 524, [2006] 1 W.L.R.
2005 at [21] and [50]. See further Glasbrook Brothers Ltd v Glamorgan County Council [1925]
Page 3
A.C. 270; Harris v Sheffield United Football Club Ltd [1988] 1 Q.B. 77; Leeds United Football
Club Ltd v Chief Constable of West Yorkshire Police [2013] EWCA Civ 115, [2014] Q.B. 168
and discussion at para.4-064 above. The statutory provision may implicitly exclude a claim for
unjust enrichment where no request for police services is shown: Chief Constable of the
Greater Manchester Police v Wigan Athletic AFC Ltd [2008] EWCA Civ 1449, [2009] 1 W.L.R.
1580 at [51].
147. Localism Act 2011 Sch.1 para.3.
148. [2009] EWCA Civ 490, [2010] P.T.S.R. 349. Under the Local Democracy, Economic
Development and Construction Act 2009 s.34, which is not yet in force, a local authority is
empowered to enter mutual insurance arrangements of the kind that gave rise to the litigation in
the Brent case. The appeal to the Supreme Court in Brent LBC v Risk Management Partners
Ltd [2011] UKSC 7, [2011] 2 A.C. 34 was confined to the claim for damages for breach of the
Public Contracts Regulations 2006.
149. [2009] EWCA Civ 490 at [180].
150. The statutory section came into force on February 18, 2012 (Localism Act 2011
(Commencement No.3) Order 2012 (SI 2012/411) art.2).
151. Localism Act 2011 ss.2, 3 and 4 respectively.
152. See further, Layard [2012] Env. Law Rev. 134; Bowes and Stanton [2014] P.L. 392.
153. R. v Brent LBC Ex p. Risk Management Partners Ltd [2008] EWHC 692 (Admin).
154. Hazell v Hammersmith and Fulham LBC [1990] 2 Q.B. 697, 722. This definition, given by the
Divisional Court, was approved by the Court of Appeal ([1990] 2 Q.B. 697, 785) and the House
of Lords ([1992] 2 A.C. 1, 29, per Lord Templeman, 45, per Lord Ackner).
155. See below, paras 11-024—11-027.
156. e.g. the limitations on borrowing imposed by Local Government Act 1972 Sch.13 Pt I (as
interpreted in Hazell v Hammersmith and Fulham LBC [1992] 2 A.C. 1).
157.
[2015] UKPC 39, [2015] B.L.R. 727 at [19]. Law Debenture Trust Corp Plc v Ukraine [2017]
EWHC 655 (Comm) at [134]. Cf. the public procurement regulatory regime, outlined at
para.11-051, below.
158.
[2015] UKPC 39, [2015] B.L.R. 727 at [22].
159.
[2015] UKPC 39, [2015] B.L.R. 727 at [25].
160.
[2015] UKPC 39, [2015] B.L.R. 727 at [26].
161.
[1990] 1 W.L.R. 1195. See Vol.I, paras 11-042 et seq.

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(a) - The Scope of Statutory Powers
(ii) - Implied Powers
General principle
11-024
The scope of statutory powers is not limited to the express language of the statute. As Lord Selborne
L.C. explained in Att-Gen v Great Eastern Railway Co 162 the ultra vires doctrine:
“… ought to be reasonably, and not unreasonably, understood and applied, and that
whatever may fairly be regarded as incidental to, or consequential upon, those things
which the Legislature has authorized, ought not (unless expressly prohibited) to be held,
by judicial construction, to be ultra vires.” 163
Lord Blackburn, in the same case, added that:
“… those things which are incident to, and may reasonably and properly be done under
the main purpose, though they may not be literally within it, would not be prohibited.” 164
The emphasis on first identifying the main purpose, then deciding what is incidental to it, was echoed
by Lord Selborne L.C. shortly afterwards 165 and remains good law. The principle of implied powers
was subsequently recognised by statute 166 in the Local Government Act 1972 s.111(1):
“… subject to the provisions of this Act … a local authority shall have power to do any
thing (whether or not involving the expenditure, borrowing or lending of money or the
acquisition or disposal of any property or rights) which is calculated to facilitate, or is
conducive or incidental to, the discharge of any of their functions.”
Where a public authority claims an implied power to charge, the test is narrower: rather than a
reasonable implication, the power must be shown to arise by necessary implication. 167
Consistency with other statutory provisions
11-025
An incidental power will only be implied if it is consistent with the express statutory provisions. Thus,
Page 2
where a statutory borrowing power was limited to a set amount “but not further or otherwise”, no
additional borrowing power could be implied. 168 Similarly, if the statutory provisions were intended to
provide an exhaustive enumeration of powers, there will be no room for a further, implied power. In
Hazell v Hammersmith and Fulham LBC, 169 for instance, it was held that Local Government Act 1972
Sch.13 Pt 1 established “a comprehensive code which defines and limits the powers of a local
authority with regard to its borrowing” 170; it followed that no further power to borrow could be implied.
The same analysis has been applied to both housing 171 and planning 172 legislation.
Incidental or ancillary power
11-026
Where there is room for a power to be implied, the power can only authorise activities that are
incidental to, or ancillary to, the public authority’s functions. It is not enough that the contract is, in
itself, profitable, useful or desirable. 173 There must, in other words be “a sufficient nexus” 174 between
the authority’s functions and the activity sought to be carried on. Thus, for instance, it is incidental to a
local authority’s duty to manage its housing for it to introduce a parking scheme on one of its housing
estates. 175 Similarly, printing and bookbinding work is incidental to a variety of local authority
functions. 176 However, the necessary nexus would be broken if the authority undertook additional
work, for a profit, beyond what was necessary for its own functions. 177 The activity would then no
longer be truly subsidiary to the main statutory purpose; it would be a separate business. 178
Furthermore, where a statutory power permits a function to be carried on within a defined
geographical area, an ancillary power to operate outside that area will be unlikely. 179 It is also unlikely
that an activity will be regarded as ancillary to the statutory purpose if it is not (or cannot be) restricted
to those individuals who participate in the expressly permitted activity. Thus, for instance, in Att-Gen v
London CC 180 the authority had express statutory powers to operate three tramway services, and
claimed that it had implied power to operate a bus service between the termini of the three tramway
lines. However, it was held that no such implied power existed because as a matter of fact the bus
service was used by the general public, and as a matter of law the bus service could not be confined
to tramway passengers. 181
Sufficient connection with statutory function
11-027
There must also be a sufficiently close connection between the express statutory function and the
activity claimed to be incidental to it, such that the activity can be said directly to facilitate the
performance of that function. It is not enough that the activity facilitates some intermediate function
which, in turn, facilitates the statutory function. 182 For instance, in McCarthy & Stone (Developments)
Ltd v Richmond Upon Thames LBC 183 it was held that a local authority had acted ultra vires by
charging developers for consultations with its planning officers before a formal planning application
was made. The authority’s statutory function was solely to adjudicate on planning applications;
consultations with planning officers before the submission of a formal application were incidental to
the performance of that statutory function, but to charge for those consultations was incidental only to
the consultations, not the adjudication. Charging was, therefore, merely “incidental to the incidental”,
184
and, therefore, too far removed from the duty to determine planning applications to be implicitly
authorised by it. When a local authority enters a contract under Local Government (Contracts) Act
s.1(1), 185 it is not performing a “function”; the “function” is the task carried out or the result achieved
by contractual performance. The contract is merely a means of carrying out that function. It follows,
therefore, that activities incidental to the contract cannot be justified under s.111; those activities are
merely incidental to the incidental power of contracting. 186
162. (1880) 5 App. Cas. 473.
163. Att-Gen v Great Eastern Ry Co (1880) 5 App. Cas. 473, 478.

Page 3
164. Att-Gen v Great Eastern Ry Co (1880) 5 App. Cas. 473, 481.
165. Small v Smith (1884) 10 App. Cas. 119, 129.
166. Hazell v Hammersmith and Fulham LBC [1990] 2 Q.B. 697, 722 DC, 785 CA, [1992] 2 A.C. 1,
29; Akumah v Hackney LBC [2005] UKHL 17, [2005] 1 W.L.R. 985, [24].
167. Att-Gen v Wilts United Dairies Ltd (1921) 37 T.L.R. 884, (1922) 38 T.L.R. 781; McCarthy &
Stone (Developments) Ltd v Richmond Upon Thames LBC [1992] 2 A.C. 48. Quaere whether
Local Government (Contracts) Act 1997 s.1(1) includes a power for authorities to charge others
for the provision of services by the authority. The statutory language seems broad enough to
bear this interpretation.
168. Baroness Wenlock v River Dee Co (1885) 10 App. Cas. 354.
169. [1990] 2 Q.B. 697; [1992] 2 A.C. 1.
170. Hazell v Hammersmith and Fulham LBC [1992] 2 A.C. 1, 33. cf. Re Northern Ireland Human
Rights Commission [2002] UKHL 25, [2002] NI 236.
171. Crédit Suisse v Waltham Forest LBC [1997] Q.B. 362; Sutton LBC v Morgan Grenfell & Co Ltd
(1996) 29 H.L.R. 608; R. (Kilby) v Basildon DC [2006] EWHC 1892 (Admin), [2006] H.L.R. 46 at
[2]–[16]; [2007] EWCA Civ 479, [2007] H.L.R. 39, per Rix and Moses L.JJ.
172. Bielecki v Suffolk Coastal CC [2004] EWHC 3142 (QB).
173. Att-Gen v London CC [1901] 1 Ch. 781, 802, [1902] A.C. 165, 169; Hazell v Hammersmith and
Fulham LBC [1992] 2 A.C. 1, 31; Brent LBC v Risk Management Partners Ltd [2009] EWCA Civ
490, [2010] P.T.S.R. 349.
174. Hazell v Hammersmith and Fulham LBC [1990] 2 Q.B. 697, 723.
175. Akumah v Hackney LBC [2005] UKHL 17, [2005] 1 W.L.R. 985.
176. Att-Gen v Smethwick Corp [1932] Ch. 562.
177. Att-Gen v Smethwick Corp [1932] Ch. 562 at 566, per Eve J., 572, per Hanworth M.R. See also
Att-Gen v Fulham Corp [1921] 1 Ch. 440; Deuchar v Gas Light and Coke Co [1925] A.C. 691.
178. Hazell v Hammersmith and Fulham LBC [1990] 2 Q.B. 697, 723.
179. Att-Gen v Manchester Corp [1906] 1 Ch. 643; Trustees of the Harbour of Dundee v D. & J.
Nicol [1915] A.C. 550.
180. [1901] 1 Ch. 781, [1902] A.C. 165.
181. See, similarly Att-Gen v Mersey Railway Co [1907] A.C. 415, especially 418, per Lord James.
182. Att-Gen v Manchester Corp [1906] 1 Ch. 643; Hazell v Hammersmith and Fulham LBC [1990] 2
Q.B. 697, 724.
183. [1992] 2 A.C. 48.
184. McCarthy & Stone (Developments) Ltd v Richmond Upon Thames LBC [1992] 2 A.C. 48, 75.
186. Brent London LBC v Risk Management Partners Ltd [2009] EWCA Civ 490, [2010] P.T.S.R.
349 at [61], [123].
Page 4

Page 1

(b) - Fettering of Discretion
General principle
11-028
A contract or contractual obligation which unduly fetters the public authority’s performance of its
statutory functions will be ultra vires. The doctrine first emerged, and has also received the most
attention, in cases concerning grants of servitudes. 187 The leading case is R. v The Inhabitants of
Leake, 188 where the question was whether commissioners of drainage could have granted a public
right of way over an earth bank adjacent to the drain. The Court of Exchequer held, by a majority, that
the commissioners did have such power, since, on the evidence before them, the grant of a public
right of way was not incompatible with the performance of their statutory duties. The compatibility test
from the Leake case has been applied “again and again” 189 in later cases, but it should be noted that
the Court of Exchequer did not consider whether, as a matter of statutory construction, the
commissioners had the power, either express or implied, to grant a right of way. 190 The failure to
consider that point is easily explicable: the decision in the Leake case predated by more than forty
years the House of Lords’ decisions in Ashbury Railway Carriage and Iron Co v Riche, 191 Att-Gen v
Great Eastern Railway Company 192 and Small v Smith, 193 which were to emphasise the statutory
limitations on public authorities’ powers. 194 Those House of Lords cases represent the current
general approach to ultra vires: it follows, therefore, that whilst the Leake case articulates an
important general principle, it does not set out a complete test for ultra vires. However, it should be
noted that even in cases decided after Ashbury Railway Carriage and Iron Co v Riche, 195 the courts
continued to apply the principle from the Leake case as the exclusive test for ultra vires where the
issue concerned a right of way. 196 There is some authority to support the use of the incompatibility
test as the sole criterion of ultra vires in other situations, 197 but this has been doubted, 198 and it is
submitted that the doubts are well founded. A more generous approach than normal to the question of
vires may be justified in the case of public rights of way by the combination of the resulting benefit to
the public at large, 199 and the policy of maximising land use. 200 But, since such an approach has the
potential to authorise acts which are beyond the authority’s express or implied statutory powers, its
use should remain exceptional.
Application of the compatibility test
11-029
The compatibility test focuses on how the contract or contractual obligation in question affects the
authority’s performance of its statutory functions. The impact is judged in the first instance by setting
the statutory powers and duties affected alongside the contractual undertaking. 201 The contractual
term may be so wide-ranging, 202 or the statutory functions affected so fundamental 203 that it is clear
that the authority’s discretion has been unduly fettered. 204 However, it may be (and, perhaps, is more
likely to be) necessary to prove the incompatibility by evidence. Such evidence need not demonstrate
an immediate conflict between contractual performance and statutory functions, 205 but, on the other
hand, the mere possibility of future incompatibility is not enough. Rather, an assessment must be
Page 2
made of the likelihood of incompatibility and of its potential severity. 206 Thus, although the doctrine is
not limited to cases of servitudes, 207 it is not surprising that servitudes have provided the context in
which it has been most frequently applied: the grant of a servitude in perpetuity creates an obvious
permanent restriction on the authority’s freedom of action. It is not finally settled whether the
assessment should be made using only knowledge available at the time the contract was made, or
whether all information available at the time of trial can be used. 208 It is submitted that the use of all
available knowledge is preferable: the assessment of incompatibility is not based on what the parties
ought to have contemplated, but on the actual effect of the contractual obligation; a more accurate
and informed assessment of that effect can be made with knowledge of events occurring after the
contract was formed. 209
Promises not to exercise powers
11-030
The more straightforward cases of incompatibility concern express undertakings not to exercise
particular powers; in these cases the question is, simply, what impact that undertaking has. Thus, in
Ayr Harbour Trustees v Oswald 210 the trustees acquired, by compulsory purchase, a part of the
claimant’s land fronting the harbour; they argued that an undertaking not to exercise any of their
statutory powers to build on that land should be taken into account when assessing the compensation
due to the claimant for damage to his remaining land. But the House of Lords held that the promise
was ultra vires, since to enforce it would have effectively given the trustees power to repeal their own
statute, 211 and prevent them or their successors from developing the harbour in future. Similarly,
where a statute conferred a power on a railway company to acquire land for the building of “works …
or other purposes”, a covenant by the company not to construct works on land acquired under that
power was held to be ultra vires. 212 In both of these cases, it could be said that the promise disowned
core parts of the authority’s powers: as was later said of the Ayr Harbour case, the trustees there
were seeking to “renounce … a part of their statutory birthright”. 213 By contrast, there was held to be
no fetter where an authority had acquired land for one particular statutory purpose and had
covenanted not to use the land for any other purpose. 214 Furthermore, if the promise is merely in
relation to the renunciation of an ancillary power, it will not be held to be incompatible with the
authority’s performance of its functions. Thus, in Stourcliffe Estates Co Ltd v Corp of Bournemouth 215
an authority acquiring land for use as a public park had undertaken not to exercise its power to
construct public toilets on the land. This promise, relating only to an ancillary power, was enforceable.
216
Positive promises
11-031
Where the contractual obligation in question consists of a positive promise to act, the position is more
complex. Such a promise may, in effect, equate to a promise not to perform a statutory duty—as, for
instance, where magistrates with a duty to preserve the St Andrews golf links purported to grant an
unlimited right of way over a road alongside the golf course. The grant was held to be ultra vires,
since it deprived the magistrates of their power to regulate traffic along the road. 217 Such cases can
be dealt with on the same basis as express renunciations of statutory powers. Where the positive
promise does not effectively renounce a power, however, but commits the authority to exercising a
power in a particular way, analysis has proved more problematic. In York Corp v Henry Leetham and
Sons Ltd 218 the authority had the power to levy tolls on river users; it agreed with the defendants that
rather than charging them per use of the river, it would accept a fixed annual payment in lieu. The
contract was held ultra vires. In Birkdale District Electric Supply Co Ltd v Corp of Southport, 219 by
contrast, a promise by a statutory corporation not to charge more for electricity than was charged in
the neighbouring borough for a period of five years was held to be intra vires. Both cases ostensibly
involved a public body committing itself to a certain method of implementing its power to charge, and
the differing results have proved difficult to reconcile. Suggested grounds of distinction have included
that in the York case the authority was effectively renouncing its power to charge 220; and that the
authority in the York case was not profit-making. The latter point had potentially dual significance:
first, there was an obligation to apply the tolls to the upkeep of the river, and the funds for that
enterprise should be maximised 221; second, the importance of commercial freedom was far less for a
Page 3
non-profit public body. 222 Whatever the merits of the distinction between the two cases, 223 which may
be fact specific, the two decisions illustrate the difficulty of drawing a line between a valid exercise of
a discretion and an invalid fettering of that discretion; they also show how policy reasons may inform
where that line is ultimately drawn.
Prioritisation of powers
11-032
Where an authority’s undertaking has the effect of prioritising one of its powers at the expense of
another, it is not seen as automatically engaging the rule against fettering. In R. v Hammersmith and
Fulham LBC Ex p. Beddowes, 224 for instance, an authority decided to carry out its duty to manage its
housing by selling off part of a large complex of flats to a developer on terms that prohibited the
council from letting the remainder of the flats in the complex to short-term tenants. These terms
effectively committed any future council to selling the rest of the complex to developers. The Court of
Appeal held that the restrictive covenants relating to short-term tenants were intra vires since they
were reasonably made in pursuit of the statutory object of managing housing. Similarly, the grant of a
long-term licence under statutory powers was held not to be subject to an implied term that the
licence could be terminated if the authority wanted to use the land for some other statutory purpose.
225
In both instances, the authority was seen as having made a valid choice as to which of its powers
to prioritise.
187. Southport District Electric Supply Co Ltd v Corp of Southport [1926] A.C. 355, 368, per Lord
Sumner.
188. (1833) 5 B. & Ad. 469.
189. British Transport Commission v Westmorland CC [1956] 2 Q.B. 214, 227. For the House of
Lords consideration of this case see [1958] A.C. 126.
190. The only observation on this question was made by Denman C.J., who commented that good
roads were “extremely useful for the general purposes of the drainage, by facilitating the
conveyance of persons and property” (Leake (1833) 5 B. & Ad. 469, 487). Quaere whether this
would be sufficient to satisfy the current test to imply an ancillary power to grant a public right of
way (see above, para.11-026).
191. (1875) L.R. 7 H.L. 653.
192. (1880) 5 App. Cas. 473.
193. (1884) 10 App. Cas. 119.
194. These three cases in particular were highlighted by Neill L.J. in Crédit Suisse v Allerdale BC
[1997] Q.B. 306, 337. See also Baroness Wenlock v River Dee Co (1885) 10 App. Cas. 354.
195. (1875) L.R. 7 H.L. 653.
196. Grand Junction Canal Co v Petty (1888) 21 Q.B.D. 273 (public right of way); Re An Arbitration
between E. Gonty and the Manchester, Sheffield and Lincolnshire Ry Co [1896] 2 Q.B. 439
(private right of way); Great Western Ry Co v Solihull Rural DC (1902) 86 L.T. 852 (public right
of way); South Eastern Ry Co v Cooper [1924] 1 Ch. 211 (private right of way); British
Transport Commission v Westmorland CC [1956] 2 Q.B. 214, [1958] A.C. 126 (public right of
way). cf. Mulliner v Midland Ry Co (1879) 11 Ch. D. 611 where Jessel M.R. took a narrower
approach to construing the relevant statute in relation to the creation of a private right of way.
197. Foster v London, Chatham and Dover Ry Co [1894] 1 Q.B. 711.

Page 4
198. Trustees of the Harbour of Dundee v D. & J. Nicol [1915] A.C. 550, 570–571, where Lord
Parmoor stated that Foster [1894] 1 Q.B. 711 should be explained in terms of an implication
from the express statutory powers.
199. The Board of Works for the Greenwich District v Maudslay (1870) L.R. 5 Q.B. 397, 401–402,
per Cockburn C.J.
200. British Transport Commission v Westmorland CC [1958] A.C. 126, 142, per Viscount Simonds.
201. Great Western Ry Co v Solihull Rural DC (1902) 86 L.T. 852, 853, per Collins M.R.
202. e.g. Creyke v Corp of the Level of Hatfield Chase (1896) 12 T.L.R. 383 (alleged unrestricted
right to take water from a clough to warp adjoining land).
203. e.g. Ayr Harbour Trustees v Oswald (1883) 8 App. Cas. 623 (authority created to develop
harbour undertaking not to exercise any powers to build on certain land); Yarl’s Wood
Immigration Ltd v Bedfordshire Police Authority [2008] EWHC 2207 (Comm), [2009] 1 All E.R.
886 at [80] giving the example of a promise by a police authority not to exercise its powers to
enforce law and order within an immigration detention centre. There was no adverse comment
on this example in the Court of Appeal [2009] EWCA Civ 1110, [2010] Q.B. 698. See further,
Lord Sumner’s comments on the Ayr Harbour case in Birkdale District Electric Supply Co Ltd v
Corp of Southport [1926] A.C. 355, 372.
204. British Transport Commission v Westmorland CC [1958] A.C. 126, 155, per Lord Radcliffe.
205. Great Western Ry Co v Solihull Rural DC (1902) 86 L.T. 852, 855, per Cozens-Hardy L.J.
206. British Transport Commission v Westmorland CC [1958] A.C. 126, especially 144, per Viscount
Simonds.
207. Birkdale District Electric Supply Co Ltd v Corp of Southport [1926] A.C. 355, 372, per Lord
Sumner.
208. British Transport Commission v Westmorland CC [1958] A.C. 126, 145, per Viscount Simonds;
cf. 152–153, per Lord Radcliffe and 160, per Lord Cohen, favouring all available knowledge.
209. cf. Turpin, Government Contracts (1972), p.24.
210. (1883) 8 App. Cas. 623.
211. Ayr Harbour Trustees v Oswald (1883) 8 App. Cas. 623, 639–640, per Lord Watson.
212. Heywood’s Conveyance; Re Cheshire Lines Committee v Liverpool Corp [1938] 2 All E.R. 230.
See also Re Staines Urban DC’s Agreement; Triggs v Staines Urban DC [1969] 1 Ch. 10 and
Camurat v Thurrock Borough Council [2014] EWHC 2482 (QB), [2015] E.L.R. 1 at [65]–[67].
213. Birkdale District Electric Supply Co Ltd v Corp of Southport [1926] A.C. 355, 372. See also J.
Mitchell, The Contracts of Public Authorities (1954) pp.60–61.
214. Earl of Leicester v Wells-next-the-Sea Urban DC [1973] 1 Ch. 110.
215. [1910] 2 Ch. 12.
216. See also Blake v Hendon Corp [1962] 1 Q.B. 283, 303.
217. Paterson v Provost of St Andrews (1881) 6 App. Cas. 833. See similarly Att-Gen v Corp of
Plymouth (1845) 9 Beav. 67. cf. South Eastern Railway Co v Cooper [1924] 1 Ch. 211 (wide
grant of right of way intra vires because expressly subject to grantor’s by-laws).
218. [1924] 1 Ch. 557.

Page 5
219. [1926] A.C. 355.
220. Southport Corp v Birkdale District Electric Supply Co Ltd [1925] Ch. 794, 820, per Warrington
L.J. Such an analysis is echoed by the reasoning in Al Fayed v A.G. for Scotland [2004] S.T.C.
1703.
221. Southport Corp v Birkdale District Electric Supply Co Ltd [1925] Ch. 794, 822–823, per Sargant
L.J.; Birkdale District Electric Supply Co Ltd v Corp of Southport [1926] A.C. 355, 366, per Earl
of Birkenhead.
222. William Cory & Son Ltd v London Corp [1951] 2 K.B. 476, 485–486, per Lord Asquith.
223. The trial judge in the Southport case held that the York case was indistinguishable: Southport
Corp v Birkdale District Electric Supply Co Ltd [1925] Ch. 63.
224. [1987] 1 Q.B. 1050; noted by Tromans [1987] C.L.J. 377.
225. Dowty Boulton Paul Ltd v Wolverhampton Corp [1971] 1 W.L.R. 204; the authority subsequently
achieved its aims by exercising its statutory planning powers: Dowty Boulton Paul Ltd v
Wolverhampton Corp (No.2) [1976] 1 Ch. 13.

Page 1

(c) - Proper Exercise of Powers
General principle
11-033
The authority’s power to contract must have been exercised properly, in accordance with its public
law obligations. 226 The same is true of any power to vary the contractual terms. 227 Thus, for instance,
a decision to enter a contract must comply with any relevant procedural requirements, 228 and it must
also be consistent with the general principles of public law governing the exercise of powers. These
principles include the requirement to have regard only to relevant matters, the requirement not to
exercise powers for a collateral purpose, and the requirement not to exercise powers irrationally.
Relevant matters
11-034
The decision to enter, or to vary a contract, must be taken after having considered all relevant
matters, and disregarding all irrelevant matters. 229 Thus, in Roberts v Hopwood 230 a local authority’s
decision to fix a minimum wage for its employees was held to be ultra vires because, inter alia, its
decision had been taken pursuant to the legally irrelevant consideration that it should act as a model
employer, and in disregard of the relevant consideration that the cost of living had gone down. 231
Similarly, in London & South Eastern Railway v British Transport Police Authority 232 the authority was
held to have acted ultra vires when it decided to reduce the charges it made to certain train operators,
because it had failed to consider whether it could levy correspondingly higher charges against other
operators. 233
Collateral purpose
11-035
The power to enter or to vary a contract must not be exercised in order to achieve a collateral,
improper or extraneous purpose. 234 If the power has been exercised for such a purpose, it is
irrelevant that an authority, acting properly, might have made the same decision about how to
exercise its powers. 235 Thus, in Crédit Suisse v Allerdale BC 236 an authority guaranteed the overdraft
of a company as part of a scheme designed to evade borrowing restrictions imposed by central
government; this was held to amount to the pursuit of an improper purpose, and the transaction was
held to be ultra vires. 237 Similarly, in Hinckley and Bosworth BC v Shaw 238 the claimant council had
agreed a redundancy package with the defendant, under which the defendant would receive a
significantly enhanced salary for the final year of his employment, and—despite being given notice of
the termination of his employment—would also receive a payment in lieu of notice of termination.
Both the increase in salary and the payment in lieu of notice were made in order to increase the
defendant’s redundancy benefits. It was held that this contract, having been entered for an
Page 2
extraneous purpose, and not in order to fix the defendant’s rate of pay, was ultra vires.
Irrationality
11-036
A contract will be found to be ultra vires on the ground of irrationality where no reasonable authority
would have entered that contract. 239 It should be emphasised that “irrationality” cannot simply be
equated with a contractual obligation to act reasonably: irrationality is a distinctive public law concept
denoting that the authority acted as no reasonable authority would act, and it requires a court to
assess different factors from those involved in a determination of whether a contractual obligation to
act reasonably has been satisfied. 240 Irrationality may be manifested by the nature of the transaction
itself, or by the terms of the agreement. An example of the former kind of irrationality is provided by
Hazell v Hammersmith and Fulham LBC, 241 where an authority entered multiple complex financial
transactions despite lacking officers with the training or experience to deal with such transactions, and
without having taken any legal advice. It was held that the authority’s actions had been irrational, and
the contracts were, therefore, ultra vires. 242 A contract will also be ultra vires on the ground of
irrationality where, despite being of a legitimate type, its individual terms are irrationally generous. 243
Thus, in Roberts v Hopwood, 244 a local authority’s decision in 1922 to fix a minimum wage of £4 a
week for all of its employees, and to disregard reductions in the cost of living, was seen as creating
“no rational proportion” between the rates paid by the authority and a reasonable wage. 245 Similarly,
in Re Magrath 246 an authority’s decision to make additional payments to the county accountant in
respect of work for which he had already received an increased salary was held to be “unreasonable
in the highest degree”. 247 However, more recent cases have emphasised that the court will not be
astute to allow a public authority to escape from commercial obligations by relying on its own
irrationality, particularly where there are legitimate expectations in the other party to the contract and
the contract concerns an essentially private law matter. 248
A recent challenge to the proper exercise of powers requirement
11-037
Dicta in the Court of Appeal’s decision in Charles Terence Estates Ltd v Cornwall Council 249 may
indicate that the courts are considering introducing a more flexible approach to situations where a
public body has entered agreements pursuant to an improper exercise of its powers. Maurice Kay L.J.
indicated that it depended on the circumstances whether such transactions were enforceable against
the public body. 250 Etherton L.J. went further, stating that the validity of such transactions should be
governed by the principle set out by Browne-Wilkinson J. in Rolled Steel Products (Holdings) Ltd v
British Steel Corp 251 for determining the validity of transactions entered by companies. 252 Under that
principle, the validity of transactions entered by a company in excess of its powers turns on whether
the party with whom the transaction was entered “had notice that the transaction was in excess or
abuse of the powers of the company”. Both judges found support for their views in the dicta of
Hobhouse L.J. in Credit Suisse v Allerdale BC 253; and they both disapproved the dicta of Neill L.J. in
the same case, which were to the effect that contracts entered into pursuant to an improper exercise
of power were void. It is respectfully submitted that, although they have received some support, 254 the
Court of Appeal’s dicta should not be followed for two reasons. First, the Court was not referred to
leading authorities (discussed in the preceding paragraphs), where the issue was directly in point,
such as Hinckley and Bosworth BC v Shaw 255 and London & South Eastern Railway Ltd v British
Transport Police Authority. 256 Second, the assertion of Etherton L.J. that he could “see no sound
reason why the position should be any different” for public authorities as compared with the position
for companies requires closer analysis than was given to it by the Court of Appeal. 257 It might
legitimately be thought more important to protect public funds from misuse than corporate funds, and,
in any case, the position of public authorities is materially different as a matter of law, since private
parties contracting with public authorities can protect themselves against a defence of ultra vires by
using the Local Government (Contracts) Act 1997. 258 It should also be noted that the ultra vires
principle applicable to companies has been abrogated by legislation, in order to ensure the security of
transactions between companies and those with whom they deal. 259 So, if the validity of contracts
entered by public authorities were in future to be governed by the principle from Rolled Steel Products
(Holdings) Ltd v British Steel Corp, that would not create consistency between public and corporate
Page 3
contracts.
226. Hazell v Hammersmith and Fulham LBC [1990] 2 Q.B. 697; Crédit Suisse v Allerdale BC [1995]
1 Lloyd’s Rep. 315, [1997] Q.B. 306; London & South Eastern Railway Ltd v British Transport
Police Authority [2009] EWHC 460 (Admin) at [47]–[48]. cf. the dicta in Charles Terence Estates
Ltd v Cornwall Council [2012] EWCA Civ 1439, [2013] 1 W.L.R. 466, followed in Pro-Vision
Systems (UK) Ltd v United Lincolnshire Hospital NHS Trust Unreported, February 21, 2014
(Judge Waksman QC) at [176].
227. Wandsworth LBC v Winder [1985] 1 A.C. 461.
228. e.g. R. (Transport & General Workers Union) v Walsall MBC [2001] EWHC 452 (Admin).
229. Roberts v Hopwood [1925] A.C. 578; Gibb v Maidstone and Tunbridge Wells NHS Trust [2010]
EWCA Civ 678, [2010] I.R.L.R. 786 (not irrelevant, on the facts, to consider employee’s
previous loyalty and service in fixing compensation for termination of employment—see in
particular [21]); London & South Eastern Railway Ltd v British Transport Police Authority [2009]
EWHC 460 (Admin).
230. [1925] A.C. 578.
231. [1925] A.C. 578, 600 (Lord Atkinson), 609 (Lord Sumner).
232. [2009] EWHC 460 (Admin).
233. [2009] EWHC 460 (Admin) at [46].
234. Roberts v Hopwood [1925] A.C. 578; Credit Suisse v Allerdale BC [1995] 1 Lloyd’s Rep. 315;
affirmed [1997] Q.B. 306; Hinckley and Bosworth BC v Shaw [2000] L.G.R. 9; Eastbourne BC v
Foster [2001] EWCA Civ 1091, [2002] I.C.R. 234; Tower Hamlets LBC v Wooster [2009]
I.R.L.R. 980 at [39]–[40].
235. Hinckley and Bosworth BC v Shaw [2000] L.G.R. 9 at 39–40.
236. [1995] 1 Lloyd’s Rep. 315; affirmed [1997] Q.B. 306.
237. [1995] 1 Lloyd’s Rep. 315, 343–347; affirmed [1997] Q.B. 306, 333–334. See also the
dissenting judgment of Kerr L.J. in R. v Hammersmith and Fulham LBC Ex p. Beddowes [1987]
1 Q.B. 1050.
238. [2000] L.G.R. 9.
239. The classic test for irrationality is set out in Associated Provincial Picture Houses Ltd v
Wednesbury Corp [1948] 1 K.B. 223 at 229.
240. R. (McIntyre) v Gentoo Group Ltd [2010] EWHC 5 (Admin) at [28]–[36], particularly at [31].
241. [1990] 2 Q.B. 697.
242. Hazell v Hammersmith and Fulham LBC [1990] 2 Q.B. 697, 729–730 (DC; the point was not
dealt with by either the Court of Appeal or the HL).
243. Newbold v Leicester City Council [1999] I.C.R. 1182; Eastbourne BC v Foster [2001] EWCA Civ
1091, [2002] I.C.R. 234; Gibb v Maidstone and Tunbridge Wells NHS Trust [2010] EWCA Civ
678, [2010] I.R.L.R. 786 (not irrationally generous on the facts); Killen v Department of Regional
Development [2010] NIQB 127, [19].
Page 4
244. [1925] A.C. 578.
245. [1925] A.C. 578, 600 (Lord Atkinson). See also at 613 (Lord Wrenbury).
246. [1934] 2 K.B. 415.
247. [1934] 2 K.B. 415, 425 (Scrutton L.J.).
248. Newbold v Leicester City Council [1999] I.C.R. 1182; Gibb v Maidstone & Tunbridge Wells NHS
Trust [2010] EWCA Civ 678, [2010] I.R.L.R. 786 at [6]–[7].
249. [2012] EWCA Civ 1439, [2013] 1 W.L.R. 466.
250. [2012] EWCA Civ 1439 at [37].
251. [1986] Ch. 246, 302–303 and 304 (discussed in detail at paras 10-020—10-026).
252. [2012] EWCA Civ 1439 at [48]-[49].
253. [1997] Q.B. 306
254. Pro-Vision Systems (UK) Ltd v United Lincolnshire Hospital NHS Trust Unreported, February
21, 2014, Judge Waksman QC at [176].
255. [2000] B.L.G.R. 9.
256. [2009] EWHC 460 (Admin).
257. [2012] EWCA Civ 1439 at [49].
258. See further the discussion of this provision at para.11-041.
259. See para.10-027 above.

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(d) - Alternative Contracts Formed by Conduct
Identification of alternative contract
11-038
Where a contract has been found to be ultra vires, it may be possible to infer a different, intra vires
contract, from the dealings between the parties. 260 Thus, in Eastbourne BC v Foster the parties were
an employer and employee who had come to an arrangement in respect of the employee’s early
retirement which involved a “compromise agreement”. Under this agreement, the employee would
continue to work for only three days a week, but at his full salary, until the month of his 50th birthday.
The employee worked for three days per week for the specified period, but the “compromise
agreement” was held to be ultra vires on the grounds of irrational generosity and improper purpose.
261
The Court of Appeal held that whilst the ultra vires contract must be disregarded, the conduct of
the parties showed that a relationship of employment continued to exist between them, and the
employee was entitled to claim for work done on a contractual basis. Unfortunately, the reasoning of
the Court of Appeal is not free from difficulty. The Court relied on the decision in Craven-Ellis v
Canons Ltd, 262 which concerned a quantum meruit claim for the value of services conferred at the
defendant’s request, in which Greer L.J. had been careful to point out that the claim was not
contractual. The Court then went on to cite more recent judicial observations criticising the implied
contract theory of the law of unjust enrichment. However, in the next paragraph of its judgment, Rix
L.J., giving the only full judgment, stated that 263:
“Whether the obligation imposed by law in such a case is normally described as

contractual, quasi-contractual or restitutionary, may not matter for the purposes of this
case, since in any event I would consider that where, as here, the relationship between
the parties is best described as a relationship of employment the law must necessarily
impose a contractual solution. I do not think that this is inconsistent with the parallel
existence of restitutionary remedies. Thus, in this case, it is possible to say that in
contract Mr Foster was entitled to claim reasonable remuneration for the work he did, or
in other words a quantum meruit, while in restitution he was both prima facie obliged to
return the sums he received under the void compromise agreement and at the same time
entitled to a defence of change of position.”
It is submitted that it was very unfortunate that the Court invoked the idea of a “quasi-contractual”
obligation, since it is now widely accepted that “quasicontract” is a misleading and unhelpful label. 264
It is also regrettable that the Court regarded the quantum meruit remedy as “contractual”, since this
blurred the fundamental distinction between claims for breach of contract, and claims in unjust
enrichment. Furthermore, it seems to be rather artificial to regard the employee as having implicitly
contracted to do work for a “reasonable remuneration” when in fact he had expressly agreed to do it
for his full salary. The artificiality of the contractual analysis suggests that greater consideration
should have been given to the possibility of analysing the situation purely in terms of unjust
enrichment. This could have been done by regarding the services provided by the employee as
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having been performed on the understanding, subsequently shown to be incorrect, that a valid
contractual obligation existed for remuneration. In other words, the situation could have been
analysed in terms of failure of basis. 265 This analysis has three advantages over the contractual
analysis. First, it avoids the need to construct a parallel, implicit contract on different terms to the
agreement actually made between the parties. Second, it is a more accurate reflection of what
actually took place. Third, it has the advantage of simplicity, since it eliminates the need to investigate
any potential relationship between claims in contract and for unjust enrichment.
Consequences of alternative contract analysis
11-039
The importance of the contractual analysis in Eastbourne BC v Foster can be seen in Shrewsbury
and Telford Hospital NHS Trust v Lairikyengbam. 266 There the claimant had been employed by the
defendant as a locum consultant cardiologist for a period of nearly three years. The regulations only
permitted the employment of locum consultants for up to 12 months. 267 The Employment Appeal
Tribunal held that the claimant’s employment as a locum consultant beyond the first 12 months had
been ultra vires, but it went on to hold that a relationship of employment had, nevertheless, subsisted
between the claimant and the defendant for the entire period of the defendant’s work. The Tribunal
emphasised that there was no general prohibition on the trust that prevented it from employing the
claimant, and that both parties regarded their relationship as one of employment. 268 It followed,
therefore, that the claimant was an employee for the purposes of the Employment Rights Act 1996,
and was entitled to pursue a claim for unfair dismissal. In this situation, it can be seen that it was
crucial whether the situation was analysed in terms of contract or unjust enrichment: the contractual
analysis entitled the claimant to bring any claims open to an employee; the unjust enrichment analysis
would have entitled him to recover sums reflecting the value of the benefit that his services conferred
on the defendant, but the claim would have rested on the failure of the basis of the transaction. In
other words, on the unjust enrichment analysis there could have been no claim as an employee. It is
possible that the decision in Shrewsbury and Telford Hospital NHS Trust v Lairikyengbam 269 may be
partially explained by a concern not to deprive claimants of their employment rights. However, it rests
on an analytical foundation which is unconvincing.
260. Eastbourne BC v Foster [2001] EWCA Civ 1091, [2002] I.C.R. 234; Shrewsbury and Telford
NHS Hospital Trust v Lairikyengbam [2010] I.C.R. 66. On the formation of contracts by conduct,
see above paras 2-005, 2-029—2-030.
261. See paras 11-035 and 11-036 for discussion of these grounds for holding contractual
arrangements ultra vires.
262. [1936] 2 K.B. 403, cited in [2001] EWCA Civ 1091, [2002] I.C.R. 234 at [41].
263. [2001] EWCA Civ 1091, [2002] I.C.R. 234 at [43].
264.
Westdeutsche Landesbank Girozentrale v Islington BC [1996] A.C. 669, 710 (Lord
Browne-Wilkinson), 718 (Lord Slynn), 720 (Lord Woolf), 738 (Lord Lloyd). See further below,
paras 29-005—29-008; Goff and Jones, The Law of Unjust Enrichment, 9th edn (2016), paras
1-06–1-08. The pioneering work on this subject was undertaken by Peter Birks: see, for
example, Birks (1984) 37 C.L.P. 1, and An Introduction to the Law of Restitution (1985).
265. See paras 29-057 et seq.
266. [2010] I.C.R. 66 (EAT).
267. National Health Service (Appointment of Consultants) Regulations 1996 (SI 1996/701)
reg.5(1)(c).
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268. [2010] I.C.R. 66 at [47].
269. [2010] I.C.R. 66 (EAT).

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(e) - Ultra Vires and Human Rights
Impact of human rights on ultra vires
11-040
In general, parties to transactions held to be ultra vires must have recourse to the law of unjust
enrichment in order to recover any benefits conferred under such transactions. 270 However,
where a public body makes an ultra vires agreement conferring a right to property, the intended
recipient of that property right may also have a remedy for breach of his human rights. 271 According
to European human rights jurisprudence, an ultra vires transaction purporting to confer a property
right gives rise to a legitimate expectation of receiving that right; the legitimate expectation is, in itself,
a possession for the purposes of art.1 Protocol No.1. 272 The right expected to be conferred may be
an interest in property, 273 or it may relate to a component of the property, such as the existence of
planning permission, 274 or the absence of any public navigation right over a stretch of river. 275 What
is recognised as a legitimate expectation for these purposes is not dependent on domestic law
definitions or classifications. 276 Any interference with the right must be for a legitimate aim 277 and
proportionate. 278 The mere fact that the public authority is reverting to its statutory mandate does not
automatically satisfy the tests of justification and proportionality; some form of compensation may be
required. 279 The remedy for infringement of the right to property cannot require the defendant to
confer the property interest which the claimant expected. 280 If it takes the form of compensation, the
European Court of Human Rights has held that the sum awarded should reflect the proportion of the
initial consideration paid that can be attributed to the ultra vires element of the transaction. 281 Such an
award has been said to be based on unjust enrichment 282; as such, it transcends the usual
requirement that restitution is only available for a total failure of consideration. 283
270.
See generally, Ch.29 below, and Goff and Jones, The Law of Unjust Enrichment, 9th edn
(2016), Chs 12–14.
271. art.1 Protocol No.1, European Convention for the Protection of Human Rights and Fundamental
Freedoms; Stretch v United Kingdom (2004) 38 E.H.R.R. 12, (2003) 5 E.H.R.L.R. 554.
272. Pine Valley Developments Ltd v Ireland (1991) 14 E.H.R.R. 319. cf. Al Fayed v AG for Scotland
[2004] S.T.C. 1703 at [120], where it was conceded that a forward taxation agreement, under
which the taxpayer paid a set sum per year, instead of being subject to assessment on actual
transactions, created an expectation that engaged art.1. It is difficult to reconcile this
concession with the requirement that there should be the expectation of a property right.
273. Stretch v United Kingdom (2004) 38 E.H.R.R. 12, (2003) 5 E.H.R.L.R. 554.
274. Pine Valley Developments Ltd v Ireland (1991) 14 E.H.R.R. 319.

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275. Rowland v Environment Agency [2003] EWCA 1885, [2004] 2 Lloyd’s Rep. 55.
276. Beyeler v Italy (2001) 33 E.H.R.R. 1224 at [100]. cf. Al Fayed v AG for Scotland [2004] S.T.C.
1703 at [120], where counsel for the defender reserved the right to argue “if the case went
further” that an expectation under an ultra vires agreement was a nullity and could not,
therefore, give rise to a legitimate expectation. An appeal to the House of Lords was lodged on
January 31, 2005, but was not pursued.
277. e.g. Al Fayed v AG for Scotland [2004] S.T.C. 1703; Eden [2005] B.T.R. 21 (forward taxation
agreement repudiated in order to apply the taxation system equally to all taxpayers). Pine
Valley Developments Ltd v Ireland (1991) 14 E.H.R.R. 319 (annulment of outline planning
permission in order to protect the environment). Quaere, whether the aim of ceasing to act
outside statutory powers should not automatically be regarded as a legitimate aim.
278. e.g. Rowland v Environment Agency [2003] EWCA 1885, [2004] 2 Lloyd’s Rep. 55
(reinstatement of public navigation right carried out so as to cause minimal interference to
riparian owner).
279. Stretch v United Kingdom (2004) 38 E.H.R.R. 12; cf. Pine Valley Developments Ltd v Ireland
(1991) 14 E.H.R.R. 319 (inherently risky nature of property development justified awarding no
compensation where claimant deprived of planning permission).
280. Rowland v Environment Agency [2003] 1 Lloyd’s Rep. 427 at [80] (Lightman J.); expressly
approved by the Court of Appeal [2003] EWCA 1885, [2004] 2 Lloyd’s Rep. 55 at [85] (Peter
Gibson L.J.) and [140] (Mance L.J.).
281. Stretch v United Kingdom (2004) 38 E.H.R.R. 12 at [47]–[50].
282. Rowland v Environment Agency [2003] EWCA 1885, [2004] 2 Lloyd’s Rep. 55 at [88].

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(f) - Statutory Certification
Local Government (Contracts) Act 1997
11-041
The Local Government (Contracts) Act 1997 introduces a new procedure of certification by local
authorities. 284 If a contract is certified, it takes effect “as if the local authority had power to enter into it
(and had exercised that power properly in entering into it)”. 285 In other words, it will be no defence to
an action on the certified contract that the authority lacked capacity to enter it. The certification
requirements must be strictly observed, 286 including the time limits prescribed. 287 The Act sets out a
list of matters that the certificate must contain. 288 Most importantly, the certificate must identify the
power under which the local authority purports to act, 289 and it must state that the contract is within
s.4(3) or s.4(4) of the Act. 290 Section 4(3) states that a contract falls within the subsection:
“… if it is entered into with another person for the provision or making available of
services (whether or not together with assets or goods) for the purposes of, or in
connection with, the discharge by the local authority of any of its functions …” 291
and it operates, or is intended to operate for at least five years. 292 Contracts within s.4(4) essentially
relate to the financing or insurance arrangements connected with contracts within s.4(3). It appears,
therefore, that the certification process applies only to contracts for the provision of services for five
years or more, and contracts ancillary to those contracts, although once a certificate has been issued,
it cannot be invalidated “by reason that anything in the certificate is inaccurate or untrue”. 293 It should
be noted, however, that certification has no effect on either judicial review or audit review 294: a
certified contract may still be held to be of no effect under either of these procedures. 295
284. Local Government Contracts Act 1997 s.1(3). The new procedure also applies (with
amendments) to contracts made by Welsh government authorities: the Government of Wales
Act 2006 (Local Government (Contracts) Act 1997) (Modifications) Order 2007 (SI 2007/1182).
285. Local Government (Contracts) Act 1997 s.2(1).
287. Local Government (Contracts) Act 1997 s.2(3) and s.2(5).
288. Local Government (Contracts) Act 1997 s.3.
289. Local Government (Contracts) Act 1997 s.3(2)(d).

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290. Local Government (Contracts) Act 1997 s.3(2)(c).
291. Local Government (Contracts) Act 1997 s.4(3)(a).
292. Local Government (Contracts) Act 1997 s.4(3)(b).
294. Local Government (Contracts) Act 1997 s.5.
295. See Local Government (Contracts) Act 1997 ss.6 and 7 for the consequences of such a finding.

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Section 4. - Tender Process Contracts
The nature of tender process contracts
11-042
Where a party initiates a process of competitive tendering and tenders are submitted, a contract may
come into existence between the party and the tenderers that governs the manner in which the
competition will be conducted. Such a contract may be based on an express undertaking by the party
inviting tenders, but may also be implied. 296 Thus, in Blackpool and Fylde Aero Club Ltd v Blackpool
BC 297 the Council formally invited six parties to tender for a concession to operate pleasure flights
from the local airport. The invitation to tender specified, amongst other things, the deadline for receipt
of tenders and also stated that no late tenders would be considered. The claimants submitted a
tender before the deadline, but as a result of a careless failure by Council staff to empty the post box
at the town hall, it was treated as late and excluded from consideration. The Court of Appeal held that
a contract should be implied between the parties; one of the terms of that contract was that if a
conforming tender was submitted before the deadline, it would be “opened and considered in
conjunction with all other conforming tenders or at least … will be considered if others are”. 298 While
in principle there seems nothing to prevent the implication of a similar contract where the party inviting
tenders is a private body or person, 299 similar implied contracts are particularly likely to arise when
the invitation is made by a public authority.
296. For an example of an (arguable) express contract see Turning Point Ltd v Norfolk County
Council [2012] EWHC 2121 (TCC).
297. [1990] 1 W.L.R. 1195; noted by Adams and Brownsword (1991) 54 M.L.R. 281, Davenport
(1991) 107 L.Q.R. 201. See also Arrowsmith (2004) 5 P.P.L.R. NA125.
298. Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 W.L.R. 1195, 1202.
299. Though the public character of the defendant was relied on by the plaintiff as support for the
existence of the contract as it had as a matter of public law a duty to comply with its standing
orders (to consider tenders) and a fiduciary duty to ratepayers to act with reasonable prudence
in managing its financial affairs: Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1
W.L.R. 1195, 1201; and Bingham L.J. gave some weight to this: Blackpool and Fylde Aero Club
Ltd v Blackpool BC [1990] 1 W.L.R. 1195, 1202. See further below, para.11-043.

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(a) - Conditions for the Implication of a Tender Process Contract
Legal conditions
11-043
A contract arising out of the tender process will only be implied where both the legal and the factual
matrix permit. So far as the legal matrix is concerned, the implication of a tender process contract
may be precluded by the existence of another legal mechanism regulating the relationship of the
parties. Thus, for instance, in St George Soccer Football Association Inc v Soccer NSW Ltd, 300 the
Supreme Court of New South Wales held that the implication of a tender process contract was
precluded by the fact that the relationship between the parties was already governed by the
constitution of the defendant. It is submitted that this decision reflects English law. The same principle
applies where the tender process is subject to public procurement regulations. 301 If the regulations
apply to the transaction, no tender process contract can be implied, since such a contract would be
both “unnecessary and would, if implied, be inconsistent with the statutory scheme”. 302 Thus, for
instance, a disappointed tenderer who failed to bring a claim under the regulations within the
prescribed three-month time limit could not opt to take advantage of the longer limitation period
applicable to contractual claims. 303 If, on the other hand, the transaction falls outside the scheme of
the regulations, there is nothing to prevent the implication of a contract between the parties under
which the authority promises to consider the tender in good faith. 304
Factual conditions
11-044
Once any legal obstacles to the implication of a tender process contract have been dealt with, the
factual matrix must be examined, in order to ascertain whether the implication of a contract is justified.
The express dealings and discussions between the parties may exclude any such implication. 305 If a
tender process contract has not been negatived, a variety of factors must be assessed. In Blackpool
& Fylde Aero Club Ltd v Blackpool BC 306 it was particularly emphasised that tenders had been
solicited by the invitor, 307 there was a small number of invitees, 308 who were known to the invitor, 309
and the invitation set out a “clear, orderly and familiar” procedure. 310 Some weight was also given to
the fact that the defendant was a local authority. 311 It seems that there is no need to identify a
particular offer or acceptance in the facts (the Court of Appeal in the Blackpool case did not do so) 312;
but it is necessary to show an intention to create legal relations. 313 Subsequent English authorities
have held that tender process contracts have come into existence in similarly formal contexts 314; and
there is Australian authority to support the view that no contract can be inferred where the tender
process is highly informal. 315 Whether such a contract can only be implied where the party inviting
tenders is a public body, is more controversial. As mentioned above, some weight seemed to be
given to the defendant’s status as a public body in the Blackpool case, and a similar emphasis can be
seen in some Commonwealth authorities. 316 However, in J & A Developments Ltd v Edina
Manufacturing Ltd 317 the High Court of Northern Ireland held that the implication of tender process
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contracts was not limited to cases of public authorities. 318 It is submitted that this is the better view:
the fundamental question is whether a tender process contract can be inferred from the parties’
conduct and is consistent with the surrounding legal and factual matrix; such an inference is perfectly
possible where the party inviting tenders is not a public body.
300. [2005] NSWSC 1288.
301. Described in outline below at paras 11-051 et seq.
302. JBW Group Ltd v Ministry of Justice [2012] EWCA Civ 8, [2012] 2 C.M.L.R. 10 at [60]; see also
Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179 (Ch) at [212], J Varney & Sons
Waste Management Ltd v Hertfordshire County Council [2010] EWHC 1404 (QB) at
[232]–[235]. The more ambivalent approach visible in Harmon CFEM Facades (UK) Ltd v
Corporate Officer of the House of Commons (1999) 67 Con. L.R. 1, which seems to have been
to deny an implied contract only where the tenderer had a valid claim under the Regulations (as
opposed to the transaction merely coming within the Regulations) seems to have been
abandoned.
303. JBW Group Ltd v Ministry of Justice [2012] EWCA Civ 8, [2012] 2 C.M.L.R. 10 at [58]–[59];
Montpellier Estates Ltd v Leeds City Council [2013] EWHC 66 (QB) at [465]–[467].
304. JBW Group Ltd v Ministry of Justice [2012] EWCA Civ 8, [2012] 2 C.M.L.R. 10 at [61]–[63].
305. Greville v Venables [2007] EWCA Civ 878 at [36]–[40], per Lloyd L.J.
306. [1990] 1 W.L.R. 1195.
307. Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 W.L.R. 1195 at 1202, per Bingham
L.J.
308. Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 W.L.R. 1195 at 1203, per Stocker
L.J.
L.J.
L.J.
311.
Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 W.L.R. 1195 at 1202, per
Bingham L.J.; Central Tenders Board v White [2015] UKPC 39, [2015] B.L.R. 727 at [28].
312. See similarly the exposition by the Supreme Court of Western Australia in Dockpride Pty Ltd v
Subiaco Redevelopment Authority [2005] WASC 211 at [121], which acknowledged that, in the
tender process context, “a contract may be made without the formalities of offer and
acceptance”. cf. Prime Commercial Ltd v Wool Board Disestablishment Co Ltd [2006] NZCA
295 at [15], where the Court of Appeal of New Zealand asserted that offer and acceptance must
be shown in order for a tender process contract to be created.
313. Blackpool & Fylde Aero Club Ltd v Blackpool BC [1990] 1 W.L.R. 1195 at 1202, per Bingham
L.J. and 1204, per Stocker L.J.
314. Fairclough Building Ltd v BC of Port Talbot (1992) 62 B.L.R. 82; Harmon CFEM Facades (UK)
Ltd v Corporate Officer of the House of Commons (1999) 67 Con. L.R. 1. See also Prime
Commercial Ltd v Wool Board Disestablishment Co Ltd [2006] NZCA 295 at [16]: “the less
formal the tender process, the less scope there is for implying any, or at least any onerous,
obligations on the party calling for tenders”.
Page 3
315. e.g. Hickinbotham Developments Pty Ltd v Woods [2005] SASC 215, (2005) 92 S.A.S.R. 52.
316. Hickinbotham Developments Pty Ltd v Woods [2005] SASC 215, (2005) 92 S.A.S.R. 52 at 57.
See also Samuel (2004) 24 O.J.L.S. 335, 356–357.
317. [2006] NIQB 85.
318. J & A Developments Ltd v Edina Manufacturing Ltd [2006] NIQB 85 at [49].

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(b) - Contents of a Tender Process Contract
The terms of tender process contracts
11-045
The terms of a tender process contract are collected from the language used by the parties and
supplemented by implication. Thus, for instance, an express undertaking by the invitor as to the
grounds on which a tender would be disqualified would be part of the contract. 319 Similarly, the tender
documents might incorporate an otherwise voluntary code of practice; that code will then form part of
the contractual terms. 320 Where it is sought to imply terms, the courts have been cautious, and have
tended to focus on questions relating to the procedure to be followed in the tendering competition. In
Blackpool & Fylde Aero Club Ltd v Blackpool BC, 321 for instance, it was held that whilst there was an
obligation to consider a conforming tender, there was no implied obligation about which tender should
be accepted. 322 Nor, it was said, could there be an implied term that the invitor must accept one of
the tenders that it received. The Court of Appeal also suggested that, on the facts of that case, a term
could be implied not to consider late applications, 323 and not to make a decision before the deadline
for receipt of applications had expired. Similarly, in Fairclough Building Ltd v BC of Port Talbot 324 it
was held that the party inviting tenders could only exclude a conforming tender from consideration on
reasonable grounds, such as a concern about the appearance of bias. On the other hand, there is no
implied term that the competitive process must be free from apparent bias. 325 However, where the
party inviting tenders is a public authority, there is some support for the view that more extensive
terms may be implied. In Harmon CFEM Facades (UK) Ltd v Corporate Officer of the House of
Commons 326 it was said that:
“… it is now clear in English law that in the public sector where competitive tenders are
sought and responded to, a contract comes into existence whereby the prospective
employer impliedly agrees to consider all tenderers fairly (see the Blackpool and
Fairclough cases).” 327
The judge indicated that such contractual obligations derived from the Europeaninspired statutory
procurement Regulations. Those Regulations govern not merely the procedure for considering or
excluding tenders, but also deal with the methods of evaluating bids and selecting a winner. It is
submitted, however, that the decision in the Harmon case should not be seen as imposing implied
terms as to methods of evaluation and selection; rather, it should be read in the light of its facts, which
concerned procedural unfairness, and in the context of its approving reference to the Blackpool and
Fairclough cases. It is submitted that what the decision in the Harmon case establishes is that the
requirements to consider conforming tenders and not to exclude them without reasonable cause are
illustrations of a wider procedural principle to give equal opportunity to all bidders to make their case.
Any wider interpretation would bring the Harmon decision into conflict with the Court of Appeal’s more
recent decision in JBW Group Ltd v Ministry of Justice, 328 where it was held that importing principles
from the regulations into the implied contract between the parties could not be justified in terms of the
traditional tests for implication, such as business efficacy, and would, in effect, be impermissibly using
principles of EU law to alter the way in which contractual terms were implied. 329 A broad general
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principle of procedural fairness may indeed only be applicable to tender processes initiated by public
authorities, on the basis that higher standards of impartiality and fairness can be expected from state
contractors. But, if the law is to reflect the “confident assumptions of commercial parties”, 330 as
Bingham L.J. suggested in the Blackpool case, there seems to be no good reason why such a
general principle of procedural fairness should not apply to all parties. 331
319. Fairclough Building Ltd v Port Talbot BC (1992) 62 B.L.R. 82 at 94, per Nolan L.J.
320. J & A Developments Ltd v Edina Manufacturing Ltd [2006] NIQB 85.
321. [1990] 1 W.L.R. 1195.
322. Blackpool & Fylde Aero Club Ltd v Blackpool BC [1990] 1 W.L.R. 1195 at 1204, per Stocker L.J.
In Harmon CFEM Facades (UK) Ltd v Corporate Officer of the House of Commons (1999) 67
Con. L.R. 1 at [210] Humphrey Lloyd Q.C. commented that the Blackpool case “is perhaps no
more than authority for the proposition that a contracting authority undertakes to consider all
tenders received”.
323. Blackpool & Fylde Aero Club Ltd v Blackpool BC [1990] 1 W.L.R. 1195, 1201, per Bingham L.J.
For criticism see Arrowsmith (1994) 53 C.L.J. 104, 128, who argues that an authority should be
free to accept late tenders “provided that all bidders are treated equally”. However, if all bidders
are treated equally, that seems to be not so much an acceptance after the deadline as a
moving of the deadline. Bingham L.J. seemed to have in mind a situation where only one tender
had been accepted late; that would be a clear case of inequality of treatment.
324. (1992) 62 B.L.R. 82.
325. Pratt Contractors Ltd v Transit New Zealand [2004] B.L.R. 143.
326. (1999) 67 Con. L.R. 1.
327. Harmon CFEM Facades (UK) Ltd v Corporate Officer of the House of Commons (1999) 67 Con.
L.R. 1 at [216].
328. [2012] EWCA Civ 8, [2012] 2 C.M.L.R. 10.
329. [2012] EWCA Civ 8, [2012] 2 C.M.L.R. 10 at [62]–[63].
330. Blackpool & Fylde Aero Club Ltd v Blackpool BC [1990] 1 W.L.R. 1195 at 1201.
331. Arrowsmith (1994) 53 C.L.J. 104, 127 describes any bidder in a competitive tendering process
as “generally expect[ing] only that they will be given a fair opportunity to obtain the contract by
demonstrating that they are able to offer the best value”.

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Section 5. - Estoppel
General principles
11-046
Equitable estoppel may be successfully invoked against the Crown 332 and public authorities, 333 but
not to the same extent that it is available against private parties. There are four restricting factors.
First, estoppel cannot be used to uphold an ultra vires transaction. Second, it cannot be used to
prevent the performance of a statutory duty. Third, estoppel must not prevent or hinder the exercise of
statutory powers. Fourth, estoppel has no role in matters of public law; where the circumstances are
such that they would give rise to an estoppel in private law, they must be dealt with in public law using
the doctrine of legitimate expectation.
Estoppel and ultra vires
11-047
Estoppel cannot prevent an act from being challenged on the ground of ultra vires. 334 For example, in
Rhyl Urban DC v Rhyl Amusements Ltd 335 the Council had granted a succession of leases over
Council land to the defendants in circumstances which would otherwise have estopped the Council
from denying that it had the capacity to do so. However, it was said that “a plea of estoppel cannot
prevail as an answer to a claim that something done by a statutory body is ultra vires”, 336 and the
supposed leases were held invalid.
Estoppel and statutory duty
11-048
Estoppel cannot be used to prevent the performance of a statutory duty, provided that the duty is
imposed by a statute “enacted for the benefit of a section of the public”. 337 In Maritime Electric Co Ltd
v General Dairies Ltd 338 an electricity supplier had undercharged one of its customers by mistake; the
customer had relied on the supplier’s statements as to the amounts due, and there was evidence that
it had suffered detriment as a result of that reliance. However, it was held that no estoppel could be
relied upon, because the supplier, in seeking payment of the full amount, was fulfilling its mandatory,
unconditional statutory duty not to charge “a greater or less compensation for any service” than that
fixed by statute. 339 The Privy Council was careful to limit its reasoning to statutory duties “enacted for
the benefit of a section of the public, that is, on grounds of public policy in a general sense”. 340 It is
difficult to see what kinds of statutory duties would fail to satisfy this test, but their Lordships perhaps
had in mind duties imposed under a private Act of Parliament.
Estoppel and the exercise of statutory powers
11-049
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Estoppel cannot be used to prevent or hinder the exercise of statutory powers. 341 Thus, for instance,
in The Mayor, Aldermen and Burgesses of the Borough of Sunderland v Priestman 342 it was held that
a local authority could not be prevented from exercising its powers in relation to the upkeep of roads
by any prior acts done as private contractors. 343 So far as hindering the exercise of a power is
concerned, it was held in Southendon-Sea Corp v Hodgson (Wickford) Ltd 344 that an estoppel which
prevented the planning authority from adducing evidence in a dispute over the previous use of
premises was not permissible. 345 However, the Court of Appeal also stated that the principle
governing the availability of estoppels against public bodies was analogous to the principle preventing
an authority from fettering its discretion by contract. 346 This indicates that not all estoppels will be held
to hinder the authority’s exercise of its statutory powers; rather, as with the fettering principle, an
assessment must be made of the likely effect of upholding the estoppel. One situation where it would
seem that an estoppel would not hinder the exercise of statutory powers is where an authority treats
an application as validly made, despite it having some purely formal defect. 347
Estoppel and public law
11-050
Where the facts of a case concern a matter of public law, estoppel has no role 348; it cannot be
asserted either by or against the public authority concerned. 349 Any questions which would have
related to estoppel, if the matter had been one of private law, must be dealt with in terms of legitimate
expectation. This is not a mere matter of labelling 350; in particular, any remedies in public law take
into account the interests of the general public, whereas in private law they do not. What marks out an
activity as relating to public law is difficult to define precisely. But it has been said that public law
activities engage the public interest, and have an effect on members of the public who are not parties
to the process to an extent that distinguishes them from private law matters, in which “interests only of
those directly involved must be considered”. 351 The main instances of estoppels being denied on the
basis that the matter relates to public law are in the area of planning control 352; it has also been held
that estoppel could not be relied upon in a dispute over the granting of moorings in a public harbour.
353
The question of a Minister’s authority to issue a commercial guarantee has, by contrast, been held
not to fall within public law; it is governed by the private law principles of agency. 354
332. e.g. Orient Steam Navigation Co Ltd v The Crown (1925) 21 Ll.L. Rep. 301; Street,
Governmental Liability (1953), pp.156–157.
333. e.g. Crabb v Arun DC [1976] Ch. 179.
334. Fairtitle v Gilbert (1787) 2 T.R. 169; Minister of Agriculture and Fisheries v Hulkin Unreported
1948, summarised in Minister of Agriculture and Fisheries v Matthews [1950] 1 K.B. 148,
153–154; Minister of Agriculture and Fisheries v Matthews [1950] 1 K.B. 148; Rhyl Urban DC v
Rhyl Amusements Ltd [1959] 1 W.L.R. 465.
335. [1959] 1 W.L.R. 465.
336. Rhyl Urban DC v Rhyl Amusements Ltd [1959] 1 W.L.R. 465 at 474.
337. Maritime Electric Co Ltd v General Dairies Ltd [1937] A.C. 610 at 620. See also R. v Blenkinsop
[1892] 1 Q.B. 43, 46, per Mathew J.; but quaere whether, if the facts of that case arose today,
the authority would not be regarded as having made a determination as to the rate, which it
would be bound by (Re 56 Denton Road, Twickenham [1953] 1 Ch. 51).
338. [1937] A.C. 610.
339. Maritime Electric Co Ltd v General Dairies Ltd [1937] A.C. 610, 616. Breach of this duty was
punishable by fine.
Page 3
340. Maritime Electric Co Ltd v General Dairies Ltd [1937] A.C. 610, 620.
341. Southend-on-Sea Corp v Hodgson (Wickford) Ltd [1962] 1 Q.B. 416.
342. [1927] 2 Ch. 107.
343. The Mayor, Aldermen and Burgesses of the Borough of Sunderland v Priestman [1927] 2 Ch.
107, 116. See similarly Stockwell v Southgate Corp [1936] 2 All E.R. 1343.
344. [1962] 1 Q.B. 416.
345. Since the case related to planning matters, it would not be dealt with today in terms of estoppel;
rather, as a public law matter, it would be dealt with in terms of legitimate expectation. See
below, para.11-050.
346. Southend-on-Sea Corp v Hodgson (Wickford) Ltd [1962] 1 Q.B. 416, 424. For the principle that
a statutory body cannot fetter its discretion by contract see above paras 11-028—11-032.
347. Wells v Minister of Housing and Local Government [1967] 1 W.L.R. 1000, 1007. Lord Denning
M.R. may have been mistaken in his application of this proposition to the facts of the case: see
R. (Reprotech (Pebsham) Ltd) v East Sussex CC [2003] 1 W.L.R. 348 at [30].
348. R. (Reprotech (Pebsham) Ltd) v East Sussex CC [2003] 1 W.L.R. 348.
349. Stancliffe Stone Co Ltd v Peak District National Park Authority [2004] EWHC 1475 (QB), [2005]
Env. L.R. 4 at [35].
350. R. (Reprotech (Pebsham) Ltd) v East Sussex CC [2003] 1 W.L.R. 348 at [34]; R. (on the
application of Wandsworth LBC) v Secretary of State for Transport Local Government and the
Regions [2003] EWHC 622 (Admin), [2004] 1 P. & C.R. 32 at [22].
351. R. (Reprotech (Pebsham) Ltd) v East Sussex CC [2003] 1 W.L.R. 348 at [6].
352. R. (Reprotech (Pebsham) Ltd) v East Sussex CC [2003] 1 W.L.R. 348; South Bucks DC v
Flanagan [2002] EWCA Civ 690, [2002] 1 W.L.R. 2601; R. (on the application of Wandsworth
LBC) v Secretary of State for Transport Local Government and the Regions [2003] EWHC 622
(Admin), [2004] 1 P. & C.R. 32; Stancliffe Stone Co Ltd v Peak District National Park Authority
[2004] EWHC 1475 (QB), [2005] Env. L.R. 4.
353. Yarmouth (Isle of Wight) Harbour Commissioners v Harold Hayes (Yarmouth Isle of Wight) Ltd
[2004] EWHC 3375 (Ch), [2004] All E.R. (D) 66 (Dec).
354. Marubeni Hong Kong and South China Ltd v Government of Mongolia [2004] EWHC 472
(Comm), [2004] 2 Lloyd’s Rep. 198 especially at [97]–[102] (summarising counsel’s submission
that public law concepts should apply), and [123]–[127] (rejecting that submission). The
question of authority was not challenged on appeal: Marubeni Hong Kong and South China Ltd
v Government of Mongolia [2005] EWCA Civ 395, [2005] 1 W.L.R. 2497 at [6].

Page 1

Section 6. - Public Procurement
(a) - European Union Legislation
11-051
Contracts made by the Crown, by public bodies and by the European Union are subject to
fundamental principles of EU law such as freedom of movement of goods, freedom of establishment
and freedom to provide services. The EU has also made special legislative provision to regulate the
formation of such contracts in a series of Directives, 355 which have been implemented in the United
Kingdom by statutory instruments. 356 The Directives make very detailed provision for every stage
of the contracting process, and require public authorities to base the award of a contract on the “most
economically advantageous tender”. 357
Remedies for failure to follow the contract award procedure commenced after December 20, 2009 358
11-052
Where a contracting authority fails to follow the prescribed procedure, damages can be awarded 359
; in addition, the new Regulations specify three detailed grounds on which a contract that has been
entered into shall be held ineffective, including, for instance, that the authority failed to publish the
required contract notice. 360 If one of those grounds is satisfied, the court must make a declaration
361
of ineffectiveness, unless “overriding reasons” of “general interest” require that the contract
should continue, 362 and it must also impose penalties. 363 A declaration of ineffectiveness
makes the contract “prospectively, but not retrospectively, ineffective as from the time when the
364
declaration is made”. Wherever such a declaration is made, the court must also impose a fine,
payable to the Minister for the Cabinet Office 365 ; if a declaration is denied on the grounds of
overriding general interest, either a financial penalty, a reduction in the duration of the contract, or
both, must be ordered. 366 In addition to these mandatory remedies, the Regulations also permit
the courts to make orders addressing the consequences of declarations of ineffectiveness, such as
“issues of restitution and compensation”. 367
355. The current Directives are Directive 2014/24/EU of the European Parliament and of the Council
of 26 February 2014 on public procurement and repealing Directive 2004/18/EC ([2014] O.J. L
94/65), Directive 2014/25/EU on procurement by entities operating in the water, energy,
transport and postal services sectors and repealing Directive 2004/17/EC ([2014] O.J. L 94/243)
and Directive 2007/66 amending Council Directives 89/665 and 92/13 with regard to improving
the effectiveness of review procedures concerning the award of public contracts [2007] O.J.
Page 2
L335/31.
356.
Public Contracts Regulations 2015 (SI 2015/102) and Utilities Contracts Regulations 2016 (SI
2016/274).
357. 2014/24/EU art.67; 2014/25/EU art.82.
358. For remedies relating to contract award procedures commenced before this date see the 31st
edition of this work at para.10-050.
359.
Public Contracts Regulations 2015 (SI 2015/102) reg.98(2)(c) and Utilities Contracts
Regulations 2016 (SI 2016/274) reg.113(2)(c). See further EnergySolutions EU Ltd v Nuclear
Decommissioning Authority [2017] UKSC 34, [2017] 1 W.L.R. 1373.
360.
Public Contracts Regulations 2015 (SI 2015/102) reg.99 and Utilities Contracts Regulations
2016 (SI 2016/274) reg.114.
361.
Public Contracts Regulations 2015 (SI 2015/102) reg.98(2)(a) and Utilities Contracts
Regulations 2016 (SI 2016/274) reg.113(2)(a).
362.
2016 (SI 2016/274) reg.115.
363.
Public Contracts Regulations 2015 (SI 2015/102) regs 98(2)(b) and 102; Utilities Contracts
Regulations 2016 (SI 2016/274) regs 113(2)(b) and 117.
364.
2016 (SI 2016/274) reg.116.
365.
Public Contracts Regulations 2015 (SI 2015/102) reg.102(7) and Utilities Contracts
Regulations 2016 (SI 2016/274) reg.117(7).
366.
367.

Page 1

Section 6. - Public Procurement
(b) - International and Domestic Procurement Regimes
International agreements
11-053
Various international agreements require the United Kingdom to open its markets to the industry of
particular countries outside the European Union. Such agreements do not, typically, have direct effect
in English law, and may be implemented by conferring on economic entities from those countries the
same rights as would be available to them under the European procurement legislation. For example,
the obligations of Member States under the World Trade Organization Agreement on Government
Procurement will be satisfied by applying the Community Directives on procurement to economic
operators from those countries. 368
Domestic legislation
11-054
Whilst there is no comprehensive domestic legislation dealing with public procurement, there are
certain broad statutory obligations, especially in relation to public authorities, which may affect which
contracts are entered, and on what terms. For instance, the Local Government Act 1999 imposes a
duty on local authorities to:
“… make arrangements to secure continuous improvement in the way in which [their]

functions are exercised, having regard to a combination of economy, efficiency and
value.” 369
Similarly, the Local Government Act 1988 requires local authorities to exercise procurement functions
without regard to certain “non-commercial” matters. 370 This latter obligation will be particularly
significant where the contract in question is not governed by the European public procurement regime
because, for instance, its value falls below the minimum specified threshold.
368. Directive 2014/24 preamble para.(17); Directive 2004/25 preamble para.(27). World Trade
Organization, Revised Agreement on Government Procurement, art.IV.
369. Local Government Act 1999 s.3(1).
370. Local Government Act 1988 s.17.

Page 2

Page 1

Chapter 12 - Political Immunity and Incapacity
Section 1. - Foreign States, Sovereigns, Ambassadors and International
Organisations
Foreign states and sovereigns: the common law rule
12-001
The rule at common law was that no independent foreign state or foreign sovereign could be sued
in an English court without consent. 1 This immunity was derived from rules of public international
law which had become part of English law. 2 The immunity extended both to direct actions against the
state or sovereign and to indirect actions against its property. Formerly, foreign states were afforded
immunity not only with regard to governmental activities but also with regard to their purely
commercial activities. 3 This absolute theory was abandoned by the courts in favour of the more
restricted approach under which immunity did not apply either to an action, whether in rem 4 or in
personam, 5 against a ship belonging to a sovereign state, or one of its organs, if the ship was being
operated as an ordinary trading ship, nor indeed to actions in personam generally in relation to
ordinary commercial activities 6; but did extend to governmental acts, acta iure imperii, of the
sovereign state. 7
Common law and State Immunity Act 1978
12-002
The law of sovereign immunity was largely placed on a statutory basis by the State Immunity Act
1978. 8 The 1978 Act is not, however, a complete code and matters which are excluded from its
scope will be governed by the rules developed by the common law. Thus the 1978 Act excludes
proceedings relating to anything done by or in relation to the armed forces of a state while in the
United Kingdom. 9 Such cases are subject to immunity under the common law rules. 10
Sovereign immunity and human rights
12-003
In Holland v Lampen-Wolfe 11 the House of Lords held that to accord sovereign immunity to the
defendant did not deprive the claimant of a fundamental right of access to the English court under
art.6 of the European Convention on Human Rights since the immunity of a state was an attribute of
the state itself under international law which all other states are, by international law, obliged to
accept. Lord Millett said that the doctrine of state immunity deprived the court of the ability to
determine or adjudicate upon a certain type of dispute and where the doctrine applied, art.6 was not
engaged, because the court had no jurisdiction to exercise in the first place. 12 By contrast, in a series
of cases the European Court of Human Rights has either held or assumed that art.6 is engaged in
such cases but that the application of the principles of state immunity was compatible with art.6 of the
13
Convention. The court maintained that while a limitation on a right of access to a court must
Page 2
pursue a legitimate aim and must be proportionate, according immunity to a state in civil proceedings
was designed to achieve the legitimate aim of complying with international law by promoting comity
and good relations between states through mutual respect for the sovereignty of states. Immunity
which reflected generally held rules of public international law did not amount to a disproportionate
restriction on the right of access to a court since some such restrictions, including those generally
accepted in international law, were inherent. But in Cudak v Lithuania 14 the European Court of
Human Rights decided that the art.6 rights of a Lithuanian secretary and switchboard operator in
Lithuania had been violated by the Lithuanian courts’ refusal to exercise jurisdiction over Poland in
her claim for unfair dismissal: although immunity pursued a legitimate aim, the grant of immunity was
disproportionate in the light of growing agreement that there was no immunity for employment claims
by non-nationals. In Jones v Ministry of the Interior of the Kingdom of Saudi Arabia 15 the House of
Lords assumed that art.6 of the Convention was engaged, as decided by the European Court of
Human Rights in the above cases, but held that according sovereign immunity to the state and its
servants, agents, officials or functionaries in respect of civil claims arising out of alleged acts of torture
committed in the state was not disproportionate as inconsistent with a peremptory norm of
international law. 16 Lord Bingham of Cornhill, however, had reservations as to whether art.6 was
engaged at all, since the rule of international law is not that a state should not exercise over another
state a jurisdiction which it has, but that save in cases recognised by international law, of which this
case was not an example, a state has no jurisdiction over another state: it was therefore difficult to
accept that a state had denied access to its court if it had no access to give. 17 In Benkharbouche v
Secretary of State for Foreign and Commonwealth Affairs, 18 the Supreme Court, like the Court of
Appeal below, preferred not to choose between the competing approaches, but noted that Lords
Millett’s and Bingham’s views were compelling or powerfully made. In this case, the Supreme Court
held that ss.4(2)(b) and 16(1)(a) of the State Immunity Act 1978 to the extent that they were relied on
in the claims before the Court were incompatible with art.6 and, in the case of s.4(2)(b), art.14 of the
Human Rights Convention, because they did not reflect a principle of international law.
State Immunity Act 1978
12-004
The Act 19 applies both to cases where the question of the immunity of a foreign state arises
directly in the proceedings as where the state is named as a defendant, and also to the common case
of “indirect impleading”, as where an action between two other parties puts the title to the state’s
20
goods in issue. The basic principle of the Act is that a foreign state is immune from the
jurisdiction of the English courts 21 whether or not it appears in the proceedings, 22 and the issue of
immunity must be decided as a preliminary issue before the substantive action can proceed. 23 This
immunity applies to any foreign or Commonwealth state, other than the United Kingdom, to the
sovereign or other head of state in his public capacity and to the government or any department of
that state. 24 It also applies to a “separate entity”, such as a state corporation, not being a
department of the state, where proceedings relate to something done by the separate entity in the
exercise of sovereign authority and the state itself would have been immune. 25 It will be for the
courts to develop criteria for determining what constitutes a separate entity. It is suggested, however,
that the notion of separate entity does not extend to any agent of a foreign state. Rather, it should be
regarded as limited to an entity owned or controlled by the foreign state since it is only if such
ownership or control exists that an entity can realistically be regarded as capable of doing something
in the exercise of sovereign authority. 26
12-005
To the general principle of immunity there are several important and wide-ranging exceptions. The
most important is that there is no immunity for a state’s commercial transactions, 27 thus
confirming the judicial developments confining the common law rule to acta iure imperii, though it may
still be difficult to determine in any particular case the dividing line between commercial and
governmental activity. 28 The funds in the bank account of a state’s London embassy have been
Page 3
considered not to be used for commercial purposes. 29 If a State grants a lease of its premises to a
privately owned company to which the State outsources consular activities such as the handling of
passport and visa applications, the property is not being used for commercial purposes within the
meaning of s.13(4) of the 1978 Act. 30 There is no immunity for contractual obligations (whether
arising out of a commercial transaction or not) to be performed in the United Kingdom 31; or in the
case of contracts of employment made or to be performed in the United Kingdom 32 ; or as to
claims for personal injury or damage to property caused by misconduct in the United Kingdom 33; or in
proceedings relating to immovables in the United Kingdom 34 or to an interest in other property by way
of succession, gift or bona vacantia 35; or in the case of proceedings relating to various forms of
intellectual property 36; or the administration of estates or trusts, or insolvency, even though a state
may claim an interest in the property 37; or where a state is a member of a corporate or
unincorporated body constituted under United Kingdom law or controlled from the United Kingdom 38;
or in relation to various tax claims 39; or as to claims arising from use of ships for commercial
purposes 40 (again confirming an important common law development); or, finally, where the state has
submitted to the jurisdiction of our courts. 41 Such immunity may not be relied on by persons in
proceedings provided for under the International Criminal Court Act 2001 where that immunity arises
by reason of a connection with a State party to the Statute of the International Criminal Court, done at
Rome on July 17, 1998. 42
12-006
The 1978 Act also deals with a variety of procedural matters, such as service of process on a
foreign state. 43 Power is given to restrict or extend the Act’s immunities and privileges by Order in
Council in relation to individual foreign states 44; and provision is also made for the recognition here of
foreign judgments involving the United Kingdom as a foreign state. 45 A certificate from the Secretary
of State is conclusive evidence on the question as to whether for the purposes of the Act any country
is a state, is part of a federal state and as to the person or persons to be regarded as the head or
government of a state. 46
Acts of sovereign states
12-007
In addition to the law relating to the immunity of foreign states or sovereigns, there are other
circumstances in which an English court will decline to entertain proceedings involving sovereign
states. 47 Under the “act of state” doctrine, the courts have no jurisdiction to investigate the propriety
of an act of the Crown 48 performed in the course of its relations with a foreign state 49 and the concept
of “act of state” may extend to cover acts authorised or ratified by the Crown in the exercise of
sovereign power. 50 In Rahmatullah v Ministry of Defence, 51 the Supreme Court explained the
application of the doctrine which rendered Crown Acts of State as non-justiciable, namely that (1) the
act should be an exercise of sovereign power, inherently governmental in nature; (2) the act should
be done outside the United Kingdom; (3) the act should be done with the prior authority or
subsequent ratification of the Crown; and (4) the act should be done in the conduct of the Crown’s
relations with other states or their subjects. Furthermore, English courts have no jurisdiction, it
appears, to investigate the propriety of the acts of a foreign sovereign state recognised by Her
Majesty’s Government, where the act is performed on the territory of that state. 52 The principle of
non-justiciability under the “act of state” doctrine may also extend to the acts of a foreign sovereign
state performed on territory other than its own territory. 53 Indeed, there is now established a
general principle that “the courts will not adjudicate upon the transactions of foreign sovereign states”
(i.e. non-commercial transactions)—a principle which calls in such cases for “judicial restraint or
abstention”. 54 In Belhaj v Straw, 55 the Supreme Court analysed the Act of State doctrine in
the context of its application to foreign sovereign nations and, in so doing, identified separate strands
or rules of the doctrine: (1) a foreign state’s legislation will normally be recognised and treated as
Page 4
valid, so far as it affects movable or immovable property within the foreign state’s jurisdiction; (2) a
domestic court will not normally question the validity of any sovereign act in respect of property within
the foreign state’s jurisdiction, at least in times of civil disorder; (3) a domestic court will treat as
non-justiciable, meaning that it would abstain or refrain from adjudicating upon or questioning, certain
categories of sovereign act by a foreign state abroad, even if they occur outside the foreign state’s
jurisdiction. Further, the doctrine does not apply where there is no challenge to the validity or
lawfulness of an act of a foreign state. 56 This principle does not, however, preclude an English
court from ever taking cognisance of international law or from ever considering whether a violation of
international law has occurred. 57 Thus, in appropriate circumstances, it is legitimate for an English
court to have regard to the content of international law in deciding whether to recognise a foreign law
on the grounds of public policy. 58 Further, the principle does not mean that the court must shut its
eyes to a breach of an established principle of international law committed by one state against
another when the breach is plain, since in such cases the standards being applied to adjudicate on
the issues are clear and manageable and do not call for the exercise of judicial self-restraint. 59
Unlike sovereign immunity, the principle of non-justiciability under the “act of state” doctrine is not
capable of being waived, because it is a matter going to the substantive jurisdiction of the Court. 60
Foreign heads of state, ambassadors and their staffs
12-008
The immunity from suit of foreign ambassadors and members of their staffs is conferred by the
Diplomatic Privileges Act 1964, 61 which enacts as part of the law of the United Kingdom certain
articles of the Vienna Convention on Diplomatic Relations (1961). These articles are set out in Sch.1
to the Act. Where a foreign sovereign or other head of a recognised state acts in his public capacity,
effectively as the embodiment of the state, he is entitled to all the immunities which the state has
under the State Immunity Act 1978. 62 When acting in a private capacity, however, such a foreign
sovereign or other head of a recognised state is entitled to the immunities, with certain appropriate
modifications, which are conferred by the Diplomatic Privileges Act 1964, since the 1978 Act extends
those immunities to such persons. 63
12-009
The immunity from suit of the chief representatives in the United Kingdom of countries of the
Commonwealth and of the Republic of Ireland, and of members of their staffs, formerly depended on
s.1(1) of the Diplomatic Immunities (Commonwealth Countries and Republic of Ireland) Act 1952. But
that subsection has been repealed 64 and such immunity now depends on the Diplomatic Privileges
Act 1964, i.e. on the Vienna Convention. 65
Categories of persons entitled to diplomatic immunity
12-010
The Convention divides persons entitled to diplomatic immunity into three categories 66 : (1)
“diplomatic agents”, namely, the head of the mission and members of his diplomatic staff; (2)
“members of the administrative and technical staff”, e.g. persons employed in secretarial, clerical,
communications and public relations duties; and (3) “members of the service staff”, namely, members
of the staff of the mission in its domestic service.
Diplomatic agents
12-011
Page 5
Diplomatic agents enjoy immunity from criminal, civil 67 and administrative jurisdiction and from
execution, except in three cases: (a) a real action relating to private immovable property situated in
the United Kingdom (unless the property is held for the purposes of the mission, 68 and this does not
include a diplomatic agents private residence) 69; (b) an action relating to succession in which the
diplomatic agent is involved as executor, administrator or beneficiary as a private person; and (c) an
action relating to any professional or commercial activity exercised by the diplomatic agent outside his
official functions. 70 A like immunity is conferred on the members of the family of a diplomatic
agent forming part of his household. 71 The Diplomatic Privileges Act 1964 applies only to permanent
diplomatic missions; the status of special or ad hoc missions is a matter for the common law. 72
Diplomatic premises
12-012
The actual premises of a diplomatic (or consular mission) are inviolable, 73 as is the private residence
of a diplomatic agent, 74 despite the fact that a diplomatic agent may not enjoy immunity from suit in
respect of it. 75 However, the inviolability of diplomatic premises only applies to ones which are
currently so used 76; and the Diplomatic and Consular Premises Act 1987 gives the Secretary of State
power to determine whether land has diplomatic or consular status.
Administrative, technical and service staff
12-013
The members of the administrative and technical staff of the mission, together with their families
forming part of their respective households, and the members of the service staff of the mission, enjoy
a like immunity, but with the important qualification that the immunity does not extend to acts
performed outside the course of their duties. 77
Period of immunity
12-014
Every person entitled to immunity from jurisdiction enjoys it from the moment he enters the United
Kingdom to take up his post or, if he is already there, from the moment when his appointment is
notified to the department of the Secretary of State concerned. 78 In the former case it would not
seem necessary, in addition, that his appointment be notified to, or accepted by, the department of
the Secretary of State concerned. 79 He can claim the immunity even if he only became entitled to
it after the issue of the claim form. 80 When his functions come to an end, his immunity normally
ceases at the moment when he leaves the country, or on the expiry of a reasonable period in which to
do so 81; but it continues to subsist in the case of acts performed in the exercise of his functions. 82 If a
claim form is issued before immunity has ceased, then provided it has not been struck out, the
proceedings may continue once the immunity has come to an end. 83 If he dies, the members of his
family continue to enjoy the immunity to which they were entitled until the expiry of a reasonable
period in which to leave the country. 84 The running of the Statute of Limitations is suspended during
such time as the defendant enjoys diplomatic immunity. 85
Certificate of entitlement
12-015
If in any proceedings any question arises whether or not any person is entitled to diplomatic
Page 6
immunity, a certificate issued by or under the authority of the Secretary of State stating any fact
relating to the question is conclusive evidence of that fact. 86
British citizens
12-016
Diplomatic immunity is restricted if the person entitled to it is a British citizen, a British Dependent
Territories citizen or a British Overseas citizen. 87 Diplomatic agents who are such citizens or are
permanently resident in the United Kingdom only enjoy immunity from jurisdiction in respect of official
acts performed in the exercise of their functions, except in so far as additional immunities may be
granted by the receiving state. 88 Other members of the staff of the mission and private servants of
members of the mission who are such citizens or are permanently resident in the United Kingdom
enjoy immunities only to the extent admitted by the receiving state. 89 The “extent admitted by the
receiving state” and the “additional immunities” here referred to mean such as may be specified by
Order in Council. 90 Members of the family of diplomatic agents or of members of the administrative or
technical staff, or members of the service staff of the mission, enjoy no immunity from jurisdiction if
they are British, British Dependent Territories or British Overseas citizens or are permanently resident
in the United Kingdom. 91
Consular immunity
12-017
The regulation of consular immunity so far as foreign consuls and their staffs are concerned is
governed by the Consular Relations Act 1968 92 giving effect to certain articles of the Vienna
Convention on Consular Relations 1963. In the case of civil proceedings, consular officers, who are
defined as “any person, including the head of a consular post, entrusted in that capacity with the
exercise of consular functions”, 93 and consular employees, who are any persons “employed in the
administrative or technical service of a consular post”, 94 shall not be amenable to the jurisdiction of
the courts of this country in respect of acts performed in the exercise of consular functions. This
immunity shall not apply, in the case of a contractual action, where such officer or employee did not
contract expressly or impliedly as an agent of his sending state or in the case of an action by a third
party for damage arising from an accident in the United Kingdom caused by a vessel, vehicle or
aircraft. 95 Special provision is made for the fact that immunity from civil jurisdiction shall not be
accorded to consular employees who carry on private gainful occupation in the United Kingdom. 96
The position of officers from the Commonwealth and the Republic of Ireland who perform duties
substantially similar to those performed by consular officers from foreign countries is governed by the
Consular Relations Act 1968 97 and Orders in Council made thereunder.
International organisations
12-018
The International Organisations Acts 1968 98 and 1981, which replaced the International
Organisations (Immunities and Privileges) Act 1950, empower the Crown by Order in Council to
confer complete immunity from suit and legal process 99 upon any international organisation of which
the United Kingdom and any other Sovereign power are members, 100 and to confer the like immunity
from suit and legal process as is accorded to the head of a diplomatic mission upon representatives
of the organisation or representatives of a member of any organs or committees of the organisation,
and upon specified high officers of the organisation and persons employed by or serving on the
organisation as experts or as persons engaged on missions for the organisation. 101 Similar immunity
extends to the members of the official staff of such representatives, provided they are recognised as
holding a rank equivalent to that of diplomatic agent, 102 and to the members of the family forming part
of the household of such representatives, high officers and members of their official staffs holding
diplomatic rank. 103 A limited immunity from suit extending only to things done or omitted to be done in
the course of the performance of official duties is conferred upon specified subordinate officers and
Page 7
servants of the organisation 104 and upon members of the administrative or technical service of the
representative 105 and members of their families forming part of their households. 106 However, no
such immunities may be conferred on any person as the representative of the United Kingdom or as a
member of his staff. 107
Other persons entitled to immunity
12-019
Special provision is made in the Acts of 1968 and 1981 for conferring immunity on officers of
specialised agencies of the United Nations, 108 and on other organisations of which the United
Kingdom is not a member, 109 including international commodity organisations. 110 The Acts further
provide for the grant of immunity from suit to the judges and registrars of any international tribunal
and to parties to any proceedings before any such tribunal and to their agents, advisers or advocates
and to any witnesses in or assessors for the purposes of any proceedings before any international
tribunal, 111 and for the grant of similar immunity to the representatives of foreign states and their
official staffs attending conferences in the United Kingdom. 112 (The Diplomatic Immunities
(Conferences with Commonwealth Countries and the Republic of Ireland) Act 1961 113 makes similar
provision for representatives of the Commonwealth and of the Republic of Ireland and their official
staff attending conferences in the United Kingdom.) Orders in Council have been made applying the
Acts of 1950, 1968 and 1981 to a large number of organisations and (in most cases) to their
representatives, officers, etc. 114 Any Order in Council made under the 1950 Act in force at the time of
the passage of the 1968 Act shall continue to have effect, notwithstanding the repeal of the 1950 Act,
until revoked or varied. 115 Special statutes, or Orders in Council made thereunder, confer immunity
from suit on a number of international organisations and their representatives in the United Kingdom.
116
The immunities of major international organisations of which the United Kingdom is a member,
such as the United Nations, the European Union 117 and the Council of Europe, and of persons
employed by or connected with such organisations, are provided for in a variety of separate
international agreements. 118
Waiver of immunity: common law
12-020
At common law, both sovereign 119 and diplomatic 120 immunity could be waived by or on behalf
of the foreign state concerned. But the doctrine was confined within narrow limits. In the first place,
there could be no waiver except with full knowledge of the right and with the authority of the foreign
sovereign or ambassador. 121 Secondly, waiver had to take place at the time when the court was
asked to exercise jurisdiction 122: it could not be inferred from a prior contract to submit to the
jurisdiction of the court, 123 nor from the agreement to submit to arbitration, 124 nor even from an
application to the court to set aside an arbitration award, 125 nor (semble) could it take place after
judgment had been pronounced. 126
Submission to jurisdiction
12-021
The State Immunity Act 1978 now makes express provision for a state to submit to the jurisdiction
of the court and thereby waive its state immunity, but such waiver does not exclude the assertion of
absolute privilege 127 nor does submission to the adjudicative jurisdiction of the courts necessarily
imply submission to the enforcement jurisdiction of the courts. 128 There are detailed rules as to
what constitutes submission 129 but one of their main effects is to free the doctrine of waiver from its
narrow common law limits. Submission may, under the Act, be by prior written agreement and is
permitted after a dispute has arisen. 130 A state is also deemed to submit if it institutes the
proceedings 131 or if it intervenes, or takes any step, in proceedings unless it does so in reasonable
Page 8
ignorance of facts entitling it to immunity and immunity is then claimed as soon as reasonably
practicable. 132 However, intervention merely to claim immunity or to assert an interest in property in
circumstances where the state would have been entitled to immunity in any proceedings brought
against it does not constitute submission. 133 A contractual waiver of immunity, without any
submission to the jurisdiction of the court, is not a submission for the purposes of the Act 134; nor is
submission to be deduced from a choice of law clause. 135 Submission extends to any appeal, but not
to any counterclaim unless it arises out of the same legal relationship or facts as the claim. 136 The
head of a state’s diplomatic mission is deemed to have authority to submit on behalf of the state, 137
as is any person who entered into a contract on behalf of the state in respect of proceedings arising
out of the contract. 138 Once submission to the jurisdiction is established, the waiver of state immunity
is irrevocable. 139 Submission to the jurisdiction is not submission to execution, though such process
may be issued with the written consent of the state. 140
Waiver of diplomatic or consular immunity
12-022
The Diplomatic Privileges Act 1964 141 and the Consular Relations Act 1968 142 provide that diplomatic
and consular immunity may be waived by the sending state; and both Acts provide that a waiver by
the head or acting head of the mission is deemed to be a waiver by that state. 143 Waiver must always
be express, except that the initiating of proceedings precludes the claimant from invoking immunity
from jurisdiction in respect of any counterclaim directly connected with the principal claim. But though
waiver must be express, there is no requirement under the Acts (as there was at common law 144) that
it must take place at the time when the court is asked to exercise jurisdiction. The better view, it is
submitted, is that there is no such requirement since although waiver is not defined, the term in both
Acts is derived from international conventions and should not, therefore, be given the narrow
interpretation attributed to it at common law. 145 Unfortunately, however, it has been held that
diplomatic immunity cannot be waived by contract inter partes but only by an undertaking or consent,
given when the court is asked to exercise jurisdiction, 146 a regressive view which, it is submitted,
should not be followed. 147 Waiver of immunity from jurisdiction in civil or administrative proceedings
does not imply waiver of immunity in respect of the execution of the judgment, for which a separate
waiver is required. 148
Waiver of other statutory immunities
12-023
The possibility of waiver of the immunity is specifically provided for in Orders in Council made under
the International Organisations Act 1968, 149 and in the Commonwealth Secretariat Act 1966, 150 and
the Arbitration (International Investments Disputes) Act 1966. 151
1.
Duke of Brunswick v King of Hanover (1844) 6 Beav. 1, (1848) 2 H.L.C. 1. The immunity is
not available to a State before its own Courts: Iraqi Civilians v Ministry of Defence (No.2) [2016]
UKSC 25, [2016] 1 W.L.R. 2001 at [11].
2. The Christina [1938] A.C. 485, 490; Thai-Europe Tapioca Services Ltd v Government of
Pakistan [1975] 1 W.L.R. 1485. On the current position in public international law, see
Jurisdictional Immunities of the State (Germany v Italy: Greece intervening) (International Court
of Justice, February 3, 2012, available at http://www.icj-cij.org). As to the international law of
diplomatic privilege being applied as part of the common law, see Triquet v Bath (1764) 3 Burr.
1478, 1480–1481.
3. The Porto Alexandre [1920] P. 30; The Christina [1938] A.C. 485, 490; Kahan v Pakistan
Federation [1951] 2 K.B. 1003; Baccus S.R.L. v Servicio Nacional del Trigo [1957] 1 Q.B. 438.
Page 9
4. The Phillippine Admiral [1977] A.C. 373.
5. I Congreso del Partido [1983] 1 A.C. 244, 261.
6. Trendtex Trading Corp v Central Bank of Nigeria [1977] Q.B. 529; Hispano Americana Mercantil
SA v Central Bank of Nigeria [1979] 2 Lloyd’s Rep. 277; Planmount Ltd v Republic of Zaire
[1981] 1 All E.R. 1110; I Congreso del Partido [1983] 1 A.C. 244, 261–262; Alcom Ltd v
Republic of Columbia [1984] A.C. 580, 598–599; La Generale des Carrieres et des Mines v FG
Hemisphere Associates LLC [2012] UKPC 27, [2013] 1 All E.R. 409.
7. I Congreso del Partido [1983] 1 A.C. 244, 262, 272, 276; Sengupta v Republic of India [1983]
I.C.R. 221; Littrell v Government of the United States (No.2) [1995] 1 W.L.R. 82. For discussion
of the changes, see J.H. Rayner (Mincing Lane) Ltd v Dept of Trade and Industry [1989] Ch. 72,
affirmed without reference to these points, [1990] 2 A.C. 418; La Generale des Carrieres et des
Mines v FG Hemisphere Associates LLC, above.
9. State Immunity Act 1978 s.16(2).
10. Littrell v Government of the United States (No.2) [1995] 1 W.L.R. 82; Holland v Lampen-Wolfe
[2000] 1 W.L.R. 1573. Since the 1978 Act is not retrospective (s.22(3)) it will only apply to
matters which occurred after it entered into force (November 1978) but it is now most unlikely
that matters which occurred before that date, which would be governed by the common law, will
arise in practice. cf. Planmount Ltd v Republic of Zaire [1981] 1 All E.R. 1110; Sengupta v
Republic of India [1983] I.C.R. 221. See also Bat v Germany [2011] EWHC 2029 (Admin),
[2013] Q.B. 349, noted by Sanger (2013) 62 I.C.L.Q. 193.
11. [2000] 1 W.L.R. 1573. See also Matthews v Ministry of Defence [2003] UKHL 4, [2003] 1 A.C.
1163.
12. [2000] 1 W.L.R. 1573, 1588.
13.
Fogarty v United Kingdom (2002) 34 E.H.R.R. 302; Al-Adsani v United Kingdom (2002) 34
E.H.R.R. 273, arising out of Al-Adsani v Government of Kuwait, The Times, March 29, 1995,
107 Int. L.R. 536; McElhinney v Ireland (2002) 34 E.H.R.R. 322, arising out of McElhinney v
Williams [1996] 1 I.L.R.M. 276. See Kloth, Immunities and the Right of Access to Court under
Article 6 of the European Convention on Human Rights (2010); Fox (2001) 117 L.Q.R. 10;
Garnett (2002) 118 L.Q.R. 367; Voyiakis (2003) 52 I.C.L.Q. 297; Lloyd Jones (2003) 52 I.C.L.Q.
463; Yang (2003) 74 B.Y.I.L. 333; Garnett (2005) 54 I.C.L.Q. 705; See also Bat v Germany,
above; Sanger, above; Reyes v Al-Malki [2017] UKSC 61; Sanger [2014] C.L.J. 1.
14. (2010) 51 E.H.R.R. 15; see also Sabah El Leil v France [2010] E.C.H.R. 1055.
15. [2006] UKHL 26, [2007] 1 A.C. 270. The European Court of Human Rights came to the same
conclusion: Jones v United Kingdom [2014] E.H.R.R. 1, applying the decision of the
International Court of Justice in Jurisdictional Immunities of the State (Germany v Italy: Greece
intervening), February 3, 2012. cf. Mahamdia v Algeria (C-154/11) [2013] I.C.R. 1. See
Seymour [2006] C.L.J. 479; Ranganathan [2015] C.L.J. 16. See Belhaj v Straw [2017] UKSC 3,
[2017] 2 W.L.R. 456, [11(v)], [108]–[109] (Lord Mance), [258]–[268] (Lord Sumption).
16. Although international law had established universal criminal jurisdiction in respect of torture,
there is as yet no universal civil jurisdiction in respect of torture: [2006] UKHL 26 at [19]–[34].
17. [2006] UKHL 26 at [14]. See, to the same effect, Lord Hoffmann at [64] and Holland v
Lampen-Wolfe [2000] 1 W.L.R. 1573, 1588, per Lord Millett. See also AIG Capital Partners Inc
v Republic of Kazakhstan [2005] EWHC 2239 (Comm), [2006] 1 W.L.R. 1420 (restriction on the
right of a party to enforce a judgment against a central bank—see State Immunity Act 1978
s.14(4)); Grovit v Nederlandsche Bank [2005] EWHC 2944 (QB), [2006] 1 W.L.R. 3323
(according immunity to employees of immune central bank is legitimate and proportionate;
Page 10
affirmed on other grounds, [2007] EWCA Civ 712, [2008] 1 W.L.R. 51). cf. Cudak v Lithuania
(2010) 51 E.H.R.R. 15, above. See also Taurus Petroleum Ltd v State Oil Marketing Co of the
Ministry of Oil, Iraq [2015] EWCA Civ 835 at [49]–[52]. See also Aziz v Aziz [2007] EWCA Civ
712, [2008] 2 All E.R. 501. In Lechouritou v Dimosio tis Omospondiakis Dimokratias tis
Germanias (C-282/05) [2007] E.C.R. I–1519 the European Court of Justice found it
unnecessary to decide whether immunity was compatible with the Brussels Convention on
Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968. In Grovit
v Nederlandsche Bank it was held at first instance that immunity was compatible, but the point
was not decided by the Court of Appeal. See also Entico Corp Ltd v UNESCO [2008] EWHC
531 (Comm), [2008] 1 Lloyd’s Rep. 673 (immunity of international organisation).
18.
[2015] EWCA Civ 33, [2015] H.R.L.R. 3 at [16]; [2017] UKSC 62 at [30]. See also
Ogelegbanwei v President of the Federal Republic of Nigeria [2016] EWHC 8 (QB) at [21]–[26];
Al Attiya v Al Thani [2016] EWHC 212 (QB) at [82]; Reyes v Al-Malki [2017] UKSC 61.
19. Implementing the 1972 European Convention on State Immunity: Cmnd.5081, though the Act is
more extensive in scope. For discussion and references to relevant literature (which is copious)
see Dicey, Morris and Collins on the Conflict of Laws, 15th edn (2012), paras 10-002 et seq.:
Cheshire, North and Fawcett, Private International Law, 14th edn (2008), pp.491–510; Fox, The
Law of State Immunity, 3rd revised edn (2015). See also United Nations Convention on
Jurisdictional Immunities of States and their Property (December 2004, not yet in force). For the
text of the Convention see (2005) 44 Int. Leg. Mat. 803. Although not in force the Convention
has been regarded as a strong indicator of international thinking on questions of sovereign
immunity: see AIG Capital Partners Inc v Republic of Kazakhstan [2005] EWHC 2239 (Comm),
[2006] 1 W.L.R. 1420; Jones v Ministry of the Interior of the Kingdom of Saudi Arabia [2006]
UKHL 26, [2007] 1 A.C. 270; Koo Golden East Mongolia v Bank of Nova Scotia [2007] EWCA
Civ 1443, [2008] Q.B. 717; NML Capital v Argentina [2011] UKSC 31, [2011] 2 A.C. 495; Cudak
v Lithuania (2010) 51 E.H.R.R. 15; Jurisdictional Immunities of the State (Germany v Italy:
Greece intervening) (International Court of Justice, February 3, 2012), available at
http://www.icj-cij.org. For comment on the Convention, see Denza (2006) 55 I.C.L.Q. 395; Fox
(2006) 55 I.C.L.Q. 399; Gardiner (2006) 55 I.C.L.Q. 407; Hall (2006) 55 I.C.L.Q. 411; Dickinson
(2006) 55 I.C.L.Q. 427; McGregor (2006) 55 I.C.L.Q. 437.
20.
e.g. The Parlement Belge (1880) L.R. 5 P.D. 197; United States of America and Republic of
France v Dollfus Mieg et Cie SA and Bank of England [1952] A.C. 582. On the scope of the Act
in respect of immunity from taxation, see R. v IRC Ex p. Camacq Corp [1990] 1 W.L.R. 191 and
below, para.12-005. However, the concept of “indirect impleading” would not extend beyond
proceedings relating to property: Belhaj v Straw [2014] EWCA Civ 1394, [2015] 2 W.L.R. 1105;
Rahmatullah v Ministry of Defence [2014] EWHC 3846 (QB) at [45]–[70], [2015] EWCA Civ 843.
In this case, Leggatt J. said at [66] “I cannot see any justification for extending state immunity to
proceedings against a third party which merely create a risk of future proceedings against the
foreign state”. In Belhaj v Straw [2017] UKSC 3, [2017] 2 W.L.R. 456 at [12]–[31] (Lord Mance),
the Supreme Court affirmed the decision of Leggatt J.
21.
The principle of immunity also precludes registration in England of a foreign judgment against
a foreign state under the Administration of Justice Act 1920: see AIC Ltd v Federal Government
of Nigeria [2003] EWHC 1357 (QB). Civil Jurisdiction and Judgments Act 1982 s.31, as to which
see NML Capital Ltd v Argentina [2011] UKSC 31, [2011] 2 A.C. 495. See also LR Avionics
Technologies Ltd v Federal Republic of Nigeria [2016] EWHC 1761 (Comm), [2016] 4 W.L.R.
120.
22. 1978 Act s.1. See United Arab Emirates v Abdelghafar [1995] I.C.R. 65; Malaysian Industrial
Development Authority v Jeyasingham [1998] I.C.R. 307; Military Affairs Office of the Embassy
of the State of Kuwait v Caramba-Coker (EAT/1054/02/RN, April 10, 2003); Koo Golden East
Mongolia v Bank of Nova Scotia [2007] EWCA Civ 1443, [2008] Q.B. 717; ETI Euro Telecom
International NV v Republic of Bolivia [2008] EWCA Civ 880, [2009] 1 W.L.R. 665. The burden
of proof is upon the party asserting that the state is subject to the jurisdiction of the English
court: Donegal International Ltd v Zambia [2007] EWHC 197 (Comm), [2007] 1 Lloyd’s Rep.
397.
Page 11
23. J.H. Rayner (Mincing Lane) Ltd v Dept of Trade and Industry [1989] Ch. 72, 194–195, 252,
affirmed without reference to this point, [1990] 2 A.C. 418: A Co Ltd v Republic of X [1990] 2
Lloyd’s Rep. 520, 525; Aziz v Republic of Yemen [2005] EWCA Civ 754, [2005] I.C.R. 1391;
ETI Euro Telecom International NV v Republic of Bolivia [2008] EWCA Civ 880, [2009] 1 W.L.R.
665. See also Mauritius Tourism Promotion Authority v Wong Min (UKEAT/0186/08/LA
November 24, 2008) (EAT). A claim to immunity should be heard in public: Harb v King Fahd
Bin Abdul Aziz [2005] EWCA Civ 632, [2006] 1 W.L.R. 578. See also Aziz v Aziz [2007] EWCA
Civ 712, [2008] 2 All E.R. 501.
24.
s.14. See Propend Finance Pty Ltd v Sing, The Times, May 2, 1997, 111 Int. L.R. 111; Bank
of Credit and Commerce International (Overseas) Ltd v Price Waterhouse [1997] 4 All E.R. 108;
Al Attiya v Al Thani [2016] EWHC 212 (QB) (former prime minister of Qatar). The immunity
extends to servants or agents, officials and functionaries of a foreign state in respect of acts
done by them as such in the foreign state: Jones v Ministry of the Interior of the Kingdom of
Saudi Arabia [2006] UKHL 26, [2007] 1 A.C. 270; Pocket Kings Ltd v Safenames Ltd [2009]
EWHC 2529 (Ch), [2010] Ch. 438 (Commonwealth of Kentucky, a constituent territory of the
United States, not a “State” for the purposes of State Immunity Act 1978 s.14(1)); R. (on the
application of HRH Sultan of Pahang) v Secretary of State for the Home Department [2011]
EWCA Civ 616 (Sultanate of Pahang, Malaysia, not a “state” for the purposes of the State
Immunity Act 1978 and Sultan of Pahang not a “Head of State” for those purposes). See also
Grovit v Nederlandsche Bank [2005] EWHC 2944 (QB), [2006] 1 W.L.R. 3323; affirmed on
other grounds, [2007] EWCA Civ 953, [2008] 1 W.L.R. 51. See also Taurus Petroleum Ltd v
State Oil Marketing Co of the Ministry of Oil [2013] EWHC 3494 (Comm), [2013] 2 C.L.C. 835 at
[44]–[65], [2015] EWCA Civ 835. As to members of a foreign royal family who were not part of
the household of the sovereign or head of state, within the meaning of the State Immunity Act
1978 s.20(1)(b), see Apex Global Management Ltd v Fi Call Ltd [2013] EWCA Civ 642, [2014] 1
W.L.R. 492; see below para.12-008.
25.
s.14. See Kuwait Airways Corp v Iraqi Airways Co [1995] 1 W.L.R. 1147 (for further
proceedings, see Kuwait Airways Corp v Iraqi Airways Co (No.2) [2001] 1 W.L.R. 430; Kuwait
Airways Corp v Iraqi Airways Co [2003] EWHC 31 (Comm), [2003] 1 Lloyd’s Rep. 448);
Propend Finance Pty Ltd v Sing, The Times, May 2, 1997, 111 Int. L.R. 611; Ministry of Trade
of the Republic of Iraq v Tsavliris Salvage (International) Ltd [2008] EWHC 612 (Comm), [2008]
2 Lloyd’s Rep. 90; Wilhelm Finance Inc v Ente Administrador del Astillero Rio Santiago [2009]
EWHC 1074 (Comm), [2009] 1 C.L.C. 867; Pocket Kings Ltd v Safenames Ltd [2009] EWHC
2529 (Ch), [2010] Ch. 438; R. (on the application of HRH Sultan of Pahang) v Secretary of
State for the Home Department [2011] EWCA Civ 616; Pearl Petroleum Co Ltd v Kurdistan
Regional Government of Iraq [2015] EWHC 3361 (Comm), [2016] 4 W.L.R. 2. see also Koo
Golden East Mongolia v Bank of Nova Scotia [2007] EWCA Civ 1443, [2008] Q.B. 717; PT
Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2011] FCAFC 52,
(2011) 277 A.L.R. 67, affirmed [2012] HCA 33, (2012) 290 A.L.R. 681. For the position of a
state’s central bank or other monetary authority, see State Immunity Act 1978 s.14(3), (4); AIC
Ltd v Federal Government of Nigeria [2003] EWHC 1357 (QB); AIG Capital Partners Inc v
Republic of Kazakhstan [2005] EWHC 2239 (Comm), [2006] 1 W.L.R. 1420. For discussion of
the meaning of “separate entity” see La Generale des Carrieres et des Mines v FG
Hemispheres Associates LLC [2012] UKPC 27, [2013] 1 All E.R. 409. See also Taurus
Petroleum Ltd v State Oil Marketing Co of the Ministry of Oil [2013] EWHC 3494 (Comm),
[2013] 2 C.L.C. 835 at [44]–[65], [2015] EWCA Civ 835.
26. Dicey, Morris and Collins on the Conflict of Laws, 14th edn (2006), para.10–09. See also Re
Rafidain Bank [1992] B.C.L.C. 301; Kuwait Airways Corp v Iraqi Airways Co [1995] 1 W.L.R.
1147 (for further proceedings, see Kuwait Airways Corp v Iraqi Airways Co (No.2) [2001] 1
W.L.R. 430; Kuwait Airways Corp v Iraqi Airways Co [2003] EWHC 31 (Comm), [2003] 1 Lloyd’s
Rep. 448); Propend Finance Pty Ltd v Sing, The Times, May 2, 1997; 111 Int. L.R. 611; Ministry
of Trade of the Republic of Iraq v Tsavliris Salvage (International) Ltd [2008] EWHC 612, [2008]
EWHC 1074 (Comm), [2009] 1 C.L.C. 867.
27.
s.3(1)(a). In NML Capital Ltd v Argentina [2011] UKSC 31, [2011] 2 A.C. 495 it was held (by a
Page 12
majority) that proceedings to enforce a foreign judgment entered in respect of a commercial

transaction are not, of themselves, proceedings relating to a commercial transaction: the same
principle applies in respect of proceedings to register a foreign judgment against a foreign state
under Administration of Justice Act 1996, AIC Capital Partners v Federal Government of Nigeria
[2003] EWHC 1357 (QB), and to applications to enforce an arbitration award under Arbitration
Act 1996 s.101, Svenska Petroleum Exploration AB v Republic of Lithuania (No.2) [2006]
EWCA Civ 1529, [2006] Q.B. 886, applied in Ministry of Trade of the Republic of Iraq v Tsavliris
(International) Ltd [2008] EWHC 612 (Comm), [2008] 2 Lloyd’s Rep. 90. See further ETI Euro
Telecom International NV v Republic of Bolivia [2008] EWCA Civ 880, [2008] 1 W.L.R. 665;
Continental Transfert Technique Ltd v Federal Government of Nigeria [2009] EWHC 2898
(Comm); Servaas Inc v Rafidain Bank [2011] EWCA Civ 1256, [2012] 1 All E.R. (Comm) 527,
affirmed [2012] UKSC 40, [2013] 1 A.C. 595; La Generale des Carrieres et des Mines v FG
Hemisphere Associates LLC [2012] UKPC 27, [2013] 1 All E.R. 753; Taurus Petroleum Ltd v
State Oil Marketing Co of the Ministry of Oil, Iraq [2015] EWCA Civ 835 at [39]–[48]; Gold
Reserve Inc v Bolivarian Republic of Venezuela [2016] EWHC 153 (Comm), [2016] 1 W.L.R.
2829; LR Avionics Technologies Ltd v Federal Republic of Nigeria [2016] EWHC 1761 (Comm),
[2016] 4 W.L.R. 120 cf. Kensington International Ltd v Congo [2005] EWHC 2684 (Comm),
[2006] 2 B.C.L.C. 296.
28. I Congreso del Partido [1983] 1 A.C. 244, where the House of Lords divided 3 2 on this issue.
Section 3(3) of the 1978 Act defines a “commercial transaction” as any contract and any
guarantee or indemnity in respect of such a transaction or other financial obligation, or any
other transaction or activity into which a state enters (apart from a contract of employment
between a state and an individual) otherwise than in the exercise of sovereign authority. On this
provision, see Alcom Ltd v Republic of Colombia [1984] A.C. 580; Amalgamated Metal Trading
Ltd v Dept of Trade and Industry, The Times, March 21, 1989; Kuwait Airways Corp v Iraqi
Airways Co [1995] 1 W.L.R. 1147 (for further proceedings, see Kuwait Airways Corp v Iraqi
Airways Co (No.2) [2001] 1 W.L.R. 430; Kuwait Airways Corp v Iraqi Airways Co [2003] EWHC
31 (Comm), [2003] 1 Lloyd’s Rep. 448); Central Bank of Yemen v Cardinal Finance Investment
Corp [2001] Lloyd’s Rep. Bank. 1; Svenska Petroleum Exploration AB v Government of the
Republic of Lithuania (No.2) [2006] EWCA Civ 1529, [2008] Q.B. 886; Koo Golden East
Mongolia v Bank of Nova Scotia [2007] EWCA Civ 1529, [2008] Q.B. 717; Orascom Telecom
Holding SAE v Republic of Chad [2008] EWHC 1841 (Comm), [2008] 2 Lloyd’s Rep. 396;
Servaas Inc v Rafidain Bank [2011] EWCA Civ 1256, [2012] 1 All E.R. (Comm) 527, affirmed
[2012] UKSC 40, [2013] 1 A.C. 595; NML Capital v Argentina [2011] UKSC 31, [2011] 2 A.C.
495; La Generale des Carrieres et des Mines v FG Hemisphere Associates LLC [2012] UKPC
27, [2013] 1 All E.R. 753; see also Littrell v Government of the United States (No.2) [1995] 1
W.L.R. 82; Holland v Lampen Wolfe [2001] 1 W.L.R. 1573; PT Garuda Indonesia Ltd v
Australian Competition and Consumer Commission [2011] FCAFC 52, (2011) 277 A.L.R. 67,
affirmed [2012] HCA 33, (2012) 290 A.L.R. 681. See Staker (1995) 66 B.Y.I.L. 496; Fox (1996)
112 L.Q.R. 186.
29. Alcom Ltd v Republic of Columbia [1984] A.C. 580. See also AIC Ltd v Federal Government of
Nigeria [2003] EWHC 1357 (QB); Servaas Inc v Rafidain Bank, above.
30.
LR Avionics Technologies Ltd v Federal Republic of Nigeria [2016] EWHC 1761 (Comm),
[2016] 4 W.L.R. 120.
31. 1978 Act s.3(1)(b), though note the limitation, s.3(2). See J.H. Rayner (Mincing Lane) Ltd v
Dept of Trade and Industry [1989] Ch. 72, 194–195, 222, 252, affirmed without reference to the
point, [1990] 2 A.C. 418.
32.
s.4. This section does not apply to proceedings concerning the employment of the members
of a mission within the meaning of the Convention scheduled to the Diplomatic Privileges Act
1964 or of the members of a consular post within the meaning of the Convention scheduled to
the Consular Relations Act 1968 s.16(1)(a). See Sengupta v Republic of India [1983] I.C.R. 221
; United Arab Emirates v Abdelghafar [1995] I.C.R. 65; Arab Republic of Egypt v Gamal-Eldin
[1996] I.C.R. 13; Ahmed v Government of the Kingdom of Saudi Arabia [1996] I.C.R. 25;
Malaysian Industrial Development Authority v Jeyasingham [1998] I.C.R. 307; Government of
the Kingdom of Saudi Arabia v Nasser Unreported November 14, 2000 CA; Garnett (1997) 46
Page 13
I.C.L.Q. 81; Garnett (2005) 54 I.C.L.Q. 705. And see Fogarty v United Kingdom (2002) 34
E.H.R.R. 302; Al-Kadhimi v Government of Saudi Arabia [2003] EWCA Civ 1689; Aziz v
Republic of Yemen [2005] EWCA Civ 754, [2005] I.C.R. 1391; Mauritius Tourism Promotion
Authority v Wong Min (UKEAT/0186/08/LA, November 24, 2008) (EAT); United States of
America v Nolan [2009] I.R.L.R. 923; Wokhuri v Kassam [2012] EWHC 105 (Ch). Abusabib v
Taddese [2013] I.C.R. 603; and see Benkharbouche v Secretary of State for Foreign and
Commonwealth Affairs [2015] EWCA Civ 33, [2015] H.R.L.R. 3; [2017] UKSC 62; Reyes v
Al-Malki [2017] UKSC 61. See Sanger [2014] C.L.J. 1.
33. s.5; see Military Affairs Office of The Embassy of the State of Kuwait v Caramba-Coker
(EAT/1054/02/RN, April 10, 2003); Federal Republic of Nigeria v Ogbonna [2012] 1 W.L.R. 139
(EAT). Cf. Heiser v Iran [2012] EWHC 2938 (QB).
34. As with proceedings for breach of covenants in a lease: Intpro Properties (UK) Ltd v Sauvel
[1983] Q.B. 1019. cf. Re B (A Child) (Care Proceedings: Diplomatic Immunity) [2002] EWHC
1751 (Fam), [2003] Fam. 16.
35. 1978 Act s.6. See Palmer v Ingram [2009] EWCA Civ 947.
36. s.7.
37. s.6(3). See Re Rafidain Bank [1992] B.C.L.C. 301.
38. s.8. See Maclaine, Watson & Co Ltd v International Tin Council [1989] Ch. 253, 282–283,
affirmed on other grounds, [1990] 2 A.C. 418.
39. s.11. See Business Rate Supplements Act 2009 s.21(5).
40. s.10. See Ministry of Trade of the Republic of Iraq v Tsavliris Salvage (International) Ltd [2008]
EWHC 612 (Comm), [2008] 2 Lloyd’s Rep. 90.
41.
s.2; see CPR r.6.44; see A Co Ltd v Republic of X [1990] 2 Lloyd’s Rep. 520; Kuwait Airways
Corp v Iraqi Airways Co [1995] 1 W.L.R. 1147 (for further proceedings, see Kuwait Airways
Corp v Iraqi Airways Co (No.2) [2001] 1 W.L.R. 429; Kuwait Airways Corp v Iraqi Airways Co
[2003] EWHC 31, (Comm), [2003] 1 Lloyd’s Rep. 448); Mills v Embassy of the United States of
America Unreported May 9, 2000 CA; Sabah Shipyard (Pakistan) Ltd v The Islamic Republic of
Pakistan [2002] EWCA Civ 1643, [2003] 2 Lloyd’s Rep. 571; Servaas Inc v Rafidain Bank
[2011] EWCA Civ 1256, [2012] 1 All E.R. (Comm) 527, affirmed [2012] UKSC 40, [2013] 1 A.C.
595; NML Capital Ltd v Argentina [2011] UKSC 31, [2011] 2 A.C. 495. On submission in
arbitration proceedings, see s.9; Svenska Petroleum Exploration AB v Government of the
Republic of Lithuania [2005] EWHC 9 (Comm), [2005] 1 Lloyd’s Rep. 515; Svenska Petroleum
Exploration AB v Government of the Republic of Lithuania (No.2) [2005] EWHC 2437 (Comm),
[2006] 1 Lloyd’s Rep. 181; affirmed [2006] EWCA Civ 1529, [2007] Q.B. 886; Donegal
International Ltd v Zambia [2007] EWHC 197 (Comm), [2007] 1 Lloyd’s Rep. 397; Ministry of
Trade of the Republic of Iraq v Tsavliris Salvage (International) Ltd [2008] EWHC 612 (Comm),
[2008] 2 Lloyd’s Rep. 90; London Steamship Owners Mutual Insurance Ltd v Spain [2013]
EWHC 3188 (Comm), [2014] 1 Lloyd’s Rep. 309, affirmed [2015] EWCA Civ 333, [2015] 2
Lloyd’s Rep. 33; Gold Reserve Inc v Bolivarian Republic of Venezuela [2016] EWHC 153
(Comm), [2016] 1 W.L.R. 2829; LR Avionics Technologies Ltd v Federal Republic of Nigeria
[2016] EWHC 1761 (Comm), [2016] 4 W.L.R. 120.
42. International Criminal Court Act 2001 s.23(1). Where the person in question has an immunity by
reason of a connection to a State which is not a party to the ICC Statute, proceedings may be
taken against that person under the 2001 Act where the International Criminal Court has
obtained a waiver of the immunity in relation to a request for the person’s surrender:
s.23(2)–(3).
43.
ss.12–14; see Alcom Ltd v Republic of Colombia [1984] A.C. 580; Westminster City Council v
Government of the Islamic Republic of Iran [1986] 1 W.L.R. 979; Kuwait Airways Corp v Iraqi
Airways Co [1995] 1 W.L.R. 1147 (for further proceedings, see Kuwait Airways Corp v Iraqi
Page 14
Airways Co (No.2) [2001] 1 W.L.R. 429; Kuwait Airways Corp v Iraqi Airways Co [2003] EWHC
31, (Comm), [2003] 1 Lloyd’s Rep. 448); Crescent Oil and Shipping Services Ltd v Importang
UEE [1997] 3 All E.R. 428; ABCI v De Banque Franco Tunisienne [2003] EWCA Civ 205, [2003]
EWHC 1074 (Comm), [2009] 1 C.L.C. 867; NML Capital Ltd v Argentina [2011] UKSC 31,
[2011] 2 A.C. 495; Mashate v Kaguta [2011] EWHC 3111 (QB). And see Soleh Boneh
International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep. 208, 213;
Norsk Hydro ASA v State Property Fund of Ukraine [2002] EWHC 2120 (Comm), [2009] Bus.
L.R. 558; Mid East Sales Ltd v United Engineering and Trading Co (PUT) [2014] EWHC 1457
(Comm), [2014] 2 All E.R. (Comm) 623; Embassy of Brazil v de Castro Cerqueira [2014] 1
W.L.R. 3718 (EAT); PCL v Y Regional Government of X [2015] EWHC 68 (Comm), [2015] 1
Lloyd’s Rep. 483; Gold Reserve Inc v Bolivarian Republic of Venezuela [2016] EWHC 153
(Comm), [2016] 1 W.L.R. 2829.
44. s.15.
45. ss.18–19.
46.
s.21(a). On the importance of the certificate, see R. (on the application of Alamieyeseigha) v
Crown Prosecution Service [2005] EWHC 2704 (Admin); R. (on the application of HRH Sultan
of Pahang) v Secretary of State for the Home Department [2011] EWCA Civ 616; Khurts Bat v
The Investigating Judge of the German Federal Court [2011] EWHC 2029 (Admin); British Arab
Commercial Bank Plc v National Transitional Council of the State of Libya [2011] EWHC 2274
(Comm); Democratic Republic of the Congo v FG Hemisphere Associates LLC [2011] HKFCA
747 (Hong Kong Court of Final Appeal); Apex Global Management Ltd v Fi Call Ltd [2013]
EWCA Civ 642, [2014] 1 W.L.R. 492. Khurts Bat v Investigating Judge of the German Federal
Court [2011] EWHC 2029 (Admin) is reported at [2013] Q.B. 349
47. See Dicey, Morris and Collins on the Conflict of Laws, 15th edn (2012), paras 5-043—5-053.
48. The position of the Crown generally is discussed in Ch.11.
49. e.g. Secretary of State in Council of India v Kamachee Boye Sahaba (1859) 13 Moo. P.C. 22,
75; Salaman v Secretary of State of India [1906] 1 K.B. 613.
50.
e.g. Buron v Denman (1848) 2 Exch. 167; Nissan v Att-Gen [1970] A.C. 179; Rahmatullah v
Ministry of Defence [2017] UKSC 1, [2017] 2 W.L.R. 287 at [310]–[376].
51.
Rahmatullah v Ministry of Defence [2017] UKSC 1, [2017] 2 W.L.R. 287 at [69]–[70]
(Baroness Hale), [81] (Lord Sumption).
52.
Duke of Brunswick v King of Hanover (1844) 6 Beav. 1, 57–58, (1848) 2 H.L.C. 1, 21–22,
26–27; Carr v Fracis Times [1902] A.C. 179–180; Johnstone v Pedlar [1921] 2 A.C. 262, 291;
Empresa Exportadora de Acuzar v Industria Azacurera Nacional SA [1983] 2 Lloyd’s Rep. 171,
194; Belhaj v Straw [2014] EWCA Civ 1394, [2015] 2 W.L.R. 1105 at [54]–[55], [127]–[133];
[2017] UKSC 3, [2017] 2 W.L.R. 456.
53.
Belhaj v Straw [2014] EWCA Civ 1394, [2015] 2 W.L.R. 1105 at [127]–[133]; [2017] UKSC 3,
[2017] 2 W.L.R. 456 at [165] (Lord Neuberger), [237] (Lord Sumption); High Commissioner for
Pakistan in the United Kingdom v Prince Mukkaram Jah [2016] EWHC 1465 (Ch) at [84]–[87].
cf. Yukos Capital Sarl v OJSC Rosneft Oil Co (No.2) [2012] EWCA Civ 855, [2013] 3 W.L.R.
1329 at [66].
54.
Buttes Gas and Oil Co v Hammer (No.3) [1982] A.C. 888, 931; and see J.H. Rayner (Mincing
Lane) Ltd v Dept of Trade and Industry [1990] 2 A.C. 418; Arab Monetary Fund v Hashim
(No.3) [1991] 2 A.C. 114; Kuwait Airways Corp v Iraqi Airways Co [1995] 1 W.L.R. 1147 (for
further proceedings, see Kuwait Airways Corp v Iraqi Airways Co (No.2) [2001] 1 W.L.R. 430;
Kuwait Airways Corp v Iraqi Airways Co [2003] EWHC 31 (Comm), [2003] 1 Lloyd’s Rep. 448);
Page 15
Arab Monetary Fund v Hashim [1993] 1 Lloyd’s Rep. 543, 572, affirmed on this point [1996] 1
Lloyd’s Rep. 589; Philipp Brothers v Republic of Sierra Leone [1995] 1 Lloyd’s Rep. 289;
Westland Helicopters Ltd v Arab Organisation for Industrialisation [1995] Q.B. 282; R. v Home
Secretary Ex p. Launder (No.2) [1998] Q.B. 994; R. v Home Secretary Ex p. Johnson [1999]
Q.B. 1174; Azov Shipping Co v Baltic Shipping Co [1999] 2 Lloyd’s Rep. 159; Skrine & Co v
Euromoney Publications Plc [2002] I.L.Pr. 281, affirmed on other grounds, [2001] EWCA Civ
1479, [2002] E.M.L.R. 278; Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL
19, [2002] 2 A.C. 883; R. (on the application of Abassi) v Secretary of State for Foreign and
Commonwealth Affairs [2002] EWCA Civ 1598, [2003] U.K.H.R.R. 76; Republic of Ecuador v
Occidental Exploration and Production Co [2005] EWCA Civ 116, [2006] Q.B. 70; AY Bank Ltd
v Bosnia and Herzegovina [2006] EWHC 830 (Ch), [2006] 2 All E.R. (Comm) 463; Tajik
Aluminium Plant v Ermatov [2006] EWHC 2374 (Comm). See also R. v Christian [2006] UKPC
47, [2007] 2 W.L.R. 120; R. (on the application of Al Rawi) v Secretary of State for Foreign
Affairs [2006] EWHC 972 (Admin); Mbasogo v Logo Ltd [2006] EWCA Civ 1370, [2007] Q.B.
846; Tasarruf Mevduati Sigorta Fonu v Demirel [2006] EWHC 3354 (Ch), [2007] 1 Lloyd’s Rep.
223; affirmed on other grounds [2007] EWCA Civ 799, [2007] 1 W.L.R. 2508; Total E & P
Soudan SA v Edmonds [2007] EWCA Civ 50, [2007] C.P. Rep. 20; Korea National Insurance
Corp v Allianz Global Corporate and Speciality AG [2008] EWCA Civ 1355, [2008] 2 C.L.C. 837;
Empresa Nacional de Telecommunicaciones SA v Deutsche Bank AG [2009] EWHC 2570
(Comm), [2010] 1 All E.R. (Comm) 649; Republic of Serbia v Imagesat International NV [2009]
EWHC 2853 (Comm), [2010] 1 Lloyd’s Rep. 324; Al Jedda v Secretary of State for Defence
[2010] EWCA Civ 758, [2011] 2 W.L.R. 225; BTA Bank v Ablyazof [2011] EWHC 202 (Comm);
Berezovsky v Abramovich [2011] EWCA Civ 153, [2011] 1 C.L.C. 359; Carey Group Plc v AIB
Group (UK) Plc [2011] EWHC 567 (Ch), [2011] 2 All E.R. (Comm) 461; Masri v Consolidated
Contractors International Co SAL [2011] EWHC 1024 (Comm) at [243] et seq.; Yukos Capital
Sarl v OJSC Rosneft Oil Co [2011] EWHC 1461 (Comm), [2011] 2 Lloyd’s Rep. 443 (generally
affirmed by the Court of Appeal, [2012] EWCA Civ 855, [2014] Q.B. 458); Lucasfilm Ltd v
Ainsworth [2011] UKSC 39, [2012] 1 A.C. 208; Rahmatullah v Secretary of State for Defence
[2012] UKSC 48, [2012] 3 W.L.R. 1087; Altima Holdings and Investment Ltd v Kyrgyz Mobil Tel
Ltd [2011] UKPC 7, [2012] 1 W.L.R. 1804; Yukos Capital Sarl v OJC Rosneft Oil Co (No.2)
[2012] EWCA Civ 855, [2013] 3 W.L.R. 1329; Democratic Republic of the Congo v FG
Hemisphere Associates LLC [2011] HKFCA 747 (Hong Kong Final Court of Appeal); Chugai
Pharmaceutical Co Ltd v UCB Pharma SA [2017] EWHC 1216 (Pat), [2017] Bus. L.R. 1455.
See generally McGoldrick (2010) 59 I.C.L.Q. 981.
55.
[2017] UKSC 3, [2017] 2 W.L.R. 456 at [11(iii)], [35]–[45] (Lord Mance), [120]–[124] (Lord
Neuberger), [234] (Lord Sumption). It was doubted that there is a fourth rule that the doctrine
may be invoked where a ruling would embarrass the United Kingdom in its international
dealings: at [11(iv)] (Lord Mance), [148]–[149] (Lord Neuberger), [240]–[241] (Lord Sumption).
See Law Debenture Trust Corp Plc v Ukraine [2017] EWHC 655 (Comm) at [275]–[295].
56.
AAA v Unilever Plc [2017] EWHC 371 (QB), [35]–[62]
57.
Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19, [2002] 2 A.C. 883;
Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA Civ 116; AY
Bank v Bosnia and Herzegovinia [2006] EWHC 830 (Comm), [2006] 2 All E.R. (Comm) 463;
Belhaj v Straw [2014] EWCA Civ 1394, [2015] 2 W.L.R. 1105 at [54]–[55], [81]–[93]; [2017]
UKSC 3, [2017] 2 W.L.R. 456 at [11(v)], [85]–[107] (Lord Mance), [153]–[162] (Lord Neuberger),
[249]–[280] (Lord Sumption); Mohammed v Secretary of State for Defence [2015] EWCA Civ
843. See also Habib v Commonwealth of Australia (2010) 183 FCR 62 (Fed Ct Aust.); Collins
(2002) 51 I.C.L.Q. 485.
58. Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19; Empresa Nacional de
Telecommunicaciones SA v Deutsche Bank AG [2009] EWHC 2579 (Comm), [2010] 1 All E.R.
(Comm) 649; Yukos Capital Sarl v OJSC Rosneft Oil Co [2011] EWHC 1461 (Comm), [2011] 2
Lloyd’s Rep. 443 (generally affirmed by the Court of Appeal, [2012] EWCA Civ 855, [2014] Q.B.
458). See also Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA
Civ 116.
Page 16
59.
Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19; Belhaj v Straw [2014]
EWCA Civ 1394, [2015] 2 W.L.R. 1105 at [54]–[55], [81]–[93]; [2017] UKSC 3, [2017] 2 W.L.R.
456 at [11(v)], [85]–[107] (Lord Mance), [153]–[162] (Lord Neuberger), [249]–[280] (Lord
Sumption); Law Debenture Trust Corp Plc v Ukraine [2017] EWHC 655 (Comm), [296]–[308].
60.
R. v Bow Street Metropolitan Stipendiary Magistrate Ex p. Pinochet Ugarte (No.3) [2000] 1
A.C. 61, 90; High Commissioner for Pakistan in the United Kingdom v Prince Mukkaram Jah
[2016] EWHC 1465 (Ch) at [89]–[90].
61. The 1964 Act has been amended, mainly in minor respects, by the Diplomatic and other
Privileges Act 1971, the State Immunity Act 1978, the Diplomatic and Consular Premises Act
1987 and the Arms Control and Disarmament (Privileges and Immunities) Act 1988.
62.
State Immunity Act 1978 s.14; Bank of Credit and Commerce International (Overseas) Ltd v
Price Waterhouse [1997] 4 All E.R. 108. On the immunity of a former head of state in the
context of criminal liability, see R. v Bow Street Metropolitan Stipendiary Magistrate Ex p.
Pinochet Ugarte (No.3) [2000] 1 A.C. 147; and see R. (on the application of HRH Sultan of
Pahang) v Secretary of State for the Home Department [2011] EWCA Civ 616, Harb v Aziz
[2014] EWHC 1807 (Ch), [2014] 1 W.L.R. 4437, affirmed [2015] EWCA Civ 481. On heads of
state, see generally, Aziz v Aziz [2007] EWCA Civ 712, [2008] 2 All E.R. 501; Watts (1994) 224
Recueil des Cours, III, 9. Harb v Aziz [2015] EWCA Civ 481 is reported at [2016] Ch. 308. See
also Al Attiya v Al Thani [2016] EWHC 212 (QB) (civil claim against former prime minister of
Qatar).
63. State Immunity Act 1978 s.20; Bank of Credit and Commerce International (Overseas) Ltd v
Price Waterhouse [1997] 4 All E.R. 108; R. v Bow Street Metropolitan Stipendiary Magistrate Ex
p. Pinochet Ugarte (No.3) [2000] 1 A.C. 147. And see Khurts Bat v Investigating Judge of the
German Federal Court [2011] EWHC 2029 (Admin), [2013] Q.B. 349. The immunities extend to
members of the family of the foreign sovereign or other head of a recognised state who form
part of his household and to his private servants: 1978 Act s.20(1). On the meaning of members
of the family of a head of state “forming part of his household”, see Apex Global Management
Ltd v Fi Call Ltd [2013] EWCA Civ 642, [2014] 1 W.L.R. 492.
64. Diplomatic Privileges Act 1964 s.8(4) and Sch.2.
65. Empson v Smith [1966] 1 Q.B. 426; Omerri v Uganda High Commission [1973] I.T.R. 14; cf.
Sengupta v Republic of India [1983] I.C.R. 221, 226.
66.
Diplomatic Privileges Act 1964 Sch.1 art.1. As a matter of customary international law and the
common law, a receiving State is obliged to secure, for the duration of a special or ad hoc
mission, personal inviolability and immunity from criminal jurisdiction for the members of the
mission accepted as such by the receiving State: see Khurts Bat v Investigating Judge of the
German Federal Court [2011] EWHC 2029 (Admin), [2013] Q.B. 349; R. (on the application of
the Freedom and Justice Party) v Secretary of State for Foreign and Commonwealth Affairs
[2016] EWHC 2010 (Admin) at [116]–[120].
67. Including a divorce petition: Shaw v Shaw [1979] Fam. 62. For the position in relation to
proceedings under the Child Abduction and Custody Act 1985, see P v P (Diplomatic Immunity:
Jurisdiction) [1998] 1 F.L.R. 1026. See also Abusabib v Taddese [2013] I.C.R. 603
(employment claims).
68. Alcom Ltd v Republic of Colombia [1984] A.C. 580.
69. Intpro Properties (UK) Ltd v Sauvel [1983] Q.B. 1019, 1032–1033.
70.
Vienna Convention art.31. See Wokuri v Kassam [2012] EWHC 105 (Ch); Reyes v Al-Malki
[2017] UKSC 61.
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71. Vienna Convention art.37(1).
72.
R. (on the application of the Freedom and Justice Party) v Secretary of State for Foreign and
Commonwealth Affairs [2016] EWHC 2010 (Admin).
73. Vienna Convention art.22.
74. Vienna Convention art.30; cf. Agbor v Metropolitan Police Commissioner [1969] 1 W.L.R. 703.
75. Intpro Properties (UK) Ltd v Sauvel [1983] Q.B. 1019, 1033–1034.
76. Westminster City Council v Government of the Islamic Republic of Iran [1986] 1 W.L.R. 979,
984–985.
77. Vienna Convention art.37(2), (3). See Government of the Kingdom of Saudi Arabia v Nasser,
Unreported November 14, 2000 CA; Re B (A Child) (Care Proceedings: Diplomatic Immunity)
[2002] EWHC 1751 (Fam), [2003] Fam. 16.
78.
Vienna Convention art.39(1) and s.2(2). The immunity applies while the diplomat was in post:
Reyes v Al-Malki [2017] UKSC 61, [18]–[19], [48]–[49], [55].
79.
R. v Secretary of State for the Home Department Ex p. Bagga [1991] 1 Q.B. 485 in which the
Court of Appeal, albeit in an immigration context, doubted the correctness of R. v Governor of
Pentonville Prison Ex p. Teja [1971] 2 Q.B. 274; R. v Lambeth Justices Ex p. Yusufu [1985]
Crim. L.R. 510 and R. v Governor of Pentonville Prison Ex p. Osman (No.2) [1989] C.O.D. 446
which appear to suggest that such notification and acceptance is necessary. Ex p. Bagga was
followed by the Court of Appeal in the context of the State Immunity Act 1978 s.16(1) in Ahmed
v Government of the Kingdom of Saudi Arabia [1996] I.C.R. 25. See Dicey, Morris and Collins
on the Conflict of Laws, 14th edn (2006), para.10-070; Jimenez v Inland Revenue
Commissioners [2004] S.T.C. 371; see also Wokuri v Kassam [2012] EWHC 105 (Ch). See also
Al Attiya v Al Thani [2016] EWHC 212 (QB) at [48], [81].
80. Ghosh v D’Rozario [1963] 1 Q.B. 106.
81. Re Regina and Palacios (1984) 45 O.R. (2d) 269.
82. Vienna Convention art.39(2); Propend Finance Pty Ltd v Sing, The Times, May 2, 1997, 111 Int.
L.R. 611. cf. Musurus Bey v Gadban [1894] 2 Q.B. 352; Zoernsch v Waldock [1964] 1 W.L.R.
675; Wokuri v Kassam [2012] EWHC 105 (Ch). See also R. v Bow Street Magistrate Ex p.
Pinochet Ugarte (No.3) [2000] 1 A.C. 147, 255–257, 270; Abusabib v Taddese [2013] I.C.R.
603.
83. Shaw v Shaw [1979] Fam. 62.
84. Vienna Convention art.39(3).
85. Musurus Bey v Gadban [1894] 2 Q.B. 352.
86.
Diplomatic Privileges Act 1964 s.4; and see Engelke v Musmann [1928] A.C. 433; R. v
Governor of Pentonville Prison Ex p. Teja [1971] 2 Q.B. 274; Khurts Bat v Investigating Judge
of the German Federal Court [2011] EWHC 2029 (Admin), [2013] Q.B. 349. cf. Re P (Children
Act: Diplomatic Immunity) [1998] 1 F.L.R. 625, 626; Apex Global Management Ltd v Fi Call Ltd
[2013] EWCA Civ 642, [2014] 1 W.L.R. 492. Al Attiya v Al Thani [2016] EWHC 212 (QB) at [37],
[59], [83]; R. (on the application of the Freedom and Justice Party) v Secretary of State for
Foreign and Commonwealth Affairs [2016] EWHC 2010 (Admin) at [174].
87. See British Nationality Act 1981 s.51(3).

Page 18
88. Vienna Convention art.38(1) and s.2(2) of the Act.
89. Vienna Convention art.38(2) and s.2(2) of the Act.
90. s.2(6).
91. Vienna Convention art.37 and s.2(2).
92. As amended by the Diplomatic and Other Privileges Act 1971 and the Diplomatic and Consular
Premises Act 1987.
93. Consular Relations Act 1968 Sch.I art.1.
94. Sch.I art.1.
97. s.12 as substituted by the Diplomatic and other Privileges Act 1971 s.4(1) and Sch.
98. As amended by the Diplomatic and other Privileges Act 1971 and International Organisations
Act 2005.
99. Including winding up: Re International Tin Council [1989] Ch. 309. For further litigation involving
the Tin Council and its immunities under the 1968 Act, see J.H. Rayner (Mincing Lane) Ltd v
Dept of Trade and Industry [1989] Ch. 72; affirmed [1990] 2 A.C. 418; Standard Chartered Bank
v International Tin Council [1987] 1 W.L.R. 641; Shearson Lehman Bros Inc v Maclaine,
Watson & Co Ltd [1988] 1 W.L.R. 16, HL; Maclaine, Watson & Co Ltd v International Tin
Council [1989] Ch. 253; Maclaine, Watson & Co Ltd v International Tin Council (No.2) [1989]
Ch. 286. In Mukoro v European Bank for Reconstruction and Development [1994] I.C.R. 897 it
was held that immunity extended to proceedings in an industrial tribunal under the Race
Relations Act 1976 by an individual whose application for a post with the organisation had been
rejected. The making of an Order in Council in relation to an organisation may lead to the
conclusion that that organisation is thereby clothed with such legal personality as to be capable
of entering into valid contracts: J.H. Rayner (Mincing Lane) Ltd v Dept of Trade and Industry
[1990] 2 A.C. 415. See Reinisch, Privileges and Immunities of International Organizations in
Domestic Courts (2013).
100. International Organisations Act 1981 s.1(1), (2)(b) and Sch.1 Pt I para.1. The immunities
conferred by s.1 may be extended to include representatives at conferences of the organisation
in the United Kingdom: s.5A. On the compatibility of this immunity with art.6 of the European
Convention on Human Rights, see Entico Corp Ltd v UNESCO [2008] EWHC 531 (Comm),
[2008] 1 Lloyd’s Rep. 673; Waite and Kennedy v Germany (2000) 30 E.H.R.R. 261 (European
Court of Human Rights).
101. s.1(2)(c), (3), and Sch.1 Pt II para.9.
102. s.1(4) and Sch.1 Pt IV para.20.
104. s.1(2)(d) and Sch.1 Pt III para.14.
106. s.1(4) and Sch.1 Pt IV para.23(4).
107. s.1(6)(b). This is subject to s.4 of the International Organisations Act 1981.
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108. s.2(1).
109. s.4. In Arab Monetary Fund v Hashim (No.3) [1991] 2 A.C. 114 (see F.A. Mann (1991) 107
L.Q.R. 357; Marston (1991) C.L.J. 218) it was held that an international organisation of which
the United Kingdom was not a member and which had been given legal personality under the
law of the United Arab Emirates, where its headquarters were situated, had capacity to sue in
England even though no legal capacity had been conferred upon it by English law. Attribution of
legal personality by the law of the Emirates created a corporation capable of being recognised
in England. Although the organisation was not entitled to immunity under the English Acts, it
has been held that it may be entitled to immunity, in respect of official acts, under customary
international law, that such immunity may be recognised by the English courts and, further, that
the immunity may extend to senior officials of the organisation: Arab Monetary Fund v Hashim
[1993] 1 Lloyd’s Rep. 543, 573–574. As to waiver of this immunity, see below, para.12-020.
110. s.4A (added to the 1968 Act by s.2 of the International Organisations Act 1981) and
representatives at conferences organised by them in the United Kingdom: s.5A.
111. s.5.
112. s.6.
113. s.1, as amended by the Diplomatic Privileges Act 1964 s.8(4) and Sch.2.
114. See Halsbury’s Laws of England, 5th edn, Vol.61, paras 307–313. As to the Immunity of the
International Maritime Organisation, see SI 2002/1826.
115. 1968 Act s.12(5).
116. See, e.g. Commonwealth Secretariat Act 1966 s.1(2) and Sch., as amended by International
Organisations Act 2005 ss.1–3. Although immunity is conferred on the Commonwealth
Secretariat (as to which, see Jananyagam v Commonwealth Secretariat [2007] WL 919439
(EAT)), that immunity does not extend to the Commonwealth Secretariat Arbitration Tribunal,
decisions of which may be reviewed under the Arbitration Act 1996: see Mohsin v
Commonwealth Secretariat [2002] EWHC 377 (Comm). The International Organisations Act
2005 also includes provisions relating to the Organisation for Security and Co-operation in
Europe (s.4), the International Criminal Court (s.6; see also International Criminal Court Act
2001 s.1(3) and Sch.1 para.1(2)), the European Court of Human Rights (s.7), and the
International Tribunal for the Law of the Sea (s.8). See also Arbitration (International Investment
Disputes) Act 1966 s.4 and Sch.; International Monetary Fund Act 1979 s.5(1); Multilateral
Investment Guarantee Agency Act 1988 s.3; International Development Act 2002 s.12.
117. The privileges and immunities of the EU and its officials are provided by art.343 of the Treaty on
the Functioning of the European Union (TFEU). The EU cannot claim sovereign immunity: JH
Rayner (Mincing Lane) Ltd v Dept of Trade and Industry [1989] Ch. 72, 196–203, 252–253 CA,
affirmed on other grounds, [1990] 2 A.C. 418.
118. See Halsbury’s Laws of England, 5th edn, Vol.61, paras 307–313. See also J.H. Rayner
(Mincing Lane) Ltd v Dept of Trade and Industry [1989] Ch. 72, 203–205.
119.
Duke of Brunswick v King of Hanover (1844) 6 Beav. 1, 37, 38; Sultan of Johore v Bendahar
[1952] A.C. 318. By contrast, the principle of non-justiciability under the “act of state” doctrine is
not capable of being waived by a State, because it is a matter going to the Court’s substantive
jurisdiction, whereas sovereign immunity is no more than a procedural bar to the Court’s
jurisdiction: R. v Bow Street Metropolitan Stipendiary Magistrate Ex p. Pinochet Ugarte (No.3)
[2000] 1 A.C. 61, 90; High Commissioner for Pakistan in the United Kingdom v Prince
Mukkaram Jah [2016] EWHC 1465 (Ch), at [89]–[90].
120. Taylor v Best (1854) 14 C.B. 487; Re Suarez [1918] 1 Ch. 176; Dickinson v Del Solar [1930] 1
K.B. 376; R. v A.B. [1941] 1 K.B. 454.
Page 20
121. Re Republic of Bolivia Exploration Syndicate Ltd [1914] 1 Ch. 139; Baccus S.R.L. v Servicio
Nacional del Trigo [1957] 1 Q.B. 438; R. v Madan [1961] 2 Q.B. 1.
122. Mighell v Sultan of Johore [1894] 1 Q.B. 149, 159, 161, 162–164; Duff Development Co v
Government of Kelantan [1924] A.C. 797; Kahan v Pakistan Federation [1951] 2 K.B. 1003; The
Philippine Admiral [1974] 2 Lloyd’s Rep. 568, 586–587, affirmed [1977] A.C. 373.
123. Kahan v Pakistan Federation [1951] 2 K.B. 1003; Baccus S.R.L. v Servicio Nacional del Trigo
[1957] 1 Q.B. 438.
124. Duff Development Co v Government of Kelantan [1924] A.C. 797.
125. [1924] A.C. 797. See above, n.3.
126. R. v Madan [1961] 2 Q.B. 1.
127. Fayed v Al Tajir [1988] Q.B. 712.
128.
State Immunity Act 1978 s.13(2); Alcom Ltd v Republic of Colombia [1983] A.C. 580; NML
Capital Ltd v Argentina [2011] UKSC 31, [2011] 2 A.C. 495. Where a state has agreed in writing
to submit a dispute which has arisen or which may arise, to arbitration, the state cannot then
claim immunity as respects proceedings in the courts of the United Kingdom which relate to the
arbitration, unless there is a contrary provision in the agreement or the arbitration agreement is
between States: State Immunity Act 1978 s.9: see Ministry of Trade of the Republic of Iraq v
Tsavliris Salvage (International) Ltd [2008] EWHC 612 (Comm), [2008] 2 Lloyd’s Rep. 90.
Section 9 extends to proceedings for permission to enforce an arbitration award under
Arbitration Act 1996 s.101, but probably does not extend to enforcement of an award against
property of a state: s.13(2)(b). See also Svenska Petroleum Exploration AB v Government of
the Republic of Lithuania (No.2) [2005] EWHC 2437 (Comm), [2006] 1 Lloyd’s Rep.181;
affirmed [2006] EWCA Civ 1529, [2007] Q.B. 886; Orascom Telecom Holding SAE v Republic
of Chad [2008] EWHC 1841 (Comm), [2008] 2 Lloyd’s Rep. 396; ETI Eurotelecom International
NV v Republic of Bolivia [2008] EWCA Civ 880, [2008] 1 W.L.R. 665; Servaas Inc v Rafidain
Bank [2011] EWCA Civ 1256, [2012] 1 All E.R. (Comm) 527, affirmed [2012] UKSC 40, [2013] 1
A.C. 595 (but property of a state which originates in a commercial transaction is immune from
execution if the state has chosen the property to be used for sovereign purposes rather than
commercial purposes; see s.13(4) of the Act); NML Capital Ltd v Argentina [2011] UKSC 31,
[2011] 2 A.C. 495; The High Commissioner for Pakistan in the United Kingdom v National
Westminster Bank Plc [2015] EWHC 55 (Ch) at [72]–[76]; Gold Reserve Inc v Bolivarian
Republic of Venezuela [2016] EWHC 153 (Comm), [2016] 1 W.L.R. 2829; LR Avionics
Technologies Ltd v Federal Republic of Nigeria [2016] EWHC 1761 (Comm), [2016] 4 W.L.R.
120 at [20]–[23]. See Dicey, Morris and Collins on the Conflict of Laws, 15th edn (2012),
para.10-051.
129. s.2. This section is a complete statement of the circumstances in which a state submits for the
purposes of the Act: Svenska Petroleum Exploration AB v Government of the Republic of
Lithuania (No.2) [2005] EWHC 2437 (Comm), [2006] 1 Lloyd’s Rep. 181; affirmed [2006] EWCA
Civ 1529, [2007] Q.B. 886; NML Capital Ltd v Argentina [2011] UKSC 31, [2011] 2 A.C. 495.
130. s.2(2). See A Co Ltd v Republic of X [1990] 2 Lloyd’s Rep. 520; Ahmed v Government of the
Kingdom of Saudi Arabia [1996] I.C.R. 25 (meaning of “written agreement”); Propend Finance
Pty Ltd v Sing, The Times, May 2, 1997; 111 Int. L.R. 611; Mills v Embassy of the United States
of America, Unreported May 9, 2000 CA; Sabah Shipyard (Pakistan) Ltd v The Islamic Republic
of Pakistan [2002] EWCA Civ 1643, [2003] 2 Lloyd’s Rep. 571; Donegal International Ltd v
Zambia [2007] EWHC 197 (Comm), [2007] 1 Lloyd’s Rep. 397; Orascom Telecom Holding SAE
v Republic of Chad [2008] EWHC 1841 (Comm), [2008] 2 Lloyd’s Rep. 396; NML Capital Ltd v
Argentina [2011] UKSC 31, [2011] 2 A.C. 495; London Steamship Owners Mutual Insurance
Association Ltd v Spain [2013] EWHC 3188 (Comm), [2014] 1 Lloyd’s Rep. 309, affirmed [2015]
EWCA Civ 333, [2015] 2 Lloyd’s Rep. 33; and see Thai-Liao Lignite (Thailand) Co Ltd v Laos
[2013] EWHC 2466 (Comm), [2013] 2 All E.R. (Comm) 883; The High Commissioner for
Pakistan in the United Kingdom v National Westminster Bank Plc [2015] EWHC 55 (Ch) at
Page 21
[72]–[76].
131. s.2(3)(a).
132. s.2(3)(b), (5). See Kuwait Airways Corp v Iraqi Airways Co [1995] 1 Lloyd’s Rep. 25 CA,
reversed, in part, on other grounds, [1995] 1 W.L.R. 1147 HL (for further proceedings, see
Kuwait Airways Corp v Iraqi Airways Co (No.2) [2001] 1 W.L.R. 429; Kuwait Airways Corp v
Iraqi Airways Co [2003] EWHC 31 (Comm), [2003] 1 Lloyd’s Rep. 448); London Branch of the
Nigerian Universities Commission v Bastians [1995] I.C.R. 358; Arab Republic of Egypt v
Gamal-Eldin [1996] I.C.R. 13; Malaysian Industrial Development Authority v Jeyasingham
[1998] I.C.R. 307; Aziz v Republic of Yemen [2005] EWCA Civ 745, [2005] I.C.R. 1391.
133. s.2(3), (4).
134. Svenska Petroleum Exploration AB v Republic of Lithuania (No.2) [2005] EWHC 2437 (Comm),
[2006] 1 Lloyd’s Rep. 181; affirmed [2006] EWCA Civ 1529, [2007] Q.B. 886; NML Capital Ltd v
Argentina [2011] UKSC 31, [2011] 2 A.C. 495.
135. s.2(2).
136. s.2(6). See Propend Finance Pty Ltd v Sing, The Times, May 2, 1997, 111 Int. L.R. 611; cf.
Sultan of Johore v Bendahar [1952] A.C. 318 (appeal); High Commissioner for India v Ghosh
[1960] 1 Q.B. 134 (counterclaim).
137. s.2(7). See Ahmed v Government of the Kingdom of Saudi Arabia [1996] I.C.R. 25; Arab
Republic of Egypt v Gamal-Eldin [1996] I.C.R. 13; Propend Finance Pty Ltd v Sing, The Times,
May 2, 1997; 111 Int. L.R. 611; Malaysian Industrial Development Authority v Jeyasingham
[1998] I.C.R. 307; cf. Donegal International Ltd v Zambia [2007] EWHC 197 (Comm), [2007] 1
Lloyd’s Rep. 397 (authority of Minister). On the method of waiver or submission, see Fayed v Al
Tajir [1988] Q.B. 712, 733, 736–737.
138. s.2(7). See Ahmed v Government of the Kingdom of Saudi Arabia [1996] I.C.R. 25.
139. The High Commissioner for Pakistan in the United Kingdom v National Westminster Bank Plc
[2015] EWHC 55 (Ch) at [74].
140. s.13(3); cf. Re Suarez [1917] 2 Ch. 131; Duff Development Co v Government of Kelantan
[1923] 1 Ch. 385, [1924] A.C. 797, 810, 821, 830. See also Mitchell v Ibrahim Al-Dahli [2005]
EWCA Civ 720 (undertaking by foreign state not to appeal costs order made against it does not
imply waiver of immunity should enforcement of the costs order be sought).
141. Sch.1 art.32.
142. Sch.1 art.45.
143. s.2(3); see Propend Finance Pty Ltd v Sing, The Times, May 2, 1997, 111 Int. L.R. 611; 1968
Act s.1(5).
144. Mighell v Sultan of Johore [1894] 1 Q.B. 149; Duff Development Co v Government of Kelantan
[1924] A.C. 797; Kahan v Pakistan Federation [1951] 2 K.B. 1003.
145. See Dicey, Morris and Collins on the Conflict of Laws, 14th edn (2006), para.10-074; Cohn
(1958) 34 B.Y.I.L. 360; F.A. Mann (1991) 107 L.Q.R. 362.
146. A Co Ltd v Republic of X [1990] 2 Lloyd’s Rep. 520, cogently criticised by F.A. Mann (1991) 107
L.Q.R. 362.
147. F.A. Mann (1991) 107 L.Q.R. 362.
148. Which waiver must also be given by an undertaking or consent given to the court when it is
Page 22
asked to exercise jurisdiction: A Co Ltd v Republic of X [1990] 2 Lloyd’s Rep. 520.
149. See, e.g. Standard Chartered Bank v International Tin Council [1987] 1 W.L.R. 641. A senior
official of an international organisation which is entitled to immunity under customary
international law (see above, para.12-018 n.95) may also be entitled to immunity, as a matter of
customary international law, from legal process in respect of official acts, but since the immunity
is granted to the official for the benefit of the organisation, rather than for the individual official,
then the immunity may be waived by the organisation, and, if it is so waived, there is no further
bar to proceedings against the official: Arab Monetary Fund v Hashim [1993] 1 Lloyd’s Rep.
543, 574.
150. s.1(2) and Sch. para.8.
151. Sch.1 arts 20, 21.

Page 1

Chapter 12 - Political Immunity and Incapacity
Section 2. - Alien Enemies 152
Who is an alien enemy
12-024
At common law, the term "alien enemy" means any person irrespective of nationality who voluntarily
153
resides or who carries on business in any enemy or enemy-occupied country during a war in which
the United Kingdom is engaged. 154 As will be seen, 155 an enemy subject who resides or carries on
business in the United Kingdom or in a neutral or allied country is nearly always treated as an alien
friend. Hence the test of enemy character at common law is a territorial and not a national one. It is an
objective test and depends on facts, not on the prejudices, passions or patriotism of the individual
concerned. 156 So during the Second World War a company incorporated in Holland and having its
principal place of business in Rotterdam was held to be an alien enemy after the German occupation
of Holland. 157
Companies
12-025
A company registered in an enemy or enemy-occupied country is an alien enemy, 158 unless the
control of its affairs is shifted to a country not occupied by the enemy. 159 But a company registered in
the United Kingdom and carrying on business here may acquire enemy character by reason of the
hostile residence or activities of its agents or other persons in de facto control of its affairs. 160 Thus
where during the First World War all the shares except one in an English company were held by
Germans resident in Germany, and all its directors were Germans so resident, the company was
treated as an alien enemy. 161 In that case it was said that a company registered in the United
Kingdom but carrying on business in an enemy country is to be regarded as an alien enemy. 162 But
that proposition is too widely stated, for the contrary has since been held. 163
Trading with the Enemy Act 1939
12-026
The Trading with the Enemy Act 1939 164 contains a statutory definition of an “enemy”. But this
definition is limited to the purposes of the Act and does not affect the common law rule with regard to
the separate question of an alien enemy’s capacity to sue, 165 with which alone this section is
concerned.
Alien enemy as claimant
12-027
An alien enemy cannot sue in the Queen’s courts or take up the position of an actor in British litigation
Page 2
166
save under royal licence. 167 The fact that the action was commenced before the outbreak of war
does not enable an alien enemy to continue his action during the war, 168 nor can he appeal against a
judgment given against him before the war. 169 He cannot appear as claimant in an interpleader issue.
170
The royal licence necessary to cure the claimant’s incapacity to sue may be either express, 171 or
inferred from the fact of his presence here with the knowledge and tacit approval of the Crown, e.g. if
he registered under the Aliens Restriction Act 1914 and orders made thereunder. 172 Such a licence
can be revoked, 173 but it is not revoked merely by the internment of the alien, 174 at any rate if the
internment was an act of general policy adopted for the safety of the realm and was not due to a
hostile act or attitude on the alien’s part. The effect of a licence is to place the alien enemy under the
protection of the Crown, with the result that in all respects except perhaps one 175 he is treated as an
alien friend for procedural purposes.
12-028
The rule which debars an alien enemy from suing is an ancient rule of the common law which is
based on public policy. 176 It is immaterial that Emergency Regulations made under the Trading with
the Enemy Act 1939 would prevent the claimant from transmitting abroad the sum recovered until the
end of the war, because he might more easily raise a loan from neutral sources on the security of a
judgment debt than he could on the security of a simple contract debt, and so help to furnish the
enemy country with the sinews of war. 177
Exceptions
12-029
There are two or possibly three exceptions to the rule that proceedings may not be brought by an
alien enemy without a licence:
(1)
In Rodriguez v Speyer Bros 178 it was held by a bare majority of the House of Lords (against
powerful dissent by Lords Atkinson and Sumner) that an alien enemy could be joined as
co-plaintiff in an action by a firm of partners of which he was formerly a member to recover a
pre-war debt due to the firm, on the somewhat specious grounds that the rule should not be
applied if to do so would inflict hardship not on the enemy but on British or neutral partners. 179
Lord Wright has said that this decision must be limited to its special facts. 180
(2)
An alien enemy can be heard without a licence in the Prize Court if his claim is based on an
international treaty or convention, but not otherwise. 181
(3)
There is ancient authority for the proposition that an alien enemy can sue en autre droit, e.g. as
executor or administrator of a deceased person. 182 It is, however, an open question whether this
authority would be followed at the present day. 183
Alien enemy as defendant
12-030
There is no rule of common law which prevents an alien enemy from being sued if service or
Page 3
substituted service can be effected. 184 There may be difficulties about service, 185 but in time of war it
is usual for the rules as to substituted service to be relaxed under statutory authority. 186 If he is sued,
an alien enemy can appear and be heard in his defence and may take all such steps as may be
deemed necessary for the proper presentation of his defence, and may appeal against any judgment
given against him, for to hold otherwise would be contrary to natural justice. 187 He may plead a
set-off, but he may not counterclaim, 188 nor take third party proceedings, 189 nor execute a judgment
for costs during the war, 190 because in doing any of these things he would become an actor. He may
be made bankrupt 191 and may prove in the bankruptcy of another, 192 but if his proof is rejected he
may not take proceedings or challenge the trustee’s decision, for in doing so he would become an
actor. 193
12-031
The Limitation (Enemies and War Prisoners) Act 1945 194 suspended the running of any period of
limitation for the bringing of any action in which any person who would have been a necessary party
was an enemy or was detained in enemy territory until he ceased to be so and for 12 months
thereafter.
Illegal contracts with alien enemies
12-032
The rule which has been considered in this section, that an alien enemy has no persona standi in
judicio, must be carefully distinguished from the rule that contracts involving trading or other
intercourse with the enemy are illegal at common law as well as by statute. The two rules are often
confused, but they differ fundamentally in that the former merely creates a procedural incapacity
which lasts only so long as the war lasts, while the latter destroys the cause of action once and for all.
195
The latter rule has nothing to do with capacity, and is therefore considered elsewhere in this work.
196
152. The leading authorities on the procedural incapacity of alien enemies are the judgment of the
full Court of Appeal in Porter v Freudenberg [1915] 1 K.B. 857; the dissenting judgment of Lord
Sumner in Rodriguez v Speyer Brothers [1919] A.C. 59; and the judgment of Lord Wright in
Sovfracht (V/O) v Van Udens Scheepvaart en Agentuur Maatschappij (NV Gebr) [1943] A.C.
203. See also McNair, Legal Effects of War, 4th edn (1966), Ch.3. The principles discussed in
this section only apply when a technical state of war exists. See Amin v Brown [2005] EWHC
1670 (Ch), [2006] I.L.Pr. 5 where it was held that the procedural incapacity of an alien enemy
only came into existence if a technical state of war existed between the United Kingdom and
the relevant country and that there was no warrant for extending the disability to modern armed
conflict which did not involve war in this sense. Accordingly, an Iraqi citizen resident in Iraq was
entitled to proceed in the English court as claimant since the court was satisfied, on the basis of
Ministerial statements, that Her Majesty’s government’s position was that there was not, and
had not been, a state of war between the United Kingdom and Iraq. See also Janson v
Driefontaine Consolidated Mines [1902] A.C. 484. Although the existence of hostilities is not
uncommon, it is rare for a technical state of war to exist today: see Amin v Brown [2005] EWHC
1670, [2006] I.L.Pr. 5 at [28].
153. e.g. not as a prisoner of war: Vandyke v Adams [1942] Ch. 155, a case under the Trading with
the Enemy Act 1939. Contrast Scotland v South African Territories Ltd (1917) 33 T.L.R. 255.
154. Porter v Freudenberg [1915] 1 K.B. 857; Sovfracht (V/O) v Van Udens [1943] A.C. 203; cf. The
Hoop (1799) 1 C.Rob. 196; McConnell v Hector (1802) 3 Bros & P. 113; O’Mealey v Wilson
(1808) 1 Camp. 482; Roberts v Hardy (1815) 3 M. & S. 533; Janson v Driefontein Consolidated
Page 4
Mines [1902] A.C. 484, 505; Amin v Brown [2005] EWHC 1670 at [28].
155. Below, para.12-027.
156. Sovfracht (V/O) v Van Udens [1943] A.C. 203, 219.
157. Sovfracht (V/O) v Van Udens [1943] A.C. 203. Contrast The Pamia [1943] 1 All E.R. 269, where
a Belgian company moved its head office from Antwerp to Pittsburgh shortly after the German
occupation of Belgium and so was held not to be an alien enemy.
158. Janson v Driefontein Consolidated Mines [1902] A.C. 484; Sovfracht (V/O) v Van Udens [1943]
A.C. 203.
159. The Pamia [1943] 1 All E.R. 269.
160. Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 A.C. 307, 344. But it does not
cease to be an English company and is therefore not immune from the Trading with the Enemy
Act 1939: Kuenigl v Donnersmarck [1955] 1 Q.B. 515.
161. Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 A.C. 307.
162. Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 A.C. 307, 346.
163. Re Hicks [1917] 1 K.B. 48.
164. s.2, as amended by the Emergency Laws (Miscellaneous Provisions) Act 1953 s.2 and Sch.II
para.3.
165. Sovfracht (V/O) v Van Udens [1943] A.C. 203, 219, approving the view of the Court of Appeal
on this point.
166. Porter v Freudenberg [1915] 1 K.B. 857; Sovfracht (V/O) v Van Udens [1943] A.C. 203, 209.
167. Wells v Wiliams (1697) 1 Ld. Raym. 282; The Hoop (1799) 1 C.Rob. 196, 201.
168. See McNair at pp.84–86; Le Bret v Papillon (1804) 4 East 502; Alcenius v Nigren (1854) 1 E. &
B. 217. See also Geiringer v Swiss Bank Corp [1940] 1 All E.R. 406; Eichengruen v Mond
[1940] Ch. 785.
169. Porter v Freudenberg [1915] 1 K.B. 857, 884.
170. Geiringer v Swiss Bank Corp [1940] 1 All E.R. 406.
171. See, e.g. Fibrosa v Fairbairn [1943] A.C. 32, 35, 39–40, and comments thereon in Sovfracht v
Van Udens [1943] A.C. 203, 208; The Brighton [1951] 2 Lloyd’s Rep. 65.
172. Princess Thurn and Taxis v Moffitt [1915] 1 Ch. 58, approved in Porter v Freudenberg [1915] 1
K.B. 857, 874; Vokl v Rotuna Hospital [1914] 2 I.R. 549; cf. Re Mary, Duchess of Sutherland
(1915) 31 T.L.R. 248, 394 (enemy national resident in a neutral country may sue). The Aliens
Restriction Act 1914 was repealed by the Immigration Act 1971 s.34(1), Sch.6.
173. Netz v Ede [1946] Ch. 224.
174. Schaffenius v Goldberg [1916] 1 K.B. 284; cf. Sparenburgh v Bannatyne (1797) 1 Bos. & P. 163
, where an enemy prisoner of war was allowed to sue.
175. He may be unable to apply for a writ of habeas corpus: The Three Spanish Sailors (1779) 2
W.Bl. 1324; Ex p. Liebmann [1916] 1 K.B. 268; R. v Bottrill [1947] K.B. 41; but see Sharpe, The
Law of Habeas Corpus (1976), pp.112–114.
Page 5
176. Porter v Freudenberg [1915] 1 K.B. 857, 880; Rodriguez v Speyer Bros [1919] A.C. 59, 66, 124;
Sovfracht (V/O) v Van Udens [1943] A.C. 203, 213; Amin v Brown [2005] EWHC 1670 (Ch),
[2006] I.L.Pr. 67. See also Wells v Williams (1697) 1 Ld Raym. 282; The Hoop (1799) 1 C. Rob.
196, 201–202; Antoine v Morshead (1815) 6 Taunt. 237.
177. Rodriguez v Speyer Bros [1919] A.C. 59, 114; Sovfracht (V/O) v Van Udens [1943] A.C. 203,
212, 236, 252; Amin v Brown [2005] EWHC 1670 (Ch), [2006] I.L.Pr. 5.
178. Rodriguez v Speyer Bros [1919] A.C. 59.
179. [1919] A.C. 59, 71.
180. Sovfracht (V/O) v Van Udens [1943] A.C. 203, 233; cf. McNair at p.83, n.4: “The House of Lords
have in the Sovfracht case substantially repaired the damage done by the majority speeches in
Rodriguez v Speyer Brothers.”
181. The Möwe [1915] P. 1; The Glenroy [1943] P. 109.
182. Brocks v Phillips (1599) Cro. Eliz. 683; Richfield v Udell (1667) Carter 191; Villa v Dimock
(1694) Skin. 370.
183. See Rodriguez v Speyer Bros [1919] A.C. 59, 70, 102, 118, 137; and see McNair at p.86.
184. Robinson & Co v Continental Insurance Co of Mannheim [1915] 1 K.B. 155; Porter v
Freudenberg [1915] 1 K.B. 857, 880 et seq.
185. These were discussed in Porter v Freudenberg [1915] 1 K.B. 857, 886–890, and Churchill & Co
v Lonberg [1914] 3 All E.R. 137.
186. See, e.g. Legal Proceedings against Alien Enemies Act 1915 (repealed in 1927); RSC O.9
r.14(b) (added in 1941 and repealed in 1964).
187. Porter v Freudenberg [1915] 1 K.B. 857, 883–884.
188. Re Stahlwerk Becker A/G’s Patent [1917] 2 Ch. 272, 276.
189. Halsey v Lowenfeld [1916] 2 K.B. 707.
190. Robinson & Co v Continental Insurance Co of Mannheim [1915] 1 K.B. 155, 162.
191. Re Hilckes [1917] 1 K.B. 48.
192. Ex p. Boussmaker (1806) 13 Ves. 71.
193. Re Wilson and Wilson Ex p. Marum (1915) 84 L.J.K.B. 1893.
194. As amended. See The Atlantic Scout [1950] P. 266; Franks, Limitation of Actions (1959),
Appendix II. For limitation generally, see below, Ch.29.
195. See Schmitz v Van der Veen & Co (1915) 84 L.J.K.B. 861, 864; Rodriguez v Speyer Bros
[1919] A.C. 59, 122.

Page 1

Part 4 - The Terms of Contract
Chapter 13 - Express Terms
Generally
13-001
Assuming that a contract has been validly created, it is necessary to consider the extent of the
obligations imposed on the parties by the contract. In order to do this, the exact terms of the contract
must be determined 1 and their comparative importance evaluated. 2 There may be some doubt about
the interpretation of the contract, and resort will then have to be made to the principles of construction
which have been laid down by the courts, 3 and also to those which govern the admissibility of
evidence extrinsic to a written agreement. 4

Page 1

Section 1. - Proof of Terms
Proof of terms
13-002
Where the agreement of the parties has been reduced to writing and the document containing the
agreement has been signed by one or both of them, it is well established that the party signing will
ordinarily be bound by the terms of the written agreement whether or not he has read them and
whether or not he is ignorant of their precise legal effect. 5 But it by no means follows that the
document will contain all the terms of the contract: it may be partly oral, and partly in writing. 6 Further,
many contracts are made solely by word of mouth 7 or are contained in or evidenced by documents
which have not been signed by the party affected. In such cases, it will be necessary to prove which
statements, or stipulations, were intended to be incorporated as terms of the contract or to have
contractual effect.
5.
Parker v South Eastern Ry (1877) 2 C.P.D. 416, 421; Howatson v Webb [1908] 1 Ch. 1; The
Luna [1920] P. 22; L’Estrange v Graucob Ltd [1934] 2 K.B. 394; McCutcheon v David
MacBrayne Ltd [1964] 1 W.L.R. 125, 132–134; Bahamas Oil Refining Co v Kristiansands
Tank-rederie A/S [1978] 1 Lloyd’s Rep. 211; Charlotte Thirty Ltd v Croker Ltd (1990) 24 Const.
L.R. 46; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 211 A.L.R. 342; Peekay Intermark
Ltd v Australia and NZ Banking Group Ltd [2006] EWCA Civ 386, [2006] 2 Lloyd’s Rep. 511 at
[43]; One World (GB) Ltd v Elite Mobile Ltd [2012] EWHC 3706 (QB) (although note the
qualification expressed at [58] in relation to a possible exception to the rule where the term
sought to be incorporated is onerous or unusual), on which see further Dawson v Bell [2016]
EWCA Civ 96, [2016] 2 B.C.L.C. 59 at [102]–[103]. But see Jaques v Lloyd D. George &
Partners Ltd [1968] 1 W.L.R. 625, 630; Tilden Rent-a-Car Co v Clendenning (1978) 83 D.L.R.
(3d) 400; Crocker v Sundance Northwest Resorts Ltd (1988) 51 D.L.R. (4th) 321; Ocean
Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s Rep. 446, 454. See further
Spencer [1978] C.L.J. 104; Macdonald [1999] C.L.J. 413, 420; Peden and Carter (2005) 21
J.C.L. 96 and below, para.13-015 n.70.
6. See below, paras 13-099—13-102.

Page 1

(a) - Contractual Undertakings and Representations
Terms and representations
13-003
During the course of negotiations leading to the conclusion of a valid and binding contract, a number
of statements may be made, some of which may, and others may not, be intended to have
contractual force. Some statements may be considered to be mere representations, intended to
induce the other party to enter into the contract, but not imposing liability for breach of contract. 8
Others may be considered to be contractual terms, for the breach of which an action for damages will
lie. 9 The question whether any particular statement is a mere representation or a contractual term is
frequently a difficult one for the court. In reaching a conclusion it will take into account the following
considerations: the importance of the truth of the statement 10; the time which elapsed between the
making of the statement and the final manifestation of consensus 11; whether the party making the
statement was, vis-à-vis the other party, in a better position to ascertain the truth of the statement 12;
and whether the statement was subsequently omitted when the agreement was embodied in a more
formal contract in writing. 13 But none of these criteria is conclusive 14 and the true test would seem to
be whether there is:
“… evidence of an intention by one or both parties that there should be contractual

liability in respect of the accuracy of the statement.” 15
Such intention is to be ascertained objectively. 16 In Oscar Chess Ltd v Williams 17 a statement made
to a motor dealer by a private vendor of a motor-car, based on a previous alteration of the car
log-book by an unknown person, that the car was “a 1948 model”, whereas in fact it had been first
registered in 1939, was held by the Court of Appeal to be a mere representation. But in Dick Bentley
Productions Ltd v Harold Smith (Motors) Ltd 18 a statement made by a motor dealer to a private
purchaser, based on a reading of the mileometer, that it had done only 20,000 miles, whereas in fact
it had done approximately 100,000, was held to be a warranty. The Oscar Chess case was
distinguished on the ground that the vendor “honestly believed and on reasonable grounds that [the
statement] was true”, whereas the motor dealer in the latter case “stated a fact that should be within
his own knowledge. He had jumped to a conclusion and stated it as a fact”. 19 Such cases show that,
in this area of contract law, the circumstances of each case must be individually considered to
ascertain the intention of the parties and that the criteria stated above furnish no decisive tests in law:
“The intention of the parties can only be deduced from the totality of the evidence, and no
secondary principles of such a kind can be universally true.” 20
Page 2
Collateral contracts 21
13-004
It may be difficult to treat a statement made in the course of negotiations for a contract as a term of
the contract itself, either because the statement was clearly prior to or outside the contract or because
the existence of the parol evidence rule 22 prevents its inclusion. Nevertheless, the courts are
prepared in some circumstances to treat a statement intended to have contractual effect as a
separate contract or warranty, collateral to the main transaction. 23 In particular, they will do so where
one party refuses to enter into the contract unless the other gives him an assurance on a certain point
24
or unless the other promises not to enforce a term of the written agreement. 25 Thus in De Lassalle
v Guildford 26 the claimant and the defendant negotiated for the lease of a house. The terms of the
lease were arranged, but the claimant (the prospective tenant) refused to hand over the counterpart
of the lease which he had signed unless the defendant assured him that the drains were in good
order. The defendant gave this assurance, and the counterpart lease was thereupon handed to him.
The drains were not in fact, in good order, and the claimant sued the defendant on his assurance, no
reference to drains having been made in the lease itself. The Court of Appeal held that the assurance
constituted a contract collateral to the lease on which the defendant was liable. However, in Heilbut
Symons & Co v Buckleton, 27 Lord Moulton said:
“Such collateral contracts, the sole effect of which is to vary or add to the terms of the
written contract, are therefore viewed with suspicion by the law … Not only the terms of
such contracts but the existence of an animus contrahendi on the part of all the parties to
them must be strictly shown.”
But more recently Lord Denning M.R. stated 28 that “much of what was said in that case is entirely out
of date”.
13-005
It is undoubtedly true that the courts are nowadays much more willing to accept that a
pre-contractual assurance gives rise to a collateral contract, 29 so that such collateral contracts are
no longer rare. Where the assurance consists of a statement of present or past fact, there may be
less need to infer a collateral contract, since a remedy in damages may be available under the
Misrepresentation Act 1967 30 for a representation of fact. But where the assurance is as to the future,
the Act does not apply 31 and in such a case the claimant must prove a collateral contract or fail
completely. Lord Denning M.R. has said 32:
“When a person gives a promise or an assurance to another, intending that he should act
on it by entering into a contract, and he does act on it by entering into the contract, we
hold that it is binding.”
13-006
Consideration for the collateral contract is normally provided by entering into the main contract, 33 but
a collateral contract may also be actionable even if the main contract is unenforceable, e.g. for
illegality. 34 Breach of the collateral contract will give rise to an action for damages for its breach, but
not as a general rule to a right to treat the main contract as repudiated. However, the effect of a
collateral contract may be to vary the terms of the main contract 35 or to estop a party from acting
inconsistently with it if it would be inequitable for him to do so. 36
Third parties
Page 3
13-007
A collateral contract may also be found to exist where the main contract is not between the claimant
and the defendant, but between the claimant and a third party. In Shanklin Pier Ltd v Detel Products
Ltd, 37 the claimants, owners of Shanklin Pier, wished to have their pier painted with suitable paint.
They asked the defendants, a firm of paint manufacturers, whether their paint was suitable for this
purpose, and were assured that it was. The claimants therefore caused to be inserted in a contract
made between them and the contractors who were to paint the pier a stipulation that the defendants’
paint should be used. The paint was entirely unsuitable, and the claimants sued the defendants on
their assurance. It was held that the assurance constituted a contract, collateral to the contract for
painting the pier, the consideration for which was the claimants’ entry into the contract containing the
stipulation that the defendants’ paint should be used. Similarly a collateral contract may exist where
the main contract is between the defendant and a third party, as in Charnock v Liverpool Corp, 38
where the main contract to repair a car was between the repairer and an insurance company, but
there was also a collateral contract between the repairer and the owner of the car that the repairer
should do the repairs within a reasonable time.
8. Hopkins v Tanqueray (1854) 15 C.B. 130; Heilbut, Symons & Co v Buckleton [1913] A.C. 30;
Routledge v McKay [1954] 1 W.L.R. 615; Oscar Chess Ltd v Williams [1957] 1 W.L.R. 370. See
also above, para.7-004.
9. Bannerman v White (1861) 10 C.B.(N.S.) 844; De Lassalle v Guildford [1901] 2 K.B. 215;
Schawel v Reade [1913] 2 I.R. 64; Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd
[1965] 1 W.L.R. 623; and see the cases cited in nn.23–25, below.
10. Bannerman v White, above. cf. Oscar Chess Ltd v Williams, above.
11. Routledge v McKay [1954] 1 W.L.R. 615. See also Pasley v Freeman (1789) 3 Term Rep. 51,
57; Schawel v Read [1913] 2 I.R. 64; Mahon v Ainscough [1952] 1 All E.R. 337; Inntrepreneur
Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep. 611 at [10].
12. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 W.L.R. 623; Esso Petroleum
Co Ltd v Mardon [1976] Q.B. 801. Contrast Heilbut, Symons & Co v Buckleton [1913] A.C. 30;
Gilchester Properties Ltd v Gomm [1948] 1 All E.R. 493.
13. Heilbut, Symons & Co v Buckleton [1913] A.C. 30, 50; Gilchester Properties Ltd v Gomm [1948]
1 All E.R. 493. cf. Miller v Cannon Hill Estates Ltd [1931] 2 K.B. 113; Inntrepreneur Pub Co v
East Crown Ltd [2000] 2 Lloyd’s Rep. 611 at [10].
14. Heilbut, Symons & Co v Buckleton [1913] A.C. 30, 50.
15. [1913] A.C. 30, 51 (and see 38, 42); Pasley v Freeman (1789) 3 T.R. 51, 57; Oscar Chess Ltd v
Williams [1957] 1 W.L.R. 370, 374; Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd
[1965] 1 W.L.R. 623, 629; Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801. See also J.J.
Savage & Sons Pty Ltd v Blackney (1970) 119 C.L.R. 435.
16. Inntrepreneur Pub Co v East Crown Ltd [2002] 2 Lloyd’s Rep. 611 at [10].
17. [1957] 1 W.L.R. 370. See also Routledge v McKay [1954] 1 W.L.R. 615; Dawson v Yeoward
[1961] 1 Lloyd’s Rep. 431. cf. Turner v Anquetil [1953] N.Z.L.R. 952; Beale v Taylor [1967] 1
W.L.R. 1193.
18. [1965] 1 W.L.R. 623.
19. [1965] 1 W.L.R. 623, 628, 629.
20. Heilbut, Symons & Co v Buckleton [1913] 1 A.C. 30, 51.

Page 4
21. See Paterson, Collateral Warranties Explained (1991) and para.18-005, below.
22. See below, paras 13-099—13-108.
23. Lindley v Lacey (1864) 17 C.B.(N.S.) 578; Mann v Nunn (1874) 30 L.T. 526; Spicer v Martin
(1888) 14 App. Cas. 12; Jacobs v Batavia & General Plantations Trust Ltd [1924] 1 Ch. 287;
Jameson v Kinmell Bay Land Co Ltd (1931) 47 T.L.R. 593; Miller v Cannon Hill Estates Ltd
[1931] 2 K.B. 113; Birch v Paramount Estates (1956) 167 E.G. 396; Frisby v BBC [1967] Ch.
932; Quickmaid Rental Services v Reece (1970) 114 S.J. 372, CA; J. Evans & Son
(Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 W.L.R. 1078; Esso Petroleum Co Ltd v
Mardon [1976] Q.B. 801; Record v Bell [1991] 1 W.L.R. 853; Wake v Renault (UK) Ltd (1996)
15 Tr. L.R. 514; Procter & Gamble (Health and Beauty Care) Ltd v Carrier Holdings Ltd [2003]
EWHC 83 (TCC), [2003] B.L.R. 255; Thinc Group v Armstrong [2012] EWCA Civ 1227 at
[40]–[41]; Wedderburn [1959] C.L.J. 58; Greig (1971) 87 L.Q.R. 179.
24. Morgan v Griffith (1871) L.R. 6 Ex. 70; Erskine v Adeane (1873) L.R. 8 Ch. App. 756; Newman
v Gatti (1907) 24 T.L.R. 18, 20; Heilbut, Symons & Co v Buckleton [1913] 1 A.C. 30, 47.
25. Couchman v Hill [1947] K.B. 554; Webster v Higgin [1948] 2 All E.R. 127; Harling v Eddy [1951]
2 K.B. 739; City of Westminster Properties (1934) Ltd v Mudd [1959] Ch. 129; Brikom
Investments Ltd v Carr [1979] Q.B. 467; cf. Business Environment Bow Lane Ltd v Deanwater
Estates Ltd [2007] EWCA Civ 622, (2007) 32 E.G. 90.
26. [1901] 2 K.B. 215.
27. [1913] A.C. 30, 47. See also Business Environment Bow Lane Ltd v Deanwater Estates Ltd
[2007] EWCA Civ 622, (2007) 32 E.G. 90.
28. J. Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 W.L.R. 1078, 1081; Howard
Marine & Dredging Co Ltd v A. Ogden & Sons (Excavations) Ltd [1978] Q.B. 574, 590. See also
Esso Petroleum Co Ltd v Mardon [1978] Q.B. 801, 817.
29.
Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801; Times Travel (UK) Ltd v Pakistan
International Airlines Corp [2017] EWHC 1367 (Ch) at [234]. But compare Howard Marine &
Dredging Co Ltd v A. Ogden & Sons (Excavations) Ltd [1978] Q.B. 574.
30. s.2(1); see above, para.7-075.
32. J. Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 W.L.R. 1078, 1081. But see
Heilbut Symons & Co v Buckleton [1913] A.C. 30, 38, 42, 47, 49–50; Jonathan Wren & Co Ltd v
Microdec Plc (1999) 65 Const. L.R. 157; Inntrepreneur Pub Co v East Crown Ltd [2000] 2
Lloyd’s Rep. 611 at [11]; Brewer v Mann [2010] EWHC 2444 (QB) at [142].
33. cf. De Lassalle v Guildford [1901] 2 K.B. 215; Hill v Harris [1965] Q.B. 601.
35. Wake v Renault (UK) Ltd (1996) 15 Tr. L.R. 514.
36. Brikom Investments Ltd v Carr [1979] Q.B. 467; but see above, para.4-135.
37. [1951] 2 K.B. 854. See Brown v Sheen & Richmond Car Sales Ltd [1950] 1 All E.R. 1102;
Andrews v Hopkinson [1957] 1 Q.B. 229; Smith v Spurling Motor Bodies Ltd (1961) 105 S.J.
967; Yeoman Credit Ltd v Odgers [1962] 1 W.L.R. 215; Wells (Merstham) Ltd v Buckland Sand
& Silica Ltd [1965] 2 Q.B. 170. cf. Drury v Victor Buckland Ltd [1941] 1 All E.R. 269;
Independent Broadcasting Authority v EMI Electronics (1980) 14 Build. L.R. 1; Lambert v Lewis
[1982] A.C. 225; Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd [1993] 1 W.L.R. 138
(reversed on other grounds, [1995] Ch. 132); Fuji Seal Europe Ltd v Catalytic Combustion
Page 5
Corporation [2005] EWHC 1659 (TCC), 102 Con L.R. 47.
38. [1968] 1 W.L.R. 1498. cf. Brown and Davis Ltd v Galbraith [1972] 1 W.L.R. 997. See below,
para.18-010.

Page 1

(b) - Standard Form Contracts
Contracts in standard form
13-008
A different problem may arise in proving the terms of the agreement where it is sought to show that
they are contained or referred to in a contract in standard form, i.e. in some ticket, receipt, or standard
form document. If a party signs a contractual document, 39 he will normally be bound by its terms. 40
Frequently, however, the document is simply made available to him before or at the time of making
the contract, and the question will then arise whether the printed conditions which it contains or to
which it refers have become terms of the contract. 41 The party to whom the document is supplied will
probably not trouble to read it, and may even be ignorant that it contains any conditions at all. Yet
standard form contracts very frequently embody clauses which purport to impose obligations on him
or to exclude or restrict the liability of the person supplying the document. 42 Thus it becomes
important to determine whether these clauses should be given contractual effect.
Contractual document
13-009
Where the conditions are contained in a document, the document must be of a class which either the
party receiving it knows, or which a reasonable man would expect, to contain contractual conditions.
Thus a cheque book, 43 a time sheet, 44 a ticket for a deck chair, 45 a ticket handed to a person at a
public bath house 46 and a parking ticket issued by an automatic machine 47 have been held to be
cases:
“… where it would be quite reasonable that the party receiving it should assume that the
writing contained no condition and should put it in his pocket unread.” 48
On the other hand, a railway 49 or ship 50 ticket or a receipt for goods deposited 51 has been held to be
a contractual document.
Time of notice
13-010
The conditions must be brought to the notice 52 of the party to be bound before or at the time when
the contract is made. If they are not communicated to him until after the contract is concluded, they
will be of no effect. In Olley v Marlborough Court Ltd 53 certain property of the claimant was stolen
from his hotel bedroom owing to the negligence of the hotel management. On arrival at the hotel he
Page 2
had signed the hotel register which contained no mention of any exemption clauses, but in the
bedroom there was a notice disclaiming liability for articles lost or stolen. It was held that the notice
was ineffective as he had not been made aware of it until after the contract was made.
Course of dealing
13-011
Conditions will not necessarily be incorporated into a contract by reason of the fact that the parties
have, on previous occasions, dealt with each other subject to those conditions. 54 But they may be
incorporated by a “course of dealing” between the parties where each party has led the other
reasonably to believe that he intended that their rights and liabilities should be ascertained by
reference to the terms of a document which had been consistently used by them in previous
transactions. 55 It should, however, be noted that a more relaxed approach is adopted in art.25 of the
Regulation (EU) on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and
Commercial Matters 56 to the degree of consensus required for the incorporation of an exclusive
jurisdiction clause. 57
Incorporation without express reference
13-012
Conditions usual in a particular trade may be incorporated where both parties are in the trade and are
aware that conditions are habitually imposed and of the substance of those conditions, even if they
are not referred to at the time of contracting. 58 Contracts may also be found to have been made
subject to the terms of a “master agreement” even though that agreement is not referred to in the
individual contracts. 59 A sequence of emails may be read together even if a later email does not
expressly refer to the earlier emails. 60
Meaning of notice
13-013
It is not necessary that the conditions contained in the standard form document should have been
read by the person receiving it, or that he should have been made subjectively aware of their import
61
or effect. The rules which have been laid down by the courts regarding notice in such
circumstances are three in number:
(1)
if the person receiving the document did not know that there was writing or printing on it, he is
not bound;
(2)
if he knew that the writing or printing contained or referred to conditions, he is bound;
(3)
if the party tendering the document did what was reasonably sufficient to give the other party
notice of the conditions, and if the other party knew that there was writing or printing on the
document, but did not know it contained conditions, then the conditions will become the terms of
the contract between them.
Page 3
Reasonable sufficiency of notice
13-014
It is the third of these rules which has most often to be considered by the courts. The question
whether the party tendering the document has done all that was reasonably sufficient to give the other
notice of the conditions is a question of fact in each case, in answering which the tribunal must look at
all the circumstances and the situation of the parties. 62 But it is for the court, as a matter of law, to
decide whether there is evidence for holding that the notice is reasonably sufficient. 63 Cases in which
the notice has been held to be insufficient have been those where the conditions were printed on the
back of the document, without any reference, or any adequate reference, on its face, such as, “[f]or
conditions, see back”, 64 where, on documents sent by fax, reference was made to conditions stated
on the back, but those conditions were not in fact stated on the back or otherwise communicated, 65 or
where the conditions were obliterated by a printed stamp. 66 In many situations, however, the tender
of printed conditions will in itself be sufficient. 67 It is not necessary that the conditions themselves
should be set out in the document tendered: they may be incorporated by reference, provided that
reasonable notice of them has been given. 68 Reference to standard terms to be found on a website
may be sufficient to incorporate the terms on the website into the contract. 69
Onerous or unusual terms
13-015
Although the party receiving the document knows it contains conditions, if the particular condition
relied on is one which is a particularly onerous or unusual term, or is one which involves the
abrogation of a right given by statute, the party tendering the document must show that it has been
brought fairly and reasonably to the other’s attention. 70 “Some clauses which I have seen,” said
Denning L.J. 71:
“… would need to be printed in red ink on the face of the document with a red hand
pointing to it before the notice could be held to be sufficient.”
Personal disability
13-016
It is immaterial that the party receiving the document is under some personal, but non-legal, disability,
such as blindness, illiteracy, or an inability to read our language. 72 Provided the notice is reasonably
sufficient for the class of persons to which the party belongs (e.g. passengers on a ship or railway) he
will be bound by the conditions.
Printed notices
13-017
Where printed notices are exhibited, it may be sufficient if the party to be bound has, before or at the
time of making the contract, had his attention drawn to the notices, 73 or received a printed document
which refers him to the notices, 74 in circumstances which make it clear to him that the contract is
subject to the conditions contained in the notices. 75 The reference may be circuitous provided it is
clear. 76 It has, however, been stated by Denning L.J. that:
Page 4
“The party who is liable at law cannot escape liability by simply putting up a printed
notice, or issuing a printed catalogue, containing exempting conditions. He must go
further and show affirmatively that it is a contractual document and accepted as such by
the party affected.” 77
In many situations it will nevertheless be sufficient to display a prominent public notice which can be
plainly seen at the time of making the contract. 78 But the issue of a catalogue or brochure which
states that the contract to be concluded will be subject to exempting conditions may not be sufficient
to make the conditions terms of the contract if further steps to incorporate the conditions are not taken
at the time the contract is concluded. 79
Statute
13-018
Certain additional requirements of form have been imposed by statute on some classes of contract;
for example, by the Carriers Act 1830 s.4, common carriers cannot limit their liability by publication of
notices alone, but only by special contract. 80
39. cf. Grogan v Robin Meredith Plant Hire (1996) 15 Tr. L.R. 371 (non-contractual document).
40. See the cases cited in para.13-002 n.5, above.
41. See Sales (1953) 16 M.L.R. 318; Clarke [1976] C.L.J. 51.
43. Burnett v Westminster Bank [1966] 1 Q.B. 742.
44. Grogan v Robin Meredith Plant Hire (1996) 15 Tr. L.R. 371.
45. Chapelton v Barry U.D.C. [1940] 1 K.B. 532.
46. Taylor v Glasgow Corp 1952 S.C. 440.
47. Thornton v Shoe Lane Parking Ltd [1971] 2 Q.B. 163.
48. Parker v South Eastern Ry (1877) 2 C.P.D. 416, 422.
49. Thompson v L.M. & S. Ry [1930] 1 K.B. 41.
50. Hood v Anchor Line (Henderson Bros) Ltd [1918] A.C. 837; Cockerton v Naviera Aznar SA
[1960] 2 Lloyd’s Rep. 451.
51. Parker v South Eastern Ry (1877) 2 C.P.D. 416; Alexander v Ry Executive [1951] 2 K.B. 882.
52. For the meaning of notice, see below, para.13-013.
53. [1949] 1 K.B. 532. See also Thornton v Shoe Lane Parking Ltd [1971] 2 Q.B. 163 (ticket
proffered by automatic machine); Hollingworth v Southern Ferries Ltd [1977] 2 Lloyd’s Rep. 70;
Daly v General Steam Navigation Co Ltd [1979] 1 Lloyd’s Rep. 257; Dillon v Baltic Shipping Co
[1991] 2 Lloyd’s Rep. 155 (ship tickets); Metaalhandel JA Magnus BV v Ardfields Transport Ltd
[1988] 1 Lloyd’s Rep. 197, 204 (conditions in invoice). cf. Cockerton v Naviera Aznar SA [1960]
Page 5
54. McCutcheon v David Macbrayne Ltd [1964] 1 W.L.R. 125 HL (no consistent course of dealing);
Hollier v Rambler Motors (A.M.C.) Ltd [1972] 2 Q.B. 71 (only three or four times in five years);
Capes (Hatherden) Ltd v Western Arable Services Ltd [2009] EWHC 3065 (QB), [2010] 1
Lloyd’s Rep. 477 (four contracts in same year with interval of five months between the last of
them and the two contracts in question); Transformers & Rectifiers Ltd v Needs Ltd [2015]
EWHC 269 (TCC), [2015] B.L.R. 336 (claimant failed to follow a consistent practice of enclosing
its terms and conditions with every purchase order).
55. J. Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461, 467; Cockerton v Naviera Aznar SA [1960] 2
Lloyd’s Rep. 451; Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 A.C. 31, 90, 91,
104, 105, 130; Transmotors Ltd v Robertson Buckley & Co Ltd [1970] 1 Lloyd’s Rep. 224;
Eastman Chemical International A.G. v N.M.T. Trading Ltd [1972] 2 Lloyd’s Rep. 25; Gillespie
Bros & Co Ltd v Roy Bowles Transport Ltd [1973] Q.B. 400; S.I.A.T. di del Ferro v Tradax
Overseas SA [1978] 2 Lloyd’s Rep. 470 (affirmed [1980] 1 Lloyd’s Rep. 53); Lamport & Holt
Lines Ltd v Coubro & Scrutton (M. & I.) Ltd [1981] 2 Lloyd’s Rep. 659 (affirmed [1982] 2 Lloyd’s
Rep. 42); McCrone v Boots Farm Sales Ltd 1981 S.L.T. 103; George Mitchell (Chesterhall) Ltd
v Finney Lock Seeds Ltd [1983] Q.B. 284, 295 (affirmed [1983] 2 A.C. 803); Johnson Matthey
Bankers Ltd v State Trading Corp of India Ltd [1984] 1 Lloyd’s Rep. 427; Circle Freight
International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep. 427; Balmoral Group Ltd v
Borealis UK Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep. 629 at [362]–[366]; Capes
(Hatherden) Ltd v Western Arable Services Ltd [2009] EWHC 3065 (QB), [2010] 1 Lloyd’s Rep.
477 at [32]–[42]; cf. Banque Paribas v Cargill International SA [1992] 1 Lloyd’s Rep. 96, 98; see
Hoggett (1970) 33 M.L.R. 518. See also Photolibrary Group Ltd v Burda Senator Verlag GmbH
[2008] EWHC 1343 (QB), [2008] 2 All E.R. (Comm) 881; SKNL (UK) Ltd v Toll Global
Forwarding [2012] EWHC 4252 (Comm), [2013] 2 Lloyd’s Rep. 115.
56. Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil
and commercial matters (recast) [2012] O.J. L351/1. The Regulation came into force on
January 10, 2015 and recasts and replaces Regulation 44/2001 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters [2001] O.J. L.12/1.
57. See The Tilly Russ (M.S.) [1985] 1 Q.B. 931; Mainschiffahrts-Genossenschaft eG v Les
Gravières Rhénanes SARL [1997] Q.B. 1; SSQ Europe SA v Johann & Backes OHG [2002] 1
Lloyd’s Rep. 465; Africa Express Line Ltd v Socofi SA [2009] EWHC 3223 (Comm), [2010] 2
Lloyd’s Rep. 181.
58. British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd [1975] Q.B. 303; Chevron International Oil
Co Ltd v A/S Sea Team [1983] 2 Lloyd’s Rep. 256; Laceys Footwear (Wholesale) Ltd v Bowler
International Freight Ltd [1997] 2 Lloyd’s Rep. 369, 378; Balmoral Group Ltd v Borealis UK Ltd
[2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep. 629 at [357]; Transformers & Rectifiers Ltd v
Needs Ltd [2015] EWHC 269 (TCC), [2015] B.L.R. 336 at [42]. cf. Salsi v Jetspread Air
Services Ltd [1977] 2 Lloyd’s Rep. 57; Pancommerce SA v Veecheema BV [1983] 2 Lloyd’s
Rep. 304, 305; Neptune Orient Lines Ltd v J.V.C. (UK) Ltd [1983] 2 Lloyd’s Rep. 438;
Shipbuilders Ltd v Benson [1992] 3 N.Z.L.R. 349; Grogan v Robin Meredith Plant Hire (1996)
15 Tr. L.R. 371. See also Matrix Europe Ltd v Uniserve Holdings Ltd [2008] EWHC 11 (QB),
[2008] 1 C.L.C. 205 (BIFA terms applied even to unintentional delivery of goods).
59. Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 Q.B. 711. But
cf. Lisnave Estaleiros Navais SA v Chemikalien Seetransport GmbH [2013] EWHC 338
(Comm), [2013] 2 Lloyd’s Rep. 213.
60. Golden Ocean Group Ltd v Salgaocar Mining Industries PVT [2011] EWHC 56 (Comm), [2011]
2 All E.R. (Comm) 95; [2012] EWCA Civ 265, [2012] 1 W.L.R. 3674.
61.
Parker v South Eastern Ry (1877) 2 C.P.D. 416, 421, 423; Richardson, Spence & Co v
Rowntree [1894] A.C. 217; Hood v Anchor Line (Henderson Bros) Ltd [1918] A.C. 837;
McCutcheon v David Macbrayne Ltd [1964] 1 W.L.R. 125; Burnett v Westminster Bank [1966] 1
Q.B. 742; Thornton v Shoe Lane Parking Ltd [1971] 2 Q.B. 163; Shepherd Homes Ltd v Encia
Page 6
Remediation Ltd [2007] EWHC 70 (TCC), [2007] B.L.R. 135; Allen Fabrications Ltd v ASD Ltd
[2012] EWHC 2213 (TCC) at [56]. See Clarke [1976] C.L.J. 51. However, the court may be
slower to incorporate a term into a contract where that term is to be found in a contract between
two other parties or between one of the contracting parties and a third party: Barrier Ltd v
Redhall Marine Ltd [2016] EWHC 381 (QB); Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v
Sometal SAL [2010] EWHC 29 (Comm), [2010] 1 Lloyd’s Rep. 661; TTMI SARL v Statoil ASA
[2011] EWHC 1150 (Comm), [2011] 2 Lloyd’s Rep 220.
62. Parker v South Eastern Ry (1877) 2 C.P.D. 416; Richardson, Spence & Co v Rowntree [1894]
A.C. 217; Hood v Anchor Line (Henderson Bros) Ltd [1918] A.C. 837, 844, 847.
63. Thompson v L.M. & S. Ry [1930] 1 K.B. 41.
64. Henderson v Stevenson (1875) L.R. 2 H.L.(Sc.) 470; Sugar v L.M. & S. Ry [1941] 1 All E.R. 172
; White v Blackmore [1972] 2 Q.B. 651, 664. cf. Rolls Royce Power Engineering Plc v Ricardo
Consulting Engineers Ltd [2003] EWHC 2871 (TCC), [2004] 2 All E.R. (Comm) 129;
Transformers & Rectifiers Ltd v Needs Ltd [2015] EWHC 269 (TCC), [2015] B.L.R. 336.
65. Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd [1996] 2 Lloyd’s Rep. 388;
Transformers & Rectifiers Ltd v Needs Ltd [2015] EWHC 269 (TCC), [2015] B.L.R. 336.
66. Richardson, Spence & Co v Rowntree [1894] A.C. 217. On small and illegible print, see
Paterson Zochonis & Co Ltd v Elder, Dempster & Co Ltd [1923] 1 K.B. 420, 441. cf. P.S.
Chellaram & Co Ltd v China Ocean Shipping Co [1991] 1 Lloyd’s Rep. 493, 519.
67. Parker v South Eastern Ry (1877) 2 C.P.D. 416; Hood v Anchor Line (Henderson Bros) Ltd
[1918] A.C. 837; Cockerton v Naviera Aznar SA [1960] 2 Lloyd’s Rep. 451; Budd v P. & O.
Steam Navigation Co [1969] 2 Lloyd’s Rep. 262; cf. Union Steamships v Barnes (1956) 5
D.L.R. (2d) 535.
68. Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep. 427; Shearson
Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep. 570, 613; Crédit Suisse
Financial Products v Société Generale d’Enterprises (1996) 5 Bank. L.R. 220, Ocean Chemical
Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s Rep. 446; O’Brien v MGN Ltd [2001] EWCA
Civ 1279, [2002] C.L.C. 33; Sumukan Ltd v Commonwealth Secretariat [2007] EWCA Civ 243,
[2007] 2 Lloyd’s Rep. 87.
69. Impala Warehousing and Logistics (Shanghai) Co Ltd v Wanxiang Resources (Singapore) Pte
Ltd [2015] EWHC 25 (Comm) at [16].
70. Parker v South Eastern Ry (1877) 2 C.P.D. 416, 428; Thornton v Shoe Lane Parking Ltd [1971]
2 Q.B. 163; Hollingworth v Southern Ferries Ltd [1977] 2 Lloyd’s Rep. 70; Interfoto Picture
Library Ltd v Stiletto Visual Programmes Ltd [1989] Q.B. 433; Dillon v Baltic Shipping Co [1991]
2 Lloyd’s Rep. 155; A.E.G. (UK) Ltd v Logic Resource Ltd [1996] C.L.C. 265; Laceys Footwear
v Bowler International Freight (Wholesale) Ltd [1997] 2 Lloyd’s Rep. 369, 384–385; Ocean
Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s Rep. 446, 451, Amiri Flight
Authority v BAE Systems Plc [2003] EWCA Civ 1447, [2003] 2 Lloyd’s Rep. 767; Kaye v NuSkin
UK Ltd [2009] EWHC 3509 (Ch), [2011] 1 Lloyd’s Rep. 40. For the suggested extension of this
principle to signed documents, see Jaques v Lloyd D George & Partners Ltd [1968] 1 W.L.R.
625, 630; Tilden Rent-a-Car Co v Clendenning (1978) 83 D.L.R. (3d) 400; Ocean Chemical
Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s Rep. 446, 454; Montgomery Litho Ltd v
Maxwell, 2000 S.C. 56; Amiri Flight Authority v BAE Systems Plc [2003] EWCA Civ 1447,
[2003] 2 Lloyd’s Rep. 767 at [14]–[16]; One World (GB) Ltd v Elite Mobile Ltd [2012] EWHC
3706 (QB) at [52]–[58]; Macdonald [1999] C.L.J. 413, 422; above, para.13-002 n.5. Contrast
Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep. 570, 612; HIH
Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ 735,
[2001] 2 Lloyd’s Rep. 161 at [209]; Do-Buy 95 Ltd v National Westminster Bank Plc [2010]
EWHC 2862 (QB) at [91]; cf. also Sumukan Ltd v Commonwealth Secretariat [2007] EWCA Civ
1148, [2008] 1 Lloyd’s Rep. 40; Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC
70 (TCC) [2007] Build. L.R. 135; Stretford v Football Association Ltd [2007] EWCA Civ 238,
[2007] 2 Lloyd’s Rep. 31; Photolibrary Group Ltd v Burda Senator Verlag GmbH [2008] EWHC
Page 7
1343 (QB), [2008] 2 All E.R. (Comm) 881; Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v
Sometal [2010] EWHC 29 (Comm), [2010] 1 Lloyd’s Rep. 661; Allen Fabrications Ltd v ASD Ltd
[2012] EWHC 2213 (TCC) at [57]–[64] (terms not onerous or unusual).
71. J. Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461, 466.
72. Thompson v L.M. & S. Ry [1930] 1 K.B. 41; cf. Firchuk and Firchuk v Waterfront Cartage
Division, etc., Ltd [1969] 2 Lloyd’s Rep. 533, 534. Quaere if the disability is known to the other
contracting party: see Geier v Kujawa Weston and Warne Bros (Transport) Ltd [1970] 1 Lloyd’s
Rep. 364.
73. Birch v Thomas [1972] 1 W.L.R. 294.
74. Watkins v Rymill (1883) 10 Q.B.D. 178.
75. cf. Hollingworth v Southern Ferries Ltd [1977] 2 Lloyd’s Rep. 70.
76. Wyndham Rather Ltd v Eagle Star and British Dominions Insurance Co Ltd (1925) 21 Ll.L. Rep.
214; Thompson v L.M. & S. Ry [1930] 1 K.B. 41; Goodyear Tyre & Rubber Co v Lancashire
Batteries [1958] 1 W.L.R. 857.
77. Harling v Eddy [1951] 2 K.B. 739, 748. See also Olley v Marlborough Court Ltd [1949] 1 K.B.
532, 549; Adams (Durham) Ltd v Trust Houses Ltd [1960] 1 Lloyd’s Rep. 380; Mendelssohn v
Normand Ltd [1970] 1 Q.B. 177, 182.
78. Olley v Marlborough Court Ltd [1949] 1 K.B. 532, 549; Ashdown v Samuel Williams & Sons Ltd
[1957] 1 Q.B. 409; Thornton v Shoe Lane Parking Ltd [1970] 1 Q.B. 177; White v Blackmore
[1972] 2 Q.B. 651. Contrast McCutcheon v David Macbrayne Ltd [1964] 1 W.L.R. 125; Smith v
Taylor [1966] 2 Lloyd’s Rep. 231; Burnett v British Waterways Board [1973] 1 W.L.R. 700.
79. Hollingworth v Southern Ferries Ltd [1977] 2 Lloyd’s Rep. 70.
80. See Vol.II, para.36-025. But the common carrier is now virtually extinct.

Page 1

Section 2. - Classification of Terms
Conditions and warranties
13-019
Once it has been established that a certain stipulation is indeed a term of the contract, the question
arises as to its comparative importance and effect. Traditionally, in English law, the terms of a
contract have been classified as being either conditions or warranties, the difference between them
being that any breach of a condition entitles the innocent party, if he so chooses, to treat himself as
discharged from further performance under the contract, 81 and in any event to claim damages for loss
sustained by the breach. A breach of warranty, on the other hand, does not entitle him to treat himself
as discharged, but to claim damages only.
Intermediate terms
13-020
The dichotomy between conditions and warranties is not, however, exhaustive. The “more modern
doctrine” 82 is that there exists a third category of “intermediate” (or “innominate”) terms, the failure to
perform which may or may not entitle the innocent party to treat himself as discharged, depending on
the nature and consequences of the breach. 83
Fundamental terms
13-021
There was at one time some support for the view that, in addition to conditions, warranties and
intermediate terms, the law recognises yet a fourth category of term, the “fundamental term”. 84 The
fundamental term has been described as part of the “core” of the contract, 85 the non-performance of
which destroys the very substance of the agreement. It has been distinguished by Devlin J. 86 as
being “something narrower than a condition of the contract” and as:
“… something which underlies the whole contract so that, if it is not complied with, the
performance becomes totally different from that which the contract contemplates.”
Examples usually cited are those where a seller delivers goods wholly different from the agreed
contract goods or delivers goods which are so seriously defective as to render them in substance not
the goods contracted for: e.g. the delivery of beans instead of peas, 87 of pinewood logs instead of
mahogany logs, 88 or of a vehicle which is incapable or barely capable of self-propulsion instead of a
motor car. 89 In each case, so it is said, there is a breach of the fundamental term, that is to say, of the
“core” obligation to deliver the essential goods which are the subject matter of the contract of sale.
Page 2
13-022
The concept of the fundamental term has most often been employed in relation to exemption clauses.
At one time it was asserted that, even though liability for a breach of condition might be excluded by
an appropriately drafted exemption clause, no such clause could exonerate a party from failure to
perform the fundamental term of an agreement. The House of Lords, however, has since held that
there is no rule of law that an exemption clause is inapplicable in the case of a “fundamental” or “total”
breach. 90 The question is now whether the clause, on its true construction, applies to the breach
which has occurred. No doubt, as a matter of construction, a court will be reluctant to ascribe to an
exemption clause so wide an ambit as in effect to deprive one party’s stipulations of all contractual
force. 91 But, for the purpose of ascertaining the intention of the parties in this respect, it seems
unnecessary to predicate the existence of a fundamental term, i.e. in considering whether an
exemption clause covers the delivery of beans instead of peas, to say that the contract contains a
“fundamental term” to deliver peas. There may also be difficulties in identifying the “core” of the
particular contract: Is it to supply “peas” or “leguminous vegetables” or “agricultural produce”? 92 The
quest for the fundamental term may well deflect the court from its proper task of ascertaining the true
construction of the exemption clause into a barren enquiry as to whether the essential object of the
contract has not been fulfilled at all or whether it has been fulfilled, but not in a way that the contract
requires.
13-023
Whether any further consequences follow from the categorisation of a particular contractual obligation
as a fundamental term is even more doubtful. It is possible to contend that s.11(4) of the Sale of
Goods Act 1979, 93 which in certain circumstances precludes a buyer who has accepted the goods
from subsequently rejecting them and treating the contract as repudiated, does not apply to the
breach of a fundamental term. 94 This seems to be only an ex-post facto rationalisation of an
independent principle (if such exists) that, for the purposes of s.35 of the 1979 Act, a buyer will not be
deemed to have accepted goods that are wholly different from those agreed to be sold. It is also
possible to assert that the breach of a fundamental term gives rise, not merely to a claim for
damages, but to recover all money paid as upon a consideration which has totally failed. 95 But it
seems better to regard the question whether or not there has been a total failure of consideration as
dependent upon the facts of the case, rather than upon the breach of a “fundamental term”.
13-024
In conclusion it is submitted that it is neither necessary nor desirable to create yet a fourth category of
contractual term—the “fundamental term”—in addition to conditions, warranties and intermediate
terms. In Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale, 96
Lord Upjohn defined the expression “fundamental term” in language which clearly indicated that he
regarded it as an alternative way of referring to a condition, i.e. a term which went to the root of the
contract so that any breach of it entitled the innocent party to be discharged. There is therefore strong
ground for the view that English law does not recognise any category of “fundamental terms” distinct
from conditions.
82. Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, 998.
84. See below, paras 15-023, 15-027. See also Guest (1961) 77 L.Q.R. 98, 327; Montrose [1964]
C.L.J. 60, 254; Reynolds (1963) 79 L.Q.R. 534; Lord Devlin [1966] C.L.J. 192; Jenkins [1969]
C.L.J. 251.
85. Alderslade v Hendon Laundry Ltd [1945] K.B. 189, 192.

Page 3
86. Smeaton Hanscomb & Co Ltd v Sassoon I. Setty Son & Co [1953] 1 W.L.R. 1468, 1470.
87. Chanter v Hopkins (1838) 4 M. & W. 399, 404.
88. Smeaton Hanscomb & Co Ltd v Sassoon I. Setty Son & Co [1953] 1 W.L.R. 1468, 1470.
89. Karsales (Harrow) Ltd v Wallis [1956] 1 W.L.R. 17; Yeoman Credit Ltd v Apps [1962] 2 Q.B.
508; Farnworth Finance Facilities Ltd v Attryde [1970] 1 W.L.R. 1053.
90. Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967]
1 A.C. 361; Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827; Ailsa Craig Fishing
Co Ltd v Malvern Fishing Co Ltd [1983] 1 W.L.R. 964, 971; George Mitchell (Chesterhall) Ltd v
Finney Lock Seeds Ltd [1983] 2 A.C. 803; see below, para.15-023.
1 A.C. 361, 432. See also Tor Line AB v Alltrans Group of Canada Ltd [1984] 1 W.L.R. 48,
58–59. See below, para.15-010.
92. See, e.g. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 1 W.L.R. 964; Lord
Devlin [1966] C.L.J. 192, 212.
93. Formerly s.11(1)(c) of the Sale of Goods Act 1893.
95. Rowland v Divall [1923] 2 K.B. 500; Karflex Ltd v Poole [1933] 2 K.B. 251; Warman v Southern
Counties Car Finance Corp Ltd [1949] 2 K.B. 576; Butterworth v Kingsway Motors Ltd [1954] 1
W.L.R. 1286; Karsales (Harrow) Ltd v Wallis [1956] 1 W.L.R. 936. See also Hain S.S. Co v Tate
& Lyle Ltd (1936) 41 Com. Cas. 350, 368, 369, and Vol.II, paras 39-388, 44-081, 44-127.
96. [1967] 1 A.C. 361, 422; see below, para.15-024.

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(a) - Conditions
Differing terminology
13-025
The word “condition” is sometimes used, even in legal documents, to mean simply “a stipulation, a
provision” and not to connote a condition in the technical sense of that word. 97 Even within the sphere
of the technical meaning attached to the word “condition”, the terminology employed is, unfortunately,
not uniform. 98 There may, for example, be conditions, the failure of which gives no right of action, but
which merely suspends the rights and obligations of the parties. 99 The most commonly used sense of
the word “condition” is that of an essential stipulation of the contract which one party guarantees is
true or promises will be fulfilled. Any breach of such a stipulation entitles the innocent party, if he so
chooses, to treat himself as discharged from further performance of the contract, and notwithstanding
that he has suffered no prejudice by the breach. He can also claim damages for any loss suffered.
Conditions and other contract terms
13-026
The use of the word “condition” in this sense appears to have originated in the seventeenth century
100
: a stipulation might be regarded as so vital to the contract that its complete and exact performance
by one party was a condition precedent to the obligation of the other party to perform his part. 101 In
the modern law, the reason why a breach of a condition entitles the innocent party to treat himself as
discharged has been said to be that conditions:
“… go so directly to the substance of the contract or, in other words, are so essential to
its very nature that their non-performance may fairly be considered by the other party as
a substantial failure to perform the contract at all.” 102
And the reason why any breach of condition has this effect has been put on the ground that the
parties are to be regarded as having agreed that any failure of performance, irrespective of the gravity
of the event that has in fact resulted from the breach, should entitle the other party to elect to put an
end to all primary obligations of both parties remaining unperformed. 103 The parties may, by express
words 104 or by implication of law, 105 agree that a particular stipulation is to be a condition of their
contract. They may agree to classify as a condition a term which would not otherwise amount to a
condition under the general law 106 but, in order to do so, they should use “clear words”. 107 The
parties may also be held to have created a condition by necessary implication arising from the nature,
purpose and circumstances of the contract, 108 and in this respect:
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“There is no way of deciding that question except by looking at the contract in the light of
the surrounding circumstances, and then making up one’s mind whether the intention of
the parties, as gathered from the instrument itself, will best be carried out by treating the
promise as a warranty sounding only in damages, or as a condition precedent by the
failure to perform which the other party is relieved of his liability.” 109
Promissory and contingent conditions
13-027
A condition in the sense mentioned above may conveniently be termed a “promissory” condition,
being a promise or assurance for the non-performance of which a right of action accrues to the
innocent party. 110 This sense must be carefully distinguished from that of a “contingent” condition, i.e.
a provision that on the happening of some uncertain event an obligation shall come into force, or that
an obligation shall not come into force until such an event happens. 111 In this latter case, the
non-fulfilment of the condition gives no right of action for breach 112; it simply suspends the obligations
of one or both parties. 113 In Trans Trust S.P.R.L. v Danubian Trading Co Ltd, 114 Denning L.J.
considered a condition in a contract for the sale of goods whereby the buyer was to open a confirmed
credit in favour of the seller, and said:
“What is the legal position of such a stipulation? Sometimes it is a condition precedent to

the formation of a contract, that is, it is a condition which must be fulfilled before any
contract is concluded at all. In those cases the stipulation ‘subject to the opening of a
credit’ is rather like a stipulation ‘subject to contract.’ If no credit is provided, there is no
contract between the parties. 115 In other cases, a contract is concluded and the
stipulation for a credit is a condition which is an essential term of the contract. In those
cases the provision of the credit is a condition precedent, not to the formation of the
contract, but to the obligation of the seller to deliver the goods. If the buyer fails to provide
the credit, the seller can treat himself as discharged from any further performance of the
contract and can sue the buyer for damages for not providing the credit.”
The first of these instances provided by Denning L.J. is that of a contingent, and the second of a
promissory, condition.
Conditions precedent
13-028
The liability of one or both of the contracting parties may become effective only if certain facts are
ascertained to exist or upon the occurrence or non-occurrence of some further event. In such a case
the contract is said to be subject to a condition precedent. 116 The failure of a condition precedent may
have one of a number of effects. 117 It may, in the first place, suspend the rights and obligations of
both parties, as, for instance, where the parties enter into an agreement on the express
understanding that it is not to become binding on either of them unless the condition is fulfilled. 118
Secondly, one party may assume an immediate unilateral binding obligation, subject to a condition.
From this he cannot withdraw 119; but no bilateral contract, binding on both parties, comes into
existence until the condition is fulfilled. 120 Thirdly, the parties may enter into an immediate binding
contract, but subject to a condition, which suspends all or some of the obligations of one or both
parties pending fulfilment of the condition. 121 These conditions precedent are, however, normally
contingent and not promissory, and in such a case neither party will be liable to the other if the
condition is not fulfilled.
Concurrent conditions
Page 3
13-029
The word “condition” has also been employed in the case of “concurrent conditions”. Where the
promises made by each party are to be fulfilled at the same time, or, at any rate, where each party’s
obligation is to depend on the readiness and willingness of the other to perform at that time, the
promises are termed concurrent conditions. For example, in a contract of sale of goods, delivery of
the goods and payment of the price are in the absence of a contrary intention concurrent conditions,
that is to say, the seller must be ready and willing to give possession of the goods to the buyer in
exchange for the price and the buyer must be ready and willing to pay the price in exchange for
possession of the goods. 122 Similarly, when freight is payable on delivery of cargo, payment of the
freight and delivery of the cargo are normally concurrent conditions. 123
Conditions subsequent
13-030
The obligation of one or both parties may be made subject to a condition that it is to be immediately
binding, but if certain facts are ascertained to exist or upon the occurrence or non-occurrence of some
further event, then either the contract is to cease to bind or one or both parties are to have the right to
avoid the contract or bring it to an end. 124 In such a case the contract is said to be subject to a
condition subsequent. An example is provided by the case of Head v Tattersall 125 where A bought a
horse from B which B warranted to have been hunted with the Bicester hounds. If it did not answer its
description, A was to have the right to return it by a certain day. The horse did not answer its
description and A accordingly returned it before the day. In the meantime, however, the horse had
been injured without A’s fault. It was held that the injury did not cause A to lose his right to return the
horse and he could recover the purchase price paid. 126
97. L.G. Schuler A.G. v Wickman Machine Tool Sales Ltd [1974] A.C. 235; cf. Skips A/S Nordheim
v Syrian Petroleum Ltd [1984] Q.B. 599.
98. See Stoljar (1953) 69 L.Q.R. 485.
100. See Pordage v Cole (1669) 1 Wms. Saund. 319; Kingston v Preston (1773) 2 Doug. 689, 691;
Boone v Eyre (1777) 1 H.Bl. 273n; Cutter v Powell (1795) 6 Term.R. 320; Hongkong Fir
Shipping Co Ltd v Kawasaki Kisen Kaisha [1962] 2 Q.B. 26, 65; Cehave NV v Bremer
Handelsgesellschaft mbH [1976] Q.B. 44, 57, 72. See also Chalmers, Sale of Goods, 2nd edn,
p.164; Dawson [1981] C.L.J. 83, 87; and below, para.24-039.
101. See also Marine Insurance Act 1906 ss.33–41; Bank of Nova Scotia v Hellenic Mutual War
Risks Association (Bermuda) Ltd [1992] 1 A.C. 233.
102. Wallis, Son & Wells v Pratt & Haynes [1910] 2 K.B. 1003, 1012, per Fletcher Moulton J.
(dissenting): approved [1911] A.C. 394; L.G. Schuler A.G. v Wickman Machine Tool Sales Ltd
[1974] A.C. 235, 264, 272; State Trading Corp of India Ltd v M. Golodetz Ltd [1989] 2 Lloyd’s
Rep. 277, 282.
103. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 849. See also Bunge Corp v
Tradax Export SA [1981] 1 W.L.R. 711; State Trading Corp of India Ltd v M. Golodetz Ltd
[1989] 2 Lloyd’s Rep. 277.
104. Dawsons Ltd v Bonnin [1922] 2 A.C. 413; Lombard North Central Plc v Butterworth [1987] Q.B.
527. But the terminology used may not be decisive: Sale of Goods Act 1979 s.11(3).
105. e.g. Sale of Goods Act 1979 ss.11(3), 12(5A), 13(1A), 14(6), 15(3). These provisions do not
Page 4
apply to contracts which fall within the scope of Ch.2 of Pt 1 of the Consumer Rights Act 2015.
106. Lombard North Central Plc v Butterworth [1987] Q.B. 527, 535.
107.
Heritage Oil and Gas Ltd v Tullow Uganda Ltd [2014] EWCA Civ 1048, [2014] 2 C.L.C. 61 at
[33] where it was noted that the decision of the House of Lords in L.G. Schuler A.G. v Wickman
Machine Tool Sales Ltd [1974] A.C. 235 represented the “high-water mark” of the reluctance of
the courts to classify a term as a condition. Where the contract uses the term “condition” once
and provides that “It is a condition of the agreement … ” that should generally suffice to
constitute the term as a condition: Personal Touch Financial Services Ltd v Simplysure Ltd
[2016] EWCA Civ 461 at [28].
108. Bunge Corp v Tradax Export SA [1981] 1 W.L.R. 711. See also the cases cited in para.13-037
below (mercantile contracts).
109. Bentsen v Taylor, Sons & Co [1893] 2 Q.B. 274, 281. See also Glaholm v Hays (1841) 2 M. &
G. 257, 266; Re Comptoir Commercial Anversois and Power, Son & Co [1920] 1 K.B. 868, 899;
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha [1962] 2 Q.B. 26, 60; Astley Industrial
Trust Ltd v Grimley [1963] 1 W.L.R. 584, 590; L.G. Schuler A.G. v Wickman Machine Tool
Sales Ltd [1974] A.C. 235; Bunge Corp v Tradax Export SA [1981] 1 W.L.R. 711, 719, 725;
State Trading Corp of India Ltd v M. Golodetz Ltd [1989] 2 Lloyd’s Rep. 277, 282; Compagnie
Commerciale Sucres et Denrees v Czarnikow Ltd [1990] 1 W.L.R. 1337, 1347; Torvald
Klaveness A/S v Arni Maritime Corp [1994] 1 W.L.R. 1465, 1475–1476; Sale of Goods Act 1979
ss.11(3), 61(1).
110. Stoljar (1953) 69 L.Q.R. 485.
111. London Passenger Transport Board v Moscrop [1942] A.C. 332, 341; Panoutsos v Raymond
Hadley Corp of New York [1917] 2 K.B. 473; Aberfoyle Plantations Ltd v Cheng [1960] A.C. 115
; Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 Q.B. 665 (affirmed on
other grounds [1991] 2 A.C. 249); Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s
Rep. 209. In Damon Compania Naviera SA v Hapag-Lloyd International SA [1985] 1 W.L.R.
435, it was held that a provision for payment of a deposit on signing a memorandum of
agreement was not a condition precedent (i.e. contingent condition) to the formation of the
contract, but was a fundamental term (i.e. promissory condition) of a concluded contract. cf.
Haugland Tankers AS v RMK Marine Gemi Yapin Sanayii ve Dentz Tasimaciligi Isletmesi AS
[2005] EWHC 321 (Comm), [2005] 1 Lloyd’s Rep. 573 (payment of commitment fee condition
precedent to exercise of option).
112. Unless one party himself deliberately procures the non-fulfilment of the condition in certain
circumstances: see below, paras 13-085, 14-015.
114. [1952] 2 Q.B. 297, 304.
115. The analogy is not, however, an exact one, for in the case of a stipulation “subject to contract”
no contract will usually come into existence at all (see above, para.2-125) whereas in the case
of a contingent condition relating to the opening of a credit a contract normally comes into
existence, though certain rights and obligations of the parties are suspended until the condition
is fulfilled (see below, para.13-028). cf. UR Power GmbH v Kuok Oils and Grains Pte Ltd [2009]
EWHC 1940 (Comm), [2009] 2 Lloyd’s Rep. 495 at [16].
116. For the other use of the term “condition precedent” to mean a promissory condition, see above,
para.13-026, below, para.24-039.
117. See the analyses, e.g. in Property and Bloodstock Ltd v Emerton [1967] 2 All E.R. 839, affirmed
[1968] Ch. 94; United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1
W.L.R. 74, 82; Wood Preservation Ltd v Prior [1969] 1 W.L.R. 1077; L.G. Schuler A.G. v
Wickman Machine Tool Sales Ltd [1972] 1 W.L.R. 840, 850, 854, 859 CA; affirmed [1974] A.C.
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235, 250–251, 256 HL; North Sea Energy Holdings NV v Petroleum Authority of Thailand [1997]
2 Lloyd’s Rep. 418, 429.
118. Pym v Campbell (1856) 6 E. & B. 370; Aberfoyle Plantations Ltd v Cheng [1960] A.C. 115;
William Cory & Son Ltd v IRC [1965] A.C. 1088; Haslemere Estates Ltd v Baker [1982] 1
W.L.R. 1109.
119. Smith v Butler [1900] 1 Q.B. 694.
120. United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1 W.L.R. 74;
Wood Preservation Ltd v Prior [1969] 1 W.L.R. 1077; cf. Eastham v Leigh, London & Provincial
Properties Ltd [1971] Ch. 871.
121. Worsley v Wood (1796) 6 Term Rep. 710; Clarke v Watson (1865) 18 C.B.(N.S.) 278; Re
Sandwell Park Colliery Co [1929] 1 Ch. 277; Parway Estates Ltd v IRC (1958) 45 T.C. 135;
Smallman v Smallman [1972] Fam. 25; North Sea Energy Holdings NV v Petroleum Authority of
Thailand [1997] 2 Lloyd’s Rep. 418; Collidge v Freeport Plc [2008] EWCA Civ 485, [2008]
I.R.L.R. 697; WW Gear Construction Ltd v McGee Group Ltd [2010] EWHC 1460 (TCC), 131
Con. L.R. 63; cf. Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep. 209 (contract
ceases to bind). See also (insurance contracts), Vol.II, para.42-079.
122. Sale of Goods Act 1979 s.28. See Vol.II, para.44-235 and P T Berlian Laju Tanker TBK V Nuse
Shipping Ltd [2008] EWHC 1330 (Comm), [2008] 2 Lloyd’s Rep. 246 (sale of a ship).
123. Paynter v James (1867) L.R. 2 C.P. 348; Duthie v Hilton (1868) L.R. 4 C.P. 138; Vogeman v
Bisley (1897) 13 T.L.R. 172.
124. Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep. 209. Examples can also be
found in the “excepted risks” clauses of charterparties (Atlantic Maritime Co Inc v Gibbon [1954]
1 Q.B. 88), and the power given to a landlord to re-enter in cases of breach of covenant (Bashir
v Commissioner of Lands [1960] A.C. 44). The former are contingent conditions; the latter,
promissory.
125. (1871) L.R. 7 Ex. 7.
126. But Cleasby J. held ((1871) L.R. 7 Ex. 7, 13, 14) that, since the property in the horse had
reverted to B, B had to bear the risk of loss which had occurred without A’s fault in the
meantime.

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(b) - Warranties
Warranties
13-031
The word “warranty” has been described as “one of the most illused expressions in the legal
dictionary”. 127 In many older cases, it was used in the sense of “condition” 128 and today it is very
frequently used simply in the sense of a contractual undertaking or promise. In its most technical
sense, however, it is to be understood as meaning a term of the contract, the breach of which may
give rise to a claim for damages but not to a right to treat the contract as repudiated. 129 The use of
the word “warranty” in this sense is reserved for the less important terms of a contract, or those which
are collateral to the main purpose of the contract, 130 the breach of which by one party does not entitle
the other to treat his obligations as discharged. But the emergence of the new category of
“intermediate” terms seems likely to have reduced the number of occasions when a term will be
classified as a warranty in this sense almost to vanishing point, 131 save in the very exceptional
circumstances where a term has been specifically so classified by statute. 132
“Warranty” upon election
13-032
Upon the occurrence of a breach of condition, the injured party may elect to treat the breach of
condition as a breach of warranty only and not as a ground for treating the contract as repudiated 133;
or he may be compelled to do so where he goes on with the contract and takes some benefit under it.
134
In such a case he is sometimes said to sue on a “warranty ex post facto”, although this expression
is somewhat misleading since the breach is still that of a condition of the contract. 135
Collateral warranties
13-033
Undertakings may be given that are collateral to another contract. 136 They may be considered to be
independent of that other contract either because they cannot fairly be regarded as having been
incorporated therein, 137 or because rules of evidence hinder their incorporation, 138 or because the
main contract is defective in some way 139 or is subject to certain requirements of form 140 or is made
between parties other than those by or to whom the undertaking is given. 141 Such undertakings are
often referred to as collateral contracts, or “collateral warranties”.
127. Finnegan v Allen [1943] 1 K.B. 425, 430.

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128. Behn v Burness (1863) 3 B. & S. 751. In marine insurance, a promissory “warranty” is used to
signify a condition precedent, the breach of which discharges the insurer from liability as from
the date of breach: Marine Insurance Act 1906 ss.33–41; Thomson v Weems (1884) 9 App.
Cas. 671, 684; Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd
[1992] 1 A.C. 233.
129. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26, 70; Sale of
Goods Act 1979 ss.11(3), 61(1).
130. Sale of Goods Act 1979 s.61(1).
131. Wuhan Ocean Economic and Technical Co-operation Co Ltd v Schiffahrts-Gesellschaft “Hansa
Murcia” mbH & Co KG [2012] EWHC 3104 (Comm), [2013] 1 Lloyd’s Rep. 273 at [33]. But see
Palmco Shipping Inc v Continental Ore Corp [1970] 2 Lloyd’s Rep. 21; Anglia Commercial
Properties v North East Essex Building Co (1983) 266 E.G. 1096.
132. Sale of Goods Act 1979 ss.11(3), 12(5A). See also Supply of Goods (Implied Terms) Act 1973
s.8(3). These provisions do not apply to contracts which fall within the scope of Ch.2 of Pt 1 of
the Consumer Rights Act 2015 (applicable to contracts made on or after October 1, 2015: see
below, Vol.II, para.38-431).
135. Wallis, Son & Wells v Pratt & Haynes [1911] A.C. 394.
136. See above, para.13-004; Wedderburn [1959] C.L.J. 58.
137. Esso Petroleum Ltd v Mardon [1976] Q.B. 801.
139. e.g. for illegality: see below, para.16-193.
140. Record v Bell [1991] 1 W.L.R. 853.

Page 1

(c) - Intermediate Terms
Intermediate terms
13-034
The advantage that arises from the classification of a particular term as a condition is that of certainty
142
: the party affected by the breach of such a term knows at once where he stands, i.e. that he is
immediately and unequivocally entitled to treat the contract as repudiated and, for example in a
contract of sale of goods, to reject the goods. 143 On the other hand, since any breach of condition
gives rise to this right, it may be exercised irrespective of the gravity of the breach or of the
consequences resulting from the breach. The innocent party may have suffered no, or only trifling,
loss or damage by reason of the breach, but is nevertheless entitled to refuse further performance of
the contract. 144 The courts have therefore curtailed the right of discharge which follows from the
classification of a term as a condition by the creation of another category of terms, adopting a more
flexible approach to the consequences of breach and tending to encourage, rather than discourage,
performance of the contract. 145 In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, 146 the
Court of Appeal refused to ascribe to the shipowner’s obligation to deliver a seaworthy vessel the
character of a condition, and Diplock L.J. said 147:
“There are, however, many contractual undertakings of a more complex character which
cannot be categorised as being ‘conditions’ or ‘warranties’ … Of such undertakings all
that can be predicated is that some breaches will and others will not give rise to an event
which will deprive the party not in default of substantially the whole benefit which it was
intended he should obtain from the contract; and the legal consequences of a breach of
such undertaking, unless provided for expressly 148 in the contract, depend upon the
nature of the event to which the breach gives rise and do not follow automatically from a
prior classification of the undertaking, as a ‘condition’ or a ‘warranty.’”
The description that has been applied to such terms is that of “intermediate” or “innominate” terms. 149
Breach of such a term entitles the party not in default to treat the contract as repudiated only if the
other party has thereby renounced his obligations under the contract, 150 or rendered them impossible
of performance, 151 in some essential respect or if the consequences of the breach are so serious as
to deprive the innocent party of substantially the whole benefit which it was intended that he should
obtain from the contract. 152 The bar which must be cleared before there is an entitlement in the
innocent party to treat itself as discharged is a “high” one 153 which requires the court to engage in a
factsensitive inquiry, 154 involves “a multi-factorial assessment” 155 and the use of various
“open-textured expressions”. 156
Instances of classification
13-035
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In the absence of either express classification as a condition by the parties or of statute or binding
authority classifying the disputed term as a condition, modern courts seem more inclined to classify a
term as intermediate rather than as a condition: “the modern approach is that a term is innominate
unless a contrary intention is made clear”. 157 A term is most likely to be classified as intermediate
if it is capable of being broken either in a manner that is trivial and capable of remedy by an award of
damages or in a way that is so fundamental as to undermine the whole contract. Thus, for example, a
shipowner’s obligation in a charterparty to provide a seaworthy vessel, 158 to load containers without
any stability problem 159 or to commence and carry out the voyage agreed on with reasonable
despatch, 160 or a clause by which the master of the ship was to act under the charterer’s orders, 161
have been classified as intermediate terms, the breach of which does not entitle discharge unless the
consequences are such as to deprive the charterer of substantially the whole benefit of the contract or
to frustrate the object of the charterer in chartering the ship. 162
Classification of terms in sale of goods contracts
13-036
The Sale of Goods Act 1979 and the Supply of Goods (Implied Terms) Act 1973 expressly define
certain implied terms in contracts of sale of goods or hire-purchase as being “conditions” or
“warranties”. 163 There can be no doubt that such classification is binding. But in Cehave NV v Bremer
Handelsgesellschaft mbH 164 it was argued that s.11(1) of the Sale of Goods Act 1893 created a
statutory dichotomy which divided all terms in contracts for the sale of goods into conditions and
warranties. The Court of Appeal rejected that argument and held that an express term “shipment to
be made in good condition” was an intermediate term the breach of which had to be so serious as to
go to the root of the contract in order to entitle the buyer to reject the goods. In Reardon Smith Line
Ltd v Yngvar Hansen-Tangen 165 two charterparties were entered into in similar terms for the charter
of a ship “to be built by the Osaka Shipbuilding Co Ltd and known as Hull No. 354”. Owing to her size,
the ship was built at a new yard by Oshima Shipbuilding Co Ltd (a company in which Osaka had a 50
per cent interest) and bore the yard or hull number Oshima 004, although she was still referred to in
external documents as “called Osaka 354”. The charterers sought to reject the vessel on the ground
that, by analogy with contracts of sale of goods, the description of the ship was a condition of the
contract, any departure from which justified rejection. The House of Lords held that they were not
entitled to do so. On the other hand, terms, for example, in contracts of sale of goods that the goods
contracted to be sold are afloat or already shipped, 166 or on board a ship “now at Rangoon” 167 or on a
ship that will sail direct to the port of destination, 168 or that they are “under deck”, 169 or as to the date
of shipment, 170 have been held to be part of the description of the goods, and hence conditions. Also,
a stipulation as to the place of delivery in an FOB contract 171 and a stipulation “linerterms Rotterdam”
in a CIF contract 172 have been held to be conditions.
Classification of time stipulations. 173
13-037
A number of cases have arisen relating to the question whether contractual stipulations as to the
time of performance should be construed as making time of the essence of the contract (i.e. as
conditions) or as intermediate terms. At common law, stipulations as to the time of performance were
normally regarded as being of the essence of a contract. 174 But in equity they were not generally so
regarded, 175 in particular in relation to contracts for the sale of land, and today the equitable rule
prevails. 176 The relationship between the common law and equitable rules was considered by the
House of Lords in United Scientific Holdings Ltd v Burnley BC, 177 where it was held that the timetable
specified in rent review clauses for the completion of the various steps for determining the rent
payable in respect of the period following the review was not of the essence. It is, however, clear that,
although stipulations as to time will not ordinarily be construed as being of the essence, they will be
so construed if expressly stated to be such 178 or if the court infers from the nature of the subject
matter of the contract or the surrounding circumstances that the parties intended them to have that
effect. 179 In mercantile contracts, where it is of importance that the parties should know precisely
what their obligations are and be able to act with confidence in the legal results of their actions, the
Page 3
courts will readily construe a stipulation as to time as a condition of the contract. 180 Thus stipulations,
for example, as to the time within which a ship must be nominated 181 or is expected ready to load
under a charterparty, 182 goods must be delivered under a contract of sale, 183 the loading port must be
nominated, 184 the vessel provided, 185 notice of readiness to load must be given 186 and the goods
must be ready to be delivered 187 under an FOB contract, goods must be shipped, 188 documents
tendered 189 and notice of appropriation given 190 under a CIF contract, a letter of credit must be
opened, 191 have been held to be conditions, entitling the innocent party in the event of default in
punctual performance to treat himself as discharged. But there is no presumption of fact or rule of law
192
that time is of the essence in mercantile contracts and a stipulation as to time in such a
contract, may on its true construction, be found to be merely an intermediate term. 193
Effect of failure to perform on time
13-038
Where one party to a contract fails to perform an obligation by the date fixed by the contract, the other
party may be entitled, in certain circumstances, immediately to serve notice that he will treat the
contract as discharged if the obligation is not performed within a reasonable time as stipulated in the
notice. This matter is discussed in Ch.21 (Performance) later in this work 194; but it is to be noted that,
as a general rule, where the original stipulation as to the time of performance was merely an
intermediate term, failure to perform the obligation within the time limited by the notice does not, in
itself, constitute a repudiation irrespective of the consequences of the breach. 195
Force majeure clauses
13-039
A clause in a contract of sale excusing delivery, or permitting the seller to postpone or suspend
delivery upon the happening of events beyond his control (a force majeure clause) 196 may require
that certain procedures are to be followed or notices given to the buyer before the seller is entitled to
rely on the clause. Such measures may be a condition precedent on which the availability of the
protection provided by the clause depends, or merely an intermediate term, the non-compliance with
which does not necessarily deprive the seller of his right to rely on the clause. 197 The
classification depends, as Lord Wilberforce said in Bremer Handelsgesellschaft v Vanden
Avenne-Izegem PVBA 198 on “(i) the form of the clause itself, (ii) the relation of the clause to the
contract as a whole, (iii) general considerations of law”. In that case, the House of Lords had to
consider two such provisions. The first was a prohibition of export clause which required the sellers to
advise the buyers “without delay” of impossibility of shipment by reason of such prohibition. 199 This
was held to be an intermediate term, since it did not establish any definite time limit within which the
advice was to be given. 200 The second provision, which took effect upon a number of events of force
majeure, established a timetable of fixed periods within which the occurrence was to be notified, an
extension of the shipping period claimed, and the buyers were to have the option of cancelling the
contract. The stipulation as to time for claiming an extension was held to be a condition, punctual
compliance with which was required as part of a “complete regulatory code”. It was further held that a
requirement of this second provision that the sellers should notify the buyers of the port or ports of
loading from which it was intended to ship in consequence of the event of force majeure had to be
precisely complied with. 201
Conclusion
13-040
202
The conclusion to be drawn from these cases is that a term of a contract will be held to be a
condition:
Page 4
(i)
if it is expressly so provided by statute;
(ii)
if it has been so categorised as the result of previous judicial decision (although it has been said
that some of the decisions on this matter are excessively technical and are “open to
re-examination by the House of Lords”) 203;
(iii)
if it is so designated in the contract 204 or if the consequences of its breach, that is, the right
of the innocent party to treat himself as discharged, are provided for expressly in the contract 205;
or
(iv)
if the nature of the contract or the subject matter or the circumstances of the case lead to the
conclusion that the parties must, by necessary implication, have intended that the innocent party
would be discharged from further performance of his obligations in the event that the term was
not fully and precisely complied with. 206
Otherwise a term of a contract will be considered to be an intermediate term. 207 Failure to perform
such a term will ordinarily entitle the party not in default to treat himself as discharged only if the effect
of breach of the term deprives him of substantially the whole benefit which it was intended that he
should obtain from the contract. 208
142. A/S Awilco of Oslo v Fulvia Spa (The Chikuma) [1981] 1 W.L.R. 314, 322; Bunge Corp v Tradax
Export SA [1981] 1 W.L.R. 711, 715, 718, 720, 725; Compagnie Commerciale Sucres et
Denrees v Czarnikow Ltd [1990] 1 W.L.R. 1337, 1348; Richco International Ltd v Bunge & Co
Ltd [1991] 2 Lloyd’s Rep. 93, 99.
143. Sale of Goods Act 1979 ss.11(3), 12(5A), 13(1A), 14(6), 15(3). But see the modification of
remedies for breach of condition contained in s.15A of the 1979 Act; Vol.II, para.44-070. These
provisions do not apply to contracts which fall within the scope of Ch.2 of Pt 1 of the Consumer
Rights Act 2015 (applicable to contracts made on or after October 1, 2015: see below, Vol.II,
para.38-431). In the case of the latter contracts the right to reject the goods (whether of a short
term or final nature) is set out in ss. 20, 22 and 24 of the Act: see further para.38-447 et seq.
144. Heritage Oil and Gas Ltd v Tullow Uganda Ltd [2014] EWCA Civ 1048 at [33].
145. Cehave NV v Bremer Handelsgesellschaft mbH [1976] Q.B. 44, 70; Bunge Corp v Tradax
Export SA [1981] 1 W.L.R. 711, 715, 179.
146. [1962] 2 Q.B. 26.
147. [1962] 2 Q.B. 26 at 70.
148. Or impliedly: see Bunge Corp v Tradax Export SA [1981] 1 W.L.R. 711 and below, para.13-040.
149. Cehave NV v Bremer Handelsgesellschaft mbH [1976] Q.B. 44, 60; Bremer
Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep. 109, 113;
Page 5
Bunge Corp v Tradax Export SA [1981] 1 W.L.R. 711, 714, 717, 719, 724; Aktion Maritime Corp
of Liberia v S. Kasmas & Brothers Ltd [1987] 1 Lloyd’s Rep. 283; Phibro Energy A.G. v Nissho
Iwai Corp [1990] 1 Lloyd’s Rep. 38, 58–59; Wuhan Ocean Economic and Technical
Co-operation Co Ltd v Schiffahrts-Gesellschaft “Hansa Murcia” mbH & Co KG [2012] EWHC
3104 (Comm), [2013] 1 Lloyd’s Rep. 273 at [32]–[39].
153. Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings Ltd [2013] EWCA Civ 577,
[2013] 4 All E.R. 377 at [48].
154. Valilas v Januzaj [2014] EWCA Civ 436, 154 Con. L.R. 38 at [60].
155. [2014] EWCA Civ 436, 154 Con. L.R. 38 at [53].
156. [2014] EWCA Civ 436, 154 Con. L.R. 38 at [59].
157.
Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982,
[2016] 2 Lloyd’s Rep. 447 at [93].
158. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26; Nitrate Corp of
Chile Ltd v Pansuiza Compania de Navegacion SA [1980] 1 Lloyd’s Rep. 638.
159. Compagnie Generale Maritime v Diakan Spirit SA [1982] 2 Lloyd’s Rep. 574.
160. Freeman v Taylor (1831) 8 Bing. 124; Clipsham v Vertue (1843) 5 Q.B. 565; MacAndrew v
Chapple (1866) L.R. 1 C.P. 643.
161. Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] A.C. 757.
162. MacAndrew v Chapple (1866) L.R. 1 C.P. 643, 648.
163. See Vol.II, paras 39-382, 44-056, 44-074—44-115. The Consumer Rights Act 2015 (which
applies to consumer contracts made on or after October 1, 2015: see below, Vol.II,
para.38-431) does not refer to the terms to be treated as included in contracts that fall within the
scope of Ch.2 of Pt 1 of the Act as conditions or warranties but rather sets out the remedies to
which the consumer is entitled if his or her statutory rights under such contracts are not met in
ss.19-24: see below, Vol.II, paras 38-477 et seq.
164. [1976] Q.B. 44. See also Tradax International SA v Goldschmidt [1977] 2 Lloyd’s Rep. 604
(provision as to impurities); Aktion Maritime Corp of Liberia v S. Kasmas & Brothers Ltd [1987]
1 Lloyd’s Rep. 283 (condition of vessel on delivery); Total International Ltd v Addax BV [1996] 2
Lloyd’s Rep. 333 (provision as to quality); R G Grain Trade LLP v Feed Factors International
Ltd [2011] EWHC 1889 (Comm), [2011] 2 Lloyd’s Rep. 432 (provision as to impurities). Contrast
Tradax Export SA v European Grain & Shipping Co [1983] 2 Lloyd’s Rep. 100 (fibre content
included in description).
165. [1976] 1 W.L.R. 989. See also Sanko Steamship Co Ltd v Kano Trading Ltd [1978] 1 Lloyd’s
Rep. 156.
166. Benabu & Co v Produce Brokers Co Ltd (1921) 37 T.L.R. 609, 851; Macpherson Train & Co Ltd
v Howard Ross & Co Ltd [1955] 1 W.L.R. 640, 642.
167. Oppenheimer v Fraser (1876) 34 L.T. 524.
168. Bergerco USA v Vegoil Ltd [1984] 1 Lloyd’s Rep. 440.

Page 6
169. Montagu L. Meyer Ltd v Travaru A/B; H Cornelius of Gambleby (1930) 46 T.L.R. 553; Messers
Ltd v Morrison’s Export Co Ltd [1939] 1 All E.R. 92.
170. Bowes v Shand (1877) 2 App. Cas. 455.
171. Petrotrade Inc v Stinnes Handel GmbH [1995] 1 Lloyd’s Rep. 142.
172. Soon Hua Seng Co Ltd v Glencore Grain Co Ltd [1996] 1 Lloyd’s Rep. 398.
173. This paragraph was approved by Langley J. in Haugland Tankers AS v RMK Marine Gemi
Yapin Sanayii ve Dentz Tasimaciligi Isletmesi AS [2005] EWHC 321 (Comm), [2005] 1 Lloyd’s
Rep. 573 at [31]. See also Dalkia Utilities Services Plc v Celtech International Ltd [2006] EWHC
63 (Comm), [2006] 1 Lloyd’s Rep. 599 at [130].
176. Law of Property Act 1925 s.41; below, para.21-012.
177. [1978] A.C. 904 (especially at 928); below, para.21-012.
178. Steadman v Drinkle [1916] 1 A.C. 275, 279; Financings Ltd v Baldock [1963] 2 Q.B. 104, 120;
Bunge Corp v Tradax Export SA [1980] 1 Lloyd’s Rep. 294, 305, 307, 309, 310 (affirmed [1981]
1 W.L.R. 711); Lombard North Central Plc v Butterworth [1987] Q.B. 527.
179. [1978] A.C. 904, 937, 941, 944, 950, 958; Bunge Corp v Tradax Export SA [1981] 1 W.L.R. 711,
728-729; Universal Bulk Carriers Ltd v André et Cie SA [2000] 1 Lloyd’s Rep. 459, 464; B.S. &
N. Ltd v Micado Shipping Ltd (The Seaflower) [2001] 1 Lloyd’s Rep. 348, 350, 354; MSAS
Global Logistics Ltd v Power Packaging Inc [2003] EWHC 1393 (Ch).
180. Bunge Corp v Tradax Export SA [1981] 1 W.L.R. 711, 716.
181. Greenwich Marine Inc v Federal Commerce and Navigation Co Inc [1985] 1 Lloyd’s Rep. 580.
182. The Mihalis Angelos [1971] 1 Q.B. 164. See also Behn v Burness (1863) 3 B. & S. 751;
Compania de Naviera Nedelka SA v Tradax Internacional SA [1974] Q.B. 264.
183. Hartley v Hymans [1920] 3 K.B. 475, 484; Scandinavian Trading Co A/B v Zodiac Petroleum SA
[1981] 1 Lloyd’s Rep. 81.
184. Gill & Duffus SA v Société pour l’Exportation des Sucres [1986] 1 Lloyd’s Rep. 322.
185. Olearia Tirrena SpA v NV Algemeene Oliehandel [1973] 2 Lloyd’s Rep. 86.
186. Bunge Corp v Tradax Export SA above.
187. Compagnie Commerciale Sucres et Denrees v Czarnikow Ltd [1990] 1 W.L.R. 1337.
188. Bowes v Shand (1877) 2 App. Cas. 455.
189. Toepfer v Lenersan-Poortman NV [1980] 1 Lloyd’s Rep. 143; Cerealmangimi SpA v Toepfer
[1981] 1 Lloyd’s Rep. 337.
190. Reuter v Sala (1879) 4 C.P.D. 239; Bunge GmbH v Landbouwbelang G.A. [1980] 1 Lloyd’s
Rep. 458. See also Société Italo-Belge pour le Commerce et L’Industrie SA v Palm and
Vegetable Oils (Malaysia) Sdn. Bhd. [1981] 2 Lloyd’s Rep. 695 (notice of shipment).
191. Pavia & Co SpA v Thurmann-Nielsen [1952] 1 Lloyd’s Rep. 153; Ian Stach Ltd v Baker Bosley
Ltd [1958] 2 Q.B. 130; Nichimen Corp v Gatoil Overseas Inc [1987] 2 Lloyd’s Rep. 46;
Page 7
Transpetrol Ltd v Transol Olieprodukten BV [1989] 1 Lloyd’s Rep. 309. See also Warde v
Feedex International Inc [1985] 2 Lloyd’s Rep. 289 (nomination of bank). Contrast State Trading
Corp of India Ltd v M. Golodetz Ltd [1989] 2 Lloyd’s Rep. 277 (opening of counter-trade
guarantee).
192.
Bunge Corp v Tradax Export SA [1981] 1 W.L.R. 711, 719; State Trading Corp of India Ltd v
M. Golodetz Ltd [1989] 2 Lloyd’s Rep. 277; Compagnie Commerciale Sucres et Denrees v
Czarnikow Ltd [1990] 1 W.L.R. 1337, 1347; Phibro Energy A.G. v Nissho Iwai Corp [1991] 1
Lloyd’s Rep. 38, 45, 48; Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS
[2016] EWCA Civ 982, [2016] 2 Lloyd’s Rep. 447 at [56].
193.
See, for example, State Trading Corp of India Ltd v M. Golodetz Ltd [1989] 2 Lloyd’s Rep.
277 (opening of counter trade guarantee); Re Olympia & York Canary Wharf Ltd (No.2) [1993]
B.C.C. 159 (indemnity clause); Torvald Klaveness A/S v Arni Maritime Corp [1994] 1 W.L.R.
1465 (charterer’s re-delivery of ship); Universal Bulk Carriers Ltd v André et Cie SA [2000] 1
Lloyd’s Rep. 459 (obligation to narrow laycan period prior to first lay day); ERG Raffinerie
Mediterranée SpA v Chevron USA Inc [2007] EWCA Civ 494, [2007] 1 C.L.C. 807 (loading time
in FOB contract); Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016]
EWCA Civ 982, [2016] 2 Lloyd’s Rep. 447.
194. Below, para.21-011.
195. See Eshun v Moorgate Mercantile Co Ltd [1971] 1 W.L.R. 722, 726; Behzadi v Shaftesbury
Hotels Ltd [1992] Chs 1, 12; Re Olympia & York Canary Wharf Ltd (No.2), [1993] B.C.C. 159;
Dalkia Utilities Services Plc v Celtech International Ltd [2006] EWHC 63 (Comm), [2006] 1
Lloyd’s Rep. 599 at [131]; Shawten Engineering Ltd v DGP International Ltd [2005] EWCA Civ
1359, [2006] B.L.R. 1. BNP Paribas v Wockhardt EU Operations (Swiss) AG [2009] EWHC
3116 (Comm), 132 Con. L.R. 177; Samarenko v Dawn Hill House Ltd [2011] EWCA Civ 1445,
[2013] Ch. 36 at [42], [65]. But see Multi Veste 226 BV v NI Summer Row Unitholder BV [2011]
EHWC 2026 (Ch), 139 Con. L.R. 23 at [2011] and Stannard (2004) 120 L.Q.R. 137, 155. See
below, para.21-018.
197.
However, the analogy with an intermediate term may not be exact, given that it has been held
that there is no rule of law according to which the consequence of a breach of a procedural
requirement specified in the contract is the loss of the right to claim relief on the ground of force
majeure. The inability of a party to invoke the force majeure clause in the contract arises as a
consequence of the construction of the contract and would appear not to follow from the
application of a rule of law: Scottish Power UK Plc v BP Exploration Operating Co Ltd [2015]
EWHC 2658 (Comm), [2016] 1 All E.R. (Comm) 536 at [234].
198. [1978] 2 Lloyd’s Rep. 109, 113.
199. The clause is not accurately set out in the headnote.
200. But see Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2002] EWHC
2210 (Comm), [2003] 1 Lloyd’s Rep. 1 (“shall give prompt notice to the other party” held to be a
condition) [2003] EWCA Civ 617, [2003] 2 Lloyd’s Rep. 645 at [34].
201. See also Tradax Export SA v André & Cie SA [1976] 1 Lloyd’s Rep. 416; Berg (V.) & Son Ltd v
Vanden Avenne-Izegem PVBA [1977] 1 Lloyd’s Rep. 499; Toepfer v Schwarze [1980] 1 Lloyd’s
Rep. 385.
202. The conclusion set out in this paragraph was approved by the Court of Appeal in B.S. & N. Ltd v
Micado Shipping Ltd (The Seaflower) [2001] 1 Lloyd’s Rep. 341, 348, 350, 353.
203. Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, 998. The reference to
the House of Lords should now be read as a reference to the Supreme Court.
Page 8
204.
Bettini v Gye (1876) 1 Q.B.D. 183, 187; Financings Ltd v Baldock [1963] 2 Q.B. 104, 120;
Bunge Corp v Tradax Export SA [1980] 1 Lloyd’s Rep. 294, 305, 307, 309, 310 (affirmed [1981]
1 W.L.R. 711); Lombard North Central Plc v Butterworth [1987] Q.B. 527; cf; Personal Touch
Financial Services Ltd v Simplysure Ltd [2016] EWCA Civ 461 at [28]–[31] L.G. Schuler A.G. v
Wickman Machine Tool Sales Ltd [1974] A.C. 235; Antaios Compania Naviera SA v Salen
Rederierna AB [1985] A.C. 191.
205. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26, 70; United
Scientific Holdings Ltd v Burnley BC [1978] A.C. 904, 937, 941, 944, 950, 958; Bremer
Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep. 109, 113;
Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 849; Bunge Corp v Tradax
Export SA [1981] 1 W.L.R. 711; George Hunt Cranes Ltd v Scottish Boiler & General Insurance
Ltd [2001] EWCA Civ 1964, [2002] 1 All E.R. (Comm) 366. But see Rice v Great Yarmouth BC
[2001] 3 L.G.L.R. 4 (CA) (right to terminate for “any” breach of contract limited to repudiatory
breaches).
206.
United Scientific Holdings Ltd v Burnley BC [1978] A.C. 904, 937, 941, 944, 950, 958; Bremer
Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep. 109, 113, 116
; Bunge Corp v Tradax Export SA [1981] 1 W.L.R. 711, 716, 717, 720, 729; Greenwich Marine
Inc v Federal Commerce and Navigation Co Inc [1985] 1 Lloyd’s Rep. 580, 584; State Trading
Corp of India Ltd v M. Golodetz Ltd [1989] 2 Lloyd’s Rep. 277, 283; Barber v NWS Bank Plc
[1996] 1 W.L.R. 641; B.S. & N. Ltd v Micado Shipping Ltd [2001] 1 Lloyd’s Rep. 341, 350, 353,
356; P T Berlian Laju Tanker TBE v Nuse Shipping Ltd [2008] EWHC 1130 (Comm), [2008] 2
Lloyd’s Rep. 246 at [65]; C21 London Estates Ltd v Maurice Macneill Iona Ltd [2017] EWHC
998 (Ch) at [70]–[72].
207.
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26; Cehave M.V. v
Bremer Handelsgesellschaft mbH [1976] Q.B. 44; United Scientific Holdings Ltd v Burnley
[1978] A.C. 904, 928; Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA
[1978] 2 Lloyd’s Rep. 109, 113, 121, 128, 130; Bunge Corp v Tradax Export SA [1981] 1 W.L.R.
711, 715–716, 717, 719, 724; Phibro Energy A.G. v Nissho Iwai Corp [1990] 1 Lloyd’s Rep. 38,
45, 58–59; Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA
Civ 982, [2016] 2 Lloyd’s Rep. 447 at [97], [99].

Page 1

Section 3. - Construction of Terms 209
(a) - General Principles of Construction
Construction
13-041
The word “construction” refers to the process by which a court determines the meaning and legal
effect of a contract. As such, it will embrace oral contracts as well as those in writing and implied
terms as well as those that are expressed. In this chapter, however, the principles of construction
discussed in the following paragraphs have mainly been developed in relation to written documents,
and in this context “construction” denotes the process (sometimes referred to as interpretation) by
which a court arrives at the meaning to be given to the language used by the parties in the express
terms of a written agreement.
Object of construction
13-042
The object of all construction of the terms of a written agreement is to discover therefrom and from
the available factual background 210 the meaning of the agreement. 211 The principles which govern
the construction of contracts are the same at law and in equity, 212 for simple contracts and for
specialties. 213 Interpretation is a “unitary” exercise which “involves an iterative process by which each
suggested interpretation is checked against the provisions of the contract and its commercial
consequences are investigated”. 214
“Intention of the parties”
13-043
The task of construing a written agreement has been said to be that of ascertaining the “common
intention of the parties” to the agreement. 215 But this may be misleading 216 since it is clear that the
agreement must be interpreted objectively 217: the question is not what one or other of the parties
meant or understood by the words used but rather what a reasonable person in the position of the
parties would have understood the words to mean. In Investors Compensation Scheme Ltd v West
Bromwich Building Society 218 Lord Hoffmann said:
“Interpretation is the ascertainment of the meaning which the document would convey to
a reasonable person having all the background knowledge which would reasonably have
been available to the parties in the situation in which they were at the time of the
contract.”
Page 2
The words of the agreement must be construed as they stand. 219 That is to say the meaning of the
document or of a particular part of it is to be sought in the document itself: “[o]ne must consider the
meaning of the words used, not what one may guess to be the intention of the parties”. 220 However,
this is not to say that the meaning of the words in a written document must be ascertained by
reference to the words of the document alone. The courts will, in principle, look at all the
circumstances surrounding the making of the contract and available to the parties (usually referred to
as the “factual matrix” or “available background”) which would assist in determining how the language
of the document would have been understood by a reasonable person in their position. The range of
materials on which the modern courts now draw is considerably wider as the ambit of the “factual
matrix” has increased, permitting the court to draw upon a greater range of materials when seeking to
put the words of the contract in their context and interpret them accordingly. 221
13-044
Further it has long been accepted that the courts will not approach the task of construction with too
much concentration upon individual words to the neglect of the contract as a whole.
“The common and universal principle ought to be applied: namely, that [an agreement]
ought to receive that construction which its language will admit, and which will best
effectuate the intention of the parties, to be collected from the whole of the agreement,
and that greater regard is to be had to the clear intention of the parties than to any
particular words which they may have used in the expression of their intent.” 222
This process is sometimes referred to as an “iterative process” which involves checking each of the
rival meanings against other provisions of the document and investigating its commercial
consequences. 223
Principles of construction
13-045
Certain principles of construction have been formulated by the courts. Previously, these principles,
referred to as “rules”, were applied somewhat rigidly and adhered to tenaciously (even though the
application of one rule in preference to another might lead to an opposite result). However, it has
been pointed out 224 that the modern approach to construction is:
“… to assimilate the way in which [contractual] documents are interpreted by judges to

the common-sense principles by which any serious utterance would be interpreted in
ordinary life.”
As a result, most principles of construction are nowadays better regarded merely as guidelines or
assumptions as to what the court may regard as the normal use of language and which assist judges
to arrive at a reasonable interpretation of the words used, though subject to examination of the
relevant circumstances surrounding the transaction. Some principles, on the other hand, such as the
contra proferentem principle, 225 are of a different nature in that they are less obviously designed to
assist in interpretation and are more closely assimilated to “rules” in the traditional sense.
Striking a balance
13-046
Given that the courts are concerned with the application of “principles” rather than “rules”, it is not
Page 3
surprising to find that these principles can at times conflict and the result is a degree of uncertainty or
tension in the case-law. 226 At times the courts seem to place greater emphasis on the need for
certainty in commercial transactions and, in such cases, they tend to adopt an interpretation which
gives effect to the natural and ordinary meaning of the words used by the parties. 227 At other times,
less emphasis has been placed on the need for certainty and instead the courts have reminded
themselves that the proper approach to interpretation is “contextual and purposive”, not “mechanical”
and that “the value of machinery depends upon its being correctly directed towards the right end”. 228
The differences, however, appear to be differences of emphasis rather than principle and in all
cases the overriding aim of the court is to give effect to the intention of the parties, objectively
ascertained, as reflected in the terms of their contract.
Law and fact
13-047
The construction of written instruments is a question of mixed law and fact. 229 The expression
“construction” as applied to a document includes two things, first, the meaning of the words; and,
secondly, their legal effect, or the effect which is to be given to them. 230 Construction becomes a
question of law as soon as the true meaning of the words in which an instrument has been expressed
and the surrounding circumstances, if any, have been ascertained as facts. 231 However, the meaning
of an ordinary English word, 232 of technical or commercial terms 233 and of latent ambiguities, 234 and
the discovery of the surrounding circumstances (when they are relevant) are questions of fact. 235
Construction of contract not wholly in writing
13-048
Where the contract is oral or does not depend solely on written documents, the question as to the
character of the contract is properly one of fact. 236 But if a document is lost, so that secondary
evidence of its contents is admissible, the construction of its terms is still a question of law and not of
fact. 237
Electronic “documents”
13-049
It is submitted that an agreement which is concluded by electronic means, the terms of which are
recorded electronically in a computer or on disc and which are capable of being retrieved and
converted into readable form, should be regarded as a written agreement for the purposes of the
application of principles of construction and the admissibility of extrinsic evidence. 238
Human Rights Act 1998
13-050
The question whether courts, as public authorities, ought to construe contracts so as to be compatible
with “Convention rights” under the European Convention on Human Rights, or whether they should do
so if one of the parties is a public authority, has been discussed in an earlier chapter of this book. 239
209. See generally, Odgers, Odgers’ Construction of Deeds and Statutes, 5th edn (1967); Norton,
Norton on Deeds, 2nd edn (1928); Lewison, The Interpretation of Contracts, 6th edn (2015);
McMeel, The Construction of Contracts: Interpretation, Rectification and Implication, 2nd edn
Page 4
(2011); Mitchell, Interpretation of Contracts (2007).
212. Hotham v East India Co (1787) Doug. 272, 277; Eaton v Lyon (1798) 3 Ves. 690, 692; Re Terry
and White’s Contract (1886) 32 Ch. D. 14, 21; Bank of Credit and Commerce International SA v
Ali [2001] UKHL 8, [2002] 1 A.C. 251 at [25]; Rainy Sky SA v Kookmin Bank [2011] UKSC 50,
[2011] 1 W.L.R. 2900 at [28]; Starlight Shipping Co v Allianz Marine and Aviation Versicherungs
AG [2014] EWHC 3068 (Comm), [2014] 2 Lloyd’s Rep. 579 at [50].
213. Seddon v Senate (1810) 13 East 63, 74; Total Transport Corp v Arcadia Petroleum Ltd [1998] 1
214.
Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] 2 W.L.R. 1095 at [12]. The
“iterative” approach has been held to indicate “that there is no hard and fast order for the
application of the various tools of interpretation, and that the Court always has the prospect of
revisiting or taking an overview of the effect of the application of those tools at every and any
moment before the end of the interpretative process”: 125 OBS (Nominees1) v Lend Lease
Construction (Europe) Ltd [2017] EWHC 25 (TCC) at [98].
215. e.g. Marquis of Cholmondeley v Clinton (1820) 2 Jac. & W.I. 91.
216. Great Western Ry v Bristol Corp (1918) 87 L.J. Ch. 414 (Lord Shaw); IRC v Raphael [1935]
A.C. 96 (Lord Wright).
217. Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749, 767, 775, 782;
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896,
912–913. See also Guardian Ocean Cargoes Ltd v Banco do Brasil SA [1994] 2 Lloyd’s Rep.
152; Deutsche Genossenschaftsbank v Burnhope [1995] 1 W.L.R. 1580, 1587; Inntrepreneur
Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep. 611 at [10].
218. [1998] 1 W.L.R. 896, 912.
219. IRC v Raphael [1935] A.C. 96, 142; British Movietonews v London and District Cinemas [1952]
A.C. 166.
220. Smith v Lucas (1881) 18 Ch. D. 531, 542. See also Prenn v Simmonds [1971] 1 W.L.R. 1381,
1385 HL; Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd [1991] 1 Lloyd’s Rep.
100, 103.
221. See further below, paras 13-120—13-123.
222. Ford v Beech (1848) 11 Q.B. 852, 866. See also Smith v Packhurst (1742) 3 Atk. 135, 136;
Lloyd v Lloyd (1837) 2 My. & Cr. 192, 202; SA Maritime et Commerciale of Geneva v
Anglo-Iranian Oil Co Ltd [1953] 1 W.L.R. 1379; affirmed [1954] 1 W.L.R. 496; Ravennavi SpA v
New Century Shipbuilding Ltd [2007] EWCA Civ 58, [2007] 2 Lloyd’s Rep. 24 at [12]; Garratt v
Mirror Group Newspapers Ltd [2011] EWCA Civ 425, [2011] I.C.R. 880.
223.
Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 at [28]; Napier Park
European Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata CLO 2 B V [2014] EWCA
984 at [31]–[32]; BG Global Energy Ltd v Talisman Sinopec Energy UK Ltd [2015] EWHC 110
(Comm) at [24]; Arnold v Britton [2015] UKSC 36, [2015] A.C. 1619 at [77]; Europa Plus SCA
SIF v Anthracite Investments (Ireland) Plc [2016] EWHC 437 (Comm) at [29]; Wood v Capita
Insurance Services Ltd [2017] UKSC 24, [2017] 2 W.L.R. 1095 at [12]. See also Grabiner
(2012) 128 L.Q.R. 41.
224. By Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society
Page 5
[1998] 1 W.L.R. 896, 912. See also Don King Productions Ltd v Warren [1998] 2 Lloyd’s Rep.
176, 188; [1999] 1 Lloyd’s Rep. 588.
226.
In a number of cases there is agreement on the principles to be applied to the facts of the
case (see, for example, BSI Enterprises Ltd v Blue Mountain Music Ltd [2015] EWCA Civ 1151
at [38]; Canary Wharf Finance II Plc v Deutsche Trustee Co Ltd [2016] EWHC 100 (Comm) at
[16] and Videocon Global Ltd v Goldman Sachs International [2016] EWCA Civ 130 at [50]),
and the disagreement relates to the application of these principles to the facts of the case and
the weight to be attached to the various principles.
227. See, for example, Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 at
[23].
228.
Lloyds TSB Foundation for Scotland v Lloyd’s Banking Group Plc [2013] UKSC 3, [2013] 1
W.L.R. 366 at [21] and Arnold v Britton [2015] UKSC 36, [2015] 2 W.L.R. 1593 at [17]–[22]. The
need to strike a balance between the indications given by the language and the implications of
rival constructions was acknowledged by Lord Hodge in Wood v Capita Insurance Services Ltd
[2017] UKSC 24, [2017] 2 W.L.R. 1095 at [11]–[13]. The current approach of the courts appears
to give more weight to the natural and ordinary meaning of the words, at least in the case where
the parties are commercially experienced and have access to skilled legal advice: Canary
Wharf Finance II Plc v Deutsche Trustee Co Ltd [2016] EWHC 100 (Comm) at [17] and Vitol E
& P Ltd v Africa Oil and Gas Corp [2016] EWHC 1677 (Comm); Wood v Capita Insurance
Services Ltd [2017] UKSC 24, [2017] 2 W.L.R. 1095 at [13].
229. Sattva Capital v Creston Moly [2014] SCC 53, [2014] 2 S.C.R. 633, where the Supreme Court
of Canada held that the “historical approach” according to which the interpretation of the rights
and duties of the parties to a written contract was a question of law should be abandoned given
that contractual interpretation is an exercise in which the principles of contractual interpretation
are applied to the words of the written contract, considered in the light of the “factual matrix” of
the contract.
230. Chatenay v Brazilian Submarine Telegraph Co Ltd [1891] 1 Q.B. 79, 85.
231. Bowes v Shand (1877) 2 App. Cas. 455, 462. See also Neilson v Harford (1841) 8 M. & W. 806,
823; R. v Stephens (1978) 139 C.L.R. 315; Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema)
[1982] A.C. 724, 736; R. v Spens [1991] 1 W.L.R. 624, 631; Carmichael v National Power Plc
[1999] 1 W.L.R. 2042, 2048; Sun Life Assurance Co of Canada v Lincoln National Life
Insurance Co [2004] EWCA Civ 1660, [2005] 1 Lloyd’s Rep. 606 at [15]; Cottonex Anstalt v
Patriot Spinning Mills Ltd [2014] EWHC 236 (Comm), [2014] 1 Lloyd’s Rep. 615 at [43]–[51].
232. Cozens v Brutus [1973] A.C. 854, 861; Belgravia Navigation Co SA v Cannor Shipping Ltd
[1988] 2 Lloyd’s Rep. 423.
233. Hill v Evans (1862) 4 De G.F. & J. 288, 295.
234. Robinson v Great Western Ry (1865) 35 L.J.C.P. 123.
235. Simpson v Margitson (1847) 11 Q.B. 23.
236. Moore v Garwood (1849) 4 Exch. 681; Brook v Hook (1871) L.R. 6 Ex. 89; Maskelyne v Stollery
(1899) 16 T.L.R. 97; Maggs v Marsh [2006] EWCA Civ 1058, [2006] B.L.R. 395; Carmichael v
National Power Plc [1999] 1 W.L.R. 2042, 2049; Thorner v Major [2009] UKHL 18, [2009] 1
W.L.R. 776 at [82]; BVM Management Ltd v Roger Yeomans [2011] EWCA Civ 1254 at [23].
237. Berwick v Horsfall (1858) 4 C.B.(N.S.) 450.
238. Derby & Co Ltd v Weldon (No.9) [1991] 1 W.L.R. 652. See also Electronic Communications Act
Page 6
2000; EC Directive on Electronic Commerce 2000/31 [2000] O.J. L178/1.
239. See above, paras 1-057—1-094.

Page 1

(b) - Ordinary Meaning to be Adopted
Meaning of words 240
13-051
Judges differ widely in their belief in the reliability of language and in the inherent meaning of
words. In 1997 in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd 241 Lord Hoffmann
said 242:
“It is of course true that the law is not concerned with the speaker’s subjective intentions.
But the notion that the law’s concern is therefore with the ‘meaning of his words’ conceals
an important ambiguity. The ambiguity lies in a failure to distinguish between the
meanings of words and the question of what would be understood as the meaning of a
person who uses words. The meaning of words, as they would appear in a dictionary,
and the effect of their syntactical arrangement, as it would appear in a grammar, is part of
the material which we use to understand a speaker’s utterance. But it is only a part;
another part is our knowledge of the background against which the utterance was made.
It is that background which enables us, not only to choose the intended meaning when a
word has more than one dictionary meaning but also … to understand a speaker’s
meaning, often without ambiguity, when he has used the wrong words.”
Again in 1998, in Investors Compensation Scheme Ltd v West Bromwich Building Society, 243 he said:
“The meaning which a document (or any other utterance) would convey to a reasonable
man is not the same thing as the meaning of its words. The meaning of words is a matter
of dictionaries and grammars; the meaning of the document is what the parties using
those words against the relevant background would reasonably have been understood to
mean.” 244
Some 80 years earlier Holmes J. had similarly commented:
“A word is not a crystal, transparent and unchanged, it is the skin of a living thought and
may vary greatly in colour and content according to the circumstances and the time in
which it is used.” 245
It would be unduly pessimistic to accept that human language is such that no sensible meaning can
ever be given to the words in a document without reference to the circumstances in which those
words came to be used. But even the “plain” and “obvious” meaning may take on a different meaning
Page 2
in the light of the circumstances prevailing when the document was made. 246 On the other hand the
actual language used by the parties undoubtedly does impose constraints on the court’s willingness
to depart from the plain and obvious meaning. If the meaning of the words is clear and unambiguous,
why should the court not assume that it was what the parties meant? 247 Moreover, an examination of
all the factual circumstances that might point to an interpretation which differs from the one which the
words themselves convey may lead to an unnecessary protraction of the judicial process. A balance
has therefore to be struck. 248 As Corbin remarked 249:
“The more bizarre and unusual an asserted interpretation is, the more convincing must be
the testimony that supports it. At what point the court should cease listening to testimony
that white is black and that a dollar is fifty cents is a matter for sound judicial discretion
and common sense.”
The current approach of the courts to the construction of contracts is “neither uncompromisingly literal
nor unswervingly purposive”. 250 The instrument must speak for itself, but the words used must, as
stated by Lord Hoffmann, 251 be understood to bear the meaning which they would convey to a
reasonable person having all the background knowledge which would reasonably have been
available to the parties in the situation in which they were at the time of the contract.
Adoption of the ordinary meaning of words
13-052
The starting point in construing a contract is that words are to be given their ordinary and natural
meaning. This is not necessarily the dictionary meaning of the word, but that in which it is generally
understood 252 . The courts assume that the parties have used language in the way that
reasonable persons ordinarily do. So terms are:
“… to be understood in their plain, ordinary, and popular sense, unless they have
generally in respect to the subject matter, as by the known usage of trade, or the like,
acquired a peculiar sense distinct from the popular sense of the same words; or unless
the context evidently points out that they must in the particular instance, and in order to
effectuate the immediate intention of the parties to that contract, be understood in some
other special and peculiar sense.” 253
Technical words
13-053
Prima facie the assumption is that technical words should have their technical meaning given to them
unless something can be found in the context to exclude it, 254 for if a word is of a technical or
scientific character, then its primary meaning is its technical and scientific meaning. 255 But:
“… when it is clear from the context of an instrument in what sense words are used in that
instrument, the sound rule of construction is to attribute to them that meaning, even
though the words be technical and have technically a different meaning; for it is only so
that you can effectuate the intention.” 256
Also:
Page 3
“… where it can be ascertained that a particular vernacular meaning is attributed to words

under circumstances similar to those in which the [scientific] expression to be construed
is found, the vernacular meaning must prevail over the scientific.” 257
Thus “petroleum” in a reservation in a conveyance was construed according to the vernacular, and
not the scientific, meaning, and so was held to include gas in solution in the liquid as it existed in the
earth. 258 Yet even this distinction is not a rigid one to be applied without regard to the circumstances
of the case. 259
Established judicial construction
13-054
Where the same words or contractual provisions have for many years received a judicial construction,
the court will suppose that the parties have contracted upon the belief that their words will be
understood in the accepted legal sense. 260
European directives
13-055
A contract of a public and regulatory nature which has been drafted with a view to implementing a
European Directive should be construed in a manner compatible with the Directive. 261
Absurdity, inconsistency, etc
13-056
262
In Investors Compensation Scheme Ltd v West Bromwich Building Society Lord Hoffmann said
263
:
“The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the
common sense proposition that we do not easily accept that people have made linguistic
mistakes, particularly in formal documents. On the other hand, if one would nevertheless
conclude from the background that something must have gone wrong with the language,
the law does not require judges to attribute to the parties an intention which they plainly
could not have had.”
So, the principle that words must be construed in their ordinary sense is liable to be departed from
where that meaning would involve an absurdity 264 or would create some inconsistency with the rest of
the instrument. 265 It may also not be applied, as Lord Hoffmann indicates, where there has been an
obvious linguistic mistake 266 or where, if the words were construed in their ordinary sense, they would
lead to a very unreasonable result or impose upon the contractor a responsibility which it could not
reasonably be supposed he meant to assume. 267 In Wickman Machine Tools Sales Ltd v L.G.
Schuler AG 268 Lord Reid said:
“The fact that a particular construction leads to a very unreasonable result must be a
relevant consideration. The more unreasonable the result, the more unlikely it is that the
parties can have intended it, and if they do intend it the more necessary it is that they
shall make their intention abundantly clear.” 269
Page 4
However, in Chartbrook Ltd v Persimmon Homes Ltd, 270 Lord Hoffmann cautioned that “it clearly
requires a strong case to persuade the court that something must have gone wrong with the
language” in order to justify a meaning which departs from the words actually used. Not only must it
be clear that “something has gone wrong with the language”, it must also be “clear what a reasonable
person would have understood the parties to have meant”: 271 in other words, both the “problem”
and the “solution” must be clear if the court is to give to the words a meaning other than that which
they ordinarily bear. It is no part of the court’s function to rewrite the contract for the parties so that,
where the draftsman has not thought through the consequences of his own drafting, he will not be
permitted to say that “something has gone wrong with the language” in order to save himself from the
consequences of his own poor or inadequate drafting. 272 Furthermore, considerations of
commercial common sense, or whether “something has gone wrong with the language” are not to be
invoked retrospectively, but must be considered at the date of every entry into the contract. 273
Ambiguity
13-057
Where the parties have used unambiguous language, the court must apply it. 274 But a word or
phrase in a contract may be open to more than one potential meaning or interpretation. In such a
case the court will consider the language used and ascertain what a reasonable person, that is a
person who has all the background knowledge which would reasonably have been available to the
parties in the situation in which they were at the time of the contract, would have understood the
parties to have meant. In doing so, the court must have regard to all the relevant surrounding
circumstances. If there are two possible constructions, the court is entitled (but is not obliged 275) to
276
prefer the construction which is consistent with business common sense and to reject the other.
Badly drafted contracts
13-058
277
In Mitsui Construction Co Ltd v Att-Gen of Hong Kong Lord Bridge said (of a building
contract) that the fact that the contract was badly drafted:
“… affords no reason to depart from the fundamental rule of construction of contractual

documents that the intention of the parties must be ascertained from the language they
have used interpreted in the light of the relevant factual situation in which the contract
was made. But the poorer the quality of the drafting, the less willing any court should be
to be driven by semantic niceties to attribute to the parties an improbable and
unbusinesslike intention, if the language used, whatever it may lack in precision, is
reasonably capable of an interpretation which attributes to the parties an intention to
make provision for contingencies inherent in the work contracted for on a sensible and
businesslike basis.”
However, the fact that the drafting of the contract is generally poor, may incline a court to conclude
that the parties did not, objectively, intend that the literal meaning of the words they used should be
used to “govern and override clear conflicting business common sense”. 278 In other words,
greater weight may be given in such cases to a “purposive” or “contextual” approach to the
interpretation of the contract given that an interpretation which gives greater weight to the “ordinary”
or “literal” meaning of the words used is less likely to give effect to the intention of the parties.
Similarly, in an appropriate case a court may acknowledge that a contract was prepared by and
concluded between lay persons where exactitude of language may not be expected and, in such a
Page 5
case, a court may give greater weight to the commercial sense of the agreement as a whole than to
the syntax of a particular term. 279
Mercantile contracts
13-059
Although it has been stated that there is not in law any difference of construction between
mercantile contracts and other instruments, 280 commercial documents “must be construed in a
business fashion” 281 and “there must be ascribed to the words a meaning that would make good
commercial sense”. 282 Indeed, in The Antaios 283 Lord Diplock said that 284:
“… if detailed semantic and syntactical analysis of words in a commercil contract is going

to lead to a conclusion that flouts business commonsense, it must yield to business
commonsense.”
Lord Diplock’s dictum has been referred to many times. 285 It does not, however, mean that the court
can rewrite the language used by the parties, where it is clear and unambiguous, in order to produce
a more balanced, fair or “businesslike” result. 286 But if alternative interpretations are available, it
will be necessary to consider the implications of each interpretation and which interpretation is most
likely to give effect to the commercial purpose of the agreement. 287 In mercantile contracts, the words
employed may also have acquired a special meaning, 288 and this may be a different meaning from
their natural one. 289 Hence it is that mercantile contracts are to be construed according to the usage
and custom of merchants, 290 provided that the custom is not inconsistent with the agreement. 291
When such contracts contain peculiar expressions which have in particular places or trades a known
meaning attached to them, the meaning of these expressions is a question of fact, although the
meaning of the contract still remains a question of law. 292 Further:
“… the custom of trade, which is a matter of evidence, may be used to annex incidents to
all written contracts, commercial or agricultural, and others, which do not by their terms
exclude it, upon the presumption that the parties have contracted with reference to such
usage, if it is applicable.” 293
A mercantile contract in standard form should be construed in a uniform sense and not in a
fundamentally different manner when applied to different classes of persons. 294
Custom of particular place
13-060
There are also cases in which regard must be had to the usage or custom of the place where the
contract was made or to which it had reference, in order to discover the meaning and intention of the
parties. Where, therefore, it appeared that, in the place where a contract concerning a sale of cider
was made, the word meant the juice of apples as soon as the juice was expressed, it was held that
the contract must be construed to have been for the sale of cider in that sense of the word. 295 And so
where a lease was granted of a warren in Suffolk, and the landlord covenanted to pay £60 per
thousand rabbits which the tenant was bound to leave on the premises, and it appeared by custom in
Suffolk in such cases that 1,000 rabbits meant 1,200, it was held that the landlord was only bound to
pay for rabbits reckoned at that rate. 296
13-061
On the other hand, there are occasions when the courts have refused to modify the natural meaning
Page 6
of a word in the light of custom, e.g. to attribute to the word “alongside” in contracts of affreightment a
peculiar meaning derived from the custom of a port so as to increase the shipowner’s obligation. 297
Moreover it is a question of fact in each case whether or not a contract containing terms which have a
peculiar meaning owing to some usage or custom was in fact made with reference to that usage or
custom, and the mere fact that such a custom exists in the district covered by the contract does not
raise a conclusion in law that the meaning of the contract is to be governed by the custom. 298
Special meaning
13-062
Although a contract must normally be construed in accord with the ordinary meaning of the
expressions contained in it, by considering the circumstances and situation of the parties at the time,
and the subject matter of the agreement, the court may be enabled to ascertain a special meaning
placed upon the words 299 and such special meaning then takes the place of the ordinary meaning for
the purpose of construing the contract. Also words in ancient documents are to be interpreted
according to the meaning which they bore at the date of the document. 300
Law of Property Act s.61
13-063
By s.61 of the Law of Property Act 1925, in all deeds, contracts, wills, orders, and other instruments
executed, made, or coming into operation after December 31, 1925, unless the context otherwise
requires:
(a)
"month" means calendar month 301;
(b)
"person" includes a corporation 302;
(c)
the singular includes the plural and vice versa 303;
(d)
the masculine includes the feminine and vice versa.
Construction of general words
13-064
The approach adopted to the construction of general words is that they are to be restricted according
to the nature of the circumstances or of the person. 304 Thus where a railway company agreed
efficiently to work and repair the railway and works demised, it was held that the word “efficiently” had
to be construed according to the resources and powers of the particular company. 305 The same
would no doubt apply (subject to the terms of the contract as a whole) to an obligation to take
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“reasonable steps” or to use “reasonable endeavours”. 306
240. See Farnsworth (1967) 76 Yale L.J. 939.
241. [1997] A.C. 749. Rennie v Westbury Homes (Holdings) Ltd [2007] EWHC 164; [2007] N.P.C. 16
; Savings Bank of the Russian Federation v Refco Securities LLC [2006] EWHC 857 (Comm),
[2006] 2 All E.R. (Comm) 722.
242. [1997] A.C. 749, 775.
243. [1998] 1 W.L.R. 896. The principles set out by Lord Hoffmann in this case at 912–913 have
subsequently been adopted in numerous cases: Static Control Components (Europe) Ltd v
Egan [2004] EWCA Civ 392, [2004] 2 Lloyd’s Rep. 429 at [12]–[14]; BP Exploration Operating
Co Ltd v Kvaerner Oilfield Products Ltd [2004] EWHC 999 (Comm), [2005] 1 Lloyd’s Rep. 307
at [47]–[48]; Sirius International Insurance (Publ) v FAI General Insurance Ltd [2004] UKHL 54;
[2004] 1 W.L.R. 3251 at [19]; Dairy Containers Ltd v Tasman Orient Line CV [2004] UKPC 22,
[2005] 1 W.L.R. 215 at [12]; NBTY Europe Ltd v Nutricia International BV [2005] EWHC 734
(Comm), [2005] 2 Lloyd’s Rep. 350 at [31]; Canmer International Inc v UK Mutual Steamship
Assurance Assn (Bermuda) Ltd [2005] EWHC 1694 (Comm), [2005] 2 Lloyd’s Rep. 479 at [22];
Absalom v TCRU Ltd [2005] EWHC 1090 (Comm), [2005] 2 Lloyd’s Rep. 735 at [25];
Gastronome (UK) Ltd v Anglo-Dutch Meats (UK) Ltd [2006] EWCA Civ 1233, [2006] 2 Lloyd’s
Rep. 587 at [14]; Kershaw Mechanical Services Ltd v Kendrick Construction Ltd [2006] EWHC
727 (Comm), [2006] 2 All E.R. (Comm) 722; Forrest v Glasser [2006] EWCA Civ 1086, [2006] 2
Lloyd’s Rep. 392 at [20]; Pratt v Aigaion Insurance Co SA [2008] EWCA Civ 1314, [2009] 1
Lloyd’s Rep. 225 at [9]; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 A.C.
1101 at [14]; Proteus Property Partners Ltd v South Africa Property Opportunities Plc [2011]
EWHC 768 (QB); Deutsche Trustee Co Ltd v Fleet Street Finance Three Plc [2011] EWHC
2117 (Ch).
244. [1998] 1 W.L.R. 896, 913.
245. Towne v Eisner (1918) 245 U.S. 416, 425.
247. Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 N.Z.L.R. 391,
394 (Lord Hope). See also Sinochem International Oil (London) Co Ltd v Mobil Sales and
Supply Corp [2000] 1 Lloyd’s Rep. 339, 346 (Kennedy L.J., dissenting); HSBC Bank Plc v
Liberty Mutual Insurance Co (UK) Ltd, The Times, June 11, 2001; Arnold v Britton [2015] UKSC
36, [2015] 2 W.L.R. 1593 at [17]–[22].
248. Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] EWCA Civ 1047, [2001] 2 All E.R.
(Comm) 299 at [16].
249. (1944) 53 Yale L.J. 603, 623.
250.
Arbuthnott v Fagan [1995] C.L.C. 1396, 1400 (Bingham M.R.). See also Charter Reinsurance
Ltd v Fagan [1997] A.C. 313, 326, 350; Persimmon Homes Ltd v Ove Arup & Partners Ltd
[2015] EWHC 3573 (TCC), [2016] B.L.R. 112 at [21].
251. Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896,
912; above, para.13-043. This approach has been followed in numerous cases, including Zeus
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Tradition Marine Ltd v Bell [1999] 1 Lloyd’s Rep. 703, 706; Boats Park Ltd v Hutchinson [1999]
2 N.Z.L.R. 1129; First Realty Plc v Norton Rose [1999] 2 B.C.L.C. 428; Harbinger UK Ltd v GE
Information Services Ltd [2000] 1 All E.R. (Comm) 166; Sinochem International Oil (London) Co
Ltd v Mobil Sales and Supply Corp [2000] 1 Lloyd’s Rep. 339, 344; Eridania Spa v Rudolf A
Oetker [2000] 2 Lloyd’s Rep. 191, 196; Association of British Travel Agents Ltd v British
Airways Plc [2000] 2 Lloyd’s Rep. 209, 216; City of London v Reeve & Co Ltd [2000] B.L.R.
211, 216; Bank of Credit and Commerce International v Ali (No.5) [2001] UKHL 8, [2002] 1 A.C.
251 at [8], [39]; Sirius International Insurance (Publ) v FAI General Insurance Ltd [2004] UKHL
54, [2004] 1 W.L.R. 3251 at [19]; Westerngeco Ltd v ATP Oil & Gas (UK) Ltd [2006] EWHC
1164 (Comm), [2006] 2 Lloyd’s Rep. 535 at [10]; Multiplex Construction (UK) Ltd v Cleveland
Bridge UK Ltd (No.2) [2007] EWHC 145 (TCC), (2007) 111 Const. L.R. 48 at [155]-[157]; UBS
AG v HSH Nordbank AG [2008] EWHC 1529 (Comm), [2008] 2 Lloyd’s Rep. 500 at [92]; Pratt v
Aigaion Insurance Co SA [2008] EWCA Civ 1314, [2009] 1 Lloyd’s Rep. 225 at [9]; Chartbrook
Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 A.C. 1101 at [21]–[26]; Secretary of
State for Transport v Stagecoach South Western Trains Ltd [2009] EWHC 2431 (Comm),
[2010] 1 Lloyd’s Rep. 175 at [36]; Global Coal Ltd v London Commodity Brokers [2010] EWHC
1347 (Ch) at [15]; Osteopathic Education and Research Ltd v Purfleet Office Systems Ltd
[2010] EWHC 1801 (QB) at [62]; Fenice Investments Inc v Jerram Falkus Construction Ltd
[2009] EWHC 3272 (TCC), 128 Con. L.R. 124; Emeraldian Ltd Partnership v Wellmix Shipping
Ltd [2010] EWHC 1411 (Comm), [2011] 1 Lloyd’s Rep. 301 at [53]; Re Agrimarche Ltd [2010]
EWHC 1655 (Ch), [2010] B.C.C. 775; Scottish Widows and Life Assurance Socy v BGC
International Ltd [2011] EWHC 729 (Ch) at [17]; Pink Floyd Music Ltd v EMI Records Ltd [2010]
EWCA Civ 1429, [2011] 1 W.L.R. 770 at [17]; Rainy Sky SA v Kookmin Bank [2011] UKSC 50,
[2011] 1 W.L.R. 2900 at [14]; Anthracite Rated Investments (Jersey) Ltd v Lehman Brothers
Finance SA [2011] EWHC 1822 (Ch), [2011] 2 Lloyd’s Rep. 538 at [96]; Mirador International
LLC v MF Global UK Ltd [2012] EWCA Civ 1662 at [19], [35]; Cherry Tree Investments Ltd v
Landmain Ltd [2012] EWCA Civ 736, [2013] Ch. 305; National Merchant Buying Society Ltd v
Bellamy [2013] EWCA Civ 452, [2013] 2 All E.R. (Comm) 674 at [39]; TSG Building Services
Plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC), [2013] B.L.R. 484; Amlin Corporate
Member Ltd v Oriental Assurance Corp [2013] EWHC 2380 (Comm), [2014] 1 All E.R. (Comm)
415 at [28]; British Malleable Iron Co Ltd v Relevan (IOM) Ltd [2013] EWHC 1954 (Ch), [2013]
E.G.L.R. 23.
252.
An emphasis on the natural and ordinary meaning of the words used by the parties is not to
be equated with “an unduly literal or semantic interpretation” (Fomento de Construcciones y
Contratas SA v Black Diamond Offshore Ltd [2016] EWCA Civ 1141, [2017] 1 B.C.L.C. 196 at
[12]) nor does it permit an over-literal interpretation of one provision without regard to the whole
of the document, particularly in the case of complex documents which have been put into
circulation in the market (Metlife Seguros de Retiro SA v JP Morgan Chase Bank, National
Association [2016] EWCA Civ 1248). The normal or dictionary meaning of the words used may
yield to their context (Savills (UK) Ltd v Blacker [2017] EWCA Civ 68 at [33]), although the
balance to be struck between the natural and ordinary meaning of the words and their context is
not always an easy one to strike.
253. Robertson v French (1803) 4 East 130, 135. See also Shore v Wilson (1842) 9 Cl. & Fin. 355,
527; Mallan v May (1844) 12 M. & W. 511, 517; Tielens v Hooper (1850) 5 Exch. 830; Grey v
Pearson (1857) 6 H.L. Cas. 61, 78, 106; Beard v Moira Colliery Co [1915] 1 Ch. 257, 268;
Royal Greek Government v Minister of Transport [1949] 1 K.B. 525, 528; Melanesian Mission
Trust Board v Australian Mutual Provident Society [1997] 1 N.Z.L.R. 391, 394 PC; Charter
Reinsurance Co Ltd v Fagan [1997] A.C. 313, 384; BP Exploration Operating Co Ltd v Kvaerner
Oilfield Products Ltd [2004] EWHC 999 (Comm), [2005] 1 Lloyd’s Rep. 307 at [93]; Thames
Valley Power Ltd v Total Gas & Power Ltd [2003] EWHC 2208 (Comm), [2006] 1 Lloyd’s Rep.
441 at [25]; Forrest v Glasser [2006] EWCA Civ 1086, [2006] 2 Lloyd’s Rep. 392 at [21]; Pratt v
Aigaion Insurance Co SA [2008] EWCA Civ 1314, [2009] 1 Lloyd’s Rep. 225 at [12]. Contrast
Staffordshire A.H.A. v South Staffordshire Waterworks Co [1978] 1 W.L.R. 1387, 1394; Charter
Reinsurance Co Ltd v Fagan [1997] A.C. 313, 391.
254. Laird v Briggs (1881) 19 Ch. D. 22, 34; Monypenny v Monypenny (1858) 4 K. & J. 174, 182;
Roddy v Fitzgerald (1858) 6 H.L.C. 823, 877.
255. Holt & Co v Collyer (1881) 16 Ch. D. 718, 720.

Page 9
256. Graham v Ewart (1856) 1 H. & N. 550, 562; Musgrave v Forster (1871) L.R. 6 Q.B. 590, 596;
Holt & Co v Collyer (1881) 16 Ch. D. 718. See also (insurance contracts) below, para.42-077.
257. Michael Borys v Canadian Pacific Ry [1953] A.C. 217, 223; Lord Provost and Magistrates of
Glasgow v Farie (1888) 13 App. Cas. 657, 669; Luigi Monta of Genoa v Cechofracht Co Ltd
[1956] 2 Q.B. 552.
258. Michael Borys v Canadian Pacific Ry [1953] A.C. 217. See also Lovell and Christmas Ltd v Wall
(1911) 103 L.T. 588; Tester v Bisley (1948) 64 T.L.R. 184; cf. Earl of Lonsdale v Att-Gen [1982]
1 W.L.R. 887.
259. Michael Borys v Canadian Pacific Ry [1953] A.C. 217, 223.
260. Thames and Mersey Marine Insurance Co v Hamilton, Fraser & Co (1887) 12 App. Cas. 484,
490; Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] A.C. 724, 735; Skips A/S Nordheim v
Syrian Petroleum Co Ltd [1983] 2 Lloyd’s Rep. 592, 597; Navrom v Callitsis Ship Management
SA [1987] 2 Lloyd’s Rep. 276, 278 (affirmed [1988] 2 Lloyd’s Rep. 416); Marc Rich & Co Ltd v
Tourloti Compania Naviera SA [1988] 2 Lloyd’s Rep. 101, 105; Chiswell Shipping Ltd v National
Iranian Tanker Co [1991] 2 Lloyd’s Rep. 251, 257; I.D.C. Group Ltd v Clark [1992] 2 E.G.L.R.
184, 186; British Sugar Plc v NEI Power Projects Ltd (1997) 87 Build. L.R. 42, 50; Rose v
Stavrou, The Times, June 3, 1999, Cero Navigation Corp v Jean Lion & Cie [2000] 1 Lloyd’s
Rep. 292, 294; Sunport Shipping Ltd v Tryg-Baltica International (UK) Ltd [2003] EWCA Civ 12,
[2003] 1 Lloyd’s Rep. 138 at [25], [56]; Henry Boot Construction Ltd v Alstom Combined Cycles
Ltd [2005] EWCA Civ 814, [2005] 1 W.L.R. 3850 at [29]; Atlas Navios-Navegacao Lda v
Navigators Insurance Co Ltd [2012] EWHC 802 (Comm), [2012] 1 Lloyd’s Rep. 629 at [25]. But
contrast Wickman Machine Tool Sales Ltd v L.G. Schuler A.G. [1974] A.C. 235; Macedonia
Maritime Co v Austin & Pickersgill Ltd [1989] 1 Lloyd’s Rep. 73.
261. White v White [2001] UKHL 9, [2001] 1 W.L.R. 481.
262. [1998] 1 W.L.R. 896.
263. [1998] 1 W.L.R. 896, 913 (applied in Sinochem International Oil (London) Co Ltd v Mobil Sales
and Supply Group Corp [2000] 1 Lloyd’s Rep. 339, 344, 345, 346). cf. Nippon Yusen Kubishiki
Kaisha v Golden Strait Corp [2003] EWHC 16 (Comm); [2003] 2 Lloyd’s Rep. 592 at [10], [14].
264. Grey v Pearson (1857) 6 H.L.C. 61, 106; Abbott v Middleton (1858) 7 H.L.C. 68, 114; Thelluson
v Rendlesham (1859) 7 H.L.C. 429, 519; Caledonian Ry v North British Ry (1881) 6 App. Cas.
114, 130; Ostfriesische Volksbank EG v Fortis Bank [2010] EWHC 361 (Comm), [2010] 2 All
E.R. (Comm) 921; cf. Charter Reinsurance Co Ltd v Fagan [1997] A.C. 313, 387; Zeus
Tradition Marine Ltd v Bell [1999] 1 Lloyd’s Rep. 703, 707; BP Exploration Operating Co Ltd v
Dolphin Drilling Ltd [2009] EWHC 3119, [2010] 2 Lloyd’s Rep. 192.
265. Words prima facie synonymous should be construed in the same sense throughout the
instrument; Re Birks [1900] 1 Ch. 417, 418; Yafai v Muthana [2012] EWCA Civ 289, but there is
no principle of general application to compel this: Watson v Haggitt [1928] A.C. 127.
266. Static Control Components (Europe) Ltd v Egan [2004] EWCA Civ 392, [2004] 2 Lloyd’s Rep.
428; BP Exploration Operation Co Ltd v Kvaerner Oilfield Products Ltd [2004] EWHC 999
(Comm), [2005] 1 Lloyd’s Rep. 307 at [95]; Pratt v Aigaion Insurance Co SA [2008] EWCA Civ
1314, [2009] 1 Lloyd’s Rep. 225 at [9]; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL
38, [2009] 1 A.C. 1101 at [14], [22]; Westvilla Properties Ltd v Dow Properties Ltd [2010] EWHC
30 (Ch), [2010] 2 P. & C.R. 19 at [20]; W W Gear Construction Ltd v McGee Group Ltd [2010]
EWHC 140 (TCC), 131 Con. L.R. 63 at [12]; ING Bank NV v Ros Roca SA [2011] EWCA Civ
353, [2012] 1 W.L.R. 472 at [22]; Caresse Navigation Ltd v Office Nationale de l’Electricité
[2013] EWHC 3081 (Comm), [2014] 1 Lloyd’s Rep. 337, at [45]; cf. Armitage v Staveley
Industries Plc [2004] EWHC 2320 (Comm), [2004] Pens. L.R. 385; Canmer International Inc v
UK Mutual Steamship Assurance Assn (Bermuda) Ltd [2005] EWHC 1694 (Comm), [2005] 2
Lloyd’s Rep. 479 at [24]–[29]; Forrest v Glasser [2006] EWCA Civ 1086, [2006] 2 Lloyd’s Rep.
392 at [24]; Royal Bank of Scotland Plc v Highland Financial Partners LP [2010] EWCA Civ 809
at [11]; Gessner Investments Ltd v Bombardier Inc [2011] EWCA Civ 1118; West v Ian Finlay &
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Associates [2014] EWCA Civ 316, [2014] B.L.R. 324.
267. Re Levy Ex p. Walton (1881) 17 Ch. D. 746, 751; Baumwoll Manufactur von Scheibler v
Furness [1893] A.C. 8, 15; Dodd v Churton [1897] 1 Q.B. 562, 566; Miramar Maritime Corp v
Holborn Oil Trading Ltd [1984] A.C. 676, 682; Antaios Compania Naviera SA v Salen
Rederierna AB [1985] A.C. 191, 200-201; Harbinger UK Ltd v GE Information Services Ltd
[2000] 1 All E.R. (Comm) 166; Kazakstan Wool Processors (Europe) Ltd v Nederlandsche
Credietverzekering Maatschappij NV [2000] 1 All E.R. (Comm) 708; AET Inc Ltd v Arcadia
Petroleum Ltd [2009] EWHC 2337 (Comm), [2009] 2 Lloyd’s Rep. 593 at [3]. Contrast Jones v
St John’s College, Oxford (1870) L.R. 6 Q.B. 115; The Raven [1980] 2 Lloyd’s Rep. 266, 269;
Lakeport Navigation Co Panama SA v Anonima Petroli Italiana [1982] 2 Lloyd’s Rep. 205; Pera
Shipping Corp v Petroship SA [1985] 2 Lloyd’s Rep. 103, 107; Eurico SpA v Phillipp Bros [1987]
2 Lloyd’s Rep. 215; Benjamin Developments Ltd v Robt Jones (Pacific) Ltd [1994] 3 N.Z.L.R.
189; City Alliance Ltd v Oxford Forecasting Services Ltd [2001] 1 All E.R. (Comm) 233; Pratt v
Aigaion Insurance Co SA [2008] EWCA Civ 1314, [2009] 1 Lloyd’s Rep. 225 at [23]; Marine
Trade SA v Pioneer Freight Futures Co Ltd BVI [2009] EWHC 2656 (Comm), [2009] 2 Lloyd’s
Rep. 631 at [27]; HHR Pascal BV v W 2005 Puppet 11 BV [2009] EWHC 2771 (Comm), [2010]
1 All E.R. (Comm) 399; Global Coal Ltd v London Commodity Brokers [2010] EWHC 1347 (Ch)
at [71].
268. [1974] A.C. 235.
269. [1974] A.C. 235, 251. This dictum was cited with approval in Wace v Pan Atlantic Group Ltd
[1981] 2 Lloyd’s Rep. 339, 343; Forsikringsaktieselskapet Vesta v J.N.E. Butcher Bain Dawes
Ltd [1989] 1 Lloyd’s Rep. 330, 346; Macedonia Maritime Co v Austin & Pickersgill Ltd [1989] 2
Lloyd’s Rep. 73, 81; Niobe Maritime Corp v Tradax Ocean Transportation SA [1995] 1 Lloyd’s
Rep. 579; International Fina Services AG v Katrina Shipping Ltd [1995] 2 Lloyd’s Rep. 344, 350;
Charter Reinsurance Co Ltd v Fagan [1997] A.C. 313, 355.
270. [2009] UKHL 38, [2009] 1 A.C. 1101 at [15]. See also Enviroco Ltd v Farstad Supply A/S [2009]
EWCA Civ 1399, [2010] 2 Lloyd’s Rep. 375 at [21].
271.
Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 A.C. 1101 at [25]; LSREF
III Wight Ltd v Millvalley Ltd [2016] EWHC 466 (Comm); Bouygues (UK) Ltd v Febrey Structures
Ltd [2016] EWHC 1333 (TCC); BP Gas Marketing Ltd v La Societe Sonatrach [2016] EWHC
2461 (Comm), 169 Con. L.R. 141 at [281]. It is “only in exceptional cases” that commercial
common sense can “drive the court to depart from the natural meaning of contractual
provisions” (Carillion Construction Ltd v Emcor Engineering Services Ltd [2017] EWCA Civ 65,
[2017] B.L.R. 203 at [46]; Grove Developments Ltd v Balfour Beatty Regional Construction Ltd
[2016] EWCA Civ 990, [2017] 1 W.L.R. 1893 at [42]; Arnold v Britton [2015] UKSC 36, [2015]
A.C. 1619 at [19]–[20]). For an example of such an “exceptional” case see Sutton Housing
Partnership Ltd v Rydon Maintenance Ltd [2017] EWCA Civ 359.
272.
Prophet Plc v Huggett [2014] EWCA Civ 1013, [2014] I.R.L.R. 797 (where a sentence in a
restrictive covenant was held to be a “carefully drawn piece of legal prose” which reflected
“exactly what the draftsman intended” but the draftsman had not thought through sufficiently the
consequence of one of the restrictions which had been inserted into the clause: the Court of
Appeal held that the employer had to live with the consequences of its own drafting). In Credit
Suisse Asset Management LLC v Titan Europe 2006-1 Plc [2016] EWCA Civ 1293 Arden L.J. at
[28] referred to the fundamental principle of English law of party autonomy, from which it follows
that the court will not rewrite the bargain that the parties have freely chosen to make (see also
BP Gas Marketing Ltd v La Societe Sonatrach [2016] EWHC 2461 (Comm), 169 Con. L.R. 141
at [274]).
273.
Arnold v Briton [2015] UKSC 36, [2015] 2 W.L.R. 1593 at [19]. However, where an event
subsequently occurs which was plainly not intended or contemplated by the parties, the court
may depart from the ordinary meaning of the words used in order to give effect to the intention
of the parties: Arnold v Britton at [22]. In Wood v Capita Insurance Services Ltd [2017] UKSC
24, [2017] 2 W.L.R. 1095 Lord Hodge acknowledged (at [11]) that the court “must be alive to
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the possibility that one side may have agreed to something which with hindsight did not serve
his interest”.
274.
Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 at [23]; Arnold v
Britton [2015] UKSC 36, [2015] 2 W.L.R. 1593 at [17]–[22]. But it may be going too far to state
that, in a case where there is no ambiguity in the disputed contract term, considerations of
commercial common sense do not need to be considered: Liontrust Investment Partners LLP v
Flanagan [2017] EWCA Civ 985 at [39]).
275. Edgworth Capital (Luxembourg) Sarl v Ramblas Investments BV [2015] EWHC 150 (Comm) at
[34].
276.
Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 at [21] (Lord Clarke);
Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] 2 W.L.R. 1095 at [11]. The fact
that there are two possible meanings of the disputed term has been held to be the beginning of
the inquiry, not its end (Scottish Power UK Plc v BP Exploration Operating Co Ltd [2016] EWCA
Civ 1043 at [29]). It is then necessary for the court to apply “all its tools of linguistic, contextual,
purposive and common sense analysis to discern what the clause really means” (per Briggs
L.J. in Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128, [2016] 1 C.L.C. 573 at [19]).
See also para.13-059 nn.280 and 281, below. cf. Procter and Gamble Co v Svenska Cellulosa
Aktiebolaget SCA [2012] EWCA Civ 1413 at [22] (two possible constructions not present).
277.
(1986) 33 Build. L.R. 1, 14, PC. See also Sinochem International Oil (London) Ltd v Mobile
Sales and Supply Corp [2000] 1 Lloyd’s Rep. 339, 344; Gan Insurance Co Ltd v Tai Ping
Insurance Co Ltd [2001] EWCA Civ 1047, [2001] 2 All E.R. (Comm) 299 at [13]; Rainy Sky SA v
Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 at [26]; MT Højgaard A/S v E.ON
Climate & Renewables UK Robin Rigg East Ltd [2017] UKSC 59 at [48].
278.
Cohen v Teseo Properties Ltd [2014] EWHC 2442 (Ch) at [30]. A point also acknowledged by
the Supreme Court in Arnold v Britton [2015] UKSC 36, [2015] 2 W.L.R. 1593 at [18]. But the
mere fact that the contract does not achieve what one party subsequently states was its object
does not necessarily result in the conclusion that the contract was badly drafted: Fairway Lakes
Ltd v Revenue & Customs Commissioners [2015] UKFTT 605 (TC). In Wood v Capita
Insurance Services Ltd [2017] UKSC 24, [2017] 2 W.L.R. 1095 Lord Hodge acknowledged (at
[13]) that in cases where the contract is one of some sophistication and complexity and has
been negotiated and prepared with the assistance of skilled professionals, the agreement may
be successfully interpreted principally by textual analysis. But in the case where the contract is
one of some informality or has not been drafted with the benefit of skilled professional
assistance it may be appropriate to place greater emphasis on the factual matrix when seeking
to interpret the contract. However, Lord Hodge also acknowledged that negotiators of complex
formal contracts may often not achieve a logical and coherent text because of, for example, the
conflicting aims of the parties, failures of communication, differing drafting practices, or
deadlines which require the parties to compromise in order to reach agreement. It is therefore
important to recognise that there may be provisions in a detailed professionally drawn contract
which lack clarity and the lawyer or judge in interpreting such provisions “may be particularly
helped by considering the factual matrix and the purpose of similar provisions in contracts of the
same type”.
279. Thorney Park Golf Ltd v Myers Catering Ltd [2015] EWCA Civ 19.
280. Southwell v Bowditch (1876) 1 C.P.D. 374, 376.
281. Southland Frozen Meat and Produce Export Co Ltd v Nelson Brothers Ltd [1898] A.C. 442, 444.
See also Glynn v Margetson & Co [1893] A.C. 351, 359; Menth & Co v Ropner & Co [1913] 1
K.B. 27, 32; Lake v Simmons [1927] A.C. 487, 509; Digby v General Accident Fire and Life
Assurance Corp Ltd [1949] 1 K.B. 226, 246; Panamanian Oriental Steamship Corp v Wright
[1971] 1 Lloyd’s Rep. 487, 492 (“a businesslike interpretation”); Mannai Investment Co Ltd v
Eagle Star Life Assurance Co Ltd [1997] A.C. 749, 771 (“a commercially sensible
construction”); Handelsbanken Norwegian Branch of Svenska Handelsbanken AB (Publ.) v
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Dandridge [2002] EWCA Civ 577, [2002] 2 Lloyd’s Rep. 421 at [24] (“a businesslike
interpretation in the context in which [the words] appear”); Homburg Houtimport BV v Agrosin
Private Ltd [2003] UKHL 12, [2004] 1 A.C. 715 at [10] (“a business sense”); Sirius International
Insurance (Publ) v FAI General Insurance Ltd [2004] UKHL 54, [2004] 1 W.L.R. 3251 at [19] (“a
… commercial approach”).
282. Miramar Maritime Corp v Holborn Oil Trading Ltd [1984] A.C. 676, 682; International Fina
Services AG v Katrina Shipping Ltd [1995] 2 Lloyd’s Rep. 344, 350; Axa Reinsurance (UK) Plc
v Field [1996] 3 All E.R. 517, 526; Society of Lloyd’s v Robinson [1999] 1 All E.R. (Comm) 545,
551.
283. Antaios Compania Naviera SA v Salen Rederierna AB [1984] A.C. 191, 201.
284. See also Shipping Corp of India Ltd v NBB Niederelke Schiffartsgesellschaft mbH & Co [1991]
1 Lloyd’s Rep. 77, 80; Bankers Trust Co v State Bank of India [1991] 2 Lloyd’s Rep. 443, 456;
International Fina Services AG v Katrina Shipping Ltd [1995] 2 Lloyd’s Rep. 344, 350; Charter
Reinsurance Co Ltd v Fagan [1997] A.C. 313, 355; but cf. 387; Sinochem International Oil
(London) Ltd v Mobil Sales and Supply Corp [2001] 1 Lloyd’s Rep. 339, 344; Sirius International
Insurance (Publ) v FAI General Insurance Ltd [2004] UKHL 54, [2004] 1 W.L.R. 3251 at [19];
Mora Shipping Inc v Axa Corporate Solutions Assurance SA [2005] EWCA Civ 1069, [2005] 2
Lloyd’s Rep. 769 at [32]; Absalom v TCRU Ltd [2005] EWHC 1090 (Comm), [2005] 2 Lloyd’s
Rep. 735 at [25].
285. Stocznia Gdynia SA v Gearbulk Holdings Ltd [2008] EWHC 944 (Comm), [2008] 2 Lloyd’s Rep.
202 at [26] (reversed on other grounds [2009] EWCA Civ 75, [2009] 1 Lloyd’s Rep. 461); Pratt v
Aigaion Insurance Co SA [2008] EWCA Civ 1314, [2009] 1 Lloyd’s Rep. 225 at [9]; Internet
Broadcasting Corp Ltd v MAR LLC [2009] EWHC 844 (Ch), [2009] 2 Lloyd’s Rep. 295 at [27];
Ostfriesische Volksbank EG v Fortis Bank [2010] EWHC 361 (Comm), [2010] 2 All E.R.
(Comm) 921; Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429, [2011] 1 W.L.R.
770; Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900; E-Nik Ltd v
Secretary of State for Communities and Local Government [2012] EWHC 3027 (Comm), [2013]
2 All E.R. (Comm) 868 at [261].
286.
Co-operative Wholesale Society Ltd v National Westminster Bank Plc [1995] 1 E.G.L.R. 97,
98; Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732, [2007]
C.I.L.L. 2449; Emeraldian Ltd Partnership v Wellmex Shipping Ltd [2010] EWHC 1411 (Comm),
[2010] 1 C.L.C. 993; Gesner Investments Ltd v Bombardier Inc [2010] EWHC 2643 (Comm),
[2010] All E.R. (D) 234 (Comm) at [28]; Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011]
1 W.L.R. 2900 at [23]; Kudos Catering (UK) Ltd v Manchester Central Convention [2012]
EWHC 1192 (QB) at [40], [54]; Greatship (India) Ltd v Oceanografia SA de CV [2012] EWHC
3468 (Comm), [2013] 1 All E.R. (Comm) 1244 at [17]; Ted Baker Plc v AXA Insurance UK Plc
[2012] EWHC 1406 (Comm), [2013] 1 All E.R. (Comm) 129 at [71]; BMA Special Opportunity
Hub Finance Ltd [2013] EWCA Civ 416 at [24]; Fons Ltd v Corporal Ltd [2014] EWCA Civ 304
at [16]; MT Hojgaard a/s v E.ON Climate and Renewables UK Robin Rigg West Ltd [2014]
EWHC 1088 (TCC) at [76], Cottonex Anstalt v Patriot Spinning Mills Ltd [2014] EWHC 236
(Comm), [2014] 1 Lloyd’s Rep. 615 at [52]-[58]; Soufflet Negoce SA v Fedcominvest Europe
Sarl [2014] EWHC 2405 (Comm), [2014] 2 Lloyd’s Rep 537 at [27]; Tartsinis v Navona
Management Co [2015] EWHC 57 (Comm) at [54]; Arnold v Britton [2015] UKSC 36, [2015] 2
W.L.R. 1593 at [17]-[22]; Credit Suisse Asset Management LLC v Titan Europe 2006-1 Plc
[2016] EWCA Civ 1293 at [28].
287. Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 at [30]. See also
Barclays Bank Plc v HHY Luxembourg SARL [2010] EWCA Civ 1248, [2011] 1 B.C.L.C. 336 at
[25], [26]; Ener-G Holdings Plc v Hormell [2011] EWHC 3290 (Comm) at [9]; PT Thiess
Contractors Indonesia v PT Kaltim Prima Coal [2012] EWHC 690 (Comm); Teal Assurance Co
Ltd v WR Berkley Insurance (Europe) Ltd [2013] UKSC 57, [2013] 2 All E.R. (Comm) 1009 at
[29]–[31]; Fons Ltd v Corporal Ltd [2014] EWCA Civ 304 at [15].
288. See, e.g. Care Shipping Corp v Itex Itagrani Export SA [1993] Q.B. 1 (“sub-freights”).
Page 13
289. See, e.g. Seacrystal Shipping Ltd v Bulk Transport Group Shipping Co Ltd [1989] 1 Lloyd’s
Rep. 1, 6 (“whether in berth or not”).
290. Re Walkers, Winser & Hamm and Shaw, Son & Co [1904] 2 K.B. 152; Upjohn v Hitchens [1918]
2 K.B. 48; see below, para.13-135.
291. Gibbon v Young (1818) 8 Taunt. 254; Hayton v Irwin (1879) 5 C.P.D. 130; The Alhambra (1881)
6 P.D. 68; Re L. Sutro & Co and Heilbut, Symons & Co [1917] 2 K.B. 348; Westacott v Hahn
[1918] 1 K.B. 495; Palgrave, Brown & Sons v S.S. Turid [1922] 1 A.C. 397; Ted Baker Plc v
AXA Insurance UK Plc [2012] EWHC 1406 (Comm); see below, para.13-131.
292. Hutchinson v Bowker (1839) 5 M. & W. 535; Hill v Evans (1862) 4 De G.F. & J. 288; see above,
para.13-047.
293. Gibson v Small (1853) 4 H.L.C. 353, 397.
294. Global Coal Ltd v London Commodity Brokers Ltd [2010] EWHC 1347 (Ch). See also Atlas
Navios-Navegacao Lda v Navigators Insurance Co Ltd [2012] EWHC 802 (Comm), [2012] 1
Lloyd’s Rep. 629 at [23] (worldwide use).
295. Studdy v Sanders (1826) 5 B. & C. 628.
296. Smith v Wilson (1832) 3 B. & Ad. 728. See below, para.13-133.
297. Palgrave, Brown & Sons v S.S. Turid [1922] 1 A.C. 397; Aktieselskabet Dampsskibsselskabet
Primula v Horsley (1923) 40 T.L.R. 11; Hillas & Co v Rederiaktiebolaget Aeolus (1926) 32 Com.
Cas. 169; cf. Aktieselskab Helios v Ekman [1872] 2 Q.B.D. 83; Smith, Hogg & Co v Louis
Bamberger & Sons [1929] 1 K.B. 150.
298. Clayton v Gregson (1836) 5 A. & E. 302.
299. Shore v Wilson (1842) 9 Cl. & F. 355, 555; Smith v Doe (1821) 2 B. & B. 473, 550, 602; Payne
v Haine (1847) 16 M. & W. 541; Myers v Sarl (1860) 3 E. & E. 306; Perrin v Morgan [1943] A.C.
399, 421; Levermore v Jobey [1956] 1 W.L.R. 697; Sydall v Castings Ltd [1967] 1 Q.B. 302; cf.
Hospital for Sick Children v Walt Disney Productions Inc [1968] Ch. 52; Zeus Tradition Marine
Ltd v Bell [1999] 1 Lloyd’s Rep. 703, 706. See below, para.13-124.
300. Shore v Wilson (1842) 9 Cl. & F. 355, 566; North British Ry Co v Budhill Coal and Sandstone
Co [1910] A.C. 116, 128; Earl of Lonsdale v Att-Gen [1982] 1 W.L.R. 887, 924-928. See below,
para.13-124.
301. Prior to 1926, the general rule was that “month” meant lunar month, but the rule was fortunately
almost destroyed by exceptions. The word always meant calendar month in ecclesiastical law,
in mercantile transactions, mortgages and statutes (since 1850), or where the meaning required
it from the context: see Schiller v Petersen [1924] 1 Ch. 394, 417; Sale of Goods Act 1979
s.10(3). A calendar month ends on the day of the next following month having the same number
as that on which computation began, e.g. March 30 to April 30; but if the next month has no day
of the same number, the calendar month ends on the last day of the next month, e.g. January
30 to February 28 or 29 (in leap year): Dodds v Walker [1981] 1 W.L.R. 1027, see also below,
para.21-027. See also the Interpretation Act 1978 s.5 and Sch.1; Wilkie v IRC [1952] 1 Ch. 153.
302. cf. Deutsche Genossenschaftsbank v Burnhope [1995] 1 W.L.R. 1580 HL.
303. cf. Re A Solicitor’s Arbitration [1962] 1 W.L.R. 353.
304. Verba generalia restringuntur ad habilitatem rei vel aptitudinem personae (Bac. Max. 10). See
below, para.13-126.
305. West London Ry v London and N.W. Ry (1853) 11 C.B. 327, 356. See also Burges v Wickham
(1863) 3 B. & S. 669, 698; Booth v Alcock (1873) L.R. 8 Ch. App. 663, 667; Thames and
Page 14
Mersey Marine Insurance Co v Hamilton, Fraser & Co (1887) 12 App. Cas. 484, 490; Shell
Tankers (UK) Ltd v Astro Comino Armadora SA [1981] 2 Lloyd’s Rep. 40.
306. Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 (Comm),
[2007] 2 All E.R. (Comm) 577; EDI Central Ltd v National Car Parks Ltd [2010] CSOH 141,
2011 S.L.T. 75.

Page 1

(c) - Whole Contract to be Considered 307
The whole contract is to be considered
13-065
Every contract is to be construed with reference to its object and the whole of its terms, 308 and
accordingly, the whole context must be considered in endeavouring to interpret it, even though the
immediate object of inquiry is the meaning of an isolated word or clause 309:
“It is a true rule of construction that the sense and meaning of the parties in any particular
part of an instrument may be collected ex antecedentibus et consequentibus; every part
of it may be brought into action in order to collect from the whole one uniform and
consistent sense, if that may be done.” 310
And so Lord Davey said in N.E. Ry v Hastings, 311 quoting Lord Watson 312:
“The deed must be read as a whole in order to ascertain the true meaning of its several
clauses, and the words of each clause should be interpreted as to bring them into
harmony with the other provisions of the deed if that interpretation does no violence to the
meaning of which they are naturally susceptible.”
13-066
For example, in the case of a bond with a condition, the condition may be read in order to explain the
obligatory part of the instrument, e.g. where no species of money was mentioned, but the debtor was
bound for 7,700 313; and in determining the meaning of words which are used for the purpose of
designating periods of time, such as the words “from” and “until”, 314 the whole contract is to be taken
into consideration. 315 Also, when the meaning of a contract for services is ambiguous, the court will
take into consideration even the price agreed to be paid for those services for the purpose of enabling
them to determine the extent of the service to be rendered under the contract. 316
13-067
Nevertheless:
“… it has long been recognised … that to seek perfect consistency and economy of
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draftsmanship in a complex form of contract which has evolved over many years is to
pursue a chimera.” 317
Although the court is bound to have regard to the whole of the contract and the words used, it may be
necessary to adapt the language in order to effect the intentions of the parties. 318
Control by recitals
13-068
When the words in the operative part of an instrument are ambiguous, the recitals and other parts
of the instrument may be used to fix the appropriate meaning of those words. 319 But clear words in
the operative part of an instrument cannot be controlled by recitals. 320
Several instruments
13-069
Several instruments made to effect one object may be construed as one instrument, and be read
together, but so that each shall have its distinct effect in carrying out the main design. 321 Thus, a
lease and counterpart are two documents relating to one transaction and a palpable mistake in the
lease may be corrected by reference to the counterpart, just as it might be by reference to other parts
of the lease itself 322:
“Where several deeds form part of one transaction and are contemporaneously executed
they have the same effect for all purposes such as are relevant to the case as if they
were one deed.” 323
Yet although the words “contemporaneously executed” have been used, there is no doubt that this is
not essential, so long as the court, having regard to the circumstances, comes to the conclusion that
the series of documents represents a single transaction between the same parties. 324 So the articles
of association of a company may be read to explain the memorandum 325 and a prospectus which
invited applications for deposit notes on certain terms could be read together with a deposit note from
which one of those terms had been omitted. 326 In Re Sigma Finance Corp 327 the Supreme Court
emphasised the need, when looking at a complex series of agreements, to construe an agreement
which was part of a series of agreements by taking into account the overall scheme of the
agreements and reading sentences and phrases in the context of that overall scheme. Contract
documents should as far as possible be read as complementing each other and therefore as
expressing the parties’ intentions in a consistent and coherent manner. 328
Supplemental instruments
13-070
Under s.58 of the Law of Property Act 1925, any instrument expressed to be supplemental to a
previous instrument shall, as far as may be, be read and have effect as if the supplemental instrument
contained a full recital of the previous instrument.
Alterations and deletions

Page 3
13-071
Evidence of prior negotiations is normally not admissible to construe a written contract 329 and drafts
will not be admitted either to alter the language of the contract or to help in its interpretation. 330 So,
where an instrument appears to have been altered while the parties were negotiating, the court
cannot look at it as it originally stood compared with the alterations which were made in it, to see
whether those alterations will throw any light upon the question of interpretation. 331 However, when
the parties use a printed form, and delete parts of it, there is some authority for the view that regard
may be paid to what has been deleted as part of the surrounding circumstances in the light of which
the meaning of the words which they chose to leave in is to be ascertained. 332 But there is weighty
authority to the contrary. 333 In any event, it is doubtful whether the court can look at the words deleted
except to resolve an ambiguity in the words retained. 334 The position may nevertheless be different
where alterations are made to an already concluded agreement. In Punjab National Bank v De
Boinville 335 Staughton L.J. said:
“… if the parties to a concluded agreement subsequently agree in express terms that

some words in it are to be replaced by others, one can have regard to all aspects of the
subsequent agreement in construing the contract, including the deletions, even in a case
which is not, or not wholly, concerned with a printed form.”
Also where a one-off contract has been drafted by reference to a standard form contract which
formed the basis for its drafting, the court can take into account the omission from the one-off contract
of words that appear in the standard form contract in order to resolve an ambiguity in the former
document. 336
Printed and written clauses
13-072
Where the contract is contained in a printed form with writing superadded, the written words, if there
should be any reasonable doubt about the sense and meaning of the whole, are to have greater
effect attributed to them than the printed words, inasmuch as the written words are the immediate
language and terms selected by the parties themselves for the expression of their meaning, and the
printed words are a general formula adapted equally to their case and that of all other contracting
parties upon similar occasions and subjects. 337 Nevertheless, it is open to the parties to stipulate in
their printed conditions of contract that written provisions appended to the printed form are not to
override, modify or affect in any way the application or interpretation of that which is contained in the
printed conditions, and effect must then be given to such a stipulation even though this is contrary to
the ordinary rule. 338
Discrepancy between words and figures
13-073
In the event of a difference between words and figures, the written words normally prevail. 339
307. Ex antecedentibus et consequentibus fit optima interpretatio (2 Co.Inst. 317).

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308.
Throcmerton v Tracey (1585) 1 Plow. 145, 161; Hume v Rundell (1824) 2 S. & S. 174, 177;
Richards v Bluck (1848) 6 C.B. 437, 441; Reid v Fairbanks (1853) 13 C.B. 692, 730; Re Strand
Music Hall Co Ltd (1865) 35 Beav. 153, 159; Miller v Borner [1900] 1 Q.B. 691; Wood v Capita
Insurance Services Ltd [2017] UKSC 24, [2017] 2 W.L.R. 1095 at [10].
309. Smith v Packhurst (1742) 3 Atk. 135, 136; Browning v Wright (1799) 2 B. & P. 13; Stavers v
Curling (1836) 3 Scott 740; Turner v Evans (1853) 2 E. & B. 512; Glynn v Margetson [1893]
A.C. 351; Midland Ry of Western Australia v State of Western Australia [1956] 1 W.L.R. 1037;
Nereide SpA di Navigazione v Bulk Oil International Ltd [1982] 1 Lloyd’s Rep. 1; Abu Dhabi
National Tanker Co v Product Star Shipping Ltd [1991] 2 Lloyd’s Rep. 468, 478, [1993] 1
Lloyd’s Rep. 397; Cementation Piling and Foundations Ltd v Aegon Insurance Co Ltd [1995] 1
Lloyd’s Rep. 97, 101; International Fina Services AG v Katrina Shipping Ltd [1995] 2 Lloyd’s
Rep. 344, 350.
310. Barton v Fitzgerald (1812) 15 East 529, 541; Coles v Hulme (1828) 8 B. & C. 568. See also
Trenchard v Hoskins (1625) Winch. 93.
311. [1900] A.C. 260, 267.
312. Chamber Colliery Co v Twyerould (1893) reported [1915] 1 Ch. 268n, 272. See also Sir Lindsay
Parkinson & Co v Commissioners of H.M. Works and Public Buildings [1949] 2 K.B. 632, 662.
313. Coles v Hulme (1828) 2 B. & C. 568.
315. R. v Stevens (1804) 5 East 244; Wilkinson v Gaston (1846) 9 Q.B. 137.
316. Allen v Cameron (1833) 1 C. & M. 832, 840.
317. Homburg Houtimport PV v Agrosin Private Ltd [2003] UKHL 12, [2004] 1 A.C. 715 at [12], per
Lord Bingham, citing Simond v Boydell (1779) 1 Dougl. 268; Nelson Line (Liverpool) Ltd v
James Nelson & Sons Ltd [1908] A.C. 16, 20-21; Hillas & Co Ltd v Arcos Ltd (1932) 43 Ll.L.
Rep. 35; Chandris v Isbrandtsen-Moller Inc [1951] 1 K.B. 240, 245.
319. Hesse v Albert (1828) 3 M. & Ry 406; Walsh v Trevanion (1850) 15 Q.B. 733, 751; Re Mitchell’s
Trusts (1878) 9 Ch. D. 5, 9; Leggott v Barrett (1880) 15 Ch. D. 306, 311; Re Moon Ex p. Dawes
(1886) 17 Q.B.D. 275, 286; Orr v Mitchell [1893] A.C. 238, 253, 254; Crouch v Crouch [1912] 1
K.B. 378; Rutter v Charles Sharpe & Co [1979] 1 W.L.R. 1429, 1433 (factual matrix).
320.
Leggott v Barrett (1880) 15 Ch. D. 306, 311; Re Moon Ex p. Dawes (1886) 17 Q.B.D. 275,
286. See also Young v Smith (1865) L.R. 1 Eq. 180, 183; Dawes v Tredwell (1881) 18 Ch. D.
354, 358; Foakes v Beer (1884) 9 App. Cas. 605; Australian Joint Stock Bank v Bailey [1899]
A.C. 396; Royal Insurance Co Ltd v G. & S. Assured Investments Co Ltd [1972] 1 Lloyd’s Rep.
267, 274; Rutter v Charles Sharpe & Co [1979] 1 W.L.R. 1428, 1433; Mr H TV Ltd v ITV2 Ltd
[2015] EWHC 2840 (Comm) at [38]. In Russell v Stone (trading as PSP Consultants) [2017]
EWHC 1555 (TCC) Coulson J. noted that modern methods of interpretation, in which
background plays a far larger part than used to be the case, may have “tempered” the
traditional approach, such that recitals in a deed can be looked at as part of the surrounding
circumstances of the contract “without a need to find ambiguity in the operative provisions of the
contract”.
321. Duke of Bolton v Williams (1793) 2 Ves. 138; Harrison v Mexican Rail Co (1875) L.R. 19 Eq.
358; Stott v Shaw [1928] 2 K.B. 26.
322. Burchell v Clark (1876) 2 C.P.D. 88; Matthews v Smallwood [1910] 1 Ch. 777.
Page 5
323. Manks v Whiteley [1912] 1 Chs 735, 754 (reversed on other grounds sub nom. Whiteley v
Delaney [1914] A.C. 132); Fowler v Hunter (1829) 3 Y. & J. 506.
324. Smith v Chadwick (1882) 20 Ch. D. 27, 63; Ford v Stuart (1852) 15 Beav. 493; Whitbread v
Smith (1854) 3 De G.M. & G. 727.
325. Re Capital Fire Insurance Association (1882) 21 Ch. D. 209, 212.
326. Jacobs v Batavia and General Plantations Trusts Ltd [1924] 2 Ch. 329; cf. Smith v Chadwick
(1882) 20 Ch. D. 27.
327.
[2009] UKSC 2, [2010] 1 All E.R. 571. See also Deutsche Bank AG v Sebastian Holdings Inc
[2010] EWCA Civ 998, [2011] 1 Lloyd’s Rep. 106 at [40]; Royal Bank of Scotland Plc v Highland
Financial Partners LP [2010] EWCA Civ 809 at [11]; and BNY Mellon Corporate Trustee
Services Ltd v LBG Capital No.1 Plc [2016] UKSC 29 at [30], although it was acknowledged
that in the case of a contract or trust deed which governs the terms upon which a negotiable
instrument is held “very considerable circumspection” is appropriate before the contents of such
other documents are taken into account.
328. RWE Npower Renewables Ltd v J N Bentley Ltd [2014] EWCA Civ 150, at [15]. Thus it should
only be in cases of a “clear and irreconcilable discrepancy” that it should be necessary for a
court to have to resolve any discrepancy between the terms (see below, para.13-080).
331. Inglis v Buttery (1878) 3 App. Cas. 552, 558, 569, 576; Channel Islands Ferries Ltd v Sealink
UK Ltd [1987] 1 Lloyd’s Rep. 559, 577 (affirmed [1988] 1 Lloyd’s Rep. 323).
332. Baumwoll Manufactur von Scheibler v Gilchrest & Co [1892] 1 Q.B. 253, 256; cf. [1893] A.C. 8,
15; Gray v Carr (1871) L.R. 6 Q.B. 522, 524, 529; Stanton v Richardson (1874) L.R. 9 C.P. 390;
Glynn v Margetson [1893] A.C. 351, 357; Caffin v Aldridge [1895] 2 Q.B. 648, 650; Santay & Co
v Cox, McEllen & Co (1921) 10 Ll.L. Rep. 459, 460; Bailey Sons & Co v Ross, Smythe & Co
[1940] 3 All E.R. 60; Louis Dreyfus et Cie v Parnaso Compania Naviera SA [1959] 2 Q.B. 498;
London & Overseas Freighters Ltd v Timber Shipping Co SA [1972] A.C. 1, 15; Mottram
Consultants Ltd v Bernard Sunley Ltd [1975] 2 Lloyd’s Rep. 197, 209; Punjab National Bank v
De Boinville [1992] 1 W.L.R. 1138, 1148.
333. Ambatielos v Jurgens [1923] A.C. 175, 185; Sassoon v International Banking Corp [1927] A.C.
711, 721; City & Westminster Properties (1934) Ltd v Mudd [1959] Ch. 129; Finzel, Berry & Co
v Eastcheap Dried Fruit Co [1962] 1 Lloyd’s Rep. 370, affirmed [1962] 2 Lloyd’s Rep. 11;
Compania Naviera Termar SA v Tradax Export SA [1965] 1 Lloyd’s Rep. 198, 204; Borthwick
(Thomas) (Glasgow) Ltd v Bunge & Co Ltd [1969] 1 Lloyd’s Rep. 17; Tradax Export v
Volkswagenwerk [1969] 2 Q.B. 599, 607; Ben Shipping Co (Pte) Ltd v An-Board Bainne [1986]
2 Lloyd’s Rep. 285, 291; Wates Construction (London) Ltd v Franthom Property Ltd (1991) 7
Const. L.J. 243; Rhodia Chirex Ltd v Laker Vent Engineering Ltd [2003] EWCA Civ 1859, [2004]
B.L.R. 75; Mapani Copper Mines Plc v Millennium Underwriting Ltd [2008] EWHC 1331
(Comm), [2009] Lloyd’s Rep. I.R. 158.
334. Louis Dreyfus et Cie v Parnaso Cia. Naviera SA [1959] 1 Q.B. 498, reversed on other grounds
[1960] 2 Q.B. 49.
335. [1992] 1 W.L.R. 1138, 1149. See also Centrepoint Custodians Pty Ltd v Lidgerwood
Investments Pty Ltd [1990] V.R. 411; Trasimex Holdings SA v Addax BV [1997] 1 Lloyd’s Rep.
610, 614; HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001]
EWCA Civ 735, [2001] 2 Lloyd’s Rep. 161 at [83], [84]; KPMG v Network Rail Infrastructure Ltd
[2007] EWCA Civ 363, [2007] Bus. L.R. 1336.
336. Team Services v Kier Management and Design (1994) 63 Build. L.R. 76.
Page 6
337. Robertson v French (1803) 4 East 130, 136; Glynn v Margetson & Co [1893] A.C. 351, 358; Re
L. Sutro & Co and Heilbut, Symons & Co [1917] 2 K.B. 348, 358, 361; Hadjipateras v Weigall &
Co (1918) 34 T.L.R. 360; Société d’Avances Commerciales (London) Ltd v A. Besse & Co Ltd
[1952] 1 T.L.R. 644; The Brabant [1967] 1 Q.B. 588; Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s
Rep. 439, 445; Naviera Amazonica Peruana SA v Compania Internacional de Seguros del Peru
[1988] 1 Lloyd’s Rep. 116, 121; cf. T. W. Thomas & Co v Portsea Steamship Co Ltd [1912] A.C.
1; Evergos Naftiki Eteria v Cargill Plc [1997] 1 Lloyd’s Rep. 35, 38; Homburg Houtimport BV v
Agrosin Ltd [2003] UKHL 12, [2004] 1 A.C. 715 at [11]; Camerata Property Inc v Credit Suisse
Securities (Europe) Ltd [2011] EWHC 479 (Comm), [2011] 2 B.C.L.C. 54.
338. Gold v Patman & Fotheringham Ltd [1958] 1 W.L.R. 697, 701; North West Metropolitan
Regional Hospital Board v T. A. Bickerton & Son Ltd [1970] 1 W.L.R. 607, 617; English
Industrial Estates Corp v George Wimpey & Co Ltd [1973] 1 Lloyd’s Rep. 118. But the written
provisions may be looked at “to follow exactly what was going on”, [1973] 1 Lloyd’s Rep. 118, at
126, 128.
339. Saunderson v Piper (1839) 5 Bing.N.C. 425; Bills of Exchange Act 1882 s.9(2).

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(d) - Making Sense of the Agreement
Meaning of agreement
13-074
It is not open to the court to revise the words used by the parties, or to put upon them a meaning
other than that which they ordinarily bear, in order to bring them into line with what the court may think
the parties ought to have agreed, or what the court may think would have been a reasonable contract
for the parties to make. 340 Commercial common sense “should not be invoked to undervalue the
importance of the language of the provision” which is to be construed. 341 But if, from the
document itself and the admissible background, 342 the meaning of the agreement can reasonably be
discerned, then the court will give effect to that meaning even though this involves departing from or
qualifying particular words used. So the court will be prepared to restrict, transpose, modify, supply or
reject words or terms in the document, provided the meaning of the document is plain in spite of the
words. The duty of the court in this respect was summed up by Kelly C.B. in Gwyn v Neath Canal Co
343
:
“The result of all the authorities is, that when a court of law can clearly collect from the
language within the four corners of a deed, or instrument in writing, the real intentions of
the parties, they are bound to give effect to it by supplying anything necessarily to be
inferred from the terms used, and by rejecting as superfluous whatever is repugnant to
the intention so discerned.”
Some examples of these expedients are discussed in the paragraphs which follow.
Restricting
13-075
Where some of the words in a printed form of charterparty were left in by oversight, instead of being
struck out, the House of Lords restricted the printed words to those applicable to the particular
agreement. 344 Also in Glynn v Margetson 345 there was a wide deviation clause in a bill of lading for
the carriage of oranges from Malaga to Liverpool. The ship left Malaga for a port not on the way to
Liverpool, and the oranges were damaged by the delay. The House of Lords held that the deviation
clause must be restricted to conform with the intention of a voyage from Malaga to Liverpool with a
perishable cargo; to hold otherwise would defeat the object of the contract.
Transposing
Page 2
13-076
“Words shall be transposed to support the intent of the parties” 346; “[t]he law is not nice in grants, and
therefore it doth often transpose words contrary to their order to bring them to the intent of the
parties”. 347 In a marriage settlement the words “[s]uch younger child or children” were made to
include both sons and daughters by transposing a clause creating a power to make provision “for
such younger children” and that containing a limitation to daughters. 348
Modifying
13-077
It has already been noted that the grammatical or ordinary sense of the words of a contract may be
departed from if this would lead to some absurdity or inconsistency with the rest of the instrument or if
there has been an obvious linguistic mistake. 349 It is also open to the court to correct a misnomer 350
or mistaken designation in a contract: Falsa demonstratio non nocet cum de corpore constat. 351 So
where the parties to a charterparty attached thereto a typed paramount clause which stated that:
“… this bill of lading shall have effect subject to the provisions of the Carriage by Sea Act
of the United States … which shall be deemed to be incorporated herein,”
it was held that the erroneous description of the charterparty as a bill of lading did not defeat the
intention of the parties that the document should be subject to the Act. 352 However, the court will not
be inclined to engage in a “verbal manipulation” of a designation in a contract if the actual words used
make perfectly good sense without any modification. 353 An obvious mistake in a written instrument
can be corrected as a matter of construction without obtaining a decree in an action for rectification 354
(by a process which has been referred to, not without criticism, as “corrective interpretation” 355) but
there must have been a clear mistake and it must be clear what correction ought to be made in order
to cure the mistake. 356 Such a mistake may well emerge only upon consideration of the content of
the instrument against the admissible background (which must always be taken into account) 357 and
correction of the mistake is then an aspect of the task of ascertaining what a reasonable person
would have understood the parties to have meant. 358
Supplying
13-078
In principle, the court will not interpolate words into a written instrument, of whatever nature, unless it
is clear both that words have been omitted and what those words were. 359 But, in simple situations,
the word “pounds”, for example, when omitted, has been supplied after or before a figure in a bill of
sale 360 or a bill of exchange, 361 and in deeds the name of the grantor, 362 the obligor 363 and the
grantee 364 have been supplied. In more complex cases concerning commercial contracts the courts
have gone further and supplied such words as were required to make commercial sense of the
agreement. 365
Rejecting
13-079
It might be thought to be a sensible principle of construction that an interpretation which leaves part of
the language of a document useless or creates surplusage is to be avoided. But this presumption has
often been said to be of little value in the construction of commercial documents. 366 If there is in a
contract a word or phrase to which no sensible meaning can be given 367 or which is mere surplusage,
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368
it may be rejected. Inconsistent or repugnant words or expressions, if they cannot be harmonised,
must similarly be rejected.
Inconsistent or repugnant clauses
13-080
Where the different parts of an instrument are inconsistent, effect must be given to that part which
is calculated to carry into effect the purpose of the contract as gathered from the instrument as a
whole and the available background, and that part which would defeat it must be rejected. 369 The old
rule was, in such a case, that the earlier clause was to be received and the later rejected 370; but this
rule was a mere rule of thumb, totally unscientific, and out of keeping with the modern construction of
documents. When considering how to interpret a contract in the case of alleged inconsistency, the
courts distinguish between a case where the contract makes provision for the possibility of
inconsistency and the case where there is no such provision. In the latter case the contract
documents should as far as possible be read as complementing each other and therefore as
expressing the parties’ intentions in a consistent and coherent manner. 371 However, matters are
otherwise in the case where there is a term in the contract dealing with the possibility of
inconsistency. 372 In such a case court should approach the interpretation of the contract without
any pre-conceived assumptions and should neither strive to avoid nor to find an inconsistency but
rather should approach the documents in a “cool and objective spirit to see whether there is
373
inconsistency or not”. To be inconsistent a term must contradict another term or be in conflict
374
with it, such that effect cannot fairly be given to both clauses. A term may also be rejected if it
375
is repugnant to the remainder of the contract. However, an effort should be made to give effect
to every clause in the agreement and not to reject a clause unless it is manifestly inconsistent with or
repugnant to the rest of the agreement. 376 Thus, if there is a personal covenant and a proviso that the
covenantor shall not be personally liable under the covenant, the proviso is inconsistent and void. 377
But if a clause merely limits or qualifies without destroying altogether the obligation created by
another clause, the two are to be read together and effect is to be given to the contract as disclosed
by the instrument as a whole. 378
Unforeseen events: change of circumstances
13-081
In a case from Scotland 379 the Supreme Court had to consider how a covenant should be
construed in a novel legal and accounting context, which was not foreseen or foreseeable (or was
“unthinkable”) at the time the covenant was entered into. Lord Mance stated 380 that a court should
first consider the “landscape, matrix and aim” of the agreement and then decide “how its language
best operated in the fundamentally changed and unforeseen circumstances in the light of the parties’
original intentions and purposes”. The emphasis was placed upon the adoption of a “contextual and
purposive” rather than a “mechanical” interpretation so that effect was given to the objectively
ascertained intention of the parties in these changed circumstances and the court was not required to
adopt a literal (or “mechanical”) interpretation of the words when to do so would have failed to give
effect to the intention of the parties as ascertained by the court. 381
Clauses incorporated by reference
13-082
If clauses are incorporated by reference into a written agreement, and those clauses conflict with
the clauses of the agreement, then, in the ordinary way, 382 the clauses of the written agreement will
Page 4
prevail. 383 Moreover, the incorporating provision may be so general or wide as to have the effect of
incorporating more than can make any sense in the context of the agreement, in which case the
surplus may be rejected as insensible or inconsistent, or disregarded as “mere surplusage”. 384 A
term in a proposal for insurance which conflicts with a term of the policy will be overridden by the term
of the policy. 385
Grammatical errors
13-083
Errors of syntax are a particularly frequent source of disputes in relation to written contracts. However
plain the syntax of a sentence may be, if it is clear from the content of the instrument and the
admissible background 386 that the apparent grammatical construction cannot be the true one, then
that which upon the whole is the true meaning prevails, in spite of the syntax of such particular
sentence. So, in Ewing v Ewing, 387 a deed of partnership provided that the capital of a deceased
partner should be paid out as at the last balance by certain regular instalments “with interest thereon
from the date of the last balance”. The word “thereon” was held to refer not to the last instalment but
was intended to be payable on the balance of the capital remaining unpaid. In Investors
Compensation Scheme Ltd v West Bromwich Building Society 388 a majority of the House of Lords
held that an exception from an assignment of “[a]ny claim (whether sounding in rescission for undue
influence or otherwise)” should be construed to read “[a]ny claim sounding in rescission (whether for
undue influence or otherwise)”, thus limiting the exception. The background circumstances and the
terms of related non-contractual documents showed, it was said, that the apparent syntax did not
convey the intended meaning. In Chartbrook Ltd v Persimmon Homes Ltd 389 the House of Lords held
that to interpret the definition of “additional residential payment” in the contract in accordance with
ordinary rules of syntax made no commercial sense and amended the definition accordingly. Lord
Hoffmann stated that it must be shown that “something must have gone wrong with the language” 390
and then “what a reasonable person would have understood the parties to have meant by using the
language that they did”. 391
Saving the document
13-084
If the words used in an agreement are susceptible of two meanings, one of which would validate
the instrument or the particular clause in the instrument, and the other render it void, ineffective or
meaningless, the former sense is to be adopted. This principle is often expressed in the phrase ut res
magis valeat cum pereat. 392 Thus, if by a particular construction the agreement would be
rendered ineffectual and the apparent object of the contract would be frustrated, but another
construction, though in itself less appropriate looking to the words only, would produce a different
effect, the latter interpretation is to be applied, if that is how the agreement would be understood by a
reasonable person with a knowledge of the commercial purpose and background of the transaction.
393
So, where the words of a guarantee were capable of expressing either a past or a concurrent
consideration, the court adopted the latter construction, because the former would render the
instrument void. 394 If one construction makes the contract lawful and the other unlawful, the former is
to be preferred. Thus a bond conditioned “to assign all offices” will be construed to apply to such
offices as are by law assignable. 395
Party cannot rely on his own breach
13-085
It has been said that, as a matter of construction, unless the contract clearly provides to the
contrary 396 it will be presumed that it was not the intention of the parties that either should be entitled
to rely on his own breach of duty to avoid the contract or bring it to an end or to obtain a benefit under
Page 5
397
it. This presumption applies only to acts or omissions which constitute a breach by that party of an
express or implied contractual obligation, 398 or (possibly) of a non-contractual duty, 399 owed by
him to the other party. Breach of a duty, whether contractual or non-contractual, owed to a stranger to
the contract will not suffice. 400 However, such a “principle of construction” appears to be somewhat
different in nature from those discussed above. It may therefore be that it is better regarded as
depending on an implied term of the contract in question 401 or as one illustration of a more general
principle that “[a] man cannot be permitted to take advantage of his own wrong”. 402
340. Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp [2000] 1 Lloyd’s
Rep. 339 at [29]. See also Wickman Machine Tool Sales Ltd v Schuler AG [1974] A.C. 235, 251
; Equity & Law Life Assurance Plc v Bodfield Ltd [1987] 1 E.G.L.R. 124; Pratt v Aigaion
Insurance Co SA [2008] EWCA Civ 1314, [2009] 1 Lloyd’s Rep. 225 at [12]; HHR Pascal BV v
W2005 Puppet II BV [2009] EWHC 2771 (Comm), [2010] 1 All E.R. (Comm) 399; Lord Goff
[1984] L.M.C.L.Q. 382, 391.
341.
Arnold v Britton [2015] UKSC 36, [2015] 2 W.L.R. 1593 at [17]. The importance of giving
appropriate weight to the language of the contract, especially where the parties have access to
skilled legal advice, has been recognised in more recent case law: see, for example, Canary
Wharf Finance II Plc v Deutsche Trustee Co Ltd [2016] EWHC 100 (Comm) at [17] and Vitol E
& P Ltd v Africa Oil and Gas Corp [2016] EWHC 1677 (Comm); Carillion Construction Ltd v
Emcor Engineering Services Ltd [2017] EWCA Civ 65, [2017] B.L.R. 203 at [46]; Grove
Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWCA Civ 990, [2017] 1
W.L.R. 1893 at [42].
343. (1865) L.R. 3 Ex. 209, 215, cited with approval by Lord Lowry in Forsikringsaktieselskapet
Vesta v J. N. E. Butcher, Bain Dawes Ltd [1989] 1 Lloyd’s Rep. 331, 345. See also Indian Oil
Corp v Vanol Inc [1991] 2 Lloyd’s Rep. 634, 636.
344. Baumwoll Manufactur von Scheibler v Gilchrest & Co [1893] A.C. 8, 15. See also Dudgeon v
Pembroke (1877) 2 App. Cas. 284.
345. [1893] A.C. 351, 357. See also Davy Offshore Ltd v Emerald Field Contracting Ltd [1992] 2
Lloyd’s Rep. 142, 155. cf. G.H. Renton & Co Ltd v Palmyra Trading Corp of Panama [1957]
A.C. 149; Sudatlantica Navegacion SA v Devamar Shipping Corp [1985] 2 Lloyd’s Rep. 271,
346. Comyns’ Digest, art.“Parols”, A.21.
347. Parkhurst v Smith (1742) Wiles 327, 332; cf. Magrath v McGeany [1938] Ir. R. 309.
348. Fenton v Fenton (1837) 1 Dr. & W. 66.
350. The law relating to misnomer was explored by Rix L.J. in Dumford Trading AG v DAO
Atlantrybflot [2005] EWCA Civ 24, [2005] 1 Lloyd’s Rep. 289, where this paragraph was cited
(at [27]); but see below, para.13-127. See also The Tutova [2006] EWHC 2223 (Comm), [2007]
1 Lloyd’s Rep. 104 at [10]; Front Carriers Ltd v Atlantic and Orient Shipping Corp [2007] EWHC
421 (Comm), [2007] 2 Lloyd’s Rep. 131 at [44]; Gastronome (UK) Ltd v Anglo Dutch Meals (UK)
Ltd [2006] EWCA Civ 1233, [2006] 2 Lloyd’s Rep. 587 at [14]; Liberty Mercian Ltd v Cuddy Civil
Page 6
Engineering Ltd [2013] EWHC 2688 (TCC), [2014] 1 All E.R. (Comm) 761 at [81].
351. Llewellyn v Jersey (1843) 11 M. & W. 183, 189; Morrell v Fisher (1849) 4 Exch. 591, 604;
Cowen v Truefitt Ltd [1899] 2 Ch. 309; Eastwood v Ashton [1915] A.C. 900, 914; Whittam v
W.J. Daniel & Co Ltd [1962] 1 Q.B. 271, 277; F. Goldsmith (Sicklesmere) Ltd v Baxter [1970]
Ch. 85; Modern Buildings Wales Ltd v Limmer and Trinidad Co Ltd [1975] 1 W.L.R. 1281; Nittan
v Solent Steel Fabrication Ltd [1981] 1 Lloyd’s Rep. 633; Lamport & Holt Lines Ltd v Coubro &
Scrutton (M. & I.) Ltd [1981] 2 Lloyd’s Rep. 659 (affirmed [1982] 2 Lloyd’s Rep. 42); Mohammed
bin Abdul Rahman Orri v Seawind Navigation Co SA [1986] 1 Lloyd’s Rep. 36; Coral (UK) Ltd v
Rechtman [1996] 1 Lloyd’s Rep. 235; Gastronome (UK) Ltd v Anglo-Dutch Meats (UK) Ltd
[2006] EWCA Civ 1233, [2006] 2 Lloyd’s Rep. 587. Contrast Internaut Shipping GmbH v
Fercometal SARL [2003] EWCA Civ 812, [2003] 2 Lloyd’s Rep. 430 (mistake beyond
misnomer).
352. Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] A.C. 133. In the Court of
Appeal, it had been held that the paramount clause was meaningless and to be rejected: [1957]
2 Q.B. 233.
353. Miramar Maritime Corp v Holborn Oil Trading Ltd [1984] A.C. 676. But see Mannai Investment
Co Ltd v Eagle Star Life Assurance Ltd [1997] A.C. 749.
354. East v Pantiles Plant Hire Ltd [1982] 2 E.G.L.R. 111 at 112; Holding & Barnes Plc v Hill House
Hammond Ltd [2001] EWCA Civ 1334 at [14]; Lafarge (Aggregates) Ltd v London Borough of
Newham [2005] EWHC 1337 (Comm), [2005] 2 Lloyd’s Rep. 577 at [25]; Dalkia Utilities
Services Plc v Celtech International Ltd [2006] EWHC 63, (Comm); [2006] 1 Lloyd’s Rep. 599 at
[109]; Littman v Aspen Oil Broking Ltd [2005] EWCA Civ 1579, [2006] 2 P. & C.R. 2. The
relationship between interpretation and rectification has been variously described in the case
law. In Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44, [2011] 1 A.C. 662
, Lord Clarke (at [45]) stated that the relationship between the two was “close”, whereas Leggatt
J. in Tartsinis v Navona Management Co [2015] EWHC 57 (Comm) at [13] described them as
“very different exercises”.
355. Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736, [2013] Ch. 305 at [62]. For
criticism see Buxton [2010] C.L.J. 253.
356.
East v Pantiles Plant Hire Ltd [1982] 2 E.G.L.R. 11 at 112; Chartbrook Ltd v Persimmon
Homes Ltd [2009] UKHL 38, [2009] 1 A.C. 1101 at [22]; Pink Floyd Music Ltd v EMI Records
Ltd [2010] EWCA Civ 1429, [2011] 1 W.L.R. 770 at [21]; ING Bank NV v Ros Roca [2011]
EWCA Civ 353, [2012] 1 W.L.R. 472 at [22]; Liberty Mercian Ltd v Cuddy Civil Engineering Ltd
[2013] EWHC 2688 (TCC), [2014] 1 All E.R. (Comm) 761 at [81]; Bouygues (UK) Ltd v Febrey
Structures Ltd [2016] EWHC 1333 (TCC); LSREF III Wight Ltd v Millvalley Ltd [2016] EWHC
466 (Comm); Hayfin Opal Luxco 3 SARL v Windermere VII CMBS Plc [2016] EWHC 782 (Ch).
357. See below, paras 13-083, 13-121.
358. KPMG v Network Rail Infrastructure Ltd [2007] EWCA Civ 363, [2007] Bus. L.R. 1336 at
[44]-[50]; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 A.C. 1101 at
[22]-[23]; ING Bank NV v Ros Roca [2011] EWCA Civ 353, [2012] 1 W.L.R. 472 at [22]; Liberty
Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 2688 (TCC), [2014] 1 All E.R. (Comm)
761 at [81].
359. Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12, [2004] 1 A.C. 715 at [23];
Cambridge Display Technology Ltd v EI Dupont de Nernouts [2004] EWHC 1415 (Ch) [2005]
F.S.R. 14.
360. Mourmand v Le Clair [1903] 2 K.B. 216; Coles v Hulme (1828) 8 B. & C. 568.
361. Elliott’s Case (1777) 2 East P.C. 951; 1 Leach 175.
362. Lord Say and Seal’s Case (1711) 10 Mod. 41, 45.
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363. Dobson v Keys (1610) Cro.Jac. 261.
364. Co.Litt. 7a.
365. Tropwood A.G. of Zug v Jade Enterprises Ltd [1982] 1 Lloyd’s Rep. 232; Homburg Houtimport
BV v Agrosin Private Ltd [2003] UKHL 12, [2004] 1 A.C. 715; cf. Petroleo Brasileiro SA v
Elounda Shipping Co [1985] 2 Lloyd’s Rep. 154; City Alliance Ltd v Oxford Forecasting
Services Ltd [2001] 1 All E.R. (Comm) 233, 237; X v Y [2011] EWHC 152 (Comm), [2011] 1
Lloyd’s Rep. 694.
366. Royal Greek Government v Minister of Transport (1949) 83 Ll.L. Rep. 228, 235; Chandris v
Isbrandtsen-Moller Inc [1951] 1 K.B. 385, 392; Total Transport Corp v Arcadia Petroleum Ltd
[1998] 1 Lloyd’s Rep. 351, 357.
367. Smith v Packhurst (1742) 3 Atk. 135, 136; Stone v Yeovil Corp (1876) 1 C.P.D. 691, 701;
Nicolene v Simmonds [1953] 1 Q.B. 543. Contrast British Electrical and Associated Industries
(Cardiff) Ltd v Patley Pressings Ltd [1953] 1 W.L.R. 280; Tropwood A.G. of Zug v Jade
Enterprises Ltd [1982] 1 Lloyd’s Rep. 232; Commercial Union Assurance Co v Sun Alliance
Insurance Group Plc [1992] 1 Lloyd’s Rep. 475, 480.
368. Waugh v Bussell (1814) 5 Taunt. 707, 711; Gray v Carr (1871) L.R. 6 Q.B. 522, 536, 550, 557;
Burrell & Sons v F. Green & Co [1914] 1 K.B. 293, 303; Chandris v Isbrandtsen-Moller Co Inc
[1951] 1 K.B. 240, 245; Carga del Sur Compania Naviera SA v Ross T. Smyth & Co Ltd [1962]
2 Lloyd’s Rep. 147, 154; The Merak [1965] P. 223; Pera Shipping Corp v Petroship SA [1985] 2
Lloyd’s Rep. 103, 106-107; Mangistaumunaigaz Oil Production Association v United World
Trade Inc [1995] 1 Lloyd’s Rep. 617; Total Transport Corp v Arcadia Petroleum Ltd [1998] 1
Lloyd’s Rep. 351, 357-358.
369. Walker v Giles (1848) 6 C.B. 662, 702; Love v Rowtor Steamship Co Ltd [1916] 2 A.C. 527, 535
; Sabah Flour and Feedmills Sdn. Bhd. v Comfez Ltd [1988] 2 Lloyd’s Rep. 18; cf. Taylor v Rive
Droite Music Ltd [2005] EWCA Civ 1300, [2006] E.M.L.R. 4.
370. Shep.Touch. 88; Doe d. Leicester v Biggs (1809) 2 Taunt. 109, 113; Forbes v Git [1922] 1 A.C.
256, 259.
371.
RWE Npower Renewables Ltd v JN Bentley Ltd [2014] EWCA Civ 150.
372.
Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep. 342; Alexander (as
representative of the “Property 118 Action Group”) v West Bromwich Mortgage Co Ltd [2016]
EWCA Civ 496.
373.
Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep. 342, 350; Alexander
(as representative of the “Property 118 Action Group”) v West Bromwich Mortgage Co Ltd
[2016] EWCA Civ 496.
374.
Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep. 342, 350; Cobelfret
Bulk Carriers NV v Swissmarine Services SA [2009] EWHC 2883 (Comm), [2010] 1 Lloyd’s
Rep. 317 at [20]; Public Company Rise v Nibulon SA [2015] EWHC 684 (Comm); Alexander (as
representative of the “Property 118 Action Group”) v West Bromwich Mortgage Co Ltd [2016]
EWCA Civ 496.
375.
Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] A.C. 133. ; Mercuria
Energy Trading Pte Ltd v Citibank NA [2015] EWHC 1481 (Comm), [2015] 1 C.L.C. 999 at [76].
376. Barton v Fitzgerald (1812) 15 East 529, 541; Bush v Watkins (1851) 14 Beav. 425, 432; Société
Co-operative Suisse des Céréales et Matiéres Fourrageres v La Plata Cereal Co SA (1947) 80
Ll.L. Rep. 530, 537; Bremer Handelsgesellschaft mbH v J.H. Rayner & Co Ltd [1979] 2 Lloyd’s
Rep. 216; Sudatlantica Navegacion SA v Devamar Shipping Corp [1985] 2 Lloyd’s Rep. 271;
Page 8
Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep. 342, 349; STX Pan
Ocean Co Ltd v Ugland Bulk Transport AS [2007] EWHC 1317 (Comm), [2008] 1 Lloyd’s Rep.
86 at [18]; RWE Npower Renewables Ltd v J N Bentley Ltd [2014] EWCA Civ 150.
377. Furnivall v Coombes (1843) 5 M. & G. 736. See also Watling v Lewis [1911] 1 Ch. 414; Re
Tewkesbury Gas Co [1911] 2 Ch. 279 (affirmed [1912] 1 Ch. 1).
378.
Williams v Hathaway (1877) 6 Ch. D. 544; Forbes v Git [1922] 1 A.C. 256, 259; Walton (Grain
& Shipping) Ltd v British Italian Trading Co Ltd [1959] 1 Lloyd’s Rep. 223, 227; Pagnan SpA v
Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep. 342, 351; Alexander (as representative
of the “Property 118 Action Group”) v West Bromwich Mortgage Co Ltd [2016] EWCA Civ 496;
MT Højgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Ltd [2017] UKSC 59. It is
a question of construction for the court whether the multiple provisions cover the same or
similar territory are all effective to impose the several obligations that their terms suggest, or
that the effect of one or more provisions is to modify or exclude the apparent meaning of
another provision of the contract: 125 OBS (Nominees1) v Lend Lease Construction (Europe)
Ltd [2017] EWHC 25 (TCC) at [99].
379. Lloyds TSB Foundation for Scotland v Lloyds Banking Group Plc [2013] UKSC 3, [2013] 1
W.L.R. 366.
380. [2013] UKSC 3 at [22]-[23].
381.
[2013] UKSC 3 at [21]. Contrast the more conservative approach taken by the Supreme Court
in Arnold v Britton [2015] UKSC 36, [2015] 2 W.L.R. 1593. There are, however, no special rules
of interpretation applicable to long term or relational contracts other than the need to recognise
that terms in such contracts must often be phrased in broad, flexible terms to enable parties to
adjust their bargain to meet changing circumstances and the courts should therefore not be too
astute to declare such terms to be unenforceable on the ground of uncertainty or vagueness:
Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396 at [64]–[68].
382. cf. Sabah Flour and Feedmills Sdn. Bhd. v Comfez Ltd [1988] 2 Lloyd’s Rep. 18; The Northgate
[2007] EWHC 2796 (Comm), [2008] 1 Lloyd’s Rep. 511 at [39], [53].
383. Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] A.C. 133, 155, 178-179;
Modern Buildings Wales Ltd v Limmer and Trinidad Co Ltd [1975] 1 W.L.R. 1281, 1289; Sabah
Flour and Feedmills Sdn. Bhd. v Comfez Ltd [1988] 2 Lloyd’s Rep. 18, 20; Metalfer Corp v Pan
Ocean Shipping Co Ltd [1998] 2 Lloyd’s Rep. 632, 637; Finagra (UK) Ltd v O.T. Africa Line Ltd
[1998] 2 Lloyd’s Rep. 622, 627; BCT Software Solutions Ltd v Arnold Laver & Co Ltd [2002]
EWHC 1298 (Ch), [2002] 2 All E.R. (Comm) 85 at [42]; Petroleum Oil and Gas Corp of South
Africa (Pty) Ltd v F38 Singapore Pte Ltd [2008] EWHC 2480 (Comm), [2009] 1 Lloyd’s Rep. 107
at [20]; Cobelfret Bulk Carriers NV v Swissmarine Services SA [2009] EWHC 2883 (Comm),
[2010] 1 Lloyd’s Rep. 317 at [20]; cf. Bayoil SA v Seaworld Tankers Corp (The Leonidas) [2001]
1 Lloyd’s Rep. 533 (no conflict between clauses).
384.
Skips A/S Nordheim v Syrian Petroleum Co Ltd [1983] 2 Lloyd’s Rep. 592, 594; cf. Miramar
Maritime Corp v Holborn Oil Trading Ltd [1984] A.C. 676, 683; Balli Trading Ltd v Afalona
Shipping Co Ltd [1993] 1 Lloyd’s Rep. 1, 6; Northrop Grumman Mission Systems Europe Ltd v
BAE Systems (Al Diriyah C4I) Ltd [2015] EWCA 844. When considering whether to incorporate
the terms of one contract document into another contract, the first rule of interpretation is to
construe the incorporating clause in order to decide on the width of the incorporation, and the
second is that the court must read the incorporated wording into the host document to see if, in
that setting, some parts of the incorporated wording nevertheless have to be rejected as
inconsistent or insensible when read in their new context: TJH and Sons Consultancy Ltd v
CPP Group Plc [2017] EWCA Civ 46 at [13].
385. Thor Navigation Inc v Ingosstrakh Insurance [2005] EWHC 19 (Comm), [2005] 1 Lloyd’s Rep.
547 (applying Izzard v Universal Insurance [1937] A.C. 773, 780).
Page 9
387. (1882) 8 App. Cas. 822. See also Wills v Wright (1677) 2 Mod. 285; Waugh v Middleton (1853)
8 Exch. 352, 356.
388. [1998] 1 W.L.R. 896. See also Static Control Components (Europe) Ltd v Egan [2004] EWCA
Civ 392; [2004] 2 Lloyd’s Rep. 429; BP Exploration Operating Co Ltd v Kvaerner Oilfield
Products Ltd [2004] EWHC 999 (Comm), [2005] 1 Lloyd’s Rep. 307 at [95]; Cereal Investments
Co (CIC) SA v ED&F Man Sugar Ltd [2007] EWHC 2843 (Comm), [2008] 1 Lloyd’s Rep. 355 at
[19]; cf. Armitage Staveley Industries Plc [2004] EWHC 2320 (Comm), [2004] Pens. L.R. 385;
Osmium Shipping Corp v Cargill International SA [2012] EWHC 571 (Comm), [2012] 2 All E.R.
(Comm) 197.
389. [2009] UKHL 38, [2009] 1 A.C. 1101.
390. At [15].
391. At [21]. See ING Bank NV v Ros Roca SA [2011] EWCA Civ 353, [2012] 1 W.L.R. 472 at [22].
392.
Verba ita sunt intelligenda ut res magis valeat cum pereat: Bac. Max. 3; Noy. Max. 50. The
maxim can only be invoked in a case where there is a genuine ambiguity: Egon Zehnder Ltd v
Tillman [2017] EWCA Civ 1054 at [12].
393. Solly v Forbes (1820) 2 B. & B. 38, 48. See also Co.Litt. 42a; Mills v Dunham [1891] 1 Ch. 576,
590; Lancashire CC v Municipal Mutual Insurance Ltd [1996] 3 All E.R. 545, 553, 557; Bank of
Credit and Commerce International SA v Ali [2002] 1 A.C. 251, 269; Multiplex Construction (UK)
Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC), [2007] B.L.R. 195 at [57]-[58];
Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613, [2007] I.C.R. 1539;
Pioneer Freight Futures Co Ltd v TMT Asia Ltd (No.2) [2011] EWHC 1888 (Comm), [2011] 2
394. Haigh v Brooks (1839) 10 A. & E. 309; Goldshede v Swan (1847) 1 Exch. 154; Steele v Hoe
(1849) 14 Q.B. 431; Broom v Batchelor (1856) 1 H. & N. 255. See also Rowell Leakey & Co v
Scottish Provident Institution [1927] 1 Ch. 55, 65 (insurance policy).
395. Harrington v Kloprogge (1785) 2 B. & B. 678, note (a). See also Fausset v Carpenter (1831) 2
Dow. & Cl. 232; Lewis v Davison (1839) 4 M. & W. 654. The same principle applies to the
performance of a contract: if a payment is made in performance of a contract partly legal and
partly illegal it is presumed that it is made in performance of the legal part of the contract: A.
Smith & Son (Bognor Regis) Ltd v Walker [1952] 2 Q.B. 319; Cantor Art Services Ltd v Kenneth
Bieber Photography Ltd [1969] 1 W.L.R. 1226.
396. Micklefield v S.A.C. Technology Ltd [1990] 1 W.L.R. 1002. See also Richco International Ltd v
Alfred C. Toepfer International GmbH [1991] 1 Lloyd’s Rep. 136.
397. Alghussein Establishment v Eton College [1988] 1 W.L.R. 587, HL. See also Doe d. Bryan v
Bancks (1821) 4 B. & Ald. 401, 406; Malins v Freeman (1838) 4 Bing. N.C. 395, 399; New
Zealand Shipping Co v Société des Ateliers et Chantiers de France [1919] A.C. 1, 6, 8, 9, 15;
Quesnel Forks Gold Mining Co Ltd v Ward [1920] A.C. 222, 227; Amalgamated Building
Contractors Ltd v Waltham Holy Cross U.D.C. [1952] 2 All E.R. 452, 455; Cheall v Association
of Professional Executive and Computer Staff [1983] 2 A.C. 180, 189; Ackerman v Protim
Services [1988] 2 E.G.L.R. 259; Gyllenhammar & Partners International Ltd v Saur
Brodogradevna Industrija [1989] 2 Lloyd’s Rep. 403, 412; Micklefield v S.A.C. Technology Ltd
[1990] 1 W.L.R. 1002, 1007; Richco International Ltd v Alfred C. Toepfer International GmbH
[1991] 1 Lloyd’s Rep. 136, 144; Cerium Investments v Evans [1991] C.L.Y 1870 CA; WX
Investments Ltd v Begg [2002] EWHC 925 (Ch), [2002] 1 W.L.R. 2849 at [12]. The breach may
be deliberate or inadvertent: Cheall v Association of Professional Executive and Computer Staff
[1983] 2 A.C. 180.
398. Cheall v Association of Professional Executive and Computer Staff [1983] 2 A.C. 180;
Page 10
Alghussein Establishment v Eton College [1988] 1 W.L.R. 587; Gyllenhammar & Partners
International Ltd v Saur Brodogradevna Industrija [1989] 2 Lloyd’s Rep. 403; J. Lauritzen A.S. v
Wijsmuller BV [1990] 1 Lloyd’s Rep. 1, 13; Antclizo Shipping Corp v Food Corp of India (The
Antclizo) (No.2) [1992] 1 Lloyd’s Rep. 558, 567-568.
399.
Cheall v Association of Professional Executive and Computer Staff [1983] 2 A.C. 180;
Ackerman v Protim Services [1998] 2 E.G.L.R. 259; J. Lauritzen A.S. v Wijsmuller BV (The
Super Servant Two) [1990] 1 Lloyd’s Rep. 1, 13; Antclizo Shipping Corp v Food Corp of India
(The Antclizo) (No.2) [1992] 1 Lloyd’s Rep. 558, 568; Eurobank Ergasias SA v Kalliroi
Navigation Co Ltd [2015] EWHC 2377 (Comm).
400. Cheall v Association of Professional Executive and Computer Staff [1983] 2 A.C. 180.
401. Richco International Ltd v Alfred C. Toepfer International GmbH [1991] 1 Lloyd’s Rep. 136. See
also Bulk Shipping A.G. v Ipco Trading SA [1992] 1 Lloyd’s Rep. 39, 43; BDW Trading Ltd v J M
Rowe (Investments) Ltd [2011] EWCA Civ 548, [2011] 20 E.G. 113 (C.S.) at [34]; and below,
para.14-015.
402. See, e.g. Rede v Farr (1817) 6 M. & S. 121, 124; Doe d. Bryan v Bancks (1821) 4 B. & Ald.
401, 409; Roberts v Bury Commissioners (1870) L.R. 4 C.P. 755; Alfred C. Toepfer v Peter
Cremer [1975] 2 Lloyd’s Rep. 118, 124; Total Transport Corp v Amoco Trading Co [1985] 1
Lloyd’s Rep. 423, 426. But that principle is not absolute: Cheall v Association of Professional
Executive and Computer Staff [1983] 2 A.C. 180, 189; Alghussein Establishment v Eton College
[1988] 1 W.L.R. 587, 595; Micklefield v S.A.C. Technology Ltd [1990] 1 W.L.R. 1002; Richco
International Ltd v Alfred C. Toepfer International GmbH [1991] 1 Lloyd’s Rep. 136; Decoma UK
Ltd v Haden Drysys International Ltd [2005] EWHC 2948 (TCC), (2005) 103 Const. L.R. 1. See
also below, para.14-015.

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(e) - Construction against Grantor
Construction against grantor
13-086
Another principle of construction is that a deed or other instrument shall be construed more
strongly against the grantor or maker thereof. 403 This rule is often misinterpreted. It is only to be
applied to remove (and not to create) a doubt or ambiguity 404 and as a last resort where the issue
405
cannot otherwise be resolved by the application of ordinary principles of construction. Its
application to negotiated contracts has also been doubted. 406 Nevertheless, despite certain
doubts which have been cast upon it from time to time, 407 the principle has been constantly cited as a
rule of construction from Coke’s time to the present day. 408 For instance, Coke says 409, “[i]t is a
maxim in law that every man’s grant shall be taken by construction of law most forcibly against
himself”; and in 1949, Evershed M.R. said:
“We are presented with two alternative readings of this document and the reading which
one should adopt is to be determined, among other things, by a consideration of the fact
that the defendants put forward the document. They have put forward a clause which is
by no means free from obscurity and have contended … that it has a remarkably, if not
an extravagantly, wide scope, and I think that the rule contra proferentem should be
applied.” 410
13-087
The justification for the rule has been said to be that:
“… a person who puts forward the wording of a proposed agreement may be assumed to
have looked after his own interests so that if the words leave room for doubt about
whether he is intended to have a particular benefit there is reason to suppose that he is
not.” 411
13-088
So, in the case of a guarantee, if the party who drafts it uses ambiguous language, such ambiguity
may be taken more strongly against himself. 412 If a carrier gives two notices, limiting his responsibility
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in cases of loss of goods, he is bound by that which is least beneficial to himself. 413 A notice under
which a party claims a general lien is to be construed against him. 414 And if an instrument is made in
terms so ambiguous as to make it doubtful whether it is a bill or note, the holder may, as against the
maker of the instrument, treat it as either at his election. 415 Important applications of this principle
arise in the case of conditions, warranties and exceptions in insurance policies 416 and in the case of
417 418
time-bar and exemption clauses, for it is usually the party who has drafted the document
who is seeking to rely on the protection of its provisions. 419
Crown contracts
13-089
“The King’s grant is taken most strongly against the grantee, and most favourably for the
King, although the thing which he grants came to the King by purchase or descent.” 420
This ancient rule is still applicable to grants of land or of an interest in land, 421 but it no longer applies
to commercial contracts with the Crown. 422 In any event, it does not in any way override other
principles of construction. 423
403. Verba cartarum fortius accipiuntur contra proferentem (Bac. Max. 3).
404.
Borradaile v Hunter (1843) 5 M. & G. 639; Birrell v Dryer (1884) 9 App. Cas. 345, 350;
Cornish v Accident Insurance Co (1889) 23 Q.B.D. 453, 456; London & Lancashire Insurance v
Bolands Ltd [1924] A.C. 836, 848; Houghton v Trafalgar Insurance Co [1954] 1 Q.B. 247;
Lakeport Navigation Co Panama SA v Anonima Petroli Italiana [1982] 2 Lloyd’s Rep. 205, 208;
Aqua Design & Play International Ltd v Kier Regional Ltd [2002] EWCA Civ 797, [2003] B.L.R.
111; Tektrol Ltd v International Insurance Co of Hanover Ltd [2005] EWCA Civ 845, [2005] 2
Lloyd’s Rep. 701 at [8]; West v Ian Finlay & Associates (a firm) [2014] EWCA Civ 316, [2014]
B.L.R. 324; Impact Funding Solutions Ltd v Barrington Support Services Ltd [2016] UKSC 57,
[2016] 3 W.L.R. 1422 at [6]; Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA
Civ 373, [2017] P.N.L.R. 29 at [52]–[53].
405.
Lindus v Melrose (1858) 3 H. & N. 177, 182; Lakeport Navigation Company Panama SA v
Anonima Petroli Italiana SpA [1982] 2 Lloyd’s Rep. 205, 208; Sinochem International Oil
(London) Co Ltd v Mobil Sales and Supply Corp [2000] 1 Lloyd’s Rep. 339 at [37]; Direct Travel
Insurance v McGeown [2003] EWCA Civ 1606 at [13]; Egan v Static Control Components
(Europe) Ltd [2004] EWCA Civ 392, [2004] 2 Lloyd’s Rep. 429 at [37]; Cattles Plc v Welcome
Financial Services Ltd [2010] EWCA Civ 599, [2010] 2 Lloyd’s Rep. 514 at [43]; AJ Building and
Plastering Ltd v Turner [2013] EWHC 484, [2013] Lloyd’s Rep. I.R. 629 (see below, Vol.II,
para.42-088, n.592); Compania Sud Americana de Vapores SA v Hin-Pro International
Logistics Ltd [2015] EWCA Civ 401; Hut Group Ltd v Nobahar-Cookson [2016] EWCA Civ 128
(although note the difference of view between Briggs L.J. (who at [12]–[21] invoked the contra
proferentem rule) and Hallett L.J. and Moylan J. who did not (see paras [40] and [41]).
406.
K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904, [2012]
Ch. 497; Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd [2015]
Page 3
EWCA Civ 401, [2015] 2 Lloyd’s Rep. 1 at [69]-[71]; Transocean Drilling UK Ltd v Providence
Resources Plc [2016] EWCA Civ 372 at [20].
407. Taylor v St Helens Corp (1877) 6 Ch. D. 264, 270, per Jessel M.R., but the cases on which he
relies turned upon the construction of wills. In more modern times cases can be found in which
doubts have been expressed about the significance of the rule for commercial contracts (see,
for example, K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ
904, [2012] Ch. 497 at [68]).
408. Manchester College v Trafford (1679) 2 Show. 31; Johnson v Edgware, etc., Ry (1866) 35
Beav. 480, 484; Neill v Duke of Devonshire (1882) 8 App. Cas. 135, 149; Homburg Houtimport
BV v Agrosin Private Ltd [2003] UKHL 12, [2004] 1 A.C. 715 at [144]; Dairy Containers Ltd v
Tasman Orient Line CV [2004] UKPC 22, [2005] 1 W.L.R. 215 at [12]. The principle is now
mandatory in respect of certain consumer contracts by reg.7 of the Unfair Terms in Consumer
Contracts Regulations 1999 (SI 1999/2083) or, for contracts made on or after October 1, 2015,
s.69 of the Consumer Rights Act 2015: see below, Vol.II, para.38-385.
409. Co.Litt. 36a, 183a, 183b.
410. John Lee & Son (Grantham) Ltd v Railway Executive [1949] 2 All E.R. 581, 583.
411. Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd [1996] 2 B.C.L.C. 69, 77
(Lord Mustill), applied in Lexi Holdings Plc v Stainforth [2006] EWCA Civ 988.
412. Hargreave v Smee (1829) 6 Bing. 244, 248; Adams v Richardson & Starling Ltd [1969] 1 W.L.R.
1645, 1653; Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd [1996] 2
B.C.L.C. 69; Coutts & Co v Stock [2000] 1 W.L.R. 906, 914. But see Egan v Static Control
Components (Europe) Ltd [2004] EWCA Civ 392, [2004] 2 Lloyd’s Rep. 429 at [37] and Vol.II,
para.45-062.
413. Munn v Baker (1817) 2 Stark. 255.
414. Crumpston v Haigh (1836) 2 Scott 684.
415. Edis v Bury (1827) 6 B. & C. 433; Lloyd v Oliver (1852) 18 Q.B. 471.
416. Blackett v Royal Exchange Assurance Co (1832) 2 Cr. & J. 244; Petros M. Nomikos Ltd v
Robertson (1939) 64 Ll.L. Rep. 45; Tektrol Ltd v International Insurance Co of Hanover Ltd
[2005] EWCA Civ 845, [2005] 2 Lloyd’s Rep. 701 at [8]; Atlas Navios-Navegacao Lda v
Navigators Insurance Co Ltd [2012] EWHC 802 (Comm), [2012] 1 Lloyd’s Rep. 629 at [26]; and
see Vol.II, para.42-077. See also Pratt v Aigaion Insurance Co SA [2008] EWCA Civ 1314,
[2009] 1 Lloyd’s Rep. 225 at [26].
417. Board of Trade (Minister of Materials) v Steel Bus. & Co Ltd [1952] 1 Lloyd’s Rep. 87; Pera
Shipping Corp v Petroship SA [1985] 2 Lloyd’s Rep. 103.
418.
See below, para.15-012. There is a possibility that the rule in its application to exclusion
clauses might now develop separately from the contra proferentem rule. Instead of searching
for the proferens to whom the rule may be applicable, the courts may regard the rule as a
general rule of construction applicable to exclusion clauses according to which ambiguity in an
exclusion clause may have to be resolved by a narrow construction because an exclusion
clause cuts down or detracts from the ambit of some important obligation in a contract, or a
remedy conferred by the general law: Hut Group Ltd v Nobahar-Cookson [2016] EWCA Civ 128
at [18].
419.
It has, however, been pointed out by Staughton L.J. in Pera Shipping Corp v Petroship SA
[1984] 2 Lloyd’s Rep. 363, 365, and in Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep.
127, 134, in relation to the application of the maxim, that the proferens is sometimes regarded
as the draftsman of the document and sometimes as the party who seeks to rely on the
protection of its provisions. These may not coincide. But note that in Bloomberg LP v Sandberg
Page 4
(A Firm) [2015] EWHC 2858 (TCC), [2016] B.L.R. 72 at [24] Fraser J. held that the rule was of
“no assistance” because he could not identify the proferens.
420. Willion v Berkley (1562) 1 Plow. 223, 243; Att-Gen v Ewelme Hospital (1853) 17 Beav. 366, 385
; Feather v the Queen (1865) 6 B. & S. 257, 283, 284; Viscountess Rhondda’s Claim [1922]
A.C. 359, 353; Earl of Lonsdale v Att-Gen [1982] 1 W.L.R. 887, 901.
421. Earl of Lonsdale v Att-Gen [1982] 1 W.L.R. 887.
422. Lonrho Exports Ltd v Export Credit Guarantee Department [1999] Ch. 158.
423. Att-Gen v Ewelme Hospital (1853) 17 Beav. 366, 386.

Page 1

(f) - Ejusdem Generis Principle
Ejusdem generis principle
13-090
The so-called “rule” which is laid down with reference to the construction of statutes, namely, that
where several words preceding a general word point to a confined meaning the general word shall not
extend in its effect beyond subjects ejusdem generis (of the same class), 424 applies in principle to the
construction of contracts. 425 The principle depends on the assumed intention of the framer of the
instrument, i.e. that the general words were only intended to guard against some accidental omission
in the objects of the kind mentioned and were not intended to extend to objects of a wholly different
kind. Indeed, this principle follows as a corollary of the principle that the whole contract is to be
considered, 426 being simply that every word shall be taken in conjunction with the words that
accompany it. 427 Therefore the words “all the perils” in the ordinary form of marine insurance policy
include only perils of the sea or perils ejusdem generis therewith, because their meaning is restricted
by the subject matter, i.e. marine risks, and by the genus of perils mentioned specifically in the policy.
428
General words such as “other accidents beyond the charterer’s control” occurring at the end of a
list of specific exceptions in a charterparty are construed to cover only accidents similar to those
expressly mentioned. 429 Where a lease contained a proviso for an abatement of rent in case the
demised premises should at any time during the term “be destroyed or damaged by fire, flood, storm,
tempest, or other inevitable accident”, it was held that the words “inevitable accident” must be
construed by the principle of ejusdem generis, that is, they must be taken to mean accident of a
similar kind to “fire, flood, storm, or tempest”, and not to include accidents occasioned by the acts or
defaults of the contracting parties. 430
No common category
13-091
The ejusdem generis principle cannot, however, be applied unless there is a class to which the
general words can be restricted. Therefore, where the matters specifically referred to are so various
that they fall into no common category the meaning of subsequent general words is not limited by
relation to them. For instance, liability was repudiated in the event of “deficiency of men or owner’s
stores, breakdown of machinery, or damage to hull or other accident ”. It was held that the matters
specifically referred to made up no common category, so that the general words “or other accident”
extended to delay caused by stranding. 431 The class need not be definable with logical or scientific
exactitude, provided it is reasonably clear what it includes and what it excludes; for example, “war and
disturbance” sufficiently indicate a class that excludes damage from ice. 432 It has been held that
where only one matter is specifically referred to, the principle cannot be applied, because a single
species cannot constitute a class 433; but there is no reason why in such a case the general words
should not be limited with respect to the subject matter in relation to which they are used. 434 In a
commercial contract, if a class cannot be found, that is one factor indicating that the parties did not
intend to restrict the meaning of the words; but it is not universally true that, whenever a class cannot
Page 2
be found, the words must have been intended to have their literal meaning, whatever other indications
there may be to the contrary. 435
Canon of construction
13-092
The ejusdem generis principle is not a rigid technical rule, but a mere canon of construction. It has
been held that, in a commercial contract, where general words follow an enumeration of particular
things, those words are prima facie to be construed as having their natural and larger meaning, and
are not to be restricted to things ejusdem generis with those previously enumerated, unless there is
something in the instrument which shows an intention so to restrict them. 436 Also where a
charterparty contained an exemption from liability arising from “frost, flood, strikes … and any other
unavoidable accidents or hindrances of what kind soever beyond their control delaying the loading of
the cargo”, it was held that the parties, by inserting the words, “of what kind soever”, intended to
exclude the ejusdem generis principle, and that the contract was to be construed so as to exclude
delays caused by a block of other shipping at the loading port. 437 On the other hand, the words “or
otherwise” may be subject to the ejusdem generis principle. 438
13-093
Where specific words follow general words instead of preceding them, the House of Lords has held
that, as a general rule, the generality of the earlier should not be restricted by the insertion of the
subsequent words, which may be regarded simply as examples of what was meant by the general
words. 439 Similarly, even if the specific words precede the general words, they may be regarded as
examples of what is comprehended in the general words. 440
424. Sandiman v Breach (1827) 7 B. & C. 96, 100; R. v Nevill (1846) 8 Q.B. 452; Re Stockport
Ragged Schools [1898] 2 Ch. 687; Att-Gen v Brown [1920] 1 K.B. 773.
425. Cullen v Butler (1816) 5 M. & S. 461; Harrison v Blackburn (1864) 17 C.B.(N.S.) 678; Sun Fire
Office v Hart (1889) 14 App. Cas. 98, 103.
426. See above, paras 13-065—13-073.
427. The maxim is noscitur a sociis: Newby v Sharpe (1878) 8 Ch. D. 39, 52.
428. Thames and Mersey Marine Insurance Co v Hamilton, Fraser & Co (1887) 12 App. Cas. 494,
490; Bolivia Republic v Indemnity Mutual Marine Assurance Co [1909] 1 K.B. 785; Stott (Baltic)
Steamers v Marten [1916] 1 A.C. 304; Marine Insurance Act 1906 Sch.I r.12.
429. Fenwick v Schmalz (1868) L.R. 3 C.P. 313; Re Richardsons and Samuel [1898] 1 Q.B. 261;
Mudie v Strick (1909) 100 L.T. 701; Thorman v Dowgate Steamship Co [1910] 1 K.B. 410;
Hadjipateras v S. Weigall & Co (1918) 34 T.L.R. 360; Aktieselskabet Frank v Namague Copper
Co (1920) 25 Com. Cas. 212; Jones v Oceanic Steam Navigation Co [1924] 2 K.B. 730
(passage ticket); Andre & Cie SA v Orient Shipping (Rotterdam) BV [1997] 1 Lloyd’s Rep. 139;
Cosco Bulk Carrier Co Ltd v Team-Up Owning Co Ltd [2010] EWHC 1340 (Comm), [2011] 1
Lloyd’s Rep. 187. But see the cases on force majeure clauses in commercial contracts cited
below, para.13-092 n.426.
430. Saner v Bilton (1878) 7 Ch. D. 815; Manchester Bonded Warehouse Co v Carr (1880) 5 C.P.D.
Page 3
507; Barking and Dagenham LBC v Stamford Asphalt Co Ltd, The Times, April 10, 1997.
431. S.S. Magnhild v McIntyre Bros & Co [1920] 3 K.B. 321; [1921] 2 K.B. 97; Tillmanns v S.S.
Knutsford [1908] 2 K.B. 385, 395, 403, 409; affirmed [1908] A.C. 406.
432. Tillmanns v S.S. Knutsford [1908] 2 K.B. 385; Thorman v Dowgate S.S. Co [1910] 1 K.B. 410;
Re Richardsons and Samuel [1898] 1 Q.B. 261.
433. R. v Special Commissioners [1923] 1 K.B. 393; Re Ellwood [1927] 1 Ch. 455.
434. See above, para.13-064; Newby v Sharpe (1878) 8 Ch. D. 39, 52; Foscolo Mango & Co Ltd v
Stag Line Ltd [1931] 2 K.B. 48.
435. Chandris v Isbrandtsen-Moller Co Inc [1951] 1 K.B. 240, 246.
436. Andersen v Andersen [1895] 1 Q.B. 749; Chandris v Isbrandtsen-Moller Co Inc [1951] 1 K.B.
240; P.J. Vander Zijden Wildhandel NV v Tucker & Cross Ltd [1975] 2 Lloyd’s Rep. 240.
Contrast Tillmanns Co v S.S. Knutsford [1908] 2 K.B. 385; Crompton v Jarratt (1885) 30 Ch. D.
298 where the contrary presumption is said to be correct.
437. Larsen v Sylvester & Co [1908] A.C. 295; Earl of Jersey v Neath Poor Law Union (1889) 22
Q.B.D. 555; Belcore Maritime Corp v Filli Moretti Cereali SpA [1983] 2 Lloyd’s Rep. 66, 68; CA
Venezolana de Navegacion v BankLine [1987] 2 Lloyd’s Rep. 498, 507; see also Archbishop of
Canterbury’s Case (1596) 2 Co. Rep. 46a (general words following particular words will not be
taken to include anything of a superior class to that to which the particular words belong).
438. Re Kershaw, Whittaker v Kershaw (1890) 45 Ch. D. 320; cf. Keeble v Keeble [1956] 1 W.L.R.
94.
439. Ambatielos v Anton Jurgens Margarine Works [1923] A.C. 175. cf. Herman v Morris (1919) 35
T.L.R. 328; affirmed (1919) 35 T.L.R. 574.
440. Stornvaart Maatschappij Sophie H. v Merchants’ Marine Insurance Co Ltd (1919) 89 L.J.K.B.
834 HL.

Page 1

(g) - Restriction by Express Provisions
Expressio unius
13-094
The express mention in an instrument of a particular person, power or thing may show an intention to
exclude any other similar person, power or thing: expressio unius est exclusio alterius. 441 Thus,
where a deed conveyed to a mortgagee an iron foundry and two dwelling-houses, and the
appurtenances, together with the fixtures in and about the said houses, it was held that the
specification of the fixtures in the dwelling-houses showed that those in the foundry were not intended
to pass, although they would have passed had the other not been mentioned. 442 This maxim has,
however, been said to be a valuable servant but a bad master in the construction of documents.
Failure to complete the expressio may be accidental 443 and the maxim can only be applied if the
instrument can be considered to contain all the terms agreed upon by the parties. 444 But, even with
this qualification, arguments based on the maxim seem unlikely to carry much weight at the present
day. 445 At most it can be only a presumption and subject always to the ascertainment of the true
meaning of the contract.
Expressum facit cessare tacitum
13-095
It has also been said that, where there is an express covenant in an instrument on a particular matter,
no implication of any other covenant on the same subject matter can be raised 446:
“Where the parties have entered into written engagements with expressed stipulations, it
is manifestly not desirable to extend them by any implications; the presumption is that,
having expressed some, they have expressed all the conditions by which they intend to
be bound under that instrument.” 447
But again it is doubtful whether this principle has any serious role to play in the modern law.
441. Co.Litt. 210a; Blackburn v Flavelle (1881) 6 App. Cas. 628, 634.
Page 2
442. Hare v Horton (1833) 5 B. & Ad. 715. See also Wood v Rowcliffe (1851) 6 Exch. 407; Miller v
Emcer Products Ltd [1956] Ch. 304; Tropwind v Jade Enterprises Ltd [1977] 1 Lloyd’s Rep.
397, 401; Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 W.L.R. 588; Shell UK
Ltd v Total UK Ltd [2010] EWCA Civ 180, [2010] 2 Lloyd’s Rep. 467 at [15].
443. Colquhoun v Brooks (1887) 19 Q.B.D. 400, 406; affirmed (1889) 14 App. Cas. 493.
444. Devonald v Rosser & Sons [1906] 2 K.B. 728, 745.
445. Beaufort Developments (NI) Ltd v Gilbert Ash NI Ltd [1999] A.C. 266, 275; National Grid Co Plc
v Mayes [2001] UKHL 20, [2001] 1 W.L.R. 864 at [55], [67].
446. Co.Litt. 183, 210a; Mathew v Blackmore (1857) 1 H. & N. 762, 772.
447. Aspdin v Austin (1844) 5 Q.B. 671, 684; Stephens v Junior Army and Navy Stores Ltd [1914] 2
Ch. 516. See also Broome v Pardess Co-operative Society Ltd [1940] 1 All E.R. 603, 612 (no
implied term).

Page 1

(h) - Stipulations as to Time
Time in contracts
13-096
Generally, the words “till” and “until” are considered to be ambiguous and may be either exclusive or
inclusive, according to the subject matter and context 448; “from” may be taken to be either inclusive or
exclusive, 449 although the general assumption is that the day of the date, act or event is to be
excluded in the computation. 450 This principle, however, is not an absolute one, and the wording of
the contract or the factual background may indicate a contrary construction. 451
13-097
“On” or “upon” may mean either before the act done to which it relates, or simultaneously with the act
done, or after the act done, according as reason and good sense require the interpretation with
reference to the context, and the subject matter of the agreement. 452
448. R. v Stevens (1804) 5 East 244; Dakins v Wagner (1835) 3 Dowl. 535, 536; Kerr v Jeston
(1842) 1 Dowl.(N.S.) 538, 539; Startup v Macdonald (1843) 6 M. & G. 593; Rogers v Davis
(1845) 8 Ir.L.R. 399, 400; Bellhouse v Mellor, Proudman & Mellor (1859) 4 H. & N. 116, 123;
Isaacs v Royal Insurance Co (1870) L.R. 5 Ex. 296; Heinrich Hirdes GmbH v Edmund [1991] 2
Lloyd’s Rep. 546.
449. Lester v Garland (1808) 15 Ves. Jun. 248, 258; Wilkinson v Gaston (1846) 9 Q.B. 137, 145; Re
North [1895] 2 Q.B. 264, 269; Sheffield Corp v Sheffield Electric Light Co [1898] 1 Ch. 203, 209;
Scottish Metropolitan Assurance Co v Stewart (1923) 14 Ll.L. Rep. 55; Carapanayoti & Co Ltd v
Comptoir Commercial André & Cie SA [1972] 1 Lloyd’s Rep. 139.
450. Lester v Garland (1808) 15 Ves. Jun. 248; Ackland v Lutley (1839) 9 A. & E. 879, 894; South
Staffordshire Tramways Co v Sickness and Accident Association [1891] 1 Q.B. 402; Radcliffe v
Bartholomew [1892] 1 Q.B. 161; Goldsmiths’ Co v West Metropolitan Ry [1904] 1 K.B. 1, 5;
Stewart v Chapman [1951] 2 K.B. 792; Cartwright v MacCormack [1963] 1 W.L.R. 18; Re Figgis
[1969] Ch. 123; London and Overseas Freighters Ltd v Timber Shipping Co SA [1972] A.C. 1;
Alma Shipping Corp of Monrovia v Mantovani [1975] 1 Lloyd’s Rep. 115; Dodds v Walker [1981]
1 W.L.R. 1027; Zoan v Rouamba [2000] 1 W.L.R. 1509. See also the “clear day” principle:
Young v Higgon (1840) 6 M. & W. 49; Thompson v Stimpson [1961] 1 Q.B. 195; Carapanayoti
Page 2
& Co Ltd v Comptoir Commercial André & Cie SA [1972] 1 Lloyd’s Rep. 139. See also below,
para.21-025.
451. Pugh v Duke of Leeds (1777) 2 Cowp. 714; Cornfoot v Royal Exchange Assurance Corp [1904]
1 K.B. 40; English v Cliff [1914] 2 Ch. 376; Hare v Gocher [1962] 2 Q.B. 641; Trow v Ind Coope
(West Midlands) Ltd [1967] 2 Q.B. 299; Bevan Ashford v Malin [1995] I.R.L.R. 360; Zoan v
Rouamba [2000] 1 W.L.R. 1509 (statute).
452. R. v Humphery (1839) 10 A. & E. 335, 370; R. v Arkwright (1848) 12 Q.B. 960, 970; Paynter v
James (1867) L.R. 2 C.P. 348, 354; Wm. Cory & Son Ltd v IRC [1964] 1 W.L.R. 529 (affirmed
[1965] A.C. 1088); Kuratau Land Co Ltd v Kahu Te Kuru [1966] N.Z.L.R. 544, 547; Air New
Zealand Ltd v Nippon Credit Bank Ltd [1997] 1 N.Z.L.R. 218, 221-222.

Page 1

Section 4. - Admissibility of Extrinsic Evidence
Written documents
13-098
Where the parties appear to have embodied their agreement in a written document, 453 the question
arises whether extrinsic evidence, that is to say, evidence of matters outside the document, is
admissible so as to affect its content. Two issues are involved: first, whether it is permissible to
adduce extrinsic evidence of terms other than those included, expressly or by reference, in the
document; secondly, whether extrinsic evidence may be admitted to explain or interpret the words
used in the document.
453. For computerised “documents”, see above, para.13-049.

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(a) - The Parol Evidence Rule
Whether document conclusive: the “parol evidence” rule
13-099
It is often said to be a rule of law that:
“If there be a contract which has been reduced to writing, verbal evidence is not allowed
to be given … so as to add to or subtract from, or in any manner to vary or qualify the
written contract.” 454
Indeed, in 1897, Lord Morris 455 accepted that:
“… parol testimony cannot be received to contradict, vary, add to or subtract from the
terms of a written contract, or the terms in which the parties have deliberately agreed to
record any part of their contract.”
This rule is usually known as the “parol evidence” rule. Its operation is not confined to oral evidence: it
has been taken to exclude extrinsic matter in writing, such as drafts, 456 preliminary agreements, 457
and letters of negotiation. 458 The rule has been justified on the ground that it upholds the value of
written proof, 459 effectuates the finality intended by the parties in recording their contract in written
form, 460 and eliminates “great inconvenience and troublesome litigation in many instances”. 461
Exceptions to the rule
13-100
However, the parol evidence rule is and has long been subject to a number of exceptions. 462 In
particular, since the nineteenth century, the courts have been prepared to admit extrinsic evidence of
terms additional to those contained in the written document if it is shown that the document was not
intended to express the entire agreement between the parties. 463 So, for example, if the parties
intend their contract to be partly oral and partly in writing, extrinsic evidence is admissible to prove the
oral part of the agreement. 464 In Gillespie Bros & Co v Cheney, Eggar & Co, 465 Lord Russell C.J.
stated:
“… although when the parties arrive at a definite written contract the implication or
presumption is very strong that such contract is intended to contain all the terms of their
bargain, it is a presumption only, and it is open to either of the parties to allege that there
Page 2
was, in addition to what appears in the written agreement, an antecedent express

stipulation not intended by the parties to be excluded, but intended to continue in force
with the express written agreement.”
It cannot therefore be asserted that the mere production of a written agreement, however complete it
may look, will as a matter of law render inadmissible evidence of other terms not included expressly
or by reference in the document:
“The court is entitled to look at and should look at all the evidence from start to finish in
order to see what the bargain was that was struck between the parties.” 466
Scope of the rule
13-101
It follows that the scope of the parol evidence rule is much narrower than at first sight appears. It
has no application until it is first determined that the terms of the parties’ agreement are wholly
contained in the written document. The rule:
“… only applies where the parties to an agreement reduce it to writing, and agree or
intend that the writing shall be their agreement.” 467
Whether the parties did so agree or intend is a matter to be decided by the court upon consideration
of all the evidence relevant to this issue. It is therefore always open to a party to adduce extrinsic
evidence to prove that the document is not a complete record of the contract. If, on that evidence, the
court finds that terms additional to those in the document were agreed and intended by the parties to
form part of the contract, then the court will have found that the contract consists partly of the terms
contained in the document and partly of the terms agreed outside of it. The parol evidence rule will
not apply. If, on the other hand, the court finds that the document is a complete record of the contract,
then it will reject the evidence of additional terms. But it will do so, not because it is required to ignore
the additional terms or the evidence said to prove them, but because such evidence is inconsistent
with its finding that the document does contain the entire terms of the parties’ agreement. 468 No
doubt, in practice, where a document is produced which appears to be a complete contract, a party
will experience considerable difficulty in proving, on the balance of probabilities, that further
contractual terms were agreed outside the written terms of the document. But extrinsic evidence of
such terms is not ipso facto excluded. 469
Law Commission Report
13-102
In 1986, the Law Commission considered 470 whether it should recommend that the parol evidence
rule be abolished or amended by statute. For this purpose, it was necessary for the Commission to
analyse the rule in detail as to its applicability, width and effect. The Commission expressed the
opinion 471 that:
“… although a proposition of law can be stated which can be described as the ‘parol
evidence’ rule it is not a rule of law which, correctly applied, could lead to evidence being
Page 3
unjustly excluded. Rather, it is a proposition of law which is no more than a circular

statement: [W]hen it is proved or admitted that the parties to a contract intended that all
the express terms of their agreement should be as recorded in a particular document or
documents, evidence will be inadmissible (because irrelevant) if it is tendered only for the
purpose of adding to, varying, subtracting from or contradicting the express terms of that
contract.”
The general conclusion 472 reached by the Commission was:
“… that there is no rule of law that evidence is rendered inadmissible or is to be ignored

solely because a document exists which looks like a complete contract. Whether it is a
complete contract depends upon the intention of the parties, objectively judged, and not
on any rule of law.”
It is submitted that this general conclusion is correct. 473
Extrinsic evidence to contradict document
13-103
More justification 474 might, however, be found for the parol evidence rule if deployed to prevent
extrinsic evidence being adduced to vary or contradict the terms of a written document. It could be
said then to fulfil a useful purpose in that it would emphasise the primacy traditionally accorded to the
written text of complete contractual documents, where these exist. 475 But, where it appears that the
parties did not intend to record all the terms of their agreement in a particular document, then on the
same analysis extrinsic evidence would be admissible to prove other terms even if they varied or
contradicted those in the document. 476 Thus if the terms of a document stipulated that payment
should be made on a certain day, evidence would be admissible of a contemporaneous agreement
outside the document that payment was to be deferred until a later day. 477 Or if the terms of the
document provided that one party was to have the unqualified right to terminate the contract upon one
month’s notice in writing, evidence would be admissible to prove a contractual agreement outside the
document that the contract should only determine by effluxion of time. 478 If there is an inconsistency,
that is, if effect cannot fairly be given to both terms, then the court might reject that term which least
accords with the meaning of the contract as ascertained from the whole of the agreement. 479 Of such
a situation the Law Commission said 480:
“… it is no different in principle from that in which the parties agree two inconsistent terms
both of which are set out in the same document. The court will have to decide which of
the inconsistent terms more nearly represents the intention of the parties.”
However, the difficulty of proving that the written document did not express the true and complete
agreement of the parties may lead the party who alleges a promise or assurance inconsistent with the
document to seek to establish a collateral contract or warranty 481 or (in appropriate cases) to seek
rectification of the document on the ground that it did not express the concurrent intentions of the
parties at the time of its execution. 482
Contracts required to be in writing
13-104
Certain contracts are required by law to be in writing. 483 The effect of this requirement will be to
exclude oral evidence which is offered for no other purpose than to contradict, vary, add to or subtract
Page 4
from the contract as contained in writing. In particular, the contracts of the various parties to a bill of
exchange or promissory note must be in writing. 484 It is well established that, even as between
immediate parties to a bill or note, evidence will not be admitted to prove an oral agreement to qualify
the absolute undertaking of a party on the instrument, for example, to show that his liability is to be
enforceable against him only in certain contingencies or that it is to be postponed to a time later than
that expressed on the face of the instrument. 485 But:
“… a written agreement on a distinct paper, to renew, or in other respects to qualify, the

liability of the maker or acceptor, is good as between the original parties.” 486
Indeed it would seem that, as between immediate parties, evidence may always be given of a
contemporaneous written agreement to vary the effect of the instrument and regulate their rights
between themselves. 487 However, in the case of a contract for the sale or other disposition of an
interest in land which is required by the Law of Property (Miscellaneous Provisions) Act 1989 488 to be
made in writing and signed by or on behalf of each party to the contract, all the terms which the
parties have expressly agreed must be incorporated in one document (or, where contracts are
exchanged, in each). 489 Terms may be incorporated in a document either by being set out in it or by
reference to some other document. 490 But, in the absence of such a reference in the signed
document, evidence will not be admissible to prove that other terms were agreed in writing in addition
to those set out in the document, 491 except to show that the document does not satisfy the statutory
requirements. 492
Contracts required to be evidenced in writing
13-105
Where the contract is one which by statute must be evidenced by a note or memorandum in writing
signed by the party to be charged or his agent, as in the case of a contract of guarantee, 493 the
memorandum must contain a statement of the material terms of the contract. 494 Extrinsic evidence is
not admissible to prove that the parties orally agreed material terms which ought to have been, but
were not, included in the memorandum, since the admission of such evidence would plainly not
satisfy the statute. 495 Parol evidence is, however, admissible to connect two or more documents,
provided that the document which is signed by the party to be charged expressly or by implication
refers to the other document or documents, 496 but not otherwise. 497
Collateral contracts
13-106
Even though the parties intended to express the whole of their agreement in a particular document,
extrinsic evidence will nevertheless be admitted to prove a contract or warranty collateral to that
agreement. 498 The reason is that “the parol agreement neither alters nor adds to the written one, but
is an independent agreement”. 499 Such evidence is certainly admissible in respect of a matter on
which the written contract is silent. 500 In a number of older cases it was stated that evidence of such a
contract or warranty must not contradict the express terms of the written contract. 501 However, more
recently, the courts have admitted evidence to prove an overriding oral warranty 502 or to prove an oral
promise that the written contract will not be enforced in accordance with its terms. 503 Thus in City of
Westminster Properties (1934) Ltd v Mudd 504 the draft of a new lease presented to a tenant
contained a covenant that he would use the premises for business purposes only and not as sleeping
quarters. The tenant objected to this covenant, and the landlords gave him an oral assurance that, if
he signed the lease, they would not enforce it against him. The tenant signed the lease, but later the
landlords sought to forfeit the lease for breach of this covenant. Harman J. held that the oral
assurance constituted a separate collateral contract from which the landlords would not be permitted
to resile. The collateral contract or warranty may be oral or informal 505 even though the main contract
is one which is required by law to be in or evidenced by writing. 506
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“Entire agreement” clauses
13-107
The practice has developed 507 of including in written agreements of a formal character an “entire
agreement” clause, for example:
“This Agreement contains the entire and only agreement between the parties and
supersedes all previous agreements between the parties respecting the subject matter
hereof; each party acknowledges that in entering into this Agreement it has not relied on
any representation or undertaking, whether oral or in writing, save such as are expressly
incorporated herein.”
The purpose of such a clause is to achieve, by a somewhat roundabout route, the exclusion of liability
for statements other than those set out in the written contract. The effect of the clause will necessarily
depend upon its precise wording. It has been stated 508 that an “entire agreement” clause operates “to
denude what would otherwise constitute a collateral warranty of legal effect” rather than to render
inadmissible extrinsic evidence to prove terms other than those in the written contract. 509 However,
the language of the clause may not be apt to exclude representations 510 even if it excludes claims
arising out of a collateral contract or warranty. 511 It should also not prevent use of extrinsic evidence
to ascertain the meaning of an express term in the contract. 512 An entire agreement clause may be
waived by a party who might otherwise have relied on it. 513
Extrinsic evidence admissible
13-108
There are, in any event, a number of situations in which the written instrument is not conclusive
evidence of the contract alleged to be embodied in it. These situations may be regarded either as
exceptions to the parol evidence rule or simply as cases falling outside the rule. 514 They will now be
discussed.
454. Goss v Lord Nugent (1833) 5 B. & Ad. 58, 64. See also Countess of Rutland’s Case (1602) 5
Co. Rep. 25b, 26a; Meres v Ansell (1771) 3 Wils. 275; Smith v Doe d. Jersey (1821) 2 Brod. &
Bing. 473, 541; Smith v Jeffryes (1846) 15 M. & W. 561; Hitchin v Groom (1848) 5 C.B. 515;
Evans v Roe (1872) L.R. 7 C.P. 138; Mercantile Agency Co Ltd v Flitwick Chalybeate Co (1897)
14 T.L.R. 90; Newman v Gatti (1907) 24 T.L.R. 18; Reliance Marine Insurance v Duder [1913] 1
K.B. 256, 273; Hitchings & Coulthurst Co v Northern Leather Co of America and Doushkess
[1914] 3 K.B. 907; Jacobs v Batavia and General Plantations Trust Ltd [1924] 1 Ch. 287, 295;
Tsang Chuen v Li Po Kwai [1932] A.C. 713, 727; O’Connor v Hume [1954] 1 W.L.R. 824, 830;
Rabin v Gerson Berger Association Ltd [1986] 1 W.L.R. 526, 530; Orion Insurance Co Plc v
Sphere Drake Insurance Plc [1992] 1 Lloyd’s Rep. 239, 273.
455. Bank of Australasia v Palmer [1897] A.C. 540, 545 (cited in National Westminster Bank Ltd v
Halesowen Presswork & Assemblies Ltd [1972] A.C. 785, 818-819).
456. Miller v Travers (1832) 8 Bing. 244; Inglis v Buttery (1878) 3 App. Cas. 552; National Bank of
Australasia v Falkingham & Sons [1902] A.C. 585.
457. Evans v Roe (1871-72) L.R. 7 C.P. 138; Leggott v Barrett (1880) 15 Ch. D. 306, 309, 311;
Henderson v Arthur [1907] 1 K.B. 10; Newman v Gatti (1907) 24 T.L.R. 18; Hitchings &
Coulthurst Co v Northern Leather Co of America and Doushkess [1914] 3 K.B. 907; Hutton v
Watling [1948] Ch. 398; Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep. 127. But see HIH
Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ 735,
Page 6
[2001] 2 Lloyd’s Rep. 161 at [83].
458. Mercantile Bank of Sydney v Taylor [1893] A.C. 317.
459. Pickering v Dowson (1813) 4 Taunt. 779, 784.
460. Inglis v Buttery (1877-78) L.R. 3 App. Cas. 552, 577.
461. Mercantile Agency Co Ltd v Flitwick Chalybeate Co (1897) 14 T.L.R. 90.
463. Mercantile Bank of Sydney v Taylor [1893] A.C. 317, 321.
464. Harris v Rickett (1859) 4 H. & N. 1; Malpas v L. & S.W. Ry (1866) L.R. 1 C.P. 336; Gillespie
Bros v Cheney Eggar & Co [1896] 2 Q.B. 59; J. Evans & Son (Portsmouth) Ltd v Andrea
Merzario Ltd [1976] 1 W.L.R. 1078; Yani Haryanto v E.D. & F. Man (Sugar) Ltd [1986] 2 Lloyd’s
Rep. 44, 46-47.
465. [1896] 2 Q.B. 59, 62.
466. J. Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 W.L.R. 1078, 1083.
467. Harris v Rickett (1859) 4 H. & N. 1, 7; Turner v Forwood [1951] 1 All E.R. 746, 749.
468. Wild v Civil Aviation Authority Unreported September 25, 1987, CA.
469.
Adibe v National Westminster Bank Plc [2017] EWHC 1655 (Ch) at [34].
470. Law Com.154, 1986, Cmnd.9700. See Marston [1986] C.L.J. 192.
471. Law Com.154, Cmnd.9700, para.2.7.
472. Law Com.154, Cmnd.9700, para.2.17.
473.
The Commission’s Report was referred to with approval in Wild v Civil Aviation Authority
Unreported September 25, 1987, CA and in State Rail Authority of New South Wales v Heath
Outdoor Pty Ltd (1986) 7 N.S.W.L.R. 170, 192. See also Yani Haryanto v E.D. & F. Man
(Sugar) Ltd [1986] 2 Lloyd’s Rep. 44, 46; Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep.
127, 133, 140. Contrast the view expressed in Peel, Treitel on The Law of Contract, 14th edn
(2015), para 6–014.
474. For modern instances of support for the rule, see AIB Group (UK) Ltd v Martin [2001] UKHL 63,
[2002] 1 W.L.R. 94 at [4]; Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 A.C. 919 at
[49]; TTMI Sarl v Statoil ASA [2011] EWHC 1150 (Comm), [2011] 2 Lloyd’s Rep. 220 at [19],
[34].
475. cf. Gillespie Brothers & Co v Cheney, Eggar & Co [1896] 2 Q.B. 59, 62; Wedderburn [1959]
C.L.J. 58, 62 (presumption only).
476. But see e.g. Angell v Duke (1875) 32 L.T. 320; Henderson v Arthur [1907] 1 K.B. 10.
477. Young v Austen (1869) L.R. 4 C.P. 553; Maillard v Page (1870) L.R. 5 Ex. 312 (in these cases
the extrinsic agreement was in writing, as the contract was required to be in writing: see below,
para.13-104).
478. cf. State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 N.S.W.L.R. 170,
191–192.
Page 7
480. Law Com.154, 1986, Cmnd.9700, para.2.16.
484. Bills of Exchange Act 1882 ss.3(1) (drawer), 17(1) (acceptor), 32(1) (indorser), 83(1) (maker).
485. Hoare v Graham (1811) 3 Camp. 57; Free v Hawkins (1817) 8 Taunt. 92; Woodbridge v
Spooner (1819) 3 B. & Ald. 233; Campbell v Hodgson (1819) Gow 74; Moseley v Hanford
(1830) 10 B. & C. 729; Foster v Jolly (1835) 1 C.M. & R. 703; Adams v Wordley (1836) 1 M. &
W. 374; Besant v Cross (1851) 10 C.B. 895; Drain v Harvey (1855) 17 C.B. 257; Abrey v Crux
(1869) L.R. 6 C.P. 37; Young v Austen (1869) L.R. 4 C.P. 553, 556; Maillard v Page (1870) L.R.
5 Exch. 312, 319; Stott v Fairlamb (1883) 52 L.J.Q.B. 420; New London Credit Syndicate v
Neale [1898] 2 Q.B. 487; Hitchings and Coulthurst Co v Northern Leather Co of America and
Doushkess [1914] 3 K.B. 907.
486. Chalmers and Guest on Bills of Exchange and Cheques, 17th edn (2009), para.2-155.
487. Bowerbank v Monteiro (1813) 4 Taunt. 844; Young v Austen (1869) L.R. 4 C.P. 553; Maillard v
Page (1870) L.R. 5 Exch. 312, 319. But the written agreement must be supported by valuable
consideration (Bowerbank v Monteiro; McManus v Bark (1870) L.R. 5 Exch. 65) and be
between the same parties (Salmon v Webb (1852) 3 H.L.C. 310).
489. s.2(1).
490. s.2(2).
491. But such terms may have effect as a collateral contract or warranty (see below, para.13-106) or
as a separate part of a composite agreement (see above para.5-029).
492. But see s.2(4) (rectification); above para.5-034.
493. Statute of Frauds 1677 s.4.
494. Holmes v Mitchell (1859) 7 C.B. N.S. 361. But cf. Mercantile Law Amendment Act 1856
(consideration need not be stated).
495. Holmes v Mitchell (1859) 7 C.B. N.S. 361; Sheers v Thimbleby & Son (1897) 76 L.T. 709, 711.
But see Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2011] EWHC 56
(Comm), [2011] 2 All E.R. (Comm) 95 at [78] where Christopher Clarke J. suggested that all
material terms need not be set out (affirmed [2012] EWCA Civ 265, [2012] 1 W.L.R. 3674). Also
extrinsic evidence will be admitted to show that, by reason of the omission, the memorandum
does not satisfy the statute: see, e.g. Beckett v Nurse [1948] 1 K.B. 535 (on Law of Property Act
1925 s.40).
496. Timmins v Moreland Street Property Co Ltd [1958] Ch. 110; Elias v George Sahely & Co
(Barbados) Ltd [1983] A.C. 646; cf. para.5-033 (1989 Act).
497. But cf. Sheers v Thimbleby & Son (1897) 76 L.T. 709.
498. See above, paras 13-004—13-006, 13-033; Wedderburn [1959] C.L.J. 58, 71.
499. Mann v Nunn (1874) 30 L.T. 526, 527.

Page 8
500. See, e.g. De Lassalle v Guildford [1901] 2 K.B. 515.
501. Lindley v Lacey (1864) 17 C.B.(N.S.) 578, 586, 587; Morgan v Griffith (1871) L.R. 6 Ex. 70, 73;
Erskine v Adeane (1873) L.R. 8 Ch. App. 756, 766; Angell v Duke (1875) 32 L.T. 320; Leggott v
Barrett (1880) 15 Ch. D. 306, 314; Newman v Gatti (1907) 24 T.L.R. 18; Henderson v Arthur
[1907] 1 K.B. 10; Goldfoot v Welch [1914] 1 Ch. 213, 218. See also Maybury v Atlantic Union
Oil Co Ltd (1953) 89 C.L.R. 507, 518; Donovan v Northlea Farms Ltd [1976] 1 N.Z.L.R. 180
(where the other view was adopted).
502. Couchman v Hill [1947] K.B. 554; Webster v Higgin [1948] 2 All E.R. 127; Harling v Eddy [1951]
2 K.B. 739; Mendelssohn v Normand Ltd [1970] 1 Q.B. 177, 184; J. Evans & Son (Portsmouth)
Ltd v Andrea Merzario Ltd [1976] 1 W.L.R. 1078.
503. City and Westminster Properties (1934) Ltd v Mudd [1959] Ch. 129. See also Brikom
Investments Ltd v Carr [1979] Q.B. 467; AS Klaveness Chartering v Pioneer Freight Futures Co
Ltd [2009] EWHC 3386 (Comm), [2010] 2 Lloyd’s Rep. 613.
504. [1959] Ch. 129. This case was referred to with approval in Frisby v BBC [1967] Ch. 932, 945;
Lee-Parker v Izzett (No.2) [1972] 1 W.L.R. 775, 779; Atlantic Lines and Navigation Co Inc v
Hallam Ltd [1983] 1 Lloyd’s Rep. 188, 197. It might be thought that the same result could be
reached by application of the principle of promissory estoppel (see above, para.4-086), but it
would appear that that principle may not extend to pre-contractual negotiations: see Secretary
of State for Employment v Globe Elastic Thread Co Ltd [1980] A.C. 506. Contrast, however,
Bank Negara Indonesia v Philip Hoalim [1973] 2 M.L.J. 3, PC; Brikom Investments Ltd v Carr
[1979] Q.B. 467, 484–485; State Rail Authority of New South Wales v Heath Outdoor Pty Ltd
(1986) 7 N.S.W.L.R. 171.
505. Unless its subject matter is such that it is itself required to be in or evidenced by writing: Daulia
Ltd v Four Millbank Nominees Ltd [1978] Ch. 231.
506. See, e.g. Angell v Duke (1875) L.R. 10 Q.B. 174 (but such evidence was later rejected: (1875)
32 L.T. 320); Record v Bell [1991] 1 W.L.R. 853; AS Klaveness Chartering v Pioneer Freight
Futures Co Ltd [2009] EWHC 3386 (Comm), [2010] 2 Lloyd’s Rep. 613 at [23].
507. The practice probably originated in the United States: see Uniform Commercial Code para.
2-202. See also Peden and Carter (2006) 22 J.C.L. 1; Mitchell (2006) 22 J.C.L. 222; Lewison,
The Interpretation of Contracts, 5th edn (2011), para.3.16; McMeel, The Construction of
Contracts: Interpretation, Implication and Rectification, 2nd edn (2011), Ch.24.
508. Inntrepreneur Pub Co Ltd v East Crown Ltd [2000] 2 Lloyd’s Rep. 611, 614; Ravennavi SpA v
New Century Shipbuilding Co Ltd [2006] EWHC 733 (Comm), [2006] 2 Lloyd’s Rep. 280; [2007]
EWCA Civ 58, [2007] 2 Lloyd’s Rep. 24; AXA Sun Life Services Plc v Campbell Martin Ltd
[2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep. 1; Papanicola v Sandhu [2011] EWHC 1431 (QB),
[2011] 2 B.C.L.C. 811; Mileform Ltd v Interserve Security Ltd [2013] EWHC 3386 (QB).
509. See McGrath v Shah (1989) 57 P. & C.R. 452; North Eastern Properties Ltd v Coleman [2010]
EWCA Civ 277, [2010] 1 W.L.R. 2715 at [55], [82]–[83].
510. Alman and Benson v Associated Newspapers Group Ltd Unreported June 20, 1980; Thomas
Witter Ltd v T.B.P. Industries Ltd [1996] 2 All E.R. 573; Deepak Fertilisers and Petrochemicals
Corp v ICI [1999] 1 Lloyd’s Rep. 387, 395; South West Water Services Ltd v International
Computers Ltd [1999] Build. L.R. 420, 424; Government of Zanzibar v British Aerospace
(Lancaster House) Ltd [2000] 1 W.L.R. 2333, 2344; Sabah Shipyard (Pakistan) Ltd v Govt of
Pakistan [2007] EWHC 2602 (Comm), [2008] 1 Lloyd’s Rep. 240 at [130] (deceit); Barclays
Bank Plc v Unicredit Bank AG [2014] EWCA Civ 302, [2014] 2 All E.R. (Comm) 115. It has been
suggested that the clause may in any event be ineffective under s.3 of the Misrepresentation
Act 1967 (as amended by s.8 of the Unfair Contract Terms Act 1977) or under s.3(2)(b)(ii) of
the 1977 Act; AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 2
Lloyd’s Rep. 1 at [50]; see above, paras 7-143, 7-151. cf. Watford Electronics Ltd v Sanderson
CFL Ltd [2001] EWCA Civ 317, [2001] B.L.R. 143, 155. See also ss.11, 13 of the 1977 Act, and
below, paras 15-070 n.384. Contrast Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd
Page 9
[2008] EWHC 1686 (Comm), [2008] 2 Lloyd’s Rep. 581 at [42] (affirmed [2009] EWCA Civ 290,
[2010] Q.B. 86). As to whether an entire agreement clause precludes a plea of estoppel by
convention, see Sere Holdings Ltd v Volkswagen Group UK Ltd [2004] EWHC 1551 (Comm);
Dubai Islamic Bank v PSI Energy Holding Co [2011] EWHC 2718 (Comm) at [83]; Shoreline
Housing Partnership Ltd v Mears Ltd [2013] EWCA Civ 639, [2013] C.P. Rep. 39.
511. Deepak Fertilisers and Petrochemicals Corp v ICI, above, at 395; Inntrepreneur Pub Co Ltd v
East Crown Ltd, above; AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ
133, above; Papanicola v Sandhu [2011] EWHC 1431 (QB), [2011] 2 B.C.L.C. 811. See also
Exxonmobil Sales and Supply Corp v Texaco Ltd [2003] EWHC 1964 (Comm); [2003] 2 Lloyd’s
Rep. 686 (exclusion of implied terms based on usage or custom). cf., Milburn Services Ltd v
United Trading Group (1995) C.I.L.L. 1109 (terms implied by necessity); Great Elephant Corp v
Trafigura Beheer BV [2012] EWHC 1745 (Comm), [2013] 1 All E.R. (Comm) 415 at [89]–[91],
[2013] EWCA Civ 905, [2013] 2 All E.R. 992 at [21] (clause not effective to exclude terms
implied by the Sale of Goods Act 1979 s.12); Barclays Bank Plc v Unicredit Bank AG [2014]
EWCA Civ 302, [2014] 2 All E.R. (Comm) 115 at [28].
512. Proforce Recruit Ltd v Rugby Group Ltd [2006] EWCA Civ 69 at [41], [59], [61]. See also Air
New Zealand Ltd v Nippon Credit Bank Ltd [1997] N.Z.L.R. 218, 224.
513. SAM Business Systems Ltd v Hedley & Co [2002] EWHC 2733 (TCC); [2003] 1 All E.R.
(Comm) 465.
514. See the Report of the Law Commission, Law Com.154, 1986, Cmnd.9700, paras 2.30, 2.31.

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(b) - Evidence as to the Validity or Effectiveness of the Written Agreement
No contract
13-109
Extrinsic evidence is admissible to show that what appears to be a valid and binding contract is in fact
no contract at all. Thus evidence may be admitted to show that one or both parties contracted under a
mistake, 515 or that a person who signed the document was under a misapprehension as to the real
nature of the transaction into which he had entered so that it was “not his deed” in law. 516 Also it may
be shown that the writing was not intended by the parties to give rise to contractual obligations 517 or
that the contract is void for noncompliance with a statute. 518
Documents that are not contracts
13-110
The parol evidence rule has in any event only been applied to an instrument which is intended itself to
be the formal and conclusive expression by the parties of their agreement. 519 If the document in
question is not such an instrument, then extrinsic evidence is admissible to ascertain or interpret the
intentions of the parties. Thus if a document is intended to be merely an informal memorandum of an
agreement previously concluded, extrinsic evidence may be admitted to show that this informal
memorandum does not embody the terms contained in the previous agreement. 520 A receipt, 521 an
invoice, 522 a payment instruction 523 and even bills of lading, 524 have been held to come within this
exception.
Consideration
13-111
Consideration is a necessary requirement for the formation of all contracts which are not made by
deed. 525 Extrinsic evidence may therefore be admitted to show want of or failure of the consideration
stated to have been given in a written instrument. 526 Thus the words in a bill of exchange “for value
received” do not preclude the court from finding that no consideration has in fact been given. 527
Extrinsic evidence is also admissible to prove the true consideration where no consideration, or a
nominal consideration, has been stated, 528 where the expressed consideration is in general terms or
ambiguously stated, 529 or where the consideration is inaccurately recorded. 530 Also an additional
consideration may be proved, provided it does not contradict the stated consideration. 531
“The rule is that, where there is one consideration stated in a deed, you may prove any
other consideration which existed, not in contradiction to the instrument; and it is not in
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contradiction to the instrument to prove a larger consideration than that which is stated.”
532
Conditional contracts
13-112
Extrinsic evidence is admissible to show that, at the time a document was signed by the parties, they
were agreed that it was not to take effect as a contract except on the fulfilment of a certain condition,
533
e.g. in the case of deeds, evidence of an escrow. 534
Evidence of date
13-113
Extrinsic evidence is admitted to prove the actual date of delivery of a deed, 535 or the date of
execution of a written instrument, 536 in contradiction of the date stated therein; and also, where it has
no date, to show from what time a written instrument was intended to operate. 537 It is also admitted to
show that the parties intended that an instrument should operate retrospectively from a specified
date, act or event prior to the date on which the instrument was executed. 538
Subsequent variation or discharge
13-114
The rule regarding the admissibility of extrinsic evidence applies merely to the discovery of the
original intention of the parties as expressed in the instrument, and has no application to the variation
539
or discharge 540 of the contract by a subsequent agreement.
Fraud, illegality, etc
13-115
Extrinsic evidence will always be admitted to defeat a deed or written contract on the ground of fraud,
541
illegality, 542 misrepresentation, 543 mistake 544 or duress. 545 Also in the application of equitable
remedies such as specific performance or the refusal thereof, 546 rectification, 547 or rescission, 548
extrinsic evidence will be admitted to prove the grounds upon which relief is sought.
515. Pym v Campbell (1856) 6 E. & B. 370, 374; Raffles v Wichelhaus (1864) 2 H. & C. 906. See
above, para.6-001.
516. See, e.g. Foster v Mackinnon (1869) L.R. 4 C.P. 704; Lewis v Clay (1898) 67 L.J.Q.B. 224; Roe
v R.A. Naylor Ltd (1918) 87 L.J.K.B. 958, 964. Direct evidence of intention is always admissible
where the factum of the instrument is impugned. See below, para.13-117 n.544.
517. Bowes v Foster (1858) 2 H. & N. 779; Rogers v Hadley (1863) 2 H. & C. 227; Pattle v
Hornibrook [1897] 1 Ch. 25; Orion Insurance Co Plc v Sphere Drake Insurance Plc [1992] 1
Lloyd’s Rep. 239, 273, 301.
518. Lockett v Nicklin (1848) 2 Exch. 93; Campbell Discount Co Ltd v Gall [1961] 1 Q.B. 431.
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519. Or, in the case of a unilateral instrument such as a deed, the formal and conclusive expression
of the intentions of the maker: Rabin v Gerson Berger Association Ltd [1986] 1 W.L.R. 526.
520. Orion Insurance Co Plc v Sphere Drake Insurance Plc [1992] 1 Lloyd’s Rep. 239; cf. Hutton v
Watling [1948] Ch. 398.
521. Graves v Key (1832) 3 B. & Ad. 313; Allen v Pink (1838) 4 M. & W. 140; Lee v L. & Y. Ry
(1871) L.R. 6 Ch. App. 527; Beckett v Nurse [1948] 1 K.B. 535.
522. Holding v Elliott (1860) 5 H. & N. 117.
523. Guardian Ocean Cargoes Ltd v Banco do Brasil SA [1991] 2 Lloyd’s Rep. 68.
524. Crooks v Allan (1879) 5 Q.B.D. 38; Moss Steamship Co v Whinney [1912] A.C. 254, 264; The
Ardennes [1951] 1 K.B. 55.
526. Abbott v Hendrix (1840) 1 M. & G. 791, 794, 796; Young v Austen (1869) L.R. 4 C.P. 553, 556;
Abrey v Crux (1869) L.R. 5 C.P. 37, 45; Equitable Office v Ching [1907] A.C. 96; Law of
Property Act 1925 s.67. But cf. Roberts v Security Co [1897] 1 Q.B. 111; Law of Property Act
1925 s.68.
527. Solly v Hinde (1834) 2 Cr. & M. 516; Abbott v Hendrix (1840) 1 M. & G. 791, 795.
528. Gale v Williamson (1841) 8 M. & W. 405; Clifford v Turrell (1845) 1 Y. & C.C.C. 138; Pott v
Todhunter (1845) 2 Coll. 76; Re Holland [1902] 2 Ch. 360, 388.
529. Goldshede v Swan (1847) 1 Exch. 154; Hoad v Grace (1861) 7 H. & N. 494.
530. Booker v Seddon (1858) 1 F. & F. 196. It is a moot point whether extrinsic evidence is
admissible to prove a real (e.g. smaller) consideration inconsistent with that expressed in the
instrument. See Ridout v Bristow (1830) 9 Exch. 48; Abbott v Hendrix (1840) 1 M. & G. 791,
796; Turner v Forwood [1951] 1 All E.R. 746. The views of Lord Hardwicke in Peacock v Monk
(1748) 1 Ves. Sen. 127, 128 must now be read with caution. See also Woods v Wise [1955] 2
Q.B. 29; Peffer v Rigg [1977] 1 W.L.R. 285, 293.
531. Leifchild’s Case (1865) L.R. 1 Eq. 231; Townend v Toker (1866) L.R. 1 Ch. App. 446, 459; Frith
v Frith [1906] A.C. 254; Turner v Forwood [1951] 1 All E.R. 746; Pao On v Lau Yiu Long [1980]
A.C. 614.
532. Clifford v Turrell (1845) 1 Y. & C.L.C. 138, 149.
533. Pym v Campbell (1856) 6 E. & B. 370; Wallis v Littell (1861) 11 C.B.(N.S.) 369; Lindley v Lacey
(1864) 17 C.B.(N.S.) 578; Pattle v Hornibrook [1897] 1 Ch. 25; cf. Smith v Mansi [1963] 1
W.L.R. 26.
534. London Freehold and Leasehold Property v Lord Suffield [1897] 2 Ch. 608, 622. See above,
para.1-133.
535. Jayne v Hughes (1854) 10 Exch. 430.
536. Hall v Cazenove (1804) 4 East 477; Pasmore v North (1811) 13 East 517; Armfield v Allport
(1857) 27 L.J. Ex. 42; Bills of Exchange Act 1882 s.13(1).
537. Davis v Jones (1856) 17 C.B. 625; Bills of Exchange Act 1882 ss.12, 20.
538. Northern & Shell Plc v John Laing Construction Ltd [2002] EWHC 2258 (TCC), (2002) 85
Const. L.R. 179.
Page 4
539. Goss v Lord Nugent (1833) 5 B. & Ad. 58, 64. But a contract required by law to be in or
evidenced by writing can in principle only be varied by writing: see below, para.22-023.
540. Morris v Baron & Co Ltd [1918] A.C. 1; below, para.22-029.
541. Pickering v Dowson (1813) 4 Taunt. 779; Dobell v Stevens (1825) 3 B. & C. 623.
542. Collins v Blantern (1767) 2 Wils. 347; Doe d. Chandler v Ford (1853) 3 A. & E. 649; Reynell v
Sprye (1852) 1 De G.M. & G. 660, 672; Madell v Thomas & Co [1891] 1 Q.B. 230. See also
Woods v Wise [1955] 2 Q.B. 29 (evidence to support legality).
543. Pennsylvania Shipping Co v Compagnie Nationale de Navigation [1936] 2 All E.R. 1167.
546. Martin v Pycroft (1852) D.M. & G. 785; Webster v Cecil (1861) 30 Beav. 62. See below, Ch.27.
547. Druiff v Parker (1868) L.R. 5 Eq. 131; Olley v Fisher (1887) 34 Ch. D. 367; Henderson v Arthur
[1907] 1 K.B. 10, 13; Lovell and Christmas Ltd v Wall (1911) 104 L.T. 85; Craddock Bros v Hunt
[1923] 2 Ch. 136, 151; Hamed El Chiaty & Co v Thomas Cook Group Ltd [1992] 2 Lloyd’s Rep.
399, 407, 408.
548. Paget v Marshall (1884) 28 Ch. D. 255.

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(c) - Evidence as to the True Nature of the Agreement
True nature of the agreement
13-116
Extrinsic evidence is admissible to prove the true nature of the agreement, or the legal relationship of
the parties, 549 even though this may vary or add to the written instrument. 550 Thus a conveyance may
be shown to be merely a mortgage, 551 a sale and hire-purchase agreement to be an unregistered bill
of sale, 552 and a sale of property to be a loan on security. 553
Evidence of agency
13-117
Extrinsic evidence may also be adduced to show that one or both of the contracting parties to an
agreement were agents for other persons and acted as such in making the contract so as to give the
benefit or the burden of the contract to their undisclosed principals. 554 Such evidence relates to the
factum of the written instrument. 555 It is therefore a moot point whether evidence can be given which
is inconsistent with the written agreement. There is authority for the view that, where an action is
brought against a party who has contracted in terms indicating that he is the real and only principal,
evidence cannot be given that he contracted merely as agent as this would contradict the written
agreement. 556 Thus where a party was described as “owner” of a ship 557 or as “proprietor” of a
building site, 558 he being, in fact, merely the agent of an undisclosed principal, it was held, in an
action by the principal on the contract, that evidence could not be received to show the fact of the
agency so as to give the principal a right to sue on the contract. On the other hand, these cases may
be explained as cases in which the personality of the contracting party was of sufficient importance to
have become a term of the contract 559 or simply that they were wrongly decided. 560 The issue is still
an open one. 561
13-118
Where a person describes himself in a contract as agent of an unnamed principal, either he or the
other contracting party may bring evidence to show that, although described as agent, he is in fact the
principal. 562
Evidence of suretyship
13-119
Evidence is admissible to show that a person who signed a document did so as surety, even though it
might appear that he entered into the agreement as principal debtor or on behalf of another or in
some other capacity. 563
Page 2
549. Steele v M’Kinlay (1880) 5 App. Cas. 754, 778–779; Macdonald v Whitfield (1883) 8 App. Cas.
733, 745; National Sales Corp Ltd v Bernardi [1931] 2 K.B. 188; McCall Bros Ltd v Hargreaves
[1932] 2 K.B. 423; Yeoman Credit Ltd v Gregory [1963] 1 W.L.R. 343; and see below,
para.13-119.
550. Including direct evidence of intention.
551. Re Duke of Marlborough [1894] 2 Ch. 133.
552. Madell v Thomas & Co [1891] 1 Q.B. 230; Polsky v S. & A. Services [1951] 1 All E.R. 1062.
553. Maas v Pepper [1905] A.C. 102.
554. Bateman v Phillips (1812) 15 East 272; Wake v Harrop (1861) 30 L.J. Ex. 273; McCollin v Gilpin
(1881) 29 W.R. 408; Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic [1919] A.C. 203;
Danziger v Thompson [1944] K.B. 654; Epps v Rothnie [1945] K.B. 562; Finzel, Berry & Co v
Eastcheap Dried Fruit Co [1962] 1 Lloyd’s Rep. 370; affirmed [1962] 2 Lloyd’s Rep. 11; Hamid v
Francis Bradshaw Partnership [2013] EWCA Civ 470, [2013] B.L.R. 447. See Vol.II, paras
31-063, 31-066.
555. Young v Schuler (1883) 11 Q.B.D. 651; Homburg Houtimport BV v Agrosin Private Ltd [2003]
UKHL 12, [2004] 1 A.C. 715 at [175]. See also Internaut Shipping v Fercometal SARL [2003]
EWCA Civ 812, [2003] 2 Lloyd’s Rep. 430 (evidence of no agency).
556. Magee v Atkinson (1837) 2 M. & W. 440; Higgins v Senior (1841) 8 M. & W. 834; Humble v
Hunter (1848) 12 Q.B. 310; Formby Bros v Formby (1910) 102 L.T. 116. See Vol.II,
para.31-066.
557. Humble v Hunter (1848) 12 Q.B. 310.
558. Formby Bros v Formby (1910) 102 L.T. 116.
559. Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic [1919] A.C. 203, 210; Rederiaktiebolaget
Argonaut v Hani [1918] 2 K.B. 247; Collins v Associated Greyhound Racecourses Ltd [1930] 1
Ch. 1. See Vol.II, para.31-066.
560. Killick & Co v Price & Co (1896) 12 T.L.R. 263, 274; Fred Drughorn Ltd v Rederiaktiebolaget
Transatlantic [1919] A.C. 203, at 209; Epps v Rothnie [1945] K.B. 562, 565 (cases where the
description was equivocal). cf. Ferryways NV v Associated British Ports [2008] EWHC 225
(Comm), [2008] 1 Lloyd’s Rep. 639.
561. Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 A.C. 199. See also Crescent Oil and
Shipping Services Ltd v Importang UEE [1998] 1 W.L.R. 919, 931; Homburg Houtimport BV v
Agrosin Private Ltd [2003] UKHL 12, [2004] 1 A.C. 715 at [175]; Rolls Royce Power
Engineering Plc v Ricardo Consulting Engineers Ltd [2004] EWHC 2871, [2004] 2 All E.R.
(Comm) 129; Talbot Underwriting Ltd v Nausch Hogan & Murray Inc (The Jascons) [2006]
EWCA Civ 889, [2006] 2 Lloyd’s Rep. 195 at [55]–[68]; Ferryways NV v Associated British Ports
[2008] EWHC 225 (Comm), [2008] 1 Lloyd’s Rep. 638; see Vol.II, paras 31-066, 31-067.
562. Schmaltz v Avery (1851) 16 Q.B. 655; Carr v Jackson (1852) 7 Exch. 392; Adams v Hall (1877)
37 L.T. 70; Harper v Vigers [1909] 2 K.B. 549; Electrosteel Castings Ltd v Scan-Trans Shipping
and Chartering Sdn. Bhd. [2002] EWHC 1993, (Comm); [2003] 1 Lloyd’s Rep. 190 at [36]; cf.
Fairlie v Fenton (1870) L.R. 5 Ex. 169; Sharman v Brandt (1871) L.R. 6 Q.B. 720. See Vol.II,
paras 31-095, 31-096.
563. Hill v Wilcox (1831) 1 M. & Rob. 58; Ewin v Lancaster (1865) 6 B. & S. 571; Overend Gurney &
Co v Oriental Finance Co (1874) L.R. 7 H.L. 348; Macdonald v Whitfield (1883) 8 App. Cas. 733
Page 3
; Young v Schuler (1883) 11 Q.B.D. 651; Gerald McDonald & Co v Nash & Co [1924] A.C. 625;
V.H.S. Ltd and B.K.S. Air Transport Ltd v Stephens [1964] 1 Lloyd’s Rep. 460; Sun Alliance
Pensions Life & Investments Services Ltd v Webster [1991] 1 Lloyd’s Rep. 410.

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(d) - Evidence to Interpret or Explain the Written Agreement
Evidence in aid of interpretation
13-120
Different considerations apply to the admissibility of extrinsic evidence to interpret or explain a written
agreement. 564 Extrinsic evidence of this sort does not usurp the authority of the written document or
contradict, vary, add to or subtract from its terms. It is the writing which operates. The extrinsic
evidence does no more than assist in its operation by assigning a definite meaning to terms capable
of such explanation or by pointing out and connecting them with the proper subject matter. 565
Accordingly, no “parol evidence rule” (in the sense referred to above) will apply to such a situation. 566
However, the nature of the evidence that may be adduced, and the purposes for which it may be
used, are subject to certain restrictions imposed by the law.
Evidence of surrounding circumstances
13-121
The willingness of the courts to admit extrinsic evidence as an aid to the interpretation of a written
contract was established as long ago as 1842 by Tindal C.J. in Shore v Wilson, 567 when he said:
“The general rule I take to be, that where the words of any written instrument are free
from ambiguity in themselves, and where external circumstances do not create any doubt
or difficulty as to the proper application of those words to claimants under the instrument,
or the subject matter to which the instrument relates, such instrument is always to be
construed according to the strict, plain, common meaning of the words themselves; and
that in such case evidence dehors the instrument, for the purpose of explaining it
according to the surmised or alleged intention of the parties to the instrument, is utterly
inadmissible. … The true interpretation, however, of every instrument being manifestly
that which will make the instrument speak the intention of the party at the time it was
made, it has always been considered an exception, or perhaps, to speak more precisely,
not so much an exception from, as a corollary to, the general rule above stated, that
where any doubt arises upon the true sense and meaning of the words themselves, or
any difficulty as to their application under the surrounding circumstances, the sense and
meaning of the language may be investigated and ascertained by evidence dehors the
instrument itself; for both reason and common sense agree that by no other means can
the language of the instrument be made to speak the real mind of the party.”
But under the older restrictive view expressed in this statement, and endorsed in a number of
subsequent cases, extrinsic evidence is admissible only where the sense and meaning of the words
of the written instrument is doubtful or difficulty arises when it is sought to apply the language of the
Page 2
instrument to the circumstances under consideration. If the words have a clear and fixed meaning, not
capable of explanation, extrinsic evidence would not be admissible to show that the parties meant
something different from what they have written. 568 The modern view, however, is that the words do
not have to be vague, ambiguous or otherwise uncertain before extrinsic evidence will be admitted.
Since the purpose of the inquiry is to ascertain the meaning which the words would convey to a
reasonable person against the available background of the transaction in question, the court is free
(subject to certain exceptions) to look to all the relevant circumstances surrounding the transaction,
not merely in order to choose between the possible meanings of words which are ambiguous but
even to conclude that the parties must, for whatever reason, have used the wrong words or syntax. 569
So the court is entitled (and, indeed, bound) to enquire beyond the language of the document and see
what the circumstances were with reference to which words were used, and the object appearing
from those circumstances which the person using them had in view. 570 The court must place itself in
the same “factual matrix” as that in which the parties were. 571 In Reardon Smith Line Ltd v Yngvar
Hansen-Tangen, 572 Lord Wilberforce said:
“No contracts are made in a vacuum; there is always a setting in which they have to be
placed. The nature of what is legitimate to have regard to is usually described as ‘the
surrounding circumstances’ but this phrase is imprecise: it can be illustrated but hardly
defined. In a commercial contract it is certainly right that the court should know the
commercial purpose of the contract and this in turn presupposes knowledge of the
genesis of the transaction, the background, the context, the market in which the parties
are operating.”
He further stated 573 that, just as the intention of the parties is to be ascertained objectively, so also:
“… when one is speaking of aim, or object, or commercial purpose, one is speaking

objectively of what reasonable persons would have in mind in the situation of the parties.”
13-122
On the other hand, although evidence of the facts about which the parties were negotiating is
admissible to assist in the interpretation of the contract, in Chartbrook Ltd v Persimmon Homes Ltd 574
the House of Lords confirmed the well-established principle that the court is not entitled to look at
what the parties said or did whilst the matter was in negotiation for the purposes of drawing
inferences about what the contract means. The same principle probably also applies to the
admissibility of drafts or preliminary documents in aid of interpretation. 575 This does not exclude
the use of such evidence to support a claim for rectification 576 or estoppel 577 or to establish that a fact
which may be relevant as background was known to the parties. 578 However, as Lord Clarke pointed
out in Oceanbulk Shipping & Trading SA v TMT Asia Ltd, 579 it may sometimes not be a
straightforward task to distinguish between material which forms part of the pre-contractual
negotiations which is part of the factual matrix and therefore admissible as an aid to interpretation 580
and material which is not part of the factual matrix and is not therefore admissible. In the former case
the fact that the negotiations are “without prejudice” is immaterial. 581 Evidence will also not be
admitted to show what were the parties’ subjective intentions with respect to the words used 582 :
“The general rule seems to be that all facts are admissible which tend to show the sense
which the words bear with reference to the surrounding circumstances of and concerning
which the words were used, but that such facts as only tend to show that the writer
intended to use words bearing a particular sense are to be rejected.” 583
In Prenn v Simmonds, 584 Lord Wilberforce summed up the position as follows:

Page 3
“In my opinion, then, evidence of negotiations, or of the parties’ intentions, and a fortiori of
[the claimant’s] intentions, ought not to be received, and evidence should be restricted to
evidence of the factual background known to the parties at or before the date of the
contract, including evidence of the ‘genesis’ and objectively the ‘aim’ of the transaction.”
13-123
More difficulty may, however, be encountered in practice in determining the extent of the surrounding
circumstances which may properly be admitted as an aid to interpretation. In Investors Compensation
Scheme Ltd v West Bromwich Building Society 585 Lord Hoffmann, referring to the matrix of fact, said:
“Subject to the requirement that it should have been reasonably available to the parties
… it includes absolutely anything which would have affected the way in which the
language of the document would have been understood by a reasonable man”. 586
Although the range of materials which is now admissible in evidence is wide, it is not without limit. As
Lord Hoffmann later observed (in response to criticisms which had been levelled against the
expansive nature of the “factual matrix” 587):
“I did not think it necessary to emphasise that I meant anything which a reasonable man
would have regarded as relevant. I was merely saying that there is no conceptual limit to
what can be regarded as background … I was certainly not encouraging a trawl through
‘background’ which could not have made a reasonable person think that the parties must
have departed from conventional usage.” 588
Special meaning of words
13-124
It has already been stated that words must be understood in their plain and ordinary sense. 589 In
those cases where they are to be understood in a special sense 590 extrinsic evidence is admissible to
prove that special sense. Thus evidence may be called to explain technical terms of science or art, 591
to explain contemporary meanings of the words of an ancient document 592 and to translate a
document in a foreign language. 593 Extrinsic evidence is also admissible to show that words are
understood by participants in a particular market to have a special meaning 594 or that they have by
custom or usage a peculiar meaning. 595 Such evidence, even if derived from pre-contractual
negotiations, 596 is likewise admissible to show that the parties themselves attached a special
meaning to certain words or phrases in their contract, i.e. they used a “private dictionary”. 597
Identity of parties
13-125
The identity of parties may be established by extrinsic evidence where it is not clear from the written
instrument to whom it refers. 598 So, where a landlord handed to his tenant a letter addressed “[d]ear
Sir” in which he promised to renew a lease, extrinsic evidence was admitted to identify the proposed
lessee, even though no mention of his name appeared in the agreement. 599 Extrinsic evidence will
also be admitted to show in what capacity the parties contracted, e.g. to show which party was the
buyer and which the seller, 600 or to correct a misnomer. 601
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Subject matter
13-126
The subject matter of the contract may similarly be identified by extrinsic evidence. 602 Thus evidence
was admitted as to the quality and quantity of wool described in the written contract as “your wool”, 603
as to the identity of the property which was the subject matter of a contract of sale 604 and as to its
exact area, 605 as to the items of furniture assigned by a deed to which no schedule was attached 606
and as to the liability comprehended by a guarantee. 607 Extrinsic evidence is also admissible where it
is sought to restrict the generality of an obligation by reference to the circumstances or the person. 608
Equivocations
13-127
An equivocation arises when the words of the written contract are intended to refer to one person or
thing only, and in fact refer to more than one person or thing. In such a case, if it cannot be
ascertained from the document itself which was intended, extrinsic evidence is admissible to resolve
the ambiguity. Direct evidence of the party’s intention is this time admissible. Thus if a person buys
goods “ex Peerless from Bombay”, and it is shown that there are two vessels of that name sailing
from the port of Bombay, the parties may give evidence to show which vessel they themselves
intended. 609 Likewise in the case of a bill or note, where there are two payees of the same name, the
drawer or maker may give evidence to identify the intended payee. 610 However, in Dumford Trading
AG v OAO Atlantrybflot, 611 Rix L.J. explored the law relating to misnomer and suggested that where
there are two possible entities extrinsic evidence would not be admissible to identify the entity
referred to, but if there is only one possible entity then it would be possible to use extrinsic evidence
to identify a misdescribed party.
Patent ambiguity
13-128
In the case of a patent ambiguity, that is to say, a defect or ambiguity appearing on the face of the
document which renders the words used unintelligible or meaningless, a rule is said to exist that any
reference to matters outside the document is forbidden. 612 It is doubtful, however, whether such a
principle applies today in respect of written contracts, except possibly in the case of total blanks in a
document, 613 although evidence will not be admitted to show what the author himself intended to say.
614
The view has been expressed that evidence is admissible to give sense to words that are
meaningless, but only:
“… within the range of meaning which the words are capable of bearing in their ordinary
and natural sense having regard to the aim and purpose of the transaction.” 615
On the other hand the language employed may, of course, be so vague or contradictory as to be
incurable.
Subsequent acts
13-129
The admissibility of evidence to show that the parties have acted upon an instrument in a particular
sense is probably confined to ancient documents. 616 Evidence of user, and of acts done in pursuance
of an instrument, has been admitted to explain old, or obsolete, or even imperfect expressions to be
Page 5
found in ancient documents. 617 Attempts were, however made to extend admissibility to cases where
the document was modern and the ambiguity patent. 618 The acts and conduct of the parties under the
agreement were admitted to show the sense in which the parties to it used the language they
employed, and their intention in executing the instrument as revealed by their language interpreted in
this sense. 619 The House of Lords has decisively rejected this extension and has held that:
“… it is not legitimate to use as an aid in the construction of the contract anything which
the parties said or did after it was made.” 620
Subsequent actions are therefore inadmissible to interpret a written agreement, although there are
certain exceptions to this rule: (i) where the contract is oral or partly oral 621; (ii) where a conveyance is
unclear or ambiguous with respect to the land conveyed by it 622; (iii) to show that an agreement, or a
term of an agreement, is a sham 623; (iv) to show whether there was a contract and what the terms of
the contract were 624 ; (v) to show that the terms of a contract have been varied or enlarged 625; (vi)
626
to found an estoppel ; (vii) to infer the governing law 627; and (viii) where the contract between the
parties has been made by conduct. 628
564. See Law Com.No.154, 1986, Cmnd.9700, para.1.2; referred to with approval in Youell v Bland
Welch & Co Ltd [1992] 2 Lloyd’s Rep. 127, 140.
565. Thorpe v Brumfitt (1873) L.R. 8 Ch. App. 650; Johnstone v Holdway [1963] 1 Q.B. 601; The
Shannon Ltd v Venner Ltd [1965] Ch. 682; Perrylease Ltd v Imecar A.G. [1988] 1 W.L.R. 463.
566. Colpoys v Colpoys (1822) Jac. 451.
567. (1842) 9 Cl. & Fin. 355, 565.
568. Bank of New Zealand v Simpson [1900] A.C. 182, 188. See also Blackett v Royal Exchange Co
(1832) 2 C. & J. 244; Inglis v Buttery (1878) 3 App. Cas. 552; Edward Lloyd Ltd v Sturgeon
Falls Pulp Co (1901) 85 L.T. 162; Lovell & Christmas Ltd v Wall (1911) 104 L.T. 85; Kinlen v
Ennis [1916] 2 Ir.R. 299; G.W. Ry v Bristol Corp (1918) 87 L.J.Ch. 414; London CC v Henry
Boot & Sons Ltd [1959] 1 W.L.R. 133, 1069; Codelfa Construction Pty Ltd v State Railway
Authority of New South Wales (1982) 149 C.L.R. 337, 352; Shearson Lehman Hutton Inc v
Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep. 570, 591; Hamed El Chiaty & Co v Thomas
Cook Group Ltd [1992] 2 Lloyd’s Rep. 399, 407; Adams v British Airways Plc [1995] I.R.L.R.
577.
569. Mannai Investment Co Ltd v Eagle Star Life Assurance Ltd [1997] A.C. 749, 774; Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896, 913; Simon
Container Machinery Ltd v Emba Machinery Ltd [1998] 2 Lloyd’s Rep. 429, 433; R.
(Westminster CC) v National Asylum Support Service [2002] UKHL 38, [2002] 1 W.L.R. 2956 at
[5]; cf. L.G. Schuler A.G. v Wickman Machine Tool Sales Ltd [1974] A.C. 235, 261; Zeus
Tradition Marine Ltd v Bell [1999] 1 Lloyd’s Rep. 703, 706–707; Fitzroy Robinson Ltd v
Mentmore Towers Ltd [2009] EWHC 1552 (TCC), [2009] B.L.R. 505 at [28].
570. Smith v Thompson (1849) 8 C.B. 44; Burges v Wickham (1863) B. & S. 669; The Curfew [1891]
P. 131; River Wear Commissioners v Adamson (1877) 2 App. Cas. 743, 763; Mackill v Wright
(1888) 14 App. Cas. 106, 114, 116, 120; Bank of New Zealand v Simpson [1900] A.C. 182;
Charrington & Co Ltd v Wooder [1914] A.C. 71, 77, 80, 82; A/S Tankexpress v Compagnie
Financière Belge des Petroles SA [1949] A.C. 76; Prenn v Simmonds [1971] 1 W.L.R. 1381,
1383, 1384; Moschi v Lep Air Services Ltd [1973] A.C. 351, 354; Reardon Smith Line Ltd v
Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, 995, 997; Bunge v Kruse [1977] 1 Lloyd’s Rep.
492, 495, 497, 498; Harmony Shipping Co SA v Saudi-Europe Line Ltd [1981] 1 Lloyd’s Rep.
377, 417; Shell Tankers (UK) Ltd v Astro Comino Armadora SA [1981] 2 Lloyd’s Rep. 40, 44, 45
; Wace v Pan Atlantic Group Inc [1981] 2 Lloyd’s Rep. 339, 343; Perrylease Ltd v Imecar A.G.
Page 6
[1988] 1 W.L.R. 463, 470; Vitol BV v Compagnie Europeenne des Petroles [1988] 1 Lloyd’s
Rep. 574, 576; Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s
Rep. 570, 590; Forsikringsaktieselskapet Vesta v J.N.E. Butcher, Bain Dawes Ltd [1989] 1
Lloyd’s Rep. 330, 345; Anangel Atlas Compania Naviera SA v I.H.I. Co Ltd [1990] 2 Lloyd’s
Rep. 526, 552; Bankers Trust Co v State Bank of India [1991] 2 Lloyd’s Rep. 443, 456; Levett v
Barclays Bank [1995] 1 W.L.R. 1260; International Fina Services AG v Katrina Shipping Ltd
[1995] 2 Lloyd’s Rep. 344, 350; Cresspark Ltd v Wymering Mansions Ltd [1996] E.G.C.S. 63;
Mannai Investment Co Ltd v Eagle Star Life Assurance Ltd [1997] A.C. 749, 775; Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896, 912; Don
King Productions Ltd v Warren [1998] 2 Lloyd’s Rep. 176, 189; Ringway Roadmarking v Adbruj
[1998] 2 B.C.L.C. 625, 643; NLA Group Ltd v Bowers [1999] 1 Lloyd’s Rep. 109, 110; C. Itoh &
Co Ltd v Companhia de Navegacao Lloyd Brasileiro and Steamship Mutual Underwriting
Association (Bermuda) Ltd [1999] 1 Lloyd’s Rep. 115, 118; Eridania SpA v Rudolf A Oetker
[2000] 2 Lloyd’s Rep. 209, 217; Static Control Components (Europe) Ltd v Egan [2004] EWCA
392, [2004] 2 Lloyd’s Rep. 429; UCB Corporate Services Ltd v Thomason [2004] 2 All E.R.
(Comm) 774; Sirius International Insurance (Publ) v FAI General Insurance Ltd [2004] UKHL
43, [2004] 1 W.L.R. 3251 at [20]; Canmer International Inc v Mutual Steamship Assurance
Association (Bermuda) Ltd [2005] EWHC 1694 (Comm), [2005] 2 Lloyd’s Rep. 49 at [22];
Barclays Bank Plc v Kingston [2006] EWHC 533 (QB), [2006] 2 Lloyd’s Rep. 59 at [29];
Gastronome (UK) Ltd v Anglo-Dutch Meats Ltd [2006] EWCA Civ 1233, [2006] 2 Lloyd’s Rep.
587; Bull v Nottinghamshire and City of Nottingham Fire and Rescue Authority [2007] EWCA
Civ 240, [2007] B.L.G.R. 439; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009]
1 A.C. 1101; Global Maritime Investments Ltd v STX Pan Ocean Co Ltd [2012] EWHC 2339
(Comm), [2012] 2 Lloyd’s Rep. 354 at [14]; MRI Trading AG v Erdenet Mining Corp LLC [2012]
EWHC 1988 (Comm), [2012] 2 Lloyd’s Rep. 465; Cherry Tree Investments Ltd v Landmain Ltd
[2012] EWCA Civ 736, [2013] Ch. 305.
571.
Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, 997; Thoresen Car
Ferries Ltd v Weymouth Portland BC [1977] 2 Lloyd’s Rep. 156; Staffordshire A.H.A. v South
Staffordshire Waterworks Co [1978] 1 W.L.R. 1387, 1395; Hyundai Shipbuilding & Heavy
Industries Co Ltd v Pournaras [1978] 2 Lloyd’s Rep. 502, 506; Earl of Lonsdale v Att-Gen
[1982] 1 W.L.R. 887, 900; Gill & Duffus SA v Société pour l’Exportation des Sucres SA [1986] 1
Lloyd’s Rep. 322, 325; Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 W.L.R. 896, 912; Galaxy Energy International Ltd v Assurance foreningen Skuld [1999]
1 Lloyd’s Rep. 249, 253; Association of British Travel Agents Ltd v British Airways Plc [2000] 2
Lloyd’s Rep. 209, 217. The court will have regard to the background knowledge reasonably
available to the person or the class of persons to whom the document is addressed (Metlife
Seguros de Retiro SA v JP Morgan Chase Bank, National Association [2016] EWCA Civ 1248).
The background knowledge that the neutral, reasonable person employs when understanding a
commercial document can include knowledge of the relevant law (Gloucester Place Music Ltd v
Le Bon [2016] EWHC 3091 (Ch), [2017] F.S.R. 27 at [28]). The factual matrix takes account of
facts and circumstances known or reasonably available to both parties at the time of entry into
the contract but not a fact or circumstance known to, or reasonably available to, only one of the
parties: Arnold v Britton [2015] UKSC 36, [2015] A.C. 1619 at [21] and Jomast Accommodation
Ltd v G4S Care and Justice Services (UK) Ltd [2017] EWHC 200 (Ch) at [122].
572. [1976] 1 W.L.R. 989, 995–996.
573. [1976] 1 W.L.R. 989, 996. See also Hvalfangerselskapet Polaris Aktieselskap Ltd v Unilever Ltd
(1933) 39 Com. Cas. 1, 3, 19, 25; Anangel Atlas Compania Naviera SA v I.H.I. Co Ltd [1990] 2
574. [2009] UKHL 38, [2009] 1 A.C. 1101. See Inglis v Buttery (1878) 3 App. Cas. 552, 558; Leggott
v Barrett (1880) 15 Ch. D. 306, 311; Millbourn v Lyons [1914] 2 Ch. 231, 240; Davis Contractors
Ltd v Fareham U.D.C. [1956] A.C. 696; Prenn v Simmonds [1971] 1 W.L.R. 1381, 1385; Moschi
v Lep Air Services Ltd [1973] A.C. 331, 354; L.G. Schuler A.G. v Wickman Machine Tools Ltd
[1974] A.C. 235; Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep. 98, 101, 103, 105;
The Raven [1980] 2 Lloyd’s Rep. 266, 270; Sudatlantica Navegacion SA v Devamar Shipping
Corp [1985] 2 Lloyd’s Rep. 271, 274; Investors Compensation Scheme Ltd v West Bromwich
Building Society [1998] 1 W.L.R. 896, 913; Aqua Design & Play International Ltd v Kier
Regional Ltd [2002] EWCA Civ 797, [2003] B.L.R. 111; P&S Platt Ltd v Crouch [2003] EWCA
Page 7
Civ 1110, [2004] 1 P. & C.R. 18; NBTY Europe Ltd v Nutricia International BV [2005] EWHC
734 (Comm), [2005] 2 Lloyd’s Rep. 350 at [29]–[32]; Absalom v TCRU Ltd [2005] EWHC 1090
(Comm), [2005] 2 Lloyd’s Rep. 735 at [25]; Beazer Homes Ltd v Stroude [2005] EWCA Civ 265,
[2005] N.P.C. 45; Dornoch Ltd v Mauritius Union Assurance Co Ltd [2006] EWCA Civ 389,
[2006] 2 Lloyd’s Rep. 475 at [31]–[37]; Nearfield Ltd v Lincoln Nominees Ltd [2006] EWHC
2421 (Ch), [2007] 1 All E.R. (Comm) 441; Pratt v Aigaion Insurance Co SA [2008] EWCA Civ
1314, [2009] 1 Lloyd’s Rep. 225 at [9]; ING Lease (UK) Ltd v Harwood [2007] EWHC 2292
(QB), [2008] Bus. L.R. 762; Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC
44, [2011] 1 Lloyd’s Rep. 96 at [46]; Ted Baker Plc v AXA Insurance UK Plc [2012] EWHC 1406
(Comm). But see Canterbury Golf International Ltd v Yoshimoto [2001] N.Z.L.R. 523, [2002]
UKPC 40 at [25]; and the observations of Lord Nicholls in Bank of Credit and Commerce
International v Ali [2001] UKHL 8, [2002] 1 A.C. 251 at [25], and in Bank of Credit and
Commerce International v Ali (2005) 121 L.Q.R. 577 at 582–588; Proforce Recruit Ltd v Rugby
Group Ltd [2006] EWCA Civ 69 at [33]–[35]; McMeel (2003) 119 L.Q.R. 272. For the procedure
to be adopted where evidence of pre-contractual negotiations is sought to be adduced, see
Anglo-Continental Educational Group (GB) Ltd v Capital Homes (Southern) Ltd [2009] EWCA
Civ 218, [2009] C.P. Rep. 30.
575.
Inglis v Buttery (1878) 3 App. Cas. 552; National Bank of Australasia v Falkingham [1902]
A.C. 585, 591; Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep. 127. But an earlier contract
may be looked at as part of the factual background for the purpose of interpreting a later
contract, although this may be of limited utility where the later contract is intended to supersede
the earlier one: HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co
[2001] EWCA Civ 735, [2001] 2 Lloyd’s Rep. 161 at [83]; Electrosteel Castings Ltd v
Scan-Trans Shipping [2002] EWHC 1993 (Comm); [2003] 1 Lloyd’s Rep. 190 at [198]; Egan v
Static Control Components (Europe) Ltd [2004] EWCA Civ 392, [2004] 2 Lloyd’s Rep. 429 at
[35]; Multiplex Constructions (UK) Ltd v Cleveland Bridge (UK) Ltd (No.2) [2007] EWHC 145
(TCC), (2007) 111 Const. L.R. 48 at [150]; Globe Motors Inc v TRW Lucas Varity Electric
Steering Ltd [2016] EWCA Civ 396 at [61]. cf. Nearfield Ltd v Lincoln Nominees Ltd [2006]
EWHC 2421 at [68]–[70].
577. See above, para.4-108. cf. Ted Baker Plc v AXA Insurance UK Plc [2012] EWHC 1406 (Comm)
at [118].
578. Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 A.C. 1101 at [42]; Tartsinis v
Navona Management Co [2015] EWHC 57 (Comm) at [14]. For this purpose a fact known to
both parties means “some objective part of the background matrix of fact other than a mere
negotiating position taken by one of the parties, however vigorously expressed”: Northrop
Grumman Missions Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd [2015] EWCA Civ
844 at [31].
579. [2010] UKSC 44, [2011] 1 Lloyd’s Rep. 96 at [39].
580. Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 A.C. 1101 at [45];
Azimut-Benetti SpA v Healey [2010] EWHC 2234 (Comm), [2010] T.C.L.R. 7; Proteus Property
Partners Ltd v South Africa Property Opportunities Plc [2011] EWHC 768 (QB); Oceanbulk
Shipping & Trading SA v TMT Asia Ltd [2010] UKSC 44, [2011] 1 Lloyd’s Rep. 96; Dean &
Dean Solicitors v Dionissiou-Moussaoui [2011] EWCA Civ 1331, [2012] 2 Costs L.O. 94.
581. Oceanbulk Shipping & Trading SA v TMT Asia Ltd [2010] UKSC 44, [2011] 1 Lloyd’s Rep. 96.
582.
IRC v Raphael [1935] A.C. 96, 142; Prenn v Simmonds [1971] 1 W.L.R. 1381, 1385; Reardon
Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, 996; Harmony Shipping Co SA v
Saudi-Europe Line Ltd [1981] 1 Lloyd’s Rep. 377, 416; Nearfield Ltd v Lincoln Nominees Ltd
[2006] EWHC 2421 (Ch), [2007] 1 All E.R. (Comm) 421 at [63]; Scottish Power UK Plc v BP
Exploration Operating Co Ltd [2015] EWHC 2658 (Comm), [2016] 1 All E.R. (Comm) 536 at
[21]; BP Gas Marketing Ltd v La Societe Sonatrach [2016] EWHC 2461 (Comm), 169 Con. L.R.
141 at [37]. In Rabin v Gerson Berger Association Ltd [1986] 1 W.L.R. 526, opinions of tax
Page 8
counsel given shortly before or at the time of execution of certain trust deeds were held
inadmissible; cf. McMeel (2003) 119 L.Q.R. 272.
583. Grant v Grant (1870) L.R. 5 C.P. 727, 728; approved in London CC v Henry Boot & Sons Ltd
[1959] 1 W.L.R. 133, 138, CA and [1959] 1 W.L.R. 1069, 1075.
584. [1971] 1 W.L.R. 1381.
585. [1998] 1 W.L.R. 896.
586. [1988] 1 W.L.R. 896, 912–913.
587. In particular the judgment of Staughton L.J. in Scottish Power Plc v Britoil (Exploration) Ltd The
Times, December 2, 1997. See also NLA Group Ltd v Bowers [1999] 1 Lloyd’s Rep. 109, 112.
588. Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, [2002] 1 A.C. 251 at [39].
See also Lord Steyn in Mannai Investment Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C.
749, 768; Pratt v Aigaion Insurance Co SA [2008] EWCA Civ 1314, [2009] 1 Lloyd’s Rep. 225 at
[10]; Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All
E.R. (Comm) 1321 at [133].
590. See above, paras 13-053, 13-062.
591. Shore v Wilson (1842) 9 Cl. & Fin. 355, 511. See also L.G. Schuler A.G. v Wickman Machine
Tools Sales Ltd [1974] A.C. 235, 261 (“technical expressions”).
592. Shore v Wilson (1842) 9 Cl. & Fin 355, 501, 527, 545, 555–556; Earl of Lonsdale v Att-Gen
[1982] 1 W.L.R. 887.
593. Shore v Wilson (1842) 9 Cl. & Fin 355, 555–556; Di Sora v Phillips (1863) 10 H.L.C. 624, 633,
638.
594. Zeus Tradition Marine Ltd v Bell [1999] 1 Lloyd’s Rep. 703, 706–707.
595. See below, paras 13-130—13-136.
596. See above para.13-122. In Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009]
A.C. 1101 at [45] Lord Hoffmann stated that he did not consider this an exception to the rule
excluding evidence of previous negotiations since “it does not matter whether the evidence of
usage by the parties was in the course of negotiations or on any other occasion”.
597. Partenreederei M.S. Karen Oltmann v Sausdale Shipping Co Ltd [1976] 2 Lloyd’s Rep. 708,
712 (criticised in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] A.C. 1101 at
[45]–[47]); Proforce Recruit Ltd v Rugby Group Ltd [2006] EWCA Civ 69 (“preferred supplier
status”). This may depend on an estoppel: Vector Gas Ltd v Bay of Plenty Energy Ltd [2010]
NZSC 5.
598. Rossiter v Miller (1878) 3 App. Cas. 1124; Chapman v Smith [1907] 2 Ch. 97; Stokes v Whicher
[1920] 1 Ch. 411; Estor Ltd v Multifit (UK) Ltd [2009] EWHC 2108 (TCC), 126 Con. L.R. 40;
Fairstate Ltd v General Enterprise and Management Ltd [2010] EWHC 3072 (QB), [2011] 2 All
E.R. (Comm) 497 at [75]. cf. Jarrett v Hunter (1887) 34 Ch. D. 182; OTV Birwelco Ltd v
Technical and General Guarantee Co [2002] EWHC 2240 (TCC), [2002] 4 All E.R. 668 at [12].
599. Carr v Lynch [1900] 1 Ch. 613.
600. Newell v Radford (1867) L.R. 3 C.P. 52. See also above, para.13-117 (agency); Hamid v
Francis Bradshaw Partnership [2013] EWCA Civ 470, [2013] B.L.R. 447.
Page 9
601. Willis v Barrett (1816) 2 Stark. 29; Dermatine Co Ltd v Ashworth (1905) 21 T.L.R. 510; Bird &
Co v Thomas Cook & Son [1937] 2 All E.R. 227, 230–231. But contrast Shogun Finance Ltd v
Hudson [2003] UKHL 62, [2004] 1 A.C. 919 at [49]; Dumford Trading AG v OAO Atlantrybflot
[2005] EWCA Civ 24, [2005] 1 Lloyd’s Rep. 289 at [32]. See also Gastronome (UK) Ltd v
Anglo-Dutch Meats Ltd [2006] EWCA Civ 1233, [2006] 2 Lloyd’s Rep. 587 at [16] and below,
para.13-127; Almatrans SA v Steamship Mutual Underwriting Association (Bermuda) Ltd [2006]
EWHC 2223 (Comm), [2007] 1 Lloyd’s Rep. 104; Liberty Mercian Ltd v Cuddy Civil Engineering
Ltd [2013] EWHC 2688 (TCC), [2014] 1 All E.R. (Comm) 761 at [81]–[91].
602. L.G. Schuler A.G. v Wickman Machine Tools Sales Ltd [1974] A.C. 235, 261; cf. Compagnie
Noga d’Importation et d’Exportation SA v Abacha [2003] EWCA Civ 1100, [2003] 2 All E.R.
(Comm) 915.
603. Macdonald v Longbottom (1860) 1 E. & E. 977, 987.
604. Ogilvie v Foljambe (1817) 3 Mer. 53, 61; Owen v Thomas (1834) My. & K. 353; Bleakley v
Smith (1840) 11 Sim. 150; Cowley v Watts (1853) 17 Jur. 172; Wood v Scarth (1855) 2 K. & J.
33; Shardlow v Cotterell (1881) 20 Ch. D. 90; Plant v Bourne [1897] 2 Ch. 281; Harewood v
Retese [1990] 1 W.L.R. 333; Freeguard v Rogers [1999] 1 W.L.R. 375. cf. Doe d. Norton v
Webster (1840) 12 A. & E. 442.
605. Scarfe v Adams [1981] 1 All E.R. 843.
606. England v Downs (1840) 2 Beav. 522; McCollin v Gilpin (1881) 6 Q.B.D. 516. See also Burges
v Wickham (1863) 3 B. & S. 669, 698; Savory v World of Golf [1914] 2 Ch. 566; Auerbach v
Nelson [1919] 2 Ch. 383; L.G. Schuler v Wickman Machine Tool Sales Ltd [1974] A.C. 235, 261
. cf. Caddick v Skidmore (1857) 2 De G. & J. 52.
607. Heffield v Meadows (1869) L.R. 4 C.P. 595; Perrylease Ltd v Imecar A.G. [1988] 1 W.L.R. 463;
cf. Holmes v Mitchell (1859) 7 C.B.N.S. 361.
609. Raffles v Wichelhaus (1864) 2 H. & C. 906.
610. Sweeting v Fowler (1815) 1 Stark. 106; Stebbing v Spicer (1849) 8 C.B. 827.
611. [2005] EWCA Civ 24, [2005] 1 Lloyd’s Rep. 289 at [32]; Almatrans SA v Steamship Mutual
Underwriting Association (Bermuda) Ltd [2006] EWHC 2223 (Comm), [2007] 1 Lloyd’s Rep. 104
. cf. Gastronome (UK) Ltd v Anglo-Dutch Meats Ltd [2006] EWCA Civ 1233, [2006] 2 Lloyd’s
Rep. 587 at [16]; Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 2688 (TCC),
[2014] 1 All E.R. (Comm) 761 at [72], [81], [91], [92], [108].
612. Bacon, Law Tracts, p.99; Colpoys v Colpoys (1822) Jacob 451; Great Western Ry v Bristol
Corp (1918) 87 L.J. Ch. 414, 429; cf. Watcham v Att-Gen of East African Protectorate [1919]
A.C. 533 (but see below, para.13-129 n.608).
613. R. v Ryan (1811) Russ. & Ry 195; In the Goods of De Rosaz (1877) 2 P.D. 66, 69; cf. Bills of
Exchange Act 1882 s.20. In Westville Properties Ltd v Dow Properties Ltd [2010] EWHC 30
(Ch), [2010] 2 P. & C.R. 19, a contractual blank was filled on the basis of the remaining terms of
the contract and the factual matrix.
614. Clayton v Lord Nugent (1844) 13 M. & W. 200 (will).
615. Zeus Tradition Marine Ltd v Bell [1999] 1 Lloyd’s Rep. 703, 707.
616. Att-Gen v Parker (1747) 3 Atk. 576, 577; Lord Waterpark v Fennell (1859) 7 H.L.C. 650; North
Eastern Ry v Lord Hastings [1900] A.C. 260, 269; L.G. Schuler A.G. v Wickman Machine Tool
Sales Ltd [1974] A.C. 235, 261, 270 (but see at 252, 261, 269, 272, questions of title to land).
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617. Duke of Beaufort v Swansea Corp (1849) 3 Exch. 413, 425; Earl de la Warr v Miles (1880) 17
Ch. D. 535, 573; Neill v Duke of Devonshire (1882) 8 App. Cas. 135, 156.
618. Doe d. Pearson v Ries (1832) 8 Bing. 178, 184; Chapman v Bluck (1838) 4 Bing.N.C. 187; Van
Diemen’s Land Co v Table Cape Marine Board [1906] A.C. 92, 96, 98; Watcham v Att-Gen of
East African Protectorate [1919] A.C. 533.
619. Watcham v Att-Gen of East African Protectorate [1919] A.C. 533, 538. The authority of this
case is now extremely fragile: Gaisberg v Storr [1950] 1 K.B. 107, 114; Sussex Caravan Parks
Ltd v Richardson [1961] 1 W.L.R. 561, 568; L.G. Schuler A.G. v Wickman Machine Tool Sales
Ltd [1974] A.C. 235, 261, 272.
620. James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] A.C. 572, 603.
See also 606, 611, 614; Prenn v Simmonds [1971] 1 W.L.R. 1381; English Industrial Estates
Corp v George Wimpey & Co Ltd [1973] 1 Lloyd’s Rep. 118; Trollope & Colls Ltd v N.W.
Metropolitan Regional Hospital Board [1973] 1 W.L.R. 601, 611; L.G. Schuler A.G. v Wickman
Machine Tool Sales Ltd [1974] A.C. 235, 252, 260, 265–270, 272; Bushwall Properties Ltd v
Vortex Properties Ltd [1976] 1 W.L.R. 591, 603; Arrale v Costain Civil Engineering Ltd [1976] 1
Lloyd’s Rep. 98; Harmony Shipping Co SA v Saudi-Europe Line Ltd [1981] 1 Lloyd’s Rep. 409,
416; Haydon v Lo & Lo [1997] 1 W.L.R. 198, 205; Full Metal Jacket Ltd v Gowlain Building
Group Ltd [2005] EWCA Civ 1809 at [17]; Proteus Property Partners Ltd v South Africa
Property Opportunities Plc [2011] EWHC 768 (QB) at [46]; Hyundai Merchant Marine Co Ltd v
Trafigura Beheer BV [2011] EWHC 3108 (Comm) at [13]. Contrast Wholesale Distributors Ltd v
Gibbons Holdings Ltd [2007] NZSC 37; Port Sudan Cotton Co v Govindaswamy Chettiar &
Sons [1977] 2 Lloyd’s Rep. 5, 11; cf. McMeel (2003) 119 L.Q.R. 272.
621. Carmichael v National Power Plc [1999] 1 W.L.R. 2042, 2051; Maggs v Marsh [2006] EWCA
Civ 1058, [2006] B.L.R. 395; Kellogg Brown and Roof Inc v Concordia Maritime AG [2006]
EWHC 3358 (Comm); Kier Regional Ltd v City and General (Holborn) Ltd [2008] EWHC 2454
(TCC), [2009] B.L.R. 90; Crema v Cenkos Securities Plc [2010] EWCA Civ 1444, [2011] 1
W.L.R. 2066 at [33]–[34]; BVM Management Ltd v Roger Yeomans [2011] EWCA Civ 1254.
622. Ali v Lane [2007] EWCA Civ 1532, [2007] 1 P. & C.R. 26; Haycocks v Neville [2007] EWCA Civ
78, [2007] 12 E.G. 56.
623. Antoniades v Villiers [1990] 1 A.C. 417, 475; Bankway Properties Ltd v Pensfold-Dunsford
[2001] EWCA Civ 528, [2001] 1 W.L.R. 1369 at [44].
624.
James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] A.C. 572,
603, 615; Schuler A.G. v Wickman Machine Tool Sales Ltd [1974] A.C. 235, 261; Ferguson v
John Dawson & Partners (Contractors) Ltd [1976] 1 W.L.R. 1213, 1221, 1229; Liverpool City
Council v Irwin [1977] A.C. 239, 283; Port Sudan Cotton Co v Govindaswamy Chettiar & Sons
[1977] 2 Lloyd’s Rep. 5, 11; Wilson v Maynard Shipbuilding Consultants AB [1978] Q.B. 665,
675, 677; Todd v British Midland Airways Ltd [1978] I.C.R. 959, 964, 967; Mears v Safecar
Security Ltd [1983] Q.B. 54, 77; Great North Eastern Ry Ltd v Avon Insurance Plc [2001] EWCA
Civ 780, [2001] 2 Lloyd’s Rep. 649 at [29]; Lawlor v Sandvik Mining and Construction Mobile
Crushers and Screens Ltd [2012] EWHC 1188 (QB), [2012] 2 Lloyd’s Rep. 25 at [12], [47];
Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443 at [41].
625. Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 W.L.R. 1213; Carmichael v
National Power Plc [1999] 1 W.L.R. 2042, 2051.
626. Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982]
2 Q.B. 84, 119 (estoppel by convention); Carmichael v National Power Plc [1999] 1 W.L.R.
2042, 2051.
627. F.R. Larssen Werft GmbH & Co KG v Halle [2009] EWHC 2607 (Comm), [2010] 2 Lloyd’s Rep.
20 at [38].
Page 11
628.
Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch) at [28].

Page 1

(e) - Evidence of Custom or Mercantile Usage
Generally
13-130
Extrinsic evidence is also admissible to show the custom of a particular locality or the usage of a
particular trade. Evidence may therefore be adduced: (1) to prove that the words of a contract are
used in a peculiar sense and different from the sense which they ordinarily bear 629; and (2) to annex
incidents to the contract upon which the contract is silent. 630 The former is admitted on the ground
that:
“… the intention of the parties, though perfectly well known to themselves, would often be
defeated if the language were construed according to its ordinary import in the world” 631;
the latter because the parties commonly reduce into writing the special particulars of their agreement,
but omit to specify the custom or usage, which is included, however, as of course by mutual
understanding: “[t]he contract in truth is partly express and in writing, partly implied or understood and
unwritten”. 632
Conflict with written instrument
13-131
It has frequently been stated 633 that both of these principles are subject to the qualification that the
peculiar sense or incident which it is proposed by the evidence to attach to the terms of the contract
must not vary or contradict the terms of the written instrument. But the principle as to whether
evidence is admitted to vary a written instrument is perhaps easier to state than to apply, because in
a sense any such evidence varies the written agreement:
“The contract construed without the custom will be different from what it is if construed
with the custom, and in that sense every admission of custom varies the written contract.”
634
Yet in interpretation, the custom or usage is being used merely as “a dictionary to explain what words
in the contract mean” 635; in annexing incidents, it is being used to imply a term as to which the
contract is silent. Perhaps the best test is still that suggested by Lord Campbell C.J. 636:
“To fall within the exception of repugnancy, the incident must be such as if expressed in
Page 2
the written contract would make it insensible or inconsistent.”
Nevertheless the distinction is by no means always easy to draw in practice. 637
Requirements
13-132
No custom or usage will be considered by the court on the construction of a contract, unless it is
notorious, certain and reasonable 638 and does not offend against the intention of any legislative
enactment. 639 The notoriety of a custom or usage is a matter to be proved in evidence; but there are
certain usages, which are so well known that judicial notice will be taken of them. 640 Mere trade
practice is insufficient to amount to custom 641 but may nevertheless be relevant as part of the factual
matrix in aid of interpretation. 642
Custom to interpret instrument
13-133
Evidence of the custom prevailing in a particular place or locality has been admitted to show that, in
Suffolk, “one thousand” rabbits meant 1,200 643 and what was meant by “regular turns of loading”
according to the usage of the ports of the Tyne. 644 Evidence was also held to be admissible for the
purpose of proving at what time, according to the custom of the port of Liverpool, a ship chartered to
that port with a cargo of timber, should be deemed to have arrived at her place of discharge within the
meaning of the charterparty 645 and to show, for example, the meaning of “alongside” and “delivery”,
646
“discharge” 647 or “working day” 648 at a particular port.
Custom to annex terms
13-134
Terms have also been annexed by custom, 649 one case being the “customs of the country” which
relate to a tenant’s rights at the end of his tenancy. 650 Evidence of these is admissible.
Usage to interpret instrument
13-135
The invariable, certain and general usage of a particular trade has frequently been admitted to
interpret the terms of a written contract. 651 Thus, where a contract was in these words, “sold eighteen
pockets Kent hops at 100s.”, and it appeared that a pocket contained more than a hundred weight,
evidence was admitted to show that by the usage of the trade a contract so worded was understood
to mean £5 per cwt. 652 Where a theatrical manager contracted with an actress to engage her for
“three years” at a certain salary, it was held that extrinsic evidence might be given to show that,
according to the uniform usage of that profession, the claimant was to be paid only during the
theatrical season of each of those years. 653 Evidence of usage has similarly been admitted to resolve
ambiguities. 654
Usage to annex terms
13-136
655
Usage has also been employed to annex terms to the contract. So, where goods are sold by
Page 3
sample, evidence of a custom of the trade as to returning or making an allowance for such of the
goods as do not answer the sample is admissible. 656 In particular, evidence may be adduced to show
that where a broker sells or buys goods without disclosing his principals, he is, according to the usage
of the trade, himself liable as vendor or purchaser. 657
629. See above, paras 13-060—13-061.
630. See below, paras 13-134, 13-136, 14-021.
631. Brown v Byrne (1854) 3 E. & B. 703, 715.
632. Brown v Byrne (1854) 3 E. & B. 703.
633. See, e.g. Yates v Pym (1816) 6 Taunt. 446; Roberts v Barker (1833) 1 Cr. & M. 808; Cockburn
v Alexander (1848) 6 C.B. 791; Spartali v Benecke (1850) 10 C.B. 212, 223; Brown v Byrne
(1854) 3 E. & B. 703, 715; Re L. Sutro & Co and Heilbut, Symons & Co [1917] 2 K.B. 348;
Westcott v Hahn [1918] 1 K.B. 495; London Export Corp Ltd v Jubilee Coffee Roasting Co Ltd
[1958] 1 W.L.R. 661, 675; Danowski v Henry Moore Foundation, The Times, March 19, 1996;
Phillips v Syndicate 992 Gunner [2003] EWHC 48, [2003] 2 C.L.C. 152 at [25]. See below,
para.14-026.
634. Produce Brokers Co Ltd v Olympia Oil and Cake Co Ltd [1917] 1 K.B. 320, 330; Humfrey v Dale
(1857) 7 E. & B. 266, 275.
635. [1917] 1 K.B. 320, 330.
636. Humfrey v Dale (1857) 7 E. & B. 266, 275.
637. Contrast Palgrave, Brown & Sons v S.S. Turid [1922] 1 A.C. 397, with Smith, Hogg & Co v
Louis Bamberger & Sons [1929] 1 K.B. 150.
638. Devonald v Rosser & Sons [1906] 2 K.B. 728, 743; Three Rivers Trading Co v Gwinear and
District Farmers (1967) 111 S.J. 831. See also the cases cited in para.14-021, below.
639. Daun v City of London Brewery Co (1869) L.R. 8 Eq. 155, 161.
640. George v Davies [1911] 2 K.B. 445.
641. Cunliffe-Owen v Teather and Greenwood [1967] 1 W.L.R. 1421, 1438; Vitol SA v Phibro Energy
A.G. [1990] 2 Lloyd’s Rep. 84, 90; Pryke v Gibbs Hartley Cooper Ltd [1991] 1 Lloyd’s Rep. 602,
615; Sucre Export SA v Northern Shipping Ltd [1994] 2 Lloyd’s Rep. 266.
642. Crema v Cenkos Securities Plc [2010] EWCA Civ 1444, [2011] 1 W.L.R. 2066 at [42]–[48].
643. Smith v Wilson (1832) 3 B. & Ad. 728. See above, para.13-060.
644. Leidemann v Schultz (1853) 14 C.B. 38.
645. Norden S.S. Co v Dempsey (1876) 1 C.P.D. 654.
646. Aktieselskab Helios v Ekman (1872) 2 Q.B.D. 83.
647. Petersen v Freebody [1895] 2 Q.B. 294.
648. British and Mexican Shipping Co Ltd v Lockett Brothers & Co Ltd [1911] 1 K.B. 264; Reardon
Smith Line Ltd v Ministry of Agriculture, Fisheries and Food [1963] A.C. 691, 726.
Page 4
650. Hutton v Warren (1836) 1 M. & W. 466; Dashwood v Magniac [1891] 3 Ch. 306.
652. Spicer v Cooper (1841) 1 Q.B. 424.
653. Grant v Maddox (1846) 15 M. & W. 737. See also Hutchinson v Bowker (1839) 5 M. & W. 535;
Myers v Sarl (1860) 3 E. & E. 306; Davis v Temco [1992] C.L.Y. 2064.
654. Bold v Rayner (1836) 1 M. & W. 343.
655. R. v Inhabitants of Stoke-on-Trent (1843) 8 Q.B. 303; Syers v Jonas (1848) 2 Exch. 111; Re
Walkers, Winser & Hamm and Shaw, Son & Co [1904] 2 K.B. 152; Produce Brokers Co Ltd v
Olympic Oil & Cake Co Ltd [1916] 1 A.C. 314. See below, para.14-021.
656. Cooke v Riddelien (1844) 1 C. & K. 561.
657. Humfrey v Dale (1858) E.B. & E. 1004; Fleet v Murton (1871) L.R. 7 Q.B. 126; Hutchinson v
Thatham (1873) L.R. 8 C.P. 482; Pike v Ongley (1887) 18 Q.B.D. 708. Contrast Trueman v
Loder (1840) 11 A. & E. 589; Robinson v Mollett (1875) L.R. 7 H.L. 802; Miller, Gibb & Co v
Smith & Tyrer [1917] 2 K.B. 141.

Page 1

Part 8 - Remedies for Breach of Contract
Chapter 26 - Damages
Section 10. - Liquidated Damages, Deposits and Forfeiture of Sums Paid
(a) - Liquidated Damages or Penalty
Introduction
26-178
Where the parties to a contract agree that, in the event of a breach, the contract-breaker shall pay
to the other a specified sum of money, the sum fixed may be classified by the courts either as a
penalty (which is irrecoverable) or as liquidated damages (which are recoverable). 969 The law on
this topic has been fundamentally re-written by the decision of the Supreme Court in the cases (heard
together) of Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis. 970 A clause
is enforceable if it meets the traditional test that it does not extravagantly exceed a genuine attempt to
estimate in advance the loss which the claimant would be likely to suffer from a breach of the
obligation in question, 971 but the true test is whether the party to whom the sum is payable had a
legitimate interest in ensuring performance by the other party and the sum payable in the event of
breach is not extravagant or unconscionable in comparison to that interest. This supersedes a
number of decisions suggesting that a clause which provides for an additional payment to be made by
a party who is in breach of the contract may also be enforceable, even if it was not strictly speaking a
pre-estimate of the likely loss, if it was “commercially justifiable, provided always that its dominant
purpose was not to deter the other party from breach”. 972
Effect of distinction
26-178A
If the clause is not void as a penalty, it is enforceable irrespective of the loss actually suffered,
whether the actual loss is less or greater. 973 Courts of equity held that if the sum fixed was
unenforceable as a penalty to ensure that the promise was not broken, the promisee should
nevertheless receive by way of damages the sum which would compensate him for his actual loss. 974
The Court of Appeal has held that the strict legal position is that the innocent party can sue on the
penal clause, but “it will not be enforced … beyond the sum which represents [his] actual loss”. 975
Where there is provision for liquidated damages, the claimant may nevertheless, in appropriate
cases, elect to ask for an injunction instead of enforcing the liquidated damages. 976
Purpose of liquidated damage clauses
26-179
Page 2
977
The purpose of the parties in fixing a sum is to facilitate recovery of damages without the
difficulty and expense of proving actual damage 978 ; or to avoid the risk of under-compensation,
where the rules on remoteness of damage might not cover consequential, indirect or idiosyncratic
979
loss ; or to give the promisee an assurance that he may safely rely on the fulfilment of the
promise 980 ; or to deter a party from breaching the contract. 981 Often the parties to a contract
fix a sum as liquidated damages in the event of one specific breach, and leave the claimant to sue for
unliquidated damages in the ordinary way if other types of breach occur. 982
“Underliquidated damages”
26-180
In practice, liquidated damages clauses frequently serve to limit one party’s liability. In other words,
the parties may agree that in the event of breach, the party in breach will pay a sum which is
demonstrably less than a pre-estimate of the likely loss. A clause of this type is sometimes called an
“underliquidated damages clause”. This will not prevent it being a valid liquidated damages clause. 983
These clauses are often the basis of the insurance arrangements to be made by the parties. A
clause of this type may operate as a limitation of the party’s liability. For that reason it is likely to be
984
construed in the same way as other clauses limiting liability. It is possible that an
underliquidated damages clause is not caught by the Unfair Contract Terms Act 1977 985 because
it does not merely exclude or restrict one party’s liability: the same amount is payable whether the
actual loss is greater or less. 986 However, were such a clause to occur in a consumer contract, it
would seem to fall within the Unfair Terms in Consumer Contract Regulations 1999 (if the contract
987
was made before September 30, 2015 and if the term had not been individually negotiated ) or
988
(if the contract was made after October 1, 2015) Pt 2 of the Consumer Rights Act 2015.
Similar types of clause
26-181
In Cavendish Square Holding BV v Makdessi 989 a majority of the Supreme Court held that the
penalty clause rules apply to provisions that would prevent a party who breaks the contract from
990
receiving a sum to which it would otherwise be entitled, and also to provisions that require a
991
party in breach to transfer property to the other party at less than its full value. The Supreme
Court indicated that the penalty rules also apply to deposits 992 and forfeiture clauses 993 but
not to sums that are payable on events other than a breach of contract, for example a sum that must
be paid if a party exercises a right under the contract. 994
Reluctance to find clause penal
26-181A
The rule against penalties has often been seen as anomalous because it applies even to clauses
995
that were negotiated between experienced parties of equal bargaining power. In Cavendish
Page 3
997
Lords Neuberger and Sumption described it as “an edifice which has not weathered well”.
The Privy Council 998 has cited with approval 999 the view of Dickson J. in the Supreme Court of
Canada that:
“… the power to strike down a penalty clause is a blatant interference with freedom of
contract and is designed for the sole purpose of providing relief against oppression for the
party having to pay the stipulated sum. It has no place where there is no oppression.” 1000
Therefore, where there is no suggestion of oppression, “the court should not be astute to decry a
‘penalty clause”’. 1001 The:
“… courts are predisposed … to uphold [liquidated damages clauses]. This predisposition

is even stronger in the case of commercial contracts freely entered into between parties
of comparable bargaining power.” 1002
However, as it was put before the doctrine was modified by the Cavendish Square case, the correct
question is not whether one party secured the clause by the use of unequal bargaining power or
oppression, but whether or not the clause is a genuine pre-estimate of the likely loss:
“… whether a provision is to be treated as a penalty is a matter of construction to be

resolved by asking whether at the time the contract was entered into the predominant
contractual function of the provision was to deter a party from breaking the contract or to
compensate the innocent party for breach …. The question that has always had to be
addressed is therefore whether the alleged penalty clause can pass muster as a genuine
pre-estimate of loss.” 1003
Similarly, in Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis the Supreme
Court emphasised that where a party has a legitimate interest in securing performance rather than
damages, the test of validity is whether the amount payable if the contract is broken is extravagant
1004
and unconscionable in comparison to that interest. A clause may be a penalty even though it
was freely negotiated between parties of equal bargaining power. 1005
A question of law
26-181B
The question whether a sum stipulated for in a contract is a penalty or liquidated damages is a
question of law. 1006
A question of construction
26-181C
In Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis 1007 a majority stated
Page 4
that whether a clause is a penalty is a question of construction. From this it follows, Lords Neuberger
and Sumption said, that the test must be applied as of the date of the agreement, not when it falls to
be enforced; a penalty clause is a species of agreement that is by its nature contrary to public policy.
It also follows that the application of the test does not involve a discretion, and if the clause is penal it
is wholly unenforceable. These points suggest that the question is one that other courts have
preferred to call one of characterisation rather than of interpretation or construction. 1008 However,
construction in the normal sense may also be relevant. Though it is usually accepted that the words
used by the parties are not determinative, 1009 if the parties’ intention was to compensate rather
than to deter, it seems that the validity of the clause should be judged by whether it is extravagant by
comparison to a “genuine pre-estimate” test, disregarding any interest that might have justified a
deterrent.
969.
A valid agreed damages clause is probably not subject to the Unfair Contract Terms Act 1977
(see Vol.I, paras 15-062 et seq.), even if it is set at a figure below the likely loss, see below,
para.26-180. cf. however, the Unfair Terms in Consumer Contracts Regulations 1999 and
Consumer Rights Act 2015 (below, para.26-180).
970.
[2015] UKSC 67, [2016] A.C. 1172, noted by Conte (2016) 132 L.Q.R. 382 and Morgan
[2016] C.L.J. 11. In what follows the decisions will frequently be referred to as “ Cavendish
Square” and “ParkingEye”.
971.
See the test laid down by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage &
Motor Co Ltd [1915] A.C. 79, below, para.26-182. It is presumed that a party has a legitimate
interest in recovering its likely loss: Cavendish Square [2015] UKSC 67 at [32]. cf. a
performance bond, which is not an estimate of the damage which might be caused by a breach
of contract: Cargill International SA v Bangladesh Sugar & Food Industries Corp [1996] 4 All
E.R. 563; Comdel Commodities Ltd v Siporex Trade SA [1997] 1 Lloyd’s Rep. 424 CA.
972.
Lordsvale Finance Plc v Bank of Zambia [1996] Q.B. 752, 762–764; United International
Pictures v Cine Bes Filmcilik ve Yapimcilik AS [2003] EWCA Civ 1669 at [15]; Euro London
Appointments Ltd v Claessens International Ltd [2006] EWCA Civ 385, [2006] 2 Lloyd’s Rep.
436 at [30]; General Trading Co (Holdings) Ltd v Richmond Corp Ltd [2008] EWHC 1479
(Comm), [2008] 2 Lloyd’s Rep. 475; Makdessi v Cavendish Square Holdings BV [2013] EWCA
Civ 1539. See further below, paras 26-193—26-194.
973.
Clydebank Engineering & Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda
[1905] A.C. 6. This rule does not apply to deposits, though at least a deposit that it is larger than
the customary amount may be a penalty: see below, paras 26-216Q and 26-216R.
974.
Story, Equitable Jurisprudence, para.1316. The assessment of damages is according to
common law; there is no equitable rule on damages where a clause has been held to be penal:
AMEV-UDC Finance Ltd v Austin (1986) 60 A.L.J.R. 741.
975.
Jobson v Johnson [1989] 1 W.L.R. 1026, 1040 (see also at 1038, 1039–1042, 1049). (cf.
however, the dictum in Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The
Scaptrade) [1983] 2 A.C. 694, 702). (“The classic form of relief against such a penalty clause
has been to refuse to give effect to it, but to award the common law measure of damages for
the breach of the primary obligation instead.”) In Cavendish Square Holding BV v Makdessi and
ParkingEye Ltd v Beavis [2015] UKSC 67, [2016] A.C. 1172 Jobson v Johnson was
disapproved on other grounds, see below, para.26-216K. On whether the claimant may recover
more than was provided for by the invalid penalty clause, see below, para.26-216L.
976.
See the cases cited in Vol.I, para.26-007 n.48. Agreed damages clauses do not bar the
Page 5
remedy of rejection of the goods: Benjamin’s Sale of Goods, 9th edn (2014), para.13–037.
977.
For an economic analysis of agreed damages clauses, see Goetz and Scott (1977) 77 Col.
L.R. 554; Rea (1984) 13 J.Leg.Stud. 147. See also Harris, Campbell and Halson, Remedies in
Contract and Tort, 2nd edn (2002) at Ch.9.
978.
[1905] A.C. 6, 11. Even where the consequences of a breach are precisely ascertainable after
the event, a sum reserved by the contract may be intended by the parties as an agreed
estimate of damage in order to avoid the expense and difficulty of assessment: Diestal v
Stevenson [1906] 2 K.B. 345.
979.
Robophone Facilities Ltd v Blank [1966] 1 W.L.R. 1428, 1447–1448. See further below,
para.26-186.
980.
The clause may also operate as a limitation on liability: below, para.26-180. The traditional
legal test, which was restricted to expected loss, did not permit the promisee to justify the sum
fixed as a reasonable incentive to the promisor to perform his promise, nor as a disincentive to
the promisor not to commit a deliberate breach (see Harris, Campbell and Halson at
pp.136–139); but giving an incentive to perform or deterring breach is now accepted as
legitimate if the party to whom the sum must be paid has a legitimate interest is securing
performance rather than relying on damages. See below, para.26-197.
981.
Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67,
[2016] A.C. 1172.
982.
e.g. Aktieselskabet Reidar v Arcos Ltd [1927] 1 K.B. 352.
983.
Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] A.C. 20; Tullett Prebon
Group Ltd v El-Hajjali [2008] EWHC 1924 (QB), [2008] I.R.L.R. 760 at [83] (“a significantly
smaller stipulated sum than the probable damages would be most unlikely to render a clause a
penalty clause, though each case has to be decided on its own individual facts”).
984.
cf. the rule that the effect of an exemption clause depends on the construction of the contract:
Suisse Atlantique Société d’Armement Maritime v NV Rotterdamsche Kolen Centrale [1967] 1
A.C. 361; Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827 (see Vol.I, paras
15-025 et seq.).
985.
See Vol.I, paras 15-066 et seq., and in particular para.15-069.
986.
See Peel, Treitel on The Law of Contract, 14th edn (2015), paras 7–055 and 20–140.
987.
See Vol.II, paras 38-201 et seq.
988.
989.
[2015] UKSC 67, [2016] A.C. 1172.
990.
See below, para.26-216.
991.
Page 6
992.
See below, para.26-216Q.
993.
See below, paras 26-216S et seq.
994.
See below, paras 26-216C et seq.
995.
For an early example see Betts v Burch (1859) 4 H & N 506, 509, cited by Lords Neuberger
and Sumption in Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis
[2015] UKSC 67, [2016] A.C. 1172 at [8]. See also their judgment at [33].
996.
[2015] UKSC 67, [2016] A.C. 1172.
997.
The history of the rule in English law is summarised in the judgments of Lords Neuberger and
Sumption in the Cavendish Square case [2015] UKSC 67 at [4]–[8] and of Mason and Wilson
JJ. in the Australian case of AMEV-UDC Finance Ltd v Austin (1986) 162 C.L.R. 170 at
[27]–[34]. See also A. Simpson, “The Penal Bond with Conditional Defeasance” (1996) 82
L.Q.R. 392; D. Ibbetson, A Historical Introduction to the Law of Obligations (1999), especially at
pp.213 et seq. and 255 et seq. Lord Hodge gives an account of the history in Scots law at
[2015] UKSC 67 at [251]–[253].
998.
Philips Hong Kong Ltd v Att-Gen of Hong Kong (1993) 61 Build. L.R. 49, 58.
999.
The view was also cited with approval in the High Court of Australia: Esanda Finance Corp
Ltd v Plessing (1989) 166 C.L.R. 131, 140. See also Lord Neuberger and Lord Sumption’s
descriptions of the doubts as to the basis of the doctrine, Cavendish Square Holding BV v
Makdessi [2015] UKSC 67 at [3].
1000.
Elsey v J.G. Collins Insurance Agencies Ltd (1978) 83 D.L.R. (3d.) 1, 15.
1001.
Robophone Facilities Ltd v Blank [1966] 1 W.L.R. 1428, 1447.
1002.
Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] Build. L.R. 271 (TCC) at [48]. See
also the Cavendish Square case [2015] UKSC 67 at [33].
1003.
Lordsvale Finance Plc v Bank of Zambia [1996] Q.B. 752, 762–764, cited with approval in
Euro London Appointments Ltd v Claessens International Ltd [2006] EWCA Civ 385, [2006] 2
1004.
[2015] UKSC 67 at [32]. On the role of unconscionability in this context, see below,
para.26-214.
1005.
Makdessi v Cavendish Square Holdings BV [2013] EWCA Civ 1539; [2015] UKHL 67, esp. at
[257] (Lord Hodge).
1006.
Sainter v Ferguson (1849) 7 C.B. 716, 727.
1007.
[2015] UKSC 67, [2016] A.C. 1172 at [9] (Lords Neuberger and Sumption) and [243] (Lord
Hodge). See particularly on the construction point Dawson [2016] L.M.C.L.Q. 207.
1008.
See the two-stage process (interpretation of the agreement to ascertain the parties’ rights and
obligations, followed by correct characterisation of the agreement) set out by Lord Millett in
Page 7
Agnew v Inland Revenue Commissioners [2001] UKPC 28, [2008] 2 A.C. 710 at [32].
1009.
See Lord Dunedin’s first proposition in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor
Co Ltd [1915] A.C. 79, 86, quoted below, para.26-182 and n.934.

Page 1

(b) - Genuine Pre-estimate of the Likely Loss
Genuine pre-estimate test
26-182
What has been referred to above as the “traditional” test, which for many years was considered to
1010
have been the only test applicable, was summed up by Lord Dunedin in delivering his opinion
in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd 1011 in the following propositions:
“(1)
Though the parties to a contract who use the words ‘penalty’ or ‘liquidated damages’
may prima facie be supposed to mean what they say, yet the expression used is not
conclusive. The court must find out whether the payment stipulated is in truth a
penalty or liquidated damages …. 1012
(2)
The essence of a penalty is a payment of money stipulated as in terrorem of the
offending party; the essence of liquidated damages is a genuine pre-estimate of
damage. 1013
(3)
The question whether a sum stipulated is a penalty or liquidated damages is a
question of construction to be decided upon the terms and inherent circumstances
of each particular contract, judged of at the time of the making of the contract, not
as at the time of the breach. 1014
(4)
To assist this task of construction various tests have been suggested which, if
applicable to the case under consideration, may prove helpful or even conclusive.
1015
Such are:
Page 2
(a)
It will be held to be a penalty if the sum stipulated for is extravagant and
unconscionable in amount in comparison with the greatest loss which could
conceivably be proved to have followed from the breach. 1016
(b)
It will be held to be a penalty if the breach consists only in not paying a sum of
money, and the sum stipulated is a sum greater than the sum which ought to
have been paid …. 1017
(c)
There is a presumption (but no more) that it is a penalty when ‘a single lump
sum is made payable by way of compensation, on the occurrence of one or
more or all of several events, some of which may occasion serious and others
but trifling damage.’ 1018
On the other hand:
(d)
It is no obstacle to the sum stipulated being a genuine pre-estimate of
damage, that the consequences of the breach are such as to make precise
preestimation almost an impossibility. On the contrary, that is just the situation
when it is probable that pre-estimated damage was the true bargain between
the parties.” 1019
In this case, dealers in tyres had agreed not to resell any tyres bought from the manufacturers to any
private customers at less than the manufacturers’ current list prices, not to supply them to persons
whose supplies the manufacturers had decided to suspend, not to exhibit or export them without the
manufacturers’ consent, and to pay £5 by way of liquidated damages for every tyre sold or offered in
breach of the agreement. It was held that the £5 was not a penalty and thus was recoverable as
liquidated damages.
The basis of the decision in the Dunlop case
26-183
The traditional approach treated Lord Dunedin’s second proposition as an exhaustive dichotomy,
1020
and had thus concentrated on whether the clause was a genuine pre-estimate of the loss that
the payee was likely to suffer. A clause would be regarded as in terrorem if it provided for a greater
1021
sum, or at least an extravagantly greater sum, than the loss the payee was likely to suffer. In
1022
Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis the Supreme Court
pointed out that other judges in the Dunlop case had decided the case on a wider basis 1023 ; and
as the result of the Supreme Court’s decision in those cases, a clause may also be justified on the
basis that the party who would benefit from it has a legitimate interest in securing performance rather
Page 3
than damages, and the amount payable or other consequence if the contract is broken is not
1024
extravagant and unconscionable in comparison to that interest. However, as Lords Neuberger
and Sumption said:
“In the case of a straightforward damages clause, that interest will rarely extend beyond
compensation for the breach, and we therefore expect that Lord Dunedin’s four tests
would usually be perfectly adequate to determine its validity.” 1025
Thus if the party cannot demonstrate a legitimate interest in securing performance rather than
damages, or does not seek to do so, the clause may still be valid under the “genuine pre-estimate”
test, and therefore that test is explored in more detail in this section.
An objective approach
26-184
Asking whether a clause was a genuine pre-estimate of the loss might suggest a subjective
approach, so that whether the clause is liquidated damages or a penalty depends on an assessment
of what the parties thought they were agreeing on. However, there are clearly objective elements to a
test which depends on whether the amount is “extravagant and unconscionable in comparison with
the greatest loss” 1026 ; and it has been held that:
“… the test does not turn upon the genuineness or honesty of the party or parties who
made the pre-estimate. The test is primarily an objective one.” 1027
A substantial discrepancy
26-185
1028
In Murray v Leisureplay Plc the Court of Appeal emphasised that a clause will not be a
penalty merely because it is not a precise pre-estimate of the loss. 1029 Arden L.J. said that a
contractual provision does not become a penalty simply because it results in overpayment in
particular circumstances: “The parties are allowed a generous margin”. 1030
Pre-estimate of damage
26-186
The word “damage” must mean “net loss” after taking account of the claimant’s expected ability to
mitigate his loss. The comparison is to be made to the loss that the innocent party would be entitled to
1031
recover by way of damages, not to the possibly greater actual loss. If the clause is a genuine
1032
pre-estimate of the loss, there is no scope for arguing that the claimant could in fact have
mitigated the loss: the purpose of the clause is to make proof of the actual loss unnecessary and
1033
irrelevant ; but the mitigation principle must be taken into account in deciding whether or not
1034
the clause was a genuine pre-estimate in the first place. A genuine pre-estimate may include
Page 4
1035
loss that would be too remote unless notice of its possibility had been given to the party in
breach at the time the contract was made. 1036 It has been suggested that a party may stipulate for
liquidated damages in order to ensure it is compensated for some idiosyncratic loss that might not
otherwise be recoverable, such as sentimental value attached to property. 1037 It must be the case
that a genuine pre-estimate can include damages for loss of amenity or distress when the purpose of
the contract is to provide that amenity or freedom from distress 1038 ; it seems unlikely that such
loss be a legitimate part of a pre-estimate when the loss would not be recoverable by way of
unliquidated damages, 1039 but a genuine concern about such loss would presumably give rise to a
legitimate interest that could be protected under the alternative basis set out in Cavendish Square
Holding BV v Makdessi and ParkingEye Ltd v Beavis. 1040 If, as it seems, “hypothetical bargain
damages” allowing the innocent party to recover a share of the profit made by the other party through
his breach of contract 1041 may be recoverable in addition to other damages, 1042 presumably a
genuine pre-estimate of the loss may include such a figure if, at the time the contract was made, it is
likely that the type of breach to which the agreed damages clause applies will lead to the party in
breach making a profit from it. The claimant’s chance to bargain with the defendant might constitute a
legitimate interest 1043 but it is probably unnecessary for the claimant to show this if the amount
agreed falls within a genuine preestimate. On the traditional account of liquidated damages, the fact
that the damage is difficult to assess with precision strengthened the presumption that a sum agreed
between the parties represents a genuine attempt to estimate it and to overcome the difficulties of
1044
proof at the trial. It seems that the risk of this kind of difficulty will now be treated as giving the
claimant a legitimate interest in deterring breach. 1045
Fluctuating sums
26-187
Although a valid agreed damages clause may specify a graduated scale of sums payable
1046
according to the varying extent of the expected loss, a sum which is liable to fluctuate
according to extraneous circumstances will not be classified as liquidated damages. 1047 In a
railway construction contract it was provided that in the event of a breach by the contractor he should
forfeit “as and for liquidated damages” certain percentages retained by the government of money
payable for work done as a guarantee fund to answer for defective work, and also certain security
money lodged with the government. 1048 The Judicial Committee held that this was a penalty,
since it was not a definite sum, but was:
“… liable to great fluctuation in amount dependent on events not connected with the
fulfilment of this contract. It is obvious that the amount of retained money … depended
entirely on the progress of those contracts, and that further, as those moneys are
primarily liable to make good deficiencies in these contract works, the eventual sum
available … could not in any way be estimated as a fixed sum.” 1049
Minimum payment clause
26-188
A “minimum payment” clause in a hire-purchase or hiring agreement that applies when the hirer is
Page 5
will usually be held to fail the genuine preestimate test if it provides for the same total sum to be
payable by the hirer irrespective of how long the agreement has been in force. 1051
Single sum payable upon different breaches
26-189
The mere fact that the same amount is made payable upon the breach of several undertakings of
varying importance is by no means conclusive. 1052 It may be that the amount is not
disproportionate to the least important of these undertakings, and therefore represents a genuine
attempt at an agreed estimate of real damage 1053 ; or, if the loss is hard to assess, the test
seemed to be satisfied if a modest sum was used; but a clause setting a very high amount would not
pass muster. Thus in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd, 1054 the
dealers had agreed not to resell any tyres bought from the manufacturers to any private customers at
less than the manufacturers’ current list prices, not to supply them to persons whose supplies the
manufacturers had decided to suspend, not to exhibit or export them without the manufacturers’
consent, and to pay £5 by way of liquidated damages for every tyre sold or offered in breach of the
agreement. It was held that the £5 was not a penalty and thus was recoverable as liquidated
damages. 1055 The decision seems to fall within Lord Dunedin’s last proposition:
“… the damage caused by each and every one of those events, however varying in
importance, may be of such an uncertain nature that it cannot be accurately ascertained”
1056
The clause may also be a genuine pre-estimate where the stipulated sum is taken as an average or
1057
mean figure of the losses probably incurred in the different events. In Ford Motor Co v
1058
Armstrong, in contrast, the retailer in a similar case agreed to pay £250 as “the agreed
damage which the manufacturer will sustain” upon the breach of any one of several covenants
(similar to those in the Dunlop case, above), and the Court of Appeal by a majority held that this (in
1915) was a penalty, since it was an arbitrary and substantial sum, and made payable for various
breaches differing in kind, some of which might cause only trifling damage. The high amount of the
agreed sum in this case showed that it could not be a genuine pre-estimate of loss.
Breach may cause varying loss
26-190
A different case is where the sum is payable for any breach of a particular term of the contract, but
the loss that follows may vary significantly from case to case. This seems to fall within Lord Dunedin’s
heading 4(a):
“It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in
amount in comparison with the greatest loss that could conceivably be proved to have
followed from the breach.” 1059
It is not clear that the converse proposition, that the sum will not be unconscionable if it is no more
than the greatest possible loss, follows. Lord Parker said that loss caused by a breach of a
non-solicitation covenant might vary according to where or not the solicitation was successful;
Page 6
nonetheless,
“whatever damage there is must be the same in kind for every possible breach, and the
fact that it may vary in amount for each particular breach has never been held to raise
any presumption or inference that the sum agreed to be paid is a penalty, at any rate in
cases where the parties have referred to it as agreed or liquidated damages.” 1060
That might be taken to suggest that provided the sum stipulated is not extravagant and
unconscionable in relation to the greatest loss that might follow, it will not be a penalty even though
the loss might well be much less and therefore the sum could not strictly be described as a genuine
1061
pre-estimate of the likely loss. On occasion Lord Dunedin’s statement has been applied
1062
literally, and it was repeated by Lord Hodge in Cavendish Square Holding BV v Makdessi and
1063
ParkingEye Ltd v Beavis. However, in the past it has been held a clause may be penal under
the “genuine pre-estimate test” even though the sum does not exceed the greatest possible loss. 1064
In Bridge v Campbell Discount Co Ltd a clause in a hire-purchase providing for a minimum
payment if the hirer defaulted in paying was held to be a penalty because the loss to the finance
company would differ according to how long the hirer kept the vehicle. 1065 True, in that case the
amount payable under the clause would also vary according to how much of the price the hirer had
already paid, so that the two situations are technically distinguishable, but it is thought that the result
in the Bridge case would have been the same if the clause had simply stated a fixed sum that the
hirer must pay however much he had paid already. So it is better to treat Lord Dunedin’s and Lord
Parker’s statements quoted above as no more than a presumption to be used when the genuine
pre-estimate test is being applied 1066 ; and to note that when the claimant has a legitimate interest
in obtaining performance rather than damages, an agreed sum that is not extravagant and
unconscionable in relation to the greatest loss that might follow is likely to be treated as valid. 1067
Graduated damages
26-191
In building contracts and other similar contracts the courts have upheld as liquidated damages a
system of graduated sums which increase in proportion to the seriousness of the breach, e.g. so
1068
much per week for delay in performance, or so much according to the number of items in
1069
question. If in a building contract there is no such graduation the sum fixed is less likely to be
held to be a genuine pre-estimate. 1070 The sum must be graduated so that it changes in the right
direction. Depreciation obviously increases over time, so a sum said to be compensation for
depreciation is not a genuine preestimate of loss if it decreases over time as a hirer pays more
instalments. 1071
Damages following termination by the innocent party under an express term
26-192
Where the hirer has neither repudiated the hiring (or hire-purchase) agreement, nor committed a
“fundamental breach” of it, but the owner terminates it in the exercise of an express power to do so
conferred by the agreement, the owner’s damages are limited to loss suffered through any breaches
up to the date of the termination. 1072 This is, in effect, the measure of loss defined by law and the
parties are not free to define it otherwise. A clause that provides for a larger sum to be paid, such as a
“minimum payment” clause or one providing for recovery of the amount of future payments, even with
Page 7
1073
deductions for any savings made, will (under the genuine pre-estimate test) be void as a
1074
penalty. It should be noted, however, that this principle does not apply where the contract
made the broken term into a condition, any breach of which entitled the innocent party to terminate
(e.g. a clause making compliance with time “of the essence” 1075 ). In this case the innocent party
may both terminate the contract and recover damages for the loss of the bargain (viz in respect of all
the outstanding obligations of the other party). 1076 A clause that makes the hirer liable for a
genuine pre-estimate of the owners’ full loss in such a case will be valid.
1010.
In Cavendish Square Holding BV v Makdessi [2015] UKSC 67 at [22] Lords Neuberger and
Sumption described it as having “achieved the status of a quasi-statutory code”.
1011.
[1915] A.C. 79, 86–88.
1012.
“But no case … decides that the term used by the parties themselves is to be altogether
disregarded, and I should say that, where the parties themselves call the sum made payable a
‘penalty,’ the onus lies on those who seek to show that it is to be payable as liquidated
damages”: Willson v Love [1896] 1 Q.B. 626, 630. See Alder v Moore [1961] 2 Q.B. 57, 65;
Robert Stewart & Sons Ltd v Carapanayoti & Co Ltd [1962] 1 W.L.R. 34. cf. Workers Trust &
Merchant Bank Ltd v Dojap Investments Ltd [1993] A.C. 573, 579.
1013.
[1905] A.C. 6. See also Bridge v Campbell Discount Co Ltd [1962] A.C. 600, 622; Photo
Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 850; Cameron-Head v Cameron &
Co (1919) S.C. 627; the Workers Trust case [1993] A.C. 573. It should be noted that by s.24 of
the Agricultural Holdings Act 1986 “notwithstanding any provision in a contract of tenancy of an
agricultural holding making the tenant liable to pay a higher rent or other liquidated damages”
for breach of covenant, etc. the landlord may not recover for any such breach any sum “in
excess of the damage actually suffered”.
1014.
Commissioner of Public Works v Hills [1906] A.C. 368, 376; Webster v Bosanquet [1912] A.C.
394. If the contract was varied in a way that will affect the likely loss, the validity of the clause
should be judged by the time of the variation: Unaoil Ltd v Leighton Offshore Pte Ltd [2014]
EWHC 2965 (Comm) at [75].
1015.
Pye v British Automobile Commercial Syndicate Ltd [1906] 1 K.B. 425.
1016.
[1905] A.C. 6, 17; Webster v Bosanquet [1912] A.C. 394; Cooden Engineering Co Ltd v
Stanford [1953] 1 Q.B. 86; cf. Bridge v Campbell Discount Co Ltd [1962] A.C. 600 (below,
para.26-216C).
1017.
Kemble v Farren (1829) 6 Bing. 141. See also Astley v Weldon (1801) 2 B. & P. 346; Wallis v
Smith (1882) 21 Ch. D. 243, 256–257. The breach may involve more than a failure to pay:
Thos. P. Gonzales Corp v F. R. Waring (International) Pty Ltd [1986] 2 Lloyd’s Rep. 160, 163. A
discount for prompt payment, however, was held not make the undiscounted sum a penalty; nor
was it a penalty where a loan agreement provides for a modest increase in the rate of interest,
which operates only from the date of the borrower’s default: Lordsvale Finance Plc v Bank of
Zambia [1996] Q.B. 752 (a 1 per cent increase: if, however, the increase operated
retrospectively, it might be a penalty. On this case see further below, paras 26-193—26-194);
cf. Jeancharm Ltd v Barnet Football Club Ltd [2003] EWCA Civ 58, [2003] 92 Con. L.R. 26
(interest rate for late payment of 5 per cent per week held to be a penalty).
Page 8
1018.
Lord Elphinstone v Monkland Iron & Coal Co Ltd (1886) 11 App. Cas. 332, 342. See Kemble
v Farren (1829) 6 Bing. 141, 148; Magee v Lavell (1874) L.R. 9 C.P. 107, 115; Ford Motor Co v
Armstrong (1915) 31 T.L.R. 267 (see below, para.26-189); Michel Habib Raji Ayoub v Sheikh
Suleiman [1941] 1 All E.R. 507, 510; Cooden Engineering Co Ltd v Stanford [1953] 1 Q.B. 86,
98; Interoffice Telephones Ltd v Robert Freeman Co Ltd [1958] 1 Q.B. 190, 194. The parties, in
such a case, should fix separate sums for the various possible breaches: Imperial Tobacco Co
v Parslay [1936] 2 All E.R. 515.
1019.
See Clydebank Engineering & Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y
Castaneda [1905] A.C. 6, 11; Webster v Bosanquet [1912] A.C. 394, 398; English Hop Growers
Ltd v Dering [1928] 2 K.B. 174; Imperial Tobacco Co v Parslay [1936] 2 All E.R. 515, 519;
Philips Hong Kong Ltd v Att-Gen of Hong Kong (1993) 61 Build. L.R. 49, 60 PC (the impact of
delay by one contractor on other contracts). Some of the clauses that were justified under this
category in particular, including the Dunlop case itself, may now be better viewed as cases of
legitimate deterrence: see below, para.26-197.
1020.
cf. United International Pictures v Cine Bes Filmcilik ve Yapimcilik AS [2003] EWCA Civ 1669
at [15].
1021.
“That the contractual function is deterrent rather than compensatory can be deduced by
comparing the amount that would be payable on breach with the loss that might be sustained if
breach occurred”. Lordsvale Finance Plc v Bank of Zambia [1996] Q.B. 752, 762, Colman J.
1022.
[2015] UKSC 67, [2015] 3 W.L.R. 1373.
1023.
1024.
1025.
[2015] UKSC 67 at [32].
1026.
Lord Dunedin’s proposition (4)(a) above, para.26-182.
1027.
Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] Build. L.R. 271 (TCC) at [48]
(Jackson J.).
1028.
[2005] EWCA Civ 963, [2005] I.R.L.R. 946.
1029.
See also Jackson J. in Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] Build. L.R.
271 (TCC) at [48].
1030.
[2005] EWCA Civ 963 at [43]; see too the judgments of Clarke and Buxton L.JJ. at [105] and
[114] respectively. See also Cleeve Link Ltd v Bryla [2014] I.R.L.R. 86 EAT.
1031.
Lansat Shipping Co Ltd v Glencore Grain BV (The Paragon) [2009] EWHC 551 (Comm),
[2009] 1 Lloyd’s Rep. 658 at [24]. See also para.26-197.
1032.
Note that under the approach taken in the Cavendish Square and ParkingEye cases, a clause
may be valid even if it is not a genuine pre-estimate of the loss: see below, para.26-197.
1033.
MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2015] EWHC 283 (Comm) at
[70]–[71], referring to dicta in Abrahams v Performing Rights Society Ltd [1995] I.C.R. 1028,
Page 9
1040–1041. However, in a contract in which the liquidated damages were only payable while
the contract remained on foot, the innocent party was not entitled to ignore a repudiation and
keep the contract alive so as to be able to continue to claim liquidated damages, as they would
have no legitimate interest is doing so: at [94]–[105]. The Court of Appeal [2016] EWCA Civ 789
agreed (at [43]) though it decided the case on other grounds: see above, para.26-106.
1034.
MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2015] EWHC 283 (Comm) at [113].
If the relevant clause purported to give the innocent party an unfettered right to ignore the
repudiation when it had no legitimate interest is doing so, the clause would be a penalty: [2015]
EWHC 283 (Comm) at [116] (aff’d without reference to this point, [2016] EWCA Civ 789). In
Bunge SA v Nidera BV [2015] UKSC 43 Lord Sumption said the Default Clause in a GAFTA
sale contract differs from the common law paradigm in that the injured party is not required to
mitigate by going into the market and buying or selling against the defaulter, but has a
discretion whether to do so (at [28]). He did not discuss whether this might amount to a penalty,
merely remarking that there is a difference between a clause prescribing a fixed measure of
loss (such as a liquidated damages clause) and a clause providing a mechanical formula in
place of the more nuanced and fact-sensitive approach of the common law (such as the GAFTA
clause) (at [26]). With respect, a formula for measuring damages may also amount to a penalty
if it produces results that are much greater than the damages that would be recoverable at
common law: Lombard North Central Plc v Butterworth [1987] Q.B. 527. In contrast, Lord
Toulson (with whom the other members of the Court agreed) did not think the GAFTA formula
excluded the duty to mitigate (at [62]). In Novasen SA v Alimenta SA [2013] EWHC 345
(Comm), [2013] 1 Lloyd’s Rep. 648 at [18], Popplewell J. said that the Default Clause did not
constitute a penalty clause, applying his dicta in Imam-Sadeque v Bluebay Asset Management
(Services) Ltd [2012] EWHC 3511 (QB).
1035.
See Vol.I, paras 26-107—26-134.
1036.
Robophone Facilities Ltd v Blank [1966] 1 W.L.R. 1428, 1447–1448 (Diplock L.J.). The
agreed sum may take account of loss likely to be suffered which may not fall within the normal
remoteness test: Robert Stewart & Sons Ltd v Carapanayoti & Co Ltd [1962] 1 W.L.R. 34, 39;
Philips Hong Kong Ltd v Att-Gen of Hong Kong (1993) 61 Build. L.R. 49, 60–61 (the agreed
sum may be justified by knowledge of “special circumstances”).
1037.
Goetz & Scott (1977) Columbia L.R. 554, 572–573.
1038.
See Vol.I, paras 26-144—26-146.
1039.
The question whether the parties may give their own meaning to “loss” is mentioned below,
para.26-192, text after n.994.
1040.
[2015] UKSC 67, [2016] A.C. 1172; see below, paras 26-196 et seq.
1041.
See Vol.I, paras 26-051—26-054.
1042.
See Vol.I, para.26-053, n.295.
1043.
1044.
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] A.C. 79; English Hop
Growers Ltd v Dering [1928] 2 K.B. 174; Imperial Tobacco Co v Parslay [1936] 2 All E.R. 515;
Robophone Facilities Ltd v Blank [1966] 1 W.L.R. 1428, 1447; Philips Hong Kong Ltd v Att-Gen
of Hong Kong (1993) 61 Build. L.R. 49 (the loss to a governmental body caused by delay in
construction was especially difficult to assess).
Page 10
1045.
1046.
See below, para.26-191, for graduated damages.
1047.
Commissioner of Public Works v Hills [1906] A.C. 368, 376.
1048.
On the question of the application of the penalty rules to this kind of clause, see below,
para.26-216, esp. at n.1118m.
1049.
Commissioner of Public Works v Hills [1906] A.C. 368, 376 (followed in Jobson v Johnson
[1989] 1 W.L.R. 1026, 1036).
1050.
Compare the situation where the hirer exercises an option, below, para.26-216C.
1051.
Lamdon Trust Ltd v Hurrell [1955] 1 W.L.R. 391; Bridge v Campbell Discount Co Ltd [1962]
A.C. 600. (“It is a sliding scale of compensation, but a scale that slides in the wrong direction”:
at 623.) See also Anglo-Auto Finance Co Ltd v James [1963] 1 W.L.R. 1042; United Dominions
Trust (Commercial) Ltd v Ennis [1968] 1 Q.B. 54.
1052.
See r.4(c) in Lord Dunedin’s propositions, above, para.26-182. See Makdessi v Cavendish
Square Holdings BV [2013] EWCA Civ 1539 at [64]–[74].
1053.
Wallis v Smith (1882) 21 Ch. D. 243; Pye v British Automobile Commercial Syndicate Ltd
[1906] 1 K.B. 425; Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] A.C. 79
; Philips Hong Kong Ltd v Att-Gen of Hong Kong (1993) 61 Build. L.R. 49, 62–63 (Privy Council
refers to: “… the error of assuming that, because in some hypothetical situation the loss
suffered will be less than the sum quantified in accordance with the liquidated damage
provision, that provision must be a penalty”). This suggests that the validity of a clause should
be judged by its normal operation: Peel, Treitel on The Law of Contract, 14th edn (2015),
para.20–131.
1054.
[1915] A.C. 79.
1055.
The House of Lords took the view that the £5 did not apply to the second and third obligations
(not to sell to prohibited person, and not to exhibit without permission).
1056.
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] A.C. 79, 95–96. See
also Galsworthy v Strutt (1848) 1 Ex. 659, 666–667. Again, in some cases of this type the
claimant may now be seen as having a legitimate interest in deterring breach, see below,
para.26-197.
1057.
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] A.C. 79, 99; English
Hop Growers Ltd v Dering [1928] 2 K.B. 174, 182.
1058.
(1915) 31 T.L.R. 267.
1059.
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] A.C. 79, 87.
1060.
[1915] A.C. 79, 98.
1061.
The cases on covenants in restraint of trade, such as Crisdee v Bolton (1827) 3 C. & P. 240;
Page 11
Price v Green (1847) 16 M. & W. 346, 354; Reynolds v Bridge (1856) 6 E. & B. 528, 541, have
generally treated the sum payable for a breach as a sum stipulated for the breach of a single
obligation, although it “is capable of being broken more than once, or in more ways than one”:
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] A.C. 79, 98 (see also at
92–93); Law v Redditch Local Board [1892] 1 Q.B. 127, 136.
1062.
Cleeve Link Ltd v Bryla [2014] I.R.L.R. 86 (EAT) (clause upheld when not extravagant in
relation to maximum loss, though loss would vary significantly depending on how soon breach
occurred).
1063.
[2015] UKSC 67, [2016] A.C. 1172 at [255].
1064.
Makdessi v Cavendish Square Holdings BV [2013] EWCA Civ 1539 at [73]–[74].
1065.
[1962] A.C. 600. (“It is a sliding scale of compensation, but a scale that slides in the wrong
direction”: at 623.)
1066.
See Makdessi v Cavendish Square Holdings BV [2013] EWCA Civ 1539 at [72], where
Christopher Clarke L.J. added that “there may be some tension between” the two speeches.
1067.
See further below, paras 26-196 et seq.
1068.
Clydebank Engineering Co v Don Jose Ramos Yzquierdo y Castaneda [1905] A.C. 6; Philips
Hong Kong Ltd v Att-Gen of Hong Kong (1993) 61 Build. L.R. 49, 60 (PC); Alfred McAlpine
Capital Projects Ltd v Tilebox Ltd [2005] Build. L.R. 271 (TCC). See also Law v Redditch Local
Board [1892] 1 Q.B. 127; Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933]
A.C. 20 (above, para.26-180). The party entitled to the benefit of a liquidated damages clause
in the event of failure to complete on time cannot take advantage of it if the delay is partly due
to his own fault: Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1971) 69
L.G.R. 1, 11, 16. Demurrage under a charterparty is a case of graduated liquidated damages:
President of India v Lips Maritime Corp [1988] A.C. 395, 422–423.
1069.
Lord Elphinstone v Monkland Iron and Coal Co (1886) 11 App. Cas. 332; Diestal v Stevenson
[1906] 2 K.B. 345.
1070.
e.g. Commissioner of Public Works v Hills [1906] A.C. 368 (above, para.26-188). See also Re
Newman (1876) 4 Ch. D. 724.
1071.
Bridge v Campbell Discount Co Ltd [1962] A.C. 600. (“It is a sliding scale of compensation,
but a scale that slides in the wrong direction”: at 623.) If it slides in the right direction, the clause
is more likely to be held valid: Phonographic Equipment (1958) Ltd v Muslu [1961] 1 W.L.R.
1379. cf. Lombank Ltd v Excell [1964] 1 Q.B. 415.
1072.
Financings Ltd v Baldock [1963] 2 Q.B. 104. The principle stated in the text has been
regularly followed by the Court of Appeal: Brady v St Margaret’s Trust Ltd [1963] 2 Q.B. 494;
Charterhouse Credit Co Ltd v Tolly [1963] 2 Q.B. 683; United Dominions Trust (Commercial)
Ltd v Ennis [1968] 1 Q.B. 54; Capital Finance Co Ltd v Donati (1977) 121 S.J. 270; Lombard
North Central Plc v Butterworth [1987] Q.B. 527. See also the Australian cases cited, below,
para.26-216A, n.1118p.
1073.
In Lombard North Central Plc v Butterworth [1987] Q.B. 527 the contract contained a formula
under which the owner was entitled to arrears, all future instalments that would have fallen due
had and agreement not been terminated less a discount for accelerated payment. It omitted an
allowance for the resale value of the repossessed goods. This would have prevented it being a
Page 12
genuine preestimate of the loss, but it was held that even had it provided for an allowance, the
clause would have been a penalty for the reason stated in the text.
1074.
Lombard North Central Plc v Butterworth [1987] Q.B. 527.
1075.
1076.
The Lombard case [1987] Q.B. 527. See Treitel [1987] L.M.C.L.Q. 143; Beale (1988) 104
L.Q.R. 355.

Page 1

(c) - Commercially Justified but not a Deterrent
“Genuine pre-estimate” and “whether imposed in terrorem”
26-193
Before the decision of the Supreme Court in Cavendish Square Holding BV v Makdessi and
ParkingEye Ltd v Beavis 1077 there were a number of dicta to the effect that a clause that was not
a genuine pre-estimate at all might nonetheless be valid if it was “commercially justifiable, provided
1078
always that its dominant purpose was not to deter the other party from breach”. In Makdessi v
Cavendish Square Holdings BV 1079 Makdessi had sold shares in his advertising and marketing
business to another company, with payment to be made in stages. Ultimately Cavendish was
substituted for the original purchaser by a novation agreement and ended up holding 60 per cent of
the shares, Makdessi retaining 40 per cent. The purchaser had an option to buy the remaining
shares. Makdessi entered various non-competition covenants. Clause 5.1 provided that if Makdessi
was in breach of the non-competition clauses, he would not be entitled to further instalments of the
price; and clause 5.6 provided that, in the same circumstances, the purchaser could require him to
transfer his remaining shares at a price that was much lower than the option price, being based on
asset value alone and ignoring any element of good will. Cavendish argued that Makdessi was in
breach, refused to pay the outstanding instalments of the price and demanded that he transfer the
remaining shares at the reduced value. Makdessi argued that clauses 5.1 and 5.6 were penalty
clauses and unenforceable. Christopher Clarke L.J., with whom the other members of the court
agreed, distinguished the traditional “genuine pre-estimate” approach from the “new approach” and
said that the recent cases:
“… show the court adopting the broader test of whether the clause was extravagant and
unconscionable with a predominant function of deterrence; and robustly declining to do
so in circumstances where there was a commercial justification for the clause. That this is
a reversion to the foundation of the doctrine is apparent from the observations of Lord
Halsbury in Clydebank Engineering when he asked of the relevant clause:
‘whether it is, what I think gave the jurisdiction to the Courts in both countries to
interfere at all in an agreement between the parties, unconscionable and extravagant,
and one which no Court ought to allow to be enforced’.” 1080
Christopher Clarke L.J. made it clear that in his view, deterrence is not recognised as a commercial
1081 1082
justification. He then applied the two tests sequentially. The clauses, which would
Page 2
result in the seller of a business who had broken various undertakings not to compete receiving
millions of dollars less in consideration, were held to be neither a genuine pre-estimate of the buyers’
likely loss 1083 nor commercially justified. Although it had been argued that the clauses were part of
a commercial bargain, reached after extensive negotiation, as to the price at which shares in the
Company were to change hands:
“The underlying rationale of the doctrine of penalties is that the Court will grant relief
against the enforcement of provisions for payment (or the loss of rights or the compulsory
transfer of property at nil or an undervalue) in the event of breach, where the amount to
be paid or lost is out of all proportion to the loss attributable to the breach. If that is so, the
provisions are likely to be regarded as penal because their function is to act as a
deterrent.
That seems to me the position here. The payment terms of clauses 5.1 and 5.6 do not
serve to fulfil some justifiable commercial or economic function such as is exemplified in
the cases—a modest extra interest in respect of a defaulting loan; a provision for the
payment of the costs of earlier litigation; a generous measure of damages for wrongful
dismissal; an allocation of credit risk; or the provision of capital which would be needed if
a promised guarantee of a loan was not forthcoming …” 1084
As will be seen in the next section, the Supreme Court 1085 reversed this decision, holding that a
clause may be valid even if it clearly has a deterrent function, provided that the party to whom the
sum will be paid has a legitimate interest in securing performance rather than damages, and the
amount payable or other consequence if the contract is broken is not extravagant and unconscionable
in comparison to that interest. 1086
“Commercial justifications” and “legitimate interests”
26-194
It seems likely that the “commercial justifications” given in the cases referred to in this section and
listed by Christopher Clarke L.J. in the passage cited in the previous paragraph, would also constitute
legitimate interests 1087 within the meaning of the Supreme Court’s new test. 1088 If that is
correct, there is no further need to refer to “commercial justification” as a test of whether an agreed
damages or similar clause is valid or a penalty.
1077.
[2015] UKSC 67, [2016] A.C. 1172.
1078.
Lordsvale Finance Plc v Bank of Zambia [1996] Q.B. 752, 762–764; United International
Pictures v Cine Bes Filmcilik ve Yapimcilik AS [2003] EWCA Civ 1669 at [15]; and semble,
Arden L.J. in Murray v Leisureplay Plc [2005] EWCA Civ 963, [2005] I.R.L.R. 946 (Clarke and
Buxton L.JJ. preferred to decide the case on the basis that given the difficulty of forecasting the
possible effect on the claimant’s employability and how quickly he would be able to obtain other
employment, the sum payable was not, in the words of Lord Dunedin in the Dunlop case,
“extravagant and unconscionable in amount in comparison with the greatest loss that could
conceivably be proved to have followed from the breach” see [2005] EWCA Civ 963 at [105]
and [114]–[115]). See also Euro London Appointments Ltd v Claessens International Ltd [2006]
EWCA Civ 385, [2006] 2 Lloyd’s Rep. 436 at [30]; General Trading Co (Holdings) Ltd v
Richmond Corp Ltd [2008] EWHC 1479 (Comm), [2008] 2 Lloyd’s Rep. 475.
Page 3
1079.
[2013] EWCA Civ 1539; for an account of the Supreme Court decision in this case, [2015]
UKSC 67, see below, para.26-197.
1080.
[2013] EWCA Civ 1539 at [104]. The reference is to Clydebank Engineering & Shipbuilding
Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905] A.C. 6.
1081.
[2013] EWCA Civ 1539 at [125].
1082.
[2013] EWCA Civ 1539 at [105]–[117] and [118]–[123].
1083.
[2013] EWCA Civ 1539 at [105]–[117].
1084.
[2013] EWCA Civ 1539 at [120]–[121].
1085.
[2015] UKSC 67, [2016] A.C. 1172.
1086.
1087.
On what constitutes a legitimate interest see below, para.26-198.
1088.
Lord Hodge said that the broader approach adopted in this group of cases “involves a correct
analysis of the law” (at [225]; see also at [246]).

Page 1

(d) - Deterrence to Protect a Legitimate Interest
Permissible deterrence in protecting broader interests
26-195
The first modern decision that a clause requiring a sum that is not a genuine pre-estimate of the
loss that will be suffered by the other party, and which is clearly aimed at deterrence, may
nonetheless be a valid liquidated damages clause was the decision of the Court of Appeal in
ParkingEye Ltd v Beavis. 1089 The claimants operated a car park at a retail park on behalf of the
owners. Motorists were allowed to park free of charge for up to two hours after which they should
leave, but a “failure to comply” would result in a parking charge of £85. Moore-Bick L.J., with whom
the other members of the court agreed, said the claimants would suffer no direct loss if the motorists
overstayed the two hours; it had only an indirect commercial interest in that if it did not deliver the
1090
service required by the owners of the retail park it might lose its contract and its reputation.
1091
There was also a social interest, in that consumers and retailers would benefit from having
1092
free parking for limited periods. Although it was clear that the principal purpose of the parking
charge was to deter motorists from overstaying, a charge designed to protect a combination of
indirect commercial interests and social interests might be valid, provided that it was not manifestly
excessive. The judge at first instance had taken the correct approach when he held that the charge
was neither improper in its purpose nor manifestly excessive in its amount, having regard to the level
of charges imposed by local authorities and others for overstaying in public car parks. 1093 While in
1094
a purely commercial context a “dominant purpose of deterrence” had been equated to
extravagance and unconscionability, in the context of the case that was not the case. 1095 An
appeal in the ParkingEye case was heard by the Supreme Court along with the appeal in the
Makdessi case 1096 ; as will be explained in the next paragraph, the Supreme Court 1097 rejected
the appeal in the ParkingEye case, upholding the £85 charge on an even wider ground than had the
Court of Appeal.
Penalty doctrine confirmed
26-196
The appeals from Makdessi v Cavendish Square Holdings BV 1098 and ParkingEye Ltd v Beavis
1099
were heard together by a seven-justice panel of the Supreme Court. 1100 The Court did not
accept the argument made by counsel for Cavendish that the rule against penalty clauses should be
Page 2
or confined to cases in which the parties did not meet “on an equal playing field” 1102 ; although
consumers are protected by the statutory power to strike down terms that are unfair, the doctrine
1103
serves a useful role in business to business contracts. In particular small businesses might
1104
need the protection offered by the doctrine. To abolish the doctrine would be inconsistent with
the provisional recommendations of the Law Commission and the recommendations of the Scottish
1105
Law Commissions, and out of line with other jurisdictions both elsewhere in the common law
1106
world and in Europe.
Protecting legitimate interests
26-197
1107
However, the Supreme Court in Cavendish Square and ParkingEye was unanimous that
the decision in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd, 1108 had been
interpreted too narrowly. Lord Dunedin had not intended to lay down a strict code, and the other Lords
had not adopted to his reasoning in full. In particular Lord Atkinson had upheld the clause requiring
payment of £5 for every tyre sold at less than the list price not because it was hard to estimate the
loss from the particular breach but because Dunlop had a broader interest to protect, namely its
system of price maintenance. 1109 As Lord Mance put it 1110 :
“It is clear … that a concern can protect a system which it operates across its whole
business by imposing an undertaking on all its counterparties to respect the system,
coupled with a provision requiring payment of an agreed sum in the event of any breach
of such undertaking. The impossibility of measuring loss from any particular breach is a
reason for upholding, not for striking down, such a provision. The qualification and
safeguard is that the agreed sum must not have been extravagant, unconscionable or
incommensurate with any possible interest in the maintenance of the system, this being
for the party in breach to show.”
A clause may be valid even if it does not represent a genuine pre-estimate of the loss, and even
though it is aimed at deterring a party from breaking the contract, provided that the other party can
show a legitimate commercial interest in deterring the breach rather than simply being entitled to
damages 1111 and that the clause is not extravagant or unconscionable in proportion to that
interest. Lords Neuberger and Sumption said:
“The true test is whether the impugned provision is a secondary obligation which imposes
a detriment on the contract-breaker out of all proportion to any legitimate interest of the
innocent party in the enforcement of the primary obligation. The innocent party can have
no proper interest in simply punishing the defaulter. His interest is in performance or in
some appropriate alternative to performance. In the case of a straightforward damages
clause, that interest will rarely extend beyond compensation for the breach, and we
therefore expect that Lord Dunedin’s four tests would usually be perfectly adequate to
determine its validity. But compensation is not necessarily the only legitimate interest that
the innocent party may have in the performance of the defaulter’s primary obligations.”
1112
Cavendish had a legitimate interest in preserving the good will for which it was paying such a large
1113
amount ; it would be hard to prove the loss flowing from any breach of the non-competition
Page 3
covenants; the seller’s loyalty was critical and indivisible 1114 and therefore it was legitimate to
deter Makdessi from any breach. Likewise, in the ParkingEye case there was clearly a legitimate
1115
interest in ensuring that motorists did not stay longer than two hours. Therefore Cavendish’s
appeal succeeded but Beavis’ failed.
“Legitimate interest”
26-198
In Makdessi v Cavendish Square Holdings BV and ParkingEye Ltd v Beavis 1116 the Supreme
Court held that an agreed damages clause or other type of clause that falls within the scope of the
1117
penalty doctrine will be valid if it is designed to protect a legitimate interest of the innocent
party and the amount involved is not extravagant or unconscionable in proportion to that interest. 1118
Punishment of the party in breach is not a legitimate purpose. 1119 The Supreme Court decided
that when shares in a company that has been purchased will be of little value to the buyer if the seller
is not loyal, as in the Cavendish Square case, or if a perfectly lawful scheme will not work unless
there is an effective deterrent, as in the ParkingEye case, and damages will not provide an adequate
sanction, there is a legitimate interest in deterrence and a sum that is designed to deter will not be
penal, provided that it is not extravagant or unconscionable compared to the relevant legitimate
interest. 1120 What general factors are relevant to whether the claimant has a legitimate interest for
this purpose?
Difficulty of proving loss
26-199
Lords Neuberger and Sumption referred to a legitimate interest in obtaining performance rather
than merely damages 1121 ; and, in support of their argument that in fashioning the rules on
remedies the law takes into account legitimate interests, referred to the rule that specific performance
may be available (subject to other constraints) if the innocent party has “a legitimate interest
extending beyond pecuniary compensation for the breach”. 1122 In each of the cases before the
court, it seems that damages would not be adequate compensation, nor be adequate as a deterrent
to breach, as it would be hard to prove what loss, if any, flowed from any particular breach. 1123
The same was true in the case of in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd,
1124
in which a payment of £5 per tyre sold at below the list price was upheld.
Difficulty in detection
26-200
A related factor is that damages for each individual breach will not be an effective remedy if it will
be hard for the claimant to detect breaches by the defendant. 1125
Substitute not available
26-201
Page 4
The analogy drawn with specific performance indicates that it would also suffice that the contract
was for a unique piece of property, so that the claimant would be unable to purchase a substitute. 1126
The case would presumably be even stronger if the claimant might suffer consequential loss
(such as a reduction in trading profits that might have been made using a unique vessel 1127 ) that
is again hard to prove or quantify. It is submitted that a party may also have a legitimate interest in
deterring the defendant from breaching a contract to provide services if it will be difficult for the
claimant to obtain the services from a replacement contractor, even though specific performance of
the contract might not be granted for other reasons, such as that because it would involve personal
service 1128 or because it might require the court to supervise performance. 1129
Loss suffered by third party
26-202
In the ParkingEye case, there was an additional reason for damages being inadequate: the loss
caused by the motorist overstaying the two hours free parking would be suffered not by ParkingEye
Ltd but by the operator of the retail park and by members of the public who wished to use it. It is not
only the legitimate interests of the contracting party that count for this purpose. 1130 It may be
added that this appears to be a form of consequential loss that would not be recoverable under the
principles that exceptionally permit a party to a contract to recover damages on the basis that the
1131
promisee has not received the benefit that he contracted for, nor to be within the cases that
1132
have permitted a promisee to recover for loss that is suffered by a third party. In Beswick v
1133
Beswick the majority considered that the promisee could recover only nominal damages, while
the third party suffered the real loss, and that therefore specific performance was an appropriate
remedy. It seems the presence of similar factors will mean that the promisee has a legitimate interest
in securing performance rather than relying on the remedy of damages.
Insolvency risk
26-203
The possible insolvency of either party may also be a relevant factor, at least when it is the
claimant’s solvency that is at risk. A factor that has sometimes been taken into account in deciding
whether to grant specific performance (or, on the facts of the case, an injunction against breach) is
1134
that the defendant may not be able to pay any damages. It is not evident that the defendant’s
1135
inability to pay damages can by itself give the claimant a legitimate interest in deterring breach
by imposing liability for “deterrent” liquidated damages, which would mean the defendant paying even
greater sums. Conversely, it has been said to be a relevant factor to specific performance that delay
is likely to be encountered in securing the actual payment of any damages and that the claimant
might become insolvent before they are paid. 1136 It is submitted that this may be relevant to an
agreed damages clause. The claimant clearly has a legitimate interest in remaining solvent, and if the
contract is sufficiently important to the claimant’s financial state that non-performance by the
defendant coupled with a likely delay in recovering the damages would put the claimant’s solvency at
serious risk, the claimant seems to have a legitimate interest in performance rather than damages.
Preference for performance
26-204
Page 5
Specific performance will not be awarded merely because the claimant would prefer performance
to damages, if damages would be (or are likely to be) an adequate remedy. Equally, it is submitted
1137
that, despite another analogy which will be considered in the next paragraph, the decision in
1138
the Cavendish Square case does not mean that a party who simply has a preference for
performance (which would presumably include most contracting parties, unless they have come to
regret entering the contract) has a legitimate interest in deterring breach sufficient to justify an agreed
damages clause that is aimed at deterring breach rather than being a genuine pre-estimate of the
loss. To put the point another way, whether the claimant has a legitimate interest in performance
rather than damages seems to be an objective test. 1139 It is submitted further that the claimant
would not be able to overcome this by showing that it had paid a higher price to the defendant than it
would have had to pay had the clause not been included in the contract.
Continuing performance after a repudiation
26-205
1140
Lords Neuberger and Sumption also referred to the line of cases, starting with a dictum of
Lord Reid in White & Carter (Councils) Ltd v McGregor, 1141 to the effect that a party faced with a
wrongful repudiation by the other party may, if he is able to continue to perform his part of the contract
without the repudiating party’s co-operation, ignore the repudiation, perform his part and sue for the
agreed price unless he has no legitimate interest in doing so. The Court of Appeal has accepted the
“no legitimate interest” restriction as part of the law. 1142 But in the context of repudiation, the
concept of legitimate interest operates not as a reason for allowing an additional remedy but as a
restriction on the right to keep the contract in force, a restriction that allows the right to be exercised
except in fairly extreme cases. Facts that have been mentioned as possibly justifying an innocent
party in continuing to perform and claiming the price despite the repudiation have included that the
shipowner faced with a wrongful repudiation by the charterer would, if the owner could not claim the
hire, be left with the burden of re-letting the ship rather than the charterer having to find a use for it 1143
; that the charter hire might have been assigned to a bank as security for a loan 1144 ; that if the
innocent party had to claim damages from a repudiating party who was in financial difficulties, the
defendant’s funds might have been directed elsewhere before the damages were paid 1145 ; and
the fact that an innocent ship owner would be left “in a difficult market where a substitute time charter
was impossible, and trading on the spot market very difficult”. 1146 The innocent party has been
held to have a legitimate interest in performing “unless maintaining the contract can be described as
1147
‘wholly unreasonable’, ‘extremely unreasonable’ or, as Popplewell J. put it after surveying the
cases, “perhaps, in my words, ‘perverse”’. 1148 An arbitrator’s decision that the shipowner had no
legitimate interest in continuing to claim the hire under a charter because the owner could re-let the
ship on the spot market and claim damages from the charter was held to be a misapplication of the
law. 1149 So it is not clear that the analogy of the White & Carter cases will provide helpful
guidance on the meaning of legitimate interest in the context of the penalty rule. The Supreme Court
seemed to regard a legitimate interest in obtaining performance rather than recovering damages as
exceptional, 1150 not as applying unless seeking to obtaining performance would be wholly
unreasonable. It is submitted that the fact that the claimant would be faced with having to go into an
uncertain market in order to mitigate its loss does not give it a legitimate interest sufficient to support
a clause that is aimed at deterring breach rather than being a pre-estimate of loss. However, when
the amount of loss is hard to predict the claimant will no doubt still be given a “generous margin” 1151
before the pre-estimate will be treated as extravagant or unconscionable and therefore a penalty.
Analogy to account of profits

Page 6
26-206
A further possible analogy, though not mentioned by the Supreme Court in the Cavendish Square
case, 1152 are the cases in which a claimant is permitted to recover an account of the profit 1153
or, at least damages on the “Wrotham Park” basis, 1154 in other words, a share of the profit that the
defendant has made through breaking the contract. An account of profit was awarded in Att-Gen v
Blake 1155 after Blake had written and published a book in breach of the confidentiality agreement
made by him when he entered the Secret Intelligence Service. The circumstances were said to be
“exceptional”, but Lord Nicholls said:
“The court will have regard to all the circumstances, including the subject matter of the
contract, the purpose of the contractual provision which has been breached, the
circumstances in which the breach occurred, the consequences of the breach and the
circumstances in which relief is being sought. A useful general guide, although not
exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant’s
profit-making activity and, hence, in depriving him of his profit.
It would be difficult, and unwise, to attempt to be more specific …” 1156
Presumably the government would equally have had a sufficient legitimate interest to justify a clause
requiring ex-employees who broke the confidentiality agreement to pay a sum that was designed to
be a deterrent. Later cases have emphasised that for an account of profits to be appropriate the
circumstances must be exceptional, and this has been taken to mean that an account of profits will
not normally be appropriate in a commercial case, 1157 though it is certainly possible. 1158 To
date an account of profits has been awarded in commercial circumstances only in one case at first
instance. In Esso Petroleum Co Ltd v Niad Ltd 1159 the defendant had agreed to participate in a
“Price Watch” scheme under which participating petrol stations agreed not to sell at above set prices.
The defendant broke the agreement by selling at higher prices. The claimants were unable to show
what loss this had caused them but it was held that they had a strong interest in performance and an
account of profits was ordered. Though Esso’s aim was to prevent dealers from selling petrol at
higher prices than permitted by the scheme, rather than to prevent sales at less than a list price, in
other respects the facts are quite similar to those of Dunlop Pneumatic Tyre Co Ltd v New Garage &
Motor Co Ltd, 1160 and it seems clear that Esso would have had a sufficient legitimate interest to
justify a clause requiring dealers who broke the agreement to pay a sum that was designed to be a
deterrent, provided the sum set was not extravagant or unconscionable in proportion to Esso’s
interest. Moreover, it seems likely that an agreed damages clause that was calculated to take away
any profit that the dealer might make by selling at higher than the set price would be proportionate to
Esso’s legitimate interest in deterring this kind of breach of contract by dealers. 1161 Beyond this,
however, it is hard to gain much guidance from a class of cases that by definition are exceptional.
Analogy to “Wrotham Park” damages
26-207
In cases in which the claimant has found it impossible or difficult to show that it has suffered a loss
as the result of the defendant’s breach of contract, the courts have more often awarded what are
often now called “ Wrotham Park ” or “hypothetical bargain” damages, in other words, damages
measured by the sum that the claimant could reasonably have demanded as the price of releasing
1162
the defendant from its obligation. So where the defendant has failed to provide the services
Page 7
promised but the claimant cannot show a consequential loss, if damages cannot be awarded on the
1163
simple difference in value between the services promised and those provided, an award on
1164
the hypothetical bargain basis may be made instead. The facts do not have to be exceptional
in the way required if an account of profits is to be ordered, nor is it necessary that to deny Wrotham
Park damages would produce a manifest injustice; the question is whether an award would be a just
response. 1165 Some of the factors taken into account in deciding whether to award Wrotham Park
damages seem relevant to the question of whether the claimant has a legitimate interest in securing
performance rather than damages. 1166 These include difficulty in showing loss, even if it would be
possible for the court to make an award of general damages assessed “in a robust manner”. 1167
Although it had been said that “the inability to demonstrate identifiable financial loss of the
conventional sort is a pre-condition to the award of such damages”, 1168 in One Step (Support) Ltd
v Morris-Garner the Court of Appeal declined to follow this dictum and held that Wrotham Park
damages may be awarded when it will be very difficult to prove the loss that has been caused by the
1169
breach. It may also be relevant that it would be difficult for the claimant to obtain interim relief.
1170
These factors seem to reflect similar ones that were suggested earlier. In any event, it was
suggested earlier that loss of a hypothetical bargain is a kind of loss that may form part of a genuine
pre-estimate of the loss. 1171 If that is correct, no further legitimate interest need be shown to justify
an agreed damages clause that is designed to deter breach in circumstances in which “Wrotham Park
” damages might be available.
Capturing any profit from breach
26-208
A further possible reason for including an agreed damages clause that fixes the sum to be paid at a
sum much greater than the pre-estimated loss is that, even though damages will in other respects be
an adequate remedy for the claimant’s losses, the claimant considers that the defendant may break
the contract in order to make a greater profit and wants to be able to claim the whole of the profit, not
just a share of it as under the approach discussed in the last paragraph. If damages would be
adequate, 1172 it seems unlikely that the claimant would be treated as having a legitimate interest
in capturing the whole of the defendant’s profit. In Co-operative Insurance Society Ltd v Argyll Stores
(Holdings) Ltd 1173 Lord Hoffmann expressed the concern that in some circumstances an award of
specific performance may allow “the plaintiff to enrich himself at the defendant’s expense” by
negotiating an excessive price for releasing the defendant from performance; one that “exceeds the
value of performance to the plaintiff and approaches the cost of performance to the defendant”. 1174
A similar concern would prevent a court holding that a claimant has a legitimate interest in a clause
that is designed to capture the whole of, or a large share in, any profit that the defendant might make.
1175
Part of a legitimate scheme
26-209
The decision in the ParkingEye case 1176 may also be explained, without having to show that a
breach of the contract would cause the claimant to suffer a loss that would not be compensable (or
indeed, any loss at all) on the basis that the charge was an essential part of a lawful scheme. 1177
Conclusion on legitimate interest

Page 8
26-210
It is submitted that a claimant will have a sufficient legitimate interest in obtaining performance
rather than damages to justify an agreed damages clause that is intended to deter breach, rather than
as a pre-estimate of loss, in the following situations:
–
if the claimant would face serious difficulties in proving what loss, if any, flowed from the breach
1178
;
–
1179
if the claimant would face serious difficulties in detecting whether there has been a breach
;
–
if damages will not be an adequate remedy because, if the defendant fails to perform, the
claimant will not be able to obtain substitute goods, other property or services (irrespective of
1180
the fact that specific performance of the contract might not be available for other reasons)
;
if loss will be suffered by a third party rather than by, or in addition to, the claimant 1181 ;
if having to claim damages from the defendant would put the claimant’s solvency at risk 1182 ;
–
if that even though neither the claimant nor a third party will suffer any loss through the
defendant’s breach but the claimant has an exceptional interest in ensuring that defendant
performs such that the court would award an account of profits, as in Att-Gen v Blake 1183 ; or
more generally, if deterrence is an essential element of a lawful scheme. 1184
In contrast, the claimant does not have a legitimate interest in obtaining more than damages, or
agreed damages that are substantially more than a genuine preestimate of the likely loss, merely
because the claimant would have to incur time and expense in arranging a substitute transaction, or
simply would prefer performance to claiming damages 1185 ; nor because it hopes to secure a large
share of any profit the defendant might make through breaking the contract, when damages would
otherwise be an adequate remedy. 1186
Page 9
“Not extravagant or unconscionable”
26-211
Even if the claimant can show that it has a legitimate interest in obtaining actual performance
instead of damages in lieu of performance, an agreed damages clause or other clause that is within
the penalty clause rules will not be valid if it is extravagant or unconscionable compared to the
1187
legitimate interest. Lord Mance’s reference to the sum being “not … incommensurate” and
1188
Lord Hodge’s to whether it is “wholly disproportionate” to the interest to be protected are
helpful to show what is meant.
Proportionate
26-212
“Not extravagant or unconscionable compared to the legitimate interest”, and “not

incommensurate” or “not disproportionate”, appears to mean that a sum agreed to be payable upon
breach must not be substantially more than is required in order to deter the defendant from breach.
How is this to be determined? Since the decision in ParkingEye Ltd v Beavis, 1189 there have been
1190
anecdotal reports of parking companies charging motorists who overstay the period of “free
parking” as much as £300. Is that unconscionable or disproportionate? It does not seem to matter that
the loss may vary from breach to breach. Though there is no necessary connection between
deterrence and the amount of the loss caused by a breach, a motorist who overstays by ten minutes
presumably causes less loss to the landowner and less inconvenience to the public, and is therefore
less of a threat to the claimant’s “legitimate interests” than one who overstays by six hours, but there
is no suggestion in the case that the agreed sum needs to be gradated according to the length of the
overstay in order to avoid being classed as a penalty. 1191 Some motorists will be more attentive
than others to notices setting out charges for overstaying and other breaches of the rules, and some
will be deterred more readily than others. Will a charge remain “proportionate” unless it is higher than
is needed to make even the most inattentive motorist sufficiently aware of the charges to “stop and
think” and to deter even the most thoughtless or perverse? This was not discussed in the ParkingEye
case. Rather, there were references to proportionality in another sense, their Lordships pointing out
that the £85 charge was not much greater than the fine for overstaying in many car parks operated by
local authorities, and the latter do not usually allow a period of free parking. 1192 The difficulty of
deciding what is not unconscionable or wholly disproportionate seems greater still when the breaches
that will trigger the agreed damages or other clause 1193 may be quite various in nature. A seller of
a business might breach a non-competition covenant by no more than continuing to make a few small
transactions with no intent to compete further, which would probably pose no real threat to the buyer
of the business; yet in the Cavendish Square case it was not treated as disproportionate to impose a
price reduction of millions of dollars for any breach of the covenants. The Supreme Court’s decision in
Cavendish Square case may suggest that deterrent sums will only be disproportionate if they are
excessive even for the “worst case scenario”. However, it is submitted that the decision may be
explained on the basis that the parties were of equal bargaining power and would not have agreed on
a more draconian clause than was reasonably necessary to protect the buyer’s interests. 1194 Had
the parties been less equal, the “not extravagant or unconscionable” test might have been applied in
a less generous way. If the sum is payable for any one of many different possible breaches, some of
which may be comparatively minor, it is likely to be disproportionate. 1195
“Not … extravagant”
26-213
Page 10
The word “extravagant” can be taken to mean that disproportion will not be judged harshly; as in
1196
“pre-estimate” cases, the parties will be allowed “a generous margin of error”. But otherwise it
seems “usually to amount to the same thing” as “unconscionable”. 1197
“Not … unconscionable”
26-214
It is not clear whether the word “unconscionable”, which recurs in all the judgments, was intended
to have any independent effect. Lord Toulson clearly thought “unconscionable” added nothing to
1198 1199
“extravagant”, but Lord Hodge twice refers to it as a separate requirement. Lords
1200
Neuberger and Sumption said
“the circumstances in which the contract was made are not entirely irrelevant. In a
negotiated contract between properly advised parties of comparable bargaining power,
the strong initial presumption must be that the parties themselves are the best judges of
what is legitimate in a provision dealing with the consequences of breach.”
Lord Mance also said that 1201
“… the extent to which the parties were negotiating at arm’s length on the basis of legal
advice and had every opportunity to appreciate what they were agreeing must at least be
a relevant factor.”
These statements do not appear to mean that there is a separate requirement of procedural fairness.
It seems more likely that all Lords Neuberger, Sumption and Mance meant was that if the parties
meet on more-or-less equal terms, the nonbreaching party is less likely to get away with a provision
that is disproportionate to what it needs if there is no effective bargaining pressure from the other
1202
party. This may well be one reason why the court did not question whether the provisions in
the Cavendish Square case were proportionate to the buyer’s legitimate interest. 1203
1089.
[2015] EWCA Civ 402.
1090.
[2015] EWCA Civ 402 at [25].
1091.
[2015] EWCA Civ 402 at [27].
1092.
[2015] EWCA Civ 402 at [30].
1093.
[2015] EWCA Civ 402 at [26].
1094.
Or, as Sir Timothy Lloyd put it, “where the transaction between the contracting parties can be
assessed in monetary terms, as can the effects of a breach of the contract by one party or the
other” (at [44]). To prohibit this provision would “fail to take account of the nature of the contract,
Page 11
with its gratuitous but valuable benefit of two hours’ free parking, and of the entirely legitimate
reason for limiting that facility to a two hour period” (at [49]).
1095.
[2015] EWCA Civ 402 at [27]. The Court also held that the term was not unfair under the
Unfair Terms in Consumer Contracts Regulations 1999: see below, para.38-251A.
1096.
1097.
[2016] A.C. 1172.
1098.
[2013] EWCA Civ 1539; for the facts, see the account of the Court of Appeal decision in this
case, above, para.26-193.
1099.
[2015] EWCA Civ 402; for the facts, see above, para.26-195.
1100.
[2016] A.C. 1172, noted by Conte (2016) 132 L.Q.R. 382, Morgan [2016] C.L.J. 11, Fisher
[2016] L.M.C.L.Q. 169 and Dawson [2016] L.M.C.L.Q. 207.
1101.
See [2015] UKSC 67 at [36], [162] (Lord Mance), [218] and [256] (Lord Hodge).
1102.
See Lord Hodge [2015] UKSC 67 at [256] and [267].
1103.
[2015] UKSC 67 at [38], [260].
1104.
Lord Mance [2015] UKSC 67 at [167]; Lord Hodge at [263].
1105.
See Lord Mance [2015] UKSC 67 at [163]; Lord Hodge at [263].
1106.
See [2015] UKSC 67 at [164]–[167] (Lords Neuberger and Sumption) and [264]–[265] (Lord
Hodge).
1107.
[2016] A.C. 1172.
1108.
[1915] A.C. 79.
1109.
[2015] UKSC 67 at [22]–[23], [135]–[139], referring to [1915] A.C. 79, 90–93. Lord Mance (at
[132]–[134]) also referred to the words of Lord Robertson in Clydebank Engineering &
Shipbuilding Co Ltd v Yzquierdo y Castaneda [1905] A.C. 6, 19.
1110.
[2015] UKSC 67 at [143].
1111.
[2015] UKSC 67 at [28]; cf. at [248]–[249] (Lord Hodge).
1112.
[2015] UKSC 67 at [32]. cf. Lord Hodge at [255], [275]. As Lord Carnwath and, on this point,
Lord Clarke (see at [291]) agreed with Lords Neuberger and Sumption, this statement may be
taken as the authoritative statement of the penalty rule. Lord Mance and Lord Hodge, with both
of whom Lord Toulson agreed on this issue (see at [292]), each gave slightly different accounts
but it is not thought that the differences between the judgments on this issue are substantial.
Page 12
1113.
[2015] UKSC 67 at [75].
1114.
[2015] UKSC 67 at [75]; and see Lord Hodge at [272]. Lord Mance’s analysis does not seem
essentially different: he said that cl.5.1 should be judged in the light of the general interest being
protected: at [179]–[180], and likewise cl.5.6 “must be viewed in nature and impact as a
composite whole as well as in context”.
1115.
[2015] UKSC 67 at [99] (Lords Neuberger and Sumption, with whom Lords Carnwath and, on
this point, Clarke, agreed), [184] (Lord Mance) and [285]–[286] (Lord Hodge). Lord Toulson,
who considered that the clause in the ParkingEye case was unfair within the meaning of the
Unfair Terms in Consumer Contracts Regulations 1999 (see below, para.38-251A), declined to
discuss whether it also amounted to a penalty at common law (at [316]).
1116.
[2015] UKSC 67: see above, para.26-197.
1117.
See below, paras 26-216 et seq.
1118.
This test was applied in Hayfin Opal Luxco 3 SARL v Windermere VII CMBS Plc [2016]
EWHC 782 (Ch) at [142] and in BHL v Leumi Abl Ltd [2017] EWHC 1871 (QB) at [44]. In First
Personnel Services Ltd v Halfords Ltd [2016] EWHC 3220 (Ch) no evidence was given to justify
a rate of interest on late payment far above both the usual commercial rate and what was
payable under the Late Payment of Commercial Debts (Interest) Act 1998; it was not justified by
the creditor’s interest in securing punctual payment having regard to its own liability to pay
employees (at [163]).
1119.
See [2015] UKSC 67 at [13] and [30] (Lords Neuberger and Sumption), [148] (Lord Mance),
[243] (Lord Hodge).
1120.
See [2015] UKSC 67 at [99].
1121.
[2015] UKSC 67 at [28]. In Vivienne Westwood Ltd v Conduit Street Development Ltd [2017]
EWHC 350 (Ch) Timothy Fancourt QC, sitting as a Deputy Judge of the High Court, said the
test is whether the claimant has a legitimate interest beyond pecuniary compensation for any
loss caused by the particular breach, so as to justify the secondary obligation (at [49]). The
interest must in performance of the tenant’s obligations, not merely in being able to claim the
higher rent that became payable in the event of the tenant failing to comply with one of its
obligations (at [52]). On the facts, the term that required the tenant, in the event of any
non-trivial breach of its obligations, to pay a substantially higher rent was out of all proportion to
the lessor’s interest in having the tenant perform every one of its obligations rather than pay
compensation for any breaches (at [63]), especially as the increased rent was payable in
addition to damages for any loss caused by the breach. The increased rent was payable with
retroactive effect from the start of the lease, but even if it had been purely prospective it would
have been a penalty (at [65]).
1122.
[2015] UKSC 67 at [30].
1123.
cf. Vol.I, para.27-008 (difficulty in quantifying damages may mean damages inadequate).
1124.
[1915] A.C. 79.
1125.
See Lord Mance [2015] UKSC 67 at [172].
1126.
On the “adequacy of damages” test and the availability of a substitute, see Vol.I, paras
Page 13
27-010 et seq.
1127.
cf. Vol.I, para.27-012 n.61.
1128.
1129.
1130.
[2015] UKSC 67 at [99].
1131.
The “broader principle” suggested by Lord Griffiths in Linden Gardens Trust Ltd v Lenesta
Sludge Disposals Ltd [1994] 1 A.C. 85. Further, even the cost of performance may be
recoverable by the promisee only if he would be able and likely to remedy the breach: see Vol.I,
para.18-056 and paras 18-063—18-068.
1132.
e.g. when the parties contemplated that the property would be transferred to a third party, the
ground of the majority decision in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd
[1994] 1 A.C. 85: see Vol.I, paras 18-057 et seq.
1133.
[1968] A.C. 58; see Vol.I, paras 18-022 and 18-051 et seq.
1134.
Evans Marshall & Co v Bertola SA (No.1) [1973] 1 W.L.R. 349, 367 (Kerr J. at first instance)
and 385 (Edmund Davies L.J.)
1135.
Insolvency of the defendant is not a ground for refusing specific performance where the
remedy is normally available as a matter of course: AMEC Properties v Planning Research &
Systems [1992] 1 E.G.L.R. 70. See Vol.I, para.27-013.
1136.
Thames Valley Power Ltd v Total Gas and Power Ltd [2006] 1 Lloyd’s Rep. 441 at [64]; see
Vol.I, para.27-016 at n.95.
1137.
1138.
[2016] A.C. 1172.
1139.
cf. above, para.26-184.
1140.
[2015] UKSC 67 at [29].
1141.
[1962] A.C. 413, 431: see Vol.I, para.26-106.
1142.
1143.
Gator Shipping Corp v Trans-Asiatic Oil SA (The Odenfeld) [1978] 2 Lloyd’s Rep. 357, 374. A
similar point was made in respect of a landlord faced with a repudiation of a lease by a tenant:
Reichman v Beveridge [2006] EWCA Civ 1659 at [31], though in that case the court also held it
was reasonable for the landlord to continue to claim the rent given that there was uncertainty
over whether English law permits a landlord who has terminated the lease to claim damages for
loss of rent (at [28]), an uncertainty that does not arise in relation to contracts in general.
Page 14
1144.
Clea Shipping Corp v Bulk Oil International (The Alaskan Trader) (No.2) [1984] 1 All E.R. 129,
137.
1145.
Isabella Shipowner SA v Shagang Shipping Co Ltd (The Aquafaith) [2012] EWHC 1077
1146.
1147.
Gator Shipping Corp v Trans-Asiatic Oil Ltd SA (The Odenfeld) [1978] 2 Lloyd’s Rep 357, 373
.
1148.
(Comm), [2012] 2 Lloyd’s Rep. 61 at [44]. In Attica Sea Carriers Corp v Ferrostaal Poseidon
Bulk Reederei GmbH (The Puerto Buitrago) [1976] 1 Lloyd’s Rep. 250 the innocent party has
been held to have no legitimate interest in claiming the hire of a chartered ship until it was
returned fully repaired, when the vessel was beyond economic repair; and in MSC
Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789 the court said there
would be no legitimate interest in claiming the demurrage in respect of containers that were
being detained by a third party with no end in sight, so that the contractual venture had become
frustrated (at [43]): see above, para.26-106.
1149.
(Comm), [2012] 2 Lloyd’s Rep. 61 at [42]. Popplewell J. seemed to doubt the decision of Lloyd
J. in Clea Shipping Corp v Bulk Oil International (The Alaskan Trader) (No.2) [1983] 2 Lloyd’s
Rep. 645, of which Popplewell J. said: “Lloyd J found it impossible to interfere with the decision
of the experienced commercial arbitrator who could not be shown to have applied the wrong
test when finding that the owners’ election to maintain the time charter (which had included 10
months of service, followed by six months of off-hire repairs) for a balance of eight months
following premature re-delivery was a commercial absurdity”.
1150.
It is probably for the claimant to show that it has a legitimate interest, whereas in the
repudiation situation it is for the party in breach to show that the innocent party has no
legitimate interest in performing: Ocean Marine Navigation Ltd v Koch Carbon Inc (The
Dynamic) [2003] EWHC 1936 (Comm), [2003] 2 Lloyd’s Rep. 693 at [23].
1151.
cf. above, para.26-185.
1152.
[2015] 3 W.L.R. 1373.
1153.
1154.
1155.
[2001] 1 A.C. 268. See Vol.I, paras 26-055 et seq.
1156.
[2001] 1 A.C. 268, 285 (per Lord Nicholls). For a more detailed consideration of the relevant
facts see Vol.I. para.26-055.
1157.
See Vol.I. para.26-055.
Page 15
1158.
See the discussion in Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323,
[2003] 1 All E.R. (Comm) 830.
1159.
[2001] All E.R. (D) 324 (Nov).
1160.
[1915] A.C. 79.
1161.
See further below, para.26-208.
1162.
1163.
1164.
Giedo van der Garde BV v Force India Formula One Team Ltd [2010] EWHC 2373 (QB).
Hamblen J. pointed out that an award was not “precluded by any of the following factors: (i) that
the claimants advanced no claim for an injunction or specific performance, or the fact that there
would have been no prospect of such an order being granted; (ii) the fact that damages are not
claimed under Lord Cairns’ Act in lieu of an injunction; (iii) the fact that the claim is not based on
a breach of a restrictive covenant; and (iv) the fact that the claim is based on breach of contract
rather than invasion of property rights” (at [533]). On the facts of the case, the loss assessed on
this basis would be same amount as the difference in value (at [559]).
1165.
One Step (Support) Ltd v Morris-Garner [2016] EWCA Civ 180 at [122] and [145]–[146].
1166.
Other facts taken into account do not seem relevant. In Experience Hendrix LLC v PPX
Enterprises Inc [2003] EWCA Civ 323, [2003] 1 All E.R. (Comm) 830 at [36], [44], [54] and [58]
the Court of Appeal used some of the factors relevant to the granting of an account of profits as
also relevant to their discretion to grant Wrotham Park damages, taking into account the fact
that the defendant “did do the very thing it had contracted not to do”; that the defendant “knew
that it was doing something which it had contracted not to do”; that it was a “deliberate breach”,
a “flagrant contravention” of the defendant’s obligation. These factors do not seem relevant to
whether or not the claimant had a legitimate interest in deterring the defendant from breach.
1167.
[2016] EWCA Civ 180 at [123].
1168.
Abbar v Saudi Economic & Development Co (SEDCO) Real Estate Ltd [2013] EWHC 1414
(Ch) at [225].
1169.
[2016] EWCA Civ 180 at [122] and [145]–[146]. It is submitted that Wrotham Park damages
may also be awarded when the conventional measure of damages would leave the claimant
undercompensated: see Vol.I, para.26-053.
1170.
cf. Longmore L.J. in One Step (Support) Ltd v Morris-Garner [2016] EWCA Civ 180 at [151]
(another wrongful competition case, in which the defendant’s furtive conduct deprived claimant
of opportunity to obtain interim relief).
1171.
1172.
As opposed to a case like Esso Petroleum Co Ltd v Niad Ltd [2001] All E.R. (D) 324 (Nov),
discussed above, para.26-206, in which the loss to the petrol supplier would be hard to prove.
1173.
[1998] A.C. 1.
Page 16
1174.
[1998] A.C. 1, 15, citing Sharpe, Studies in Contract Law (1980), 129.
1175.
It should be noted that “Wrotham Park” damages, though they compensate the innocent party
for its loss of opportunity to negotiate a price for releasing the defendant from the relevant
contractual obligations, do not have the same effect of allowing the claimant to hold out for a
large share of the profit, at least if the damages are fixed at a fairly modest share of the profit. In
Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45, [2011] 1 W.L.R. 2370
Lord Walker said that “Damages under this head … represent ‘such a sum of money as might
reasonably have been demanded by [the claimant] from [the defendant] as a quid pro quo for
[permitting the continuation of the breach of covenant or other invasion of right]” (at [48]); the
court should consider a hypothetical negotiation between a willing buyer (the contract-breaker)
and a willing seller (the party claiming damages), both parties to be assumed to act reasonably,
so that the fact that one or other would have refused to make a deal is to be ignored. But the
fact that the alternative project could not proceed unless the negative rights were bought out
can properly be taken into account (at [53]). See Vol.I, paras 26-052—26-054.
1176.
ParkingEye Ltd v Beavis [2015] UKSC 67, 2016] A.C. 1172.
1177.
See [2015] UKSC 67 at [99], [199].
1178.
1179.
1180.
1181.
1182.
1183.
1184.
As in the ParkingEye case, see above, para.26-197.
1185.
1186.
1187.
[2015] UKSC 67 at [143].
1188.
[2015] UKSC 67 at [226]–[227], [255].
1189.
[2015] UKSC 67.
1190.
Information received during seminars on the case at the Judicial College.
1191.
Nor, according to the majority, to avoid it being unfair within the meaning of the Unfair Terms
in Consumer Contracts Regulations 1999 (and now the Consumer Rights Act 2015), but see
the dissent on this point by Lord Toulson. This aspect of the case is discussed below,
para.38-251A.
Page 17
1192.
[2015] UKSC 67 at [100].
1193.
For the kinds of clause that are within the penalty rule, see below, paras 26-215 et seq.
1194.
1195.
Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch).
1196.
1197.
Lords Neuberger and Sumption [2015] UKSC 67 at [31].
1198.
[2015] UKSC 67 at [293].
1199.
Lord Hodge does not seem to have been referring to the general doctrine of unconscionable
bargains, which normally requires claimants to show they were suffering from an identifiable
bargaining weakness: see Vol.I, paras 8-133 and 8-135. The possible application of the
doctrine in cases like Cavendish Square is considered above, para.8-135.
1200.
[2015] UKSC 67 at [35].
1201.
[2015] UKSC 67 at [152].
1202.
Lords Neuberger and Sumption’s approach may also have been affected by their view that
the clauses were not subject to the penalty rules at all because they were “primary obligations”:
see below, para.26-216H.
1203.

Page 1

(e) - Scope of the Law of Penalties
Sums payable on and other consequences of breach
26-215
The penalty rules apply to sums that are payable on breach of contract by the defendant and to a
variety of other clauses that will have an adverse consequence for a defendant who is in breach the
contract, such as a clause that disentitles a defendant who is in breach from receiving the full amount
of the price that would otherwise be paid. 1204 The law on penalties is not applicable to many sums
of money payable under a contract. Thus, it is not relevant where the claimant claims an agreed sum
(a debt) which is due from the defendant in return for the claimant’s performance of his obligations,
1205
or which is due upon the occurrence of an event other than a breach of the defendant’s
1206
contractual duty owed to the claimant, though there have been suggestions that some such
clauses may be “disguised penalties” that do fall within the rules. 1207 It has also been said that
some clauses, though “triggered” by a breach by the defendant, are exempt from the rules because
they reflect the “primary obligations” of the defendant, whereas the penalty rules are said to apply
only to “secondary obligations”. 1208
1204.
1205.
White & Carter (Councils) Ltd v McGregor [1962] A.C. 413 (above, para.26-104). However, in
a contract in which the liquidated damages were only payable while the contract remained on
foot, the innocent party was not entitled to ignore a repudiation and keep the contract alive so
as to be able to continue to claim liquidated damages, as they would have no legitimate interest
is doing so: MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2015] EWHC 283 (Comm)
at [94]–[105]; the Court of Appeal [2016] EWCA Civ 789 agreed that there was no legitimate
interest in continuing to perform but because the contractual venture had been frustrated: see
above, para.26-106. The contrast between a debt and liquidated damages is drawn by the
House of Lords in President of India v Lips Maritime Corp [1988] A.C. 395, 422–423, 424.
1206.
See below, para.26-216C.
1207.
See below, para.26-216G.
1208.
See below, para.26-216H.
Page 2

Page 1

(i) - Types of Clause within the Penalty Doctrine
Types of clause within the penalty rules
26-216
In Cavendish Square Holding BV v Makdessi 1209 the Supreme Court held that the penalty
clause rules apply not only to agreed damages clauses but also to provisions that would prevent a
party who breaks the contract from receiving a sum to which it would otherwise be entitled, 1210
and also provisions that require a party in breach to transfer property to the other party at less than its
1211
full value. The Supreme Court also stated that the penalty rules also apply to deposits and
forfeiture clauses; these will be considered in a separate section. 1212
Acceleration clauses
26-216A
An “acceleration” clause is often found in contracts providing for payment by instalments: on default
in paying one instalment, all future instalments become immediately payable as one sum. Although
the operation of these clauses produces results which may be “penal”, the courts have usually
enforced them on the ground that they do not increase the contractbreaker’s overall obligation. 1213
The Court of Appeal has held that it is not a penalty for an acceleration clause in a contract of loan to
provide that, upon failure to pay an agreed instalment, the whole capital of the loan becomes
1214
immediately due and repayable. But it might be held to be a penalty if it provided that, upon
such failure, future interest (viz on payments not yet due) should be payable immediately. 1215
Termination for breach of condition
26-216B
As explained earlier, 1216 where the hirer has neither repudiated the hiring (or hire-purchase)
agreement, nor committed a “fundamental breach” of it, but the owner terminates it in the exercise of
an express power to do so conferred by the agreement, the owner’s damages are limited to loss
suffered through any breaches up to the date of the termination. 1217 It was noted, however, that
this principle does not apply where the contract made the broken term into a condition, any breach of
Page 2
which entitled the innocent party to terminate (e.g. a clause making compliance with time “of the
essence” 1218 ). In this case the innocent party may both terminate the contract and recover
damages for the loss of the bargain (viz in respect of all the outstanding obligations of the other
party). 1219 A clause that makes the hirer liable for a genuine pre-estimate of the owners’ full loss
in such a case will be valid. The Court of Appeal decided that the clause making prompt payment “of
the essence” when it would not be so otherwise 1220 is not itself subject to the law on penalties. 1221
The difference between the two types of clause (viz an express power to terminate, and a clause
making time of the essence) is “one of drafting form and wholly without substance”. 1222 The result
is that the position of the parties may be changed by a simple, small change in the terminology of the
contract which makes every term a “condition” in the sense of a term any breach of which entitles the
promisee to terminate. 1223 This follows, however, not from the law on penalties but from the firmly
established rule that the parties are free to agree that any term of the contract is a condition. 1224
1209.
[2015] UKSC 67, [2016] A.C. 1172.
1210.
See [2015] UKSC 67 at [170] (Lord Mance); [226] (Lord Hodge); Lord Toulson agreed with
both of them (at [292]). Lords Neuberger and Sumption were prepared to assume this without
deciding it (at [73]); they considered that cl.5.1 of the agreement in the Cavendish Square case
was part of the parties’ primary obligations and therefore altogether outside the penalty rules:
see below, para.26-216H. However, Lord Clarke preferred to leave this question open; he must
therefore have held that the penalty rules do apply to clauses of this type. In Gilbert Ash
(Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] A.C. 689 the House of Lords had
considered a clause entitling the contractor to “suspend or withhold” the payment of money due
to the subcontractor on any breach of contract. It had been conceded that the clause fell within
the doctrine, but a majority of the House appeared to consider that the concession was correct:
see [2015] UKSC 67 at [70], [154] and [226].
1211.
See at [170] and [183] (Lord Mance); [230] and [280] (Lord Hodge). On this point Lord Clarke
(at [291]) agreed with Lord Hodge and Lord Toulson (at [292]) with both Lord Mance and Lord
Hodge.
1212.
See below, paras 26-216N et seq.
1213.
Protector Endowment Loan Co v Grice (1880) 5 Q.B.D. 592 (a loan case); Wallingford v
Mutual Society (1880) 5 App. Cas. 685. See Goode [1982] J. Bus. L. 148; cf. Wadham Stringer
Finance Ltd v Meaney [1981] 1 W.L.R. 39, 48 (see Vol.II, para.39-272); Edgeworth Capital
(Luxembourg) Sarl v Ramblas Investments BV [2015] EWHC 150 (Comm) at [67], citing this
paragraph as it appeared in the 31st edition; the Court of Appeal, [2016] EWCA Civ 412, did not
comment on this point. The High Court of Australia has sometimes upheld acceleration clauses
(IAC (Leasing) Ltd v Humphrey (1972) 126 C.L.R. 131 (see also Vol.II, para.39-353)) but
sometimes not (holding them to be penalties): O’Dea v Allstates Leasing Systems (WA) Pty Ltd
(1983) 152 C.L.R. 359; Muir (1985) 10 Sydney L.R. 503; AMEV-UDC Finance Ltd v Austin
(1986) 162 C.L.R. 170; cf. Esanda Finance Corp Ltd v Plessing (1989) 166 C.L.R. 131.
1214.
The Angelic Star [1988] 1 Lloyd’s Rep. 122, 125, 127.
1215.
The Angelic Star [1988] 1 Lloyd’s Rep. 122. cf. Lordsvale Finance Plc v Bank of Zambia
[1996] Q.B. 752 (see above, para.26-193).
1216.
Page 3
1217.
Financings Ltd v Baldock [1963] 2 Q.B. 104. (A “minimum payment” clause specifying a larger
sum will be held to be a penalty: see above, para.26-192.) The principle stated in the text has
been regularly followed by the Court of Appeal: Brady v St Margaret’s Trust Ltd [1963] 2 Q.B.
494; Charterhouse Credit Co Ltd v Tolly [1963] 2 Q.B. 683; United Dominions Trust
(Commercial) Ltd v Ennis [1968] 1 Q.B. 54; Capital Finance Co Ltd v Donati (1977) 121 S.J.
270; Lombard North Central Plc v Butterworth [1987] Q.B. 527. See also the Australian cases
cited, above, para.26-216A, n.1118p.
1218.
See paras 21-011 et seq.
1219.
The Lombard case [1987] Q.B. 527. See Treitel [1987] L.M.C.L.Q. 143; Beale (1988) 104
L.Q.R. 355.
1220.
In the Lombard case [1987] Q.B. 527, it was held that, according to common law principles,
the hirer had not committed a repudiatory breach of the contract: at 543–545. The court
nevertheless awarded as damages at common law almost the same sum which it had
previously found not to be a genuine pre-estimate of loss (a penalty).
1221.
The Lombard case [1987] Q.B. 527, 536–537.
1222.
The Lombard case [1987] Q.B. 527, 546.
1223.
Would the law uphold a clause providing expressly that for any breach, however trivial, the
damages shall be assessed on the basis that the whole benefit of the contract has been lost by
the other party? cf. decisions on mitigation, such as The Solholt [1983] 1 Lloyd’s Rep. 605
(Vol.I, para.26-093).
1224.

Page 1

(ii) - Events other than Breach
Sum payable on event other than breach
26-216C
In Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis 1225 the Supreme
Court endorsed the view that the penalty clause rules apply only to sums payable, and equivalent
1226
consequences, that follow from a breach of contract. Previous authority was not wholly clear.
In Campbell Discount Co Ltd v Bridge, 1227 a hire-purchase agreement permitted the hirer at his
option to terminate the hiring during the period of the agreement, and provided that the hirer should
thereupon pay a sum by way of agreed compensation for the depreciation of the chattel; the Court of
Appeal held that the owner could recover the agreed sum, since being payable upon an event not
constituting a breach of the agreement, it fell outside the scope of the law as to penalties. In the
House of Lords 1228 the decision was based on a different view of the facts, 1229 but four of their
Lordships expressed obiter their views on the ruling of the Court of Appeal; two agreed that the law as
to penalties was inapplicable, but two were prepared to hold that the hirer was entitled to some relief.
1230
The later decision of the House of Lords in the Export Credits Guarantee case appeared to
1231
support the restriction of the scope of the law on penalties to payments triggered by a breach
of contract. The House held that the law did not apply to a clause providing for the contractbreaker
(the defendant) to pay a specified sum to the plaintiff upon the happening of a certain event which
was not the breach of a contractual duty owed by the defendant to the plaintiff. So it could not be a
penalty where the defendant had agreed to reimburse the plaintiff the amount paid by the plaintiff to
third parties under a guarantee (even where the plaintiff’s obligation to meet the guarantee arose on
the occasion of the defendant’s breach of his contractual duties owed to other parties). 1232
Although the case concerned a guarantee in a complex commercial arrangement and the plaintiff was
claiming only the sum it had actually lost, their Lordships’ limitation on the scope of the law on
penalties was expressed in such wide terms that it would prevent many other clauses from being
subject to that law, for example a sum payable by one party should it exercise an option as to perform
1233
at a later date than anticipated (but not required). Although statutory protection is available in
1234
some cases the common law position has been thought unsatisfactory; for instance, an honest
business hirer, who terminates his hire-purchase agreement when he finds that he cannot keep up
the instalments, is in a worse position than the hirer who simply breaks his agreement by failing to
1235
pay the instalments. The High Court of Australia had not followed the Export Credits
1236
Guarantee case, holding that a clause may be a penalty:
Page 2
“if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in

favour of a second party and this collateral stipulation, upon the failure of the primary
stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit
of the second party.” 1237
1238
However in Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis the
Supreme Court 1239 rejected this approach, which in any event they regarded as unworkable, 1240
and said that the penalty rules only come into play when a clause is triggered by a breach. 1241
Sums payable on exercise of an option under the contract
26-216D
Thus the law does not apply where one party to the contract is given an option to choose a
particular method of performance, subject to his making a stipulated payment to the other 1242 ; or
where a member of a pooling agreement failed to pay his levy to finance litigation and was excluded
from sharing in the proceeds of the litigation. 1243 It does not apply to an employee’s loss of
contingent future interests in fund units to which he would have been entitled had his employment
continued. 1244 In the Court of Appeal in the ParkingEye case it was said that the penalty rules
would not apply to an £85 charge for overstaying in an otherwise free parking facility if the
arrangement were expressed in terms of a licence to use the car park subject to conditions coupled
with an agreement to pay the charge if the conditions are not adhered to. 1245
Reimbursement is not a penalty
26-216E
If a contract provides that in a certain event a sum of money paid under the contract is to be repaid
to the original payer, the reimbursement cannot be a penalty. 1246 So where the defendant
received an insurance payment on the basis of his permanent disablement the insurers were able to
enforce his undertaking to pay them “a penalty” of the same amount if he took part in a specified sport
in future. 1247
Incentive payments
26-216F
The reverse of an agreed damages clause is an incentive payment such as an extra payment for
early completion. The law on penalties does not apply to a clause providing for an increase in the
price if certain targets in the contract are bettered or if costs are reduced; similarly, the price for a
specially-manufactured machine may be graduated according to its efficiency in operation. A
Government report has recommended that in building contracts incentive payments should be
preferred to agreed damages clauses. 1248
Disguised penalties
Page 3
26-216G
Some doubt is thrown on the division between sums payable upon breach and sums payable on
other events by the suggestion by some of their Lordships in Cavendish Square Holding BV v
Makdessi and ParkingEye Ltd v Beavis 1249 that certain clauses may amount to “disguised
penalties”. This follows a suggestion by Bingham L.J. in Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd 1250 that the clause in that case, which required a party who had hired
photographic slides to pay a much higher charge if the slides were not returned within a fixed period,
might be a “disguised penalty”. 1251 It is hard to find any support for such a concept in earlier
cases, and it is unclear how a disguised penalty differs from other sums payable if the party exercises
an option under the contract. The only possible distinction seems to be that the amount of the
payment is out of proportion to the claimant’s interest in obtaining performance—in which case the
“disguised penalty” rule would have the effect that the penalty clause rules (including the new
“legitimate deterrent rule”) would after all apply to a clause setting a price on an option that the
defendant has chosen to exercise.
1225.
[2015] UKSC 67, [2016] A.C. 1172.
1226.
1227.
[1961] 1 Q.B. 445 (following Associated Distributors Ltd v Hall [1938] 2 K.B. 83); see Vol.II,
paras 39-349—39-354. The decision is based on the non-statutory law. For statutory regulation
of hire-purchase agreements, see Vol.II, paras 39-356 et seq.
1228.
[1962] A.C. 600.
1229.
viz that the hirer had committed a breach. The law on penalties applies to a minimum
payment clause if the agreement is in fact terminated on the ground of the hirer’s breach:
Cooden Engineering Co Ltd v Stanford [1953] 1 Q.B. 86; Lamdon Trust Ltd v Hurrell [1955] 1
W.L.R. 391. See Vol.II, paras 39-349—39-354.
1230.
Export Credits Guarantee Department v Universal Oil Products Co [1983] 1 W.L.R. 399. It is
unfortunate that the short speech in this case made no attempt to discuss the opinions
expressed in the Campbell Discount case [1962] A.C. 600. See also Euro London
436 (a condition precedent imposing no obligation).
1231.
And similar events: see above, para.26-216 and below, paras 26-216N et seq.
1232.
Export Credits Guarantee Department v Universal Oil Products Co [1983] 1 W.L.R. 399.
1233.
See also Edgeworth Capital (Luxembourg) Sarl v Ramblas Investments BV [2015] EWHC 150
(Comm); [2016] EWCA Civ 412. In Berg v Blackburn Rovers Football Club & Athletic Plc [2013]
EWHC 1070 (Ch), [2013] I.R.L.R. 537 it was held that the penalty rules did not apply to a
payment due when one party to a fixed-term employment contract exercised a right to terminate
it early. In M&J Polymers Ltd v Imerys Minerals Ltd [2008] EWHC 344 (Comm), [2008] All E.R.
(D) 445 (Feb) it was held that a “take or pay” clause is subject to the penalty rules (though it
was held on the facts not to be a penalty). It is submitted that this will depend on the form of the
clause. It will not be subject to the penalty rules if the buyer is simply obliged to pay for a
minimum quantity with an option whether or not to take delivery of all the goods. On the facts of
Page 4
the case, however, it was held that the buyer was in breach of an obligation to order a certain
quantity (at [41]). See also E-Nik Ltd v Secretary of State for Communities and Local
Government [2012] EWHC 3027 (Comm) at [25] (clause requiring a customer to pay for a
minimum amount of services was treated as being subject to the penalty rules but nonetheless
upheld). In Associated British Ports v Ferryways NV [2008] EWHC 1265 (Comm), [2008] 2
Lloyd’s Rep. 353 (affirmed on other grounds [2009] EWCA Civ 189, [2009] 1 Lloyd’s Rep. 595)
it was held that the penalty rules did not apply to sums due under a “minimum through-put”
clause.
1234.
In particular under the Unfair Terms in Consumer Contracts Regulations 1999 or Consumer
Rights Act 2015 s.62: see below, Vol.II, paras 38-201 et seq. and 38-334 et seq. When the term
provides for the forfeiture of a deposit or other sum, see below, paras 26-216N et seq.
1235.
See the Law Commission’s Working Paper No.61 (1975), paras 17–26; Edgeworth Capital
(Luxembourg) Sarl v Ramblas Investments BV [2015] EWHC 150 (Comm) at [59] (rev’d on
other grounds [2016] EWCA Civ 412).
1236.
Export Credits Guarantee Department v Universal Oil Products Co [1983] 1 W.L.R. 399. It is
unfortunate that the short speech in this case made no attempt to discuss the opinions
expressed in the Campbell Discount case [1962] A.C. 600. See also Euro London
436 (a condition precedent imposing no obligation); Jervis v Harris [1996] Ch. 195, 206–207.
1237.
Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 C.L.R. 205 at [10].
1238.
[2015] UKSC 67, [2016] A.C. 1172.
1239.
Lords Neuberger and Sumption (with whom Lord Carnwath and, seemingly on this point, Lord
Clarke agreed) [2015] UKSC 67 at [42]–[43]; Lord Hodge (with whom Lord Toulson agreed) at
[241]. Note however the suggestion that a clause may be “a disguised penalty”, discussed
below, para.26-216G. Lord Mance said that the point concerning clauses that operate on
events other than breach was not up for decision but the distinction is “not without rational or
logical underpinning”: at [130].
1240.
Lords Neuberger and Sumption [2015] UKSC 67 at [42].
1241.
If the sum is payable on one of several events, some of which are breaches and others are
not, the penalty rule will apply if the event that in fact triggered the payment was a breach, but
not otherwise, nor if, as on the facts of the case, it was a breach of a different contract by
another party: Edgeworth Capital (Luxembourg) Sarl v Ramblas Investments BV [2015] EWHC
150 (Comm) at [60], [69]; the Court of Appeal confirmed that the penalty rule did not apply,
[2016] EWCA Civ 412 at [7]. The death or bankruptcy of a party might be another event, not
constituting a breach, upon which money is to be paid. cf. Mount v Oldham Corp [1973] Q.B.
309 (claim for a term’s school fees in lieu of notice withdrawing a pupil).
1242.
Fratelli Moretti SpA v Nidera Handelscompagnie BV [1981] 2 Lloyd’s Rep. 47, 53; for another
example see BHL v Leumi Abl Ltd [2017] EWHC 1871 (QB) at [44].
1243.
Nutting v Baldwin [1995] 1 W.L.R. 201.
1244.
Imam-Sadeque v Bluebay Asset Management (Services) Ltd [2012] EWHC 3511 (QB), citing
the Australian case of Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd
(2008) 257 A.L.R. 292. The provision was in any event commercially justifiable and not penal
when read in the light of the contract as a whole: [2012] EWHC 3511 (QB) at [223]–[234].
Page 5
1245.
ParkingEye Ltd v Beavis [2015] EWCA Civ 402 at [23].
1246.
Alder v Moore [1961] 2 Q.B. 57 (approving Re Apex Supply Co Ltd [1942] Ch. 108).
1247.
Alder v Moore [1961] 2 Q.B. 57. Although the defendant had agreed not to take part again in
professional football, the majority considered that this was not a case in which the defendant
was in breach by so doing but of a condition on the defendant retaining the insurance payment:
see at 65 and 77.
1248.
Banwell Report (Report of the Committee on Placing and Management of Contracts for
Building and Civil Engineering Work) (HMSO, 1964), para.9.22.
1249.
[2015] UKSC 67, [2016] A.C. 1172 at [77] (Lords Neuberger and Sumption) and [258] (Lord
Hodge).
1250.
[1989] Q.B. 433.
1251.
[1989] Q.B. 433, 439. The decision rested on the ground that the clause was not incorporated
into the contract: see Vol.I, para.13-015.

Page 1

(iii) - “Primary Obligations”
Primary obligations
26-216H
In Cavendish Square Holding BV v Makdessi 1252 Lords Neuberger and Sumption (with whom
Lord Carnwath agreed) held that the clauses which provided that the seller of the business, if he was
in breach of the non-competition covenants, would not receive the outstanding instalments of the
price, and would require him to transfer further shares to the buyers at a much reduced value, were
not subject to the penalty rules at all. Even if they were triggered by the seller’s breach, clause 5.1
bore no relation to damages; it represented the reduced price that the buyer was prepared to pay for
the business if it could not count on the loyalty of the seller, and so formed part of the “primary
obligations” of the parties. 1253 The analysis of clause 5.6 was essentially similar: it represented
the reduced price that the purchaser was prepared to pay when it could not count on the loyalty of
1254
Makdessi. The law places controls over only the parties’ secondary obligations, not their
1255
primary obligations, and both clauses belong among the primary obligations, even if the
1256
occasion of their operation was a breach of contract. In any event, both clauses were justified
by the same legitimate interest in matching the price to the value that the seller was providing. 1257
Unlike an agreed damages clause, if the clauses did not stand there is no scale by which the court
could make an award. The other members of the Supreme Court either decided the case on the
1258
ground that the clauses did not amount to penalties or preferred to leave the matter open.
With respect, it is unclear how a payment (or other obligation that is within the doctrine 1259 ) that is
“triggered” by a breach of contract by the defendant but which is a primary obligation is to is to be
distinguished from an agreed damages clause. The fact that the clause is in the form of a price
reduction seems to emphasise form over substance; and while it is true that ex ante there is no
alternative scale by which the court could fix appropriate prices, when an agreed damages clause is
held to be unenforceable the court makes an ex post assessment of the actual loss suffered by the
claimant. It seems that a court could equally assess damages in terms of the reduction in value in the
shares caused by a breach by the seller of a non-competition covenant, and the valuation could
include an element for the risk that the seller who had been disloyal once may be disloyal again.
“Core” obligations rather than primary obligations
26-216I
One can understand the reluctance of judges to relieve a party from an obligation, whether it is
Page 2
correctly analysed as primary or secondary, that was negotiated with the assistance of experts and
presumably agreed to in full knowledge of its possible implications, especially one that must have
been seen as a central element of the agreement. Possibly a more useful distinction might be based
on an approach suggested by Lord Toulson during argument, as a possible substitute for the penalty
1260
clause doctrine (which the Court had been invited to abandon ). This was to borrow from the
1261
Directive on Unfair Terms in Consumer Contracts and ask whether the provision was a “core
1262
term”. “Core” terms are likely to have been considered carefully by each party, even if the
parties were not of equal sophistication or bargaining power, and therefore there is less reason to
interfere than with more peripheral clauses that may not have been fully taken into account by both
parties. The suggestion seems to be that if the change in price is so central to the deal that the party
agreeing to it must have had it in mind, it would be exempt from control as a penalty. Lord Toulson did
not, however, repeat this suggestion in his judgment.
1252.
[2015] UKSC 67, [2016] A.C. 1172.
1253.
[2015] UKSC 67 at [74]–[75]. Compare Vivienne Westwood Ltd v Conduit Street
Development Ltd [2017] EWHC 350 (Ch), in which an increased rent became payable in the
event of any breach of its obligations by the tenant: the court held that the increased rent was a
secondary obligation that was capable of being a penalty (at [49]).
1254.
[2015] UKSC 67 at [81].
1255.
[2015] UKSC 67 at [14] and [32].
1256.
[2015] UKSC 67 at [83].
1257.
[2015] UKSC 67 at [82].
1258.
Lord Mance said that cl.5.1 had the effect of revising the price payable for the shares but he
clearly considered the clause to be subject to the penalty doctrine: see [2015] UKSC 67 at
[181]; similarly, though cl.5.6 had the effect of reshaping of the parties’ primary relationship (at
[183]), it was valid because it was neither exorbitant or unconscionable (at [185]). Lord Hodge
agreed that there were “strong arguments” for regarding each clause as primary obligations to
which the doctrine does not apply: at [270] and [280]; but he decided the validity of cl.5.1 by
applying the penalty doctrine, and held that cl.5.6 was a secondary obligation, adding that “if all
such clauses were treated as primary obligations, there would be considerable scope for
abuse”. Lord Toulson agreed with the relevant parts of both Lord Mance’s and Lord Hodge’s
judgments. Lord Clarke agreed with Lord Hodge rather than with Lords Neuberger and
Sumption on these points: at [291].
1259.
1260.
1261.
93/13/EC: see Vol.II, paras 38-199 et seq.
1262.
In other words, it is the main subject matter or concerns the adequacy of the price or other
remuneration and is therefore exempt from assessment for fairness provided that it is in plain
and intelligible language, see art.4(2).
Page 3

Page 1

(iv) - “Invoicing back” Clauses
“Invoicing back” clauses
26-216J
The express terms of the contract may not only exclude or limit the innocent party’s right to claim
damages for breach of contract, 1263 but may also provide other provisions intended to apply in the
1264
event of a breach. Subject to the law as to penalties, and to the effect of the Unfair Contract
1265 1266
Terms Act 1977 or (if applicable) the Consumer Rights Act 2015, the courts will
1267
enforce these terms, despite the unexpected results which may occur. In one case, a clause in
a contract for the sale of goods provided that if the sellers made default in shipping, the contract
should “be closed by invoicing back the goods” at the closing price fixed by the London Corn Trade
Association. The sellers failed to ship, and the Association declared a closing price, which, because
of a fall in market price, was lower than the contract price, so that a balance was due in favour of the
sellers. Nevertheless, the Court of Appeal enforced the clause, despite the fact that the sellers were
1268
the party in default. An “invoicing back” clause may not be interpreted as the exclusive
1269
remedy, e.g. the clause may not prevent the buyer obtaining damages for his loss of profits,
1270
and judges have interpreted such clauses restrictively. 1271 An “invoicing back” clause may
also allow a percentage of the market price to be added to, or deducted from, the price, which if
reasonable, will be upheld as liquidated damages covering items of loss not covered by the price
alone. 1272
1263.
On exemption clauses, see Vol.I, Ch.15, above.
1264.
Above, paras 26-178 et seq.
1265.
1266.
1267.
Lancaster v J.F. Turner & Co Ltd [1924] 2 K.B. 222 (Scrutton L.J. dissenting); followed in J.F.
Page 2
Adair & Co Ltd v Birnbaum [1939] 2 K.B. 149 (and the earlier case noted, 173); Podar Trading
Co Ltd v Tagher [1949] 2 K.B. 277. cf. James Laing, Son & Co Ltd v Eastcheap Dried Fruit Co
Ltd [1961] 2 Lloyd’s Rep. 277.
1268.
Some clauses are drafted differently and avoid this difficulty, e.g. the clause may apply only to
the defaulting buyer, and only if the market price has fallen: Alexandria Cotton and Trading Co
(Sudan) Ltd v Cotton Co of Ethiopia Ltd [1963] 1 Lloyd’s Rep. 576.
1269.
Roth, Schmidt & Co v D. Nagase & Co Ltd (1920) 2 Ll. L. Rep. 36 CA (the clause did not
expressly exclude the right to reject the goods or to recover damages upon rejection).
1270.
Re Bourgeois and Wilson Holgate & Co (1920) 25 Com. Cas. 260 (the Court of Appeal
decided in this case that the seller in these circumstances could not enforce the clause against
the buyer).
1271.
One judge has held that the interpretation of a clause which requires damages to be paid to
the defaulting party is contrary to “natural justice”: Cassir, Moore & Co Ltd v Eastcheap Dried
Fruit Co [1962] 1 Lloyd’s Rep. 400, 402. See also the qualifications suggested in Lancaster v
J.F. Turner & Co Ltd [1924] 2 K.B. 222, 231; J.F. Adair & Co Ltd v Birnbaum [1939] 2 K.B. 149,
169.
1272.
Robert Stewart & Sons Ltd v Carapanayoti & Co Ltd [1962] 1 W.L.R. 34.

Page 1

(f) - Effect of Clause if a Penalty
Penalty clause is not enforceable
26-216K
1273
As mentioned earlier, if a clause is penal because it passes neither the “genuine
1274 1275
pre-estimate” test nor the “legitimate deterrent test, the clause will be wholly
unenforceable. 1276 The court has no power to re-write the clause in order to make it valid. 1277
Can damages exceed the sum fixed in penal clause?
26-216L
A clause which is not a genuine pre-estimate, e.g. because it stipulates for more than the likely
loss, and which is therefore a penalty, may be ignored if it is for less than the actual damage suffered.
Where a charterparty contained the following clause: “[p]enalty for non-performance of this agreement
proved damages, not exceeding estimated amount of freight”, it was held that the clause provided a
penalty and not a limitation of liability, so that the party complaining of non-performance was entitled
to recover damages for his actual loss although it exceeded the estimated amount of freight. 1278 It
is unsettled whether this principle applies to penalty clauses in other types of contract, so as to entitle
the claimant to ignore the sum stipulated as a penalty (where it was clearly not intended to limit
liability) and to sue for damages for a greater amount to compensate him for his actual loss. 1279
1273.
See above, para.26-178A.
1274.
1275.
1276.
[2016] A.C. 1172 at [9] and at [291], where Lord Clarke expressed his agreement with this part
of the Lords Neuberger and Sumption’s judgment.
Page 2
1277.
[2015] UKSC 67 at [84]–[86], [283] and [292], disapproving Jobson v Johnson [1989] 1
W.L.R. 1026 on this point. Lord Mance preferred to leave this point for further argument (at
[186]). In Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch) at
[66]–[71] Timothy Fancourt QC, sitting as a Deputy Judge of the High Court, expressed the
view that it is possible to sever part of a clause that makes the clause penal if the offending part
can be removed without adding to or modifying the rest, the remaining terms are supported by
consideration, the change does not alter the character of the contract and severance does not
conflict with the public policy making the offending part unenforceable. However, the authorities
cited in support are cases on restraint of trade and, with respect, it is not clear that severance
can be applied to penalty clauses.
1278.
Wall v Rederiaktiebolaget Luggude [1915] 3 K.B. 66 (approved by the House of Lords in
Watts, Watts & Co Ltd v Mitsui & Co Ltd [1917] A.C. 227). But this case may require
reconsideration in the light of the Suisse Atlantique case [1967] 1 A.C. 361 (where a demurrage
clause was held to be an agreed damages clause) and the Photo Production case [1980] A.C.
827.
1279.
In Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] A.C. 20, 26, the House
left: “… open the question whether, where a penalty is plainly less in amount than the
prospective damages, there is any legal objection to suing on it or, in a suitable case, ignoring it
and suing for damages”. cf. dicta to the effect that the penalty fixes the maximum recoverable:
Wilbeam v Ashton (1807) 1 Camp. 78; Elphinstone v Monkland Iron & Coal Co (1886) L.R. 11
App. Cas. 332, 346; Elsley v J.G. Collins Insurance Agencies Ltd (1978) 83 D.L.R. (3d) 1,
14–16; W.&J. Investments Ltd v Bunting [1984] 1 N.S.W.L.R. 331, 335–336. See also Hudson
(1974) 90 L.Q.R. 31; Gordon (1974) 90 L.Q.R. 296; Hudson (1975) 91 L.Q.R. 25; Barton (1976)
92 L.Q.R. 20; Hudson (1985) 101 L.Q.R. 480; Peel, Treitel on The Law of Contract, 14th edn
(2016), para.20–140.

Page 1

(g) - Consumer Contracts
Sums payable on breach in consumer contracts 1280
26-216M
The Unfair Terms in Consumer Contracts Regulations 1999 provided that in a contract between a
business and a consumer an “unfair term” that was not individually negotiated was not be binding on
the consumer. For consumer contracts made after October 1, 2015, Pt 2 of the Consumer Rights Act
2015 provides that an unfair term 1281 in a consumer contract will not be binding on the consumer.
The Regulations and the Act give illustrations of terms which may be regarded as unfair: relevant to
clauses fixing damages is “requiring any consumer who fails to fulfil his obligation to pay a
disproportionately high sum in compensation”. 1282 So a consumer will be able to appeal to this
standard, as well as to the common law on penalties; and it has been held that a term may be unfair
even though on the facts it did not amount to a penalty at common law. 1283
1280.
SI 1999/2083.
1281.
Whether negotiated or not: s.62. See Vol.II, para.38-358.
1282.
1999 Regulations Sch.2 para.1(e); 2015 Act Sch.2 Pt 1 para.(6).
1283.
Munkenbeck & Marshall v Harold [2005] EWHC 356 (TCC), [2005] All E.R. (D) 227; see
below, Vol.II, para.38-280. For clauses requiring a consumer to make a payment on some
event that is not a breach of contract, see above, para.26-216C.

Page 1

Chapter 14 - Implied Terms
Nature of implied terms
14-001
So far, only express terms have been discussed, that is to say, those terms which are actually
recorded in a written contract or openly expressed at the time the contract is made. But there are
cases in which the law implies a term in a contract although it is not expressly included therein by the
parties. An implied term may be a condition, a warranty or an intermediate (innominate) term. 1
Implication of terms
14-002
The problem of the implication of terms is one which frequently arises in the law of contract. In
certain instances, the parties to a contract may have been content to express only the most important
terms of their agreement, leaving the remaining details to be understood. The court will then be asked
to imply a term or terms to remedy the deficiency. More often, however, a subsequent disagreement
reveals that there are contingencies for which the parties have not provided in their express contract.
The question is then whether the court can imply a term to cover the contingency which has
unexpectedly emerged. The principles that traditionally govern the implication of terms differ from
those which apply to the construction of express terms. 2 However, in Att-Gen of Belize v Belize
Telecom Ltd 3 Lord Hoffmann challenged the validity of this difference in treatment on the ground
that in both cases the court is seeking to establish what the contract would reasonably have been
understood to mean having regard to the commercial purpose of the contract as a whole and the
relevant available background of the transaction. 4 The extent to which the process of implication
can be assimilated with the principles applicable to the interpretation of the express terms of a
contract has since been the subject of much judicial comment 5 and academic controversy. 6
More recently the Supreme Court has sought to distance itself from the approach of Lord Hoffmann,
with a majority describing his analysis in Belize as “a characteristically inspired discussion rather than
authoritative guidance on the law of implied terms”. 7 However, it does not follow from this that
there is no relationship at all between the principles that govern the implication of terms and those
which apply to the construction of express terms. While the process of interpretation precedes
implication and thus may be described as “the precursor of implication”, 8 the two processes, while
“logically distinct” have nevertheless been held to be “closely related” in that “both involve taking into
account the words used in the contract, the surrounding circumstances known or available to the
parties at the time of the contract, commercial common sense and the reasonable reader or
reasonable parties”. 9
“Intention of the parties”
14-003
Page 2
Whether or not a term is implied is conventionally said to depend upon the intention of the parties as
collected from the words of the agreement and the surrounding circumstances. 10 However, the
implication of a term is a matter of law for the court, 11 and in many classes of contract implied terms
have become standardised, so that it is somewhat artificial to attribute such terms to the unexpressed
intention of the parties. The court is, in fact, laying down a general rule of law that in all contracts of a
defined type—for example, sale of goods, landlord and tenant, employment, the carriage of goods by
land or sea—certain terms will be implied, unless the implication of such a term would be contrary to
the express words of the agreement. 12 Such implications do not depend entirely on the intentions of
the parties, actual or presumed, but take account of more general considerations. 13
Terms implied in law and terms implied in fact
14-004
The implied terms described in the previous paragraphs can be divided into two broad groups,
namely terms implied in fact and terms implied in law. 14 There are important differences between the
two categories. Terms implied in fact are implied in order to give effect to the intention of the parties to
the particular contract. The test to be applied in such cases has been expressed at different times in
different ways by different courts 15 but the essential idea is that the term sought to be implied is a
necessary one which gives to the contract the meaning which the particular parties to the contract
intended. Terms implied in law, by contrast, are, as has been noted, implied into:
“a class of contractual relationship, such as that between landlord and tenant or between
employer and employee, where the parties may have left a good deal unsaid, but the
courts have implied the term as a necessary incident of the relationship concerned,
unless the parties have expressly excluded it.” 16
When deciding whether or not to imply a term as a matter of law into a contract of a particular type,
the courts do not confine themselves to a narrow test of necessity but instead can draw upon a
broader range of factors, such as the reasonableness of the term, its fairness and a range of
competing policy considerations, when deciding whether the proposed term is a necessary incident of
the type of contractual relationship in question. 17
Traditional principles
14-005
In many cases where it is sought to imply a term as a matter of fact, one or other of the parties will
seek to imply a term from the wording of a particular contract and the facts and circumstances
surrounding it. The court will not make a contract for the parties 18 but will be prepared to imply a term
if there arises from the language of the contract itself, and the circumstances under which it is entered
into, an inference that the parties must have intended the stipulation in question. 19 Traditionally, an
implication of this nature may be made in two situations: first, where it is necessary to give business
efficacy to the contract, and, secondly, where the term implied represents the obvious, but
unexpressed, intention of the parties. These two criteria often overlap 20 and, in many cases, have
been applied cumulatively, 21 although in other cases they have (more sensibly) been treated as
alternative grounds. 22 Both are predicated to depend on the presumed common intention of the
parties. Such intention is, in general, to be ascertained objectively and is not dependent on proof of
the actual intention of the parties at the time of contracting. As so formulated, these criteria were
traditionally regarded as “tests” which were required to be satisfied if a term was to be implied.
Att-Gen of Belize v Belize Telecom Ltd
14-006
Page 3
More recently, however, a much broader approach to the implication of terms was adopted by the
Judicial Committee of the Privy Council in Att-Gen of Belize v Belize Telecom Ltd. 23 Lord Hoffmann
stated that:
“… in every case in which it is said that some provision ought to be implied in an

instrument, the question for the court is whether such provision would spell out in express
words what the instrument read against the relevant background, would reasonably be
understood to mean” 24
and that the list of requirements set out in previous cases for the implication of a term:
“… is best regarded not as a series of independent tests which must each be

surmounted, but rather as a collection of different ways in which judges have tried to
express the central idea that the proposed implied term must spell out what the contract
actually meant, or in which they have explained why they did not think that it did so.” 25
Marks and Spencer v BNP Paribas
14-007
26
Initially, Lord Hoffmann’s judgment received the endorsement of both the Court of Appeal
and it was applied or referred to in a number of cases at first instance. 27 As a result, the
traditional “tests” for the implication of terms into a contract were treated as guidelines to be applied
by the courts when seeking to answer the single question: Is this what the instrument, read as a
whole against the relevant background, would reasonably be understood to mean? However, in
28
Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd the Supreme
Court re-established the traditional principles applicable to the implication of terms and “qualified” 29
the judgment of Lord Hoffmann in Belize. In doing so the Supreme Court emphasised that Lord
Hoffmann had not diluted the requirements which must be satisfied before a term will be implied into a
30
contract. The test which must be applied by the courts when seeking to imply a term into a
contract as a matter of fact is whether the term satisfies the test of “business necessity”. 31 It is not
enough to show that the term is a reasonable one for it to be implied into the contract. 32
Reasonableness may be a necessary requirement before a term will be implied but it is not sufficient.
Thus a term should not be implied into a detailed commercial contract merely because it appears fair
or because the parties might have agreed to it had it been suggested to them. 33 The test remains
one of necessity, albeit not “absolute necessity” but whether, without the term, the contract would lack
commercial or practical coherence or whether it is necessary to imply the term “in order to make the
contract work”. 34 In short, in order to imply a term into an ordinary business contract, the term
must be necessary to give business efficacy to the contract; it must be so obvious that it goes without
saying; it must be capable of clear expression; and it must not contradict any express term of the
contract. 35
Efficacy to contract
14-008
An important factor which the courts continue to take into account when deciding whether or not to
Page 4
imply a term into a contract is whether the term is necessary, in the business sense, to give efficacy
to the contract. The general principle of law was thus stated by Bowen L.J. in The Moorcock 36:
“Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an

express contract or express warranty, really is in all cases founded upon the presumed
intention of the parties, and upon reason. The implication which the law draws from what
must obviously have been the intention of the parties, the law draws with the object of
giving efficacy to the transaction and preventing such a failure of consideration as cannot
have been within the contemplation of either side; and I believe if one were to take all the
cases, and there are many, of implied warranties or covenants in law, it will be found that
in all of them the law is raising an implication from the presumed intention of the parties
with the object of giving to the transaction such efficacy as both parties must have
intended that at all events it should have.”
In this situation, although there is an apparently complete bargain, the courts are willing to add a term
on the ground that without it the contract will not work 37 or because an implication is necessary to
give effect to the reasonable expectations of the parties. 38
Illustrations
14-009
The principle laid down in The Moorcock has been approved and applied many times. For example, a
term has been implied into a contract for the use of a wharf that it was safe for a ship to lie at the
wharf 39; into a contract for a Turkish bath that the couches for reclining on were free from vermin 40;
into a charterparty that the charterer would not order the ship to proceed to a port impossible of
access 41 and would indemnify the shipowner against loss incurred in complying with the charterer’s
orders 42; into a contract of bailment, the purpose of which was the use of the goods by the bailee, an
authority to do in relation to the goods all things reasonably incidental to their reasonable use 43; into a
contract for the printing of banknotes that the plates should not be allowed to get into the hands of
unauthorised persons 44; into a father’s contract to pay such school bills of his son as should be
approved by him, that such consent should not be unreasonably withheld 45; into a contract between a
“pop group” and their personal manager, that the latter would not do anything which he could
reasonably foresee would destroy the mutual confidence which was required to exist between them 46
; into a contract to provide a package holiday that reasonable care and skill would be used in
rendering the services which the tour operator had contracted to provide, whether these were carried
out by the tour organiser or others 47; into a contract for driving lessons that the vehicle provided
would be covered by insurance 48; into a contract of agency that the principal would not deprive the
agent of his commission by committing a breach of the contract between himself and a purchaser
which released the purchaser from his obligation to pay the purchase price 49; into insurance contracts
between underwriters and insureds that documents previously shown to the underwriters by the
insureds’ brokers, and in the possession of the brokers, should be made available to the underwriters
50
; into a contract between architects and a construction company that the architects would carry out
their design work in such time as would enable the company to complete its contract with its client 51;
into a towage contract that the tug would proceed with all reasonable despatch 52; into a contract of
sale of goods, where defective goods had been returned to the seller for repair, that the seller would
inform the buyer of the nature of the defect and what had been done to repair it 53; into contracts
between landowners and developers that one party had to tell the other that a Town and Country
Planning Act 1990 s.106 agreement could not be obtained 54 or that the landowner was not free to sell
the property while the agreement was in force 55; into a mooring contract, an obligation to take
reasonable care to see that the layerage was safe 56; into an estate agent’s contract that, in order to
earn its commission, the agent had to be the effective cause of the purchase 57; into a construction
contract that, where one party had paid money to the other in compliance with a decision of an
adjudicator, that party was entitled to have the dispute finally determined by legal proceedings and, if
the dispute was finally resolved in its favour, to have the money repaid to it 58; into a letter of credit
transaction that the issuing bank was obliged to act in accordance with the disposal statement in its
art.16 UCP notice 59; into a contract of guarantee that the creditor would provide a Lloyd’s decision
Page 5
within a reasonable time frame from the receipt of a notice of dispute 60; into a refund guarantee that
the sellers would extend the validity of the guarantee 0within a reasonable time 61; into a construction
contract that a party to an adjudication has a directly enforceable right to recover any overpayment to
which the adjudicator’s decision can be shown to have led, once there has been a final determination
of the dispute. 62
Obvious inference from agreement
14-010
A term which has not been expressed may also be implied if it was so obviously a stipulation in the
agreement that the parties must have intended it to form part of their contract. 63
“Prima facie that which in any contract is left to be implied and need not be expressed is
something so obvious that it goes without saying; so that, if while the parties were making
their bargain, an officious bystander were to suggest some express provision for it in the
agreement, they would testily suppress him with a common, ‘oh, of course’.” 64
A term will not, however, thus be implied unless the court is satisfied that both parties would, as
reasonable men, have agreed to it had it been suggested to them. 65 The knowledge or ignorance of
each party of the matter to be implied, or of the facts on which the implication is based, is therefore a
relevant factor. 66 Further, since:
“… the general presumption is that the parties have expressed every material term which
they intended should govern their contract, whether oral or in writing,” 67
the court will only imply a term if it is one which must necessarily have been intended by them, 68 and
in particular will be reluctant to make any implication where it is essential that contracts of the
particular type “should operate in accordance with the terms which appear on their face” 69 or “where
the parties have entered into a carefully drafted written contract containing detailed terms agreed
between them”. 70 Nevertheless, even a carefully drafted contract may not have catered for an
unanticipated contingency and a term can then be implied if obviously required. 71
Incomplete contract
14-011
There is yet another situation where a term may be implied. This is where the court is simply
concerned to establish what the contract is, the parties not having themselves fully stated the terms:
“[i]n this sense the court is searching for what must be implied”. 72 In Liverpool City Council v Irwin
73
the contract by which dwelling units in a council block were let to tenants consisted of “conditions of
tenancy” which imposed obligations upon the tenants, but which were silent as to the contractual
obligations of the landlord. The House of Lords implied an obligation on the part of the landlord to
take reasonable care to keep the essential means of access and other communal facilities in
reasonable repair. In Sim v Rotherham Metropolitan BC 74 the contracts under which secondary
school teachers were employed were in general silent as to the extent of the teachers’ obligations as
teachers. The court implied an obligation on their part to cover for absent colleagues during
non-teaching periods if requested to do so. And in Scally v Southern Health and Social Services
Board 75 contracts of employment of public health service employees contained a term, derived from a
collective agreement reached between representatives of the employers and of the employees,
whereby a valuable pension benefit was conferred upon an employee contingent upon action being
taken by him to avail himself of the benefit. An employee could not, in all the circumstances,
reasonably be expected to be aware of the term unless it was drawn to his attention. The House of
Page 6
Lords implied an obligation on the employer to take reasonable steps to bring the term in question to
the employee’s attention so that he might be in a position to enjoy the benefit. In this type of case, the
implication does not appear so much to depend on the intentions of the parties, but resembles more
closely an implication of law, 76 since the term is implied as a “legal incident” 77 of a definable category
of contract, though only where certain circumstances exist.
Where term not implied
14-012
A term ought not to be implied unless it is in all the circumstances equitable and reasonable. 78 But
this does not mean that a term will be implied merely because in all the circumstances it would be
reasonable to do so 79 or because it would improve the contract 80 or make its carrying out more
convenient 81: “[t]he touchstone is always necessity and not merely reasonableness”. 82 The term to
be implied must also be capable of being formulated with sufficient clarity and precision. 83 But it may
be that lack of precision in the criterion to be embodied in the term is not fatal to any implication,
since:
“… it is no novelty in the common law to find that a criterion on which some important
question of liability is to depend can only be defined in imprecise terms which leave a
difficult question for decision as to how the criterion applies to the facts of a particular
case.“ 84
A term will not be implied if it would be inconsistent with the express wording of the contract. 85
Further illustrations of cases where no term was implied
14-013
No term was implied into a contract of employment that the employee was to be paid overtime for
excess hours worked 86 or that he was not to be paid during absence owing to illness 87; into a
contract for the hire of a private detective that employees of the detective agency would not divulge
confidential information 88; into a contract for the sale and purchase of all grains manufactured over a
certain period that the seller would retain his business 89; into a contract of employment that the
employer would take reasonable care to ensure that his employee’s effects were not stolen 90 or that
he would insure the employee when abroad against accidental injury or advise the employee to obtain
such insurance for himself 91; or that he would take reasonable care of the employee’s economic
well-being by advising him of the financial consequences under an insurance scheme of his early
retirement 92; into a contract for the sale of a patent to a company that the company would keep the
patent alive 93; into a contract for the exchange of two incomplete housing estates that the building
work was of good quality 94; into a contract for the building of a school that the builder should have
uninterrupted possession of, and access to, the site 95; into a lease that the lessor would keep a drain
in repair 96; into a contract for the services of a handwriting expert that he should not voluntarily give
assistance to the other side 97; into a voyage charterparty that the charterers would indemnify the
shipowners against claims made by the cargo-owners 98; into a contract for the carriage of goods by
sea that the master was authorised to contract on behalf of the cargo-owners with third parties other
than as agent of necessity 99; into a contract between a banker and a customer that the customer
would take reasonable precautions in his business to prevent forgeries by his employees 100 or that
the banker would advise the customer of a new type of interest-bearing account 101; into a debenture
that the debenture holder could appoint a receiver if his security was in jeopardy 102; into a contract of
insurance that the insurers would indemnify the insured in respect of expenditure incurred by him in
preventing or minimising a loss which might fall to them under the policy 103; into a contract between
insurers and the assignee of the policy to inform him that the insured was dishonestly jeopardising the
cover provided by the insurers 104; into a contract between insurers and a reinsurer that they could
recover a pro rata share of their costs of investigating, settling or defending claims on the underlying
policies 105; into a non-proportional insurance contract that the reinsured would act “prudently” or
“reasonable carefully” 106; into an agreement to submit disputes to arbitration that the claimant would
Page 7
proceed with the arbitration without undue delay 107; into a contract of employment of a schoolmaster
that he was required to occupy a house for the better performance of his duties as such 108; into a
highway maintenance contract that the contractor would not conduct itself in a manner calculated or
likely to destroy or seriously damage the relationship of confidence and trust that existed between
itself and the employer 109; into a contract which provided for the obtaining of counsel’s opinion that
the opinion would only be valid if given on the basis of true facts or proper instructions 110; into an
exclusive purchasing agreement that the seller would not act in a way that was prejudicial to the
buyer by selling directly to customers 111; into an option agreement that payment had to be made
within the original option period 112; into a construction sub-contract that the subcontractor would
execute the works with such diligence and expedition as was reasonably required to meet the dates
of the programme 113; into an estate agent’s contract a term that the agent was entitled to commission
only if he was the effective cause of the sale 114; into an FOB contract for the sale of goods, that the
parties should be discharged in the event that the seller’s suppliers refused to supply the necessary
goods 115; into a charterparty, that the charterers were obliged to nominate a safe berth at the loading
port 116; into a milk supply contract that one party would not sell or otherwise dispose of its business or
assets without procuring that the person acquiring the same would be bound by the contract 117; into a
merchant service agreement between a bank and a merchant that the bank would retain money
received from cardholders only for a reasonable time and in respect of actual loss suffered by the
bank 118; into a financial contract that the financial adviser would competently assess risk and not
permit excessive risk to be taken 119; into an option agreement that the option had to be exercised
within a limited time 120; into a voyage charter containing laytime exceptions that the events specified
had to be beyond the control of the charterer 121; into a subbrokerage contract that the sub-broker’s
entitlement to commission was conditional on the broker being paid its commission. 122
Co-operation
14-014
The court may be willing to imply a term that the parties shall co-operate to ensure the performance
of their bargain. 123 Thus:
“… where in a written contract it appears that both parties have agreed that something
shall be done, which cannot effectively be done unless both concur in doing it, the
construction of the contract is that each agrees to do all that is necessary to be done on
his part for the carrying out of that thing, though there may be no express words to that
effect.” 124
However, the guidelines mentioned above for the implication of a term must be taken into account. 125
Also the duty to co-operate and the degree of co-operation required is to be determined, not by what
is reasonable, but by the obligations imposed—whether expressly or impliedly—upon each party by
the agreement itself, and the surrounding circumstances. 126
Prevention of performance
14-015
By the same token:
“… if a party enters into an arrangement which can only take effect by the continuance of
a certain existing state of circumstances, there is an implied engagement on his part that
he shall do nothing of his own motion to put an end to that state of circumstances under
which alone the arrangement can become operative.” 127
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Also where a binding contract is subject to a condition precedent, 128 a term may be implied that a
party will not do an act which, if done, would prevent fulfilment of the condition. 129 But these
implications are not inevitable: the alleged term may be unreasonably wide 130 or be displaced by an
express term 131 or the nature of the contract may indicate otherwise. 132 A term may also be implied
that a right, remedy or benefit expressly conferred upon one party to a contract or to which he may be
entitled shall not be available if that party relies on his own breach of the contract, to establish his
claim. 133
Export and import licences
14-016
In international trade, contracts of sale of goods are frequently the subject of governmental
restrictions and a licence may have to be obtained for the import or export of goods from one country
to another. The parties will normally provide expressly who is to assume this responsibility, but, in the
absence of any express provision, it will be necessary to imply a term as to whether the duty to obtain
a licence rests upon the buyer or the seller. 134 Once the incidence of this duty has been determined,
the court will then have to consider whether the party placed under the duty impliedly undertook to
use his best endeavours to obtain a licence 135 or whether he undertook absolutely that a licence
would be obtained. 136 In any event, both parties are under an obligation to co-operate with each other
to the extent that is necessary for the obtaining of a licence. 137
Occupiers of premises
14-017
Where persons enter or use, or bring or send goods to, any premises in exercise of a right conferred
by contract with a person occupying or having control of the premises, the duty he owes them in
respect of dangers due to the state of the premises or to things done or omitted to be done on them in
so far as the duty depends on a term to be implied in the contract by reason of its conferring that right,
is the “common duty of care”. 138 The common duty of care is a duty to take such care as in all the
circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the
premises for the purposes for which he is invited or permitted by the occupier to be there, 139 except in
so far as the occupier is free to 140 and does extend, restrict modify or exclude that duty by agreement
or otherwise. 141 However, the duty cannot be restricted or excluded by the contract so as to diminish
the rights of third parties who are entitled to enter by virtue of its provisions. 142 The same duty applies
in relation to fixed and movable structures as it does to premises 143 but does not extend to the
obligations imposed by any contract for the hire of, or for the carriage for reward of persons or goods
in, any means of transport, or by any contract of bailment. 144
Fitness for habitation: sale of land
14-018
It is well established that prima facie upon a contract for sale of a piece of land with a house on it,
there is no warranty as to the habitability of the house. 145 The same rule would apply in the case of
an uncompleted house, which is the subject matter of a sale, where the structure stands at the time of
the sale. But where the vendor sells a piece of land and covenants to build or complete a house on it,
there is, at common law, an implied term: (i) that the work will be done in a good and workmanlike
manner; (ii) that he will supply good and proper materials; and (iii) that the house will be reasonably fit
for human habitation when built or completed. 146 This implication may, however, be rebutted where
the purchaser has himself expressly prescribed the way in which the work is to be done, and the work
has been completed in accordance with his instructions. 147 The Defective Premises Act 1972 148 in
addition, imposes on every person who takes on work for or in connection with the provision of a
dwelling a similar statutory duty 149 (which cannot be excluded or restricted by any term of an
agreement), subject to certain exceptions provided for in the Act. This statutory duty is owed to any
person to whose order the dwelling is provided and also to every person who acquires an interest
Page 9
(whether legal or equitable) in the dwelling. 150
Fitness for habitation: leases
14-019
In general, a landlord gives no implied under-taking that leased premises are or will be fit for
habitation or for any particular use, 151 or that the premises can lawfully be used for any particular
purpose. 152 But where a house or flat is let furnished, there is an implied covenant or warranty that it
is reasonably fit for human habitation when let, 153 although there is no obligation at common law to
keep furnished or unfurnished premises in that condition or to repair them during the tenancy. 154
However, covenants on the part of the landlord are implied in the cases of houses let at a low rent 155
or for a short term. 156
Buildings in multiple occupation
14-020
Where an essential means of access to units in a building in multiple occupation is retained by the
landlord, a covenant may be implied on his part to use reasonable care to keep the essential means
of access in reasonable repair and fit for use. 157
When implied from usage or custom
14-021
If there is an invariable, certain and general usage or custom of any particular trade or place, the law
will imply on the part of one who contracts or employs another to contract for him upon a matter to
which such usage or custom has reference a promise for the benefit of the other party in conformity
with such usage or custom 158; provided there is no inconsistency between the usage and the terms of
the contract. 159 To be binding, however, the usage must be notorious, certain and reasonable, and
not contrary to law 160; and it must also be something more than a mere trade practice. 161 But when
such usage is proved, it will form the basis of the contract between the parties, and:
“… their respective rights and liabilities are precisely the same as if without any usage
they had entered into a special agreement to the like effect.” 162
These usages are incorporated on the presumption that:
“… the parties did not mean to express in writing the whole of the contract by which they
intended to be bound, but a contract with reference to those known usages” 163
or on the ground that “the courts are spelling out what both parties know and would, if asked,
unhesitatingly agree to be part of the bargain”. 164 However, even in cases where the party alleged to
be liable upon an implied promise, arising solely from the usage of a particular trade, is not shown to
have been cognisant of the usage, he can still be held to be liable by virtue of it. 165
Incorporation of collective employment agreements
14-022
In relation to contracts of employment, particular problems arise as to whether the terms of collective
Page 10
agreements between trade unions and employers concerning industrial conditions in a particular trade
can be impliedly incorporated by usage into an individual worker’s contract of employment 166 as they
can be by express reference. 167
Human rights
14-023
The question whether a term may be implied into a contract to secure compliance with the Human
Rights Act 1998 has been discussed in Ch.1 of this work. 168
Usage employed by one of the parties
14-024
Where the usage is one which merely applies to the mode of dealing of a particular firm, a party
cannot be bound thereby, unless he is shown to have had actual notice of it. To establish a usage it
must be proved that a course of dealing has acquired such a notoriety, has been so well established
and has become so universal in the particular trade, that it must be taken to be incorporated into any
contract that is entered into by the parties dealing in this particular business. 169
When implied from previous course of dealing
14-025
It is, however, clear that a term may be implied in any given case from the circumstances of the
parties having consistently on former and similar occasions adopted a particular course of dealing. 170
Thus, a covenant to pay interest or to allow interest to be added to principal at stated periods and
to pay interest on the whole, has been held to be implied from the fact that on former occasions the
accounts between the parties have been stated and settled on that footing. 171 And it has been held
that an oral contract between the buyer and seller of goods incorporated by a long course of dealing
conditions printed on the back of “sold notes” as conditions of sale, in so far as a condition was
appropriate to the oral contract. 172
Express terms prevail
14-026
A custom or usage can only be incorporated into a contract if there is nothing in the express or
necessarily implied terms of the contract to prevent such inclusion, and it can only be incorporated if it
is not inconsistent with the tenor of the contract as a whole. 173 Thus a custom that commission
was only payable to the broker who had negotiated a charterparty when freight was actually earned
was ousted by an express term that commission was to be paid on the signing of the charter. 174 And
a contract to ship rubber from the East to New York “direct and/or indirect” was alleged to have been
duly carried out by shipping goods to the American Pacific seaboard and across the American
continent to New York by train. Evidence of such a practice, said to have been common in the First
World War, was disallowed as being contrary to the contract. 175
Implication from words of recital
14-027
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Where words of recital or reference manifest a clear intention that the parties should do certain acts,
the courts may from these infer a covenant to do such acts, just as if the instrument had contained an
express agreement to that effect. 176 So a recital in a separation deed that a wife had agreed to live
apart from her husband implied a covenant by the wife to live apart. 177 Also where by charterparty it
was agreed that the ship C, “expected to be at A about December 15”, should with all convenient
speed sail and proceed to that port and there receive a cargo, it was held that the words “expected,
etc”, amounted to a warranty that the ship was then in such a position that she might reasonably be
expected to arrive by the day named. 178
14-028
In contrast, however, with the use of words of recital in order to ascertain the meaning of a written
contract, 179 the courts are reluctant to imply such a covenant in the absence of a manifest intention:
“It is one thing for the court to effectuate the intention of the parties to the extent to which
they may have, even imperfectly, expressed themselves, and another to add to the
instrument all such covenants as upon a full consideration the court may deem fitting for
completing the intentions of the parties, but which they, either purposely or
unintentionally, have omitted.”” 180
So the recital of an agreement does not create a covenant where there is an express covenant to be
found in the witnessing part relating to the same subjectmatter. 181
Implied restriction on contractual discretion
14-029
A discretion conferred by contract in seemingly absolute terms may be restricted by the implication
of a term: that the discretion should not be exercised dishonestly, for an improper purpose,
capriciously, arbitrarily, or in a way that no reasonable person, acting reasonably, would act. 182
Similarly a contract which provides that one party shall not enter into a transaction with a third person
without the consent of the other may be subject to an implied term that the consent shall not be
unreasonably withheld. 183 However, the discretion conferred may be found, on its true construction,
to be unqualified. 184
Implied term as to trust and confidence
14-030
In Malik v Bank of Credit and Commerce International SA 185 the House of Lords recognised that, in
a contract of employment, there was to be implied a term that the employer should not:
“… without reasonable and proper cause, conduct itself in a manner likely to destroy or
seriously damage the relationship of confidence and trust between employer and
employee.”
The exact boundaries of the incidence of this implication are somewhat uncertain 186 but the duty may
possibly be reciprocal in some cases and extend to analogous relationships, e.g. principal and agent,
187
but not to ordinary commercial relationships. 188
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Implied term as to good faith
14-031
English law has traditionally been hostile to the imposition of any general principle of good faith in
the performance of contracts 189 but in Yam Seng Pte Ltd v International Trade Corp Ltd 190 Leggatt J.
considered the arguments for (and against) the implication of such a duty. While the issue awaits
definitive resolution, it would appear that the courts may now be willing to imply such a duty as a
matter of law into a narrow category of contracts, such as “contracts between partners or others
whose relationship is characterised as a fiduciary one” 191 and to imply it as a matter of fact where the
implication is necessary to give effect to the intention of the parties. However, the courts are likely to
be slow to imply such a term as a matter of fact and are more likely to decline to do so either because
192
it is inconsistent with or does not fit with the express terms of the contract or because of the
193
arm’s-length nature of the relationship between the parties. The willingness of the court to
imply the term may also be linked to the substantive content of the term. The more demanding the
194
term, the less willing the court may be to imply the term. Conversely, if the term requires only
that the parties act honestly and with integrity, 195 the court may be more willing to imply the term
and, indeed, it may not be possible for the parties to exclude an obligation to act honestly. 196
Implied term as to duration of contract
14-032
A contract which contains no express provision for its determination may yet be determined by
reasonable notice on the part of one or both of the parties. The question whether a contract can be
determined in this way is often said to depend upon the implication of a term, although it is probably
better to regard it as depending upon the true construction of the agreement. 197 Nevertheless, since
ex hypothesi, the agreement contains no provisions expressly dealing with determination, the
question is not one of construction in the narrow sense of putting a meaning on language which the
parties have used, but in the wider sense of ascertaining, in the light of all the admissible evidence
and in the light of what the parties have said or omitted to say in the agreement, what the common
intention of the parties was in the relevant respect when they entered into the agreement. 198 Thus a
contract to supply gas to a public authority in such quantities as it should require has been held
determinable by either party on reasonable notice, 199 and a licence to occupy a theatre and to
produce their stage plays, which gave to the licensee an option to extend the licence at stated
intervals, but which contained no provisions for determination by the licensor, was held to be
determinable by the licensor upon giving reasonable notice. 200 Similar constructions have been
adopted in the case of contracts between employer and employee, 201 between principal and agent,
202
and between solicitor and client in respect of an indefinite retainer. 203
Contractual licences
14-033
A licence coupled with the grant of an interest in land cannot be revoked so as to defeat the grant to
which it is appurtenant. 204 Since the Judicature Act 1873 such a licence may be made either by deed
or by a specifically enforceable agreement in writing. 205 On the other hand a “bare licence” is
revocable at any time upon the licensor giving clear 206 and adequate 207 notice to the licensee. The
position of a contractual licensee is that, if a licence is given for consideration and coupled with an
agreement, whether express or implied, that it will not be revoked until the effluxion of a specified
period of time or the happening of a particular event, it is irrevocable until the expiration of the period
or the happening of the event. 208 An injunction will be granted to restrain the licensor from revoking
the licence, or from acting in pursuance of the purported revocation, 209 and the licensee may also
claim damages for breach of contract 210 and for assault should he be forcibly ejected by the licensor.
211
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Sale of goods, hire-purchase and hire
14-034
Undertakings as to title, quality, fitness for purpose and correspondence with description or sample
are implied into contracts of sale of goods by ss.12 to 15 of the Sale of Goods Act 1979, 212 into
contracts of hire-purchase by ss.8 to 11 of the Supply of Goods (Implied Terms) Act 1973, 213 and into
contracts for the hire of goods by ss.7 to 10 of the Supply of Goods and Services Act 1982. 214 The
principle that a term will not be implied which is inconsistent with an express term 215 does not apply in
the case of a statutory implied term: any conflict must be resolved as a matter of construction. 216 With
the coming into force of the Consumer Rights Act 2015, 217 contracts concluded after October 1, 2015
between a trader and a consumer for the trader to supply goods or digital content to the consumer are
to be “treated as including” 218 a number of terms relating to matters such as title, quality, fitness for
purpose and correspondence with description (including the provision of certain pre-contract
information) and sample. 219 Contracts of sale, hire and hire-purchase all fall within the definition of a
contract for a trader to supply goods to a consumer. 220
Supply of goods
14-035
Undertakings in respect of the goods similar to those implied in the case of sale, hire-purchase and
hire are implied into contracts for the transfer of goods, e.g. for work and materials, by ss.2 to 5 of the
Supply of Goods and Services Act 1982. 221 These replace and extend 222 the undertakings previously
implied by the common law, for example, into a contract for the manufacture of a set of false teeth, 223
for the repair of a motor car, 224 for the dyeing of a woman’s hair, 225 for the supply and installation of a
burglar-proof door, 226 for the inoculation of cattle, 227 and for the roofing 228 and erection 229 of a
building. Similar undertakings are to be treated as included in contracts for the transfer of goods
between a trader and a consumer that fall within the scope of the Consumer Rights Act 2015. 230
Disposition of property
14-036
The covenants for title that are implied on a disposition of property are those set out in Pt I of the Law
of Property (Miscellaneous Provisions) Act 1994. “Property” is defined 231 in the same terms as in the
Law of Property Act 1925, i.e. to include “a thing in action, and any interest in real or personal
property”.
Supply of services
14-037
In the case of a contract under which a person agrees to carry out a service, other than a contract of
service or apprenticeship 232 and certain other excepted contracts, 233 where the supplier is acting in
the course of a business, 234 there is an implied term that the supplier will carry out the service with
reasonable care and skill. This term is implied by s.13 of the Supply of Goods and Services Act 1982.
235
If the contract is one for the supply of professional services, the degree of care and skill required of
a professional man is that which is to be expected of a member of his profession (in the appropriate
speciality, if he be a specialist) of ordinary competence and experience. 236 If the service is to be
carried out by an artisan, then the work should be done in a good and workmanlike manner. 237
However, the special circumstances of the case may show that the supplier impliedly warrants that his
services will produce a specified result or that the product of his service will be reasonably fit for the
purpose for which it is required. 238
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14-038
By ss.14 and 15 of the 1982 Act, where, under a contract for the supply of a service by a supplier
acting in the course of a business, 239 the time for the service to be carried out, or the consideration
for the service, is not fixed or determined by the contract, left to be fixed or determined in a manner
agreed by the contract or determined by the course of dealing between the parties, there are
respectively implied terms that the supplier will carry out the service within a reasonable time and that
the party contracting with the supplier will pay a reasonable charge. 240
Consumer Rights Act
14-039
With the coming into force of the Consumer Rights Act 2015, contracts concluded on or after October
1, 2015 241 between a trader and a consumer under which the trader agrees to supply a service to a
consumer will be treated as including a term that (i) the trader must perform the service with
reasonable care and skill, 242 (ii) the consumer must pay a reasonable price for the service if the
consumer has not paid a price and the contract does not expressly fix a price of other consideration
and does not say how it is to be fixed, 243 (iii) the trader must perform the service within a reasonable
time if the contract does not expressly fix the time for the service to be performed and does not say
how it is to be fixed 244 and (iv) anything that is said or written to the consumer, by or on behalf of the
trader, about the trader or the service is binding on the trader. 245
Consumer contracts: supply of information
14-040
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 246
apply to contracts between traders and consumers 247 which have been entered into on or after June
13, 2014. They apply in principle to all such contracts but, subject to certain important exceptions, 248
reg.18 provides that every contract to which Pt 2 of the Regulations applies is to be treated as
including a term that the trader has complied with the provisions of regs 9 to 14 and reg.16 in Pt 2.
These regulations require traders to provide certain information to consumers in relation to contracts
concluded between them. The information to be provided varies according to whether the contract is
an “on-premises contract”, 249 an “off-premises contract”, 250 or a “distance contract”, 251 including
contracts concluded by electronic means. These three types of contract will include contracts for the
sale or supply of goods, of services and of digital content, but they are not limited to such contracts.
As a result, many—if not most—contracts entered into between traders and consumers will contain a
statutory implied term that the information requirements of Pt 2 of the Regulations have been
complied with. The amount of information required to be given in the case of distance and
off-premises contracts is particularly onerous. It may include more than 20 items (listed in Sch.2). Any
information that the trader gives to the consumer as required by regs 9, 10 and 13 is also to be
treated as a term of the contract. 252 However, Pt 2 does not apply to certain contracts for medical
products, to contracts for passenger services other than distance contracts concluded by electronic
means and to offpremises contracts under which the payment to be made by the consumer is not
more than £42. 253
Information supplied incorrect
14-041
When the trader gives information as required (see previous paragraph), the regulations provide that
the information given is to be treated as included as a term of the contract. 254 For consumer contracts
made on or after October 1, 2015, the same applies as a result of the Consumer Rights Act 2015. 255
The 2013 Regulations do not set out remedies the consumer will have if the information supplied by
the trader is incorrect. If the trader has described incorrectly the main characteristics of the goods, it
seems that the consumer should be able to treat the goods as not complying with the contract and
Page 15
have the normal remedies for non-conformity. However, that cannot be the case for all the types of
information that the trader must provide. For example, it cannot be the case that a trader who gives
incorrect information about its address can be required to move to the address given; or even that a
trader who incorrectly states that the manufacturer provides a commercial guarantee can be required
to provide an equivalent. It is submitted that the correct interpretation of the Regulations is that
adopted by the Consumer Rights Act 2015, which repeats the provisions that the information supplied
in accordance with the 2013 Regulations is to be treated as included as a term of the contract and
also sets out the consumer’s remedies in detail. Information about the main characteristics of the
goods will be treated as part of the description, and the consumer will have the normal remedies for
non-conformity, 256 whereas for other information that is given the consumer may recover costs
incurred up to the amount of the price 257 —the trader is in effect, treated as giving a contractual
warranty that the information was correct at the time.
Enforcement
14-042
Breach by a trader of the obligation to provide the consumer with certain information before the
consumer enters into an off-premises contract may attract criminal penalties. 258 The enforcement
procedures under Pt 8 of the Enterprise Act 2002 259 also apply in relation to a breach of the
Regulations. Part 3 of the Regulations gives to consumers the right to cancel a distance or
offpremises contract in prescribed circumstances 260 and regulates the exercise of the right to
withdraw or cancel and the effects of so doing.
Additional charges
14-043
Part 4 of the Regulations 261 protect the consumer against additional charges. If an unauthorised
additional payment or charge is required to be paid by the consumer, the contract is to be treated as
providing for the trader to reimburse the consumer. 262
Package travel, etc
14-044
By the Package Travel, Package Holiday and Package Tours Regulations 1992 263 a number of terms
are implied in favour of the consumer in contracts for the sale of package travel, package holidays
and package tours. These include implied terms: that the contract contains certain elements specified
in the Regulations and that these are communicated in writing to the consumer before the contract is
made and a copy of them is supplied to him 264; that the consumer may transfer his booking where he
is prevented from proceeding with the package 265; that if the organiser is constrained before
departure to alter significantly an essential term of the contract, such as the price, he will notify the
consumer as soon as possible in order to enable the consumer to take appropriate action and in
particular to withdraw from the contract without penalty 266; that if for that reason the consumer
withdraws from the contract or if the organiser cancels the package, the consumer will be entitled to
take a substitute package or to have repaid to him all moneys paid by him under the contract 267; and
that if a significant proportion of the services contracted for is not provided, the organiser will make
suitable alternative arrangements at no extra cost and compensate the consumer for the difference
between the services provided and those contracted for. 268 The Regulations also impose (subject to
certain exceptions) a strict liability on the other party to the contract for the proper performance of the
obligations under the contract, irrespective of whether such obligations are to be performed by that
party or by other suppliers of services. 269
Interest on commercial debts

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14-045
A term is implied into contracts for the supply of goods and services 270 by the Late Payment of
Commercial Debts (Interest) Act 1998 whereby any qualifying debt 271 created by the contract is to
carry statutory interest subject to and in accordance with the Act. 272

Murcia” mbH & Co KG [2012] EWHC 3104 (Comm), [2013] 1 All E.R. (Comm) 1277.
3.
[2009] UKPC 10, [2009] 1 W.L.R. 1988 at [17]–[27]. For an earlier statement of Lord
Hoffmann’s views, expressed extra-judicially, see Lord Hoffmann (1997) 56 S.A.L.J. 656 and
(1995) 29 Law Teacher 127.
4.
Att-Gen of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [19]–[21].
5.
While the courts regularly applied Belize and recognised it for a period of time as the leading
modern authority on the implication of terms into a contract, cases can be found in which the
courts expressed some uncertainty about the precise scope of the decision and its relationship
with earlier case-law: see, for example, Stena Line Ltd v Merchant Navy Ratings Pension Fund
Trustees Ltd [2011] EWCA Civ 543, [2011] Pens. L.R. 22 at [44]; Spencer v Secretary of State
for Defence [2012] EWHC 120 (Ch), [2012] 2 All E.R. (Comm) 480 at [52] and Wuhan Ocean
Economic and Technical Co-operation Co Ltd v Schiffahrts-Gesellschaft “Hansa Murcia” mbH &
Co KG [2012] EWHC 3104 (Comm), [2013] 1 All E.R. (Comm) 1277 at [15]. The reaction to
Belize in the Commonwealth has been more mixed. Thus the courts in Singapore have declined
to follow Belize (see Foo Jong Peng v Phua Kiah Mai [2012] SGCA 55, [2012] 4 S.L.R. 1267
and Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] SGCA 43, [2013] 4 S.L.R. 193) but it
has been followed by the courts in New Zealand (Dysart Timbers Ltd v Nielsen [2009] NZSC
43, [2009] 3 N.Z.L.R. 160).
6.
See, for example, McLauchlan [2014] L.M.C.L.Q. 203; Courtney and Carter (2014) 31 J.C.L.
151; Hooley [2014] C.L.J. 315; McCaughran [2011] C.L.J. 607; Davies [2010] L.M.C.L.Q. 140;
Macdonald (2009) 26 J.C.L. 97; Kramer [2004] C.L.J. 384; McMeel, The Construction of
Contracts, 2nd edn (2011), Ch.11.
7.
Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC
72, [2016] A.C. 742 at [31] per Lord Neuberger. Not all members of the Supreme Court are,
however, of the same view. Thus in Marks & Spencer Lord Carnwath (at [74]) saw no sufficient
reason to question the “continuing authority” of the judgment of Lord Hoffmann in Belize and the
judgment of Lord Clarke (at [76]) is more equivocal, as is the judgment of Lord Mance in Trump
International Golf Club Scotland Ltd v Scottish Ministers [2015] UKSC 74, [2016] 1 W.L.R. 85 at
[42]–[44]. However, the judgment of Lord Neuberger represents the majority view, so that the
authority of Lord Hoffmann’s judgment has now been considerably diminished. See also Utilise
TDS Ltd v Davies [2016] EWHC 2127 (QB) at [52].
8.
Trump International Golf Club Scotland Ltd v Scottish Ministers [2015] UKSC 74, [2016] 1
W.L.R. 85 at [35] per Lord Hodge.
9.
Europa Plus SCA SIF v Anthracite Investments (Ireland) Plc [2016] EWHC 437 (Comm), [34]
per Popplewell J. The relationship between the two may be particularly close in the case where
it is alleged that something has been omitted from the contract. As was noted by Snowden J. in
Hayfin Opal Luxco 3 SARL v Windermere VII CMBS Plc [2016] EWHC 782 (Ch) at [68], the gap
in such a case can be filled either by a process of corrective interpretation or by the implication
Page 17
of an appropriate term in the contract. But in either case it is important to note that the test
applied by the court is a strict one, so that a court will not lightly correct the contract by
supplying the alleged missing term, whether by corrective interpretation or by implication.
10. Insurance Co of Africa v Scor (UK) Reinsurance Co Ltd [1983] 1 Lloyd’s Rep. 551, 558;
Equitable Life Assurance Socy v Hyman [2002] 1 A.C. 408; IMT Shipping and Chartering GmbH
v Chansung Shipping Co Ltd (The “Zenovia”) [2009] EWHC 739 (Comm), [2009] 2 Lloyd’s Rep.
139 at [22].
11. Re Comptoir Commercial Anversois and Power, Son & Co [1920] 1 K.B. 868, 899; O’Brien v
Associated Fire Alarms Ltd [1968] 1 W.L.R. 1916, 1923, 1925; IMT Shipping and Chartering
GmbH v Chansung Shipping Co Ltd (The “Zenovia”) [2009] EWHC 739 (Comm), [2009] 2
12. cf. Johnstone v Bloomsbury H.A. [1992] Q.B. 333; Yarm Road Ltd v Hewdon Tower Cranes Ltd
[2002] EWHC 2265, (2002) 85 Const. L.R. 142.
13. Lister v Romford Ice and Cold Storage Co Ltd [1957] A.C. 555, 576, 579, 594; Greaves & Co
(Contractors) Ltd v Baynham Meikle and Partners [1975] 1 W.L.R. 1095, 1099, 1100; Shell UK
Ltd v Lostock Garage Ltd [1976] 1 W.L.R. 1187, 1196; Liverpool City Council v Irwin [1977] A.C.
239, 255, 258; Scally v Southern Health and Social Services Board [1992] 1 A.C. 294, 307;
Spring v Guardian Assurance Plc [1995] 2 A.C. 296, 320, 340, 353; Ali Shipping Corp v
Shipyard Trogir [1998] 1 Lloyd’s Rep. 643, 651; Mahmud v Bank of Credit and Commerce
International SA [1998] A.C. 20, 34, 45; Equitable Life Assurance Socy. v Hyman [2002] 1 A.C.
408, 458, 459. Contrast National Bank of Greece SA v Pinios Shipping Co [1990] 1 A.C. 637;
Reid v Rush & Tompkins Group Plc [1990] 1 W.L.R. 212, 233; Industrie Chimiche Italia
Centrale and Cerealfin SA v Alexander G. Tsavliris & Sons Maritime Co [1990] 1 Lloyd’s Rep.
517, 526; Ashmore v Corp of Lloyd’s (No.2) [1992] 2 Lloyd’s Rep. 620, 631 (one-off or sui
generis contracts).
14. See, for example, Société Générale, London Branch v Geys [2012] UKSC 63, [2013] 1 A.C.
523, [55].
15. The various (overlapping) conditions which have been relied upon over time were drawn
together by the Privy Council in B.P. Refinery (Westenport) Pty Ltd v Shire of Hastings (1977)
52 A.L.J.R. 20, 26,
16. Société Générale, London Branch v Geys [2012] UKSC 63, [2013] 1 A.C. 523, [55].
17. See, for example, Société Générale, London Branch v Geys [2012] UKSC 63, [2013] 1 A.C.
523, [56], Crossley v Faithful & Gould Holdings Ltd [2004] EWCA Civ 293, [2004] I.C.R. 1615;
Scally v Southern Health and Social Services Board [1992] 1 A.C. 294.
18. Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 W.L.R. 601,
609.
19. Hamlyn & Co v Wood & Co [1891] 2 Q.B. 488, 494; Trollope & Colls Ltd v North West
Metropolitan Regional Hospital Board, above, at 609.
20. See, e.g. Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] 1 Lloyd’s Rep. 122, 128, 131.
21. e.g. by Scrutton L.J. in Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 K.B. 592,
598, by Lord Tucker in Lister v Romford Ice and Cold Storage Co Ltd [1957] A.C. 555, 594, and
by Lord Cross in Liverpool CC v Irwin [1977] A.C. 239, 258. See also B.P. Refinery
(Westenport) Pty Ltd v Shire of Hastings (1977) 52 A.L.J.R. 20, 26, PC; Codelfa Construction
Pty Ltd v State Ry Authority of New South Wales (1982) 149 C.L.R. 337, 347; Byrne v
Australian Airlines Ltd (1995) 185 C.L.R. 410, 422, 441; Phillips Electronique Grand Public SA v
British Sky Broadcasting Ltd [1995] EMLR 472, 480, 482; Association of British Travel Agents
Ltd v British Airways Plc [2001] 1 Lloyd’s Rep. 169, 175, [2000] 2 Lloyd’s Rep. 209, 219;
Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116, [2008] 1
Lloyd’s Rep. 558 at [105]; Fortis Bank SA/NV v Indian Overseas Bank [2010] EWHC 84
Page 18
22. Mosvolds Rederi A/S v Food Corp of India [1986] 2 Lloyd’s Rep. 68; Associated Japanese Bank
(International) Ltd v Crédit du Nord SA [1989] 1 W.L.R. 255, 263; Barclays Bank Plc v Taylor
[1989] 1 W.L.R. 1066, 1076; Marcan Shipping (London) Ltd v Polish S.S. Co [1989] 2 Lloyd’s
Rep. 138, 144; Lauritzen (J.) A/S v Wijsmuller B.V [1990] 1 Lloyd’s Rep. 1, 6; Industrie
Chimiche Italia Centrale and Cerealfin SA v Alexander Tsavliris & Sons Maritime Co (The
Choko Star) [1990] 1 Lloyd’s Rep. 517, 524, 526; Ashmore v Corp of Lloyds (No.2) [1992] 2
Lloyd’s Rep. 620, 627; C. Itoh & Co Ltd v Compania de Navegacao Lloyd Brasileiro and S.S.
Mutual Underwriting Association (Bermuda) Ltd [1999] 1 Lloyd’s Rep. 115, 120–121; Modahl v
British Athletic Federation Ltd [2001] EWCA Civ 1447, [2002] 1 W.L.R. 1192 at [119]; Greene
Wood & McClean LLP v Templeton Insurance Ltd [2009] EWCA Civ 65, [2009] 1 W.L.R. 2013
at [15].
23. [2009] UKPC 10, [2009] 1 W.L.R. 1988.
24. [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [21].
25. [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [28].
26.
Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc (The Reborn)
[2009] EWCA Civ 531, [2009] 2 Lloyd’s Rep. 639 at [8]–[14]; Chantry Estates (South East) Ltd v
Anderson [2010] EWCA Civ 316, 130 Con. L.R. 11; KG Bominflot Bunkergesellschaft für
Mineralöle mbh v Petroplus Marketing AG [2010] EWCA Civ 1145, [2011] 1 Lloyd’s Rep. 442 at
[44]; Beazer Homes Ltd v Durham CC [2010] EWCA Civ 1175 at [36]; Crema v Cenkos
Securities Plc [2010] EWCA Civ 1444, [2011] 1 W.L.R. 2066 at [36]; Garratt v Mirror Group
Newspapers Ltd [2011] EWCA Civ 425, [2011] I.R.L.R. 591 at [46]; Stena Line Ltd v Merchant
Navy Ratings Pension Fund Trustees Ltd [2011] EWCA Civ 543, [2011] Pens. L.R. 22 at [36];
BDW Trading Ltd v JM Rowe (Investments) Ltd [2011] EWCA Civ 548, [2011] 20 E.G. 113
(C.S.) at [34]; Consolidated Finance Ltd v McCluskey [2012] EWCA Civ 1325, [2012] C.T.L.C.
133; Procter and Gamble Co v Svenska Cellulosa Aktiebolaget SCA [2012] EWCA Civ 1413;
Rathbone Brothers Plc v Novae Corporate Underwriting Ltd [2014] EWCA Civ 1464 at [84].
27.
Durham Tees Valley Airport Ltd v BMI Baby Ltd [2009] EWHC 852 (Ch), [2009] 2 Lloyd’s Rep.
246 at [89]; Inta Navigatiori v Ranch Investments Ltd [2009] EWHC 1216 (Comm), [2010] 1
Lloyd’s Rep. 74 at [42]; AET Inc Ltd v Arcaola Petroleum Ltd [2009] EWHC 2337 (Comm),
[2010] 1 Lloyd’s Rep. 593 at [4]; ENE 1 Kos Ltd v Petroleo Brasileiro SA [2009] EWHC 1843
(Comm), [2010] 1 Lloyd’s Rep. 87 at [42]; Fortis Bank SA/NV v Indian Overseas Bank [2010]
EWHC 84 (Comm), [2010] 2 Lloyd’s Rep. 641 at [60]; Redmayne Bentley Stockbrokers v Isaacs
[2010] EWHC 1504 (Comm) at [84]; Cassa di Risparmio della Repubblica di San Marino SpA v
Barclays Bank Ltd [2011] EWHC 484 (Comm), [2011] I.C.L.C. 701 at [541]; F & C Alternative
Investments (Holdings) Ltd v Barthelemy [2011] EWHC 1731 (Ch) at [271]; Leander
Construction Ltd v Mulalley & Co Ltd [2011] EWHC 3449 (TCC) at [41]; Spencer v Secretary of
State for Defence [2012] EWHC 120 (Ch); SNCB Holding v UBS AG [2012] EWHC 2044
(Comm); [2012] All E.R. (D) 259 (Jul); Graiseley Properties Ltd v Barclays Bank Plc [2012]
EWHC 3093 (Comm) at [28]; Wuhan Ocean Economic & Technical Co-operation Co Ltd v
Schiffahrts-Gesellschaft “Hansa Murcia” mbH & Co KG [2012] EWHC 3104 (Comm), [2013] 1
All E.R. (Comm) 1277 at [15]; Greatship (India) Ltd v Oceanografia SA de CV [2012] EWHC
3468 (Comm), [2013] 1 All E.R. (Comm) 1244 at [41]; Yam Seng Pte Ltd v International Trade
Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R. (Comm) 1321 at [132]; TSG Building
Services Plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC), [2013] B.L.R. 484 at [44];
Lombard North Central Plc v Nugent [2013] EWHC 1588 (QB); Marex Financial Ltd v Creative
Finance Ltd [2013] EWHC 2155 (Comm), [2014] 1 All E.R. (Comm) 122 at [72]; Straw v
Jennings [2013] EWHC 3290 (Ch) at [99]; Carewatch Care Services Ltd v Focus Care Services
Ltd [2014] EWHC 2313 (Ch) at [104]; Rosserlane Consultants Ltd v Credit Suisse International
[2015] EWHC 384 (Ch).
28.
[2015] UKSC 72, [2016] A.C. 742. See also Ali v Petroleum Co of Trinidad and Tobago [2017]
UKPC 2, [2017] I.C.R. 531 at [5].
Page 19
29.
Walter Lilly & Co Ltd v Clin [2016] EWHC 357 (TCC), [2016] B.L.R. 247 at [39] and Manor
Asset Ltd v Demolition Services Ltd [2016] EWHC 222 (TCC) at [45].
30.
Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC
72, [2016] A.C. 742 at [24], [66] and [77].
31.
[2015] UKSC 72 at [17].
32.
[2015] UKSC 72 at [23]. See also Rosenblatt (A Firm) v Man Oil Group SA [2016] EWHC
1382 (QB) at [59].
33.
[2015] UKSC 72 at [21].
34.
[2015] UKSC 72 at [21] and [77]. Commercial coherence must be ascertained objectively and
not simply from the perspective of one party. The fact that without the term the contract might
potentially work to the disadvantage of one party in certain circumstances, in that it does not
make a profit it might have made at other times, does not necessarily render the contract as a
whole incoherent: J Toomey Motors Ltd v Chevrolet UK Ltd [2017] EWHC 276 (Comm) at
[91]–[92].
35.
Hallman Holding Ltd v Webster [2016] UKPC 3 at [14]. See also Europa Plus SCA SIF v
Anthracite Investments (Ireland) Plc [2016] EWHC 437 (Comm) at [33]. Given the strict nature
of the test established by the Supreme Court it is now a very difficult task to persuade a court to
imply a term into a contract, particularly a written contract of some length which has been
negotiated with the benefit of legal advice, and a number of cases can now be found in which
the courts have applied the approach of the Supreme Court in Marks and Spencer and, on that
basis, have declined to imply a term into the contract between the parties (see, for example,
Impact Funding Solutions Ltd v Barrington Support Services Ltd [2016] UKSC 57, [2016] 3
W.L.R. 1422 at [31]–[32]; BP Gas Marketing Ltd v La Societe Sonatrach [2016] EWHC 2461
(Comm) at [320]; Teekay Tankers Ltd v STX Offshore & Shipbuilding Co Ltd [2017] EWHC 253
(Comm), [2017] 1 Lloyd’s Rep 387 at [190]; J Toomey Motors Ltd v Chevrolet UK Ltd [2017]
EWHC 276 (Comm); Law Debenture Trust Corp Plc v Ukraine [2017] EWHC 655 (Comm) at
[356]; Gard Shipping AS v Clearlake Shipping Pte Ltd (The Zaliv Baikal) [2017] EWHC 1091
(Comm), [2017] 2 All E.R. (Comm) 179 at [51] and Co-operative Bank Plc v Hayes Freehold Ltd
(in liquidation) [2017] EWHC 1820 (Ch) at [99]).
36. (1889) 14 P.D. 64, 68.
37. Liverpool CC v Irwin [1977] A.C. 239, 254, 262; Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank
Ltd [1986] A.C. 80, 106; CEL Group Ltd v Nedloyd Lines UK Ltd [2003] EWCA Civ 1716, [2004]
1 Lloyd’s Rep. 381 at [20]–[21]; Concord Trust v Law Debenture Trust Corp Plc [2005] UKHL
27, [2005] 1 W.L.R. 1591 at [37].
38. Equitable Life Assurance Society v Hyman [2002] 1 A.C. 408, 459; Att-Gen of Belize v Belize
Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [23]; Marks and Spencer Plc v BNP
Paribas Securities Services Trust Co (Jersey) Ltd [2014] EWCA Civ 603, [2014] 2 E.G.L.R. 48
at [28].
39. The Moorcock (1889) 14 P.D. 64.
40. Silverman v Imperial London Hotels Ltd (1927) 137 L.T. 57.
41. Aktieselskabet Olivebank v Dansk Svolsyre Fabrik [1919] 2 K.B. 162. Contrast Eurico Spa v
Philipp Brothers [1987] 2 Lloyd’s Rep. 215.
42. Triad Shipping Co v Stellar Chartering & Brokerage Inc [1994] 2 Lloyd’s Rep. 227.
Page 20
43. Tappenden v Artus [1964] 2 Q.B. 185.
44. Banco de Portugal v Waterlow & Sons Ltd [1932] A.C. 452.
45. Addison v Brown [1954] 1 W.L.R. 779.
46. Page One Records Ltd v Britton [1968] 1 W.L.R. 157; Denmark Productions Ltd v Boscobel
Productions Ltd [1969] 1 Q.B. 699.
47. Wong Mee Wan v Kwan Kin Travel Services [1996] 1 W.L.R. 38; see also below, para.14-044.
48. British School of Motoring Ltd v Simms [1971] 1 All E.R. 317.
49. Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] 1 Lloyd’s Rep. 122; C. Christo & Co v
Marathon Advisory Service Ltd [2015] EWHC 1971 (QB). But see Marcan Shipping (London)
Ltd v Polish Steamship Co [1989] 2 Lloyd’s Rep. 138, and Vol.II, para.31-150.
50. Goshawk Dedicated Ltd v Tyser & Co Ltd [2006] EWCA Civ 54, [2006] 1 Lloyd’s Rep. 566.
51. CFW Architects v Cowlin Construction Ltd [2006] EWHC 6 (TCC), (2006) 105 Const. L.R. 116.
52. Ease Faith Ltd v Leonis Marine Management Ltd [2006] EWHC 232 (Comm), [2006] 1 Lloyd’s
Rep. 673.
53. J C Ritchie Ltd v Lloyd Ltd [2006] UKHL 9, [2007] 1 W.L.R. 670 at [37].
54. Yewbelle Ltd v London Green Developments Ltd [2007] EWCA Civ 475, [2008] 1 P. & C.R. 17.
55. Berkeley Community Villages Ltd v Pullen [2007] EWHC 1130 (Ch), [2007] E.G.L.R. 101.
56. George v Coastal Marine 2004 Ltd [2009] EWHC 816 (Admlty), [2009] 2 Lloyd’s Rep. 356.
57. MSM Consulting Ltd v Republic of Tanzania [2009] EWHC 121 (QB), 123 Con. L.R. 154; see
Vol.II, para.31-147. Contrast Glentree Estates Ltd v Favermead Ltd [2010] EWCA Civ 1473.
58. Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906 (TCC), 125 Con. L.R. 141
.
59. Fortis Bank SA/NV v Indian Overseas Bank [2010] EWHC 84 (Comm), [2010] 2 Lloyd’s Rep.
641.
60. Ostfriesische Volksbank EG v Fortis Bank [2010] EWHC 361 (Comm), [2010] 2 All E.R.
(Comm) 921.
Murcia” mbH & Co KG [2012] EWHC 3104 (Comm), [2013] 1 All E.R. (Comm) 1277. See also
Peregrine Systems Ltd v Steria Ltd [2005] EWCA Civ 239, [2005] Info. T.L.R. 294; Elvanite Full
Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1191 (TCC), 148 Con. L.R.
127 (extension of time for performance); para.21-021, below.
62. Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2015] UKSC 38, [2015] 1 W.L.R.
2961 at [23].
63. Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 K.B. 592, 605; Weg Motors Ltd v
Hales [1961] Ch. 176, 192; Bronester Ltd v Priddle [1961] 1 W.L.R. 1294, 1304; Hongkong Fir
Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26, 69; Gardiner v Moore [1969] 1
Q.B. 55, 61; Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] 1 Lloyd’s Rep. 122, 128; K/S
Stamar v Seabow Shipping Ltd [1994] 2 Lloyd’s Rep. 183, 191; Fletamentos Maritimos SA v
Effjohn International BV [1995] 1 Lloyd’s Rep. 311, 345; Cargill International SA v Bangladesh
Sugar & Food Industries Corp [1996] 2 Lloyd’s Rep. 524, 531 (affirmed [1998] 1 W.L.R. 461); C.
Page 21
Itoh & Co Ltd v Companhia de Navegacao Lloyd Brasileiro and Steamship Mutual Underwriting
Association (Bermuda) Ltd [1999] 1 Lloyd’s Rep. 115, 120; Weldon v GRE Linked Life
Assurance Ltd [2002] 2 All E.R. (Comm) 914, 919; Modahl v British Athletic Federation Ltd
[2001] EWCA Civ 1447, [2002] 1 W.L.R. 1192 at [119]; Paragon Finance Plc v Nash [2001]
EWCA Civ 1466, [2002] 1 W.L.R. 685 at [36]; Adler v Ananhall Advisory & Consultancy
Services Ltd [2009] EWCA Civ 586; Graiseley Properties Ltd v Barclays Bank Plc [2012] EWHC
3093 (Comm) at [29].
64. Shirlaw v Southern Foundries (1926) Ltd [1939] 2 K.B. 206, 227 (affirmed [1940] A.C. 701).
This approach was criticised by Lord Hoffmann in (1998) 56 S.A.L.J. 656, 662 and in Att-Gen of
Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [25]. For a different test,
see William Morton & Co v Muir Bros & Co 1907 S.C. 1211, 1224; JH Ritchie Ltd v Lloyd Ltd
[2007] UKHL 9, [2007] 1 W.L.R. 670 at [14], [18].
65. Luxor (Eastbourne) Ltd v Cooper ; [1941] A.C. 108; Attica Sea Carriers Corp v Ferrostaal
Poseidon Bulk Rederei GmbH [1976] 1 Lloyd’s Rep. 250; Liverpool CC v Irwin [1977] A.C. 239,
258, 266; Federal Commerce and Navigation Co Ltd v Tradax Export SA [1977] 1 Lloyd’s Rep.
217, 229 (affirmed [1977] 2 Lloyd’s Rep. 301, 309); Frobisher (Second Investments) Ltd v
Kiloran Trust Co Ltd [1980] 1 W.L.R. 425; Aberdeen City Council v Stewart Milne Group Ltd
[2011] UKSC 56, 2012 S.L.T. 205 at [20]–[22], [31]–[33]. cf. the misgivings felt by May L.J. in
Marcan Shipping (London) Ltd v Polish S.S. Co [1989] 2 Lloyd’s Rep. 138, 142 and by Lord
Hoffmann in Att-Gen of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 at
[25].
66. The Moorcock (1889) 14 P.D. 64, 68; Partabmull Rameshwar v K.C. Sethia (1944) Ltd [1950] 1
All E.R. 55 (affirmed [1951] 2 All E.R. 352n); Spring v National Amalgamated Stevedores and
Dockers Socy. [1956] 1 W.L.R. 585; Compagnie Algerienne de Meunerie v Katana Societa di
Navigatione Marittima SpA [1960] 2 Q.B. 115; Jamil Line for Trading and Shipping Ltd v Atlanta
Handelsgesellschaft Harder & Co [1982] 1 Lloyd’s Rep. 481. cf. Greene Wood & McClean LLP
v Templeton Insurance Ltd [2009] EWCA Civ 65, [2009] 1 W.L.R. 2013 at [15].
67. Luxor (Eastbourne) Ltd v Cooper [1941] A.C. 108, 137; Kelly v Battershell [1949] 2 All E.R. 830;
Att-Gen of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [17].
68. L. French & Co v Leeston Shipping Co [1922] 1 A.C. 451, 455; Trollope & Colls Ltd v N.W.
Metropolitan Regional Hospital Board [1973] 1 W.L.R. 601, 609; Liverpool CC v Irwin [1977]
A.C. 239; Federal Commerce and Navigation Co Ltd v Tradax Export SA [1977] 1 Lloyd’s Rep.
217, 228–229 (affirmed [1977] 2 Lloyd’s Rep. 301, 309); Equitable Life Assurance Socy. v
Hyman [2002] 1 A.C. 408; Clarion Ltd v National Provident Institution [2000] 2 All E.R. 265;
Ennstone Building Products Ltd v Stanger Ltd [2002] EWCA Civ 916, [2002] 1 W.L.R. 3059 at
[33].
69. Uzinterimpex JSC v Standard Bank Plc [2008] EWCA Civ 819, [2008] 2 Lloyd’s Rep. 456 at [23]
(financial undertakings).
70. Jones v St John’s College, Oxford (1870) L.R. 6 Q.B. 115, 126; Lynch v Thorne [1956] 1 W.L.R.
303; Shell UK Ltd v Lostock Garage Ltd [1976] 1 W.L.R. 1187, 1200; Codelfa Construction Pty
Ltd v State Railway Authority of New South Wales (1982) 149 C.L.R. 337, 346; Gordon v Selico
Co Ltd [1986] 1 E.G.L.R. 71; J. Lauritzen A/S v Wijsmuller B.V [1990] 1 Lloyd’s Rep. 1, 6;
Flamar Interocean Ltd v Denmac Ltd [1990] 1 Lloyd’s Rep. 434, 437; Bedfordshire CC v
Fitzpatrick Contractors Ltd (1998) 62 Const. L.R. 64, 71; Times Newspapers Ltd v George
Weidenfeld & Nicolson Ltd [2002] F.S.R. 29; Leander Construction Ltd v Mulalley & Co Ltd
[2011] EWHC 3449 (TCC); Greatship (India) Ltd v Oceanografia SA de CV [2012] EWHC 3468
(Comm), [2013] 1 All E.R. (Comm) 1244 at [41]; Lishave Estaleiros Navais SA v Chemikalien
Seetransport GmbH [2013] EWHC 338 (Comm), [2013] 2 Lloyd’s Rep. 203; Rosserlane
Consultants Ltd v Credit Suisse International [2015] EWHC 384 (Ch).
71. Att-Gen of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [25].
72.
Liverpool CC v Irwin [1977] A.C. 239, 254. However, the implication of a term into a contract
Page 22
assumes that there is a concluded contract into which terms can be implied and it is not
legitimate for the court, under the guise of the implying a term, to make the contract for the
parties (see Wells v Devani [2016] EWCA Civ 1106, [2017] 2 W.L.R. 1391 at [19] and [81] and
Scancarriers A/S v Aotearoa International Ltd [1985] 2 Lloyd’s Rep. 419).
73. [1977] A.C. 239.
74. [1987] Ch. 216. cf. Bull v Nottinghamshire and City of Nottingham Fire and Rescue Authority
[2007] EWCA Civ 240, [2007] B.L.G.R. 439 (firefighters’ contracts).
75. [1992] 1 A.C. 294. cf. University of Nottingham v Evett [1999] 1 W.L.R. 594; Crossley v Faithful
& Gould Holdings Ltd [2004] EWCA Civ 293, [2004] I.C.R. 1615; and see para.1-052, above;
76. But it is still subject to the test of necessity; Liverpool CC v Irwin [1977] A.C. 239, 254, 262, 266;
Scally v Southern Health and Social Services Board [1992] 1 A.C. 294.
77. Liverpool CC v Irwin [1977] A.C. 239, 255, 270.
78. Young & Marten v McManus Childs Ltd [1969] 1 A.C. 454, 465; Liverpool CC v Irwin [1977]
A.C. 239, 262; BP Refinery (Westenport) Pty Ltd v Shire of Hastings (1977) 52 A.L.J.R. 20, 26,
PC; Inta Navigatiori v Ranch Investments Ltd [2009] EWHC 1216 (Comm), [2010] 1 Lloyd’s
Rep. 74; Fortis Bank SA/NV v Indian Overseas Bank [2010] EWHC 84 (Comm), [2010] 2
Lloyd’s Rep. 641 at [64]; Cassa di Risparmio della Repubblica di San Marino SpA v Barclays
Bank Ltd [2011] EWHC 484 (Comm), [2011] 1 C.L.C. 701 at [544]; Arash Shipping Enterprises
Co Ltd v Groupama Transport [2011] EWCA Civ 620, [2011] 2 Lloyd’s Rep. 607 at [41].
79. Hamlyn & Co v Wood & Co [1891] 2 Q.B. 488, 491; Reigate v Union Manufacturing Co
(Ramsbottom) Ltd [1918] 1 K.B. 592, 598; Re Comptoir Commercial Anversois v Power, Son
and Co [1920] 1 K.B. 868, 899; George Trollope & Son v Martyn Bros [1934] 2 K.B. 437, 443;
R. v Paddington and St Marylebone Rent Tribunal [1947] K.B. 984, 990; British Movietonews v
London and District Cinemas Ltd [1952] A.C. 166; Bundar Property Holdings Ltd v J. S. Darwen
(Successors) Ltd [1968] 2 All E.R. 305; Lupton v Potts [1969] 1 W.L.R. 1749; Trollope & Colls
Ltd v N.W. Metropolitan Regional Hospital Board [1973] 1 W.L.R. 601; Liverpool CC v Irwin
[1977] A.C. 239; Duke of Westminster v Guild [1985] Q.B. 688; Holding and Management
(Solitaire) Ltd v Ideal Homes Northwest Ltd [2004] EWHC 2408, [2004] Const. L.R. 114;
Friends Provident Life and Pensions Ltd v Sirius International Insurance Corp [2005] EWCA Civ
601, [2005] 2 Lloyd’s Rep. 517 at [32]; Marks and Spencer Plc v BNP Paribas Securities
Services Trust Co (Jersey) Ltd [2014] EWCA Civ 603, [2014] 2 E.G.L.R. 48 at [26].
80. Trollope & Colls Ltd v N.W. Metropolitan Regional Hospital Board [1973] 1 W.L.R. 601, 609;
Express Newspapers v Silverstone Circuits, The Independent, June 16, 1989, CA; Att-Gen of
Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [16].
81. Russell v Duke of Norfolk [1949] 1 All E.R. 109.
82. Liverpool CC v Irwin [1977] A.C. 239, 266; BP Refinery (Westenport) Pty Ltd v Shire of
Hastings (1977) 52 A.L.J.R. 20, 26; Harmony Shipping Co SA v Saudi Europe Line Ltd [1980] 1
Lloyd’s Rep. 44; Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] A.C. 80, 104; Scally
v Southern Health and Social Services Board [1992] 1 A.C. 294; Bedfordshire CC v Fitzpatrick
Contractors Ltd (1998) 62 Const. L.R. 64, 71; Mousaka Inc v Golden Seagull Maritime Inc
[2002] 1 Lloyd’s Rep. 797, 802; Meridian International Services Ltd v Richardson [2008] EWCA
Civ 609, [2008] Info. T.L.R. 139; Brookfield Construction Ltd v Foster & Partners Ltd [2009]
EWHC 307 (TCC), [2009] B.L.R. 246; Arla Foods UK Plc v Barnes [2008] EWHC 2851 (Ch),
[2009] 1 B.C.L.C. 699; Mediterranean Salvage and Towage Ltd v Seamar Trading & Commerce
Inc (the “Reborn”) [2009] EWCA Civ 531, [2009] 2 Lloyd’s Rep. 639 at [15]–[18]; IMT Shipping
and Chartering GmbH v Chansung Shipping Co Ltd (The “Zenovia”) [2009] EWHC 739
(Comm), [2009] 2 Lloyd’s Rep. 139 at [23]; AET Inc Ltd v Arcadia Petroleum Ltd [2009] EWHC
2337 (Comm), [2010] 1 Lloyd’s Rep. 593 at [39]; Fortis Bank SA/NV v Indian Overseas Bank
[2010] EWHC 84 (Comm), [2010] 2 Lloyd’s Rep. 641 at [65]; Strydom v Vendside Ltd [2009]
EWHC 2130 (QB); Chantry Estates (South East) Ltd v Anderson [2010] EWCA Civ 316, 130
Page 23
Con. L.R. 11; Re Agrimarche Ltd [2010] EWHC 1655 (Ch), [2010] B.C.C. 775; Dhamija v
Sunningdale Joineries Ltd [2010] EWHC 2396 (TCC), [2011] P.N.L.R. 9; Cassa di Risparmio
della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm), [2011] 1
C.L.C. 701 at [544]; Leander Construction Ltd v Mullaley & Co Ltd [2011] EWHC 3449 (TCC) at
[41]; NSB Ltd v Worldplay Ltd [2012] EWHC 927 (Comm); Consolidated Finance Ltd v
McCluskey [2012] EWCA Civ 1325, [2012] C.T.L.C. 133; Euroption Strategic Fund Ltd v
Skandinaviska Enskilda Banken AB [2012] EWHC 584 (Comm), [2013] 1 B.C.L.C. 125;
Greatship (India) Ltd v Oceanografia SA de CV [2012] EWHC 3468 (Comm), [2013] 1 All E.R.
(Comm) 1244 at [41]; Proton Energy Group SA v Orlen Lietuva [2013] EWHC 2872 (Comm),
[2014] 1 All E.R. (Comm) 972 at [43]; Marks and Spencer Plc v BNP Paribas Securities
Services Trust Co (Jersey) Ltd [2014] EWCA Civ 603, [2014] 2 E.G.L.R. 48 at [26]. But in
Crossley v Faithful & Gould Holdings Ltd [2004] EWCA Civ 293, [2004] I.C.R. 1615, Morritt V.C.
expressed the view that, in the case of a contract of employment, it was better to focus on
questions of reasonableness, fairness and the balance of competing policy considerations
rather than on the elusive concept of “necessity”. However, the term sought to be implied in the
latter case was a term implied in law where, as noted, in para.14-004 above, the courts take
account of a wider range of considerations when deciding whether or not to imply a term of a
particular type into a contract.
83. Shell UK Ltd v Lostock Garage Ltd [1976] 1 W.L.R. 1187, 1197, 1201. See also R. v
Paddington and St Marylebone Rent Tribunal [1947] K.B. 984, 990; Lister v Romford Ice and
Cold Storage Co Ltd [1957] A.C. 555, 574; Trollope & Colls Ltd v N.W. Metropolitan Regional
Hospital Board [1973] 1 W.L.R. 601, 610, 614; BP Refinery (Westenport) Pty Ltd v Shire of
Hastings (1978) 52 A.J.L.R. 20, 26; Terkol Rederierne v Petroleo Brasilero SA [1985] 1 Lloyd’s
Rep. 395, 401; Ashmore v Corporation of Lloyds (No.2) [1992] 2 Lloyd’s Rep. 620, 628; WX
Investments Ltd v Begg [2002] EWHC 925 (Ch), [2002] 1 W.L.R. 2849 at [29]; Armitage v
Staveley Industries Plc [2004] EWHC 2320, [2004] Pens L.R. 385; Socimer International Bank
Ltd v Standard Bank London Ltd [2008] EWCA Civ 116, [2008] 1 Lloyd’s Rep. 558 at [105],
[110]; Fortis Bank SA/NV v Indian Overseas Bank [2010] EWHC 84 (Comm), [2010] 2 Lloyd’s
Rep. 641 at [67]; Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd
[2011] EWHC 484 (Comm), [2011] 1 C.L.C. 701 at [544]; Consolidated Finance Ltd v
McCluskey [2012] EWCA Civ 1325, [2012] C.T.L.C. 133.
84. Shell UK Ltd v Lostock Garage Ltd [1976] 1 W.L.R. 1187, 1204.
85. BP Refinery (Westenport) Pty Ltd v Shire of Hastings (1977) 52 A.J.L.R. 20, 26; Duke of
Westminster v Guild [1985] Q.B. 688, 700; Eurico Spa v Philipp Brothers [1987] 2 Lloyd’s Rep.
215, 219; Gyllenhammar & Partners International Ltd v Sour Brodogradevna Industrija [1989] 2
Lloyd’s Rep. 403, 415; Yorkshire Water Services Ltd v Sun Alliance & London Insurance Plc
[1997] 2 Lloyd’s Rep. 21, 33; Fast Ferries One SA v Ferries Australia Pty Ltd [2000] 1 Lloyd’s
Rep. 534, 541; Times Newspapers Ltd v George Weidenfeld & Nicolson Ltd [2002] F.S.R. 29;
WX Investments Ltd v Begg [2002] EWHC 925 (Ch), [2002] 1 W.L.R. 2849 at [28]. Hadley
Design Associates Ltd v Westminster CC [2003] EWHC 1617, [2004] T.C.L.R. 1; Fairfax
Gerrard Holdings Ltd v Capital Bank Plc [2006] EWHC 3439 (Comm), [2007] 1 Lloyd’s Rep. 171
; Wootton Trucks Ltd v Man ERF UK Ltd [2006] EWCA Civ 1042, [2006] Eu. L.R. 1217; Port of
Tilbury (London) Ltd v Stora Enso Transport & Distribution Ltd [2009] EWCA Civ 16, [2009] 1
Lloyd’s Rep. 391 at [26]–[27]; Lancore Services Ltd v Barclays Bank Plc [2009] EWCA Civ 752,
[2010] 1 All E.R. 763; Dominion Corporate Trustees Ltd v Capmark Bank Europe Plc [2011]
EWCA Civ 380; Southwark LBC v IBM UK Ltd [2011] EWHC 549 (TCC), 135 Con, L.R. 136;
Carey Group Plc v AIB Group (UK) Plc [2011] EWHC 567 (Ch), [2011] 2 All E.R. (Comm) 461.
86. Ali v Christian Salvesen Food Services Ltd [1997] 1 All E.R. 721.
87. Orman v Saville Sportswear Ltd [1960] 1 W.L.R. 1055.
88. Easton v Hitchcock [1912] 1 K.B. 535.
89. Hamlyn & Co v Wood [1891] 2 Q.B. 488. See also Rhodes v Forwood (1876) 1 App. Cas. 256;
But see Vol.II, para.31-150.
90. Deyong v Shenburn [1946] K.B. 277; Edwards v West Herts Group Hospital Committee [1957]
Page 24
1 W.L.R. 415; Vol.II, para.40-113.
91. Reid v Rush & Tompkins Group Plc [1990] 1 W.L.R. 212; cf. Employers’ Liability (Compulsory
Insurance) Act 1969; Vol.II, para.42-120.
92. Crossley v Faithful & Gould Holdings Ltd [2004] EWCA Civ 293, [2004] I.C.R. 1615.
93. Re Railway and Electric Appliances Co (1888) 38 Ch. D. 597.
94. Barratt Southampton Ltd v Fairclough Building Ltd (1988) 27 Const. L.R. 623.
95. Porter v Tottenham U.D.C. [1915] 1 K.B. 776.
96. Duke of Westminster v Guild [1985] Q.B. 688.
97. Harmony Shipping Co SA v Saudi Europe Line Ltd [1980] 1 Lloyd’s Rep. 44.
98. Ben Shipping Co (Pte) Ltd v An-Board Bainne [1986] 2 Lloyd’s Rep. 285.
99. Industrie Chimiche Italia Centrale and Cerealfin SA v Alexander G. Tsavliris & Sons Maritime
Co [1990] 1 W.L.R. 576.
100. Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] A.C. 80.
101. Suriya & Douglas v Midland Bank Plc, The Times, March 29, 1999.
102. Cryne v Barclays Bank [1987] B.C.L.C. 548.
103. Yorkshire Water Services Ltd v Sun Alliance and London Insurance Plc [1997] 2 Lloyd’s Rep.
21.
104. Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] 1 Q.B. 818
(reversed on other grounds [1992] 1 A.C. 283).
105. Baker v Black Sea & Baltic General Insurance Co Ltd [1998] 1 W.L.R. 974.
106. Bonner v Cox [2005] EWCA Civ 1512, [2006] 2 Lloyd’s Rep. 152.
107. Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp Ltd [1981] A.C. 909
.
108. Hughes v Greenwich LBC [1994] 1 A.C. 170.
109. Bedfordshire CC v Fitzpatrick Contractors Ltd (1998) 62 Const. L.R. 64, 72 (but see Vol.II,
para.40-150, on contracts of employment).
110. Interleasing (UK) Ltd v Morris [2003] EWCA Civ 40.
111. Ultraframe (UK) Ltd v Tailored Roofing System Ltd [2004] EWCA Civ 585, [2004] 2 All E.R.
(Comm) 692.
112. Rennie v Westbury Homes (Holdings) Ltd [2007] EWHC 164, [2007] N.P.C. 18.
113. Multiplex Constructions UC Ltd v Cleveland Bridge UK Ltd [2006] EWHC 1341 (TCC), (2006)
107 Const. L.R.1.
114. Dashwood v Fleurets Ltd [2007] EWHC 1610 (QB), [2007] 34 E.G. 84.
115. CTI Group Inc v Transclear SA [2007] EWHC 2070 (Comm), [2008] 1 Lloyd’s Rep. 179
(affirmed [2008] EWCA Civ 856, [2008] 2 Lloyd’s Rep. 526).
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116. Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] EWCA Civ
531, [2009] 2 Lloyd’s Rep. 639.
117. Arla Foods UK Plc v Barnes [2008] EWHC 2851 (Ch), [2009] 1 B.C.L.C. 699.
118. Lancore Services Ltd v Barclays Bank Plc [2009] EWCA Civ 752, [2010] 1 All E.R. 763.
119. Redmayne Bentley v Isaacs [2010] EWHC 1504 (Comm).
120. Chantry Estates (South East) Ltd v Anderson [2010] EWCA Civ 316, 130 Con. L.R. 11.
121. Emeraldian Ltd Partnership v Wellmix Shipping Ltd [2010] EWHC 1411 (Comm), [2011] 1
Lloyd’s Rep. 301.
122. Crema v Cenkos Securities Plc [2010] EWCA Civ 1444, [2011] 1 W.L.R. 2066.
123. See Bateson [1960] J.B.L. 187; Burrows (1968) 31 M.L.R. 390, 402; Peden (2000) 15 J.C.L. 56.
In the event that English law develops an implied term requiring the parties to act in good faith
in performance of the contract (see para.14-031, below), it is possible that the duty to
co-operate may be absorbed within the broader good faith duty: Yam Seng Pte Ltd v
International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R. (Comm) 1321 at [139].
124.
Mackay v Dick (1881) 6 App. Cas. 251, 263. See also Hunt v Bishop (1853) 8 Exch. 675;
Roberts v Bury Commissioners (1870) L.R. 5 C.P. 310, 325; Nelson v Dahl (1879) 12 Ch. D.
568, 592 (affirmed (1881) 6 App. Cas. 38); Sprague v Booth [1909] A.C. 576, 580; Kleinert v
Abosso Gold Mining Co (1913) 58 S.J. (PC) 45; Harrison v Walker [1919] 2 K.B. 453; Colley v
Overseas Exporters [1921] 3 K.B. 302, 309; Panamena Europa Navegacion v Frederick
Leyland & Co Ltd [1947] A.C. 428, 436; Luxor (Eastbourne) Ltd v Cooper [1941] A.C. 108, 118;
A. V. Pound & Co Ltd v M. W. Hardy & Co Inc [1956] A.C. 588, 608, 611; Sociedad Financiera
de Bienes Raices v Agrimpex [1961] A.C. 135; Sunbeam Shipping Co Ltd v President of India
[1973] 1 Lloyd’s Rep. 482, 486; Schindler v Pigault [1975] 1 C.L. 401; Metro Meat Ltd v Fares
Rural Co Pty Ltd [1985] 2 Lloyd’s Rep. 13, 14; Merton LBC v Hugh Leach Ltd (1985) 32 Build.
L.R. 51; Kurt A. Becher GmbH & Co K.G. v Roplak Enterprises SA [1991] 2 Lloyd’s Rep. 23, 30,
34; Davy Offshore Ltd v Emerald Field Contracting Ltd (1991) 27 Const. L.R. 138; Nissho Iwai
Petroleum Inc v Cargill International SA [1993] 1 Lloyd’s Rep. 80, 84; Scottish Power Plc v
Kvaerner Construction (Regions) Ltd 1999 S.L.T. 721; Goodway v Zurich Insurance Co [2004]
EWHC 137, (2004) 96 Const. L.R. 49; General Trading Co (Holdings) Ltd v Richmond Corp Ltd
[2008] EWHC 1479 (Comm), [2008] 2 Lloyd’s Rep. 475 at [87]; Hudson Bay Apparel Brands
LLC v Umbro International Ltd [2009] EWHC 2861 (Ch) at [119], [128], [136], [140]; Yam Seng
Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R. (Comm) 1321
at [139]; Swallowfalls Ltd v Monaco Yachtung & Technologies S.A.M. [2014] EWCA Civ 186,
[2014] 2 Lloyd’s Rep. 50 at [32], [33]; Ali v Petroleum Co of Trinidad and Tobago [2017] UKPC
2, [2017] I.C.R. 531 at [8]. See also below, para.24-033, Vol.II, para.37-075.
125. Siporex Trade SA v Banque Indosuez [1986] 2 Lloyd’s Rep. 146, 161; North Sea Energy
Holdings NV v Petroleum Authority of Thailand [1997] 2 Lloyd’s Rep. 418 (affirmed [1999] 1
Lloyd’s Rep. 482); Kallang Shipping SA v AXG Assurances Senegal (The “Kallang”) (No.2)
[2008] EWHC 2761 (Comm), [2009] 1 Lloyd’s Rep. 124 at [79]; Sotrade Denizcilik Sanayi Ve
Ticaret AS v Amadou LO (The Duden) [2008] EWHC 2762 (Comm), [2009] 1 Lloyd’s Rep. 145
at [55].
126. Mackay v Dick (1881) 6 App. Cas. 251, 263; Mona Oil Equipment and Supply Co Ltd v
Rhodesia Rys Ltd [1949] 2 All E.R. 1014; Hargreaves Transport Ltd v Lynch [1969] 1 W.L.R.
215; Liverpool CC v Irwin [1977] A.C. 239; Kurt A. Becher GmbH & Co K.G. v Roplak
Enterprises SA (The World Navigator) [1991] 2 Lloyd’s Rep. 23, 30, 31, 34; North Sea Energy
Holdings NV v Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep. 482, 492; Jolley v Carmel
Ltd [2000] 2 E.G.L.R. 154, 159; Brookfield Construction Ltd v Foster and Partners Ltd [2009]
EWHC 307 (TCC), [2009] B.L.R. 246; Mid Essex Hospital Services NHS Trust v Compass
Group UK and Ireland Ltd [2013] EWCA Civ 200, [2013] B.L.R. 265 at [106].
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127. Stirling v Maitland (1864) 5 B. & S. 840, 852. See also Rhodes v Forwood (1876) 1 App. Cas.
256, 272, 274; Turner v Goldsmith [1891] 1 Q.B. 544; Ogdens Ltd v Nelson [1905] A.C. 109;
Warren v Agdeshman (1922) 38 T.L.R. 588; C. French & Co Ltd v Leeston Shipping Co Ltd
[1922] 1 A.C. 451; Southern Foundries (1926) Ltd v Shirlaw [1940] A.C. 701; William Cory &
Son Ltd v City of London Corp [1951] 2 K.B. 476, 484; A. Hamson & Son (London) Ltd v S.
Martin Johnson & Co Ltd [1953] 1 Lloyd’s Rep. 553; Shindler v Northern Raincoat Ltd [1960] 1
W.L.R. 1038; The Unique Mariner (No.2) [1979] 1 Lloyd’s Rep. 37; Merton LBC v Hugh Leach
Ltd (1985) 32 Build. L.R. 51; Martin-Smith v Williams [1999] E.M.L.R. 571; CEL Group Ltd v
Nedloyd Lines UK Ltd [2003] EWCA Civ 1716, [2004] 1 Lloyd’s Rep. 381 at [11], [22] and [23];
Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R.
(Comm) 1321 at [139]. See also Bateson [1960] J.B.L. 187; Burrows (1968) 31 M.L.R. 390;
above, para.2-162; Vol.II, para.37-074.
129. Holme v Guppy (1838) 3 M. & W. 387, 389; Inchbald v Western Neilgherry Coffee, etc., Co
(1864) 17 C.B.(N.S.) 733; Roberts v Bury Improvements Commissioners (1870) L.R. 5 C.P.
310, 316; Mackay v Dick (1881) 6 App. Cas. 251; Dodd v Churton [1897] 1 Q.B. 562, 566;
Barque Quilpué Ltd v Brown [1904] 2 K.B. 264, 271; Hickman & Co v Roberts [1913] A.C. 229;
Trollope v Martyn [1934] 2 K.B. 436; Amalgamated Building Contractors Ltd v Waltham Holy
Cross U.D.C. [1952] 2 All E.R. 452, 455; Jebco Properties v Mastforce [1992] N.P.C. 42; Nissho
Iwai Petroleum Co Inc v Cargill International SA [1993] 1 Lloyd’s Rep. 80; Taylor v Rive Droite
Music Ltd [2005] EWCA Civ 1300, [2006] E.M.L.R. 4. See also below, para.24-033.
130. Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] E.M.L.R. 472;
Times Newspapers Ltd v George Weidenfeld & Nicolson Ltd [2002] F.S.R. 29.
131. Locke v Candy and Candy Ltd [2010] EWCA Civ 1350, [2011] I.R.L.R. 163.
132. Aspdin v Austin (1844) 5 Q.B. 671; European, etc., Mail Co v Royal Mail Steam Packet Co
(1861) 30 L.J.C.P. 247; Rhodes v Forwood (1876) 1 App. Cas. 256; Hamlyn v Wood [1891] 2
Q.B. 488; Luxor (Eastbourne) Ltd v Cooper [1941] A.C. 108; William Cory & Son Ltd v City of
London Corp [1951] 2 K.B. 476; Farr v Admiralty [1953] 1 W.L.R. 565; Thompson v Asda-MFI
Group Plc [1988] Ch. 241; Davy Offshore Ltd v Emerald Field Contracting Ltd (1991) 27 Const.
L.R. 138; Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] E.M.L.R.
477; Multiplex Construction (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447
(TCC), (2007) 111 Const. L.R. 78; see Vol.II, para.37-074.
133. See above, para.13-085. cf. Richco International Ltd v Alfred C. Toepfer International GmbH
[1991] 1 Lloyd’s Rep. 136, 144; Bulk Shipping A.G. v Ipco Trading SA [1992] 1 Lloyd’s Rep. 39,
43; Petroplus Marketing AG v Shell Trading International Ltd (The “Niviae”) [2009] EWHC 1024
134. H.O. Brandt & Co v H.N. Morris & Co [1917] 2 K.B. 784; J.W. Taylor & Co v Landauer & Co
[1940] 4 All E.R. 335; Mitchell Cotts & Co (Middle East) Ltd v Hairco Ltd [1943] 2 All E.R. 552;
A.V Pound & Co Ltd v M.W. Hardy & Co Inc [1956] A.C. 588; Congimex Companhia Geral, etc.,
SARL v Tradax Export SA [1983] 1 Lloyd’s Rep. 250. See Benjamin’s Sale of Goods, 9th edn
(2014), paras 18–356—18–380.
135. Re Anglo-Russian Merchant Traders Ltd and John Batt & Co (London) Ltd [1917] 2 K.B. 679;
Brauer & Co (G.B.) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All E.R. 497. See also
Windschuegl Ltd v Pickering & Co Ltd (1950) 84 Lloyd’s Rep. 89, 93; Société D’Avances
Commerciales (London) Ltd v A. Besse & Co (London) Ltd [1952] 1 T.L.R. 644, 646;
Compagnie Algerienne de Meunerie v Katana Societa de Navigatione Marittima SpA [1959] 1
Q.B. 527; Provimi Hellas A.E. v Warinco A.G. [1978] 1 Lloyd’s Rep. 373; Coloniale
Import-Export v Loumidis Sons [1978] 2 Lloyd’s Rep. 560, 562; Benjamin’s Sale of Goods at
paras 18–361—18–380.
136. Mitchell Cotts & Co (Middle East) Ltd v Hairco Ltd [1943] 2 All E.R. 552; Partabmull Rameshwar
v Sethia (K.C.) (1944) Ltd [1950] 1 All E.R. 51 (affirmed [1951] 2 All E.R. 352n); Peter Cassidy
Seed Co Ltd v Osuustukkukauppa I.L. [1957] 1 W.L.R. 273; Congimex Companhia Geral, etc.,
Page 27
SARL v Tradax Export SA [1983] 1 Lloyd’s Rep. 250.
137. A.V. Pound & Co Ltd v M.W. Hardy & Co Inc [1956] A.C. 588, 608, 611; Kyprianou v Cyprus
Textiles Ltd [1958] 2 Lloyd’s Rep. 60.
138. Occupiers’ Liability Act 1957 s.5(1), superseding the rule in Francis v Cockrell (1870) L.R. 5
Q.B. 501. See further on the background to s.5 Maguire v Sefton [2006] EWCA Civ 316, [2006]
1 W.L.R. 2550 at [20]–[24].
139. s.2(2).
140. See the Unfair Contract Terms Act 1977 ss.1, 2, 3 (below) and Monarch Airlines Ltd v London
Luton Airport Ltd [1998] 1 Lloyd’s Rep. 403.
141. Occupiers’ Liability Act 1957 s.2(1). See also Ashdown v Samuel Williams & Sons Ltd [1957] 1
Q.B. 409; White v Blackmore [1972] 2 Q.B. 651 (notices).
142. s.3(1)–(4).
143. s.5(2).
144. s.5(3).
145. Hoskins v Woodham [1938] 1 All E.R. 692; Lynch v Thorne [1956] 1 W.L.R. 303, 305.
146. Lawrence v Cassell [1930] 2 K.B. 83; Miller v Cannon Hill Estates Ltd [1931] 2 K.B. 113;
Jennings v Taverner [1955] 1 W.L.R. 932; Hancock v B.W. Brazier (Anerley) Ltd [1966] 1
W.L.R. 1317; Billyack v Leyland Construction Co Ltd [1968] 1 W.L.R. 471; King v Victor
Parsons & Co [1972] 1 W.L.R. 801. See also below, para.14-037 and Vol.II, para.37-080.
147. Perry v Sharon Development Co Ltd [1937] 4 All E.R. 390, 394; Lynch v Thorne [1956] 1
W.L.R. 303; cf. King v Victor Parsons & Co [1972] 1 W.L.R. 801.
148. ss.1, 2, 6. See also s.3 and Vol.II, para.37-083.
149. Alexander v Mercouris [1979] 1 W.L.R. 1270; Andrews v Schooling [1991] 1 W.L.R. 783; Bole v
Huntsbuild Ltd [2009] EWCA Civ 1146, 127 Con. L.R. 154; Harrison v Shepherd Homes Ltd
[2011] EWHC 1811 (TCC), [2011] All E.R. (D) 140 (Jul).
150. Defective Premises Act 1972 s.1. The duty arises only in respect of the provision of a new
dwelling: Jenson v Faux [2011] EWCA Civ 423, [2011] 1 W.L.R. 3038; Rendlesham Estates Plc
v Barr Ltd [2014] EWHC 3968 (TCC), [2015] B.L.R. 37.
151. Hart v Windsor (1843) 12 M. & W. 68; Sutton v Temple (1843) 12 M. & W. 52; Robbins v Jones
(1863) 12 M. & W. 68, 87; Manchester Bonded Warehouse Co Ltd v Carr (1880) 5 C.P.D. 507;
Bottomley v Bannister [1932] 1 K.B. 458, 468. Contrast Western Electric Ltd v Welsh
Development Agency [1983] Q.B. 796 (licence).
152. Edler v Auerbach [1950] 1 K.B. 359; Hills v Harris [1965] 2 Q.B. 601.
153. Smith v Marrable (1843) 11 M. & W. 5; Collins v Hopkins [1923] 2 K.B. 617.
154. Sarson v Roberts [1895] 2 Q.B. 395; Sleafer v Lambeth BC [1960] 1 Q.B. 43, 56–57; Duke of
Westminster v Guild [1985] Q.B. 688; Adami v Lincoln Grange Management Ltd [1998] I.C.L.
379. See also Warren v Keen [1954] 1 Q.B. 15. Contrast Mint v Good [1951] 1 K.B. 517, 522;
Edmonton Corp v Knowles & Son Ltd (1961) 60 L.G.R. 124; Defective Premises Act 1972
s.4(4).
155. Landlord and Tenant Act 1985 ss.8, 9, 10.

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156. ss.11–17 (term less than seven years) as amended by s.116 of the Housing Act 1988.
157. Miller v Hancock [1893] 2 Q.B. 177; Liverpool City Council v Irwin [1977] A.C. 239. See also
Occupiers’ Liability Act 1957 s.3(4) and Landlord and Tenant Act 1987 Pt IV.
158. Hutton v Warren (1836) 1 M. & W. 466; Dale v Humfrey (1858) E.B. & E. 1004; Tucker v Linger
(1882) 21 Ch. D. 18, 33, 34 (affirmed (1883) 8 App. Cas. 508); Pike, Sons & Co v Ongley &
Thornton (1887) 18 Q.B.D. 708; Fox-Bourne v Vernon & Co Ltd (1894) 10 T.L.R. 647; Lord
Eldon v Hedley Bros [1935] 2 K.B. 1; E.E. & Brian Smith (1928) Ltd v Wheatsheaf Mills Ltd
[1939] 2 K.B. 302; Mount v Oldham Corp [1973] 1 Q.B. 309; British Crane Hire Corp Ltd v
Ipswich Plant Hire Ltd [1975] Q.B. 303; Novorossisk Shipping Co v Neopetro Co Ltd [1990] 1
Lloyd’s Rep. 425, 431; Tony Cox (Dismantlers) Ltd v Jim 5 Ltd (1997) 13 Const. L.J. 209. See
above, paras 13–130-13–136.
159. See above, para.13-131; below, para.14-026. An “entire agreement” clause (see above,
para.13-107) may exclude any such implication: Exxonmobil Sales and Supply Corp v Texaco
Ltd [2003] EWHC 1964, (Comm); [2003] 2 Lloyd’s Rep. 686. However, an “entire agreement”
clause will not usually be effective to exclude a term implied as a matter of fact: Novoship (UK)
Ltd v Mikhaylyuk [2015] EWHC 992 (Comm) at [32].
160. Yates v Pym (1816) 6 Taunt. 446; Daun v City of London Brewery Co (1869) L.R. 8 Eq. 155,
161; Nelson v Dahl (1879) 12 Ch. D. 568, 575 (affirmed (1881) 6 App. Cas. 38); Re Walkers,
Winser & Hamm and Shaw, Son & Co [1904] 2 K.B. 152; Ropner v Stoate Hosegood & Co
(1905) 10 Com. Cas. 73; Cunliffe-Owen v Teather and Greenwood [1967] 1 W.L.R. 1421, 1438,
1439; Constan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust.) Ltd (1986)
160 C.L.R. 226; Pryke v Gibbs Hartley Cooper Ltd [1991] 1 Lloyd’s Rep. 602, 615; Danowski v
Henry Moore Foundation, The Times, March 19, 1996 CA; Exxonmobil Sales and Supply Corp
v Texaco Ltd [2003] EWHC 1964 (Comm); [2003] 2 Lloyd’s Rep. 686 at [21].
161. Cunliffe-Owen v Teather and Greenwood [1967] 1 W.L.R. 1421, 1438; General Reinsurance
Corp v Forsakringsaktiebolaget [1983] Q.B. 856, 874; Pryke v Gibbs Hartley Cooper Ltd [1991]
1 Lloyd’s Rep. 602, 615; Vitol SA v Phibro Energy A.G. [1990] 2 Lloyd’s Rep. 84, 90; Sucre
Export SA v Northern Shipping Ltd [1994] 2 Lloyd’s Rep. 266. But trade practice may be
relevant as part of the factual matrix and admissible as an aid to construction or the implication
of a term: Crema v Cenkos Securities Plc [2010] EWCA Civ 1444, [2011] 1 W.L.R. 2066 at [41].
162. Raitt v Mitchell (1815) 4 Camp. 146, 149; Produce Brokers Co Ltd v Olympia Oil and Cake Co
Ltd [1916] 1 A.C. 314, 324.
163. Hutton v Warren (1836) 1 M. & W. 466, 475; Gibson v Small (1853) 4 H.L.C. 353, 397.
164. Liverpool City Council v Irwin [1977] A.C. 239, 253; Baker v Black Sea & Baltic General
Insurance Co Ltd [1998] 1 W.L.R. 974, 979.
165. Sutton v Tatham (1839) 10 A. & E. 27; Bayliffe v Butterworth (1847) 1 Exch. 425; Reynolds v
Smith (1893) 9 T.L.R. 494; Hunt v Chamberlain (1896) 12 T.L.R. 186.
168. Above, para.1-088.
169. Houlder v General Steam Navigation Co (1862) 3 F. & F. 170; Salsi v Jetspeed Air Services Ltd
[1977] 2 Lloyd’s Rep. 57.
170.
It has been observed that it is “something of a misnomer to see these terms as being implied
on any conventional basis. Rather, it is a question of what terms are to be incorporated as
express terms. Implication only arises for consideration once the express terms have been
identified and considered”: J Toomey Motors Ltd v Chevrolet UK Ltd [2017] EWHC 276 (Comm)
Page 29
at [98].
171. Calton v Bragg (1812) 15 East 223, 228; Bruce v Hunter (1813) 3 Camp. 467; Newal v Jones
(1830) 1 Moo. & M. 449; Re Marquis of Anglesey [1901] 2 Ch. 548; cf. Re Lloyd Edwards
(1891) 65 L.T. 453. But see Vol.II, para.39-285.
172. Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 A.C. 31, 90, 91, 104, 105, 130. See
also J. Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461; Cockerton v Naviera Aznar SA [1960] 2
Lloyd’s Rep. 451; Transmotors Ltd v Robertson Buckley & Co Ltd [1970] 1 Lloyd’s Rep. 224;
Eastman Chemical International A.G. v N.M.T. Trading Ltd [1972] 2 Lloyd’s Rep. 25; Roberts v
Elwells Engineers Ltd [1972] 2 Q.B. 586, 593; Gillespie Bros & Co Ltd v Roy Bowles Transport
Ltd [1973] Q.B. 400; S.I.A.T. di del Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep. 53;
Lamport & Holt Lines Ltd v Coubro & M. & I. Scrutton Ltd [1981] 2 Lloyd’s Rep. 659 (affirmed
[1982] 2 Lloyd’s Rep. 42); F.R. Lurssen Werft GmbH & Co KG v Halle [2010] EWCA Civ 587,
[2011] 1 Lloyd’s Rep. 265. cf. McCutcheon v David MacBrayne Ltd [1964] 1 W.L.R. 125, HL;
Hollier v Rambler Motors (A.M.C.) Ltd [1972] 2 Q.B. 71; Transformers & Rectifiers Ltd v Needs
Ltd [2015] EWHC 269 (TCC), [2015] B.L.R. 336. See Hoggett (1970) 33 M.L.R. 518 and above,
para.13-011.
173.
London Export Corp Ltd v Jubilee Coffee Roasting Co Ltd [1958] 1 W.L.R. 661, 675; Kum v
Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep. 439, 445. An inconsistency for this purpose can be
either linguistic or substantive: Irish Bank Resolution Corp Ltd v Camden Markets Holding Corp
[2017] EWCA Civ 7 at [35].
174. Les Affréteurs Réunis Société Anonyme v Walford [1919] A.C. 801. See generally on this point,
above, para.13-131.
175. Re L. Sutro & Co v Heilbut, Symons & Co [1927] 2 K.B. 348. See also Humfrey v Dale (1857) 7
E. & B. 266, 274; Tucker v Linger (1883) 8 App. Cas. 508, 511; Westacott v Hahn [1918] 1 K.B.
495; Palgrave, Brown & Son Ltd v S.S. Turid [1922] 1 A.C. 397.
176. Saltoun v Houston (1824) 1 Bing. 433; Easterby v Sampson (1830) 6 Bing. 644; Courtney v
Taylor (1843) 6 M. & G. 851; Great Northern Ry v Harrison (1852) 12 C.B.(N.S.) 576, 609;
Knight v Gravesend, etc., Waterworks Co (1857) 2 H. & N. 6; Farrall v Hilditch (1859) 5
C.B.(N.S.) 840; Jackson v North Eastern Ry (1877) 7 Ch. D. 573; Mackenzie v Childers (1889)
43 Ch. D. 265.
177. Re Weston [1900] 2 Ch. 164.
178. Corkling v Massey (1873) L.R. 8 C.P. 395.
180. Aspdin v Austin (1844) 5 Q.B. 671, 684.
181. Dawes v Tredwell (1881) 18 Ch. D. 354, 359.
182.
British Telecommunications Plc v Telefónica O2 UK Ltd [2014] UKSC 42, [2014] 4 All E.R.
907 at [37]; Abu Dhabi National Tanker Co v Product Star Shipping Ltd [1993] 1 Lloyd’s Rep.
397, 404; Paragon Finance Plc v Nash [2001] EWCA Civ 1466, [2002] 1 W.L.R. 685 at [31];
Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] EWCA Civ 1047, [2001] 2 All E.R.
(Comm) 299 at [67]; Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA
Civ 116, [2008] 1 Lloyd’s Rep. 538 at [60]–[69]; Yam Seng Pte Ltd v International Trade Corp
Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R. (Comm) 1321 at [145]; Marex Financial Ltd v
Creative Finance Ltd [2013] EWHC 2155 (Comm), [2014] 1 All E.R. (Comm) 122 at [57], [89];
see above, para.1-054. cf. Paragon Finance Plc v Pender [2005] EWCA Civ 760, [2005] 1
W.L.R. 3412. See also Vol.II, para.39-293 (interest rates); above, para.1-054, Vol.II,
para.40-078 (bonuses). The cases in which a term of this nature has been implied are cases in
which the contracting party had a choice to make among a range of options, taking into account
the interests of both parties. Where, on the other hand, the discretion relates to the exercise of
Page 30
an absolute contractual right, there is no room for the implication of a term placing a limit on the
exercise of that contractual right: Mid Essex Hospital Services NHS Trust v Compass Group UK
and Ireland Ltd [2013] EWCA Civ 200, [2013] B.L.R. 265 at [83] and [138]; TSG Building
Services Plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC), [2013] B.L.R. 484; Hockin
v Royal Bank of Scotland [2016] EWHC 925 (Ch) at [37]; Monde Petroleum SA v
WesternZagros Ltd [2016] EWHC 1472 (Comm) at [242]–[276]; Hockin v Royal Bank of
Scotland [2016] EWHC 925 (Ch) at [37]; Monde Petroleum SA v WesternZagros Ltd [2016]
EWHC 1472 (Comm) at [242]–[276]; Property Alliance Group Ltd v Royal Bank of Scotland Plc
[2016] EWHC 3342 (Ch) at [277]; Brogden v Investec Bank Plc [2016] EWCA Civ 1031, [2017]
I.R.L.R. 90 at [20].
183. Societa Explosivi Industriale SpA v Ordnance Technologies (VIC) Ltd [2004] EWHC 48
(Comm), [2004] 1 All E.R. (Comm) 619. See also Addison v Brown [1954] 1 W.L.R. 779;
Lymington Marina Ltd v MacNamara [2007] EWCA Civ 151; Eastleigh BC v Town Quay
Developments Ltd [2009] EWCA Civ 1391, [2010] 2 P. & C.R. 2; Yam Seng Pte Ltd v
International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R. (Comm) 1321 at [145].
184. Reda Ltd v Flag [2002] UKPC 38, [2002] I.R.L.R. 747 at [45]; Socimer International Bank Ltd v
Standard Bank London Ltd [2008] EWCA Civ 116, [2008] 1 Lloyd’s Rep. 538; Looney v
Trafigura Beheer BV [2011] EWHC 125 (Ch).
185. [1998] A.C. 20. See Vol.II, para.40-150.
186. See above para.1-052, Vol.II, paras 40-150-40-153. For the employee’s duty of fidelity and
good faith, see Vol.II, para.40-062.
187. Gledhill v Bentley Designs (UK) Ltd [2010] EWHC 1965 (QB), [2011] 1 Lloyd’s Rep. 270. But
188.
Jani-King (GB) Ltd v Pula Enterprises Ltd [2007] EWHC 2433 (QB), [2008] 1 All E.R. (Comm)
451 at [51]; Chelsfield Advisers LLP v Qatari Diar Real Estate Investment Co [2015] EWHC
1322 (Ch); Mr H TV Ltd v ITV2 Ltd [2015] EWHC 2840 (Comm) at [43]–[51]. But see Yam Seng
Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R. (Comm) 1321
(implied term as to good faith); see above, para.1-053.
189. See para.1-039, above.
190. [2013] EWHC 111 (QB), [2013] 1 All E.R. (Comm) 1321 at [121]–[154]. Contrast Mid Essex
Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200,
[2013] B.L.R. 265 at [105] and [150]; TSG Building Services Plc v South Anglia Housing Ltd
[2013] EWHC 1151 (TCC), [2013] B.L.R. 484; Hamsard 3147 Ltd v Boots UK Ltd [2013] EWHC
3251 (Pat) at [85], [92]; and see above, paras 1-039, 1-053.
191. Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R.
(Comm) 1321 at [131].
192.
Carewatch Care Services Ltd v Focus Care Services Ltd [2014] EWHC 2313 (Ch) at [109];
Greenclose Ltd v National Westminster Bank Plc [2014] EWHC 1156 (Ch); Fujitsu Services Ltd
v IBM United Kingdom Ltd [2014] EWHC 752 (TCC); TSG Building Services v South Anglia
Housing Ltd [2013] EWHC 1151 (TCC), [2103] B.L.R. 484; Globe Motors Inc v TRW Lucas
Varity Electric Steering Ltd [2016] EWCA Civ 396 at [68]. Indeed, in an arm’s length commercial
relationship the courts will generally incline against the implication of a good faith term and will
put the onus on the parties to include an express term to this effect if they wish to be bound by
such a duty: Chelsfield Advisers LLP v Qatari Diar Real Estate Investment Co [2015] EWHC
1322 (Ch) at [80].
193.
Hamsard 3147 Ltd v Boots UK Ltd [2013] EWHC 3251 (Pat); Portsmouth City Council v
Ensign Highways Ltd [2015] EWHC 1969 (TCC); Myers v Kestrel Acquisitions Ltd [2015] EWHC
916 (Ch); Property Alliance Group Ltd v Royal Bank of Scotland Plc [2016] EWHC 3342 (Ch) at
Page 31
[276].
194.
See, for example, Hamsard 3147 Ltd v Boots UK Ltd [2013] EWHC 3251 (Pat) at [86] where
the term proposed was taken to require “a contracting party to subordinate its own commercial
interests to those of the other contracting party.” See also Monde Petroleum SA v
WesternZagros Ltd [2016] EWHC 1472 (Comm) at [242]–[276].
195.
D&G Cars v Essex Police Authority [2015] EWHC 226 (QB), [2015] All E.R. (D) 85 (Mar) at
[173]; Apollo Window Blinds Ltd v McNeil [2016] EWHC 2307 (QB); T and L Sugars Ltd v Tate
and Lyle Industries Ltd [2015] EWHC 2696 (Comm) at [152] (“while it would be right to imply a
term that the Defendant would act in good faith and honestly in carrying out the process
envisaged in clauses 3.7.1 and 3.7.3, there is no proper basis for the implication of the very
much more onerous term for which the Claimant argues”).
196. Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R.
(Comm) 1321 at [149].
197. Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] A.C. 173, 195, 203;
Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 Q.B. 556, 578;
Staffordshire A.H.A. v South Staffordshire Waterworks Co [1978] 1 W.L.R. 1387, 1399–1403,
1405.
198. Re Spenborough U.D.C.’s Agreement [1968] Ch. 139, 147. See also Llanelly Rail and Dock Co
v L. & N.W. Ry (1873) L.R. 8 Ch. App. 942; (1875) L.R. 7 H.L. 550. cf. Carnegie (1969) 85
L.Q.R. 392.
199. Crediton Gas Co v Crediton Urban Council [1928] Ch. 174, 447. See also Beverley Corp v
Richard Hodgson & Sons Ltd (1972) 225 E.G. 799; Staffordshire A.H.A. v South Staffordshire
Waterworks Co [1978] 1 W.L.R. 1387; Tower Hamlets LBC v British Gas Corp, The Times,
March 23, 1982. Contrast Kirklees Metropolitan BC v Yorkshire Woollen District Transport Co
(1978) 77 L.G.R. 448; Power Co Ltd v Gore DC [1997] N.Z.L.R. 537; Harbinger UK Ltd v GE
Information Services Ltd [2000] 1 All E.R. (Comm) 166; Jani-King (GB) Ltd v Pula Enterprises
Ltd [2007] EWHC 2433 (QB), [2008] 1 All E.R. (Comm) 457; Servicepower Asia Pacific Pty Ltd
v Servicepower Business Solutions Ltd [2009] EWHC 179 (Ch), [2010] 1 All E.R. (Comm) 238.
200. Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] A.C. 173; cf.
Australian Blue Metal Ltd v Hughes [1963] A.C. 74.
201. See Vol.II, paras 40-157, 40-161. Contrast McClelland v Northern Ireland General Health
Services Board [1957] 1 W.L.R. 594 where express terms prevented such implication.
202. Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 Q.B. 566. See Vol.II,
para.31-151.
203. Milner & Son v Percy Bilton Ltd [1966] 1 W.L.R. 1582.
204. Thomas v Sorrell (1673) Vaughan 330; Jones v Earl of Tankerville [1909] 2 Ch. 440.
205. Walsh v Lonsdale (1882) 21 Ch. D. 9 (or sufficient act of part performance).
206. Mellor v Watkins (1874) L.R. 9 Q.B. 400.
207. Minister of Health v Bellotti [1944] 1 K.B. 298; Tool Metal Manufacturing Co Ltd v Tungsten
Electric Co Ltd [1955] 1 W.L.R. 761; Australian Blue Metal Ltd v Hughes [1963] A.C. 74.
208. Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] A.C. 173; Bannister v
Bannister [1948] 2 All E.R. 133; Errington v Errington [1952] 1 K.B. 290; Hounslow LBC v
Twickenham Gardens Development Ltd [1971] Ch. 233 (not followed in Mayfield Holdings Ltd v
Moana Reef Ltd [1973] 1 N.Z.L.R. 309); Tanner v Tanner [1975] 1 W.L.R. 1346; Verrall v Great
Page 32
Yarmouth BC [1981] Q.B. 202. cf. Chandler v Kerley [1978] 1 W.L.R. 693 (contractual licence
impliedly revocable on reasonable notice). A licence may also be created by estoppel, or its
revocation restrained in equity: see Inwards v Baker [1965] 2 Q.B. 29; E.R. Ives Investment Ltd
v High [1967] 2 Q.B. 379; Binions v Evans [1972] Ch. 359; D.H.N. Food Distributors Ltd v
Tower Hamlets LBC [1976] 1 W.L.R. 852; Hardwick v Johnson [1978] 1 W.L.R. 683; Pascoe v
Turner [1979] 1 W.L.R. 431; Williams v Staite [1979] Ch. 291; Re Sharpe [1980] 1 W.L.R. 219;
Greasley v Cooke [1980] 1 W.L.R. 1306; Grant v Edwards [1986] Ch. 638; Lloyds Bank Plc v
Rosset [1991] 1 A.C. 107; Hammond v Mitchell [1991] 1 W.L.R. 1127; cf. Coombes v Smith
[1986] 1 W.L.R. 808. See also Moriarty (1984) 100 L.Q.R. 346 and above, para.4-139.
209. Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] A.C. 173; Foster v
Robinson [1915] 1 K.B. 149, 156. See also Verral v Great Yarmouth BC [1981] Q.B. 202
(specific performance), and the cases in equity cited in n.204, above.
210. Kerrison v Smith [1897] 2 Q.B. 445.
211. Hurst v Picture Theatres Ltd [1915] 1 K.B. 1. Contrast Wood v Leadbitter (1845) 13 M. & W.
838; Thompson v Park [1944] K.B. 408; Cowell v Rosehill Racecourse Ltd (1936) 56 C.L.R. 605
, but these cases are of doubtful authority: see Verrall v Great Yarmouth BC [1981] Q.B. 202.
212. See Vol.II, paras 44-074 et seq. See also (on exclusion or restriction of liability) below,
para.15-093.
213. See Vol.II, paras 39-316, 39-382 et seq. See also (on exclusion or restriction of liability) below,
para.15-093.
214. See Vol.II, para.33-071. See also (on exclusion or restriction of liability), below, para.15-094.
216. Yarm Road Ltd v Hewden Tower Cranes Ltd [2002] EWHC 2265, (2002) 85 Const. L.R. 142.
217. On the temporal application of the Consumer Rights Act 2015, see below, Vol.II, para.38-011.
218. The use of this phrase rather than the more traditional language of “implied term” would not
appear to be a change of substance but rather part of an attempt to make the language of the
Act more accessible to non-lawyers: see Vol.II, para.38-444.
219. On which see further Vol.II, paras 38-458 et seq.
220. s.4(2) of the Consumer Rights Act 2015.
221. As amended by Sch.2 para.6 to the Sale and Supply of Goods Act 1994. See Charlotte Thirty
Ltd v Croker Ltd (1990) 24 Const. L.R. 46; Jonathan Wren & Co Ltd v Microdec Ltd (1999) 65
Const. L.R. 157. See also (on exclusion or restriction of liability), below, para.15-094.
222. See Young and Marten Ltd v McManus Childs Ltd [1969] 1 A.C. 454; Gloucestershire CC v
Richardson [1969] 1 A.C. 480; Vol.II, para.44-026.
223. Samuels v Davis [1943] K.B. 526.
224. G.H. Myers & Co v Brent Cross Service Co [1934] 1 K.B. 46; Herschtal v Stewart and Ardern
Ltd [1940] 1 K.B. 155; Stewart v Reavell’s Garage [1952] 2 Q.B. 545.
225. Ingham v Emes [1955] 2 Q.B. 366.
226. Reg Glass Pty v Rivers Locking System Pty (1968) 120 C.L.R. 516. cf. Davis & Co (Wires) v
Afa-Minerva (EMI) [1974] 2 Lloyd’s Rep. 27.
227. Dodd and Dodd v Wilson and McWilliam [1946] 2 All E.R. 691.
Page 33
228. Young and Marten Ltd v McManus Childs Ltd [1969] 1 A.C. 434.
229. Gloucestershire CC v Richardson [1969] 1 A.C. 480.
230. A “contract for transfer of goods” made on or after October 1, 2015 falls within the range of
contracts covered by Ch.2 of the Act (see s.4(2)(d) and Vol.II, para.38-457).
231. s.1(4).
232. Supply of Goods and Services Act 1982 s.12(2).
233. Supply of Goods and Services Act 1982 s.12(4). The following orders have been made: Supply
of Services (Exclusion of Implied Terms) Order 1982 (SI 1982/1771); Supply of Services
(Exclusion of Implied Terms) Order 1983 (SI 1983/902); Supply of Services (Exclusion of
Implied Terms) Order 1985 (SI 1985/1).
234. By Supply of Goods and Services Act 1982 s.18(1), "business" includes a profession and the
activities of any government department or local or public authority.
235. Unless excluded (Supply of Goods and Services Act 1982 s.16): Eagle Star Life Assurance Co
Ltd v Griggs [1997] C.L.Y. 991. See also (on exclusion or restriction of liability), paras 15-084,
15-094; and see Vol.II, paras 33-053, 37-082. cf. Euroption Strategic Fund Ltd v Skandinaviska
Enskilda Banken AB [2012] EWHC 584 (Comm).
236. Harmer v Cornelius (1858) 5 C.B.N.S. 236, 246; Bolam v Friern Hospital Management
Committee [1957] 1 W.L.R. 582, 586; Chin Keow v Government of Malaysia [1967] 1 W.L.R.
813; Greaves & Co (Contractors) Ltd v Baynham Meikle and Partners [1975] 1 W.L.R. 1095,
1100, 1102; Saif Ali v Sidney Mitchell & Co [1980] A.C. 198, 218, 220; Whitehouse v Jordan
[1981] 1 W.L.R. 246, 263; Maynard v West Midlands Regional Health Authority [1984] 1 W.L.R.
634, 639; Thake v Maurice [1986] Q.B. 644; Wilson v Best Travel Ltd [1993] 1 All E.R. 353;
Matrix-securities Ltd v Theodore Goddard [1998] S.T.C. 1; Bolitho v City and Hackney Health
Authority [1998] A.C. 232; Barclays Bank Plc v Weeks Legg & Dean [1999] Q.B. 309; Midland
Bank Plc v Cox McQueen [1999] Lloyd’s Rep. P.N. 223; Dhamija v Sunningdale Joineries Ltd
[2010] EWHC 2396 (TCC), [2011] P.N.L.R. 9; Trebor Bassett Holdings Ltd v ADT Fire &
Security Plc [2011] EWHC 1936 (TCC), [2011] B.L.R. 661.
237. Kimber v W. Willett Ltd [1947] K.B. 570. See also Vol.II, paras 37-076, 37-082.
238. Samuels v Davis [1943] K.B. 526; Greaves & Co (Contractors) Ltd v Baynham Meikle and
Partners [1975] 1 W.L.R. 1095; St Alban’s City and DC v International Computers Ltd [1996] 4
All E.R. 481; Zwebner v Mortgage Corp Ltd [1998] P.N.L.R. 769. Contrast Lynch v Thorne
[1956] 1 W.L.R. 303; Thake v Maurice [1986] Q.B. 644. See Vol.II, para.37-079. cf. Platform
Funding Ltd v Bank of Scotland Plc [2008] EWCA Civ 930, [2009] Q.B. 426.
240. Jonathan Wren & Co Ltd v Microdec Ltd (1999) 65 Const. L.R. 157.
241. On the temporal application of the Consumer Rights Act 2015, see below, Vol.II, para.38-011.
242. s.49(1), on which see further Vol.II, para.38-531.
243. s.51, on which see further Vol.II, para.38-538.
244. s.52, on which see further Vol.II, para.38-537.
245. s.50 on which see further Vol.II, paras 38-532-38-536.
246. SI 2013/3134, amended by SI 2014/870. These Regulations implement most provisions of

Directive 2011/83/EU of the European Parliament and the Council of 25 October 2011 on
Page 34
consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the
European Parliament and the Council. See further Vol.II, paras 38-056 et seq.
247. As defined in reg.4.
248. Listed in reg.6 (including, for example, contracts for services of a banking, credit, insurance,
personal pension, investment or payment nature).
249. reg.9. An “on-premises contract” is defined in reg.5 see further Vol.II, para.38-085.
250. regs 10 to 12. An “off-premises contract” is defined in reg.5: see further Vol.II, paras
38-076-38-080.
251. regs 13, 14 and 16. A “distance contract” is defined in reg.5: see further Vol.II, paras
38-081-38-084.
252. regs 9(3), 10(5) and 13(6). See also s.50(3) of the Consumer Rights Act 2015 which gives
further reinforcement to these terms.
253. regs 7(2), (3) and (4).
254. Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 regs
9(3), 10(5) and 13(6).
255. Consumer Rights Act 2015 ss.11(4) and 12 (goods), 36(3) and 37 (digital content) and 50(3)
(services; this is without prejudice to s.51(1), which covers a wider range of information given
by the trader).
256. Consumer Rights Act 2015 ss.11(4) and 19(3) (goods), 36(3) and 42(2) (digital content) and
50(3) and 54(3) (services).
257. Consumer Rights Act 2015 ss.12 and 19(5) (goods), 37 and 42(4) (digital content) and 54(4)
(services: in this case the consumer is entitled to a price reduction). On these provisions, see
further below, Vol.II, paras 38-477-38-488.
258. Pt 2 Ch.2 reg.19: on which see further Vol.II, para.38-102.
259. See above, para.14-042, Vol.II, para.38-128.
260. reg.29 and see further Vol.II, paras 38-108 et seq.
261. regs 40 and 41.
262. regs 40(4), 41(2).
263. SI 1992/3288, implementing Council Directive 90/314 [1990] O.J. L158/59, and amended by SI
1998/1208, SI 2003/1376, SI 2003/1400. For the relationship between the Regulations and the
(Athens) International Convention on the Carriage of Passengers and their Luggage by Sea
(below, para.15-134 and Vol.II, para.36-064) see Lee v Airtours Holidays Ltd [2004] 1 Lloyd’s
Rep. 683. See also Grant and Urbanowitz [2001] J.B.L. 253; Chapman [2004] I.T.L.J. (3) 129.
266. 1992 Regulations reg.12; see Vol.II, para.39-124.
268. 1992 Regulations reg.14; Charlson v Warner [2000] C.L.Y. 4043 Cty Ct.
Page 35
269. 1992 Regulations reg.15; Charlson v Warner [2000] C.L.Y. 4043; cf. Evans v Kasmar Villa
Holidays Ltd [2007] EWCA Civ 1003, [2008] 1 W.L.R. 297.
270. Other than excepted contracts: Late Payment of Commercial Debts (Interest) Act 1998 s.2(5).
271. Defined in s.3.
272. s.1(1). See below, para.26-232.

Page 1

Chapter 15 - Exemption Clauses
Generally 1
15-001
It is a common feature of written contracts (and in particular of those in standard form) that the
person tendering the document will seek to absolve himself either wholly or in part from liability under
the contract or from liability for a tort connected with the contract, or to qualify or otherwise limit the
circumstances in which that liability may arise. Although a total exclusion of liability 2 is today, due to
legislative intervention, 3 relatively uncommon, clauses are frequently encountered which seek to
exclude or restrict certain obligations or duties undertaken by one of the parties to the contract or the
financial consequences of a breach of the contract by that party, the remedies available to the other
party in the event of such breach and the time limit within which claims must be made. In other
contracts, such as a contract for the supply of services, the supplier may seek to protect himself, his
employees and sub-contractors, against liability, for example, for negligence. It can reasonably be
argued that, in many commercial contracts where both parties are of equal bargaining power, such
exclusion or restriction of liability does no more than apportion the risk between the parties, in respect
of which one party will be expected to insure. 4 Very often, however, the party imposing the
condition is in an economically superior position and can dictate its own terms to the other. 5 So, while
seeking to preserve the integrity of the principle of freedom of contract, 6 the courts have attempted to
correct the imbalance by adopting principles of construction which require the party seeking to
exclude or restrict his liability to do so in clear and unequivocal terms. 7 Inequality of bargaining
power, however, in itself, is not a ground for invalidating such a clause at common law any more than
it is a ground for invalidating a contract as a whole. 8
Incorporation of exemption clauses
15-002
The question whether an exemption clause contained in a written document, notice or otherwise has
been incorporated as a term of the contract is dealt with in the chapter on Express Terms. 9 The
general rule is that the party affected by the clause will be bound if the party tendering the document
has done what may reasonably be considered sufficient to give notice of the clause to persons of the
class to which he belongs, 10 but this finds an important qualification in the rule according to which a
person is bound by their signature of a contractual document even though they did not read its terms
and are ignorant of their effect. 11 Moreover, a clause may be incorporated by course of dealing
between the parties or because both parties are aware that it is the practice of the particular trade to
contract subject to exempting conditions. 12
Types of exemption clause
15-003
Page 2
Exemption clauses may broadly be divided into three categories. 13 First, there are clauses which
purport to limit or reduce what would otherwise be the defendant’s duty, i.e. the substantive
obligations to which he would otherwise be subject under the contract, for example, by excluding
express or implied terms, by limiting liability to cases of wilful neglect or default, or by binding a buyer
of land or goods to accept the property sold subject to “faults”, “defects” or “errors of description”.
Secondly, there are clauses which purport to exclude or restrict the liability which would otherwise
attach to a breach of contract, such as the liability to be sued for breach or to be liable in damages, or
which take away from the other party the right to treat as repudiated or rescind the agreement.
Similarly, an exemption clause can subject a party’s liability for breach of contract to an onerous
condition, such as a number of days within which the injured party must serve notice of the breach or
bring proceedings. 14 Thirdly, there are clauses which purport to exclude or restrict the duty of the
party in default fully to compensate the other party, for example, by limiting the amount of damages
recoverable against him, or by providing a time-limit within which claims must be made. Traditionally,
the approach of English judges has in all cases been to ascertain the liability of the defendant apart
from the exemption clause, and then to consider whether or not the clause is sufficient to constitute a
defence to that liability. 15 It has, however, been argued 16 that such an approach tends to be
misleading, at any rate if applied to exemption clauses which fall within the first two categories. These
directly limit the substantive contractual content of the promise and circumscribe the liability of the
party in default. The whole contract ought therefore initially to be construed together with the
exemption clause. There is considerable logical force in this contention and more recent dicta have
tended to support it. 17 The task of the courts has been said to be 18:
“… to look at the event [resulting from the breach], and to ascertain from the words and
conduct of the parties which created the contract between them what their presumed
intention was as to what should be their legal rights and liabilities either original or
substituted upon the occurrence of an event of this kind.”
However, the traditional approach was for the most part adopted by the Unfair Contract Terms Act
1977. 19
Exemption clauses distinguished from other similar clauses
15-004
Agreed or liquidated damages clauses, by which the parties liquidate the damages payable upon
breach, are not to be classified as exemption clauses, at least where the liquidated damages
provision is a genuine pre-estimate of the loss likely to be suffered in the event of breach. 20 Whereas
an agreed damages clause entitles the injured party to recover the sum stipulated without proof of
loss, an injured party subject to a limitation clause must prove its actual loss sustained and can
21
recover this loss up to the limitation stipulated ; and an agreed damages clause (unlike a
limitation clause) is for the benefit of both the injured party and the party in breach. 22 The form of
the clause is not decisive of the difference between the two: rather “it is the fact that the clause is
expressed as one agreeing a figure [as a pre-estimate of damage], and not as imposing a limit”. 23
It has also been said that force majeure clauses are not exemption clauses. 24 Likewise ordinary
arbitration clauses are “in essence mere machinery” 25 and so distinct from exemption clauses, being
governed by separate rules. 26 But it is possible that a clause which bars one party’s claim unless
arbitration is begun within a specified time may be treated as an exemption clause in so far as it may
be construed not to extend to cover a fundamental breach of contract. 27
Legislative control of exemption clauses
15-005
Page 3
In 1969 in Harbutt’s “Plasticine” Ltd v Wayne Tank & Pump Co Ltd the Court of Appeal had sought
to establish that, even where an exemption clause in a contract excluded a party’s liability as a matter
of construction, a fundamental breach of contract in that party could bring the contract to an end so
that the injured party had to treat it as terminated, with the result that the exemption clause ceased to
operate. 28 While this so-called doctrine of fundamental breach was inconsistent with earlier House of
Lords’ authority in the Suisse Atlantique case and was later firmly rejected by the House of Lords in
Photo Production Ltd v Securicor Transport Ltd, 29 it reflected a wider concern with the use of contract
terms to exclude liability under the contract or in the tort of negligence, particularly where the term
formed part of the defendant’s standard terms. The problem of exemption clauses was the subject of
a series of recommendations by the Law Commissions and their report led to the enactment of the
Unfair Contract Terms Act 1977, which subjected exemption clauses and certain related contract
terms to control in a number of situations. 30 In addition to this domestic legislation, in 1993 the EEC
legislature enacted the Unfair Terms in Consumer Contracts Directive 1993, 31 which was
implemented by a standalone set of regulations, the Unfair Terms in Consumer Contracts
Regulations, first issued in 1994 and then revoked and replaced in 1999. 32 Unlike the 1977 Act, the
1999 Regulations applied to most contract terms which had not been “individually negotiated” and not
merely to exemption clauses, but, also unlike the Act, the 1999 Regulations were restricted to terms
of consumer contracts. 33 However, with the coming into force of the Consumer Rights Act 2015,
which applies to consumer contracts made on or after October 1, 2015, 34 the legislative
arrangements have changed significantly. The 2015 Act creates a series of controls on terms in
consumer contracts, distinguishing broadly between terms which exclude or restrict liability under the
new statutory terms in “goods contracts”, “digital content contracts” and “services contracts” in Pt 1 of
the Act 35 and terms or notices which fall within a general framework of controls on the ground of
unfairness in Pt 2 of the Act. 36 As a result of these new provisions dedicated to the control of
consumer contracts, the 1977 Act is amended so that its provisions apply only to persons other than
“consumers” within the meaning of the 2015 Act. 37 The relevant provisions in Pts 1 and 2 of the 2015
Act affecting exemption clauses (and the resultant amendments of the 1977 Act 38 ) were brought
into force so as to apply to contracts made on or after October 1, 2015, with the exception that Pt 1’s
provisions governing “services contracts” apply to “consumer transport services” (as specially defined)
only if made on or after October 1, 2016. 39 This chapter will therefore explain the law under the
1977 Act before and after its amendment by the 2015 Act, leaving the law governing “consumer
contracts” (both the old law under the 1999 Regulations and the new law under the 2015 Act) to
Vol.II, Ch.38 Consumer Contracts.
Other legislative or common law controls
15-006
In addition to these general legislative controls on exemption clauses, this Chapter will also discuss
other legislative controls on exemption clauses, some legislation (especially in the context of
consumer protection) designating its provisions as being incapable of exclusion by agreement. 40 To
these controls will be added a discussion of the exceptions to the general common law position of the
binding effect of exemption clauses and of the character and effect of force majeure clauses. 41
1. See Lawson, Exclusion Clauses and Unfair Contract Terms, 10th edn (2011); Yates, Exclusion
Clauses in Contracts, 2nd edn (1982); MacDonald, Exemption Clauses, Penalty Clauses and
Unfair Terms, 2nd edn (2006); Lewison, The Interpretation of Contracts, 5th edn (2011), Ch.12.
2. See, for example, L’Estrange v Graucob [1934] 2 K.B. 394.
3. By the Unfair Contract Terms Act 1977 (below, para.15-062) and, in the case of contracts with
consumers, the Unfair Terms in Consumer Contracts Regulations 1999. As of its coming into
force on October 1, 2015 the Consumer Rights Act 2015 Pt 2 revokes the 1999 Regulations
and enacts similar controls on unfair terms in consumer contracts as noted below, para.15-064
and explained by Vol.II, paras 38-192 et seq.
Page 4
4.
See, e.g. Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128, [2016] 1 C.L.C. 573,
noted below, para.15-012.
5. See the discussion of this issue in the English and Scottish Law Commission’s joint report
(2005) Law Com. No.292, Scottish Law Com. No.199.
6. On which generally, see above, paras 1-026 et seq.
10. Parker v South Eastern Ry (1877) 2 C.P.D. 416; Richardson, Spence & Co v Rowntree [1894]
A.C. 217; Hood v Anchor Line (Henderson Bros) Ltd [1918] A.C. 837; McCutcheon v David
Macbrayne Ltd [1964] 1 W.L.R. 125, HL; Thornton v Shoe Lane Parking Ltd [1971] 2 Q.B. 163;
Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 70 (TCC), [2007] Build. L.R. 135;
Sterling Hydraulics Ltd v Dichtomatik Ltd [2006] EWHC 2004 (QB), [2007] 1 Lloyd’s Rep. 8.
11. L’Estrange v Graucob Ltd [1934] 2 K.B. 394 and see above, para.13-002. Exceptions to this
rule are found where the person seeking to rely on the document has misrepresented its
significance (Curtis v Chemical Cleaning & Dyeing Co [1951] 1 K.B. 805, below, para.15-146);
where the doctrine of non est factum applies (on which see above, paras 3-049—3-056) and
where the document does not purport to have contractual effect: Grogan v Robin Meredith Plant
Hire Ltd (1996) 15 Tr.L.R.371, above, para.13-009. It has also been suggested that, even apart
from these exceptions, in some “extreme circumstances” signature may not be enough for the
incorporation of “particularly onerous or unusual” terms: Ocean Chemical Transport Inc v Exnor
Craggs Ltd [2000] 1 Lloyd’s Rep. 446 at 454 and see cases cited at para.13-002 n.5.
12. See above, paras 13-011, 13-012.
13. Kenyon, Sons & Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 W.L.R. 519, 522; Trade and
Transport Inc v Iino Kaiun Kaisha Ltd [1973] 1 W.L.R. 210, 230. See also Dawson (1975) 91
L.Q.R. 380.
14.
e.g. Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128, [2016] 1 C.L.C. 573
(contractual time-bar an exclusion clause for the purposes of the principle of strict construction)
and see the definition of the “exclusion or restriction” of liability in the Unfair Contract Terms Act
1977 s.13 and Vol.I, para.15-069.
15. Rutter v Palmer [1922] 2 K.B. 87, 92.
16. Coote, Exception Clauses (1964).
1 A.C. 361, 431; Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 851.
18. Hardwick Game Farm v Suffolk Agricultural Poultry Producers’ Association [1966] 1 W.L.R.
287, 309, 333, 343 (affirmed sub nom. Henry Kendall & Sons v William Lillico & Sons Ltd [1969]
2 A.C. 31 HL).
19.
See Phillips Products Ltd v Hyland [1987] 1 W.L.R. 659, 664; Smith v Eric S. Bush and Harris
v Wyre Forest DC [1990] 1 A.C. 831, 857, 873; Coote (1978) 41 M.L.R. 312; Palmer and Yates
[1981] C.L.J. 108; White [2016] J.B.L. 373 below, para.15-070.
1 A.C. 361, 395, 411, 420, 436. cf. 406. See also below, para.15-024.
Page 5
21.
Suisse Atlantique Société d’Armement SA v NV Rotterdamsche Kolen Centrale [1967] 1 A.C.
361 at 395 and 420 (demurrage clause in charterparty). As is explained below, paras 26-178 et
seq., the Supreme Court has recently reframed the common law governing penalty clauses so
as to reduce the significance of the distinction between “liquidated damages clauses” and
penalty clauses, but this does not affect the distinction drawn in the text between agreed
damages clauses and limitation clauses.
22.
[1967] 1 A.C. 361 at 420–421.
23.
[1967] 1 A.C. 361 at 436 per Lord Wilberforce.
24. Fairclough Dodd & Jones Ltd v J.H. Vantol Ltd [1957] 1 W.L.R. 136, 143; cf. Cero Navigation
Corp v Jean Lion & Cie [2000] 1 Lloyd’s Rep. 292, 299. But in practice they may have the same
effect and be as strictly construed: see also below, paras 15-152—15-169.
25. Woolf v Collis Removal Service [1948] 1 K.B. 11. See also Atlantic Shipping Co Ltd v Louis
Dreyfus & Co [1922] 2 A.C. 250, 258; Heyman v Darwins Ltd [1942] A.C. 356, 373–375, 400.
Contrast SHV Gas Supply & Trading SAS v Naftomav Shipping & Trading Co Inc [2005] EWHC
2528 (Comm), [2006] 1 Lloyd’s Rep. 162 at [28]. See also Unfair Contract Terms Act 1977
s.13(2); below, para.15-069. But see the Unfair Terms in Consumer Contracts Regulations
1999 (SI 1999/2083) as amended by SI 2001/1186 and s.89 of the Arbitration Act 1996; Vol.II,
paras 32-013 and 38-276, replaced as regards contracts made on or after October 1, 2015 by
the Consumer Rights Act 2015 Pt 2, on which see Vol.II, paras 38-334 et seq. at para.38-380.
27. Atlantic Shipping Co Ltd v Louis Dreyfus & Co [1922] 2 A.C. 250, 258; Ford & Co Ltd v Cie
Furness [1922] 2 K.B. 797; Smeaton Hanscomb & Co Ltd v Sasson I. Setty Son & Co (No.1)
[1953] 1 W.L.R. 1468.
28. [1970] 1 Q.B. 447.
1 A.C. 361; Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827 at 844, 847 (which
formally overruled Harbutt’s “Plasticine” Ltd v Wayne Tank & Pump Co Ltd [1970] 1 Q.B. 447).
See further below, paras 15-023 et seq.
30. Law Commission, Scottish Law Commission, Second Report on Exemption Clauses, Law Com.
No.69, Scot. Law Com. No.39 (1975).
31. Directive 93/13/EEC of April 5, 1993 on unfair terms in consumer contracts [1993] O.J. L95/29.
32. Unfair Terms in Consumer Contracts Regulations 1999 (SI 1994/3159) revoked and replaced
by the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083).
33. For the details of the controls put in place by the 1999 Regulations see Vol.II, paras 38-201 et
seq.
34. On the Act’s detailed provision on its temporal application see Vol.II, para.38-197.
35. Consumer Rights Act 2015 ss.31, 47 and 57. On these controls see Vol.II, paras 38-492,
38-524 and 38-546 respectively.
36. Consumer Rights Act 2015 Pt 2. On these controls see Vol.II, paras 38-334 et seq.
37. The necessary amendments and deletions of the 1977 Act are effected by s.75 and Sch.4 of
the 2015 Act: for the details, see below, paras 15-062 et seq.
Page 6
38.
These are contained in the 2015 Act s.75, Sch.4 paras 2–27; the Consumer Rights Act 2015
(Commencement No.3, Transitional Provisions, Savings and Consequential Amendments)
Order 2015 (SI 2015/1630) art.3(c).
39.
The Consumer Rights Act 2015 (Commencement No.3, Transitional Provisions, Savings and
Consequential Amendments) Order 2015 (SI 2015/1630) arts 3–4 and 6(2) as amended by the
Consumer Rights Act 2015 (Commencement No.3, Transitional Provisions, Savings and
Consequential Amendments) (Amendment) Order 2016 (SI 2016/484) art.2. SI 2015/1630
art.6(4) provides that the Unfair Terms in Consumer Contracts Regulations 1999 continue to
have effect in relation to any contract or notice relating to any contract entered into before
October 1, 2015 despite their revocation by the 2015 Act Sch.4 para.34.
41. See below, paras 15-146 et seq. and 15-152 et seq. respectively.

Page 1

Section 2. - Principles of Construction
General principles
15-007
In principle exemption clauses are to be construed following the principles applicable to contracts
generally, 42 and while there is considerable case-law relating specifically to the construction of
exemption clauses and to particular forms of words used by exemption clauses, care needs to be
taken in relation to some of the older cases owing to the enactment of the Unfair Contract Terms Act
1977 and of the considerable development of the general approach to construction since the decision
of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society. 43
First, in very broad terms, the 1977 Act has led the courts to see the Act as the proper basis for
controlling exemption clauses in commercial contracts. So, for example, Lord Diplock observed in
Photo Production Ltd v Securicor Transport Ltd soon after the 1977 Act was passed in the course of
rejecting the doctrine of fundamental breach:
“In commercial contracts negotiated between business-men capable of looking after their
own interests and of deciding how risks inherent in the performance of various kinds of
contract can be most economically borne (generally by insurance), it is … wrong to place
a strained construction upon words in an exclusion clause which are clear and fairly
susceptible of one meaning only even after due allowance has been made for the
presumption in favour of the implied primary and secondary obligations.” 44
Clearly, therefore, the court’s clear rejection of the doctrine of fundamental breach requires particular
care as regards earlier cases which recognise its existence. 45 Moreover, since the Investors
Compensation Scheme Ltd case, the courts have adopted a general approach to terms which has
tended to move away from “rules of construction” towards “common-sense principles by which any
serious utterance would be interpreted in ordinary life”. 46 So, for example, the well-known (and
restrictive) principles set out by Lord Morton in R. v Canada S.S. Lines Ltd 47 for the determination of
the question whether a particular exemption clause extends to liability for negligence should be
treated as guidance rather than “a litmus test”, as the role of the court remains to ascertain what the
parties intended. 48 Nevertheless, even after the Investors Compensation Scheme Ltd. case, the
courts have continued to follow the established approach to the construction of exemption clauses
that they are to be construed contra proferentem. 49
Clear and unambiguous expression
15-008
50
Exemption clauses must be expressed clearly and without ambiguity or they will be ineffective.
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The clause must clearly express what its intention is. In J. Gordon Alison & Co Ltd v Wallsend
Shipway and Engineering Co Ltd, 51 a cylinder was sold by the defendants to the claimants “subject to
our usual guarantee clauses”. The clause relied on by the defendants “guaranteed” the purchaser
against defects of material or workmanship for six months, but excluded liability for consequential
damage. The question arose whether the guarantee clause was applicable to this particular contract,
and the Court of Appeal held that it was not: “if a person was under a legal liability and wished to get
rid of it he could only do so by using clear words”. 52 Exemption clauses will therefore be construed
strictly, and the degree of strictness appropriate to their construction may properly depend upon the
extent to which they involve departure from the implied obligations ordinarily accepted by the parties
in entering into a contract of a particular kind 53 and whether the clause purports entirely to
exclude an obligation or liability or merely to limit the compensation recoverable from the party in
default. 54 Moreover, a majority of the Supreme Court has recently observed that this strict
approach to exemption clauses should also apply to terms:
“where they seek to prevent a liability from arising by removing, through a subsidiary
provision, part of the benefit which it appears to have been the purpose of the contract to
provide. The vice of a clause of that kind is that it can have a propensity to mislead,
unless its language is sufficiently plain. All that said, words of exception may be simply a
way of delineating the scope of the primary obligation.” 55
However, as earlier noted, the principles of construction applicable to written contracts 56 apply
equally to exemption clauses to ascertain what meaning the words bear. 57 If the clause is expressed
clearly and unambiguously, there is no justification for placing upon the language of the clause a
strained and artificial meaning so as to avoid the exclusion or restriction of liability contained in it. 58
On the other hand, an exemption clause must be construed in the wider context of the contract as
a whole, in a way which is consistent with business common sense and does not defeat the
commercial object of the contract, and so as to give effect to the presumption that parties do not
lightly abandon a remedy for breach of contract afforded them by the general law. 59 In an appropriate
case, therefore, the existence of the presumption does not prevent a court from finding, applying “all
its tools of linguistic, contextual, purposive and common sense analysis”, that the contract intended to
deprive one of the parties of a right at law which he might otherwise have had. 60
Clause must extend to event
15-009
Each clause must be considered according to its actual wording, but it must clearly extend to the
exact contingency or loss which has occurred if it is to protect the party relying on it. Thus in a
contract for the sale of goods, a stipulation that the goods are bought “as seen” 61 or the exclusion of
liability for “latent defects” 62 will not exclude terms as to quality and fitness for purpose implied by the
Sale of Goods Act, the exclusion of warranties will not necessarily exclude conditions, 63 and the
exclusion of implied terms will not exclude those which are actually expressed. 64 The exclusion of
liability for “consequential loss or damage” will not cover loss which directly and naturally results in the
ordinary course of events from the breach, but only loss which is less direct or more remote. 65
And a clause which provided that “the goods delivered shall be deemed to be in all respects in
accordance with the contract” unless the buyer gave notice to the contrary within 14 days of the
arrival of the goods, was held not to apply to a claim for damages for short delivery, i.e. in respect of
goods not delivered. 66 A clause in a contract of sale or hire-purchase which merely excludes all
conditions and warranties, express or implied, will not necessarily extend to the delivery of goods
wholly different from the agreed contract goods. 67 A clause may therefore be too narrow in its terms
to cover the obligation or liability which it is sought to exclude or restrict. 68
Inconsistency with main purpose of contract

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15-010
Conversely, an exemption clause may be so broad and general in scope that to apply it literally
would create an absurdity or defeat the main purpose of the contract into which the parties have
entered. 69 It is the duty of the courts to ascertain the meaning of and to give effect to the agreement
of the parties. 70 If, therefore, looking at the whole of the contract and the relevant background, its
main purpose is clear, the court will be justified in attributing to the clause a construction which is not
inconsistent with that purpose. 71 Thus a wide deviation clause in a bill of lading was restrictively
construed so as not to cover a deviation by the carrier inconsistent with the contract voyage, 72 and a
clause in a bill of lading which provided that “the responsibility of the carrier shall be deemed to cease
absolutely after the goods are discharged from the ship” was held not to cover a release of the goods
to the consignees without production of the bill, as the bill expressly required the goods to be
delivered “unto order or assigns”. 73 Likewise the court will be reluctant 74 to ascribe to an exemption
clause a meaning which effectively absolves one party from all duties and liabilities:
“One may safely say that the parties cannot, in a contract, have contemplated that the
clause should have so wide an ambit as in effect to deprive one party’s stipulations of all
contractual force: to do so would be to reduce the contract to a mere declaration of
intent.” 75
In Tor Line AB v Alltrans Group of Canada Ltd, 76 in a contract of charterparty, shipowners expressly
accepted responsibility for delay in delivery of the vessel or for delay during the currency of the
charter and for loss or damage to goods on board, if these were caused by unseaworthiness or other
personal act or omission or default of the owners or their manager, but stated that they were: “… not
to be responsible in any other case nor for damage or delay whatsoever and howsoever caused even
if caused by the neglect or default of their servants.” In breach of an express warranty, the ship was
not of the dimensions specified in the charter. On the charterers’ claim for financial loss consequent
upon the breach of this warranty, the shipowners relied upon the exemption clause. The House of
Lords held that the loss was not covered by the clause. One of the reasons put forward by Lord
Roskill 77 in his judgment was that, if the clause were to be construed so as to allow a breach of the
warranty to be committed or a failure to deliver the vessel at all to take place without financial redress
to the charterers:
“… the charter virtually ceases to be a contract for the letting of the vessel and the
performance of services by the owners … and becomes no more than a statement of
intent by the owners in return for which the charterers are obliged to pay large sums by
way of hire, though if the owners fail to carry out their promises as to description or
delivery, are entitled to nothing in lieu.”
He found it difficult to believe that this conclusion would accord with the “true common intention” of
the parties. Nevertheless the clause on its true construction may be found to qualify the main purpose
of the contract, so that there is no inconsistency, 78 or to define the respective roles of the parties
under the contract. 79 And if the clause does not entirely exclude the liability of one party, but merely
limits or reduces his liability, it does not render his contractual promises illusory. 80 Further, if in the
context of the contract as a whole and of the business relationship between the parties the words of
the clause are clear and fairly susceptible of one meaning only, then effect must in any event be given
to the clause. 81 And it has been said recently that the principle in Tor Line A/B v Alltrans Group of
Canada Ltd 82 “should be seen as one of last resort” and that there is authority that “it applies only
in cases where the effect of the clause is to relieve one party from all liability for breach of any of the
obligations which he has purported to undertake” as “[o]nly in such a case could it be said that the
contract amounted to nothing more than a mere declaration of intent”. 83
“Four corners” rule

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15-011
There is some authority for the view that any damage or liability sought to be covered by an
exemption clause must fall within the “four corners” of the contract and not outside of it. 84 This
principle could be said to derive support from cases which have held an exemption clause to be
inapplicable where a carrier deviated without justification from the agreed or usual route, 85 or carried
goods above deck in breach of his obligation to carry them under deck, 86 where a bailee stored
goods in a place other than that agreed, 87 and where a carrier or bailee in breach of contract parted
with possession of the goods to an unauthorised sub-contractor. 88 Such cases, however, may be sui
generis. 89 They are better explained as cases where the exemption clause in question was, on its
true construction, not intended to cover the breach which occurred 90 and not as establishing any
general principle that an exemption clause will be construed to extend only to acts of a party or his
servants which fall within the four corners of the contract. 91 In any event, the clause itself may
redefine a party’s obligations with respect to performance 92 or in its terms be construed to cover even
a radical departure from the performance contemplated by the contract. 93
Construction contra proferentem
15-012
This principle of construction embraces two differing, but closely related, principles. 94 First,
since the party seeking to rely upon an exemption clause bears the burden of proving that the case
falls within its provisions, 95 any doubt or ambiguity will be resolved against him and in favour of the
other party. 96 For example, in Nobahar-Cookson v Hut Group Ltd a clause in a commercial contract
provided that the sellers of a company would not be liable for any claim unless the buyer served
notice of it within 20 business days “after becoming aware of the matter”. 97 The Court of Appeal
held that “there remains a principle that an ambiguity” in the meaning of such a clause (which was
rightly to be treated as an exclusion clause) “may have to be resolved by a preference for the
narrower construction, if linguistic, contextual and purposive analysis do not disclose an answer to the
question with sufficient clarity”. 98 The Court recognised that the phrase “after becoming aware of
the matter” could have three possible meanings, but held that, given that the commercial purpose of
the term was to prevent the buyer from keeping claims of which it was aware “up its sleeve”, and
assisted by the principle which it had stated, the phrase should be interpreted as referring to an
99
awareness of a claim and not merely an awareness of facts which could give rise to a claim.
However, the Court of Appeal considered that:
“This approach to exclusion clauses is not now regarded as a presumption, still less as a
special rule justifying the giving of a strained meaning to a provision merely because it is
an exclusion clause. Commercial parties are entitled to allocate between them the risks of
something going wrong in their contractual relationship in any way they choose. Nor is it
to be mechanistically applied wherever an ambiguity is identified in an exclusion clause.
The court must still use all its tools of linguistic, purposive and common-sense analysis to
discern what the clause really means.” 100
Rather, the principle is “essentially one of common sense; parties do not normally give up valuable
rights without making it clear that they intend to do so”. 101 It will be seen, therefore, that this
aspect of the construction contra proferentem is clearly related to the approach of the courts which
requires clear and unambiguous language effectively to exclude liability for breach. 102 Secondly,
as in the case of any other written document, 103 in situations of ambiguity the words of the document
are to be construed more strongly against the party who made the document and who now seeks to
rely on them. In John Lee (Grantham) Ltd v Ry Executive 104 a railway warehouse was leased by the
defendants to the claimants. A clause in the lease exempted the defendants from liability for: “ … loss
or damage (whether by act or neglect of the company or their servants or agents or not) which but for
Page 5
the tenancy hereby created would not have arisen”. Owing to a fire caused by the negligence of the
defendants in allowing a spark to escape from a railway engine, goods in the warehouse were
damaged. It was held that the words “which but for the tenancy hereby created would not have
arisen” confined the exemption to liabilities created by the relationship of landlord and tenant.
Although the clause was capable of a wider construction, it was ambiguous and would be construed
more strongly against the defendants. However, while accepting the existence of the contra
proferentem rule, the Court of Appeal has recently observed that “[i]n relation to commercial
contracts, negotiated between parties of equal bargaining power, that rule now has a very limited role”
105
and quoted the judgment of Lord Neuberger M.R. in K/S Victoria Street v House of Fraser
(Stores Management) Ltd to the effect that:
“‘rules’ of interpretation such as contra proferentem are rarely decisive as to the meaning
of any provisions in a commercial contract. The words used, commercial sense, and the
documentary and factual context are, and should be, normally enough to determine the
meaning of a contractual provision.” 106
By contrast, in the case of consumer contracts, the principle of interpretation contra proferentem
has been given legislative force as a result of the implementation of the Unfair Terms in Consumer
Contracts Directive 1993, 107 first by the Unfair Terms in Consumer Contracts Regulations 1999
and subsequently by the Consumer Rights Act 2015: these provisions are discussed in Vol.II, Ch.38.
108
Liability for negligence
15-013
Liability for negligence may be excluded or restricted if words are used which sufficiently indicate
that the parties intended, in the context of their agreement, that such should be the case. Where a
clause purports merely to limit the compensation payable by one party for loss or damage caused by
his negligence, it is enough that the wording of the clause, when read as a whole, clearly and
unambiguously has that effect. 109 But since it is inherently improbable that one party to the contract
would intend to absolve the other party entirely from the consequences of the latter’s own negligence,
110
more exacting standards are applied to clauses which are alleged to exclude altogether liability for
negligence. The duty of a court in approaching the consideration of such clauses was summarised in
the form of three propositions in the opinion of the Privy Council delivered by Lord Morton in R. v
Canada S.S. Lines Ltd. 111 These tests, or guidelines, 112 have been subsequently approved and
applied both by the Court of Appeal 113 and the House of Lords 114:
“(1) If the clause contains language which expressly exempts the person in whose favour
it is made (hereafter called ‘the proferens’) from the consequences of the negligence of
his own servants, effect must be given to that provision … (2) If there is no express
reference to negligence, the court must consider whether the words used are wide
enough, in their ordinary meaning, to cover negligence on the part of the servants of the
proferens. If a doubt arises at this point, it must be resolved against the proferens … (3) If
the words used are wide enough for the above purpose, the court must then consider
whether ‘the head of damage may be based on some ground other than that of
negligence’ … The ‘other ground’ must not be so fanciful or remote that the proferens
cannot be supposed to have desired protection against it; but subject to this qualification
… the existence of a possible head of damage other than that of negligence is fatal to the
proferens even if the words used are prima facie wide enough to cover negligence on the
part of his servants.”
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However, while approving Lord Morton’s statement, it has been pointed out by Lord Bingham 115 that:
“Lord Morton was giving helpful guidance on the proper approach to interpretation and
not laying down a code. The passage does not provide a litmus test which, applied to the
terms of the contract, yields a certain and predictable result. The Court’s task of
ascertaining what the parties intended, in their particular commercial context, remains.”
Moreover, Lord Morton’s observations have recently been criticised by the Court of Appeal in that
they treat exemption clauses and indemnity clauses “in one single compendious passage”, whereas
they are more relevant to the latter than the former. 116
Words wide enough to cover negligence
15-014
To satisfy the first of Lord Morton’s tests, there must be a clear and unmistakable reference to
negligence or to a synonym for it. 117 In the absence of any such express reference, it is necessary to
proceed to the second test. Words such as “at sole risk”, 118 “at customers’ sole risk”, 119 “at owner’s
risk” 120 and “at their own risk” 121 will normally cover negligence, as will words which clearly indicate
an intention to exclude all liability without exception, for example, “no liability whatever” 122 or “under
no circumstances” 123 or “all liability”, 124 or all liability save that specified in the clause. 125 If the
defendant merely disclaims liability for “any loss”, he may be directing attention to the kinds of losses,
and not to their cause or origin; so liability for negligence will not necessarily be excluded. 126 But if he
says “however arising” or “any cause whatever”, these words can cover losses by negligence. 127
Thus the words “howsoever caused”, 128 “from whatever other cause arising”, 129 “howsoever arising”,
130
“arising from any cause whatsoever”, 131 “relieves from all responsibility for any injury, delay, loss or
damage, however caused” 132 have been held to be effective. Likewise a clause which excluded
liability for any damage “which may arise from or be in any way connected with any act or omission of
any person … employed by [the defendant]” has been held to be wide enough to cover negligence on
the part of the defendant’s servants. 133 However, the meaning of the clause must be collected from
its entire wording, and in construing the clause other parts of the contract which throw light on the
meaning to be given to it, and the factual background, are not to be ignored. 134 So, for instance, even
such comprehensive words as “any liability … whatsoever”, 135 “howsoever caused”, 136 “any loss
howsoever arising” 137 and “at charterers’ risk” 138 may be limited by their context and thus not extend
to the negligence of the defendant which it is sought to exclude. On the other hand, where a clause in
a charterparty expressly accepted liability for negligence only in certain specified respects, it was held
that it necessarily followed that it excluded negligence in all other respects. 139
Liable only if negligent
15-015
There is no longer any rule of law that, if the only liability of the proferens is for negligence, the clause
must be construed so as to cover negligence otherwise it would lack subject matter 140: the duty of the
court is always to construe the wording of the clause in question to see what it means. 141
Words applicable only to another ground of liability
15-016
Lord Morton’s third test is more problematical. It derives from a principle of construction enunciated by
Lord Greene M.R. in Alderslade v Hendon Laundry Ltd 142 that:
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“Where … the head of damage [liability for which is sought to be excluded] may be based
on some other ground than that of negligence, the general principle is that the clause
must be confined in its application to loss, occurring through that other cause, to the
exclusion of loss arising through negligence.”
To this statement Lord Morton added the qualification that the “other ground” must not be so fanciful
or remote that the proferens cannot be supposed to have desired protection against it. Even with this
important qualification, however, the Court of Appeal has subsequently cautioned against a too literal
or over-legalistic approach. 143 In Lamport & Holt Lines Ltd v Coubro & Scrutton (M. & I.) Ltd, May L.J.
said 144:
“In seeking to apply Lord Morton’s third test, we should not ask now whether there is or
might be a technical alternative head of legal liability which the relevant exemption clause
might cover and, if there is, immediately construe the clause as inapplicable to
negligence. We should look at the facts and realities of the situation as they did or must
be deemed to have presented themselves to the contracting parties at the time the
contract was made, and ask to what potential liabilities the one to the other did the parties
apply their minds, or must they be deemed to have done so.”
A number of cases provide examples 145 of the application of this third test: for instance, it has been
illustrated 146 by reference to a common carrier whose liability for loss of or damage to the goods
carried may be based on a ground, i.e. strict liability, independent of negligence. 147 And, where there
were mutual exceptions in a charterparty in certain specified events including “errors of navigation”,
one of the reasons advanced for holding that negligent errors of navigation were not covered was that
the clause was based on the assumption that a shipowner would be liable without negligence. 148 Lord
Morton’s third test was also applied in somewhat different circumstances in Dorset CC v Southern
Felt Roofing Co 149 where a term in a building contract provided that the employer should bear the risk
of “loss or damage in respect of the works by fire, lightning, explosion, aircraft and other aerial
devices dropped therefrom”. The Court of Appeal held that the term did not apply to fire caused by the
contractor’s negligence since, by the inclusion of events other than fire which might occur without the
fault of any human agent, there were risks not fanciful or remote to which the term could relate other
than negligence.
Non-contractual notices
15-017
In the absence of a contract, the effect of a notice excluding liability may be to defeat a claimant’s
claim for damages for negligence on the basis of volenti non fit injuria. 150
Indemnity clauses
15-018
It is not unusual to find clauses by which one party does not merely exclude his liability in
negligence to the other party but further requires the other party to indemnify him against his liability
in negligence to third parties. The law presumes that a party will not readily be granted an indemnity
against a loss caused by his own negligence. 151 Nevertheless there is no doubt that a party is entitled
to an indemnity against even the consequences of his own negligence if the clause so provides either
expressly or by necessary implication. 152 The three tests laid down by Lord Morton in R. v Canada
S.S. Co Ltd 153 normally apply to indemnity clauses as well as exemption clauses. 154 If there is no
express reference to negligence, the question is whether the words used are wide enough in their
ordinary meaning to cover negligence on the part of the person seeking to be indemnified or his
Page 8
servants. 155 Even if the words used are wide enough for this purpose, the court must consider
whether liability for the loss or damage mentioned in the clause may arise on some ground other than
such negligence, which ground is not so fanciful or remote that the parties cannot be supposed to
have intended the indemnity to apply to it. 156 In the case of dishonest wrongdoing, “general words will
not serve”, as “the language used must be such as will alert a commercial party to the extraordinary
bargain he is invited to make”. 157 The scope of the indemnity will therefore depend upon the
wording of the particular clause and the intentions of the parties regarding it to be collected from the
whole of their agreement. 158 For this purpose, the Supreme Court has recently applied its general
approach to contractual construction to an indemnity clause in a detailed and professionally drafted
contract concluded by commercially sophisticated parties, therefore holding that the wording of an
“avoidably opaque” clause must be examined in detail in the context of the contract as a whole and
taking into account whether the wider factual matrix gives guidance as which is the better of its
possible interpretations. 159 In this context, the Supreme Court found that the proper interpretation
of the indemnity clause (there relating to the circumstances which trigger the indemnity) was “to be
found principally in a careful examination of the language which the parties have used”. 160
Deliberate breaches
15-019
It has from time to time been suggested that, if the breach by one party evinces “a deliberate
disregard of his bounden obligations”, 161 it will not be covered by an exemption clause. 162 But there is
no rule of law to prevent the exclusion or restriction of liability arising from even a deliberate act or
omission by one party or his servants if the contract so provides. 163 In the Suisse Atlantique case, 164
Lord Wilberforce said 165:
“Some deliberate breaches … may be, on construction, within an exceptions clause (for
example, a deliberate delay for one day in loading.) This is not to say that ‘deliberateness’
may not be a relevant factor: depending on what the party in breach ‘deliberately’
intended to do, it may be possible to say that the parties never contemplated that such a
breach would be excused or limited.”
It may therefore be relevant to consider whether an exemption clause on its true construction does in
fact cover deliberate misconduct 166 or a deliberate non-performance of the contract, 167
but “to
create a special rule for deliberate acts is unnecessary and may lead astray”. 168
15-020
Some clauses, however, while disclaiming liability for loss or damage caused by negligence, accept
liability for loss or damage due to “wilful neglect or default”, 169 “wilful misconduct” 170 or “gross
negligence”. 171
Burden of proof
15-021
It is for the party seeking to rely on the exemption clause to show that the clause, on its true
construction, covers the obligation or liability which it purports to restrict or exclude. It would also
seem that, in general, it is for that party to prove that the claimant’s case is within the clause. 172 If the
promise is qualified by an exemption which covers the whole scope of the promise, 173 the claimant
must bring himself within the promise as qualified. 174 Further, if there is an exception to the
exemption, for example, in the event of wilful neglect or default, 175 then the burden rests upon the
claimant to prove that his case falls within the exception. 176 The form is not, however, conclusive, and
Page 9
the matter is in every case a question of construction of the instrument as a whole. 177 In Firestone
Tyre & Rubber Co Ltd v Vokins & Co Ltd, 178 where a lighterage clause provided that goods were
carried only at owner’s risk, excepting loss arising from pilferage and theft whilst in the course of
transit, Devlin J. held that the onus was still on the lightermen to prove that the loss did not occur by
theft or pilferage.
15-022
If the party seeking to rely on the clause makes out a prima facie case that the facts are such as to
bring the case within the clause, then it appears that the claimant must disprove it by showing that the
loss or damage was occasioned by an act or omission falling outside the clause. 179 However, in
Levison v Patent Steam Carpet Cleaning Co Ltd, 180 where a clause in a contract of bailment was
sufficient to exclude liability for negligence on the part of the bailee but not a “fundamental breach” of
the contract, the Court of Appeal held that the onus was on the bailee to show that he was not guilty
of a fundamental breach, although the same court had previously decided 181 to the contrary in a case
involving a contract of carriage. With the final demise of the doctrine of “fundamental breach”, 182 it is
suggested that Levison’s case deserves reconsideration. 183 A bailor may nevertheless be assisted by
the rule that it is for a bailee who is sued in respect of the loss of the goods bailed to prove that the
loss occurred without his negligence. 184
42. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 846, 851; George Mitchell
(Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803; Darlington Futures Ltd v Delco
Australia Pty Ltd (1987) 68 A.L.R. 385; On the general approach to construction see above,
43. [1998] 1 W.L.R. 896 on which see above, paras 12-041 et seq. especially at paras 13-043,
13-045, 13-051—13-052 and 13-056.
44.
Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827 at 851. See similarly
Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007] EWCA Civ 154, [2007] 1
C.L.C. 188 at [46]; Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC),
[2014] 1 C.L.C. 353 at [25]–[26]; Bikam OOD, Central Investment Group SA v Adria Cable Sarl
[2012] EWHC 621 (Comm) unreported at [34]–[36]; Polypearl Ltd v E.on Energy Solutions Ltd
[2014] EWHC 3045 (QB) at [35]–[36]; Persimmon Homes Ltd v Ove Arup & Partners Ltd [2015]
EWHC 3573 (TCC), [2016] B.L.R. 112 at [25]–[28].
45. See below, paras 15-023—15-027 in relation to Suisse Atlantique Société d’Armement Maritime
SA v NV Rotterdamsche Kolen Centrale [1967] 1 A.C. 361; Harbutt’s “Plasticine” Ltd v Wayne
Tank and Pump Co Ltd [1970] 1 Q.B. 447 & Photo Production Ltd v Securicor Transport Ltd
[1980] A.C. 827.
46. Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896 at
912 per Lord Hoffmann, above, para.13-045.
47. [1952] A.C. 192, 208 and see below, para.15-013.
48.
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2
Lloyd’s Rep. 61 at [11] per Lord Bingham, below, para.15-013. cf. the restrictive interpretation of
the decision on the construction of a clause disapplying a statutory limitation of liability in Clarke
v Earl of Dunraven and Mount-Earl, The Satanita [1897] A.C. 59 by the PC in Bahamas Oil
Refining Co International Ltd v Owners of the Cape Bari Tankschiffahrts GmbH & Co KG [2016]
UKPC 20 at [49], in part on the basis that the earlier case was decided “at a time when the
relevant principles of construction were much less developed than they are today”.
49.
The Starsin [2004] 1 A.C. 715 at [144]; Dairy Containers Ltd v Tasman Orient Line CV [2004]
UKPC 22, [2004] 2 All E.R. (Comm) 667 at [12]; Nobahar-Cookson v Hut Group Ltd [2016]
Page 10
EWCA Civ 128, [2016] 1 C.L.C. 573, esp. at [12]–[22] but cf. Transocean Drilling UK Ltd v
Providence Resources Plc [2016] EWCA Civ 372, [2016] 2 All E.R. (Comm) 606 at [14] and [19]
(“artificial approaches to construction” should not be applied to a contract by which the parties
entered “mutual undertakings to accept the risk of consequential loss flowing from each other’s
breaches of contract”). And see Peel, Treitel on The Law of Contract, 14th edn (2015) para.
7–016.
50.
Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 W.L.R. 964, 966, 970. See also
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] A.C. 689, 717–718; Photo
Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 846, 850; Bem Dis a Turk Ticaret S/A
TR v International Agri Trade Co Ltd [1999] 1 Lloyd’s Rep. 729; How Engineering Services Ltd
v Lindner Ceilings Floors Partitions Plc (1999) 64 Const. L.R. 67, 79; Cero Navigation Corp v
Jean Lion & Cie [2000] 1 Lloyd’s Rep. 292, 297; Stent Foundations Ltd v MJ Gleeson Group Plc
[2001] Build. L.R. 134; Amiri Flight Authority v BAE Systems Plc [2003] EWCA Civ 1447, [2003]
2 Lloyd’s Rep. 767 at [25]; Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003]
UKHL 12, [2004] 1 A.C. 715 at [144]; Dairy Containers Ltd v Tasman Orient Line CV [2004]
UKPC 22, [2005] 1 W.L.R. 215 at [12]; Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009]
EWCA Civ 75, [2009] 1 Lloyd’s Rep. 461 at [22]–[23]; Seadrill Management Services Ltd v OAO
Gazprom (The “Ekha”) [2010] EWHC 1530 (Comm), [2010] 1 Lloyd’s Rep. 543 at [184],
[217]–[218] (affirmed [2010] EWCA Civ 691). But see Whitecap Leisure Ltd v John H Rundle
Ltd [2008] EWCA Civ 429, [2008] 2 Lloyd’s Rep. 216 (imperfect clause enforced); WW Gear
Construction Ltd v McGee Group Ltd [2010] EWHC 1460 (TCC), 131 Con. L.R. 63 and Air
Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349
(ordinary rules of construction apply); and cf. Bahamas Oil Refining Co International Ltd v
Owners of the Cape Bari Tankschiffahrts GmbH & Co KG [2016] UKPC 20 at [31]–[40]
(exclusion of limitation of liability arising by statute and international convention). But see FG
Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232, [2014] 1
W.L.R. 2365 at [38], [59], [70] (“no set-off” clause need not be expressed in terms to qualify the
payment obligation) (though the CA was overruled on other grounds in PST Energy 7 Shipping
LLC v OW Bunker Malta Ltd [2016] UKSC 23, [2016] 2 W.L.R. 1193 at [58]). On the special
rules for the interpretation of contract terms (including exemption clauses) in consumer
contracts see Vol.II, paras 38-317—38-321 (Unfair Terms in Consumer Contracts Regulations
1999 reg.7) and paras 38-382—38-385 (Consumer Rights Act 2015 s.69).
51. (1927) 43 T.L.R. 323.
52. (1927) 43 T.L.R. 323, 324.
53.
Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 850. See also Suisse
Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 A.C.
361, 482; Whitecap Leisure Ltd v John H Rundle Ltd [2008] EWCA Civ 429, [2008] 2 Lloyd’s
Rep. 16 at [20]; Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75, [2009] 1
Lloyd’s Rep. 461 at [23]; Scottish Power UK Plc v BP Exploration Operating Co Ltd [2016]
EWCA Civ 1043 at [30].
54.
Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 W.L.R. 964, 966, 970; George
Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803, 814; Whitecap Leisure
Ltd v John H Rundle Ltd [2008] EWCA Civ 429, [2008] 2 Lloyd’s Rep. 216 at [20]–[22]; McGee
Group Ltd v Galliford Try Building Ltd [2017] EWHC 87 (TCC), [2017] B.T.C. 19 at [22]–[25].
Contrast Darlington Futures Ltd v Delco Australia Pty Ltd (1987) 68 A.L.R. 385.
55.
Impact Funding Solutions Ltd v Barrington Support Services Ltd (formerly Lawyers at Work
Ltd) [2016] UKSC 57, [2017] A.C. 73 at [35] per Lord Toulson J.S.C. (with whom Lord Mance,
Lord Sumption and Lord Hodge JJ.S.C. agreed) (exclusion in contract of professional indemnity
insurance). cf. Lord Hodge J.S.C. at [7] (with whom Lord Toulson, Lord Mance, and Lord
Sumption JJ.S.C. agreed) who considered that the established strict construction of exemption
clauses does not apply to “exclusion clauses” limiting the extent of cover in a contract of
professional liability insurance.
Page 11
57. Sydney City Council v West (1965) 114 C.L.R. 481; Whitecap Leisure Ltd v John H Rundle Ltd
[2008] EWCA Civ 429, [2008] 2 Lloyd’s Rep. 216 at [20]; Air Transworld Ltd v Bombardier Inc
[2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349 at [26].
58.
Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 846, 851; George Mitchell
(Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803; Darlington Futures Ltd v Delco
Australia Pty Ltd (1987) 68 A.L.R. 385; Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ
128, [2016] 1 C.L.C. 573 at [19]; Transocean Drilling UK Ltd v Providence Resources Plc [2016]
EWCA Civ 372, [2016] 2 All E.R. (Comm) 606 at [28] and [35], above, para.15-005.
59. Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] EWCA Civ 38
[2013] 2 Lloyd’s Rep. 270 at [28]; and see cf. above, paras 13-059 and 13-065.
60.
Scottish Power UK Plc v BP Exploration Operating Co Ltd [2016] EWCA Civ 1043 at [29]
quoting Briggs L.J. in Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128, [2016] 1 C.L.C.
573 at [19].
61. Cavendish-Woodhouse v Manley (1984) 82 L.G.R. 376, but see Dalmare SpA v Union Maritime
Ltd [2012] EWHC 3537 (Comm), [2013] 2 All E.R. 870 at [84] (“as she was” purchase provision
in contract for sale of vessel should be read as excluding the right to reject the vessel while
leaving the right to claim damages for breach of the terms implied by the Sale of Goods Act
1979 ss.13, 14 unimpaired).
62. Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 A.C. 31.
63. Baldry v Marshall [1925] 1 K.B. 260; Wallis, Son & Wells v Pratt & Haynes [1911] A.C. 394; KG
Bominflot Bunkergesellschaft für Mineralöle mbH & Co v Petroplus Marketing AG [2010] EWCA
Civ 1145, [2011] 1 Lloyd’s Rep. 442 at [62]. cf. Air Transworld Ltd v Bombardier Inc [2012]
EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349 at [29]. See Vol.II, para.44-056.
64. Andrews Bros Ltd v Singer & Co Ltd [1934] 1 K.B. 17. See Benjamin’s Sale of Goods, 9th edn
(2014), paras 13–026 et seq.
65.
Millar’s Machinery Co Ltd v David Way & Son (1935) 40 Com. Cas. 204; Saint Line Ltd v
Richardsons Westgarth Ltd [1940] 2 K.B. 99; Croudace Construction Ltd v Cawood’s Concrete
Products Ltd [1978] 2 Lloyd’s Rep. 55; British Sugar Plc v NEI Power Projects Ltd (1997) 87
Build. L.R. 42; Deepak Fertilisers and Petrochemicals Corp v ICI [1999] 1 Lloyd’s Rep. 387,
402–403;BHP Petroleum Ltd v British Steel Plc [1999] 2 Lloyd’s Rep. 583, 597–600, [2000] 2
Lloyd’s Rep. 277; Pegler Ltd v Wang (UK) Ltd [2000] Build. L.R. 218, 227; Hotel Services (UK)
Ltd v Hilton International Hotels (UK) Ltd [2000] 1 All E.R. (Comm) 750; Watford Electronics Ltd
v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001] B.L.R. 218; Ease Faith Ltd v Leonis Marine
Management Ltd [2006] EWHC 232, [2006] 1 Lloyd’s Rep. 673; Ferryways NV v Associated
Pontish Ports [2008] EWHC 225 (Comm), [2008] 1 Lloyd’s Rep. 639 at [84]–[85]; Elvanite Full
Circle Ltd v AMEC Earth and Environmental (UK) Ltd [2013] EWHC 1191 (TCC), 148 Con. L.R.
127 at [314]; Glencore Energy UK Ltd v Cirrus Oil Services Ltd [2014] EWHC 87 (Comm),
[2014] 1 All E.R. (Comm) 513 at [96]. But the correctness of this conclusion was reserved by
Lord Hoffmann in Caledonia North Sea Ltd v Norton (No.2) Ltd [2002] UKHL 4, [2002] 1 All E.R.
(Comm) 321 at [100]. However, some of these earlier cases may be decided differently today
given that the courts are now more willing to recognise that words take their meaning from their
context and that the same word or phrase may mean different things in different documents:
Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372, [2016] 2 All
E.R. (Comm) 606 at [15]. cf. Star Polaris LLC v HHIC-PHIL Inc [2016] EWHC 2941 (Comm),
[2017] 1 Lloyd’s Rep. 203 at [11]–[18] and [39] (which noted the statement in this paragraph of
the Main Work and the doubts expressed in Caledonia North Sea and in Transocean Drilling
UK Ltd and held that in the context of the contract an exclusion of liability for “consequential or
special losses, damages or expenses” did not refer losses, etc. falling within the second limb in
Hadley v Baxendale, but had a wider meaning).
Page 12
66. Beck & Co v Szymanowski & Co [1924] A.C. 43.
67. See below, paras 15-030—15-031. But contrast George Mitchell (Chesterhall) Ltd v Finney
Lock Seeds Ltd [1983] A.C. 803; below, para.15-026.
68. For further examples, see Pegler Ltd v Wang (UK) Ltd [2000] Build. L.R. 218; Britvic Soft Drinks
Ltd v Messer UK Ltd [2002] 1 Lloyd’s Rep. 20, 59, 60 (affirmed [2002] EWCA Civ 548, [2002] 2
Lloyd’s Rep. 368).
1 A.C. 361, 398.
71. Glynn v Margetson & Co [1893] A.C. 351, 357; Mitsubishi Corp v Eastwind Transport Ltd [2004]
EWHC 2924 (Comm), [2005] 1 Lloyd’s Rep. 382 at [29]; A Turtle Offshore SA v Superior
Trading Inc [2008] EWHC 3034 (Admlty), [2009] 1 Lloyd’s Rep. 177; Internet Broadcasting
Group Ltd v MAR LLC [2009] EWHC 844 (Ch), [2009] 2 Lloyd’s Rep. 295 at [25], [29], [33];
Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] EWCA Civ 38,
[2013] 2 Lloyd’s Rep. 270.
72. Leduc v Ward (1888) 20 Q.B.D. 475; Glynn v Margetson & Co [1893] A.C. 351; Connolly Shaw
Ltd v A/S Det Nordenfjeldske D/S (1934) 49 Ll.L. Rep. 183.
73. Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] A.C. 576; Motis Exports Ltd v
Dampskibsselskabet AF 1912 Aktieselskab [2000] 1 Lloyd’s Rep. 211, 213, 216, 217; East
West Corp v DKBS 1912 [2003] EWCA Civ 83, [2003] 1 Lloyd’s Rep. 238 at [85]. Contrast
Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd [1994] 1 Lloyd’s Rep. 213.
74. Motis Exports Ltd v Dampskibsselskabet AF 1912 [2000] 1 Lloyd’s Rep. 211, 216 (“lean against
such a result”). See also Astrazeneca UK Ltd v Albermarle International Corp [2011] EWHC
1574 (Comm), [2012] B.L.R. D1 at [313].
1 A.C. 361, 482.
76. [1984] 1 W.L.R. 48.
77. [1984] 1 W.L.R. 48, 58–59 (with whom all other members of the House of Lords agreed).
78. See, e.g. G.H. Renton & Co Ltd v Palmyra Trading Corp of Panama [1957] A.C. 149.
79. Camerata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm),
[2011] 2 B.C.L.C. 54.
80. See, e.g. Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] A.C. 964, 971; Swiss Bank
Corp v Brink’s Mat Ltd [1986] 2 Lloyd’s Rep. 79, 92–93; Mitsubishi Corp v Eastwind Transport
Ltd [2004] EWHC 2924, [2005] 1 Lloyd’s Rep. 382; EU Networks Fiber UK Ltd v Abovenet
Communications UK Ltd [2007] EWHC 3099 (Ch); A Turtle Offshore SA v Superior Trading Inc
[2008] EWHC 3034 (Admlty), [2009] 1 Lloyd’s Rep. 177.
81. Swiss Bank Corp v Brink’s Mat Ltd [1986] 2 Lloyd’s Rep. 79, [93]; Darlington Futures Ltd v
Delco Australia Pty Ltd (1987) 68 A.L.R. 385; EU Networks Fiber UK Ltd v Abovenet
Communications UK Ltd [2007] EWHC 3099 (Ch); A Turtle Offshore SA v Superior Trading Inc
[2008] EWHC 3034 (Admlty), [2009] 1 Lloyd’s Rep. 177 at [112].
82.
[1984] 1 W.L.R. 48.
83.
Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372, [2016] 2 All
Page 13
E.R. (Comm) 606 at [27] per Moore-Bick L.J. (with whom McFarlane and Briggs L.JJ. agreed)
referring to Great North Eastern Railway Ltd v Avon Insurance Plc [2001] EWCA Civ 780,
[2001] 1 Lloyd’s Rep. I.R. 793 (the relevant passages are at [31]).
84. Alderslade v Hendon Laundry Ltd [1945] K.B. 189, 192; J. Spurling Ltd v Bradshaw [1956] 1
W.L.R. 461, 465, 469; Thomas National Transport (Melbourne) Pty Ltd v May & Baker
(Australia) Pty Ltd (1966) 115 C.L.R. 353, 376; Suisse Atlantique Société d’Armement Maritime
SA v Rotterdamsche Kolen Centrale [1967] 1 A.C. 361, 412, 424, 434; Levison v Patent Steam
Carpet Cleaning Co Ltd [1978] Q.B. 69, 85.
85. London & North Western Ry v Neilson [1922] 2 A.C. 263, 272; see also below, para.15-032.
86. Royal Exchange Shipping Co Ltd v Dixon (1886) 12 App. Cas. 11, 16, 19; J. Evans & Sons
(Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 W.L.R. 1078, 1082, 1084, 1085. But Wibau
Maschinenfabric Hartman SA v Mackinnon Mackenzie & Co [1989] 2 Lloyd’s Rep. 494
(Hague-Visby Rules) was overruled in Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd
[2003] EWCA Civ 45, [2003] 2 Lloyd’s Rep. 1.
87. Lilley v Doubleday (1881) 7 Q.B.D. 510; Gibaud v G.E. Ry [1921] 2 K.B. 426, 435; Woolf v
Collis Removal Service [1948] 1 K.B. 11; Kenyon Son & Craven Ltd v Baxter Hoare & Co Ltd
[1971] 1 W.L.R. 519, 532; see below, para.15-041.
88. Davies v Collins [1945] 1 All E.R. 247; Garnham, Harris & Elton Ltd v Ellis (Transport) Ltd
[1967] 1 W.L.R. 940; see below, para.15-041.
89. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 845. See also Kenya Railways
v Antares Co Pte Ltd [1987] 1 Lloyd’s Rep. 424, 430; Daewoo Heavy Industries Ltd v Klipriver
Shipping Ltd [2003] EWCA Civ 45 at [15]–[44]; and The Cap Palos [1921] P. 458, 468; A Turtle
Offshore SA v Superior Trading Inc [2008] EWHC 3034 (Admlty), [2009] 1 Lloyd’s Rep. 177 at
[113]–[116] (towage); and below para.15-032.
90. [1980] A.C. 827. See also Compania Portorafti Commerciale SA v Ultramar Panama Inc [1990]
1 Lloyd’s Rep. 310; Parsons Corp v CV Scheepvaartonderneming “Happy Ranger” [2002]
EWCA Civ 694, [2002] 2 Lloyd’s Rep. 857 (Hague-Visby Rules).
91. See Raymond Burke Motors Ltd v Mersey Docks and Harbour Co [1986] 1 Lloyd’s Rep. 155,
162 (“collateral” negligence); Darlington Futures Ltd v Delco Australia Pty Ltd (1987) 68 A.L.R.
385.
92. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 851.
93. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803 (below,
para.15-026); Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd [1994] 1 Lloyd’s
Rep. 213.
94.
Pera Shipping Corp v Petroship SA [1984] 2 Lloyd’s Rep. 363, 365; Youell v Bland Welch &
Co Ltd [1992] 2 Lloyd’s Rep. 127, 134; Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ
128, [2016] 1 C.L.C. 573, esp. at [14] and [16] (distinguishing “the contra proferentem rule in its
classic form”, which is “a rule designed to resolve ambiguities against the party who prepared
the document”, and the principle that, if necessary to resolve ambiguity, [exclusion clauses]
should be narrowly construed”); Transocean Drilling UK Ltd v Providence Resources Plc [2016]
EWCA Civ 372, [2016] 2 All E.R. (Comm) 606 at [20] (contra proferentem has no role to play
where the meaning of the words is clear or where a clause favours both parties equally);
Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373 at [52]–[53]. See
generally Peel in Burrows and Peel, Contract Terms (2007), Ch.4.
96. This appears to be the sense in which the principle was referred to in Photo Production Ltd v
Securicor Transport Ltd [1980] A.C. 827, 847; Ailsa Craig Fishing Co Ltd v Malvern Fishing Co
Page 14
Ltd [1983] 1 W.L.R. 964, 969, 970; George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd
[1983] 2 A.C. 803, 814; Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12, [2004]
1 A.C. 71 at [144]; Dairy Containers Ltd v Tasman Orient Line CV [2004] UK PC 22, [2005] 1
W.L.R. 215 at [12].
97.
[2016] EWCA Civ 128, [2016] 1 C.L.C. 573 at [5].
98.
[2016] EWCA Civ 128 at [21] per Briggs L.J.
99.
[2016] EWCA Civ 128 at [36] (with whom Hallett L.J. and Moylan J. agreed, though placing
greater emphasis on the commercial sense of the resulting decision: [2016] EWCA Civ 128 at
[40] and [41]).
100.
Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128, [2016] 1 C.L.C. 573 at [19] per
Briggs L.J. See similarly Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ
373 at [57] per Jackson L.J.
101.
Seadrill Management Services Ltd v OAO Gazprom [2010] EWCA Civ 691, [2011] 1 All E.R.
(Comm) 1077 at per Moore-Bick L.J. quoted by Briggs L.J. in Nobahar-Cookson v Hut Group
Ltd [2016] EWCA Civ 128 at [19].
102.
On which see Vol.I, para.15-008.
104. [1949] 2 All E.R. 581. See also Webster v Higgin [1948] 2 All E.R. 127; Houghton v Trafalgar
Insurance Co Ltd [1954] 1 Q.B. 247; Billyack v Leyland Construction Co Ltd [1968] 1 W.L.R.
471; Adams v Richardson & Starling Ltd [1969] 1 W.L.R. 1645, 1653; Pera Shipping Corp v
Petroship SA [1985] 2 Lloyd’s Rep. 103; Whitecap Leisure Ltd v John H Rundle Ltd [2008]
EWCA Civ 429, [2008] 2 Lloyd’s Rep. 216 at [22]; Kingsway Hall Hotel Ltd v Red Sky IT
(Hounslow) Ltd [2010] EWHC 965 (TCC), (2010) 26 Const. L.J. 542.
105.
Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373 at [52] per Jackson
L.J. (with whom Moylan and Beatson L.JJ. agreed).
106.
[2011] EWCA Civ 904, [2012] Ch. 497 at [68], quoted at [2017] EWCA Civ 373 at [52].
107.
Directive 93/13/EEC of April 5, 1993 on unfair terms in consumer contracts, art.5.
108.
For the 1999 Regulations reg.7 see Vol.II, paras 38-317—38-321; for the Consumer Rights
Act 2015 s.69(1) see Vol.II, paras 38-382—38-385.
109. Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 W.L.R. 964, 966, 970; George
Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803, 814. See also Continental
Illinois National Bank & Trust Co of Chicago v Papanicolau [1986] 2 Lloyd’s Rep. 441, 444, and
Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd’s Rep. 66, 76 (“no set-off” clause)
and Ocean Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s Rep. 446, 452; BHP
Petroleum Ltd v British Steel Plc [2000] 2 Lloyd’s Rep. 277, 285 (time-limit clause). But see HIH
Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s
Rep. 61 at [63]; Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1502
(Comm), [2004] 2 Lloyd’s Rep. 251.
110. Gillespie Bros Ltd v Roy Bowles Transport Ltd [1973] Q.B. 400, 419; Ailsa Craig Fishing Co Ltd
v Malvern Fishing Co Ltd [1983] 1 W.L.R. 964, 970; Sonat Offshore SA v Amerada Hess
Development Ltd [1988] 1 Lloyd’s Rep. 145, 157 and 162; Stent Foundations Ltd v Ms Gleeson
Page 15
Group Plc [2001] Build. L.R. 134.
111. [1952] A.C. 192, 208. For a criticism of these propositions, see Palmer [1983] L.M.C.L.Q. 557.
112. Smith v South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165, 168, 178; Lamport & Holt Lines
Ltd v Coubro & Scrutton (M. & I.) Ltd [1982] 2 Lloyd’s Rep. 42, 45, 48–49, 51; HIH Casualty and
General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s Rep. 61 at
[11], [63], [116]; Lictor Anstalt v Mir Steel UK Ltd [2012] EWCA Civ 1397, [2013] C.P. Rep.7 at
[31]–[35].
113. Gillespie Bros Ltd v Roy Bowles Transport Ltd [1973] Q.B. 400; Lamport & Holt Lines Ltd v
Coubro & Scrutton (M. & I.) Ltd [1982] 2 Lloyd’s Rep. 42.
114. Smith v South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165; HIH Casualty and General
Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s Rep. 61.
115. HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2
Lloyd’s Rep. 61 at [11]. See similarly Lictor Anstalt v Mir Steel UK Ltd [2012] EWCA Civ 1397,
[2013] C.P. Rep. 7 at [35].
116.
Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373 at [55] and [56] per
Jackson L.J. (with whom Moylan and Beatson L.JJ. agreed).
117. Clark v Sir William Arrol & Co Ltd (1974) S.L.T. 90, 92; Smith v South Wales Switchgear Co Ltd
[1978] 1 W.L.R. 165, 169, 173; Lamport & Holt Lines Ltd v Coubro & Scrutton (M. & I.) Ltd
[1982] 2 Lloyd’s Rep. 42, 45, 47, 51; Spriggs v Sotheby Parke Bernet & Co [1986] 1 Lloyd’s
Rep. 487; Shell Chemicals Ltd v P.&O. Roadtanks Ltd [1995] 1 Lloyd’s Rep. 297.
118. Forbes, Abbott & Lennard Ltd v G.W. Ry (1927) 44 T.L.R. 97; The Jessmore [1951] 2 Lloyd’s
Rep. 512; James Archdale & Co Ltd v Comservices Ltd [1954] 1 W.L.R. 459; Scottish Special
Housing Association v Wimpey Construction UK Ltd [1986] 1 W.L.R. 995; Norwich City Council
v Harvey [1989] 1 W.L.R. 828.
119. Rutter v Palmer [1922] 2 K.B. 87.
120. Burton & Co v English & Co (1883) 12 Q.B.D. 218, 223; Levison v Patent Steam Carpet
Cleaning Co Ltd [1978] Q.B. 69; cf. Allan Bros and Co v James Bros & Co (1897) 3 Com. Cas.
10, 12; Svenssons Travaruaktiebolag v Cliffe Steamship Co [1932] 1 K.B. 490, 496; Exercise
Shipping Co Ltd v Bay Maritime Lines Ltd [1991] 2 Lloyd’s Rep. 391.
121. Reynolds v Boston Deep Sea Fishing & Ice Co Ltd (1921) 38 T.L.R. 22, 429; Pyman S.S. Co v
Hull and Barnsley Ry [1915] 2 K.B. 729. Contrast Woolmer v Delmer Price Ltd [1955] 1 Q.B.
291.
122. Reynolds v Boston Deep Sea Fishing & Ice Co Ltd (1921) 38 T.L.R. 22; Gibaud v G.E. Ry
[1921] 2 K.B. 426; Swiss Bank Corp v Brink’s Mat Ltd [1986] 2 Lloyd’s Rep. 79. See also HIH
Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s
Rep. 61 (“no liability of any nature”).
123. Haigh v Royal Mail Steam Packet Co (1883) 52 L.J.Q.B. 640; Akerib v Booth [1960] 1 W.L.R.
454 (reversed on other grounds [1961] 1 W.L.R. 367); Harris Ltd v Continental Express Ltd
[1961] 1 Lloyd’s Rep. 251; J. Carter (Fine Worsteds) Ltd v Hanson Haulage (Leeds) Ltd [1965]
2 Q.B. 495; Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 846. cf. Taubman
v Pacific Steam Navigation Co (1872) 26 L.T. 704.
124. BHP Petroleum Ltd v British Steel Plc [2000] 2 Lloyd’s Rep. 277.
125.
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803; Swiss Bank
Corp v Brink’s Mat Ltd [1986] 2 Lloyd’s Rep. 79; Persimmon Homes Ltd v Ove Arup & Partners
Page 16
Ltd [2017] EWCA Civ 373 at [60] (“liability for any claim in relation to asbestos is excluded”).
126. Price v Union Lighterage Co [1904] 1 K.B. 412 (“any loss of or damage to goods which can be
covered by insurance”).
127. Joseph Travers & Sons Ltd v Cooper [1915] 1 K.B. 73, 101; Gibaud v G.E. Ry [1921] 2 K.B.
426, 437; Rutter v Palmer [1922] 2 K.B. 87, 94.
128. Austin v Manchester, Sheffield & Lincs Ry (1852) 10 C.B. 454; The Stella [1900] P. 161; Joseph
Travers & Sons Ltd v Cooper [1915] 1 K.B. 73; Ashby v Tolhurst [1937] 2 K.B. 242; Harris Ltd v
Continental Express Ltd; White v Blackmore [1972] 2 Q.B. 651; Stag Line Ltd v Tyne Shiprepair
Group Ltd [1984] 2 Lloyd’s Rep. 211, 222; see also Hunt & Winterbotham (West of England) Ltd
v B.R.S. (Parcels) Ltd [1962] 1 Q.B. 617 (“however sustained”).
129. Ashenden v L.B. & S.C. Ry (1880) 5 Ex. D. 190; Manchester, Sheffield & Lincs. Ry v Brown
(1883) 8 App. Cas. 703.
130. Pyman S.S. Co v Hull & Barnsley Ry [1915] 2 K.B. 729; Swiss Bank Corp v Brink’s Mat Ltd
[1986] 2 Lloyd’s Rep. 79; Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC
1502 (Comm), [2004] 2 Lloyd’s Rep. 251. cf. Bishop v Bonham [1988] 1 W.L.R. 742.
131. A.E. Farr Ltd v Admiralty [1953] 1 W.L.R. 965.
132. The Stella [1900] P. 161.
133. Lamport & Holt Lines Ltd v Coubro & Scrutton (M. & I.) Ltd [1982] 2 Lloyd’s Rep. 42. See also
Monarch Airlines Ltd v London Luton Airport Ltd [1998] 1 Lloyd’s Rep. 403 (“act, omission,
neglect or default”).
134. Smith v South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165, 168; Shell UK Ltd v Total UK Ltd
[2010] EWCA Civ 180, [2010] 2 Lloyd’s Rep. 467 at [15].
135. Smith v South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165.
136. Raymond Burke Motors Ltd v Mersey Docks and Harbour Co [1986] 1 Lloyd’s Rep. 155.
137. Bishop v Bonham [1988] 1 W.L.R. 742. See also Sonat Offshore SA v Amerada Hess
Development Ltd [1988] 2 Lloyd’s Rep. 145 (“any damage whatsoever”).
138. Svenssons Travaruaktiebolag v Cliffe S.S. Co [1932] 1 K.B. 490, 496; Exercise Shipping Co Ltd
v Bay Maritime Lines Ltd [1991] 2 Lloyd’s Rep. 391.
139. Mineralimportexport v Eastern Mediterranean Maritime Ltd [1980] 2 Lloyd’s Rep. 572. But
contrast Tor Line AB v Alltrans Group of Canada Ltd [1984] 1 W.L.R. 48; Airline Engineering v
Intercon Cattle Meat Unreported, January 24, 1983 CA; Caledonia Ltd v Orbit Value Co Europe
[1994] 1 W.L.R. 221, 229 (affirmed [1994] 1 W.L.R. 1515).
140. Alderslade v Hendon Laundry Ltd [1945] 1 K.B. 189, 192. See also Rutter v Palmer [1922] 2
K.B. 87, 92; Forbes Abbott & Lennard Ltd v G.W. Ry (1927) 44 T.L.R. 97, 98.
141. Hollier v Rambler Motors (A.M.C.) Ltd [1972] 2 Q.B. 71, 80 (disapproving Turner v Civil Service
Supply Association [1926] 1 K.B. 50; Fagan v Green & Edwards Ltd [1926] 1 K.B. 102);
Gillespie Bros Ltd v Roy Bowles Transport Ltd [1973] Q.B. 400, 414; Smith v South Wales
Switchgear Co Ltd [1978] 1 W.L.R. 165, 108; Lamport & Holt Lines Ltd v Coubro & Scrutton (M.
& I.) Ltd [1982] 2 Lloyd’s Rep. 42, 49, 51.
142. [1945] 1 K.B. 189, 192.
143. Lamport & Holt Lines Ltd v Coubro & Scrutton (M. & I.) Ltd [1982] 2 Lloyd’s Rep. 42, 45, 50, 51.
Page 17
144. [1982] 2 Lloyd’s Rep. 42, 50.
145. An example often cited is that of White v John Warwick & Co Ltd [1953] 1 W.L.R. 1285; but see
Lamport & Holt Lines Ltd v Coubro & Scrutton (M. & I.) Ltd [1982] 2 Lloyd’s Rep. 42, 46. See
also R. v Canada S.S. Lines Ltd [1952] A.C. 192, 210; Re Polemis, Furness, Withy & Co Ltd
[1912] 3 K.B. 560; Olley v Marlborough Court Ltd [1949] 1 K.B. 532; A.M.F. International Ltd v
Magnet Bowling Ltd [1968] 1 W.L.R. 1028; Smith v South Wales Switchgear Co Ltd [1978] 1
W.L.R. 165, 169, 174, 179; Caledonia Ltd v Orbit Valve Co Europe [1994] 1 W.L.R. 221, 228
(affirmed [1994] 1 W.L.R. 1515); Shell Chemicals Ltd v P.&O. Roadtanks Ltd [1995] 1 Lloyd’s
Rep. 297, 301; Toomey v Eagle Star Insurance Co Ltd (No.2) [1995] 2 Lloyd’s Rep. 88, 92;
Stent Foundations Ltd v M.J. Gleeson Group Plc [2001] Build. L.R. 134; Casson v Ostley P.J.
Ltd [2001] EWCA Civ 1013, (2002) 18 Const. L.J. 145; Colour Quest Ltd v Total Downstream
UK Plc [2009] EWHC 540 (Comm), [2009] 2 Lloyd’s Rep. 1 at [367]–[368]; Jose v MacSalvors
Plant Hire Ltd [2009] EWCA Civ 1329, [2010] T.C.L.R. 2; Onego Shipping and Chartering BV v
JSC Arcadia Shipping [2010] EWHC 777 (Comm), [2010] 2 Lloyd’s Rep. 221. cf. Try Build Ltd v
Blue Star Garages Ltd (1998) 66 Const. L.R. 90; HIH Casualty and General Insurance Ltd v
North Hampshire Insurance Co [2001] EWCA Civ 735, [2001] 2 Lloyd’s Rep. 161 at [131]–[140];
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2
Lloyd’s Rep. 61.
146. Rutter v Palmer [1922] 2 K.B. 87, 90.
148. Seven Seas Transportation Ltd v Pacifico Union Marina Corp [1982] 2 Lloyd’s Rep. 465, 475
(affirmed [1948] 1 Lloyd’s Rep. 488). cf. Industrie Chimiche Italia Centrale SpA v Nea Ninemia
Shipping Co SA [1983] 1 Lloyd’s Rep. 310, 314.
149. (1990) 6 Const. L.J. 37. See also Sonat Offshore SA v Amerada Hess Development Ltd [1988]
150. McCawley Ry v Furness (1872) L.R. 8 Q.B. 57; Buckpitt v Oates [1968] 1 All E.R. 1145;
Bennett v Tugwell [1971] 2 Q.B. 267; Birch v Thomas [1972] 1 W.L.R. 294. But contrast Burnett
v British Waterways Board Ltd [1973] 1 W.L.R. 700 (employee acting under orders of his
employer), s.149(3) of the Road Traffic Act 1988 and s.2(3) of the Unfair Contract Terms Act
1977 (on which see below, para.15-082) or the Consumer Rights Act 2015 s.65(2) (on which
see Vol.II, para.38-357).
151. Walters v Whessoe [1968] 1 W.L.R. 1056, 1057; Smith v South Wales Switchgear Co Ltd
[1978] 1 W.L.R. 165, 168; Colour Quest Ltd v Total Downstream UK Plc [2009] EWHC 540
(Comm), [2009] 2 Lloyd’s Rep. 1 at [369]–[370]; Jose v MacSalvors Plant Hire Ltd [2009]
EWCA Civ 1329, [2010] T.C.L.R. 2.
152. Under the Unfair Contract Terms Act 1977 s.4 a person “dealing as consumer” cannot by
reference to a contract term be made to indemnify another person in respect of liability that may
be incurred by that other person except to the extent to which the contract term is reasonable
(see below, paras 15-081, 15-088) and such an indemnity clause could also fall under the
general controls on fairness and transparency in the Unfair Terms in Consumer Contracts
Regulations 1999 (see Vol.II, paras 38-201 et seq. especially at para.38-296). However, as
explained below, para.15-090) with the coming into force of the relevant provisions of the
Consumer Rights Act 2015, the Unfair Contract Terms Act s.4 is deleted, the 1999 Regulations
revoked and as a result such an indemnity clause would fall within the general controls on the
fairness and transparency put in place by the 2015 Act s.62 and 68, on which see Vol.II, paras
38-334 et seq.
153. [1952] A.C. 192, 208; see above, paras 15-013—15-016.
154.
Walters v Whessoe Ltd [1968] 2 All E.R. 816 (Note), 6 B.L.R. 23; Smith v South Wales
Switchgear Co Ltd [1978] 1 W.L.R. 165, HL; Shell Chemicals Ltd v P.&O. Roadtanks Ltd [1995]
1 Lloyd’s Rep. 297; Deepak Fertilisers and Petrochemicals Corp v ICI [1999] 1 Lloyd’s Rep.
Page 18
387, 396; Colour Quest Ltd v Total Downstream UK Plc [2009] EWHC 540 (Comm), [2009] 2
Lloyd’s Rep. 1 at [367]–[368]; Jose v MacSalvors Plant Hire Ltd [2009] EWCA Civ 1329, [2010]
T.C.L.R. 2; Greenwich Millennium Ltd v Essex Services Plc [2014] EWCA Civ 960, [2014] 1
W.L.R. 3517 at [94]; Capita (Banstead 2011) Ltd v RFIB Group Ltd [2015] EWCA Civ 1310,
[2016] 2 W.L.R. 1429 at [10]. See also Sonat Offshore SA v Amerada Hess Development Ltd
[1988] 1 Lloyd’s Rep. 145 (offhire payment clause). But see Morris v Breaveglen Ltd [1997]
C.L.Y. 937 (clear intention).
155. Smith v South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165; Deepak Fertilisers and
Petrochemicals Corp v ICI [1999] 1 Lloyd’s Rep. 387.
156. Smith v South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165, 169, 174, 179; Caledonia Ltd v
Orbit Valve Co Europe [1994] 1 W.L.R. 221, 228 (affirmed [1994] 1 W.L.R. 1515); Shell
Chemicals Ltd v P.&O. Roadtanks Ltd [1995] 1 Lloyd’s Rep. 297.
157.
HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2
Lloyd’s Rep. 61 per Lord Bingham of Cornhill (exemption clause); Capita (Banstead 2011) Ltd v
RFIB Group Ltd [2015] EWCA Civ 1310, [2016] 2 W.L.R. 1429 at [10] (indemnity clause).
158.
See (effective indemnities): A.E. Farr Ltd v Admiralty [1953] 1 W.L.R. 965; Swan Hunter and
Wigham Richardson Ltd v France, Fenwick Tyne & Wear Co Ltd (The Albion) [1953] 1 W.L.R.
1026; James Archdale & Co Ltd v Comservices Ltd [1954] 1 W.L.R. 459; Harris Ltd v
Continental Express Ltd [1961] 1 Lloyd’s Rep. 251; Westcott v J.H. Jenner Plasterers and Bovis
[1962] 1 Lloyd’s Rep. 309; Spalding v Tarmac Civil Engineering Ltd [1967] 1 W.L.R. 1508;
Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] 1 Q.B. 400; Blake v Richards &
Wallington Industries (1974) 16 K.I.R. 151; Comyn Ching & Co (London) v Oriental Tube Co
[1981] Com. L.R. 67; Scottish Special Housing Association v Wimpey Construction UK Ltd
[1986] 1 W.L.R. 995; Thompson v T. Lohan (Plant Hire) Ltd [1987] 1 W.L.R. 649; Hancock
Shipping Co Ltd v Deacon & Trysail (Private) Ltd [1991] 2 Lloyd’s Rep. 550; Nelson v Atlantic
Power and Gas (1995) S.L.T. 46; Morris v Breaveglen Ltd [1997] C.L.Y. 937; Smedvig Ltd v Elf
Exploration UK Plc [1998] 2 Lloyd’s Rep. 659; Deepak Fertilisers and Petrochemicals Corp v
ICI [1999] 1 Lloyd’s Rep. 387; Great Eastern Shipping Co Ltd v Far East Chartering Ltd [2011]
EWHC 1372 (Comm), [2011] 2 Lloyd’s Rep. 309 at [43]; Greenwich Millennium Ltd v Essex
Services Plc [2014] EWCA Civ 960, [2014] 1 W.L.R. 3517 at [96]; Capita (Banstead 2011) Ltd v
RFIB Group Ltd [2015] EWCA Civ 1310, [2016] 2 W.L.R. 1429. Contrast (ineffective
indemnities) A.M.F. International Ltd v Magnet Bowling Ltd [1968] 1 W.L.R. 1028; Walters v
Whessoe Ltd [1968] 1 W.L.R. 1056; British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd [1975]
Q.B. 303; C. Davis Metal Producers Ltd v Gilyott & Scott Ltd [1975] 2 Lloyd’s Rep. 422; Smith v
South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165; Actis Co Ltd v Sankis S.S. Co Ltd [1982]
1 Lloyd’s Rep. 7; Sonat Offshore SA v Amerada Hess Development Ltd [1988] 1 Lloyd’s Rep.
145; Dorset CC v Southern Felt Roofing Co (1990) 6 Const. L.J. 37; Caledonia Ltd v Orbit
Valve Co Europe [1994] 1 W.L.R. 1515; Glebe Island Terminals Pty Ltd v Continental Seagram
Pty Ltd [1994] 1 Lloyd’s Rep. 213; Shell Chemicals Ltd v P.&O. Roadtanks Ltd [1995] 1 Lloyd’s
Rep. 297; Stirling v Norwest (1997) S.L.T. 974; Hawkins v Northern Marine Management Ltd
1998 S.L.T. 1107; Stent Foundations Ltd v M.J. Gleeson Group Plc [2001] Build. L.R. 134;
Colour Quest Ltd v Total Downstream UK Plc [2009] EWHC 540 (Comm), [2009] 2 Lloyd’s Rep.
1 at [367]–[394]; Seadrill Management Services Ltd v OAO Gazprom (The “Ekha”) [2010] 1
Lloyd’s Rep. 543 at [217]–[218] (affirmed [2010] EWCA Civ 691); Jose v MacSalvors Plant Hire
Ltd [2009] EWCA Civ 1329, [2010] T.C.L.R. 2.
159.
Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] 2 W.L.R. 1095 at [26].
160.
Wood v Capita Insurance Services Ltd [2017] UKSC 24 per Lord Hodge J.S.C. (with whom
Lord Neuberger of Abbotsbury P.S.C., Lord Mance, Lord Clarke of Stone-cum-Ebony, Lord
Sumption JJ.S.C. agreed).
161. Sze Hai Tong Bank Co Ltd v Rambler Cycle Co Ltd [1959] A.C. 576, 588.
162. Alexander v Ry Executive [1951] 2 K.B. 882; Swan Hunter and Wigham Richardson Ltd v
Page 19
France Tyne & Wear Co Ltd (The Albion) [1953] 1 W.L.R. 1026, 1030; Sze Hai Tong Bank Co
Ltd v Rambler Cycle Co Ltd [1959] A.C. 576; Colverd & Co Ltd v Anglo-Overseas Transport Co
Ltd [1961] 2 Lloyd’s Rep. 352, 363. For a time it was considered that a “deliberate” breach had
to be one which could be attributed to the contracting party personally, and not one imputed
vicariously through his employees or agents: Chartered Bank of India v British India Steam
Navigation Ltd [1909] A.C. 369, as explained in Sze Hai Tong Bank Co Ltd v Rambler Cycle Co
Ltd [1959] A.C. 576, 588; John Carter (Fine Worsteds) Ltd v Harrison Haulage (Leeds) Ltd
[1965] 2 Q.B. 495, but it submitted that this view would no longer be followed. See Guest (1961)
77 L.Q.R. 98, 116. But see Internet Broadcasting Corp Ltd v MAR LLC [2009] EWHC 844 (Ch),
[2009] 2 Lloyd’s Rep. 295 at [23]–[24].
163. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827; below, para.15-025; Frans
Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1052 (Comm), [2004] 2 Lloyd’s
Rep. 251 at [141]–[152].
164. [1967] 1 A.C. 361; below, para.15-024.
165. [1967] 1 A.C. 361, 435. See also at 394, 414, 415, 429.
166. Alexander v Ry Executive [1951] 2 K.B. 882 (but see below, para.15-039 n.246); Sze Hai Tong
Bank Ltd v Rambler Cycle Co Ltd [1959] A.C. 576, 587; Levison v Patent Steam Carpet
Cleaning Co Ltd [1978] Q.B. 69.
167.
The Cap Palos [1921] P. 458, 471, 472. Contrast Compania Portorafti Commerciale SA v
Ultramar Panama Inc [1990] 1 Lloyd’s Rep. 310 (Hague-Visby Rules). See also A Turtle
Offshore SA v Superior Trading Inc [2008] EWHC 3034 (Admlty), [2009] 1 Lloyd’s Rep. 177 at
[113]–[116]; Internet Broadcasting Corp Ltd v MAR LLC [2009] EWHC 844 (Ch), [2009] 2
Lloyd’s Rep. 295 at [17]–[19]; Polypearl Ltd v Building Research Establishment Ltd Unreported,
July 28, 2016 (Mercantile Ct) at [83] and [88]. But see Astrazeneca UK Ltd v Albermarle
International Corp [2011] EWHC 1574 (Comm), [2012] B.L.R. D1 at [301].
168. Suisse Atlantique case [1967] 1 A.C. 361, 435.
169. On the meaning of this phrase, see Re City Equitable Fire Insurance Co Ltd [1925] 1 Ch. 407;
Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep. 427; Bovis
International Ltd v Circle Line Partnerships [1995] N.P.C. 128.
170. On the meaning of this phrase, see Hoare v G.W. Ry (1877) 37 L.T. 186; Lewis v G.W. Ry
(1877) 3 Q.B.D. 195, 206; Graham v Belfast & Northern Counties Ry Co [1901] 2 I.R. 13;
Forder v G.W. Ry [1905] 2 K.B. 532; Re City Equitable Fire Insurance Co Ltd [1925] 1 Ch. 407;
Horabin v B.O.A.C. [1952] 2 Lloyd’s Rep. 450; Rustenberg Platinum Mines Ltd v SAA [1977] 1
Lloyd’s Rep. 564, 569; National Semiconductors (UK) Ltd v UPS Ltd [1996] 2 Lloyd’s Rep. 212,
214; Lacey’s Footwear v Bowler International Freight (Wholesale) Ltd [1997] 2 Lloyd’s Rep. 369
; Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Lloyd’s Rep. 399; Rolls Royce Plc v
Heavylift-Volga DNEPR Ltd [2000] 1 Lloyd’s Rep. 653; Patrick v Royal London Mutual
Insurance Socy Ltd [2006] EWCA Civ 421, [2006] 2 All E.R. (Comm) 344; Denfleet International
Ltd v TNT Global SpA [2007] EWCA Civ 405, [2007] 2 Lloyd’s Rep. 504; Colour Quest Ltd v
Total Downstream UK Plc [2009] EWHC 540 (Comm), [2009] 2 Lloyd’s Rep. 1 at [394]; De
Beers UK Ltd v Atos Origin IT Services UK Ltd [2010] EWHC (TCC) at [206]; Camerata
Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm), [2011] 2
B.C.L.C. 54; Alpstream AG v Airfinance Sarl [2013] EWHC 2370 (Comm), [2014] 1 All E.R.
(Comm) 441 at [92]–[94]. See also Vol.II, paras 35-035—35-039, 36-131.
171. On the meaning of this phrase, see Red Sea Tankers Ltd v Papachristidis [1997] 2 Lloyd’s Rep.
547, 586; Camerata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479
(Comm), [2011] 2 B.C.L.C. 54 at [161].
172. The Glendarroch [1894] P. 226, 231; Munro Brice & Co v War Risks Association [1918] 2 K.B.
78 (reversed on other grounds [1920] 3 K.B. 94); Fujitsu Services Ltd v IBM United Kingdom
Ltd [2014] EWHC 752 (TCC), [2014] 1 C.L.C. 353 at [25]. Contrast Hurst v Evans [1917] 1 K.B.
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352.
173. See, e.g. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827; below, para.15-025.
174. Munro Brice & Co v War Risks Association [1918] 2 K.B. 78 at 88.
176. H.C. Smith Ltd v G.W. Ry [1922] 1 A.C. 178; Kenyon Son & Craven Ltd v Baxter Hoare Ltd
[1971] 1 W.L.R. 232; Johnson Matthey & Co Ltd v Constantine Terminals Ltd [1976] 2 Lloyd’s
Rep. 215; Sig Bergesen DY. and Co v Mobil Shipping and Transportation Co [1993] 2 Lloyd’s
Rep. 453, 462. cf. Port Swettenham Port Authority v T.W. Wu & Co [1979] A.C. 580, and n.161,
below (bailment).
177. Munro Brice & Co v War Risks Association [1918] 2 K.B. 78 at 89.
178. [1951] 1 Lloyd’s Rep. 32, followed in Euro Cellular (Distribution) Plc v Danzas Ltd [2003] EWHC
3161 (Comm), [2004] 1 Lloyd’s Rep. 521 at [55].
179. The Glendarroch [1894] P. 226, 231; Shipping Corp of India Ltd v Gamlen Chemical Co
(Australasia) Pty Ltd (1980) 147 C.L.R. 142, 168.
180. [1978] Q.B. 69. See also Woolmer v Delmer Price Ltd [1955] 1 Q.B. 291; Euro Cellular
(Distribution) Plc v Danzas Ltd [2003] EWHC 3161 at [64].
181. Hunt & Winterbotham (West of England) Ltd v B.R.S. (Parcels) Ltd [1962] 1 Q.B. 617.
182. See below, para.15-027. Levison’s case [1978] Q.B. 69 was decided before Photo Production
Ltd v Securicor Transport Ltd [1980] A.C. 827 (below, para.15-025) but was not doubted in that
case.
183. See Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd [1994] 1 Lloyd’s Rep. 213,
238; contrast Euro Cellular (Distribution) Plc v Danzas Ltd [2003] EWHC 3161 (Comm).
184. Joseph Travers & Sons Ltd v Cooper [1915] 1 K.B. 73; Woolmer v Delmer Price Ltd [1955] 1
Q.B. 291; J. Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461, 466; Houghland v R.B. Low (Luxury
Coaches) Ltd [1962] 1 Q.B. 694; Levison v Patent Steam Carpet Cleaning Co Ltd [1978] Q.B.
69, 82; Port Swettenham Port Authority v T.W. Wu & Co [1979] A.C. 580; Victoria Fur Traders
Ltd v Roadline (UK) Ltd [1981] 1 Lloyd’s Rep. 570; see Vol.II, paras 33-012, 33-050.

Page 1

Section 3. - Fundamental Breach
Supposed rule of law
15-023
It was at one time supposed that a party to a contract would be precluded from relying upon an
exemption clause contained in it where he had been guilty of a fundamental breach of contract or the
breach of a fundamental term. Statements in certain cases 185 tended to encourage the view that
there existed a rule of substantive law preventing a party from relying on an exemption clause in
situations of fundamental breach or the breach of a fundamental term, regardless of the wording of
the clause. It was said that there were certain breaches of contract (“fundamental breaches”) which
were so totally destructive of the obligations of the party in default that liability for such a breach could
in no circumstances be excluded or restricted by means of an exemption clause. Similarly there
existed a category of terms (“fundamental terms”) which were narrower than a condition of the
contract. A fundamental term, so it was said:
“… underlies the whole contract so that, if it is not complied with, the performance
becomes totally different from that which the contract contemplates.” 186
It was part of the “core” of the contract, 187 and “however extensive the exception clause may be, it
has no application if there has been a breach of a fundamental term”. 188 The two expressions
“fundamental breach” and “breach of a fundamental term” were used to some extent interchangeably,
189
but formulated in this way they embodied a rule of law to be applied notwithstanding the
agreement of the parties as expressed in the exemption clause.
Suisse Atlantique case
15-024
The view that the principle of fundamental breach constituted a rule of law was, however, rejected by
Pearson L.J. in U.G.S. Finance Ltd v National Mortgage Bank of Greece, where he said 190:
“As to the question of ‘fundamental breach,’ I think there is a rule of construction that
normally an exception or exclusion clause or similar provision in a contract should be
construed as not applying to a situation created by a fundamental breach of the contract.
This is not an independent rule of law imposed by the court on the parties willy-nilly in
disregard of their contractual intention. On the contrary it is a rule of construction based
on the presumed intention of the contracting parties…. This rule of construction is not
new in principle but it has become prominent in recent years in consequence of the
tendency to have standard forms of contract containing exceptions clauses drawn in
extravagantly wide terms, which would produce absurd results if applied literally.”
Page 2
This statement was unanimously approved by the House of Lords in Suisse Atlantique Société
d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale. 191 In that case, shipowners sued the
charterers of a ship for damages for delays in loading and unloading the chartered vessel. The
charterers relied on the usual demurrage clause in the charterparty as establishing the full measure of
their liability; but the shipowners contended that this clause did not protect the charterers since the
breaches of contract which caused the delays amounted to a fundamental breach of contract. They
claimed damages at large. The House of Lords rejected this claim. Their Lordships held:
(i)
that the demurrage clause was not an exemption clause but an agreed damages provision 192;
(ii)
that, in any event, since the shipowners had not treated the charter as repudiated, they were still
bound by its provisions 193; and
(iii)
that, even if the clause were an exemption clause, it plainly covered the breach alleged, whether
or not this was “fundamental” in the sense that it would have entitled the shipowners to be
discharged. 194
Their Lordships were clearly of the opinion that any statement of the principle of fundamental breach
as a rule of law could not be supported in principle or in the light of previous authority. 195 So far as the
use of the expression “fundamental breach” was concerned, Lord Wilberforce pointed out 196 that it
had been used in the cases to denote two quite different things, namely:
(i)
a performance totally different from that which the contract contemplated;
(ii)
a breach of contract more serious than one which would entitle the other party merely to
damages and which (at least) would entitle him to refuse further performance of the contract.
There was no necessary coincidence between these two kinds of (so-called) fundamental breach.
After giving a series of examples 197 of how the courts had approached the problem of a fundamental
breach in the former sense, he concluded 198:
“The conception, therefore, of ‘fundamental breach’ as one which, through ascertainment

of the parties’ contractual intentions, falls outside an exceptions clause is well recognised
and comprehensible.”
On the other hand, Lord Reid said 199:
“General use of the term ‘fundamental breach’ is of recent origin, and I can find nothing to
indicate that it means either more or less than the well known type of breach which
entitles the innocent party to treat it as repudiatory and to rescind the contract.”
Page 3
While, therefore, their Lordships were agreed that the application of an exemption clause to a breach
of contract was a matter of construction of the contract, the question whether and to what extent any
special rules were applicable to cases of “fundamental breach” (in the sense of “total” as opposed to
repudiatory breach), was to some extent left open.
Securicor case
15-025
Certain statements in the Suisse Atlantique case further suggested (perhaps by way of illustration
only) that in particular instances of fundamental breach an exemption clause would or would be
presumed to be inapplicable. 200 Moreover, in his speech Lord Reid said 201:
“I do not think that there is generally much difficulty where the innocent party has elected
to treat the breach as a repudiation, bring the contract to an end and sue for damages.
Then the whole contract has ceased to exist, including the exclusion clause, and I do not
see how that clause can then be used to exclude an action for loss which will be suffered
by the innocent party after it has ceased to exist.”
Lord Reid’s statement was taken up and extended by the Court of Appeal in subsequent cases 202
which held that the protection of an exemption clause ceased to be available to a party guilty of a
repudiatory breach if the other party accepted the breach as terminating the contract or if the breach
was of such a nature as to render the contract impossible of further performance. This departure was,
however, condemned by the House of Lords in Photo Production Ltd v Securicor Transport Ltd. 203 In
that case, the defendants agreed to provide a visiting patrol service to the claimants’ factory at a
charge of £8. 15s. a week. The contract contained an exemption clause, the most relevant part of
which stated:
“Under no circumstances shall the company [the defendants] be responsible for any
injurious act or default by any employee of the company unless such act or default could
have been foreseen and avoided by the exercise of due diligence on the part of the
company as his employer.”
An employee of the defendants deliberately lit a fire in the factory, and a large part of the premises
was burned down. The Court of Appeal held 204 that the defendants, having been employed to
safeguard the factory, had committed a fundamental breach of their contract with the claimants and
that the exemption clause could not be construed to cover the act of their employee in setting the
premises on fire. It was further held that the destruction of the factory brought the contract to an end
by rendering further performance impossible so that the defendants could not rely on the exemption
clause to protect them from the consequences of the breach. The House of Lords reversed the Court
of Appeal’s decision. Their Lordships unanimously rejected the view that a breach of contract by one
party, accepted by the other as discharging him from further performance of his obligations under the
contract, brought the contract to an end, and, together with it, any exemption clause. 205 The House
further reaffirmed 206 the principle that the question whether an exemption clause protected one party
to a contract in the event of breach, or in the event of what would (but for the presence of the
exemption clause) have been a breach, depended upon the proper construction of the contract. They
held that, as a matter of construction, the exemption clause in question clearly relieved the
defendants from liability. The defendants had effectively modified their obligation to one of exercising
due diligence in their capacity as employers. The clause apportioned the risk between the parties: the
risk of arson not being accepted by the defendants having regard to the nature and cost of the
services provided and falling on the claimants who could more economically insure against it.
George Mitchell case

Page 4
15-026
A third leading case is that of George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd, 207 where
the respondents ordered from the appellants, who were seed merchants, a quantity of Dutch winter
white cabbage seeds. The seeds supplied were invoiced as “Finney’s Late Dutch Special”. Owing to
errors by the appellants’ suppliers and employees, the seeds were in fact not of this variety but were
autumn cabbage seeds. The resulting crop proved to be worthless and had to be ploughed in. In an
action by the respondents for wasted expenditure and loss of anticipated profits, the appellants relied
on their standard conditions of sale. These provided: first, that in the event of any seeds sold or
agreed to be sold not complying with the express terms of the contract of sale, the limit of the
appellants’ obligation was to replace the seeds or refund the purchase price; secondly, that the
appellants excluded:
“… all liability for any loss or damage arising from use of any seeds … supplied by us and
for any consequential loss or damage arising out of such use or any failure in the
performance of or any defect in any seeds … supplied by us or for any other loss or
damage whatsoever save for, at our option, liability for any such replacement or refund as
aforesaid;”
thirdly, that express or implied conditions and warranties not stated in the conditions were excluded. A
majority of the Court of Appeal 208 held that, at common law, this wording was insufficient to limit the
appellants’ liability. Oliver L.J. 209 considered that the first condition applied only to seeds “sold or
agreed to be sold” and so could only relate to goods which were actually the subject matter of the
contract between the parties, i.e. winter white cabbage seeds. The second condition was merely a
supplement to the first and did not cover a case where what had been supplied was wholly different
from what had been ordered. The House of Lords, however, unanimously held that, at common law,
the limitation was effective. 210 The second condition, read as a whole, unambiguously limited the
appellants’ liability to replacement of the seeds or a refund of the price. The defective seeds were
seeds sold and delivered, just as clearly as they were seeds supplied, by the appellants to the
respondents. The judgment of Oliver L.J. came, it was said 211:
“… dangerously near to reintroducing by the back door the doctrine of ‘fundamental

breach’ which this House in Securicor … had so forcibly evicted from the front.”
Conclusion
15-027
It is clear that there is now no rule of law by which exemption clauses are rendered ineffective in the
face of a “fundamental breach” or the breach of a “fundamental term”. In the Photo Production case,
Lord Diplock stated 212 that, if the expression “fundamental breach” is to be retained, it should, in the
interests of clarity, be confined to the ordinary case of a breach of which the consequences are such
as to entitle the innocent party to elect to put an end to all primary obligations of both parties
remaining unperformed. No express reference was made by him to the expression “fundamental
term”, but the inference is that there exists no category of terms which can be said to be in any sense
“fundamental” other than conditions. 213 On this basis, it is submitted that there is no presumption that,
in inserting a clause of limitation or exclusion into their contract, the parties are not contemplating its
application to a fundamental breach or the breach of a fundamental term. 214 The question is in all
cases whether the clause, on its true construction, extends to cover the obligation or liability which it
is sought to exclude or restrict.
Page 5
185. J. Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461, 465; Karsales (Harrow) Ltd v Wallis [1956] 1
W.L.R. 936, 940, 943; Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] A.C. 576, 587,
588, 589; Yeoman Credit Ltd v Apps [1962] 2 Q.B. 508, 520; Charterhouse Credit Co Ltd v
Tolly [1963] 2 Q.B. 683, 710; Astley Industrial Trust v Grimley [1963] 1 W.L.R. 1468, 1470; see
also above, para.13-021.
186. Smeaton Hanscomb & Co Ltd v Sassoon I. Setty, Son & Co [1953] 1 W.L.R. 1468, 1470; see
above, para.13-021.
187. See Melville (1956) 19 M.L.R. 26.
188. Karsales (Harrow) Ltd v Wallis [1956] 1 W.L.R. 936, 943.
189. cf. Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale
[1967] 1 A.C. 361, 393, 421; Wathes (Western) Ltd v Austins (Menswear) Ltd [1976] 1 Lloyd’s
Rep. 14, 19.
190. [1964] 1 Lloyd’s Rep. 446, 450. See also Gibaud v G.E. Ry [1921] 2 K.B. 426, 435; The Cap
Palos [1921] P. 458, 470, 472; L. & N.W. Ry v Neilson [1922] 2 A.C. 263, 272; Cunard S.S. Co
v Buerger [1927] A.C. 1, 13; Frenkel v MacAndrews & Co Ltd [1929] A.C. 545, 562; Calico
Printers’ Association v Barclays Bank (1931) 36 Com. Cas. 197, 203; Connolly Shaw v
Nordenfieldske S.S. Co (1934) 50 T.L.R. 418.
191. [1967] 1 A.C. 361; see Treitel (1966) 29 M.L.R. 546.
193. [1967] 1 A.C. 361, 395, 407, 413, 426, 437.
194. [1967] 1 A.C. 361, 395, 407, 415, 426, 437.
195. [1967] 1 A.C. 361, 392, 399, 405, 410, 425, 431–432.
196. [1967] 1 A.C. 361, 431.
197. [1967] 1 A.C. 361, 432–435.
198. [1967] 1 A.C. 361, 434. See also Lord Dilhorne, 393.
199. [1967] 1 A.C. 361, 397. See also Lord Hodson, 410; Lord Upjohn, 422.
200. See Lord Denning M.R. in Levison v Patent Steam Carpet Cleaning Co Ltd [1978] Q.B. 69;
Photo Production Ltd v Securicor Transport Ltd [1978] 1 W.L.R. 856, 863.
201. [1967] 1 A.C. 361, 398. See also Lord Upjohn, 425.
202. Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd [1970] 1 Q.B. 447. See also
Farnworth Finance Facilities Ltd v Attryde [1970] 1 W.L.R. 1053; Eastman Chemical
International A.G. v N.M.T. Trading Ltd [1972] 2 Lloyd’s Rep. 25; Wathes (Western) Ltd v
Austins (Menswear) Ltd [1976] 1 Lloyd’s Rep. 14 (where contract affirmed).
203. [1980] A.C. 827. See also Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 W.L.R.
964; Lifesavers (Australasia) Ltd v Frigmobile Pty Ltd (1983) 1 N.S.W.R. 431.
204. [1978] 1 W.L.R. 856.
205. [1980] A.C. 827, 844–845, 847–850, 853. See also s.9(1) of the Unfair Contract Terms Act
1977 (deleted on the coming into force of the Consumer Rights Act 2015 Pt 2: s.75, Sch.4
para.10). An exception may exist in “deviation” cases; see below, para.15-032.
Page 6
206. [1980] A.C. 827, 845, 850–851, 853.
207. [1983] 2 A.C. 803.
208. [1983] Q.B. 284 (Oliver and Kerr L.JJ., Lord Denning M.R. dissenting).
209. Kerr L.J. (with whom Oliver L.J. agreed) also based his decision on the ground that the clause
was not sufficiently unambiguous to exclude liability for negligence: see above, para.15-013.
210. But the clause was, however, held unreasonable under the modified s.55 of the Sale of Goods
Act 1979, as set out in para.11 of Sch.1 to that Act. See now the Unfair Contract Terms Act
1977; below, para.15-103.
211. [1983] 2 A.C. at 813.
212. [1980] A.C. 827, 849. See also the Suisse Atlantique case [1967] 1 A.C. 361, 397, 410, 422.
213. [1980] A.C. 827, 849. See also the Suisse Atlantique case [1967] 1 A.C. 361, 422; and above,
para.15-024.
214. But see Lord Upjohn in the Suisse Atlantique case [1967] 1 A.C. 361, 427 and Thomas J. in
China Shipbuilding Corp v Nippon Yusen Kabukishi Kaisha [2000] 1 Lloyd’s Rep. 367, 376;
Internet Broadcasting Corp Ltd v MAR LLC [2009] EWHC 844 (Ch), [2009] 2 Lloyd’s Rep. 295
at [33]. But see above, para.15-010.

Page 1

Section 4. - Application of Principles of Construction to Particular Contracts
Generally
15-028
The principles of construction mentioned in the second section of this chapter may now be illustrated
in their application to particular contracts. Certain of the cases cited were, however, decided at a time
when the principle of “fundamental breach” was to a greater or less extent recognised by the courts.
Such cases should probably now be regarded as instances where an exemption clause was, as a
matter of construction, held to be inapplicable.
Contracts of sale of goods: terms about title
15-029
The Unfair Contract Terms Act 1977 215 invalidates (except in the case of international sales) 216 any
term exempting from the terms about title implied by s.12 of the Sale of Goods Act 1979 and, for
contracts made on or after October 1, 2015, the Consumer Rights Act 2015 invalidates the exclusion
of liability for breach of the statutory terms in consumer sales contracts that the trader has the right to
sell the goods. 217 Even at common law, however, it is probable that the courts would be reluctant to
hold that an exemption clause, framed in general terms, should be construed so as completely to
exclude liability for breach of the implied term on the part of the seller that he has a right to sell the
goods, since “the whole object of a sale is to transfer property from one person to another”. 218 They
would have to be satisfied that the parties intended the transaction to be merely the sale and
purchase of a chance (emptio spei) that the seller might or might not have a good title to the goods
sold. 219
Sale of goods: terms as to quality, etc
15-030
For contracts made before October 1, 2015 (when the Consumer Rights Act 2015 came into force)
the Unfair Contract Terms Act 1977 Act 220 invalidates the exclusion of the terms as to quality, fitness
for purpose, and correspondence with description and sample, implied by ss.13 to 15 of the Sale of
Goods Act 1979, if the buyer “deals as consumer” 221 and, in any other case, an exemption clause is
enforceable only in so far as it satisfies the requirement of reasonableness. 222 For contracts made on
or after October 1, 2015, 223 the controls on these terms in the 1977 Act will no longer protect
persons “dealing as consumer” and will not apply to “consumer contracts”, 224 but terms in consumer
sales contracts which seek to exclude the trader’s liabilities for breach of the statutory terms as to
description, quality etc of the goods will not bind the consumer. 225 However, even at common law, if
there is a gross disparity between the goods as described in the contract of sale and as delivered, a
number of cases have held that an exemption clause, for example, which purports to require the
buyer to take the goods “with all faults and imperfections”, or to exclude the seller’s liability for errors
Page 2
of description, or to take away the buyer’s right to reject the goods, may be held not to apply to a
failure to supply the contract goods. 226 Even a clause in a comprehensive form which excludes all
conditions and warranties, express or implied by common law, statute or otherwise, may possibly not
be construed to cover the delivery of goods which are wholly different from those contracted for. 227
However, there is no rule of law to prevent a seller, who—to use a familiar example—has contracted
to deliver peas, from excluding or restricting his liability in the event that he delivers beans, 228 or
permits him to substitute beans in their place, 229 provided that the clause is sufficiently unambiguous
in its terms to admit of this construction.
Hire purchase
15-031
For contracts made before October 1, 2015 (when the relevant provisions of Consumer Rights Act
2015 came into force), the Unfair Contract Terms Act 1977 230 makes general provision prohibiting,
either absolutely or subject to certain qualifications, exclusion of the terms as to title, quality, fitness
for purpose, and correspondence with description or sample implied by ss.8 to 11 of the Supply of
Goods (Implied Terms) Act 1973. 231 With the coming into force of the 2015 Act, these controls in the
1977 Act no longer apply to consumer contracts, 232 but terms which seek to exclude a trader’s
liabilities for breach of the new statutory terms as to the trader’s right to sell the goods, and as to the
description, quality. etc, of the goods will not bind the consumer. 233 At common law, principles have
been applied to hire-purchase transactions which are similar to those applied to contracts of sale. It
has been held, for example, that a clause in such terms as:
“… no condition or warranty as to the condition or fitness for any purpose of the goods is
given by the owner or implied herein”
will not be construed to extend to the supply of goods which are so defective that what is delivered is
totally different from that promised. 234 It is also probable that the courts would not construe a general
exemption clause to have so wide an ambit as to negative the implied undertaking on the part of the
owner that he has a good title to the goods let on hire, particularly in view of the fact that such terms
as “owner” and “option to purchase” appear in the agreement. 235
Carriage of goods: deviation
15-032
Contracts for the carriage of goods are con trolled only to a limited extent by the Unfair Contract
Terms Act 1977. 236 At common law, in a contract for the carriage of goods, any unnecessary
deviation from the agreed or customary route constitutes a breach of the contract of affreightment. 237
Such a breach entitles the owner to treat himself as discharged, and, unless, with knowledge of the
facts, he elects to affirm the transaction, the special terms of the contract (including any exemption
clause) which are designed to apply to the contract journey are held to have no application to the
deviating journey. 238 So strict is this rule that although the deviation has not been the cause of any
loss to the owner’s goods and is a mere incident in the voyage, nevertheless, once it has taken place
the carrier is no longer entitled to rely on clauses of exemption contained in the contract, unless it can
be shown that the loss would have happened in any event. 239 But even if the contract is treated as
continuing, exemption clauses will be strictly construed, so that, for example, a disclaimer of liability
for loss of or damage to goods “in transit” will not extend to cover a deviation. 240 Deviation cases are,
however, sui generis and not to be extended. 241 Moreover, clauses which confer upon the carrier a
liberty to deviate will, if clearly expressed, be upheld 242 although they may be so construed as not
substantially to defeat the main purpose of the contract voyage. 243
Carriage of goods: delay

Page 3
15-033
It is also the duty of the carrier to carry the goods with all reasonable dispatch to their destination. An
unreasonable and protracted delay may entitle the charterer or consignor to treat the contract as
repudiated. 244 Delay will not necessarily lie outside the scope of an exemption clause, 245 but it will do
so where the parties cannot be taken to have agreed that the clause should extend to the period of
the delay 246 or to a risk consequent upon the delay which is wholly at variance with the contract of
carriage. 247
Carriage on deck
15-034
Where a carrier of goods by sea undertakes to carry the goods under deck, an exemption clause
which excludes or restricts his liability for loss or damage to the goods carried may be held to be
inapplicable if the goods are carried on deck. 248 The same might apply if goods carried by land are
similarly conveyed in an unauthorised manner.
Road and seaworthiness
15-035
A carrier of goods by land probably does not give any implied warranty, in the sense of an absolute
undertaking, that he will provide a roadworthy vehicle or a competent and honest driver or crew. 249 At
common law, however, a carrier of goods by sea, in the absence of an express stipulation to the
contrary, 250 impliedly undertakes that his ship is seaworthy. 251 Although an undertaking of
seaworthiness has been said “to underlie the whole contract of affreightment”, 252 its breach will not
entitle the shipper to be discharged unless the breach is such as to frustrate the commercial purpose
of the contract. 253 Nevertheless, as a matter of construction, exceptions in the charter or bill of lading
may not be read as applying to breaches of an obligation to provide a seaworthy ship 254 unless their
meaning is clear and unambiguous. 255
Misdelivery by carrier
15-036
Misdelivery of the goods does not, of itself, prevent the application of an exemption clause in a
contract of carriage. 256 But where the main object and intent of the contract is that delivery should be
made to a certain person or persons, the clause may be limited and modified to the extent necessary
to give effect to that object and intent. In Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd 257 goods
carried by sea were to be delivered “unto order or his assigns”, but the contract provided that the
responsibility of the carrier should be deemed to cease absolutely after the goods were discharged
from the ship. After the goods were discharged from the ship, the carrier’s agent released the goods
to the consignees without production of the bill of lading. It was held that the exemption clause could
not be construed to apply to a deliberate breach by the carrier of his primary obligation under the
contract.
Bailment: acts inconsistent with bailment
15-037
Contracts of bailment for deposit may be controlled in certain situations by the Unfair Contract
Terms Act 1977 258 and, as regards consumer contracts, by the Unfair Terms in Consumer Contracts
Regulations 1999 or, for contracts made on or after October 1, 2015, the Consumer Rights Act 2015.
Page 4
At common law, any act of a bailee which is basically inconsistent with the terms of the bailment,
such as the sale, 260 pledge 261 or offering for sale 262 of the goods bailed, puts an end to the bailment
and the immediate right to possession of the goods forthwith revests in the bailor. 263 It is probable
that, in the absence of specific authority to do such acts, a court would hold that they were not within
the ambit of an exemption clause which simply limited or excluded the bailee’s liability for loss of or
damage to the goods bailed. 264
Storage in wrong place
15-038
Likewise, under a contract of bailment:
“If the bailee uses a place other than the agreed one for storing the goods, or otherwise
exposes the goods to risks quite different from those contemplated by the contract, he
cannot rely on clauses in the contract designed to protect him against liability within the
four corners of the contract, and has only such protection as is afforded him by the
common law.” 265
It should be emphasised, however, that this principle is again one of construction only: the terms of
the contract may not require storage in a particular place, and may be otherwise sufficient to exclude
liability for negligence, so that the bailee will not be liable. 266
Misdelivery by bailee
15-039
Upon termination of the bailment, a bailee is normally under an obligation to return the goods to the
bailor or his nominee. If he negligently delivers the goods to a person not entitled to receive them, this
will not necessarily preclude him from relying on an exemption clause, which may well be construed
to cover the misdelivery in question. In Hollins v J. Davy Ltd, 267 the claimant garaged his motorcar at
the defendants’ garage under a contract which excluded liability for misdelivery. An employee of the
defendants honestly, but mistakenly, delivered the car to a person who fraudulently represented that
he had the claimant’s authority to collect it, and the car was lost. It was held that this act was covered
by the exemption clause. On the other hand, in Alexander v Ry Executive, 268 where the officials in
charge of a railway cloakroom permitted an unauthorised person to break open and remove the
baggage of a depositor without the production of the cloakroom ticket, it was held that an exemption
clause limiting liability for loss or misdelivery could not be relied upon to protect the railway executive.
These cases are not easily distinguishable except on the ground that the former involved an honest,
though negligent, error, whereas the latter was concerned with a misdelivery which was known to be
unauthorised by the terms of the bailment. 269
Theft or deliberate damage
15-040
A clause which is sufficient to exclude or restrict a bailee’s liability for negligence may not in its terms
be sufficient to exclude or restrict liability for theft by the bailee’s servants, or damage by reckless or
wilful misconduct. 270
Sub-contracting
15-041
Page 5
The terms of a contract of carriage or bailment may expressly or impliedly permit the carrier or bailee
to sub-contract his obligations to a third party. 271 If the contract, on its true construction, does not
authorise the carrier or bailee to sub-contract, or limits the persons who may properly be employed as
sub-contractors, it would appear that the carrier or bailee will not be protected if he exceeds his
authority by an exemption clause which is construed to apply only while the goods are in his
possession or control. 272
215. 1977 Act s.6(1) and see below, para.15-093; Vol.II, para.44-085.
216. See s.26 of the 1977 Act; below, para.15-122; Vol.II, para.44-125.
217. Consumer Rights Act 2015 s.17(1) and (2); s.31(1)(i) on which see below, para.15-095; Vol.II,
paras 38-474—38-475 and 38-492 (which explains that the new provisions extend to certain
“goods contracts” which do not count as “sales contracts”).
218. Rowland v Divall [1923] 2 K.B. 500, 507. See also Guest (1961) 77 L.Q.R. 98, 100. Contrast
Hudson (1957) 20 M.L.R. 236; (1961) 24 M.L.R. 690; and see Coote, Exception Clauses
(1964), p.61.
219. Chapman v Speller (1850) 14 Q.B. 621; Eichholz v Bannister (1864) 17 C.B.(N.S.) 708;
Bagueley v Hawley (1867) L.R. 2 C.P. 625; Warmings Used Cars v Tucker [1956] S.A.S.R. 249.
See also s.12(3) of the Sale of Goods Act 1979: Vol.II, para.44-085.
220. 1977 Act s.6(2) on which see below, para.15-093; Vol.II, para.44-117; but see 1977 Act s.26
(international sales).
221. Defined in s.12 of the 1977 Act; below, paras 15-073—15-078; Vol.II, para.44-121.
222. 1977 Act s.6(3). See below, para.15-084; Vol.II, para.44-123.
223.
The relevant provisions of the 2015 Act were brought into force so as to apply to consumer
contracts made on or after October 1, 2015: see above, para.15-005 and also below,
para.38-335.
225. Consumer Rights Act 2015 ss.9–16, 31(1)(a)–(h) on which see below, para.15-095 and Vol.II,
paras 38-462—38-470 and 38-492 (which explains that the new provisions extend to certain
“goods contracts” which do not count as “sales contracts”).
226. Shepherd v Kain (1821) 5 B. & Ald. 240; Nichol v Godts (1854) 10 Exch. 191; Wieler v Schilizzi
(1856) 17 C.B. 619; Josling v Kingsford (1863) 13 C.B.(N.S.) 447; Azémar v Casella (1867)
L.R. 2 C.P. 677; Bowes v Shand (1877) 2 App. Cas. 455, 480; Gorton v Macintosh [1883] W.N.
103; Wallis, Son and Wells v Pratt and Haynes [1911] A.C. 394; Wimble v Lillico (1922) 38
T.L.R. 296; Munro & Co Ltd v Meyer [1930] 2 K.B. 312; Green v Arcos Ltd (1931) 47 T.L.R. 336
; Wilensko v Fenwick [1938] 3 All E.R. 429; Champanhac & Co Ltd v Waller & Co Ltd [1948] 2
All E.R. 724; Smeaton Hanscomb & Co Ltd v Sassoon I. Setty, Son & Co (No.1) [1953] 1
W.L.R. 1468, 1470; Boshali v Allied Commercial Exporters Ltd (1961) 105 S.J. 987; Suisse
Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 A.C.
361, 404, 410, 427, 433; Benjamin’s Sale of Goods, 9th edn (2014), paras 13-023 et seq.;
227. Pinnock Bros v Lewis and Peat [1923] 1 K.B. 690; Andrews Bros (Bournemouth) Ltd v Singer &
Co Ltd [1934] 1 K.B. 17, 23; Suisse Atlantique Société d’Armement Maritime v NV
Rotterdamsche Kolen Centrale [1967] 1 A.C. 361, 404, 413, 432, 433. Contrast L’Estrange v
Graucob Ltd [1934] 2 K.B. 394. See also Beck & Co v Szymanowski & Co [1924] A.C. 43, 48;
Pollock & Co v Macrae (1922) S.C.(H.L.) 192; and below, para.15-031 n.211 (hire purchase).
Page 6
This was said to be “not entirely clear” by Rix L.J. in KG Bominflot mbH & Co v Petroplus
Marketing AG [2010] EWCA Civ 1145, [2011] 1 Lloyd’s Rep. 442 at [48].
228. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803 (although, at 813,
Lord Bridge said “[i]n my opinion, this is not a ‘peas and beans’ case at all”).
229. See Lord Devlin [1966] C.L.J. at 212.
230. s.6 and see below, para.15-093; Vol.II, para.39-390.
231. See Vol.II, paras 39-316, 39-382.
232. Consumer Rights Act 2015 s.75 Sch.4 paras 8 and 9. Under the 2015 Act, a “goods contract”
includes a “hire-purchase agreement” (s.3(2)) and the relevant provisions in ss.9–17 apply
equally to all goods contracts, with the exception of s.17 which makes special provision for
contracts for the hire of goods: s.17: see below, para.15-095 and Vol.II, paras 38-456,
38-462—38-475.
233. Consumer Rights Act 2015 ss.9–16, 31(1)(a)–(h) on which see below, para.15-095 and Vol.II,
paras 38-462—38-471.
234. Karsales (Harrow) Ltd v Wallis [1956] 1 W.L.R. 936; Yeoman Credit Ltd v Apps [1962] 2 Q.B.
508; Charterhouse Credit Ltd v Tolly [1963] 2 Q.B. 683 (which was overruled in Photo
Production Ltd v Securicor Transport Ltd [1980] A.C. 827); Unity Finance Ltd v Hammond
(1962) 106 S.J. 327; Suisse Atlantique [1967] 1 A.C. 361, 402, 404, 425, 433; Farnworth
Finance Facilities Ltd v Attryde [1970] 1 W.L.R. 1053; Guarantee Trust of Jersey v Gardner
(1973) 117 S.J. 564 CA. Contrast Handley v Marston (1962) 106 S.J. 327; Astley Industrial
Trust Ltd v Grimley [1963] 1 W.L.R. 584.
235. See Vol.II, para.39-318. For the implied undertakings of title at common law, see Karflex Ltd v
Poole [1933] 2 K.B. 251; Mercantile Union Guarantee Corp v Wheatley [1938] 1 K.B. 490;
Warman v Southern Counties Car Finance Corp Ltd [1949] 2 K.B. 576.
236.
See ss.2, 3 and Sch.1 paras 2, 3. See below, paras 15-081, 15-084, 15-118, 15-119. cf.
para.15-123. In principle, for contracts made before October 1, 2015 (when the Consumer
Rights Act 2015 came into force), a term in a consumer contract for the carriage of goods falls
under the controls of the Unfair Terms in Consumer Contracts Regulations 1999 and therefore
is in principle subject to the test of unfairness provided by those Regulations. However, this
position finds an exception in the case of terms which reflect “mandatory statutory or regulatory
provisions” including “provisions or principles of international conventions to which the Member
States or the EU are party” and this is significant in the context of international carriage: see
1999 Regulations reg.1(2), Vol.II, paras 38-214 and 38-218. With the coming into force of the
Consumer Rights Act 2015, a term in a consumer contract for the carriage of goods falls under
the test of unfairness in s.62 of the 2015 Act unless it falls within the same exception as regards
“mandatory statutory or regulatory provisions” etc. provided by s.73 of the 2015 Act: see Vol.II,
paras 38-357 and 38-358 et seq. However, the provisions in the 2015 Act relating to the
exclusion or restriction of liability in “services contracts” do not apply to certain “consumer
transport services” (certain rail passenger services, carriage by air, and sea and inland
waterway transport, all as specially defined by the 2015 Order art.2) until October 1, 2016: 2015
Order arts 4 and 6(2) as amended by the Consumer Rights Act 2015 (Commencement No.3,
Transitional Provisions, Savings and Consequential Amendments) (Amendment) Order 2016
(SI 2016/484) art.2. See further below, para.38-403.
237. L. & N.W. Ry v Neilson [1922] 2 A.C. 363 (carriage by land); Hain S.S. Co Ltd v Tate & Lyle Ltd
(1936) 41 Com. Cas. 350 (carriage by sea). See also Rotterdamsche Bank NV v B.O.A.C.
[1953] 1 W.L.R. 493, 502–503 (carriage by air); Suisse Atlantique Société d’Armement Maritime
SA v NV Rotterdamsche Kolen Centrale [1967] 1 A.C. 361, 390, 399, 411, 422, 433; Coote,
Exception Clauses (1964), p.80. See Vol.II, para.36-036
238. See Davis v Garrett (1830) 6 Bing. 716; Leduc v Ward (1888) 20 Q.B.D. 475; The Dunbeth
Page 7
[1897] P. 133; Mallett v G.E. Ry [1899] 1 Q.B. 309; J. Thorley Ltd v Orchis S.S. Ltd [1907] 1
K.B. 660; Internationale Guano, etc. v Macandreir & Co [1909] 2 K.B. 360; Gunyon v S.E. &
Chatham Ry Companies’ Managing Committee [1915] 2 K.B. 370; J. Morrison & Co Ltd v
Shaw, Savill & Albion Co Ltd [1916] 2 K.B. 783; London & N.W. Ry v Neilson [1922] 2 A.C. 263;
US Shipping Board v Bunge y Born (1925) 31 Com. Cas. 118; Cunard S.S. Co Ltd v Buerger
[1927] A.C. 1; Stag Line Ltd v Foscolo, Mango & Co Ltd [1932] A.C. 328; Hain S.S. Co Ltd v
Tate & Lyle Ltd (1936) 41 Com. Cas. 350.
239. Suisse Atlantique [1967] 1 A.C. 361, 442. cf. Drew Brown v The Orient Trader [1973] 2 Lloyd’s
Rep. 174.
240. L. & N.W. Ry v Neilson [1922] 2 A.C. 263, 278.
241. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827, 845. In Kenya Railways v
Antares Pte Ltd [1987] 1 Lloyd’s Rep. 424, 430 and State Trading Corp of India v M. Golodetz
Ltd [1989] 2 Lloyd’s Rep. 277, 289, Lloyd L.J. stated that “they should now be assimilated into
the ordinary law of contract”, but this would be difficult to achieve while it remains the case that
the protection of the clause goes in the absence of affirmation. See Baughen [1991] L.M.C.L.Q.
70. cf. Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd [2003] EWCA Civ 451, [2003] 2
Lloyd’s Rep. 1.
242. Mayfair Photographic Supplies (London) Ltd v Baxter Hoare & Co Ltd [1972] 1 Lloyd’s Rep. 410
; Trade and Transport Inc v Iino Kaiun Kaisha Ltd [1973] 1 W.L.R. 210, 232.
243. Leduc v Ward (1988) 20 Q.B.D. 475; Glynn v Margetson [1893] A.C. 351; Potter v Burrell [1897]
1 Q.B. 97, 104; V.O.S. of Moscow v Temple S.S. Co Ltd (1945) 173 L.T. 373, 376; Suisse
Atlantique [1967] 1 A.C. 361, 393, 412, 427, 430.
244. Freeman v Taylor (1831) 8 Bing. 124; Scaramanga v Stamp (1880) 5 C.P.D. 295; Brandt v
Liverpool, Brazil & River Plate Steam Navigation Co [1924] 1 K.B. 575; Cunard S.S. Co Ltd v
Buerger [1927] A.C. 1. See Vol.II, para.36-037.
245. Colverd & Co Ltd v Anglo-Overseas Transport Ltd [1961] 2 Lloyd’s Rep. 352. cf. Marston
Excelsior Ltd v Arbuckle Smith & Co Ltd [1971] 1 Lloyd’s Rep. 70.
246. The Cap Palos [1921] P. 458 (towage); Brandt v Liverpool, Brazil and River Plate S.N. Co
[1924] 1 K.B. 575, 597, 601; Bontex Knitting Works Ltd v St John’s Garage [1943] 2 All E.R.
690; affirmed [1944] 1 All E.R. 381n. But see Suisse Atlantique [1967] 1 A.C. 361, 435.
247. Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd [1966] 2
Lloyd’s Rep. 347.
248. Royal Exchange Shipping Co Ltd v Dixon (1886) 12 App. Cas. 11, 16, 19; J. Evans & Sons
(Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 W.L.R. 1078, 1082, 1084, 1085. Contrast
Kenya Railways v Antares Co Pte Ltd [1987] 1 Lloyd’s Rep. 424; Daewoo Heavy Industries Ltd
v Klipriver Shipping Ltd [2003] EWCA Civ 451, [2003] 2 Lloyd’s Rep. 1 (Hague-Visby or Hague
Rules).
249. Readhead v Midland Ry (1869) L.R. 4 Q.B. 379; J. Carter (Fine Worsteds) Ltd v Hanson
Haulage (Leeds) Ltd [1965] 2 Q.B. 495.
250. Such a stipulation must be expressed in clear words and without ambiguity, or it will be
insufficient: Rathbone v McIver [1903] 2 K.B. 378; Elderslie v Borthwick [1905] A.C. 93; Nelson
v Nelson [1908] A.C. 16; Chartered Bank v British India Steam Navigation Co [1909] A.C. 369,
375; The Rossetti [1972] 2 Lloyd’s Rep. 116.
251. But under the Carriage of Goods by Sea Act 1971 Sch. art.III(1), the carrier is only bound to
exercise due diligence to make the ship seaworthy. See also s.3 of the 1971 Act.
252. Atlantic Shipping and Trading Co Ltd v Louis Dreyfus & Co [1922] 2 A.C. 250, 260.
Page 8
253. The Europa [1908] P. 84; Kish v Taylor [1912] A.C. 604, 617; Hongkong Fir Shipping Co v
Kawasaki Kisen Kaisha [1962] 2 Q.B. 26; see below, para.24-041.
254. Tattersall v National S.S. Co Ltd (1884) 12 Q.B.D. 297. See also Steel v State Line S.S. Co
(1877) 3 App. Cas. 72.
255. Kish v Taylor [1912] A.C. 604; Bank of Australasia v Clan Line [1916] 1 K.B. 39; Atlantic
Shipping and Trading Co Ltd v Louis Dreyfus & Co [1922] 2 A.C. 250, 257. Petrofina SA of
Brussels v Compagnie Italiana Transporto Olii Minerali of Genoa (1937) 63 T.L.R. 650, 653. But
see Parsons Corp v CV Scheepvaartonderneming “Happy Ranger” [2002] EWCA Civ 694,
[2002] 2 Lloyd’s Rep. 357 (Hague-Visby Rules).
256. Smackman v General Steam Navigation Co (1908) 98 L.T. 396; Chartered Bank v British India
Steam Navigation Co [1909] A.C. 369; Pringle of Scotland v Continental Express [1962] 2
Lloyd’s Rep. 80; Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd
[1981] 1 W.L.R. 138; Chellaram & Co Ltd v China Ocean Shipping Co [1989] 1 Lloyd’s Rep.
493. See also Hollins v J. Davy Ltd [1963] 1 Q.B. 844 (bailment), and Vol.II, paras
36-029—36-030, 36-040.
257. [1959] A.C. 576. See also Alexander v Railway Executive [1951] 2 K.B. 882 (bailment); Sydney
City Council v West (1965) 114 C.L.R. 481; Suisse Atlantique case [1967] 1 A.C. 361, 411, 434;
Kanematsu (Hong Kong) Ltd v Eurasia Express Line [1998] 1 C.L.Y. 4404; Motis Exports Ltd v
Dampskibsselskabet AF 1912 Aktieselskab [2000] 1 Lloyd’s Rep. 213, 216, 217; East West
Corp v DKBS 1912 [2003] EWCA Civ 83, [2003] Q.B. 1509 at [65]–[68], [85]. cf. Port Jackson
Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd [1981] 1 W.L.R. 138; Nissho
Iwai Australia Ltd v Malaysian International Shipping Corp Berhad (1989) 86 A.L.R. 375; Sucre
Export SA v Northern Shipping Ltd [1994] 2 Lloyd’s Rep. 266; Pyramid Sound NV v Briese
Schiffahrts GmbH & Co [1995] 2 Lloyd’s Rep. 144.
258. 1977 Act ss.2, 3; see below, paras 15-081, 15-084.
259.
On which see below, paras 15-083 and 15-087 and Vol.II, paras 38-201 et seq. and 38-334 et
seq. On the qualifications on the general temporal application of the relevant provisions of the
2015 Act, see above, para.15-005.
260. Fenn v Bittleston (1851) 7 Exch. 152.
261. Nyberg v Handelaar [1892] 2 Q.B. 202.
262. North Central Wagon and Finance Co v Graham [1950] 2 K.B. 7.
263. See Vol.II, paras 33-014, 33-023, 33-034, 33-042, 33-052, 33-080.
264. North Central Wagon and Finance Co v Graham [1950] 2 K.B. 7, 15; Alexander v Ry Executive
[1941] 2 K.B. 882, 889; Garnham, Harris & Elton Ltd v Ellis (Transport) Ltd [1967] 1 W.L.R. 940,
946.
265. Suisse Atlantique case [1967] 1 A.C. 361, 412. See also at 392, 424, 434, and Lilley v
Doubleday (1881) 7 Q.B.D. 510; Gibaud v G.E. Ry [1921] 2 K.B. 426, 435; Alderslade v
Hendon Laundry Ltd [1945] K.B. 189, 192; J. Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461, 465
; Mendelssohn v Normand Ltd [1970] 1 Q.B. 177, 184; Coote, Exception Clauses (1964), p.99.
266. Harris v G.W. Ry (1876) 1 Q.B.D. 515; Gibaud v G.E. Ry [1921] 2 K.B. 426; Kenyon Son &
Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 W.L.R. 519.
267. [1963] 1 Q.B. 844. See also Ashby v Tolhurst [1937] 2 K.B. 242; B.G. Transport Service Ltd v
Marston Motor Co Ltd [1970] 1 Lloyd’s Rep. 371.
268. [1951] 2 K.B. 882. See also Tozer Kemsley & Millbourn (Australasia) Pty Ltd v Collier’s
Interstate Transport Service Ltd (1956) 94 C.L.R. 384; Sze Hai Tong Bank Ltd v Rambler Cycle
Page 9
Co Ltd [1959] A.C. 576 (carriage); Sydney CC v West (1965) 114 C.L.R. 481; Levison v Patent
Steam Carpet Cleaning Co Ltd [1978] Q.B. 69.
269. In Suisse Atlantique case [1967] 1 A.C. 361, 435, Lord Wilberforce rejects the view that there is
a separate category of “deliberate breaches” (see above, para.15-019) and explains Alexander
v Ry Executive [1951] 2 K.B. 882 as a case of “total departure” from what was contractually
contemplated. cf. J. Carter (Fine Worsteds) Ltd v Hanson Haulage (Leeds) Ltd [1965] 2 Q.B.
495.
270. Levison v Patent Steam Carpet Cleaning Co Ltd [1978] Q.B. 69.
271. See below, para.15-057, Vol.II, para.33-026.
272. Davies v Collins [1945] 1 All E.R. 247; Garnham, Harris & Elton Ltd v Ellis (Transport) Ltd
[1967] 1 W.L.R. 940; The Berkshire [1974] 1 Lloyd’s Rep. 185.

Page 1

Section 5. - Exemption Clauses and Third Parties
Application to third parties
15-042
It not infrequently happens that one of the parties to a contract seeks to extend the burden of its
exempting provisions to persons who are not in any direct contractual relationship with him, or
endeavours to confer the benefit of those provisions on persons outside the contract, e.g. to his
employees, agents or sub-contractors. At common law, the general rule is that the doctrine of privity
of contract 273 prevents the application of an exemption clause to third parties, although this general
rule is subject to a number of exceptions or qualifications. 274 The common law rule has, however,
been fundamentally affected by the Contracts (Rights of Third Parties) Act 1999. 275 Exemption
clauses are unequivocally brought within the purview of the Act. 276 In any case involving the
application of an exemption clause to a third party it will therefore be necessary to consider whether
and, if so, to what extent the common law rule has been altered by this statute.
The general common law rule: burden
15-043
At common law, two persons cannot by contract impose the burden of an exemption clause on one
who is not a party to that contract. 277 In Haseldine v C.A. Daw & Son Ltd, 278 the owners of a block of
flats by contract employed the defendants to maintain a lift in the premises. This contract purported to
exempt the defendants from liability for accidents due to their negligence. 279 A third party was injured
owing to the negligent repair of the lift by the defendants. It was held that the defendants were not
protected against an action in tort by the third party.
Effect of the 1999 Act: burden
15-044
The Contracts (Rights of Third Parties) Act 1999 does not alter the common law rule. But where, by
virtue of the provisions of the Act, a contract confers upon a third party a “positive” right to enforce a
contractual term, that right may be affected by an exemption clause in the contract which excludes or
limits the liability of one of the parties for breach of that term. 280 Suppose that A (the promisor) enters
into a contract with B (the promisee) which contains a term under which A is to render certain services
to C (a third party), but the contract also contains an exemption clause which effectively excludes or
limits the liability of A to B for breach of the term. If A fails to perform the services or fails to perform
them satisfactorily, the exemption clause will be available as a defence to A in any proceedings
brought by C under the Act to enforce his right to those services. The reason is that the Act provides
that, where (in reliance on the Act) 281 proceedings for enforcement of a term are brought by a third
party, the promisor is to have available to him by way of defence any matter that arises from or in
connection with the contract and is relevant to the term, and would have been available to him by way
of defence if the proceedings had been brought by the promisee. 282 The question, however, arises
Page 2
whether A can rely on the exemption clause as against C if, by statute, it would not have been
available as a defence to A if the proceedings had been brought by B (for example, because it is
caught by s.3 of the Unfair Contract Terms Act 1977 283 and is unreasonable). Under the 1977 Act,
the position appears to be as follows. A cannot rely on an exemption clause which seeks to exclude
A’s business liability for negligence (whether contractual or in tort) causing death or personal injuries
nor on a non-contractual notice which seeks to exclude A’s liability in tort for negligence in respect of
death or personal injuries. 284 On the other hand, as regards other loss or damage, A can rely on the
exemption clause where C is claiming damages for breach of a contractual duty to take reasonable
care, as s.7(2) of the 1999 Act provides that s.2(2) of the 1977 Act “shall not apply where the
negligence consists of the breach of an obligation arising from a term of a contract”. However, this
statutory disapplication applies only to a claim by C brought under s.1 of the 1999 Act, that is, to
enforce a term of the contract and therefore does not cover any claim by C brought in tort for
negligence. 285 As a result, in the latter case, an exemption clause in the contract may operate as a
non-contractual notice (if it is brought reasonably to the attention of C), but if it were able to do so, it
could then fall within the controls of s.2(2) of the 1977 Act. 286 On the other hand, if C is seeking to
rely against A on a liability arising under the contract between A and B other than for negligence, it
would seem that this would not be caught by the controls on exemption clauses provided by s.3 of the
1977 Act (subject to their own conditions) as s.3 applies only “as between contracting parties” and
protects only persons dealing on the other’s written standard terms or dealing as consumer. 287
Finally, with the coming into force of the Consumer Rights Act 2015 for contracts made on or after
October 1, 2015, s.2 of the 1977 Act will no longer apply to terms in consumer contracts nor to
“consumer notices” which are instead governed by Pt.2 of the 2015 Act. 288 For this purpose, s.65
of the 2015 Act applies a bar on the exclusion or restriction on liability in a trader of its liability for
death or personal injury resulting from negligence following the model in s.2(1) of the 1977 Act 289 and
it is submitted that this bar will equally apply so as to prevent a trader (A) party to a contract from
excluding its liabilities against either B or C, whether these liabilities arise for breach of the contract’s
duties to take reasonable care or for negligence in tort. Secondly, under s.62 of the 2015 Act any
attempted exclusion by the trader of its liabilities for negligence for damage or loss other than
personal injuries or death (whether by a term in a consumer contract or a “consumer notice”) is
subject to a test of fairness, failing which the term or notice does not bind the consumer. 290 While this
broadly follows s.2(2) of the 1977 Act, the 2015 Act does not amend the 1999 Act so as to include a
disapplication provision similar to s.7(2) of the 1999 Act’s disapplication of s.2(2) of the 1977 Act. It is
clear that the controls of the 2015 Act applicable to “consumer notices” will apply so as to prevent a
trader (A) from excluding its liabilities in tort by notice, in a similar way to the position under s.2(2) of
the 1977 Act. In the case of the trader’s contractual liabilities (whether for negligence or otherwise), it
would appear that these would not be caught by the control on unfair contract terms in s.62 of the
2015 Act as the latter’s effect is that the unfair term does not bind the consumer, meaning, the
consumer party to the contract with the trader. 291 As a result, this control does not on its own terms
seek to benefit a third party, whether or not that third party is a consumer. 292
The general common law rule: benefit
15-045
At common law, two persons cannot by contract confer the benefit of an exemption clause on one
who is not a party to that contract. 293 Thus it was held that an employee of the London Passenger
Transport Board, who was sued by a passenger for damages in negligence, was not protected by the
terms of a pass given to the passenger by the Board which expressly purported to exempt the
employees of the Board from all liability 294; that the master and boatswain of a ship, who were sued
by a passenger alleged to have been injured by their negligence, were not protected by a clause
inserted in the passenger’s ticket by their employers 295; that stevedores, who had negligently
damaged a drum of chemicals while handling it, were not protected by a clause in the bill of lading
which exempted the carriers of the goods from liability in excess of a certain pecuniary limit 296; and
that a licensor of technology and know-how was not protected by a clause in a contract between its
licensee and the person to whom the technology and know-how was transferred. 297
Effect of the 1999 Act: benefit

Page 3
15-046
The Contracts (Rights of Third Parties) Act 1999 enables a third party, subject to certain conditions, to
take advantage of an exemption clause inserted in a contract for his benefit. The provisions of the Act
are dealt with more fully in Ch.18 of this work. 298 Section 1 of the Act sets out the circumstances in
which a person who is not a party to a contract (a “third party”) may in his own right enforce a term of
a contract if the contract expressly provides that he may 299 or if the term purports to confer a benefit
on him. 300 The Act makes it clear that it applies so as to enable a third party to avail himself of an
exclusion or limitation clause as well as to enforce “positive” rights such as the right to payment of
money or to the performance of some other obligation. 301 However, the third party must be expressly
identified in the contract by name, as a member of a class or as answering a particular description but
need not be in existence when the contract is entered into. 302 So, for example, if A (the promisor)
enters into a contract with B (the promisee) by which A agrees that B’s sub-contractors may avail
themselves of a term of the contract which excludes or limits the liability of B to A, and A seeks to
hold C, a sub-contractor of B, liable, C may rely on the term as a defence notwithstanding that there is
no privity of contract between himself and A. However, s.3(6) of the Act provides:
“Where in any proceedings brought against him a third party seeks in reliance on section
1 to enforce a term of a contract (including, in particular, a term purporting to exclude or
limit liability), he may not do so if he could not have done so (whether by reason of any
particular circumstances relating to him or otherwise) had he been a party to the
contract.”
On a literal reading, this appears to provide that C is able to rely on the exemption clause only if he
could have done so had he been party to the contract, but the Law Commissions’ understanding of an
almost identical form of words in the draft Bill was broader, as they considered that the phrase “the
third party can rely on the exclusion … clause to the extent that he could have done so had he been a
party to the contract” should be understood to “include matters that affect the validity of the exclusion
clause as between the contracting parties as well as matters affecting validity or enforceability that
relate only to the third party”. 303 The difference between the two interpretations may matter where an
exemption clause stipulated as being for the benefit of C could fall within legislative controls which
distinguish between the exclusion of liability in a person depending on whether or not they act in the
course of business. So, certainly, where B and C both act in the course of business, then under s.3(6)
of the 1999 Act the controls on their exclusions of liability under, for example, s.3 of the Unfair
Contract Terms Act 1977 would not differ as between them. 304 Moreover, in the (perhaps unlikely)
situation where B does not contract in the course of business, but C does so contract, then, on either
reading of s.3(6), C could rely on the exemption clause only to the extent to which s.3’s requirement
of reasonableness were satisfied since C “may not” enforce the term “if he could not have done so
(whether by reason of any particular circumstances relating to him or otherwise) had he been a party
to the contract” and he could not have done on the literal (and narrower) reading unless it was
reasonable. On the other hand, where B contracts in the course of a business but C does not, then on
the literal reading, C could rely on the term without the need for it to satisfy the test of reasonableness
in s.3 of the 1977 Act, as s.3 applies only to “business liability” and if C had been party to the contract,
s.3 would not have applied to his liability; whereas on the Law Commissions’ understanding of the
wording of s.3(6), C could not rely on the clause any more than could B, as B’s inability to rely on the
term would affect C’s position.
Contracts excluded from the 1999 Act
15-047
Certain types of contract are excluded (wholly or partly) from the application of the 1999 Act. 305 In
particular these contracts include contracts for the carriage of goods by sea 306 and contracts for the
carriage of goods by rail or road, or for the carriage of cargo by air, which are subject to the rules of
the appropriate international transport convention. 307 However, it is expressly provided that a third
party may in reliance on s.2 of the Act avail himself of an exclusion or limitation of liability in such a
contract. 308
Page 4
Common law exceptions preserved
15-048
Section 7(1) of the 1999 Act specifically provides that the right conferred on a third party by s.1 “does
not affect any right or remedy of a third party that exists or is available apart from this Act”. 309 The
provisions of the Act supplement and are in addition to the exceptions to the privity of contract
doctrine at common law. If, therefore, apart from the Act, a person could be bound by or take the
benefit of an exemption clause in a contract to which he is not a party, then the situation remains
unaffected by the Act. In most cases, where a third party claims to be entitled to the benefit of an
exemption clause, he will rely on s.1 of the 1999 Act. But where the requirements of that section are
not satisfied, for example, where the person claiming the benefit of the clause is not identified or not
sufficiently identified in the contract, he can still fall back on a common law exception (if any is
applicable) to the privity rule. Also, if it is sought to establish that a person is bound by an exemption
clause in a contract to which he is not a party, this can be done only by reference to an exception to
the privity rule at common law since the Act does not generally provide for the burden of an
exemption clause to be imposed on third parties. It is therefore necessary to consider what
exceptions exist to the doctrine of privity of contract apart from the Act.
Vicarious immunity
15-049
The proposition was at one time advanced that, at common law, where a contract contained an
exemption clause, any employee or agent who acted under the contract could claim the same
exemption as attached to the liability of his employer or principal. 310 This concept of “vicarious
immunity” was, however, rejected by the House of Lords in Scruttons Ltd v Midland Silicones Ltd 311
where it was held that no such principle existed in English law so far as exemption clauses were
concerned.
Agency
15-050
At common law a third party may be able to take the benefit of an exemption clause by showing that
the party imposing the exemption clause was acting as agent in the transaction so as to bring the
third party into a direct contractual relationship with the claimant. 312 This device was first employed in
the nineteenth century in relation to railways. It frequently happened that passengers or goods might
be transported over a network of independent railway companies before reaching their destination.
The question arose whether the exemption clauses inserted in the contract of carriage with the
contracting company could be made to extend to the others with whom there seemed to be no direct
contractual relationship. The courts held that the contracting company should be treated either as
agent for the passenger or consignor to contract with the other companies 313 or as their agent to
contract with him. 314 In more modern times clauses are frequently encountered in standard form
contracts whereby one contracting party, e.g. a carrier, 315 repairer 316 or building contractor 317
purports to contract on behalf of his employees, agents and the independent contractors employed by
him, and to extend to such employees, agents and independent contractors protection from liability.
Such clauses are—at least in the context of carriage of goods by sea—usually referred to as
“Himalaya clauses”. 318 In Scruttons Ltd v Midland Silicones Ltd 319 the House of Lords left open the
question whether, at common law, stevedores could be protected by an exemption clause contained
in a contract of carriage to which they were not a party if the carrier contracted as agent on their
behalf. Lord Reid said 320:
“I can see a possibility of success of the agency argument if (first) the bill of lading makes
it clear that the stevedore is intended to be protected by the provisions in it which limit
Page 5
liability, (secondly) the bill of lading makes it clear that the carrier, in addition to
contracting for these provisions on his own behalf, is also contracting as agent for the
stevedore that these provisions should apply to the stevedore, (thirdly) the carrier has
authority from the stevedore to do that, or perhaps later ratification by the stevedore
would suffice, and (fourthly) that any difficulties about consideration moving from the
stevedore were overcome.”
15-051
These four conditions were held to have been satisfied in New Zealand Shipping Co Ltd v A.M.
Satterthwaite & Co Ltd (The Eurymedon). 321 In that case, the Judicial Committee of the Privy Council,
by a majority, held that a stevedore, who had negligently damaged goods in the course of unloading,
was protected by a clause in a bill of lading which contained appropriate words exempting him from
liability and which was stated to have been made by the carrier acting as agent on his behalf. An
action against him by the shipper therefore failed. The Board considered that:
“… the bill of lading brought into existence a bargain initially unilateral but capable of
becoming mutual between the shipper and the [stevedore], made through the carrier as
agent. This became a full contract when the [stevedore] performed services by
discharging the goods. The performance of these services for the benefit of the shipper
was the consideration for the agreement by the shipper that the [stevedore] should have
the benefit of the exemptions and limitations contained in the bill of lading.” 322
This reasoning is, however, somewhat artificial, and the courts of certain Commonwealth jurisdictions
initially showed a reluctance to follow the Eurymedon case or a readiness to find grounds for
distinguishing it. 323 But it has subsequently been endorsed and justified on grounds of policy: that
established commercial practice now requires the stevedore, in normal circumstances, to enjoy the
benefit of contractual provisions in the bill of lading. 324 In Port Jackson Stevedoring Pty Ltd v
Salmond and Spraggon (Australia) Pty Ltd (The New York Star), 325 after goods had been unloaded
from a ship and placed in a shed on the wharf under the stevedore’s control, a servant of the
stevedore negligently delivered the goods to thieves without production of the bill of lading. The High
Court of Australia held that the stevedore was not protected by a clause in substantially the same
form as that considered in the Eurymedon case, since he was no longer acting on behalf of the carrier
under the bill of lading. The carrier’s responsibilities and immunities under the bill of lading had
ceased when the goods were discharged from the ship. On appeal, the Judicial Committee again held
that the stevedore was protected on the ground that, whereas the carrier’s responsibility as a carrier
terminated as soon as the goods left the ship’s tackle, his responsibility as bailee under the bill of
lading continued until the consignee took delivery of the goods. During this period, both the carrier
and the stevedore were entitled to the protection conferred by the bill.
15-052
“Himalaya clauses” have therefore attained a degree of general acceptance. 326 The technical nature
of the Eurymedon principle is, however, “all too apparent”. 327 In some cases, the courts have rejected
its application on the ground that they were compelled to do so by established principles of the law of
contract or of agency. Thus, the benefit of an exemption clause has been held not to extend to a third
party because the contract did not make it clear that the third party was intended to be protected or
that the contracting party contracted as agent for the third party as well as on his own behalf, 328 or
because there was no act of the third party which could be identified as constituting acceptance of the
offer made to him through the agent, 329 or because no agency could be established since the third
party was at all relevant times unascertained, 330 or because the negligence of the third party in
respect of which exemption was sought was collateral and not related to the performance of his duties
under the contract. 331 Since the enactment of the Contracts (Rights of Third Parties) Act 1999 a third
party is more likely now to rely simply and directly on the provisions of the Act than on the Eurymedon
principle and so will be absolved from having to establish the more esoteric requirements, e.g.
Page 6
authority and consideration, 332 of that principle.
Trust
15-053
Exemption clauses are sometimes found which provide that a party contracts, for the purpose of the
clause, as trustee on behalf of third parties, e.g. associated companies, or his employees or
sub-contractors. It has been doubted whether a trust of the benefit of an exemption clause would be
effective, 333 but it is possible that such a trust would be upheld at common law (the contracting party
acting as a bare trustee) provided that the identity of the beneficiaries of the trust was sufficiently
certain.
Agreement not to sue, etc
15-054
An exemption clause which purports to negative the liability of a third party to a contract cannot be
construed as a promise not to sue that third party. 334 However, the contract may contain an express
or implied provision whereby one party promises the other that he will not institute legal proceedings
against a third party, e.g. any employee or sub-contractor of the promisee. 335 In such a situation, the
third party cannot, at common law, rely on the promise as a defence to an action brought against him.
But the promisee could, if he has a sufficient interest in the enforcement of the promise, apply for an
order or claim a declaration that the action be stayed or dismissed. 336
No voluntary assumption of risk
15-055
An exemption clause which purports to protect a third party cannot ordinarily be construed as a
voluntary assumption of risk by the promisor. 337
Occupier’s liability
15-056
The Occupiers’ Liability Act 1957 338 provides that where an occupier of premises is bound by contract
to permit persons who are strangers to the contract to enter or use the premises, the duty of care
which he owes to them as his visitors cannot be restricted or excluded by that contract, but (subject to
any provisions of the contract to the contrary) shall include the duty to perform his obligations under
the contract, whether undertaken for their protection or not, in so far as those obligations go beyond
the obligations otherwise involved in that duty. This rule applies to regulate the obligations (qua
occupier) of a person occupying or having control over any fixed or movable structure, including any
vessel, vehicle or aircraft; and to the obligations of a person occupying or having control over any
premises or structure in respect of damage to property, including the property of persons who are not
themselves his visitors. 339
Bailment 340
15-057
A carrier, warehouseman or other bailee of goods may sub-contract to another performance of the
contract between himself and the bailor and for that purpose deliver possession of the goods to the
sub-contractor as subbailee. If the sub-bailee has sufficient notice that the original bailor is interested
in the goods, then he is under a duty to the original bailor, as well as to the bailee, to use reasonable
Page 7
care to safeguard the goods while in his possession and he will be liable to the original bailor if the
goods are lost or damaged 341 through his negligence notwithstanding the absence of any contract
between them. 342 Since the sub-bailee is not a party to the contract between the bailee and the
original bailor, he cannot rely upon an exemption clause contained in that contract, 343 unless the
bailee contracted as agent on his behalf. 344 Nor, in principle, will the original bailor be bound by an
exemption clause contained in the sub-contract between the bailee and sub-bailee to which the
original bailor is not a party, 345 unless the bailee entered into the sub-contract as his agent. 346
However, it has been held that the original bailor is bound by the terms of the sub-bailment if he has
expressly or impliedly consented to the bailee making a sub-bailment containing those terms: the
original bailor cannot, despite the lack of any contractual relationship, disregard those terms against
the sub-bailee. 347 Thus an exemption clause contained in the sub-contract which excludes or restricts
the liability of the sub-bailee may protect the sub-bailee in an action against him by the original bailor.
This principle was taken one step further, by Donaldson J. in Johnson Matthey & Co Ltd v
Constantine Terminals Ltd, 348 who stated that the original bailor might be bound by an exemption
clause in the sub-contract irrespective of whether the bailee was authorised to sub-bail the goods on
terms to the subbailee. But the Judicial Committee of the Privy Council has subsequently held 349 that
the sub-bailee can invoke the terms of a sub-bailment under which he receives the goods from the
bailee as qualifying or otherwise affecting his responsibility to the original bailor only if the original
bailor consented to them.
15-058
On the other hand, the courts have been reluctant to extend these principles to cases where the
relationship between the claimant and the defendant who seeks to rely on the exemption clause is not
one of bailor and bailee or sub-bailee. 350 So, for example, if it is agreed between the buyer and seller
of goods that the seller will enter into a contract for the carriage of the goods to the buyer and for that
purpose will bail the goods to a carrier on terms, then, if the goods are lost or damaged by the
negligence of the carrier, the buyer will not be bound by an exemption clause contained in the
contract of carriage to which he is not a party 351 unless, in view of the nature and terms of the sales
contract, the seller is taken to have bailed the goods to the carrier on behalf of the buyer so that the
carrier is in possession of the goods as his bailee or sub-bailee. 352 In the absence of any such
relationship between them, the carrier will have to establish an implied or collateral contract between
himself and the buyer 353 or that the seller’s rights of suit under the contract of carriage have been
transferred to and vested in the buyer 354 or that he has attorned to the buyer by acknowledging that
he holds the goods as bailee for the buyer on the terms of the contract of carriage. 355
Building and construction contracts
15-059
Where a contractor is employed to carry out building or construction works or works of repair, it may
be agreed or understood that the contractor (“the main contractor”) will engage a sub-contractor or
sub-contractors to execute part of the works. Since there is normally no privity of contract between
the employer and the sub-contractors, any action brought by the employer against a sub-contractor in
respect of loss or damage caused to him by the sub-contractor must be brought in tort for negligence.
As a general rule, no such action will lie in respect of defects in the works which the sub-contractor is
engaged to carry out. 356 But the employer is entitled to claim against a sub-contractor damages in tort
for negligence if the sub-contractor negligently causes physical damage to the existing structure or to
property other than the thing supplied by him. 357 The question, however, arises whether, in such an
action, the sub-contractor can rely on an exemption clause contained in: (a) the main contract
between the employer and the main contractor; or (b) his own sub-contract with the main contractor.
The initial contractual arrangements between the employer, the main contractor and the
sub-contractor may be such as to give rise to a contract between the employer and the
sub-contractor. 358 But, even if no such direct contractual relationship exists between them, the
subcontractor may nevertheless be entitled to rely upon an exemption clause contained in the main
contract between the employer and the main contractor. This may be justified either on the ground
that the duty in tort owed by the subcontractor to the employer is negatived or qualified by the clause,
359
or on the ground that, if the clause places a risk in whole or in part on the employer, the
circumstances show that the sub-contractor contracted with the main contractor on a like basis. 360
Page 8
15-060
Whether the sub-contractor is also entitled to rely upon an exemption clause in his sub-contract with
the main contractor is more problematical. Prima facie the employer would not be bound by a clause
in a contract to which he was not a party. 361 But, again, the contractual arrangements between the
employer, main contractor and sub-contractor may be such as to show that the employer knew of and
consented to the clause as, for example, where the sub-contractor is a nominated sub-contractor and
the employer is aware of and accepts the terms on which the sub-contractor agrees to carry out the
works. In such a case it is submitted that the employer could be held to be bound by the exemption
clause. 362
Effect of the 1999 Act
15-061
The common law exceptions referred to above in relation to bailment and building and construction
contracts operate independently of and are not affected by the limitations contained in the Contracts
(Rights of Third Parties) Act 1999. 363 In particular, for example, where a sub-bailee or sub-contractor
seeks the protection of an exemption clause in a contract to which he is not a party, he does not have
to show that he is identified in the contract as the beneficiary of the clause by name, class, or
description as he would in a case where he relies on s.1 of the 1999 Act.
273. See above, para.4-037, below, Ch.18.
275. The 1999 Act applies to contracts made after May 11, 2000; s.10(2).
276. 1999 Act s.1(b).
277. Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] A.C. 785, 817. See also the cases
cited in paras 15-059, 15-060, below (building contracts) and paras 15-057—15-058, below
(carriage of goods and bailment). Contrast Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2
Q.B. 402, which was said in Scruttons Ltd v Midland Silicones Ltd [1962] A.C. 446, 471 to be
supportable only on the ground of an implied contract between the party seeking to rely on the
exemption and the third party: see also The Kapetan Markos (No.2) [1987] 2 Lloyd’s Rep. 321,
331.
278. [1941] 2 K.B. 343. Contrast Fosbroke-Hobbes v Airwork Ltd [1937] 1 All E.R. 108, which is
explicable (if at all) only on the ground that the contracting party contracted as agent for his
guests; Cockerton v Naviera Aznar SA [1960] 2 Lloyd’s Rep. 450, 461 (agency for wife).
279. [1941] 2 K.B. 343, 379.
281. 1999 Act s.1; see below, para.15-046.
282. 1999 Act s.3(2).
283. Below, para.15-084.
284. This follows from the control on contract terms and non-contractual notices in s.2(1) of the 1977
Act, which is not qualified or dis-applied by the 1999 Act. This reflects a choice of policy: Law
Com. No.242, 1996, para.13.12 and see below, para.18-123.
Page 9
285. Law Com. No.242, 1996, para.13.12.
286. If this analysis is correct, then it would appear that the (non-contractual) notice should be
assessed for its reasonableness as against C rather than as against B.
287. See 1999 Act ss.1(4), 7(4) and see Law Com. No.242, 1996, para.13.10.
288.
2015 Act s.61 defines “consumer contract” and “consumer notice” for these purposes: see
below, para.15-064 and Vol.II, paras 38-334 et seq. especially at 38-355 and 38-356. The
disapplication of s.2 will take effect by the insertion of a new s.2(4) into the 1977 Act: 2015 Act
s.75, Sch.4 para.4. On the qualifications on the date of the coming into force of the relevant
provisions of the 2015 Act in the case of “consumer transport services” see above, para.15-005.
289. In particular, the scope of the controls imposed by s.65 is restricted by s.66: see below,
para.15-086 and Vol.II, para.38-377.
290. 2015 Act s.62 and see Vol.II, paras 38-358—38-369 (terms) and 38-374 and 38-375 (notices).
291. 2015 Act s.62(1).
292. A similar result was foreseen by the Law Commissions Law Com. No.242 1996 para.13.10,
point (x) in relation to the Unfair Terms in Consumer Contracts Regulations 1994.
293. Contrast London Drugs Ltd v Kuehne & Nagel International Ltd (1992) 97 D.L.R. (4th) 261
(Supreme Court of Canada); noted (1993) 109 L.Q.R. 349; (1993) 56 M.L.R. 722.
294. Cosgrove v Horsfall (1945) 62 T.L.R. 140. See also Genys v Matthews [1966] 1 W.L.R. 758,
and below, para.15-055; cf. Gore v Van der Lann [1967] 2 Q.B. 31.
295. Adler v Dickson [1955] 1 Q.B. 158.
296. Scruttons Ltd v Midland Silicones Ltd [1962] A.C. 446. See also Wilson v Darling Island
Stevedoring and Lighterage Co Ltd [1956] 1 Lloyd’s Rep. 346; Krawill Machinery Corp v Robert
C. Head & Co Ltd [1959] 1 Lloyd’s Rep. 305; Canadian General Electric Co Ltd v The “Lake
Bosomtwe” [1970] 2 Lloyd’s Rep. 80; Herrick v Leonard and Dingley Ltd [1975] 2 N.Z.L.R. 566;
The Suleyman Stalskiy [1976] 2 Lloyd’s Rep. 609; Lummus v East African Harbours Corp
[1978] 1 Lloyd’s Rep. 317; Circle Sales & Import Ltd v The Tarantel [1978] 1 F.C. 269
(Canada); Raymond Burke Motors Ltd v Mersey Docks and Harbour Co [1986] 1 Lloyd’s Rep.
155. Contrast Cabot Corp v John W. McGrath Corp [1971] 2 Lloyd’s Rep. 351; The Mormaclynx
[1971] 2 Lloyd’s Rep. 476; Cable & Montanari Inc v American Export Isbrandtsen Lines Ltd
[1968] 1 Lloyd’s Rep. 260 (affirmed 386 F. 2d 839; (1967) cert. denied (1968) 390 U.S. 1013);
297. Deepak Fertilisers and Petrochemicals Corp v ICI [1998] 2 Lloyd’s Rep. 139, 163, [1999] 1
Lloyd’s Rep. 387.New Zealand Shipping Co Ltd v A.M. Satterthwaite & Co Ltd (The
Eurymedon) [1975] A.C. 154; Tessler Bros (B.C.) Ltd v Italpacific Line and Matson Terminals
Inc [1975] 1 Lloyd’s Rep. 210; Eisen und Metall A.G. v Ceres Stevedoring Co Ltd [1977] 1
Lloyd’s Rep. 665; Miles International Corp v Federal Commerce & Navigation Co [1978] 1
Lloyd’s Rep. 285; Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty
Ltd (The New York Star) [1981] 1 W.L.R. 138; Godina v Patrick Operations Pty Ltd [1984] 1
Lloyd’s Rep. 333; The Pioneer Container [1994] 2 A.C. 324; The Mahkutai [1996] A.C. 650,
664–665; Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2004]
1 A.C. 715 (see also the principles relating to sub-bailments discussed below, para.15-057).
See now art.IV bis (2) of the Hague-Visby Rules contained in the Schedule to the Carriage of
Goods by Sea Act 1971.
298. Below, paras 18-090—18-125.
299. s.1(1)(a).
300. s.1(1)(b), subject to s.1(2) (contrary intention).

Page 10
301. s.1(6).
302. s.1(3), see below, para.18-097.
303. Law Com. No.242 1996 para.10.22.
304. Similarly, where A is a consumer within the meaning of the 1999 Regulations or the Consumer
Rights Act 2015, then C will be able to benefit from an exclusion of liability in B only to the
extent that he could have done if he (C) had been party to the contract and this would depend
on whether he was acting in the course of business: on the controls on terms (including
exemption clauses) in the 1999 Regulations and the 2015 Act see Vol.II, paras 38-201 et seq.
and 38-334 respectively.
305. 1999 Act s.6; see below, paras 18-116—18-118.
306. Defined in s.6(6) and (7) of the 1999 Act. See Benjamin’s Sale of Goods, 9th edn (2014),
Ch.18.
307. Defined in s.6(8) of the 1999 Act.
308. 1999 Act s.6(5).
310. Elder Dempster & Co Ltd v Paterson, Zochonis & Co Ltd [1924] A.C. 522, 534, 548, 565;
Mersey Shipping and Transport Co Ltd v Rea Ltd (1925) 21 Ll.L. Rep. 375, 378; Gilbert Stokes
and Kerr Proprietary Ltd v Dalgety & Co Ltd (1948) 81 Ll.L. Rep. 337; Waters Trading Co Ltd v
Dalgety & Co Ltd [1951] 2 Lloyd’s Rep. 385.
311. [1962] A.C. 446.
312. Elder Dempster & Co Ltd v Paterson, Zochonis & Co Ltd [1924] A.C. 522, 534; Scruttons Ltd v
Midland Silicones Ltd [1962] A.C. 446, 474, 480.
313. Hall v N.E. Ry (1875) L.R. 10 Q.B. 437, 442.
314. Hall v N.E. Ry (1875) L.R. 10 Q.B. 437, 443; Barrett v G.N. Ry (1904) 20 T.L.R. 175.
316. Stag Line Ltd v Tyne Ship Repair Group Ltd [1984] 2 Lloyd’s Rep. 211, 217.
317. Southern Water Authority v Carey [1985] 2 All E.R. 1077.
318. After the name of the cruise liner in Adler v Dickson [1955] 1 Q.B. 158.
319. [1962] A.C. 446.
320. [1962] A.C. 446, 474.
321. [1975] A.C. 154 (noted (1974) 90 L.Q.R. 301).
322. The Eurymedon [1975] A.C. 154, 167–168; cf. Homburg Houtimport BV v Agrosin Private Ltd
(The Starsin) [2003] UKHL 12, [2004] 1 A.C. 715 at [163], [197].
323. Herrick v Leonard and Dingley Ltd [1975] 2 N.Z.L.R. 566; The Suleyman Stalskiy [1976] 2
Lloyd’s Rep. 609; Lummus v East African Harbours Corp [1978] 1 Lloyd’s Rep. 317; Circle
Sales and Import Ltd v The Tarantel [1978] 1 F.C. 269 (Canada). See Palmer and Rose (1976)
39 M.L.R. 466.
Page 11
324. Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd [1981] 1 W.L.R.
138, 143. See also The Mahkutai [1996] A.C. 650, 664; Homburg Houtimport BV v Agrosin
Private Ltd (The Starsin) [2003] UKHL 12, [2004] 1 A.C. 715 at [56].
325. [1979] 1 Lloyd’s Rep. 298, [1981] 1 W.L.R. 138. See also Reynolds (1979) 95 L.Q.R. 183;
Reynolds (1980) 96 L.Q.R. 506; Coote [1981] C.L.J. 13; Clarke [1981] C.L.J. 17; Rose (1981)
44 M.L.R. 336, and the cases cited in the latter half of n.273 para.15-045, above.
326. The Mahkutai [1996] A.C. 650, 664–665; Homburg Houtimport BV v Agrosin Private Ltd (The
Starsin) [2003] UKHL 12, [2004] 1 A.C. 715; The Borvigilant [2003] EWCA Civ 935 at [34], [51],
[93], [140]–[162], [192], [2003] 2 Lloyd’s Rep. 520.
327. The Mahkutai [1996] A.C. 650, 664.
328. Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd’s Rep. 578, 585;
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2004] 1 A.C. 715
; cf. The Borvigilant [2003] EWCA Civ 935 at [17], [18], [33].
329. Raymond Burke Motors Ltd v Mersey Docks and Harbour Co [1986] 1 Lloyd’s Rep. 154.
330. Southern Water Authority v Carey [1985] 2 All E.R. 1077. See also The Suleyman Stalskiy
[1976] 2 Lloyd’s Rep. 609.
331. Raymond Burke Motors Ltd v Mersey Docks and Harbour Co [1986] 1 Lloyd’s Rep. 154. cf.
Lotus Cars Ltd v Southampton Cargo Handling Plc [2000] 2 Lloyd’s Rep. 532, 543.
332. See Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2004] 1 A.C.
715 at [149], [163], [197].
333. Southern Water Authority v Carey, above. See also New Zealand Shipping Co Ltd v A.M.
Satterthwaite & Co Ltd [1971] 2 Lloyd’s Rep. 389, 408 (at first instance); Deepak Fertilisers and
Petrochemicals Corp v ICI [1998] 2 Lloyd’s Rep. 139, 163, [1999] 1 Lloyd’s Rep. 387, and
below, para.18-088.
334. Gore v Van der Lann [1967] 2 Q.B. 31; Homburg Houtimport BV v Agrosin Private Ltd (The
Starsin) [2003] UKHL 12, [2004] 1 A.C. 715 at [24], [55], [100], [145], [195].
335. Such a clause is not subject to ss.2 or 10 of the Unfair Contract Terms Act 1977 (below,
para.15-081 and 15-128): Neptune Orient Lines Ltd v J.V.C. (UK) Ltd [1983] 2 Lloyd’s Rep. 438
. On the other hand, where A (a consumer) in a consumer contract with B (a trader) agrees not
to sue C (a third party, for example, a manufacturer) then the term in which this agreement is
contained may fall within the controls on unfair terms in consumer contracts in the Unfair Terms
in Consumer Contracts Regulations 1999 or those provided by the Consumer Rights Act 2015
Pt 2 subject, in either case, to their respective conditions: on these controls see Vol.II,
para.38-201 et seq. and 38-334 respectively.
336. Snelling v John G. Snelling Ltd [1973] Q.B. 87; Nippon Yusen Kaisha v International Import and
Export Co Ltd [1978] 1 Lloyd’s Rep. 206; European Asian Bank A.G. v Punjab & Sind Bank
[1982] 2 Lloyd’s Rep. 356, 359; Deepak Fertilisers and Petrochemicals Corp v ICI [1999] 1
Lloyd’s Rep. 387, 400–402; Whitesea Shipping and Trading Corp v El Paso Rio Clara Ltda (the
“Marielle Bolten”) [2009] EWHC 2552 (Comm), [2010] 1 Lloyd’s Rep. 648. cf. Gore v Van der
Lann [1967] 2 Q.B. 31; Neptune Orient Lines Ltd v J.V.C. (UK) Ltd [1983] 2 Lloyd’s Rep. 438.
337. Cosgrove v Horsfall (1945) 62 T.L.R. 140; Scruttons Ltd v Midland Silicones Ltd [1962] A.C.
446; New Zealand Shipping Co Ltd v A.M. Satterthwaite & Co Ltd [1975] A.C. 154, 168, 173,
182; Unfair Contract Terms Act 1977 s.2(3); Consumer Rights Act 2015 s.65(2). But see above,
para.15-017. Compare also Norwich City Council v Harvey [1989] 1 W.L.R. 828, see below,
paras 15-059 and 15-060.
Page 12
338. s.3(1).
339. 1957 Act s.1(3).
340. See Vol.II, paras 33-026—33-031 (bailment); para.36-046 (carriage). Palmer, Bailment, 2nd
edn (1991), pp.1295, 1631; Palmer and Murdoch (1983) 46 M.L.R. 73; Palmer [1989]
L.M.C.L.Q. 466; Adams and Brownsword (1990) 10 L.S. 12; Swadling [1993] L.M.C.L.Q. 9;
Reynolds (1995) 111 L.Q.R., 8; Palmer and McKendrick, Interests in Goods, 2nd edn (1998).
341. Contrast Bart v British West Indian Airways Ltd [1967] 1 Lloyd’s Rep. 239; Mayfair Photographic
Supplies (London) Ltd v Baxter Hoare & Co Ltd [1972] 1 Lloyd’s Rep. 410, 416; Mitsui & Co Ltd
v Novorossiysk Shipping Co (The Gudermes) [1993] 1 Lloyd’s Rep. 311.
342. Meux v G.E. Ry [1895] 2 Q.B. 387; Harris Ltd v Continental Express Ltd [1961] 1 Lloyd’s Rep.
251; Morris v C.W. Martin & Sons Ltd [1966] 1 Q.B. 716; Learoyd Bros & Co v Pope and Sons
(Dock Carriers) Ltd [1966] 2 Lloyd’s Rep. 142; Lee Cooper Ltd v C.H. Jeakins & Sons Ltd
[1967] 2 Q.B. 1; Moukataff v B.O.A.C. [1967] 1 Lloyd’s Rep. 396; Gilchrist Watt & Sanderson
Pty Ltd v York Products Pty Ltd [1970] 1 W.L.R. 1262; James Buchanan & Co Ltd v Hay’s
Transport Services Ltd [1972] 2 Lloyd’s Rep. 535; Gillespie Bros & Co Ltd v Roy Bowles
Transport Ltd [1973] Q.B. 406; C. Davis Metal Brokers Ltd v Gilyott & Scott Ltd [1975] 2 Lloyd’s
Rep. 422; Johnson Matthey & Co Ltd v Constantine Terminals Ltd [1976] 2 Lloyd’s Rep. 215,
220; Victoria Fur Traders Ltd v Roadline (UK) Ltd [1981] 1 Lloyd’s Rep. 570; China Pacific SA v
Food Corp of India [1982] A.C. 939, 957; Hispanica de Petroleos SA v Vencedora Oceanica
Navegacion SA (The Kapetan Markos N.L.) (No.2) [1987] 2 Lloyd’s Rep. 321, 332, 340; The
Pioneer Container [1994] 2 A.C. 324, 341; Spectra International Plc v Hayesoak Ltd [1997] 1
Lloyd’s Rep. 153, [1998] 1 Lloyd’s Rep. 162; Lotus Cars v Southampton Cargo Handling Plc
[2000] 2 Lloyd’s Rep. 532; East Westcorp v DKBS 1912 [2003] EWCA Civ 83, [2003] Q.B. 1509
at [25]; Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2004] 1
A.C. 715 at [132]–[138]; cf. Targe Towing Ltd v Marine Blast Ltd [2004] EWCA Civ 346, [2004]
1 Lloyd’s Rep. 721 at [28].
343. Lee Cooper Ltd v C.H. Jeakins & Sons Ltd [1967] 2 Q.B. 1; Moukataff v B.O.A.C. [1967] 1
Lloyd’s Rep. 396.
344. The Mahkutai [1996] A.C. 650, 667–668. See above, para.15-050.
345. Harris Ltd v Continental Express Ltd [1961] 1 Lloyd’s Rep. 251; Learoyd Bros & Co v Pope and
Sons (Dock Carriers) Ltd [1966] 2 Lloyd’s Rep. 142; Lee Cooper Ltd v C.H. Jeakins & Sons Ltd
[1967] 2 Q.B. 1; Moukataff v B.O.A.C. [1967] 1 Lloyd’s Rep. 396; C. Davis Metal Brokers Ltd v
Gilyott & Scott Ltd [1975] 2 Lloyd’s Rep. 422.
346. Morris v C.W. Martin & Sons Ltd [1966] 1 Q.B. 716, 731, 741; and see above, para.15-050
n.291. cf. Victoria Fur Traders Ltd v Roadline (UK) Ltd [1981] 1 Lloyd’s Rep. 570.
347. Elder, Dempster & Co Ltd v Paterson, Zochonis & Co Ltd [1924] A.C. 522, 564; The Kite (1933)
46 Ll.L. Rep. 83; Morris v C.W. Martin & Sons Ltd [1966] 1 Q.B. 716, 729–730, 741; Johnson
Matthey & Co Ltd v Constantine Terminals Ltd [1976] 2 Lloyd’s Rep. 215, 220; Hispanica de
Petroleos SA v Vencedora Oceanica Navegacion SA (The Kapetan Markos N.L.) (No.2) [1987]
2 Lloyd’s Rep. 321, 332, 340; Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2
Lloyd’s Rep. 164; Compania Portorafti Commerciale SA v Ultramar Panama Inc (The Captain
Gregos) [1990] 2 Lloyd’s Rep. 395, 405; Dresser (UK) Ltd v Falcongate Freight Management
Ltd [1992] Q.B. 502, 511; The Pioneer Container [1994] 2 A.C. 324; Spectra International Plc v
Hayesoak Ltd [1997] 1 Lloyd’s Rep. 153, [1998] 1 Lloyd’s Rep. 162; Sonicare International Ltd v
East Anglia Freight Terminal Ltd [1997] 2 Lloyd’s Rep. 48; Homburg Houtimport BV v Agrosin
Private Ltd (The Starsin) [2003] UKHL 12, [2004] 1 A.C. 715 at [132]–[138]; Sandeman
Coprimar SA v Transitos y Transportes Integrales SL [2003] EWCA Civ 113, [2003] 2 Lloyd’s
Rep. 172 at [53]–[66]; East West Corp v DKBS 1912 [2003] EWCA Civ 83, [2003] Q.B. 1509 at
[30].
348. [1976] 2 Lloyd’s Rep. 215. See also Singer Co (UK) Ltd v Tees and Hartlepool Port Authority
[1988] 2 Lloyd’s Rep. 164, 168; Compania Portorafti Commerciale SA v Ultramar Panama Inc
Page 13
(The Captain Gregos) [1990] 2 Lloyd’s Rep. 395, 406; Mitsui & Co Ltd v Novorossiysk Shipping
Co (The Gudermes) [1993] 1 Lloyd’s Rep. 311, 327. Donaldson J. (at 222) left open the
question whether a sub-bailee who himself damages the goods would also be able to rely upon
the terms of the subcontract.
349. The Pioneer Container [1994] 2 A.C. 324.
350. Scruttons Ltd v Midland Silicones Ltd [1962] A.C. 446; Swiss Bank Corp v Brink’s Mat Ltd
[1986] 2 Lloyd’s Rep. 79, 98; Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd (The
Aliakmon) [1986] A.C. 785, 818; Compania Portorafti Commerciale SA v Ultramar Panama Inc
(The Captain Gregos) [1990] 2 Lloyd’s Rep. 395, at 404, 405; The Mahkutai [1996] A.C. 650.
351. Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] A.C. 785, 818;
Compania Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) [1990] 2
352. Hispanica de Petroleos SA v Vencedora Oceanica Navegacion SA (The Kapetan Markos N.L.)
(No.2) [1987] 2 Lloyd’s Rep. 321; Homburg Houtimport BV v Agrosin Private Ltd (The Starsin)
[2003] UKHL 12, [2004] 1 A.C. 715 at [36]–[41], [64], [89], [92], [139]; Scottish and Newcastle
International Ltd v Othon Ghalanos Ltd [2008] UKHL 11, [2008] 1 Lloyd’s Rep. 462 at [47];
Benjamin’s Sale of Goods, 9th edn (2014), paras 18–091, 18–189—18–190.
353. Compania Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) [1990] 2
Lloyd’s Rep. 395 (BP claim). See also the “Brandt v Liverpool” contract (Brandt v Liverpool etc.
Steam Navigation Co [1924] 1 K.B. 575) and Benjamin’s Sale of Goods, 9th edn (2014) at
paras 18–179—18–188. cf. Borealis AB v Stargas Ltd (The Berge Sisar) [2002] 2 A.C. 205.
354. By statute under the Bills of Lading Act 1855 or (now) under the Carriage of Goods by Sea Act
1992 (see Benjamin’s Sale of Goods at paras 18–142—18–162).
355. Cremer v General Carriers SA [1974] 1 W.L.R. 341; and see Vol.II, para.33-030. Contrast
Mitsui & Co Ltd v Novorossiysk Shipping Co (The Gudermes) [1993] 1 Lloyd’s Rep. 311;
Sonicare International Ltd v East Anglia Freight Terminal Ltd [1997] 2 Lloyd’s Rep. 48. See
Benjamin’s Sale of Goods at para.18–092.
356. Simaan General Contracting Co v Pilkington Glass Ltd (No.2) [1988] Q.B. 758; D. & F. Estates
Ltd v Church Commissioners for England [1989] A.C. 177; Greater Nottingham Co-operative
Society Ltd v Cementation Piling and Foundations Ltd [1989] Q.B. 71; Murphy v Brentwood DC
[1991] 1 A.C. 398; Department of the Environment v Thomas Bates and Son Ltd [1991] 1 A.C.
499; Warner v Basildon Development Corp (1991) 7 Const. L.J. 146; Nitrigin Eireann Teoranta
v Inco Alloys Ltd [1992] 1 W.L.R. 598. See also Robinson v PE Jones (Contractors) Ltd [2011]
EWCA Civ 9, [2011] B.L.R. 206. Contrast Junior Books Ltd v Veitchi Co Ltd [1983] 1 A.C. 520
(which must now be regarded as an exceptional, if not heretical, case) and Vol.II, paras 37-092,
37-173—37-177.
357. Norwich City Council v Harvey [1989] 1 W.L.R. 828; Nitrigin Eireann Teoranta v Inco Alloys Ltd
[1992] 1 W.L.R. 598. For the problem of “complex structures”, see D. & F. Estates Ltd v Church
Commissioners for England [1989] A.C. 177, and Murphy v Brentwood DC [1991] 1 A.C. 398.
358. Welsh Health Technical Services Organisation v Haden Young (1987) 37 Build. L.R. 130.
359. Junior Books Ltd v Veitchi Co Ltd [1983] 1 A.C. 520, 546; Southern Water Authority v Duvivier
[1984] C.I.L.L. 90; Southern Water Authority v Carey [1985] 2 All E.R. 1077; Welsh Health
Technical Services Organisation v Haden Young (1987) 37 Build. L.R. 130; Norwich CC v
Harvey [1989] 1 W.L.R. 828; Pacific Associates Inc v Baxter [1990] 1 Q.B. 993, 1022, 1033,
1038. Contrast National Trust v Haden Young Ltd (1995) 72 Build. L.R. 1; Precis (521) Plc v
William Mercer Ltd [2005] EWCA Civ 114, [2005] P.N.L.R. 28.
360. Norwich City Council v Harvey [1989] 1 W.L.R. 828. cf. National Trust v Haden Young Ltd
(1995) 72 Build. L.R. 1.
Page 14
361. Rumbelows Ltd v AMK [1980] 19 Build. L.R. 33; Twins Transport Ltd v Patrick and Brocklehurst
(1983) 25 Build. L.R. 65. See also Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd (The
Aliakmon) [1986] A.C. 785, 817; Simaan General Contracting Co v Pilkington Glass Ltd (No.2)
[1988] Q.B. 758, 782, 785; Vol.II, paras 37-173—37-177.
362. Morris v C.W. Martin & Sons Ltd [1966] 1 Q.B. 716, 729; Rumbelows Ltd v AMK [1980] 19
Build. L.R. 33, 49. See also Junior Books Ltd v Veitchi Co Ltd [1983] 1 A.C. 520, 534; Muirhead
v Industrial Tank Specialities Ltd [1986] Q.B. 507, 525.
363. s.1; see above, para.15-046.

Page 1

Section 6. - Legislative Control of Exemption Clauses
(a) - Unfair Contract Terms Act 1977
(i) - Overview
The Unfair Contract Terms Act as enacted
15-062
As enacted, the Unfair Contract Terms Act 1977 (the “1977 Act”) 364 derived substantially from
recommendations made by the Law Commission and the Scottish Law Commission in their Second
Report on Exemption Clauses. 365 Very broadly, the Act subjected exemption clauses and certain
related clauses, 366 and non-contractual notices disclaiming liability to a series of controls, some of
these controls rendering a contract term or notice ineffective without more, some rendering them
ineffective only having failed a test of reasonableness. While generally restricted to exclusion clauses
and notices seeking to exclude or to limit “business liability”, 367 the Act protected a range of persons,
sometimes protecting persons generally (as in the case of exclusions of business liability for
negligence causing death or personal injury 368), sometimes protecting persons generally subject to
the condition that they dealt “on the other’s written standard terms of business” (thereby including
other traders), 369 and sometimes protecting persons “dealing as consumer” (which was held to
include a business in certain circumstances). 370
First implementation of the European Directive on Unfair Terms in Consumer Contracts 1993
15-063
This directive requires the UK to subject most contract terms in consumer contracts that have not
been “individually negotiated” to a test of fairness and, in the case of written terms, to a requirement
of transparency. 371 As a result, there was clearly considerable substantive overlap between the
existing legislative controls in the 1977 Act and the new controls required by the 1993 Directive.
Despite this overlap, the UK implemented the 1993 Directive by standalone statutory instrument, first
in 1994, and then by the Unfair Terms in Consumer Contracts Regulations 1999 (the “1999
Regulations”). The complexity which these distinct but overlapping sets of legislative controls
attracted criticism and recommendations for legislative reform by the Law Commissions. 372 Their
proposals recommended the creation of a unified legislative regime for the control of unfair terms in
consumer contracts, putting together the controls provided by the Unfair Contract Terms Act 1977
and the Unfair Terms in Consumer Contracts Regulations 1999; preserving the protection given by
the Unfair Contract Terms Act 1977 in business contracts; and extending existing protection against
unfair contract terms for consumers to small businesses.
Consumer Rights Act 2015
15-064
Page 2
However, the legislative strategy adopted by the Consumer Rights Act 2015 (the “2015 Act”) differs
considerably from that recommended by the Law Commissions. Instead of placing the legislative
controls of the 1977 Act and the 1999 Regulations in a single Act, the 2015 Act instead creates a
new, dedicated regime for the control of unfair terms in consumer contracts and unfair “consumer
notices” as well as making special provision for the control of the exclusion or limitation of liabilities
arising under a series of new statutory terms “treated as included” in consumer “goods contracts”,
“digital content contracts” and “services contracts”. 373 These new controls set out by the 2015 Act are
discussed by Vol.II, Ch.38 of the present work. 374 However, apart from revoking the 1999
Regulations, the correlative of this new set of controls for the benefit of consumers is that the 2015
Act amended the 1977 Act so that it no longer applies for the benefit of “consumers” (as the 2015 Act
defines them 375) and, in so doing, abolishes the protections provided by the 1977 Act for those
“dealing as consumer”. 376 As a result, on the coming into force of the 2015 Act, there are two
principle legislative controls on unfair contract terms and notices: the general regime in the 1977 Act
controlling exemption clauses and closely related terms; and the consumer regime in the 2015 Act
controlling a much wider range of contract terms, and combining (with some changes) the controls
earlier provided by the 1999 Regulations and special treatments of certain categories of exemption
clause similar to those previously provided by the 1977 Act.
The arrangement of this section: “old law” and “new law” under the 1977 Act
15-065
As earlier noted, the controls on unfair terms in consumer contracts in the 1999 Regulations and the
2015 Act’s new controls on unfair terms are both discussed in Vol.II, Ch.38 of the present work in the
context of other legislation governing consumer contracts. This section will discuss the 1977 Act,
explaining the law (the “old law”) as it is immediately before the coming into force of the relevant
provisions of the 2015 Act and will also set out (as the “new law”) in relation to each element of the
1977 Act how the law will change on the coming into force of the 2015 Act. Where a proposition
relating to the 1977 Act remains accurate both before and after the coming into force of the 2015 Act,
then it is stated without further qualification.
364. See Thompson, Unfair Contract Terms Act 1977; Rogers and Clarke, The Unfair Contract
Terms Act 1977; Lawson, Exclusion Clauses and Unfair Contract Terms, 11th edn (2014); Peel,
Treitel on The Law of Contract, 13th edn (2011), para.7–050; Benjamin’s Sale of Goods, 9th
edn (2014), paras 13–064 et seq.; Coote (1978) 41 M.L.R. 312; Adams (1978) 41 M.L.R. 703;
Sealy [1978] C.L.J. 15; Reynolds [1978] L.M.C.L.Q. 201; Palmer and Yates [1981] C.L.J. 108;
Adams and Brownsword (1988) 104 L.Q.R. 94; Peel (1993) 56 M.L.R. 98; Brown and Chandler
(1993) 109 L.Q.R. 41; Adams (1994) 57 M.L.R. 960.
365. Law Com. No.69, Scot. Law Com. No.39 (1975). Pt I of the Act applies only to England and
Wales and Northern Ireland; Pt II applies only to Scotland; and Pt III applies to the whole of the
United Kingdom.
366. The main provisions apply to contract terms which “exclude or restrict liability” as defined by
s.13: s.2, 3(2)(a); s.6 and s.7: below, paras 15-069—15-071. However, s.3(2)(b) applies to
clauses which do not fall within exclusions or restrictions of liability as so defined; s.4 applies to
indemnity clauses; and s.10 applies to a contract term “prejudicing or taking away rights”: see
below, paras 15-070, 15-088 and 15-128 respectively. Moreover, s.2 of the Act also applies to
the exclusion of liability by “a notice given to persons generally or to particular persons”: below,
para.15-081.
367. 1977 Act s.1(3) (noting the exception stated in s.6(4)) on these see below, paras 15-072 and
15-093.
368. 1977 Act s.2 (below, para.15-081). See also s.6(1), 7(3A) and (4) below, paras
Page 3
15-093—15-094.
369. 1977 Act s.3(1) below, para.15-085.
370. 1977 Act s.3(1), below, para.15-085; s.4 (below, para.15-088); s.6(2) (below, para.15-093),
s.7(2) (below, para.15-094). On the interpretation of “dealing as consumer” see below, paras
15-073—15-078.
371. On the details of these controls, see Vol.II, paras 38-199 et seq.
372. Law Commission, Scottish Law Commission, Unfair Terms in Contracts (Law Com. No.292,
Scot Law Com. No.199, 2005).
373. 2015 Act ss.31, 47 and 57 and Pt 2.
374.
The relevant provisions of Pts 1 and 2 of the 2015 Act came into force (with certain
qualifications in relation to “consumer transport services”) on October 1, 2015, on which see
above, para.15-005 and below, para.38-335.
375. 2015 Act s.2(3)–(6); s.76(2) on which see Vol.II, paras 38-353—38-354 and the discussion at
376. 2015 Act s.75, Sch.4 paras 5(2), 6–7, 8(3), 9(3) and 12.

Page 1

(ii) - The Pattern of Control; Key Definitions
Scope of the 1977 Act
15-066
The title of the Act was always somewhat misleading. In the first place, the control imposed by the Act
is not limited to contract terms, but extends to non-contractual notices which exclude or restrict liability
in tort. 377 Secondly, as earlier noted, the Act does not seek to control unfair contract terms generally,
but applies, for the most part, 378 only to terms that purport to exclude or restrict liability, that is to say,
to exemption clauses. The Act does not, in general, affect the basis of liability, 379 so that the first
inquiry must normally be whether or not the person seeking to rely on the terms is in fact under any
obligation or liability, for example, for breach of contract or negligence, apart from the term. 380
Further, the Act does not affect the preliminary issues as to whether the alleged term is in fact a term
of the contract, 381 and, if it is, whether on its true construction it applies to the obligation or liability
which it purports to exclude or restrict. 382
Pattern of control
15-067
The control exercised by the 1977 Act over exemption clauses in contracts is complex in nature and
by no means comprehensive. There are three broad divisions of control. First, control over contract
terms or notices which exclude or restrict liability for “negligence”. 383 Secondly, control over contract
terms 384 which exclude or restrict liability for breach of certain terms implied by statute or the common
law in contracts of sale of goods, 385 hire purchase 386 and in other contracts for the supply of goods.
387
Thirdly, a more general control in limited circumstances over contract terms which exclude or
restrict liability for breach of contract 388 or which purport to entitle one of the parties to render a
contractual performance substantially different from that reasonably expected of him or to render no
performance at all. 389 However, the provisions of the Act may overlap, so that, in any given situation,
it may be necessary to consider whether more than one section is relevant. Further, certain very
important contracts are excepted, either wholly or subject to qualifications, from the operation of the
Act. 390
Types of control
15-068
If the contract term or notice is subject to the control of the Act, that control may assume one of two
forms: the exclusion or restriction of liability may be rendered absolutely ineffective, 391 or it may be
effective only in so far as the term satisfies the requirement of reasonableness. 392
Page 2
Varieties of exemption clause
15-069
Subject to certain exceptions, 393 the 1977 Act applies only to contract terms which “exclude or
restrict” liability. In considering whether a contract term has this effect, the court is concerned with the
substance and not the form of the provision. 394 Moreover, by s.13(1), the meaning of these words is
extended so as also to prevent:
“(a)
making the liability or its enforcement subject to restrictive or onerous conditions”
(as, for example, in the case of terms which require a party to make a claim within a
certain time-limit or to commence proceedings within a shorter time-limit than the
normal limitation period) 395;
(b)
excluding or restricting any right or remedy in respect of the liability, or subjecting a
person to any prejudice in consequence of his pursuing any such right or remedy”
(as, for example, in the case of terms which preclude a party from relying on or
enforcing a right of set-off 396 or which take away or limit his right to reject defective
goods, or require him to pay the expenses of redelivery on rejection);
(c)
excluding or restricting rules of evidence or procedure” (as, for example, terms
which state that acceptance of goods or services shall be conclusive evidence that
they are in conformity with the contract).” 397
It would seem probable, however, that a genuine liquidated damages clause would not be subject to
the Act, 398 and it is specifically provided that an agreement in writing to submit present or future
differences to arbitration is not to be treated under Pt I of the Act as excluding or restricting any
liability. 399
15-070
400
Certain sections further prevent “excluding or restricting liability by reference to terms which
exclude or restrict the relevant obligation or duty”. 401 The purpose of this provision appears to be
402
to bring within the control of the 1977 Act terms, for example, which state that the seller gives no
undertaking with respect to the quality or fitness for purpose of the goods sold or which state that a
surveyor accepts no responsibility with respect to the accuracy of a valuation report supplied by him.
403
Exemption clauses of this nature do not purport to exclude to restrict liability for breach of an
obligation or duty, but purport to exclude the relevant obligation (e.g. the conditions implied by s.14 of
the Sale of Goods Act 1979) or duty (e.g. to use reasonable care and skill in carrying out the
valuation). It may be difficult, however, to differentiate between contractual provisions which exclude
or restrict the relevant obligation or duty, and those which define the scope of the obligation or which
specify the duties of the parties. For example, a seller of kitchen utensils may expressly state that
they are suitable to be used only on electric cookers and not with gas, 404 or a surveyor may stipulate
that he undertakes to carry out a valuation of the property and not a full structural survey. 405 Further,
there may be difficulty in distinguishing between provisions which exclude or restrict the relevant
obligation or duty, and those which prevent it from arising, such as a clause limiting the ostensible
Page 3
authority of an agent to give undertakings 406 or an “entire agreement” clause. 407 In Smith v Eric S.
Bush, 408 a case concerning the common law duty to take reasonable care and a non-contractual
notice disclaiming liability, Lord Griffiths read the relevant provisions of the Act as introducing a “but
for” test, that is to say, whether the duty would exist “but for” the notice excluding liability. But it is
submitted that this test could not always be satisfactorily applied to contract terms which, in effect,
limit the extent of the obligation or duty which one party owes to the other or which even prevent the
accrual of the obligation or duty in particular situations. 409
15-071
It has, however, been stated that the Act:
“… is normally regarded as being aimed at exemption clauses in the strict sense, that is
to say, clauses in a contract which aim to cut down prospective liability arising in the
course of performance of the contract in which the exemption clause is contained,” 410
and not to liability already accrued. 411
“Business liability”
15-072
412
The 1977 Act is concerned, for the most part, with terms that exclude or restrict “business liability”,
that is:
“liability for breach of obligations or duties arising—
(a)
from things done or to be done by a person in the course of a business (whether his
own business or another’s); or
(b)
from the occupation of premises used for business purposes of the occupier;
and references to liability are to be read accordingly but liability of an occupier of

premises for breach of an obligation or duty towards a person obtaining access to the
premises for recreational or educational purposes, being liability for loss or damage
suffered by reason of the dangerous state of the premises, is not a business liability of
the occupier unless granting that person such access for the purposes concerned falls
within the business purposes of the occupier.” 413
“Business” is not defined by the Act, except to the extent that it is stated to include a profession and
the activities of any government department or local or public authority. 414 The words “in the course of
a business” appear to require that the thing done or to be done is an integral part of the business
carried on or that there is a sufficient degree of regularity about the type of transaction in question. 415
The words “whether his own business or another’s” presumably cover the activities of an agent in the
course of his principal’s business. Finally, it will be seen that the final part of the definition (starting
“but liability of an occupier”) makes special provision in respect of an occupier’s liability towards “a
person obtaining access to the premises for recreational or educational purposes”. 416
Page 4
The old law: “Dealing as consumer”
15-073
Under the “old law” provided by the 1977 Act as enacted, 417 a distinction is drawn between cases
where a party to a contract "deals as consumer" in relation to another party, and cases where he
does not so deal.
15-074
In order that a party should have dealt as consumer, two conditions must be satisfied. 418 First, he
must neither make the contract in the course of a business 419 nor hold himself out as doing so. 420
Secondly, the other party must make the contract in the course of a business. 421 In R. & B. Customs
Brokers Co Ltd v United Dominions Trust Ltd, 422 it was held that a freight forwarding and shipping
agency company had dealt as consumer when it entered into a conditional sale agreement with a
finance company for the purchase of a motor car for personal and business use by one of its
directors, on the ground that, to be in the course of a business, the transaction must be an integral
part of the business carried on or, if only incidental to it, be of a type regularly entered into. It was
further stated 423 that the company had not “held itself out” as making the contract in the course of a
business by submitting a finance application in the corporate name, giving the nature of the
company’s business, the number of years trading and the number of employees, and giving the
names and addresses of the directors.
15-075
In addition, in the case of a contract governed by the law of sale of goods or hire-purchase, or by s.7
of the Act (other contracts under which the ownership or possession of goods passes), 424 a third
requirement must be satisfied 425: the goods passing under or in pursuance of the contract must be of
a type ordinarily supplied for private use or consumption. 426 This requirement does not, however,
apply if the buyer or person to whom the goods are supplied is an individual. 427
Auction sales
15-076
On a sale by auction or by competitive tender a buyer who is not an individual is not in any
circumstances to be regarded as dealing as consumer. If the buyer is an individual, then he is not to
be regarded as dealing as consumer where the goods are second hand goods sold at public auction
at which individuals have the opportunity of attending the sale in person. 428
Agency
15-077
The application of the concept of “dealing as consumer” is unclear where a private person (the
principal) makes a contract through a commercial or professional agent. Under the ordinary principles
of agency, 429 if the agency is disclosed, 430 then, whether or not the principal is named, it is the
principal who is a party to and makes the contract, and not the agent. The private principal does not
therefore “make the contract in the course of a business” even though the agent, when entering into
the contract on his behalf, acts in the course of a business. 431 So, for example, if a private seller sells
goods through a commercial agent to a private buyer, the buyer does not deal as consumer, because
the seller does not make the contract in the course of a business. And if a private buyer buys goods
through a commercial agent, he may still be held to have dealt as a consumer as he does not make
the contract in the course of a business, unless it could be said that, by employing a commercial
agent to act for him, he has “held himself out” as making the contract in the course of a business.
Page 5
Burden of proof as to dealing as consumer
15-078
It is for those claiming that a party does not deal as consumer to show that he does not. 432
The new law: “dealing as consumer” deleted from the 1977 Act
15-079
With the coming into force of the Consumer Rights Act 2015 for contracts made on or after October
1, 2015, the concept of “dealing as consumer” is deleted from the 1977 Act and instead the 2015
Act’s own controls for the benefit of “consumers” may apply. 433 One aspect of this change is that
under the 2015 Act a “consumer” is restricted to an “individual acting for purposes that are wholly or
mainly outside that individual’s trade, business, craft or profession”. 434 This definition represents
(arguably) an expansion of the protection earlier provided by the 1999 Regulations for "consumers" in
that it explicitly includes persons acting mainly for non-business purposes, but the deletion of “dealing
as consumer” from the 1977 Act represents an overall narrowing of the category of persons protected
from unfair terms, as "consumer" does not include (as can the concept of a person “dealing as
consumer” 435) incorporated persons nor individuals who conclude a contract which does not form an
integral part of their business that they carry on or, if only incidental to it, is not of a type regularly
entered into by them. 436
377. 1977 Act s.2.
378. But see ss.3(2)(b), 4 and 10 of the 1977 Act.
379. But see ss.3(2)(b), 4 of the 1977 Act.
380. See above, para.15-003; below, para.15-070.
381. 1977 Act s.11(2) and above, para.13-002.
382. 1977 Act s.11(2) and above, paras 15-007 et seq.
383. 1977 Act ss.2, 5; below, paras 15-081—15-082, 15-091. See also s.4; below, para.15-088.
384. Whether in the same or in another contract between the same parties. cf. 1977 Act s.10 below,
para.15-128.
385. 1977 Act s.6; see below, para.15-093; Vol.II, paras 44-085, 44-17.
386. 1977 Act s.6; see below, para.15-093; Vol.II, para.39-384.
387. 1977 Act s.7; see below, para.15-094.
388. 1977 Act s.3(1), (2)(a) and see below, paras 15-085—15-086. See also s.4; below,
para.15-088.
389. 1977 Act s.3(1), (2)(b) and see below, paras 15-085—15-086.
390. See below, paras 15-116—15-124.
391. 1977 Act ss.2(1), 6(1) and 7(3A). Until the coming into force of the 2015 Act, there are further
Page 6
examples in s.6(2) and 7(2) (these provisions are deleted by the 2015 Act).
393. 1977 Act ss.3(2)(b) and s.10. Until the coming into force of the 2015 Act, there is a further
example in s.4 of the 1977 Act (this being deleted by the 2015 Act).
394. Cremdean Properties Ltd v Nash (1977) 244 E.G. 547, 551; Phillips Products Ltd v Hyland
[1987] 1 W.L.R. 659, 666; Johnstone v Bloomsbury HA [1992] Q.B. 333, 346; IFE Fund SA v
Goldman Sachs International [2006] EWHC 2887 (Comm), [2007] 1 Lloyd’s Rep. 264 at [68].
395. BHP Petroleum Ltd v British Steel Plc [1999] 2 Lloyd’s Rep. 586, 592 (affirmed [2002] 2 Lloyd’s
Rep. 277); Granville Oil and Chemicals Ltd v Davis Turner & Co Ltd [2003] EWCA Civ 570,
[2003] 2 Lloyd’s Rep. 356; Rohlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18.
396. Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] Q.B. 600; Fastframe Ltd v Lochinski
Unreported, March 3, 1993 CA (noted (1994) 57 M.L.R. 960); Esso Petroleum Co Ltd v Milton
[1997] 1 W.L.R. 938; Surzur Overseas Ltd v Ocean Reliance Shipping Co Ltd [1997] C.L.Y. 906
; Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd’s Rep. 66; Schenkers Ltd v
Overland Shoes Ltd [1998] 1 Lloyd’s Rep. 498; WRM Group Ltd v Wood [1998] C.L.C. 189;
AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep.
1.
397. See Howard Marine and Dredging Co Ltd v A. Ogden & Sons (Excavations) Ltd [1978] Q.B.
574; United Trust Bank Ltd v Dohil [2011] EWHC 3302 (QB), [2012] 2 All E.R. (Comm) 765
(statement of account to be binding and conclusive against guarantor in the absence of
manifest error): see below, para.15-102.
398. See above, para.15-004 n.18. But see Law Com. No.69, Scot. Law Com. No.39, 1975,
para.166.
399. 1977 Act s.13(2); Kaye v Nu Skin UK Ltd [2009] EWHC 3509 (Ch), [2011] 1 Lloyd’s Rep. 40.
But see Arbitration Act 1996 ss.89–92; Vol.II, para.32-013.
400. 1977 Act ss.2 and 5–7 only.
401.
1977 Act s.13(1). The contention has been put forward that clauses which “exclude” the
relevant obligation or duty ipso facto limit the obligation or duty, or prevent its accrual: see
Coote, Exception Clauses (1964); Coote [1970] C.L.J. 221; Coote (1977) 40 M.L.R. 31; Coote
(1978) 41 M.L.R. 312; Palmer and Yates [1981] C.L.J. 108; White (2016) J.B.L. 373 and above,
para.15-003.
402. For a different view as to its purpose, see Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] Q.B.
600, 605.
403. Smith v Eric S. Bush and Harris v Wyre Forest DC [1990] 1 A.C. 831.
404. See Macleod (1981) 97 L.Q.R. 550.
405. Gibbs v Arnold Son & Hockley (1989) 45 E.G. 156. cf. Roberts v J. Hampson & Co [1990] 1
W.L.R. 94.
406. See Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 W.L.R. 1335; Collins v
Howell-Jones (1981) 259 E.G. 331; Museprime Properties Ltd v Adhill Properties Ltd [1990] 2
E.G.L.R. 196, 200 (misrepresentation); above, para.7-149.
407. McGrath v Shah (1989) 57 P. & C.R. 452; Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All
E.R. 573; E.A. Grimstead & Son Ltd v McGarrigan [1999] EWCA Civ 3029; South West Water
Services Ltd v International Computers Ltd [1999] Build. L.R. 420, 424; Inntrepreneur Pub Co v
East Crown Ltd [2000] 2 Lloyd’s Rep. 611, 614; Watford Electronics Ltd v Sanderson CFL Ltd
Page 7
[2001] EWCA Civ 317, [2001] Build. L.R. 143, 155; SAM Business Systems Ltd v Hedley & Co
[2002] EWHC (TCC) 2733, [2003] 1 All E.R. (Comm) 465; Trident Turboprop (Dublin) Ltd v First
Flight Couriers Ltd [2008] EWHC 1686 (Comm), [2008] 2 Lloyd’s Rep. 581 at [42] (affirmed
[2009] EWCA Civ 290, [2010] Q.B. 86); AXA Sun Life Services Plc v Campbell Martin Ltd
[2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep. 1; see above paras 7-144, 7-150—7-151 and
13-107. But see Vol.II, para.38-291.
408. [1990] 1 A.C. 831, 857. See also Phillips Products Ltd v Hyland [1987] 1 W.L.R. 659.
409.
Hurley v Dyke [1979] R.T.R. 265 HL (tort) (but see 281, 282); IFE Fund SA v Goldman Sachs
International [2006] EWHC 2887 (Comm), [2007] 1 Lloyd’s Rep. 264 at [67]–[70] (affirmed
[2007] EWCA Civ 811, [2007] 2 Lloyd’s Rep. 449); Titan Steel Wheels Ltd v Royal Bank of
Scotland Plc [2010] EWHC 211 (Comm), [2010] 2 Lloyd’s Rep. 92 at [98]. Contrast Harris v
Wyre Forest DC [1990] 1 A.C. 831 (reversing the decision of the Court of Appeal [1988] Q.B.
835) (tort); Cremdean Properties Ltd v Nash (1977) 244 E.G. 547; Springwell Navigation Corp v
JP Morgan Chase Bank [2010] EWCA Civ 1221, [2010] 2 C.L.C. 705 (misrepresentation);
Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198 (Ch),
[2012] P.N.L.R. 35 at [139]–[146] and see above, para.7-149; Crestsign Ltd v National
Westminster Bank Plc [2014] EWHC 3043 (Ch) at [112]–[119] (permission to appeal on other
grounds: [2015] EWCA Civ 986); Thornbridge Ltd v Barclays Bank Plc [2015] EWHC 3430 (QB)
at [97]–[111] (appeal pending) (on “basis clauses” stipulating that defendants were not
providing advice in relation to interest rate “swap agreements”); Hughes v Hall [1981] R.T.R.
430; Macdonald (1992) 12 L.S. 277.
410. Tudor Grange Holdings Ltd v Citibank N.A. [1992] Ch. 53, 65.
411. See also s.10, below, para.15-128.
412. Except s.6 (implied terms in contracts of sale of goods and hire-purchase).
413. 1977 Act s.1(3) (as amended by the Occupiers Liability Act 1984 s.2).
414. s.14. A business need not necessarily be carried on with a view to profit: see Roles v Miller
(1884) 27 Ch. D. 71, 88; Town Investments Ltd v Department of Environment [1978] A.C. 359.
Contrast Smith v Anderson (1880) 15 Ch. D. 247, 258.
415. Havering LBC v Stevenson [1970] 1 W.L.R. 1375; Davies v Sumner [1984] 1 W.L.R. 1301; R. &
B. Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 W.L.R. 321; Air Transworld
Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349.
416. For discussion of exclusions of liability by an occupier see Clerk and Lindsell on Torts 21st edn
(2014) paras 12–50 et seq.
417. Above, para.15-065.
418. s.12(1)(a), (b).
419. See above, para.15-072 n.391.
420. e.g. by producing a trade card or asking for a trade discount in appropriate circumstances. But
cf., below, n.399.
421. See above, para.15-072, and R. & B. Customs Brokers Co Ltd v United Dominions Trust Ltd
[1988] 1 W.L.R. 321, 336.
422. [1988] 1 W.L.R. 321. See also Rasbora Ltd v J.C.L. Marine Ltd [1977] 1 Lloyd’s Rep. 645
(private buyer of boat substitutes a company owned and controlled by him); Peter Symmons &
Co v Cook (1981) 131 New L.J. 758 (partnership of surveyors purchase Rolls-Royce from car
dealer); Feldaroll Foundry Plc v Hermes Leasing (London) Ltd [2004] EWCA Civ 747 (company
purchases car for use of managing director). Contrast St Alban’s City and District Council v
Page 8
International Computers Ltd [1996] 4 All E.R. 481, 490; Air Transworld Ltd v Bombardier Inc
[2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349.
423. [1988] 1 W.L.R. 321, 328–329.
425. 1977 Act s.12(1)(c).
426. cf. Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349
at [122] (light aircraft). See Vol.II, para.44-121.
427. 1977 Act s.12(1A) (inserted by the Sale and Supply of Goods to Consumers Regulations 2002
(SI 2002/3045) reg.14(2)).
428. 1977 Act s.12(2) (substituted by the Sale and Supply of Goods to Consumers Regulations 2002
(SI 2002/3045) reg.14(3)).
430. cf. the position where the agency is not disclosed (the “undisclosed principal”): see Vol.II,
para.31-063.
431. Contrast Sale of Goods Act 1979 s.14(5). While s.14(5) itself survives the bringing into force of
the 2015 Act, s.14 generally will no longer apply to the consumer contracts governed by Ch.2 of
Pt 1 of the 2015 Act: 2015 Act s.60, Sch.1 para.13.
432. 1977 Act s.12(3).
433.
2015 Act s.75 Sch.4 paras 5–9, 11 and 13 and see above, para.15-065 and Vol.II, paras
38-334 et seq. On the qualifications on the date of the coming into force of the relevant
434. 2015 Act s.2(3) and see Vol.II, paras 38-353—38-354.
436. cf. R. & B. Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 W.L.R. 321, above,
para.15-074.

Page 1

(iii) - The Controls Provided by the 1977 Act
Introduction
15-080
The 1977 Act puts in place a series of distinct controls on the validity of contract terms and, in the
case of negligence liability, notices and the following paragraphs will discuss these in turn. However,
it is important to note that the provisions which set out these controls are themselves subject to
significant qualifications in the case of international supply contracts, 437 contracts where the law
applicable is English law only by choice of the parties, 438 and a range of types of contract as set out
in Sch.1 of the Act. 439 Moreover, contract terms which are authorised or required by statute or
international convention are excluded from the Act’s controls 440 and those which are incorporated or
approved by a competent authority are taken as satisfying the requirement of reasonableness. 441
These qualifications are discussed later in this section. 442
Negligence liability: the old law
15-081
Section 2 of the 1977 Act restricts the power of a person to exempt themselves from business liability
for negligence whether by reference to a term of a contract or by reference to a “notice given to
persons generally or to particular persons”. For this purpose “negligence” is defined 443 to mean the
breach:
“(a)
of any obligation, arising from the express or implied terms of a contract, to take
reasonable care or exercise reasonable skill in the performance of a contract;
(b)
of any common law duty to take reasonable care or exercise reasonable skill (but
not any stricter duty); and
(c)
of the common duty of care imposed by the Occupier’s Liability Act 1957 …” 444
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It will be seen, therefore, that “negligence” may be contractual or tortious. Section 2 itself
distinguishes between two types of damage. In the case death or personal injury 445 resulting from
negligence, any purported exclusion or restriction of a person’s business liability is wholly ineffective
without any assessment of its reasonableness. 446 In the case of other loss or damage, a person
cannot so exclude or restrict their business liability, except insofar as the term or notice satisfies the
requirement of reasonableness. 447 The words of s.2 are wide enough to include a term which
purports to transfer from one contracting party to the other responsibility for injury or damage caused
to the latter by negligence on the part of an employee of the former. 448 They do not extend to a term
by which one party requires the other to indemnify him against injury or damage caused to third
parties by his own negligence or that of his employees, 449 nor to a covenant not to sue a third party.
450
Assumption of risk
15-082
Section 2(3) of the 1977 Act provides that, where a contract term or notice 451 purports to exclude or
restrict liability for negligence a person’s agreement to it or awareness of it is not of itself to be taken
as indicating his voluntary acceptance of the risk. 452
Negligence liability: the new law
15-083
October 1, 2015), 453 s.2 of the 1977 does not apply to a term in a “consumer contract” nor to a
“consumer notice” within the meanings of these expressions in the 2015 Act, 454 but refers the reader
to the provisions governing the fairness of these terms or notices provided by the 2015 Act. 455
Liability arising in contract: the old law
15-084
Section 3 of the Act applies generally to liability arising in contract and (unlike certain later sections)
is not limited to contracts of a particular type. However, the section applies as between contracting
parties only where one of them deals:
(i)
as consumer 456; or
(ii)
on the other’s written standard terms of business,
and in either case the liability which it is sought to exclude is a business liability. 457 The expression …
“deals on the other’s written standard terms of business” is not defined or explained by the Act, 458 but
it would seem probable that “standard terms of business” would embrace the standard terms of a third
party, e.g. a trade association, incorporated into the contract by reference or by course of dealing. 459
The requirement that the term is part of the other party’s standard terms of business has been held
Page 3
to mean that “it has to be shown that that other party habitually uses those terms of business” and it is
not enough that a model form has, on the particular occasion, been used. 460 Since, in any event,
no two contracts are likely to be completely identical, but will at least differ as to subject matter and
price, the question arises whether variations or omissions from or additions to standard terms thereby
render them “non-standard” and, if they do not, whether all the terms then become standard terms.
Where negotiations have taken place around standard terms before the contract is made, and
amendments agreed, it is a question of fact whether one party can be said to have dealt on those
standard terms. 461 If it is alleged that an ostensibly “one-off” contract is in fact the other’s written
standard terms of business, extensive disclosure may be involved to determine the terms on which
contracts have been concluded with others. The burden of proving that he dealt on the others written
standard terms of business appears to rest on the party who alleges that s.3 applies. 462 In African
Export-Import Bank v Shebah Exploration and Production Co Ltd Longmore L.J. observed that for this
purpose:
“it is relevant to enquire whether there have been more than insubstantial variations to
the terms which may otherwise have been habitually used by the other party to the
transaction. If there have been substantial variations, it is unlikely to be the case that the
party relying on the Act will have discharged the burden on him to show that the contract
has been made ‘on the other’s written standard terms of business’.” 463
Where there is “substantial negotiation” (including the proposed amendment of the draft contract)
this may be enough to demonstrate that the terms ultimately agreed were not standard business
terms even though the particular term was not itself affected: “[t]here is … no requirement that
negotiations must relate to the exclusion terms of the contract, if the Act is not to apply”. 464
15-085
In cases falling within s.3, as against the party dealing as consumer or on the other’s written standard
terms of business, the other party (“the proferens ”) cannot by reference to any contract term, 465
except in so far as the term satisfies the requirement of reasonableness, do either of two things:
“(a)
when himself in breach of contract, exclude or restrict any liability of his in respect of
breach[ 466]; or
(b)
claim to be entitled:
(i)
to render a contractual performance substantially different from that which was
reasonably expected of him[ 467]; or
(ii)
in respect of the whole or part of his contractual obligations to render no
performance at all.” 468
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It would appear to be the intention of (b) that it should apply where there is no breach of contract at
all, but where the obligation as to performance has been limited or qualified. 469 An example may be of
a shipowner who agrees on written standard terms to provide a cruise to a travel agent for a party of
tourists on a particular vessel on a particular route, but claims to be entitled to change the vessel by
reference to a contract term. 470 A further example in a commercial contract might be that of a force
majeure clause 471 by reference to which a seller of goods claims to be entitled to suspend or
postpone delivery of the goods, or to deliver substitute goods, or to cancel the contract, upon the
happening of events beyond his control. The argument could, however, be advanced 472 that the
effect of clauses such as those mentioned is to define the scope of the obligation of the proferens with
respect to performance: the contract must be read together with and subject to the clause. 473 The
other party could not therefore reasonably expect that the proferens would render a contractual
performance other than that as qualified by the clause, nor would there be any contractual obligation
in respect of which the proferens would be claiming to render no performance at all. However, it is
submitted that a sensible meaning can in most cases only be given to paragraph (b) if one assumes
that the contractual performance and contractual obligation referred to is the performance required
and the obligation imposed by the contract apart from the contract term relied on. 474 For this purpose,
the contractual performance reasonably expected of a party may, in appropriate cases be determined
by the content of representations made by that party in precontract negotiations. 475 On the other
hand, where on its true construction a contract term provides for performance to a certain level by the
proferens, the other party cannot claim that that very term entitles the proferens to render a
contractual performance substantially different from that which he reasonably expected. For example,
in Hodges v Aegis Defence Services (BVI) Ltd a contractor providing security services in Iraq
engaged the services of an individual and their contract contained a term under which the contractor
agreed to take out insurance for a sum of $200,000 payable on that individual’s death. 476 After the
individual died during service, insurance monies were paid over a period in excess of that figure, but
his widow (as principal nominee of the benefit of the insurance) claimed that the term required
payment of $200,000 as a minimum lump sum and, secondly, that any term which gave the insured
less than such a minimum lump sum fell within s.3(2)(b)(i) and was unreasonable. 477 However,
Longmore L.J. (in the majority) held, first, that on its proper construction the term did not require such
a lump sum and, secondly, this meant that the contractor did not claim by reference to that term to be
entitled to render a contractual performance substantially different from that which was expected of it
under the contract. 478
15-086
Nevertheless it seems unlikely that a contract term entitling one party to terminate the contract in the
event of a material breach by the other (e.g. failure to pay by the due date) would fall within paragraph
(b), or, if it did so, would be adjudged not to satisfy the requirement of reasonableness. 479 Nor, it is
submitted, would that provision extend to a contract term which entitled one party, not to alter the
performance expected of himself, but to alter the performance required of the other party (e.g. a term
by which a seller of goods is entitled to increase the price payable by the buyer to the price ruling at
the date of delivery, or a term by which a person advancing a loan is entitled to vary the interest
payable by the borrower on the loan). 480 A term of a contract of employment relating to the
requirements for payment of a discretionary bonus has been held not to fall within s.3. 481
Liability arising in contract: the new law
15-087
1, 2015, 482 the reference in s.3 of the 1977 Act to a person “dealing as consumer” is deleted and
s.3(3) (as inserted by the 2015 Act) provides that s.3 does not apply to a term in a consumer contract,
referring the reader to s.62 of the 2015 Act which provides special controls for this purpose. 483
Page 5
Otherwise, s.3 remains as enacted.
Indemnity clauses: the old law
15-088
A contract may stipulate that, if one party incurs liability (usually to third parties) as the result of the
performance of the contract, he shall be entitled to be indemnified by the other party against the
liability. 484 Section 4 of the 1977 Act provides that a person dealing as consumer 485 cannot by
reference to any contract term be made to indemnify another person (whether a party to the contract
or not) in respect of liability that may be incurred by the other for negligence 486 or breach of contract,
except in so far as the contract term satisfies the requirement of reasonableness. 487 This provision
applies whether the liability in question:
“(a)
is directly that of the person to be indemnified or is incurred by him vicariously; or
(b)
is to the person dealing as consumer or someone else.” 488
The liability against which indemnity is sought must be a business liability. 489 An example would be a
term in a contract for the hire of a motorcar which required the hirer to indemnify the car hire company
against third-party claims arising out of the hirer’s use of the car.
15-089
Indemnities given by persons who do not deal as consumer are not affected by s.4. Although s.2 of
the 1977 Act inhibits the exclusion or restriction of liability for negligence, 490 nothing in that section
will render ineffective a term of a contract by which one party requires the other (who does not deal as
consumer) to indemnify him against his liability in negligence to third parties. 491
Indemnity clauses: the new law
15-090
1, 2015, 492 s.4 of the 1977 Act is deleted. 493 However, an indemnity clause in a consumer
contract as understood by the 2015 Act is subject to the test of unfairness and the requirement for
transparency which the 2015 Act itself puts in place. 494
“Guarantee” of consumer goods: the old law 495
15-091
Section 5 of the 1977 Act renders absolutely ineffective the exclusion or restriction of business liability
496
for loss or damage resulting from the negligence 497 of a manufacturer or distributor of goods 498 by
reference to any contract term or notice contained in or operating by reference to a guarantee of the
goods 499 (such as is often provided by, for example, manufacturers of electrical equipment). But the
goods must be of a type ordinarily supplied for private use or consumption, 500 and the loss or damage
Page 6
must arise from the goods proving defective while “in consumer use”, that is, when a person is using
them, or has them in possession for use, otherwise than exclusively for the purposes of business. 501
This section does not apply as between parties to a contract under or in pursuance of which
possession or ownership of the goods passed. 502
“Guarantee” of consumer goods: the new law
15-092
With the coming into force of the Consumer Rights Act 2015, for contracts made on or after October
1, 2015, 503 s.5 of the 1977 Act is deleted. 504 The Law Commissions saw s.5 as unnecessary given
the controls provided by s.2(1) of the 1977 Act and by the Consumer Protection Act 1987. 505 The
2015 Act itself makes equivalent provision to s.2 of the 1977 Act so as to control the exclusion of
business liabilities for negligence whether contained in a contract term or notice. 506
Sale and hire purchase: the old law
15-093
Section 6 of the 1977 Act 507 limits the ability of a seller of goods, or of the owner of goods let under a
hire-purchase agreement, to exclude or restrict his liability in respect of breach of the terms implied by
ss.12 to 15 of the Sale of Goods Act 1979 508 or ss.8 to 11 of the Supply of Goods (Implied Terms) Act
1973. 509 For this purpose, s.6 distinguishes between the various implied terms. Contract terms
purporting to exclude the seller’s or (in the case of hire-purchase) owner’s liability for breach of the
statutory implied terms as to title and right to sell the goods, are ineffective without any assessment of
their reasonableness. 510 By contrast, in the case of purported exclusions of the statutory implied
terms as to conformity of goods with description or sample, or as to their quality or fitness for a
particular purpose, 511 s.6 distinguishes between the case where the other party (the buyer or hirer)
deals as consumer 512 (where the exclusion is wholly ineffective) and where the other party does not
so deal (where the exclusion is subject to the test of reasonableness). 513 The liabilities referred to in
s.6 are not confined to business liabilities, 514 but they are confined to those which arise from breach
of the statutory implied undertakings.
Miscellaneous contracts under which goods pass: the old law
15-094
Section 7 of the 1977 Act is concerned with contract terms which exclude or restrict business liability
for breach of an implied obligation in a contract “where the possession or ownership of the goods
passes under or in pursuance of” the contract (other than a contract governed by the law of sale of
goods or hire-purchase). 515 Examples of such contracts are contracts for the hire of goods or for work
and materials. The obligation in the contract must be one which arises “by implication of law from the
nature of the contract”. 516 In most cases, the obligations to be implied in such contracts are those set
out in ss.2 to 5 and 7 to 10 of the Supply of Goods and Services Act 1982. 517 First, s.7 of the 1977
Act provides that liability for breach of the obligations as to title, etc., arising under s.2 of the 1982 Act
(such as in contracts for work and materials) cannot be excluded or restricted by reference to any
contract term, 518 but in the case of other contracts in this category (e.g. contracts for the hire of
goods) terms excluding or restricting liability in respect of the right to transfer ownership of the goods
or give possession, or the assurance of quiet possession to a person taking goods in pursuance of
the contract, are subject to the test of reasonableness. 519 Secondly, as against a person dealing as
consumer, s.7 renders wholly ineffective a contract term which purports to exclude or restrict any
liability in so far as it arises in respect of the goods’ correspondence with description or sample, or
their quality or fitness for any particular purpose. 520 Thirdly, as against a person dealing otherwise
than as consumer, such a liability can be excluded or restricted by reference to any contract term, but
only in so far as the term satisfies the test of reasonableness. 521
Page 7
Sale, hire purchase, and miscellaneous contracts under which goods pass: the new law
15-095
The Consumer Rights Act 2015, for contracts made on or after October 1, 2015, deletes from ss.6
and 7 of the 1977 Act provisions governing persons “dealing as consumer” and dis-applies the
general provisions left in place from “consumer contracts”. 522 As a result, s.6 as amended renders
wholly ineffective exclusions of the statutory implied terms as to title in contracts of sale of goods and
hire purchase, and subjects to the reasonableness test exclusions of the statutory terms as to
description or sample, quality or particular purpose. 523 Section 7 as amended applies to the same
range of contracts as before as regards its controls on “contract terms excluding or restricting liability
for breach of obligation arising by implication of law form the nature of the contract,” and continues to
distinguish as regards exclusions of liability in respect of title or right to transfer the goods etc.
between liability arising from the statutory implied term in s.2 of the 1982 Act (which are rendered
wholly ineffective) and other cases (which are subject to the requirement of reasonableness). 524 As
regards terms in consumer contracts, the 2015 Act Pt 1 makes new provision for the various “goods
contracts” to which it applies by creating a series of new statutory terms (including as to satisfactory
quality, fitness for particular purpose, description, and the trader’s right to supply the goods), and
subjecting any purported exclusion or restriction of liability arising for breach of these terms to its own
controls. 525 This new law is discussed in Vol.II, Ch.38. 526
437. 1977 Act s.29 below, para.15-122.
438. 1977 Act s.27(1) below, para.15-125.
439. See below, paras 15-116—15-121.
440. 1977 Act s.29(1) below, para.15-123.
441. 1977 Act s.29(2) below, para.15-124.
442. See preceding notes.
443. 1977 Act s.1(1). This definition applies also to the use of “negligence” in s.4 and 5 of the 1977
Act: below, para.15-088 and 15-091.
444. 1977 Act s.1(1). An example of (c) may be found in Monarch Airlines Ltd v London Luton
Airports Ltd [1998] 1 Lloyd’s Rep. 403.
445. Defined in s.14.
446. 1977 Act s.2(1).
447. 1977 Act s.2(2). See also s.2(3) (voluntary acceptance of risk). On the test of reasonableness
see 1977 Act s.11, below, paras 15-096 et seq.
448. Phillips Products Ltd v Hyland [1987] 1 W.L.R. 659. See also Flamar Interocean Ltd v Denmac
Ltd [1990] 1 Lloyd’s Rep. 434.
449. Thompson v T. Lohan (Plant Hire) Ltd [1987] 1 W.L.R. 649; Hancock Shipping Co Ltd v Deacon
& Trysail (Private) Ltd [1991] 2 Lloyd’s Rep. 550.
450. Neptune Orient Lines Ltd v J.V.C. (UK) Ltd [1983] 2 Lloyd’s Rep. 438; see above, para.15-054.
452. But see above, para.15-017 and cf. Johnstone v Bloomsbury H.A. [1992] Q.B. 333, 343, 346.
Page 8
453.
Above, para.15-064. On the qualifications on the date of the coming into force of the relevant
454. 2015 Act s.75, Sch.4 para.4 inserting s.2(4) into the 1977 Act.
455. 2015 Act s.62 and 65 on which see Vol.II, paras 38-334 et seq. The 2015 Act ss.67 and 68 also
make requirements as to the transparency of terms of consumer contracts and consumer
notices: see Vol.II, paras 38-382—38-385 to which s.2(4) of the 1977 Act does not refer.
456. On “dealing as consumer” see 1977 Act s.12 and above, paras 15-074—15-078.
457. On “business liability” see 1977 Act s.1(3) and above, para.15-072.
458. But see McCrone v Boots Farm Sales 1981 S.L.T. 103 (on s.17 of the 1977 Act in Scotland)
and Flamar Interocean Ltd v Denmac Ltd [1990] 1 Lloyd’s Rep. 434, at 438.
459.
See the example of use of the RIBA Form of engagement in British Fermentation Products
Ltd v Compare Reavell Ltd [1999] 2 All E.R. (Comm) 389 at [46] (H.H.J. Bowsher QC),
expressly approved in African Export-Import Bank v Shebah Exploration and Production Co Ltd
[2017] EWCA Civ 845 at [20] (Longmore L.J.).
460.
African Export-Import Bank v Shebah Exploration and Production Co Ltd [2017] EWCA Civ
845 at [20] per Longmore L.J. (with whom Henderson L.J. agreed).
461.
cf. St Alban’s City and District Council v International Computers Ltd [1996] 4 All E.R. 481,
490–491, with Salvage Association v Cap Financial Services [1995] F.S.R. 654. See also
Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd (1991) 56 Build. L.R. 115,
131; South West Water Services Ltd v International Computers Ltd [1999] Build. L.R. 420;
British Fermentation Products Ltd v Compair Reavell Ltd (1999) 66 Const. L.R.1; Pegler Ltd v
Wang (UK) Ltd [2000] Build. L.R. 218; Hadley Design Associates Ltd v Westminster CC [2003]
EWHC 1617 (TCC), [2004] T.C.L.R. 1; Ferryways NV v Associated British Ports [2008] EWHC
225 (Comm), [2008] 1 Lloyd’s Rep. 639 at [92]; University of Wales v London College of
Business Ltd [2015] EWHC 1280 (QB) at [91]–[95]; Commercial Management (Investments) Ltd
v Mitchell Design & Construct Ltd [2016] EWHC 76 (TCC) at [61]–[73] (A’s standard terms
incorporated only to the extent to which B’s terms did not prevail over them, term held still one
of A’s “written standard terms of business”); Britton (2006) 22 Const. L.J. 23.
462. British Fermentation Products Ltd v Compair Reavell Ltd (1999) 66 Const. L.R. 1.
463.
[2017] EWCA Civ 845 at [25] per Longmore L.J. (with whom Henderson L.J. agreed),
approving dicta in McCrone v Boots Farm Sales [1981] S.L.T. 103 at 105; Hadley Design
Associates v Westminster City Council [2003] EWHC 1617 (TCC), [2004] T.C.L.R. 1 at [78].
464.
[2017] EWCA Civ 845 at [36] per Longmore L.J.
465. Whether in the same or in another contract between the same parties. cf. 1977 Act s.10, below,
para.15-128.
466. See Charlotte Thirty Ltd v Croker Ltd (1990) 24 Const. L.R. 46; St Alban’s City and District
Council v International Computers Ltd [1996] 4 All E.R. 481.
467. i.e. at the time the contract was made: Shearson Lehman Hutton Inc v Maclaine Watson & Co
Ltd [1989] 2 Lloyd’s Rep. 570, 612. See Timeload Ltd v British Telecommunications Plc [1995]
E.M.L.R. 459.
468. 1977 Act s.3(2)(a) and (b).

Page 9
469. Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep. 570, 611–612;
AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep.
1 at [50]. See also Law Commission, Scottish Law Commission, Exemption Clauses (1975)
Law Com. No.69, Scot. Law Com. No.39, paras 143–146.
470. cf. Anglo-Continental Holidays Ltd v Typaldos Lines (London) Ltd [1967] 2 Lloyd’s Rep. 61,
given by the Law Commissions in Law Com. No.69, Scot. Law Com. No.39, para.146 as an
example of the sort of term which it intended should be included under its proposed controls
which were similar to s.3(2)(b). cf. the special provisions controlling the variation of package
holiday contracts by the Package Travel, Package Holidays and Package Tours Regulations
1992 (SI 1992/3288) on which see Vol.II, para.38-133.
472. Treitel, Frustration and Force Majeure, 3rd edn (2014), para.12–022.
474. Zockoll Group Ltd v Mercury Communications Ltd (No.2) [1998] I.T.C.L.R. 104. See above,
para.15-003.
475. SAM Business Systems Ltd v Hedley & Co [2002] EWHC 2733 (TCC), [2003] 1 All E.R.
(Comm) 465; AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 2
476. [2014] EWCA Civ 1449.
477. [2014] EWCA Civ 1449 at [5] and [6].
478. [2014] EWCA Civ 1449 at [52] (Longmore L.J). McCombe L.J. agreed with Longmore L.J. both
as a matter of the construction of the term and its effectiveness, but as regards the latter on the
ground that the term in question was reasonable under the 1977 Act: [2014] EWCA Civ 1449 at
[33]–[34]. Vos L.J. dissented on the issue of construction and did not find it necessary to
consider the effect of s.3(2)(b): [2014] EWCA Civ 1449 at [43]–[45].
479. But see Timeload Ltd v British Telecommunications Plc [1995] E.M.L.R. 459 (termination not
limited to cases where there was a good reason) and below, para.15-105. cf. Hadley Design
Associates Ltd v Westminster CC [2003] EWHC 1617 (TCC), [2004] T.C.L.R. 1 (one month’s
termination clause in architects’ contract not unreasonable). On termination clauses generally
see Whittaker in Burrows and Peel, Contract Terms (2007), Ch.13 especially at pp 263–267.
480. Paragon Finance Plc v Nash [2001] EWCA Civ 1466, [2002] 1 W.L.R. 685, at [76]–[77] (pet. dis.
[2002] 1 W.L.R. 2303). But such a term in a consumer contract might be unfair and not binding
on the consumer under the Unfair Terms in Consumer Contracts Regulations 1999, Vol.II,
481. Keen v Commerzbank AG [2006] EWCA Civ 1536, [2007] I.R.L.R. 132.
482.
483. 2015 Act s.75, Sch.4 para.5. On the Act’s controls see Vol.II, paras 38-334 et seq. The Act also
makes requirements as to the transparency of terms of consumer contracts: see Vol.II, paras
38-382—38-385.

Page 10
487. 1977 Act s.4(1).
488. 1977 Act s.4(2).
489. 1977 Act s.1(3); see above, para.15-072.
491. Thompson v Lohan (Plant Hire) Ltd [1987] 1 W.L.R. 649; Hancock Shipping Co Ltd v Deacon &
Trysail (Private) Ltd [1991] 2 Lloyd’s Rep. 550.
492.
493. 2015 Act s.75, Sch.4 para.6.
494. 2015 Act ss.62, 67-68 on which see Vol.II, paras 38-334 et seq.
495. See further on the binding character of consumer guarantees Sale and Supply of Goods to
Consumers Regulations 2002 (SI 2002/3045) reg.15 on which see Vol.II, para.38-428. With the
coming into force of the 2015 Act, these regulations are revoked and their provision governing
consumer guarantees replaced by 2015 Act s.30 on which see Vol.II, para.38-491.
498. Defined by 1977 Act s.14 referring to the Sale of Goods Act 1979.
499. Defined in 1977 Act s.5(2)(b).
500. cf. above, para.15-075 concerning 1977 Act s.12(1)(c).
501. s.5(2)(a).
502. s.5(2), e.g. as between buyer and seller.
503. Above, para.15-064.
504. 2015 Act s.75, Sch.4 para.7.
505. Unfair Terms in Contracts (2005) Law Com No.292, Scot Law Com No.199 para.3.48. Under
the Consumer Protection Act 1987 a manufacturer, EU importer or distributor of a product may
be liable for death or personal injuries and for damage to property where “of a description of
property ordinarily intended for private use, occupation or consumption” and was “intended by
the person suffering the loss or damage mainly for his own private use, occupation or
consumption” subject to a threshold of £275: 1987 Act s.5(3) and (4). These liabilities are
subject to a proof that the claimant’s damage was caused by a defect in a product which the
manufacturer, etc. supplied: 1987 Act s.2–4. They are incapable of exclusion by contract term
or notice: 1987 Act s.7. See further Vol.II, paras 44-449 et seq.
506. These are contained in 2015 Act ss.65-66 (personal injuries or death) and s.62 (the general
controls which govern exclusions of other loss or damage) on which see Vol.II, paras 38-377
and 38-358 et seq. respectively.
507. As amended by s.63 of and Sch.3 to the Sale of Goods Act 1979.
508. See Vol.II, paras 44-085, 44-117 et seq.

Page 11
509. See Vol.II, paras 39-382 and 39-390—39-391.
510. 1977 Act s.6(1). On these statutory implied terms see Vol.II, 0paras 39-316—39-318 (hire
purchase) and Vol.II, paras 44-075—44-085 (sale of goods).
511. Sale of Goods Act 1979 s.13–15 (sale of goods); Supply of Goods (Implied Terms) Act 1973
ss.9–11.
512. On which see 1977 Act s.12 and above, para.15-073.
513. 1977 Act s.6(2) and (3) respectively. On the test of reasonableness see 1977 Act s.11 and
514. 1977 s.6(4). See above, para.15-072.
515. Also excluded are goods passing on redemption of trading stamps: s.7(5).
516. See above, paras 14-034—14-035.
517. 1982 Act ss.2-5 which formally apply to contracts under which one person transfers or agrees
to transfer to another the property in goods, other than a contract of sale of goods, a
hire-purchase agreement, a transfer or agreement to transfer which is made by deed and for
which there is no consideration other than the presumed consideration imported by the deed or
a contract intended to operation by way of mortgage, pledge, charge or other security:
s.1(1)–(2). The provisions in the 1982 Act governing bailment for hire are contained in ss.6–10.
See Vol.II, paras 33-071, 44-026.
518. 1977 Act s.7(3A), inserted by s.17(2) of the Supply of Goods and Services Act 1982.
519. 1977 Act s.7(4) (as amended).
520. s.7(2). See Vol.II, para.33-078.
521. s.7(3). See Charlotte Thirty Ltd v Croker Ltd (1990) 24 Const. L.R. 46; Danka Rentals Ltd v XI
Software Ltd (1998) 17 Tr.L.R. 74.
522. 2015 Act s.75, Sch.4 para.8 and 9 and see above para.15-064.
523. 1977 Act s.6(1) and 1(A) (as inserted by the 2015 Act). Section 6(2) and (3) are deleted.
524. 1977 Act s.7(1) and 1(A) (as inserted by the 2015 Act); 7(4). Section 7(2) and (3) are deleted
and cf. above, para.15-094.
525. The definitions of “goods contracts” are provided by the 2015 Act ss.5–8; the statutory terms
etc. are set out by ss.9–17; and the controls on exemption clauses in s.31.
526. See especially Vol.II, paras 38-446 et seq. especially at 38-458—38-476 and 38-492.

Page 1

(iv) - Test of Reasonableness
Test of reasonableness
15-096
Except in those instances where the 1977 Act renders absolutely ineffective exclusion or restriction of
liability, the contract terms controlled by the Act are subject to the requirement of reasonableness. In
relation to a contract term, under s.11 of the Act the requirement of reasonableness for the purposes
of the Act (and of s.3 of the Misrepresentation Act 1967) is that:
“… the term shall have been a fair and reasonable one to be included having regard to
the circumstances which were or ought reasonably to have been, known to or in the
contemplation of the parties when the contract was made.” 527.
The time for determining the reasonableness of the term is the time at which the contract was made.
That determination is therefore not affected by the nature or seriousness of the loss or damage
caused, or the way in which the term is in fact operated or relied on, 528 except to the extent to which
such events were or ought reasonably to have been in the contemplation of the parties at that time.
Further, it would appear that circumstances known only to the party seeking to allege that the term is
reasonable, for example, the experimental nature of the product or the fact that it had been purchased
from a foreign supplier subject to an effective exclusion of liability of his part, 529 are irrelevant if they
were not known, and could not reasonably have been known, to the other party at the time the
contract was made. 530 The Consumer Rights Act 2015 does not amend s.11 of the 1977 Act nor the
guidelines which Sch.2 lays down for its application in certain cases, though it does affect the
situations in which the test of reasonableness applies, as earlier explained. 531
Guidelines
15-097
The test of reasonableness set out by s.11(1) of the 1977 Act is a very broad one, but s.1(4) of the
Act specifically provides that:
“In relation to any breach of duty or obligation, it is immaterial for any purpose of this Part
of this Act whether the breach was inadvertent or intentional, or whether liability for it
arises directly or vicariously.”
Page 2
This exclusion therefore clearly applies to the assessment of terms or notices under the test of
reasonableness in s.11. More positively, s.11(2) of the Act refers to five guidelines laid down in Sch.2
532
and regard is to be had to these in determining whether a contract term satisfies the requirement of
reasonableness. 533 The guidelines are only made expressly applicable for the purposes of s.6 (sale
of goods and hire-purchase) and s.7 (other contracts for the supply of goods), but they are frequently
regarded as being of general application. 534 The guidelines are:
(a)
the strength of the bargaining positions of the parties relative to each other, taking account
(among other things) alternative means by which the customer’s requirements could have been
met 535 ;
(b)
whether the customer received an inducement to agree to the term, or in accepting it had an
opportunity of entering into a similar contract with other persons, but without having to accept a
similar term 536;
(c)
whether the customer knew or ought reasonably to have known of the existence and extent of
the term (having regard, among other things, to any custom of the trade and any course of
dealing between the parties) 537 ;
(d)
where the term excludes or restricts any relevant liability if some condition is not complied with,
whether it was reasonable at the time of the contract to expect that compliance with that
condition would be practicable 538 ;
(e)
whether the goods were manufactured, processed or adapted to the special order of the
customer. 539
Further factors
15-098
The guidelines set out in Sch.2 to the Act are not, however, exhaustive and in Overseas Medical
Supplies Ltd v Orient Transport Services Ltd 540 Potter L.J. identified no less than seven further
factors going to the question of reasonableness which, in his view, had been regarded as relevant by
the courts in previous cases. This list is obviously not a closed one.
Limits on amount
15-099
Exemption clauses in contracts frequently limit the liability in damages of one party to a fixed or
Page 3
determinable sum. Section 11(4) provides:
“Where by reference to a contract term … a person seeks to restrict liability to a specified

sum of money, and the question arises (under this or any other Act) whether the term or
notice satisfies the requirement of reasonableness, regard shall be had in particular (but
without prejudice to subsection (2) above 541 in the case of contract terms) to—(a) the
resources which he could expect to be available to him for the purpose of meeting the
liability should it arise; and (b) how far it was open to him to cover himself by insurance.”
This provision was clearly designed to provide some alleviation to the small business, and to
professional persons, who may not have the resources available to meet unlimited liability or who
may not be able to obtain insurance or who may be exposed to claims in excess of the sums for
542
which insurance cover can be obtained. But it might in some circumstances be construed to
operate against those enterprises with such resources or which are able to insure. 543 It seems
probable that the words “a specified sum of money” would embrace a determinable sum, e.g. the
contract price. But it is more questionable whether (b) covers the situation where insurance cover can
be obtained, but only on terms which are uneconomic in relation to the margin of profit achieved. 544
Burden of proof
15-100
The onus of proving that it was fair and reasonable to incorporate a term in a contract lies on the party
so contending. 545 It is therefore unnecessary for a claimant to indicate in his statement of case that
he intends to challenge the reasonableness of a term in a contract relied on by the defendant. 546
Judicial application of the reasonableness test 547
15-101
There is a large body of reported cases which illustrate in general terms the way in which the courts
may approach the test of reasonableness contained in the Act. However, they are of limited value as
precedents since the position of the parties and the circumstances surrounding the transaction, and
the precise wording of the clause in question, will necessarily differ in each particular situation.
Moreover, with the coming into force of the Consumer Rights Act 2015, it should be borne in mind
that some cases decided under the earlier law in relation to persons dealing as consumer would fall
under the controls provided by the 2015 Act for “consumers”, while other cases so decided would
remain under the 1977 Act though no longer subject to its earlier controls provided for persons
dealing as consumer. 548
Decisions under earlier legislation
15-102
A small number of decisions were reported with respect to the reasonableness test contained in s.55
of the Sale of Goods Act 1893 549 (repealed in 1979) or s.3 of the Misrepresentation Act 1967
(amended in its wording by s.8 of the Unfair Contract Terms Act 1977), both of which sections
however required the court to determine whether it would be fair and reasonable to allow reliance on
the term, and not whether it was fair and reasonable to incorporate the term having regard to the
circumstances at the time the contract was made. 550 In Rasbora Ltd v J.C.L. Marine Ltd 551 it was held
(obiter) 552 that it was not fair and reasonable to allow a boatbuilder to rely on a term excluding all
liability (other than a warranty to replace defective parts) when the boat was wholly destroyed by a
fire, due to defective electrical installations, on the day following its acceptance by the buyer. In R.W.
Green Ltd v Cade Bros Farms 553 a term in a contract for the bulk sale of seed potatoes providing a
Page 4
short time-limit for complaints in respect of latent defects could not be relied on by the seller when the
potatoes were infected with a virus; but reliance on a term limiting the liability of the seller to the
contract price was allowed, as the term had been in use for many years with the approval of
negotiating committees acting on behalf of both buyers and sellers. And in Howard Marine and
Dredging Co Ltd v A. Ogden & Sons (Excavations) Ltd 554 the Court of Appeal by a majority 555 held
that it would not have been fair and reasonable to allow reliance on a term in a contract for the hire of
barges which provided that acceptance was to be conclusive evidence that the barges were fit for
their intended use, even if the clause had been apt (which it was not) to cover a misrepresentation by
the owners of the barges as to their deadweight capacity. Lord Denning M.R., however, considered
that both the clause itself and reliance on it was fair and reasonable, since the parties were of equal
bargaining power, the term was contained in negotiated drafts and it was a familiar term in
charterparties and other commercial contracts, such as structural and engineering contracts.
15-103
In George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd 556 the appellant seed merchants, by
their standard conditions of sale, limited their liability in respect of seeds that did not comply with the
contract of sale to replacement of the seeds or refund of the price, but otherwise excluded all liability
for loss or damage arising from the use of seeds supplied by them apart from such replacement or
refund. The respondents, who were farmers, purchased from them for £201 a quantity of winter white
cabbage seeds. The seeds in fact supplied were autumn cabbage seed; the crop failed; and the
respondents claimed damages in excess of £60,000. The House of Lords held that it would not be fair
or reasonable to allow the appellants to rely on the limitation of liability. Lord Bridge said that, in
having regard to the various matters to which the relevant statutory provision directs attention 557:
“… the court must entertain a whole range of considerations, put them in the scales on
one side or the other, and decide at the end of the day on which side the balance comes
down.” 558
In the instant case, although a similar limitation of liability had for long been embodied without protest
in the terms of the trade between seedsmen and farmers, 559 the practice was to negotiate
settlements of farmers’ claims for damages in excess of the price of the seeds if it was thought that
the claims were genuine and justified. This indicated that reliance on the limitation would not be fair or
reasonable. Two further facts weighted the scale in favour of the respondents: the error was due to
the negligence of the appellants’ organisation, and seedsmen could insure 560 against the risk of crop
failure resulting from the supply of the wrong variety of seeds without materially increasing the price of
seeds.
Reasonableness under Unfair Contract Terms Act 1977
15-104
As regards the test of reasonableness in the 1977 Act itself, in Walker v Boyle, 561 where a vendor in
response to preliminary inquiries represented that she was unaware of any boundary dispute
connected with the property, although she ought to have known that there was such a dispute, it was
held that condition 17 of the National Conditions of Sale, even with a statement that “accuracy is not
guaranteed, and [the replies] do not obviate the need to make appropriate searches, inquiries and
inspections”, did not meet the test of reasonableness required by s.11 of the Act. 562 In Stag Line Ltd v
Tyne Shiprepair Group Ltd 563 a term in a ship-repairing contract excluding liability on the part of the
repairer for consequential economic loss was held to be reasonable, but not a condition that the
shipowner should have no remedy unless he returned the vessel to the repairer’s yard for repair, or to
such other place as the repairer should direct. In Phillips Products Ltd v Hyland 564 the Court of
Appeal held unreasonable in the circumstances 565 a term in a contract for the hire of an excavator
and driver which provided that the driver was to be regarded as an employee of the hirer who alone
was to be responsible for all claims arising in connection with the operation of the plant by the driver.
In Rees-Hough Ltd v Redland Reinforced Plastics Ltd 566 a term in a contract for the supply of piping
which excluded all liability of the seller unless notified of complaints within three months of delivery
Page 5
was held unreasonable. In Smith v Eric Bush 567 a non-contractual notice in a report by a building
society surveyor disclaiming all liability for negligence in conducting the survey of a modest
dwelling-house was held to be unreasonable in view of the fact that the report would be relied on by
an intending purchaser of the property. In Charlotte Thirty Ltd v Croker Ltd 568 the court held
unreasonable a term in a contract to design and build an industrial plant which exonerated the
contractor from all liability except as provided in a six-month warranty to replace defective
components if these were returned carriage paid to the contractor for adjudication. And in Stewart Gill
Ltd v Horatio Myer & Co Ltd 569 a term in a contract for the supply and installation of a conveyor
system, which provided that the purchaser was not to be entitled to withhold payment of any sum due
to the supplier under the contract by reason of “any payment, credit, set-off … or for any other reason
whatsoever”, failed to satisfy the requirement of reasonableness.
15-105
In St Alban’s City and DC v International Computers Ltd 570 a term in a computer software contract
made with a local authority limited the liability of the supplier to £100,000, and in Salvage Association
v Cap Financial Services 571 a term in a computer accounting contract limited the liability of the
supplier to £25,000. Both were held to be unreasonable. In Edmund Murray Ltd v BSP International
Foundations Ltd 572 the court held unreasonable a term in a contract for the sale of a drilling rig with
detailed requirements for performance, which purported to exclude liability on the part of the seller for
breach of both express and implied obligations, and in AEG (UK) Ltd v Logic Resource Ltd 573 a term
in a contract for the sale of radar equipment which excluded all warranties and conditions implied by
the Sale of Goods Act 1979 was held to be unreasonable despite the giving of an express warranty
that the equipment was free of defects caused by faulty materials or bad workmanship. Also in
Timeload Ltd v British Telecommunications Plc 574 the Court of Appeal held unreasonable a term in
BT’s standard terms and conditions which permitted BT to terminate the contract on one month’s
notice since the term was not limited to cases where there was a good reason for the termination. In
Kingsway Hall Hotel Ltd v Red Sky IT (Hounslow) Ltd 575 terms in a contract for the supply of a
software package which excluded all terms relating to performance, quality, fitness for purpose etc. to
the fullest extent permitted by law were held unreasonable despite a warranty that the program
provided would in all material respects provide the facilities and functions set out in the operating
documents (which were not supplied when the contract was signed). In Trustees of Ampleforth Abbey
Trust v Turner and Townsend Management Ltd a term in a project management contract which
provided, in favour of the project managers, a liability cap of approximately £111,000 was held to be
unreasonable because the contract imposed on them an obligation to take out professional indemnity
insurance to a level of £10 million. 576
15-106
In Overseas Medical Supplies Ltd v Orient Transport Services Ltd 577 the defendants undertook to
carry medical equipment belonging to the claimants to be exhibited at an overseas exhibition and to
ensure full insurance cover for the exhibits. The Court of Appeal refused to disturb the finding of the
trial judge that a term which purported to limit the liability of the defendants to £600 in the event that
occurred, namely a breach by the defendants of their contractual duty to insure the goods, was
unreasonable. In Pegler Ltd v Wang (UK) Ltd, 578 terms in a contract for the supply of computer
hardware and software excluding liability for indirect, special and consequential loss and imposing a
two-year contractual limit for claims were held unreasonable because the supplier “had so
misrepresented what [it] was selling that breaches of contract were not unlikely” and because the
customer had no choice but to accept them. In Britvic Soft Drinks Ltd v Messer UK Ltd 579 the Court of
Appeal held that clauses in a contract for the sale of bulk carbon dioxide to be used by the buyer for
the carbonation of drinks, which purported to exclude the terms as to satisfactory quality and fitness
for purpose implied by the Sale of Goods Act 1979, were unreasonable, and in Bacardi-Martini
Beverages Ltd v Thomas Hardy Packaging Ltd 580 it held that a clause in a similar contract, which
operated as a blanket exclusion of liability on the part of the seller for any loss or damage (with
certain exceptions) sustained by the buyer, was likewise unreasonable.
15-107
On the other hand, in R. & B. Customs Brokers Co Ltd v United Dominions Trust Ltd, 581 where a
finance company purchased a motorcar from a dealer and agreed to sell it under a conditional sale
Page 6
agreement to a commercial company, Dillon L.J. expressed the opinion (obiter) 582 that a clause in the
conditional sale agreement which excluded all conditions and warranties, express or implied, as to
merchantability or fitness for purpose was in the circumstances reasonable, since the director who
entered into the agreement on behalf of the buyer company was a man of commercial experience and
the finance company never had possession of or inspected the car. 583 In Singer Co (UK) Ltd v Tees
and Hartlepool Port Authority, 584 where a machine sub-bailed to a port authority was damaged in the
course of loading, Steyn J. held reasonable a clause disclaiming responsibility for damage other than
that arising from the proven negligence of the authority and a clause limiting the liability of the
authority to a sum of £800 per tonne. 585 In Sonicare International Ltd v East Anglia Freight Terminal
Ltd 586 a term in the National Association of Warehouse Keepers’ conditions limiting liability to £100
per tonne was similarly held reasonable in the circumstances of that case. A “no set-off” clause in the
standard conditions of the British International Freight Association (freight forwarders) was upheld as
reasonable in Schenkers Ltd v Overland Shoes Ltd, 587 and “no set-off” clauses in loan and financial
agreements have also been upheld. 588 A term in a freight forwarders’ contract excluding all liability
unless suit was brought within nine months was likewise adjudged reasonable. 589 In Robinson v PE
Jones (Contractors) Ltd 590 the Court of Appeal held reasonable a clause in an NHBC agreement
between a builder and a homeowner excluding tortious liability for a defect causing economic loss.
15-108
Clauses limiting the amount of damages recoverable have been upheld as reasonable in Moore v
Yakeley Associates Ltd, 591 where a term in the Royal Institute of British Architects’ Standard Form
limited the liability of an architect to £250,000, and in Britvic Soft Drinks Ltd v Messer UK Ltd 592 where
there was a term in a contract for the sale of bulk carbon dioxide limiting the liability of the seller in
respect of direct physical damage to property, and losses arising directly therefrom, whether through
negligence or otherwise, to £500,000. 593 In Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd 594
a clause in the BIFA (freight forwarders) contract limiting the damages recoverable in respect of loss
by theft of mobile telephones (valued at £2m) to approximately £25,000 was upheld as reasonable
and in Sterling Hydraulics Ltd v Dichtomatik Ltd 595 a clause in a contract for trailer parts which
restricted the seller’s liability for defects to the value of the goods was likewise held to be reasonable.
In Regus (UK) Ltd v Epcot Solutions Ltd 596 terms in a contract for the hire of serviced office
accommodation were held reasonable which excluded liability for consequential loss and which
limited liability to 125 per cent of fees or £50,000.
15-109
In Thames Tideway Properties Ltd v Serfaty & Partners 597 terms in a contract for the handling of
cargoes of waste paper which provided that goods handled would be at the sole risk of the customer
and that the handling company should not be liable for any damage to the goods unless such damage
was proved by the customer to have been caused by the neglect or default of the company or its
employees were held to be reasonable. In British Fermentation Products Ltd v Compair Reavell Ltd
598
the court held reasonable a term in a contract for the supply of machinery which provided that the
supplier undertook to repair or replace machinery which proved to be defective within 12 months of
delivery if it was returned to him at his expense but stipulated that this was: “ … in lieu of any warranty
or condition implied by law as to the quality or fitness for any particular purpose of the goods.”
15-110
A number of cases have emphasised the importance of upholding the agreed contract terms where
experienced businessmen are involved and the parties are of equal bargaining power in terms of size
and resources. In Photo Productions Ltd v Securicor Transport Ltd 599 (a case which did not involve
consideration of any provision of the 1977 Act) Lord Wilberforce stated that, in commercial matters
generally, when the parties were not of unequal bargaining power, and when risks were to be borne
by insurance, Parliament’s intention in the Act seemed to be one of “leaving the parties free to
apportion the risks as they think fit … and respecting their decisions”. 600
15-111
This was the approach adopted in Monarch Airlines Ltd v London Luton Airport Ltd 601 where a term in
Page 7
a contract between an airline and an airport operator excluded liability for damage to an aircraft
caused by any act, omission, neglect or default on the part of the latter, except if done with intent to
cause damage or recklessly with knowledge that damage would probably result. It was held that this
term was reasonable on the ground that it was generally accepted in the market, its meaning was
clear and both parties could make insurance arrangements on the basis of the term. It was also the
approach adopted in Watford Electronics Ltd v Sanderson CFL Ltd 602 where the Court of Appeal,
reversing the decision of the trial judge, held reasonable a term in a contract for the supply of a
bespoke integrated software system which excluded the liability of either party for indirect and
consequential losses, whether arising from negligence or otherwise, and limited the liability of the
supplier to the amount of the contract price. Chadwick L.J. said:
“Where experienced businessmen representing substantial companies of equal

bargaining power negotiated an agreement, they may be taken to have had regard to the
matters known to them. They should, in my view, be taken to be the best judges of the
commercial fairness of the agreement which they have made; including the fairness of
each of the terms of that agreement.”
Powers of the court
15-112
Although the 1977 Act uses the words “except in so far as the term satisfies the requirement of
reasonableness”, 603 it is the term as a whole that has to be reasonable and not merely some part of
it. 604 Thus if the term as a whole is unreasonable, a party cannot be heard to say that the part of the
term on which he relies is reasonable. 605 However, where a single provision in a contract consists
of several sub-clauses or sentences, it may be difficult to identify what is “the term” for the purposes
of the Act. 606
15-113
There is little doubt that the court’s powers under the Act are limited to declaring the term either to be
reasonable or unreasonable. The court could not rewrite the term by (say) increasing the amount
specified in a limitation of liability clause to a sum which it considered to be fair and reasonable. 607
Nor, it seems, could the court sever words which made the term unreasonable so as to render the
term reasonable or limit the application of an unreasonable clause so as to produce a reasonable
result. 608
15-114
If a single term purports to exclude or restrict liability which by the Act cannot in any circumstances
be excluded or restricted (for example, liability for death and personal injury resulting from
negligence) and also liability which can be excluded or restricted subject to the test of reasonableness
(for example, liability in negligence for other loss or damage), the term, while being ineffective to
exclude or restrict the former liability, may nevertheless be upheld as reasonable in respect of the
restriction or exclusion of the latter liability. 609 But it could be argued that the term as a whole is
rendered unreasonable by purporting to exclude or restrict the former liability as well as the latter.
Appeals
15-115
A decision by the judge of first instance as to whether the term was a fair and reasonable one to be
Page 8
included cannot accurately be described as an exercise of discretion. Nevertheless, since it involves

the balancing of various considerations, Lord Bridge has said 610:
“… in my view … when asked to review such a decision on appeal, the appellate court
should treat the original decision with the utmost respect and refrain from interference
with it unless satisfied that it proceeded upon some erroneous principle or was plainly
and obviously wrong.”
527. s.11(1). Contrast s.11(3) (notices) and First National Bank Plc v Loxley [1996] E.G.C.S. 174
528. Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep. 570, 612. See
also Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] Q.B. 600; Balmoral Group Ltd v Borealis
UK Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep. 629 at [420]–[421].
530. See also Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep. 164,
169; Flamar Interocean Ltd v Denmac Ltd [1990] 1 Lloyd’s Rep. 434; Overseas Medical
Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep. 273, 277; Pegler Ltd v Wang
(UK) Ltd [2000] Build. L.R. 218 (availability of insurance may be relevant, but actual insurance
position at time irrelevant); para.15–099 n.515, below.
531. See above, paras 15-083, 15-087 and 15-090.
532. The guidelines are similar to those formerly set out in s.55(5) of the Sale of Goods Act 1893 as
inserted by s.4 of the Supply of Goods (Implied Terms) Act 1973, and repealed on the
enactment of the Sale of Goods Act 1979.
534. Flamar Interocean Ltd v Denmac Ltd [1990] 1 Lloyd’s Rep. 434, 438–439; Stewart Gill Ltd v
Horatio Myer & Co Ltd [1992] Q.B. 600, 608. See also Singer Co (UK) Ltd v Hartlepool Port
Authority [1988] 2 Lloyd’s Rep. 164, 169; St Alban’s City and District Council v International
Computers Ltd [1995] F.S.R. 686 (affirmed [1996] 4 All E.R. 481); Overseas Medical Supplies
Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep. 273, 277; Pegler Ltd v Wang (UK) Ltd
[2000] Build. L.R. 218; Granville Oil and Chemicals Ltd v Davis Turner & Co Ltd [2003] EWCA
Civ 570, [2003] 2 Lloyd’s Rep. 356 at [15]; SAM Business Systems Ltd v Hedley & Co [2002]
EWHC (TCC) 2733, [2003] 1 All E.R. (Comm) 465 at [67]; Balmoral Group Ltd v Borealis (UK)
Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep. 629; Trustees of Ampleforth Abbey
Trust v Turner and Townsend Management Ltd [2012] EWHC 2137 (TCC), [2012] T.C.L.R. 8 at
[199].
535.
See R.W. Green Ltd v Cade Bros Farms [1978] 1 Lloyd’s Rep. 602; George Mitchell
(Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803; Singer Co (UK) Ltd v Tees and
Hartlepool Port Authority [1988] 2 Lloyd’s Rep. 164; St Alban’s City and District Council v
International Computers Ltd [1995] F.S.R. 686; Schenkers Ltd v Overland Shoes Ltd [1998] 1
Lloyd’s Rep. 498; Thames Tideway Properties Ltd v Serfaty & Partners [1999] 2 Lloyd’s Rep.
110; Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep. 273;
British Fermentation Products Ltd v Compair Reavell Ltd (1999) 66 Const. L.R. 1; Watford
Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001] Build. L.R. 143; Granville
Oil and Chemicals Ltd v Davis Turner & Co Ltd [2003] EWCA Civ 57; Frans Maas (UK) Ltd v
Samsung Electronics (UK) Ltd [2004] EWHC 1502 (Comm), [2004] 2 Lloyd’s Rep. 251 at [159];
Balmoral Group Ltd v Borealis UK Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep. 629
at [407]–[409]; Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 70 (TCC), [2007]
Page 9
Build. L.R. 135; Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] EWHC 211
(Comm), [2010] 2 Lloyd’s Rep. 92 at [105]; AXA Sun Life Services Plc v Campbell Martin Ltd
[2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep. 1; Southwark LBC v IBM UK Ltd [2011] EWHC
549 (TCC), 135 Con. L.R. 136; Rohlig UK Ltd v Rock Unique Ltd [2011] EWCA Civ 18, [2011] 2
All E.R. (Comm) 1161; Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012]
1 Lloyd’s Rep. 349; Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012]
EWHC 2198 (Ch), [2012] P.N.L.R. 35 at [152]–[153]; Allen Fabrications Ltd v ASD Ltd [2012]
EWHC 2213 (TCC) at [73]–[75]; Elvanite Full Circle Ltd v AMEC Earth and Environmental (UK)
Ltd [2013] EWHC 1191 (TCC), 148 Con. L.R. 127 at [288] Marex Financial Ltd v Creative
Finance Ltd [2013] EWHC 2155 (Comm), [2014] 1 All E.R. (Comm) 122 at [91], [92]; West v Ian
Finlay & Associates [2014] EWCA Civ 316, [2014] B.L.R. 324. In Denholm Fishselling Ltd v
Anderson (1991) S.L.T. (Sh. Ct.) 24, it was held that there was no preponderance of bargaining
power where buyers might not be able to purchase except on similar standard conditions but
nevertheless had a choice of suppliers. cf. Thornbridge Ltd v Barclays Bank Plc [2015] EWHC
3430 (QB) at [116] (appeal pending) (equal bargaining power evidenced by party threatening to
go elsewhere); Polypearl Ltd v Building Research Establishment Ltd Unreported, July 28, 2016
(Mercantile Ct) at [105]; Halsall v Champion Consulting Ltd [2017] EWHC 1079 (QB) at [297].
536. R.W. Green Ltd v Cade Bros Farms [1978] 1 Lloyd’s Rep. 602; George Mitchell (Chesterhall)
Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803; Singer Co (UK) Ltd v Tees and Hartlepool Port
Authority [1988] 2 Lloyd’s Rep. 164; Thames Tideway Properties Ltd v Serfaty & Partners
[1999] 2 Lloyd’s Rep. 110; Overseas Medical Supplies Ltd v Orient Transport Services Ltd
[1999] 2 Lloyd’s Rep. 273; Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317;
Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1502 at [410]; Titan Steel
Wheels Ltd v Royal Bank of Scotland Plc [2010] EWHC 211 (Comm), [2010] 2 Lloyd’s Rep. 92
at [105]; AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 1
Lloyd’s Rep. 1; Southwark LBC v IBM UK Ltd [2011] EWHC 549 (TCC), 135 Con. L.R. 136.
537.
See George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803; Charlotte
Thirty Ltd v Croker Ltd (1990) 24 Const. L.R. 46; AEG (UK) Ltd v Logic Resource Ltd [1996]
C.L.C. 625; Thames Tideway Properties Ltd v Serfaty & Partners [1999] 2 Lloyd’s Rep. 110;
Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep. 273;
British Fermentation Products Ltd v Compair Reavell Ltd (1999) 66 Const. L.R. 1; Watford
Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317; Britvic Soft Drinks Ltd v Messer
UK Ltd [2002] EWCA Civ 548, [2002] 2 Lloyd’s Rep. 368; Granville Oil and Chemicals Ltd v
Davis Turner & Co Ltd [2003] EWCA Civ 570; Frans Maas (UK) Ltd v Samsung Electronics
(UK) Ltd [2004] EWHC 1502 at [411]; Titan Steel Wheels Ltd v Royal Bank of Scotland Plc
[2010] EWHC 211 (Comm), [2010] 2 Lloyd’s Rep. 92 at [106]; AXA Sun Life Services Plc v
Campbell Martin Ltd [2011] EWCA Civ 133, [2011] 1 Lloyd’s Rep. 1; Rohlig UK Ltd v Rock
Unique Ltd [2011] EWCA Civ 18, [2011] 2 All E.R. (Comm) 1161; Air Transworld Ltd v
Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349; Avrora Fine Arts
Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198 (Ch), [2012] P.N.L.R. 35 at
[152]–[153]; Allen Fabrications Ltd v ASD Ltd [2012] EWHC 2213 (TCC) at [73]–[75]; Elvanite
Full Circle Ltd v AMEC Earth and Environmental (UK) Ltd [2013] EWHC 1191 (TCC), 148 Con.
L.R. 127 at [288] Marex Financial Ltd v Creative Finance Ltd [2013] EWHC 2155 (Comm),
[2014] 1 All E.R. (Comm) 122 at [91], [92]; West v Ian Finlay & Associates [2014] EWCA Civ
316, [2014] B.L.R. 324 at [67]–[68]; Barclays Bank Plc v Grant Thornton UK LLP [2015] EWHC
320 (Comm) at [90]; Polypearl Ltd v Building Research Establishment Ltd Unreported, July 28,
2016 (Mercantile Ct) at [105].
538.
See R.W. Green Ltd v Cade Bros Farms [1978] 1 Lloyd’s Rep. 602; Stag Line Ltd v Tyne
Ship Repair Group Ltd [1984] 2 Lloyd’s Rep. 211; Rees-Hough Ltd v Redland Reinforced
Plastics Ltd (1985) 2 Const. L.R. 109; Sargant v CIT (England) (t/a Citalia) [1994] C.L.Y. 566;
Knight Machinery (Holdings) v Rennie 1995 S.L.T. 166; Granville Oil and Chemicals Ltd v Davis
Turner & Co Ltd [2003] EWCA Civ 570; Elvanite Full Circle Ltd v AMEC Earth and
Environmental (UK) Ltd [2013] EWHC 1191 (TCC), 148 Con. L.R. 127 at [288]; Commercial
Management (Investments) Ltd v Mitchell Design & Construct Ltd [2016] EWHC 76 (TCC) at
[86]–[88].
539. It is uncertain whether the existence of this factor would operate against or in favour of the
Page 10
customer, but it is submitted that it should operate against the customer and in favour of the
supplier. But see Edmund Murray Ltd v BSP International Foundations Ltd (1992) 33 Const.
L.R. 1. cf. British Fermentation Products Ltd v Compair Reavell Ltd (1999) 66 Const. L.R. 1;
Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317; Air Transworld Ltd v
Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1 Lloyd’s Rep. 349 at [132]; Allen
Fabrications Ltd v ASD Ltd [2012] EWHC 2213 (TCC) at [73]–[75].
540. [1999] 2 Lloyd’s Rep. 273, 276-277. See also Balmoral Group Ltd v Borealis UK Ltd [2006]
EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep. 629 at [412]–[413]; Allen Fabrications Ltd v ASD
Ltd [2012] EWHC 2213 (TCC) at [73]–[75].
542.
The statement in the text was approved by Goodlife Foods Ltd v Hall Fire Protection Ltd
[2017] EWHC 767 (TCC), [2017] B.L.R. 389 at [76] and [80]–[87].
543.
The availability of insurance may be a relevant consideration in applying the test of
reasonableness under s.11(1): see George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd
[1983] 2 A.C. 803, 817 (below, para.15-103); Rees-Hough Ltd v Redland Reinforced Plastics
Ltd (1985) 2 Const. L.R. 109; Phillips Products Ltd v Hyland [1987] 1 W.L.R. 659, 666-668;
Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep. 164, 169; Smith
v Eric Bush [1990] 1 A.C. 831, 858; Overseas Medical Supplies Ltd v Orient Transport Services
Ltd [1990] 2 Lloyd’s Rep. 273, 277; Pegler Ltd v Wang [2000] Build. L.R. 218; Frans Maas (UK)
Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1502 (Comm), [2004] 2 Lloyd’s Rep. 251 at
[159]; Balmoral Group Ltd v Borealis UK Ltd [2006] EWHC 1900 (Comm) at [415]–[416]. But the
actual insurance position of the parties at the time is normally irrelevant: Flamar Interocean Ltd
v Denmac Ltd [1990] 1 Lloyd’s Rep. 434; cf. St Alban’s City and District Council v International
Computers Ltd [1995] F.S.R. 686 (affirmed [1996] 4 All E.R. 481); Salvage Association v Cap
Financial Services [1995] F.S.R. 654; SAM Business Systems Ltd v Hedley & Co [2002] EWHC
(TCC) 2733, [2003] 1 All E.R. (Comm) 465; Shepherd Homes Ltd v Encia Remediation Ltd
[2007] EWHC 1710 (TCC), [2007] Build. L.R. 13; Trustees of Ampleforth Abbey Trust v Turner
and Townsend Management Ltd [2012] EWHC 2137 (TCC), [2012] T.C.L.R. 8 at [201]; Goodlife
Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC), [2017] B.L.R. 389 at [76].
544. cf. Smith v Eric Bush [1990] 1 A.C. 831, 858 (cost); Shepherd Homes Ltd v Encia Remediation
Ltd [2007] EWHC 70 (TCC), [2007] Build. L.R. 135.
545. 1977 Act s.11(5). See AEG (UK) Ltd v Logic Resource Ltd [1996] C.L.C. 265, 278; Shah v
HSBC Private Bank (UK) Ltd [2012] EWHC 1283 (QB), [2013] 1 All E.R. (Comm) 72 at
[223]–[224].
546. Sheffield v Pickfords Ltd [1997] C.L.C. 648.
547. See Adams and Brownsword (1988) 104 L.Q.R. 94; Brown and Chandler (1993) 109 L.Q.R. 41;
Adams (1994) 57 M.L.R. 960.
548. This is notably the case as regards the controls provided by s.3 of the 1977 Act owing to the
differences between persons “dealing as consumer” under the 1977 Act (before the coming into
force of the 2015 Act) and “consumers” within the meaning of the 2015 Act: see above, paras
15-084—15-087.
549. Inserted by s.4 of the Supply of Goods (Implied Terms) Act 1973.
550. But see Howard Marine and Dredging Co Ltd v A. Ogden & Sons (Excavations) Ltd [1978] Q.B.
574, 594.
551. [1977] 1 Lloyd’s Rep. 645.
552. The sale was held to be a consumer sale: see above, para.15-073 n.399.
Page 11
553. [1978] 1 Lloyd’s Rep. 602.
554. [1978] Q.B. 574; see above, para.7-075.
555. Bridge and Shaw L.JJ. (but giving no reasons).
556. [1983] 2 A.C. 803; see above, para.15-026.
557. Sale of Goods Act 1979 s.55 (as amended) or s.11 of the Unfair Contract Terms Act 1977.
558. [1983] 2 A.C. 803, 816.
559. But never negotiated by representative bodies.
560. See above, para.15-099 n.515.
561. [1982] 1 W.L.R. 495. See also Southwestern General Property Co Ltd v Marton (1982) 263
E.G. 1090 and above, para.7-152 n.673; Cleaver v Schyde Investments Ltd [2011] EWCA Civ
929 (cl.7 of the Standard Conditions of Sale, 4th edn). cf. Lloyd v Browning [2013] EWCA Civ
1637, [2014] 1 P. & C.R. 11 at [33]-[36], [42] (cl.8 of Standard Conditions of Sale, 4th edn, held
reasonable in context) and see above para.7-150 (“no-reliance” clauses).
562. For the purposes of s.3 of the Misrepresentation Act 1967 (as amended).
563. [1984] 2 Lloyd’s Rep. 211.
564. [1987] 1 W.L.R. 659. But contrast Thompson v Lohan (Plant Hire) Ltd [1987] 1 W.L.R. 649.
565. The contract was on a “take it or leave it” basis, and the hirer had no control over the way the
driver would do the work.
566. (1985) 2 Const. L.R. 109. See also Sterling Hydraulics Ltd v Dichtomatik Ltd [2006] EWHC
2004 (QB), [2007] 1 Lloyd’s Rep. 8 (defects to be reported within one week of delivery).
Contrast Expo Fabrics (UK) Ltd v Naughty Clothing [2003] EWCA Civ 1165 (textiles: 20-day
time limit held reasonable).
567. [1990] 1 A.C. 831; see also Harris v Wyre Forest DC at [1990] 1 A.C. 831; Davies v Idris Parry
(1988) 20 E.G. 92, 21 E.G. 74; Beaton v Nationwide Anglia Building Society (1991) 31 E.G. 218
.
568. (1990) 24 Const. L.R. 46. But see Vol.II, para.37-086 (construction contracts).
569. [1992] Q.B. 600. See also Fastframe Ltd v Lochinski Unreported March 3, 1993 CA (noted
(1994) 57 M.L.R. 960); Esso Petroleum Co Ltd v Milton [1997] 1 W.L.R. 938, 948, 954. But see
the cases cited in para.15-107, nn.559, 560.
570. [1995] F.S.R. 686 (affirmed [1996] 4 All E.R. 481).
571. [1995] F.S.R. 654.
572. (1994) 33 Const. L.R. 1.
573. [1996] C.L.C. 265. Contrast Allen Fabrications Ltd v ASD Ltd [2012] EWHC 2213 (TCC) at
[73]–[92].
574. [1995] E.M.L.R. 459. Contrast Zockoll Group Ltd v Mercury Communications Ltd [1998]
I.T.C.L.R. 104.
575. [2010] EWHC 965 (TCC), (2010) 26 Const. L.J. 542.

Page 12
576. [2012] EWHC 2137 (TCC), [2012] T.C.L.R. 8 at [201].
577. [1999] 2 Lloyd’s Rep. 273.
578. [2000] Build. L.R. 248.
579. [2002] EWCA Civ 548, [2002] 2 Lloyd’s Rep. 368. See also Balmoral Group Ltd v Borealis UK
Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep. 629 at [418].
580. [2002] EWCA Civ 549, [2002] 2 Lloyd’s Rep. 379.
581. [1988] 1 W.L.R. 321. See also W. Photoprint Ltd v Forward Trust Group Ltd (1993) 12 Tr.L.R.
146, QBD.
582. [1988] 1 W.L.R. 321, 331–332. The company was held to be “dealing as consumer”: see above,
para.15-074.
583. See also Abbey National Business Equipment Leasing Ltd v Dora Ife [2003] C.L.Y 723 (hire).
But the fact that the finance company had not seen the goods was considered insufficient in
Sovereign Finance Ltd v Silver Crest Furniture [1997] C.C.L.R. 76 (hire purchase) following
Purnell Secretarial Services v Lease Management Services [1994] C.C.L.R. 127 (hire).
584. [1988] 2 Lloyd’s Rep. 164.
585. This figure was below that of the Hague-Visby Rules (£1,210), the CMR convention (£5,195)
and the Warsaw Convention (£10,050) at the relevant time.
586. [1997] 2 Lloyd’s Rep. 48.
587. [1998] 1 Lloyd’s Rep. 498. See also Rohlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18,
[2011] 2 All E.R. (Comm) 1161; SKNL (UK) Ltd v Toll Global Forwarding [2012] EWHC 4252
(Comm), [2013] 2 Lloyd’s Rep. 115 at [27]-[28]; University of Wales v London College of
Business Ltd [2015] EWHC 1280 (QB) at [98].
588. Surzur Overseas Ltd v Ocean Reliance Shipping Co Ltd [1997] C.L.Y. 906;
Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd’s Rep. 66; WRM Group Ltd v Wood
[1998] C.L.C. 189; United Trust Bank Ltd v Dohil [2011] EWHC 3302 (QB), [2012] 2 All E.R.
(Comm) 765 at [19].
589. Granville Oil Chemicals Ltd v Davis Turner & Co Ltd [2003] EWCA Civ 570, [2003] 2 Lloyd’s
Rep. 450; Rohlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18, [2011] 2 All E.R. (Comm)
1161.
590. [2011] EWCA Civ 9, [2011] B.L.R. 206. See also McCullagh v Lane Fox and Partners Ltd
(1996) 49 Con. L.R. 124, [1996] 1 E.G.L.R 35.
591. (1999) 62 Const. L.R. 76 (affirmed [2000] C.L.Y. 810).
592. [2002] 1 Lloyd’s Rep. 20, see also Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging
Ltd [2002] 1 Lloyd’s Rep. 62 (both decisions by Tomlinson J.). The point was not in issue in
either case on appeal [2002] EWCA Civ 548, [2002] EWCA Civ 549, [2002] 2 Lloyd’s Rep. 368,
[2002] 2 Lloyd’s Rep. 379.
593. cf. the special treatment of limitations (as opposed to exclusions) of the trader’s liability in
consumer contracts for services under s.57 of the Consumer Rights Act 2015 on which see
595. [2006] EWHC 2004 (QB), [2007] 1 Lloyd’s Rep. 8 (but not a provision that defects were to be
Page 13
reported within one week of delivery).
597. [1999] 2 Lloyd’s Rep. 110.
598. (1999) 66 Const. L.R. 1.
599. [1980] A.C. 827.
600. [1980] A.C. 827, 843 (applied in IFE Fund SA v Goldman Sachs International [2006] EWHC
2887 (Comm), [2007] 1 Lloyd’s Rep. 264 at [52]–[54]).
601. [1998] 1 Lloyd’s Rep. 403.
602. [2001] EWCA Civ 317, [2001] Build. L.R. 143 at [63]. See also Salvage Association v CAP
Financial Services [1995] F.S.R. 654, 676; E.A. Grumstead & Son Ltd v McGarrigan [1999]
EWCA Civ 3029 at [29]; SAM Business Systems Ltd v Hedley & Co [2002] EWHC 2733, [2003]
1 All E.R. (Comm) 465 at [63]; Granville Oil and Chemicals Ltd v Davis Turner & Co Ltd [2003]
EWCA Civ 570, [2003] 2 Lloyd’s Rep. 356 at [31]; Frans Maas (UK) Ltd v Samsung Electronics
(UK) Ltd [2004] EWHC 1502 (Comm), [2004] 2 Lloyd’s Rep. 251 at [158]; JP Morgan Chase
Bank v Springwell Navigation Corp [2008] EWHC 1793 (Comm) at [604]; Titan Steel Wheels
Ltd v Royal Bank of Scotland Plc [2010] EWHC 211 (Comm), [2010] 2 Lloyd’s Rep. 92 at [100];
(Comm), [2011] 1 Lloyd’s Rep. 123 at [321]; AXA Sun Life Services Plc v Campbell Martin Ltd
[2011] EWCA Civ 133, [2011] 2 Lloyd’s Rep. 1; Southwark LBC v IBM UK Ltd [2011] EWHC
549 (TCC), 135 Con. L.R. 136; Rohlig UK Ltd v Rock Unique Ltd [2011] EWCA Civ 18, [2011] 2
All E.R. (Comm), 1161; Camerata Property Inc v Credit Suisse Securities (Europe) Ltd [2011]
EWHC 479 (Comm), [2011] 2 B.C.L.C. 54; Astrazeneca UK Ltd v Albermarle International Corp
[2011] EWHC 1574 (Comm), [2012] B.L.R. D1. cf. Balmoral Group Ltd v Borealis UK Ltd [2006]
EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep. 629 at [404], [422]-[426]; Avrora Fine Arts
Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198 (Ch), [2012] P.N.L.R. 35 at
[152]-[153]; Elvanite Full Circle Ltd v AMEC Earth and Environmental (UK) Ltd [2013] EWHC
1191 (TCC), 148 Con. L.R. 127 at [288]; Marex Financial Ltd v Creative Finance Ltd [2013]
EWHC 2155 (Comm), [2014] 1 All E.R. (Comm) 122 at [91], [92].
603. Or, in ss.6(3), 7(3), “only in so far as”.
604. Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] Q.B. 600, 608; Lobster Group Ltd v Heidelberg
Graphic Equipment Ltd [2009] EWHC 1919 (TCC) at [131]. cf. R.W. Green Ltd v Cade Bros
Farms [1978] 1 Lloyd’s Rep. 602; above, para.15-096.
605.
Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] Q.B. 600, 607. But see Skipskredittforeningen
v Emperor Navigation [1998] 1 Lloyd’s Rep. 66, 75; Bacardi-Martini Beverages Ltd v Thomas
Hardy Packaging Ltd [2002] EWCA Civ 549, [2002] 2 Lloyd’s Rep. 379 at [26]; J Murphy &
Sons Ltd v Johnston Precast Ltd [2008] EWHC 3024 (TCC); Regus (UK) Ltd v Epcot Solutions
Ltd [2008] EWCA Civ 361, [2009] 1 All E.R. (Comm) 586 at [44]; Goodlife Foods Ltd v Hall Fire
Protection Ltd [2017] EWHC 767 (TCC), [2017] B.L.R. 389 at [70].
606.
e.g. Trolex Products Ltd v Merrol Fire Protection Engineers Ltd Unreported, November 20,
1991 CA, (contrasting views of Staughton and Nourse L.JJ. as to whether a clause should be
treated as one or more “terms” for the purposes of the Act); Goodlife Foods Ltd v Hall Fire
Protection Ltd [2017] EWHC 767 (TCC), [2017] B.L.R. 389 at [71] (though expressly obiter).
607. See George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803, 816 (on the
wording of s.55 of the Sale of Goods Act 1979 (as amended)).
608. Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] Q.B. 600. But see J Murphy & Sons Ltd v
Johnston Precast Ltd [2008] EWHC 3024 (TCC) at [137]; Regus (UK) Ltd v Epcot Solutions Ltd
[2008] EWCA Civ 361, [2009] 1 All E.R. (Comm) 586, where the contrary view was expressed.
Page 14
609.
Trolex Products Ltd v Merrol Fire Protection Engineers Ltd Unreported, November 20, 1991
CA, (under issue B(viii)), quoting with approval the view then tentatively expressed by the
equivalent paragraph to para.15-114 in 26th edn, 1989; Goodlife Foods Ltd v Hall Fire
Protection Ltd [2017] EWHC 767 (TCC), [2017] B.L.R. 389 at [66]–[70] (distinguishing the issue
of the “excision” of part of a term wholly ineffective under the 1977 Act and the issue considered
in Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] Q.B. 600 where it was held that a party had
to show that the whole of a term was reasonable and not merely that part of a term on which it
wished to rely).
610. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 A.C. 803, 810. See also
Edmund Murray Ltd v BSP International Foundations Ltd (1994) 33 Const. L.R. 1; St Alban’s
City and District Council v International Computers Ltd [1996] 4 All E.R. 481, 491; Overseas
Medical Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep. 273, 276; Britvic
Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 548, [2002] 2 Lloyd’s Rep. 368 at [19];
Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] 2 Lloyd’s Rep. 549,
[2002] 2 Lloyd’s Rep. 379 at [20]; Rohlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18,
[2011] 2 All E.R. (Comm) 1161; Cleaver v Schyde Investments Ltd [2011] EWCA Civ 929 at
[31]; Hodges v Aegis Defence Services (BVI) Ltd [2014] EWCA Civ 1449 at [33]–[34]. cf.
Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001] Build. L.R. 143;
Granville Oil and Chemicals Ltd v Davis Turner & Co Ltd [2003] EWCA Civ 570, [2003] 2
Lloyd’s Rep. 356 (first instance decision reversed).

Page 1

(v) - Exclusions From the Scope of the 1977 Act or Some of its Provisions
Specific exceptions
15-116
Some or all of the provisions of the 1977 Act do not apply in the case of contracts of certain types
or as regards certain contract terms, as explained in the following paragraphs. Before the coming into
force of the 2015 Act, terms excluded in this way from the application of the 1977 Act could
nonetheless be subject to the controls applicable to consumer contracts provided by the Unfair Terms
in Consumer Contracts Regulations 1999, subject to their satisfying the conditions for the application
of those controls. 611 On its coming into force, the 2015 Act replaces the 1999 Regulations with its
own controls on unfair terms in consumer contracts and, for the most part, does not replicate the
qualifications previously set out by the 1977 Act. 612 More generally, the limited impact of the
613
Consumer Rights Act 2015 directly on the wording of these exclusions in the 1977 will be
noted.
Schedule 1 614
15-117
By para.1 of Sch.1 to the Act, s.2 (negligence liability), s.3 (liability arising in contract) and (before its
deletion by the Consumer Rights Act 2015 615) s.4 (unreasonable indemnity clauses) do not extend to:
(a)
any contract of insurance (including a contract to pay an annuity on human life) 616;
(b)
any contract so far as it relates to the creation or transfer of an interest in land, 617 or to the
termination of such an interest, whether by extinction, merger, surrender, forfeiture or otherwise
618
;
(c)
any contract so far as it relates to the creation of a right or interest in any patent, trade mark,
copyright, registered design, technical or commercial information or other intellectual property,
Page 2
or relates to the termination of any such right or interest 619;
(d)
any contract so far as it relates:
(i)
to the formation or dissolution of a company (which means any body corporate or
unincorporated association and includes a partnership); or
(ii)
to its constitution or the rights or obligations of its corporators or members;
(e)
any contract so far as it relates to the creation or transfer of any right or interest in securities. 620
15-118
Paragraph 2 of Sch.1 of the 1977 Act lists three contracts:
(a)
any contract of marine salvage or towage;
(b)
any charterparty of a ship or hovercraft; and
(c)
any contract for the carriage of goods by ship 621 or hovercraft. 622
These contracts (if made before October 1, 2015, when the relevant provisions of Consumer Rights
Act 2015 came into force) 623 are subject to s.2(1) (exclusion or restriction of liability for death or
personal injury resulting from negligence), but otherwise s.2 (negligence liability), s.3 (liability arising
in contract), s.4 (unreasonable indemnity clauses) and s.7 (miscellaneous contracts under which
goods pass) do not extend to any such contract except in favour of a person dealing as consumer.
After the coming into force of the 2015 Act, the position remains the same, except that references to
s.4 on unreasonable indemnity clauses are deleted as is s.4 itself 624 and that there is no longer any
exception provided for persons dealing as consumer, as this category is no longer used by the 1977
Act. 625 Instead, under the 2015 Act, terms in consumer contracts of the types listed by para.2 of
Sch.1 of the 1977 Act are subject to the controls on unfair contract terms which the 2015 Act
provides. 626
15-119
Page 3
Paragraph 3 of Sch.1 deals with the situation where goods are carried by ship 627 or hovercraft 628 in
pursuance of a contract which either:
(a)
specifies that as the means of carriage over part of the journey to be covered; or
(b)
makes provision as to the means of carriage and does not exclude that means.
With such a situation under a contract made before October 1, 2015 (when the Consumer Rights Act
2015 came into force), 629 s.2(2) (exclusion or restriction of liability for loss or damage resulting
from negligence other than death or personal injury), s.3 (liability arising in contract) and s.4
(unreasonable indemnity clauses) do not, except in favour of a person dealing as consumer, extend
to the contract as it operates for and in relation to the carriage of goods by that means. With the
relevant provisions of coming into force of the 2015 Act, the position remains the same, with the same
exceptions as apply in relation to the contracts in para.2 of Sch.1, that is, references to s.4 on
unreasonable indemnity clauses are deleted 630 and there is no longer any exception provided for
persons dealing as consumer. 631 Similarly, under the 2015 Act, terms in consumer contracts of the
types listed by para.3 of Sch.1 of the 1977 Act are subject to the controls on unfair contract terms
which the 2015 Act provides. 632
15-120
By para.4 of Sch.1 s.2(1) and (2) (negligence liability) do not extend to a contract of employment,
except in favour of the employee. 633
15-121
By para.5 of Sch.1 s.2(1) (exclusion or restriction of liability for death or personal injury resulting from
negligence) does not affect the validity of any discharge and indemnity given by a person, on or in
connection with an award to him of compensation for pneumoconiosis attributable to employment in
the coal industry, in respect of any further claim arising from his contracting that disease. 634
International supply contracts
15-122
By s.26 of the 1977 Act, the limits imposed by the Act on the extent to which a person may exclude
or restrict liability by reference to a contract term do not apply to liability arising under an international
supply contract (as defined in subss.(3) and (4) of that section), 635 nor are the terms of such a
contract subject to any requirement of reasonableness under s.3 (liability arising in contract) or (for
contracts made before October 1, 2015 (when the Consumer Rights Act 2015 came into force) s.4
(unreasonable indemnity clauses). 636 With the coming into force of the 2015 Act, the 1977 Act no
longer applies to consumer contracts, which are instead subject to the controls in the 2015 Act and
these apply equally to international supply contracts. 637
Contractual provisions authorised or required by statute or international agreement
15-123
Page 4
By s.29(1), nothing in the 1977 Act removes or restricts the effect of, or prevents reliance upon, any
contractual provision which:
(a)
is authorised or required by the express terms or necessary implication of an enactment 638; or
(b)
being made with a view to compliance with an international agreement to which the United
Kingdom is a party, does not operate more restrictively than is contemplated by the agreement.
This subsection covers (inter alia), provisions in statutes and international conventions relating to the
carriage of goods by sea 639 and of passengers, goods and luggage by land and air. 640 It is unaffected
by the Consumer Rights Act 2015, 641 but the specific temporary provision made by the 1977 Act in
respect of the Athens Convention 1974 on the carriage of passengers and their luggage by sea 642 is
deleted by the Consumer Rights Act 2015. 643
Contractual provisions approved by a competent authority
15-124
By s.29(2) a contract term is to be taken for the purposes of the Act as satisfying the requirement of
reasonableness if it is incorporated or approved by, or incorporated pursuant to a decision or ruling of,
a competent authority 644 acting in the exercise of any statutory 645 jurisdiction or function and is not a
term in a contract to which the competent authority is itself a party. 646 These provisions are
unaffected by the Consumer Rights Act 2015.
Choice of English law clauses
15-125
Commercial contracts are frequently made subject to English law by choice of the parties even
though having no substantial connection with England and Wales. 647 Section 27(1) of the 1977 Act 648
provides that, where the law applicable to a contract is the law of any part of the UK 649 only by choice
of the parties (and apart from that choice would be the law of some country outside the UK) ss.2 to 7
of the Act do not operate as part of the law applicable to the contract, 650 unless the term expressing
this choice appears to the court, arbitrator or arbiter to have been imposed wholly or mainly for the
purpose of enabling the party imposing it to evade the operation of the 1977 Act. 651 For contracts
made before October 1, 2015 (when the relevant provisions of the Consumer Rights Act 2015 came
into force) 652 , the exclusion set out by s.27(1) does not apply where one of the parties dealt as
consumer and was then habitually resident in the UK, and the essential steps necessary for the
making of the contract were taken there, whether by him or by others on his behalf 653; but with its
coming into force, this qualification is deleted, 654 reflecting the fact that the 1977 Act no longer makes
special provision for persons dealing as consumer 655 nor applies to the terms of “consumer contracts”
(which are instead governed by the 2015 Act). There is, however, no provision in the 2015 Act
equivalent to s.27(1). 656

Page 5
612. An exception is found in relation to the invalidity of contract terms excluding or limiting a trader’s
liability for negligence without any assessment of its fairness: s.66(1) and (2) of the 2015 Act
reflecting the 1977 Act Sch.1 paras 1(a) and (b) and 4; Vol.II, para.38-377. On the 2015 Act,
provisions on unfair contract terms and notices generally, see Vol.II, paras 38-334 et seq.
613.
Above, para.15-064. The Act generally applies to contracts made on or after October 1, 2015.
614. 1977 Act s.1(2).
615. 2015 Act s.75, Sch.4 para.26.
616. cf. s.66(1)(a) of the 2015 Act: see Vol.II, para.38-377.
617. cf. s.66(1)(b) of the 2015 Act: see Vol.II, para.38-377.
618. Electricity Supply Nominees Ltd v IAF Group Ltd [1993] 1 W.L.R. 1059 (no-set-off clause in
lease); Cheltenham and Gloucester B.S. v Ebbage [1994] C.L.Y. 3292 (mortgage); Star Rider
Ltd v Inntrepreneur Pub Co [1998] 1 E.G.L.R. 53 (no-set-off clause in draft lease); Unchained
Growth III Plc v Granby Village (Manchester) Management Co Ltd [2000] 1 W.L.R. 739
(no-set-off clause in lease). cf. the position under the Unfair Terms in Consumer Contracts
Regulations 1999 and Pt 2 of the 2015 Act: Vol.II, paras 38-203—38-204 and 38-355.
619. cf. Salvage Association v Cap Financial Services [1995] F.S.R. 654. cf. the position under the
Unfair Terms in Consumer Contracts Regulations 1999 and Pt 2 of the 2015 Act: see the
reference in n.589.
620. Micklefield v S.A.C. Technology Ltd [1990] 1 W.L.R. 1002.
621. See Carriage of Goods by Sea Act 1971; Merchant Shipping Act 1981. But see also below,
para.15-119.
622. See Hovercraft (Civil Liability) Order 1971 (SI 1971/720) made under s.1 of the Hovercraft Act
1968. But see also below, para.15-119.
623.
Above, para.15-064. The general date of the coming into force of the 2015 Act on October 1,
2015 has an exception as regards “consumer transport services” (as specially defined) in
relation to which the relevant provisions of the 2015 Act come into force only for contracts made
on or after October 1, 2016: the Consumer Rights Act 2015 (Commencement No.3, Transitional
Provisions, Savings and Consequential Amendments) Order 2015 (SI 2015/1630) art.4 and 6(2)
as amended by the Consumer Rights Act 2015 (Commencement No.3, Transitional Provisions,
Savings and Consequential Amendments) (Amendment) Order 2016 (SI 2016/484) art.2. This
applies to the amendments to Sch.1 of the 1977 Act: SI 2015/1630 art.4(c) referring, inter alia,
to the 2015 Act Sch.4 paras 26 and 27.
624. Above, para.15-090.
625. Above, para.15-079. The amendments to the 1977 Act Sch.1 para.2 are provided by the 2015
Act s.75, Sch.4 para.26(4).
626. 2015 Act Pt 2 on which see Vol.II, paras 38-334 et seq.
627. See n.592 (above).
628. See n.593 (above).
629.
Above, para.15-064. For the special position of “consumer transport services” see above,
para.15-118 n.594.
Page 6
630. Above, para.15-118.
631. Above, para.15-119. The amendments to the 1977 Act Sch.1 para.3 are provided by the 2015
Act s.75, Sch.4 para.26(5).
632. 2015 Act ss.62 and 68–69 on which see Vol.II, paras 38-334 et seq.
633. See Johnstone v Bloomsbury H.A. [1992] Q.B. 333. This exclusion from the 1977 Act is not
affected by the Consumer Rights Act 2015.
634. This exclusion from the 1977 Act is also not affected by the Consumer Rights Act 2015.
636.
On the coming into force of the 2015 Act, s.4 of the 1977 Act is deleted: above, paras 15-064
and 15-090. As regards “consumer transport services” the deletion of the reference to s.4 of the
1977 Act applies only to contracts made or on after October 1, 2016: SI 2015/1630 arts 4(c)
and 6(2) (as amended by the Consumer Rights Act 2015 (Commencement No.3, Transitional
Provisions, Savings and Consequential Amendments) (Amendment) Order 2016 (SI 2016/484)
art.2) referring to the 2015 Act Sch.4 para.23.
637. As recommended by the Law Commission and Scottish Law Commission Unfair Terms in
Consumer (2005), Law Com No.292, Scot Law Com No.199 Pt 7, especially para.7.6, and see
638. Defined by the 1977 Act s.29(3).
639. Carriage of Goods by Sea Act 1971; Merchant Shipping Act 1981. See below para.15-134.
640. See below, paras 15-133, 15-135, and Vol.II, Chs 35 and 36.
641. cf. the exclusion from the scope of the controls on terms in consumer contracts by s.73 of the
2015 Act on which see Vol.II, para.38-357.
642. 1977 Act s.28. The Merchant Shipping Act 1995 Sch.6 provides that the Athens Convention
1974, as amended by the 1976 protocol, is to have the force of law in the United Kingdom. See
also SI 1998/2917.
643.
2015 Act s.75 Sch. 4, para.25. This amendment generally comes into force as regards
contracts made on or after October 1, 2015, but this finds an exception as regards “consumer
transport services” where the relevant date is October 1, 2016: SI 2015/1630 arts 3(g), 4(c) and
6(2) (as amended by SI 2016/484 art.2) referring to the 2015 Act Sch.4 para.25.
644. Defined in s.29(3).
645. Defined in s.29(3).
646. cf. Timeload Ltd v British Telecommunications Plc [1995] E.M.L.R. 459 (“approval” by Director
General of Fair Trading not in exercise of statutory function).
647. On the general rules governing choice of applicable law see below, paras 30-046 et seq. and
30-169 et seq.
648. As amended by s.5 of and Sch.4 to the Contracts (Applicable Law) Act 1990.
649. “United Kingdom” does not include the Channel Islands or the Isle of Man: Interpretation Act
1978 s.5 and Sch.1.
650. See below, para.30-067 n.320, and Surzur Overseas Ltd v Ocean Reliance Shipping Co Ltd
Page 7
[1997] C.L.Y. 906; Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 1
Lloyd’s Rep. 349 at [98]–[108]. cf. Balmoral Group Ltd v Borealis UK Ltd [2006] EWHC 1900
651. 1977 Act s.27(2)(a).
652.
The changes noted in the text apply to “consumer transport services” where made on or after
October 1, 2016: SI 2015/1630 arts 4(c) and 6(2) (as amended by SI 2016/484 art.2) referring
to the 2015 Act Sch.4 para.24.
653. 1977 Act s.27(2)(b).
654. 2015 Act s.75, Sch.4 para.24.
655. Above, para.15-079.

Page 1

(vi) - Incidental Matters
Effect of breach: the old law
15-126
Under s.9 of the 1977 Act, a term that is required to satisfy the test of reasonableness, and does so,
may be given effect to notwithstanding that the contract has been terminated either by breach or by
the innocent party electing to treat it as repudiated 657; and the affirmation of the contract does not of
itself exclude the requirement of reasonableness. 658 It would also seem that a term which is rendered
wholly ineffective in some respect by the Act is not rendered effective by the fact that the innocent
party has affirmed the contract.
Effect of breach: the new law
15-127
The Law Commissions noted that s.9 of the 1977 Act had originally been inserted so as to ensure that
the doctrine of fundamental breach would not prevent a valid clause applying, and that this is no
longer necessary as the doctrine of fundamental breach had been abolished by the House of Lords.
659
Following this view, the Consumer Rights Act 2015 deletes s.9. 660
Anti-avoidance provisions
15-128
Certain anti-avoidance provisions are contained in the Act. Section 10 provides:
“A person is not bound by any contract term prejudicing or taking away rights of his which
arise under, or in connection with the performance of, another contract, so far as those
rights extend to the enforcement of another’s liability which this Part of this Act prevents
that other from excluding or restricting.”
The purpose of this provision has been said to be to prevent rights arising in favour of A under a
contract between A and B from being affected by the terms of a secondary contract between A and C
which take away or inhibit the exercise of those rights, 661 as, for example, where a term in a contract
between a manufacturer of goods and a person purports to affect the rights of that person as buyer
under the Sale of Goods Act against the retailer from whom he purchases the goods. 662 The scope of
Page 2
the section is, however, enigmatic. It employs the words “prejudicing or taking away rights” instead of
the usual “excludes or restricts liability”. The extended interpretation of the latter phrase 663 therefore
does not apply. Also the reference to “the enforcement of another’s liability ” would preclude the
application of s.10 to a case where the terms of the secondary contract purported to entitle a party to
another contract to render a performance substantially different from that reasonably expected of him,
or to render no performance at all. 664 It has been held that the section does not apply to the
compromise or waiver of an existing contractual claim, e.g. to the release by a person of rights which
have accrued to him as the result of the breach of another contract to which he is a party. 665
Choice of law
15-129
Section 27(2) further prevents evasion of the Act by choice of a foreign law. This provision is
considered in Ch.30 on the Conflict of Laws. 666
657. 1977 Act s.9(1). See also above, para.15-025.
658. 1977 Act s.9(2).
659. Law Commission, Scottish Law Commission, Unfair Terms in Contracts (Law Com. No.292,
Scot Law Com. No.199 (2005) para.6.37. On the doctrine of fundamental breach and its
rejection by the House of Lords see above, paras 15-023—15-027.
660. 2015 Act s.75, Sch.4 para.10.
661. Tudor Grange Holdings Ltd v Citibank N.A. [1992] Ch. 53.
662. See s.55(3), (4) of the Sale of Goods Act 1893, inserted by s.4 of the Supply of Goods (Implied
Terms) Act 1973, and repealed by the Unfair Contract Terms Act 1977 s.31(4) and Sch.4. But
in Neptune Orient Lines Ltd v J.V.C. (UK) Ltd [1983] 2 Lloyd’s Rep. 439, Parker J. held that
s.10 had no application to a covenant not to sue a third party (see above, para.15-054) in tort.
663. s.13; see above, para.15-069.
664. s.3(2)(b); above, para.15-084 (there being no breach of contract).
665.
Tudor Grange Holdings Ltd v Citibank N.A. [1992] Ch. 53 (noted (1992) 55 M.L.R. 866);
Times Travel (UK) Ltd v Pakistan International Airlines Corp [2017] EWHC 1367 (Ch) at
[273]–[275]. See also Sch.1 para.5.
666. See below, paras 30-008, 30-067. cf. Kingspan Environmental Ltd v Borealis A/S [2012] EWHC
1147 (Comm).

Page 1

(b) - Misrepresentation Act 1967
Liability for misrepresentation: the old law
15-130
For contracts made before October 1, 2015 (when the relevant provisions of the Consumer Rights
Act 2015 came into force), 667 s.3 of the Misrepresentation Act 1967, as substituted by s.8 of the
Unfair Contract Terms Act 1977, provides that, if a contract contains a term which would exclude or
restrict:
(a)
any liability to which a party to a contract may be subject by reason of any misrepresentation
made by him before the contract was made; or
(b)
any remedy available to another party to the contract by reason of such a misrepresentation;
that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as
stated in s.11(1) of the 1977 Act; and it is for those claiming that the term satisfies the requirement of
reasonableness to show that it does. The implications of this section have been discussed in a
previous chapter 668 and it is clear that it applies to a term which excludes or restricts any liability or
remedy in respect of misrepresentations 669 which have not become terms of the contract. It
seems equally clear that it does not apply to a term which excludes or restricts any liability or remedy
in respect of a breach of the terms of a contract, whether statements or promises, if those terms were
never communicated as representations before the contract was made. It is, however, probable that
s.3 will apply so as to inhibit the exclusion or restriction of the right to rescind a contract where a
misrepresentation, first made independently, is subsequently incorporated as a contractual term. 670
But, in so far as a term excludes or restricts any liability or remedy based on an alleged breach of
contract, its validity has to be tested by reference to the different scheme in the 1977 Act. 671
Liability for misrepresentation: the new law
15-131
With the coming into force of the relevant provisions of the Consumer Rights Act 2015 on October
672
1, 2015, s.3 of the Misrepresentation Act 1967 no longer applies to a term in a consumer
Page 2
contract within the meaning of Pt.2 of the 2015 Act. 673 Instead, such a term will be subject to the
general test of unfairness and the requirement for transparency provided by the 2015 Act. 674
667. Above, para.15-064.
669.
See below, para.15-131, n.642.
670. See s.1(a) of the 1967 Act (and s.2(2)).
671. Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd’s Rep. 66, 75.
672.
Consequential Amendments) Order 2015 (SI 2015/1630) arts 3I and 6(1) and (4); the relevant
provisions of the 2015 Act are ss.61–76 and Sch.4 para.1. For contracts made before October
1, 2015 see Vol.II, para.38-334.
673. 2015 Act s.75, Sch.4, para.1 inserting new Misrepresentation Act 1967 s.3(2).
674. 2015 Act ss. 62, 68–69 on which see Vol.II, paras 38-334 et seq.

Page 1

(c) - Other Legislation
Further legislation
15-132
In addition to the Unfair Contract Terms Act 1977 and the Misrepresentation Act 1967, certain other
statutes and statutory instruments currently regulate the effectiveness of exemption clauses.
Carriage by road or rail 675
15-133
The Public Passenger Vehicles Act 1981 invalidates a provision contained in a contract for the
conveyance of a passenger in a public service vehicle which purports to restrict the liability of a
person in respect of a claim which may be made against him in respect of the death of, or bodily
injury to, the passenger while being carried in, entering or alighting from the vehicle, or purports to
impose any conditions with respect to the enforcement of such liability. 676 The Carriage of Goods by
Road Act 1965 677 regulates the international carriage of goods, by road. The International Transport
Conventions Act 1983 gives the force of law to the Convention concerning International Carriage by
Rail (COTIF), 678 as modified by the Vilnius protocol, 679 which regulates the international carriage of
passengers and their luggage, 680 and the international carriage of goods, 681 by rail. Each of these
“international” instruments contains provisions prohibiting contracting out.
Carriage by sea
15-134
The Carriage of Goods by Sea Act 1971, 682 which gives effect to the International Convention for the
Unification of certain Rules of Law relating to Bills of Lading signed at Brussels in 1924 (the Hague
Rules), as amended by the Protocol signed at Brussels in 1968 (the Hague-Visby Rules) imposes
certain duties and obligations upon a carrier who enters into a contract for the carriage of goods by
sea to which the Act applies, and invalidates any clause which relieves the carrier or the ship from
liability for loss or damage to or in connection with goods arising from negligence, fault or failure in
those duties or obligations, or which lessens such liability otherwise than as provided in the Act. 683
The Athens Convention of 1974, and the 1976 Protocol thereto, regulates the carriage of passengers
and their luggage by sea 684 and in effect invalidates any contractual provision which seeks to reduce
the liability of the carrier contrary to the terms of the Convention. 685
Carriage by air 686
15-135
Page 2
The Warsaw Convention (as supplemented and amended) regulates the liability of a carrier by air in
respect of the international carriage of goods, passengers and passengers’ luggage. It is given
statutory force by the Carriage by Air Act 1961, which was amended by the Carriage by Air
(Supplementary Provisions) Act 1962 and by the Carriage by Air and Road Act 1979, 687 and applies
with modifications to non-international carriage by the Carriage by Air Acts (Application of Provisions)
Order 2004. 688 The Convention imposes certain liabilities on the carrier which cannot be excluded or
limited by special contract; but, under its provisions, the carrier is prima facie relieved from liability in
excess of certain stated pecuniary limits.
Insurance
15-136
The Road Traffic Act 1988, s.148, invalidates certain limitations on cover and conditions precedent to
liability in connection with claims in respect of third-party risks under a compulsory policy of insurance,
although these do not affect the position between the insurance company and the insured himself. 689
Moreover, the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance
Act 2015 make important new provision governing the assured’s duties in respect of disclosure and
representation and provide widely against the parties “contracting-out” from the scheme of rules so
established. 690
Defective premises
15-137
The Defective Premises Act 1972, s.6(3), provides that any term of an agreement which purports to
exclude or restrict, or has the effect of excluding or restricting, the operation of any of the provisions
of the Act, 691 or any liability arising by virtue of any such provision, is to be void.
Employment and services
15-138
The Law Reform (Personal Injuries) Act 1948 s.1(3), invalidates any provision contained in a contract
of employment or apprenticeship, or in any agreement collateral thereto, in so far as it would have the
effect of excluding or limiting any liability of the employer in respect of personal injuries caused to the
person employed or apprenticed by the negligence of persons in common employment with him.
Restrictions on contracting out are also found in the Employment Rights Act 1996 692 and in the
Equality Act 2010. 693
Solicitors
15-139
The Solicitors Act 1974 regulates the enforcement of agreements between solicitor and client as to
remuneration for non-contentious 694 and contentious 695 business, and provides for the determination
by the court of the fairness and reasonableness of any such agreement. 696 A provision in an
agreement with respect to contentious business that a solicitor shall not be liable for his negligence or
that of any employee of his, is void if the client is a natural person who, in entering that agreement, is
acting for purposes which are outside his trade, business or profession, and a provision in such an
agreement that the solicitor shall be relieved from any responsibility to which he would otherwise be
subject as a solicitor, is declared to be void by the Act. 697
Finance
Page 3
15-140
Any provision of the trust deed of an authorised unit trust scheme is void in so far as it would have
the effect of exempting the manager or trustee from liability for any failure to exercise due care and
diligence in a discharge of his functions in respect of the scheme. 698 The provisions of the Payment
Services Directive, 699 as implemented by the Payment Services Regulations 2009 700 are for the most
part 701 mandatory. 702
Commodities
15-141
The warranty of fitness of animal feeding stuffs implied by the Agriculture Act 1970 has effect
notwithstanding any contract or notice to the contrary. 703 Likewise the warranties arising from the
statutory statements which are required to be given by that Act in relation to fertilisers and feeding
stuffs, 704 and by regulations made under the Plant Varieties and Seeds Act 1964 in relation to seeds,
705
cannot be excluded.
Consumer protection legislation on unfair contract terms
15-142
As earlier noted, for contracts made before October 1, 2015 (when the relevant provisions of the
Consumer Rights Act 2015 came into force), 706 the Unfair Terms in Consumer Contracts
Regulations 1999 707 provide a general requirement of fairness for most of the terms which have not
been “individually negotiated” by the parties in consumer contracts and these terms clearly include
exemption clauses. 708 With the coming into force of the Consumer Rights Act 2015, the 1999
Regulations are revoked and the 2015 Act itself provides a general scheme for the control of unfair
terms in consumer contracts which combines most of the features of the general scheme in the 1999
Regulations and some of the special features until that point provided by the Unfair Contract Terms
Act 1977 (which will itself no longer apply to the terms of consumer contracts). This new law is also
discussed in Vol.II Ch.38. 709 As is also there explained, the 2015 Act creates a series of new
statutory terms treated as included in “goods contracts”, “digital content contracts” and “services
contracts” whose exclusion by agreement is generally excluded by the Act. 710
Mandatory character of much consumer protection legislation
15-143
Many legislative provisions setting out rights or other protections for consumers are expressly
mandatory in the sense that they may not be excluded or limited by the agreement of the contracting
parties, much of this legislation reflecting EU directives which so require. As a result, the liability of a
person by virtue of Pt I of the Consumer Protection Act 1987 to a person who has suffered damage
caused wholly or partly by a defect in a product, or to a dependant or relative of such a person,
cannot be limited by any contract term, by any notice or by any other provision. 711 The terms implied
by the Package Travel, Package Holidays and Package Tours Regulations 1992 712 and the strict
liability to the consumer imposed by reg.15 of those Regulations, are mandatory, 713 as are the
protections for consumers in relation to timeshare and other “holiday accommodation contracts”
provided by the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010. 714
The Electronic Commerce (EC Directive) Regulations 2002 impose a series of information duties on
providers of information society services in relation to contracts concluded by electronic means for the
benefit of all “recipients” of the service, and these may be excluded by agreement only where the
parties are not consumers. 715 While the Consumer Contracts (Information, Cancellation and
Page 4
Additional Charges) Regulations 2013 do not expressly make the duties of information and rights of
cancellation in offpremises contracts, distance contracts and other protections for consumers which
they create incapable of exclusion by the agreement, the EU directive which they implement
expressly so provides and this argues for their mandatory character by way of the principle of
conforming interpretation. 716
Consumer Credit Act 1974
15-144
The Consumer Credit Act 1974 generally forbids “contracting-out” of its provisions and renders a
contract term void if, and to the extent that, it is inconsistent with a provision for the protection of the
debtor or hirer or his relative or any surety contained in this Act or in any regulation made under this
Act. 717 Moreover, under s.140A of the Consumer Credit Act 1974 718 the court may make an order
under s.140B (which confers on the court wide powers to give directions to the parties and to set
aside or to alter contractual terms) in connection with a credit agreement if it determines that the
relationship between the creditor and the debtor arising out of the agreement (or the agreement taken
with any related agreement) is “unfair”. 719
Interest on commercial debts
15-145
By s.8 of the Late Payment of Commercial Debts (Interest) Act 1998 720 any contract terms are void to
the extent that they purport to exclude the right to statutory interest conferred by the Act in relation to
a debt for goods or services supplied, unless there is a substantial contractual remedy for late
payment of the debt. 721 The parties may not agree to vary the right to statutory interest in relation to
the debt unless either the right to statutory interest as varied or the overall remedy for late payment of
the debt is a substantial remedy. 722 Further, any contract terms are void to the extent that they
purport to confer a contractual right to interest that is not a substantial remedy for late payment of the
debt, or vary the right to statutory interest so as to provide for a right to statutory interest that is not a
substantial remedy for late payment of the debt, unless the overall remedy for late payment of the
debt is a substantial remedy. 723 The meaning of “substantial remedy” is set out in s.9 of the Act. It
requires (inter alia) an assessment whether or not it would be fair and reasonable to allow the remedy
to be relied on to oust (or as the case may be) to vary the right to statutory interest that would
otherwise apply in relation to the debt. 724 An injunction may in certain circumstances be applied for to
restrain the use of an offending term. 725
675. See below, Vol.II, Ch.36.
676. s.29 and see Vol.II, para.38-063. As from August 19, 2013, s.29 does not apply to anything
governed by Regulation (EU) No.181/2011 concerning the rights of passengers in bus and
coach transport and amending Regulation (EC) No.2006/2004 [2011] O.J. L55/1, art.6 of which
provides that the obligations which it contains cannot be excluded by the contract of transport.
See also s.149 of the Road Traffic Act 1988 (agreements between user and passenger) and
(passengers by rail) EC Regulation 1371/2007 [2007] O.J. L315/3 and the Rail Passengers
Rights and Obligations Regulations 2010 (SI 2010/1504).
677. Implementing the CMR (as amended by the Carriage by Air and Road Act 1979: see SI
1980/1966). See Vol.II, para.36-118.
678. Cmnd. 8535. See Vol.II, paras 36-079—36-081.
679. Implemented by the Railways (Convention on International Carriage by Rail) Regulations 2005
(SI 2005/2092).
Page 5
680. Appendix A (CIV).
681. Appendix B (CIM).
682. See the Carriage of Goods by Sea Act 1971 (Commencement) Order 1977 (SI 1977/981).
683. art.III r.8; The Hollandia [1983] 1 A.C. 565. But see Jindal Iron and Steel Co Ltd v Islamic
Solidarity Shipping Co Jordan Inc [2004] UKHL 49, [2005] 1 W.L.R. 1363 (transfer of
responsibility); Yuzhny Zavod Metall Profil LLC v Eems Beheerder BV [2013] 2 Lloyd’s Rep.487
.
684. See Merchant Shipping Act 1995 s.183 and Sch.6; SI 1987/670, SI 1998/2917. See R. G.
Mayor v P. & O. Ferries Ltd [1990] 2 Lloyd’s Rep. 144. See also the 2002 Protocol to the
Convention and SIs 2014/1355, 2014/1438, & 2014/1361.
685. Athens Convention art.18.
686. See below, Vol.II, Ch.35.
687. See also SI 1998/1751, SI 1999/1312, SI 2002/263, SI 2004/1418, SI 2004/1899, SI 2004/1974,

2005/975, 2006/3303, 2009/3018; European Parliament and Council Regulations 889/2002,
261/2004, 875/2004; Vol.II, paras 35-022—35-072.
688. SI 2004/1899. See also EC Regulation 889/2002. See Vol.II, para.35-018.
689. See Vol.II, para.42-123. See also s.149.
690. See Vol.II, paras 42-046, 42-060.
691. See above, para.14-018, Vol.II, para.37-083.
692. s.203. See Vol.II, Ch.40. See also Trade Union and Labour Relations (Consolidation) Act 1992
s.288; National Minimum Wage Act 1998 s.49; Employment Relations Act 1999 s.14.
693. ss.142–146.
694. Solicitors Act 1974 ss.56–58.
695. Solicitors Act 1974 ss.59–66.
696. Solicitors Act 1974 ss.57(5), 61(2) (as amended).
697. Solicitors Act 1974 s.60(5), (6), inserted by the Legal Services Act 2007 Sch.16 para.56(c).
698. Financial Services and Markets Act 2000 s.253. “Authorised unit trust scheme” is defined in
s.237.
699. Directive 2007/64/EC of the European Parliament and the Council on payment services in the
internal market [2007] O.J. L319/1.
700. SI 2009/209; see Vol.II, paras 34-223, 39-510.
701. cf. SI 2009/209 regs 33(3), 35(2), 51(3), 53(2) and (3).
702.
With general effect from January 13, 2018 the substantive provisions of the Payment
Services Regulations 2009 are revoked and replaced by the Payment Services Regulations
2017 (SI 2017/752) which implement in the UK Directive (EU) 2015/2366 of the European
Parliament and of the Council of 25 November 2015 on payment services in the internal market
[2015] O.J. L337/35 (“Second Payment Services Directive”). The 2017 Regulations reg.137
Page 6
provides that “a payment service provider may not agree with a payment service user that it will
not comply with any provision of these Regulations unless—(a) such agreement is permitted by
these Regulations, or (b) such agreement provides for terms which are more favourable to the
payment service user than the relevant provisions of these Regulations”. Provisions in the 2017
Regulations allowing the exclusion of certain of their requirements include regs 40(7), 42(2)(b)
and (c), 63(5) and 65(2).
703. Agriculture Act 1970 s.72(3).
704. Agriculture Act 1970 s.68(6).
705. Plant Varieties and Seeds Act 1964 ss.16, 17.
706.
Consequential Amendments) Order 2015 (SI 2015/1630) arts 3(c), (g) and 6(4). On which see
above, para.15-064.
707. SI 1999/2083, as amended: see Vol.II, paras 38-201 et seq.
708. 1999 Regulations reg.5 and see the examples in Sch.2 para.1(a) and (b).
709. Vol.II, paras 38-334 et seq. The detailed effects of the amendments of the 1977 Act made by
the 2015 are explained earlier in the present chapter at paras 15-064, 15-066 et seq.
710. The provisions in Pt 1 of the 2015 Act relating to the exclusion of liability are found in ss.31, 47
and 57, on which see Vol.II, paras 38-492 (goods contracts), 38-524 (digital content contracts)
and 38-545 (services contracts) (which each explain the exceptions to this general rule
rendering exemptions or limitations of liability not binding on the consumer). The new statutory
terms and their significance are discussed in Vol.II, paras 38-458 et seq. (goods contracts),
38-504 et seq. (digital content contracts) and 38-530 et seq. (services contracts).
711. Consumer Protection Act 1987 s.7.
712. SI 1992/3288 on which see Vol.II, paras 38-132—38-135.
713.
SI 1992/3288 reg.15(5); and cf. Directive 90/314/EEC of 13 June 1990 on package travel,
package holidays and package tours[1990] O.J. L158/59 art.5(2). Regulation 5(3) and (4)
provide exceptions to this position as regards cases where international conventions governing
the relevant services (where the limitations in those conventions apply) and as regards damage
other than personal injury (where a term limiting compensation is effective as long as not
unreasonable). The 1990 Directive is repealed and replaced by Directive (EU) 2015/2302 on
package travel and linked travel arrangements [2015] O.J. L326/1, art.23 of which provides for
the “imperative nature” of its provisions. See further Vol.II, para.38-134.
714. SI 2010/2960 reg.19; Directive 2008/122/EC on the protection of consumers in respect of

certain aspects of timeshare, long-term holiday product, resale and exchange contracts art.12
and see Vol.II, para.38-141.
715. Electronic Commerce Regulations 2002 reg.9(1) and (2) reflecting Directive 2000/31/EC on
certain legal aspects of information society services, in particular electronic commerce, in the
Internal Market (“Directive on electronic commerce”) [2000] O.J. L 178/17 arts 10 and 11 on
which see Vol.II, para.38-144.
716. Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 SI
2013/3134; Directive 2011/83/EU on consumer rights [2011] O.J. L304/64 art.25 on which see
Vol.II, paras 38-057 et seq. especially at 38-062. cf. Financial Services (Distance Marketing)
Regulations 2004 SI 2004/2095 reg.16(1) on which see Vol.II, para.38-131. cf. the position as
regard the new rights to redress created for consumers in respect of certain categories of unfair
commercial practices by amendments in 2014 to the Consumer Protection from Unfair Trading
Page 7
Regulations (SI 2008/1277) as amended by Consumer Protection (Amendment) Regulations

2014 (SI 2014/870), where a term seeking to exclude these rights is subject to the general
regime controlling terms in consumer contracts provided by the Unfair Terms in Consumer
Contracts Regulations 1999 or Pt 2 of the Consumer Rights Act 2015: see Vol.II, para.38-191.
717. Consumer Credit Act 1974 s.173.
718. Inserted by ss.19–22 of the Consumer Credit Act 2006.
719. See Vol.II, paras 39-212—39-229. cf. Maple Leaf Macro Volatility Master Fund v Rouvroy
[2009] EWHC 257 (Comm), [2009] 1 Lloyd’s Rep. 475 at [276]–[290].
720. As considerably amended: see below, paras 26-232 et seq.
721. Late Payment of Commercial Debts (Interest) Act 1998 (“1998 Act”) s.8(1).
722. 1998 Act s.8(3).
723. 1998 Act s.8(4).
724. 1998 Act s.9(1)(b).
725. Late Payment of Commercial Debts Regulations 2002 (SI 2002/1674).

Page 1

Section 7 - Common Law Qualifications
Misrepresentations as to effect of exemption clause
15-146
A party who misrepresents, whether fraudulently or otherwise, the terms or effect of an exemption
clause inserted by him in a contract will not be permitted to rely on it in the face of his
misrepresentation. In Curtis v Chemical Cleaning and Dyeing Co 726 the claimant took a dress to the
defendants’ shop to be cleaned. She was asked to sign a receipt which contained a clause exempting
the defendants from all liability for damage to the articles cleaned. When the claimant asked why she
was required to sign the receipt, the defendants’ employee replied that it merely covered risks such
as damage to the beads and sequins on the dress. The dress was returned to the claimant badly
stained. It was held that the defendants were not protected since their employee had represented the
effect of the exemption clause to be narrower than was, in fact, the case. If the misrepresentation
gives rise to a fundamental mistake as to the character of the document, non est factum may also be
pleaded. 727
Acknowledgments
15-147
Clauses are often inserted in standard form agreements whereby one party “acknowledges and
agrees” that he has “not been induced to enter into the contract by any representation of the other
party”, or that he has “examined the goods”, or that he has “not made known to the other party
expressly or by implication the purpose for which the goods are required”. In Lowe v Lombank Ltd 728
the Court of Appeal held that such a clause can only give rise to an estoppel, preventing the party
making the acknowledgment from asserting the contrary, and cannot operate as a positive contractual
obligation. Diplock J. said:
“To call it an agreement as well as an acknowledgment by the plaintiff cannot convert a

statement as to past facts, known by both parties to be untrue, into a contractual
obligation, which is essentially a promise by the promisor to the promisee that acts will be
done in the future or that facts exist at the time of the promise or will exist in the future.”
729
In the particular case, which concerned an acknowledgment by a hirer under a hire-purchase

agreement, 730 the court found that none of the requirements for an estoppel by representation was
satisfied, and so no estoppel arose. It has, however, more recently been said that:
“… there is no reason in principle why parties should not agree that a certain state of
affairs should form the basis for the transaction whether it be the case or not”
Page 2
and that, in such an event:
“… neither can subsequently deny the existence of the facts and matters upon which they
have agreed, at least so far as those aspects of the relationship to which their agreement
was directed.” 731
The contract itself then gives rise to an estoppel. 732 This analysis was followed in a number of cases
at first instance 733 and it has subsequently been endorsed by the Court of Appeal in Springwell
Navigation Corp v JP Morgan Chase Bank. 734 As a result, provided that an acknowledgement
clause is appropriately drafted as an agreement or contract, it can be effective by virtue of a
contractual estoppel and it is unnecessary to show, as suggested in Lowe v Lombank, that the
requirements for estoppel by representation have been satisfied. 735 Further, the Court of Appeal
stated that the words of Diplock J. quoted above:
“… are not binding authority for the far-reaching proposition that there can never be an
agreement in a contract that the parties are conducting their dealings on the basis that a
past event had not occurred or that a particular fact was the case, even if it was not the
case and both parties knew it was not.” 736
Collateral warranties and guarantees
15-148
A party who would otherwise be entitled to rely on an exemption clause will not be permitted to do so
if he gives an express oral warranty which runs counter to the tenor of the written exemption. 737 A
warranty given before the agreement is entered into may also be enforced as a collateral contract the
consideration of which is the entering into of the written agreement. 738 Thus in Webster v Higgin 739
an oral warranty as to the present condition of a car was enforced as a collateral contract in return for
which a contract of hire-purchase, which contained exempting provisions, was signed. Where goods
are sold or otherwise supplied to a consumer 740 which are offered with a consumer guarantee, the
guarantee takes effect as a contractual obligation owed by the guarantor under the conditions set out
in the guarantee statement and the associated advertising. 741 This obligation cannot be negatived by
an exemption clause in the contract of sale or supply.
Unreasonable provisions
15-149
It has been stated on a number of occasions that a clause which excludes or restricts liability should
not be given effect if it is unreasonable, or if it would be unreasonable to apply it in the circumstances
of the case, at least in contracts in standard form w

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Page 1

Chitty on Contracts 32nd Ed.

The different sources of contract law

© 2018 Sweet & Maxwell

Chitty on Contracts 32nd Ed.

The common law’s dominance of the general law

Writing in 1879 Sir William Anson observed:

Rules governing specific contracts

6. Below, para.1-014, and see Chs 2 and 4.

7. Below, Chs 3, 6, 7 and 8 respectively.

8. Below, Chs 13 and 14 respectively.

10. Below, Chs 21 (Performance); 22 (Discharge by agreement); 23 (Discharge by frustration); 24

11. Below, Ch.18.

12. Below, Chs 26 (Damages) and 27 (Specific performance and injunction).

13. Below, para.8-057.

14. Below, para.8-130.

15. Below, Ch.27.

16. Below, paras 4-086 et seq., 5-041 et seq.

18. See Vol.II, Ch.31.

20. See Vol.II, Ch.45.

21. See, in particular, as regards construction contracts: Vol.II, paras 37-019—37-023.

© 2018 Sweet & Maxwell

Chitty on Contracts 32nd Ed.

Increasing importance of statute

26. Mental Capacity Act 2005 s.7 and see para.9-096.

31. Bills of Sale Act 1878 (later amended).

32. Bills of Exchange Act 1882, see Vol.II, para.34-006.

33. Partnership Act 1890.

35. e.g. Landlord and Tenant Act 1954.

40. See Consumer Credit Act 1974 and Vol.II, Ch.39.

54. See Vol.II, Ch.39.

56. See Vol. II, paras 38-437—38-442.

57. Vol.II, Ch.38.

© 2018 Sweet & Maxwell

Chitty on Contracts 32nd Ed.

European Convention on Human Rights

60. Vol.II, para.36-003, paras 36-079 et seq.

61. See Vol.II, para.44-014.

62. Below, paras 1-057—1-094.

© 2018 Sweet & Maxwell

Chitty on Contracts 32nd Ed.

EU law governing contracts: the Union acquis

Towards a “European Contract Law”?

The Proposed Common European Sales Law (CESL) 79

© 2018 Sweet & Maxwell

Chitty on Contracts 32nd Ed.

European Union (Withdrawal) Bill 2017

The general preservation of the UK’s EU legislative acquis

Further issues arising from Brexit

© 2018 Sweet & Maxwell

Chitty on Contracts 32nd Ed.

Competing definitions of contract

Difficulties with “contract as promise”

However, analysis of contracts in terms of an enforceable promise or sets of enforceable promises

Difficulties with “contract as agreement”

Actual agreement not required

Agreement and consideration not sufficient

Enforcement of agreements under other rules

EU law definitions of contract

EU private international law